<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 30, 1998
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. 10 [X]
REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940 [X]
AMENDMENT NO. 11 [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 February 1, 1998 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.
TITLE OF SECURITIES BEING REGISTERED: Shares of Beneficial Interest
Florida Insured Municipals Portfolio, Hawaii Municipals Portfolio, Kansas
Municipals Portfolio and High Yield Municipals Portfolio have also executed
this Registration Statement.
================================================================================
<PAGE>
This Amendment to the registration statement on Form N-1A consists of the
following documents and papers:
Cross Reference Sheet required by Rule 481(a) under the Securities Act of
1933
Part A -- The Combined Prospectus of:
Eaton Vance Florida Insured Municipals Fund
Eaton Vance Hawaii Municipals Fund
Eaton Vance Kansas Municipals Fund
The Prospectus of:
Eaton Vance High Yield Municipals Fund
Part B -- The Combined Statement of Additional Information of:
Eaton Vance Florida Insured Municipals Fund
Eaton Vance Hawaii Municipals Fund
Eaton Vance Kansas Municipals Fund
The Statement of Additional Information of:
Eaton Vance 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 Shares; How to Buy
Being Offered Shares; The Lifetime
Investing Account/
Distribution Options;
Distribution and Service
Plans; The Eaton Vance
Exchange Privilege; Eaton
Vance Shareholder Services
8. ............... Redemption or Repurchase How to Redeem 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
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 -- Class
B Shares; Service Plan --
Class A Shares; Custodian;
Independent Certified
Public Accountants
17. ............... Brokerage Allocation and Portfolio Security
Other Practices Transactions
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 -- Class A
Shares; Distribution Plan
-- Class B Shares; Service
Plan -- Class A Shares
20. ............... Tax Status Taxes; Tax Equivalent Yield
Table
21. ............... Underwriters Principal Underwriter
22. ............... Calculations of Performance Investment Performance
Data
23. ............... Financial Statements Financial Statements
<PAGE>
EATON VANCE MUNICIPALS TRUST II
CROSS REFERENCE SHEET FOR
EATON VANCE 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 Shares; How to Buy
Being Offered Shares; The Lifetime
Investing Account/
Distribution Options;
Distribution and Service
Plans; The Eaton Vance
Exchange Privilege; Eaton
Vance Shareholder Services
8. ............... Redemption or Repurchase How to Redeem 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
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 Plans --
Class B and Class C
Shares; Service Plan --
Class A Shares; Custodian;
Independent Certified
Public Accountants
17. ............... Brokerage Allocation and Portfolio Security
Other Practices Transactions
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 -- Class A
Shares; Distribution Plans
-- Class B and Class C
Shares; Service Plan --
Class A Shares
20. ............... Tax Status Taxes; Tax Equivalent Yield
Table
21. ............... Underwriters Principal Underwriter
22. ............... Calculations of Performance Investment Performance
Data
23. ............... Financial Statements Financial Statements
<PAGE>
[LOGO]
Investing
for the
EATON VANCE
- ------------- 21st
Mutual Funds
Century
PART A
INFORMATION REQUIRED IN A PROSPECTUS
Eaton Vance Florida Insured Municipals Fund
Eaton Vance Hawaii Municipals Fund
Eaton Vance Kansas Municipals Fund
THESE FUNDS (THE "FUNDS") ARE MUTUAL FUNDS SEEKING TO PROVIDE CURRENT INCOME
EXEMPT FROM REGULAR FEDERAL INCOME TAX AND THE 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 February 1,
1998 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.
CONTENTS
<TABLE>
<CAPTION>
Page Page
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Shareholder and Fund Expenses 2 How to Redeem Shares 14
The Funds' Financial Highlights 4 Reports to Shareholders 15
The Funds' Investment Objectives 5 The Lifetime Investing Account/Distribution Options 16
Investment Policies and Risks 5 The Eaton Vance Exchange Privilege 16
Organization of the Funds and the Portfolios 9 Eaton Vance Shareholder Services 17
Management of the Funds and the Portfolios 10 Distributions and Taxes 18
Distribution and Service Plans 11 Performance Information 19
Valuing Shares 12 Appendix -- State Specific Information 20
How to Buy Shares 12
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
Prospectus dated February 1, 1998
<PAGE>
<TABLE>
SHAREHOLDER AND FUND EXPENSES
SHAREHOLDER TRANSACTION EXPENSES
<CAPTION>
Class A Class B
Shares Shares
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price) 4.75% None
Sales Charges Imposed on Reinvested Distributions None None
Fees to Exchange Shares None None
Maximum Contingent Deferred Sales Charge None 5.00%
</TABLE>
<TABLE>
ANNUAL FUND AND ALLOCATED PORTFOLIO OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS)
<CAPTION>
Florida
Insured Hawaii Kansas
Fund Fund Fund
-------------------- -------------------- --------------------
Class A Class B Class A Class B Class A Class B
Shares Shares Shares Shares Shares Shares
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Investment Adviser Fee (after fee reduction) 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Rule 12b-1 Distribution and/or Service Fees 0.11 0.90 0.18 0.92 0.16 0.90
Other Expenses (after expense allocations) 0.31 0.31 0.35 0.35 0.45 0.45
---- ---- ---- ---- ---- ----
Total Operating Expenses (after reductions) 0.42 1.21 0.53 1.27 0.61 1.35
==== ==== ==== ==== ==== ====
EXAMPLES
An investor would pay the following expenses and, in the case of Class A shares, maximum initial sales charge
or, in the case of Class B shares, contingent deferred sales charge on a $1,000 investment, assuming (a) 5%
annual return and (b) redemption at the end of each period:
Florida
Insured Hawaii Kansas
Fund Fund Fund
-------------------- -------------------- --------------------
Class A Class B Class A Class B Class A Class B
Shares Shares Shares Shares Shares Shares
- ------------------------------------------------------------------------------------------------------------------
1 Year $ 52 $ 62 $ 53 $ 63 $ 53 $ 64
3 Years 60 78 64 80 66 83
5 Years 70 86 76 90 80 94
10 Years 98 147 111 153 120 162
An investor would pay the following expenses on the same investment, assuming (a) 5% annual return and (b) no
redemptions:
Florida
Insured Hawaii Kansas
Fund Fund Fund
-------------------- -------------------- --------------------
Class A Class B Class A Class B Class A Class B
Shares Shares Shares Shares Shares Shares
- --------------------------------------------------------------------------------------------------------------------
1 Year $ 52 $ 12 $ 53 $ 13 $ 53 $ 14
3 Years 60 38 64 40 66 43
5 Years 70 66 76 70 80 74
10 Years 98 147 111 153 120 162
</TABLE>
NOTES: The table and Examples summarize the aggregate expenses of the
Portfolios and each class of shares of the Funds and are designed to help
investors understand the costs and expenses they will bear, directly or
indirectly, by investing in a Fund. Information for Class A shares is
estimated based upon the most recent fiscal year of its predecessor fund
adjusted for the muliple-class structure. Information for the Class B shares
is based on expenses for the most recent fiscal year. The Investment Adviser
Fee and Other Expenses for each Fund reflects a fee reduction and expense
allocation, respectively. Absent that reduction and allocation, the Florida
Insured Fund Investment Adviser Fee would be 0.18% and Other Expenses and
Total Operating Expenses would be 0.55% and 0.84%, respectively, for Class A
shares and 0.55% and 1.63%, respectively, for Class B shares; the Hawaii Fund
Investment Adviser Fee would be 0.16% and Other Expenses and Total Operating
Expenses would be 0.68% and 1.02%, respectively, for Class A shares and 0.68%
and 1.76%, respectively, for Class B shares; and the Kansas Fund Investment
Adviser Fee would be 0.16% and Other Expenses and Total Operating Expenses
would be 0.83% and 1.15%, respectively, for Class A shares and 0.83% and
1.89%, respectively, for Class B shares.
The Funds offer two classes of shares. Class A shares are sold subject to a
sales charge imposed at the time of purchase. No sales charge is payable at
the time of purchase on investments in Class A shares of $1 million or more.
However, a contingent deferred sales charge ("CDSC") of 0.50% will be imposed
on such investments in the event of certain redemptions within 12 months of
purchase. Class B shares are sold subject to a declining CDSC (5% maximum) if
redeemed within six years of purchase. The CDSC does not apply in certain
circumstances. See "How to Buy Shares" and "How to Redeem Shares".
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. Long-term holders of Class B shares 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. For further
information regarding the expenses of the Funds and the Portfolios, see "The
Funds" Financial Highlights", "Management of the Funds and the Portfolios",
"Distribution and Services Plans" and "How to Redeem 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 may invest in the
Portfolios 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 financial
statements that appear in the Funds' semi-annual and annual reports to
shareholders. The Funds' annual financial statements have been audited by
Deloitte & Touche LLP, independent certified public accountants, as experts in
accounting and auditing. The annual financial statements and the independent
auditors' report and the unaudited semi-annual financial statements are
incorporated by reference into the Statement of Additional Information.
Further information regarding the performance of a Fund is contained in its
annual and semi-annual reports to shareholders which may be obtained without
charge by contacting the Principal Underwriter. The financial information for
each of the periods presented in the Funds' financial highlights are for each
Fund prior to reclassification of its shares as Class B shares on February 1,
1998. Information for Class A shares is not presented because that class did
not exist prior to February 1, 1998. The financial highlights for Class A
shares will differ from the Financial Highlights for Class B shares due to the
different fees imposed on Class A shares.
<TABLE>
<CAPTION>
Florida Insured Fund (Class B) Hawaii Fund (Class B)
------------------------------------------- -------------------------------------------
Six Months Six Months
Ended Ended
July 31, Year Ended January 31, July 31, Year Ended January 31,
1997 ------------------------------ 1997 ------------------------------
(Unaudited) 1997 1996 1995** (Unaudited) 1997 1996 1995**
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of year $10.710 $11.090 $10.260 $10.000 $ 9.730 $ 9.980 $ 9.150 $10.000
------- ------- ------- ------- ------- ------- ------- -------
Income (loss) from
operations:
Net investment income $ 0.250 $ 0.499 $ 0.512 $ 0.456 $ 0.224 $ 0.466 $ 0.484 $ 0.434
Net realized and
unrealized gain
(loss) on
investments 0.358 (0.385) 0.832 0.304 0.294 (0.241) 0.835 (0.805)
------- ------- ------- ------- ------- ------- ------- -------
Total income (loss)
from operations $ 0.608 $ 0.114 $ 1.344 $ 0.760 $ 0.518 $ 0.225 $ 1.319 $(0.371)
------- ------- ------- ------- ------- ------- ------- -------
Less distributions:
From net investment
income $(0.238) $(0.494) $(0.512) $(0.456) $(0.224) $(0.466) $(0.484) $(0.434) )
In excess of net
investment income(4) -- -- (0.002) (0.044) (0.004) (0.009) (0.005) (0.045) )
From net realized
gains -- -- -- -- -- -- -- --
------- ------- ------- ------- ------- ------- ------- -------
Total distributions $(0.238) $(0.494) $(0.514) $(0.500) $(0.228) $(0.475) $(0.489) $(0.479)
------- ------- ------- ------- ------- ------- ------- -------
Net asset value, end of
year $11.080 $10.710 $11.090 $10.260 $10.020 $ 9.730 $ 9.980 $ 9.150
======= ======= ======= ======= ======= ======= ======= =======
Total return(1) 5.77% 1.14% 13.39% 7.10% 5.42% 2.40% 14.74% (4.01)%
Ratios/Supplemental Data*:
Net assets, end of
year (000 omitted) $20.923 $21,717 $18,391 $11,596 $18,939 $15,552 $15,126 $12,601
Ratio of net expenses
to average daily
net assets(2)(3) 1.21%+ 1.21% 1.10% 0.75%+ 1.27%+ 1.20% 1.05% 0.87%+
Ratio of net expenses
to average daily net
assets after
custodian fee
reduction(2) 1.13%+ 1.12% 1.00% -- 1.25%+ 1.15% 0.98% --
Ratio of net
investment income to
average daily net
assets 4.66%+ 4.67% 4.76% 4.79%+ 4.60%+ 4.81% 5.03% 5.03%+
*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 $ 0.228 $ 0.467 $ 0.470 $ 0.374 $ 0.201 $ 0.426 $ 0.434 $ 0.387
======= ======= ======= ======= ======= ======= ======= =======
Ratios (As a percentage of
average daily net assets):
Expenses(2)(3) 1.63%+ 1.51% 1.49% 1.62%+ 1.76%+ 1.61% 1.53% 1.41%+
Expenses after
custodian fee
reduction(2) 1.54%+ 1.42% 1.39% -- 1.73%+ 1.56% 1.46% --
Net investment income 4.24%+ 4.37% 4.37% 3.92%+ 4.12%+ 4.40% 4.51% 4.49%+
Kansas Fund (Class B)
------------------------------------------
Six Months
Ended
July 31, Year Ended January 31,
1997 -----------------------------
(Unaudited) 1997 1996 1995**
----------------------------------------
Net asset value,
beginning of year $10.080 $10.320 9.560 $10.000
------- ------- ------- -------
Income (loss) from
operations:
Net investment income $ 0.233 $ 0.479 $ 0.481 $ 0.435
Net realized and
unrealized gain
(loss) on
investments 0.347 (0.238) 0.761 (0.393)
------- ------- ------- -------
Total income (loss)
from operations $ 0.580 $ 0.241 $ 1.242 $ 0.042
------- ------- ------- -------
Less distributions:
From net investment
income $(0.230) $(0.473) $(0.481) $(0.435
In excess of net
investment income(4) -- -- (0.001) (0.047
From net realized
gains -- (0.008) -- --
------- ------- ------- -------
Total distributions $(0.230) (0.481) (0.482) (0.482)
------- ------- ------- -------
Net asset value, end of
year $10.430 $10.080 $10.320 $ 9.560
======= ======= ======= =======
Total return(1) 5.84% 2.46% 13.26% 0.16%
Ratios/Supplemental Data*:
Net assets, end of
year (000 omitted) $10,370 $10,492 $10,782 $ 7,753
Ratio of net expenses
to average daily
net assets(2)(3) 1.35%+ 1.25% 1.20% 0.75%+
Ratio of net expenses
to average daily net
assets after
custodian fee
reduction(2) 1.29%+ 1.15% 1.08% --
Ratio of net
investment income to
average daily net
assets 4.65%+ 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 $ 0.205 $ 0.436 $ 0.442 $ 0.397
per share ======= ======= ======= =======
Ratios (As a percentage of
average daily net assets): 1.89%+ 1.68% 1.59% 1.60%+
Expenses(2)(3)
Expenses after
custodian fee 1,83%+ 1.58% 1.47% --
reduction(2) 4.10%+ 4.34% 4.40% 3.96%+
Net investment income
** 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 on and after January 31, 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 no t 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 g ains.
</TABLE>
<PAGE>
THE FUNDS' INVESTMENT OBJECTIVES
The investment objective of each Fund is set forth below. Each Fund currently
seeks to meet its investment objective by investing its assets in a separate
corresponding open-end management investment company (a "Portfolio"). 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.
EATON VANCE 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.
EATON VANCE 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").
EATON VANCE 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").
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/IBCA ("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 BBB or Baa) 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 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.
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 rated investment grade
or below (Baa or BBB or lower), or are 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. Municipal obligations rated investment grade or below 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.
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) 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
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). The Trustees of
the Trust have divided the shares of each Fund into multiple classes,
including Class A and Class B shares. Each class represents an interest in a
Fund, but is subject to different expenses, rights and privileges. See
"Distribution and Service Plans" and "How to Buy Shares". The Trustees have
the authority under the Declaration of Trust to create additional classes of
shares with differing rights and privileges. As a result of a reorganization
with separate series of the Trust, the Funds commenced offering Class A and
Class B shares on February 1, 1998.
When issued and outstanding, shares are fully paid and nonassessable by the
Trust and redeemable as described under "How to Redeem 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 of a Fund will be voted together except that only
shareholders of a particular class may vote on matters affecting only that
class. Shares have no preemptive or conversion rights and are freely
transferable. In the event of the liquidation of a Fund, shareholders of each
Class are entitled to share pro rata in the net assets available for
distribution to shareholders.
The Trustees of the Trust have considered the advantages and disadvantages of
investing the assets of each Fund in its corresponding Portfolio, as well as
the advantages and disadvantages of the two-tier format. The Trustees believe
that the structure may offer opportunities for substantial growth in the
assets of the Portfolios, may afford the potential for economies of scale for
each Fund and may over time result in lower expenses for a Fund.
EACH PORTFOLIO IS ORGANIZED AS A TRUST UNDER THE LAWS OF THE STATE OF NEW YORK
AND INTENDS TO BE TREATED AS A PARTNERSHIP FOR FEDERAL TAX PURPOSES. In
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 or Class 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 may invest in its
corresponding Portfolio. 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 or class might become liable for a misstatement or
omission in this Prospectus regarding another Fund or class because the Funds
use this combined Prospectus. The Trustees of the Trust have considered this
factor in approving the use of a combined Prospectus.
MANAGEMENT OF THE FUNDS AND THE PORTFOLIOS
EACH PORTFOLIO ENGAGES BOSTON MANAGEMENT AND RESEARCH ("BMR"), A WHOLLY-OWNED
SUBSIDIARY OF EATON VANCE MANAGEMENT ("EATON VANCE"), AS ITS INVESTMENT
ADVISER. EATON VANCE, ITS AFFILIATES AND ITS PREDECESSOR COMPANIES HAVE BEEN
MANAGING ASSETS OF INDIVIDUALS AND INSTITUTIONS SINCE 1924 AND MANAGING
INVESTMENT COMPANIES SINCE 1931.
Acting under the general supervision of the Board of Trustees of each
Portfolio, BMR manages each Portfolio's investments and affairs. 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:
Annual Daily
Category Daily Net Assets Asset Rate Income Rate
- --------------------------------------------------------------------------------
1 up to $20 million 0.100% 1.00%
2 $20 million but less than $40 million 0.200% 2.00%
3 $40 million but less than $500 million 0.300% 3.00%
4 $500 million but less than $1 billion 0.275% 2.75%
5 $1 billion but less than $1.5 billion 0.250% 2.50%
6 $1.5 billion but less than $2 billion 0.225% 2.25%
7 $2 billion but less than $3 billion 0.200% 2.00%
8 $3 billion and over 0.175% 1.75%
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
APPROXIMATELY $20 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.
Timothy T. Browse has acted as the portfolio manager of the Kansas Portfolio
since November 24, 1997. Mr. Browse manages other Eaton Vance portfolios and
has been a Vice President of Eaton Vance and BMR since 1993.
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 Funds. 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 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 AND SERVICE PLANS
The Trust has adopted a Service Plan (the "Class A Plan") for each Fund's
Class A shares that is designed to meet the service fee requirements of the
sales charge rule of the National Association of Securities Dealers, Inc. THE
CLASS A PLAN PROVIDES THAT CLASS A 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 ITS AVERAGE DAILY NET ASSETS FOR ANY FISCAL
YEAR. The Trustees of the Trust have initially implemented the Class A Plan by
authorizing Class A to make quarterly service fee payments to the Principal
Underwriter and Authorized Firms in amounts not expected to exceed .20% of its
average daily net assets for any fiscal year which is based on the value of
Class A shares sold by such persons and remaining outstanding for at least
twelve months. However, the Class A Plan authorizes the Trustees of the Trust
to increase payments without action by Class A shareholders of any Fund,
provided that the aggregate amount of payments made in any fiscal year does
not exceed .25% of average daily net assets.
The Trust has also adopted a Distribution Plan ("Class B Plan") pursuant to
Rule 12b-1 under the Investment Company Act of 1940 ("1940 Act") for each
Fund's Class B shares. The Plan is designed to permit an investor to purchase
shares through an Authorized Firm without incurring an initial sales charge
and at the same time permit the Principal Underwriter to compensate Authorized
Firms in connection therewith. UNDER SUCH PLAN, EACH CLASS B PAYS THE
PRINCIPAL UNDERWRITER A FEE, ACCRUED DAILY AND PAID MONTHLY, AT AN ANNUAL RATE
NOT EXCEEDING .75% OF ITS AVERAGE DAILY NET ASSETS TO FINANCE THE DISTRIBUTION
OF ITS SHARES. Such fees compensate the Principal Underwriter for sales
commissions paid by it to Authorized Firms on the sale of Class B 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
Class B shares sold by such Firms. CDSCs paid to the Principal Underwriter
will be used to reduce amounts owed to it. Because payments to the Principal
Underwriter under the Class B Plan are limited, uncovered distribution charges
(sales commissions due the Principal Underwriter plus interest, less the above
fees and CDSCs received by it) may exist indefinitely. During the fiscal year
ended January 31, 1997, each Class B (which was then a seperate series fund)
paid or accrued sales commissions equivalent to .75% of average daily net
assets. As at January 31, 1997, the outstanding uncovered distribution charges
of the Principal Underwriter on such day calculated under the Class B Plan
amounted to approximately $725,000 (equivalent to 3.6% of net assets on such
day) in the case of Florida Insured Class B, $620,000 (equivalent to 4.1% of
net assets on such day) in the case of Hawaii Class B, and $416,000
(equivalent to 3.9% of net assets on such day) in the case of Kansas Class B.
THE CLASS B PLAN ALSO AUTHORIZES EACH CLASS B TO MAKE PAYMENTS OF SERVICE FEES
TO THE PRINCIPAL UNDERWRITER, AUTHORIZED FIRMS AND OTHER PERSONS IN AMOUNTS
NOT EXCEEDING .25% OF ITS AVERAGE DAILY NET ASSETS FOR PERSONAL SERVICES, AND/
OR THE MAINTENANCE OF SHAREHOLDER ACCOUNTS. The Trustees of the Trust have
initially implemented this provision of the Class B Plan by authorizing each
Class B to make quarterly service fee payments to the Principal Underwriter
and Authorized Firms in amounts not expected to exceed .20% of the average
daily net assets for any fiscal year which is based on the value of Class B
shares sold by such persons and remaining outstanding for at least 12 months.
This fee is paid quarterly in arrears based on the value of Class B shares
sold by such persons and remaining outstanding for at least twelve months. For
the fiscal year ended January 31, 1997, each Class B paid or accrued service
fees as follows (as an annualized percentage of average daily net assets):
Florida Insured Class B (0.14%); Hawaii Class B (0.15%); and Kansas Class B
(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. The Principal Underwriter may at times allow
discounts on the sale of Class A shares 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 Trust may, in its absolute discretion, suspend, discontinue or limit the
offering of one or more of its classes of shares at any time. In determining
whether any such action should be taken, the Trust's management intends to
consider all relevant factors, including (without limitation) the size of a
Fund or class, the investment climate and market conditions, the volume of
sales and redemptions of shares, and in the case of Class B shares, the amount
of uncovered distribution charges of the Principal Underwriter. The Plans may
continue in effect and payments may be made under the Plans following any such
suspension, discontinuance or limitation of the offering of shares; however,
there is no contractual obligation to continue any Plans for any particular
period of time. Suspension of the offering of shares would not, of course,
affect a shareholder's ability to redeem shares.
VALUING SHARES
EACH FUND VALUES ITS SHARES ONCE ON EACH DAY THE NEW YORK STOCK EXCHANGE (THE
"EXCHANGE") IS OPEN FOR TRADING, as of the close of regular trading on the
Exchange (normally 4:00 p.m. New York time). Each Class's net asset value per
share is determined by the Trust's custodian, Investors Bank & Trust Company
("IBT"), (as agent for the Trust) in the manner authorized by the Trustees of
the Trust. The net asset value of each Class is computed by dividing the value
of that Class's pro rata share of each Fund's total assets, less its
liabilities, by the number of shares of that Class outstanding. Because each
Fund invests its assets in an interest in its corresponding Portfolio, each
Class's net asset value will reflect the value of each Fund's 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 by a specific time each day to receive that day's public offering
price per share. It is the Authorized Firms' responsibility to transmit orders
promptly to the Principal Underwriter. Each Fund has approved the acceptance
of purchase and redemption orders as of the time of their receipt by certain
Authorized Firms (or their designated intermediaries).
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), 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.
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 SHARES
SHARES OF A FUND MAY BE PURCHASED FOR CASH OR MAY BE ACQUIRED IN EXCHANGE FOR
ACCEPTABLE SECURITIES. Class A shares are purchased at the effective public
offering price, which price is based on the effective net asset value per
share plus the applicable sales charge. The sales charge is divided between
the Authorized Firm and the Principal Underwriter. Class B shares are
purchased at the net asset value per share 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 Trust 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 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 Trust'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."
CLASS A SHARES. The sales charge may vary depending on the size of the
purchase and the number of Class A 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:
Sales Charge Sales Charge Dealer Commission
as Percentage of as Percentage of as Percentage of
Amount of Purchase Offering Price Amount Invested Offering Price
- --------------------------------------------------------------------------------
Less than $25,000 4.75% 4.99% 4.50%
$25,000 but less than
$100,000 4.50 4.71 4.25
$100,000 but less
than $250,000 3.75 3.90 3.50
$250,000 but less
than $500,000 3.00 3.09 2.75
$500,000 but less
than $1,000,000 2.00 2.04 2.00
$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 (until March 31, 1998) 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 CDSC of 0.50% will be imposed on such investments (as described
below) in the event of certain redemptions within 12 months of purchase.
Class A shares may be sold at net asset value to current and retired Directors
and Trustees of Eaton Vance funds, including the Portfolios; to clients and
current and retired officers and employees of Eaton Vance, its affiliates and
other investment advisers of Eaton Vance sponsored funds; to registered
representatives and 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. Class A shares may
also be issued at net asset value (1) in connection with the merger of an
investment company or series thereof 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".
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 in Class A shares, 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
such 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.
ACQUIRING FUND SHARES IN EXCHANGE FOR SECURITIES. IBT, as escrow agent, will
receive securities acceptable to Eaton Vance, as Administrator, in exchange
for Fund shares. The minimum value of securities (or securities and cash)
accepted for deposit is $5,000. Securities accepted will be sold on the day of
their receipt or as soon thereafter as possible. The number of Fund shares to
be issued in exchange for securities will be the aggregate proceeds from the
sale of such securities, divided by the applicable public offering price of
Class A shares or net asset value of Class B shares on the day such proceeds
are received. Eaton Vance will use reasonable efforts to obtain the then
current market price for such securities but does not guarantee the best
available price. Eaton Vance will absorb any transaction costs, such as
commissions, on the sale of the securities.
Securities determined to be acceptable should be transferred via book entry or
physically delivered, in proper form for transfer, through an 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: IN THE CASE OF PHYSICAL DELIVERY:
Deliver through Depository Trust Co. Investors Bank & Trust Company
Broker #2212 Attention: Eaton Vance [State name]
Investors Bank & Trust Company Municipals Fund (and Class)
For A/C Eaton Vance [State name] Physical Securities Processing
Municipals Fund (and Class) Settlement Area
200 Clarendon Street
Boston, MA 02116
Investors who are contemplating an exchange of securities for shares, or their
representatives, must contact Eaton Vance to determine whether the securities
are acceptable before forwarding such securities. Eaton Vance reserves the
right to reject any securities. Exchanging securities for shares may create a
taxable gain or loss. Each investor should consult his or her tax adviser with
respect to the particular federal, State and local tax consequences of
exchanging securities.
IF YOU DON'T HAVE AN AUTHORIZED FIRM, EATON VANCE CAN RECOMMEND ONE.
HOW TO REDEEM SHARES
A SHAREHOLDER MAY REDEEM 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 share next computed after a redemption request is received in
the proper form as described below. 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.
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 order is
deemed to be received by the Trust or the Principal Underwriter, as the
Trust's agent. 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.
While normally payment will be made in cash for redeemed shares, the Trust,
subject to compliance with applicable regulations, has reserved the right to
pay the redemption price of shares of a Fund, either totally or partially, by
a distribution in kind of readily marketable securities withdrawn from its
corresponding Portfolio. The securities so distributed would be valued
pursuant to the Portfolio's valuation procedures. If a shareholder received a
distribution in kind, the shareholder could incur brokerage or other charges
in converting the securities to cash.
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 if the
cause of the low account balance was a reduction in the net asset value of
shares. No contingent deferred sales charge will be imposed with respect to
such involuntary redemptions.
CONTINGENT DEFERRED SALES CHARGE. Each class of shares is subject to a CDSC on
certain redemptions. The CDSC is calculated based on the lower of the net
asset value at the time of purchase or the time of redemption. Shares acquired
through the reinvestment of distributions are exempt. Redemptions are made
first from shares in the account which are not subject to a CDSC.
In calculating a CDSC upon the redemption of shares acquired in an exchange,
the shares are deemed to have been acquired at the time of the original
purchase of the exchanged shares and, in the case of Class B shares, the CDSC
schedule applicable to the exchanged shares will apply to the acquired shares.
No CDSC is imposed on shares sold to Eaton Vance or its affiliates, or to
their respective employees or clients. Shares acquired as the result of a
merger or liquidation of another Eaton Vance sponsored fund generally will be
subject to the same CDSC rate imposed by the prior fund.
CLASS A SHARES. If Class A shares are purchased at net asset value because the
purchase amount is $1 million or more, or prior to April 1, 1998 because the
amount invested represents redemption proceeds from an unaffiliated mutual
fund (as described under "How to Buy Shares"), they will be subject to a .50%
CDSC if redeemed within 12 months of purchase.
CLASS B SHARES. Class B shares will be subject to the following CDSC schedule:
Year of Redemption
After Purchase CDSC
- ---------------------------------------------------------------------------
First or Second 5%
Third 4%
Fourth 3%
Fifth 2%
Sixth 1%
Seventh and following 0%
The Class B CDSC is waived for redemptions (1) pursuant to a Withdrawal Plan
(see "Eaton Vance Shareholder Services"), (2) as part of a required minimum
distribution from a tax-sheltered retirement plan, or (3) following the death
of all beneficial owners of shares, provided the redemption is requested
within one year of death (a death certificate and other applicable documents
may be required).
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 independent accountants. Shortly after the end of
each calendar year, shareholders will be furnished 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 SHARES, THE TRANSFER AGENT WILL
SET UP A LIFETIME INVESTING ACCOUNT FOR THE INVESTOR ON THE TRUST'S RECORDS.
This account is a complete record of all transactions which at all times shows
the balance of shares owned. The Trust 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 Class 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
Trust'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 shareholder communications are returned by the United States Postal Service
or other delivery service as not deliverable, the distribution option on the
account will be automatically changed to the SHARE OPTION until such time as
the shareholder selects a different option. No interest will accrue on amounts
represented by uncashed distribution or redemption checks.
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 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 Trust and its Transfer Agent. Since the
Trust 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 Trust 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 each Fund currently may be exchanged for shares of the same class of
one or more other funds in the Eaton Vance Group of Funds. Class A shares may
also be exchanged for shares of Eaton Vance Cash Management Fund, Eaton Vance
Income Fund of Boston and Eaton Vance Tax Free Reserves. Class B shares may
also be exchanged for shares of Eaton Vance Prime Rate Reserves, which are
subject to an early withdrawal charge, shares of Eaton Vance Money Market
Fund, which are subject to a CDSC, 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/class at the time of the exchange
(plus, in the case of an exchange made within six months of the date of
purchase of Class A 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. Exchanges are subject to any
restrictions or qualifications set forth in the current prospectus of any such
fund.
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 Trust 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
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 Class B
shares (except Prime Rate Reserves and Class B shares of the Limited Maturity
Funds), see "How to Redeem Shares". The CDSC or early withdrawal charge
schedule applicable to Prime Rate Reserves and Class B shares of the Limited
Maturity Funds 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.
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 Trust, 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 TRUST 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 applicable Fund or Class 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 and specifying the Class 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 Class 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 $25,000 or more of Class A shares made
over a 13-month period are eligible for reduced sales charges. See "How to Buy
Shares -- Statement of Intention and Escrow Agreement."
RIGHT OF ACCUMULATION: Purchases may qualify for reduced sales charges on
Class A shares when the current market value of holdings (shares at current
offering price), plus new purchases, reaches $25,000 or more. Class A 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. For Class B shares any such withdrawals may not
exceed in the aggregate 12% annually of the account balance at the time the
plan is established. Such amount will not be subject to the Class B CDSC. See
"How to Redeem Shares". A minimum deposit of $5,000 in shares is required. The
maintenance of a withdrawal plan concurrently with purchases of additional
Class A shares would be disadvantageous because of the sales charge included
in such purchases.
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 the same shares
(or for Class A shares in Class A shares of any other Eaton Vance 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 Trust (or by the Trust's Transfer Agent). To
the extent that any shares are sold at a loss and the proceeds are reinvested
in shares (or other shares 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 AND
CLASS-SPECIFIC EXPENSES, WILL BE DECLARED DAILY AS A DISTRIBUTION TO FUND
SHAREHOLDERS OF RECORD AT THE TIME OF DECLARATION. Distributions on Class A
shares, 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. Distributions on Class B 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, 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
shares are available at the Transfer Agent. Shareholders will receive timely
federal income tax information as to the tax-exempt or taxable status of all
distributions made by the Fund during the calendar year. 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 Class A 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 such 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 avoid paying federal income taxes
on the part of its investment company taxable income (consisting generally of
taxable net investment income and net short-term capital gain) and net capital
gain that 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 substantially all of its ordinary income and capital gain net
income 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 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. 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 is not deductible to the extent it is deemed related to a Fund's
distributions of tax-exempt interest dividends to the shareholder. 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. "Substantial user" is defined in applicable Treasury regulations to
include a "non-exempt person" who regularly uses in trade or business a part
of a facility financed from the proceeds of industrial development bonds and
would likely be interpreted to include private activity bonds issued to
finance similar facilities.
SEE THE APPENDIX TO THIS PROSPECTUS FOR INFORMATION CONCERNING STATE TAXES.
Shareholders should consult their tax advisers concerning the applicability of
State, local and other taxes to an investment.
PERFORMANCE INFORMATION
FROM TIME TO TIME, YIELD AND/OR AVERAGE ANNUAL TOTAL RETURN MAY BE ADVERTISED.
Current yield is calculated separately for each Class by dividing the net
investment income per share earned during a recent 30-day period by the
maximum offering price per share or net asset value 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. Average annual total return is determined separately for each Class by
computing the average annual percentage change in value of $1,000 invested at
the maximum public offering price (including maximum sales charge for Class A;
net asset value for Class B) for specified periods, assuming reinvestment of
all distributions. Total return may be quoted for the period prior to
commencement of operations which would reflect the Class's total return (or
that of its predecessor) adjusted to reflect any applicable sales charge. 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 for each Class which do not
take into account any sales charge. Any performance figure which does not take
into account a sales charge would be reduced to the extent such charge is
imposed. Each Fund's performance may be compared in publications to the
performance of various indices and investments for which reliable data is
available, and to averages, performance rankings or other information prepared
by recognized mutual fund statistical services.
Investors should note that investment results will fluctuate over time, and
any presentation of yield or total return for any prior period should not be
considered a representation of what an investment may earn or what the yield
or total return may be in any future period. If expenses are allocated to
Eaton Vance, 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, has lead to the loss of lower wage
jobs such as textiles, but economic growth in other areas, particularly the
high technology area has compensated for that loss.
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]
Investing
for the
EATON VANCE
- -------------- 21st
Mutual Funds
Century
- --------------------------------------------------------------------------------
Eaton Vance Florida Insured Municipals Fund
Eaton Vance Hawaii Municipals Fund
Eaton Vance Kansas Municipals Fund
Prospectus
February 1, 1998
- --------------------------------------------------------------------------------
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, 200 Clarendon Street, Boston, MA 02116
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
TFC6/1P
<PAGE>
[LOGO]
Investing
for the
EATON VANCE
- ------------- 21st
Mutual Funds
Century
PART A
INFORMATION REQUIRED IN A PROSPECTUS
Eaton Vance
High Yield Municipals Fund
EATON VANCE 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 February 1, 1998 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. This Statement of Additional Information is available without
charge from the Fund's principal underwriter, Eaton Vance Distributors, Inc.
(the "Principal Underwriter"), 24 Federal Street, Boston, MA 02110 (telephone
(800) 225-6265). The Portfolio's investment adviser is Boston Management and
Research (the "Investment Adviser"), a wholly-owned subsidiary of Eaton Vance
Management, and Eaton Vance Management is the administrator (the
"Administrator") of the Fund. The offices of the Investment Adviser and the
Administrator are located at 24 Federal Street, Boston, MA 02110.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE 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>
CONTENTS
Page Page
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Shareholder and Fund Expenses 2 How to Redeem Shares 12
The Fund's Financial Highlights 3 Reports to Shareholders 13
The Fund's Investment Objective 4 The Lifetime Investing Account/Distribution Options 14
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
Distribution and Service Plans 9 Performance Information 17
Valuing Shares 10 Appendix A 18
How to Buy Shares 10 Appendix B 19
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
Prospectus dated February 1, 1998
<PAGE>
SHAREHOLDER AND FUND EXPENSES
SHAREHOLDER TRANSACTION EXPENSES
Class A Class B Class C
Shares Shares Shares
- ------------------------------------------------------------------------------
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price) 4.75% None None
Sales Charges Imposed on Reinvested
Distributions None None None
Fees to Exchange Shares None None None
Maximum Contingent Deferred Sales Charge None 5.00% 1.00%
ANNUAL FUND AND ALLOCATED PORTFOLIO OPERATING EXPENSES (AS A PERCENTAGE OF
AVERAGE DAILY NET ASSETS)
Class A Class B Class C
Shares Shares Shares
- ------------------------------------------------------------------------------
Investment Adviser Fee 0.60% 0.60% 0.60%
Rule 12b-1 Distribution and/or Service Fees 0.13 0.88 1.00
Other Expenses 0.33 0.33 0.33
---- ---- ----
Total Operating Expenses 1.06% 1.81% 1.93%
==== ==== ====
EXAMPLE
An investor would pay the following expenses and, in the case of Class
A shares, maximum initial sales charge or, in the case of Class B and
Class C shares, the applicable contingent deferred sales charge on a
$1,000 investment, assuming (a) 5% annual return and (b) redemption at
the end of each period:
Class A Class B Class C
Shares Shares Shares
- ------------------------------------------------------------------------------
1 Year $ 58 $ 68 $ 30
3 Years 80 97 61
5 Years 103 118 104
10 Years 171 213 225
An investor would pay the following expenses on the same investment,
assuming (a) 5% annual return and (b) no redemptions:
Class A Class B Class C
Shares Shares Shares
- ------------------------------------------------------------------------------
1 Year $ 58 $ 18 $ 20
3 Years 80 57 61
5 Years 103 98 104
10 Years 171 213 225
NOTES: The table and Example summarize the aggregate expenses of the Portfolio
and each Class of shares of the Fund and are designed to help investors
understand the costs and expenses they will bear, directly or indirectly, by
investing in the Fund. Information for Class B shares is based on expenses for
the most recent fiscal year. Information for Class A and Class C shares is
estimated based upon the most recent fiscal year of its predecessor fund
adjusted for the multiple-class structure.
The Fund offers three classes of shares. Class A shares are sold subject to a
sales charge imposed at the time of purchase. No sales charge is payable at
the time of purchase on investments in Class A shares of $1 million or more.
However, a contingent deferred sales charge ("CDSC") of 0.50% will be imposed
on such investments in the event of certain redemptions within 12 months of
purchase. Class B shares are sold subject to a declining CDSC (5% maximum) if
redeemed within six years of purchase and Class C shares are sold subject to a
1% CDSC if redeemed within one year of purchase. The CDSC does not apply in
certain circumstances. See "How to Buy Shares" and "How to Redeem Shares".
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. Long-term holders of Class B and Class C shares 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. 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",
"Distribution and Service Plans" and "How to Redeem Shares".
The Fund invests exclusively in the Portfolio. Other investment companies with
different distribution arrangements may invest in the Portfolio 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 financial
statements that appear in the Fund's semi-annual and annual reports to
shareholders. The Fund's annual financial statements have been audited by
Deloitte & Touche LLP, independent certified public accountants, as experts in
accounting and auditing. The annual financial statements and the independent
auditors' report and the unaudited semi-annual financial statements are
incorporated by reference into the Statement of Additional Information.
Further information regarding the performance of the Fund is contained in its
annual semi-annual reports to shareholders which may be obtained without
charge by contacting the Principal Underwriter. The financial information for
each of the periods presented in the Fund's Financial Highlights are for the
Fund prior to reclassification of its shares as Class B shares on February 1,
1998. Information for Class A and Class C shares is not presented because
these classes did not exist prior to February 1, 1998. The Financial
Highlights for Class A and Class C shares will differ from the Financial
Highlights for Class B shares due to the different fees imposed on Class A and
Class C shares.
<TABLE>
<CAPTION>
Six Months Ended Year Ended January 31,
July 31, 1997 ---------------------------------
(Unaudited) 1997 1996*
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of year $ 10.620 $ 10.650 $10.000
--------- --------- -------
Income from operations:
Net investment income $ 0.300 $ 0.626 $ 0.299
Net realized and unrealized gain (loss) on investments 0.562 (0.026) 0.657
--------- --------- -------
Total income from operations $ 0.862 $ 0.600 $ 0.956
--------- --------- -------
Less distributions:
From net investment income $ (0.300) $ (0.626) $(0.299)
In excess of net investment income(1) (0.002) (0.003) (0.007)
From net realized gain on investments -- (0.001) --
--------- --------- -------
Total distributions $ (0.302) $ (0.630) $(0.306)
--------- --------- -------
Net asset value, end of year $ 11.180 $ 10.620 $10.650
========= ========= =======
Total Return(2) 8.29% 5.90% 9.40%
Ratios/Supplemental Data**:
Net assets, end of year (000's omitted) $157,645 $123,024 $43,520
Ratio of net expenses to average daily net assets(3) 1.83%+ 1.36% 0.88%+
Ratio of net expenses to average daily net assets after
custodian fee reduction(3) 1.81%+ 1.32% 0.88%+
Ratio of net investment income to average daily net assets 5.64%+ 5.91% 5.86%+
** For the periods indicated, the operating expenses of the Fund and Portfolio reflect an allocation of expenses to
the Administrator and/or the Investment Adviser. Had such actions not been taken, the ratios and net investment
income per share would have been as follows:
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%+
Net investment income per share $ 0.587 $ 0.254
========= =======
* 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. Income dividends are assumed to be reinvested at
the net asset value on the payable date. Capital gain distributions, if any, are assumed to be reinvested at
the net asset value on the ex- dividend date. Total return is calculated on a non-annualized basis.
(3) Includes the Fund's share of the Portfolio's allocated expenses.
</TABLE>
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/ICBA ("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. See Appendix A for the
asset composition of the Portfolio for the most recent fiscal year.
The net asset value of shares 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). The Trustees of the
Trust have divided the shares of the Fund into multiple classes, including
Class A, Class B and Class C shares. Each class represents an interest in the
Fund, but is subject to different expenses, rights and privileges. See
"Distribution and Service Plans" and "How to Buy Shares". The Trustees have
the authority under the Declaration of Trust to create additional classes of
shares with differing rights and privileges. As a result of a reorganization
with separate series of the Trust, the Fund commenced offering Class A, Class
B and Class C shares on February 1, 1998.
When issued and outstanding, the shares are fully paid and nonassessable by
the Trust and redeemable as described under "How to Redeem 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 of the Fund will be voted together
except that any shareholders of a particular class may vote on matters
affecting only that class. Shares have no preemptive or conversion rights and
are freely transferable. In the event of the liquidation of the Fund,
shareholders of each class are entitled to share pro rata in the net assets
attributable to that class available for distribution to shareholders.
The Trustees of the Trust have considered the advantages and disadvantages of
investing the assets of the Fund in the Portfolio, as well as the advantages
and disadvantages of the two-tier format. The Trustees believe that the
structure may offer opportunities for substantial growth in the assets of the
Portfolio, may afford the potential for economies of scale for the Fund and
may overtime result in lower expenses for the Fund.
THE PORTFOLIO IS ORGANIZED AS A TRUST UNDER THE LAWS OF THE STATE OF NEW YORK
AND INTENDS TO BE TREATED AS A PARTNERSHIP FOR FEDERAL TAX PURPOSES. In
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 or class 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 may invest in the Portfolio. 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
APPROXIMATELY $20 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. Mr. Metzold manages other Eaton Vance portfolios and is
a Vice President of Eaton Vance and BMR.
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 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 AND SERVICE PLANS
The Trust has adopted a Service Plan (the "Class A Plan") for the Fund's Class
A shares that is designed to meet the service fee requirements of the sales
charge rule of the National Association of Securities Dealers, Inc. THE CLASS
A PLAN PROVIDES THAT CLASS A 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 ITS AVERAGE DAILY NET ASSETS FOR ANY FISCAL
YEAR. The Trustees of the Trust have initially implemented the Class A Plan by
authorizing Class A to make quarterly service fee payments to the Principal
Underwriter and Authorized Firms in amounts not expected to exceed .25% of its
average daily net assets for any fiscal year which is based on the value of
Class A shares sold by such persons and remaining outstanding for at least
twelve months. However, the Class A Plan authorizes the Trustees of the Trust
to increase payments without action by Class A shareholders of any Fund,
provided that the aggregate amount of payments made in any fiscal year does
not exceed .25% of average daily net assets.
The Trust has also adopted Distribution Plans ("Class B Plan" and "Class C
Plan") pursuant to Rule 12b-1 under the Investment Company Act of 1940 ("1940
Act") for the Fund's Class B and Class C shares. Each Plan is designed to
permit an investor to purchase shares through an Authorized Firm without
incurring an initial sales charge and at the same time permit the Principal
Underwriting to compensate Authorized Firms in connection therewith. UNDER
SUCH PLANS, CLASS B AND CLASS C EACH PAYS THE PRINCIPAL UNDERWRITER A FEE,
ACCRUED DAILY AND PAID MONTHLY, AT AN ANNUAL RATE NOT EXCEEDING .75% OF ITS
AVERAGE DAILY NET ASSETS TO FINANCE THE DISTRIBUTION OF ITS SHARES. Such fees
compensate the Principal Underwriter for sales commissions paid by it to
Authorized Firms on the sale of Class B and Class C shares and for interest
expenses. Under the Class B Plan, 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
Class B shares sold by such Firms. Under the Class C Plan, the Principal
Underwriter currently expects to pay to an Authorized Firm (a) sales
commissions (except on exchange transactions and reinvestments) at the time of
sale equal to .75% of the purchase price of the Class C shares sold by such
Firm, and (b) monthly sales commissions approximately equivalent to 1/12 of
.75% of the value of Class C shares sold by such Firm and remaining
outstanding for at least one year. During the first year after a purchase of
Class C shares, the Principal Underwriter will retain the sales commission as
reimbursement for the sales commissions made to Authorized Firms at the time
of sale. CDSCs paid to the Principal Underwriter will be used to reduce
amounts owed to it. Because payments to the Principal Underwriter under the
two Plans are limited, uncovered distribution charges (sales commissions due
the Principal Underwriter plus interest, less CDSCs received by it) may exist
indefinitely. During the fiscal year ended January 31, 1997, Class B (which
was then a separate series fund) paid sales commissions equivalent to .75% of
average daily net assets. As at January 31, 1997, the outstanding uncovered
distribution charges of the Principal Underwriter on such day calculated under
the Class B Plan amounted to approximately $5,375,000 (equivalent to 4.4% of
the Fund's net assets on such day).
THE CLASS B AND CLASS C PLANS ALSO AUTHORIZE EACH SUCH CLASS TO MAKE PAYMENTS
OF SERVICE FEES TO THE PRINCIPAL UNDERWRITER, AUTHORIZED FIRMS AND OTHER
PERSONS IN AMOUNTS NOT EXCEEDING .25% OF ITS AVERAGE DAILY NET ASSETS FOR
PERSONAL SERVICES AND/OR THE MAINTENANCE OF SHAREHOLDER ACCOUNTS. Under the
Class B Plan, this fee is paid quarterly in arrears based on the value of
Class B shares sold by such persons and remaining outstanding for at least
twelve months. Under the Class C Plan, the Principal Underwriter currently
expects to pay to an Authorized Firm (a) a service fee (except on exchange
transactions and reinvestments) at the time of sale equal to .25% of the
purchase price of the Class C shares sold by such Firm, and (b) monthly
service fees approximately equivalent to 1/12 of .25% of the value of Class C
shares sold by such Firm and remaining outstanding for at least one year.
During the first year after a purchase of Class C shares, the Principal
Underwriter will retain the service fee as reimbursement for the service fee
payment made to Authorized Firms at the time of sale. For the fiscal year
ended January 31, 1997, Class B paid or accrued service fees under its Plan
equivalent to .13% 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 Principal Underwriter may at times allow
discounts on the sale of Class A shares 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 Trust may, in its absolute discretion, suspend, discontinue or limit the
offering of one or more of its classes of its shares at any time. In
determining whether any such action should be taken, the Trust's management
intends to consider all relevant factors, including (without limitation) the
size of the Fund or Class, the investment climate and market conditions, the
volume of sales and redemptions of shares, and in the case of Class B and
Class C shares, the amount of uncovered distribution charges of the Principal
Underwriter. The Plans may continue in effect and payments may be made under
the Plans following any such suspension, discontinuance or limitation of the
offering of shares; however, there is no contractual obligation to continue
any Plan for any particular period of time. Suspension of the offering of
shares would not, of course, affect a shareholder's ability to redeem shares.
VALUING SHARES
THE FUND VALUES ITS SHARES ONCE 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 Class's net asset value per
share is determined by the Trust's custodian, Investors Bank & Trust Company
("IBT"), (as agent for the Trust) in the manner authorized by the Trustees of
the Trust. The net asset value of each Class is computed by dividing the value
of that Class's pro rata share of the Fund's total assets, less its
liabilities, by the number of shares of that Class outstanding. Because the
Fund invests its assets in an interest in the Portfolio, each Class's net
asset value will reflect the value of the Fund's 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 by a specific time each day to receive that day's public offering
price per share. It is the Authorized Firms' responsibility to transmit orders
promptly to the Principal Underwriter. The Fund has approved the acceptance of
purchase and redemption orders as of the time of their receipt by certain
Authorized Firms (or their designated intermediaries).
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) 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.
SHAREHOLDERS MAY DETERMINE THE VALUE OF THEIR INVESTMENT BY MULTIPLYING THE
NUMBER OF SHARES OWNED BY THE CURRENT NET ASSET VALUE PER SHARE.
HOW TO BUY SHARES
SHARES OF THE FUND MAY BE PURCHASED FOR CASH OR MAY BE ACQUIRED IN EXCHANGE
FOR ACCEPTABLE SECURITIES. Class A shares are purchased at the effective
public offering price, which price is based on the effective net asset value
per share plus the applicable sales charge. The sales charge is divided
between the Authorized Firm and the Principal Underwriter. Class B and Class C
shares are purchased at the net asset value per share 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 Trust may suspend the
offering of shares at any time and may refuse an order for the purchase of
shares.
An initial investment 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 Trust'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".
CLASS A SHARES. The sales charge may vary depending on the size of the
purchase and the number of Class A 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:
Sales Charge Sales Charge Dealer Commission
as Percentage of as Percentage of as Percentage of
Amount of Purchase Offering Price Amount Invested Offering Price
- --------------------------------------------------------------------------------
Less than $25,000 4.75% 4.99% 4.50%
$25,000 but less than
$100,000 4.50 4.71 4.25
$100,000 but less
than $250,000 3.75 3.90 3.50
$250,000 but less
than $500,000 3.00 3.09 2.75
$500,000 but less
than $1,000,000 2.00 2.04 2.00
$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 (until March 31, 1998) 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 CDSC of 0.50% will be imposed on such investments (as described
below) in the event of certain redemptions within 12 months of purchase.
Class A shares may be sold at net asset value to current and retired Directors
and Trustees of Eaton Vance funds, including the Portfolio; to clients and
current and retired officers and employees of Eaton Vance, its affiliates and
other investment advisers of Eaton Vance sponsored funds; to registered
representatives and 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. Class A shares may
also be issued at net asset value (1) in connection with the merger of an
investment company or series thereof 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".
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 in Class A shares, 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
such 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.
ACQUIRING FUND SHARES IN EXCHANGE FOR SECURITIES. IBT, as escrow agent, will
receive securities acceptable to Eaton Vance, as Administrator, in exchange
for Fund shares. The minimum value of securities (or securities and cash)
accepted for deposit is $5,000. Securities accepted will be sold on the day of
their receipt or as soon thereafter as possible. The number of Fund shares to
be issued in exchange for securities will be the aggregate proceeds from the
sale of such securities, divided by the applicable public offering price of
Class A shares or net asset value Class B and Class C shares on the day such
proceeds are received. Eaton Vance will use reasonable efforts to obtain the
then current market price for such securities but does not guarantee the best
available price. Eaton Vance will absorb any transaction costs, such as
commissions, on the sale of the securities.
Securities determined to be acceptable should be transferred via book entry or
physically delivered, in proper form for transfer, through an 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: IN THE CASE OF PHYSICAL DELIVERY:
Deliver through Depository Trust Co. Investors Bank & Trust Company
Broker #2212 Attention: Eaton Vance
Investors Bank & Trust Company High Yield Municipals Fund
For A/C Eaton Vance (state Class)
High Yield Municipals Fund Physical Securities Processing
(state Class) Settlement Area
200 Clarendon Street
Boston, MA 02116
Investors who are contemplating an exchange of securities for shares, or their
representatives, must contact Eaton Vance to determine whether the securities
are acceptable before forwarding such securities. Eaton Vance reserves the
right to reject any securities. Exchanging securities for shares may create a
taxable gain or loss. Each investor should consult his or her tax adviser with
respect to the particular federal, state and local tax consequences of
exchanging securities.
The Trustees of the Trust may consider terminating sales of 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 SHARES
A SHAREHOLDER MAY REDEEM 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 share next computed after a redemption request is received in
the proper form as described below. Within seven days after receipt of a
redemption request in good order by the Transfer Agent, the Trust 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 CDSC (described
below) and any federal income tax required to be withheld.
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 Trust, 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 order is
deemed to be received by the Trust or the Principal Underwriter, as the
Trust's agent. 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.
While normally payments will be made in cash for redeemed shares, the Trust,
subject to compliance with applicable regulations, has reserved the right to
pay the redemption price of shares of the Fund, either totally or partially,
by a distribution in kind of readily marketable securities withdrawn from the
Portfolio. The securities so distributed would be valued pursuant to the
Portfolio's valuation procedures. If a shareholder received a distribution in
kind, the shareholder could incur brokerage or other charges in converting the
securities to cash.
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 Trust reserves the
right to redeem accounts with balances of less than $750. Prior to such a
redemption, shareholders will be given 60 days' written notice to make an
additional purchase. However, no such redemption would be required if the
cause of the low account balance was a reduction in the net asset value of
shares. No CDSC will be imposed with respect to such involuntary redemptions.
CONTINGENT DEFERRED SALES CHARGE. Each class of shares is subject to a CDSC on
certain redemptions. The CDSC is calculated based on the lower of the net
asset value at the time of purchase or the time of redemption. Shares acquired
through the reinvestment of distributions are exempt. Redemptions are made
first from shares in the account which are not subject to a CDSC.
In calculating a CDSC upon the redemption of shares acquired in an exchange,
the shares are deemed to have been acquired at the time of the original
purchase of the exchanged shares and, in the case of Class B shares, the CDSC
schedule applicable to the exchanged shares will apply to the acquired shares.
No CDSC is imposed on shares sold to Eaton Vance or its affiliates, or to
their respective employees or clients. Shares acquired as the result of a
merger or liquidation of another Eaton Vance sponsored fund generally will be
subject to the same CDSC rate imposed by the prior fund.
CLASS A SHARES. If Class A shares are purchased at net asset value because the
purchase amount is $1 million or more, or, prior to April 1, 1998, because the
amount invested represents redemption proceeds from an unaffiliated mutual
fund (as described under "How to Buy Shares"), they will be subject to a .50%
CDSC if redeemed within 12 months of purchase.
CLASS B SHARES. Class B shares will be subject to the following CDSC schedule:
Year of Redemption
After Purchase CDSC
- --------------------------------------------------------------------------
First or Second 5%
Third 4%
Fourth 3%
Fifth 2%
Sixth 1%
Seventh and following 0%
The Class B CDSC is waived for redemptions (1) pursuant to a Withdrawal Plan
(see "Eaton Vance Shareholder Services"), (2) as part of a required minimum
distribution from a tax-sheltered retirement plan, or (3) following the death
of all beneficial owners of shares, provided the redemption is requested
within one year of death (a death certificate and other applicable documents
may be required).
CLASS C SHARES. Class C shares will be subject to a 1% CDSC if redeemed within
12 months of purchase. The Class C CDSC is waived for redemptions (1) pursuant
to a Withdrawal Plan (see "Eaton Vance Shareholder Service"), (2) as part of a
distribution from a retirement plan qualified under Section 401, 403(b) or 457
of the Code, or (3) as part of a required minimum distribution from other tax-
sheltered retirement plans.
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 independent accountants. Shortly after the end of
each calendar year, shareholders will be furnished 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 SHARES, THE TRANSFER AGENT WILL
SET UP A LIFETIME INVESTING ACCOUNT FOR THE INVESTOR ON THE TRUST'S RECORDS.
This account is a complete record of all transactions which at all times shows
the balance of shares owned. The Trust will not issue share certificates
except upon request.
At least quarterly, shareholders will receive a statement showing complete
details of any transaction and the current balance in the account. THE
LIFETIME INVESTING ACCOUNT ALSO PERMITS A SHAREHOLDER TO MAKE ADDITIONAL
INVESTMENTS BY SENDING A CHECK FOR $50 OR MORE to the 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 Class, 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
Trust'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 shareholder communications are returned by the United States Postal Service
or other delivery service as not deliverable, the distribution option on the
account will be automatically changed to the SHARE OPTION until such time as
the shareholder selects a different option. No interest will accrue on amounts
represented by uncashed distribution or redemption checks.
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 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 Trust and its Transfer Agent. Since the
Trust 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 Trust 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 the same class of
one or more other funds in the Eaton Vance Group of Funds. Class A shares may
also be exchanged for shares of Eaton Vance Cash Management Fund, Eaton Vance
Income Fund of Boston and Eaton Vance Tax Free Reserves. Class B shares may
also be exchanged for shares of Eaton Vance Prime Rate Reserves, which are
subject to an early withdrawal charge, shares of Eaton Vance Money Market
Fund, which are subject to a CDSC, and shares of a money market fund sponsored
by an Authorized Firm and approved by the Principal Underwriter (an
"Authorized Firm fund"). Class C shares may also be exchanged for shares of
Eaton Vance Money Market Fund and EV Classic Senior Floating-Rate Fund. Any
such exchange will be made on the basis of the net asset value per share of
each fund/class at the time of the exchange (plus, in the case of an exchange
made within six months of the date of purchase of Class A 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). Exchanges are subject to any
restrictions or qualifications set forth in the current prospectus of any such
fund.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 Trust 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
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 Class B
shares (except Prime Rate Reserves and Class B shares of the Limited Maturity
Funds), see "How to Redeem Shares". The CDSC or early withdrawal charge
schedule applicable to Prime Rate Reserves and Class B shares of the Limited
Maturity Funds 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.
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 Trust, 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 TRUST 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 applicable Fund or Class 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 and specifying the Class 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 Class 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 $25,000 or more of Class A shares made
over a 13-month period are eligible for reduced sales charges. See "How to Buy
Shares -- Statement of Intention and Escrow Agreement."
RIGHT OF ACCUMULATION: Purchases may qualify for reduced sales charges on
Class A shares when the current market value of holdings (shares at current
offering price), plus new purchases, reaches $25,000 or more. Class A 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. For Class B and Class C shares, any such
withdrawals may not exceed in the aggregate 12% annually of the account
balance at the time the plan is established. Such amount will not be subject
to the Class B or Class C CDSC. See "How to Redeem Shares". A minimum deposit
of $5,000 in shares is required. The maintenance of a withdrawal plan
concurrently with purchases of additional Class A shares would be
disadvantageous because of the sales charge included in such purchases.
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 the same shares
(or for Class A shares in Class A shares of any other Eaton Vance 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 Trust (or by the Trust's Transfer Agent). To
the extent that any shares are sold at a loss and the proceeds are reinvested
in shares (or other shares 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
SUBSTANTIALLY ALL OF THE INVESTMENT INCOME ALLOCATED TO THE FUND BY THE
PORTFOLIO, LESS THE FUND'S DIRECT AND ALLOCATED EXPENSES AND CLASS-SPECIFIC
EXPENSES, WILL BE DECLARED DAILY AS A DISTRIBUTION TO SHAREHOLDERS OF RECORD
AT THE TIME OF DECLARATION. Distributions on Class A shares, 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. Distributions on Class
B shares will ordinarily be paid on the fifteenth day of each month or the
next business day thereafter. Distributions on Class C shares will ordinarily
be paid on the twenty-second day of each month or the next business day
thereafter. The Fund anticipates that for tax purposes, the entire
distribution, whether paid in cash or reinvested in additional shares, will
constitute tax-exempt income to shareholders, except for the proportionate
part of the distribution that may be considered taxable income if the Fund has
taxable income during the calendar year. Shareholders reinvesting the monthly
distribution should treat the amount of the entire distribution as the tax
cost basis of the additional shares acquired by reason of such reinvestment.
Daily distribution crediting will commence on the business day after collected
funds for the purchase of shares are available at the Transfer Agent.
Shareholders will receive timely federal income tax information as to the tax-
exempt or taxable status of all distributions made by the Fund during the
calendar year. The Fund's net realized capital gains, if any, consist of the
net realized capital gains allocated to the Fund by the Portfolio for tax
purposes, after taking into account any available capital loss carryovers; the
Fund's net realized capital gains, if any, will be distributed at least once a
year, usually in December.
Sales charges paid upon a purchase of Class A 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 such 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 avoid paying federal income taxes
on the part of its investment company taxable income (consisting generally of
taxable net investment income and net short-term capital gain) and net capital
gain that 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.
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 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. Tax-exempt distributions
received from the Fund are includable in the tax base for determining the
taxability of social security and railroad retirement benefits.
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.
The Code provides that interest on indebtedness incurred or continued by a
shareholder to purchase or carry shares is not deductible to the extent it is
deemed related to the Fund's distributions of tax-exempt interest dividends to
the shareholder. 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. "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.
Shareholders should consult with their tax advisers concerning the
applicability of state, local or other taxes to an investment.
PERFORMANCE INFORMATION
FROM TIME TO TIME, YIELD AND/OR AVERAGE ANNUAL TOTAL RETURN MAY BE ADVERTISED.
Current yield is calculated separately for each Class by dividing the net
investment income per share earned during a recent 30-day period by the
maximum offering price per share or net asset value 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. Average annual total return is determined separately for each Class by
computing the average annual percentage change in value of $1,000 invested at
the maximum public offering price (including maximum sales charge for Class A;
net asset value for Class B and Class C) for specified periods, assuming
reinvestment of all distributions. Total return may be quoted for the period
prior to commencement of operations which would reflect the Class's total
return (or that of its predecessor) adjusted to reflect any applicable sales
charge. 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 for each Class which do not
take into account any sales charge. Any performance figure which does not take
into account a sales charge would be reduced to the extent such charge is
imposed. 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 will fluctuate over time,
and any presentation of yield or total return for any prior period should not
be considered a representation of what an investment may earn or what the
yield or total return may be in any future period. If the expenses are
allocated to Eaton Vance, performance will be higher.
<PAGE>
APPENDIX A
HIGH YIELD MUNICIPALS PORTFOLIO
ASSET COMPOSITION INFORMATION
FOR THE FISCAL YEAR ENDED JANUARY 31, 1997
RATINGS OF MUNICIPAL BONDS BY MOODY'S RATINGS OF MUNICIPAL BONDS 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.
- ---------------
+ 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.
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.
FITCH/IBCA
INVESTMENT GRADE BOND RATINGS
AAA: Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest and
repay principal, which is unlikely to be affected by reasonably foreseeable
events.
AA: Bonds considered to be investment grade and of very high credit quality.
The obligor's ability to pay interest and repay principal is very strong,
although not quite as strong as bonds rated "AAA". Because bonds rated in the
"AAA" and "AA" categories are not significantly vulnerable to foreseeable
future developments, short-term debt of these issuers is generally rated
"F-1+".
A: Bonds considered to be investment grade and of high credit quality. The
obligors ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions
and circumstances than bonds with higher ratings.
BBB: Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these bonds,
and therefore, impair timely payment. The likelihood that the ratings of these
bonds will fall below investment grade is higher than for bonds with higher
ratings.
HIGH YIELD BOND RATINGS
BB: Bonds are considered speculative. The obligor's ability to pay interest
and repay principal may be affected over time by adverse economic changes.
However, business and financial alternatives can be identified that could
assist the obligor in satisfying its debt service requirements.
B: Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued
timely payment of principal and interest reflects the obligor's limited margin
of safety and the need for reasonable business and economic activity
throughout the life of the issue.
CCC: Bonds have certain identifiable characteristics which, if not remedied,
may lead to default. The ability to meet obligations requires an advantageous
business and economic environment.
CC: Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C: Bonds are in imminent default in payment of interest or principal.
DDD, DD, AND D: Bonds are in default on interest and/or principal payments.
Such bonds are extremely speculative and should be valued on the basis of
their ultimate recovery value in liquidation or reorganization of the obligor.
"DDD" represents the highest potential for recovery on these bonds, and "D"
represents the lowest potential for recovery.
PLUS (+) OR MINUS (-): The ratings from AA to C may be modified by the
addition of a plus or minus sign to indicate the relative position of a credit
within the rating category.
* * * * * * * *
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]
Investing
for the
EATON VANCE
- -------------- 21st
Mutual Funds
Century
- --------------------------------------------------------------------------------
Eaton Vance High Yield Municipals Fund
Prospectus
January 1, 1998
- --------------------------------------------------------------------------------
INVESTMENT ADVISER OF HIGH YIELD MUNICIPALS PORTFOLIO
Boston Management and Research, 4 Federal Street, Boston, MA 02110
ADMINISTRATOR OF EATON VANCE 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, 200 Clarendon Street, Boston, MA 02116
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
HYP
<PAGE>
PART B
INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION
STATEMENT OF
ADDITIONAL INFORMATION
February 1, 1998
EATON VANCE FLORIDA INSURED MUNICIPALS FUND
EATON VANCE HAWAII MUNICIPALS FUND
EATON VANCE KANSAS MUNICIPALS FUND
24 Federal Street
Boston, Massachusetts 02110
(800) 225-6265
This Statement of Additional Information provides general information
about the Funds listed above and their corresponding Portfolios. This
Statement of Additional Information is sometimes referred to herein as the
"SAI".
TABLE OF CONTENTS
Page
Additional Information about Investment Policies .................... 1
Investment Restrictions ............................................. 7
Trustees and Officers ............................................... 9
Investment Adviser and Administrator ............................... 11
Custodian ........................................................... 14
Services for Accumulation -- Class A Shares ......................... 14
Service for Withdrawal .............................................. 15
Determination of Net Asset Value .................................... 15
Investment Performance .............................................. 16
Taxes ............................................................... 17
Principal Underwriter ............................................... 19
Service Plan -- Class A Shares ...................................... 20
Distribution Plan -- Class B Shares ................................. 21
Portfolio Security Transactions ..................................... 22
Other Information ................................................... 24
Independent Certified Public Accountants ............................ 26
Financial Statements ................................................ 26
Appendix A: Class A Shares .......................................... a-1
Appendix B: Class B Shares .......................................... b-1
Appendix C: State Specific Information .............................. c-1
Appendix D: Tax Equivalent Yield Tables ............................. d-1
Appendix E: Description of Securities Ratings ....................... e-1
Appendix F: Insurance ............................................... f-1
Although each Fund offers only its shares of beneficial interest, it is
possible that a Fund (or Class) might become liable for a misstatement or
omission in this Statement of Additional Information regarding another Fund
(or Class) 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 COMBINED 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 FEBRUARY 1, 1998, AS SUPPLEMENTED
FROM TIME TO TIME, WHICH IS INCORPORATED HEREIN BY REFERENCE. THIS COMBINED
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>
This SAI provides information about the Funds and the Portfolios.
Capitalized terms used in this SAI and not otherwise defined have the meanings
given them in the Prospectus. The Funds are subject to the same investment
policies as those of the Portfolio. Each Fund currently seeks to achieve its
objective by investing in its corresponding 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 a Fund derived from such interest) is treated as a tax
preference item which could subject the recipient to or increase the
recipient's liability for the AMT. For corporate shareholders, 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.
Each Portfolio may on occasion acquire revenue bonds which carry warrants
or similar rights covering equity securities. Such warrants or rights may be
held indefinitely, but if exercised, the Portfolio anticipates that it would,
under normal circumstances, dispose of any equity securities so acquired
within a reasonable period of time.
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. Each Portfolio will take whatever action
it considers appropriate in the event of anticipated financial difficulties,
default or bankruptcy of either the issuer of any municipal obligation or of
the underlying source of funds for debt service. Such action may include
retaining the services of various persons or firms (including affiliates of
the Investment Adviser to evaluate or protect any real estate, facilities or
other assets securing any such obligation or acquired by a Portfolio as a
result of any such event, and a Portfolio may also manage (or engage other
persons to manage) or otherwise deal with any real estate, facilities or other
assets so acquired. The Portfolio anticipates that real estate consulting and
management services may be required with respect to properties securing
various municipal obligations in its portfolio or subsequently acquired by the
Portfolio. The Portfolio will incur additional expenditures in taking
protective action with respect to portfolio obligations in default and assets
securing such obligations.
The yields on municipal obligations will be dependent on a variety of
factors, including purposes of issue and source of funds for repayment,
general money market conditions, general conditions of the municipal bond
market, size of a particular offering, maturity of the obligation and rating
of the issue. The ratings of Moody's, S&P and Fitch represent their opinions
as to the quality of the municipal obligations which they undertake to rate.
It should be emphasized, however, that ratings are based on judgment and are
not absolute standards of quality. Consequently, municipal obligations with
the same maturity, coupon and rating may have different yields while
obligations of the same maturity and coupon with different ratings may have
the same yield. In addition, the market price of municipal obligations will
normally fluctuate with changes in interest rates, and therefore the net asset
value of the Portfolio will be affected by such changes.
RISKS OF CONCENTRATION
Municipal Obligations of a Particular State. For a discussion of the risks
associated with a Portfolio's policy of concentrating its investments in
particular State issuers of municipal obligations, see "Risks of
Concentration" in Appendix C.
Obligations of Particular Types of Issuers. Each Portfolio may invest 25% or
more of its total assets in municipal obligations of the same type. There
could be economic, business or political developments which might affect all
municipal obligations of the same type. In particular, investments in
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 each
Fund's investment policies as set forth in the Prospectus, each 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, has lead to the loss of lower wage jobs such as textiles, but
economic growth in other areas, particularly the high technology area has
compensated for that loss.
The Commonwealth of Puerto Rico 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. Countering the loss of investment tax incentives are the
government's pro-business stance, improvements in education, and privatization
of government-owned businesses. Further, Puerto Rico has taken steps to
increase tax collection through tax code simplification and enforcement.
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. A successful statehood vote in Puerto Rico would then
require the U.S. Congress to ratify the election. The pro-statehood
administration would like to bring the issue to a new vote again in November
1998, though it may be delayed. Sentiment appears marginally in favor of
statehood.
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
Each Portfolio may invest in municipal leases and participations therein,
which arrangements frequently involve special risks. Municipal leases are
obligations in the form of a lease or installment purchase arrangement which
is issued by state or local governments to acquire equipment and facilities.
Interest income from such obligations is generally exempt from local and state
taxes in the state of issuance. "Participations" in such leases are undivided
interests in a portion of the total obligation. Participations entitle their
holders to receive a pro rata share of all payments under the lease. 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 each Portfolio may be deemed
illiquid for the purpose of the Portfolio's 15% limitation on investments in
illiquid securities, unless determined by the Investment Adviser, pursuant to
guidelines adopted by the Trustees of a Portfolio, to be liquid securities for
the purpose of such limitation. In determining the liquidity of municipal
lease obligations, the Investment Adviser will consider a variety of factors
including: (1) the willingness of dealers to bid for the security; (2) the
number of dealers willing to purchase or sell the obligation and the number of
other potential buyers; (3) the frequency of trades and quotes for the
obligation; and (4) the nature of the marketplace trades. In addition, the
Investment Adviser will consider factors unique to particular lease
obligations affecting the marketability thereof. These include the general
creditworthiness of the municipality, the importance of the property covered
by the lease to the municipality, and the likelihood that the marketability of
the obligation will be maintained throughout the time the obligation is held
by a Portfolio. In the event a Portfolio acquires an unrated municipal lease
obligation, the Investment Adviser will be responsible for determining the
credit quality of such obligation on an on-going basis, including an
assessment of the likelihood that the lease may or may not be cancelled.
ZERO COUPON BONDS
Zero coupon bonds are debt obligations which do not require the periodic
payment of interest and are issued at a significant discount from face value.
The discount approximates the total amount of interest the bonds will accrue
and compound over the period until maturity at a rate of interest reflecting
the market rate of the security at the time of issuance. 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 a 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 a
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
Each Portfolio is dependent on the Investment Adviser's judgment, analysis
and experience in evaluating the quality of municipal obligations. In
evaluating the credit quality of a particular issue, whether rated or unrated,
the Investment Adviser will normally take into consideration, among other
things, the financial resources of the issuer (or, as appropriate, of the
underlying source of funds for debt service), its sensitivity to economic
conditions and trends, any operating history of and the community support for
the facility financed by the issue, the ability of the issuer's management and
regulatory matters. The Investment Adviser will attempt to reduce the risks of
investing in the lowest investment grade, below investment grade and
comparable unrated obligations through active portfolio management, credit
analysis and attention to current developments and trends in the economy and
the financial markets.
See "Portfolio of Investments" in the "Financial Statements" incorporated
by reference into this SAI with respect to any defaulted obligations held by a
Portfolio.
SHORT-TERM TRADING
Each Portfolio may sell (and later purchase) securities in anticipation of
a market decline (a rise in interest rates) or purchase (and later sell)
securities in anticipation of a market rise (a decline in interest rates). In
addition, a security may be sold and another purchased at approximately the
same time to take advantage of what a Portfolio believes to be a temporary
disparity in the normal yield relationship between the two securities. Yield
disparities may occur for reasons not directly related to the investment
quality of particular issues or the general movement of interest rates, such
as changes in the overall demand for or supply of various types of municipal
obligations or changes in the investment objectives of investors. Such trading
may be expected to increase the portfolio turnover rate, which may increase
capital gains and the expenses incurred in connection with such trading. A
Portfolio cannot accurately predict its portfolio turnover rate, but it is
anticipated that the annual portfolio turnover rate will generally not exceed
100% (excluding turnover of securities having a maturity of one year or less).
A 100% annual turnover rate could occur, for example, if all the securities
held by a Portfolio were replaced once in a period of one year. A high
turnover rate (100% or more) necessarily involves greater expenses to a
Portfolio. Each 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 each
Portfolio in prior fiscal years, see "Supplementary Data" in the financial
statements contained in the annual report attached hereto.
WHEN-ISSUED SECURITIES
New issues of municipal obligations are sometimes offered on a "when-
issued" basis, that is, delivery and payment for the securities normally take
place within a specified number of days after the date of a Portfolio's
commitment and are subject to certain conditions such as the issuance of
satisfactory legal opinions. Each Portfolio may also purchase securities on a
when-issued basis pursuant to refunding contracts in connection with the
refinancing of an issuer's outstanding indebtedness. Refunding contracts
generally require the issuer to sell and a Portfolio to buy such securities on
a settlement date that could be several months or several years in the future.
Each Portfolio will make commitments to purchase when-issued securities
only with the intention of actually acquiring the securities, but may sell
such securities before the settlement date if it is deemed advisable as a
matter of investment strategy. The payment obligation and the interest rate
that will be received on the securities are fixed at the time a Portfolio
enters into the purchase commitment. When a Portfolio commits to purchase a
security on a when-issued basis it records the transaction and reflects the
value of the security in determining its net asset value. Securities purchased
on a when-issued basis and the securities held by a Portfolio are subject to
changes in value based upon the perception of the creditworthiness of the
issuer and changes in the level of interest rates (i.e. appreciation when
interest rates decline and depreciation when interest rates rise). Therefore,
to the extent that a Portfolio remains substantially fully invested at the
same time that it has purchased securities on a when-issued basis, there will
be greater fluctuations in the Portfolio's net asset value than if it solely
set aside cash to pay for when-issued securities.
VARIABLE RATE OBLIGATIONS
Each 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. Each 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 a Portfolio may retain the bond if interest rates decline. By
acquiring these kinds of obligations a 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
Each 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.
Each Portfolio intends to limit this type of transaction to institutions (such
as banks or securities dealers) which the Investment Adviser believes present
minimal credit risks and would engage in this type of transaction to
facilitate portfolio liquidity or (if the seller so agrees) to hedge against
rising interest rates. There is no assurance that this kind of put option will
be available to a Portfolio or that selling institutions will be willing to
permit a Portfolio to exercise a put to hedge against rising interest rates. A
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. A Portfolio does not expect to assign
any value to any separate put option which may be acquired to facilitate
portfolio liquidity, inasmuch as the value (if any) of the put will be
reflected in the value assigned to the associated security; any put acquired
for hedging purposes would be valued in good faith under methods or procedures
established by the Trustees of the Portfolio after consideration of all
relevant factors, including its expiration date, the price volatility of the
associated security, the difference between the market price of the associated
security and the exercise price of the put, the creditworthiness of the issuer
of the put and the market prices of comparable put options. Interest income
generated by certain bonds having put or demand features may not qualify as
tax-exempt interest.
SECURITIES LENDING
Each Portfolio may seek to increase its income by lending portfolio
securities to broker-dealers or other institutional borrowers. Under present
regulatory policies of the Commission, such loans are required to be secured
continuously by collateral in cash, cash equivalents or U.S. Government
securities held by the Portfolio's custodian and maintained on a current basis
at an amount at least equal to the market value of the securities loaned,
which will be marked to market daily. Cash equivalents include short-term
municipal obligations as well as taxable certificates of deposit, commercial
paper and other short-term money market instruments. A 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. A 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 a Portfolio's management to be of
good standing and when, in the judgment of a 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 a Fund of any income realized by a Portfolio from securities
loans will be taxable. If the management of a Portfolio decides to make
securities loans, it is intended that the value of the securities loaned would
not exceed 30% of a Portfolio's total assets. Each Portfolio has no present
intention of engaging in securities lending.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
A change in the level of interest rates may affect the value of the
securities held by a Portfolio (or of securities that a Portfolio expects to
purchase). To hedge against changes in rates, a Portfolio may enter into (i)
futures contracts for the purchase or sale of debt securities and (ii) futures
contracts on securities indices. All futures contracts entered into by a
Portfolio are traded on exchanges or boards of trade that are licensed and
regulated by the Commodity Futures Trading Commission ("CFTC") and must be
executed through a futures commission merchant or brokerage firm which is a
member of the relevant exchange. The Portfolio may purchase and write call and
put options on futures contracts which are traded on a United States 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.
Each 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. Each Portfolio
will engage in transactions in futures and related options contracts only to
the extent such transactions are consistent with the requirements of the Code
for maintaining qualification of a Fund as a regulated investment company for
federal income tax purposes (see "Taxes").
ASSET COVERAGE REQUIREMENTS
Transactions involving when-issued securities or futures contracts and
options (other than options that a Portfolio has purchased) expose a Portfolio
to an obligation to another party. A Portfolio will not enter into any such
transactions unless it owns either (1) an offsetting ("covered") position in
securities or other options or futures contracts, or (2) cash or liquid
securities (such as readily marketable obligations and money market
instruments) with a value sufficient at all times to cover its potential
obligations not covered as provided in (1) above. Each Portfolio will comply
with 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 a Portfolio's assets to
segregated accounts or to cover could impede portfolio management or a
Portfolio's ability to meet redemption requests or other current obligations.
INVESTMENT RESTRICTIONS
The following investment restrictions of each Fund are designated as
fundamental policies and as such cannot be changed without the approval of the
holders of a majority of a Fund's outstanding voting securities, which as used
in this SAI means the lesser of (a) 67% of the shares of a Fund present or
represented by proxy at a meeting if the holders of more than 50% of the
shares are present or represented at the meeting or (b) more than 50% of the
shares of a Fund. Accordingly, each Fund may not:
(1) Borrow money or issue senior securities except as permitted by the
1940 Act;
(2) Purchase securities on margin (but the Fund may obtain such short-term
credits as may be necessary for the clearance of purchases and sales of
securities). The deposit or payment by the Fund of initial or maintenance
margin in connection with futures contracts or related options transactions is
not considered the purchase of a security on margin;
(3) Underwrite or participate in the marketing of securities of others,
except insofar as it may technically be deemed to be an underwriter in selling
a portfolio security under circumstances which may require the registration of
the same under the Securities Act of 1933;
(4) Purchase or sell real estate, 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.
Each Portfolio has adopted substantially the same fundamental investment
restrictions as the foregoing investment restrictions adopted by each Fund;
such restrictions cannot be changed without the approval of a "majority of the
outstanding voting securities" of a Portfolio.
The Funds and the Portfolios have adopted the following investment
policies which may be changed by the Trust with respect to a Fund without
approval by that Fund's shareholders or with respect to the Portfolio without
approval of a Fund or its other investors. 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; (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 a Portfolio's investment restrictions, the determination
of the "issuer" of a municipal obligation which is not a general obligation
bond will be made by the 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 Portfolios are listed
below. Except as indicated, each individual has held the office shown or other
offices in the same company for the last five years. Unless otherwise noted,
the business address of each Trustee and officer is 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 PORTFOLIOS
DONALD R. DWIGHT (66), Trustee
President of Dwight Partners, Inc. (a corporate relations and communications
company). Director or Trustee of various investment companies managed by
Eaton Vance or BMR.
Address: Clover Mill Lane, Lyme, New Hampshire 03768
JAMES B. HAWKES (56), Vice President and Trustee*
Chairman, 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 (62), 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 (71), 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 PORTFOLIOS
THOMAS J. FETTER (54), 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 (41), Vice President
Vice President of BMR, 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.
ALAN R. DYNNER (57), Secretary
Vice President and Chief Legal Officer of BMR, Eaton Vance, EVC and EV since
November 1, 1996. Previously, Mr. Dynner was a Partner of the law firm of
Kirkpartrick & Lockhart LLP, New York and Washington, D.C., and was
Executive Vice President of Neuberger & Berman Management, Inc., a mutual
fund management company. Officer of various investment companies managed by
Eaton Vance or BMR. Mr. Dynner was elected Secretary on June 23, 1997.
JANET E. SANDERS (62), Assistant Secretary
Vice President of BMR, Eaton Vance and EV. Officer of various investment
companies managed by Eaton Vance or BMR.
A. JOHN MURPHY (35), 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 (40), 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.
In addition, Timothy T. Browse (38), Vice President of Eaton Vance and
BMR, is a Vice President of the Kansas Portfolio. Mr. Browse has served as a
Vice President of the Kansas Portfolio since November 24, 1997. Mr. Browse is
an officer of various investment companies managed by Eaton Vance or BMR.
Messrs. Hayes (Chairman), Reamer and Thorndike are members of the Special
Committee of the Board of Trustees of the Trust and of the Portfolios. The
purpose of the Special Committee is to consider, evaluate and make
recommendations to the full Board of Trustees concerning (i) all contractual
arrangements with service providers to the Funds and the Portfolios, including
investment advisory (Portfolio only), administrative, transfer agency,
custodial and fund accounting and distribution services, and (ii) all other
matters in which Eaton Vance or its affiliates has any actual or potential
conflict of interest with the Funds, the Portfolios or investors therein.
The Nominating Committee of the Board of Trustees of the Trust and the
Portfolios 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 Portfolios. The Audit
Committee's functions include making recommendations to the Trustees regarding
the selection of the independent certified public accountants, and reviewing
matters relative to trading and brokerage policies and practices, accounting
and auditing practices and procedures, accounting records, internal accounting
controls, and the functions performed by the custodian, transfer agent and
dividend disbursing agent of the Trust and of the Port-
folios.
Trustees of the Portfolios who are not affiliated with the Investment
Adviser may elect to defer receipt of all or a percentage of their annual fees
in accordance with the terms of a Trustees Deferred Compensation Plan (the
"Trustees" Plan"). Under the Trustees' Plan, an eligible Trustee may elect to
have his deferred fees invested by a Portfolio in the shares of one or more
funds in the Eaton Vance Family of Funds, and the amount paid to the Trustees
under the Trustees' Plan will be determined based upon the performance of such
investments. Deferral of Trustees' fees in accordance with the Trustees' Plan
will have a negligible effect on the Portfolios' assets, liabilities, and net
income per share, and will not obligate a Portfolio to retain the services of
any Trustee or obligate a Portfolio to pay any particular level of
compensation to the Trustee. Neither the Portfolios nor the Trust has a
retirement plan for its Trustees.
The fees and expenses of the noninterested Trustees of the Trust and the
Portfolios are paid by the Funds (and the other series of the Trust) and the
Portfolios, respectively. (The Trustees of the Trust and the Portfolios who
are members of the Eaton Vance organization receive no compensation from the
Trust or the Portfolios). During the fiscal year ended January 31, 1997, the
noninterested Trustees of the Trust and the Portfolio received the following
compensation in their capacities as Trustees from the Trust 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>
DONALD R. SAMUEL L. NORTON H. JOHN L. JACK L.
SOURCE OF COMPENSATION DWIGHT(3) HAYES, III(4) REAMER THORNDIKE(5) TREYNOR
- ---------------------- --------- ------------ ------ ------------ -------
<S> <C> <C> <C> <C> <C>
Trust(2) $ 105 $ 93 $ 93 $ 96 $ 102
Florida Insured Portfolio 35 31 31 32 34
Hawaii Portfolio 35 31 31 32 34
Kansas Portfolio 35 31 31 32 34
Trust and Fund Complex $145,000(6) $157,500(7) $145,000 $150,000(8) $150,000
- ----------
(1) As of February 1, 1998, the Eaton Vance complex consists of 154 registered investment companies or series thereof.
(2) The Trust consisted of 9 Funds as of January 31, 1997.
(3) Mr. Dwight received deferred compensation from each Portfolio as follows: Florida Insured - $14; Hawaii - $5 and Kansas - $8.
(4) Mr. Hayes received deferred compensation from each Portfolio as follows: Florida Insured - $14; Hawaii - $5 and Kansas - $8.
(5) Mr. Thorndike received deferred compensation from each Portfolio as follows: Florida Insured - $14; Hawaii - $8 and
Kansas - $8.
(6) Includes $45,000 of deferred compensation.
(7) Includes $20,429 of deferred compensation.
(8) Includes $28,125 of deferred compensation.
</TABLE>
INVESTMENT ADVISER AND ADMINISTRATOR
Each Portfolio engages BMR as investment adviser pursuant to an Investment
Advisory Agreement, which is substantially the same for each Portfolio. BMR or
Eaton Vance acts as investment adviser to investment companies and various
individual and institutional clients with combined assets under management of
approximately $20 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 a family of 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 $21 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. A staff of 28 (including 6 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 a Portfolio's portfolio manager, see the
Fund's current Prospectus.
William H. Ahern, Jr. is a Vice President of Eaton Vance and BMR. Mr.
Ahern graduated from Boston College in 1981 with a B.A. in Economics, and
received his M.B.A degree in Finance from Babson College in 1987. Mr. Ahern is
a member of the Boston Security Analysts Society.
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 each Portfolio subject to the
supervision of the Portfolio's Board of Trustees. BMR furnishes to the
Portfolios investment research, advice and supervision, furnishes an
investment program and determines what securities will be purchased, held or
sold by the Portfolio and what portion, if any, of the Portfolio's assets will
be held uninvested. Each Investment Advisory Agreement requires BMR to pay the
salaries and fees of all officers and Trustees of the Portfolio who are
members of the BMR organization and all personnel of BMR performing services
relating to research and investment activities. A Portfolio is responsible for
all expenses not expressly stated to be payable by BMR under its 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 each Portfolio pays BMR, see
the Prospectus. The following table sets forth the net assets of each
Portfolio and, absent a fee reduction, the advisory fees it would have earned
during 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.
<TABLE>
<CAPTION>
ADVISORY FEE FOR FISCAL YEARS ENDED
NET ASSETS ------------------------------------
PORTFOLIO AT 1/31/97 JANUARY 31, 1997 JANUARY 31, 1996 JANUARY 31, 1995*
- --------- ---------- ---------------- ---------------- -----------------
<S> <C> <C> <C> <C>
Florida Insured(1) $24,203,859 $41,276 $27,933 $8,420
Hawaii(2) 16,013,925 24,762 23,715 13,231
Kansas(3) 11,735,720 18,746 15,929 7,589
- ----------
* For the period from the start of business, March 2, 1994, to January 31, 1995.
(1) To enhance the net income of the Florida Insured 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.
(2) To enhance the net income of the Hawaii 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.
(3) To enhance the net income of the Kansas 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.
</TABLE>
Each Investment Advisory Agreement with BMR continues in effect from year
to year so long as such continuance is approved at least annually (i) by the
vote of a majority of the noninterested Trustees of the Portfolio cast in
person at a meeting specifically called for the purpose of voting on such
approval and (ii) by the Board of Trustees of the Portfolio or by vote of a
majority of the outstanding voting securities of the Portfolio. Each Agreement
may be terminated at any time without penalty on sixty (60) days' written
notice by the Board of Trustees of either party, or by vote of the majority of
the outstanding voting securities of the Portfolio, and the Agreement will
terminate automatically in the event of its assignment. Each Agreement
provides that BMR may render services to others. Each Agreement also provides
that BMR shall not be liable for any loss incurred in connection with the
performance of its duties, or action taken or omitted under that Agreement, in
the absence of willful misfeasance, bad faith, gross negligence in the
performance of its duties or by reason of its reckless disregard of its
obligations and duties thereunder, or for any losses sustained in the
acquisition, holding or disposition of any security or other investment.
As indicated in the Prospectus, Eaton Vance serves as Administrator of
each Fund, but currently receives no compensation for providing administrative
services to the Fund. Under its Administrative Services Agreement with the
Trust, Eaton Vance has been engaged to administer the Funds' affairs, subject
to the supervision of the Trustees of the Trust, and shall furnish for the use
of the Funds office space and all necessary office facilities, equipment and
personnel for administering the affairs of the Funds.
Each 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 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, John M. Nelson and Ralph Z. Sorenson. Mr. Hawkes is chairman, President
and chief executive officer and Mr. Gardner is vice chairman 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, the Voting Trustees of which are Messrs.
Gardner, Hawkes and Rowland and Alan R. Dynner, Thomas E. Faust, Jr., William
M. Steul and Wharton P. Whitaker. 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 January 31, 1998, Messrs. Gardner and Hawkes
each owned 24% of such voting trust receipts, Messrs. Rowland and Faust owned
15% and 13%, respectively, and Messrs. Dynner, Steul and Whitaker owned 8%.
Messrs. Hawkes and Dynner are officers or Trustees of the Trust and the
Portfolios and are members of the EVC, BMR, Eaton Vance and EV organizations.
Messrs. Browse, Fetter, MacIntosh, Murphy, O'Connor and Woodbury and Ms.
Sanders are officers of the Trust and/or the Portfolios and are also members
of the BMR, Eaton Vance and EV organizations.
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 approximately 21% 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 Trust and the Portfolios. IBT has the
custody of all cash and securities representing a Fund's interest in a
Portfolio, has custody of all of each Portfolio's assets, maintains the
general ledger of each Portfolio and each Fund, and computes the daily net
asset value of interests in 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 Portfolios'
investments, receives and disburses all funds and performs various other
ministerial duties upon receipt of proper instructions from the Trust and the
Portfolios. IBT 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.
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.
SERVICES FOR ACCUMULATION -- CLASS A SHARES
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 $25,000 or more of Class A shares and shares of other funds exchangeable
for Class A shares and listed under "The Eaton Vance Exchange Privilege" in
the Prospectus will be purchased within a 13-month period, a Statement of
Intention should be signed so that shares may be obtained at the same reduced
sales charge as though the total quantity were invested in one lump sum.
Shares held under Right of Accumulation (see below) as of the date of the
Statement will be included toward the completion of the Statement. The
Statement authorizes the Transfer Agent to hold in escrow sufficient shares
(5% of the dollar amount specified in the Statement) which can be redeemed to
make up any difference in sales charge on the amount intended to be invested
and the amount actually invested. Execution of a Statement does not obligate
the shareholder to purchase or the Fund to sell the full amount indicated in
the Statement, and should the amount actually purchased during the 13-month
period be more or less than that indicated on the Statement, price adjustments
will be made. For sales charges and other information on quantity purchases,
see "How to Buy Shares" in the Prospectus. Any investor considering signing a
Statement of Intention should read it carefully.
Right of Accumulation -- Cumulative Quantity Discount. The applicable sales
charge level for the purchase of Class A shares is calculated by taking the
dollar amount of the current purchase and adding it to the value (calculated
at the maximum current offering price) of the Class A shares the shareholder
owns in his or her account(s) in the Fund, and shares of other Funds
exchangeable for Class A shares and listed under "The Eaton Vance Exchange
Privilege" in the Prospectus. The sales charge on the shares being purchased
will then be at the rate applicable to the aggregate. For sales charges on
quantity purchases, see "How to Buy Shares" in the Prospectus. Shares
purchased (i) by an individual, his or her spouse and their children under the
age of twenty-one, and (ii) by a trustee, guardian or other fiduciary of a
single trust estate or a single fiduciary account, will be combined for the
purpose of determining whether a purchase will qualify for the Right of
Accumulation and if qualifying, the applicable sales charge level.
For any such discount to be made available, at the time of purchase a
purchaser or his or her 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.
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 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, Martin Luther King, Jr. Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
Each investor in a Portfolio, including a Fund, may add to or reduce its
investment in the Portfolio on each day the 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 separately for each Class of
shares of a Fund by multiplying a hypothetical initial purchase order of
$1,000 by the average annual compound rate of return (including capital
appreciation/depreciation, and distributions paid and reinvested) for the
stated period and annualizing the result. The calculation assumes (i) that all
distributions are reinvested at net asset value on the reinvestment dates
during the period, (ii) the deduction of the maximum sales charge from the
initial $1,000 purchase order for Class A shares, (iii) a complete redemption
of the investment and, (iv) the deduction of any CDSC at the end of the
period. For further information concerning the total return of the Classes of
a Fund, see Appendix A and Appendix B.
Yield is computed separately for each Class of a Fund pursuant to a
standardized formula by dividing the net investment income per share earned
during a recent thirty-day period by the maximum offering price (including the
maximum sales charge for Class A shares) per share on the last day of the
period and annualizing the resulting figure. Net investment income per share
is calculated from the yields to maturity of all debt obligations held by the
Portfolio based on prescribed methods, reduced by accrued Fund and Class
expenses for the period with the resulting number being divided by the average
daily number of Class shares outstanding and entitled to receive distributions
during the period. The yield figure does not reflect the deduction of any
CDSCs which (if applicable) are imposed on certain redemptions at the rate set
forth under "How to Redeem Shares" in the Prospectus. Yield calculations
assume the current maximum initial sales charge for Class A shares set forth
under "How to Buy Shares" in the Prospectus. (Actual yield may be affected by
variations in sales charges on investments.) A taxable-equivalent yield is
computed by dividing the tax-exempt yield by 1 minus a stated rate. For the
yield and taxable-equivalent yield of the Classes of a Fund, see Appendix A
and Apprndix B.
A 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. A Fund's
performance may differ from that of other investors in its corresponding
Portfolio, including other investment companies.
The Trust (or Principal Underwriter) may provide investors with
information on municipal bond investing, which may include comparative
performance information, evaluations of Fund performance, charts and/or
illustrations prepared by independent sources (such as Lipper Analytical
Services Inc., CDA/Wiesenberger, Morningstar, Inc., The Bond Buyer, the
Federal Reserve Board or The Wall Street Journal). The Trust may also refer in
investor publications to Tax Freedom Day, as computed by the Tax Foundation,
Washington, DC 20005, to help illustrate the value of tax free investing, as
well as other tax-related information. Information, charts and illustrations
showing the effects of inflation and taxes (including their 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 a Portfolio at a
particular date (including ratings assigned by independent ratings services
such as Moody's, S&P and Fitch) may be included in advertisements and other
material furnished to present and prospective shareholders. Such information
may be stated as a percentage of the Portfolio's bond holdings on such date.
Comparative information about the yield or distribution rate of a Fund and
about average rates of return on certificates of deposit, bank money market
deposit accounts, money market mutual funds and other short-term investments
may also be included in advertisements, supplemental sales literature or
communications of the Fund. Such information may also compare the taxable
equivalent yield (or value) of 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 Trust (or Principal Underwriter) may provide information about Eaton
Vance, its affiliates and other investment advisers to the funds in the Eaton
Vance Family of Funds in sales material or advertisements provided to
investors or prospective investors. Such material or advertisements may also
provide information on the use of investment professionals by such investors.
TAXES
Each series of the Trust is treated as a separate entity for federal
income tax purposes. Each Fund has elected to be treated and intends to
qualify each year, as a regulated investment company ("RIC") under the Code.
Accordingly, each Fund intends to satisfy certain requirements relating to
sources of its income and diversification of its assets and to distribute
substantially all of its ordinary income (including tax-exempt income) and net
income (after reduction by any available capital loss carryforwards) in
accordance with the timing requirements imposed by the Code, so as to maintain
its RIC status and to avoid paying any federal income or excise tax. Each Fund
so qualified for its fiscal year ended January 31, 1997. Because each Fund
invests its assets in a Portfolio, the Portfolio normally must satisfy the
applicable source of income and diversification requirements in order for the
Fund to also satisfy these requirements. Each Portfolio will allocate at least
annually among its investors, including a Fund, each investor's distributive
share of the Portfolio's net taxable (if any) and tax-exempt investment
income, net realized capital gains, and any other items of income, gain, loss,
deduction or credit. For purposes of applying the requirements of the Code
regarding qualification as a RIC, each Fund (i) will be deemed to own its
proportionate share of each of the assets of the corresponding Portfolio and
(ii) will be entitled to the gross income of that Portfolio attributable to
such share.
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.
In order to avoid incurring a federal excise tax obligation, the Code
requires that each Fund distribute (or be deemed to have distributed) by
December 31 of each calendar year at least 98% of its ordinary income (not
including tax-exempt income) for such year, at least 98% of its capital gain
net income (which is the excess of its realized capital gains over its
realized capital losses), generally computed on the basis of the one-year
period ending on October 31 of such year, after reduction by (i) any available
capital loss carryforwards and (ii) 100% of any income from the prior year (as
previously computed) that was not paid out during such year and on which the
Fund paid no federal income tax. Under current law, provided that a Fund
qualifies as a RIC and a Portfolio is treated as a partnership for
Massachusetts and federal tax purposes, neither the Fund nor the Portfolio
should be liable for any income, corporate excise or franchise tax in the
Commonwealth of Massachusetts.
A Portfolio's investment in zero coupon and certain other securities will
cause it to realize income prior to the receipt of cash payments with respect
to these securities. Such income will be allocated daily to interests in the
Portfolio and, in order to enable the relevant Fund to distribute its
proportionate share of this income and avoid a tax payable by the Fund, the
Portfolio may be required to liquidate securities that it might otherwise have
continued to hold in order to generate cash that the Fund may withdraw from
the Portfolio to make distributions to Fund shareholders.
A Portfolio's transactions in options and futures contracts will be
subject to special tax rules that may affect the amount, timing and character
of Fund distributions to shareholders. For example, certain positions held by
a Portfolio on the last business day of each taxable year will be marked to
market (i.e., treated as if closed out on such day), and any resulting gain or
loss will generally be treated as 60% long-term and 40% short-term capital
gain or loss. Certain positions held by a Portfolio that substantially
diminish 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. A 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 by a Fund of net tax-exempt interest income that are
properly designated as "exempt-interest dividends" may be treated by
shareholders as interest excludable from gross income under Section 103(a) of
the Code. In order for a Fund to be entitled to pay the tax-exempt interest
income allocated to it by its corresponding Portfolio as exempt-interest
dividends to its shareholders, the Fund must and intends to satisfy certain
requirements, including the requirement that, at the close of each quarter of
its taxable year, at least 50% of the value of its total assets consists of
obligations the interest on which is exempt from regular federal income tax
under Code Section 103(a). For purposes of applying this 50% requirement, the
Fund will be deemed to own its proportionate share of each of the assets of
the Portfolio, and the Portfolio currently intends to invest its assets in a
manner such that the Fund can meet this 50% requirement. Interest on certain
municipal obligations is treated as a tax preference item for purposes of the
AMT. Shareholders of each Fund are required to report tax-exempt interest on
their federal income tax returns.
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.
Each 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, a Portfolio may realize some
short-term and long-term capital gains (and/or losses) as a result of market
transactions, including sales of portfolio securities and rights to when-
issued securities and options and futures transactions. 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. A Portfolio may also realize taxable income from certain short-term
taxable obligations, securities loans, a portion of discount with respect to
certain stripped municipal obligations or their stripped coupons, and certain
realized gains or income attributable to accrued market discount. 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 a 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 a Fund to individuals and certain other shareholders who
have not provided the Fund with their correct taxpayer identification number
("TIN") and certain certifications required by the Internal Revenue Service
(the "IRS"), as well as shareholders with respect to whom the Fund has
received notification from the IRS or a broker, may be subject to "backup"
withholding of federal income tax arising from the Fund's taxable dividends
and other distributions as well as the proceeds of redemption transactions
(including repurchases and exchanges), at a rate of 31%. An individual's TIN
is generally his or her social security number.
Non-resident alien individuals, foreign corporations and certain other
foreign entities generally will be subject to a U.S. withholding tax at a rate
of 30% on 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.
PRINCIPAL UNDERWRITER
The Trust has authorized the Principal Underwriter to act as its agent in
repurchasing shares at the rate of $2.50 for each repurchase transaction
handled by the Principal Underwriter. The Principal Underwriter estimates that
the expenses incurred by it in acting as repurchase agent for the Trust will
exceed the amounts paid therefor. For the amount paid by the Trust to the
Principal Underwriter for acting as repurchase agent, see Appendix B.
CLASS A SHARES. Class A shares of each Fund may be continuously purchased
at the public offering price through Authorized Firms which have agreements
with the Principal Underwriter. The Trust reserves the right to suspend or
limit the offering of its shares to the public at any time. 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 Prospectus (see "How to Buy Shares"). Such table is applicable to
purchases of a Fund alone or in combination with purchases of certain other
funds offered by the Principal Underwriter, made at a single time by (i) an
individual, or an individual, his spouse and their children under the age of
twenty-one, purchasing shares for his or their own account, and (ii) a trustee
or other fiduciary purchasing shares for a single trust estate or a single
fiduciary account. The table is also presently applicable to (1) purchases of
Class A shares pursuant to a written Statement of Intention; or (2) purchases
of Class A shares pursuant to the Right of Accumulation and declared as such
at the time of purchase.
Subject to the applicable provisions of the 1940 Act, the Trust may issue
Class A 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 Class. Normally no
sales charges will be paid in connection with an exchange of Class A shares
for the assets of such investment company. Class A shares may be sold at net
asset value to any officer, director, trustee, general partner or employee of
the Trust, a 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. Class A shares 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 Principal Underwriter acts as principal in selling Class A shares
under a Distribution Agreement with the Trust. 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 Class A shares on a "best
efforts" basis under which it is required to take and pay for only such shares
as may be sold. The Principal Underwriter allows Authorized Firms discounts
from the applicable public offering price which are alike for all Authorized
Firms. The Principal Underwriter may allow, upon notice to all Authorized
Firms with whom it has agreements, discounts up to the full sales charge
during the periods specified in the notice. 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.
CLASS B SHARES. Under a Distribution Agreement, the Principal Underwriter
acts as principal in selling Class B shares. 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, each
Class B makes payments to the Principal Underwriter pursuant to a Distribution
Plan as described in the 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 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 Class B shares or on
six months' notice by the Principal Underwriter and is automatically
terminated upon assignment. The Principal Underwriter distributes Class B
shares on a "best efforts" basis under which it is required to take and pay
for only such shares as may be sold.
SERVICE PLAN -- CLASS A SHARES
The Trust on behalf of each of its Class A shares has adopted 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
"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 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 Class
A shares of a Fund. The Plan has been approved by the Board of Trustees of the
Trust, including the Plan Trustees.
Under the Plan, an officer 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 affected shareholders of
Class A shares, and all material amendments of the Plan must also be approved
by the Trustees of the Trust in the manner described above. 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 each Fund and its Class A shareholders.
DISTRIBUTION PLAN -- CLASS B SHARES
The Trust has adopted a Distribution Plan (the "Plan") on behalf of its
Class B shares 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 with respect to Class B shares.
The Plan provides that each Fund will pay sales commissions and
distribution fees to the Principal Underwriter only after and as a result of
the sale of Class B shares of the Fund. On each sale of Fund shares (excluding
reinvestment of distributions) the Fund will pay the Principal Underwriter
amounts representing (i) sales commissions equal to 5% 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 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 respective Class and will
accordingly reduce the Class's net assets upon such accrual, all in accordance
with generally accepted accounting principles. The amount payable on each day
is limited to 1/365 of .75% of a Class's net assets on such day. The level of
a Class's net assets changes each day and depends upon the amount of sales and
redemptions of shares, the changes in the value of the investments held by the
Portfolio, the expenses of the Class, Fund and the Portfolio accrued and
allocated to the Fund and Class 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 Trust does not accrue
possible future payments as a liability of a Class or reduce a Class'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 Class 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 Trust 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 Trust to the Principal Underwriter and CDSCs
theretofore paid or payable to the Principal Underwriter will be subtracted
from such distribution charges; if the result of such subtraction is positive,
a distribution fee (computed at 1% over the prime rate then reported in The
Wall Street Journal) will be computed on such amount and added thereto, with
the resulting sum constituting the amount of outstanding uncovered
distribution charges with respect to such day. The amount of outstanding
uncovered distribution charges of the Principal Underwriter calculated on any
day does not constitute a liability recorded on the financial statements of
the Fund.
The amount of uncovered distribution charges of the Principal Underwriter
at any particular time depends upon various changing factors, including the
level and timing of sales of shares, the nature of such sales (i.e., whether
they result from exchange transactions, reinvestments or from cash sales
through Authorized Firms), the level and timing of redemptions of shares upon
which a CDSC will be imposed, the level and timing of redemptions of shares
upon which no CDSC will be imposed (including redemptions of shares pursuant
to the exchange privilege which result in a reduction of uncovered
distribution charges), changes in the level of the net assets of the Class,
and changes in the interest rate used in the calculation of the distribution
fee under the Plan. Periods with a high level of sales of Class shares
accompanied by a low level of early redemptions of Class 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 a Class's average daily net assets per annum. For
actual payments made and the outstanding uncovered distribution charges of the
Principal Underwriter, see Appendix B. The Trust believes that the combined
rate of all these payments may be higher than the rate of payments made under
distribution plans adopted by other investment companies pursuant to Rule
12b-1. Although the Principal Underwriter will use its own funds (which may be
borrowed from banks) to pay sales commissions at the time of sale, it is
anticipated that the Eaton Vance organization will profit by reason of the
operation of the Plan through an increase in the Fund's assets (thereby
increasing the advisory fee payable to BMR by the Portfolio) resulting from
sale of shares and through the amounts paid to the Principal Underwriter,
including CDSCs, pursuant to the 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 Class B 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 Trust.
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 applicable Class. 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 affected Class 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 each Fund's assets, and will result in
increased investment flexibility and advantages which have benefitted and will
continue to benefit the Fund and its Class B 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 Class B 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 Class B shareholders.
PORTFOLIO SECURITY TRANSACTIONS
Decisions concerning the execution of portfolio security transactions,
including the selection of the market and the executing firm, are made by BMR.
BMR is also responsible for the execution of transactions for all other
accounts managed by it.
BMR places the portfolio security transactions of each Portfolio and of
all other accounts managed by it for execution with many firms. BMR uses its
best efforts to obtain execution of portfolio security transactions at prices
which are advantageous to each Portfolio and at reasonably competitive spreads
or (when a disclosed commission is being charged) at reasonably competitive
commission rates. In seeking such execution, BMR will use its best judgment in
evaluating the terms of a transaction, and will give consideration to various
relevant factors, including without limitation the 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 Portfolios are generally traded in the over-the-
counter market on a net basis (i.e., without commission) through broker-
dealers and banks acting for their own account rather than as brokers, or
otherwise involve transactions directly with the issuer of such obligations.
Such firms attempt to profit from such transactions by buying at the bid price
and selling at the higher asked price of the market for such obligations, and
the difference between the bid and asked price is customarily referred to as
the spread. The Portfolios may also purchase municipal obligations from
underwriters, the cost of which may include undisclosed fees and concessions
to the underwriters. While it is anticipated that each 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 Portfolios and BMR's other
clients for providing brokerage and research services to BMR.
The following table shows brokerage commission paid by each Portfolio for
each of 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:
PORTFOLIO 1/31/97 1/31/96 1/31/95*
- --------- ------- ------- --------
Florida Insured ............ $6,206 $-0- $-0-
Hawaii ..................... 1,816 -0- -0-
Kansas ..................... 419 -0- -0-
- ----------
* For the period from the start of business, March 2, 1994, to January 31,
1995.
All of such portfolio security transactions were directed to firms which
provided some research services to BMR or its affiliates (although many of
such firms may have been selected in any particular transaction primarily
because of their execution capabilities), and the amounts of such transactions
for the fiscal year ended January 31, 1997 were as follows: Florida Insured --
$70,196,676; Hawaii -- $14,921,595 and Kansas -- $3,453,727.
As authorized in Section 28(e) of the Securities Exchange Act of 1934, a
broker or dealer who executes a portfolio transaction on behalf of a Portfolio
may receive a commission which is in excess of the amount of commission
another broker or dealer would have charged for effecting that transaction if
BMR determines in good faith that such compensation was reasonable in relation
to the value of the brokerage and research services provided. This
determination may be made 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 Portfolios' 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 Portfolios may
also be appropriate for other investment accounts managed by BMR or its
affiliates. Whenever decisions are made to buy or sell securities by a
Portfolio and one or more of such other accounts simultaneously, BMR will
allocate the security transactions (including "hot" issues) in a manner which
it believes to be equitable under the circumstances. As a result of such
allocations, there may be instances where a Portfolio will not participate in
a transaction that is allocated among other accounts. If an aggregated order
cannot be filled completely, allocations will generally be made on a pro rata
basis. An order may not be allocated on a pro rata basis where, for example:
(i) consideration is given to portfolio managers who have been instrumental in
developing or negotiating a particular investment; (ii) consideration is given
to an account with specialized investment policies that coincide with the
particulars of a specific investment; (iii) pro rata allocation would result
in odd-lot or de minimis amounts being allocated to a portfolio or other
client; or (iv) where BMR reasonably determines that departure from a pro rata
allocation is advisable. While these aggregation and allocation policies could
have a detrimental effect on the price or amount of the securities available
to the Portfolio from time to time, it is the opinion of the Trustees of the
Trust and the Portfolios that the benefits from the BMR organization outweigh
any disadvantage that may arise from exposure to simultaneous transactions.
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. (The Declaration of Trust also contains provisions
limiting the liability of a series or class to that series or class.)
Moreover, the Trust's By-laws also provide for indemnification out of the
property of the Fund of any shareholder held personally liable solely by
reason of being or having been a shareholder for all loss or expense arising
from such liability. The assets of the Fund are readily marketable and will
ordinarily substantially exceed its liabilities. In light of the nature of the
Fund's business and the nature of its assets, management believes that the
possibility of the Fund's liability exceeding its assets, and therefore the
shareholder's risk of personal liability, is extremely remote.
In accordance with the Declaration of Trust of each Portfolio, there will
normally be no meetings of the investors for the purpose of electing Trustees
unless and until such time as less than a majority of the Trustees holding
office have been elected by investors. In such an event the Trustees of the
Portfolio then in office will call an investors' meeting for the election of
Trustees. Except for the foregoing circumstances and unless removed by action
of the investors in accordance with the Portfolio's Declaration of Trust, the
Trustees shall continue to hold office and may appoint successor Trustees.
The Declaration of Trust of each Portfolio provides that no person shall
serve as a Trustee if investors holding two-thirds of the outstanding interest
have removed him from that office either by a written declaration filed with
the Portfolio's custodian or by votes cast at a meeting called for that
purpose. The Declaration of Trust further provides that under certain
circumstances the investors may call a meeting to remove a Trustee and that
the Portfolio is required to provide assistance in communicating with
investors about such a meeting.
Each Portfolio's Declaration of Trust provides that a Fund and other
entities permitted to invest in the Portfolio (e.g., other U.S. and foreign
investment companies, and common and commingled trust funds) will each be
liable for all obligations of the Portfolio. However, the risk of 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 Fund nor its shareholders will be adversely
affected by reason of the Fund investing in the Portfolio.
Each 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.
Each Fund changed its name from EV Marathon [state name] Tax Free Fund to
EV Marathon [state name] Municipals Fund on February 1, 1996. Each Fund was
reorganized into multiple classes of an Eaton Vance [state name] Municipals
Fund on February 1, 1998. The operations of Class B reflect the operations of
a Fund prior to February 1, 1998. Class A is a successor to the operations of
a separate series of the Trust.
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Deloitte & Touche LLP, 125 Summer Street, Boston, Massachusetts, are the
independent certified public accountants of the Funds and the Portfolios,
providing audit services, tax return preparation, and assistance and
consultation with respect to the preparation of filings with the Commission.
FINANCIAL STATEMENTS
The audited financial statements of, and the independent auditors' report
for the Funds and the Portfolios appear in the Funds' most recent annual
report to shareholders, the unaudited financial statements of the Funds and
the Portfolios appear in the Funds' most recent semiannual report to
shareholders, both of which are incorporated by reference into this SAI. A
copy of the Funds' semiannual and annual report accompanies this SAI.
Registrant incorporates by reference the audited financial information for
the Funds and the Portfolios listed below for the fiscal year ended January
31, 1997 and the unaudited financial information for the six-months ended July
31, 1997, as previously filed electronically with the Commission:
Fiscal year ended January 31, 1997
Eaton Vance Florida Insured Municipals Fund
Florida Insured Municipals Portfolio
Eaton Vance Hawaii Municipals Fund
Hawaii Municipals Portfolio
Eaton Vance Kansas Municipals Fund
Kansas Municipals Portfolio
(Accession No. 0000928816-97-000106)
Six-months ended July 31, 1997
Eaton Vance Florida Insured Municipals Fund
Florida Insured Municipals Portfolio
Eaton Vance Hawaii Municipals Fund
Hawaii Municipals Portfolio
Eaton Vance Kansas Municipals Fund
Kansas Municipals Portfolio
(Accession No. 0000950109-97-006308)
<PAGE>
APPENDIX A: CLASS A SHARES
PERFORMANCE INFORMATION
The tables below indicate the cumulative and average annual total return
on a hypothetical investment in shares of $1,000. Total return for the period
prior to February 1, 1998 reflects the total return of the predecessor to
Class A. Total return prior to the Predecessor Fund's commencement of
operations reflects the total return of Class B, adjusted to reflect the Class
A sales charge. The Class B total return has not been adjusted reflect certain
other expenses (such as distribution and/or service fees). If such adjustments
were made the Class A total return would be different. The "Value of Initial
Investment" reflects the deduction of the maximum sales charge of 4.75%. 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. Information presented with two asterisks (**)
includes the effect of subsidizing expenses. Returns would have been lower
without subsidies.
<TABLE>
VALUE OF A $1,000 INVESTMENT -- FLORIDA INSURED
<CAPTION>
TOTAL RETURN TOTAL RETURN
EXCLUDING MAXIMUM INCLUDING MAXIMUM
VALUE OF VALUE OF SALES CHARGE SALES CHARGE
INVESTMENT INVESTMENT INITIAL INVESTMENT -------------------------- ---------------------------
PERIOD* DATE INVESTMENT ON 7/31/97 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ----------------------------- ------------- -------------- ------------ ------------ ------------ ------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Life of Fund** 3/2/94 $952.50 $1,275.61 33.92% 8.92% 27.56% 7.38%
1 Year Ended 7/31/97** 7/31/96 $952.50 $1,042.16 9.41% 9.41% 4.22% 4.22%
- ------------
* Predecessor Fund commenced operations March 3, 1994.
VALUE OF A $1,000 INVESTMENT -- HAWAII
<CAPTION>
TOTAL RETURN TOTAL RETURN
EXCLUDING MAXIMUM INCLUDING MAXIMUM
VALUE OF VALUE OF SALES CHARGE SALES CHARGE
INVESTMENT INVESTMENT INITIAL INVESTMENT -------------------------- ---------------------------
PERIOD* DATE INVESTMENT ON 7/31/97 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ----------------------------- ------------- -------------- ------------ ------------ ------------ ------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Life of Fund** 3/2/94 $952.50 $1,114.25 16.98% 4.69% 11.42% 3.21%
1 Year Ended 7/31/97** 7/31/96 $952.50 $1,043.37 9.54% 9.54% 4.34% 4.34%
- ------------
* Predecessor Fund commenced operations March 14, 1994.
VALUE OF A $1,000 INVESTMENT -- KANSAS
<CAPTION>
TOTAL RETURN TOTAL RETURN
EXCLUDING MAXIMUM INCLUDING MAXIMUM
VALUE OF VALUE OF SALES CHARGE SALES CHARGE
INVESTMENT INVESTMENT INITIAL INVESTMENT -------------------------- ---------------------------
PERIOD* DATE INVESTMENT ON 7/31/97 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ----------------------------- ------------- -------------- ------------ ------------ ------------ ------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Life of Fund** 3/2/94 $952.50 $1,174.30 23.29% 6.31% 17.43% 4.81%
1 Year Ended 7/31/97** 7/31/96 $952.50 $1,045.23 9.74% 9.74% 4.52% 4.52%
- ------------
* Predecessor Fund commenced operations March 3, 1994.
</TABLE>
The following shows the yield of Class A shares for the thirty-day period
ended July 31, 1997 and the yield required of a taxable security that would
produce an after-tax yield equivalent to the thirty-day yield, assuming a
certain combined federal and State tax rate. Appendix D contains state-
specific applicable tax rates and income brackets.
TAXABLE SECURITY ASSUMED
CLASS A 30-DAY YIELD EQUIVALENT YIELD TAX RATE
- ------- ------------ ---------------- --------
Florida Insured ..... 4.52% 6.85% 34.05%
Hawaii .............. 4.27% 6.59% 35.20%
Kansas .............. 4.46% 6.46% 34.80%
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As at December 31, 1997, the Trustees and officers of the Trust, as a
group, owned in the aggregate less than 1% of the outstanding shares of each
Class A and of each Fund. In addition, as of the same date, the following
record owners held the amounts of Class A shares indicated below, which were
held either individually or on behalf of customers who are the beneficial
owners of such shares, and as to which they have voting power under certain
limited circumstances:
<TABLE>
<S> <C> <C> <C>
FLORIDA INSURED FUND - Merrill Lynch, Pierce, Fenner & Smith, Inc. Jacksonville, FL 20.3%
James L. Elliott Living Trust Charlevoix, MI 17.0%
Anne Slater Revocable Trust Delray Beach, Fl 8.0%
N. Aaron & Lois Naboicheck Hartford, CT 5.0%
HAWAII FUND - PaineWebber Wailuku, HI 40.4%
PaineWebber Pukalani, HI 8.5%
PaineWebber Kaneohe, HI 8.3%
PaineWebber Aiea, HI 7.1%
PaineWebber Kahului, HI 6.3%
KANSAS FUND - Merrill Lynch, Pierce, Fenner & Smith, Inc. Jacksonville, FL 9.6%
Eugene A. White Trust McPherson, KS 9.2%
Carl & Glenda Berg Overland Park, KS 8.8%
Donaldson, Lufkin Jenrett Securities Corp. Jersey City, NJ 6.0%
Glendora Brindle Living Trust Fredonia, KS 5.5%
</TABLE>
To the knowledge of the Trust, no other person owned of record or
beneficially 5% or more of any Fund's outstanding Class A shares as of such
date.
<PAGE>
APPENDIX B: CLASS B SHARES
FEES AND EXPENSES
DISTRIBUTION PLANS
Each Distribution Plan and Distribution Agreement remains in effect until
April 28, 1998 and may be continued as described under "Distribution Plan".
Pursuant to Rule 12b-1, the Plan has been approved by the relevant Fund's
shareholders and by the Board of Trustees of the Trust, as required by Rule
12b-1.
The following table shows, for the fiscal year ended January 31, 1997, (1)
sales commissions paid by the Principal Underwriter to Authorized Firms on
sales of Class B shares, (2) distribution payments to the Principal
Underwriter allocated to Class B shares under the Plan, (3) CDSC payments to
the Principal Underwriter, (4) service fees on Class B shares paid under the
Plan, and (5) amount of service fees on Class B shares paid to Authorized
Firms (the balance of which being retained by the Principal Underwriter).
<TABLE>
<CAPTION>
DISTRIBUTION CDSC SERVICE
PAYMENTS TO PAYMENTS TO FEES TO
SALES THE PRINCIPAL THE PRINCIPAL SERVICE AUTHORIZED
CLASS B COMMISSIONS UNDERWRITER UNDERWRITER FEES FIRMS
- ------- ----------- ----------- ----------- ---- -----
<S> <C> <C> <C> <C> <C>
Florida Insured .................. $102,944 $ 148,929 $30,000 $27,052 $26,762
Hawaii ........................... 74,379 112,929 46,000 23,310 23,289
Kansas ........................... 63,009 80,346 49,000 14,626 14,626
</TABLE>
PRINCIPAL UNDERWRITER
For the fiscal year ended January 31, 1997, each Fund paid the Principal
Underwriter for repurchase transactions handled by it $2.50 for each such
transaction which aggregated as follows: Florida Insured -- $140; Hawaii --
$237.50; and Kansas -- $112.50.
ADMINISTRATOR
As stated under "Investment Adviser and Administrator," the Administrator
currently receives no compensation for providing administrative services to
each Fund. The following table shows, 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, each Fund's operating expenses that were allocated to the
Administrator:
FUND JANUARY 31, 1997 JANUARY 31, 1996 JANUARY 31, 1995*
- ---- ---------------- ---------------- -----------------
Florida Insured .... $ -0- $12,277 $21,147
Hawaii ............. 4,103 27,054 18,691
Kansas ............. 3,985 7,444 18,544
- ----------
*For the period from the start of business, March 2, 1994, to January 31,
1995.
PERFORMANCE INFORMATION
The tables below indicate the cumulative and average annual total return
on a hypothetical investment of $1,000 in Class B shares for the periods shown
in each table. Past performance is 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. Information presented with
two asterisks (**) includes the effect of subsidizing expenses. Return would
have been lower without subsidies.
<TABLE>
VALUE OF A $1,000 INVESTMENT -- FLORIDA INSURED
<CAPTION>
VALUE OF VALUE OF
INVESTMENT INVESTMENT TOTAL RETURN BEFORE TOTAL RETURN AFTER
BEFORE AFTER DEDUCTING DEDUCTING
DEDUCTING THE DEDUCTING THE THE MAXIMUM CDSC THE MAXIMUM CDSC
INVESTMENT INVESTMENT AMOUNT OF MAXIMUM CDSC MAXIMUM CDSC -------------------------- --------------------------
PERIOD* DATE INVESTMENT ON 7/31/97 ON 7/31/97 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ---------------- ---------- ----------- --------------- --------------- ------------ ------------ ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of Fund** 3/2/94 $1,000 $1,299.14 $1,269.14 29.91% 7.95% 26.91% 7.22%
1 Year Ended
7/31/97** 7/31/96 $1,000 $1,088.26 $1,038.26 8.83% 8.83% 3.83% 3.83%
- ------------
* Investment operations began on March 2, 1994.
VALUE OF A $1,000 INVESTMENT -- HAWAII
<CAPTION>
VALUE OF VALUE OF
INVESTMENT INVESTMENT TOTAL RETURN BEFORE TOTAL RETURN AFTER
BEFORE AFTER DEDUCTING DEDUCTING
DEDUCTING THE DEDUCTING THE THE MAXIMUM CDSC THE MAXIMUM CDSC
INVESTMENT INVESTMENT AMOUNT OF MAXIMUM CDSC MAXIMUM CDSC -------------------------- --------------------------
PERIOD* DATE INVESTMENT ON 7/31/97 ON 7/31/97 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ---------------- ---------- ----------- --------------- --------------- ------------ ------------ ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of Fund** 3/2/92 $1,000 $1,188.80 $1,158.80 18.88% 5.19% 15.88% 4.40%
1 Year Ended
7/31/97** 7/31/96 $1,000 $1,091.61 $1,041.61 9.16% 9.16% 4.16% 4.16%
- ------------
* Investment operations began on March 2, 1994.
VALUE OF A $1,000 INVESTMENT -- KANSAS
<CAPTION>
VALUE OF VALUE OF
INVESTMENT INVESTMENT TOTAL RETURN BEFORE TOTAL RETURN AFTER
BEFORE AFTER DEDUCTING DEDUCTING
DEDUCTING THE DEDUCTING THE THE MAXIMUM CDSC THE MAXIMUM CDSC
INVESTMENT INVESTMENT AMOUNT OF MAXIMUM CDSC MAXIMUM CDSC -------------------------- --------------------------
PERIOD* DATE INVESTMENT ON 7/31/97 ON 7/31/97 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ---------------- ---------- ----------- --------------- --------------- ------------ ------------ ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of Fund** 3/2/94 $1,000 $1,230.25 $1,200.25 23.02% 6.25% 20.02% 5.48%
1 Year Ended
7/31/97** 7/31/96 $1,000 $1,094.17 $1,044.17 9.42% 9.42% 4.42% 4.42%
- ------------
* Investment operations began on March 2, 1994.
</TABLE>
The following shows the yield of Class B shares for the thirty-day period
ended July 31, 1997 and the yield required of a taxable security that would
produce an after-tax yield equivalent to the thirty-day yield, assuming a
certain combined federal and State tax rate. If a Portfolio's or Fund's
expenses had not been subsidized, yield would be lower. Appendix D contains
state specific applicable tax rates and income brackets.
TAXABLE SECURITY ASSUMED
CLASS B 30-DAY YIELD EQUIVALENT YIELD TAX RATE
- ------- ------------ ---------------- --------
Florida Insured .......... 4.14% 6.30% 34.33%
Hawaii ................... 3.88% 5.99% 35.20%
Kansas ................... 4.06% 6.23% 34.80%
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As at December 31, 1997, the Trustees and officers of the Trust, as a
group, owned in the aggregate less than 1% of the outstanding shares of each
Class B and of each Fund. In addition, as of the same date, the following
record owners held the amounts of Class B shares indicated below, which were
held on behalf of their customers who are the beneficial owners of such
shares, and as to which they have voting power under certain limited
circumstances:
<TABLE>
<S> <C> <C> <C>
FLORIDA INSURED FUND - Merrill Lynch, Pierce, Fenner & Smith, Inc. Jacksonville, FL 15.5%
HAWAII FUND - Prudential Securities, Inc. Honolulu, HI 5.0%
KANSAS FUND - Merrill Lynch, Pierce, Fenner & Smith, Inc. Jacksonville, FL 10.4%
</TABLE>
To the knowledge of the Trust, no other person owned of record or
beneficially 5% or more of any Fund's outstanding Class B shares as of such
date.
<PAGE>
APPENDIX C: STATE SPECIFIC INFORMATION
RISKS OF CONCENTRATION
The following information as to certain State specific considerations is
given to investors in view of a Portfolio's policy of concentrating its
investments in particular State issuers. Such information supplements the
information in the Prospectus. It is derived from sources that are generally
available to investors and is believed to be accurate. Such information
constitutes only a brief summary, does not purport to be a complete
description and is based on information from official statements relating to
securities offerings of issuers of each particular State. Neither the Trust
nor the Portfolios have independently verified this information.
FLORIDA INSURED
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.
HAWAII
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.
KANSAS
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.
<PAGE>
APPENDIX D: TAX EQUIVALENT YIELD TABLES
The tables below give the approximate yield a taxable security must earn
at various income brackets to produce after-tax yields equivalent to those of
tax exempt bonds yielding from 4% to 7% under the regular federal income tax
and applicable state and local taxes at tax rates applicable for 1997.
Note: The federal income tax portion of the indicated combined income tax
brackets in the tables does not take into account the effect of a reduction in
the deductibility of itemized deductions (including applicable state and local
taxes) for taxpayers with adjusted gross income in excess of $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 with 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 in the tables.
Yields shown are for illustration purposes only and are not meant to represent
a Fund's actual yield. No assurance can be given that any specific tax exempt
yield will be achieved. While it is expected that each Portfolio will invest
principally in obligations, the interest from which is exempt from the regular
federal income tax and applicable state and local taxes described in the
Prospectus, other income received by a Portfolio and allocated to a Fund may
be taxable. The tables do not take into account state or local taxes, if any,
payable on Fund distributions except for those described in the footnote to
the tables. Also, the interest earned on certain "private activity bonds"
issued after August 7, 1986, while exempt from the regular federal income tax,
is treated as a tax preference item which could subject the recipient to the
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 herein is as of the date of this SAI. Subsequent tax
law changes could result in prospective or retroactive changes in the tax
brackets, tax rates, and tax equivalent yields set forth above. Investors
should consult their tax adviser for additional information.
<TABLE>
FLORIDA INSURED
<CAPTION>
Or the taxable You are in
If the taxable income on income 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
If the taxable income on income on In your bracket, a tax-free yield of
your single return is* your joint return is* 4% 4.5% 5% 5.5% 6% 6.5% 7%
- --------------------------- ---------------------- -----------------------------------------------------------------
tax equivalent yield reflecting exemption from intangibles tax:**
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $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>
<TABLE>
HAWAII
<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>
<TABLE>
KANSAS
<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 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.
</TABLE>
<PAGE>
APPENDIX E: DESCRIPTION OF SECURITIES RATINGS+
MOODY'S INVESTORS SERVICE, INC.
MUNICIPAL BONDS
Aaa: Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edged." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long term risk appear somewhat larger than the Aaa
securities.
A: Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper-medium-grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may
be present which suggest a susceptibility to impairment sometime in the
future.
Baa: Bonds which are rated Baa are considered as medium-grade obligations
(i.e., they are neither highly protected nor poorly secured). Interest
payments and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable
over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba: Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during other good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B: Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa: Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal
or interest.
Ca: Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked
shortcomings.
C: Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
- ----------
+ The ratings indicated herein are believed to be the most recent ratings
available at the date of this SAI for the securities listed. Ratings are
generally given to securities at the time of issuance. While the rating
agencies may from time to time revise such ratings, they undertake no
obligation to do so, and the ratings indicated do not necessarily represent
ratings which would be given to these securities on the date of the
Portfolio's fiscal year end.
<PAGE>
ABSENCE OF RATING: Where no rating has been assigned or where a rating has
been suspended or withdrawn, it may be for reasons unrelated to the quality of
the issue.
Should no rating be assigned, the reason may be one of the following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities or companies that
are not rated as a matter of policy.
3. There is a lack of essential data pertaining to the issue or issuer.
4. The issue was privately placed, in which case the rating is not
published in Moody's publications.
Suspension or withdrawal may occur if new and material circumstances arise,
the effects of which preclude satisfactory analysis; if there is no longer
available reasonable up-to-date data to permit a judgment to be formed; if a
bond is called for redemption; or for other reasons.
NOTE: Moody's applies numerical modifiers, 1, 2, and 3 in each generic rating
classification from Aa 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/IBCA
INVESTMENT GRADE BOND RATINGS
AAA: Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest and
repay principal, which is unlikely to be affected by reasonably foreseeable
events.
AA: Bonds considered to be investment grade and of very high credit quality.
The obligor's ability to pay interest and repay principal is very strong,
although not quite as strong as bonds rated "AAA". Because bonds rated in the
"AAA" and "AA" categories are not significantly vulnerable to foreseeable
future developments, short-term debt of these issuers is generally rated
"F-1+".
A: Bonds considered to be investment grade and of high credit quality. The
obligors ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions
and circumstances than bonds with higher ratings.
BBB: Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these bonds,
and therefore, impair timely payment. The likelihood that the ratings of these
bonds will fall below investment grade is higher than for bonds with higher
ratings.
HIGH YIELD BOND RATINGS
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.
<PAGE>
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>
APPENDIX F: INSURANCE
The following information relates to the Florida Insured Fund and
supplements the information contained under "Additional Information about
Investment Policies -- Insurance."
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.
<PAGE>
[LOGO]
Investing
for the
21st
EATON VANCE
============== Century
Mutual Funds
- --------------------------------------------------------------------------------
Eaton Vance Florida Insured Municipals Fund
Eaton Vance Hawaii Municipals Fund
Eaton Vance Kansas Municipals Fund
STATEMENT OF ADDITIONAL INFORMATION
FEBRUARY 1, 1998
- --------------------------------------------------------------------------------
PORTFOLIO INVESTMENT ADVISER
Boston Management and Research, 4 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, 200 Clarendon Street, Boston, MA 02116
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-TFCG/1SAI
<PAGE>
PART B
INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION
STATEMENT OF
ADDITIONAL INFORMATION
February 1, 1998
EATON VANCE HIGH YIELD MUNICIPALS FUND
24 Federal Street
Boston, Massachusetts 02110
(800) 225-6265
This Statement of Additional Information provides general information
about Eaton Vance High Yield Municipals Fund (the "Fund") and High Yield
Municipals Portfolio (the "Portfolio"). This Statement of Additional
Information is sometimes referred to herein as the "SAI".
TABLE OF CONTENTS
Page
Additional Information about Investment Policies .................... 1
Investment Restrictions ............................................. 6
Trustees and Officers ............................................... 7
Investment Adviser and Administrator ................................ 10
Custodian ........................................................... 13
Services for Accumulation -- Class A Shares ......................... 13
Service for Withdrawal .............................................. 14
Determination of Net Asset Value .................................... 14
Investment Performance .............................................. 14
Taxes ............................................................... 16
Principal Underwriter ............................................... 18
Service Plan -- Class A Shares ...................................... 19
Distribution Plans -- Class B and Class C Shares .................... 19
Portfolio Security Transactions ..................................... 21
Other Information ................................................... 23
Independent Certified Public Accountants ............................ 24
Financial Statements ................................................ 24
Appendix A: Class A Shares .......................................... a-1
Appendix B: Class B Shares .......................................... b-1
Appendix C: Class C Shares .......................................... c-1
Appendix D: Tax Equivalent Yield Table .............................. d-1
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 FEBRUARY 1, 1998, 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>
This SAI provides information about the Fund and the Portfolio.
Capitalized terms used in this SAI and not otherwise defined have the meanings
given them in the 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
The Portfolio may invest 25% or more of its total assets in municipal
obligations whose issuers are located in the same state or in municipal
obligation 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.
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.
See "Portfolio of Investments" in the Financial Statements incorporated by
reference into this SAI with respect to any defaulted obligations held by the
Portfolio.
SHORT-TERM TRADING
The Portfolio may sell (and later purchase) securities in anticipation of
a market decline (a rise in interest rates) or purchase (and later sell)
securities in anticipation of a market rise (a decline in interest rates). In
addition, a security may be sold and another purchased at approximately the
same time to take advantage of what the Portfolio believes to be a temporary
disparity in the normal yield relationship between the two securities. Yield
disparities may occur for reasons not directly related to the investment
quality of particular issues or the general movement of interest rates, such
as changes in the overall demand for or supply of various types of municipal
obligations or changes in the investment objectives of investors. Such trading
may be expected to increase the portfolio turnover rate, which may increase
capital gains and the expenses incurred in connection with such trading. The
Portfolio cannot accurately predict its portfolio turnover rate, but it is
anticipated that the annual portfolio turnover rate will generally not exceed
100% (excluding turnover of securities having a maturity of one year or less).
A 100% annual turnover rate could occur, for example, if all the securities
held by the Portfolio were replaced once in a period of one year. A high
turnover rate (100% or more) necessarily involves greater expenses to the
Portfolio. 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 fiscal years ended January 31,
1997 and 1996 the portfolio turnover rates of the Portfolio were 41% and 32%,
respectively.
WHEN-ISSUED SECURITIES
New issues of municipal obligations are sometimes offered on a "when-
issued" basis, that is, delivery and payment for the securities normally take
place within a specified number of days after the date of the Portfolio's
commitment and are subject to certain conditions such as the issuance of
satisfactory legal opinions. The Portfolio may also purchase securities on a
when-issued basis pursuant to refunding contracts in connection with the
refinancing of an issuer's outstanding indebtedness. Refunding contracts
generally require the issuer to sell and the Portfolio to buy such securities
on a settlement date that could be several months or several years in the
future.
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. Under present
regulatory policies of the Commission, such loans are required to be secured
continuously by collateral in cash, cash equivalents or U.S. Government
securities held by the Portfolio's custodian and maintained on a current basis
at an amount at least equal to the market value of the securities loaned,
which will be marked to market daily. Cash equivalents include short-term
municipal obligations as well as taxable certificates of deposit, commercial
paper and other short-term money market instruments. The Portfolio would have
the right to call a loan and obtain the securities loaned at any time on up to
five business days' notice. During the existence of a loan, the Portfolio will
continue 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. 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 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.
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 by the Trust with respect to the Fund 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; (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 investment grade and below investment grade municipal obligations.
Moreover, the Fund and Portfolio must always be in compliance with the
borrowing policies set forth above and may not invest more than 15% of net
assets in illiquid securities.
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). Director or Trustee of various investment companies managed by
Eaton Vance or BMR.
Address: Clover Mill Lane, Lyme, New Hampshire 03768
JAMES B. HAWKES (56), Vice President and Trustee*
Chairman, 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 (62), 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 (71), 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 (54), 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 (41), 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.
THOMAS M. METZOLD (36), Vice President of the Portfolio
Vice President of BMR, Eaton Vance and EV. Mr. Metzold is an officer of
various investment companies managed by Eaton Vance or BMR. Mr. Metzold was
elected Vice President of the Portfolio on June 19, 1995.
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.
ALAN R. DYNNER (57), Secretary
Vice President and Chief Legal Officer of BMR, Eaton Vance, EVC and EV since
November 1, 1996. Previously, Mr. Dynner was a Partner of the law firm of
Kirkpartrick & Lockhart LLP, New York and Washington, D.C., and was
Executive Vice President of Neuberger & Berman Management, Inc., a mutual
fund management company. Officer of various investment companies managed by
Eaton Vance or BMR. Mr. Dynner was elected Secretary on June 23, 1997.
JANET E. SANDERS (62), Assistant Secretary
Vice President of BMR, Eaton Vance and EV. Officer of various investment
companies managed by Eaton Vance or BMR.
A. JOHN MURPHY (35), 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 on March
27, 1995.
ERIC G. WOODBURY (40), 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.
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. (The Trustees of the Trust and the Portfolio who are
members of the Eaton Vance organization receive no compensation from the Trust
or the Portfolio.) During the fiscal year ended 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 TRUST(2) FROM PORTFOLIO FUND COMPLEX
- ---- ------------- -------------- ------------
Donald R. Dwight ..... $268 $1,351(3) $145,000(6)
Samuel L. Hayes, III . 242 1,597(4) 157,500(7)
Norton H. Reamer ..... 239 1,515 145,000
John L. Thorndike .... 249 1,633(5) 150,000(8)
Jack L. Treynor ...... 266 1,576 150,000
(1) As of February 1, 1998, the Eaton Vance fund complex consists of 154
registered investment companies or series thereof.
(2) The Trust consisted of 8 Funds as of January 31, 1997.
(3) Includes $556 of deferred compensation.
(4) Includes $282 of deferred compensation.
(5) Includes $467 of deferred compensation.
(6) Includes $45,000 of deferred compensation.
(7) Includes $20,429 of deferred compensation.
(8) Includes $28,125 of deferred compensation.
INVESTMENT ADVISER AND ADMINISTRATOR
The Portfolio engages BMR as investment adviser pursuant to an Investment
Advisory Agreement. BMR or Eaton Vance acts as investment adviser to
investment companies and various individual and institutional clients with
combined assets under management of approximately $20 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 a family of 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 $21 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. A staff of 28 (including 6 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
Prospectus.
William H. Ahern, Jr. is a Vice President of Eaton Vance and BMR. Mr.
Ahern graduated from Boston College in 1981 with a B.A. in Economics, and
received his M.B.A. degree in Finance from Babson College in 1987. Mr. Ahern
is a member of the Boston Security Analysts Society.
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 Prospectus. 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 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 Administrative Services Agreement with the
Fund, Eaton Vance has been engaged to administer the Fund's affairs, subject
to the supervision of the Trustees of the Trust, and shall furnish for the use
of the Fund office space and all necessary office facilities, equipment and
personnel for administering the affairs of the Fund.
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 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 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, John M. Nelson and Ralph Z. Sorenson. Mr. Hawkes is chairman, president
and chief executive officer and Mr. Gardner is vice chairman 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, the Voting Trustees of which are Messrs.
Gardner, Hawkes, Rowland and Alan R. Dynner, Thomas E. Faust, Jr., William M.
Steul and Wharton P. Whitaker. 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 January 31, 1998, Messrs. Gardner and Hawkes
each owned 24% of such voting trust receipts, Messrs. Rowland and Faust owned
15% and 13%, respectively, and Messrs. Dynner, Steul and Whitaker each owned
8%. Messrs. Hawkes and Dynner 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.
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 approximately 21% 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.
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.
SERVICES FOR ACCUMULATION -- CLASS A SHARES
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 $25,000 or more of Class A shares and shares of other funds exchangeable
for Class A shares and listed under "The Eaton Vance Exchange Privilege" in
the Prospectus will be purchased within a 13-month period, a Statement of
Intention should be signed so that shares may be obtained at the same reduced
sales charge as though the total quantity were invested in one lump sum.
Shares held under Right of Accumulation (see below) as of the date of the
Statement will be included toward the completion of the Statement. The
Statement authorizes the Transfer Agent to hold in escrow sufficient shares
(5% of the dollar amount specified in the Statement) which can be redeemed to
make up any difference in sales charge on the amount intended to be invested
and the amount actually invested. Execution of a Statement does not obligate
the shareholder to purchase or the Fund to sell the full amount indicated in
the Statement, and should the amount actually purchased during the 13-month
period be more or less than that indicated on the Statement, price adjustments
will be made. For sales charges and other information on quantity purchases,
see "How to Buy Shares" in the Prospectus. Any investor considering signing a
Statement of Intention should read it carefully.
Right of Accumulation -- Cumulative Quantity Discount. The applicable sales
charge level for the purchase of Class A shares is calculated by taking the
dollar amount of the current purchase and adding it to the value (calculated
at the maximum current offering price) of the Class A shares the shareholder
owns in his or her account(s) in the Fund, and shares of other funds
exchangeable for Class A shares and listed under "The Eaton Vance Exchange
Privilege" in the Prospectus. The sales charge on the shares being purchased
will then be at the rate applicable to the aggregate. For sales charges on
quantity purchases, see "How to Buy Shares" in the Prospectus. Shares
purchased (i) by an individual, his or her spouse and their children under the
age of twenty-one, and (ii) by a trustee, guardian or other fiduciary of a
single trust estate or a single fiduciary account, will be combined for the
purpose of determining whether a purchase will qualify for the Right of
Accumulation and if qualifying, the applicable sales charge level.
For any such discount to be made available, at the time of purchase a
purchaser or his or her 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.
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 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, Martin Luther King, Jr. Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
Each investor in the Portfolio, including the Fund, may add to or reduce
its investment in the Portfolio on each day the Exchange is open for trading
("Portfolio Business Day") as of the close of regular trading on the Exchange
(the "Portfolio Valuation Time"). The value of each investor's interest in the
Portfolio will be determined by multiplying the net asset value of the
Portfolio by the percentage, determined on the prior Portfolio Business Day,
which represented that investor's share of the aggregate 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 separately for each Class of the
Fund by multiplying a hypothetical initial purchase order of $1,000 by the
average annual compound rate of return (including capital appreciation/
depreciation, and distributions paid and reinvested) for the stated period and
annualizing the result. The calculation assumes (i) that all distributions are
reinvested at net asset value on the reinvestment dates during the period,
(ii) the deduction of the maximum sales charge from the initial $1,000
purchase order for Class A shares, (iii) a complete redemption of the
investment and, (iv) the deduction of any CDSC at the end of the period. For
further information concerning the total return of the Classes of the Fund,
see Appendix A, Appendix B and Appendix C.
Yield is computed separately for each Class of the Fund pursuant to a
standardized formula by dividing the net investment income per share earned
during a recent thirty-day period by the maximum offering price (including the
maximum initial sales charge for Class A shares) per share on the last day of
the period and annualizing the resulting figure. Net investment income per
share is calculated from the yields to maturity of all debt obligations held
by the Portfolio based on prescribed methods, reduced by accrued Fund and
Class expenses for the period with the resulting number being divided by the
average daily number of Class shares outstanding and entitled to receive
distributions during the period. This yield figure does not reflect the
deduction of any CDSCs which (if applicable) are imposed on certain
redemptions at the rate set forth under "How to Redeem Shares" in the
Prospectus. Yield calculations assume the current maximum initial sales charge
for Class A shares set forth under "How to Buy Shares" in the Prospectus.
(Actual yield may be affected by variations in sales charges on investments.)
A taxable-equivalent yield is computed by using the tax-exempt yield and
dividing by 1 minus a stated rate. For the yield and taxable-equivalent yield
of the Classes of the Fund, see Appendix A, Appendix B and Appendix C.
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 Trust (or Principal Underwriter) may provide investors with
information on municipal bond investing, which may include comparative
performance information, evaluations of Fund performance, charts and/or
illustrations prepared by independent sources (such as Lipper 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 Trust (or Principal Underwriter) may provide information about Eaton
Vance, its affiliates and other investment advisers to the funds in the Eaton
Vance Family of Funds in sales material or advertisements provided to
investors or prospective investors. Such material or advertisements may also
provide information on the use of investment 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 and to
distribute substantially all of its ordinary income (including tax-exempt
income) and net income (after reduction by any available capital loss
carryforwards) in accordance with the timing requirements imposed by the Code,
so as to maintain its RIC status and to avoid paying any federal income or
excise tax. The Fund so qualified for its fiscal year ended January 31, 1997.
For purposes of applying the requirements of the Code regarding qualification
as a RIC, the Fund (i) will be deemed to own its proportionate share of each
of the assets of the Portfolio and (ii) will be entitled to the gross income
of the Portfolio attributable to such share.
In 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 RIC status.
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
("TIN") and certain certifications required by the Internal Revenue Service
(the "IRS"), as well as shareholders with respect to whom the Fund has
received certain information from the IRS or a broker, may be subject to
"backup" withholding of federal income tax arising from the Fund's taxable
dividends and other distributions as well as the proceeds of redemption
transactions (including repurchases and exchanges), at a rate of 31%. An
individual's TIN is generally his or her social security number.
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.
PRINCIPAL UNDERWRITER
The Trust has authorized the Principal Underwriter to act as its agent in
repurchasing shares at the rate of $2.50 for each repurchase transaction
handled by the Principal Underwriter. The Principal Underwriter estimates that
the expenses incurred by it in acting as repurchase agent for the Trust will
exceed the amounts paid therefor. For the amount paid by the Trust to the
Principal Underwriter for acting as repurchase agent, see Appendix B.
CLASS A SHARES. Class A shares of the Fund may be continuously purchased
at the public offering price through Authorized Firms which have agreements
with the Principal Underwriter. The Trust reserves the right to suspend or
limit the offering of its shares to the public at any time. 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 Prospectus (see "How to Buy 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
Class A shares pursuant to a written Statement of Intention; or (2) purchases
of Class A shares pursuant to the Right of Accumulation and declared as such
at the time of purchase.
Subject to the applicable provisions of the 1940 Act, the Trust may issue
Class A 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 Class. Normally no
sales charges will be paid in connection with an exchange of Class A shares
for the assets of such investment company. Class A shares may be sold at net
asset value to any officer, director, trustee, general partner or employee of
the Trust, 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. Class A shares 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 Principal Underwriter acts as principal in selling Class A shares
under a Distribution Agreement with the Trust. 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 Class A shares on a "best
efforts" basis under which it is required to take and pay for only such shares
as may be sold. The Principal Underwriter allows Authorized Firms discounts
from the applicable public offering price which are alike for all Authorized
Firms. The Principal Underwriter may allow, upon notice to all Authorized
Firms with whom it has agreements, discounts up to the full sales charge
during the periods specified in the notice. 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.
CLASS B AND CLASS C SHARES. Under the Distribution Agreement, the
Principal Underwriter acts as principal in selling Class B and Class C shares.
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, each Class B and Class C makes payments to the Principal Underwriter
pursuant to their Distribution Plans as described in the 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 Distribution Plans or the Distribution Agreement), may be terminated on
sixty days' notice either by such Trustees or by vote of a majority of the
outstanding Class B and Class C shares or on six months' notice by the
Principal Underwriter and is automatically terminated upon assignment. The
Principal Underwriter distributes Class B and Class C shares on a "best
efforts" basis under which it is required to take and pay for only such shares
as may be sold.
SERVICE PLAN -- CLASS A SHARES
The Trust on behalf of its Class A shares has adopted 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 "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 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 Class
A shares of the Fund. The Plan has been approved by the Board of Trustees of
the Trust, including the Plan Trustees.
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 affected shareholders of Class A
shares 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 Class A
shareholders.
DISTRIBUTION PLANS -- CLASS B AND CLASS C SHARES
The Trust has adopted Distribution Plans (the "Plans") on behalf of its
Class B and Class C shares 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
Plans is to compensate the Principal Underwriter for its distribution services
and facilities provided with respect to Class B and Class C shares.
The Plans provide that the Fund will pay sales commissions and
distribution fees to the Principal Underwriter only after and as a result of
the sale of Class B or Class C 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 Class B
sales and 6.25% of Class C sales of the amount received by the Fund for each
share sold and (ii) distribution fees calculated by applying the rate of 1%
over the prime rate then reported in The Wall Street Journal to the
outstanding balance of uncovered distribution charges (as described below) of
the Principal Underwriter.
The amount payable to the Principal Underwriter pursuant to the Plan as
sales commissions and distribution fees with respect to each day will be
accrued on such day as a liability of the respective Class and will
accordingly reduce the Class's net assets upon such accrual, all in accordance
with generally accepted accounting principles. The amount payable on each day
is limited to 1/365 of .75% of a Class's net assets on such day. The level of
a Class's net assets changes each day and depends upon the amount of sales and
redemptions of shares, the changes in the value of the investments held by the
Portfolio, the expenses of the Class, Fund and the Portfolio accrued and
allocated to the Fund and Class 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 Trust does not accrue
possible future payments as a liability of a Class or reduce a Class's current
net assets in respect of unknown amounts which may become payable under the
Plans in the future because the standards for accrual of such a liability
under accounting principles have not been satisfied.
The Plans provide that the Class 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 Trust 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 Plans since their inception. Payments theretofore paid or
payable under the Plans by the Trust to the Principal Underwriter and CDSCs
theretofore paid or payable to the Principal Underwriter will be subtracted
from such distribution charges; if the result of such subtraction is positive,
a distribution fee (computed at 1% over the prime rate then reported in The
Wall Street Journal) will be computed on such amount and added thereto, with
the resulting sum constituting the amount of outstanding uncovered
distribution charges with respect to such day. The amount of outstanding
uncovered distribution charges of the Principal Underwriter calculated on any
day does not constitute a liability recorded on the financial statements of
the Fund.
The amount of uncovered distribution charges of the Principal Underwriter
at any particular time depends upon various changing factors, including the
level and timing of sales of shares, the nature of such sales (i.e., whether
they result from exchange transactions, reinvestments or from cash sales
through Authorized Firms), the level and timing of redemptions of shares upon
which a CDSC will be imposed, the level and timing of redemptions of shares
upon which no CDSC will be imposed (including redemptions of shares pursuant
to the exchange privilege which result in a reduction of uncovered
distribution charges), changes in the level of the net assets of the Class,
and changes in the interest rate used in the calculation of the distribution
fee under the Plans. Periods with a high level of sales of Class shares
accompanied by a low level of early redemptions of Class 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 a Class's average daily net assets per annum. For
actual payments made and the outstanding uncovered distribution charges of the
Principal Underwriter, see Appendix B. The Trust believes that the combined
rate of all these payments may be higher than the rate of payments made under
distribution plans adopted by other investment companies pursuant to Rule
12b-1. Although the Principal Underwriter will use its own funds (which may be
borrowed from banks) to pay sales commissions and service fees for Class C
sales and sales commissions for Class B sales at the time of sale, it is
anticipated that the Eaton Vance organization will profit by reason of the
operation of the Plans through an increase in the Fund's assets (thereby
increasing the advisory fee payable to BMR by the Portfolio) resulting from
sale of shares and through the amounts paid to the Principal Underwriter,
including CDSCs, pursuant to the Plans. The Eaton Vance organization may be
considered to have realized a profit under the Plans if at any point in time
the aggregate amounts theretofore received by the Principal Underwriter
pursuant to the Plans and from CDSCs have exceeded the total expenses
theretofore incurred by such organization in distributing Class B and Class C
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 Trust.
The Plans continue 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 Plans or any agreements related to
the Plans (the "Rule 12b-1 Trustees") and (ii) all of the Trustees then in
office, and the Distribution Agreement contains a similar provision. The Plans
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 applicable Class. The Plans require quarterly Trustee
review of a written report of the amount expended under the Plans and the
purposes for which such expenditures were made. The Plans may not be amended
to increase materially the payments described therein without approval of the
shareholders of the affected Class and the Trustees. So long as the Plans are
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 Plans 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 Class B and Class C shareholders.
Payments for sales commissions and distribution fees made to the Principal
Underwriter under the Plans will compensate the Principal Underwriter for its
services and expenses in distributing Class B and Class C shares of the Fund.
Service fee payments made to the Principal Underwriter and Authorized Firms
under the Plans 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 Plans are
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 Plans will benefit the Fund and its Class B and
Class C shareholders.
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 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 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.
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. The Fund
established multiple classes of shares on February 1, 1998. The operations of
Class B reflect the operations of the Fund prior to such date. Class A and
Class C are successors to the operations of separate series of the Trust.
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. (The Declaration of Trust also contains provisions
limiting the liability of a series or class to that series or class.)
Moreover, the Trust's By-laws also provide for indemnification out of the
property of the Fund of any shareholder held personally liable solely by
reason of being or having been a shareholder for all loss or expense arising
from such liability. The assets of the Fund are readily marketable and will
ordinarily substantially exceed its liabilities. In light of the nature of the
Fund's business and the nature of its assets, management believes that the
possibility of the Fund's liability exceeding its assets, and therefore the
shareholder's risk of personal liability, is 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.
Each Portfolio's Declaration of Trust provides that a Fund and other
entities permitted to invest in the Portfolio (e.g., other U.S. and foreign
investment companies, and common and commingled trust funds) will each be
liable for all obligations of the Portfolio. However, the risk of 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 Fund nor its shareholders will be adversely
affected by reason of the Fund investing in the Portfolio.
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
The audited financial statements of, and the report of independent
accountants for, the Fund and the Portfolio appear in the Fund's most recent
annual report to shareholders and the unaudited financial statements of the
Fund and the Portfolio appear in the Fund's semiannual report to shareholders,
both of which are incorporated by reference into this SAI. A copy of each
semiannual and annual report accompanies this SAI.
Registrant incorporates by reference the audited financial information for
the Fund and the Portfolio for the fiscal year ended January 31, 1997 and the
unaudited financial information for the six-months ended July 31, 1997, as
previously filed electronically with the Commission (Accession Nos.
0000928816-97-000094 and 0000950109-97-006205, respectively).
<PAGE>
APPENDIX A: CLASS A SHARES
PERFORMANCE INFORMATION
The table below indicates the cumulative and average annual total return
on a hypothetical investment in shares of $1,000. Total return for the period
prior to February 1, 1998 reflects the total return of the predecessor to
Class A. Total return prior to August 7, 1995 reflects the total return of
Class B, adjusted to reflect the Class A sales charge. The Class B total
return has not been adjusted to reflect certain other expenses (such as
distribution and/or service fees). If such adjustments were made the Class A
total return would be different. The "Value of Initial Investment" reflects
the deduction of the maximum sales charge of 4.75%. 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. Information provided with two asterisks (**) includes the
effect subsidizing expenses. Return would have been lower without subsidies.
<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 7/31/97 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ------------------- ----------- -------------- -------------- -------------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Life of the Fund** 8/7/95 $952.38 $1,217.17 27.86% 13.22% 21.77% 10.46%
1 Year Ended 7/31/97 7/31/96 $952.47 $1,093.76 14.83% 14.83% 9.38% 9.38%
- ------------
* Predecessor Fund commenced operations August 7, 1995.
</TABLE>
For the thirty-day period ended July 31, 1997, the yield of the Fund was
5.72%. The yield required of a taxable security that would produce an after-
tax yield equivalent to that earned by the Fund of 5.72% would be 8.29%,
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 Appendix D to this SAI for
information concerning applicable tax rates and income brackets.
<PAGE>
APPENDIX B: CLASS B SHARES
FEES AND EXPENSES
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
For the fiscal year ended January 31, 1997, the Fund paid the Principal
Underwriter $547.50 for repurchase transactions handled by the Principal
Underwriter.
PERFORMANCE INFORMATION
The table below indicates the cumulative and average annual total return
on a hypothetical investment of $1,000 in Class B shares for the periods shown
in the table. Past performance is 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. Information presented with two
asterisks (**) includes the effect of subsidizing expenses. Return would have
been lower without subsidies.
<TABLE>
<CAPTION>
VALUE OF INVEST- VALUE OF 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 7/31/97 7/31/97 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- -------------- ----------- ----------- ---------------- --------------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of the
Fund** 8/7/95* $1,000 $1,254.53 $1,204.53 25.45% 12.13% 20.45% 9.85%
1 Year Ended
7/31/97 7/31/96 $1,000 $1,141.14 $1,091.14 14.11% 14.11% 9.11% 9.11%
- ----------
* Investment operations began on August 7, 1985.
</TABLE>
For the thirty-day period ended July 31, 1997, the yield of the Fund was
5.27%. The yield required of a taxable security that would produce an after-
tax yield equivalent to that earned by the Fund of 5.27% would be 7.64%,
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 Appendix D to this SAI for
information concerning applicable tax rates and income brackets.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As at December 31, 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 December 31, 1997, Merrill Lynch, Pierce, Fenner & Smith, Inc.,
Jacksonville, FL was the record owner of approximately (23.3%) 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 as
of such date.
<PAGE>
APPENDIX C: CLASS C SHARES
PERFORMANCE INFORMATION
The table below indicates the cumulative and average annual total return
on a hypothetical investment in shares of $1,000. Total return for the period
prior to February 1, 1998 reflects the total return of the predecessor to
Class C. Total return prior to June 18, 1997 reflects the total return of
Class B, adjusted to reflect the Class C sales charge. The Class B total
return has not been adjusted to reflect certain other expenses (such as
distribution and/or service fees). If such adjustments were made the Class C
total return would be different. Past performance is 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. Information
presented with two asterisks (**) includes the effect of subsidizing expenses.
Return would have been lower without subsidies.
<TABLE>
<CAPTION>
VALUE OF VALUE OF TOTAL RETURN BEFORE TOTAL RETURN AFTER
INVESTMENT INVESTMENT DEDUCTING THE CDSC DEDUCTING THE CDSC
INVESTMENT INVESTMENT AMOUNT OF BEFORE DEDUCTING THE AFTER DEDUCTING THE -------------------- --------------------
PERIOD* DATE INVESTMENT CDSC ON 7/31/97 CDSC ON 7/31/97 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
------- ---- ---------- --------------- --------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of the
Fund** 8/7/95 $1,000 $1,271.40 $1,271.40 27.14% 12.89% 27.14% 12.89%
1 Year Ended
7/31/97** 7/31/97 $1,000 $1,141.83 $1,131.83 14.18% 14.18% 13.18% 13.18%
- ----------
* Predecessor Fund commenced operations on June 18, 1997.
</TABLE>
For the 30-days ended July 31, 1997, the Fund's yield was 5.55 %. The
yield required of a taxable security that would produce an after-tax yield
equivalent to that earned by the Fund of 5.55% would be 8.04%, 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 Appendix D to this SAI for
information concerning applicable tax rates and income brackets.
<PAGE>
APPENDIX D
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 1998.
<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>
[LOGO]
Investing
for the
21st
EATON VANCE
============== Century
Mutual Funds
- --------------------------------------------------------------------------------
Eaton Vance High Yield Municipals Fund
STATEMENT OF ADDITIONAL INFORMATION
FEBRUARY 1, 1998
- --------------------------------------------------------------------------------
INVESTMENT ADVISER OF HIGH YIELD MUNICIPALS PORTFOLIO
Boston Management and Research, 4 Federal Street, Boston, MA 02110
ADMINISTRATOR OF EATON VANCE 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, 200 Clarendon Street, Boston, MA 02116
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
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" FOR THE PERIOD FROM THE DATE INDICATED TO THE FISCAL
YEAR ENDED JANUARY 31, 1997 AND FOR THE SIX-MONTHS ENDED JULY 31,
1997 (UNAUDITED):
Eaton Vance Florida Insured Municipals Fund (start of
business March 2, 1994).
Eaton Vance Hawaii Municipals Fund (start of business March
2, 1994).
Eaton Vance Kansas Municipals Fund (start of business March
2, 1994).
Eaton Vance High Yield Municipals Fund (start of business
August 7, 1995).
INCORPORATED BY REFERENCE INTO PART B ARE THE FOLLOWING FINANCIAL
STATEMENTS CONTAINED IN THE SEMI-ANNUAL REPORTS FOR THE FUNDS, DATED
JULY 31, 1997 (WHICH WERE PREVIOUSLY FILED ELECTRONICALLY PURSUANT
TO SECTION 30(b)(2) OF THE INVESTMENT COMPANY ACT OF 1940):
Eaton Vance Florida Insured Municipals Fund
Eaton Vance Hawaii Municipals Fund
Eaton Vance Kansas Municipals Fund
(Accession No. 0000950109-97-006308)
Eaton Vance High Yield Municipals Fund
(Accession No. 0000950109-97-006205)
THE FINANCIAL STATEMENTS CONTAINED IN EACH FUND'S SEMI-ANNUAL REPORT
ARE AS FOLLOWS:
Statement of Assets and Liabilities (Unaudited)
Statement of Operations (Unaudited)
Statement of Changes in Net Assets (Unaudited)
Financial Highlights (Unaudited)
Notes to Financial Statements (Unaudited)
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 Marathon High Yield Municipals Fund
(Accession No. 0000928816-97-000094)
THE FINANCIAL STATEMENTS CONTAINED IN EACH FUND'S ANNUAL REPORT
INCLUDE:
Statement of Assets and Liabilities
Statement of Operations
Statement of Changes in Net Assets
Financial Highlights
Notes to Financial Statements
Independent Auditors' Report
- ----------
*Eaton Vance Florida Insured Municipals Fund was previously known as EV
Marathon Florida Insured Municipals Fund, Eaton Vance Hawaii Municipals Fund
was previously known as EV Marathon Hawaii Municipals Fund, Eaton Vance
Kansas Municipals Fund was previously known as EV Marathon Kansas Municipals
Fund and Eaton Vance High Yield Municipals Fund was previously known as EV
Marathon High Yield Municipals Fund.
ALSO INCORPORATED BY REFERENCE INTO PART B ARE THE FOLLOWING FINANCIAL
STATEMENTS OF FLORIDA INSURED MUNICIPALS PORTFOLIO, HAWAII
MUNICIPALS PORTFOLIO, KANSAS MUNICIPALS PORTFOLIO AND HIGH YIELD
MUNICIPALS PORTFOLIO, WHICH ARE CONTAINED IN THE SEMI-ANNUAL REPORTS
DATED JULY 31, 1997 OF THE CORRESPONDING FUNDS:
Portfolio of Investments (Unaudited)
Statement of Assets and Liabilities (Unaudited)
Statement of Operations (Unaudited)
Statement of Changes in Net Assets (Unaudited)
Supplementary Data (Unaudited)
Notes to Financial Statements (Unaudited)
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
REPORT 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 to Declaration of Trust dated June 23, 1997 filed
herewith.
(c) 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.
(d) 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) Distribution Agreement between Eaton Vance Municipals
Trust II and Eaton Vance Distributors, Inc. effective June
23, 1997 (with attached Schedule A effective June 23, 1997)
filed herewith.
(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.
(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) 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.
(b) Amendment effective February 1, 1998 to Schedule A to the
Administrative Services Agreement filed herewith.
(10) Not applicable
(11)(a) Consent of Independent Auditors for Eaton Vance Florida
Insured Municipals Fund, Eaton Vance Hawaii Municipals Fund
and Eaton Vance Kansas Municipals Fund filed herewith.
(b) Consent of Independent Auditors for Eaton Vance High Yield
Municipals Fund filed herewith.
(12) Not applicable
(13) Not applicable
(14) Not applicable
(15)(a) Eaton Vance Municipals Trust II Class A Service Plan adopted
June 23, 1997 with attached schedule filed herewith.
(b) Eaton Vance Municipals Trust II Class B Distribution Plan
adopted June 23, 1997 with attached schedule filed herewith.
(c) Eaton Vance Municipals Trust II Class C Distribution Plan
adopted June 23, 1997 with attached schedule filed herewith.
(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 as Exhibit No. (17)(a) to Post-Effective
Amendment No. 8 and incorporated herein by reference.
(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 as
Exhibit No. (17)(b) to Post-Effective Amendment No. 8 and
incorporated herein by reference.
(18) Multiple Class Plan for Eaton Vance Funds dated June 23, 1997
filed herewith.
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 December 31, 1997
EV Marathon Florida Insured Municipals Fund 306
EV Traditional Florida Insured Municipals Fund 45
EV Marathon Hawaii Municipals Fund 568
EV Traditional Hawaii Municipals Fund 14
EV Marathon Kansas Municipals Fund 250
EV Traditional Kansas Municipals Fund 46
EV Classic High Yield Municipals Fund 107
EV Marathon High Yield Municipals Fund 2,933
EV Traditional High Yield Municipals Fund 1,772
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:
Eaton Vance Growth Trust Eaton Vance Mutual Funds Trust
Eaton Vance Income Fund of Boston Eaton Vance Prime Rate Reserves
Eaton Vance Investment Trust Eaton Vance Special Investment Trust
Eaton Vance Municipals Trust EV Classic Senior Floating-Rate Fund
Eaton Vance Municipals Trust II
(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
Albert F. Barbaro Vice President None
Chris Berg Vice President None
Kate B. Bradshaw Vice President None
David B. Carle Vice President None
Daniel C. Cataldo Vice President None
Raymond Cox Vice President None
Mark P. Doman Vice President None
Alan R. Dynner Vice President Secretary
Richard Finelli Vice President None
Kelly Flynn Vice President None
James Foley Vice President None
Michael A. Foster Vice President None
William M. Gillen Senior Vice President None
Hugh S. Gilmartin Vice President None
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 None
George D. Owen II Vice President None
Enrique M. Pineda Vice President None
F. Anthony Robinson Vice President None
Jay S. Rosoff Vice President None
Benjamin A. Rowland, Jr. Vice President, Treasurer and Director None
Stephen M. Rudman Vice President None
John P. Rynne Vice President None
Kevin Schrader Vice President None
George V.F. Schwab, Jr. Vice President None
Teresa A. Sheehan Vice President None
David C. Sturgis Vice President None
Cornelius J. Sullivan Senior Vice President None
David M. Thill Vice President None
John M. Trotsky Vice President None
Chris Volf Vice President None
Sue Wilder Vice President None
- ----------
*Address is 24 Federal Street, Boston, MA 02110
</TABLE>
(c) Not applicable
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
All applicable accounts, books and documents required to be maintained by
the Registrant by Section 31(a) of the Investment Company Act of 1940 and the
Rules promulgated thereunder are in the possession and custody of the
Registrant's custodian, Investors Bank & Trust Company, 200 Clarendon Street,
16th Floor, Mail Code ADM27, Boston, MA 02116, and its transfer agent, First
Data Investor Services Group, 4400 Computer Drive, Westborough, MA 01581-5123,
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 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 26th day of January,
1998.
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) January 26, 1998
- -----------------------------
THOMAS J. FETTER
Treasurer and Principal
Financial and Accounting
/s/ JAMES L. O'CONNOR Officer January 26, 1998
- -----------------------------
JAMES L. O'CONNOR
DONALD R. DWIGHT* Trustee January 26, 1998
- -----------------------------
DONALD R. DWIGHT
/s/ JAMES B. HAWKES Vice President and Trustee January 26, 1998
- -----------------------------
JAMES B. HAWKES
SAMUEL L. HAYES, III* Trustee January 26, 1998
- -----------------------------
SAMUEL L. HAYES, III
NORTON H. REAMER* Trustee January 26, 1998
- -----------------------------
NORTON H. REAMER
JOHN L. THORNDIKE* Trustee January 26, 1998
- -----------------------------
JOHN L. THORNDIKE
JACK L. TREYNOR* Trustee January 26, 1998
- -----------------------------
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 26th day of
January, 1998.
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) January 26, 1998
- -----------------------------
THOMAS J. FETTER
Treasurer and Principal
Financial and Accounting
/s/ JAMES L. O'CONNOR Officer January 26, 1998
- -----------------------------
JAMES L. O'CONNOR
DONALD R. DWIGHT* Trustee January 26, 1998
- -----------------------------
DONALD R. DWIGHT
/s/ JAMES B. HAWKES Vice President and Trustee January 26, 1998
- -----------------------------
JAMES B. HAWKES
SAMUEL L. HAYES, III* Trustee January 26, 1998
- -----------------------------
SAMUEL L. HAYES, III
NORTON H. REAMER* Trustee January 26, 1998
- -----------------------------
NORTON H. REAMER
JOHN L. THORNDIKE* Trustee January 26, 1998
- -----------------------------
JOHN L. THORNDIKE
JACK L. TREYNOR* Trustee January 26, 1998
- -----------------------------
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 26th day of
January, 1998.
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) January 26, 1998
- -----------------------------
THOMAS J. FETTER
Treasurer and Principal
Financial and Accounting
/s/ JAMES L. O'CONNOR Officer January 26, 1998
- -----------------------------
JAMES L. O'CONNOR
DONALD R. DWIGHT* Trustee January 26, 1998
- -----------------------------
DONALD R. DWIGHT
/s/ JAMES B. HAWKES Trustee January 26, 1998
- -----------------------------
JAMES B. HAWKES
SAMUEL L. HAYES, III* Trustee January 26, 1998
- -----------------------------
SAMUEL L. HAYES, III
NORTON H. REAMER* Trustee January 26, 1998
- -----------------------------
NORTON H. REAMER
JOHN L. THORNDIKE* Trustee January 26, 1998
- -----------------------------
JOHN L. THORNDIKE
JACK L. TREYNOR* Trustee January 26, 1998
- -----------------------------
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 26th day of
January, 1998.
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) January 26, 1998
- -----------------------------
THOMAS J. FETTER
Treasurer and Principal
Financial and Accounting
/s/ JAMES L. O'CONNOR Officer January 26, 1998
- -----------------------------
JAMES L. O'CONNOR
DONALD R. DWIGHT* Trustee January 26, 1998
- -----------------------------
DONALD R. DWIGHT
/s/ JAMES B. HAWKES Trustee January 26, 1998
- -----------------------------
JAMES B. HAWKES
SAMUEL L. HAYES, III* Trustee January 26, 1998
- -----------------------------
SAMUEL L. HAYES, III
NORTON H. REAMER* Trustee January 26, 1998
- -----------------------------
NORTON H. REAMER
JOHN L. THORNDIKE* Trustee January 26, 1998
- -----------------------------
JOHN L. THORNDIKE
JACK L. TREYNOR* Trustee January 26, 1998
- -----------------------------
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 26th day of
January, 1998.
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) January 26, 1998
- -----------------------------
THOMAS J. FETTER
Treasurer and Principal
Financial and Accounting
/s/ JAMES L. O'CONNOR Officer January 26, 1998
- -----------------------------
JAMES L. O'CONNOR
DONALD R. DWIGHT* Trustee January 26, 1998
- -----------------------------
DONALD R. DWIGHT
/s/ JAMES B. HAWKES Trustee January 26, 1998
- -----------------------------
JAMES B. HAWKES
SAMUEL L. HAYES, III* Trustee January 26, 1998
- -----------------------------
SAMUEL L. HAYES, III
NORTON H. REAMER* Trustee January 26, 1998
- -----------------------------
NORTON H. REAMER
JOHN L. THORNDIKE* Trustee January 26, 1998
- -----------------------------
JOHN L. THORNDIKE
JACK L. TREYNOR* Trustee January 26, 1998
- -----------------------------
JACK L. TREYNOR
*By: /s/ ALAN R. DYNNER
--------------------
As attorney-in-fact
<PAGE>
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
- ----------- -----------
(1)(b) Amendment to Declaration of Trust dated June 23, 1997.
(6)(a) Distribution Agreement between Eaton Vance Municipals Trust II and
Eaton Vance Distributors, Inc. effective June 23, 1997 (with attached
Schedule A effective June 23, 1997).
(9)(b) Amendment effective February 1, 1998 to Schedule A to the
Administrative Services Agreement.
(11)(a) Consent of Independent Auditors for Eaton Vance Florida Insured
Municipals Fund, Eaton Vance Hawaii Municipals Fund and Eaton Vance
Kansas Municipals Fund.
(b) Consent of Independent Auditors for Eaton Vance High Yield Municipals
Fund.
(15)(a) Eaton Vance Municipals Trust II Class A Service Plan adopted June 23,
1997.
(b) Eaton Vance Municipals Trust II Class B Distribution Plan adopted
June 23, 1997.
(c) Eaton Vance Municipals Trust II Class C Distribution Plan adopted
June 23, 1997.
(16) Schedules for Computation of Performance Quotations.
(18) Multiple Class Plan for Eaton Vance Funds dated June 23, 1997.
<PAGE>
EXHIBIT 1(B)
EATON VANCE MUNICIPALS TRUST II
Amendment dated June 23, 1997 to Declaration of Trust
WHEREAS, the Trustees of Eaton Vance Municipals Trust II, a
Massachusetts business trust (the "Trust"), have previously designated separate
series (or "Funds"); and
WHEREAS, in connection with a reorganization of the Funds the Trustees
now desire to rename certain of the Funds, establish and designate classes of
shares for such Funds, and terminate certain other Funds effective with the end
of their current fiscal year ends pursuant to the Trust's Amended and Restated
Declaration of Trust dated October 25, 1993 (the "Declaration of Trust");
NOW, THEREFORE, the undersigned, being at least a majority of the duly
elected and qualified Trustees presently in office of the Trust, hereby:
1. Rename the Funds effective February 1, 1998 listed below as follows:
Eaton Vance Florida Insured Municipals Fund
(formerly EV Marathon Florida Insured Municipals Fund)
Eaton Vance Hawaii Municipals Fund
(formerly EV Marathon Hawaii Municipals Fund)
Eaton Vance High Yield Municipals Fund
(formerly EV Marathon High Yield Municipals Fund)
Eaton Vance Kansas Municipals Fund
(formerly EV Marathon Kansas Municipals Fund)
2. Each Fund shall have classes of shares established and designated as
Class A, Class B, Class C and Class I shares on February 1, 1998, and the
Trustees may designate additional classes in the future. For purposes of
allocating liabilities among classes, each class of a series shall be treated in
the same manner as a separate series.
3. All series of Trust with the designation "Traditional" or "Classic"
shall be terminated on February 1, 1998.
Dated: June 23, 1997
/s/ Donald R. Dwight /s/ Norton H. Reamer
-------------------------------- --------------------------------
Donald R. Dwight Norton H. Reamer
/s/ James B. Hawkes /s/ John L. Thorndike
-------------------------------- --------------------------------
James B. Hawkes John L. Thorndike
/s/ Samuel L. Hayes, III /s/ Jack L. Treynor
-------------------------------- --------------------------------
Samuel L. Hayes, III Jack L. Treynor
<PAGE>
EXHIBIT 6(A)
EATON VANCE MUNICIPALS TRUST II
DISTRIBUTION AGREEMENT
AGREEMENT effective June 23, 1997 between EATON VANCE MUNICIPALS TRUST II,
a Massachusetts business trust having its principal place of business in Boston
in the Commonwealth of Massachusetts, hereinafter called the "Trust," on behalf
of each of its series listed on Schedule A (a "Fund"), and EATON VANCE
DISTRIBUTORS, INC., a Massachusetts corporation having its principal place of
business in said Boston, hereinafter sometimes called the "Principal
Underwriter." The Trustees of the Trust have established four classes of shares
of each of the Funds, such classes having been designated Class A, Class B,
Class C and Class I (the "Classes").
IN CONSIDERATION of the mutual promises and undertakings herein contained,
the parties hereto agree with respect to each Fund:
1. The Trust grants to the Principal Underwriter the right to purchase all
classes of shares of the Fund upon the terms hereinbelow set forth during the
term of this Agreement. While this Agreement is in force, the Principal
Underwriter agrees to use its best efforts to find purchasers for shares of the
Fund.
The Principal Underwriter shall have the right to buy from the Fund the
shares needed, but not more than the shares needed (except for clerical errors
and errors of transmission) to fill unconditional orders for shares of the Fund
placed with the Principal Underwriter by financial service firms or investors as
set forth in the current Prospectus relating to shares of the Fund. The price
which the Principal Underwriter shall pay for Class A shares so purchased shall
be the net asset value used in determining the public offering price on which
such orders were based; the price for Class B, Class C and Class I shares so
purchased shall be equal to the price paid by investors upon purchasing such
shares. The Principal Underwriter shall notify Investors Bank & Trust Company,
Custodian of the Trust ("IBT"), and First Data Investor Services Group, Transfer
Agent of the Trust ("First Data"), or a successor transfer agent, at the end of
each business day, or as soon thereafter as the orders placed with it have been
compiled, of the number of shares and the prices thereof which the Principal
Underwriter is to purchase as principal for resale. The Principal Underwriter
shall take down and pay for shares ordered from the Fund on or before the
eleventh business day (excluding Saturdays) after the shares have been so
ordered.
The right granted to the Principal Underwriter to buy shares from the Fund
shall be exclusive, except that said exclusive right shall not apply to shares
issued in connection with the merger or consolidation of any other investment
company or personal holding company with the Fund or the acquisition by purchase
or otherwise of all (or substantially all) the assets or the outstanding shares
of any such company, by the Fund; nor shall it apply to shares, if any, issued
by the Fund in distribution of income or realized capital gains of the Fund
payable in shares or in cash at the option of the shareholder.
2. The shares may be resold by the Principal Underwriter to or through
financial service firms having agreements with the Principal Underwriter, and to
investors, upon the following terms and conditions.
CLASS A SHARES. The public offering price, i.e., the price per Class A
share at which the Principal Underwriter or financial service firm purchasing
shares from the Principal Underwriter may sell shares to the public, shall be
the public offering price as set forth in the current Prospectus relating to
said Class A shares, but not to exceed the net asset value at which the
Principal Underwriter is to purchase the Class A shares, plus a sales charge not
to exceed 7.25% of the public offering price (the net asset value divided by
.9275). If the resulting public offering price does not come out to an even
cent, the public offering price shall be adjusted to the nearer cent.
The Principal Underwriter may also sell Class A shares at the net asset
value at which the Principal Underwriter is to purchase such Class A shares,
provided such sales are not inconsistent with the provisions of Section 22(d) of
the Investment Company Act of 1940, as amended from time to time (the "1940
Act"), and the rules thereunder, including any applicable exemptive orders or
administrative interpretations or "no-action" positions with respect thereto.
CLASS B, CLASS C AND CLASS I SHARES. The public offering price, i.e., the
price per Class B, Class C and Class I shares at which the Principal Underwriter
or financial service firm purchasing shares from the Principal Underwriter may
sell shares to the public, shall be equal to the net asset value at which the
Principal Underwriter is to purchase the Class B, Class C and Class I shares.
The net asset value of shares of each Class of the Fund shall be
determined by the Trust or IBT, as the agent of the Trust, as of the close of
regular trading on the New York Stock Exchange (the "Exchange") on each business
day on which said Exchange is open, or as of such other time on each such
business day as may be determined by the Trustees of the Trust, in accordance
with the methodology and procedures for calculating such net asset value
authorized by the Trustees. The Trust may also cause the net asset value to be
determined in substantially the same manner or estimated in such manner and as
of such other time or times as may from time to time be agreed upon by the Trust
and Principal Underwriter. The Trust will notify the Principal Underwriter each
time the net asset value of a Class of shares is determined and when such value
is so determined it shall be applicable to transactions as set forth in the
current Prospectus(es) and Statement(s) of Additional Information (hereafter the
"Prospectus") relating to the Fund's shares.
No Class of shares of the Fund shall be sold by the Fund during any period
when the determination of that Class's net asset value is suspended pursuant to
the Declaration of Trust, except to the Principal Underwriter, in the manner and
upon the terms above set forth to cover contracts of sale made by the Principal
Underwriter with its customers prior to any such suspension, and except as
provided in paragraph 1 hereof. The Trust shall also have the right to suspend
the sale of any Class of shares if in the judgment of the Trust conditions
obtaining at any time render such action advisable. The Principal Underwriter
shall have the right to suspend sales at any time, to refuse to accept or
confirm any order from an investor or financial service firm, or to accept or
confirm any such order in part only, if in the judgment of the Principal
Underwriter such action is in the best interests of the Fund.
3. The Trust covenants and agrees that it will, from time to time, but
subject to the necessary approval of the Fund's shareholders, take such steps as
may be necessary to register the Fund's shares under the federal Securities Act
of 1933, as amended from time to time (the "1933 Act"), to the end that there
will be available for sale such number of shares as the Principal Underwriter
may reasonably be expected to sell. The Trust covenants and agrees to indemnify
and hold harmless the Principal Underwriter and each person, if any, who
controls the Principal Underwriter within the meaning of Section 15 of the 1933
Act against any loss, liability, claim, damages or expense (including the
reasonable cost of investigating or defending any alleged loss, liability,
claim, damages or expense and reasonable counsel fees incurred in connection
therewith), arising by reason of any person acquiring any shares of the Fund,
which may be based upon the 1933 Act or on any other statute or at common law,
on the ground that the Registration Statement or Prospectus, as from time to
time amended and supplemented, includes an untrue statement of a material fact
or omits to state a material fact required to be stated therein or necessary in
order to make the statements therein not misleading, unless such statement or
omission was made in reliance upon, and in conformity with, information
furnished in writing to the Trust in connection therewith by or on behalf of the
Principal Underwriter; provided, however, that in no case (i) is the indemnity
of the Trust in favor of the Principal Underwriter and any such controlling
person to be deemed to protect such Principal Underwriter or any such
controlling person against any liability to the Trust or the Fund or its
security holders to which such Principal Underwriter or any such controlling
person would otherwise be subject by reason of willful misfeasance, bad faith,
or gross negligence in the performance of its duties or by reason of its
reckless disregard of its obligations and duties under this Agreement, or (ii)
is the Trust or the Fund to be liable under its indemnity agreement contained in
this paragraph with respect to any claim made against the Principal Underwriter
or any such controlling person unless the Principal Underwriter or any such
controlling person, as the case may be, shall have notified the Trust in writing
within a reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon the Principal
Underwriter or such controlling person (or after such Principal Underwriter or
such controlling person shall have received notice of such service on any
designated agent), but failure to notify the Trust of any such claim shall not
relieve it from any liability which the Fund may have to the person against whom
such action is brought otherwise than on account of its indemnity agreement
contained in this paragraph. The Trust shall be entitled to participate, at the
expense of the Fund, in the defense, or, if the Trust so elects, to assume the
defense of any suit brought to enforce any such liability, but if the Trust
elects to assume the defense, such defense shall be conducted by counsel chosen
by it and satisfactory to the Principal Underwriter or controlling person or
persons, defendant or defendants in the suit. In the event the Trust elects to
assume the defense of any such suit and retains such counsel, the Principal
Underwriter or controlling person or persons, defendant or defendants in the
suit, shall bear the fees and expenses of any additional counsel retained by
them, but, in case the Trust does not elect to assume the defense of any such
suit, the Fund shall reimburse the Principal Underwriter or controlling person
or persons, defendant or defendants in the suit, for the reasonable fees and
expenses of any counsel retained by them. The Trust agrees promptly to notify
the Principal Underwriter of the commencement of any litigation or proceedings
against it or any of its officers or Trustees in connection with the issuance or
sale of any of the Fund's shares.
4. The Principal Underwriter covenants and agrees that, in selling the
shares of the Fund, it will use its best efforts in all respects duly to conform
with the requirements of all state and federal laws relating to the sale of such
shares, and will indemnify and hold harmless the Trust and each of its Trustees
and officers and each person, if any, who controls the Trust within the meaning
of Section 15 of the 1933 Act, against any loss, liability, damages, claim or
expense (including the reasonable cost of investigating or defending any alleged
loss, liability, damages, claim or expense and reasonable counsel fees incurred
in connection therewith), arising by reason of any person acquiring any shares
of the Fund, which may be based upon the 1933 Act or any other statute or at
common law, on account of any wrongful act of the Principal Underwriter or any
of its employees (including any failure to conform with any requirement of any
state or federal law relating to the sale of such shares) or on the ground that
the Registration Statement or Prospectus, as from time to time amended and
supplemented, includes an untrue statement of a material fact or omits to state
a material fact required to be stated therein or necessary in order to make the
statements therein not misleading, insofar as any such statement or omission was
made in reliance upon, and in conformity with information furnished in writing
to the Trust in connection therewith by or on behalf of the Principal
Underwriter, provided, however, that in no case (i) is the indemnity of the
Principal Underwriter in favor of any person indemnified to be deemed to protect
the Fund or any such person against any liability to which the Fund or any such
person would otherwise be subject by reason of willful misfeasance, bad faith,
or gross negligence in the performance of its or his duties or by reason of its
or his reckless disregard of its obligations and duties under this Agreement, or
(ii) is the Principal Underwriter to be liable under its indemnity agreement
contained in this paragraph with respect to any claim made against the Fund or
any person indemnified unless the Trust or such person, as the case may be,
shall have notified the Principal Underwriter in writing within a reasonable
time after the summons or other first legal process giving information of the
nature of the claim shall have been served upon the Trust, the Fund or upon such
person (or after the Trust, the Fund or such person shall have received notice
of such service on any designated agent), but failure to notify the Principal
Underwriter of any such claim shall not relieve it from any liability which it
may have to the Fund or any person against whom such action is brought otherwise
than on account of its indemnity agreement contained in this paragraph. The
Principal Underwriter shall be entitled to participate, at its own expense, in
the defense, or, if it so elects, to assume the defense of any suit brought to
enforce any such liability, but if the Principal Underwriter elects to assume
the defense, such defense shall be conducted by counsel chosen by it and
satisfactory to the Trust, or to its officers or Trustees, or to any controlling
person or persons, defendant or defendants in the suit. In the event that the
Principal Underwriter elects to assume the defense of any such suit and retains
such counsel, the Fund or such officers or Trustees or controlling person or
persons, defendant or defendants in the suit, shall bear the fees and expenses
of any additional counsel retained by them or the Trust, but, in case the
Principal Underwriter does not elect to assume the defense of any such suit, it
shall reimburse the Fund, any such officers and Trustees or controlling person
or persons, defendant or defendants in such suit, for the reasonable fees and
expenses of any counsel retained by them or the Trust. The Principal Underwriter
agrees promptly to notify the Trust of the commencement of any litigation or
proceedings against it in connection with the issue and sale of any of the
Fund's shares.
Neither the Principal Underwriter nor any financial service firm nor any
other person is authorized by the Trust to give any information or to make any
representations, other than those contained in the Registration Statement or
Prospectus filed with the Securities and Exchange Commission (the "Commission")
under the 1933 Act, (as said Registration Statement and Prospectus may be
amended or supplemented from time to time), covering the shares of the Fund.
Neither the Principal Underwriter nor any financial service firm nor any other
person is authorized to act as agent for the Trust or the Fund in connection
with the offering or sale of shares of the Fund to the public or otherwise. All
such sales made by the Principal Underwriter shall be made by it as principal,
for its own account. The Principal Underwriter may, however, act as agent in
connection with the repurchase of shares as provided in paragraph 6 below, or in
connection with "exchanges" between investment companies for which the Principal
Underwriter (or an affiliate thereof) acts as principal underwriter or
investment adviser.
5(a). The Fund will pay, or cause to be paid (by one or more classes) -
(i) all the costs and expenses of the Fund, including fees and
disbursements of its counsel, in connection with the preparation and filing of
any required Registration Statement and/or Prospectus under the 1933 Act, or the
1940 Act, covering its shares and all amendments and supplements thereto, and
preparing and mailing periodic reports to shareholders (including the expense of
setting up in type any such Registration Statement, Prospectus or periodic
report);
(ii) the cost of preparing temporary and permanent share
certificates (if any) for shares of the Fund;
(iii) the cost and expenses of delivering to the Principal
Underwriter at its office in Boston, Massachusetts, all shares of the Fund
purchased by it as principal hereunder; and
(iv) all the federal and state (if any) issue and/or transfer taxes
payable upon the issue by or (in the case of treasury shares) transfer from the
Fund to the Principal Underwriter of any and all shares of the Fund purchased by
the Principal Underwriter hereunder.
(v) the fees, costs and expenses of the registration or
qualification of shares for sale in the various states, territories or other
jurisdictions (including without limitation the registering or qualifying the
Fund as a broker or dealer or any officer of the Fund as agent or salesman in
any state, territory or other jurisdiction); and
(vi) all payments to be made pursuant to any written plan approved
in accordance with Rule 12b-1 under the 1940 Act or any written service plan.
(b) The Principal Underwriter agrees that, after the Prospectus (other
than to existing shareholders of the Fund) and periodic reports have been set up
in type, it will bear the expense of printing and distributing any copies
thereof which are to be used in connection with the offering of shares of the
Fund to financial service firms or investors. The Principal Underwriter further
agrees that it will bear the expenses of preparing, printing and distributing
any other literature used by the Principal Underwriter or furnished by it for
use by financial service firms in connection with the offering of the shares of
the Fund for sale to the public and any expenses of advertising in connection
with such offering.
(c) In addition, the Trust agrees, in accordance with the Fund's
Distribution Plans (the "Plans"), adopted pursuant to Rule 12b-1 under the 1940
Act with respect to Class B and Class C shares, to make certain payments as
follows. The Principal Underwriter shall be entitled to be paid by the Fund a
sales commission equal to an amount not exceeding 5% of the price received by
the Fund for each sale of Class B shares and 6.25% of the price received by the
Fund for each sale of Class C shares (excluding in each case the reinvestment of
dividends and distributions), such payment to be made out of Class B or Class C
assets as applicable and in the manner set forth in this paragraph 5. The
Principal Underwriter shall also be entitled to be paid by the Fund a separate
distribution fee (calculated in accordance with paragraph 5(d)) out of the
relevant Class' assets, such payment to be made in the manner set forth and
subject to the terms of this paragraph 5.
(d) The sales commissions and distribution fees referred to in paragraph
5(c) shall be accrued and paid by the Fund in the following manner. Each Class B
and Class C shall accrue daily an amount calculated at the rate of .75% per
annum of its daily net assets, which net assets shall be computed as described
in paragraph 2. The daily amounts so accrued throughout the month shall be paid
to the Principal Underwriter on the last day of each month. The amount of such
daily accrual, as so calculated, shall first be applied and charged to all
unpaid sales commissions, and the balance, if any, shall then be applied and
charged to all unpaid distribution fees. No amount shall be accrued with respect
to any day on which there exist no outstanding uncovered distribution charges of
the Principal Underwriter due from the relevant Class. The amount of such
uncovered distribution charges shall be calculated daily. For purposes of this
calculation, distribution charges of the Principal Underwriter shall include (a)
the aggregate of all sales commissions which the Principal Underwriter has been
paid pursuant to this paragraph (d) (and pursuant to paragraph 5(d) of the Prior
Agreements) plus all sales commissions which it is entitled to be paid pursuant
to paragraph 5(c) (and pursuant to paragraph 5(c) of the Prior Agreements) since
inception of the Prior Agreements through and including the day next preceding
the date of calculation, and (b) an amount equal to the aggregate of all
distribution fees referred to below which the Principal Underwriter has been
paid pursuant to this paragraph (d) (and pursuant to paragraph 5(d) of the Prior
Agreements) plus all such fees which it is entitled to be paid pursuant to
paragraph 5(c) (and pursuant to paragraph 5(c) of the Prior Agreements) since
inception of the Prior Agreements through and including the day next preceding
the date of calculation. From this sum (distribution charges) there shall be
subtracted (i) the aggregate amount paid or payable to the Principal Underwriter
pursuant to this paragraph (d) (and pursuant to paragraph (d) of the Prior
Agreements) since inception of the Prior Agreements through and including the
day next preceding the date of calculation and (ii) the aggregate amount of all
contingent deferred sales charges paid or payable to the Principal Underwriter
since inception of the Prior Agreements through and including the day next
preceding the date of calculation. In addition, the calculation shall include
amounts under the Prior Agreements when a predecessor principal underwriter
existed. If the result of such subtraction is a positive amount, a distribution
fee [computed at the rate of 1% per annum above the prime rate (being the base
rate on corporate loans posted by at least 75% of the nation's 30 largest banks)
then being reported in the Eastern Edition of The Wall Street Journal or if such
prime rate is not so reported such other rate as may be designated from time to
time by vote or other action of a majority of (i) those Trustees of the Trust
who are not "interested persons" of the Trust (as defined in the 1940 Act) and
have no direct or indirect financial interest in the operation of the Plan or
any agreements related to it (the "Rule 12b-1 Trustees") and (ii) all of the
Trustees then in office] shall be computed on such amount and added to such
amount, with the resulting sum constituting the amount of outstanding uncovered
distribution charges of the Principal Underwriter due from a Class with respect
to such day for all purposes of this Agreement. If the result of such
subtraction is a negative amount, there shall exist no outstanding uncovered
distribution charges of the Principal Underwriter due from that Class with
respect to such day and no amount shall be accrued or paid to the Principal
Underwriter with respect to such day. The aggregate amounts accrued and paid
pursuant to this paragraph (d) during any fiscal year of the Fund shall not
exceed .75% of the average daily net assets of a Class for such year. The term
"Principal Underwriter" as used in this paragraph (d) shall include the current
Principal Underwriter's predecessor, a Massachusetts corporation called Eaton
Vance Distributors, Inc. that served as principal underwriter for the Trust
prior to November 1, 1996.
(e) The Principal Underwriter shall be entitled to receive all contingent
deferred sales charges paid or payable with respect to any day on which there
exist outstanding uncovered distribution charges due from a Class of the
Principal Underwriter. Each Class B and Class C shall be entitled to receive all
remaining contingent deferred sales charges paid or payable by its shareholders
with respect to any day on which there exist no outstanding uncovered
distribution charges of the Principal Underwriter due from that Class, provided
that no such sales charge which would cause the Fund to exceed the maximum
applicable cap imposed thereon by paragraph (2) of subsection (d) of Rule 2830
of the Conduct Rules of the National Association of Securities Dealers, Inc.
shall be imposed.
(f) The Principal Underwriter shall be entitled to receive all contingent
deferred sales charges imposed in accordance with the Prospectus on early
redemption of Class A shares.
(g) The persons authorized to direct the disposition of monies paid or
payable by the Fund pursuant to the Plan or this Agreement shall be the
President or any Vice President or the Treasurer of the Trust. Such persons
shall provide to the Trust's Trustees and the Trustees shall review, at least
quarterly, a written report of the amounts so expended and the purposes for
which such expenditures were made.
(h) In addition to the payments to the Principal Underwriter provided for
in paragraph 5(d), the Fund may make payments from the assets of each Class of
service fees to the Principal Underwriter, Authorized Firms and other persons.
The aggregate of such payments during any fiscal year of the Fund shall not
exceed .25% of a class' average daily net assets for such year.
6. The Trust hereby authorizes the Principal Underwriter to repurchase,
upon the terms and conditions set forth in written instructions given by the
Trust to the Principal Underwriter from time to time, as agent of the Trust and
for its account, such shares of the Fund as may be offered for sale to the Fund
from time to time.
(a) The Principal Underwriter shall notify in writing IBT and First Data
at the end of each business day, or as soon thereafter as the repurchases in
each pricing period have been compiled, of the number of shares of each Class
repurchased for the account of the Fund since the last previous report, together
with the prices at which such repurchases were made, and upon the request of any
officer or Trustee of the Trust shall furnish similar information with respect
to all repurchases made up to the time of the request on any day.
(b) The Trust reserves the right to suspend or revoke the foregoing
authorization at any time; unless otherwise stated, any such suspension or
revocation shall be effective forthwith upon receipt of notice thereof by an
officer of the Principal Underwriter, by telegraph or by written instrument from
an officer of the Trust duly authorized by its Trustees. In the event that the
authorization of the Principal Underwriter is, by the terms of such notice,
suspended for more than twenty-four hours or until further notice, the
authorization given by this paragraph 6 shall not be revived except by action of
a majority of the Trustees of the Trust.
(c) The Principal Underwriter shall have the right to terminate the
operation of this paragraph 6 upon giving to the Trust thirty (30) days' written
notice thereof.
(d) The Trust agrees to authorize and direct IBT to pay, for the account
of the Fund, the purchase price of any shares so repurchased against delivery of
the certificates in proper form for transfer to the Trust or for cancellation by
the Trust.
(e) The Principal Underwriter shall receive no commission in respect of
any repurchase of shares under the foregoing authorization and appointment as
agent, except for any sales commission, distribution fee or contingent deferred
sales charges payable under paragraph 5.
(f) The Trust agrees that the Fund will reimburse the Principal
Underwriter, from time to time on demand, for any reasonable expenses incurred
in connection with the repurchase of shares of the Fund pursuant to this
paragraph 6.
7. If, at any time during the existence of this Agreement, the Trust shall
deem it necessary or advisable in the best interests of the Fund that any
amendment of this Agreement be made in order to comply with the recommendations
or requirements of the Commission or other governmental authority or to obtain
any advantage under Massachusetts or federal tax laws, and shall notify the
Principal Underwriter of the form of amendment which it deems necessary or
advisable and the reasons therefor, and, if the Principal Underwriter declines
to assent to such amendment, the Trust may terminate this Agreement forthwith by
written notice to the Principal Underwriter. If, at any time during the
existence of its agreement upon request by the Principal Underwriter, the Trust
fails (after a reasonable time) to make any changes in its Declaration of Trust,
as amended, or in its methods of doing business which are necessary in order to
comply with any requirement of federal law or regulations of the Commission or
of a national securities association of which the Principal Underwriter is or
may be a member, relating to the sale of the shares of the Fund, the Principal
Underwriter may terminate this Agreement forthwith by written notice to the
Trust.
8(a). The Principal Underwriter is a corporation in the United States
organized under the laws of Massachusetts and holding membership in the National
Association of Securities Dealers, Inc., a securities association registered
under Section 15A of the Securities Exchange Act of 1934, as amended from time
to time, and during the life of this Agreement will continue to be so resident
in the United States, so organized and a member in good standing of said
Association. The Principal Underwriter covenants that it and its officers and
directors will comply with the Trust's Declaration of Trust and By-Laws, and the
1940 Act and the rules promulgated thereunder, insofar as they are applicable to
the Principal Underwriter.
(b) The Principal Underwriter shall maintain in the United States and
preserve therein for such period or periods as the Commission shall prescribe by
rules and regulations applicable to it as Principal Underwriter of an open-end
investment company registered under the 1940 Act such accounts, books and other
documents as are necessary or appropriate to record its transactions with the
Fund. Such accounts, books and other documents shall be subject at any time and
from time to time to such reasonable periodic, special and other examinations by
the Commission or any member or representative thereof as the Commission may
prescribe. The Principal Underwriter shall furnish to the Commission within such
reasonable time as the Commission may prescribe copies of or extracts from such
records which may be prepared without effort, expense or delay as the Commission
may by order require.
9. This Agreement shall continue in force indefinitely until terminated as
in this Agreement above provided, except that:
(a) this Agreement shall remain in effect through and including April 28,
1998 (or, if applicable, the next April 28 which follows the day on which a Fund
has become a Fund hereunder by amendment to Schedule A subsequent to April 28,
1998), and shall continue in full force and effect indefinitely thereafter, but
only so long as such continuance after April 28, 1998 (or, if applicable, said
next April 28) is specifically approved at least annually (i) by the vote of a
majority of the Rule 12b-1 Trustees cast in person at a meeting called for the
purpose of voting on such approval, and (ii) by the Trustees of the Trust or by
vote of a majority of the outstanding voting securities of the Fund;
(b) this Agreement may be terminated with respect to a Class with a 12b-1
plan at any time by vote of a majority of the Rule 12b-1 Trustees or by vote of
a majority of the outstanding voting securities of the Class on not more than
sixty (60) days' notice to the Principal Underwriter. The Principal Underwriter
shall be entitled to receive all contingent deferred sales charges paid or
payable from such class with respect to any day subsequent to such termination;
(c) either party shall have the right to terminate this Agreement with
respect to any Class on six (6) months' written notice thereof given in writing
to the other;
(d) the Trust shall have the right to terminate this Agreement forthwith
in the event that it shall have been established by a court of competent
jurisdiction that the Principal Underwriter or any director or officer of the
Principal Underwriter has taken any action which results in a breach of the
covenants set out in paragraph 9 hereof;
(e) if this Agreement is terminated with respect of any Class or Fund, it
shall not terminate the Agreement with respect to any other Class or Fund; and
(f) additional series of the Trust will become Funds hereunder upon
approval by the Trustees of the Trust and amendment of Schedule A.
10. In the event of the assignment of this Agreement by the Principal
Underwriter, this Agreement shall automatically terminate.
11. Any notice under this Agreement shall be in writing, addressed and
delivered, or mailed postage paid, to the other party, at such address as such
other party may designate for the receipt of such notices. Until further notice
to the other party, it is agreed that the record address of the Trust and that
of the Principal Underwriter, shall be 24 Federal Street, Boston, Massachusetts
02110.
12. The services of the Principal Underwriter to the Trust hereunder are
not to be deemed to be exclusive, the Principal Underwriter being free to (a)
render similar service to, and to act as principal underwriter in connection
with the distribution of shares of, other series of the Trust or other
investment companies, and (b) engage in other business and activities from time
to time.
13. The terms "vote of a majority of the outstanding voting securities,"
"assignment" and "interested persons," when used herein, shall have the
respective meanings specified in the 1940 Act, subject, however, to such
exemptions as may be granted by the Commission by any rule, regulation or order.
14. The Principal Underwriter expressly acknowledges the provision in the
Trust's Declaration of Trust limiting the personal liability of the shareholders
of the Trust and the Trustees of the Trust. The Principal Underwriter hereby
agrees that it shall have recourse only to the assets of the relevant Fund or
Class thereof for payment of claims or obligations as between the Trust and the
Principal Underwriter arising out of this Agreement and shall not seek
satisfaction from any shareholders or from the Trustees. No Fund or Class shall
not be responsible for obligations of any other fund or class of the Trust.
15. On June 23, 1997, the Trust adopted a Plan of reorganization and a
Multiple Class Plan on behalf of its series and in connection therewith the
Trustees of the Trust amended the Declaration of Trust to terminate or rename
certain series, and to establish four classes of shares within each renamed
series. Pursuant to such reorganization the assets of each Marathon series will
be converted to Class B assets of the renamed series, the shares of each
Marathon series will be converted to Class B shares of the renamed series, the
assets of EV Classic High Yield Municipals Fund ("Classic High Yield") will be
converted to Class C assets of the renamed series designated as Eaton Vance High
Yield Municipals Fund and the shares of Classic High Yield will be converted to
Class C shares of that renamed series. All references in this Agreement to the
"Prior Agreements" shall mean (i) with respect to the Class B assets or shares
of a particular Fund, all prior distribution agreements of the Trust applicable
to the converted assets and shares of the relevant Marathon series, and (ii)
with respect to the Class C assets or shares of Eaton Vance High Yield
Municipals Fund, all prior distribution agreements of the Trust applicable to
the converted assets and shares of Classic High Yield. All references in this
Agreement to the "Prior Agreements" shall not be applicable to any additional
series of the Trust which becomes a Fund hereunder by amendment of Schedule A
subsequent to June 23, 1997.
16. This Agreement shall be effective with respect to a specific Class of
shares for a particular Fund on the date that Fund begins offering shares of
that Class. As of such effective date, this Agreement shall be deemed to amend,
replace and be substituted for the Prior Agreements previously applicable to the
relevant Class assets of that Fund. The outstanding uncovered distribution
charges of the Principal Underwriter with respect to a specific Class calculated
under the Prior Agreements as of the close of business on the date a Fund begins
offering shares of that Class shall be the outstanding uncovered distribution
charges of the Principal Underwriter with respect to such Class calculated under
this Agreement as of the opening of business on the date such shares are
offered.
IN WITNESS WHEREOF, the parties hereto have entered into this Agreement on
the 23rd day June, 1997.
EATON VANCE MUNICIPALS TRUST II
By /s/ Thomas J. Fetter
--------------------------------------
President
EATON VANCE DISTRIBUTORS, INC.
By /s/ Alan R. Dynner
--------------------------------------
Vice President
<PAGE>
SCHEDULE A
EATON VANCE MUNICIPALS TRUST II
DISTRIBUTION AGREEMENT
EFFECTIVE: JUNE 23, 1997
<TABLE>
<CAPTION>
Name of Fund Adopting this Agreement Prior Agreements Relating to Class B Assets
- ------------------------------------ -------------------------------------------
<S> <C>
Eaton Vance Florida Insured Municipals Fund February 25, 1994 / June 19, 1995 / November 1, 1996
Eaton Vance Hawaii Municipals Fund February 25, 1994 / June 19, 1995 / November 1, 1996
Eaton Vance High Yield Municipals June 19, 1995 / November 1, 1996 Fund*
Eaton Vance Kansas Municipals Fund February 25, 1994 / June 19, 1995 / November 1, 1996
</TABLE>
* The Prior Agreement relating to this Fund's Class C assets is dated March 24,
1997.
<PAGE>
EXHIBIT 9(B)
EATON VANCE MUNICIPALS TRUST II
ADMINISTRATIVE SERVICES AGREEMENT
dated July 19, 1995
June 23, 1997
Amendment to Schedule A
Effective with the fiscal year end of each respective Fund which is a series of
Eaton Vance Municipals Trust II (January 31, 1998), all Traditional and Classic
Funds will become Class A and Class C, respectively of the existing Marathon
version of the corresponding Funds and the current Marathon Fund will change its
name to that indicated on Schedule A hereto. Marathon shares will become Class B
shares of the renamed Fund.
A revised Schedule A reflecting the above is attached.
<PAGE>
June 23, 1997
SCHEDULE A
Effective February 1, 1998
Eaton Vance Florida Insured Municipals Fund
Eaton Vance Hawaii Municipals Fund
Eaton Vance High Yield Municipals Fund
Eaton Vance Kansas Municipals Fund
<PAGE>
EXHIBIT 11(A)
CONSENT OF INDEPENDENT AUDITORS
We consent to the use in Post-Effective Amendment No. 10 to the
Registration Statement on Form N-1A of Eaton Vance Municipals Trust II (1933
Act File Number 33-71320) on behalf of Eaton Vance Florida Insured Municipals
Fund, Eaton Vance Hawaii Municipals Fund and Eaton Vance Kansas Municipals
Fund (the "Funds") of our report dated March 7, 1997 relating to Eaton Vance
Florida Insured Municipals Fund (formerly EV Marathon Florida Insured
Municipals Fund), Eaton Vance Hawaii Municipals Fund (formerly EV Marathon
Hawaii Municipals Fund) and Eaton Vance Kansas Municipals Fund (formerly EV
Marathon Kansas Municipals Fund), 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
January 26, 1998
Boston, Massachusetts
<PAGE>
EXHIBIT 11(B)
CONSENT OF INDEPENDENT AUDITORS
We consent to the use in Post-Effective Amendment No. 10 to the
Registration Statement on Form N-1A of Eaton Vance Municipals Trust II (1933
Act File Number 33-71320) on behalf of Eaton Vance High Yield Municipals Fund
(the "Fund") of our report dated March 7, 1997 relating to Eaton Vance High
Yield Municipals Fund (formerly EV Marathon High Yield Municipals 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
January 26, 1998
Boston, Massachusetts
<PAGE>
EXHIBIT 15(A)
EATON VANCE MUNICIPALS TRUST II
CLASS A SERVICE PLAN
WHEREAS, Eaton Vance Municipals Trust II (the "Trust") engages in business
as an open-end management investment company with multiple series (each with
multiple classes), and is registered as such under the Investment Company Act of
1940, as amended (the "Act");
WHEREAS, on June 23, 1997 the Trust adopted a Plan of Reorganization and a
Multiple Class Plan on behalf of its series and in connection therewith the
Trustees amended the Declaration of Trust to terminate certain series (including
its Traditional series), and to establish four classes of shares (including
Class A shares) within each renamed series;
WHEREAS, the assets of each terminated Traditional series will be
converted to Class A assets of the renamed series and the shares of each
Traditional series will be converted to Class A shares of the renamed series
pursuant to such reorganization;
WHEREAS, the Trust on behalf of each of its series listed on Schedule A (a
"Fund") desires to adopt a Service Plan with respect to each Fund's Class A
shares pursuant to which each Fund intends to pay service fees out of Class A
assets as contemplated in subsections (b) and (d) of Rule 2830 of the Conduct
Rules of the National Association of Securities Dealers, Inc. (the "NASD
Rules");
WHEREAS, the Trust employs Eaton Vance Distributors, Inc. to act as
Principal Underwriter (as defined in the Act) of Class A shares of each Fund;
and
WHEREAS, the Trustees of the Trust have determined that there is a
reasonable likelihood that adoption of this Service Plan will benefit the Trust,
each Fund listed on Schedule A and the holders of Class A shares of each such
Fund.
NOW, THEREFORE, the Trust hereby adopts this Service Plan (the "Plan") on
behalf of each Fund with Class A shares containing the following terms and
conditions:
1. The Fund may make payments of service fees out of Class A assets to the
Principal Underwriter, Authorized Firms and other persons. The aggregate of such
payments during any fiscal year of the Fund shall not exceed .25% of average
daily net assets of Class A for such year. Appropriate adjustment of service fee
payments shall be made whenever necessary to ensure that no such payment shall
cause the Class to exceed the applicable maximum cap imposed thereon by
subsection (d)(5) of Rule 2830 of the NASD Rules.
2. This Plan shall not take effect until after it has been approved by
both a majority of (i) those Trustees of the Trust who are not "interested
persons" of the Trust (as defined in the Act) and have no direct or indirect
financial interest in the operations of this Plan or any agreements related to
it (the "Rule 12b-1 Trustees"), and (ii) all of the Trustees then in office,
cast in person at a meeting (or meetings) called for the purpose of voting on
this Plan.
3. Any agreements between the Trust on behalf of the Fund and any person
relating to this Plan shall be in writing and shall not take effect until
approved in the manner provided for Trustee approval of this Plan in Section 2.
4. This Plan shall continue in effect with respect to each Class A for so
long as such continuance is specifically approved at least annually in the
manner provided for Trustee approval of this Plan in Section 2.
5. The persons authorized to direct the disposition of monies paid or
payable by the Trust pursuant to this Plan or any related agreement shall be the
President or any Vice President or the Treasurer of the Trust. Such persons
shall provide to the Trustees of the Trust and the Trustees shall review, at
least quarterly, a written report of the amounts so expended and the purposes
for which such expenditures were made.
6. This Plan may be terminated as to any Fund with respect to its Class A
shares at any time by vote of a majority of the Rule 12b-1 Trustees, or by vote
of a majority of the outstanding Class A voting securities of the Fund.
7. This Plan may not be amended to increase materially the payments to be
made by the Class A shares of the Fund as provided in Section 1 unless such
amendment, if required by law, is approved by a vote of at least a majority of
the Class A outstanding voting securities of the Fund. In addition, all material
amendments to this Plan shall be approved in the manner provided for in Section
2. Additional series of the Trust which are to become a Fund hereunder will
become subject to this Plan and governed hereby upon approval by the Trustees of
the Trust and amendment of Schedule A.
8. While this Plan is in effect, the selection and nomination of the Rule
12b-1 Trustees shall be committed to the discretion of the Rule 12b-1 Trustees.
9. The Trust shall preserve copies of this Plan and any related agreements
made by the Trust and all reports made pursuant to Section 5, for a period of
not less than six years from the date of this Plan, the first two years in an
easily accessible place.
10. Consistent with the limitation of shareholder, officer and Trustee
liability as set forth in the Trust's Declaration of Trust, any obligations
assumed by the Class A shares of a Fund pursuant to this Plan shall be limited
in all cases to the assets of such Class A shares and no person shall seek
satisfaction thereof from the shareholders of the Fund or officers or Trustees
of the Trust or any other class or series of the Trust.
11. When used in this Plan, the term "service fees" shall have the same
meaning as such term has in subsections (b) and (d) of Rule 2830 of the NASD
Rules. When used in this Plan, the term "vote of a majority of the outstanding
Class A voting securities of the Fund" shall mean the vote of the lesser of (a)
67 per centum or more of the Class A shares of the Fund present or represented
by proxy at the meeting if the holders of more than 50 per centum of the
outstanding Class A shares of the Fund are present or represented by proxy at
the meeting, or (b) more than 50 per centum of the outstanding Class A shares of
the Fund.
12. If any provision of this Plan shall be held or made invalid by a court
decision, statute, rule or regulation of the Securities and Exchange Commission
or otherwise, the remainder of this Plan shall not be affected thereby.
13. This Plan shall be effective with respect to a specific Fund on the
date that Fund begins offering its Class A shares. As of such effective date
this Plan shall amend, replace and be substituted for any service plan
previously applicable to the Class A assets of such Fund.
Adopted June 23, 1997
* * *
<PAGE>
SCHEDULE A
EATON VANCE MUNICIPALS TRUST II
CLASS A SERVICE PLAN
EFFECTIVE: JUNE 23, 1997
Name of Fund Adopting this Plan
Eaton Vance Florida Insured Municipals Fund
Eaton Vance Hawaii Municipals Fund
Eaton Vance High Yield Municipals Fund
Eaton Vance Kansas Municipals Fund
<PAGE>
EXHIBIT 15(B)
EATON VANCE MUNICIPALS TRUST II
CLASS B DISTRIBUTION PLAN
WHEREAS, Eaton Vance Municipals Trust II (the "Trust") engages in business
as an open-end investment company with multiple series (each with multiple
classes) and is registered as such under the Investment Company Act of 1940, as
amended (the "Act");
WHEREAS, on June 23, 1997 the Trust adopted a Plan of Reorganization and a
Multiple Class Plan on behalf of its series and in connection therewith the
Trustees of the Trust amended the Declaration of Trust to terminate certain
series, to rename its Marathon series and to establish four classes of shares
(including Class B shares) within each renamed series;
WHEREAS, the assets of each Marathon series will be converted to Class B
assets of the renamed series and the shares of each Marathon series will be
converted to Class B shares of the renamed series pursuant to such
reorganization;
WHEREAS, the Trust adopted separate Distribution Plans and an Amended
Distribution Plan (collectively the "Original Plans") on behalf of its Marathon
series which are the predecessors to its Class B shares pursuant to which each
Marathon series made payments in connection with the distribution of its shares;
WHEREAS, the Trust employs Eaton Vance Distributors, Inc. to act as
Principal Underwriter (as defined in the Act) of Class B shares of each of its
series listed on Schedule A (a "Fund"), but does not intend to remunerate the
Principal Underwriter under this Class B Distribution Plan unless and until the
Principal Underwriter sells Class B shares of the Fund;
WHEREAS, each Fund will pay the Principal Underwriter sales commissions
and distribution fees out of Class B assets only in connection with the sale of
Class B shares;
WHEREAS, each Fund intends to pay service fees out of Class B assets as
contemplated in subsections (b) and (d) of Rule 2830 of the Conduct Rules of the
National Association of Securities Dealers, Inc. (the "NASD Rules");
WHEREAS, the Trustees of the Trust have determined that it is desirable to
adopt this Class B Distribution Plan as a successor to the Original Plans; and
WHEREAS, the Trustees of the Trust have determined that there is a
reasonable likelihood that adoption of this Class B Distribution Plan will
benefit the Trust, each Fund listed on Schedule A, and the holders of Class B
shares of each such Fund.
NOW, THEREFORE, the Trust hereby adopts this Class B Distribution Plan
(this "Plan") on behalf of each Fund in accordance with Rule 12b-1 under the Act
and containing the following terms and conditions:
1. The Fund will pay sales commissions and distribution fees out of Class
B assets to the Principal Underwriter only after and as a result of the sale of
Class B shares. The Principal Underwriter will provide such distribution
services and facilities as the Trust may from time to time consider necessary to
accomplish the sale of Class B shares. It is understood that the Principal
Underwriter may pay such sales commissions and make such other payments to
Authorized Firms and other persons as it considers appropriate to encourage
distribution of such shares.
2. On each sale of Class B shares (excluding reinvestment of dividends and
distributions), the Fund shall pay the Principal Underwriter a sales commission
out of Class B assets in an amount not exceeding 5% of the price received by the
Fund therefor, such payment to be made in the manner set forth and subject to
the terms of this Plan. The amount of the sales commission shall be established
from time to time by vote or other action of a majority of (i) those Trustees of
the Trust who are not "interested persons" (as defined in the Act) of the Trust
and have no direct or indirect financial interest in the operation of this Plan
or any agreements related to it (the "Rule 12b-1 Trustees") and (ii) all of the
Trustees then in office. The Fund shall also pay the Principal Underwriter out
of Class B assets a separate distribution fee (calculated in accordance with
Section 3), such payment to be made in the manner set forth and subject to the
terms of this Plan.
3. The sales commissions and distribution fees referred to in Section 2
shall be accrued and paid in the following manner. Each Class B shall accrue
daily an amount calculated at the rate of .75% per annum of its daily net
assets, which net assets shall be computed in accordance with the governing
documents of the Trust and applicable votes and determinations of the Trustees
of the Trust. The daily amounts so accrued throughout the month shall be paid to
the Principal Underwriter on the last day of each month. The amount of such
daily accrual, as so calculated, shall first be applied and charged to all
unpaid sales commissions, and the balance, if any, shall then be applied and
charged to all unpaid distribution fees. No amount shall be accrued with respect
to any day on which there exist no outstanding uncovered distribution charges of
the Principal Underwriter due from Class B shares. The amount of such uncovered
distribution charges shall be calculated daily. For purposes of this
calculation, distribution charges of the Principal Underwriter shall include (a)
the aggregate of all sales commissions which the Principal Underwriter has been
paid pursuant to this Section 3 (and pursuant to Section 3 of the Original
Plans) plus all sales commissions which it is entitled to be paid pursuant to
Section 2 (and pursuant to Section 2 of the Original Plans) since inception of
the Original Plans through and including the day next preceding the date of
calculation, and (b) an amount equal to the aggregate of all distribution fees
referred to below which the Principal Underwriter has been paid pursuant to this
Section 3 (and pursuant to Section 3 of the Original Plans) plus all such fees
which it is entitled to be paid pursuant to Section 2 (and pursuant to Section 2
of the Original Plans) since inception of the Original Plans through and
including the day next preceding the date of calculation. From this sum
(distribution charges) there shall be subtracted (i) the aggregate amount paid
or payable to the Principal Underwriter pursuant to this Section 3 (and pursuant
to Section 3 of the Original Plans) since inception of the Original Plans
through and including the day next preceding the date of calculation and (ii)
the aggregate amount of all contingent deferred sales charges paid or payable to
the Principal Underwriter since inception of the Original Plans through and
including the day next preceding the date of calculation. If the result of such
subtraction is a positive amount, a distribution fee [computed at the rate of 1%
per annum above the prime rate (being the base rate on corporate loans posted by
at least 75% of the nation's 30 largest banks) then being reported in the
Eastern Edition of The Wall Street Journal or if such prime rate is not so
reported such other rate as may be designated from time to time by vote or other
action of a majority of (i) the Rule 12b-1 Trustees and (ii) all of the Trustees
then in office] shall be computed on such amount and added to such amount, with
the resulting sum constituting the amount of outstanding uncovered distribution
charges of the Principal Underwriter due from Class B shares with respect to
such day for all purposes of this Plan. In addition, the calculation shall
include amounts under the Original Plans when a predecessor principal
underwriter existed. If the result of such subtraction is a negative amount,
there shall exist no outstanding uncovered distribution charges of the Principal
Underwriter due from Class B shares with respect to such day and no amount shall
be accrued or paid to the Principal Underwriter with respect to such day. The
aggregate amounts accrued and paid pursuant to this Section 3 during any fiscal
year of the Fund shall not exceed .75% of the average daily net assets of Class
B for such year.
4. The Principal Underwriter shall be entitled to receive all contingent
deferred sales charges paid or payable with respect to any day on which there
exist outstanding uncovered distribution charges of the Principal Underwriter
due from Class B shares. Class B shall be entitled to receive all remaining
contingent deferred sales charges paid or payable by Class B shareholders with
respect to any day on which there exist no outstanding uncovered distribution
charges of the Principal Underwriter due from Class B shares, provided that no
such sales charge which would cause the Class B to exceed the maximum applicable
cap imposed thereon by paragraph (2) of subsection (d) of Rule 2830 of the NASD
Rules shall be imposed.
5. The Fund may make payments of service fees out of Class B assets to the
Principal Underwriter, Authorized Firms and other persons. The aggregate of such
payments during any fiscal year of the Fund shall not exceed .25% of the average
daily net assets of Class B for such year. Appropriate adjustment of service fee
payments shall be made whenever necessary to ensure that no such payment shall
cause the Class B to exceed the applicable maximum cap imposed thereon by
paragraph (5) of subsection (d) of Rule 2830 of the NASD Rules.
6. This Plan shall not take effect until after it has been approved by
both a majority of (i) the Rule 12b-1 Trustees and (ii) all of the Trustees then
in office, cast in person at a meeting (or meetings) called for the purpose of
voting on this Plan.
7. Any agreements between the Trust on behalf of the Funds and any person
relating to this Plan shall be in writing and shall not take effect until
approved in the manner provided for Trustee approval of this Plan in Section 6.
8. This Plan shall continue in effect with respect to each Class B until
April 28, 1998 (or, if applicable, the next April 28 which follows the day on
which the Fund has become a Fund hereunder by amendment to Schedule A subsequent
to April 28, 1998) and from year to year thereafter, but only for so long as
such continuance after April 28, 1998 (or if applicable, said next April 28) is
specifically approved at least annually in the manner provided for Trustee
approval of this Plan in Section 6.
9. The persons authorized to direct the disposition of monies paid or
payable pursuant to this Plan or any related agreement shall be the President or
any Vice President or the Treasurer of the Trust. Such persons shall provide to
the Trustees of the Trust and the Trustees shall review, at least quarterly, a
written report of the amounts so expended and the purposes for which such
expenditures were made.
10. This Plan may be terminated as to any Fund with respect to its Class B
shares at any time by vote of a majority of the Rule 12b-1 Trustees, or by vote
of a majority of the outstanding Class B voting securities of the Fund. The
Principal Underwriter shall also be entitled to receive all contingent deferred
sales charges paid or payable with respect to any day subsequent to termination
of this Plan on which there exist outstanding uncovered distribution charges of
the Principal Underwriter due from Class B shares.
11. This Plan may not be amended to increase materially the payments to be
made by the Class B shares of the Fund as provided in Sections 2, 3 and 5 unless
such amendment is approved by a vote of at least a majority of the outstanding
voting securities of the Class B shares of the Fund. In addition, all material
amendments to this Plan shall be approved in the manner provided for Trustee
approval of this Plan in Section 6. Additional series of the Trust which are to
become a Fund hereunder will become subject to this Plan and governed hereby
upon approval by the Trustees of the Trust and amendment of Schedule A. All
references in this Plan to the "Original Plans" shall not be applicable to any
such additional series of the Trust which becomes a Fund hereunder by amendment
of Schedule A subsequent to June 23, 1997.
12. While this Plan is in effect, the selection and nomination of the Rule
12b-1 Trustees shall be committed to the discretion of the Rule 12b-1 Trustees.
13. The Trust shall preserve copies of this Plan and any related
agreements made by the Trust and all reports made pursuant to Section 9, for a
period of not less than six years from the date of this Plan, the first two
years in an easily accessible place.
14. Consistent with the limitation of shareholder, officer and Trustee
liability as set forth in the Trust's Declaration of Trust, any obligations
assumed by the Class B shares of a Fund pursuant to this Plan shall be limited
in all cases to the assets of such Class B shares and no person shall seek
satisfaction thereof from the shareholders, officers or Trustees of the Trust or
any other class or series of the Trust.
15. When used in this Plan, the term "service fees" shall have the same
meaning as such term has in subsections (b) and (d) of Rule 2830 of the NASD
Rules. When used in this Plan, the term "vote of a majority of the outstanding
Class B voting securities of the Fund" shall mean the vote of the lesser of (a)
67 per centum or more of the Class B shares of the Fund present or represented
by proxy at the meeting if the holders of more than 50 per centum of the
outstanding Class B shares of the Fund are present or represented by proxy at
the meeting, or (b) more than 50 per centum of the outstanding Class B shares of
the Fund.
16. If any provision of this Plan shall be held or made invalid by a court
decision, statute, rule or regulation of the Securities and Exchange Commission
or otherwise, the remainder of this Plan shall not be affected thereby.
17. This Plan shall be effective with respect to a specific Fund on the
date that Fund begins offering its Class B shares. As of such effective date
this Plan shall amend, replace and be substituted for the Original Plans
previously applicable to the Class B assets of that Fund. The outstanding
uncovered distribution charges of the Principal Underwriter calculated under the
Original Plans as of the close of business on the day preceding the date a Fund
begins offering Class B shares shall be the outstanding uncovered distribution
charges of the Principal Underwriter with respect to such Class B calculated
under this Plan as of the opening of business on the date such shares are
offered.
Adopted June 23, 1997
* * *
<PAGE>
SCHEDULE A
EATON VANCE MUNICIPALS TRUST II
CLASS B DISTRIBUTION PLAN
EFFECTIVE: JUNE 23, 1997
<TABLE>
<CAPTION>
Name of Fund Adopting This Plan Date of Original Plans (Inception Date)
- ------------------------------- ---------------------------------------
<S> <C>
Eaton Vance Florida Insured Municipals Fund February 25, 1994/June 19, 1995 (June 20, 1995)
Eaton Vance Hawaii Municipals Fund February 25, 1994/June 19, 1995 (June 20, 1995)
Eaton Vance High Yield Municipals Fund June 19, 1995
Eaton Vance Kansas Municipals Fund February 25, 1994/June 19, 1995 (June 20, 1995)
</TABLE>
<PAGE>
EXHIBIT 15(C)
EATON VANCE MUNICIPALS TRUST II
CLASS C DISTRIBUTION PLAN
WHEREAS, Eaton Vance Municipals Trust II (the "Trust") engages in business
as an open-end investment company with multiple series (each with multiple
classes) and is registered as such under the Investment Company Act of 1940, as
amended (the "Act");
WHEREAS, on June 23, 1997 the Trust adopted a Plan of Reorganization and a
Multiple Class Plan on behalf of its series and in connection therewith the
Trustees amended the Declaration of Trust to terminate certain series (including
its Classic series), and to establish four classes of shares (including Class C
shares) within each renamed series;
WHEREAS, the assets of each terminated Classic series will be converted to
Class C assets of the renamed series and the shares of each Classic series will
be converted to Class C shares of the renamed series pursuant to such
reorganization;
WHEREAS, the Trust adopted separate Distribution Plans and an Amended
Distribution Plan (collectively the "Original Plans") on behalf of its Classic
series which are the predecessors to its Class C shares pursuant to which each
Classic series made payments in connection with the distribution of its shares;
WHEREAS, the Trust employs Eaton Vance Distributors, Inc. to act as
Principal Underwriter (as defined in the Act) of Class C shares of each of its
series listed in Schedule A (a "Fund"), but does not intend to remunerate the
Principal Underwriter under this Class C Distribution Plan unless and until the
Principal Underwriter sells Class C shares of the Fund;
WHEREAS, each Fund will pay the Principal Underwriter sales commissions
and distribution fees out of Class C assets only in connection with the sale of
Class C shares;
WHEREAS, each Fund intends to pay service fees out of Class C assets as
contemplated in subsections (b) and (d) of Rule 2830 of the Conduct Rules of the
National Association of Securities Dealers, Inc. (the "NASD Rules");
WHEREAS, the Trustees of the Trust have determined that it is desirable to
adopt this Class C Distribution Plan as a successor to the Original Plans; and
WHEREAS, the Trustees of the Trust have determined that there is a
reasonable likelihood that adoption of this Class C Distribution Plan will
benefit the Trust, each Fund listed on Schedule A and the holders of Class C
shares of each such Fund.
NOW, THEREFORE, the Trust hereby adopts this Class C Distribution Plan
(this "Plan") on behalf of each Fund in accordance with Rule 12b-1 under the Act
and containing the following terms and conditions:
1. The Fund will pay sales commissions and distribution fees out of Class
C assets to the Principal Underwriter only after and as a result of the sale of
Class C shares. The Principal Underwriter will provide such distribution
services and facilities as the Trust may from time to time consider necessary to
accomplish the sale of Class C shares. It is understood that the Principal
Underwriter may pay such sales commissions and make such other payments to
Authorized Firms and other persons as it considers appropriate to encourage
distribution of such shares.
2. On each sale of Class C shares (excluding reinvestment of dividends and
distributions), the Fund shall pay the Principal Underwriter a sales commission
out of Class C assets in an amount not exceeding 6.25% of the price received by
the Fund therefor, such payment to be made in the manner set forth and subject
to the terms of this Plan. The amount of the sales commission shall be
established from time to time by vote or other action of a majority of (i) those
Trustees of the Trust who are not "interested persons" (as defined in the Act)
of the Trust and have no direct or indirect financial interest in the operation
of this Plan or any agreements related to it (the "Rule 12b-1 Trustees") and
(ii) all of the Trustees then in office. The Fund shall also pay the Principal
Underwriter out of Class C assets a separate distribution fee (calculated in
accordance with Section 3), such payment to be made in the manner set forth and
subject to the terms of this Plan.
3. The sales commissions and distribution fees referred to in Section 2
shall be accrued and paid in the following manner. Each Class C shall accrue
daily an amount calculated at the rate of .75% per annum of its daily net
assets, which net assets shall be computed in accordance with the governing
documents of the Trust and applicable votes and determinations of the Trustees
of the Trust. The daily amounts so accrued throughout the month shall be paid to
the Principal Underwriter on the last day of each month. The amount of such
daily accrual, as so calculated, shall first be applied and charged to all
unpaid sales commissions, and the balance, if any, shall then be applied and
charged to all unpaid distribution fees. No amount shall be accrued with respect
to any day on which there exist no outstanding uncovered distribution charges of
the Principal Underwriter due from Class C shares. The amount of such uncovered
distribution charges shall be calculated daily. For purposes of this
calculation, distribution charges of the Principal Underwriter shall include (a)
the aggregate of all sales commissions which the Principal Underwriter has been
paid pursuant to this Section 3 (and pursuant to Section 3 of the Original
Plans) plus all sales commissions which it is entitled to be paid pursuant to
Section 2 (and pursuant to Section 2 of the Original Plans) since inception of
the Original Plans through and including the day next preceding the date of
calculation, and (b) an amount equal to the aggregate of all distribution fees
referred to below which the Principal Underwriter has been paid pursuant to this
Section 3 (and pursuant to Section 3 of the Original Plans) plus all such fees
which it is entitled to be paid pursuant to Section 2 (and pursuant to Section 2
of the Original Plans) since inception of the Original Plans through and
including the day next preceding the date of calculation. From this sum
(distribution charges) there shall be subtracted (i) the aggregate amount paid
or payable to the Principal Underwriter pursuant to this Section 3 (and pursuant
to Section 3 of the Original Plans) since inception of the Original Plans
through and including the day next preceding the date of calculation and (ii)
the aggregate amount of all contingent deferred sales charges paid or payable to
the Principal Underwriter since inception of the Original Plans through and
including the day next preceding the date of calculation. If the result of such
subtraction is a positive amount, a distribution fee [computed at the rate of 1%
per annum above the prime rate (being the base rate on corporate loans posted by
at least 75% of the nation's 30 largest banks) then being reported in the
Eastern Edition of The Wall Street Journal or if such prime rate is not so
reported such other rate as may be designated from time to time by vote or other
action of a majority of (i) the Rule 12b-1 Trustees and (ii) all of the Trustees
then in office] shall be computed on such amount and added to such amount, with
the resulting sum constituting the amount of outstanding uncovered distribution
charges of the Principal Underwriter due from Class C shares with respect to
such day for all purposes of this Plan. In addition, the calculation shall
include amounts under the Original Plans when a predecessor principal
underwriter existed. If the result of such subtraction is a negative amount,
there shall exist no outstanding uncovered distribution charges of the Principal
Underwriter due from Class C shares with respect to such day and no amount shall
be accrued or paid to the Principal Underwriter with respect to such day. The
aggregate amounts accrued and paid pursuant to this Section 3 during any fiscal
year of the Fund shall not exceed .75% of the average daily net assets of Class
C for such year.
4. The Principal Underwriter shall be entitled to receive all contingent
deferred sales charges paid or payable with respect to any day on which there
exist outstanding uncovered distribution charges of the Principal Underwriter
due from Class C shares. Class C shall be entitled to receive all remaining
contingent deferred sales charges paid or payable by Class C shareholders with
respect to any day on which there exist no outstanding uncovered distribution
charges of the Principal Underwriter due from Class C shares, provided that no
such sales charge which would cause the Class C to exceed the maximum applicable
cap imposed thereon by paragraph (2) of subsection (d) of Rule 2830 of the NASD
Rules shall be imposed.
5. The Fund may make payments of service fees out of Class C assets to the
Principal Underwriter, Authorized Firms and other persons. The aggregate of such
payments during any fiscal year of the Fund shall not exceed .25% of the average
daily net assets of Class C for such year. Appropriate adjustment of service fee
payments shall be made whenever necessary to ensure that no such payment shall
cause the Class C to exceed the applicable maximum cap imposed thereon by
paragraph (5) of subsection (d) of Rule 2830 of the NASD Rules.
6. This Plan shall not take effect until after it has been approved by
both a majority of (i) the Rule 12b-1 Trustees and (ii) all of the Trustees then
in office, cast in person at a meeting (or meetings) called for the purpose of
voting on this Plan.
7. Any agreements between the Trust on behalf of the Funds and any person
relating to this Plan shall be in writing and shall not take effect until
approved in the manner provided for Trustee approval of this Plan in Section 6.
8. This Plan shall continue in effect with respect to each Class C until
April 28, 1998 (or, if applicable, the next April 28 which follows the day on
which the Fund has become a Fund hereunder by amendment to Schedule A subsequent
to April 28, 1998) and from year to year thereafter, but only for so long as
such continuance after April 28, 1998 (or if applicable, said next April 28) is
specifically approved at least annually in the manner provided for Trustee
approval of this Plan in Section 6.
9. The persons authorized to direct the disposition of monies paid or
payable pursuant to this Plan or any related agreement shall be the President or
any Vice President or the Treasurer of the Trust. Such persons shall provide to
the Trustees of the Trust and the Trustees shall review, at least quarterly, a
written report of the amounts so expended and the purposes for which such
expenditures were made.
10. This Plan may be terminated as to any Fund with respect to its Class C
shares at any time by vote of a majority of the Rule 12b-1 Trustees, or by vote
of a majority of the outstanding Class C voting securities of the Fund. The
Principal Underwriter shall also be entitled to receive all contingent deferred
sales charges paid or payable with respect to any day subsequent to termination
of this Plan on which there exist outstanding uncovered distribution charges of
the Principal Underwriter due from Class C shares.
11. This Plan may not be amended to increase materially the payments to be
made by the Class C shares of the Fund as provided in Sections 2, 3 and 5 unless
such amendment is approved by a vote of at least a majority of the outstanding
voting securities of the Class C shares of the Fund. In addition, all material
amendments to this Plan shall be approved in the manner provided for Trustee
approval of this Plan in Section 6. Additional series of the Trust which are to
become a Fund hereunder will become subject to this Plan and governed hereby
upon approval by the Trustees of the Trust and amendment of Schedule A. All
references in this Plan to the "Original Plans" shall not be applicable to any
such additional series of the Trust which becomes a Fund hereunder by amendment
of Schedule A subsequent to June 23, 1997.
12. While this Plan is in effect, the selection and nomination of the Rule
12b-1 Trustees shall be committed to the discretion of the Rule 12b-1 Trustees.
13. The Trust shall preserve copies of this Plan and any related
agreements made by the Trust and all reports made pursuant to Section 9, for a
period of not less than six years from the date of this Plan, the first two
years in an easily accessible place.
14. Consistent with the limitation of shareholder, officer and Trustee
liability as set forth in the Trust's Declaration of Trust, any obligations
assumed by the Class C shares of a Fund pursuant to this Plan shall be limited
in all cases to the assets of such Class C shares and no person shall seek
satisfaction thereof from the shareholders, officers or Trustees of the Trust or
any other class or series of the Trust.
15. When used in this Plan, the term "service fees" shall have the same
meaning as such term has in subsections (b) and (d) of Rule 2830 of the NASD
Rules. When used in this Plan, the term "vote of a majority of the outstanding
Class C voting securities of the Fund" shall mean the vote of the lesser of (a)
67 per centum or more of the Class C shares of the Fund present or represented
by proxy at the meeting if the holders of more than 50 per centum of the
outstanding Class C shares of the Fund are present or represented by proxy at
the meeting, or (b) more than 50 per centum of the outstanding Class C shares of
the Fund.
16. If any provision of this Plan shall be held or made invalid by a court
decision, statute, rule or regulation of the Securities and Exchange Commission
or otherwise, the remainder of this Plan shall not be affected thereby.
17. This Plan shall be effective with respect to a specific Fund on the
date that Fund begins offering its Class C shares. As of such effective date
this Plan shall amend, replace and be substituted for the Original Plans
previously applicable to the Class C assets of that Fund. The outstanding
uncovered distribution charges of the Principal Underwriter calculated under the
Original Plans as of the close of business on the day preceding the date a Fund
begins offering its Class C shares shall be the outstanding uncovered
distribution charges of the Principal Underwriter with respect to such Class C
calculated under this Plan as of the opening of business on the date such shares
are offered.
Adopted June 23, 1997
* * *
<PAGE>
SCHEDULE A
EATON VANCE MUNICIPALS TRUST II
CLASS C DISTRIBUTION PLAN
EFFECTIVE: JUNE 23, 1997
Name of Fund Adopting this Plan Inception Date of Original Plan
- ------------------------------- -------------------------------
Eaton Vance High Yield Municipals Fund March 24, 1997
<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 July 31, 1997 and for the 1 year period ended
July 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 07/31/97 ON 07/31/97 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
<S> <C> <C> <C> <C> <C> <C> <C>
LIFE OF
FUND 03/02/94 $1,299.14 $1,269.14 29.91% 7.95% 26.91% 7.22%
1 YEAR ENDED
07/31/97 07/31/96 $1,088.26 $1,038.26 8.83% 8.83% 3.83% 3.83%
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 7/31/97:
Interest Income Earned: $92,977
Plus Dividend Income Earned:
Equal Gross Income: $92,977
Minus Expenses: $20,107
------
Equal Net Investment Income: $72,870
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 1,923,564
------
Equal Net Investment Income Earned Per Share: $0.0379
Net Asset Value Per Share 7/31/97: $11.08
30 Day Yield*: 4.14%
Divided by One minus the Tax Rate of 31%: 0.69
------
Equal Tax Equivalent Yield **: 6.00%
Divided by one minus a tax rate of 34.33% 0.6567
------
Equal Tax Equivalent Yield*** 6.30%
* Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0374/$11.08)+1)-1]
** Assuming a tax rate of 31%
*** Assuming a combined federal and Florida tax rate of 34.33%
<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 July 31, 1997 and for the 1 year period ended
July 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 07/31/97 ON 07/31/97 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
<S> <C> <C> <C> <C> <C> <C> <C>
LIFE OF
FUND 03/02/94 $1,188.80 $1,158.80 18.88% 5.19% 15.88% 4.40%
1 YEAR ENDED
07/31/97 07/31/96 $1,091.61 $1,041.61 9.16% 9.16% 4.16% 4.16%
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 7/31/97:
Interest Income Earned: $80,648
Plus Dividend Income Earned:
------
Equal Gross Income: $80,648
Minus Expenses: $22,605
------
Equal Net Investment Income: $58,042
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 1,810,087
------
Equal Net Investment Income Earned Per Share: $0.0321
Net Asset Value Per Share 7/31/97: $10.02
30 Day Yield*: 3.88%
Divided by One minus the Tax Rate of 31%: 0.69
------
Equal Tax Equivalent Yield **: 5.62%
Divided by one minus a tax rate of 35.20%: 0.6480
------
Equal Tax Equivalent Yield***: 5.99%
* Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0321/$10.02)+1)-1]
** Assuming a tax rate of 31%
*** Assuming a combined federal and Hawaii tax rate of 35.20%
<TABLE>
<PAGE>
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 July 31, 1997 and for the 1 year period ended
July 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 07/31/97 ON 07/31/97 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
<S> <C> <C> <C> <C> <C> <C> <C>
LIFE OF
FUND 03/02/94 $1,230.25 $1,200.25 23.02% 6.25% 20.02% 5.48%
1 YEAR ENDED
07/31/97 07/31/96 $1,094.17 $1,044.17 9.42% 9.42% 4.42% 4.42%
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 7/31/97:
Interest Income Earned: $49,180
Plus Dividend Income Earned:
------
Equal Gross Income: $49,180
Minus Expenses: $13,544
------
Equal Net Investment Income: $35,635
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 1,018,825
------
Equal Net Investment Income Earned Per Share: $0.0350
Net Asset Value Per Share 7/31/97: $10.43
30 Day Yield*: 4.06%
Divided by One minus the Tax Rate of 31%: 0.69
------
Equal Tax Equivalent Yield **: 5.88%
Divided by one minus a tax rate of 34.80% 0.6520
------
Equal Tax Equivalent Yield***: 6.23%
* Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.035 /$10.43)+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 July 31, 1997 and for the 1 year period ended
July 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 07/31/97 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
<S> <C> <C> <C> <C> <C> <C> <C>
LIFE OF
FUND 03/02/94 $952.50 $1,275.61 33.92% 8.92% 27.56% 7.38%
1 YEAR ENDED
07/31/97 07/31/96 $952.50 $1,042.16 9.41% 9.41% 4.22% 4.22%
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 4.75%.
** 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 4.75%.
*** The cumulative total return including the sales charge is calculated based on an initial investment of $1,000 less
maximum initial sales charge of 4.75%.
</TABLE>
<PAGE>
Exhibit 16
EV TRADITIONAL FLORIDA INSURED MUNICIPALS FUND
30-DAY AND TAX EQUIVALENT YIELD CALCULATIONS
For the 30 days ended 7/31/97:
Interest Income Earned: $10,564
Plus Dividend Income Earned:
------
Equal Gross Income: $10,564
Minus Expenses: $1,174
------
Equal Net Investment Income: $9,390
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 216,023
------
Equal Net Investment Income Earned Per Share: $0.0435
Net Asset Value Per Share 7/31/97: $11.65
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 34.05%: 0.6595
------
Equal Tax Equivalent Yield***: 6.85%
* Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0435/$11.65)+1)-1]
** Assuming a tax rate of 31%
*** Assuming a combined federal and Florida tax rate of 34.05%
<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 July 31, 1997 and for the 1 year period ended
July 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 07/31/97 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
<S> <C> <C> <C> <C> <C> <C> <C>
LIFE OF
FUND 03/02/94 $952.50 $1,114.25 16.98% 4.69% 11.42% 3.21%
1 YEAR ENDED
07/31/97 07/31/96 $952.50 $1,043.37 9.54% 9.54% 4.34% 4.34%
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 4.75%.
** 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 4.75%.
*** The cumulative total return including the sales charge is calculated based on an initial investment of $1,000 less
maximum initial sales charge of 4.75%.
</TABLE>
<PAGE>
Exhibit 16
EV TRADITIONAL HAWAII MUNICIPALS FUND
30-DAY AND TAX EQUIVALENT YIELD CALCULATIONS
For the 30 days ended 7/31/97:
Interest Income Earned: $1,524
Plus Dividend Income Earned:
------
Equal Gross Income: $1,524
Minus Expenses: $204
------
Equal Net Investment Income: $1,320
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 36,640
------
Equal Net Investment Income Earned Per Share: $0.0360
Net Asset Value Per Share 7/31/97: $10.21
30 Day Yield*: 4.27%
Divided by One minus the Tax Rate of 31%: 0.69
------
Equal Tax Equivalent Yield **: 6.19%
Divided by one minus a tax rate of 35.20%: 0.6480
------
Equal Tax Equivalent Yield***: 6.59%
* Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.036 /$10.21)+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 July 31, 1997 and for the 1 year period ended
July 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 07/31/97 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
<S> <C> <C> <C> <C> <C> <C> <C>
LIFE OF
FUND 03/02/94 $952.50 $1,174.30 23.29% 6.31% 17.43% 4.81%
1 YEAR ENDED
07/31/97 07/31/96 $952.50 $1,045.23 9.74% 9.74% 4.52% 4.52%
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 4.75%.
** 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 4.75%.
*** The cumulative total return including the sales charge is calculated based on an initial investment of $1,000 less
maximum initial sales charge of 4.75%.
</TABLE>
<PAGE>
Exhibit 16
EV TRADITIONAL KANSAS MUNICIPALS FUND
30-DAY AND TAX EQUIVALENT YIELD CALCULATIONS
For the 30 days ended 7/31/97:
Interest Income Earned: $5,210
Plus Dividend Income Earned:
------
Equal Gross Income: $5,210
Minus Expenses: $870
------
Equal Net Investment Income: $4,340
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 109,220
------
Equal Net Investment Income Earned Per Share: $0.0397
Net Asset Value Per Share 7/31/ $10.79
30 Day Yield*: 4.46%
Divided by One minus the Tax Rate of 31%: 0.69
------
Equal Tax Equivalent Yield **: 6.46%
Divided by one minus a tax rate of 34.80%: 0.6520
------
Equal Tax Equivalent Yield***: 6.84%
* Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0397/$10.79)+1)-1]
** Assuming a tax rate of 31%
*** Assuming a combined federal and Kansas tax rate of 34.80%
<PAGE>
<TABLE>
INVESTMENT PERFORMANCE - EATON VANCE HIGH YIELD MUNICIPALS FUND - CLASS B SHARES
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 July 31, 1997 and for the 1 year period ended
July 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 07/31/97 ON 07/31/97 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
<S> <C> <C> <C> <C> <C> <C> <C>
LIFE OF
FUND 08/07/95 $1,254.53 $1,204.53 25.45% 12.13% 20.45% 9.85%
1 YEAR ENDED
07/31/97 07/31/96 $1,141.14 $1,091.14 14.11% 14.11% 9.11% 9.11%
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 CDSC
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 7/31/97
Interest Income Earned: $903,257
Plus Dividend Income Earned:
------
Equal Gross Income: $903,257
Minus Expenses: $224,482
------
Equal Net Investment Income: $678,775
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 13,975,351
------
Equal Net Investment Income Earned Per Share: $0.0486
Net Asset Value Per Share 7/31/97: $11.18
30 Day Yield*: 5.27%
Divided by One minus the Tax Rate of 31%: 0.69
------
Equal Tax Equivalent Yield **: 7.64%
* Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0486/$11.18)+1)-1]
** Assuming a tax rate of 31%
<PAGE>
<TABLE>
INVESTMENT PERFORMANCE - EATON VANCE HIGH YIELD MUNICIPALS FUND - CLASS A SHARES
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 July 31, 1997 and for the 1 year period ended
July 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 07/31/97 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
<S> <C> <C> <C> <C> <C> <C> <C>
LIFE OF
FUND 08/07/95 $952.38 $1,217.71 27.86% 13.22% 21.77% 10.46%
1 YEAR ENDED
07/31/97 07/31/96 $952.47 $1,093.76 14.83% 14.83% 9.38% 9.38%
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 4.75%.
** 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 4.75%.
*** The cumulative total return including the sales charge is calculated based on an initial investment of $1,000 less
maximum initial sales charge of 4.75%.
</TABLE>
<PAGE>
Exhibit 16
EV TRADITIONAL HIGH YIELD MUNICIPALS FUND
30-DAY AND TAX EQUIVALENT YIELD CALCULATIONS
For the 30 days ended 7/31/97
Interest Income Earned: $446,855
Plus Dividend Income Earned:
------
Equal Gross Income: $446,855
Minus Expenses: $71,054
------
Equal Net Investment Income: $375,800
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 6,847,057
------
Equal Net Investment Income Earned Per Share: $0.0549
Net Asset Value Per Share 7/31/97: $11.66
30 Day Yield*: 5.72%
Divided by One minus the Tax Rate of 31%: 0.69
------
Equal Tax Equivalent Yield **: 8.29%
* Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0549/$11.66)+1)-1]
** Assuming a tax rate of 31%
<PAGE>
<TABLE>
INVESTMENT PERFORMANCE - EATON VANCE HIGH YIELD MUNICIPALS FUND - CLASS C SHARES
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 July 31, 1997 and for the 1 year period ended
July 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
INVESTMENT INVESTMENT TOTAL RETURN TOTAL RETURN
INVESTMENT INVESTMENT BEFORE CDSC AFTER CDSC BEFORE DEDUCTING CDSC AFTER DEDUCTING CDSC
PERIOD DATE ON 07/31/97 ON 07/31/97 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
<S> <C> <C> <C> <C> <C> <C> <C>
LIFE OF
FUND 08/07/95 $1,271.40 $1,271.40 27.14% 12.89% 27.14% 12.89%
1 YEAR ENDED
07/31/97 07/31/96 $1,141.83 $1,131.83 14.18% 14.18% 13.18% 13.18%
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 CLASSIC HIGH YIELD MUNICIPALS FUND
30-DAY AND TAX EQUIVALENT YIELD CALCULATIONS
For the 30 days ended 7/31/97:
Interest Income Earned: $8,888
Plus Dividend Income Earned:
----------
Equal Gross Income: $8,888
Minus Expenses: $2,390
----------
Equal Net Investment Income: $6,497
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 137,025
----------
Equal Net Investment Income Earned Per Share: $0.0474
Net Asset Value Price Per Share 7/31/97: $10.37
30 Day Yield*: 5.55%
Divided by One minus the Tax Rate of 31%: 0.69
----
Equal Tax Equivalent Yield**: 8.04%
* Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0474/$10.37)+1) -1]
** Assuming a tax rate of 31%
<PAGE>
EXHIBIT 18
MULTIPLE CLASS PLAN FOR EATON VANCE FUNDS
Dated June 23, 1997
WHEREAS, each trust (each a "Trust") listed on Schedule A engages in
business as an open-end investment company and is registered as such under the
Investment Company Act of 1940, as amended (the "Act");
WHEREAS, the Trustees (hereafter the "Trustees") of each Trust have
established four classes of shares of the series of the Trust (each a "Fund")
which series are listed on Schedule A hereto, such classes having been
designated Class A, Class B, Class C and Class I (the "Classes");
WHEREAS, each Fundis established in accordance with Section 18(f)(2)
of the Act, its shares are registered on Form N-1A under the Securities Act of
1933, and it is entitled to have a multiple class plan adopted on its behalf by
the Trust pursuant to Rule 18f-3 under the Act;
WHEREAS, the Trustees of the Trust desire to set forth herein the
separate arrangements, expense allocations, and any related conversion features
or exchange privileges of the Classes; and
WHEREAS, the Trustees of the Trust (including a majority of those
Trustees who are not interested persons of the Trust) have determined that
adoption of this Multiple Class Plan, including the expense allocations set
forth herein, is in the best interests of each Class individually and each Fund
as a whole.
NOW, THEREFORE, each Trust hereby adopts this Multiple Class Plan (the
"Plan") on behalf of each Fund in accordance with Rule 18f-3 under the Act and
containing the following terms and conditions:
1. Pursuant to each Fund's contractual arrangements and various actions
taken by the Trustees and as described in the Fund's prospectuses, each Class of
shares is subject to different distribution arrangements and accordingly is
subject to different expenses related thereto, including distribution fees and
shareholder service expenses. Class A shares are offered subject to an initial
sales charge and are subject to service fee payments in amounts not exceeding
.25% of the average daily net assets attributable to such Class for each fiscal
year. Class B shares are offered subject to a declining contingent deferred
sales charge, a distribution fee of .75% of its average daily net assets and
service fee payments in amounts not exceeding .25% of the average daily net
assets attributable to such Class for each fiscal year. Class C shares are
offered subject to a 1% contingent deferred sales charge for redemption within
the first year, a distribution fee of .75% of its average daily net assets and
service fee payments in amounts not exceeding .25% of the average daily net
assets attributable to such Class for each fiscal year. Class I shares are
offered at net asset value to certain investors and are not subject to
distribution or service fee payments. These fees and sales charges may change
over time. As described in the Fund's prospectuses, the sales charges described
above may be reduced or waived under certain circumstances.
2. At the discretion of the Treasurer of the Trust, each Class may pay
a different share of other expenses (not including advisory or custodial fees or
other expenses related to the management of the Fund's assets) that are actually
incurred in a different amount by that Class or if the Class receives services
of a different kind or to a different degree than another Class. Such expenses
include, but are not limited to, the following (a) transfer agency costs
(including entities performing account maintenance, dividend disbursing or
subaccounting activities and administration of dividend reinvestment, systematic
investment and withdrawal plans) attributable to a Class, (b) the cost of
preparing, printing and mailing materials such as shareholder reports,
prospectuses and proxy materials to current shareholders of a Class, (c) any
registration, notice or filing fees of the Securities and Exchange Commission
and state securities agencies, (d) the expense of administrative personnel and
services required to support the shareholders of a Class, (e) Trustees' fees or
expenses incurred as a result of issues or matters relating to a Class, and (f)
legal, auditing and accounting expenses relating to a Class. Such expense
allocation is subject to the continuing availability of a revenue procedure of
the Internal Revenue Service to the effect that the payments made under a Fund's
contractual arrangements and other Class specific expenses with respect to a
Class of shares do not result in such Fund's dividends or distributions
constituting "preferential dividends" under the Internal Revenue Code.
3. Income, realized and unrealized capital gains and losses, and
expenses of the Fund not allocated to a particular Class pursuant to the
foregoing shall be allocated to each Class on the basis of the net asset value
of that Class in relation to the net asset value of the Fund.
4. For shares purchased prior to April 26, 1996, Class I shares of an
EV Marathon series of Eaton Vance Investment Trust (to be renamed "Class B
shares") shall automatically convert to Class II shares of such series (to be
renamed "Class A shares") on the fourth anniversary on which Class I shares were
purchased. For shares purchased thereafter, such Class I shares held for the
longer of (i) four years or (ii) the time at which the contingent deferred sales
charge applicable to such shares expires will automatically convert to such
Class II shares. Such conversion will occur during the month following the
expiration of the holding period. Such conversion shall be effected on the basis
of the relative net asset values per share of the two Classes without the
imposition of any sales load, fee or other charge. For purposes of this
conversion, all distributions paid on such Class I shares which the shareholder
elects to reinvest in Class I shares will be considered to be held in a separate
sub-account. Upon the conversion of such Class I shares not acquired through the
reinvestment of distributions, a pro rata portion of the Class I shares held in
the sub-account will also convert to such Class II shares. This portion will be
determined by the ratio that such Class I shares being converted bear to the
total of Class I shares (excluding shares acquired through reinvestment) in the
account.
5. Each Class of shares may be exchanged for shares of the same type of
other funds in the Eaton Vance family of funds, which may change from time to
time, subject to terms, conditions and limitations set forth in the relevant
prospectuses.
6. This Plan shall not take effect until after it has been approved by
both a majority of Trustees and a majority of those Trustees who are not
interested persons of a Trust.
7. This Plan shall continue indefinitely, unless terminated or amended.
All material amendments to this Plan shall be approved in the manner provided
for Trustee approval of this Plan in Section 6. Additional series of a Trust
with Classes of shares may become subject to this Plan upon Trustee approval as
provided for in Section 6 and amendment of Schedule A hereto.
<PAGE>
<TABLE>
<CAPTION>
Schedule A
Eaton Vance Growth Trust
<S> <C>
Eaton Vance Asian Small Companies Fund Eaton Vance Information Age Fund
Eaton Vance Greater China Growth Fund Eaton Vance Worldwide Developing Resources Fund
Eaton Vance Growth Fund Eaton Vance Worldwide Health Sciences Fund
Eaton Vance Investment Trust
Eaton Vance California Limited Maturity Municipals Fund Eaton Vance National Limited Maturity Municipals Fund
Eaton Vance Connecticut Limited Maturity Municipals Fund Eaton Vance New Jersey Limited Maturity Municipals Fund
Eaton Vance Florida Limited Maturity Municipals Fund Eaton Vance New York Limited Maturity Municipals Fund
Eaton Vance Massachusetts Limited Maturity Municipals Fund Eaton Vance Ohio Limited Maturity Municipals Fund
Eaton Vance Michigan Limited Maturity Municipals Fund Eaton Vance Pennsylvania Limited Maturity Municipals Fund
Eaton Vance Municipals Trust
Eaton Vance Alabama Municipals Fund Eaton Vance Missouri Municipals Fund
Eaton Vance Arizona Municipals Fund Eaton Vance National Municipals Fund
Eaton Vance Arkansas Municipals Fund Eaton Vance New Jersey Municipals Fund
Eaton Vance California Municipals Fund Eaton Vance New York Municipals Fund
Eaton Vance Colorado Municipals Fund Eaton Vance North Carolina Municipals Fund
Eaton Vance Connecticut Municipals Fund Eaton Vance Ohio Municipals Fund
Eaton Vance Florida Municipals Fund Eaton Vance Oregon Municipals Fund
Eaton Vance Georgia Municipals Fund Eaton Vance Pennsylvania Municipals Fund
Eaton Vance Kentucky Municipals Fund Eaton Vance Rhode Island Municipals Fund
Eaton Vance Louisiana Municipals Fund Eaton Vance South Carolina Municipals Fund
Eaton Vance Maryland Municipals Fund Eaton Vance Tennessee Municipals Fund
Eaton Vance Massachusetts Municipals Fund Eaton Vance Texas Municipals Fund
Eaton Vance Michigan Municipals Fund Eaton Vance Virginia Municipals Fund
Eaton Vance Minnesota Municipals Fund Eaton Vance West Virginia Municipals Fund
Eaton Vance Mississippi Municipals Fund
Eaton Vance Municipals Trust II
Eaton Vance Florida Insured Municipals Fund Eaton Vance High Yield Municipals Fund
Eaton Vance Hawaii Municipals Fund Eaton Vance Kansas Municipals Fund
Eaton Vance Mutual Funds Trust
Eaton Vance Government Obligations Fund Eaton Vance Strategic Income Fund
Eaton Vance High Income Fund Eaton Vance Tax-Managed Growth Fund
Eaton Vance Special Investment Trust
Eaton Vance Emerging Markets Fund Eaton Vance Special Equities Fund
Eaton Vance Greater India Fund Eaton Vance Stock Fund
Eaton Vance Investors Fund Eaton Vance Total Return Fund
</TABLE>
<PAGE>
September 16, 1997
Schedule A-1
Eaton Vance Mutual Funds Trust
Eaton Vance Tax-Managed Emerging Growth Fund
<PAGE>
October 17, 1997
Schedule A-2
Eaton Vance Mutual Funds Trust
Eaton Vance Municipal Bond Fund
<PAGE>
November 17, 1997
Schedule A-3
Eaton Vance Special Investment Trust
Eaton Vance Russia and Eastern Europe Fund
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> EV MARATHON FLORIDA INSURED MUNICIPALS FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-31-1997
<PERIOD-END> JUL-31-1997
<INVESTMENTS-AT-COST> 19718
<INVESTMENTS-AT-VALUE> 21154
<RECEIVABLES> 6
<ASSETS-OTHER> 6
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 21160
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 236
<TOTAL-LIABILITIES> 236
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 19612
<SHARES-COMMON-STOCK> 1889
<SHARES-COMMON-PRIOR> 1886
<ACCUMULATED-NII-CURRENT> 25
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (150)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1437
<NET-ASSETS> 20923
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 602
<EXPENSES-NET> 117
<NET-INVESTMENT-INCOME> 485
<REALIZED-GAINS-CURRENT> 49
<APPREC-INCREASE-CURRENT> 638
<NET-CHANGE-FROM-OPS> 1173
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (466)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 145
<NUMBER-OF-SHARES-REDEEMED> 300
<SHARES-REINVESTED> 17
<NET-CHANGE-IN-ASSETS> (793)
<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> 119
<AVERAGE-NET-ASSETS> 20998
<PER-SHARE-NAV-BEGIN> 10.71
<PER-SHARE-NII> .250
<PER-SHARE-GAIN-APPREC> .358
<PER-SHARE-DIVIDEND> (.238)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.08
<EXPENSE-RATIO> 1.13
<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> 6-MOS
<FISCAL-YEAR-END> JAN-31-1997
<PERIOD-END> JUL-31-1997
<INVESTMENTS-AT-COST> 17410
<INVESTMENTS-AT-VALUE> 18953
<RECEIVABLES> 24
<ASSETS-OTHER> 7
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 18985
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 45
<TOTAL-LIABILITIES> 45
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 18189
<SHARES-COMMON-STOCK> 1891
<SHARES-COMMON-PRIOR> 1569
<ACCUMULATED-NII-CURRENT> (28)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (764)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1543
<NET-ASSETS> 18939
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<OTHER-INCOME> 473
<EXPENSES-NET> 101
<NET-INVESTMENT-INCOME> 373
<REALIZED-GAINS-CURRENT> 26
<APPREC-INCREASE-CURRENT> 504
<NET-CHANGE-FROM-OPS> 902
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (373)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> (7)
<NUMBER-OF-SHARES-SOLD> 383
<NUMBER-OF-SHARES-REDEEMED> 107
<SHARES-REINVESTED> 16
<NET-CHANGE-IN-ASSETS> 3388
<ACCUMULATED-NII-PRIOR> 0
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<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
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<GROSS-EXPENSE> 101
<AVERAGE-NET-ASSETS> 16716
<PER-SHARE-NAV-BEGIN> 9.73
<PER-SHARE-NII> .224
<PER-SHARE-GAIN-APPREC> .294
<PER-SHARE-DIVIDEND> (.224)
<PER-SHARE-DISTRIBUTIONS> (.004)
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<PER-SHARE-NAV-END> 10.02
<EXPENSE-RATIO> 1.25
<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> 6-MOS
<FISCAL-YEAR-END> JAN-31-1997
<PERIOD-END> JUL-31-1997
<INVESTMENTS-AT-COST> 9861
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<SENIOR-EQUITY> 0
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<SHARES-COMMON-STOCK> 995
<SHARES-COMMON-PRIOR> 1061
<ACCUMULATED-NII-CURRENT> 8
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<ACCUMULATED-NET-GAINS> 134
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 528
<NET-ASSETS> 10397
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 307
<EXPENSES-NET> 66
<NET-INVESTMENT-INCOME> 240
<REALIZED-GAINS-CURRENT> 54
<APPREC-INCREASE-CURRENT> 300
<NET-CHANGE-FROM-OPS> 594
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (236)
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<SHARES-REINVESTED> 12
<NET-CHANGE-IN-ASSETS> (122)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
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<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 67
<AVERAGE-NET-ASSETS> 10427
<PER-SHARE-NAV-BEGIN> 10.08
<PER-SHARE-NII> .233
<PER-SHARE-GAIN-APPREC> .347
<PER-SHARE-DIVIDEND> (.230)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.43
<EXPENSE-RATIO> 1.29
<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> 6-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-END> JUL-31-1997
<INVESTMENTS-AT-COST> 146194
<INVESTMENTS-AT-VALUE> 157768
<RECEIVABLES> 542
<ASSETS-OTHER> 29
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 158338
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 693
<TOTAL-LIABILITIES> 693
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 147748
<SHARES-COMMON-STOCK> 14099
<SHARES-COMMON-PRIOR> 11584
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 57
<ACCUMULATED-NET-GAINS> (1619)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 11574
<NET-ASSETS> 157645
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 4622
<EXPENSES-NET> 752
<NET-INVESTMENT-INCOME> 3870
<REALIZED-GAINS-CURRENT> (753)
<APPREC-INCREASE-CURRENT> 8584
<NET-CHANGE-FROM-OPS> 11701
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 3870
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 32
<NUMBER-OF-SHARES-SOLD> 3272
<NUMBER-OF-SHARES-REDEEMED> 878
<SHARES-REINVESTED> 120
<NET-CHANGE-IN-ASSETS> 34622
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (866)
<OVERDISTRIB-NII-PRIOR> 25
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 752
<AVERAGE-NET-ASSETS> 138361
<PER-SHARE-NAV-BEGIN> 10.62
<PER-SHARE-NII> 0.3
<PER-SHARE-GAIN-APPREC> 0.562
<PER-SHARE-DIVIDEND> 0.3
<PER-SHARE-DISTRIBUTIONS> 0.002
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.18
<EXPENSE-RATIO> 1.81
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 150
<NAME> FLORIDA INSURED MUNICIPALS PORTFOLIO
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-31-1997
<PERIOD-END> JUL-31-1997
<INVESTMENTS-AT-COST> 22448
<INVESTMENTS-AT-VALUE> 24289
<RECEIVABLES> 631
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<TOTAL-ASSETS> 24923
<PAYABLE-FOR-SECURITIES> 489
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 680
<TOTAL-LIABILITIES> 1169
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 22041
<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> 1713
<NET-ASSETS> 23755
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 675
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 675
<REALIZED-GAINS-CURRENT> 55
<APPREC-INCREASE-CURRENT> 704
<NET-CHANGE-FROM-OPS> 1434
<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> (449)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 21
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 57
<AVERAGE-NET-ASSETS> 23595
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
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<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> 151
<NAME> HAWAII MUNICIPALS PORTFOLIO
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-31-1997
<PERIOD-END> JUL-31-1997
<INVESTMENTS-AT-COST> 17950
<INVESTMENTS-AT-VALUE> 19605
<RECEIVABLES> 207
<ASSETS-OTHER> 4
<OTHER-ITEMS-ASSETS> 107
<TOTAL-ASSETS> 19923
<PAYABLE-FOR-SECURITIES> 503
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 8
<TOTAL-LIABILITIES> 511
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 17829
<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> 1583
<NET-ASSETS> 19412
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 486
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 486
<REALIZED-GAINS-CURRENT> 26
<APPREC-INCREASE-CURRENT> 517
<NET-CHANGE-FROM-OPS> 1030
<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> 3396
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 13
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 42
<AVERAGE-NET-ASSETS> 16716
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
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<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> 153
<NAME> KANSAS MUNICIPALS PORTFOLIO
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-31-1997
<PERIOD-END> JUL-31-1997
<INVESTMENTS-AT-COST> 11265
<INVESTMENTS-AT-VALUE> 11868
<RECEIVABLES> 216
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<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 12089
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 450
<TOTAL-LIABILITIES> 450
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 11064
<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> 575
<NET-ASSETS> 11639
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 342
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 342
<REALIZED-GAINS-CURRENT> 60
<APPREC-INCREASE-CURRENT> 335
<NET-CHANGE-FROM-OPS> 737
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
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<NUMBER-OF-SHARES-SOLD> 0
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<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (97)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 9
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 34
<AVERAGE-NET-ASSETS> 11662
<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
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-END> JUL-31-1997
<INVESTMENTS-AT-COST> 216108
<INVESTMENTS-AT-VALUE> 233785
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<OTHER-ITEMS-ASSETS> 2519
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<TOTAL-LIABILITIES> 917
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<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> 17398
<NET-ASSETS> 238773
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 7584
<OTHER-INCOME> 0
<EXPENSES-NET> 726
<NET-INVESTMENT-INCOME> 6857
<REALIZED-GAINS-CURRENT> (1119)
<APPREC-INCREASE-CURRENT> 12842
<NET-CHANGE-FROM-OPS> 18580
<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> 58073
<ACCUMULATED-NII-PRIOR> 0
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<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 621
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 741
<AVERAGE-NET-ASSETS> 205323
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
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<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0.71
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<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
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<SENIOR-LONG-TERM-DEBT> 0
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<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
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<NUMBER-OF-SHARES-SOLD> 566
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<SHARES-REINVESTED> 34
<NET-CHANGE-IN-ASSETS> 3325
<ACCUMULATED-NII-PRIOR> 0
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<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)
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<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> 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
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<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 15601
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<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
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<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
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<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)
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<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> 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
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<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
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<ACCUM-APPREC-OR-DEPREC> 228
<NET-ASSETS> 10492
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 634
<OTHER-INCOME> 0
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<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)
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<NUMBER-OF-SHARES-REDEEMED> 207
<SHARES-REINVESTED> 24
<NET-CHANGE-IN-ASSETS> (290)
<ACCUMULATED-NII-PRIOR> 0
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<GROSS-EXPENSE> 129
<AVERAGE-NET-ASSETS> 10712
<PER-SHARE-NAV-BEGIN> 10.32
<PER-SHARE-NII> .479
<PER-SHARE-GAIN-APPREC> (.238)
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<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> 9
<NAME> EV MARATHON HIGH YIELD MUNICIPALS FUND
<MULTIPLIER> 1000
<S> <C>
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</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
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<S> <C>
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</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<MULTIPLIER> 1000
<S> <C>
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<MULTIPLIER> 1000
<S> <C>
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</TABLE>
<TABLE> <S> <C>
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<S> <C>
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</TABLE>
