<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 23, 1997
1933 ACT FILE NO. 33-71320
1940 ACT FILE NO. 811-8134
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933 [X]
POST-EFFECTIVE AMENDMENT NO. 8 [X]
REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940 [X]
AMENDMENT NO. 9 [X]
EATON VANCE MUNICIPALS TRUST II
--------------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
24 FEDERAL STREET, BOSTON, MASSACHUSETTS 02110
----------------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
617-482-8260
-------------------------------------
(REGISTRANT'S TELEPHONE NUMBER)
ALAN R. DYNNER, 24 FEDERAL STREET, BOSTON, MASSACHUSETTS 02110
--------------------------------------------------------------
(NAME AND ADDRESS OF AGENT FOR SERVICE)
It is proposed that this filing will become effective pursuant to rule 485
(check appropriate box):
[ ] immediately upon filing pursuant to paragraph (b)
[X] on June 1, 1997 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2).
If appropriate, check the following box:
[ ] this post effective amendment designates a new effective date for a
previously filed post-effective amendment.
Florida Insured Municipals Portfolio, Hawaii Municipals Portfolio, Kansas
Municipals Portfolio, and High Yield Municipals Portfolio have each also
executed this Registration Statement.
The Registrant has filed a Declaration pursuant to Rule 24f-2 and on March
26, 1997 filed its "Notice" as required by that Rule for the fiscal year ended
January 31, 1997. Registrant continues its election to register an indefinite
number of shares of beneficial interest pursuant to Rule 24f-2.
================================================================================
<PAGE>
This Amendment to the registration statement on Form N-1A consists of the
following documents and papers:
Cross Reference Sheet required by Rule 481(a) under the Securities Act of
1933
Part A -- The Combined Prospectuses of:
EV Marathon Municipals Funds:
EV Marathon Florida Insured Municipals Fund
EV Marathon Hawaii Municipals Fund
EV Marathon Kansas Municipals Fund
EV Traditional Municipal Funds:
EV Traditional Florida Insured Municipals Fund
EV Traditional Hawaii Municipals Fund
EV Traditional Kansas Municipals Fund
The Prospectuses of:
EV Marathon High Yield Municipals Fund
EV Traditional High Yield Municipals Fund
Part B -- The Combined Statements of Additional Information of:
EV Marathon Municipals Funds:
EV Marathon Florida Insured Municipals Fund
EV Marathon Hawaii Municipals Fund
EV Marathon Kansas Municipals Fund
EV Traditional Municipal Funds:
EV Traditional Florida Insured Municipals Fund
EV Traditional Hawaii Municipals Fund
EV Traditional Kansas Municipals Fund
The Statements of Additional Information of:
EV Marathon High Yield Municipals Fund
EV Traditional High Yield Municipals Fund
Part C -- Other Information
Signatures
Exhibit Index Required by Rule 483(a) under the Securities Act of 1933
Exhibits
This Amendment is not intended to amend the Prospectus and Statement of
Additional Information of any other series of the Registrant not identified
above.
<PAGE>
EATON VANCE MUNICIPALS TRUST II
CROSS REFERENCE SHEET FOR ALL STATE MUNICIPAL FUNDS
ITEMS REQUIRED BY FORM N-1A
PART A
ITEM NO. ITEM CAPTION PROSPECTUS CAPTION
- -------- ------------ ----------------------------
1. ............... Cover Page Cover Page
2. ............... Synopsis Shareholder and Fund
Expenses
3. ............... Condensed Financial The Funds' Financial
Information Highlights; Performance
Information
4. ............... General Description of The Funds' Investment
Registrant Objectives; Investment
Policies and Risks;
Organization of the Funds
and the Portfolios
5. ............... Management of the Fund Management of the Funds and
the Portfolios
5A. .............. Management's Discussion of Not Applicable
Fund Performance
6. ............... Capital Stock and Other Organization of the Funds
Securities and the Portfolios;
Reports to Shareholders;
The Lifetime Investing
Account/Distribution
Options; Distributions and
Taxes
7. ............... Purchase of Securities Valuing Fund Shares; How to
Being Offered Buy Fund Shares; The
Lifetime Investing
Account/Distribution
Options; Distribution
Plans (for Marathon Funds)
or Service Plans (for
Traditional Funds); The
Eaton Vance Exchange
Privilege; Eaton Vance
Shareholder Services
8. ............... Redemption or Repurchase How to Redeem Fund Shares
9. ............... Pending Legal Proceedings Not Applicable
PART B STATEMENT OF ADDITIONAL
ITEM NO. ITEM CAPTION INFORMATION CAPTION
- -------- ------------ ------------------------
10. ............... Cover Page Cover Page
11. ............... Table of Contents Table of Contents
12. ............... General Information and Other Information
History
13. ............... Investment Objectives and Additional Information about
Policies Investment Policies;
Investment Restrictions
14. ............... Management of the Fund Trustees and Officers; Fees
and Expenses
15. ............... Control Persons and Control Persons and
Principal Holders of Principal Holders of
Securities Securities
16. ............... Investment Advisory and Investment Adviser and
Other Services Administrator;
Distribution Plan (for
Marathon Funds) or Service
Plans (for Traditional
Funds); Custodian;
Independent Certified
Public Accountants; Fees
and Expenses
17. ............... Brokerage Allocation and Portfolio Security
Other Practices Transactions; Fees and
Expenses
18. ............... Capital Stock and Other Other Information
Securities
19. ............... Purchase, Redemption and Determination of Net Asset
Pricing of Securities Value; Principal
Being Offered Underwriter; Service for
Withdrawal; Services for
Accumulation (for
Traditional Funds);
Distribution Plan (for
Marathon Funds) or Service
Plans (for Traditional
Funds); Fees and Expenses
20. ............... Tax Status Taxes; Tax Equivalent Yield
Table
21. ............... Underwriters Principal Underwriter; Fees
and Expenses
22. ............... Calculations of Performance Investment Performance;
Data Performance Information
23. ............... Financial Statements Financial Statements
<PAGE>
EATON VANCE MUNICIPALS TRUST II
CROSS REFERENCE SHEET FOR
EV MARATHON HIGH YIELD MUNICIPALS FUND
EV TRADITIONAL HIGH YIELD MUNICIPALS FUND
ITEMS REQUIRED BY FORM N-1A
PART A
ITEM NO. ITEM CAPTION PROSPECTUS CAPTION
- -------- ------------ ----------------------------
1. ............... Cover Page Cover Page
2. ............... Synopsis Shareholder and Fund
Expenses
3. ............... Condensed Financial The Fund's Financial
Information Highlights; Performance
Information
4. ............... General Description of The Fund's Investment
Registrant Objective; Investment
Policies and Risks;
Organization of the Fund
and the Portfolio
5. ............... Management of the Fund Management of the Fund and
the Portfolio
5A. .............. Management's Discussion of Not Applicable
Fund Performance
6. ............... Capital Stock and Other Organization of the Fund and
Securities the Portfolio; Reports to
Shareholders; The Lifetime
Investing Account/
Distribution Options;
Distributions and Taxes
7. ............... Purchase of Securities Valuing Fund Shares; How to
Being Offered Buy Fund Shares; The
Lifetime Investing
Account/Distribution
Options; Distribution Plan
(for Marathon Fund) or
Service Plan (for
Traditional Fund); The
Eaton Vance Exchange
Privilege; Eaton Vance
Shareholder Services
8. ............... Redemption or Repurchase How to Redeem Fund Shares
9. ............... Pending Legal Proceedings Not Applicable
PART B STATEMENT OF ADDITIONAL
ITEM NO. ITEM CAPTION INFORMATION CAPTION
- -------- ------------ ------------------------
10. ............... Cover Page Cover Page
11. ............... Table of Contents Table of Contents
12. ............... General Information and Other Information
History
13. ............... Investment Objectives and Additional Information about
Policies Investment Policies;
Investment Restrictions
14. ............... Management of the Fund Trustees and Officers; Fees
and Expenses
15. ............... Control Persons and Control Persons and
Principal Holders of Principal Holders of
Securities Securities
16. ............... Investment Advisory and Investment Adviser and
Other Services Administrator;
Distribution Plan (for
Marathon Fund) or Service
Plan (for Traditional
Fund); Custodian;
Independent Certified
Public Accountants; Fees
and Expenses
17. ............... Brokerage Allocation and Portfolio Security
Other Practices Transactions; Fees and
Expenses
18. ............... Capital Stock and Other Other Information
Securities
19. ............... Purchase, Redemption and Determination of Net Asset
Pricing of Securities Value; Principal
Being Offered Underwriter; Service for
Withdrawal; Services for
Accumulation (Traditional
Fund); Distribution Plan
(for Marathon Fund) or
Service Plan (for
Traditional Fund); Fees
and Expenses
20. ............... Tax Status Taxes; Tax Equivalent Yield
Table
21. ............... Underwriters Principal Underwriter; Fees
and Expenses
22. ............... Calculations of Performance Investment Performance;
Data Performance Information
23. ............... Financial Statements Financial Statements
<PAGE>
PART A
INFORMATION REQUIRED IN A PROSPECTUS
EV MARATHON
MUNICIPAL FUNDS
- --------------------------------------------------------------------------------
EV MARATHON FLORIDA INSURED MUNICIPALS FUND
EV MARATHON HAWAII MUNICIPALS FUND
EV MARATHON KANSAS MUNICIPALS FUND
THE EV MARATHON 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. 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, 1997 for the Funds,
as supplemented from time to time, has been filed with the Securities and
Exchange Commission (the "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>
Shareholder and Fund Expenses ......................... 2 How to Redeem Fund Shares ......................... 13
The Funds' Financial Highlights ....................... 3 Reports to Shareholders ........................... 15
The Funds' Investment Objectives ...................... 4 The Lifetime Investing Account/Distribution
Investment Policies and Risks ......................... 4 Options ......................................... 15
Organization of the Funds and the Portfolios .......... 9 The Eaton Vance Exchange Privilege ................ 16
Management of the Funds and the Portfolios ............ 10 Eaton Vance Shareholder Services .................. 17
Distribution Plans .................................... 11 Distributions and Taxes ........................... 17
Valuing Fund Shares ................................... 12 Performance Information ........................... 18
How to Buy Fund Shares ................................ 12 Appendix -- State Specific Information ............ 19
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
PROSPECTUS DATED JUNE 1, 1997
<PAGE>
SHAREHOLDER AND FUND EXPENSES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES
- ---------------------------------------------------------------------------------------------------------
<S> <C>
Sales Charges Imposed on Purchases of Shares None
Sales Charges Imposed on Reinvested Distributions None
Fees to Exchange Shares None
Range of Declining Contingent Deferred Sales Charges Imposed on Redemptions
during the First Seven Years (as a percentage of redemption proceeds exclusive
of all reinvestments and capital appreciation in the account) 5.00%-0%
<CAPTION>
ANNUAL FUND AND ALLOCATED PORTFOLIO OPERATING EXPENSES (as a percentage of average daily net assets)
- ---------------------------------------------------------------------------------------------------------
FLORIDA HAWAII KANSAS
INSURED FUND FUND FUND
------------ ------ ------
<S> <C> <C> <C>
Investment Adviser Fee (after fee reduction) 0.00% 0.00% 0.00%
Rule 12b-1 Distribution (and Service) Fees 0.89 0.90 0.89
Other Expenses (after expense allocations) 0.32 0.30 0.36
--- --- ---
Total Operating Expenses (after reductions) 1.21% 1.20% 1.25%
==== ==== ====
<CAPTION>
EXAMPLES
- ------------------------------------------------------------------------------------------------------------
An investor would pay the following contingent deferred sales charge and
expenses on a $1,000 investment, assuming (a) 5% annual return and (b)
redemption at the end of each period:
FLORIDA HAWAII KANSAS
INSURED FUND FUND FUND
------------ ------ ------
<S> <C> <C> <C>
1 Year $62 $62 $63
3 Years 78 78 80
5 Years 86 86 89
10 Years 147 145 151
An investor would pay the following expenses on the same investment, assuming (a) 5% annual return and (b) no redemptions:
1 Year $12 $12 $13
3 Years 38 38 40
5 Years 66 66 69
10 Years 147 145 151
</TABLE>
NOTES:
The table and Examples summarize the aggregate expenses of the Funds and the
Portfolios and are designed to help investors understand the costs and expenses
they will bear, directly or indirectly, by investing in a Fund. Information for
each Fund is based on its expenses for the most recent fiscal year. Absent a fee
reduction and an expense allocation, the Investment Adviser Fee, Other Expenses
and Total Operating Expenses would have been 0.18%, 0.44% and 1.51%,
respectively, for the Florida Insured Fund; 0.16%, 0.55% and 1.61%,
respectively, for the Hawaii Fund; and 0.16%, 0.63% and 1.68%, respectively, for
the Kansas Fund.
The Examples should not be considered a representation of past or future
expenses and actual expenses may be greater or less than those shown. Federal
regulations require the Examples to assume a 5% annual return, but actual annual
return will vary. For further information regarding the expenses of the Funds
and the Portfolios, see "The Funds" Financial Highlights", "Management of the
Funds and the Portfolios" and "How to Redeem Fund Shares". A long-term
shareholder may pay more than the economic equivalent of the maximum front-end
sales charge permitted by a rule of the National Association of Securities
Dealers, Inc. See "Distribution Plans".
No contingent deferred sales charge is imposed on (a) shares purchased more than
six years prior to redemption, (b) shares acquired through the reinvestment of
distributions or (c) any appreciation in value of other shares in the account
(see "How to Reedem Fund Shares"), and no such charge is imposed on exchanges of
Fund shares for shares of one or more other funds listed under "The Eaton Vance
Exchange Privilege".
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.
Each Fund invests exclusively in its corresponding Portfolio. 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".
<PAGE>
THE FUNDS' FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The following information should be read in conjunction with the audited
financial statements that appear in the Funds' annual report to shareholders.
The Funds' financial statements have been audited by Deloitte & Touche LLP,
independent certified public accountants, as experts in accounting and
auditing. The financial statements and the independent auditors' report are
incorporated by reference into the Statement of Additional Information.
Further information regarding the performance of a Fund is contained in its
annual report to shareholders which may be obtained without charge by contacting
the Principal Underwriter.
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FLORIDA INSURED FUND HAWAII FUND KANSAS FUND
-------------------------------- -------------------------------- --------------------------------
YEAR ENDED JANUARY 31, YEAR ENDED JANUARY 31, YEAR ENDED JANUARY 31,
-------------------------------- -------------------------------- --------------------------------
1997 1996 1995** 1997 1996 1995** 1997 1996 1995**
-------- -------- -------- --------- -------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
beginning of year $ 11.090 $ 10.260 $ 10.000 $ 9.980 $ 9.150 $ 10.000 $ 10.320 $ 9.560 $ 10.000
-------- -------- -------- --------- -------- -------- --------- -------- --------
INCOME (LOSS) FROM OPERATIONS:
Net investment income $ 0.499 $ 0.512 $ 0.456 $ 0.466 $ 0.484 $ 0.434 $ 0.479 $ 0.481 $ 0.435
Net realized and
unrealized gain (loss) (0.385) 0.832 0.304 (0.241) 0.835 (0.805) (0.238) 0.761 (0.393)
-------- -------- -------- --------- -------- -------- --------- -------- --------
Total income (loss)
from operations $ 0.114 $ 1.344 $ 0.760 $ 0.225 $ 1.319 $ (0.371) $ 0.241 $ 1.242 $ 0.042
-------- -------- -------- --------- -------- -------- --------- -------- --------
LESS DISTRIBUTIONS:
From net investment
income $ (0.494) $ (0.512) $ (0.456) $ (0.466) $ (0.484) $ (0.434) $ (0.473) $ (0.481) $ (0.435)
In excess of net
investment income(4) -- (0.002) (0.044) (0.009) (0.005) (0.045) -- (0.001) (0.047)
From net realized
gains -- -- -- -- -- -- (0.008) -- --
-------- -------- -------- --------- -------- -------- --------- -------- --------
Total distributions $ (0.494) $ (0.514) $ (0.500) $ (0.475) $ (0.489) $ (0.479) $ (0.481) $ (0.482) $ (0.482)
-------- -------- -------- --------- -------- -------- --------- -------- --------
NET ASSET VALUE, end of
year $ 10.710 $ 11.090 $ 10.260 $ 9.730 $ 9.980 $ 9.150 $ 10.080 $ 10.320 $ 9.560
======== ======== ======== ======== ======== ======== ======== ======== ========
TOTAL RETURN(1) 1.14% 13.39% 7.10% 2.40% 14.74% (4.01)% 2.46% 13.26% 0.16%
RATIOS/SUPPLEMENTAL DATA*:
Net assets, end of
year (000 omitted) $ 21,717 $ 18,391 $ 11,596 $ 15,552 $ 15,126 $ 12,601 $ 10,492 $ 10,782 $ 7,753
Ratio of net expenses
to average daily
net assets(2)(3) 1.21% 1.10% 0.75%+ 1.20% 1.05% 0.87%+ 1.25% 1.20% 0.75%+
Ratio of net expenses
to average daily
net assets after
custodian fee
reduction(2) 1.12% 1.00% -- 1.15% 0.98% -- 1.15% 1.08% --
Ratio of net
investment income
to average daily
net assets 4.67% 4.76% 4.79%+ 4.81% 5.03% 5.03%+ 4.77% 4.79% 4.81%+
*For the periods indicated, the operating expenses of the Funds and the
Portfolios reflect an allocation of expenses to the Investment Adviser and/or
Administrator. Had such actions not been taken, net investment income per share
and the ratios would have been as follows:
NET INVESTMENT INCOME
PER SHARE $ 0.467 $ 0.470 $ 0.374 $ 0.426 $ 0.434 $ 0.387 $ 0.436 $ 0.442 $ 0.397
======== ======== ======== ======== ======== ======== ======== ======== ========
RATIOS (As a percentage of average daily net assets):
Expenses(2)(3) 1.51% 1.49% 1.62%+ 1.61% 1.53% 1.41%+ 1.68% 1.59% 1.60%+
Expenses after
custodian fee
reduction (2) 1.42% 1.39% -- 1.56% 1.46% -- 1.58% 1.47% --
Net investment
income 4.37% 4.37% 3.92%+ 4.40% 4.51% 4.49%+ 4.34% 4.40% 3.96%+
</TABLE>
**For the period from the start of business, March 2, 1994, to
January 31, 1995.
+Computed on an annualized basis.
(1)Total return is calculated assuming a purchase at the net asset value on
the first day and a sale at the net asset value on the last day of each
period reported. Distributions, if any, are assumed to be reinvested at
the net asset value on the payable date. Total return is calculated on a
non-annualized basis.
(2)Includes a Fund's share of its corresponding Portfolio's allocated expenses.
(3)The expense ratios for the years ended January 31, 1997 and 1996 have
been adjusted to reflect a change in reporting requirements. The new
reporting guidelines require each Fund, as well as its corresponding
Portfolio, to increase their expense ratio by the effect of any expense
offset arrangements with their service providers. The expense ratios for
the period ended January 31, 1995 have not been adjusted to reflect this
change.
(4)The Funds have followed the Statement of Position (SOP) 93-2:
Determination, Disclosure and Financial Statement Presentation of
Income, Capital Gain, and Return of Capital Distributions by Investment
Companies. The SOP requires that differences in the recognition or
classification of income between the financial statements and tax
earnings and profits that result in temporary over-distributions for
financial statement purposes, are classified as distributions in excess
of net investment income or accumulated net realized gains.
<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"). Each
Portfolio invests primarily in municipal obligations (as described below) which
are rated at least investment grade by a major rating agency or, if unrated,
determined to be of at least investment grade quality by the Investment Adviser.
Each Portfolio has the same investment objective as its corresponding Fund.
EV MARATHON 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 MARATHON 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 MARATHON 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.
INVESTMENT POLICIES AND RISKS
- --------------------------------------------------------------------------------
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 or from the proceeds of a specific revenue source. Some
revenue bonds are payable solely or partly from funds which are subject to
annual appropriations by a State's legislature and the availability of monies
for such payments. 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, 1997, the Portfolios had invested in such obligations as follows (as
a percentage of net assets): Florida Insured Portfolio (30.9%); Hawaii Portfolio
(22.4%); and Kansas Portfolio (12.3%). 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 (including insolvency
of an issuer) and by legislation and other governmental activities in that
State. Municipal obligations that rely on an annual appropriation of funds by a
State's legislature for payment are also subject to the risk that the
legislature will not appropriate the necessary amounts or take other action
needed to permit the issuer of such obligations to make required payments. 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
dependent on annual appropriations by a State's legislature for payment;
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. As "non-diversified" investment companies, each
Portfolio may invest, with respect to 50% of its total assets, more than 5% (but
not more than 25%) of its total assets in the securities of any issuer. 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 is 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 a 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 and municipal obligations) and securities indices
(such as the Municipal Bond Index traded on the Chicago Board of Trade). Such
transactions involve a risk of loss or depreciation due to unanticipated adverse
changes in securities prices, which may exceed 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 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 municipal 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
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 obligations for purposes of the Florida
Insured Portfolio's policy of investing at least 80% of its net assets in
insured obligations (but such obligations will not constitute more than 15% of
the insured portion of the Florida Insured Portfolio).
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. The
Hawaii and Kansas Portfolios may also purchase municipal bonds that are
additionally secured by insurance, bank credit agreements, or escrow accounts.
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 income from zero- coupon bonds on
a current basis, even though it does not receive that income currently in cash
and each Fund is required to distribute its share of the Portfolio's income for
each taxable year. Thus, a Portfolio may have to sell other investments to
obtain cash needed to make income distributions.
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.
ORGANIZATION OF THE FUNDS AND THE PORTFOLIOS
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EACH FUND IS A NON-DIVERSIFIED SERIES OF EATON VANCE MUNICIPALS TRUST II, A
BUSINESS TRUST ESTABLISHED UNDER MASSACHUSETTS LAW PURSUANT TO A DECLARATION OF
TRUST DATED OCTOBER 25, 1993, AS AMENDED. The 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 (such as the Funds). 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." There are no annual meetings of
shareholders, but special meetings may be held as required by law to elect
Trustees and consider certain other matters. 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.
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, affords the potential for economies of scale for each Fund (at least
when the assets of its corresponding Portfolio exceed $500 million) and may over
time result in lower expenses for a Fund.
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,
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. Information regarding
other pooled investment entities or funds which invest in a Portfolio may be
obtained by contacting the Principal Underwriter, 24 Federal Street, Boston, MA
02110, (617) 482-8260.
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.
A Fund may withdraw (completely redeem) all its assets from its corresponding
Portfolio at any time if the Board of Trustees of the Trust determines that it
is in the best interest of that Fund to do so. In the event a Fund withdraws all
of its assets from its corresponding Portfolio, or the Board of Trustees of the
Trust determines that the investment objective of such Portfolio is no longer
consistent with the investment objective of the Fund, the Trustees would
consider what action might be taken, including investing the assets of such Fund
in another pooled investment entity or retaining an investment adviser to manage
the Fund's assets in accordance with its investment objective. A Fund's
investment performance may be affected by a withdrawal of all its assets (or the
assets of another investor in a Portfolio) from its corresponding Portfolio.
Although each Fund offers only its own shares of beneficial interest, it is
possible that a Fund might become liable for a misstatement or omission in this
Prospectus regarding another Fund because the Funds use this combined
Prospectus. The Trustees of the Trust have considered this factor in approving
the use of a combined Prospectus.
MANAGEMENT OF THE FUNDS AND THE PORTFOLIOS
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EACH PORTFOLIO ENGAGES BOSTON MANAGEMENT AND RESEARCH ("BMR"), A WHOLLY-OWNED
SUBSIDIARY OF EATON VANCE MANAGEMENT ("EATON VANCE"), AS ITS INVESTMENT ADVISER.
EATON VANCE, ITS AFFILIATES AND ITS PREDECESSOR COMPANIES HAVE BEEN MANAGING
ASSETS OF INDIVIDUALS AND INSTITUTIONS SINCE 1924 AND MANAGING INVESTMENT
COMPANIES SINCE 1931.
Acting under the general supervision of the Board of Trustees of each Portfolio,
BMR manages each Portfolio's investments and affairs. BMR also 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
- ----------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
1 up to $20 million ................................................ 0.100% 1.00%
2 $20 million but less than $40 million ............................ 0.200% 2.00%
3 $40 million but less than $500 million ........................... 0.300% 3.00%
4 $500 million but less than $1 billion ............................ 0.275% 2.75%
5 $1 billion but less than $1.5 billion ............................ 0.250% 2.50%
6 $1.5 billion but less than $2 billion ............................ 0.225% 2.25%
7 $2 billion but less than $3 billion .............................. 0.200% 2.00%
8 $3 billion and over .............................................. 0.175% 1.75%
</TABLE>
None of the Portfolios paid an advisory fee for the fiscal year ended January
31, 1997. If BMR had not reduced its fees, the Florida Insured Portfolio would
have paid BMR advisory fees equivalent to 0.18% of average daily net assets; the
Hawaii Portfolio would have paid BMR advisory fees equivalent to 0.16% of
average daily net assets; and the Kansas Portfolio would have paid BMR advisory
fees equivalent to 0.16% of average daily net assets.
BMR OR EATON VANCE ACTS AS INVESTMENT ADVISER TO INVESTMENT COMPANIES AND
VARIOUS INDIVIDUAL AND INSTITUTIONAL CLIENTS WITH ASSETS UNDER MANAGEMENT OF
OVER $17 BILLION. Eaton Vance is a wholly-owned subsidiary of Eaton Vance Corp.,
a publicly-held holding company which through its subsidiaries and affiliates
engages primarily in investment management, administration and marketing
activities. The Principal Underwriter is a wholly-owned subsidiary of Eaton
Vance.
Thomas J. Fetter has acted as the portfolio manager of the Florida Insured
Portfolio since November 1, 1996. He has been a Vice President of Eaton Vance
since 1987 and of BMR since its inception.
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 its inception.
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. Each Fund, each Portfolio and BMR have adopted Codes of
Ethics relating to personal securities transactions. The Codes permit Eaton
Vance personnel to invest in securities (including securities that may be
purchased or held by a Portfolio) for their own accounts, subject to certain
pre-clearance, reporting and other restrictions and procedures contained in such
Codes.
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 the Principal Underwriter under the
distribution agreement.
DISTRIBUTION PLANS
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Each Fund has adopted a Distribution Plan ("Plan") pursuant to Rule 12b-1 under
the Investment Company Act of 1940 ("1940 Act"). UNDER ITS PLAN, A FUND MAY PAY
THE PRINCIPAL UNDERWRITER A FEE, ACCRUED DAILY AND PAID MONTHLY, AT AN ANNUAL
RATE NOT EXCEEDING .75% OF ITS AVERAGE DAILY NET ASSETS TO FINANCE THE
DISTRIBUTION OF FUND SHARES. Each Fund's Plan provides that it may use such fees
to compensate the Principal Underwriter for sales commissions paid by it to
financial services firms ("Authorized Firms") on the sale of Fund shares and for
interest expenses. The Principal Underwriter uses its own funds to pay sales
commissions (except on exchange transactions and reinvestments) to Authorized
Firms at the time of sale equal to 4% of the purchase price of the shares sold
by such Firms. Contingent deferred sales charges paid to the Principal
Underwriter will be used to reduce amounts owed to it. Because payments to the
Principal Underwriter by a Fund are limited, uncovered distribution charges
(sales commissions paid by the Principal Underwriter plus interest, less
contingent deferred sales charges received by it) may exist indefinitely. During
the fiscal year ended January 31, 1997, each Fund paid fees under the Plan
equivalent to .75% of such Fund's average daily net assets. As of January 31,
1997, uncovered distribution charges amounted to approximately $725,000
(equivalent to 3.6% of net assets on such day) in the case of the Florida
Insured Fund, $620,000 (equivalent to 4.1% of net assets on such day) in the
case of the Hawaii Fund, and $416,000 (equivalent to 3.9% of net assets on such
day) in the case of the Kansas Fund. For more information, see "Distribution
Plan" in the Statement of Additional Information.
EACH PLAN ALSO AUTHORIZES A FUND TO MAKE PAYMENTS OF SERVICE FEES TO THE
PRINCIPAL UNDERWRITER, AUTHORIZED FIRMS AND OTHER PERSONS IN AMOUNTS NOT
EXCEEDING .25% OF THE FUND'S AVERAGE DAILY NET ASSETS FOR PERSONAL SERVICES,
AND/OR THE MAINTENANCE OF SHAREHOLDER ACCOUNTS. This fee is paid quarterly in
arrears based on the value of Fund shares sold by such persons and remaining
outstanding for at least twelve months. For the fiscal year ended January 31,
1997, the following Funds paid or accrued service fees (as an annualized
percentage of average daily net assets): Florida Insured Fund (0.14%); Hawaii
Fund (0.15%) and Kansas Fund (0.14%).
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. In addition, the Principal
Underwriter may from time to time increase or decrease the sales commissions
payable to Authorized Firms.
Each Fund may, in its absolute discretion, suspend, discontinue or limit the
offering of its shares at any time. In determining whether any such action
should be taken, the Funds' management intends to consider all relevant factors,
including without limitation the size of a Fund, the investment climate and
market conditions, the volume of sales and redemptions of Fund shares, and the
amount of uncovered distribution charges of the Principal Underwriter. Each Plan
may continue in effect and payments may be made under the Plan following any
such suspension, discontinuance or limitation of the offering of Fund shares;
however, no Fund is contractually obligated to continue its Plan for any
particular period of time. Suspension of the offering of Fund shares would not,
of course, affect a shareholder's ability to redeem shares.
VALUING FUND SHARES
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EACH FUND VALUES ITS SHARES ONCE ON EACH DAY THE NEW YORK STOCK EXCHANGE (THE
"EXCHANGE") IS OPEN FOR TRADING, as of the close of regular trading on the
Exchange (normally 4:00 p.m. New York time). Each Fund's net asset value per
share is determined by its custodian, Investors Bank & Trust Company ("IBT"),
(as agent for the Fund) in the manner authorized by the Trustees of the Trust.
Net asset value is computed by dividing the value of a Fund's total assets, less
its liabilities, by the number of shares outstanding. Because each Fund invests
its assets in an interest in its corresponding Portfolio, a Fund's net asset
value will reflect the value of its interest in the Portfolio (which, in turn,
reflects the underlying value of the Portfolio's assets and liabilities).
Authorized Firms must communicate an investor's order to the Principal
Underwriter prior to the close of the Principal Underwriter's business day to
receive that day's net asset value per Fund share. It is the Authorized Firms'
responsibility to transmit orders promptly to the Principal Underwriter.
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 net asset value per share of the Fund next determined after an order is
effective. 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.
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, P.O. Box 5123, Westborough, MA 01581-5123. The
$1,000 minimum initial investment is waived for Bank Automated Investing
accounts, which may be established with an investment of $50 or more. See
"Eaton Vance Shareholder Services."
ACQUIRING FUND SHARES IN EXCHANGE FOR SECURITIES. IBT, as escrow agent, will
receive securities acceptable to Eaton Vance, as Administrator, in exchange for
Fund shares at their net asset value as determined above. The minimum value of
securities (or securities and cash) accepted for deposit is $5,000. Securities
accepted will be sold 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 net asset value per Fund share on the day such proceeds are received.
Eaton Vance will use reasonable efforts to obtain the then current market price
for such securities but does not guarantee the best available price. Eaton Vance
will absorb any transaction costs, such as commissions, on the sale of the
securities.
Securities determined to be acceptable should be transferred via book entry or
physically delivered, in proper form for transfer, through an Authorized Firm,
together with a completed and signed Letter of Transmittal in approved form
(available from Authorized Firms), as follows:
IN THE CASE OF BOOK ENTRY:
Deliver through Depository Trust Co.
Broker #2212
Investors Bank & Trust Company
For A/C EV Marathon [State name] Municipals Fund
IN THE CASE OF PHYSICAL DELIVERY:
Investors Bank & Trust Company
Attention: EV Marathon [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. 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
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A SHAREHOLDER MAY REDEEM FUND SHARES IN ONE OF THREE WAYS -- BY MAIL, BY
TELEPHONE OR THROUGH AN AUTHORIZED FIRM. The redemption price will be based on
the net asset value per Fund share next computed after a redemption request is
received in the proper form as described below.
REDEMPTION BY MAIL: Shares may be redeemed by delivering to the Transfer Agent,
First Data Investor Services Group, P.O. Box 5123, Westborough, MA 01581-5123,
during its business hours a written request for redemption in good order, plus
any share certificates with executed stock powers. 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 Commission regulation and
acceptable to the Transfer Agent. 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.
REDEMPTION BY TELEPHONE: Shares may be redeemed by telephone provided the
investor has not disclaimed in writing the use of the privilege. Such
redemptions can be effected by calling the Transfer Agent at 800-262-1122,
Monday through Friday, 9:00 a.m. to 4:00 p.m. (Eastern Standard Time). The
proceeds of a telephone redemption may be no greater than the maximum amount
established by the Principal Underwriter (currently $50,000) and may be mailed
only to the account address of record. Shares held by corporations, trusts or
certain other entities, or subject to fiduciary arrangements, may not be
redeemed by telephone. Neither the Fund, the Principal Underwriter nor the
Transfer Agent will be responsible for the authenticity of redemption
instructions received by telephone, provided that reasonable procedures to
confirm that instructions communicated by telephone are genuine have been
followed. Telephone instructions will be tape recorded. In times of drastic
economic or market changes, a telephone redemption may be difficult to
implement.
REDEMPTION THROUGH AN AUTHORIZED FIRM: 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 the Principal Underwriter, as
the Funds' agent, receives the order. It is the Authorized Firm's responsibility
to transmit promptly repurchase orders to the Principal Underwriter. Throughout
this Prospectus, the word "redemption" is generally meant to include a
repurchase.
Within seven days after receipt of a redemption request in good order by the
Transfer Agent, a Fund will make payment in cash for the net asset value of the
shares as of the date determined above, reduced by the amount of any applicable
contingent deferred sales charges (described below) and any federal income tax
required to be withheld. Although each Fund normally expects to make payment in
cash for redeemed shares, the Trust, subject to compliance with applicable
regulations, has reserved the right to pay the redemption price of shares of a
Fund, either totally or partially, by a distribution in kind of readily
marketable securities withdrawn by that Fund from its corresponding Portfolio.
The securities so distributed would be valued pursuant to the Portfolio's
valuation procedures. If a shareholder received a distribution in kind, the
shareholder could incur brokerage or other charges in converting the securities
to cash.
If shares were recently purchased, the proceeds of a redemption 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 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 $750. Prior to such a redemption,
shareholders will be given 60 days' written notice to make additional purchases.
However, no such redemption would be required by a Fund if the cause of the low
account balance was a reduction in the net asset value of Fund shares. No
contingent deferred sales charge will be imposed with respect to such
involuntary redemptions.
CONTINGENT DEFERRED SALES CHARGE. Shares redeemed within the first six years of
their purchase (except shares acquired through the reinvestment of
distributions) generally will be subject to a contingent deferred sales charge
("CDSC"). This CDSC is imposed on any redemption the amount of which exceeds the
aggregate value at the time of redemption of (a) all shares in the account
purchased more than six years prior to the redemption, (b) all shares in the
account acquired through reinvestment of distributions, and (c) the increase, if
any, in the value of all other shares in the account (namely those purchased
within the six years preceding the redemption) over the purchase price of such
shares. Redemptions are processed in a manner to maximize the amount of
redemption proceeds which will not be subject to a CDSC. That is, each
redemption will be assumed to have been made first from the exempt amounts
referred to in clauses (a), (b) and (c) above, and second through liquidation of
those shares in the account referred to in clause (c) on a first-in-first-out
basis. As described under "Distribution Plans," the CDSC will be paid to the
Principal Underwriter or the Fund. Any CDSC which is required to be imposed on
share redemptions will be made in accordance with the following schedule:
YEAR OF
REDEMPTION
AFTER PURCHASE CDSC
- ------------------------------------------------------------------
First or Second 5%
Third 4%
Fourth 3%
Fifth 2%
Sixth 1%
Seventh and following 0%
In calculating the CDSC upon the redemption of Fund shares acquired in an
exchange of shares of a fund currently listed under "The Eaton Vance Exchange
Privilege," the CDSC schedule applicable to the shares at the time of purchase
will apply and the purchase of shares acquired in the exchange is deemed to have
occurred at the time of the original purchase of the exchanged shares.
No CDSC will be imposed on Fund shares which have been sold to Eaton Vance or
its affiliates, or to their respective employees or clients. The CDSC will also
be waived for shares redeemed (1) pursuant to a Withdrawal Plan (see "Eaton
Vance Shareholder Services"), (2) as part of a required distribution from a
tax-sheltered retirement plan or (3) following the death of all beneficial
owners of such shares, provided the redemption is requested within one year of
death (a death certificate and other applicable documents may be required). In
addition, shares acquired as a result of a merger or liquidation of another
Eaton Vance sponsored fund will have a CDSC imposed at the same rate as would
have been imposed in the prior fund.
THE FOLLOWING EXAMPLE ILLUSTRATES THE OPERATION OF THE CDSC. ASSUME THAT AN
INVESTOR PURCHASES $10,000 OF A FUND'S SHARES AND THAT 16 MONTHS LATER THE
VALUE OF THE ACCOUNT HAS GROWN THROUGH INVESTMENT PERFORMANCE AND REINVESTMENT
OF DIVIDENDS TO $12,000. THE INVESTOR THEN MAY REDEEM UP TO $2,000 OF SHARES
WITHOUT INCURRING A CDSC. IF THE INVESTOR SHOULD REDEEM $3,000 OF SHARES, A
CDSC WOULD BE IMPOSED ON $1,000 OF THE REDEMPTION. THE RATE WOULD BE 5%
BECAUSE THE REDEMPTION WAS MADE IN THE SECOND YEAR AFTER THE PURCHASE WAS MADE
AND THE CDSC WOULD BE $50.
REPORTS TO SHAREHOLDERS
- --------------------------------------------------------------------------------
EACH FUND WILL ISSUE TO ITS SHAREHOLDERS SEMI-ANNUAL AND ANNUAL REPORTS
CONTAINING FINANCIAL STATEMENTS. Financial statements included in annual reports
are audited by the Funds' independent certified public accountants. Shortly
after the end of each calendar year, each Fund will furnish its shareholders
with information necessary for preparing federal and State tax returns.
THE LIFETIME INVESTING ACCOUNT/DISTRIBUTION OPTIONS
- --------------------------------------------------------------------------------
AFTER AN INVESTOR MAKES AN INITIAL PURCHASE OF FUND SHARES, THE TRANSFER AGENT
WILL SET UP A LIFETIME INVESTING ACCOUNT FOR THE INVESTOR ON THE APPLICABLE
FUND'S RECORDS. This account is a complete record of all transactions between
the investor and the Fund which at all times shows the balance of shares owned.
A Fund will not issue share certificates except upon request.
At least quarterly, shareholders will receive a statement showing complete
details of any transaction and the current balance in the account. THE LIFETIME
INVESTING ACCOUNT ALSO PERMITS A SHAREHOLDER TO MAKE ADDITIONAL INVESTMENTS IN
SHARES OF A FUND BY SENDING A CHECK FOR $50 OR MORE to the Transfer Agent.
Any questions concerning a shareholder's account or services available may be
directed by telephone to EATON VANCE SHAREHOLDER SERVICES at 800-225-6265,
extension 2, or in writing to the Transfer Agent, First Data Investor Services
Group, P.O. Box 5123, Westborough, MA, 01581-5123 (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, P.O. Box 5123,
Westborough, MA 01581-5123. 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 Authorized Firm 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 Authorized
Firm, or transferring the account to another Authorized Firm, an investor
wishing to reinvest distributions should determine whether the Authorized 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 one or more other
funds in the Eaton Vance Marathon Group of Funds (including Class I shares of
any EV Marathon Limited Maturity Fund) or Eaton Vance Money Market Fund, which
are subject to a CDSC. Shares of a Fund may also be exchanged for shares of
Eaton Vance Prime Rate Reserves, which are subject to an early withdrawal
charge, and shares of a money market fund sponsored by an Authorized Firm and
approved by the Principal Underwriter (an "Authorized Firm fund"). Any such
exchange will be made on the basis of the net asset value per share of each fund
at the time of the exchange. Exchange offers are available only in states where
shares of the fund being acquired may be legally sold.
Each exchange must involve shares which have a net asset value of at least
$1,000. The exchange privilege may be changed or discontinued without penalty.
Shareholders will be given sixty (60) days' notice prior to any termination or
material amendment of the exchange privilege. The Funds do not permit the
exchange privilege to be used for "Market Timing" and may terminate the exchange
privilege for any shareholder account engaged in Market Timing activity. Any
shareholder account for which more than two round-trip exchanges are made within
any twelve month period will be deemed to be engaged in Market Timing.
Furthermore, a group of unrelated accounts for which exchanges are entered
contemporaneously by a financial intermediary will be considered to be engaged
in Market Timing.
The Transfer Agent makes exchanges at the next determined net asset value after
receiving an exchange request in good order (see "How to Redeem Fund Shares").
Consult the Transfer Agent for additional information concerning the exchange
privilege. Applications and prospectuses of other funds are available from
Authorized Firms or the Principal Underwriter. The prospectus for each fund
describes its investment objectives and policies, and shareholders should obtain
a prospectus and consider these objectives and policies carefully before
requesting an exchange.
No CDSC is imposed on exchanges. For purposes of calculating the CDSC upon the
redemption of shares acquired in an exchange, the CDSC schedule applicable to
the shares at the time of purchase will apply and the purchase of shares
acquired in one or more exchanges is deemed to have occurred at the time of the
original purchase of the exchanged shares, except that time during which shares
are held in an Authorized Firm fund will not be credited toward completion of
the CDSC period. For the CDSC schedule applicable to the Eaton Vance Marathon
Group of Funds (except EV Marathon Strategic Income Fund, Class I shares of any
EV Marathon Limited Maturity Fund and Eaton Vance Prime Rate Reserves), see "How
to Redeem Fund Shares". The CDSC or early withdrawal charge schedule applicable
to EV Marathon Strategic Income Fund, Class I shares of any EV Marathon Limited
Maturity Fund and Eaton Vance Prime Rate Reserves is 3%, 2.5%, 2% or 1% in the
event of a redemption occurring in the first, second, third or fourth year,
respectively, after the original share purchase.
Shares of funds listed above may be exchanged for Fund shares on the basis of
the net asset value per share of each fund at the time of the exchange, but
subject to any restrictions or qualifications set forth in the current
prospectus of any such fund.
Telephone exchanges are accepted by the Transfer Agent provided the investor has
not disclaimed in writing the use of the privilege. To effect such exchanges,
call the Transfer Agent at 800-262-1122, Monday through Friday, 9:00 a.m. to
4:00 p.m. (Eastern Standard Time). Shares acquired by telephone exchange must be
registered in the same name(s) and with the same address as the shares being
exchanged. Neither the Funds, the Principal Underwriter nor the Transfer Agent
will be responsible for the authenticity of exchange instructions received by
telephone; provided that reasonable procedures to confirm that instructions
communicated are genuine have been followed. Telephone instructions will be tape
recorded. In times of drastic economic or market changes, a telephone exchange
may be difficult to implement. An exchange may result in a taxable gain or loss.
EATON VANCE SHAREHOLDER SERVICES
- --------------------------------------------------------------------------------
THE FUNDS OFFER THE FOLLOWING SERVICES, WHICH ARE VOLUNTARY, INVOLVE NO EXTRA
CHARGE, AND MAY BE CHANGED OR DISCONTINUED WITHOUT PENALTY AT ANY TIME. Full
information on each of the services described below and an application, where
required, are available from Authorized Firms or the Principal Underwriter. The
cost of administering such services for the benefit of shareholders who
participate in them is borne by the applicable Fund as an expense to all
shareholders.
INVEST-BY-MAIL -- FOR PERIODIC SHARE ACCUMULATION: Once the $1,000 minimum
investment has been made, checks of $50 or more payable to the order of the Fund
being purchased may be mailed directly to the Transfer Agent, First Data
Investor Services Group, P.O. Box 5123, Westborough, MA 01581-5123 at any time
- -- whether or not dividends are reinvested. The name of the shareholder, the
Fund and the account number should accompany each investment.
BANK AUTOMATED INVESTING -- FOR REGULAR SHARE ACCUMULATION: Cash investments of
$50 or more may be made automatically each month or quarter from a shareholder's
bank account. The $1,000 minimum initial investment and small account redemption
policy are waived for these accounts.
WITHDRAWAL PLAN: A shareholder may draw on shareholdings systematically with
monthly or quarterly checks in an aggregate amount that does not exceed
annually 12% of the account balance at the time the plan is established. Such
amount will not be subject to a CDSC. See "How to Redeem Fund Shares". A
minimum deposit of $5,000 in shares is required.
REINVESTMENT PRIVILEGE: A shareholder who has redeemed shares may reinvest, with
credit for any CDSC paid on the redeemed shares, any portion or all of the
redemption proceeds (plus that amount necessary to acquire a fractional share to
round off the purchase to the nearest full share) in shares of a Fund, provided
that the reinvestment is effected within 60 days after such redemption, and the
privilege has not been used more than once in the prior 12 months. Shares are
sold to a reinvesting shareholder at the next determined net asset value
following timely receipt of a written purchase order by the Principal
Underwriter or by a Fund (or by the Funds' Transfer Agent). To the extent that
any shares of a Fund are sold at a loss and the proceeds are reinvested in
shares of the Fund (or other shares of the Fund are acquired) within the period
beginning 30 days before and ending 30 days after the date of the redemption,
some or all of the loss generally will not be allowed as a tax deduction.
Shareholders should consult their tax advisers concerning the tax consequences
of reinvestments.
DISTRIBUTIONS AND TAXES
- --------------------------------------------------------------------------------
SUBSTANTIALLY ALL OF THE INVESTMENT INCOME ALLOCATED TO A FUND BY ITS
CORRESPONDING PORTFOLIO, LESS THE FUND'S DIRECT AND ALLOCATED EXPENSES, WILL BE
DECLARED DAILY AS A DISTRIBUTION TO FUND SHAREHOLDERS OF RECORD AT THE TIME OF
DECLARATION. Such distributions, whether taken in cash or reinvested in
additional shares, will ordinarily be paid on the fifteenth day of each month or
the next business day thereafter. Each Fund anticipates that for tax purposes
the entire distribution, whether paid in cash or reinvested in additional shares
of the Fund, will constitute tax-exempt income to shareholders, except for the
proportionate part of the distribution that may be considered taxable income if
the Fund has taxable income during the calendar year. Shareholders reinvesting
the monthly distribution should treat the amount of the entire distribution as
the tax cost basis of the additional shares acquired by reason of such
reinvestment. Daily distribution crediting will commence on the business day
after collected funds for the purchase of Fund shares are available at the
Transfer Agent. Shareholders of a Fund will receive timely federal income tax
information as to the tax-exempt or taxable status of all distributions made by
the Fund during the calendar year. A Fund's net realized capital gains, if any,
consist of the net realized capital gains allocated to the Fund by its
corresponding Portfolio for tax purposes, after taking into account any
available capital loss carryovers; a Fund's net realized capital gains, if any,
will be distributed at least once a year, usually in December.
Each Fund intends to qualify as a regulated investment company under the
Internal Revenue Code of 1986, as amended (the "Code"), and to satisfy all
requirements necessary to be relieved of federal taxes on income and gains it
distributes to shareholders. In satisfying these requirements, each Fund will
treat itself as owning its proportionate share of each of its corresponding
Portfolio's assets and as entitled to the income of the Portfolio properly
attributable to such share.
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 AMT 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. If shares are purchased shortly before the record
date of such a distribution, the shareholder will pay the full price for the
shares and then receive some portion of the price back as a taxable
distribution. 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 distributions 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 with their tax advisers concerning the applicability
of State, local and other taxes to an investment in a Fund.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
FROM TIME TO TIME, EACH FUND MAY ADVERTISE ITS YIELD AND/OR AVERAGE ANNUAL TOTAL
RETURN. Each Fund's current yield is calculated by dividing the net investment
income per share earned during a recent 30-day period by the maximum offering
price per share (net asset value) of the Fund on the last day of the period and
annualizing the resulting figure. A taxable-equivalent yield is computed by
using the tax-exempt yield figure and dividing by one minus the tax rate. Each
Fund's average annual total return is determined by computing the average annual
percentage change in value of $1,000 invested at the maximum public offering
price (net asset value) for specified periods, assuming reinvestment of all
distributions. The average annual total return calculation assumes a complete
redemption of the investment and the deduction of any applicable CDSC at the end
of the period. Each Fund may publish annual and cumulative total return figures
from time to time.
Each Fund may also publish total return figures which do not take into account
any CDSC which may be imposed upon redemptions at the end of the specified
period. Any performance figure which does not take into account the CDSC would
be reduced to the extent such charge is imposed upon a redemption.
Investors should note that the investment results of a Fund will fluctuate over
time, and any presentation of a Fund's current yield or total return for any
prior period should not be considered a representation of what an investment may
earn or what the Fund's yield or total return 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.
<PAGE>
APPENDIX
STATE SPECIFIC INFORMATION
Because each Portfolio will normally invest at least 65% of its assets in the
obligations of issuers in its corresponding State, it is susceptible to factors
affecting that State. Each Portfolio may also invest up to 5% of its net assets
in obligations issued by the governments of Guam and the U.S. Virgin Islands and
up to 35% of its assets in obligations issued by the government of Puerto Rico.
Set forth below is certain economic and tax information concerning the States in
which the Portfolios invest and Puerto Rico.
The bond ratings provided below are current as of the date of this Prospectus
and are based on economic conditions which may not continue; moreover, there can
be no assurance that particular bond issues may not be adversely affected by
changes in economic, political or other conditions. Unless stated otherwise, the
ratings indicated are for obligations of the State. A State's political
subdivisions may have different ratings which are unrelated to the ratings
assigned to State obligations.
FLORIDA. Florida's financial operations are considerably different than most
other states as Florida does not impose an individual income tax. Specifically,
Florida's constitution prohibits the levy, under the authority of the State, of
an individual income tax upon the income of natural persons who are residents or
citizens of Florida in excess of amounts which may be credited against or
deducted from any similar tax levied by the United States or any other state.
Accordingly, a constitutional amendment would be necessary to impose a state
individual income tax in excess of the foregoing constitutional limitations. The
lack of an individual income tax exposes total State tax collections to
considerably more volatility than would otherwise be the case and, in the event
of an economic downswing, could effect the State's ability to pay principal and
interest in a timely manner.
The Florida Constitution and Statutes mandate that the State budget as a whole,
and each separate fund within the State budget, be kept in balance from
currently available revenues each State fiscal year (July 1 - June 30). Pursuant
to a constitutional amendment which was ratified by the voters on November 8,
1994, the rate of growth in state revenues in a given fiscal year is limited to
no more than the average annual growth rate in Florida personal income over the
previous five years (revenues collected in excess of the limitation are
generally deposited into the Budget Stabilization Fund).
Financial operations of the State of Florida covering all receipts and
expenditures are maintained through the use of four funds (the General Revenue
Fund, Trust Funds, the Working Capital Fund and the Budget Stabilization Fund).
The General Revenue Fund receives the majority of State tax revenues. The Trust
Funds consist of monies received by the State which under law or trust agreement
are segregated for a purpose authorized by law. Revenues in the General Revenue
Fund which are in excess of the amount needed to meet appropriations may be
transferred to the Working Capital Fund.
The State finished the 1996 fiscal year with a working capital reserve of $150.4
million and $260.8 million in the newly established budget stabilization
reserve. For fiscal year 1995-96, the estimated General Revenue plus Working
Capital and Budget Stabilization funds available totalled $15.4 billion, a 4.0%
increase over fiscal year 1994-95. For fiscal year 1996-97, the estimated
General Revenue plus Working Capital and Budget Stabilization funds available
are reported to be $16.6 billion, a 7.7% increase over fiscal year 1995-96. The
1997 budget incorporates a 4.9% increase in revenues. The Florida and United
States unemployment rates for 1995 were 5.5% and 5.6%, respectively. The
estimated Florida and United States unemployment rates for 1996 and 1997 are
reported to be 5.3% and 5.4%, respectively.
In 1993, the State constitution was amended to limit the annual growth in the
assessed valuation of residential property. This amendment may, over time,
constrain the growth in property taxes, a major revenue source for local
governments. 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 ruled that shares of a
Florida series fund owned by a Florida resident will be exempt from the Florida
Intangible Personal Property Tax so long as the fund's portfolio includes on
January 1 of each year only assets, such as Florida tax-exempt securities and
United States Government securities, that are exempt from the Florida Intangible
Personal Property Tax. Although the date of valuation is prescribed as the close
of business on the last business day of the previous calendar year, only the
assets held in the portfolio of the fund on January 1 are to be valued.
The Florida Portfolio will normally attempt to invest substantially all of its
assets in tax-exempt obligations of Florida, the United States, the Territories
or political subdivisions of the United States or Florida ("Florida
Obligations"), and it will strive to hold on January 1 of each year, only assets
that are exempt from the Florida intangibles tax. Accordingly, the value of the
Florida Fund shares held by a shareholder should, under normal circumstances, be
exempt from the Florida intangibles tax.
HAWAII. The Hawaiian economy is concentrated in tourism, agriculture,
construction and military operations. Tourism is Hawaii's largest economic
sector. Following a decline in 1992 to 1993, tourism rebounded strongly,
enjoying its third full year of recovery during 1996. Total visitor arrivals in
Hawaii for 1996 was up 3.6% over 1995, albeit still short of the peak year of
1990. Growth in the eastbound market segment, combined with a more modest
westbound increase resulted in an overall increase in visitor count. Growth in
eastbound visitor arrivals was strong, particularly given Japan's continued
economic stagnation. The most significant new development for Hawaii tourism is
construction of the State's new Convention Center just outside Waikiki which is
scheduled to come on line in 1998 with the capability to book large conventions.
Agriculture, long dominated by the Hawaiian pineapple and sugar trade, continues
to make its transition from a plantation-dominated sector to one more balanced
by diversified crops. A decrease in a portion of Hawaii's agricultural exports
will be partly offset by an increase in import- substituting local production. A
combination of uncertainty regarding the future of federal farm price supports
and the expiration of long-term agricultural land leases has resulted in a
removal of 80,000 acres on the islands of Hawaii and Oahu out of a total of
160,000 plantation acres statewide at the start of the decade. The outlook for
agriculture will be dictated by the transition from plantation acreage to
diversified crops and irreversible development of other prime agricultural
lands.
Hawaii's construction industry continues to be in a cyclical trough dating back
to at least 1995. It is expected to rebound in 1997-1998 only if private
construction grows rapidly enough to offset a reduction or stabilization of
public construction reflecting County, State and federal government fiscal
austerity. On the other hand, the State government announced plans to push a $1
billion public construction spending program beginning in 1997 in an effort to
assist the construction industry and help prime the State economy. Overbuilding
in the luxury resort and condominium markets, together with a large downtown
Honolulu office space inventory, resulted in an increased decline in
construction spending since 1992. Reconstruction on the Island of Kauai
following Hurricane Iniki slowed the decline, but has largely been completed. By
1995 construction spending had declined to just under $3.15 billion and
increased slightly by 1.4% to just under $3.2 billion in 1996.
Hawaii's economic recovery during 1995 and 1996 continues to be slow and uneven
at best. Because employment figures tend to lag economic recovery, 1996 was the
first year that Hawaii's economic recovery is reflected in measures such as job
growth and unemployment. Employment increased 2% during 1996 after a period of
significant restructuring in the private sector and, beginning in 1995, in the
public sector as well.
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.
Lean economic times for the State continue to be reflected in fiscal austerity
for State and County governments in Hawaii during the 1990s. Both levels of
government find their tax bases slightly eroded because of a stagnant economy
and shrinking commercial real estate values although there are some signs that
such erosion has reached its bottom. State and County government has responded
to these fiscal pressures with attempts to pare back government spending and
programs. This in turn has affected the economy directly through lower
expenditures and increased taxes and fees, as well as indirectly through its
depressing effect on business and consumer confidence. Calendar year 1996 tax
results show an improvement as a result of the emerging economic recovery. Total
tax receipts from all sources increased 3.8% in nominal terms to $3.1 billion
during calendar year 1996. The forecast is for the in gross State product to
increase in 1997 and stabilize at a moderate 2.5% annual rate through the
balance of the decade.
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 dropped to 4.1% in 1996 from 4.7% in
1995, as compared to the national unemployment rate of 5.6% in 1996. The growth
of Kansas personal income in 1996 is estimated to be 6.2% compared with 5.8% in
1995 and compared with a 1996 U.S. growth rate of 6.0%.
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 5.8% of tax revenues in 1996, increasing dramatically from $30 million in
1980 to $380.1 million in 1996 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 1996 General Fund showed total revenues of $3.4 billion
against total expenditures of $3.4 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
L.L.P., 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
dividends derived from shares of 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 has slowed through
1996. Growth is dependent on 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. Section 936 (a tax incentive that has encouraged economic growth
in Puerto Rico) will be phased out over a ten year period. At this time, it is
uncertain as to the implication the change will have on the Puerto Rican
economy. Although the Puerto Rico unemployment rate has declined substantially
since 1985, the seasonally adjusted unemployment rate for 1996 was approximately
13.8%. The North American Free Trade Agreement (NAFTA), which became effective
January 1, 1994, could lead to the loss of Puerto Rico's lower salaried or labor
intensive jobs to Mexico.
S&P rates Puerto Rico general obligations debt A, while Moody's rates it Baa1;
these ratings have been in place since 1956 and 1976, respectively. S&P assigned
a negative outlook on Puerto Rico's rating on April 26, 1994 which was changed
to stable on December 16, 1996.
<PAGE>
[Logo]
EV MARATHON MUNICIPAL FUNDS
PROSPECTUS
JUNE 1, 1997
EV MARATHON FLORIDA INSURED MUNICIPALS FUND
EV MARATHON HAWAII MUNICIPALS FUND
EV MARATHON KANSAS MUNICIPALS FUND
EV MARATHON
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,
P.O. Box 5123, Westborough, Ma 01581-5123
(800) 262-1122
AUDITORS
Deloitte & Touche LLP
125 Summer Street
Boston, MA 021110
M-TFC6/1P
<PAGE>
PART A
INFORMATION REQUIRED IN A PROSPECTUS
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. 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, 1997 for the Funds,
as supplemented from time to time, has been filed with the Securities and
Exchange Commission (the "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>
Shareholder and Fund Expenses .......................... 2 How to Redeem Fund Shares .......................... 14
The Funds' Financial Highlights ........................ 3 Reports to Shareholders ............................ 15
The Funds' Investment Objectives ....................... 4 The Lifetime Investing Account/Distribution
Investment Policies and Risks .......................... 4 Options .......................................... 15
Organization of the Funds and the Portfolios ........... 9 The Eaton Vance Exchange Privilege ................. 16
Management of the Funds and the Portfolios ..............10 Eaton Vance Shareholder Services ................... 17
Service Plans ...........................................11 Distributions and Taxes ............................ 18
Valuing Fund Shares .................................... 11 Performance Information ............................ 19
How to Buy Fund Shares ................................. 12 Appendix -- State Specific Information ............. 20
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
PROSPECTUS DATED JUNE 1, 1997
<PAGE>
SHAREHOLDER AND FUND EXPENSES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
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
</TABLE>
<TABLE>
<CAPTION>
ANNUAL FUND AND ALLOCATED PORTFOLIO OPERATING EXPENSES (as a percentage of average daily net assets)
- ---------------------------------------------------------------------------------------------------------
FLORIDA HAWAII KANSAS
INSURED FUND FUND FUND
------------ ------ ------
<S> <C> <C> <C>
Investment Adviser Fee (after fee reduction) 0.00% 0.00% 0.00%
Other Expenses (including Service Plan Fees and
after expense allocations) 0.69 0.46 0.70
---- ---- ----
Total Operating Expenses (after reductions) 0.69% 0.46% 0.70%
==== ==== ====
<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 $ 44 $42 $ 44
3 Years 59 52 59
5 Years 74 62 75
10 Years 120 93 121
</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
each Fund is based on its expenses for the most recent fiscal year. Absent a fee
reduction and an expense allocation, the Investment Adviser Fee, Other Expenses
and Total Operating Expenses would have been: 0.18%, 1.72% and 1.90%,
respectively, for the Florida Insured Fund; 0.16%, 6.94% and 7.10%,
respectively, for the Hawaii Fund and 0.16%, 2.88% and 3.04%, respectively, for
the Kansas Fund.
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 return will vary.
For further information regarding the expenses of the Funds and the Portfolios,
see "The Funds" Financial Highlights", "Management of the Funds and the
Portfolios", and "Service Plans".
No sales charge is payable at the time of purchase on investments of $1 million
or more. However, a contingent deferred sales charge of 0.50% will be imposed on
such investments in the event of certain redemptions within 12 months of
purchase. See "How to Buy Fund Shares" and "How to Redeem Fund Shares."
Each Portfolio's monthly advisory fee has two components, a fee based on daily
net assets and a fee based on daily gross income, as set forth in the fee
schedule on page 10.
Each Fund invests exclusively in its corresponding Portfolio. 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".
<PAGE>
THE FUNDS' FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The following information should be read in conjunction with the audited
financial statements that appear in the Funds' annual report to shareholders.
The Funds' financial statements have been audited by Deloitte & Touche LLP,
independent certified public accountants, as experts in accounting and
auditing. The financial statements and the independent auditors' report are
incorporated by reference into the Statement of Additional Information.
Further information regarding the performance of a Fund is contained in its
annual report to shareholders which may be obtained without charge by contacting
the Principal Underwriter.
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FLORIDA INSURED FUND HAWAII FUND KANSAS FUND
-------------------------------- -------------------------------- -------------------------------
YEAR ENDED JANUARY 31, YEAR ENDED JANUARY 31, YEAR ENDED JANUARY 31,
-------------------------------- -------------------------------- -------------------------------
1997 1996 1995** 1997 1996 1995** 1997 1996 1995**
-------- -------- -------- -------- -------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
beginning of year $ 11.220 $ 10.430 $ 10.000 $ 9.760 $ 9.040 $ 10.000 $ 10.270 $ 9.540 $10.000
-------- -------- -------- -------- -------- -------- -------- -------- -------
INCOME (LOSS) FROM OPERATIONS:
Net investment
income $ 0.573 $ 0.564 $ 0.509 $ 0.490 $ 0.424 $ 0.365 $ 0.529 $ 0.461 $ 0.379
Net realized and
unrealized gain
(loss) (0.368) 0.811 0.435 (0.207) 0.757 (0.880)++ (0.221) 0.730 (0.386)++
-------- -------- -------- -------- -------- -------- -------- -------- -------
Total income
(loss) from
operations $ 0.205 $ 1.375 $ 0.944 $ 0.283 $ 1.181 $ (0.515) $ 0.308 $ 1.191 $(0.007)
-------- -------- -------- -------- -------- -------- -------- -------- -------
LESS DISTRIBUTIONS:
From net investment
income $ (0.573) $ (0.564) $ (0.509) $ (0.490) $ (0.424) $ (0.365) $ (0.528) $ (0.461) $(0.379)
In excess of net
investment income(3) (0.002) (0.021) (0.005) (0.013) (0.037) (0.080) -- -- (0.074)
-------- -------- -------- -------- -------- -------- -------- -------- -------
Total
distributions $ (0.575) $ (0.585) $ (0.514) $ (0.503) $ (0.461) $ (0.445) $ (0.528) $ (0.461) $(0.453)
-------- -------- -------- -------- -------- -------- -------- -------- -------
NET ASSET VALUE, end
of year $ 10.850 $ 11.220 $ 10.430 $ 9.540 $ 9.760 $ 9.040 $ 10.050 $ 10.270 $ 9.540
======= ======== ======== ======== ======== ======== ======= ======== =======
TOTAL RETURN(1) 1.97% 13.51% 9.18% 3.17% 13.34% (5.23)% 3.26% 12.73% (0.11)%
RATIOS/SUPPLEMENTAL DATA*:
Net assets, end of
year (000 omitted) $ 2,312 $ 1,607 $ 1,213 $ 344 $ 337 $ 257 $ 1,101 $ 847 $ 665
Ratio of net
expenses to
average daily net
assets(2)(4) 0.69% 0.82% 0.01%+ 0.46% 1.04% 1.01%+ 0.70% 1.29% 0.95%+
Ratio of net
expenses to
average daily net
assets after
custodian fee
reduction(2) 0.45% 0.54% -- 0.40% 0.95% -- 0.52% 0.95% --
Ratio of net
investment income
to average daily
net assets 5.25% 5.20% 5.37%+ 5.14% 4.48% 4.44%+ 5.27% 4.70% 4.32%+
*For the periods indicated, the operating expenses of the Funds and the
Portfolios reflect an allocation of expenses to the Investment Adviser and/or
Administrator. 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 $ 0.441 $ 0.401 $ 0.226 $ (0.124) $ (0.362) $ (0.153) $ 0.294 $ 0.068 $ 0.139
======== ======== ======== ======== ======== ======== ======== ======== =======
RATIOS (As a percentage of average daily net assets):
Expenses(2)(4) 1.90% 2.32% 3.00%+ 7.10% 9.34% 7.31%+ 3.04% 5.30% 3.68%+
Expenses after
custodian fee
reduction(2) 1.66% 2.04% -- 7.04% 9.25% -- 2.86% 4.96% --
Net investment
income (loss) 4.04% 3.70% 2.38%+ (1.50)% (3.82)% (1.86)%+ 2.93% 0.69% 1.59%+
</TABLE>
**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. Distributions, if any, are assumed to be reinvested at
the net asset value on the payable date. Total return is calculated on a
non-annualized basis.
(2)Includes a Fund's share of its corresponding Portfolio's allocated expenses.
(3)The Funds have followed the Statement of Position (SOP) 93-2:
Determination, Disclosure and Financial Statement Presentation of
Income, Capital Gain, and Return of Capital Distributions by Investment
Companies. The SOP requires that differences in the recognition or
classification of income between the financial statements and tax
earnings and profits that result in temporary over-distributions for
financial statement purposes, are classified as distributions in excess
of net investment income or accumulated net realized gains.
(4)The expense ratios for the years ended January 31, 1997 and 1996, have
been adjusted to reflect a change in reporting requirements. The new
reporting guidelines require each Fund, as well as its corresponding
Portfolio, to increase their expense ratio by the effect of any expense
offset arrangements with their service providers. The expense ratios for
the period ended January 31, 1995 have not been adjusted to reflect this
change.
<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"). Each
Portfolio invests primarily in municipal obligations (as described below) which
are rated at least investment grade by a major rating agency or, if unrated,
determined to be of at least investment grade quality by the Investment Adviser.
Each Portfolio has the same investment objective as its corresponding Fund.
EV TRADITIONAL FLORIDA 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.
INVESTMENT POLICIES AND RISKS
- --------------------------------------------------------------------------------
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 or from the proceeds of a specific revenue source. Some
revenue bonds are payable solely or partly from funds which are subject to
annual appropriations by a State's legislature and the availability of monies
for such payments. 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, 1997, the Portfolios had invested in such obligations as follows (as
a percentage of net assets): Florida Insured Portfolio (30.9%); Hawaii Portfolio
(22.4%); and Kansas Portfolio (12.3%). 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 (including insolvency
of an issuer) and by legislation and other governmental activities in that
State. Municipal obligations that rely on an annual appropriation of funds by a
State's legislature for payment are also subject to the risk that the
legislature will not appropriate the necessary amounts or take other action
needed to permit the issuer of such obligations to make required payments. 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
dependent on annual appropriations by a State's legislature for payment;
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. As "non-diversified" investment companies, each
Portfolio may invest, with respect to 50% of its total assets, more than 5% (but
not more than 25%) of its total assets in the securities of any issuer. 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 is 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 a 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 and municipal obligations) and securities indices
(such as the Municipal Bond Index traded on the Chicago Board of Trade). Such
transactions involve a risk of loss or depreciation due to unanticipated adverse
changes in securities prices, which may exceed 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 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 municipal 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
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 obligations for purposes of the Florida
Insured Portfolio's policy of investing at least 80% of its net assets in
insured obligations (but such obligations will not constitute more than 15% of
the insured portion of the Florida Insured Portfolio).
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. The
Hawaii and Kansas Portfolios may also purchase municipal bonds that are
additionally secured by insurance, bank credit agreements, or escrow accounts.
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 income from zero- coupon bonds on
a current basis, even though it does not receive that income currently in cash
and each Fund is required to distribute its share of the Portfolio's income for
each taxable year. Thus, a Portfolio may have to sell other investments to
obtain cash needed to make income distributions.
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.
ORGANIZATION OF THE FUNDS AND THE PORTFOLIOS
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EACH FUND IS A NON-DIVERSIFIED SERIES OF EATON VANCE MUNICIPALS TRUST II, A
BUSINESS TRUST ESTABLISHED UNDER MASSACHUSETTS LAW PURSUANT TO A DECLARATION OF
TRUST DATED OCTOBER 25, 1993, AS AMENDED. The 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 (such as the Funds). 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." There are no annual meetings of
shareholders, but special meetings may be held as required by law to elect
Trustees and consider certain other matters. 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.
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, affords the potential for economies of scale for each Fund (at least
when the assets of its corresponding Portfolio exceed $500 million) and may over
time result in lower expenses for a Fund.
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,
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. Information regarding
other pooled investment entities or funds which invest in a Portfolio may be
obtained by contacting the Principal Underwriter, 24 Federal Street, Boston, MA
02110, (617) 482-8260.
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.
A Fund may withdraw (completely redeem) all its assets from its corresponding
Portfolio at any time if the Board of Trustees of the Trust determines that it
is in the best interest of that Fund to do so. In the event a Fund withdraws all
of its assets from its corresponding Portfolio, or the Board of Trustees of the
Trust determines that the investment objective of such Portfolio is no longer
consistent with the investment objective of the Fund, the Trustees would
consider what action might be taken, including investing the assets of such Fund
in another pooled investment entity or retaining an investment adviser to manage
the Fund's assets in accordance with its investment objective. A Fund's
investment performance may be affected by a withdrawal of all its assets (or the
assets of another investor in a Portfolio) from its corresponding Portfolio.
Although each Fund offers only its own shares of beneficial interest, it is
possible that a Fund might become liable for a misstatement or omission in this
Prospectus regarding another Fund because the Funds use this combined
Prospectus. The Trustees of the Trust have considered this factor in approving
the use of a combined Prospectus.
MANAGEMENT OF THE FUNDS AND THE PORTFOLIOS
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EACH PORTFOLIO ENGAGES BOSTON MANAGEMENT AND RESEARCH ("BMR"), A WHOLLY-OWNED
SUBSIDIARY OF EATON VANCE MANAGEMENT ("EATON VANCE"), AS ITS INVESTMENT ADVISER.
EATON VANCE, ITS AFFILIATES AND ITS PREDECESSOR COMPANIES HAVE BEEN MANAGING
ASSETS OF INDIVIDUALS AND INSTITUTIONS SINCE 1924 AND MANAGING INVESTMENT
COMPANIES SINCE 1931.
Acting under the general supervision of the Board of Trustees of each Portfolio,
BMR manages each Portfolio's investments and affairs. BMR also 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
- ---------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
1 up to $20 million .......................................... 0.100% 1.00%
2 $20 million but less than $40 million ...................... 0.200% 2.00%
3 $40 million but less than $500 million ..................... 0.300% 3.00%
4 $500 million but less than $1 billion ...................... 0.275% 2.75%
5 $1 billion but less than $1.5 billion ...................... 0.250% 2.50%
6 $1.5 billion but less than $2 billion ...................... 0.225% 2.25%
7 $2 billion but less than $3 billion ........................ 0.200% 2.00%
8 $3 billion and over ........................................ 0.175% 1.75%
</TABLE>
None of the Portfolios paid an advisory fee for the fiscal year ended January
31, 1997. If BMR had not reduced its fees, the Florida Insured Portfolio would
have paid BMR advisory fees equivalent to 0.18% of average daily net assets; the
Hawaii Portfolio would have paid BMR advisory fees equivalent to 0.16% of
average daily net assets; and the Kansas Portfolio would have paid BMR advisory
fees equivalent to 0.16% of average daily net assets.
BMR OR EATON VANCE ACTS AS INVESTMENT ADVISER TO INVESTMENT COMPANIES AND
VARIOUS INDIVIDUAL AND INSTITUTIONAL CLIENTS WITH ASSETS UNDER MANAGEMENT OF
OVER $17 BILLION. Eaton Vance is a wholly-owned subsidiary of Eaton Vance Corp.,
a publicly-held holding company which through its subsidiaries and affiliates
engages primarily in investment management, administration and marketing
activities. The Principal Underwriter is a wholly-owned subsidiary of Eaton
Vance.
Thomas J. Fetter has acted as the portfolio manager of the Florida Insured
Portfolio since November 1, 1996. He has been a Vice President of Eaton Vance
since 1987 and of BMR since its inception.
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 its inception.
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. Each Fund, each Portfolio and BMR have adopted Codes of
Ethics relating to personal securities transactions. The Codes permit Eaton
Vance personnel to invest in securities (including securities that may be
purchased or held by a Portfolio) for their own accounts, subject to certain
pre-clearance, reporting and other restrictions and procedures contained in such
Codes.
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 the Principal Underwriter under the
distribution agreement.
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 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. During the fiscal year ended January 31, 1997, each
Fund paid or accrued service fees (as a percentage of average daily net assets)
as follows: Florida Insured Fund (0.11%); Hawaii Fund (0.20%) and Kansas Fund
(0.16%). The Plan is described further in the Statement of Additional
Information.
VALUING FUND SHARES
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EACH FUND VALUES ITS SHARES ONCE ON EACH DAY THE NEW YORK STOCK EXCHANGE (THE
"EXCHANGE") IS OPEN FOR TRADING, as of the close of regular trading on the
Exchange (normally 4:00 p.m. New York time). Each Fund's net asset value per
share is determined by its custodian, Investors Bank & Trust Company ("IBT"),
(as agent for the Fund) in the manner authorized by the Trustees of the Trust.
Net asset value is computed by dividing the value of a Fund's total assets, less
its liabilities, by the number of shares outstanding. Because each Fund invests
its assets in an interest in its corresponding Portfolio, a Fund's net asset
value will reflect the value of its interest in the Portfolio (which, in turn,
reflects the underlying value of the Portfolio's assets and liabilities).
Authorized Firms must communicate an investor's order to the Principal
Underwriter prior to the close of the Principal Underwriter's business day to
receive that day's net asset value per Fund share and the public offering price
based thereon. It is the Authorized Firms' responsibility to transmit orders
promptly to the Principal Underwriter.
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. 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 or 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
potentially subject to a sales charge. 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.
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, P.O. Box 5123, Westborough, MA 01581-5123. 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 clients and
current and retired officers and employees of Eaton Vance, its affiliates and
other investment advisers of Eaton Vance sponsored funds; to registered
representatives, employees of Authorized Firms and bank employees who refer
customers to registered representatives of Authorized Firms; to officers and
employees of IBT and the Transfer Agent; and to such persons' spouses and
children under the age of 21 and their beneficial accounts. Shares may also be
issued at net asset value (1) in connection with the merger of an investment
company with a Fund, (2) to investors making an investment as part of a fixed
fee program whereby an entity unaffiliated with the Investment Adviser provides
multiple investment services, such as management, brokerage and custody, and (3)
to investment advisors, financial planners or other intermediaries who place
trades for their own accounts or the accounts of their clients and who charge a
management, consulting or other fee for their services; clients of such
investment advisors, financial planners or other intermediaries who place trades
for their own accounts if the accounts are linked to the master account of such
investment advisor, financial planner or other intermediary on the books and
records of the broker or agent; and retirement and deferred compensation plans
and trusts used to fund those plans, including, but not limited to, those
defined in Section 401(a), 403(b) or 457 of the Internal Revenue Code of 1986,
as amended (the "Code") and "rabbi trusts".
ACQUIRING FUND SHARES IN EXCHANGE FOR SECURITIES. IBT, as escrow agent, will
receive securities acceptable to Eaton Vance, as Administrator, in exchange for
Fund shares at the applicable public offering price as determined above. The
minimum value of securities (or securities and cash) accepted for deposit is
$5,000. Securities accepted will be sold 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. 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.
STATEMENT OF INTENTION AND ESCROW AGREEMENT. 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 the Principal Underwriter 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 the Principal Underwriter 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.
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 the Principal Underwriter. If at the time of the
recomputation an Authorized 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.
IF YOU DON'T HAVE AN AUTHORIZED FIRM, EATON VANCE CAN RECOMMEND ONE.
HOW TO REDEEM FUND SHARES
- -------------------------------------------------------------------------------
A SHAREHOLDER MAY REDEEM FUND SHARES IN ONE OF THREE WAYS -- BY MAIL, BY
TELEPHONE OR THROUGH AN AUTHORIZED FIRM. The redemption price will be based on
the net asset value per Fund share next computed after a redemption request is
received in the proper form as described below.
REDEMPTION BY MAIL: Shares may be redeemed by delivering to the Transfer Agent,
First Data Investor Services Group, P.O. Box 5123, Westborough, MA 01581-5123,
during its business hours a written request for redemption in good order, plus
any share certificates with executed stock powers. 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 Commission regulation and
acceptable to the Transfer Agent. 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.
REDEMPTION BY TELEPHONE: Shares may be redeemed by telephone provided the
investor has not disclaimed in writing the use of the privilege. Such
redemptions can be effected by calling the Transfer Agent at 800-262-1122,
Monday through Friday, 9:00 a.m. to 4:00 p.m. (Eastern Standard Time). The
proceeds of a telephone redemption may be no greater than the maximum amount
established by the Principal Underwriter (currently $50,000) and may be mailed
only to the account address of record. Shares held by corporations, trusts or
certain other entities, or subject to fiduciary arrangements, may not be
redeemed by telephone. Neither the Fund, the Principal Underwriter nor the
Transfer Agent will be responsible for the authenticity of redemption
instructions received by telephone, provided that reasonable procedures to
confirm that instructions communicated by telephone are genuine have been
followed. Telephone instructions will be tape recorded. In times of drastic
economic or market changes, a telephone redemption may be difficult to
implement.
REDEMPTION THROUGH AN AUTHORIZED FIRM: 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 the Principal Underwriter, as
the Funds' agent, receives the order. It is the Authorized Firm's responsibility
to transmit promptly repurchase orders to the Principal Underwriter. Throughout
this Prospectus, the word "redemption" is generally meant to include a
repurchase.
Within seven days after receipt of a redemption request in good order by the
Transfer Agent, 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.
If shares were recently purchased, the proceeds of a redemption 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 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 $750. Prior to such a redemption,
shareholders will be given 60 days' written notice to make additional purchases.
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, or if
shares were purchased at net asset value because the amount invested represents
redemption proceeds from a mutual fund unaffiliated with Eaton Vance (as
described under "How to Buy Fund Shares"), and are redeemed within 12 months of
purchase, a CDSC of 0.50% will be imposed on such redemption. 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, 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 will be retained by the Principal
Underwriter.
The CDSC is waived for redemptions involving certain liquidation, merger or
acquisition transactions involving other investment companies. If a shareholder
reinvests redemption proceeds 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.
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 all 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 TRANSFER AGENT
WILL SET UP A LIFETIME INVESTING ACCOUNT FOR THE INVESTOR ON THE APPLICABLE
FUND'S RECORDS. This account is a complete record of all transactions between
the investor and the Fund which at all times shows the balance of shares owned.
A Fund will not issue share certificates except upon request.
At least quarterly, shareholders will receive a statement showing complete
details of any transaction and the current balance in the account. THE LIFETIME
INVESTING ACCOUNT ALSO PERMITS A SHAREHOLDER TO MAKE ADDITIONAL INVESTMENTS IN
SHARES OF A FUND BY SENDING A CHECK FOR $50 OR MORE to the Transfer Agent.
Any questions concerning a shareholder's account or services available may be
directed by telephone to EATON VANCE SHAREHOLDER SERVICES at 800-225-6265,
extension 2, or in writing to the Transfer Agent, First Data Investor Services
Group, P.O. Box 5123, Westborough, MA, 01581-5123 (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, P.O. Box 5123,
Westborough, MA 01581-5123. 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
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 Authorized Firm 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 Authorized
Firm, or transferring the account to another Authorized Firm, an investor
wishing to reinvest distributions should determine whether the Authorized 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
an 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). 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.
The Transfer Agent makes exchanges at the next determined net asset value after
receiving an exchange request in good order (see "How to Redeem Fund Shares").
Consult the Transfer Agent 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, (plus, in the case of
an exchange made within six months of the date of purchase of shares subject to
an 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 Fund shares being acquired). Any such exchange is subject to any
restrictions or qualifications set forth in the current prospectus of any such
fund.
Telephone exchanges are accepted by the Transfer Agent provided the investor has
not disclaimed in writing the use of the privilege. To effect such exchanges,
call the Transfer Agent at 800-262-1122, Monday through Friday, 9:00 a.m. to
4:00 p.m. (Eastern Standard Time). Shares acquired by telephone exchange must be
registered in the same name(s) and with the same address as the shares being
exchanged. Neither the Funds, the Principal Underwriter nor the Transfer Agent
will be responsible for the authenticity of exchange instructions received by
telephone; provided that reasonable procedures to confirm that instructions
communicated are genuine have been followed. Telephone instructions will be tape
recorded. In times of drastic economic or market changes, a telephone exchange
may be difficult to implement. An exchange may result in a taxable gain or loss.
EATON VANCE SHAREHOLDER SERVICES
- --------------------------------------------------------------------------------
THE FUNDS OFFER THE FOLLOWING SERVICES, WHICH ARE VOLUNTARY, INVOLVE NO EXTRA
CHARGE, AND MAY BE CHANGED OR DISCONTINUED WITHOUT PENALTY AT ANY TIME. Full
information on each of the services described below and an application, where
required, are available from Authorized Firms or the Principal Underwriter. The
cost of administering such services for the benefit of shareholders who
participate in them is borne by the applicable Fund as an expense to all
shareholders.
INVEST-BY-MAIL -- FOR PERIODIC SHARE ACCUMULATION: Once the $1,000 minimum
investment has been made, checks of $50 or more payable to the order of the Fund
being purchased may be mailed directly to the Transfer Agent, First Data
Investor Services Group, P.O. Box 5123, Westborough, MA 01581-5123 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 "How to Buy Fund Shares --
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 redeemed shares may reinvest at
net asset value any portion or all of the 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 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 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 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 business day
after 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 a sales charge is
reduced or eliminated in a subsequent acquisition of shares of a Fund or of
another fund 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 AMT 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. If shares are purchased shortly before the record
date of such a distribution, the shareholder will pay the full price for the
shares and then receive some portion of the price back as a taxable
distribution. 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 distributions 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 with their tax advisers concerning the applicability
of State, local and other taxes to an investment 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 computing the average annual percentage change in
value of $1,000 invested at the maximum public offering price (which includes
the maximum sales charge) for specified periods, assuming reinvestment of all
distributions. Each Fund 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 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 lower 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 the Fund's current yield or total return for any
prior period should not be considered a representation of what an investment may
earn or what the Fund's yield or total return 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.
<PAGE>
APPENDIX
STATE SPECIFIC INFORMATION
Because each Portfolio will normally invest at least 65% of its assets in the
obligations of issuers in its corresponding State, it is susceptible to factors
affecting that State. Each Portfolio may also invest up to 5% of its net assets
in obligations issued by the governments of Guam and the U.S. Virgin Islands and
up to 35% of its assets in obligations issued by the government of Puerto Rico.
Set forth below is certain economic and tax information concerning the States in
which the Portfolios invest and Puerto Rico.
The bond ratings provided below are current as of the date of this Prospectus
and are based on economic conditions which may not continue; moreover, there can
be no assurance that particular bond issues may not be adversely affected by
changes in economic, political or other conditions. Unless stated otherwise, the
ratings indicated are for obligations of the State. A State's political
subdivisions may have different ratings which are unrelated to the ratings
assigned to State obligations.
FLORIDA. Florida's financial operations are considerably different than most
other states as Florida does not impose an individual income tax. Specifically,
Florida's constitution prohibits the levy, under the authority of the State, of
an individual income tax upon the income of natural persons who are residents or
citizens of Florida in excess of amounts which may be credited against or
deducted from any similar tax levied by the United States or any other state.
Accordingly, a constitutional amendment would be necessary to impose a state
individual income tax in excess of the foregoing constitutional limitations. The
lack of an individual income tax exposes total State tax collections to
considerably more volatility than would otherwise be the case and, in the event
of an economic downswing, could effect the State's ability to pay principal and
interest in a timely manner.
The Florida Constitution and Statutes mandate that the State budget as a whole,
and each separate fund within the State budget, be kept in balance from
currently available revenues each State fiscal year (July 1 - June 30). Pursuant
to a constitutional amendment which was ratified by the voters on November 8,
1994, the rate of growth in state revenues in a given fiscal year is limited to
no more than the average annual growth rate in Florida personal income over the
previous five years (revenues collected in excess of the limitation are
generally deposited into the Budget Stabilization Fund).
Financial operations of the State of Florida covering all receipts and
expenditures are maintained through the use of four funds (the General Revenue
Fund, Trust Funds, the Working Capital Fund and the Budget Stabilization Fund).
The General Revenue Fund receives the majority of State tax revenues. The Trust
Funds consist of monies received by the State which under law or trust agreement
are segregated for a purpose authorized by law. Revenues in the General Revenue
Fund which are in excess of the amount needed to meet appropriations may be
transferred to the Working Capital Fund.
The State finished the 1996 fiscal year with a working capital reserve of $150.4
million and $260.8 million in the newly established budget stabilization
reserve. For fiscal year 1995-96, the estimated General Revenue plus Working
Capital and Budget Stabilization funds available totalled $15.4 billion, a 4.0%
increase over fiscal year 1994-95. For fiscal year 1996-97, the estimated
General Revenue plus Working Capital and Budget Stabilization funds available
are reported to be $16.6 billion, a 7.7% increase over fiscal year 1995-96. The
1997 budget incorporates a 4.9% increase in revenues. The Florida and United
States unemployment rates for 1995 were 5.5% and 5.6%, respectively. The
estimated Florida and United States unemployment rates for 1996 and 1997 are
reported to be 5.3% and 5.4%, respectively.
In 1993, the State constitution was amended to limit the annual growth in the
assessed valuation of residential property. This amendment may, over time,
constrain the growth in property taxes, a major revenue source for local
governments. 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 ruled that shares of a
Florida series fund owned by a Florida resident will be exempt from the Florida
Intangible Personal Property Tax so long as the fund's portfolio includes on
January 1 of each year only assets, such as Florida tax-exempt securities and
United States Government securities, that are exempt from the Florida Intangible
Personal Property Tax. Although the date of valuation is prescribed as the close
of business on the last business day of the previous calendar year, only the
assets held in the portfolio of the fund on January 1 are to be valued.
The Florida Portfolio will normally attempt to invest substantially all of its
assets in tax-exempt obligations of Florida, the United States, the Territories
or political subdivisions of the United States or Florida ("Florida
Obligations"), and it will strive to hold on January 1 of each year, only assets
that are exempt from the Florida intangibles tax. Accordingly, the value of the
Florida Fund shares held by a shareholder should, under normal circumstances, be
exempt from the Florida intangibles tax.
HAWAII. The Hawaiian economy is concentrated in tourism, agriculture,
construction and military operations. Tourism is Hawaii's largest economic
sector. Following a decline in 1992 to 1993, tourism rebounded strongly,
enjoying its third full year of recovery during 1996. Total visitor arrivals in
Hawaii for 1996 was up 3.6% over 1995, albeit still short of the peak year of
1990. Growth in the eastbound market segment, combined with a more modest
westbound increase resulted in an overall increase in visitor count. Growth in
eastbound visitor arrivals was strong, particularly given Japan's continued
economic stagnation. The most significant new development for Hawaii tourism is
construction of the State's new Convention Center just outside Waikiki which is
scheduled to come on line in 1998 with the capability to book large conventions.
Agriculture, long dominated by the Hawaiian pineapple and sugar trade, continues
to make its transition from a plantation-dominated sector to one more balanced
by diversified crops. A decrease in a portion of Hawaii's agricultural exports
will be partly offset by an increase in import- substituting local production. A
combination of uncertainty regarding the future of federal farm price supports
and the expiration of long-term agricultural land leases has resulted in a
removal of 80,000 acres on the islands of Hawaii and Oahu out of a total of
160,000 plantation acres statewide at the start of the decade. The outlook for
agriculture will be dictated by the transition from plantation acreage to
diversified crops and irreversible development of other prime agricultural
lands.
Hawaii's construction industry continues to be in a cyclical trough dating back
to at least 1995. It is expected to rebound in 1997-1998 only if private
construction grows rapidly enough to offset a reduction or stabilization of
public construction reflecting County, State and federal government fiscal
austerity. On the other hand, the State government announced plans to push a $1
billion public construction spending program beginning in 1997 in an effort to
assist the construction industry and help prime the State economy. Overbuilding
in the luxury resort and condominium markets, together with a large downtown
Honolulu office space inventory, resulted in an increased decline in
construction spending since 1992. Reconstruction on the Island of Kauai
following Hurricane Iniki slowed the decline, but has largely been completed. By
1995 construction spending had declined to just under $3.15 billion and
increased slightly by 1.4% to just under $3.2 billion in 1996.
Hawaii's economic recovery during 1995 and 1996 continues to be slow and uneven
at best. Because employment figures tend to lag economic recovery, 1996 was the
first year that Hawaii's economic recovery is reflected in measures such as job
growth and unemployment. Employment increased 2% during 1996 after a period of
significant restructuring in the private sector and, beginning in 1995, in the
public sector as well.
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.
Lean economic times for the State continue to be reflected in fiscal austerity
for State and County governments in Hawaii during the 1990s. Both levels of
government find their tax bases slightly eroded because of a stagnant economy
and shrinking commercial real estate values although there are some signs that
such erosion has reached its bottom. State and County government has responded
to these fiscal pressures with attempts to pare back government spending and
programs. This in turn has affected the economy directly through lower
expenditures and increased taxes and fees, as well as indirectly through its
depressing effect on business and consumer confidence. Calendar year 1996 tax
results show an improvement as a result of the emerging economic recovery. Total
tax receipts from all sources increased 3.8% in nominal terms to $3.1 billion
during calendar year 1996. The forecast is for the in gross State product to
increase in 1997 and stabilize at a moderate 2.5% annual rate through the
balance of the decade.
Hawaii general obligation bonds are rated Aa3 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 dropped to 4.1% in 1996 from 4.7% in
1995, as compared to the national unemployment rate of 5.6% in 1996. The growth
of Kansas personal income in 1996 is estimated to be 6.2% compared with 5.8% in
1995 and compared with a 1996 U.S. growth rate of 6.0%.
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 5.8% of tax revenues in 1996, increasing dramatically from $30 million in
1980 to $380.1 million in 1996 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 1996 General Fund showed total revenues of $3.4 billion
against total expenditures of $3.4 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
L.L.P., 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
dividends derived from shares of 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 has slowed through
1996. Growth in fiscal 1996 was 3.1%. Growth is dependent on 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. Section 936 (a tax incentive that
has encouraged economic growth in Puerto Rico) will be phased out over a ten
year period. At this time, it is uncertain as to the implication the change will
have on the Puerto Rican economy. Although the Puerto Rico unemployment rate has
declined substantially since 1985, the seasonally adjusted unemployment rate for
1996 was approximately 13.8%. The North American Free Trade Agreement (NAFTA),
which became effective January 1, 1994, could lead to the loss of Puerto Rico's
lower salaried or labor intensive jobs to Mexico.
S&P rates Puerto Rico general obligations debt A, while Moody's rates it Baa1;
these ratings have been in place since 1956 and 1976, respectively. S&P assigned
a negative outlook on Puerto Rico's rating on April 26, 1994 which was changed
to stable on December 16, 1996.
<PAGE>
[Logo]
EV TRADITIONAL MUNICIPAL FUNDS
PROSPECTUS
JUNE 1, 1997
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,
P.O. Box 5123, Westborough, Ma 01581-5123
(800) 262-1122
AUDITORS
Deloitte & Touche LLP
125 Summer Street
Boston, MA 021110
T-TFC6/1P
<PAGE>
PART A
INFORMATION REQUIRED IN A PROSPECTUS
EV MARATHON
HIGH YIELD MUNICIPALS FUND
- --------------------------------------------------------------------------------
EV MARATHON HIGH YIELD MUNICIPALS FUND (THE "FUND") IS A MUTUAL FUND SEEKING
TO PROVIDE HIGH CURRENT INCOME EXEMPT FROM REGULAR FEDERAL INCOME TAX. THE
FUND INVESTS ITS ASSETS IN HIGH YIELD MUNICIPALS PORTFOLIO (THE "PORTFOLIO"),
A NON-DIVERSIFIED OPEN-END INVESTMENT COMPANY HAVING THE SAME INVESTMENT
OBJECTIVE AS THE FUND, RATHER THAN BY DIRECTLY INVESTING IN AND MANAGING ITS
OWN PORTFOLIO OF SECURITIES. THE FUND IS A NON-DIVERSIFIED SERIES OF EATON
VANCE MUNICIPALS TRUST II (THE "TRUST").
THE PORTFOLIO MAY INVEST UP TO 100% OF ITS ASSETS IN BELOW INVESTMENT GRADE
MUNICIPAL BONDS, COMMONLY KNOWN AS "JUNK BONDS", THAT ENTAIL GREATER RISKS,
INCLUDING DEFAULT, THAN THOSE OF HIGHER-RATED SECURITIES. SEE "INVESTMENT
POLICIES AND RISKS".
Shares of the Fund are not deposits or obligations of, or guaranteed or
endorsed by, any bank or other insured depository institution, and are not
federally insured by the Federal Deposit Insurance Corporation, the Federal
Reserve Board or any other government agency. Shares of the Fund involve
investment risks, including fluctuations in value and the possible loss of
some or all of the principal investment.
This Prospectus is designed to provide you with information you should know
before investing. Please retain this document for future reference. A
Statement of Additional Information dated June 1, 1997 for the Fund, as
supplemented from time to time, has been filed with the Securities and
Exchange Commission (the "Commission") and is incorporated herein by
reference. The Statement of Additional Information is available without charge
from the Fund's principal underwriter, Eaton Vance Distributors, Inc. (the
"Principal Underwriter"), 24 Federal Street, Boston, MA 02110 (telephone (800)
225-6265). The Portfolio's investment adviser is Boston Management and
Research (the "Investment Adviser"), a wholly-owned subsidiary of Eaton Vance
Management, and Eaton Vance Management is the administrator (the
"Administrator") of the Fund. The offices of the Investment Adviser and the
Administrator are located at 24 Federal Street, Boston, MA 02110.
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAGE PAGE
<S> <C> <C> <C>
Shareholder and Fund Expenses ......................... 2 How to Redeem Fund Shares ......................... 11
The Fund's Financial Highlights ....................... 3 Reports to Shareholders ........................... 13
The Fund's Investment Objective ....................... 4 The Lifetime Investing Account/Distribution Options 13
Investment Policies and Risks ......................... 4 The Eaton Vance Exchange Privilege ................ 14
Organization of the Fund and the Portfolio ............ 7 Eaton Vance Shareholder Services .................. 15
Management of the Fund and the Portfolio .............. 8 Distributions and Taxes ........................... 15
Distribution Plan ..................................... 9 Performance Information ........................... 16
Valuing Fund Shares ................................... 10 Appendix A ........................................ 17
How to Buy Fund Shares ................................ 10 Appendix B ........................................ 18
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
PROSPECTUS DATED JUNE 1, 1997
<PAGE>
SHAREHOLDER AND FUND EXPENSES
- --------------------------------------------------------------------------------
<TABLE>
SHAREHOLDER TRANSACTION EXPENSES
- ---------------------------------------------------------------------------------------------------------
<S> <C>
Sales Charges Imposed on Purchases of Shares None
Sales Charges Imposed on Reinvested Distributions None
Fees to Exchange Shares None
Range of Declining Contingent Deferred Sales Charges Imposed on Redemptions
During the First Seven Years (as a percentage of redemption proceeds exclusive
of all reinvestments and capital appreciation in the account) 5.00%-0%
ANNUAL FUND AND ALLOCATED PORTFOLIO OPERATING EXPENSES (as a percentage of
average daily net assets)
- ---------------------------------------------------------------------------------------------------------
Investment Adviser Fee 0.60%
Rule 12b-1 Distribution (and Service) Fees 0.79
Other Expenses 0.34
----
Total Operating Expenses 1.73%
====
</TABLE>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
An investor would pay the following
contingent deferred sales charge and
expenses on a $1,000 investment,
assuming (a) 5% annual return and (b)
redemption at the end of each period: $68 $94 $114 $204
An investor would pay the following
expenses on the same investment,
assuming (a) 5% annual return and
(b) no redemptions: $18 $54 $ 94 $204
NOTES:
The table and Example summarize the aggregate expenses of the Fund and the
Portfolio and are designed to help investors understand the costs and expenses
they will bear, directly or indirectly, by investing in the Fund. Information
for the Fund is based on its expenses for the most recent fiscal year, except
for the Investment Adviser Fee which is estimated for the current fiscal year.
The Example should not be considered a representation of past or future
expenses, and actual expenses may be greater or less than those shown. Federal
regulations require the Example to assume a 5% annual return, but actual
annual return will vary. For further information regarding the expenses of
both the Fund and the Portfolio see "The Fund's Financial Highlights",
"Management of the Fund and the Portfolio" and "How to Redeem Fund Shares". A
long-term shareholder in the Fund may pay more than the economic equivalent of
the maximum front-end sales charge permitted by a rule of the National
Association of Securities Dealers, Inc. See "Distribution Plan".
No contingent deferred sales charge is imposed on (a) shares purchased more
than six years prior to redemption, (b) shares acquired through the
reinvestment of distributions or (c) any appreciation in value of other shares
in the account (see "How to Redeem Fund Shares"), and no such charge is
imposed on exchanges of Fund shares for shares of one or more other funds
listed under "The Eaton Vance Exchange Privilege".
The Portfolio's monthly advisory fee has two components, a fee based on daily
net assets and a fee based on daily gross income, as set forth in the fee
schedule on page 8.
The Fund invests exclusively in the Portfolio. Other investment companies with
different distribution arrangements and fees are investing in the Portfolio
and others may do so in the future. See "Organization of the Fund and the
Portfolio".
<PAGE>
THE FUND'S FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The following information should be read in conjunction with the audited
financial statements that appear in the Fund's annual report to shareholders.
The Fund's financial statements have been audited by Deloitte & Touche LLP,
independent certified public accountants, as experts in accounting and
auditing. The financial statements and the independent auditors' report are
incorporated by reference into the Statement of Additional Information.
Further information regarding the performance of the Fund is contained in its
annual report to shareholders which may be obtained without charge by
contacting the Principal Underwriter.
- ------------------------------------------------------------------------------
YEAR ENDED JANUARY 31,
------------------------
1997 1996*
---- -----
NET ASSET VALUE, beginning of period $10.650 $10.000
------- -------
INCOME FROM OPERATIONS:
Net investment income $ 0.626 $ 0.299
Net realized and unrealized gain (loss) on
investments (0.026) 0.657
------- -------
Total income from operations $ 0.600 $ 0.956
------- -------
LESS DISTRIBUTIONS:
From net investment income $(0.626) $(0.299)
In excess of net investment income(1) (0.003) (0.007)
From net realized gain on investments (0.001) --
------- -------
Total distributions $(0.630) $(0.306)
------- -------
NET ASSET VALUE, end of year $10.620 $10.650
======= =======
TOTAL RETURN(2) 5.90% 9.40%
RATIOS/SUPPLEMENTAL DATA**:
Net assets, end of period (000's omitted) $123,024 $43,520
Ratio of net expenses to average net assets(3) 1.36% 0.88%+
Ratio of net expenses to average net assets after
custodian fee reduction(3) 1.32% 0.88%+
Ratio of net investment income to average net
assets 5.91% 5.86%+
**For the periods indicated, the operating expenses of the Fund and the
Portfolio reflect an assumption of expenses by the Administrator and/or the
Investment Adviser. Had such actions not been taken, net investment income
per share and the ratios would have been as follows:
Net investment income per share $ 0.587 $ 0.254
======= =======
RATIOS/SUPPLEMENTAL DATA:
Expenses(3) 1.73% 1.77%+
Expenses after custodian fee reduction(3) 1.69% 1.77%+
Net investment income 5.54% 4.97%+
----------
* For the period from the start of business, August 7, 1995, to January 31,
1996.
+ Computed on an annualized basis.
(1) The Fund has followed the Statement of Position (SOP) 93-2: Determination,
Disclosure and Financial Statement Presentation of Income, Capital Gain, and
Return of Capital Distribution by Investment Companies. The SOP requires
that differences in the recognition or classification of income between the
financial statements and tax earnings and profits that result in temporary
over-distributions for financial statement purposes, are classified as
distributions in excess of net investment income or accumulated net realized
gains.
(2) Total investment return is calculated assuming a purchase at the net asset
value on the first day and a sale at the net asset value on the last day of
each period reported. Distributions, if any, are assumed to be reinvested at
the net asset value on the payable date. Total return is calculated on a
non-annualized basis.
(3) Includes the Fund's share of the Portfolio's allocated expenses.
<PAGE>
THE FUND'S INVESTMENT OBJECTIVE
- --------------------------------------------------------------------------------
THE FUND'S INVESTMENT OBJECTIVE IS TO PROVIDE HIGH CURRENT INCOME EXEMPT FROM
REGULAR FEDERAL INCOME TAX. The Fund currently seeks to meet its investment
objective by investing its assets in High Yield Municipals Portfolio (the
"Portfolio"), a separate registered investment company which has the same
investment objective and policies as the Fund. The investment objective and
nonfundamental policies of the Fund may be changed by the Trustees without a
vote of shareholders. The Fund may not be appropriate for investors who cannot
assume the greater risk of capital depreciation or loss inherent in seeking
higher tax-exempt yields.
INVESTMENT POLICIES AND RISKS
- --------------------------------------------------------------------------------
THE PORTFOLIO SEEKS TO ACHIEVE ITS OBJECTIVE BY INVESTING PRINCIPALLY IN HIGH-
YIELDING, BELOW INVESTMENT GRADE MUNICIPAL OBLIGATIONS. Below investment grade
municipal obligations are obligations that are rated Ba or lower by Moody's
Investors Service, Inc. ("Moody's"), or BB or lower by Standard & Poor's
Ratings Group ("S&P") or Fitch Investors Service, Inc. ("Fitch"), or that are
unrated but determined by the Investment Adviser to be of comparable quality.
For a description of the ratings assigned by the rating agencies, see Appendix
B. Below investment grade municipal obligations, commonly known as "junk
bonds", generally offer higher current yields than higher rated securities,
but are subject to greater risks. Securities in the lower-rated categories are
considered to be of poor standing and predominantly speculative. The Portfolio
may also invest a portion of its assets in municipal obligations that are not
paying current income in anticipation of possible future income. For more
detailed information about the risks associated with investing in such
securities, see "Additional Risk Considerations" below.
Although the Portfolio may invest in securities of any maturity, it is
expected that the Portfolio will normally invest a substantial portion of its
assets in securities with maturities of ten years or more. Those securities
generally offer higher yields than securities of shorter maturities, but are
subject to greater fluctuations in value in response to changes in interest
rates. Since the Portfolio's objective is to provide high current income, the
Portfolio will invest in municipal obligations with an emphasis on income and
not on stability of the Portfolio's net asset value. The average maturity of
the Portfolio's holdings may vary (generally between 15 and 30 years)
depending on anticipated market conditions.
The Portfolio will normally invest at least 65% of its assets in investment
grade and below investment grade municipal obligations. As a matter of
fundamental policy, the Portfolio will normally invest at least 80% of its
assets in debt obligations issued by or on behalf of states, territories and
possessions of the United States, and the District of Columbia and their
political subdivisions, agencies or instrumentalities, the interest on which
is, in the opinion of bond counsel, exempt from regular federal income tax.
(As a matter of fundamental policy, the Fund will normally invest either
directly, or indirectly through another investment company, at least 80% of
its assets in such obligations.)
At times, the Portfolio may, for temporary defensive purposes, such as during
abnormal market or economic conditions, invest any portion of its assets in
higher-rated municipal obligations or other securities, the interest on which
may not be exempt from regular federal income tax, and may hold any portion of
its assets in cash. It is impossible to predict when, or for how long, the
Portfolio would engage in such strategies.
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, or from the proceeds of a
specific revenue source. Some revenue bonds are payable solely or partly from
funds subject to annual appropriations by a state's legislature. Municipal
notes include bond, tax and revenue anticipation notes, which are short-term
obligations that will be retired with the proceeds of an anticipated bond
issue, tax revenue or facility revenue, respectively.
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, 1997, the Portfolio had 40.4% of its net assets invested in
such obligations. Distributions to corporate investors of certain interest
income may also be subject to the AMT. The Fund may not be suitable for
investors subject to the AMT.
CONCENTRATION. The Portfolio may invest 25% or more of its assets in municipal
obligations of issuers located in the same state or in municipal obligations
of the same type, including without limitation the following: general
obligations of states and localities; lease rental obligations of state and
local authorities; obligations dependent on annual appropriations by a state's
legislature for payment; obligations of state and local housing finance
authorities, municipal utilities systems or public housing authorities;
obligations of hospitals or life care facilities; or industrial development or
pollution control bonds issued for electric utility systems, steel companies,
paper companies or other purposes. This may make the Portfolio more
susceptible to adverse economic, political, or regulatory occurrences
affecting a particular category of issuers. For example, health-care related
issuers are susceptible to medicaid reimbursement policies, and national and
state health care legislation. In addition, municipal obligations that rely on
an annual appropriation of funds by a state's legislature for payment are also
subject to the risk that the legislature will not appropriate the necessary
amounts or take other action needed to permit the issuer of such obligations
to make required payments. As the Portfolio's concentration in the securities
of a particular category of issuer increases, so does the potential for
fluctuation in the value of the Fund's shares.
NON-DIVERSIFIED STATUS. As a "non-diversified" investment company, the
Portfolio may invest, with respect to 50% of its total assets, more than 5%
(but not more than 25%) of its total assets in the securities of any issuer.
The Portfolio is likely to invest a greater percentage of its assets in the
securities of a single issuer than would a diversified fund. Therefore, the
Portfolio is more susceptible to any single adverse economic or political
occurrence or other adverse development affecting certain issuers.
OTHER INVESTMENT PRACTICES
The Portfolio may engage in the following investment practices, some of which
may be considered to involve "derivative" instruments because they derive
their value from another instrument, security or index. In addition, the
Portfolio may also temporarily borrow up to 5% of the value of its total
assets to satisfy redemption requests or settle securities transactions.
WHEN-ISSUED SECURITIES. The Portfolio may purchase securities on a "when-
issued" basis, which means that payment and delivery occur on a future
settlement date. The price and yield of such securities are generally fixed on
the date of commitment to purchase. However, the market value of the
securities may fluctuate prior to delivery and upon delivery the securities
may be worth more or less than the Portfolio agreed to pay for them. The
Portfolio may also purchase instruments that give the Portfolio the option to
purchase a municipal obligation when and if issued.
INVERSE FLOATERS. The Portfolio may invest in municipal securities whose
interest rates bear an inverse relationship to the interest rate on another
security or the value of an index ("inverse floaters"). An investment in
inverse floaters may involve greater risk than an investment in a fixed rate
bond. Because changes in the interest rate on the other security or index
inversely affect the residual interest paid on the inverse floater, the value
of an inverse floater is generally more volatile than that of a fixed rate
bond. Inverse floaters have interest rate adjustment formulas which generally
reduce or, in the extreme, eliminate the interest paid to the Portfolio when
short-term interest rates rise, and increase the interest paid to the
Portfolio when short-term interest rates fall. Inverse floaters have varying
degrees of liquidity, and the market for these securities is new and
relatively volatile. These securities tend to underperform the market for
fixed rate bonds in a rising interest rate environment, but tend to outperform
the market for fixed rate bonds when interest rates decline. Shifts in long-
term interest rates may, however, alter this tendency. Although volatile,
inverse floaters typically offer the potential for yields exceeding the yields
available on fixed rate bonds with comparable credit quality and maturity.
These securities usually permit the investor to convert the floating rate to a
fixed rate (normally adjusted downward), and this optional conversion feature
may provide a partial hedge against rising rates if exercised at an opportune
time. Inverse floaters are leveraged because they provide two or more dollars
of bond market exposure for every dollar invested.
FUTURES TRANSACTIONS. The Portfolio may purchase and sell various kinds of
financial futures contracts and options thereon to hedge against changes in
interest rates. Futures contracts may be based on various debt securities
(such as U.S. Government securities and municipal obligations) and securities
indices (such as the Municipal Bond Index traded on the Chicago Board of
Trade). Such transactions involve a risk of loss or depreciation due to
unanticipated adverse changes in securities prices, which may exceed the
Portfolio's initial investment in these contracts. The Portfolio may not
purchase or sell futures contracts or related options, except for closing
purchase or sale transactions, if immediately thereafter the sum of the amount
of margin deposits and premiums paid on the Portfolio's outstanding positions
would exceed 5% of the market value of the Portfolio's net assets. These
transactions involve transaction costs. There can be no assurance that the
Investment Adviser's use of futures will be advantageous to the Portfolio.
Distributions by the Fund of any gains realized on the Portfolio's
transactions in futures and options on futures will be taxable.
ADDITIONAL RISK CONSIDERATIONS
Investors should carefully consider their ability to assume the risks of
owning shares of a mutual fund that invests in below investment grade
municipal obligations (commonly known as "junk bonds") before making an
investment in the Fund. The lower ratings of certain securities held by the
Portfolio reflect a greater possibility that adverse changes in the financial
condition of an issuer, or in general economic conditions, or both, or an
unanticipated rise in interest rates, may impair the ability of the issuer to
make payments of interest and principal. The inability (or perceived
inability) of issuers to make timely payment of interest and principal would
likely make the values of securities held by the Fund more volatile and could
limit the Portfolio's ability to sell its securities at prices approximating
the values the Portfolio has placed on such securities. It is possible that
legislation may be adopted in the future limiting the ability of certain
financial institutions to purchase such securities; such legislation may
adversely affect the liquidity of such securities. In the absence of a liquid
trading market for securities held by it, the Portfolio may be unable at times
to establish the fair market value of such securities. The rating assigned to
a security by a rating agency does not reflect an assessment of the volatility
of the security's market value or of the liquidity of an investment in the
security. Credit ratings are based largely on the issuer's historical
financial condition and the rating agency's investment analysis at the timing
of rating, and the rating assigned to any particular security is not
necessarily a reflection of the issuer's current financial condition. Credit
quality in the high yield, high risk municipal bond market can change from
time to time, and recently issued credit ratings may not fully reflect the
actual risks posed by a particular high yield security.
The net asset value of shares of the Fund will change in response to
fluctuations in prevailing interest rates and changes in the value of the
securities held by the Portfolio. When interest rates decline, the value of
securities already held by the Portfolio can be expected to rise. Conversely,
when interest rates rise, the value of most portfolio security holdings can be
expected to decline. Changes in the credit quality of issuers of municipal
obligations held by the Portfolio will affect the principal value of (and
possibly the income earned on) such obligations. In addition, the values of
such securities are affected by changes in general economic conditions and
business conditions affecting the specific industries of their issuers.
Changes by recognized rating services in their ratings of a security and in
the ability of an issuer to make payments of principal and interest may also
affect the value of the Portfolio's investments. The Portfolio will not
dispose of a security solely because its rating is reduced below its rating at
the time of purchase, although the Investment Adviser will monitor the
investment to determine whether continued investment in the security will
assist in meeting the Portfolio's investment objective.
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. Interest and/or principal payments on securities in default could be in
arrears when such securities are acquired, and the issuer may be in bankruptcy
or undergoing a debt restructuring or reorganization. In order to enforce its
rights in the event of a default under such securities, the Portfolio may be
required to take possession of and manage assets securing the issuer's
obligations on such securities, which may increase the Portfolio's operating
expenses and adversely affect the Portfolio's net asset value. Any income
derived from the Portfolio's ownership or operation of such assets may not be
tax-exempt.
The secondary market for such municipal obligations in which the Portfolio may
invest is less liquid than that for many taxable debt obligations or other
more widely traded municipal obligations. The Portfolio will not invest in
illiquid securities if more than 15% of its net assets would be invested in
securities not readily marketable. No established resale market exists for
certain of the municipal obligations in which the Portfolio may invest. The
market for obligations rated below investment grade is also likely to be less
liquid than the market for higher rated obligations. As a result, the
Portfolio may be unable to dispose of these municipal obligations at times
when it would otherwise wish to do so at the prices at which they are valued.
Certain securities held by the Portfolio may permit the issuer at its option
to "call", or redeem, its securities. If an issuer 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 the Portfolio invests may include so-called
"zero-coupon" bonds, whose values are subject to greater fluctuation in
response to changes in market interest rates than bonds which pay interest
currently. Zero-coupon bonds are issued at a significant discount from face
value and pay interest only at maturity rather than at intervals during the
life of the security. The Portfolio is required to accrue income from zero-
coupon bonds on a current basis, even though it does not receive that income
currently in cash, and the Fund is required to distribute its share of the
Portfolio's income for each taxable year. Thus, the Portfolio may have to sell
other investments to obtain cash needed to make income distributions.
The Portfolio may invest in municipal leases, and participations in municipal
leases. The obligation of the issuer to meet its obligations under such leases
is often subject to the appropriation by the appropriate legislative body, on
an annual or other basis, of funds for the payment of the obligations.
Investments in municipal leases are thus subject to the risk that the
legislative body will not make the necessary appropriation and the issuer will
not otherwise be willing or able to meet its obligations.
The Investment Adviser seeks to minimize the risks of investing in below
investment grade securities through professional investment analysis and
attention to current developments in interest rates and economic conditions.
When the Portfolio invests in such municipal obligations, the achievement of
the Portfolio's goals is more dependent on the Investment Adviser's ability
than would be the case if the Portfolio were investing in municipal
obligations in the higher rating categories. The amount of information about
the financial conditions of an issuer of municipal obligations may not be as
extensive as that which is made available by corporations whose securities are
publicly traded.
THE FUND AND THE PORTFOLIO HAVE ADOPTED CERTAIN FUNDAMENTAL INVESTMENT
RESTRICTIONS WHICH ARE ENUMERATED IN DETAIL IN THE STATEMENT OF ADDITIONAL
INFORMATION AND WHICH MAY NOT BE CHANGED UNLESS AUTHORIZED BY A
SHAREHOLDER VOTE AND AN INVESTOR VOTE, RESPECTIVELY. EXCEPT FOR SUCH
ENUMERATED RESTRICTIONS AND AS OTHERWISE INDICATED IN THIS PROSPECTUS, THE
INVESTMENT OBJECTIVE AND POLICIES OF THE FUND AND THE PORTFOLIO ARE NOT
FUNDAMENTAL POLICIES AND ACCORDINGLY MAY BE CHANGED BY THE TRUSTEES OF THE
TRUST AND THE PORTFOLIO WITHOUT OBTAINING THE APPROVAL OF THE FUND'S
SHAREHOLDERS OR THE INVESTORS IN THE PORTFOLIO, AS THE CASE MAY BE.
ORGANIZATION OF THE FUND AND THE PORTFOLIO
- --------------------------------------------------------------------------------
THE FUND IS A NON-DIVERSIFIED SERIES OF EATON VANCE MUNICIPALS TRUST II, A
BUSINESS TRUST ESTABLISHED UNDER MASSACHUSETTS LAW PURSUANT TO A DECLARATION
OF TRUST DATED OCTOBER 25, 1993, AS AMENDED. The 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 (such as the Fund). Each share
represents an equal proportionate beneficial interest in the Fund. When issued
and outstanding, the shares are fully paid and nonassessable by the Trust and
redeemable as described under "How to Redeem Fund Shares". There are no annual
meetings of shareholders, but special meetings may be held as required by law
to elect Trustees and consider certain other matters. Shareholders are
entitled to one vote for each full share held. Fractional shares may be voted
proportionately. Shares have no preemptive or conversion rights and are freely
transferable. In the event of the liquidation of the Fund, shareholders are
entitled to share pro rata in the net assets of the Fund available for
distribution to shareholders.
THE PORTFOLIO IS ORGANIZED AS A TRUST UNDER THE LAWS OF THE STATE OF NEW YORK
AND INTENDS TO BE TREATED AS A PARTNERSHIP FOR FEDERAL TAX PURPOSES. The
Portfolio, as well as the Trust, intends to comply with all applicable federal
and state securities laws. The Portfolio's Declaration of Trust provides that
the Fund and other entities permitted to invest in the Portfolio (e.g., other
U.S. and foreign investment companies, and common and commingled trust funds)
will each be liable for all obligations of the Portfolio. However, the risk of
the Fund incurring financial loss on account of such liability is limited to
circumstances in which both inadequate insurance exists and the Portfolio
itself is unable to meet its obligations. Accordingly, the Trustees of the
Trust believe that neither the Fund nor its shareholders will be adversely
affected by reason of the Fund investing in the Portfolio.
The Trustees of the Trust have considered the advantages and disadvantages of
investing the assets of the Fund in the Portfolio, as well as the advantages
and disadvantages of the two-tier format. The Trustees believe that the
structure offers opportunities for substantial growth in the assets of the
Portfolio, affords the potential for economies of scale for the Fund (at least
when the assets of the Portfolio exceed $500 million) and may overtime result
in lower expenses for the Fund.
In addition to selling an interest to the Fund, the Portfolio may sell
interests to other affiliated and non-affiliated mutual funds or institutional
investors. Such investors will invest in the Portfolio on the same terms and
conditions and will pay a proportionate share of the Portfolio's expenses.
However, the other investors investing in the Portfolio are not required to
sell their shares at the same public offering price as the Fund due to
variations in sales commissions and other operating expenses. Therefore, these
differences may result in differences in returns experienced by investors in
the various funds that invest in the Portfolio. Such differences in returns
are also present in other mutual fund structures, including funds that have
multiple classes of shares. Information regarding other pooled investment
entities or funds which invest in the Portfolio may be obtained by contacting
the Principal Underwriter, 24 Federal Street, Boston, MA 02110, (617)
482-8260.
Whenever the Fund as an investor in the Portfolio is requested to vote on
matters pertaining to the Portfolio (other than the termination of the
Portfolio's business, which may be determined by the Trustees of the Portfolio
without investor approval), the Fund will hold a meeting of Fund shareholders
and will vote its interest in the Portfolio for or against such matters
proportionately to the instructions to vote for or against such matters
received from Fund shareholders. The Fund shall vote shares for which it
receives no voting instructions in the same proportion as the shares for which
it receives voting instructions. Other investors in the Portfolio may alone or
collectively acquire sufficient voting interests in the Portfolio to control
matters relating to the operation of the Portfolio, which may require the Fund
to withdraw its investment in the Portfolio or take other appropriate action.
Any such withdrawal could result in a distribution "in kind" of portfolio
securities (as opposed to a cash distribution from the Portfolio). If
securities are distributed, the Fund could incur brokerage, tax or other
charges in converting the securities to cash. In addition, the distribution in
kind may result in a less diversified portfolio of investments or adversely
affect the liquidity of the Fund. Notwithstanding the above, there are other
means for meeting shareholder redemption requests, such as borrowing.
The Fund may withdraw (completely redeem) all its assets from the Portfolio at
any time if the Board of Trustees of the Trust determines that it is in the
best interest of the Fund to do so. In the event the Fund withdraws all of its
assets from the Portfolio, or the Board of Trustees of the Trust determines
that the investment objective of the Portfolio is no longer consistent with
the investment objective of the Fund, the Trustees would consider what action
might be taken, including investing the assets of the Fund in another pooled
investment entity or retaining an investment adviser to manage the Fund's
assets in accordance with its investment objective. The Fund's investment
performance may be affected by a withdrawal of all its assets (or the assets
of another investor in the Portfolio) from the Portfolio.
MANAGEMENT OF THE FUND AND THE PORTFOLIO
- --------------------------------------------------------------------------------
THE PORTFOLIO ENGAGES BOSTON MANAGEMENT AND RESEARCH ("BMR"), A WHOLLY-OWNED
SUBSIDIARY OF EATON VANCE MANAGEMENT ("EATON VANCE"), AS ITS INVESTMENT
ADVISER. EATON VANCE, ITS AFFILIATES AND ITS PREDECESSOR COMPANIES HAVE BEEN
MANAGING ASSETS OF INDIVIDUALS AND INSTITUTIONS SINCE 1924 AND MANAGING
INVESTMENT COMPANIES SINCE 1931.
Acting under the general supervision of the Board of Trustees of the
Portfolio, BMR manages the Portfolio's investments and affairs. BMR also
furnishes for the use of the Portfolio office space and all necessary office
facilities, equipment and personnel for servicing the investments of the
Portfolio. Under its investment advisory agreement with the Portfolio, BMR
receives a monthly advisory fee equal to the aggregate of
(a) a daily asset based fee computed by applying the annual asset rate
applicable to that portion of the total daily net assets in each Category
as indicated below, plus
(b) a daily income based fee computed by applying the daily income rate
applicable to that portion of the total daily gross income (which portion
shall bear the same relationship to the total daily gross income on such
day as that portion of the total daily net assets in the same Category
bears to the total daily net assets on such day) in each Category as
indicated below:
<TABLE>
<CAPTION>
ANNUAL DAILY
CATEGORY DAILY NET ASSETS ASSET RATE INCOME RATE
- ----------------------------------------------------------------------------------------------------
<C> <C> <C> <C>
1 up to $500 million 0.350% 3.50%
2 $500 million but less than $1 billion 0.325% 3.25%
3 $1 billion but less than $1.5 billion 0.300% 3.00%
4 $1.5 billion but less than $2 billion 0.275% 2.75%
5 $2 billion but less than $3 billion 0.250% 2.50%
6 $3 billion and over 0.225% 2.25%
</TABLE>
As at January 31, 1997, the Portfolio had net assets of $180,700,459. For the
fiscal year ended January 31, 1997, absent a fee reduction, the Portfolio
would have paid BMR advisory fees equivalent to 0.60% of the Portfolio's
average daily net assets.
BMR OR EATON VANCE ACTS AS INVESTMENT ADVISER TO INVESTMENT COMPANIES AND
VARIOUS INDIVIDUAL AND INSTITUTIONAL CLIENTS WITH ASSETS UNDER MANAGEMENT OF
OVER $17 BILLION. Eaton Vance is a wholly-owned subsidiary of Eaton Vance
Corp., a publicly-held holding company which through its subsidiaries and
affiliates engages primarily in investment management, administration and
marketing activities. The Principal Underwriter is a wholly-owned subsidiary
of Eaton Vance.
Thomas M. Metzold has acted as the portfolio manager of the Portfolio since it
commenced operations. He has been a Vice President of Eaton Vance since 1991
and of BMR since 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 Portfolio and at reasonably competitive spreads. Subject
to the foregoing, BMR may consider sales of shares of the Fund or of other
investment companies sponsored by BMR or Eaton Vance as a factor in the
selection of firms to execute portfolio transactions. The Fund, the Portfolio
and BMR have adopted Codes of Ethics relating to personal securities
transactions. The Codes permit Eaton Vance personnel to invest in securities
(including securities that may be purchased or held by the Portfolio) for
their own accounts, subject to certain pre-clearance, reporting and other
restrictions and procedures contained in such Codes.
The Trust has retained the services of Eaton Vance to act as Administrator of
the Fund. The Trust has not retained the services of an investment adviser
since the Trust seeks to achieve the investment objective of the Fund by
investing its assets in the Portfolio. As Administrator, Eaton Vance provides
the Fund with general office facilities and supervises the overall
administration of the Fund. For these services, Eaton Vance currently receives
no compensation. The Trustees of the Trust may determine, in the future, to
compensate Eaton Vance for such services.
The Portfolio and the Fund, as the case may be, will each be responsible for
all of its respective costs and expenses not expressly stated to be payable by
BMR under the investment advisory agreement, by Eaton Vance under the
administrative services agreement, or by the Principal Underwriter under the
distribution agreement.
DISTRIBUTION PLAN
- --------------------------------------------------------------------------------
The Fund has adopted a Distribution Plan ("Plan") pursuant to Rule 12b-1 under
the Investment Company Act of 1940 ("1940 Act"). UNDER THE PLAN, THE FUND MAY
PAY THE PRINCIPAL UNDERWRITER A FEE, ACCRUED DAILY AND PAID MONTHLY, AT AN
ANNUAL RATE NOT EXCEEDING .75% OF ITS AVERAGE DAILY NET ASSETS TO FINANCE THE
DISTRIBUTION OF FUND SHARES. The Plan provides that the Fund may use such fees
to compensate the Principal Underwriter for sales commissions paid by it to
financial services firms ("Authorized Firms") on the sale of Fund shares and
for interest expenses. The Principal Underwriter uses its own funds to pay
sales commissions (except on exchange transactions and reinvestments) to
Authorized Firms at the time of sale equal to 4% of the purchase price of the
shares sold by such Firms. Contingent deferred sales charges paid to the
Principal Underwriter will be used to reduce amounts owed to it. Because
payments to the Principal Underwriter by the Fund are limited, uncovered
distribution charges (sales commissions paid by the Principal Underwriter plus
interest, less contingent deferred sales charges received by it) may exist
indefinitely. During the fiscal year ended January 31, 1997, the Fund paid
fees under the Plan equivalent to .75% of the Fund's average daily net assets.
As of January 31, 1997, uncovered distribution charges amounted to
approximately $5,375,000 (equivalent to 4.4% of the Fund's net assets). For
more information, see "Distribution Plan" in the Statement of Additional
Information.
THE PLAN ALSO AUTHORIZES THE FUND TO MAKE PAYMENTS OF SERVICE FEES TO THE
PRINCIPAL UNDERWRITER, AUTHORIZED FIRMS AND OTHER PERSONS IN AMOUNTS NOT
EXCEEDING .25% OF THE FUND'S AVERAGE DAILY NET ASSETS FOR PERSONAL SERVICES
AND/OR THE MAINTENANCE OF SHAREHOLDER ACCOUNTS. This fee is paid quarterly in
arrears based on the value of Fund shares sold by such persons and remaining
outstanding for at least twelve months. For the fiscal year ended January 31,
1997, the Fund paid or accrued service fees equivalent to .04% of the Fund's
average daily net assets for such year.
The Principal Underwriter may, from time to time, at its own expense, provide
additional incentives to Authorized Firms which employ registered
representatives who sell 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. In addition, the Principal
Underwriter may from time to time increase or decrease the sales commissions
payable to Authorized Firms.
The Fund may, in its absolute discretion, suspend, discontinue or limit the
offering of its shares at any time. In determining whether any such action
should be taken, the Fund's management intends to consider all relevant
factors, including without limitation the size of the Fund, the investment
climate and market conditions, the volume of sales and redemptions of Fund
shares, and the amount of uncovered distribution charges of the Principal
Underwriter. The Plan may continue in effect and payments may be made under
the Plan following any such suspension, discontinuance or limitation of the
offering of Fund shares; however, the Fund is not contractually obligated to
continue the Plan for any particular period of time. Suspension of the
offering of Fund shares would not, of course, affect a shareholder's ability
to redeem shares.
VALUING FUND SHARES
- --------------------------------------------------------------------------------
THE FUND VALUES ITS SHARES ONCE ON EACH DAY THE NEW YORK STOCK EXCHANGE (THE
"EXCHANGE") IS OPEN FOR TRADING, as of the close of regular trading on the
Exchange (normally 4:00 p.m. New York time). The Fund's net asset value per
share is determined by its custodian, Investors Bank & Trust Company ("IBT"),
(as agent for the Fund) in the manner authorized by the Trustees of the Trust.
Net asset value is computed by dividing the value of the Fund's total assets,
less its liabilities, by the number of shares outstanding. Because the Fund
invests its assets in an interest in the Portfolio, the Fund's net asset value
will reflect the value of its interest in the Portfolio (which, in turn,
reflects the underlying value of the Portfolio's assets and liabilities).
Authorized Firms must communicate an investor's order to the Principal
Underwriter prior to the close of the Principal Underwriter's business day to
receive that day's net asset value per Fund share. It is the Authorized Firms'
responsibility to transmit orders promptly to the Principal Underwriter.
The Portfolio's net asset value is also determined as of the close of regular
trading on the Exchange by IBT (as custodian and agent for the Portfolio)
based on market or fair value in the manner authorized by the Trustees of the
Portfolio. Net asset value is computed by subtracting the liabilities of the
Portfolio from the value of its total assets. Municipal obligations will
normally be valued on the basis of valuations furnished by a pricing service.
For further information regarding the valuation of the Portfolio's assets, see
"Determination of Net Asset Value" in the Statement of Additional Information.
SHAREHOLDERS MAY DETERMINE THE VALUE OF THEIR INVESTMENT BY MULTIPLYING
THE NUMBER OF FUND SHARES OWNED BY THE CURRENT NET ASSET VALUE PER SHARE.
HOW TO BUY FUND SHARES
- --------------------------------------------------------------------------------
SHARES OF THE FUND MAY BE PURCHASED FOR CASH OR MAY BE ACQUIRED IN EXCHANGE
FOR SECURITIES. Investors may purchase shares of the Fund through Authorized
Firms at the net asset value per share of the Fund next determined after an
order is effective. An Authorized Firm may charge its customers a fee in
connection with transactions executed by that Firm. The Fund may suspend the
offering of shares at any time and may refuse an order for the purchase of
shares.
An initial investment in the Fund must be at least $1,000. Once an account has
been established the investor may send investments of $50 or more at any time
directly to the Fund's transfer agent (the "Transfer Agent") as follows: First
Data Investor Services Group, P.O. Box 5123, Westborough, MA 01581-5123. The
$1,000 minimum initial investment is waived for Bank Automated Investing
accounts, which may be established with an investment of $50 or more. See
"Eaton Vance Shareholder Services".
ACQUIRING FUND SHARES IN EXCHANGE FOR SECURITIES. IBT, as escrow agent, will
receive securities acceptable to Eaton Vance, as Administrator, in exchange
for Fund shares at their net asset value as determined above. The minimum
value of securities (or securities and cash) accepted for deposit is $5,000.
Securities accepted will be sold 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 net asset value per Fund share on the day such
proceeds are received. Eaton Vance will use reasonable efforts to obtain the
then current market price for such securities but does not guarantee the best
available price. Eaton Vance will absorb any transaction costs, such as
commissions, on the sale of the securities.
Securities determined to be acceptable should be transferred via book entry or
physically delivered, in proper form for transfer, through an Authorized Firm,
together with a completed and signed Letter of Transmittal in approved form
(available from Authorized Firms), as follows:
IN THE CASE OF BOOK ENTRY:
Deliver through Depository Trust Co.
Broker #2212
Investors Bank & Trust Company
For A/C EV Marathon High Yield Municipals Fund
IN THE CASE OF PHYSICAL DELIVERY:
Investors Bank & Trust Company
Attention: EV Marathon High Yield Municipals Fund
Physical Securities Processing Settlement Area
89 South Street
Boston, MA 02111
Investors who are contemplating an exchange of securities for shares of the
Fund, or their representatives, must contact Eaton Vance to determine whether
the securities are acceptable before forwarding such securities. Eaton Vance
reserves the right to reject any securities. Exchanging securities for 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.
The Trustees of the Trust may consider terminating sales of Fund shares, other
than to the Fund's existing shareholders, when the Portfolio reaches a size
that becomes difficult to manage. If closed, the Board of Trustees may vote to
re-open the Fund for sales to new shareholders at any time.
IF YOU DON'T HAVE AN AUTHORIZED FIRM, EATON VANCE CAN RECOMMEND ONE.
HOW TO REDEEM FUND SHARES
- --------------------------------------------------------------------------------
A SHAREHOLDER MAY REDEEM FUND SHARES IN ONE OF THREE WAYS -- BY MAIL, BY
TELEPHONE OR THROUGH AN AUTHORIZED FIRM. The redemption price will be based on
the net asset value per Fund share next computed after a redemption request is
received in the proper form as described below.
REDEMPTION BY MAIL: Shares may be redeemed by delivering to the Transfer
Agent, First Data Investor Services Group, P.O. Box 5123, Westborough, MA
01581-5123, during its business hours a written request for redemption in good
order, plus any share certificates with executed stock powers. 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 Commission regulation and acceptable to the Transfer Agent. 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.
REDEMPTION BY TELEPHONE: Shares may be redeemed by telephone provided the
investor has not disclaimed in writing the use of the privilege. Such
redemptions can be effected by calling the Transfer Agent at 800-262-1122,
Monday through Friday, 9:00 a.m. to 4:00 p.m. (Eastern Standard Time). The
proceeds of a telephone redemption may be no greater than the maximum amount
established by the Principal Underwriter (currently $50,000) and may be mailed
only to the account address of record. Shares held by corporations, trusts or
certain other entities, or subject to fiduciary arrangements, may not be
redeemed by telephone. Neither the Fund, the Principal Underwriter nor the
Transfer Agent will be responsible for the authenticity of redemption
instructions received by telephone, provided that reasonable procedures to
confirm that instructions communicated by telephone are genuine have been
followed. Telephone instructions will be tape recorded. In times of drastic
economic or market changes, a telephone redemption may be difficult to
implement.
REDEMPTION THROUGH AN AUTHORIZED FIRM: 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 the
Principal Underwriter, as the Fund's agent, receives the order. It is the
Authorized Firm's responsibility to transmit promptly repurchase orders to the
Principal Underwriter. Throughout this Prospectus, the word "redemption" is
generally meant to include a repurchase.
Within seven days after receipt of a redemption request in good order by the
Transfer Agent, the Fund will make payment in cash for the net asset value of
the shares as of the date determined above, reduced by the amount of any
applicable contingent deferred sales charges (described below) and any federal
income tax required to be withheld. Although the Fund normally expects to make
payment in cash for redeemed shares, the Trust, subject to compliance with
applicable regulations, has reserved the right to pay the redemption price of
shares of the Fund, either totally or partially, by a distribution in kind of
readily marketable securities withdrawn by the Fund from the Portfolio. The
securities so distributed would be valued pursuant to the Portfolio's
valuation procedures. If a shareholder received a distribution in kind, the
shareholder could incur brokerage or other charges in converting the
securities to cash.
If shares were recently purchased, the proceeds of a redemption 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 may result in a taxable gain or loss.
Due to the high cost of maintaining small accounts, the Fund reserves the
right to redeem accounts with balances of less than $750. Prior to such a
redemption, shareholders will be given 60 days' written notice to make
additional purchases. However, no such redemption would be required by the
Fund if the cause of the low account balance was a reduction in the net asset
value of Fund shares. No contingent deferred sales charge will be imposed with
respect to such involuntary redemptions.
CONTINGENT DEFERRED SALES CHARGE. Shares redeemed within the first six years
of their purchase (except shares acquired through the reinvestment of
distributions) generally will be subject to a contingent deferred sales charge
("CDSC"). This CDSC is imposed on any redemption the amount of which exceeds
the aggregate value at the time of redemption of (a) all shares in the account
purchased more than six years prior to the redemption, (b) all shares in the
account acquired through reinvestment of distributions, and (c) the increase,
if any, in the value of all other shares in the account (namely those
purchased within the six years preceding the redemption) over the purchase
price of such shares. Redemptions are processed in a manner to maximize the
amount of redemption proceeds which will not be subject to a CDSC. That is,
each redemption will be assumed to have been made first from the exempt
amounts referred to in clauses (a), (b) and (c) above, and second through
liquidation of those shares in the account referred to in clause (c) on a
first-in-first-out basis. As described under "Distribution Plan," the CDSC
will be paid to the Principal Underwriter or the Fund. Any CDSC which is
required to be imposed on share redemptions will be made in accordance with
the following schedule:
YEAR OF REDEMPTION
AFTER PURCHASE CDSC
- -----------------------------------------------------------------------
First or Second 5%
Third 4%
Fourth 3%
Fifth 2%
Sixth 1%
Seventh and following 0%
In calculating the CDSC upon the redemption of Fund shares acquired in an
exchange for shares of a fund currently listed under "The Eaton Vance Exchange
Privilege", the CDSC schedule applicable to the shares at the time of purchase
will apply and the purchase of shares acquired in the exchange is deemed to
have occurred at the time of the original purchase of the exchanged shares.
No CDSC will be imposed on Fund shares which have been sold to Eaton Vance or
its affiliates, or to their respective employees or clients. The CDSC will
also be waived for shares redeemed (1) pursuant to a Withdrawal Plan (see
"Eaton Vance Shareholder Services"), (2) as part of a required distribution
from a tax-sheltered retirement plan, or (3) following the death of all
beneficial owners of such shares, provided the redemption is requested within
one year of death (a death certificate and other applicable documents may be
required). In addition, shares acquired as a result of a merger or liquidation
of another Eaton Vance sponsored fund will have a CDSC imposed at the same
rate as would have been imposed in the prior fund.
THE FOLLOWING EXAMPLE ILLUSTRATES THE OPERATION OF THE CDSC. ASSUME THAT
AN INVESTOR PURCHASES $10,000 OF THE FUND'S SHARES AND THAT 16 MONTHS
LATER THE VALUE OF THE ACCOUNT HAS GROWN THROUGH INVESTMENT PERFORMANCE
AND REINVESTMENT OF DISTRIBUTIONS TO $12,000. THE INVESTOR THEN MAY REDEEM
UP TO $2,000 OF SHARES WITHOUT INCURRING A CDSC. IF THE INVESTOR SHOULD
REDEEM $3,000 OF SHARES, A CDSC WOULD BE IMPOSED ON $1,000 OF THE
REDEMPTION. THE RATE WOULD BE 5% BECAUSE THE REDEMPTION WAS MADE IN THE
SECOND YEAR AFTER THE PURCHASE WAS MADE AND THE CDSC WOULD BE $50.
REPORTS TO SHAREHOLDERS
- --------------------------------------------------------------------------------
THE FUND WILL ISSUE TO ITS SHAREHOLDERS SEMI-ANNUAL AND ANNUAL REPORTS
CONTAINING FINANCIAL STATEMENTS. Financial statements included in annual
reports are audited by the Fund's independent certified public accountants.
Shortly after the end of each calendar year, the Fund will furnish all
shareholders with information necessary for preparing federal and state tax
returns.
THE LIFETIME INVESTING ACCOUNT/DISTRIBUTION OPTIONS
- --------------------------------------------------------------------------------
AFTER AN INVESTOR MAKES AN INITIAL PURCHASE OF FUND SHARES, THE TRANSFER AGENT
WILL SET UP A LIFETIME INVESTING ACCOUNT FOR THE INVESTOR ON THE FUND'S
RECORDS. This account is a complete record of all transactions between the
investor and the Fund which at all times shows the balance of shares owned.
The Fund will not issue share certificates except upon request.
At least quarterly, shareholders will receive a statement showing complete
details of any transaction and the current balance in the account. THE
LIFETIME INVESTING ACCOUNT ALSO PERMITS A SHAREHOLDER TO MAKE ADDITIONAL
INVESTMENTS IN SHARES BY SENDING A CHECK FOR $50 OR MORE to the Transfer
Agent.
Any questions concerning a shareholder's account or services available may be
directed by telephone to EATON VANCE SHAREHOLDER SERVICES at 800-225-6265,
extension 2, or in writing to the Transfer Agent, First Data Investor Services
Group, P.O. Box 5123, Westborough, MA 01581-5123 (please provide the name of
the shareholder, the Fund and the account number).
THE FOLLOWING DISTRIBUTION OPTIONS WILL BE AVAILABLE TO ALL LIFETIME INVESTING
ACCOUNTS and may be changed as often as desired by written notice to the
Fund's dividend disbursing agent, First Data Investor Services Group, P.O. Box
5123, Westborough, MA 01581-5123. The currently effective option will appear
on each account statement.
SHARE OPTION -- Dividends and capital gains will be reinvested in additional
shares.
INCOME OPTION -- Dividends will be paid in cash, and capital gains will be
reinvested in additional shares.
CASH OPTION -- Dividends and capital gains will be paid in cash.
The SHARE OPTION will be assigned if no other option is specified.
Distributions, including those reinvested, will be reduced by any withholding
required under federal income tax laws.
If the INCOME OPTION or CASH OPTION has been selected, dividend and/or capital
gains distribution checks which are returned by the United States Postal
Service as not deliverable or which remain uncashed for six months or more
will be reinvested in the account in shares at the then current net asset
value. Furthermore, the distribution option on the account will be
automatically changed to the SHARE OPTION until such time as the shareholder
selects a different option.
DISTRIBUTION INVESTMENT OPTION. In addition to the distribution options set
forth above, dividends and/or capital gains may be invested in additional
shares of another Eaton Vance fund. Before selecting this option, a
shareholder should obtain a prospectus of the other Eaton Vance fund and
consider its objectives and policies carefully.
"STREET NAME" ACCOUNTS. If shares of the Fund are held in a "street name"
account with an Authorized Firm, all recordkeeping, transaction processing and
payments of distributions relating to the beneficial owner's account will be
performed by the Authorized Firm, and not by the Fund and its Transfer Agent.
Since the Fund will have no record of the beneficial owner's transactions, a
beneficial owner should contact the Authorized Firm to purchase, redeem or
exchange shares, to make changes in or give instructions concerning the
account, or to obtain information about the account. The transfer of shares in
a "street name" account to an account with another Authorized Firm or to an
account directly with the Fund involves special procedures and will require
the beneficial owner to obtain historical purchase information about the
shares in the account from the Authorized Firm. Before establishing a "street
name" account with an Authorized Firm, or transferring the account to another
Authorized Firm, an investor wishing to reinvest distributions should
determine whether the Authorized Firm which will hold the shares allows
reinvestment of distributions in "street name" accounts.
THE EATON VANCE EXCHANGE PRIVILEGE
- --------------------------------------------------------------------------------
Shares of the Fund currently may be exchanged for shares of one or more other
funds in the Eaton Vance Marathon Group of Funds (including Class I shares of
any EV Marathon Limited Maturity Fund) or Eaton Vance Money Market Fund, which
are subject to a CDSC. Shares of the Fund may also be exchanged for shares of
Eaton Vance Prime Rate Reserves, which are subject to an early withdrawal
charge, and shares of a money market fund sponsored by an Authorized Firm and
approved by the Principal Underwriter (an "Authorized Firm fund"). Any such
exchange will be made on the basis of the net asset value per share of each
fund at the time of the exchange. Exchange offers are available only in states
where shares of the fund being acquired may be legally sold.
Each exchange must involve shares which have a net asset value of at least
$1,000. The exchange privilege may be changed or discontinued without penalty.
Shareholders will be given sixty (60) days' notice prior to any termination or
material amendment of the exchange privilege. The Fund does not permit the
exchange privilege to be used for "Market Timing" and may terminate the
exchange privilege for any shareholder account engaged in Market Timing
activity. Any shareholder account for which more than two round-trip exchanges
are made within any twelve month period will be deemed to be engaged in Market
Timing. Furthermore, a group of unrelated accounts for which exchanges are
entered contemporaneously by a financial intermediary will be considered to be
engaged in Market Timing.
The Transfer Agent makes exchanges at the next determined net asset value
after receiving an exchange request in good order (see "How to Redeem Fund
Shares"). Consult the Transfer Agent for additional information concerning the
exchange privilege. Applications and prospectuses of other funds are available
from Authorized Firms or the Principal Underwriter. The prospectus for each
fund describes its investment objectives and policies, and shareholders should
obtain a prospectus and consider these objectives and policies carefully
before requesting an exchange.
No CDSC is imposed on exchanges. For purposes of calculating the CDSC upon the
redemption of shares acquired in an exchange, the CDSC schedule applicable to
the shares at the time of purchase will apply and the purchase of shares
acquired in one or more exchanges is deemed to have occurred at the time of
the original purchase of the exchanged shares, except that time during which
shares are held in an Authorized Firm fund will not be credited toward
completion of the CDSC period. For the CDSC schedule applicable to the Eaton
Vance Marathon Group of Funds (except EV Marathon Strategic Income Fund, Eaton
Vance Prime Rate Reserves and Class I shares of any EV Marathon Limited
Maturity Fund), see "How to Redeem Fund Shares". The CDSC or early withdrawal
charge schedule applicable to EV Marathon Strategic Income Fund, Eaton Vance
Prime Rate Reserves and Class I shares of any EV Marathon Limited Maturity
Fund is 3%, 2.5%, 2% or 1% in the event of a redemption occurring in the
first, second, third or fourth year, respectively, after the original share
purchase.
Shares of the funds listed above may be exchanged for Fund shares on the basis
of the net asset value per share of each fund at the time of the exchange, but
subject to any restrictions or qualifications set forth in the current
prospectus of any such fund.
Telephone exchanges are accepted by the Transfer Agent provided that the
investor has not disclaimed in writing the use of the privilege. To effect
such exchanges, call the Transfer Agent at 800-262-1122, Monday through
Friday, 9:00 a.m. to 4:00 p.m. (Eastern Standard Time). Shares acquired by
telephone exchange must be registered in the same name(s) and with the same
address as the shares being exchanged. Neither the Fund, the Principal
Underwriter nor the Transfer Agent will be responsible for the authenticity of
exchange instructions received by telephone, provided that reasonable
procedures to confirm that instructions communicated are genuine have been
followed. Telephone instructions will be tape recorded. In times of drastic
economic or market changes, a telephone exchange may be difficult to
implement. An exchange may result in a taxable gain or loss.
EATON VANCE SHAREHOLDER SERVICES
- --------------------------------------------------------------------------------
THE FUND OFFERS THE FOLLOWING SERVICES WHICH ARE VOLUNTARY, INVOLVE NO EXTRA
CHARGE, AND MAY BE CHANGED OR DISCONTINUED WITHOUT PENALTY AT ANY TIME. Full
information on each of the services described below and an application, where
required, are available from Authorized Firms or the Principal Underwriter.
The cost of administering such services for the benefit of shareholders who
participate in them is borne by the Fund as an expense to all shareholders.
INVEST-BY-MAIL -- FOR PERIODIC SHARE ACCUMULATION: Once the $1,000 minimum
investment has been made, checks of $50 or more payable to the order of EV
Marathon High Yield Municipals Fund may be mailed directly to the Transfer
Agent, First Data Investor Services Group, P.O. Box 5123, Westborough, MA
01581-5123 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 the
shareholder's bank account. The $1,000 minimum initial investment and small
account redemption policy are waived for these accounts.
WITHDRAWAL PLAN: A shareholder may draw on shareholdings systematically with
monthly or quarterly checks in an aggregate amount that does not exceed
annually 12% of the account balance at the time the plan is established. Such
amount will not be subject to a CDSC. See "How to Redeem Fund Shares". A
minimum deposit of $5,000 in shares is required.
REINVESTMENT PRIVILEGE: A shareholder who has redeemed shares may reinvest,
with credit for any CDSC paid on the redeemed shares, any portion or all of
the redemption proceeds (plus that amount necessary to acquire a fractional
share to round off the purchase to the nearest full share) in shares of the
Fund, provided that the reinvestment is effected within 60 days after such
redemption and the privilege has not been used more than once in the prior 12
months. Shares are sold to a reinvesting shareholder at the next determined
net asset value following timely receipt of a written purchase order by the
Principal Underwriter or by the Fund (or by the Fund's Transfer Agent). To the
extent that any shares of the Fund are sold at a loss and the proceeds are
reinvested in shares of the Fund (or other shares of the Fund are acquired)
within the period beginning 30 days before and ending 30 days after the date
of 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
- --------------------------------------------------------------------------------
THE FUND DECLARES DIVIDENDS DAILY AND ORDINARILY DISTRIBUTES DIVIDENDS MONTHLY
(ON THE FIFTEENTH OR NEXT SUBSEQUENT BUSINESS DAY) FROM ITS NET INVESTMENT
INCOME. The Fund's net investment income consists of net investment income
allocated to the Fund by the Portfolio (less the Fund's direct and allocated
expenses). The Fund will distribute at least annually (usually in December)
all net realized capital gains allocated to the Fund by the Portfolio, if any,
after taking into account any capital loss carryovers. Daily distributions
will begin on the business day after collected funds for the purchase of
shares are available to the Transfer Agent.
The Fund will distribute substantially all of its tax-exempt income, ordinary
income and capital gain net income (if any) on a current basis. Distributions
designated by the Fund as "exempt interest dividends" may be excluded from
shareholders' gross income for federal income tax purposes. However, exempt
interest dividends may affect the taxability of social security or railroad
retirement benefits for shareholders who receive such benefits. In addition,
exempt interest dividends may result in liability under the federal AMT
provisions and may be taxable for state and local tax purposes. Shareholders
should consult their tax advisers to determine the effect of exempt interest
dividends on their particular tax situation, including liability for state and
local taxes.
Distributions of interest on certain municipal obligations constitute a tax
preference item under the AMT 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. If shares are purchased shortly before the
record date of such a distribution, the shareholder will pay the full price
for the shares and then receive some portion of the price back as a taxable
distribution. 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.
The Fund intends to qualify as a regulated investment company under the
Internal Revenue Code of 1986, as amended, (the "Code") and to satisfy all
requirements necessary to be relieved of federal taxes on income and gains it
distributes to shareholders. In satisfying these requirements, the Fund will
treat itself as owning its proportionate share of each of the Portfolio's
assets and as entitled to the income of the Portfolio properly attributable to
such share.
Early in each year, the Fund will notify its shareholders of the tax status of
the Fund's distributions for the preceding year. Shareholders should consult
their tax advisers about the effect of Fund distributions on their particular
tax situation and any state, local or foreign taxes that may apply.
As a regulated investment company under the Code, the Fund does not pay
federal income or excise taxes to the extent that it distributes to
shareholders its net investment income and net realized capital gains in
accordance with the timing requirements imposed by the Code. As a partnership
under the Code, the Portfolio does not pay federal income or excise taxes.
Shareholders should consult with their tax advisers concerning the
applicability of state, local or other taxes to an investment in the Fund.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
FROM TIME TO TIME, THE FUND MAY ADVERTISE ITS YIELD AND/OR AVERAGE ANNUAL
TOTAL RETURN. The Fund's current yield is calculated by dividing the net
investment income per share earned during a recent 30-day period by the
maximum offering price per share (net asset value) of the Fund on the last day
of the period and annualizing the resulting figure. A taxable-equivalent yield
is computed by using the tax-exempt yield figure and dividing by one minus the
tax rate. The Fund's average annual total return is determined by computing
the average annual percentage change in value of $1,000 invested at the
maximum public offering price (net asset value) for specified periods assuming
reinvestment of all distributions. The average annual total return calculation
assumes a complete redemption of the investment and the deduction of any
applicable CDSC at the end of the period. The Fund may publish annual and
cumulative total return figures from time to time.
The Fund may also publish total return figures which do not take into account
any CDSC which may be imposed upon redemptions at the end of the specified
period. Any performance figure which does not take into account the CDSC would
be reduced to the extent such charge is imposed upon a redemption.
Investors should note that the investment results of the Fund will fluctuate
over time, and any presentation of the Fund's current yield or total return
for any prior period should not be considered a representation of what an
investment may earn or what the Fund's yield or total return may be in any
future period. If the expenses of the Fund or the Portfolio are allocated to
Eaton Vance, the Fund's performance will be higher.
<PAGE>
APPENDIX A
HIGH YIELD MUNICIPALS PORTFOLIO
ASSET COMPOSITION INFORMATION
FOR THE FISCAL YEAR ENDED JANUARY 31, 1997
RATINGS OF RATINGS OF
MUNICIPAL BONDS MUNICIPAL BONDS
BY MOODY'S BY S&P
PERCENT OF PERCENT OF
NET ASSETS NET ASSETS
---------- ----------
Aaa ............................. 3.91% AAA ......................... 4.51%
Aa2 ............................. 2.25 A+ .......................... 1.56
A1 .............................. 0.92 A ........................... 1.78
Baa1 ............................ 3.60 A- .......................... 0.62
Baa2 ............................ 6.97 BBB+ ........................ 1.76
Baa3 ............................ 3.83 BBB ......................... 8.69
Ba1 ............................. 2.82 BBB- ........................ 6.96
Ba2 ............................. 3.27 BB+ ......................... 1.80
B1 .............................. 2.14 BB .......................... 2.58
Unrated ......................... 70.29 BB- ......................... 3.61
------ B ........................... 2.14
100.00% Unrated ..................... 63.99
------
100.00%
The chart above indicates the weighted average composition of the securities
held by the Portfolio for the fiscal year ended January 31, 1997, with the
debt securities rated by Moody's and S&P separated into the indicated
categories. The above was calulated on a dollar weighted basis and was
computed as at the end of each month during the fiscal year. The chart does
not necessarily indicate what the composition of the securities held by the
Portfolio will be in the current and subsequent fiscal years. Securities that
are rated by one rating agency may be "unrated" by the other.
For a description of Moody's and S&P's securities ratings, see Appendix B to
this Prospectus.
<PAGE>
APPENDIX B
DESCRIPTION OF SECURITIES RATINGS+
MOODY'S INVESTORS SERVICE, INC.
MUNICIPAL BONDS
Aaa: Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edged." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long term risk appear somewhat larger than the Aaa
securities.
A: Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper-medium-grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may
be present which suggest a susceptibility to impairment sometime in the
future.
Baa: Bonds which are rated Baa are considered as medium-grade obligations
(i.e., they are neither highly protected nor poorly secured). Interest
payments and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable
over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba: Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during other good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B: Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa: Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal
or interest.
Ca: Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked
shortcomings.
C: Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
STANDARD & POOR'S RATINGS GROUP
INVESTMENT GRADE
AAA: Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA: Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small degree.
A: Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
- ----------
+The ratings indicated herein are believed to be the most recent ratings
available at the date of this Prospectus for the securities listed. Ratings
are generally given to securities at the time of issuance. While the rating
agencies may from time to time revise such ratings, they undertake no
obligation to do so, and the ratings indicated do not necessarily represent
ratings which would be given to these securities on the date of the
Portfolio's fiscal year end.
BBB: Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
SPECULATIVE GRADE
Debt rated BB, B, CCC, CC, and C is regarded as having predominantly
speculative characteristics with respect to capacity to pay interest and repay
principal. BB indicates the least degree of speculation and C the highest.
While such debt will likely have some quality and protective characteristics,
these are outweighed by large uncertainties or major exposures to adverse
conditions.
BB: Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure
to adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB- rating.
B: Debt rated B has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness
to pay interest and repay principal. The B rating category is also used for
debt subordinated to senior debt that is assigned an actual or implied BB or
BB- rating.
CCC: Debt rated CCC has a currently identifiable vulnerability to default, and
is dependent upon favorable business, financial, and economic conditions to
meet timely payment of interest and repayment of principal. In the event of
adverse business, financial, or economic conditions, it is not likely to have
the capacity to pay interest and repay principal. The CCC rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied B or B- rating.
CC: The rating CC is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC debt rating.
C: The rating C is typically applied to debt subordinated to senior debt which
is assigned an actual or implied CCC- debt rating. The C rating may be used to
cover a situation where a bankruptcy petition has been filed, but debt service
payments are continued.
C1: The Rating C1 is reserved for income bonds on which no interest is being
paid.
D: Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due even if
the applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period. The D rating also will be used
upon the filing of a bankruptcy petition if debt service payments are
jeopardized.
PLUS (+) OR MINUS (-): The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
FITCH INVESTORS SERVICE, INC.
INVESTMENT GRADE BOND RATINGS
AAA: Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest and
repay principal, which is unlikely to be affected by reasonably foreseeable
events.
AA: Bonds considered to be investment grade and of very high credit quality.
The obligor's ability to pay interest and repay principal is very strong,
although not quite as strong as bonds rated "AAA". Because bonds rated in the
"AAA" and "AA" categories are not significantly vulnerable to foreseeable
future developments, short-term debt of these issuers is generally rated
"F-1+".
A: Bonds considered to be investment grade and of high credit quality. The
obligors ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions
and circumstances than bonds with higher ratings.
BBB: Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these bonds,
and therefore, impair timely payment. The likelihood that the ratings of these
bonds will fall below investment grade is higher than for bonds with higher
ratings.
HIGH YIELD BOND RATINGS
BB: Bonds are considered speculative. The obligor's ability to pay interest
and repay principal may be affected over time by adverse economic changes.
However, business and financial alternatives can be identified that could
assist the obligor in satisfying its debt service requirements.
B: Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued
timely payment of principal and interest reflects the obligor's limited margin
of safety and the need for reasonable business and economic activity
throughout the life of the issue.
CCC: Bonds have certain identifiable characteristics which, if not remedied,
may lead to default. The ability to meet obligations requires an advantageous
business and economic environment.
CC: Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C: Bonds are in imminent default in payment of interest or principal.
DDD, DD, AND D: Bonds are in default on interest and/or principal payments.
Such bonds are extremely speculative and should be valued on the basis of
their ultimate recovery value in liquidation or reorganization of the obligor.
"DDD" represents the highest potential for recovery on these bonds, and "D"
represents the lowest potential for recovery.
PLUS (+) OR MINUS (-): The ratings from AA to C may be modified by the
addition of a plus or minus sign to indicate the relative position of a credit
within the rating category.
* * * * * * * *
NOTES: Bonds which are unrated expose the investor to risks with respect to
capacity to pay interest or repay principal which are similar to the risks of
lower-rated speculative bonds. The Portfolio is dependent on the Investment
Adviser's judgment, analysis and experience in the evaluation of such bonds.
<PAGE>
[Logo]
EATON VANCE
================
Mutual Funds
EV MARATHON
HIGH YIELD
MUNICIPALS FUND
PROSPECTUS
JUNE 1, 1997
EV MARATHON HIGH YIELD
MUNICIPALS FUND
24 FEDERAL STREET
BOSTON, MA 02110
- --------------------------------------------------------------------------------
INVESTMENT ADVISER OF HIGH YIELD MUNICIPALS PORTFOLIO
Boston Management and Research, 24 Federal Street, Boston, MA 02110
ADMINISTRATOR OF EV MARATHON HIGH YIELD MUNICIPALS FUND
Eaton Vance Management, 24 Federal Street, Boston, MA 02110
PRINCIPAL UNDERWRITER
Eaton Vance Distributors, Inc., 24 Federal Street,
Boston, MA 02110 (800) 225-6265
CUSTODIAN
Investors Bank & Trust Company, 89 South Street, Boston, MA 02111
TRANSFER AGENT
First Data Investor Services Group, P.O. Box 5123,
Westborough, MA 01581-5123 (800) 262-1122
AUDITORS
Deloitte & Touche LLP, 125 Summer Street, Boston, MA 02110
M-HYP
<PAGE>
PART A
INFORMATION REQUIRED IN A PROSPECTUS
EV TRADITIONAL
HIGH YIELD MUNICIPALS FUND
- --------------------------------------------------------------------------------
EV TRADITIONAL HIGH YIELD MUNICIPALS FUND (THE "FUND") IS A MUTUAL FUND SEEKING
TO PROVIDE HIGH CURRENT INCOME EXEMPT FROM REGULAR FEDERAL INCOME TAX. THE FUND
INVESTS ITS ASSETS IN HIGH YIELD MUNICIPALS PORTFOLIO (THE "PORTFOLIO"), A
NON-DIVERSIFIED OPEN-END INVESTMENT COMPANY HAVING THE SAME INVESTMENT OBJECTIVE
AS THE FUND, RATHER THAN BY DIRECTLY INVESTING IN AND MANAGING ITS OWN PORTFOLIO
OF SECURITIES. THE FUND IS A SERIES OF EATON VANCE MUNICIPALS TRUST II (THE
"TRUST").
THE PORTFOLIO MAY INVEST UP TO 100% OF ITS ASSETS IN BELOW INVESTMENT GRADE
MUNICIPAL BONDS, COMMONLY KNOWN AS "JUNK BONDS", THAT ENTAIL GREATER RISKS,
INCLUDING DEFAULT, THAN THOSE OF HIGHER-RATED SECURITIES.
Shares of the Fund are not deposits or obligations of, or guaranteed or endorsed
by, any bank or other insured depository institution, and are not federally
insured by the Federal Deposit Insurance Corporation, the Federal Reserve Board
or any other government agency. Shares of the Fund involve investment risks,
including fluctuations in value and the possible loss of some or all of the
principal investment.
This Prospectus is designed to provide you with information you should know
before investing. Please retain this document for future reference. A Statement
of Additional Information dated June 1, 1997 for the Fund, as supplemented from
time to time, has been filed with the Securities and Exchange Commission (the
"Commission") and is incorporated herein by reference. The Statement of
Additional Information is available without charge from the Fund's principal
underwriter, Eaton Vance Distributors, Inc. (the "Principal Underwriter"), 24
Federal Street, Boston, MA 02110 (telephone (800) 225-6265). The Portfolio's
investment adviser is Boston Management and Research (the "Investment Adviser"),
a wholly-owned subsidiary of Eaton Vance Management, and Eaton Vance Management
is the administrator (the "Administrator") of the Fund. The offices of the
Investment Adviser and the Administrator are located at 24 Federal Street,
Boston, MA 02110.
- ------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAGE PAGE
<S> <C> <C> <C>
Shareholder and Fund Expenses ......................... 2 How to Redeem Fund Shares ......................... 12
The Fund's Financial Highlights ....................... 3 Reports to Shareholders ........................... 13
The Fund's Investment Objective ....................... 4 The Lifetime Investing Account/Distribution Options 13
Investment Policies and Risks ......................... 4 The Eaton Vance Exchange Privilege ................ 14
Organization of the Fund and the Portfolio ............ 7 Eaton Vance Shareholder Services .................. 15
Management of the Fund and the Portfolio .............. 8 Distributions and Taxes ........................... 16
Service Plan .......................................... 9 Performance Information ........................... 17
Valuing Fund Shares ................................... 9 Appendix A ........................................ 18
How to Buy Fund Shares ................................ 10 Appendix B ........................................ 19
</TABLE>
- --------------------------------------------------------------------------------
PROSPECTUS DATED JUNE 1, 1997
<PAGE>
SHAREHOLDER AND FUND EXPENSES
- --------------------------------------------------------------------------------
<TABLE>
SHAREHOLDER TRANSACTION EXPENSES
- ---------------------------------------------------------------------------------------------------------
<S> <C>
Maximum Sales Charge Imposed on Purchases (as a percentage of offering price) 3.75%
Sales Charges Imposed on Reinvested Distributions None
Fees to Exchange Shares None
ANNUAL FUND AND ALLOCATED PORTFOLIO OPERATING EXPENSES (as a percentage of average daily net assets)
- ---------------------------------------------------------------------------------------------------------
Investment Adviser Fee 0.60%
Other Expenses (including Service Plan Fees) 0.39
Total Operating Expenses 0.99%
----
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
An investor would pay the following maximum initial
sales charge and expenses on a $1,000 investment,
assuming (a) 5% annual return (b) redemption at the
end of each period: $47 $68 $90 $154
</TABLE>
NOTES:
The table and Example summarize the aggregate expenses of the Fund and the
Portfolio and are designed to help investors understand the costs and expenses
they will bear, directly or indirectly, by investing in the Fund. Information
for the Fund is based on its expenses for the most recent fiscal year, except
for the Investment Adviser fee which is estimated for the current fiscal year.
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 return
will vary. For further information regarding the expenses of both the Fund and
the Portfolio see "The Fund's Financial Highlights", "Management of the Fund and
the Portfolio" and "Service Plan".
No sales charge is payable at the time of purchase on investments of $1 million
or more. However, a contingent deferred sales charge of 0.50% will be imposed on
such investments in the event of certain redemptions within 12 months of
purchase. See "How to Buy Fund Shares" and "How to Redeem Fund Shares".
The Portfolio's monthly advisory fee has two components, a fee based on daily
net assets and a fee based on daily gross income, as set forth in the fee
schedule on page 8.
The Fund invests exclusively in the Portfolio. Other investment companies with
different distribution arrangements and fees are investing in the Portfolio and
others may do so in the future. See "Organization of the Fund and the
Portfolio".
<PAGE>
THE FUND'S FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
The following information should be read in conjunction with the audited
financial statements that appear in the Fund's annual report to shareholders.
The Fund's financial statements have been audited by Deloitte & Touche LLP,
independent certified public accountants, as experts in accounting and
auditing. The financial statements and the independent auditors' report are
incorporated by reference into the Statement of Additional Information.
Further information regarding the performance of the Fund is contained in its
annual report to shareholders which may be obtained without charge by contacting
the Principal Underwriter.
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
-------------------------------
1997 1996*
---- ----
<S> <C> <C>
NET ASSET VALUE, beginning of period $10.700 $10.000
------- -------
INCOME FROM OPERATIONS:
Net investment income $ 0.703 $ 0.340
Net realized and unrealized gain (loss) on investments (0.038) 0.700
------- -------
Total income from operations $ 0.665 $ 1.040
------- -------
LESS DISTRIBUTIONS:
From net investment income $(0.703) $(0.340)
In excess of net realized gain on investments (0.001) --
From net realized gain on investments (0.001) --
------- -------
Total distributions $(0.705) $(0.340)
======= =======
NET ASSET VALUE, end of period $10.660 $10.700
======= =======
TOTAL RETURN(2) 6.50% 10.50%
RATIOS/SUPPLEMENTAL DATA**:
Net assets, end of period (000's omitted) $58,346 $30,535
Ratio of net expenses to average daily net assets(1) 0.62% 0.09%+
Ratio of net expenses to average daily net assets after custodian fee
reduction(1) 0.58% 0.09%+
Ratio of net investment income to average daily net assets 6.65% 6.60%+
**For the periods indicated, the operating expenses of the Fund and the Portfolio reflect an assumption of expenses
by the Administrator and/or the Investment Adviser. Had such actions not been taken, net investment income per
share and the ratios would have been as follows:
Net investment income per share $ 0.664 $ 0.291
======= =======
RATIOS/SUPPLEMENTAL DATA:
Expenses(1) 0.99% 1.04%+
Expenses after custodian fee reduction(1) 0.95% 1.04%+
Net investment income 6.28% 5.65%+
- ------------
+Computed on an annualized basis.
*For the period from the start of business, August 7, 1995, to January 31, 1996.
(1)Includes the Fund's share of the Portfolio's allocated expenses.
(2)Total investment return is calculated assuming a purchase at the net asset value on the first day and a sale at the
net asset value on the last day of each period reported. Distributions, if any, are assumed to be reinvested at the
net asset value on the payable date. Total return is computed on a non-annualized basis.
</TABLE>
<PAGE>
THE FUND'S INVESTMENT OBJECTIVE
- -------------------------------------------------------------------------------
THE FUND'S INVESTMENT OBJECTIVE IS TO PROVIDE HIGH CURRENT INCOME EXEMPT FROM
REGULAR FEDERAL INCOME TAX. The Fund currently seeks to meet its investment
objective by investing its assets in High Yield Municipals Portfolio (the
"Portfolio"), a separate registered investment company which has the same
investment objective and policies as the Fund. The investment objective and
nonfundamental policies of the Fund may be changed by the Trustees without a
vote of shareholders. The Fund may not be appropriate for investors who cannot
assume the greater risk of capital depreciation or loss inherent in seeking
higher tax-exempt yields.
INVESTMENT POLICIES AND RISKS
- --------------------------------------------------------------------------------
THE PORTFOLIO SEEKS TO ACHIEVE ITS OBJECTIVE BY INVESTING PRINCIPALLY IN HIGH-
YIELDING, BELOW INVESTMENT GRADE MUNICIPAL OBLIGATIONS. Below investment grade
municipal obligations are obligations that are rated Ba or lower by Moody's
Investors Service, Inc. ("Moody's"), or BB or lower by Standard & Poor's Ratings
Group ("S&P") or Fitch Investors Service, Inc. ("Fitch"), or that are unrated
but determined by the Investment Adviser to be of comparable quality. For a
description of the ratings assigned by the rating agencies, see Appendix B.
Below investment grade municipal obligations, commonly known as "junk bonds",
generally offer higher current yields than higher rated securities, but are
subject to greater risks. Securities in the lower-rated categories are
considered to be of poor standing and predominantly speculative. The Portfolio
may also invest a portion of its assets in municipal obligations that are not
paying current income in anticipation of possible future income. For more
detailed information about the risks associated with investing in such
securities, see "Additional Risk Considerations" below.
Although the Portfolio may invest in securities of any maturity, it is expected
that the Portfolio will normally invest a substantial portion of its assets in
securities with maturities of ten years or more. Those securities generally
offer higher yields than securities of shorter maturities, but are subject to
greater fluctuations in value in response to changes in interest rates. Since
the Portfolio's objective is to provide high current income, the Portfolio will
invest in municipal obligations with an emphasis on income and not on stability
of the Portfolio's net asset value. The average maturity of the Portfolio's
holdings may vary (generally between 15 and 30 years) depending on anticipated
market conditions.
The Portfolio will normally invest at least 65% of its assets in investment
grade and below investment grade municipal obligations. As a matter of
fundamental policy, the Portfolio will normally invest at least 80% of its
assets in debt obligations issued by or on behalf of states, territories and
possessions of the United States, and the District of Columbia and their
political subdivisions, agencies or instrumentalities, the interest on which is,
in the opinion of bond counsel, exempt from regular federal income tax. (As a
matter of fundamental policy, the Fund will normally invest either directly, or
indirectly through another investment company, at least 80% of its assets in
such obligations.)
At times, the Portfolio may, for temporary defensive purposes, such as during
abnormal market or economic conditions, invest any portion of its assets in
higher-rated municipal obligations or other securities, the interest on which
may not be exempt from regular federal income tax, and may hold any portion of
its assets in cash. It is impossible to predict when, or for how long, the
Portfolio would engage in such strategies.
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, or from the proceeds of a specific revenue source. Some
revenue bonds are payable solely or partly from funds subject to annual
appropriations by a state's legislature. Municipal notes include bond, tax and
revenue anticipation notes, which are short-term obligations that will be
retired with the proceeds of an anticipated bond issue, tax revenue or facility
revenue, respectively.
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, 1997, the Portfolio had 40.4% of its net assets invested in such
obligations. Distributions to corporate investors of certain interest income may
also be subject to the AMT. The Fund may not be suitable for investors subject
to the AMT.
CONCENTRATION. The Portfolio may invest 25% or more of its assets in municipal
obligations of issuers located in the same state or in municipal obligations of
the same type, including without limitation the following: general obligations
of states and localities; lease rental obligations of state and local
authorities; obligations dependent on annual appropriations by a state's
legislature for payment; obligations of state and local housing finance
authorities, municipal utilities systems or public housing authorities;
obligations of hospitals or life care facilities; or industrial development or
pollution control bonds issued for electric utility systems, steel companies,
paper companies or other purposes. This may make the Portfolio more susceptible
to adverse economic, political, or regulatory occurrences affecting a particular
category of issuers. For example, health-care related issuers are susceptible to
medicaid reimbursement policies, and national and state health care legislation.
In addition, municipal obligations that rely on an annual appropriation of funds
by a state's legislature for payment are subject to the risk that the
legislature will not appropriate the necessary amounts or take other action
needed to permit the issuer of such obligations to make required payments. As
the Portfolio's concentration in the securities of a particular category of
issuer increases, so does the potential for fluctuation in the value of the
Fund's shares.
NON-DIVERSIFIED STATUS. As a "non-diversified" investment company, the Portfolio
may invest, with respect to 50% of its total assets, more than 5% (but not more
than 25%) of its total assets in the securities of any issuer. The Portfolio is
likely to invest a greater percentage of its assets in the securities of a
single issuer than would a diversified fund. Therefore, the Portfolio is more
susceptible to any single adverse economic or political occurrence or other
adverse development affecting certain issuers.
OTHER INVESTMENT PRACTICES
The Portfolio may engage in the following investment practices, some of which
may be considered to involve "derivative" instruments because they derive their
value from another instrument, security or index. In addition, the Portfolio may
also temporarily borrow up to 5% of the value of its total assets to satisfy
redemption requests or settle securities transactions.
WHEN-ISSUED SECURITIES. The Portfolio may purchase securities on a "when-
issued" basis, which means that payment and delivery occur on a future
settlement date. The price and yield of such securities are generally fixed on
the date of commitment to purchase. However, the market value of the securities
may fluctuate prior to delivery and upon delivery the securities may be worth
more or less than the Portfolio agreed to pay for them. The Portfolio may also
purchase instruments that give the Portfolio the option to purchase a municipal
obligation when and if issued.
INVERSE FLOATERS. The Portfolio may invest in municipal securities whose
interest rates bear an inverse relationship to the interest rate on another
security or the value of an index ("inverse floaters"). An investment in inverse
floaters may involve greater risk than an investment in a fixed rate bond.
Because changes in the interest rate on the other security or index inversely
affect the residual interest paid on the inverse floater, the value of an
inverse floater is generally more volatile than that of a fixed rate bond.
Inverse floaters have interest rate adjustment formulas which generally reduce
or, in the extreme, eliminate the interest paid to the Portfolio when short-term
interest rates rise, and increase the interest paid to the Portfolio when
short-term interest rates fall. Inverse floaters have varying degrees of
liquidity, and the market for these securities is new and relatively volatile.
These securities tend to underperform the market for fixed rate bonds in a
rising interest rate environment, but tend to outperform the market for fixed
rate bonds when interest rates decline. Shifts in long-term interest rates may,
however, alter this tendency. Although volatile, inverse floaters typically
offer the potential for yields exceeding the yields available on fixed rate
bonds with comparable credit quality and maturity. These securities usually
permit the investor to convert the floating rate to a fixed rate (normally
adjusted downward), and this optional conversion feature may provide a partial
hedge against rising rates if exercised at an opportune time. Inverse floaters
are leveraged because they provide two or more dollars of bond market exposure
for every dollar invested.
FUTURES TRANSACTIONS. The Portfolio may purchase and sell various kinds of
financial futures contracts and options thereon to hedge against changes in
interest rates. Futures contracts may be based on various debt securities (such
as U.S. Government securities and municipal obligations) and securities indices
(such as the Municipal Bond Index traded on the Chicago Board of Trade). Such
transactions involve a risk of loss or depreciation due to unanticipated adverse
changes in securities prices, which may exceed the Portfolio's initial
investment in these contracts. The Portfolio may not purchase or sell futures
contracts or related options, except for closing purchase or sale transactions,
if immediately thereafter the sum of the amount of margin deposits and premiums
paid on the Portfolio's outstanding positions would exceed 5% of the market
value of the Portfolio's net assets. These transactions involve transaction
costs. There can be no assurance that the Investment Adviser's use of futures
will be advantageous to the Portfolio. Distributions by the Fund of any gains
realized on the Portfolio's transactions in futures and options on futures will
be taxable.
ADDITIONAL RISK CONSIDERATIONS
Investors should carefully consider their ability to assume the risks of owning
shares of a mutual fund that invests in below investment grade municipal
obligations (commonly known as "junk bonds") before making an investment in the
Fund. The lower ratings of certain securities held by the Portfolio reflect a
greater possibility that adverse changes in the financial condition of an
issuer, or in general economic conditions, or both, or an unanticipated rise in
interest rates, may impair the ability of the issuer to make payments of
interest and principal. The inability (or perceived inability) of issuers to
make timely payment of interest and principal would likely make the values of
securities held by the Fund more volatile and could limit the Portfolio's
ability to sell its securities at prices approximating the values the Portfolio
has placed on such securities. It is possible that legislation may be adopted in
the future limiting the ability of certain financial institutions to purchase
such securities; such legislation may adversely affect the liquidity of such
securities. In the absence of a liquid trading market for securities held by it,
the Portfolio may be unable at times to establish the fair market value of such
securities. The rating assigned to a security by a rating agency does not
reflect an assessment of the volatility of the security's market value or of the
liquidity of an investment in the security. Credit ratings are based largely on
the issuer's historical financial condition and the rating agency's investment
analysis at the timing of rating, and the rating assigned to any particular
security is not necessarily a reflection of the issuer's current financial
condition. Credit quality in the high yield, high risk municipal bond market can
change from time to time, and recently issued credit ratings may not fully
reflect the actual risks posed by a particular high yield security.
The net asset value of shares of the Fund will change in response to
fluctuations in prevailing interest rates and changes in the value of the
securities held by the Portfolio. When interest rates decline, the value of
securities already held by the Portfolio can be expected to rise. Conversely,
when interest rates rise, the value of most portfolio security holdings can be
expected to decline. Changes in the credit quality of issuers of municipal
obligations held by the Portfolio will affect the principal value of (and
possibly the income earned on) such obligations. In addition, the values of such
securities are affected by changes in general economic conditions and business
conditions affecting the specific industries of their issuers. Changes by
recognized rating services in their ratings of a security and in the ability of
an issuer to make payments of principal and interest may also affect the value
of the Portfolio's investments. The Portfolio will not dispose of a security
solely because its rating is reduced below its rating at the time of purchase,
although the Investment Adviser will monitor the investment to determine whether
continued investment in the security will assist in meeting the Portfolio's
investment objective.
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. Interest
and/or principal payments on securities in default could be in arrears when such
securities are acquired, and the issuer may be in bankruptcy or undergoing a
debt restructuring or reorganization. In order to enforce its rights in the
event of a default under such securities, the Portfolio may be required to take
possession of and manage assets securing the issuer's obligations on such
securities, which may increase the Portfolio's operating expenses and adversely
affect the Portfolio's net asset value. Any income derived from the Portfolio's
ownership or operation of such assets may not be tax-exempt.
The secondary market for such municipal obligations in which the Portfolio may
invest is less liquid than that for many taxable debt obligations or other more
widely traded municipal obligations. The Portfolio will not invest in illiquid
securities if more than 15% of its net assets would be invested in securities
not readily marketable. No established resale market exists for certain of the
municipal obligations in which the Portfolio may invest. The market for
obligations rated below investment grade is also likely to be less liquid than
the market for higher rated obligations. As a result, the Portfolio may be
unable to dispose of these municipal obligations at times when it would
otherwise wish to do so at the prices at which they are valued.
Certain securities held by the Portfolio may permit the issuer at its option to
"call", or redeem, its securities. If an issuer 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 the Portfolio invests may include so-called
"zero-coupon" bonds, whose values are subject to greater fluctuation in response
to changes in market interest rates than bonds which pay interest currently.
Zero-coupon bonds are issued at a significant discount from face value and pay
interest only at maturity rather than at intervals during the life of the
security. The Portfolio is required to accrue income from zero- coupon bonds on
a current basis, even though it does not receive that income currently in cash
and the Fund is required to distribute its share of the Portfolio's income for
each taxable year. Thus, the Portfolio may have to sell other investments to
obtain cash needed to make income distributions.
The Portfolio may invest in municipal leases, and participations in municipal
leases. The obligation of the issuer to meet its obligations under such leases
is often subject to the appropriation by the appropriate legislative body, on an
annual or other basis, of funds for the payment of the obligations. Investments
in municipal leases are thus subject to the risk that the legislative body will
not make the necessary appropriation and the issuer will not otherwise be
willing or able to meet its obligations.
The Investment Adviser seeks to minimize the risks of investing in below
investment grade securities through professional investment analysis and
attention to current developments in interest rates and economic conditions.
When the Portfolio invests in such municipal obligations, the achievement of the
Portfolio's goals is more dependent on the Investment Adviser's ability than
would be the case if the Portfolio were investing in municipal obligations in
the higher rating categories. The amount of information about the financial
conditions of an issuer of municipal obligations may not be as extensive as that
which is made available by corporations whose securities are publicly traded.
THE FUND AND THE PORTFOLIO HAVE ADOPTED CERTAIN FUNDAMENTAL INVESTMENT
RESTRICTIONS WHICH ARE ENUMERATED IN DETAIL IN THE STATEMENT OF ADDITIONAL
INFORMATION AND WHICH MAY NOT BE CHANGED UNLESS AUTHORIZED BY A SHAREHOLDER
VOTE AND AN INVESTOR VOTE, RESPECTIVELY. EXCEPT FOR SUCH ENUMERATED
RESTRICTIONS AND AS OTHERWISE INDICATED IN THIS PROSPECTUS, THE INVESTMENT
OBJECTIVE AND POLICIES OF THE FUND AND THE PORTFOLIO ARE NOT FUNDAMENTAL
POLICIES AND ACCORDINGLY MAY BE CHANGED BY THE TRUSTEES OF THE TRUST AND THE
PORTFOLIO WITHOUT OBTAINING THE APPROVAL OF THE FUND'S SHAREHOLDERS OR THE
INVESTORS IN THE PORTFOLIO, AS THE CASE MAY BE.
ORGANIZATION OF THE FUND AND THE PORTFOLIO
- --------------------------------------------------------------------------------
THE FUND IS A NON-DIVERSIFIED SERIES OF EATON VANCE MUNICIPALS TRUST II, A
BUSINESS TRUST ESTABLISHED UNDER MASSACHUSETTS LAW PURSUANT TO A DECLARATION OF
TRUST DATED OCTOBER 25, 1993, AS AMENDED. The 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 (such as the Fund). Each share represents an equal
proportionate beneficial interest in the Fund. When issued and outstanding, the
shares are fully paid and nonassessable by the Trust and redeemable as described
under "How to Redeem Fund Shares". There are no annual meetings of shareholders,
but special meetings may be held as required by law to elect Trustees and
consider certain other matters. Shareholders are entitled to one vote for each
full share held. Fractional shares may be voted proportionately. Shares have no
preemptive or conversion rights and are freely transferable. In the event of the
liquidation of the Fund, shareholders are entitled to share pro rata in the net
assets of the Fund available for distribution to shareholders.
THE PORTFOLIO IS ORGANIZED AS A TRUST UNDER THE LAWS OF THE STATE OF NEW YORK
AND INTENDS TO BE TREATED AS A PARTNERSHIP FOR FEDERAL TAX PURPOSES. The
Portfolio, as well as the Trust, intends to comply with all applicable federal
and state securities laws. The Portfolio's Declaration of Trust provides that
the Fund and other entities permitted to invest in the Portfolio (e.g., other
U.S. and foreign investment companies, and common and commingled trust funds)
will each be liable for all obligations of the Portfolio. However, the risk of
the Fund incurring financial loss on account of such liability is limited to
circumstances in which both inadequate insurance exists and the Portfolio itself
is unable to meet its obligations. Accordingly, the Trustees of the Trust
believe that neither the Fund nor its shareholders will be adversely affected by
reason of the Fund investing in the Portfolio.
The Trustees of the Trust have considered the advantages and disadvantages of
investing the assets of the Fund in the Portfolio, as well as the advantages and
disadvantages of the two-tier format. The Trustees believe that the structure
offers opportunities for substantial growth in the assets of the Portfolio,
affords the potential for economies of scale for the Fund (at least when the
assets of the Portfolio exceed $500 million) and may over time result in lower
expenses for the Fund.
In addition to selling an interest to the Fund, the Portfolio may sell interests
to other affiliated and non-affiliated mutual funds or institutional investors.
Such investors will invest in the Portfolio on the same terms and conditions and
will pay a proportionate share of the Portfolio's expenses. However, the other
investors investing in the Portfolio are not required to sell their shares at
the same public offering price as the Fund due to variations in sales
commissions and other operating expenses. Therefore, these differences may
result in differences in returns experienced by investors in the various funds
that invest in the Portfolio. Such differences in returns are also present in
other mutual fund structures, including funds that have multiple classes of
shares. Information regarding other pooled investment entities or funds which
invest in the Portfolio may be obtained by contacting the Principal Underwriter,
24 Federal Street, Boston, MA 02110, (617) 482-8260.
Whenever the Fund as an investor in the Portfolio is requested to vote on
matters pertaining to the Portfolio (other than the termination of the
Portfolio's business, which may be determined by the Trustees of the Portfolio
without investor approval), the Fund will hold a meeting of Fund shareholders
and will vote its interest in the Portfolio for or against such matters
proportionately to the instructions to vote for or against such matters received
from Fund shareholders. The Fund shall vote shares for which it receives no
voting instructions in the same proportion as the shares for which it receives
voting instructions. Other investors in the Portfolio may alone or collectively
acquire sufficient voting interests in the Portfolio to control matters relating
to the operation of the Portfolio, which may require the Fund to withdraw its
investment in the Portfolio or take other appropriate action. Any such
withdrawal could result in a distribution "in kind" of portfolio securities (as
opposed to a cash distribution from the Portfolio). If securities are
distributed, the Fund could incur brokerage, tax or other charges in converting
the securities to cash. In addition, the distribution in kind may result in a
less diversified portfolio of investments or adversely affect the liquidity of
the Fund. Notwithstanding the above, there are other means for meeting
shareholder redemption requests, such as borrowing.
The Fund may withdraw (completely redeem) all its assets from the Portfolio at
any time if the Board of Trustees of the Trust determines that it is in the best
interest of the Fund to do so. In the event the Fund withdraws all of its assets
from the Portfolio, or the Board of Trustees of the Trust determines that the
investment objective of the Portfolio is no longer consistent with the
investment objective of the Fund, the Trustees would consider what action might
be taken, including investing the assets of the Fund in another pooled
investment entity or retaining an investment adviser to manage the Fund's assets
in accordance with its investment objective. The Fund's investment performance
may be affected by a withdrawal of all its assets (or the assets of another
investor in the Portfolio) from the Portfolio.
MANAGEMENT OF THE FUND AND THE PORTFOLIO
- --------------------------------------------------------------------------------
THE PORTFOLIO ENGAGES BOSTON MANAGEMENT AND RESEARCH ("BMR"), A WHOLLY-OWNED
SUBSIDIARY OF EATON VANCE MANAGEMENT ("EATON VANCE"), AS ITS INVESTMENT ADVISER.
EATON VANCE, ITS AFFILIATES AND ITS PREDECESSOR COMPANIES HAVE BEEN MANAGING
ASSETS OF INDIVIDUALS AND INSTITUTIONS SINCE 1924 AND MANAGING INVESTMENT
COMPANIES SINCE 1931.
Acting under the general supervision of the Board of Trustees of the Portfolio,
BMR manages the Portfolio's investments and affairs. BMR also furnishes for the
use of the Portfolio office space and all necessary office facilities, equipment
and personnel for servicing the investments of the Portfolio. Under its
investment advisory agreement with the Portfolio, BMR receives a monthly
advisory fee equal to the aggregate of
(a) a daily asset based fee computed by applying the annual asset rate
applicable to that portion of the total daily net assets in each Category as
indicated below, plus
(b) a daily income based fee computed by applying the daily income rate
applicable to that portion of the total daily gross income (which portion
shall bear the same relationship to the total daily gross income on such day
as that portion of the total daily net assets in the same Category bears to
the total daily net assets on such day) in each Category as indicated below:
ANNUAL DAILY
CATEGORY DAILY NET ASSETS ASSET RATE INCOME RATE
- -------------------------------------------------------------------------------
1 up to $500 million 0.350% 3.50%
2 $500 million but less than $1 billion 0.325% 3.25%
3 $1 billion but less than $1.5 billion 0.300% 3.00%
4 $1.5 billion but less than $2 billion 0.275% 2.75%
5 $2 billion but less than $3 billion 0.250% 2.50%
6 $3 billion and over 0.225% 2.25%
As at January 31, 1997, the Portfolio had net assets of $180,700,459. For the
fiscal year ended January 31, 1997, absent a fee reduction, the Portfolio would
have paid BMR advisory fees equivalent to 0.60% of the Portfolio's average daily
net assets.
BMR OR EATON VANCE ACTS AS INVESTMENT ADVISER TO INVESTMENT COMPANIES AND
VARIOUS INDIVIDUAL AND INSTITUTIONAL CLIENTS WITH ASSETS UNDER MANAGEMENT OF
OVER $17 BILLION. Eaton Vance is a wholly-owned subsidiary of Eaton Vance Corp.,
a publicly-held holding company which through its subsidiaries and affiliates
engages primarily in investment management, administration and marketing
activities. The Principal Underwriter is a wholly-owned subsidiary of Eaton
Vance.
Thomas M. Metzold has acted as the portfolio manager of the Portfolio since it
commenced operations. He has been a Vice President of Eaton Vance since 1991 and
of BMR since 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 Portfolio and at reasonably competitive spreads. Subject to the foregoing,
BMR may consider sales of shares of the Fund or of other investment companies
sponsored by BMR or Eaton Vance as a factor in the selection of firms to execute
portfolio transactions. The Fund, the Portfolio and BMR have adopted Codes of
Ethics relating to personal securities transactions. The Codes permit Eaton
Vance personnel to invest in securities (including securities that may be
purchased or held by the Portfolio) for their own accounts, subject to certain
pre-clearance, reporting and other restrictions and procedures contained in such
Codes.
The Trust has retained the services of Eaton Vance to act as Administrator of
the Fund. The Trust has not retained the services of an investment adviser since
the Trust seeks to achieve the investment objective of the Fund by investing its
assets in the Portfolio. As Administrator, Eaton Vance provides the Fund with
general office facilities and supervises the overall administration of the Fund.
For these services Eaton Vance currently receives no compensation. The Trustees
of the Trust may determine, in the future, to compensate Eaton Vance for such
services.
The Portfolio and the Fund, as the case may be, will each be responsible for all
of its respective costs and expenses not expressly stated to be payable by BMR
under the investment advisory agreement, by Eaton Vance under the administrative
services agreement, or by the Principal Underwriter under the distribution
agreement.
SERVICE PLAN
- -------------------------------------------------------------------------------
In addition to advisory fees and other expenses, the Fund pays service fees
pursuant to a Service Plan (the "Plan") designed to meet the service fee
requirements of the sales charge rule of the National Association of Securities
Dealers, Inc. THE PLAN PROVIDES THAT THE FUND MAY MAKE SERVICE FEE PAYMENTS FOR
PERSONAL SERVICES AND/OR THE MAINTENANCE OF SHAREHOLDER ACCOUNTS TO THE
PRINCIPAL UNDERWRITER, FINANCIAL SERVICE FIRMS ("AUTHORIZED FIRMS") AND OTHER
PERSONS IN AMOUNTS NOT EXCEEDING .25% OF THE FUND'S AVERAGE DAILY NET ASSETS FOR
ANY FISCAL YEAR. The Trustees of the Trust have initially implemented the Plan
by authorizing the Fund to make quarterly service fee payments to the Principal
Underwriter and Authorized Firms in amounts not expected to exceed .25% of the
Fund's average daily net assets for any fiscal year based on the value of shares
sold by such persons and remaining outstanding for at least twelve months.
During the fiscal year ended January 31, 1997, the Fund paid or accrued service
fees under the Plan equivalent to 0.04% of the Fund's average daily net assets
for such year. The Plan is further described in the Statement of Additional
Information.
VALUING FUND SHARES
- --------------------------------------------------------------------------------
THE FUND VALUES ITS SHARES ONCE ON EACH DAY THE NEW YORK STOCK EXCHANGE (THE
"EXCHANGE") IS OPEN FOR TRADING, as of the close of regular trading on the
Exchange (normally 4:00 p.m. New York time). The Fund's net asset value per
share is determined by its custodian, Investors Bank & Trust Company ("IBT"),
(as agent for the Fund) in the manner authorized by the Trustees of the Trust.
Net asset value is computed by dividing the value of the Fund's total assets,
less its liabilities, by the number of shares outstanding. Because the Fund
invests its assets in an interest in the Portfolio, the Fund's net asset value
will reflect the value of its interest in the Portfolio (which in turn, reflects
the underlying value of the Portfolio's assets and liabilities).
Authorized Firms must communicate an investor's order to the Principal
Underwriter prior to the close of the Principal Underwriter's business day to
receive that day's net asset value per Fund share and the public offering price
based thereon. It is the Authorized Firms' responsibility to transmit orders
promptly to the Principal Underwriter.
The Portfolio's net asset value is also determined as of the close of regular
trading on the Exchange by IBT (as custodian and agent for the Portfolio) based
on market or fair value in the manner authorized by the Trustees of the
Portfolio. Net asset value is computed by subtracting the liabilities of the
Portfolio from the value of its total assets. Municipal obligations will
normally be valued on the basis of valuations furnished by a pricing service.
For further information regarding the valuation of the Portfolio's assets, see
"Determination of Net Asset Value" in the Statement of Additional Information.
SHAREHOLDERS MAY DETERMINE THE VALUE OF THEIR INVESTMENT BY MULTIPLYING THE
NUMBER OF FUND SHARES OWNED BY THE CURRENT NET ASSET VALUE PER SHARE.
HOW TO BUY FUND SHARES
- --------------------------------------------------------------------------------
SHARES OF THE FUND MAY BE PURCHASED FOR CASH OR MAY BE ACQUIRED IN EXCHANGE FOR
SECURITIES. Investors may purchase shares of the Fund through Authorized Firms
at the effective public offering price, which price is based on the effective
net asset value per share plus the applicable sales charge. The Fund receives
the net asset value, while the sales charge is divided between the Authorized
Firm and the Principal Underwriter. An Authorized Firm may charge its customers
a fee in connection with transactions executed by that Firm. The Fund may
suspend the offering of shares at any time and may refuse an order for the
purchase of shares.
The sales charge may vary depending on the size of the purchase and the number
of shares of Eaton Vance funds the investor may already own, any arrangement to
purchase additional shares during a 13-month period or special purchase
programs. Complete details of how investors may purchase shares at reduced sales
charges under a Statement of Intention 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 AS SALES CHARGE AS DEALER COMMISSION
PERCENTAGE OF 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%
*No sales charge is payable at the time of purchase on investments of $1 million or more or 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 potentially subject to a sales charge. 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.
</TABLE>
The Principal Underwriter may at times allow discounts up to the full sales
charge. During periods when the discount includes the full sales charge,
Authorized Firms may be deemed to be underwriters as that term is defined in the
Securities Act of 1933. The Principal Underwriter may, from time to time, at its
own expense, provide additional incentives to Authorized Firms which employ
registered representatives who sell 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 the Fund must be at least $1,000. Once an account has
been established the investor may send investments of $50 or more at any time
directly to the Fund's transfer agent (the "Transfer Agent") as follows: First
Data Investor Services Group, P.O. Box 5123, Westborough, MA 01581-5123. The
$1,000 minimum initial investment is waived for Bank Automated Investing
accounts, which may be established with an investment of $50 or more. See "Eaton
Vance Shareholder Services".
Shares of the Fund may be sold at net asset value to current and retired
Directors and Trustees of Eaton Vance funds, including the Portfolio; to clients
and current and retired officers and employees of Eaton Vance, its affiliates
and other investment advisers of Eaton Vance sponsored funds; to registered
representatives, employees of Authorized Firms and bank employees who refer
customers to registered representatives of Authorized Firms; to officers and
employees of IBT and the Transfer Agent; and to such persons' spouses and
children under the age of 21 and their beneficial accounts. Shares may also be
issued at net asset value (1) in connection with the merger of an investment
company with the Fund, (2) to investors making an investment as part of a fixed
fee program whereby an entity unaffiliated with the Investment Adviser provides
multiple investment services, such as management, brokerage and custody, and (3)
to investment advisors, financial planners or other intermediaries who place
trades for their own accounts or the accounts of their clients and who charge a
management, consulting or other fee for their services; clients of such
investment advisors, financial planners or other intermediaries who place trades
for their own accounts if the accounts are linked to the master account of such
investment advisor, financial planner or other intermediary on the books and
records of the broker or agent; and retirement and deferred compensation plans
and trusts used to fund those plans, including, but not limited to, those
defined in Section 401(a), 403(b) or 457 of the Internal Revenue Code of 1986,
as amended (the "Code") and "rabbi trusts."
ACQUIRING FUND SHARES IN EXCHANGE FOR SECURITIES. IBT, as escrow agent, will
receive securities acceptable to Eaton Vance, as Administrator, in exchange for
Fund shares at the applicable public offering price as determined above. The
minimum value of securities (or securities and cash) accepted for deposit is
$5,000. Securities accepted will be sold 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 High Yield Municipals Fund
IN THE CASE OF PHYSICAL DELIVERY:
Investors Bank & Trust Company
Attention: EV Traditional High Yield Municipals Fund
Physical Securities Processing Settlement Area
89 South Street
Boston, MA 02111
Investors who are contemplating an exchange of securities for shares of the
Fund, or their representatives, must contact Eaton Vance to determine whether
the securities are acceptable before forwarding such securities. Eaton Vance
reserves the right to reject any securities. Exchanging securities for 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.
The Trustees of the Trust may consider terminating sales of Fund shares, other
than to the Fund's existing shareholders, when the Portfolio reaches a size that
becomes difficult to manage. If closed, the Board of Trustees may vote to
re-open the Fund for sales to new shareholders at any time.
STATEMENT OF INTENTION AND ESCROW AGREEMENT. If the investor, on an application,
makes a Statement of Intention to invest a specified amount over a
thirteen-month period, then out of the initial purchase (or subsequent purchases
if necessary) 5% of the dollar amount specified on the application shall be held
in escrow by the escrow agent in the form of shares (computed to the nearest
full share at the public offering price applicable to the initial purchase
hereunder) registered in the investor's name. All income dividends and capital
gain distributions on escrowed shares will be paid to the investor or to the
investor's order. When the minimum investment so specified is completed, the
escrowed shares will be delivered to the investor. If the investor has an
accumulation account the shares will remain on deposit under the investor's
account.
If total purchases under this Statement of Intention are less than the amount
specified, the investor will promptly remit to the Principal Underwriter 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 the Principal Underwriter 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.
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 the Principal Underwriter. If at the time of the
recomputation an Authorized 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.
IF YOU DON'T HAVE AN AUTHORIZED FIRM, EATON VANCE CAN RECOMMEND ONE.
HOW TO REDEEM FUND SHARES
- -------------------------------------------------------------------------------
A SHAREHOLDER MAY REDEEM FUND SHARES IN ONE OF THREE WAYS -- BY MAIL, BY
TELEPHONE OR THROUGH AN AUTHORIZED FIRM. The redemption price will be based on
the net asset value per Fund share next computed after a redemption request is
received in the proper form as described below.
REDEMPTION BY MAIL: Shares may be redeemed by delivering to the Transfer Agent,
First Data Investor Services Group, P.O. Box 5123, Westborough, MA 01581-5123,
during its business hours a written request for redemption in good order, plus
any share certificates with executed stock powers. 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 Commission regulation and
acceptable to the Transfer Agent. 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.
REDEMPTION BY TELEPHONE: Shares may be redeemed by telephone provided the
investor has not disclaimed in writing the use of the privilege. Such
redemptions can be effected by calling the Transfer Agent at 800-262-1122,
Monday through Friday, 9:00 a.m. to 4:00 p.m. (Eastern Standard Time). The
proceeds of a telephone redemption may be no greater than the maximum amount
established by the Principal Underwriter (currently $50,000) and may be mailed
only to the account address of record. Shares held by corporations, trusts or
certain other entities, or subject to fiduciary arrangements, may not be
redeemed by telephone. Neither the Fund, the Principal Underwriter nor the
Transfer Agent will be responsible for the authenticity of redemption
instructions received by telephone, provided that reasonable procedures to
confirm that instructions communicated by telephone are genuine have been
followed. Telephone instructions will be tape recorded. In times of drastic
economic or market changes, a telephone redemption may be difficult to
implement.
REDEMPTION THROUGH AN AUTHORIZED FIRM: 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 the Principal Underwriter, as
the Funds' agent, receives the order. It is the Authorized Firm's responsibility
to transmit promptly repurchase orders to the Principal Underwriter. Throughout
this Prospectus, the word "redemption" is generally meant to include a
repurchase.
Within seven days after receipt of a redemption request in good order by the
Transfer Agent, the Fund will make payment in cash for the net asset value of
the shares as of the date determined above, reduced by the amount of any federal
income tax required to be withheld. Although the Fund normally expects to make
payment in cash for redeemed shares, the Trust, subject to compliance with
applicable regulations, has reserved the right to pay the redemption price of
shares of the Fund, either totally or partially, by a distribution in kind of
readily marketable securities withdrawn by the Fund from the Portfolio. The
securities so distributed would be valued pursuant to the Portfolio's valuation
procedures. If a shareholder received a distribution in kind, the shareholder
could incur brokerage or other charges in converting the securities to cash.
If shares were recently purchased, the proceeds of a redemption 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 may result in a taxable gain or loss.
Due to the high cost of maintaining small accounts, the Fund reserves the right
to redeem accounts with balances of less than $750. Prior to such a redemption,
shareholders will be given 60 days' written notice to make additional purchases.
However, no such redemption would be required by the 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, or if
shares were purchased at net asset value because the amount invested represents
redemption proceeds from a mutual fund unaffiliated with Eaton Vance (as
described under "How to Buy Fund Shares"), and are redeemed within 12 months of
purchase, a CDSC of 0.50% will be imposed on such redemption. 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, 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 will be retained by the Principal
Underwriter.
The CDSC is waived for redemptions involving certain liquidation, merger or
acquisition transactions involving other investment companies. If a shareholder
reinvests redemption proceeds 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.
REPORTS TO SHAREHOLDERS
- --------------------------------------------------------------------------------
THE FUND WILL ISSUE TO ITS SHAREHOLDERS SEMI-ANNUAL AND ANNUAL REPORTS
CONTAINING FINANCIAL STATEMENTS. Financial statements included in annual reports
are audited by the Fund's independent certified public accountants. Shortly
after the end of each calendar year, the Fund will furnish all shareholders with
information necessary for preparing federal and state tax returns. 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 TRANSFER AGENT
WILL SET UP A LIFETIME INVESTING ACCOUNT FOR THE INVESTOR ON THE FUND'S RECORDS.
This account is a complete record of all transactions between the investor and
the Fund which at all times shows the balance of shares owned. The Fund will not
issue share certificates except upon request.
At least quarterly, shareholders will receive a statement showing complete
details of any transaction and the current balance in the account. THE LIFETIME
INVESTING ACCOUNT ALSO PERMITS A SHAREHOLDER TO MAKE ADDITIONAL INVESTMENTS IN
SHARES BY SENDING A CHECK FOR $50 OR MORE to the Transfer Agent.
Any questions concerning a shareholder's account or services available may be
directed by telephone to EATON VANCE SHAREHOLDER SERVICES at 800-225-6265,
extension 2, or in writing to the Transfer Agent, First Data Investor Services
Group, P.O. Box 5123, Westborough, MA 01581-5123 (please provide the name of the
shareholder, the Fund and the account number).
THE FOLLOWING DISTRIBUTION OPTIONS WILL BE AVAILABLE TO ALL LIFETIME INVESTING
ACCOUNTS and may be changed as often as desired by written notice to the Fund's
dividend disbursing agent, First Data Investor Services Group, P.O. Box 5123,
Westborough, MA 01581-5123. The currently effective option will appear on each
account statement.
SHARE OPTION -- Dividends and capital gains will be reinvested in additional
shares.
INCOME OPTION -- Dividends will be paid in cash, and capital gains will be
reinvested in additional shares.
CASH OPTION -- Dividends and capital gains will be paid in cash.
The SHARE OPTION will be assigned if no other option is specified.
Distributions, including those reinvested, will be reduced by any withholding
required under federal income tax laws.
If the INCOME OPTION or CASH OPTION has been selected, dividend and/or capital
gains distribution checks which are returned by the United States Postal Service
as not deliverable or which remain uncashed for six months or more will be
reinvested in the account in shares at the then current net asset value.
Furthermore, the distribution option on the account will be automatically
changed to the SHARE OPTION until such time as the shareholder selects a
different option.
DISTRIBUTION INVESTMENT OPTION. In addition to the distribution options set
forth above, dividends and/or capital gains may be invested in additional shares
of another Eaton Vance fund. Before selecting this option, a shareholder should
obtain a prospectus of the other Eaton Vance fund and consider its objectives
and policies carefully.
"STREET NAME" ACCOUNTS. If shares of the Fund are held in a "street name"
account with an Authorized Firm, all recordkeeping, transaction processing and
payments of distributions relating to the beneficial owner's account will be
performed by the Authorized Firm, and not by the Fund and its Transfer Agent.
Since the Fund will have no record of the beneficial owner's transactions, a
beneficial owner should contact the Authorized Firm to purchase, redeem or
exchange shares, to make changes in or give instructions concerning the account,
or to obtain information about the account. The transfer of shares in a "street
name" account to an account with another Authorized Firm or to an account
directly with the Fund involves special procedures and will require the
beneficial owner to obtain historical purchase information about the shares in
the account from the Authorized Firm. Before establishing a "street name"
account with an Authorized Firm, or transferring the account to another
Authorized Firm, an investor wishing to reinvest distributions should determine
whether the Authorized Firm which will hold the shares allows reinvestment of
distributions in "street name" accounts.
THE EATON VANCE EXCHANGE PRIVILEGE
- --------------------------------------------------------------------------------
Shares of the Fund currently may be exchanged for shares of any of the following
funds: Eaton Vance Cash Management Fund, Eaton Vance Income Fund of Boston,
Eaton Vance Municipal Bond Fund L.P., Eaton Vance Tax Free Reserves and any fund
in the Eaton Vance Traditional Group of Funds on the basis of 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 an
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). Exchange offers are available only in
states where shares of the fund being acquired may be legally sold.
Each exchange must involve shares which have a net asset value of at least
$1,000. The exchange privilege may be changed or discontinued without penalty.
Shareholders will be given sixty (60) days' notice prior to any termination or
material amendment of the exchange privilege. The Fund does not permit the
exchange privilege to be used for "Market Timing" and may terminate the exchange
privilege for any shareholder account engaged in Market Timing activity. Any
shareholder account for which more than two round-trip exchanges are made within
any twelve month period will be deemed to be engaged in Market Timing.
Furthermore, a group of unrelated accounts for which exchanges are entered
contemporaneously by a financial intermediary will be considered to be engaged
in Market Timing.
Shares of the 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.
The Transfer Agent makes exchanges at the next determined net asset value after
receiving an exchange request in good order (see "How to Redeem Fund Shares").
Consult the Transfer Agent for additional information concerning the exchange
privilege. Applications and prospectuses of other funds are available from
Authorized Firms or the Principal Underwriter. The prospectus for each fund
describes its investment objectives and policies, and shareholders should obtain
a prospectus and consider these objectives and policies carefully before
requesting an exchange.
Shares of certain other funds advised or administered by Eaton Vance may be
exchanged for Fund shares on the basis of the net asset value per share of each
fund at the time of the exchange (plus, in the case of an exchange made within
six months of the date of purchase of shares subject to an 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). Any such exchange is subject to any restrictions or
qualifications set forth in the current prospectus of any such fund.
Telephone exchanges are accepted by the Transfer Agent provided that the
investor has not disclaimed in writing the use of the privilege. To effect such
exchanges, call the Transfer Agent at 800-262-1122, Monday through Friday, 9:00
a.m. to 4:00 p.m. (Eastern Standard Time). Shares acquired by telephone exchange
must be registered in the same name(s) and with the same address as the shares
being exchanged. Neither the Fund, the Principal Underwriter nor the Transfer
Agent will be responsible for the authenticity of exchange instructions received
by telephone, provided that reasonable procedures to confirm that instructions
communicated are genuine have been followed. Telephone instructions will be tape
recorded. In times of drastic economic or market changes, a telephone exchange
may be difficult to implement. An exchange may result in a taxable gain or loss.
EATON VANCE SHAREHOLDER SERVICES
- --------------------------------------------------------------------------------
THE FUND OFFERS THE FOLLOWING SERVICES, WHICH ARE VOLUNTARY, INVOLVE NO EXTRA
CHARGE, AND MAY BE CHANGED OR DISCONTINUED WITHOUT PENALTY AT ANY TIME. Full
information on each of the services described below and an application, where
required, are available from Authorized Firms or the Principal Underwriter. The
cost of administering such services for the benefit of shareholders who
participate in them is borne by the Fund as an expense to all shareholders.
INVEST-BY-MAIL -- FOR PERIODIC SHARE ACCUMULATION: Once the $1,000 minimum
investment has been made, checks of $50 or more payable to the order of EV
Traditional High Yield Municipals Fund may be mailed directly to the Transfer
Agent, First Data Investor Services Group, P.O. Box 5123, Westborough, MA
01581-5123 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 the
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 "How to Buy Fund Shares --
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 redeemed shares may reinvest at
net asset value any portion or all of the redemption proceeds (plus that amount
necessary to acquire a fractional share to round off the purchase to the nearest
full share) in shares of the Fund, or, provided that the shares 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 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 proceeds in
shares of the 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
- --------------------------------------------------------------------------------
THE FUND DECLARES DIVIDENDS DAILY AND ORDINARILY DISTRIBUTES DIVIDENDS MONTHLY
(ON THE LAST DAY OF THE MONTH OR NEXT SUBSEQUENT BUSINESS DAY) FROM ITS NET
INVESTMENT INCOME. The Fund's net investment income consists of net investment
income allocated to the Fund by the Portfolio (less the Fund's direct and
allocated expenses). The Fund will distribute at least annually (usually in
December) all net realized capital gains allocated to the Fund by the Portfolio,
if any, after taking into account any capital loss carryovers. Daily
distributions will begin on the business day after collected funds for the
purchase of shares are available to the Transfer Agent.
The Fund will distribute substantially all of its tax-exempt income, ordinary
income and capital gain net income (if any) on a current basis. Distributions
designated by the Fund as "exempt interest dividends" may be excluded from
shareholders' gross income for federal income tax purposes. However, exempt
interest dividends may affect the taxability of social security or railroad
retirement benefits for shareholders who receive such benefits. In addition,
exempt interest dividends may result in liability under the federal AMT
provisions and may be taxable for state and local tax purposes. Shareholders
should consult their tax advisers to determine the effect of exempt interest
dividends on their particular tax situation, including liability for state and
local taxes.
Distributions of interest on certain municipal obligations constitute a tax
preference item under the AMT 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. If shares are puchased shortly before the record
date of such a distribution, the shareholder will pay the full price for the
shares and then receive some portion of the price back as a taxable
distribution. 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.
Sales charges paid upon a purchase of shares of the Fund cannot be taken into
account for purposes of determining gain or loss on a redemption or exchange of
the shares before the 91st day after their purchase to the extent a sales charge
is reduced or eliminated in a subsequent acquisition of shares of the Fund or of
another fund pursuant to the Fund's reinvestment or exchange privilege. Any
disregarded amounts will result in an adjustment to the shareholder's tax basis
in some or all of any other shares acquired.
The Fund intends to qualify as a regulated investment company under the Code,
and to satisfy all requirements necessary to be relieved of federal taxes on
income and gains it distributes to shareholders. In satisfying these
requirements, the Fund will treat itself as owning its proportionate share of
each of the Portfolio's assets and as entitled to the income of the Portfolio
properly attributable to such share.
Early in each year, the Fund will notify its shareholders of the tax status of
the Fund's distributions for the preceding year. Shareholders should consult
their tax advisers about the effect of Fund distributions on their particular
tax situation and any state, local or foreign taxes that may apply.
As a regulated investment company under the Code, the Fund does not pay federal
income or excise taxes to the extent that it distributes to shareholders its net
investment income and net realized capital gains in accordance with the timing
requirements imposed by the Code. As a partnership under the Code, the Portfolio
does not pay federal income or excise taxes.
Shareholders should consult with their tax advisers concerning the applicability
of state, local and other taxes to an investment in the Fund.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
FROM TIME TO TIME, THE FUND MAY ADVERTISE ITS YIELD AND/OR AVERAGE ANNUAL TOTAL
RETURN. The Fund's current yield is calculated by dividing the net investment
income per share during a recent 30-day period by the maximum offering price per
share of the Fund on the last day of the period and annualizing the resulting
figure. A taxable-equivalent yield is computed by using the tax-exempt yield
figure and dividing by 1 minus the tax rate. The Fund's average annual total
return is determined by computing the average annual percentage change in value
of $1,000 invested at the maximum public offering price (which includes the
maximum sales charge) for specified periods, assuming reinvestment of all
distributions. The Fund may also publish annual and cumulative total return
figures from time to time.
The Fund may also furnish total return calculations based on investments at
various sales charge levels or at net asset value. Any performance data which is
based on the Fund's net asset value per share would be lower 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 the Fund will fluctuate
over time, and any presentation of the Fund's current yield or total return for
any prior period should not be considered a representation of what an investment
may earn or what the Fund's yield or total return may be in any future period.
If the expenses of the Fund or the Portfolio are allocated to Eaton Vance, the
Fund's performance will be higher.
<PAGE>
APPENDIX A
HIGH YIELD MUNICIPALS PORTFOLIO
ASSET COMPOSITION INFORMATION
FOR THE FISCAL YEAR ENDED JANUARY 31, 1997
RATINGS OF RATINGS OF
MUNICIPAL BONDS MUNICIPAL BONDS
BY MOODY'S BY S&P
PERCENT OF PERCENT OF
NET ASSETS NET ASSETS
Aaa ....................... 3.91% AAA ....................... 4.51%
Aa2 ....................... 2.25 A+ ........................ 1.56
A1 ........................ 0.92 A ......................... 1.78
Baa1 ...................... 3.60 A- ........................ 0.62
Baa2 ...................... 6.97 BBB+ ...................... 1.76
Baa3 ...................... 3.83 BBB ....................... 8.69
Ba1 ....................... 2.82 BBB- ...................... 6.96
Ba2 ....................... 3.27 BB+ ....................... 1.80
B1 ........................ 2.14 BB ........................ 2.58
Unrated ................... 70.29 BB- ....................... 3.61
----- B ......................... 2.14
100.00% Unrated ................... 63.99
------
100.00%
The chart above indicates the weighted average composition of the securities
held by the Portfolio for the fiscal year ended January 31, 1997, with the debt
securities rated by Moody's and S&P separated into the indicated categories. The
above was calulated on a dollar weighted basis and was computed as at the end of
each month during the fiscal year. The chart does not necessarily indicate what
the composition of the securities held by the Portfolio will be in the current
and subsequent fiscal years. Securities that are rated by one rating agency may
be "unrated" by the other.
For a description of Moody's and S&P's securities ratings, see Appendix B to
this Prospectus.
<PAGE>
APPENDIX B
DESCRIPTION OF SECURITIES RATINGS+
MOODY'S INVESTORS SERVICE, INC.
MUNICIPAL BONDS
Aaa: Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long term risk appear somewhat larger than the Aaa securities.
A: Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
Baa: Bonds which are rated Baa are considered as medium-grade obligations (i.e.,
they are neither highly protected nor poorly secured). Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba: Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during other good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B: Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa: Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal
or interest.
Ca: Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked
shortcomings.
C: Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
STANDARD & POOR'S RATINGS GROUP
INVESTMENT GRADE
AAA: Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA: Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the highest rated issues only in small degree.
A: Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB: Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibit adequate protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to pay interest and repay principal for debt in this
category than in higher rated categories.
- ----------------
+The ratings indicated herein are believed to be the most recent ratings
available at the date of this Prospectus for the securities listed. Ratings are
generally given to securities at the time of issuance. While the rating
agencies may from time to time revise such ratings, they undertake no
obligation to do so, and the ratings indicated do not necessarily represent
ratings which would be given to these securities on the date of the Portfolio's
fiscal year end.
SPECULATIVE GRADE
Debt rated BB, B, CCC, CC, and C is regarded as having predominantly speculative
characteristics with respect to capacity to pay interest and repay principal. BB
indicates the least degree of speculation and C the highest. While such debt
will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major exposures to adverse conditions.
BB: Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB- rating.
B: Debt rated B has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The B rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied BB or BB-
rating.
CCC: Debt rated CCC has a currently identifiable vulnerability to default, and
is dependent upon favorable business, financial, and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial, or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The CCC rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
B or B- rating.
CC: The rating CC is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC debt rating.
C: The rating C is typically applied to debt subordinated to senior debt which
is assigned an actual or implied CCC- debt rating. The C rating may be used to
cover a situation where a bankruptcy petition has been filed, but debt service
payments are continued.
C1: The Rating C1 is reserved for income bonds on which no interest is being
paid.
D: Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The D rating also will be used upon the
filing of a bankruptcy petition if debt service payments are jeopardized.
PLUS (+) OR MINUS (-): The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
FITCH INVESTORS SERVICE, INC.
INVESTMENT GRADE BOND RATINGS
AAA: Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.
AA: Bonds considered to be investment grade and of very high credit quality. The
obligor's ability to pay interest and repay principal is very strong, although
not quite as strong as bonds rated "AAA". Because bonds rated in the "AAA" and
"AA" categories are not significantly vulnerable to foreseeable future
developments, short-term debt of these issuers is generally rated "F-1+".
A: Bonds considered to be investment grade and of high credit quality. The
obligors ability to pay interest and repay principal is considered to be strong,
but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB: Bonds considered to be investment grade and of satisfactory credit quality.
The obligor's ability to pay interest and repay principal is considered to be
adequate. Adverse changes in economic conditions and circumstances, however, are
more likely to have adverse impact on these bonds, and therefore, impair timely
payment. The likelihood that the ratings of these bonds will fall below
investment grade is higher than for bonds with higher ratings.
HIGH YIELD BOND RATINGS
BB: Bonds are considered speculative. The obligor's ability to pay interest and
repay principal may be affected over time by adverse economic changes. However,
business and financial alternatives can be identified that could assist the
obligor in satisfying its debt service requirements.
B: Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued timely
payment of principal and interest reflects the obligor's limited margin of
safety and the need for reasonable business and economic activity throughout the
life of the issue.
CCC: Bonds have certain identifiable characteristics which, if not remedied,
may lead to default. The ability to meet obligations requires an advantageous
business and economic environment.
CC: Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C: Bonds are in imminent default in payment of interest or principal.
DDD, DD, AND D: Bonds are in default on interest and/or principal payments. Such
bonds are extremely speculative and should be valued on the basis of their
ultimate recovery value in liquidation or reorganization of the obligor. "DDD"
represents the highest potential for recovery on these bonds, and "D" represents
the lowest potential for recovery.
PLUS (+) OR MINUS (-): The ratings from AA to C may be modified by the addition
of a plus or minus sign to indicate the relative position of a credit within the
rating category.
* * * * * * * *
NOTES: Bonds which are unrated expose the investor to risks with respect to
capacity to pay interest or repay principal which are similar to the risks of
lower-rated speculative bonds. The Portfolio is dependent on the Investment
Adviser's judgment, analysis and experience in the evaluation of such bonds.
<PAGE>
[graphic omitted]
EATON VANCE
- -----------------
MUTUAL FUNDS
EV TRADITIONAL
HIGH YIELD
MUNICIPALS FUND
PROSPECTUS
JUNE 1, 1997
EV TRADITIONAL HIGH YIELD
MUNICIPALS FUND
24 FEDERAL STREET
BOSTON, MA 02110
- --------------------------------------------------------------------------------
INVESTMENT ADVISER OF HIGH YIELD MUNICIPALS PORTFOLIO
Boston Management and Research, 24 Federal Street, Boston, MA 02110
ADMINISTRATOR OF EV TRADITIONAL HIGH YIELD MUNICIPALS FUND
Eaton Vance Management, 24 Federal Street, Boston, MA 02110
PRINCIPAL UNDERWRITER
Eaton Vance Distributors, Inc., 24 Federal Street, Boston, MA 02110
(800) 225-6265
CUSTODIAN
Investors Bank & Trust Company, 89 South Street, Boston, MA 02111
TRANSFER AGENT
First Data Investor Services Group, P.O. Box 5123, Westborough, Ma 01581-5123
(800) 262-1122
AUDITORS
Deloitte & Touche LLP
125 Summer Street
Boston, MA 021110
T-HYP
<PAGE>
PART B
INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION
STATEMENT OF
ADDITIONAL INFORMATION
June 1, 1997
EV MARATHON MUNICIPAL FUNDS
EV MARATHON FLORIDA INSURED MUNICIPALS FUND
EV MARATHON HAWAII MUNICIPALS FUND
EV MARATHON KANSAS MUNICIPALS FUND
24 Federal Street
Boston, Massachusetts 02110
(800) 225-6265
This Statement of Additional Information consists of two parts. Part I
provides general information about the Funds listed above (each a "Fund"), its
corresponding Portfolio and certain other series of Eaton Vance Municipals
Trust II (the "Trust"). Each Part II provides information solely about a Fund
and its corresponding Portfolio. Where appropriate, Part I includes cross-
references to the relevant sections of Part II that provide additional Fund-
specific information. This Statement of Additional Information is sometimes
referred to herein as the "SAI".
TABLE OF CONTENTS
Page
PART I
Additional Information about Investment Policies .......................... 1
Investment Restrictions ................................................... 7
Trustees and Officers ..................................................... 9
Investment Adviser and Administrator ...................................... 10
Custodian ................................................................. 13
Service for Withdrawal .................................................... 13
Determination of Net Asset Value .......................................... 14
Investment Performance .................................................... 14
Taxes ..................................................................... 16
Portfolio Security Transactions ........................................... 18
Other Information ......................................................... 20
Independent Certified Public Accountants .................................. 21
Financial Statements ...................................................... 21
Appendix .................................................................. 22
PART II
EV Marathon Florida Insured Municipals Fund ............................... a-1
EV Marathon Hawaii Municipals Fund ........................................ b-1
EV Marathon Kansas Municipals Fund ........................................ c-1
Although each Fund offers only its shares of beneficial interest, it is
possible that a Fund might become liable for a misstatement or omission in
this Statement of Additional Information regarding another Fund because the
Funds use this combined Statement of Additional Information. The Trustees of
the Trust have considered this factor in approving the use of a combined
Statement of Additional Information.
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND IS
AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE INVESTORS ONLY IF PRECEDED OR
ACCOMPANIED BY THE FUNDS' PROSPECTUS DATED JUNE 1, 1997, AS SUPPLEMENTED FROM
TIME TO TIME, WHICH IS INCORPORATED HEREIN BY REFERENCE. THIS STATEMENT OF
ADDITIONAL INFORMATION SHOULD BE READ IN CONJUNCTION WITH SUCH PROSPECTUS, A
COPY OF WHICH MAY BE OBTAINED WITHOUT CHARGE BY CONTACTING EATON VANCE
DISTRIBUTORS, INC. (THE "PRINCIPAL UNDERWRITER") (SEE BACK COVER FOR ADDRESS
AND PHONE NUMBER).
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART I
This Part I provides information about the Fund, certain other series of
the Trust and the Portfolio. Capitalized terms used in this SAI and not
otherwise defined have the meanings given them in the Fund's Prospectus. The
Fund is subject to the same investment policies as those of the Portfolio. The
Fund currently seeks to achieve its objective by investing in the Portfolio.
ADDITIONAL INFORMATION ABOUT INVESTMENT POLICIES
MUNICIPAL OBLIGATIONS
Municipal obligations are issued to obtain funds for various public and
private purposes. Such obligations include bonds as well as tax-exempt
commercial paper, project notes and municipal notes such as tax, revenue and
bond anticipation notes of short maturity, generally less than three years. In
general, there are three categories of municipal obligations, the interest on
which is exempt from federal income tax and is not a tax preference item for
purposes of the AMT: (i) certain "public purpose" obligations (whenever
issued), which include obligations issued directly by state and local
governments or their agencies to fulfill essential governmental functions;
(ii) certain obligations issued before August 8, 1986 for the benefit of non-
governmental persons or entities; and (iii) certain "private activity bonds"
issued after August 7, 1986, which include "qualified Section 501(c)(3) bonds"
or refundings of certain obligations included in the second category. In
assessing the federal income tax treatment of interest on any municipal
obligation, the Portfolio will generally rely on an opinion of the issuer's
counsel (when available) and will not undertake any independent verification
of the basis for the opinion. The two principal classifications of municipal
bonds are "general obligation" and "revenue" bonds.
Interest on certain "private activity bonds" issued after August 7, 1986
is exempt from regular federal income tax, but such interest (including a
distribution by the Fund derived from such interest) is treated as a tax
preference item which could subject the recipient to or increase the
recipient's liability for the AMT. For corporate shareholders, the Fund's
distributions derived from interest on all municipal obligations (whenever
issued) is included in "adjusted current earnings" for purposes of the AMT as
applied to corporations (to the extent not already included in alternative
minimum taxable income as income attributable to private activity bonds).
Any recognized gain or income attributable to market discount on long-term
tax-exempt municipal obligations (i.e., obligations with a term of more than
one year) purchased after April 30, 1993 other than, in general, at their
original issue is taxable as ordinary income. A long-term debt obligation is
generally treated as acquired at a market discount if purchased after its
original issue at a price less than (i) the stated principal amount payable at
maturity, in the case of an obligation that does not have original issue
discount or (ii) in the case of an obligation that does have original issue
discount, the sum of the issue price and any original issue discount that
accrued before the obligation was purchased, subject to a de minimis
exclusion.
Issuers of general obligation bonds include states, counties, cities,
towns and regional districts. The proceeds of these obligations are used to
fund a wide range of public projects including the construction or improvement
of schools, highways and roads, water and sewer systems and a variety of other
public purposes. The basic security of general obligation bonds is the
issuer's pledge of its faith, credit, and taxing power for the payment of
principal and interest. The taxes that can be levied for the payment of debt
service may be limited or unlimited as to rate and amount.
The principal security for a revenue bond is generally the net revenues
derived from a particular facility or group of facilities or, in some cases,
from the proceeds of a special excise or other specific revenue source.
Revenue bonds have been issued to fund a wide variety of capital projects
including: electric, gas, water, sewer and solid waste disposal systems;
highways, bridges and tunnels; port, airport and parking facilities;
transportation systems; housing facilities, colleges and universities and
hospitals. Although the principal security behind these bonds varies widely,
many provide additional security in the form of a debt service reserve fund
whose monies may be used to make principal and interest payments on the
issuer's obligations. Housing finance authorities have a wide range of
security including partially or fully insured, rent subsidized and/or
collateralized mortgages, and/or the net revenues from housing or other public
projects. In addition to a debt service reserve fund, some authorities provide
further security in the form of a state's ability (without legal obligation)
to make up deficiencies in the debt service reserve fund. Lease rental revenue
bonds issued by a state or local authority for capital projects are normally
secured by annual lease rental payments from the state or locality to the
authority sufficient to cover debt service on the authority's obligations.
Such payments are usually subject to annual appropriations by the state or
locality.
Industrial development and pollution control bonds, although nominally
issued by municipal authorities, are in most cases revenue bonds and are
generally not secured by the taxing power of the municipality, but are usually
secured by the revenues derived by the authority from payments of the
industrial user or users.
The Portfolio may on occasion acquire revenue bonds which carry warrants
or similar rights covering equity securities. Such warrants or rights may be
held indefinitely, but if exercised, the Portfolio anticipates that it would,
under normal circumstances, dispose of any equity securities so acquired
within a reasonable period of time.
While most municipal bonds pay a fixed rate of interest semi-annually in
cash, there are exceptions. Some bonds pay no periodic cash interest, but
rather make a single payment at maturity representing both principal and
interest. Bonds may be issued or subsequently offered with interest coupons
materially greater or less than those then prevailing, with price adjustments
reflecting such deviation.
The obligations of any person or entity to pay the principal of and
interest on a municipal obligation are subject to the provisions of
bankruptcy, insolvency and other laws affecting the rights and remedies of
creditors, such as the Federal Bankruptcy Act, and laws, if any, which may be
enacted by Congress or state legislatures extending the time for payment of
principal or interest, or both, or imposing other constraints upon enforcement
of such obligations. There is also the possibility that as a result of
litigation or other conditions the power or ability of any person or entity to
pay when due principal of and interest on a municipal obligation may be
materially affected. There have been recent instances of defaults and
bankruptcies involving municipal obligations which were not foreseen by the
financial and investment communities. The Portfolio will take whatever action
it considers appropriate in the event of anticipated financial difficulties,
default or bankruptcy of either the issuer of any municipal obligation or of
the underlying source of funds for debt service. Such action may include
retaining the services of various persons or firms (including affiliates of
the Investment Adviser to evaluate or protect any real estate, facilities or
other assets securing any such obligation or acquired by the Portfolio as a
result of any such event, and the Portfolio may also manage (or engage other
persons to manage) or otherwise deal with any real estate, facilities or other
assets so acquired. The Portfolio anticipates that real estate consulting and
management services may be required with respect to properties securing
various municipal obligations in its portfolio or subsequently acquired by the
Portfolio. The Portfolio will incur additional expenditures in taking
protective action with respect to portfolio obligations in default and assets
securing such obligations.
The yields on municipal obligations will be dependent on a variety of
factors, including purposes of issue and source of funds for repayment,
general money market conditions, general conditions of the municipal bond
market, size of a particular offering, maturity of the obligation and rating
of the issue. The ratings of Moody's, S&P and Fitch represent their opinions
as to the quality of the municipal obligations which they undertake to rate.
It should be emphasized, however, that ratings are based on judgment and are
not absolute standards of quality. Consequently, municipal obligations with
the same maturity, coupon and rating may have different yields while
obligations of the same maturity and coupon with different ratings may have
the same yield. In addition, the market price of municipal obligations will
normally fluctuate with changes in interest rates, and therefore the net asset
value of the Portfolio will be affected by such changes.
RISKS OF CONCENTRATION
Municipal Obligations of a Particular State. Where applicable, see "Risks of
Concentration" in the Fund's Part II for a discussion of the risks associated
with the Portfolio's policy of concentrating its investments in particular
state issuers of municipal obligations.
Obligations of Particular Types of Issuers. The Portfolio may invest 25% or
more of its total assets in municipal obligations of the same type. There
could be economic, business or political developments which might affect all
municipal obligations of the same type. In particular, investments in
industrial revenue bonds might involve (without limitation) the following
risks.
Hospital bond ratings are often based on feasibility studies which contain
projections of expenses, revenues and occupancy levels. Among the influences
affecting a hospital's gross receipts and net income available to service its
debt are demand for hospital services, the ability of the hospital to provide
the services required, management capabilities, economic developments in the
service area, efforts by insurers and government agencies to limit rates and
expenses, confidence in the hospital, service area economic developments,
competition, availability and expense of malpractice insurance, Medicaid and
Medicare funding and possible federal legislation limiting the rates of
increase of hospital charges.
Electric utilities face problems in financing large construction programs
in an inflationary period, cost increases and delay occasioned by safety and
environmental considerations (particularly with respect to nuclear
facilities), difficulty in obtaining fuel at reasonable prices, and in
achieving timely and adequate rate relief from regulatory commissions, effects
of energy conservation and limitations on the capacity of the capital market
to absorb utility debt.
Life care facilities are an alternative form of long-term housing for the
elderly which offer residents the independence of a condominium life style
and, if needed, the comprehensive care of nursing home services. Bonds to
finance these facilities have been issued by various state and local
authorities. Since the bonds are normally secured only by the revenues of each
facility and not by state or local government tax payments, they are subject
to a wide variety of risks. Primarily, the projects must maintain adequate
occupancy levels to be able to provide revenues sufficient to meet debt
service payments. Moreover, since a portion of housing, medical care and other
services may be financed by an initial deposit, it is important that the
facility maintain adequate financial reserves to secure estimated actuarial
liabilities. The ability of management to accurately forecast inflationary
cost pressures is an important factor in this process. The facilities may also
be affected adversely by regulatory cost restrictions applied to health care
delivery in general, particularly state regulations or changes in Medicare and
Medicaid payments or qualifications, or restrictions imposed by medical
insurance companies. They may also face competition from alternative health
care or conventional housing facilities in the private or public sector.
Obligations of Puerto Rico, the U.S. Virgin Islands and Guam. Subject to the
investment policies set forth in the Prospectus, the Portfolio may invest in
the obligations of Puerto Rico, the U.S. Virgin Islands and Guam. Accordingly,
the Portfolio may be adversely affected by local political and economic
conditions and developments within Puerto Rico, the U.S. Virgin Islands and
Guam affecting the issuers of such obligations.
Puerto Rico has a diversified economy dominated by the manufacturing and
service sectors. Manufacturing is the largest sector in terms of gross
domestic product and is more diversified than during earlier phases of Puerto
Rico's industrial development. The three largest sectors of the economy (as a
percentage of employment) are services (47%), government (22%) and
manufacturing (16.4%). These three sectors represent 37.5%, 11% and 41.8%,
respectively, of the gross domestic product. The service sector is the fastest
growing, followed by manufacturing which has begun to show signs of expansion.
The North American Free Trade Agreement ("NAFTA"), which became effective
January 1, 1994, could lead to the loss of Puerto Rico's lower salaried or
labor intensive jobs to Mexico.
The Commonwealth of Puerto Rico exercises virtually the same control over
its internal affairs as do the fifty states; however, it differs from the
states in its relationship with the federal government. Most federal taxes,
except those such as social security taxes that are imposed by mutual consent,
are not levied in Puerto Rico. However, in conjunction with the 1993 U.S.
budget plan, Section 936 of the Code was amended and provided for two
alternative limitations to the Section 936 credit. The first option limited
the credit against such income to 40% of the credit allowable under then
current law, with a five year phase-in period starting at 60% of the allowable
credit. The second option was a wage and depreciation based credit. Additional
amendments to Section 936 in 1996 imposed caps on these credits, beginning in
1998 for the first option and beginning in 2002 for the second option. More
importantly, the 1996 amendments eliminated both options for taxable years
beginning in 2006. The eventual elimination of tax benefits to those U.S.
companies with operations in Puerto Rico may lead to slower growth in the
future. There can be no assurance that this will not lead to a weakened
economy, a lower rating on Puerto Rico's debt or lower prices for Puerto Rican
bonds that may be held by the Portfolio in the long-term. Short-term affects
are minimal.
Puerto Rico's financial reporting was first conformed to generally
accepted accounting principles in fiscal 1990. Nonrecurring revenues have been
used frequently to balance recent years' budgets. In November, 1993 Puerto
Ricans voted on whether they wished to retain their Commonwealth status,
become a state or establish an independent nation. Puerto Ricans voted to
retain Commonwealth status, leaving intact the current relationship with the
federal government. There can be no assurance that the statehood issue will
not be brought to a vote in the future. A successful statehood vote in Puerto
Rico would then require the U.S. Congress to ratify the election.
The United States Virgin Islands (USVI) are located approximately 1,100
miles east-southeast of Miami and are made up of St. Croix, St. Thomas and St.
John. The economy is heavily reliant on the tourism industry, with roughly 43%
of non-agricultural employment in tourist-related trade and services. In 1996,
unemployment stood at 13.8%. The tourism industry is economically sensitive
and would likely be adversely affected by a recession in either the United
States or Europe.
An important component of the USVI revenue base is the federal excise tax
on rum exports. Tax revenues rebated by the federal government to the USVI
provide the primary security of many outstanding USVI bonds. Since more than
90% of the rum distilled in the USVI is distilled at one plant, any
interruption in its operations (as occurred after Hurricane Hugo in 1989)
would adversely affect these revenues. Consequently, there can be no assurance
that rum exports to the United States and the rebate of tax revenues to the
USVI will continue at their present levels. The preferential tariff treatment
the USVI rum industry currently enjoys could be reduced under NAFTA. Increased
competition from Mexican rum producers could reduce USVI rum imported to the
U.S., decreasing excise tax revenues generated. The USVI is periodically hit
by hurricanes. Several hurricanes have caused extensive damage, which has had
a negative impact on revenue collections. There is currently no rated,
unenhanced Virgin Islands debt outstanding (although there is unrated debt
outstanding).
Guam, an unincorporated U.S. territory, is located 1,500 miles southeast
of Tokyo. The U.S. military is a key component of Guam's economy. The federal
government directly comprises more than 10% of the employment base, with a
substantial component of the service sector to support these personnel. The
Naval Air Station, one of several U.S. military facilities on the island, has
been slated for closure by the Defense Base Closure and Realignment Committee;
however, the administration plans to use these facilities to expand the
island's commercial airport. Guam is also heavily reliant on tourists,
particularly the Japanese. For 1995, the government realized a General Fund
operating surplus. The administration has taken steps to improve its financial
position; however, there are no guarantees that an improvement will be
realized. Guam's general obligation debt is rated BBB by S&P with a negative
outlook.
MUNICIPAL LEASES
The Portfolio may invest in municipal leases and participations therein,
which arrangements frequently involve special risks. Municipal leases are
obligations in the form of a lease or installment purchase arrangement which
is issued by state or local governments to acquire equipment and facilities.
Interest income from such obligations is generally exempt from local and state
taxes in the state of issuance. "Participations" in such leases are undivided
interests in a portion of the total obligation. Participations entitle their
holders to receive a pro rata share of all payments under the lease. A trustee
is usually responsible for administering the terms of the participation and
enforcing the participants' rights in the underlying lease. Leases and
installment purchase or conditional sale contracts (which normally provide for
title to the leased assets to pass eventually to the government issuer) have
evolved as a means of government issuers to acquire property and equipment
without meeting the constitutional and statutory requirements for the issuance
of debt. State debt-issuance limitations are deemed to be inapplicable to
these arrangements because of the inclusion in many leases or contracts of
"non-appropriation" clauses that provide that the governmental issuer has no
obligation to make future payments under the lease or contract unless money is
appropriated for such purpose by the appropriate legislative body on a yearly
or other periodic basis. Such arrangements are, therefore, subject to the risk
that the governmental issuer will not appropriate funds for lease payments.
Certain municipal lease obligations owned by the Portfolio may be deemed
illiquid for the purpose of the Portfolio's 15% limitation on investments in
illiquid securities, unless determined by the Investment Adviser, pursuant to
guidelines adopted by the Trustees of the Portfolio, to be liquid securities
for the purpose of such limitation. In determining the liquidity of municipal
lease obligations, the Investment Adviser will consider a variety of factors
including: (1) the willingness of dealers to bid for the security; (2) the
number of dealers willing to purchase or sell the obligation and the number of
other potential buyers; (3) the frequency of trades and quotes for the
obligation; and (4) the nature of the marketplace trades. In addition, the
Investment Adviser will consider factors unique to particular lease
obligations affecting the marketability thereof. These include the general
creditworthiness of the municipality, the importance of the property covered
by the lease to the municipality, and the likelihood that the marketability of
the obligation will be maintained throughout the time the obligation is held
by the Portfolio. In the event the Portfolio acquires an unrated municipal
lease obligation, the Investment Adviser will be responsible for determining
the credit quality of such obligation on an on-going basis, including an
assessment of the likelihood that the lease may or may not be cancelled.
ZERO COUPON BONDS
Zero coupon bonds are debt obligations which do not require the periodic
payment of interest and are issued at a significant discount from face value.
The discount approximates the total amount of interest the bonds will accrue
and compound over the period until maturity at a rate of interest reflecting
the market rate of the security at the time of issuance. Zero coupon bonds
benefit the issuer by mitigating its need for cash to meet debt service, but
also require a higher rate of return to attract investors who are willing to
defer receipt of such cash.
INSURANCE
Insured municipal obligations held by the Portfolio (if any) will be
insured as to their scheduled payment of principal and interest under either
(i) an insurance policy obtained by the issuer or underwriter of the
obligation at the time of its original issuance or (ii) an insurance policy
obtained by the Portfolio or a third party subsequent to the obligation's
original issuance (which may not be reflected in the obligation's market
value). In either event, such insurance may provide that in the event of non-
payment of interest or principal when due with respect to an insured
obligation, the insurer is not required to make such payment until a specified
time has lapsed (which may be 30 days or more after notice).
CREDIT QUALITY
The Portfolio is dependent on the Investment Adviser's judgment, analysis
and experience in evaluating the quality of municipal obligations. In
evaluating the credit quality of a particular issue, whether rated or unrated,
the Investment Adviser will normally take into consideration, among other
things, the financial resources of the issuer (or, as appropriate, of the
underlying source of funds for debt service), its sensitivity to economic
conditions and trends, any operating history of and the community support for
the facility financed by the issue, the ability of the issuer's management and
regulatory matters. The Investment Adviser will attempt to reduce the risks of
investing in the lowest investment grade, below investment grade and
comparable unrated obligations through active portfolio management, credit
analysis and attention to current developments and trends in the economy and
the financial markets.
SHORT-TERM TRADING
The Portfolio may sell (and later purchase) securities in anticipation of
a market decline (a rise in interest rates) or purchase (and later sell)
securities in anticipation of a market rise (a decline in interest rates). In
addition, a security may be sold and another purchased at approximately the
same time to take advantage of what the Portfolio believes to be a temporary
disparity in the normal yield relationship between the two securities. Yield
disparities may occur for reasons not directly related to the investment
quality of particular issues or the general movement of interest rates, such
as changes in the overall demand for or supply of various types of municipal
obligations or changes in the investment objectives of investors. Such trading
may be expected to increase the portfolio turnover rate, which may increase
capital gains and the expenses incurred in connection with such trading. The
Portfolio cannot accurately predict its portfolio turnover rate, but it is
anticipated that the annual portfolio turnover rate will generally not exceed
100% (excluding turnover of securities having a maturity of one year or less).
A 100% annual turnover rate would occur, for example, if all the securities
held by the Portfolio were replaced once in a period of one year. A high
turnover rate (100% or more) necessarily involves greater expenses to the
Portfolio. The Portfolio engages in portfolio trading (including short-term
trading) if it believes that a transaction including all costs will help in
achieving its investment objective. For the portfolio turnover rate of the
Portfolio in prior fiscal years, see "Supplementary Data" in "Financial
Statements".
WHEN-ISSUED SECURITIES
New issues of municipal obligations are sometimes offered on a "when-
issued" basis, that is, delivery and payment for the securities normally take
place within a specified number of days after the date of the Portfolio's
commitment and are subject to certain conditions such as the issuance of
satisfactory legal opinions. The Portfolio may also purchase securities on a
when-issued basis pursuant to refunding contracts in connection with the
refinancing of an issuer's outstanding indebtedness. Refunding contracts
generally require the issuer to sell and the Portfolio to buy such securities
on a settlement date that could be several months or several years in the
future.
The Portfolio will make commitments to purchase when-issued securities
only with the intention of actually acquiring the securities, but may sell
such securities before the settlement date if it is deemed advisable as a
matter of investment strategy. The payment obligation and the interest rate
that will be received on the securities are fixed at the time the Portfolio
enters into the purchase commitment. When the Portfolio commits to purchase a
security on a when-issued basis it records the transaction and reflects the
value of the security in determining its net asset value. Securities purchased
on a when-issued basis and the securities held by the Portfolio are subject to
changes in value based upon the perception of the creditworthiness of the
issuer and changes in the level of interest rates (i.e. appreciation when
interest rates decline and depreciation when interest rates rise). Therefore,
to the extent that the Portfolio remains substantially fully invested at the
same time that it has purchased securities on a when-issued basis, there will
be greater fluctuations in the Portfolio's net asset value than if it solely
set aside cash to pay for when-issued securities.
VARIABLE RATE OBLIGATIONS
The Portfolio may purchase variable rate obligations. Variable rate
instruments provide for adjustments in the interest rate at specified
intervals (weekly, monthly, semi-annually, etc.). The revised rates are
usually set at the issuer's discretion, in which case the investor normally
enjoys the right to "put" the security back to the issuer or his agent. Rate
revisions may alternatively be determined by formula or in some other
contractual fashion. Variable rate obligations normally provide that the
holder can demand payment of the obligation on short notice at par with
accrued interest and are frequently secured by letters of credit or other
credit support arrangements provided by banks. To the extent that such letters
of credit or other arrangements constitute an unconditional guarantee of the
issuer's obligations, a bank may be treated as the issuer of a security for
the purpose of complying with the diversification requirements set forth in
Section 5(b) of the 1940 Act and Rule 5b-2 thereunder. The Portfolio would
anticipate using these obligations as cash equivalents pending longer term
investment of its funds.
REDEMPTION, DEMAND AND PUT FEATURES
Most municipal bonds have a fixed final maturity date. However, it is
commonplace for the issuer to reserve the right to call the bond earlier.
Also, some bonds may have "put" or "demand" features that allow early
redemption by the bondholder. Longer term fixed-rate bonds may give the holder
a right to request redemption at certain times (often annually after the lapse
of an intermediate term). These bonds are more defensive than conventional
long term bonds (protecting to some degree against a rise in interest rates)
while providing greater opportunity than comparable intermediate term bonds,
because the Portfolio may retain the bond if interest rates decline. By
acquiring these kinds of obligations the Portfolio obtains the contractual
right to require the issuer of the security or some other person (other than a
broker or dealer) to purchase the security at an agreed upon price, which
right is contained in the obligation itself rather than in a separate
agreement with the seller or some other person. Because this right is
assignable with the security, which is readily marketable and valued in the
customary manner, the Portfolio will not assign any separate value to such
right.
LIQUIDITY AND PROTECTIVE PUT OPTIONS
The Portfolio may also enter into a separate agreement with the seller of
the security or some other person granting the Portfolio the right to put the
security to the seller thereof or the other person at an agreed upon price.
The Portfolio intends to limit this type of transaction to institutions (such
as banks or securities dealers) which the Investment Adviser believes present
minimal credit risks and would engage in this type of transaction to
facilitate portfolio liquidity or (if the seller so agrees) to hedge against
rising interest rates. There is no assurance that this kind of put option will
be available to the Portfolio or that selling institutions will be willing to
permit the Portfolio to exercise a put to hedge against rising interest rates.
A separate put option may not be marketable or otherwise assignable, and sale
of the security to a third party or lapse of time with the put unexercised may
terminate the right to exercise the put. The Portfolio does not expect to
assign any value to any separate put option which may be acquired to
facilitate portfolio liquidity, inasmuch as the value (if any) of the put will
be reflected in the value assigned to the associated security; any put
acquired for hedging purposes would be valued in good faith under methods or
procedures established by the Trustees of the Portfolio after consideration of
all relevant factors, including its expiration date, the price volatility of
the associated security, the difference between the market price of the
associated security and the exercise price of the put, the creditworthiness of
the issuer of the put and the market prices of comparable put options.
Interest income generated by certain bonds having put or demand features may
not qualify as tax-exempt interest.
SECURITIES LENDING
The Portfolio may seek to increase its income by lending portfolio
securities to broker-dealers or other institutional borrowers. The Portfolio
would have the right to call a loan and obtain the securities loaned at any
time on up to five business days' notice. During the existence of a loan, the
Portfolio will continue to receive the equivalent of the interest paid by the
issuer on the securities loaned and will also receive a fee, or all or a
portion of the interest on investment of the collateral, if any. However, the
Portfolio may pay lending fees to such borrowers. The Portfolio would not have
the right to vote any securities having voting rights during the existence of
the loan, but would call the loan in anticipation of an important vote to be
taken among holders of the securities or the giving or withholding of their
consent on a material matter affecting the investment. As with other
extensions of credit there are risks of delay in recovery or even loss of
rights in the securities loaned if the borrower of the securities fails
financially. However, the loans will be made only to organizations deemed by
the Portfolio's management to be of good standing and when, in the judgment of
the Portfolio's management, the consideration which can be earned from
securities loans of this type, net of administrative expenses and any finder's
fees, justifies the attendant risk. Distributions by the Fund of any income
realized by the Portfolio from securities loans will be taxable. If the
management of the Portfolio decides to make securities loans, it is intended
that the value of the securities loaned would not exceed 30% of the
Portfolio's total assets. The Portfolio has no present intention of engaging
in securities lending.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
A change in the level of interest rates may affect the value of the
securities held by the Portfolio (or of securities that the Portfolio expects
to purchase). To hedge against changes in rates, the Portfolio may enter into
(i) futures contracts for the purchase or sale of debt securities and (ii)
futures contracts on securities indices. All futures contracts entered into by
the Portfolio are traded on exchanges or boards of trade that are licensed and
regulated by the Commodity Futures Trading Commission ("CFTC") and must be
executed through a futures commission merchant or brokerage firm which is a
member of the relevant exchange. The Portfolio may purchase and write call and
put options on futures contracts which are traded on a United States or
foreign exchange or board of trade. The Portfolio will be required, in
connection with transactions in futures contracts and the writing of options
on futures, to make margin deposits, which will be held by the Portfolio's
custodian for the benefit of the futures commission merchant through whom the
Portfolio engages in such futures and options transactions.
Some futures contracts and options thereon may become illiquid under
adverse market conditions. In addition, during periods of market volatility, a
commodity exchange may suspend or limit transactions in an exchange-traded
instrument, which may make the instrument temporarily illiquid and difficult
to price. Commodity exchanges may also establish daily limits on the amount
that the price of a futures contract or futures option can vary from the
previous day's settlement price. Once the daily limit is reached, no trades
may be made that day at a price beyond the limit. This may prevent the
Portfolio from closing out positions and limiting its losses.
The Portfolio will engage in futures and related options transactions only
for bona fide hedging purposes as defined in or permitted by CFTC regulations.
The Portfolio will determine that the price fluctuations in the futures
contracts and options on futures are substantially related to price
fluctuations in securities held by the Portfolio or which it expects to
purchase. The Portfolio's futures transactions will be entered into for
traditional hedging purposes -- that is, futures contracts will be sold to
protect against a decline in the price of securities that the Portfolio owns,
or futures contracts will be purchased to protect the Portfolio against an
increase in the price of securities it intends to purchase. However, in
particular cases, when it is economically advantageous for the Portfolio to do
so, a long futures position may be terminated (or an option may expire)
without the corresponding purchase of securities. The Portfolio will engage in
transactions in futures and related options contracts only to the extent such
transactions are consistent with the requirements of the Code for maintaining
qualification of the Fund as a regulated investment company for federal income
tax purposes (see "Taxes").
ASSET COVERAGE REQUIREMENTS
Transactions involving when-issued securities, the lending of securities
or futures contracts and options (other than options that the Portfolio has
purchased) expose the Portfolio to an obligation to another party. The
Portfolio will not enter into any such transactions unless it owns either (1)
an offsetting ("covered") position in securities or other options or futures
contracts, or (2) cash or liquid securities (such as readily marketable
obligations and money market instruments) with a value sufficient at all times
to cover its potential obligations not covered as provided in (1) above. The
Portfolio will comply with Commission guidelines regarding cover for these
instruments and, if the guidelines so require, set aside cash or liquid
securities in a segregated account maintained by its custodian in the
prescribed amount. The securities in the segregated account will be marked to
market daily.
Assets used as cover or held in a segregated account maintained by the
custodian cannot be sold while the position requiring coverage or segregation
is outstanding unless they are replaced with other appropriate assets. As a
result, the commitment of a large portion of the Portfolio's assets to
segregated accounts or to cover could impede portfolio management or the
Portfolio's ability to meet redemption requests or other current obligations.
PORTFOLIO TURNOVER
For the Portfolio turnover rate of the Portfolio, see "Supplementary Data"
in the Portfolio's financial statements included in the Fund's annual report.
INVESTMENT RESTRICTIONS
The following investment restrictions of the Fund are designated as
fundamental policies and as such cannot be changed without the approval of the
holders of a majority of the Fund's outstanding voting securities, which as
used in this SAI means the lesser of (a) 67% of the shares of the Fund present
or represented by proxy at a meeting if the holders of more than 50% of the
shares are present or represented at the meeting or (b) more than 50% of the
shares of the Fund. Accordingly, the Fund may not:
(1) Borrow money or issue senior securities except as permitted by the
Investment Company Act of 1940;
(2) Purchase securities on margin (but the Fund may obtain such short-term
credits as may be necessary for the clearance of purchases and sales of
securities). The deposit or payment by the Fund of initial or maintenance
margin in connection with futures contracts or related options transactions is
not considered the purchase of a security on margin;
(3) Underwrite or participate in the marketing of securities of others,
except insofar as it may technically be deemed to be an underwriter in selling
a portfolio security under circumstances which may require the registration of
the same under the Securities Act of 1933;
(4) Purchase or sell real estate, although it may purchase and sell
securities which are secured by real estate and securities of companies which
invest or deal in real estate;
(5) Purchase or sell physical commodities or contracts for the purchase or
sale of physical commodities; or
(6) Make loans to any person except by (a) the acquisition of debt
instruments and making portfolio investments, (b) entering into repurchase
agreements and (c) lending portfolio securities.
Notwithstanding the investment policies and restrictions of the Fund, the
Fund may invest all of its investable assets in an open-end management
investment company with substantially the same investment objective, policies
and restrictions as the Fund.
The Portfolio has adopted substantially the same fundamental investment
restrictions as the foregoing investment restrictions adopted by the Fund;
such restrictions cannot be changed without the approval of a "majority of the
outstanding voting securities" of the Portfolio.
The Fund and the Portfolio have adopted the following investment policies
which may be changed with respect to the Fund by the Trustees of the Trust
without approval by the Fund's shareholders or with respect to the Portfolio
by the Trustees of the Portfolio without the approval by the Fund or its other
investors. As a matter of nonfundamental policy, the Fund and the Portfolio
will not: (a) make short sales of securities or maintain a short position,
unless at all times when a short position is open it owns an equal amount of
such securities or securities convertible into or exchangeable, without
payment of any further consideration, for securities of the same issue as, and
equal in amount to, the securities sold short and unless not more than 25% of
the Fund's net assets (taken at current value) is held as collateral for such
sales at any one time. (The Fund and the Portfolio will make such sales only
for the purpose of deferring realization of gain or loss for federal income
tax purposes); (b) invest more than 15% of its net assets in investments which
are not readily marketable, including restricted securities and repurchase
agreements maturing in more than seven days. Restricted securities for the
purposes of this limitation do not include securities eligible for resale
pursuant to Rule 144A under the Securities Act of 1933 and commercial paper
issued pursuant to Section 4(2) of said Act that the Board of Trustees of the
Trust or the Portfolio, or its delegate, determines to be liquid; or (c)
purchase or retain in its portfolio any securities issued by an issuer any of
whose officers, directors, trustees or security holders is an officer or
Trustee of the Trust or the Portfolio or is a member, officer, director or
trustee of any investment adviser of the Trust or the Portfolio, if after the
purchase of the securities of such issuer by the Fund or the Portfolio one or
more of such persons owns beneficially more than 1/2 of 1% of the shares or
securities or both (all taken at market value) of such issuer and such
persons owning more than 1/2 of 1% of such shares or securities together own
beneficially more than 5% of such shares or securities or both (all taken at
market value).
For purposes of the Portfolio's investment restrictions, the determination
of the "issuer" of a municipal obligation which is not a general obligation
bond will be made by the Investment Adviser on the basis of the
characteristics of the obligation and other relevant factors, the most
significant of which is the source of funds committed to meeting interest and
principal payments of such obligations.
Whenever an investment policy or investment restriction set forth in the
Prospectus or this SAI states a maximum percentage of assets that may be
invested in any security or other asset, or describes a policy regarding
quality standards, such percentage limitation or standard shall be determined
immediately after and as a result of the Fund's or the Portfolio's acquisition
of such security or asset. Accordingly, any later increase or decrease
resulting from a change in values, assets or other circumstances, or any
subsequent rating change below investment grade made by a rating service, will
not compel the Fund or the Portfolio, as the case may be, to dispose of such
security or other asset. Where applicable and notwithstanding the foregoing,
under normal market conditions the Fund and the Portfolio must take actions
necessary to comply with the policy of investing at least 65% of total assets
in a particular state. Moreover, the Fund and Portfolio must always be in
compliance with the borrowing policies set forth above.
TRUSTEES AND OFFICERS
The Trustees and officers of the Trust and the Portfolio are listed below.
Except as indicated, each individual has held the office shown or other
offices in the same company for the last five years. Unless otherwise noted,
the business address of each Trustee and officer is 24 Federal Street, Boston,
Massachusetts 02110, which is also the address of the Investment Adviser, BMR,
a wholly-owned subsidiary of Eaton Vance; of Eaton Vance's parent, Eaton Vance
Corp. ("EVC"); and of BMR's and Eaton Vance's trustee, Eaton Vance, Inc.
("EV"). Eaton Vance and EV are both wholly-owned subsidiaries of EVC. Those
Trustees who are "interested persons" of the Trust or the Portfolio, as
defined in the 1940 Act, by virtue of their affiliation with BMR, Eaton Vance,
EVC or EV, are indicated by an asterisk(*).
TRUSTEES OF THE TRUST AND THE PORTFOLIO
DONALD R. DWIGHT (66), Trustee
President of Dwight Partners, Inc. (a corporate relations and communications
company); Chairman of the Board of Newspapers of New England, Inc. Director
or Trustee of various investment companies managed by Eaton Vance or BMR.
Address: Clover Mill Lane, Lyme, New Hampshire 03768
JAMES B. HAWKES (55), Vice President and Trustee*
President and Chief Executive Officer of BMR, Eaton Vance, EVC and EV, and a
Director of EVC and EV. Director, Trustee and officer of various investment
companies managed by Eaton Vance or BMR.
SAMUEL L. HAYES, III (62), Trustee
Jacob H. Schiff Professor of Investment Banking, Harvard University Graduate
School of Business Administration. Director or Trustee of various investment
companies managed by Eaton Vance or BMR.
Address: Harvard University Graduate School of Business Administration,
Soldiers Field Road, Boston, Massachusetts 02163
NORTON H. REAMER (61), Trustee
President and Director, United Asset Management Corporation (a holding company
owning institutional investment management firms); Chairman, President and
Director, UAM Funds (mutual funds). Director or Trustee of various
investment companies managed by Eaton Vance or BMR.
Address: One International Place, Boston, Massachusetts 02110
JOHN L. THORNDIKE (70), Trustee
Formerly Director of Fiduciary Company Incorporated, Director or Trustee of
various investment companies managed by Eaton Vance or BMR.
Address: 175 Federal Street, Boston, Massachusetts 02110
JACK L. TREYNOR (67), Trustee
Investment Adviser and Consultant. Director or Trustee of various investment
companies managed by Eaton Vance or BMR.
Address: 504 Via Almar, Palos Verdes Estates, California 90274
OFFICERS OF THE TRUST AND THE PORTFOLIO
THOMAS J. FETTER (53), President
Vice President of BMR, Eaton Vance and EV. Officer of various investment
companies managed by Eaton Vance or BMR. Mr. Fetter was elected President of
the Trust on December 13, 1993.
ROBERT B. MACINTOSH (40), Vice President of the Trust
Vice President of BMR since August 11, 1992, and of Eaton Vance and EV.
Officer of various investment companies managed by Eaton Vance or BMR. Mr.
MacIntosh was elected Vice President of the Trust on March 22, 1993.
JAMES L. O'CONNOR (52), Treasurer
Vice President of BMR, Eaton Vance and EV. Officer of various investment
companies managed by Eaton Vance or BMR.
THOMAS OTIS (65), Secretary
Vice President and Secretary of BMR, Eaton Vance, EVC and EV. Officer of
various investment companies managed by Eaton Vance or BMR.
JANET E. SANDERS (61), Assistant Secretary
Vice President of BMR, Eaton Vance and EV. Officer of various investment
companies managed by Eaton Vance or BMR.
A. JOHN MURPHY (34), Assistant Secretary
Assistant Vice President of BMR, Eaton Vance and EV since March 1, 1994;
employee of Eaton Vance since March 1993. State Regulations Supervisor, The
Boston Company (1991-1993). Officer of various investment companies managed
by Eaton Vance or BMR. Mr. Murphy was elected Assistant Secretary of the
Trust on March 27, 1995.
ERIC G. WOODBURY (39), Assistant Secretary
Vice President of BMR, Eaton Vance and EV since February 1993; formerly,
associate attorney at Dechert, Price & Rhoads. Officer of various investment
companies managed by Eaton Vance or BMR. Mr. Woodbury was elected Assistant
Secretary on June 19, 1995.
For any additional officers of the Portfolio, see "Additional Officer
Information" in the Fund's Part II.
Messrs. Hayes (Chairman), Reamer and Thorndike are members of the Special
Committee of the Board of Trustees of the Trust and of the Portfolio. The
purpose of the Special Committee is to consider, evaluate and make
recommendations to the full Board of Trustees concerning (i) all contractual
arrangements with service providers to the Fund and the Portfolio, including
investment advisory (Portfolio only), administrative, transfer agency,
custodial and fund accounting and distribution services, and (ii) all other
matters in which Eaton Vance or its affiliates has any actual or potential
conflict of interest with the Fund, the Portfolio or investors therein.
The Nominating Committee of the Board of Trustees of the Trust and the
Portfolio is comprised of four Trustees who are not "interested persons" as
that term is defined under the 1940 Act ("noninterested Trustees"). The
Committee has four-year staggered terms, with one member rotating off the
Committee to be replaced by another noninterested Trustee. The purpose of the
Committee is to recommend to the Board nominees for the position of
noninterested Trustee and to assure that at least a majority of the Board of
Trustees is independent of Eaton Vance and its affiliates.
Messrs. Treynor (Chairman) and Dwight are members of the Audit Committee
of the Board of Trustees of the Trust and of the Portfolio. The Audit
Committee's functions include making recommendations to the Trustees regarding
the selection of the independent certified public accountants, and reviewing
matters relative to trading and brokerage policies and practices, accounting
and auditing practices and procedures, accounting records, internal accounting
controls, and the functions performed by the custodian, transfer agent and
dividend disbursing agent of the Trust and of the Portfolio.
Trustees of the Portfolio who are not affiliated with the Investment
Adviser may elect to defer receipt of all or a percentage of their annual fees
in accordance with the terms of a Trustees Deferred Compensation Plan (the
"Trustees" Plan"). Under the Trustees' Plan, an eligible Trustee may elect to
have his deferred fees invested by the Portfolio in the shares of one or more
funds in the Eaton Vance Family of Funds, and the amount paid to the Trustees
under the Trustees' Plan will be determined based upon the performance of such
investments. Deferral of Trustees' fees in accordance with the Trustees' Plan
will have a negligible effect on the Portfolio's assets, liabilities, and net
income per share, and will not obligate the Portfolio to retain the services
of any Trustee or obligate the Portfolio to pay any particular level of
compensation to the Trustee. Neither the Portfolio nor the Trust has a
retirement plan for its Trustees.
The fees and expenses of the noninterested Trustees of the Trust and the
Portfolio are paid by the Fund (and the other series of the Trust) and the
Portfolio, respectively. For the compensation received by the noninterested
Trustees, see "Fees and Expenses" in the Fund's Part II.
INVESTMENT ADVISER AND ADMINISTRATOR
The Portfolio engages BMR as investment adviser pursuant to an Investment
Advisory Agreement. BMR or Eaton Vance acts as investment adviser to
investment companies and various individual and institutional clients with
combined assets under management of over $17 billion.
Eaton Vance, its affiliates and its predecessor companies have been
managing assets of individuals and institutions since 1924 and managing
investment companies since 1931. They maintain a large staff of experienced
fixed-income and equity investment professionals to service the needs of their
clients. The fixed-income division focuses on all kinds of taxable investment-
grade and high-yield securities, tax-exempt investment-grade and high-yield
securities, and U.S. Government securities. The equity division covers stocks
ranging from blue chip to emerging growth companies.
Eaton Vance and its affiliates act as adviser to over 150 mutual funds and
individual and various institutional accounts, including corporations,
hospitals, retirement plans, universities, foundations and trusts. Eaton Vance
mutual funds feature international equities, domestic equities, tax-free
municipal bonds, and U.S. government and corporate bonds. Lloyd George
Management has advised Eaton Vance's international equity funds since 1992.
Founded in 1991, Lloyd George is headquartered in Hong Kong with offices in
London and Mumbai, India. It has established itself as a leader in investment
management in Asian equities and other global markets. Lloyd George features
an experienced team of investment professionals that began working together in
the mid-1980s. Lloyd George analysts cover East Asia, the India subcontinent,
Russia and Eastern Europe, Latin America, Australia and New Zealand from
offices in Hong Kong, London and Mumbai. Together Eaton Vance and Lloyd George
manage over $18 billion in assets. Eaton Vance mutual funds are distributed by
the Principal Underwriter both within the United States and offshore.
The Principal Underwriter believes that an investment professional can
provide valuable services to you to help you reach your investment goals.
Meeting investment goals requires time, objectivity and investment savvy.
Before making an investment recommendation, a representative can help you
carefully consider your short- and long-term financial goals, your tolerance
for investment risk, your investment time frame, and other investments you may
already own. Your professional investment representatives are knowledgeable
about financial markets, as well as the wide range of investment opportunities
available. A representative can help you decide when to buy, sell or persevere
with your investments. A professional investment representative can provide
you with tailored financial advice.
Eaton Vance offers single-state tax-free portfolios in more states than
any other sponsor of mutual funds. There are 32 long-term state portfolios, 5
national portfolios and 9 limited maturity portfolios, which serve as
investment vehicles for over 100 mutual funds with varying pricing options. A
staff of 29 (including 7 portfolio managers and 9 credit specialists) is
responsible for the day-to-day management of over 3,500 issues in 46 mutual
fund portfolios. Assets managed by the municipal investment group are
currently over $7.6 billion. The investment philosophy of the municipal
investment group is to: seek value by avoiding unnecessary credit risk; build
portfolios one security at a time; and take a long-term approach to managing
market risk. Over the long-term, the group seeks to maximize tax-free income
by keeping portfolios fully invested (rather than trying to "time the market"
for short-term results) and reduce potential capital losses due to poor credit
quality. Diligent and continuing research and analysis are a critical
component of the municipal investment group's investment philosophy and long-
term strategy.
The following persons manage one or more of the Eaton Vance municipal
portfolios. For the identity of the Portfolio's portfolio manager, see the
Fund's current Prospectus.
Nicole Anderes is a Vice President of Eaton Vance and BMR. Ms. Anderes
graduated from Brown University with a B.A. in Women's Studies/Economics. She
has been an active member of MAGNY/National Federation of Municipal Analysts,
the Public Securities Association and the Municipal Forum, and served as the
General Secretary of MAGNY from 1992 to 1993.
Timothy T. Browse is a Vice President of Eaton Vance and BMR. Mr. Browse
graduated from St. Lawrence University in 1981 and received his M.B.A. degree
from Boston University in 1990.
Cynthia J. Clemson is a Vice President of Eaton Vance and BMR. Ms. Clemson
graduated from Mount Holyoke College with a B.A. in 1985 and received her
M.B.A., cum laude, from Boston University in 1990. She is a member of the
Boston Municipal Analysts Forum, the Boston Securities Analyst Society and the
Financial Analysts Federation.
Thomas J. Fetter is a Vice President of Eaton Vance and BMR, and Director
of Municipal Investments. Mr. Fetter graduated with a degree in Business
Administration from Kent State University. He is a Chartered Financial Analyst
and member of the Boston Security Analysts Society. He is also a member of the
Boston Municipal Analysts Forum.
Robert B. MacIntosh is a Vice President of Eaton Vance and BMR and the
portfolio manager of single-state, tax-exempt funds in six states: Hawaii,
Louisiana, Massachusetts, Minnesota, New Jersey and North Carolina. He also
serves as economic spokesman for the Eaton Vance organization.
Thomas M. Metzold is a Vice President of Eaton Vance and BMR. He is a
Chartered Financial Analyst and a member of the Boston Security Analysts
Society, the Association for Investment Management & Research, the Boston
Municipal Analysts Forum, and the National Federation of Municipal Analysts.
BMR manages the investments and affairs of the Portfolio subject to the
supervision of the Portfolio's Board of Trustees. BMR furnishes to the
Portfolio investment research, advice and supervision, furnishes an investment
program and determines what securities will be purchased, held or sold by the
Portfolio and what portion, if any, of the Portfolio's assets will be held
uninvested. The Investment Advisory Agreement requires BMR to pay the salaries
and fees of all officers and Trustees of the Portfolio who are members of the
BMR organization and all personnel of BMR performing services relating to
research and investment activities. The Portfolio is responsible for all
expenses not expressly stated to be payable by BMR under the Investment
Advisory Agreement, including, without implied limitation, (i) expenses of
maintaining the Portfolio and continuing its existence, (ii) registration of
the Portfolio under the 1940 Act, (iii) commissions, fees and other expenses
connected with the acquisition, holding and disposition of securities and
other investments, (iv) auditing, accounting and legal expenses, (v) taxes and
interest, (vi) governmental fees, (vii) expenses of issue, sale and redemption
of interests in the Portfolio, (viii) expenses of registering and qualifying
the Portfolio and interests in the Portfolio under federal and state
securities laws and of preparing and printing registration statements or other
offering statements or memoranda for such purposes and for distributing the
same to investors, and fees and expenses of registering and maintaining
registrations of the Portfolio and of the Portfolio's placement agent as
broker-dealer or agent under state securities laws, (ix) expenses of reports
and notices to investors and of meetings of investors and proxy solicitations
therefor, (x) expenses of reports to governmental officers and commissions,
(xi) insurance expenses, (xii) association membership dues, (xiii) fees,
expenses and disbursements of custodians and subcustodians for all services to
the Portfolio (including without limitation safekeeping of funds, securities
and other investments, keeping of books, accounts and records, and
determination of net asset values, book capital account balances and tax
capital account balances), (xiv) fees, expenses and disbursements of transfer
agents, dividend disbursing agents, investor servicing agents and registrars
for all services to the Portfolio, (xv) expenses for servicing the accounts of
investors, (xvi) any direct charges to investors approved by the Trustees of
the Portfolio, (xvii) compensation and expenses of Trustees of the Portfolio
who are not members of BMR's organization, and (xviii) such non-recurring
items as may arise, including expenses incurred in connection with litigation,
proceedings and claims and any legal obligation of the Portfolio to indemnify
its Trustees, officers and investors with respect thereto, to the extent not
covered by insurance.
For a description of the compensation that the Portfolio pays BMR under
the Investment Advisory Agreement, see the Fund's current Prospectus. For
additional information about the Investment Advisory Agreement, including the
net assets of the Portfolio and the investment advisory fees that the
Portfolio paid BMR under the Investment Advisory Agreement, see "Fees and
Expenses" in the Fund's Part II.
The Investment Advisory Agreement with BMR continues in effect from year
to year so long as such continuance is approved at least annually (i) by the
vote of a majority of the noninterested Trustees of the Portfolio cast in
person at a meeting specifically called for the purpose of voting on such
approval and (ii) by the Board of Trustees of the Portfolio or by vote of a
majority of the outstanding voting securities of the Portfolio. The Agreement
may be terminated at any time without penalty on sixty (60) days' written
notice by the Board of Trustees of either party, or by vote of the majority of
the outstanding voting securities of the Portfolio, and the Agreement will
terminate automatically in the event of its assignment. The Agreement provides
that BMR may render services to others. The Agreement also provides that BMR
shall not be liable for any loss incurred in connection with the performance
of its duties, or action taken or omitted under that Agreement, in the absence
of willful misfeasance, bad faith, gross negligence in the performance of its
duties or by reason of its reckless disregard of its obligations and duties
thereunder, or for any losses sustained in the acquisition, holding or
disposition of any security or other investment.
As indicated in the Prospectus, Eaton Vance serves as Administrator of the
Fund, but currently receives no compensation for providing administrative
services to the Fund. Under its agreement with the Fund, Eaton Vance has been
engaged to administer the Fund's affairs, subject to the supervision of the
Trustees of the Trust, and shall furnish for the use of the Fund office space
and all necessary office facilities, equipment and personnel for administering
the affairs of the Fund.
The Fund pays all of its own expenses including, without limitation, (i)
expenses of maintaining the Fund and continuing its existence, (ii) its pro
rata share of the Trust's registration under the 1940 Act, (iii) commissions,
fees and other expenses connected with the purchase or sale of securities and
other investments, (iv) auditing, accounting and legal expenses, (v) taxes and
interest, (vi) governmental fees, (vii) expenses of issue, sale, repurchase
and redemption of shares, (viii) expenses of registering and qualifying the
Fund and its shares under federal and state securities laws and of preparing
and printing prospectuses for such purposes and for distributing the same to
shareholders and investors, and fees and expenses of registering and
maintaining registrations of the Fund and of the Fund's principal underwriter,
if any, as broker-dealer or agent under state securities laws, (ix) expenses
of reports and notices to shareholders and of meetings of shareholders and
proxy solicitations therefor, (x) expenses of reports to governmental officers
and commissions, (xi) insurance expenses, (xii) association membership dues,
(xiii) fees, expenses and disbursements of custodians and subcustodians for
all services to the Fund (including without limitation safekeeping of funds,
securities and other investments, keeping of books and accounts and
determination of net asset values), (xiv) fees, expenses and disbursements of
transfer agents, dividend disbursing agents, shareholder servicing agents and
registrars for all services to the Fund, (xv) expenses for servicing
shareholder accounts, (xvi) any direct charges to shareholders approved by the
Trustees of the Trust, (xvii) compensation and expenses of Trustees of the
Trust who are not members of the Eaton Vance organization, and (xviii) such
non-recurring items as may arise, including expenses incurred in connection
with any litigation, proceedings and claims and any legal obligation of the
Trust to indemnify its Trustees and officers with respect thereto, to the
extent not covered by insurance.
BMR is a wholly-owned subsidiary of Eaton Vance. Eaton Vance and EV are
both wholly-owned subsidiaries of EVC. BMR and Eaton Vance are both
Massachusetts business trusts, and EV is the trustee of BMR and Eaton Vance.
The Directors of EV are Landon T. Clay, M. Dozier Gardner, James B. Hawkes and
Benjamin A. Rowland, Jr. The Directors of EVC consist of the same persons and
John G. L. Cabot and Ralph Z. Sorenson. Mr. Clay is chairman, Mr. Gardner is
vice chairman and Mr. Hawkes is president and chief executive officer of EVC,
BMR, Eaton Vance and EV. All of the issued and outstanding shares of Eaton
Vance and EV are owned by EVC. All of the issued and outstanding shares of BMR
are owned by Eaton Vance. All shares of the outstanding Voting Common Stock of
EVC are deposited in a Voting Trust, which expires on December 31, 1997, the
Voting Trustees of which are Messrs. Clay, Gardner, Hawkes and Rowland and
Thomas E. Faust, Jr. The Voting Trustees have unrestricted voting rights for
the election of Directors of EVC. All of the outstanding voting trust receipts
issued under said Voting Trust are owned by certain of the officers of BMR and
Eaton Vance who are also officers or officers and Directors of EVC and EV. As
of May 31, 1997, Messrs. Clay, Gardner and Hawkes each owned 24% of such
voting trust receipts, and Messrs. Rowland and Faust owned 15% and 13%,
respectively, of such voting trust receipts. Messrs. Hawkes and Otis are
officers or Trustees of the Trust and the Portfolio and are members of the
EVC, BMR, Eaton Vance and EV organizations. Messrs. Fetter, MacIntosh, Murphy,
O'Connor and Woodbury and Ms. Sanders are officers of the Trust and/or the
Portfolio and are also members of the BMR, Eaton Vance and EV organizations.
EVC owns all of the stock of Energex Energy Corporation, which is engaged
in oil and gas exploration and development. In addition, Eaton Vance owns all
of the stock of Northeast Properties, Inc., which is engaged in real estate
investment. EVC owns all of the stock of Fulcrum Management, Inc. and MinVen
Inc., which are engaged in precious metal mining venture investment and
management. EVC also owns 22% of the Class A shares of Lloyd George Management
(B.V.I.) Limited, a registered investment adviser. EVC, BMR, Eaton Vance and
EV may also enter into other businesses.
EVC and its affiliates and their officers and employees from time to time
have transactions with various banks, including the custodian of the Fund and
the Portfolio, IBT. It is Eaton Vance's opinion that the terms and conditions
of such transactions were not and will not be influenced by existing or
potential custodial or other relationships between the Fund or the Portfolio
and such banks.
CUSTODIAN
IBT acts as custodian for the Fund and the Portfolio. IBT has the custody
of all cash and securities representing the Fund's interest in the Portfolio,
has custody of all the Portfolio's assets, maintains the general ledger of the
Portfolio and the Fund, and computes the daily net asset value of interests in
the Portfolio and the net asset value of shares of the Fund. In such capacity
it attends to details in connection with the sale, exchange, substitution,
transfer or other dealings with the Portfolio's investments, receives and
disburses all funds and performs various other ministerial duties upon receipt
of proper instructions from the Fund and the Portfolio. IBT charges fees which
are competitive within the industry. A portion of the fee relates to custody,
bookkeeping and valuation services and is based upon a percentage of Fund and
Portfolio net assets and a portion of the fee relates to activity charges,
primarily the number of portfolio transactions. These fees are then reduced by
a credit for cash balances of the particular investment company at the
custodian equal to 75% of the 91-day, U.S. Treasury Bill auction rate applied
to the particular investment company's average daily collected balances for
the week. Landon T. Clay, a Director of EVC and an officer, Trustee or
Director of other entities in the Eaton Vance organization, owns approximately
13% of the voting stock of Investors Financial Services Corp., the holding
company parent of IBT. Management believes that such ownership does not create
an affiliated person relationship between the Fund or the Portfolio and IBT
under the 1940 Act.
IBT also provides services in connection with the preparation of
shareholder reports and the electronic filing of such reports with the
Commission, for which it receives a separate fee.
SERVICE FOR WITHDRAWAL
The Transfer Agent will send to the shareholder regular monthly or
quarterly payments of any permitted amount designated by the shareholder (see
"Eaton Vance Shareholder Services -- Withdrawal Plan" in the Fund's current
Prospectus) based upon the value of the shares held. The checks will be drawn
from share redemptions and hence, although they are a return of principal, may
require the recognition of taxable gain or loss. Income dividends and capital
gains distributions in connection with withdrawal plan accounts will be
credited at net asset value as of the record date for each distribution.
Continued withdrawals in excess of current income will eventually use up
principal, particularly in a period of declining market prices. A shareholder
may not have a withdrawal plan in effect at the same time he or she has
authorized Bank Automated Investing or is otherwise making regular purchases
of Fund shares. The shareholder, the Transfer Agent or the Principal
Underwriter will be able to terminate the withdrawal plan at any time without
penalty.
DETERMINATION OF NET ASSET VALUE
The net asset value of the Portfolio is also computed by IBT (as agent and
custodian for the Portfolio) by subtracting the liabilities of the Portfolio
from the value of its total assets. Inasmuch as the market for municipal
obligations is a dealer market with no central trading location or continuous
quotation system, it is not feasible to obtain last transaction prices for
most municipal obligations held by the Portfolio, and such obligations,
including those purchased on a when-issued basis, will normally be valued on
the basis of valuations furnished by a pricing service. The pricing services
uses information with respect to transactions in bonds, quotations from bond
dealers, market transactions in comparable securities, various relationships
between securities, and yield to maturity in determining value. Taxable
obligations for which price quotations are readily available normally will be
valued at the mean between the latest available bid and asked prices. Open
futures positions on debt securities are valued at the most recent settlement
prices, unless such price does not reflect the fair value of the contract, in
which case the positions will be valued by or at the direction of the Trustees
of the Portfolio. Other assets are valued at fair value using methods
determined in good faith by or at the direction of the Trustees of the
Portfolio. The Fund and the Portfolio will be closed for business and will not
price their respective shares or interests on the following business holidays:
New Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day and Christmas Day.
Each investor in the Portfolio, including the Fund, may add to or reduce
its investment in the Portfolio on each day the Exchange is open for trading
("Portfolio Business Day") as of the close of regular trading on the Exchange
(the "Portfolio Valuation Time"). The value of each investor's interest in the
Portfolio will be determined by multiplying the net asset value of the
Portfolio by the percentage, determined on the prior Portfolio Business Day,
which represented that investor's share of the aggregate interest in the
Portfolio on such prior day. Any additions or withdrawals for the current
Portfolio Business Day will then be recorded. Each investor's percentage of
the aggregate interest in the Portfolio will then be recomputed as a
percentage equal to a fraction (i) the numerator of which is the value of such
investor's investment in the Portfolio as of the Portfolio Valuation Time on
the prior Portfolio Business Day plus or minus, as the case may be, the amount
of any additions to or withdrawals from the investor's investment in the
Portfolio on the current Portfolio Business Day and (ii) the denominator of
which is the aggregate net asset value of the Portfolio as of the Portfolio
Valuation Time on the prior Portfolio Business Day plus or minus, as the case
may be, the amount of the net additions to or withdrawals from the aggregate
investment in the Portfolio on the current Portfolio Business Day by all
investors in the Portfolio. The percentage so determined will then be applied
to determine the value of the investor's interest in the Portfolio for the
current Portfolio Business Day.
INVESTMENT PERFORMANCE
Average annual total return is determined by multiplying a hypothetical
initial purchase order of $1,000 by the average annual compound rate of return
(including capital appreciation/depreciation, and distributions paid and
reinvested) for the stated period and annualizing the result. The calculation
assumes that all distributions are reinvested at net asset value on the
reinvestment dates during the period, and either (i) the deduction of the
maximum sales charge from the initial $1,000 purchase order or (ii) a complete
redemption of the investment and, if applicable, the deduction of the CDSC at
the end of the period. For further information concerning the total return of
the Fund, see "Performance Information" in the Fund's Part II.
Yield is computed pursuant to a standardized formula by dividing the net
investment income per share earned during a recent thirty-day period by the
maximum offering price (including, if applicable, the maximum sales charge)
per share on the last day of the period and annualizing the resulting figure.
Net investment income per share is calculated from the yields to maturity of
all debt obligations held by the Portfolio based on prescribed methods,
reduced by accrued Fund expenses for the period with the resulting number
being divided by the average daily number of Fund shares outstanding and
entitled to receive distributions during the period. The yield figure does not
reflect the deduction of any CDSC which (if applicable) are imposed on certain
redemptions at the rate set forth under "How to Redeem Fund Shares" in the
Fund's current Prospectus. Yield calculations assume the current maximum sales
charge (if applicable) set forth under "How to Buy Fund Shares" in the Fund's
current Prospectus. (Actual yield may be affected by variations in sales
charges on investments.) A taxable-equivalent yield is computed by dividing
the tax-exempt yield by 1 minus a stated rate. For the yield and taxable-
equivalent yield of the Fund, see "Performance Information" in the Fund's Part
II.
The Principal Underwriter may publish to Authorized Firms the Fund's
distribution rate and/or the effective distribution rate. The Fund's
distribution rate is computed by dividing the most recent monthly distribution
per share annualized, by the current net asset value per share or, where
applicable, the maximum public offering price per share (which includes the
maximum initial sales charge). The Fund's effective distribution rate is
computed by dividing the distribution rate by the ratio (the days in a year
divided by the accrual days of the monthly period) used to annualize the most
recent monthly distribution and reinvesting the resulting amount for a full
year on the basis of such ratio. The effective distribution rate will be
higher than the distribution rate because of the compounding effect of the
assumed reinvestment. Investor's should note that the Fund's yield is
calculated using a standardized formula, the income component of which is
computed from the yields to maturity of all debt obligations held by the
Portfolio based on prescribed methods (with all purchases and sales of
securities during such period included in the income calculation on a
settlement date basis), whereas the distribution rate is based on the Fund's
last monthly distribution which tends to be relatively stable and may be more
or less than the amount of net investment income and short-term capital gain
actually earned by the Fund during the month.
The Fund's total return may be compared to relevant indices, such as the
Consumer Price Index, the Bond Buyer 25 Revenue Bond Index and the Lehman
Brothers Municipal Bond Index, which may be used in advertisements and in
information furnished to present or prospective shareholders. The Fund's
performance may differ from that of other investors in the Portfolio,
including other investment companies.
The Fund may provide investors with information on municipal bond
investing, which may include comparative performance information, evaluations
of Fund performance, charts and/or illustrations prepared by independent
sources (such as Lipper Analytical Services Inc., CDA/Wiesenberger,
Morningstar, Inc., The Bond Buyer, the Federal Reserve Board or The Wall
Street Journal). The Fund may also refer in investor publications to Tax
Freedom Day, as computed by the Tax Foundation, Washington, DC 20005, to help
illustrate the value of tax free investing, as well as other tax-related
information. Information, charts and illustrations showing the effects of
inflation and taxes (including their effects on the dollar and the return on
various investments) and compounding earnings may also be included in
advertisements and materials furnished to present and prospective investors.
Information about portfolio allocation and holdings of the Portfolio at a
particular date (including ratings assigned by independent ratings services
such as Moody's, S&P and Fitch) may be included in advertisements and other
material furnished to present and prospective shareholders. Such information
may be stated as a percentage of the Portfolio's bond holdings on such date.
Comparative information about the yield or distribution rate of the Fund
and about average rates of return on certificates of deposit, bank money
market deposit accounts, money market mutual funds and other short-term
investments may also be included in advertisements, supplemental sales
literature or communications of the Fund. Such information may also compare
the taxable equivalent yield (or value) of the Fund to the after-tax yield (or
value) of such other investment vehicles. Such information may be in the form
of hypothetical illustrations. A bank certificate of deposit, unlike the
Fund's shares, pays a fixed rate of interest and entitles the depositor to
receive the face amount of the certificate of deposit at maturity. A bank
money market deposit account is a form of savings account which pays a
variable rate of interest. Unlike the Fund's shares, bank certificates of
deposit and bank money market deposit accounts are insured by the Federal
Deposit Insurance Corporation. A money market mutual fund is designed to
maintain a constant value of $1.00 per share and, thus, a money market fund's
shares are subject to less price fluctuation than the Fund's shares.
The average rates of return of money market mutual funds, certificates of
deposit and bank money market deposit accounts referred to in advertisements,
supplemental sales literature or communications of the Fund will be based on
rates published by the Federal Reserve Bank, Donoghues Money Fund Averages,
RateGram or The Wall Street Journal.
Information used in advertisements and materials furnished to present and
prospective investors may include statements or illustrations relating to the
appropriateness of certain types of securities and/or mutual funds to meet
specific financial goals. Such Information may address:
- cost associated with aging parents;
- funding a college education (inclusing its actual and estimated cost);
- health care expenses (including actual and projected expenses);
- long-term disabilities (including the availability of, and coverage
provided by, disability insurance); and
- retirement (including the availability of social security benefits, the
tax treatment of such benefits and statistics and other information
relating to maintaining a particular standard of living and outliving
existing assets).
Such information may also address different methods for saving money and
the results of such methods, as well as the benefits of investing in municipal
bond funds. Such information may describe: The following advantages of
investing in a municipal bond mutual fund versus individual municipal bonds:
regular monthly income; free reinvestment of distributions; potential for
increased income; bond diversification; liquidity; low-cost easy access; and
active management and in depth credit analysis by investment professionals. In
addition, by investing in a municipal bond fund instead of individual bonds,
an investor can avoid dealing with the complexities of the municipal bond
market, while benefitting from the market access and lower transactions costs
enjoyed by municipal bond funds.
The Fund may provide information about Eaton Vance, its affiliates and
other investment advisers to the funds in the Eaton Vance Family of Funds in
sales material or advertisements provided to investors or prospective
investors. Such material or advertisements may also provide information on the
use of investment professionsals by such investors.
TAXES
Each series of the Trust is treated as a separate entity for federal
income tax purposes. The Fund has elected or will elect to be treated and
intends to qualify each year, as a regulated investment company ("RIC") under
the Code. Accordingly, the Fund intends to satisfy certain requirements
relating to sources of its income and diversification of its assets. For
purposes of applying the requirements of the Code regarding qualification as a
RIC, the Fund will be deemed (i) to own its proportionate share of each of the
assets of the Portfolio and (ii) to be entitled to the gross income of the
Portfolio attributable to such share. The Portfolio therefore intends to
satisfy the source of income and diversification requirements applicable to
RICs in order for the Fund to satisfy them.
In addition, the Portfolio will allocate at least annually among its
investors, including the Fund, the Portfolio's net taxable (if any) and tax-
exempt investment income, net realized capital gains, and any other items of
income, gain, loss, deduction or credit. In order to qualify for the special
tax treatment accorded RICs and their shareholders, the Fund intends to
distribute the investment income (including tax-exempt income and the excess,
if any, of net short-term capital gains over net long-term capital losses)
allocated to the Fund by the Portfolio, in accordance with certain timing and
percentage requirements imposed by the Code. If these requirements are met,
the Fund will not be subject to any federal income tax on income or gain paid
to shareholders in the form of dividends (including capital gain dividends).
If the Fund failed to qualify as a RIC accorded special tax treatment in
any taxable year, the Fund would be subject to tax on its taxable income at
corporate rates, and all distributions from earnings and profits, including
any distributions of net tax-exempt income and net long-term capital gains,
would be taxable to shareholders as ordinary income. In addition, the Fund
could be required to recognize unrealized gains, pay substantial taxes and
interest and make substantial distributions before requalifying as a RIC that
is accorded special tax treatment.
If the Fund fails to distribute (or to be deemed to have distributed) in
each calendar year at least 98% of its ordinary income (not including tax-
exempt income) for such year, at least 98% of the excess of its realized
capital gains over its realized capital losses (generally computed on the
basis of the one-year period ending on October 31 of such year) after
reduction by any available capital loss carryforwards, and 100% of any
undistributed income (on which the Fund paid no federal income tax) from the
prior year, the Fund will be subject to a 4% excise tax on the undistributed
amounts. A dividend paid to shareholders by the Fund in January of a year
generally is deemed to have been paid by the Fund on December 31 of the
preceding year, if the dividend was declared and payable to shareholders of
record on a date in October, November or December of that preceding year. The
Fund intends generally to make distributions sufficient to avoid imposition of
the 4% excise tax.
Under current law, provided that the Fund qualifies as a RIC for federal
income tax purposes and the Portfolio is treated as a partnership for
Massachusetts and federal tax purposes, neither the Fund nor the Portfolio is
liable for any income, corporate excise or franchise tax in the Commonwealth
of Massachusetts.
The Portfolio's investment in zero coupon and certain other securities
will cause it to realize income prior to the receipt of cash payments with
respect to these securities. In order to generate sufficient cash to enable
the Fund to distribute its proportionate share of this income, the Portfolio
may be required to liquidate portfolio securities that it might otherwise have
continued to hold.
The Portfolio's transactions in options and futures contracts will be
subject to special tax rules that may affect the amount, timing and character
of Fund distributions to shareholders. For example, certain positions held by
the Portfolio on the last business day of each taxable year will be marked to
market (i.e., treated as if closed out on such day), and any resulting gain or
loss will generally be treated as 60% long-term and 40% short-term capital
gain or loss. Certain positions held by the Portfolio that substantially
diminish the Portfolio's risk of loss with respect to other positions in its
portfolio may constitute "straddles," which are subject to tax rules that may
cause deferral of Portfolio losses, adjustments in the holding periods of
Portfolio securities and conversion of short-term into long-term capital
losses. The Portfolio may have to limit its engagement in such activities in
order to enable the Fund to maintain its qualification as a RIC for federal
income tax purposes.
Distributions designated as "exempt-interest dividends" may be treated by
shareholders as interest excludable from gross income under Section 103(a) of
the Code. In order for the Fund to be entitled to pay exempt-interest
dividends to its shareholders, at least 50% of the value of its total assets
at the close of each quarter of its taxable year must consist of obligations
the interest on which is exempt from regular federal income tax under Code
Section 103(a). Because the Fund will be deemed to own its proportionate
share of each of the assets of the Portfolio, the Portfolio currently intends
to invest its assets in a manner such that the Fund can meet this 50%
requirement.
Part or all of the interest on indebtedness, if any, incurred or continued
by a shareholder to purchase or carry shares of a Fund paying exempt-interest
dividends is not deductible. The portion of interest that is not deductible
is equal to the total interest paid or accrued on the indebtedness, multiplied
by the percentage of the Fund's total distributions (not including
distributions from net long-term capital gains) paid to the shareholder that
are exempt-interest dividends. Under rules used by the Internal Revenue
Service for determining when borrowed funds are considered used for the
purpose of purchasing or carrying particular assets, the purchase of shares
may be considered to have been made with borrowed funds even though such funds
are not directly traceable to the purchase of shares.
In general, exempt-interest dividends, if any, attributable to interest
received on certain private activity obligations and certain industrial
development bonds will not be tax-exempt to any shareholders who are
"substantial users" of the facilities financed by such obligations or bonds or
who are "related persons" of such substantial users.
The Fund will inform investors of the percentage of its income
distributions designated as tax-exempt. The percentage is applied uniformly
to all distributions made during the year. The percentage of income
designated as tax-exempt for any particular distribution may be substantially
different from the percentage of the Fund's income that was tax-exempt during
the period covered by the distribution.
In the course of managing its investments, the Portfolio may realize some
short-term and long-term capital gains (and/or losses) as a result of market
transactions, including sales of portfolio securities and rights to when-
issued securities and options and futures transactions. Any distributions by
the Fund of its share of such capital gains (after reduction by any capital
loss carryforwards) or taxable income would be taxable to shareholders of the
Fund. The Portfolio may also realize taxable income from certain short-term
taxable obligations, securities loans, a portion of discount with respect to
certain stripped municipal obligations or their stripped coupons, and certain
realized gains or income attributable to accrued market discount. However, it
is expected that such amounts, if any, would normally be insubstantial in
relation to the tax-exempt interest earned by the Portfolio and allocated to
the Fund.
The sale, exchange or redemption of Fund shares may give rise to a gain or
loss. In general, any gain or loss realized upon a taxable disposition of
shares will be treated as long-term capital gain or loss if the shares have
been held for more than 12 months, and otherwise as short-term capital gain or
loss. However, if a shareholder sells shares at a loss within six months of
purchase, any loss will be disallowed for federal income tax purposes to the
extent of any exempt-interest dividends received on such shares. In addition,
any loss (not already disallowed as provided in the preceding sentence)
realized upon a taxable disposition of shares held for six months or less will
be treated as long-term, rather than short-term, to the extent of any long-
term capital gain distributions received by the shareholder with respect to
the shares. All or a portion of any loss realized upon a taxable disposition
of Fund shares will be disallowed if other Fund shares are purchased within 30
days before or after the disposition. In such a case, the basis of the newly
purchased shares will be adjusted to reflect the disallowed loss.
If the Fund makes a distribution to shareholders in excess of its current
and accumulated "earnings and profits" in any taxable year, the excess
distribution will be treated as a return of capital to each shareholder to the
extent of that shareholder's tax basis in the shares, and thereafter as
capital gains. A return of capital is not taxable, but it reduces the tax
basis in the shares, thus reducing any loss or increasing any gain on a
subsequent taxable disposition of such shares.
Amounts paid by the Fund to individuals and certain other shareholders who
have not provided the Fund with their correct taxpayer identification number
and certain certifications required by the Internal Revenue Service (the
"IRS"), as well as shareholders with respect to whom the Fund has received
notification from the IRS or a broker, may be subject to "backup" withholding
of federal income tax from the Fund's taxable dividends and distributions and
the proceeds of redemptions (including repurchases and exchanges), at a rate
of 31%. An individual's taxpayer identification number is generally his or her
social security number.
Non-resident alien individuals, foreign corporations and certain other
foreign entities generally will be subject to a U.S. withholding tax at a rate
of 30% on the Fund's distributions from its ordinary income and the excess of
its net short-term capital gain over its net long-term capital loss, unless
the tax is reduced or eliminated by an applicable tax treaty. Distributions
from the excess of the Fund's net long-term capital gain over its net short-
term capital loss received by such shareholders and any gain from the sale or
other disposition of shares of the Fund generally will not be subject to U.S.
federal income taxation, provided that non-resident alien status has been
certified by the shareholder. Different U.S. tax consequences may result if
the shareholder is engaged in a trade or business in the United States, is
present in the United States for a sufficient period of time during a taxable
year to be treated as a U.S. resident, or fails to provide any required
certifications regarding status as a non-resident alien investor. Foreign
shareholders should consult their tax advisers regarding the U.S. and foreign
tax consequences of an investment in the Fund.
The foregoing discussion does not address the special tax rules applicable
to certain classes of investors, such as tax-exempt entities, insurance
companies and financial institutions. Shareholders should consult their own
tax advisers with respect to special tax rules that may apply in their
particular situations, as well as the state, local or foreign tax consequences
of investing in the Fund.
PORTFOLIO SECURITY TRANSACTIONS
Decisions concerning the execution of portfolio security transactions,
including the selection of the market and the executing firm, are made by BMR.
BMR is also responsible for the execution of transactions for all other
accounts managed by it.
BMR places the portfolio security transactions of the Portfolio and of all
other accounts managed by it for execution with many firms. BMR uses its best
efforts to obtain execution of portfolio security transactions at prices which
are advantageous to the Portfolio and at reasonably competitive spreads or
(when a disclosed commission is being charged) at reasonably competitive
commission rates. In seeking such execution, BMR will use its best judgment in
evaluating the terms of a transaction, and will give consideration to various
relevant factors, including without limitation the size and type of the
transaction, the nature and character of the market for the security, the
confidentiality, speed and certainty of effective execution required for the
transaction, the general execution and operational capabilities of the
executing firm, the reputation, reliability, experience and financial
condition of the firm, the value and quality of the services rendered by the
firm in this and other transactions, and the reasonableness of the spread or
commission, if any. Municipal obligations, including State obligations,
purchased and sold by the Portfolio are generally traded in the over-the-
counter market on a net basis (i.e., without commission) through broker-
dealers and banks acting for their own account rather than as brokers, or
otherwise involve transactions directly with the issuer of such obligations.
Such firms attempt to profit from such transactions by buying at the bid price
and selling at the higher asked price of the market for such obligations, and
the difference between the bid and asked price is customarily referred to as
the spread. The Portfolio may also purchase municipal obligations from
underwriters, the cost of which may include undisclosed fees and concessions
to the underwriters. While it is anticipated that the Portfolio will not pay
significant brokerage commissions in connection with such portfolio security
transactions, on occasion it may be necessary or appropriate to purchase or
sell a security through a broker on an agency basis, in which case the
Portfolio will incur a brokerage commission. Although spreads or commissions
on portfolio security transactions will, in the judgment of BMR, be reasonable
in relation to the value of the services provided, spreads or commissions
exceeding those which another firm might charge may be paid to firms who were
selected to execute transactions on behalf of the Portfolio and BMR's other
clients for providing brokerage and research services to BMR.
As authorized in Section 28(e) of the Securities Exchange Act of 1934, a
broker or dealer who executes a portfolio transaction on behalf of the
Portfolio may receive a commission which is in excess of the amount of
commission another broker or dealer would have charged for effecting that
transaction if BMR determines in good faith that such compensation was
reasonable in relation to the value of the brokerage and research services
provided. This determination may be made either on the basis of that
particular transaction or on the basis of overall responsibilities which BMR
and its affiliates have for accounts over which they exercise investment
discretion. In making any such determination, BMR will not attempt to place a
specific dollar value on the brokerage and research services provided or to
determine what portion of the commission should be related to such services.
Brokerage and research services may include advice as to the value of
securities, the advisability of investing in, purchasing, or selling
securities, and the availability of securities or purchasers or sellers of
securities; furnishing analyses and reports concerning issuers, industries,
securities, economic factors and trends, portfolio strategy and the
performance of accounts; effecting securities transactions and performing
functions incidental thereto (such as clearance and settlement); and the
"Research Services" referred to in the next paragraph.
It is a common practice of the investment advisory industry and of the
advisers of investment companies, institutions and other investors to receive
research, statistical and quotation services, data, information and other
services, products and materials which assist such advisers in the performance
of their investment responsibilities ("Research Services") from broker-dealer
firms which execute portfolio transactions for the clients of such advisers
and from third parties with which such broker-dealers have arrangements.
Consistent with this practice, BMR receives Research Services from many
broker-dealer firms with which BMR places the Portfolio transactions and from
third parties with which these broker-dealers have arrangements. These
Research Services include such matters as general economic and market reviews,
industry and company reviews, evaluations of securities and portfolio
strategies and transactions and recommendations as to the purchase and sale of
securities and other portfolio transactions, financial, industry and trade
publications, news and information services, pricing and quotation equipment
and services, and research oriented computer hardware, software, data bases
and services. Any particular Research Service obtained through a broker-dealer
may be used by BMR in connection with client accounts other than those
accounts which pay commissions to such broker-dealer. Any such Research
Service may be broadly useful and of value to BMR in rendering investment
advisory services to all or a significant portion of its clients, or may be
relevant and useful for the management of only one client's account or of a
few clients' accounts, or may be useful for the management of merely a segment
of certain clients' accounts, regardless of whether any such account or
accounts paid commissions to the broker-dealer through which such Research
Service was obtained. The advisory fee paid by the Portfolio is not reduced
because BMR receives such Research Services. BMR evaluates the nature and
quality of the various Research Services obtained through broker-dealer firms
and attempts to allocate sufficient commissions to such firms to ensure the
continued receipt of Research Services which BMR believes are useful or of
value to it in rendering investment advisory services to its clients.
Subject to the requirement that BMR shall use its best efforts to seek and
execute portfolio security transactions at advantageous prices and at
reasonably competitive spreads or commission rates, BMR is authorized to
consider as a factor in the selection of any broker-dealer firm with whom
portfolio orders may be placed the fact that such firm has sold or is selling
shares of the Fund or of other investment companies sponsored by BMR or Eaton
Vance. This policy is not inconsistent with a rule of the National Association
of Securities Dealers, Inc., (the "NASD") which rule provides that no firm
which is a member of the NASD shall favor or disfavor the distribution of
shares of any particular investment company or group of investment companies
on the basis of brokerage commissions received or expected by such firm from
any source.
Municipal obligations considered as investments for the Portfolio may also
be appropriate for other investment accounts managed by BMR or its affiliates.
Whenever decisions are made to buy or sell securities by the Portfolio and one
or more of such other accounts simultaneously, BMR will allocate the security
transactions (including "hot" issues) in a manner which it believes to be
equitable under the circumstances. As a result of such allocations, there may
be instances where the Portfolio will not participate in a transaction that is
allocated among other accounts. If an aggregated order cannot be filled
completely, allocations will generally be made on a pro rata basis. An order
may not be allocated on a pro rata basis where, for example: (i) consideration
is given to portfolio managers who have been instrumental in developing or
negotiating a particular investment; (ii) consideration is given to an account
with specialized investment policies that coincide with the particulars of a
specific investment; (iii) pro rata allocation would result in odd-lot or de
minimis amounts being allocated to a portfolio or other client; or (iv) where
BMR reasonably determines that departure from a pro rata allocation is
advisable. While these aggregation and allocation policies could have a
detrimental effect on the price or amount of the securities available to the
Portfolio from time to time, it is the opinion of the Trustees of the Trust
and the Portfolio that the benefits from the BMR organization outweigh any
disadvantage that may arise from exposure to simultaneous transactions. For
brokerage commissions paid by the Portfolio on portfolio transactions, see
"Fees and Expenses" in the Fund's Part II.
OTHER INFORMATION
Eaton Vance, pursuant to its agreement with the Trust, controls the use of
the words "Eaton Vance" and "EV" in the Fund's name and may use the words
"Eaton Vance" or "EV" in other connections and for other purposes.
As permitted by Massachusetts law, there will normally be no meetings of
shareholders for the purpose of electing Trustees unless and until such time
as less than a majority of the Trustees of the Trust holding office have been
elected by shareholders. In such an event, the Trustees then in office will
call a shareholders' meeting for the election of Trustees. Except for the
foregoing circumstances and unless removed by action of the shareholders in
accordance with the Trust's by-laws, the Trustees shall continue to hold
office and may appoint successor Trustees.
The Trust's by-laws provide that no person shall serve as a Trustee if
shareholders holding two-thirds of the outstanding shares have removed him
from that office either by a written declaration filed with the Trust's
custodian or by votes cast at a meeting called for that purpose. The by-laws
further provide that under certain circumstances the shareholders may call a
meeting to remove a Trustee and that the Trust is required to provide
assistance in communication with shareholders about such a meeting.
The Trust's Declaration of Trust may be amended by the Trustees when
authorized by vote of a majority of the outstanding voting securities of the
Trust, the financial interests of which are affected by the amendment. The
Trustees may also amend the Declaration of Trust without the vote or consent of
shareholders to change the name of the Trust or any series or to make such other
changes (such as reclassifying series or classes of shares or restructuring the
Trust) as do not have a materially adverse effect on the financial interests of
shareholders or if they deem it necessary to conform it to applicable federal or
state laws or regulations. The Trust or any series or class thereof may be
terminated by: (1) the affirmative vote of the holders of not less than
two-thirds of the shares outstanding and entitled to vote at any meeting of
shareholders of the Trust or the appropriate series or class thereof, or by an
instrument or instruments in writing without a meeting, consented to by the
holders of two-thirds of the shares of the Trust or a series or class thereof,
provided, however, that, if such termination is recommended by the Trustees, the
vote of a majority of the outstanding voting securities of the Trust or a series
or class thereof entitled to vote thereon shall be sufficient authorization; or
(2) by means of an instrument in writing signed by a majority of the Trustees,
to be followed by a written notice to shareholders stating that a majority of
the Trustees has determined that the continuation of the Trust or a series or a
class thereof is not in the best interest of the Trust, such series or class or
of their respective shareholders.
The Declaration of Trust further provides that the Trustees will not be
liable for errors of judgment or mistakes of fact or law; but nothing in the
Declaration of Trust protects a Trustee against any liability to which he
would otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the conduct of his
office.
Under Massachusetts law, if certain conditions prevail, shareholders of a
Massachusetts business trust (such as the Trust) could be deemed to have
personal liability for the obligations of the Trust. Numerous investment
companies registered under the 1940 Act have been formed as Massachusetts
business trusts, and management is not aware of an instance where such
liability has been imposed. The Trust's Declaration of Trust contains an
express disclaimer of liability on the part of the Fund shareholders and the
Trust's By-laws provide that the Trust shall assume the defense on behalf of
any Fund shareholders. Moreover, the Trust's By-laws also provide for
indemnification out of the property of the Fund of any shareholder held
personally liable solely by reason of being or having been a shareholder for
all loss or expense arising from such liability. The assets of the Fund are
readily marketable and will ordinarily substantially exceed its liabilities.
In light of the nature of the Fund's business and the nature of its assets,
management believes that the possibility of the Fund's liability exceeding its
assets, and therefore the shareholder's risk of personal liability, is
extremely remote.
In accordance with the Declaration of Trust of the Portfolio, there will
normally be no meetings of the investors for the purpose of electing Trustees
unless and until such time as less than a majority of the Trustees holding
office have been elected by investors. In such an event the Trustees of the
Portfolio then in office will call an investors' meeting for the election of
Trustees. Except for the foregoing circumstances and unless removed by action
of the investors in accordance with the Portfolio's Declaration of Trust, the
Trustees shall continue to hold office and may appoint successor Trustees.
The Declaration of Trust of the Portfolio provides that no person shall
serve as a Trustee if investors holding two-thirds of the outstanding interest
have removed him from that office either by a written declaration filed with
the Portfolio's custodian or by votes cast at a meeting called for that
purpose. The Declaration of Trust further provides that under certain
circumstances the investors may call a meeting to remove a Trustee and that
the Portfolio is required to provide assistance in communicating with
investors about such a meeting.
The Portfolio's Declaration of Trust provides that the Portfolio will
terminate 120 days after the complete withdrawal of the Fund or any other
investor in the Portfolio, unless either the remaining investors, by unanimous
vote at a meeting of such investors, or a majority of the Trustees of the
Portfolio, by written instrument consented to by all investors, agree to
continue the business of the Portfolio. This provision is consistent with
treatment of the Portfolio as a partnership for federal income tax purposes.
The right to redeem shares of the Fund can be suspended and the payment of
the redemption price deferred when the Exchange is closed (other than for
customary weekend and holiday closings), during periods when trading on the
Exchange is restricted as determined by the Commission, or during any
emergency as determined by the Commission which makes it impracticable for the
Portfolio to dispose of its securities or value its assets, or during any
other period permitted by order of the Commission for the protection of
investors.
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Deloitte & Touche LLP, 125 Summer Street, Boston, Massachusetts, are the
independent certified public accountants of the Fund and the Portfolio,
providing audit services, tax return preparation, and assistance and
consultation with respect to the preparation of filings with the Commission.
FINANCIAL STATEMENTS
Registrant incorporates by reference the audited financial information for
the Funds and the Portfolios listed below for the fiscal year ended January
31, 1997 as previously filed with the Commission:
EV Marathon Florida Insured Municipals Fund
EV Marathon Hawaii Municipals Fund
EV Marathon Kansas Municipals Fund
Florida Insured Municipals Portfolio
Hawaii Municipals Portfolio
Kansas Municipals Portfolio
(Accession No. 0000928816-97-000106)
EV Traditional Florida Insured Municipals Fund
EV Traditional Hawaii Municipals Fund
EV Traditional Kansas Municipals Fund
Florida Insured Municipals Portfolio
Hawaii Municipals Portfolio
Kansas Municipals Portfolio
(Accession No. 0000928816-97-000107)
EV Marathon High Yield Municipals Fund
High Yield Municipals Portfolio
(Accession No. 0000928816-97-000094)
EV Traditional High Yield Municipals Fund
High Yield Municipals Portfolio
(Accession No. 0000928816-97-000095)
<PAGE>
APPENDIX
DESCRIPTION OF SECURITIES RATINGS+
MOODY'S INVESTORS SERVICE, INC.
MUNICIPAL BONDS
Aaa: Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edged." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long term risk appear somewhat larger than the Aaa
securities.
A: Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper-medium-grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may
be present which suggest a susceptibility to impairment sometime in the
future.
Baa: Bonds which are rated Baa are considered as medium-grade obligations
(i.e., they are neither highly protected nor poorly secured). Interest
payments and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable
over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba: Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during other good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B: Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa: Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal
or interest.
Ca: Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked
shortcomings.
C: Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
ABSENCE OF RATING: Where no rating has been assigned or where a rating has
been suspended or withdrawn, it may be for reasons unrelated to the quality of
the issue.
Should no rating be assigned, the reason may be one of the following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities or companies that
are not rated as a matter of policy.
3. There is a lack of essential data pertaining to the issue or issuer.
4. The issue was privately placed, in which case the rating is not
published in Moody's publications.
Suspension or withdrawal may occur if new and material circumstances arise,
the effects of which preclude satisfactory analysis; if there is no longer
available reasonable up-to-date data to permit a judgment to be formed; if a
bond is called for redemption; or for other reasons.
- ----------
+The ratings indicated herein are believed to be the most recent ratings
available at the date of this SAI for the securities listed. Ratings are
generally given to securities at the time of issuance. While the rating
agencies may from time to time revise such ratings, they undertake no
obligation to do so, and the ratings indicated do not necessarily represent
ratings which would be given to these securities on the date of the
Portfolio's fiscal year end.
NOTE: Moody's applies numerical modifiers, 1, 2, and 3 in each generic rating
classification from Aa to B. The modifier 1 indicates that the security ranks
in the higher end of its generic rating category; the modifier 2 indicates a
mid-range ranking; and the modifier 3 indicates that the issue ranks in the
lower end of its generic rating category.
MUNICIPAL SHORT-TERM OBLIGATIONS
RATINGS: Moody's ratings for state and municipal short-term obligations will
be designated Moody's Investment Grade or (MIG). Such rating recognizes the
differences between short term credit risk and long term risk. Factors
effecting the liquidity of the borrower and short term cyclical elements are
critical in short term ratings, while other factors of major importance in
bond risk, long term secular trends for example, may be less important over
the short run.
A short term rating may also be assigned on an issue having a demand feature,
variable rate demand obligation (VRDO). Such ratings will be designated as
VMIG1, SG or if the demand feature is not rated, NR. A short term rating on
issues with demand features are differentiated by the use of the VMIG1 symbol
to reflect such characteristics as payment upon periodic demand rather than
fixed maturity dates and payment relying on external liquidity. Additionally,
investors should be alert to the fact that the source of payment may be
limited to the external liquidity with no or limited legal recourse to the
issuer in the event the demand is not met.
STANDARD & POOR'S RATINGS GROUP
INVESTMENT GRADE
AAA: Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA: Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small degree.
A: Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB: Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
SPECULATIVE GRADE
Debt rated BB, B, CCC, CC, and C is regarded as having predominantly
speculative characteristics with respect to capacity to pay interest and repay
principal. BB indicates the least degree of speculation and C the highest.
While such debt will likely have some quality and protective characteristics,
these are outweighed by large uncertainties or major exposures to adverse
conditions.
BB: Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure
to adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB- rating.
B: Debt rated B has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness
to pay interest and repay principal. The B rating category is also used for
debt subordinated to senior debt that is assigned an actual or implied BB or
BB- rating.
CCC: Debt rated CCC has a currently identifiable vulnerability to default, and
is dependent upon favorable business, financial, and economic conditions to
meet timely payment of interest and repayment of principal. In the event of
adverse business, financial, or economic conditions, it is not likely to have
the capacity to pay interest and repay principal. The CCC rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied B or B- rating.
CC: The rating CC is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC debt rating.
C: The rating C is typically applied to debt subordinated to senior debt which
is assigned an actual or implied CCC- debt rating. The C rating may be used to
cover a situation where a bankruptcy petition has been filed, but debt service
payments are continued.
C1: The rating C1 is reserved for income bonds on which no interest is being
paid.
D: Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due even if
the applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period. The D rating also will be used
upon the filing of a bankruptcy petition if debt service payments are
jeopardized.
PLUS (+) OR MINUS (-): The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
P: The letter "P" indicates that the rating is provisional. A provisional
rating assumes the successful completion of the project being financed by the
debt being rated and indicates that payment of debt service requirements is
largely or entirely dependent upon the successful and timely completion of the
project. This rating, however, while addressing credit quality subsequent to
completion of the project, makes no comment on the likelihood of, or the risk
of default upon failure of such completion. The investor should exercise his
own judgment with respect to such likelihood and risk.
L: The letter "L" indicates that the rating pertains to the principal amount
of those bonds to the extent that the underlying deposit collateral is insured
by the Federal Deposit Insurance Corp. and interest is adequately
collateralized. In the case of certificates of deposit, the letter "L"
indicates that the deposit, combined with other deposits being held in the
same right and capacity, will be honored for principal and accrued pre-default
interest up to the federal insurance limits within 30 days after closing of
the insured institution or, in the event that the deposit is assumed by a
successor insured institution, upon maturity.
NR: Indicates that no rating has been requested, that there is insufficient
information on which to base a rating, or that S&P does not rate a particular
type of obligation as a matter of policy.
MUNICIPAL NOTES
S&P note ratings reflect the liquidity concerns and market access risks unique
to notes. Notes due in 3 years or less will likely receive a note rating.
Notes maturing beyond 3 years will most likely receive a long-term debt
rating. The following criteria will be used in making that assessment:
-- Amortization schedule (the larger the final maturity relative to other
maturities the more likely it will be treated as a note).
-- Sources of payment (the more dependent the issue is on the market for
its refinancing, the more likely it will be treated as a note).
Note rating symbols are as follows:
SP-1: Strong capacity to pay principal and interest. Those issues
determined to possess very strong characteristics will be given a plus(+)
designation.
SP-2: Satisfactory capacity to pay principal and interest, with some
vulnerability to adverse financial and economic changes over the term of
the notes.
SP-3: Speculative capacity to pay principal and interest.
FITCH INVESTORS SERVICE, INC.
INVESTMENT GRADE BOND RATINGS
AAA: Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest and
repay principal, which is unlikely to be affected by reasonably foreseeable
events.
AA: Bonds considered to be investment grade and of very high credit quality.
The obligor's ability to pay interest and repay principal is very strong,
although not quite as strong as bonds rated "AAA". Because bonds rated in the
"AAA" and "AA" categories are not significantly vulnerable to foreseeable
future developments, short-term debt of these issuers is generally rated
"F-1+".
A: Bonds considered to be investment grade and of high credit quality. The
obligors ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions
and circumstances than bonds with higher ratings.
BBB: Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these bonds,
and therefore, impair timely payment. The likelihood that the ratings of these
bonds will fall below investment grade is higher than for bonds with higher
ratings.
HIGH YIELD BOND RATINGS
AAA: Bonds are considered speculative. The obligor's ability to pay interest
and repay principal may be affected over time by adverse economic changes.
However, business and financial alternatives can be identified that could
assist the obligor in satisfying its debt service requirements.
B: Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued
timely payment of principal and interest reflects the obligor's limited margin
of safety and the need for reasonable business and economic activity
throughout the life of the issue.
CCC: Bonds have certain identifiable characteristics which, if not remedied,
may lead to default. The ability to meet obligations requires an advantageous
business and economic environment.
CC: Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C: Bonds are in imminent default in payment of interest or principal.
DDD, DD, AND D: Bonds are in default on interest and/or principal payments.
Such bonds are extremely speculative and should be valued on the basis of
their ultimate recovery value in liquidation or reorganization of the obligor.
"DDD" represents the highest potential for recovery on these bonds, and "D"
represents the lowest potential for recovery.
PLUS (+) OR MINUS (-): The ratings from AA to C may be modified by the
addition of a plus or minus sign to indicate the relative position of a credit
within the rating category.
NR: Indicates that Fitch does not rate the specific issue.
CONDITIONAL: A conditional rating is premised on the successful completion of
a project or the occurrence of a specific event.
INVESTMENT GRADE SHORT-TERM RATINGS
Fitch's short-term ratings apply to debt obligations that are payable on
demand or have original maturities of generally up to three years, including
commercial paper, certificates of deposit, medium-term notes, and municipal
and investment notes.
F-1+: Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1: Very Stong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated
"F-1+".
F-2: Good Credit Quality. Issues carrying this rating have a satisfactory
degree of assurance for timely payment, but the margin of safety is not as
great as the "F-1+" and "F-1" categories.
F-3: Fair Credit Quality. Issues carrying this rating have characteristics
suggesting that the degree of assurance for timely payment is adequate,
however, near-term adverse change could cause these securities to be rated
below investment grade.
* * * * * * * *
NOTES: Debt which is unrated exposes the investor to risks with respect to
capacity to pay interest or repay principal which are similar to the risks of
lower-rated speculative bonds. The Portfolio is dependent on the Investment
Adviser's judgment, analysis and experience in the evaluation of such debt.
Investors should note that the assignment of a rating to a bond by a
rating service may not reflect the effect of recent developments on the
issuer's ability to make interest and principal payments.
DESCRIPTION OF THE INSURANCE CLAIMS-PAYING
ABILITY RATINGS OF
STANDARD & POOR'S CORPORATION AND
MOODY'S INVESTORS SERVICE, INC.
An S&P insurance claims-paying ability rating is an assessment of an
operating insurance company's financial capacity to meet obligations under an
insurance policy in accordance with the terms. An insurer with an insurance
claims-paying ability of AAA has the highest rating assigned by S&P. Capacity
to honor insurance contracts is adjudged by S&P to be extremely strong and
highly likely to remain so over a long period of time. A Moody's insurance
claims-paying ability rating is an opinion of the ability of an insurance
company to repay punctually senior policyholder obligations and claims. An
insurer with an insurance claims-paying ability rating of Aaa is adjudged by
Moody's to be of the best quality. In the opinion of Moody's, the policy
obligations of an insurance company with an insurance claims-paying ability
rating of Aaa carry the smallest degree of credit risk and, while the
financial strength of these companies is likely to change, such changes as can
be visualized are most unlikely to impair the company's fundamentally strong
position.
An insurance claims-paying ability rating by S&P's or Moody's does not
constitute an opinion on any specific contract in that such an opinion can
only be rendered upon the review of the specific insurance contract.
Furthermore, an insurance claims-paying ability rating does not take in
account deductibles, surrender or cancellation penalties or the timeliness of
payment; nor does it address the ability of a company to meet nonpolicy
obligations (i.e., debt contracts).
The assignment of ratings by S&P or Moody's to debt issues that are fully
or partially supported by insurance policies, contracts, or guarantees is a
separate process from the determination of claims-paying ability ratings. The
likelihood of a timely flow of funds from the insurer to the trustee for the
bondholders is a key element in the rating determination of such debt issues.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV MARATHON FLORIDA INSURED
MUNICIPALS FUND. The investment objective of the Fund is to provide current
income exempt from regular federal income tax in the form of an investment
exempt from Florida intangibles tax. The Fund currently seeks to meet its
investment objective by investing its assets in the Florida Insured Municipals
Portfolio (the "Portfolio").
RISKS OF CONCENTRATION
The following information as to certain Florida considerations is given to
investors in view of the Portfolio's policy of concentrating its investments in
Florida issuers. Such information 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 Florida issuers. Neither
the Trust nor the Portfolio has independently verified this information.
Florida is a state characterized by rapid population growth and substantial
capital needs which are being funded through frequent debt issuance and
pay-as-you-go financing. Florida's economy is characterized by a large service
sector, a dependence on the tourism and construction industries, and a large
retirement population. The management of rapid growth has been the major
challenge facing state and local governments. While attracting many senior
citizens, Florida also offers a favorable business environment and growing
employment opportunities that have continued to generate working-age population
immigration. As this growth continues, particularly within the retirement
population, the demand for both public and private services will increase, which
may strain the service sector's capacity and impede the State's budget balancing
efforts.
Florida has a proportionally greater number of persons of retirement age; a
factor that makes Florida's property and transfer payment taxes a relatively
more important source of State funding. Because transfer payments are typically
less sensitive to the business cycle than employment income, they may act as a
stabilizing force in weak economic periods.
Florida tourism appears to be suffering the effects of negative publicity
regarding crime against tourists in the State, product maturity, higher prices
and more aggressive marketing by competing vacation destinations. Tourist
arrivals are expected to increase 2.7% and 3.2%, in fiscal years 1996-97 and
1997-98, respectively. The total number of visiting tourists is expected to
reach 42.6 million and 43.9 million during fiscal years 1996-97 and 1997-98,
respectively.
There has been a decline in Florida's dependency on highly cyclical
construction and construction-related manufacturing sectors. For example, the
total contract construction employment as a share of total non-farm employment
reached a peak of over 10% in 1973. In 1980, the share was roughly 7.5%, and in
1995, the share had edged downward to nearly 5%. This trend is expected to
continue as Florida's economy continues to diversify.
The ability of the State and its local units of government to satisfy its
debt obligations may be affected by numerous factors which impact on the
economic vitality of the State in general and the particular region of the State
in which the issuer of the debt obligations is located. South Florida is
particularly susceptible to international trade and currency imbalances and to
economic dislocations in Central and South America, due to its geographical
location and its involvement with foreign trade, tourism and investment capital.
North and Central Florida are impacted by problems in the agricultural sector,
particularly with regard to the citrus and sugar industries. Short-term adverse
economic conditions may be created in these areas, and in the State as a whole,
due to crop failures, severe weather conditions or other agriculture-related
problems. The State economy also has historically been dependent on the tourism
and construction industries and is, therefore, sensitive to trends in those
sectors.
INSURANCE
The following information relates to the Fund and supplements the
information contained under "Additional Information about Investment Policies --
Insurance" in Part I.
In General. Insured obligations held by the Portfolio will be insured as to
their scheduled payment of principal and interest under (i) an insurance policy
obtained by the issuer or underwriter of the obligation at the time of its
original issuance ("Issue Insurance"), (ii) an insurance policy obtained by the
Portfolio or a third party subsequent to the obligation's original issuance
("Secondary Market Insurance") or (iii) a municipal insurance policy purchased
by the Portfolio ("Mutual Fund Insurance"). The Portfolio anticipates that all
or substantially all of its insured obligations will be subject to Issue
Insurance or Secondary Market Insurance. Although the insurance feature reduces
certain financial risks, the premiums for Mutual Fund Insurance (which, if
purchased by the Portfolio, are paid from the Portfolio's assets) and the higher
market price paid for obligations covered by Issue Insurance or Secondary Market
Insurance reduce the Portfolio's current yield.
Insurance will cover the timely payment of interest and principal on
obligations and will be obtained from insurers with a claims-paying ability
rated Aaa by Moody's or AAA by S&P or Fitch. Obligations insured by any insurer
with such a claims-paying ability rating will generally carry the same rating or
credit risk as the insurer. See the Appendix in Part I for a brief description
of Moody's, Fitch's and S&P's claims-paying ability ratings. Such insurers must
guarantee the timely payment of all principal and interest on obligations as
they become due. Such insurance may, however, provide that in the event of
non-payment of interest or principal when due with respect to an insured
obligation, the insurer is not obligated to make such payment until a specified
time period has lapsed (which may be 30 days or more after it has been notified
by the Portfolio that such non-payment has occurred). For these purposes, a
payment of principal is due only at final maturity of the obligation and not at
the time any earlier sinking fund payment is due. While the insurance will
guarantee the timely payment of principal and interest, it does not guarantee
the market value of the obligations or the net asset value of the Portfolio or
the Fund.
Obligations are generally eligible to be insured under Mutual Fund Insurance
if, at the time of purchase by the Portfolio, they are identified separately or
by category in qualitative guidelines furnished by the mutual fund insurer and
are in compliance with the aggregate limitations on amounts set forth in such
guidelines. Premium variations are based, in part, on the rating of the
obligations being insured at the time the Portfolio purchases the obligations.
The insurer may prospectively withdraw particular obligations from the
classifications of securities eligible for insurance or change the aggregate
amount limitation of each issue or category of eligible obligations. The insurer
must, however, continue to insure the full amount of the obligations previously
acquired which the insurer has indicated are eligible for insurance, so long as
they continue to be held by the Portfolio. The qualitative guidelines and
aggregate amount limitations established by the insurer from time to time will
not necessarily be the same as those the Portfolio would use to govern selection
of obligations for the Portfolio. Therefore, from time to time such guidelines
and limitations may affect investment decisions in the event the Portfolio's
securities are insured by Mutual Fund Insurance.
For Mutual Fund Insurance that terminates upon the sale of the insured
security, the insurance does not have any effect on the resale value of such
security. Therefore, the Portfolio will generally retain any insured obligations
which are in default or, in the judgment of the Investment Adviser, are in
significant risk of default and place a value on the insurance. This value will
be equal to the difference between the market value of the defaulted insured
obligations and the market value of similar obligations which are not in
default. As a result, the Investment Adviser may be unable to manage the
securities held by the Portfolio to the extent the Portfolio holds defaulted
insured obligations, which will limit its ability in certain circumstances to
purchase other obligations. While a defaulted insured obligation is held by the
Portfolio, the Portfolio will continue to pay the insurance premium thereon but
will also collect interest payments from the insurer and retain the right to
collect the full amount of principal from the insurer when the insured
obligation becomes due. The Portfolio expects that the market value of a
defaulted insured obligation covered by Issue Insurance or Secondary Market
Insurance will generally be greater than the market value of an otherwise
comparable defaulted obligation covered by Mutual Fund Insurance.
The Portfolio may also invest in 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 obligations for purposes of the Portfolio's policy of
investing at least 80% of its net assets in insured obligations (but such
obligations shall not constitute more than 15% of the insured portion of the
Portfolio).
Principal Insurers. Currently, Municipal Bond Investors Assurance Corporation
("MBIA"), Financial Guaranty Insurance Company ( "FGIC" ), AMBAC Indemnity
Corporation ("AMBAC"), and Financial Security Assurance Corp., together with its
affiliated insurance companies--Financial Security Assurance International Inc.
and Financial Security Assurance of Oklahoma, Inc. (collectively, "FSA" ), are
considered to have a high claims-paying ability and, therefore, are eligible
insurers for the Portfolio's obligations. Additional insurers may be added
without further notification. The following information concerning these
eligible insurers is based upon information provided by such insurers or
information filed with certain state insurance regulators. Neither the Portfolio
nor the Trust has independently verified such information and make no
representations as to the accuracy and adequacy of such information or as to the
absence of material adverse changes subsequent to the date thereof.
MBIA is a monoline financial guaranty insurance company created from an
unincorporated association (the Municipal Bond Insurance Association), through
which its members wrote municipal bond insurance on a several and joint-basis
through 1986. On January 5, 1990, MBIA acquired all of the outstanding stock of
Bond Investors Group, Inc., the parent of Bond Investors Guaranty Insurance
Company ("BIG"), which has subsequently changed its name to MBIA Insurance Corp.
of Illinois. Through a reinsurance agreement, BIG ceded all of its net insured
risks, as well as its related unearned premium and contingency reserves, to
MBIA. MBIA issues municipal bond insurance policies guarantying the timely
payment of principal and interest on new municipal bond issues and leasing
obligations of municipal entities, secondary market insurance of such
instruments and insurance on such instruments held in unit investment trusts and
mutual funds. As of December 31, 1996, MBIA had total assets of approximately
$8.6 billion and qualified statutory capital of approximately $2.4 billion. MBIA
has a claims-paying ability rating of "AAA" by S&P and "Aaa" by Moody's.
Financial Guaranty Insurance Corporation, a wholly owned subsidiary of FGIC
Corporation, which is a wholly owned subsidiary of General Electric Capital
Corporation, is an insurer of municipal securities, including new issues,
securities held in unit investment trusts and mutual funds, and those traded on
secondary markets. The investors in FGIC Corporation are not obligated to pay
the debts of or claims against FGIC. As of December 31, 1996, FGIC had total
assets of approximately $2.7 billion and qualified statutory capital of
approximately $1.6 billion. FGIC has a claims-paying ability rating of "AAA" by
S&P and Fitch, and "Aaa" by Moody's.
AMBAC, a wholly owned subsidiary of AMBAC Inc., is a monoline insurance
company whose policies guaranty the payment of principal and interest on
municipal obligations issues. As of December 31, 1996, AMBAC had assets of
approximately $5.9 billion and qualified statutory capital of approximately $1.5
billion. AMBAC has a claims-paying ability rating of "AAA" by S&P and "Aaa" by
Moody's.
FSA purchased Capital Guaranty Insurance Company including its book of
business and reserves effective December 20, 1995. FSA is a monoline insurer
whose policies guaranty the timely payment of principal and interest on new
issue and secondary market issue municipal securities transactions, among other
financial obligations. As of December 31, 1996, FSA had total admitted assets of
approximately $1.5 billion and qualified statutory capital of approximately $676
million. FSA has a claims-paying ability rating of "AAA" by S&P and "Aaa" by
Moody's.
FEES AND EXPENSES
INVESTMENT ADVISER
As of January 31, 1997, the Portfolio had net assets of $24,203,859. For the
fiscal years ended January 31, 1997 and 1996 and for the period from the start
of business, March 2, 1994, to January 31, 1995, absent a fee reduction, the
Portfolio would have paid BMR advisory fees of $41,276, $27,933 and $8,420,
respectively (equivalent to 0.18%, 0.16% and 0.16% (annualized) of the
Portfolio's average daily net assets for each such period). To enhance the net
income of the Portfolio for each period, BMR made a reduction of the full amount
of its fee and BMR was allocated a portion of expenses related to the operation
of the Portfolio in the amount of $28,072, $28,813 and $13,139, respectively.
The Portfolio's Investment Advisory Agreement with BMR is dated February 25,
1994 and continues as described under "Investment Adviser and Administrator" in
Part I.
ADMINISTRATOR
As stated under "Investment Adviser and Administrator" in Part I, the
Administrator currently receives no compensation for providing administrative
services to the Fund. For the fiscal year ended January 31, 1996 and for the
period from the start of business, March 2, 1994, to the fiscal year ended
January 31, 1995, $12,277 and $21,147, respectively, of the Fund's operating
expenses were allocated to the Administrator.
DISTRIBUTION PLAN
During the fiscal year ended January 31, 1997, the Principal Underwriter
paid to Authorized Firms sales commissions of $102,944 on sales of Fund shares.
During the same period, the Fund made payments under the Plan to the Principal
Underwriter aggregating $148,929 and the Principal Underwriter received
approximately $30,000 in CDSCs imposed on early redeeming shareholders. These
payments reduced uncovered distribution charges under the Plan. As at January
31, 1997, the outstanding uncovered distribution charges of the Principal
Underwriter calculated under the Plan amounted to approximately $725,000. During
the fiscal year ended January 31, 1997, the Fund made service fee payments
aggregating $27,052, of which $26,762 was paid to Authorized Firms and the
balance of which was retained by the Principal Underwriter.
PRINCIPAL UNDERWRITER
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 fiscal year ended January 31,
1997, the Fund paid the Principal Underwriter $140 for repurchase transactions
handled by the Principal Underwriter.
BROKERAGE
For the fiscal year ended January 31, 1997, the Portfolio paid brokerage
commissions of $6,206 on portfolio security transactions aggregating $70,196,676
to firms which provided some research services to BMR or its affiliates
(although many of such firms may have been selected in any particular
transaction primarily because of their execution capabilities). For the fiscal
year ended January 31, 1996 and 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 the noninterested Trustees of the Trust and of the
Portfolio are paid by the Fund (and the other series of the Trust) and the
Portfolio, respectively. (The Trustees of the Trust and the Portfolio who are
members of the Eaton Vance organization receive no compensation from the Fund or
the Portfolio.) During the fiscal year ended January 31, 1997, the noninterested
Trustees of the Trust and the Portfolio received the following compensation in
their capacities as Trustees from the Fund and the Portfolio, and for the year
ended December 31, 1996, earned the following compensation in their capacities
as Trustees of the funds in the Eaton Vance fund complex(1):
AGGREGATE AGGREGATE TOTAL COMPENSATION
COMPENSATION COMPENSATION FROM TRUST AND
NAME FROM FUND FROM PORTFOLIO FUND COMPLEX
Donald R. Dwight $35 $35(2) $145,000(5)
Samuel L. Hayes, III 31 31(3) 157,500(6)
Norton H. Reamer 31 31 145,000
John L. Thorndike 32 32(4) 150,000(7)
Jack L. Treynor 34 34 150,000
- ----------
(1) The Eaton Vance fund complex consists of 212 registered investment companies
or series thereof.
(2) Includes $14 of deferred compensation.
(3) Includes $5 of deferred compensation.
(4) Includes $8 of deferred compensation.
(5) Includes $45,000 of deferred compensation.
(6) Includes $20,429 of deferred compensation.
(7) Includes $28,125 of deferred compensation.
PRINCIPAL UNDERWRITER
Under the Distribution Agreement the Principal Underwriter acts as principal
in selling shares of the Fund. The expenses of printing copies of prospectuses
used to offer shares to Authorized Firms or investors and other selling
literature and of advertising is borne by the Principal Underwriter. The fees
and expenses of qualifying and registering and maintaining qualifications and
registrations of the Fund and its shares under federal and state securities laws
are borne by the Fund. In addition, the Fund makes payments to the Principal
Underwriter pursuant to its Distribution Plan as described in the Fund's current
Prospectus; the provisions of the Plan relating to such payments are included in
the Distribution Agreement. The Distribution Agreement is renewable annually by
the Trust's Board of Trustees (including a majority of the noninterested
Trustees who have no direct or indirect financial interest in the operation of
the Fund's Distribution Plan or the Distribution Agreement), may be terminated
on sixty days' notice either by such Trustees or by vote of a majority of the
outstanding voting securities of the Fund or on six months' notice by the
Principal Underwriter and is automatically terminated upon assignment. The
Principal Underwriter distributes Fund shares on a "best efforts" basis under
which it is required to take and pay for only such shares as may be sold.
DISTRIBUTION PLAN
The Plan is designed to meet the requirements of Rule 12b-1 under the 1940
Act and the sales charge rule of the NASD. The purpose of the Plan is to
compensate the Principal Underwriter for its distribution services and
facilities provided to the Fund.
Each Fund's Plan provides that the Fund will pay sales commissions and
distribution fees to the Principal Underwriter only after and as a result of the
sale of shares of the Fund. On each sale of Fund shares (excluding reinvestment
of distributions) a Fund will pay the Principal Underwriter amounts representing
(i) sales commissions equal to 5% of the amount received by a Fund for each
share sold and (ii) distribution fees calculated by applying the rate of 1% over
the prime rate then reported in The Wall Street Journal to the outstanding
balance of uncovered distribution charges (as described below) of the Principal
Underwriter.
The amount payable by the Fund to the Principal Underwriter pursuant to the
Plan as sales commissions and distribution fees with respect to each day will be
accrued on such day as a liability of the Fund and will accordingly reduce the
Fund's net assets upon such accrual, all in accordance with generally accepted
accounting principles. The amount payable by the Fund on each day is limited to
1/365 of .75% of the Fund's net assets on such day. The level of the Fund's net
assets changes each day and depends upon the amount of sales and redemptions of
Fund shares, the changes in the value of the investments held by the Portfolio,
the expenses of the Fund and the Portfolio accrued and allocated to the Fund on
such day, income on portfolio investments of the Portfolio accrued and allocated
to the Fund on such day, and any dividends and distributions declared on Fund
shares. The Fund does not accrue possible future payments as a liability of the
Fund or reduce the Fund's current net assets in respect of unknown amounts which
may become payable under the Plan in the future because the standards for
accrual of a liability under such accounting principles have not been satisfied.
The Plan provides that the Fund will receive all CDSCs and will make no
payments to the Principal Underwriter in respect of any day on which there are
no outstanding uncovered distribution charges of the Principal Underwriter.
CDSCs and accrued amounts will be paid by the Fund to the Principal Underwriter
whenever there exist uncovered distribution charges.
In calculating daily the amount of uncovered distribution charges,
distribution charges will include the aggregate amount of sales commissions and
distribution fees theretofore paid plus the aggregate amount of sales
commissions and distribution fees which the Principal Underwriter is entitled to
be paid under the Plan since its inception. Payments theretofore paid or payable
under the Plan by the Fund to the Principal Underwriter and CDSCs theretofore
paid or payable to the Principal Underwriter will be subtracted from such
distribution charges; if the result of such subtraction is positive, a
distribution fee (computed at 1% over the prime rate then reported in The Wall
Street Journal) will be computed on such amount and added thereto, with the
resulting sum constituting the amount of outstanding uncovered distribution
charges with respect to such day. The amount of outstanding uncovered
distribution charges of the Principal Underwriter calculated on any day does not
constitute a liability recorded on the financial statements of the Fund.
The amount of uncovered distribution charges of the Principal Underwriter at
any particular time depends upon various changing factors, including the level
and timing of sales of Fund shares, the nature of such sales (i.e., whether they
result from exchange transactions, reinvestments or from cash sales through
Authorized Firms), the level and timing of redemptions of Fund shares upon which
a CDSC will be imposed, the level and timing of redemptions of Fund shares upon
which no CDSC will be imposed (including redemptions of Fund shares pursuant to
the exchange privilege which result in a reduction of uncovered distribution
charges), changes in the level of the net assets of the Fund, and changes in the
interest rate used in the calculation of the distribution fee under the Plan.
Periods with a high level of sales of Fund shares accompanied by a low level of
early redemptions of Fund shares resulting in the imposition of CDSCs will tend
to increase the time during which there will exist uncovered distribution
charges of the Principal Underwriter.
Currently payments of sales commissions and distribution fees and of service
fees may be equal to .95% of the Fund's average daily net assets per annum. For
the sales commissions and service fee payments made by the Fund and the
outstanding uncovered distribution charges of the Principal Underwriter, see
"Fees and Expenses -- Distribution Plan" in this Part II. The Fund believes that
the combined rate of all these payments may be higher than the rate of payments
made under distribution plans adopted by other investment companies pursuant to
Rule 12b-1. Although the Principal Underwriter will use its own funds (which may
be borrowed from banks) to pay sales commissions at the time of sale, it is
anticipated that the Eaton Vance organization will profit by reason of the
operation of the Plan through an increase in the Fund's assets (thereby
increasing the advisory fee payable to BMR by the Portfolio) resulting from sale
of Fund shares and through the amounts paid to the Principal Underwriter,
including CDSCs pursuant to the Plan. The Eaton Vance organization may be
considered to have realized a profit under the Plan if at any point in time the
aggregate amounts theretofore received by the Principal Underwriter pursuant to
the Plan and from CDSCs have exceeded the total expenses theretofore incurred by
such organization in distributing shares of the Fund. Total expenses for this
purpose will include an allocable portion of the overhead costs of such
organization and its branch offices, which costs will include without limitation
leasing expense, depreciation of building and equipment, utilities,
communication and postage expense, compensation and benefits of personnel,
travel and promotional expense, stationery and supplies, literature and sales
aids, interest expense, data processing fees, consulting and temporary help
costs, insurance, taxes other than income taxes, legal and auditing expense and
other miscellaneous overhead items. Overhead is calculated and allocated for
such purpose by the Eaton Vance organization in a manner deemed equitable to the
Fund.
The Plan continues in effect from year to year for so long as such
continuance is approved at least annually by the vote of both a majority of (i)
the noninterested Trustees of the Trust who have no direct or indirect financial
interest in the operation of the Plan or any agreements related to the Plan (the
"Rule 12b-1 Trustees") and (ii) all of the Trustees then in office, and the
Distribution Agreement contains a similar provision. The Plan and Distribution
Agreement may be terminated at any time by vote of a majority of the Rule 12b-1
Trustees or by a vote of a majority of the outstanding voting securities of the
Fund. The Plan requires quarterly Trustee review of a written report of the
amount expended under the Plan and the purposes for which such expenditures were
made. The Plan may not be amended to increase materially the payments described
therein without approval of the shareholders of the Fund and Trustees. So long
as the Plan is in effect, the selection and nomination of the noninterested
Trustees shall be committed to the discretion of such Trustees.
The Trustees of the Trust believe that the Plan will be a significant factor
in the growth of the Fund's assets, resulting in increased investment
flexibility and advantages which have benefitted and will continue to benefit
the Fund and its shareholders. Payments for sales commissions and distribution
fees made to the Principal Underwriter under the Plan will compensate the
Principal Underwriter for its services and expenses in distributing shares of
the Fund. Service fee payments made to the Principal Underwriter and Authorized
Firms under the Plan provide incentives to provide continuing personal services
to investors and the maintenance of shareholder accounts. By providing
incentives to the Principal Underwriter and Authorized Firms, the Plan is
expected to result in the maintenance of, and possible future growth in, the
assets of the Fund. Based on the foregoing and other relevant factors, the
Trustees have determined that in their judgment there is a reasonable likelihood
that the Plan will benefit the Fund and its shareholders.
PERFORMANCE INFORMATION
The table below indicates the cumulative and average annual total return on
a hypothetical investment of $1,000 in the Fund covering the life of the Fund
from March 2, 1994 through January 31, 1997 and for the one-year period ended
January 31, 1997.
<TABLE>
<CAPTION>
VALUE OF A $1,000 INVESTMENT
VALUE OF
VALUE OF INVESTMENT
INVESTMENT AFTER TOTAL RETURN BEFORE TOTAL RETURN AFTER
BEFORE DEDUCTING THE DEDUCTING THE CDSC DEDUCTING THE CDSC**
INVESTMENT INVESTMENT AMOUNT OF DEDUCTING THE CDSC** ON ------------------------- ------------------------
PERIOD DATE INVESTMENT CDSC ON 1/31/97 1/31/97 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
---------- ---------- ---------- --------------- ------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of the Fund*** 3/2/94* $1,000 $1,228.29 $1,188.29 22.83% 7.30% 18.83% 6.09%
1 Year Ended
1/31/97*** 1/31/96 $1,000 $1,011.44 $ 963.15 1.14% 1.14% -3.69% -3.69%
Past performance is not indicative of future results. Investment return and principal value will fluctuate; shares, when
redeemed, may be worth more or less than their original cost.
- ----------
*Investment operations began on March 2, 1994.
**No CDSC is imposed on certain redemptions. See the Fund's current Prospectus.
***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, 1997, the yield of the Fund was
4.58%. The yield required of a taxable security that would produce an after-tax
yield equivalent to that earned by the Fund of 4.58% would be 6.64%, assuming a
federal tax rate of 31%. If a portion of the Portfolio's expenses had not been
allocated to the Investment Adviser, the Fund would have had a lower yield.
See the Tax Equivalent Yield Table in this Part II for information
concerning applicable tax rates and income brackets.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As at April 30, 1997, 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, 1997, Merrill Lynch, Pierce, Fenner & Smith, Inc., Jacksonville, FL
was the record owner of approximately 13.7% of the outstanding shares, which
were held on behalf of its customers who are the beneficial owners of such
shares, and as to which it had voting power under certain limited circumstances.
To the knowledge of the Trust, no other person owned of record or beneficially
5% or more of the Fund's outstanding shares as of such date.
OTHER INFORMATION
The Fund changed its name from EV Marathon Florida Insured Tax Free Fund to
EV Marathon Florida Insured 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 the
Florida intangibles tax laws and tax rates applicable for 1997.
<TABLE>
<CAPTION>
OR THE TAXABLE INCOME YOU ARE IN
IF THE TAXABLE INCOME ON ON THIS FEDERAL IN YOUR BRACKET, A TAX-FREE YIELD OF
YOUR SINGLE RETURN IS* YOUR JOINT RETURN IS* BRACKET 4% 4.5% 5% 5.5% 6% 6.5% 7%
- --------------------------- ---------------------- ------------- ---------------------------------------------------------------
EQUALS THAT OF A TAXABLE INVESTMENT YIELDING
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $24,650 Up to $41,200 15.00% 4.71% 5.29% 5.88% 6.47% 7.06% 7.65% 8.24%
$ 24,651-$ 59,750 $ 41,201-$ 99,600 28.00 5.56 6.25 6.94 7.64 8.33 9.03 9.72
$ 59,751-$124,650 $ 99,601-$151,750 31.00 5.80 6.52 7.25 7.97 8.70 9.42 10.14
$124,651-$271,050 $151,751-$271,050 36.00 6.25 7.03 7.81 8.59 9.38 10.16 10.94
Over $271,050 Over $271,050 39.60 6.62 7.45 8.28 9.11 9.93 10.76 11.59
<CAPTION>
OR THE TAXABLE INCOME
IF THE TAXABLE INCOME ON ON
YOUR SINGLE RETURN IS* YOUR JOINT RETURN IS* 4% 4.5% 5% 5.5% 6% 6.5% 7%
- --------------------------- ---------------------- ----------------------------------------------------------------
TAX EQUIVALENT YIELD REFLECTING EXEMPTION FROM INTANGIBLES TAX:**
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $24,650 Up to $41,200 4.95% 5.54% 6.13% 6.71% 7.30% 7.89% 8.48%
$ 24,651-$ 59,750 $ 41,201-$ 99,600 5.85 6.54 7.23 7.93 8.62 9.31 10.01
$ 59,751-$124,650 $ 99,601-$151,750 6.10 6.83 7.55 8.27 9.00 9.72 10.44
$124,651-$271,050 $151,751-$271,050 6.58 7.36 8.14 8.92 9.70 10.48 11.26
Over $271,050 Over $271,050 6.97 7.80 8.62 9.45 10.28 11.10 11.93
* Net amount subject to federal personal income tax after deductions and exemptions.
** A Florida intangibles tax on personal property of $2.00 per $1,000 is generally imposed after exemptions on the value of
stocks, bonds, other evidences of indebtedness and mutual fund shares. An example of the effect of the Florida intangibles
tax on the tax brackets of Florida taxpayers is as follows. A $10,000 investment subject to the tax would require payment
of $20 annually in intangibles taxes. If the investment yielded 5.5% annually or $550, the intangibles tax as a percentage
of income would be $20/$550 or 3.64%. If a taxpayer were in the 36% federal income tax bracket, assuming the intangibles
taxes were deducted as an itemized deduction on the federal return, the taxpayer would be on a combined federal and
Florida State tax bracket of 38.33% [36% + (1 - .36) X 3.64%] with respect to such investment. A Florida taxpayer whose
intangible personal property is exempt or partially exempt from tax due to the availability of exemptions will have a
lower taxable equivalent yield than indicated above.
</TABLE>
Note: The federal income tax brackets do not take into account the effect of a
reduction in the deductibility of itemized deductions for taxpayers with
adjusted gross income in excess of $121,200. The tax brackets also do not show
the effects of phaseout of personal exemptions for single and joint filers with
adjusted gross incomes in excess of $121,200 and $181,800. The effective tax
brackets and equivalent taxable yields of such taxpayers will be higher than
those indicated above.
Yields shown are for illustration purposes only and are not meant to represent
the Fund's actual yield. No assurance can be given that the Fund will achieve
any specific tax exempt yield. While it is expected that the Portfolio will
invest principally in obligations, the interest from which is exempt from the
regular federal income tax, other income received by the Portfolio and allocated
to the Fund may be taxable. The table does not take into account the Florida
intangibles tax, state or local taxes, if any, payable on Fund distributions to
individuals who are not Florida residents, or intangibles taxes, if any, imposed
under the laws of other states. It should also be noted that the interest earned
on certain "private activity bonds" issued after August 7, 1986, while exempt
from the regular federal income tax, is treated as a tax preference item which
could subject the recipient to the federal alternative minimum tax. The
illustrations assume that the federal alternative minimum tax is not applicable
and do not take into account any tax credits that may be available.
The information set forth above is as of the date of this SAI. Subsequent tax
law changes could result in prospective or retroactive changes in the tax
brackets, tax rates, and tax equivalent yields set forth above. Investors should
consult their tax adviser for additional information.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV MARATHON 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 the recession years 1991-1992 and the three years following of
economic stagnation, Hawaii's economy began to accelerate moderately in 1995 and
continued its modest recovery in 1996. This modest acceleration is expected to
continue during 1997, reflecting recovery in the mainland United States,
particularly California. Although tourism has shown greater than expected growth
in visitor arrivals and in total visitor days, daily spending and average length
of stay are down in certain segments of the market. The job count increased
moderately in 1996, but the construction industry continued to lag. Momentum in
the Japanese and overall eastbound market segment sustained tourism's recovery
through 1996, which is expected to continue through 1997. Eastbound visitor
counts rose 6.6% in 1996, although a decline in the average length of stay
trimmed the increase in eastbound visitor days. Total visitor arrivals in Hawaii
numbered 6.823 million, up 3.6% from 6.589 million in 1995, but still short of
the peak of 6.971 million in 1990.
Somewhat remarkably, given the economic recession and stagnation in the
first half of the decade, Hawaii real personal income, adjusted for inflation,
has evidenced sustained growth during the period. From mid-1991 through
mid-1995, Hawaii real personal income grew at a 1.4% compound annual rate. Real
personal income continued to grow at a relatively slow pace of 2.0% during 1996.
Because Hawaii's emerging economic recovery is slow at best and somewhat
ambiguous, employment indicators have yet to register much improvement during
1996. Statewide unemployment in 1996 was 5.5% (preliminary) and is expected to
remain above 5% in 1997.
Beginning in 1992, Hawaii's construction industry settled into a cyclical
trough in 1995 from which it is expected to rebound in 1997-1998 only if private
construction grows enough to offset stabilization or reduction in public
construction, reflecting government fiscal austerity. The State government
however, announced plans to spend $1 billion on public construction projects
beginning in 1997 in an effort to assist the construction industry, in
particular and the State economy, in general. Contracting receipts increased
slightly by 1.4% in 1996 to just under $3.2 billion as compared with $3.15
billion in 1995, the largest total of the decade. Assuming a gradual rise in
private construction commitments, together with an increase in State government
construction which would offset cutbacks in government construction, total
construction spending is expected to exceed $3 billion in 1997. The value of
private building permits in 1996 total $1.3 billion, the largest figure of the
decade.
Hawaiian agriculture, long dominated by sugar and pineapple production,
continues its transition from plantation dominated production to diversified
agriculture. On Oahu, expanding diversified agriculture acreage is absorbing
some of the freed up sugar land as sugar continues to contract. Diversified
agriculture receipts are expected to make up only a part of this reduction.
Sugar cane sales decreased 3.5% in 1995 over the previous year. Pineapple sales
however increased 10% in both 1995 and 1996.
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, 1997, the Portfolio had net assets of $16,013,925. For
the fiscal years ended January 31, 1997 and 1996 and 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 $24,762, $23,715
and $13,231, respectively (equivalent to 0.16% of the Portfolio's average
daily net assets for each such period). To enhance the net income of the
Portfolio for each period, BMR made a reduction of the full amount of its fee
and BMR was allocated a portion of expenses related to the operation of the
Portfolio in the amount of $35,083, $29,013 and $13,430, respectively. The
Portfolio's Investment Advisory Agreement with BMR is dated February 25, 1994
and continues as described under "Investment Adviser and Administrator" in
Part I.
ADMINISTRATOR
As stated under "Investment Adviser and Administrator" in Part I, the
Administrator receives no compensation for providing administrative services
to the Fund. For the fiscal years ended January 31, 1997 and 1996 and for the
period from the start of business, March 2, 1994, to January 31, 1995, $4,103,
$27,054 and $18,691, respectively, of the Fund's operating expenses were
allocated to the Administrator.
DISTRIBUTION PLAN
During the fiscal year ended January 31, 1997, the Principal Underwriter
paid to Authorized Firms sales commissions of $74,379 on sales of Fund shares.
During the same period, the Fund made payments under the Plan to the Principal
Underwriter aggregating $112,929 and the Principal Underwriter received
approximately $46,000 in CDSCs imposed on early redeeming shareholders. These
payments reduced uncovered distribution charges under the Plan. As at January
31, 1997, the outstanding uncovered distribution charges of the Principal
Underwriter calculated under the Plan amounted to approximately $620,000.
During the fiscal year ended January 31, 1997, the Fund made service fee
payments aggregating $23,310, of which $23,289 was paid to Authorized Firms
and the balance of which was retained by the Principal Underwriter.
PRINCIPAL UNDERWRITER
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 fiscal year ended
January 31, 1997, the Fund paid the Principal Underwriter $237.50 for
repurchase transactions handled by the Principal Underwriter.
BROKERAGE
For the fiscal year ended January 31, 1997, the Portfolio paid brokerage
commissions of $1,816 on portfolio security transactions aggregating
$14,921,595 to firms which provided some research services to BMR or its
affiliates (although many of such firms may have been selected in any
particular transaction primarily because of their execution capabilities). For
the fiscal year ended January 31, 1996 and 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 the noninterested Trustees of the Trust and of
the Portfolio 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
Fund or the Portfolio.) During the fiscal year ended January 31, 1997, the
noninterested Trustees of the Trust and the Portfolio received the following
compensation in their capacities as Trustees from the Fund and the Portfolio,
and for the year ended December 31, 1996, earned the following compensation in
their capacities as Trustees of the other funds in the Eaton Vance Fund
complex(1):
<TABLE>
<CAPTION>
AGGREGATE AGGREGATE TOTAL COMPENSATION
COMPENSATION COMPENSATION FROM TRUST AND
NAME FROM FUND FROM PORTFOLIO FUND COMPLEX
- ---- --------- -------------- ------------------
<S> <C> <C> <C>
Donald R. Dwight $35 $35(2) $145,000(5)
Samuel L. Hayes, III 31 31(3) 157,500(6)
Norton H. Reamer 31 31 145,000
John L. Thorndike 32 32(4) 150,000(7)
Jack L. Treynor 34 34 150,000
</TABLE>
- --------------
(1) The Eaton Vance fund complex consists of 212 registered investment
companies or series thereof.
(2) Includes $14 of deferred compensation.
(3) Includes $5 of deferred compensation.
(4) Includes $8 of deferred compensation.
(5) Includes $45,000 of deferred compensation.
(6) Includes $20,429 of deferred compensation.
(7) Includes $28,125 of deferred compensation.
PRINCIPAL UNDERWRITER
Under the Distribution Agreement the Principal Underwriter acts as
principal in selling shares of the Fund. The expenses of printing copies of
prospectuses used to offer shares to Authorized Firms or investors and other
selling literature and of advertising is borne by the Principal Underwriter.
The fees and expenses of qualifying and registering and maintaining
qualifications and registrations of the Fund and its shares under federal and
state securities laws are borne by the Fund. In addition, the Fund makes
payments to the Principal Underwriter pursuant to its Distribution Plan as
described in the Fund's current Prospectus; the provisions of the Plan
relating to such payments are included in the Distribution Agreement. The
Distribution Agreement is renewable annually by the Trust's Board of Trustees
(including a majority of the noninterested Trustees who have no direct or
indirect financial interest in the operation of the Fund's Distribution Plan
or the Distribution Agreement), may be terminated on sixty days' notice either
by such Trustees or by vote of a majority of the outstanding voting securities
of the Fund or on six months' notice by the Principal Underwriter and is
automatically terminated upon assignment. The Principal Underwriter
distributes Fund shares on a "best efforts" basis under which it is required
to take and pay for only such shares as may be sold.
DISTRIBUTION PLAN
The Plan is designed to meet the requirements of Rule 12b-1 under the 1940
Act and the sales charge rule of the NASD. The purpose of the Plan is to
compensate the Principal Underwriter for its distribution services and
facilities provided to the Fund.
Each Fund's Plan provides that the Fund will pay sales commissions and
distribution fees to the Principal Underwriter only after and as a result of
the sale of shares of the Fund. On each sale of Fund shares (excluding
reinvestment of distributions) a Fund will pay the Principal Underwriter
amounts representing (i) sales commissions equal to 5% of the amount received
by a Fund for each share sold and (ii) distribution fees calculated by
applying the rate of 1% over the prime rate then reported in The Wall Street
Journal to the outstanding balance of uncovered distribution charges (as
described below) of the Principal Underwriter.
The amount payable by the Fund to the Principal Underwriter pursuant to
the Plan as sales commissions and distribution fees with respect to each day
will be accrued on such day as a liability of the Fund and will accordingly
reduce the Fund's net assets upon such accrual, all in accordance with
generally accepted accounting principles. The amount payable by the Fund on
each day is limited to 1/365 of .75% of the Fund's net assets on such day.
The level of the Fund's net assets changes each day and depends upon the
amount of sales and redemptions of Fund shares, the changes in the value of
the investments held by the Portfolio, the expenses of the Fund and the
Portfolio accrued and allocated to the Fund on such day, income on portfolio
investments of the Portfolio accrued and allocated to the Fund on such day,
and any dividends and distributions declared on Fund shares. The Fund does not
accrue possible future payments as a liability of the Fund or reduce the
Fund's current net assets in respect of unknown amounts which may become
payable under the Plan in the future because the standards for accrual of a
liability under such accounting principles have not been satisfied.
The Plan provides that the Fund will receive all CDSCs and will make no
payments to the Principal Underwriter in respect of any day on which there are
no outstanding uncovered distribution charges of the Principal Underwriter.
CDSCs and accrued amounts will be paid by the Fund to the Principal
Underwriter whenever there exist uncovered distribution charges.
In calculating daily the amount of uncovered distribution charges,
distribution charges will include the aggregate amount of sales commissions
and distribution fees theretofore paid plus the aggregate amount of sales
commissions and distribution fees which the Principal Underwriter is entitled
to be paid under the Plan since its inception. Payments theretofore paid or
payable under the Plan by the Fund to the Principal Underwriter and CDSCs
theretofore paid or payable to the Principal Underwriter will be subtracted
from such distribution charges; if the result of such subtraction is positive,
a distribution fee (computed at 1% over the prime rate then reported in The
Wall Street Journal) will be computed on such amount and added thereto, with
the resulting sum constituting the amount of outstanding uncovered
distribution charges with respect to such day. The amount of outstanding
uncovered distribution charges of the Principal Underwriter calculated on any
day does not constitute a liability recorded on the financial statements of
the Fund.
The amount of uncovered distribution charges of the Principal Underwriter
at any particular time depends upon various changing factors, including the
level and timing of sales of Fund shares, the nature of such sales (i.e.,
whether they result from exchange transactions, reinvestments or from cash
sales through Authorized Firms), the level and timing of redemptions of Fund
shares upon which a CDSC will be imposed, the level and timing of redemptions
of Fund shares upon which no CDSC will be imposed (including redemptions of
Fund shares pursuant to the exchange privilege which result in a reduction of
uncovered distribution charges), changes in the level of the net assets of the
Fund, and changes in the interest rate used in the calculation of the
distribution fee under the Plan. Periods with a high level of sales of Fund
shares accompanied by a low level of early redemptions of Fund shares
resulting in the imposition of CDSCs will tend to increase the time during
which there will exist uncovered distribution charges of the Principal
Underwriter.
Currently payments of sales commissions and distribution fees and of
service fees may be equal to .95% of the Fund's average daily net assets per
annum. For the sales commissions and service fee payments made by the Fund and
the outstanding uncovered distribution charges of the Principal Underwriter,
see "Fees and Expenses -- Distribution Plan". The Fund believes that the
combined rate of all these payments may be higher than the rate of payments
made under distribution plans adopted by other investment companies pursuant
to Rule 12b-1. Although the Principal Underwriter will use its own funds
(which may be borrowed from banks) to pay sales commissions at the time of
sale, it is anticipated that the Eaton Vance organization will profit by
reason of the operation of the Plan through an increase in the Fund's assets
(thereby increasing the advisory fee payable to BMR by the Portfolio)
resulting from sale of Fund shares and through the amounts paid to the
Principal Underwriter, including CDSCs, pursuant to the Plan. The Eaton Vance
organization may be considered to have realized a profit under the Plan if at
any point in time the aggregate amounts theretofore received by the Principal
Underwriter pursuant to the Plan and from CDSCs have exceeded the total
expenses theretofore incurred by such organization in distributing shares of
the Fund. Total expenses for this purpose will include an allocable portion of
the overhead costs of such organization and its branch offices, which costs
will include without limitation leasing expense, depreciation of building and
equipment, utilities, communication and postage expense, compensation and
benefits of personnel, travel and promotional expense, stationery and
supplies, literature and sales aids, interest expense, data processing fees,
consulting and temporary help costs, insurance, taxes other than income taxes,
legal and auditing expense and other miscellaneous overhead items. Overhead is
calculated and allocated for such purpose by the Eaton Vance organization in a
manner deemed equitable to the Fund.
The Plan continues in effect from year to year for so long as such
continuance is approved at least annually by the vote of both a majority of
(i) the noninterested Trustees of the Trust who have no direct or indirect
financial interest in the operation of the Plan or any agreements related to
the Plan (the "Rule 12b-1 Trustees") and (ii) all of the Trustees then in
office, and the Distribution Agreement contains a similar provision. The Plan
and Distribution Agreement may be terminated at any time by vote of a majority
of the Rule 12b-1 Trustees or by a vote of a majority of the outstanding
voting securities of the Fund. The Plan requires quarterly Trustee review of a
written report of the amount expended under the Plan and the purposes for
which such expenditures were made. The Plan may not be amended to increase
materially the payments described therein without approval of the shareholders
of the Fund and Trustees. So long as the Plan is in effect, the selection and
nomination of the noninterested Trustees shall be committed to the discretion
of such Trustees.
The Trustees of the Trust believe that the Plan will be a significant
factor in the growth of the Fund's assets, resulting in increased investment
flexibility and advantages which have benefitted and will continue to benefit
the Fund and its shareholders. Payments for sales commissions and distribution
fees made to the Principal Underwriter under the Plan will compensate the
Principal Underwriter for its services and expenses in distributing shares of
the Fund. Service fee payments made to the Principal Underwriter and
Authorized Firms under the Plan provide incentives to provide continuing
personal services to investors and the maintenance of shareholder accounts.
By providing incentives to the Principal Underwriter and Authorized Firms,
the Plan is expected to result in the maintenance of, and possible future
growth in, the assets of the Fund. Based on the foregoing and other relevant
factors, the Trustees have determined that in their judgment there is a
reasonable likelihood that the Plan will benefit the Fund and its
shareholders.
PERFORMANCE INFORMATION
The table below indicates the cumulative and average annual total return
on a hypothetical investment of $1,000 in the Fund covering the life of the
Fund from March 2, 1994 through January 31, 1997 and for the one-year period
ended January 31, 1997.
<TABLE>
VALUE OF A $1,000 INVESTMENT
<CAPTION>
VALUE OF VALUE OF
INVESTMENT INVESTMENT
BEFORE AFTER TOTAL RETURN BEFORE TOTAL RETURN AFTER
DEDUCTING THE DEDUCTING THE DEDUCTING THE CDSC DEDUCTING THE CDSC**
INVESTMENT INVESTMENT AMOUNT OF CDSC ON CDSC** ON ------------------------- ------------------------
PERIOD DATE INVESTMENT 1/31/97 1/31/97 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
---------- --------- ---------- ------------- ------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of the
Fund*** 3/2/94* $1,000 $1,127.73 $1,088.81 12.77% 4.20% 8.88% 2.96%
1 Year
Ended
1/31/97*** 1/31/96 $1,000 $1,023.99 $ 975.24 2.40% 2.40% -2.48% -2.48%
</TABLE>
Past performance is not indicative of future results. Investment return
and principal value will fluctuate and shares, when redeemed, may be worth
more or less than their original cost.
- ------------
*Investment operations began on March 2, 1994.
**No CDSC is imposed on certain redemptions. See the Fund's current Prospectus.
***If a portion of the Portfolio's and the Fund's expenses had not been
subsidized, the Fund would have had lower returns.
For the thirty-day period ended January 31, 1997, the yield of the Fund
was 4.47%. The yield required of a taxable security that would produce an
after-tax yield equivalent to that earned by the Fund of 4.47% would be 6.90%,
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.
See the Tax Equivalent Yield Table in this Part II for information
concerning applicable tax rates and income brackets.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As at April 30, 1997, 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, 1997, Merrill Lynch, Pierce, Fenner & Smith, Inc., Jacksonville,
FL was the record owner of approximately 5.3% of the outstanding shares, which
were held on behalf of its customers who are the beneficial owners of such
shares, and as to which it had voting power under certain limited
circumstances. To the knowledge of the Trust, no other person owned of record
or beneficially 5% or more of the Fund's outstanding shares on such date.
OTHER INFORMATION
The Fund changed its name from EV Marathon Hawaii Tax Free Fund to EV
Marathon Hawaii Municipals Fund on December 15, 1995.
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
1997.
<TABLE>
<CAPTION>
A FEDERAL AND HAWAII STATE
COMBINED TAX EXEMPT YIELD OF:
SINGLE RETURN JOINT RETURN FEDERAL AND 4% 4.5% 5% 5.5% 6% 6.5% 7%
- --------------------- ------------------- HI STATE ------------------------------------------------------------------------
(TAXABLE INCOME*) TAX BRACKET+ IS EQUIVALENT TO A FULLY TAXABLE YIELD OF:
- ------------------------------------------ ------------ ------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $ 24,650 Up to $ 41,200 23.50% 5.23% 5.88% 6.54% 7.19% 7.84% 8.50% 9.15%
$ 24,651-$ 59,750 $ 41,201-$ 99,600 35.20 6.17 6.94 7.72 8.49 9.26 10.03 10.80
$ 59,751-$124,650 $ 99,601-$151,750 37.90 6.44 7.25 8.05 8.86 9.66 10.47 11.27
$124,651-$271,050 $151,751-$271,050 42.40 6.94 7.81 8.68 9.55 10.42 11.28 12.15
Over $271,050 Over $271,050 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 $121,200. The tax brackets
also do not show the effects of phaseout of personal exemptions for single
filers with adjusted gross income in excess of $121,200 and joint filers
adjusted gross income in excess of $181,800. 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 SAI. Subsequent tax
law changes could result in prospective or retroactive changes in the tax
brackets, tax rates, and tax equivalent yields set forth above. Investors
should consult their tax adviser for additional information.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV MARATHON 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 4.9 percent of
the work force in 1996.
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
1996, 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 $380.1 million in 1996, 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 1996 General Fund showed total revenues of $3.4 billion against
total expenditures of $3.4 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, 1997, the Portfolio had net assets of $11,735,720. For the
fiscal years ended January 31, 1997 and 1996 and 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 $18,746, $15,929
and $7,589, respectively (equivalent to 0.16% of the Portfolio's average daily
net assets for each such period). To enhance the net income of the Portfolio for
each period, BMR made a reduction of the full amount of its fee and BMR was
allocated a portion of expenses related to the operation of the Portfolio in the
amount of $28,114, $25,353 and $12,847, respectively. The Portfolio's Investment
Advisory Agreement with BMR is dated February 25, 1994 and continues as
described under "Investment Adviser and Administrator" in Part I.
ADMINISTRATOR
As stated under "Investment Adviser and Administrator" in Part I, the
Administrator currently receives no compensation for providing administrative
services to the Fund. For the fiscal years ended January 31, 1997 and 1996 and
for the period from the start of business, March 2, 1994, to January 31, 1995,
$3,985, $7,444 and $18,544, respectively, of the Fund's operating expenses were
allocated to the Administrator.
DISTRIBUTION PLAN
During the fiscal year ended January 31, 1997, the Principal Underwriter
paid to Authorized Firms sales commissions of $63,009 on sales of Fund shares.
During the same period, the Fund made payments under the Plan to the Principal
Underwriter aggregating $80,346 and the Principal Underwriter received
approximately $49,000 in CDSCs imposed on early redeeming shareholders. These
payments reduced uncovered distribution charges under the Plan. As at January
31, 1997, the outstanding uncovered distribution charges of the Principal
Underwriter calculated under the Plan amounted to approximately $416,000. During
the fiscal year ended January 31, 1997, the Fund made service fee payments
aggregating $14,626, all of which was paid to Authorized Firms.
PRINCIPAL UNDERWRITER
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 fiscal year ended January 31,
1997, the Fund paid the Principal Underwriter $112.50 for repurchase
transactions handled by the Principal Underwriter.
BROKERAGE
For the fiscal year ended January 31, 1997, the Portfolio paid brokerage
commissions of $419 on portfolio security transactions aggregating $3,453,727 to
firms which provided some research services to BMR or its affiliates (although
many of such firms may have been selected in any particular transaction
primarily because of their execution capabilities). For the fiscal year ended
January 31, 1996 and 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 the noninterested Trustees of the Trust and of the
Portfolio 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 Fund or
the Portfolio.) During the fiscal year ended January 31, 1997, the noninterested
Trustees of the Trust and the Portfolio received the following compensation in
their capacities as Trustees from the Fund and the Portfolio, and for the year
ended December 31, 1996, earned the following compensation in their capacities
as Trustees of the funds in the Eaton Vance fund complex(1):
AGGREGATE AGGREGATE TOTAL COMPENSATION
COMPENSATION COMPENSATION FROM TRUST AND
NAME FROM FUND FROM PORTFOLIO FUND COMPLEX
- ---- ------------ -------------- ------------------
Donald R. Dwight ....... $35 $35(2) $145,000(5)
Samuel L. Hayes, III ... 31 31(3) 157,500(6)
Norton H. Reamer........ 31 31 145,000
John L. Thorndike ...... 32 32(4) 150,000(7)
Jack L. Treynor ........ 34 34 150,000
- ------------
(1) The Eaton Vance fund complex consists of 212 registered investment companies
or series thereof.
(2) Includes $14 of deferred compensation.
(3) Includes $5 of deferred compensation.
(4) Includes $8 of deferred compensation.
(5) Includes $45,000 of deferred compensation.
(6) Includes $20,429 of deferred compensation.
(7) Includes $28,125 of deferred compensation.
PRINCIPAL UNDERWRITER
Under the Distribution Agreement the Principal Underwriter acts as principal
in selling shares of the Fund. The expenses of printing copies of prospectuses
used to offer shares to Authorized Firms or investors and other selling
literature and of advertising is borne by the Principal Underwriter. The fees
and expenses of qualifying and registering and maintaining qualifications and
registrations of the Fund and its shares under federal and state securities laws
are borne by the Fund. In addition, the Fund makes payments to the Principal
Underwriter pursuant to its Distribution Plan as described in the Fund's current
Prospectus; the provisions of the Plan relating to such payments are included in
the Distribution Agreement. The Distribution Agreement is renewable annually by
the Trust's Board of Trustees (including a majority of the noninterested
Trustees who have no direct or indirect financial interest in the operation of
the Fund's Distribution Plan or the Distribution Agreement), may be terminated
on sixty days' notice either by such Trustees or by vote of a majority of the
outstanding voting securities of the Fund or on six months' notice by the
Principal Underwriter and is automatically terminated upon assignment. The
Principal Underwriter distributes Fund shares on a "best efforts" basis under
which it is required to take and pay for only such shares as may be sold.
DISTRIBUTION PLAN
The Plan is designed to meet the requirements of Rule 12b-1 under the 1940
Act and the sales charge rule of the NASD. The purpose of the Plan is to
compensate the Principal Underwriter for its distribution services and
facilities provided to the Fund.
Each Fund's Plan provides that the Fund will pay sales commissions and
distribution fees to the Principal Underwriter only after and as a result of the
sale of shares of the Fund. On each sale of Fund shares (excluding reinvestment
of distributions) a Fund will pay the Principal Underwriter amounts representing
(i) sales commissions equal to 5% of the amount received by a Fund for each
share sold and (ii) distribution fees calculated by applying the rate of 1% over
the prime rate then reported in The Wall Street Journal to the outstanding
balance of uncovered distribution charges (as described below) of the Principal
Underwriter.
The amount payable by the Fund to the Principal Underwriter pursuant to the
Plan as sales commissions and distribution fees with respect to each day will be
accrued on such day as a liability of the Fund and will accordingly reduce the
Fund's net assets upon such accrual, all in accordance with generally accepted
accounting principles. The amount payable on each day by the Fund is limited to
1/365 of .75% of the fund's net assets on such day. The level of the Fund's net
assets changes each day and depends upon the amount of sales and redemptions of
Fund shares, the changes in the value of the investments held by the Portfolio,
the expenses of the Fund and the Portfolio accrued and allocated to the Fund on
such day, income on portfolio investments of the Portfolio accrued and allocated
to the Fund on such day, and any dividends and distributions declared on Fund
shares. The Fund does not accrue possible future payments as a liability of the
Fund or reduce the Fund's current net assets in respect of unknown amounts which
may become payable under the Plan in the future because the standards for
accrual of a liability under such accounting principles have not been satisfied.
The Plan provides that the Fund will receive all CDSCs and will make no
payments to the Principal Underwriter in respect of any day on which there are
no outstanding uncovered distribution charges of the Principal Underwriter.
CDSCs and accrued amounts will be paid by the Fund to the Principal Underwriter
whenever there exist uncovered distribution charges.
In calculating daily the amount of uncovered distribution charges,
distribution charges will include the aggregate amount of sales commissions and
distribution fees theretofore paid plus the aggregate amount of sales
commissions and distribution fees which the Principal Underwriter is entitled to
be paid under the Plan since its inception. Payments theretofore paid or payable
under the Plan by the Fund to the Principal Underwriter and CDSCs theretofore
paid or payable to the Principal Underwriter will be subtracted from such
distribution charges; if the result of such subtraction is positive, a
distribution fee (computed at 1% over the prime rate then reported in The Wall
Street Journal) will be computed on such amount and added thereto, with the
resulting sum constituting the amount of outstanding uncovered distribution
charges with respect to such day. The amount of outstanding uncovered
distribution charges of the Principal Underwriter calculated on any day does not
constitute a liability recorded on the financial statements of the Fund.
The amount of uncovered distribution charges of the Principal Underwriter at
any particular time depends upon various changing factors, including the level
and timing of sales of Fund shares, the nature of such sales (i.e., whether they
result from exchange transactions, reinvestments or from cash sales through
Authorized Firms), the level and timing of redemptions of Fund shares upon which
a CDSC will be imposed, the level and timing of redemptions of Fund shares upon
which no CDSC will be imposed (including redemptions of Fund shares pursuant to
the exchange privilege which result in a reduction of uncovered distribution
charges), changes in the level of the net assets of the Fund, and changes in the
interest rate used in the calculation of the distribution fee under the Plan.
Periods with a high level of sales of Fund shares accompanied by a low level of
early redemptions of Fund shares resulting in the imposition of CDSCs will tend
to increase the time during which there will exist uncovered distribution
charges of the Principal Underwriter.
Currently payments of sales commissions and distribution fees and of service
fees may be equal to .95% of the Fund's average daily net assets per annum. For
the sales commissions and service fee payments made by the Fund and the
outstanding uncovered distribution charges of the Principal Underwriter, see
"Fees and Expenses -- Distribution Plan." The Fund believes that the combined
rate of all these payments may be higher than the rate of payments made under
distribution plans adopted by other investment companies pursuant to Rule 12b-1.
Although the Principal Underwriter will use its own funds (which may be borrowed
from banks) to pay sales commissions at the time of sale, it is anticipated that
the Eaton Vance organization will profit by reason of the operation of the Plan
through an increase in the Fund's assets (thereby increasing the advisory fee
payable to BMR by the Portfolio) resulting from sale of Fund shares and through
the amounts paid to the Principal Underwriter, including CDSCs, pursuant to the
Plan. The Eaton Vance organization may be considered to have realized a profit
under the Plan if at any point in time the aggregate amounts theretofore
received by the Principal Underwriter pursuant to the Plan and from CDSCs have
exceeded the total expenses theretofore incurred by such organization in
distributing shares of the Fund. Total expenses for this purposes will include
an allocable portion of the overhead costs of such organization and its branch
offices, which costs will include without limitation leasing expense,
depreciation of building and equipment, utilities, communication and postage
expense, compensation and benefits of personnel, travel and promotional expense,
stationery and supplies, literature and sales aids, interest expense, data
processing fees, consulting and temporary help costs, insurance, taxes other
than income taxes, legal and auditing expense and other miscellaneous overhead
items. Overhead is calculated and allocated for such purpose by the Eaton Vance
organization in a manner deemed equitable to the Fund.
The Plan continues in effect from year to year for so long as such
continuance is approved at least annually by the vote of both a majority of (i)
the noninterested Trustees of the Trust who have no direct or indirect financial
interest in the operation of the Plan or any agreements related to the Plan (the
"Rule 12b-1 Trustees") and (ii) all of the Trustees then in office, and the
Distribution Agreement contains a similar provision. The Plan and Distribution
Agreement may be terminated at any time by vote of a majority of the Rule 12b-1
Trustees or by a vote of a majority of the outstanding voting securities of the
Fund. The Plan requires quarterly Trustee review of a written report of the
amount expended under the Plan and the purposes for which such expenditures were
made. The Plan may not be amended to increase materially the payments described
therein without approval of the shareholders of the Fund and Trustees. So long
as the Plan is in effect, the selection and nomination of the noninterested
Trustees shall be committed to the discretion of such Trustees.
The Trustees of the Trust believe that the Plan will be a significant factor
in the growth of the Fund's assets, resulting in increased investment
flexibility and advantages which have benefitted and will continue to benefit
the Fund and its shareholders. Payments for sales commissions and distribution
fees made to the Principal Underwriter under the Plan will compensate the
Principal Underwriter for its services and expenses in distributing shares of
the Fund. Service fee payments made to the Principal Underwriter and Authorized
Firms under the Plan provide incentives to provide continuing personal services
to investors and the maintenance of shareholder accounts. By providing
incentives to the Principal Underwriter and Authorized Firms, the Plan is
expected to result in the maintenance of, and possible future growth in, the
assets of the Fund. Based on the foregoing and other relevant factors, the
Trustees have determined that in their judgment there is a reasonable likelihood
that the Plan will benefit the Fund and its shareholders.
ADDITIONAL OFFICER INFORMATION
In addition to the officers of the Portfolio listed under "Officers of the
Trust and the Portfolio" in Part I, Nicole Anderes (35) 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).
PERFORMANCE INFORMATION
The table below indicates the cumulative and average annual total return on
a hypothetical investment of $1,000 in the Fund covering the life of the Fund
from March 2, 1994 through January 31, 1997 and for the one-year period ended
January 31, 1997.
<TABLE>
<CAPTION>
VALUE OF A $1,000 INVESTMENT
VALUE OF VALUE OF
INVESTMENT INVESTMENT
BEFORE AFTER TOTAL RETURN BEFORE TOTAL RETURN AFTER
DEDUCTING THE DEDUCTING THE DEDUCTING THE CDSC DEDUCTING THE CDSC**
INVESTMENT INVESTMENT AMOUNT OF CDSC ON CDSC** ON ---------------------- ---------------------
PERIOD DATE INVESTMENT 1/31/97 1/31/97 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
---------- ---------- ---------- ------------- ------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of the Fund*** 3/2/94* $1,000 $1,162.41 $1,122.41 16.24% 5.29% 12.24% 4.03%
1 Year Ended 1/31/97*** 1/31/96 $1,000 $1,024.62 $ 975.78 2.46% 2.46% -2.42% -2.42%
Past performance is not indicative of future results. Investment return and principal value will fluctuate; shares, when
redeemed, may be worth more or less than their original cost.
- ------------
* Investment operations began on March 2, 1994.
** No CDSC is imposed on certain redemptions. See the Fund's current Prospectus.
*** If a portion of the Portfolio's and the Fund's expenses had not been subsidized, the Fund would have had lower returns.
</TABLE>
For the thirty-day period ended January 31, 1997, the yield of the Fund was
4.56%. The yield required of a taxable security that would produce an after-tax
yield equivalent to that earned by the Fund of 4.56% would be 6.99%, assuming a
combined federal and State tax rate of 34.80%. 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.
See the Tax Equivalent Yield Table 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, 1997 (see Notes to Financial Statements).
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As at April 30, 1997, 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, 1997, Merrill Lynch, Pierce, Fenner & Smith, Inc., Jacksonville, FL
32246 was the record owner of approximately 16.8% of the outstanding shares,
which were held on behalf of its customers who are the beneficial owners of such
shares, and as to which it had voting power under certain limited circumstances.
To the 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 Marathon Kansas Tax Free Fund to EV
Marathon Kansas Municipals Fund on December 15, 1995.
<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 1997.
<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 $ 41,200 22.86% 5.19% 5.83% 6.48% 7.13% 7.78% 8.43% 9.07%
$ 41,201 - $ 99,600 34.80 6.14 6.90 7.67 8.44 9.20 9.97 10.74
$ 99,601 - $151,750 37.52 6.40 7.20 8.00 8.80 9.60 10.40 11.20
$151,751 - $271,050 42.05 6.90 7.77 8.63 9.49 10.35 11.22 12.08
Over $271,050 45.31 7.31 8.23 9.14 10.06 10.97 11.88 12.80
<CAPTION>
A FEDERAL AND KANSAS STATE
COMBINED TAX EXEMPT YIELD OF:
SINGLE RETURN FEDERAL AND 4% 4.5% 5% 5.5% 6% 6.5% 7%
- --------------------------- KS STATE -----------------------------------------------------------------------------
TAXABLE INCOME* TAX BRACKET+ IS EQUIVALENT TO A FULLY TAXABLE YIELD OF:
- ----------------------------- ----------------- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $ 24,650 23.93% 5.26% 5.92% 6.57% 7.23% 7.89% 8.54% 9.20%
$ 24,651 - $ 59,750 35.74 6.22 7.00 7.78 8.56 9.34 10.12 10.89
$ 59,751 - $124,650 38.42 6.50 7.31 8.12 8.93 9.74 10.55 11.37
$124,651 - $271,050 42.88 7.00 7.88 8.75 9.63 10.50 11.38 12.25
Over $271,050 46.09 7.42 8.35 9.28 10.20 11.13 12.06 12.99
*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 loca
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.
</TABLE>
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 $121,200, nor do they reflect phaseout of personal exemptions for
single and joint filers with adjusted gross income in excess of $121,200 and
$181,800, 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 SAI. Subsequent tax
law changes could result in prospective or retroactive changes in the tax
brackets, tax rates, and tax equivalent yields set forth above. Investors should
consult their tax adviser for additional information.
<PAGE>
[Logo]
================
EATON VANCE
Mutual Funds
EV MARATHON MUNICIPAL FUNDS
- ------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
JUNE 1, 1997
EV MARATHON FLORIDA INSURED MUNICIPALS FUND
EV MARATHON HAWAII MUNICIPALS FUND
EV MARATHON KANSAS MUNICIPALS FUND
EV MARATHON
MUNICIPALS FUND
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, P.O. Box 5123,
Westborough, MA 01581-5123 (800) 262-1122
AUDITORS
Deloitte & Touche LLP, 125 Summer Street, Boston, MA 02110
M-TFC6/1SAI
<PAGE>
PART B
INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION
STATEMENT OF
ADDITIONAL INFORMATION
June 1, 1997
EV TRADITIONAL MUNICIPAL FUNDS
EV TRADITIONAL FLORIDA INSURED MUNICIPALS FUND
EV TRADITIONAL HAWAII MUNICIPALS FUND
EV TRADITIONAL KANSAS MUNICIPALS FUND
24 Federal Street
Boston, Massachusetts 02110
(800) 225-6265
This Statement of Additional Information consists of two parts. Part I
provides general information about the Funds listed above (each a "Fund"), its
corresponding Portfolio and certain other series of Eaton Vance Municipals
Trust II (the "Trust"). Each Part II provides information solely about a Fund
and its corresponding Portfolio. Where appropriate, Part I includes cross-
references to the relevant sections of Part II that provide additional Fund-
specific information. This Statement of Additional Information is sometimes
referred to herein as the "SAI".
TABLE OF CONTENTS
Page
PART I
Additional Information about Investment Policies .......................... 1
Investment Restrictions ................................................... 7
Trustees and Officers ..................................................... 9
Investment Adviser and Administrator ...................................... 10
Custodian ................................................................. 13
Service for Withdrawal .................................................... 13
Determination of Net Asset Value .......................................... 14
Investment Performance .................................................... 14
Taxes ..................................................................... 16
Portfolio Security Transactions ........................................... 18
Other Information ......................................................... 20
Independent Certified Public Accountants .................................. 21
Financial Statements ...................................................... 21
Appendix .................................................................. 22
PART II
EV Traditional Florida Insured Municipals Fund ............................ a-1
EV Traditional Hawaii Municipals Fund ..................................... b-1
EV Traditional Kansas Municipals Fund ..................................... c-1
Although each Fund offers only its shares of beneficial interest, it is
possible that a Fund might become liable for a misstatement or omission in
this Statement of Additional Information regarding another Fund because the
Funds use this combined Statement of Additional Information. The Trustees of
the Trust have considered this factor in approving the use of a combined
Statement of Additional Information.
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND IS
AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE INVESTORS ONLY IF PRECEDED OR
ACCOMPANIED BY THE FUNDS' PROSPECTUS DATED JUNE 1, 1997, AS SUPPLEMENTED FROM
TIME TO TIME, WHICH IS INCORPORATED HEREIN BY REFERENCE. THIS STATEMENT OF
ADDITIONAL INFORMATION SHOULD BE READ IN CONJUNCTION WITH SUCH PROSPECTUS, A
COPY OF WHICH MAY BE OBTAINED WITHOUT CHARGE BY CONTACTING EATON VANCE
DISTRIBUTORS, INC. (THE "PRINCIPAL UNDERWRITER") (SEE BACK COVER FOR ADDRESS
AND PHONE NUMBER).
FOR EDGAR FILING PURPOSES ONLY: REGISTRANT INCORPORATES BY REFERENCE FOR
EV TRADITIONAL FLORIDA INSURED MUNICIPALS FUND, EV TRADITIONAL HAWAII
MUNICIPALS FUND AND EV TRADITIONAL KANSAS MUNICIPALS FUND THE PART I FOUND IN
THE STATEMENT OF ADDITIONAL INFORMATION OF EV MARATHON FLORIDA INSURED
MUNICIPALS FUND, EV MARATHON HAWAII MUNICIPALS FUND AND EV MARATHON KANSAS
MUNICIPALS FUND CONTAINED IN THIS AMENDMENT.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV TRADITIONAL FLORIDA INSURED
MUNICIPALS FUND. The investment objective of the Fund is to provide current
income exempt from regular federal income tax in the form of an investment
exempt from Florida intangibles tax. The Fund currently seeks to meet its
investment objective by investing its assets in the Florida Insured Municipals
Portfolio (the "Portfolio").
RISKS OF CONCENTRATION
The following information as to certain Florida considerations is given to
investors in view of the Portfolio's policy of concentrating its investments
in Florida issuers. Such information 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
Florida issuers. Neither the Trust nor the Portfolio has independently
verified this information.
Florida is a state characterized by rapid population growth and
substantial capital needs which are being funded through more frequent debt
issuance and pay-as-you-go financing. Florida's economy is characterized by a
large service sector, a dependence on the tourism and construction industries,
and a large retirement population. The management of rapid growth has been the
major challenge facing state and local governments. While attracting many
senior citizens, Florida also offers a favorable business environment and
growing employment opportunities that have continued to generate working-age
population immigration. As this growth continues, particularly within the
retirement population, the demand for both public and private services will
increase, which may strain the service sector's capacity and impede the
State's budget balancing efforts.
Florida has a proportionally greater number of persons of retirement age;
a factor that makes Florida's property and transfer payment taxes a relatively
more important source of State funding. Because transfer payments are
typically less sensitive to the business cycle than employment income, they
may act as a stabilizing force in weak economic periods.
Florida tourism appears to be suffering the effects of negative publicity
regarding crime against tourists in the State, product maturity, higher prices
and more aggressive marketing by competing vacation destinations. Tourist
arrivals are expected to increase 2.7% and 3.2%, in fiscal years 1996-97 and
1997-98, respectively. The total number of visiting tourists is expected to
reach 42.6 million and 43.9 million during fiscal years 1996-97 and 1997-98,
respectively.
There has been a decline in Florida's dependency on highly cyclical
construction and construction-related manufacturing sectors. For example, the
total contract construction employment as a share of total non-farm employment
reached a peak of over 10% in 1973. In 1980, the share was roughly 7.5%, and
in 1995, the share had edged downward to nearly 5%. This trend is expected to
continue as Florida's economy continues to diversify.
The ability of the State and its local units of government to satisfy its
debt obligations may be affected by numerous factors which impact on the
economic vitality of the State in general and the particular region of the
State in which the issuer of the debt obligations is located. South Florida is
particularly susceptible to international trade and currency imbalances and to
economic dislocations in Central and South America, due to its geographical
location and its involvement with foreign trade, tourism and investment
capital. North and Central Florida are impacted by problems in the
agricultural sector, particularly with regard to the citrus and sugar
industries. Short-term adverse economic conditions may be created in these
areas, and in the State as a whole, due to crop failures, severe weather
conditions or other agriculture-related problems. The State economy also has
historically been dependent on the tourism and construction industries and is,
therefore, sensitive to trends in those sectors.
INSURANCE
The following information relates to the Fund and supplements the
information contained under "Additional Information about Investment Policies
- -- Insurance" in Part I.
In General. Insured obligations held by the Portfolio will be insured as to
their scheduled payment of principal and interest under (i) an insurance
policy obtained by the issuer or underwriter of the obligation at the time of
its original issuance ("Issue Insurance"), (ii) an insurance policy obtained
by the Portfolio or a third party subsequent to the obligation's original
issuance ("Secondary Market Insurance") or (iii) a municipal insurance policy
purchased by the Portfolio ("Mutual Fund Insurance"). The Portfolio
anticipates that all or substantially all of its insured obligations will be
subject to Issue Insurance or Secondary Market Insurance. Although the
insurance feature reduces certain financial risks, the premiums for Mutual
Fund Insurance (which, if purchased by the Portfolio, are paid from the
Portfolio's assets) and the higher market price paid for obligations covered
by Issue Insurance or Secondary Market Insurance reduce the Portfolio's
current yield.
Insurance will cover the timely payment of interest and principal on
obligations and will be obtained from insurers with a claims-paying ability
rated Aaa by Moody's or AAA by S&P or Fitch. Obligations insured by any
insurer with such a claims-paying ability rating will generally carry the same
rating or credit risk as the insurer. See the Appendix in Part I for a brief
description of Moody's, Fitch's and S&P's claims-paying ability ratings. Such
insurers must guarantee the timely payment of all principal and interest on
obligations as they become due. Such insurance may, however, provide that in
the event of non-payment of interest or principal when due with respect to an
insured obligation, the insurer is not obligated to make such payment until a
specified time period has lapsed (which may be 30 days or more after it has
been notified by the Portfolio that such non-payment has occurred). For these
purposes, a payment of principal is due only at final maturity of the
obligation and not at the time any earlier sinking fund payment is due. While
the insurance will guarantee the timely payment of principal and interest, it
does not guarantee the market value of the obligations or the net asset value
of the Portfolio or the Fund.
Obligations are generally eligible to be insured under Mutual Fund
Insurance if, at the time of purchase by the Portfolio, they are identified
separately or by category in qualitative guidelines furnished by the mutual
fund insurer and are in compliance with the aggregate limitations on amounts
set forth in such guidelines. Premium variations are based, in part, on the
rating of the obligations being insured at the time the Portfolio purchases
the obligations. The insurer may prospectively withdraw particular obligations
from the classifications of securities eligible for insurance or change the
aggregate amount limitation of each issue or category of eligible obligations.
The insurer must, however, continue to insure the full amount of the
obligations previously acquired which the insurer has indicated are eligible
for insurance, so long as they continue to be held by the Portfolio. The
qualitative guidelines and aggregate amount limitations established by the
insurer from time to time will not necessarily be the same as those the
Portfolio would use to govern selection of obligations for the Portfolio.
Therefore, from time to time such guidelines and limitations may affect
investment decisions in the event the Portfolio's securities are insured by
Mutual Fund Insurance.
For Mutual Fund Insurance that terminates upon the sale of the insured
security, the insurance does not have any effect on the resale value of such
security. Therefore, the Portfolio will generally retain any insured
obligations which are in default or, in the judgment of the Investment
Adviser, are in significant risk of default and place a value on the
insurance. This value will be equal to the difference between the market value
of the defaulted insured obligations and the market value of similar
obligations which are not in default. As a result, the Investment Adviser may
be unable to manage the securities held by the Portfolio to the extent the
Portfolio holds defaulted insured obligations, which will limit its ability in
certain circumstances to purchase other obligations. While a defaulted insured
obligation is held by the Portfolio, the Portfolio will continue to pay the
insurance premium thereon but will also collect interest payments from the
insurer and retain the right to collect the full amount of principal from the
insurer when the insured obligation becomes due. The Portfolio expects that
the market value of a defaulted insured obligation covered by Issue Insurance
or Secondary Market Insurance will generally be greater than the market value
of an otherwise comparable defaulted obligation covered by Mutual Fund
Insurance.
The Portfolio may also invest in 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 obligations for purposes of
the Portfolio's policy of investing at least 80% of its net assets in insured
obligations (but such obligations shall not constitute more than 15% of the
insured portion of the Portfolio).
Principal Insurers. Currently, Municipal Bond Investors Assurance Corporation
("MBIA"), Financial Guaranty Insurance Company ( "FGIC" ), AMBAC Indemnity
Corporation ("AMBAC"), and Financial Security Assurance Corp., together with
its affiliated insurance companies--Financial Security Assurance International
Inc. and Financial Security Assurance of Oklahoma, Inc. (collectively, "FSA"
), are considered to have a high claims-paying ability and, therefore, are
eligible insurers for the Portfolio's obligations. Additional insurers may be
added without further notification. The following information concerning these
eligible insurers is based upon information provided by such insurers or
information filed with certain state insurance regulators. Neither the
Portfolio nor the Trust has independently verified such information and make
no representations as to the accuracy and adequacy of such information or as
to the absence of material adverse changes subsequent to the date thereof.
MBIA is a monoline financial guaranty insurance company created from an
unincorporated association (the Municipal Bond Insurance Association), through
which its members wrote municipal bond insurance on a several and joint-basis
through 1986. On January 5, 1990, MBIA acquired all of the outstanding stock
of Bond Investors Group, Inc., the parent of Bond Investors Guaranty Insurance
Company ("BIG"), which has subsequently changed its name to MBIA Insurance
Corp. of Illinois. Through a reinsurance agreement, BIG ceded all of its net
insured risks, as well as its related unearned premium and contingency
reserves, to MBIA. MBIA issues municipal bond insurance policies guarantying
the timely payment of principal and interest on new municipal bond issues and
leasing obligations of municipal entities, secondary market insurance of such
instruments and insurance on such instruments held in unit investment trusts
and mutual funds. As of December 31, 1996, MBIA had total assets of
approximately $8.6 billion and qualified statutory capital of approximately
$2.4 billion. MBIA has a claims-paying ability rating of "AAA" by S&P and
"Aaa" by Moody's.
Financial Guaranty Insurance Corporation, a wholly owned subsidiary of
FGIC Corporation, which is a wholly owned subsidiary of General Electric
Capital Corporation, is an insurer of municipal securities, including new
issues, securities held in unit investment trusts and mutual funds, and those
traded on secondary market. The investors in FGIC Corporation are not
obligated to pay the debts of or claims against FGIC. As of December 31, 1996,
FGIC had total assets of approximately $2.7 billion and qualified statutory
capital of approximately $1.6 billion. FGIC has a claims-paying ability rating
of "AAA" by S&P and Fitch, and "Aaa" by Moody's.
AMBAC, a wholly owned subsidiary of AMBAC Inc., is a monoline insurance
company whose policies guaranty the payment of principal and interest on
municipal obligations issues. As of December 31, 1996, AMBAC had assets of
approximately $5.9 billion and qualified statutory capital of approximately
$1.5 billion. AMBAC has a claims-paying ability rating of "AAA" by S&P and
"Aaa" by Moody's.
FSA purchased Capital Guaranty Insurance Company including its book of
business and reserves effective December 20, 1995. FSA is a monoline insurer
whose policies guaranty the timely payment of principal and interest on new
issue and secondary market issue municipal securities transactions, among
other financial obligations. As of December 31, 1996, FSA had total admitted
assets of approximately $1.5 billion and qualified statutory capital of
approximately $676 million. FSA has a claims-paying ability rating of "AAA" by
S&P and "Aaa" by Moody's.
FEES AND EXPENSES
INVESTMENT ADVISER
As of January 31, 1997, the Portfolio had net assets of $24,203,859. For
the fiscal years ended January 31, 1997 and 1996 and for the period from the
start of business, March 2, 1994, to January 31, 1995, absent a fee reduction,
the Portfolio would have paid BMR advisory fees of $41,276, $27,933 and
$8,420, respectively (equivalent to 0.18%, 0.16% and 0.16% (annualized) of the
Portfolio's average daily net assets for each such period). To enhance the net
income of the Portfolio for each period, BMR made a reduction of the full
amount of its fee and BMR was allocated a portion of expenses related to the
operation of the Portfolio in the amount of $28,072, $28,813 and $13,139,
respectively. The Portfolio's Investment Advisory Agreement with BMR is dated
February 25, 1994 and continues as described under "Investment Adviser and
Administrator" in Part I.
ADMINISTRATOR
As stated under "Investment Adviser and Administrator" in Part 1, the
Administrator currently receives no compensation for providing administrative
services to the Fund. For the fiscal years ended January 31, 1997 and 1996 and
for the period from the start of business, March 3, 1994, to the fiscal year
ended January 31, 1995, $16,351, $17,419 and $16,043, respectively, of the
Fund's operating expenses were allocated to the Administrator.
SERVICE PLAN
During the fiscal year ended January 31, 1997, the Fund made service fee
payments under the Plan aggregating $1,855, of which $1,829 was paid to
Authorized Firms and the balance of which was retained by the Principal
Underwriter.
PRINCIPAL UNDERWRITER
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 fiscal year ended
January 31, 1997, the Fund paid the Principal Underwriter $32.50 for
repurchase transactions handled by the Principal Underwriter.
The total sales charges for sales of shares of the Fund for the fiscal
years ended January 31, 1997 and 1996 was $25,876 and $29,093, respectively,
all of which was paid to Authorized Firms. The total sales charges paid in
connection with sales of shares of the Fund during the period from the start
of business, March 3, 1994, to January 31, 1995, were $47,290, of which $1,592
was received by the Principal Underwriter and $45,698 was received by
Authorized Firms.
BROKERAGE
For the fiscal year ended January 31, 1997, the Portfolio paid brokerage
commissions of $6,206 on portfolio security transactions aggregating
$70,196,676 to firms which provided some research services to BMR or its
affiliates (although many of such firms may have been selected in any
particular transaction primarily because of their execution capabilities). For
the fiscal year ended January 31, 1996 and 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 the noninterested Trustees of the Trust and of
the Portfolio are paid by the Fund (and the other series of the Trust) and the
Portfolio, respectively. (The Trustees of the Trust and the Portfolio who are
members of the Eaton Vance organization receive no compensation from the Fund
or the Portfolio.) During the fiscal year ended January 31, 1997, the
noninterested Trustees of the Trust and the Portfolio received the following
compensation in their capacities as Trustees from the Fund and the Portfolio,
and for the year ended December 31, 1996, earned the following compensation in
their capacities as Trustees of the funds in the Eaton Vance fund complex(1):
<TABLE>
<CAPTION>
AGGREGATE AGGREGATE TOTAL COMPENSATION
COMPENSATION COMPENSATION FROM TRUST AND
NAME FROM FUND FROM PORTFOLIO FUND COMPLEX
- ---- ------------ -------------- ------------------
<S> <C> <C> <C>
Donald R. Dwight .......................................... $--0-- $35(2) $145,000(5)
Samuel L. Hayes, III ...................................... --0-- 31(3) 157,500(6)
Norton H. Reamer .......................................... --0-- 31 145,000
John L. Thorndike ......................................... --0-- 32(4) 150,000(7)
Jack L. Treynor ........................................... --0-- 34 150,000
</TABLE>
- ----------
(1) The Eaton Vance fund complex consists of 212 registered investment
companies or series thereof.
(2) Includes $14 of deferred compensation.
(3) Includes $5 of deferred compensation.
(4) Includes $8 of deferred compensation.
(5) Includes $45,000 of deferred compensation.
(6) Includes $20,429 of deferred compensation.
(7) Includes $28,125 of deferred compensation.
SERVICES FOR ACCUMULATION
The following services are voluntary, involve no extra charge, other than
the sales charge included in the offering price, and may be changed or
discontinued without penalty at any time.
INTENDED QUANTITY INVESTMENT -- STATEMENT OF INTENTION. If it is
anticipated that $50,000 or more of Fund shares and shares of the other
continuously offered open-end funds listed under "The Eaton Vance Exchange
Privilege" in the current Prospectus of the Fund will be purchased within a
13-month period, a Statement of Intention should be signed so that shares may
be obtained at the same reduced sales charge as though the total quantity were
invested in one lump sum. Shares held under Right of Accumulation (see below)
as of the date of the Statement will be included toward the completion of the
Statement. The Statement authorizes the Transfer Agent to hold in escrow
sufficient shares (5% of the dollar amount specified in the Statement) which
can be redeemed to make up any difference in sales charge on the amount
intended to be invested and the amount actually invested. Execution of a
Statement does not obligate the shareholder to purchase or the Fund to sell
the full amount indicated in the Statement, and should the amount actually
purchased during the 13-month period be more or less than that indicated on
the Statement, price adjustments will be made. Any investor considering
signing a Statement of Intention should read it carefully.
RIGHT OF ACCUMULATION -- CUMULATIVE QUANTITY DISCOUNT. The applicable
sales charge level for the purchase of Fund shares is calculated by taking the
dollar amount of the current purchase and adding it to the value (calculated
at the maximum current offering price) of the shares the shareholder owns in
his account(s) in the Fund and in the other continuously offered open-end
funds listed under "The Eaton Vance Exchange Privilege" in the current
prospectus of the fund for which Eaton Vance acts as investment adviser or
administrator at the time of purchase. The sales charge on the shares being
purchased will then be at the rate applicable to the aggregate amount. Shares
purchased (i) by an individual, his or her spouse and their children under the
age of twenty-one, and (ii) by a trustee, guardian or other fiduciary of a
single trust estate or a single fiduciary account, will be combined for the
purpose of determining whether a purchase will qualify for the Right of
Accumulation and if qualifying, the applicable sales charge level.
For any such discount to be made available, at the time of purchase a
purchaser or his or her Authorized Firm must provide the Principal Underwriter
(in the case of a purchase made through an Authorized Firm) or the Transfer
Agent (in the case of an investment made by mail) with sufficient information
to permit verification that the purchase order qualifies for the accumulation
privilege. Confirmation of the order is subject to such verification. The
Right of Accumulation privilege may be amended or terminated at any time as to
purchases occurring thereafter.
PRINCIPAL UNDERWRITER
Shares of the Fund may be continuously purchased at the public offering
price through Authorized Firms which have agreements with the Principal
Underwriter. 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 certain other funds offered by the Principal
Underwriter, made at a single time by (i) an individual, or an individual, his
spouse and their children under the age of twenty-one, purchasing shares for
his or their own account, and (ii) a trustee or other fiduciary purchasing
shares for a single trust estate or a single fiduciary account.
The table is also presently applicable to (1) purchases of 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 the noninterested Trustees), 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 may allow, upon notice to all
Authorized Firms with whom it has agreements, discounts up to the full sales
charge during the periods specified in the notice. During periods when the
discount includes the full sales charge, such Firms may be deemed to be
underwriters as that term is defined in the Securities Act of 1933. For the
amount of sales charges for sales of Fund shares paid to the Principal
Underwriter and Authorized Firms, see "Fees and Expenses" in this Part II.
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 sales charge rule of the
NASD. (Management believes service fee payments are not distribution expenses
governed by Rule 12b-1 under the 1940 Act, but has chosen to have the Plan
approved as if that Rule were applicable.) The following supplements the
discussion of the Plan contained in the Fund's Prospectus.
The Plan continues in effect from year to year for so long as such
continuance is approved by a vote of both a majority of (i) the noninterested
Trustees who have no direct or indirect financial interest in the operation of
the Plan or any agreements related to it (the "Plan 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 Plan Trustees or by a vote of a majority of the outstanding voting
securities of the Fund.
Under the Plan, the President or a Vice President of the Trust shall
provide to the Trustees for their review, and the Trustees shall review at
least quarterly, a written report of the amount expended under the Plan and
the purposes for which such expenditures were made. 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 cumulative and average annual total return
on a hypothetical investment of $1,000 in the Fund from March 2, 1994 through
January 31, 1997 and for the one-year period ended January 31, 1997. The total
return for the period prior to the Fund's commencement of operations on March
3, 1994 reflects the Portfolio's total return (or that of its predecessor)
adjusted to reflect any applicable Fund sales charge. Total return for this
time period has not been adjusted to reflect the Fund's distribution and/or
service fees and certain other expenses. If such adjustments were made, the
performance would have been lower.
VALUE OF A $1,000 INVESTMENT
<TABLE>
<CAPTION>
TOTAL RETURN EXCLUDING TOTAL RETURN INCLUDING
VALUE OF VALUE OF MAXIMUM SALES CHARGE MAXIMUM SALES CHARGE
INVESTMENT INVESTMENT INITIAL INVESTMENT -------------------------- -------------------------
PERIOD DATE INVESTMENT* ON 1/31/97 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
---------- ---------- ----------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Life of the
Fund** 3/2/94 $962.46 $1,216.20 26.37% 8.34% 21.62% 6.93%
1 Year Ended
1/31/97** 1/31/96 $962.26 $ 981.19 1.97% 1.97% -1.88% -1.88%
</TABLE>
Past performance is not indicative of future results. Investment return
and principal value will fluctuate; shares, when redeemed, may be worth more
or less than their original cost.
- ----------
* Initial investment less the maximum sales charge of 3.75%.
** If a portion of the Portfolio's and/or the Fund's expenses had not been
subsidized, the Fund would have had lower returns.
For the thirty-day period ended January 31, 1997, the yield of the Fund
was 5.02%. The yield required of a taxable security that would produce an
after-tax yield equivalent to that earned by the Fund of 5.02% would be 7.28%,
assuming a federal tax rate of 31%. If a portion of the Portfolio's and the
Fund's expenses had not been allocated to the Investment Adviser and the
Administrator, respectively, the Fund would have had a lower yield.
See the Tax Equivalent Yield Table in this Part II for information
concerning applicable tax rates and income brackets.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As at April 30, 1997, 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, 1997, Merrill Lynch, Pierce Fenner & Smith, Inc., Jacksonville,
FL was the record owner of approximately 20.5% of the outstanding shares,
which were held on behalf of its customers who are the beneficial owners of
such shares, and as to which it had voting power under certain limited
circumstances. In addition, as of such date, the following shareholders owned
beneficially and of record the percentages of outstanding shares of the Fund
indicated after their names: James L. Elliott TTEE, James L. Elliott Living
Trust dtd 11/23/79, Charlevoix, MI (21.2%) and N. Aaron Naboichek & Lois S.
Naboicheck JT, Naples, FL (6.3%). 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 Traditional Florida Insured Tax Free
Fund to EV Traditional Florida Insured Municipals Fund on February 1, 1996.
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 the Florida intangibles tax laws and tax rates applicable for 1997.
<TABLE>
<CAPTION>
OR THE TAXABLE INCOME YOU ARE IN
IF THE TAXABLE INCOME ON ON THIS FEDERAL IN YOUR BRACKET, A TAX-FREE YIELD OF
YOUR SINGLE RETURN IS* YOUR JOINT RETURN IS* BRACKET 4% 4.5% 5% 5.5% 6% 6.5% 7%
- ------------------------ ---------------------- ------------ -----------------------------------------------------------------
EQUALS THAT OF A TAXABLE INVESTMENT YIELDING
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $24,650 Up to $41,200 15.00% 4.71% 5.29% 5.88% 6.47% 7.06% 7.65% 8.24%
$ 24,651-$ 59,750 $ 41,201-$ 99,600 28.00 5.56 6.25 6.94 7.64 8.33 9.03 9.72
$ 59,751-$124,650 $ 99,601-$151,750 31.00 5.80 6.52 7.25 7.97 8.70 9.42 10.14
$124,651-$271,050 $151,751-$271,050 36.00 6.25 7.03 7.81 8.59 9.38 10.16 10.94
Over $271,050 Over $271,050 39.60 6.62 7.45 8.28 9.11 9.93 10.76 11.59
OR THE TAXABLE INCOME
IF THE TAXABLE INCOME ON ON
YOUR SINGLE RETURN IS* YOUR JOINT RETURN IS* 4% 4.5% 5% 5.5% 6% 6.5% 7%
- --------------------------- ---------------------- ------------------------------------------------------------------
TAX EQUIVALENT YIELD REFLECTING EXEMPTION FROM INTANGIBLES TAX:**
Up to $24,650 Up to $41,200 4.95% 5.54% 6.13% 6.71% 7.30% 7.89% 8.48%
$ 24,651-$ 59,750 $ 41,201-$ 99,600 5.85 6.54 7.23 7.93 8.62 9.31 10.01
$ 59,751-$124,650 $ 99,601-$151,750 6.10 6.83 7.55 8.27 9.00 9.72 10.44
$124,651-$271,050 $151,751-$271,050 6.58 7.36 8.14 8.92 9.70 10.48 11.26
Over $271,050 Over $271,050 6.97 7.80 8.62 9.45 10.28 11.10 11.93
</TABLE>
*Net amount subject to federal personal income tax after deductions and
exemptions.
**A Florida intangibles tax on personal property of $2.00 per $1,000 is
generally imposed after exemptions on the value of stocks, bonds, other
evidences of indebtedness and mutual fund shares. An example of the effect
of the Florida intangibles tax on the tax brackets of Florida taxpayers is
as follows. A $10,000 investment subject to the tax would require payment of
$20 annually in intangibles taxes. If the investment yielded 5.5% annually
or $550, the intangibles tax as a percentage of income would be $20/$550 or
3.64%. If a taxpayer were in the 36% federal income tax bracket, assuming
the intangibles taxes were deducted as an itemized deduction on the federal
return, the taxpayer would be on a combined federal and Florida State tax
bracket of 38.33% [36% + (1 - .36) X 3.64%] with respect to such investment.
A Florida taxpayer whose intangible personal property is exempt or partially
exempt from tax due to the availability of exemptions will have a lower
taxable equivalent yield than indicated above.
Note: The federal income tax brackets do not take into account the effect of a
reduction in the deductibility of itemized deductions for taxpayers with
adjusted gross income in excess of $121,200. The tax brackets also do not show
the effects of phaseout of personal exemptions for single and joint filers
with adjusted gross incomes in excess of $121,200 and $181,800. The effective
tax brackets and equivalent taxable yields of such taxpayers will be higher
than those indicated above.
Yields shown are for illustration purposes only and are not meant to represent
the Fund's actual yield. No assurance can be given that the Fund will achieve
any specific tax exempt yield. While it is expected that the Portfolio will
invest principally in obligations, the interest from which is exempt from the
regular federal income tax, other income received by the Portfolio and
allocated to the Fund may be taxable. The table does not take into account the
Florida intangibles tax, state or local taxes, if any, payable on Fund
distributions to individuals who are not Florida residents, or intangibles
taxes, if any, imposed under the laws of other states. It should also be noted
that the interest earned on certain "private activity bonds" issued after
August 7, 1986, while exempt from the regular federal income tax, is treated
as a tax preference item which could subject the recipient to the federal
alternative minimum tax. The illustrations assume that the federal alternative
minimum tax is not applicable and do not take into account any tax credits
that may be available.
The information set forth above is as of the date of this SAI. Subsequent tax
law changes could result in prospective or retroactive changes in the tax
brackets, tax rates, and tax equivalent yields set forth above. Investors
should consult their tax adviser for additional information.
<PAGE>
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 the recession years 1991-1992 and the three years following of
economic stagnation, Hawaii's economy began to accelerate moderately in 1995
and continued its modest recovery in 1996. This modest acceleration is
expected to continue during 1997, reflecting recovery in the mainland United
States, particularly California. Although tourism has shown greater than
expected growth in visitor arrivals and in total visitor days, daily spending
and average length of stay are down in certain segments of the market. The job
count increased moderately in 1996, but the construction industry continued to
lag. Momentum in the Japanese and overall eastbound market segment sustained
tourism's recovery through 1996, which is expected to continue through 1997.
Eastbound visitor counts rose 6.6% in 1996, although a decline in the average
length of stay trimmed the increase in eastbound visitor days. Total visitor
arrivals in Hawaii numbered 6.823 million, up 3.6% from 6.589 million in 1995,
but still short of the peak of 6.971 million in 1990.
Somewhat remarkably, given the economic recession and stagnation in the
first half of the decade, Hawaii real personal income, adjusted for inflation,
has evidenced sustained growth during the period. From mid-1991 through
mid-1995, Hawaii real personal income grew at a 1.4% compound annual rate.
Real personal income continued to grow at a relatively slow pace of 2.0%
during 1996.
Because Hawaii's emerging economic recovery is slow at best and somewhat
ambiguous, employment indicators have yet to register much improvement during
1996. Statewide unemployment in 1996 was 5.5% (preliminary) and is expected to
remain above 5% in 1997.
Beginning in 1992, Hawaii's construction industry settled into a cyclical
trough in 1995 from which it is expected to rebound in 1997-1998 only if
private construction grows enough to offset stabilization or reduction in
public construction, reflecting government fiscal austerity. The State
government however, announced plans to spend $1 billion on public construction
projects beginning in 1997 in an effort to assist the construction industry,
in particular and the State economy, in general. Contracting receipts
increased slightly by 1.4% in 1996 to just under $3.2 billion as compared with
$3.15 billion in 1995, the largest total of the decade. Assuming a gradual
rise in private construction commitments, together with an increase in State
government construction which would offset cutbacks in government
construction, total construction spending is expected to exceed $3 billion in
1997. The value of private building permits in 1996 total $1.3 billion, the
largest figure of the decade.
Hawaiian agriculture, long dominated by sugar and pineapple production,
continues its transition from plantation dominated production to diversified
agriculture. On Oahu, expanding diversified agriculture acreage is absorbing
some of the freed up sugar land as sugar continues to contract. Diversified
agriculture receipts are expected to make up only a part of this reduction.
Sugar cane sales decreased 3.5% in 1995 over the previous year. Pineapple
sales however increased 10% in both 1995 and 1996.
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, 1997, the Portfolio had net assets of $16,013,925. For the
fiscal years ended January 31, 1997 and 1996 and 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 $24,762, $23,715
and $13,430, respectively (equivalent to 0.16% of the Portfolio's average daily
net assets for each such period). To enhance the net income of the Portfolio for
each period, BMR made a reduction of the full amount of its fee and BMR was
allocated a portion of expenses related to the operation of the Portfolio in the
amount of $35,083, $29,013 and $13,430, respectively. The Portfolio's Investment
Advisory Agreement with BMR is dated February 25, 1994 and continues as
described under "Investment Adviser and Administrator" in Part I.
ADMINISTRATOR
As stated under "Investment Adviser and Administrator" in Part I, the
Administrator currently receives no compensation for providing administrative
services to the Fund. For the fiscal years ended January 31, 1997 and 1996, and
for the period from the start of business, March 14, 1994, to January 31, 1995,
$22,076, $23,486 and $12,533, respectively, of the Fund's operating expenses
were allocated to the Administrator.
SERVICE PLAN
During the fiscal year ended January 31, 1997, the Fund made service fee
payments under the Plan aggregating $544, all of which was paid to Authorized
Firms.
PRINCIPAL UNDERWRITER
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 fiscal year ended January 31,
1997, the Fund paid the Principal Underwriter $7.50 for repurchase transactions
handled by the Principal Underwriter.
The total sales charges paid in connection with sales of shares of the Fund
during the fiscal year ended January 31, 1997, was $1,000, all of which was paid
to Authorized Firms.
BROKERAGE
For the fiscal year ended January 31, 1997, the Portfolio paid brokerage
commissions of $1,816 on portfolio security transactions aggregating $14,921,595
to firms which provided some research services to BMR or its affiliates
(although many of such firms may have been selected in any particular
transaction primarily because of their execution capabilities). For the fiscal
year ended January 31, 1996 and 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 the noninterested Trustees of the Trust and of the
Portfolio are paid by the Fund (and the other series of the Trust) and the
Portfolio, respectively. (The Trustees of the Trust and the Portfolio who are
members of the Eaton Vance organization receive no compensation from the Fund or
the Portfolio.) During the fiscal year ended January 31, 1997, the noninterested
Trustees of the Trust and the Portfolio received the following compensation in
their capacities as Trustees from the Fund and the Portfolio, and during the
year ended December 31, 1996, earned the following compensation in their
capacities as Trustees of the other funds in the Eaton Vance fund complex:(1)
AGGREGATE AGGREGATE TOTAL COMPENSATION
COMPENSATION COMPENSATION FROM TRUST
NAME FROM FUND FROM PORTFOLIO AND FUND COMPLEX
Donald R. Dwight ...... --0-- $35(2) $145,000(5)
Samuel L. Hayes, III .. --0-- 31(3) 157,500(6)
Norton H. Reamer ...... --0-- 31 145,000
John L. Thorndike ..... --0-- 32(4) 150,000(7)
Jack L. Treynor ....... --0-- 34 150,000
- ------------
(1) The Eaton Vance fund complex consists of 212 registered investment companies
or series thereof.
(2) Includes $14 of deferred compensation.
(3) Includes $5 of deferred compensation.
(4) Includes $8 of deferred compensation.
(5) Includes $45,000 of deferred compensation.
(6) Includes $20,429 of deferred compensation.
(7) Includes $28,125 of deferred compensation.
SERVICES FOR ACCUMULATION
The following services are voluntary, involve no extra charge, other than
the sales charge included in the offering price, and may be changed or
discontinued without penalty at any time.
INTENDED QUANTITY INVESTMENT -- STATEMENT OF INTENTION. If it is anticipated
that $50,000 or more of Fund shares and shares of the other continuously offered
open-end funds listed under "The Eaton Vance Exchange Privilege" in the current
Prospectus of the Fund will be purchased within a 13-month period, a Statement
of Intention should be signed so that shares may be obtained at the same reduced
sales charge as though the total quantity were invested in one lump sum. Shares
held under Right of Accumulation (see below) as of the date of the Statement
will be included toward the completion of the Statement. The Statement
authorizes the Transfer Agent to hold in escrow sufficient shares (5% of the
dollar amount specified in the Statement) which can be redeemed to make up any
difference in sales charge on the amount intended to be invested and the amount
actually invested. Execution of a Statement does not obligate the shareholder to
purchase or the Fund to sell the full amount indicated in the Statement, and
should the amount actually purchased during the 13-month period be more or less
than that indicated on the Statement, price adjustments will be made. Any
investor considering signing a Statement of Intention should read it carefully.
RIGHT OF ACCUMULATION -- CUMULATIVE QUANTITY DISCOUNT. The applicable sales
charge level for the purchase of Fund shares is calculated by taking the dollar
amount of the current purchase and adding it to the value (calculated at the
maximum current offering price) of the shares the shareholder owns in his
account(s) in the Fund and in the other continuously offered open-end funds
listed under "The Eaton Vance Exchange Privilege" in the current prospectus of
the fund for which Eaton Vance acts as investment adviser or administrator at
the time of purchase. The sales charge on the shares being purchased will then
be at the rate applicable to the aggregate amount. Shares purchased (i) by an
individual, his or her spouse and their children under the age of twenty-one,
and (ii) by a trustee, guardian or other fiduciary of a single trust estate or a
single fiduciary account, will be combined for the purpose of determining
whether a purchase will qualify for the Right of Accumulation and if qualifying,
the applicable sales charge level.
For any such discount to be made available, at the time of purchase a
purchaser or his or her Authorized Firm must provide the Principal Underwriter
(in the case of a purchase made through an Authorized Firm) or the Transfer
Agent (in the case of an investment made by mail) with sufficient information to
permit verification that the purchase order qualifies for the accumulation
privilege. Confirmation of the order is subject to such verification. The Right
of Accumulation privilege may be amended or terminated at any time as to
purchases occurring thereafter.
PRINCIPAL UNDERWRITER
Shares of the Fund may be continuously purchased at the public offering
price through Authorized Firms which have agreements with the Principal
Underwriter. 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 certain other funds offered by the Principal Underwriter, made at a
single time by (i) an individual, or an individual, his spouse and their
children under the age of twenty-one, purchasing shares for his or their own
account, and (ii) a trustee or other fiduciary purchasing shares for a single
trust estate or a single fiduciary account.
The table is also presently applicable to (1) purchases of 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 the noninterested Trustees), 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 may allow, upon notice to all Authorized Firms with whom
it has agreements, discounts up to the full sales charge during the periods
specified in the notice. During periods when the discount includes the full
sales charge, such Firms may be deemed to be underwriters as that term is
defined in the Securities Act of 1933. For the amount of sales charges for sales
of Fund shares paid to the Principal Underwriter and Authorized Firms, see "Fees
and Expenses" in this Part II.
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 sales charge rule of the
NASD. (Management believes service fee payments are not distribution expenses
governed by Rule 12b-1 under the 1940 Act, but has chosen to have the Plan
approved as if that Rule were applicable.) The following supplements the
discussion of the Plan contained in the Fund's Prospectus.
The Plan continues in effect from year to year for so long as such
continuance is approved by a vote of both a majority of (i) the noninterested
Trustees who have no direct or indirect financial interest in the operation of
the Plan or any agreements related to it (the "Plan 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 Plan Trustees or by a vote of a majority of the outstanding voting
securities of the Fund.
Under the Plan, the President or a Vice President of the Trust shall provide
to the Trustees for their review, and the Trustees shall review at least
quarterly, a written report of the amount expended under the Plan and the
purposes for which such expenditures were made. 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".
PERFORMANCE INFORMATION
The table below indicates the cumulative and average annual total return on
a hypothetical investment of $1,000 in the Fund from March 2, 1994 through
January 31, 1997 and for the one-year period ended January 31, 1997. The total
return for the period prior to the Fund's commencement of operations on March
14, 1994 reflects the Portfolio's total return (or that of its predecessor)
adjusted to reflect any applicable Fund sales charge. Total return for this time
period has not been adjusted to reflect the Fund's distribution and/or service
fees and certain other expenses. If such adjustments were made, the performance
would have been lower.
<TABLE>
<CAPTION>
VALUE OF A $1,000 INVESTMENT
TOTAL RETURN TOTAL RETURN
EXCLUDING MAXIMUM INCLUDING MAXIMUM
VALUE OF VALUE OF SALES CHARGE SALES CHARGE
INVESTMENT INVESTMENT INITIAL INVESTMENT ---------------------------- ----------------------------
PERIOD DATE INVESTMENT* ON 1/31/97 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ---------- ---------- ----------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Life of the Fund** 3/2/94 $962.50 $1,065.50 10.70% 3.54% 6.55% 2.20%
1 Year Ended 1/31/97** 1/31/96 $962.52 $ 993.02 3.17% 3.17% -0.70% -0.70%
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%.
** 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, 1997, the yield of the Fund was
4.75%. The yield required of a taxable security that would produce an after-tax
yield equivalent to that earned by the Fund of 4.75% would be 7.33%, 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.
See the Tax Equivalent Yield Table in this Part II for information
concerning applicable tax rates and income brackets.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As at April 30, 1997, 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, 1997, Merrill Lynch, Pierce, Fenner & Smith, Inc., Jacksonville, FL
32246 was the record owner of approximately 9.3% of the outstanding shares which
were held on behalf of its customers who are the beneficial owners of such
shares, and as to which it had voting power under certain limited circumstances.
In addition, as of the same date, the following shareholders owned beneficially
and of record the percentages of outstanding shares of the Fund indicated after
their names: Prudential Securities for the benefit of Grace A. Sugitani REV
Trust U/A dated 5-6-91, Honolulu, HI (7.2%); Steven Yasuo Nagata trustee Steven
Yasuo Nagata Trust U/A dated 8-2-84, Kaneohe, HI (6.6%); PaineWebber for the
benefit of : HUI500, Wailuku, HI (32%); Randall D.J. Yee DDs and Elizabeth A.C.
Yee JTTEN, Pukalani, Hi (6.7%); PaineWebber for the benefit of Donna H. Ueki,
Kahului, HI (6.6%); PaineWebber for the benefit of Jean F. Nakamoto trustee
under the Jean F. Nakamoto REV LIV dated 11-30-90, Kahului, HI (5.2%) and
PaineWebber for the benefit of Gayle Namamoto and Riki Nakamoto trustees for the
trust dated 6-11-92, Aiea, HI (5.6%). 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 1997.
<TABLE>
<CAPTION>
A FEDERAL AND HAWAII STATE
COMBINED TAX EXEMPT YIELD OF:
SINGLE RETURN JOINT RETURN FEDERAL AND 4% 4.5% 5% 5.5% 6% 6.5% 7%
- --------------------- ------------------- HI STATE ------------------------------------------------------------------------
(TAXABLE INCOME*) TAX BRACKET+ IS EQUIVALENT TO A FULLY TAXABLE YIELD OF:
- ------------------------------------------ ------------ ------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $ 24,650 Up to $ 41,200 23.50% 5.23% 5.88% 6.54% 7.19% 7.84% 8.50% 9.15%
$ 24,651-$ 59,750 $ 41,201-$ 99,600 35.20 6.17 6.94 7.72 8.49 9.26 10.03 10.80
$ 59,751-$124,650 $ 99,601-$151,750 37.90 6.44 7.25 8.05 8.86 9.66 10.47 11.27
$124,651-$271,050 $151,751-$271,050 42.40 6.94 7.81 8.68 9.55 10.42 11.28 12.15
Over $271,050 Over $271,050 45.64 7.36 8.28 9.20 10.12 11.04 11.96 12.88
* 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%.
</TABLE>
Note: The federal income tax portion of above-indicated combined income tax
brackets does not take into account the effect of a reduction in the
deductibility of itemized deductions (including Hawaii State income taxes) for
taxpayers with adjusted gross income in excess of $121,200. The tax brackets
also do not show the effects of phaseout of personal exemptions for single
filers with adjusted gross income in excess of $121,200 and joint filers
adjusted gross income in excess of $181,800. 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 SAI. Subsequent tax
law changes could result in prospective or retroactive changes in the tax
brackets, tax rates, and tax equivalent yields set forth above. Investors should
consult their tax adviser for additional information.
<PAGE>
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 1995.
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 1995, the sales tax constituted 32% 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 $345.6 million in
1995, 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 1995 General Fund showed total revenues of $3.2 billion
against total expenditures of $3.2 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, 1997, the Portfolio had net assets of $11,735,720. For
the fiscal years ended January 31, 1997 and 1996 and 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 $18,746,
$15,929 and $7,589, respectively (equivalent to 0.16% of the Portfolio's
average daily net assets for each such period). To enhance the net income of
the Portfolio for each period, BMR made a reduction of the full amount of its
fee and BMR was allocated a portion of expenses related to the operation of
the Portfolio in the amount of $28,114, $25,353 and $12,847, respectively. The
Portfolio's Investment Advisory Agreement with BMR is dated February 25, 1994
and continues as described under "Investment Adviser and Administrator" in
Part I.
ADMINISTRATOR
As stated under "Investment Adviser and Administrator" in Part I, the
Administrator currently receives no compensation for providing administrative
services to the Fund. For the fiscal years ended January 31, 1997 and 1996 and
for the period from the start of business, March 3, 1994, to January 31, 1995,
$18,662, $24,922 and $13,344, respectively, of the Fund's operating expenses
were allocated to the Administrator.
SERVICE PLAN
During the fiscal year ended January 31, 1997, the Fund made service fee
payments under the Plan aggregating $1,089, of which $1,077 was paid to
Authorized Firms and the balance of which was retained by the Principal
Underwriter.
PRINCIPAL UNDERWRITER
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 fiscal year ended
January 31, 1997, the Fund paid the Principal Underwriter $17.50 for
repurchase transactions handled by the Principal Underwriter.
The total sales charges paid in connection with sales of shares of the
Fund during the fiscal year ended January 31, 1997 was $2,977, all of which
was paid to Authorized Firms.
BROKERAGE
For the fiscal year ended January 31, 1997, the Portfolio paid brokerage
commissions of $419 on portfolio security transactions aggregating $3,453,727
to firms which provided some research services to BMR or its affiliates
(although many of such firms may have been selected in any particular
transaction primarily because of their execution capabilities). For the fiscal
year ended January 31, 1996 and 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 the noninterested Trustees of the Trust and of
the Portfolio 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
Fund or the Portfolio.) During the fiscal year ended January 31, 1997, the
noninterested Trustees of the Trust and the Portfolio received the following
compensation in their capacities as Trustees from the Fund and the Portfolio,
and for the year ended December 31, 1996, earned the following compensation in
their capacities as Trustees of the funds in the Eaton Vance fund complex:(1)
<TABLE>
<CAPTION>
AGGREGATE AGGREGATE TOTAL COMPENSATION
COMPENSATION COMPENSATION FROM TRUST
NAME FROM FUND FROM PORTFOLIO AND FUND COMPLEX
- ---- ------------ -------------- ------------------
<S> <C> <C> <C>
Donald R. Dwight ............................................ --0-- $35(2) $145,000(5)
Samuel L. Hayes, III ........................................ --0-- $31(3) 157,500(6)
Norton H. Reamer ............................................ --0-- 31 145,000
John L. Thorndike ........................................... --0-- 32(4) 150,000(7)
Jack L. Treynor ............................................. --0-- 34 150,000
</TABLE>
- ------------
(1) The Eaton Vance fund complex consists of 212 registered investment
companies or series thereof.
(2) Includes $14 of deferred compensation.
(3) Includes $5 of deferred compensation.
(4) Includes $8 of deferred compensation.
(5) Includes $45,000 of deferred compensation.
(6) Includes $20,429 of deferred compensation.
(7) Includes $28,125 of deferred compensation.
SERVICES FOR ACCUMULATION
The following services are voluntary, involve no extra charge, other than
the sales charge included in the offering price, and may be changed or
discontinued without penalty at any time.
INTENDED QUANTITY INVESTMENT -- STATEMENT OF INTENTION. If it is
anticipated that $50,000 or more of Fund shares and shares of the other
continuously offered open-end funds listed under "The Eaton Vance Exchange
Privilege" in the current Prospectus of the Fund will be purchased within a
13-month period, a Statement of Intention should be signed so that shares may
be obtained at the same reduced sales charge as though the total quantity were
invested in one lump sum. Shares held under Right of Accumulation (see below)
as of the date of the Statement will be included toward the completion of the
Statement. The Statement authorizes the Transfer Agent to hold in escrow
sufficient shares (5% of the dollar amount specified in the Statement) which
can be redeemed to make up any difference in sales charge on the amount
intended to be invested and the amount actually invested. Execution of a
Statement does not obligate the shareholder to purchase or the Fund to sell
the full amount indicated in the Statement, and should the amount actually
purchased during the 13-month period be more or less than that indicated on
the Statement, price adjustments will be made. Any investor considering
signing a Statement of Intention should read it carefully.
RIGHT OF ACCUMULATION -- CUMULATIVE QUANTITY DISCOUNT. The applicable
sales charge level for the purchase of Fund shares is calculated by taking the
dollar amount of the current purchase and adding it to the value (calculated
at the maximum current offering price) of the shares the shareholder owns in
his account(s) in the Fund and in the other continuously offered open-end
funds listed under "The Eaton Vance Exchange Privilege" in the current
prospectus of the fund for which Eaton Vance acts as investment adviser or
administrator at the time of purchase. The sales charge on the shares being
purchased will then be at the rate applicable to the aggregate amount. Shares
purchased (i) by an individual, his or her spouse and their children under the
age of twenty-one, and (ii) by a trustee, guardian or other fiduciary of a
single trust estate or a single fiduciary account, will be combined for the
purpose of determining whether a purchase will qualify for the Right of
Accumulation and if qualifying, the applicable sales charge level.
For any such discount to be made available, at the time of purchase a
purchaser or his or her Authorized Firm must provide the Principal Underwriter
(in the case of a purchase made through an Authorized Firm) or the Transfer
Agent (in the case of an investment made by mail) with sufficient information
to permit verification that the purchase order qualifies for the accumulation
privilege. Confirmation of the order is subject to such verification. The
Right of Accumulation privilege may be amended or terminated at any time as to
purchases occurring thereafter.
PRINCIPAL UNDERWRITER
Shares of the Fund may be continuously purchased at the public offering
price through Authorized Firms which have agreements with the Principal
Underwriter. 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 certain other funds offered by the Principal
Underwriter, made at a single time by (i) an individual, or an individual, his
spouse and their children under the age of twenty-one, purchasing shares for
his or their own account, and (ii) a trustee or other fiduciary purchasing
shares for a single trust estate or a single fiduciary account.
The table is also presently applicable to (1) purchases of 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 the noninterested Trustees), 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 may allow, upon notice to all
Authorized Firms with whom it has agreements, discounts up to the full sales
charge during the periods specified in the notice. During periods when the
discount includes the full sales charge, such Firms may be deemed to be
underwriters as that term is defined in the Securities Act of 1933. For the
amount of sales charges for sales of Fund shares paid to the Principal
Underwriter and Authorized Firms, see "Fees and Expenses" in this Part II.
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 sales charge rule of the
NASD. (Management believes service fee payments are not distribution expenses
governed by Rule 12b-1 under the 1940 Act, but has chosen to have the Plan
approved as if that Rule were applicable.) The following supplements the
discussion of the Plan contained in the Fund's Prospectus.
The Plan continues in effect from year to year for so long as such
continuance is approved by a vote of both a majority of (i) the noninterested
Trustees who have no direct or indirect financial interest in the operation of
the Plan or any agreements related to it (the "Plan 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 Plan Trustees or by a vote of a majority of the outstanding voting
securities of the Fund.
Under the Plan, the President or a Vice President of the Trust shall
provide to the Trustees for their review, and the Trustees shall review at
least quarterly, a written report of the amount expended under the Plan and
the purposes for which such expenditures were made. 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."
ADDITIONAL OFFICER INFORMATION
In addition to the officers of the Portfolio listed under "Officers of the
Trust and the Portfolio" in Part I, Nicole Anderes (35) 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).
PERFORMANCE INFORMATION
The table below indicates the cumulative and average annual total return
on a hypothetical investment of $1,000 in the Fund covering the life of the
Fund from March 2, 1994 through January 31, 1997 and for the one-year period
ended January 31, 1997. The total return for the period prior to the Fund's
commencement of operations on March 3, 1994 reflects the Portfolio's total
return (or that of its predecessor) adjusted to reflect any applicable Fund
sales charge. Total return for this time period has not been adjusted to
reflect the Fund's distribution and/or service fees and certain other
expenses. If such adjustments were made, the performance would have been
lower.
<TABLE>
VALUE OF A $1,000 INVESTMENT
<CAPTION>
TOTAL RETURN EXCLUDING TOTAL RETURN INCLUDING
VALUE OF VALUE OF MAXIMUM SALES CHARGE MAXIMUM SALES CHARGE
INVESTMENT INVESTMENT INITIAL INVESTMENT -------------------------- --------------------------
PERIOD DATE INVESTMENT* ON 1/31/97 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
------ ---------- ----------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Life of the
Fund** 3/2/94 $962.46 $1,119.02 16.27% 5.30% 11.90% 3.93%
1 Year
Ended
1/31/97** 1/31/96 $962.51 $ 993.85 3.26% 3.26% -0.61% -0.61%
</TABLE>
Past performance is not indicative of future results. Investment return
and principal value will fluctuate; shares, when redeemed, may be worth more
or less than their orginal cost.
- ------------
* Initial investment less the maximum sales charge of 3.75%.
** If a portion of the Portfolio's and/or the Fund's expenses had not been
subsidized, the Fund would have had lower returns.
For the thirty-day period ended January 31, 1997, the yield of the Fund
was 4.52%. The yield required of a taxable security that would produce an
after-tax yield equivalent to that earned by the Fund of 4.52% would be 6.93%,
assuming a combined federal and State tax rate of 34.80%. 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.
See the Tax Equivalent Yield Table for information concerning applicable
tax rates and income brackets.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As at April 30, 1997, 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, 1997, Merrill Lynch, Pierce, Fenner & Smith, Inc., Jacksonville,
FL 32246 was the record owner of approximately 6.2% of the outstanding shares
which were held on behalf of its customers who are the beneficial owners of
such shares, and as to which it had voting power under certain limited
circumstances. In addition, as of the same date, the following shareholders
owned of record the percentages of shares indicated after their names: Carl
Philip Berg & Glenda B. Berg JTWROS, Overland Park, KS (16.9%); Eugene A.
White Trust, Eugene A. & Edith M. White, Co-Trustees, U/A 1/16/91 and restated
2/28/95, c/o Peoples Bank & Trust Co., Trust Department, McPherson, KS (9.8%);
and Glendora Brindle, Trustee of Glendora Brindle Living Trust U/A dtd 6/2/92,
Fredonia, KS (5.8%). 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 1997.
<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 $ 41,200 22.86% 5.19% 5.83% 6.48% 7.13% 7.78% 8.43% 9.07%
$ 41,201 - $ 99,600 34.80 6.14 6.90 7.67 8.44 9.20 9.97 10.74
$ 99,601 - $151,750 37.52 6.40 7.20 8.00 8.80 9.60 10.40 11.20
$151,751 - $271,050 42.05 6.90 7.77 8.63 9.49 10.35 11.22 12.08
Over $271,050 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:
SINGLE 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:
- --------------------------- ------------ --------------------------------------------------------------------------
Up to $ 24,650 23.93% 5.26% 5.92% 6.57% 7.23% 7.89% 8.54% 9.20%
$ 24,651 - $ 59,750 35.74 6.22 7.00 7.78 8.56 9.34 10.12 10.89
$ 59,751 - $124,650 38.42 6.50 7.31 8.12 8.93 9.74 10.55 11.37
$124,651 - $271,050 42.88 7.00 7.88 8.75 9.63 10.50 11.38 12.25
Over $271,050 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 $121,200, nor do they reflect phaseout of personal exemptions for
single and joint filers with adjusted gross income in excess of $121,200 and
$181,800, 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 SAI. Subsequent tax
law changes could result in prospective or retroactive changes in the tax
brackets, tax rates, and tax equivalent yields set forth above. Investors
should consult their tax adviser for additional information.
<PAGE>
[Logo]
EATON VANCE
================
Mutual Funds
EV TRADITIONAL
MUNICIPAL
FUNDS
STATEMENT OF ADDITIONAL
INFORMATION
JUNE 1, 1997
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, P.O. Box 5123,
Westborough, MA 01581-5123 (800) 262-1122
AUDITORS
Deloitte & Touche LLP, 125 Summer Street, Boston, MA 02110
T-TFC6/1SAI
<PAGE>
PART B
INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION
STATEMENT OF
ADDITIONAL INFORMATION
June 1, 1997
EV MARATHON HIGH YIELD MUNICIPALS FUND
24 Federal Street
Boston, Massachusetts 02110
(800) 225-6265
This Statement of Additional Information consists of two parts. Part I
provides information about EV Marathon High Yield Municipals Fund (the "Fund"),
High Yield Municipals Portfolio (the "Portfolio") and certain other series of
Eaton Vance Municipals Trust II (the "Trust"). Part II provides information
solely about the Fund and the Portfolio. Where appropriate, Part I includes
cross-references to the relevant sections of Part II that provide additional
Fund-specific information. This Statement of Additional Information is sometimes
referred to herein as the "SAI".
TABLE OF CONTENTS
Page
PART I
Additional Information about Investment Policies ............ 1
Investment Restrictions ..................................... 7
Trustees and Officers ....................................... 9
Investment Adviser and Administrator ........................ 10
Custodian ................................................... 13
Service for Withdrawal ...................................... 13
Determination of Net Asset Value ............................ 14
Investment Performance ...................................... 14
Taxes ....................................................... 16
Portfolio Security Transactions ............................. 18
Other Information ........................................... 20
Independent Certified Public Accountants .................... 21
Financial Statements ........................................ 21
Appendix .................................................... 22
PART II
Fees and Expenses ........................................... a-1
Additional Officer Information .............................. a-2
Principal Underwriter ....................................... a-2
Distribution Plan ........................................... a-2
Performance Information ..................................... a-4
Control Persons and Principal Holders of Securities ......... a-4
Tax Equivalent Yield Table .................................. a-5
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND IS
AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE INVESTORS ONLY IF PRECEDED OR
ACCOMPANIED BY THE FUND'S PROSPECTUS DATED JUNE 1, 1997, AS SUPPLEMENTED FROM
TIME TO TIME, WHICH IS INCORPORATED HEREIN BY REFERENCE. THIS STATEMENT OF
ADDITIONAL INFORMATION SHOULD BE READ IN CONJUNCTION WITH SUCH PROSPECTUS, A
COPY OF WHICH MAY BE OBTAINED WITHOUT CHARGE BY CONTACTING EATON VANCE
DISTRIBUTORS, INC. (THE "PRINCIPAL UNDERWRITER") (SEE BACK COVER FOR ADDRESS AND
PHONE NUMBER).
FOR EDGAR FILING PURPOSES ONLY: REGISTRANT INCORPORATES BY REFERENCE FOR EV
MARATHON HIGH YIELD MUNICIPALS FUND THE PART I FOUND IN THE STATEMENT OF
ADDITIONAL INFORMATION OF EV MARATHON FLORIDA INSURED MUNICIPALS FUND, EV
MARATHON HAWAII MUNICIPALS FUND AND EV MARATHON KANSAS MUNICIPALS FUND CONTAINED
IN THIS AMENDMENT.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV MARATHON HIGH YIELD MUNICIPALS
FUND. The Fund became a series of the Trust on May 15, 1995.
FEES AND EXPENSES
INVESTMENT ADVISER
As of January 31, 1997, the Portfolio had net assets of $180,700,459. For
the fiscal year ended January 31, 1997, absent a fee reduction, the Portfolio
would have paid BMR advisory fees of $772,713 (equivalent to 0.60% of the
Portfolio's average daily net assets for such year). To enhance the net income
of the Portfolio, BMR made a reduction of its advisory fee in the amount of
$478,420. For the period from the start of business, August 7, 1995, to January
31, 1996, absent a fee reduction, the Portfolio would have paid BMR advisory
fees of $100,763 (equivalent to 0.59% (annualized) of the Portfolio's average
daily net assets for such period). To enhance the net income of the Portfolio,
BMR made a reduction in the full amount of its advisory fee, and BMR was
allocated expenses related to the operation of the Portfolio in the amount of
$10,465. The Portfolio's Investment Advisory Agreement with BMR is dated August
1, 1995 and may be continued as described under "Investment Adviser and
Administrator" in Part I of this SAI.
DISTRIBUTION PLAN
During the fiscal year ended January 31, 1997, the Principal Underwriter
paid to Authorized Firms sales commissions of $2,532,154 on sales of shares of
the Fund. During the same period, the Fund made payments under the Plan to the
Principal Underwriter aggregating $630,903 and the Principal Underwriter
received approximately $158,000 in CDSCs imposed on early redeeming
shareholders. These payments reduced uncovered distribution charges under the
Plan. As at January 31, 1997, the outstanding uncovered distribution charges of
the Principal Underwriter calculated under the Plan amounted to approximately
$5,375,000 (which amount was equivalent to 4.4% of the Fund's net assets on such
day). During the fiscal year ended January 31, 1997, the Fund made service fee
payments aggregating $31,881 of which $31,807 was paid to Authorized Firms and
the balance of which was retained by the Principal Underwriter.
PRINCIPAL UNDERWRITER
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 fiscal year ended January 31,
1997, the Fund paid the Principal Underwriter $547.50 for repurchase
transactions handled by the Principal Underwriter.
BROKERAGE
For the fiscal year ended January 31, 1997, the Portfolio paid brokerage
commissions of $5,860 on portfolio security transactions aggregating $94,993,525
to firms which provided some research services to BMR or its affiliates
(although many of such firms may have been selected in any particular
transaction primarily because of their execution capabilities). For the period
from the start of business, August 7, 1995, to January 31, 1996, the Portfolio
paid no brokerage commissions on portfolio transactions.
TRUSTEES
The fees and expenses of the noninterested Trustees of the Trust and of the
Portfolio are paid by the Fund (and the other series of the Trust) and the
Portfolio, respectively. (The Trustees of the Trust and the Portfolio who are
members of the Eaton Vance organization receive no compensation from the Fund or
the Portfolio.) During the fiscal year ended January 31, 1997, the noninterested
Trustees of the Trust and the Portfolio received the following compensation in
their capacities as Trustees from the Fund and the Portfolio, and for the year
ended December 31, 1996, earned the following compensation in their capacities
as Trustees of the funds in the Eaton Vance fund complex (1):
AGGREGATE AGGREGATE TOTAL COMPENSATION
COMPENSATION COMPENSATION FROM TRUST AND
NAME FROM FUND FROM PORTFOLIO FUND COMPLEX
- ---- ------------ -------------- ------------------
Donald R. Dwight ....... $268 $1,351(2) $145,000(2)
Samuel L. Hayes, III ... 242 1,597(3) 157,500(3)
Norton H. Reamer ....... 239 1,515 145,000
John L. Thorndike ...... 249 1,633(4) 150,000
Jack L. Treynor ........ 266 1,576 150,000
(1) The Eaton Vance fund complex consists of 212 registered investment companies
or series thereof.
(2) Includes $556 of deferred compensation.
(3) Includes $282 of deferred compensation.
(4) Includes $467 of deferred compensation.
(5) Includes $45,000 of deferred compensation.
(6) Includes $20,429 of deferred compensation.
(7) Includes $28,125 of deferred compensation.
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, Thomas M. Metzold (36), is a
Vice President of the Portfolio, as well as a Vice President of BMR, Eaton Vance
and EV. Mr. Metzold is also an officer of various investment companies managed
by Eaton Vance and BMR.
PRINCIPAL UNDERWRITER
Under the Distribution Agreement the Principal Underwriter acts as principal
in selling shares of the Fund. The expenses of printing copies of prospectuses
used to offer shares to Authorized Firms or investors and other selling
literature and of advertising is borne by the Principal Underwriter. The fees
and expenses of qualifying and registering and maintaining qualifications and
registrations of the Fund and its shares under federal and state securities laws
are borne by the Fund. In addition, the Fund makes payments to the Principal
Underwriter pursuant to its Distribution Plan as described in the Fund's current
Prospectus; the provisions of the Plan relating to such payments are included in
the Distribution Agreement. The Distribution Agreement is renewable annually by
the Trust's Board of Trustees (including a majority of the noninterested
Trustees who have no direct or indirect financial interest in the operation of
the Fund's Distribution Plan or the Distribution Agreement), may be terminated
on sixty days' notice either by such Trustees or by vote of a majority of the
outstanding voting securities of the Fund or on six months' notice by the
Principal Underwriter and is automatically terminated upon assignment. The
Principal Underwriter distributes Fund shares on a "best efforts" basis under
which it is required to take and pay for only such shares as may be sold.
DISTRIBUTION PLAN
The Plan is designed to meet the requirements of Rule 12b-1 under the 1940
Act and the sales charge rule of the NASD. The purpose of the Plan is to
compensate the Principal Underwriter for its distribution services and
facilities provided to the Fund.
The Plan provides that the Fund will pay sales commissions and distribution
fees to the Principal Underwriter only after and as a result of the sale of
shares of the Fund. On each sale of Fund shares (excluding reinvestment of
distributions) the Fund will pay the Principal Underwriter amounts representing
(i) sales commissions equal to 5% of the amount received by the Fund for each
share sold and (ii) distribution fees calculated by applying the rate of 1% over
the prime rate then reported in The Wall Street Journal to the outstanding
balance of uncovered distribution charges (as described below) of the Principal
Underwriter.
The amount payable by the Fund to the Principal Underwriter pursuant to the
Plan as sales commissions and distribution fees with respect to each day will be
accrued on such day as a liability of the Fund and will accordingly reduce the
Fund's net assets upon such accrual, all in accordance with generally accepted
accounting principles. The amount payable on each day by the Fund is limited to
1/365 of .75% of the Fund's net assets on such day. The level of the Fund's net
assets changes each day and depends upon the amount of sales and redemptions of
Fund shares, the changes in the value of the investments held by the Portfolio,
the expenses of the Fund and the Portfolio accrued and allocated to the Fund on
such day, income on portfolio investments of the Portfolio accrued and allocated
to the Fund on such day, and any dividends and distributions declared on Fund
shares. The Fund does not accrue possible future payments as a liability of the
Fund or reduce the Fund's current net assets in respect of unknown amounts which
may become payable under the Plan in the future because the standards for
accrual of such a liability under accounting principles have not been satisfied.
The Plan provides that the Fund will receive all CDSCs and will make no
payments to the Principal Underwriter in respect of any day on which there are
no outstanding uncovered distribution charges of the Principal Underwriter.
CDSCs and accrued amounts will be paid by the Fund to the Principal Underwriter
whenever there exist uncovered distribution charges.
In calculating daily the amount of uncovered distribution charges,
distribution charges will include the aggregate amount of sales commissions and
distribution fees theretofore paid plus the aggregate amount of sales
commissions and distribution fees which the Principal Underwriter is entitled to
be paid under the Plan since its inception. Payments theretofore paid or payable
under the Plan by the Fund to the Principal Underwriter and CDSCs theretofore
paid or payable to the Principal Underwriter will be subtracted from such
distribution charges; if the result of such subtraction is positive, a
distribution fee (computed at 1% over the prime rate then reported in The Wall
Street Journal) will be computed on such amount and added thereto, with the
resulting sum constituting the amount of outstanding uncovered distribution
charges with respect to such day. The amount of outstanding uncovered
distribution charges of the Principal Underwriter calculated on any day does not
constitute a liability recorded on the financial statements of the Fund.
The amount of uncovered distribution charges of the Principal Underwriter at
any particular time depends upon various changing factors, including the level
and timing of sales of Fund shares, the nature of such sales (i.e., whether they
result from exchange transactions, reinvestments or from cash sales through
Authorized Firms), the level and timing of redemptions of Fund shares upon which
a CDSC will be imposed, the level and timing of redemptions of Fund shares upon
which no CDSC will be imposed (including redemptions of Fund shares pursuant to
the exchange privilege which result in a reduction of uncovered distribution
charges), changes in the level of the net assets of the Fund, and changes in the
interest rate used in the calculation of the distribution fee under the Plan.
Periods with a high level of sales of Fund shares accompanied by a low level of
early redemptions of Fund shares resulting in the imposition of CDSCs will tend
to increase the time during which there will exist uncovered distribution
charges of the Principal Underwriter.
Currently, payments of sales commissions and distribution fees and of
service fees may equal, 1% of the Fund's average daily net assets per annum. For
actual payments made by the Fund and the outstanding uncovered distribution
charges of the Principal Underwriter, see "Fees and Expenses -- Distribution
Plan" in this Part II. The Fund believes that the combined rate of all these
payments may be higher than the rate of payments made under distribution plans
adopted by other investment companies pursuant to Rule 12b-1. Although the
Principal Underwriter will use its own funds (which may be borrowed from banks)
to pay sales commissions at the time of sale, it is anticipated that the Eaton
Vance organization will profit by reason of the operation of the Plan through an
increase in the Fund's assets (thereby increasing the advisory fee payable to
BMR by the Portfolio) resulting from sale of Fund shares and through the amounts
paid to the Principal Underwriter, including CDSCs, pursuant to the Plan. The
Eaton Vance organization may be considered to have realized a profit under the
Plan if at any point in time the aggregate amounts theretofore received by the
Principal Underwriter pursuant to the Plan and from CDSCs have exceeded the
total expenses theretofore incurred by such organization in distributing shares
of the Fund. Total expenses for this purpose will include an allocable portion
of the overhead costs of such organization and its branch offices, which costs
will include without limitation leasing expense, depreciation of building and
equipment, utilities, communication and postage expense, compensation and
benefits of personnel, travel and promotional expense, stationery and supplies,
literature and sales aids, interest expense, data processing fees, consulting
and temporary help costs, insurance, taxes other than income taxes, legal and
auditing expense and other miscellaneous overhead items. Overhead is calculated
and allocated for such purpose by the Eaton Vance organization in a manner
deemed equitable to the Fund.
The Plan continues in effect from year to year so long as such continuance
is approved at least annually by the vote of both a majority of (i) the
noninterested Trustees of the Trust who have no direct or indirect financial
interest in the operation of the Plan or any agreements related to the Plan (the
"Rule 12b-1 Trustees") and (ii) all of the Trustees then in office, and the
Distribution Agreement contains a similar provision. The Plan and Distribution
Agreement may be terminated at any time by vote of a majority of the Rule 12b-1
Trustees or by a vote of a majority of the outstanding voting securities of the
Fund. The Plan requires quarterly Trustee review of a written report of the
amount expended under the Plan and the purposes for which such expenditures were
made. The Plan may not be amended to increase materially the payments described
therein without approval of the shareholders of the Fund and the Trustees. So
long as the Plan is in effect, the selection and nomination of the noninterested
Trustees shall be committed to the discretion of such Trustees.
The Trustees of the Trust believe that the Plan will be a significant factor
in the expected growth of the Fund's assets, and will result in increased
investment flexibility and advantages which have benefitted and will continue to
benefit the Fund and its shareholders. Payments for sales commissions and
distribution fees made to the Principal Underwriter under the Plan will
compensate the Principal Underwriter for its services and expenses in
distributing shares of the Fund. Service fee payments made to the Principal
Underwriter and Authorized Firms under the Plan provide incentives to provide
continuing personal services to investors and the maintenance of shareholder
accounts. By providing incentives to the Principal Underwriter and Authorized
Firms, the Plan is expected to result in the maintenance of, and possible future
growth in, the assets of the Fund. Based on the foregoing and other relevant
factors, the Trustees of the Trust have determined that in their judgment there
is a reasonable likelihood that the Plan will benefit the Fund and its
shareholders.
PERFORMANCE INFORMATION
The table below indicates the cumulative and average total return on a
hypothetical investment of $1,000 in the Fund covering the life of the Fund from
August 7, 1985 through January 31, 1997 and for the one-year period ended
January 31, 1997.
<TABLE>
<CAPTION>
VALUE OF VALUE OF
INVEST- INVEST-
MENT BEFORE MENT AFTER TOTAL RETURN BEFORE TOTAL RETURN AFTER
DEDUCTING THE DEDUCTING THE DEDUCTING THE CDSC DEDUCTING THE CDSC**
INVESTMENT INVESTMENT AMOUNT OF CDSC ON CDSC** ON -------------------------- --------------------------
PERIOD DATE INVESTMENT 1/31/97 1/31/97 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ------------- ------------ ----------- --------------- --------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of the
Fund*** 8/7/95* $1,000 $1,158.50 $1,108.50 15.85% 10.38% 10.85% 7.16%
1 Year Ended
1/31/97*** 1/31/96 $1,000 $1,059.29 $1,009.43 5.93% 5.93% 0.94% 4.94%
- ------------
*Investment operations began on August 7, 1985.
**No CDSC is imposed on certain redemptions. See the Fund's current Prospectus.
***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, 1997, the yield of the Fund was
5.80%. The yield required of a taxable security that would produce an after-tax
yield equivalent to that earned by the Fund of 5.80% would be 8.41%, assuming a
federal tax rate of 31%. If a portion of the Portfolio's expenses had not been
allocated to the Investment Adviser, the Fund would have had a lower yield.
An investment in the Fund offers shareholders the opportunity to: receive
high monthly tax-free income; retain more of their earnings; gain investment
advantages over purchasing individual bonds (such as professional management,
monthly income and portfolio diversification); and enlist a research-based
investment strategy to find municipal bonds with potential for high current
income and improving fundamentals.
See the Tax Equivalent Yield Table in this Part II for information
concerning applicable tax rates and income brackets.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As at April 30, 1997, 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, 1997, Merrill Lynch, Pierce, Fenner & Smith, Inc., Jacksonville, FL
was the record owner of approximately (20.7%) of the outstanding shares, which
were held on behalf of its customers who are the beneficial owners of such
shares, and as to which it had voting power under certain limited circumstances.
To the knowledge of the Trust, no other person owned of record or beneficially
5% or more of the Fund's outstanding shares as of such date.
<PAGE>
TAX EQUIVALENT YIELD TABLE
The table shows the approximate taxable bond yields which are equivalent to
tax-exempt bond yields from 4% to 7% under the regular federal income tax laws
that apply to 1997.
<TABLE>
<CAPTION>
MARGINAL
SINGLE RETURN JOINT RETURN INCOME TAX-EXEMPT YIELD
- --------------------- ------------------- TAX --------------------------------------------------------------------------
(TAXABLE INCOME)* BRACKET 4% 4.5% 5% 5.5% 6% 6.5% 7%
- ------------------------------------------ ----------- --------------------------------------------------------------------------
Equivalent Taxable Yield
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $ 24,650 Up to $ 41,200 15.00% 4.71% 5.29% 5.88% 6.47% 7.06% 7.65% 8.24%
$ 24,651-$ 59,750 $ 41,201-$ 99,600 28.00 5.56 6.25 6.94 7.64 8.33 9.03 9.72
$ 59,751-$124,650 $ 99,601-$151,750 31.00 5.80 6.52 7.25 7.97 8.70 9.42 10.14
$124,651-$271,050 $151,751-$271,050 36.00 6.25 7.03 7.81 8.59 9.38 10.16 10.94
Over $271,050 Over $271,050 39.60 6.62 7.45 8.28 9.11 9.93 10.76 11.59
- ------------------------------------------ ----------- --------------------------------------------------------------------------
*Net amount subject to federal personal income tax after deductions and exemptions.
</TABLE>
Note: The above-indicated federal income tax brackets do not take into account
the effect of a reduction in the deductibility of itemized deductions for
taxpayers with adjusted gross income in excess of $121,200, nor the effects of
phaseout of personal exemptions for single and joint filers with adjusted gross
incomes in excess of $121,200 and $181,800, respectively. The effective top
marginal federal income tax brackets of taxpayers over ranges of income subject
to these reductions or phaseouts will be higher than indicated above.
Yields shown are for illustration purposes only and are not meant to represent
the Fund's actual yield. Of course, no assurance can be given that the Fund will
achieve any specific tax exempt yield. While it is expected that a substantial
portion of the interest income received by the Portfolio and allocated to the
Fund and subsequently distributed to the Fund's shareholders will be exempt from
the regular federal income tax, portions of such distributions from time to time
may be subject to such tax. This table does not take into account state or local
taxes, if any, payable on Fund distributions. It should also be noted that the
interest earned on certain "private activity bonds" issued after August 7, 1986,
while exempt from the regular federal income tax, is treated as a tax preference
item which could subject the recipient to the federal alternative minimum tax.
The illustrations assume that the federal alternative minimum tax is not
applicable and do not take into account any tax credits that may be available.
The information set forth above is as of the date of this SAI. Subsequent tax
law changes could result in prospective or retroactive changes in the tax
brackets, tax rates, and tax equivalent yields set forth above. Investors should
consult their tax adviser for additional information.
<PAGE>
[graphic omitted]
EATON VANCE
- ----------------------
MUTUAL FUNDS
EV MARATHON
HIGH YIELD
MUNICIPALS FUND
STATEMENT OF
ADDITIONAL INFORMATION
JUNE 1, 1997
EV MARATHON HIGH YIELD
MUNICIPALS FUND
24 FEDERAL STREET
BOSTON, MA 02110
- --------------------------------------------------------------------------------
INVESTMENT ADVISER OF HIGH YIELD MUNICIPALS PORTFOLIO
Boston Management and Research, 24 Federal Street, Boston, MA 02110
ADMINISTRATOR OF EV MARATHON HIGH YIELD MUNICIPALS FUND
Eaton Vance Management, 24 Federal Street, Boston, MA 02110
PRINCIPAL UNDERWRITER
Eaton Vance Distributors, Inc., 24 Federal Street, Boston, MA 02110
(800) 225-6265
CUSTODIAN
Investors Bank & Trust Company, 89 South Street, Boston, MA 02111
TRANSFER AGENT
First Data Investor Services Group, P.O. Box 5123, Westborough, MA 01581-5123
(800) 262-1122
AUDITORS
Deloitte & Touche LLP, 125 Summer Street, Boston, MA 02110
M-HYSAI
<PAGE>
PART B
INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION
STATEMENT OF
ADDITIONAL INFORMATION
June 1, 1997
EV TRADITIONAL HIGH YIELD MUNICIPALS FUND
24 Federal Street
Boston, Massachusetts 02110
(800) 225-6265
This Statement of Additional Information consists of two parts. Part I
provides information about EV Traditional High Yield Municipals Fund (the
"Fund"), High Yield Municipals Portfolio (the "Portfolio") and certain other
series of Eaton Vance Municipals Trust II (the "Trust"). Part II provides
information solely about the Fund and the Portfolio. Where appropriate, Part I
includes cross-references to the relevant sections of Part II that provide
additional Fund-specific information. This Statement of Additional Information
is sometimes referred to herein as the "SAI".
TABLE OF CONTENTS
Page
PART I
Additional Information about Investment Policies ............ 1
Investment Restrictions ..................................... 7
Trustees and Officers ....................................... 9
Investment Adviser and Administrator ........................ 10
Custodian ................................................... 13
Service for Withdrawal ...................................... 13
Determination of Net Asset Value ............................ 14
Investment Performance ...................................... 14
Taxes ....................................................... 16
Portfolio Security Transactions ............................. 18
Other Information ........................................... 20
Independent Certified Public Accountants .................... 21
Financial Statements ........................................ 21
Appendix .................................................... 22
PART II
Fees and Expenses ........................................... a-1
Additional Officer Information .............................. a-2
Services for Accumulation ................................... a-2
Principal Underwriter ....................................... a-3
Service Plan ................................................ a-3
Performance Information ..................................... a-4
Control Persons and Principal Holders of Securities ......... a-4
Tax Equivalent Yield Table .................................. a-5
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND IS
AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE INVESTORS ONLY IF PRECEDED OR
ACCOMPANIED BY THE FUND'S PROSPECTUS DATED JUNE 1, 1997, AS SUPPLEMENTED FROM
TIME TO TIME, WHICH IS INCORPORATED HEREIN BY REFERENCE. THIS STATEMENT OF
ADDITIONAL INFORMATION SHOULD BE READ IN CONJUNCTION WITH SUCH PROSPECTUS, A
COPY OF WHICH MAY BE OBTAINED WITHOUT CHARGE BY CONTACTING EATON VANCE
DISTRIBUTORS, INC. (THE "PRINCIPAL UNDERWRITER") (SEE BACK COVER FOR ADDRESS
AND PHONE NUMBER).
FOR EDGAR FILING PURPOSES ONLY: REGISTRANT INCORPORATES BY REFERENCE FOR
EV TRADITIONAL HIGH YIELD MUNICIPALS FUND THE PART I FOUND IN THE STATEMENT OF
ADDITIONAL INFORMATION OF EV MARATHON FLORIDA INSURED MUNICIPALS FUND, EV
MARATHON HAWAII MUNICIPALS FUND AND EV MARATHON KANSAS MUNICIPALS FUND
CONTAINED IN THIS AMENDMENT.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV TRADITIONAL HIGH YIELD
MUNICIPALS FUND. The Fund became a series of the Trust on May 15, 1995.
FEES AND EXPENSES
INVESTMENT ADVISER
As of January 31, 1997, the Portfolio had net assets of $180,700,459. For
the fiscal year ended January 31, 1997, absent a fee reduction, the Portfolio
would have paid BMR advisory fees of $772,713 (equivalent to 0.60% of the
Portfolio's average daily net assets for such year). To enhance the net income
of the Portfolio, BMR made a reduction of its advisory fee in the amount of
$478,420. For the period from the start of business, August 7, 1995, to
January 31, 1996, absent a fee reduction, the Portfolio would have paid BMR
advisory fees of $100,763 (equivalent to 0.59% (annualized) of the Portfolio's
average daily net assets for such period). To enhance the net income of the
Portfolio, BMR made a reduction in the full amount of its advisory fee, and
BMR was allocated expenses related to the operation of the Portfolio in the
amount of $10,465. The Portfolio's Investment Advisory Agreement with BMR is
dated August 1, 1995 and may be continued as described under "Investment
Adviser and Administrator" in Part I.
SERVICE PLAN
During the fiscal year ended January 31, 1997, the Fund made service fee
payments under the Plan aggregating $14,679 of which $13,490 was paid to
Authorized Firms and the balance of which was retained by the Principal
Underwriter.
PRINCIPAL UNDERWRITER
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 fiscal year ended
January 31, 1997, the Fund paid the Principal Underwriter $390.00 for
repurchase transactions handled by the Principal Underwriter.
The total sales charges paid in connection with sales of shares of the
Fund for the fiscal year ended January 31, 1997 was $942,011, all of which was
received by Authorized Firms. The total sales charges paid in connection with
sales of the Fund for the period from the start of business, August 7, 1995 to
January 31, 1996 was $873,727, of which $337 was received by the Principal
Underwriter and $873,390 was received by Authorized Firms.
BROKERAGE
For the fiscal year ended January 31, 1997, the Portfolio paid brokerage
commissions of $5,860 on portfolio security transactions aggregating
$94,993,525 to firms which provided some research services to BMR or its
affiliates (although many of such firms may have been selected in any
particular transaction primarily because of their execution capabilities). For
the period from the start of business, August 7, 1995, to January 31, 1996,
the Portfolio paid no brokerage commissions on portfolio transactions.
TRUSTEES
The fees and expenses of the noninterested Trustees of the Trust and of
the Portfolio are paid by the Fund (and the other series of the Trust) and the
Portfolio, respectively. (The Trustees of the Trust and the Portfolio who are
members of the Eaton Vance organization receive no compensation from the Fund
or the Portfolio.) During the fiscal year ended January 31, 1997, the
noninterested Trustees of the Trust and the Portfolio received the following
compensation in their capacities as Trustees from the Fund and the Portfolio
and for the year ended December 31, 1996, earned the following compensation in
their capacities as Trustees of the funds in the Eaton Vance fund complex(1):
AGGREGATE AGGREGATE TOTAL COMPENSATION
COMPENSATION COMPENSATION FROM TRUST AND
NAME FROM FUND FROM PORTFOLIO FUND COMPLEX
- ---- ------------ -------------- ------------------
Donald R. Dwight ...... $35 $1,351(2) $145,000(2)
Samuel L. Hayes, III .. 31 1,597(3) 157,500(3)
Norton H. Reamer ...... 31 1,515 145,000
John L. Thorndike ..... 32 1,633(4) 150,000
Jack L. Treynor ....... 34 1,576 150,000
(1) The Eaton Vance fund complex consists of 212 registered investment
companies or series thereof.
(2) Includes $556 of deferred compensation.
(3) Includes $282 of deferred compensation.
(4) Includes $467 of deferred compensation.
(5)Includes $45,000 of deferred compensation.
(6) Includes $20,429 of deferred compensation.
(7) Includes $28,125 of deferred compensation.
ADDITIONAL OFFICER INFORMATION
In addition to the officers of the Portfolio listed under "Officers of the
Trust and the Portfolio" in Part I, Thomas M. Metzold (38), is a Vice
President of the Portfolio, as well as a Vice President of BMR, Eaton Vance
and EV. Mr. Metzold is also an officer of various investment companies managed
by Eaton Vance and BMR.
SERVICES FOR ACCUMULATION
The following services are voluntary, involve no extra charge other than
the sales charge included in the offering price, and may be changed or
discontinued without penalty at any time.
Intended Quantity Investment -- Statement of Intention.If it is
anticipated that $50,000 or more of Fund shares and shares of the other
continuously offered open-end funds listed under "The Eaton Vance Exchange
Privilege" in the current Prospectus of the Fund will be purchased within a
13-month period, a Statement of Intention should be signed so that shares may
be obtained at the same reduced sales charge as though the total quantity were
invested in one lump sum. Shares held under Right of Accumulation (see below)
as of the date of the Statement will be included toward the completion of the
Statement. The Statement authorizes the Transfer Agent to hold in escrow
sufficient shares (5% of the dollar amount specified in the Statement) which
can be redeemed to make up any difference in sales charge on the amount
intended to be invested and the amount actually invested. Execution of a
Statement does not obligate the shareholder to purchase or the Fund to sell
the full amount indicated in the Statement, and should the amount actually
purchased during the 13-month period be more or less than that indicated on
the Statement, price adjustments will be made. Any investor considering
signing a Statement of Intention should read it carefully.
Right of Accumulation -- Cumulative Quantity Discount.The applicable sales
charge level for the purchase of Fund shares is calculated by taking the
dollar amount of the current purchase and adding it to the value (calculated
at the maximum current offering price) of the shares the shareholder owns in
his account(s) in the Fund and in the other continuously offered open-end
funds listed under "The Eaton Vance Exchange Privilege" in the current
prospectus of the fund for which Eaton Vance acts as Investment Adviser or
Administrator at the time of purchase. The sales charge on the shares being
purchased will then be at the rate applicable to the aggregate amount. Shares
purchased (i) by an individual, his or her spouse and their children under the
age of twenty-one, and (ii) by a trustee, guardian or other fiduciary of a
single trust estate or a single fiduciary account, will be combined for the
purpose of determining whether a purchase will qualify for the Right of
Accumulation and if qualifying, the applicable sales charge level.
For any such discount to be made available, at the time of purchase a
purchaser or his or her Authorized Firm must provide the Principal Underwriter
(in the case of a purchase made through an Authorized Firm) or the Transfer
Agent (in the case of an investment made by mail) with sufficient information
to permit verification that the purchase order qualifies for the accumulation
privilege. Confirmation of the order is subject to such verification. The
Right of Accumulation privilege may be amended or terminated at any time as to
purchases occurring thereafter.
PRINCIPAL UNDERWRITER
Shares of the Fund may be continuously purchased at the public offering
price through Authorized Firms which have agreements with the Principal
Underwriter. 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 certain other funds offered by the Principal
Underwriter, made at a single time by (i) an individual, or an individual, his
or her spouse and their children under the age of twenty-one, purchasing
shares for his or their own account; and (ii) a trustee or other fiduciary
purchasing shares for a single trust estate or a single fiduciary account. The
table is also presently applicable to (1) purchases of Fund shares, alone or
in combination with purchases of any of the other funds offered by the
Principal Underwriter through one dealer aggregating $50,000 or more made by
any of the persons enumerated above within a thirteen-month period starting
with first purchase pursuant to a written Statement of Intention, in the form
provided by the Principal Underwriter, which includes provisions for a price
adjustment depending upon the amount actually purchased within such period (a
purchase not made pursuant to such Statement may be included thereunder if the
Statement is filed within 90 days of such purchase); or (2) purchases of the
Fund pursuant to the Right of Accumulation and declared as such at the time of
purchase.
Subject to the applicable provisions of the 1940 Act, the Fund may issue
shares at net asset value in the event that an investment company (whether a
regulated or private investment company or a personal holding company) is
merged or consolidated with or acquired by the Fund. Normally no sales charges
will be paid in connection with an exchange of Fund shares for the assets of
such investment company. Shares may be sold at net asset value to any officer,
director, trustee, general partner or employee of the Fund, the Portfolio or
any investment company for which Eaton Vance or BMR acts as investment
adviser, any investment advisory, agency, custodial or trust account managed
or administered by Eaton Vance or by any parent, subsidiary or other affiliate
of Eaton Vance, or any officer, director or employee of any parent, subsidiary
or other affiliate of Eaton Vance. The terms "officer," "director," "trustee,"
"general partner" or "employee" as used in this paragraph include any such
person's spouse and minor children, and also retired officers, directors,
trustees, general partners and employees and their spouses and minor children.
Shares of the Fund may also be sold at net asset value to registered
representatives and employees of certain Authorized Firms and to such persons'
spouses and children under the age of 21 and their beneficial accounts.
The Trust reserves the right to suspend or limit the offering of shares of
the Fund to the public at any time.
The Principal Underwriter acts as principal in selling shares of the Fund
under the Distribution Agreement with the Trust on behalf of the Fund. The
expenses of printing copies of prospectuses used to offer shares to 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 the noninterested Trustees), 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 may allow, upon notice to all
Authorized Firms with whom it has agreements, discounts up to the full sales
charge during the periods specified in the notice. During periods when the
discount includes the full sales charge, such Authorized Firms may be deemed
to be underwriters as that term is defined in the Securities Act of 1933. See
"Fees and Expenses" in this Part II for the sales charge paid to the Principal
Underwriter.
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 sales charge rule of the
NASD (Management believes service fee payments are not distribution expenses
governed by Rule 12b-1 under the 1940 Act, but has chosen to have the Plan
approved as if that Rule were applicable.) The following supplements the
discussion of the Plan contained in the Fund's Prospectus.
The Plan continues in effect from year to year, for so long as such
continuance is approved by a vote of both a majority of (i) the noninterested
Trustees who have no direct or indirect financial interest in the operation of
the Plan or any agreements related to it (the "Plan 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 Plan Trustees or by a vote of a majority of the outstanding voting
securities of the Fund.
The Plan requires quarterly Trustee review of a written report of the
amount expended under the Plan and the purposes for which such expenditures
were made. The Plan may not be amended to increase materially the payments
described herein without approval of the shareholders of the Fund and the
Trustees. So long as the Plan is in effect, the selection and nomination of
the noninterested Trustees shall be committed to the discretion of such
Trustees. 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 under the Plan see "Fees and Expenses"
in this Part II.
PERFORMANCE INFORMATION
The table below indicates the cumulative and average annual total return
on a hypothetical investment of $1,000 in the Fund covering the life of the
Fund from August 7, 1995 through January 31, 1997 and for the one-year period
ended January 31, 1997.
<TABLE>
<CAPTION>
VALUE OF A $1,000 INVESTMENT
TOTAL RETURN EXCLUDING TOTAL RETURN INCLUDING
VALUE OF VALUE OF MAXIMUM SALES CHARGE MAXIMUM SALES CHARGE
INVESTMENT INVESTMENT INITIAL INVESTMENT ------------------------------ ------------------------------
PERIOD DATE INVESTMENT* ON 1/31/97 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
----------- ---------- ----------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Life of
the Fund** 8/7/95 $962.46 $1,132.94 17.71% 11.56% 13.29% 8.74%
1 Year Ended
1/31/97** 1/31/96 $962.23 $1,025.07 6.53% 6.53% 2.51% 2.51%
Past performance is not indicative of future results. Investment return and principal value will fluctuate; shares, when
redeemed, may be worth more or less than their original cost.
- ------------
*Initial investment less the current maximum sales charge of 3.75%.
**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, 1997, the yield of the Fund
was 6.31%. The yield required of a taxable security that would produce an
after-tax yield equivalent to that earned by the Fund of 6.31% would be 9.14%,
assuming a federal tax rate of 31%. If a portion of the Portfolio's expenses
had not been allocated to the Investment Adviser, the Fund would have had a
lower yield.
An investment in the Fund offers shareholders the opportunity to: receive
high monthly tax-free income; retain more of their earnings; gain investment
advantages over purchasing individual bonds (such as professional management,
monthly income and portfolio diversification); and enlist a research-based
investment strategy to find municipal bonds with potential for high current
income and improving fundamentals.
See the Tax Equivalent Yield Table in this Part II for information
concerning applicable tax rates and income brackets.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As at April 30, 1997, 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, 1997, Merrill Lynch, Pierce, Fenner & Smith, Inc., Jacksonville,
FL, was the record owner of approximately (9.6%) of the outstanding shares,
which were held on behalf of its customers who are the beneficial owners of
such shares, and as to which it had voting power under certain limited
circumstances. In addition, as of such date, the following shareholder owned
of record the percentage of outstanding shares of the Fund indicated after
its name: Mars & Co., c/o Investors Bank & Trust Co., Boston, MA (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.
<PAGE>
TAX EQUIVALENT YIELD TABLE
The table shows the approximate taxable bond yields which are equivalent
to tax-exempt bond yields from 4% to 7% under the regular federal income tax
laws that apply to 1997.
<TABLE>
<CAPTION>
MARGINAL
SINGLE RETURN JOINT RETURN INCOME TAX-EXEMPT YIELD
- --------------------- ------------------- TAX --------------------------------------------------------------------------
(TAXABLE INCOME)* BRACKET 4% 4.5% 5% 5.5% 6% 6.5% 7%
- ------------------------------------------ ----------- --------------------------------------------------------------------------
EQUIVALENT TAXABLE YIELD
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $ 24,650 Up to $ 41,200 15.00% 4.71% 5.29% 5.88% 6.47% 7.06% 7.65% 8.24%
$ 24,651-$ 59,750 $ 41,201-$ 99,600 28.00 5.56 6.25 6.94 7.64 8.33 9.03 9.72
$ 59,751-$124,650 $ 99,601-$151,750 31.00 5.80 6.52 7.25 7.97 8.70 9.42 10.14
$124,651-$271,050 $151,751-$271,050 36.00 6.25 7.03 7.81 8.59 9.38 10.16 10.94
Over $271,050 Over $271,050 39.60 6.62 7.45 8.28 9.11 9.93 10.76 11.59
- ------------------------------------------ ----------- --------------------------------------------------------------------------
*Net amount subject to federal personal income tax after deductions and exemptions.
</TABLE>
Note: The above-indicated federal income tax brackets do not take into
account the effect of a reduction in the deductibility of itemized deductions
for taxpayers with adjusted gross income in excess of $121,200, nor the
effects of phaseout of personal exemptions for single and joint filers with
adjusted gross incomes in excess of $121,200 and $181,800, respectively. The
effective top marginal federal income tax brackets of taxpayers over ranges
of income subject to these reductions or phaseouts will be higher than
indicated above.
Yields shown are for illustration purposes only and are not meant to represent
the Fund's actual yield. Of course, no assurance can be given that the Fund
will achieve any specific tax exempt yield. While it is expected that a
substantial portion of the interest income received by the Portfolio and
allocated to the Fund and subsequently distributed to the Fund's shareholders
will be exempt from the regular federal income tax, portions of such
distributions from time to time may be subject to such tax. This table does
not take into account state or local taxes, if any, payable on Fund
distributions. It should also be noted that the interest earned on certain
"private activity bonds" issued after August 7, 1986, while exempt from the
regular federal income tax, is treated as a tax preference item which could
subject the recipient to the federal alternative minimum tax. The
illustrations assume that the federal alternative minimum tax is not
applicable and do not take into account any tax credits that may be available.
The information set forth above is as of the date of this SAI. Subsequent tax
law changes could result in prospective or retroactive changes in the tax
brackets, tax rates, and tax equivalent yields set forth above. Investors
should consult their tax adviser for additional information.
<PAGE>
[graphic omitted]
EATON VANCE
- ----------------------
MUTUAL FUNDS
EV TRADITIONAL
HIGH YIELD
MUNICIPALS FUND
STATEMENT OF
ADDITIONAL INFORMATION
JUNE 1, 1997
EV TRADITIONAL HIGH YIELD
MUNICIPALS FUND
24 FEDERAL STREET
BOSTON, MA 02110
- --------------------------------------------------------------------------------
INVESTMENT ADVISER OF HIGH YIELD MUNICIPALS PORTFOLIO
Boston Management and Research, 24 Federal Street, Boston, MA 02110
ADMINISTRATOR OF EV TRADITIONAL HIGH YIELD MUNICIPALS FUND
Eaton Vance Management, 24 Federal Street, Boston, MA 02110
PRINCIPAL UNDERWRITER
Eaton Vance Distributors, Inc., 24 Federal Street, Boston, MA 02110
(800) 225-6265
CUSTODIAN
Investors Bank & Trust Company, 89 South Street, Boston, MA 02111
TRANSFER AGENT
First Data Investor Services Group, P.O. Box 5123, Westborough, MA 01581-5123
(800) 262-1122
AUDITORS
Deloitte & Touche LLP, 125 Summer Street, Boston, MA 02110
T-HYSAI
<PAGE>
PART C
OTHER INFORMATION
ITEM 24: FINANCIAL STATEMENTS AND EXHIBITS
(a) FINANCIAL STATEMENTS
INCLUDED IN PART A FOR THE FUNDS LISTED BELOW ARE "FINANCIAL
HIGHLIGHTS" FROM THE DATE INDICATED TO THE FISCAL YEAR ENDED
JANUARY 31, 1997:
EV Marathon Florida Insured Municipals Fund (start of
business March 2, 1994).
EV Marathon Hawaii Municipals Fund (start of business March
2, 1994).
EV Marathon Kansas Municipals Fund (start of business March
2, 1994).
EV Traditional Florida Insured Municipals Fund (start of
business March 3, 1994).
EV Traditional Hawaii Municipals Fund (start of business
March 14, 1994).
EV Traditional Kansas Municipals Fund (start of business
March 3, 1994).
EV Marathon High Yield Municipals Fund (start of business
August 7, 1995).
EV Traditional High Yield Municipals Fund (start of
business August 7, 1995).
INCORPORATED BY REFERENCE INTO PART B ARE THE FINANCIAL STATEMENTS
CONTAINED IN THE ANNUAL REPORTS FOR THE FOLLOWING FUNDS, EACH DATED
JANUARY 31, 1997 (WHICH WERE PREVIOUSLY FILED ELECTRONICALLY PURSUANT
TO SECTION 30(b)(2) OF THE INVESTMENT COMPANY ACT OF 1940):
EV Marathon Florida Insured Municipals Fund
EV Marathon Hawaii Municipals Fund
EV Marathon Kansas Municipals Fund
(Accession No. 0000928816-97-000106)
EV Traditional Florida Insured Municipals Fund
EV Traditional Hawaii Municipals Fund
EV Traditional Kansas Municipals Fund
(Accession No. 0000928816-97-000107)
EV Marathon High Yield Municipals Fund
(Accession No. 0000928816-97-000094)
EV Traditional High Yield Municipals Fund
(Accession No. 0000928816-97-000095)
THE FINANCIAL STATEMENTS CONTAINED IN EACH FUND'S ANNUAL REPORT
ARE AS FOLLOWS:
Statement of Assets and Liabilities
Statement of Operations
Statement of Changes in Net Assets
Financial Highlights
Notes to Financial Statements
Independent Auditors' Report
ALSO INCORPORATED BY REFERENCE INTO PART B ARE THE FOLLOWING
FINANCIAL STATEMENTS OF THE FLORIDA INSURED MUNICIPALS PORTFOLIO,
HAWAII MUNICIPALS PORTFOLIO, KANSAS MUNICIPALS PORTFOLIO AND HIGH
YIELD MUNICIPALS PORTFOLIO, WHICH ARE CONTAINED IN THE ANNUAL
REPORTS DATED JANUARY 31, 1997 FOR THE CORRESPONDING FUNDS:
Portfolio of Investments
Statement of Assets and Liabilities
Statement of Operations
Statement of Changes in Net Assets
Supplementary Data
Notes to Financial Statements
Independent Auditors' Report
(b) EXHIBITS:
(1)(a) Declaration of Trust of Eaton Vance Municipals Trust II dated
October 25, 1993 filed as Exhibit (1)(a) to Post-Effective
Amendment No. 4 and incorporated herein by reference.
(b) Amendment and Restatement of Establishment and Designation of
Series of Shares dated March 24, 1997 filed as Exhibit(1)(b)
to Post-Effective Amendment No. 7 and incorporated herein by
reference.
(c) Establishment and Designation of Classes dated November 18,
1996 filed as Exhibit (1)(c) to Post-Effective Amendment No.
6 and incorporated herein by reference.
(2)(a) By-Laws dated October 25, 1993, filed as Exhibit (2)(a) to
Post-Effective Amendment No. 4 and incorporated herein by
reference.
(b) Amendment to By-Laws of Eaton Vance Municipals Trust II dated
December 13, 1993 filed as Exhibit (2)(b) to Post-Effective
Amendment No. 4 and incorporated herein by reference.
(3) Not applicable
(4) Not applicable
(5) Not applicable
(6)(a)(1) Distribution Agreement between Eaton Vance Municipals Trust
II (on behalf of its Marathon Series) and Eaton Vance
Distributors, Inc. effective November 1, 1996 (with attached
Schedule A effective November 1, 1996) filed as Exhibit
(6)(a)(1) to Post- Effective Amendment No. 6 and incorporated
herein by reference.
(2) Distribution Agreement between Eaton Vance Municipals Trust
II (on behalf of its Traditional Series) and Eaton Vance
Distributors, Inc. effective November 1, 1996 (with attached
Schedule A effective November 1, 1996) filed as Exhibit
(6)(a)(2) to Post- Effective Amendment No. 6 and incorporated
herein by reference.
(3) Distribution Agreement between Eaton Vance Municipals Trust
II (on behalf of its Classic Series) and Eaton Vance
Distributors, Inc. effective November 1, 1996, with attached
schedules (including Amended Schedule A-2 dated March 24,
1997) filed as Exhibit(6)(a)(3) to Post-Effective Amendment
No. 7 and incorporated herein by reference.
(b) Selling Group Agreement between Eaton Vance Distributors,
Inc. and Authorized Dealers filed as Exhibit (6)(b) to
Post-Effective Amendment No. 59 to the Registration Statement
of Eaton Vance Growth Trust (File Nos. 2-22019, 811-1241) and
incorporated herein by reference.
(c) Schedule of Dealer Discounts and Sales Charges filed as
Exhibit (6)(c) to Post- Effective Amendment No. 59 to the
Registration Statement of Eaton Vance Growth Trust (File Nos.
2-22019, 811-1241) and incorporated herein by reference.
(7) The Securities and Exchange Commission has granted the
Registrant an exemptive order that permits the Registrant to
enter into deferred compensation arrangements with its
independent Trustees. See in the Matter of Capital Exchange
Fund, Inc., Release No. IC-20671 (November 1, 1994).
(8)(a) Custodian Agreement between Eaton Vance Municipals Trust II
and Investors Bank & Trust Company dated February 25, 1994,
filed as Exhibit (8)(a) to Post-Effective Amendment No. 4 and
incorporated herein by reference.
(b) Amendment to Custodian Agreement with Investors Bank & Trust
Company dated October 23, 1995 filed as Exhibit (8)(b) to
Post-Effective Amendment No. 4 and incorporated herein by
reference.
(9)(a) Administrative Services Agreement between EV Classic Florida
Insured Tax Free Fund and Eaton Vance Management dated
February 25, 1994, with attached schedule pursuant to Rule
8b-31 under the Investment Company Act of 1940, as amended,
regarding other series of Registrant, filed as Exhibit (9) to
Post-Effective Amendment No. 1 and incorporated herein by
reference.
(b) Amended Administrative Services Agreement between Eaton Vance
Municipals Trust II (on behalf of all of its series), with
attached schedules (including Amended Schedule A dated March
27, 1997), and Eaton Vance Management, filed as Exhibit
(9)(b) to Post- Effective Amendment No. 4 and incorporated
herein by reference.
(10) Not applicable
(11)(a) Consent of Independent Auditors for EV Marathon Florida
Insured Municipals Fund, EV Marathon Hawaii Municipals Fund
and EV Marathon Kansas Municipals Fund filed herewith.
(b) Consent of Independent Auditors for EV Traditional Florida
Insured Municipals Fund, EV Traditional Hawaii Municipals
Fund and EV Traditional Kansas Municipals Fund filed
herewith.
(c) Consent of Independent Auditors for EV Marathon High Yield
Municipals Fund filed herewith.
(d) Consent of Independent Auditors for EV Traditional High Yield
Municipals Fund filed herewith.
(12) Not applicable
(13) Not applicable
(14) Not applicable
(15)(a) Amended Distribution Plan pursuant to Rule 12b-1 under the
Investment Company Act of 1940, as amended, for Eaton Vance
Municipals Trust II (on behalf of its Marathon series) dated
June 19, 1995, with attached schedule, filed as Exhibit
(15)(d) to Post- Effective Amendment No. 4 and incorporated
herein by reference.
(1) Amendment to Amended Distribution Plan for Eaton Vance
Municipals Trust II (on behalf of its Marathon Series)
adopted June 24, 1996 filed as Exhibit (15)(b) to Post-
Effective Amendment No. 6 and incorporated herein by
reference.
(b) Amended Service Plan pursuant to Rule 12b-1 under the
Investment Company Act of 1940, as amended, for Eaton Vance
Municipals Trust II (on behalf of its Traditional series)
dated June 19, 1995, with attached schedules (including
Amended Schedule A dated February 1, 1996) filed as Exhibit
(15)(e) to Post-Effective Amendment No. 4 and incorporated
herein by reference.
(1) Amendment to Amended Service Plan for Eaton Vance Municipals
Trust II (on behalf of its Traditional Series) adopted June
24, 1996 filed as Exhibit (15)(d) to Post-Effective Amendment
No. 6 and incorporated herein by reference.
(c) Amended Distribution Plan pursuant to Rule 12b-1 under the
Investment Company Act of 1940, as amended, for Eaton Vance
Municipals Trust II (on behalf of its Classic series) dated
January 27, 1995, with attached schedules (including Amended
Schedule A dated March 24, 1997 filed as Exhibit (15)(f) to
Post-Effective Amendment No. 4 and incorporated herein by
reference.
(1) Amendment to Amended Distribution Plan for Eaton Vance
Municipals Trust II (on behalf of its Classic Series) adopted
June 24, 1996 filed as Exhibit No. (15)(f) to Post- Effective
Amendment No. 7 and incorporated herein by reference.
(16) Schedules for Computation of Performance Quotations filed
herewith.
(17)(a) Power of Attorney for Eaton Vance Municipals Trust II dated
April 22, 1997 filed herewith.
(b) Power of Attorney for Florida Insured Municipals Portfolio,
Hawaii Municipals Portfolio, High Yield Municipals Portfolio
and Kansas Municipals Portfolio dated April 22, 1997 filed
herewith.
(18) Multiple Class Plan for Institutional Shares dated November
18, 1996 filed as Exhibit (18) to Post-Effective Amendment
No. 6 and incorporated herein by reference.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
Not applicable.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
(1) (2)
TITLE OF CLASS NUMBER OF RECORD HOLDERS
Shares of beneficial interest without par value as of April 30, 1997
EV Marathon Florida Insured Municipals Fund 299
EV Traditional Florida Insured Municipals Fund 46
EV Marathon Hawaii Municipals Fund 574
EV Traditional Hawaii Municipals Fund 19
EV Marathon Kansas Municipals Fund 258
EV Traditional Kansas Municipals Fund 47
EV Marathon High Yield Municipals Fund 2,461
EV Traditional High Yield Municipals Fund 1,522
ITEM 27. INDEMNIFICATION
Article IV of the Trust's Declaration of Trust, dated October 25, 1993,
permits Trustee and officer indemnification by By-law, contract and vote.
Article XI of the By-laws contains indemnification provisions. Registrant's
Trustees and officers are insured under a standard mutual fund errors and
omissions insurance policy covering insured by reason of negligent errors and
omissions committed in their capacities as such.
The distribution agreements of the Trust also provide for reciprocal
indemnity of the principal underwriter, on the one hand, and the Trustees and
officers, on the other.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
Reference is made to the information set forth under the caption
"Investment Adviser and Administrator" in the Statements of Additional
Information which information is incorporated herein by reference.
ITEM 29. PRINCIPAL UNDERWRITERS
(a) Registrant's principal underwriter, Eaton Vance Distributors, Inc., a
wholly-owned subsidiary of Eaton Vance Management, is the principal
underwriter for each of the investment companies named below:
<TABLE>
<CAPTION>
<S> <C>
EV Classic Florida Limited Maturity EV Marathon Asian Small Companies Fund
Municipals Fund EV Marathon California Limited Maturity
EV Classic Government Obligations Fund Municipals Fund
EV Classic Greater China Growth Fund EV Marathon California Municipals Fund
EV Classic Growth Fund EV Marathon Colorado Municipals Fund
EV Classic High Income Fund EV Marathon Connecticut Limited Maturity
EV Classic Information Age Fund Municipals Fund
EV Classic Investors Fund EV Marathon Connecticut Municipals Fund
EV Classic Massachusetts Limited Maturity EV Marathon Emerging Markets Fund
Municipals Fund EV Marathon Florida Insured Municipals Fund
EV Classic National Limited Maturity EV Marathon Florida Limited Maturity
Municipals Fund Municipals Fund
EV Classic National Municipals Fund EV Marathon Florida Municipals Fund
EV Classic New York Limited Maturity EV Marathon Georgia Municipals Fund
Municipals Fund EV Marathon Government Obligations Fund
EV Classic Pennsylvania Limited Maturity EV Marathon Greater China Growth Fund
Municipals Fund EV Marathon Greater India Fund
EV Classic Senior Floating-Rate Fund EV Marathon Growth Fund
EV Classic Strategic Income Fund EV Marathon Hawaii Municipals Fund
EV Classic Special Equities Fund EV Marathon High Income Fund
EV Classic Stock Fund EV Marathon High Yield Municipals Fund
EV Classic Tax-Managed Growth Fund EV Marathon Information Age Fund
EV Classic Total Return Fund EV Marathon Investors Fund
EV Marathon Alabama Municipals Fund EV Marathon Kansas Municipals Fund
EV Marathon Arizona Municipals Fund EV Marathon Kentucky Municipals Fund
EV Marathon Arkansas Municipals Fund EV Marathon Louisiana Municipals Fund
<PAGE>
EV Marathon Maryland Municipals Fund EV Traditional Florida Insured Municipals Fund
EV Marathon Massachusetts Limited Maturity EV Traditional Florida Limited Maturity
Municipals Fund Municipals Fund
EV Marathon Massachusetts Municipals Fund EV Traditional Florida Municipals Fund
EV Marathon Michigan Limited Maturity EV Traditional Georgia Municipals Fund
Municipals Fund EV Traditional Government Obligations Fund
EV Marathon Michigan Municipals Fund EV Traditional Greater China Growth Fund
EV Marathon Minnesota Municipals Fund EV Traditional Greater India Fund
EV Marathon Mississippi Municipals Fund EV Traditional Growth Fund
EV Marathon Missouri Municipals Fund EV Traditional Hawaii Municipals Fund
EV Marathon National Limited Maturity EV Traditional High Yield Municipals Fund
Municipals Fund Eaton Vance Income Fund of Boston
EV Marathon National Municipals Fund EV Traditional Information Age Fund
EV Marathon New Jersey Limited Maturity EV Traditional Investors Fund
Municipals Fund EV Traditional Kansas Municipals Fund
EV Marathon New Jersey Municipals Fund EV Traditional Kentucky Municipals Fund
EV Marathon New York Limited Maturity EV Traditional Louisiana Municipals Fund
Municipals Fund EV Traditional Maryland Municipals Fund
EV Marathon New York Municipals Fund EV Traditional Massachusetts Municipals Fund
EV Marathon North Carolina Municipals Fund EV Traditional Michigan Limited Maturity
EV Marathon Ohio Limited Maturity Municipals Fund
Municipals Fund EV Traditional Michigan Municipals Fund
EV Marathon Ohio Municipals Fund EV Traditional Minnesota Municipals Fund
EV Marathon Oregon Municipals Fund EV Traditional Mississippi Municipals Fund
EV Marathon Pennsylvania Limited Maturity EV Traditional Missouri Municipals Fund
Municipals Fund Eaton Vance Municipal Bond Fund L.P.
EV Marathon Pennsylvania Municipals Fund EV Traditional National Limited Maturity
EV Marathon Rhode Island Municipals Fund Municipals Fund
EV Marathon Strategic Income Fund EV Traditional National Municipals Fund
EV Marathon South Carolina Municipals Fund EV Traditional New Jersey Limited Maturity
EV Marathon Special Equities Fund Municipals Fund
EV Marathon Stock Fund EV Traditional New Jersey Municipals Fund
EV Marathon Tax-Managed Growth Fund EV Traditional New York Limited Maturity
EV Marathon Tennessee Municipals Fund Municipals Fund
EV Marathon Texas Municipals Fund EV Traditional New York Municipals Fund
EV Marathon Total Return Fund EV Traditional North Carolina Municipals Fund
EV Marathon Virginia Municipals Fund EV Traditional Ohio Limited
EV Marathon West Virginia Municipals Fund Maturity Municipals Fund
EV Marathon Worldwide Developing Resources Fund EV Traditional Ohio Municipals Fund
EV Marathon Worldwide Health Sciences Fund EV Traditional Oregon Municipals Fund
EV Traditional Alabama Municipals Fund EV Traditional Pennsylvania Municipals Fund
EV Traditional Arizona Municipals Fund EV Traditional Rhode Island Municipals Fund
EV Traditional Arkansas Municipals Fund EV Traditional South Carolina Municipals Fund
EV Traditional Asian Small Companies Fund EV Traditional Special Equities Fund
EV Traditional California Limited Maturity EV Traditional Stock Fund
Municipals Fund EV Traditional Tax-Managed Growth Fund
EV Traditional California Municipals Fund EV Traditional Tennessee Municipals Fund
EV Traditional Colorado Municipals Fund EV Traditional Texas Municipals Fund
EV Traditional Connecticut Limited Maturity EV Traditional Total Return Fund
Municipals Fund EV Traditional Virginia Municipals Fund
EV Traditional Connecticut Municipals Fund EV Traditional West Virginia Municipals Fund
EV Traditional Emerging Growth Fund EV Traditional Worldwide Developing
EV Traditional Emerging Markets Fund Resources Fund
<PAGE>
EV Traditional Worldwide Health Eaton Vance Prime Rate Reserves
Sciences Fund, Inc. Eaton Vance Short-Term Treasury Fund
Eaton Vance Cash Management Fund Eaton Vance Tax Free Reserves
Eaton Vance Liquid Assets Fund Massachusetts Municipal Bond Portfolio
Eaton Vance Money Market Fund
</TABLE>
(b)
<TABLE>
<CAPTION>
(1) (2) (3)
NAME AND PRINCIPAL POSITIONS AND OFFICES POSITIONS AND OFFICE
BUSINESS ADDRESS* WITH PRINCIPAL UNDERWRITER WITH REGISTRANT
----------------- -------------------------- ---------------
<S> <C> <C>
James B. Hawkes Vice President and Director Vice President and Trustee
William M. Steul Vice President and Director None
Wharton P. Whitaker President and Director None
Chris Berg Vice President None
Kate B. Bradshaw Vice President None
David B. Carle Vice President None
Daniel C. Cataldo Vice President None
James S. Comforti Vice President None
Raymond Cox Vice President None
Mark P. Doman Vice President None
Alan R. Dynner Vice President None
James Foley Vice President None
Michael A. Foster Vice President None
William M. Gillen Senior Vice President None
Hugh S. Gilmartin Vice President None
Perry D. Hooker Vice President None
Brian Jacobs Senior Vice President None
Thomas P. Luka Vice President None
John Macejka Vice President None
Timothy D. McCarthy Vice President None
Joseph T. McMenamin Vice President None
Morgan C. Mohrman Senior Vice President None
James A. Naughton Vice President None
Mark D. Nelson Vice President None
Linda D. Newkirk Vice President None
James L. O'Connor Vice President Treasurer
Thomas Otis Secretary and Clerk Secretary
George D. Owen II Vice President None
F. Anthony Robinson Vice President None
Jay S. Rosoff Vice President None
Benjamin A. Rowland, Jr. Vice President, None
Treasurer and Director
Steven M. Rudman Vice President None
John P. Rynne Vice President None
Kevin Schrader Vice President None
George V.F. Schwab, Jr. Vice President None
Cornelius J. Sullivan Vice President None
John M. Trotsky Vice President None
David M. Thill Vice President None
Chris Volf Vice President None
Sue Wilder Vice President None
</TABLE>
- ----------
*Address is 24 Federal Street, Boston, MA 02110
(c) Not applicable
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
All applicable accounts, books and documents required to be maintained by
the Registrant by Section 31(a) of the Investment Company Act of 1940 and the
Rules promulgated thereunder are in the possession and custody of the
Registrant's custodian, Investors Bank & Trust Company, 89 South Street, Boston,
MA 02111, and its transfer agent, First Data Investor Services Group, 4400
Computer Drive, Westborough, MA 01581-5123, with the exception of certain
corporate documents and portfolio trading documents which are in the possession
and custody of Eaton Vance Management, 24 Federal Street, Boston, MA 02110. The
Registrant is informed that all applicable accounts, books and documents
required to be maintained by registered investment advisers are in the custody
and possession of Eaton Vance Management and Boston Management and Research.
ITEM 31. MANAGEMENT SERVICES
Not applicable
ITEM 32. UNDERTAKINGS
The Registrant undertakes to file a Post-Effective Amendment on behalf of EV
Classic High Yield Municipals Fund, using financial statements which need not be
certified, within four to six months from the effective date of Post- Effective
Amendment No. 7.
The Registrant undertakes to furnish to each person to whom a prospectus is
delivered a copy of the latest annual report to shareholders, upon request and
without charge.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Amendment to its Registration
Statement pursuant to Rule 485(b) under the Securities Act of 1933 and has duly
caused this Post-Effective Amendment to its Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized in the City of
Boston and the Commonwealth of Massachusetts on the 20th day of May, 1997.
EATON VANCE MUNICIPALS TRUST II
By /s/ THOMAS J. FETTER
-------------------------------------
THOMAS J. FETTER, President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
President (Chief Executive
/s/ THOMAS J. FETTER Officer) May 20, 1997
- ----------------------------
THOMAS J. FETTER
Treasurer and Principal
Financial and Accounting
/s/ JAMES L. O'CONNOR Officer May 20, 1997
- ----------------------------
JAMES L. O'CONNOR
DONALD R. DWIGHT* Trustee May 20, 1997
- ----------------------------
DONALD R. DWIGHT
/s/ JAMES B. HAWKES Vice President and Trustee May 20, 1997
- ----------------------------
JAMES B. HAWKES
SAMUEL L. HAYES, III* Trustee May 20, 1997
- ----------------------------
SAMUEL L. HAYES, III
NORTON H. REAMER* Trustee May 20, 1997
- ----------------------------
NORTON H. REAMER
JOHN L. THORNDIKE* Trustee May 20, 1997
- ----------------------------
JOHN L. THORNDIKE
JACK L. TREYNOR* Trustee May 20, 1997
- ----------------------------
JACK L. TREYNOR
*By: /s/ ALAN R. DYNNER
- ----------------------------
As attorney-in-fact
<PAGE>
SIGNATURES
Florida Insured Municipals Portfolio has duly caused this Amendment to the
Registration Statement on Form N-1A of Eaton Vance Municipals Trust II to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Boston and the Commonwealth of Massachusetts on the 20th day of May, 1997.
FLORIDA INSURED MUNICIPALS PORTFOLIO
By /s/ THOMAS J. FETTER
-------------------------------------
THOMAS J. FETTER, President
This Amendment to the Registration Statement on Form N-1A of Eaton Vance
Municipals Trust II has been signed below by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
President (Chief Executive
/s/ THOMAS J. FETTER Officer) May 20, 1997
- ----------------------------
THOMAS J. FETTER
Treasurer and Principal
Financial and Accounting
/s/ JAMES L. O'CONNOR Officer May 20, 1997
- ----------------------------
JAMES L. O'CONNOR
DONALD R. DWIGHT* Trustee May 20, 1997
- ----------------------------
DONALD R. DWIGHT
/s/ JAMES B. HAWKES Vice President and Trustee May 20, 1997
- ----------------------------
JAMES B. HAWKES
SAMUEL L. HAYES, III* Trustee May 20, 1997
- ----------------------------
SAMUEL L. HAYES, III
NORTON H. REAMER* Trustee May 20, 1997
- ----------------------------
NORTON H. REAMER
JOHN L. THORNDIKE* Trustee May 20, 1997
- ----------------------------
JOHN L. THORNDIKE
JACK L. TREYNOR* Trustee May 20, 1997
- ----------------------------
JACK L. TREYNOR
*By: /s/ ALAN R. DYNNER
- ----------------------------
As attorney-in-fact
<PAGE>
SIGNATURES
Hawaii Municipals Portfolio has duly caused this Amendment to the
Registration Statement on Form N-1A of Eaton Vance Municipals Trust II to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Boston and the Commonwealth of Massachusetts on the 20th day of May, 1997.
HAWAII MUNICIPALS PORTFOLIO
By /s/ THOMAS J. FETTER
-------------------------------------
THOMAS J. FETTER, President
This Amendment to the Registration Statement on Form N-1A of Eaton Vance
Municipals Trust II has been signed below by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
President (Chief Executive
/s/ THOMAS J. FETTER Officer) May 20, 1997
- ----------------------------
THOMAS J. FETTER
Treasurer and Principal
Financial and Accounting
/s/ JAMES L. O'CONNOR Officer May 20, 1997
- ----------------------------
JAMES L. O'CONNOR
DONALD R. DWIGHT* Trustee May 20, 1997
- ----------------------------
DONALD R. DWIGHT
/s/ JAMES B. HAWKES Trustee May 20, 1997
- ----------------------------
JAMES B. HAWKES
SAMUEL L. HAYES, III* Trustee May 20, 1997
- ----------------------------
SAMUEL L. HAYES, III
NORTON H. REAMER* Trustee May 20, 1997
- ----------------------------
NORTON H. REAMER
JOHN L. THORNDIKE* Trustee May 20, 1997
- ----------------------------
JOHN L. THORNDIKE
JACK L. TREYNOR* Trustee May 20, 1996
- ----------------------------
JACK L. TREYNOR
*By: /s/ ALAN R. DYNNER
- ----------------------------
As attorney-in-fact
<PAGE>
SIGNATURES
Kansas Municipals Portfolio has duly caused this Amendment to the
Registration Statement on Form N-1A of Eaton Vance Municipals Trust II to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Boston and the Commonwealth of Massachusetts on the 20th day of May, 1997.
KANSAS MUNICIPALS PORTFOLIO
By /s/ THOMAS J. FETTER
-------------------------------------
THOMAS J. FETTER, President
This Amendment to the Registration Statement on Form N-1A of Eaton Vance
Municipals Trust II has been signed below by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
President (Chief Executive
/s/ THOMAS J. FETTER Officer) May 20, 1997
- ----------------------------
THOMAS J. FETTER
Treasurer and Principal
Financial and Accounting
/s/ JAMES L. O'CONNOR Officer May 20, 1997
- ----------------------------
JAMES L. O'CONNOR
DONALD R. DWIGHT* Trustee May 20, 1997
- ----------------------------
DONALD R. DWIGHT
/s/ JAMES B. HAWKES Trustee May 20, 1997
- ----------------------------
JAMES B. HAWKES
SAMUEL L. HAYES, III* Trustee May 20, 1997
- ----------------------------
SAMUEL L. HAYES, III
NORTON H. REAMER* Trustee May 20, 1997
- ----------------------------
NORTON H. REAMER
JOHN L. THORNDIKE* Trustee May 20, 1997
- ----------------------------
JOHN L. THORNDIKE
JACK L. TREYNOR* Trustee May 20, 1996
- ----------------------------
JACK L. TREYNOR
*By: /s/ ALAN R. DYNNER
- ----------------------------
As attorney-in-fact
<PAGE>
SIGNATURES
High Yield Municipals Portfolio has duly caused this Amendment to the
Registration Statement on Form N-1A of Eaton Vance Municipals Trust II to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Boston and the Commonwealth of Massachusetts on the 20th day of May, 1997.
HIGH YIELD MUNICIPALS PORTFOLIO
By /s/ THOMAS J. FETTER
-------------------------------------
THOMAS J. FETTER, President
This Amendment to the Registration Statement on Form N-1A of Eaton Vance
Municipals Trust II has been signed below by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
President (Chief Executive
/s/ THOMAS J. FETTER Officer) May 20, 1997
- ----------------------------
THOMAS J. FETTER
Treasurer and Principal
Financial and Accounting
/s/ JAMES L. O'CONNOR Officer May 20, 1997
- ----------------------------
JAMES L. O'CONNOR
DONALD R. DWIGHT* Trustee May 20, 1997
- ----------------------------
DONALD R. DWIGHT
/s/ JAMES B. HAWKES Trustee May 20, 1997
- ----------------------------
JAMES B. HAWKES
SAMUEL L. HAYES, III* Trustee May 20, 1997
- ----------------------------
SAMUEL L. HAYES, III
NORTON H. REAMER* Trustee May 20, 1997
- ----------------------------
NORTON H. REAMER
JOHN L. THORNDIKE* Trustee May 20, 1997
- ----------------------------
JOHN L. THORNDIKE
JACK L. TREYNOR* Trustee May 20, 1997
- ----------------------------
JACK L. TREYNOR
*By: /s/ ALAN R. DYNNER
- ----------------------------
As attorney-in-fact
<PAGE>
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
- ----------- -----------
(11)(a) Consent of Independent Auditors for EV Marathon Florida
Insured Municipals Fund, EV Marathon Hawaii Municipals
Fund and EV Marathon Kansas Municipals Fund.
(11)(b) Consent of Independent Auditors for EV Traditional Florida
Insured Municipals Fund, EV Traditional Hawaii Municipals
Fund and EV Traditional Kansas Municipals Fund.
(11)(c) Consent of Independent Auditors for EV Marathon High Yield
Municipals Fund.
(11)(d) Consent of Independent Auditors for EV Traditional High
Yield Municipals Fund.
(16) Schedules for Computation of Performance Quotations.
(17)(a) Power of Attorney for Eaton Vance Municipals Trust II
dated April 22, 1997.
(17)(b) Power of Attorney for Florida Insured Municipals
Portfolio, Hawaii Municipals Portfolio, High Yield
Municipals Portfolio and Kansas Municipals Portfolio dated
April 22, 1997.
<PAGE>
EXHIBIT 11(a)
CONSENT OF INDEPENDENT AUDITORS
We consent to the use in Post-Effective Amendment No. 8 to the Registration
Statement on Form N-1A of Eaton Vance Municipals Trust II (1933 Act File Number
33-71320) on behalf of EV Marathon Florida Insured Municipals Fund, EV Marathon
Hawaii Municipals Fund and EV Marathon Kansas Municipals Fund (the "Funds") of
our report dated March 7, 1997 relating to such Funds and of our report dated
March 7, 1997, relating to Florida Insured Municipals Portfolio, Hawaii
Municipals Portfolio and Kansas Municipals Portfolio, which reports are included
in the Annual Report to Shareholders for the year ended January 31, 1997, which
is incorporated by reference in the Statement of Additional Information, which
is part of such Registration Statement.
We also consent to the reference to our Firm under the heading "The Funds"
Financial Highlights" in the Prospectus and under the caption "Independent
Certified Public Accountants" in the Statement of Additional Information of the
Registration Statement.
/s/ DELOITTE & TOUCHE LLP
----------------------------------
DELOITTE & TOUCHE LLP
May 20, 1997
Boston, Massachusetts
<PAGE>
EXHIBIT 11(b)
CONSENT OF INDEPENDENT AUDITORS
We consent to the use in Post-Effective Amendment No. 8 to the Registration
Statement on Form N-1A of Eaton Vance Municipals Trust II (1933 Act File Number
33-71320) on behalf of EV Traditional Florida Insured Municipals Fund, EV
Traditional Hawaii Municipals Fund and EV Traditional Kansas Municipals Fund
(the "Funds") of our report dated March 7, 1997 relating to such Funds and of
our report dated March 7, 1997, relating to Florida Insured Municipals
Portfolio, Hawaii Municipals Portfolio and Kansas Municipals Portfolio, which
reports are included in the Annual Report to Shareholders for the year ended
January 31, 1997, which is incorporated by reference in the Statement of
Additional Information, which is part of such Registration Statement.
We also consent to the reference to our Firm under the heading "The Funds"
Financial Highlights" in the Prospectus and under the caption "Independent
Certified Public Accountants" in the Statement of Additional Information of the
Registration Statement.
/s/ DELOITTE & TOUCHE LLP
----------------------------------
DELOITTE & TOUCHE LLP
May 20, 1997
Boston, Massachusetts
<PAGE>
EXHIBIT 11(c)
CONSENT OF INDEPENDENT AUDITORS
We consent to the use in Post-Effective Amendment No. 8 to the Registration
Statement on Form N-1A of Eaton Vance Municipals Trust II (1933 Act File Number
33-71320) on behalf of EV Marathon High Yield Municipals Fund (the "Fund") of
our report dated March 7, 1997 relating to such Fund, and of our report dated
March 7, 1997 relating to High Yield Municipals Portfolio, which reports are
included in the Annual Report to Shareholders for the year ended January 31,
1997, which is incorporated by reference in the Statement of Additional
Information, which is part of such Registration Statement.
We also consent to the reference to our Firm under the heading "The Fund's
Financial Highlights" in the Prospectus and under the caption "Independent
Certified Public Accountants" in the Statement of Additional Information of the
Registration Statement.
/s/ DELOITTE & TOUCHE LLP
----------------------------------
DELOITTE & TOUCHE LLP
May 20, 1997
Boston, Massachusetts
<PAGE>
EXHIBIT 11(D)
CONSENT OF INDEPENDENT AUDITORS
We consent to the use in Post-Effective Amendment No. 8 to the Registration
Statement on Form N-1A of Eaton Vance Municipals Trust II (1933 Act File Number
33-71320) on behalf of EV Traditional High Yield Municipals Fund (the "Fund") of
our report dated March 7, 1997 relating to such Fund, and of our report dated
March 7, 1997 relating to High Yield Municipals Portfolio, which reports are
included in the Annual Report to Shareholders for the year ended January 31,
1997, which is incorporated by reference in the Statement of Additional
Information, which is part of such Registration Statement.
We also consent to the reference to our Firm under the heading "The Fund's
Financial Highlights" in the Prospectus and under the caption "Independent
Certified Public Accountants" in the Statement of Additional Information of the
Registration Statement.
/s/ DELOITTE & TOUCHE LLP
----------------------------------
DELOITTE & TOUCHE LLP
May 20, 1997
Boston, Massachusetts
<PAGE>
<TABLE>
EXHIBIT 16
INVESTMENT PERFORMANCE -- EV MARATHON FLORIDA INSURED MUNICIPALS FUND
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 period from March 2, 1994 through January 31, 1997 and for the 1 year period ended
January 31, 1997.
<CAPTION>
VALUE OF A $1,000 INVESTMENT
VALUE OF VALUE OF
INVESTMENT INVESTMENT TOTAL RETURN TOTAL RETURN
INVESTMENT INVESTMENT BEFORE CDSC AFTER CDSC BEFORE DEDUCTING CDSC AFTER DEDUCTING CDSC
PERIOD DATE ON 01/31/97 ON 01/31/97 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
<S> <C> <C> <C> <C> <C> <C> <C>
LIFE OF
FUND 03/02/94 $1,228.29 $1,188.29 22.83% 7.30% 18.83% 6.09%
1 YEAR ENDED
01/31/97 01/31/96 $1,011.44 $963.15 1.14% 1.14% -3.69% -3.69%
Average annual total return is calculated using the following formula:
n
P(1+T) = ERV
where P = an initial investment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of $1,000 initial investment at the end of the period after
deducting the CDSC *
Cumulative total return is calculated using the following formula:
T = ( ERV / P ) - 1
where T = cumulative total return including the maximum sales charge
ERV = ending redeemable value of $1,000 initial investment at the end of the period after
deducting the CDSC **
P = an initial investment of $1,000
* The average annual total return not including the CDSC is calculated based on the ending investment value
before deducting the CDSC.
** The cumulative total return not including the CDSC is calculated based on the ending investment value before
deducting the CDSC.
</TABLE>
<PAGE>
Exhibit 16
EV MARATHON FLORIDA INSURED MUNICIPALS FUND
30-DAY AND TAX EQUIVALENT YIELD CALCULATIONS
For the 30 days ended 1/31/97:
Interest Income Earned: $103,751
Plus Dividend Income Earned:
---------
Equal Gross Income $103,751
Minus Expense $20,449
---------
Equal Net Investment Income $83,302
Divided by Average daily number of shares
outstanding that were entitled
to receive dividend 2,058,148
---------
Equal Net Investment Income Earned Per Share $0.0405
Net Asset Value Per Share 1/31/97 $10.71
30 Day Yield 4.58%
Divided by One minus the Tax Rate of 31%: 0.69
---------
Equal Tax Equivalent Yield **: 6.64%
Divided by one minus a tax rate of 33.80% 0.6620
---------
Equal Tax Equivalent Yield**: 6.92%
* Yield is calculated on a bond equivalent rate as follows:
2[(($0.0405/$10.71)+1)-1]
** Assuming a tax rate of 31%
*** Assuming a combined federal and Florida tax rate of 33.80%
<PAGE>
<TABLE>
INVESTMENT PERFORMANCE -- EV MARATHON HAWAII MUNICIPALS FUND
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 period from March 2, 1994 through January 31, 1997 and for the 1 year period ended
January 31, 1997.
<CAPTION>
VALUE OF A $1,000 INVESTMENT
VALUE OF VALUE OF
INVESTMENT INVESTMENT TOTAL RETURN TOTAL RETURN
INVESTMENT INVESTMENT BEFORE CDSC AFTER CDSC BEFORE DEDUCTING CDSC AFTER DEDUCTING CDSC
PERIOD DATE ON 01/31/97 ON 01/31/97 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
<S> <C> <C> <C> <C> <C> <C> <C>
LIFE OF
FUND 03/02/94 $1,127.73 $1,088.81 12.77% 4.20% 8.88% 2.96%
1 YEAR ENDED
01/31/97 01/31/96 $1,023.99 $975.24 2.40% 2.40% -2.48% -2.48%
Average annual total return is calculated using the following formula:
n
P(1+T) = ERV
where P = an initial investment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of $1,000 initial investment at the end of the period after
deducting the CDSC *
Cumulative total return is calculated using the following formula:
T = ( ERV / P ) - 1
where T = cumulative total return including the maximum sales charge
ERV = ending redeemable value of $1,000 initial investment at the end of the period after
deducting the CDSC **
P = an initial investment of $1,000
* The average annual total return not including the CDSC is calculated based on the ending investment value
before deducting the CDSC.
** The cumulative total return not including the CDSC is calculated based on the ending investment value before
deducting the CDSC.
</TABLE>
<PAGE>
Exhibit 16
EV MARATHON HAWAII MUNICIPALS FUND
30-DAY AND TAX EQUIVALENT YIELD CALCULATIONS
For the 30 days ended 1/31/97:
Interest Income Earned: $72,408
Plus Dividend Income Earned:
---------
Equal Gross Income $72,408
Minus Expense $15,123
---------
Equal Net Investment Income $57,285
Divided by Average daily number of shares
outstanding that were entitled
to receive dividend 1,596,075
---------
Equal Net Investment Income Earned Per Share $0.0359
Net Asset Value Per Share 1/31/97 $9.73
30 Day Yield 4.47%
Divided by One minus the Tax Rate of 31%: 0.69
------
Equal Tax Equivalent Yield **: 6.48%
Divided by one minus a tax rate of 35.20% 0.6480
------
Equal Tax Equivalent Yield**: 6.90%
* Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0359/$9.73)+1)-1]
** Assuming a tax rate of 31%
*** Assuming a combined federal and Hawaii tax rate of 35.20%
<PAGE>
<TABLE>
INVESTMENT PERFORMANCE -- EV MARATHON KANSAS MUNICIPALS FUND
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 period from March 2, 1994 through January 31, 1997 and for the 1 year period ended
January 31, 1997.
<CAPTION>
VALUE OF A $1,000 INVESTMENT
VALUE OF VALUE OF
INVESTMENT INVESTMENT TOTAL RETURN TOTAL RETURN
INVESTMENT INVESTMENT BEFORE CDSC AFTER CDSC BEFORE DEDUCTING CDSC AFTER DEDUCTING CDSC
PERIOD DATE ON 01/31/97 ON 01/31/97 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
<S> <C> <C> <C> <C> <C> <C> <C>
LIFE OF
FUND 03/02/94 $1,162.41 $1,122.41 16.24% 5.29% 12.24% 4.03%
1 YEAR ENDED
01/31/97 01/31/96 $1,024.62 $975.78 2.46% 2.46% -2.42% -2.42%
Average annual total return is calculated using the following formula:
n
P(1+T) = ERV
where P = an initial investment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of $1,000 initial investment at the end of the period after
deducting the CDSC *
Cumulative total return is calculated using the following formula:
T = ( ERV / P ) - 1
where T = cumulative total return including the maximum sales charge
ERV = ending redeemable value of $1,000 initial investment at the end of the period after
deducting the CDSC **
P = an initial investment of $1,000
* The average annual total return not including the CDSC is calculated based on the ending investment value
before deducting the CDSC.
** The cumulative total return not including the CDSC is calculated based on the ending investment value before
deducting the CDSC.
</TABLE>
<PAGE>
Exhibit 16
EV MARATHON KANSAS MUNICIPALS FUND
30-DAY AND TAX EQUIVALENT YIELD CALCULATIONS
For the 30 days ended 1/31/97:
Interest Income Earned: $50,005
Plus Dividend Income Earned:
---------
Equal Gross Income $50,005
Minus Expenses $10,431
---------
Equal Net Investment Income $39,574
Divided by Average daily number of shares
outstanding that were entitled
to receive dividend 1,043,372
---------
Equal Net Investment Income Earned Per Share $0.0379
Net Asset Value Per Share 1/31/97 $10.08
30 Day Yield 4.56%
Divided by One minus the Tax Rate of 31%: 0.69
---------
Equal Tax Equivalent Yield **: 6.61%
Divided by one minus a tax rate of 34.80% 0.6520
---------
Equal Tax Equivalent Yield*: 6.99%
* Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0379/$10.08)+1)-1]
** Assuming a tax rate of 31%
*** Assuming a combined federal and Kansas tax rate of 34.80%
<PAGE>
<TABLE>
INVESTMENT PERFORMANCE -- EV TRADITIONAL FLORIDA INSURED MUNICIPALS FUND
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 period from March 2, 1994 through January 31, 1997 and for the 1 year period ended
January 31, 1997. Total return for the period prior to the Fund's commencement of operations is for the Portfolio (or its
predecessor) adjusted for the Fund's sales charge.
<CAPTION>
VALUE OF A $1,000 INVESTMENT
VALUE OF VALUE OF TOTAL RETURN TOTAL RETURN
INVESTMENT INVESTMENT INITIAL INVESTMENT EXCLUDING SALES CHARGE INCLUDING SALES CHARGE
PERIOD DATE INVESTMENT* ON 01/31/97 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
<S> <C> <C> <C> <C> <C> <C> <C>
LIFE OF
FUND 03/02/94 $962.46 $1,216.20 26.37% 8.34% 21.62% 6.93%
1 YEAR ENDED
01/31/97 01/31/96 $962.26 $981.19 1.97% 1.97% -1.88% -1.88%
Average annual total return is calculated using the following formula:
n
P(1+T) = ERV
where P = an initial investment of $1,000 **
T = average annual total return
n = number of years
ERV = ending redeemable value of $1,000 initial investment at the end of the period
Cumulative total return is calculated using the following formula:
T = ( ERV / P ) - 1
where T = cumulative total return including the maximum sales charge
ERV = ending redeemable value of $1,000 initial investment at the end of the period
P = an initial investment of $1,000 ***
* Initial investment less the current maximum sales charge of 3.75%.
** The average annual total return including the sales charge is calculated based on an initial investment of $1,000 less the
maximum initial sales charge of 3.75%.
*** The cumulative total return including the sales charge is calculated based on an initial investment of $1,000 less
maximum initial sales charge of 3.75%.
</TABLE>
<PAGE>
Exhibit 16
EV TRADITIONAL FLORIDA INSURED MUNICIPALS FUND
30-DAY AND TAX EQUIVALENT YIELD CALCULATIONS
For the 30 days ended 1/31/97:
Interest Income Earned: $10,349
Plus Dividend Income Earned:
-------
Equal Gross Income $10,349
Minus Expense $869
-------
Equal Net Investment Income $9,480
Divided by Average daily number of shares
outstanding that were entitled
to receive dividend 203,238
-------
Equal Net Investment Income Earned Per Share $0.0466
Net Asset Value Per Share 1/31/97 $11.27
30 Day Yield 5.02%
Divided by One minus the Tax Rate of 31%: 0.69
-------
Equal Tax Equivalent Yield **: 7.28%
Divided by one minus a tax rate of 33.55% 0.6645
-------
Equal Tax Equivalent Yield**: 7.55%
* Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0466/$11.27)+1)-1]
** Assuming a tax rate of 31%
*** Assuming a combined federal and Florida tax rate of 33.55%
<PAGE>
<TABLE>
INVESTMENT PERFORMANCE -- EV TRADITIONAL HAWAII MUNICIPALS FUND
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 period from March 2, 1994 through January 31, 1997 and for the 1 year period ended
January 31, 1997. Total return for the period prior to the Fund's commencement of operations is for the Portfolio (or its
predecessor) adjusted for the Fund's sales charge.
<CAPTION>
VALUE OF A $1,000 INVESTMENT
VALUE OF VALUE OF TOTAL RETURN TOTAL RETURN
INVESTMENT INVESTMENT INITIAL INVESTMENT EXCLUDING SALES CHARGE INCLUDING SALES CHARGE
PERIOD DATE INVESTMENT* ON 01/31/97 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
<S> <C> <C> <C> <C> <C> <C> <C>
LIFE OF
FUND 03/02/94 $962.50 $1,065.50 10.70% 3.54% 6.55% 2.20%
1 YEAR ENDED
01/31/97 01/31/96 $962.52 $993.02 3.17% 3.17% -0.70% -0.70%
Average annual total return is calculated using the following formula:
n
P(1+T) = ERV
where P = an initial investment of $1,000 **
T = average annual total return
n = number of years
ERV = ending redeemable value of $1,000 initial investment at the end of the period
Cumulative total return is calculated using the following formula:
T = ( ERV / P ) - 1
where T = cumulative total return including the maximum sales charge
ERV = ending redeemable value of $1,000 initial investment at the end of the period
P = an initial investment of $1,000 ***
* Initial investment less the current maximum sales charge of 3.75%.
** The average annual total return including the sales charge is calculated based on an initial investment of $1,000 less the
maximum initial sales charge of 3.75%.
*** The cumulative total return including the sales charge is calculated based on an initial investment of $1,000 less
maximum initial sales charge of 3.75%.
</TABLE>
<PAGE>
Exhibit 16
EV TRADITIONAL HAWAII MUNICIPALS FUND
30-DAY AND TAX EQUIVALENT YIELD CALCULATIONS
For the 30 days ended 1/31/97:
Interest Income Earned: $1,468
Plus Dividend Income Earned:
-------
Equal Gross Income $1,468
Minus Expense $67
-------
Equal Net Investment Income $1,401
Divided by Average daily number of shares
outstanding that were entitled
to receive dividend 36,021
-------
Equal Net Investment Income Earned Per Share $0.0389
Net Asset Value Per Share 1/31/97 $9.91
30 Day Yield 4.75%
Divided by One minus the Tax Rate of 31%: 0.69
-------
Equal Tax Equivalent Yield **: 6.88%
Divided by one minus a tax rate of 35.20% 0.6480
-------
Equal Tax Equivalent Yield**: 7.33%
* Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0389/$9.91)+1)-1]
** Assuming a tax rate of 31%
*** Assuming a combined federal and Hawaii tax rate of 35.20%
<PAGE>
<TABLE>
INVESTMENT PERFORMANCE -- EV TRADITIONAL KANSAS MUNICIPALS FUND
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 period from March 2, 1994 through January 31, 1997 and for the 1 year period ended
January 31, 1997. Total return for the period prior to the Fund's commencement of operations is for the Portfolio (or its
predecessor) adjusted for the Fund's sales charge.
<CAPTION>
VALUE OF A $1,000 INVESTMENT
VALUE OF VALUE OF TOTAL RETURN TOTAL RETURN
INVESTMENT INVESTMENT INITIAL INVESTMENT EXCLUDING SALES CHARGE INCLUDING SALES CHARGE
PERIOD DATE INVESTMENT* ON 01/31/97 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
<S> <C> <C> <C> <C> <C> <C> <C>
LIFE OF
FUND 03/02/94 $962.46 $1,119.02 16.27% 5.30% 11.90% 3.93%
1 YEAR ENDED
01/31/97 01/31/96 $962.51 $993.85 3.26% 3.26% -0.61% -0.61%
Average annual total return is calculated using the following formula:
n
P(1+T) = ERV
where P = an initial investment of $1,000 **
T = average annual total return
n = number of years
ERV = ending redeemable value of $1,000 initial investment at the end of the period
Cumulative total return is calculated using the following formula:
T = ( ERV / P ) - 1
where T = cumulative total return including the maximum sales charge
ERV = ending redeemable value of $1,000 initial investment at the end of the period
P = an initial investment of $1,000 ***
* Initial investment less the current maximum sales charge of 3.75%.
** The average annual total return including the sales charge is calculated based on an initial investment of $1,000 less the
maximum initial sales charge of 3.75%.
*** The cumulative total return including the sales charge is calculated based on an initial investment of $1,000 less
maximum initial sales charge of 3.75%.
</TABLE>
<PAGE>
Exhibit 16
EV TRADITIONAL KANSAS MUNICIPALS FUND
30-DAY AND TAX EQUIVALENT YIELD CALCULATIONS
For the 30 days ended 1/31/97:
Interest Income Earned: $5,099
Plus Dividend Income Earned:
to receive dividend 108,935
-------
Equal Gross Income $5,099
Minus Expenses $852
-------
Equal Net Investment Income $4,247
Divided by Average daily number of shares
outstanding that were entitled
to receive dividend 108,935
-------
Equal Net Investment Income Earned Per Share $0.0390
Net Asset Value Per Share 1/31/97 $10.44
30 Day Yield 4.52%
Divided by One minus the Tax Rate of 31%: 0.69
-------
Equal Tax Equivalent Yield **: 6.55%
Divided by one minus a tax rate of 34.80% 0.6520
-------
Equal Tax Equivalent Yield*: 6.93%
* Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0390/$10.44)+1)-1]
** Assuming a tax rate of 31%
*** Assuming a combined federal and Kansas tax rate of 34.80%
<PAGE>
<TABLE>
INVESTMENT PERFORMANCE -- EV MARATHON HIGH YIELD MUNICIPALS FUND
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 period from August 7, 1995 through January 31, 1997 and for the 1 year
period ended January 31, 1997.
<CAPTION>
VALUE OF A $1,000 INVESTMENT
VALUE OF VALUE OF
INVESTMENT INVESTMENT TOTAL RETURN TOTAL RETURN
INVESTMENT INVESTMENT BEFORE CDSC AFTER CDSC BEFORE DEDUCTING CDSC AFTER DEDUCTING CDSC
PERIOD DATE ON 01/31/97 ON 01/31/97 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
<S> <C> <C> <C> <C> <C> <C> <C>
LIFE OF
FUND 08/07/95 $1,158.50 $1,108.50 15.85% 10.38% 10.85% 7.16%
1 YEAR ENDED
01/31/97 01/31/96 $1,059.29 $1,009.43 5.93% 5.93% 0.94% 0.94%
Average annual total return is calculated using the following formula:
n
P(1+T) = ERV
where P = an initial investment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of $1,000 initial investment at the end of the period after
deducting the CDSC *
Cumulative total return is calculated using the following formula:
T = ( ERV / P ) - 1
where T = cumulative total return including the maximum sales charge
ERV = ending redeemable value of $1,000 initial investment at the end of the period after
deducting the CDSC **
P = an initial investment of $1,000
* The average annual total return not including the CDSC is calculated based
on the ending investment value before deducting the CDSC.
** The cumulative total return not including the CDSC is calculated based on
the ending investment value before deducting the CDSC.
</TABLE>
<PAGE>
Exhibit 16
EV MARATHON HIGH-YIELD MUNICIPALS FUND
30-DAY AND TAX EQUIVALENT YIELD CALCULATIONS
For the 30 days ended 1/31/97:
Interest Income Earned: $736,778
Plus Dividend Income Earned:
----------
Equal Gross Income $736,778
Minus Expense $168,792
----------
Equal Net Investment Income $567,986
Divided by Average daily number of shares
outstanding that were entitled
to receive dividend 11,202,716
----------
Equal Net Investment Income Earned Per Share $0.0507
Net Asset Value Per Share 1/31/97 $10.62
30 Day Yield 5.80%
Divided by One minus the Tax Rate of 31%: 0.69
----------
Equal Tax Equivalent Yield **: 8.41%
* Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0507/$10.62)+1)-1]
** Assuming a tax rate of 31%
<PAGE>
<TABLE>
INVESTMENT PERFORMANCE -- EV TRADITIONAL HIGH YIELD MUNICIPALS FUND
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 period from August 7, 1995 through January 31, 1997 and for the 1 year period ended
January 31, 1997.
<CAPTION>
VALUE OF A $1,000 INVESTMENT
VALUE OF VALUE OF TOTAL RETURN TOTAL RETURN
INVESTMENT INVESTMENT INITIAL INVESTMENT EXCLUDING SALES CHARGE INCLUDING SALES CHARGE
PERIOD DATE INVESTMENT* ON 01/31/97 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
<S> <C> <C> <C> <C> <C> <C> <C>
LIFE OF
FUND 08/07/95 $962.46 $1,132.94 17.71% 11.56% 13.29% 8.74%
1 YEAR ENDED
01/31/97 01/31/96 $962.23 $1,025.07 6.53% 6.53% 2.51% 2.51%
Average annual total return is calculated using the following formula:
n
P(1+T) = ERV
where P = an initial investment of $1,000 **
T = average annual total return
n = number of years
ERV = ending redeemable value of $1,000 initial investment at the end of the period
Cumulative total return is calculated using the following formula:
T = ( ERV / P ) - 1
where T = cumulative total return including the maximum sales charge
ERV = ending redeemable value of $1,000 initial investment at the end of the period
P = an initial investment of $1,000 ***
* Initial investment less the current maximum sales charge of 3.75%.
** The average annual total return including the sales charge is calculated based on an initial investment of $1,000 less the
maximum initial sales charge of 3.75%.
*** The cumulative total return including the sales charge is calculated based on an initial investment of $1,000 less
maximum initial sales charge of 3.75%.
</TABLE>
<PAGE>
Exhibit 16
EV TRADITIONAL HIGH-YIELD MUNICIPALS FUND
30-DAY AND TAX EQUIVALENT YIELD CALCULATIONS
For the 30 days ended 1/31/97:
Interest Income Earned: $345,140
Plus Dividend Income Earned:
---------
Equal Gross Income $345,140
Minus Expense $52,301
---------
Equal Net Investment Income $292,839
Divided by Average daily number of shares
outstanding that were entitled
to receive dividend 5,089,987
---------
Equal Net Investment Income Earned Per Share $0.0575
Net Asset Value Per Share 1/31/97 $11.08
30 Day Yield 6.31%
Divided by One minus the Tax Rate of 31%: 0.69
---------
Equal Tax Equivalent Yield **: 9.14%
* Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0575/$11.08)+1)-1]
** Assuming a tax rate of 31%
EXHIBIT 17(a)
POWER OF ATTORNEY
We, the undersigned officers and Trustees of Eaton Vance Municipals
Trust II, a Massachusetts business trust, do hereby severally constitute and
appoint Alan R. Dynner, James B. Hawkes and Eric G. Woodbury, or any of them, to
be true, sufficient and lawful attorneys, or attorney for each of us, to sign
for each of us, in the name of each of us in the capacities indicated below, any
and all amendments (including post-effective amendments) to the Registration
Statement on Form N-1A filed by Eaton Vance Municipals Trust II with the
Securities and Exchange Commission in respect of shares of beneficial interest
and other documents and papers relating thereto.
IN WITNESS WHEREOF we have hereunto set our hands on the dates set
opposite our respective signatures.
Signature Title Date
--------- ----- ----
/s/ Thomas J. Fetter President (Chief April 22, 1997
- ------------------------------ Executive Officer)
Thomas J. Fetter
/s/ James L. O'Connor Treasurer and Principal April 22, 1997
- ------------------------------ Financial and Accounting
James L. O'Connor Officer
/s/ Donald R. Dwight Trustee April 22, 1997
- ------------------------------
Donald R. Dwight
/s/ James B. Hawkes Trustee April 22, 1997
- ------------------------------
James B. Hawkes
/s/ Samuel L. Hayes, III Trustee April 22, 1997
- ------------------------------
Samuel L. Hayes, III
/s/ Norton H. Reamer Trustee April 22, 1997
- ------------------------------
Norton H. Reamer
/s/ John L. Thorndike Trustee April 22, 1997
- ------------------------------
John L. Thorndike
/s/ Jack L. Treynor Trustee April 22, 1997
- ------------------------------
Jack L. Treynor
<PAGE>
EXHIBIT 17(b)
POWER OF ATTORNEY
We, the undersigned officers and Trustees of Florida Insured Municipals
Portfolio, Hawaii Municipals Portfolio, High Yield Municipals Portfolio and
Kansas Municipals Portfolio, each a New York trust, do hereby severally
constitute and appoint Alan R. Dynner, James B. Hawkes and Eric G. Woodbury, or
any of them, to be true, sufficient and lawful attorneys, or attorney for each
of us, to sign for each of us, in the name of each of us in the capacities
indicated below, any and all amendments (including post-effective amendments) to
the Registration Statement on Form N-1A filed by Eaton Vance Municipals Trust II
with the Securities and Exchange Commission in respect of shares of beneficial
interest and other documents and papers relating thereto.
IN WITNESS WHEREOF we have hereunto set our hands on the dates set
opposite our respective signatures.
Signature Title Date
--------- ----- ----
President and
/s/ Thomas J. Fetter Principal Executive April 22, 1997
- ---------------------------- Officer
Thomas J. Fetter
Treasurer and
/s/ James L. O'Connor Principal Financial April 22, 1997
- ---------------------------- and Accounting
James L. O'Connor Officer
/s/ Donald R. Dwight Trustee April 22, 1997
- ----------------------------
Donald R. Dwight
/s/ James B. Hawkes Trustee April 22, 1997
- ----------------------------
James B. Hawkes
/s/ Samuel L. Hayes, III Trustee April 22, 1997
- ----------------------------
Samuel L. Hayes, III
/s/ Norton H. Reamer Trustee April 22, 1997
- ----------------------------
Norton H. Reamer
/s/ John L. Thorndike Trustee April 22, 1997
- ----------------------------
John L. Thorndike
/s/ Jack L. Treynor Trustee April 22, 1997
- ----------------------------
Jack L. Treynor
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> EV MARATHON FLORIDA INSURED MUNICIPALS FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-31-1997
<PERIOD-END> JAN-31-1997
<INVESTMENTS-AT-COST> 20979
<INVESTMENTS-AT-VALUE> 21777
<RECEIVABLES> 0
<ASSETS-OTHER> 7
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 21784
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 68
<TOTAL-LIABILITIES> 68
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 21113
<SHARES-COMMON-STOCK> 2028
<SHARES-COMMON-PRIOR> 1658
<ACCUMULATED-NII-CURRENT> 5
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (200)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 798
<NET-ASSETS> 21717
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1150
<OTHER-INCOME> (4)
<EXPENSES-NET> 219
<NET-INVESTMENT-INCOME> 928
<REALIZED-GAINS-CURRENT> (67)
<APPREC-INCREASE-CURRENT> (580)
<NET-CHANGE-FROM-OPS> 280
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (918)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 566
<NUMBER-OF-SHARES-REDEEMED> 230
<SHARES-REINVESTED> 34
<NET-CHANGE-IN-ASSETS> 3325
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 222
<AVERAGE-NET-ASSETS> 19866
<PER-SHARE-NAV-BEGIN> 11.09
<PER-SHARE-NII> .499
<PER-SHARE-GAIN-APPREC> (.385)
<PER-SHARE-DIVIDEND> (.494)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.71
<EXPENSE-RATIO> 1.12
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 7
<NAME> EV TRADITIONAL FLORIDA INSURED MUNICIPALS FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-31-1997
<PERIOD-END> JAN-31-1997
<INVESTMENTS-AT-COST> 2230
<INVESTMENTS-AT-VALUE> 2300
<RECEIVABLES> 16
<ASSETS-OTHER> 6
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 2322
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 10
<TOTAL-LIABILITIES> 10
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2265
<SHARES-COMMON-STOCK> 213
<SHARES-COMMON-PRIOR> 143
<ACCUMULATED-NII-CURRENT> (3)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (20)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 70
<NET-ASSETS> 2312
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 102
<OTHER-INCOME> 0
<EXPENSES-NET> 8
<NET-INVESTMENT-INCOME> 94
<REALIZED-GAINS-CURRENT> (4)
<APPREC-INCREASE-CURRENT> (56)
<NET-CHANGE-FROM-OPS> 35
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (94)
<DISTRIBUTIONS-OF-GAINS> 0
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<NUMBER-OF-SHARES-SOLD> 88
<NUMBER-OF-SHARES-REDEEMED> 21
<SHARES-REINVESTED> 3
<NET-CHANGE-IN-ASSETS> 704
<ACCUMULATED-NII-PRIOR> 0
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<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 27
<AVERAGE-NET-ASSETS> 1796
<PER-SHARE-NAV-BEGIN> 11.22
<PER-SHARE-NII> .573
<PER-SHARE-GAIN-APPREC> (.368)
<PER-SHARE-DIVIDEND> (.573)
<PER-SHARE-DISTRIBUTIONS> (.002)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.85
<EXPENSE-RATIO> .45
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-31-1997
<PERIOD-END> JAN-31-1997
<INVESTMENTS-AT-COST> 23841
<INVESTMENTS-AT-VALUE> 24860
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<ASSETS-OTHER> 5
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<PAYABLE-FOR-SECURITIES> 1117
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<OTHER-ITEMS-LIABILITIES> 3
<TOTAL-LIABILITIES> 1120
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 23194
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1010
<NET-ASSETS> 24204
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1333
<OTHER-INCOME> 0
<EXPENSES-NET> 4
<NET-INVESTMENT-INCOME> 1329
<REALIZED-GAINS-CURRENT> (66)
<APPREC-INCREASE-CURRENT> 666
<NET-CHANGE-FROM-OPS> 597
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
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<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 2788
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 41
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 91
<AVERAGE-NET-ASSETS> 23077
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 2
<NAME> EV MARATHON HAWAII MUNICIPALS FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-31-1997
<PERIOD-END> JAN-31-1997
<INVESTMENTS-AT-COST> 14544
<INVESTMENTS-AT-VALUE> 15583
<RECEIVABLES> 9
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<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 15601
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 50
<TOTAL-LIABILITIES> 50
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 15323
<SHARES-COMMON-STOCK> 1599
<SHARES-COMMON-PRIOR> 1515
<ACCUMULATED-NII-CURRENT> (22)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (789)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1039
<NET-ASSETS> 15552
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 898
<OTHER-INCOME> 0
<EXPENSES-NET> 174
<NET-INVESTMENT-INCOME> 725
<REALIZED-GAINS-CURRENT> (85)
<APPREC-INCREASE-CURRENT> (283)
<NET-CHANGE-FROM-OPS> 356
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (725)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> (15)
<NUMBER-OF-SHARES-SOLD> 201
<NUMBER-OF-SHARES-REDEEMED> 150
<SHARES-REINVESTED> 32
<NET-CHANGE-IN-ASSETS> 426
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 178
<AVERAGE-NET-ASSETS> 15058
<PER-SHARE-NAV-BEGIN> 9.98
<PER-SHARE-NII> .466
<PER-SHARE-GAIN-APPREC> (.241)
<PER-SHARE-DIVIDEND> (.466)
<PER-SHARE-DISTRIBUTIONS> (.009)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.73
<EXPENSE-RATIO> 1.15
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 5
<NAME> EC TRADITIONAL HAWAII MUNICIPALS FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-31-1997
<PERIOD-END> JAN-31-1997
<INVESTMENTS-AT-COST> 296
<INVESTMENTS-AT-VALUE> 316
<RECEIVABLES> 22
<ASSETS-OTHER> 9
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 347
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3
<TOTAL-LIABILITIES> 3
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 344
<SHARES-COMMON-STOCK> 36
<SHARES-COMMON-PRIOR> 35
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (18)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 20
<NET-ASSETS> 344
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 20
<OTHER-INCOME> 0
<EXPENSES-NET> 1
<NET-INVESTMENT-INCOME> 18
<REALIZED-GAINS-CURRENT> (2)
<APPREC-INCREASE-CURRENT> (5)
<NET-CHANGE-FROM-OPS> 11
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (18)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 5
<NUMBER-OF-SHARES-REDEEMED> 5
<SHARES-REINVESTED> 1
<NET-CHANGE-IN-ASSETS> 7
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 24
<AVERAGE-NET-ASSETS> 352
<PER-SHARE-NAV-BEGIN> 9.76
<PER-SHARE-NII> .425
<PER-SHARE-GAIN-APPREC> (.209)
<PER-SHARE-DIVIDEND> (.425)
<PER-SHARE-DISTRIBUTIONS> (.011)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.54
<EXPENSE-RATIO> .40
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-31-1997
<PERIOD-END> JAN-31-1997
<INVESTMENTS-AT-COST> 14799
<INVESTMENTS-AT-VALUE> 15844
<RECEIVABLES> 193
<ASSETS-OTHER> 5
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 16042
<PAYABLE-FOR-SECURITIES> 24
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 4
<TOTAL-LIABILITIES> 28
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 14948
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1066
<NET-ASSETS> 16014
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 925
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 925
<REALIZED-GAINS-CURRENT> (88)
<APPREC-INCREASE-CURRENT> 290
<NET-CHANGE-FROM-OPS> 546
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 436
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 25
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 67
<AVERAGE-NET-ASSETS> 15518
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 3
<NAME> EV MARATHON KANSAS MUNICIPALS FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-31-1997
<PERIOD-END> JAN-31-1997
<INVESTMENTS-AT-COST> 10311
<INVESTMENTS-AT-VALUE> 10539
<RECEIVABLES> 31
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<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 10577
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 85
<TOTAL-LIABILITIES> 85
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 10179
<SHARES-COMMON-STOCK> 1041
<SHARES-COMMON-PRIOR> 1045
<ACCUMULATED-NII-CURRENT> 4
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 81
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 228
<NET-ASSETS> 10492
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 634
<OTHER-INCOME> 0
<EXPENSES-NET> 123
<NET-INVESTMENT-INCOME> 511
<REALIZED-GAINS-CURRENT> 116
<APPREC-INCREASE-CURRENT> (377)
<NET-CHANGE-FROM-OPS> 251
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (505)
<DISTRIBUTIONS-OF-GAINS> (8)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 178
<NUMBER-OF-SHARES-REDEEMED> 207
<SHARES-REINVESTED> 24
<NET-CHANGE-IN-ASSETS> (290)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 129
<AVERAGE-NET-ASSETS> 10712
<PER-SHARE-NAV-BEGIN> 10.32
<PER-SHARE-NII> .479
<PER-SHARE-GAIN-APPREC> (.238)
<PER-SHARE-DIVIDEND> (.473)
<PER-SHARE-DISTRIBUTIONS> (.008)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.08
<EXPENSE-RATIO> 1.15
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 6
<NAME> EV TRADITIONAL KANSAS MUNICIPALS FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-31-1997
<PERIOD-END> JAN-31-1997
<INVESTMENTS-AT-COST> 1068
<INVESTMENTS-AT-VALUE> 1077
<RECEIVABLES> 19
<ASSETS-OTHER> 8
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1104
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3
<TOTAL-LIABILITIES> 3
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1099
<SHARES-COMMON-STOCK> 109
<SHARES-COMMON-PRIOR> 82
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (7)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 9
<NET-ASSETS> 1101
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 56
<OTHER-INCOME> 0
<EXPENSES-NET> 5
<NET-INVESTMENT-INCOME> 51
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> (19)
<NET-CHANGE-FROM-OPS> 32
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (50)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 30
<NUMBER-OF-SHARES-REDEEMED> 8
<SHARES-REINVESTED> 4
<NET-CHANGE-IN-ASSETS> 254
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 25
<AVERAGE-NET-ASSETS> 959
<PER-SHARE-NAV-BEGIN> 10.27
<PER-SHARE-NII> .529
<PER-SHARE-GAIN-APPREC> (.221)
<PER-SHARE-DIVIDEND> (.528)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.05
<EXPENSE-RATIO> .52
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-31-1997
<PERIOD-END> JAN-31-1997
<INVESTMENTS-AT-COST> 11067
<INVESTMENTS-AT-VALUE> 11301
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<OTHER-ITEMS-ASSETS> 5
<TOTAL-ASSETS> 11743
<PAYABLE-FOR-SECURITIES> 3
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 4
<TOTAL-LIABILITIES> 7
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 11496
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 240
<NET-ASSETS> 11736
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 697
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 697
<REALIZED-GAINS-CURRENT> 117
<APPREC-INCREASE-CURRENT> (399)
<NET-CHANGE-FROM-OPS> 415
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 127
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 19
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 56
<AVERAGE-NET-ASSETS> 11780
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 9
<NAME> EV MARATHON HIGH YIELD MUNICIPALS FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-31-1997
<PERIOD-END> JAN-31-1997
<INVESTMENTS-AT-COST> 119551
<INVESTMENTS-AT-VALUE> 122541
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<TOTAL-ASSETS> 123545
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 521
<TOTAL-LIABILITIES> 521
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 120924
<SHARES-COMMON-STOCK> 11584
<SHARES-COMMON-PRIOR> 8063
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 25
<ACCUMULATED-NET-GAINS> (866)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2990
<NET-ASSETS> 123024
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 5844
<EXPENSES-NET> 860
<NET-INVESTMENT-INCOME> 4984
<REALIZED-GAINS-CURRENT> (866)
<APPREC-INCREASE-CURRENT> 2150
<NET-CHANGE-FROM-OPS> 6268
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 4985
<DISTRIBUTIONS-OF-GAINS> 5
<DISTRIBUTIONS-OTHER> 25
<NUMBER-OF-SHARES-SOLD> 8114
<NUMBER-OF-SHARES-REDEEMED> 773
<SHARES-REINVESTED> 158
<NET-CHANGE-IN-ASSETS> 79504
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (255)
<OVERDISTRIB-NII-PRIOR> 5
<OVERDIST-NET-GAINS-PRIOR> 0
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<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 863
<AVERAGE-NET-ASSETS> 84344
<PER-SHARE-NAV-BEGIN> 10.65
<PER-SHARE-NII> 0.626
<PER-SHARE-GAIN-APPREC> (0.026)
<PER-SHARE-DIVIDEND> 0.626
<PER-SHARE-DISTRIBUTIONS> 0.001
<RETURNS-OF-CAPITAL> 0.003
<PER-SHARE-NAV-END> 10.62
<EXPENSE-RATIO> 1.36
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 8
<NAME> EV TRADITIONAL HIGH YIELD MUNICIPALS FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-31-1997
<PERIOD-END> JAN-31-1997
<INVESTMENTS-AT-COST> 56481
<INVESTMENTS-AT-VALUE> 58040
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<TOTAL-ASSETS> 58609
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 262
<TOTAL-LIABILITIES> 262
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 57187
<SHARES-COMMON-STOCK> 5473
<SHARES-COMMON-PRIOR> 2855
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<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1559
<NET-ASSETS> 58346
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<INTEREST-INCOME> 0
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<EXPENSES-NET> 129
<NET-INVESTMENT-INCOME> 2937
<REALIZED-GAINS-CURRENT> (394)
<APPREC-INCREASE-CURRENT> 755
<NET-CHANGE-FROM-OPS> 3298
<EQUALIZATION> 0
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<NUMBER-OF-SHARES-SOLD> 3165
<NUMBER-OF-SHARES-REDEEMED> 634
<SHARES-REINVESTED> 87
<NET-CHANGE-IN-ASSETS> 27812
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 4
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
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<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 131
<AVERAGE-NET-ASSETS> 44195
<PER-SHARE-NAV-BEGIN> 10.70
<PER-SHARE-NII> 0.703
<PER-SHARE-GAIN-APPREC> (0.038)
<PER-SHARE-DIVIDEND> 0.703
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