<PAGE>
EV CLASSIC HAWAII MUNICIPALS FUND
EV CLASSIC KANSAS MUNICIPALS FUND
SUPPLEMENT TO
PROSPECTUS
DATED
JUNE 1, 1995
The Funds listed above are no longer offered pursuant to the attached
Prospectus.
February 1, 1996 C-TFC6/1PS
<PAGE>
EV CLASSIC HAWAII MUNICIPALS FUND
EV CLASSIC KANSAS MUNICIPALS FUND
SUPPLEMENT TO
STATEMENT OF ADDITIONAL INFORMATION
DATED
JUNE 1, 1995
The Funds listed above are no longer offered pursuant to the attached
Statement of Additional Information.
February 1, 1996
<PAGE>
EV TRADITIONAL
MUNICIPAL FUNDS
- ------------------------------------------------------------------------------
EV TRADITIONAL FLORIDA INSURED MUNICIPALS FUND
EV TRADITIONAL HAWAII MUNICIPALS FUND
EV TRADITIONAL KANSAS MUNICIPALS FUND
THE EV TRADITIONAL MUNICIPAL 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.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
PAGE PAGE
<S> <C> <C> <C>
Shareholder and Fund Expenses .......................... 2 How to Redeem Fund Shares ........................... 15
The Funds' Financial Highlights ........................ 3 Reports to Shareholders ............................. 16
The Funds' Investment Objectives ....................... 4 The Lifetime Investing Account/Distribution Options . 16
How the Funds and the Portfolios Invest their Assets ... 4 The Eaton Vance Exchange Privilege .................. 17
Organization of the Funds and the Portfolios ........... 9 Eaton Vance Shareholder Services .................... 18
Management of the Funds and the Portfolios ............. 10 Distributions and Taxes ............................. 18
Service Plans .......................................... 12 Performance Information ............................. 19
Valuing Fund Shares .................................... 12 Statement of Intention and Escrow Agreement ......... 20
How to Buy Fund Shares ................................. 13 Appendix - State Specific Information ............... 21
- --------------------------------------------------------------------------------------------------------------------------
PROSPECTUS DATED JUNE 1, 1995
AS REVISED FEBRUARY 1, 1996
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SHAREHOLDER AND FUND EXPENSES
- ---------------------------------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES
-------------------------------------------------------------------------------------------------------
<S> <C>
Maximum Sales Charges Imposed on Purchases (as a percentage of offering price) 3.75%
Sales Charges Imposed on Reinvested Distributions None
Fees to Exchange Shares None
Contingent Deferred Sales Charge (on purchases of $1 million or more) Imposed
on Redemptions During the First Twelve Months (as a percentage of redemption
proceeds exclusive of all reinvestments and capital appreciation in the
account) 0.50%
<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 Service Fees (Service Plan) 0.10 0.15 0.15
Other Expenses (after expense reduction) 0.01 0.06 0.00
---- ---- ----
Total Operating Expenses (after reductions) 0.11% 0.21% 0.15%
==== ==== ====
<CAPTION>
EXAMPLE
-------------------------------------------------------------------------------------------------------
An investor would pay the following maximum initial sales charge and expenses on a $1,000 investment,
assuming (a) 5% annual return and (b) redemption at the end of each period:
FLORIDA HAWAII KANSAS
INSURED FUND FUND FUND
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1 Year $39 $40 $39
3 Years 41 44 42
5 Years 43 49 46
10 Years 51 63 56
</TABLE>
NOTES:
The table and Example 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, except that Service Plan Fees for such Funds are
estimated for the current fiscal year (assuming the Service Plan in effect for
the such Funds on February 1, 1996). Absent a fee reduction and an expense
allocation, the Investment Adviser Fee, Other Expenses and Total Operating
Expenses would have been: 0.16%, 6.20% and 6.51%, respectively, for the Hawaii
Fund; and 0.16%, 2.57% and 2.88%, respectively, for the Kansas Fund. 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, Other Expenses and Total Operating Expenses would be estimated to
be 0.16%, 2.84% and 3.10%, 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 approximate, and over time may be 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
type of securities being held by its corresponding 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 the Funds and the
Portfolios see "The Funds" Financial Highlights", "Organization of the Funds and
the Portfolios", "Management of the Funds and the Portfolios", "Service Plans"
and "How to Redeem Fund Shares".
If shares of a Fund are purchased at net asset value with no initial sales
charge by virtue of the purchase having been in the amount of $1 million or more
and are redeemed within 12 months of purchase, a contingent deferred sales
charge of 0.50% will be imposed on such redemption. See "How to Buy Fund
Shares," "How to Redeem Fund Shares" and "Eaton Vance Shareholder Services."
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 11.
Other investment companies with different distribution arrangements and fees
are investing in the Portfolios and others may do so in the future. See
"Organization of the Funds and the Portfolios".
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. Further information regarding the performance of a Fund is contained
in its annual report to shareholders which may be obtained without charge by
contacting the Principal Underwriter, Eaton Vance Distributors, Inc.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FLORIDA HAWAII KANSAS
INSURED FUND* FUND* FUND*
------------- ------ -----
<S> <C> <C> <C>
NET ASSET VALUE, beginning of period $10.000 $10.000 $10.000
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income $ 0.509 $ 0.365 $ 0.379
Net realized and unrealized loss on (0.435) (0.880) (0.386)
investments++ ------- ------- -------
Total income (loss) from investment operations $ 0.944 $(0.515) $(0.007)
------- ------- -------
LESS DISTRIBUTIONS:
From net investment incme $(0.509) $(0.365) $(0.379)
In excess of net investment income (0.005) (0.080) (0.074)
------- ------- -------
Total distributions $(0.514) $(0.445) $(0.453)
------- ------- -------
NET ASSET VALUE, end of period $10.430 $ 9.040 $ 9.540
======= ======= =======
TOTAL RETURN(1) 9.18% (5.23)% (0.11)%
RATIOS/SUPPLEMENTAL DATA**:
Net assets, end of period (000's omitted) $ 1,213 $ 257 $ 665
Ratio of net expenses to average daily net assets(2) 0.01%+ 1.01%+ 0.95%+
Ratio of net investment income to average daily net 5.37%+ 4.44%+ 4.32%+
assets
**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................. $ 0.226 $(0.153) $ 0.139
RATIOS (As a percentage of average daily net assets):
Expenses(2) ........................................ 3.00%+ 7.31%+ 3.68%+
Net investment income (loss) ....................... 2.38%+ (1.86)%+ 1.59%+
*For the Florida Insured, Hawaii and Kansas Funds, the Financial Highlights are for the period from the
start of business, March 3, 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.
(3)Prior to February 1, 1996, the Hawaii Fund and the Kansas Fund each made distribution fee payments
pursuant to a Distribution Plan. See "Service Plans."
</TABLE>
<PAGE>
THE FUNDS' INVESTMENT OBJECTIVES
- ------------------------------------------------------------------------------
The investment objective of each Fund is set forth below. Each Fund currently
seeks to meet its investment objective by investing its assets in a separate
corresponding open-end management investment company (a "Portfolio") which
invests primarily in municipal obligations (as described below). Each Portfolio
has the same investment objective as its corresponding Fund.
EV TRADITIONAL FLORIDA INSURED MUNICIPALS 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
Municipals 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 TRADITIONAL HAWAII MUNICIPALS 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 Municipals Portfolio (the "Hawaii
Portfolio"), which invests primarily in municipal obligations which are rated at
least investment grade by a major rating agency or, if unrated, determined to be
of at least investment grade quality by the Investment Adviser.
EV TRADITIONAL KANSAS MUNICIPALS 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 Municipals Portfolio (the "Kansas Portfolio"), which
invests primarily in municipal obligations which are rated at least investment
grade by a major rating agency or, if unrated, determined to be of at least
investment grade quality by the Investment Adviser.
HOW THE 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 MUNICIPAL OBLIGATIONS, THE INTEREST ON WHICH IS EXEMPT FROM
REGULAR FEDERAL INCOME TAX AND FROM THE STATE TAXES WHICH, IN ACCORDANCE WITH
THE FUND'S INVESTMENT OBJECTIVE, THE FUND SEEKS TO AVOID. 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 "Additional Risk
Considerations". 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, the interest on which is, in the opinion of bond counsel, exempt from
regular federal income tax. Public purpose municipal bonds include general
obligation and revenue bonds. General obligation bonds are backed by the taxing
power of the issuing municipality. Revenue bonds are backed by the revenues of a
project or facility. Municipal notes include bond anticipation, tax anticipation
and revenue anticipation notes. Bond, tax and revenue anticipation notes are
short-term obligations that will be retired with the proceeds of an anticipated
bond issue, tax revenue or facility revenue, respectively. Under normal market
conditions, a Portfolio will invest at least 65% of its total assets in
obligations issued by its respective State or its political subdivisions.
Interest income from certain types of municipal obligations may be subject to
the federal alternative minimum tax (the "AMT") for individual investors. As at
January 31, 1995, the Portfolios had invested in such obligations as follows (as
a percentage of net assets): Florida Insured Portfolio (16.4%); Hawaii Portfolio
(19.0%); and Kansas Portfolio (3.7%). At January 31, 1995, the Portfolios
limited their investment in obligations subject to the AMT to not more than 20%
of net assets. The Portfolios are no longer subject to such limitation.
Distributions to corporate investors of certain interest income may also be
subject to the AMT. The Funds may not be suitable for investors subject to the
AMT.
CONCENTRATION. Each Portfolio will concentrate its investments in municipal
obligations issued by its respective State and that State's political
subdivisions. 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 some of the economic and other factors relating to the States and Puerto
Rico.
In addition, each Portfolio may invest 25% or more of its total assets in
municipal obligations of the same type, including, without limitation, the
following: lease rental obligations of State and local authorities; obligations
of State and local housing finance authorities, municipal utilities systems or
public housing authorities; obligations of hospitals or life care facilities; or
industrial development or pollution control bonds issued for electric utility
systems, steel companies, paper companies or other purposes. This may make a
Portfolio more susceptible to adverse economic, political, or regulatory
occurrences affecting a particular category of issuer. For example, health
care-related issuers are susceptible to medicaid reimbursement policies, and
national and State health care legislation. As a Portfolio's concentration
increases, so does the potential for fluctuation in the value of the
corresponding Fund's shares.
NON-DIVERSIFIED STATUS. Each Portfolio's classification under the Investment
Company Act of 1940 (the "1940 Act") as a "non-diversified" investment company
allows it to invest, with respect to 50% of its total assets, more than 5% (but
not more than 25%) of its total assets in the securities of any issuer. A
Portfolio is likely to invest a greater percentage of its assets in the
securities of a single issuer than would a diversified fund. Therefore, a
Portfolio would be more susceptible to any single adverse economic or political
occurrence or development affecting issuers of the relevant State's municipal
obligations.
OTHER INVESTMENT PRACTICES
Each Portfolio may engage in the following investment practices, some of which
may be considered to involve "derivative" instruments because they derive their
value from another instrument, security or index. In addition, each Portfolio
may temporarily borrow up to 5% of the value of its total assets to satisfy
redemption requests or settle securities transactions.
WHEN-ISSUED SECURITIES. Each Portfolio may purchase securities on a "when-
issued" basis, which means that payment and delivery occur on a future
settlement date. The price and yield of such securities are generally fixed on
the date of commitment to purchase. However, the market value of the securities
may fluctuate prior to delivery and upon delivery the securities may be worth
more or less than a Portfolio agreed to pay for them. Each Portfolio may also
purchase instruments that give the Portfolio the option to purchase a municipal
obligation when and if issued.
INVERSE FLOATERS. Each Portfolio may invest in municipal securities whose
interest rates bear an inverse relationship to the interest rate on another
security or the value of an index ("inverse floaters"). An investment in inverse
floaters may involve greater risk than an investment in a fixed rate bond.
Because changes in the interest rate on the other security or index inversely
affect the residual interest paid on the inverse floater, the value of an
inverse floater is generally more volatile than that of a fixed rate bond.
Inverse floaters have interest rate adjustment formulas which generally reduce
or, in the extreme, eliminate the interest paid to a Portfolio when short-term
interest rates rise, and increase the interest paid to the Portfolio when
short-term interest rates fall. Inverse floaters have varying degrees of
liquidity, and the market for these securities is new and relatively volatile.
These securities tend to underperform the market for fixed rate bonds in a
rising interest rate environment, but tend to outperform the market for fixed
rate bonds when interest rates decline. Shifts in long-term interest rates may,
however, alter this tendency. Although volatile, inverse floaters typically
offer the potential for yields exceeding the yields available on fixed rate
bonds with comparable credit quality and maturity. These securities usually
permit the investor to convert the floating rate to a fixed rate (normally
adjusted downward), and this optional conversion feature may provide a partial
hedge against rising rates if exercised at an opportune time. Inverse floaters
are leveraged because they provide two or more dollars of bond market exposure
for every dollar invested.
FUTURES TRANSACTIONS. Each Portfolio may purchase and sell various kinds of
financial futures contracts and options thereon to hedge against changes in
interest rates. Futures contracts may be based on various debt securities (such
as U.S. Government securities), securities indices (such as the Municipal Bond
Index traded on the Chicago Board of Trade) and other financial instruments and
indices. Such transactions involve a risk of loss or depreciation due to
unanticipated adverse changes in securities prices, which may exceed a
Portfolio's initial investment in these contracts. A Portfolio may not purchase
or sell futures contracts or related options, except for closing purchase or
sale transactions, if immediately thereafter the sum of the amount of margin
deposits and premiums paid on the Portfolio's outstanding positions would exceed
5% of the market value of the Portfolio's net assets. These transactions involve
transaction costs. There can be no assurance that the Investment Adviser's use
of futures will be advantageous to a Portfolio. Distributions by a Fund of any
gains realized on its corresponding Portfolio's transactions in futures and
options on futures will be taxable.
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. The Hawaii and Kansas Portfolios 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.
ADDITIONAL RISK CONSIDERATIONS
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. The Investment Adviser seeks to minimize the
risks of investing in below investment grade securities through professional
investment analysis and attention to current developments in interest rates and
economic conditions. When a Portfolio invests in lower rated or unrated
municipal obligations, the achievement of the Portfolio's goals is more
dependent on the Investment Adviser's ability than would be the case if the
Portfolio were investing in municipal obligations in the higher rating
categories.
Each Portfolio may retain defaulted obligations in its portfolio when such
retention is considered desirable by the Investment Adviser. In the case of a
defaulted obligation, a Portfolio may incur additional expense seeking recovery
of its investment. Municipal obligations held by a Portfolio which are rated
below investment grade but which, subsequent to the assignment of such rating,
are backed by escrow accounts containing U.S. Government obligations may be
determined by the Investment Adviser to be of investment grade quality for
purposes of the Portfolio's investment policies. A Portfolio may retain in its
portfolio an obligation whose rating drops below B after its acquisition, if
such retention is considered desirable by the Investment Adviser; provided,
however, that holdings of obligations rated below Baa or BBB will be less than
35% of net assets. In the event the rating of an obligation held by a Portfolio
is downgraded, causing the Portfolio to exceed this limitation, the Investment
Adviser will (in an orderly fashion within a reasonable period of time) dispose
of such obligations as it deems necessary in order to comply with the
Portfolio's credit quality limitations.
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 of (and possibly
the income earned on) on such obligations. In addition, the values of such
securities are affected by changes in general economic conditions and business
conditions affecting the specific industries of their issuers. Changes by
recognized rating services in their ratings of a security and in the ability of
the issuer to make payments of principal and interest may also affect the value
of a Portfolio's investments. The amount of information about the financial
condition of an issuer of municipal obligations may not be as extensive as that
made available by corporations whose securities are publicly traded. An
investment in shares of a Fund will not constitute a complete investment
program.
At times, a substantial portion of the Portfolio's assets may be invested in
securities as to which the Portfolio, by itself or together with other accounts
managed by the Investment Adviser and its affiliates, holds a major portion or
all of such securities. Under adverse market or economic conditions or in the
event of adverse changes in the financial condition of the issuer, the Portfolio
could find it more difficult to sell such securities when the Investment Adviser
believes it advisable to do so or may be able to sell such securities only at
prices lower than if such securities were more widely held. Under such
circumstances, it may also be more difficult to determine the fair value of such
securities for purposes of computing the Portfolio's net asset value.
The secondary market for some municipal obligations issued within a State
(including issues which are privately placed with a Portfolio) is less liquid
than that for taxable debt obligations or other more widely traded municipal
obligations. No Portfolio will invest in illiquid securities if more than 15% of
its net assets would be invested in securities that are not readily marketable.
No established resale market exists for certain of the municipal obligations in
which a Portfolio may invest. The market for obligations rated below investment
grade is also likely to be less liquid than the market for higher rated
obligations. As a result, a Portfolio may be unable to dispose of these
municipal obligations at times when it would otherwise wish to do so at the
prices at which they are valued.
Certain securities held by the Portfolio may permit the issuer at its option to
"call", or redeem, its securities. If an issuer redeems securities held by the
Portfolio during a time of declining interest rates, the Portfolio may not be
able to reinvest the proceeds in securities providing the same investment return
as the securities redeemed.
Some of the securities in which a Portfolio invests may include so-called
"zero-coupon" bonds, whose values are subject to greater fluctuation in response
to changes in market interest rates than bonds which pay interest currently.
Zero-coupon bonds are issued at a significant discount from face value and pay
interest only at maturity rather than at intervals during the life of the
security. Each Portfolio is required to accrue and distribute income from
zero-coupon bonds on a current basis, even though it does not receive that
income currently in cash. Thus, a Portfolio may have to sell other investments
to obtain cash needed to make income distributions.
Each Portfolio may invest in municipal leases, and participations in municipal
leases. The obligation of the issuer to meet its obligations under such leases
is often subject to the appropriation by the appropriate legislative body, on an
annual or other basis, of funds for the payment of the obligations. Investments
in municipal leases are thus subject to the risk that the legislative body will
not make the necessary appropriation and the issuer will not otherwise be
willing or able to meet its obligation.
EACH FUND AND PORTFOLIO HAVE ADOPTED CERTAIN FUNDAMENTAL INVESTMENT
RESTRICTIONS WHICH ARE ENUMERATED IN DETAIL IN THE STATEMENT OF ADDITIONAL
INFORMATION AND WHICH MAY NOT BE CHANGED UNLESS AUTHORIZED BY A SHAREHOLDER
VOTE AND AN INVESTOR VOTE, RESPECTIVELY. EXCEPT FOR SUCH ENUMERATED
RESTRICTIONS AND AS OTHERWISE INDICATED IN THIS PROSPECTUS, THE INVESTMENT
OBJECTIVE AND POLICIES OF EACH FUND AND PORTFOLIO ARE NOT FUNDAMENTAL POLICIES
AND ACCORDINGLY MAY BE CHANGED BY THE TRUSTEES OF THE TRUST AND THE PORTFOLIO
WITHOUT OBTAINING THE APPROVAL OF A FUND'S SHAREHOLDERS OR THE INVESTORS IN
THE CORRESPONDING PORTFOLIO, AS THE CASE MAY BE. IF ANY CHANGES WERE MADE IN A
FUND'S INVESTMENT OBJECTIVE, THE FUND MIGHT HAVE INVESTMENT OBJECTIVES
DIFFERENT FROM THE OBJECTIVE WHICH AN INVESTOR CONSIDERED APPROPRIATE AT THE
TIME THE INVESTOR BECAME A SHAREHOLDER IN THE FUND.
ORGANIZATION OF THE FUNDS AND THE PORTFOLIOS
- ------------------------------------------------------------------------------
EACH FUND IS A NON-DIVERSIFIED SERIES OF EATON VANCE 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,
which is a separate investment company with an identical investment objective
(although the Fund may temporarily hold a de minimis amount of cash). Therefore,
a Fund's interest in the securities owned by its corresponding Portfolio is
indirect. In addition to selling an interest to its corresponding Fund, a
Portfolio may sell interests to other affiliated and non-affiliated mutual funds
or institutional investors. Such investors will invest in a Portfolio on the
same terms and conditions and will pay a proportionate share of the Portfolio's
expenses. However, the other investors investing in a Portfolio are not required
to sell their shares at the same public offering price as the corresponding Fund
due to variations in sales commissions and other operating expenses. Therefore,
investors in a Fund should be aware that these differences may result in
differences in returns experienced by investors in the various funds that invest
in its corresponding Portfolio. Such differences in returns are also present in
other mutual fund structures, including funds that have multiple classes of
shares. For information regarding the investment objective, policies and
restrictions of the Portfolios, see "The Funds" Investment Objectives" and "How
the Funds and the Portfolios Invest their Assets". Further information regarding
investment practices may be found in the Statement of Additional Information.
The Trustees of the Trust have considered the advantages and disadvantages of
investing the assets of each Fund in its corresponding Portfolio, as well as the
advantages and disadvantages of the two-tier format. The Trustees believe that
the structure offers opportunities for substantial growth in the assets of the
Portfolios, and affords the potential for economies of scale for each Fund, at
least when the assets of its corresponding Portfolio exceed $500 million.
A Fund may withdraw (completely redeem) all its assets from its corresponding
Portfolio at any time if the Board of Trustees of the Trust determines that it
is in the best interest of that Fund to do so. The investment objective and the
nonfundamental investment policies of each Fund and Portfolio may be changed by
the Trustees of the Trust and the Portfolio without obtaining the approval of
the shareholders of that Fund or the investors in that Portfolio, as the case
may be. Any such change of an investment objective will be preceded by thirty
days' advance written notice to the shareholders of the Fund or the investors in
the Portfolio, as the case may be. In the event a Fund withdraws all of its
assets from its corresponding Portfolio, or the Board of Trustees of the Trust
determines that the investment objective of such Portfolio is no longer
consistent with the investment objective of the Fund, such Trustees would
consider what action might be taken, including investing the assets of such Fund
in another pooled investment entity or retaining an investment adviser to manage
the Fund's assets in accordance with its investment objective. A Fund's
investment performance may be affected by a withdrawal of all its assets from
its corresponding Portfolio.
Information regarding other pooled investment entities or funds which invest in
a Portfolio may be obtained by contacting Eaton Vance Distributors, Inc. (the
"Principal Underwriter" or "EVD"), 24 Federal Street, Boston, MA 02110, (617)
482-8260. Smaller investors in a Portfolio may be adversely affected by the
actions of a larger investor 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 hold fewer securities, 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 1992, the Administrator sponsored and advised historically structured
funds. Funds which invest all their assets in interests in a separate investment
company are a relatively new development in the mutual fund industry and,
therefore, the Funds may be subject to additional regulations than historically
structured funds.
Each Portfolio's Declaration of Trust provides that the Portfolio will terminate
120 days after the complete withdrawal of a Fund or any other investor in the
Portfolio, unless either the remaining investors, by unanimous vote at a meeting
of such investors, or a majority of the Trustees of the Portfolio, by written
instrument consented to by all investors, agree to continue the business of the
Portfolio. This provision is consistent with treatment of the Portfolios as
partnerships for federal income tax purposes. See "Distributions and Taxes" for
further information. Whenever a Fund as an investor in a Portfolio is requested
to vote on matters pertaining to the Portfolio (other than the termination of
the Portfolio's business, which may be determined by the Trustees of the
Portfolio without investor approval), the Fund will hold a meeting of Fund
shareholders and will vote its interest in the Portfolio for or against such
matters proportionately to the instructions to vote for or against such matters
received from Fund shareholders. A Fund shall vote shares for which it receives
no voting instructions in the same proportion as the shares for which it
receives voting instructions. Other investors in a Portfolio may alone or
collectively acquire sufficient voting interests in the Portfolio to control
matters relating to the operation of the Portfolio, which may require the
corresponding Fund to withdraw its investment in the Portfolio or take other
appropriate action. Any such withdrawal could result in a distribution "in kind"
of portfolio securities (as opposed to a cash distribution from the Portfolio).
If securities are distributed, a Fund could incur brokerage, tax or other
charges in converting the securities to cash. In addition, the distribution in
kind may result in a less diversified portfolio of investments or adversely
affect the liquidity of a Fund. Notwithstanding the above, there are other means
for meeting shareholder redemption requests, such as borrowing.
The Trustees of the Trust, including a majority of the noninterested Trustees,
have approved written procedures designed to identify and address any potential
conflicts of interest arising from the fact that the Trustees of the Trust and
the Trustees of each Portfolio are the same. Such procedures require each Board
to take action to resolve any conflict of interest between a Fund and its
corresponding Portfolio, and it is possible that the creation of separate Boards
may be considered. For further information concerning the Trustees and officers
of the Trust and the Portfolios, see the Statement of Additional Information.
Although each Fund offers only its own shares of beneficial interest, it is
possible that a Fund might become liable for a misstatement or omission in this
Prospectus regarding another Fund because the Funds use this combined
Prospectus. The Trustees of the Trust have considered this factor in approving
the use of a combined Prospectus.
MANAGEMENT OF THE FUNDS AND THE PORTFOLIOS
- ------------------------------------------------------------------------------
EACH PORTFOLIO ENGAGES BOSTON MANAGEMENT AND RESEARCH ("BMR"), A WHOLLY-OWNED
SUBSIDIARY OF EATON VANCE MANAGEMENT ("EATON VANCE"), AS ITS INVESTMENT ADVISER.
EATON VANCE, ITS AFFILIATES AND ITS PREDECESSOR COMPANIES HAVE BEEN MANAGING
ASSETS OF INDIVIDUALS AND INSTITUTIONS SINCE 1924 AND MANAGING INVESTMENT
COMPANIES SINCE 1931.
Acting under the general supervision of the Board of Trustees of each Portfolio,
BMR manages each Portfolio's investments and affairs and furnishes for the use
of each Portfolio office space and all necessary office facilities, equipment
and personnel for servicing the investments of the Portfolios. Under its
investment advisory agreement with a Portfolio, BMR receives a monthly advisory
fee equal to the aggregate of
(a) a daily asset based fee computed by applying the annual asset rate
applicable to that portion of the total daily net assets in each
Category as indicated below, plus
(b) a daily income based fee computed by applying the daily income rate
applicable to that portion of the total daily gross income (which
portion shall bear the same relationship to the total daily gross income
on such day as that portion of the total daily net assets in the same
Category bears to the total daily net assets on such day) in each
Category as indicated below:
<TABLE>
<CAPTION>
ANNUAL DAILY
CATEGORY DAILY NET ASSETS ASSET RATE INCOME RATE
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1 up to $20 million .......................................... 0.100% 1.00%
2 $20 million but less than $40 million ...................... 0.200% 2.00%
3 $40 million but less than $500 million ..................... 0.300% 3.00%
4 $500 million but less than $1 billion ...................... 0.275% 2.75%
5 $1 billion but less than $1.5 billion ...................... 0.250% 2.50%
6 $1.5 billion but less than $2 billion ...................... 0.225% 2.25%
7 $2 billion but less than $3 billion ........................ 0.200% 2.00%
8 $3 billion and over ........................................ 0.175% 1.75%
</TABLE>
For the 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 OR EATON VANCE ACTS AS INVESTMENT ADVISER TO INVESTMENT COMPANIES AND
VARIOUS INDIVIDUAL AND INSTITUTIONAL CLIENTS WITH ASSETS UNDER MANAGEMENT OF
APPROXIMATELY $16 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 services, oil and gas operations, real estate investment,
consulting and management, and development of precious metals properties.
Timothy T. Browse has acted as the portfolio manager of the Florida Insured
Portfolio since December 1, 1995. He has been a Vice President of Eaton Vance
and of BMR since 1993 and an employee of Eaton Vance since 1992. Prior to
joining Eaton Vance, he was a municipal bond trader at Fidelity Management &
Research Company (1987-1992).
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).
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.
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 its 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.
SERVICE PLANS
- --------------------------------------------------------------------------------
In addition to advisory fees and other expenses, each Fund pays service fees
pursuant to a Service Plan (the "Plan") designed to meet the service fee
requirements of the sales charge rule of the National Association of Securities
Dealers, Inc. EACH FUND'S PLAN PROVIDES THAT THE FUND MAY MAKE SERVICE FEE
PAYMENTS FOR PERSONAL SERVICES AND/OR THE MAINTENANCE OF SHAREHOLDER ACCOUNTS TO
THE PRINCIPAL UNDERWRITER, FINANCIAL SERVICE FIRMS ("AUTHORIZED FIRMS") AND
OTHER PERSONS IN AMOUNTS NOT EXCEEDING .25% OF THE FUND'S AVERAGE DAILY NET
ASSETS FOR ANY FISCAL YEAR. The Trustees of the Trust have initially implemented
each Fund's Plan by authorizing the Fund to make 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 which is 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. 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
service fee payments during the quarter ended June 30, 1995. The Plan is
described further in the Statement of Additional Information.
Prior to February 1, 1996, the Hawaii Fund and Kansas Fund made sales commission
and distribution fee payments pursuant to a Distribution Plan. During the fiscal
year ended January 31, 1995, each such Fund paid or accrued sales commissions
under that Distribution Plan equivalent to .75% (annualized) of such Fund's
average daily net assets. Each such Fund also paid or accrued service fees under
that Distribution Plan equivalent to 0.20% (annualized) of such Fund's average
daily net assets for such period.
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 and the public offering price
based thereon. It is the Authorized Firms' responsibility to transmit orders
promptly to the Principal Underwriter, which is a wholly-owned subsidiary of
Eaton Vance.
Each Portfolio's net asset value is also determined as of the close of regular
trading on the Exchange by IBT (as custodian and agent for the Portfolio), based
on market or fair value in the manner authorized by the Trustees of the
Portfolio. Net asset value is computed by subtracting the liabilities of 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.
SHAREHOLDERS MAY DETERMINE THE VALUE OF THEIR INVESTMENT BY MULTIPLYING THE
NUMBER OF FUND SHARES OWNED BY THE CURRENT NET ASSET VALUE PER SHARE.
HOW TO BUY FUND SHARES
- ------------------------------------------------------------------------------
SHARES OF A FUND MAY BE PURCHASED FOR CASH OR MAY BE ACQUIRED IN EXCHANGE FOR
SECURITIES. Investors may purchase shares of a Fund through Authorized Firms at
the effective public offering price, which price is based on the effective net
asset value per share plus the applicable sales charge. A Fund receives the net
asset value, while the sales charge is divided between the Authorized Firm and
the Principal Underwriter. The Principal Underwriter will furnish the names of
Authorized Firms to an investor upon request. An Authorized Firm may charge its
customers a fee in connection with transactions executed by that Firm. A Fund
may suspend the offering of shares at any time and may refuse an order for the
purchase of shares. Shares of each Fund are offered for sale only in States
where such shares may be legally sold.
The sales charge may vary depending on the size of the purchase and the number
of shares of Eaton Vance funds the investor may already own, any arrangement to
purchase additional shares during a 13-month period or special purchase
programs. Complete details of how investors may purchase shares at reduced sales
charges under a Statement of Intention or Right of Accumulation 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* 0.50
</TABLE>
*No sales charge is payable at the time of purchase on investments of $1 million
or more. A contingent deferred sales charge ("CDSC") of 0.50% will be imposed
on such investments (as described below) in the event of certain redemptions
within 12 months of purchase. For the Florida Insured Fund, such purchases made
before March 27, 1995 will be subject to a CDSC of 1% in the event of certain
redemptions within 18 months of purchase.
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 Fund shares and/or shares of other funds
distributed by the Principal Underwriter. In some instances, such additional
incentives may be offered only to certain Authorized Firms whose representatives
sell or are expected to sell significant amounts of shares.
An initial investment in a Fund must be at least $1,000. Once an account has
been established the investor may send investments of $50 or more at any time
directly to the Funds' transfer agent (the "Transfer Agent") as follows: First
Data Investor Services Group, BOS725, P.O. Box 1559, Boston, MA 02104. The
$1,000 minimum initial investment is waived for Bank Automated Investing
accounts, which may be established with an investment of $50 or more. See "Eaton
Vance Shareholder Services".
Shares of a Fund may be sold at net asset value to current and retired Directors
and Trustees of Eaton Vance funds, including the Portfolios; to officers and
employees and clients of Eaton Vance and its affiliates; to registered
representatives and employees of Authorized Firms; and bank employees who refer
customers to registered representatives of Authorized Firms; and to such
persons' spouses and children under the age of 21 and their beneficial accounts.
Shares may also be issued at net asset value (1) in connection with the merger
of an investment company with a Fund, (2) to investors making an investment as
part of a fixed fee program whereby an entity unaffiliated with the Investment
Adviser provides multiple investment services, such as management, brokerage and
custody, (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, and (4) to an investor making an investment through
an investment adviser, financial planner, broker or other intermediary that
charges a fee for its services and has entered into an agreement with a Fund or
its Principal Underwriter.
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 shown above. The minimum
value of securities (or securities and cash) accepted for deposit is $5,000.
Securities accepted will be sold on the day of their receipt or as soon
thereafter as possible. The number of Fund shares to be issued in exchange for
securities will be the aggregate proceeds from the sale of such securities,
divided by the applicable public offering price per Fund share on the day such
proceeds are received. Eaton Vance will use reasonable efforts to obtain the
then current market price for such securities but does not guarantee the best
available price. Eaton Vance will absorb any transaction costs, such as
commissions, on the sale of the securities.
Securities determined to be acceptable should be transferred via book entry or
physically delivered, in proper form for transfer, through an Authorized Firm,
together with a completed and signed Letter of Transmittal in approved form
(available from Authorized Firms), as follows:
IN THE CASE OF BOOK ENTRY:
Deliver through Depository Trust Co.
Broker #2212
Investors Bank & Trust Company
For A/C EV Traditional [State name] Municipals Fund
IN THE CASE OF PHYSICAL DELIVERY:
Investors Bank & Trust Company
Attention: EV Traditional [State name] Municipals 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 FIRST DATA INVESTOR
SERVICES GROUP, 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 First Data Investor Services Group. 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 First
Data Investor Services Group, 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 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.
If shares have been purchased at net asset value with no initial sales charge by
virtue of the purchase having been in the amount of $1 million or more and are
redeemed within 12 months of purchase, a CDSC of 0.50% will be imposed on such
redemption. For the Florida Insured Fund, such purchases made before March 27,
1995 will be subject to a CDSC of 1% in the event of certain redemptions made
within 18 months of purchase. In addition, certain shares of the Hawaii Fund and
Kansas Fund purchased prior to February 1, 1996 and redeemed within the first
year of their purchase (except shares acquired through the reinvestment of
distributions) generally will be subject to a CDSC equal to 1% of the net asset
value of redeemed shares. The CDSC will be retained by the Principal
Underwriter. The CDSC will be imposed on an amount equal to the lesser of the
current market value or the original purchase price of the shares redeemed.
Accordingly, no CDSC will be imposed on increases in account value above the
initial purchase price, including any distributions that have been reinvested in
additional shares. In determining whether a CDSC is applicable to a redemption,
the calculation will be made in a manner that results in the lowest possible
rate being charged. It will be assumed that redemptions are made first from any
shares in the shareholder's account that are not subject to a CDSC.
The CDSC is waived for redemptions involving certain liquidation, merger or
acquisition transactions involving other investment companies. If a shareholder
reinvests redemption proceeds within a 60-day period and in accordance with the
conditions set forth under "Eaton Vance Shareholder Services -- Reinvestment
Privilege," the shareholder's account will be credited with the amount of any
CDSC paid on such redeemed shares. In addition, the CDSC applicable to shares of
the Hawaii Fund and Kansas Fund purchased prior to February 1, 1996 will 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.
REPORTS TO SHAREHOLDERS
- ------------------------------------------------------------------------------
EACH FUND WILL ISSUE TO ITS SHAREHOLDERS SEMI-ANNUAL AND ANNUAL REPORTS
CONTAINING FINANCIAL STATEMENTS. Financial statements included in annual reports
are audited by the Funds' independent certified public accountants. Shortly
after the end of each calendar year, each Fund will furnish its shareholders
with information necessary for preparing federal and State tax returns.
Consistent with applicable law, duplicate mailings of shareholder reports and
certain other Fund information to shareholders residing at the same address may
be eliminated.
THE LIFETIME INVESTING ACCOUNT/DISTRIBUTION OPTIONS
- ------------------------------------------------------------------------------
AFTER AN INVESTOR MAKES AN INITIAL PURCHASE OF FUND SHARES, THE FUNDS' TRANSFER
AGENT, FIRST DATA INVESTOR SERVICES GROUP, 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 First Data Investor
Services Group.
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 First Data Investor Services Group, 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, First Data Investor Services Group, 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.
THE EATON VANCE EXCHANGE PRIVILEGE
- ------------------------------------------------------------------------------
Shares of a Fund currently may be exchanged for shares of any of the following
funds: Eaton Vance Cash Management Fund, Eaton Vance Income Fund of Boston,
Eaton Vance Municipal Bond Fund L.P., Eaton Vance Tax Free Reserves and any fund
in the Eaton Vance Traditional Group of Funds on the basis of the net asset
value per share of each fund at the time of the exchange (plus, in the case of
an exchange made within six months of the date of purchase of shares subject to
initial sales charge, an amount equal to the difference, if any, between the
sales charge previously paid on the shares being exchanged and the sales charge
payable on the shares being acquired). Such exchange offers are available only
in States where shares of the fund being acquired may be legally sold.
Each exchange must involve shares which have a net asset value of at least
$1,000. The exchange privilege may be changed or discontinued without penalty.
Shareholders will be given sixty (60) days' notice prior to any termination or
material amendment of the exchange privilege. The Funds do not permit the
exchange privilege to be used for "Market Timing" and may terminate the exchange
privilege for any shareholder account engaged in Market Timing activity. Any
shareholder account for which more than two round-trip exchanges are made within
any twelve month period will be deemed to be engaged in Market Timing.
Furthermore, a group of unrelated accounts for which exchanges are entered
contemporaneously by a financial intermediary will be considered to be engaged
in Market Timing.
Shares of a Fund which are subject to a CDSC may be exchanged into any of the
above funds without incurring the CDSC. The shares acquired in an exchange may
be subject to a CDSC upon redemption. For purposes of computing the CDSC payable
upon redemption of shares acquired in an exchange, the holding period of the
original shares is added to the holding period of the shares acquired in the
exchange.
First Data Investor Services Group makes exchanges at the next determined net
asset value after receiving an exchange request in good order (see "How to
Redeem Fund Shares"). Consult First Data Investor Services Group for additional
information concerning the exchange privilege. Applications and prospectuses of
other funds are available from Authorized Firms or the Principal Underwriter.
The prospectus for each fund describes its investment objectives and policies,
and shareholders should obtain a prospectus and consider these objectives and
policies carefully before requesting an exchange.
Shares of certain other funds 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 First Data Investor Services Group provided
that the investor has not disclaimed in writing the use of the privilege. To
effect such exchanges, call First Data Investor Services Group 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 First Data Investor
Services Group 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 First Data Investor Services Group,
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. The maintenance of a withdrawal plan
concurrently with purchases of additional shares would be disadvantageous
because of the sales charge included in such purchases.
REINVESTMENT PRIVILEGE: A SHAREHOLDER WHO HAS REPURCHASED OR REDEEMED SHARES MAY
REINVEST AT NET ASSET VALUE ANY PORTION OR ALL OF THE REPURCHASE OR REDEMPTION
PROCEEDS (PLUS THAT AMOUNT NECESSARY TO ACQUIRE A FRACTIONAL SHARE TO ROUND OFF
THE PURCHASE TO THE NEAREST FULL SHARE) IN SHARES OF A FUND, or, provided that
the shares repurchased or redeemed have been held for at least 60 days, in
shares of any of the other funds offered by the Principal Underwriter subject to
an initial sales charge, provided that the reinvestment is effected within 60
days after such repurchase or redemption, and the privilege has not been used
more than once in the prior 12 months. Shares are sold to a reinvesting
shareholder at the next determined net asset value following timely receipt of a
written purchase order by the Principal Underwriter or by the fund the shares of
which are being purchased (or by such fund's transfer agent). The privilege is
also available to shareholders of the funds listed under "The Eaton Vance
Exchange Privilege" who wish to reinvest such redemption or repurchase proceeds
in shares of a Fund. If a shareholder reinvests redemption proceeds within the
60-day period, the shareholder's account will be credited with the amount of any
CDSC paid on such redeemed shares. To the extent that any shares of the Fund are
sold at a loss and the proceeds are reinvested in shares of the Fund (or other
shares of the Fund are acquired within the period beginning 30 days before and
ending 30 days after the date of the redemption) some or all of the loss
generally will not be allowed as a tax deduction. Shareholders should consult
their tax advisers concerning the tax consequences of reinvestments.
DISTRIBUTIONS AND TAXES
- ------------------------------------------------------------------------------
SUBSTANTIALLY ALL OF THE INVESTMENT INCOME ALLOCATED TO A FUND BY ITS
CORRESPONDING PORTFOLIO, LESS THE FUND'S DIRECT AND ALLOCATED EXPENSES, WILL BE
DECLARED DAILY AS A DISTRIBUTION TO FUND SHAREHOLDERS OF RECORD AT THE TIME OF
DECLARATION. Such distributions, whether taken in cash or reinvested in
additional shares, will ordinarily be paid on the last day of each month or the
next business day thereafter. Each Fund anticipates that for tax purposes the
entire distribution, whether paid in cash or reinvested in additional shares 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.
Sales charges paid upon a purchase of Fund shares cannot be taken into account
for purposes of determining gain or loss on a redemption or exchange of the
shares before the 91st day after their purchase to the extent shares of a Fund
or of another fund are subsequently acquired pursuant to a Fund's reinvestment
or exchange privilege. Any disregarded amounts will result in an adjustment to
the shareholder's tax basis in some or all of any other shares acquired.
Each Fund intends to qualify as a regulated investment company under the 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. 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 of the Fund on the last day of the period and annualizing the
resulting figure. A taxable-equivalent yield is computed by using the tax-exempt
yield figure and dividing by one minus the tax rate. Each Fund's average annual
total return is determined by multiplying a hypothetical initial purchase order
of $1,000 by the average annual compounded rate of return (including capital
appreciation/depreciation, and distributions paid and reinvested) for the stated
period and annualizing the result. The average annual total return calculation
assumes that the maximum sales charge is deducted from the initial $1,000
purchase order and that all are distributions reinvested at the net asset value
on the reinvestment dates during the period. The Funds may publish annual and
cumulative total return figures from time to time. Each Fund may also quote
total return for the period prior to commencement of operations which would
reflect the Portfolio's total return (or that of its predecessor) adjusted to
reflect any applicable Fund sales charge.
Each Fund may also publish its distribution rate and/or its effective
distribution rate. Each Fund's distribution rate is computed by dividing the
most recent monthly distribution per share annualized by the current maximum
offering price per share. 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.
Each 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 a Fund's net asset value per share would be reduced if a sales charge
were taken into account. The Fund's performance may be compared in publications
to the performance of various indices and investments for which reliable data is
available, and to averages, performance rankings, or other information prepared
by recognized mutual fund statistical services.
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 of a Fund or its corresponding Portfolio are allocated
to Eaton Vance, the Fund's performance will be higher.
STATEMENT OF INTENTION AND ESCROW AGREEMENT
- ------------------------------------------------------------------------------
TERMS OF ESCROW. If the investor, on an application, makes a Statement of
Intention to invest a specified amount over a thirteen month period, then out of
the initial purchase (or subsequent purchases if necessary) 5% of the dollar
amount specified on the application shall be held in escrow by the escrow agent
in the form of shares (computed to the nearest full share at the public offering
price applicable to the initial purchase hereunder) registered in the investor's
name. All income dividends and capital gains distributions on escrowed shares
will be paid to the investor or to the investor's order.
When the minimum investment so specified is completed, the escrowed shares will
be delivered to the investor. If the investor has an accumulation account the
shares will remain on deposit under the investor's account.
If total purchases under this Statement of Intention are less than the amount
specified, the investor will promptly remit to EVD any difference between the
sales charge on the amount specified and on the amount actually purchased. If
the investor does not within 20 days after written request by EVD or the
Authorized Firm pay such difference in sales charge, the escrow agent will
redeem an appropriate number of the escrowed shares in order to realize such
difference. Full shares remaining after any such redemption together with any
excess cash proceeds of the shares so redeemed will be delivered to the investor
or to the investor's order by the escrow agent.
PROVISION FOR RETROACTIVE PRICE ADJUSTMENT. If total purchases made under this
Statement are large enough to qualify for a lower sales charge than that
applicable to the amount specified, all transactions will be computed at the
expiration date of this Statement to give effect to the lower charge. Any
difference in sales charge will be refunded to the investor in cash, or applied
to the purchase of additional shares at the lower charge if specified by the
investor. This refund will be made by the Authorized Firm and by EVD. If at the
time of the recomputation a firm other than the original firm is placing the
orders, the adjustment will be made only on those shares purchased through the
firm then handling the investor's account.
<PAGE>
APPENDIX
STATE SPECIFIC INFORMATION
Because each Portfolio will normally invest at least 65% of its assets in the
obligations within its corresponding State, it is susceptible to factors
affecting that State. Each Portfolio may also invest up to 5% of its net assets
in obligations issued by the governments of 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>
[LOGO]
EATON VANCE
Mutual Funds
EV TRADITIONAL
MUNICIPAL FUNDS
PROSPECTUS
JUNE 1, 1995
AS REVISED
FEBRUARY 1, 1996
EV TRADITIONAL FLORIDA INSURED MUNICIPALS FUND
EV TRADITIONAL HAWAII MUNICIPALS FUND
EV TRADITIONAL KANSAS MUNICIPALS FUND
EV TRADITIONAL
MUNICIPAL FUNDS
24 FEDERAL STREET
BOSTON, MA 02110
- -------------------------------------------------------------------------------
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, 89 South Street, Boston, MA 02111
TRANSFER AGENT
First Data Investor Services Group, BOS725, P.O. Box 1559, Boston, MA 02104
(800) 262-1122
AUDITORS
Deloitte & Touche LLP, 125 Summer Street, Boston, MA 02110
T-TFC6/1P
<PAGE>
EV TRADITIONAL FLORIDA INSURED MUNICIPALS FUND
SUPPLEMENT TO STATEMENT OF ADDITIONAL INFORMATION
DATE JUNE 1, 1995
EFFECTIVE FEBRUARY 1, 1996, THE FOLLOWING FUNDS ARE OFFERED PURSUANT TO
THE ATTACHED STATEMENT OF ADDITIONAL INFORMATION:
EV TRADITIONAL HAWAII MUNICIPALS FUND
EV TRADITIONAL KANSAS MUNICIPALS FUND
The attached Part IIs for the foregoing Funds are added to this
Statement of Additional Information. The financial statements for the Funds
(each formerly an "EV Classic [State Name] Municipals Fund") are contained in
the attached annual report to shareholders.
February 1, 1996
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV TRADITIONAL HAWAII MUNICIPALS
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 Municipals 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 supplements the information in the Prospectus.
It is derived from sources that are generally available to investors and is
believed to be accurate. Such information constitutes only a brief summary, does
not purport to be a complete description and is based on information from
official statements relating to securities offerings of 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 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 the full amount of its advisory fee 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 currently 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.
SERVICE PLAN
Prior to February 1, 1996, the Fund made sales commission, distribution fee
and service fee payments pursuant to a Distribution Plan. For the period from
the start of business, March 14, 1994, to January 31, 1995, the Fund accrued
sales commission payments under that 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 Distribution 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
Distribution 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.
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:(1)
<TABLE>
<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-- $17(2) $ 8,750 $33,750
Samuel L. Hayes, III .......................... --0-- 16(3) 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
- ----------
(1)The Eaton Vance fund complex consists of 205 registered investment companies or series thereof.
(2)Includes $3 of deferred compensation.
(3)Includes $3 of deferred compensation.
</TABLE>
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 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
the first purchase pursuant to a written Statement of Intention, in the form
provided by the Principal Underwriter, which includes provisions for a price
adjustment depending upon the amount actually purchased within such period (a
purchase not made pursuant to such Statement may be included thereunder if the
Statement is filed within 90 days of such purchase); or (2) purchases of the
Fund pursuant to the Right of Accumulation and declared as such at the time of
purchase.
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 Authorized Firms and to the spouses and children under the age of
21 and beneficial accounts of such persons.
The Trust reserves the right to suspend or limit the offering of shares of
the Fund to the public at any time.
The Principal Underwriter acts as principal in selling shares of the Fund
under the Distribution Agreement with the Trust on behalf of the Fund. The
expenses of printing copies of prospectuses used to offer shares to Authorized
Firms or investors and other selling literature and of advertising are borne by
the Principal Underwriter. The fees and expenses of qualifying and registering
and maintaining qualifications and registrations of the Fund and its shares
under federal and state securities laws are borne by the Fund. The Distribution
Agreement is renewable annually by the 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 Principal Underwriter
allows Authorized Firms discounts from the applicable public offering price
which are alike for all Authorized Firms. The Principal Underwriter may allow,
upon notice to all Authorized Firms with whom it has agreements, discounts up to
the full sales charge during the periods specified in the notice. See "How to
Buy Fund Shares" in the Fund's current Prospectus for the discount allowed to
Authorized Firms on the sale of Fund shares. During periods when the discount
includes the full sales charge, such Authorized Firms may be deemed to be
underwriters as that term is defined in the Securities Act of 1933. 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.
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.
SERVICE PLAN
The Trust on behalf of the Fund has adopted a Service Plan (the "Plan")
designed to meet 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 Rule 12b-1 under
the 1940 Act, but has chosen to have the Plan approved as if that 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 "Noninterested 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 Noninterested Trustees or by a vote of a majority of the outstanding
voting securities of the Fund. 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 Noninterested 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 from March 2, 1994 through January 31, 1995. The total return for the
period prior to the Fund's commencement of operations on March 14, 1994 reflects
the Portfolio's total return adjusted to reflect any applicable Fund sales
charge. The total return for such prior period has not been adjusted to reflect
the Fund's service fees and certain other expenses. The performance (including
the yield and total return rate figures set forth below) reflects the Fund's
sales charge effective February 1, 1996.
<TABLE>
<CAPTION>
VALUE OF A $1,000 INVESTMENT
TOTAL RETURN TOTAL RETURN
VALUE OF EXCLUDING SALES CHARGE INCLUDING SALES CHARGE
INVESTMENT INVESTMENT AMOUNT OF INVESTMENT -------------------------- --------------------------
PERIOD DATE INVESTMENT ON 1/31/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ------------ ---------- ----------- --------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Life of the
Fund** 3/2/94 $962.50 $911.23 -5.33% -- -8.88% --
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 orginal cost.
- ----------
* Initial investment less the maximum sales charge of 3.75%. This sales charge is effective February 1,
1996. Prior thereto, Fund shares redeemed within one year of their purchase are subject to a
contingent deferred sales charge of 1%.
** 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
4.59%. The yield required of a taxable security that would produce an after-tax
yield equivalent to that earned by the Fund of 4.59% would be 7.08%, 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 4.95%, and the Fund's
effective distribution rate (calculated on the same date and based on the same
monthly distribution) was 5.07%. 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.
See the Tax Equivalent Yield Table in this Part II for information
concerning applicable tax rates and income brackets.
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 : HUI500, 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 Namamoto and Riki Nakamoto trustees for
the trust dated 6-11-92, Aiea, HI(7.0%). To the knowledge of the Trust, no other
person owned of record or beneficially 5% or more of the Fund's outstanding
shares as of such date.
OTHER INFORMATION
The Fund changed its name from EV Classic Hawaii Tax Free Fund to EV Classic
Hawaii Municipals Fund on December 15, 1995 and to EV Traditional Hawaii
Municipals Fund on February 1, 1996.
<PAGE>
TAX EQUIVALENT YIELD TABLE
The table below gives the approximate yield a taxable security must earn at
various income brackets to produce after-tax yields equivalent to those of tax
exempt bonds yielding from 4% to 7% under the regular federal income tax and the
Hawaii State individual income tax laws and tax rates applicable for 1996.
<TABLE>
<CAPTION>
COMBINED A FEDERAL AND HAWAII STATE
FEDERAL AND TAX EXEMPT YIELD OF:
SINGLE RETURN JOINT RETURN HI STATE 4% 4.5% 5% 5.5% 6% 6.5% 7%
- ---------------------------------------------- TAX --------------------------------------------------------------------
(TAXABLE INCOME*) BRACKET+ IS EQUIVALENT TO A FULLY TAXABLE YIELD OF:
- ---------------------------------------------- -------- --------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $ 24,000 Up to $ 40,100 23.50% 5.23% 5.88% 6.54% 7.19% 7.84% 8.50% 9.15%
$ 24,001-$ 58,150 $ 40,101-$ 96,900 35.20 6.17 6.94 7.72 8.49 9.26 10.03 10.80
$ 58,151-$121,300 $ 96,901-$147,700 37.90 6.44 7.25 8.05 8.86 9.66 10.47 11.27
$121,301-$263,750 $147,701-$263,750 42.40 6.94 7.81 8.68 9.55 10.42 11.28 12.15
Over $263,750 Over $263,750 45.64 7.36 8.28 9.20 10.12 11.04 11.96 12.88
</TABLE>
*Net amount subject to the federal and Hawaii individual income tax after
deductions and exemptions.
+ The first tax bracket is calculated using the highest Hawaii tax rate within
the bracket. Taxpayers with taxable income within this bracket may have a lower
combined bracket and taxable equivalent yield than indicated above. The
combined tax brackets 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. The applicable federal tax
rates within the brackets set forth above are 15%, 28%, 31%, 36% and 39.6% over
the same ranges of income. The assumed Hawaii State income tax rate is 10%.
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 $117,950. The tax brackets
also do not show the effects of phaseout of personal exemptions for single
filers with adjusted gross income in excess of $117,950 and joint filers
adjusted gross income in excess of $176,950. The effective tax brackets and
equivalent taxable yields of such taxpayers will be higher than those indicated
above.
Yields shown are for illustration purposes only and are not meant to represent
the Fund's actual yield. No assurance can be given that the Fund will achieve
any specific tax exempt yield. While it is expected that the Portfolio will
invest principally in obligations the interest from which is exempt from the
regular federal income tax 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.
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. Investors should consult their tax adviser for additional
information.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV TRADITIONAL KANSAS MUNICIPALS
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 Municipals 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 supplements the information in the Prospectus.
It is derived from sources that are generally available to investors and is
believed to be accurate. Such information constitutes only a brief summary, does
not purport to be a complete description and is based on information from
official statements relating to securities offerings of 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 the full amount of its advisory fee 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 currently 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.
SERVICE PLAN
Prior to February 1, 1996, the Fund made sales commission, distribution fee
and service fee payments pursuant to a Distribution Plan. For the period from
the start of business, March 3, 1994, to January 31, 1995, the Fund accrued
sales commission payments under that 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 Distribution 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 Distribution 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.
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:\1/
<TABLE>
<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(2) $ 8,750 $33,750
Samuel L. Hayes, III .......................... --0-- $8(3) 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
- ----------
(1)The Eaton Vance fund complex consists of 205 registered investment companies or series thereof.
(2)Includes $3 of deferred compensation.
(3)Includes $3 of deferred compensation.
</TABLE>
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 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
the first purchase pursuant to a written Statement of Intention, in the form
provided by the Principal Underwriter, which includes provisions for a price
adjustment depending upon the amount actually purchased within such period (a
purchase not made pursuant to such Statement may be included thereunder if the
Statement is filed within 90 days of such purchase); or (2) purchases of the
Fund pursuant to the Right of Accumulation and declared as such at the time of
purchase.
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 Authorized Firms and to the spouses and children under the age of
21 and beneficial accounts of such persons.
The Trust reserves the right to suspend or limit the offering of shares of
the Fund to the public at any time.
The Principal Underwriter acts as principal in selling shares of the Fund
under the Distribution Agreement with the Trust on behalf of the Fund. The
expenses of printing copies of prospectuses used to offer shares to Authorized
Firms or investors and other selling literature and of advertising are borne by
the Principal Underwriter. The fees and expenses of qualifying and registering
and maintaining qualifications and registrations of the Fund and its shares
under federal and state securities laws are borne by the Fund. The Distribution
Agreement is renewable annually by the 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 Principal Underwriter
allows Authorized Firms discounts from the applicable public offering price
which are alike for all Authorized Firms. The Principal Underwriter may allow,
upon notice to all Authorized Firms with whom it has agreements, discounts up to
the full sales charge during the periods specified in the notice. See "How to
Buy Fund Shares" in the Fund's current Prospectus for the discount allowed to
Authorized Firms on the sale of Fund shares. During periods when the discount
includes the full sales charge, such Authorized Firms may be deemed to be
underwriters as that term is defined in the Securities Act of 1933. 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.
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.
SERVICE PLAN
The Trust on behalf of the Fund has adopted a Service Plan (the "Plan")
designed to meet 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 Rule 12b-1 under
the 1940 Act, but has chosen to have the Plan approved as if that 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 "Noninterested 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 Noninterested Trustees or by a vote of a majority of the outstanding
voting securities of the Fund. 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 Noninterested 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.
ADDITIONAL OFFICER INFORMATION
In addition to the officers of the Portfolio listed under "Officers of the
Trust and the Portfolio" in Part I of this SAI, Nicole Anderes (34) is a Vice
President of the Portfolio. Ms. Anderes has served as a Vice President of the
Portfolio since June 19, 1995. Ms. Anderes has been a Vice President of BMR and
Eaton Vance since 1994 and is an officer of various investment companies managed
by Eaton Vance or BMR. Prior to joining Eaton Vance, Ms. Anderes was Vice
President and portfolio manager, Lazard Freres Asset Management (1992- 1994) and
Vice President and Manager -- Municipal Research, Roosevelt & Cross (1987-1992).
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.
The performance (including the yield and distribution rate figures set forth
below) reflects the Fund's sales charge effective February 1, 1996.
<TABLE>
<CAPTION>
VALUE OF A $1,000 INVESTMENT
TOTAL RETURN TOTAL RETURN
VALUE OF EXCLUDING SALES CHARGE INCLUDING SALES CHARGE
INVESTMENT INVESTMENT AMOUNT OF INVESTMENT -------------------------- --------------------------
PERIOD DATE INVESTMENT ON 1/31/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ------------ ---------- ----------- --------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Life of the
Fund** 3/2/94 $962.46 $961.47 -0.11%** -- -3.85% --
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 orginal cost.
- ----------
* Initial investment less the maximum sales charge of 3.75%. This sales charge is effective February 1,
1996. Prior thereto, Fund shares redeemed within one year of their purchase are subject to a
contingent deferred sales charge of 1%.
** 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
4.76%. The yield required of a taxable security that would produce an after-tax
yield equivalent to that earned by the Fund of 4.76% would be 7.17%, 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 4.66%, and the Fund's
effective distribution rate (calculated on the same date and based on the same
monthly distribution) was 4.76%. 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.
See the Tax Equivalent Yield Table in this Part II for information
concerning applicable tax rates and income brackets.
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 knowledge of the Trust, no other person owned of record or
beneficially 5% or more of the Fund's outstanding shares as of such date.
OTHER INFORMATION
The Fund changed its name from EV Classic Kansas Tax Free Fund to EV Classic
Kansas Municipals Fund on December 15, 1995 and to EV Traditional Kansas
Municipals Fund on February 1, 1996.
<PAGE>
TAX EQUIVALENT YIELD TABLE
The tables below give the approximate yield a taxable security must earn at
various income brackets to produce after-tax yields equivalent to those of
tax-exempt bonds yielding from 4% to 7% under the regular federal income tax and
Kansas State income tax laws applicable for 1996.
<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* TAX BRACKET+ IS EQUIVALENT TO A FULLY TAXABLE YIELD OF:
- ------------------- ------------ -------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Up to & 24,O00 22.86% 5.19% 5.83% 6.48% 7.13% 7.78% 8.43% 9.07%
$ 24,001 - $ 58,150 34.80 6.14 6.90 7.67 8.44 9.20 9.97 10.74
$ 58,151 - $121,300 37.52 6.40 7.20 8.00 8.80 9.60 10.40 11.20
$121,301 - $263,750 42.05 6.90 7.77 8.63 9.49 10.35 11.22 12.08
Over $263,750 45.31 7.31 8.23 9.14 10.06 10.97 11.88 12.80
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* TAX BRACKET+ IS EQUIVALENT TO A FULLY TAXABLE YIELD OF:
- ------------------- ------------ -------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Up to & 40,100 23.93% 5.26% 5.92% 6.57% 7.23% 7.89% 8.54% 9.20%
$ 40,101 - $ 96,900 35.74 6.22 7.00 7.78 8.56 9.34 10.12 10.89
$ 96,901 - $147,700 38.42 6.50 7.31 8.12 8.93 9.74 10.55 11.37
$147,701 - $263,750 42.88 7.00 7.88 8.75 9.63 10.50 11.38 12.25
Over $263,750 46.09 7.42 8.35 9.28 10.20 11.13 12.06 12.99
</TABLE>
*Net amount subject to federal and Kansas personal income tax after deductions
and exemptions.
+ 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 3.00%. 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. The applicable federal tax rates within the brackets
set forth above are 15%, 28%, 31%, 36% and 39.6% over the same ranges of
income.
The above-indicated combined federal and Kansas State income brackets assume
that State and local intangibles income taxes are itemized deductions for
federal income tax purposes 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 $117,950, nor do they reflect phaseout of personal exemptions for
single and joint filers with adjusted gross income in excess of $117,950 and
$176,950, respectively. The effective combined tax brackets and equivalent
taxable yields of such taxpayers will be higher than those indicated above.
Note: Yields shown are for illustration purposes only and are not meant to
represent the Fund's actual yield. No assurance can be given that the Fund will
achieve any specific tax exempt yield. While it is expected that the Portfolio
will invest principally in obligations, the interest from which is exempt from
the regular federal income tax 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 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. Investors should consult their tax adviser for additional
information.
<PAGE>
EATON VANCE MUNICIPALS TRUST II
FOR THE FUNDS:
* EV Classic Florida Insured Tax Free Fund
* EV Classic Hawaii Tax Free Fund
* EV Classic Kansas Tax Free Fund
- --------------------------------------------------------------------------------
[GRAPHIC]
- --------------------------------------------------------------------------------
ANNUAL SHAREHOLDER REPORT
JANUARY 31, 1995
<PAGE>
To Shareholders
To say that 1994 was a difficult time for fixed-income markets would be an
understatement. According to several reports, 1994 was the worst single year
for bond markets since at least 1927.
Put simply, the troubles experienced by fixed-income markets were the result of
an economy that remained stronger than most observers had anticipated at the
start of the year. In response to this persistent economic strength and in an
attempt to keep inflation in check, the Federal Reserve raised short-term
interest rates a total of six times during the year, thereby depressing bond
prices.
Since the end of the year, the Fed already has raised interest rates once
again.It's expected that economists and market observers alike will continue to
watch closely both the Fed's actions and the economic indicators, to ensure
that inflation is in check.
But the market slide was not the only investment news during 1994. Many
shareholders also may have heard about the problems affecting the investments
of Orange County,CA, and may have wondered whether those problems have affected
their investment in non-California Funds. While Orange County bonds were
affected, the market realized that this was an isolated situation and other
bonds have not been affected.
Despite the difficulties that beset the market in 1994, we feel optimistic
about prospects for 1995. The market now appears convinced that the Federal
Reserve is, in fact, keeping a tight watch on inflation. Core inflation was 2.7
percent for 1994. Also, the changes in Washington that resulted from the
November elections could be positive for financial markets.
No matter what the economic environment, the goal of your Fund remains the
same: to continue to hold a portfolio of high-quality bonds that provides a
competitive distribution of tax-exempt income.
For this most recent report, please note that we have made some changes in the
way we describe the individual Funds and their Portfolios. On the following
pages, each of the funds will be described using a Portfolio Overview, which is
a brief description of each Portfolio's contents as well as some observations
from each portfolio manager. Of course, we continue to provide a detailed
description of the contents of each Portfolio in the back of this report. For
the first time, we also are including a profile of a specific bond held in
eachPortfolio. This information will help you understand the investments that
we make with your money.
I hope that you find this additional information useful.
[PHOTO] Sincerely,
[SIGNATURE]
Thomas J.Fetter
President
March 20, 1995
RESULTS FOR THE FISCAL YEAR THAT ENDED JANUARY 31, 1995
FOR THE FOLLOWING FUNDS...
<TABLE>
<CAPTION>
DIVIDENDS NAV FUND'S If Your You Would Federal
PAID Per Share DISTRIBU- Combined Need An Income
BY FUND at TION Federal After-Tax Tax
(DURING 1/31/95 RATE AT and Equivalent Inform-
FISCAL YEAR) 1/31/95 State Tax Yield Of... ation*
Rate Is...
<S> <C> <C> <C> <C> <C> <C>
EV Classic Florida Insured
Tax Free Fund $0.323 $9.75 5.10% 36.00% 7.97% 98.61%
EV Classic Hawaii
Tax Free Fund $0.434 $9.04 5.14% 43.68% 9.13% 99.29%
EV Classic Kansas
Tax Free Fund $0.443 $9.54 4.84% 39.20% 7.96% 99.25%
</TABLE>
* Percentages represent the amounts of the total dividends paid by the Funds,
from net investment income during the year that ended January 31, 1995, that
have been designated as tax-exempt interest dividends. Tax legislation
eliminated the exception to the market discount rules applicable to
tax-exempt obligations. As a result, certain tax-exempt obligations acquired
by the Portfolio at market discounts may generate a small amount of ordinary
taxable income.
2
<PAGE>
EV Classic Florida Insured Tax Free Fund
[GRAPHIC]
PORTFOLIO OVERVIEW
Based on market value as of Jan. 31, 1995
<TABLE>
<S> <C>
Number of issues . . . . . . . . . . . . . . . . . . . . . . . . . 41
Average quality . . . . . . . . . . . . . . . . . . . . . . . . . Aaa
Investment grade . . . . . . . . . . . . . . . . . . . . . . . 100.0%
Effective maturity (years) . . . . . . . . . . . . . . . . . . 23.09
Largest sectors:
Insured water and sewer . . . . . . . . . . . . . . . . . . . 23.6%*
Insured special tax revenue . . . . . . . . . . . . . . . . . 18.6*
Housing . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.2
Insured industrial development . . . . . . . . . . . . . . . . 8.0*
Insured health care . . . . . . . . . . . . . . . . . . . . . 7.0*
</TABLE>
* Private insurance does not remove the market risks associated with this
investment.
FROM THE PORTFOLIO MANAGER
"With the Florida economy improving overall during 1994, the state's economic
outlook appears to be positive. We're pleased to be able to provide investors
with high-quality tax exempt investments that contribute to the economic
success of the state of Florida.(+)"
(+) A portion of the Fund's income could be subject to Federal alternative
minimum tax.
FLORIDA IN 1994
The Florida economy turned in generally positive results during the year, with
an improving labor market, as demonstrated by a lower unemployment rate and an
improved housing market.
The state's important tourism industry, while experiencing a slight decrease in
visitors in 1994, was more stable than in recent years because of the improved
national economy. Analysts expect population growth to continue to be healthy
in coming years, with Florida maintaining its position as the fourth-largest
state in terms of population.
BOND PORTFOLIO: YOUR MONEY AT WORK
Florida Department of Environmental Protection
[GRAPHIC]
These bonds are a significant holding in the Portfolio. The state uses the
money to acquire land that is in danger of development and that will help
protect Florida's groundwater.
Some recent projects that have used this money include Silver Springs, a large
wooded reserve near Ocala that had been privately held. Now it is a state
forest protected from development. Other money is being used to restructure the
Kissimmee River to increase water flow into the Everglades.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN EV CLASSIC FLORIDA
INSURED TAX FREE FUND (INCLUDING SALES CHARGE) AND THE LEHMAN BROTHERS MUNICIPAL
BOND INDEX
From June 30, 1994 through January 31, 1995
<TABLE>
<CAPTION>
CUMULATIVE Life Value of
TOTAL RETURN of Fund(*) Investment at 1/31
- ------------ ---------- ------------------
<S> <C> <C>
With CDSC -0.2% $10,126
Without CDSC 0.8% $10,225
</TABLE>
<TABLE>
<CAPTION>
Classic
Florida Insured Lehman Bros.
Date Tax Free Fund Muni Tax Fund
<S> <C> <C>
6/94 10,000 10,000
7/94 10,282 10,180
8/94 10,250 10,216
9/94 10,043 10,066
10/94 9,763 9,887
11/94 9,532 9,708
12/94 9,866 9,922
1/95 10,225 10,206
<FN>
Past performance is not indicative of future results. Investment returns and
principal will fluctuate so that an investor's shares, when redeemed, may be
worth more or less than their original cost. Source: Towers Data Systems,
Bethesda, MD.
(*) Investment operations commenced 6/15/94.
(+) Index performance is available only at month-end, therefore, the line
comparison begins at the next month-end following the commencement of the Fund's
investment operations.
</TABLE>
To the left is a performance chart comparing your Fund's total return with that
of a broad-based securities market index. The lines on the chart represent the
total returns of $10,000 hypothetical investments in the Fund and the unmanaged
Lehman Brothers Municipal Bond Index.
The solid line on the chart represents the Fund's performance. The Fund's total
return figure reflects Fund expenses and portfolio transaction costs, and
assumes the reinvestment of income dividends and capital gain distributions.
The second dollar amount listed for the Fund reflects the Fund's applicable 1%
contingent deferred sales charge (CDSC), deducted for redemptions made within
the first 12 months of purchase.
The dotted line represents the performance of the Lehman Brothers Municipal
Bond Index, a broad-based, widely recognized unmanaged index of municipal
bonds. Whereas the Fund's portfolio principally comprises Florida bonds, the
Index is composed of bonds from all 50 states and many jurisdictions. The
Index's total return does not reflect any commissions or expenses that would be
incurred if an investor individually purchased or sold the securities
represented in the Index.
3
<PAGE>
EV Classic Hawaii Tax Free Fund
[GRAPHIC]
PORTFOLIO OVERVIEW
Based on market value as of Jan. 31, 1995
<TABLE>
<S> <C>
Number of issues . . . . . . . . . . . . . . . . . . . . . . . . . 33
Average quality . . . . . . . . . . . . . . . . . . . . . . . . . . AA
Investment grade . . . . . . . . . . . . . . . . . . . . . . . 97.6%
Effective maturity (years) . . . . . . . . . . . . . . . . . . 19.75
Largest sectors:
General obligation . . . . . . . . . . . . . . . . . . . . . . 20.0%
Insured general obligation . . . . . . . . . . . . . . . . . . 14.4*
Insured transportation . . . . . . . . . . . . . . . . . . . . 14.0*
Industrial development/pollution control . . . . . . . . . . . 11.7
Housing . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.5
</TABLE>
* Private insurance does not remove the market risks associated with this
investment.
FROM THE PORTFOLIO MANAGER
[PHOTO of Robert B. Macintosh]
"Tourism is making a comeback and the state did the things it needed to do to
maintain its AA rating during the difficult times. The world economy continues
to strengthen, which should continue to help Hawaii's tourism industry."(+)
(+) A portion of the Fund's income could be subject to Federal alternative
minimum tax.
HAWAII IN 1994
Tourism in Hawaii staged a comeback in 1994. That's good new, because the
state's economy relies heavily on tourism dollars, and had experienced three
consecutive years of declines in the number of visitors. The recovery is being
attributed in part to a stronger U.S. economy.
The state benefits from a very stable military presence. Because of its
strategic geographic position, Hawaii will experience few military cutbacks.
Because the state has assumed many financial burdens that other states leave to
local government, Hawaii's state debt burden is high, but state finances are
regarded as strong.
BOND PROFILE: YOUR MONEY AT WORK
Hawaii Airport System
[GRAPHIC]
One bond in the Portfolio is a 7.5% coupon bond maturing in 2020. Money from it
and others in its series, issued in 1990, is being used to finance improvements
at state airports. Among the specific projects financed with this money are
construction of a new Inter-Island Terminal at Honolulu International Airport
and new terminal facilities at Kahului Airport on Maui. While this is an
insured bond, private insurance does not remove the market risks associated
with an investment in the Fund.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN EV CLASSIC HAWAII TAX
FREE FUND (INCLUDING SALES CHARGE) AND THE LEHMAN BROTHERS MUNICIPAL BOND INDEX
From March 31, 1994, through January 31, 1995
<TABLE>
<CAPTION>
CUMULATIVE Life Value of
TOTAL RETURN of Fund(*) Investment at 1/31
<S> <C> <C>
With CDSC -6.1% $9,818
Without CDSC -5.2% $9,913
</TABLE>
Lehman Brothers Municipal Bond Index: $10,321
EV Classic Hawaii Tax Free Fund: $9,913
<TABLE>
<CAPTION>
Classic Hawaiian Lehman Bros.
Date Tax Free Fund Muni Bond Index
<S> <C> <C>
3/94 10,000 10,000
4/94 9,985 10,085
5/94 10,074 10,172
6/94 9,918 10,113
7/94 10,081 10,295
8/94 10,119 10,331
9/94 9,931 10,180
10/94 9,669 9,999
11/94 9,423 9,818
12/94 9,639 10,034
1/95 9,913 10,321
<FN>
Past performance is not indicative of future results. Investment returns and
principal will fluctuate so that an investor's shares, when redeemed, may be
worth more or less than their original cost. Source: Towers Data Systems,
Bethesda, MD.
(*)Investment operations commenced 3/14/94.
(+)Index information is available only at month-end, therefore, the line
comparison begins at the next month-end following the commencement of the
Fund's investment operations.
</TABLE>
To the left is a performance chart comparing your Fund's total return with that
of a broad-based securities market index. The lines on the chart represent the
total returns of $10,000 hypothetical investments in the Fund and the unmanaged
Lehman Brothers Municipal Bond Index.
The solid line on the chart represents the Fund's performance. The Fund's total
return figure reflects Fund expenses and portfolio transaction costs, and
assumes the reinvestment of income dividends and capital gain distributions.
The second dollar amount listed for the Fund reflects the Fund's applicable 1%
contingent deferred sales charge (CDSC), deducted for redemptions made within
the first 12 months of purchase.
The dotted line represents the performance of the Lehman Brothers Municipal
Bond Index, a broad-based, widely recognized unmanaged index of municipal
bonds. Whereas the Fund's portfolio principally comprises Hawaii bonds, the
Index is composed of bonds from all 50 states and many jurisdictions. The
Index's total return does not reflect any commissions or expenses that would be
incurred if an investor individually purchased or sold the securities
represented in the Index.
4
<PAGE>
EV Classic Kansas Tax Free Fund
[GRAPHIC]
PORTFOLIO OVERVIEW
Based on market value as of Jan. 31, 1995
<TABLE>
<S> <C>
Number of issues . . . . . . . . . . . . . . . . . . . . . . . . . 45
Average quality . . . . . . . . . . . . . . . . . . . . . . . . . AA+
Investment grade . . . . . . . . . . . . . . . . . . . . . . . 100.0%
Effective maturity (years) . . . . . . . . . . . . . . . . . . 18.56
Largest sectors:
Housing . . . . . . . . . . . . . . . . . . . . . . . . . . . 24.4%
Insured general obligation, school districts . . . . . . . . . 13.7*
General obligation, school districts . . . . . . . . . . . . . 13.2
Transportation . . . . . . . . . . . . . . . . . . . . . . . . 11.1
Insured general obligation . . . . . . . . . . . . . . . . . . 10.7*
</TABLE>
* Private insurance does not remove the market risks associated with this
investment.
FROM THE PORTFOLIO MANAGER
[PHOTO of Nicole Anderes]
"While the municipal market typically views Kansas as a high quality "plain
vanilla" state, the Kansas municipal market still offers us opportunities to
maximize tax-exempt yield for our shareholders while preserving credit
quality."(+)
(+) A portion of the Fund's income could be subject to Federal alternative
minimum tax.
KANSAS IN 1994
The performance of the Kansas economy was better in 1994 than in the previous
year but still lagged behind the nation in economic growth. The aftermath of
severe flooding in 1993 combined with continued downsizing in the airplane
manufacturing industry to dampen the state's historically strong economic
results.
Employment grew 2.2 percent in 1994 compared to 1.2 percent in 1993 and to 2.6
nationwide in 1994. The metropolitan Topeka area was the brightest spot among
the state's regional economies.
Prospects for 1995 continue to be muted, with the state expected to turn in
1995 results similar to 1994's.
BOND PROFILE: YOUR MONEY AT WORK
Sedgwick County Mortgage Loan
This AAA-rated bond is due in 2010 and offers the Portfolio exceptional value
considering its excellent credit quality. Money from this and other bonds is
used to provide mortgage loans to moderate-income residents, thereby increasing
the number of people who can become homeowners.
The bonds themselves are AAA-rated because of their insurance, but their
underlying credit quality is very strong as well because the home mortgages
that are in the pool backing the bonds are collateralized by GNMA.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN EV CLASSIC KANSAS TAX
FREE FUND (INCLUDING SALES CHARGE) AND THE LEHMAN BROTHERS MUNICIPAL BOND INDEX
From March 31, 1994, through January 31, 1995
<TABLE>
<CAPTION>
CUMULATIVE Life Value of
TOTAL RETURN of Fund(*) Investment at 1/31
<S> <C> <C>
With CDSC -1.1% $10,116
Without CDSC -0.1% $10,214
</TABLE>
Lehman Brothers Municipal Bond Index: $10,321
EV Classic Kansas Tax Free Fund: $10,214
<TABLE>
<CAPTION>
Classic Kansas Lehman Bros.
Date Tax Free Fund Muni Bond Index
<S> <C> <C>
3/94 10,000 10,000
4/94 10,112 10,085
5/94 10,248 10,172
6/94 10,124 10,113
7/94 10,336 10,295
8/94 10,352 10,331
9/94 10,147 10,180
10/94 9,891 9,999
11/94 9,619 9,818
12/94 9,872 10,034
1/95 10,214 10,321
<FN>
Past performance is not indicative of future results. Investment returns and
principal will fluctuate so that an investor's shares, when redeemed, may be
worth more or less than their original cost. Source: Towers Data Systems,
Bethesda, MD.
(*) Investment operations commenced 3/3/94.
(+) Index information is available only at month-end, therefore, the line
comparison begins at the next month-end following the commencement of the
Fund's investment operations.
</TABLE>
To the left is a performance chart comparing your Fund's total return with that
of a broad-based securities market index. The lines on the chart represent the
total returns of $10,000 hypothetical investments in the Fund and the unmanaged
Lehman Brothers Municipal Bond Index.
The solid line on the chart represents the Fund's performance. The Fund's total
return figure reflects Fund expenses and portfolio transaction costs, and
assumes the reinvestment of income dividends and capital gain distributions.
The second dollar amount listed for the Fund reflects the Fund's applicable 1%
contingent deferred sales charge (CDSC), deducted for redemptions made within
the first 12 months of purchase.
The dotted line represents the performance of the Lehman Brothers Municipal
Bond Index, a broad-based, widely recognized unmanaged index of municipal
bonds. Whereas the Fund's portfolio principally comprises Kansas bonds, the
Index is composed of bonds from all 50 states and many jurisdictions. The
Index's total return does not reflect any commissions or expenses that would be
incurred if an investor individually purchased or sold the securities
represented in the Index.
5
<PAGE>
EV Classic Tax Free Funds
Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
January 31, 1995
<TABLE>
<CAPTION>
CLASSIC CLASSIC CLASSIC
FLORIDA INSURED HAWAII KANSAS
--------------- --------- ----------
<S> <C> <C> <C>
ASSETS:
Investment in Portfolio -
Identified cost $ 1,436,425 $ 259,596 $ 667,660
Unrealized appreciation (depreciation) 49,556 (3,400) (26,369)
----------- --------- ----------
Total investment in Portfolio, at value (Note 1A) $ 1,485,981 $ 256,196 $ 641,291
Receivable from the Administrator (Note 4) 8,481 12,533 13,344
Deferred organization expenses (Note 1D) 9,825 17,189 15,355
----------- --------- ----------
Total assets $ 1,504,287 $ 285,918 $ 669,990
=========== ========= ==========
LIABILITIES:
Dividends payable $ 1,430 $ 318 $ 717
Payable for shares redeemed - 24,700 -
Payable to Affiliate -
Custodian fee 84 84 84
Accrued expenses 16,000 3,992 4,305
----------- --------- ----------
Total liabilities $ 17,514 $ 29,094 $ 5,106
----------- --------- ----------
NET ASSETS $ 1,486,773 $ 256,824 $ 664,884
=========== ========= ==========
SOURCES OF NET ASSETS:
Paid-in capital $ 1,438,301 $ 273,076 $ 695,418
Accumulated net realized gain (loss) on investment and
financial futures transactions (computed on the basis
of identified cost) 409 (11,983) (2,723)
Accumulated distributions in excess of net investment
income (1,493) (869) (1,442)
Unrealized appreciation (depreciation) of investments and
financial futures contracts from Portfolio (computed
on the basis of identified cost) 49,556 (3,400) (26,369)
----------- --------- ----------
Total $ 1,486,773 $ 256,824 $ 664,884
=========== ========= ==========
SHARES OF BENEFICIAL INTEREST OUTSTANDING 152,551 28,416 69,712
=========== ========= ==========
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE
PER SHARE (NOTE 7) (net assets / shares of beneficial
interest outstanding) $ 9.75 $ 9.04 $ 9.54
=========== ========= ==========
</TABLE>
See notes to financial statements
6
<PAGE>
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
CLASSIC CLASSIC CLASSIC
FLORIDA INSURED(*) HAWAII(*) KANSAS(*)
------------------ ---------- ----------
<S> <C> <C> <C>
INVESTMENT INCOME (NOTE 1B):
Interest income allocated from Portfolio $ 15,239 $ 11,481 $ 29,446
Expenses allocated from Portfolio (5) (135) (35)
-------- ---------- ----------
Net investment income from Portfolio $ 15,234 $ 11,346 $ 29,411
-------- ---------- ----------
Expenses-
Distribution costs (Note 5) $ 2,696 $ 1,993 $ 5,289
Custodian fees (Note 4) 986 2,634 2,226
Transfer and dividend distributing agent fees 111 117 231
Legal and accounting services 244 100 207
Amortization of organization expenses (Note 1D) 1,442 3,708 3,455
Printing and postage 5,022 5,382 6,175
Registration costs 501 99 747
Miscellaneous 175 493 303
-------- ---------- ----------
Total expenses $ 11,177 $ 14,526 $ 18,633
Deduct allocation of expenses to the Administrator
(Note 4) 8,481 12,533 13,344
-------- ---------- ----------
Net expenses $ 2,696 $ 1,993 $ 5,289
-------- ---------- ----------
Net investment income $ 12,538 $ 9,353 $ 24,122
-------- ---------- ----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) from Portfolio -
Investment transactions (identified cost basis) $ 625 $ (11,592) $ (1,978)
Financial futures contracts (216) (391) (745)
-------- ---------- ----------
Net realized gain (loss) on investments $ 409 $ (11,983) $ (2,723)
Unrealized appreciation (depreciation) of
investments 49,556 (3,400) (26,369)
-------- ---------- ----------
Net realized and unrealized gain (loss) on
investments $ 49,965 $ (15,383) $ (29,092)
-------- ---------- ----------
Net increase (decrease) in net assets from
operations $ 62,503 $ (6,030) $ (4,970)
======== ========== ==========
</TABLE>
* For the Classic Florida Insured, Classic Hawaii, and Classic Kansas Funds,
the Statement of Operations is for the period from the commencement of
operations, June 15, 1994, March 14, 1994, and March 3, 1994, respectively,
to January 31, 1995.
See notes to financial statements
7
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
CLASSIC CLASSIC CLASSIC
FLORIDA INSURED(*) HAWAII(*) KANSAS(*)
------------------ ---------- -----------
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations -
Net investment income $ 12,538 $ 9,353 $ 24,122
Net realized gain (loss) on investments 409 (11,983) (2,723)
Unrealized appreciation (depreciation) of investments 49,556 (3,400) (26,369)
----------- ---------- -----------
Net increase (decrease) in net assets from operations $ 62,503 $ (6,030) $ (4,970)
----------- ---------- -----------
Distributions to shareholders (Note 2) -
From net investment income $ (12,538) $ (9,353) $ (24,122)
In excess of net investment income (2,220) (2,050) (4,680)
----------- ---------- -----------
Total distributions to shareholders $ (14,758) $ (11,403) $ (28,802)
----------- ---------- -----------
Transactions in shares of beneficial interest (Note 3) -
Proceeds from sales of shares $ 1,940,001 $ 295,825 $ 1,176,813
Net asset value of shares issued to shareholders in
payment of distributions declared 9,039 11,053 25,508
Cost of shares redeemed (510,022) (32,631) (503,675)
----------- ---------- -----------
Increase in net assets from Fund share transactions $ 1,439,018 $ 274,247 $ 698,646
----------- ---------- -----------
Net increase in net assets $ 1,486,763 $ 256,814 $ 664,874
NET ASSETS:
At beginning of period 10 10 10
----------- ---------- -----------
At end of period $ 1,486,773 $ 256,824 $ 664,884
=========== ========== ===========
ACCUMULATED DISTRIBUTIONS IN EXCESS OF NET INVESTMENT
INCOME INCLUDED IN NET ASSETS AT END OF YEAR $ (1,493) $ (869) $ (1,442)
=========== ========== ===========
</TABLE>
* For the Classic Florida Insured, Classic Hawaii, and Classic Kansas Funds,
the Statement of Changes in Net Assets is for the period from the commencement
of operations, June 15, 1994, March 14, 1994, and March 3, 1994, respectively,
to January 31, 1995.
See notes to financial statements
8
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASSIC CLASSIC CLASSIC
FLORIDA INSURED(*) HAWAII(*) KANSAS(*)
------------------ --------- ---------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.000 $ 10.000 $ 10.000
--------- --------- ---------
INCOME(LOSS) FROM 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 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 (2) 0.82% (5.23%) (0.11%)
RATIOS/SUPPLEMENTAL DATA(**):
Net assets, end of period (000 omitted) $ 1,487 $ 257 $ 665
Ratio of net expenses to average daily net assets (1) 0.95%(+) 1.01%(+) 0.95%(+)
Ratio of net investment income to average daily net
assets 4.37%(+) 4.44%(+) 4.32%(+)
(**) For the period from the start of business, June 15, 1994, March 14, 1994 and March 3, 1994, respectively,
to January 31, 1995, the operating expenses of the Funds and the Portfolios may reflect reductions of
expenses by the Administrator or Investment Advisor. Had such actions not been taken, net investment income
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 (1) 4.00%(+) 7.31%(+) 3.68%(+)
Net investment income (loss) 1.32%(+) (1.86%)(+) 1.59%(+)
</TABLE>
(1) Includes the Fund's share of its corresponding Portfolio's allocated
expenses.
(2) Total return is calculated assuming a purchase at the net asset value on
the first day and a sale at the net asset value on the last day of each
period reported. 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.
(+) Computed on an annualized basis.
(++) 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.
(*) For the Classic Florida Insured, Classic Hawaii, and Classic Kansas Funds,
the Financial Highlights are for the period from the commencement of
operations, June 15, 1994, March 14, 1994, and March 3, 1994, respectively,
to January 31, 1995.
See notes to financial statements
9
<PAGE>
Notes to Financial Statements
- --------------------------------------------------------------------------------
(1) SIGNIFICANT ACCOUNTING POLICIES
Eaton Vance Municipal Trust II (the Trust) is an entity of the type commonly
known as a Massachusetts business trust and is registered under the Investment
Company Act of 1940, as amended, as an open-end management investment company.
The Trust presently consists of seven Funds, three of which are included in
these financial statements. They include EV Classic Florida Insured Tax Free
Fund, ("Classic Florida Insured Fund"), EV Classic Hawaii Tax Free Fund
("Classic Hawaii Fund") and EV Classic Kansas Tax Free Fund ("Classic Kansas
Fund"). Each Fund invests all of its investable assets in interests in a
separate corresponding open-end management investment company (a "Portfolio"),
a New York Trust, having the same investment objective as its corresponding
Fund. The Classic Florida Insured Fund invests its assets in the Florida
Insured Tax Free Portfolio, the Classic Hawaii Fund invests its assets in the
Hawaii Tax Free Portfolio and the Classic Kansas Fund invests its assets in the
Kansas Tax Free Portfolio. The value of each Fund's investment in its
corresponding Portfolio reflects the Fund's proportionate interest in the net
assets of that Portfolio (10.3%, 2.0% and 7.7% at January 31, 1995 for the
Classic Florida Insured Fund, Classic Hawaii Fund and Classic Kansas Fund,
respectively). The performance of each Fund is directly affected by the
performance of its corresponding Portfolio. The financial statements of each
Portfolio, including the portfolio of investments, are included elsewhere in
this report and should be read in conjunction with each Fund's financial
statements. The following is a summary of significant accounting policies
consistently followed by the Trust in the preparation of its financial
statements. The policies are in conformity with generally accepted accounting
principles.
A. INVESTMENT VALUATIONS -- Valuation of securities by the Portfolios is
discussed in Note 1 of the Portfolios' Notes to Financial Statements which are
included elsewhere in this report.
B. INCOME -- Each Fund's net investment income consists of the Fund's pro rata
share of the net investment income of its corresponding Portfolio, less all
actual and accrued expenses of each Fund determined in accordance with
generally accepted accounting principles.
C. FEDERAL TAXES -- Each Fund's policy is to comply with the provisions of the
Internal Revenue Code applicable to regulated investment companies and to
distribute to shareholders each year all of its taxable and tax-exempt income,
including any net realized gain on investments.
Accordingly, no provision for federal income or excise tax is necessary. At
January 31, 1995, the Classic Florida Insured Fund, Classic Hawaii Fund and
Classic Kansas Fund, for federal income tax purposes had capital loss
carryovers of $216, $1,941 and $745 respectively, which will reduce taxable
income arising from future net realized gain on investments, if any, to the
extent permitted by the Internal Revenue Code, and this will reduce the amount
of the distributions to shareholders which would otherwise be necessary to
relieve the Funds of any liability for federal income or excise tax. Such
capital loss carryovers will expire on January 31, 2003. In addition at January
31, 1995, Classic Florida Insured Fund, Classic Hawaii Fund and Classic Kansas
Fund had net capital losses of $796, $10,344, and $2,598, respectively,
attributable to security transactions incurred after October 31, 1994 are
treated as arising on the first day of the Funds' next taxable year. Dividends
paid by each Fund from net interest on tax-exempt municipal bonds allocated
from its corresponding Portfolio are not included by shareholders as gross
income for federal income tax purposes because each Fund and Portfolio intend
to meet certain requirements of the Internal Revenue Code applicable to
regulated investment companies which will enable the Funds to pay
exempt-interest dividends. The portion of such interest, if any, earned on
private activity bonds issued after August 7, 1986, may be considered a tax
preference item to shareholders.
D. DEFERRED ORGANIZATION EXPENSES -- Costs incurred by a Fund in connection
with its organization, including registration costs, are being amortized on the
straight-line basis over five years beginning on the date each Fund commenced
operations.
E. DISTRIBUTION COSTS -- For book purposes, commissions paid on the sale of a
Fund's shares and other distribution costs are charged to operations. For tax
purposes, commissions paid were charged to paid-in capital prior to November
23, 1994 and subsequently charged to operations. The change in the tax
accounting practice was prompted by a recent Internal Revenue Service Ruling
and has no effect on either the Funds' current yield or total return (Notes 2
and 5).
F. OTHER -- Investment transactions are accounted for on a trade date basis.
10
<PAGE>
- --------------------------------------------------------------------------------
(2) DISTRIBUTIONS TO STOCKHOLDERS
The net income of a Fund is determined daily and substantially all of the net
income so determined is declared as a dividend to shareholders of record at the
time of declaration. Distributions are paid monthly. Distributions of allocated
realized capital gains, if any, are made at least annually. Shareholders may
reinvest capital gain distributions in additional shares of a Fund at the net
asset value as of the ex-dividend date. Distributions are paid in the form of
additional shares or, at the election of the shareholder, in cash.
The Funds distinguish between distributions on a tax basis and a financial
reporting basis. Generally accepted accounting principles require that only
distributions in excess of tax basis earnings and profits be reported in the
financial statements as a return of capital. Differences in the recognition or
classification of income between the financial statements and tax earnings and
profits which result in temporary overdistributions for financial statement
purposes are classified as distributions in excess of net investment income or
accumulated net realized gains. Permanent differences between book and tax
accounting relating to distributions are reclassified to paid-in capital.
During the period from the start of business to November 22, 1994, $727,
$1,181, and $3,238 were reclassified from distributions in excess of net
investment income to paid-in capital, due to permanent differences between book
and tax accounting for distribution costs for the Classic Florida Insured Fund,
Classic Hawaii Fund and Classic Kansas Fund, respectively. Net investment
income, net realized gains and net assets were not affected by these
reclassifications.
- --------------------------------------------------------------------------------
(3) SHARES OF BENEFICIAL INTEREST
The Fund's Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest (without par
value). Transactions in Fund shares for the period from the start of business
to January 31, 1995, were as follows:
<TABLE>
<CAPTION>
CLASSIC FLORIDA CLASSIC CLASSIC
INSURED FUND HAWAII FUND KANSAS FUND
--------------- ----------- -----------
<S> <C> <C> <C>
Sales 203,693 30,797 119,503
Issued to shareholders electing to receive payments
of distributions in Fund shares 942 1,210 2,666
Redemptions (52,085) (3,592) (52,458)
-------- ------- --------
Net increase 152,550 28,415 69,711
======== ======= ========
</TABLE>
- --------------------------------------------------------------------------------
(4) TRANSACTIONS WITH AFFILIATES
Eaton Vance Management (EVM) serves as the administrator of each Fund, but
receives no compensation. Each of the Portfolios have engaged Boston Management
and Research (BMR), a subsidiary of EVM, to render investment advisory
services. See Note 2 of the Portfolios' Notes to Financial Statements which are
included elsewhere in this report. To enhance the net income of the Funds,
$8,481, $12,533 and $13,344 of expenses related to the operation of the Classic
Florida Insured Fund, Classic Hawaii Fund and Classic Kansas Fund,
respectively, were allocated to EVM. Except as to Trustees of the Funds and the
Portfolios who are not members of EVM's or BMR's organization, officers and
Trustees receive remuneration for their services to each Fund out of such
investment adviser fee. Investors Bank & Trust Company (IB&T), an affiliate of
EVM, serves as custodian to the Funds and the Portfolios. Pursuant to the
respective custodian agreements, IB&T receives a fee reduced by credits which
are determined based on the average cash balances the Funds or the Portfolios
maintain with IB&T. Certain of the officers and Trustees of the Funds and
Portfolios are officers and directors/trustees of the above organizations (Note
5).
11
<PAGE>
- --------------------------------------------------------------------------------
(5) DISTRIBUTION PLAN
Each Fund has adopted a distribution plan pursuant to Rule 12b-1 under the
Investment Company Act of 1940, and effective January 30, 1995 an amended
Distribution Plan (the Plan). The Plans require each of the Funds to pay the
principal underwriter, Eaton Vance Distributors, Inc. (EVD), amounts equal to
1/365th of 0.75% of a Funds daily net assets, for providing ongoing
distribution services and facilities to a Fund. A Fund will automatically
discontinue payments to EVD during any period in which there are no outstanding
Uncovered Distribution Charges, which are equivalent to the sum of (i) 6.25% of
the aggregate amount received by the Fund for shares sold plus (ii)
distribution fees calculated by applying the rate of 1% over the prevailing
prime rate to the outstanding balance of Uncovered Distribution Charges of EVD,
reduced by the aggregate amount of contingent deferred sales charges (see Note
6) and amounts theretofore paid to EVD. The amount payable to EVD with respect
to each day is accrued on such day as a liability of each Fund and,
accordingly, reduces the Fund's net assets. For the period ended January 31,
1995, Classic Florida Insured Fund, Classic Hawaii Fund and Classic Kansas
Fund, paid or accrued $2,128, $1,573 and $4,176, respectively, to or payable to
EVD representing 0.75% (annualized) of average daily net assets. At January 31,
1995, the amount of Uncovered Distribution Charges of EVD calculated under the
Plans for Classic Florida Insured Fund, Classic Hawaii Fund and Classic Kansas
Fund were approximately $106,000, $18,000 and $73,400, respectively.
In addition, the Plans permit the Funds to make monthly payments of service
fees to the Principal Underwriter, in amounts not expected to exceed 0.25% of
each Fund's average daily net assets for any fiscal year. The Trustees have
initially implemented the Plans by authorizing the Funds to make monthly
service fee payments to the Principal Underwriter in amounts not expected to
exceed 0.20% of each Fund's average daily net assets for any fiscal year. For
the period ended January 31, 1995, Classic Florida Insured Fund, Classic Hawaii
Fund and Classic Kansas Fund paid or accrued service fees to or payable to EVD
in the amount of $568, $420 and $1,113, respectively. Pursuant to the Amended
Distribution Plan, on sales made prior to January 30, 1995, EVD makes monthly
service fee payments to Authorized Firms in amounts anticipated to be
equivalent to 0.20%, annualized, of the assets maintained in each Fund by their
customers. For shares sold on January 30, 1995 and thereafter, EVD currently
expects to pay to an Authorized Firm a service fee at the time of sale equal to
0.20% of the purchase price of the shares sold by such Firm and monthly
payments of service fees in amounts not expected to exceed 0.20% per annum of
the Funds' average daily net assets based on the value of Fund shares sold by
such Firm and remaining outstanding for at least one year. During the first
year after a purchase of Fund shares, EVD will retain the service fee as
reimbursement for the service fee payment made to the Authorized Firm at the
time of sale. Service fee payments are made for personal services and/or
maintenance of shareholder accounts. Service fees paid to EVD and Authorized
Firms are separate and distinct from the sales commissions and distribution
fees payable by a Fund to EVD, and as such are not subject to automatic
discontinuance when there are no outstanding Uncovered Distribution Charges of
EVD. Certain of the officers and Trustees of the Funds are officers or
directors of EVD.
- --------------------------------------------------------------------------------
(6) INVESTMENT TRANSACTIONS
Increases and decreases in each Fund's investment in its corresponding
Portfolio for the period from the start of business to January 31, 1995 were as
follows:
<TABLE>
<CAPTION>
CLASSIC FLORIDA CLASSIC CLASSIC
INSURED FUND HAWAII FUND KANSAS FUND
--------------- ----------- -----------
<S> <C> <C> <C>
Increases $ 1,940,001 $ 295,825 $ 1,176,813
Decreases $ 519,230 $ 35,603 $ 535,850
</TABLE>
- --------------------------------------------------------------------------------
(7) CONTINGENT DEFERRED SALES CHARGES
For shares purchased on or after January 30, 1995, a contingent deferred sales
charge (CDSC) of 1% is imposed on any redemption of Fund shares made within one
year of purchase. The CDSC is based upon the lower of the net asset value at
date of redemption or date of purchase. No charge is levied on shares acquired
by reinvestment of dividends or capital gains distributions. No CDSC is levied
on shares which have been sold to EVD or its affiliates or to their respective
employees or clients. Distribution charges are paid to EVD to reduce the amount
of Uncovered Distribution Charges calculated under the Funds' Distribution
Plans. CDSC received when no Uncovered Distribution Charges exist will be
credited to the Funds. For the period ended January 31, 1995, EVD received no
CDSC paid by shareholders.
12
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Trustees and Shareholders of
Eaton Vance Municipals Trust II:
We have audited the accompanying statement of assets and liabilities of EV
Classic Florida Insured Tax Free Fund, EV Classic Hawaii Tax Free Fund and
EV Classic Kansas Tax Free Fund (certain of the series constituting Eaton Vance
Municipals Trust II) as of January 31, 1995 and the related statement of
operations, the statement of changes in net assets and the financial highlights
for the period from the start of business to January 31, 1995. These financial
statements and financial highlights are the responsibility of the Trust's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provides a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of the aforementioned
funds of Eaton Vance Municipals Trust II at January 31, 1995, the results of
their operations, the changes in their net assets, and their financial
highlights for the period from the start of business to January 31, 1995 in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
March 2, 1995
13
<PAGE>
Florida Insured Tax Free Portfolio
Portfolio of Investments - January 31, 1995
- --------------------------------------------------------------------------------
TAX-EXEMPT INVESTMENTS - 100%
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS (UNAUDITED) PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ESCROWED -- 4.2%
Aaa AAA $500 Gainesville Florida Utility
System, 8.125%, 10/1/14 $595,615
-----------
HOUSING -- 12.2%
Aaa NR $500 Broward County HFA
(GNMA Backed), 6.55%,
8/1/19 (AMT) $489,260
Aaa NR 750 Escambia HFA SFMR
(GNMA Backed), 7.00%,
4/1/28 (2) 756,007
Aaa AAA 500 Duval County HFA
SFMR (GNMA Backed),
6.70%, 10/1/26 (AMT) 487,765
-----------
$1,733,032
-----------
INSURED EDUCATION -- 2.5%
Aaa AAA $400 University of Florida
(MBIA), 5.50%, 7/1/23 $355,976
-----------
INSURED GENERAL
OBLIGATIONS -- 4.3%
Aaa AAA $750 Puerto Rico (MBIA),
5.00%, 7/1/21 $616,163
-----------
INSURED HEALTHCARE -- 7.0%
Aaa AAA $1,200 Tampa Allegany Health
System - St. Joseph's
(MBIA), 5.125%,
12/1/23 (3) $994,296
-----------
INSURED HOSPITALS -- 5.5%
Aaa AAA $450 Dade Florida Public
Facilities, Jackson Memorial
Hospital, (MBIA), 5.625,
6/1/18 $405,994
Aaa AAA 200 Dade Florida Public
Facilities, Jackson Memorial
Hospital, (MBIA),
4.875%, 6/1/15 162,838
Aaa AAA 50 Hillsborough County Hospital
Authority, Tampa General
Hospital (FSA), 6.375%,
10/1/13 50,227
Aaa AAA 75 Lakeland Hospital System
Regional Medical Center
(FGIC), 5.75%, 11/15/15 69,676
Aaa AAA 75 Palm Beach Florida Health
Facilities Authority, JFK
Medical Center, (FSA),
5.80%, 12/1/18 69,357
-----------
$758,092
-----------
INSURED HOUSING -- 6.2%
Aaa AAA $410 Dade County Florida Housing
Finance Authority, Lincoln
Fields Apartments (MBIA),
6.25%, 7/1/24 $384,404
Aaa Aaa 500 Florida HFA Maitland
Club Apartments Project
(AMBAC), 6.875%,
8/1/26 (2) 502,210
-----------
$886,614
-----------
INSURED INDUSTRIAL
DEVELOPMENT REVENUE -- 8.0%
Aaa AAA $445 Citrus County PCR- FL
Power & Light (MBIA),
6.35%, 2/1/22 $447,189
Aaa AAA 750 Escambia County PCR-
Gulf Power (MBIA),
5.80%, 6/1/23 689,588
-----------
$1,136,777
-----------
INSURED SOLID WASTE -- 0.7%
Aaa AAA $100 Broward County Solid
Waste System (MBIA),
6.00%, 7/1/13 (AMT) $95,495
-----------
</TABLE>
14
<PAGE>
FLORIDA INSURED TAX FREE PORTFOLIO (CONTINUED)
- --------------------------------------------------------------------------------
TAX-EXEMPT INVESTMENTS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS (UNAUDITED) PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INSURED SPECIAL TAX
REVENUES -- 18.6%
Aaa AAA $450 Escambia County (FGIC),
5.80%, 1/1/15 $420,300
Aaa AAA 150 Florida State Department
of Natural Resources (FSA),
5.80%, 7/1/13 141,264
Aaa AAA 1,225 Florida State Department
of Environmental Preserva-
tion (MBIA), 4.75%,
7/1/09 1,058,400
Aaa AAA 250 Orange County Florida
Tourist Development
(MBIA), 6.00%, 10/1/24 239,962
Aaa AAA 795 St. Petersburg Excise Tax
(FGIC), 5.00%, 10/1/16 670,408
Aaa AAA 340 Sunrise Florida Public
Facilities (MBIA), 0%,
10/1/15 92,208
-----------
$2,622,542
-----------
INSURED TRANSPORTATION -- 4.7%
Aaa AAA $700 Florida State Turnpike
Authority (FGIC), 5.00%,
7/1/19 $576,765
Aaa AAA 50 Greater Orlando Aviation
Authority (FGIC), 6.375%,
10/1/21 (AMT) 49,395
Aaa AAA 50 Orlando & Orange County
Expressway Authority Junior
Lien (FGIC), 5.125%,
7/1/20 41,937
-----------
$668,097
-----------
INSURED UTILITIES -- 2.5%
Aaa AAA $305 New Smyrna Beach Florida
Utility System (FGIC),
5.00%, 10/1/19 $251,723
Aaa AAA 50 Key West Florida Utility
(AMBAC), 6.75%, 10/1/13 51,746
Aaa AAA 50 Puerto Rico Electric Power
Authority Revenue Bonds-
Stripes, (FSA), Variable,
7/1/02 (1) 50,619
-----------
$354,088
-----------
INSURED WATER & SEWER -- 23.6%
Aaa AAA $50 Broward County Water
and Sewer Utility
(AMBAC), 5.00%,
10/1/18 $41,576
Aaa AAA 75 City of Cocoa Water and
Sewer System (AMBAC),
5.00%, 10/1/23 60,951
Aaa AAA 500 Englewood Water District
Utility System (FSA),
6.00%, 10/1/19 477,095
Aaa AAA 735 Enterprise Community
Water & Sewer (MBIA),
6.125%, 5/1/24 (3) 715,912
Aaa AAA 75 City of Key West Sewer
(FGIC), 5.70%, 10/1/26 67,534
Aaa AAA 70 City of North Port Utility
System (FGIC), 6.25%,
10/1/17 69,992
Aaa AAA 500 City of North Port Utility
System (FGIC), 6.25%,
10/1/22 (3) 496,690
Aaa AAA 65 City of Palm Bay Utility
System (MBIA), 5.00%,
10/1/19 53,646
Aaa AAA 50 Reedy Creek Florida
Utility (MBIA), 5.00%,
10/1/19 41,426
Aaa AAA 155 Sanford Florida Water
& Sewer (AMBC),
4.50%, 10/1/21 116,918
Aaa AAA 400 Titusville Florida Water
& Sewer (MBIA),
6.00%, 10/1/24 385,496
</TABLE>
15
<PAGE>
FLORIDA INSURED TAX FREE PORTFOLIO (CONTINUED)
- --------------------------------------------------------------------------------
TAX-EXEMPT INVESTMENTS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS (UNAUDITED) PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INSURED WATER
SEWER -- continued
Aaa AAA 1,000 Vero Beach Water &
Sewer (FGIC), 5.00%,
12/1/21 822,640
-----------
$3,349,876
-----------
TOTAL TAX-EXEMPT INVESTMENTS
(IDENTIFIED COST, $13,938,422) $14,166,663
===========
(1) The above designated securities have been issued as inverse floater bonds.
(2) When-issued security
(3) At January 31, 1995, the market value of securities segregated to cover when-
issued securities amounted to $2,206,898.
The Portfolio invests primarily in debt securities issued by Florida municipalities.
The ability of the issuers of the debt securities to meet their obligations may be
affected by economic developments in a specific industry or municipality. In order
to reduce the risk associated with such economic developments, at January 31, 1995,
83.7% of the securities in the portfolio of investments are backed by bond insurance
of various financial institutions and financial guaranty assurance agencies. The
aggregate percentages by financial institution were as follows at January 31, 1995:
AMBAC, Inc. (AMBAC) 5.5%
Financial Guaranty Insurance Corp. (FGIC) 25.0%
Financial Security Assurance Inc. (FSA) 5.6%
Municipal Bond Investors Assurance Corp. (MBIA) 47.6%
-----
83.7%
=====
</TABLE>
See notes to financial statements
16
<PAGE>
Hawaii Tax Free Portfolio
Portfolio of Investments - January 31, 1995
- --------------------------------------------------------------------------------
TAX-EXEMPT INVESTMENTS- 100%
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS (UNAUDITED) PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
GENERAL OBLIGATIONS -- 20.0%
Aa AA $140 State of Hawaii, 5.75%,
1/1/11 $135,047
Aa AA 1,000 State of Hawaii, 5.25%,
6/1/13 886,740
Aa AA 750 City and County of
Honolulu, Hawaii, 4.75%,
9/1/17 599,475
Baa1 A 100 Commonwealth of Puerto
Rico Public Improvement,
5.25%, 7/1/18 84,223
NR BBB 340 Government of Guam,
5.375%, 11/15/13 283,655
Baa1 A 500 Puerto Rico Public Buildings
Authority, Public Education
and Health Facilities, 5.50%,
7/1/21 433,310
Baa1 A 100 Commonwealth of Puerto
Rico Aqueduct and Sewer
Authority, 7.00%, 7/1/19 102,101
-----------
$2,524,551
-----------
HOSPITALS -- 7.2%
Aa2 AA $400 State of Hawaii Department
of Budget and Finance,
Kaiser Permanente,
6.25%, 3/1/21 $381,236
A A 600 State of Hawaii Department
of Budget and Finance,
Kapiolani Health System,
6.00%, 7/1/19 530,862
-----------
$912,098
-----------
HOUSING -- 8.5%
Aa A $1,000 State of Hawaii Housing
Finance and Development
Single Family Mortgage
Bonds, 5.90%, 7/1/27 (2) $883,910
Aa A 215 State of Hawaii Housing
Finance and Development
Single Family Mortgage
Bonds, 6.00%, 7/1/26 189,280
-----------
$1,073,190
-----------
INDUSTRIAL DEVELOPMENT/
POLLUTION CONTROL -- 11.7%
NR BBB- $500 Puerto Rico Industrial,
Tourist, Educational, Medical
and Environmental Control
Authority, Polytechnic
University, 6.50%,
8/1/24 $468,970
Aaa NR 550 Puerto Rico Industrial,
Tourist, Educational,
Medical and Environmental
Control Authority, Upjohn
Company Project, 7.50%,
12/1/23 586,383
Aa3 AA- 400 Puerto Rico Industrial,
Tourist, Educational, Medical
and Environmental Control
Authority, Motorola Inc.
Project, 6.75%, 1/1/14 417,500
-----------
$1,472,853
-----------
INSURED EDUCATION -- 3.7%
Aaa AAA $500 University of Hawaii Board
of Regents, University
System, (AMBAC), 5.65%,
10/1/12 $458,160
INSURED GENERAL
OBLIGATION -- 14.4%
Aaa AAA $700 County of Hawaii, Hawaii,
(FGIC), 5.55%, 5/1/10 $655,487
Aaa AAA 305 County of Kauai, Hawaii,
(MBIA), 5.90%, 2/1/14 291,595
Aaa AAA 250 County of Maui, Hawaii,
(FGIC), 5.75%, 1/1/11 238,710
</TABLE>
17
<PAGE>
HAWAII TAX FREE PORTFOLIO (CONTINUED)
- --------------------------------------------------------------------------------
TAX-EXEMPT INVESTMENTS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS (UNAUDITED) PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INSURED GENERAL
OBLIGATION -- CONTINUED
Aaa AAA 250 County of Maui, Hawaii,
(FGIC), 5.125%,
12/15/13 214,138
Aaa AAA 500 Commonwealth of Puerto
Rico, (MBIA), 5.00%,
7/1/21 410,775
-----------
$1,810,705
-----------
INSURED HOSPITALS -- 6.1%
Aaa AAA $100 State of Hawaii Depart-
ment of Budget and
Finance Queen's Medical
Center, (FGIC), 6.50%,
7/1/12 $100,474
Aaa AAA 600 State of Hawaii Depart-
ment of Budget and
Finance Queen's Medical
Center, (FGIC), 6.20%,
7/1/22 574,104
Aaa AAA 100 State of Hawaii Depart-
ment of Budget and
Finance St. Francis Medical
Centers, (CGIC), 6.50%,
7/1/22 98,857
-----------
$773,435
INSURED HOUSING -- 4.2%
Aaa AAA $500 Honolulu Hawaii City &
County Mortgage Revenue
Bonds, Smith Beretania
Project, (MBIA), 7.80%,
7/1/24 $527,310
-----------
INSURED TRANSPORTATION -- 14.0%
Aaa AAA $500 State of Hawaii Airports
System, (FGIC), 7.50%,
7/1/20 $526,260
Aaa AAA 100 State of Hawaii Airports
System, (MBIA), 6.90%,
7/1/12 104,763
Aaa AAA 245 State of Hawaii Airports
System, (MBIA), 7.00%,
7/1/18 250,586
Aaa AAA 250 State of Hawaii Harbor
Revenue, (MBIA), 7.00%,
7/1/17 256,050
Aaa AAA 650 State of Hawaii Harbor
Revenue, (FGIC), 6.375%,
7/1/24 632,710
-----------
1,770,369
-----------
INSURED UTILITIES -- 4.7%
Aaa AAA $500 State of Hawaii Depart-
ment of Budget and
Finance, Hawaiian Electric
Company, Inc., (MBIA),
6.60%, 1/1/25 $495,445
Aaa AAA 100 Puerto Rico Electric Power
Authority "Stripes", Variable,
7/1/03 (1) 101,503
$596,948
-----------
SPECIAL TAX -- 2.4%
NR NR $300 Virgin Islands Public
Finance Authority, 7.25%,
10/1/18 $302,438
-----------
TRANSPORTATION -- 3.1%
Aa AA $450 State of Hawaii Highway
Revenue, 5.00%, 7/1/11 $386,563
-----------
TOTAL TAX-EXEMPT INVESTMENTS -----------
(IDENTIFIED COST, $12,713,247) $12,608,620
===========
</TABLE>
(1) The above designated securities have been issued as inverse floater
bonds.
(2) At January 31, 1995, the market value of securities segregated to cover
open financial futures amounted to $883,910.
The Portfolio invests primarily in debt securities issued by Hawaii
municipalities. The ability of the issuers of the debt securities to meet their
obligations may be affected by economic developments in a specific industry or
municipality. In order to reduce the risk associated with such economic
developments, at January 31, 1995, 46.3% of the securities in the portfolio of
investments are backed by bond insurance of various financial institutions and
financial guaranty assurance agencies.
The aggregate percentage by financial institution ranged from 3.6% to 23.3% of
total investments.
See notes to financial statements
18
<PAGE>
Kansas Tax Free Portfolio
Portfolio of Investments - January 31, 1995
- --------------------------------------------------------------------------------
TAX-EXEMPT INVESTMENTS - 100%
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS (UNAUDITED) PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
EDUCATION -- 1.0%
NR BBB- $100 Puerto Rico Industrial,
Tourist, Educational, Medical
and Higher Education Bonds,
(Polytechnic University),
5.70%, 8/1/13 $86,355
----------
ELECTRIC UTILITIES -- 2.8%
NR BBB $100 Guam Power Authority
Revenue Bonds, 5.25%,
10/1/13 $82,825
NR BBB 150 Guam Power Authority
Revenue Bonds, 6.625%,
10/1/14 147,798
----------
$230,623
----------
GENERAL OBLIGATIONS
(LOCAL) -- 5.0%
Aa NR $150 Shawnee County, Kansas,
5.75%, 9/1/13 $142,134
Aa AA 170 City of Witchita, Kansas,
4.00%, 9/1/09 136,141
A1 AA- 50 City of Olathe, Johnson
County, Kansas, 5.00%,
10/1/06 44,916
Baa1 A 100 Puerto Rico Public Building
Authority Bonds, 5.50%,
7/1/21 86,662
----------
$409,853
----------
GENERAL OBLIGATIONS
(SCHOOL DISTRICTS) -- 13.2%
Aa NR $400 Douglas County, Kansas
(Lawrence), USD No. 497,
6.00%, 9/1/15 $393,484
Aaa AAA 350 Johnson County, Kansas
(Olathe), USD No. 233,
5.625%, 9/1/11 329,672
Aa AA 100 Johnson and Miami Counties,
Kansas (Blue Valley), USD
No. 229, 5.125%, 10/1/13 88,205
Aa1 AA+ 200 Johnson County, Kansas
(Shawnee Mission), USD
No. 512, 5.75%, 10/1/16 189,790
Aa NR 100 Riley County, Kansas
(Manhattan), USD No. 383,
5.50%, 11/1/14 92,296
$1,093,447
----------
HOSPITALS -- 7.6%
A NR $250 City of Lawrence, Kansas
(Lawrence Memorial),
Hospital Revenue Bonds,
6.20%, 7/1/19 $235,058
Aa NR 500 Shawnee County, Kansas,
(Sisters of Charity), Revenue
Bonds, 5.00%, 12/1/23 394,190
----------
$629,248
----------
HOUSING -- 24.4%
Aaa AAA $230 City of Kansas City, Kansas,
Multifamily Housing Revenue
Bonds, (FHA Insured-Rain-
bow Towers), 6.70%,
7/1/23 $223,726
NR AAA 250 City of Olathe, Kansas,
Multifamily Housing
Revenue Bonds (FNMA
Program Deerfield Apart-
ments), 6.45%, 6/1/19 243,983
Aaa NR 215 Cities of Olathe and of
Labette, Kansas, Collateral-
ized Single Family Mortgage
Revenue Bonds (GNMA),
8.10%, 8/1/23 231,467
NR AA 250 Puerto Rico Housing
Finance Corporation, Multi-
family Mortgage Revenue
Bonds, 7.50%, 4/1/22 260,895
</TABLE>
19
<PAGE>
KANSAS TAX FREE PORTFOLIO (CONTINUED)
- --------------------------------------------------------------------------------
TAX-EXEMPT INVESTMENTS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS (UNAUDITED) PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
HOUSING -- CONTINUED
Aaa AAA 100 Sedgwick and Shawnee
Counties, Kansas, Collateral-
ized Single Family Mortgage
Revenue Bonds (GNMA),
7.50%, 12/1/09 102,637
Aaa AAA 140 Sedgwick and Shawnee
Counties, Kansas, Collateral-
ized Single Family Mortgage
Revenue Bonds (GNMA),
7.50%, 12/1/10 143,692
Aaa NR 240 Sedgwick and Shawnee
Counties, Kansas, Collateral-
ized Single Family Mortgage
Revenue Bonds (GNMA),
7.75%, 11/1/24 (2) 259,800
Aaa NR 500 Sedgwick and Shawnee
Counties, Kansas, Collateral-
ized Single Family Mortgage
Revenue Bonds (GNMA),
8.00%, 11/1/24 553,230
-----------
$2,019,429
-----------
INDUSTRIAL DEVELOPMENT
REVENUE -- 1.0%
Aaa NR $100 Puerto Rico I.M.E.
(American Home Products),
5.10%, 12/1/18 $81,080
INSURED ELECTRIC -- 1.2%
Aaa AAA $100 Puerto Rico Electric Power
Authority, Power Revenue
Bonds (FSA), Residual
Interest Bonds, Variable
Rate, 7/1/02 (1) $101,237
INSURED GENERAL
OBLIGATIONS -- 10.7%
Aaa AAA $200 City of Burlington, Kansas,
PCR (Kansas Gas & Electric
Co.) (MBIA), 7.00%,
6/1/31 (2) $207,710
Aaa AAA 200 City of Emporia, Kansas,
Water System Revenue
Bonds (AMBAC), 5.875%,
12/1/14 189,568
Aaa AAA 150 City of Garnett, Kansas,
Combined Utility Revenue
Bonds (MBIA), 6.00%,
10/1/17 143,205
Aaa AAA 200 City of Kansas City, Kansas,
Utility System Revenue
Bonds (FGIC), 6.375%,
9/1/23 200,068
Aaa AAA 150 Kansas Development
Finance Authority, Revenue
Bonds (MBIA), 5.90%,
10/1/09 145,835
-----------
$886,386
-----------
INSURED GENERAL OBLIGATIONS
(SCHOOL DISTRICTS) -- 13.7%
Aaa AAA $200 Johnson and Miami
Counties, Kansas (Blue
Valley), USD No. 229,
(FGIC), 4.90%, 9/01/10 $173,364
Aaa AAA 235 McPherson County, Kansas
(McPherson), USD No. 418,
(CGIC), 6.00%, 9/1/11 228,742
Aaa AAA 200 Sedgwick County, Kansas,
USD No. 266, (FGIC),
5.25%, 9/1/13 177,996
Aaa AAA 250 Sedgwick County, Kansas,
USD No. 267, (AMBAC),
6.15%, 11/1/09 252,710
Aaa AAA 165 Shawnee County, Kansas
(Seaman), USD No. 345,
(MBIA), 5.75%, 9/1/11 158,029
Aaa AAA 150 Sumner County, Kansas
(Belle Plaine), USD
No. 357, (AMBAC),
5.55%, 9/1/13 138,087
-----------
$1,128,928
-----------
</TABLE>
20
<PAGE>
KANSAS TAX FREE PORTFOLIO (CONTINUED)
- --------------------------------------------------------------------------------
TAX-EXEMPT INVESTMENTS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS (UNAUDITED) PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INSURED HOSPITALS -- 4.7%
Aaa AAA $200 City of Olathe, Kansas, Health
Facilities Revenue Bonds,
(Olathe Medical Ctr)
(AMBAC), 6.00%,
9/1/11 $194,674
Aaa AAA 200 City of Olathe, Kansas,
Health Facilities Revenue
Bonds, (Evangelical Lutheran
Good Samaritan Society)
(AMBAC), 6.00%,
5/1/19 191,138
-----------
$385,812
-----------
INSURED TOLLS &
TURNPIKES -- 0.5%
Aaa AAA $50 Kansas Turnpike Authority
Turnpike Revenue Bonds
(AMBAC), 5.25%,
9/1/17 $43,022
-----------
INSURED WATER & SEWER -- 0.9%
Aaa AAA $80 City of Salina, Kansas, Water
and Sewage Systems, Revenue
Bonds, 5.25%, 9/1/12 $70,914
-----------
TRANSPORTATION -- 11.1%
NR BBB $100 Guam Airport Authority
General Revenue Bonds,
6.50%, 10/1/23 $95,500
Aa AA 480 State of Kansas Dept. of Trans-
portation Highway Revenue
Bonds, 5.375%, 3/1/13 429,619
Aa AA 110 State of Kansas Dept. of Trans-
portation Highway Revenue
Bonds, 4.625%, 9/1/06 95,594
Baa3 BB+ 100 Puerto Rico Port Authority,
(American Airlines),
6.30%, 6/1/23 88,194
Baa1 A 250 Puerto Rico Highway and
Transportation Authority,
Highway Revenue Bonds,
5.25%, 7/1/20 207,608
-----------
$916,515
-----------
WATER & SEWER -- 2.2%
Aa AA+ $200 Water District No. 1 of
Johnson County, Kansas,
Water Revenue Bonds,
5.75%, 12/1/19 $186,216
-----------
TOTAL TAX-EXEMPT INVESTMENTS
(IDENTIFIED COST, $8,379,180) $8,269,065
===========
</TABLE>
(1) The above designated securities have been issued as inverse floater
bonds.
(2) At January 31, 1995, the market value of securities segregated to cover
open financial futures contracts amounted to $467,510.
The Portfolio invests primarily in debt securities issued by Kansas
municipalities. The ability of the issuers of the debt securities to meet their
obligations may be affected by economic developments in a specific industry or
municipality. In order to reduce the risk associated with such economic
developments, at January 31, 1995, 31.7% of the securities in the portfolio of
investments are backed by bond insurance of various financial institutions and
financial guaranty assurance agencies.
The aggregate percentage by financial institution ranged from 6.6% to 16.1% of
total investments.
See notes to financial statements
21
<PAGE>
Tax Free Portfolios
Financial Statements
STATEMENTS OF ASSETS AND LIABILITIES
January 31, 1995 (Unaudited)
<TABLE>
<CAPTION>
FLORIDA INSURED HAWAII KANSAS
PORTFOLIO PORTFOLIO PORTFOLIO
--------------- ------------ -----------
<S> <C> <C> <C>
ASSETS:
Investments-
Identified cost $ 13,938,422 $ 12,713,247 $ 8,379,180
Unrealized appreciation (depreciation) 228,241 (104,627) (110,115)
------------ ------------ -----------
Total investments, at value (Note 1A) $ 14,166,663 $ 12,608,620 $ 8,269,065
Cash 1,284,005 105,379 470,032
Receivable from investments sold - - 203,441
Receivable from the Investment Adviser (Note 2) 13,139 13,430 12,847
Interest receivable 194,758 134,887 164,759
Deferred organization expenses (Note 1D) 9,902 9,056 8,956
Total assets $ 15,668,467 $ 12,871,372 $ 9,129,100
------------ ------------ -----------
LIABILITIES:
Payable for investments purchased $ - $ - $ 818,054
Payable for when-issued securities (Note 1F) 1,265,667 - -
Payable for daily variation margin on open financial
futures contracts (Note 1E) - 3,750 1,875
Payable to affiliates -
Trustee fees 13 13 13
Custodian fees 250 250 250
Accrued expenses 2,586 2,820 2,880
------------ ------------ -----------
Total liabilities $ 1,268,516 $ 6,833 $ 823,072
------------ ------------ -----------
Net assets applicable to investors' interest in Portfolio $ 14,399,951 $ 12,864,539 $ 8,306,028
============ ============ ===========
SOURCES OF NET ASSETS:
Net proceeds from capital contributions and withdrawals $ 14,171,710 $ 12,984,517 $ 8,423,756
Unrealized appreciation(depreciation) of investments
(computed on the basis of identified cost) 228,241 (119,978) (117,728)
------------ ------------ -----------
Total $ 14,399,951 $ 12,864,539 $ 8,306,028
============ ============ ===========
</TABLE>
See notes to financial statements
22
<PAGE>
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FLORIDA INSURED HAWAII KANSAS
PORTFOLIO* PORTFOLIO* PORTFOLIO*
--------------- ---------- ----------
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest income $308,363 $501,917 $275,594
--------- ---------- ----------
Expenses-
Investment adviser fee (Note 2) $8,420 $13,231 $7,589
Compensation of Trustees not members
of the Investment Advisors organization 53 94 53
Custodian fees (Note 2) 3,818 3,834 3,363
Interest expense - 4,998 374
Bond pricing 2,986 3,397 3,100
Printing 2,592 2,592 2,592
Amortization of organization expenses (Note 1D) 2,227 2,027 2,011
Legal and accounting fees 1,126 1,128 1,127
Miscellaneous 729 265 601
--------- ---------- ----------
Total expenses $21,951 $31,566 $20,810
--------- ---------- ----------
Deduct-
Reduction of investment adviser fee (Note 2) $8,420 $13,231 $7,589
Allocation of expenses to the Investment Adviser (Note 2) 13,139 13,430 12,847
--------- ---------- ----------
Total $21,559 $26,661 $20,436
--------- ---------- ----------
Net expenses $392 $4,905 374
--------- ---------- ----------
Net investment income $307,971 $497,012 $275,220
--------- ---------- ----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) -
Investment transactions (identified cost basis) $(54,985) $(493,864) $(15,988)
Financial futures contracts (2,527) (13,578) (6,794)
--------- ---------- ----------
Net realized loss on investments $(57,512) $(507,442) $(22,782)
--------- ---------- ----------
Unrealized appreciation(depreciation) -
Investments $228,241 $(104,627) $(110,115)
Financial futures contracts - (15,351) (7,613)
--------- ---------- ----------
Net unrealized appreciation (depreciation) of investments $228,241 $(119,978) $(117,728)
--------- ---------- ----------
Net realized and unrealized gain (loss) on investments $170,729 $(627,420) $(140,510)
--------- ---------- ----------
Net increase (decrease) in net assets from operations $478,700 $(130,408) $134,710
========= ========== ==========
</TABLE>
* For the period from the start of business, March 2, 1994, to January 31,
1995.
See notes to financial statements
23
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FLORIDA INSURED HAWAII KANSAS
PORTFOLIO(*) PORTFOLIO(*) PORTFOLIO(*)
--------------- ------------- -------------
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations -
Net investment income $ 307,971 $ 497,012 $ 275,220
Net realized loss on investment transactions (57,512) (507,442) (22,782)
Unrealized appreciation (depreciation) of investments 228,241 (119,978) (117,728)
------------- ------------ -----------
Net increase (decrease) in net assets from operations $ 478,700 $ (130,408) $ 134,710
------------- ------------ -----------
Capital transactions -
Contributions $ 16,016,246 $ 13,464,081 $ 9,002,789
Withdrawals (2,195,015) (569,154) (931,491)
------------- ------------ -----------
Increase in net assets resulting from capital transactions $ 13,821,231 $ 12,894,927 $ 8,071,298
------------- ------------ -----------
Total increase in net assets $ 14,299,931 $ 12,764,519 $ 8,206,008
NET ASSETS:
At beginning of period 100,020 100,020 100,020
------------- ------------ -----------
At end of period $ 14,399,951 $ 12,864,539 $ 8,306,028
============= ============ ===========
</TABLE>
(*) For the period from the start of business, March 2, 1994, to January 31,
1995
SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
FLORIDA INSURED HAWAII KANSAS
PORTFOLIO(*) PORTFOLIO(*) PORTFOLIO(*)
--------------- ------------ ------------
<S> <C> <C> <C>
Ratios (As a percentage of average daily net assets)(**):
Net expenses 0.01%(+) 0.06%(+) 0.01%(+)
Net investment income 5.73%(+) 6.03%(+) 5.68%(+)
PORTFOLIO TURNOVER 33% 66% 12%
</TABLE>
(**) The operating expenses of the Portfolios may reflect a reduction of the
investment adviser fee and/or allocation of expenses to the Investment
Adviser. Had such actions not been taken, the ratios would have been as
follows:
<TABLE>
<S> <C> <C> <C>
RATIOS (As a percentage of average daily net assets):
Expenses 0.41%(+) 0.38%(+) 0.43%(+)
Net investment income 5.33%(+) 5.70%(+) 5.26%(+)
</TABLE>
(+) Annualized.
(*) For the period from the start of business, March 2, 1994, to January 31,
1995.
See notes to financial statements
24
<PAGE>
Notes to Financial Statements
- -------------------------------------------------------------------------------
(1) SIGNIFICANT ACCOUNTING POLICIES
Florida Insured Tax Free Portfolio ("Florida Insured Portfolio"), Hawaii Tax
Free Portfolio ("Hawaii Portfolio") and Kansas Tax Free Portfolio ("Kansas
Portfolio"), collectively the Portfolios, are registered under the Investment
Company Act of 1940 as non-diversified open-end management investment companies
which were organized as trusts under the laws of the State of New York on May
1, 1992 for the Hawaii Portfolio and October 25, 1993 for the Florida Insured
Portfolio and Kansas Portfolio. The Declarations of Trust permit the Trustees
to issue interests in the Portfolios. The following is a summary of significant
accounting policies of the Portfolios. The policies are in conformity with
generally accepted accounting principles.
A. INVESTMENT VALUATIONS -- Municipal bonds are normally valued on the basis
of valuations furnished by a pricing service. Taxable obligations, if any, for
which price quotations are readily available are normally valued at the mean
between the latest bid and asked prices. Futures contracts listed on commodity
exchanges are valued at closing settlement prices. Short-term obligations,
maturing in sixty days or less, are valued at amortized cost, which
approximates value. Investments for which valuations or market quotations are
unavailable are valued at fair value using methods determined in good faith by
or at the direction of the Trustees.
B. INCOME -- Interest income is determined on the basis of interest accrued,
adjusted for amortization of premium or discount when required for federal
income tax purposes.
C. INCOME TAXES -- The Portfolios are treated as partnerships for Federal tax
purposes. No provision is made by the Portfolios for federal or state taxes on
any taxable income of the Portfolios because each investor in the Portfolios is
ultimately responsible for the payment of any taxes. Since some of the
Portfolios' investors are regulated investment companies that invest all or
substantially all of their assets in the Portfolios, the Portfolios normally
must satisfy the applicable source of income and diversification requirements
(under the Internal Revenue Code) in order for their respective investors to
satisfy them. The Portfolios will allocate at least annually among their
respective investors each investor's distributive share of the Portfolios' net
taxable (if any) and tax-exempt investment income, net realized capital gains,
and any other items of income, gain, loss, deductions or credit. Interest
income received by the Portfolios on investments in municipal bonds, which is
excludable from gross income under the Internal Revenue Code, will retain its
status as income exempt from federal income tax when allocated to each
Portfolio's investors. The portion of such interest, if any, earned on private
activity bonds issued after August 7, 1986, may be considered a tax preference
item for investors.
D. DEFERRED ORGANIZATION EXPENSES -- Costs incurred by a Portfolio in
connection with its organization are being amortized on the straight-line
basis over five years beginning on the date each Portfolio commenced
operations.
E. FINANCIAL FUTURES CONTRACTS -- Upon the entering of a financial futures
contract, a Portfolio is required to deposit ("initial margin") either in cash
or securities an amount equal to a certain percentage of the purchase price
indicated in the financial futures contract. Subsequent payments are made or
received by a Portfolio ("margin maintenance") each day, dependent on the daily
fluctuations in the value of the underlying security, and are recorded for book
purposes as unrealized gains or losses by a Portfolio. A Portfolio's investment
in financial futures contracts is designed only to hedge against anticipated
future changes in interest rates. Should interest rates move unexpectedly, a
Portfolio may not achieve the anticipated benefits of the financial futures
contracts and may realize a loss.
F. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS -- The Portfolios may engage
in when-issued or delayed delivery transactions. The Portfolios record
when-issued securities on trade date and maintain security positions such that
sufficient liquid assets will be available to make payment for the securities
purchased. Securities purchased on a when-issued or delayed delivery basis are
marked to market daily and begin accruing interest on settlement date.
G. OTHER -- Investment transactions are accounted for on a trade date basis.
25
<PAGE>
- -------------------------------------------------------------------------------
(2) INVESTMENT ADVISER FEE AND OTHER TRANSACTIONS WITH AFFILIATES
The investment adviser fee is earned by Boston Management and Research (BMR), a
wholly-owned subsidiary of Eaton Vance Management (EVM), as compensation for
management and investment advisory services rendered to each Portfolio. The fee
is based upon a percentage of average daily net assets plus a percentage of
gross income (i.e., income other than gains from the sale of securities). For
the period ended January 31, 1995, the fee for the Florida Insured Portfolio,
Hawaii Portfolio and Kansas Portfolio was equivalent to 0.16%, 0.16% and 0.16%
(annualized), respectively, of each Portfolio's average net assets for such
period and amounted to $8,420, $13,231, and $7,589, respectively. To enhance
the net income of the Florida Insured Portfolio, Hawaii Portfolio and Kansas
Portfolio, BMR made a reduction of its fee in the amount of $8,420, $13,231 and
$7,589, respectively, and $13,139, $13,430 and $12,847, respectively, of
expenses related to the operation of the Portfolios were allocated, to BMR.
Except as to Trustees of the Portfolios who are not members of EVM's or BMR's
organization, officers and Trustees receive remuneration for their services to
the Portfolios out of such investment adviser fee. Investors Bank & Trust
Company (IB&T), an affiliate of EVM and BMR, serves as custodian of the
Portfolios. Pursuant to the respective custodian agreements, IB&T receives a
fee reduced by credits which are determined based on the average daily cash
balances each Portfolio maintains with IB&T. Certain of the officers and
Trustees of the Portfolios are officers and directors/trustees of the above
organizations. Trustees of the Portfolios that are not affiliated with the
Investment Adviser may elect to defer receipt of all or a portion of their
annual fees in accordance with the terms of the Trustees Deferred Compensation
Plan. For the period from the start of business of each Portfolio to January
31, 1995, no significant amounts have been deferred.
- --------------------------------------------------------------------------------
(3) INVESTMENTS
Purchases and sales of investments, other than U.S. Government securities and
short-term obligations, for the period from the start of business, March 2,
1994, to January 31, 1995, were as follows:
<TABLE>
<CAPTION>
FLORIDA INSURED PORTFOLIO HAWAII PORTFOLIO KANSAS PORTFOLIO
------------------------- ---------------- ----------------
<S> <C> <C> <C>
Purchases $ 15,828,032 $ 19,368,230 $ 8,772,482
Sales $ 1,844,032 $ 6,161,493 $ 381,284
</TABLE>
- --------------------------------------------------------------------------------
(4) FEDERAL INCOME TAX BASIS OF INVESTMENTS
The cost and unrealized appreciation (depreciation) in value of the investments
owned by each Portfolio at January 31, 1995, as computed on a federal income
tax basis, are as follows:
<TABLE>
<CAPTION>
FLORIDA INSURED PORTFOLIO HAWAII PORTFOLIO KANSAS PORTFOLIO
------------------------- ---------------- ----------------
<S> <C> <C> <C>
Aggregate Cost $ 13,938,422 $ 12,713,247 $ 8,379,180
============== ============== =============
Gross unrealized appreciation $ 330,938 $ 195,418 $ 45,850
Gross unrealized depreciation (102,697) (300,045) (155,965)
-------------- -------------- -------------
Net unrealized appreciation (depreciation) $ 228,241 $ (104,627) $ (110,115)
============== ============== =============
</TABLE>
- --------------------------------------------------------------------------------
(5) LINE OF CREDIT
The Portfolios participate with other portfolios and funds managed by BMR and
EVM in a $120 million unsecured line of credit agreement with a bank. The line
of credit consists of a $20 million committed facility and a $100 million
discretionary facility. Borrowings will be made by the Portfolios solely to
facilitate the handling of unusual and/or unanticipated short-term cash
requirements. Interest is charged to each Portfolio or fund based on its
borrowings at an amount above either the bank's adjusted certificate of deposit
rate, a variable adjusted certificate of deposit rate, or a federal funds
effective rate. In addition, a fee computed at an annual rate of 1/4 of 1% on
the $20 million committed facility and on the daily unused portion of the $100
million discretionary facility is allocated among the participating funds and
portfolios at the end of each quarter. The Florida Insured Portfolio and the
Kansas Portfolio did not have any significant borrowings or allocated fees
during the period. For the Hawaii Portfolio, the average daily loan balance for
the period from the start of business, March 2, 1994, to January 31, 1995 was
$247,000 and the average interest rate was 5.82%. The maximum borrowings
outstanding for the Hawaii Portfolio at any month end during the period from
the start of business, March 2, 1994, to January 31, 1995 was $790,000.
26
<PAGE>
(6) FINANCIAL INSTRUMENTS
The Portfolios regularly trade in financial instruments with off-balance sheet
risk in the normal course of their investing activities to assist in managing
exposure to various market risks. These financial instruments include written
options and futures contracts and may involve, to a varying degree, elements of
risk in excess of the amounts recognized for financial statement purposes.
The notional or contractual amounts of these instruments represent the
investment a Portfolio has in particular classes of financial instruments and
does not necessarily represent the amounts potentially subject to risk. The
measurement of the risks associated with these instruments is meaningful only
when all related and offsetting transactions are considered.
A summary of obligations under these financial instruments at January 31, 1995
is as follows:
<TABLE>
<CAPTION>
FUTURES CONTRACTS NET UNREALIZED
PORTFOLIO EXPIRATION DATE CONTRACTS POSITION DEPRECIATION
- --------- --------------- --------- -------- ------------
<S> <C> <C> <C> <C>
Florida Insured - - - -
Hawaii 3/95 8 U.S. Treasury Short $ 15,351
Kansas 3/95 4 U.S. Treasury Short $ 7,613
</TABLE>
At January 31, 1995 each Portfolio had sufficient cash and/or securities to
cover margin requirements on open futures contracts.
27
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Trustees and Shareholders of:
Florida Insured Tax Free Portfolio
Hawaii Tax Free Portfolio
Kansas Tax Free Portfolio
We have audited the accompanying statements of assets and liabilities including
the portfolio of investments of Florida Insured Tax Free Portfolio, Hawaii Tax
Free Portfolio and Kansas Tax Free Portfolio as of January 31, 1995 and the
related statements of operations, the statements of changes in net assets and
supplementary data for the period from the start of business, March 2, 1994, to
January 31, 1995. These financial statements and supplementary data are the
responsibility of each Portfolio's management. Our responsibility is to express
an opinion on these financial statements and supplementary data based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. These standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements and
supplementary data are free of material misstatement. Our procedures included
comfirmation of securities owned at January 31, 1995 by correspondence with the
custodian and brokers. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such financial statements and supplementary data present
fairly, in all material respects, the financial position of Florida Insured Tax
Free Portfolio, Hawaii Tax Free Portfolio, and Kansas Tax Free Portfolio at
January 31, 1995, the results of their operations, the changes in their net
assets, and their supplementary data for the period from the start of business,
March 2, 1994, to January 31, 1995 in conformity with generally accepted
accounting principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
March 2, 1995
28
<PAGE>
Investment Management
<TABLE>
<S> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
FUNDS OFFICERS INDEPENDENT TRUSTEES
THOMAS J. FETTER DONALD R. DWIGHT
President President, Dwight Partners, Inc.
Chairman, Newspaper of New England, Inc.
JAMES B. HAWKES
Vice President, Trustee SAMUEL L. HAYES, III
Jacob H. Schiff Professor of Investment Banking, Harvard
ROBERT MACINTOSH University Graduate School of Business Administration
Vice President
NORTON H. REAMER
JAMES L. O'CONNOR President and Director, United Asset Management Corporation
Treasurer
JOHN L. THORNDIKE
BARBARA E. CAMPBELL Director, Fiduciary Trust Company
Assistant Treasurer
JACK L. TREYNOR
DOUGLAS C. MILLER Investment Adviser and Consultant
Assistant Treasurer
THOMAS OTIS
Secretary
JANET E. SANDERS
Assistant Treasurer and
Assistant Secretary
- -----------------------------------------------------------------------------------------------------------------------------------
PORTFOLIOS OFFICERS INDEPENDENT TRUSTEES
THOMAS J. FETTER DONALD R. DWIGHT
President and Portfolio Manager of Florida President, Dwight Partners, Inc.
Insured Tax Free Portfolio Chairman, Newspaper of New England, Inc.
JAMES B. HAWKES SAMUEL L. HAYES, III
Vice President, Trustee Jacob H. Schiff Professor of Investment Banking, Harvard
University Graduate School of Business Administration
ROBERT MACINTOSH
Vice President and Portfolio Manager of NORTON H. REAMER
Hawaii Tax Free Portfolio President and Director, United Asset Management Corporation
NICOLE ANDERES JOHN L. THORNDIKE
Portfolio Manager of Director, Fiduciary Trust Company
Kansas Tax Free Portfolio
JACK L. TREYNOR
JAMES L. O'CONNOR Investment Adviser and Consultant
Treasurer
BARBARA E. CAMPBELL
Assistant Treasurer
THOMAS OTIS
Secretary
JANET E. SANDERS
Assistant Treasurer and
Assistant Secretary
</TABLE>
29
<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
(617) 482-8260
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
INDEPENDENT AUDITORS
Deloitte & Touche LLP
125 Summer Street
Boston, MA 02110
30
<PAGE>
(THIS SPACE INTENTIONALLY LEFT BLANK.)
31
<PAGE>
This report must be preceded or accompanied by a current prospectus which
contains more complete information on the Funds, including
distribution plan, sales charges and expenses. Please read the prospectus
carefully before you invest or send money.
EATON VANCE MUNICIPALS TRUST II
24 FEDERAL STREET
BOSTON, MA 02110
C-3CSRC
32
