<PAGE>
As filed with the Securities and Exchange Commission on May 31, 1995
1933 Act File No. 33-71320
1940 Act File No. 811-8134
==============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933 [X]
POST-EFFECTIVE AMENDMENT NO. 3 [X]
REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940 [X]
AMENDMENT NO. 4 [X]
EATON VANCE MUNICIPALS TRUST II
-----------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
24 FEDERAL STREET, BOSTON, MASSACHUSETTS 02110
---------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
617-482-8260
-------------------------------
(REGISTRANT'S TELEPHONE NUMBER)
H. DAY BRIGHAM, JR., 24 FEDERAL STREET, BOSTON, MASSACHUSETTS 02110
------------------------------------------------
(NAME AND ADDRESS OF AGENT FOR SERVICE)
It is proposed that this Post-Effective Amendment will become effective on
June 1, 1995 pursuant to paragraph (b) of Rule 485.
The Registrant has filed a Declaration pursuant to Rule 24f-2 and on March
17, 1995 filed its "Notice" as required by that Rule for the fiscal year ended
January 31, 1995.
Florida Insured Tax Free Portfolio, Hawaii Tax Free Portfolio and Kansas Tax
Free Portfolio have each also executed this Registration Statement.
================================================================================
<PAGE>
This Amendment to the registration statement on Form N-1A consists of the
following documents and papers:
Cross Reference Sheet required by Rule 481(a) under the Securities Act of
1933
Part A -- The Combined Prospectuses of:
EV Classic Tax Free Funds:
EV Classic Florida Insured Tax Free Fund
EV Classic Hawaii Tax Free Fund
EV Classic Kansas Tax Free Fund
EV Marathon Tax Free Funds:
EV Marathon Florida Insured Tax Free Fund
EV Marathon Hawaii Tax Free Fund
EV Marathon Kansas Tax Free Fund
The Prospectus of EV Traditional Florida Insured Tax Free Fund
Part B -- The Combined Statements of Additional Information of:
EV Classic Tax Free Funds:
EV Classic Florida Insured Tax Free Fund
EV Classic Hawaii Tax Free Fund
EV Classic Kansas Tax Free Fund
EV Marathon Tax Free Funds:
EV Marathon Florida Insured Tax Free Fund
EV Marathon Hawaii Tax Free Fund
EV Marathon Kansas Tax Free Fund
The Statement of Additional Information of EV Traditional Florida
Insured Tax Free Fund
Part C -- Other Information
Signatures
Exhibit Index Required by Rule 483(a) under the Securities Act of 1933
Exhibits
This Amendment is not intended to amend the Prospectus and Statement of
Additional Information of any other series of the Registrant not identified
above.
<PAGE>
EATON VANCE MUNICIPALS TRUST II
EV CLASSIC FLORIDA INSURED TAX FREE FUND
EV CLASSIC HAWAII TAX FREE FUND
EV CLASSIC KANSAS TAX FREE FUND
CROSS REFERENCE SHEET
ITEMS REQUIRED BY FORM N-1A
---------------------------
PART A
ITEM NO. ITEM CAPTION PROSPECTUS CAPTION
- ----- ------------ ---------------------------
1. ................ Cover Page Cover Page
2. ................ Synopsis Shareholder and Fund Expenses
3. ................ Condensed Financial The Funds' Financial
Information Highlights;
Performance Information
4. ................ General Description of The Funds' Investment
Registrant Objective; How the Funds
and the Portfolios Invest
their Assets; Organization
of the Funds and the
Portfolios
5. ................ Management of the Fund Management of the Funds and
the Portfolios
5A. ............... Management's Discussion of Not Applicable
Fund Performance
6. ................ Capital Stock and Other Organization of the Funds
Securities and the Portfolios; The
Lifetime Investing
Account/Distribution
Options; Distributions
and Taxes
7. ................ Purchase of Securities Valuing Fund Shares, How to
Being Offered Buy Fund Shares; The
Lifetime Investing
Account/Distribution
Options; Distribution
Plans; The Eaton Vance
Exchange Privilege; Eaton
Vance Shareholder
Services
8. ................ Redemption or Repurchase How to Redeem Fund Shares
9. ................ Pending Legal Proceedings Not Applicable
PART B STATEMENT OF ADDITIONAL
ITEM NO. ITEM CAPTION INFORMATION CAPTION
- ----- ------- ---------------------------
10. ................ Cover Page Cover Page
11. ................ Table of Contents Table of Contents
12. ................ General Information and Other Information
History
13. ................ Investment Objectives and Additional Information
Policies about Investment
Policies; Investment
Restrictions
14. ................ Management of the Fund Trustees and Officers; Fees
and Expenses
15. ................ Control Persons and Control Persons and
Principal Holders of Principal Holders of
Securities Securities
16. ................ Investment Advisory and Investment Adviser and
Other Services Administrator;
Distribution Plan;
Custodian; Independent
Certified Public
Accountants; Fees and
Expenses
17. ................ Brokerage Allocation and Portfolio Security
Other Practices Transactions; Fees and
Expenses
18. ................ Capital Stock and Other Other Information
Securities
19. ................ Purchase, Redemption and Determination of Net Asset
Pricing of Securities Value; Principal
Being Offered Underwriter; Service for
Withdrawal; Distribution
Plan; Fees and Expenses
20. ................ Tax Status Taxes; Additional Tax
Matters; Tax Equivalent
Yield Table
21. ................ Underwriters Principal Underwriter; Fees
and Expenses
22. ................ Calculations of Performance Investment Performance;
Data Performance Information
23. ................ Financial Statements Financial Statements
<PAGE>
EATON VANCE MUNICIPALS TRUST II
EV MARATHON FLORIDA INSURED TAX FREE FUND
EV MARATHON HAWAII TAX FREE FUND
EV MARATHON KANSAS TAX FREE FUND
CROSS REFERENCE SHEET
ITEMS REQUIRED BY FORM N-1A
---------------------------
PART A
ITEM NO. ITEM CAPTION PROSPECTUS CAPTION
- ----- ------- ---------------------------
1. ................ Cover Page Cover Page
2. ................ Synopsis Shareholder and Fund
Expenses
3. ................ Condensed Financial The Funds' Financial
Information Highlights; Performance
Information
4. ................ General Description of The Funds' Investment
Registrant Objective; How the Funds
and the Portfolios Invest
their Assets;
Organization of the Funds
and the Portfolios
5. ................ Management of the Fund Management of the Funds and
the Portfolios
5A. ............... Management's Discussion of Not Applicable
Fund Performance
6. ................ Capital Stock and Other Organization of the Funds
Securities and the Portfolios; The
Lifetime Investing
Account/Distribution
Options; Distributions
and Taxes
7. ................ Purchase of Securities Valuing Fund Shares, How to
Being Offered Buy Fund Shares; The
Lifetime Investing
Account/Distribution
Options; Distribution
Plans; The Eaton Vance
Exchange Privilege; Eaton
Vance Shareholder
Services
8. ................ Redemption or Repurchase How to Redeem Fund Shares
9. ................ Pending Legal Proceedings Not Applicable
PART B STATEMENT OF ADDITIONAL
ITEM NO. ITEM CAPTION INFORMATION CAPTION
- ---- ------- ---------------------------
10. ................ Cover Page Cover Page
11. ................ Table of Contents Table of Contents
12. ................ General Information and Other Information
History
13. ................ Investment Objectives and Additional Information
Policies about Investment
Policies; Investment
Restrictions
14. ................ Management of the Fund Trustees and Officers
15. ................ Control Persons and Control Persons and
Principal Holders of Principal Holders of
Securities Securities
16. ................ Investment Advisory and Investment Adviser and
Other Services Administrator; Custodian;
Independent Certified
Public Accountants; Fees
and Expenses; Other
Information
17. ................ Brokerage Allocation and Portfolio Security
Other Practices Transactions; Fees and
Expenses
18. ................ Capital Stock and Other Other Information
Securities
19. ................ Purchase, Redemption and Determination of Net Asset
Pricing of Securities Value; Principal
Being Offered Underwriter; Service for
Withdrawal; Distribution
Plan; Fees and Expenses
20. ................ Tax Status Taxes; Additional Tax
Matters; Tax Equivalent
Yield Table
21. ................ Underwriters Principal Underwriter; Fees
and Expenses
22. ................ Calculations of Performance Investment Performance;
Data Performance Information
23. ................ Financial Statements Financial Statements
<PAGE>
EATON VANCE MUNICIPALS TRUST II
EV TRADITIONAL FLORIDA INSURED TAX FREE FUND
CROSS REFERENCE SHEET
ITEMS REQUIRED BY FORM N-1A
---------------------------
PART A
ITEM NO. ITEM CAPTION PROSPECTUS CAPTION
- ----- ------- ---------------------------
1. ................ Cover Page Cover Page
2. ................ Synopsis Shareholder and Fund
Expenses
3. ................ Condensed Financial Performance Information
Information
4. ................ General Description of The Fund's Investment
Registrant Objective; How the Fund
and the Portfolio Invest
their Assets;
Organization of the Fund
and the Portfolio
5. ................ Management of the Fund Management of the Fund and
the Portfolio
5A. ............... Management's Discussion of Not Applicable
Fund Performance
6. ................ Capital Stock and Other Organization of the Fund
Securities and the Portfolio; The
Lifetime Investing
Account/Distribution
Options; Distributions
and Taxes
7. ................ Purchase of Securities Valuing Fund Shares, How to
Being Offered Buy Fund Shares; The
Lifetime Investing
Account/Distribution
Options; Service Plan;
The Eaton Vance Exchange
Privilege; Eaton Vance
Shareholder Services
8. ................ Redemption or Repurchase How to Redeem Fund Shares
9. ................ Pending Legal Proceedings Not Applicable
PART B STATEMENT OF ADDITIONAL
ITEM NO. ITEM CAPTION INFORMATION CAPTION
- ----- ------- ---------------------------
10. ................ Cover Page Cover Page
11. ................ Table of Contents Table of Contents
12. ................ General Information and Other Information
History
13. ................ Investment Objectives and Additional Information
Policies about Investment
Policies; Investment
Restrictions;
14. ................ Management of the Fund Trustees and Officers; Fees
and Expenses
15. ................ Control Persons and Control Persons and
Principal Holders of Principal Holders of
Securities Securities
16. ................ Investment Advisory and Investment Adviser and
Other Services Administrator; Service
Plan; Custodian;
Independent Certified
Public Accountants; Fees
and Expenses
17. ................ Brokerage Allocation and Portfolio Security
Other Practices Transactions; Fees and
Expenses
18. ................ Capital Stock and Other Other Information
Securities
19. ................ Purchase, Redemption and Determination of Net Asset
Pricing of Securities Value; Principal
Being Offered Underwriter; Service for
Withdrawal; Services for
Accumulation; Service
Plan; Fees and Expenses
20. ................ Tax Status Taxes; Additional Tax
Matters; Tax Equivalent
Yield Table
21. ................ Underwriters Principal Underwriter; Fees
and Expenses
22. ................ Calculations of Performance Investment Performance;
Data Performance
Information
23. ................ Financial Statements Financial Statements
<PAGE>
Part A
Information Required in a Prospectus
EV CLASSIC TAX FREE FUNDS
EV CLASSIC FLORIDA INSURED TAX FREE FUND
EV CLASSIC HAWAII TAX FREE FUND
EV CLASSIC KANSAS TAX FREE FUND
THE EV CLASSIC TAX FREE FUNDS (THE "FUNDS") ARE MUTUAL FUNDS SEEKING TO
PROVIDE CURRENT INCOME EXEMPT FROM REGULAR FEDERAL INCOME TAX AND THEIR
RESPECTIVE STATE TAXES DESCRIBED UNDER "THE FUNDS" INVESTMENT OBJECTIVES" IN
THIS PROSPECTUS. EACH FUND INVESTS ITS ASSETS IN A CORRESPONDING NON-
DIVERSIFIED OPEN-END INVESTMENT COMPANY (A "PORTFOLIO") HAVING THE SAME
INVESTMENT OBJECTIVE AS THE FUND, RATHER THAN BY DIRECTLY INVESTING IN AND
MANAGING ITS OWN PORTFOLIO OF SECURITIES AS WITH HISTORICALLY STRUCTURED MUTUAL
FUNDS. EACH FUND IS A SERIES OF EATON VANCE MUNICIPALS TRUST II (THE "TRUST").
Shares of the Funds are not deposits or obligations of, or guaranteed or
endorsed by, any bank or other insured depository institution, and are not
federally insured by the Federal Deposit Insurance Corporation, the Federal
Reserve Board or any other government agency. Shares of the Funds involve
investment risks, including fluctuations in value and the possible loss of some
or all of the principal investment.
This combined Prospectus is designed to provide you with information you
should know before investing. Please retain this document for future reference.
A combined Statement of Additional Information dated June 1, 1995 for the Funds,
as supplemented from time to time, has been filed with the Securities and
Exchange Commission and is incorporated herein by reference. This Statement of
Additional Information is available without charge from the Funds' principal
underwriter, Eaton Vance Distributors, Inc. (the "Principal Underwriter"), 24
Federal Street, Boston, MA 02110 (telephone (800) 225-6265). The Portfolios'
investment adviser is Boston Management and Research (the "Investment Adviser"),
a wholly-owned subsidiary of Eaton Vance Management, and Eaton Vance Management
is the administrator (the "Administrator") of the Funds. The offices of the
Investment Adviser and the Administrator are located at 24 Federal Street,
Boston, MA 02110.
AS OF THE DATE OF THIS COMBINED PROSPECTUS, A FUND MAY NOT BE AVAILABLE FOR
PURCHASE IN CERTAIN STATES. PLEASE CONTACT THE PRINCIPAL UNDERWRITER OR YOUR
BROKER FOR FURTHER INFORMATION.
- ------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
PROSPECTUS DATED JUNE 1, 1995
<PAGE>
TABLE OF CONTENTS
Shareholder and Fund Expenses ....................................... 3
The Funds' Financial Highlights ..................................... 5
The Funds' Investment Objectives .................................... 6
How the Funds and the Portfolios Invest their Assets ................ 6
Organization of the Funds and the Portfolios ........................ 13
Management of the Funds and the Portfolios .......................... 15
Distribution Plans .................................................. 17
Valuing Fund Shares ................................................. 19
How to Buy Fund Shares .............................................. 20
How to Redeem Fund Shares ........................................... 21
Reports to Shareholders ............................................. 22
The Lifetime Investing Account/Distribution Options ................. 22
The Eaton Vance Exchange Privilege ................................. 23
Eaton Vance Shareholder Services .................................... 24
Distributions and Taxes ............................................. 25
Performance Information ............................................. 26
Appendix -- State Specific Information .............................. 28
<PAGE>
SHAREHOLDER AND FUND EXPENSES
- --------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES
Sales Charges Imposed on Purchases of Shares None
Sales Charges Imposed on Reinvested Distributions None
Fees to Exchange Shares None
Contingent Deferred Sales Charge Imposed on Redemptions
During the First Year (as a percentage of redemption proceeds
exclusive of all reinvestments and capital appreciation
in the account) 1.00%
ANNUAL FUND AND ALLOCATED PORTFOLIO OPERATING EXPENSES
(as a percentage of average daily net assets)
FLORIDA HAWAII KANSAS
INSURED FUND FUND FUND
------------ ------ ------
Investment Adviser Fee
(after fee reduction) 0.00% 0.00% 0.00%
Rule 12b-1 Distribution
(and Service) Fees 0.95 0.95 0.95
Other Expenses (after
expense reduction) 0.00 0.06 0.00
---- ---- ----
Total Operating Expenses
(after reductions) 0.95% 1.01% 0.95%
==== ==== ====
EXAMPLES
An investor would pay the following expenses (including a contingent deferred
sales charge in the case of redemption during the first year after purchase) on
a $1,000 investment, assuming (a) 5% annual return and (b) redemption at the end
of each time period:
FLORIDA HAWAII KANSAS
INSURED FUND FUND FUND
------------ ------ ------
1 Year ................. $20 $20 $20
3 Years ................. 30 32 30
5 Years ................. -- 56 52
10 Years ................. -- 124 117
An investor would pay the following expenses on the same investment, assuming
(a) 5% annual return and (b) no redemptions:
1 Year .................. $10 $10 $10
3 Years .................. 30 32 30
5 Years .................. -- 56 52
10 Years ................... -- 124 117
Notes:
The tables and Examples summarize the aggregate expenses of the Funds and
the Portfolios and are designed to help investors understand the costs and
expenses they will bear, directly or indirectly, by investing in a Fund.
Information for the Hawaii Fund and the Kansas Fund is based on such Fund's
expenses for the most recent fiscal year. Absent a fee reduction and an expense
allocation, the Investment Adviser Fee and Other Expenses would have been 0.16%
and 6.20%, respectively, for the Hawaii Fund, and 0.16% and 2.57%, respectively,
for the Kansas Fund. Because the Florida Insured Fund does not yet have a
sufficient operating history, the information for the Florida Insured Fund is
based on such Fund's estimated expenses for the current fiscal year. The
Investment Adviser Fee and Other Expenses for the Florida Insured Fund reflect
the expected fee reduction and expense allocation for the current fiscal year,
absent which the Investment Adviser Fee and Other Expenses would be estimated to
be 0.16% and 2.89%, respectively.
Each Fund invests exclusively in its corresponding Portfolio. The Trustees
believe that, over time, the aggregate per share expenses of a Fund and its
corresponding Portfolio should be approximately equal to, or less than, the per
share expenses the Fund would incur if the Fund were instead to retain the
services of an investment adviser and its assets were invested directly in the
types of securities being held by its corresponding Portfolio.
The Examples should not be considered a representation of past or future
expenses and actual expenses may be greater or less than those shown. Federal
regulations require the Examples to assume a 5% annual return, but actual annual
return will vary. For further information regarding the expenses of both the
Funds and the Portfolios see "Organization of the Funds and the Portfolios" and
"How to Redeem Fund Shares". A long-term shareholder in a Fund paying Rule 12b-1
Distribution Fees may pay more than the economic equivalent of the maximum
front-end sales charge permitted by the rules of the National Assocation of
Securities Dealers, Inc.
The contingent deferred sales charge is imposed on the redemption of shares
purchased on or after January 30, 1995. No contingent deferred sales charge is
imposed on (a) shares purchased more than one year prior to redemption, (b)
shares acquired through the reinvestment of distributions or (c) any
appreciation in value of other shares in the account, and no such charge is
imposed on exchanges of Fund shares for shares of one or more other funds listed
under "The Eaton Vance Exchange Privilege." See "How to Redeem Fund Shares."
Each Portfolio's monthly advisory fee has two components, a fee based on
daily net assets and a fee based on daily gross income, as set forth in the fee
schedule on page 15.
Other investment companies with different distribution arrangements and fees
are investing in the Portfolios and additional such companies and investors may
do so in the future. See "Organization of the Funds and the Portfolios".
<PAGE>
THE FUNDS' FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The following information should be read in conjunction with the audited
financial statements included in the Statement of Additional Information, all of
which have been so included in reliance upon the report of Deloitte & Touche
LLP, independent certified public accountants, as experts in accounting and
auditing, which report is contained in the Statement of Additional Information.
Further information regarding the performance of a Fund is contained in its
annual report to shareholders which may be obtained without charge by contacting
the Principal Underwriter.
- --------------------------------------------------------------------------------
FLORIDA HAWAII KANSAS
INSURED FUND* FUND* FUND*
------------- ------ -------
NET ASSET VALUE, beginning of period $10.000 $10.000 $10.000
------- ------- -------
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income ............. $ 0.281 $ 0.365 $ 0.379
Net realized and unrealized loss
on investments++ ................ (0.200) (0.880) (0.386)
------- ------- -------
Total income (loss) from
investment operations .......... $ 0.081 $(0.515) $(0.007)
------- ------- -------
LESS DISTRIBUTIONS:
From net investment income ........ $(0.281) $(0.365) $(0.379)
In excess of net investment income (0.050) (0.080) (0.074)
------- ------- -------
Total distributions ............. $(0.331) $(0.445) $(0.453)
------- ------- -------
NET ASSET VALUE, end of period ...... $ 9.750 $ 9.040 $ 9.540
------- ------- -------
TOTAL RETURN(1) ..................... 0.82% (5.23)% (0.11)%
RATIOS/SUPPLEMENTAL DATA**:
Net assets, end of period
(000's omitted) .................. $ 1,487 $ 257 $ 665
Ratio of net
expenses to average
daily net assets(2) .............. 0.95%+ 1.01%+ 0.95%+
Ratio of net investment
income to average daily
net assets ....................... 4.37%+ 4.44%+ 4.32%+
**The operating expenses of the Funds and the Portfolios may reflect an
allocation of expenses to the Administrator or a reduction of fees by the
Investment Adviser. Had such actions not been taken, net investment income
(loss) per share and the ratios would have been as follows:
NET INVESTMENT INCOME (LOSS)
PER SHARE $ 0.085 $(0.153) $ 0.139
-------- ------- -------
RATIOS (As a percentage of
average daily net assets):
Expenses(2) 4.00%+ 7.31%+ 3.68%+
Net investment income (loss) 1.32%+ (1.86)%+ 1.59%+
*For the Florida Insured, Hawaii and Kansas Funds, the Financial Highlights
are for the period from the start of business, June 15, 1994, March 14,
1994, and March 3, 1994, respectively, to January 31, 1995.
+Computed on an annualized basis.
++The per share amount is not in accord with the net realized and unrealized
gain for the period because of the timing of sales of Fund shares and the
amount of per share realized and unrealized gains and losses at such time.
(1) Total return is calculated assuming a purchase at the net asset value on the
first day and a sale at the net asset value on the last day of each period
reported. Dividends and distributions, if any, are assumed to be reinvested
at the net asset value on the payable date. Computed on a non-annualized
basis.
(2)Includes a Fund's share of its corresponding Portfolio's allocated expenses.
<PAGE>
THE FUNDS' INVESTMENT OBJECTIVES
- --------------------------------------------------------------------------------
The investment objective of each Fund is set forth below. Each Fund currently
seeks to meet its investment objective by investing its assets in a separate
corresponding open-end management investment company (a "Portfolio") which
invests primarily in municipal obligations (as described below). Each Portfolio
has the same investment objective as its corresponding Fund.
EV CLASSIC FLORIDA INSURED TAX FREE FUND (the "Florida Insured Fund") seeks to
provide current income exempt from regular Federal income tax in the form of an
investment exempt from Florida intangibles tax. The Florida Insured Fund seeks
to meet its objective by investing its assets in the Florida Insured Tax Free
Portfolio (the "Florida Insured Portfolio"), which invests primarily in
municipal obligations that are rated in the highest rating category by a major
rating agency or, if unrated, determined to be of comparable quality by the
Investment Adviser. Under normal conditions, substantially all of the Florida
Insured Portfolio's assets will be invested in obligations that are insured as
to the timely payment of principal and interest. See "Insured Florida
Obligations." In any event, no less than 80% of the Florida Insured Portfolio's
net assets will be invested in insured obligations.
EV CLASSIC HAWAII TAX FREE FUND (the "Hawaii Fund") seeks to provide current
income exempt from regular Federal income tax and Hawaii State individual income
taxes. The Hawaii Fund seeks to meet its objective by investing its assets in
the Hawaii Tax Free Portfolio (the "Hawaii Portfolio"), which invests primarily
in municipal obligations that are rated at least investment grade by a major
rating agency or, if unrated, determined to be of at least investment grade
quality by the Investment Adviser.
EV CLASSIC KANSAS TAX FREE FUND (the "Kansas Fund") seeks to provide current
income exempt from regular Federal income tax and Kansas State personal income
taxes. The Kansas Fund seeks to meet its objective by investing its assets in
the Kansas Tax Free Portfolio (the "Kansas Portfolio"), which invests primarily
in municipal obligations that are rated at least investment grade by a major
rating agency or, if unrated, determined to be of at least investment grade
quality by the Investment Adviser.
HOW THE FUNDS AND THE PORTFOLIOS INVEST THEIR ASSETS
- --------------------------------------------------------------------------------
EACH FUND SEEKS TO ACHIEVE ITS INVESTMENT OBJECTIVE BY INVESTING EITHER DIRECTLY
OR INDIRECTLY THROUGH ANOTHER OPEN-END MANAGEMENT INVESTMENT COMPANY PRIMARILY
(I.E., AT LEAST 80% OF ITS NET ASSETS DURING PERIODS OF NORMAL MARKET
CONDITIONS) IN DEBT OBLIGATIONS ISSUED BY OR ON BEHALF OF ITS CORRESPONDING
STATE AND ITS POLITICAL SUBDIVISIONS, AND THE GOVERNMENTS OF PUERTO RICO, THE
U.S. VIRGIN ISLANDS AND GUAM, THE INTEREST ON WHICH IS EXEMPT FROM REGULAR
FEDERAL INCOME TAX, IS NOT A TAX PREFERENCE ITEM UNDER THE FEDERAL ALTERNATIVE
MINIMUM TAX AND IS EXEMPT FROM THE STATE TAXES SET FORTH ABOVE. The foregoing
policy is a fundamental policy of each Fund and its corresponding Portfolio, and
may not be changed unless authorized by a vote of the Fund's shareholders or
that Portfolio's investors, as the case may be.
At least 75% of the Hawaii Portfolio's and the Kansas Portfolio's net assets
will normally be invested in obligations rated at least investment grade at the
time of investment (which are those rated Baa or higher by Moody's Investors
Service, Inc. ("Moody's") or BBB or higher by either Standard & Poor's Ratings
Group ("S&P") or Fitch Investors Service, Inc. ("Fitch")) or, if unrated,
determined by the Investment Adviser to be of at least investment grade quality.
The balance of the Hawaii Portfolio's and the Kansas Portfolio's net assets may
be invested in municipal obligations rated below investment grade (but not lower
than B by Moody's, S&P or Fitch) and unrated municipal obligations considered to
be of comparable quality by the Investment Adviser. At least 80% of the Florida
Insured Portfolio's net assets will normally be invested in obligations rated in
the highest rating category at the time of investment (which is Aaa by Moody's
or AAA by S&P or Fitch) or, if unrated, determined to be of comparable quality
by the Investment Adviser. The Florida Insured Portfolio may invest up to 20% of
its net assets in obligations rated below Aaa or AAA (but not lower than B) and
comparable unrated obligations, provided that no more than 5% of its net assets
will be invested in obligations rated below investment grade and comparable
unrated obligations. Municipal obligations rated Baa or BBB may have speculative
characteristics. Also, changes in economic conditions or other circumstances are
more likely to lead to a weakened capacity to make principal and interest
payments than in the case of higher rated obligations. Securities rated below
Baa or BBB are commonly known as "junk bonds". A Portfolio may retain an
obligation whose rating drops below B after its acquisition if such retention is
considered desirable by the Investment Adviser. See "Credit Quality -- Risks".
For a description of municipal obligation ratings, see the Statement of
Additional Information.
MUNICIPAL OBLIGATIONS. Municipal obligations include bonds, notes and commercial
paper issued by a municipality for a wide variety of both public and private
purposes. Public purpose municipal bonds include general obligation and revenue
bonds. General obligation bonds are backed by the taxing power of the issuing
municipality. Revenue bonds are backed by the revenues of a project or facility.
Municipal notes include bond anticipation, tax anticipation, revenue
anticipation, and construction loan notes. Bond, tax and revenue anticipation
notes are short-term obligations that will be retired with the proceeds of an
anticipated bond issue, tax revenue or facility revenue, respectively.
Construction loan notes are short-term obligations that will be retired with the
proceeds of long-term mortgage financing. Under normal market conditions, a
Portfolio will invest at least 65% of its total assets in obligations issued by
its respective State or its political subdivisions.
Interest on certain "private activity bonds" issued after August 7, 1986 is
exempt from regular Federal income tax, but such interest (including a
distribution by a Fund derived from such interest) is treated as a tax
preference item which could subject the recipient to or increase the recipient's
liability for the Federal alternative minimum tax. A Portfolio may not invest
more than 20% of its net assets in these obligations and obligations that pay
interest subject to regular Federal income tax and/or the relevant State taxes.
As at January 31, 1995, the Portfolios had invested in private activity bonds as
follows (as a percentage of net assets): Florida Insured Portfolio (16.4%);
Hawaii Portfolio (19.0%); and Kansas Portfolio (3.7%). For corporate
shareholders, each Fund's distributions derived from interest on all municipal
obligations (whenever issued) is included in "adjusted current earnings" for
purposes of the Federal alternative minimum tax as applied to corporations (to
the extent not already included in alternative minimum taxable income as income
attributable to private activity bonds).
Market discount on long-term tax-exempt municipal obligations (i.e.,
obligations with a term of more than one year) purchased in the secondary market
after April 30, 1993 is taxable as ordinary income. A long-term debt obligation
is generally treated as acquired at a market discount if the secondary market
purchase price is less than (i) the stated principal amount payable at maturity,
in the case of an obligation that does not have original issue discount, or (ii)
in the case of an obligation that does have original issue discount, the sum of
the issue price and any original issue discount that accrued before the
obligation was purchased, subject to a de minimus amount. Each Portfolio may
acquire municipal obligations at a market discount from time to time, and its
corresponding Fund's distributions will (when so required) include taxable
income reflecting the realization of such accrued discount by the Portfolio and
its allocation to the Fund.
MATURITY. It is expected that each Portfolio will normally contain substantial
amounts of long-term municipal obligations with maturities of ten years or more
because such long-term obligations generally produce higher income than
short-term obligations. Such long-term obligations are more susceptible to
market fluctuations resulting from changes in interest rates than shorter term
obligations. Since each Portfolio's objective is to provide current income, each
Portfolio will invest in obligations with an emphasis on income and not on
stability of a Portfolio's net asset value. The average maturity of a
Portfolio's holdings may vary (generally between 15 and 30 years) depending on
anticipated market conditions.
Although each Portfolio will normally attempt to invest substantially all of
its assets in municipal obligations issued by its respective State, a Portfolio
may, under normal market conditions, invest up to 20% of its net assets in
short-term obligations the interest on which is subject to regular Federal
income tax, is a tax preference item for purposes of the Federal alternative
minimum tax and/or is subject to the relevant State taxes. Such short-term
taxable obligations may include 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, a Portfolio may temporarily invest more than 20% of its assets in
such short-term taxable obligations, which will be rated no lower than
investment grade.
CONCENTRATION. Each Portfolio will concentrate its investments in municipal
obligations issued by its respective State. Each Portfolio is, therefore, more
susceptible to factors adversely affecting issuers in one State than mutual
funds which do not concentrate in a specific State. Municipal obligations of
issuers in a single State may be adversely effected by economic developments and
by legislation and other governmental activities in that State. To the extent
that a Portfolio's assets are concentrated in municipal obligations of issuers
of a single State, that Portfolio may be subject to an increased risk of loss.
Each Portfolio may also invest in obligations issued by the governments of
Puerto Rico, the U.S. Virgin Islands and Guam. See the Appendix to this
Prospectus for a description of economic and other factors relating to the
relevant States and Puerto Rico.
In addition, each Portfolio may invest 25% or more of its assets in
municipal obligations of the same type, including, without limitation, the
following: general obligations of its respective State and its political
subdivisions; lease rental obligations of State and local authorities;
obligations of State and local housing finance authorities, municipal utilities
systems or public housing authorities; obligations for hospitals or life care
facilities; or industrial development or pollution control bonds issued for
electric utility systems, steel companies, paper companies or other purposes.
This may make a Portfolio more susceptible to adverse economic, political, or
regulatory occurrences affecting a particular category of issuer. For example,
health care-related issuers are susceptible to medicaid reimbursement policies,
and national and state health care legislation. As a Portfolio's concentration
increases, so does the potential for fluctuation in the value of the
corresponding Fund's shares.
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EACH FUND AND PORTFOLIO HAVE ADOPTED CERTAIN FUNDAMENTAL INVESTMENT RESTRICTIONS
WHICH ARE ENUMERATED IN DETAIL IN THE STATEMENT OF ADDITIONAL INFORMATION AND
WHICH MAY NOT BE CHANGED UNLESS AUTHORIZED BY A SHAREHOLDER VOTE AND AN INVESTOR
VOTE, RESPECTIVELY. EXCEPT FOR SUCH ENUMERATED RESTRICTIONS AND AS OTHERWISE
INDICATED IN THIS PROSPECTUS, THE INVESTMENT OBJECTIVE AND POLICIES OF EACH FUND
AND PORTFOLIO ARE NOT FUNDAMENTAL POLICIES AND ACCORDINGLY MAY BE CHANGED BY THE
TRUSTEES OF THE TRUST AND THE PORTFOLIO WITHOUT OBTAINING THE APPROVAL OF A
FUND'S SHAREHOLDERS OR THE INVESTORS IN THE CORRESPONDING PORTFOLIO, AS THE CASE
MAY BE. IF ANY CHANGES WERE MADE IN A FUND'S INVESTMENT OBJECTIVE, THE FUND
MIGHT HAVE INVESTMENT OBJECTIVES DIFFERENT FROM THE OBJECTIVE WHICH AN INVESTOR
CONSIDERED APPROPRIATE AT THE TIME THE INVESTOR BECAME A SHAREHOLDER IN THE
FUND.
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NON-DIVERSIFIED STATUS. Each Portfolio's classification under the Investment
Company Act of 1940 as a "non-diversified" investment company allows it to
invest, with respect to 50% of its assets, more than 5% of its assets in the
securities of any issuer. Because of the small number of municipal obligations
issued by a State, a Portfolio is likely to invest a greater percentage of its
assets in the securities of a single issuer than would a diversified fund.
Therefore, a Portfolio would be more susceptible to any single adverse economic
or political occurrence or development affecting issuers of the relevant State's
municipal obligations. A Portfolio will also be subject to an increased risk of
loss if the issuer is unable to make interest or principal payments or if the
market value of such securities declines. It is also possible that sufficient
suitable State municipal obligations will not be available for a Portfolio to
achieve its investment objective.
MUNICIPAL LEASES. Each Portfolio may invest in municipal leases and
participations therein, which arrangements frequently involve special risks.
Municipal leases are obligations in the form of a lease or installment purchase
arrangement which is entered into 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 asset 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 arrangements are,
therefore, subject to the risk that the governmental issuer will not appropriate
funds for lease payments.
Certain municipal lease obligations owned by a Portfolio may be deemed
illiquid for purposes of the Portfolio's 15% limitation on investing in illiquid
securities, unless determined by the Investment Adviser, pursuant to guidelines
adopted by the Trustees of each Portfolio, to be liquid securities for the
purpose of such limitation. In determining the liquidity of municipal lease
obligations, the Investment Adviser will consider a variety of factors
including: (1) the willingness of dealers to bid for the security; (2) the
number of dealers willing to purchase or sell the obligation and the number of
other potential buyers; (3) the frequency of trades and quotes for the
obligation; and (4) the nature of the marketplace trades. In addition, the
Investment Adviser will consider factors unique to particular lease obligations
affecting the marketability thereof. These include the general creditworthiness
of the municipality, the importance of the property covered by the lease to the
municipality, and the likelihood that the marketability of the obligation will
be maintained throughout the time the obligation is held by a Portfolio. In the
event a Portfolio acquires an unrated municipal lease obligation, the Investment
Adviser will be responsible for determining the credit quality of such
obligation on an ongoing basis, including an assessment of the likelihood that
the lease may or may not be cancelled.
ZERO COUPON BONDS. Each Portfolio may invest in zero coupon bonds, which are
debt obligations that do not require the periodic payment of interest and are
issued at a significant discount from their face value. Such bonds experience
greater volatility in market value due to changes in interest rates than
municipal obligations that provide for regular payments of interest. A Portfolio
will accrue income on such bonds for tax and accounting purposes in accordance
with applicable law; as a regulated investment company, the corresponding Fund
must distribute its share of such income to its shareholders. Because no cash is
received at the time such income is accrued, a Portfolio may be required to
liquidate other portfolio securities to generate cash that a Fund may withdraw
from the Portfolio to satisfy the Fund's distribution obligations.
INVERSE FLOATERS. Each Portfolio may invest in various types of derivative
municipal securities whose interest rates bear an inverse relationship to the
interest rate on another security or the value of an index ("inverse floaters").
Derivatives are securities that provide for payments based on or derived from
the performance of an underlying asset, index or other economic benchmark. An
investment in derivative instruments, such as inverse floaters, may involve
greater risk than an investment in a fixed rate bond. Because changes in the
interest rate on the other security or index inversely affect the residual
interest paid on the inverse floater, the value of an inverse floater is
generally more volatile than that of a fixed rate bond. Inverse floaters have
interest rate adjustment formulas which generally reduce or, in the extreme,
eliminate the interest paid to the Portfolio when short-term interest rates
rise, and increase the interest paid to the Portfolio when short-term interest
rates fall. Inverse floaters have varying degrees of liquidity, and the market
for these securities is thin and relatively volatile. These securities tend to
underperform the market for fixed rate bonds in a rising interest rate
environment, but tend to outperform the market for fixed rate bonds when
interest rates decline. Shifts in the relationship between short-term and
long-term interest rates may alter this tendency, however. Although volatile,
inverse floaters typically offer the potential for yields exceeding the yields
available on fixed rate bonds with comparable credit quality and maturity. These
securities usually permit the investor to convert the floating rate to a fixed
rate (normally adjusted downward), and this optional conversion feature may
provide a partial hedge against rising interest rates if exercised at an
opportune time. Inverse floaters are leveraged because they provide two or more
dollars of bond market exposure for every dollar invested.
CREDIT QUALITY -- RISKS. Many municipal obligations offering current income are
in the lowest investment grade category (Baa or BBB), lower categories or may be
unrated. As indicated above, each Portfolio may invest in municipal obligations
rated below investment grade (but not lower than B by Moody's, S&P or Fitch) and
comparable unrated obligations. The lowest investment grade, lower rated and
comparable unrated municipal obligations in which a Portfolio may invest will
have speculative characteristics in varying degrees. While such obligations may
have some quality and protective characteristics, these characteristics can be
expected to be offset or outweighed by uncertainties or major risk exposures to
adverse conditions. Lower rated and comparable unrated municipal obligations are
subject to the risk of an issuer's inability to meet principal and interest
payments on the obligations (credit risk) and may also be subject to greater
price volatility due to such factors as interest rate sensitivity, market
perception of the creditworthiness of the issuer and general market liquidity
(market risk). Lower rated or unrated municipal obligations are also more likely
to react to real or perceived developments affecting market and credit risk than
are more highly rated obligations, which react primarily to movements in the
general level of interest rates. Each Portfolio may retain defaulted obligations
in its portfolio when such retention is considered desirable by the Investment
Adviser. In the case of a defaulted obligation, a Portfolio may incur additional
expense seeking recovery of its investment. Municipal obligations held by a
Portfolio which are rated below investment grade but which, subsequent to the
assignment of such rating, are backed by escrow accounts containing U.S.
Government obligations may be determined by the Investment Adviser to be of
investment grade quality for purposes of the Portfolio's investment policies.
Each Portfolio may retain in its portfolio an obligation whose rating drops
below B after its acquisition, if such retention is considered desirable by the
Investment Adviser; provided, however, that holdings of obligations rated below
Baa or BBB will not exceed 35% of net assets. In the event the rating of an
obligation held by a Portfolio is downgraded, causing the Portfolio to exceed
this limitation, the Investment Adviser will (in an orderly fashion within a
reasonable period of time) dispose of such obligations as it deems necessary in
order to comply with its credit quality limitations. For a description of
municipal obligation ratings, see the Statement of Additional Information.
INSURED FLORIDA OBLIGATIONS. Insured municipal obligations held by the Florida
Insured Portfolio ("Florida obligations") will be insured as to their scheduled
payment of principal and interest under (i) an insurance policy obtained by the
issuer or underwriter of the Florida obligation at the time of its original
issuance ("Issue Insurance"), (ii) an insurance policy obtained by the Florida
Insured Portfolio or a third party subsequent to the Florida obligation's
original issuance ("Secondary Market Insurance") or (iii) a municipal insurance
policy purchased by the Florida Insured Portfolio ("Mutual Fund Insurance").
Each type of insurance insures the timely payment of interest and principal of
the Florida obligation but does not protect the market value of such obligation
or the net asset value of the Florida Insured Portfolio or the Florida Insured
Fund.
Issue Insurance is generally purchased by the issuer or underwriter of the
Florida obligation and is noncancellable and effective as long as the securities
are unpaid and the insurer remains in business. Secondary Market Insurance
allows the Florida Insured Portfolio or a third party to a pay a single premium
to insure a Florida obligation as to principal and interest until maturity and
to transfer the insurance benefit with the underlying security. Secondary Market
Insurance premiums do not result in an expense to the Florida Insured Portfolio,
but are added to the cost basis of the Florida obligation so insured. Mutual
Fund Insurance may be purchased from insurance companies that guarantee the
timely payment of interest and principal when due on certain Florida obligations
that are designated by the insurer as eligible for such insurance. Mutual Fund
Insurance may terminate upon the Florida Insured Portfolio's sale of the
obligation or it may be extended to enhance the marketability of the obligation.
To extend a policy, the Florida Insured Portfolio will pay a single,
predetermined premium payable from the proceeds of the sale of that obligation.
It is expected that the Florida Insured Portfolio will extend a policy only if,
in the opinion of the Investment Adviser, the net proceeds from the sale of the
obligation, as insured, would exceed the proceeds from the sale of that
obligation without insurance. The price of Florida obligations insured by Mutual
Fund Insurance is expected to be more volatile than the price of Florida
obligations insured by Issue or Secondary Market Insurance. To the extent the
Florida Insured Portfolio's obligations are insured by Mutual Fund Insurance,
the value of the Florida Insured Fund's investment in the Florida Insured
Portfolio, and the price of the Florida Insured Fund's shares, will be more
volatile than if such obligations were otherwise insured.
Florida obligations held by the Florida Insured Portfolio will be insured by
insurers having a claims-paying ability rated Aaa by Moody's or AAA by S&P or
Fitch. See the Appendix to the Statement of Additional Information for a brief
description of the claims-paying ability ratings.
The Florida Insured Portfolio anticipates that under normal conditions all
or substantially all of its Florida obligations will be subject to Issue
Insurance or Secondary Market Insurance. If the Florida Insured Portfolio
purchases Mutual Fund Insurance, premiums are paid by the Florida Insured
Portfolio. These premiums are based on the credit quality and principal amount
of the Florida obligation to be insured. If the issuer, underwriter, or other
third party purchases the insurance for the obligation, the value of such
insurance is generally reflected in a higher market value or purchase price for
the obligation. While insurance is intended to reduce financial risk, the cost
of such insurance (from higher purchase prices of securities or the payment of
insurance premiums) will result in lower yields on the Florida obligations so
insured.
The Florida Insured Portfolio may also invest in Florida obligations that
are secured by an escrow or trust account which contains securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities, that are
backed by the full faith and credit of the United States, and sufficient in
amount to ensure the payment of interest on and principal of the secured Florida
obligation ("collateralized obligations"). Collateralized obligations generally
are regarded as having the credit characteristics of the underlying U.S.
Government, agency or instrumentality securities. These obligations will not be
subject to Issue Insurance, Secondary Market Insurance or Mutual Fund Insurance,
but will be considered to be insured Florida obligations for purposes of the
Florida Insured Portfolio's policy of investing at least 80% of its net assets
in insured Florida obligations (but such obligations will not constitute more
than 15% of the insured portion of the Florida Insured Portfolio).
OTHER INSURED OBLIGATIONS. Each Portfolio may purchase municipal bonds that are
additionally secured by insurance, bank credit agreements, or escrow accounts.
The credit quality of companies which provide such credit enhancements will
affect the value of those securities. Although the insurance feature reduces
certain financial risks, the premiums for insurance and the higher market price
paid for insured obligations may reduce a Fund's current yield. Insurance
generally will be obtained from insurers with a claims-paying ability rated Aaa
by Moody's or AAA by S&P or Fitch. The insurance does not guarantee the market
value of the insured obligations or the net asset value of a Fund's shares.
MARKET CONDITIONS. The management of the Portfolios believes that, in general,
the secondary market for some municipal obligations issued within a State
(including issues which are privately placed with a Portfolio) is less liquid
than that for taxable debt obligations or for large issues of municipal
obligations that trade in a national market. No established resale market exists
for certain of the municipal obligations in which a Portfolio may invest. The
market for obligations rated below investment grade is also likely to be less
liquid than the market for higher rated obligations. These considerations may
restrict the availability of such obligations, may affect the choice of
securities sold to meet redemption requests and may limit a Portfolio's ability
to sell or dispose of such securities. Also, valuation of such obligations may
be more difficult.
NET ASSET VALUE FLUCTUATION. The net asset value of shares of a Fund will change
in response to fluctuations in prevailing interest rates and changes in the
value of the securities held by its corresponding Portfolio. When interest rates
decline, the value of securities held by a Portfolio can be expected to rise.
Conversely, when interest rates rise, the value of most portfolio security
holdings can be expected to decline. Changes in the credit quality of the
issuers of municipal obligations held by a Portfolio will affect the principal
value (and possibly the income earned) on such obligations. An investment in
shares of a Fund will not constitute a complete investment program.
SHORT-TERM TRADING. Each Portfolio may sell securities in anticipation of a
market decline (a rise in interest rates) or purchase and later sell securities
in anticipation of a market rise (a decline in interest rates). In addition, a
security may be sold and another purchased at approximately the same time to
take advantage of what a Portfolio believes to be a temporary disparity in the
normal yield relationship between the two securities. Yield disparities may
occur for reasons not directly related to the investment quality of particular
issues or the general movement of interest rates, such as changes in the overall
demand for or supply of various types of municipal obligations or changes in the
investment objectives of investors. Such trading may be expected to increase
portfolio turnover rate and the expenses incurred in connection with such
trading. Each Portfolio anticipates that its annual portfolio turnover rate will
generally not exceed 100% (excluding turnover of securities having a maturity of
one year or less).
WHEN-ISSUED SECURITIES. Each Portfolio may purchase securities on a "when-
issued" basis, which means that payment and delivery occur on a future
settlement date. The price and yield of such securities are generally fixed on
the date of commitment to purchase. However, the market value of the securities
may fluctuate prior to delivery and upon delivery the securities may be worth
more or less than a Portfolio agreed to pay for them. A Portfolio will not
accrue income in respect of when-issued securities prior to the stated delivery
date of such securities. Each Portfolio will maintain in a segregated account
sufficient assets to cover its outstanding purchase obligations so long as such
obligations continue. Each Portfolio may also purchase instruments that give the
Portfolio the option to purchase a municipal obligation when and if issued.
FUTURES TRANSACTIONS. Each Portfolio may purchase and sell various kinds of
futures contracts and options thereon to hedge against changes in interest
rates. The futures contracts may be based on various debt securities (such as
U.S. Government securities), securities indices and other financial instruments
and indices. Such transactions involve a risk of loss or depreciation due to
unanticipated adverse changes in securities prices, which may exceed a
Portfolio's initial investment in these contracts. A Portfolio may not purchase
or sell futures contracts or related options, except for closing purchase or
sale transactions, if immediately thereafter the sum of the amount of margin
deposits and premiums paid on the Portfolio's outstanding positions would exceed
5% of the market value of the Portfolio's net assets. Nonetheless, at least 80%
of a Portfolio's net assets will be invested in municipal obligations. These
transactions involve transaction costs. There can be no assurance that the
Investment Adviser's use of futures will be advantageous to a Portfolio.
Distributions by a Fund of any gains realized on its corresponding Portfolio's
transactions in futures and options on futures will be taxable.
ORGANIZATION OF THE FUNDS AND THE PORTFOLIOS
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Each Fund is a non-diversified series of Eaton Vance Municipals Trust II, a
business trust established under Massachusetts law pursuant to a Declaration of
Trust dated October 25, 1993, as amended. The Trust is a mutual fund -- an
open-end management investment company. THE TRUSTEES OF THE TRUST ARE
RESPONSIBLE FOR THE OVERALL MANAGEMENT AND SUPERVISION OF ITS AFFAIRS. The Trust
may issue an unlimited number of shares of beneficial interest (no par value per
share) in one or more series and because the Trust can offer separate series
(such as the Funds), it is known as a "series company." Each share represents an
equal proportionate beneficial interest in a Fund. When issued and outstanding,
each Fund's shares are fully paid and nonassessable by the Trust and redeemable
as described under "How to Redeem Fund Shares." Shareholders are entitled to one
vote for each full share held. Fractional shares may be voted proportionately.
Shares have no preemptive or conversion rights and are freely transferable. In
the event of the liquidation of a Fund, shareholders of that Fund are entitled
to share pro rata in the net assets available for distribution to shareholders.
EACH PORTFOLIO IS ORGANIZED AS A TRUST UNDER THE LAWS OF THE STATE OF NEW YORK
AND INTENDS TO BE TREATED AS A PARTNERSHIP FOR FEDERAL TAX PURPOSES. The
Portfolios, as well as the Trust, intend to comply with all applicable Federal
and state securities laws. Each Portfolio's Declaration of Trust provides that
its corresponding Fund and other entities permitted to invest in that Portfolio
(e.g., other U.S. and foreign investment companies, and common and commingled
trust funds) will each be liable for all obligations of the Portfolio. However,
the risk of a Fund incurring financial loss on account of such liability is
limited to circumstances in which both inadequate insurance exists and the
Portfolio itself is unable to meet its obligations. Accordingly, the Trustees of
the Trust believe that neither the Funds nor their shareholders will be
adversely affected by reason of the Funds investing in the Portfolios.
SPECIAL INFORMATION ON THE FUND/PORTFOLIO INVESTMENT STRUCTURE. An investor in a
Fund should be aware that the Fund, unlike mutual funds which directly acquire
and manage their own portfolios of securities, seeks to achieve its investment
objective by investing its assets in an interest in its corresponding Portfolio
(although the Fund may temporarily hold a de minimus amount of cash), which is a
separate investment company with an identical investment objective. Therefore, a
Fund's interest in the securities owned by its corresponding Portfolio is
indirect. In addition to selling an interest to its corresponding Fund, a
Portfolio may sell interests to other affiliated and non-affiliated mutual funds
or institutional investors. Such investors will invest in a Portfolio on the
same terms and conditions and will pay a proportionate share of the Portfolio's
expenses. However, the other investors investing in a Portfolio are not required
to sell their shares at the same public offering price as the corresponding Fund
due to variations in sales commissions and other operating expenses. Therefore,
investors in a Fund should be aware that these differences may result in
differences in returns experienced by investors in the various funds that invest
in its corresponding Portfolio. Such differences in returns are also present in
other mutual fund structures, including funds that have multiple classes of
shares. For information regarding the investment objective, policies and
restrictions of the Portfolios, see "The Funds" Investment Objectives" and "How
the Funds and the Portfolios Invest their Assets". Further information regarding
investment practices may be found in the Statement of Additional Information.
The Trustees of the Trust have considered the advantages and disadvantages
of investing the assets of each Fund in its corresponding Portfolio, as well as
the advantages and disadvantages of the two-tier format. The Trustees believe
that the structure offers opportunities for substantial growth in the assets of
the Portfolios, and affords the potential for economies of scale for each Fund,
at least when the assets of its corresponding Portfolio exceed $500 million.
A Fund may withdraw (completely redeem) all its assets from its
corresponding Portfolio at any time if the Board of Trustees of the Trust
determines that it is in the best interest of that Fund to do so. The investment
objective and the nonfundamental investment policies of each Fund and Portfolio
may be changed by the Trustees of the Trust and the Portfolio without obtaining
the approval of the shareholders of that Fund or the investors in that
Portfolio, as the case may be. Any such change of an investment objective will
be preceded by thirty days' advance written notice to the shareholders of the
Fund or the investors in the Portfolio, as the case may be. If a shareholder
redeems shares because of a change in the nonfundamental objective or policies
of a Fund, those shares may be subject to a contingent deferred sales charge, as
described in "How to Redeem Fund Shares". In the event a Fund withdraws all of
its assets from its corresponding Portfolio, or the Board of Trustees of the
Trust determines that the investment objective of such Portfolio is no longer
consistent with the investment objective of the Fund, such Trustees would
consider what action might be taken, including investing the assets of such Fund
in another pooled investment entity or retaining an investment adviser to manage
the Fund's assets in accordance with its investment objective. A Fund's
investment performance may be affected by a withdrawal of all its assets from
its corresponding Portfolio.
Information regarding other pooled investment entities or funds which invest
in a Portfolio may be obtained by contacting Eaton Vance Distributors, Inc. (the
"Principal Underwriter" or "EVD"), 24 Federal Street, Boston, MA 02110, (617)
482-8260. Smaller investors in a Portfolio may be adversely affected by the
actions of larger investors in the Portfolio. For example, if a large investor
withdraws from a Portfolio, the remaining investors may experience higher pro
rata operating expenses, thereby producing lower returns. Additionally, a
Portfolio may become less diverse, resulting in increased portfolio risk, and
experience decreasing economies of scale. However, this possibility exists as
well for historically structured mutual funds which have large or institutional
investors.
Until recently, the Administrator sponsored and advised historically
structured funds. Funds which invest all their assets in interests in a separate
investment company are a relatively new development in the mutual fund industry
and, therefore, the Funds may be subject to additional regulations than
historically structured funds.
Each Portfolio's Declaration of Trust provides that the Portfolio will
terminate 120 days after the complete withdrawal of a Fund or any other investor
in the Portfolio, unless either the remaining investors, by unanimous vote at a
meeting of such investors, or a majority of the Trustees of the Portfolio, by
written instrument consented to by all investors, agree to continue the business
of the Portfolio. This provision is consistent with treatment of the Portfolios
as partnerships for Federal income tax purposes. See "Distributions and Taxes"
for further information. Whenever a Fund as an investor in a Portfolio is
requested to vote on matters pertaining to the Portfolio (other than the
termination of the Portfolio's business, which may be determined by the Trustees
of the Portfolio without investor approval), the Fund will hold a meeting of
Fund shareholders and will vote its interest in the Portfolio for or against
such matters proportionately to the instructions to vote for or against such
matters received from Fund shareholders. A Fund shall vote shares for which it
receives no voting instructions in the same proportion as the shares for which
it receives voting instructions. Other investors in a Portfolio may alone or
collectively acquire sufficient voting interests in the Portfolio to control
matters relating to the operation of the Portfolio, which may require the
corresponding Fund to withdraw its investment in the Portfolio or take other
appropriate action. Any such withdrawal could result in a distribution "in kind"
of portfolio securities (as opposed to a cash distribution from the Portfolio).
If securities are distributed, a Fund could incur brokerage, tax or other
charges in converting the securities to cash. In addition, the distribution in
kind may result in a less diversified portfolio of investments or adversely
affect the liquidity of a Fund. Notwithstanding the above, there are other means
for meeting shareholder redemption requests, such as borrowing.
The Trustees of the Trust, including a majority of the noninterested
Trustees, have approved written procedures designed to identify and address any
potential conflicts of interest arising from the fact that the Trustees of the
Trust and the Trustees of each Portfolio are the same. Such procedures require
each Board to take action to resolve any conflict of interest between a Fund and
its corresponding Portfolio, and it is possible that the creation of separate
Boards may be considered. For further information concerning the Trustees and
officers of the Trust and the Portfolios, see the Statement of Additional
Information.
Although each Fund offers only its own shares of beneficial interest, it is
possible that a Fund might become liable for a misstatement or omission in this
Prospectus regarding another Fund because the Funds use this combined
Prospectus. The Trustees of the Trust have considered this factor in approving
the use of a combined Prospectus.
MANAGEMENT OF THE FUNDS AND THE PORTFOLIOS
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EACH PORTFOLIO ENGAGES BOSTON MANAGEMENT AND RESEARCH ("BMR"), A WHOLLY-OWNED
SUBSIDIARY OF EATON VANCE MANAGEMENT ("EATON VANCE"), AS ITS INVESTMENT ADVISER.
EATON VANCE, ITS AFFILIATES AND ITS PREDECESSOR COMPANIES HAVE BEEN MANAGING
ASSETS OF INDIVIDUALS AND INSTITUTIONS SINCE 1924 AND MANAGING INVESTMENT
COMPANIES SINCE 1931.
Acting under the general supervision of the Board of Trustees of each
Portfolio, BMR manages each Portfolio's investments and affairs. Under its
investment advisory agreement with a Portfolio, BMR receives a monthly advisory
fee equal to the aggregate of
(a) a daily asset-based fee computed by applying the annual asset rate
applicable to that portion of the total daily net assets in each
Category as indicated below, plus
(b) a daily income-based fee computed by applying the daily income rate
applicable to that portion of the total daily gross income (which
portion shall bear the same relationship to the total daily gross income
on such day as that portion of the total daily net assets in the same
Category bears to the total daily net assets on such day) in each
Category as indicated below:
ANNUAL DAILY
CATEGORY DAILY NET ASSETS ASSET RATE INCOME RATE
- -------- ---------------- ---------- -----------
1 up to $20 million ........................ 0.100% 1.00%
2 $20 million but less than $40 million .... 0.200% 2.00%
3 $40 million but less than $500 million ... 0.300% 3.00%
4 $500 million but less than $1 billion .... 0.275% 2.75%
5 $1 billion but less than $1.5 billion .... 0.250% 2.50%
6 $1.5 billion but less than $2 billion .... 0.225% 2.25%
7 $2 billion but less than $3 billion ...... 0.200% 2.00%
8 $3 billion and over ...................... 0.175% 1.75%
For the period from the start of business, March 2, 1994, to the fiscal year
ended January 31, 1995, each Portfolio, absent a fee reduction, would have paid
advisory fees equivalent to the following annualized percentage of average daily
net assets:
NET ASSETS
AS OF
PORTFOLIO JANUARY 31, 1995 ADVISORY FEE
--------- ---------------- ------------
Florida Insured .................... $14,399,951 0.16%(1)
Hawaii ............................. 12,864,539 0.16%(2)
Kansas ............................. 8,306,028 0.16%(3)
(1)To enhance the net income of the Florida Insured Portfolio, BMR made a
reduction of its advisory fee in the full amount of such fee and BMR was
allocated $13,139 of expenses related to the operation of such Portfolio.
(2)To enhance the net income of the Hawaii Portfolio, BMR made a reduction of
its advisory fee in the full amount of such fee and BMR was allocated $13,430
of expenses related to the operation of such Portfolio.
(3)To enhance the net income of the Kansas Portfolio, BMR made a reduction of
its advisory fee in the full amount of such fee and BMR was allocated $12,847
of expenses related to the operation of such Portfolio.
BMR furnishes for the use of each Portfolio office space and all necessary
office facilities, equipment and personnel for servicing the investments of the
Portfolios. Municipal obligations are normally traded on a net basis (without
commission) through broker-dealers and banks acting for their own account. Such
firms attempt to profit from such transactions by buying at the bid price and
selling at the higher asked price of the market, and the difference is
customarily referred to as the spread. In selecting firms which will execute
portfolio transactions, BMR judges their professional ability and quality of
service and uses its best efforts to obtain execution at prices which are
advantageous to the Portfolios and at reasonably competitive spreads. Subject to
the foregoing, BMR may consider sales of shares of the Funds or of other
investment companies sponsored by BMR or Eaton Vance as a factor in the
selection of firms to execute portfolio transactions.
Thomas J. Fette r has acted as the portfolio manager of the Florida Insured
Portfolio since it commenced operations. Mr. Fetter has been a Vice President
of Eaton Vance since 1987 and of BMR since 1992.
Robert B. MacIntosh has acted as the portfolio manager of the Hawaii
Portfolio since it commenced operations. Mr. MacIntosh has been a Vice President
of Eaton Vance since 1991 and of BMR since 1992. Prior to joining Eaton Vance,
he was a portfolio manager at Fidelity Management & Research Company
(1986-1991).
Nicole Anderes has acted as the portfolio manager of the Kansas Portfolio
since it commenced operations. She joined Eaton Vance and BMR as a Vice
President in January 1994. Prior to joining Eaton Vance, she was a Vice
President and portfolio manager at Lazard Freres Asset Management (1992-1994)
and a Vice President and Manager -- Municipal Research at Roosevelt & Cross
(1987-1992).
BMR OR EATON VANCE ACTS AS INVESTMENT ADVISER TO INVESTMENT COMPANIES AND
VARIOUS INDIVIDUAL AND INSTITUTIONAL CLIENTS WITH ASSETS UNDER MANAGEMENT OF
APPROXIMATELY $15 BILLION. Eaton Vance is a wholly-owned subsidiary of Eaton
Vance Corp., a publicly held holding company. Eaton Vance Corp., through its
subsidiaries and affiliates, engages in investment management and marketing
activities, fiduciary and banking services, oil and gas operations, real estate
investment, consulting and management, and development of precious metals
properties.
The Trust has retained the services of Eaton Vance to act as Administrator
of the Funds. The Trust has not retained the services of an investment adviser
since the Trust seeks to achieve the investment objective of each Fund by
investing the Fund's assets in its corresponding Portfolio. As Administrator,
Eaton Vance provides the Funds with general office facilities and supervises the
overall administration of the Fund. For these services Eaton Vance currently
receives no compensation. The Trustees of the Trust may determine, in the
future, to compensate Eaton Vance for such services.
The Portfolios and the Funds, as the case may be, will each be responsible
for all of its respective costs and expenses not expressly stated to be payable
by BMR under the investment advisory agreement, by Eaton Vance under the
administrative services agreement, or by EVD under the distribution agreement.
Such costs and expenses to be borne by the Portfolios and the Funds, as the case
may be, include, without limitation; custody and transfer agency fees and
expenses, including those for determining net asset value and keeping accounting
books and records; expenses of pricing and valuation services; the cost of share
certificates; membership dues in investment company organizations; expenses of
acquiring, holding and disposing of securities and other investments; fees and
expenses of registering under the securities laws and the governmental fees;
expenses of reporting to shareholders and investors; proxy statements and other
expenses of shareholders' or investors' meetings; insurance premiums; printing
and mailing expenses; interest, taxes and corporate fees; legal and accounting
expenses; compensation and expenses of Trustees not affiliated with BMR or Eaton
Vance; and investment advisory fees, and, if any, administrative services fees.
The Portfolios and the Funds will also each bear expenses incurred in connection
with litigation in which the Portfolios or the Funds, as the case may be, is a
party and any legal obligation to indemnify its respective officers and Trustees
with respect thereto.
DISTRIBUTION PLANS
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EACH FUND FINANCES DISTRIBUTION ACTIVITIES AND HAS ADOPTED A DISTRIBUTION PLAN
(A "PLAN") PURSUANT TO RULE 12B-1 UNDER THE INVESTMENT COMPANY ACT OF 1940. Rule
12b-1 permits a mutual fund, such as a Fund, to finance distribution activities
and bear expenses associated with the distribution of its shares provided that
any payments made by the Fund are made pursuant to a written plan adopted in
accordance with the Rule. Each Plan is subject to, and complies with, the sales
charge rule of the National Association of Securities Dealers, Inc. (the "NASD
Rule"). Each Fund's Plan is described further in the Statement of Additional
Information, and the following is a description of the salient features of the
Plans. Each Fund's Plan provides that the Fund, subject to the NASD Rule, will
pay sales commissions and distribution fees to the Principal Underwriter only
after and as a result of the sale of shares of the Fund. On each sale of Fund
shares (excluding reinvestment of distributions) a Fund will pay the Principal
Underwriter amounts representing (i) sales commissions equal to 6.25% of the
amount received by a Fund for each share sold and (ii) distribution fees
calculated by applying the rate of 1% over the prime rate then reported in The
Wall Street Journal to the outstanding balance of Uncovered Distribution Charges
(as described below) of the Principal Underwriter. On sales of shares made prior
to January 30, 1995, the Principal Underwriter currently pays monthly sales
commissions to a financial service firm (an "Authorized Firm") in amounts
anticipated to be equivalent to .75%, annualized, of the assets maintained in a
Fund by the customers of such Firm. On sales of shares made on January 30, 1995
and thereafter, the Principal Underwriter currently expects to pay to an
Authorized Firm (a) sales commissions (except on exchange transactions and
reinvestments) at the time of sale equal to .80% of the purchase price of the
shares sold by such Firm, and (b) monthly sales commissions approximately
equivalent to 1/12 of .75% of the value of shares sold by such Firm and
remaining outstanding for at least one year. The Plan is designed to permit an
investor to purchase Fund shares through an Authorized Firm without incurring an
initial sales charge and at the same time permit the Principal Underwriter to
compensate Authorized Firms in connection with the sale of Fund shares.
THE NASD RULE REQUIRES EACH FUND TO LIMIT ITS ANNUAL PAYMENTS OF SALES
COMMISSIONS AND DISTRIBUTION FEES TO THE PRINCIPAL UNDERWRITER TO AN AMOUNT NOT
EXCEEDING .75% OF THE FUND'S AVERAGE DAILY NET ASSETS FOR EACH FISCAL YEAR.
Under its Plan a Fund accrues daily an amount at the rate of 1/365 of .75% of
the Fund's net assets, and pays such accrued amounts monthly to the Principal
Underwriter. Each Plan requires such accruals to be automatically discontinued
during any period in which there are no outstanding Uncovered Distribution
Charges under the Plan. Uncovered Distribution Charges are calculated daily and,
briefly, are equivalent to all unpaid sales commissions and distribution fees to
which the Principal Underwriter is entitled under a Plan less all contingent
deferred sales charges theretofore paid to the Principal Underwriter. The Eaton
Vance organization may be considered to have realized a profit under a Fund's
Plan if at any point in time the aggregate amounts of all payments made to the
Principal Underwriter pursuant to a Fund's Plan, including any contingent
deferred sales charges, have exceeded the total expenses theretofore incurred by
such organization in distributing shares of the Fund. Total expenses for this
purpose will include an allocable portion of the overhead costs of such
organization and its branch offices.
Because of the NASD Rule limitation on the amount of sales commissions and
distribution fees paid to the Principal Underwriter during any fiscal year, a
high level of sales of Fund shares during the initial years of a Fund's
operations would cause a large portion of the sales commissions attributable to
a sale of Fund shares to be accrued and paid by the Fund to the Principal
Underwriter in fiscal years subsequent to the year in which such shares were
sold. This spreading of sales commissions payments under a Fund's Plan over an
extended period would result in the incurrence and payment of increased
distribution fees under the Plan. For the period from each Fund's start of
business to the fiscal year ended January 31, 1995, each Fund paid or accrued
sales commissions under its Plan equivalent to .75% (annualized) of such Fund's
average daily net assets for such period. As at January 31, 1995, the
outstanding Uncovered Distribution Charges of the Principal Underwriter on such
day calculated under a Fund's Plan amounted to approximately $106,000
(equivalent to 7.1% of net assets) in the case of the Florida Insured Fund,
$18,000 (equivalent to 7.0% of net assets) in the case of the Hawaii Fund, and
$73,400 (equivalent to 11% of net assets) in the case of the Kansas Fund.
EACH PLAN ALSO AUTHORIZES A FUND TO MAKE PAYMENTS OF SERVICE FEES TO THE
PRINCIPAL UNDERWRITER, AUTHORIZED FIRMS AND OTHER PERSONS IN AMOUNTS NOT
EXCEEDING .25% OF THE FUND'S AVERAGE DAILY NET ASSETS FOR EACH FISCAL YEAR. The
Trustees of the Trust have initially implemented this provision of each Fund's
Plan by authorizing a Fund to make monthly service fee payments to the Principal
Underwriter in amounts not expected to exceed .20% of the Fund's average daily
net assets for each fiscal year. Each Fund accrues the service fee daily at the
rate of 1/365 of .20% of the Fund's net assets. On sales of shares made prior to
January 30, 1995, the Principal Underwriter currently makes monthly service fee
payments to an Authorized Firm in amounts anticipated to be equivalent to .20%,
annualized, of the assets maintained in a Fund by the customers of such Firm. On
sales of shares made on January 30, 1995 and thereafter, the Principal
Underwriter currently expects to pay to an Authorized Firm (a) a service fee
(except on exchange transactions and reinvestments) at the time of sale equal to
.20% of the purchase price of the shares sold by such Firm, and (b) monthly
service fees approximately equivalent to 1/12 of .20% of the value of shares
sold by such Firm and remaining outstanding for at least one year. However, each
Fund's Plan authorizes the Trustees of the Trust on behalf of the Fund to
increase payments to the Principal Underwriter, Authorized Firms and other
persons from time to time without further action by shareholders of the Fund,
provided that the aggregate amount of payments made to such persons under the
Plan in any fiscal year of the Fund does not exceed .25% of the Fund's average
daily net assets. During the first year after a purchase of Fund shares, the
Principal Underwriter will retain the service fee as reimbursement for the
service fee payment made to the Authorized Firm at the time of sale. As
permitted by the NASD Rule, all service fee payments are made for personal
services and/or the maintenance of shareholder accounts. Service fees are
separate and distinct from the sales commissions and distribution fees payable
by a Fund to the Principal Underwriter, and as such are not subject to automatic
discontinuance when there are no outstanding Uncovered Distribution Charges of
the Principal Underwriter. For the period from each Fund's start of business to
the fiscal year ended January 31, 1995, each Fund paid or accrued service fees
under its Plan equivalent to 0.20% (annualized) of such Fund's average daily net
assets for such period.
The Principal Underwriter may, from time to time, at its own expense,
provide additional incentives to Authorized Firms which employ registered
representatives who sell a minimum dollar amount of a Fund's shares and/or
shares of other funds distributed by the Principal Underwriter. In some
instances, such additional incentives may be offered only to certain Authorized
Firms whose representatives are expected to sell significant amounts of shares.
In addition, the Principal Underwriter may from time to time increase or
decrease the sales commissions payable to Authorized Firms.
Each Fund may, in its absolute discretion, suspend, discontinue or limit the
offering of its shares at any time. In determining whether any such action
should be taken, the Funds' management intends to consider all relevant factors,
including without limitation the size of a Fund, the investment climate and
market conditions, the volume of sales and redemptions of Fund shares, and the
amount of Uncovered Distribution Charges of the Principal Underwriter. Each Plan
may continue in effect and payments may be made under the Plan following any
such suspension, discontinuance or limitation of the offering of Fund shares;
however, no Fund is contractually obligated to continue its Plan for any
particular period of time. Suspension of the offering of Fund shares would not,
of course, affect a shareholder's ability to redeem shares.
VALUING FUND SHARES
- --------------------------------------------------------------------------------
EACH FUND VALUES ITS SHARES ONCE ON EACH DAY THE NEW YORK STOCK EXCHANGE (THE
"EXCHANGE") IS OPEN FOR TRADING, as of the close of regular trading on the
Exchange (normally 4:00 p.m. New York time). Each Fund's net asset value per
share is determined by its custodian, Investors Bank & Trust Company ("IBT"),
(as agent for the Fund) in the manner authorized by the Trustees of the Trust.
Net asset value is computed by dividing the value of a Fund's total assets, less
its liabilities, by the number of shares outstanding. Because each Fund invests
its assets in an interest in its corresponding Portfolio, a Fund's net asset
value will reflect the value of its interest in the Portfolio (which, in turn,
reflects the underlying value of the Portfolio's assets and liabilities).
Authorized Firms must communicate an investor's order to the Principal
Underwriter prior to the close of the Principal Underwriter's business day to
receive that day's net asset value per Fund share. It is the Authorized Firms'
responsibility to transmit orders promptly to the Principal Underwriter, which
is a wholly-owned subsidiary of Eaton Vance.
Each Portfolio's net asset value is also determined as of the close of
regular trading on the Exchange by IBT (as custodian and agent for the
Portfolio), based on market or fair value in the manner authorized by the
Trustees of the Portfolio. Net asset value is computed by subtracting the
liabilities of a Portfolio from the value of its total assets. Municipal
obligations will normally be valued on the basis of valuations furnished by a
pricing service. For further information regarding the valuation of the
Portfolios' assets, see "Determination of Net Asset Value" in the Statement of
Additional Information. Eaton Vance Corp. owns 77.3% of the outstanding stock of
IBT, the Funds' and the Portfolios' custodian.
- --------------------------------------------------------------------------------
SHAREHOLDERS MAY DETERMINE THE VALUE OF THEIR INVESTMENT BY MULTIPLYING THE
NUMBER OF FUND SHARES OWNED BY THE CURRENT NET ASSET VALUE PER SHARE.
- --------------------------------------------------------------------------------
HOW TO BUY FUND SHARES
- --------------------------------------------------------------------------------
SHARES OF A FUND MAY BE PURCHASED FOR CASH OR MAY BE ACQUIRED IN EXCHANGE FOR
SECURITIES. Investors may purchase shares of a Fund through Authorized Firms at
the net asset value per share of the Fund next determined after an order is
effective. A Fund may suspend the offering of shares at any time and may refuse
an order for the purchase of shares. Shares of each Fund are offered for sale
only in States where such shares may be legally sold.
An initial investment in a Fund must be at least $1,000. Once an account has
been established the investor may send investments of $50 or more at any time
directly to the Funds' Transfer Agent (the "Transfer Agent") as follows: The
Shareholder Services Group, Inc., BOS725, P.O. Box 1559, Boston, MA 02104. The
$1,000 minimum initial investment is waived for Bank Automated Investing
accounts, which may be established with an investment of $50 or more. See "Eaton
Vance Shareholder Services."
ACQUIRING FUND SHARES IN EXCHANGE FOR SECURITIES. IBT, as escrow agent, will
receive securities acceptable to Eaton Vance, as Administrator, in exchange for
Fund shares at their net asset value as determined above. The minimum value of
securities (or securities and cash) accepted for deposit is $5,000. Securities
accepted will be sold by IBT as agent for the account of their owner on the day
of their receipt by IBT or as soon thereafter as possible. The number of Fund
shares to be issued in exchange for securities will be the aggregate proceeds
from the sale of such securities, divided by the applicable net asset value per
Fund share on the day such proceeds are received. Eaton Vance will use
reasonable efforts to obtain the then current market price for such securities
but does not guarantee the best available price. Eaton Vance will absorb any
transaction costs, such as commissions, on the sale of the securities.
Securities determined to be acceptable should be transferred via book entry
or physically delivered, in proper form for transfer, through an Authorized
Firm, together with a completed and signed Letter of Transmittal in approved
form (available from Authorized Firms), as follows:
IN THE CASE OF BOOK ENTRY:
Deliver through Depository Trust Co.
Broker #2212
Investors Bank & Trust Company
For A/C EV Classic [State name] Tax Free Fund
IN THE CASE OF PHYSICAL DELIVERY:
Investors Bank & Trust Company
Attention: EV Classic [State name] Tax Free Fund
Physical Securities Processing Settlement Area
89 South Street
Boston, MA 02111
Investors who are contemplating an exchange of securities for shares of a
Fund, or their representatives, must contact Eaton Vance to determine whether
the securities are acceptable before forwarding such securities to IBT. Eaton
Vance reserves the right to reject any securities. Exchanging securities for
Fund shares may create a taxable gain or loss. Each investor should consult his
or her tax adviser with respect to the particular Federal, State and local tax
consequences of exchanging securities for Fund shares.
- --------------------------------------------------------------------------------
IF YOU DON'T HAVE AN AUTHORIZED FIRM, EATON VANCE CAN RECOMMEND ONE.
- --------------------------------------------------------------------------------
HOW TO REDEEM FUND SHARES
- --------------------------------------------------------------------------------
A SHAREHOLDER MAY REDEEM FUND SHARES BY DELIVERING TO THE SHAREHOLDER SERVICES
GROUP, INC., BOS725, P.O. BOX 1559, BOSTON, MASSACHUSETTS 02104, during its
business hours a written request for redemption in good order, plus any share
certificates with executed stock powers. The redemption price will be based on
the net asset value per share of the applicable Fund next computed after such
delivery. Good order means that all relevant documents must be endorsed by the
record owner(s) exactly as the shares are registered and the signature(s) must
be guaranteed by a member of either the Securities Transfer Association's STAMP
program or the New York Stock Exchange's Medallion Signature Program, or certain
banks, savings and loan institutions, credit unions, securities dealers,
securities exchanges, clearing agencies and registered securities associations
as required by a regulation of the Securities and Exchange Commission and
acceptable to The Shareholder Services Group, Inc. In addition, in some cases,
good order may require the furnishing of additional documents such as where
shares are registered in the name of a corporation, partnership or fiduciary.
Within seven days after receipt of a redemption request in good order by The
Shareholder Services Group, Inc., a Fund will make payment in cash for the net
asset value of the shares as of the date determined above, reduced by the amount
of any applicable contingent deferred sales charge (described below) and any
Federal income tax required to be withheld. Although each Fund normally expects
to make payment in cash for redeemed shares, the Trust, subject to compliance
with applicable regulations, has reserved the right to pay the redemption price
of shares of a Fund, either totally or partially, by a distribution in kind of
readily marketable securities withdrawn by that Fund from its corresponding
Portfolio. The securities so distributed would be valued pursuant to the
Portfolio's valuation procedures. If a shareholder received a distribution in
kind, the shareholder could incur brokerage or other charges in converting the
securities to cash.
To sell shares at their net asset value through an Authorized Firm (a
repurchase), a shareholder can place a repurchase order with the Authorized
Firm, which may charge a fee. The value of such shares is based upon the net
asset value calculated after EVD, as the Funds' agent, receives the order. It is
the Authorized Firm's responsibility to transmit promptly repurchase orders to
EVD. Throughout this Prospectus, the word "redemption" is generally meant to
include a repurchase.
If shares were recently purchased, the proceeds of redemption (or
repurchase) will not be sent until the check (including a certified or cashier's
check) received for the shares purchased has cleared. Payment for shares
tendered for redemption may be delayed up to 15 days from the purchase date when
the purchase check has not yet cleared. Redemptions or repurchases may result in
a taxable gain or loss.
Due to the high cost of maintaining small accounts, each Fund reserves the
right to redeem accounts with balances of less than $1,000. Prior to such a
redemption, shareholders will be given 60 days' written notice to make an
additional purchase. Thus, an investor making an initial investment of $1,000
would not be able to redeem shares without being subject to this policy.
However, no such redemption would be required by a Fund if the cause of the low
account balance was a reduction in the net asset value of Fund shares. No
contingent deferred sales charges will be imposed with respect to such
involuntary redemptions.
CONTINGENT DEFERRED SALES CHARGE. Shares purchased on or after January 30, 1995
and redeemed within the first year of their purchase (except shares acquired
through the reinvestment of distributions) generally will be subject to a
contingent deferred sales charge. This contingent deferred sales charge is
imposed on any redemption, the amount of which exceeds the aggregate value at
the time of redemption of (a) all shares in the account purchased more than one
year prior to the redemption, (b) all shares in the account acquired through
reinvestment of distributions, and (c) the increase, if any, of value in the
other shares in the account (namely those purchased within the year preceding
the redemption) over the purchase price of such shares. Redemptions are
processed in a manner to maximize the amount of redemption proceeds which will
not be subject to a contingent deferred sales charge. That is, each redemption
will be assumed to have been made first from the exempt amounts referred to in
clauses (a), (b) and (c) above, and second through liquidation of those shares
in the account referred to in clause (c) on a first-in-first-out basis. Any
contingent deferred sales charge which is required to be imposed on share
redemptions will be equal to 1% of the net asset value of redeemed shares.
In calculating the contingent deferred sales charge upon the redemption of
Fund shares acquired in an exchange for shares of a fund currently listed under
"The Eaton Vance Exchange Privilege," the purchase of Fund shares acquired in
the exchange is deemed to have occurred at the time of the original purchase of
the exchanged shares.
No contingent deferred sales charge will be imposed on Fund shares which
have been sold to Eaton Vance or its affiliates, or to their respective
employees or clients. The contingent deferred sales charge will also be waived
for shares redeemed (1) pursuant to a Withdrawal Plan (see "Eaton Vance
Shareholder Services"), (2) as part of a distribution from a retirement plan
qualified under Section 401, 403(b) or 457 of the Internal Revenue Code of 1986,
as amended (the "Code"), or (3) as part of a minimum required distribution from
other tax-sheltered retirement plans. The contingent deferred sales charge will
be paid to the Principal Underwriter or a Fund.
REPORTS TO SHAREHOLDERS
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EACH FUND WILL ISSUE TO ITS SHAREHOLDERS SEMI-ANNUAL AND ANNUAL REPORTS
CONTAINING FINANCIAL STATEMENTS. Financial statements included in annual reports
are audited by the Funds' independent certified public accountants. Shortly
after the end of each calendar year, each Fund will furnish its shareholders
with information necessary for preparing Federal and State tax returns.
THE LIFETIME INVESTING ACCOUNT/DISTRIBUTION OPTIONS
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AFTER AN INVESTOR MAKES AN INITIAL PURCHASE OF FUND SHARES, THE FUNDS' TRANSFER
AGENT, THE SHAREHOLDER SERVICES GROUP, INC., WILL SET UP A LIFETIME INVESTING
ACCOUNT FOR THE INVESTOR ON THE APPLICABLE FUND'S RECORDS. This account is a
complete record of all transactions between the investor and the Fund which at
all times shows the balance of shares owned. A Fund will not issue share
certificates except upon request.
At least quarterly, shareholders will receive a statement showing complete
details of any transaction and the current balance in the account. THE LIFETIME
INVESTING ACCOUNT ALSO PERMITS A SHAREHOLDER TO MAKE ADDITIONAL INVESTMENTS IN
SHARES OF A FUND BY SENDING A CHECK FOR $50 OR MORE to The Shareholder Services
Group, Inc.
Any questions concerning a shareholder's account or services available may
be directed by telephone to EATON VANCE SHAREHOLDER SERVICES at 800-225-6265,
extension 2, or in writing to The Shareholder Services Group, Inc., BOS725, P.O.
Box 1559, Boston, MA, 02104 (please provide the name of the shareholder, the
Fund and the account number).
THE FOLLOWING DISTRIBUTION OPTIONS WILL BE AVAILABLE TO ALL LIFETIME
INVESTING ACCOUNTS and may be changed as often as desired by written notice to
the Funds' dividend disbursing agent, The Shareholder Services Group, Inc.,
BOS725, P.O. Box 1559, Boston, MA 02104. The currently effective option will
appear on each account statement.
Share Option -- Dividends and capital gains will be reinvested in additional
shares.
Income Option -- Dividends will be paid in cash, and capital gains will be
reinvested in additional shares.
Cash Option -- Dividends and capital gains will be paid in cash.
The Share Option will be assigned if no other option is specified.
Distributions, including those reinvested, will be reduced by any withholding
required under Federal income tax laws.
If the Income Option or Cash Option has been selected, dividend and/or
capital gains distribution checks which are returned by the United States Postal
Service as not deliverable or which remain uncashed for six months or more will
be reinvested in the account in shares at the then current net asset value.
Furthermore, the distribution option on the account will be automatically
changed to the Share Option until such time as the shareholder selects a
different option.
DISTRIBUTION INVESTMENT OPTION. In addition to the distribution options set
forth above, dividends and/or capital gains may be invested in additional shares
of another Eaton Vance fund. Before selecting this option, a shareholder should
obtain a prospectus of the other Eaton Vance fund and consider its objectives
and policies carefully.
"STREET NAME" ACCOUNTS. If shares of a Fund are held in a "street name" account
with an Authorized Firm, all recordkeeping, transaction processing and payments
of distributions relating to the beneficial owner's account will be performed by
the Authorized Firm, and not by the Fund and its Transfer Agent. Since a Fund
will have no record of the beneficial owner's transactions, a beneficial owner
should contact the Authorized Firm to purchase, redeem or exchange shares, to
make changes in or give instructions concerning the account, or to obtain
information about the account. The transfer of shares in a "street name" account
to an account with another dealer or to an account directly with a Fund involves
special procedures and will require the beneficial owner to obtain historical
purchase information about the shares in the account from the Authorized Firm.
Before establishing a "street name" account with an investment firm, or
transferring the account to another investment firm, an investor wishing to
reinvest distributions should determine whether the firm which will hold the
shares allows reinvestment of distributions in "street name" accounts.
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UNDER A LIFETIME INVESTING ACCOUNT A SHAREHOLDER CAN MAKE ADDITIONAL INVESTMENTS
IN SHARES OF A FUND BY SENDING A CHECK FOR $50 OR MORE.
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THE EATON VANCE EXCHANGE PRIVILEGE
- --------------------------------------------------------------------------------
Shares of a Fund currently may be exchanged for shares of one or more other
funds in the Eaton Vance Classic Group of Funds or Eaton Vance Money Market
Fund, which are distributed subject to a contingent deferred sales charge, on
the basis of the net asset value per share of each fund at the time of the
exchange, provided that such exchange offers are available only in states where
shares of the fund being acquired may be legally sold.
Each exchange must involve shares which have a net asset value of at least
$1,000. The exchange privilege may be changed or discontinued without penalty.
Shareholders will be given sixty (60) days' notice prior to any termination or
material amendment of the exchange privilege. The Funds do not permit the
exchange privilege to be used for "Market Timing" and may terminate the exchange
privilege for any shareholder account engaged in Market Timing activity. Any
shareholder account for which more than two round-trip exchanges are made within
any twelve month period will be deemed to be engaged in Market Timing.
Furthermore, a group of unrelated accounts for which exchanges are entered
contemporaneously by a financial intermediary will be considered to be engaged
in Market Timing.
The Shareholder Services Group, Inc. makes exchanges at the next determined
net asset value after receiving an exchange request in good order (see "How to
Redeem Fund Shares"). Consult The Shareholder Services Group, Inc. for
additional information concerning the exchange privilege. Applications and
prospectuses of other funds are available from Authorized Firms or the Principal
Underwriter. The prospectus for each fund describes its investment objectives
and policies, and shareholders should obtain a prospectus and consider these
objectives and policies carefully before requesting an exchange.
No contingent deferred sales charge is imposed on exchanges. For purposes of
calculating the contingent deferred sales charge upon the redemption of shares
acquired in an exchange, the purchase of shares acquired in one or more
exchanges is deemed to have occurred at the time of the original purchase of the
exchanged shares.
Shares of the other funds in the Eaton Vance Classic Group of Funds (and
shares of Eaton Vance Money Market Fund acquired as the result of an exchange
from an EV Classic fund) may be exchanged for Fund shares on the basis of the
net asset value per share of each fund at the time of the exchange, but subject
to any restrictions or qualifications set forth in the current prospectus of any
such fund.
Telephone exchanges are accepted by The Shareholder Services Group, Inc.,
provided that the investor has not disclaimed in writing the use of the
privilege. To effect such exchanges, call The Shareholder Services Group, Inc.
at 800-262-1122 or, within Massachusetts, 617-573-9403, Monday through Friday,
9:00 a.m. to 4:00 p.m. (Eastern Standard Time). Shares acquired by telephone
exchange must be registered in the same name(s) and with the same address as the
shares being exchanged. Neither the Funds, the Principal Underwriter nor The
Shareholder Services Group, Inc. will be responsible for the authenticity of
exchange instructions received by telephone, provided that reasonable procedures
to confirm that instructions communicated are genuine have been followed.
Telephone instructions will be tape recorded. In times of drastic economic or
market changes, a telephone exchange may be difficult to implement. An exchange
may result in a taxable gain or loss.
EATON VANCE SHAREHOLDER SERVICES
- --------------------------------------------------------------------------------
THE FUNDS OFFER THE FOLLOWING SERVICES, WHICH ARE VOLUNTARY, INVOLVE NO EXTRA
CHARGE, AND MAY BE CHANGED OR DISCONTINUED WITHOUT PENALTY AT ANY TIME. Full
information on each of the services described below and an application, where
required, are available from Authorized Firms or the Principal Underwriter. The
cost of administering such services for the benefit of shareholders who
participate in them is borne by the applicable Fund as an expense to all
shareholders.
INVEST-BY-MAIL -- FOR PERIODIC SHARE ACCUMULATION: Once the $1,000 minimum
investment has been made, checks of $50 or more payable to the order of the Fund
being purchased may be mailed directly to The Shareholder Services Group, Inc.,
BOS725, P.O. Box 1559, Boston, MA 02104 at any time -- whether or not dividends
are reinvested. The name of the shareholder, the Fund and the account number
should accompany each investment.
BANK AUTOMATED INVESTING -- FOR REGULAR SHARE ACCUMULATION: Cash investments of
$50 or more may be made automatically each month or quarter from a shareholder's
bank account. The $1,000 minimum initial investment and small account redemption
policy are waived for these accounts.
WITHDRAWAL PLAN: A shareholder may draw on shareholdings systematically with
monthly or quarterly checks in an aggregate amount that does not exceed annually
12% of the account balance at the time the plan is established. Such amount will
not be subject to a contingent deferred sales charge. See "How to Redeem Fund
Shares". A minimum deposit of $5,000 in shares is required.
REINVESTMENT PRIVILEGE: A SHAREHOLDER WHO HAS REPURCHASED OR REDEEMED SHARES MAY
REINVEST, WITH CREDIT FOR ANY CONTINGENT DEFERRED SALES CHARGES PAID ON THE
REPURCHASED OR REDEEMED SHARES, ANY PORTION OR ALL OF THE REPURCHASE OR
REDEMPTION PROCEEDS (PLUS THAT AMOUNT NECESSARY TO ACQUIRE A FRACTIONAL SHARE TO
ROUND OFF THE PURCHASE TO THE NEAREST FULL SHARE) IN SHARES OF A FUND, provided
that the reinvestment is effected within 60 days after such repurchase or
redemption, and the privilege has not been used more than once in the prior 12
months. Shares are sold to a reinvesting shareholder at the next determined net
asset value following timely receipt of a written purchase order by the
Principal Underwriter or by a Fund (or by the Funds' Transfer Agent). To the
extent that any shares of a Fund are sold at a loss and the proceeds are
reinvested in shares of the Fund (or other shares of the Fund are acquired
within the period beginning 30 days before and ending 30 days after the date of
the redemption) some or all of the loss generally will not be allowed as a tax
deduction. Shareholders should consult their tax advisers concerning the tax
consequences of reinvestments.
DISTRIBUTIONS AND TAXES
- -----------------------------------------------------------------------=--------
SUBSTANTIALLY ALL OF THE INVESTMENT INCOME ALLOCATED TO A FUND BY ITS
CORRESPONDING PORTFOLIO, LESS THE FUND'S DIRECT AND ALLOCATED EXPENSES, WILL BE
DECLARED DAILY AS A DISTRIBUTION TO FUND SHAREHOLDERS OF RECORD AT THE TIME OF
DECLARATION. Such distributions, whether taken in cash or reinvested in
additional shares, will ordinarily be paid on the twenty-second day of each
month or the next business day thereafter. Each Fund anticipates that for tax
purposes the entire distribution, whether paid in cash or reinvested in
additional shares of the Fund, will constitute tax-exempt income to
shareholders, except for the proportionate part of the distribution that may be
considered taxable income if the Fund has taxable income during the calendar
year. Shareholders reinvesting the monthly distribution should treat the amount
of the entire distribution as the tax cost basis of the additional shares
acquired by reason of such reinvestment. Daily distribution crediting will
commence on the day that collected funds for the purchase of Fund shares are
available at the Transfer Agent. Shareholders of a Fund will receive timely
Federal income tax information as to the tax-exempt or taxable status of all
distributions made by the Fund during the calendar year. A Fund's net realized
capital gains, if any, consist of the net realized capital gains allocated to
the Fund by its corresponding Portfolio for tax purposes, after taking into
account any available capital loss carryovers; a Fund's net realized capital
gains, if any, will be distributed at least once a year, usually in December.
Each Fund intends to qualify as a regulated investment company under the
Code and to satisfy all requirements necessary to be relieved of Federal taxes
on income and gains it distributes to shareholders. In satisfying these
requirements, each Fund will treat itself as owning its proportionate share of
each of its corresponding Portfolio's assets and as entitled to the income of
the Portfolio properly attributable to such share.
- --------------------------------------------------------------------------------
AS A REGULATED INVESTMENT COMPANY UNDER THE CODE, EACH FUND DOES NOT PAY FEDERAL
INCOME OR EXCISE TAXES TO THE EXTENT THAT IT DISTRIBUTES TO SHAREHOLDERS ITS NET
INVESTMENT INCOME AND NET REALIZED CAPITAL GAINS IN ACCORDANCE WITH THE TIMING
REQUIREMENTS IMPOSED BY THE CODE. AS PARTNERSHIPS UNDER THE CODE, THE PORTFOLIOS
DO NOT PAY FEDERAL INCOME OR EXCISE TAXES.
- --------------------------------------------------------------------------------
Distributions of interest on certain municipal obligations constitute a tax
preference item under the alternative minimum tax provisions applicable to
individuals and corporations (see page 7). Distributions of taxable income
(including a portion of any original issue discount with respect to certain
stripped municipal obligations and stripped coupons and accretion of certain
market discount) and net short-term capital gains will be taxable to
shareholders as ordinary income. Distributions of long-term capital gains are
taxable to shareholders as such for Federal income tax purposes, regardless of
the length of time Fund shares have been owned by the shareholder. Distributions
are taxed in the manner described above whether paid in cash or reinvested in
additional shares of a Fund.
Tax-exempt distributions received from a Fund are includable in the tax base
for determining the taxability of social security and railroad retirement
benefits.
Interest on indebtedness incurred or continued by a shareholder to purchase
or carry shares of a Fund is not deductible to the extent it is deemed related
to the Fund's distribution of tax-exempt interest. Further, entities or persons
who are "substantial users" (or persons related to "substantial users") of
facilities financed by industrial development or private activity bonds should
consult their tax advisers before purchasing shares of a Fund. "Substantial
user" is defined in applicable Treasury regulations to include a "non-exempt
person" who regularly uses in trade or business a part of a facility financed
from the proceeds of industrial development bonds and would likely be
interpreted to include private activity bonds issued to finance similar
facilities.
SEE THE APPENDIX TO THIS PROSPECTUS FOR INFORMATION CONCERNING STATE TAXES.
Shareholders should consult their own tax advisers with respect to the State,
local and foreign tax consequences of investing in a Fund.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
FROM TIME TO TIME, EACH FUND MAY ADVERTISE ITS YIELD AND/OR AVERAGE ANNUAL TOTAL
RETURN. Each Fund's current yield is calculated by dividing the net investment
income per share earned during a recent 30-day period by the maximum offering
price per share (net asset value) of the Fund on the last day of the period and
annualizing the resulting figure. A taxable-equivalent yield is computed by
using the tax-exempt yield figure and dividing by one minus the tax rate. Each
Fund's average annual total return is determined by computing the average annual
percentage change in value of $1,000 invested at the maximum public offering
price (net asset value) for specified periods ending with the most recent
calendar quarter, assuming reinvestment of all distributions. The average annual
total return calculation assumes a complete redemption of the investment and the
deduction of any applicable contingent deferred sales charge at the end of the
period. Each Fund may publish annual and cumulative total return figures from
time to time.
Each Fund may also publish its distribution rate and/or its effective
distribution rate. Each Fund's distribution rate is computed by dividing the
most recent monthly distribution per share annualized by the current maximum
offering price per share (net asset value). Each Fund's effective distribution
rate is computed by dividing the distribution rate by the ratio used to
annualize the most recent monthly distribution and reinvesting the resulting
amount for a full year on the basis of such ratio. The effective distribution
rate will be higher than the distribution rate because of the compounding effect
of the assumed reinvestment. Investors should note that a Fund's yield is
calculated using a standardized formula the income component of which is
computed from the yields to maturity of all debt obligations held by the
Portfolio based on prescribed methods (with all purchases and sales of
securities during such period included in the income calculation on a settlement
date basis), whereas the distribution rate is based on a Fund's last monthly
distribution which tends to be relatively stable and may be more or less than
the amount of net investment income and short-term capital gain actually earned
by the Fund during the month.
Performance figures published by a Fund which do not include the effect of
any applicable contingent deferred sales charge would be reduced if it were
included.
Investors should note that the investment results of a Fund will fluctuate
over time, and any presentation of a Fund's yield, total return, distribution
rate or effective distribution rate for any prior period should not be
considered a representation of what an investment may earn or what the Fund's
yield, total return, distribution rate or effective distribution rate may be in
any future period. If the expenses related to the operation of a Fund or its
corresponding Portfolio are allocated to Eaton Vance, the Fund's performance
will be higher.
<PAGE>
APPENDIX
STATE SPECIFIC INFORMATION
Because each Portfolio will normally invest at least 65% of its assets in
the obligations within its corresponding State, it is susceptible to factors
affecting that State. Each Portfolio may also invest up to 5% of its net assets
in obligations issued by the governments of each of the U.S. Virgin Islands and
Guam and up to 35% of its assets in obligations issued by the government of
Puerto Rico. Set forth below is certain economic and tax information concerning
the States in which the Portfolios invest and Puerto Rico.
The bond ratings provided below are current as of the date of this
Prospectus and are based on economic conditions which may not continue;
moreover, there can be no assurance that particular bond issues may not be
adversely affected by changes in economic, political or other conditions. Unless
stated otherwise, the ratings indicated are for obligations of the State. A
State's political subdivisions may have different ratings which are unrelated to
the ratings assigned to State obligations.
FLORIDA. Florida's financial operations are considerably different than most
other states' because, under the State's constitution, there is no state income
tax. The lack of an income tax exposes total State tax collections to
considerably more volatility than would otherwise be the case and, in the event
of an economic downswing, could effect the State's ability to pay principal and
interest in a timely manner. The General Fund budget for 1994-95 includes
revenues of $14.6 billion (a 7.3% increase over 1993-94) and expenditures of
$14.3 billion (a 7.6% increase over 1993-94). Through March, 1995, actual
revenues were 0.8% below projections. Unencumbered reserves are projected to be
$252.6 million, or 1.8% of expenditures for fiscal year 1995. Unemployment in
the State for March, 1995 was 4.4%, compared to the national unemployment rate
of 5.5%.
In 1993, the State constitution was amended to limit the annual growth in
the assessed valuation of residential property and which, over time, could
constrain the growth in property taxes, a major revenue source for local
governments. While no immediate ratings implications are expected, the amendment
could have a negative impact on the financial performance of local governments
over time and lead to ratings revisions which may have a negative impact on the
prices of affected bonds.
General obligations of Florida are rated Aa, AA and AA by Moody's, S&P and
Fitch, respectively. S&P presently regards the outlook for the State as stable.
FLORIDA TAXES. The Florida Department of Revenue has issued a ruling that
shareholders of the Florida Insured Fund that are subject to the Florida
intangibles tax will not be required to include the value of their Florida
Insured Fund shares in their taxable intangible property if all of the Florida
Insured Fund's investments on the annual assessment date are obligations that
would be exempt from such tax if held directly by such shareholders, such as
Florida and U.S. Government obligations. The Florida Insured Portfolio will
normally attempt to invest substantially all of its assets in tax-exempt
obligations of Florida, the United States, the Territories or political
subdivisions of the United States or Florida ("Florida obligations") and it will
ensure that all of its assets held on the annual assessment date are exempt from
the Florida intangibles tax. Accordingly, the value of the Florida Insured Fund
shares held by a shareholder should, under normal circumstances, be exempt from
the Florida intangibles tax.
HAWAII. The Hawaiian economy is concentrated in tourism, agriculture,
construction and military operations. Tourism is Hawaii's largest economic
sector. In 1992, due largely to the recession in the U.S., total visitor
arrivals to the State fell 5.2% from 1991. This trend continued in 1993, with a
drop in total visitor arrivals of 6.1% from 1992 figures. Signs of recovery in
this key economic sector appeared in 1994, however, with four solid quarters of
growth in visitor arrivals. While growth in visitor arrivals slowed some in the
first quarter of 1995, total arrivals increased 3.1% in that quarter. Supply
constraints presented by the airline industry's cutbacks in scheduled air seats
to Hawaii pose an increasingly large risk for the tourism-based economy.
Agriculture, dominated by the Hawaiian pineapple and sugar trade, has faced
increased foreign competition. Agricultural production has become somewhat more
diversified and includes cattle, poultry, vegetables, coffee, flowers and other
nursery products, but the agriculture sector continues to decline.
After six years of rapid expansion in the construction industry, building
activity declined in 1992 and 1993; however, as a result of damage caused by
Hurricane Iniki in September of 1992, construction employment increased in 1993
and the overall decline in construction has lessened. Following the winding down
of Hurricane Iniki-related reconstruction on Kauai, construction commitments in
the State have been stable in recent quarters. Proposed budget cuts in U.S.
military construction spending may, however, adversely impact the State's
construction industry, and in fact government construction contracts began to
taper off in the first quarter of 1995. Construction activity is expected to
decline in 1995. Unemployment in Hawaii fell from a seasonally-adjusted 6.6% in
the third quarter of 1994 to 5.2% in the first quarter of 1995, compared to the
national unemployment rate of approximately 5.5%.
The State's overall debt levels are high due, in part, to the State's
assumption of many local government functions, including local education.
Revenue is derived primarily from general excise taxes and individual and
corporate income tax. After many years of operating either within planned
deficits or with ending fund balances, the State faces a budget shortfall of
$250 million or more, much larger than originally anticipated. This has been
aggravated by lower forecasted tax revenues. The State's historically strong
financial position weakened in 1992 as the recession reduced growth in sales and
income taxes. Continued sluggish tax receipts led to a $55 million decline in
the State's unreserved general fund position. Preliminary reports indicate tax
revenues increased 4.3% in 1994, a reflection of a slowly improving economy.
Revenues are expected to continue to grow moderately in 1995. Real gross state
product increased by 2.5% in 1994, and the latest data available suggest similar
growth in 1995.
Hawaii general obligation bonds are rated Aa by Moody's and AA by S&P. Fitch
does not currently rate the State's general obligations.
HAWAII TAXES. In the opinion of McCorriston Miho Miller Mukai, special Hawaii
tax counsel to the Hawaii Fund, distributions paid by the Hawaii Fund will
generally be exempt from Hawaii income tax to the extent that they are derived
from interest on obligations of the State of Hawaii or any of its political
subdivisions or authorities or obligations issued by certain other government
authorities (for example, U.S. territories). Distributions derived from the
Hawaii Fund's other investment income and short-term capital gains will be
subject to Hawaii income tax as ordinary income and distributions from net
realized long-term capital gains will be subject to Hawaii income tax as capital
gains.
Capital gains or losses realized from a redemption, sale or exchange of
shares of the Hawaii Fund by a Hawaii resident will be taken into account for
Hawaii individual income tax purposes.
KANSAS. The Kansas economy is primarily farm-based. Recent growth in the trade,
service and manufacturing sectors has, however, decreased the State's dependence
on agriculture. Cuts in military spending will continue to cause firms to
downsize. The Kansas unemployment rate remains below the national average as it
has for the past 3 decades. Unemployment rose to 5% in 1993 from 4% in 1992, as
compared to the national unemployment rate of 6.8% in 1993. The growth of Kansas
personal income in 1994 is estimated to be 5.3% compared with 4.0% in 1993 and
compared with a 1994 U.S. growth rate of 5.8%.
State revenue sources include a 4.9% sales tax, a corporate income tax
between 4% and 7.35%, and an individual tax rate between 3.5% and 7.75%. The
State sales tax generates over 20% of the tax revenue. A large portion of local
tax revenue is derived from the general property tax and several taxes imposed
in lieu thereof, principally the motor vehicle tax. Local sales and use taxes
accounted for 5% of tax revenues in 1994, increasing dramatically from $30
million in 1980 to $307.9 million in 1994 as voters in more cities and counties
have elected to impose the tax or to raise the tax rate to the maximum permitted
by State law. The State's 1994 General Fund showed total revenues of $3.2
billion against total expenditures of $3.2 billion.
Currently the State has no long-term debt; therefore, there is no rating for
Kansas general obligation bonds. Certain certificates of participation issued by
the State of Kansas are rated A by Moody's and A+ by S&P.
KANSAS TAXES. In the opinion of special Kansas tax counsel, Shook, Hardy & Bacon
P.C., individuals, trusts, estates and corporations will not be subject to the
Kansas income tax on the portion of exempt-interest dividends derived from
interest on obligations of Kansas and its political subdivisions issued after
December 31, 1987, and interest on obligations issued before January 1, 1988
where the laws of the State of Kansas authorizing the issuance of such
obligations specifically exempt the interest on such obligations from income tax
under the laws of the State of Kansas. All remaining dividends (except for
dividends, if any, derived from debt obligations issued by the governments of
Puerto Rico, the U.S. Virgin Islands and Guam and which are exempt from Federal
and state income taxes pursuant to federal law), including dividends derived
from capital gains, will be includable in the Kansas taxable income of
individuals, trusts, estates and corporations. Distributions treated as
long-term capital gains for Federal income tax purposes will generally receive
the same characterization under Kansas law. Capital gains or losses realized
from a redemption, sale or exchange of shares of the Kansas Fund by a Kansas
taxpayer will be taken into account for Kansas income tax purposes.
The above exemptions do not apply to the privilege tax imposed on banks,
banking associations, trust companies, savings and loan associations, and
insurance companies, or the franchise tax imposed on corporations. Banks,
banking associations, trust companies, savings and loan associations, insurance
companies and corporations are urged to consult their own tax advisors regarding
the effects of these taxes before investing in the Kansas Fund.
The Kansas Fund has been advised by the Kansas Department of Revenue that
gross earnings derived from the Kansas Fund are not subject to the local
intangibles tax imposed by counties, cities and townships pursuant to existing
Kansas law.
The tax discussion set forth above is for general information only. The
foregoing relates to Kansas income taxation as in effect as of the date of this
combined Prospectus. Investors should consult their own tax advisers regarding
the state, local and other tax consequences of an investment in the Kansas Fund,
including the effects of any change, including any proposed change, in the tax
laws.
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 fiscal 1994 will depend on several factors,
including the state of the U.S. economy and the relative stability in the price
of oil, the exchange rate of the U.S. dollar and the cost of borrowing. Although
the Puerto Rico unemployment rate has declined substantially since 1985, the
seasonally adjusted unemployment rate for February, 1995 was approximately
12.5%. The North American Free Trade Agreement (NAFTA), which became effective
January 1, 1994, could lead to the loss of Puerto Rico's lower salaried or labor
intensive jobs to Mexico.
S&P rates Puerto Rico general obligations debt A, while Moody's rates it
Baa1; these ratings have been in place since 1956 and 1976, respectively. S&P
assigned a stable outlook on Puerto Rico on April 26, 1994.
<PAGE>
PORTFOLIO INVESTMENT ADVISER
Boston Management and Research
24 Federal Street
Boston, MA 02110
FUND ADMINISTRATOR
Eaton Vance Management
24 Federal Street
Boston, MA 02110
PRINCIPAL UNDERWRITER
Eaton Vance Distributors, Inc.
24 Federal Street
Boston, MA 02110
(800) 225-6265
CUSTODIAN
Investors Bank & Trust Company
24 Federal Street
Boston, MA 02110
TRANSFER AGENT
The Shareholder Services Group, Inc.
BOS725
P.O. Box 1559
Boston, MA 02104
(800) 262-1122
AUDITORS
Deloitte & Touche LLP
125 Summer Street
Boston, MA 02110
EV CLASSIC
TAX FREE FUNDS
24 FEDERAL STREET
BOSTON, MA 02110
C-TFC6/1P
EV Classic
Florida Insured
Tax Free Fund
[]
EV Classic
Hawaii
Tax Free Fund
[]
EV Classic
Kansas
Tax Free Fund
PROSPECTUS
JUNE 1, 1995
EV MARATHON TAX FREE FUNDS
EV MARATHON FLORIDA INSURED TAX FREE FUND
EV MARATHON HAWAII TAX FREE FUND
EV MARATHON KANSAS TAX FREE FUND
THE EV MARATHON TAX FREE FUNDS (THE "FUNDS") ARE MUTUAL FUNDS SEEKING TO
PROVIDE CURRENT INCOME EXEMPT FROM REGULAR FEDERAL INCOME TAX AND THEIR
RESPECTIVE STATE TAXES DESCRIBED UNDER "THE FUNDS" INVESTMENT OBJECTIVES" IN
THIS PROSPECTUS. EACH FUND INVESTS ITS ASSETS IN A CORRESPONDING NON-
DIVERSIFIED OPEN-END INVESTMENT COMPANY (A "PORTFOLIO") HAVING THE SAME
INVESTMENT OBJECTIVE AS THE FUND, RATHER THAN BY DIRECTLY INVESTING IN AND
MANAGING ITS OWN PORTFOLIO OF SECURITIES AS WITH HISTORICALLY STRUCTURED MUTUAL
FUNDS. EACH FUND IS A SERIES OF EATON VANCE MUNICIPALS TRUST II (THE "TRUST").
Shares of the Funds are not deposits or obligations of, or guaranteed or
endorsed by, any bank or other insured depository institution, and are not
federally insured by the Federal Deposit Insurance Corporation, the Federal
Reserve Board or any other government agency. Shares of the Funds involve
investment risks, including fluctuations in value and the possible loss of some
or all of the principal investment.
This combined Prospectus is designed to provide you with information you
should know before investing. Please retain this document for future reference.
A combined Statement of Additional Information dated June 1, 1995 for the Funds,
as supplemented from time to time, has been filed with the Securities and
Exchange Commission and is incorporated herein by reference. This Statement of
Additional Information is available without charge from the Funds' principal
underwriter, Eaton Vance Distributors, Inc. (the "Principal Underwriter"), 24
Federal Street, Boston, MA 02110 (telephone (800) 225-6265). The Portfolios'
investment adviser is Boston Management and Research (the "Investment Adviser"),
a wholly-owned subsidiary of Eaton Vance Management, and Eaton Vance Management
is the administrator (the "Administrator") of the Funds. The offices of the
Investment Adviser and the Administrator are located at 24 Federal Street,
Boston, MA 02110.
AS OF THE DATE OF THIS COMBINED PROSPECTUS, A FUND MAY NOT BE AVAILABLE FOR
PURCHASE IN CERTAIN STATES. PLEASE CONTACT THE PRINCIPAL UNDERWRITER OR YOUR
BROKER FOR FURTHER INFORMATION.
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
- -------------------------------------------------------------------------------
PROSPECTUS DATED JUNE 1, 1995
<PAGE>
TABLE OF CONTENTS
Shareholder and Fund Expenses ............................................ 3
The Funds' Financial Highlights .......................................... 5
The Funds' Investment Objectives ......................................... 6
How the Funds and the Portfolios Invest their Assets ..................... 6
Organization of the Funds and the Portfolios ........................... 13
Management of the Funds and the Portfolios ............................. 15
Distribution Plans ..................................................... 17
Valuing Fund Shares .................................................... 19
How to Buy Fund Shares ................................................. 19
How to Redeem Fund Shares .............................................. 20
Reports to Shareholders ................................................ 22
The Lifetime Investing Account/Distribution Options .................... 23
The Eaton Vance Exchange Privilege ..................................... 24
Eaton Vance Shareholder Services ....................................... 25
Distributions and Taxes ................................................ 26
Performance Information ................................................ 27
Appendix -- State Specific Information ................................. 28
<PAGE>
SHAREHOLDER AND FUND EXPENSES
- --------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES
Sales Charges Imposed on Purchases of Shares None
Sales Charges Imposed on Reinvested Distributions None
Fees to Exchange Shares None
Range of Declining Contingent Deferred Sales Charges
Imposed on Redemptions During the First Seven Years
(as a percentage of redemption proceeds exclusive of
all reinvestments and capital appreciation in the account) 5.00%-0%
<TABLE>
<CAPTION>
ANNUAL FUND AND ALLOCATED PORTFOLIO OPERATING EXPENSES
(as a percentage of average daily net assets) FLORIDA HAWAII KANSAS
INSURED FUND FUND FUND
------------ ------ ----
<S> <C> <C> <C>
Investment Adviser Fee (after fee reduction) 0.00% 0.00% 0.00%
Rule 12b-1 Distribution (and Service) Fees 0.85 0.85 0.85
Other Expenses (after expense reduction) 0.00 0.12 0.00
---- ---- ----
Total Operating Expenses (after reductions) 0.85% 0.97% 0.85%
==== ==== ====
<CAPTION>
EXAMPLES
An investor would pay the following contingent deferred sales charge and
expenses on a $1,000 investment, assuming (a) 5% annual return and (b)
redemption at the end of each period:
FLORIDA HAWAII KANSAS
INSURED FUND FUND FUND
------------ ------ ----
<S> <C> <C> <C>
1 Year ....................................................$59 $60 $59
3 Years .................................................... 67 71 67
5 Years .................................................... 67 74 67
10 Years ....................................................105 119 105
An investor would pay the following expenses on the same investment, assuming
(a) 5% annual return and (b) no redemptions:
1 Year ....................................................$ 9 $10 $ 9
3 Years .................................................... 27 31 27
5 Years .................................................... 47 54 47
10 Years ....................................................105 119 105
</TABLE>
Notes:
The tables and Examples summarize the aggregate expenses of the Funds and
the Portfolios and are designed to help investors understand the costs and
expenses they will bear, directly or indirectly, by investing in a Fund.
Information for each Fund is based on its expenses for the most recent fiscal
year, except for Service Fees, which are estimated to be 0.10% in the current
fiscal year. Absent a fee reduction and an expense allocation, the Investment
Adviser Fee and Other Expenses would have been 0.16% and 0.71%, respectively,
for the Florida Insured Fund; 0.16% and 0.50%, respectively, for the Hawaii
Fund; and 0.16% and 0.69%, respectively, for the Kansas Fund.
Each Fund invests exclusively in its corresponding Portfolio. The Trustees
believe that, over time, the aggregate per share expenses of a Fund and its
corresponding Portfolio should be approximately equal to, or less than, the per
share expenses the Fund would incur if the Fund were instead to retain the
services of an investment adviser and its assets were invested directly in the
types of securities being held by its corresponding Portfolio.
The Examples should not be considered a representation of past or future
expenses and actual expenses may be greater or less than those shown. Federal
regulations require the Examples to assume a 5% annual return, but actual annual
return will vary. For further information regarding the expenses of both the
Funds and the Portfolios see "Organization of the Funds and the Portfolios" and
"How to Redeem Fund Shares". A long-term shareholder in a Fund paying Rule 12b-1
Distribution Fees may pay more than the economic equivalent of the maximum
front-end sales charge permitted by the rules of the National Association of
Securities Dealers, Inc.
No contingent deferred sales charge is imposed on (a) shares purchased more
than six years prior to redemption, (b) shares acquired through the reinvestment
of distributions or (c) any appreciation in value of other shares in the
account, and no such charge is imposed on exchanges of Fund shares for shares of
one or more other funds listed under "The Eaton Vance Exchange Privilege". See
"How to Redeem Fund Shares."
Each Portfolio's monthly advisory fee has two components, a fee based on
daily net assets and a fee based on daily gross income, as set forth in the fee
schedule on page 15.
Other investment companies with different distribution arrangements and fees
are investing in the Portfolios and additional such companies and investors may
do so in the future. See "Organization of the Funds and the Portfolios".
<PAGE>
THE FUNDS' FINANCIAL HIGHLIGHTS
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The following information should be read in conjunction with the audited
financial statements included in the Statement of Additional Information, all of
which have been so included in reliance upon the report of Deloitte & Touche
LLP, independent certified public accountants, as experts in accounting and
auditing, which report is contained in the Statement of Additional Information.
Further information regarding the performance of a Fund is contained in its
annual report to shareholders which may be obtained without charge by contacting
the Principal Underwriter.
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FLORIDA HAWAII KANSAS
INSURED FUND* FUND* FUND*
------------- ----- ------
NET ASSET VALUE, beginning of period ... $10.000 $10.000 $10.000
------- ------- -------
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income ................ $ 0.456 $ 0.434 $ 0.435
Net realized and unrealized gain
(loss) on investments .............. 0.304 (0.805) (0.393)
------- ------- -------
Total income (loss) from investment
operations ......................... $ 0.760 $(0.371) $ 0.042
------- ------- -------
LESS DISTRIBUTIONS:
From net investment income ........... $(0.456) $(0.434) $(0.435)
In excess of net investment income ... (0.044) (0.045) (0.047)
------- ------- -------
Total distributions ................ $(0.500) $(0.479) $(0.482)
------- ------- -------
NET ASSET VALUE, end of period ......... $10.260 $ 9.150 $ 9.560
======= ======= =======
TOTAL RETURN(1) ........................ 7.10% (4.01)% 0.16%
RATIOS/SUPPLEMENTAL DATA**:
Net assets, end of period (000's
omitted) ........................... $11,596 $12,601 $ 7,753
Ratio of net expenses to average
daily net assets(2) ............... 0.75%+ 0.87%+ 0.75%+
Ratio of net investment income to
average daily net assets ........... 4.79%+ 5.03%+ 4.81%+
**The operating expenses of the Funds and the Portfolios may reflect an
allocation of expenses to the Administrator or a reduction of fees by the
Investment Adviser. Had such actions not been taken, net investment income
per share and the ratios would have been as follows:
NET INVESTMENT INCOME PER SHARE ........ $ 0.374 $ 0.387 $ 0.397
======= ======= =======
RATIOS (As a percentage of average
daily net assets):
Expenses(2) ......................... 1.62%+ 1.41%+ 1.60%+
Net investment income ............... 3.93%+ 4.49%+ 3.96%+
*For the period from the start of business, March 2, 1994, to January 31,
1995.
+Computed on an annualized basis.
(1)Total return is calculated assuming a purchase at the net asset value on the
first day and a sale at the net asset value on the last day of each period
reported. Dividends and distributions, if any, are assumed to be reinvested
at the net asset value on the payable date. Computed on a non-annualized
basis.
(2)Includes a Fund's share of its corresponding Portfolio's allocated expenses.
<PAGE>
THE FUNDS' INVESTMENT OBJECTIVES
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The investment objective of each Fund is set forth below. Each Fund currently
seeks to meet its investment objective by investing its assets in a separate
corresponding open-end management investment company (a "Portfolio") which
invests primarily in municipal obligations (as described below). Each Portfolio
has the same investment objective as its corresponding Fund.
EV MARATHON FLORIDA INSURED TAX FREE FUND (the "Florida Insured Fund") seeks
to provide current income exempt from regular Federal income tax in the form of
an investment exempt from Florida intangibles tax. The Florida Insured Fund
seeks to meet its objective by investing its assets in the Florida Insured Tax
Free Portfolio (the "Florida Insured Portfolio"), which invests primarily in
municipal obligations that are rated in the highest rating category by a major
rating agency or, if unrated, determined to be of comparable quality by the
Investment Adviser. Under normal conditions, substantially all of the Florida
Insured Portfolio's assets will be invested in obligations that are insured as
to the timely payment of principal and interest. See "Insured Florida
Obligations." In any event, no less than 80% of the Florida Insured Portfolio's
net assets will be invested in insured obligations.
EV MARATHON HAWAII TAX FREE FUND (the "Hawaii Fund") seeks to provide
current income exempt from regular Federal income tax and Hawaii State
individual income taxes. The Hawaii Fund seeks to meet its objective by
investing its assets in the Hawaii Tax Free Portfolio (the "Hawaii Portfolio"),
which invests primarily in municipal obligations that are rated at least
investment grade by a major rating agency or, if unrated, determined to be of at
least investment grade quality by the Investment Adviser.
EV MARATHON KANSAS TAX FREE FUND (the "Kansas Fund") seeks to provide
current income exempt from regular Federal income tax and Kansas State personal
income taxes. The Kansas Fund seeks to meet its objective by investing its
assets in the Kansas Tax Free Portfolio (the "Kansas Portfolio"), which invests
primarily in municipal obligations that are rated at least investment grade by a
major rating agency or, if unrated, determined to be of at least investment
grade quality by the Investment Adviser.
HOW THE FUNDS AND THE PORTFOLIOS INVEST THEIR ASSETS
- --------------------------------------------------------------------------------
EACH FUND SEEKS TO ACHIEVE ITS INVESTMENT OBJECTIVE BY INVESTING EITHER DIRECTLY
OR INDIRECTLY THROUGH ANOTHER OPEN-END MANAGEMENT INVESTMENT COMPANY PRIMARILY
(I.E., AT LEAST 80% OF ITS NET ASSETS DURING PERIODS OF NORMAL MARKET
CONDITIONS) IN DEBT OBLIGATIONS ISSUED BY OR ON BEHALF OF ITS CORRESPONDING
STATE AND ITS POLITICAL SUBDIVISIONS, AND THE GOVERNMENTS OF PUERTO RICO, THE
U.S. VIRGIN ISLANDS AND GUAM, THE INTEREST ON WHICH IS EXEMPT FROM REGULAR
FEDERAL INCOME TAX, IS NOT A TAX PREFERENCE ITEM UNDER THE FEDERAL ALTERNATIVE
MINIMUM TAX AND IS EXEMPT FROM THE STATE TAXES SET FORTH ABOVE. The foregoing
policy is a fundamental policy of each Fund and its corresponding Portfolio and
may not be changed unless authorized by a vote of the Fund's shareholders or
that Portfolio's investors, as the case may be.
At least 75% of the Hawaii Portfolio's and the Kansas Portfolio's net assets
will normally be invested in obligations rated at least investment grade at the
time of investment (which are those rated Baa or higher by Moody's Investors
Service, Inc. ("Moody's") or BBB or higher by either Standard & Poor's Ratings
Group ("S&P") or Fitch Investors Service, Inc. ("Fitch")) or, if unrated,
determined by the Investment Adviser to be of at least investment grade quality.
The balance of the Hawaii Portfolio's and the Kansas Portfolio's net assets may
be invested in municipal obligations rated below investment grade (but not lower
than B by Moody's, S&P or Fitch) and unrated municipal obligations considered to
be of comparable quality by the Investment Adviser. At least 80% of the Florida
Insured Portfolio's net assets will normally be invested in obligations rated in
the highest rating category at the time of investment (which is Aaa by Moody's
or AAA by S&P or Fitch) or, if unrated, determined to be of comparable quality
by the Investment Adviser. The Florida Insured Portfolio may invest up to 20% of
its net assets in obligations rated below Aaa or AAA (but not lower than B) and
comparable unrated obligations, provided that no more than 5% of its net assets
will be invested in obligations rated below investment grade and comparable
unrated obligations. Municipal obligations rated Baa or BBB may have speculative
characteristics. Also, changes in economic conditions or other circumstances are
more likely to lead to a weakened capacity to make principal and interest
payments than in the case of higher rated obligations. Securities rated below
Baa or BBB are commonly known as "junk bonds". A Portfolio may retain an
obligation whose rating drops below B after its acquisition if such retention is
considered desirable by the Investment Adviser. See "Credit Quality - Risks."
For a description of municipal obligation ratings, see the Statement of
Additional Information.
MUNICIPAL OBLIGATIONS. Municipal obligations include bonds, notes and commercial
paper issued by a municipality for a wide variety of both public and private
purposes. Public purpose municipal bonds include general obligation and revenue
bonds. General obligation bonds are backed by the taxing power of the issuing
municipality. Revenue bonds are backed by the revenues of a project or facility.
Municipal notes include bond anticipation, tax anticipation, revenue
anticipation, and construction loan notes. Bond, tax and revenue anticipation
notes are short-term obligations that will be retired with the proceeds of an
anticipated bond issue, tax revenue or facility revenue, respectively.
Construction loan notes are short-term obligations that will be retired with the
proceeds of long-term mortgage financing. Under normal market conditions, a
Portfolio will invest at least 65% of its total assets in obligations issued by
its respective State or its political subdivisions.
Interest on certain "private activity bonds" issued after August 7, 1986 is
exempt from regular Federal income tax, but such interest (including a
distribution by a Fund derived from such interest) is treated as a tax
preference item which could subject the recipient to or increase the recipient's
liability for the Federal alternative minimum tax. A Portfolio may not invest
more than 20% of its net assets in these obligations and obligations that pay
interest subject to regular Federal income tax and/or the relevant State taxes.
As at January 31, 1995, the Portfolios had invested in private activity bonds as
follows (as a percentage of net assets): Florida Insured Portfolio (16.4%);
Hawaii Portfolio (19.0%); and Kansas Portfolio (3.7%). For corporate
shareholders, each Fund's distributions derived from interest on all municipal
obligations (whenever issued) is included in "adjusted current earnings" for
purposes of the Federal alternative minimum tax as applied to corporations (to
the extent not already included in alternative minimum taxable income as income
attributable to private activity bonds).
Market discount on long-term tax-exempt municipal obligations (i.e.,
obligations with a term of more than one year) purchased in the secondary market
after April 30, 1993 is taxable as ordinary income. A long-term debt obligation
is generally treated as acquired at a market discount if the secondary market
purchase price is less than (i) the stated principal amount payable at maturity,
in the case of an obligation that does not have original issue discount, or (ii)
in the case of an obligation that does have original issue discount, the sum of
the issue price and any original issue discount that accrued before the
obligation was purchased, subject to a de minimus amount. Each Portfolio may
acquire municipal obligations at a market discount from time to time, and its
corresponding Fund's distributions will (when so required) include taxable
income reflecting the realization of such accrued discount by the Portfolio and
its allocation to the Fund.
MATURITY. It is expected that each Portfolio will normally contain substantial
amounts of long-term municipal obligations with maturities of ten years or more
because such long-term obligations generally produce higher income than
short-term obligations. Such long-term obligations are more susceptible to
market fluctuations resulting from changes in interest rates than shorter term
obligations. Since each Portfolio's objective is to provide current income, each
Portfolio will invest in obligations with an emphasis on income and not on
stability of a Portfolio's net asset value. The average maturity of a
Portfolio's holdings may vary (generally between 15 and 30 years) depending on
anticipated market conditions.
Although each Portfolio will normally attempt to invest substantially all of
its assets in municipal obligations issued by its respective State, a Portfolio
may, under normal market conditions, invest up to 20% of its net assets in
short-term obligations the interest on which is subject to regular Federal
income tax, is a tax preference item for purposes of the Federal alternative
minimum tax and/or is subject to the relevant State taxes. Such short-term
taxable obligations may include 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, a Portfolio may temporarily invest more than 20% of its assets in
such short-term taxable obligations, which will be rated no lower than
investment grade.
CONCENTRATION. Each Portfolio will concentrate its investments in municipal
obligations issued by its respective State. Each Portfolio is, therefore, more
susceptible to factors adversely affecting issuers in one State than mutual
funds which do not concentrate in a specific State. Municipal obligations of
issuers in a single State may be adversely effected by economic developments and
by legislation and other governmental activities in that State. To the extent
that a Portfolio's assets are concentrated in municipal obligations of issuers
of a single State, that Portfolio may be subject to an increased risk of loss.
Each Portfolio may also invest in obligations issued by the governments of
Puerto Rico, the U.S. Virgin Islands and Guam. See the Appendix to this
Prospectus for a description of economic and other factors relating to the
relevant States and Puerto Rico.
In addition, each Portfolio may invest 25% or more of its assets in
municipal obligations of the same type, including, without limitation, the
following: general obligations of its respective State and its political
subdivisions; lease rental obligations of State and local authorities;
obligations of State and local housing finance authorities, municipal utilities
systems or public housing authorities; obligations for hospitals or life care
facilities; or industrial development or pollution control bonds issued for
electric utility systems, steel companies, paper companies or other purposes.
This may make a Portfolio more susceptible to adverse economic, political, or
regulatory occurrences affecting a particular category of issuer. For example,
health care-related issuers are susceptible to medicaid reimbursement policies,
and national and state health care legislation. As a Portfolio's concentration
increases, so does the potential for fluctuation in the value of the
corresponding Fund's shares.
- --------------------------------------------------------------------------------
EACH FUND AND PORTFOLIO HAVE ADOPTED CERTAIN FUNDAMENTAL INVESTMENT RESTRICTIONS
WHICH ARE ENUMERATED IN DETAIL IN THE STATEMENT OF ADDITIONAL INFORMATION AND
WHICH MAY NOT BE CHANGED UNLESS AUTHORIZED BY A SHAREHOLDER VOTE AND AN INVESTOR
VOTE, RESPECTIVELY. EXCEPT FOR SUCH ENUMERATED RESTRICTIONS AND AS OTHERWISE
INDICATED IN THIS PROSPECTUS, THE INVESTMENT OBJECTIVE AND POLICIES OF EACH FUND
AND PORTFOLIO ARE NOT FUNDAMENTAL POLICIES AND ACCORDINGLY MAY BE CHANGED BY THE
TRUSTEES OF THE TRUST AND THE PORTFOLIO WITHOUT OBTAINING THE APPROVAL OF A
FUND'S SHAREHOLDERS OR THE INVESTORS IN THE CORRESPONDING PORTFOLIO, AS THE CASE
MAY BE. IF ANY CHANGES WERE MADE IN A FUND'S INVESTMENT OBJECTIVE, THE FUND
MIGHT HAVE INVESTMENT OBJECTIVES DIFFERENT FROM THE OBJECTIVE WHICH AN INVESTOR
CONSIDERED APPROPRIATE AT THE TIME THE INVESTOR BECAME A SHAREHOLDER IN THE
FUND.
- --------------------------------------------------------------------------------
NON-DIVERSIFIED STATUS. Each Portfolio's classification under the Investment
Company Act of 1940 as a "non-diversified" investment company allows it to
invest, with respect to 50% of its assets, more than 5% of its assets in the
securities of any issuer. Because of the small number of municipal obligations
issued by a State, a Portfolio is likely to invest a greater percentage of its
assets in the securities of a single issuer than would a diversified fund.
Therefore, a Portfolio would be more susceptible to any single adverse economic
or political occurrence or development affecting issuers of the relevant State's
municipal obligations. A Portfolio will also be subject to an increased risk of
loss if the issuer is unable to make interest or principal payments or if the
market value of such securities declines. It is also possible that sufficient
suitable State municipal obligations will not be available for a Portfolio to
achieve its investment objective.
MUNICIPAL LEASES. Each Portfolio may invest in municipal leases and
participations therein, which arrangements frequently involve special risks.
Municipal leases are obligations in the form of a lease or installment purchase
arrangement which is entered into 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 asset 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 arrangements are,
therefore, subject to the risk that the governmental issuer will not appropriate
funds for lease payments.
Certain municipal lease obligations owned by a Portfolio may be deemed
illiquid for purposes of the Portfolio's 15% limitation on investing in illiquid
securities, unless determined by the Investment Adviser, pursuant to guidelines
adopted by the Trustees of each Portfolio, to be liquid securities for the
purpose of such limitation. In determining the liquidity of municipal lease
obligations, the Investment Adviser will consider a variety of factors
including: (1) the willingness of dealers to bid for the security; (2) the
number of dealers willing to purchase or sell the obligation and the number of
other potential buyers; (3) the frequency of trades and quotes for the
obligation; and (4) the nature of the marketplace trades. In addition, the
Investment Adviser will consider factors unique to particular lease obligations
affecting the marketability thereof. These include the general creditworthiness
of the municipality, the importance of the property covered by the lease to the
municipality, and the likelihood that the marketability of the obligation will
be maintained throughout the time the obligation is held by a Portfolio. In the
event a Portfolio acquires an unrated municipal lease obligation, the Investment
Adviser will be responsible for determining the credit quality of such
obligation on an ongoing basis, including an assessment of the likelihood that
the lease may or may not be cancelled.
ZERO COUPON BONDS. Each Portfolio may invest in zero coupon bonds, which are
debt obligations that do not require the periodic payment of interest and are
issued at a significant discount from their face value. Such bonds experience
greater volatility in market value due to changes in interest rates than
municipal obligations that provide for regular payments of interest. A Portfolio
will accrue income on such bonds for tax and accounting purposes in accordance
with applicable law; as a regulated investment company, the corresponding Fund
must distribute its share of such income to its shareholders. Because no cash is
received at the time such income is accrued, a Portfolio may be required to
liquidate other portfolio securities to generate cash that a Fund may withdraw
from the Portfolio to satisfy the Fund's distribution obligations.
INVERSE FLOATERS. Each Portfolio may invest in various types of derivative
municipal securities whose interest rates bear an inverse relationship to the
interest rate on another security or the value of an index ("inverse floaters").
Derivatives are securities that provide for payments based on or derived from
the performance of an underlying asset, index or other economic benchmark. An
investment in derivative instruments, such as inverse floaters, may involve
greater risk than an investment in a fixed rate bond. Because changes in the
interest rate on the other security or index inversely affect the residual
interest paid on the inverse floater, the value of an inverse floater is
generally more volatile than that of a fixed rate bond. Inverse floaters have
interest rate adjustment formulas which generally reduce or, in the extreme,
eliminate the interest paid to the Portfolio when short-term interest rates
rise, and increase the interest paid to the Portfolio when short-term interest
rates fall. Inverse floaters have varying degrees of liquidity, and the market
for these securities is thin and relatively volatile. These securities tend to
underperform the market for fixed rate bonds in a rising interest rate
environment, but tend to outperform the market for fixed rate bonds when
interest rates decline. Shifts in the relationship between short-term and
long-term interest rates may alter this tendency, however. Although volatile,
inverse floaters typically offer the potential for yields exceeding the yields
available on fixed rate bonds with comparable credit quality and maturity. These
securities usually permit the investor to convert the floating rate to a fixed
rate (normally adjusted downward), and this optional conversion feature may
provide a partial hedge against rising interest rates if exercised at an
opportune time. Inverse floaters are leveraged because they provide two or more
dollars of bond market exposure for every dollar invested.
CREDIT QUALITY -- RISKS. Many municipal obligations offering current income are
in the lowest investment grade category (Baa or BBB), lower categories or may be
unrated. As indicated above, each Portfolio may invest in municipal obligations
rated below investment grade (but not lower than B by Moody's, S&P or Fitch) and
comparable unrated obligations. The lowest investment grade, lower rated and
comparable unrated municipal obligations in which a Portfolio may invest will
have speculative characteristics in varying degrees. While such obligations may
have some quality and protective characteristics, these characteristics can be
expected to be offset or outweighed by uncertainties or major risk exposures to
adverse conditions. Lower rated and comparable unrated municipal obligations are
subject to the risk of an issuer's inability to meet principal and interest
payments on the obligations (credit risk) and may also be subject to greater
price volatility due to such factors as interest rate sensitivity, market
perception of the creditworthiness of the issuer and general market liquidity
(market risk). Lower rated or unrated municipal obligations are also more likely
to react to real or perceived developments affecting market and credit risk than
are more highly rated obligations, which react primarily to movements in the
general level of interest rates. Each Portfolio may retain defaulted obligations
in its portfolio when such retention is considered desirable by the Investment
Adviser. In the case of a defaulted obligation, a Portfolio may incur additional
expense seeking recovery of its investment. Municipal obligations held by a
Portfolio which are rated below investment grade but which, subsequent to the
assignment of such rating, are backed by escrow accounts containing U.S.
Government obligations may be determined by the Investment Adviser to be of
investment grade quality for purposes of the Portfolio's investment policies.
Each Portfolio may retain in its portfolio an obligation whose rating drops
below B after its acquisition, if such retention is considered desirable by the
Investment Adviser; provided, however, that holdings of obligations rated below
Baa or BBB will not exceed 35% of net assets. In the event the rating of an
obligation held by a Portfolio is downgraded, causing the Portfolio to exceed
this limitation, the Investment Adviser will (in an orderly fashion within a
reasonable period of time) dispose of such obligations as it deems necessary in
order to comply with its credit quality limitations. For a description of
municipal obligation ratings, see the Statement of Additional Information.
INSURED FLORIDA OBLIGATIONS. Insured municipal obligations held by the Florida
Insured Portfolio ("Florida obligations") will be insured as to their scheduled
payment of principal and interest under (i) an insurance policy obtained by the
issuer or underwriter of the Florida obligation at the time of its original
issuance ("Issue Insurance"), (ii) an insurance policy obtained by the Florida
Insured Portfolio or a third party subsequent to the Florida obligation's
original issuance ("Secondary Market Insurance") or (iii) a municipal insurance
policy purchased by the Florida Insured Portfolio ("Mutual Fund Insurance").
Each type of insurance insures the timely payment of interest and principal of
the Florida obligation but does not protect the market value of such obligation
or the net asset value of the Florida Insured Portfolio or the Florida Insured
Fund.
Issue Insurance is generally purchased by the issuer or underwriter of the
Florida obligation and is noncancellable and effective as long as the securities
are unpaid and the insurer remains in business. Secondary Market Insurance
allows the Florida Insured Portfolio or a third party to a pay a single premium
to insure a Florida obligation as to principal and interest until maturity and
to transfer the insurance benefit with the underlying security. Secondary Market
Insurance premiums do not result in an expense to the Florida Insured Portfolio,
but are added to the cost basis of the Florida obligation so insured. Mutual
Fund Insurance may be purchased from insurance companies that guarantee the
timely payment of interest and principal when due on certain Florida obligations
that are designated by the insurer as eligible for such insurance. Mutual Fund
Insurance may terminate upon the Florida Insured Portfolio's sale of the
obligation or it may be extended to enhance the marketability of the obligation.
To extend a policy, the Florida Insured Portfolio will pay a single,
predetermined premium payable from the proceeds of the sale of that obligation.
It is expected that the Florida Insured Portfolio will extend a policy only if,
in the opinion of the Investment Adviser, the net proceeds from the sale of the
obligation, as insured, would exceed the proceeds from the sale of that
obligation without insurance. The price of Florida obligations insured by Mutual
Fund Insurance is expected to be more volatile than the price of Florida
obligations insured by Issue or Secondary Market Insurance. To the extent the
Florida Insured Portfolio's obligations are insured by Mutual Fund Insurance,
the value of the Florida Insured Fund's investment in the Florida Insured
Portfolio, and the price of the Florida Insured Fund's shares, will be more
volatile than if such obligations were otherwise insured.
Florida obligations held by the Florida Insured Portfolio will be insured by
insurers having a claims-paying ability rated Aaa by Moody's or AAA by S&P or
Fitch. See the Appendix to the Statement of Additional Information for a brief
description of the claims-paying ability ratings.
The Florida Insured Portfolio anticipates that under normal conditions all
or substantially all of its Florida obligations will be subject to Issue
Insurance or Secondary Market Insurance. If the Florida Insured Portfolio
purchases Mutual Fund Insurance, premiums are paid by the Florida Insured
Portfolio. These premiums are based on the credit quality and principal amount
of the Florida obligation to be insured. If the issuer, underwriter, or other
third party purchases the insurance for the obligation, the value of such
insurance is generally reflected in a higher market value or purchase price for
the obligation. While insurance is intended to reduce financial risk, the cost
of such insurance (from higher purchase prices of securities or the payment of
insurance premiums) will result in lower yields on the Florida obligations so
insured.
The Florida Insured Portfolio may also invest in Florida obligations that
are secured by an escrow or trust account which contains securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities, that are
backed by the full faith and credit of the United States, and sufficient in
amount to ensure the payment of interest on and principal of the secured Florida
obligation ("collateralized obligations"). Collateralized obligations generally
are regarded as having the credit characteristics of the underlying U.S.
Government, agency or instrumentality securities. These obligations will not be
subject to Issue Insurance, Secondary Market Insurance or Mutual Fund Insurance,
but will be considered to be insured Florida obligations for purposes of the
Florida Insured Portfolio's policy of investing at least 80% of its net assets
in insured Florida obligations (but such obligations will not constitute more
than 15% of the insured portion of the Florida Insured Portfolio).
OTHER INSURED OBLIGATIONS. Each Portfolio may purchase municipal bonds that are
additionally secured by insurance, bank credit agreements, or escrow accounts.
The credit quality of companies which provide such credit enhancements will
affect the value of those securities. Although the insurance feature reduces
certain financial risks, the premiums for insurance and the higher market price
paid for insured obligations may reduce a Fund's current yield. Insurance
generally will be obtained from insurers with a claims-paying ability rated Aaa
by Moody's or AAA by S&P or Fitch. The insurance does not guarantee the market
value of the insured obligations or the net asset value of a Fund's shares.
MARKET CONDITIONS. The management of the Portfolios believes that, in general,
the secondary market for some municipal obligations issued within a State
(including issues which are privately placed with a Portfolio) is less liquid
than that for taxable debt obligations or for large issues of municipal
obligations that trade in a national market. No established resale market exists
for certain of the municipal obligations in which a Portfolio may invest. The
market for obligations rated below investment grade is also likely to be less
liquid than the market for higher rated obligations. These considerations may
restrict the availability of such obligations, may affect the choice of
securities sold to meet redemption requests and may limit a Portfolio's ability
to sell or dispose of such securities. Also, valuation of such obligations may
be more difficult.
NET ASSET VALUE FLUCTUATION. The net asset value of shares of a Fund will change
in response to fluctuations in prevailing interest rates and changes in the
value of the securities held by its corresponding Portfolio. When interest rates
decline, the value of securities held by a Portfolio can be expected to rise.
Conversely, when interest rates rise, the value of most portfolio security
holdings can be expected to decline. Changes in the credit quality of the
issuers of municipal obligations held by a Portfolio will affect the principal
value (and possibly the income earned) on such obligations. An investment in
shares of a Fund will not constitute a complete investment program.
SHORT-TERM TRADING. Each Portfolio may sell securities in anticipation of a
market decline (a rise in interest rates) or purchase and later sell securities
in anticipation of a market rise (a decline in interest rates). In addition, a
security may be sold and another purchased at approximately the same time to
take advantage of what a Portfolio believes to be a temporary disparity in the
normal yield relationship between the two securities. Yield disparities may
occur for reasons not directly related to the investment quality of particular
issues or the general movement of interest rates, such as changes in the overall
demand for or supply of various types of municipal obligations or changes in the
investment objectives of investors. Such trading may be expected to increase
portfolio turnover rate and the expenses incurred in connection with such
trading. Each Portfolio anticipates that its annual portfolio turnover rate will
generally not exceed 100% (excluding turnover of securities having a maturity of
one year or less).
WHEN-ISSUED SECURITIES. Each Portfolio may purchase securities on a "when-
issued" basis, which means that payment and delivery occur on a future
settlement date. The price and yield of such securities are generally fixed on
the date of commitment to purchase. However, the market value of the securities
may fluctuate prior to delivery and upon delivery the securities may be worth
more or less than a Portfolio agreed to pay for them. A Portfolio will not
accrue income in respect of when-issued securities prior to the stated delivery
date of such securities. Each Portfolio will maintain in a segregated account
sufficient assets to cover its outstanding purchase obligations so long as such
obligations continue. Each Portfolio may also purchase instruments that give the
Portfolio the option to purchase a municipal obligation when and if issued.
FUTURES TRANSACTIONS. Each Portfolio may purchase and sell various kinds of
futures contracts and options thereon to hedge against changes in interest
rates. The futures contracts may be based on various debt securities (such as
U.S. Government securities), securities indices and other financial instruments
and indices. Such transactions involve a risk of loss or depreciation due to
unanticipated adverse changes in securities prices, which may exceed a
Portfolio's initial investment in these contracts. A Portfolio may not purchase
or sell futures contracts or related options, except for closing purchase or
sale transactions, if immediately thereafter the sum of the amount of margin
deposits and premiums paid on the Portfolio's outstanding positions would exceed
5% of the market value of the Portfolio's net assets. Nonetheless, at least 80%
of a Portfolio's net assets will be invested in municipal obligations. These
transactions involve transaction costs. There can be no assurance that the
Investment Adviser's use of futures will be advantageous to a Portfolio.
Distributions by a Fund of any gains realized on its corresponding Portfolio's
transactions in futures and options on futures will be taxable.
ORGANIZATION OF THE FUNDS AND THE PORTFOLIOS
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Each Fund is a non-diversified series of Eaton Vance Municipals Trust II, a
business trust established under Massachusetts law pursuant to a Declaration of
Trust dated October 25, 1993, as amended. The Trust is a mutual fund -- an
open-end management investment company. THE TRUSTEES OF THE TRUST ARE
RESPONSIBLE FOR THE OVERALL MANAGEMENT AND SUPERVISION OF ITS AFFAIRS. The Trust
may issue an unlimited number of shares of beneficial interest (no par value per
share) in one or more series and because the Trust can offer separate series
(such as the Funds), it is known as a "series company." Each share represents an
equal proportionate beneficial interest in a Fund. When issued and outstanding,
each Fund's shares are fully paid and nonassessable by the Trust and redeemable
as described under "How to Redeem Fund Shares." Shareholders are entitled to one
vote for each full share held. Fractional shares may be voted proportionately.
Shares have no preemptive or conversion rights and are freely transferable. In
the event of the liquidation of a Fund, shareholders of that Fund are entitled
to share pro rata in the net assets available for distribution to shareholders.
EACH PORTFOLIO IS ORGANIZED AS A TRUST UNDER THE LAWS OF THE STATE OF NEW
YORK AND INTENDS TO BE TREATED AS A PARTNERSHIP FOR FEDERAL TAX PURPOSES. The
Portfolios, as well as the Trust, intend to comply with all applicable Federal
and state securities laws. Each Portfolio's Declaration of Trust provides that
its corresponding Fund and other entities permitted to invest in that Portfolio
(e.g., other U.S. and foreign investment companies, and common and commingled
trust funds) will each be liable for all obligations of the Portfolio. However,
the risk of a Fund incurring financial loss on account of such liability is
limited to circumstances in which both inadequate insurance exists and the
Portfolio itself is unable to meet its obligations. Accordingly, the Trustees of
the Trust believe that neither the Funds nor their shareholders will be
adversely affected by reason of the Funds investing in the Portfolios.
SPECIAL INFORMATION ON THE FUND/PORTFOLIO INVESTMENT STRUCTURE. An investor in a
Fund should be aware that the Fund, unlike mutual funds which directly acquire
and manage their own portfolios of securities, seeks to achieve its investment
objective by investing its assets in an interest in its corresponding Portfolio
(although the Fund may temporarily hold a de minimus amount of cash), which is a
separate investment company with an identical investment objective. Therefore, a
Fund's interest in the securities owned by its corresponding Portfolio is
indirect. In addition to selling an interest to its corresponding Fund, a
Portfolio may sell interests to other affiliated and non-affiliated mutual funds
or institutional investors. Such investors will invest in a Portfolio on the
same terms and conditions and will pay a proportionate share of the Portfolio's
expenses. However, the other investors investing in a Portfolio are not required
to sell their shares at the same public offering price as the corresponding Fund
due to variations in sales commissions and other operating expenses. Therefore,
investors in a Fund should be aware that these differences may result in
differences in returns experienced by investors in the various funds that invest
in its corresponding Portfolio. Such differences in returns are also present in
other mutual fund structures, including funds that have multiple classes of
shares. For information regarding the investment objective, policies and
restrictions of the Portfolios, see "The Funds" Investment Objectives" and "How
the Funds and the Portfolios Invest their Assets". Further information regarding
investment practices may be found in the Statement of Additional Information.
The Trustees of the Trust have considered the advantages and disadvantages
of investing the assets of each Fund in its corresponding Portfolio, as well as
the advantages and disadvantages of the two-tier format. The Trustees believe
that the structure offers opportunities for substantial growth in the assets of
the Portfolios, and affords the potential for economies of scale for each Fund,
at least when the assets of its corresponding Portfolio exceed $500 million.
A Fund may withdraw (completely redeem) all its assets from its
corresponding Portfolio at any time if the Board of Trustees of the Trust
determines that it is in the best interest of that Fund to do so. The investment
objective and the nonfundamental investment policies of each Fund and Portfolio
may be changed by the Trustees of the Trust and the Portfolio without obtaining
the approval of the shareholders of that Fund or the investors in that
Portfolio, as the case may be. Any such change of an investment objective will
be preceded by thirty days' advance written notice to the shareholders of the
Fund or the investors in the Portfolio, as the case may be. If a shareholder
redeems shares because of a change in the nonfundamental objective or policies
of a Fund, those shares may be subject to a contingent deferred sales charge, as
described in "How to Redeem Fund Shares". In the event a Fund withdraws all of
its assets from its corresponding Portfolio, or the Board of Trustees of the
Trust determines that the investment objective of such Portfolio is no longer
consistent with the investment objective of the Fund, such Trustees would
consider what action might be taken, including investing the assets of such Fund
in another pooled investment entity or retaining an investment adviser to manage
the Fund's assets in accordance with its investment objective. A Fund's
investment performance may be affected by a withdrawal of all its assets from
its corresponding Portfolio.
Information regarding other pooled investment entities or funds which invest
in a Portfolio may be obtained by contacting Eaton Vance Distributors, Inc. (the
"Principal Underwriter" or "EVD"), 24 Federal Street, Boston, MA 02110, (617)
482-8260. Smaller investors in a Portfolio may be adversely affected by the
actions of larger investors in the Portfolio. For example, if a large investor
withdraws from a Portfolio, the remaining investors may experience higher pro
rata operating expenses, thereby producing lower returns. Additionally, a
Portfolio may become less diverse, resulting in increased portfolio risk, and
experience decreasing economies of scale. However, this possibility exists as
well for historically structured mutual funds which have large or institutional
investors.
Until recently, the Administrator sponsored and advised historically
structured funds. Funds which invest all their assets in interests in a separate
investment company are a relatively new development in the mutual fund industry
and, therefore, the Funds may be subject to additional regulations than
historically structured funds.
Each Portfolio's Declaration of Trust provides that the Portfolio will
terminate 120 days after the complete withdrawal of a Fund or any other investor
in the Portfolio, unless either the remaining investors, by unanimous vote at a
meeting of such investors, or a majority of the Trustees of the Portfolio, by
written instrument consented to by all investors, agree to continue the business
of the Portfolio. This provision is consistent with treatment of the Portfolios
as partnerships for Federal income tax purposes. See "Distributions and Taxes"
for further information. Whenever a Fund as an investor in a Portfolio is
requested to vote on matters pertaining to the Portfolio (other than the
termination of the Portfolio's business, which may be determined by the Trustees
of the Portfolio without investor approval), the Fund will hold a meeting of
Fund shareholders and will vote its interest in the Portfolio for or against
such matters proportionately to the instructions to vote for or against such
matters received from Fund shareholders. A Fund shall vote shares for which it
receives no voting instructions in the same proportion as the shares for which
it receives voting instructions. Other investors in a Portfolio may alone or
collectively acquire sufficient voting interests in the Portfolio to control
matters relating to the operation of the Portfolio, which may require the
corresponding Fund to withdraw its investment in the Portfolio or take other
appropriate action. Any such withdrawal could result in a distribution "in kind"
of portfolio securities (as opposed to a cash distribution from the Portfolio).
If securities are distributed, a Fund could incur brokerage, tax or other
charges in converting the securities to cash. In addition, the distribution in
kind may result in a less diversified portfolio of investments or adversely
affect the liquidity of a Fund. Notwithstanding the above, there are other means
for meeting shareholder redemption requests, such as borrowing.
The Trustees of the Trust, including a majority of the noninterested
Trustees, have approved written procedures designed to identify and address any
potential conflicts of interest arising from the fact that the Trustees of the
Trust and the Trustees of each Portfolio are the same. Such procedures require
each Board to take action to resolve any conflict of interest between a Fund and
its corresponding Portfolio, and it is possible that the creation of separate
Boards may be considered. For further information concerning the Trustees and
officers of the Trust and the Portfolios, see the Statement of Additional
Information.
Although each Fund offers only its own shares of beneficial interest, it is
possible that a Fund might become liable for a misstatement or omission in this
Prospectus regarding another Fund because the Funds use this combined
Prospectus. The Trustees of the Trust have considered this factor in approving
the use of a combined Prospectus.
MANAGEMENT OF THE FUNDS AND THE PORTFOLIOS
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EACH PORTFOLIO ENGAGES BOSTON MANAGEMENT AND RESEARCH ("BMR"), A WHOLLY-OWNED
SUBSIDIARY OF EATON VANCE MANAGEMENT ("EATON VANCE"), AS ITS INVESTMENT ADVISER.
EATON VANCE, ITS AFFILIATES AND ITS PREDECESSOR COMPANIES HAVE BEEN MANAGING
ASSETS OF INDIVIDUALS AND INSTITUTIONS SINCE 1924 AND MANAGING INVESTMENT
COMPANIES SINCE 1931.
Acting under the general supervision of the Board of Trustees of each
Portfolio, BMR manages each Portfolio's investments and affairs. Under its
investment advisory agreement with a Portfolio, BMR receives a monthly advisory
fee equal to the aggregate of
(a) a daily asset-based fee computed by applying the annual asset rate
applicable to that portion of the total daily net assets in each
Category as indicated below, plus
(b) a daily income-based fee computed by applying the daily income rate
applicable to that portion of the total daily gross income (which
portion shall bear the same relationship to the total daily gross income
on such day as that portion of the total daily net assets in the same
Category bears to the total daily net assets on such day) in each
Category as indicated below:
ANNUAL DAILY
CATEGORY DAILY NET ASSETS ASSET RATE INCOME RATE
- -------- ---------------- ---------- -----------
1 up to $20 million ....................... 0.100% 1.00%
2 $20 million but less than $40 million ... 0.200% 2.00%
3 $40 million but less than $500 million .. 0.300% 3.00%
4 $500 million but less than $1 billion ... 0.275% 2.75%
5 $1 billion but less than $1.5 billion ... 0.250% 2.50%
6 $1.5 billion but less than $2 billion ... 0.225% 2.25%
7 $2 billion but less than $3 billion ..... 0.200% 2.00%
8 $3 billion and over ..................... 0.175% 1.75%
For the period from the start of business, March 2, 1994, to the fiscal year
ended January 31, 1995, each Portfolio, absent a fee reduction, would have paid
advisory fees equivalent to the following annualized percentage of average daily
net assets:
NET ASSETS
AS OF
PORTFOLIO JANUARY 31, 1995 ADVISORY FEE
--------- ---------------- ------------
Florida Insured ....................... $14,399,951 0.16%(1)
Hawaii ................................ 12,864,539 0.16%(2)
Kansas ................................ 8,306,028 0.16%(3)
(1)To enhance the net income of the Florida Insured Portfolio, BMR made a
reduction of its advisory fee in the full amount of such fee and BMR was
allocated $13,139 of expenses related to the operation of such Portfolio.
(2)To enhance the net income of the Hawaii Portfolio, BMR made a reduction of
its advisory fee in the full amount of such fee and BMR was allocated
$13,430 of expenses related to the operation of such Portfolio.
(3)To enhance the net income of the Kansas Portfolio, BMR made a reduction of
its advisory fee in the full amount of such fee and BMR was allocated
$12,847 of expenses related to the operation of such Portfolio.
BMR furnishes for the use of each Portfolio office space and all necessary
office facilities, equipment and personnel for servicing the investments of the
Portfolios. Municipal obligations are normally traded on a net basis (without
commission) through broker-dealers and banks acting for their own account. Such
firms attempt to profit from such transactions by buying at the bid price and
selling at the higher asked price of the market, and the difference is
customarily referred to as the spread. In selecting firms which will execute
portfolio transactions, BMR judges their professional ability and quality of
service and uses its best efforts to obtain execution at prices which are
advantageous to the Portfolios and at reasonably competitive spreads. Subject to
the foregoing, BMR may consider sales of shares of the Funds or of other
investment companies sponsored by BMR or Eaton Vance as a factor in the
selection of firms to execute portfolio transactions.
Thomas J. Fetter has acted as the portfolio manager of the Florida Insured
Portfolio since it commenced operations. Mr. Fetter has been a Vice President
of Eaton Vance since 1987 and of BMR since 1992.
Robert B. MacIntosh has acted as the portfolio manager of the Hawaii
Portfolio since it commenced operations. Mr. MacIntosh has been a Vice President
of Eaton Vance since 1991 and of BMR since 1992. Prior to joining Eaton Vance,
he was a portfolio manager at Fidelity Management & Research Company
(1986-1991).
Nicole Anderes has acted as the portfolio manager of the Kansas Portfolio
since it commenced operations. She joined Eaton Vance and BMR as a Vice
President in January 1994. Prior to joining Eaton Vance, she was a Vice
President and portfolio manager at Lazard Freres Asset Management (1992-1994)
and a Vice President and Manager -- Municipal Research at Roosevelt & Cross
(1987-1992).
BMR OR EATON VANCE ACTS AS INVESTMENT ADVISER TO INVESTMENT COMPANIES AND
VARIOUS INDIVIDUAL AND INSTITUTIONAL CLIENTS WITH ASSETS UNDER MANAGEMENT OF
APPROXIMATELY $15 BILLION. Eaton Vance is a wholly-owned subsidiary of Eaton
Vance Corp., a publicly held holding company. Eaton Vance Corp., through its
subsidiaries and affiliates, engages in investment management and marketing
activities, fiduciary and banking services, oil and gas operations, real estate
investment, consulting and management, and development of precious metals
properties.
The Trust has retained the services of Eaton Vance to act as Administrator
of the Funds. The Trust has not retained the services of an investment adviser
since the Trust seeks to achieve the investment objective of each Fund by
investing the Fund's assets in its corresponding Portfolio. As Administrator,
Eaton Vance provides the Funds with general office facilities and supervises the
overall administration of the Fund. For these services Eaton Vance currently
receives no compensation. The Trustees of the Trust may determine, in the
future, to compensate Eaton Vance for such services.
The Portfolios and the Funds, as the case may be, will each be responsible
for all of its respective costs and expenses not expressly stated to be payable
by BMR under the investment advisory agreement, by Eaton Vance under the
administrative services agreement, or by EVD under the distribution agreement.
DISTRIBUTION PLANS
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EACH FUND FINANCES DISTRIBUTION ACTIVITIES AND HAS ADOPTED A DISTRIBUTION PLAN
(A "PLAN") PURSUANT TO RULE 12B-1 UNDER THE INVESTMENT COMPANY ACT OF 1940. Rule
12b-1 permits a mutual fund, such as a Fund, to finance distribution activities
and bear expenses associated with the distribution of its shares provided that
any payments made by the Fund are made pursuant to a written plan adopted in
accordance with the Rule. Each Plan is subject to, and complies with, the sales
charge rule of the National Association of Securities Dealers, Inc. (the "NASD
Rule"). Each Fund's Plan is described further in the Statement of Additional
Information, and the following is a description of the salient features of the
Plans. Each Fund's Plan provides that the Fund, subject to the NASD Rule, will
pay sales commissions and distribution fees to the Principal Underwriter only
after and as a result of the sale of shares of the Fund. On each sale of Fund
shares (excluding reinvestment of distributions) a Fund will pay the Principal
Underwriter amounts representing (i) sales commissions equal to 5% of the amount
received by a Fund for each share sold and (ii) distribution fees calculated by
applying the rate of 1% over the prime rate then reported in The Wall Street
Journal to the outstanding balance of Uncovered Distribution Charges (as
described below) of the Principal Underwriter. The Principal Underwriter
currently expects to pay sales commissions (except on exchange transactions and
reinvestments) to a financial services firm (an "Authorized Firm") at the time
of sale equal to 4% of the purchase price of the shares sold by such Firm. The
Principal Underwriter will use its own funds (which may be borrowed from banks)
to pay such commissions. Because the payment of the sales commissions and
distribution fees to the Principal Underwriter is subject to the NASD Rule
described below, it will take the Principal Underwriter a number of years to
recoup the sales commissions paid by it to Authorized Firms from the payments
received by it from a Fund pursuant to a Plan.
THE NASD RULE REQUIRES EACH FUND TO LIMIT ITS ANNUAL PAYMENTS OF SALES
COMMISSIONS AND DISTRIBUTION FEES TO THE PRINCIPAL UNDERWRITER TO AN AMOUNT NOT
EXCEEDING .75% OF THE FUND'S AVERAGE DAILY NET ASSETS FOR EACH FISCAL YEAR.
Under its Plan a Fund accrues daily an amount at the rate of 1/365 of .75% of
the Fund's net assets, and pays such accrued amounts monthly to the Principal
Underwriter. Each Plan requires such accruals to be automatically discontinued
during any period in which there are no outstanding Uncovered Distribution
Charges under the Plan. Uncovered Distribution Charges are calculated daily and,
briefly, are equivalent to all unpaid sales commissions and distribution fees to
which the Principal Underwriter is entitled under a Plan less all contingent
deferred sales charges theretofore paid to the Principal Underwriter. The Eaton
Vance organization may be considered to have realized a profit under a Fund's
Plan if at any point in time the aggregate amounts of all payments received by
the Principal Underwriter from the Fund pursuant to the Plan, including any
contingent deferred sales charges, have exceeded the total expenses theretofore
incurred by such organization in distributing shares of the Fund. Total expenses
for this purpose will include an allocable portion of the overhead costs of such
organization and its branch offices.
Because of the NASD Rule limitation on the amount of sales commissions and
distribution fees paid to the Principal Underwriter during any fiscal year, a
high level of sales of Fund shares during the initial years of a Fund's
operations would cause a large portion of the sales commissions attributable to
a sale of Fund shares to be accrued and paid by the Fund to the Principal
Underwriter in fiscal years subsequent to the year in which such shares were
sold. This spreading of sales commissions payments under a Fund's Plan over an
extended period would result in the incurrence and payment of increased
distribution fees under the Plan. For the period from the start of business,
March 2, 1994, to the fiscal year ended January 31, 1995, each Fund paid sales
commissions under its Plan equivalent to .75% (annualized) of such Fund's
average daily net assets for such period. As of January 31, 1995, the
outstanding Uncovered Distribution Charges of the Principal Underwriter on such
day calculated under a Fund's Plan amounted to approximately $471,000
(equivalent to 4.1% of net assets) in the case of the Florida Insured Fund,
$626,000 (equivalent to 5.0% of net assets) in the case of the Hawaii Fund, and
$353,000 (equivalent to 4.5% of net assets) in the case of the Kansas Fund.
EACH PLAN ALSO AUTHORIZES A FUND TO MAKE PAYMENTS OF SERVICE FEES TO THE
PRINCIPAL UNDERWRITER, AUTHORIZED FIRMS AND OTHER PERSONS IN AMOUNTS NOT
EXCEEDING .25% OF THE FUND'S AVERAGE DAILY NET ASSETS FOR EACH FISCAL YEAR. The
Trustees of the Trust have initially implemented this provision of each Fund's
Plan by authorizing a Fund to make quarterly payments of service fees to the
Principal Underwriter and Authorized Firms in amounts not expected to exceed
.20% of the Fund's average daily net assets for any fiscal year based on the
value of Fund shares sold by such persons and remaining outstanding for at least
twelve months. However, each Fund's Plan authorizes the Trustees of the Trust on
behalf of the Fund to increase payments to the Principal Underwriter, Authorized
Firms and other persons from time to time without further action by shareholders
of the Fund, provided that the aggregate amount of payments made to such persons
under the Plan in any fiscal year of the Fund does not exceed .25% of the Fund's
average daily net assets. As permitted by the NASD Rule, such payments are made
for personal services and/or the maintenance of shareholder accounts. Service
fees are separate and distinct from the sales commissions and distribution fees
payable by a Fund to the Principal Underwriter, and as such are not subject to
automatic discontinuance when there are no outstanding Uncovered Distribution
Charges of the Principal Underwriter. For the period from the start of business,
March 2, 1994, to the fiscal year ended January 31, 1995, no Fund accrued or
paid any service fees under its Plan. Each Fund began accruing for its service
fee payments during the quarter ending June 30, 1995.
The Principal Underwriter may, from time to time, at its own expense,
provide additional incentives to Authorized Firms which employ registered
representatives who sell a minimum dollar amount of a Fund's shares and/or
shares of other funds distributed by the Principal Underwriter. In some
instances, such additional incentives may be offered only to certain Authorized
Firms whose representatives are expected to sell significant amounts of shares.
In addition, the Principal Underwriter may from time to time increase or
decrease the sales commissions payable to Authorized Firms.
Each Fund may, in its absolute discretion, suspend, discontinue or limit the
offering of its shares at any time. In determining whether any such action
should be taken, the Funds' management intends to consider all relevant factors,
including without limitation the size of a Fund, the investment climate and
market conditions, the volume of sales and redemptions of Fund shares, and the
amount of Uncovered Distribution Charges of the Principal Underwriter. Each Plan
may continue in effect and payments may be made under the Plan following any
such suspension, discontinuance or limitation of the offering of Fund shares;
however, no Fund is contractually obligated to continue its Plan for any
particular period of time. Suspension of the offering of Fund shares would not,
of course, affect a shareholder's ability to redeem shares.
VALUING FUND SHARES
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EACH FUND VALUES ITS SHARES ONCE ON EACH DAY THE NEW YORK STOCK EXCHANGE (THE
"EXCHANGE") IS OPEN FOR TRADING, as of the close of regular trading on the
Exchange (normally 4:00 p.m. New York time). Each Fund's net asset value per
share is determined by its custodian, Investors Bank & Trust Company ("IBT"),
(as agent for the Fund) in the manner authorized by the Trustees of the Trust.
Net asset value is computed by dividing the value of a Fund's total assets, less
its liabilities, by the number of shares outstanding. Because each Fund invests
its assets in an interest in its corresponding Portfolio, a Fund's net asset
value will reflect the value of its interest in the Portfolio (which, in turn,
reflects the underlying value of the Portfolio's assets and liabilities).
Authorized Firms must communicate an investor's order to the Principal
Underwriter prior to the close of the Principal Underwriter's business day to
receive that day's net asset value per Fund share. It is the Authorized Firms'
responsibility to transmit orders promptly to the Principal Underwriter, which
is a wholly-owned subsidiary of Eaton Vance.
Each Portfolio's net asset value is also determined as of the close of
regular trading on the Exchange by IBT (as custodian and agent for the
Portfolio) based on market or fair value in the manner authorized by the
Trustees of the Portfolio. Net asset value is computed by subtracting the
liabilities of a Portfolio from the value of its total assets. Municipal
obligations will normally be valued on the basis of valuations furnished by a
pricing service. For further information regarding the valuation of the
Portfolios' assets, see "Determination of Net Asset Value" in the Statement of
Additional Information. Eaton Vance Corp. owns 77.3% of the outstanding stock of
IBT, the Funds' and the Portfolios' custodian.
- --------------------------------------------------------------------------------
SHAREHOLDERS MAY DETERMINE THE VALUE OF THEIR INVESTMENT BY MULTIPLYING THE
NUMBER OF FUND SHARES OWNED BY THE CURRENT NET ASSET VALUE PER SHARE.
- --------------------------------------------------------------------------------
HOW TO BUY FUND SHARES
- --------------------------------------------------------------------------------
SHARES OF A FUND MAY BE PURCHASED FOR CASH OR MAY BE ACQUIRED IN EXCHANGE FOR
SECURITIES. Investors may purchase shares of a Fund through Authorized Firms at
the net asset value per share of the Fund next determined after an order is
effective. A Fund may suspend the offering of shares at any time and may refuse
an order for the purchase of shares. Shares of each Fund are offered for sale
only in States where such shares may be legally sold.
An initial investment in a Fund must be at least $1,000. Once an account has
been established the investor may send investments of $50 or more at any time
directly to the Funds' Transfer Agent (the "Transfer Agent") as follows: The
Shareholder Services Group, Inc., BOS725, P.O. Box 1559, Boston, MA 02104. The
$1,000 minimum initial investment is waived for Bank Automated Investing
accounts, which may be established with an investment of $50 or more. See "Eaton
Vance Shareholder Services."
ACQUIRING FUND SHARES IN EXCHANGE FOR SECURITIES. IBT, as escrow agent, will
receive securities acceptable to Eaton Vance, as Administrator, in exchange for
Fund shares at their net asset value as determined above. The minimum value of
securities (or securities and cash) accepted for deposit is $5,000. Securities
accepted will be sold by IBT as agent for the account of their owner on the day
of their receipt by IBT or as soon thereafter as possible. The number of Fund
shares to be issued in exchange for securities will be the aggregate proceeds
from the sale of such securities, divided by the applicable net asset value per
Fund share on the day such proceeds are received. Eaton Vance will use
reasonable efforts to obtain the then current market price for such securities
but does not guarantee the best available price. Eaton Vance will absorb any
transaction costs, such as commissions, on the sale of the securities.
Securities determined to be acceptable should be transferred via book entry
or physically delivered, in proper form for transfer, through an Authorized
Firm, together with a completed and signed Letter of Transmittal in approved
form (available from Authorized Firms), as follows:
IN THE CASE OF BOOK ENTRY:
Deliver through Depository Trust Co.
Broker #2212
Investors Bank & Trust Company
For A/C EV Marathon [State name] Tax Free Fund
IN THE CASE OF PHYSICAL DELIVERY:
Investors Bank & Trust Company
Attention: EV Marathon [State name] Tax Free Fund
Physical Securities Processing Settlement Area
89 South Street
Boston, MA 02111
Investors who are contemplating an exchange of securities for shares of a
Fund, or their representatives, must contact Eaton Vance to determine whether
the securities are acceptable before forwarding such securities to IBT. Eaton
Vance reserves the right to reject any securities. Exchanging securities for
Fund shares may create a taxable gain or loss. Each investor should consult his
or her tax adviser with respect to the particular Federal, State and local tax
consequences of exchanging securities for Fund shares.
- --------------------------------------------------------------------------------
IF YOU DON'T HAVE AN AUTHORIZED FIRM, EATON VANCE CAN RECOMMEND ONE.
- --------------------------------------------------------------------------------
HOW TO REDEEM FUND SHARES
- ------------------------------------------------------------------------------
A SHAREHOLDER MAY REDEEM FUND SHARES BY DELIVERING TO THE SHAREHOLDER SERVICES
GROUP, INC., BOS725, P.O. BOX 1559, BOSTON, MASSACHUSETTS 02104, during its
business hours a written request for redemption in good order, plus any share
certificates with executed stock powers. The redemption price will be based on
the net asset value per share of the applicable Fund next computed after such
delivery. Good order means that all relevant documents must be endorsed by the
record owner(s) exactly as the shares are registered and the signature(s) must
be guaranteed by a member of either the Securities Transfer Association's STAMP
program or the New York Stock Exchange's Medallion Signature Program, or certain
banks, savings and loan institutions, credit unions, securities dealers,
securities exchanges, clearing agencies and registered securities associations
as required by a regulation of the Securities and Exchange Commission and
acceptable to The Shareholder Services Group, Inc. In addition, in some cases,
good order may require the furnishing of additional documents such as where
shares are registered in the name of a corporation, partnership or fiduciary.
Within seven days after receipt of a redemption request in good order by The
Shareholder Services Group, Inc., a Fund will make payment in cash for the net
asset value of the shares as of the date determined above, reduced by the amount
of any applicable contingent deferred sales charge (described below) and any
Federal income tax required to be withheld. Although each Fund normally expects
to make payment in cash for redeemed shares, the Trust, subject to compliance
with applicable regulations, has reserved the right to pay the redemption price
of shares of a Fund, either totally or partially, by a distribution in kind of
readily marketable securities withdrawn by that Fund from its corresponding
Portfolio. The securities so distributed would be valued pursuant to the
Portfolio's valuation procedures. If a shareholder received a distribution in
kind, the shareholder could incur brokerage or other charges in converting the
securities to cash.
To sell shares at their net asset value through an Authorized Firm (a
repurchase), a shareholder can place a repurchase order with the Authorized
Firm, which may charge a fee. The value of such shares is based upon the net
asset value calculated after EVD, as the Funds' agent, receives the order. It is
the Authorized Firm's responsibility to transmit promptly repurchase orders to
EVD. Throughout this Prospectus, the word "redemption" is generally meant to
include a repurchase.
If shares were recently purchased, the proceeds of redemption (or
repurchase) will not be sent until the check (including a certified or cashier's
check) received for the shares purchased has cleared. Payment for shares
tendered for redemption may be delayed up to 15 days from the purchase date when
the purchase check has not yet cleared. Redemptions or repurchases may result in
a taxable gain or loss.
Due to the high cost of maintaining small accounts, each Fund reserves the
right to redeem accounts with balances of less than $1,000. Prior to such a
redemption, shareholders will be given 60 days' written notice to make an
additional purchase. Thus, an investor making an initial investment of $1,000
would not be able to redeem shares without being subject to this policy.
However, no such redemption would be required by a Fund if the cause of the low
account balance was a reduction in the net asset value of Fund shares. No
contingent deferred sales charge will be imposed with respect to such
involuntary redemptions.
CONTINGENT DEFERRED SALES CHARGE. Shares redeemed within the first six years
of their purchase (except shares acquired through the reinvestment of
distributions) generally will be subject to a contingent deferred sales charge.
This contingent deferred sales charge is imposed on any redemption the amount of
which exceeds the aggregate value at the time of redemption of (a) all shares in
the account purchased more than six years prior to the redemption, (b) all
shares in the account acquired through reinvestment of distributions, and (c)
the increase, if any, in the value of all other shares in the account (namely
those purchased within the six years preceding the redemption) over the purchase
price of such shares. Redemptions are processed in a manner to maximize the
amount of redemption proceeds which will not be subject to a contingent deferred
sales charge. That is, each redemption will be assumed to have been made first
from the exempt amounts referred to in clauses (a), (b) and (c) above, and
second through liquidation of those shares in the account referred to in clause
(c) on a first-in-first-out basis. Any contingent deferred sales charge which is
required to be imposed on share redemptions will be made in accordance with the
following schedule:
YEAR OF CONTINGENT
REDEMPTION DEFERRED SALES
AFTER PURCHASE CHARGE
-------------- --------------
First ....................... 5%
Second ...................... 5%
Third ....................... 4%
Fourth ...................... 3%
Fifth ....................... 2%
Sixth ....................... 1%
Seventh and following ....... 0%
For shares purchased prior to August 1, 1994, the contingent deferred sales
charge for redemptions within the first year after purchase is 6%. In
calculating the contingent deferred sales charge upon the redemption of Fund
shares acquired in an exchange of shares of a fund currently listed under "The
Eaton Vance Exchange Privilege," the contingent deferred sales charge schedule
applicable to the shares at the time of purchase will apply and the purchase of
Fund shares acquired in the exchange is deemed to have occurred at the time of
the original purchase of the exchanged shares. The contingent deferred sales
charge will be waived for shares redeemed (1) pursuant to a Withdrawal Plan (see
"Eaton Vance Shareholder Services"), (2) as part of a required distribution from
a tax-sheltered retirement plan or (3) following the death of all beneficial
owners of such shares, provided the redemption is requested within one year of
death (a death certificate and other applicable documents may be required).
No contingent deferred sales charge will be imposed on Fund shares which
have been sold to Eaton Vance or its affiliates, or to their respective
employees or clients. The contingent deferred sales charge will be paid to the
Principal Underwriter or a Fund.
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THE FOLLOWING EXAMPLE ILLUSTRATES THE OPERATION OF THE CONTINGENT DEFERRED SALES
CHARGE. ASSUME THAT AN INVESTOR PURCHASES $10,000 OF A FUND'S SHARES AND THAT 16
MONTHS LATER THE VALUE OF THE ACCOUNT HAS GROWN THROUGH INVESTMENT PERFORMANCE
AND REINVESTMENT OF DIVIDENDS TO $12,000. THE INVESTOR THEN MAY REDEEM UP TO
$2,000 OF SHARES WITHOUT INCURRING A CONTINGENT DEFERRED SALES CHARGE. IF THE
INVESTOR SHOULD REDEEM $3,000 OF SHARES, A CHARGE WOULD BE IMPOSED ON $1,000 OF
THE REDEMPTION. THE RATE WOULD BE 5% BECAUSE THE REDEMPTION WAS MADE IN THE
SECOND YEAR AFTER THE PURCHASE WAS MADE AND THE CHARGE WOULD BE $50.
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REPORTS TO SHAREHOLDERS
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EACH FUND WILL ISSUE TO ITS SHAREHOLDERS SEMI-ANNUAL AND ANNUAL REPORTS
CONTAINING FINANCIAL STATEMENTS. Financial statements included in annual reports
are audited by the Funds' independent certified public accountants. Shortly
after the end of each calendar year, each Fund will furnish its shareholders
with information necessary for preparing Federal and State tax returns.
THE LIFETIME INVESTING ACCOUNT/DISTRIBUTION OPTIONS
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AFTER AN INVESTOR MAKES AN INITIAL PURCHASE OF FUND SHARES, THE FUNDS' TRANSFER
AGENT, THE SHAREHOLDER SERVICES GROUP, INC., WILL SET UP A LIFETIME INVESTING
ACCOUNT FOR THE INVESTOR ON THE APPLICABLE FUND'S RECORDS. This account is a
complete record of all transactions between the investor and the Fund which at
all times shows the balance of shares owned. A Fund will not issue share
certificates except upon request.
At least quarterly, shareholders will receive a statement showing complete
details of any transaction and the current balance in the account. THE LIFETIME
INVESTING ACCOUNT ALSO PERMITS A SHAREHOLDER TO MAKE ADDITIONAL INVESTMENTS IN
SHARES OF A FUND BY SENDING A CHECK FOR $50 OR MORE to The Shareholder Services
Group, Inc.
Any questions concerning a shareholder's account or services available may
be directed by telephone to EATON VANCE SHAREHOLDER SERVICES at 800-225-6265,
extension 2, or in writing to The Shareholder Services Group, Inc., BOS725, P.O.
Box 1559, Boston, MA, 02104 (please provide the name of the shareholder, the
Fund and the account number).
THE FOLLOWING DISTRIBUTION OPTIONS WILL BE AVAILABLE TO ALL LIFETIME
INVESTING ACCOUNTS and may be changed as often as desired by written notice to
the Funds' dividend disbursing agent, The Shareholder Services Group, Inc.,
BOS725, P.O. Box 1559, Boston, MA 02104. The currently effective option will
appear on each account statement.
Share Option -- Dividends and capital gains will be reinvested in additional
shares.
Income Option -- Dividends will be paid in cash, and capital gains will be
reinvested in additional shares.
Cash Option -- Dividends and capital gains will be paid in cash.
The Share Option will be assigned if no other option is specified.
Distributions, including those reinvested, will be reduced by any withholding
required under Federal income tax laws.
If the Income Option or Cash Option has been selected, dividend and/or
capital gains distribution checks which are returned by the United States Postal
Service as not deliverable or which remain uncashed for six months or more will
be reinvested in the account in shares at the then current net asset value.
Furthermore, the distribution option on the account will be automatically
changed to the Share Option until such time as the shareholder selects a
different option.
DISTRIBUTION INVESTMENT OPTION. In addition to the distribution options set
forth above, dividends and/or capital gains may be invested in additional shares
of another Eaton Vance fund. Before selecting this option, a shareholder should
obtain a prospectus of the other Eaton Vance fund and consider its objectives
and policies carefully.
"STREET NAME" ACCOUNTS. If shares of a Fund are held in a "street name"
account with an Authorized Firm, all recordkeeping, transaction processing and
payments of distributions relating to the beneficial owner's account will be
performed by the Authorized Firm, and not by the Fund and its Transfer Agent.
Since a Fund will have no record of the beneficial owner's transactions, a
beneficial owner should contact the Authorized Firm to purchase, redeem or
exchange shares, to make changes in or give instructions concerning the account,
or to obtain information about the account. The transfer of shares in a "street
name" account to an account with another dealer or to an account directly with a
Fund involves special procedures and will require the beneficial owner to obtain
historical purchase information about the shares in the account from the
Authorized Firm. Before establishing a "street name" account with an investment
firm, or transferring the account to another investment firm, an investor
wishing to reinvest distributions should determine whether the firm which will
hold the shares allows reinvestment of distributions in "street name" accounts.
- --------------------------------------------------------------------------------
UNDER A LIFETIME INVESTING ACCOUNT A SHAREHOLDER CAN MAKE ADDITIONAL INVESTMENTS
IN SHARES OF A FUND BY SENDING A CHECK FOR $50 OR MORE.
- --------------------------------------------------------------------------------
THE EATON VANCE EXCHANGE PRIVILEGE
- --------------------------------------------------------------------------------
Shares of a Fund currently may be exchanged for shares of one or more other
funds in the Eaton Vance Marathon Group of Funds (which includes Eaton Vance
Equity-Income Trust and any EV Marathon fund, except Eaton Vance Prime Rate
Reserves) or Eaton Vance Money Market Fund, which are distributed subject to a
contingent deferred sales charge, on the basis of the net asset value per share
of each fund at the time of the exchange, provided that such exchange offers are
available only in states where shares of the fund being acquired may be legally
sold.
Each exchange must involve shares which have a net asset value of at least
$1,000. The exchange privilege may be changed or discontinued without penalty.
Shareholders will be given sixty (60) days' notice prior to any termination or
material amendment of the exchange privilege. The Funds do not permit the
exchange privilege to be used for "Market Timing" and may terminate the exchange
privilege for any shareholder account engaged in Market Timing activity. Any
shareholder account for which more than two round-trip exchanges are made within
any twelve month period will be deemed to be engaged in Market Timing.
Furthermore, a group of unrelated accounts for which exchanges are entered
contemporaneously by a financial intermediary will be considered to be engaged
in Market Timing.
The Shareholder Services Group, Inc. makes exchanges at the next determined
net asset value after receiving an exchange request in good order (see "How to
Redeem Fund Shares"). Consult The Shareholder Services Group, Inc. for
additional information concerning the exchange privilege. Applications and
prospectuses of other funds are available from Authorized Firms or the Principal
Underwriter. The prospectus for each fund describes its investment objectives
and policies, and shareholders should obtain a prospectus and consider these
objectives and policies carefully before requesting an exchange.
No contingent deferred sales charge is imposed on exchanges. For purposes of
calculating the contingent deferred sales charge upon the redemption of shares
acquired in an exchange, the contingent deferred sales charge schedule
applicable to the shares at the time of purchase will apply and the purchase of
shares acquired in one or more exchanges is deemed to have occurred at the time
of the original purchase of the exchanged shares. For the contingent deferred
sales charge schedule applicable to the Eaton Vance Marathon Group of Funds
(except EV Marathon Strategic Income Fund and Class I shares of any EV Marathon
Limited Maturity Fund), see "How to Redeem Fund Shares". The contingent deferred
sales charge schedule applicable to EV Marathon Strategic Income Fund and Class
I shares of any EV Marathon Limited Maturity Fund is 3%, 2.5%, 2% or 1% in the
event of a redemption occurring in the first, second, third or fourth year,
respectively, after the original share purchase.
Shares of other funds in the Eaton Vance Marathon Group of Funds and shares
of Eaton Vance Money Market Fund may be exchanged for Fund shares on the basis
of the net asset value per share of each fund at the time of the exchange, but
subject to any restrictions or qualifications set forth in the current
prospectus of any such fund.
Telephone exchanges are accepted by The Shareholder Services Group, Inc.,
provided that the investor has not disclaimed in writing the use of the
privilege. To effect such exchanges, call The Shareholder Services Group, Inc.
at 800-262-1122 or, within Massachusetts, 617-573-9403, Monday through Friday,
9:00 a.m. to 4:00 p.m. (Eastern Standard Time). Shares acquired by telephone
exchange must be registered in the same name(s) and with the same address as the
shares being exchanged. Neither the Funds, the Principal Underwriter nor The
Shareholder Services Group, Inc. will be responsible for the authenticity of
exchange instructions received by telephone, provided that reasonable procedures
to confirm that instructions communicated are genuine have been followed.
Telephone instructions will be tape recorded. In times of drastic economic or
market changes, a telephone exchange may be difficult to implement. An exchange
may result in a taxable gain or loss.
EATON VANCE SHAREHOLDER SERVICES
- --------------------------------------------------------------------------------
THE FUNDS OFFER THE FOLLOWING SERVICES, WHICH ARE VOLUNTARY, INVOLVE NO EXTRA
CHARGE, AND MAY BE CHANGED OR DISCONTINUED WITHOUT PENALTY AT ANY TIME. Full
information on each of the services described below and an application, where
required, are available from Authorized Firms or the Principal Underwriter. The
cost of administering such services for the benefit of shareholders who
participate in them is borne by the applicable Fund as an expense to all
shareholders.
INVEST-BY-MAIL -- FOR PERIODIC SHARE ACCUMULATION: Once the $1,000 minimum
investment has been made, checks of $50 or more payable to the order of the Fund
being purchased may be mailed directly to The Shareholder Services Group, Inc.,
BOS725, P.O. Box 1559, Boston, MA 02104 at any time -- whether or not dividends
are reinvested. The name of the shareholder, the Fund and the account number
should accompany each investment.
BANK AUTOMATED INVESTING -- FOR REGULAR SHARE ACCUMULATION: Cash investments of
$50 or more may be made automatically each month or quarter from a shareholder's
bank account. The $1,000 minimum initial investment and small account redemption
policy are waived for these accounts.
WITHDRAWAL PLAN: A shareholder may draw on shareholdings systematically with
monthly or quarterly checks in an aggregate amount that does not exceed annually
12% of the account balance at the time the plan is established. Such amount will
not be subject to a contingent deferred sales charge. See "How to Redeem Fund
Shares". A minimum deposit of $5,000 in shares is required.
REINVESTMENT PRIVILEGE: A SHAREHOLDER WHO HAS REPURCHASED OR REDEEMED SHARES MAY
REINVEST, WITH CREDIT FOR ANY CONTINGENT DEFERRED SALES CHARGES PAID ON THE
REPURCHASED OR REDEEMED SHARES, ANY PORTION OR ALL OF THE REPURCHASE OR
REDEMPTION PROCEEDS (PLUS THAT AMOUNT NECESSARY TO ACQUIRE A FRACTIONAL SHARE TO
ROUND OFF THE PURCHASE TO THE NEAREST FULL SHARE) IN SHARES OF A FUND, provided
that the reinvestment is effected within 60 days after such repurchase or
redemption, and the privilege has not been used more than once in the prior 12
months. Shares are sold to a reinvesting shareholder at the next determined net
asset value following timely receipt of a written purchase order by the
Principal Underwriter or by a Fund (or by the Funds' Transfer Agent). To the
extent that any shares of a Fund are sold at a loss and the proceeds are
reinvested in shares of the Fund (or other shares of the Fund are acquired
within the period beginning 30 days before and ending 30 days after the date of
the redemption) some or all of the loss generally will not be allowed as a tax
deduction. Shareholders should consult their tax advisers concerning the tax
consequences of reinvestments.
DISTRIBUTIONS AND TAXES
- --------------------------------------------------------------------------------
SUBSTANTIALLY ALL OF THE INVESTMENT INCOME ALLOCATED TO A FUND BY ITS
CORRESPONDING PORTFOLIO, LESS THE FUND'S DIRECT AND ALLOCATED EXPENSES, WILL BE
DECLARED DAILY AS A DISTRIBUTION TO FUND SHAREHOLDERS OF RECORD AT THE TIME OF
DECLARATION. Such distributions, whether taken in cash or reinvested in
additional shares, will ordinarily be paid on the fifteenth day of each month or
the next business day thereafter. Each Fund anticipates that for tax purposes
the entire distribution, whether paid in cash or reinvested in additional shares
of the Fund, will constitute tax-exempt income to shareholders, except for the
proportionate part of the distribution that may be considered taxable income if
the Fund has taxable income during the calendar year. Shareholders reinvesting
the monthly distribution should treat the amount of the entire distribution as
the tax cost basis of the additional shares acquired by reason of such
reinvestment. Daily distribution crediting will commence on the day that
collected funds for the purchase of Fund shares are available at the Transfer
Agent. Shareholders of a Fund will receive timely Federal income tax information
as to the tax-exempt or taxable status of all distributions made by the Fund
during the calendar year. A Fund's net realized capital gains, if any, consist
of the net realized capital gains allocated to the Fund by its corresponding
Portfolio for tax purposes, after taking into account any available capital loss
carryovers; a Fund's net realized capital gains, if any, will be distributed at
least once a year, usually in December.
Each Fund intends to qualify as a regulated investment company under the
Internal Revenue Code of 1986, as amended (the "Code"), and to satisfy all
requirements necessary to be relieved of Federal taxes on income and gains it
distributes to shareholders. In satisfying these requirements, each Fund will
treat itself as owning its proportionate share of each of its corresponding
Portfolio's assets and as entitled to the income of the Portfolio properly
attributable to such share.
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AS A REGULATED INVESTMENT COMPANY UNDER THE CODE, EACH FUND DOES NOT PAY FEDERAL
INCOME OR EXCISE TAXES TO THE EXTENT THAT IT DISTRIBUTES TO SHAREHOLDERS ITS NET
INVESTMENT INCOME AND NET REALIZED CAPITAL GAINS IN ACCORDANCE WITH THE TIMING
REQUIREMENTS IMPOSED BY THE CODE. AS PARTNERSHIPS UNDER THE CODE, THE PORTFOLIOS
DO NOT PAY FEDERAL INCOME OR EXCISE TAXES.
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Distributions of interest on certain municipal obligations constitute a tax
preference item under the alternative minimum tax provisions applicable to
individuals and corporations (see page 7). Distributions of taxable income
(including a portion of any original issue discount with respect to certain
stripped municipal obligations and stripped coupons and accretion of certain
market discount) and net short-term capital gains will be taxable to
shareholders as ordinary income. Distributions of long-term capital gains are
taxable to shareholders as such for Federal income tax purposes, regardless of
the length of time Fund shares have been owned by the shareholder. Distributions
are taxed in the manner described above whether paid in cash or reinvested in
additional shares of a Fund.
Tax-exempt distributions received from a Fund are includable in the tax base
for determining the taxability of social security and railroad retirement
benefits.
Interest on indebtedness incurred or continued by a shareholder to purchase
or carry shares of a Fund is not deductible to the extent it is deemed related
to the Fund's distribution of tax-exempt interest. Further, entities or persons
who are "substantial users" (or persons related to "substantial users") of
facilities financed by industrial development or private activity bonds should
consult their tax advisers before purchasing shares of a Fund. "Substantial
user" is defined in applicable Treasury regulations to include a "non-exempt
person" who regularly uses in trade or business a part of a facility financed
from the proceeds of industrial development bonds and would likely be
interpreted to include private activity bonds issued to finance similar
facilities.
SEE THE APPENDIX TO THIS PROSPECTUS FOR INFORMATION CONCERNING STATE TAXES.
Shareholders should consult their own tax advisers with respect to the State,
local and foreign tax consequences of investing in a Fund.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
FROM TIME TO TIME, EACH FUND MAY ADVERTISE ITS YIELD AND/OR AVERAGE ANNUAL TOTAL
RETURN. Each Fund's current yield is calculated by dividing the net investment
income per share earned during a recent 30-day period by the maximum offering
price per share (net asset value) of the Fund on the last day of the period and
annualizing the resulting figure. A taxable-equivalent yield is computed by
using the tax-exempt yield figure and dividing by one minus the tax rate. Each
Fund's average annual total return is determined by computing the average annual
percentage change in value of $1,000 invested at the maximum public offering
price (net asset value) for specified periods ending with the most recent
calendar quarter, assuming reinvestment of all distributions. The average annual
total return calculation assumes a complete redemption of the investment and the
deduction of any applicable contingent deferred sales charge at the end of the
period. Each Fund may publish annual and cumulative total return figures from
time to time.
Each Fund may also publish its distribution rate and/or its effective
distribution rate. Each Fund's distribution rate is computed by dividing the
most recent monthly distribution per share annualized by the current maximum
offering price per share (net asset value). Each Fund's effective distribution
rate is computed by dividing the distribution rate by the ratio used to
annualize the most recent monthly distribution and reinvesting the resulting
amount for a full year on the basis of such ratio. The effective distribution
rate will be higher than the distribution rate because of the compounding effect
of the assumed reinvestment. Investors should note that a Fund's yield is
calculated using a standardized formula the income component of which is
computed from the yields to maturity of all debt obligations held by the
Portfolio based on prescribed methods (with all purchases and sales of
securities during such period included in the income calculation on a settlement
date basis), whereas the distribution rate is based on a Fund's last monthly
distribution which tends to be relatively stable and may be more or less than
the amount of net investment income and short-term capital gain actually earned
by the Fund during the month.
Performance figures published by a Fund which do not include the effect of
any applicable contingent deferred sales charge would be reduced if it were
included.
Investors should note that the investment results of a Fund will fluctuate
over time, and any presentation of a Fund's yield, total return, distribution
rate or effective distribution rate for any prior period should not be
considered a representation of what an investment may earn or what the Fund's
yield, total return, distribution rate or effective distribution rate may be in
any future period. If the expenses related to the operation of a Fund or its
corresponding Portfolio are allocated to Eaton Vance, the Fund's performance
will be higher.
<PAGE>
APPENDIX
STATE SPECIFIC INFORMATION
Because each Portfolio will normally invest at least 65% of its assets in
the obligations within its corresponding State, it is susceptible to factors
affecting that State. Each Portfolio may also invest up to 5% of its net assets
in obligations issued by the governments of each of the U.S. Virgin Islands and
Guam and up to 35% of its assets in obligations issued by the government of
Puerto Rico. Set forth below is certain economic and tax information concerning
the States in which the Portfolios invest and Puerto Rico.
The bond ratings provided below are current as of the date of this
Prospectus and are based on economic conditions which may not continue;
moreover, there can be no assurance that particular bond issues may not be
adversely affected by changes in economic, political or other conditions. Unless
stated otherwise, the ratings indicated are for obligations of the State. A
State's political subdivisions may have different ratings which are unrelated to
the ratings assigned to State obligations.
FLORIDA. Florida's financial operations are considerably different than most
other states' because, under the State's constitution, there is no state income
tax. The lack of an income tax exposes total State tax collections to
considerably more volatility than would otherwise be the case and, in the event
of an economic downswing, could effect the State's ability to pay principal and
interest in a timely manner. The General Fund budget for 1994-95 includes
revenues of $14.6 billion (a 7.3% increase over 1993-94) and expenditures of
$14.3 billion (a 7.6% increase over 1993-94). Through March, 1995, actual
revenues were 0.8% below projections. Unencumbered reserves are projected to be
$252.6 million, or 1.8% of expenditures for fiscal year 1995. Unemployment in
the State for March, 1995 was 4.4%, compared to the national unemployment rate
of 5.5%.
In 1993, the State constitution was amended to limit the annual growth in
the assessed valuation of residential property and which, over time, could
constrain the growth in property taxes, a major revenue source for local
governments. While no immediate ratings implications are expected, the amendment
could have a negative impact on the financial performance of local governments
over time and lead to ratings revisions which may have a negative impact on the
prices of affected bonds.
General obligations of Florida are rated Aa, AA and AA by Moody's, S&P and
Fitch, respectively. S&P presently regards the outlook for the State as stable.
FLORIDA TAXES. The Florida Department of Revenue has issued a ruling that
shareholders of the Florida Insured Fund that are subject to the Florida
intangibles tax will not be required to include the value of their Florida
Insured Fund shares in their taxable intangible property if all of the Florida
Insured Fund's investments on the annual assessment date are obligations that
would be exempt from such tax if held directly by such shareholders, such as
Florida and U.S. Government obligations. The Florida Insured Portfolio will
normally attempt to invest substantially all of its assets in tax-exempt
obligations of Florida, the United States, the Territories or political
subdivisions of the United States or Florida ("Florida obligations") and it will
ensure that all of its assets held on the annual assessment date are exempt from
the Florida intangibles tax. Accordingly, the value of the Florida Insured Fund
shares held by a shareholder should, under normal circumstances, be exempt from
the Florida intangibles tax.
HAWAII. The Hawaiian economy is concentrated in tourism, agriculture,
construction and military operations. Tourism is Hawaii's largest economic
sector. In 1992, due largely to the recession in the U.S., total visitor
arrivals to the State fell 5.2% from 1991. This trend continued in 1993, with a
drop in total visitor arrivals of 6.1% from 1992 figures. Signs of recovery in
this key economic sector appeared in 1994, however, with four solid quarters of
growth in visitor arrivals. While growth in visitor arrivals slowed some in the
first quarter of 1995, total arrivals increased 3.1% in that quarter. Supply
constraints presented by the airline industry's cutbacks in scheduled air seats
to Hawaii pose an increasingly large risk for the tourism-based economy.
Agriculture, dominated by the Hawaiian pineapple and sugar trade, has faced
increased foreign competition. Agricultural production has become somewhat more
diversified and includes cattle, poultry, vegetables, coffee, flowers and other
nursery products, but the agriculture sector continues to decline.
After six years of rapid expansion in the construction industry, building
activity declined in 1992 and 1993; however, as a result of damage caused by
Hurricane Iniki in September of 1992, construction employment increased in 1993
and the overall decline in construction has lessened. Following the winding down
of Hurricane Iniki-related reconstruction on Kauai, construction commitments in
the State have been stable in recent quarters. Proposed budget cuts in U.S.
military construction spending may, however, adversely impact the State's
construction industry, and in fact government construction contracts began to
taper off in the first quarter of 1995. Construction activity is expected to
decline in 1995. Unemployment in Hawaii fell from a seasonally-adjusted 6.6% in
the third quarter of 1994 to 5.2% in the first quarter of 1995, compared to the
national unemployment rate of approximately 5.5%.
The State's overall debt levels are high due, in part, to the State's
assumption of many local government functions, including local education.
Revenue is derived primarily from general excise taxes and individual and
corporate income tax. After many years of operating either within planned
deficits or with ending fund balances, the State faces a budget shortfall of
$250 million or more, much larger than originally anticipated. This has been
aggravated by lower forecasted tax revenues. The State's historically strong
financial position weakened in 1992 as the recession reduced growth in sales and
income taxes. Continued sluggish tax receipts led to a $55 million decline in
the State's unreserved general fund position. Preliminary reports indicate tax
revenues increased 4.3% in 1994, a reflection of a slowly improving economy.
Reserves are expected to continue to grow moderately in 1995. Real gross state
product increased by 2.5% in 1994, and the latest data available suggest similar
growth in 1995.
Hawaii general obligation bonds are rated Aa by Moody's and AA by S&P. Fitch
does not currently rate the State's general obligations.
HAWAII TAXES. In the opinion of McCorriston Miho Miller Mukai, special
Hawaii tax counsel to the Hawaii Fund, distributions paid by the Hawaii Fund
will generally be exempt from Hawaii income tax to the extent that they are
derived from interest on obligations of the State of Hawaii or any of its
political subdivisions or authorities or obligations issued by certain other
government authorities (for example, U.S. territories). Distributions derived
from the Hawaii Fund's other investment income and short-term capital gains will
be subject to Hawaii income tax as ordinary income and distributions from net
realized long-term capital gains will be subject to Hawaii income tax as capital
gains.
Capital gains or losses realized from a redemption, sale or exchange of
shares of the Hawaii Fund by a Hawaii resident will be taken into account for
Hawaii individual income tax purposes.
KANSAS. The Kansas economy is primarily farm-based. Recent growth in the
trade, service and manufacturing sectors has, however, decreased the State's
dependence on agriculture. Cuts in military spending will continue to cause
firms to downsize. The Kansas unemployment rate remains below the national
average as it has for the past 3 decades. Unemployment rose to 5% in 1993 from
4% in 1992, as compared to the national unemployment rate of 6.8% in 1993. The
growth of Kansas personal income in 1994 is estimated to be 5.3% compared with
4.0% in 1993 and compared with a 1994 U.S. growth rate of 5.8%.
State revenue sources include a 4.9% sales tax, a corporate income tax
between 4% and 7.35% and an individual tax rate between 3.5% and 7.75%. The
State sales tax generates over 20% of the tax revenue. A large portion of local
tax revenue is derived from the general property tax and several taxes imposed
in lieu thereof, principally the motor vehicle tax. Local sales and use taxes
accounted for 5.0% of tax revenues in 1994, increasing dramatically from $30
million in 1980 to $307.9 million in 1994 as voters in more cities and counties
have elected to impose the tax or to raise the tax rate to the maximum permitted
by State law. The State's 1994 General Fund showed total revenues of $3.2
billion against total expenditures of $3.2 billion.
Currently the State has no long-term debt; therefore, there is no rating for
Kansas general obligation bonds. Certain certificates of participation issued by
the State of Kansas are rated A by Moody's and A+ by S&P.
KANSAS TAXES. In the opinion of special Kansas tax counsel, Shook, Hardy &
Bacon P.C., individuals, trusts, estates and corporations will not be subject to
the Kansas income tax on the portion of exempt-interest dividends derived from
interest on obligations of Kansas and its political subdivisions issued after
December 31, 1987, and interest on obligations issued before January 1, 1988
where the laws of the State of Kansas authorizing the issuance of such
obligations specifically exempt the interest on such obligations from income tax
under the laws of the State of Kansas. All remaining dividends (except for
dividends, if any, derived from debt obligations issued by the governments of
Puerto Rico, the U.S. Virgin Islands and Guam and which are exempt from Federal
and state income taxes pursuant to federal law), including dividends derived
from capital gains, will be includable in the Kansas taxable income of
individuals, trusts, estates and corporations. Distributions treated as
long-term capital gains for Federal income tax purposes will generally receive
the same characterization under Kansas law. Capital gains or losses realized
from a redemption, sale or exchange of shares of the Kansas Fund by a Kansas
taxpayer will be taken into account for Kansas income tax purposes.
The above exemptions do not apply to the privilege tax imposed on banks,
banking associations, trust companies, savings and loan associations, and
insurance companies, or the franchise tax imposed on corporations. Banks,
banking associations, trust companies, savings and loan associations, insurance
companies and corporations are urged to consult their own tax advisors regarding
the effects of these taxes before investing in the Kansas Fund.
The Kansas Fund has been advised by the Kansas Department of Revenue that
gross earnings derived from the Kansas Fund are not subject to the local
intangibles tax imposed by counties, cities and townships pursuant to existing
Kansas law.
The tax discussion set forth above is for general information only. The
foregoing relates to Kansas income taxation as in effect as of the date of this
combined Prospectus. Investors should consult their own tax advisers regarding
the state, local and other tax consequences of an investment in the Kansas Fund,
including the effects of any change, including any proposed change, in the tax
laws.
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 fiscal 1994 will depend on several
factors, including the state of the U.S. economy and the relative stability in
the price of oil, the exchange rate of the U.S. dollar and the cost of
borrowing. Although the Puerto Rico unemployment rate has declined substantially
since 1985, the seasonally adjusted unemployment rate for February, 1995 was
approximately 12.5%. The North American Free Trade Agreement (NAFTA), which
became effective January 1, 1994, could lead to the loss of Puerto Rico's lower
salaried or labor intensive jobs to Mexico.
S&P rates Puerto Rico general obligations debt A, while Moody's rates it
Baa1; these ratings have been in place since 1956 and 1976, respectively. S&P
assigned a stable outlook on Puerto Rico on April 26, 1994.
<PAGE>
PORTFOLIO INVESTMENT ADVISER
Boston Management and Research
24 Federal Street
Boston, MA 02110
FUND ADMINISTRATOR
Eaton Vance Management
24 Federal Street
Boston, MA 02110
PRINCIPAL UNDERWRITER
Eaton Vance Distributors, Inc.
24 Federal Street
Boston, MA 02110
(800) 225-6265
CUSTODIAN
Investors Bank & Trust Company
24 Federal Street
Boston, MA 02110
TRANSFER AGENT
The Shareholder Services Group, Inc.
BOS 725
P.O. Box 1559
Boston, MA 02104
(800) 262-1122
AUDITORS
Deloitte & Touche LLP
125 Summer Street
Boston, MA 02110
EV MARATHON
TAX FREE FUNDS
24 FEDERAL STREET
BOSTON, MA 02110
M-TFC9/8P
PROSPECTUS
JUNE 1, 1995
o EV MARATHON
FLORIDA INSURED
TAX FREE FUND
o EV MARATHON
HAWAII
TAX FREE FUND
o EV MARATHON
KANSAS
TAX FREE FUND
<PAGE>
PART A
INFORMATION REQUIRED IN A PROSPECTUS
EV TRADITIONAL FLORIDA INSURED TAX FREE FUND
EV TRADITIONAL FLORIDA INSURED TAX FREE FUND (THE "FUND") IS A MUTUAL FUND
SEEKING TO PROVIDE CURRENT INCOME EXEMPT FROM REGULAR FEDERAL INCOME TAX IN THE
FORM OF AN INVESTMENT EXEMPT FROM FLORIDA INTANGIBLES TAX. THE FUND INVESTS ITS
ASSETS IN FLORIDA INSURED TAX FREE PORTFOLIO (THE "PORTFOLIO"), A
NON-DIVERSIFIED OPEN-END INVESTMENT COMPANY HAVING THE SAME INVESTMENT OBJECTIVE
AS THE FUND, RATHER THAN BY DIRECTLY INVESTING IN AND MANAGING ITS OWN PORTFOLIO
OF SECURITIES AS WITH HISTORICALLY STRUCTURED MUTUAL FUNDS. THE FUND IS A SERIES
OF EATON VANCE MUNICIPALS TRUST II (THE "TRUST").
Shares of the Fund are not deposits or obligations of, or guaranteed or
endorsed by, any bank or other depository institution, and are not federally
insured by the Federal Deposit Insurance Corporation, the Federal Reserve Board
or any other government agency. Shares of the Fund involve investment risks,
including fluctuations in value and the possible loss of some or all of the
principal investment.
This Prospectus is designed to provide you with information you should know
before investing. Please retain this document for future reference. A Statement
of Additional Information dated June 1, 1995 for the Fund, as supplemented from
time to time, has been filed with the Securities and Exchange Commission and is
incorporated herein by reference. This Statement of Additional Information is
available without charge from the Fund's principal underwriter, Eaton Vance
Distributors, Inc. (the "Principal Underwriter"), 24 Federal Street, Boston, MA
02110 (telephone (800) 225-6265). The Portfolio's investment adviser is Boston
Management and Research (the "Investment Adviser"), a wholly-owned subsidiary of
Eaton Vance Management, and Eaton Vance Management is the administrator (the
"Administrator") of the Fund. The offices of the Investment Adviser and the
Administrator are located at 24 Federal Street, Boston, MA 02110.
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURI-
TIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPEC-
TUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<S> <C>
Shareholder and Fund Expenses........ 2
The Fund's Financial Highlights...... 3
The Fund's Investment Objective...... 4
How the Fund and the Portfolio Invest
their
Assets............................. 4
Organization of the Fund and the
Portfolio.......................... 11
Management of the Fund and the
Portfolio.......................... 14
Service Plan......................... 15
Valuing Fund Shares.................. 16
How to Buy Fund Shares............... 16
How to Redeem Fund Shares............ 19
Reports to Shareholders.............. 20
The Lifetime Investing Account/
Distribution Options............... 20
The Eaton Vance Exchange Privilege... 21
Eaton Vance Shareholder Services..... 22
Distributions and Taxes.............. 23
Performance Information.............. 25
Statement of Intention and Escrow
Agreement.......................... 26
</TABLE>
- --------------------------------------------------------------------------------
PROSPECTUS DATED JUNE 1, 1995
SHAREHOLDER AND FUND EXPENSES
- -------------------------------------------------------------------------------
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases of Shares (as a percentage
of offering price) 3.75%
Sales Charges Imposed on Reinvested Distributions None
Redemption Fees None
Fees to Exchange Shares None
Contingent Deferred Sales Charges Imposed on Redemptions None
ANNUAL FUND AND ALLOCATED PORTFOLIO OPERATING EXPENSES
(as a percentage of average daily net assets)
Investment Adviser Fee (after fee reduction) 0.00%
Rule 12b-1 Fees (Service Plan) 0.10%
Other Expenses (after expense reduction) 0.01%
Total Operating Expenses (after reductions) 0.11%
</TABLE>
<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
An investor would pay the following maximum initial
sales charge and expenses on a $1,000 investment,
assuming (a) 5% annual return and (b) redemption at the
end of each time period: $39 $41 $43 $51
</TABLE>
Notes:
The tables and Example summarize the aggregate expenses of the Fund and the
Portfolio and are designed to help investors understand the costs and expenses
they will bear, directly or indirectly, by investing in the Fund. Information
for the Fund is based on its expenses for the most recent fiscal year, except
for Service Fees, which are estimated to be 0.10% in the current fiscal year.
Absent a fee reduction and an expense allocation, the Investment Adviser Fee
would have been 0.16%, and Other Expenses would have been 2.84%.
The Fund invests exclusively in the Portfolio. The Trustees believe that,
over time, the aggregate per share expenses of the Fund and the Portfolio should
be approximately equal to, or less than, the per share expenses the Fund would
incur if the Fund were instead to retain the services of an investment adviser
and its assets were invested directly in the types of securities being held by
the Portfolio.
The Example should not be considered a representation of past or future
expenses and actual expenses may be greater or less than those shown. Federal
regulations require the Example to assume a 5% annual return, but actual annual
return will vary. For further information regarding the expenses of both the
Fund and the Portfolio see "Organization of the Fund and the Portfolio" and "How
to Redeem Fund Shares."
The Portfolio's monthly advisory fee has two components, a fee based on
daily net assets and a fee based on daily gross income, as set forth in the fee
schedule on page 14.
Other investment companies with different distribution arrangements and
fees are investing in the Portfolio and additional such companies and investors
may do so in the future. See "Organization of the Fund and the Portfolio".
THE FUND'S FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The following information should be read in conjunction with the audited
financial statements included in the Statement of Additional Information, all of
which have been so included in reliance upon the report of Deloitte & Touche
LLP, independent certified public accountants, as experts in accounting and
auditing, which report is contained in the Statement of Additional Information.
Further information regarding the performance of the Fund is contained in the
Fund's annual report to shareholders which may be obtained without charge by
contacting the Principal Underwriter.
- --------------------------------------------------------------------------------
FOR THE PERIOD FROM THE START OF BUSINESS, MARCH 3, 1994, TO JANUARY 31, 1995:
<TABLE>
<S> <C>
NET ASSET VALUE, beginning of period..................................... $10.000
-------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income.................................................. $ 0.509
Net realized and unrealized gain (loss) on investments................. 0.435
-------
Total income from investment operations............................. $ 0.944
-------
LESS DISTRIBUTIONS:
From net investment income............................................. $(0.509)
In excess of net investment income..................................... (0.005)
-------
Total distributions................................................. $(0.514)
-------
NET ASSET VALUE, end of period........................................... $10.430
=======
TOTAL RETURN(1).......................................................... 9.18%
RATIOS/SUPPLEMENTAL DATA*:
Net assets, end of period (000's omitted).............................. $ 1,213
Ratio of net expenses to average daily net assets(2)................... 0.01%+
Ratio of net investment income to average daily net assets 5.37%+
*The operating expenses of the Fund and the Portfolio reflect an allocation of
expenses to the Administrator and a reduction of fees by the Investment Adviser. Had
such action not been taken, net investment income per share and the ratios would
have been as follows:
NET INVESTMENT INCOME PER SHARE.......................................... $ 0.226
=======
RATIOS (As a percentage of average daily net assets):
Expenses(2)............................................................ 3.00%+
=======
Net investment income.................................................. 2.38%+
=======
</TABLE>
+ Computed on an annualized basis.
(1) Total return is calculated assuming a purchase at the net asset value on
the first day and a sale at the net asset value on the last day of the
period reported. Dividends and distributions, if any, are assumed to be
reinvested at the net asset value on the payable date. Computed on a
non-annualized basis.
(2) Includes the Fund's share of Florida Insured Tax Free Portfolio's allocated
expenses.
THE FUND'S INVESTMENT OBJECTIVE
- --------------------------------------------------------------------------------
EV TRADITIONAL FLORIDA INSURED TAX FREE FUND'S INVESTMENT OBJECTIVE IS TO
PROVIDE CURRENT INCOME EXEMPT FROM REGULAR FEDERAL INCOME TAX IN THE FORM OF AN
INVESTMENT EXEMPT FROM FLORIDA INTANGIBLES TAX. The Fund currently seeks to meet
its investment objective by investing its assets in the Florida Insured Tax Free
Portfolio, a separate open-end management investment company which invests
primarily in Florida obligations (as defined below) that are rated in the
highest rating category by a major rating agency or, if unrated, are determined
to be of comparable quality by the Investment Adviser. Under normal conditions,
substantially all of the Portfolio's assets will be invested in Florida
obligations that are insured as to the timely payment of principal and interest.
See "Insured Florida Obligations". In any event, no less than 80% of the
Portfolio's net assets will be invested in insured Florida obligations.
HOW THE FUND AND THE PORTFOLIO INVEST THEIR ASSETS
- --------------------------------------------------------------------------------
THE FUND SEEKS TO ACHIEVE ITS INVESTMENT OBJECTIVE BY INVESTING EITHER DIRECTLY
OR INDIRECTLY THROUGH ANOTHER OPEN-END MANAGEMENT INVESTMENT COMPANY PRIMARILY
(I.E., AT LEAST 80% OF ITS NET ASSETS DURING PERIODS OF NORMAL MARKET
CONDITIONS) IN DEBT OBLIGATIONS ISSUED BY OR ON BEHALF OF THE STATE OF FLORIDA
AND ITS POLITICAL SUBDIVISIONS, AND THE GOVERNMENTS OF PUERTO RICO, THE U.S.
VIRGIN ISLANDS AND GUAM, THE INTEREST ON WHICH IS EXEMPT FROM REGULAR FEDERAL
INCOME TAX AND IS NOT A TAX PREFERENCE ITEM UNDER THE FEDERAL ALTERNATIVE
MINIMUM TAX, AND THE VALUE OF WHICH IS EXEMPT FROM FLORIDA INTANGIBLES TAX
("FLORIDA TAX-EXEMPT OBLIGATIONS"). The foregoing policy is a fundamental policy
of both the Fund and the Portfolio and may not be changed unless authorized by a
vote of the shareholders of the Fund or the investors in the Portfolio, as the
case may be.
At least 80% of the Portfolio's net assets will normally be invested in
obligations rated in the highest rating category at the time of investment
(which is Aaa by Moody's Investors Service, Inc. ("Moody's") or AAA by Standard
& Poor's Ratings Group ("S&P") or Fitch Investors Service, Inc. ("Fitch")) or,
if unrated, determined to be of comparable quality by the Investment Adviser.
The Portfolio may invest up to 20% of its net assets in Florida obligations
rated below Aaa or AAA (but not lower than B) and comparable unrated
obligations, provided that no more than 5% of its net assets will be invested in
obligations rated below investment grade (which are those rated below Baa by
Moody's or below BBB by S&P or Fitch) and comparable unrated obligations.
Florida 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 in its portfolio an obligation whose
rating drops below B after its acquisition, if such retention is considered
desirable by the Investment Adviser. See "Credit Quality -- Risks." For a
description of municipal obligation ratings, see the Statement of Additional
Information.
FLORIDA OBLIGATIONS. Municipal obligations eligible for the exemption from
Florida intangibles tax ("Florida obligations") include bonds, notes and
commercial paper issued by a municipality for a wide variety of both public and
private purposes. Public purpose municipal bonds include general obligation and
revenue bonds. General obligation bonds are backed by the taxing power of the
issuing municipality. Revenue
bonds are backed by the revenues of a project or facility. Municipal notes
include bond anticipation, tax anticipation, revenue anticipation and
construction loan notes. Bond, tax and revenue anticipation notes are short-term
obligations that will be retired with the proceeds of an anticipated bond issue,
tax revenue or facility revenue, respectively. Construction loan notes are
short-term obligations that will be retired with the proceeds of long-term
mortgage financing. Under normal market conditions, the Portfolio will invest at
least 65% of its total assets in obligations issued by Florida or its political
subdivisions.
Interest on certain "private activity bonds" issued after August 7, 1986 is
exempt from regular Federal income tax, but such interest (including a
distribution by the Fund derived from such interest) is treated as a tax
preference item which could subject the recipient to or increase the recipient's
liability for the Federal alternative minimum tax; as at January 31, 1995, the
Portfolio had 16.4% of its net assets invested in such private activity bonds.
The Portfolio may not invest more than 20% of its net assets in these
obligations and obligations that pay interest subject to regular Federal income
tax and/or Florida intangibles tax. For corporate shareholders, the Fund's
distributions derived from interest on all municipal obligations (whenever
issued) is included in "adjusted current earnings" for purposes of the Federal
alternative minimum tax as applied to corporations (to the extent not already
included in alternative minimum taxable income as income attributable to private
activity bonds).
Market discount on long-term tax-exempt municipal obligations (i.e.,
obligations with a term of more than one year) purchased in the secondary market
after April 30, 1993 is taxable as ordinary income. A long-term debt obligation
is generally treated as acquired at a market discount if the secondary market
purchase price is less than (i) the stated principal amount payable at maturity,
in the case of an obligation that does not have original issue discount, or (ii)
in the case of an obligation that does have original issue discount, the sum of
the issue price and any original issue discount that accrued before the
obligation was purchased, subject to a de minimus amount. The Portfolio may
acquire municipal obligations at a market discount from time to time, and the
Fund's distributions will (when so required) include taxable income reflecting
the realization of such accrued discount by the Portfolio and its allocation to
the Fund.
MATURITY. It is expected that the Portfolio will normally contain substantial
amounts of long-term Florida obligations with maturities of ten years or more
because such long-term obligations generally produce higher income than
short-term obligations. Such long-term obligations are more susceptible to
market fluctuations resulting from changes in interest rates than shorter term
obligations. Since the Portfolio's objective is to provide current income, the
Portfolio will invest in Florida obligations with an emphasis on income and not
on stability of the Portfolio's net asset value. The average maturity of the
Portfolio's holdings may vary (generally between 15 and 30 years) depending on
anticipated market conditions.
Although the Portfolio will normally attempt to invest substantially all of
its assets in Florida obligations, the Portfolio may, under normal market
conditions, invest up to 20% of its net assets in short-term obligations the
interest on which is subject to regular Federal income tax, is a tax preference
item for purposes of the Federal alternative minimum tax and/or is subject to
Florida intangibles tax. Such short-term taxable obligations may include
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, which will be rated no lower than investment grade.
CONCENTRATION. The Portfolio may invest 25% or more of its assets in Florida
obligations of the same type, including, without limitation, the following:
general obligations of the State of Florida and its political subdivisions,
lease rental obligations of State and local authorities; obligations of State
and local housing finance authorities, municipal utilities systems or public
housing authorities; obligations for hospitals or life care facilities; or
industrial development or pollution control bonds issued for electric utility
systems, steel companies, paper companies or other purposes. This may make the
Portfolio more susceptible to adverse economic, political, or regulatory
occurrences affecting a particular category of issuer. For example, health
care-related issuers are susceptible to medicaid reimbursement policies, and
national and state health care legislation. As the Portfolio's concentration
increases, so does the potential for fluctuation in the value of the Fund's
shares.
NON-DIVERSIFIED STATUS. The Portfolio's classification under the Investment
Company Act of 1940 as a "non-diversified" investment company allows it to
invest, with respect to 50% of its assets, more than 5% of its assets in the
securities of any issuer. Because of the small number of issues of Florida
obligations, 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 would be more susceptible to any single adverse
economic or political occurrence or development affecting Florida issuers. The
Portfolio will also be subject to an increased risk of loss if the issuer is
unable to make interest or principal payments or if the market value of such
securities declines. It is also possible that sufficient suitable Florida
tax-exempt obligations will not be available for the Portfolio to achieve its
investment objective.
CONCENTRATION IN FLORIDA OBLIGATIONS -- RISKS. Because the Portfolio will
normally invest at least 65% of its assets in Florida obligations, it is
susceptible to factors affecting Florida.
Florida's financial operations are considerably different than most other
states' because, under the State's constitution, there is no state income tax.
The lack of an income tax exposes total State tax collections to considerably
more volatility than would otherwise be the case and, in the event of an
economic downswing, could effect the State's ability to pay principal and
interest in a timely manner. The General Fund budget for 1994-95 includes
revenues of $14.6 billion (a 7.3% increase over 1993-94) and expenditures of
$14.3 billion (a 7.6% increase over 1993-94). Through March 1995, actual
revenues were 0.8% below projections. Unencumbered reserves are projected to be
$252.6 million, or 1.8% of expenditures for fiscal year 1995. Unemployment in
the State for March 1995 was 4.4% compared to the national unemployment rate of
5.5%.
In 1993, the State constitution was amended to limit the annual growth in
the assessed valuation of residential property and which, over time, could
constrain the growth in property taxes, a major revenue source for local
governments. While no immediate ratings implications are expected, the amendment
could have negative impact on the financial performance of local governments
over time and lead to ratings revisions which may have a negative impact on the
prices of affected bonds.
As of the date of this Prospectus, general obligation bonds issued by the
State of Florida are rated Aa, AA and AA by Moody's, S&P and Fitch,
respectively. S&P currently regards the outlook for the State as stable. There
can be no assurance that the economic conditions on which these ratings are
based will continue or that particular bond issues may not be adversely affected
by changes in economic, political or other conditions.
Florida obligations also include obligations of the governments of Puerto
Rico, the U.S. Virgin Islands and Guam to the extent that the value of these
obligations is exempt from Florida intangibles tax. 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 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 fiscal 1994
will depend on several factors, including the state of the U.S. economy and the
relative stability in the price of oil, the exchange rate of the U.S. dollar and
the cost of borrowing. Although the Puerto Rico unemployment rate has declined
substantially since 1985, the seasonally adjusted unemployment rate for
February, 1995 was approximately 12.5%. The North American Free Trade Agreement
(NAFTA), which became effective on 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 stable outlook on Puerto Rico on April 26, 1994.
THE FUND AND THE PORTFOLIO HAVE ADOPTED CERTAIN FUNDAMENTAL INVESTMENT
RESTRICTIONS WHICH ARE ENUMERATED IN DETAIL IN THE STATEMENT OF ADDITIONAL
INFORMATION AND WHICH MAY NOT BE CHANGED UNLESS AUTHORIZED BY A SHAREHOLDER VOTE
AND AN INVESTOR VOTE, RESPECTIVELY. EXCEPT FOR SUCH ENUMERATED RESTRICTIONS AND
AS OTHERWISE INDICATED IN THIS PROSPECTUS, THE INVESTMENT OBJECTIVE AND POLICIES
OF THE FUND AND THE PORTFOLIO ARE NOT FUNDAMENTAL POLICIES AND ACCORDINGLY MAY
BE CHANGED BY THE TRUSTEES OF THE TRUST AND THE PORTFOLIO WITHOUT OBTAINING THE
APPROVAL OF THE FUND'S SHAREHOLDERS OR THE INVESTORS IN THE PORTFOLIO, AS THE
CASE MAY BE. IF ANY CHANGES WERE MADE IN THE FUND'S INVESTMENT OBJECTIVE, THE
FUND MIGHT HAVE INVESTMENT OBJECTIVES DIFFERENT FROM THE OBJECTIVE WHICH AN
INVESTOR CONSIDERED APPROPRIATE AT THE TIME THE INVESTOR BECAME A SHAREHOLDER IN
THE FUND.
INSURED FLORIDA OBLIGATIONS. Insured Florida obligations held by the Portfolio
will be insured as to their scheduled payment of principal and interest under
(i) an insurance policy obtained by the issuer or underwriter of the Florida
obligation at the time of its original issuance ("Issue Insurance"), (ii) an
insurance policy obtained by the Portfolio or a third party subsequent to the
Florida obligation's original issuance ("Secondary Market Insurance") or (iii) a
municipal insurance policy purchased by the Portfolio ("Mutual Fund Insurance").
Each type of insurance insures the timely payment of interest and principal of
the Florida obligation but does not protect the market value of such obligation
or the net asset value of the Portfolio or the Fund.
Issue Insurance is generally purchased by the issuer or underwriter of the
Florida obligation and is noncancellable and effective as long as the securities
are unpaid and the insurer remains in business. Secondary Market Insurance
allows the Portfolio or a third party to pay a single premium to insure a
Florida obligation as to principal and interest until maturity and to transfer
the insurance benefit with the underlying security. Secondary Market Insurance
premiums do not result in an expense to the Portfolio, but are added to the cost
basis of the Florida obligation so insured. Mutual Fund Insurance may be
purchased from insurance companies that guarantee the timely payment of interest
and principal when due
on certain Florida obligations that are designated by the insurer as eligible
for such insurance. Mutual Fund Insurance may terminate upon the Portfolio's
sale of the obligation or it may be extended to enhance the marketability of the
obligation. To extend a policy, the Portfolio will pay a single, predetermined
premium payable from the proceeds of the sale of that obligation. It is expected
that the Portfolio will extend a policy only if, in the opinion of the
Investment Adviser, the net proceeds from the sale of the obligation, as
insured, would exceed the proceeds from the sale of that obligation without
insurance. The price of Florida obligations insured by Mutual Fund Insurance is
expected to be more volatile than the price of Florida obligations insured by
Issue or Secondary Market Insurance. To the extent the Portfolio's obligations
are insured by Mutual Fund Insurance, the value of the Fund's investment in the
Portfolio, and the price of the Fund's shares, will be more volatile than if
such obligations were otherwise insured.
Florida obligations held by the Portfolio will be insured by insurers
having a claims-paying ability rated Aaa by Moody's or AAA by S&P or Fitch. See
the Appendix to the Statement of Additional Information for a brief description
of the claims-paying ability ratings.
The Portfolio anticipates that under normal conditions all or substantially
all of its Florida obligations will be subject to Issue Insurance or Secondary
Market Insurance. If the Portfolio purchases Mutual Fund Insurance, premiums are
paid by the Portfolio. These premiums are based on the credit quality and
principal amount of the Florida obligation to be insured. If the issuer,
underwriter, or other third party purchases the insurance for the obligation,
the value of such insurance is generally reflected in a higher market value or
purchase price for the obligation. While insurance is intended to reduce
financial risk, the cost of such insurance (from higher purchase prices of
securities or the payment of insurance premiums) will result in lower yields on
the Florida obligations so insured.
The Portfolio may also invest in Florida obligations that are secured by an
escrow or trust account which contains securities issued or guaranteed by the
U.S. Government, its agencies or instrumentalities, that are backed by the full
faith and credit of the United States, and sufficient in amount to ensure the
payment of interest on and principal of the secured Florida obligations
("collateralized obligations"). Collateralized obligations generally are
regarded as having the credit characteristics of the underlying U.S. Government,
agency or instrumentality securities. These obligations will not be subject to
Issue Insurance, Secondary Market Insurance or Mutual Fund Insurance, but will
be considered to be insured Florida obligations for purposes of the Portfolio's
policy of investing at least 80% of its net assets in insured Florida
obligations (but such obligations shall not constitute more than 15% of the
insured portion of the Portfolio). The Portfolio may also purchase municipal
bonds that are additionally secured by bank credit agreements or escrow
agreements. The credit quality of companies which provide such credit
enhancements will affect the value of those securities.
MUNICIPAL LEASES. The Portfolio may invest in municipal leases and
participations therein, which arrangements frequently involve special risks.
Municipal leases are obligations in the form of a lease or installment purchase
arrangement which is entered into 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 asset to pass eventually to the
governmental issuer) have evolved as a means for
8
<PAGE>
governmental issuers to acquire property and equipment without meeting the
constitutional and statutory requirements for the issuance of debt. The
debt-issuance limitations are deemed to be inapplicable to these arrangements
because of the inclusion in many leases or contracts of "non-appropriation"
clauses that provide that the governmental issuer has no obligation to make
future payments under the lease or contract unless money is appropriated for
such purpose by the appropriate legislative body on a yearly or other periodic
basis. Such arrangements are, therefore, subject to the risk that the
governmental issuer will not appropriate funds for lease payments.
Certain municipal lease obligations may be deemed illiquid for purposes of
the Portfolio's 15% limitation on investing in illiquid securities, unless
determined by the Investment Adviser, pursuant to guidelines adopted by the
Trustees of the Portfolio, to be liquid securities for the purpose of such
limitation. In determining the liquidity of municipal lease obligations, the
Investment Adviser will consider a variety of factors including: (1) the
willingness of dealers to bid for the security; (2) the number of dealers
willing to purchase or sell the obligation and the number of other potential
buyers; (3) the frequency of trades and quotes for the obligation; and (4) the
nature of the marketplace trades. In addition, the Investment Adviser will
consider factors unique to particular lease obligations affecting the
marketability thereof. These include the general creditworthiness of the
municipality, the importance of the property covered by the lease to the
municipality, and the likelihood that the marketability of the obligation will
be maintained throughout the time the obligation is held by the Portfolio. In
the event the Portfolio acquires an unrated municipal lease obligation, the
Investment Adviser will be responsible for determining the credit quality of
such obligation on an ongoing basis, including an assessment of the likelihood
that the lease may or may not be cancelled.
ZERO COUPON BONDS. The Portfolio may invest in zero coupon bonds, which are
debt obligations that do not require the periodic payment of interest and are
issued at a significant discount from face value. Such bonds experience greater
volatility in market value due to changes in interest rates than municipal
obligations that provide for regular payments of interest. The Portfolio will
accrue income on such bonds for tax and accounting purposes in accordance with
applicable law; as a regulated investment company, the Fund must distribute its
share of such income to its shareholders. Because no cash is received at the
time such income is accrued, the Portfolio may be required to liquidate other
portfolio securities to generate cash that the Fund may withdraw from the
Portfolio to satisfy the Fund's distribution obligations.
INVERSE FLOATERS. The Portfolio may invest in various types of derivative
municipal securities whose interest rates bear an inverse relationship to the
interest rate on another security or the value of an index ("inverse floaters").
Derivatives are securities that provide for payments based on or derived from
the performance of an underlying asset, index or other economic benchmark. An
investment in derivative instruments, such as inverse floaters, may involve
greater risk than an investment in a fixed rate bond. Because changes in the
interest rate on the other security or index inversely affect the residual
interest paid on the inverse floater, the value of an inverse floater is
generally more volatile than that of a fixed rate bond. Inverse floaters have
interest rate adjustment formulas which generally reduce or, in the extreme,
eliminate the interest paid to the Portfolio when short-term interest rates
rise, and increase the interest paid to the Portfolio when short-term interest
rates fall. Inverse floaters have varying degrees of liquidity, and the market
for these securities is thin and relatively volatile. These securities tend to
underperform the market for fixed rate bonds in a rising interest rate
environment, but tend to outperform the market for fixed rate bonds when
interest rates decline. Shifts in the relationship between short-term and
long-term interest rates may alter this
tendency, however. Although volatile, inverse floaters typically offer the
potential for yields exceeding the yields available on fixed rate bonds with
comparable credit quality and maturity. These securities usually permit the
investor to convert the floating rate to a fixed rate (normally adjusted
downward), and this optional conversion feature may provide a partial hedge
against rising interest rates if exercised at an opportune time. Inverse
floaters are leveraged because they provide two or more dollars of bond market
exposure for every dollar invested.
CREDIT QUALITY-RISKS. Many Florida obligations offering current income are in
the lowest investment grade category (Baa or BBB), lower categories or may be
unrated. As indicated, above, the Portfolio may invest in municipal obligations
rated below investment grade (but not lower than B by Moody's, S&P or Fitch) and
comparable unrated obligations. The lowest investment grade, lower rated and
comparable unrated municipal obligations in which the Portfolio may invest will
have speculative characteristics in varying degrees. While such obligations may
have some quality and protective characteristics, these characteristics can be
expected to be offset or outweighed by uncertainties or major risk exposures to
adverse conditions. Lower rated and comparable unrated municipal obligations are
subject to the risk of an issuer's inability to meet principal and interest
payments on the obligations (credit risk) and may also be subject to greater
price volatility due to such factors as interest rate sensitivity, market
perception of the creditworthiness of the issuer and general market liquidity
(market risk). Lower rated or unrated municipal obligations are also more likely
to react to real or perceived developments affecting market and credit risk than
are more highly rated obligations, which react primarily to movements in the
general level of interest rates. The Portfolio may retain defaulted obligations
in its portfolio when such retention is considered desirable by the Investment
Adviser. In the case of a defaulted obligation, the Portfolio may incur
additional expense seeking recovery of its investment. Municipal obligations
held by the Portfolio which are rated below investment grade but which,
subsequent to the assignment of such rating, are backed by escrow accounts
containing U.S. Government obligations may be determined by the Investment
Adviser to be of investment grade quality for purposes of the Portfolio's
investment policies. The Portfolio may retain in its portfolio an obligation
whose rating drops below B after its acquisition if such retention is considered
desirable by the Investment Adviser; provided, however, that holdings of
obligations rated below Baa or BBB will not exceed 35% of net assets. In the
event the rating of an obligation held by a Portfolio is downgraded, causing the
Portfolio to exceed this limitation, the Investment Adviser will (in an orderly
fashion within a reasonable period of time) dispose of such obligations as it
deems necessary in order to comply with its credit quality limitations. For a
description of municipal obligation ratings, see the Statement of Additional
Information.
MARKET CONDITIONS. The management of the Portfolio believes that, in general,
the secondary market for Florida obligations (including issues which are
privately placed with the Portfolio) is less liquid than that for taxable debt
obligations or for large issues of municipal obligations that trade in a
national market. No established resale market exists for certain of the Florida
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. These considerations may restrict the availability of
such obligations, may affect the choice of securities sold to meet redemption
requests and may limit the Portfolio's ability to sell or dispose of such
securities. Also, valuation of such obligations may be more difficult.
NET ASSET VALUE FLUCTUATION. The net asset value of shares of the Fund will
change in response to fluctuations in prevailing interest rates and changes in
the value of the securities held by the Portfolio. When interest rates decline,
the value of securities held by the Portfolio can be expected to rise.
Conversely, when interest rates rise,
the value of most portfolio security holdings can be expected to decline.
Changes in the credit quality of the issuers of municipal obligations held by
the Portfolio will affect the principal value (and possibly the income earned)
on such obligations. An investment in shares of the Fund will not constitute a
complete investment program.
SHORT-TERM TRADING. The Portfolio may sell securities in anticipation of a
market decline (a rise in interest rates) or purchase and later sell securities
in anticipation of a market rise (a decline in interest rates). In addition, a
security may be sold and another purchased at approximately the same time to
take advantage of what the Portfolio believes to be a temporary disparity in the
normal yield relationship between the two securities. Yield disparities may
occur for reasons not directly related to the investment quality of particular
issues or the general movement of interest rates, such as changes in the overall
demand for or supply of various types of Florida obligations or changes in the
investment objectives of investors. Such trading may be expected to increase the
portfolio turnover rate and the expenses incurred in connection with such
trading. The Portfolio anticipates that its annual portfolio turnover rate will
generally not exceed 100% (excluding turnover of securities having a maturity of
one year or less).
WHEN-ISSUED SECURITIES. 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 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 will not accrue
income in respect of a when-issued security prior to its stated delivery date.
The Portfolio will maintain in a segregated account sufficient assets to cover
its outstanding purchase obligations so long as such obligations continue. The
Portfolio may also purchase instruments that give the Portfolio the option to
purchase a municipal obligation when and if issued.
FUTURES TRANSACTIONS. The Portfolio may purchase and sell various kinds of
futures contracts and options thereon to hedge against changes in interest
rates. The futures contracts may be based on various debt securities (such as
U.S. Government securities), securities indices and other financial instruments
and indices. Such transactions involve a risk of loss or depreciation due to
unanticipated adverse changes in securities prices, which may exceed the
Portfolio's initial investment in these contracts. The Portfolio may not
purchase or sell futures contracts or related options, except for closing
purchase or sale transactions, if immediately thereafter the sum of the amount
of margin deposits and premiums paid on the Portfolio's outstanding positions
would exceed 5% of the market value of the Portfolio's net assets. Nonetheless,
at least 80% of the Portfolio's assets will be invested in municipal
obligations. These transactions involve transaction costs. There can be no
assurance that the Investment Adviser's use of futures will be advantageous to
the Portfolio. Distributions by the Fund of any gains realized on the
Portfolio's transactions in futures and options on futures will be taxable.
ORGANIZATION OF THE FUND AND THE PORTFOLIO
- --------------------------------------------------------------------------------
The Fund is a non-diversified series of Eaton Vance Municipals Trust II, a
business trust established under Massachusetts law pursuant to a Declaration of
Trust dated October 25, 1993, as amended. The Trust is a mutual fund -- an
open-end management investment company. THE TRUSTEES OF THE TRUST ARE
RESPONSIBLE FOR THE OVERALL MANAGEMENT AND SUPERVISION OF ITS AFFAIRS. The Trust
may issue an unlimited number of shares of
beneficial interest (no par value per share) in one or more series and because
the Trust can offer separate series (such as the Fund), it is known as a "series
company." Each share represents an equal proportionate beneficial interest in
the Fund. When issued and outstanding, the Fund's shares are fully paid and
nonassessable by the Trust and redeemable as described under "How to Redeem Fund
Shares." Shareholders are entitled to one vote for each full share held.
Fractional shares may be voted proportionately. Shares have no preemptive or
conversion rights and are freely transferable. In the event of the liquidation
of the Fund, shareholders are entitled to share pro rata in the net assets of
the Fund available for distribution to shareholders.
THE PORTFOLIO IS ORGANIZED AS A TRUST UNDER THE LAWS OF THE STATE OF NEW
YORK AND INTENDS TO BE TREATED AS A PARTNERSHIP FOR FEDERAL TAX PURPOSES. The
Portfolio, as well as the Trust, intends to comply with all applicable Federal
and state securities laws. The Portfolio's Declaration of Trust provides that
the Fund and other entities permitted to invest in the Portfolio (e.g., other
U.S. and foreign investment companies, and common and commingled trust funds)
will each be liable for all obligations of the Portfolio. However, the risk of
the Fund incurring financial loss on account of such liability is limited to
circumstances in which both inadequate insurance exists and the Portfolio itself
is unable to meet its obligations. Accordingly, the Trustees of the Trust
believe that neither the Fund nor its shareholders will be adversely affected by
reason of the Fund investing in the Portfolio.
SPECIAL INFORMATION ON THE FUND/PORTFOLIO INVESTMENT STRUCTURE. An investor in
the Fund should be aware that the Fund, unlike mutual funds which directly
acquire and manage their own portfolios of securities, seeks to achieve its
investment objective by investing its assets in an interest in the Portfolio
(although the Fund may temporarily hold a de minimus amount of cash), which is a
separate investment company with an identical investment objective. Therefore,
the Fund's interest in the securities owned by the Portfolio is indirect. In
addition to selling an interest to the Fund, the Portfolio may sell interests to
other affiliated and non-affiliated mutual funds or institutional investors.
Such investors will invest in the Portfolio on the same terms and conditions and
will pay a proportionate share of the Portfolio's expenses. However, the other
investors investing in the Portfolio are not required to sell their shares at
the same public offering price as the Fund due to variations in sales
commissions and other operating expenses. Therefore, investors in the Fund
should be aware that these differences may result in differences in returns
experienced by investors in the various funds that invest in the Portfolio. Such
differences in returns are also present in other mutual fund structures,
including funds that have multiple classes of shares. For information regarding
the investment objective, policies and restrictions, see "The Fund's Investment
Objective" and "How the Fund and the Portfolio Invest their Assets". Further
information regarding investment practices may be found in the Statement of
Additional Information.
The Trustees of the Trust have considered the advantages and disadvantages
of investing the assets of the Fund in the Portfolio, as well as the advantages
and disadvantages of the two-tier format. The Trustees believe that the
structure offers opportunities for substantial growth in the assets of the
Portfolio, and affords the potential for economies of scale for the Fund, at
least when the assets of the Portfolio exceed $500 million.
The Fund may withdraw (completely redeem) all its assets from the Portfolio
at any time if the Board of Trustees of the Trust determines that it is in the
best interest of the Fund to do so. The investment objective and the
nonfundamental investment policies of the Fund and the Portfolio may be changed
by the Trustees of the Trust and the Portfolio without obtaining the approval of
the shareholders of the Fund
or the investors in the Portfolio, as the case may be. Any such change of the
investment objective of the Fund or the Portfolio will be preceded by thirty
days' advance written notice to the shareholders of the Fund or the investors in
the Portfolio, as the case may be. In the event the Fund withdraws all of its
assets from the Portfolio, or the Board of Trustees of the Trust determines that
the investment objective of the Portfolio is no longer consistent with the
investment objective of the Fund, such Trustees would consider what action might
be taken, including investing the assets of the Fund in another pooled
investment entity or retaining an investment adviser to manage the Fund's assets
in accordance with its investment objective. The Fund's investment performance
may be affected by a withdrawal of all its assets from the Portfolio.
Information regarding other pooled investment entities or funds which
invest in the Portfolio may be obtained by contacting Eaton Vance Distributors,
Inc. (the "Principal Underwriter" or "EVD"), 24 Federal Street, Boston, MA 02110
(617) 482-8260. Smaller investors in the Portfolio may be adversely affected by
the actions of larger investors in the Portfolio. For example, if a large
investor withdraws from the Portfolio, the remaining investors may experience
higher pro rata operating expenses, thereby producing lower returns.
Additionally, the Portfolio may become less diverse, resulting in increased
portfolio risk, and experience decreasing economies of scale. However, this
possibility exists as well for historically structured funds which have large or
institutional investors.
Until recently, the Administrator sponsored and advised historically
structured funds. Funds which invest all their assets in interests in a separate
investment company are a relatively new development in the mutual fund industry
and, therefore, the Fund may be subject to additional regulations than
historically structured funds.
The Declaration of Trust of the Portfolio provides that the Portfolio will
terminate 120 days after the complete withdrawal of the Fund or any other
investor in the Portfolio, unless either the remaining investors, by unanimous
vote at a meeting of such investors, or a majority of the Trustees of the
Portfolio, by written instrument consented to by all investors, agree to
continue the business of the Portfolio. This provision is consistent with
treatment of the Portfolio as a partnership for Federal income tax purposes. See
"Distributions and Taxes" for further information. Whenever the Fund as an
investor in the Portfolio is requested to vote on matters pertaining to the
Portfolio (other than the termination of the Portfolio's business, which may be
determined by the Trustees of the Portfolio without investor approval), the Fund
will hold a meeting of Fund shareholders and will vote its interest in the
Portfolio for or against such matters proportionately to the instructions to
vote for or against such matters received from Fund shareholders. The Fund shall
vote shares for which it receives no voting instructions in the same proportion
as the shares for which it receives voting instructions. Other investors in the
Portfolio may alone or collectively acquire sufficient voting interests in the
Portfolio to control matters relating to the operation of the Portfolio, which
may require the Fund to withdraw its investment in the Portfolio or take other
appropriate action. Any such withdrawal could result in a distribution "in kind"
of portfolio securities (as opposed to a cash distribution from the Portfolio).
If securities are distributed, the Fund could incur brokerage, tax or other
charges in converting the securities to cash. In addition, the distribution in
kind may result in a less diversified portfolio of investments or adversely
affect the liquidity of the Fund. Notwithstanding the above, there are other
means for meeting shareholder redemption requests, such as borrowing.
The Trustees of the Trust, including a majority of the noninterested
Trustees, have approved written procedures designed to identify and address any
potential conflicts of interest arising from the fact that the
Trustees of the Trust and the Trustees of the Portfolio are the same. Such
procedures require each Board to take actions to resolve any conflict of
interest between the Fund and the Portfolio, and it is possible that the
creation of separate Boards may be considered. For further information
concerning the Trustees and officers of the Trust and the Portfolio, see the
Statement of Additional Information.
MANAGEMENT OF THE FUND AND THE PORTFOLIO
- --------------------------------------------------------------------------------
THE PORTFOLIO ENGAGES BOSTON MANAGEMENT AND RESEARCH ("BMR"), A WHOLLY-OWNED
SUBSIDIARY OF EATON VANCE MANAGEMENT ("EATON VANCE"), AS ITS INVESTMENT ADVISER.
EATON VANCE, ITS AFFILIATES AND ITS PREDECESSOR COMPANIES HAVE BEEN MANAGING
ASSETS OF INDIVIDUALS AND INSTITUTIONS SINCE 1924 AND MANAGING INVESTMENT
COMPANIES SINCE 1931.
Acting under the general supervision of the Board of Trustees of the
Portfolio, BMR manages the Portfolio's investments and affairs. Under its
investment advisory agreement with the Portfolio, BMR receives a monthly
advisory fee equal to the aggregate of
(a) a daily asset-based fee computed by applying the annual asset rate
applicable to that portion of the total daily net assets in each
Category as indicated below, plus
(b) a daily income-based fee computed by applying the daily income rate
applicable to that portion of the total daily gross income (which
portion shall bear the same relationship to the total daily gross
income on such day as that portion of the total daily net assets in
the same Category bears to the total daily net assets on such day)
in each Category as indicated below:
<TABLE>
<CAPTION>
ANNUAL DAILY
CATEGORY DAILY NET ASSETS ASSET RATE INCOME RATE
- -------- ---------------- ----------- ------------
<C> <S> <C> <C>
1 up to $20 million................................................. 0.100% 1.00%
2 $20 million but less than $40 million............................. 0.200% 2.00%
3 $40 million but less than $500 million............................ 0.300% 3.00%
4 $500 million but less than $1 billion............................. 0.275% 2.75%
5 $1 billion but less than $1.5 billion............................. 0.250% 2.50%
6 $1.5 billion but less than $2 billion............................. 0.225% 2.25%
7 $2 billion but less than $3 billion............................... 0.200% 2.00%
8 $3 billion and over............................................... 0.175% 1.75%
</TABLE>
As at January 31, 1995, the Portfolio had net assets of $14,399,951. For
the period from the start of business, March 2, 1994, to the fiscal year ended
January 31, 1995, the Portfolio, absent a fee reduction, would have paid BMR
advisory fees equivalent to 0.16% (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 $13,139 of expenses related to the operation of the Portfolio.
BMR furnishes for the use of the Portfolio office space and all necessary
office facilities, equipment and personnel for servicing the investments of the
Portfolio. Municipal obligations, including Florida obligations, are normally
traded on a net basis (without commission) through broker-dealers and banks
acting for their own account. Such firms attempt to profit from such
transactions by buying at the bid price and selling
at the higher asked price of the market, and the difference is customarily
referred to as the spread. In selecting firms which will execute portfolio
transactions, BMR judges their professional ability and quality of service and
uses its best efforts to obtain execution at prices which are advantageous to
the Portfolio and at reasonably competitive spreads. Subject to the foregoing,
BMR may consider sales of shares of the Fund or of other investment companies
sponsored by BMR or Eaton Vance as a factor in the selection of firms to execute
portfolio transactions.
Thomas J. Fetter has acted as the portfolio manager of the Portfolio since
it commenced operations. He has been a Vice President of Eaton Vance since 1987
and of BMR since 1992.
BMR OR EATON VANCE ACTS AS INVESTMENT ADVISER TO INVESTMENT COMPANIES AND
VARIOUS INDIVIDUAL AND INSTITUTIONAL CLIENTS WITH ASSETS UNDER MANAGEMENT OF
APPROXIMATELY $15 BILLION. Eaton Vance is a wholly-owned subsidiary of Eaton
Vance Corp., a publicly held holding company. Eaton Vance Corp. through its
subsidiaries and affiliates, engages in investment management and marketing
activities, fiduciary and banking services, oil and gas operations, real estate
investment, consulting and management, and development of precious metals
properties.
The Trust has retained the services of Eaton Vance to act as Administrator
of the Fund. The Trust has not retained the services of an investment adviser
since the Trust seeks to achieve the investment objective of the Fund by
investing the Fund's assets in the Portfolio. As Administrator, Eaton Vance
provides the Fund with general office facilities and supervises the overall
administration of the Fund. For these services Eaton Vance currently receives no
compensation. The Trustees of the Trust may determine, in the future, to
compensate Eaton Vance for such services.
The Portfolio and the Fund, as the case may be, will each be responsible
for all of its respective costs and expenses not expressly stated to be payable
by BMR under the investment advisory agreement, by Eaton Vance under the
administrative services agreement, or by EVD under the distribution agreement.
SERVICE PLAN
- --------------------------------------------------------------------------------
In addition to advisory fees and other expenses, the Fund pays service fees
pursuant to a Service Plan (the "Plan") designed to meet the requirements of
Rule 12b-1 under the Investment Company Act of 1940 and the service fee
requirements of the revised sales charge rule of the National Association of
Securities Dealers, Inc. THE PLAN PROVIDES THAT THE FUND MAY MAKE SERVICE FEE
PAYMENTS FOR PERSONAL SERVICES AND/OR THE MAINTENANCE OF SHAREHOLDER ACCOUNTS TO
THE PRINCIPAL UNDERWRITER, FINANCIAL SERVICE FIRMS ("AUTHORIZED FIRMS") AND
OTHER PERSONS IN AMOUNTS NOT EXCEEDING .25% OF THE FUND'S AVERAGE DAILY NET
ASSETS FOR ANY FISCAL YEAR. The Trustees of the Trust have initially
implemented the Plan by authorizing the Fund to make quarterly service fee
payments to the Principal Underwriter and Authorized Firms in amounts not
expected to exceed .20% of the Fund's average daily net assets for any fiscal
year based on the value of Fund shares sold by such persons and remaining
outstanding for at least twelve months. However, the Plan authorizes the
Trustees of the Trust on behalf of the Fund to increase payments to the
Principal Underwriter, Authorized Firms and other persons from time to time
without further action by shareholders of the Fund, provided that the aggregate
amount of payments made to such persons under the Plan in any fiscal year of the
Fund does not exceed .25% of the Fund's average daily net assets. For the period
from the start of business, March 3, 1994, to the fiscal year ended January 31,
1995, the Fund did not accrue or pay any service fees
under the Plan. The Fund began accruing for its service fee payments during the
quarter ending June 30, 1995. The Plan is described further in the Statement of
Additional Information.
VALUING FUND SHARES
- --------------------------------------------------------------------------------
THE FUND VALUES ITS SHARES ONCE ON EACH DAY THE NEW YORK STOCK EXCHANGE (THE
"EXCHANGE") IS OPEN FOR TRADING, as of the close of regular trading on the
Exchange (normally 4:00 p.m. New York time). The Fund's net asset value per
share is determined by its custodian, Investors Bank & Trust Company ("IBT"),
(as agent for the Fund) in the manner authorized by the Trustees of the Trust.
Net asset value is computed by dividing the value of the Fund's total assets,
less its liabilities, by the number of shares outstanding. Because the Fund
invests its assets in an interest in the Portfolio, the Fund's net asset value
will reflect the value of its interest in the Portfolio (which, in turn,
reflects the underlying value of the Portfolio's assets and liabilities).
Authorized Firms must communicate an investor's order to the Principal
Underwriter prior to the close of the Principal Underwriter's business day to
receive that day's net asset value per Fund share and the public offering price
based thereon. It is the Authorized Firms' responsibility to transmit orders
promptly to the Principal Underwriter, which is a wholly-owned subsidiary of
Eaton Vance.
The Portfolio's net asset value is also determined as of the close of
regular trading on the Exchange by IBT (as custodian and agent for the
Portfolio), based on market or fair value in the manner authorized by the
Trustees of the Portfolio. Net asset value is computed by subtracting the
liabilities of the Portfolio from the value of its total assets. Florida
obligations will normally be valued on the basis of valuations furnished by a
pricing service. For further information regarding the valuation of the
Portfolio's assets, see "Determination of Net Asset Value" in the Statement of
Additional Information. Eaton Vance Corp. owns 77.3% of the outstanding stock of
IBT, the Fund's and the Portfolio's custodian.
SHAREHOLDERS MAY DETERMINE THE VALUE OF THEIR INVESTMENT BY MULTIPLYING THE
NUMBER OF FUND SHARES OWNED BY THE CURRENT NET ASSET VALUE PER SHARE.
HOW TO BUY FUND SHARES
- --------------------------------------------------------------------------------
SHARES OF THE FUND MAY BE PURCHASED FOR CASH OR MAY BE ACQUIRED IN EXCHANGE FOR
SECURITIES. Investors may purchase shares of the Fund through Authorized Firms
at the effective public offering price, which price is based on the effective
net asset value per share plus the applicable sales charge. The Fund receives
the net asset value, while the sales charge is divided between the Authorized
Firm and the Principal Underwriter. The Principal Underwriter will furnish the
names of Authorized Firms to an investor upon request. The Fund may suspend the
offering of shares at any time and may refuse an order for the purchase of
shares.
The sales charge may vary depending on the size of the purchase and the
number of shares of Eaton Vance funds the investor may already own, any
arrangement to purchase additional shares during a 13-month period or special
purchase programs. Complete details of how investors may purchase shares at
reduced sales charges under a Statement of Intention, Right of Accumulation, or
various Employee Benefit Plans are available from Authorized Firms or the
Principal Underwriter.
The current sales charges and dealer commissions are:
<TABLE>
<CAPTION>
SALES CHARGE SALES CHARGE DEALER COMMISSION
AS PERCENTAGE OF AS PERCENTAGE OF AS PERCENTAGE OF
AMOUNT OF PURCHASE OFFERING PRICE AMOUNT INVESTED OFFERING PRICE
- ------------------ ------------------ ------------------ -------------------
<S> <C> <C> <C>
Less than $50,000.................................. 3.75% 3.90% 4.00%
$50,000 but less than $100,000..................... 2.75 2.83 3.00
$100,000 but less than $250,000.................... 2.25 2.30 2.50
$250,000 but less than $500,000.................... 1.75 1.78 2.00
$500,000 but less than $1,000,000.................. 1.25 1.27 1.50
$1,000,000 or more................................. 0.00* 0.00* 0.25**
</TABLE>
*Fund shares purchased before March 27, 1995, at net asset value with no
initial sales charge by virtue of the purchase having been in the amount of $1
million or more may be subject to a contingent deferred sales charge upon
redemption.
**The Principal Underwriter may pay Authorized Firms that initiate and are
responsible for purchases of $1 million or more a commission at an annual rate
of 0.25% of average daily net assets paid quarterly for one year.
The Principal Underwriter may at times allow discounts up to the full sales
charge. During periods when the discount includes the full sales charge,
Authorized Firms may be deemed to be underwriters as that term is defined in the
Securities Act of 1933. The Principal Underwriter may, from time to time, at its
own expense, provide additional incentives to Authorized Firms which employ
registered representatives who sell a minimum dollar amount of the Fund's shares
and/or shares of other funds distributed by the Principal Underwriter. In some
instances, such additional incentives may be offered only to certain Authorized
Firms whose representatives are expected to sell significant amounts of shares.
An initial investment in the Fund must be at least $1,000. Once an account
has been established the investor may send investments of $50 or more at any
time directly to the Fund's Transfer Agent (the "Transfer Agent"), as follows:
The Shareholder Services Group, Inc., BOS725, P.O. Box 1559, Boston, MA 02104.
The $1,000 minimum initial investment is waived for Bank Automated Investing
accounts, which may be established with an investment of $50 or more. See "Eaton
Vance Shareholder Services".
Shares of the Fund may be sold at net asset value to current and retired
Directors and Trustees of Eaton Vance funds, including the Portfolio; to
officers and employees and clients of Eaton Vance and its affiliates; to
registered representatives and employees of Authorized Firms and bank employees
who refer customers to registered representatives of Authorized Firms; and to
such persons' spouses and children under the age of 21 and their beneficial
accounts. Shares may also be issued at net asset value (1) in connection with
the merger of an investment company with the Fund, (2) to investors making an
investment as part of a fixed fee program whereby an entity unaffiliated with
the Investment Adviser provides multiple investment services, such as
management, brokerage and custody, and (3) where the amount invested represents
redemption proceeds from a mutual fund unaffiliated with Eaton Vance, if the
redemption occurred no
more than 60 days prior to the purchase of Fund shares and the redeemed shares
were subject to a sales charge.
ACQUIRING FUND SHARES IN EXCHANGE FOR SECURITIES. IBT, as escrow agent, will
receive securities acceptable to Eaton Vance, as Administrator, in exchange for
Fund shares at the applicable public offering price as determined above. The
minimum value of securities (or securities and cash) accepted for deposit is
$5,000. Securities accepted will be sold by IBT as agent for the account of
their owner on the day of their receipt by IBT or as soon thereafter as
possible. The number of Fund shares to be issued in exchange for securities will
be the aggregate proceeds from the sale of such securities, divided by the
applicable public offering price per Fund share on the day such proceeds are
received. Eaton Vance will use reasonable efforts to obtain the then current
market price for such securities but does not guarantee the best available
price. Eaton Vance will absorb any transaction costs, such as commissions, on
the sale of the securities.
Securities determined to be acceptable should be transferred via book entry
or physically delivered, in proper form for transfer, through an Authorized
Firm, together with a completed and signed Letter of Transmittal in approved
form (available from Authorized Firms), as follows:
IN THE CASE OF BOOK ENTRY:
Deliver through Depository Trust Co.
Broker #2212
Investors Bank & Trust Company
For A/C EV Traditional Florida Insured Tax Free Fund
IN THE CASE OF PHYSICAL DELIVERY:
Investors Bank & Trust Company
Attention: EV Traditional Florida Insured Tax Free Fund
Physical Securities Processing Settlement Area
89 South Street
Boston, MA 02111
Investors who are contemplating an exchange of securities for shares of the
Fund, or their representatives, are advised to contact Eaton Vance to determine
whether the securities are acceptable before forwarding such securities to IBT.
Eaton Vance reserves the right to reject any securities. Exchanging securities
for Fund shares may create a taxable gain or loss. Each investor should consult
his or her tax adviser with respect to the particular Federal, State and local
tax consequences of exchanging securities for Fund shares.
IF YOU DON'T HAVE AN AUTHORIZED FIRM, EATON VANCE CAN RECOMMEND ONE.
HOW TO REDEEM FUND SHARES
- --------------------------------------------------------------------------------
A SHAREHOLDER MAY REDEEM FUND SHARES BY DELIVERING TO THE SHAREHOLDER SERVICES
GROUP, INC., BOS725, P.O. BOX 1559, BOSTON, MASSACHUSETTS 02104, during its
business hours a written request for redemption in good order, plus any share
certificates with executed stock powers. The redemption price will be based on
the net asset value per Fund share next computed after such delivery. Good order
means that all relevant documents must be endorsed by the record owner(s)
exactly as the shares are registered and the signature(s) must be guaranteed by
a member of either the Securities Transfer Association's STAMP program or the
New York Stock Exchange's Medallion Signature Program, or certain banks, savings
and loan institutions, credit unions, securities dealers, securities exchanges,
clearing agencies and registered securities associations as required by a
regulation of the Securities and Exchange Commission and acceptable to The
Shareholder Services Group, Inc. In addition, in some cases, good order may
require the furnishing of additional documents such as where shares are
registered in the name of a corporation, partnership or fiduciary.
Within seven days after receipt of a redemption request in good order by
The Shareholder Services Group, Inc., the Fund will make payment in cash for the
net asset value of the shares as of the date determined above, reduced by the
amount of any Federal income tax required to be withheld. Although the Fund
normally expects to make payment in cash for redeemed shares, the Trust, subject
to compliance with applicable regulations, has reserved the right to pay the
redemption price of shares of the Fund, either totally or partially, by a
distribution in kind of readily marketable securities withdrawn by the Fund from
the Portfolio. The securities so distributed would be valued pursuant to the
Portfolio's valuation procedures. If a shareholder received a distribution in
kind, the shareholder could incur brokerage or other charges in converting the
securities to cash.
To sell shares at their net asset value through an Authorized Firm (a
repurchase), a shareholder can place a repurchase order with the Authorized
Firm, which may charge a fee. The value of such shares is based upon the net
asset value calculated after EVD, as the Fund's agent, receives the order. It is
the Authorized Firm's responsibility to transmit promptly repurchase orders to
EVD. Throughout this Prospectus, the word "redemption" is generally meant to
include a repurchase.
If shares were recently purchased, the proceeds of a redemption (or
repurchase) will not be sent until the check (including a certified or cashier's
check) received for the shares purchased has cleared. Payment for shares
tendered for redemption may be delayed up to 15 days from the purchase date when
the purchase check has not yet cleared. Redemptions or repurchases may result in
a taxable gain or loss.
Due to the high cost of maintaining small accounts, the Fund reserves the
right to redeem accounts with balances of less than $1,000. Prior to such a
redemption, shareholders will be given 60 days' written notice to make
additional purchases. Thus, an investor making an initial investment of $1,000
would not be able to redeem shares without being subject to this policy.
However, no such redemption would be required if the cause of the low account
balance was a reduction in the net asset value of Fund shares.
REPORTS TO SHAREHOLDERS
- --------------------------------------------------------------------------------
THE FUND WILL ISSUE TO ITS SHAREHOLDERS SEMI-ANNUAL AND ANNUAL REPORTS
CONTAINING FINANCIAL STATEMENTS. Financial statements included in annual reports
are audited by the Fund's independent certified public accountants. Shortly
after the end of each calendar year, the Fund will furnish all shareholders with
information necessary for preparing Federal and state tax returns.
THE LIFETIME INVESTING ACCOUNT/DISTRIBUTION OPTIONS
- --------------------------------------------------------------------------------
AFTER AN INVESTOR MAKES AN INITIAL PURCHASE OF FUND SHARES, THE FUND'S TRANSFER
AGENT, THE SHAREHOLDER SERVICES GROUP, INC., WILL SET UP A LIFETIME INVESTING
ACCOUNT FOR THE INVESTOR ON THE FUND'S RECORDS. This account is a complete
record of all transactions between the investor and the Fund which at all times
shows the balance of shares owned. The Fund will not issue share certificates
except upon request.
At least quarterly, shareholders will receive a statement showing complete
details of any transaction and the current balance in the account. THE LIFETIME
INVESTING ACCOUNT ALSO PERMITS A SHAREHOLDER TO MAKE ADDITIONAL INVESTMENTS BY
SENDING A CHECK FOR $50 OR MORE to The Shareholder Services Group, Inc.
Any questions concerning a shareholder's account or services available may
be directed by telephone to EATON VANCE SHAREHOLDER SERVICES at 800-225-6265,
extension 2, or in writing to The Shareholder Services Group, Inc., BOS725, P.O.
Box 1559, Boston, MA 02104 (please provide the name of the shareholder, the Fund
and the account number).
THE FOLLOWING DISTRIBUTION OPTIONS WILL BE AVAILABLE TO ALL LIFETIME
INVESTING ACCOUNTS and may be changed as often as desired by written notice to
the Fund's dividend disbursing agent, The Shareholder Services Group, Inc.,
BOS725, P.O. Box 1559, Boston, MA 02104. The currently effective option will
appear on each account statement.
Share Option -- Dividends and capital gains will be reinvested in
additional shares.
Income Option -- Dividends will be paid in cash, and capital gains will be
reinvested in additional shares.
Cash Option -- Dividends and capital gains will be paid in cash.
The Share Option will be assigned if no other option is specified.
Distributions, including those reinvested, will be reduced by any withholding
required under Federal income tax laws.
If the Income Option or Cash Option has been selected, dividend and/or
capital gains distribution checks which are returned by the United States Postal
Service as not deliverable or which remain uncashed for six months or more will
be reinvested in the account in shares at the then current net asset value.
Furthermore, the distribution option on the account will be automatically
changed to the Share Option until such time as the shareholder selects a
different option.
DISTRIBUTION INVESTMENT OPTION. In addition to the distribution options set
forth above, dividends and/or capital gains may be invested in additional shares
of another Eaton Vance fund. Before selecting this option,
a shareholder should obtain a prospectus of the other Eaton Vance fund and
consider its objectives and policies carefully.
"STREET NAME" ACCOUNTS. If shares of the Fund are held in a "street name"
account with an Authorized Firm, all recordkeeping, transaction processing and
payments of distributions relating to the beneficial owner's account will be
performed by the Authorized Firm, and not by the Fund and its Transfer Agent.
Since the Fund will have no record of the beneficial owner's transactions, a
beneficial owner should contact the Authorized Firm to purchase, redeem or
exchange shares, to make changes in or give instructions concerning the account,
or to obtain information about the account. The transfer of shares in a "street
name" account to an account with another dealer or to an account directly with
the Fund involves special procedures and will require the beneficial owner to
obtain historical purchase information about the shares in the account from the
Authorized Firm. Before establishing a "street name" account with an investment
firm, or transferring the account to another investment firm, an investor
wishing to reinvest distributions should determine whether the firm which will
hold the shares allows reinvestment of distributions in "street name" accounts.
UNDER A LIFETIME INVESTING ACCOUNT A SHAREHOLDER CAN MAKE ADDITIONAL INVESTMENTS
IN SHARES BY SENDING A CHECK FOR $50 OR MORE.
THE EATON VANCE EXCHANGE PRIVILEGE
- --------------------------------------------------------------------------------
Shares of the Fund currently may be exchanged for shares of any of the following
funds: Eaton Vance Cash Management Fund, Eaton Vance Income Fund of Boston,
Eaton Vance Municipal Bond Fund L.P., Eaton Vance Tax Free Reserves and any fund
in the Eaton Vance Traditional Group of Funds on the basis of the net asset
value per share of each fund at the time of the exchange (plus, in the case of
an exchange made within six months of the date of purchase, an amount equal to
the difference, if any, between the sales charge previously paid on the shares
being exchanged and the sales charge payable on the shares being acquired). Such
exchange offers are available only in states where shares of the fund being
acquired may be legally sold.
Each exchange must involve shares which have a net asset value of at least
$1,000. The exchange privilege may be changed or discontinued without penalty.
Shareholders will be given sixty (60) days' notice prior to any termination or
material amendment of the exchange privilege. The Fund does not permit the
exchange privilege to be used for "Market Timing" and may terminate the exchange
privilege for any shareholder account engaged in Market Timing activity. Any
shareholder account for which more than two round-trip exchanges are made within
any twelve month period will be deemed to be engaged in Market Timing.
Furthermore, a group of unrelated accounts for which exchanges are entered
contemporaneously by a financial intermediary will be considered to be engaged
in Market Timing.
The Shareholder Services Group, Inc. makes exchanges at the next determined
net asset value after receiving an exchange request in good order (see "How to
Redeem Fund Shares"). Consult The Shareholder Services Group, Inc. for
additional information concerning the exchange privilege. Applications and
prospectuses of the other funds are available from Authorized Firms or the
Principal Underwriter. The
prospectus for each fund describes its investment objectives and policies, and
shareholders should obtain a prospectus and consider these objectives and
policies carefully before requesting an exchange.
Shares of certain other funds for which Eaton Vance acts as investment
adviser or administrator may be exchanged for Fund shares on the basis of the
net asset value per share of each fund at the time of the exchange, but subject
to any restrictions or qualifications set forth in the current prospectus of any
such fund.
Telephone exchanges are accepted by The Shareholder Services Group, Inc.
provided that the investor has not disclaimed in writing the use of the
privilege. To effect such exchanges, call The Shareholder Services Group, Inc.
at 800-262-1122 or, within Massachusetts 617-573-9403, Monday through Friday,
9:00 a.m. to 4:00 p.m. (Eastern Standard Time). Shares acquired by telephone
exchange must be registered in the same name(s) and with the same address as the
shares being exchanged. Neither the Fund, the Principal Underwriter nor The
Shareholder Services Group, Inc. will be responsible for the authenticity of
exchange instructions received by telephone, provided that reasonable procedures
to confirm that instructions communicated are genuine have been followed.
Telephone instructions will be tape recorded. In times of drastic economic or
market changes, a telephone exchange may be difficult to implement. An exchange
may result in a taxable gain or loss.
EATON VANCE SHAREHOLDER SERVICES
- --------------------------------------------------------------------------------
THE FUND OFFERS THE FOLLOWING SERVICES, WHICH ARE VOLUNTARY, INVOLVE NO EXTRA
CHARGE, AND MAY BE CHANGED OR DISCONTINUED WITHOUT PENALTY AT ANY TIME. Full
information on each of the services described below and an application, where
required, are available from Authorized Firms or the Principal Underwriter. The
cost of administering such services for the benefit of shareholders who
participate in them is borne by the Fund as an expense to all shareholders.
INVEST-BY-MAIL -- FOR PERIODIC SHARE ACCUMULATION: Once the $1,000 minimum
investment has been made, checks of $50 or more payable to the order of EV
Traditional Florida Insured Tax Free Fund may be mailed directly to The
Shareholder Services Group, Inc., BOS725, P.O. Box 1559, Boston, MA 02104 at any
time -- whether or not distributions are reinvested. The name of the
shareholder, the Fund and the account number should accompany each investment.
BANK AUTOMATED INVESTING -- FOR REGULAR SHARE ACCUMULATION: Cash investments of
$50 or more may be made automatically each month or quarter from a shareholder's
bank account. The $1,000 minimum initial investment and small account redemption
policy are waived for these accounts.
STATEMENT OF INTENTION: Purchases of $50,000 or more made over a 13-month
period are eligible for reduced sales charges. See "Statement of Intention and
Escrow Agreement".
RIGHT OF ACCUMULATION: Purchases may qualify for reduced sales charges when the
current market value of holdings (shares at current offering price), plus new
purchases, reaches $50,000 or more. Shares of the Eaton Vance funds listed under
"The Eaton Vance Exchange Privilege" may be combined under the Statement of
Intention and Right of Accumulation.
WITHDRAWAL PLAN: A shareholder may draw on shareholdings systematically with
monthly or quarterly checks in an amount specified by the shareholder. A minimum
deposit of $5,000 in shares is required.
REINVESTMENT PRIVILEGE: A SHAREHOLDER WHO HAS REPURCHASED OR REDEEMED SHARES
MAY REINVEST AT NET ASSET VALUE ANY PORTION OR ALL OF THE REPURCHASE OR
REDEMPTION PROCEEDS (PLUS THAT AMOUNT NECESSARY TO ACQUIRE A FRACTIONAL SHARE TO
ROUND OFF THE PURCHASE TO THE NEAREST FULL SHARE) IN SHARES OF THE FUND, or,
provided that the shares repurchased or redeemed have been held for at least 60
days, in shares of any of the other funds offered by the Principal Underwriter
subject to an initial sales charge, provided that the reinvestment is effected
within 60 days after such repurchase or redemption, and the privilege has not
been used more than once in the prior 12 months. Shares are sold to a
reinvesting shareholder at the next determined net asset value following timely
receipt of a written purchase order by the Principal Underwriter or by the fund
whose shares are to be purchased (or by such fund's transfer agent). The
privilege is also available to holders of shares of the other funds offered by
the Principal Underwriter subject to an initial sales charge who wish to
reinvest such redemption or repurchase proceeds in shares of the Fund. To the
extent that any shares of the Fund are sold at a loss and the proceeds are
reinvested in shares of the Fund (or other shares of the Fund are acquired
within the period beginning 30 days before and ending 30 days after the date of
the redemption) some or all of the loss generally will not be allowed as a tax
deduction. Special rules may apply to the computation of gain or loss and to the
deduction of loss on a repurchase or redemption followed by a reinvestment. See
"Distributions and Taxes". Shareholders should consult their tax advisers
concerning the tax consequences of reinvestments.
DISTRIBUTIONS AND TAXES
- --------------------------------------------------------------------------------
SUBSTANTIALLY ALL OF THE INVESTMENT INCOME ALLOCATED TO THE FUND BY THE
PORTFOLIO, LESS THE FUND'S DIRECT AND ALLOCATED EXPENSES, WILL BE DECLARED DAILY
AS A DISTRIBUTION TO FUND SHAREHOLDERS OF RECORD AT THE TIME OF DECLARATION.
Such distributions, whether taken in cash or reinvested in additional shares,
will ordinarily be paid on the last day of each month or the next business day
thereafter. The Fund anticipates that for tax purposes the entire distribution,
whether paid in cash or reinvested in additional shares, will constitute
tax-exempt income to shareholders, except for the proportionate part of the
distribution that may be considered taxable income if the Fund has taxable
income during the calendar year. Shareholders reinvesting the monthly
distribution should treat the amount of the entire distribution as the tax cost
basis of the additional shares acquired by reason of such reinvestment. Daily
distribution crediting will commence on the day that collected funds for the
purchase of Fund shares are available at the Transfer Agent. Shareholders will
receive timely Federal income tax information as to the tax-exempt or taxable
status of all distributions made by the Fund during the calendar year. The
Fund's net realized capital gains, if any, consist of the net realized capital
gains allocated to the Fund by the Portfolio for tax purposes, after taking into
account any available capital loss carryovers; the Fund's net realized capital
gains, if any, will be distributed at least once a year, usually in December.
Sales charges paid upon a purchase of shares of the Fund cannot be taken
into account for purposes of determining gain or loss on a redemption or
exchange of the shares before the 91st day after their purchase to the extent
shares of the Fund or of another fund are subsequently acquired pursuant to the
Fund's
reinvestment or exchange privilege. Any disregarded amounts will result in an
adjustment to the shareholder's tax basis in some or all of any other shares
acquired.
The Fund intends to qualify as a regulated investment company under the
Internal Revenue Code of 1986, as amended (the "Code"), and to satisfy all
requirements necessary to be relieved of Federal taxes on income and gains it
distributes to shareholders. In satisfying these requirements, the Fund will
treat itself as owning its proportionate share of each of the Portfolio's assets
and as entitled to the income of the Portfolio properly attributable to such
share.
AS A REGULATED INVESTMENT COMPANY UNDER THE CODE, THE FUND DOES NOT PAY FEDERAL
INCOME OR EXCISE TAXES TO THE EXTENT THAT IT DISTRIBUTES TO SHAREHOLDERS ITS NET
INVESTMENT INCOME AND NET REALIZED CAPITAL GAINS IN ACCORDANCE WITH THE TIMING
REQUIREMENTS IMPOSED BY THE CODE. AS A PARTNERSHIP UNDER THE CODE, THE PORTFOLIO
DOES NOT PAY FEDERAL INCOME OR EXCISE TAXES.
Distributions of interest on certain municipal obligations constitute a tax
preference item under the alternative minimum tax provisions applicable to
individuals and corporations (see page 5). Distributions of taxable income
(including a portion of any original issue discount with respect to certain
stripped municipal obligations and stripped coupons and accretion of certain
market discount) and net short-term capital gains will be taxable to
shareholders as ordinary income. Distributions of long-term capital gains are
taxable to shareholders as such for Federal income tax purposes, regardless of
the length of time Fund shares have been owned by the shareholder. Distributions
are taxed in the manner described above whether paid in cash or reinvested in
additional shares of the Fund.
Tax-exempt distributions received from the Fund are includable in the tax
base for determining the taxability of social security and railroad retirement
benefits.
Interest on indebtedness incurred or continued by a shareholder to purchase
or carry shares of the Fund is not deductible to the extent it is deemed related
to the Fund's distribution of tax-exempt interest. Further, entities or persons
who are "substantial users" (or persons related to "substantial users") of
facilities financed by industrial development or private activity bonds should
consult their tax advisers before purchasing shares of the Fund. "Substantial
user" is defined in applicable Treasury regulations to include a "non-exempt
person" who regularly uses in trade or business a part of a facility financed
from the proceeds of industrial development bonds and would likely be
interpreted to include private activity bonds issued to finance similar
facilities.
FLORIDA TAXES. Based on an opinion of tax counsel, management believes
shareholders of the Fund that are subject to the Florida intangibles tax will
not be required to include the value of their Fund shares in their taxable
intangible property if all of the Fund's investments on the annual assessment
date are obligations that would be exempt from such tax if held directly by such
shareholders, such as Florida and U.S. Government obligations. A ruling
confirming this tax treatment is being requested from the Florida Department of
Revenue. As described above, the Portfolio will normally attempt to invest
substantially all of its assets in Florida obligations, and it will ensure that
all of its assets held on the annual assessment date are exempt from the Florida
intangibles tax. Accordingly, the value of the Fund shares held by a shareholder
should, under normal circumstances, be exempt from the Florida intangibles tax.
Shareholders should consult their own tax advisers with respect to the
state, local and foreign tax consequences of investing in the Fund.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
FROM TIME TO TIME, THE FUND MAY ADVERTISE ITS YIELD AND/OR AVERAGE ANNUAL TOTAL
RETURN. The Fund's current yield is calculated by dividing the net investment
income per share earned during a recent 30-day period by the maximum offering
price per share of the Fund on the last day of the period and annualizing the
resulting figure. A taxable-equivalent yield is computed by using the tax-exempt
yield figure and dividing by one minus the tax rate. The Fund's average annual
total return is determined by multiplying a hypothetical initial purchase order
of $1,000 by the average annual compounded rate of return (including capital
appreciation/depreciation, and dividends and distributions paid and reinvested)
for the stated period and annualizing the result. The average annual total
return calculation assumes the maximum sales charge is deducted from the initial
$1,000 purchase order and that all distributions are reinvested at net asset
value on the reinvestment dates during the period. The Fund may publish annual
and cumulative total return figures from time to time.
The Fund may also publish its distribution rate and/or its effective
distribution rate. The Fund's distribution rate is computed by dividing the most
recent monthly distribution per share annualized by the current maximum offering
price per share (including the maximum sales charge). The Fund's effective
distribution rate is computed by dividing the distribution rate by the ratio
used to annualize the most recent monthly distribution and reinvesting the
resulting amount for a full year on the basis of such ratio. The effective
distribution rate will be higher than the distribution rate because of the
compounding effect of the assumed reinvestment. Investors should note that the
Fund's yield is calculated using a standardized formula, the income component of
which is computed from the yields to maturity of all debt obligations held by
the Portfolio based on prescribed methods (with all purchases and sales of
securities during such period included in the income calculation on a settlement
date basis), whereas the distribution rate is based on the Fund's last monthly
distribution which tends to be relatively stable and may be more or less than
the amount of net investment income and short-term capital gain actually earned
by the Fund during the month.
The Fund may also furnish total return calculations based on investments at
various sales charge levels or at net asset value. Any performance data which is
based on the Fund's net asset value per share would be reduced if a sales charge
were taken into account.
Investors should note that the investment results of the Fund will
fluctuate over time, and any presentation of the Fund's yield, total return,
distribution rate or effective distribution rate for any prior period should not
be considered a representation of what an investment may earn or what the Fund's
yield, total return, distribution rate or effective distribution rate may be in
any future period. If the expenses related to the operation of the Fund or the
Portfolio are allocated to Eaton Vance, the Fund's performance will be higher.
STATEMENT OF INTENTION AND ESCROW AGREEMENT
- --------------------------------------------------------------------------------
TERMS OF ESCROW. If the investor, on an application, makes a Statement of
Intention to invest a specified amount over a thirteen-month period, then out of
the initial purchase (or subsequent purchases if necessary) 5% of the dollar
amount specified on the application shall be held in escrow by the escrow agent
in the form of shares (computed to the nearest full share at the public offering
price applicable to the initial purchase hereunder) registered in the investor's
name. All income dividends and capital gain distributions on escrowed shares
will be paid to the investor or to the investor's order.
When the minimum investment so specified is completed, the escrowed shares
will be delivered to the investor. If the investor has an accumulation account
the shares will remain on deposit under the investor's account.
If total purchases under this Statement of Intention are less than the
amount specified, the investor will promptly remit to EVD any difference between
the sales charge on the amount specified and on the amount actually purchased.
If the investor does not within 20 days after written request by EVD or the
Authorized Firm pay such difference in sales charge, the escrow agent will
redeem an appropriate number of the escrowed shares in order to realize such
difference. Full shares remaining after any such redemption together with any
excess cash proceeds of the shares so redeemed will be delivered to the investor
or to the investor's order by the escrow agent.
In signing the application, the investor irrevocably constitutes and
appoints the escrow agent the investor's attorney to surrender for redemption
any or all escrowed shares with full power of substitution in the premises.
PROVISION FOR RETROACTIVE PRICE ADJUSTMENT. If total purchases made under this
Statement are large enough to qualify for a lower sales charge than that
applicable to the amount specified, all transactions will be computed at the
expiration date of this Statement to give effect to the lower charge. Any
difference in sales charge will be refunded to the investor in cash, or applied
to the purchase of additional shares at the lower charge if specified by the
investor. This refund will be made by the Authorized Firm and by EVD. If at the
time of the recomputation a firm other than the original firm is placing the
orders, the adjustment will be made only on those shares purchased through the
firm then handling the investor's account.
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
INVESTMENT ADVISER OF EV TRADITIONAL [LOGO]
FLORIDA INSURED TAX FREE PORTFOLIO
Boston Management and Research FLORIDA INSURED
24 Federal Street
Boston, MA 02110 TAX FREE FUND
ADMINISTRATOR OF EV TRADITIONAL
FLORIDA INSURED TAX FREE FUND
Eaton Vance Management
24 Federal Street
Boston, MA 02110
PRINCIPAL UNDERWRITER PROSPECTUS
Eaton Vance Distributors, Inc.
24 Federal Street JUNE 1, 1995
Boston, MA 02110
(800) 225-6265
CUSTODIAN
Investors Bank & Trust Company
24 Federal Street
Boston, MA 02110
TRANSFER AGENT
The Shareholders Services Group, Inc.
BOS725
P.O. Box 1559
Boston, MA 02104
(800) 262-1122
AUDITORS
Deloitte & Touche LLP
125 Summer Street
Boston, MA 02110
EV TRADITIONAL
FLORIDA INSURED TAX FREE FUND
24 FEDERAL STREET
BOSTON, MA 02110
T-IFIP
<PAGE>
Part B
Information Required in a Statement of Additional Information
STATEMENT OF
ADDITIONAL INFORMATION
June 1, 1995
EV CLASSIC TAX FREE FUNDS
EV CLASSIC FLORIDA INSURED TAX FREE FUND
EV CLASSIC HAWAII TAX FREE FUND
EV CLASSIC KANSAS TAX FREE FUND
24 Federal Street
Boston, Massachusetts 02110
(800) 225-6265
This Statement of Additional Information consists of two parts. Part I
provides general information about the Funds listed above (each a "Fund") and
certain other series of Eaton Vance Municipals Trust II (the "Trust"). As
described in the Prospectus, each Fund invests its assets in a separate
registered investment company (a "Portfolio") with the same investment objective
and policies as the Fund. Each Part II provides information solely about a Fund
and its corresponding Portfolio. Where appropriate, Part I includes
cross-references to the relevant sections of Part II.
TABLE OF CONTENTS Page
PART I
Additional Information about Investment Policies ............... 1
Investment Restrictions ........................................ 8
Trustees and Officers .......................................... 9
Investment Adviser and Administrator .......................... 11
Custodian ...................................................... 13
Service for Withdrawal ......................................... 13
Determination of Net Asset Value ............................... 13
Investment Performance ......................................... 14
Taxes .......................................................... 15
Portfolio Security Transactions ................................ 17
Other Information .............................................. 19
Independent Certified Public Accountants ....................... 20
Appendix ....................................................... 21
PART II
EV Classic Florida Insured Tax Free Fund ....................... a-1
EV Classic Hawaii Tax Free Fund ................................ b-1
EV Classic Kansas Tax Free Fund ................................ c-1
Financial Statements ........................................... d-1
Although each Fund offers only its shares of beneficial interest, it is
possible that a Fund might become liable for a misstatement or omission in this
Statement of Additional Information regarding another Fund because the Funds use
this combined Statement of Additional Information. The Trustees of the Trust
have considered this factor in approving the use of a combined Statement of
Additional Information.
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND IS
AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE INVESTORS ONLY IF PRECEDED OR
ACCOMPANIED BY THE FUNDS' PROSPECTUS DATED JUNE 1, 1995, AS SUPPLEMENTED FROM
TIME TO TIME. THIS STATEMENT OF ADDITIONAL INFORMATION SHOULD BE READ IN
CONJUNCTION WITH SUCH PROSPECTUS, A COPY OF WHICH MAY BE OBTAINED WITHOUT CHARGE
BY CONTACTING EATON VANCE DISTRIBUTORS, INC. (THE "PRINCIPAL UNDERWRITER") (SEE
BACK COVER FOR ADDRESS AND PHONE NUMBER).
<PAGE>
Part B
Information Required in a Statement of Additional Information
STATEMENT OF
ADDITIONAL INFORMATION
June 1, 1995
EV MARATHON TAX FREE FUNDS
EV MARATHON FLORIDA INSURED TAX FREE FUND
EV MARATHON HAWAII TAX FREE FUND
EV MARATHON KANSAS TAX FREE FUND
24 Federal Street
Boston, Massachusetts 02110
(800) 225-6265
This Statement of Additional Information consists of two parts. Part I
provides general information about the Funds listed above (each a "Fund") and
certain other series of Eaton Vance Municipals Trust II (the "Trust"). As
described in the Prospectus, each Fund invests its assets in a separate
registered investment company (a "Portfolio") with the same investment objective
and policies as the Fund. Each Part II provides information solely about a Fund
and its corresponding Portfolio. Where appropriate, Part I includes
cross-references to the relevant sections of Part II.
TABLE OF CONTENTS Page
PART I
Additional Information about Investment Policies ............... 1
Investment Restrictions ........................................ 8
Trustees and Officers .......................................... 9
Investment Adviser and Administrator .......................... 11
Custodian ...................................................... 13
Service for Withdrawal ......................................... 13
Determination of Net Asset Value ............................... 13
Investment Performance ......................................... 14
Taxes .......................................................... 15
Portfolio Security Transactions ................................ 17
Other Information .............................................. 19
Independent Certified Public Accountants ....................... 20
Appendix ....................................................... 21
PART II
EV Marathon Florida Insured Tax Free Fund ...................... a-1
EV Marathon Hawaii Tax Free Fund ............................... b-1
EV Marathon Kansas Tax Free Fund ............................... c-1
Financial Statements ........................................... d-1
Although each Fund offers only its shares of beneficial interest, it is
possible that a Fund might become liable for a misstatement or omission in this
Statement of Additional Information regarding another Fund because the Funds use
this combined Statement of Additional Information. The Trustees of the Trust
have considered this factor in approving the use of a combined Statement of
Additional Information.
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND IS
AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE INVESTORS ONLY IF PRECEDED OR
ACCOMPANIED BY THE FUNDS' PROSPECTUS DATED JUNE 1, 1995, AS SUPPLEMENTED FROM
TIME TO TIME. THIS STATEMENT OF ADDITIONAL INFORMATION SHOULD BE READ IN
CONJUNCTION WITH SUCH PROSPECTUS, A COPY OF WHICH MAY BE OBTAINED WITHOUT CHARGE
BY CONTACTING EATON VANCE DISTRIBUTORS, INC. (THE "PRINCIPAL UNDERWRITER") (SEE
BACK COVER FOR ADDRESS AND PHONE NUMBER).
<PAGE>
PART B
INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION
STATEMENT OF
ADDITIONAL INFORMATION
June 1, 1995
EV TRADITIONAL FLORIDA INSURED
TAX FREE FUND
24 Federal Street
Boston, Massachusetts 02110
(800) 225-6265
This Statement of Additional Information consists of two parts. Part I
provides general information about EV Traditional Florida Insured Tax Free Fund
(the "Fund") and certain other series of Eaton Vance Municipals Trust II (the
"Trust"). As described in the Prospectus, the Fund invests its assets in Florida
Insured Tax Free Portfolio (the "Portfolio"), a separate registered investment
company with the same investment objective and policies as the Fund. Part II
provides information solely about the Fund and the Portfolio. Where appropriate,
Part I includes cross-references to the relevant sections of Part II.
TABLE OF CONTENTS
Page
PART I
Additional Information about Investment Policies ............... 1
Investment Restrictions ........................................ 8
Trustees and Officers .......................................... 9
Investment Adviser and Administrator ........................... 11
Custodian ...................................................... 13
Service for Withdrawal ......................................... 13
Determination of Net Asset Value ............................... 13
Investment Performance ......................................... 14
Taxes .......................................................... 15
Portfolio Security Transactions ................................ 17
Other Information .............................................. 19
Independent Certified Public Accountants ....................... 20
Appendix ....................................................... 21
PART II
Risks of Concentration ......................................... a-1
Insurance ...................................................... a-1
Fees and Expenses .............................................. a-3
Services for Accumulation ...................................... a-4
Principal Underwriter .......................................... a-5
Service Plan ................................................... a-6
Performance Information ........................................ a-7
Additional Tax Matters ......................................... a-9
Control Persons and Principal Holders of Securities ............ a-9
Tax Equivalent Yield Table ..................................... a-10
Financial Statements ........................................... a-11
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND IS
AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE INVESTORS ONLY IF PRECEDED OR
ACCOMPANIED BY THE FUND'S PROSPECTUS DATED JUNE 1, 1995, AS SUPPLEMENTED FROM
TIME TO TIME. THIS STATEMENT OF ADDITIONAL INFORMATION SHOULD BE READ IN
CONJUNCTION WITH SUCH PROSPECTUS, A COPY OF WHICH MAY BE OBTAINED WITHOUT CHARGE
BY CONTACTING EATON VANCE DISTRIBUTORS, INC. (THE "PRINCIPAL UNDERWRITER") (SEE
BACK COVER FOR ADDRESS AND PHONE NUMBER).
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART I
This Part I provides information about the Fund and certain other series of
the Trust. Capitalized terms used in this Statement of Additional Information
and not otherwise defined have the meanings given them in the Fund's Prospectus.
ADDITIONAL INFORMATION ABOUT INVESTMENT POLICIES
MUNICIPAL OBLIGATIONS
Municipal obligations are issued to obtain funds for various public and
private purposes. Such obligations include bonds as well as tax-exempt
commercial paper, project notes and municipal notes such as tax, revenue and
bond anticipation notes of short maturity, generally less than three years. In
general, there are three categories of municipal obligations, the interest on
which is exempt from Federal income tax and is not a tax preference item for
purposes of the Federal alternative minimum tax: (i) certain "public purpose"
obligations (whenever issued), which include obligations issued directly by
state and local governments or their agencies to fulfill essential governmental
functions; (ii) certain obligations issued before August 8, 1986 for the benefit
of non-governmental persons or entities; and (iii) certain "private activity
bonds" issued after August 7, 1986, which include "qualified Section 501(c)(3)
bonds" or refundings of certain obligations included in the second category. In
assessing the Federal income tax treatment of interest on any municipal
obligation, the Portfolio will generally rely on an opinion of the issuer's
counsel (when available) and will not undertake any independent verification of
the basis for the opinion. The two principal classifications of municipal bonds
are "general obligation" and "revenue" bonds.
Interest on certain "private activity bonds" issued after August 7, 1986 is
exempt from regular Federal income tax but such interest (including a
distribution by the Fund derived from such interest) is treated as a tax
preference item which could subject the recipient to or increase the recipient's
liability for the Federal alternative minimum tax. For corporate shareholders,
the Fund's distributions derived from interest on all municipal obligations
(whenever issued) is included in "adjusted current earnings" for purposes of the
Federal alternative minimum tax as applied to corporations (to the extent not
already included in alternative minimum taxable income as income attributable to
private activity bonds).
Market discount on long-term tax-exempt municipal obligations (i.e.,
obligations with a term of more than one year) purchased in the secondary market
after April 30, 1993 is taxable as ordinary income. A long-term debt obligation
is generally treated as acquired at a market discount if the secondary market
purchase price is less than (i) the stated principal amount payable at maturity,
in the case of an obligation that does not have original issue discount or (ii)
in the case of an obligation that does have original issue discount, the sum of
the issue price and any original issue discount that accrued before the
obligation was purchased, subject to a de minimus amount.
Issuers of general obligation bonds include states, counties, cities, towns
and regional districts. The proceeds of these obligations are used to fund a
wide range of public projects including the construction or improvement of
schools, highways and roads, water and sewer systems and a variety of other
public purposes. The basic security of general obligation bonds is the issuer's
pledge of its faith, credit, and taxing power for the payment of principal and
interest. The taxes that can be levied for the payment of debt service may be
limited or unlimited as to rate and amount.
The principal security for a revenue bond is generally the net revenues
derived from a particular facility or group of facilities or, in some cases,
from the proceeds of a special excise or other specific revenue source. Revenue
bonds have been issued to fund a wide variety of capital projects including:
electric, gas, water, sewer and solid waste disposal systems; highways, bridges
and tunnels; port, airport and parking facilities; transportation systems;
housing facilities, colleges and universities and hospitals. Although the
principal security behind these bonds varies widely, many provide additional
security in the form of a debt service reserve fund whose monies may be used to
make principal and interest payments on the issuer's obligations. Housing
finance authorities have a wide range of security including partially or fully
insured, rent subsidized and/or collateralized mortgages, and/or the net
revenues from housing or other public projects. In addition to a debt service
reserve fund, some authorities provide further security in the form of a state's
ability (without legal obligation) to make up deficiencies in the debt service
reserve fund. Lease rental revenue bonds issued by a state or local authority
for capital projects are normally secured by annual lease rental payments from
the state or locality to the authority sufficient to cover debt service on the
authority's obligations. Such payments are usually subject to annual
appropriations by the state or locality.
Industrial development and pollution control bonds are in most cases revenue
bonds and are generally not secured by the taxing power of the municipality, but
are usually secured by the revenues derived by the authority from payments of
the industrial user or users.
The Portfolio may on occasion acquire revenue bonds which carry warrants or
similar rights covering equity securities. Such warrants or rights may be held
indefinitely, but if exercised, the Portfolio anticipates that it would, under
normal circumstances, dispose of any equity securities so acquired within a
reasonable period of time.
While most municipal bonds pay a fixed rate of interest semi-annually in
cash, there are exceptions. Some bonds pay no periodic cash interest, but rather
make a single payment at maturity representing both principal and interest.
Bonds may be issued or subsequently offered with interest coupons materially
greater or less than those then prevailing, with price adjustments reflecting
such deviation.
The obligations of any person or entity to pay the principal of and interest
on a municipal obligation are subject to the provisions of bankruptcy,
insolvency and other laws affecting the rights and remedies of creditors, such
as the Federal Bankruptcy Act, and laws, if any, which may be enacted by
Congress or state legislatures extending the time for payment of principal or
interest, or both, or imposing other constraints upon enforcement of such
obligations. There is also the possibility that as a result of litigation or
other conditions the power or ability of any person or entity to pay when due
principal of and interest on a municipal obligation may be materially affected.
There have been recent instances of defaults and bankruptcies involving
municipal obligations which were not foreseen by the financial and investment
communities. The Portfolio will take whatever action it considers appropriate in
the event of anticipated financial difficulties, default or bankruptcy of either
the issuer of any municipal obligation or of the underlying source of funds for
debt service. Such action may include retaining the services of various persons
or firms (including affiliates of Boston Management and Research (the
"Investment Adviser")) to evaluate or protect any real estate, facilities or
other assets securing any such obligation or acquired by the Portfolio as a
result of any such event, and the Portfolio may also manage (or engage other
persons to manage) or otherwise deal with any real estate, facilities or other
assets so acquired. The Portfolio anticipates that real estate consulting and
management services may be required with respect to properties securing various
municipal obligations in its portfolio or subsequently acquired by the
Portfolio. The Portfolio will incur additional expenditures in taking protective
action with respect to portfolio obligations in default and assets securing such
obligations.
The yields on municipal obligations will be dependent on a variety of
factors, including purposes of issue and source of funds for repayment, general
money market conditions, general conditions of the municipal bond market, size
of a particular offering, maturity of the obligation and rating of the issue.
The ratings of Moody's Investors Service, Inc. ("Moody's"), Standard & Poor's
Ratings Group ("S&P") and Fitch Investors Service, Inc. ("Fitch") represent
their opinions as to the quality of the municipal obligations which they
undertake to rate. It should be emphasized, however, that ratings are based on
judgment and are not absolute standards of quality. Consequently, municipal
obligations with the same maturity, coupon and rating may have different yields
while obligations of the same maturity and coupon with different ratings may
have the same yield. In addition, the market price of municipal obligations will
normally fluctuate with changes in interest rates, and therefore the net asset
value of the Portfolio will be affected by such changes.
RISKS OF CONCENTRATION
Municipal Obligations. For a discussion of the risks associated with the
Portfolio's policy of concentrating its investments in particular issuers of
municipal obligations, see "Risks of Concentration" in the Fund's Part II of
this Statement of Additional Information.
Obligations of Particular Types of Issuers. The Portfolio may invest 25% or more
of its total assets in municipal obligations whose issuers are located in the
same state or in municipal obligations of the same type. There could be
economic, business or political developments which might affect all municipal
obligations of the same type. In particular, investments in the industrial
revenue bonds listed above might involve without limitation the following risks.
Hospital bond ratings are often based on feasibility studies which contain
projections of expenses, revenues and occupancy levels. Among the influences
affecting a hospital's gross receipts and net income available to service its
debt are demand for hospital services, the ability of the hospital to provide
the services required, management capabilities, economic developments in the
service area, efforts by insurers and government agencies to limit rates and
expenses, confidence in the hospital, service area economic developments,
competition, availability and expense of malpractice insurance, Medicaid and
Medicare funding and possible Federal legislation limiting the rates of increase
of hospital charges.
Electric utilities face problems in financing large construction programs in
an inflationary period, cost increases and delay occasioned by safety and
environmental considerations (particularly with respect to nuclear facilities),
difficulty in obtaining fuel at reasonable prices, and in achieving timely and
adequate rate relief from regulatory commissions, effects of energy conservation
and limitations on the capacity of the capital market to absorb utility debt.
Pollution control and other industrial development bonds are issued by state
or local agencies to finance various projects, including those of domestic steel
producers, and may be backed solely by agreements with such companies. Domestic
steel companies are expected to suffer the consequences of such adverse trends
as high labor costs, high foreign imports encouraged by foreign productivity
increases and a strong U.S. dollar, and other cost pressures such as those
imposed by anti-pollution legislation. Domestic steel capacity is being reduced
currently by large-scale plant closings and this period of rationalization may
not end until further legislative protection is provided through tariff price
supports or mandatory import quotas, such as those recently enacted for certain
specialty steel products.
Life care facilities are an alternative form of long-term housing for the
elderly which offer residents the independence of a condominium life style and,
if needed, the comprehensive care of nursing home services. Bonds to finance
these facilities have been issued by various state industrial development
authorities. Since the bonds are normally secured only by the revenues of each
facility and not by state or local government tax payments, they are subject to
a wide variety of risks. Primarily, the projects must maintain adequate
occupancy levels to be able to provide revenues sufficient to meet debt service
payments. Moreover, since a portion of housing, medical care and other services
may be financed by an initial deposit, it is important that the facility
maintain adequate financial reserves to secure estimated actuarial liabilities.
The ability of management to accurately forecast inflationary cost pressures is
an important factor in this process. The facilities may also be affected
adversely by regulatory cost restrictions applied to health care delivery in
general, particularly state regulations or changes in Medicare and Medicaid
payments or qualifications, or restrictions imposed by medical insurance
companies. They may also face competition from alternative health care or
conventional housing facilities in the private or public sector.
Obligations of Puerto Rico, U.S. Virgin Islands and Guam. Subject to the Fund's
investment policies as set forth in its Prospectus, the Portfolio may invest in
the obligations of Puerto Rico, the U.S. Virgin Islands and Guam. Accordingly,
the Portfolio may be adversely affected by local political and economic
conditions and developments within Puerto Rico affecting the issuers of such
obligations.
Puerto Rico has a diversified economy dominated by the manufacturing and
service sectors. Manufacturing is the largest sector in terms of gross domestic
product and is more diversified than during earlier phases of Puerto Rico's
industrial development. The three largest sectors of the economy (as a
percentage of employment) are services (47%), government (22%) and manufacturing
(16.4%). These three sectors represent 39%, 11% and 39%, respectively, of the
gross domestic product. The service sector is the fastest growing, while the
government and manufacturing sectors have been stagnant for the past five years.
This decline was broad based among all manufacturing industries. The North
American Free Trade Agreement (NAFTA), which became effective January 1, 1994,
could lead to the loss of Puerto Rico's lower salaried or labor intensive jobs
to Mexico. The February, 1995 unemployment rate was 12.5%, down from 16% for
1994.
The Commonwealth of Puerto Rico exercises virtually the same control over
its internal affairs as do the fifty states; however, it differs from the states
in its relationship with the Federal government. Most Federal taxes, except
those such as social security taxes that are imposed by mutual consent, are not
levied in Puerto Rico. However, in conjunction with the 1993 U.S. budget plan,
Section 936 of the Internal Revenue Code was amended and provided for two
alternative limitations to the Section 936 credit. The first option will limit
the credit against such income to 40% of the credit allowable under current law,
with a five year phase-in period starting at 60% of the allowable credit. The
second option is a wage and depreciation based credit. The reduction of the tax
benefits to those U.S. companies with operations in Puerto Rico may lead to
slower growth in the future. There can be no assurance that these modifications
will not lead to a weakened economy, a lower rating on Puerto Rico's debt or
lower prices for Puerto Rican bonds that may be held by the Portfolio.
Puerto Rico's financial reporting was first conformed to generally accepted
accounting principles in fiscal 1990. Nonrecurring revenues have been used
frequently to balance recent years' budgets. In November, 1993 Puerto Ricans
voted on whether they wished to retain their Commonwealth status, become a state
or establish an independent nation. The measure was defeated, with 48.5% voting
to remain a Commonwealth, 46% voting for statehood and 4% voting for
independence. Retaining Commonwealth status will leave intact the current
relationship with the Federal government. There can be no assurance that the
statehood issue will not be brought to a vote in the future. A successful
statehood vote in Puerto Rico would then require the U.S. Congress to ratify the
election.
The United States Virgin Islands (USVI) are located approximately 1,100
miles east-southeast of Miami and are made up of St. Croix, St. Thomas and St.
John. Population, after reaching a peak of 110,800 in 1985, declined to 101,809
in 1990. The economy is heavily reliant on the tourism industry, with roughly
43% of non-agricultural employment in tourist-related trade and services. As of
April, 1993, unemployment stood at 2.7%. The tourism industry is economically
sensitive and would likely be adversely affected by a recession in either the
United States or Europe.
An important component of the USVI revenue base is the Federal excise tax on
rum exports. Tax revenues rebated by the Federal government to the USVI provide
the primary security of many outstanding USVI bonds. Since more than 90% of the
rum distilled in the USVI is distilled at one plant, any interruption in its
operations (as occurred after Hurricane Hugo in 1989) would adversely affect
these revenues. Consequently, there can be no assurance that rum exports to the
United States and the rebate of tax revenues to the USVI will continue at their
present levels. The preferential tariff treatment the USVI rum industry
currently enjoys could be reduced under NAFTA. Increased competition from
Mexican rum producers could reduce USVI rum imported to the U.S., decreasing
excise tax revenues generated. The USVI experienced budget deficits in fiscal
years 1989 and 1990: in 1989 due to wage settlements with the unionized
government employees, and in 1990 as a result of Hurricane Hugo. The USVI
recorded a small surplus in fiscal year 1991. At the end of fiscal 1992, the
last year for which results are available, the USVI had an unreserved General
Fund deficit of approximately $8.31 million, or approximately 2.1% of
expenditures. In order to close a forecasted fiscal 1994 revenue gap of $45.6
million, the Department of Finance has proposed several tax increases and fund
transfers. There is currently no rated, unenhanced Virgin Islands debt
outstanding.
Guam, an unincorporated U.S. territory, is located 1,500 miles southeast of
Tokyo. Population, 133,000 in 1990, up 26% from the 1980 census level. The U.S.
military is a key component of Guam's economy. The Federal government directly
comprises more than 10% of the employment base, with a substantial component of
the service sector to support these personnel. Guam is expected to benefit from
the closure of the Subic Bay Naval Base and the Clark Air Force Base in the
Philippines. The Naval Air Station, one of several U.S. military facilities on
the island, has been slated for closure by the Defense Base Closure and
Realignment Committee; however, the administration plans to use these facilities
to expand the Island's commercial airport. Guam is also heavily reliant on
tourists, particularly the Japanese. Unemployment was 3.2% in 1991. For 1994,
the financial position of Guam has weakened further as it incurred an unaudited
General Fund operating deficit. The administration has taken steps to improve
its financial position; however, there are no guarantees that an improvement
will be realized. Guam's general obligation debt is rated Baa by Moody's.
MUNICIPAL LEASES
The Portfolio may invest in municipal leases and participations therein,
which arrangements frequently involve special risks. Municipal leases are
obligations in the form of a lease or installment purchase arrangement which is
issued by state or local governments to acquire equipment and facilities.
Interest income from such obligations is generally exempt from local and state
taxes in the state of issuance. "Participations" in such leases are undivided
interests in a portion of the total obligation. Participations entitle their
holders to receive a pro rata share of all payments under the lease. A trustee
is usually responsible for administering the terms of the participation and
enforcing the participants' rights in the underlying lease. Leases and
installment purchase or conditional sale contracts (which normally provide for
title to the leased equipment without meeting the constitutional and statutory
requirements for the issuance of debt. State debt-issuance limitations are
deemed to be inapplicable to these arrangements because of the inclusion in many
leases or contracts of "non-appropriation" clauses that provide that the
governmental issuer has no obligation to make future payments under the lease or
contract unless money is appropriated for such purpose by the appropriate
legislative body on a yearly or other periodic basis. Such arrangements are,
therefore, subject to the risk that the governmental issuer will not appropriate
funds for lease payments.
Certain municipal lease obligations owned by the Portfolio may be deemed
illiquid for the purpose of the Portfolio's 15% limitation on investments in
illiquid securities, unless determined by the Investment Adviser, pursuant to
guidelines adopted by the Trustees of the Portfolio, to be liquid securities for
the purpose of such limitation. In determining the liquidity of municipal lease
obligations, the Investment Adviser will consider a variety of factors
including: (1) the willingness of dealers to bid for the security; (2) the
number of dealers willing to purchase or sell the obligation and the number of
other potential buyers; (3) the frequency of trades and quotes for the
obligation; and (4) the nature of the marketplace trades. In addition, the
Investment Adviser will consider factors unique to particular lease obligations
affecting the marketability thereof. These include the general creditworthiness
of the municipality, the importance of the property covered by the lease to the
municipality, and the likelihood that the marketability of the obligation will
be maintained throughout the time the obligation is held by the Portfolio. In
the event the Portfolio acquires an unrated municipal lease obligation, the
Investment Adviser will be responsible for determining the credit quality of
such obligation on an on-going basis, including an assessment of the likelihood
that the lease may or may not be cancelled.
ZERO COUPON BONDS
Zero coupon bonds are debt obligations which do not require the periodic
payment of interest and are issued at a significant discount from face value.
The discount approximates the total amount of interest the bonds will accrue and
compound over the period until maturity at a rate of interest reflecting the
market rate of the security at the time of issuance. Zero coupon bonds benefit
the issuer by mitigating its need for cash to meet debt service, but also
require a higher rate of return to attract investors who are willing to defer
receipt of such cash.
INSURANCE
Insured municipal obligations held by the Portfolio (if any) will be insured
as to their scheduled payment of principal and interest under either (i) an
insurance policy obtained by the issuer or underwriter of the obligation at the
time of its original issuance or (ii) an insurance policy obtained by the
Portfolio or a third party subsequent to the obligation's original issuance
(which may not be reflected in the obligation's market value. In either event,
such insurance may provide that in the event of non-payment of interest or
principal when due with respect to an insured obligation, the insurer is not
required to make such payment until a specified time has lapsed (which may be 30
days or more after notice).
CREDIT QUALITY
The Portfolio is dependent on the Investment Adviser's judgment, analysis
and experience in evaluating the quality of municipal obligations. In evaluating
the credit quality of a particular issue, whether rated or unrated, the
Investment Adviser will normally take into consideration, among other things,
the financial resources of the issuer (or, as appropriate, of the underlying
source of funds for debt service), its sensitivity to economic conditions and
trends, any operating history of and the community support for the facility
financed by the issue, the ability of the issuer's management and regulatory
matters. The Investment Adviser will attempt to reduce the risks of investing in
the lowest investment grade, below investment grade and comparable unrated
obligations through active portfolio management, credit analysis and attention
to current developments and trends in the economy and the financial markets.
See "Portfolio of Investments" in the "Financial Statements" included in the
Fund's Part II of this Statement of Additional Information with respect to any
defaulted obligations held by the Portfolio.
SHORT-TERM TRADING
The Portfolio may sell securities in anticipation of a market decline (a
rise in interest rates) or purchase and later sell securities in anticipation of
a market rise (a decline in interest rates). In addition, a security may be sold
and another purchased at approximately the same time to take advantage of what
the Portfolio believes to be a temporary disparity in the normal yield
relationship between the two securities. Yield disparities may occur for reasons
not directly related to the investment quality of particular issues or the
general movement of interest rates, such as changes in the overall demand for or
supply of various types of municipal obligations or changes in the investment
objectives of investors. Such trading may be expected to increase the portfolio
turnover rate, which may increase capital gains and the expenses incurred in
connection with such trading. The Portfolio anticipates that its annual
portfolio turnover rate will generally not exceed 100% (excluding turnover of
securities having a maturity of one year or less).
WHEN ISSUED SECURITIES
New issues of municipal obligations are sometimes offered on a "when-
issued" basis, that is, delivery and payment for the securities normally taking
place within a specified number of days after the date of the Portfolio's
commitment and are subject to certain conditions such as the issuance of
satisfactory legal opinions. The Portfolio may also purchase securities on a
when-issued basis pursuant to refunding contracts in connection with the
refinancing of an issuer's outstanding indebtedness. Refunding contracts
generally require the issuer to sell and the Portfolio to buy such securities on
a settlement date that could be several months or several years in the future.
The Portfolio will make commitments to purchase when-issued securities only
with the intention of actually acquiring the securities, but may sell such
securities before the settlement date if it is deemed advisable as a matter of
investment strategy. The payment obligation and the interest rate that will be
received on the securities are fixed at the time the Portfolio enters into the
purchase commitment. The Portfolio's custodian will segregate cash or high grade
liquid debt securities in a separate account of the Portfolio in an amount at
least equal to the when-issued commitments. If the value of the securities
placed in the separate account declines, additional cash or high grade liquid
debt securities will be placed in the account on a daily basis so that the value
of the account will at least equal the amount of the Portfolio's when-issued
commitments. When the Portfolio commits to purchase a security on a when-issued
basis it records the transaction and reflects the value of the security in
determining its net asset value. Securities purchased on a when-issued basis and
the securities held by the Portfolio are subject to changes in value based upon
the perception of the creditworthiness of the issuer and changes in the level of
interest rates (i.e. appreciation when interest rates decline and depreciation
when interest rates rise). Therefore, to the extent that the Portfolio remains
substantially fully invested at the same time that it has purchased securities
on a when-issued basis, there will be greater fluctuations in the Portfolio's
net asset value than if it solely set aside cash to pay for when-issued
securities.
VARIABLE RATE OBLIGATIONS
The Portfolio may purchase variable rate obligations. Variable rate
instruments provide for adjustments in the interest rate at specified intervals
(weekly, monthly, semi-annually, etc.). The revised rates are usually set at the
issuer's discretion, in which case the investor normally enjoys the right to
"put" the security back to the issuer or his agent. Rate revisions may
alternatively be determined by formula or in some other contractual fashion.
Variable rate obligations normally provide that the holder can demand payment of
the obligation on short notice at par with accrued interest and are frequently
secured by letters of credit or other credit support arrangements provided by
banks. To the extent that such letters of credit or other arrangements
constitute an unconditional guarantee of the issuer's obligations, a bank may be
treated as the issuer of a security for the purpose of complying with the
diversification requirements set forth in Section 5(b) of the Investment Company
Act of 1940 and Rule 5b-2 thereunder. The Portfolio would anticipate using these
obligations as cash equivalents pending longer term investment of its funds.
REDEMPTION, DEMAND AND PUT FEATURES
Most municipal bonds have a fixed final maturity date. However, it is
commonplace for the issuer to reserve the right to call the bond earlier. Also,
some bonds may have "put" or "demand" features that allow early redemption by
the bondholder. Interest income generated by certain bonds having demand
features may not qualify as tax-exempt interest. Longer term fixed-rate bonds
may give the holder a right to request redemption at certain times (often
annually after the lapse of an intermediate term). These bonds are more
defensive than conventional long term bonds (protecting to some degree against a
rise in interest rates) while providing greater opportunity than comparable
intermediate term bonds, because the Portfolio may retain the bond if interest
rates decline. By acquiring these kinds of obligations the Portfolio obtains the
contractual right to require the issuer of the security or some other person
(other than a broker or dealer) to purchase the security at an agreed upon
price, which right is contained in the obligation itself rather than in a
separate agreement with the seller or some other person. Because this right is
assignable with the security, which is readily marketable and valued in the
customary manner, the Portfolio will not assign any separate value to such
right.
LIQUIDITY AND PROTECTIVE PUT OPTIONS
The Portfolio may also enter into a separate agreement with the seller of
the security or some other person granting the Portfolio the right to put the
security to the seller thereof or the other person at an agreed upon price. The
Portfolio intends to limit this type of transaction to institutions (such as
banks or securities dealers) which the Investment Adviser believes present
minimal credit risks and would engage in this type of transaction to facilitate
portfolio liquidity or (if the seller so agrees) to hedge against rising
interest rates. There is no assurance that this kind of put option will be
available to the Portfolio or that selling institutions will be willing to
permit the Portfolio to exercise a put to hedge against rising interest rates. A
separate put option may not be marketable or otherwise assignable, and sale of
the security to a third party or lapse of time with the put unexercised may
terminate the right to exercise the put. The Portfolio does not expect to assign
any value to any separate put option which may be acquired to facilitate
portfolio liquidity, inasmuch as the value (if any) of the put will be reflected
in the value assigned to the associated security; any put acquired for hedging
purposes would be valued in good faith under methods or procedures established
by the Trustees of the Portfolio after consideration of all relevant factors,
including its expiration date, the price volatility of the associated security,
the difference between the market price of the associated security and the
exercise price of the put, the creditworthiness of the issuer of the put and the
market prices of comparable put options. Interest income generated by certain
bonds having put features may not qualify as tax-exempt interest.
SECURITIES LENDING
The Portfolio may seek to increase its income by lending portfolio
securities to broker-dealers or other institutional borrowers. Under present
regulatory policies of the Securities and Exchange Commission (the
"Commission"), such loans are required to be secured continuously by collateral
in cash, cash equivalents or U.S. Government securities held by the Portfolio's
custodian and maintained on a current basis at an amount at least equal to the
market value of the securities loaned, which will be marked to market daily.
Cash equivalents include short-term municipal obligations as well as taxable
certificates of deposit, commercial paper and other short-term money market
instruments. The Portfolio would have the right to call a loan and obtain the
securities loaned at any time on up to five business days' notice. During the
existence of a loan, the Portfolio will continue to receive the equivalent of
the interest paid by the issuer on the securities loaned and will also receive a
fee, or all or a portion of the interest on investment of the collateral, if
any. However, the Portfolio may pay lending fees to such borrowers. The
Portfolio would not have the right to vote any securities having voting rights
during the existence of the loan, but would call the loan in anticipation of an
important vote to be taken among holders of the securities or the giving or
withholding of their consent on a material matter affecting the investment. As
with other extensions of credit there are risks of delay in recovery or even
loss of rights in the securities loaned if the borrower of the securities fails
financially. However, the loans will be made only to organizations deemed by the
Portfolio's management to be of good standing and when, in the judgment of the
Portfolio's management, the consideration which can be earned from securities
loans of this type justifies the attendant risk. Distributions by the Fund of
any income realized by the Portfolio from securities loans will be taxable. If
the management of the Portfolio decides to make securities loans, it is intended
that the value of the securities loaned would not exceed 30% of the Portfolio's
total assets.
FUTURES CONTRACTS
A change in the level of interest rates may affect the value of the
securities held by the Portfolio (or of securities that the Portfolio expects to
purchase). To hedge against changes in rates or for non-hedging purposes, the
Portfolio may enter into (i) futures contracts for the purchase or sale of debt
securities, (ii) futures contracts on securities indices and (iii) futures
contracts on other financial instruments and indices. All futures contracts
entered into by the Portfolio are traded on exchanges or boards of trade that
are licensed and regulated by the Commodity Futures Trading Commission ("CFTC")
and must be executed through a futures commission merchant or brokerage firm
which is a member of the relevant exchange. The Portfolio may purchase and write
call and put options on futures contracts which are traded on a United States or
foreign exchange or board of trade.
The Portfolio will engage in futures and related options transactions only
for bona fide hedging or non-hedging purposes as defined in or permitted by CFTC
regulations. The Portfolio will determine that the price fluctuations in the
futures contracts and options on futures used for hedging purposes are
substantially related to price fluctuations in securities held by the Portfolio
or which it expects to purchase. Except as stated below, 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. As an alternative to compliance with the bona fide hedging
definition, a CFTC regulation permits the Portfolio to elect to comply with a
different test, under which the aggregate initial margin and premiums required
to establish non-heding positions in futures contracts and options on futures
will not exceed 5% of the Portfolio's net asset value after taking into account
unrealized profits and losses on such positions and excluding the in-the-money
amount of such options. The Portfolio will engage in transactions in futures and
related options contracts only to the extent such transactions are consistent
with the requirements of the Internal Revenue Code for maintaining the Fund's
qualification as a regulated investment company for Federal income tax purposes
(see "Taxes").
The Portfolio will be required, in connection with transactions in futures
contracts and the writing of options on futures to make margin deposits, which
will be held by the Portfolio's custodian for the benefit of the futures
commission merchant through whom the Portfolio engages in such futures and
options transactions. Cash or liquid high grade debt securities required to be
segregated in connection with a "long" futures position taken by the Portfolio
will also be held by the custodian in a segregated account and will be marked to
market daily.
PORTFOLIO TURNOVER
The Portfolio cannot accurately predict its portfolio turnover rate, but it
is anticipated that the annual turnover rate will generally not exceed 100%
(excluding turnover of securities having a maturity of one year or less). A 100%
annual turnover rate would occur, for example, if all the securities held by the
Portfolio were replaced once in a period of one year. A high turnover rate (100%
or more) necessarily involves greater expenses to the Portfolio. The Portfolio
engages in portfolio trading (including short-term trading) if it believes that
a transaction including all costs will help in achieving its investment
objective.
INVESTMENT RESTRICTIONS
The following investment restrictions of the Fund are designated as
fundamental policies and as such cannot be changed without the approval of the
holders of a majority of the Fund's outstanding voting securities, which as used
in this Statement of Additional Information means the lesser of (a) 67% of the
shares of the Fund present or represented by proxy at a meeting if the holders
of more than 50% of the shares are present or represented at the meeting or (b)
more than 50% of the shares of the Fund. Accordingly, the Fund may not:
(1) Borrow money or issue senior securities except as permitted by the
Investment Company Act of 1940;
(2) Purchase securities on margin (but the Fund may obtain such short-term
credits as may be necessary for the clearance of purchases and sales of
securities). The deposit or payment by the Fund of initial or maintenance margin
in connection with futures contracts or related options transactions is not
considered the purchase of a security on margin;
(3) Underwrite or participate in the marketing of securities of others,
except insofar as it may technically be deemed to be an underwriter in selling a
portfolio security under circumstances which may require the registration of the
same under the Securities Act of 1933;
(4) Purchase or sell real estate, although it may purchase and sell
securities which are secured by real estate and securities of companies which
invest or deal in real estate;
(5) Purchase or sell physical commodities or contracts for the purchase or
sale of physical commodities; or
(6) Make loans to any person except by (a) the acquisition of debt
instruments and making portfolio investments, (b) entering into repurchase
agreements and (c) lending portfolio securities.
Notwithstanding the investment policies and restrictions of the Fund, the
Fund may invest all of its investable assets in an open-end management
investment company with substantially the same investment objective, policies
and restrictions as the Fund.
The Portfolio has adopted substantially the same fundamental investment
restrictions as the foregoing investment restrictions adopted by the Fund; such
restrictions cannot be changed without the approval of a "majority of the
outstanding voting securities" of the Portfolio, which as used in this Statement
of Additional Information means the lesser of (a) 67% of the outstanding voting
securities of the Portfolio present or represented by proxy at a meeting if the
holders of more than 50% of the outstanding voting securities of the Portfolio
are present or represented at the meeting or (b) more than 50% of the
outstanding voting securities of the Portfolio. The term "voting securities" as
used in this paragraph has the same meaning as in the Investment Company Act of
1940 (the "1940 Act"). Whenever the Trust is requested to vote on a change in
the fundamental investment restrictions of the Portfolio (or the Portfolio's 80%
investment policy as described in the Fund's current Prospectus), the Trust will
hold a meeting of Fund shareholders and will cast its vote as instructed by the
shareholders.
The Fund and the Portfolio have adopted the following investment policies
which may be changed by the Trust with respect to the Fund without approval by
the Fund's shareholders or by the Portfolio with respect to the Portfolio
without approval by the Fund or its other investors. As a matter of
nonfundamental policy, the Fund and the Portfolio will not: (a) engage in
options, futures or forward transactions if more than 5% of its net assets, as
measured by the aggregate of the premiums paid by the Fund or the Portfolio,
would be so invested; (b) make short sales of securities or maintain a short
position, unless at all times when a short position is open it owns an equal
amount of such securities or securities convertible into or exchangeable,
without payment of any further consideration, for securities of the same issue
as, and equal in amount to, the securities sold short; (c) invest more than 15%
of net assets in investments which are not readily marketable, including
restricted securities and repurchase agreements maturing in more than seven
days. Restricted securities for the purposes of this limitation do not include
securities eligible for resale pursuant to Rule 144A under the Securities Act of
1933 that the Board of Trustees of the Trust or the Portfolio, or its delegate,
determines to be liquid, based upon the trading markets for the specific
security; (d) purchase or retain in its portfolio any securities issued by an
issuer any of whose officers, directors, trustees or security holders is an
officer or Trustee of the Trust or the Portfolio or is a member, officer,
director or trustee of any investment adviser of the Trust or the Portfolio, if
after the purchase of the securities of such issuer by the Fund or the Portfolio
one or more of such persons owns beneficially more than 1/2 of 1% of the shares
or securities or both (all taken at market value) of such issuer and such
persons owning more than 1/2 of 1% of such shares or securities together own
beneficially more than 5% of such shares or securities or both (all taken at
market value); or (e) purchase oil, gas or other mineral leases or purchase
partnership interests in oil, gas or other mineral exploration or development
programs.
For purposes of the Portfolio's investment restrictions, the determination
of the "issuer" of a municipal obligation which is not a general obligation bond
will be made by the Portfolio's Investment Adviser on the basis of the
characteristics of the obligation and other relevant factors, the most
significant of which is the source of funds committed to meeting interest and
principal payments of such obligations.
In order to permit the sale of shares of the Fund in certain states, the
Fund may make commitments more restrictive than the policies described above.
Should the Fund determine that any such commitment is no longer in the best
interest of the Fund and its shareholders, it will revoke the commitment by
terminating sales of its shares in the state(s) involved.
TRUSTEES AND OFFICERS
The Trustees and officers of the Trust and the Portfolio are listed below.
Except as indicated, each individual has held the office shown or other offices
in the same company for the last five years. Unless otherwise noted, the
business address of each Trustee and officer is 24 Federal Street, Boston,
Massachusetts 02110, which is also the address of the Portfolio's investment
adviser, Boston Management and Research ("BMR" or the "Investment Adviser"), a
wholly-owned subsidiary of Eaton Vance Management ("Eaton Vance"); of Eaton
Vance's parent, Eaton Vance Corp. ("EVC"); and of BMR's and Eaton Vance's
trustee, Eaton Vance, Inc. ("EV"). Eaton Vance and EV are both wholly-owned
subsidiaries of EVC. Those Trustees who are "interested persons" of the Trust,
the Portfolio, BMR, Eaton Vance, EVC or EV, as defined in the 1940 Act, by
virtue of their affiliation with any one or more of the Trust, the Portfolio,
BMR, Eaton Vance, EVC or EV, are indicated by an asterisk(*).
TRUSTEES OF THE TRUST AND THE PORTFOLIO
DONALD R. DWIGHT (64), Trustee
President of Dwight Partners, Inc. (a corporate relations and communications
company) founded in 1988; Chairman of the Board of Newspapers of New England,
Inc., since 1983. Director or Trustee of various investment companies managed
by Eaton Vance or BMR.
Address: Clover Mill Lane, Lyme, New Hampshire 03768
JAMES B. HAWKES (53), Vice President and Trustee*
Executive Vice President of BMR, Eaton Vance, EVC and EV, and a Director of EVC
and EV. Director, Trustee and officer of various investment companies managed
by Eaton Vance or BMR.
SAMUEL L. HAYES, III (60), Trustee
Jacob H. Schiff Professor of Investment Banking, Harvard University Graduate
School of Business Administration. Director or Trustee of various investment
companies managed by Eaton Vance or BMR.
Address: Harvard University Graduate School of Business Administration,
Soldiers Field Road, Boston, Massachusetts 02163
NORTON H. REAMER (59), Trustee
President and Director, United Asset Management Corporation, a holding company
owning institutional investment management firms. Chairman, President and
Director, The Regis Fund, Inc. (mutual fund). Director or Trustee of various
investment companies managed by Eaton Vance or BMR.
Address: One International Place, Boston, Massachusetts 02110
JOHN L. THORNDIKE (68), Trustee
Director, Fiduciary Company Incorporated, Director or Trustee of various
investment companies managed by Eaton Vance or BMR.
Address: 175 Federal Street, Boston, Massachusetts 02110
JACK L. TREYNOR (65), Trustee
Investment Adviser and Consultant. Director or Trustee of various investment
companies managed by Eaton Vance or BMR.
Address: 504 Via Almar, Palos Verdes Estates, California 90274
OFFICERS OF THE TRUST AND THE PORTFOLIO
THOMAS J. FETTER (51), President
Vice President of BMR, Eaton Vance and EV. (Mr. Fetter was elected a Vice
President of the Trust on December 17, 1990 and President of the Trust on
December 13, 1993. Officer of various investment companies managed by Eaton
Vance or BMR.
ROBERT B. MACINTOSH (38), Vice President
Vice President of BMR since August 11, 1992, and of Eaton Vance and EV, and an
employee of Eaton Vance since March 8, 1991. Fidelity Investments -- Portfolio
Manager (1986-1991). Officer of various investment companies managed by Eaton
Vance or BMR. Mr. MacIntosh was elected Vice President of the Trust on March
22, 1993.
JAMES L. O'CONNOR (50), Treasurer
Vice President of BMR, Eaton Vance and EV. Officer of various investment
companies managed by Eaton Vance or BMR.
THOMAS OTIS (63), Secretary
Vice President and Secretary of BMR, Eaton Vance, EVC and EV. Officer of various
investment companies managed by Eaton Vance or BMR.
JANET E. SANDERS (59), Assistant Treasurer and Assistant Secretary
Vice President of BMR, Eaton Vance and EV. Officer of various investment
companies managed by Eaton Vance or BMR.
A. JOHN MURPHY (32), Assistant Secretary
Assistant Vice President of BMR, Eaton Vance and EV since March 1, 1994;
employee of Eaton Vance since March 1993. State Regulations Supervisor, The
Boston Company (1991-1993) and Registration Specialist, Fidelity Management &
Research Co. (1986-1991). Officer of various investment companies managed by
Eaton Vance or BMR. Mr. Murphy was elected Assistant Secretary of the Trust on
March 27, 1995.
Messrs. Thorndike (Chairman), Hayes and Reamer are members of the Special
Committee of the Board of Trustees of the Trust and of the Portfolio. The
Special Committee's functions include a continuous review of the Trust's
contractual relationship with the Administrator on behalf of the Fund and the
Portfolio's contractual relationship with the Investment Adviser, making
recommendations to the Trustees regarding the compensation of those Trustees who
are not members of the Eaton Vance organization, and making recommendations to
the Trustees regarding candidates to fill vacancies, as and when they occur, in
the ranks of those Trustees who are not "interested persons" of the Trust, the
Portfolio, or the Eaton Vance organization.
Messrs. Treynor (Chairman) and Dwight are members of the Audit Committee of
the Board of Trustees of the Trust and of the Portfolio. The Audit Committee's
functions include making recommendations to the Trustees regarding the selection
of the independent certified public accountants, and reviewing with such
accountants and the Treasurer of the Trust and of the Portfolio matters relative
to accounting and auditing practices and procedures, accounting records,
internal accounting controls, and the functions performed by the custodian and
transfer agent of the Fund and of the Portfolio.
Trustees of the Portfolio who are not affiliated with the Investment Adviser
may elect to defer receipt of all or a percentage of their annual fees in
accordance with the terms of a Trustees Deferred Compensation Plan (the "Plan").
Under the Plan, an eligible Trustee may elect to have his deferred fees invested
by the Portfolio in the shares of one or more funds in the Eaton Vance Family of
Funds, and the amount paid to the Trustees under the Plan will be determined
based upon the performance of such investments. Deferral of Trustees' fees in
accordance with the Plan will have a negligible effect on the Portfolio's
assets, liabilities, and net income per share, and will not obligate the
Portfolio to retain the services of any Trustee or obligate the Portfolio to pay
any particular level of compensation to the Trustee.
The fees and expenses of those Trustees of the Trust and the Portfolio who
are not members of the Eaton Vance organization (the noninterested Trustees) are
paid by the Fund (and the other series of the Trust) and the Portfolio,
respectively. For the compensation received by the noninterested Trustees of the
Trust and the Portfolio, see "Fees and Expenses" in the Fund's Part II of this
Statement of Additional Information.
INVESTMENT ADVISER AND ADMINISTRATOR
The Portfolio engages BMR as investment adviser pursuant to an Investment
Advisory Agreement. BMR or Eaton Vance acts as investment adviser to investment
companies and various individual and institutional clients with combined assets
under management of approximately $15 billion.
Eaton Vance, its affiliates and its predecessor companies have been managing
assets of individuals and institutions since 1924 and managing investment
companies since 1931. They maintain a large staff of experienced fixed-income
and equity investment professionals to service the needs of their clients. The
fixed-income division focuses on all kinds of taxable investment-grade and
high-yield securities, tax-exempt investment-grade and high-yield securities,
and U.S. Government securities. The equity division covers stocks ranging from
blue chip to emerging growth companies.
BMR manages the investments and affairs of the Portfolio subject to the
supervision of the Portfolio's Board of Trustees. BMR furnishes to the Portfolio
investment research, advice and supervision, furnishes an investment program and
determines what securities will be purchased, held or sold by the Portfolio and
what portion, if any, of the Portfolio's assets will be held uninvested. The
Investment Advisory Agreement requires BMR to pay the salaries and fees of all
officers and Trustees of the Portfolio who are members of the BMR organization
and all personnel of BMR performing services relating to research and investment
activities. The Portfolio is responsible for all expenses not expressly stated
to be payable by BMR under the Investment Advisory Agreement, including, without
implied limitation, (i) expenses of maintaining the Portfolio and continuing its
existence, (ii) registration of the Portfolio under the 1940 Act, (iii)
commissions, fees and other expenses connected with the acquisition, holding and
disposition of securities and other investments, (iv) auditing, accounting and
legal expenses, (v) taxes and interest, (vi) governmental fees, (vii) expenses
of issue, sale and redemption of interests in the Portfolio, (viii) expenses of
registering and qualifying the Portfolio and interests in the Portfolio under
Federal and state securities laws and of preparing and printing registration
statements or other offering statements or memoranda for such purposes and for
distributing the same to investors, and fees and expenses of registering and
maintaining registrations of the Portfolio and of the Portfolio's placement
agent as broker-dealer or agent under state securities laws, (ix) expenses of
reports and notices to investors and of meetings of investors and proxy
solicitations therefor, (x) expenses of reports to governmental officers and
commissions, (xi) insurance expenses, (xii) association membership dues, (xiii)
fees, expenses and disbursements of custodians and subcustodians for all
services to the Portfolio (including without limitation safekeeping of funds,
securities and other investments, keeping of books, accounts and records, and
determination of net asset values, book capital account balances and tax capital
account balances), (xiv) fees, expenses and disbursements of transfer agents,
dividend disbursing agents, investor servicing agents and registrars for all
services to the Portfolio, (xv) expenses for servicing the accounts of
investors, (xvi) any direct charges to investors approved by the Trustees of the
Portfolio, (xvii) compensation and expenses of Trustees of the Portfolio who are
not members of BMR's organization, and (xviii) such non-recurring items as may
arise, including expenses incurred in connection with litigation, proceedings
and claims and the obligation of the Portfolio to indemnify its Trustees,
officers and investors with respect thereto.
For a description of the compensation that the Portfolio pays BMR under the
Investment Advisory Agreement, see the Fund's current Prospectus. For additional
information about the Investment Advisory Agreement, including the net assets of
the Portfolio and the investment advisory fees that the Portfolio paid BMR under
the Investment Advisory Agreement, see "Fees and Expenses" in the Fund's Part II
of this Statement of Additional Information.
A commitment may be made to a state securities authority that Eaton Vance
will take certain actions, if necessary, so that the Fund's expenses will not
exceed expense limitation requirements of such state. The commitment may be
amended or rescinded by Eaton Vance in response to changes in the requirements
of the state or for other reasons.
The Investment Advisory Agreement with BMR may be continued indefinitely so
long as such continuance is approved at least annually (i) by the vote of a
majority of the Trustees of the Portfolio who are not interested persons of the
Portfolio or of BMR cast in person at a meeting specifically called for the
purpose of voting on such approval and (ii) by the Board of Trustees of the
Portfolio or by vote of a majority of the outstanding voting securities of the
Portfolio. The Agreement may be terminated at any time without penalty on sixty
(60) days' written notice by the Board of Trustees of either party, or by vote
of the majority of the outstanding voting securities of the Portfolio, and the
Agreement will terminate automatically in the event of its assignment. The
Agreement provides that BMR may render services to others and engage in other
business activities and may permit other fund clients and other corporations and
organizations to use the words "Eaton Vance" or "Boston Management and Research"
in their names. The Agreement also provides that BMR shall not be liable for any
loss incurred in connection with the performance of its duties, or action taken
or omitted under that Agreement, in the absence of willful misfeasance, bad
faith, gross negligence in the performance of its duties or by reason of its
reckless disregard of its obligations and duties thereunder, or for any losses
sustained in the acquisition, holding or disposition of any security or other
investment.
As indicated in the Prospectus, Eaton Vance serves as Administrator of the
Fund, but receives no compensation for providing administrative services to the
Fund. Under its Administrative Services Agreement with the Fund, Eaton Vance has
been engaged to administer the Fund's affairs, subject to the supervision of the
Trustees of the Trust, and shall furnish for the use of the Fund office space
and all necessary office facilities, equipment and personnel for administering
the affairs of the Fund. For additional information about the Administrator, see
"Fees and Expenses" in the Fund's Part II of this Statement of Additional
Information.
The Fund pays all of its own expenses including, without limitation, (i)
expenses of maintaining the Fund and continuing its existence, (ii) its pro rata
share of registration of the Trust under the 1940 Act, (iii) commissions, fees
and other expenses connected with the purchase or sale of securities and other
investments, (iv) auditing, accounting and legal expenses, (v) taxes and
interest, (vi) governmental fees, (vii) expenses of issue, sale, repurchase and
redemption of shares, (viii) expenses of registering and qualifying the Fund and
its shares under federal and state securities laws and of preparing and printing
prospectuses for such purposes and for distributing the same to shareholders and
investors, and fees and expenses of registering and maintaining registrations of
the Fund and of the Fund's principal underwriter, if any, as broker-dealer or
agent under state securities laws, (ix) expenses of reports and notices to
shareholders and of meetings of shareholders and proxy solicitations therefor,
(x) expenses of reports to governmental officers and commissions, (xi) insurance
expenses, (xii) association membership dues, (xiii) fees, expenses and
disbursements of custodians and subcustodians for all services to the Fund
(including without limitation safekeeping of funds, securities and other
investments, keeping of books and accounts and determination of net asset
values), (xiv) fees, expenses and disbursements of transfer agents, dividend
disbursing agents, shareholder servicing agents and registrars for all services
to the Fund, (xv) expenses for servicing shareholder accounts, (xvi) any direct
charges to shareholders approved by the Trustees of the Trust, (xvii)
compensation and expenses of Trustees of the Trust who are not members of the
Eaton Vance organization, and (xviii) such non-recurring items as may arise,
including expenses incurred in connection with litigation, proceedings and
claims and the obligation of the Trust to indemnify its Trustees and officers
with respect thereto.
BMR is a wholly-owned subsidiary of Eaton Vance. Eaton Vance and EV are both
wholly-owned subsidiaries of EVC. BMR and Eaton Vance are both Massachusetts
business trusts, and EV is the trustee of BMR and Eaton Vance. The Directors of
EV are Landon T. Clay, H. Day Brigham, Jr., M. Dozier Gardner, James B. Hawkes
and Benjamin A. Rowland, Jr. The Directors of EVC consist of the same persons
and John G. L. Cabot and Ralph Z. Sorenson. Mr. Clay is chairman and Mr. Gardner
is president and chief executive officer of EVC, BMR, Eaton Vance and EV. All of
the issued and outstanding shares of Eaton Vance and EV are owned by EVC. All of
the issued and outstanding shares of BMR are owned by Eaton Vance. All shares of
the outstanding Voting Common Stock of EVC are deposited in a Voting Trust,
which expires on December 31, 1996, the Voting Trustees of which are Messrs.
Clay, Brigham, Gardner, Hawkes and Rowland. The Voting Trustees have
unrestricted voting rights for the election of Directors of EVC. All of the
outstanding voting trust receipts issued under said Voting Trust are owned by
certain of the officers of BMR and Eaton Vance who are also officers and
Directors of EVC and EV. As of April 30, 1995, Messrs. Clay, Gardner and Hawkes
each owned 24% of such voting trust receipts, and Messrs. Rowland and Brigham
owned 15% and 13%, respectively, of such voting trust receipts. Messrs. Hawkes
and Otis are officers or Trustees of the Trust and the Portfolio and are members
of the EVC, BMR, Eaton Vance and EV organizations. Messrs. Fetter, MacIntosh,
Murphy and O'Connor and Ms. Sanders are officers of the Trust and/or the
Portfolio and are also members of the BMR, Eaton Vance and EV organizations. BMR
will receive the fees paid under the Investment Advisory Agreement.
Eaton Vance owns all of the stock of Energex Corporation, which is engaged
in oil and gas operations. EVC owns all of the stock of Marblehead Energy Corp.
(which is engaged in oil and gas operations) and 77.3% of the stock of Investors
Bank & Trust Company, custodian of the Fund and the Portfolio, which provides
custodial, trustee and other fiduciary services to investors, including
individuals, employee benefit plans, corporations, investment companies, savings
banks and other institutions. In addition, Eaton Vance owns all of the stock of
Northeast Properties, Inc., which is engaged in real estate investment,
consulting and management. EVC owns all of the stock of Fulcrum Management, Inc.
and MinVen Inc., which are engaged in the development of precious metal
properties. EVC, BMR, Eaton Vance and EV may also enter into other businesses.
EVC and its affiliates and their officers and employees from time to time
have transactions with various banks, including the custodian of the Fund and
the Portfolio, Investors Bank & Trust Company. It is Eaton Vance's opinion that
the terms and conditions of such transactions were not and will not be
influenced by existing or potential custodial or other relationships between the
Fund or the Portfolio and such banks.
CUSTODIAN
Investors Bank & Trust Company ("IBT"), 24 Federal Street, Boston,
Massachusetts, (a 77.3% owned subsidiary of EVC) acts as custodian for the Fund
and the Portfolio. IBT has the custody of all cash and securities representing
the Fund's interest in the Portfolio, has custody of all the Portfolio's assets,
maintains the general ledger of the Portfolio and the Fund, and computes the
daily net asset value of interests in the Portfolio and the net asset value of
shares of the Fund. In such capacity it attends to details in connection with
the sale, exchange, substitution, transfer or other dealings with the
Portfolio's investments, receives and disburses all funds and performs various
other ministerial duties upon receipt of proper instructions from the Fund and
the Portfolio. IBT charges fees which are competitive within the industry. A
portion of the fee relates to custody, bookkeeping and valuation services and is
based upon a percentage of Fund and Portfolio net assets and a portion of the
fee relates to activity charges, primarily the number of portfolio transactions.
These fees are then reduced by a credit for cash balances of the particular
investment company at the custodian equal to 75% of the 91-day, U.S. Treasury
Bill auction rate applied to the particular investment company's average daily
collected balances for the week. In view of the ownership of EVC in IBT, the
Portfolio is treated as a self-custodian pursuant to Rule 17f-2 under the 1940
Act, and the Portfolio's investments held by IBT as custodian are thus subject
to the additional examinations by the Portfolio's independent certified public
accountants as called for by such Rule. For the custody fees that the Portfolio
and the Fund paid to IBT, see "Fees and Expenses" in the Fund's Part II of this
Statement of Additional Information.
SERVICE FOR WITHDRAWAL
By a standard agreement, the Trust's Transfer Agent will send to the
shareholder regular monthly or quarterly payments of any permitted amount
designated by the shareholder (see "Eaton Vance Shareholder Services --
Withdrawal Plan" in the Fund's current Prospectus) based upon the value of the
shares held. The checks will be drawn from share redemptions and hence, are a
return of principal. Income dividends and capital gains distributions in
connection with withdrawal accounts will be credited at net asset value as of
the record date for each distribution. Continued withdrawals in excess of
current income will eventually use up principal, particularly in a period of
declining market prices.
To use this service, at least $5,000 in cash or shares at the public
offering price will have to be deposited with the Transfer Agent. The
maintenance of a withdrawal plan concurrently with purchases of additional Fund
shares would be disadvantageous if a sales charge is included in such purchases.
A shareholder may not have a withdrawal plan in effect at the same time he or
she has authorized Bank Automated Investing or is otherwise making regular
purchases of Fund shares. The shareholder, the Transfer Agent or the Principal
Underwriter will be able to terminate the withdrawal plan at any time without
penalty.
DETERMINATION OF NET ASSET VALUE
The net asset value of the shares of the Fund is determined by IBT (as agent
and custodian for the Fund) in the manner described under "Valuing Fund Shares"
in the Fund's current Prospectus. The net asset value of the Portfolio is also
computed by IBT (as agent and custodian for the Portfolio) by subtracting the
liabilities of the Portfolio from the value of its total assets. Inasmuch as the
market for municipal obligations is a dealer market with no central trading
location or continuous quotation system, it is not feasible to obtain last
transaction prices for most municipal obligations held by the Portfolio, and
such obligations, including those purchased on a when-issued basis, will
normally be valued on the basis of valuations furnished by a pricing service.
The pricing services uses information with respect to transactions in bonds,
quotations from bond dealers, market transactions in comparable securities,
various relationships between securities, and yield to maturity in determining
value. Taxable obligations for which price quotations are readily available
normally will be valued at the mean between the latest available bid and asked
prices. Open futures positions on debt securities are valued at the most recent
settlement prices, unless such price does not reflect the fair value of the
contract, in which case the positions will be valued by or at the direction of
the Trustees of the Portfolio. Other assets are valued at fair value using
methods determined in good faith by or at the direction of the Trustees of the
Portfolio. The Fund and the Portfolio will be closed for business and will not
price their respective shares or interests on the following business holidays:
New Year's Day, Presidents' Day, Good Friday (a New York Stock Exchange
holiday), Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day.
Each investor in the Portfolio, including the Fund, may add to or reduce its
investment in the Portfolio on each day the New York Stock Exchange (the
"Exchange") is open for trading ("Portfolio Business Day") as of the close of
regular trading on the Exchange (the "Portfolio Valuation Time"). The value of
each investor's interest in the Portfolio will be determined by multiplying the
net asset value of the Portfolio by the percentage, determined on the prior
Portfolio Business Day, which represented that investor's share of the aggregate
interests in the Portfolio on such prior day. Any additions or withdrawals for
the current Portfolio Business Day will then be recorded. Each investor's
percentage of the aggregate interest in the Portfolio will then be recomputed as
a percentage equal to a fraction (i) the numerator of which is the value of such
investor's investment in the Portfolio as of the Portfolio Valuation Time on the
prior Portfolio Business Day plus or minus, as the case may be, the amount of
any additions to or withdrawals from the investor's investment in the Portfolio
on the current Portfolio Business Day and (ii) the denominator of which is the
aggregate net asset value of the Portfolio as of the Portfolio Valuation Time on
the prior Portfolio Business Day plus or minus, as the case may be, the amount
of the net additions to or withdrawals from the aggregate investment in the
Portfolio on the current Portfolio Business Day by all investors in the
Portfolio. The percentage so determined will then be applied to determine the
value of the investor's interest in the Portfolio for the current Portfolio
Business Day.
INVESTMENT PERFORMANCE
The average annual total return is determined by multiplying a hypothetical
initial purchase order of $1,000 by the average annual compound rate of return
(including capital appreciation/depreciation, and dividends and distributions
paid and reinvested) for the stated period and annualizing the result. The
calculation assumes that all dividends and distributions are reinvested at net
asset value on the reinvestment dates during the period, and either (i) the
deduction of the maximum sales charge from the initial $1,000 purchase order or
(ii) a complete redemption of the investment and, if applicable, the deduction
of the contingent deferred sales charge at the end of the period. For
information concerning the total return of the Fund, see "Performance
Information" in the Fund's Part II of this Statement of Additional Information.
The Fund's yield is computed pursuant to a standardized formula by dividing
the net investment income per share earned during a recent thirty-day period by
the maximum offering price (including, if applicable, the maximum sales charge)
per share on the last day of the period and annualizing the resulting figure.
Net investment income per share is calculated from the yields to maturity of all
debt obligations held by the Portfolio based on prescribed methods, reduced by
accrued Fund expenses for the period with the resulting number being divided by
the average daily number of Fund shares outstanding and entitled to receive
distributions during the period. The yield figure does not reflect the deduction
of any contingent deferred sales charges (if applicable) which are imposed on
certain redemptions at the rate set forth under "How to Redeem Fund Shares" in
the Fund's current Prospectus. Yield calculations assume the current maximum
sales charge (if applicable) set forth under "How to Buy Fund Shares" in the
Fund's current Prospectus. (Actual yield may be affected by variations in sales
charges on investments.) A taxable-equivalent yield is computed by dividing the
tax-exempt yield by 1 minus a stated rate. For the yield and taxable-equivalent
yield of the Fund, see "Performance Information" in the Fund's Part II of this
Statement of Additional Information.
The Fund may also publish the distribution rate and/or the effective
distribution rate. The Fund's distribution rate is computed by dividing the most
recent monthly distribution per share annualized, by the current net asset value
per share. The Fund's effective distribution rate is computed by dividing the
distribution rate by the ratio (the days in a year divided by the accrual days
of the monthly period) used to annualize the most recent monthly distribution
and reinvesting the resulting amount for a full year on the basis of such ratio.
The effective distribution rate will be higher than the distribution rate
because of the compounding effect of the assumed reinvestment. Investor's should
note that the Fund's yield is calculated using a standardized formula, the
income component of which is computed from the yields to maturity of all debt
obligations held by the Portfolio based on prescribed methods (with all
purchases and sales of securities during such period included in the income
calculation on a settlement date basis), whereas the distribution rate is based
on the Fund's last monthly distribution which tends to be relatively stable and
may be more or less than the amount of net investment income and short-term
capital gain actually earned by the Fund during the month. See "Distribution and
Taxes" in the Fund's current Prospectus. For the Fund's distribution rate and
effective distribution rate, see "Performance Information" in the Fund's Part II
of this Statement of Additional Information.
The Fund's total return may be compared to the Consumer Price Index and to
the domestic securities indices of the Bond Buyer 25 Revenue Bond Index and the
Lehman Brothers Municipal Bond Index. The Fund's total return and comparisons
with these indices may be used in advertisements and in information furnished to
present or prospective shareholders. The Fund's performance may differ from that
of other investors in the Portfolio, including other investment companies.
From time to time, evaluations of the Fund's performance made by independent
sources, e.g., Lipper Analytical Services, Inc., CDA/Wiesenberger and
Morningstar, Inc., may be used in advertisements and in information
furnished to present or prospective shareholders.
From time to time, information, charts and illustrations relating to
inflation and the effects of inflation on the dollar may be included in
advertisements and other material furnished to present and prospective
shareholders. For example, after 10 years, the purchasing power of $25,000 would
shrink to $16,621, $14,968, $13,465 and $12,100, if the annual rates of
inflation during such period were 4%, 5%, 6% and 7%, respectively. (To calculate
the purchasing power, the value at the end of each year is reduced by the above
inflation rates for 10 consecutive years.)
From time to time, information about portfolio allocation and holdings of
the Portfolio at a particular date (including ratings assigned by independent
ratings services such as Moody's, S&P and Fitch) may be included in
advertisements and other material furnished to present and prospective
shareholders. Such information may be stated as a percentage of the Portfolio's
bond holdings on such date. For an example of the Portfolio's diversification by
quality ratings, see "Performance Information" in the Fund's Part II of this
Statement of Additional Information.
Comparative information about the yield or distribution rate of the Fund and
about average rates of return on certificates of deposit, bank money market
deposit accounts, money market mutual funds and other short-term investments may
also be included in advertisements, supplemental sales literature or
communications of the Fund. A bank certificate of deposit, unlike the Fund's
shares, pays a fixed rate of interest and entitles the depositor to receive the
face amount of the certificate of deposit at maturity. A bank money market
deposit account is a form of savings account which pays a variable rate of
interest. Unlike the Fund's shares, bank certificates of deposit and bank money
market deposit accounts are insured by the Federal Deposit Insurance
Corporation. A money market mutual fund is designed to maintain a constant value
of $1.00 per share and, thus, a money market fund's shares are subject to less
price fluctuation than the Fund's shares.
The average rates of return of money market mutual funds, certificates of
deposit and bank money market deposit accounts referred to in advertisements,
supplemental sales literature or communications of the Fund will be based on
rates published by the Federal Reserve Bank, Donoghues Money Fund Averages,
RateGram or The Wall Street Journal.
Advertisements and other material furnished to present and prospective
shareholders may also compare the taxable equivalent yield of the Fund to
after-tax yields of certificates of deposits, bank money market deposit accounts
and money market mutual funds over various income tax brackets.
Information used in advertisements and in materials furnished to present and
prospective shareholders may include statements or illustrations relating to the
appropriateness of types of securities and/or mutual funds which may be employed
to meet specific financial goals, such as (1) funding retirement, (2) paying for
children's education, and (3) financially supporting aging parents. These three
financial goals may be referred to in such advertisements or materials as the
"Triple Squeeze."
For additional information, charts and illustrations relating to the Fund's
investment performance, see "Performance Information" in the Fund's Part II of
this Statement of Additional Information.
TAXES
See "Distribution and Taxes" in the Fun d's current Prospectus and
"Additional Tax Matters" in the Fund's Part II of this Statement of Additional
Information.
Each series of the Trust is treated as a separate entity for Federal income
tax purposes. The Fund has elected or will elect to be treated and intends to
qualify each year as a regulated investment company ("RIC") under the Internal
Revenue Code of 1986, as amended (the "Code"). See "Additional Tax Matters" and
Notes to the Financial Statements in the Fund's Part II of this Statement of
Additional Information. Accordingly, the Fund intends to satisfy certain
requirements relating to sources of its income and diversification of its assets
and to distribute its net investment income (including tax-exempt income) and
net realized capital gains (after reduction by any available capital loss
carryforwards) in accordance with the timing requirements imposed by the Code,
so as to avoid any Federal income or excise tax on the Fund. Because the Fund
invests its assets in the Portfolio, the Portfolio normally must satisfy the
applicable source of income and diversification requirements in order for the
Fund to satisfy them. The Portfolio will allocate at least annually among its
investors, including the Fund, the Portfolio's net taxable (if any) and
tax-exempt investment income, net realized capital gains, and any other items of
income, gain, loss, deduction or credit. For purposes of applying the
requirements of the Code regarding qualification as a RIC, the Fund will be
deemed (i) to own its proportionate share of each of the assets of the Portfolio
and (ii) to be entitled to the gross income of the Portfolio attributable to
such share.
In order to avoid Federal excise tax, the Code requires that the Fund
distribute (or be deemed to have distributed) by December 31 of each calendar
year at least 98% of its ordinary income (not including tax-exempt income) for
such year, at least 98% of the excess of its realized capital gains over its
realized capital losses, generally computed on the basis of the one-year period
ending on October 31 of such year, after reduction by any available capital loss
carryforwards, and 100% of any income from the prior year (as previously
computed) that was not paid out during such year and on which the Fund paid no
Federal income tax. Under current law, provided that the Fund qualifies as a RIC
for Federal income tax purposes and the Portfolio is treated as a partnership
for Massachusetts and Federal tax purposes, neither the Fund nor the Portfolio
is liable for any income, corporate excise or franchise tax in the Commonwealth
of Massachusetts.
The Portfolio's investment in zero coupon and certain other securities will
cause it to realize income prior to the receipt of cash payments with respect to
these securities. Such income will be allocated daily to interests in the
Portfolio and, in order to enable the Fund to distribute its proportionate share
of this income and avoid a tax payable by the Fund, the Portfolio may be
required to liquidate portfolio securities that it might otherwise have
continued to hold in order to generate cash that the Fund may withdraw from the
Portfolio for subsequent distribution to Fund shareholders.
Investments in lower-rated or unrated securities may present special tax
issues for the Portfolio and hence for the Fund to the extent actual or
anticipated defaults may be more likely with respect to such securities. Tax
rules are not entirely clear about issues such as when the Portfolio may cease
to accrue interest, original issue discount, or market discount; when and to
what extent deductions may be taken for bad debts or worthless securities; how
payments received on obligations in default should be allocated between
principal and income; and whether exchanges of debt obligations in a workout
context are taxable.
Distributions by the Fund of net tax-exempt interest income that are
properly designated as "exempt-interest dividends" may be treated by
shareholders as interest excludable from gross income under Section 103(a) of
the Code. In order for the Fund to be entitled to pay the tax-exempt interest
income allocated to it by the Portfolio as exempt-interest dividends to its
shareholders, the Fund must and intends to satisfy certain requirements,
including the requirement that, at the close of each quarter of its taxable
year, at least 50% of the value of its total assets consists of obligations the
interest on which is exempt from regular Federal income tax. For purposes of
applying this 50% requirement, the Fund will be deemed to own its proportionate
share of each of the assets of the Portfolio, and the Portfolio currently
intends to invest its assets in a manner such that the Fund can meet this 50%
requirement. Interest on certain municipal obligations is treated as a tax
preference item for purposes of the Federal alternative minimum tax.
Shareholders of the Fund are required to report tax-exempt interest on their
Federal income tax returns.
From time to time proposals have been introduced before Congress for the
purpose of restricting or eliminating the Federal income tax exemption for
interest on certain types of municipal obligations, and it can be expected that
similar proposals may be introduced in the future. Under Federal tax legislation
enacted in 1986, the Federal income tax exemption for interest on certain
municipal obligations was eliminated or restricted. As a result of such
legislation, the availability of municipal obligations for investment by the
Portfolio and the value of the securities held by the Portfolio may be affected.
In the course of managing its investments, the Portfolio may realize some
short-term and long-term capital gains (and/or losses) as a result of market
transactions, including sales of portfolio securities and rights to when-issued
securities and options and futures transactions. The Portfolio may also realize
taxable income from certain short-term taxable obligations, securities loans, a
portion of original issue discount with respect to certain stripped municipal
obligations or their stripped coupons, and certain realized accrued market
discount. Any distributions by the Fund of its share of such capital gains
(after reduction by any capital loss carryforwards) would be taxable to
shareholders of the Fund. However, it is expected that such amounts, if any,
would normally be insubstantial in relation to the tax exempt interest earned by
the Portfolio and allocated to the Fund. Certain distributions of the Fund
declared in October, November or December and paid the following January will be
taxed to shareholders as if received on December 31 of the year in which they
are declared.
The Portfolio's transactions in options and futures contracts will be
subject to special tax rules that may affect the amount, timing and character of
Fund distributions to shareholders. For example, certain positions held by the
Portfolio on the last business day of each taxable year will be marked to market
(i.e., treated as if closed out on such day), and any resulting gain or loss
will generally be treated as 60% long-term and 40% short-term capital gain or
loss. Certain positions held by the Portfolio that substantially diminish the
Portfolio's risk of loss with respect to other positions in its portfolio may
constitute "straddles," which are subject to tax rules that may cause deferral
of Portfolio losses, adjustments in the holding period of Portfolio securities
and conversion of short-term into long-term capital losses. The Portfolio may
have to limit its activities in options and futures contracts in order to enable
the Fund to maintain its qualification as a RIC for Federal income tax purposes.
Any loss realized upon the sale or exchange of shares of the Fund with a tax
holding period of 6 months or less will be treated as a long-term capital loss
to the extent of any distribution of net long-term capital gains with respect to
such shares. Any loss realized on the sale or exchange of shares which have been
held for tax purposes for 6 months or less (or such shorter period as may be
prescribed by Treasury regulations) will be disallowed to the extent the
shareholder has received tax-exempt interest with respect to such shares. In
addition, a loss realized on a redemption of Fund shares will be disallowed to
the extent the shareholder acquired other Fund shares within the period
beginning 30 days before the redemption of the loss shares and ending 30 days
after such date.
Amounts paid by the Fund to individuals and certain other shareholders who
have not provided the Fund with their correct taxpayer identification number and
certain required certifications, as well as shareholders with respect to whom
the Fund has received notification from the Internal Revenue Service or a
broker, may be subject to "backup" withholding of Federal income tax from the
Fund's dividends and distributions and the proceeds of redemptions (including
repurchases and exchanges), at a rate of 31%. An individual's taxpayer
identification number is generally his or her social security number.
Non-resident alien individuals and certain foreign corporations and other
foreign entities generally will be subject to a U.S. withholding tax at a rate
of 30% on the Fund's distributions from its ordinary income and the excess of
its net short-term capital gain over its net long-term capital loss, unless the
tax is reduced or eliminated by an applicable tax treaty. Distributions from the
excess of the Fund's net long-term capital gain over its net short-term capital
loss received by such shareholders and any gain from the sale or other
disposition of shares of the Fund generally will not be subject to U.S. Federal
income taxation, provided that non-resident alien status has been certified by
the shareholder. Different U.S. tax consequences may result if the shareholder
is engaged in a trade or business in the United States, is present in the United
States for a sufficient period of time during a taxable year to be treated as a
U.S. resident, or fails to provide any required certifications regarding status
as a non-resident alien investor. Foreign shareholders should consult their tax
advisers regarding the U.S. and foreign tax consequences of an investment in the
Fund.
The foregoing discussion does not address the special tax rules applicable
to certain classes of investors, such as tax-exempt entities, insurance
companies and financial institutions. Shareholders should consult their own tax
advisers with respect to special tax rules that may apply in their particular
situations, as well as the state, local or foreign tax consequences of investing
in the Fund.
PORTFOLIO SECURITY TRANSACTIONS
Decisions concerning the execution of portfolio security transactions,
including the selection of the market and the executing firm, are made by BMR.
BMR is also responsible for the execution of transactions for all other accounts
managed by it.
BMR places the portfolio security transactions of the Portfolio and of all
other accounts managed by it for execution with many firms. BMR uses its best
efforts to obtain execution of portfolio security transactions at prices which
are advantageous to the Portfolio and at reasonably competitive spreads or (when
a disclosed commission is being charged) at reasonably competitive commission
rates. In seeking such execution, BMR will use its best judgment in evaluating
the terms of a transaction, and will give consideration to various relevant
factors, including without limitation the size and type of the transaction, the
nature and character of the market for the security, the confidentiality, speed
and certainty of effective execution required for the transaction, the general
execution and operational capabilities of the executing firm, the reputation,
reliability, experience and financial condition of the firm, the value and
quality of the services rendered by the firm in this and other transactions, and
the reasonableness of the spread or commission, if any. Municipal obligations,
including State obligations, purchased and sold by the Portfolio are generally
traded in the over-the-counter market on a net basis (i.e., without commission)
through broker-dealers and banks acting for their own account rather than as
brokers, or otherwise involve transactions directly with the issuer of such
obligations. Such firms attempt to profit from such transactions by buying at
the bid price and selling at the higher asked price of the market for such
obligations, and the difference between the bid and asked price is customarily
referred to as the spread. The Portfolio may also purchase municipal obligations
from underwriters, the cost of which may include undisclosed fees and
concessions to the underwriters. While it is anticipated that the Portfolio will
not pay significant brokerage commissions in connection with such portfolio
security transactions, on occasion it may be necessary or appropriate to
purchase or sell a security through a broker on an agency basis, in which case
the Portfolio will incur a brokerage commission. Although spreads or commissions
on portfolio security transactions will, in the judgment of BMR, be reasonable
in relation to the value of the services provided, spreads or commissions
exceeding those which another firm might charge may be paid to firms who were
selected to execute transactions on behalf of the Portfolio and BMR's other
clients for providing brokerage and research services to BMR.
As authorized in Section 28(e) of the Securities Exchange Act of 1934, a
broker or dealer who executes a portfolio transaction on behalf of the Portfolio
may receive a commission which is in excess of the amount of commission another
broker or dealer would have charged for effecting that transaction if BMR
determines in good faith that such commission was reasonable in relation to the
value of the brokerage and research services provided. This determination may be
made on the basis of either that particular transaction or on the basis of
overall responsibilities which BMR and its affiliates have for accounts over
which they exercise investment discretion. In making any such determination, BMR
will not attempt to place a specific dollar value on the brokerage and research
services provided or to determine what portion of the commission should be
related to such services. Brokerage and research services may include advice as
to the value of securities, the advisability of investing in, purchasing, or
selling securities, and the availability of securities or purchasers or sellers
of securities; furnishing analyses and reports concerning issuers, industries,
securities, economic factors and trends, portfolio strategy and the performance
of accounts; effecting securities transactions and performing functions
incidental thereto (such as clearance and settlement); and the "Research
Services" referred to in the next paragraph.
It is a common practice of the investment advisory industry and of the
advisers of investment companies, institutions and other investors to receive
research, statistical and quotation services, data, information and other
services, products and materials which assist such advisers in the performance
of their investment responsibilities ("Research Services") from broker-dealer
firms which execute portfolio transactions for the clients of such advisers and
from third parties with which such broker-dealers have arrangements. Consistent
with this practice, BMR receives Research Services from many broker-dealer firms
with which BMR places the Portfolio transactions and from third parties with
which these broker-dealers have arrangements. These Research Services include
such matters as general economic and market reviews, industry and company
reviews, evaluations of securities and portfolio strategies and transactions and
recommendations as to the purchase and sale of securities and other portfolio
transactions, financial, industry and trade publications, news and information
services, pricing and quotation equipment and services, and research oriented
computer hardware, software, data bases and services. Any particular Research
Service obtained through a broker-dealer may be used by BMR in connection with
client accounts other than those accounts which pay commissions to such
broker-dealer. Any such Research Service may be broadly useful and of value to
BMR in rendering investment advisory services to all or a significant portion of
its clients, or may be relevant and useful for the management of only one
client's account or of a few clients' accounts, or may be useful for the
management of merely a segment of certain clients' accounts, regardless of
whether any such account or accounts paid commissions to the broker-dealer
through which such Research Service was obtained. The advisory fee paid by the
Portfolio is not reduced because BMR receives such Research Services. BMR
evaluates the nature and quality of the various Research Services obtained
through broker-dealer firms and attempts to allocate sufficient commissions to
such firms to ensure the continued receipt of Research Services which BMR
believes are useful or of value to it in rendering investment advisory services
to its clients.
Subject to the requirement that BMR shall use its best efforts to seek and
execute portfolio security transactions at advantageous prices and at reasonably
competitive spreads or commission rates, BMR is authorized to consider as a
factor in the selection of any firm with whom portfolio orders may be placed the
fact that such firm has sold or is selling shares of the Fund or of other
investment companies sponsored by BMR or Eaton Vance. This policy is not
inconsistent with a rule of the National Association of Securities Dealers,
Inc., which rule provides that no firm which is a member of the Association
shall favor or disfavor the distribution of shares of any particular investment
company or group of investment companies on the basis of brokerage commissions
received or expected by such firm from any source.
Municipal obligations considered as investments for the Portfolio may also
be appropriate for other investment accounts managed by BMR or its affiliates.
BMR will attempt to allocate equitably portfolio security transactions among the
Portfolio and the portfolios of its other investment accounts purchasing
municipal obligations whenever decisions are made to purchase or sell securities
by the Portfolio and one or more of such other accounts simultaneously. In
making such allocations, the main factors to be considered are the respective
investment objectives of the Portfolio and such other accounts, the relative
size of portfolio holdings of the same or comparable securities, the
availability of cash for investment by the Portfolio and such accounts, the size
of investment commitments generally held by the Portfolio and such accounts and
the opinions of the persons responsible for recommending investments to the
Portfolio and such accounts. While this procedure could have a detrimental
effect on the price or amount of the securities available to the Portfolio from
time to time, it is the opinion of the Trustees of the Trust and the Portfolio
that the benefits available from the BMR organization outweigh any disadvantage
that may arise from exposure to simultaneous transactions. For the brokerage
commissions paid by the Portfolio on portfolio transactions, see "Fees and
Expenses" in the Fund's Part II of this Statement of Additional Information.
OTHER INFORMATION
Eaton Vance, pursuant to its agreement with the Trust, controls the use of
the words "Eaton Vance" in the Fund's name and may use the words "Eaton Vance"
in other connections and for other purposes.
As permitted by Massachusetts law, there will normally be no meetings of
shareholders for the purpose of electing Trustees unless and until such time as
less than a majority of the Trustees of the Trust holding office have been
elected by shareholders. In such an event the Trustees then in office will call
a shareholders' meeting for the election of Trustees. Except for the foregoing
circumstances and unless removed by action of the shareholders in accordance
with the Trust's by-laws, the Trustees shall continue to hold office and may
appoint successor Trustees.
The Trust's by-laws provide that no person shall serve as a Trustee if
shareholders holding two-thirds of the outstanding shares have removed him from
that office either by a written declaration filed with the Trust's custodian or
by votes cast at a meeting called for that purpose. The by-laws further provide
that under certain circumstances the shareholders may call a meeting to remove a
Trustee and that the Trust is required to provide assistance in communication
with shareholders about such a meeting.
The Trust's Declaration of Trust may be amended by the Trustees when
authorized by vote of a majority of the outstanding voting securities of the
Trust, the financial interests of which are affected by the amendment. The
Trustees may also amend the Declaration of Trust without the vote or consent of
shareholders to change the name of the Trust or any series or to make such other
changes as do not have a materially adverse effect on the financial interests of
shareholders or if they deem it necessary to conform it to applicable Federal or
state laws or regulations. The Trust or any series or class thereof may be
terminated by: (1) the affirmative vote of the holders of not less than
two-thirds of the shares outstanding and entitled to vote at any meeting of
shareholders of the Trust or the appropriate series or class thereof, or by an
instrument or instruments in writing without a meeting, consented to by the
holders of two-thirds of the shares of the Trust or a series or class thereof,
provided, however, that, if such termination is recommended by the Trustees, the
vote of a majority of the outstanding voting securities of the Trust or a series
or class thereof entitled to vote thereon shall be sufficient authorization; or
(2) by means of an instrument in writing signed by a majority of the Trustees,
to be followed by a written notice to shareholders stating that a majority of
the Trustees has determined that the continuation of the Trust or a series or a
class thereof is not in the best interest of the Trust, such series or class or
of their respective shareholders.
The Declaration of Trust further provides that the Trustees will not be
liable for errors of judgment or mistakes of fact or law; but nothing in the
Declaration of Trust protects a Trustee against any liability to which he would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the conduct of his
office. In addition, the By-Laws of the Trust provide that no natural person
shall serve as a Trustee of the Trust after the holders of record of not less
than two-thirds of the outstanding shares have declared that he be removed from
office either by declaration in writing filed with the custodian of the assets
of the Trust or by votes cast in person or by proxy at a meeting called for the
purpose. The By-Laws also provide that the Trustees shall promptly call a
meeting of shareholders for the purpose of voting upon a question of removal of
a Trustee when requested so to do by the record holders of not less than 10 per
centum of the outstanding shares.
In accordance with the Declaration of Trust of the Portfolio, there will
normally be no meetings of the investors for the purpose of electing Trustees
unless and until such time as less than a majority of the Trustees holding
office have been elected by investors. In such an event the Trustees of the
Portfolio then in office will call an investors' meeting for the election of
Trustees. Except for the foregoing circumstances and unless removed by action of
the investors in accordance with the Portfolio's Declaration of Trust, the
Trustees shall continue to hold office and may appoint successor Trustees.
The Declaration of Trust of the Portfolio provides that no person shall
serve as a Trustee if investors holding two-thirds of the outstanding interest
have removed him from that office either by a written declaration filed with the
Portfolio's custodian or by votes cast at a meeting called for that purpose. The
Declaration of Trust further provides that under certain circumstances the
investors may call a meeting to remove a Trustee and that the Portfolio is
required to provide assistance in communicating with investors about such a
meeting.
The right to redeem shares of the Fund can be suspended and the payment of
the redemption price deferred when the Exchange is closed (other than for
customary weekend and holiday closings), during periods when trading on the
Exchange is restricted as determined by the Commission, or during any emergency
as determined by the Commission which makes it impracticable for the Portfolio
to dispose of its securities or value its assets, or during any other period
permitted by order of the Commission for the protection of investors.
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Deloitte & Touche LLP, 125 Summer Street, Boston, Massachusetts, are the
independent certified public accountants of the Fund and the Portfolio,
providing audit services, tax return preparation, and assistance and
consultation with respect to the preparation of filings with the Commission.
For the financial statements of the Fund and its corresponding Portfolio,
see "Financial Statements" in Part II of this Statement of Additional
Information.
<PAGE>
APPENDIX
DESCRIPTION OF SECURITIES RATINGS+
MOODY'S INVESTORS SERVICE, INC.
MUNICIPAL BONDS
Aaa: Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are
judged to be of high quality by all standards. Together with the Aaa group they
comprise what are generally known as high grade bonds. They are rated lower than
the best bonds because margins of protection may not be as large as in Aaa
securities or fluctuation of protective elements may be of greater amplitude or
there may be other elements present which make the long term risk appear
somewhat larger than the Aaa securities.
A: Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
Baa: Bonds which are rated Baa are considered as medium-grade obligations (i.e.,
they are neither highly protected nor poorly secured). Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba: Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during other good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B: Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa: Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca: Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C: Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
ABSENCE OF RATING: Where no rating has been assigned or where a rating has been
suspended or withdrawn, it may be for reasons unrelated to the quality of the
issue.
Should no rating be assigned, the reason may be one of the following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities or companies that
are not rated as a matter of policy.
3. There is a lack of essential data pertaining to the issue or issuer.
4. The issue was privately placed, in which case the rating is not published
in Moody's publications.
Suspension or withdrawal may occur if new and material circumstances arise, the
effects of which preclude satisfactory analysis; if there is no longer available
reasonable up-to-date data to permit a judgment to be formed; if a bond is
called for redemption; or for other reasons.
NOTE: Moody's applies numerical modifiers, 1, 2, and 3 in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
- ----------
+The ratings indicated herein are believed to be the most recent ratings
available at the date of this Statement of Additional Information for the
securities listed. Ratings are generally given to securities at the time of
issuance. While the rating agencies may from time to time revise such ratings,
they undertake no obligation to do so, and the ratings indicated do not
necessarily represent ratings which would be given to these securities on the
date of the Portfolio's fiscal year end.
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MUNICIPAL SHORT-TERM OBLIGATIONS
RATINGS: Moody's ratings for state and municipal short-term obligations will be
designated Moody's Investment Grade or (MIG). Such rating recognizes the
differences between short term credit risk and long term risk. Factors effecting
the liquidity of the borrower and short term cyclical elements are critical in
short term ratings, while other factors of major importance in bond risk, long
term secular trends for example, may be less important over the short run.
A short term rating may also be assigned on an issue having a demand feature,
variable rate demand obligation (VRDO). Such ratings will be designated as
VMIG1, SG or if the demand feature is not rated, NR. A short term rating on
issues with demand features are differentiated by the use of the VMIG1 symbol to
reflect such characteristics as payment upon periodic demand rather than fixed
maturity dates and payment relying on external liquidity. Additionally,
investors should be alert to the fact that the source of payment may be limited
to the external liquidity with no or limited legal recourse to the issuer in the
event the demand is not met.
COMMERCIAL PAPER
Moody's commercial paper ratings are opinions of the ability of issuers to repay
punctually promissory obligations not having an original maturity in excess of
365 days.
Issuers (or supporting institutions) rated Prime-1 (P-1) have a superior ability
for repayment of senior short-term debt obligations. Prime-1 or P-1 repayment
ability will often be evidenced by many of the following characteristics:
-- Leading market positions in well established industries.
-- High rates of return on funds employed.
-- Conservative capitalization structure with moderate reliance on debt and
ample asset protection.
-- Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.
-- Well-established access to a range of financial markets and assured
sources of alternate liquidity.
Prime-2
Issuers (or supporting institutions) rated Prime-2 (P-2) have a strong ability
for repayment of senior short-term debt obligations. This will normally be
evidenced by many of the characteristics cited above, but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
Prime-3
Issuers (or supporting institutions) rated Prime-3 (P-3) have an acceptable
ability for repayment of senior short-term obligations. The effect of industry
characteristics and market compositions may be more pronounced. Variability in
earnings and profitability may result in changes in the level of debt protection
measurements and may require relatively high financial leverage.Adequate
alternate liquidity is maintained.
STANDARD & POOR'S RATINGS GROUP
INVESTMENT GRADE
AAA: Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA: Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the highest rated issues only in small degree.
A: Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB: Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibit adequate protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to pay interest and repay principal for debt in this
category than in higher rated categories.
SPECULATIVE GRADE
Debt rated BB, B, CCC, CC, and C is regarded as having predominantly speculative
characteristics with respect to capacity to pay interest and repay principal. BB
indicates the least degree of speculation and C the highest. While such debt
will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major exposures to adverse conditions.
BB: Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB- rating.
B: Debt rated B has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The B rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied BB or BB-
rating.
CCC: Debt rated CCC has a currently identifiable vulnerability to default, and
is dependent upon favorable business, financial, and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial, or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The CCC rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
B or B- rating.
CC: The rating CC is typically applied to debt subordinated to senior debt which
is assigned an actual or implied CCC debt rating.
C: The rating C is typically applied to debt subordinated to senior debt which
is assigned an actual or implied CCC- debt rating. The C rating may be used to
cover a situation where a bankruptcy petition has been filed, but debt service
payments are continued.
C1: The Rating C1 is reserved for income bonds on which no interest is being
paid.
D: Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The D rating also will be used upon the
filing of a bankruptcy petition if debt service payments are jeopardized.
PLUS (+) OR MINUS (-): The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
p: The letter "p" indicates that the rating is provisional. A provisional rating
assumes the successful completion of the project being financed by the debt
being rated and indicates that payment of debt service requirements is largely
or entirely dependent upon the successful and timely completion of the project.
This rating, however, while addressing credit quality subsequent to completion
of the project, makes no comment on the likelihood of, or the risk of default
upon failure of such completion. The investor should exercise his own judgment
with respect to such likelihood and risk.
L: The letter "L" indicates that the rating pertains to the principal amount of
those bonds to the extent that the underlying deposit collateral is insured by
the Federal Deposit Insurance Corp. and interest is adequately collateralized.
In the case of certificates of deposit, the letter "L" indicates that the
deposit, combined with other deposits being held in the same right and capacity,
will be honored for principal and accrued pre-default interest up to the federal
insurance limits within 30 days after closing of the insured institution or, in
the event that the deposit is assumed by a successor insured institution, upon
maturity.
NR: NR indicates no rating has been requested, that there is insufficient
information on which to base a rating, or that S&P does not rate a particular
type of obligation as a matter of policy.
MUNICIPAL NOTES
S&P note ratings reflect the liquidity concerns and market access risks unique
to notes. Notes due in 3 years or less will likely receive a note rating. Notes
maturing beyond 3 years will most likely receive a long-term debt rating. The
following criteria will be used in making that assessment:
-- Amortization schedule (the larger the final maturity relative to other
maturities the more likely it will be treated as a note).
-- Sources of payment (the more dependent the issue is on the market for its
refinancing, the more likely it will be treated as a note).
Note rating symbols are as follows:
SP-1: Strong capacity to pay principal and interest. Those issues determined
to possess very strong characteristics will be given a plus(+) designation.
SP-2: Satisfactory capacity to pay principal and interest, with some
vulnerability to adverse financial and economic changes over the term of the
notes.
SP-3: Speculative capacity to pay principal and interest.
COMMERCIAL PAPER
S&P's commercial paper ratings are a current assessments of the likelihood of
timely payment of debts considered short-term in the relevant market.
A: Issues assigned this highest rating are regarded as having the greatest
capacity for timely payment. Issues in this category are delineated with the
numbers 1, 2 and 3 to indicate the relative degree of safety.
A-1: This designation indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted with a plus (+) sign designation.
A-2: Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated "A-1".
A-3: Issues carrying this designation have adequate capacity for timely
payment. They are, however, more vulnerable to the adverse effects of
changes in circumstances than obligations carrying the higher designations.
B: Issues rated "B" are regarded as having only speculative capacity for
timely payment.
C: This rating is assigned to short term debt obligations with doubtful
capacity for payment.
D: Debt rated "D" is in payment default. The "D" rating category is used
when interest payments or principal payments are not made on the date due,
even if the applicable grace period had not expired, unless S&P believes
that such payments will be made during such grace period.
FITCH INVESTORS SERVICE, INC.
INVESTMENT GRADE BOND RATINGS
AAA: Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.
AA: Bonds considered to be investment grade and of very high credit quality. The
obligor's ability to pay interest and repay principal is very strong, although
not quite as strong as bonds rated "AAA". Because bonds rated in the "AAA" and
"AA" categories are not significantly vulnerable to foreseeable future
developments, short-term debt of these issuers is generally rated "F-1+".
A: Bonds considered to be investment grade and of high credit quality. The
obligors ability to pay interest and repay principal is considered to be strong,
but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB: Bonds considered to be investment grade and of satisfactory credit quality.
The obligor's ability to pay interest and repay principal is considered to be
adequate. Adverse changes in economic conditions and circumstances, however, are
more likely to have adverse impact on these bonds, and therefore, impair timely
payment. The likelihood that the ratings of these bonds will fall below
investment grade is higher than for bonds with higher ratings.
HIGH YIELD BOND RATINGS
BB: Bonds are considered speculative. The obligor's ability to pay interest and
repay principal may be affected over time by adverse economic changes. However,
business and financial alternatives can be identified that could assist the
obligor in satisfying its debt service requirements.
B: Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued timely
payment of principal and interest reflects the obligor's limited margin of
safety and the need for reasonable business and economic activity throughout the
life of the issue.
CCC: Bonds have certain identifiable characteristics which, if not remedied, may
lead to default. The ability to meet obligations requires an advantageous
business and economic environment.
CC: Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C: Bonds are in imminent default in payment of interest or principal.
DDD, DD, AND D: Bonds are in default on interest and/or principal payments. Such
bonds are extremely speculative and should be valued on the basis of their
ultimate recovery value in liquidation or reorganization of the obligor. "DDD"
represents the highest potential for recovery on these bonds, and "D" represents
the lowest potential for recovery.
PLUS (+) OR MINUS (-): The ratings from AA to C may be modified by the addition
of a plus or minus sign to indicate the relative position of a credit within the
rating category.
NR: Indicates that Fitch does not rate the specific issue.
CONDITIONAL: A conditional rating is premised on the successful completion of a
project or the occurrence of a specific event.
INVESTMENT GRADE SHORT-TERM RATINGS
Fitch's short-term ratings apply to debt obligations that are payable on demand
or have original maturities of generally up to three years, including commercial
paper, certificates of deposit, medium-term notes, and municipal and investment
notes.
F-1+: Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1: Very Stong Credit Quality. Issues assigned this rating reflect an assurance
of timely payment only slightly less in degree than issues rated "F-1+".
F-2: Good Credit Quality. Issues carrying this rating have a satisfactory degree
of assurance for timely payment, but the margin of safety is not as great as the
"F-1+" and "F-1" categories.
F-3: Fair Credit Quality. Issues carrying this rating have characteristics
suggesting that the degree of assurance for timely payment is adequate, however,
near-term adverse change could cause these securities to be rated below
investment grade.
* * * * * * * *
NOTES: Bonds which are unrated expose the investor to risks with respect to
capacity to pay interest or repay principal which are similar to the risks of
lower-rated speculative bonds. The Portfolio is dependent on the Investment
Adviser's judgment, analysis and experience in the evaluation of such bonds.
Investors should note that the assignment of a rating to a bond by a
rating service may not reflect the effect of recent developments on the issuer's
ability to make interest and principal payments.
DESCRIPTION OF THE INSURANCE CLAIMS-PAYING
ABILITY RATINGS OF
STANDARD & POOR'S CORPORATION AND
MOODY'S INVESTORS SERVICE, INC.
An S&P insurance claims-paying ability rating is an assessment of an operating
insurance company's financial capacity to meet obligations under an insurance
policy in accordance with the terms. An insurer with an insurance claims-paying
ability of AAA has the highest rating assigned by S&P. Capacity to honor
insurance contracts is adjudged by S&P to be extremely strong and highly likely
to remain so over a long period of time. A Moody's insurance claims-paying
ability rating is an opinion of the ability of an insurance company to repay
punctually senior policyholder obligations and claims. An insurer with an
insurance claims-paying ability rating of Aaa is adjudged by Moody's to be of
the best quality. In the opinion of Moody's, the policy obligations of an
insurance company with an insurance claims-paying ability rating of Aaa carry
the smallest degree of credit risk and, while the financial strength of these
companies is likely to change, such changes as can be visualized are most
unlikely to impair the company's fundamentally strong position.
An insurance claims-paying ability rating by S&P's or Moody's does not
constitute an opinion on any specific contract in that such an opinion can only
be rendered upon the review of the specific insurance contract. Furthermore, an
insurance claims-paying ability rating does not take in account deductibles,
surrender or cancellation penalties or the timeliness of payment; nor does it
address the ability of a company to meet nonpolicy obligations (i.e., debt
contracts).
The assignment of ratings by S&P or Moody's to debt issues that are fully or
partially supported by insurance policies, contracts, or guarantees is a
separate process from the determination of claims-paying ability ratings. The
likelihood of a timely flow of funds from the insurer to the trustee for the
bondholders is a key element in the rating determination of such debt issues.
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV CLASSIC FLORIDA INSURED TAX FREE
FUND. The investment objective of the Fund is to provide current income exempt
from regular Federal income tax in the form of an investment exempt from Florida
intangibles tax. The Fund currently seeks to meet its investment objective by
investing its assets in the Florida Insured Tax Free Portfolio (the
"Portfolio").
RISKS OF CONCENTRATION
The following information as to certain Florida considerations is given to
investors in view of the Portfolio's policy of concentrating its investments in
Florida issuers. Such information is derived from sources that are generally
available to investors and is believed to be accurate. Such information
constitutes only a brief summary, does not purport to be a complete description
and is based on information from official statements relating to securities
offerings of Florida issuers. Neither the Trust nor the Portfolio has
independently verified this information.
Florida is characterized by rapid population growth and substantial capital
needs which are being funded through more frequent debt issuance and
pay-as-you-go financing. The State of Florida operates on the basis of a fiscal
biennium for its appropriations and expenditures and is constitutionally bound
to maintain a balanced budget. The State's financial operations are considerably
different than most other states because, under the State's constitution, there
is no state income tax. A constitutional amendment would therefore be necessary
to impose an income tax. Only seven states currently do not impose income taxes
upon their residents. The lack of an income tax exposes total State tax
collections to considerably more volatility than would otherwise be the case
and, in the event of an economic downswing, could affect the State's ability to
pay principal and interest in a timely manner.
The 1992-1993 Florida budget authorized $11.862 billion in General Fund
spending, an increase of 6.5% from the final 1991-1992 level. New taxes,
including a 0.5 mill ($0.50 per $1,000 of valuation) increase in the intangible
personal property tax, were expected to produce an additional $378.2 million in
revenue to fund school and prison construction. Other tax changes included a 1%
sales tax increase on taxable purchases of telecommunications and electric
services, an increase in documentary stamp taxes, and the inclusion of several
previously exempt services for the sales tax. Revenue collections were $200
million over initial estimates, with $170 million due to normal economic
activity and $30 million attributed to rebuilding after Hurricane Andrew.
Combined general revenue fund and working capital unencumbered reserves
increased to $441.4 million, or 3.7% of expenditures.
Revenues in the 1993-94 fiscal year were $13.6 billion and expenditures were
$13.3 billion; unencumbered reserves totaled $303 million or 2.3% of
expenditures. The budget for 1994-95 included revenues of $14.6 billion, a 7.3%
increase over 1993-94, and expenditures of $14.3 billion, a 7.6% increase over
1993-94. Through March, 1995 actual revenues were 0.8% below projections.
Unencumbered reserves are projected to be $252.6 million or 1.8% of expenditures
for fiscal year 1995. Non-recurring revenue from rebuilding efforts following
Hurricane Andrew was $220 million in 1993-94 and is estimated to be $159 million
in 1994-95. In 1993-94, $190 million was transferred to a hurricane relief trust
fund and $159 million is budgeted to be transferred in 1994-95.
In 1993, the Florida state constitution was amended to limit the annual
growth in the assessed valuation of residential property. This amendment could,
over time, constrain the growth in property taxes, a major revenue source for
local governments. The amendment restricts annual increases in assessed
valuation to the lesser of 3% or the Consumer Price Index. The amendment applies
only to residential properties eligible for the homestead exemption and does not
affect the valuation of rental, commercial, or industrial properties. When sold,
residential property would be reassessed at market value. While no immediate
ratings implications are expected, the amendment could have a negative impact on
the financial performance of local governments over time and lead to ratings
revisions which may have a negative impact on the prices of affected bonds.
INSURANCE
The following information relates to the Fund and supplements the
information contained under "Additional Information about Investment Policies --
Insurance" in Part I of this Statement of Additional Information.
In General. Insured Florida obligations held by the Portfolio will be insured as
to their scheduled payment of principal and interest under (i) an insurance
policy obtained by the issuer or underwriter of the Florida obligation at the
time of its original issuance ("Issue Insurance"), (ii) an insurance policy
obtained by the Portfolio or a third party subsequent to the Florida
obligation's original issuance ("Secondary Market Insurance") or (iii) a
municipal insurance policy purchased by the Portfolio ("Mutual Fund Insurance").
The Portfolio anticipates that all or substantially all of its insured Florida
obligations will be subject to Issue Insurance or Secondary Market Insurance.
Although the insurance feature reduces certain financial risks, the premiums for
Mutual Fund Insurance (which, if purchased by the Portfolio, are paid from the
Portfolio's assets) and the higher market price paid for Florida obligations
covered by Issue Insurance or Secondary Market Insurance reduce the Portfolio's
current yield.
Insurance will cover the timely payment of interest and principal on Florida
obligations and will be obtained from insurers with a claims-paying ability
rated Aaa by Moody's or AAA by S&P or Fitch. Florida obligations insured by any
insurer with such a claims-paying ability rating will generally carry the same
rating or credit risk as the insurer. See the Appendix to the Statement of
Additional Information for a brief description of Moody's, Fitch's and S&P's
claims-paying ability ratings. Such insurers must guarantee the timely payment
of all principal and interest on Florida obligations as they become due. Such
insurance may, however, provide that in the event of non-payment of interest or
principal when due with respect to an insured Florida obligation, the insurer is
not obligated to make such payment until a specified time period has lapsed
(which may be 30 days or more after it has been notified by the Portfolio that
such non-payment has occurred). For these purposes, a payment of principal is
due only at final maturity of the Florida obligation and not at the time any
earlier sinking fund payment is due. While the insurance will guarantee the
timely payment of principal and interest, it does not guarantee the market value
of the Florida obligations or the net asset value of the Portfolio or the Fund.
Florida obligations are generally eligible to be insured under Mutual Fund
Insurance if, at the time of purchase by the Portfolio, they are identified
separately or by category in qualitative guidelines furnished by the mutual fund
insurer and are in compliance with the aggregate limitations on amounts set
forth in such guidelines. Premium variations are based, in part, on the rating
of the Florida obligations being insured at the time the Portfolio purchases the
obligations. The insurer may prospectively withdraw particular Florida
obligations from the classifications of securities eligible for insurance or
change the aggregate amount limitation of each issue or category of eligible
Florida obligations. The insurer must, however, continue to insure the full
amount of the Florida obligations previously acquired which the insurer has
indicated are eligible for insurance, so long as they continue to be held by the
Portfolio. The qualitative guidelines and aggregate amount limitations
established by the insurer from time to time will not necessarily be the same as
those the Portfolio would use to govern selection of Florida obligations for the
Portfolio. Therefore, from time to time such guidelines and limitations may
affect investment decisions in the event the Portfolio's securities are insured
by Mutual Fund Insurance.
For Mutual Fund Insurance that terminates upon the sale of the insured
security, the insurance does not have any effect on the resale value of such
security. Therefore, the Portfolio will generally retain any insured Florida
obligations which are in default or, in the judgment of the Investment Adviser,
are in significant risk of default and place a value on the insurance. This
value will be equal to the difference between the market value of the defaulted
Florida obligations and the market value of similar Florida obligations which
are not in default. As a result, the Investment Adviser may be unable to manage
the securities held by the Portfolio to the extent the Portfolio holds defaulted
Florida obligations, which will limit its ability in certain circumstances to
purchase other Florida obligations. While a defaulted Florida obligation is held
by the Portfolio, the Portfolio will continue to pay the insurance premium
thereon but will also collect interest payments from the insurer and retain the
right to collect the full amount of principal from the insurer when the Florida
obligation becomes due. The Portfolio expects that the market value of a
defaulted Florida obligation covered by Issue Insurance or Secondary Market
Insurance will generally be greater than the market value of an otherwise
comparable defaulted Florida obligation covered by Mutual Fund Insurance.
The Portfolio may also invest in Florida obligations that are secured by an
escrow or trust account which contains securities issued or guaranteed by the
U.S. Government, its agencies or instrumentalities, that are backed by the full
faith and credit of the United States, and sufficient in amount to ensure the
payment of interest on and principal of the secured Florida obligation
("collateralized obligations"). Collateralized obligations generally are
regarded as having the credit characteristics of the underlying U.S. Government,
agency or instrumentality securities. These obligations will not be subject to
Issue Insurance, Secondary Market Insurance or Mutual Fund Insurance, but will
be considered to be insured Florida obligations for purposes of the Portfolio's
policy of investing at least 80% of its net assets in insured Florida
obligations (but such obligations shall not constitute more than 15% of the
insured portion of the Portfolio).
Principal Insurers. Currently, Municipal Bond Investors Assurance Corporation
("MBIA"), Capital Guaranty Insurance Company ( "Capital Guaranty" ), Financial
Guaranty Insurance Company ( "FGIC" ), AMBAC Indemnity Corporation ("AMBAC"),
and Financial Security Assurance Corp., together with its affiliated insurance
companies--Financial Security Assurance International Inc. and Financial
Security Assurance of Oklahoma, Inc. (collectively, "FSA" ), are considered to
have a high claims-paying ability and, therefore, are eligible insurers for the
Portfolio's Florida obligations. Additional insurers may be added without
further notification. The following information concerning these eligible
insurers is based upon information provided by such insurers or information
filed with certain state insurance regulators. Neither the Portfolio nor the
Fund has independently verified such information and make no representations as
to the accuracy and adequacy of such information or as to the absence of
material adverse changes subsequent to the date thereof .
MBIA is a monoline financial guaranty insurance company created from an
unincorporated association (the Municipal Bond Insurance Association), through
which its members wrote municipal bond insurance on a several and joint-basis
through 1986. On January 5, 1990, MBIA acquired all of the outstanding stock of
Bond Investors Group, Inc., the parent of Bond Investors Guaranty Insurance
Company ("BIG"), which has subsequently changed its name to MBIA Insurance Corp.
of Illinois. Through a reinsurance agreement, BIG ceded all of its net insured
risks, as well as its related unearned premium and contingency reserves, to
MBIA. MBIA issues municipal bond insurance policies guarantying the timely
payment of principal and interest on new municipal bond issues and leasing
obligations of municipal entities, secondary market insurance of such
instruments and insurance on such instruments held in unit investment trusts and
mutual funds. As of December 31, 1994, MBIA had total assets of approximately
$3.4 billion and qualified statutory capital of approximately $1.7 billion. MBIA
has a claims-paying ability rating of "AAA" by S&P and "Aaa" by Moody's.
Capital Guaranty is a monoline insurance company whose policies guaranty the
timely payment of principal and interest on new issue and secondary market issue
municipal bond transactions. As of December 31, 1994, Capital Guaranty had total
assets of approximately $304 million and qualified statutory capital of
approximately $197 million. Capital Guaranty has a claims-paying ability rating
of "AAA" by S&P. Moody's has not issued a claims-paying ability rating for
Capital Guaranty.
Financial Guaranty Insurance Corporation, a wholly owned subsidiary of FGIC
Corporation, which is a wholly owned subsidiary of General Electric Capital
Corporation, is an insurer of municipal securities, including new issues,
securities held in unit investment trusts and mutual funds, and those traded on
secondary markets. The investors in FGIC Corporation are not obligated to pay
the debts of or claims against FGIC. As of December 31, 1994, FGIC had total
assets of approximately $2.1 billion and qualified statutory capital of
approximately $1.2 billion. FGIC has a claims-paying ability rating of "AAA" by
S&P and Fitch, and "Aaa" by Moody's.
AMBAC, a wholly owned subsidiary of AMBAC Inc., is a monoline insurance
company whose policies guaranty the payment of principal and interest on
municipal obligations issues. As of December 31, 1994, AMBAC had admitted assets
of approximately $2.1 billion and qualified statutory capital of approximately
$1.2 billion. AMBAC has a claims-paying ability rating of "AAA" by S&P and "Aaa"
by Moody's.
FSA is a monoline insurer whose policies guaranty the timely payment of
principal and interest on new issue and secondary market issue municipal
securities transactions, among other financial obligations. As of December 31,
1994, FSA had total admitted assets of approximately $804 million and qualified
statutory capital of approximately $466 million. FSA has a claims-paying ability
rating of "AAA" by S&P and "Aaa" by Moody's.
FEES AND EXPENSES
INVESTMENT ADVISER
As of January 31, 1995, the Portfolio had net assets of $14,399,951. For the
period from the start of business, March 2, 1994, to January 31, 1995, absent a
fee reduction, the Portfolio would have paid BMR advisory fees of $8,420
(equivalent to 0.16% (annualized) of the Portfolio's average daily net assets
for such period). To enhance the net income of the Portfolio, BMR made a
reduction of its advisory fee in the amount of $8,420 and BMR was allocated
expenses related to the operation of the Portfolio in the amount of $13,139. The
Portfolio's Investment Advisory Agreement with BMR is dated February 25, 1994
and remains in effect until February 28, 1996. The Agreement may be continued as
described under "Investment Adviser and Administrator" in Part I of this
Statement of Additional Information.
ADMINISTRATOR
As stated under "Investment Adviser and Administrator" in Part I of this
Statement of Additional Information, the Administrator receives no compensation
for providing administrative services to the Fund. For the period from the start
of business, June 15, 1994, to January 31, 1995, $8,481 of the Fund's operating
expenses were allocated to the Administrator.
DISTRIBUTION PLAN
For the period from the start of business, June 15, 1994, to January 31,
1995, the Fund accrued sales commission payments under the Plan aggregating
$2,128, of which $1,815 was paid to the Principal Underwriter. The Principal
Underwriter paid $1,786 as sales commissions to Authorized Firms and the balance
was retained by the Principal Underwriter. During such period no contingent
deferred sales charges were paid to the Principal Underwriter. As at January 31,
1995, the outstanding Uncovered Distribution Charges of the Principal
Underwriter calculated under the Plan amounted to approximately $106,000 (which
amount was equivalent to 7.13% of the Fund's net assets on such day). For the
period from the start of business, June 15, 1994, to January 31, 1995, the Fund
accrued service fee payments under the Plan aggregating $568, of which $481 was
paid to the Principal Underwriter. The Principal Underwriter paid such amount as
service fee payments to Authorized Firms.
PRINCIPAL UNDERWRITER
For the period from the start of business, June 15, 1994, to January 31,
1995, the Fund paid the Principal Underwriter $2.50 for repurchase transactions
handled (being $2.50 for each such transaction).
CUSTODIAN
For the period from the start of business, June 15, 1994, to January 31,
1995, the Fund paid IBT $986. For the period from the start of business, March
2, 1994, to January 31, 1995, the Portfolio paid IBT $3,818.
BROKERAGE
For the period from the start of business, March 2, 1994, to January 31,
1995, the Portfolio paid no brokerage commissions on portfolio transactions.
TRUSTEES
<TABLE>
The fees and expenses of those Trustees of the Trust and of the Portfolio
who are not members of the Eaton Vance organization (the noninterested Trustees)
are paid by the Fund (and the other series of the Trust) and the Portfolio,
respectively. (The Trustees of the Trust and the Portfolio who are members of
the Eaton Vance organization receive no compensation from the Fund or the
Portfolio.) During the fiscal year ended January 31, 1995, the noninterested
Trustees of the Trust and the Portfolio earned the following compensation in
their capacities as Trustees from the Fund and the Portfolio, and, during the
first quarter ended March 31, 1995, earned the following compensation in their
capacities as Trustees of the other funds in the Eaton Vance fund complex<F1>:
<CAPTION>
AGGREGATE AGGREGATE RETIREMENT TOTAL COMPENSATION
COMPENSATION COMPENSATION BENEFIT ACCRUED FROM TRUST AND
NAME FROM FUND FROM PORTFOLIO FROM FUND COMPLEX FUND COMPLEX
---- ------------ -------------- ----------------- --------------
<S> <C> <C> <C> <C>
Donald R. Dwight $--0-- $8<F2> $ 8,750 $33,750
Samuel L. Hayes, III --0-- 8<F3> 24,885 41,250
Norton H. Reamer --0-- 8 --0-- 33,750
John L. Thorndike --0-- 8 --0-- 35,000
Jack L. Treynor --0-- 9 --0-- 35,000
<FN>
<F1> The Eaton Vance fund complex consists of 205 registered investment companies
or series thereof.
<F2> Includes $3 of deferred compensation.
<F3> Includes $3 of deferred compensation.
</TABLE>
PRINCIPAL UNDERWRITER
Under the Distribution Agreement the Principal Underwriter acts as principal
in selling shares of the Fund. The expenses of printing copies of prospectuses
used to offer shares to financial service firms ("Authorized Firms") or
investors and other selling literature and of advertising is borne by the
Principal Underwriter. The fees and expenses of qualifying and registering and
maintaining qualifications and registrations of the Fund and its shares under
Federal and state securities laws is borne by the Fund. In addition, the Fund
makes payments to the Principal Underwriter pursuant to its Distribution Plan as
described in the Fund's current Prospectus; the provisions of the Fund's
Distribution Plan relating to such payments are included in the Distribution
Agreement. The Distribution Agreement is renewable annually by the Trust's Board
of Trustees (including a majority of its Trustees who are not interested persons
of the Trust and who have no direct or indirect financial interest in the
operation of the Fund's Distribution Plan or the Distribution Agreement), may be
terminated on sixty days' notice either by such Trustees or by vote of a
majority of the outstanding voting securities of the Fund or on six months'
notice by the Principal Underwriter and is automatically terminated upon
assignment. The Principal Underwriter distributes Fund shares on a "best
efforts" basis under which it is required to take and pay for only such shares
as may be sold.
The Fund has authorized the Principal Underwriter to act as its agent in
repurchasing shares at the rate of $2.50 for each repurchase transaction handled
by the Principal Underwriter. The Principal Underwriter estimates that the
expenses incurred by it in acting as repurchase agent for the Fund will exceed
the amounts paid therefor by the Fund. For the amount paid by the Fund to the
Principal Underwriter for acting as repurchase agent, see "Fees and Expenses" in
this Part II.
DISTRIBUTION PLAN
The Distribution Plan ("the Plan") is described in the Prospectus and is
designed to meet the requirements of Rule 12b-1 under the 1940 Act and the sales
charge rule of the National Association of Securities Dealers, Inc. (the "NASD
Rule"). The purpose of the Plan is to compensate the Principal Underwriter for
its distribution services and facilities provided to the Fund by paying the
Principal Underwriter sales commissions and a separate distribution fee in
connection with sales of Fund shares. The following supplements the discussion
of the Plan contained in the Fund's Prospectus.
The amount payable to the Principal Underwriter pursuant to the Plan as
sales commissions and distribution fees with respect to each day will be accrued
on such day as a liability of the Fund and will accordingly reduce the Fund's
net assets upon such accrual, all in accordance with generally accepted
accounting principles. The amount payable on each day is limited to 1/365 of
.75% of the Fund's net assets on such day. The level of the Fund's net assets
changes each day and depends upon the amount of sales and redemptions of Fund
shares, the changes in the value of the investments held by the Portfolio, the
expenses of the Fund and the Portfolio accrued and allocated to the Fund on such
day, income on portfolio investments of the Portfolio accrued and allocated to
the Fund on such day, and any dividends and distributions declared on Fund
shares. The Fund does not accrue possible future payments as a liability of the
Fund or reduce the Fund's current net assets in respect of unknown amounts which
may become payable under the Plan in the future because the standards for
accrual of a liability under such accounting principles have not been satisfied.
The Plan provides that the Fund will receive all contingent deferred sales
charges and will make no payments to the Principal Underwriter in respect of any
day on which there are no outstanding Uncovered Distribution Charges of the
Principal Underwriter. Contingent deferred sales charges and accrued amounts
will be paid by the Fund to the Principal Underwriter whenever there exist
Uncovered Distribution Charges under the Fund's Plan.
Periods with a high level of sales of Fund shares accompanied by a low level
of early redemptions of Fund shares resulting in the imposition of contingent
deferred sales charges will tend to increase the time during which there will
exist Uncovered Distribution Charges of the Principal Underwriter. Conversely,
periods with a low level of sales of Fund shares accompanied by a high level of
early redemptions of Fund shares resulting in the imposition of contingent
deferred sales charges will tend to reduce the time during which there will
exist Uncovered Distribution Charges of the Principal Underwriter.
In calculating daily the amount of Uncovered Distribution Charges,
distribution charges will include the aggregate amount of sales commissions and
distribution fees theretofore paid plus the aggregate amount of sales
commissions and distribution fees which the Principal Underwriter is entitled to
be paid under the Plan since its inception. Payments theretofore paid or payable
under the Plan by the Fund to the Principal Underwriter and contingent deferred
sales charges theretofore paid or payable to the Principal Underwriter will be
subtracted from such distribution charges; if the result of such subtraction is
positive, a distribution fee (computed at 1% over the prime rate then reported
in The Wall Street Journal) will be computed on such amount and added thereto,
with the resulting sum constituting the amount of outstanding Uncovered
Distribution Charges with respect to such day. The amount of outstanding
Uncovered Distribution Charges of the Principal Underwriter calculated on any
day does not constitute a liability recorded on the financial statements of the
Fund.
The amount of Uncovered Distribution Charges of the Principal Underwriter at
any particular time depends upon various changing factors, including the level
and timing of sales of Fund shares, the nature of such sales (i.e., whether they
result from exchange transactions, reinvestments or from cash sales through
Authorized Firms), the level and timing of redemptions of Fund shares upon which
a contingent deferred sales charge will be imposed, the level and timing of
redemptions of Fund shares upon which no contingent deferred sales charge will
be imposed (including redemptions involving exchanges of Fund shares for shares
of another fund in the Eaton Vance Classic Group of Funds which result in a
reduction of Uncovered Distribution Charges), changes in the level of the net
assets of the Fund, and changes in the interest rate used in the calculation of
the distribution fee under the Plan. (For shares sold prior to January 30, 1995,
Plan payments are as follows: the Principal Underwriter pays monthly sales
commissions and service fee payments to Authorized Firms equivalent to
approximately .75% and .20%, respectively, annualized, of the assets maintained
in the Fund by their customers beginning at the time of sale. No payments were
made at the time of sale and there is no contingent deferred sales charge.)
As currently implemented by the Trustees, the Plan authorizes payments of
sales commissions, distribution fees and service fees to the Principal
Underwriter which may be equivalent, on an aggregate basis during any fiscal
year of the Fund, to .95% of the Fund's average daily net assets for such year.
For the sales commission and service fee payments made by the Fund and the
outstanding Uncovered Distribution Charges of the Principal Underwriter, see
"Fees and Expenses -- Distribution Plan" in this Part II. The Fund believes that
the combined rate of all these payments may be higher than the rate of payments
made under distribution plans adopted by other investment companies pursuant to
Rule 12b-1. Although the Principal Underwriter will use its own funds (which may
be borrowed from banks) to pay sales commissions and service fees at the time of
sale, it is anticipated that the Eaton Vance organization will profit by reason
of the operation of the Plan through an increase in the Fund's assets (thereby
increasing the advisory fee payable to BMR by the Portfolio) resulting from sale
of Fund shares and through the amounts paid to the Principal Underwriter,
including contingent deferred sales charges, pursuant to the Plan. The Eaton
Vance organization may be considered to have realized a profit under the Plan if
at any point in time the aggregate amounts theretofore received by the Principal
Underwriter pursuant to the Plan and from contingent deferred sales charges have
exceeded the total expenses theretofore incurred by such organization in
distributing shares of the Fund. Total expenses for this purpose will include an
allocable portion of the overhead costs of such organization and its branch
offices, which costs will include without limitation leasing expense,
depreciation of building and equipment, utilities, communication and postage
expense, compensation and benefits of personnel, travel and promotional expense,
stationery and supplies, literature and sales aids, interest expense, data
processing fees, consulting and temporary help costs, insurance, taxes other
than income taxes, legal and auditing expense and other miscellaneous overhead
items. Overhead is calculated and allocated for such purpose by the Eaton Vance
organization in a manner deemed equitable to the Fund.
The Plan continues in effect through and including April 28, 1996, and shall
continue in effect indefinitely thereafter for so long as such continuance is
approved at least annually by the vote of both a majority of (i) the Trustees of
the Trust who are not interested persons of the Trust and who have no direct or
indirect financial interest in the operation of the Plan or any agreements
related to the Plan (the "Rule 12b-1 Trustees") and (ii) all of the Trustees
then in office, and the Distribution Agreement contains a similar provision. The
Plan and Distribution Agreement may be terminated at any time by vote of a
majority of the Rule 12b-1 Trustees or by a vote of a majority of the
outstanding voting securities of the Fund. The provisions of the Plan relating
to payments of sales commissions and distribution fees to the Principal
Underwriter are also included in the Distribution Agreement between the Trust on
behalf of the Fund and the Principal Underwriter. Pursuant to Rule 12b-1, the
Plan has been approved by the Fund's initial sole shareholder (Eaton Vance) and
by the Board of Trustees of the Trust, including the Rule 12b-1 Trustees. Under
the Plan, the President or a Vice President of the Trust shall provide to the
Trustees for their review, and the Trustees shall review at least quarterly, a
written report of the amount expended under the Plan and the purposes for which
such expenditures were made. The Plan may not be amended to increase materially
the payments described therein without approval of the shareholders of the Fund,
and all material amendments of the Plan must also be approved by the Trustees as
required by Rule 12b-1. So long as the Plan is in effect, the selection and
nomination of Trustees who are not interested persons of the Trust shall be
committed to the discretion of the Trustees who are not such interested persons.
The Trustees believe that the Plan will be a significant factor in the
expected growth of the Fund's assets, and will result in increased investment
flexibility and advantages which will benefit the Fund and its shareholders.
Payments for sales commissions and distribution fees made to the Principal
Underwriter under the Plan will compensate the Principal Underwriter for its
services and expenses in distributing shares of the Fund. Service fee payments
made to the Principal Underwriter and Authorized Firms under the Plan provide
incentives to provide continuing personal services to investors and the
maintenance of shareholder accounts. By providing incentives to the Principal
Underwriter and Authorized Firms, the Plan is expected to result in the
maintenance of, and possible future growth in, the assets of the Fund. Based on
the foregoing and other relevant factors, the Trustees have determined that in
their judgment there is a reasonable likelihood that the Plan will benefit the
Fund and its shareholders.
PERFORMANCE INFORMATION
The table below indicates the total return (capital changes plus
reinvestment of all distributions) on a hypothetical investment of $1,000 in the
Fund covering the life of the Fund from June 15, 1994 through January 31, 1995.
VALUE OF A $1,000 INVESTMENT
<TABLE>
<CAPTION>
VALUE OF VALUE OF
INVEST- INVEST-
MENT BEFORE MENT AFTER
DEDUCTING DEDUCT- TOTAL RETURN BEFORE TOTAL RETURN AFTER
THE CON- ING THE DEDUCTING DEDUCTING
TINGENT CONTINGENT THE CONTINGENT DEFERRED THE CONTINGENT DEFERRED
DEFERRED DEFERRED SALES SALES CHARGE SALES CHARGE<F3>
INVESTMENT INVESTMENT AMOUNT OF SALES CHARGE CHARGE<F3> ------------------------- --------------------------
PERIOD DATE INVESTMENT ON 1/31/95 ON 1/31/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- --------- ---------- ---------- ------------ -------------- ---------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Life of the
Fund<F1> 6/15/94 $1,000 $1,008.21<F2> $998.46<F2> 0.82%<F2> -- -0.15%<F2> --
PERCENTAGE CHANGES 6/15/94--1/31/95
<CAPTION>
NET ASSET VALUE TO NET ASSET VALUE NET ASSET VALUE TO NET ASSET VALUE
BEFORE DEDUCTING THE CONTINGENT DEFERRED AFTER DEDUCTING THE CONTINGENT DEFERRED
SALES CHARGE WITH ALL DISTRIBUTIONS REINVESTED SALES CHARGE<F3> WITH ALL DISTRIBUTIONS REINVESTED
---------------------------------------------- -------------------------------------------------
PERIOD
ENDED ANNUAL CUMULATIVE AVERAGE ANNUAL ANNUAL CUMULATIVE AVERAGE ANNUAL
- ------ ------ ---------- -------------- ------ ---------- --------------
<C> <C> <C> <C> <C> <C> <C>
1/31/95<F1> -- 0.82%<F2> -- -- -0.15%<F2> --
Past performance is not indicative of future results. Investment return
and principal value will fluctuate; shares, when redeemed, may be worth more or
less than their original cost.
<FN>
- ----------
<F1> Investment operations began on June 15, 1994.
<F2> If a portion of the Portfolio's and/or the Fund's expenses had not been
subsidized, the Fund would have had lower returns.
<F3> No contingent deferred sales charge is imposed on shares purchased more
than one year prior to the redemption, shares acquired through the
reinvestment of distributions, or any appreciation in value of other shares
in the account, and no such charge is imposed on exchanges of Fund shares
for shares of one or more other funds listed under "The Eaton Vance
Exchange Privilege" in the Prospectus.
</TABLE>
For the thirty-day period ended January 31, 1995, the yield of the Fund was
4.55%. The yield required of a taxable security that would produce an after-tax
yield equivalent to that earned by the Fund of 4.55% would be 6.59%, assuming a
Federal tax rate of 31%. If a portion of the Portfolio's and the Fund's expenses
had not been allocated to the Investment Adviser and the Administrator,
respectively, the Fund would have had a lower yield.
The Fund's distribution rate (calculated on January 31, 1995 and based on
the Fund's monthly distribution paid January 23, 1995) was 5.10%, and the Fund's
effective distribution rate (calculated on the same date and based on the same
monthly distribution) was 5.22%. If a portion of the Portfolio's and the Fund's
expenses had not been allocated to the Investment Adviser and the Administrator,
respectively, the Fund would have had a lower distribution rate and effective
distribution rate.
The Portfolio's diversification by quality ratings as of March 31, 1995,
was:
RATING ASSIGNED BY PERCENT
MOODY'S, S&P OR FITCH OF BOND HOLDINGS
--------------------- ----------------
Aaa or AAA 100.0%
Aa or AA --
A --
Baa or BBB --
Ba or BB --
B --
Below B --
Not rated --
-----
Total 100.0%
The State of Florida generally imposes an intangible personal property tax
on the value of all stocks, notes, bonds and mutual fund shares. The rate of
intangibles tax after exemptions in Florida is $.20 per $100 in value. Bank
deposits such as bank money market deposit accounts and certificates of deposit
are exempt from the Florida intangibles tax. The Florida intangibles tax, which
is a fixed rate based on the fair market value of an investment, will vary as a
percentage of income with the yield of the investment subject to tax. For
example, shares of a mutual fund valued at $10,000 would generally be subject to
Florida intangibles tax equaling $20. If the mutual fund shares were yielding
5.00%, generating $500 in annual income, the intangibles tax expressed as a
percentage of income would be $20/$500 or 4.00%. Federal income tax brackets for
1995 are 15% for single filers with taxable income up to $23,350 and joint
filers up to $39,000; 28% for single filers with taxable income from $23,351 to
$56,550 and joint filers from $39,001 to $94,250; 31% for single filers with
taxable income from $56,551 to $117,950 and joint filers from $94,251 to
$143,600; 36% for single filers with taxable income from $117,951 to $256,500
and joint filers from $143,601 to $256,500; and 39.6% for single and joint
filers with taxable income over $256,500. Combined Federal and Florida
intangibles tax rates expressed as a percentage of income on an investment
yielding 5.00%, assuming the deductibility of intangibles taxes on the Federal
return, would be 18.40%, 30.88%, 33.76%, 38.56% and 42.02% over the same ranges
of income.
This Part II contains a tax equivalent yield table which reflects the tax
equivalent yield of the Fund earning hypothetical yields over various Federal
income tax brackets, as well as a tax equivalent yield table which takes into
account the effect of the Florida intangibles tax on the rate of combined
Federal and Florida intangibles taxes paid as a percentage of income by a
Florida resident.
The following information compares the taxable equivalent yield of an
investment in the Fund yielding a hypothetical 5.00% taking into account Federal
income tax and the effect of the Florida intangibles tax with the after-tax
yield of a certificate of deposit yielding 3.25%. The after-tax yields of the
certificate of deposit were calculated taking into account Federal income taxes
only, as bank deposits are not subject to the Florida intangibles tax.
TAX BRACKET
18.40% 30.88% 33.76% 38.56% 42.02%
----------------------------------------------------
Tax free yield ........ 5.00% 5.00% 5.00% 5.00% 5.00%
Taxable equivalent .... 6.13 7.23 7.55 8.14 8.62
TAX BRACKET*
15% 28% 31% 36% 39.6%
-----------------------------------------------------
Certificates of deposit:
Yield ............. 3.25 3.25 3.25 3.25 3.25
After-tax yield ... 2.76 2.34 2.24 2.08 1.96
- ----------
*CDs are generally exempt from the Florida intangibles tax. Accordingly, the
combined tax brackets applicable to after-tax yields are 15%, 28%, 31%, 36% and
39.6%.
Classic Florida Insured
The Tax Free Yield Advantage
(38.56% combined tax bracket)
3.25% Certificate of deposit
3.25% Pretax yield
2.08% After-tax yield
5.00% Tax free investment
8.14% Taxable equivalent yield
5.00% Tax free yield
Example:
Two $100,000 investments . . .
3.25% CD 5.00% Tax free
Pretax income: $3,250.00 $5,000.00
Tax: (1,170.00) NONE
After-tax income: $2,080.00 $5,000.00
The 1995 combined Federal and Florida state tax bracket, expressed as a
percentage of income on an investment yielding 5.00% and assuming the
deductibility of the Florida intangibles tax, is 38.56% for single filers with
taxable income from $117,951 to $256,500 and joint filers from $143,601 to
$256,500. Actual tax brackets may be higher due to the phaseout of personal
exemptions and limitations on the deductibility of itemized deductions over
certain ranges of income. Your actual bracket will vary depending on your
income, exemptions and deductions. CDs are generally exempt from the Florida
intangibles tax. Accordingly, the combined tax bracket applicable to the
after-tax CD yield is 36%. See your tax adviser for additional information. The
chart is based on 3-month bank CDs (Sources: The Wall Street Journal and Eaton
Vance Management). Tax free yields are shown for illustration purposes only and
are not meant to represent actual results of an investment in the Fund. See your
financial adviser for the Fund's current yield and actual CD rates.
ADDITIONAL TAX MATTERS
The Fund qualified as a RIC under the Code for its taxable year ended
January 31, 1995 (see Notes to Financial Statements).
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As at April 30, 1995, the Trustees and officers of the Trust, as a group,
owned in the aggregate less than 1% of the outstanding shares of the Fund. As of
April 30, 1995, the following shareholders owned beneficially and of record the
percentages of outstanding shares of the Fund indicated after their names:
PaineWebber for the benefit of George A. Zarekas and Marjorie Zarekas JTWROS,
Pompano Beach, FL (50.1%); PaineWebber for the benefit of Elizabeth B. Leahy
TTEE and Elizabeth B. Leahy Rev TR, Tequesta, FL (19.3%); PaineWebber for the
benefit of Thelma Griffith Haynes and Bruce G. Haynes COTTEES of the Trust DTD
6-14-93, Orlando, FL (17.4%); and PaineWebber for the benefit of Dorothy L.
Becker and Michele Kandel, Margate, FL (6.6%). To the Trust's knowledge, no
other person owned of record or beneficially 5% or more of the Fund's
outstanding shares on such date.
TAX EQUIVALENT YIELD TABLE
The tables below show the effect of the tax status of bonds on the tax
equivalent yield received by their holders under the regular Federal income tax
and the Florida intangibles tax laws and tax rates applicable for 1995. They
show the approximate yield a taxable security must earn at various income
brackets to produce after-tax yields equivalent to those of tax exempt bonds
yielding from 4% to 7%.
<TABLE>
<CAPTION>
IF THE TAXABLE OR THE TAXABLE
INCOME ON INCOME ON YOU ARE IN IN YOUR BRACKET, A TAX-FREE YIELD OF
YOUR SINGLE YOUR JOINT THIS FEDERAL 4% 4.5% 5% 5.5% 6% 6.5% 7%
RETURN IS<F1> RETURN IS<F1> BRACKET EQUALS THAT OF A TAXABLE INVESTMENT YIELDING
- ---------------------------------------------- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $ 23,350 Up to $ 39,000 15.00% 4.71% 5.29% 5.88% 6.47% 7.06% 7.65% 8.24%
$ 23,351 $ 56,550 $ 39,001 $ 94,250 28.00 5.56 6.25 6.94 7.64 8.33 9.03 9.72
$ 56,551 $117,950 $ 94,251 $143,600 31.00 5.80 6.52 7.25 7.97 8.70 9.42 10.14
$117,951 $256,500 $143,601 $256,500 36.00 6.25 7.03 7.81 8.59 9.38 10.16 10.94
Over $256,500 Over $256,500 39.60 6.62 7.45 8.28 9.11 9.93 10.76 11.59
<CAPTION>
IF THE TAXABLE OR THE TAXABLE
INCOME ON INCOME ON
YOUR SINGLE YOUR JOINT 4% 4.5% 5% 5.5% 6% 6.5% 7%
RETURN IS<F1> RETURN IS<F1> TAXABLE EQUIVALENT YIELD REFLECTING EXEMPTION FROM INTANGIBLES TAX<F2>
- ------------------------------------------ ---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $ 23,350 Up to $ 39,000 4.95% 5.54% 6.13% 6.71% 7.30% 7.89% 8.48%
$ 23,351 - $ 56,550 $ 39,001 - $ 94,250 5.85 6.54 7.23 7.93 8.62 9.31 10.01
$ 56,551 - $117,950 $ 94,251 - $143,600 6.10 6.83 7.55 8.27 9.00 9.72 10.44
$117,951 - $256,500 $143,601 - $256,500 6.58 7.36 8.14 8.92 9.70 10.48 11.26
Over $256,500 Over $256,500 6.97 7.80 8.62 9.45 10.28 11.10 11.93
Yields shown are for illustration purposes only and are not meant to represent
the Fund's actual yield.
<FN>
<F1> Net amount subject to the Federal personal income tax after deductions and exemptions.
<F2> A Florida intangibles tax on personal property of $2.00 per $1,000 is generally imposed after exemptions on the value of
stocks, bonds, other evidences of indebtedness and mutual fund shares. An example of the effect of the Florida intangibles tax on
the tax brackets of Florida taxpayers is as follows. A $10,000 investment subject to the tax would require payment of $20 annually
in intangibles taxes. If the investment yielded 5.00% annually or $500, the intangibles tax as a percentage of income would be
$20/$500 or 4.00%. If a taxpayer were in the 36% Federal income tax bracket, assuming the intangibles taxes were deducted as an
Itemized Deduction on the Federal return, the taxpayer would be in a combined Federal and Florida state tax bracket of 38.56% [36%
+ (1 - .36) X 4.00%] with respect to such investment. A Florida taxpayer whose intangible personal property is exempt or partially
exempt from tax due to the availability of exemptions will have a lower taxable equivalent yield than indicated above.
</TABLE>
Note: The above-indicated Federal income tax brackets do not take into account
the effect of a reduction in the deductibility of itemized deductions for
taxpayers with adjusted gross income in excess of $114,700, nor the effects of
phaseout of personal exemptions for single and joint filers with adjusted gross
incomes in excess of $114,700 and $172,050, respectively. The effective tax
brackets and equivalent taxable yields of such taxpayers will be higher than
those indicated above.
Of course no assurance can be given that EV Classic Florida Insured Tax Free
Fund will achieve any specific tax exempt yield. While it is expected that a
substantial portion of the interest income distributed to the Fund shareholders
will be exempt from the regular Federal income tax, portions of such
distributions from time to time may be subject to such tax. This table does not
take into account the Florida intangibles tax, state or local taxes, if any,
payable on Fund distributions to individuals who are not Florida residents, or
intangibles taxes, if any, imposed under the laws of other states. It should
also be noted that the interest earned on certain "private activity bonds"
issued after August 7, 1986, while exempt from the regular Federal income tax,
is treated as a tax preference item which could subject the recipient to the
Federal alternative minimum tax. The illustrations assume that the Federal
alternative minimum tax is not applicable.
The information set forth above is as of the date of this Statement of
Additional Information. Subsequent tax law changes could result in prospective
or retroactive changes in the tax brackets, tax rates, and tax equivalent yields
set forth above.
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV CLASSIC HAWAII TAX FREE FUND. The
investment objective of the Fund is to provide current income exempt from
regular Federal income tax and Hawaii State individual income taxes. The Fund
currently seeks to achieve its investment objective by investing its assets in
the Hawaii Tax Free Portfolio (the "Portfolio").
RISKS OF CONCENTRATION
The following information as to certain Hawaii considerations is given to
investors in view of the Portfolio's policy of concentrating its investments in
Hawaii issuers. Such information is derived from sources that are generally
available to investors and is believed to be accurate. Such information
constitutes only a brief summary, does not purport to be a complete description
and is based on information from official statements relating to securities
offerings of Hawaii issuers. Neither the Trust nor the Portfolio has
independently verified this information.
Following a period of strong growth in the late 1980s, the rate of growth of
the Hawaiian economy slowed considerably between 1990 and 1993. This was due
primarily to the U.S. mainland recession and financial restructuring in Japan.
The general economic slowdown affected important sectors of the Hawaiian
economy, particularly tourism and construction. During 1994, the Hawaiian
economy showed modest signs of recovery following the economic recovery on the
U.S. mainland. The Kobe, Japan earthquake, however, apparently contributed to a
decline in eastbound visitor arrivals, and construction continued to decline.
The number of eastbound visitors increased 4% in 1994 over 1993 and the number
of westbound visitors increased 6.3% in 1994 over 1993. In 1994, a total of
about 6.5 million visitors came to the State, which represents an increase of
5.4% from 1993.
Total personal income in Hawaii has increased at a 7.4% average annual rate
since 1980, slightly faster than the national rate over the comparable decade.
Per capita personal income has increased at a 6.4% average annual rate since
1980 as compared with the 6.1% rate for the nation. Overall, unemployment in
Hawaii fell from a seasonally-adjusted 6.6% in the third quarter of 1994 to 5.2%
in the first quarter of 1995, compared to the national unemployment rate of
approximately 5.5%.
After six years of rapid expansion in the construction industry through
1991, building activity declined in 1992. The value of construction completed,
as measured by the general excise tax base for contracting, fell 8.2% in 1992,
4.2% in 1993, and 12.4% in 1994, following a 4.5% increase in 1991 from 1990 and
a 29.1% increase in 1990 from 1989. The value of private building permits, an
indicator of future building activity, decreased 9.2% in 1994 from 1993.
Agriculture, dominated by sugar and pineapple production, faces increased
foreign competition. Employment in the sugar industry has been steadily
decreasing over the past few years. Sugar manufacturing sales decreased 7.1% in
1992 from 1991. Over the same time period, pineapple sales decreased 17.9%.
During the past years, agricultural sales have become somewhat more diversified,
particularly in the growing and exporting of papayas, macadamia nuts, Kona
coffee, flowers and nursery products. Agriculture is also an industry in
development. Sales of the State's diversified agriculture totalled $262 million
in 1993, a 1.1% decrease from 1992's total.
Hawaii's county governments (the only units of local government in the
State) may issue government obligation bonds. The counties, however, have
preferred not to finance capital investment with debt. As a result, relatively
minimal amounts are charged to the county general obligation debt limit, which
restricts local government indebtedness to not more than 15% of net assessed
value of real property.
FEES AND EXPENSES
INVESTMENT ADVISER
As of January 31, 1995, the Portfolio had net assets of $12,864,539. For the
period from the Portfolio's start of business, March 2, 1994, to January 31,
1995, absent a fee reduction, the Portfolio would have paid BMR advisory fees of
$13,231 (equivalent to 0.16% (annualized) of the Portfolio's average daily net
assets for such period). To enhance the net income of the Portfolio, BMR made a
reduction of its advisory fee in the amount of $13,231 and BMR was allocated
expenses related to the operation of the Portfolio in the amount of $13,430. The
Portfolio's Investment Advisory Agreement with BMR is dated February 25, 1994
and remains in effect until February 28, 1996. The Agreement may be continued as
described under "Investment Adviser and Administrator" in Part I of this
Statement of Additional Information.
ADMINISTRATOR
As stated under "Investment Adviser and Administrator" in Part I of this
Statement of Additional Information, the Administrator receives no compensation
for providing administrative services to the Fund. For the period from the start
of business, March 14, 1994, to January 31, 1995, $12,533 of the Fund's
operating expenses were allocated to the Administrator.
DISTRIBUTION PLAN
For the period from the start of business, March 14, 1994, to January 31,
1995, the Fund accrued sales commission payments under the Plan aggregating
$1,573, of which $1,533 was paid to the Principal Underwriter. The Principal
Underwriter paid such amount as sales commissions to Authorized Firms. During
such period no contingent deferred sales charges were paid to the Principal
Underwriter. As at January 31, 1995, the outstanding Uncovered Distribution
Charges of the Principal Underwriter calculated under the Plan amounted to
approximately $18,000 (which amount was equivalent to 7% of the Fund's net
assets on such day). For the period from the start of business, March 14, 1994,
to January 31, 1995, the Fund accrued service fee payments under the Plan
aggregating $420, of which $409 was paid to the Principal Underwriter. The
Principal Underwriter paid such amount as service fee payments to Authorized
Firms.
PRINCIPAL UNDERWRITER
For the period from the start of business, March 14, 1994, to January 31,
1995, the Fund paid the Principal Underwriter $7.50 for repurchase transactions
handled (being $2.50 for each such transaction).
CUSTODIAN
For the period from the start of business, March 14, 1994, to January 31,
1995, the Fund paid IBT $2,634. For the period from the start of business, March
2, 1994, to January 31, 1995, the Portfolio paid IBT $3,834.
BROKERAGE
For the period from the start of business, March 2, 1994, to January 31,
1995, the Portfolio paid no brokerage commissions on portfolio transactions.
<TABLE>
TRUSTEES
The fees and expenses of those Trustees of the Trust and of the Portfolio
who are not members of the Eaton Vance organization (the noninterested Trustees)
are paid by the Fund (and the other series of the Trust) and the Portfolio,
respectively. (The Trustees of the Trust and the Portfolio who are members of
the Eaton Vance organization receive no compensation from the Fund or the
Portfolio.) During the fiscal year ended January 31, 1995, the noninterested
Trustees of the Trust and the Portfolio earned the following compensation in
their capacities as Trustees from the Fund and the Portfolio, and, during the
first quarter ended March 31, 1995, earned the following compensation in their
capacities as Trustees of the other funds in the Eaton Vance fund complex<F1>:
<CAPTION>
AGGREGATE AGGREGATE RETIREMENT TOTAL COMPENSATION
COMPENSATION COMPENSATION BENEFIT ACCRUED FROM TRUST AND
NAME FROM FUND FROM PORTFOLIO FROM FUND COMPLEX FUND COMPLEX
---- ------------ -------------- ----------------- ------------------
<S> <C> <C> <C> <C>
Donald R. Dwight $--0-- $17<F2> $ 8,750 $33,750
Samuel L. Hayes, III --0-- 16<F3> 24,885 41,250
Norton H. Reamer --0-- 16 --0-- 33,750
John L. Thorndike --0-- 16 --0-- 35,000
Jack L. Treynor --0-- 17 --0-- 35,000
<FN>
- ----------
<F1> The Eaton Vance fund complex consists of 205 registered investment companies
or series thereof.
<F2> Includes $3 of deferred compensation.
<F3> Includes $3 of deferred compensation.
</TABLE>
PRINCIPAL UNDERWRITER
Under the Distribution Agreement the Principal Underwriter acts as principal
in selling shares of the Fund. The expenses of printing copies of prospectuses
used to offer shares to financial service firms ("Authorized Firms") or
investors and other selling literature and of advertising is borne by the
Principal Underwriter. The fees and expenses of qualifying and registering and
maintaining qualifications and registrations of the Fund and its shares under
Federal and state securities laws is borne by the Fund. In addition, the Fund
makes payments to the Principal Underwriter pursuant to its Distribution Plan as
described in the Fund's current Prospectus; the provisions of the Fund's
Distribution Plan relating to such payments are included in the Distribution
Agreement. The Distribution Agreement is renewable annually by the Trust's Board
of Trustees (including a majority of its Trustees who are not interested persons
of the Trust and who have no direct or indirect financial interest in the
operation of the Fund's Distribution Plan or the Distribution Agreement), may be
terminated on sixty days' notice either by such Trustees or by vote of a
majority of the outstanding voting securities of the Fund or on six months'
notice by the Principal Underwriter and is automatically terminated upon
assignment. The Principal Underwriter distributes Fund shares on a "best
efforts" basis under which it is required to take and pay for only such shares
as may be sold.
The Fund has authorized the Principal Underwriter to act as its agent in
repurchasing shares at the rate of $2.50 for each repurchase transaction handled
by the Principal Underwriter. The Principal Underwriter estimates that the
expenses incurred by it in acting as repurchase agent for the Fund will exceed
the amounts paid therefor by the Fund. For the amount paid by the Fund to the
Principal Underwriter for acting as repurchase agent, see "Fees and Expenses" in
this Part II.
DISTRIBUTION PLAN
The Distribution Plan ("the Plan") is described in the Prospectus and is
designed to meet the requirements of Rule 12b-1 under the 1940 Act and the sales
charge rule of the National Association of Securities Dealers, Inc. (the "NASD
Rule"). The purpose of the Plan is to compensate the Principal Underwriter for
its distribution services and facilities provided to the Fund by paying the
Principal Underwriter sales commissions and a separate distribution fee in
connection with sales of Fund shares. The following supplements the discussion
of the Plan contained in the Fund's Prospectus.
The amount payable to the Principal Underwriter pursuant to the Plan as
sales commissions and distribution fees with respect to each day will be accrued
on such day as a liability of the Fund and will accordingly reduce the Fund's
net assets upon such accrual, all in accordance with generally accepted
accounting principles. The amount payable on each day is limited to 1/365 of
.75% of the Fund's net assets on such day. The level of the Fund's net assets
changes each day and depends upon the amount of sales and redemptions of Fund
shares, the changes in the value of the investments held by the Portfolio, the
expenses of the Fund and the Portfolio accrued and allocated to the Fund on such
day, income on portfolio investments of the Portfolio accrued and allocated to
the Fund on such day, and any dividends and distributions declared on Fund
shares. The Fund does not accrue possible future payments as a liability of the
Fund or reduce the Fund's current net assets in respect of unknown amounts which
may become payable under the Plan in the future because the standards for
accrual of a liability under such accounting principles have not been satisfied.
The Plan provides that the Fund will receive all contingent deferred sales
charges and will make no payments to the Principal Underwriter in respect of any
day on which there are no outstanding Uncovered Distribution Charges of the
Principal Underwriter. Contingent deferred sales charges and accrued amounts
will be paid by the Fund to the Principal Underwriter whenever there exist
Uncovered Distribution Charges under the Fund's Plan.
Periods with a high level of sales of Fund shares accompanied by a low level
of early redemptions of Fund shares resulting in the imposition of contingent
deferred sales charges will tend to increase the time during which there will
exist Uncovered Distribution Charges of the Principal Underwriter. Conversely,
periods with a low level of sales of Fund shares accompanied by a high level of
early redemptions of Fund shares resulting in the imposition of contingent
deferred sales charges will tend to reduce the time during which there will
exist Uncovered Distribution Charges of the Principal Underwriter.
In calculating daily the amount of Uncovered Distribution Charges,
distribution charges will include the aggregate amount of sales commissions and
distribution fees theretofore paid plus the aggregate amount of sales
commissions and distribution fees which the Principal Underwriter is entitled to
be paid under the Plan since its inception. Payments theretofore paid or payable
under the Plan by the Fund to the Principal Underwriter and contingent deferred
sales charges theretofore paid or payable to the Principal Underwriter will be
subtracted from such distribution charges; if the result of such subtraction is
positive, a distribution fee (computed at 1% over the prime rate then reported
in The Wall Street Journal) will be computed on such amount and added thereto,
with the resulting sum constituting the amount of outstanding Uncovered
Distribution Charges with respect to such day. The amount of outstanding
Uncovered Distribution Charges of the Principal Underwriter calculated on any
day does not constitute a liability recorded on the financial statements of the
Fund.
The amount of Uncovered Distribution Charges of the Principal Underwriter at
any particular time depends upon various changing factors, including the level
and timing of sales of Fund shares, the nature of such sales (i.e., whether they
result from exchange transactions, reinvestments or from cash sales through
Authorized Firms), the level and timing of redemptions of Fund shares upon which
a contingent deferred sales charge will be imposed, the level and timing of
redemptions of Fund shares upon which no contingent deferred sales charge will
be imposed (including redemptions involving exchanges of Fund shares for shares
of another fund in the Eaton Vance Classic Group of Funds which result in a
reduction of Uncovered Distribution Charges), changes in the level of the net
assets of the Fund, and changes in the interest rate used in the calculation of
the distribution fee under the Plan. (For shares sold prior to January 30, 1995,
Plan payments are as follows: the Principal Underwriter pays monthly sales
commissions and service fee payments to Authorized Firms equivalent to
approximately .75% and .20%, respectively, annualized, of the assets maintained
in the Fund by their customers beginning at the time of sale. No payments were
made at the time of sale and there is no contingent deferred sales charge.)
As currently implemented by the Trustees, the Plan authorizes payments of
sales commissions, distribution fees and service fees to the Principal
Underwriter which may be equivalent, on an aggregate basis during any fiscal
year of the Fund, to .95% of the Fund's average daily net assets for such year.
For the sales commission and service fee payments made by the Fund and the
outstanding Uncovered Distribution Charges of the Principal Underwriter, see
"Fees and Expenses -- Distribution Plan" in this Part II. The Fund believes that
the combined rate of all these payments may be higher than the rate of payments
made under distribution plans adopted by other investment companies pursuant to
Rule 12b-1. Although the Principal Underwriter will use its own funds (which may
be borrowed from banks) to pay sales commissions and service fees at the time of
sale, it is anticipated that the Eaton Vance organization will profit by reason
of the operation of the Plan through an increase in the Fund's assets (thereby
increasing the advisory fee payable to BMR by the Portfolio) resulting from sale
of Fund shares and through the amounts paid to the Principal Underwriter,
including contingent deferred sales charges, pursuant to the Plan. The Eaton
Vance organization may be considered to have realized a profit under the Plan if
at any point in time the aggregate amounts theretofore received by the Principal
Underwriter pursuant to the Plan and from contingent deferred sales charges have
exceeded the total expenses theretofore incurred by such organization in
distributing shares of the Fund. Total expenses for this purpose will include an
allocable portion of the overhead costs of such organization and its branch
offices, which costs will include without limitation leasing expense,
depreciation of building and equipment, utilities, communication and postage
expense, compensation and benefits of personnel, travel and promotional expense,
stationery and supplies, literature and sales aids, interest expense, data
processing fees, consulting and temporary help costs, insurance, taxes other
than income taxes, legal and auditing expense and other miscellaneous overhead
items. Overhead is calculated and allocated for such purpose by the Eaton Vance
organization in a manner deemed equitable to the Fund.
The Plan continues in effect through and including April 28, 1996, and shall
continue in effect indefinitely thereafter for so long as such continuance is
approved at least annually by the vote of both a majority of (i) the Trustees of
the Trust who are not interested persons of the Trust and who have no direct or
indirect financial interest in the operation of the Plan or any agreements
related to the Plan (the "Rule 12b-1 Trustees") and (ii) all of the Trustees
then in office, and the Distribution Agreement contains a similar provision. The
Plan and Distribution Agreement may be terminated at any time by vote of a
majority of the Rule 12b-1 Trustees or by a vote of a majority of the
outstanding voting securities of the Fund. The provisions of the Plan relating
to payments of sales commissions and distribution fees to the Principal
Underwriter are also included in the Distribution Agreement between the Trust on
behalf of the Fund and the Principal Underwriter. Pursuant to Rule 12b-1, the
Plan has been approved by the Fund's initial sole shareholder (Eaton Vance) and
by the Board of Trustees of the Trust, including the Rule 12b-1 Trustees. Under
the Plan, the President or a Vice President of the Trust shall provide to the
Trustees for their review, and the Trustees shall review at least quarterly, a
written report of the amount expended under the Plan and the purposes for which
such expenditures were made. The Plan may not be amended to increase materially
the payments described therein without approval of the shareholders of the Fund,
and all material amendments of the Plan must also be approved by the Trustees as
required by Rule 12b-1. So long as the Plan is in effect, the selection and
nomination of Trustees who are not interested persons of the Trust shall be
committed to the discretion of the Trustees who are not such interested persons.
The Trustees believe that the Plan will be a significant factor in the
expected growth of the Fund's assets, and will result in increased investment
flexibility and advantages which will benefit the Fund and its shareholders.
Payments for sales commissions and distribution fees made to the Principal
Underwriter under the Plan will compensate the Principal Underwriter for its
services and expenses in distributing shares of the Fund. Service fee payments
made to the Principal Underwriter and Authorized Firms under the Plan provide
incentives to provide continuing personal services to investors and the
maintenance of shareholder accounts. By providing incentives to the Principal
Underwriter and Authorized Firms, the Plan is expected to result in the
maintenance of, and possible future growth in, the assets of the Fund. Based on
the foregoing and other relevant factors, the Trustees have determined that in
their judgment there is a reasonable likelihood that the Plan will benefit the
Fund and its shareholders.
PERFORMANCE INFORMATION
The table below indicates the total return (capital changes plus
reinvestment of all distributions) on a hypothetical investment of $1,000 in the
Fund covering the life of the Fund from March 14, 1994 through January 31, 1995.
VALUE OF A $1,000 INVESTMENT
<TABLE>
<CAPTION>
TOTAL RETURN
VALUE OF VALUE OF TOTAL RETURN AFTER DEDUCTING
INVESTMENT INVESTMENT BEFORE DEDUCTING CONTINGENT
BEFORE AFTER CONTINGENT DEFERRED DEFERRED
CONTINGENT CONTINGENT SALES CHARGE SALES CHARGE<F3>
DEFERRED DEFERRED
INVESTMENT INVESTMENT AMOUNT OF SALES CHARGE SALES CHARGE<F3> --------------------------------------------------
PERIOD DATE INVESTMENT ON 1/31/95 ON 1/31/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
---------- ---------- ---------- ------------ --------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of the
Fund<F1> 3/14/94 $1,000 $947.69<F2> $938.65 -5.23%<F2> -- -6.13% --
<CAPTION>
PERCENTAGE CHANGES
3/14/94 -- 1/31/95
NET ASSET VALUE NET ASSET VALUE
TO NET ASSET VALUE TO NET ASSET VALUE
BEFORE DEDUCTING THE AFTER DEDUCTING THE
CONTINGENT DEFERRED SALES CONTINGENT DEFERRED SALES
CHARGE CHARGE<F3>
WITH ALL DISTRIBUTIONS WITH ALL DISTRIBUTIONS
REINVESTED REINVESTED
--------------------------- ---------------------------
PERIOD AVERAGE AVERAGE
ENDED ANNUAL CUMULATIVE ANNUAL ANNUAL CUMULATIVE ANNUAL
----- ------ ---------- ------- ------ ---------- -------
<S> <C> <C> <C> <C> <C> <C>
1/31/95* -- -5.23%** -- -- -6.13% --
Past performance is not indicative of future results. Investment return
and principal value will fluctuate; shares, when redeemed, may be worth more or
less than their original cost.
<FN>
- ----------
<F1> Investment operations began on March 14, 1994.
<F2> If a portion of the Portfolio's and/or the Fund's expenses had not been
subsidized, the Fund would have had lower returns.
<F3> No contingent deferred sales charge is imposed on shares purchased more
than one year prior to the redemption, shares acquired through the
reinvestment of distributions, or any appreciation in value of other shares
in the account, and no such charge is imposed on exchanges of Fund shares
for shares of one or more other funds listed under "The Eaton Vance
Exchange Privilege" in the Prospectus.
</TABLE>
For the thirty-day period ended January 31, 1995, the yield of the Fund was
4.78%. The yield required of a taxable security that would produce an after-tax
yield equivalent to that earned by the Fund of 4.78% would be 7.38%, assuming a
combined Federal and State tax rate of 35.20%. If a portion of the Portfolio's
and the Fund's expenses had not been allocated to the Investment Adviser and the
Administrator, respectively, the Fund would have had a lower yield.
The Fund's distribution rate (calculated on January 31, 1995 and based on
the Fund's monthly distribution paid January 23, 1995) was 5.14%, and the Fund's
effective distribution rate (calculated on the same date and based on the same
monthly distribution) was 5.27%. If a portion of the Portfolio's and the Fund's
expenses had not been allocated to the Investment Adviser and the Administrator,
respectively, the Fund would have had a lower distribution rate and effective
distribution rate.
The Portfolio's diversification by quality ratings as of March 31, 1995,
was:
RATING ASSIGNED BY PERCENT
MOODY'S, S&P OR FITCH OF BOND HOLDINGS
------------------------------ ---------------------
Aaa or AAA 44.3%
Aa or AA 33.7
A 13.2
Baa or BBB 6.5
Ba or BB --
B --
Below B --
Not rated 2.3
-----
Total 100.0%
The following information compares the taxable equivalent yield of an
investment in the Fund yielding a hypothetical 5.00% with the after-tax yield of
a certificate of deposit yielding 3.25%. The tax brackets used are the Federal
and Hawaii state income tax brackets applicable for 1995: 23.50% for single
filers with taxable income up to $23,350 and joint filers up to $39,000; 35.20%
for single filers with taxable income from $23,351 to $56,500 and joint filers
from $39,001 to $94,250; 37.90% for single filers with taxable income from
$56,551 to $117,950 and joint filers from $94,251 to $143,600; 42.40% for single
filers with taxable income from $117,951 to $256,500 and joint filers from
$143,601 to $256,500; and 45.64% for single and joint filers with taxable income
over $256,500. The applicable Federal tax rates within each of these combined
brackets are 15%, 28%, 31%, 36% and 39.6%, over the same ranges of income. The
assumed Hawaii state income tax rate is 10%. The combined brackets are not
simply the sum of each of the taxes, as they assume that state and city taxes
are deducted on the Federal income tax return, reducing the effective combined
tax brackets. Investors should consult with their tax advisers for more
information. This illustration is not meant to imply or predict any future rate
of return for the Fund.
TAX BRACKET
23.50% 35.20% 37.90% 42.40% 45.64%
--------------------------------------------------
Tax free yield ........... 5.00% 5.00% 5.00% 5.00% 5.00%
Taxable equivalent ....... 6.54 7.72 8.05 8.68 9.20
Certificates of deposit:
Yield ................ 3.25 3.25 3.25 3.25 3.25
After-tax yield ...... 2.49 2.11 2.02 1.87 1.77
Classic Hawaii
The Tax Free Yield Advantage
(42.40% combined tax bracket)
3.25% Certificate of deposit
3.25% Pretax yield
1.87% After-tax yield
5.00% Tax free investment
8.68% Taxable equivalent yield
5.00% Tax free yield
Example:
Two $100,000 investments . . .
3.25% CD 5.00% Tax free
Pretax income: $3,250.00 $5,000.00
Tax: (1,378.00) NONE
After-tax income: $1,872.00 $5,000.00
The 1995 combined tax bracket takes into account Federal and Hawaii state
income taxes. Based on an investment yielding 5.00%, and assuming the
deductibility of state and city taxes on the Federal return, the bracket is
42.40% for single filers with taxable income from $117,951 to $256,500 and joint
filers from $143,601 to $256,500. Actual tax brackets may be higher due to the
phaseout of personal exemptions and limitations on the deductibility of itemized
deductions over certain ranges of income. Your actual bracket will vary
depending on your income, exemptions and deductions. See your tax adviser for
additional information. The chart is based on 3-month bank CDs (Sources: The
Wall Street Journal and Eaton Vance Management). Tax free yields are shown for
illustration purposes only and are not meant to represent actual results of an
investment in the Fund. See your financial adviser for the Fund's current yield
and actual CD rates.
ADDITIONAL TAX MATTERS
The Fund qualified as a RIC under the Code for its taxable year ended
January 31, 1995 (see Notes to Financial Statements).
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As at April 30, 1995, the Trustees and officers of the Trust, as a group,
owned in the aggregate less than 1% of the outstanding shares of the Fund. As of
April 30, 1995, the following shareholders owned beneficially and of record the
percentages of outstanding shares of the Fund indicated after their names:
PaineWebber for the Benefit of: HUI 500, Wailuku, HI (39.7%); Randall D.J. Yee
DDs and Elizabeth A.C. Yee JTTEN, Pukalani, HI (8.4%); Donna H. Ueki, Kahului,
HI (8.2%); Jean F. Nakamoto trustee under the Jean F. Nakamoto REV LIV dated
11-30-90, Kahului, HI (7.1%) and Gayle Nakamoto and Riki Nakamoto trustees for
the trust dated 6-11-92, Aiea, HI (7.0%). To the Trust's knowledge, no other
person owned of record or beneficially 5% or more of the Fund's outstanding
shares as of such date.
TAX EQUIVALENT YIELD TABLE
The table below shows the effect of the tax status of bonds on the tax
equivalent yield received by their holders under the regular Federal income tax
and the Hawaii State individual income tax laws and tax rates applicable for
1995. It gives the approximate yield a taxable security must earn at various
income brackets to produce after-tax yields equivalent to those of tax exempt
bonds yielding from 4% to 7%.
<TABLE>
<CAPTION>
A FEDERAL AND HAWAII STATE
COMBINED TAX EXEMPT YIELD OF
SINGLE RETURN JOINT RETURN FEDERAL AND 4% 4.5% 5% 5.5% 6% 6.5% 7%
- ------------------- ------------------ HI STATE ---------------------------------------------------------------------------
(TAXABLE INCOME)<F1> TAX BRACKET<F2> IS EQUIVALENT TO A FULLY TAXABLE YIELD OF:
- --------------------------------------- ----------- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $ 23,350 Up to $ 39,000 23.50% 5.23% 5.88% 6.54% 7.19% 7.84% 8.50% 9.15%
$ 23,351 - $ 56,500 $ 39,001 - $ 94,250 35.20 6.17 6.94 7.72 8.49 9.26 10.03 10.80
$ 56,551 - $117,950 $ 94,251 - $143,600 37.90 6.44 7.25 8.05 8.86 9.66 10.47 11.27
$117,951 - $256,500 $143,601 - $256,500 42.40 6.94 7.81 8.68 9.55 10.42 11.28 12.15
Over $256,500 Over $256,500 45.64 7.36 8.28 9.20 10.12 11.04 11.96 12.88
Yields shown are for illustration purposes only and are not meant to represent
the Fund's actual yield.
<FN>
<F1> Net amount subject to the Federal and Hawaii individual income tax after
deductions and exemptions.
<F2> The first two tax brackets are calculated using the highest Hawaii tax rate
within the bracket. Taxpayers with taxable income within these brackets may
have a lower combined bracket and taxable equivalent yield than indicated
above. The combined tax rates assume that Hawaii taxes are Itemized
Deductions for Federal income tax purposes. Investors who do not itemize
deductions on their Federal Income Tax Return will have a higher combined
bracket and higher taxable equivalent yield than those indicated above.
</TABLE>
Note: The Federal Income Tax portion of above-indicated combined income tax
brackets does not take into account the effect of a reduction in the
deductibility of Itemized Deductions (including Hawaii State Income Taxes) for
taxpayers with Adjusted Gross Income in excess of $114,700. The tax brackets
also do not show the effects of phaseout of personal exemptions for single
filers with Adjusted Gross Income in excess of $114,700 and joint filers with
Adjusted Gross Income in excess of $172,050. The effective tax brackets and
equivalent taxable yields of such taxpayers will be higher than those indicated
above.
Of course, no assurance can be given that EV Classic Hawaii Tax Free Fund will
achieve any specific tax exempt yield. While it is expected that the Portfolio
will invest principally in obligations the interest from which is exempt from
the regular Federal income tax and Hawaii individual income taxes, other income
received by the Portfolio and allocated to the Fund may be taxable. The table
does not take into account state or local taxes, if any, payable on Fund
distributions except for Hawaii individual income taxes. It should also be noted
that the interest earned on certain "private activity bonds" issued after August
7,1986, while exempt from the regular Federal income tax, is treated as a tax
preference item which could subject the recipient to the Federal alternative
minimum tax. The illustrations assume that the Federal alternative minimum tax
is not applicable and do not take into account any tax credit that may be
available. Subsequent tax law changes could result in prospective or retroactive
changes in the tax brackets, tax rates, and tax equivalent yields set forth
above.
The information set forth above is as of the date of this Statement of
Additional Information. Subsequent tax law changes could result in prospective
or retroactive changes in the tax brackets, tax rates, and tax equivalent yields
set forth above.
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV CLASSIC KANSAS TAX FREE FUND. The
investment objective of the Fund is to provide current income exempt from
regular Federal income tax and Kansas State personal income taxes. The Fund
currently seeks to achieve its investment objective by investing its assets in
the Kansas Tax Free Portfolio (the "Portfolio").
RISKS OF CONCENTRATION
The following information as to certain Kansas considerations is given to
investors in view of the Portfolio's policy of concentrating its investments in
Kansas issuers. Such information is derived from sources that are generally
available to investors and is believed to be accurate. Such information
constitutes only a brief summary, does not purport to be a complete description
and is based on information from official statements relating to securities
offerings of Kansas issuers. Neither the Trust nor the Portfolio has
independently verified this information.
Traditionally a farm-based economy, recent growth in the trade, services and
manufacturing sectors has decreased Kansas' strong dependence on agriculture. At
present, the Kansas economy has four major economic sectors (wholesale and
retail trade, manufacturing, services, and government) which employ from 16 to
24 percent of the labor force. Agriculture employed an estimated 4.7 percent of
the work force in 1994.
Primary sources of state revenue are a 4.9% sales tax, a corporate income
tax between 4% and 7.35% and an individual income tax between 3.5% and 7.75%. In
1994, the sales tax constituted 31% of taxes collected. The largest percentage
of expenditures from all state funds are in the areas of education and research
(public schools, state universities, state board of education) and human
resources (assistance programs). General property taxes generate a large portion
of local tax revenue. Local sales and use taxes have provided an increased
amount of revenue, from $30 million in 1980 to $307.9 million in 1994, as voters
in more cities and counties have elected to impose the tax or to raise the tax
rate to the maximum permitted by state law.
The state's 1994 General Fund showed total revenues of $3.2 billion against
total expenditures of $2.5 billion. In 1990, the Kansas legislature approved
House Bill 2867 which established ending balances as a mechanism to hold state
expenditure growth to the level of revenue growth. House Bill 2867 requires that
in each fiscal year certain funds be transferred from the state General Fund to
the newly created cash operating reserve fund. The reserve fund is designed to
be available in the event that revenues in the General Fund are insufficient to
meet budgeted expenditures. House Bill 2867 also provides that state General
Fund balances in addition to the cash operating reserve fund must be one percent
of expenditures in fiscal year 1993, two percent of expenditures in fiscal year
1994 and 2.5 percent in 1995 and each fiscal year thereafter.
FEES AND EXPENSES
INVESTMENT ADVISER
As of January 31, 1995, the Portfolio had net assets of $8,306,028. For the
period from the Portfolio's start of business, March 2, 1994, to January 31,
1995, absent a fee reduction, the Portfolio would have paid BMR advisory fees of
$7,589 (equivalent to 0.16% (annualized) of the Portfolio's average daily net
assets for such period). To enhance the net income of the Portfolio, BMR made a
reduction of its advisory fee in the amount of $7,589 and BMR was allocated
expenses related to the operation of the Portfolio in the amount of $12,847. The
Portfolio's Investment Advisory Agreement with BMR is dated February 25, 1994
and remains in effect until February 28, 1996. The Agreement may be continued as
described under "Investment Adviser and Administrator" in Part I of this
Statement of Additional Information.
ADMINISTRATOR
As stated under "Investment Adviser and Administrator" in Part I of this
Statement of Additional Information, the Administrator receives no compensation
for providing administrative services to the Fund. For the period from the start
of business, March 3, 1993, to January 31, 1995, $13,344 of the Fund's operating
expenses were allocated to the Administrator.
DISTRIBUTION PLAN
For the period from the start of business, March 3, 1994, to January 31,
1995, the Fund accrued sales commission payments under the Plan aggregating
$4,176, of which $4,054 was paid to the Principal Underwriter. The Principal
Underwriter paid such amount as sales commissions to Authorized Firms. During
such period no contingent deferred sales charges were paid to the Principal
Underwriter. As at January 31, 1995, the outstanding Uncovered Distribution
Charges of the Principal Underwriter calculated under the Plan amounted to
$73,400 (which amount was equivalent to 11% of the Fund's net assets on such
day). For the period from the start of business, March 3, 1994, to January 31,
1995, the Fund accrued service fee payments under the Plan aggregating $1,113,
of which $1,047 was paid to the Principal Underwriter. The Principal Underwriter
paid such amount as service fee payments to Authorized Firms.
PRINCIPAL UNDERWRITER
For the period from the start of business, March 3, 1994, to January 31,
1995, the Fund paid the Principal Underwriter $32.50 for repurchase transactions
handled (being $2.50 for each such transaction).
CUSTODIAN
For the period from the start of business, March 3, 1994, to January 31,
1995, the Fund paid IBT $2,226. For the period from the start of business, March
2, 1994, to January 31, 1995, the Portfolio paid IBT $3,363.
BROKERAGE
For the period from the start of business, March 2, 1994, to January 31,
1995, the Portfolio paid no brokerage commissions on portfolio transactions.
<TABLE>
TRUSTEES
The fees and expenses of those Trustees of the Trust and of the Portfolio
who are not members of the Eaton Vance organization (the noninterested Trustees)
are paid by the Fund (and the other series of the Trust) and the Portfolio,
respectively. (The Trustees of the Trust and of the Portfolio who are members of
the Eaton Vance organization receive no compensation from the Trust or the
Portfolio.)During the fiscal year ended January 31, 1995, the noninterested
Trustees of the Trust and the Portfolio earned the following compensation in
their capacities as Trustees from the Fund and the Portfolio, and, during the
first quarter ended March 31, 1995, earned the following compensation in their
capacities as Trustees of the other funds in the Eaton Vance fund complex:<F1>
<CAPTION>
AGGREGATE AGGREGATE RETIREMENT TOTAL COMPENSATION
COMPENSATION COMPENSATION BENEFIT ACCRUED FROM TRUST
NAME FROM FUND FROM PORTFOLIO FROM FUND COMPLEX AND FUND COMPLEX
- ---- ------------ -------------- ----------------- ------------------
<S> <C> <C> <C> <C>
Donald R. Dwight ............. --0-- $8<F2> $ 8,750 $33,750
Samuel L. Hayes, III ......... --0-- $8<F3> 24,885 41,250
Norton H. Reamer ............. --0-- 8 --0-- 33,750
John L. Thorndike ............ --0-- 8 --0-- 35,000
Jack L. Treynor .............. --0-- 9 --0-- 35,000
<FN>
- ----------
<F1> The Eaton Vance fund complex consists of 205 registered investment
companies or series thereof.
<F2> Includes $3 of deferred compensation.
<F3> Includes $3 of deferred compensation.
</TABLE>
PRINCIPAL UNDERWRITER
Under the Distribution Agreement the Principal Underwriter acts as principal
in selling shares of the Fund. The expenses of printing copies of prospectuses
used to offer shares to financial service firms ("Authorized Firms") or
investors and other selling literature and of advertising is borne by the
Principal Underwriter. The fees and expenses of qualifying and registering and
maintaining qualifications and registrations of the Fund and its shares under
Federal and state securities laws is borne by the Fund. In addition, the Fund
makes payments to the Principal Underwriter pursuant to its Distribution Plan as
described in the Fund's current Prospectus; the provisions of the Fund's
Distribution Plan relating to such payments are included in the Distribution
Agreement. The Distribution Agreement is renewable annually by the Trust's Board
of Trustees (including a majority of its Trustees who are not interested persons
of the Trust and who have no direct or indirect financial interest in the
operation of the Fund's Distribution Plan or the Distribution Agreement), may be
terminated on sixty days' notice either by such Trustees or by vote of a
majority of the outstanding voting securities of the Fund or on six months'
notice by the Principal Underwriter and is automatically terminated upon
assignment. The Principal Underwriter distributes Fund shares on a "best
efforts" basis under which it is required to take and pay for only such shares
as may be sold.
The Fund has authorized the Principal Underwriter to act as its agent in
repurchasing shares at the rate of $2.50 for each repurchase transaction handled
by the Principal Underwriter. The Principal Underwriter estimates that the
expenses incurred by it in acting as repurchase agent for the Fund will exceed
the amounts paid therefor by the Fund. For the amount paid by the Fund to the
Principal Underwriter for acting as repurchase agent, see "Fees and Expenses" in
this Part II.
DISTRIBUTION PLAN
The Distribution Plan ("the Plan") is described in the Prospectus and is
designed to meet the requirements of Rule 12b-1 under the 1940 Act and the sales
charge rule of the National Association of Securities Dealers, Inc. (the "NASD
Rule"). The purpose of the Plan is to compensate the Principal Underwriter for
its distribution services and facilities provided to the Fund by paying the
Principal Underwriter sales commissions and a separate distribution fee in
connection with sales of Fund shares. The following supplements the discussion
of the Plan contained in the Fund's Prospectus.
The amount payable to the Principal Underwriter pursuant to the Plan as
sales commissions and distribution fees with respect to each day will be accrued
on such day as a liability of the Fund and will accordingly reduce the Fund's
net assets upon such accrual, all in accordance with generally accepted
accounting principles. The amount payable on each day is limited to 1/365 of
.75% of the Fund's net assets on such day. The level of the Fund's net assets
changes each day and depends upon the amount of sales and redemptions of Fund
shares, the changes in the value of the investments held by the Portfolio, the
expenses of the Fund and the Portfolio accrued and allocated to the Fund on such
day, income on portfolio investments of the Portfolio accrued and allocated to
the Fund on such day, and any dividends and distributions declared on Fund
shares. The Fund does not accrue possible future payments as a liability of the
Fund or reduce the Fund's current net assets in respect of unknown amounts which
may become payable under the Plan in the future because the standards for
accrual of a liability under such accounting principles have not been satisfied.
The Plan provides that the Fund will receive all contingent deferred sales
charges and will make no payments to the Principal Underwriter in respect of any
day on which there are no outstanding Uncovered Distribution Charges of the
Principal Underwriter. Contingent deferred sales charges and accrued amounts
will be paid by the Fund to the Principal Underwriter whenever there exist
Uncovered Distribution Charges under the Fund's Plan.
Periods with a high level of sales of Fund shares accompanied by a low level
of early redemptions of Fund shares resulting in the imposition of contingent
deferred sales charges will tend to increase the time during which there will
exist Uncovered Distribution Charges of the Principal Underwriter. Conversely,
periods with a low level of sales of Fund shares accompanied by a high level of
early redemptions of Fund shares resulting in the imposition of contingent
deferred sales charges will tend to reduce the time during which there will
exist Uncovered Distribution Charges of the Principal Underwriter.
In calculating daily the amount of Uncovered Distribution Charges,
distribution charges will include the aggregate amount of sales commissions and
distribution fees theretofore paid plus the aggregate amount of sales
commissions and distribution fees which the Principal Underwriter is entitled to
be paid under the Plan since its inception. Payments theretofore paid or payable
under the Plan by the Fund to the Principal Underwriter and contingent deferred
sales charges theretofore paid or payable to the Principal Underwriter will be
subtracted from such distribution charges; if the result of such subtraction is
positive, a distribution fee (computed at 1% over the prime rate then reported
in The Wall Street Journal) will be computed on such amount and added thereto,
with the resulting sum constituting the amount of outstanding Uncovered
Distribution Charges with respect to such day. The amount of outstanding
Uncovered Distribution Charges of the Principal Underwriter calculated on any
day does not constitute a liability recorded on the financial statements of the
Fund.
The amount of Uncovered Distribution Charges of the Principal Underwriter at
any particular time depends upon various changing factors, including the level
and timing of sales of Fund shares, the nature of such sales (i.e., whether they
result from exchange transactions, reinvestments or from cash sales through
Authorized Firms), the level and timing of redemptions of Fund shares upon which
a contingent deferred sales charge will be imposed, the level and timing of
redemptions of Fund shares upon which no contingent deferred sales charge will
be imposed (including redemptions involving exchanges of Fund shares for shares
of another fund in the Eaton Vance Classic Group of Funds which result in a
reduction of Uncovered Distribution Charges), changes in the level of the net
assets of the Fund, and changes in the interest rate used in the calculation of
the distribution fee under the Plan. (For shares sold prior to January 30, 1995,
Plan payments are as follows: the Principal Underwriter pays monthly sales
commissions and service fee payments to Authorized Firms equivalent to
approximately .75% and .20%, respectively, annualized, of the assets maintained
in the Fund by their customers beginning at the time of sale. No payments were
made at the time of sale and there is no contingent deferred sales charge.)
As currently implemented by the Trustees, the Plan authorizes payments of
sales commissions, distribution fees and service fees to the Principal
Underwriter which may be equivalent, on an aggregate basis during any fiscal
year of the Fund, to .95% of the Fund's average daily net assets for such year.
For the sales commission and service fee payments made by the Fund and the
outstanding Uncovered Distribution Charges of the Principal Underwriter, see
"Fees and Expenses -- Distribution Plan" in this Part II. The Fund believes that
the combined rate of all these payments may be higher than the rate of payments
made under distribution plans adopted by other investment companies pursuant to
Rule 12b-1. Although the Principal Underwriter will use its own funds (which may
be borrowed from banks) to pay sales commissions and service fees at the time of
sale, it is anticipated that the Eaton Vance organization will profit by reason
of the operation of the Plan through an increase in the Fund's assets (thereby
increasing the advisory fee payable to BMR by the Portfolio) resulting from sale
of Fund shares and through the amounts paid to the Principal Underwriter,
including contingent deferred sales charges, pursuant to the Plan. The Eaton
Vance organization may be considered to have realized a profit under the Plan if
at any point in time the aggregate amounts theretofore received by the Principal
Underwriter pursuant to the Plan and from contingent deferred sales charges have
exceeded the total expenses theretofore incurred by such organization in
distributing shares of the Fund. Total expenses for this purpose will include an
allocable portion of the overhead costs of such organization and its branch
offices, which costs will include without limitation leasing expense,
depreciation of building and equipment, utilities, communication and postage
expense, compensation and benefits of personnel, travel and promotional expense,
stationery and supplies, literature and sales aids, interest expense, data
processing fees, consulting and temporary help costs, insurance, taxes other
than income taxes, legal and auditing expense and other miscellaneous overhead
items. Overhead is calculated and allocated for such purpose by the Eaton Vance
organization in a manner deemed equitable to the Fund.
The Plan continues in effect through and including April 28, 1996, and shall
continue in effect indefinitely thereafter for so long as such continuance is
approved at least annually by the vote of both a majority of (i) the Trustees of
the Trust who are not interested persons of the Trust and who have no direct or
indirect financial interest in the operation of the Plan or any agreements
related to the Plan (the "Rule 12b-1 Trustees") and (ii) all of the Trustees
then in office, and the Distribution Agreement contains a similar provision. The
Plan and Distribution Agreement may be terminated at any time by vote of a
majority of the Rule 12b-1 Trustees or by a vote of a majority of the
outstanding voting securities of the Fund. The provisions of the Plan relating
to payments of sales commissions and distribution fees to the Principal
Underwriter are also included in the Distribution Agreement between the Trust on
behalf of the Fund and the Principal Underwriter. Pursuant to Rule 12b-1, the
Plan has been approved by the Fund's initial sole shareholder (Eaton Vance) and
by the Board of Trustees of the Trust, including the Rule 12b-1 Trustees. Under
the Plan, the President or a Vice President of the Trust shall provide to the
Trustees for their review, and the Trustees shall review at least quarterly, a
written report of the amount expended under the Plan and the purposes for which
such expenditures were made. The Plan may not be amended to increase materially
the payments described therein without approval of the shareholders of the Fund,
and all material amendments of the Plan must also be approved by the Trustees as
required by Rule 12b-1. So long as the Plan is in effect, the selection and
nomination of Trustees who are not interested persons of the Trust shall be
committed to the discretion of the Trustees who are not such interested persons.
The Trustees believe that the Plan will be a significant factor in the
expected growth of the Fund's assets, and will result in increased investment
flexibility and advantages which will benefit the Fund and its shareholders.
Payments for sales commissions and distribution fees made to the Principal
Underwriter under the Plan will compensate the Principal Underwriter for its
services and expenses in distributing shares of the Fund. Service fee payments
made to the Principal Underwriter and Authorized Firms under the Plan provide
incentives to provide continuing personal services to investors and the
maintenance of shareholder accounts. By providing incentives to the Principal
Underwriter and Authorized Firms, the Plan is expected to result in the
maintenance of, and possible future growth in, the assets of the Fund. Based on
the foregoing and other relevant factors, the Trustees have determined that in
their judgment there is a reasonable likelihood that the Plan will benefit the
Fund and its shareholders.
PERFORMANCE INFORMATION
The table below indicates the total return (capital changes plus
reinvestment of all distributions) on a hypothetical investment of $1,000 in the
Fund covering the life of the Fund from March 3, 1994 through January 31, 1995.
<TABLE>
VALUE OF A $1,000 INVESTMENT
<CAPTION>
VALUE OF
INVESTMENT VALUE OF
BEFORE INVESTMENT TOTAL RETURN TOTAL RETURN
CONTINGENT AFTER BEFORE DEDUCTING AFTER DEDUCTING
DEFERRED CONTINGENT CONTINGENT DEFERRED CONTINGENT DEFERRED
SALES DEFERRED SALES CHARGE SALES CHARGE***
INVESTMENT INVESTMENT AMOUNT OF CHARGE SALES CHARGE<F3> ------------------------ ------------------------
PERIOD DATE INVESTMENT ON 1/31/95 ON 1/31/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ---------- ---------- ---------- ---------- --------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of the
Fund<F1> 3/3/94 $1,000 $998.93<F2> $989.39<F2> -0.11%<F2> -- -1.06%<F2> --
PERCENTAGE CHANGES
3/3/94 -- 1/31/95
<CAPTION>
NET ASSET VALUE NET ASSET VALUE
TO NET ASSET VALUE TO NET ASSET VALUE
BEFORE DEDUCTING THE AFTER DEDUCTING THE
CONTINGENT DEFERRED SALES CONTINGENT DEFERRED SALES
CHARGE CHARGE<F3>
WITH ALL DISTRIBUTIONS WITH ALL DISTRIBUTIONS
REINVESTED REINVESTED
--------------------------- ---------------------------
PERIOD AVERAGE AVERAGE
ENDED ANNUAL CUMULATIVE ANNUAL ANNUAL CUMULATIVE ANNUAL
------ ------ ---------- ------ -------- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
1/31/95<F1> -- -0.11%<F2> -- -- -1.06%<F2> --
Past performances is not indicative of future results. Investment return and
principal value will fluctuate; shares, when redeemed, may be worth more or less
than their orginal cost.
<FN>
- ----------
<F1> Investment operations began on March 3, 1994.
<F2> If a portion of the Portfolio's and/or the Fund's expenses had not been
subsidized, the Fund would have had lower returns.
<F3> No contingent deferred sales charge is imposed on shares purchased more
than one year prior to the redemption, shares acquired through the
reinvestment of distributions, or any appreciation in value of other shares
in the account, and no such charge is imposed on exchanges of Fund shares
for shares of one or more other funds listed under "The Eaton Vance
Exchange Privilege" in the Prospectus.
</TABLE>
For the thirty-day period ended January 31, 1995, the yield of the Fund was
4.95%. The yield required of a taxable security that would produce an after-tax
yield equivalent to that earned by the Fund of 4.95% (considering both State and
Federal taxes) would be 7.45%, assuming a combined Federal and State tax rate of
33.58%. If a portion of the Portfolio's and the Fund's expenses had not been
allocated to the Investment Adviser and the Administrator, respectively, the
Fund would have had a lower yield.
The Fund's distribution rate (calculated on January 31, 1995 and based on
the Fund's monthly distribution paid January 23, 1995) was 4.84%, and the Fund's
effective distribution rate (calculated on the same date and based on the same
monthly distribution) was 4.95%. If a portion of the Portfolio's and the Fund's
expenses had not been allocated to the Investment Adviser and the Administrator,
respectively, the Fund would have had a lower distribution rate and effective
distribution rate.
The Portfolio's diversification by quality ratings as of March 31, 1995,
was:
RATING ASSIGNED BY PERCENT
MOODY'S, S&P OR FITCH OF BOND HOLDINGS
--------------------- ----------------
Aaa or AAA 57.8%
Aa or AA 29.1
A 7.3
Baa or BBB 5.8
Ba or BB --
B --
Below B --
Not rated --
-----
Total 100.0%
The following information compares the taxable equivalent yield of an
investment in the Fund yielding a hypothetical 5.00% with the after-tax yield of
a certificate of deposit yielding 3.25%. The tax brackets used are the Federal
and Kansas income tax brackets applicable for 1995: 22.23% for joint filers with
taxable income up to $39,000; 34.26% for joint filers with taxable income from
$39,001 to $94,250; 37.00% for joint filers with taxable income from $94,251 to
$143,600; 41.57% for joint filers with taxable income from $143,601 to $256,500;
and 44.85% for single and joint filers with taxable income over $256,500. The
applicable Federal tax rates within each of these combined brackets are 15%,
28%, 31%, 36% and 39.6%, over the same ranges of income. The combined tax
brackets included the applicable Kansas state tax rate and a Kansas local
intangibles tax rate of 2.25%. The combined brackets are not simply the sum of
each of the taxes, as they assume that state and local taxes are deducted on the
Federal income tax return, reducing the effective combined tax brackets.
MARRIED INDIVIDUALS FILING JOINT RETURN
TAX BRACKET
22.23% 34.26% 37.00% 41.57% 44.85%
----------------------------------------------------
Tax free yield .......... 5.00% 5.00% 5.00% 5.00% 5.00%
Taxable equivalent ...... 6.43 7.61 7.94 8.56 9.07
Certificates of deposit:
Yield ............... 3.25 3.25 3.25 3.25 3.25
After-tax yield ..... 2.53 2.14 2.05 1.90 1.79
Classic Kansas (joint)
The Tax Free Yield Advantage
(41.57% combined tax bracket)
3.25% Certificate of deposit
3.25% Pretax yield
1.90% After-tax yield
5.00% Tax free investment
8.56% Taxable equivalent yield
5.00% Tax free yield
Example:
Two $100,000 investments . . .
3.25% CD 5.00% Tax free
Pretax income: $3,250.00 $5,000.00
Tax: (1,351.03) NONE
After-tax income: $1,898.97 $5,000.00
The 1995 combined tax bracket takes into account Federal and Kansas State
income taxes as well as the Kansas local intangibles tax. Assuming the
deductibility of state and local taxes on the Federal return, the bracket is
41.57% for joint filers with taxable income from $143,601 to $256,500. Actual
tax brackets may be higher due to the phaseout of personal exemptions and
limitations on the deductibility of itemized deductions over certain ranges of
income. Your actual bracket will vary depending on your income, exemptions and
deductions. See your tax adviser for additional information. The chart is based
on 3-month bank CDs (Sources: The Wall Street Journal and Eaton Vance
Management). Tax free yields are shown for illustration purposes only and are
not meant to represent actual results of an investment in the Fund. See your
financial adviser for the Fund's current yield and actual CD rates.
The combined Federal and Kansas tax brackets indicated in the following
chart (comparing the taxable equivalent yield of a hypothetical tax free yield
of 5.00% with the after-tax yield of a bank certificate of deposit yielding
3.25%) are the same combined brackets indicated for single individuals in the
Tax Equivalent Yield Table included herein. These combined brackets, which are
based on 1995 tax rates, are 23.29% for single filers with taxable income up to
$23,350; 35.20% for single filers with taxable income from $23,351 to $56,550;
37.90% for single filers with taxable income from $56,551 to $117,950; 42.40%
for single filers with taxable income from $117,951 to $256,500; and 45.64% for
single filers with taxable income over $256,500. The applicable Federal tax
rates within each of these combined brackets are 15%, 28%, 31%, 36% and 39.6%
over the same ranges of income. The combined tax brackets included the
applicable Kansas state tax rate and a Kansas local intangibles tax rate of
2.25%. The combined brackets are not simply the sum of each of the taxes, as
they assume that state taxes are deducted on the Federal income tax return,
reducing the effective combined tax brackets.
SINGLE INDIVIDUALS FILING SINGLE RETURN
TAX BRACKET
23.29% 35.20% 37.90% 42.40% 45.64%
-----------------------------------------------------
Tax free yield .......... 5.00% 5.00% 5.00% 5.00% 5.00%
Taxable equivalent ...... 6.52 7.72 8.05 8.68 9.20
Certificates of deposit:
Yield ............... 3.25 3.25 3.25 3.25 3.25
After-tax yield ..... 2.49 2.11 2.02 1.87 1.77
Classic Kansas (single)
The Tax Free Yield Advantage
(42.40% combined tax bracket)
3.25% Certificate of deposit
3.25% Pretax yield
1.87% After-tax yield
5.00% Tax free investment
8.68% Taxable equivalent yield
5.00% Tax free yield
Example:
Two $100,000 investments . . .
3.25% CD 5.00% Tax free
Pretax income: $3,250.00 $5,000.00
Tax: (1,378.00) NONE
After-tax income: $1,872.00 $5,000.00
The 1995 combined tax bracket takes into account Federal and Kansas State
income taxes as well as the Kansas local intangibles tax. Assuming the
deductibility of state and local taxes on the Federal return, the bracket is
42.40% for single filers with taxable income from $117,951 to $256,500. Actual
tax brackets may be higher due to the phaseout of personal exemptions and
limitations on the deductibility of itemized deductions over certain ranges of
income. Your actual bracket will vary depending on your income, exemptions and
deductions. See your tax adviser for additional information. The chart is based
on 3-month bank CDs (Source: The Wall Street Journal and Eaton Vance
Management). Tax free yields are shown for illustration purposes only and are
not meant to represent actual results of an investment in the Fund. See your
financial adviser for the Fund's current yield and actual CD rates.
ADDITIONAL TAX MATTERS
The Fund qualified as a RIC under the Code for its taxable year ended
January 31, 1995 (see Notes to Financial Statements).
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As at April 30, 1995, the Trustees and officers of the Trust, as a group,
owned in the aggregate less than 1% of the outstanding shares of the Fund. As of
April 30, 1995, the following shareholders owned of record the percentages of
shares indicated after their names: Glendora Brindle, Trustee of Glendora
Brindle Living Trust under Agreement dated June 2, 1992, Fredonia, KS (9.2%),
Thomas E. Niehaus & Karl K. Niehaus, JTWROS, Olathe, KS (7.0%), M. Earline
Foster, Independence, KS (6.0%), Wanda M. Sloan, Trustee of Wanda M. Sloan Trust
under Agreement dated February 8, 1990, Neodesha, KS (5.6%), Lee L. Hoyt & Inez
L. Hoyt, JTWROS, Longton, KS (5.1%) and John M. Yoger, Trustee under Agreement
dated October 7, 1992 of John L. Yoger Revocable Living Trust, Girard, KS
(5.0%). To the Trust's knowledge, no other person owned of record or
beneficially 5% or more of the Fund's outstanding shares as of such date.
TAX EQUIVALENT YIELD TABLE
The table below shows the effect of the tax status of bonds on the tax
equivalent yield received by their holders under the regular Federal income tax
and Kansas State income tax laws in effect for 1995. It gives the approximate
yield a taxable security must earn at various income brackets to produce
after-tax yields equivalent to those of tax-exempt bonds yielding from 4% to 7%
for married individuals filing a joint return.
<TABLE>
<CAPTION>
A FEDERAL AND KANSAS STATE
COMBINED TAX EXEMPT YIELD OF:
JOINT RETURN FEDERAL AND 4% 4.5% 5% 5.5% 6% 6.5% 7%
- ------------------- KS STATE -----------------------------------------------------------------------------
TAXABLE INCOME<F1> TAX BRACKET<F2> IS EQUIVALENT TO A FULLY TAXABLE YIELD OF:
- ------------------- -----------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 0 - $ 39,000 22.23% 5.14% 5.79% 6.43% 7.07% 7.71% 8.36% 9.00%
$ 39,001 - $ 94,250 34.26 6.08 6.85 7.61 8.37 9.13 9.89 10.65
$ 94,251 - $143,600 37.00 6.35 7.14 7.94 8.73 9.52 10.32 11.11
$143,601 - $256,500 41.57 6.85 7.70 8.56 9.41 10.27 11.12 11.98
Over $256,500 44.85 7.25 8.16 9.07 9.97 10.88 11.79 12.69
Yields shown are for illustration purposes only and are not meant to represent
the Fund's actual yield.
<FN>
<F1> Net amount subject to Federal and Kansas personal income tax after
deductions and exemptions.
<F2> The combined tax rates are calculated using the highest State income tax
rate for each Federal income tax bracket shown and a local intangibles rate
of 2.25%. An investor with taxable income below the highest dollar amount
in the lowest bracket and/or residing in a county, city or township
imposing a lower intangibles tax rate may have a lower combined tax rate
and taxable equivalent yield than shown above.
</TABLE>
The table below shows the effect of the tax status of bonds on the tax
equivalent yield received by their holders under the regular Federal income tax
and Kansas State income tax laws in effect for 1995. It gives the approximate
yield a taxable security must earn at various income brackets to produce
after-tax yields equivalent to those of tax-exempt bonds yielding from 4% to 7%
for single individuals.
<TABLE>
<CAPTION>
A FEDERAL AND KANSAS STATE
COMBINED TAX EXEMPT YIELD OF:
SINGLE RETURN FEDERAL AND 4% 4.5% 5% 5.5% 6% 6.5% 7%
------------------ KS STATE -----------------------------------------------------------------------------
TAXABLE INCOME<F1> TAX BRACKET<F2> IS EQUIVALENT TO A FULLY TAXABLE YIELD OF:
- ------------------- ------------ -----------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 0 - $ 23,350 23.29% 5.21% 5.87% 6.52% 7.17% 7.82% 8.47% 9.12%
$ 23,351 - $ 56,550 35.20 6.17 6.94 7.72 8.49 9.26 10.03 10.80
$ 56,551 - $117,950 37.90 6.44 7.25 8.05 8.86 9.66 10.47 11.27
$117,951 - $256,500 42.40 6.94 7.81 8.68 9.55 10.42 11.28 12.15
Over $256,500 45.64 7.36 8.28 9.20 10.12 11.04 11.96 12.88
Yields shown are for illustration purposes only and are not meant to represent
the Fund's actual yield.
<FN>
<F1> Net amount subject to Federal and Kansas personal income tax after
deductions and exemptions.
<F2> The combined tax rates are calculated using the highest State income tax
rate for each Federal income bracket shown and a local intangibles rate of
2.25%. An investor with taxable income below the highest dollar amount in
the lowest bracket and/or residing in a county, city or township imposing a
lower intangibles tax rate may have a lower combined tax rate and taxable
equivalent yield than shown above.
</TABLE>
Note: Of course, no assurance can be given that EV Classic Kansas Tax Free Fund
will achieve any specific tax exempt yield. While it is expected that the
Portfolio will invest principally in obligations, the interest from which is
exempt from the regular Federal income tax and Kansas personal income taxes,
other income received by the Portfolio and allocated to the Fund may be taxable.
The table does not take into account state or local taxes, if any, payable on
Fund distributions except for Kansas personal income taxes. It should also be
noted that the interest earned on certain "private activity bonds" issued after
August 7, 1986, while exempt from the regular Federal income tax, is treated as
a tax preference item which could subject the recipient to the Federal
alternative minimum tax. The illustrations assume that the Federal alternative
minimum tax is not applicable and do not take into account any tax credits that
may be available.
The above-indicated combined Federal and Kansas State income brackets assume
State and local intangibles income taxes are Itemized Deductions and do not take
into account the effect of a reduction in the deductibility of Itemized
Deductions (including Kansas State and local intangibles income taxes) for
taxpayers with Adjusted Gross Income in excess of $114,700, nor do they reflect
phaseout of personal exemptions for single and joint filers with Adjusted Gross
Income in excess of $114,700 and $172,050, respectively. The effective combined
tax brackets and equivalent taxable yields of such taxpayers will be higher than
those indicated above.
The information set forth above is as of the date of this Statement of
Additional Information. Subsequent tax law changes could result in prospective
or retroactive changes in the tax brackets, tax rates, and tax equivalent yields
set forth above.
FINANCIAL STATEMENTS
Registrant incorporates by reference the audited financial information for
each Fund and its corresponding Portfolio contained in the Funds' shareholder
report for the fiscal year ended January 31, 1995 as previously filed
electronically with the Securities and Exchange Commission (Accession Number
0000950135-95-0000874).
<PAGE>
PORTFOLIO INVESTMENT ADVISER
Boston Management and Research
24 Federal Street
Boston, MA 02110
FUND ADMINISTRATOR
Eaton Vance Management
24 Federal Street
Boston, MA 02110
PRINCIPAL UNDERWRITER
Eaton Vance Distributors, Inc.
24 Federal Street
Boston, MA 02110
(800) 225-6265
CUSTODIAN
Investors Bank & Trust Company
24 Federal Street
Boston, MA 02110
TRANSFER AGENT
The Shareholder Services Group, Inc.
BOS725
P.O. Box 1559
Boston, MA 02104
(800) 262-1122
AUDITORS
Deloitte & Touche LLP
125 Summer Street
Boston, MA 02110
EV CLASSIC
TAX FREE FUNDS
24 FEDERAL STREET
BOSTON, MA 02110
C-TFC6/1SAI
EV Classic
Florida Insured
Tax Free Fund
[]
EV Classic
Hawaii
Tax Free Fund
[]
EV Classic
Kansas
Tax Free Fund
STATEMENT OF ADDITIONAL
INFORMATION
JUNE 1, 1995
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV MARATHON FLORIDA INSURED TAX FREE
FUND. The investment objective of the Fund is to provide current income exempt
from regular Federal income tax in the form of an investment exempt from Florida
intangibles tax. The Fund currently seeks to meet its investment objective by
investing its assets in the Florida Insured Tax Free Portfolio (the
"Portfolio").
RISKS OF CONCENTRATION
The following information as to certain Florida considerations is given to
investors in view of the Portfolio's policy of concentrating its investments in
Florida issuers. Such information is derived from sources that are generally
available to investors and is believed to be accurate. Such information
constitutes only a brief summary, does not purport to be a complete description
and is based on information from official statements relating to securities
offerings of Florida issuers. Neither the Trust nor the Portfolio has
independently verified this information.
Florida is characterized by rapid population growth and substantial capital
needs which are being funded through more frequent debt issuance and
pay-as-you-go financing. The State of Florida operates on the basis of a fiscal
biennium for its appropriations and expenditures and is constitutionally bound
to maintain a balanced budget. The State's financial operations are considerably
different than most other states because, under the State's constitution, there
is no state income tax. A constitutional amendment would therefore be necessary
to impose an income tax. Only seven states currently do not impose income taxes
upon their residents. The lack of an income tax exposes total State tax
collections to considerably more volatility than would otherwise be the case
and, in the event of an economic downswing, could affect the State's ability to
pay principal and interest in a timely manner.
The 1992-1993 Florida budget authorized $11.862 billion in General Fund
spending, an increase of 6.5% from the final 1991-1992 level. New taxes,
including a 0.5 mill ($0.50 per $1,000 of valuation) increase in the intangible
personal property tax, were expected to produce an additional $378.2 million in
revenue to fund school and prison construction. Other tax changes included a 1%
sales tax increase on taxable purchases of telecommunications and electric
services, an increase in documentary stamp taxes, and the inclusion of several
previously exempt services for the sales tax. Revenue collections were $200
million over initial estimates, with $170 million due to normal economic
activity and $30 million attributed to rebuilding after Hurricane Andrew.
Combined general revenue fund and working capital unencumbered reserves
increased to $441.4 million, or 3.7% of expenditures.
Revenues in the 1993-94 fiscal year were $13.6 billion and expenditures were
$13.3 billion; unencumbered reserves totaled $303 million or 2.3% of
expenditures. The budget for 1994-95 included revenues of $14.6 billion, a 7.3%
increase over 1993-94, and expenditures of $14.3 billion, a 7.6% increase over
1993-94. Through March, 1995 actual revenues were 0.8% below projections.
Unencumbered reserves are projected to be $252.6 million or 1.8% of expenditures
for fiscal year 1995. Non-recurring revenue from rebuilding efforts following
Hurricane Andrew was $220 million in 1993-94 and is estimated to be $159 million
in 1994-95. In 1993-94, $190 million was transferred to a hurricane relief trust
fund and $159 million is budgeted to be transferred in 1994-95.
In 1993, the Florida state constitution was amended to limit the annual
growth in the assessed valuation of residential property. This amendment could,
over time, constrain the growth in property taxes, a major revenue source for
local governments. The amendment restricts annual increases in assessed
valuation to the lesser of 3% or the Consumer Price Index. The amendment applies
only to residential properties eligible for the homestead exemption and does not
affect the valuation of rental, commercial, or industrial properties. When sold,
residential property would be reassessed at market value. While no immediate
ratings implications are expected, the amendment could have a negative impact on
the financial performance of local governments over time and lead to ratings
revisions which may have a negative impact on the prices of affected bonds.
INSURANCE
The following information relates to the Fund and supplements the
information contained under "Additional Information about Investment Policies --
Insurance" in Part I of this Statement of Additional Information.
IN GENERAL. Insured Florida obligations held by the Portfolio will be insured as
to their scheduled payment of principal and interest under (i) an insurance
policy obtained by the issuer or underwriter of the Florida obligation at the
time of its original issuance ("Issue Insurance"), (ii) an insurance policy
obtained by the Portfolio or a third party subsequent to the Florida
obligation's original issuance ("Secondary Market Insurance") or (iii) a
municipal insurance policy purchased by the Portfolio ("Mutual Fund Insurance").
The Portfolio anticipates that all or substantially all of its insured Florida
obligations will be subject to Issue Insurance or Secondary Market Insurance.
Although the insurance feature reduces certain financial risks, the premiums for
Mutual Fund Insurance (which, if purchased by the Portfolio, are paid from the
Portfolio's assets) and the higher market price paid for Florida obligations
covered by Issue Insurance or Secondary Market Insurance reduce the Portfolio's
current yield.
Insurance will cover the timely payment of interest and principal on Florida
obligations and will be obtained from insurers with a claims-paying ability
rated Aaa by Moody's or AAA by S&P or Fitch. Florida obligations insured by any
insurer with such a claims-paying ability rating will generally carry the same
rating or credit risk as the insurer. See the Appendix to the Statement of
Additional Information for a brief description of Moody's, Fitch's and S&P's
claims-paying ability ratings. Such insurers must guarantee the timely payment
of all principal and interest on Florida obligations as they become due. Such
insurance may, however, provide that in the event of non-payment of interest or
principal when due with respect to an insured Florida obligation, the insurer is
not obligated to make such payment until a specified time period has lapsed
(which may be 30 days or more after it has been notified by the Portfolio that
such non-payment has occurred). For these purposes, a payment of principal is
due only at final maturity of the Florida obligation and not at the time any
earlier sinking fund payment is due. While the insurance will guarantee the
timely payment of principal and interest, it does not guarantee the market value
of the Florida obligations or the net asset value of the Portfolio or the Fund.
Florida obligations are generally eligible to be insured under Mutual Fund
Insurance if, at the time of purchase by the Portfolio, they are identified
separately or by category in qualitative guidelines furnished by the mutual fund
insurer and are in compliance with the aggregate limitations on amounts set
forth in such guidelines. Premium variations are based, in part, on the rating
of the Florida obligations being insured at the time the Portfolio purchases the
obligations. The insurer may prospectively withdraw particular Florida
obligations from the classifications of securities eligible for insurance or
change the aggregate amount limitation of each issue or category of eligible
Florida obligations. The insurer must, however, continue to insure the full
amount of the Florida obligations previously acquired which the insurer has
indicated are eligible for insurance, so long as they continue to be held by the
Portfolio. The qualitative guidelines and aggregate amount limitations
established by the insurer from time to time will not necessarily be the same as
those the Portfolio would use to govern selection of Florida obligations for the
Portfolio. Therefore, from time to time such guidelines and limitations may
affect investment decisions in the event the Portfolio's securities are insured
by Mutual Fund Insurance.
For Mutual Fund Insurance that terminates upon the sale of the insured
security, the insurance does not have any effect on the resale value of such
security. Therefore, the Portfolio will generally retain any insured Florida
obligations which are in default or, in the judgment of the Investment Adviser,
are in significant risk of default and place a value on the insurance. This
value will be equal to the difference between the market value of the defaulted
Florida obligations and the market value of similar Florida obligations which
are not in default. As a result, the Investment Adviser may be unable to manage
the securities held by the Portfolio to the extent the Portfolio holds defaulted
Florida obligations, which will limit its ability in certain circumstances to
purchase other Florida obligations. While a defaulted Florida obligation is held
by the Portfolio, the Portfolio will continue to pay the insurance premium
thereon but will also collect interest payments from the insurer and retain the
right to collect the full amount of principal from the insurer when the Florida
obligation becomes due. The Portfolio expects that the market value of a
defaulted Florida obligation covered by Issue Insurance or Secondary Market
Insurance will generally be greater than the market value of an otherwise
comparable defaulted Florida obligation covered by Mutual Fund Insurance.
The Portfolio may also invest in Florida obligations that are secured by an
escrow or trust account which contains securities issued or guaranteed by the
U.S. Government, its agencies or instrumentalities, that are backed by the full
faith and credit of the United States, and sufficient in amount to ensure the
payment of interest on and principal of the secured Florida obligation
("collateralized obligations"). Collateralized obligations generally are
regarded as having the credit characteristics of the underlying U.S. Government,
agency or instrumentality securities. These obligations will not be subject to
Issue Insurance, Secondary Market Insurance or Mutual Fund Insurance, but will
be considered to be insured Florida obligations for purposes of the Portfolio's
policy of investing at least 80% of its net assets in insured Florida
obligations (but such obligations shall not constitute more than 15% of the
insured portion of the Portfolio).
PRINCIPAL INSURERS. Currently, Municipal Bond Investors Assurance Corporation
("MBIA"), Capital Guaranty Insurance Company ( "Capital Guaranty" ), Financial
Guaranty Insurance Company ( "FGIC" ), AMBAC Indemnity Corporation ("AMBAC"),
and Financial Security Assurance Corp., together with its affiliated insurance
companies--Financial Security Assurance International Inc. and Financial
Security Assurance of Oklahoma, Inc. (collectively, "FSA" ), are considered to
have a high claims-paying ability and, therefore, are eligible insurers for the
Portfolio's Florida obligations. Additional insurers may be added without
further notification. The following information concerning these eligible
insurers is based upon information provided by such insurers or information
filed with certain state insurance regulators. Neither the Portfolio nor the
Fund has independently verified such information and make no representations as
to the accuracy and adequacy of such information or as to the absence of
material adverse changes subsequent to the date thereof .
MBIA is a monoline financial guaranty insurance company created from an
unincorporated association (the Municipal Bond Insurance Association), through
which its members wrote municipal bond insurance on a several and joint-basis
through 1986. On January 5, 1990, MBIA acquired all of the outstanding stock of
Bond Investors Group, Inc., the parent of Bond Investors Guaranty Insurance
Company ("BIG"), which has subsequently changed its name to MBIA Insurance Corp.
of Illinois. Through a reinsurance agreement, BIG ceded all of its net insured
risks, as well as its related unearned premium and contingency reserves, to
MBIA. MBIA issues municipal bond insurance policies guarantying the timely
payment of principal and interest on new municipal bond issues and leasing
obligations of municipal entities, secondary market insurance of such
instruments and insurance on such instruments held in unit investment trusts and
mutual funds. As of December 31, 1994, MBIA had total assets of approximately
$3.4 billion and qualified statutory capital of approximately $1.7 billion. MBIA
has a claims-paying ability rating of "AAA" by S&P and "Aaa" by Moody's.
Capital Guaranty is a monoline insurance company whose policies guaranty the
timely payment of principal and interest on new issue and secondary market issue
municipal bond transactions. As of December 31, 1994, Capital Guaranty had total
assets of approximately $304 million and qualified statutory capital of
approximately $197 million. Capital Guaranty has a claims-paying ability rating
of "AAA" by S&P. Moody's has not issued a claims-paying ability rating for
Capital Guaranty.
Financial Guaranty Insurance Corporation, a wholly owned subsidiary of FGIC
Corporation, which is a wholly owned subsidiary of General Electric Capital
Corporation, is an insurer of municipal securities, including new issues,
securities held in unit investment trusts and mutual funds, and those traded on
secondary markets. The investors in FGIC Corporation are not obligated to pay
the debts of or claims against FGIC. As of December 31, 1994, FGIC had total
assets of approximately $2.1 billion and qualified statutory capital of
approximately $1.2 billion. FGIC has a claims-paying ability rating of "AAA" by
S&P and Fitch, and "Aaa" by Moody's.
AMBAC, a wholly owned subsidiary of AMBAC Inc., is a monoline insurance
company whose policies guaranty the payment of principal and interest on
municipal obligations issues. As of December 31, 1994, AMBAC had admitted assets
of approximately $2.1 billion and qualified statutory capital of approximately
$1.2 billion. AMBAC has a claims-paying ability rating of "AAA" by S&P and "Aaa"
by Moody's.
FSA is a monoline insurer whose policies guaranty the timely payment of
principal and interest on new issue and secondary market issue municipal
securities transactions, among other financial obligations. As of December 31,
1994, FSA had total admitted assets of approximately $804 million and qualified
statutory capital of approximately $466 million. FSA has a claims-paying ability
rating of "AAA" by S&P and "Aaa" by Moody's.
FEES AND EXPENSES
INVESTMENT ADVISER
As of January 31, 1995, the Portfolio had net assets of $14,399,951. For the
period from the start of business, March 2, 1994, to January 31, 1995, absent a
fee reduction, the Portfolio would have paid BMR advisory fees of $8,420
(equivalent to 0.16% (annualized) of the Portfolio's average daily net assets
for such period). To enhance the net income of the Portfolio, BMR made a
reduction of its advisory fee in the amount of $8,420 and BMR was allocated
expenses related to the operation of the Portfolio in the amount of $13,139. The
Portfolio's Investment Advisory Agreement with BMR is dated February 25, 1994
and remains in effect until February 28, 1996. The Agreement may be continued as
described under "Investment Adviser and Administrator" in Part I of this
Statement of Additional Information.
ADMINISTRATOR
As stated under "Investment Adviser and Administrator" in Part I of this
Statement of Additional Information, the Administrator receives no compensation
for providing administrative services to the Fund. For the period from the start
of business, March 2, 1994, to January 31, 1995, $21,147 of the Fund's operating
expenses were allocated to the Administrator.
DISTRIBUTION PLAN
For the period from the start of business, March 2, 1994, to January 31,
1995, the Fund made sales commission payments under the Plan to the Principal
Underwriter aggregating $34,388, which amount was used by the Principal
Underwriter to partially defray sales commissions aggregating $351,478 paid
during such period by the Principal Underwriter to Authorized Firms on sales of
shares of the Fund. During such period contingent deferred sales charges
aggregating approximately $44,000 were imposed on early redeeming shareholders
and paid to the Principal Underwriter, which amount was used by the Principal
Underwriter to partially defray such sales commissions. As at January 31, 1995,
the outstanding Uncovered Distribution Charges of the Principal Underwriter
calculated under the Plan amounted to approximately $471,000 (which amount was
equivalent to 4.1% of the Fund's net assets on such day). For the period from
the start of business, March 2, 1994, to January 31, 1995, the Fund did not
accrue or pay any service fees under the Plan. The Fund began accruing for its
service fee payments during the quarter ending June 30, 1995.
PRINCIPAL UNDERWRITER
For the period from the start of business, March 2, 1994, to January 31,
1995, the Fund paid the Principal Underwriter $52.50 for repurchase transactions
handled (being $2.50 for each such transaction).
CUSTODIAN
For the period from the start of business, March 2, 1994, to January 31,
1995, the Fund paid IBT $4,641. For the period from the start of business, March
2, 1994, to January 31, 1995, the Portfolio paid IBT $3,818.
BROKERAGE
For the period from the start of business, March 2, 1994, to January 31,
1995, the Portfolio paid no brokerage commissions on portfolio transactions.
<TABLE>
TRUSTEES
The fees and expenses of those Trustees of the Trust and of the Portfolio
who are not members of the Eaton Vance organization (the noninterested Trustees)
are paid by the Fund (and the other series of the Trust) and the Portfolio,
respectively. (The Trustees of the Trust and the Portfolio who are members of
the Eaton Vance organization receive no compensation from the Fund or the
Portfolio.) During the fiscal year ended January 31, 1995, the noninterested
Trustees of the Trust and the Portfolio earned the following compensation in
their capacities as Trustees from the Fund and the Portfolio, and, during the
first quarter ended March 31, 1995, earned the following compensation in their
capacities as Trustees of the other funds in the Eaton Vance fund complex<F1>:
<CAPTION>
AGGREGATE AGGREGATE RETIREMENT TOTAL COMPENSATION
COMPENSATION COMPENSATION BENEFIT ACCRUED FROM TRUST AND
NAME FROM FUND FROM PORTFOLIO FROM FUND COMPLEX FUND COMPLEX
---- ------------ -------------- ----------------- ------------------
<S> <C> <C> <C> <C>
Donald R. Dwight $8 $8<F2> $ 8,750 $33,750
Samuel L. Hayes, III 8 8<F3> 24,885 41,250
Norton H. Reamer 8 8 --0-- 33,750
John L. Thorndike 8 8 --0-- 35,000
Jack L. Treynor 9 9 --0-- 35,000
<FN>
- ----------
<F1> The Eaton Vance fund complex consists of 205 registered investment
companies or series thereof.
<F2> Includes $3 of deferred compensation.
<F3> Includes $3 of deferred compensation.
</TABLE>
PRINCIPAL UNDERWRITER
Under the Distribution Agreement the Principal Underwriter acts as principal
in selling shares of the Fund. The expenses of printing copies of prospectuses
used to offer shares to financial service firms ("Authorized Firms") or
investors and other selling literature and of advertising is borne by the
Principal Underwriter. The fees and expenses of qualifying and registering and
maintaining qualifications and registrations of the Fund and its shares under
Federal and state securities laws is borne by the Fund. In addition, the Fund
makes payments to the Principal Underwriter pursuant to its Distribution Plan as
described in the Fund's current Prospectus; the provisions of the Fund's
Distribution Plan relating to such payments are included in the Distribution
Agreement. The Distribution Agreement is renewable annually by the Trust's Board
of Trustees (including a majority of its Trustees who are not interested persons
of the Trust and who have no direct or indirect financial interest in the
operation of the Fund's Distribution Plan or the Distribution Agreement), may be
terminated on sixty days' notice either by such Trustees or by vote of a
majority of the outstanding voting securities of the Fund or on six months'
notice by the Principal Underwriter and is automatically terminated upon
assignment. The Principal Underwriter distributes Fund shares on a "best
efforts" basis under which it is required to take and pay for only such shares
as may be sold.
The Fund has authorized the Principal Underwriter to act as its agent in
repurchasing shares at the rate of $2.50 for each repurchase transaction handled
by the Principal Underwriter. The Principal Underwriter estimates that the
expenses incurred by it in acting as repurchase agent for the Fund will exceed
the amounts paid therefor by the Fund. For the amount paid by the Fund to the
Principal Underwriter for acting as repurchase agent, see "Fees and Expenses" in
this Part II.
DISTRIBUTION PLAN
The Distribution Plan ("the Plan") is described in the Prospectus and is
designed to meet the requirements of Rule 12b-1 under the 1940 Act and the sales
charge rule of the National Association of Securities Dealers, Inc. (the "NASD
Rule"). The purpose of the Plan is to compensate the Principal Underwriter for
its distribution services and facilities provided to the Fund by paying the
Principal Underwriter sales commissions and a separate distribution fee in
connection with sales of Fund shares. The following supplements the discussion
of the Plan contained in the Fund's Prospectus.
The amount payable to the Principal Underwriter pursuant to the Plan as
sales commissions and distribution fees with respect to each day will be accrued
on such day as a liability of the Fund and will accordingly reduce the Fund's
net assets upon such accrual, all in accordance with generally accepted
accounting principles. The amount payable on each day is limited to 1/365 of
.75% of the Fund's net assets on such day. The level of the Fund's net assets
changes each day and depends upon the amount of sales and redemptions of Fund
shares, the changes in the value of the investments held by the Portfolio, the
expenses of the Fund and the Portfolio accrued and allocated to the Fund on such
day, income on portfolio investments of the Portfolio accrued and allocated to
the Fund on such day, and any dividends and distributions declared on Fund
shares. The Fund does not accrue possible future payments as a liability of the
Fund or reduce the Fund's current net assets in respect of unknown amounts which
may become payable under the Plan in the future because the standards for
accrual of a liability under such accounting principles have not been satisfied.
The Plan provides that the Fund will receive all contingent deferred sales
charges and will make no payments to the Principal Underwriter in respect of any
day on which there are no outstanding Uncovered Distribution Charges of the
Principal Underwriter. Contingent deferred sales charges and accrued amounts
will be paid by the Fund to the Principal Underwriter whenever there exist
Uncovered Distribution Charges under the Fund's Plan.
Periods with a high level of sales of Fund shares accompanied by a low level
of early redemptions of Fund shares resulting in the imposition of contingent
deferred sales charges will tend to increase the time during which there will
exist Uncovered Distribution Charges of the Principal Underwriter. Conversely,
periods with a low level of sales of Fund shares accompanied by a high level of
early redemptions of Fund shares resulting in the imposition of contingent
deferred sales charges will tend to reduce the time during which there will
exist Uncovered Distribution Charges of the Principal Underwriter.
In calculating daily the amount of Uncovered Distribution Charges,
distribution charges will include the aggregate amount of sales commissions and
distribution fees theretofore paid plus the aggregate amount of sales
commissions and distribution fees which the Principal Underwriter is entitled to
be paid under the Plan since its inception. Payments theretofore paid or payable
under the Plan by the Fund to the Principal Underwriter and contingent deferred
sales charges theretofore paid or payable to the Principal Underwriter will be
subtracted from such distribution charges; if the result of such subtraction is
positive, a distribution fee (computed at 1% over the prime rate then reported
in The Wall Street Journal) will be computed on such amount and added thereto,
with the resulting sum constituting the amount of outstanding Uncovered
Distribution Charges with respect to such day. The amount of outstanding
Uncovered Distribution Charges of the Principal Underwriter calculated on any
day does not constitute a liability recorded on the financial statements of the
Fund.
The amount of Uncovered Distribution Charges of the Principal Underwriter at
any particular time depends upon various changing factors, including the level
and timing of sales of Fund shares, the nature of such sales (i.e., whether they
result from exchange transactions, reinvestments or from cash sales through
Authorized Firms), the level and timing of redemptions of Fund shares upon which
a contingent deferred sales charge will be imposed, the level and timing of
redemptions of Fund shares upon which no contingent deferred sales charge will
be imposed (including redemptions involving exchanges of Fund shares for shares
of another fund in the Eaton Vance Marathon Group of Funds which result in a
reduction of Uncovered Distribution Charges), changes in the level of the net
assets of the Fund, and changes in the interest rate used in the calculation of
the distribution fee under the Plan.
As currently implemented by the Trustees, the Plan authorizes payments of
sales commissions and distribution fees to the Principal Underwriter and service
fees to the Principal Underwriter and Authorized Firms which may be equivalent,
on an aggregate basis during any fiscal year of the Fund, to .95% of the Fund's
average daily net assets for such year. For the sales commissions and service
fee payments made by the Fund and the outstanding Uncovered Distribution Charges
of the Principal Underwriter, see "Fees and Expenses -- Distribution Plan" in
this Part II. The Fund believes that the combined rate of all these payments may
be higher than the rate of payments made under distribution plans adopted by
other investment companies pursuant to Rule 12b-1. Although the Principal
Underwriter will use its own funds (which may be borrowed from banks) to pay
sales commissions at the time of sale, it is anticipated that the Eaton Vance
organization will profit by reason of the operation of the Plan through an
increase in the Fund's assets (thereby increasing the advisory fee payable to
BMR by the Portfolio) resulting from sale of Fund shares and through the amounts
paid to the Principal Underwriter, including contingent deferred sales charges,
pursuant to the Plan. The Eaton Vance organization may be considered to have
realized a profit under the Plan if at any point in time the aggregate amounts
theretofore received by the Principal Underwriter pursuant to the Plan and from
contingent deferred sales charges have exceeded the total expenses theretofore
incurred by such organization in distributing shares of the Fund. Total expenses
for this purpose will include an allocable portion of the overhead costs of such
organization and its branch offices, which costs will include without limitation
leasing expense, depreciation of building and equipment, utilities,
communication and postage expense, compensation and benefits of personnel,
travel and promotional expense, stationery and supplies, literature and sales
aids, interest expense, data processing fees, consulting and temporary help
costs, insurance, taxes other than income taxes, legal and auditing expense and
other miscellaneous overhead items. Overhead is calculated and allocated for
such purpose by the Eaton Vance organization in a manner deemed equitable to the
Fund.
The Plan continues in effect through and including April 28, 1996, and shall
continue in effect indefinitely thereafter for so long as such continuance is
approved at least annually by the vote of both a majority of (i) the Trustees of
the Trust who are not interested persons of the Trust and who have no direct or
indirect financial interest in the operation of the Plan or any agreements
related to the Plan (the "Rule 12b-1 Trustees") and (ii) all of the Trustees
then in office, and the Distribution Agreement contains a similar provision. The
Plan and Distribution Agreement may be terminated at any time by vote of a
majority of the Rule 12b-1 Trustees or by a vote of a majority of the
outstanding voting securities of the Fund. The provisions of the Plan relating
to payments of sales commissions and distribution fees to the Principal
Underwriter are also included in the Distribution Agreement between the Trust on
behalf of the Fund and the Principal Underwriter. Pursuant to Rule 12b-1, the
Plan has been approved by the Fund's initial sole shareholder (Eaton Vance) and
by the Board of Trustees of the Trust, including the Rule 12b-1 Trustees. Under
the Plan, the President or a Vice President of the Trust shall provide to the
Trustees for their review, and the Trustees shall review at least quarterly, a
written report of the amount expended under the Plan and the purposes for which
such expenditures were made. The Plan may not be amended to increase materially
the payments described therein without approval of the shareholders of the Fund,
and all material amendments of the Plan must also be approved by the Trustees as
required by Rule 12b-1. So long as the Plan is in effect, the selection and
nomination of Trustees who are not interested persons of the Trust shall be
committed to the discretion of the Trustees who are not such interested persons.
The Trustees believe that the Plan will be a significant factor in the
expected growth of the Fund's assets, and will result in increased investment
flexibility and advantages which will benefit the Fund and its shareholders.
Payments for sales commissions and distribution fees made to the Principal
Underwriter under the Plan will compensate the Principal Underwriter for its
services and expenses in distributing shares of the Fund. Service fee payments
made to the Principal Underwriter and Authorized Firms under the Plan provide
incentives to provide continuing personal services to investors and the
maintenance of shareholder accounts. By providing incentives to the Principal
Underwriter and Authorized Firms, the Plan is expected to result in the
maintenance of, and possible future growth in, the assets of the Fund. Based on
the foregoing and other relevant factors, the Trustees have determined that in
their judgment there is a reasonable likelihood that the Plan will benefit the
Fund and its shareholders.
PERFORMANCE INFORMATION
The table below indicates the total return (capital changes plus
reinvestment of all distributions) on a hypothetical investment of $1,000 in the
Fund covering the life of the Fund from March 2, 1994 through January 31, 1995.
VALUE OF A $1,000 INVESTMENT
<TABLE>
<CAPTION>
VALUE OF VALUE OF
INVESTMENT INVESTMENT
BEFORE AFTER
DEDUCTING DEDUCTING TOTAL RETURN BEFORE TOTAL RETURN AFTER
THE THE DEDUCTING DEDUCTING
CONTINGENT CONTINGENT THE CONTINGENT DEFERRED THE CONTINGENT DEFERRED
DEFERRED DEFERRED SALES SALES CHARGE SALES CHARGE<F3>
INVESTMENT INVESTMENT AMOUNT OF SALES CHARGE CHARGE<F3> ------------------------ --------------------------
PERIOD DATE INVESTMENT ON 1/31/95 ON 1/31/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- --------- ---------- ---------- ------------ -------------- ---------- ---------- ---------- ----------
Life of the
<S> <C> <C> <C> <C> <C> <C> <C>
Fund<F1> 3/2/94 $1,000 $1,070.97<F2> $1,020.97<F2> 7.10%<F2> -- 2.10%<F2> --
PERCENTAGE CHANGES 3/2/94--1/31/95
<CAPTION>
NET ASSET VALUE TO NET ASSET VALUE NET ASSET VALUE TO NET ASSET VALUE
BEFORE DEDUCTING THE CONTINGENT DEFERRED AFTER DEDUCTING THE CONTINGENT DEFERRED
SALES CHARGE WITH ALL DISTRIBUTIONS REINVESTED SALES CHARGE<F3> WITH ALL DISTRIBUTIONS REINVESTED
---------------------------------------------- -------------------------------------------------
PERIOD ENDED ANNUAL CUMULATIVE AVERAGE ANNUAL ANNUAL CUMULATIVE AVERAGE ANNUAL
- ------------ ------ ---------- -------------- ------ ---------- --------------
<S> <C> <C> <C> <C> <C> <C>
1/31/95<F1> -- 7.10%** -- -- 2.10%** --
Past performance is not indicative of future results. Investment return
and principal value will fluctuate; shares, when redeemed, may be worth more or
less than their original cost.
<FN>
- ----------
<F1> Investment operations began on March 2, 1994.
<F2> If a portion of the Portfolio's and/or the Fund's expenses had not been
subsidized, the Fund would have had lower returns.
<F3> No contingent deferred sales charge is imposed on shares purchased more
than six years prior to the redemption, shares acquired through the
reinvestment of distributions, or any appreciation in value of other shares
in the account, and no such charge is imposed on exchanges of Fund shares
of one or more other funds listed under "The Eaton Vance Exchange
Privilege" in the Prospectus.
</TABLE>
For the thirty-day period ended January 31, 1995, the yield of the Fund was
4.82%. The yield required of a taxable security that would produce an after-tax
yield equivalent to that earned by the Fund of 4.82% would be 6.99%, assuming a
Federal tax rate of 31%. If a portion of the Portfolio's and the Fund's expenses
had not been allocated to the Investment Adviser and the Administrator,
respectively, the Fund would have had a lower yield.
The Fund's distribution rate (calculated on January 31, 1995 and based on
the Fund's monthly distribution paid January 16, 1995) was 5.02%, and the Fund's
effective distribution rate (calculated on the same date and based on the same
monthly distribution) was 5.14%. If a portion of the Portfolio's and the Fund's
expenses had not been allocated to the Investment Adviser and the Administrator,
respectively, the Fund would have had a lower distribution rate and effective
distribution rate.
The Portfolio's diversification by quality ratings as of March 31, 1995,
was:
RATING ASSIGNED BY PERCENT
MOODY'S, S&P OR FITCH OF BOND HOLDINGS
--------------------- ----------------
Aaa or AAA 100.0%
Aa or AA --
A --
Baa or BBB --
Ba or BB --
B --
Below B --
Not rated --
-----
Total 100.0%
The State of Florida generally imposes an intangible personal property tax
on the value of all stocks, notes, bonds and mutual fund shares. The rate of
intangibles tax after exemptions in Florida is $.20 per $100 in value. Bank
deposits such as bank money market deposit accounts and certificates of deposit
are exempt from the Florida intangibles tax. The Florida intangibles tax, which
is a fixed rate based on the fair market value of an investment, will vary as a
percentage of income with the yield of the investment subject to tax. For
example, shares of a mutual fund valued at $10,000 would generally be subject to
Florida intangibles tax equaling $20. If the mutual fund shares were yielding
5.00%, generating $500 in annual income, the intangibles tax expressed as a
percentage of income would be $20/$500 or 4.00%. Federal income tax brackets for
1995 are 15% for single filers with taxable income up to $23,350 and joint
filers up to $39,000; 28% for single filers with taxable income from $23,351 to
$56,550 and joint filers from $39,001 to $94,250; 31% for single filers with
taxable income from $56,551 to $117,950 and joint filers from $94,251 to
$143,600; 36% for single filers with taxable income from $117,951 to $256,500
and joint filers from $143,601 to $256,500; and 39.6% for single and joint
filers with taxable income over $256,500. Combined Federal and Florida
intangibles tax rates expressed as a percentage of income on an investment
yielding 5.00%, assuming the deductibility of intangibles taxes on the Federal
return, would be 18.40%, 30.88%, 33.76%, 38.56% and 42.02% over the same ranges
of income.
This Part II contains a tax equivalent yield table which reflects the tax
equivalent yield of the Fund earning hypothetical yields over various Federal
income tax brackets, as well as a tax equivalent yield table which takes into
account the effect of the Florida intangibles tax on the rate of combined
Federal and Florida intangibles taxes paid as a percentage of income by a
Florida resident.
The following information compares the taxable equivalent yield of an
investment in the Fund yielding a hypothetical 5.00% taking into account Federal
income tax and the effect of the Florida intangibles tax with the after-tax
yield of a certificate of deposit yielding 3.25%. The after-tax yields of the
certificate of deposit were calculated taking into account Federal income taxes
only, as bank deposits are not subject to the Florida intangibles tax.
TAX BRACKET
18.40% 30.88% 33.76% 38.56% 42.02%
------------------------------------------------------
Tax free yield ....... 5.00% 5.00% 5.00% 5.00% 5.00%
Taxable equivalent ... 6.13 7.23 7.55 8.14 8.62
TAX BRACKET*
15% 28% 31% 36% 39.6%
-----------------------------------------------------
Certificates of deposit:
Yield ............ 3.25 3.25 3.25 3.25 3.25
After-tax yield .. 2.76 2.34 2.24 2.08 1.96
- ----------
*CDs are generally exempt from the Florida intangibles tax. Accordingly, the
combined tax brackets applicable to after-tax yields are 15%, 28%, 31%, 36% and
39.6%.
Marathon Florida Insured
The Tax Free Yield Advantage
(38.56% combined tax bracket)
3.25% Certificate of deposit
3.25% Pretax yield
2.08% After-tax yield
5.00% Tax free investment
8.14% Taxable equivalent yield
5.00% Tax free yield
Example:
Two $100,000 investments . . .
3.25% CD 5.00% Tax free
Pretax income: $3,250.00 $5,000.00
Tax: (1,170.00) NONE
After-tax income: $2,080.00 $5,000.00
The 1995 combined Federal and Florida state tax bracket, expressed as a
percentage of income on an investment yielding 5.00% and assuming the
deductibility of the Florida intangibles tax, is 38.56% for single filers with
taxable income from $117,951 to $256,500 and joint filers from $143,601 to
$256,500. Actual tax brackets may be higher due to the phaseout of personal
exemptions and limitations on the deductibility of itemized deductions over
certain ranges of income. Your actual bracket will vary depending on your
income, exemptions and deductions. CDs are generally exempt from the Florida
intangibles tax. Accordingly, the combined tax bracket applicable to the
after-tax CD yield is 36%. See your tax adviser for additional information. The
chart is based on 3-month bank CDs (Sources: The Wall Street Journal and Eaton
Vance Management). Tax free yields are shown for illustration purposes only and
are not meant to represent actual results of an investment in the Fund. See your
financial adviser for the Fund's current yield and actual CD rates.
ADDITIONAL TAX MATTERS
The Fund qualified as a RIC under the Code for its taxable year ended
January 31, 1995 (see Notes to Financial Statements).
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As at April 30, 1995, the Trustees and officers of the Trust, as a group,
owned in the aggregate less than 1% of the outstanding shares of the Fund. As of
April 30, 1995, Merrill Lynch, Pierce, Fenner & Smith, Inc., New Brunswick, NJ
was the record owner of approximately 17.3% of the outstanding shares, which
were held on behalf of its customers who are the beneficial owners of such
shares, and as to which it had voting power under certain limited circumstances.
In addition, as of such date, William Athens, Jr. TTEE, Georgia Oakers Trust,
U/A DTD 7/17/91, Ormond Beach, FL owned of record 7.1% of such shares. To the
Trust's knowledge, no other person owned of record or beneficially 5% or more of
the Fund's outstanding shares on such date.
TAX EQUIVALENT YIELD TABLE
The tables below show the effect of the tax status of bonds on the tax
equivalent yield received by their holders under the regular Federal income tax
and the Florida intangibles tax laws and tax rates applicable for 1995. They
show the approximate yield a taxable security must earn at various income
brackets to produce after-tax yields equivalent to those of tax exempt bonds
yielding from 4% to 7%.
<TABLE>
<CAPTION>
IF THE TAXABLE OR THE TAXABLE
INCOME ON INCOME ON YOU ARE IN IN YOUR BRACKET, A TAX-FREE YIELD OF
YOUR SINGLE YOUR JOINT THIS FEDERAL 4% 4.5% 5% 5.5% 6% 6.5% 7%
RETURN IS<F1> RETURN IS<F1> BRACKET EQUALS THAT OF A TAXABLE INVESTMENT YIELDING
- ---------------------------------------------- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $ 23,350 Up to $ 39,000 15.00% 4.71% 5.29% 5.88% 6.47% 7.06% 7.65% 8.24%
$ 23,351 $ 56,550 $ 39,001 $ 94,250 28.00 5.56 6.25 6.94 7.64 8.33 9.03 9.72
$ 56,551 $117,950 $ 94,251 $143,600 31.00 5.80 6.52 7.25 7.97 8.70 9.42 10.14
$117,951 $256,500 $143,601 $256,500 36.00 6.25 7.03 7.81 8.59 9.38 10.16 10.94
Over $256,500 Over $256,500 39.60 6.62 7.45 8.28 9.11 9.93 10.76 11.59
<CAPTION>
IF THE TAXABLE OR THE TAXABLE
INCOME ON INCOME ON
YOUR SINGLE YOUR JOINT 4% 4.5% 5% 5.5% 6% 6.5% 7%
RETURN IS<F1> RETURN IS<F1> TAXABLE EQUIVALENT YIELD REFLECTING EXEMPTION FROM INTANGIBLES TAX<F2>
- ------------------------------------------ ---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $ 23,350 Up to $ 39,000 4.95% 5.54% 6.13% 6.71% 7.30% 7.89% 8.48%
$ 23,351 - $ 56,550 $ 39,001 - $ 94,250 5.85 6.54 7.23 7.93 8.62 9.31 10.01
$ 56,551 - $117,950 $ 94,251 - $143,600 6.10 6.83 7.55 8.27 9.00 9.72 10.44
$117,951 - $256,500 $143,601 - $256,500 6.58 7.36 8.14 8.92 9.70 10.48 11.26
Over $256,500 Over $256,500 6.97 7.80 8.62 9.45 10.28 11.10 11.93
Yields shown are for illustration purposes only and are not meant to represent
the Fund's actual yield.
<FN>
<F1> Net amount subject to the Federal personal income tax after deductions and exemptions.
<F2>AFlorida intangibles tax on personal property of $2.00 per $1,000 is generally imposed after exemptions on the value of
stocks, bonds, other evidences of indebtedness and mutual fund shares. An example of the effect of the Florida intangibles
tax on the tax brackets of Florida taxpayers is as follows. A $10,000 investment subject to the tax would require payment of
$20 annually in intangibles taxes. If the investment yielded 5.00% annually or $500, the intangibles tax as a percentage of
income would be $20/$500 or 4.00%. If a taxpayer were in the 36% Federal income tax bracket, assuming the intangibles taxes
were deducted as an Itemized Deduction on the Federal return, the taxpayer would be in a combined Federal and Florida state
tax bracket of 38.56% [36% + (1 - .36) X 4.00%] with respect to such investment. A Florida taxpayer whose intangible personal
property is exempt or partially exempt from tax due to the availability of exemptions will have a lower taxable equivalent
yield than indicated above.
</TABLE>
Note: The above-indicated Federal income tax brackets do not take into account
the effect of a reduction in the deductibility of itemized deductions for
taxpayers with adjusted gross income in excess of $114,700, nor the effects of
phaseout of personal exemptions for single and joint filers with adjusted gross
incomes in excess of $114,700 and $172,050, respectively. The effective tax
brackets and equivalent taxable yields of such taxpayers will be higher than
those indicated above.
Of course no assurance can be given that EV Marathon Florida Insured Tax Free
Fund will achieve any specific tax exempt yield. While it is expected that a
substantial portion of the interest income distributed to the Fund shareholders
will be exempt from the regular Federal income tax, portions of such
distributions from time to time may be subject to such tax. This table does not
take into account the Florida intangibles tax, state or local taxes, if any,
payable on Fund distributions to individuals who are not Florida residents, or
intangibles taxes, if any, imposed under the laws of other states. It should
also be noted that the interest earned on certain "private activity bonds"
issued after August 7, 1986, while exempt from the regular Federal income tax,
is treated as a tax preference item which could subject the recipient to the
Federal alternative minimum tax. The illustrations assume that the Federal
alternative minimum tax is not applicable.
The information set forth above is as of the date of this Statement of
Additional Information. Subsequent tax law changes could result in prospective
or retroactive changes in the tax brackets, tax rates, and tax equivalent yields
set forth above.
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV MARATHON HAWAII TAX FREE FUND.
The investment objective of the Fund is to provide current income exempt from
regular Federal income tax and Hawaii State individual income taxes. The Fund
currently seeks to achieve its investment objective by investing its assets in
the Hawaii Tax Free Portfolio (the "Portfolio").
RISKS OF CONCENTRATION
The following information as to certain Hawaii considerations is given to
investors in view of the Portfolio's policy of concentrating its investments in
Hawaii issuers. Such information is derived from sources that are generally
available to investors and is believed to be accurate. Such information
constitutes only a brief summary, does not purport to be a complete description
and is based on information from official statements relating to securities
offerings of Hawaii issuers. Neither the Trust nor the Portfolio has
independently verified this information.
Following a period of strong growth in the late 1980s, the rate of growth of
the Hawaiian economy slowed considerably between 1990 and 1993. This was due
primarily to the U.S. mainland recession and financial restructuring in Japan.
The general economic slowdown affected important sectors of the Hawaiian
economy, particularly tourism and construction. During 1994, the Hawaiian
economy showed modest signs of recovery following the economic recovery on the
U.S. mainland. The Kobe, Japan earthquake, however, apparently contributed to a
decline in eastbound visitor arrivals, and construction continued to decline.
The number of eastbound visitors increased 4% in 1994 over 1993 and the number
of westbound visitors increased 6.3% in 1994 over 1993. In 1994, a total of
about 6.5 million visitors came to the State, which represents an increase of
5.4% from 1993.
Total personal income in Hawaii has increased at a 7.4% average annual rate
since 1980, slightly faster than the national rate over the comparable decade.
Per capita personal income has increased at a 6.4% average annual rate since
1980 as compared with the 6.1% rate for the nation. Overall, unemployment in
Hawaii fell from a seasonally-adjusted 6.6% in the third quarter of 1994 to 5.2%
in the first quarter of 1995, compared to the national unemployment rate of
approximately 5.5%.
After six years of rapid expansion in the construction industry through
1991, building activity declined in 1992. The value of construction completed,
as measured by the general excise tax base for contracting, fell 8.2% in 1992,
4.2% in 1993, and 12.4% in 1994, following a 4.5% increase in 1991 from 1990 and
a 29.1% increase in 1990 from 1989. The value of private building permits, an
indicator of future building activity, decreased 9.2% in 1994 from 1993.
Agriculture, dominated by sugar and pineapple production, faces increased
foreign competition. Employment in the sugar industry has been steadily
decreasing over the past few years. Sugar manufacturing sales decreased 7.1% in
1992 from 1991. Over the same time period, pineapple sales decreased 17.9%.
During the past years, agricultural sales have become somewhat more diversified,
particularly in the growing and exporting of papayas, macadamia nuts, Kona
coffee, flowers and nursey products. Agriculture is also an industry in
development. Sales of the State's diversified agriculture totalled $262 million
in 1993, a 1.1% decrease from 1992's total.
Hawaii's county government (the only units of local government in the State)
may issue government obligation bonds. The counties, however, have preferred not
to finance capital investment with debt. As a result, relatively minimal amounts
are charged to the county general obligation debt limit, which restricts local
government indebtedness to not more than 15% of net assessed value of real
property.
FEES AND EXPENSES
INVESTMENT ADVISER
As of January 31, 1995, the Portfolio had net assets of $12,864,539. For the
period from the Portfolio's start of business, March 2, 1994 to January 31,
1995, absent a fee reduction, the Portfolio would have paid BMR advisory fees of
$13,231 (equivalent to 0.16% (annualized) of the Portfolio's average daily net
assets for such period). To enhance the net income of the Portfolio, BMR made a
reduction of its advisory fee in the amount of $13,231 and BMR was allocated
expenses related to the operation of the Portfolio in the amount of $13,430. The
Portfolio's Investment Advisory Agreement with BMR is dated February 25, 1994
and remains in effect until February 28, 1996. The Agreement may be continued as
described under "Investment Adviser and Administrator" in Part I of this
Statement of Additional Information.
ADMINISTRATOR
As stated under "Investment Adviser and Administrator" in Part I of this
Statement of Additional Information, the Administrator receives no compensation
for providing administrative services to the Fund. For the period from the start
of business, March 2, 1994, to January 31, 1995, $18,691 of the Fund's operating
expenses were allocated to the Administrator.
DISTRIBUTION PLAN
For the period from the start of business, March 2, 1994 to January 31,
1995, the Fund made sales commission payments under the Plan to the Principal
Underwriter aggregating $61,357, which amount was used by the Principal
Underwriter to partially defray sales commissions aggregating $526,964 paid
during such period by the Principal Underwriter to Authorized Firms on sales of
shares of the Fund. During such period, contingent deferred sales charges
aggregating approximately $10,000 were imposed on early redeeming shareholders
and paid to the Principal Underwriter, which amount was used by the Principal
Underwriter to partially defray such sales commissions. As at January 31, 1995,
the outstanding Uncovered Distribution Charges of the Principal Underwriter
calculated under the Plan amounted to approximately $626,000 (which amount was
equivalent to 5.0% of the Fund's net assets on such day). For the period from
the start of business, March 2, 1994, to January 31, 1995, the Fund did not
accrue or pay any service fees under the Plan. The Fund began accruing for its
service fee payments during the quarter ending June 30, 1995.
PRINCIPAL UNDERWRITER
For the period from the start of business, March 2, 1994, to January 31,
1995, the Fund paid the Principal Underwriter $52.50 for repurchase transactions
handled (being $2.50 for each such transaction).
CUSTODIAN
For the period from the start of business, March 2, 1994, to January 31,
1995, the Fund paid IBT $4,552. For the period from the start of business, March
2, 1994 to January 31, 1995, the Portfolio paid IBT $3,834.
BROKERAGE
For the period from the start of business, March 2, 1994, to January 31,
1995, the Portfolio paid no brokerage commissions on portfolio transactions.
TRUSTEES
The fees and expenses of those Trustees of the Trust and of the Portfolio
who are not members of the Eaton Vance organization (the noninterested Trustees)
are paid by the Fund (and the other series of the Trust) and the Portfolio,
respectively. (The Trustees of the Trust and of the Portfolio who are members of
the Eaton Vance organization receive no compensation from the Trust or the
Portfolio.) During the fiscal year ended January 31, 1995, the noninterested
Trustees of the Trust and the Portfolio earned the following compensation in
their capacities as Trustees from the Fund and the Portfolio, and, during the
first quarter ended March 31, 1995, earned the following compensation in their
capacities as Trustees of the other funds in the Eaton Vance Fund complex1:
<TABLE>
<CAPTION>
AGGREGATE AGGREGATE RETIREMENT TOTAL COMPENSATION
COMPENSATION COMPENSATION BENEFIT ACCRUED FROM TRUST AND
NAME FROM FUND FROM PORTFOLIO FROM FUND COMPLEX FUND COMPLEX
---- ------------ -------------- ----------------- ------------------
<S> <C> <C> <C> <C>
Donald R. Dwight $17 $17<F2> $ 8,750 $33,750
Samuel L. Hayes, III 16 16<F3> 24,885 41,250
Norton H. Reamer 16 16 --0-- 33,750
John L. Thorndike 16 16 --0-- 35,000
Jack L. Treynor 17 17 --0-- 35,000
<FN>
- ------------
<F1> The Eaton Vance fund complex consists of 205 registered investment
companies or series thereof.
<F2> Includes $3 of deferred compensation.
<F3> Includes $3 of deferred compensation.
</TABLE>
PRINCIPAL UNDERWRITER
Under the Distribution Agreement the Principal Underwriter acts as principal
in selling shares of the Fund. The expenses of printing copies of prospectuses
used to offer shares to financial service firms ("Authorized Firms") or
investors and other selling literature and of advertising is borne by the
Principal Underwriter. The fees and expenses of qualifying and registering and
maintaining qualifications and registrations of the Fund and its shares under
Federal and state securities laws is borne by the Fund. In addition, the Fund
makes payments to the Principal Underwriter pursuant to its Distribution Plan as
described in the Fund's current Prospectus; the provisions of the Fund's
Distribution Plan relating to such payments are included in the Distribution
Agreement. The Distribution Agreement is renewable annually by the Trust's Board
of Trustees (including a majority of its Trustees who are not interested persons
of the Trust and who have no direct or indirect financial interest in the
operation of the Fund's Distribution Plan or the Distribution Agreement), may be
terminated on sixty days' notice either by such Trustees or by vote of a
majority of the outstanding voting securities of the Fund or on six months'
notice by the Principal Underwriter and is automatically terminated upon
assignment. The Principal Underwriter distributes Fund shares on a "best
efforts" basis under which it is required to take and pay for only such shares
as may be sold.
The Fund has authorized the Principal Underwriter to act as its agent in
repurchasing shares at the rate of $2.50 for each repurchase transaction handled
by the Principal Underwriter. The Principal Underwriter estimates that the
expenses incurred by it in acting as repurchase agent for the Fund will exceed
the amounts paid therefor by the Fund. For the amount paid by the Fund to the
Principal Underwriter for acting as repurchase agent, see "Fees and Expenses" in
this Part II.
DISTRIBUTION PLAN
The Distribution Plan ("the Plan") is described in the Prospectus and is
designed to meet the requirements of Rule 12b-1 under the 1940 Act and the sales
charge rule of the National Association of Securities Dealers, Inc. (the "NASD
Rule"). The purpose of the Plan is to compensate the Principal Underwriter for
its distribution services and facilities provided to the Fund by paying the
Principal Underwriter sales commissions and a separate distribution fee in
connection with sales of Fund shares. The following supplements the discussion
of the Plan contained in the Fund's Prospectus.
The amount payable to the Principal Underwriter pursuant to the Plan as
sales commissions and distribution fees with respect to each day will be accrued
on such day as a liability of the Fund and will accordingly reduce the Fund's
net assets upon such accrual, all in accordance with generally accepted
accounting principles. The amount payable on each day is limited to 1/365 of
.75% of the Fund's net assets on such day. The level of the Fund's net assets
changes each day and depends upon the amount of sales and redemptions of Fund
shares, the changes in the value of the investments held by the Portfolio, the
expenses of the Fund and the Portfolio accrued and allocated to the Fund on such
day, income on portfolio investments of the Portfolio accrued and allocated to
the Fund on such day, and any dividends and distributions declared on Fund
shares. The Fund does not accrue possible future payments as a liability of the
Fund or reduce the Fund's current net assets in respect of unknown amounts which
may become payable under the Plan in the future because the standards for
accrual of a liability under such accounting principles have not been satisfied.
The Plan provides that the Fund will receive all contingent deferred sales
charges and will make no payments to the Principal Underwriter in respect of any
day on which there are no outstanding Uncovered Distribution Charges of the
Principal Underwriter. Contingent deferred sales charges and accrued amounts
will be paid by the Fund to the Principal Underwriter whenever there exist
Uncovered Distribution Charges under the Fund's Plan.
Periods with a high level of sales of Fund shares accompanied by a low level
of early redemptions of Fund shares resulting in the imposition of contingent
deferred sales charges will tend to increase the time during which there will
exist Uncovered Distribution Charges of the Principal Underwriter. Conversely,
periods with a low level of sales of Fund shares accompanied by a high level of
early redemptions of Fund shares resulting in the imposition of contingent
deferred sales charges will tend to reduce the time during which there will
exist Uncovered Distribution Charges of the Principal Underwriter.
In calculating daily the amount of Uncovered Distribution Charges,
distribution charges will include the aggregate amount of sales commissions and
distribution fees theretofore paid plus the aggregate amount of sales
commissions and distribution fees which the Principal Underwriter is entitled to
be paid under the Plan since its inception. Payments theretofore paid or payable
under the Plan by the Fund to the Principal Underwriter and contingent deferred
sales charges theretofore paid or payable to the Principal Underwriter will be
subtracted from such distribution charges; if the result of such subtraction is
positive, a distribution fee (computed at 1% over the prime rate then reported
in The Wall Street Journal) will be computed on such amount and added thereto,
with the resulting sum constituting the amount of outstanding Uncovered
Distribution Charges with respect to such day. The amount of outstanding
Uncovered Distribution Charges of the Principal Underwriter calculated on any
day does not constitute a liability recorded on the financial statements of the
Fund.
The amount of Uncovered Distribution Charges of the Principal Underwriter at
any particular time depends upon various changing factors, including the level
and timing of sales of Fund shares, the nature of such sales (i.e., whether they
result from exchange transactions, reinvestments or from cash sales through
Authorized Firms), the level and timing of redemptions of Fund shares upon which
a contingent deferred sales charge will be imposed, the level and timing of
redemptions of Fund shares upon which no contingent deferred sales charge will
be imposed (including redemptions involving exchanges of Fund shares for shares
of another fund in the Eaton Vance Marathon Group of Funds which result in a
reduction of Uncovered Distribution Charges), changes in the level of the net
assets of the Fund, and changes in the interest rate used in the calculation of
the distribution fee under the Plan.
As currently implemented by the Trustees, the Plan authorizes payments of
sales commissions and distribution fees to the Principal Underwriter and service
fees to the Principal Underwriter and Authorized Firms which may be equivalent,
on an aggregate basis during any fiscal year of the Fund, to .95% of the Fund's
average daily net assets for such year. For the sales commissions and service
fee payments made by the Fund and the outstanding Uncovered Distribution Charges
of the Principal Underwriter, see "Fees and Expenses -- Distribution Plan" in
this Part II. The Fund believes that the combined rate of all these payments may
be higher than the rate of payments made under distribution plans adopted by
other investment companies pursuant to Rule 12b-1. Although the Principal
Underwriter will use its own funds (which may be borrowed from banks) to pay
sales commissions at the time of sale, it is anticipated that the Eaton Vance
organization will profit by reason of the operation of the Plan through an
increase in the Fund's assets (thereby increasing the advisory fee payable to
BMR by the Portfolio) resulting from sale of Fund shares and through the amounts
paid to the Principal Underwriter, including contingent deferred sales charges,
pursuant to the Plan. The Eaton Vance organization may be considered to have
realized a profit under the Plan if at any point in time the aggregate amounts
theretofore received by the Principal Underwriter pursuant to the Plan and from
contingent deferred sales charges have exceeded the total expenses theretofore
incurred by such organization in distributing shares of the Fund. Total expenses
for this purpose will include an allocable portion of the overhead costs of such
organization and its branch offices, which costs will include without limitation
leasing expense, depreciation of building and equipment, utilities,
communication and postage expense, compensation and benefits of personnel,
travel and promotional expense, stationery and supplies, literature and sales
aids, interest expense, data processing fees, consulting and temporary help
costs, insurance, taxes other than income taxes, legal and auditing expense and
other miscellaneous overhead items. Overhead is calculated and allocated for
such purpose by the Eaton Vance organization in a manner deemed equitable to the
Fund.
The Plan continues in effect through and including April 28, 1996, and shall
continue in effect indefinitely thereafter for so long as such continuance is
approved at least annually by the vote of both a majority of (i) the Trustees of
the Trust who are not interested persons of the Trust and who have no direct or
indirect financial interest in the operation of the Plan or any agreements
related to the Plan (the "Rule 12b-1 Trustees") and (ii) all of the Trustees
then in office, and the Distribution Agreement contains a similar provision. The
Plan and Distribution Agreement may be terminated at any time by vote of a
majority of the Rule 12b-1 Trustees or by a vote of a majority of the
outstanding voting securities of the Fund. The provisions of the Plan relating
to payments of sales commissions and distribution fees to the Principal
Underwriter are also included in the Distribution Agreement between the Trust on
behalf of the Fund and the Principal Underwriter. Pursuant to Rule 12b-1, the
Plan has been approved by the Fund's initial sole shareholder (Eaton Vance) and
by the Board of Trustees of the Trust, including the Rule 12b-1 Trustees. Under
the Plan, the President or a Vice President of the Trust shall provide to the
Trustees for their review, and the Trustees shall review at least quarterly, a
written report of the amount expended under the Plan and the purposes for which
such expenditures were made. The Plan may not be amended to increase materially
the payments described therein without approval of the shareholders of the Fund,
and all material amendments of the Plan must also be approved by the Trustees as
required by Rule 12b-1. So long as the Plan is in effect, the selection and
nomination of Trustees who are not interested persons of the Trust shall be
committed to the discretion of the Trustees who are not such interested persons.
The Trustees believe that the Plan will be a significant factor in the
expected growth of the Fund's assets, and will result in increased investment
flexibility and advantages which will benefit the Fund and its shareholders.
Payments for sales commissions and distribution fees made to the Principal
Underwriter under the Plan will compensate the Principal Underwriter for its
services and expenses in distributing shares of the Fund. Service fee payments
made to the Principal Underwriter and Authorized Firms under the Plan provide
incentives to provide continuing personal services to investors and the
maintenance of shareholder accounts. By providing incentives to the Principal
Underwriter and Authorized Firms, the Plan is expected to result in the
maintenance of, and possible future growth in, the assets of the Fund. Based on
the foregoing and other relevant factors, the Trustees have determined that in
their judgment there is a reasonable likelihood that the Plan will benefit the
Fund and its shareholders.
PERFORMANCE INFORMATION
The tables below indicate the total return (capital changes plus
reinvestment of all distributions) on a hypothetical investment of $1,000 in the
Fund covering the life of the Fund from March 2, 1994 through January 31, 1995.
<TABLE>
<CAPTION>
VALUE OF A $1,000 INVESTMENT
VALUE OF VALUE OF
INVESTMENT INVESTMENT
BEFORE AFTER
DEDUCTING DEDUCTING TOTAL RETURN BEFORE TOTAL RETURN AFTER
THE THE DEDUCTING DEDUCTING
CONTINGENT CONTINGENT THE CONTINGENT DEFERRED THE CONTINGENT DEFERRED
DEFERRED DEFERRED SALES SALES CHARGE SALES CHARGE<F3>
INVESTMENT INVESTMENT AMOUNT OF SALES CHARGE CHARGE<F3> ------------------------ --------------------------
PERIOD DATE INVESTMENT ON 1/31/95 ON 1/31/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- --------- ---------- ---------- ------------ -------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of
the Fund<F1> 3/2/94 $1,000 $959.88<F2> $914.13<F2> -4.01%<F2> -- -8.59%<F2> --
PERCENTAGE CHANGES 3/2/94 -- 1/31/95
<CAPTION>
NET ASSET VALUE TO NET ASSET VALUE NET ASSET VALUE TO NET ASSET VALUE
BEFORE DEDUCTING THE CONTINGENT DEFERRED AFTER DEDUCTING THE CONTINGENT DEFERRED
SALES CHARGE WITH ALL DISTRIBUTIONS REINVESTED SALES CHARGE<F3> WITH ALL DISTRIBUTIONS REINVESTED
---------------------------------------------- -------------------------------------------------
PERIOD ENDED ANNUAL CUMULATIVE AVERAGE ANNUAL ANNUAL CUMULATIVE AVERAGE ANNUAL
- ------------ ------ ---------- -------------- ------ ---------- --------------
1/31/95<F1> -- -4.01%<F2> -- -- -8.59%<F2> --
Past performance is not indicative of future results. Investment return and
principal value will fluctuate and shares, when redeemed, may be worth more or
less than their original cost.
<FN>
- ----------
<F1> Investment operations began on March 2, 1994.
<F2> If a portion of the Portfolio's and/or the Fund's expenses had not been
subsidized, the Fund would have had lower returns.
<F3> No contingent deferred sales charge is imposed on shares purchased more
than six years prior to the redemption, shares acquired through the
reinvestment of distributions, or any appreciation in value of other shares
in the account, and no such charge is imposed on exchanges of Fund shares
for shares of one or more other funds listed under "The Eaton Vance
Exchange Privilege" in the Prospectus.
</TABLE>
For the thirty-day period ended January 31, 1995, the yield of the Fund was
5.55%. The yield required of a taxable security that would produce an after-tax
yield equivalent to that earned by the Fund of 5.55% would be 8.56%, assuming a
combined Federal and State tax rate of 35.20%. If a portion of the Portfolio's
and the Fund's expenses had not been allocated to the Investment Adviser and the
Administrator, respectively, the Fund would have had a lower yield.
The Fund's distribution rate (calculated on January 31, 1995 and based on
the Fund's monthly distribution paid January 16, 1994) was 5.36%, and the Fund's
effective distribution rate (calculated on the same date and based on the same
monthly distribution) was 5.49%. If a portion of the Portfolio's and the Fund's
expenses had not been allocated to the Investment Adviser and the Administrator,
respectively, the Fund would have had a lower distribution rate and effective
distribution rate.
The Portfolio's diversification by quality ratings as of March 31, 1995,
was:
RATING ASSIGNED BY PERCENT
MOODY'S, S&P OR FITCH OF BOND HOLDINGS
---------------------- -----------------
Aaa or AAA 44.3%
Aa or AA 33.7
A 13.2
Baa or BBB 6.5
Ba or BB --
B --
Below B --
Not rated 2.3
-----
Total 100.0%
The following information compares the taxable equivalent yield of an
investment in the Fund yielding a hypothetical 5.50% with the after-tax yield of
a certificate of deposit yielding 3.25%. The tax brackets used are the Federal
and Hawaii state income tax brackets applicable for 1995: 23.50% for single
filers with taxable income up to $23,350 and joint filers up to $39,000; 35.20%
for single filers with taxable income from $23,351 to $56,550 and joint filers
from $39,001 to $94,250; 37.90% for single filers with taxable income from
$56,551 to $117,950 and joint filers from $94,251 to $143,600, 42.40% for single
filers with taxable income from $117,951 to $256,500 and joint filers from
$143,601 to $256,500; and 45.64% for single and joint filers with taxable income
over $256,500. The applicable Federal tax rates within each of these combined
brackets are 15%, 28%, 31%, 36% and 39.6%, over the same ranges of income. The
assumed Hawaii state income tax rate is 10%. The combined brackets are not
simply the sum of each of the taxes, as they assume that state and city taxes
are deducted on the Federal income tax return, reducing the effective combined
tax brackets. Investors should consult with their tax advisers for more
information. This illustration is not meant to imply or predict any future rate
of return for the Fund.
TAX BRACKET
23.50% 35.20% 37.90% 42.40% 45.64%
------------------------------------------------------
Tax free yield ......... 5.50% 5.50% 5.50% 5.50% 5.50%
Taxable equivalent ..... 7.19 8.49 8.86 9.55 10.12
------------------------------------------------------
Certificates of deposit:
Yield .............. 3.25 3.25 3.25 3.25 3.25
After-tax yield .... 2.49 2.11 2.02 1.87 1.77
Marathon Hawaii
The Tax Free Yield Advantage
(42.40% combined tax bracket)
3.25% Certificate of deposit
3.25% Pretax yield
1.87% After-tax yield
5.00% Tax free investment
9.55% Taxable equivalent yield
5.50% Tax free yield
Example:
Two $100,000 investments . . .
3.25% CD 5.50% Tax free
Pretax income: $3,250.00 $5,500.00
Tax: (1,387.00) NONE
After-tax income: $1,872.00 $5,500.00
The 1995 combined tax bracket takes into account Federal and Hawaii state
income taxes. Based on an investment yielding 5.50% and assuming the
deductibility of state and city taxes on the Federal return, the bracket is
42.40% for single filers with taxable income from $117,951 to $256,500 and joint
filers from $143,601 to $256,500. Actual tax brackets may be higher due to the
phaseout of personal exemptions and limitations on the deductibility of itemized
deductions over certain ranges of income. Your actual bracket will vary
depending on your income, exemptions and deductions. See your tax adviser for
additional information. The chart is based on 3-month bank CDs (Sources: The
Wall Street Journal and Eaton Vance Management). Tax free yields are shown for
illustration purposes only and are not meant to represent actual results of an
investment in the Fund. See your financial adviser for the Fund's current yield
and actual CD rates.
ADDITIONAL TAX MATTERS
The Fund qualified as a RIC under the Code for its taxable year ended
January 31, 1995 (see Notes to Financial Statements).
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As at April 30, 1995, the Trustees and officers of the Trust, as a group,
owned in the aggregate less than 1% of the outstanding shares of the Fund. As of
April 30, 1995, to the Trust's knowledge, no other person owned of record or
beneficially 5% or more of the Fund's outstanding shares on such date.
TAX EQUIVALENT YIELD TABLE
The table below shows the effect of the tax status of bonds on the tax
equivalent yield received by their holders under the regular Federal income tax
and the Hawaii State individual income tax laws and tax rates applicable for
1995. It gives the approximate yield a taxable security must earn at various
income brackets to produce after-tax yields equivalent to those of tax exempt
bonds yielding from 4% to 7%.
<TABLE>
<CAPTION>
A FEDERAL AND HAWAII STATE
COMBINED TAX EXEMPT YIELD OF
SINGLE RETURN JOINT RETURN FEDERAL AND 4% 4.5% 5% 5.5% 6% 6.5% 7%
- ------------------- ------------------ HI STATE ---------------------------------------------------------------------------
(TAXABLE INCOME)<F1> TAX BRACKET<F2> IS EQUIVALENT TO A FULLY TAXABLE YIELD OF:
- --------------------------------------- ----------- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $ 23,350 Up to $ 39,000 23.50% 5.23% 5.88% 6.54% 7.19% 7.84% 8.50% 9.15%
$ 23,351 - $ 56,500 $ 39,001 - $ 94,250 35.20 6.17 6.94 7.72 8.49 9.26 10.03 10.80
$ 56,551 - $117,950 $ 94,251 - $143,600 37.90 6.44 7.25 8.05 8.86 9.66 10.47 11.27
$117,951 - $256,500 $143,601 - $256,500 42.40 6.94 7.81 8.68 9.55 10.42 11.28 12.15
Over $256,500 Over $256,500 45.64 7.36 8.28 9.20 10.12 11.04 11.96 12.88
Yields shown are for illustration purposes only and are not meant to represent
the Fund's actual yield.
<FN>
<F1> Net amount subject to the Federal and Hawaii individual income tax after
deductions and exemptions.
<F2> The first two tax brackets are calculated using the highest Hawaii tax rate
within the bracket. Taxpayers with taxable income within these brackets may
have a lower combined bracket and taxable equivalent yield than indicated
above. The combined tax rates assume that Hawaii taxes are Itemized
Deductions for Federal income tax purposes. Investors who do not itemize
deductions on their Federal Income Tax Return will have a higher combined
bracket and higher taxable equivalent yield than those indicated above.
</TABLE>
Note: The Federal Income Tax portion of above-indicated combined income tax
brackets does not take into account the effect of a reduction in the
deductibility of Itemized Deductions (including Hawaii State Income Taxes) for
taxpayers with Adjusted Gross Income in excess of $114,700. The tax brackets
also do not show the effects of phaseout of personal exemptions for single
filers with Adjusted Gross Income in excess of $114,700 and joint filers with
Adjusted Gross Income in excess of $172,050. The effective tax brackets and
equivalent taxable yields of such taxpayers will be higher than those indicated
above.
Of course, no assurance can be given that EV Marathon Hawaii Tax Free Fund will
achieve any specific tax exempt yield. While it is expected that the Portfolio
will invest principally in obligations the interest from which is exempt from
the regular Federal income tax and Hawaii individual income taxes, other income
received by the Portfolio and allocated to the Fund may be taxable. The table
does not take into account state or local taxes, if any, payable on Fund
distributions except for Hawaii individual income taxes. It should also be noted
that the interest earned on certain "private activity bonds" issued after August
7,1986, while exempt from the regular Federal income tax, is treated as a tax
preference item which could subject the recipient to the Federal alternative
minimum tax. The illustrations assume that the Federal alternative minimum tax
is not applicable and do not take into account any tax credit that may be
available. Subsequent tax law changes could result in prospective or retroactive
changes in the tax brackets, tax rates, and tax equivalent yields set forth
above.
The information set forth above is as of the date of this Statement of
Additional Information. Subsequent tax law changes could result in prospective
or retroactive changes in the tax brackets, tax rates, and tax equivalent yields
set forth above.
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV MARATHON KANSAS TAX FREE FUND.
The investment objective of the Fund is to provide current income exempt from
regular Federal income tax and Kansas State personal income taxes. The Fund
currently seeks to achieve its investment objective by investing its assets in
the Kansas Tax Free Portfolio (the "Portfolio").
RISKS OF CONCENTRATION
The following information as to certain Kansas considerations is given to
investors in view of the Portfolio's policy of concentrating its investments in
Kansas issuers. Such information is derived from sources that are generally
available to investors and is believed to be accurate. Such information
constitutes only a brief summary, does not purport to be a complete description
and is based on information from official statements relating to securities
offerings of Kansas issuers. Neither the Trust nor the Portfolio has
independently verified this information.
Traditionally a farm-based economy, recent growth in the trade, services and
manufacturing sectors has decreased Kansas' strong dependence on agriculture. At
present, the Kansas economy has four major economic sectors (wholesale and
retail trade, manufacturing, services, and government) which employ from 16 to
24 percent of the labor force. Agriculture employed an estimated 4.7 percent of
the work force in 1994.
Primary sources of state revenue are a 4.9% sales tax, a corporate income
tax between 4% and 7.35% and an individual income tax between 3.5% and 7.75%. In
1994, the sales tax constituted 31% of taxes collected. The largest percentage
of expenditures from all state funds are in the areas of education and research
(public schools, state universities, state board of education) and human
resources (assistance programs). General property taxes generate a large portion
of local tax revenue. Local sales and use taxes have provided an increased
amount of revenue, from $30 million in 1980 to $307.9 million in 1994, as voters
in more cities and counties have elected to impose the tax or to raise the tax
rate to the maximum permitted by state law.
The state's 1994 General Fund showed total revenues of $3.2 billion against
total expenditures of $2.5 billion. In 1990, the Kansas legislature approved
House Bill 2867 which established ending balances as a mechanism to hold state
expenditure growth to the level of revenue growth. House Bill 2867 requires that
in each fiscal year certain funds be transferred from the state General Fund to
the newly created cash operating reserve fund. The reserve fund is designed to
be available in the event that revenues in the General Fund are insufficient to
meet budgeted expenditures. House Bill 2867 also provides that state General
Fund balances in addition to the cash operating reserve fund must be one percent
of expenditures in fiscal year 1993, two percent of expenditures in fiscal year
1994 and 2.5 percent in 1995 and each fiscal year thereafter.
FEES AND EXPENSES
INVESTMENT ADVISER
As of January 31, 1995, the Portfolio had net assets of $8,306,028. For the
period from the Portfolio's start of business, March 2, 1994 to January 31,
1995, absent a fee reduction, the Portfolio would have paid BMR advisory fees of
$7,589 (equivalent to 0.16% (annualized) of the Portfolio's average daily net
assets for such period). To enhance the net income of the Portfolio, BMR made a
reduction of its advisory fee in the amount of $7,589 and BMR was allocated
expenses related to the operation of the Portfolio in the amount of $12,847. The
Portfolio's Investment Advisory Agreement with BMR is dated February 25, 1994
and remains in effect until February 28, 1996. The Agreement may be continued as
described under "Investment Adviser and Administrator" in Part I of this
Statement of Additional Information.
ADMINISTRATOR
As stated under "Investment Adviser and Administrator" in Part I of this
Statement of Additional Information, the Administrator receives no compensation
for providing administrative services to the Fund. For the period from the start
of business, March 2, 1994, to January 31, 1995, $18,544 of the Fund's operating
expenses were allocated to the Administrator.
DISTRIBUTION PLAN
For the period from the start of business, March 2, 1994, to January 31,
1995, the Fund made sales commission payments under the Plan to the Principal
Underwriter aggregating $32,532, which amount was used by the Principal
Underwriter to partially defray sales commissions aggregating $233,903 paid
during such period by the Principal Underwriter to Authorized Firms on sales of
shares of the Fund. During such period contingent deferred sales charges
aggregating approximately $3,700 were imposed on early redeeming shareholders
and paid to the Principal Underwriter, which amount was used by the Principal
Underwriter to partially defray such sales commissions. As at January 31, 1995,
the outstanding Uncovered Distribution Charges of the Principal Underwriter
calculated under the Plan amount to approximately $353,000 (which amount was
equivalent to 4.5% of the Fund's net assets on such day). For the period from
the start of business, March 2, 1994, to January 31, 1995, the Fund did not
accrue or pay any service fees under the Plan. The Fund began accruing for its
service fee payments during the quarter ending June 30, 1995.
PRINCIPAL UNDERWRITER
For the period from the start of business, March 2, 1994, to January 31,
1995, the Fund paid the Principal Underwriter $22.50 for repurchase transactions
handled (being $2.50 for each such transaction).
CUSTODIAN
For the period from the start of business, March 2, 1994, to January 31,
1995, the Fund paid IBT $4,284. For the period from the start of business, March
2, 1994, to January 31, 1995, the Portfolio paid IBT $3,363.
BROKERAGE
For the period from the start of business, March 2, 1994, to January 31,
1995, the Portfolio paid no brokerage commissions on portfolio transactions.
TRUSTEES
The fees and expenses of those Trustees of the Trust and of the Portfolio
who are not members of the Eaton Vance organization (the noninterested Trustees)
are paid by the Fund (and the other series of the Trust) and the Portfolio,
respectively. (The Trustees of the Trust and of the Portfolio who are members of
the Eaton Vance organization receive no compensation from the Trust or the
Portfolio.) During the fiscal year ended January 31, 1995, the noninterested
Trustees of the Trust and the Portfolio earned the following compensation in
their capacities as Trustees from the Fund and the Portfolio, and, during the
first quarter ended March 31, 1995, earned the following compensation in their
capacities as Trustees of the other funds in the Eaton Vance fund complex1:
<TABLE>
AGGREGATE AGGREGATE RETIREMENT TOTAL COMPENSATION
COMPENSATION COMPENSATION BENEFIT ACCRUED FROM TRUST
NAME FROM FUND FROM PORTFOLIO FROM FUND COMPLEX AND FUND COMPLEX
- ---- ------------ -------------- ----------------- ------------------
<S> <C> <C> <C> <C>
Donald R. Dwight ............. $8 $8<F2> $ 8,750 $33,750
Samuel L. Hayes, III ......... 8 $8<F3> 24,885 41,250
Norton H. Reamer ............. 8 8 --0-- 33,750
John L. Thorndike ............ 8 8 --0-- 35,000
Jack L. Treynor .............. 8 9 --0-- 35,000
<FN>
- ----------
<F1> The Eaton Vance fund complex consists of 205 registered investment
companies or series thereof.
<F2> Includes $3 of deferred compensation.
<F3> Includes $3 of deferred compensation.
</TABLE>
PRINCIPAL UNDERWRITER
Under the Distribution Agreement the Principal Underwriter acts as principal
in selling shares of the Fund. The expenses of printing copies of prospectuses
used to offer shares to financial service firms ("Authorized Firms") or
investors and other selling literature and of advertising is borne by the
Principal Underwriter. The fees and expenses of qualifying and registering and
maintaining qualifications and registrations of the Fund and its shares under
Federal and state securities laws is borne by the Fund. In addition, the Fund
makes payments to the Principal Underwriter pursuant to its Distribution Plan as
described in the Fund's current Prospectus; the provisions of the Fund's
Distribution Plan relating to such payments are included in the Distribution
Agreement. The Distribution Agreement is renewable annually by the Trust's Board
of Trustees (including a majority of its Trustees who are not interested persons
of the Trust and who have no direct or indirect financial interest in the
operation of the Fund's Distribution Plan or the Distribution Agreement), may be
terminated on sixty days' notice either by such Trustees or by vote of a
majority of the outstanding voting securities of the Fund or on six months'
notice by the Principal Underwriter and is automatically terminated upon
assignment. The Principal Underwriter distributes Fund shares on a "best
efforts" basis under which it is required to take and pay for only such shares
as may be sold.
The Fund has authorized the Principal Underwriter to act as its agent in
repurchasing shares at the rate of $2.50 for each repurchase transaction handled
by the Principal Underwriter. The Principal Underwriter estimates that the
expenses incurred by it in acting as repurchase agent for the Fund will exceed
the amounts paid therefor by the Fund. For the amount paid by the Fund to the
Principal Underwriter for acting as repurchase agent, see "Fees and Expenses" in
this Part II.
DISTRIBUTION PLAN
The Distribution Plan ("the Plan") is described in the Prospectus and is
designed to meet the requirements of Rule 12b-1 under the 1940 Act and the sales
charge rule of the National Association of Securities Dealers, Inc. (the "NASD
Rule"). The purpose of the Plan is to compensate the Principal Underwriter for
its distribution services and facilities provided to the Fund by paying the
Principal Underwriter sales commissions and a separate distribution fee in
connection with sales of Fund shares. The following supplements the discussion
of the Plan contained in the Fund's Prospectus.
The amount payable to the Principal Underwriter pursuant to the Plan as
sales commissions and distribution fees with respect to each day will be accrued
on such day as a liability of the Fund and will accordingly reduce the Fund's
net assets upon such accrual, all in accordance with generally accepted
accounting principles. The amount payable on each day is limited to 1/365 of
.75% of the fund's net assets on such day. The level of the Fund's net assets
changes each day and depends upon the amount of sales and redemptions of Fund
shares, the changes in the value of the investments held by the Portfolio, the
expenses of the Fund and the Portfolio accrued and allocated to the Fund on such
day, income on portfolio investments of the Portfolio accrued and allocated to
the Fund on such day, and any dividends and distributions declared on Fund
shares. The Fund does not accrue possible future payments as a liability of the
Fund or reduce the Fund's current net assets in respect of unknown amounts which
may become payable under the Plan in the future because the standards for
accrual of a liability under such accounting principles have not been satisfied.
The Plan provides that the Fund will receive all contingent deferred sales
charges and will make no payments to the Principal Underwriter in respect of any
day on which there are no outstanding Uncovered Distribution Charges of the
Principal Underwriter. Contingent deferred sales charges and accrued amounts
will be paid by the Fund to the Principal Underwriter whenever there exist
Uncovered Distribution Charges under the Fund's Plan.
Periods with a high level of sales of Fund shares accompanied by a low level
of early redemptions of Fund shares resulting in the imposition of contingent
deferred sales charges will tend to increase the time during which there will
exist Uncovered Distribution Charges of the Principal Underwriter. Conversely,
periods with a low level of sales of Fund shares accompanied by a high level of
early redemptions of Fund shares resulting in the imposition of contingent
deferred sales charges will tend to reduce the time during which there will
exist Uncovered Distribution Charges of the Principal Underwriter.
In calculating daily the amount of Uncovered Distribution Charges,
distribution charges will include the aggregate amount of sales commissions and
distribution fees theretofore paid plus the aggregate amount of sales
commissions and distribution fees which the Principal Underwriter is entitled to
be paid under the Plan since its inception. Payments theretofore paid or payable
under the Plan by the Fund to the Principal Underwriter and contingent deferred
sales charges theretofore paid or payable to the Principal Underwriter will be
subtracted from such distribution charges; if the result of such subtraction is
positive, a distribution fee (computed at 1% over the prime rate then reported
in The Wall Street Journal) will be computed on such amount and added thereto,
with the resulting sum constituting the amount of outstanding Uncovered
Distribution Charges with respect to such day. The amount of outstanding
Uncovered Distribution Charges of the Principal Underwriter calculated on any
day does not constitute a liability recorded on the financial statements of the
Fund.
The amount of Uncovered Distribution Charges of the Principal Underwriter at
any particular time depends upon various changing factors, including the level
and timing of sales of Fund shares, the nature of such sales (i.e., whether they
result from exchange transactions, reinvestments or from cash sales through
Authorized Firms), the level and timing of redemptions of Fund shares upon which
a contingent deferred sales charge will be imposed, the level and timing of
redemptions of Fund shares upon which no contingent deferred sales charge will
be imposed (including redemptions involving exchanges of Fund shares for shares
of another fund in the Eaton Vance Marathon Group of Funds which result in a
reduction of Uncovered Distribution Charges), changes in the level of the net
assets of the Fund, and changes in the interest rate used in the calculation of
the distribution fee under the Plan.
As currently implemented by the Trustees, the Plan authorizes payments of
sales commissions and distribution fees to the Principal Underwriter and service
fees to the Principal Underwriter and Authorized Firms which may be equivalent,
on an aggregate basis during any fiscal year of the Fund, to .95% of the Fund's
average daily net assets for such year. For the sales commissions and service
fee payments made by the Fund and the outstanding Uncovered Distribution Charges
of the Principal Underwriter, see "Fees and Expenses -- Distribution Plan" in
this Part II. The Fund believes that the combined rate of all these payments may
be higher than the rate of payments made under distribution plans adopted by
other investment companies pursuant to Rule 12b-1. Although the Principal
Underwriter will use its own funds (which may be borrowed from banks) to pay
sales commissions at the time of sale, it is anticipated that the Eaton Vance
organization will profit by reason of the operation of the Plan through an
increase in the Fund's assets (thereby increasing the advisory fee payable to
BMR by the Portfolio) resulting from sale of Fund shares and through the amounts
paid to the Principal Underwriter, including contingent deferred sales charges,
pursuant to the Plan. The Eaton Vance organization may be considered to have
realized a profit under the Plan if at any point in time the aggregate amounts
theretofore received by the Principal Underwriter pursuant to the Plan and from
contingent deferred sales charges have exceeded the total expenses theretofore
incurred by such organization in distributing shares of the Fund. Total expenses
for this purposes will include an allocable portion of the overhead costs of
such organization and its branch offices, which costs will include without
limitation leasing expense, depreciation of building and equipment, utilities,
communication and postage expense, compensation and benefits of personnel,
travel and promotional expense, stationery and supplies, literature and sales
aids, interest expense, data processing fees, consulting and temporary help
costs, insurance, taxes other than income taxes, legal and auditing expense and
other miscellaneous overhead items. Overhead is calculated and allocated for
such purpose by the Eaton Vance organization in a manner deemed equitable to the
Fund.
The Plan continues in effect through and including April 28, 1996, and shall
continue in effect indefinitely thereafter for so long as such continuance is
approved at least annually by the vote of both a majority of (i) the Trustees of
the Trust who are not interested persons of the Trust and who have no direct or
indirect financial interest in the operation of the Plan or any agreements
related to the Plan (the "Rule 12b-1 Trustees") and (ii) all of the Trustees
then in office, and the Distribution Agreement contains a similar provision. The
Plan and Distribution Agreement may be terminated at any time by vote of a
majority of the Rule 12b-1 Trustees or by a vote of a majority of the
outstanding voting securities of the Fund. The provisions of the Plan relating
to payments of sales commissions and distribution fees to the Principal
Underwriter are also included in the Distribution Agreement between the Trust on
behalf of the Fund and the Principal Underwriter. Pursuant to Rule 12b-1, the
Plan has been approved by the Fund's initial sole shareholder (Eaton Vance) and
by the Board of Trustees of the Trust, including the Rule 12b-1 Trustees. Under
the Plan, the President or a Vice President of the Trust shall provide to the
Trustees for their review, and the Trustees shall review at lest quarterly, a
written report of the amount expended under the Plan and the purposes for which
such expenditures were made. The Plan may not be amended to increase materially
the payments described therein without approval of the shareholders of the Fund,
and all material amendments of the Plan must also be approved by the Trustees as
required by Rule 12b-1. So long as the Plan is in effect, the selection and
nomination of Trustees who are not interested persons of the Trust shall be
committed to the discretion of the Trustees who are not such interested persons.
The Trustees believe that the Plan will be a significant factor in the
expected growth of the Fund's assets, and will result in increased investment
flexibility and advantages which will benefit the Fund and its shareholders.
Payments for sales commissions and distribution fees made to the Principal
Underwriter under the Plan will compensate the Principal Underwriter for its
services and expenses in distributing shares of the Fund. Service fee payments
made to the Principal Underwriter and Authorized Firms under the Plan provide
incentives to provide continuing personal services to investors and the
maintenance of shareholder accounts. By providing incentives to the Principal
Underwriter and Authorized Firms, the Plan is expected to result in the
maintenance of, and possible future growth in, the assets of the Fund. Based on
the foregoing and other relevant factors, the Trustees have determined that in
their judgment there is a reasonable likelihood that the Plan will benefit the
Fund and its shareholders.
PERFORMANCE INFORMATION
The table below indicates the total return (capital changes plus
reinvestment of all distributions) on a hypothetical investment of $1,000 in the
Fund covering the life of the Fund from March 2, 1994 through January 31, 1995.
<TABLE>
VALUE OF A $1,000 INVESTMENT
<CAPTION>
VALUE OF
INVESTMENT VALUE OF
BEFORE INVESTMENT TOTAL RETURN TOTAL RETURN
CONTINGENT AFTER BEFORE DEDUCTING AFTER DEDUCTING
DEFERRED CONTINGENT CONTINGENT DEFERRED CONTINGENT DEFERRED
SALES DEFERRED SALES CHARGE SALES CHARGE***
INVESTMENT INVESTMENT AMOUNT OF CHARGE SALES CHARGE<F3> ------------------------ ------------------------
PERIOD DATE INVESTMENT ON 1/31/95 ON 1/31/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ---------- ---------- ---------- ---------- --------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of the
Fund<F1> 3/2/94 $1,000 $1,001.63<F2> $953.83<F2> 0.16%<F2> -- -4.62%<F2> --
PERCENTAGE CHANGES 3/2/94--1/31/95
<CAPTION>
NET ASSET VALUE TO NET ASSET VALUE NET ASSET VALUE TO NET ASSET VALUE
BEFORE DEDUCTING THE CONTINGENT DEFERRED AFTER DEDUCTING THE CONTINGENT DEFERRED
SALES CHARGE WITH ALL DISTRIBUTIONS REINVESTED SALES CHARGE<F3> WITH ALL DISTRIBUTIONS REINVESTED
---------------------------------------------- --------------------------------------------------
PERIOD ENDED ANNUAL CUMULATIVE AVERAGE ANNUAL ANNUAL CUMULATIVE AVERAGE ANNUAL
- ------------ ------ ---------- -------------- ------ ---------- ---------
<C> <C> <C> <C> <C> <C> <C>
1/31/95<F1> -- 0.16%<F2> -- -- -4.62%<F2> --
Past performance is not indicative of future results. Investment return
and principal value will fluctuate; shares, when redeemed, may be worth more or
less than their original cost.
<FN>
- ------------
<F1> Investment operations began on March 2, 1994.
<F2> If a portion of the Portfolio's and/or the Fund's expenses had not been
subsidized, the Fund would have had lower returns.
<F3> No contingent deferred sales charge is imposed on shares purchased more
than six years prior to the redemption, shares acquired through the
reinvestment of distributions, or any appreciation in value or other shares
in the account, and no such charge is imposed on exchanges of Fund shares
for shares of one or more other funds listed under "The Eaton Vance
Exchange Privilege" in the Prospectus.
</TABLE>
For the thirty-day period ended January 31, 1995, the yield of the Fund was
5.39%. The yield required of a taxable security that would produce an after-tax
yield equivalent to that earned by the Fund of 5.39% would be 8.11%, assuming a
combined Federal and State tax rate of 33.58%. If a portion of the Portfolio's
and the Fund's expenses had not been allocated to the Investment Adviser and the
Administrator, respectively, the Fund would have had a lower yield.
The Fund's distribution rate (calculated on January 31, 1995 and based on
the Fund's monthly distribution paid January 16, 1995) was 5.05%, and the Fund's
effective distribution rate (calculated on the same date and based on the same
monthly distribution) was 5.17%. If a portion of the Portfolio's and the Fund's
expenses had not been allocated to the Investment Adviser and the Administrator,
respectively, the Fund would have had a lower distribution rate and effective
distribution rate.
The Portfolio's diversification by quality ratings as of March 31, 1995,
was:
RATING ASSIGNED BY PERCENT
MOODY'S, S&P OR FITCH OF BOND HOLDINGS
--------------------- ----------------
Aaa or AAA 57.8%
Aa or AA 29.1
A 7.3
Baa or BBB 5.8
Ba or BB --
B --
Below B --
Not rated --
-----
Total 100.0%
The following information compares the taxable equivalent yield of an
investment in the Fund yielding a hypothetical 5.00% with the after-tax yield of
a certificate of deposit yielding 3.25%. The tax brackets used are the Federal
and Kansas income tax brackets applicable for 1995: 22.23% for joint filers with
taxable income up to $39,000; 34.26% for joint filers with taxable income from
$39,001 to $94,250; 37.00% for joint filers with taxable income from $94,251 to
$143,600; 41.57% for joint filers with taxable income from $143,601 to $256,500;
and 44.85% for joint filers with taxable income over $256,500. The applicable
Federal tax rates within each of these combined brackets are 15%, 28%, 31%, 36%
and 39.6%, over the same ranges of income. The combined tax brackets include the
applicable Kansas State tax rate and a local intangibles tax rate of 2.25%. The
combined brackets are not simply the sum of each of the taxes, as they assume
that state and local taxes are deducted on the Federal income tax return,
reducing the effective combined tax brackets.
MARRIED INDIVIDUALS FILING JOINT RETURN
TAX BRACKET
22.23% 34.26% 37.00% 41.57% 44.85%
--------------------------------------------------
Tax free yield .......... 5.00% 5.00% 5.00% 5.00% 5.00%
Taxable equivalent ...... 6.43 7.61 7.94 8.56 9.07
Certificates of deposit:
Yield ............... 3.25 3.25 3.25 3.25 3.25
After-tax yield ..... 2.53 2.14 2.05 1.90 1.79
Marathon Kansas (joint)
The Tax Free Yield Advantage
(41.57% combined tax bracket)
3.25% Certificate of deposit
3.25% Pretax yield
1.90% After-tax yield
5.00% Tax free investment
8.56% Taxable equivalent yield
5.00% Tax free yield
Example:
Two $100,000 investments . . .
3.25% CD 5.00% Tax free
Pretax income: $3,250.00 $5,000.00
Tax: (1,351.03) NONE
After-tax income: $1,898.97 $5,000.00
The 1995 combined tax bracket takes into account Federal and Kansas State
income taxes as well as the Kansas local intangibles tax. Assuming the
deductibility of state and local taxes on the Federal return, the bracket is
41.57% for joint filers with taxable income from $143,601 to $256,500. Actual
tax brackets may be higher due to the phaseout of personal exemptions and
limitations on the deductibility of itemized deductions over certain ranges of
income. Your actual bracket will vary depending on your income, exemptions and
deductions. See your tax adviser for additional information. The chart is based
on 3-month bank CDs (Sources: The Wall Street Journal and Eaton Vance
Management). Tax free yields are shown for illustration purposes only and are
not meant to represent actual results of an investment in the Fund. See your
financial adviser for the Fund's current yield and actual CD rates.
The combined Federal and Kansas tax brackets indicated in the following
chart (comparing the taxable equivalent yield of a hypothetical tax free yield
of 5.00% with the after-tax yield of a bank certificate of deposit yielding
3.25%) are the same combined brackets indicated for single individuals in the
Tax Equivalent Yield Table included herein. These combined brackets, which are
based on 1995 tax rates, are 23.29% for single filers with taxable income up to
$23,350; 35.20% for single filers with taxable income from $23,351 to $56,550;
37.90% for single filers with taxable income from $56,551 to $117,950; 42.40%
for single filers with taxable income from $117,951 to $256,500; and 45.64% for
single filers with taxable income over $256,500. The applicable Federal tax
rates within each of these combined brackets are 15%, 28%, 31%, 36% and 39.6%
over the same ranges of income. The combined tax brackets included the
applicable Kansas State tax rate and a Kansas local intangibles tax rate of
2.25%. The combined brackets are not simply the sum of each of the taxes, as
they assume that state taxes are deducted on the Federal Income tax return,
reducing the effective combined tax brackets.
SINGLE INDIVIDUALS FILING SINGLE RETURN
TAX BRACKET
23.29% 35.20% 37.90% 42.40% 45.64%
-------------------------------------------------
Tax free yield .......... 5.00% 5.00% 5.00% 5.00% 5.00%
Taxable equivalent ...... 6.52 7.72 8.05 8.68 9.20
Certificates of deposit:
Yield ............... 3.25 3.25 3.25 3.25 3.25
After-tax yield ..... 2.49 2.11 2.02 1.87 1.77
Marathon Kansas (single)
The Tax Free Yield Advantage
(42.40% combined tax bracket)
3.25% Certificate of deposit
3.25% Pretax yield
1.87% After-tax yield
5.00% Tax free investment
8.68% Taxable equivalent yield
5.00% Tax free yield
Example:
Two $100,000 investments . . .
3.25% CD 5.00% Tax free
Pretax income: $3,250.00 $5,000.00
Tax: (1,378.00) NONE
After-tax income: $1,872.00 $5,000.00
The 1995 combined tax bracket takes into account Federal and Kansas State
income taxes as well as the Kansas local intangibles tax. Assuming the
deductibility of state and local taxes on the Federal return, the bracket is
42.40% for single filers with taxable income from $117,951 to $256,500. Actual
tax brackets may be higher due to the phaseout of personal exemptions and
limitations on the deductibility of itemized deductions over certain ranges of
income. Your actual bracket will vary depending on your income, exemptions and
deductions. See your tax adviser for additional information. The chart is based
on 3-month bank CDs (Source: The Wall Street Journal and Eaton Vance
Management). Tax free yields are shown for illustration purposes only and are
not meant to represent actual results of an investment in the Fund. See your
financial adviser for the Fund's current yield and actual CD rates.
ADDITIONAL TAX MATTERS
The Fund qualified as a RIC under the Code for its taxable year ended
January 31, 1995 (see Notes to Financial Statements).
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As at April 30, 1995, the Trustees and officers of the Trust, as a group,
owned in the aggregate less than 1% of the outstanding shares of the Fund. As of
April 30, 1995, Merrill Lynch, Pierce, Fenner & Smith, Inc., New Brunswick, NJ
was the record owner of approximately 9.9% of the outstanding shares, which were
held on behalf of its customers who are the beneficial owners of such shares,
and as to which it had voting power under certain limited circumstances. To the
Trust's knowledge, no other person owned of record or beneficially 5% or more of
the Fund's outstanding shares on such date.
TAX EQUIVALENT YIELD TABLE
The table below shows the effect of the tax status of bonds on the tax
equivalent yield received by their holders under the regular Federal income tax
and Kansas State income tax laws in effect for 1995. It gives the approximate
yield a taxable security must earn at various income brackets to produce
after-tax yields equivalent to those of tax-exempt bonds yielding from 4% to 7%
for married individuals filing a joint return.
<TABLE>
<CAPTION>
A FEDERAL AND KANSAS STATE
COMBINED TAX EXEMPT YIELD OF:
JOINT RETURN FEDERAL AND 4% 4.5% 5% 5.5% 6% 6.5% 7%
- ------------------- KS STATE -----------------------------------------------------------------------------
TAXABLE INCOME<F1> TAX BRACKET<F2> IS EQUIVALENT TO A FULLY TAXABLE YIELD OF:
- ------------------- -----------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 0 - $ 39,000 22.23% 5.14% 5.79% 6.43% 7.07% 7.71% 8.36% 9.00%
$ 39,001 - $ 94,250 34.26 6.08 6.85 7.61 8.37 9.13 9.89 10.65
$ 94,251 - $143,600 37.00 6.35 7.14 7.94 8.73 9.52 10.32 11.11
$143,601 - $256,500 41.57 6.85 7.70 8.56 9.41 10.27 11.12 11.98
Over $256,500 44.85 7.25 8.16 9.07 9.97 10.88 11.79 12.69
Yields shown are for illustration purposes only and are not meant to represent
the Fund's actual yield.
<FN>
<F1> Net amount subject to Federal and Kansas personal income tax after
deductions and exemptions.
<F2> The combined tax rates are calculated using the highest State income tax
rate for each Federal income tax bracket shown and a local intangibles rate
of 2.25%. An investor with taxable income below the highest dollar amount
in the lowest bracket and/or residing in a county, city or township
imposing a lower intangibles tax rate may have a lower combined tax rate
and taxable equivalent yield than shown above.
</TABLE>
The table below shows the effect of the tax status of bonds on the tax
equivalent yield received by their holders under the regular Federal income tax
and Kansas State income tax laws in effect for 1995. It gives the approximate
yield a taxable security must earn at various income brackets to produce
after-tax yields equivalent to those of tax-exempt bonds yielding from 4% to 7%
for single individuals.
<TABLE>
<CAPTION>
A FEDERAL AND KANSAS STATE
COMBINED TAX EXEMPT YIELD OF:
SINGLE RETURN FEDERAL AND 4% 4.5% 5% 5.5% 6% 6.5% 7%
------------------ KS STATE -----------------------------------------------------------------------------
TAXABLE INCOME<F1> TAX BRACKET<F2> IS EQUIVALENT TO A FULLY TAXABLE YIELD OF:
- ------------------- ------------ -----------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 0 - $ 23,350 23.29% 5.21% 5.87% 6.52% 7.17% 7.82% 8.47% 9.12%
$ 23,351 - $ 56,550 35.20 6.17 6.94 7.72 8.49 9.26 10.03 10.80
$ 56,551 - $117,950 37.90 6.44 7.25 8.05 8.86 9.66 10.47 11.27
$117,951 - $256,500 42.40 6.94 7.81 8.68 9.55 10.42 11.28 12.15
Over $256,500 45.64 7.36 8.28 9.20 10.12 11.04 11.96 12.88
Yields shown are for illustration purposes only and are not meant to represent
the Fund's actual yield.
<FN>
<F1>Net amount subject to Federal and Kansas personal income tax after
deductions and exemptions.
<F2> The combined tax rates are calculated using the highest State income tax
rate for each Federal income bracket shown and a local intangibles rate of
2.25%. An investor with taxable income below the highest dollar amount in
the lowest bracket and/or residing in a county, city or township imposing a
lower intangibles tax rate may have a lower combined tax rate and taxable
equivalent yield than shown above.
</TABLE>
Note: Of course, no assurance can be given that EV Marathon Kansas Tax Free Fund
will achieve any specific tax exempt yield. While it is expected that the
Portfolio will invest principally in obligations, the interest from which is
exempt from the regular Federal income tax and Kansas personal income taxes,
other income received by the Portfolio and allocated to the Fund may be taxable.
The table does not take into account state or local taxes, if any, payable on
Fund distributions except for Kansas personal income taxes. It should also be
noted that the interest earned on certain "private activity bonds" issued after
August 7, 1986, while exempt from the regular Federal income tax, is treated as
a tax preference item which could subject the recipient to the Federal
alternative minimum tax. The illustrations assume that the Federal alternative
minimum tax is not applicable and do not take into account any tax credits that
may be available.
The above-indicated combined Federal and Kansas State income brackets assume
State and local intangibles income taxes are Itemized Deductions and do not take
into account the effect of a reduction in the deductibility of Itemized
Deductions (including Kansas State and local intangibles income taxes) for
taxpayers with Adjusted Gross Income in excess of $114,700, nor do they reflect
phaseout of personal exemptions for single and joint filers with Adjusted Gross
Income in excess of $114,700 and $172,050, respectively. The effective combined
tax brackets and equivalent taxable yields of such taxpayers will be higher than
those indicated above.
The information set forth above is as of the date of this Statement of
Additional Information. Subsequent tax law changes could result in prospective
or retroactive changes in the tax brackets, tax rates, and tax equivalent yields
set forth above.
FINANCIAL STATEMENTS
Registrant incorporates by reference the audited financial information for
each Fund and its corresponding Portfolio contained in the Funds' shareholder
report for the fiscal year ended January 31, 1995 as previously filed
electronically with the Securities and Exchange Commission (Accession Number
0000950135-95-000873).
<PAGE>
PORTFOLIO INVESTMENT ADVISER
Boston Management and Research
24 Federal Street
Boston, MA 02110
FUND ADMINISTRATOR
Eaton Vance Management
24 Federal Street
Boston, MA 02110
PRINCIPAL UNDERWRITER
Eaton Vance Distributors, Inc.
24 Federal Street
Boston, MA 02110
(800) 225-6265
CUSTODIAN
Investors Bank & Trust Company
24 Federal Street
Boston, MA 02110
TRANSFER AGENT
The Shareholder Services Group, Inc.
BOS725
P.O. Box 1559
Boston, MA 02104
(800) 262-1122
AUDITORS
Deloitte & Touche LLP
125 Summer Street
Boston, MA 02110
EV MARATHON
TAX FREE FUNDS
24 FEDERAL STREET
BOSTON, MA 02110
M-TFC6/1SAI
o EV MARATHON
FLORIDA INSURED
TAX FREE FUND
o EV MARATHON
HAWAII
TAX FREE FUND
o EV MARATHON
KANSAS
TAX FREE FUND
STATEMENT OF ADDITIONAL
INFORMATION
JUNE 1, 1995
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV TRADITIONAL FLORIDA INSURED TAX
FREE FUND. The investment objective of the Fund is to provide current income
exempt from regular Federal income tax in the form of an investment exempt from
Florida intangibles tax. The Fund currently seeks to meet its investment
objective by investing its assets in the Florida Insured Tax Free Portfolio (the
"Portfolio").
RISKS OF CONCENTRATION
The following information as to certain Florida considerations is given to
investors in view of the Portfolio's policy of concentrating its investments in
Florida issuers. Such information is derived from sources that are generally
available to investors and is believed to be accurate. Such information
constitutes only a brief summary, does not purport to be a complete description
and is based on information from official statements relating to securities
offerings of Florida issuers. Neither the Trust nor the Portfolio has
independently verified this information.
Florida is characterized by rapid population growth and substantial capital
needs which are being funded through more frequent debt issuance and
pay-as-you-go financing. The State of Florida operates on the basis of a fiscal
biennium for its appropriations and expenditures and is constitutionally bound
to maintain a balanced budget. The State's financial operations are considerably
different than most other states because, under the State's constitution, there
is no state income tax. A constitutional amendment would therefore be necessary
to impose an income tax. Only seven states currently do not impose income taxes
upon their residents. The lack of an income tax exposes total State tax
collections to considerably more volatility than would otherwise be the case
and, in the event of an economic downswing, could affect the State's ability to
pay principal and interest in a timely manner.
The 1992-1993 Florida budget authorized $11.862 billion in General Fund
spending, an increase of 6.5% from the final 1991-1992 level. New taxes,
including a 0.5 mill ($0.50 per $1,000 of valuation) increase in the intangible
personal property tax, were expected to produce an additional $378.2 million in
revenue to fund school and prison construction. Other tax changes included a 1%
sales tax increase on taxable purchases of telecommunications and electric
services, an increase in documentary stamp taxes, and the inclusion of several
previously exempt services for the sales tax. Revenue collections were $200
million over initial estimates, with $170 million due to normal economic
activity and $30 million attributed to rebuilding after Hurricane Andrew.
Combined general revenue fund and working capital unencumbered reserves
increased to $441.4 million, or 3.7% of expenditures.
Revenues in the 1993-94 fiscal year were $13.6 billion and expenditures were
$13.3 billion; unencumbered reserves totaled $303 million or 2.3% of
expenditures. The budget for 1994-95 included revenues of $14.6 billion, a 7.3%
increase over 1993-94, and expenditures of $14.3 billion, a 7.6% increase over
1993-94. Through March, 1995 actual revenues were 0.8% below projections.
Unencumbered reserves are projected to be $252.6 million or 1.8% of expenditures
for fiscal year 1995. Non-recurring revenue from rebuilding efforts following
Hurricane Andrew was $220 million in 1993-94 and is estimated to be $159 million
in 1994-95. In 1993-94, $190 million was transferred to a hurricane relief trust
fund and $159 million is budgeted to be transferred in 1994-95.
In 1993, the Florida state constitution was amended to limit the annual
growth in the assessed valuation of residential property. This amendment could,
over time, constrain the growth in property taxes, a major revenue source for
local governments. The amendment restricts annual increases in assessed
valuation to the lesser of 3% or the Consumer Price Index. The amendment applies
only to residential properties eligible for the homestead exemption and does not
affect the valuation of rental, commercial, or industrial properties. When sold,
residential property would be reassessed at market value. While no immediate
ratings implications are expected, the amendment could have a negative impact on
the financial performance of local governments over time and lead to ratings
revisions which may have a negative impact on the prices of affected bonds.
INSURANCE
The following information relates to the Fund and supplements the
information contained under "Additional Information about Investment Policies --
Insurance" in Part I of this Statement of Additional Information.
In General. Insured Florida obligations held by the Portfolio will be insured as
to their scheduled payment of principal and interest under (i) an insurance
policy obtained by the issuer or underwriter of the Florida obligation at the
time of its original issuance ("Issue Insurance"), (ii) an insurance policy
obtained by the Portfolio or a third party subsequent to the Florida
obligation's original issuance ("Secondary Market Insurance") or (iii) a
municipal insurance policy purchased by the Portfolio ("Mutual Fund Insurance").
The Portfolio anticipates that all or substantially all of its insured Florida
obligations will be subject to Issue Insurance or Secondary Market Insurance.
Although the insurance feature reduces certain financial risks, the premiums for
Mutual Fund Insurance (which, if purchased by the Portfolio, are paid from the
Portfolio's assets) and the higher market price paid for Florida obligations
covered by Issue Insurance or Secondary Market Insurance reduce the Portfolio's
current yield.
Insurance will cover the timely payment of interest and principal on Florida
obligations and will be obtained from insurers with a claims-paying ability
rated Aaa by Moody's or AAA by S&P or Fitch. Florida obligations insured by any
insurer with such a claims-paying ability rating will generally carry the same
rating or credit risk as the insurer. See the Appendix to the Statement of
Additional Information for a brief description of Moody's, Fitch's and S&P's
claims-paying ability ratings. Such insurers must guarantee the timely payment
of all principal and interest on Florida obligations as they become due. Such
insurance may, however, provide that in the event of non-payment of interest or
principal when due with respect to an insured Florida obligation, the insurer is
not obligated to make such payment until a specified time period has lapsed
(which may be 30 days or more after it has been notified by the Portfolio that
such non-payment has occurred). For these purposes, a payment of principal is
due only at final maturity of the Florida obligation and not at the time any
earlier sinking fund payment is due. While the insurance will guarantee the
timely payment of principal and interest, it does not guarantee the market value
of the Florida obligations or the net asset value of the Portfolio or the Fund.
Florida obligations are generally eligible to be insured under Mutual Fund
Insurance if, at the time of purchase by the Portfolio, they are identified
separately or by category in qualitative guidelines furnished by the mutual fund
insurer and are in compliance with the aggregate limitations on amounts set
forth in such guidelines. Premium variations are based, in part, on the rating
of the Florida obligations being insured at the time the Portfolio purchases the
obligations. The insurer may prospectively withdraw particular Florida
obligations from the classifications of securities eligible for insurance or
change the aggregate amount limitation of each issue or category of eligible
Florida obligations. The insurer must, however, continue to insure the full
amount of the Florida obligations previously acquired which the insurer has
indicated are eligible for insurance, so long as they continue to be held by the
Portfolio. The qualitative guidelines and aggregate amount limitations
established by the insurer from time to time will not necessarily be the same as
those the Portfolio would use to govern selection of Florida obligations for the
Portfolio. Therefore, from time to time such guidelines and limitations may
affect investment decisions in the event the Portfolio's securities are insured
by Mutual Fund Insurance.
For Mutual Fund Insurance that terminates upon the sale of the insured
security, the insurance does not have any effect on the resale value of such
security. Therefore, the Portfolio will generally retain any insured Florida
obligations which are in default or, in the judgment of the Investment Adviser,
are in significant risk of default and place a value on the insurance. This
value will be equal to the difference between the market value of the defaulted
Florida obligations and the market value of similar Florida obligations which
are not in default. As a result, the Investment Adviser may be unable to manage
the securities held by the Portfolio to the extent the Portfolio holds defaulted
Florida obligations, which will limit its ability in certain circumstances to
purchase other Florida obligations. While a defaulted Florida obligation is held
by the Portfolio, the Portfolio will continue to pay the insurance premium
thereon but will also collect interest payments from the insurer and retain the
right to collect the full amount of principal from the insurer when the Florida
obligation becomes due. The Portfolio expects that the market value of a
defaulted Florida obligation covered by Issue Insurance or Secondary Market
Insurance will generally be greater than the market value of an otherwise
comparable defaulted Florida obligation covered by Mutual Fund Insurance.
The Portfolio may also invest in Florida obligations that are secured by an
escrow or trust account which contains securities issued or guaranteed by the
U.S. Government, its agencies or instrumentalities, that are backed by the full
faith and credit of the United States, and sufficient in amount to ensure the
payment of interest on and principal of the secured Florida obligation
("collateralized obligations"). Collateralized obligations generally are
regarded as having the credit characteristics of the underlying U.S. Government,
agency or instrumentality securities. These obligations will not be subject to
Issue Insurance, Secondary Market Insurance or Mutual Fund Insurance, but will
be considered to be insured Florida obligations for purposes of the Portfolio's
policy of investing at least 80% of its net assets in insured Florida
obligations (but such obligations shall not constitute more than 15% of the
insured portion of the Portfolio).
Principal Insurers. Currently, Municipal Bond Investors Assurance Corporation
("MBIA"), Capital Guaranty Insurance Company ( "Capital Guaranty" ), Financial
Guaranty Insurance Company ( "FGIC" ), AMBAC Indemnity Corporation ("AMBAC"),
and Financial Security Assurance Corp., together with its affiliated insurance
companies--Financial Security Assurance International Inc. and Financial
Security Assurance of Oklahoma, Inc. (collectively, "FSA" ), are considered to
have a high claims-paying ability and, therefore, are eligible insurers for the
Portfolio's Florida obligations. Additional insurers may be added without
further notification. The following information concerning these eligible
insurers is based upon information provided by such insurers or information
filed with certain state insurance regulators. Neither the Portfolio nor the
Fund has independently verified such information and make no representations as
to the accuracy and adequacy of such information or as to the absence of
material adverse changes subsequent to the date thereof .
MBIA is a monoline financial guaranty insurance company created from an
unincorporated association (the Municipal Bond Insurance Association), through
which its members wrote municipal bond insurance on a several and joint-basis
through 1986. On January 5, 1990, MBIA acquired all of the outstanding stock of
Bond Investors Group, Inc., the parent of Bond Investors Guaranty Insurance
Company ("BIG"), which has subsequently changed its name to MBIA Insurance Corp.
of Illinois. Through a reinsurance agreement, BIG ceded all of its net insured
risks, as well as its related unearned premium and contingency reserves, to
MBIA. MBIA issues municipal bond insurance policies guarantying the timely
payment of principal and interest on new municipal bond issues and leasing
obligations of municipal entities, secondary market insurance of such
instruments and insurance on such instruments held in unit investment trusts and
mutual funds. As of December 31, 1994, MBIA had total assets of approximately
$3.4 billion and qualified statutory capital of approximately $1.7 billion. MBIA
has a claims-paying ability rating of "AAA" by S&P and "Aaa" by Moody's.
Capital Guaranty is a monoline insurance company whose policies guaranty the
timely payment of principal and interest on new issue and secondary market issue
municipal bond transactions. As of December 31, 1994, Capital Guaranty had total
assets of approximately $304 million and qualified statutory capital of
approximately $197 million. Capital Guaranty has a claims-paying ability rating
of "AAA" by S&P. Moody's has not issued a claims-paying ability rating for
Capital Guaranty.
Financial Guaranty Insurance Corporation, a wholly owned subsidiary of FGIC
Corporation, which is a wholly owned subsidiary of General Electric Capital
Corporation, is an insurer of municipal securities, including new issues,
securities held in unit investment trusts and mutual funds, and those traded on
secondary market. The investors in FGIC Corporation are not obligated to pay the
debts of or claims against FGIC. As of December 31, 1994, FGIC had total assets
of approximately $2.1 billion and qualified statutory capital of approximately
$1.2 billion. FGIC has a claims-paying ability rating of "AAA" by S&P and Fitch,
and "Aaa" by Moody's.
AMBAC, a wholly owned subsidiary of AMBAC Inc., is a monoline insurance
company whose policies guaranty the payment of principal and interest on
municipal obligations issues. As of December 31, 1994, AMBAC had admitted assets
of approximately $2.1 billion and qualified statutory capital of approximately
$1.2 billion. AMBAC has a claims-paying ability rating of "AAA" by S&P and "Aaa"
by Moody's.
FSA is a monoline insurer whose policies guaranty the timely payment of
principal and interest on new issue and secondary market issue municipal
securities transactions, among other financial obligations. As of December 31,
1994, FSA had total admitted assets of approximately $804 million and qualified
statutory capital of approximately $466 million. FSA has a claims-paying ability
rating of "AAA" by S&P and "Aaa" by Moody's.
FEES AND EXPENSES
INVESTMENT ADVISER
As of January 31, 1995, the Portfolio had net assets of $14,399,951. For the
period from the start of business, March 2, 1994, to January 31, 1995, absent a
fee reduction, the Portfolio would have paid BMR advisory fees of $8,420
(equivalent to 0.16% (annualized) of the Portfolio's average daily net assets
for such period). To enhance the net income of the Portfolio, BMR made a
reduction of its advisory fee in the amount of $8,420 and BMR was allocated
expenses related to the operation of the Portfolio in the amount of $13,139. The
Portfolio's Investment Advisory Agreement with BMR is dated February 25, 1994
and remains in effect until February 28, 1996. The Agreement may be continued as
described under "Investment Adviser and Administrator" in Part I of this
Statement of Additional Information.
ADMINISTRATOR
As stated under "Investment Adviser and Administrator" in Part I of this
Statement of Additional Information, the Administrator receives no compensation
for providing administrative services to the Fund. For the period from the start
of business, March 3, 1994, to January 31, 1995, $16,043 of the Fund's operating
expenses were allocated to the Administrator.
SERVICE PLAN
For the period from the start of business, March 3, 1994, to January 31,
1995, the Fund did not accrue or pay any service fees under the Plan. The Fund
began accruing for its service fee payments during the quarter ending June 30,
1995.
PRINCIPAL UNDERWRITER
For the period from the start of business, March 3, 1994, to January 31,
1995, the Fund paid no repurchase transaction fees to the Principal Underwriter.
The total sales charges for sales of shares of the Fund during the period
from the start of business, March 3, 1994, to January 31, 1995, were $47,290, of
which $1,592 was received by the Principal Underwriter and $45,698 was received
by Authorized Firms.
CUSTODIAN
For the period from the start of business, March 3, 1994, to January 31,
1995, the Fund paid IBT $417. For the period from the start of business, March
2, 1994, to January 31, 1995, the Portfolio paid IBT $3,818.
BROKERAGE
For the period from the start of business, March 2, 1994, to January 31,
1995, the Portfolio paid no brokerage commissions on portfolio transactions.
<TABLE>
TRUSTEES
The fees and expenses of those Trustees of the Trust and of the Portfolio
who are not members of the Eaton Vance organization (the noninterested Trustees)
are paid by the Fund (and the other series of the Trust) and the Portfolio,
respectively. (The Trustees of the Trust and the Portfolio who are members of
the Eaton Vance organization receive no compensation from the Fund or the
Portfolio.) During the fiscal year ended January 31, 1995, the noninterested
Trustees of the Trust and the Portfolio earned the following compensation in
their capacities as Trustees from the Fund and the Portfolio, and, during the
first quarter ended March 31, 1995, earned the following compensation in their
capacities as Trustees of the other funds in the Eaton Vance fund complex<F1>:
<CAPTION>
AGGREGATE AGGREGATE RETIREMENT TOTAL COMPENSATION
COMPENSATION COMPENSATION BENEFIT ACCRUED FROM TRUST AND
NAME FROM FUND FROM PORTFOLIO FROM FUND COMPLEX FUND COMPLEX
---- ------------ -------------- ----------------- ------------------
<S> <C> <C> <C> <C>
Donald R. Dwight $--0-- $8<F2> $ 8,750 $33,750
Samuel L. Hayes, III --0-- 8<F3> 24,885 41,250
Norton H. Reamer --0-- 8 --0-- 33,750
John L. Thorndike --0-- 8 --0-- 35,000
Jack L. Treynor --0-- 9 --0-- 35,000
<FN>
- ----------
<F1> The Eaton Vance fund complex consists of 205 registered investment
companies or series thereof.
<F2> Includes $3 of deferred compensation.
<F3> Includes $3 of deferred compensation.
</TABLE>
SERVICES FOR ACCUMULATION
The following services are voluntary, involve no extra charge other than the
sales charge included in the offering price, and may be changed or discontinued
without penalty at any time.
INTENDED QUANTITY INVESTMENT -- STATEMENT OF INTENTION.If it is anticipated
that $50,000 or more of Fund shares and shares of the other continuously offered
open-end funds listed under "The Eaton Vance Exchange Privilege" in the current
Prospectus of the Fund will be purchased within a 13-month period, a Statement
of Intention should be signed so that shares may be obtained at the same reduced
sales charge as though the total quantity were invested in one lump sum. Shares
held under Right of Accumulation (see below) as of the date of the Statement
will be included toward the completion of the Statement. The Statement
authorizes the Transfer Agent to hold in escrow sufficient shares (5% of the
dollar amount specified in the Statement) which can be redeemed to make up any
difference in sales charge on the amount intended to be invested and the amount
actually invested. Execution of a Statement does not obligate the shareholder to
purchase or the Fund to sell the full amount indicated in the Statement, and
should the amount actually purchased during the 13-month period be more or less
than that indicated on the Statement, price adjustments will be made. For sales
charges and other information on quantity purchases, see "How to Buy Fund
Shares" in the Fund's current Prospectus. Any investor considering signing a
Statement of Intention should read it carefully.
RIGHT OF ACCUMULATION -- CUMULATIVE QUANTITY DISCOUNT.The applicable sales
charge level for the purchase of Fund shares is calculated by taking the dollar
amount of the current purchase and adding it to the value (calculated at the
maximum current offering price) of the shares the shareholder owns in his
account(s) in the Fund and in the other continuously offered open-end funds
listed under "The Eaton Vance Exchange Privilege" in the current Prospectus of
the Fund for which Eaton Vance acts as investment adviser or administrator at
the time of purchase. The sales charge on the shares being purchased will then
be at the rate applicable to the aggregate. For example, if the shareholder
owned shares valued at $30,000 in EV Traditional California Municipals Fund, and
purchased an additional $20,000 of Fund shares, the sales charge for the $20,000
purchase would be at the rate of 2.75% of the offering price (2.83% of the net
amount invested) which is the rate applicable to single transactions of $50,000.
For sales charges on quantity purchases, see "How to Buy Fund Shares" in the
Fund's current Prospectus. Shares purchased (i) by an individual, his or her
spouse and their children under the age of twenty-one, and (ii) by a trustee,
guardian or other fiduciary of a single trust estate or a single fiduciary
account, will be combined for the purpose of determining whether a purchase will
qualify for the Right of Accumulation and if qualifying, the applicable sales
charge level.
For any such discount to be made available, at the time of purchase a
purchaser or his or her financial service firm ("Authorized Firm") must provide
Eaton Vance Distributors, Inc. (the "Principal Underwriter") (in the case of a
purchase made through an Authorized Firm) or the Transfer Agent (in the case of
an investment made by mail) with sufficient information to permit verification
that the purchase order qualifies for the accumulation privilege. Corfirmation
of the order is subject to such verification. The Right of Accumulation
privilege may be amended or terminated at any time as to purchases occurring
thereafter.
PRINCIPAL UNDERWRITER
Shares of the Fund may be continuously purchased at the public offering
price through certain Authorized Firms which have agreements with the Principal
Underwriter. The Principal Underwriter is a wholly-owned subsidiary of Eaton
Vance.
The public offering price is the net asset value next computed after receipt
of the order, plus, where applicable, a variable percentage (sales charge)
depending upon the amount of purchase as indicated by the sales charge table set
forth in the Fund's current Prospectus (see "How to Buy Fund Shares").
Such table is applicable to purchases of the Fund alone or in combination
with purchases of the other funds offered by the Principal Underwriter, made at
a single time by (i) an individual, or an individual, his or her spouse and
their children under the age of twenty-one, purchasing shares for his or their
own account; and (ii) a trustee or other fiduciary purchasing shares for a
single trust estate or a single fiduciary account.
The table is also presently applicable to (1) purchases of Fund shares,
alone or in combination with purchases of any of the other funds offered by the
Principal Underwriter through one dealer aggregating $50,000 or more made by any
of the persons enumerated above within a thirteen-month period starting with
first purchase pursuant to a written Statement of Intention, in the form
provided by the Principal Underwriter, which includes provisions for a price
adjustment depending upon the amount actually purchased within such period (a
purchase not made pursuant to such Statement may be included thereunder if the
Statement is filed within 90 days of such purchase); or (2) purchases of the
Fund pursuant to the Right of Accumulation and declared as such at the time of
purchase.
Subject to the applicable provisions of the 1940 Act, the Fund may issue
shares at net asset value in the event that an investment company (whether a
regulated or private investment company or a personal holding company) is merged
or consolidated with or acquired by the Fund. Normally no sales charges will be
paid in connection with an exchange of Fund shares for the assets of such
investment company.
Shares may be sold at net asset value to any officer, director, trustee,
general partner or employee of the Fund, the Portfolio or any investment company
for which Eaton Vance or BMR acts as investment adviser, any investment
advisory, agency, custodial or trust account managed or administered by Eaton
Vance or by any parent, subsidiary or other affiliate of Eaton Vance, or any
officer, director or employee of any parent, subsidiary or other affiliate of
Eaton Vance. The terms "officer," "director," "trustee," "general partner" or
"employee" as used in this paragraph include any such person's spouse and minor
children, and also retired officers, directors, trustees, general partners and
employees and their spouses and minor children. Shares of the Fund may also be
sold at net asset value to registered representatives and employees of certain
Authorized Firms and to such persons' spouses and children under the age of 21
and their beneficial accounts.
The Trust reserves the right to suspend or limit the offering of shares of
the Fund to the public at any time.
The Principal Underwriter acts as principal in selling shares of the Fund
under the Distribution Agreement with the Trust on behalf of the Fund. The
expenses of printing copies of prospectuses used to offer shares to financial
service firms or investors and other selling literature and of advertising are
borne by the Principal Underwriter. The fees and expenses of qualifying and
registering and maintaining qualifications and registrations of the Fund and its
shares under Federal and state securities laws are borne by the Fund. The
Distribution Agreement is renewable annually by the Board of Trustees of the
Trust (including a majority of its Trustees who are not interested persons of
the Principal Underwriter or the Trust), may be terminated on six months' notice
by either party, and is automatically terminated upon assignment. The Principal
Underwriter distributes Fund shares on a "best efforts" basis under which it is
required to take and pay for only such shares as may be sold. The Fund has
authorized the Principal Underwriter to act as its agent in repurchasing shares
at the rate of $2.50 for each repurchase transaction handled by the Principal
Underwriter. The Principal Underwriter estimates that the expenses incurred by
it in acting as repurchase agent for the Fund will exceed the amounts paid
therefor by the Fund. For the amount paid by the Fund to the Principal
Underwriter for acting as repurchase agent, see "Fees and Expenses" in this Part
II. The Principal Underwriter allows Authorized Firms discounts from the
applicable public offering price which are alike for all Firms. However, the
Principal Underwriter may allow, upon notice to all Authorized Firms with whom
it has agreements, discounts up to the full sales charge during the periods
specified in the notice. During periods when the discount includes the full
sales charge, such Firms may be deemed to be underwriters as that term is
defined in the Securities Act of 1933. For the amount of sales charges for sales
of Fund shares paid to the Principal Underwriter (and Authorized Firms) see
"Fees and Expenses" in this Part II.
See the Statement of Assets and Liabilities in the Fund's Financial
Statements in this Part II for a specimen price make-up sheet showing the
computation of maximum offering price per share as at January 31, 1995.
SERVICE PLAN
The Trust on behalf of the Fund has adopted a Service Plan (the "Plan")
designed to meet the requirements of Rule 12b-1 (the "Rule") under the 1940 Act
and the service fee requirements of the revised sales charge rule of the
National Association of Securities Dealers, Inc. (Management believes service
fee payments are not distribution expenses governed by the Rule, but has chosen
to have the Plan approved as if the Rule were applicable.) The following
supplements the discussion of the Plan contained in the Fund's Prospectus.
The Plan remains in effect through April 28, 1996, and from year to year
thereafter, provided such continuance is approved by a vote of both a majority
of (i) those Trustees who are not interested persons of the Trust and who have
no direct or indirect financial interest in the operation of the Plan or any
agreements related to it (the "Rule 12b-1 Trustees") and (ii) all of the
Trustees then in office, cast in person at a meeting (or meetings) called for
the purpose of voting on this Plan. The Plan may be terminated any time by vote
of the Rule 12b-1 Trustees or by a vote of a majority of the outstanding voting
securities of the Fund. Pursuant to the Rule, the Plan has been approved by the
Fund's initial sole shareholder (Eaton Vance) and by the Board of Trustees of
the Trust, including the Rule 12b-1 Trustees.
Under the Plan, the President or a Vice President of the Trust shall provide
to the Trustees for their review, and the Trustees shall review at least
quarterly, a written report of the amount expended under the Plan and the
purposes for which such expenditures were made. The Plan may not be amended to
increase materially the payments described herein without approval of the
shareholders of the Fund, and all material amendments of the Plan must also be
approved by the Trustees of the Trust as prescribed by the Rule. So long as the
Plan is in effect, the selection and nomination of Trustees who are not
interested persons of the Trust shall be committed to the discretion of the
Trustees who are not such interested persons. The Trustees have determined that
in their judgment there is a reasonable likelihood that the Plan will benefit
the Fund and its shareholders. For the service fees paid by the Fund under the
Plan see "Fees and Expenses" in this Part II.
PERFORMANCE INFORMATION
The table below indicates the total return (capital changes plus
reinvestment of all distributions) on a hypothetical investment of $1,000 in the
Fund covering the life of the Fund from March 3, 1994 through January 31, 1995.
VALUE OF A $1,000 INVESTMENT
<TABLE>
<CAPTION>
VALUE OF TOTAL RETURN TOTAL RETURN
INVESTMENT INVESTMENT AMOUNT OF INVESTMENT EXCLUDING SALES CHARGE INCLUDING SALES CHARGE
PERIOD DATE INVESTMENT ON 1/31/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- --------- ---------- ---------- ------------ ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Life of the
Fund<F1> 3/3/94 $952.38<F2> $1,039.83<F3> 9.18%<F3> -- 4.00%<F3> --
PERCENTAGE CHANGES 3/3/94--1/31/95
<CAPTION>
NET ASSET VALUE TO NET ASSET VALUE MAXIMUM OFFERING PRICE TO NET ASSET VALUE
WITH ALL DISTRIBUTIONS REINVESTED WITH ALL DISTRIBUTIONS REINVESTED
--------------------------------- ------------------------------------------
PERIOD ENDED ANNUAL CUMULATIVE AVERAGE ANNUAL ANNUAL CUMULATIVE AVERAGE ANNUAL
- ------------ ------ ---------- -------------- ------ ---------- --------------
<S> <C> <C> <C> <C> <C> <C>
1/31/95 -- 9.18%<F3> -- -- 4.00%*** --
Past performance is not indicative of future results. Investment return
and principal value will fluctuate; shares, when redeemed, may be worth more or
less than their original cost.
<FN>
- ----------
<F1> Investment operations began on March 3, 1994.
<F2> Initial investment less the then applicable maximum sales charge of 4.75%.
Effective March 27, 1995, the current maximum sales charge is 3.75% (see
"How to Buy Fund Shares" in the Fund's current Prospectus).
<F3> If a portion of the Portfolio's and/or the Fund's expenses had not been
subsidized, the Fund would have had lower returns.
</TABLE>
For the thirty-day period ended January 31, 1995, the yield of the Fund was
5.23%. The yield required of a taxable security that would produce an after-tax
yield equivalent to that earned by the Fund of 5.23% would be 7.58%, assuming a
Federal tax rate of 31%. If a portion of the Portfolio's and the Fund's expenses
had not been allocated to the Investment Adviser and the Administrator,
respectively, the Fund would have had a lower yield.
The Fund's distribution rate (calculated on January 31, 1995 and based on
the Fund's monthly distribution paid January 31, 1995) was 5.34%, and the Fund's
effective distribution rate (calculated on the same date and based on the same
monthly distribution) was 5.48%. If a portion of the Portfolio's and the Fund's
expenses had not been allocated to the Investment Adviser and the Administrator,
respectively, the Fund would have had a lower distribution rate and effective
distribution rate.
The Portfolio's diversification by quality ratings as of March 31, 1995,
was:
RATING ASSIGNED BY PERCENT
MOODY'S, S&P OR FITCH OF BOND HOLDINGS
--------------------- ----------------
Aaa or AAA 100.0%
Aa or AA --
A --
Baa or BBB --
Ba or BB --
B --
Below B --
Not rated --
-----
Total 100.0%
The State of Florida generally imposes an intangible personal property tax
on the value of all stocks, notes, bonds and mutual fund shares. The rate of
intangibles tax after exemptions in Florida is $.20 per $100 in value. Bank
deposits such as bank money market deposit accounts and certificates of deposit
are exempt from the Florida intangibles tax. The Florida intangibles tax, which
is a fixed rate based on the fair market value of an investment, will vary as a
percentage of income with the yield of the investment subject to tax. For
example, shares of a mutual fund valued at $10,000 would generally be subject to
Florida intangibles tax equaling $20. If the mutual fund shares were yielding
5.50%, generating $550 in annual income, the intangibles tax expressed as a
percentage of income would be $20/$550 or 3.64%. Federal income tax brackets for
1995 are 15% for single filers with taxable income up to $23,350 and joint
filers up to $39,000; 28% for single filers with taxable income from $23,351 to
$56,550 and joint filers from $39,001 to $94,250; 31% for single filers with
taxable income from $56,551 to $117,950 and joint filers from $94,251 to
$143,600; 36% for single filers with taxable income from $117,951 to $256,500
and joint filers from $143,601 to $256,500; and 39.6% for single and joint
filers with taxable income over $256,500. Combined Federal and Florida
intangibles tax rates expressed as a percentage of income on an investment
yielding 5.50%, assuming the deductibility of intangibles taxes on the Federal
return, would be 18.09%, 30.62%, 33.51%, 38.33% and 41.80% over the same ranges
of income.
This Part II contains a tax equivalent yield table which reflects the tax
equivalent yield of the Fund earning hypothetical yields over various Federal
income tax brackets, as well as a tax equivalent yield table which takes into
account the effect of the Florida intangibles tax on the rate of combined
Federal and Florida intangibles taxes paid as a percentage of income by a
Florida resident.
The following information compares the taxable equivalent yield of an
investment in the Fund yielding a hypothetical 5.50% taking into account Federal
income tax and the effect of the Florida intangibles tax with the after-tax
yield of a certificate of deposit yielding 3.25%. The after-tax yields of the
certificate of deposit were calculated taking into account Federal income taxes
only, as bank deposits are not subject to the Florida intangibles tax.
TAX BRACKET
18.09% 30.62% 33.51% 38.33% 41.80%
-----------------------------------------------------
Tax free yield .......... 5.50% 5.50% 5.50% 5.50% 5.50%
Taxable equivalent ...... 6.71 7.93 8.27 8.92 9.45
TAX BRACKET*
15% 28% 31% 36% 39.6%
-----------------------------------------------------
Certificates of deposit:
Yield ................ 3.25 3.25 3.25 3.25 3.25
After-tax yield ...... 2.76 2.34 2.24 2.08 1.96
- ----------
*CDs are generally exempt from the Florida intangibles tax. Accordingly, the
combined tax brackets applicable to after-tax yields are 15%, 28%, 31%, 36% and
39.6%.
Traditional Florida Insured
The Tax Free Yield Advantage
(38.33% combined tax bracket)
3.25% Certificate of deposit
3.25% Pretax yield
2.08% After-tax yield
5.50% Tax free investment
8.92% Taxable equivalent yield
5.50% Tax free yield
Example:
Two $100,000 investments . . .
3.25% CD 5.00% Tax free
Pretax income: $3,250.00 $5,000.00
Tax: (1,170.00) NONE
After-tax income: $2,080.00 $5,000.00
The 1995 combined Federal and Florida state tax bracket, expressed as a
percentage of income on an investment yielding 5.50% and assuming the
deductibility of the Florida intangibles tax, is 38.33% for single filers with
taxable income from $117,951 to $256,500 and joint filers from $143,601 to
$256,500. Actual tax brackets may be higher due to the phaseout of personal
exemptions and limitations on the deductibility of itemized deductions over
certain ranges of income. Your actual bracket will vary depending on your
income, exemptions and deductions. CDs are generally exempt from the Florida
intangibles tax. Accordingly, the combined tax bracket applicable to the
after-tax CD yield is 36%. See your tax adviser for additional information. The
chart is based on 3-month bank CDs (Sources: The Wall Street Journal and Eaton
Vance Management). Tax free yields are shown for illustration purposes only and
are not meant to represent actual results of an investment in the Fund. See your
financial adviser for the Fund's current yield and actual CD rates.
ADDITIONAL TAX MATTERS
The Fund qualified as a RIC under the Code for its taxable year ended
January 31, 1995 (see Notes to Financial Statements).
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As at April 30, 1995, the Trustees and officers of the Trust, as a group,
owned in the aggregate less than 1% of the outstanding shares of the Fund. As of
April 30, 1995, the following shareholders owned beneficially and of record the
percentages of outstanding shares of the Fund indicated after their names: Al
Ross & Diana Ross & Adam L. Ross & Jennifer Ross & Susie F. Ross JT/WROS, Miami,
FL(11.8%). In addition, as of April 28, 1995, Merrill Lynch Pierce Fenner &
Smith, New Brunswick, NJ and Smith Barney Inc., New York, NY, were the record
owners of approximately 6.5% and 5.4% of the outstanding shares, respectively,
which are held on behalf of their customes who are the beneficial owners of such
shares, and as to which they have voting power under certain limited
circumstances. To the Trust's knowledge, no other person owned of record or
beneficially 5% or more of the Fund's outstanding shares as of such date.
TAX EQUIVALENT YIELD TABLE
The tables below show the effect of the tax status of bonds on the tax
equivalent yield received by their holders under the regular Federal income tax
and the Florida intangibles tax laws and tax rates applicable for 1995. They
show the approximate yield a taxable security must earn at various income
brackets to produce after-tax yields equivalent to those of tax exempt bonds
yielding from 4% to 7%.
<TABLE>
<CAPTION>
IF THE TAXABLE OR THE TAXABLE
INCOME ON INCOME ON YOU ARE IN IN YOUR BRACKET, A TAX-FREE YIELD OF
YOUR SINGLE YOUR JOINT THIS FEDERAL 4% 4.5% 5% 5.5% 6% 6.5% 7%
RETURN IS<F1> RETURN IS<F1> BRACKET EQUALS THAT OF A TAXABLE INVESTMENT YIELDING
- ---------------------------------------------- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $ 23,350 Up to $ 39,000 15.00% 4.71% 5.29% 5.88% 6.47% 7.06% 7.65% 8.24%
$ 23,351 $ 56,550 $ 39,001 $ 94,250 28.00 5.56 6.25 6.94 7.64 8.33 9.03 9.72
$ 56,551 $117,950 $ 94,251 $143,600 31.00 5.80 6.52 7.25 7.97 8.70 9.42 10.14
$117,951 $256,500 $143,601 $256,500 36.00 6.25 7.03 7.81 8.59 9.38 10.16 10.94
Over $256,500 Over $256,500 39.60 6.62 7.45 8.28 9.11 9.93 10.76 11.59
<CAPTION>
IF THE TAXABLE OR THE TAXABLE
INCOME ON INCOME ON
YOUR SINGLE YOUR JOINT 4% 4.5% 5% 5.5% 6% 6.5% 7%
RETURN IS<F1> RETURN IS<F1> TAXABLE EQUIVALENT YIELD REFLECTING EXEMPTION FROM INTANGIBLES TAX<F2>
- ------------------------------------------ ---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $ 23,350 Up to $ 39,000 4.95% 5.54% 6.13% 6.71% 7.30% 7.89% 8.48%
$ 23,351 - $ 56,550 $ 39,001 - $ 94,250 5.85 6.54 7.23 7.93 8.62 9.31 10.01
$ 56,551 - $117,950 $ 94,251 - $143,600 6.10 6.83 7.55 8.27 9.00 9.72 10.44
$117,951 - $256,500 $143,601 - $256,500 6.58 7.36 8.14 8.92 9.70 10.48 11.26
Over $256,500 Over $256,500 6.97 7.80 8.62 9.45 10.28 11.10 11.93
Yields shown are for illustration purposes only and are not meant to represent
the Fund's actual yield.
<FN>
<F1> Net amount subject to the Federal personal income tax after deductions and
exemptions.
<F2> A Florida intangibles tax on personal property of $2.00 per $1,000 is
generally imposed after exemptions on the value of stocks, bonds, other
evidences of indebtedness and mutual fund shares. An example of the effect
of the Florida intangibles tax on the tax brackets of Florida taxpayers is
as follows. A $10,000 investment subject to the tax would require payment
of $20 annually in intangibles taxes. If the investment yielded 5.50%
annually or $550, the intangibles tax as a percentage of income would be
$20/$550 or 3.64%. If a taxpayer were in the 36% Federal income tax
bracket, assuming the intangibles taxes were deducted as an Itemized
Deduction on the Federal return, the taxpayer would be in a combined
Federal and Florida state tax bracket of 38.33% [36% + (1 - .36) X 3.64%]
with respect to such investment. A Florida taxpayer whose intangible
personal property is exempt or partially exempt from tax due to the
availability of exemptions will have a lower taxable equivalent yield than
indicated above.
</TABLE>
Note: The above-indicated Federal income tax brackets do not take into account
the effect of a reduction in the deductibility of itemized deductions for
taxpayers with adjusted gross income in excess of $114,700, nor the effects of
phaseout of personal exemptions for single and joint filers with adjusted gross
incomes in excess of $114,700 and $172,050, respectively. The effective tax
brackets and equivalent taxable yields of such taxpayers will be higher than
those indicated above.
Of course no assurance can be given that EV Traditional Florida Insured Tax Free
Fund will achieve any specific tax exempt yield. While it is expected that a
substantial portion of the interest income distributed to the Fund shareholders
will be exempt from the regular Federal income tax, portions of such
distributions from time to time may be subject to such tax. This table does not
take into account the Florida intangibles tax, state or local taxes, if any,
payable on Fund distributions to individuals who are not Florida residents, or
intangibles taxes, if any, imposed under the laws of other states. It should
also be noted that the interest earned on certain "private activity bonds"
issued after August 7, 1986, while exempt from the regular Federal income tax,
is treated as a tax preference item which could subject the recipient to the
Federal alternative minimum tax. The illustrations assume that the Federal
alternative minimum tax is not applicable.
The information set forth above is as of the date of this Statement of
Additional Information. Subsequent tax law changes could result in prospective
or retroactive changes in the tax brackets, tax rates, and tax equivalent
yields set forth above.
FINANCIAL STATEMENTS
Registrant incorporates by reference the audited financial information for
the Fund and the Portfolio contained in the Fund's shareholder report for the
fiscal year ended January 31, 1995 as previously filed electronically with the
Securities and Exchange Commission (Accession Number 0000950135-95-000872).
<PAGE>
INVESTMENT ADVISER OF
INVESTORS PORTFOLIO
Boston Management and Research
24 Federal Street
Boston, MA 02110
ADMINISTRATOR OF EV TRADITIONAL
FLORIDA INSURED TAX FREE FUND
Eaton Vance Management
24 Federal Street
Boston, MA 02110
PRINCIPAL UNDERWRITER
Eaton Vance Distributors, Inc.
24 Federal Street
Boston, MA 02110
(800) 225-6265
CUSTODIAN
Investors Bank & Trust Company
24 Federal Street
Boston, MA 02110
TRANSFER AGENT
The Shareholder Services Group, Inc.
BOS725
P.O. Box 1559
Boston, MA 02104
(800) 262-1122
AUDITORS
Deloitte & Touche LLP
125 Summer Street
Boston, MA 02110
EV TRADITIONAL
FLORIDA INSURED
TAX FREE FUND
STATEMENT OF
ADDITIONAL
INFORMATION
JUNE 1, 1995
EV TRADITIONAL FLORIDA
INSURED TAX FREE FUND
24 FEDERAL STREET
BOSTON, MA 02110
T-IFLSAI
<PAGE>
PART C
OTHER INFORMATION
ITEM 24: FINANCIAL STATEMENTS AND EXHIBITS
(a) FINANCIAL STATEMENTS
INCLUDED IN PART A:
For EV CLASSIC FLORIDA INSURED TAX FREE FUND (Florida
Insured);
EV CLASSIC HAWAII TAX FREE FUND (Hawaii); and
EV CLASSIC KANSAS TAX FREE FUND (Kansas):
Financial Highlights for the period from the start of
business, June 15, 1994, March 14, 1994, and March 3,
1994, for Florida Insured, Hawaii and Kansas,
respectively, to January 31, 1995
For EV MARATHON FLORIDA INSURED TAX FREE FUND;
EV MARATHON HAWAII TAX FREE FUND; and
EV MARATHON KANSAS TAX FREE FUND:
Financial Highlights for the period from the start of
business, March 2, 1994, to January 31, 1995
For EV TRADITIONAL FLORIDA INSURED TAX FREE FUND:
Financial Highlights for the period from the start of
business, March 3, 1994, to January 31, 1995
INCLUDED IN PART B:
INCORPORATED BY REFERENCE TO THE ANNUAL REPORTS FOR THE
FUNDS, DATED JANUARY 31, 1995, FILED ELECTRONICALLY PURSUANT
TO SECTION 30(b)(2) OF THE INVESTMENT COMPANY ACT OF 1940:
Combined Annual Report for EV CLASSIC FLORIDA INSURED TAX
FREE FUND, V CLASSIC HAWAII TAX FREE FUND and EV CLASSIC
KANSAS TAX FREE FUND (ACCESSION NO. 0000950135-95-000874);
Combined Annual Report for EV MARATHON FLORIDA INSURED TAX
FREE FUND, EV MARATHON HAWAII TAX FREE FUND and EV MARATHON
KANSAS TAX FREE FUND ACCESSION NO. 0000950135-95-000873);
and
Annual Report for EV TRADITIONAL FLORIDA INSURED TAX FREE
FUND (ACCESSION NO. 000095-0135-95-000872);
Financial Statements for the above-referenced Funds for the
time periods set forth in each Fund's Annual Report are as
follows:
Statement of Assets and Liabilities
Statement of Operations
Statement of Changes in Net Assets
Financial Highlights
Notes to Financial Statements
Independent Auditors' Report
Financial Statements for FLORIDA INSURED TAX FREE PORTFOLIO,
HAWAII TAX FREE PORTFOLIO and KANSAS TAX FREE PORTFOLIO:
Portfolio of Investments as of January 31, 1995
Statement of Assets and Liabilities as of January 31,
1995
Statement of Operations for the period from the start of
business, March 2, 1994, to January 31, 1995
Statement of Changes in Net Assets for the period from
the start of business, March 2, 1994, to January 31,
1995
Supplementary Data for the period from the start of
business, March 2, 1994, to January 31, 1995
Notes to Financial Statements
Independent Auditors' Report
(b) EXHIBITS:
(1)(a) Declaration of Trust of Eaton Vance Municipals Trust II
dated October 25, 1993 filed as Exhibit (1)(a) to
Post-Effective Amendment No. 2 and incorporated by
reference.
(b) Amendment and Restatement of Establishment and
Designation of Series of Shares dated May 15, 1995
filed as Exhibit (1)(b) to Post-Effective Amendment
No. 2 and incorporated by reference.
(2)(a) By-Laws filed as Exhibit (2) to the original
Registration Statement and incorporated herein by
reference.
(b) Amendment to By-Laws of Eaton Vance Municipals Trust II
dated December 13, 1993 filed as Exhibit (2)(b) to
Pre-Effective Amendment No. 1 to the original
Registration Statement and incorporated herein by
reference.
(3) Not applicable
(4) Not applicable
(5) Not applicable
(6)(a) (1) Distribution Agreement between EV Classic Florida
Insured Tax Free Fund and Eaton Vance Distributors,
Inc. dated February 25, 1994, with attached schedule
pursuant to Rule 8b-31 under the Investment Company
Act of 1940, as amended, regarding other series of
Registrant, filed as Exhibit (6)(a)(1) to
Post-Effective Amendment No. 1 and incorporated herein
by reference.
(2) Distribution Agreement between EV Marathon Florida
Insured Tax Free Fund and Eaton Vance Distributors,
Inc. dated February 25, 1994, with attached schedule
pursuant to Rule 8b-31 under the Investment Company
Act of 1940, as amended, regarding other series of
Registrant, filed as Exhibit (6)(a)(2) to
Post-Effective Amendment No. 1 and incorporated herein
by reference.
(3) Distribution Agreement between EV Traditional Florida
Insured Tax Free Fund and Eaton Vance Distributors,
Inc. dated February 25, 1994, filed as Exhibit
(6)(a)(3) to Post-Effective Amendment No. 1 and
incorporated herein by reference.
(4) Form of Amended Distribution Agreement between Eaton
Vance Municipals Trust II (on behalf of its Marathon
series) and Eaton Vance Distributors, Inc. filed as
Exhibit (6)(a)(4) to Post-Effective Amendment No. 2
and incorporated herein by reference.
(5) Form of Amended Distribution Agreement between Eaton
Vance Municipals Trust II (on behalf of its Trad-
itional series) and Eaton Vance Distributors, Inc.
filed as Exhibit (6)(a)(5) to Post-Effective Amendment
No. 2 and incorporated herein by reference.
(6) Amended Distribution Agreement between Eaton Vance
Municipals Trust II (on behalf of its Classic series)
and Eaton Vance Distributors, Inc. dated January 27,
1995, with attached schedule pursuant to Rule 8b-31
under the Investment Company Act of 1940, as amended,
regarding other Classic series of Registrant, filed
herewith.
(b) Selling Group Agreement between Eaton Vance
Distributors, Inc. and Authorized Dealers filed as
Exhibit (6)(b) to Post-Effective Amendment No. 1 and
incorporated herein by reference.
(c) Schedule of Dealer Discounts and Sales Charges filed as
Exhibit (6)(c) to Post-Effective Amendment No. 1 and
incorporated herein by reference.
(7) Not applicable
(8) Custodian Agreement between Eaton Vance Municipals
Trust II and Investors Bank & Trust Company dated
February 25, 1994, filed as Exhibit (8) to
Post-Effective Amendment No. 1 and incorporated herein
by reference.
(9)(a) Administrative Services Agreement between EV Classic
Florida Insured Tax Free Fund and Eaton Vance
Management dated February 25, 1994, with attached
schedule pursuant to Rule 8b-31 under the Investment
Company Act of 1940, as amended, regarding other
series of Registrant, filed as Exhibit (9) to Post-
Effective Amendment No. 1 and incorporated herein by
reference.
(b) Form of Amended Administrative Services Agreement
between Eaton Vance Municipals Trust II (on behalf of
all of its series) and Eaton Vance Management, filed
as Exhibit (9)(b) to Post-Effective Amendment No. 2
and incorporated herein by reference. (10)
(10) Not applicable
(11)(a) Consent of Independent Certified Public Accountants of
Eaton Vance Municipals Trust II on behalf of EV
Classic Florida Insured Tax Free Fund, EV Classic
Hawaii Tax Free Fund and EV Classic Kansas Tax Free
Fund filed herewith.
(b) Consent of Independent Certified Public Accountants of
Eaton Vance Municipals Trust II on behalf of EV
Marathon Florida Insured Tax Free Fund, EV Marathon
Hawaii Tax Free Fund and EV Marathon Kansas Tax Free
Fund filed herewith.
(c) Consent of Independent Certified Public Accountants of
Eaton Vance Municipals Trust II on behalf of EV
Traditional Florida Insured Tax Free Fund filed
herewith.
(12) Not applicable
(13) Letter Agreement with Eaton Vance Management filed
as Exhibit (13) to the original Registration Statement
and incorporated herein by reference.
(14) Not applicable
(15)(a) Distribution Plan pursuant to Rule 12b-1 under the
Investment Company Act of 1940, as amended, for EV
Classic Florida Insured Tax Free Fund dated February
25, 1994, with attached schedule pursuant to Rule
8b-31 under the Investment Company Act of 1940, as
amended, regarding other series of Registrant, filed
as Exhibit (15)(a) to Post-Effective Amendment No. 1
and incorporated herein by reference.
(b) Distribution Plan pursuant to Rule 12b-1 under the
Investment Company Act of 1940, as amended, for EV
Marathon Florida Insured Tax Free Fund dated February
25, 1994, with attached schedule pursuant to Rule
8b-31 under the Investment Company Act of 1940, as
amended, regarding other series of Registrant, filed
as Exhibit (15)(b) to Post-Effective Amendment No. 1
and incorporated herein by reference.
(c) Service Plan pursuant to Rule 12b-1 under the
Investment Company Act of 1940, as amended, for EV
Traditional Florida Insured Tax Free Fund dated
February 25, 1994, filed as Exhibit (15)(c) to
Post-Effective Amendment No. 1 and incorporated herein
by reference.
(d) Form of Amended Distribution Plan pursuant to Rule
12b-1 under the Investment Company Act of 1940, as
amended, for Eaton Vance Municipals Trust II (on
behalf of its Marathon series), filed as Exhibit (15)
(d) to Post-Effective Amendment No. 2 and incorporated
herein by reference.
(e) Form of Amended Service Plan pursuant to Rule 12b-1
under the Investment Company Act of 1940, as amended,
for Eaton Vance Municipals Trust II (on behalf of its
Traditional series), filed as Exhibit (15)(e) to
Post-Effective Amendment No. 2 and incorporated herein
by reference.
(f) Amended Distribution Plan pursuant to Rule 12b-1 under
the Investment Company Act of 1940, as amended, for
Eaton Vance Municipals Trust II (on behalf of its
Classic series) dated January 27, 1995, with attached
schedule pursuant to Rule 8b-31 under the Investment
Company Act of 1940, as amended, regarding other
Classic series of Registrant, filed herewith.
(16) Schedules for Computation of Performance Quotations
filed herewith.
(17)(a) Power of Attorney for Eaton Vance Municipals Trust II
dated January 10, 1994 filed as Exhibit (17)(a) to
Pre-Effective Amendment No. 1 to the original
Registration Statement and incorporated herein by
reference.
(b) Power of Attorney for Florida Insured Tax Free
Portfolio, Hawaii Tax Free Portfolio and Kansas Tax
Free Portfolio dated January 10, 1994 filed as Exhibit
(17)(b) to Pre-Effective Amendment No. 1 to the
original Registration Statement and incorporated
herein by reference.
(c) Power of Attorney for High Yield Municipals Portfolio
filed as Exhibit 17(c) to Post-Effective Amendment No.
2 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
Shares of beneficial interest without par value as of April 30, 1995
EV Classic Florida Insured Tax Free Fund 9
EV Marathon Florida Insured Tax Free Fund 229
EV Traditional Florida Insured Tax Free Fund 24
EV Classic Hawaii Tax Free Fund 16
EV Marathon Hawaii Tax Free Fund 600
EV Classic Kansas Tax Free Fund 49
EV Marathon Kansas Tax Free Fund 242
EV Marathon High Yield Municipals Fund --
EV Traditional High Yield Municipals Fund --
<PAGE>
ITEM 27. INDEMNIFICATION
Reference is hereby made to Article V of the Registrant's Declaration of
Trust, filed as Exhibit (1) to the original Registration Statement.
Registrant's Trustees and officers are insured under a standard mutual fund
errors and omissions insurance policy covering incurred by reason of negligent
errors and omissions committed in their capacities as such.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
Reference is made to the information set forth under the caption "Investment
Adviser and Administrator" in the Statement of Additional Information which is
incorporated herein by reference.
ITEM 29. PRINCIPAL UNDERWRITER
(a) Registrant's principal underwriter, Eaton Vance Distributors, Inc., a
wholly-owned subsidiary of Eaton Vance Management, is the principal
underwriter for each of the investment companies named below:
<TABLE>
<S> <C>
EV Classic Alabama Tax Free Fund EV Classic New York Limited Maturity
EV Classic Arizona Tax Free Fund Tax Free Fund
EV Classic Arkansas Tax Free Fund EV Classic New York Tax Free Fund
EV Classic California Limited Maturity EV Classic North Carolina Tax Free Fund
Tax Free Fund EV Classic Ohio Limited Maturity Tax Free Fund
EV Classic California Municipals Fund EV Classic Ohio Tax Free Fund
EV Classic Colorado Tax Free Fund EV Classic Oregon Tax Free Fund
EV Classic Connecticut Limited Maturity EV Classic Pennsylvania Limited Maturity
Tax Free Fund Tax Free Fund
EV Classic Connecticut Tax Free Fund EV Classic Pennsylvania Tax Free Fund
EV Classic Florida Insured Tax Free Fund EV Classic Rhode Island Tax Free Fund
EV Classic Florida Limited Maturity EV Classic Strategic Income Fund
Tax Free Fund EV Classic South Carolina Tax Free Fund
EV Classic Florida Tax Free Fund EV Classic Special Equities Fund
EV Classic Georgia Tax Free Fund EV Classic Senior Floating-Rate Fund
EV Classic Government Obligations Fund EV Classic Stock Fund
EV Classic Greater China Growth Fund EV Classic Tennessee Tax Free Fund
EV Classic Growth Fund EV Classic Texas Tax Free Fund
EV Classic Hawaii Tax Free Fund EV Classic Total Return Fund
EV Classic High Income Fund EV Classic Virginia Tax Free Fund
EV Classic Investors Fund EV Classic West Virginia Tax Free Fund
EV Classic Kansas Tax Free Fund EV Marathon Alabama Tax Free Fund
EV Classic Kentucky Tax Free Fund EV Marathon Arizona Limited Maturity
EV Classic Louisiana Tax Free Fund Tax Free Fund
EV Classic Maryland Tax Free Fund EV Marathon Arizona Tax Free Fund
EV Classic Massachusetts Limited Maturity EV Marathon Arkansas Tax Free Fund
Tax Free Fund EV Marathon California Limited Maturity
EV Classic Massachusetts Tax Free Fund Tax Free Fund
EV Classic Michigan Limited Maturity EV Marathon California Municipals Fund
Tax Free Fund EV Marathon Colorado Tax Free Fund
EV Classic Michigan Tax Free Fund EV Marathon Connecticut Limited Maturity
EV Classic Minnesota Tax Free Fund Tax Free Fund
EV Classic Mississippi Tax Free Fund EV Marathon Connecticut Tax Free Fund
EV Classic Missouri Tax Free Fund EV Marathon Emerging Markets Fund
EV Classic National Limited Maturity Tax Free Fund Eaton Vance Equity - Income Trust
EV Classic National Municipals Fund EV Marathon Florida Insured Tax Free Fund
EV Classic New Jersey Limited Maturity EV Marathon Florida Limited Maturity
Tax Free Fund Tax Free Fund
EV Classic New Jersey Tax Free Fund EV Marathon Florida Tax Free Fund
EV Marathon Georgia Tax Free Fund EV Marathon South Carolina Tax Free Fund
EV Marathon Gold & Natural Resources Fund EV Marathon Special Equities Fund
EV Marathon Government Obligations Fund EV Marathon Stock Fund
EV Marathon Greater China Growth Fund EV Marathon Tennessee Tax Free Fund
EV Marathon Greater India Fund EV Marathon Texas Tax Free Fund
EV Marathon Growth Fund EV Marathon Total Return Fund
EV Marathon Hawaii Tax Free Fund EV Marathon Virginia Limited Maturity
EV Marathon High Income Fund Tax Free Fund
EV Marathon Investors Fund EV Marathon Virginia Tax Free Fund
EV Marathon Kansas Tax Free Fund EV Marathon West Virginia Tax Free Fund
EV Marathon Kentucky Tax Free Fund EV Traditional California Municipals Fund
EV Marathon Louisiana Tax Free Fund EV Traditional Connecticut Tax Free Fund
EV Marathon Maryland Tax Free Fund EV Traditional Emerging Markets Fund
EV Marathon Massachusetts Limited Maturity EV Traditional Florida Insured Tax Free Fund
Tax Free Fund EV Traditional Florida Limited Maturity
EV Marathon Massachusetts Tax Free Fund Tax Free Fund
EV Marathon Michigan Limited Maturity EV Traditional Florida Tax Free Fund
Tax Free Fund EV Traditional Government Obligations Fund
EV Marathon Michigan Tax Free Fund EV Traditional Greater China Growth Fund
EV Marathon Minnesota Tax Free Fund EV Traditional Greater India Fund
EV Marathon Mississippi Tax Free Fund EV Traditional Growth Fund
EV Marathon Missouri Tax Free Fund Eaton Vance Income Fund of Boston
EV Marathon National Limited Maturity EV Traditional Investors Fund
Tax Free Fund Eaton Vance Municipal Bond Fund L.P.
EV Marathon National Municipals Fund EV Traditional National Limited Maturity
EV Marathon New Jersey Limited Maturity Tax Free Fund
Tax Free Fund EV Traditional National Municipals Fund
EV Marathon New Jersey Tax Free Fund EV Traditional New Jersey Tax Free Fund
EV Marathon New York Limited Maturity EV Traditional New York Limited Maturity
Tax Free Fund Tax Free Fund
EV Marathon New York Tax Free Fund EV Traditional New York Tax Free Fund
EV Marathon North Carolina Limited Maturity EV Traditional Pennsylvania Tax Free Fund
Tax Free Fund EV Traditional Special Equities Fund
EV Marathon North Carolina Tax Free Fund EV Traditional Stock Fund
EV Marathon Ohio Limited Maturity Tax Free Fund EV Traditional Total Return Fund
EV Marathon Ohio Tax Free Fund Eaton Vance Cash Management Fund
EV Marathon Oregon Tax Free Fund Eaton Vance Liquid Assets Fund
EV Marathon Pennsylvania Limited Maturity Eaton Vance Money Market Fund
Tax Free Fund Eaton Vance Prime Rate Reserves
EV Marathon Pennsylvania Tax Free Fund Eaton Vance Short-Term Treasury Fund
EV Marathon Rhode Island Tax Free Fund Eaton Vance Tax Free Reserves
EV Marathon Strategic Income Fund Massachusetts Municipal Bond Portfolio
</TABLE>
(b)
<TABLE>
<CAPTION>
(1) (2) (3)
NAME AND PRINCIPAL POSITIONS AND OFFICES POSITIONS AND OFFICES
BUSINESS ADDRESS WITH PRINCIPAL UNDERWRITER WITH REGISTRANT
----------- --------------- -----------
<S> <C> <C>
James B. Hawkes* Vice President and Director Trustee
William M. Steul* Vice President and Director None
Wharton P. Whitaker* President and Director None
Howard D. Barr Vice President None
2750 Royal View Court
Oakland, Michigan
Nancy E. Belza Vice President None
463-1 Buena Vista East
San Francisco, California
Chris Berg Vice President None
45 Windsor Lane
Palm Beach Gardens, Florida
H. Day Brigham, Jr.* Vice President None
Susan W. Bukima Vice President None
106 Princess Street
Alexandria, Virginia
Jeffrey W. Butterfield Vice President None
9378 Mirror Road
Columbus, Indiana
Mark A. Carlson* Vice President None
Jeffrey Chernoff Vice President None
115 Concourse West
Bright Waters, New York
William A. Clemmer* Vice President None
James S. Comforti Vice President None
1859 Crest Drive
Encinitas, California
Mark P. Doman Vice President None
107 Pine Street
Philadelphia, Pennsylvania
Michael A. Foster Vice President None
850 Kelsey Court
Centerville, Ohio
William M. Gillen Vice President None
280 Rea Street
North Andover, Massachusetts
Hugh S. Gilmartin Vice President None
1531-184th Avenue, NE
Bellevue, Washington
Richard E. Houghton* Vice President None
Brian Jacobs* Senior Vice President None
Stephen D. Johnson Vice President None
13340 Providence Lake Drive
Alpharetta, Georgia
Thomas J. Marcello Vice President None
553 Belleville Avenue
Glen Ridge, New Jersey
Timothy D. McCarthy Vice President None
9801 Germantown Pike
Lincoln Woods Apt. 416
Lafayette Hill, Pennsylvania
Morgan C. Mohrman* Senior Vice President None
Gregory B. Norris Vice President None
6 Halidon Court
Palm Beach Gardens, Florida
Thomas Otis* Secretary and Clerk Secretary
George D. Owen Vice President None
1911 Wildwood Court
Blue Springs, Missouri
F. Anthony Robinson Vice President None
510 Gravely Hill Road
Wakefield, Rhode Island
Benjamin A. Rowland, Jr.* Vice President, None
Treasurer and Director
John P. Rynne* Vice President None
George V.F. Schwab, Jr. Vice President None
9501 Hampton Oaks Lane
Charlotte, North Carolina
Cornelius J. Sullivan* Vice President None
Maureen C. Tallon Vice President None
518 Armistead Drive
Nashville, Tennessee
David M. Thill Vice President None
126 Albert Drive
Lancaster, New York
Chris Volf Vice President None
6517 Thoroughbred Loop
Odessa, Florida
Donald E. Webber* Senior Vice President None
Sue Wilder Vice President None
141 East 89th Street
New York, New York
- ---------
*Address is 24 Federal Street, Boston, MA 02110
</TABLE>
(c) 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, 24 Federal Street,
Boston, MA 02110 and 89 South Street, Boston, MA 02111, and its transfer agent,
The Shareholder Services Group, Inc., 53 State Street, Boston, MA 02104, with
the exception of certain corporate documents and portfolio trading documents
which are in the possession and custody of Eaton Vance Management, 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 Eaton Vance Management.
ITEM 31. MANAGEMENT SERVICES
Not applicable
ITEM 32. UNDERTAKINGS
The Registrant undertakes to furnish to each person to whom a prospectus is
delivered a copy of the latest annual report to shareholders, upon request and
without charge.
The Registrant undertakes to file a Post-Effective Amendment, using
financial statements which need not be certified, within four to six months from
the effective date of its post-effective amendment No. 2.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Post-Effective Amendment to the
Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933
and has duly caused this Post-Effective Amendment to its Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Boston, and the Commonwealth of Massachusetts, on the 24th day of May,
1995
EATON VANCE MUNICIPALS TRUST II
By /s/ THOMAS J. FETTER
-----------------------------
THOMAS J. FETTER, President
Pursuant to the requirements of the Securities Act of 1933, this Post-
Effective Amendment to the Registration Statement has been signed below by the
following persons in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
President, (Chief Executive
/s/ THOMAS J. FETTER Officer) May 24, 1995
- ------------------------------
THOMAS J. FETTER
Treasurer and Principal
Financial and Accounting
/s/ JAMES L. O'CONNOR Officer May 24, 1995
- ------------------------------
JAMES L. O'CONNOR
DONALD R. DWIGHT* Trustee May 24, 1995
- ------------------------------
DONALD R. DWIGHT
/s/ JAMES B. HAWKES Trustee May 24, 1995
- ------------------------------
JAMES B. HAWKES
SAMUEL L. HAYES, III* Trustee May 24, 1995
- ------------------------------
SAMUEL L. HAYES, III
NORTON H. REAMER* Trustee May 24, 1995
- ------------------------------
NORTON H. REAMER
JOHN L. THORNDIKE* Trustee May 24, 1995
- ------------------------------
JOHN L. THORNDIKE
JACK L. TREYNOR* Trustee May 24, 1995
- ------------------------------
JACK L. TREYNOR
*By: /s/ H. DAY BRIGHAM, JR.
-------------------------------------------------
As attorney-in-fact
</TABLE>
<PAGE>
SIGNATURES
Florida Insured Tax Free Portfolio has duly caused this Amendment to the
Registration Statement on Form N-1A of Eaton Vance Municipals Trust II to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Boston and the Commonwealth of Massachusetts on the 24th day of May, 1995.
FLORIDA INSURED TAX FREE PORTFOLIO
By /s/ THOMAS J. FETTER
-----------------------------
THOMAS J. FETTER, President
This Amendment to the Registration Statement on Form N-1A of Eaton Vance
Municipals Trust II has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
President, (Chief Executive
/s/ THOMAS J. FETTER Officer) May 24, 1995
- ------------------------------
THOMAS J. FETTER
Treasurer and Principal
Financial and Accounting
/s/ JAMES L. O'CONNOR Officer May 24, 1995
- ------------------------------
JAMES L. O'CONNOR
DONALD R. DWIGHT* Trustee May 24, 1995
- ------------------------------
DONALD R. DWIGHT
/s/ JAMES B. HAWKES Trustee May 24, 1995
- ------------------------------
JAMES B. HAWKES
SAMUEL L. HAYES, III* Trustee May 24, 1995
- ------------------------------
SAMUEL L. HAYES, III
NORTON H. REAMER* Trustee May 24, 1995
- ------------------------------
NORTON H. REAMER
JOHN L. THORNDIKE* Trustee May 24, 1995
- ------------------------------
JOHN L. THORNDIKE
JACK L. TREYNOR* Trustee May 24, 1995
- ------------------------------
JACK L. TREYNOR
*By:/s/ H. DAY BRIGHAM, JR.
-------------------------------------------------
As attorney-in-fact
</TABLE>
<PAGE>
SIGNATURES
Hawaii Tax Free Portfolio has duly caused this Amendment to the
Registration Statement on Form N-1A of Eaton Vance Municipals Trust II to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Boston and the Commonwealth of Massachusetts on the 24th day of May, 1995.
HAWAII TAX FREE PORTFOLIO
By /s/ THOMAS J. FETTER
-----------------------------
THOMAS J. FETTER, President
This Amendment to the Registration Statement on Form N-1A of Eaton Vance
Municipals Trust II has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
President, (Chief Executive
/s/ THOMAS J. FETTER Officer) May 24, 1995
- ------------------------------
THOMAS J. FETTER
Treasurer and Principal
Financial and Accounting
/s/ JAMES L. O'CONNOR Officer May 24, 1995
- ------------------------------
JAMES L. O'CONNOR
DONALD R. DWIGHT* Trustee May 24, 1995
- ------------------------------
DONALD R. DWIGHT
/s/ JAMES B. HAWKES Trustee May 24, 1995
- ------------------------------
JAMES B. HAWKES
SAMUEL L. HAYES, III* Trustee May 24, 1995
- ------------------------------
SAMUEL L. HAYES, III
NORTON H. REAMER* Trustee May 24, 1995
- ------------------------------
NORTON H. REAMER
JOHN L. THORNDIKE* Trustee May 24, 1995
- ------------------------------
JOHN L. THORNDIKE
JACK L. TREYNOR* Trustee May 24, 1995
- ------------------------------
JACK L. TREYNOR
*By: /s/ H. DAY BRIGHAM, JR.
----------------------------------------
As attorney-in-fact
</TABLE>
<PAGE>
SIGNATURES
Kansas Tax Free Portfolio has duly caused this Amendment to the Registration
Statement on Form N-1A of Eaton Vance Municipals Trust II to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Boston and
the Commonwealth of Massachusetts on the 24th day of May, 1995.
KANSAS TAX FREE PORTFOLIO
By /s/ THOMAS J. FETTER
-----------------------------
THOMAS J. FETTER, President
This Amendment to the Registration Statement on Form N-1A of Eaton Vance
Municipals Trust II has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
President, (Chief Executive
/s/ THOMAS J. FETTER Officer) May 24, 1995
- ------------------------------
THOMAS J. FETTER
Treasurer and Principal
Financial and Accounting
/s/ JAMES L. O'CONNOR Officer May 24, 1995
- ------------------------------
JAMES L. O'CONNOR
DONALD R. DWIGHT* Trustee May 24, 1995
- ------------------------------
DONALD R. DWIGHT
/s/ JAMES B. HAWKES Trustee May 24, 1995
- ------------------------------
JAMES B. HAWKES
SAMUEL L. HAYES, III* Trustee May 24, 1995
- ------------------------------
SAMUEL L. HAYES, III
NORTON H. REAMER* Trustee May 24, 1995
- ------------------------------
NORTON H. REAMER
JOHN L. THORNDIKE* Trustee May 24, 1995
- ------------------------------
JOHN L. THORNDIKE
JACK L. TREYNOR* Trustee May 24, 1995
- ------------------------------
JACK L. TREYNOR
*By:/s/ H. DAY BRIGHAM, JR.
-------------------------------------------------
As attorney-in-fact
</TABLE>
<PAGE>
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
- ----------- -----------
(6)(a)(6) Amended Distribution Agreement between Eaton Vance Municipals
Trust II (on behalf of its Classic series) and Eaton Vance
Distributors, Inc. dated January 27, 1995.
(11)(a) Consent of Independent Certified Public Accountants for Eaton
Vance Municipals Trust II on behalf of EV Classic Florida Insured
Tax Free Fund, EV Classic Hawaii Tax Free Fund and EV Classic
Kansas Tax Free Fund dated May 24, 1995.
(b) Consent of Independent Certified Public Accountants for Eaton
Vance Municipals Trust II on behalf of EV Marathon Florida Insured
Tax Free Fund, EV Marathon Hawaii Tax Free Fund and EV Marathon
Kansas Tax Free Fund dated May 24, 1995.
(c) Consent of Independent Certified Public Accountants for Eaton
Vance Municipals Trust II on behalf of EV Traditional Florida
Insured Tax Free Fund dated May 24, 1995.
(15)(f) Amended Distribution Plan for Eaton Vance Municipals Trust II (on
behalf of its Classic series) dated January 27, 1995.
(16) Schedules for Computation of Performance Quotations.
<PAGE>
EXHIBIT 99.6(A)(6)
EATON VANCE MUNICIPALS TRUST II
AMENDED DISTRIBUTION AGREEMENT
(CLASSIC FUNDS)
AGREEMENT effective as of January 27, 1995 between EATON VANCE MUNICIPALS
TRUST II, a Massachusetts business trust having its principal place of business
in Boston in the Commonwealth of Massachusetts, hereinafter called the "Trust",
on behalf of each of its series listed on Schedule A (the "Funds"), and EATON
VANCE DISTRIBUTORS, INC., a Massachusetts corporation having its principal place
of business in said Boston, hereinafter sometimes called the "Principal
Underwriter".
IN CONSIDERATION of the mutual promises and undertakings herein contained,
the parties hereto agree with respect to each Fund:
1. The Trust grants to the Principal Underwriter the right to purchase
shares of the Fund upon the terms hereinbelow set forth during the term of this
Agreement. While this Agreement is in force, the Principal Underwriter agrees to
use its best efforts to find purchasers for shares of the Fund.
The Principal Underwriter shall have the right to buy from the Fund the
shares needed, but not more than the shares needed (except for clerical errors
and errors of transmission) to fill unconditional orders for shares of the Fund
placed with the Principal Underwriter by financial service firms or investors as
set forth in the current Prospectus relating to shares of the Fund. The price
which the Principal Underwriter shall pay for the shares so purchased shall be
equal to the price paid by investors upon purchasing such shares. The Principal
Underwriter shall notify Investors Bank & Trust Company, Custodian of the Fund
("IBT"), and The Shareholder Services Group, Inc., Transfer Agent of the Fund
("TSSG"), or a successor transfer agent, at the end of each business day, or as
soon thereafter as the orders placed with it have been compiled, of the number
of shares and the prices thereof which the Principal Underwriter is to purchase
as principal for resale. The Principal Underwriter shall take down and pay for
shares ordered from the Fund on or before the eleventh business day (excluding
Saturdays) after the shares have been so ordered.
The right granted to the Principal Underwriter to buy shares from the Fund
shall be exclusive, except that said exclusive right shall not apply to shares
issued in connection with the merger or consolidation of any other investment
company or personal holding company with the Fund or the acquisition by purchase
or otherwise of all (or substantially all) the assets or the outstanding shares
of any such company, by the Fund; nor shall it apply to shares, if any, issued
by the Fund in distribution of income or realized capital gains of the Fund
payable in shares or in cash at the option of the shareholder.
2. The shares may be resold by the Principal Underwriter to or through
financial service firms having agreements with the Principal Underwriter, and to
investors, upon the following terms and conditions.
The public offering price, i.e., the price per share at which the Principal
Underwriter or financial service firm purchasing shares from the Principal
Underwriter may sell shares to the public, shall be equal to the net asset value
at which the Principal Underwriter is to purchase the shares.
The net asset value of shares of the Fund shall be determined by the Trust
or IBT, as the agent of the Fund, as of the close of regular trading on the New
York Stock Exchange on each business day on which said Exchange is open, or as
of such other time on each such business day as may be determined by the
Trustees of the Trust, in accordance with the methodology and procedures for
calculating such net asset value authorized by the Trustees. The Trust may also
cause the net asset value to be determined in substantially the same manner or
estimated in such manner and as of such other time or times as may from time to
time be agreed upon by the Trust and Principal Underwriter. The Trust will
notify the Principal Underwriter each time the net asset value of the Fund's
shares is determined and when such value is so determined it shall be applicable
to transactions as set forth in the current Prospectus and Statement of
Additional Information (hereafter the "Prospectus") relating to the Fund's
shares.
No shares of the Fund shall be sold by the Fund during any period when the
determination of net asset value is suspended pursuant to the Declaration of
Trust, except to the Principal Underwriter, in the manner and upon the terms
above set forth to cover contracts of sale made by the Principal Underwriter
with its customers prior to any such suspension, and except as provided in the
last paragraph of paragraph 1 hereof. The Trust shall also have the right to
suspend the sale of the Fund's shares if in the judgment of the Trust conditions
obtaining at any time render such action advisable. The Principal Underwriter
shall have the right to suspend sales at any time, to refuse to accept or
confirm any order from an investor or financial service firm, or to accept or
confirm any such order in part only, if in the judgment of the Principal
Underwriter such action is in the best interests of the Fund.
3. The Trust agrees that it will, from time to time, but subject to the
necessary approval of the Fund's shareholders, take such steps as may be
necessary to register the Fund's shares under the federal Securities Act of
1933, as amended from time to time, (the "1933 Act"), to the end that there will
be available for sale such number of shares as the Principal Underwriter may
reasonably be expected to sell. The Trust agrees to indemnify and hold harmless
the Principal Underwriter and each person, if any, who controls the Principal
Underwriter within the meaning of Section 15 of the 1933 Act against any loss,
liability, claim, damages or expense (including the reasonable cost of
investigating or defending any alleged loss, liability, claim, damages or
expense and reasonable counsel fees incurred in connection therewith), arising
by reason of any person acquiring any shares of the Fund, which may be based
upon the 1933 Act or on any other statute or at common law, on the ground that
the Registration Statement or Prospectus, as from time to time amended and
supplemented, includes an untrue statement of a material fact or omits to state
a material fact required to be stated therein or necessary in order to make the
statements therein not misleading, unless such statement or omission was made in
reliance upon, and in conformity with, information furnished in writing to the
Trust in connection therewith by or on behalf of the Principal Underwriter;
provided, however, that in no case (i) is the indemnity of the Trust in favor of
the Principal Underwriter and any such controlling person to be deemed to
protect such Principal Underwriter or any such controlling person against any
liability to the Trust or the Fund or its security holders to which such
Principal Underwriter or any such controlling person would otherwise be subject
by reason of willful misfeasance, bad faith, or gross negligence in the
performance of its duties or by reason of its reckless disregard of its
obligations and duties under this Agreement, or (ii) is the Trust or the Fund to
be liable under its indemnity agreement contained in this paragraph with respect
to any claim made against the Principal Underwriter or any such controlling
person unless the Principal Underwriter or any such controlling person, as the
case may be, shall have notified the Trust in writing within a reasonable time
after the summons or other first legal process giving information of the nature
of the claim shall have been served upon the Principal Underwriter or such
controlling person (or after such Principal Underwriter or such controlling
person shall have received notice of such service on any designated agent), but
failure to notify the Trust of any such claim shall not relieve it from any
liability which the Fund may have to the person against whom such action is
brought otherwise than on account of its indemnity agreement contained in this
paragraph. The Trust shall be entitled to participate, at the expense of the
Fund, in the defense, or, if the Trust so elects, to assume the defense of any
suit brought to enforce any such liability, but if the Trust elects to assume
the defense, such defense shall be conducted by counsel chosen by it and
satisfactory to the Principal Underwriter or controlling person or persons,
defendant or defendants in the suit. In the event the Trust elects to assume the
defense of any such suit and retains such counsel, the Principal Underwriter or
controlling person or persons, defendant or defendants in the suit, shall bear
the fees and expenses of any additional counsel retained by them, but, in case
the Trust does not elect to assume the defense of any such suit, the Fund shall
reimburse the Principal Underwriter or controlling person or persons, defendant
or defendants in the suit, for the reasonable fees and expenses of any counsel
retained by them. The Trust agrees promptly to notify the Principal Underwriter
of the commencement of any litigation or proceedings against it or any of its
officers or Trustees in connection with the issuance or sale of any of the
Fund's shares.
4. The Principal Underwriter covenants and agrees that, in selling the
shares of the Fund, it will use its best efforts in all respects duly to conform
with the requirements of all state and federal laws relating to the sale of such
shares, and will indemnify and hold harmless the Trust and each of its Trustees
and officers and each person, if any, who controls the Trust within the meaning
of Section 15 of the 1933 Act, against any loss, liability, damages, claim or
expense (including the reasonable cost of investigating or defending any alleged
loss, liability, damages, claim or expense and reasonable counsel fees incurred
in connection therewith), arising by reason of any person acquiring any shares
of the Fund, which may be based upon the 1933 Act or any other statute or at
common law, on account of any wrongful act of the Principal Underwriter or any
of its employees (including any failure to conform with any requirement of any
state or federal law relating to the sale of such shares) or on the ground that
the Registration Statement or Prospectus, as from time to time amended and
supplemented, includes an untrue statement of a material fact or omits to state
a material fact required to be stated therein or necessary in order to make the
statements therein not misleading, insofar as any such statement or omission was
made in reliance upon, and in conformity with information furnished in writing
to the Fund in connection therewith by or on behalf of the Principal
Underwriter, provided, however, that in no case (i) is the indemnity of the
Principal Underwriter in favor of any person indemnified to be deemed to protect
the Fund or any such person against any liability to which the Fund or any such
person would otherwise be subject by reason of willful misfeasance, bad faith,
or gross negligence in the performance of its or his duties or by reason of its
or his reckless disregard of its obligations and duties under this Agreement, or
(ii) is the Principal Underwriter to be liable under its indemnity agreement
contained in this paragraph with respect to any claim made against the Fund or
any person indemnified unless the Trust or such person, as the case may be,
shall have notified the Principal Underwriter in writing within a reasonable
time after the summons or other first legal process giving information of the
nature of the claim shall have been served upon the Trust, the Fund or upon such
person (or after the Trust or such person shall have received notice of such
service on any designated agent), but failure to notify the Principal
Underwriter of any such claim shall not relieve it from any liability which it
may have to the Fund or any person against whom such action is brought otherwise
than on account of its indemnity agreement contained in this paragraph. The
Principal Underwriter shall be entitled to participate, at its own expense, in
the defense, or, if it so elects, to assume the defense of any suit brought to
enforce any such liability, but if the Principal Underwriter elects to assume
the defense, such defense shall be conducted by counsel chosen by it and
satisfactory to the Trust, or to its officers or Trustees, or to any controlling
person or persons, defendant or defendants in the suit. In the event that the
Principal Underwriter elects to assume the defense of any such suit and retains
such counsel, the Fund or such officers or Trustees or controlling person or
persons, defendant or defendants in the suit, shall bear the fees and expenses
of any additional counsel retained by them or the Trust, but, in case the
Principal Underwriter does not elect to assume the defense of any such suit, it
shall reimburse the Fund, any such officers and Trustees or controlling person
or persons, defendant or defendants in such suit, for the reasonable fees and
expenses of any counsel retained by them or the Trust. The Principal Underwriter
agrees promptly to notify the Trust of the commencement of any litigation or
proceedings against it in connection with the issue and sale of any of the
Fund's shares.
Neither the Principal Underwriter nor any financial service firm nor any
other person is authorized by the Trust to give any information or to make any
representations, other than those contained in the Registration Statement or
Prospectus filed with the Securities and Exchange Commission (the "Commission")
under the 1933 Act, (as said Registration Statement and Prospectus may be
amended or supplemented from time to time), covering the shares of the Fund.
Neither the Principal Underwriter nor any financial service firm nor any other
person is authorized to act as agent for the Trust or the Fund in connection
with the offering or sale of shares of the Fund to the public or otherwise. All
such sales made by the Principal Underwriter shall be made by it as principal,
for its own account. The Principal Underwriter may, however, act as agent in
connection with the repurchase of shares as provided in paragraph 6 below, or in
connection with "exchanges" between investment companies for which the Principal
Underwriter acts as Principal Underwriter or for which an affiliate of the
Principal Underwriter acts as investment adviser.
5(a). The Fund will pay, or cause to be paid -
(i) all the costs and expenses of the Fund, including fees and
disbursements of its counsel, in connection with the preparation and filing of
any required Registration Statement and/or Prospectus under the 1933 Act, or the
Investment Company Act of 1940, as amended from time to time, (the "1940 Act")
covering its shares and all amendments and supplements thereto, and preparing
and mailing periodic reports to shareholders (including the expense of setting
up in type any such Registration Statement, Prospectus or periodic report);
(ii) the cost of preparing temporary and permanent share certificates
(if any) for shares of the Fund;
(iii) the cost and expenses of delivering to the Principal Underwriter
at its office in Boston, Massachusetts, all shares of the Fund purchased by it
as principal hereunder; and
(iv) all the federal and state (if any) issue and/or transfer taxes
payable upon the issue by or (in the case of treasury shares) transfer from the
Fund to the Principal Underwriter of any and alle issue shares of the Fund
purchased by the Principal Underwriter hereunder.
(b) The Principal Underwriter agrees that, after the Prospectus and
periodic reports have been set up in type, it will bear the expense of printing
and distributing any copies thereof which are to be used in connection with the
offering of shares of the Fund to financial service firms or investors. The
Principal Underwriter further agrees that it will bear the expenses of
preparing, printing and distributing any other literature used by the Principal
Underwriter or furnished by it for use by financial service firms in connection
with the offering of the shares of the Fund for sale to the public and any
expenses of advertising in connection with such offering. The Fund agrees to pay
the expenses of registration and maintaining registration of its shares for sale
under federal and state securities laws, and, if necessary or advisable in
connection therewith, of qualifying the Trust or the Fund as a dealer or broker,
in such states as shall be selected by the Principal Underwriter and the fees
payable to each such state for continuing the qualification therein until the
Principal Underwriter notifies the Trust that it does not wish such
qualification continued.
(c) In addition, the Trust agrees, in accordance with the Fund's Amended
Distribution Plan (the "Plan"), adopted pursuant to Rule 12b-1 under the 1940
Act with respect to shares, to make certain payments as follows. The Principal
Underwriter shall be entitled to be paid by the Fund a sales commission equal to
an amount not exceeding 6.25% of the price received by the Fund for each sale of
shares (excluding reinvestment of dividends and distributions), such payment to
be made in the manner set forth in this paragraph 5. The Principal Underwriter
shall also be entitled to be paid by the Fund a separate distribution fee
(calculated in accordance with paragraph 5(d)), such payment to be made in the
manner set forth and subject to the terms of this paragraph 5.
(d) The sales commissions and distribution fees referred to in paragraph
5(c) shall be accrued and paid by the Fund in the following manner. The Fund
shall accrue daily an amount calculated at the rate of .75% per annum of the
daily net assets of the Fund, which net assets shall be computed as described in
paragraph 2. The daily amounts so accrued throughout the month shall be paid to
the Principal Underwriter on the last day of each month. The amount of such
daily accrual, as so calculated, shall first be applied and charged to all
unpaid sales commissions, and the balance, if any, shall then be applied and
charged to all unpaid distribution fees. No amount shall be accrued with respect
to any day on which there exist no outstanding uncovered distribution charges of
the Principal Underwriter. The amount of such uncovered distribution charges
shall be calculated daily. For purposes of this calculation, distribution
charges of the Principal Underwriter shall include (a) the aggregate of all
sales commissions which the Principal Underwriter has been paid pursuant to this
paragraph (d) (and pursuant to paragraph (d) of the Original Agreement) plus all
sales commissions which it is entitled to be paid pursuant to paragraph 5(c)
(and pursuant to paragraph 5(c) of the Original Agreement) since inception of
the Original Agreement through and including the day next preceding the date of
calculation, and (b) an amount equal to the aggregate of all distribution fees
referred to below which the Principal Underwriter has been paid pursuant to this
paragraph (d) (and pursuant to paragraph (d) of the Original Agreement) plus all
such fees which it is entitled to be paid pursuant to paragraph 5(c) (and
pursuant to paragraph 5(c) of the Original Agreement) since inception of the
Original Agreement through and including the day next preceding the date of
calculation. From this sum (distribution charges) there shall be subtracted (i)
the aggregate amount paid or payable to the Principal Underwriter pursuant to
this paragraph (d) (and pursuant to paragraph (d) of the Original Agreement)
since inception of the Original Agreement through and including the day next
preceding the date of calculation and (ii) the aggregate amount of all
contingent deferred sales charges paid or payable to the Principal Underwriter
since inception of the Original Agreement through and including the day next
preceding the date of calculation. If the result of such subtraction is a
positive amount, a distribution fee [computed at the rate of 1% per annum above
the prime rate (being the base rate on corporate loans posted by at least 75% of
the nation's 30 largest banks) then being reported in the Eastern Edition of The
Wall Street Journal or if such prime rate is not so reported such other rate as
may be designated from time to time by vote or other action of a majority of (i)
those Trustees of the Trust who are not "interested persons" of the Trust (as
defined in the 1940 Act) and have no direct or indirect financial interest in
the operation of the Plan or any agreements related to it (the "Rule 12b-1
Trustees") and (ii) all of the Trustees then in office] shall be computed on
such amount and added to such amount, with the resulting sum constituting the
amount of outstanding uncovered distribution charges of the Principal
Underwriter with respect to such day for all purposes of this Agreement. If the
result of such subtraction is a negative amount, there shall exist no
outstanding uncovered distribution charges of the Principal Underwriter with
respect to such day and no amount shall be accrued or paid to the Principal
Underwriter with respect to such day. The aggregate amounts accrued and paid
pursuant to this paragraph (d) during any fiscal year of the Fund shall not
exceed .75% of the average daily net assets of the Fund for such year.
(e) The Principal Underwriter shall be entitled to receive all contingent
deferred sales charges paid or payable with respect to any day on which there
exist outstanding uncovered distribution charges of the Principal Underwriter.
The Fund shall be entitled to receive all remaining contingent deferred sales
charges paid or payable by shareholders with respect to any day on which there
exist no outstanding uncovered distribution charges of the Principal
Underwriter, provided that no such sales charge which would cause the Fund to
exceed the maximum applicable cap imposed thereon by paragraph (2) of subsection
(d) of Section 26 of Article III of the Rules of Fair Practice of the National
Association of Securities Dealers, Inc. shall be imposed.
(f) The persons authorized to direct the disposition of monies paid or
payable by the Fund pursuant to the Plan or this Agreement shall be the
President or any Vice President of the Trust. Such persons shall provide to the
Trust's Trustees and the Trustees shall review, at least quarterly, a written
report of the amounts so expended and the purposes for which such expenditures
were made.
(g) In addition to the payments to the Principal Underwriter provided for
in paragraph 5(d), the Fund may make payments of service fees to the Principal
Underwriter, Authorized Firms and other persons. The aggregate of such payments
during any fiscal year of the Fund shall not exceed .25% of the Fund's average
daily net assets for such year.
6. The Trust hereby authorizes the Principal Underwriter to repurchase,
upon the terms and conditions set forth in written instructions given by the
Trust to the Principal Underwriter from time to time, as agent of the Fund and
for its account, such shares of the Fund as may be offered for sale to the Fund
from time to time.
(a) The Principal Underwriter shall notify in writing IBT and TSSG at the
end of each business day, or as soon thereafter as the repurchases in each
pricing period have been compiled, of the number of shares repurchased for the
account of the Fund since the last previous report, together with the prices at
which such repurchases were made, and upon the request of any officer or Trustee
of the Trust shall furnish similar information with respect to all repurchases
made up to the time of the request on any day.
(b) The Trust reserves the right to suspend or revoke the foregoing
authorization at any time; unless otherwise stated, any such suspension or
revocation shall be effective forthwith upon receipt of notice thereof by an
officer of the Principal Underwriter, by telegraph or by written instrument from
an officer of the Trust duly authorized by its Trustees. In the event that the
authorization of the Principal Underwriter is, by the terms of such notice,
suspended for more than twenty-four hours or until further notice, the
authorization given by this paragraph 6 shall not be revived except by action of
a majority of the Trustees of the Trust.
(c) The Principal Underwriter shall have the right to terminate the
operation of this paragraph 6 upon giving to the Trust thirty (30) days' written
notice thereof.
(d) The Trust agrees to authorize and direct IBT to pay, for the account of
the Fund, the purchase price of any shares so repurchased against delivery of
the certificates in proper form for transfer to the Fund or for cancellation by
the Fund.
(e) The Principal Underwriter shall receive no commission in respect of any
repurchase of shares under the foregoing authorization and appointment as agent,
except for any sales commission, distribution fee or contingent deferred sales
charges payable under paragraph 5.
(f) The Trust agrees that the Fund will reimburse the Principal
Underwriter, from time to time on demand, for any reasonable expenses incurred
in connection with the repurchase of shares of the Fund pursuant to this
paragraph 6.
7. If, at any time during the existence of this Agreement, the Trust shall
deem it necessary or advisable in the best interests of the Fund that any
amendment of this Agreement be made in order to comply with the recommendations
or requirements of the Commission or other governmental authority or to obtain
any advantage under Massachusetts or Federal tax laws, and shall notify the
Principal Underwriter of the form of amendment which it deems necessary or
advisable and the reasons therefor, and, if the Principal Underwriter declines
to assent to such amendment, the Trust may terminate this Agreement forthwith by
written notice to the Principal Underwriter. If, at any time during the
existence of its agreement upon request by the Principal Underwriter, the Trust
fails (after a reasonable time) to make any changes in its Declaration of Trust,
as amended, or in its methods of doing business which are necessary in order to
comply with any requirement of Federal law or regulations of the Commission or
of a national securities association of which the Principal Underwriter is or
may be a member, relating to the sale of the shares of the Fund, the Principal
Underwriter may terminate this Agreement forthwith by written notice to the
Trust.
8. The term "net asset value" as used in this Agreement with reference to
the shares of the Fund shall have the same meaning as used in the Declaration of
Trust, as amended, and calculated in the manner referred to in paragraph 2
above.
9(a). The Principal Underwriter is a corporation in the United States
organized under the laws of Massachusetts and holding membership in the National
Association of Securities Dealers, Inc., a securities association registered
under Section 15A of the Securities Exchange Act of 1934, as amended from time
to time, and during the life of this Agreement will continue to be so resident
in the United States, so organized and a member in good standing of said
Association. The Principal Underwriter will comply with the Trust's Declaration
of Trust and By-Laws, and the 1940 Act and the rules promulgated thereunder,
insofar as they are applicable to the Principal Underwriter.
(b) The Principal Underwriter shall maintain in the United States and
preserve therein for such period or periods as the Commission shall prescribe by
rules and regulations applicable to it as Principal Underwriter of an open-end
investment company registered under the 1940 Act such accounts, books and other
documents as are necessary or appropriate to record its transactions with the
Fund. Such accounts, books and other documents shall be subject at any time and
from time to time to such reasonable periodic, special and other examinations by
the Commission or any member or representative thereof as the Commission may
prescribe. The Principal Underwriter shall furnish to the Commission within such
reasonable time as the Commission may prescribe copies of or extracts from such
records which may be prepared without effort, expense or delay as the Commission
may by order require.
10. This Agreement shall continue in force indefinitely until terminated as
in this Agreement above provided, except that:
(a) this Agreement shall remain in effect through and including April 28,
1995 (or, if applicable, the next April 28 which follows the day on which the
Fund has become a party hereto by amendment of Schedule A subsequent to April
28, 1995), and shall continue in full force and effect indefinitely thereafter,
but only so long as such continuance is specifically approved at least annually
(i) by the vote of a majority of the Rule 12b-1 Trustees cast in person at a
meeting called for the purpose of voting on such approval, and (ii) by the
Trustees of the Trust or by vote of a majority of the outstanding voting
securities of the Fund;
(b) this Agreement may be terminated at any time by vote of a majority of
the Rule 12b-1 Trustees or by vote of a majority of the outstanding voting
securities of the Fund on not more than sixty (60) days' notice to the Principal
Underwriter. The Principal Underwriter shall be entitled to receive all
contingent deferred sales charges paid or payable with respect to any day
subsequent to the termination of this Agreement;
(c) the Principal Underwriter shall have the right to terminate this
Agreement on six (6) months' written notice thereof given in writing to the
Fund;
(d) the Trust shall have the right to terminate this Agreement forthwith in
the event that it shall have been established by a court of competent
jurisdiction that the Principal Underwriter or any director or officer of the
Principal Underwriter has taken any action which results in a breach of the
covenants set out in paragraph 9 hereof; and
(e) additional series of the Trust will become parties hereto upon approval
by the Trustees of the Trust and amendment of Schedule A.
11. In the event of the assignment of this Agreement by the Principal
Underwriter, this Agreement shall automatically terminate.
12. Any notice under this Agreement shall be in writing, addressed and
delivered, or mailed postage paid, to the other party, at such address as such
other party may designate for the receipt of such notices. Until further notice
to the other party, it is agreed that the record address of the Trust and that
of the Principal Underwriter, shall be 24 Federal Street, Boston, Massachusetts
02110.
13. The services of the Principal Underwriter to the Fund hereunder are not
to be deemed to be exclusive, the Principal Underwriter being free to (a) render
similar service to, and to act as principal underwriter in connection with the
distribution of shares of, other series of the Trust or other investment
companies, and (b) engage in other business and activities from time to time.
14. The terms "vote of a majority of the outstanding voting securities,"
"assignment" and "interested persons," when used herein, shall have the
respective meanings specified in the 1940 Act, subject, however, to such
exemptions as may be granted by the Commission by any rule, regulation or order.
15. The Principal Underwriter expressly acknowledges the provision in the
Trust's Declaration of Trust limiting the personal liability of the shareholders
of the Fund or the Trustees of the Trust. The Principal Underwriter hereby
agrees that it shall have recourse to the Trust or the Fund for payment of
claims or obligations as between the Trust or the Fund and the Principal
Underwriter arising out of this Agreement and shall not seek satisfaction from
the shareholders or any shareholder of the Trust or from the Trustees or any
Trustee of the Trust. The Fund shall not be responsible for obligations of any
other series of the Trust.
16. All references in this Agreement to the "Original Agreement" shall mean
the Distribution Agreement referenced on Schedule A hereto between the Trust on
behalf of the Fund and the Principal Underwriter. Such references shall not be
applicable to any additional series of the Trust which becomes a Fund hereunder
by amendment of Schedule A subsequent to January 27, 1995.
17. This Agreement shall amend, replace and be substituted for the Original
Agreement as of the opening of business on January 30, 1995, and this Agreement
shall be effective as of such time. The outstanding uncovered distribution
charges of the Principal Underwriter calculated under the Original Agreement as
of the close of business on January 29, 1995 shall be the outstanding uncovered
distribution charges of the Principal Underwriter calculated under this
Agreement as of the opening of business on January 30, 1995.
IN WITNESS WHEREOF, the parties hereto have entered into this Agreement on
the 27th day of January, 1995.
EATON VANCE MUNICIPALS TRUST II
By /s/ Thomas J. Fetter
President
EATON VANCE DISTRIBUTORS INC.
By /s/ Wharton P. Whitaker
President
<PAGE>
SCHEDULE A
EATON VANCE MUNICIPALS TRUST II
AMENDED DISTRIBUTION AGREEMENT
DATED JANUARY 27, 1995
Name of Fund Inception Date of Original Agreement
EV Classic Florida Insured Tax Free Fund February 25, 1994
EV Classic Hawaii Tax Free Fund February 25, 1994
EV Classic Kansas Tax Free Fund February 25, 1994
<PAGE>
EXHIBIT 11(a)
INDEPENDENT AUDITOR'S CONSENT
We consent to the use in this Post-Effective Amendment No. 3 to the
Registration Statement (1933 Act File No. 33-71320) of Eaton Vance Municipals
Trust II on behalf of EV Classic Florida Insured Tax Free Fund, EV Classic
Hawaii Tax Free Fund and EV Classic Kansas Tax Free Fund of our report dated
March 2, 1995, relating to EV Classic Florida Insured Tax Free Fund, EV Classic
Hawaii Tax Free Fund and EV Classic Kansas Tax Free Fund, and of our report
dated March 2, 1995, relating to Florida Insured Tax Free Portfolio, Hawaii Tax
Free Portfolio and Kansas Tax Free Portfolio, both of which reports are
incorporated by reference in the Statement of Additional Information, which is a
part of such Registration Statement. We also consent to the references to us
under the heading "The Funds' Financial Highlights" appearing in the Prospectus,
which is part of such Registration Statement.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
May 24, 1995
Boston, Massachusetts
<PAGE>
EXHIBIT 11(b)
INDEPENDENT AUDITOR'S CONSENT
We consent to the use in this Post-Effective Amendment No. 3 to the
Registration Statement (1933 Act File No. 33-71320) of Eaton Vance Municipals
Trust II on behalf of EV Marathon Florida Insured Tax Free Fund, EV Marathon
Hawaii Tax Free Fund and EV Marathon Kansas Tax Free Fund of our report dated
March 2, 1995, relating to EV Marathon Florida Insured Tax Free Fund, EV
Marathon Hawaii Tax Free Fund and EV Marathon Kansas Tax Free Fund, and of our
report dated March 2, 1995, relating to Florida Insured Tax Free Portfolio,
Hawaii Tax Free Portfolio and Kansas Tax Free Portfolio, both of which reports
are incorporated by reference in the Statement of Additional Information, which
is a part of such Registration Statement. We also consent to the references to
us under the heading "The Funds' Financial Highlights" appearing in the
Prospectus, which is part of such Registration Statement.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
May 24, 1995
Boston, Massachusetts
<PAGE>
<PAGE>
EXHIBIT 11(c)
INDEPENDENT AUDITOR'S CONSENT
We consent to the use in this Post-Effective Amendment No. 3 to the
Registration Statement (1933 Act File No. 33-71320) of Eaton Vance Municipals
Trust II on behalf of EV Traditional Florida Insured Tax Free Fund of our report
dated March 2, 1995, relating to EV Traditional Florida Insured Tax Free Fund
and of our report dated March 2, 1995, relating to Florida Insured Tax Free
Portfolio, both of which reports are incorporated by reference in the Statement
of Additional Information, which is a part of such Registration Statement. We
also consent to the references to us under the heading "The Fund's Financial
Highlights" appearing in the Prospectus, which is part of such Registration
Statement.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
May 24, 1995
Boston, Massachusetts
<PAGE>
EXHIBIT 99.15(F)
EATON VANCE MUNICIPALS TRUST II
AMENDED DISTRIBUTION PLAN
(CLASSIC FUNDS)
WHEREAS, Eaton Vance Municipals Trust II (the "Trust") engages in business
as an open-end investment company with multiple series and is registered as such
under the Investment Company Act of 1940, as amended (the "Act");
WHEREAS, the Trust adopted a separate Distribution Plan (the "Original
Plan") on behalf of each of its series listed on Schedule A (the "Funds"),
pursuant to which each Fund has made payments in connection with the
distribution of shares of the Fund;
WHEREAS, the Trust employs Eaton Vance Distributors, Inc. to act as
Principal Underwriter (as defined in the Act) of shares of each Fund, but does
not intend to remunerate the Principal Underwriter unless and until the
Principal Underwriter sells shares of the Fund;
WHEREAS, each Fund will pay the Principal Underwriter sales commissions and
distribution fees only in connection with the sale of shares of the Fund;
WHEREAS, each Fund intends to pay service fees as contemplated in
subsections (b) and (d) of Section 26 of Article III of the Rules of Fair
Practice of the National Association of Securities Dealers, Inc. (the "NASD
Rules");
WHEREAS, the Trustees of the Trust have determined that it is desirable to
amend and replace the Original Plan with this Amended Distribution Plan on
behalf of the Funds listed on Schedule A; and
WHEREAS, the Trustees of the Trust have determined that there is a
reasonable likelihood that adoption of this Amended Distribution Plan will
benefit each Fund and its shareholders.
NOW, THEREFORE, the Trust hereby adopts this Amended Distribution Plan
(this "Plan") on behalf of each Fund in accordance with Rule 12b-1 under the Act
and containing the following terms and conditions:
1. The Fund will pay sales commissions and distribution fees to the
Principal Underwriter only after and as a result of the sales of shares of the
Fund. The Principal Underwriter will provide the Fund with such distribution
services and facilities as the Trust may from time to time consider necessary to
accomplish the sale of shares of the Fund. It is understood that the Principal
Underwriter may pay such sales commissions and make such other payments to
Authorized Firms and other persons as it considers appropriate to encourage
distribution of such shares.
2. On each sale of Fund shares (excluding reinvestment of dividends and
distributions), the Fund shall pay the Principal Underwriter a sales commission
in an amount not exceeding 6.25% of the price received by the Fund therefor,
such payment to be made in the manner set forth and subject to the terms of this
Plan. The amount of the sales commission shall be established from time to time
by vote or other action of a majority of (i) those Trustees of the Trust who are
not "interested persons" (as defined in the Act) of the Trust and have no direct
or indirect financial interest in the operation of this Plan or any agreements
related to it (the "Rule 12b-1 Trustees") and (ii) all of the Trustees then in
office. The Fund shall also pay the Principal Underwriter a separate
distribution fee (calculated in accordance with Section 3), such payment to be
made in the manner set forth and subject to the terms of this Plan.
3. The sales commissions and distribution fees referred to in Section 2
shall be accrued and paid by the Fund in the following manner. The Fund shall
accrue daily an amount calculated at the rate of .75% per annum of the daily net
assets of the Fund, which net assets shall be computed in accordance with the
governing documents of the Trust and applicable votes and determinations of the
Trustees of the Trust. The daily amounts so accrued throughout the month shall
be paid to the Principal Underwriter on the last day of each month. The amount
of such daily accrual, as so calculated, shall first be applied and charged to
all unpaid sales commissions, and the balance, if any, shall then be applied and
charged to all unpaid distribution fees. No amount shall be accrued with respect
to any day on which there exist no outstanding uncovered distribution charges of
the Principal Underwriter. The amount of such uncovered distribution charges
shall be calculated daily. For purposes of this calculation, distribution
charges of the Principal Underwriter shall include (a) the aggregate of all
sales commissions which the Principal Underwriter has been paid pursuant to this
Section 3 (and pursuant to Section 3 of the Original Plan) plus all sales
commissions which it is entitled to be paid pursuant to Section 2 (and pursuant
to Section 2 of the Original Plan) since inception of the Original Plan through
and including the day next preceding the date of calculation, and (b) an amount
equal to the aggregate of all distribution fees referred to below which the
Principal Underwriter has been paid pursuant to this Section 3 (and pursuant to
Section 3 of the Original Plan) plus all such fees which it is entitled to be
paid pursuant to Section 2 (and pursuant to Section 2 of the Original Plan)
since inception of the Original Plan through and including the day next
preceding the date of calculation. From this sum (distribution charges) there
shall be subtracted (i) the aggregate amount paid or payable to the Principal
Underwriter pursuant to this Section 3 (and pursuant to Section 3 of the
Original Plan) since inception of the Original Plan through and including the
day next preceding the date of calculation and (ii) the aggregate amount of all
contingent deferred sales charges paid or payable to the Principal Underwriter
since inception of the Original Plan through and including the day next
preceding the date of calculation. If the result of such subtraction is a
positive amount, a distribution fee [computed at the rate of 1% per annum above
the prime rate (being the base rate on corporate loans posted by at least 75% of
the nation's 30 largest banks) then being reported in the Eastern Edition of The
Wall Street Journal or if such prime rate is not so reported such other rate as
may be designated from time to time by vote or other action of a majority of (i)
the Rule12b-1 Trustees and (ii) all of the Trustees then in office] shall be
computed on such amount and added to such amount, with the resulting sum
constituting the amount of outstanding uncovered distribution charges of the
Principal Underwriter with respect to such day for all purposes of this Plan. If
the result of such subtraction is a negative amount, there shall exist no
outstanding uncovered distribution charges of the Principal Underwriter with
respect to such day and no amount shall be accrued or paid to the Principal
Underwriter with respect to such day. The aggregate amounts accrued and paid
pursuant to this Section 3 during any fiscal year of the Fund shall not exceed
.75% of the average daily net assets of the Fund for such year.
4. The Principal Underwriter shall be entitled to receive all contingent
deferred sales charges paid or payable with respect to any day on which there
exist outstanding uncovered distribution charges of the Principal Underwriter.
The Fund shall be entitled to receive all remaining contingent deferred sales
charges paid or payable by shareholders with respect to any day on which there
exist no outstanding uncovered distribution charges of the Principal
Underwriter, provided that no such sales charge which would cause the Fund to
exceed the maximum applicable cap imposed thereon by paragraph (2) of subsection
(d) of Section 26 of Article III of the NASD Rules shall be imposed.
5. The Fund may make payments of service fees to the Principal Underwriter,
Authorized Firms and other persons. The aggregate of such payments during any
fiscal year of the Fund shall not exceed .25% of the Fund's average daily net
assets for such year. Appropriate adjustment of service fee payments shall be
made whenever necessary to ensure that no such payment shall cause the Fund to
exceed the applicable maximum cap imposed thereon by paragraph (5) of subsection
(d) of Section 26 of Article III of the NASD Rules.
6. This Plan shall not take effect until after it has been approved by both
a majority of (i) the Rule 12b-1 Trustees and (ii) all of the Trustees then in
office, cast in person at a meeting (or meetings) called for the purpose of
voting on this Plan.
7. Any agreements between the Trust on behalf of the Fund and any person
relating to this Plan shall be in writing and shall not take effect until
approved in the manner provided for Trustee approval of this Plan in Section 6.
8. This Plan shall continue in effect through and including April 28, 1995
(or, if applicable, the next April 28 which follows the day on which the Fund
has become a Fund hereunder by amendment of Schedule A subsequent to April 28,
1995), and shall continue in effect indefinitely thereafter, but only for so
long as such continuance after April 28, 1995 (or, if applicable, said next
April 28) is specifically approved at least annually in the manner provided for
Trustee approval of this Plan in Section 6.
9. The persons authorized to direct the disposition of monies paid or
payable by the Fund pursuant to this Plan or any related agreement made on
behalf of the Fund shall be the President or any Vice President of the Trust.
Such persons shall provide to the Trustees of the Trust and the Trustees shall
review, at least quarterly, a written report of the amounts so expended and the
purposes for which such expenditures were made.
10. This Plan may be terminated at any time by vote of a majority of the
Rule 12b-1 Trustees, or by vote of a majority of the outstanding voting
securities of the Fund. The Principal Underwriter shall also be entitled to
receive all contingent deferred sales charges paid or payable with respect to
any day subsequent to termination of this Plan on which there exist outstanding
uncovered distribution charges of the Principal Underwriter.
11. This Plan may not be amended to increase materially the payments to be
made by the Fund as provided in Sections 2, 3 and 5 unless such amendment is
approved by a vote of at least a majority of the outstanding voting securities
of the Fund. In addition, all material amendments to this Plan shall be approved
in the manner provided for Trustee approval of this Plan in Section 6.
Additional series of the Trust will be governed hereby upon approval by the
Trustees of the Trust and amendment of Schedule A. All references in this Plan
to the "Original Plan" shall not be applicable to any such additional series of
the Trust which becomes a Fund hereunder by amendment of Schedule A subsequent
to January 27, 1995.
12. While this Plan is in effect, the selection and nomination of the Rule
12b-1 Trustees shall be committed to the discretion of the Rule 12b-1 Trustees.
13. The Trust shall preserve copies of this Plan and any related agreements
made by the Trust on behalf of the Fund and all reports made pursuant to Section
9, for a period of not less than six years from the date of this Plan, or of the
agreements or of such report, as the case may be, the first two years in an
easily accessible place.
14. Consistent with the limitation of shareholder, officer and Trustee
liability as set forth in the Trust's Declaration of Trust, any obligations
assumed by the Fund pursuant to this Plan shall be limited in all cases to the
assets of the Fund and no person shall seek satisfaction thereof from the
shareholders of the Trust, officers or Trustees of the Trust or any other series
of the Trust.
15. When used in this Plan, the term "service fees" shall have the same
meaning as such term has in subsections (b) and (d) of Section 26 of Article III
of the NASD Rules. When used in this Plan, the term "vote of a majority of the
outstanding voting securities of the Fund" shall mean the vote of the lesser of
(a) 67 per centum or more of the shares of the Fund present or represented by
proxy at the meeting if the holders of more than 50 per centum of the
outstanding shares of the Fund are present or represented by proxy at the
meeting, or (b) more than 50 per centum of the outstanding shares of the Fund.
16. If any provision of this Plan shall be held or made invalid by a court
decision, statute, rule or regulation of the Securities and Exchange Commission
or otherwise, the remainder of this Plan shall not be affected thereby.
17. This Plan shall amend, replace and be substituted for the Current Plan
as of the opening of business on January 30, 1995 and this Plan shall be
effective as of such time. The outstanding uncovered distribution charges of the
Principal Underwriter calculated under the Current Plan as of the close of
business on January 29, 1995 shall be the outstanding uncovered distribution
charges of the Principal Underwriter calculated under this Plan as of the
opening of business on January 30, 1995.
IN WITNESS WHEREOF, the Trust has executed this Plan on behalf of each Fund
listed on Schedule A on the 27th day of January, 1995.
EATON VANCE MUNICIPALS TRUST II
BY /s/ Thomas J. Fetter
President
Attest:
/s/ Thomas Otis
Secretary
<PAGE>
SCHEDULE A
EATON VANCE MUNICIPALS TRUST II
AMENDED DISTRIBUTION PLAN
DATED JANUARY 27, 1995
NAME OF FUND INCEPTION DATE OF ORIGINAL PLAN
EV Classic Florida Insured Tax Free Fund February 25, 1994
EV Classic Hawaii Tax Free Fund February 25, 1994
EV Classic Kansas Tax Free Fund February 25, 1994
<PAGE>
<TABLE>
EV CLASSIC FLORIDA INSURED TAX FREE FUND
INVESTMENT PERFORMANCE
The table below indicates the total return (capital changes plus reinvestment of
all distributions) on a hypothetical investment of $1,000 in the Fund covering
the life of the Fund ending January 31, 1995. Past performance is not indicative
of future results. Investment return and principal value will fluctuate and
shares, when redeemed, may be worth more or less than their original cost.
<CAPTION>
TOTAL TOTAL
RETURN RETURN
01/31/95 01/31/95 THROUGH THOUGH
VALUE OF VALUE OF 01/31/95 01/31/95
NO. OF SHARES TOTAL INVEST- INVEST- BEFORE AFTER
NO. OF NAV ON GAINED THROUGH NO. OF MENT MENT DEDUCTING DEDUCTING
INVEST- INVEST- AMT OF SHARES DATE OF REINVESTMENT OF SHARES BEFORE AFTER THE CDSC THE CDSC *
MENT MENT INVEST- PUR- INVEST- ALL DISTRIBUTIONS AS OF 01/31/95 DEDUCTING DEDUCTING
PERIOD DATE MENT CHASED MENT THROUGH 01/31/95 01/31/95 NAV THE CDSC THE CDSC* CUMUL^ ANN++ CUMUL^^ ANN++
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
LIFE OF 06/15/94 $1,000 100.000 $10.00 3.406 103.406 $9.75 $1,008.21 $998.46 0.82% NA -0.15% NA
THE FUND
(0.63 YEARS)
* No contingent deferred sales charge (CDSC) is imposed on shares purchased
more than one year prior to the redemption, shares acquired through the
reinvestment of dividends and distributions and any appreciation in value of
other shares in the account, and no such charge is imposed on exchanges of
fund shares for shares of one or more other funds in the Eaton Vance Classic
Group of Funds.
^ Cumulative total return (net asset value to net asset value) is calculated by
dividing the cumulative net asset value on 01/31/95 by the initial net asset
value.
^^ Cumulative total return (net asset value to net asset value) is calculated by
dividing the cumulative net asset value on 01/31/95 by the initial net asset
value and subtracting the CDSC.
++ Average annual total return is the average annual compounded rate of return
based on the cumulative value for each period.
</TABLE>
It is calculated by taking the nth root of 1 + the cumulative total return,
where n = the number of years invested.
<PAGE>
Exhibit 16
EV CLASSIC FLORIDA INSURED TAX FREE FUND
TAX EQUIVALENT YIELD CALCULATION
For the 30 days ended 01/31/95:
Interest Income Earned:
$7,644
Plus Dividend Income Earned:
- ----------
Equal Gross Income:
$7,644
Minus Expenses:
$1,375
- ----------
Equal Net Investment Income:
$6,269
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends:
170,885
- ----------
Equal Net Investment Income Earned Per Share:
$0.0367
Net Asset Value Per Share 01/31/95:
$9.76
30 Day Yield*:
4.55%
Divided by One minus the Tax Rate of 31%:
0.69
- -----------
Equal Tax Equivalent Yield **:
6.59%
<PAGE>
* Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0367/$9.76)+1)-1]
** Assuming a tax rate of 31%
Exhibit 16
EV CLASSIC FLORIDA INSURED TAX FREE FUND
CALCULATION OF YIELD
For the 30 days ended 01/31/95:
Interest Income Earned: $7,644
Plus Dividend Income Earned:
----------
Equal Gross Income: $7,644
Minus Expenses: $1,375
----------
Equal Net Investment Income: $6,269
<PAGE>
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 170,885
----------
Equal Net Investment Income Earned Per Share: $0.0367
Maximum Offering Price Per Share 01/31/95: $9.76
30 Day Yield*: 4.55%
* Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0367/$9.76)+1)-1]
<PAGE>
EV MARATHON FLORIDA INSURED TAX FREE FUND
CALCULATION OF DISTRIBUTION RATE
AND EFFECTIVE DISTRIBUTION RATE
AS OF 01/31/95
DISTRIBUTION RATE
Annualize
Most Recent
Monthly : ( $0.045150688 / 32) x 365
Distribution
Divide by
Current Maximum : $10.26
Offering Price
Distribution
Rate Equals : 0.0502 ( or 5.02% )
EFFECTIVE DISTRIBUTION RATE
Divide
Distribution : 0.0502
Rate by 365/32 ------ + 1
( or 11.406 ) 11.406
and Add1.
The Resulting
Number Equals : 1.0044
Take this
Number to the 11.406
365/32nd ( or : ( 1.0044 ) - 1
11.406 ) power
and Subtract 1.
Effective
Distribution : 0.0514 ( or 5.14% )
Rate Equals
<PAGE>
EV CLASSIC HAWAII TAX FREE FUND
INVESTMENT PERFORMANCE
The table below indicates the total return (capital changes plus reinvestment of
all distributions) on a hypothetical investment of $1,000 in the Fund covering
the life of the Fund ending January 31, 1995. Past performance is not indicative
of future results. Investment return and principal value will fluctuate and
shares, when redeemed, may be worth more or less than their original cost.
<TABLE>
<CAPTION>
TOTAL TOTAL
RETURN RETURN
01/31/95 01/31/95 THROUGH THOUGH
VALUE OF VALUE OF 01/31/95 01/31/95
NO. OF SHARES TOTAL INVEST- INVEST- BEFORE AFTER
NO. OF NAV ON GAINED THROUGH NO. OF MENT MENT DEDUCTING DEDUCTING
INVEST- INVEST- AMT OF SHARES DATE OF REINVESTMENT OF SHARES BEFORE AFTER THE CDSC THE CDSC *
MENT MENT INVEST- PUR- INVEST- ALL DISTRIBUTIONS AS OF 01/31/95 DEDUCTING DEDUCTING
PERIOD DATE MENT CHASED MENT THROUGH 01/31/95 01/31/95 NAV THE CDSC THE CDSC* CUMUL^ ANN++ CUMUL^^ ANN++
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
LIFE OF 03/14/94 $1,000 100.000 $10.00 4.833 104.833 $9.04 $947.69 $938.65 -5.23% NA -6.13% NA
THE FUND
(0.88 YEARS)
* No contingent deferred sales charge (CDSC) is imposed on shares purchased
more than one year prior to the redemption, shares acquired through the
reinvestment of dividends and distributions and any appreciation in value
of other shares in the account, and no such charge is imposed on exchanges
of fund shares for shares of one or more other funds in the Eaton Vance
Classic Group of Funds.
^ Cumulative total return (net asset value to net asset value) is calculated
by dividing the cumulative net asset value on 01/31/95 by the initial net
asset value.
^^ Cumulative total return (net asset value to net asset value) is calculated
by dividing the cumulative net asset value on 01/31/95 by the initial net
asset value and subtracting the CDSC.
++ Average annual total return is the average annual compounded rate of
return based on the cumulative value for each period.
It is calculated by taking the nth root of 1 + the cumulative total return,
where n = the number of years invested.
</TABLE>
<PAGE>
Exhibit 16
EV CLASSIC HAWAII TAX FREE FUND
TAX EQUIVALENT YIELD CALCULATION
For the 30 days ended 01/31/95:
Interest Income Earned:
$1,326
Plus Dividend Income Earned:
- ----------
Equal Gross Income:
$1,326
Minus Expenses:
$216
- ----------
Equal Net Investment Income:
$1,110
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends:
31,056
- ----------
Equal Net Investment Income Earned Per Share:
$0.0357
Net Asset Value Per Share 01/31/95:
$9.07
30 Day Yield*:
4.78%
Divided by One minus the Tax Rate of 31%:
0.69
- -----------
Equal Tax Equivalent Yield **:
6.93%
Divided by one minus a tax rate of 35.20%:
0.6480
- ----------
Equal Tax Equivalent Yield***:
<PAGE>
7.38%
* Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0357/$9.07)+1)-1]
** Assuming a tax rate of 31%
*** Assuming a combined federal and Hawaii tax rate of 35.20%
Exhibit 16
EV CLASSIC HAWAII TAX FREE FUND
CALCULATION OF YIELD
For the 30 days ended 01/31/95:
Interest Income Earned: $1,326
Plus Dividend Income Earned:
----------
Equal Gross Income: $1,326
Minus Expenses: $216
<PAGE>
----------
Equal Net Investment Income: $1,110
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 31,056
----------
Equal Net Investment Income Earned Per Share: $0.0357
Maximum Offering Price Per Share 01/31/95: $9.07
30 Day Yield*: 4.78%
* Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0357/$9.07)+1)-1]
<PAGE>
EV CLASSIC HAWAII TAX FREE FUND
CALCULATION OF DISTRIBUTION RATE
AND EFFECTIVE DISTRIBUTION RATE
AS OF 01/31/95
DISTRIBUTION RATE
Annualize
Most Recent
Monthly : ( $0.040767136 / 32) x 365
Distribution
Divide by
Current Maximum : $9.04
Offering Price
Distribution
Rate Equals : 0.0514 ( or 5.14% )
EFFECTIVE DISTRIBUTION RATE
Divide
Distribution : 0.0514
Rate by 365/32 ------ + 1
( or 11.406 ) 11.406
and Add1.
The Resulting
Number Equals : 1.0045
Take this
Number to the 11.406
365/32nd ( or : ( 1.0045 ) - 1
11.406 ) power
and Subtract 1.
Effective
Distribution : 0.0527 ( or 5.27% )
Rate Equals
<PAGE>
EV CLASSIC KANSAS TAX FREE FUND
INVESTMENT PERFORMANCE
The table below indicates the total return (capital changes plus reinvestment of
all distributions) on a hypothetical investment of $1,000 in the Fund covering
the life of the Fund ending January 31, 1995. Past performance is not indicative
of future results. Investment return and principal value will fluctuate and
shares, when redeemed, may be worth more or less than their original cost.
<TABLE>
<CAPTION>
TOTAL TOTAL
NO. OF SHARES 01/31/95 01/31/95 RETURN RETURN
GAINED THROUGH VALUE OF VALUE OF* THROUGH THOUGH
REINVESTMENT TOTAL INVEST- INVEST- 01/31/95 01/31/95
NO. OF NAV ON OF ALL NO. OF MENT MENT BEFORE AFTER
INVEST- INVEST- AMT OF SHARES DATE OF DISTRIBUTIONS SHARES BEFORE AFTER DEDUCTING DEDUCTING
MENT MENT INVEST- PUR- INVEST- THROUGH AS OF 01/31/95 DEDUCTING DEDUCTING THE CDSC THE CDSC<F1>
PERIOD DATE MENT CHASED MENT 01/31/95 01/31/95 NAV THE CDSC THE CDSC* CUMUL^ ANN** CUMUL^^ ANN**
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
LIFE
OF THE
FUND 03/03/94 $1,000 100.000 $10.00 4.710 104.710 $9.54 $998.93 $989.39 -0.11% NA -1.06% NA
(0.92 YEARS)
<FN>
- --------
* No contingent deferred sales charge (CDSC) is imposed on shares purchased
more than one year prior to the redemption, shares acquired through the
reinvestment of dividends and distributions and any appreciation in value of
other shares in the account, and no such charge is imposed on exchanges of
fund shares for shares of one or more other funds in the Eaton Vance Classic
Group of Funds.
^ Cumulative total return (net asset value to net asset value) is calculated by
dividing the cumulative net asset value on 01/31/95 by the initial net asset
value.
^^ Cumulative total return (net asset value to net asset value) is calculated by
dividing the cumulative net asset value on 01/31/95 by the initial net asset
value and subtracting the CDSC.
** Average annual total return is the average annual compounded rate of return
based on the cumulative value for each period.
It is calculated by taking the nth root of 1 + the cumulative total return,
where n = the number of years invested.
</TABLE>
<PAGE>
Exhibit 16
EV CLASSIC KANSAS TAX FREE FUND
TAX EQUIVALENT YIELD CALCULATION
For the 30 days ended 01/31/95:
Interest Income Earned:
$3,249
Plus Dividend Income Earned:
- ----------
Equal Gross Income:
$3,249
Minus Expenses:
$511
- ----------
Equal Net Investment Income:
$2,738
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends:
70,173
- ----------
Equal Net Investment Income Earned Per Share:
$0.0390
Net Asset Value Per Share 01/31/95:
$9.56
30 Day Yield*:
4.95%
Divided by One minus the Tax Rate of 31%:
0.69
- -----------
Equal Tax Equivalent Yield **:
7.17%
Divided by one minus a tax rate of 33.58%:
0.6642
- ----------
Equal Tax Equivalent Yield***:
7.44%
* Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0390/$9.56)+1)-1]
** Assuming a tax rate of 31%
*** Assuming a combined federal and Kansas tax rate of 33.58%
<PAGE>
Exhibit 16
EV CLASSIC KANSAS TAX FREE FUND
CALCULATION OF YIELD
For the 30 days ended 01/31/95:
Interest Income Earned: $3,249
Plus Dividend Income Earned:
----------
Equal Gross Income: $3,249
Minus Expenses: $511
----------
Equal Net Investment Income: $2,738
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 70,173
----------
Equal Net Investment Income Earned Per Share: $0.0390
Maximum Offering Price Per Share 01/31/95: $9.56
30 Day Yield*: 4.95%
* Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0390/$9.56)+1)-1]
<PAGE>
EV CLASSIC KANSAS TAX FREE FUND
CALCULATION OF DISTRIBUTION RATE
AND EFFECTIVE DISTRIBUTION RATE
AS OF 01/31/95
DISTRIBUTION RATE
Annualize
Most Recent
Monthly : ( $0.040504128 / 32) x 365
Distribution
Divide by
Current Maximum : $9.54
Offering Price
Distribution
Rate Equals : 0.0484 ( or 4.84% )
EFFECTIVE DISTRIBUTION RATE
Divide
Distribution : 0.0484
Rate by 365/32 ------ + 1
( or 11.406 ) 11.406
and Add1.
The Resulting
Number Equals : 1.0042
Take this
Number to the 11.406
365/32nd ( or : ( 1.0042 ) - 1
11.406 ) power
and Subtract 1.
Effective
Distribution : 0.0495 ( or 4.95% )
Rate Equals
<PAGE>
EV MARATHON FLORIDA INSURED TAX FREE FUND
INVESTMENT PERFORMANCE
The table below indicates the total return (capital changes plus reinvestment of
all distributions) on a hypothetical investment of $1,000 in the Fund covering
the life of the Fund ending January 31, 1995. Past performance is not indicative
of future results. Investment return and principal value will fluctuate and
shares, when redeemed, may be worth more or less than their original cost.
<TABLE>
<CAPTION>
TOTAL TOTAL
RETURN RETURN
01/31/95 01/31/95 THROUGH THOUGH
VALUE OF VALUE OF 01/31/95 01/31/95
NO. OF SHARES TOTAL INVEST- INVEST- BEFORE AFTER
NO. OF NAV ON GAINED THROUGH NO. OF MENT MENT DEDUCTING DEDUCTING
INVEST- INVEST- AMT OF SHARES DATE OF REINVESTMENT OF SHARES BEFORE AFTER THE CDSC THE CDSC *
MENT MENT INVEST- PUR- INVEST- ALL DISTRIBUTIONS AS OF 01/31/95 DEDUCTING DEDUCTING
PERIOD DATE MENT CHASED MENT THROUGH 01/31/95 01/31/95 NAV+ THE CDSC THE CDSC* CUMUL^ ANN++ CUMUL^^ ANN++
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
LIFE OF 03/02/94 $1,000 100.000 $10.00 4.383 104.383 $10.26 $1,070.97 $1,020.97 7.10% NA 2.10% NA
THE FUND
(0.92 YRS)
<FN>
- -----------
* No contingent deferred sales charge (CDSC) is imposed on shares purchased
more than six years prior to the redemption, shares acquired through the
reinvestment of dividends and distributions and any appreciation in value of
other shares in the account, and no such charge is imposed on exchanges of
fund shares for shares of one or more other funds in the Eaton Vance Marathon
Group of Funds.
^ Cumulative total return (net asset value to net asset value) is calculated by
dividing the cumulative net asset value on 01/31/95 by the initial net asset
value.
^^ Cumulative total return (net asset value to net asset value) is calculated by
dividing the cumulative net asset value on 01/31/95 by the initial net asset
value and subtracting the CDSC.
+ 01/31/95 Net Asset Value is an unaudited figure
++ Average annual total return is the average annual compounded rate of return
based on the cumulative value for each period.
It is calculated by taking the nth root of 1 + the cumulative total return,
where n = the number of years invested.
</TABLE>
<PAGE>
Exhibit 16
EV MARATHON FLORIDA INSURED TAX FREE FUND
TAX EQUIVALENT YIELD CALCULATION
For the 30 days ended 1/31/95:
Interest Income Earned:
$52,038
Plus Dividend Income Earned:
- ----------
Equal Gross Income:
$52,038
Minus Expenses:
$6,966
- ----------
Equal Net Investment Income:
$45,072
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends:
1,104,898
- ----------
Equal Net Investment Income Earned Per Share:
$0.0408
Net Asset Value Per Share 1/31/95:
$10.26
30 Day Yield*:
4.82%
Divided by One minus the Tax Rate of 31%:
0.69
- -----------
Equal Tax Equivalent Yield **:
6.99%
* Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0408/$10.26)+1)-1]
** Assuming a tax rate of 31%
<PAGE>
Exhibit 16
EV MARATHON FLORIDA INSURED TAX FREE FUND
CALCULATION OF YIELD
For the 30 days ended 1/31/95:
Interest Income Earned: $52,038
Plus Dividend Income Earned:
----------
Equal Gross Income: $52,038
Minus Expenses: $6,966
----------
Equal Net Investment Income: $45,072
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 1,104,898
----------
Equal Net Investment Income Earned Per Share: $0.0408
Maximum Offering Price Per Share 1/31/95: $10.26
30 Day Yield*: 4.82%
* Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0408/$10.26)+1)-1]
<PAGE>
EV MARATHON FLORIDA INSURED TAX FREE FUND
CALCULATION OF DISTRIBUTION RATE
AND EFFECTIVE DISTRIBUTION RATE
AS OF 01/31/95
DISTRIBUTION RATE
Annualize
Most Recent
Monthly : ( $0.045150688 / 32) x 365
Distribution
Divide by
Current Maximum : $10.26
Offering Price
Distribution
Rate Equals : 0.0502 ( or 5.02% )
EFFECTIVE DISTRIBUTION RATE
Divide
Distribution : 0.0502
Rate by 365/32 ------ + 1
( or 11.406 ) 11.406
and Add1.
The Resulting
Number Equals : 1.0044
Take this
Number to the 11.406
365/32nd ( or : ( 1.0044 ) - 1
11.406 ) power
and Subtract 1.
Effective
Distribution : 0.0514 ( or 5.14% )
Rate Equals
<PAGE>
<TABLE>
EV MARATHON HAWAII TAX FREE FUND
INVESTMENT PERFORMANCE
The table below indicates the total return (capital changes plus reinvestment of
all distributions) on a hypothetical investment of $1,000 in the Fund covering
the life of the Fund ending January 31, 1995. Past performance is not indicative
of future results. Investment return and principal value will fluctuate and
shares, when redeemed, may be worth more or less than their original cost.
<CAPTION>
TOTAL TOTAL
RETURN RETURN
01/31/95 01/31/95 THROUGH THOUGH
VALUE OF VALUE OF 01/31/95 01/31/95
NO. OF SHARES TOTAL INVEST- INVEST- BEFORE AFTER
NO. OF NAV ON GAINED THROUGH NO. OF MENT MENT DEDUCTING DEDUCTING
INVEST- INVEST- AMT OF SHARES DATE OF REINVESTMENT OF SHARES BEFORE AFTER THE CDSC THE CDSC *
MENT MENT INVEST- PUR- INVEST- ALL DISTRIBUTIONS AS OF 01/31/95 DEDUCTING DEDUCTING
PERIOD DATE MENT CHASED MENT THROUGH 01/31/95 01/31/95 NAV+ THE CDSC THE CDSC* CUMUL^ ANN++ CUMUL^^ ANN++
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
LIFE OF 03/02/94 $1,000 100.000 $10.00 4.905 104.905 $9.15 $959.88 $914.13 -4.01% NA -8.59% NA
THE FUND
(0.92 YRS)
<FN>
- ----------
* No contingent deferred sales charge (CDSC) is imposed on shares purchased
more than six years prior to the redemption, shares acquired through the
reinvestment of dividends and distributions and any appreciation in value of
other shares in the account, and no such charge is imposed on exchanges of
fund shares for shares of one or more other funds in the Eaton Vance Marathon
Group of Funds.
^ Cumulative total return (net asset value to net asset value) is calculated by
dividing the cumulative net asset value on 01/31/95 by the initial net asset
value.
^^ Cumulative total return (net asset value to net asset value) is calculated by
dividing the cumulative net asset value on 01/31/95 by the initial net asset
value and subtracting the CDSC.
+ 01/31/95 Net Asset Value is an unaudited figure
++ Average annual total return is the average annual compounded rate of return
based on the cumulative value for each period.
It is calculated by taking the nth root of 1 + the cumulative total return,
where n = the number of years invested.
</TABLE>
<PAGE>
Exhibit 16
EV MARATHON HAWAII TAX FREE FUND
TAX EQUIVALENT YIELD CALCULATION
For the 30 days ended 1/31/95:
Interest Income Earned:
$64,666
Plus Dividend Income Earned:
- ----------
Equal Gross Income:
$64,666
Minus Expenses:
$7,700
- ----------
Equal Net Investment Income:
$56,966
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends:
1,362,442
- ----------
Equal Net Investment Income Earned Per Share:
$0.0418
Net Asset Value Per Share 1/31/95:
$9.15
30 Day Yield*:
5.55%
Divided by One minus the Tax Rate of 31%:
0.69
- -----------
Equal Tax Equivalent Yield **:
8.04%
Divided by one minus a tax rate of 35.20%:
0.6480
- ----------
Equal Tax Equivalent Yield***:
8.56%
* Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0418/$9.15)+1)-1]
** Assuming a tax rate of 31%
*** Assuming a combined federal and Hawaii tax rate of 35.20%
<PAGE>
Exhibit 16
EV MARATHON HAWAII TAX FREE FUND
CALCULATION OF YIELD
For the 30 days ended 1/31/95:
Interest Income Earned: $64,666
Plus Dividend Income Earned:
----------
Equal Gross Income: $64,666
Minus Expenses: $7,700
----------
Equal Net Investment Income: $56,966
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 1,362,442
----------
Equal Net Investment Income Earned Per Share: $0.0418
Maximum Offering Price Per Share 1/31/95: $9.15
30 Day Yield*: 5.55%
* Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0418/$9.15)+1)-1]
<PAGE>
EV MARATHON HAWAII TAX FREE FUND
CALCULATION OF DISTRIBUTION RATE
AND EFFECTIVE DISTRIBUTION RATE
AS OF 01/31/95
DISTRIBUTION RATE
Annualize
Most Recent
Monthly : ( $0.042958912 / 32) x 365
Distribution
Divide by
Current Maximum : $9.15
Offering Price
Distribution
Rate Equals : 0.0536 ( or 5.36% )
EFFECTIVE DISTRIBUTION RATE
Divide
Distribution : 0.0536
Rate by 365/32 ------ + 1
( or 11.406 ) 11.406
and Add1.
The Resulting
Number Equals : 1.0047
Take this
Number to the 11.406
365/32nd ( or : ( 1.0047 ) - 1
11.406 ) power
and Subtract 1.
Effective
Distribution : 0.0549 ( or 5.49% )
Rate Equals
<PAGE>
<TABLE>
EV MARATHON KANSAS TAX FREE FUND
INVESTMENT PERFORMANCE
The table below indicates the total return (capital changes plus reinvestment of
all distributions) on a hypothetical investment of $1,000 in the Fund covering
the life of the Fund ending January 31, 1995. Past performance is not indicative
of future results. Investment return and principal value will fluctuate and
shares, when redeemed, may be worth more or less than their original cost.
<CAPTION>
TOTAL TOTAL
RETURN RETURN
01/31/95 01/31/95 THROUGH THOUGH
VALUE OF VALUE OF 01/31/95 01/31/95
NO. OF SHARES TOTAL INVEST- INVEST- BEFORE AFTER
NO. OF NAV ON GAINED THROUGH NO. OF MENT MENT DEDUCTING DEDUCTING
INVEST- INVEST- AMT OF SHARES DATE OF REINVESTMENT OF SHARES BEFORE AFTER THE CDSC THE CDSC *
MENT MENT INVEST- PUR- INVEST- ALL DISTRIBUTIONS AS OF 01/31/95 DEDUCTING DEDUCTING
PERIOD DATE MENT CHASED MENT THROUGH 01/31/95 01/31/95 NAV+ THE CDSC THE CDSC* CUMUL^ ANN++ CUMUL^^ ANN++
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
LIFE OF 03/02/94 $1,000 100.000 $10.00 4.773 104.773 $9.56 $1,001.63 $953.83 0.16% NA -4.62% NA
THE FUND
(0.92 YRS)
<FN>
- ----------
* No contingent deferred sales charge (CDSC) is imposed on shares purchased
more than six years prior to the redemption, shares acquired through the
reinvestment of dividends and distributions and any appreciation in value of
other shares in the account, and no such charge is imposed on exchanges of
fund shares for shares of one or more other funds in the Eaton Vance Marathon
Group of Funds.
^ Cumulative total return (net asset value to net asset value) is calculated by
dividing the cumulative net asset value on 01/31/95 by the initial net asset
value.
^^ Cumulative total return (net asset value to net asset value) is calculated by
dividing the cumulative net asset value on 01/31/95 by the initial net asset
value and subtracting the CDSC.
+ 01/31/95 Net Asset Value is an unaudited figure
++ Average annual total return is the average annual compounded rate of return
based on the cumulative value for each period.
It is calculated by taking the nth root of 1 + the cumulative total return,
where n = the number of years invested.
</TABLE>
<PAGE>
Exhibit 16
EV MARATHON KANSAS TAX FREE FUND
TAX EQUIVALENT YIELD CALCULATION
For the 30 days ended 1/31/95:
Interest Income Earned:
$37,740
Plus Dividend Income Earned:
- ----------
Equal Gross Income:
$37,740
Minus Expenses:
$4,576
- ----------
Equal Net Investment Income:
$33,164
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends:
781,454
- ----------
Equal Net Investment Income Earned Per Share:
$0.0424
Net Asset Value Per Share 1/31/95:
$9.56
30 Day Yield*:
5.39%
Divided by One minus the Tax Rate of 31%:
0.69
- -----------
Equal Tax Equivalent Yield **:
7.80%
Divided by one minus a tax rate of 33.58%:
0.6642
- ----------
Equal Tax Equivalent Yield***:
8.11%
* Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0424/$9.56)+1)-1]
** Assuming a tax rate of 31%
*** Assuming a combined federal and Kansas tax rate of 33.58%
<PAGE>
Exhibit 16
EV MARATHON KANSAS TAX FREE FUND
CALCULATION OF YIELD
For the 30 days ended 1/31/95:
Interest Income Earned: $37,740
Plus Dividend Income Earned:
----------
Equal Gross Income: $37,740
Minus Expenses: $4,576
----------
Equal Net Investment Income: $33,164
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 781,454
----------
Equal Net Investment Income Earned Per Share: $0.0424
Maximum Offering Price Per Share 1/31/95: $9.56
30 Day Yield*: 5.39%
* Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0424/$9.56)+1)-1]
<PAGE>
EV MARATHON KANSAS TAX FREE FUND
CALCULATION OF DISTRIBUTION RATE
AND EFFECTIVE DISTRIBUTION RATE
AS OF 01/31/95
DISTRIBUTION RATE
Annualize
Most Recent
Monthly : ( $0.042345216 / 32) x 365
Distribution
Divide by
Current Maximum : $9.56
Offering Price
Distribution
Rate Equals : 0.0505 ( or 5.05% )
EFFECTIVE DISTRIBUTION RATE
Divide
Distribution : 0.0505
Rate by 365/32 ------ + 1
( or 11.406 ) 11.406
and Add 1.
The Resulting
Number Equals : 1.0044
Take this
Number to the 11.406
365/32nd ( or : ( 1.0044 ) - 1
11.406 ) power
and Subtract 1.
Effective
Distribution : 0.0517 ( or 5.17% )
Rate Equals
<PAGE>
<TABLE>
EV TRADITIONAL FLORIDA INSURED TAX FREE FUND
INVESTMENT PERFORMANCE
The table below indicates the total return (capital changes plus reinvestment of
all distributions) on a hypothetical investment of $1,000 in the Fund covering
the life of the Fund ending January 31, 1995. Past performance is not indicative
of future results Investment return and principal value will fluctuate and
shares, when redeemed, may be worth more or less than their original cost.
<CAPTION>
DOLLAR
VALUE ON NUMBER
DATE OF OF SHARES TOTAL
INVEST- GAINED ENDING TOTAL RETURN
OFFER MENT THROUGH REDEEMABLE RETURN THROUGH
PRICE (INITIAL REINVESTMENT TOTAL DOLLAR THROUGH 01/31/95
ON NO. OF NAV ON INVEST- OF ALL DIS- NO. OF VALUE 01/31/95 (MAX OFFERING
INVEST- INVEST- AMT OF DAY OF SHARES DATE OF MENT LESS TRIBUTIONS SHARES OF INVEST- (NAV TO NAV) PRICE TO NAV)
MENT MENT INVEST- INVEST- PUR- INVEST- THE SALES THROUGH AS OF 01/31/95 MENT ON
PERIOD DATE MENT MENT CHASED MENT CHARGE*) 01/31/95 01/31/95 NAV+ 01/31/95 CUMUL^ ANN++ CUMUL^^ ANN++
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
LIFE OF
THE FUND 03/03/94 $1,000 $10.50 95.238 $10.00 $952.38 4.458 99.696 $10.43 $1,039.83 9.18% NA 4.00% NA
(0.92 YRS)
<FN>
- -----------
* Reflects the current maximum sales charge of 4.75%.
^ Cumulative total return (offering price to net asset value) is calculated by
dividing the ending dollar amount on 01/31/95 by the initial net asset value.
^^ Cumulative total return (net asset value to net asset value) is calculated by
dividing the ending dollar amount on 01/31/95 by the initial investment less
the sales charge.
+ 01/31/95 Net Asset Value is an unaudited figure
++ Average annual total return is the average annual compounded rate of return
based on the cumulative value for each period.
It is calculated by taking the nth root of 1 + the cumulative total return,
where n = the number of years invested.
</TABLE>
<PAGE>
Exhibit 16
EV TRADITIONAL FLORIDA INSURED TAX FREE FUND
TAX EQUIVALENT YIELD CALCULATION
For the 30 days ended 1/31/95:
Interest Income Earned:
$5,359
Plus Dividend Income Earned:
- ----------
Equal Gross Income:
$5,359
Minus Expenses:
$0
- ----------
Equal Net Investment Income:
$5,359
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends:
113,485
- ----------
Equal Net Investment Income Earned Per Share:
$0.0472
Net Asset Value Per Share 1/31/95:
$10.95
30 Day Yield*:
5.23%
Divided by One minus the Tax Rate of 31%:
0.69
- -----------
Equal Tax Equivalent Yield **:
7.58%
* Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0472/$10.95)+1)-1]
** Assuming a tax rate of 31%
<PAGE>
Exhibit 16
EV TRADITIONAL FLORIDA INSURED TAX FREE FUND
CALCULATION OF YIELD
For the 30 days ended 1/31/95:
Interest Income Earned: $5,359
Plus Dividend Income Earned:
----------
Equal Gross Income: $5,359
Minus Expenses: $0
----------
Equal Net Investment Income: $5,359
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 113,485
----------
Equal Net Investment Income Earned Per Share: $0.0472
Maximum Offering Price Per Share 1/31/95: $10.95
30 Day Yield*: 5.23%
* Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0472/$10.95)+1)-1]
<PAGE>
EV TRADITIONAL FLORIDA INSURED TAX FREE FUND
CALCULATION OF DISTRIBUTION RATE
AND EFFECTIVE DISTRIBUTION RATE
AS OF 01/31/95
DISTRIBUTION RATE
Annualize
Most Recent
Monthly : ( $0.049684940 / 31) x 365
Distribution
Divide by
Current Maximum : $10.95
Offering Price
Distribution
Rate Equals : 0.0534 ( or 5.34% )
EFFECTIVE DISTRIBUTION RATE
Divide
Distribution : 0.0534
Rate by 365/31 ------ + 1
( or 11.774 ) 11.774
and Add1.
The Resulting
Number Equals : 1.0045
Take this
Number to the 11.774
365/31st ( or : ( 1.0045 ) - 1
11.774 ) power
and Subtract 1.
Effective
Distribution : 0.0548 ( or 5.48% )
Rate Equals
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000914529
<NAME> MUNICIPALS TRUST II
<SERIES>
<NUMBER> 4
<NAME> EV CLASSIC FLORIDA INSURED TAX FREE FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-31-1995
<PERIOD-END> JAN-31-1995
<INVESTMENTS-AT-COST> 1436
<INVESTMENTS-AT-VALUE> 1485
<RECEIVABLES> 8
<ASSETS-OTHER> 10
<OTHER-ITEMS-ASSETS> 50
<TOTAL-ASSETS> 1504
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 18
<TOTAL-LIABILITIES> 18
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1438
<SHARES-COMMON-STOCK> 153
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (1)
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 50
<NET-ASSETS> 1487
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 15
<EXPENSES-NET> 3
<NET-INVESTMENT-INCOME> 13
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 50
<NET-CHANGE-FROM-OPS> 63
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 13
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 2
<NUMBER-OF-SHARES-SOLD> 204
<NUMBER-OF-SHARES-REDEEMED> 52
<SHARES-REINVESTED> 1
<NET-CHANGE-IN-ASSETS> 1488
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 11
<AVERAGE-NET-ASSETS> 455
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> .281
<PER-SHARE-GAIN-APPREC> (.2)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (.331)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.75
<EXPENSE-RATIO> .95
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000914529
<NAME> MUNICIPALS TRUST II
<SERIES>
<NUMBER> 5
<NAME> EV CLASSIC HAWAII TAX FREE FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-31-1995
<PERIOD-END> JAN-31-1995
<INVESTMENTS-AT-COST> 260
<INVESTMENTS-AT-VALUE> 256
<RECEIVABLES> 13
<ASSETS-OTHER> 17
<OTHER-ITEMS-ASSETS> (4)
<TOTAL-ASSETS> 286
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 29
<TOTAL-LIABILITIES> 29
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 273
<SHARES-COMMON-STOCK> 28
<SHARES-COMMON-PRIOR> 0
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