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As filed with the Securities and Exchange Commission on May 30, 1996
File No. 811-7289
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940 [X]
AMENDMENT NO. 1 [X]
HIGH YIELD MUNICIPALS PORTFOLIO
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(Exact Name of Registrant as Specified in Charter)
24 Federal Street
Boston, Massachusetts 02110
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(Address of Principal Executive Offices)
Registrant's Telephone Number, including Area Code: (617) 482-8260
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Thomas Otis
24 Federal Street, Boston, Massachusetts 02110
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(Name and Address of Agent for Service)
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EXPLANATORY NOTE
This Registration Statement, as amended, has been filed by the
Registrant pursuant to Section 8(b) of the Investment Company Act of 1940,
as amended. However, interests in the Registrant have not been registered
under the Securities Act of 1933, as amended (the "1933 Act"), because
such interests will be issued solely in private placement transactions
that do not involve any "public offering" within the meaning of Section
4(2) of the 1933 Act. Investments in the Registrant may be made only by
U.S. and foreign investment companies, common or commingled trust funds,
or similar organizations or entities that are "accredited investors"
within the meaning of Regulation D under the 1933 Act. This Registration
Statement, as amended, does not constitute an offer to sell, or the
solicitation of an offer to buy, any interest in the Registrant.
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PART A
Responses to Items 1 through 3 and 5A have been omitted pursuant
to Paragraph 4 of Instruction F of the General Instructions to Form N-1A.
Item 4. General Description of Registrant
High Yield Municipals Portfolio (the "Portfolio") is a non-
diversified, open-end management investment company which was organized as
a trust under the laws of the State of New York on May 1, 1995. Interests
in the Portfolio are issued solely in private placement transactions that
do not involve any "public offering" within the meaning of Section 4(2) of
the Securities Act of 1933, as amended (the "1933 Act"). Investments in
the Portfolio may be made only by U.S. and foreign investment companies,
common or commingled trust funds, or similar organizations or entities
that are "accredited investors" within the meaning of Regulation D under
the 1933 Act. This Registration Statement, as amended, does not
constitute an offer to sell, or the solicitation of an offer to buy, any
"security" within the meaning of the 1933 Act.
The Portfolio's investment objective is to provide high current
income exempt from regular federal income tax. The investment objective
and nonfundamental policies of the Portfolio may be changed by the
Trustees without a vote of the investors in the Portfolio; as a matter of
policy, the Trustees would not materially change the Portfolio's
investment objective without investor approval. The Portfolio may not be
appropriate for investors who cannot assume the greater risk of capital
depreciation or loss inherent in seeking higher tax-exempt yields.
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."
Additional information about the investment policies of the
Portfolio appears in Part B. The Portfolio is not intended to be a
complete investment program, and a prospective investor should take into
account its objectives and other investments when considering the purchase
of an interest in the Portfolio. The Portfolio cannot assure achievement
of its investment objective.
Investment Policies and Risks
The Portfolio seeks to achieve its investment objective by
investing 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 ("S&P") or Fitch Investors Service,
Inc. ("Fitch"), or that are unrated but determined by the Portfolio's
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investment adviser, Boston Management and Research (the "Investment
Adviser" or "BMR"), to be of comparable quality. For a description of the
ratings assigned by the rating agencies, see Appendix B to this Part A.
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. Because 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.
At times, the Portfolio may, for temporary defensive purposes,
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 bonds and revenue bonds.
General obligation bonds are backed by the taxing power of the issuing
municipality. Revenue bonds are backed by the revenues of a project or
facility. Municipal notes include bond anticipation, tax anticipation 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.
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Distributions to corporate investors of interest income from
certain types of municipal obligations may be subject to the federal
alternative minimum tax (the "AMT"). The Portfolio 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 of state and local
housing finance authorities, municipal utilities systems or public housing
authorities; obligations for hospitals or life care facilities; or
industrial development or pollution control bonds issued for electric
utility systems, steel companies, paper companies or other purposes. This
may make the Portfolio more susceptible to adverse economic, political or
regulatory occurrences affecting a particular category of issuer. For
example, health-care related issuers are susceptible to medicaid
reimbursement policies, and national and state health care legislation.
As the Portfolio's concentration in the securities of a particular
category of issuer increases, so does the potential for fluctuation in the
net asset value of the Portfolio's interests.
Non-Diversified Status. As a "non-diversified" investment company under
the Investment Company Act of 1940 (the "1940 Act"), the Portfolio may
invest, with respect to 50% of its total assets, more than 5% (but not
more than 25%) of its total assets in the securities of any issuer. The
Portfolio is likely to invest a greater percentage of its assets in the
securities of a single issuer than would a diversified fund. Therefore,
the Portfolio is more susceptible to any single adverse economic or
political occurrence or development affecting issuers of municipal
obligations.
Other Investment Practices
The Portfolio may engage in the following investment practices,
some of which may be considered to involve "derivative" instruments
because they derive their value from another instrument, security or
index. In addition, the Portfolio may temporarily borrow up to 5% of the
value of its total assets to satisfy redemption requests or settle
securities transactions.
When-Issued Securities. The Portfolio may purchase securities on
a "when-issued" basis, which means that payment and delivery occur on a
future settlement date. The price and yield of such securities are
generally fixed on the date of commitment to purchase. However, the
market value of the securities may fluctuate prior to delivery and upon
delivery the securities may be worth more or less than the Portfolio
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agreed to pay for them. The Portfolio may also purchase instruments that
give it 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 that generally reduce or, in the
extreme, eliminate the interest paid to the Portfolio when short-term
interest rates rise, and increase the interest paid to the Portfolio when
short-term interest rates fall. Inverse floaters have varying degrees of
liquidity, and the market for these securities is thin and relatively
volatile. These securities tend to underperform the market for fixed rate
bonds in a rising interest rate environment, but tend to outperform the
market for fixed rate bonds when interest rates decline. Shifts in 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.
Additional Risk Considerations
Investors should carefully consider their ability to assume the
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risks of owning interests of a mutual fund that invests in below
investment grade municipal obligations (commonly known as "junk bonds")
before making an investment in the Portfolio. 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 Portfolio more volatile and could limit the
Portfolio's ability to sell its securities at prices approximating the
values the Portfolio has placed on such securities. It is possible that
legislation may be adopted in the future limiting the ability of certain
financial institutions to purchase such securities; such legislation may
adversely affect the liquidity of such securities. In the absence of a
liquid trading market for securities held by it, the Portfolio may be
unable at times to establish the fair market value of such securities.
The rating assigned to a security by a rating agency does not reflect an
assessment of the volatility of the security's market value or of the
liquidity of an investment in the security. Credit ratings are based
largely on the issuer's historical financial condition and the rating
agency's investment analysis at the timing of rating, and the rating
assigned to any particular security is not necessarily a reflection of the
issuer's current financial condition. Credit quality in the high yield,
high risk municipal bond market can change from time to time, and recently
issued credit ratings may not fully reflect the actual risks posed by a
particular high yield security.
The net asset value of the Portfolio 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 existing 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 (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 any fixed-income security and in the ability
of an issuer to make payments of interest and principal may also affect
the value of these 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
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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 some 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 were to
redeem 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 and distribute income from zero-coupon bonds on a
current basis, even though it does not receive that income currently in
cash. Thus, the Portfolio may have to sell other investments to obtain
cash needed to make income distributions.
The Portfolio may invest in municipal leases, and participations
in municipal leases. The obligations 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
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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 Portfolio has adopted certain fundamental investment
restrictions that are enumerated in detail in Part B and that may
not be changed unless authorized by an investor vote. Except for
such enumerated restrictions and as otherwise indicated in this
Part A, the investment objective and policies of the Portfolio
are not fundamental policies and accordingly may be changed by
the Trustees of the Portfolio without obtaining the approval of
the investors in the Portfolio. If any changes were made in the
Portfolio's investment objective, the Portfolio might have an
investment objective different from the objective that an
investor considered appropriate at the time the investor became
an interestholder in the Portfolio.
Item 5. Management of the Portfolio
The Portfolio is organized as a trust under the laws of the State
of New York. The Portfolio intends to comply with all applicable federal
and state securities laws.
Investment Adviser. The Portfolio engages BMR, a wholly-owned
subsidiary of Eaton Vance Management ("Eaton Vance"), as its investment
adviser. Eaton Vance, its affiliates and its predecessor companies have
been managing assets of individuals and institutions since 1924 and
managing investment companies since 1931.
Acting under the general supervision of the Board of Trustees of
the Portfolio, BMR manages the Portfolio's investments and affairs. BMR
also furnishes for the use of the Portfolio office space and all necessary
office facilities, equipment and personnel for servicing the investments
of the Portfolio. Under its investment advisory agreement with the
Portfolio, BMR receives a monthly advisory fee equal to the aggregate of:
(a) a daily asset-based fee computed by applying the annual
asset rate applicable to that portion of the total daily
net assets in each Category as indicated below, plus
(b) a daily income-based fee computed by applying the daily
income rate applicable to that portion of the total daily
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gross income (which portion shall bear the same
relationship to the total daily gross income on such day
as that portion of the total daily net assets in the same
Category bears to the total daily net assets on such day)
in each Category as indicated below:
Annual Daily
Asset Income
Category Daily Net Assets Rate Rate
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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, 1996, the Portfolio had net assets of
$72,077,467. 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 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.
BMR or Eaton Vance acts as investment adviser to investment
companies and various individual and institutional clients with assets
under management of over $16 billion. Eaton Vance is a wholly-owned
subsidiary of Eaton Vance Corp., a publicly-held holding company, which
through its subsidiaries and affiliates engages primarily in investment
management, administration and marketing activities.
Thomas M. Metzold has acted as the portfolio manager of the
Portfolio since it commenced operations. He has been a Vice President of
Eaton Vance since 1991 and of BMR since 1992.
Municipal obligations are normally traded on a net basis (without
commission) through broker-dealers and banks acting for their own account.
Such firms attempt to profit from such transactions by buying at the bid
price and selling at the higher asked price of the market, and the
difference is customarily referred to as the spread. In selecting firms
which will execute portfolio transactions, BMR judges their professional
ability and quality of service and uses its best efforts to obtain
execution at prices which are advantageous to the Portfolio and at
reasonably competitive spreads. Subject to the foregoing, BMR may
consider sales of shares of other investment companies sponsored by BMR or
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Eaton Vance as a factor in the selection of firms to execute portfolio
transactions. The Portfolio and BMR have adopted Codes of Ethics relating
to personal securities transactions. The Codes permit Eaton Vance
personnel to invest in securities (including securities that may be
purchased or held by the Portfolio) for their own amounts, subject to
certain pre-clearance, reporting and other restrictions and procedures
contained in such Codes.
The Portfolio is responsible for the payment of all of its costs
and expenses not expressly stated to be payable by BMR under the
investment advisory agreement. Such costs and expenses to be borne by the
Portfolio include, without limitation: custody fees and expenses,
including those incurred for determining net asset value and keeping
accounting books and records; expenses of pricing and valuation services;
membership dues in investment company organizations; expenses of
acquiring, holding and disposing of securities and other investments; fees
and expenses of registering under the securities laws and the governmental
fees; expenses of reporting to investors; proxy statements, and other
expenses of investors' meetings; insurance premiums, printing and mailing
expenses; interest, taxes and corporate fees; legal and accounting
expenses; compensation and expenses of Trustees not affiliated with BMR or
Eaton Vance; and investment advisory fees. The Portfolio will also bear
expenses incurred in connection with litigation in which the Portfolio is
a party and any legal obligation to indemnify its officers and Trustees
with respect thereto.
Item 6. Capital Stock and Other Securities
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. Under the Declaration of Trust, the Trustees are authorized to
issue interests in the Portfolio. Each investor is entitled to a vote in
proportion to the amount of its investment in the Portfolio. Investments
in the Portfolio may not be transferred, but an investor may withdraw all
or any portion of its investment at any time at net asset value.
Investors in the Portfolio will each be liable for all obligations of the
Portfolio. However, the risk of an investor in the Portfolio incurring
financial loss on account of such liability is limited to circumstances in
which both inadequate insurance exists and the Portfolio itself is unable
to meet its obligations.
The Declaration of Trust provides that the Portfolio will
terminate 120 days after the complete withdrawal of any investor in the
Portfolio unless either the remaining investors, by unanimous vote at a
meeting of such investors, or a majority of the Trustees of the Portfolio,
by written instrument consented to by all investors, agree to continue the
business of the Portfolio. This provision is consistent with the
treatment of the Portfolio as a partnership for federal income tax
purposes.
Investments in the Portfolio have no preemptive or conversion
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rights and are fully paid and nonassessable by the Portfolio, except as
set forth above. The Portfolio is not required and has no current
intention to hold annual meetings of investors, but the Portfolio may hold
special meetings of investors when in the judgment of the Trustees it is
necessary or desirable to submit matters for an investor vote. Changes in
fundamental policies or restrictions will be submitted to investors for
approval. The investment objective and all nonfundamental investment
policies of the Portfolio may be changed by the Trustees of the Portfolio
without obtaining the approval of the investors in the Portfolio.
Investors have under certain circumstances (e.g., upon application and
submission of certain specified documents to the Trustees by a specified
number of investors) the right to communicate with other investors in
connection with requesting a meeting of investors for the purpose of
removing one or more Trustees. Any Trustee may be removed by the
affirmative vote of holders of two-thirds of the interest in the
Portfolio.
As of May 1, 1996, EV Marathon High Yield Municipals Fund and EV
Traditional High Yield Municipals Fund owned approximately 63.1% and
36.8%, respectively, of the outstanding voting interests in the Portfolio.
The Portfolio's net asset value is determined each day on which
the New York Stock Exchange (the "Exchange") is open for trading
("Portfolio Business Day"). This determination is made each Portfolio
Business Day as of the close of regular trading on the Exchange (currently
4:00 p.m., New York time) (the "Portfolio Valuation Time").
Each investor in the Portfolio may add to or reduce its
investment in the Portfolio on each Portfolio Business Day as of the
Portfolio Valuation Time. The value of each investor's interest in the
Portfolio will be determined by multiplying the net asset value of the
Portfolio by the percentage, determined on the prior Portfolio Business
Day, which represents that investor's share of the aggregate interest in
the Portfolio on such prior day. Any additions or withdrawals for the
current Portfolio Business Day will then be recorded. Each investor's
percentage of the aggregate interest in the Portfolio will then be
recomputed as a percentage equal to a fraction (i) the numerator of which
is the value of such investor's investment in the Portfolio as of the
Portfolio Valuation Time on the prior Portfolio Business Day plus or
minus, as the case may be, the amount of any additions to or withdrawals
from the investor's investment in the Portfolio on the current Portfolio
Business Day and (ii) the denominator of which is the aggregate net asset
value of the Portfolio as of the Portfolio Valuation Time on the prior
Portfolio Business Day plus or minus, as the case may be, the amount of
the net additions to or withdrawals from the aggregate investment in the
Portfolio on the current Portfolio Business Day by all investors in the
Portfolio. The percentage so determined will then be applied to determine
the value of the investor's interest in the Portfolio for the current
Portfolio Business Day.
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The Portfolio will allocate at least annually among its investors
its net taxable (if any) and tax-exempt investment income, net realized
capital gains, and any other items of income, gain, loss, deduction or
credit. The Portfolio's net investment income consists of all income
accrued on the Portfolio's assets, less all actual and accrued expenses of
the Portfolio, determined in accordance with generally accepted accounting
principles.
Under the anticipated method of operation of the Portfolio, the
Portfolio will not be subject to any federal income tax. (See Part B,
Item 20.) However, each investor in the Portfolio will take into account
its allocable share of the Portfolio's ordinary income and capital gain in
determining its federal income tax liability; and each such investor that
intends to qualify as a regulated investment company also will take into
account its share of the Portfolio's tax-exempt income. The determination
of each such share will be made in accordance with the governing
instruments of the Portfolio which are intended to comply with the
requirements of the Code and the regulations promulgated thereunder.
It is intended that the Portfolio's assets and income will be
managed in such a way that an investor in the Portfolio that seeks to
qualify as a regulated investment company under the Code will be able to
satisfy the requirements for such qualification.
Item 7. Purchase of Interests in the Portfolio
Interests in the Portfolio are issued solely in private placement
transactions that do not involve any "public offering" within the meaning
of Section 4(2) of the 1933 Act. See "General Description of Registrant"
above.
An investment in the Portfolio will be made without a sales load.
All investments received by the Portfolio will be effected as of the next
Portfolio Valuation Time. The net asset value of the Portfolio is
determined at the Portfolio Valuation Time on each Portfolio Business Day.
The Portfolio will be closed for business and will not determine its net
asset value on the following business holidays: New Year's Day,
Presidents' Day, Good Friday (a New York Stock Exchange holiday), Memorial
Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. The
Portfolio's net asset value is computed in accordance with procedures
established by the Portfolio's Trustees.
The Portfolio's net asset value is determined by Investors Bank &
Trust Company (as custodian and agent for the Portfolio) in the manner
authorized by the Trustees of the Portfolio. The net asset value is
computed by subtracting the liabilities of the Portfolio from the value of
its total assets. Municipal obligations will normally be valued on the
basis of valuations furnished by a pricing service. For further
information regarding the valuation of the Portfolio's assets, see Part B,
Item 19.
There is no minimum initial or subsequent investment in the
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Portfolio. The Portfolio reserves the right to cease accepting
investments at any time or to reject any investment order.
The placement agent for the Portfolio is Eaton Vance
Distributors, Inc. ("EVD"). The principal business address of EVD is 24
Federal Street, Boston, Massachusetts 02110. EVD receives no compensation
for serving as the placement agent for the Portfolio.
Item 8. Redemption or Decrease of Interest
An investor in the Portfolio may withdraw all of (redeem) or any
portion of (decrease) its interest in the Portfolio if a withdrawal
request in proper form is furnished by the investor to the Portfolio. All
withdrawals will be effected as of the next Portfolio Valuation Time. The
proceeds of a withdrawal will be paid by the Portfolio normally on the
Portfolio Business Day the withdrawal is effected, but in any event within
seven days. The Portfolio reserves the right to pay the proceeds of a
withdrawal (whether a redemption or decrease) by a distribution in kind of
portfolio securities (instead of cash). The securities so distributed
would be valued at the same amount as that assigned to them in calculating
the net asset value for the interest (whether complete or partial) being
withdrawn. If an investor received a distribution in kind upon such
withdrawal, the investor could incur brokerage and other charges in
converting the securities to cash. The Portfolio has filed with the
Securities and Exchange Commission (the "Commission") a notification of
election on Form N-18F-1 committing to pay in cash all requests for
withdrawals by any investor, limited in amount with respect to such
investor during any 90 day period to the lesser of (a) $250,000 or (b) 1%
of the net asset value of the Portfolio at the beginning of such period.
Investments in the Portfolio may not be transferred.
The right of any investor to receive payment with respect to any
withdrawal may be suspended or the payment of the withdrawal proceeds
postponed during any period in which the Exchange is closed (other than
weekends or holidays) or trading on the Exchange is restricted or, to the
extent otherwise permitted by the 1940 Act, if an emergency exists, or
during any other period permitted by order of the Commission for the
protection of investors.
Item 9. Pending Legal Proceedings
Not applicable.
A-12
<PAGE>
APPENDIX A
High Yield Municipals Portfolio
Asset Composition Information
For the Period from the Start of Business,
August 7, 1995, to January 31, 1996
RATINGS OF RATINGS OF
MUNICIPAL BONDS MUNICIPAL BONDS
BY MOODY'S BY S&P
Percent of Percent of
Net Assets Net Assets
---------- ----------
Aaa . . . . . . . . 3.99 AAA . . . . . . . . 1.41
Aa2 . . . . . . . . 4.93 A+ . . . . . . . . 4.93
Baa1 . . . . . . . 9.92 A- . . . . . . . . 4.20
Baa2 . . . . . . . 9.78 BBB . . . . . . . . 5.78
Baa3 . . . . . . . 7.46 BBB- . . . . . . . 5.80
Ba1 . . . . . . . . 3.57 BB+ . . . . . . . . 9.87
Ba2 . . . . . . . . 1.03 BB . . . . . . . . 5.65
Ba3 . . . . . . . . 3.15 BB- . . . . . . . . 3.15
B1 . . . . . . . . 2.36 Unrated . . . . . . 59.21
Unrated . . . . . 53.81 -----
----- 100.00%
100.00%
The chart above indicates the weighted average composition of the
securities held by the Portfolio for the period from the start of
business, August 7, 1995, to January 31, 1996, with the debt securities
rated by Moody's and S&P separated into the indicated categories. The
above was calculated on a dollar weighted basis and was computed as at the
end of each month during the period. 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
the Appendix B to this Part A.
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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.
---------------
+ The ratings indicated herein are believed to be the most recent ratings
available at the date of this Registration Statement for the securities
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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.
Caa: Bonds which are rated Caa are of poor standing. Such issues may be
in default or there may be present elements of danger with respect to
principal or interest.
Ca: Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings.
C: Bonds which are rated C are the lowest rated class of bonds, and issues
so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
Standard & Poor's
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 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
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exposure to adverse business, financial, or economic conditions which
could lead to inadequate capacity to meet timely interest and principal
payments. The BB rating category is also used for debt subordinated to
senior debt that is assigned an actual or implied BBB- rating.
B: Debt rated B has a greater vulnerability to default but currently has
the capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The B rating category is
also used for debt subordinated to senior debt that is assigned an actual
or implied BB or BB- rating.
CCC: Debt rated CCC has a currently identifiable vulnerability to default,
and is dependent upon favorable business, financial, and economic
conditions to meet timely payment of interest and repayment of principal.
In the event of adverse business, financial, or economic conditions, it is
not likely to have the capacity to pay interest and repay principal. The
CCC rating category is also used for debt subordinated to senior debt that
is assigned an actual or implied B or B- rating.
CC: The rating CC is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC debt rating.
C: The rating C is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC- debt rating. The C rating may
be used to cover a situation where a bankruptcy petition has been filed,
but debt service payments are continued.
C1: The Rating C1 is reserved for income bonds on which no interest is
being paid.
D: Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due even
if the applicable grace period has not expired, unless S&P believes that
such payments will be made during such grace period. The D rating also
will be used upon the filing of a bankruptcy petition if debt service
payments are jeopardized.
Plus (+) or Minus (-): The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the
major rating categories.
Fitch Investors Service, Inc.
Investment Grade Bond Ratings
AAA: Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest
and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
AA: Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is
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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.
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* * * * * * * *
Note: 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.
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PART B
Item 10. Cover Page
Not applicable.
Item 11. Table of Contents
Page
----
General Information and History . . . . . . . . . . . . B-1
Investment Objectives and Policies . . . . . . . . . . . B-1
Management of the Portfolio . . . . . . . . . . . . . . B-14
Control Persons and Principal Holder of Securities . . . B-17
Investment Advisory and Other Services . . . . . . . . . B-18
Brokerage Allocation and Other Practices . . . . . . . . B-20
Capital Stock and Other Securities . . . . . . . . . . . B-23
Purchase, Redemption and Pricing of Securities . . . . . B-25
Tax Status . . . . . . . . . . . . . . . . . . . . . . . B-25
Underwriters . . . . . . . . . . . . . . . . . . . . . . B-29
Calculation of Performance Data . . . . . . . . . . . . . B-29
Financial Statements . . . . . . . . . . . . . . . . . . B-29
Appendix . . . . . . . . . . . . . . . . . . . . . . . . a-1
Item 12. General Information and History
Not applicable.
Item 13. Investment Objectives and Policies
Part A contains additional information about the investment
objective and policies of the High Yield Municipals Portfolio (the
"Portfolio"). This Part B should be read in conjunction with Part A.
Capitalized terms used in this Part B and not otherwise defined have the
meanings given them in Part A.
Municipal Obligations
Municipal obligations are issued to obtain funds for various public
and private purposes. Such obligations include bonds, as well as tax-
exempt commercial paper, project notes and municipal notes such as tax,
revenue and bond anticipation notes of short maturity, generally less than
three years. In general, there are three categories of municipal
obligations the interest on which is exempt from federal income tax and is
not a tax preference item for purposes of the federal alternative minimum
tax: (i) certain "public purpose" obligations (whenever issued), which
include obligations issued directly by state and local governments or
their agencies to fulfill essential governmental functions; (ii) certain
obligations issued before August 8, 1986 for the benefit of non-
governmental persons or entities; and (iii) certain "private activity
bonds" issued after August 7, 1986, which include "qualified Section
501(c)(3) bonds" or refundings of certain obligations included in the
second category. In assessing the federal income tax treatment of
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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"
bonds and "revenue" bonds.
Interest on certain "private activity bonds" issued after August 7,
1986 is exempt from regular federal income tax, but such interest is
treated as a tax preference item which could subject the recipient to or
increase the recipient's liability for the federal alternative minimum
tax. It should be noted that, for a corporate holder (other than a
regulated investment company) of an interest in the Portfolio, interest on
all municipal obligations (whenever issued) is included in "adjusted
current earnings" for purposes of the federal alternative minimum tax as
applied to corporations (only to the extent not already included in
alternative minimum taxable income as income attributable to private
activity bonds).
Market discount on long-term tax-exempt municipal obligations (i.e.,
obligations with a term of more than one year) purchased in the secondary
market after April 30, 1993 is taxable as ordinary income. A long-term
debt obligation is generally treated as acquired at a market discount if
the secondary market purchase price is less than (i) the stated principal
amount payable at maturity, in the case of an obligation that does not
have original issue discount, or (ii) in the case of an obligation that
does have original issue discount, the sum of the issue price and any
original issue discount that accrued before the obligation was purchased,
subject to a de minimus 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
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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
normally 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, that may
be enacted by Congress or state legislatures extending the time for
payment of principal or interest, or both, or imposing other constraints
upon enforcement of such obligations. There is also the possibility that
as a result of litigation or other conditions the power or ability of any
person or entity to pay when due principal of and interest on a municipal
obligation may be materially affected. There have been recent instances
of defaults and bankruptcies involving municipal obligations that were not
foreseen by the financial and investment communities. The Portfolio will
take whatever action it considers appropriate in the event of anticipated
financial difficulties, default or bankruptcy of either the issuer of any
municipal obligation or of the underlying source of funds for debt
service. Such action may include retaining the services of various
persons or firms (including affiliates of the Investment Adviser) to
evaluate or protect any real estate, facilities or other assets securing
any such obligation or acquired by the Portfolio as a result of any such
event, and the Portfolio may also manage (or engage other persons to
manage) or otherwise deal with any real estate, facilities or other assets
so acquired. The Portfolio anticipates that real estate consulting and
management services may be required with respect to properties securing
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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 that they
undertake to rate. It should be emphasized, however, that ratings are
based on judgment and are not absolute standards of quality.
Consequently, municipal obligations with the same maturity, coupon and
rating may have different yields while obligations of the same maturity
and coupon with different ratings may have the same yield. In addition,
the market price of 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
Obligations of Particular Types of Issuers. The Portfolio may
invest 25% or more of its total assets in municipal obligations of the
same type. There could be economic, business or political developments
which might affect all municipal obligations of a similar type. In
particular, investments in industrial revenue bonds might involve (without
limitation) the following risks.
Hospital bond ratings are often based on feasibility studies which
contain projections of expenses, revenues and occupancy levels. Among the
influences affecting a hospital's gross receipts and net income available
to service its debt are demand for hospital services, the ability of the
hospital to provide the services required, management capabilities,
economic developments in the service area, efforts by insurers and
government agencies to limit rates and expenses, confidence in the
hospital, service area economic developments, competition, availability
and expense of malpractice insurance, Medicaid and Medicare funding and
possible federal legislation limiting the rates of increase of hospital
charges.
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
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for the elderly which offer residents the independence of a condominium
life style and, if needed, the comprehensive care of nursing home
services. Bonds to finance these facilities have been issued by various
state industrial development authorities. Because the bonds are normally
secured only by the revenues of each facility and not by state or local
government tax payments, they are subject to a wide variety of risks.
Primarily, the projects must maintain adequate occupancy levels to be able
to provide revenues sufficient to meet debt service payments. Moreover,
because a portion of housing, medical care and other services may be
financed by an initial deposit, it is important that the facility maintain
adequate financial reserves to secure estimated actuarial liabilities.
The ability of management to accurately forecast inflationary cost
pressures is an important factor in this process. The facilities may also
be affected adversely by regulatory cost restrictions applied to health
care delivery in general, particularly state regulations or changes in
Medicare and Medicaid payments or qualifications, or restrictions imposed
by medical insurance companies. They may also face competition from
alternative health care or conventional housing facilities in the private
or public sector.
Obligations of Puerto Rico, the U.S. Virgin Islands and Guam.
Subject to the Portfolio's investment policies as set forth in Part A, the
Portfolio may invest in the obligations of the governments of Puerto Rico,
the U.S. Virgin Islands and Guam (the "Territories"). Accordingly, the
Portfolio may be adversely affected by local political and economic
conditions and developments within the Territories affecting the issuers
of such obligations.
Puerto Rico has a diversified economy dominated by the manufacturing
and service sectors. The three largest sectors of the economy (as a
percentage of employment) are services (47%), government (22%) and
manufacturing (16.4%). These three sectors represent 39%, 11% and 39%,
respectively, of the gross domestic product. The service sector is the
fastest growing, while the government and manufacturing sectors have been
stagnant for the past five years. The North American Free Trade Agreement
(NAFTA), which became effective January 1, 1994, could lead to the loss of
Puerto Rico's lower salaried or labor intensive jobs to Mexico. The
November 1995 unemployment rate was 13.4%.
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. A reduction of
the tax benefits to those U.S. companies with operations in Puerto Rico
may lead to slower growth in the future. There can be no assurance that
these modifications will not lead to a weakened economy, a lower rating on
Puerto Rico's debt or lower prices for Puerto Rican bonds that may be held
by the Portfolio.
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Puerto Rico's financial reporting was first conformed to generally
accepted accounting principles in fiscal 1990. Nonrecurring revenues have
been used frequently to balance recent years' budgets. In November, 1993
Puerto Ricans voted on whether they wished to retain their Commonwealth
status, become a state or establish an independent nation. Puerto Ricans
voted to retain Commonwealth status, leaving intact the current
relationship with the federal government. There can be no assurance that
the statehood issue will not be brought to a vote in the future. A
successful statehood vote in Puerto Rico would then require ratification
by the U.S. Congress.
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. The tourism industry is economically
sensitive and would likely be adversely affected by a recession in either
the United States or Europe. In September 1995, St. Thomas was hit by a
hurricane and sustained extensive damage. The longer term impact on the
tourism industry is not yet known. There can be no assurance that the
market for USVI bonds will not be affected. In general, hurricanes and
civil unrest have and will continue to have an adverse affect on the
tourism industry.
An important component of the USVI revenue base is the federal
excise tax on rum exports. Tax revenues rebated by the federal government
to the USVI provide the primary security of many outstanding USVI bonds.
Because more than 90% of the rum distilled in the USVI is distilled at one
plant, any interruption in its operations (as occurred after Hurricane
Hugo in 1989) would adversely affect these revenues. Consequently, there
can be no assurance that rum exports to the United States and the rebate
of tax revenues to the USVI will continue at their present levels. The
preferential tariff treatment the USVI rum industry currently enjoys could
be reduced under NAFTA. Increased competition from Mexican rum producers
could reduce USVI rum imported to the U.S., decreasing excise tax revenues
generated. The USVI experienced budget deficits in 1989 and 1990: in 1989
due to wage settlements with the unionized government employees, and in
1990 as a result of Hurricane Hugo. The USVI recorded a small surplus in
fiscal year 1991. At the end of fiscal 1992, the last year for which
results are available, the USVI had an unreserved General Fund deficit of
approximately $8.31 million, or approximately 2.1% of expenditures. In
order to close a forecasted fiscal 1994 revenue gap of $45.6 million, the
Department of Finance has proposed several tax increases and fund
transfers. There is currently no rated, unenhanced U.S. 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
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economy. The federal government directly comprises more than 10% of the
employment base, with a substantial component of the service sector to
support these personnel. Guam is expected to benefit from the closure of
the Subic Bay Naval Base and the Clark Air Force Base in the Philippines.
The Naval Air Station, one of several U.S. military facilities on the
island, has been slated for closure by the Defense Base Closure and
Realignment Committee; however, the administration plans to use these
facilities to expand the Island's commercial airport. Guam is also
heavily reliant on tourists, particularly the Japanese. During 1994, the
financial position of Guam was weakened as it incurred an unaudited
General Fund operating deficit. The administration has taken steps to
improve its financial position; however, there are no guarantees that an
improvement will be realized. Guam's general obligation debt is rated Baa
by Moody's.
Municipal Leases
The Portfolio may invest in municipal leases and participations
therein, which arrangements frequently involve special risks. Municipal
leases are obligations in the form of a lease or installment purchase
arrangement which are issued by a state or local government to acquire
equipment and facilities. Interest income from such obligations is
generally exempt from local and state taxes in the state of issuance.
"Participations" in such leases are undivided interests in a portion of
the total obligation. Participations entitle their holders to receive a
pro rata share of all payments under the lease. A trustee is usually
responsible for administering the terms of the participation and enforcing
the participants' rights in the underlying lease. Leases and installment
purchase or conditional sale contracts (which normally provide for title
to the leased assets to pass eventually to the governmental issuer) have
evolved as a means for governmental issuers to acquire property and
equipment without meeting the constitutional and statutory requirements
for the issuance of debt. State debt-issuance limitations are deemed to be
inapplicable to these arrangements because of the inclusion in many leases
or contracts of "non-appropriation" clauses that provide that the
governmental issuer has no obligation to make future payments under the
lease or contract unless money is appropriated for such purpose by the
appropriate legislative body on a yearly or other periodic basis. Such
arrangements are, therefore, subject to the risk that the governmental
issuer will not appropriate funds for lease payments.
Certain municipal lease obligations owned by the Portfolio may be
deemed illiquid for purposes of the Portfolio's 15% limitation on
investments in illiquid securities, unless determined by the Investment
Adviser, pursuant to guidelines adopted by the Trustees, to be liquid
securities for purposes of such limitation. In determining the liquidity
of municipal lease obligations, the Investment Adviser will consider a
variety of factors including: (1) the willingness of dealers to bid for
the security; (2) the number of dealers willing to purchase or sell the
obligation and the number of other potential buyers; (3) the frequency of
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trades and quotes for the obligation; and (4) the nature of the
marketplace trades. In addition, the Investment Adviser will consider
factors unique to particular lease obligations affecting the marketability
thereof. These include the general creditworthiness of the municipality,
the importance of the property covered by the lease to the municipality,
and the likelihood that the marketability of the obligation will be
maintained throughout the time the obligation is held by the Portfolio. In
the event the Portfolio acquires an unrated municipal lease obligation,
the Investment Adviser will be responsible for determining the credit
quality of such obligation on an ongoing basis, including an assessment of
the likelihood that the lease may or may not be canceled.
Zero Coupon Bonds
Zero coupon bonds are debt obligations which do not require the
periodic payment of interest and are issued at a significant discount from
face value. The discount approximates the total amount of interest the
bonds will accrue and compound over the period until maturity at a rate of
interest reflecting the market rate of the security at the time of
issuance. Zero coupon bonds benefit the issuer by mitigating its need for
cash to meet debt service, but also require a higher rate of return to
attract investors who are willing to defer receipt of such cash.
Insurance
Insured municipal obligations held by the Portfolio (if any) will be
insured as to their scheduled payment of principal and interest under
either (i) an insurance policy obtained by the issuer or underwriter of
the obligation at the time of its original issuance or (ii) an insurance
policy obtained by the Portfolio or a third party subsequent to the
obligation's original issuance (which may not be reflected in the
obligation's market value). In either event, such insurance may provide
that, in the event of nonpayment of interest or principal when due with
respect to an insured obligation, the insurer is not required to make such
payment until a specified time has lapsed (which may be 30 days or more
after notice).
Credit Quality
The Portfolio is dependent on the Investment Adviser's judgment,
analysis and experience in evaluating the quality of municipal
obligations. In evaluating the credit quality of a particular issue, when
rated or unrated, the Investment Adviser will normally take into
consideration, among other things, the financial resources of the issuer
(or, as appropriate, of the underlying source of funds for debt service),
its sensitivity to economic conditions and trends, any operating history
of and the community support for the facility financed by the issuer, the
ability of the issuer's management and regulatory matters. The Investment
Adviser will attempt to reduce the risks of investing in the lowest
investment grade, below investment grade and comparable unrated
obligations through active portfolio management, credit analysis and
attention to current developments and trends in the economy and the
financial markets.
See "Portfolio of Investments" in the "Financial Statements"
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incorporated by reference into this Part B with respect to any defaulted
obligations held by the Portfolio.
Short-Term Trading
The Portfolio may sell (and later purchase) securities in
anticipation of a market decline (a rise in interest rates) or purchase
(and later sell) securities in anticipation of a market rise (a decline in
interest rates). In addition, a security may be sold and another purchased
at approximately the same time to take advantage of what the Portfolio
believes to be a temporary disparity in the normal yield relationship
between the two securities. Yield disparities may occur for reasons not
directly related to the investment quality of particular issues or the
general movement of interest rates, such as changes in the overall demand
for or supply of various types of municipal obligations or changes in the
investment objectives of investors. Such trading may be expected to
increase the portfolio turnover rate, which may increase capital gains and
the expenses incurred in connection with such trading. The Portfolio
anticipates that its annual portfolio turnover rate will generally not
exceed 100% (excluding turnover of securities having maturity of one year
or less). A 100% annual turnover rate would occur, for example, if all
the securities held by the Portfolio were replaced once in a period of one
year. A high turnover rate (100% or more) necessarily involves greater
expenses to the Portfolio. The Portfolio engages in portfolio trading
(including short-term trading) if it believes that a transaction including
all costs will help in achieving its investment objective. The portfolio
turnover rate for the period from the start of business, August 7, 1995,
to January 31, 1996, was 32%.
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. The Portfolio's
custodian will segregate cash or high grade liquid debt securities in a
separate account of the Portfolio in an amount at least equal to the
when-issued commitments. If the value of the securities placed in the
separate account declines, additional cash or high grade liquid debt
securities will be placed in the account on a daily basis so that the
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value of the account will at least equal the amount of the Portfolio's
when-issued commitments. When the Portfolio commits to purchase a
security on a when-issued basis, it records the transaction and reflects
the value of the security in determining its net asset value. Securities
purchased on a when-issued basis and the securities held by the Portfolio
are subject to changes in value based upon the perception of the
creditworthiness of the issuer and changes in the level of interest rates
(i.e., appreciation when interest rates decline and depreciation when
interest rates rise). Therefore, to the extent that the Portfolio remains
substantially fully invested at the same time that it has purchased
securities on a when-issued basis, there will be greater fluctuations in
the Portfolio's net asset value than if it solely set aside cash to pay
for when-issued securities.
Variable Rate Obligations
The Portfolio may purchase variable rate obligations. Variable rate
instruments provide for adjustments in the interest rate at specified
intervals (weekly, monthly, semi-annually, etc.). The revised rates are
usually set at the issuer's discretion, in which case the investor
normally enjoys the right to "put" the security back to the issuer or his
agent. Rate revisions may alternatively be determined by formula or in
some other contractual fashion. Variable rate obligations normally
provide that the holder can demand payment of the obligation on short
notice at par with accrued interest and are frequently secured by letters
of credit or other credit support arrangements provided by banks. To the
extent that such letters of credit or other arrangements constitute an
unconditional guarantee of the issuer's obligations, a bank may be treated
as the issuer of a security for the purpose of complying with the
diversification requirements set forth in Section 5(b) of the 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. Interest income generated by certain
bonds having demand features may not qualify as tax-exempt interest.
Longer term fixed-rate bonds may give the holder a right to request
redemption at certain times (often annually after the lapse of an
intermediate term). These bonds are more defensive than conventional long
term bonds (protecting to some degree against a rise in interest rates)
while providing greater opportunity than comparable intermediate term
bonds, because the Portfolio may retain the bond if interest rates
decline. By acquiring these kinds of obligations the Portfolio obtains
the contractual right to require the issuer of the security or some other
person (other than a broker or dealer) to purchase the security at an
agreed upon price, which right is contained in the obligation itself
rather than in a separate agreement with the seller or some other person.
Because this right is assignable with the security, which is readily
marketable and valued in the customary manner, the Portfolio will not
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<PAGE>
assign any separate value to such right.
Liquidity and Protective Put Options
The Portfolio may also enter into a separate agreement with the
seller of the security or some other person granting the Portfolio the
right to put the security to the seller thereof or the other person at an
agreed upon price. The Portfolio intends to limit this type of
transaction to institutions (such as banks or securities dealers) which
the Investment Adviser believes present minimal credit risks and would
engage in this type of transaction to facilitate portfolio liquidity or
(if the seller so agrees) to hedge against rising interest rates. There
is no assurance that this kind of put option will be available to the
Portfolio or that selling institutions will be willing to permit the
Portfolio to exercise a put to hedge against rising interest rates. A
separate put option may not be marketable or otherwise assignable, and
sale of the security to a third party or lapse of time with the put
unexercised may terminate the right to exercise the put. The Portfolio
does not expect to assign any value to any separate put option which may
be acquired to facilitate portfolio liquidity, inasmuch as the value (if
any) of the put will be reflected in the value assigned to the associated
security; any put acquired for hedging purposes would be valued in good
faith under methods or procedures established by the Trustees after
consideration of all relevant factors, including its expiration date, the
price volatility of the associated security, the difference between the
market price of the associated security and the exercise price of the put,
the creditworthiness of the issuer of the put and the market prices of
comparable put options. Interest income generated by certain bonds having
put 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
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securities loaned if the borrower of the securities fails financially.
However, the loans will be made only to organizations deemed by the
Portfolio's management to be of good standing and when, in the judgment of
the Portfolio's management, the consideration that can be earned from
securities loans justifies the attendant risk. Distributions of any income
realized by the Portfolio from securities loans will be taxable.
Securities lending involves administration expenses, including finders'
fees. 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, (ii) futures contracts on securities indices and (iii) futures
contracts on other financial instruments and indices. All futures
contracts entered into by the Portfolio are traded on exchanges or boards
of trade that are licensed and regulated by the Commodity Futures Trading
Commission ("CFTC") and must be executed through a futures commission
merchant or brokerage firm that is a member of the relevant exchange. The
Portfolio may purchase and write call and put options on futures contracts
that are traded on a United States or foreign exchange or board of trade.
The Portfolio will be required, in connection with transactions in futures
contracts and the writing of options on futures, to make margin deposits,
which will be held by the Portfolio's custodian for the benefit of the
futures commission merchant through whom the Portfolio engages in such
futures and options transactions.
Some futures contracts and options thereon may become illiquid under
adverse market conditions. In addition, during periods of market
volatility, a commodity exchange may suspend or limit transactions in an
exchange-traded instrument, which may make the instrument temporarily
illiquid and difficult to price. Commodity exchanges may also establish
daily limits on the amount that the price of a futures contract or futures
option can vary from the previous day's settlement price. Once the daily
limit is reached, no trades may be made that day at a price beyond the
limit. This may prevent the Portfolio from closing out positions and
limiting its losses.
The Portfolio will engage in futures and related options
transactions only for bona fide hedging purposes as defined in or
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
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Portfolio or that it expects to purchase. The Portfolio's futures
transactions will be entered into for traditional hedging purposes - that
is, futures contracts will be sold to protect against a decline in the
price of securities that the Portfolio owns, or futures contracts will be
purchased to protect the Portfolio against an increase in the price of
securities it intends to purchase. As evidence of this hedging intent,
the Portfolio expects that on 75% or more of the occasions on which it
takes a "long" futures (or option) position (involving the purchase of
futures contracts), the Portfolio will have purchased, or will be in the
process of purchasing, equivalent amounts of related securities in the
cash market at the time when the futures (or option) position is closed
out. However, in particular cases, when it is economically advantageous
for the Portfolio to do so, a long futures position may be terminated (or
an option may expire) without the corresponding purchase of securities.
The Portfolio will engage in transactions in futures and related options
contracts only to the extent such transactions are consistent with the
requirements of the Internal Revenue Code for maintaining the
qualification of each of the Portfolio's investment company investors as a
regulated investment company for federal income tax purposes (see "Tax
Status").
Transactions using futures contracts and options (other than options
that the Portfolio has purchased) expose the Portfolio to an obligation to
another party. The Portfolio will not enter into any such transactions
unless it owns either (1) an offsetting ("covered") position in securities
or other options or futures contracts, or (2) cash, receivables and short-
term debt securities with a value sufficient at all times to cover its
potential obligations not covered as provided in (1) above. The Portfolio
will comply with SEC guidelines regarding cover for these instruments and,
if the guidelines so require, set aside cash, U.S. Government securities
or other liquid, high-grade debt securities in a segregated account with
its custodian in the prescribed amount.
Assets used as cover or held in a segregated account cannot be sold
while the position in the corresponding futures contract or option is
open, unless they are replaced with other appropriate assets. As a
result, the commitment of a large portion of the Portfolio's assets to
cover or segregated accounts could impede portfolio management or the
Portfolio's ability to meet redemption requests or other current
obligations.
Investment Restrictions
The Portfolio has adopted the following investment restrictions
which may not be changed without the approval of the holders of a
"majority of the outstanding voting securities" of the Portfolio, which as
used in this Part B means the lesser of (a) 67% or more of the outstanding
voting securities of the Portfolio present or represented by proxy at a
meeting if the holders of more than 50% of the outstanding voting
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<PAGE>
securities of the Portfolio are present or represented at the meeting or
(b) more than 50% of the outstanding voting securities of the Portfolio.
The term "voting securities" as used in this paragraph has the same
meaning as in the 1940 Act. As a matter of fundamental policy, the
Portfolio may not:
(1) Borrow money or issue senior securities except as permitted by
the Investment Company Act of 1940;
(2) Purchase securities on margin (but the Portfolio may obtain such
short-term credits as may be necessary for the clearance of purchases and
sales of securities). The deposit or payment by the Portfolio of initial
or maintenance margin in connection with futures contracts or related
options transactions is not considered the purchase of a security on
margin;
(3) Underwrite or participate in the marketing of securities of
others, except insofar as it may technically be deemed to be an
underwriter in selling a portfolio security under circumstances which may
require the registration of the same under the Securities Act of 1933;
(4) Purchase or sell real estate, 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.
The Portfolio has adopted the following investment policies which
may be changed by the Portfolio without approval of its investors. As a
matter of nonfundamental policy, the Portfolio may not: (a) engage in
options, futures or forward transactions if more than 5% of its net
assets, as measured by the aggregate of the premiums paid by the
Portfolio, would be so invested; (b) make short sales of securities or
maintain a short position, unless at all times when a short position is
open the Portfolio owns an equal amount of such securities or securities
convertible into or exchangeable, without payment of any further
consideration, for securities of the same issue as, and equal in amount
to, the securities sold short, and unless not more than 25% of the
Portfolio's net assets (taken at current value) is held as collateral for
such sales at any one time (The Portfolio will make such sales only for
the purpose of deferring realization of gain or loss for federal income
tax purposes); (c) invest more than 15% of its net assets in investments
which are not readily marketable, including restricted securities and
repurchase agreements maturing in more than seven days. Restricted
securities for the purposes of this limitation do not include securities
eligible for resale pursuant to Rule 144A under the Securities Act of 1933
and commercial paper issued pursuant to Section 4(2) of said Act that the
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Board of Trustees, or its delegate, determines to be liquid; (d) purchase
or retain in its portfolio any securities issued by an issuer any of whose
officers, directors, trustees or security holders is an officer or Trustee
of the Portfolio or is a member, officer, director or trustee of any
investment adviser of the Portfolio, if after the purchase of the
securities of such issuer by the Portfolio one or more of such persons
owns beneficially more than 1/2 of 1% of the shares or securities or both
(all taken at market value) of such issuer and such persons owning more
than 1/2 of 1% of such shares or securities together own beneficially more
than 5% of such shares or securities or both (all taken at market value);
or (e) purchase oil, gas or other mineral leases or purchase partnership
interests in oil, gas or other mineral exploration or development
programs.
For purposes of the 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 obligation.
Whenever an investment policy or investment restriction set forth in
Part A or this Part B states a maximum percentage of assets that may be
invested in any security or other asset or describes a policy regarding
quality standards, such percentage limitation or standard shall be
determined immediately after and as a result of the Portfolio's
acquisition of such security or other asset. Accordingly, any later
increase or decrease resulting from a change in values, assets or other
circumstances, other than a subsequent rating change below investment
grade made by a rating service, will not compel the Portfolio to dispose
of such security or other asset. Notwithstanding the foregoing, under
normal market conditions the Portfolio must take actions necessary to
comply with the policy of investing at least 65% of total assets in equity
securities. Moreover, the Portfolio must always be in compliance with the
borrowing policy set forth above.
In order to permit the sale in certain states of shares of certain
open-end investment companies that are investors in the Portfolio, the
Portfolio may make commitments more restrictive than the policies
described above. Should the Portfolio determine that any such commitment
is no longer in the best interests of the Portfolio and its investors, it
will revoke such commitment.
Item 14. Management of the Portfolio
The Trustees and officers of the Portfolio are listed below. Except
as indicated, each individual has held the office shown or other offices
in the same company for the last five years. Unless otherwise noted, the
business address of each Trustee and officer is 24 Federal Street, Boston,
Massachusetts 02110, which is also the address of the Portfolio's
investment adviser, Boston Management and Research ("BMR" or the
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"Investment Adviser"), a wholly-owned subsidiary of Eaton Vance Management
("Eaton Vance"); of Eaton Vance's parent, Eaton Vance Corp. ("EVC"); and
of BMR's and Eaton Vance's trustee, Eaton Vance, Inc. ("EV"). Eaton Vance
and EV are both wholly-owned subsidiaries of EVC. Those Trustees who are
"interested persons" of the Portfolio, BMR, Eaton Vance, EVC or EV, as
defined in the 1940 Act, by virtue of their affiliation with any one or
more of the Portfolio, BMR, Eaton Vance, EVC or EV, are indicated by an
asterisk (*).
TRUSTEES OF THE PORTFOLIO
DONALD R. DWIGHT (64), Trustee
President of Dwight Partners, Inc. (a corporate relations and
communications company) founded in 1988; Chairman of the Board of
Newspapers of New England, Inc. since 1983. Director or Trustee of
various investment companies managed by Eaton Vance or BMR.
Address: Clover Mill Lane, Lyme, New Hampshire 03768
JAMES B. HAWKES (54), Vice President and Trustee*
Executive Vice President of BMR, Eaton Vance, EVC and EV, and a Director
of EVC and EV. Director or Trustee and officer of various investment
companies managed by Eaton Vance or BMR.
SAMUEL L. HAYES, III (60), Trustee
Jacob H. Schiff Professor of Investment Banking at Harvard University
Graduate School of Business Administration. Director or Trustee of
various investment companies managed by Eaton Vance or BMR.
Address: Harvard University Graduate School of Business Administration,
Soldiers Field Road, Boston, Massachusetts 02134
NORTON H. REAMER (60), Trustee
President and Director, United Asset Management Corporation, a holding
company owning institutional investment management firms. Chairman,
President and Director, UAM Funds (mutual funds). Director or Trustee of
various investment companies managed by Eaton Vance or BMR.
Address: One International Place, Boston, Massachusetts 02110
JOHN L. THORNDIKE (69), Trustee
Director, Fiduciary Company Incorporated. Director or Trustee of various
investment companies managed by Eaton Vance or BMR.
Address: 175 Federal Street, Boston, Massachusetts 02110
JACK L. TREYNOR (65), Trustee
Investment Adviser and Consultant. Director or Trustee of various
investment companies managed by Eaton Vance or BMR.
Address: 504 Via Almar, Palos Verdes Estates, California 90274
OFFICERS OF THE PORTFOLIO
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THOMAS J. FETTER (52), President
Vice President of BMR, Eaton Vance and EV. Officer of various investment
companies managed by Eaton Vance or BMR.
ROBERT B. MACINTOSH (39), Vice President
Vice President of BMR since August 11, 1992, and of Eaton Vance and EV and
an employee of Eaton Vance since March 8, 1991. Fidelity Investments -
Portfolio Manager (1986-1991). Officer of various investment companies
managed by Eaton Vance or BMR.
THOMAS M. METZOLD (36), Vice President
Vice President of BMR, Eaton Vance and EV. Officer of various investment
companies managed by Eaton Vance or BMR.
JAMES L. O'CONNOR (50), Treasurer
Vice President of BMR, Eaton Vance and EV. Officer of various investment
companies managed by Eaton Vance or BMR.
THOMAS OTIS (64), Secretary
Vice President and Secretary of BMR, Eaton Vance, EVC and EV. Officer of
various investment companies managed by Eaton Vance or BMR.
JANET E. SANDERS (60), Assistant Secretary
Vice President of BMR, Eaton Vance and EV. Officer of various investment
companies managed by Eaton Vance or BMR.
A. JOHN MURPHY (33), Assistant Secretary
Assistant Vice President of BMR, Eaton Vance and EV since March 1, 1994;
employee of Eaton Vance since March 1993. State Regulations Supervisor,
The Boston Company (1991-1993) and Registration Specialist, Fidelity
Management & Research Co. (1986-1991). Officer of various investment
companies managed by Eaton Vance or BMR.
ERIC G. WOODBURY (38), Assistant Secretary
Vice President of BMR, Eaton Vance and EV since February 1993; formerly,
associate attorney at Dechert, Price & Rhoads and Gaston & Snow. Officer
of various investment companies managed by Eaton Vance or BMR.
Messrs. Thorndike (Chairman), Hayes and Reamer are members of the
Special Committee of the Board of Trustees of the Portfolio. The purpose
of the Special Committee is to consider, evaluate and make recommendations
to the full Board of Trustees concerning (i) all contractual arrangements
with service providers to the Portfolio, including investment advisory,
custodial and fund accounting services, and (ii) all other matters in
which Eaton Vance or its affiliates has any actual or potential conflict
of interest with the Portfolio or its interestholders.
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The Nominating Committee is compromised of four Trustees who are not
"interested persons" as that term is defined under the 1940 Act
("noninterested Trustees"). The Committee has four-year staggered terms,
with one member rotating off the Committee to be replaced by another
noninterested Trustee of the Portfolio. Messrs. Hayes (Chairman), Reamer,
Thorndike and Treynor are currently serving on the Committee. The purpose
of the Committee is to recommend to the Board nominees for the position of
noninterested Trustee and to assure that at least a majority of the Board
of Trustees is independent of Eaton Vance and its affiliates.
Messrs. Treynor (Chairman) and Dwight are members of the Audit
Committee of the Board of Trustees. The Audit Committee's functions
include making recommendations to the Trustees regarding the selection of
the independent certified public accountants, and reviewing with such
accountants and the Treasurer of the Portfolio matters relative to trading
and brokerage policies and practices, accounting and auditing practices
and procedures, accounting records, internal accounting controls, and the
functions performed by the custodian and transfer agent of the Portfolio.
The fees and expenses of those Trustees of the Portfolio who are not
members of the Eaton Vance organization (the noninterested Trustees) are
paid by the Portfolio. (The Trustees of the Portfolio who are members of
the Eaton Vance organization receive no compensation from the Portfolio).
For the fiscal year ending January 31, 1997, it is estimated that the
noninterested Trustees of the Portfolio will receive the following
compensation in their capacities as Trustees of the Portfolio, and, during
the year ended December 31, 1995, the noninterested Trustees of the
Portfolio earned the following compensation in their capacities as
Trustees of the funds in the Eaton Vance fund complex(1):
Aggregate Total Compensation
Compensation from Portfolio
Name from Portfolio and Fund Complex
---- -------------- --------------------
Donald R.
Dwight $399 $135,000(2)
Samuel L.
Hayes, III 399 150,000(3)
Norton H.
Reamer 399 135,000
John L.
Thorndike 399 140,000
Jack L.
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Treynor 399 140,000
(1) The Eaton Vance fund complex consists of 219 registered
investment companies or series thereof.
(2) Includes $35,000 of deferred compensation.
(3) Includes $33,750 of deferred compensation.
Trustees of the Portfolio who are not affiliated with BMR may
elect to defer receipt of all or a percentage of their annual fees in
accordance with the terms of a Trustees Deferred Compensation Plan (the
"Plan"). Under the Plan, an eligible Trustee may elect to have his
deferred fees invested by the Portfolio in the shares of one or more funds
in the Eaton Vance Family of Funds, and the amount paid to the Trustees
under the Plan will be determined based upon the performance of such
investments. Deferral of Trustees' fees in accordance with the Plan will
have a negligible effect on the Portfolio's assets, liabilities, and net
income per share, and will not obligate the Portfolio to retain the
services of any Trustee or obligate the Portfolio to pay any particular
level of compensation to the Trustee. The Portfolio does not have a
retirement plan for its Trustees.
The Portfolio's Declaration of Trust provides that it will
indemnify its Trustees and officers against liabilities and expenses
incurred in connection with litigation in which they may be involved
because of their offices with the Portfolio, unless, as to liability to
the Portfolio or its investors, it is finally adjudicated that they
engaged in willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in their offices, or unless with respect
to any other matter it is finally adjudicated that they did not act in
good faith in the reasonable belief that their actions were in the best
interests of the Portfolio. In the case of settlement, such
indemnification will not be provided unless it has been determined by a
court or other body approving the settlement or other disposition, or by a
reasonable determination, based upon a review of readily available facts,
by vote of a majority of noninterested Trustees or in a written opinion of
independent counsel, that such officers or Trustees have not engaged in
willful misfeasance, bad faith, gross negligence or reckless disregard of
their duties.
Item 15. Control Persons and Principal Holder of Securities
As of May 1, 1996, EV Marathon High Yield Municipals Fund (the
"Marathon Fund") and EV Traditional High Yield Municipals Fund (the
"Traditional Fund"), each a series of Eaton Vance Municipals Trust II,
owned approximately 63.1% and 36.8%, respectively, of the outstanding
voting interests in the Portfolio. The Marathon Fund may take actions
without the approval of any other investor. Each of the Marathon Fund and
the Traditional Fund has informed the Portfolio that whenever it is
requested to vote on matters pertaining to fundamental policies of the
Portfolio, it will hold a meeting of shareholders and will cast its votes
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as instructed by its shareholders. It is anticipated that any other
investor in the Portfolio which is an investment company registered under
the 1940 Act would follow the same or a similar practice. Eaton Vance
Municipals Trust II is an open-end management investment company organized
as a business trust under the laws of the Commonwealth of Massachusetts.
Item 16. Investment Advisory and Other Services
Investment Adviser. The Portfolio engages BMR as investment
adviser pursuant to an Investment Advisory Agreement dated August 1, 1995.
BMR or Eaton Vance acts as investment adviser to investment companies and
various individual and institutional clients with combined assets under
management of over $16 billion.
BMR manages the investments and affairs of the Portfolio subject
to the supervision of the Portfolio's Board of Trustees. BMR furnishes to
the Portfolio investment research, advice and supervision, furnishes an
investment program and determines what securities will be purchased, held
or sold by the Portfolio and what portion, if any, of the Portfolio's
assets will be held uninvested. The Investment Advisory Agreement
requires the Investment Adviser to pay the salaries and fees of all
officers and Trustees of the Portfolio who are members of the Investment
Adviser's organization and all personnel of the Investment Adviser
performing services relating to research and investment activities. The
Portfolio is responsible for all expenses not expressly stated to be
payable by the Investment Adviser under the Investment Advisory Agreement,
including, without implied limitation, (i) expenses of maintaining the
Portfolio and continuing its existence, (ii) registration of the Portfolio
under the 1940 Act, (iii) commissions, fees and other expenses connected
with the acquisition, holding and disposition of securities and other
investments, (iv) auditing, accounting and legal expenses, (v) taxes and
interest, (vi) governmental fees, (vii) expenses of issue, sale and
redemption of interests in the Portfolio, (viii) expenses of registering
and qualifying the Portfolio and interests in the Portfolio under federal
and state securities laws and of preparing and printing registration
statements or other offering statements or memoranda for such purposes and
for distributing the same to investors, and fees and expenses of
registering and maintaining registrations of the Portfolio and of the
Portfolio's placement agent as broker-dealer or agent under state
securities laws, (ix) expenses of reports and notices to investors and of
meetings of investors and proxy solicitations therefor, (x) expenses of
reports to governmental officers and commissions, (xi) insurance expenses,
(xii) association membership dues, (xiii) fees, expenses and disbursements
of custodians and subcustodians for all services to the Portfolio
(including without limitation safekeeping for funds, securities and other
investments, keeping of books, accounts and records, and determination of
net asset values, book capital account balances and tax capital account
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
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Portfolio who are not members of the Investment Adviser's organization,
and (xviii) such nonrecurring items as may arise, including expenses
incurred in connection with litigation, proceedings and claims and the
obligation of the Portfolio to indemnify its Trustees, officers and
investors with respect thereto.
For a description of the compensation that the Portfolio pays BMR
under the Investment Advisory Agreement, see "Management of the Portfolio"
in Part A. As of January 31, 1996, the Portfolio had net assets of
$72,077,467. 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 of the full amount of its
advisory fee and BMR was allocated a portion of expenses related to the
operation of the Portfolio in the amount of $10,465 for such period.
The Investment Advisory Agreement with BMR remains in effect
until February 28, 1997. It may be continued indefinitely thereafter so
long as such continuance is approved at least annually (i) by the vote of
a majority of the Trustees of the Portfolio who are not interested persons
of the Portfolio or of BMR cast in person at a meeting specifically called
for the purpose of voting on such approval and (ii) by the Board of
Trustees of the Portfolio or by vote of a majority of the outstanding
voting securities of the Portfolio. The Agreement may be terminated at
any time without penalty on sixty (60) days' written notice by the Board
of Trustees of either party, or by vote of the majority of the outstanding
voting securities of the Portfolio, and the Agreement will terminate
automatically in the event of its assignment. The Agreement provides that
BMR may render services to others. The Agreement also provides that BMR
shall not be liable for any loss incurred in connection with the
performance of its duties, or action taken or omitted under that
Agreement, in the absence of willful misfeasance, bad faith, gross
negligence in the performance of its duties or by reason of its reckless
disregard of its obligations and duties thereunder, or for any losses
sustained in the acquisition, holding or disposition of any security or
other investment.
BMR is a wholly-owned subsidiary of Eaton Vance. Eaton Vance and
EV are both wholly-owned subsidiaries of EVC. BMR and Eaton Vance are
both Massachusetts business trusts, and EV is the trustee of BMR and Eaton
Vance. The Directors of EV are Landon T. Clay, H. Day Brigham, Jr., M.
Dozier Gardner, James B. Hawkes, and Benjamin A. Rowland, Jr. The
Directors of EVC consist of the same persons and John G.L. Cabot and Ralph
Z. Sorenson. Mr. Clay is chairman and Mr. Gardner is president and chief
executive officer of EVC, BMR, Eaton Vance and EV. All of the issued and
outstanding shares of Eaton Vance and EV are owned by EVC. All of the
issued and outstanding shares of BMR are owned by Eaton Vance. All shares
of the outstanding Voting Common Stock of EVC are deposited in a Voting
Trust, which expires on December 31, 1996, the Voting Trustees of which
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are Messrs. Clay, Brigham, Gardner, Hawkes and Rowland. The Voting
Trustees have unrestricted voting rights for the election of Directors of
EVC. All of the outstanding voting trust receipts issued under said
Voting Trust are owned by certain of the officers of BMR and Eaton Vance
who are also officers and Directors of EVC and EV. As of May 31, 1996,
Messrs. Clay, Gardner and Hawkes each owned 24% of such voting trust
receipts, and Messrs. Rowland and Brigham owned 15% and 13%, respectively,
of such voting trust receipts. Messrs. Hawkes and Otis are officers or
Trustees of the Portfolio and are members of the EVC, BMR, Eaton Vance and
EV organizations. Messrs. Fetter, MacIntosh, Metzold, Murphy, O'Connor
and Woodbury and Ms. Sanders are officers of the Portfolio and are also
members of the BMR, Eaton Vance and EV organizations. BMR will receive
the fees paid under the Investment Advisory Agreement.
EVC owns all of the stock of Energex Energy Corporation, which is
engaged in oil and gas exploration and development. In addition, Eaton
Vance owns all of the stock of Northeast Properties, Inc., which is
engaged in real estate investment. EVC also owns 24% of the Class A
shares of Lloyd George Management (B.V.I.) Limited, a registered
investment adviser. EVC owns all of the stock of Fulcrum Management, Inc.
and MinVen Inc., which are engaged in precious metal mining venture
investment and management. EVC, BMR, Eaton Vance and EV may also enter
into other businesses.
EVC and its affiliates and their officers and employees from time
to time have transactions with various banks, including the custodian of
the Portfolio, Investors Bank & Trust Company. It is Eaton Vance's
opinion that the terms and conditions of such transactions were not and
will not be influenced by existing or potential custodial or other
relationships between the Portfolio and such banks.
Custodian. Investors Bank & Trust Company ("IBT"), 89 South
Street, Boston, Massachusetts, acts as custodian for the Portfolio. IBT
has the custody of all of the Portfolio's assets, maintains the general
ledger of the Portfolio, and computes the daily net asset value of
interests in the Portfolio. In such capacity it attends to details in
connection with the sale, exchange, substitution or transfer of, or other
dealings with, the Portfolio's investments, receives and disburses all
funds, and performs various other ministerial duties upon receipt of
proper instructions from the Portfolio. IBT charges fees which are
competitive within the industry. A portion of the fee relates to custody,
bookkeeping and valuation services and is based upon a percentage of
Portfolio net assets and a portion of the fee relates to activity charges,
primarily the number of portfolio transactions. These fees are then
reduced by a credit for cash balances of the Portfolio at the custodian
equal to 75% of the 91-day, U.S. Treasury Bill auction rate applied to the
Portfolio's average daily collected balances for the week. Landon T.
Clay, a Director of EVC and an officer, Trustee or Director of other
entities in the Eaton Vance organization, owns approximately 13% of the
voting stock of Investors Financial Services Corp., the holding company
parent of IBT. Management believes that such ownership does not create an
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affiliated person relationship between the Portfolio and IBT under the
1940 Act.
Independent Certified Public Accountants. Deloitte & Touche LLP,
125 Summer Street, Boston, Massachusetts, are the independent certified
public accountants of the Portfolio, providing audit services, tax return
preparation, and assistance and consultation with respect to the
preparation of filings with the Commission.
Item 17. Brokerage Allocation and Other Practices
Decisions concerning the execution of portfolio security
transactions, including the selection of the market and the executing
firm, are made by BMR. BMR is also responsible for the execution of
transactions for all other accounts managed by it.
BMR places the portfolio security transactions of the Portfolio
and of all other accounts managed by it for execution with many firms.
BMR uses its best efforts to obtain execution of portfolio security
transactions at prices that are advantageous to the Portfolio and at
reasonably competitive spreads or (when a disclosed commission is being
charged) at reasonably competitive commission rates. In seeking such
execution, BMR will use its best judgment in evaluating the terms of a
transaction and will give consideration to various relevant factors
including, without limitation, the size and type of the transaction, the
nature and character of the market for the security, the confidentiality,
speed and certainty of effective execution required for the transaction,
the general execution and operational capabilities of the executing firm,
the reputation, reliability, experience and financial condition of the
firm, the value and quality of the services rendered by the firm in this
and other transactions, and the reasonableness of the spread or
commission, if any. Municipal obligations purchased and sold by the
Portfolio are generally traded in the over-the-counter market on a net
basis (i.e., without commission) through broker-dealers and banks acting
for their own account rather than as brokers, or otherwise involve
transactions directly with the issuer of such obligations. Such firms
attempt to profit from such transactions by buying at the bid price and
selling at the higher asked price of the market for such obligations, and
the difference between the bid and asked prices is customarily referred to
as the spread. The Portfolio may also purchase municipal obligations from
underwriters, the cost of which may include undisclosed fees and
concessions to the underwriters. While it is anticipated that the
Portfolio will not pay significant brokerage commissions in connection
with such portfolio security transactions, on occasion it may be necessary
or appropriate to purchase or sell a security through a broker on an
agency basis, in which case the Portfolio will incur a brokerage
commission. Although spreads or commissions on portfolio security
transactions will, in the judgment of BMR, be reasonable in relation to
the value of the services provided, spreads or commissions exceeding those
that another firm might charge may be paid to firms who were selected to
execute transactions on behalf of the Portfolio and BMR's other clients
for providing brokerage and research services to BMR.
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As authorized in Section 28(e) of the Securities Exchange Act of
1934, a broker or dealer who executes a portfolio transaction on behalf of
the Portfolio may receive a commission that is in excess of the amount of
commission another broker or dealer would have charged for effecting that
transaction if BMR determines in good faith that such commission was
reasonable in relation to the value of the brokerage and research services
provided. This determination may be made either on the basis of that
particular transaction or on the basis of overall responsibilities that
BMR and its affiliates have for accounts over which they exercise
investment discretion. In making any such determination, BMR will not
attempt to place a specific dollar value on the brokerage and research
services provided or to determine what portion of the commission should be
related to such services. Brokerage and research services may include
advice as to the value of securities, the advisability of investing in,
purchasing or selling securities, and the availability of securities or
purchasers or sellers of securities; furnishing analyses and reports
concerning issuers, industries, securities, economic factors and trends,
portfolio strategy and the performance of accounts; effecting securities
transactions and performing functions incidental thereto (such as
clearance and settlement); and the "Research Services" referred to in the
next paragraph.
It is a common practice of the investment advisory industry and
of the advisers of investment companies, institutions and other investors
to receive research, statistical and quotation services, data, information
and other services, products and materials that assist such advisers in
the performance of their investment responsibilities ("Research Services")
from broker-dealer firms that execute portfolio transactions for the
clients of such advisers and from third parties with which such
broker-dealers have arrangements. Consistent with this practice, BMR
receives Research Services from many broker-dealer firms with which BMR
places the Portfolio's transactions and from third parties with which
these broker-dealers have arrangements. These Research Services include
such matters as general economic and market reviews, industry and company
reviews, evaluations of securities and portfolio strategies and
transactions and recommendations as to the purchase and sale of securities
and other portfolio transactions, financial, industry and trade
publications, news and information services, pricing and quotation
equipment and services, and research oriented computer hardware, software,
data bases and services. Any particular Research Service obtained through
a broker-dealer may be used by BMR in connection with client accounts
other than those accounts that pay commissions to such broker-dealer. Any
such Research Service may be broadly useful and of value to BMR in
rendering investment advisory services to all or a significant portion of
its clients, or may be relevant and useful for the management of only one
client's account or of only a few clients' accounts, or may be useful for
the management of merely a segment of certain clients' accounts,
regardless of whether any such account or accounts paid commissions to the
broker-dealer through which such Research Service was obtained. The
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advisory fee paid by the Portfolio is not reduced because BMR receives
such Research Services. BMR evaluates the nature and quality of the
various Research Services obtained through broker-dealer firms and
attempts to allocate sufficient commissions to such firms to ensure the
continued receipt of Research Services that BMR believes are useful or of
value to it in rendering investment advisory services to its clients.
Subject to the requirement that BMR shall use its best efforts to
seek and execute portfolio security transactions at advantageous prices
and at reasonably competitive spreads or commission rates, BMR is
authorized to consider as a factor in the selection of any broker-dealer
firm with whom portfolio orders may be placed the fact that such firm has
sold or is selling shares of any investment company sponsored by BMR or
Eaton Vance. This policy is not inconsistent with a rule of the National
Association of Securities Dealers, Inc., which rule provides that no firm
that is a member of the Association shall favor or disfavor the
distribution of shares of any particular investment company or group of
investment companies on the basis of brokerage commissions received or
expected by such firm from any source.
Municipal obligations considered as investments for the Portfolio
may also be appropriate for other investment accounts managed by BMR or
its affiliates. BMR will attempt to allocate equitably portfolio security
transactions among the Portfolio and the portfolios of its other
investment accounts purchasing municipal obligations whenever decisions
are made to purchase or sell securities by the Portfolio and one or more
of such other accounts simultaneously. In making such allocations, the
main factors to be considered are the respective investment objectives of
the Portfolio and such other accounts, the relative size of portfolio
holdings of the same or comparable securities, the availability of cash
for investment by the Portfolio and such accounts, the size of investment
commitments generally held by the Portfolio and such accounts and the
opinions of the persons responsible for recommending investments to the
Portfolio and such accounts. While this procedure could have a
detrimental effect on the price or amount of the securities available to
the Portfolio from time to time, it is the opinion of the Trustees of the
Portfolio that the benefits available from the BMR organization outweigh
any disadvantage that may arise from exposure to simultaneous
transactions. For the period from the start of business, August 7, 1995,
to January 31, 1996, the Portfolio paid no brokerage commissions on
portfolio transactions.
Item 18. Capital Stock and Other Securities
Under the Portfolio's Declaration of Trust, the Trustees are
authorized to issue interests in the Portfolio. Investors are entitled to
participate pro rata in distributions of taxable income, loss, gain and
credit of the Portfolio. Upon dissolution of the Portfolio, the Trustees
shall liquidate the assets of the Portfolio and apply and distribute the
proceeds thereof as follows: (a) first, to the payment of all debts and
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obligations of the Portfolio to third parties including, without
limitation, the retirement of outstanding debt, including any debt owed to
holders of record of interests in the Portfolio ("Holders") or their
affiliates, and the expenses of liquidation, and to the setting up of any
reserves for contingencies which may be necessary; and (b) second, in
accordance with the Holders' positive Book Capital Account balances after
adjusting Book Capital Accounts for certain allocations provided in the
Declaration of Trust and in accordance with the requirements described in
Treasury Regulations Section 1.704-1(b)(2)(ii)(b)(2). Notwithstanding the
foregoing, if the Trustees shall determine that an immediate sale of part
or all of the assets of the Portfolio would cause undue loss to the
Holders, the Trustees, in order to avoid such loss, may, after having
given notification to all the Holders, to the extent not then prohibited
by the law of any jurisdiction in which the Portfolio is then formed or
qualified and applicable in the circumstances, either defer liquidation of
and withhold from distribution for a reasonable time any assets of the
Portfolio except those necessary to satisfy the Portfolio's debts and
obligations or distribute the Portfolio's assets to the Holders in
liquidation. Interests in the Portfolio have no preference, preemptive,
conversion or similar rights and are fully paid and nonassessable, except
as set forth below. Interests in the Portfolio may not be transferred.
Certificates representing an investor's interest in the Portfolio are
issued only upon the written request of a Holder.
Each Holder is entitled to vote in proportion to the amount of
its interest in the Portfolio. Holders do not have cumulative voting
rights. The Portfolio is not required and has no current intention to
hold annual meetings of Holders, but the Portfolio will hold meetings of
Holders when in the judgment of the Portfolio's Trustees it is necessary
or desirable to submit matters to a vote of Holders at a meeting. Any
action which may be taken by Holders may be taken without a meeting if
Holders holding more than 50% of all interests entitled to vote (or such
larger proportion thereof as shall be required by any express provision of
the Declaration of Trust of the Portfolio) consent to the action in
writing and the consents are filed with the records of meetings of
Holders.
The Portfolio's Declaration of Trust may be amended by vote of
Holders of more than 50% of all interests in the Portfolio at any meeting
of Holders or by an instrument in writing without a meeting, executed by a
majority of the Trustees and consented to by the Holders of more than 50%
of all interests. The Trustees may also amend the Declaration of Trust
(without the vote or consent of Holders) to change the Portfolio's name or
the state or other jurisdiction whose law shall be the governing law, to
supply any omission or cure, correct or supplement any ambiguous,
defective or inconsistent provision, to conform the Declaration of Trust
to applicable federal law or regulations or to the requirements of the
Code, or to change, modify or rescind any provision, provided that such
change, modification or rescission is determined by the Trustees to be
necessary or appropriate and not to have a materially adverse effect on
the financial interests of the Holders. No amendment of the Declaration
of Trust which would change any rights with respect to any Holder's
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interest in the Portfolio by reducing the amount payable thereon upon
liquidation of the Portfolio may be made, except with the vote or consent
of the Holders of two-thirds of all interests. References in the
Declaration of Trust and in Part A or this Part B to a specified
percentage of, or fraction of, interests in the Portfolio, means Holders
whose combined Book Capital Account balances represent such specified
percentage or fraction of the combined Book Capital Account balance of
all, or a specified group of, Holders.
The Portfolio may merge or consolidate with any other
corporation, association, trust or other organization or may sell or
exchange all or substantially all of its assets upon such terms and
conditions and for such consideration when and as authorized by the
Holders of (a) 67% or more of the interests in the Portfolio present or
represented at the meeting of Holders, if Holders of more than 50% of all
interests are present or represented by proxy, or (b) more than 50% of all
interests, whichever is less. The Portfolio may be terminated (i) by the
affirmative vote of Holders of not less than two-thirds of all interests
at any meeting of Holders or by an instrument in writing without a
meeting, executed by a majority of the Trustees and consented to by
Holders of not less than two-thirds of all interests, or (ii) by the
Trustees by written notice to the Holders.
In accordance with the Declaration of Trust, there normally will
be no meetings of the investors for the purpose of electing Trustees
unless and until such time as less than a majority of the Trustees holding
office have been elected by investors. In such an event, the Trustees of
the Portfolio then in office will call an investors' meeting for the
election of Trustees. Except for the foregoing circumstances, and unless
removed by action of the investors in accordance with the Portfolio's
Declaration of Trust, the Trustees shall continue to hold office and may
appoint successor Trustees.
The Declaration of Trust provides that no person shall serve as a
Trustee if investors holding two-thirds of the outstanding interests have
removed him from that office either by a written declaration filed with
the Portfolio's custodian or by votes cast at a meeting called for that
purpose. The Declaration of Trust further provides that under certain
circumstances, the investors may call a meeting to remove a Trustee and
that the Portfolio is required to provide assistance in communicating with
investors about such a meeting.
The Portfolio is organized as a trust under the laws of the State
of New York. Investors in the Portfolio will be held personally liable
for its obligations and liabilities, subject, however, to indemnification
by the Portfolio in the event that there is imposed upon an investor a
greater portion of the liabilities and obligations of the Portfolio than
its proportionate interest in the Portfolio. The Portfolio intends to
maintain fidelity and errors and omissions insurance deemed adequate by
the Trustees. Therefore, the risk of an investor incurring financial loss
on account of investor liability is limited to circumstances in which both
inadequate insurance existed and the Portfolio itself was unable to meet
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its obligations.
The Declaration of Trust further provides that obligations of the
Portfolio are not binding upon the Trustees individually but only upon the
property of the Portfolio and that the Trustees will not be liable for any
action or failure to act, but nothing in the Declaration of Trust protects
a Trustee against any liability to which he would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of his office.
Item 19. Purchase, Redemption and Pricing of Securities
Interests in the Portfolio are issued solely in private placement
transactions that do not involve any "public offering" within the meaning
of Section 4(2) of the Securities Act of 1933. See "Purchase of Interests
in the Portfolio" and "Redemption or Decrease of Interest" in Part A.
The Portfolio's net asset value is determined by Investors Bank &
Trust Company (as custodian and agent for the Portfolio) in the manner
described in Part A. The net asset value is computed by subtracting the
liabilities of the Portfolio from the value of its total assets. Inasmuch
as the market for municipal obligations is a dealer market with no central
trading location or continuous quotation system, it is not feasible to
obtain last transaction prices for most municipal obligations held by the
Portfolio, and such obligations, including those purchased on a
when-issued basis, will normally be valued on the basis of valuations
furnished by a pricing service. The pricing service uses information with
respect to transactions in bonds, quotations from bond dealers, market
transactions in comparable securities, various relationships between
securities, and yield to maturity in determining value. Taxable
obligations for which price quotations are readily available normally will
be valued at the mean between the latest available bid and asked prices.
Open futures positions on debt securities are valued at the most recent
settlement prices unless such price does not reflect the fair value of the
contract, in which case the positions will be valued by or at the
direction of the Trustees of the Portfolio. Other assets are valued at
fair value using methods determined in good faith by or at the direction
of the Trustees.
Item 20. Tax Status
The Portfolio has been advised by tax counsel that, provided the
Portfolio is operated at all times during its existence in accordance with
certain organizational and operational documents, the Portfolio should be
classified as a partnership under the Internal Revenue Code of 1986, as
amended (the Code ), and it should not be a publicly traded partnership
within the meaning of Section 7704 of the Code. Consequently, the
Portfolio does not expect that it will be required to pay any federal
income tax, and a Holder will be required to take into account in
determining its federal income tax liability its share of the Portfolio's
income, gains, losses, deductions and tax preference items.
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Under Subchapter K of the Code, a partnership is considered to be
either an aggregate of its members or a separate entity depending upon the
factual and legal context in which the question arises. Under the
aggregate approach, each partner is treated as an owner of an undivided
interest in partnership assets and operations. Under the entity approach,
the partnership is treated as a separate entity in which partners have no
direct interest in partnership assets and operations. The Portfolio has
been advised by tax counsel that, in the case of a Holder that seeks to
qualify as a regulated investment company (a "RIC"), the aggregate
approach should apply, and each such Holder should accordingly be deemed
to own a proportionate share of each of the assets of the Portfolio and to
be entitled to the gross income of the Portfolio attributable to that
share for purposes of all requirements of Sections 851(b) and 852(b)(5) of
the Code. Further, the Portfolio has been advised by tax counsel that each
Holder that seeks to qualify as a RIC should be deemed to hold its
proportionate share of the Portfolio's assets for the period the Portfolio
has held the assets or for the period the Holder has been an investor in
the Portfolio, whichever is shorter. Investors should consult their tax
advisers regarding whether the entity or the aggregate approach applies to
their investment in the Portfolio in light of their particular tax status
and any special tax rules applicable to them.
In order to enable a Holder that is otherwise eligible to qualify
as a RIC, the Portfolio intends to satisfy the requirements of Subchapter
M of the Code relating to sources of income and diversification of assets
as if they were applicable to the Portfolio and to allocate and permit
withdrawals in a manner that will enable a Holder which is a RIC to comply
with those requirements. The Portfolio will allocate at least annually to
each Holder it's distributive share of the Portfolio's net investment
income, net realized capital gains, and any other items of income, gain,
loss, deduction or credit in a manner intended to comply with the Code and
applicable Treasury regulations. Tax counsel has advised the Portfolio
that the Portfolio's allocations of taxable income and loss should have
economic effect under applicable Treasury regulations.
To the extent the cash proceeds of any withdrawal (or, under
certain circumstances, such proceeds plus the value of any marketable
securities distributed to an investor) ("liquid proceeds") exceed a
Holder's adjusted basis of his interest in the Portfolio, the Holder will
generally realize a gain for federal income tax purposes. If, upon a
complete withdrawal (redemption of the entire interest), the Holder's
adjusted basis of his interest exceeds the liquid proceeds of such
withdrawal, the Holder will generally realize a loss for federal income
tax purposes. The tax consequences of a withdrawal of property (instead
of or in addition to liquid proceeds) will be different and will depend on
the specific factual circumstances. A Holder's adjusted basis of an
interest in the Portfolio will generally be the aggregate prices paid
therefor (including the adjusted basis of contributed property and any
gain recognized on such contribution), increased by the amounts of the
Holder's distributive share of items of income (including interest income
exempt from federal income tax) and realized net gain of the Portfolio,
and reduced, but not below zero, by (i) the amounts of the Holder's
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distributive share of items of Portfolio loss, and (ii) the amount of any
cash distributions (including distributions of interest income exempt from
federal income tax and cash distributions on withdrawals from the
Portfolio) and the basis to the Holder of any property received by such
Holder other than in liquidation, and (iii) the Holder's distributive
share of the Portfolio's nondeductible expenditures not properly
chargeable to capital account. Increases or decreases in a Holder's share
of the Portfolio's liabilities may also result in corresponding increases
or decreases in such adjusted basis. Distributions of liquid proceeds in
excess of a Holder's adjusted basis in its interest in the Portfolio
immediately prior thereto generally will result in the recognition of gain
to the Holder in the amount of such excess.
The Portfolio may acquire zero coupon or other securities issued
with original issue discount. As the holder of those securities, the
Portfolio must account for the original issue discount (even on municipal
securities) that accrues on the securities during the taxable year, even
if it receives no corresponding payment on the securities during the year.
Because each Holder that is a RIC annually must distribute substantially
all of its investment company taxable income and net tax-exempt income,
including any original issue discount, to qualify for treatment as a RIC,
any such Holder may be required in a particular year to distribute as an
"exempt-interest dividend" an amount that is greater than its pro-
portionate share of the total amount of cash the Portfolio actually
receives. Those distributions will be made from the Holder's cash assets,
if any, or from its proportionate share of the Portfolio's cash assets or
the proceeds of sales of the Portfolio's securities, if necessary. The
Portfolio may realize capital gains or losses from those sales, which
would increase or decrease the investment company taxable income and/or
net capital gain (the excess of net long-term capital gain over net short-
term capital loss) of a Holder that is a RIC. In addition, any such gains
may be realized on the disposition of securities held for less than three
months. Because of the Short-Short Limitation (defined below), any such
gains would reduce the Portfolio's ability to sell other securities, or
options or futures contracts, held for less than three months that it
might wish to sell in the ordinary course of its portfolio management.
Investments in lower rated or unrated securities may present
special tax issues for the Portfolio and hence to an investor in the
Portfolio to the extent actual or anticipated defaults may be more likely
with respect to such securities. Tax rules are not entirely clear about
issues such as when the Portfolio may cease to accrue interest, original
issue discount, or market discount; when and to what extent deductions may
be taken for bad debts or worthless securities; how payments received on
obligations in default should be allocated between principal and income;
and whether exchanges of debt obligations in a workout context are
taxable.
In order for a Holder that is a RIC to be entitled to pay the
tax-exempt interest income the Portfolio allocates to it as
exempt-interest dividends to its shareholders, the Holder must satisfy
certain requirements, including the requirement that, at the close of each
B-30
<PAGE>
quarter of its taxable year, at least 50% of the value of its total assets
consists of obligations the interest on which is excludable from gross
income under Section 103(a) of the Code. The Portfolio intends to
concentrate its investments in such tax-exempt obligations to an extent
that will enable a RIC that invests its investable assets in the Portfolio
to satisfy this 50% requirement.
Interest on certain municipal obligations is treated as a tax
preference item for purposes of the federal alternative minimum tax.
Holders that are required to file federal income tax returns are required
to report tax-exempt interest allocated to them by the Portfolio on such
returns.
From time to time proposals have been introduced before Congress
for the purpose of restricting or eliminating the federal income tax
exemption for interest on certain types of municipal obligations, and it
can be expected that similar proposals may be introduced in the future.
Under federal tax legislation enacted in 1986, the federal income tax
exemption for interest on certain municipal obligations was eliminated or
restricted. As a result of such legislation, the availability of
municipal obligations for investment by the Portfolio and the value of the
Portfolio may be affected.
In the course of managing its investments, the Portfolio may
realize some short-term and long-term capital gains (and/or losses) as a
result of market transactions, including sales of portfolio securities and
rights to when-issued securities and options and futures transactions.
The Portfolio may also realize taxable income from certain short-term
taxable obligations, securities loans, a portion of original issue
discount with respect to certain stripped municipal obligations or their
stripped coupons and certain realized accrued market discount. Any
allocations of such capital gains or other taxable income to Holders would
be taxable to Holders that are subject to tax. However, it is expected
that such amounts, if any, would normally be insubstantial in relation to
the tax-exempt interest earned by the Portfolio.
The Portfolio's transactions in options and futures contracts
will be subject to special tax rules that may affect the amount, timing
and character of its items of income, gain or loss and hence the
allocations of such items to investors. For example, certain positions
held by the Portfolio on the last business day of each taxable year will
be marked to market (i.e., treated as if closed out on such day), and any
resulting gain or loss will generally be treated as 60% long-term and 40%
short-term capital gain or loss. Certain positions held by the Portfolio
that substantially diminish the Portfolio's risk of loss with respect to
other positions in its portfolio may constitute "straddles," which are
subject to tax rules that may cause deferral of Portfolio losses,
adjustments in the holding period of Portfolio securities and conversion
of short-term into long-term capital losses.
Income from transactions in options and futures contracts derived
by the Portfolio with respect to its business of investing in securities
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<PAGE>
will qualify as permissible income for its Holders that are RICs under the
requirement that at least 90% of a RIC's gross income each taxable year
consist of specified types of income. However, income from the dispo-
sition by the Portfolio of options and futures contracts held for less
than three months will be subject to the requirement applicable to those
Holders that less than 30% of a RIC's gross income each taxable year
consist of certain short-term gains ("Short-Short Limitation").
If the Portfolio satisfies certain requirements, any increase in
value of a position that is part of a "designated hedge" will be offset by
any decrease in value (whether realized or not) of the offsetting hedging
position during the period of the hedge for purposes of determining
whether the Holders that are RICs satisfy the Short-Short Limitation.
Thus, only the net gain (if any) from the designated hedge will be
included in gross income for purposes of that limitation. The Portfolio
will consider whether it should seek to qualify for this treatment for its
hedging transactions. To the extent the Portfolio does not so qualify, it
may be forced to defer the closing out of options and futures contracts
beyond the time when it otherwise would be advantageous to do so, in order
for Holders that are RICs to continue to qualify as such.
Interest on indebtedness incurred or continued by an investor to
purchase or carry an investment in the Portfolio is not deductible to the
extent it is deemed attributable to the investor's investment, through the
Portfolio, in tax-exempt obligations. Further, persons who are
"substantial users" (or persons related to "substantial users") of
facilities financed by industrial development or private activity bonds
should consult their tax advisers before investing in the Portfolio.
"Substantial user" is defined in applicable Treasury regulations to
include a "non-exempt person" who regularly uses in trade or business a
part of a facility financed from the proceeds of industrial development
bonds and would likely be interpreted to include private activity bonds
issued to finance similar facilities.
An entity that is treated as a partnership under the Code, such
as the Portfolio, is generally treated as a partnership under state and
local tax laws, but certain states may have different entity
classification criteria and may therefore reach a different conclusion.
Entities that are classified as partnerships are not treated as separate
taxable entities under most state and local tax laws, and the income of a
partnership is considered to be income of partners both in timing and in
character. The exemption of interest income for federal income tax
purposes does not necessarily result in exemption under the income or tax
laws of any state or local taxing authority. The laws of the various
states and local taxing authorities vary with respect to the taxation of
such interest income, as well as to the status of a partnership interest
under state and local tax laws, and each holder of an interest in the
Portfolio is advised to consult his or her own tax adviser.
The foregoing discussion does not address the special tax rules
applicable to certain classes of investors, such as tax-exempt entities,
insurance companies and financial institutions. Investors should consult
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<PAGE>
their own tax advisers with respect to special tax rules that may apply in
their particular situations, as well as the state, local or foreign tax
consequences of investing in the Portfolio.
Item 21. Underwriters
The placement agent for the Portfolio is Eaton Vance
Distributors, Inc., which receives no compensation for serving in this
capacity. Investment companies, common and commingled trust funds and
similar organizations and entities may continuously invest in the
Portfolio.
Item 22. Calculation of Performance Data
Not applicable.
Item 23. Financial Statements
The following audited financial statements of the Portfolio are
incorporated by reference into this Part B and have been so incorporated
in reliance upon the report of Deloitte and Touche LLP, independent
certified public accountants, as experts in accounting and auditing.
Portfolio of Investments as of January 31, 1996
Statement of Assets and Liabilities as of January 31, 1996
Statement of Operations for the period from the start of
business, August 7, 1995, to January 31, 1996
Statement of Changes in Net Assets for the period from the start
of business, August 7, 1995, to January 31, 1996
Supplementary Data for the period from the start of business,
August 7, 1995, to January 31, 1996
Notes to Financial Statements
Independent Auditors' Report
For purposes of the EDGAR filing of this amendment to the
Portfolio's registration statement, the Portfolio incorporates by
reference the above audited financial statements, as previously filed
electronically with the Commission (Accession Number 0000928816-96-
000076).
B-33
<PAGE>
APPENDIX
Description of Securities Ratings+
Moody's Investors Service, Inc.
Municipal Bonds
Aaa: Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to
as "gilt edged." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position
of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there
may be other elements present which make the long term risk appear
somewhat larger than the Aaa securities.
A: Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper-medium-grade obligations. Factors
giving security to principal and interest are considered adequate, but
elements may be present which suggest a susceptibility to impairment
sometime in the future.
Baa: Bonds which are rated Baa are considered as medium-grade obligations
(i.e., they are neither highly protected nor poorly secured). Interest
payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics as
well.
Ba: Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection
of interest and principal payments may be very moderate and thereby not
well safeguarded during other good and bad times over the future.
Uncertainty of position characterizes bonds in this class.
---------------
+ The ratings indicated herein are believed to be the most recent ratings
available at the date of this Registration Statement 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
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<PAGE>
securities on the date of the Portfolio's fiscal year end.
B: Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time
may be small.
Caa: Bonds which are rated Caa are of poor standing. Such issues may be
in default or there may be present elements of danger with respect to
principal or interest.
Ca: Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings.
C: Bonds which are rated C are the lowest rated class of bonds, and issues
so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
Absence of Rating: Where no rating has been assigned or where a rating has
been suspended or withdrawn, it may be for reasons unrelated to the
quality of the issue.
Should no rating be assigned, the reason may be one of the following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities or
companies that are not rated as a matter of policy.
3. There is a lack of essential data pertaining to the issue
or issuer.
4. The issue was privately placed, in which case the rating
is not published in Moody's publications.
Suspension or withdrawal may occur if new and material circumstances
arise, the effects of which preclude satisfactory analysis; if there is no
longer available reasonable up-to-date data to permit a judgment to be
formed; if a bond is called for redemption; or for other reasons.
Note: Moody's applies numerical modifiers, 1, 2, and 3 in each generic
rating classification from Aa through B in its corporate bond rating
system. The modifier 1 indicates that the security ranks in the higher
end of its generic rating category; the modifier 2 indicates a mid-range
ranking; and the modifier 3 indicates that the issue ranks in the lower
end of its generic rating category.
Municipal Short-Term Obligations
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 affecting the liquidity of the borrower and short term
cyclical elements are critical in short term ratings, while other factors
a-2
<PAGE>
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 VMIGI, 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 VMIGI symbol to reflect such characteristics as payment upon
periodic demand rather than fixed maturity dates and payment relying on
external liquidity. Additionally, investors should be alert to the fact
that the source of payment may be limited to the external liquidity with
no or limited legal recourse to the issuer in the event the demand is not
met.
Commercial Paper
Moody's commercial paper ratings are opinions of the ability of issuers to
repay punctually promissory obligations not having an original maturity in
excess of 365 days.
Issuers (or supporting institutions) rated Prime-1 (P-1) have a superior
ability for repayment of senior short-term debt obligations. Prime-1 or
P-1 repayment ability will often be evidenced by many of the following
characteristics:
- Leading market positions in well established industries.
- High rates of return on funds employed.
- Conservative capitalization structure with moderate reliance on
debt and ample asset protection.
- Broad margins in earnings coverage of fixed financial charges and
high internal cash generation.
- Well established access to a range of financial markets and
assured sources of alternate liquidity.
Prime-2
Issuers (or supporting institutions) rated Prime-2 (P-2) have a strong
ability for repayment of senior short-term debt obligations. This will
normally be evidenced by many of the characteristics cited above, but to a
lesser degree. Earnings trends and coverage ratios, while sound, may be
more subject to variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample alternate
liquidity is maintained.
Prime-3
Issuers (or supporting institutions) rated Prime-3 (P-3) have an
acceptable ability for repayment of senior short-term obligations. The
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<PAGE>
effect of industry characteristics and market compositions may be more
pronounced. Variability in earnings and profitability may result in
changes in the level of debt protection measurements and may require
relatively high financial leverage. Adequate alternate liquidity is
maintained.
a-4
<PAGE>
Standard & Poor's
Investment Grade
AAA: Debt rated AAA has the highest rating assigned by S&P. Capacity to
pay interest and repay principal is extremely strong.
AA: Debt rated AA has a very strong capacity to pay interest and 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
a-5
<PAGE>
is assigned an actual or implied B or B- rating.
CC: The rating CC is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC debt rating.
C: The rating C is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC- debt rating. The C rating may
be used to cover a situation where a bankruptcy petition has been filed,
but debt service payments are continued.
C1: The Rating C1 is reserved for income bonds on which no interest is
being paid.
D: Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due even
if the applicable grace period has not expired, unless S&P believes that
such payments will be made during such grace period. The D rating also
will be used upon the filing of a bankruptcy petition if debt service
payments are jeopardized.
Plus (+) or Minus (-): The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the
major rating categories.
p: The letter "p" indicates that the rating is provisional. A provisional
rating assumes the successful completion of the project being financed by
the debt being rated and indicates that payment of debt service
requirements is largely or entirely dependent upon the successful and
timely completion of the project. This rating, however, while addressing
credit quality subsequent to completion of the project, makes no comment
on the likelihood of, or the risk of default upon failure of such
completion. The investor should exercise his own judgment with respect to
such likelihood and risk.
L: The letter "L" indicates that the rating pertains to the principal
amount of those bonds to the extent that the underlying deposit collateral
is insured by the Federal Deposit Insurance Corp. and interest is
adequately collateralized. In the case of certificates of deposit the
letter "L" indicates that the deposit, combined with other deposits, being
held in the same right and capacity, will be honored for principal and
accrued pre-default interest up to the federal insurance limits within 30
days after closing of the insured institution or, in the event that the
deposit is assumed by a successor insured institution, upon maturity.
NR: NR indicates no rating has been requested, that there is insufficient
information on which to base a rating, or that S&P does not rate a
particular type of obligation as a matter of policy.
Municipal Notes
S&P's 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
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<PAGE>
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 terms of
the note.
SP-3: Speculative capacity to pay principal and interest.
Commercial Paper
S&P's commercial paper ratings are a current assessment of the likelihood
of timely payment of debts considered short-term in the relevant market.
A: Issues assigned this highest rating are regarded as having the greatest
capacity for timely payment. Issues in this category are delineated with
the numbers 1, 2 and 3 to indicate the relative degree of safety.
A-1: This designation indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted with a plus (+) sign designation.
A-2: Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as
for issues designated "A-1".
A-3: Issues carrying this designation have adequate capacity for timely
payment. They are, however, more vulnerable to the adverse effects of
changes in circumstances than obligations carrying the higher
designations.
B: Issues rated "B" are regarded as having only speculative capacity for
timely payment.
C: This rating is assigned to short term debt obligations with doubtful
capacity for payment.
D: Debt rated 'D' is in payment default. The 'D' rating category is used
a-7
<PAGE>
when interest payments or principal payments are not made on the date due,
even if the applicable grace period had not expired, unless S&P believes
that such payments will be made during such grace period.
Fitch Investors Service, Inc.
Investment Grade Bond Ratings
AAA: Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest
and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
AA: Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is
very strong, although not quite as strong as bonds rated 'AAA'. Because
bonds rated in the 'AAA' and 'AA' categories are not significantly
vulnerable to foreseeable future developments, short-term debt of these
issuers is generally rated 'F-1+'.
A: Bonds considered to be investment grade and of high credit quality.
The obligors ability to pay interest and repay principal is considered to
be strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings.
BBB: Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these
bonds, and therefore, impair timely payment. The likelihood that the
ratings of these bonds will fall below investment grade is higher than for
bonds with higher ratings.
High Yield Bond Ratings
BB: Bonds are considered speculative. The obligor's ability to pay
interest and repay principal may be affected over time by adverse economic
changes. However, business and financial alternatives can be identified
that could assist the obligor in satisfying its debt service requirements.
B: Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued
timely payment of principal and interest reflects the obligor's limited
margin of safety and the need for reasonable business and economic
activity throughout the life of the issue.
CCC: Bonds have certain identifiable characteristics which, if not
remedied, may lead to default. The ability to meet obligations requires
an advantageous business and economic environment.
CC: Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
a-8
<PAGE>
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 Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated
'F-1+'.
F-2: Good Credit Quality. Issues carrying this rating have a satisfactory
degree of assurance for timely payment, but the margin of safety is not as
great as the `F-1+' and `F-1' categories.
F-3: Fair Credit Quality. Issues carrying this rating have
characteristics suggesting that the degree of assurance for timely payment
is adequate; however, near-term adverse change could cause these
securities to be rated below investment grade.
* * * * * * * *
Notes: Bonds which are unrated expose the investor to risks with respect
to capacity to pay interest or repay principal which are similar to the
risks of lower-rated speculative bonds. The Portfolio is dependent on the
Investment Adviser's judgment, analysis and experience in the evaluation
of such bonds.
Investors should note that the assignment of a rating to a bond by a
rating service may not reflect the effect of recent developments on the
a-9
<PAGE>
issuer's ability to make interest and principal payments.
a-10
<PAGE>
PART C
Item 24. Financial Statements and Exhibits
(a) Financial Statements
The financial statements called for by this Item are
incorporated by reference in Part B and listed in Item 23
hereof.
(b) Exhibits
1. Declaration of Trust dated May 1, 1995 filed
electronically as Exhibit No. 1 to the
Registrant's Registration Statement (filed with
the Commission on May 18, 1995) and incorporated
herein by reference (Accession Number 0000898432-
95-000190).
2. By-Laws of the Registrant adopted May 1, 1995
filed as Exhibit No. 2 to the Registration
Statement and incorporated herein by reference.
5. Investment Advisory Agreement between the
Registrant and Boston Management and Research
dated August 1, 1995 filed herewith.
6. Placement Agent Agreement with Eaton Vance
Distributors, Inc. dated August 1, 1995 filed
herewith.
7. The Securities and Exchange Commission has
granted the Registrant an exemptive order that
permits the Registrant to enter into deferred
compensation arrangements with its independent
Trustees. See In the Matter of Capital Exchange
Fund, Inc., Release No. IC-20671 (November 1,
1994).
8. (a) Custodian Agreement with Investors Bank &
Trust Company dated August 1, 1995 filed
herewith.
(b) Amendment to the Custodian Agreement dated
October 23, 1995 filed herewith.
C-1
<PAGE>
13. Investment representation letter of Boston
Management and Research dated May 1, 1995 filed
as Exhibit No. 13 to the Registration Statement
and incorporated herein by reference.
Item 25. Persons Controlled by or under Common Control with Registrant
Not applicable.
Item 26. Number of Holders of Securities
(1) (2)
Number of
Title of Class Record Holders
-------------- ---------------
As of May 1, 1996
Interests 4
Item 27. Indemnification
Reference is hereby made to Article V of the Registrant's
Declaration of Trust, filed as Exhibit 1(a) herewith.
The Trustees and officers of the Registrant and the personnel of
the Registrant's investment adviser are insured under an errors and
omissions liability insurance policy. The Registrant and its officers are
also insured under the fidelity bond required by Rule 17g-1 under the
Investment Company Act of 1940.
Item 28. Business and Other Connections
To the knowledge of the Portfolio, none of the trustees or
officers of the Portfolio's investment adviser, except as set forth on its
Form ADV as filed with the Securities and Exchange Commission, is engaged
in any other business, profession, vocation or employment of a substantial
nature, except that certain trustees and officers also hold various
positions with and engage in business for affiliates of the investment
adviser.
Item 29. Principal Underwriters
Not applicable.
Item 30. Location of Accounts and Records
All applicable accounts, books and documents required to be
maintained by the Registrant by Section 31(a) of the Investment Company
Act of 1940 and the Rules promulgated thereunder are in the possession and
custody of the Registrant's custodian, Investors Bank & Trust Company, 89
C-2
<PAGE>
South Street, Boston, MA 02111, with the exception of certain corporate
documents and portfolio trading documents which are in the possession and
custody of the Registrant's investment adviser at 24 Federal Street,
Boston, MA 02110. The Registrant is informed that all applicable
accounts, books and documents required to be maintained by registered
investment advisers are in the custody and possession of the Registrant's
investment adviser.
Item 31. Management Services
Not applicable.
Item 32. Undertakings
Not applicable.
C-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Investment Company Act of
1940, the Registrant has duly caused this Amendment No. 1 to the
Registration Statement on Form N-1A to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Boston and the
Commonwealth of Massachusetts, on the 29th day of May, 1996.
HIGH YIELD MUNICIPALS PORTFOLIO
By: /s/ Thomas J. Fetter
----------------------------
Thomas S. Fetter, President
<PAGE>
INDEX TO EXHIBITS
Exhibit No. Description of Exhibit
----------- -----------------------
5. Investment Advisory Agreement between the Registrant and
Boston Management and Research dated August 1, 1995
6. Placement Agent Agreement with Eaton Vance Distributors,
Inc. dated August 1, 1995
8. (a) Custodian Agreement with Investors Bank & Trust
Company dated August 1, 1995
(b) Amendment to the Custodian Agreement dated October
23, 1995
<PAGE>
HIGH YIELD MUNICIPALS PORTFOLIO
INVESTMENT ADVISORY AGREEMENT
AGREEMENT made this 1st day of August, 1995, between High Yield
Municipals Portfolio, a New York trust (the "Trust"), and Boston
Management and Research, a Massachusetts business trust (the "Adviser").
1. Duties of the Adviser. The Trust hereby employs the
Adviser to act as investment adviser for and to manage the investment and
reinvestment of the assets of the Trust and to administer its affairs,
subject to the supervision of the Trustees of the Trust, for the period
and on the terms set forth in this Agreement.
The Adviser hereby accepts such employment, and undertakes to
afford to the Trust the advice and assistance of the Adviser's
organization in the choice of investments and in the purchase and sale of
securities for the Trust and to furnish for the use of the Trust office
space and all necessary office facilities, equipment and personnel for
servicing the investments of the Trust and for administering its affairs
and to pay the salaries and fees of all officers and Trustees of the Trust
who are members of the Adviser's organization and all personnel of the
Adviser performing services relating to research and investment
activities. The Adviser shall for all purposes herein be deemed to be an
independent contractor and shall, except as otherwise expressly provided
or authorized, have no authority to act for or represent the Trust in any
way or otherwise be deemed an agent of the Trust.
The Adviser shall provide the Trust with such investment
management and supervision as the Trust may from time to time consider
necessary for the proper supervision of the Trust. As investment adviser
to the Trust, the Adviser shall furnish continuously an investment program
and shall determine from time to time what securities and other
investments shall be acquired, disposed of or exchanged and what portion
of the Trust's assets shall be held uninvested, subject always to the
applicable restrictions of the Declaration of Trust, By-Laws and
registration statement of the Trust under the Investment Company Act of
1940, all as from time to time amended. Should the Trustees of the Trust
at any time, however, make any specific determination as to investment
policy for the Trust and notify the Adviser thereof in writing, the
Adviser shall be bound by such determination for the period, if any,
specified in such notice or until similarly notified that such
determination has been revoked. The Adviser shall take, on behalf of the
Trust, all actions which it deems necessary or desirable to implement the
investment policies of the Trust.
The Adviser shall place all orders for the purchase or sale of
portfolio securities for the account of the Trust either directly with the
issuer or with brokers or dealers selected by the Adviser, and to that end
the Adviser is authorized as the agent of the Trust to give instructions
to the custodian of the Trust as to deliveries of securities and payments
of cash for the account of the Trust. In connection with the selection of
such brokers or dealers and the placing of such orders, the Adviser shall
<PAGE>
use its best efforts to seek to execute security transactions at prices
which are advantageous to the Trust and (when a disclosed commission is
being charged) at reasonably competitive commission rates. In selecting
brokers or dealers qualified to execute a particular transaction, brokers
or dealers may be selected who also provide brokerage and research
services (as those terms are defined in Section 28(e) of the Securities
Exchange Act of 1934) to the Adviser and the Adviser is expressly
authorized to pay any broker or dealer who provides such brokerage and
research services a commission for executing a security transaction which
is in excess of the amount of commission another broker or dealer would
have charged for effecting that transaction if the Adviser determines in
good faith that such amount of commission is reasonable in relation to the
value of the brokerage and research services provided by such broker or
dealer, viewed in terms of either that particular transaction or the
overall responsibilities which the Adviser and its affiliates have with
respect to accounts over which they exercise investment discretion.
Subject to the requirement set forth in the second sentence of this
paragraph, the Adviser is authorized to consider, as a factor in the
selection of any broker or dealer with whom purchase or sale orders may be
placed, the fact that such broker or dealer has sold or is selling shares
of any one or more investment companies sponsored by the Adviser or its
affiliates or shares of any other investment company investing in the
Trust.
2. Compensation of the Adviser. For the services, payments
and facilities to be furnished hereunder by the Adviser, the Adviser shall
be entitled to receive from the Trust, on a daily basis, compensation in
an amount 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 of the Trust in each Category as indicated
below:
Category Daily Net Assets Annual
Asset Rate
-------- ----------------- ----------
1 up to $500 million 0.350%
2 $500 million but less than $1 billion 0.325%
3 $1 billion but less than $1.5 billion 0.300%
4 $1.5 billion but less than $2 billion 0.275%
5 $2 billion but less than $3 billion 0.250%
6 $3 billion and over 0.225%, plus
(b) a daily income-based fee computed by applying the daily
income rate applicable to that portion of the total daily
gross income of the Trust (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 of the
Trust in the same Category bears to the total daily net
assets on such day) in each category as indicated below:
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<PAGE>
Category Daily Net Assets Annual Asset
Rate
-------- ---------------- ------------
1 up to $500 million 3.50%
2 $500 million but less than $1 billion 3.25%
3 $1 billion but less than $1.5 billion 3.00%
4 $1.5 billion but less than $2 billion 2.75%
5 $2 billion but less than $3 billion 2.50%
6 $3 billion and over 2.25%
Such daily compensation shall be paid monthly in arrears on the last
business day of each month. The Trust's daily net assets and gross income
shall be computed in accordance with the Declaration of Trust of the Trust
and any applicable votes and determinations of the Trustees of the Trust.
In case of initiation or termination of the Agreement during any
month with respect to the Trust, the fee for that month shall be based on
the number of calendar days during which it is in effect.
The Adviser may, from time to time, waive all or a part of the
above compensation.
3. Allocation of Charges and Expenses. It is understood
that the Trust will pay all expenses other than those expressly stated to
be payable by the Adviser hereunder, which expenses payable by the Trust
shall include, without implied limitation, (i) expenses of maintaining the
Trust and continuing its existence, (ii) registration of the Trust under
the Investment Company Act of 1940, (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 Trust, (viii) expenses
of registering and qualifying the Trust and Interests in the Trust 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 Holders and investors, and fees
and expenses of registering and maintaining registrations of the Trust and
of the Trust's placement agent as broker-dealer or agent under state
securities laws, (ix) expenses of reports and notices to Holders and of
meetings of Holders 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 Trust (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, Holder servicing agents and registrars for all services
to the Trust, (xv) expenses for servicing the account of Holders, (xvi)
any direct charges to Holders approved by the Trustees of the Trust,
(xvii) compensation and expenses of Trustees of the Trust who are not
3
<PAGE>
members of the Adviser's organization, and (xviii) such non-recurring
items as may arise, including expenses incurred in connection with
litigation, proceedings and claims and the obligation of the Trust to
indemnify its Trustees, officers and Holders with respect thereto.
4. Other Interests. It is understood that Trustees and
officers of the Trust and Holders of Interests in the Trust are or may be
or become interested in the Adviser as trustees, shareholders or otherwise
and that trustees, officers and shareholders of the Adviser are or may be
or become similarly interested in the Trust, and that the Adviser may be
or become interested in the Trust as Holder or otherwise. It is also
understood that trustees, officers, employees and shareholders of the
Adviser may be or become interested (as directors, trustees, officers,
employees, shareholders or otherwise) in other companies or entities
(including, without limitation, other investment companies) which the
Adviser may organize, sponsor or acquire, or with which it may merge or
consolidate, and which may include the words "Eaton Vance" or "Boston
Management and Research" or any combination thereof as part of their name,
and that the Adviser or its subsidiaries or affiliates may enter into
advisory or management agreements or other contracts or relationships with
such other companies or entities.
5. Limitation of Liability of the Adviser. The services of
the Adviser to the Trust are not to be deemed to be exclusive, the Adviser
being free to render services to others and engage in other business
activities. In the absence of willful misfeasance, bad faith, gross
negligence or reckless disregard of obligations or duties hereunder on the
part of the Adviser, the Adviser shall not be subject to liability to the
Trust or to any Holder of Interests in the Trust for any act or omission
in the course of, or connected with, rendering services hereunder or for
any losses which may be sustained in the acquisition, holding or
disposition of any security or other investment.
6. Sub-Investment Advisers. The Adviser may employ one or
more sub-investment advisers from time to time to perform such of the acts
and services of the Adviser, including the selection of brokers or dealers
to execute the Trust's portfolio security transactions, and upon such
terms and conditions as may be agreed upon between the Adviser and such
investment adviser and approved by the Trustees of the Trust.
7. Duration and Termination of this Agreement. This
Agreement shall become effective upon the date of its execution, and,
unless terminated as herein provided, shall remain in full force and
effect through and including February 28, 1996 and shall continue in full
force and effect indefinitely thereafter, but only so long as such
continuance after February 28, 1996 is specifically approved at least
annually (i) by the Board of Trustees of the Trust or by vote of a
majority of the outstanding voting securities of the Trust and (ii) by the
vote of a majority of those Trustees of the Trust who are not interested
persons of the Adviser or the Trust cast in person at a meeting called for
the purpose of voting on such approval.
4
<PAGE>
Either party hereto may, at any time on sixty (60) days' prior
written notice to the other, terminate this Agreement without the payment
of any penalty, by action of Trustees of the Trust or the trustees of the
Adviser, as the case may be, and the Trust may, at any time upon such
written notice to the Adviser, terminate this Agreement by vote of a
majority of the outstanding voting securities of the Trust. This
Agreement shall terminate automatically in the event of its assignment.
8. Amendments of the Agreement. This Agreement may be
amended by a writing signed by both parties hereto, provided that no
amendment to this Agreement shall be effective until approved (i) by the
vote of a majority of those Trustees of the Trust who are not interested
persons of the Adviser or the Trust cast in person at a meeting called for
the purpose of voting on such approval, and (ii) by vote of a majority of
the outstanding voting securities of the Trust.
9. Limitation of Liability. The Adviser expressly
acknowledges the provision in the Declaration of Trust of the Trust
(Section 5.2 and 5.6) limiting the personal liability of the Trustees and
officers of the Trust, and the Adviser hereby agrees that it shall have
recourse to the Trust for payment of claims or obligations as between the
Trust and the Adviser arising out of this Agreement and shall not seek
satisfaction from any Trustee or officer of the Trust.
10. Certain Definitions. The terms "assignment" and
"interested persons" when used herein shall have the respective meanings
specified in the Investment Company Act of 1940 as now in effect or as
hereafter amended subject, however, to such exemptions as may be granted
by the Securities and Exchange Commission by any rule, regulation or
order. The term "vote of a majority of the outstanding voting securities"
shall mean the vote, at a meeting of Holders, of the lesser of (a) 67 per
centum or more of the Interests in the Trust present or represented by
proxy at the meeting if the Holders of more than 50 per centum of the
outstanding Interests in the Trust are present or represented by proxy at
the meeting, or (b) more than 50 per centum of the outstanding Interests
in the Trust. The terms "Holders" and "Interests" when used herein shall
have the respective meanings specified in the Declaration of Trust of the
Trust.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed on the day and year first above written.
HIGH YIELD MUNICIPALS PORTFOLIO
By: /s/ James B. Hawkes
------------------------------
President
5
<PAGE>
BOSTON MANAGEMENT AND RESEARCH
By: /s/ H. Day Brigham, Jr.
-----------------------------
Vice President, and not
individually
6
<PAGE>
PLACEMENT AGENT AGREEMENT
August 1, 1995
Eaton Vance Distributors, Inc.
24 Federal Street
Boston, Massachusetts 02110
Gentlemen:
This is to confirm that, in consideration of the agreements
hereinafter contained, the undersigned, High Yield Municipals Portfolio
(the "Trust"), an open-end non-diversified management investment company
registered under the Investment Company Act of 1940, as amended (the "1940
Act"), organized as a New York trust, has agreed that Eaton Vance
Distributors, Inc. ("EVD") shall be the placement agent (the "Placement
Agent") of Interests in the Trust ("Trust Interests").
1. Services as Placement Agent.
1.1 EVD will act as Placement Agent of the Trust Interests
covered by the Trust's registration statement then in effect under the
1940 Act. In acting as Placement Agent under this Placement Agent
Agreement, neither EVD nor its employees or any agents thereof shall make
any offer or sale of Trust Interests in a manner which would require the
Trust Interests to be registered under the Securities Act of 1933, as
amended (the "1933 Act").
1.2 All activities by EVD and its agents and employees as
Placement Agent of Trust Interests shall comply with all applicable laws,
rules and regulations, including, without limitation, all rules and
regulations adopted pursuant to the 1940 Act by the Securities and
Exchange Commission (the "Commission").
1.3 Nothing herein shall be construed to require the Trust to
accept any offer to purchase any Trust Interests, all of which shall be
subject to approval by the Board of Trustees.
1.4 The Portfolio shall furnish from time to time for use in
connection with the sale of Trust Interests such information with respect
to the Trust and Trust Interests as EVD may reasonably request. The Trust
shall also furnish EVD upon request with: (a) unaudited semiannual
statements of the Trust's books and accounts prepared by the Trust, and
(b) from time to time such additional information regarding the Trust's
financial or regulatory condition as EVD may reasonably request.
1.5 The Trust represents to EVD that all registration statements
filed by the Trust with the Commission under the 1940 Act with respect to
Trust Interests have been prepared in conformity with the requirements of
such statute and the rules and regulations of the Commission thereunder.
As used in this Agreement the term "registration statement" shall mean any
registration statement filed with the Commission as modified by any
<PAGE>
amendments thereto that at any time shall have been filed with the
Commission by or on behalf of the Trust. The Trust represents and
warrants to EVD that any registration statement will contain all
statements required to be stated therein in conformity with both such
statute and the rules and regulations of the Commission; that all
statements of fact contained in any registration statement will be true
and correct in all material respects at the time of filing of such
registration statement or amendment thereto; and that no registration
statement will include an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make
the statements therein not misleading to a purchaser of Trust Interests.
The Trust may but shall not be obligated to propose from time to time such
amendment to any registration statement as in the light of future
developments may, in the opinion of the Trust's counsel, be necessary or
advisable. If the Trust shall not propose such amendment and/or
supplement within fifteen days after receipt by the Trust of a written
request from EVD to do so, EVD may, at its option, terminate this
Agreement. The Trust shall not file any amendment to any registration
statement without giving EVD reasonable notice thereof in advance;
provided, however, that nothing contained in this Agreement shall in any
way limit the Trust's right to file at any time such amendment to any
registration statement as the Trust may deem advisable, such right being
in all respects absolute and unconditional.
1.6 The Trust agrees to indemnify, defend and hold EVD, its
several officers and directors, and any person who controls EVD within the
meaning of Section 15 of the 1933 Act or Section 20 of the Securities and
Exchange Act of 1934 (the "1934 Act") (for purposes of this paragraph 1.6,
collectively, "Covered Persons") free and harmless from and against any
and all claims, demands, liabilities and expenses (including the cost of
investigating or defending such claims, demands or liabilities and any
counsel fees incurred in connection therewith) which any Covered Person
may incur under the 1933 Act, the 1934 Act, common law or otherwise,
arising out of or based on any untrue statement of a material fact
contained in any registration statement, private placement memorandum or
other offering material ("Offering Material") or arising out of or based
on any omission to state a material fact required to be stated in any
Offering Material or necessary to make the statements in any Offering
Material not misleading; provided, however, that the Trust's agreement to
indemnify Covered Persons shall not be deemed to cover any claims,
demands, liabilities or expenses arising out of any financial and other
statements as are furnished in writing to the Trust by EVD in its capacity
as Placement Agent for use in the answers to any items of any registration
statement or in any statements made in any Offering Material, or arising
out of or based on any omission or alleged omission to state a material
fact in connection with the giving of such information required to be
stated in such answers or necessary to make the answers not misleading;
and further provided that the Trust's agreement to indemnify EVD and the
Trust's representations and warranties hereinbefore set forth in this
paragraph 1.6 shall not be deemed to cover any liability to the Trust or
its investors to which a Covered Person would otherwise be subject by
reason of willful misfeasance, bad faith or gross negligence in the
2
<PAGE>
performance of its duties, or by reason of a Covered Person's reckless
disregard of its obligations and duties under this Agreement. The Trust
should be notified of any action brought against a Covered Person, such
notification to be given by a writing addressed to the Trust, 24 Federal
Street Boston, Massachusetts 02110, with a copy to the Adviser of the
Trust, Boston Management and Research, at the same address, promptly after
the summons or other first legal process shall have been duly and
completely served upon such Covered Person. The failure to so notify the
Trust of any such action shall not relieve the Trust from any liability
except to the extent the Trust shall have been prejudiced by such failure,
or from any liability that the Trust may have to the Covered Person
against whom such action is brought by reason of any such untrue statement
or omission, otherwise than on account of the Trust's indemnity agreement
contained in this paragraph. The Trust will be entitled to assume the
defense of any suit brought to enforce any such claim, demand or
liability, but in such case such defense shall be conducted by counsel of
good standing chosen by the Trust and approved by EVD, which approval
shall not be unreasonably withheld. In the event the Trust elects to
assume the defense of any such suit and retain counsel of good standing
approved by EVD, the defendant or defendants in such suit shall bear the
fees and expenses of any additional counsel retained by any of them; but
in case the Trust does not elect to assume the defense of any such suit or
in case EVD reasonably does not approve of counsel chosen by the Trust,
the Trust will reimburse the Covered Person named as defendant in such
suit, for the fees and expenses of any counsel retained by EVD or it. The
Trust's indemnification agreement contained in this paragraph and the
Trust's representations and warranties in this Agreement shall remain
operative and in full force and effect regardless of any investigation
made by or on behalf of Covered Persons, and shall survive the delivery of
any Trust Interests. This agreement of indemnity will inure exclusively
to Covered Persons and their successors. The Trust agrees to notify EVD
promptly of the commencement of any litigation or proceedings against the
Trust or any of its officers or Trustees in connection with the issue and
sale of any Trust Interests.
1.7 EVD agrees to indemnify, defend and hold the Trust, its
several officers and trustees, and any person who controls the Trust
within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934
Act (for purposes of this paragraph 1.7, collectively, "Covered Persons")
free and harmless from and against any and all claims, demands,
liabilities and expenses (including the costs of investigating or
defending such claims, demands, liabilities and any counsel fees incurred
in connection therewith) that Covered Persons may incur under the 1933
Act, the 1934 Act or common law or otherwise, but only to the extent that
such liability or expense incurred by a Covered Person resulting from such
claims or demands shall arise out of or be based on any untrue statement
of a material fact contained in information furnished in writing by EVD in
its capacity as Placement Agent to the Trust for use in the answers to any
of the items of any registration statement or in any statements in any
other Offering Material or shall arise out of or be based on any omission
to state a material fact in connection with such information furnished in
writing by EVD to the Trust required to be stated in such answers or
3
<PAGE>
necessary to make such information not misleading. EVD shall be notified
of any action brought against a Covered Person, such notification to be
given by a writing addressed to EVD at 24 Federal Street, Boston,
Massachusetts 02110, promptly after the summons or other first legal
process shall have been duly and completely served upon such Covered
Person. EVD shall have the right of first control of the defense of the
action with counsel of its own choosing satisfactory to the Trust if such
action is based solely on such alleged misstatement or omission on EVD's
part, and in any other event each Covered Person shall have the right to
participate in the defense or preparation of the defense of any such
action. The failure to so notify EVD of any such action shall not relieve
EVD from any liability except to the extent the Trust shall have been
prejudiced by such failure, or from any liability that EVD may have to
Covered Persons by reason of any such untrue or alleged untrue statement,
or omission or alleged omission, otherwise than on account of EVD's
indemnity agreement contained in this paragraph.
1.8 No Trust Interests shall be offered by either EVD or the
Trust under any of the provisions of this Agreement and no orders for the
purchase or sale of Trust Interests hereunder shall be accepted by the
Trust if and so long as the effectiveness of the registration statement or
any necessary amendments thereto shall be suspended under any of the
provisions of the 1933 Act or the 1940 Act; provided, however, that
nothing contained in this paragraph shall in any way restrict or have an
application to or bearing on the Trust's obligation to redeem Trust
Interests from any investor in accordance with the provisions of the
Trust's registration statement or Declaration of Trust, as amended from
time to time.
1.9 The Trust agrees to advise EVD as soon as reasonably
practical by a notice in writing delivered to EVD or its counsel:
(a) of any request by the Commission for amendments to the
registration statement then in effect or for additional information;
(b) in the event of the issuance by the Commission of any stop
order suspending the effectiveness of the registration statement then in
effect or the initiation by service of process on the Trust of any
proceeding for that purpose;
(c) of the happening of any event that makes untrue any
statement of a material fact made in the registration statement then in
effect or that requires the making of a change in such registration
statement in order to make the statements therein not misleading; and
(d) of all action of the Commission with respect to any
amendment to any registration statement that may from time to time be
filed with the Commission.
For purposes of this paragraph 1.9, informal requests by or acts
of the Staff of the Commission shall not be deemed actions of or requests
by the Commission.
4
<PAGE>
1.10 EVD agrees on behalf of itself and its employees to treat
confidentially and as proprietary information of the Trust all records and
other information not otherwise publicly available relative to the Trust
and its prior, present or potential investors and not to use such records
and information for any purpose other than performance of its
responsibilities and duties hereunder, except after prior notification to
and approval in writing by the Trust, which approval shall not be
unreasonably withheld and may not be withheld where EVD may be exposed to
civil or criminal contempt proceedings for failure to comply, when
requested to divulge such information by duly constituted authorities, or
when so requested by the Trust.
2. Duration and Termination of this Agreement.
This Agreement shall become effective upon the date of its
execution, and, unless terminated as herein provided, shall remain in full
force and effect through and including February 28, 1997 and shall
continue in full force and effect indefinitely thereafter, but only so
long as such continuance after February 28, 1997 is specifically approved
at least annually (i) by the Board of Trustees of the Trust or by vote of
a majority of the outstanding voting securities of the Trust and (ii) by
the vote of a majority of those Trustees of the Trust who are not
interested persons of EVD or the Trust cast in person at a meeting called
for the purpose of voting on such approval.
Either party hereto may, at any time on sixty (60) days' prior
written notice to the other, terminate this agreement without the payment
of any penalty, by action of Trustees of the Trust or the Directors of
EVD, as the case may be, and the Trust may, at any time upon such written
notice to EVD, terminate this Agreement by vote of a majority of the
outstanding voting securities of the Trust. This Agreement shall
terminate automatically in the event of its assignment.
3. Representations and Warranties.
EVD and the Trust each hereby represents and warrants to the
other that it has all requisite authority to enter into, execute, deliver
and perform its obligations under this Agreement and that, with respect to
it, this Agreement is legal, valid and binding, and enforceable in
accordance with its terms.
4. Limitation of Liability.
EVD expressly acknowledges the provision in the Declaration of
Trust of the Trust (Sections 5.2 and 5.6) limiting the personal liability
of the Trustees and officers of the Trust, and EVD hereby agrees that it
shall have recourse to the Trust for payment of claims or obligations as
between the Trust and EVD arising out of this Agreement and shall not seek
satisfaction from any Trustee or officer of the Trust.
5. Certain Definitions.
5
<PAGE>
The terms "assignment" and "interested persons" when used herein
shall have the respective meanings specified in the Investment Company Act
of 1940 as now in effect or as hereafter amended subject, however, to such
exemptions as may be granted by the Securities and Exchange Commission by
any rule, regulation or order. The term "vote of a majority of the
outstanding voting securities" shall mean the vote, at a meeting of
Holders, of the lesser of (a) 67 per centum or more of the Interests in
the Trust present or represented by proxy at the meeting if the Holders of
more than 50 per centum of the outstanding Interests in the Trust are
present or represented by proxy at the meeting, or (b) more than 50 per
centum of the outstanding Interests in the Trust. The terms "Holders" and
"Interests" when used herein shall have the respective meanings specified
in the Declaration of Trust of the Trust.
6. Concerning Applicable Provisions of Law, etc.
This Agreement shall be subject to all applicable provisions of
law, including the applicable provisions of the 1940 Act and to the extent
that any provisions herein contained conflict with any such applicable
provisions of law, the latter shall control.
The laws of the Commonwealth of Massachusetts shall, except to
the extent that any applicable provisions of federal law shall be
controlling, govern the construction, validity and effect of this
Agreement, without reference to principles of conflicts of law.
If the contract set forth herein is acceptable to you, please so
indicate by executing the enclosed copy of this Agreement and returning
the same to the undersigned, whereupon this Agreement shall constitute a
binding contract between the parties hereto effective at the closing of
business on the date hereof.
Yours very truly,
HIGH YIELD MUNICIPALS PORTFOLIO
By: /s/ James B. Hawkes
-----------------------------
President
Accepted:
EATON VANCE DISTRIBUTORS, INC.
By: /s/ Wharton P. Whitaker
---------------------------
President
6
<PAGE>
HIGH YIELD MUNICIPALS PORTFOLIO
August 1, 1995
High Yield Municipals Portfolio hereby adopts and agrees to become a party
to the attached Master Custodian Agreement between the Eaton Vance Hub
Portfolios and Investors Bank & Trust Company.
HIGH YIELD MUNICIPALS PORTFOLIO
BY: /s/ James B. Hawkes
---------------------------------
President
Accepted and agreed to:
INVESTORS BANK & TRUST COMPANY
BY: /s/ Michael F. Rogers
------------------------------
Title: Executive Managing Director
<PAGE>
MASTER CUSTODIAN AGREEMENT
between
EATON VANCE HUB PORTFOLIOS
and
INVESTORS BANK & TRUST COMPANY
<PAGE>
TABLE OF CONTENTS
1. Definitions . . . . . . . . . . . . . . . . . . . . . . . . 1-3
2. Employment of Custodian and Property to be Held by It . . . . 3
3. Duties of the Custodian with Respect to
Property of the Trust . . . . . . . . . . . . . . . . . . . . 4
A. Safekeeping and Holding of Property . . . . . . . . . . . 4
B. Delivery of Securities . . . . . . . . . . . . . . . . . 4-7
C. Registration of Securities . . . . . . . . . . . . . . . . 7
D. Bank Accounts . . . . . . . . . . . . . . . . . . . . . . 8
E. Payments for Interests, or Increases in Interests,
in the Trust . . . . . . . . . . . . . . . . . . . . . . 8
F. Investment and Availability of Federal Funds . . . . . . . 8
G. Collections . . . . . . . . . . . . . . . . . . . . . . 8-9
H. Payment of Trust Monies . . . . . . . . . . . . . . . 10-11
I. Liability for Payment in Advance of
Receipt of Securities Purchased . . . . . . . . . . . 11-12
J. Payments for Repurchases or Redemptions
of Interests of the Trust . . . . . . . . . . . . . . . . 12
K. Appointment of Agents by the Custodian . . . . . . . . . . 12
L. Deposit of Trust Portfolio Securities in Securities
Systems . . . . . . . . . . . . . . . . . . . . . . 12-14
M. Deposit of Trust Commercial Paper in an Approved
Book-Entry System for Commercial Paper . . . . . . . 15-17
N. Segregated Account . . . . . . . . . . . . . . . . . . . . 17
O. Ownership Certificates for Tax Purposes . . . . . . . . . 18
P. Proxies . . . . . . . . . . . . . . . . . . . . . . . . . 18
Q. Communications Relating to Trust Portfolio . . . . . . . 18
Securities
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R. Exercise of Rights; Tender Offers . . . . . . . . . . 18-19
S. Depository Receipts . . . . . . . . . . . . . . . . . . . 19
T. Interest Bearing Call or Time Deposits . . . . . . . . . . 20
U. Options, Futures Contracts and Foreign
Currency Transactions . . . . . . . . . . . . . . . 20-22
V. Actions Permitted Without Express Authority . . . . . . . 22
4. Duties of Bank with Respect to Books of Account and
Calculations of Net Asset Value . . . . . . . . . . . . . 22-23
5. Records and Miscellaneous Duties . . . . . . . . . . . . . 23-24
6. Opinion of Trust's Independent Public Accountants . . . . . . 24
7. Compensation and Expenses of Bank . . . . . . . . . . . . . . 24
8. Responsibility of Bank . . . . . . . . . . . . . . . . . . 24-25
9. Persons Having Access to Assets of the Trust . . . . . . . 25-26
10. Effective Period, Termination and Amendment;
Successor Custodian . . . . . . . . . . . . . . . . . . . 26-27
11. Interpretive and Additional Provisions . . . . . . . . . . . . 27
12. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
13. Massachusetts Law to Apply . . . . . . . . . . . . . . . . . . 27
14. Adoption of the Agreement by the Trust . . . . . . . . . . . . 28
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MASTER CUSTODIAN AGREEMENT
This Agreement is made between each investment company advised by
Boston Management and Research which has adopted this Agreement in the
manner provided herein and Investors Bank & Trust Company (hereinafter
called "Bank", "Custodian" and "Agent"), a trust company established under
the laws of Massachusetts with a principal place of business in Boston,
Massachusetts.
Whereas, each such investment company is registered under the
Investment Company Act of 1940 and has appointed the Bank to act as
Custodian of its property and to perform certain duties as its Agent, as
more fully hereinafter set forth; and
Whereas, the Bank is willing and able to act as each such
investment company's Custodian and Agent, subject to and in accordance
with the provisions hereof;
Now, therefore, in consideration of the premises and of the
mutual covenants and agreements herein contained, each such investment
company and the Bank agree as follows:
1. Definitions
Whenever used in this Agreement, the following words and phrases,
unless the context otherwise requires, shall have the following meanings:
(a) "Trust" shall mean the investment company which has adopted
this Agreement.
(b) "Board" shall mean the board of trustees of the Trust.
(c) "The Depository Trust Company", a clearing agency registered
with the Securities and Exchange Commission under Section 17A of the
Securities Exchange Act of 1934 which acts as a securities depository and
which has been specifically approved as a securities depository for the
Trust by the Board.
(d) "Participants Trust Company", a clearing agency registered
with the Securities and Exchange Commission under Section 17A of the
Securities Exchange Act of 1934 which acts as a securities depository and
which has been specifically approved as a securities depository for the
Trust by the Board.
(e) "Approved Clearing Agency" shall mean any other domestic
clearing agency registered with the Securities and Exchange Commission
under Section 17A of the Securities Exchange Act of 1934 which acts as a
securities depository but only if the Custodian has received a certified
copy of a resolution of the Board approving such clearing agency as a
securities depository for the Trust.
(f) "Federal Book-Entry System" shall mean the book-entry system
referred to in Rule 17f-4(b) under the Investment Company Act of 1940 for
United States and federal agency securities (i.e., as provided in Subpart
O of Treasury Circular No. 300, 31 CFR 306, Subpart B of 31 CFR Part 350,
<PAGE>
and the book-entry regulations of federal agencies substantially in the
form of Subpart O).
(g) "Approved Foreign Securities Depository" shall mean a foreign
securities depository or clearing agency referred to in Rule 17f-4 under
the Investment Company Act of 1940 for foreign securities but only if the
Custodian has received a certified copy of a resolution of the Board
approving such depository or clearing agency as a foreign securities
depository for the Trust.
(h) "Approved Book-Entry System for Commercial Paper" shall mean
a system maintained by the Custodian or by a subcustodian employed
pursuant to Section 2 hereof for the holding of commercial paper in
book-entry form but only if the Custodian has received a certified copy of
a resolution of the Board approving the participation by the Trust in such
system.
(i) The Custodian shall be deemed to have received "proper
instructions" in respect of any of the matters referred to in this
Agreement upon receipt of written or facsimile instructions signed by such
one or more person or persons as the Board shall have from time to time
authorized to give the particular class of instructions in question.
Different persons may be authorized to give instructions for different
purposes. A certified copy of a resolution of the Board may be received
and accepted by the Custodian as conclusive evidence of the authority of
any such person to act and may be considered as in full force and effect
until receipt of written notice to the contrary. Such instructions may be
general or specific in terms and, where appropriate, may be standing
instructions. Unless the resolution delegating authority to any person or
persons to give a particular class of instructions specifically requires
that the approval of any person, persons or committee shall first have
been obtained before the Custodian may act on instructions of that class,
the Custodian shall be under no obligation to question the right of the
person or persons giving such instructions in so doing. Oral instructions
will be considered proper instructions if the Custodian reasonably
believes them to have been given by a person authorized to give such
instructions with respect to the transaction involved. The Trust shall
cause all oral instructions to be confirmed in writing. The Trust
authorizes the Custodian to tape record any and all telephonic or other
oral instructions given to the Custodian. Upon receipt of a certificate
signed by two officers of the Trust as to the authorization by the
President and the Treasurer of the Trust accompanied by a detailed
description of the communication procedures approved by the President and
the Treasurer of the Trust, "proper instructions" may also include
communications effected directly between electromechanical or electronic
devices provided that the President and Treasurer of the Trust and the
Custodian are satisfied that such procedures afford adequate safeguards
for the Trust's assets. In performing its duties generally, and more
particularly in connection with the purchase, sale and exchange of
securities made by or for the Trust, the Custodian may take cognizance of
the provisions of the governing documents and registration statement of
the Trust as the same may from time to time be in effect (and resolutions
or proceedings of the holders of interests in the Trust or the Board),
but, nevertheless, except as otherwise expressly provided herein, the
Custodian may assume unless and until notified in writing to the contrary
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that so-called proper instructions received by it are not in conflict with
or in any way contrary to any provisions of such governing documents and
registration statement, or resolutions or proceedings of the holders of
interests in the Trust or the Board.
(j) The term "Vote" when used with respect to the Board or the
Holders of Interests in the Trust shall include a vote, resolution,
consent, proceeding and other action taken by the Board or Holders in
accordance with the Declaration of Trust or By-Laws of the Trust.
2. Employment of Custodian and Property to be Held by It
The Trust hereby appoints and employs the Bank as its Custodian
and Agent in accordance with and subject to the provisions hereof, and the
Bank hereby accepts such appointment and employment. The Trust agrees to
deliver to the Custodian all securities, participation interests, cash and
other assets owned by it, and all payments of income, payments of
principal and capital distributions and adjustments received by it with
respect to all securities and participation interests owned by the Trust
from time to time, and the cash consideration received by it from time to
time in exchange for an interest in the Trust or for an increase in such
an interest. The Custodian shall not be responsible for any property of
the Trust held by the Trust and not delivered by the Trust to the
Custodian. The Trust will also deliver to the Bank from time to time
copies of its currently effective declaration of trust, by-laws,
registration statement and placement agent agreement with its placement
agent, together with such resolutions, and other proceedings of the Trust
as may be necessary for or convenient to the Bank in the performance of
its duties hereunder.
The Custodian may from time to time employ one or more
subcustodians to perform such acts and services upon such terms and
conditions as shall be approved from time to time by the Board. Any such
subcustodian so employed by the Custodian shall be deemed to be the agent
of the Custodian, and the Custodian shall remain primarily responsible for
the securities, participation interests, moneys and other property of the
Trust held by such subcustodian. Any foreign subcustodian shall be a bank
or trust company which is an eligible foreign custodian within the meaning
of Rule 17f-5 under the Investment Company Act of 1940, and the foreign
custody arrangements shall be approved by the Board and shall be in
accordance with and subject to the provisions of said Rule. For the
purposes of this Agreement, any property of the Trust held by any such
subcustodian (domestic or foreign) shall be deemed to be held by the
Custodian under the terms of this Agreement.
3. Duties of the Custodian with Respect to Property of the Trust
A. Safekeeping and Holding of Property The Custodian shall keep
safely all property of the Trust and on behalf of the Trust
shall from time to time receive delivery of Trust property
for safekeeping. The Custodian shall hold, earmark and
segregate on its books and records for the account of the
Trust all property of the Trust, including all securities,
participation interests and other assets of the Trust (1)
physically held by the Custodian, (2) held by any
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<PAGE>
subcustodian referred to in Section 2 hereof or by any agent
referred to in Paragraph K hereof, (3) held by or maintained
in The Depository Trust Company or in Participants Trust
Company or in an Approved Clearing Agency or in the Federal
Book-Entry System or in an Approved Foreign Securities
Depository, each of which from time to time is referred to
herein as a "Securities System", and (4) held by the
Custodian or by any subcustodian referred to in Section 2
hereof and maintained in any Approved Book-Entry System for
Commercial Paper.
B. Delivery of Securities The Custodian shall release and
deliver securities or participation interests owned by the
Trust held (or deemed to be held) by the Custodian or
maintained in a Securities System account or in an Approved
Book-Entry System for Commercial Paper account only upon
receipt of proper instructions, which may be continuing
instructions when deemed appropriate by the parties, and only
in the following cases:
1) Upon sale of such securities or participation
interests for the account of the Trust, but only
against receipt of payment therefor; if delivery is
made in Boston or New York City, payment therefor
shall be made in accordance with generally accepted
clearing house procedures or by use of Federal Reserve
Wire System procedures; if delivery is made elsewhere
payment therefor shall be in accordance with the then
current "street delivery" custom or in accordance with
such procedures agreed to in writing from time to time
by the parties hereto; if the sale is effected through
a Securities System, delivery and payment therefor
shall be made in accordance with the provisions of
Paragraph L hereof; if the sale of commercial paper is
to be effected through an Approved Book-Entry System
for Commercial Paper, delivery and payment therefor
shall be made in accordance with the provisions of
Paragraph M hereof; if the securities are to be sold
outside the United States, delivery may be made in
accordance with procedures agreed to in writing from
time to time by the parties hereto; for the purposes
of this subparagraph, the term "sale" shall include
the disposition of a portfolio security (i) upon the
exercise of an option written by the Trust and (ii)
upon the failure by the Trust to make a successful bid
with respect to a portfolio security, the continued
holding of which is contingent upon the making of such
a bid;
2) Upon the receipt of payment in connection with any
repurchase agreement or reverse repurchase agreement
relating to such securities and entered into by the
Trust;
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<PAGE>
3) To the depository agent in connection with tender or
other similar offers for portfolio securities of the
Trust;
4) To the issuer thereof or its agent when such
securities or participation interests are called,
redeemed, retired or otherwise become payable;
provided that, in any such case, the cash or other
consideration is to be delivered to the Custodian or
any subcustodian employed pursuant to Section 2
hereof;
5) To the issuer thereof, or its agent, for transfer into
the name of the Trust or into the name of any nominee
of the Custodian or into the name or nominee name of
any agent appointed pursuant to Paragraph K hereof or
into the name or nominee name of any subcustodian
employed pursuant to Section 2 hereof; or for exchange
for a different number of bonds, certificates or other
evidence representing the same aggregate face amount
or number of units; provided that, in any such case,
the new securities or participation interests are to
be delivered to the Custodian or any subcustodian
employed pursuant to Section 2 hereof;
6) To the broker selling the same for examination in
accordance with the "street delivery" custom; provided
that the Custodian shall adopt such procedures as the
Trust from time to time shall approve to ensure their
prompt return to the Custodian by the broker in the
event the broker elects not to accept them;
7) For exchange or conversion pursuant to any plan of
merger, consolidation, recapitalization,
reorganization or readjustment of the securities of
the issuer of such securities, or pursuant to
provisions for conversion of such securities, or
pursuant to any deposit agreement; provided that, in
any such case, the new securities and cash, if any,
are to be delivered to the Custodian or any
subcustodian employed pursuant to Section 2 hereof;
8) In the case of warrants, rights or similar securities,
the surrender thereof in connection with the exercise
of such warrants, rights or similar securities, or the
surrender of interim receipts or temporary securities
for definitive securities; provided that, in any such
case, the new securities and cash, if any, are to be
delivered to the Custodian or any subcustodian
employed pursuant to Section 2 hereof;
9) For delivery in connection with any loans of
securities made by the Trust (such loans to be made
pursuant to the terms of the Trust's current
registration statement), but only against receipt of
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<PAGE>
adequate collateral as agreed upon from time to time
by the Custodian and the Trust, which may be in the
form of cash or obligations issued by the United
States government, its agencies or instrumentalities;
except that in connection with any securities loans
for which collateral is to be credited to the
Custodian's account in the book-entry system
authorized by the U.S. Department of Treasury, the
Custodian will not be held liable or responsible for
the delivery of securities loaned by the Trust prior
to the receipt of such collateral;
10) For delivery as security in connection with any
borrowings by the Trust requiring a pledge or
hypothecation of assets by the Trust (if then
permitted under circumstances described in the current
registration statement of the Trust), provided, that
the securities shall be released only upon payment to
the Custodian of the monies borrowed, except that in
cases where additional collateral is required to
secure a borrowing already made, further securities
may be released for that purpose; upon receipt of
proper instructions, the Custodian may pay any such
loan upon redelivery to it of the securities pledged
or hypothecated therefor and upon surrender of the
note or notes evidencing the loan;
11) When required for delivery in connection with any
redemption or repurchase of an interest in the Trust
in accordance with the provisions of Paragraph J
hereof;
12) For delivery in accordance with the provisions of any
agreement between the Custodian (or a subcustodian
employed pursuant to Section 2 hereof) and a
broker-dealer registered under the Securities Exchange
Act of 1934 and, if necessary, the Trust, relating to
compliance with the rules of The Options Clearing
Corporation or of any registered national securities
exchange, or of any similar organization or
organizations, regarding deposit or escrow or other
arrangements in connection with options transactions
by the Trust;
13) For delivery in accordance with the provisions of any
agreement among the Trust, the Custodian (or a
subcustodian employed pursuant to Section 2 hereof),
and a futures commissions merchant, relating to
compliance with the rules of the Commodity Futures
Trading Commission and/or of any contract market or
commodities exchange or similar organization,
regarding futures margin account deposits or payments
in connection with futures transactions by the Trust;
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<PAGE>
14) For any other proper corporate purpose, but only upon
receipt of, in addition to proper instructions, a
certified copy of a resolution of the Board specifying
the securities to be delivered, setting forth the
purpose for which such delivery is to be made,
declaring such purpose to be proper corporate purpose,
and naming the person or persons to whom delivery of
such securities shall be made.
C. Registration of Securities Securities held by the
Custodian (other than bearer securities) for the account of
the Trust shall be registered in the name of the Trust or
in the name of any nominee of the Trust or of any nominee
of the Custodian, or in the name or nominee name of any
agent appointed pursuant to Paragraph K hereof, or in the
name or nominee name of any subcustodian employed pursuant
to Section 2 hereof, or in the name or nominee name of The
Depository Trust Company or Participants Trust Company or
Approved Clearing Agency or Federal Book-Entry System or
Approved Book-Entry System for Commercial Paper; provided,
that securities are held in an account of the Custodian or
of such agent or of such subcustodian containing only
assets of the Trust or only assets held by the Custodian or
such agent or such subcustodian as a custodian or
subcustodian or in a fiduciary capacity for customers. All
certificates for securities accepted by the Custodian or
any such agent or subcustodian on behalf of the Trust shall
be in "street" or other good delivery form or shall be
returned to the selling broker or dealer who shall be
advised of the reason thereof.
D. Bank Accounts The Custodian shall open and maintain a
separate bank account or accounts in the name of the Trust,
subject only to draft or order by the Custodian acting in
pursuant to the terms of this Agreement, and shall hold in
such account or accounts, subject to the provisions hereof,
all cash received by it from or for the account of the Trust
other than cash maintained by the Trust in a bank account
established and used in accordance with Rule 17f-3 under the
Investment Company Act of 1940. Funds held by the Custodian
for the Trust may be deposited by it to its credit as
Custodian in the Banking Department of the Custodian or in
such other banks or trust companies as the Custodian may in
its discretion deem necessary or desirable; provided,
however, that every such bank or trust company shall be
qualified to act as a custodian under the Investment Company
Act of 1940 and that each such bank or trust company and the
funds to be deposited with each such bank or trust company
shall be approved in writing by two officers of the Trust.
Such funds shall be deposited by the Custodian in its
capacity as Custodian and shall be subject to withdrawal only
by the Custodian in that capacity.
E. Payments for Interests, or Increases in Interests, in the
Trust The Custodian shall make appropriate arrangements with
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<PAGE>
the Transfer Agent of the Trust to enable the Custodian to
make certain it promptly receives the cash or other
consideration due to the Trust for payment of interests in
the Trust, or increases in such interests, in accordance with
the governing documents and registration statement of the
Trust. The Custodian will provide prompt notification to the
Trust of any receipt by it of such payments.
F. Investment and Availability of Federal Funds Upon agreement
between the Trust and the Custodian, the Custodian shall,
upon the receipt of proper instructions, which may be
continuing instructions when deemed appropriate by the
parties, invest in such securities and instruments as may be
set forth in such instructions on the same day as received
all federal funds received after a time agreed upon between
the Custodian and the Trust.
G. Collections The Custodian shall promptly collect all income
and other payments with respect to registered securities held
hereunder to which the Trust shall be entitled either by law
or pursuant to custom in the securities business, and shall
promptly collect all income and other payments with respect
to bearer securities if, on the date of payment by the
issuer, such securities are held by the Custodian or agent
thereof and shall credit such income, as collected, to the
Trust's custodian account. The Custodian shall do all things
necessary and proper in connection with such prompt
collections and, without limiting the generality of the
foregoing, the Custodian shall
1) Present for payment all coupons and other income items
requiring presentations;
2) Present for payment all securities which may mature or
be called, redeemed, retired or otherwise become
payable;
3) Endorse and deposit for collection, in the name of the
Trust, checks, drafts or other negotiable instruments;
4) Credit income from securities maintained in a
Securities System or in an Approved Book-Entry System
for Commercial Paper at the time funds become
available to the Custodian; in the case of securities
maintained in The Depository Trust Company funds shall
be deemed available to the Trust not later than the
opening of business on the first business day after
receipt of such funds by the Custodian.
The Custodian shall notify the Trust as soon as reasonably
practicable whenever income due on any security is not
promptly collected. In any case in which the Custodian
does not receive any due and unpaid income after it has
made demand for the same, it shall immediately so notify
the Trust in writing, enclosing copies of any demand
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letter, any written response thereto, and memoranda of all
oral responses thereto and to telephonic demands, and await
instructions from the Trust; the Custodian shall in no case
have any liability for any nonpayment of such income
provided the Custodian meets the standard of care set forth
in Section 8 hereof. The Custodian shall not be obligated
to take legal action for collection unless and until
reasonably indemnified to its satisfaction.
The Custodian shall also receive and collect all stock
dividends, rights and other items of like nature, and deal
with the same pursuant to proper instructions relative
thereto.
H. Payment of Trust Monies Upon receipt of proper instructions,
which may be continuing instructions when deemed appropriate
by the parties, the Custodian shall pay out monies of the
Trust in the following cases only:
1) Upon the purchase of securities, participation
interests, options, futures contracts, forward
contracts and options on futures contracts purchased
for the account of the Trust but only (a) against the
receipt of
(i) such securities registered as provided in
Paragraph C hereof or in proper form for transfer
or
(ii) detailed instructions signed by an officer
of the Trust regarding the participation
interests to be purchased or
(iii)written confirmation of the purchase by the
Trust of the options, futures contracts, forward
contracts or options on futures contracts by the
Custodian (or by a subcustodian employed pursuant
to Section 2 hereof or by a clearing corporation
of a national securities exchange of which the
Custodian is a member or by any bank, banking
institution or trust company doing business in
the United States or abroad which is qualified
under the Investment Company Act of 1940 to act
as a custodian and which has been designated by
the Custodian as its agent for this purpose or by
the agent specifically designated in such
instructions as representing the purchasers of a
new issue of privately placed securities); (b) in
the case of a purchase effected through a
Securities System, upon receipt of the securities
by the Securities System in accordance with the
conditions set forth in Paragraph L hereof; (c)
in the case of a purchase of commercial paper
effected through an Approved Book-Entry System
for Commercial Paper, upon receipt of the paper
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by the Custodian or subcustodian in accordance
with the conditions set forth in Paragraph M
hereof; (d) in the case of repurchase agreements
entered into between the Trust and another bank
or a broker-dealer, against receipt by the
Custodian of the securities underlying the
repurchase agreement either in certificate form
or through an entry crediting the Custodian's
segregated, non-proprietary account at the
Federal Reserve Bank of Boston with such
securities along with written evidence of the
agreement by the bank or broker-dealer to
repurchase such securities from the Trust; or (e)
with respect to securities purchased outside of
the United States, in accordance with written
procedures agreed to from time to time in writing
by the parties hereto;
2) When required in connection with the conversion,
exchange or surrender of securities owned by the
Trust as set forth in Paragraph B hereof;
3) When required for the reduction or redemption of
an interest in the Trust in accordance with the
provisions of Paragraph J hereof;
4) For the payment of any expense or liability
incurred by the Trust, including but not limited
to the following payments for the account of the
Trust: advisory fees, interest, taxes,
management compensation and expenses, accounting,
transfer agent and legal fees, and other
operating expenses of the Trust whether or not
such expenses are to be in whole or part
capitalized or treated as deferred expenses;
5) For distributions or payment to Holders of
Interest in the Trust; and
6) For any other proper corporate purpose, but only
upon receipt of, in addition to proper
instructions, a certified copy of a resolution of
the Board, specifying the amount of such payment,
setting forth the purpose for which such payment
is to be made, declaring such purpose to be a
proper corporate purpose, and naming the person
or persons to whom such payment is to be made.
I. Liability for Payment in Advance of Receipt of Securities
Purchased In any and every case where payment for purchase
of securities for the account of the Trust is made by the
Custodian in advance of receipt of the securities purchased
in the absence of specific written instructions signed by two
officers of the Trust to so pay in advance, the Custodian
shall be absolutely liable to the Trust for such securities
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to the same extent as if the securities had been received by
the Custodian; except that in the case of a repurchase
agreement entered into by the Trust with a bank which is a
member of the Federal Reserve System, the Custodian may
transfer trusts to the account of such bank prior to the
receipt of (i) the securities in certificate form subject to
such repurchase agreement or (ii) written evidence that the
securities subject to such repurchase agreement have been
transferred by book-entry into a segregated non-proprietary
account of the Custodian maintained with the Federal Reserve
Bank of Boston or (iii) the safekeeping receipt, provided
that such securities have in fact been so transferred by
book-entry and the written repurchase agreement is received
by the Custodian in due course; and except that if the
securities are to be purchased outside the United States,
payment may be made in accordance with procedures agreed to
in writing from time to time by the parties hereto.
J. Payments for Repurchases or Redemptions of Interests in the
Trust From such funds as may be available for the purpose,
but subject to any applicable resolutions of the Board and
the current procedures of the Trust, the Custodian shall,
upon receipt of written instructions from the Trust or from
the Trust's Transfer Agent, make funds and/or portfolio
securities available for payment to Holders of Interest in
the Trust who have caused the amount of their interests to be
reduced, or for their interest to be redeemed.
K. Appointment of Agents by the Custodian The Custodian may at
any time or times in its discretion appoint (and may at any
time remove) any other bank or trust company (provided such
bank or trust company is itself qualified under the
Investment Company Act of 1940 to act as a custodian or is
itself an eligible foreign custodian within the meaning of
Rule 17f-5 under said Act) as the agent of the Custodian to
carry out such of the duties and functions of the Custodian
described in this Section 3 as the Custodian may from time to
time direct; provided, however, that the appointment of any
such agent shall not relieve the Custodian of any of its
responsibilities or liabilities hereunder, and as between the
Trust and the Custodian the Custodian shall be fully
responsible for the acts and omissions of any such agent.
For the purposes of this Agreement, any property of the Trust
held by any such agent shall be deemed to be held by the
Custodian hereunder.
L. Deposit of Trust Portfolio Securities in Securities Systems
The Custodian may deposit and/or maintain securities owned by
the Trust
(1) in The Depository Trust Company;
(2) in Participants Trust Company;
(3) in any other Approved Clearing Agency;
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(4) in the Federal Book-Entry System; or
(5) in an Approved Foreign Securities Depositoryin
each case only in accordance with applicable
Federal Reserve Board and Securities and Exchange
Commission rules and regulations, and at all
times subject to the following provisions:
(a) The Custodian may (either directly or through one or
more subcustodians employed pursuant to Section 2 keep
securities of the Trust in a Securities System provided
that such securities are maintained in a non-proprietary
account ("Account") of the Custodian or such subcustodian
in the Securities System which shall not include any
assets of the Custodian or such subcustodian or any other
person other than assets held by the Custodian or such
subcustodian as a fiduciary, custodian, or otherwise for
its customers.
(b) The records of the Custodian with respect to
securities of the Trust which are maintained in a
Securities System shall identify by book-entry those
securities belonging to the Trust, and the Custodian
shall be fully and completely responsible for maintaining
a recordkeeping system capable of accurately and
currently stating the Trust's holdings maintained in each
such Securities System.
(c) The Custodian shall pay for securities purchased in
book-entry form for the account of the Trust only upon
(i) receipt of notice or advice from the Securities
System that such securities have been transferred to the
Account, and (ii) the making of any entry on the records
of the Custodian to reflect such payment and transfer for
the account of the Trust. The Custodian shall transfer
securities sold for the account of the Trust only upon
(i) receipt of notice or advice from the Securities
System that payment for such securities has been
transferred to the Account, and (ii) the making of an
entry on the records of the Custodian to reflect such
transfer and payment for the account of the Trust. Copies
of all notices or advices from the Securities System of
transfers of securities for the account of the Trust
shall identify the Trust, be maintained for the Trust by
the Custodian and be promptly provided to the Trust at
its request. The Custodian shall promptly send to the
Trust confirmation of each transfer to or from the
account of the Trust in the form of a written advice or
notice of each such transaction, and shall furnish to the
Trust copies of daily transaction sheets reflecting each
day's transactions in the Securities System for the
account of the Trust on the next business day.
(d) The Custodian shall promptly send to the Trust any
report or other communication received or obtained by the
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Custodian relating to the Securities System's accounting
system, system of internal accounting controls or
procedures for safeguarding securities deposited in the
Securities System; the Custodian shall promptly send to
the Trust any report or other communication relating to
the Custodian's internal accounting controls and
procedures for safeguarding securities deposited in any
Securities System; and the Custodian shall ensure that
any agent appointed pursuant to Paragraph K hereof or any
subcustodian employed pursuant to Section 2 hereof shall
promptly send to the Trust and to the Custodian any
report or other communication relating to such agent's or
subcustodian's internal accounting controls and
procedures for safeguarding securities deposited in any
Securities System. The Custodian's books and records
relating to the Trust's participation in each Securities
System will at all times during regular business hours be
open to the inspection of the Trust's authorized
officers, employees or agents.
(e) The Custodian shall not act under this Paragraph L
in the absence of receipt of a certificate of an officer
of the Trust that the Board has approved the use of a
particular Securities System; the Custodian shall also
obtain appropriate assurance from the officers of the
Trust that the Board has annually reviewed the continued
use by the Trust of each Securities System, and the Trust
shall promptly notify the Custodian if the use of a
Securities System is to be discontinued; at the request
of the Trust, the Custodian will terminate the use of any
such Securities System as promptly as practicable.
(f) Anything to the contrary in this Agreement
notwithstanding, the Custodian shall be liable to the
Trust for any loss or damage to the Trust resulting from
use of the Securities System by reason of any negligence,
misfeasance or misconduct of the Custodian or any of its
agents or subcustodians or of any of its or their
employees or from any failure of the Custodian or any
such agent or subcustodian to enforce effectively such
rights as it may have against the Securities System or
any other person; at the election of the Trust, it shall
be entitled to be subrogated to the rights of the
Custodian with respect to any claim against the
Securities System or any other person which the Custodian
may have as a consequence of any such loss or damage if
and to the extent that the Trust has not been made whole
for any such loss or damage.
M. Deposit of Trust Commercial Paper in an Approved
Book-Entry System for Commercial Paper Upon receipt of
proper instructions with respect to each issue of direct
issue commercial paper purchased by the Trust, the
Custodian may deposit and/or maintain direct issue
commercial paper owned by the Trust in any Approved
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Book-Entry System for Commercial Paper, in each case only
in accordance with applicable Securities and Exchange
Commission rules, regulations, and no-action
correspondence, and at all times subject to the following
provisions:
(a) The Custodian may (either directly or through one
or more subcustodians employed pursuant to Section 2)
keep commercial paper of the Trust in an Approved
Book-Entry System for Commercial Paper, provided that
such paper is issued in book entry form by the
Custodian or subcustodian on behalf of an issuer with
which the Custodian or subcustodian has entered into a
book-entry agreement and provided further that such
paper is maintained in a non-proprietary account
("Account") of the Custodian or such subcustodian in
an Approved Book-Entry System for Commercial Paper
which shall not include any assets of the Custodian or
such subcustodian or any other person other than
assets held by the Custodian or such subcustodian as a
fiduciary, custodian, or otherwise for its customers.
(b) The records of the Custodian with respect to
commercial paper of the Trust which is maintained in
an Approved Book-Entry System for Commercial Paper
shall identify by book-entry each specific issue of
commercial paper purchased by the Trust which is
included in the Securities System and shall at all
times during regular business hours be open for
inspection by authorized officers, employees or agents
of the Trust. The Custodian shall be fully and
completely responsible for maintaining a recordkeeping
system capable of accurately and currently stating the
Trust's holdings of commercial paper maintained in
each such System.
(c) The Custodian shall pay for commercial paper
purchased in book-entry form for the account of the
Trust only upon contemporaneous (i) receipt of notice
or advice from the issuer that such paper has been
issued, sold and transferred to the Account, and (ii)
the making of an entry on the records of the Custodian
to reflect such purchase, payment and transfer for the
account of the Trust. The Custodian shall transfer
such commercial paper which is sold or cancel such
commercial paper which is redeemed for the account of
the Trust only upon contemporaneous (i) receipt of
notice or advice that payment for such paper has been
transferred to the Account, and (ii) the making of an
entry on the records of the Custodian to reflect such
transfer or redemption and payment for the account of
the Trust. Copies of all notices, advices and
confirmations of transfers of commercial paper for the
account of the Trust shall identify the Trust, be
maintained for the Trust by the Custodian and be
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promptly provided to the Trust at its request. The
Custodian shall promptly send to the Trust
confirmation of each transfer to or from the account
of the Trust in the form of a written advice or notice
of each such transaction, and shall furnish to the
Trust copies of daily transaction sheets reflecting
each day's transactions in the System for the account
of the Trust on the next business day.
(d) The Custodian shall promptly send to the Trust
any report or other communication received or obtained
by the Custodian relating to each System's accounting
system, system of internal accounting controls or
procedures for safeguarding commercial paper deposited
in the System; the Custodian shall promptly send to
the Trust any report or other communication relating
to the Custodian's internal accounting controls and
procedures for safeguarding commercial paper deposited
in any Approved Book-Entry System for Commercial
Paper; and the Custodian shall ensure that any agent
appointed pursuant to Paragraph K hereof or any
subcustodian employed pursuant to Section 2 hereof
shall promptly send to the Trust and to the Custodian
any report or other communication relating to such
agent's or subcustodian's internal accounting controls
and procedures for safeguarding securities deposited
in any Approved Book-Entry System for Commercial
Paper.
(e) The Custodian shall not act under this Paragraph
M in the absence of receipt of a certificate of an
officer of the Trust that the Board has approved the
use of a particular Approved Book-Entry System for
Commercial Paper; the Custodian shall also obtain
appropriate assurance from the officers of the Trust
that the Board has annually reviewed the continued use
by the Trust of each Approved Book-Entry System for
Commercial Paper, and the Trust shall promptly notify
the Custodian if the use of an Approved Book-Entry
System for Commercial Paper is to be discontinued; at
the request of the Trust, the Custodian will terminate
the use of any such System as promptly as practicable.
(f) The Custodian (or subcustodian, if the Approved
Book-Entry System for Commercial Paper is maintained
by the subcustodian) shall issue physical commercial
paper or promissory notes whenever requested to do so
by the Trust or in the event of an electronic system
failure which impedes issuance, transfer or custody of
direct issue commercial paper by book-entry.
(g) Anything to the contrary in this Agreement
notwithstanding, the Custodian shall be liable to the
Trust for any loss or damage to the Trust resulting
from use of any Approved Book-Entry System for
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Commercial Paper by reason of any negligence,
misfeasance or misconduct of the Custodian or any of
its agents or subcustodians or of any of its or their
employees or from any failure of the Custodian or any
such agent or subcustodian to enforce effectively such
rights as it may have against the System, the issuer
of the commercial paper or any other person; at the
election of the Trust, it shall be entitled to be
subrogated to the rights of the Custodian with respect
to any claim against the System, the issuer of the
commercial paper or any other person which the
Custodian may have as a consequence of any such loss
or damage if and to the extent that the Trust has not
been made whole for any such loss or damage.
N. Segregated Account The Custodian shall upon receipt of
proper instructions establish and maintain a segregated
account or accounts for and on behalf of the Trust, into
which account or accounts may be transferred cash and/or
securities, including securities maintained in an account by
the Custodian pursuant to Paragraph L hereof, (i) in
accordance with the provisions of any agreement among the
Trust, the Custodian and any registered broker-dealer (or any
futures commission merchant), relating to compliance with the
rules of the Options Clearing Corporation and of any
registered national securities exchange (or of the Commodity
Futures Trading Commission or of any contract market or
commodities exchange), or of any similar organization or
organizations, regarding escrow or deposit or other
arrangements in connection with transactions by the Trust,
(ii) for purposes of segregating cash or U.S. Government
securities in connection with options purchased, sold or
written by the Trust or futures contracts or options thereon
purchased or sold by the Trust, (iii) for the purposes of
compliance by the Trust with the procedures required by
Investment Company Act Release No. 10666, or any subsequent
release or releases of the Securities and Exchange Commission
relating to the maintenance of segregated accounts by
registered investment companies and (iv) for other proper
purposes, but only, in the case of clause (iv), upon receipt
of, in addition to proper instructions, a certificate signed
by two officers of the Trust, setting forth the purpose such
segregated account and declaring such purpose to be a proper
purpose.
O. Ownership Certificates for Tax Purposes The Custodian shall
execute ownership and other certificates and affidavits for
all federal and state tax purposes in connection with receipt
of income or other payments with respect to securities of the
Trust held by it and in connection with transfers of
securities.
P. Proxies The Custodian shall, with respect to the securities
held by it hereunder, cause to be promptly delivered to the
Trust all forms of proxies and all notices of meetings and
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any other notices or announcements or other written
information affecting or relating to the securities, and upon
receipt of proper instructions shall execute and deliver or
cause its nominee to execute and deliver such proxies or
other authorizations as may be required. Neither the
Custodian nor its nominee shall vote upon any of the
securities or execute any proxy to vote thereon or give any
consent or take any other action with respect thereto (except
as otherwise herein provided) unless ordered to do so by
proper instructions.
Q. Communications Relating to Trust Portfolio Securities The
Custodian shall deliver promptly to the Trust all written
information (including, without limitation, pendency of call
and maturities of securities and participation interests and
expirations of rights in connection therewith and notices of
exercise of call and put options written by the Trust and the
maturity of futures contracts purchased or sold by the Trust)
received by the Custodian from issuers and other persons
relating to the securities and participation interests being
held for the Trust. With respect to tender or exchange
offers, the Custodian shall deliver promptly to the Trust all
written information received by the Custodian from issuers
and other persons relating to the securities and
participation interests whose tender or exchange is sought
and from the party (or his agents) making the tender or
exchange offer.
R. Exercise of Rights; Tender Offers In the case of tender
offers, similar offers to purchase or exercise rights
(including, without limitation, pendency of calls and
maturities of securities and participation interests and
expirations of rights in connection therewith and notices of
exercise of call and put options and the maturity of futures
contracts) affecting or relating to securities and
participation interests held by the Custodian under this
Agreement, the Custodian shall have responsibility for
promptly notifying the Trust of all such offers in accordance
with the standard of reasonable care set forth in Section 8
hereof. For all such offers for which the Custodian is
responsible as provided in this Paragraph R, the Trust shall
have responsibility for providing the Custodian with all
necessary instructions in timely fashion. Upon receipt of
proper instructions, the Custodian shall timely deliver to
the issuer or trustee thereof, or to the agent of either,
warrants, puts, calls, rights or similar securities for the
purpose of being exercised or sold upon proper receipt
therefor and upon receipt of assurances satisfactory to the
Custodian that the new securities and cash, if any, acquired
by such action are to be delivered to the Custodian or any
subcustodian employed pursuant to Section 2 hereof. Upon
receipt of proper instructions, the Custodian shall timely
deposit securities upon invitations for tenders of securities
upon proper receipt therefor and upon receipt of assurances
satisfactory to the Custodian that the consideration to be
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<PAGE>
paid or delivered or the tendered securities are to be
returned to the Custodian or subcustodian employed pursuant
to Section 2 hereof. Notwithstanding any provision of this
Agreement to the contrary, the Custodian shall take all
necessary action, unless otherwise directed to the contrary
by proper instructions, to comply with the terms of all
mandatory or compulsory exchanges, calls, tenders,
redemptions, or similar rights of security ownership, and
shall thereafter promptly notify the Trust in writing of such
action.
S. Depository Receipts The Custodian shall, upon receipt of
proper instructions, surrender or cause to be surrendered
foreign securities to the depository used by an issuer of
American Depository Receipts or International Depository
Receipts (hereinafter collectively referred to as "ADRs") for
such securities, against a written receipt therefor
adequately describing such securities and written evidence
satisfactory to the Custodian that the depository has
acknowledged receipt of instructions to issue with respect to
such securities in the name of a nominee of the Custodian or
in the name or nominee name of any subcustodian employed
pursuant to Section 2 hereof, for delivery to the Custodian
or such subcustodian at such place as the Custodian or such
subcustodian may from time to time designate. The Custodian
shall, upon receipt of proper instructions, surrender ADRs to
the issuer thereof against a written receipt therefor
adequately describing the ADRs surrendered and written
evidence satisfactory to the Custodian that the issuer of the
ADRs has acknowledged receipt of instructions to cause its
depository to deliver the securities underlying such ADRs to
the Custodian or to a subcustodian employed pursuant to
Section 2 hereof.
T. Interest Bearing Call or Time Deposits The Custodian shall,
upon receipt of proper instructions, place interest bearing
fixed term and call deposits with the banking department of
such banking institution (other than the Custodian) and in
such amounts as the Trust may designate. Deposits may be
denominated in U.S. Dollars or other currencies. The
Custodian shall include in its records with respect to the
assets of the Trust appropriate notation as to the amount and
currency of each such deposit, the accepting banking
institution and other appropriate details and shall retain
such forms of advice or receipt evidencing the deposit, if
any, as may be forwarded to the Custodian by the banking
institution. Such deposits shall be deemed portfolio
securities of the Trust for the purposes of this Agreement,
and the Custodian shall be responsible for the collection of
income from such accounts and the transmission of cash to and
from such accounts.
U. Options, Futures Contracts and Foreign Currency Transactions
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1. Options. The Custodian shall, upon receipt of
proper instructions and in accordance with the provisions
of any agreement between the Custodian, any registered
broker-dealer and, if necessary, the Trust, relating to
compliance with the rules of the Options Clearing
Corporation or of any registered national securities
exchange or similar organization or organizations,
receive and retain confirmations or other documents, if
any, evidencing the purchase or writing of an option on a
security or securities index or other financial
instrument or index by the Trust; deposit and maintain in
a segregated account for the Trust, either physically or
by book-entry in a Securities System, securities subject
to a covered call option written by the Trust; and
release and/or transfer such securities or other assets
only in accordance with a notice or other communication
evidencing the expiration, termination or exercise of
such covered option furnished by the Options Clearing
Corporation, the securities or options exchange on which
such covered option is traded or such other organization
as may be responsible for handling such options
transactions. The Custodian and the broker-dealer shall
be responsible for the sufficiency of assets held in the
Trust's segregated account in compliance with applicable
margin maintenance requirements.
2. Futures Contracts The Custodian shall, upon
receipt of proper instructions, receive and retain
confirmations and other documents, if any, evidencing the
purchase or sale of a futures contract or an option on a
futures contract by the Trust; deposit and maintain in a
segregated account, for the benefit of any futures
commission merchant, assets designated by the Trust as
initial, maintenance or variation "margin" deposits
(including mark-to-market payments) intended to secure
the Trust's performance of its obligations under any
futures contracts purchased or sold or any options on
futures contracts written by Trust, in accordance with
the provisions of any agreement or agreements among the
Trust, the Custodian and such futures commission
merchant, designed to comply with the rules of the
Commodity Futures Trading Commission and/or of any
contract market or commodities exchange or similar
organization regarding such margin deposits or payments;
and release and/or transfer assets in such margin
accounts only in accordance with any such agreements or
rules. The Custodian and the futures commission merchant
shall be responsible for the sufficiency of assets held
in the segregated account in compliance with the
applicable margin maintenance and mark-to-market payment
requirements.
3. Foreign Exchange Transactions The Custodian
shall, pursuant to proper instructions, enter into or
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cause a subcustodian to enter into foreign exchange
contracts or options to purchase and sell foreign
currencies for spot and future delivery on behalf and for
the account of the Trust. Such transactions may be
undertaken by the Custodian or subcustodian with such
banking or financial institutions or other currency
brokers, as set forth in proper instructions. Foreign
exchange contracts and options shall be deemed to be
portfolio securities of the Trust; and accordingly, the
responsibility of the Custodian therefor shall be the
same as and no greater than the Custodian's
responsibility in respect of other portfolio securities
of the Trust. The Custodian shall be responsible for the
transmittal to and receipt of cash from the currency
broker or banking or financial institution with which the
contract or option is made, the maintenance of proper
records with respect to the transaction and the
maintenance of any segregated account required in
connection with the transaction. The Custodian shall
have no duty with respect to the selection of the
currency brokers or banking or financial institutions
with which the Trust deals or for their failure to comply
with the terms of any contract or option. Without
limiting the foregoing, it is agreed that upon receipt of
proper instructions and insofar as funds are made
available to the Custodian for the purpose, the Custodian
may (if determined necessary by the Custodian to
consummate a particular transaction on behalf and for the
account of the Trust) make free outgoing payments of cash
in the form of U.S. dollars or foreign currency before
receiving confirmation of a foreign exchange contract or
confirmation that the countervalue currency completing
the foreign exchange contract has been delivered or
received. The Custodian shall not be responsible for any
costs and interest charges which may be incurred by the
Trust or the Custodian as a result of the failure or
delay of third parties to deliver foreign exchange;
provided that the Custodian shall nevertheless be held to
the standard of care set forth in, and shall be liable to
the Trust in accordance with, the provisions of Section
8.
V. Actions Permitted Without Express Authority The Custodian
may in its discretion, without express authority from the
Trust:
1) make payments to itself or others for minor expenses of
handling securities or other similar items relating to
its duties under this Agreement, provided, that all such
payments shall be accounted for by the Custodian to the
Treasurer of the Trust;
2) surrender securities in temporary form for securities in
definitive form;
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3) endorse for collection, in the name of the Trust, checks,
drafts and other negotiable instruments; and
4) in general, attend to all nondiscretionary details in
connection with the sale, exchange, substitution,
purchase, transfer and other dealings with the securities
and property of the Trust except as otherwise directed by
the Trust.
4. Duties of Bank with Respect to Books of Account and Calculations
of Net Asset Value
The Bank shall as Agent (or as Custodian, as the case may be)
keep such books of account (including records showing the adjusted tax
costs of the Trust's portfolio securities) and render as at the close of
business on each day a detailed statement of the amounts received or paid
out and of securities received or delivered for the account of the Trust
during said day and such other statements, including a daily trial balance
and inventory of the Trust's portfolio securities; and shall furnish such
other financial information and data as from time to time requested by the
Treasurer or any executive officer of the Trust; and shall compute and
determine, as of the close of business of the New York Stock Exchange, or
at such other time or times as the Board may determine, the net asset
value of the Trust and the net asset value of each interest in the Trust,
such computations and determinations to be made in accordance with the
governing documents of the Trust and the votes and instructions of the
Board and of the investment adviser at the time in force and applicable,
and promptly notify the Trust and its investment adviser and such other
persons as the Trust may request of the result of such computation and
determination. In computing the net asset value the Custodian may rely
upon security quotations received by telephone or otherwise from sources
or pricing services designated by the Trust by proper instructions, and
may further rely upon information furnished to it by any authorized
officer of the Trust relative (a) to liabilities of the Trust not
appearing on its books of account, (b) to the existence, status and proper
treatment of any reserve or reserves, (c) to any procedures or policies
established by the Board regarding the valuation of portfolio securities
or other assets, and (d) to the value to be assigned to any bond, note,
debenture, Treasury bill, repurchase agreement, subscription right,
security, participation interests or other asset or property for which
market quotations are not readily available. The Custodian shall also
compute and determine at such time or times as the Trust may designate the
portion of each item which has significance for a holder of an interest in
the Trust in computing and determining its federal income tax liability
including, but not limited to, each item of income, expense and realized
and unrealized gain or loss of the Trust which is attributable for Federal
income tax purposes to each such holder.
5. Records and Miscellaneous Duties
The Bank shall create, maintain and preserve all records relating
to its activities and obligations under this Agreement in such manner as
will meet the obligations of the Trust under the Investment Company Act of
1940, with particular attention to Section 31 thereof and Rules 31a-1 and
31a-2 thereunder, applicable federal and state tax laws and any other law
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or administrative rules or procedures which may be applicable to the
Trust. All books of account and records maintained by the Bank in
connection with the performance of its duties under this Agreement shall
be the property of the Trust, shall at all times during the regular
business hours of the Bank be open for inspection by authorized officers,
employees or agents of the Trust, and in the event of termination of this
Agreement shall be delivered to the Trust or to such other person or
persons as shall be designated by the Trust. Disposition of any account
or record after any required period of preservation shall be only in
accordance with specific instructions received from the Trust. The Bank
shall assist generally in the preparation of reports to holder of interest
in the Trust, to the Securities and Exchange Commission, including Form
N-SAR, and to others, audits of accounts, and other ministerial matters of
like nature; and, upon request, shall furnish the Trust's auditors with an
attested inventory of securities held with appropriate information as to
securities in transit or in the process of purchase or sale and with such
other information as said auditors may from time to time request. The
Custodian shall also maintain records of all receipts, deliveries and
locations of such securities, together with a current inventory thereof,
and shall conduct periodic verifications (including sampling counts at the
Custodian) of certificates representing bonds and other securities for
which it is responsible under this Agreement in such manner as the
Custodian shall determine from time to time to be advisable in order to
verify the accuracy of such inventory. The Bank shall not disclose or use
any books or records it has prepared or maintained by reason of this
Agreement in any manner except as expressly authorized herein or directed
by the Trust, and the Bank shall keep confidential any information
obtained by reason of this Agreement.
6. Opinion of Trust's Independent Public Accountants
The Custodian shall take all reasonable action, as the Trust may
from time to time request, to enable the Trust to obtain from year to year
favorable opinions from the Trust's independent public accountants with
respect to its activities hereunder in connection with the preparation of
the Trust's registration statement and Form N-SAR or other periodic
reports to the Securities and Exchange Commission and with respect to any
other requirements of such Commission.
7. Compensation and Expenses of Bank
The Bank shall be entitled to reasonable compensation for its
services as Custodian and Agent, as agreed upon from time to time between
the Trust and the Bank. The Bank shall be entitled to receive from the
Trust on demand reimbursement for its cash disbursements, expenses and
charges, including counsel fees, in connection with its duties as
Custodian and Agent hereunder, but excluding salaries and usual overhead
expenses.
8. Responsibility of Bank
So long as and to the extent that it is in the exercise of
reasonable care, the Bank as Custodian and Agent shall be held harmless in
acting upon any notice, request, consent, certificate or other instrument
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reasonably believed by it to be genuine and to be signed by the proper
party or parties.
The Bank as Custodian and Agent shall be entitled to rely on and
may act upon advice of counsel (who may be counsel for the Trust) on all
matters, and shall be without liability for any action reasonably taken or
omitted pursuant to such advice.
The Bank as Custodian and Agent shall be held to the exercise of
reasonable care in carrying out the provisions of this Agreement but shall
be liable only for its own negligent or bad faith acts or failures to act.
Notwithstanding the foregoing, nothing contained in this paragraph is
intended to nor shall it be construed to modify the standards of care and
responsibility set forth in Section 2 hereof with respect to subcustodians
and in subparagraph f of Paragraph L of Section 3 hereof with respect to
Securities Systems and in subparagraph g of Paragraph M of Section 3
hereof with respect to an Approved Book-Entry System for Commercial Paper.
The Custodian shall be liable for the acts or omissions of a
foreign banking institution to the same extent as set forth with respect
to subcustodians generally in Section 2 hereof, provided that, regardless
of whether assets are maintained in the custody of a foreign banking
institution, a foreign securities depository or a branch of a U.S. bank,
the Custodian shall not be liable for any loss, damage, cost, expense,
liability or claim resulting from, or caused by, the direction of or
authorization by the Trust to maintain custody of any securities or cash
of the Trust in a foreign country including, but not limited to, losses
resulting from nationalization, expropriation, currency restrictions, acts
of war, civil war or terrorism, insurrection, revolution, military or
usurped powers, nuclear fission, fusion or radiation, earthquake, storm or
other disturbance of nature or acts of God.
If the Trust requires the Bank in any capacity to take any action
with respect to securities, which action involves the payment of money or
which action may, in the opinion of the Bank, result in the Bank or its
nominee assigned to the Trust being liable for the payment of money or
incurring liability of some other form, the Trust, as a prerequisite to
requiring the Custodian to take such action, shall provide indemnity to
the Custodian in an amount and form satisfactory to it.
9. Persons Having Access to Assets of the Trust
(i) No trustee, officer, employee, or agent of the Trust shall
have physical access to the assets of the Trust held by the Custodian or
be authorized or permitted to withdraw any investments of the Trust, nor
shall the Custodian deliver any assets of the Trust to any such person.
No officer or director, employee or agent of the Custodian who holds any
similar position with the Trust or the investment adviser or the
administrator of the Trust shall have access to the assets of the Trust.
(ii) Access to assets of the Trust held hereunder shall only be
available to duly authorized officers, employees, representatives or
agents of the Custodian or other persons or entities for whose actions the
Custodian shall be responsible to the extent permitted hereunder, or to
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the Trust's independent public accountants in connection with their
auditing duties performed on behalf of the Trust.
(iii) Nothing in this Section 9 shall prohibit any officer,
employee or agent of the Trust or of the investment adviser of the Trust
from giving instructions to the Custodian or executing a certificate so
long as it does not result in delivery of or access to assets of the Trust
prohibited by paragraph (i) of this Section 9.
10. Effective Period, Termination and Amendment; Successor
Custodian
This Agreement shall become effective as of its execution, shall
continue in full force and effect until terminated as hereinafter
provided, may be amended at any time by mutual agreement of the parties
hereto and may be terminated by either party by an instrument in writing
delivered or mailed, postage prepaid to the other party, such termination
to take effect not sooner than sixty (60) days after the date of such
delivery or mailing; provided, that the Trust may at any time by action of
its Board, (i) substitute another bank or trust company for the Custodian
by giving notice as described above to the Custodian, or
(ii) immediately terminate this Agreement in the event of the appointment
of a conservator or receiver for the Custodian by the Federal Deposit
Insurance Corporation or by the Banking Commissioner of The Commonwealth
of Massachusetts or upon the happening of a like event at the direction of
an appropriate regulatory agency or court of competent jurisdiction. Upon
termination of the Agreement, the Trust shall pay to the Custodian such
compensation as may be due as of the date of such termination and shall
likewise reimburse the Custodian for its costs, expenses and
disbursements.
Unless the holders of a majority of the outstanding "voting
securities" of the Trust (as defined in the Investment Company Act of
1940) vote to have the securities, funds and other properties held
hereunder delivered and paid over to some other bank or trust company,
specified in the vote, having not less than $2,000,000 of aggregate
capital, surplus and undivided profits, as shown by its last published
report, and meeting such other qualifications for custodians set forth in
the Investment Company Act of 1940, the Board shall, forthwith, upon
giving or receiving notice of termination of this Agreement, appoint as
successor custodian, a bank or trust company having such qualifications.
The Bank, as Custodian, Agent or otherwise, shall, upon termination of the
Agreement, deliver to such successor custodian, all securities then held
hereunder and all funds or other properties of the Trust deposited with or
held by the Bank hereunder and all books of account and records kept by
the Bank pursuant to this Agreement, and all documents held by the Bank
relative thereto. In the event that no such vote has been adopted by the
Holders of Interest in the Trust and that no written order designating a
successor custodian shall have been delivered to the Bank on or before the
date when such termination shall become effective, then the Bank shall not
deliver the securities, funds and other properties of the Trust to the
Trust but shall have the right to deliver to a bank or trust company doing
business in Boston, Massachusetts of its own selection, having an
aggregate capital, surplus and undivided profits, as shown by its last
published report, of not less than $2,000,000, all funds, securities and
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properties of the Trust held by or deposited with the Bank, and all books
of account and records kept by the Bank pursuant to this Agreement, and
all documents held by the Bank relative thereto. Thereafter such bank or
trust company shall be the successor of the Custodian under this
Agreement.
11. Interpretive and Additional Provisions
In connection with the operation of this Agreement, the Custodian
and the Trust may from time to time agree on such provisions interpretive
of or in addition to the provisions of this Agreement as may in their
joint opinion be consistent with the general tenor of this Agreement. Any
such interpretive or additional provisions shall be in a writing signed by
both parties and shall be annexed hereto, provided that no such
interpretive or additional provisions shall contravene any applicable
federal or state regulations or any provision of the governing instruments
of the Trust. No interpretive or additional provisions made as provided
in the preceding sentence shall be deemed to be an amendment of this
Agreement.
12. Notices
Notices and other writings delivered or mailed postage prepaid to
the Trust addressed to 24 Federal Street, Boston, MA 02110 or to such
other address as the Trust may have designated to the Bank, in writing
with a copy to Eaton Vance Management at 24 Federal Street, Boston,
Massachusetts 02110, or to Investors Bank & Trust Company, 24 Federal
Street, Boston, Massachusetts 02110 with a copy to Eaton Vance Management
at 24 Federal Street, Boston, Massachusetts 02110, shall be deemed to have
been properly delivered or given hereunder to the respective addressees.
13. Massachusetts Law to Apply
This Agreement shall be construed and the provisions thereof
interpreted under and in accordance with the laws of The Commonwealth of
Massachusetts.
The Custodian expressly acknowledges the provision in the
Declaration of Trust of the Trust (Section 5.2 and 5.6) limiting the
personal liability of the Trustees and officers of the Trust, and the
Custodian hereby agrees that it shall have recourse to the Trust for
payment of claims or obligations as between the Trust and the Custodian
arising out of this Agreement, and the Custodian shall not seek
satisfaction from any Trustee or officer of the Trust.
14. Adoption of the Agreement by the Trust
The Trust represents that its Board has approved this Agreement
and has duly authorized the Trust to adopt this Agreement, such adoption
to be evidenced by a letter agreement between the Trust and the Bank
reflecting such adoption, which letter agreement shall be dated and signed
by a duly authorized officer of the Trust and duly authorized officer of
the Bank. This Agreement shall be deemed to be duly executed and
delivered by each of the parties in its name and behalf by its duly
authorized officer as of the date of such letter agreement, and this
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Agreement shall be deemed to supersede and terminate, as of the date of
such letter agreement, all prior agreements between the Trust and the Bank
relating to the custody of the Trust's assets.
* * * * *
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HIGH YIELD MUNICIPALS PORTFOLIO
-------------------------------
PROCEDURES FOR ALLOCATIONS
AND DISTRIBUTIONS
May 1, 1995
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE I--Introduction . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II--Definitions . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE III--Capital Accounts
Section 3.1 Capital Accounts of Holders . . . . . . . . 4
Section 3.2 Book Capital Accounts . . . . . . . . . . . 4
Section 3.3 Tax Capital Accounts . . . . . . . . . . . . 4
Section 3.4 Compliance with Treasury Regulations . . . . 5
ARTICLE IV--Distributions of Cash and Assets
Section 4.1 Distributions of Distributable Cash . . . . 5
Section 4.2 Division Among Holders . . . . . . . . . . . 5
Section 4.3 Distributions Upon Liquidation of a Holder's
Interest in the Trust . . . . . . . . . . 5
Section 4.4 Amounts Withheld . . . . . . . . . . . . . . 5
ARTICLE V--Allocations
Section 5.1 Allocation of Items to Book Capital Accounts 6
Section 5.2 Allocation of Taxable Income and Tax Loss
to Tax Capital Accounts . . . . . . . . . . 7
Section 5.3 Special Allocations to Book and Tax Capital
Accounts . . . . . . . . . . . . . . . . . 7
Section 5.4 Other Adjustments to Book and Tax Capital
Accounts . . . . . . . . . . . . . . . . . 8
Section 5.5 Timing of Tax Allocations to Book and Tax
Capital Accounts . . . . . . . . . . . . . 8
Section 5.6 Redemptions During the Fiscal Year . . . . . 8
ARTICLE VI--Withdrawals
Section 6.1 Partial Withdrawals . . . . . . . . . . . . 8
Section 6.2 Redemptions . . . . . . . . . . . . . . . . 8
Section 6.3 Distribution in Kind . . . . . . . . . . . . 8
ARTICLE VII--Liquidation
Section 7.1 Liquidation Procedure . . . . . . . . . . . 9
Section 7.2 Alternative Liquidation Procedure . . . . . 9
Section 7.3 Cash Distributions Upon Liquidation . . . . 9
Section 7.4 Treatment of Negative Book Capital
Account Balance . . . . . . . . . . . . . 9
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PROCEDURES FOR
ALLOCATIONS AND DISTRIBUTIONS
OF
HIGH YIELD MUNICIPALS PORTFOLIO
(the "Trust")
--------------------------------
ARTICLE I
Introduction
The Trust is treated as a partnership for federal income tax
purposes. These procedures have been adopted by the Trustees of the Trust
and will be furnished to the Trust's accountants for the purpose of
allocating Trust gains, income or loss and distributing Trust assets. The
Trust will maintain its books and records, for both book and tax purposes,
using the accrual method of accounting.
ARTICLE II
Definitions
Except as otherwise provided herein, a term referred to herein
shall have the same meaning as that ascribed to it in the Declaration.
References in this document to "hereof", "herein" and "hereunder" shall be
deemed to refer to this document in its entirety rather than the article
or section in which any such word appears.
"Book Capital Account" shall mean, for any Holder at any time in
any Fiscal Year, the Book Capital Account balance of the Holder on the
first day of the Fiscal Year, as adjusted each day pursuant to the
provisions of Section 3.2 hereof.
"Capital Contribution" shall mean, with respect to any Holder,
the amount of money and the Fair Market Value of any assets actually
contributed from time to time to the Trust with respect to the Interest
held by such Holder.
"Code" shall mean the U.S. Internal Revenue Code of 1986, as
amended from time to time, as well as any non-superseded provisions of the
Internal Revenue Code of 1954, as amended (or any corresponding provision
or provisions of succeeding law).
"Declaration" shall mean the Trust's Declaration of Trust, dated
May 1, 1995, as amended from time to time.
"Designated Expenses" shall mean extraordinary Trust expenses
attributable to a particular Holder that are to be borne by such Holder.
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"Distributable Cash" for any Fiscal Year shall mean the gross
cash proceeds from Trust activities, less the portion thereof used to pay
or establish Reserves, plus such portion of the Reserves as the Trustees,
in their sole discretion, no longer deem necessary to be held as Reserves.
Distributable Cash shall not be reduced by depreciation, amortization,
cost recovery deductions, or similar allowances.
"Fair Market Value" of a security, instrument or other asset on
any particular day shall mean the fair value thereof as determined in good
faith by or on behalf of the Trustees in the manner set forth in the
Registration Statement.
"Fiscal Year" shall mean an annual period determined by the
Trustees which ends on such day as is permitted by the Code.
"Holders" shall mean as of any particular time all holders of
record of Interests in the Trust.
"Interest(s)" shall mean the interest of a Holder in the Trust,
including all rights, powers and privileges accorded to Holders by the
Declaration, which interest may be expressed as a percentage, determined
by calculating, at such times and on such bases as the Trustees shall from
time to time determine, the ratio of each Holder's Book Capital Account
balance to the total of all Holders' Book Capital Account balances.
"Investments" shall mean all securities, instruments or other
assets of the Trust of any nature whatsoever, including, but not limited
to, all equity and debt securities, futures contracts, and all property of
the Trust obtained by virtue of holding such assets.
"Matched Income or Loss" shall mean Taxable Income, Tax-Exempt
Income or Tax Loss of the Trust comprising interest, original issue
discount and dividends and all other types of income or loss to the extent
the Taxable Income, Tax-Exempt Income, Tax Loss or Loss items not included
in Tax Loss arising from such items are recognized for tax purposes at the
same time that Profit or Loss are accrued for book purposes by the Trust.
"Net Unrealized Gain" shall mean the excess, if any, of the
aggregate Fair Market Value of all Investments over the aggregate adjusted
bases, for federal income tax purposes, of all Investments.
"Net Unrealized Loss" shall mean the excess, if any, of the
aggregate adjusted bases, for federal income tax purposes, of all
Investments over the aggregate Fair Market Value of all Investments.
"Profit" and "Loss" shall mean, for each Fiscal Year or other
period, an amount equal to the Taxable Income or Tax Loss for such Fiscal
Year or period with the following adjustments:
(i) Any Tax-Exempt Income shall be added to such
Taxable Income or subtracted from such Tax Loss; and
(ii) Any expenditures of the Trust for such year
or period described in Section 705(a)(2)(B) of the Code
or treated as expenditures under Section 705(a)(2)(B) of
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the Code pursuant to Treasury Regulations
Section 1.704-1(b)(2)(iv)(i), and not otherwise taken
into account in computing Profit or Loss or specially
allocated shall be subtracted from such Taxable Income or
added to such Tax Loss.
"Redemption" shall mean the complete withdrawal of an Interest of
a Holder the result of which is to reduce the Book Capital Account balance
of that Holder to zero.
"Registration Statement" shall mean the Registration Statement of
the Trust on Form N-1A as filed with the U.S. Securities and Exchange
Commission under the 1940 Act, as the same may be amended from time to
time.
"Reserves" shall mean, with respect to any Fiscal Year, funds set
aside or amounts allocated during such period to reserves which shall be
maintained in amounts deemed sufficient by the Trustees for working
capital and to pay taxes, insurance, debt service, renewals, or other
costs or expenses, incident to the ownership of the Investments or to its
operations.
"Tax Capital Account" shall mean, for any Holder at any time in
any Fiscal Year, the Tax Capital Account balance of the Holder on the
first day of the Fiscal Year, as adjusted each day pursuant to the
provisions of Section 3.3 hereof.
"Tax-Exempt Income" shall mean income of the Trust for such
Fiscal Year or period that is exempt from federal income tax and not
otherwise taken into account in computing Profit or Loss.
"Tax Lot" shall mean securities or other property which are both
purchased or acquired, and sold or otherwise disposed of, as a unit.
"Taxable Income" or "Tax Loss" shall mean the taxable income or
tax loss of the Trust, determined in accordance with Section 703(a) of the
Code, for each Fiscal Year as determined for federal income tax purposes,
together with each of the Trust's items of income, gain, loss or deduction
which is separately stated or otherwise not included in computing taxable
income and tax loss.
"Treasury Regulations" shall mean the Income Tax Regulations
promulgated under the Code, as such regulations may be amended from time
to time (including corresponding provisions of succeeding regulations).
"Trust" shall mean High Yield Municipals Portfolio, a trust fund
formed under the laws of the State of New York by the Declaration.
"Trustees" shall mean each signatory to the Declaration, so long
as such signatory shall continue in office in accordance with the terms
thereof, and all other individuals who at the time in question have been
duly elected or appointed and have qualified as Trustees in accordance
with the provisions thereof and are then in office.
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The "1940 Act" shall mean the U.S. Investment Company Act of
1940, as amended from time to time, and the rules and regulations
thereunder.
ARTICLE III
Capital Accounts
3.1. Capital Accounts of Holders. A separate Book Capital
Account and a separate Tax Capital Account shall be maintained for each
Holder pursuant to Section 3.2 and Section 3.3. hereof, respectively. In
the event the Trustees shall determine that it is prudent to modify the
manner in which the Book Capital Accounts or Tax Capital Accounts, or any
debits or credits thereto, are computed in order to comply with the
Treasury Regulations, the Trustees may make such modification, provided
that it is not likely to have a material effect on the amounts
distributable to any Holder pursuant to Article VII hereof upon the
dissolution of the Trust.
3.2. Book Capital Accounts. The Book Capital Account balance
of each Holder shall be adjusted each day by the following amounts:
(a) increased by any increase in Net Unrealized Gains or decrease
in Net Unrealized Losses allocated to such Holder pursuant to
Section 5.1(a) hereof;
(b) decreased by any decrease in Net Unrealized Gains or increase
in Net Unrealized Losses allocated to such Holder pursuant to
Section 5.1(b) hereof;
(c) increased or decreased, as the case may be, by the amount of
Profit or Loss, respectively, allocated to such Holder pursuant to
Section 5.1(c) hereof;
(d) increased by any Capital Contribution made by such Holder;
and,
(e) decreased by any distribution, including any distribution to
effect a withdrawal or Redemption, made to such Holder by the Trust.
Any adjustment pursuant to Section 3.2 (a), (b) or (c) above
shall be prorated for increases in each Holder's Book Capital Account
balance resulting from Capital Contributions, or distributions or
withdrawals from the Trust or Redemptions by the Trust occurring, during
such Fiscal Year as of the day after the Capital Contribution,
distribution, withdrawal or Redemption is accepted, made or effected by
the Trust.
3.3. Tax Capital Accounts. The Tax Capital Account balance of
each Holder shall be adjusted at the following times by the following
amounts:
(a) increased daily by the adjusted tax bases of any Capital
Contribution made by such Holder to the Trust;
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(b) increased daily by the amount of Taxable Income and Tax-
Exempt Income allocated to such Holder pursuant to Section 5.2 hereof at
such times as the allocations are made under Section 5.2 hereof;
(c) decreased daily by the amount of cash distributed to the
Holder pursuant to any of these procedures including any distribution made
to effect a withdrawal or Redemption; and
(d) decreased by the amount of Tax Loss allocated to such Holder
pursuant to Section 5.2 hereof at such times as the allocations are made
under Section 5.2 hereof.
3.4. Compliance with Treasury Regulations. The foregoing
provisions and other provisions contained herein relating to the
maintenance of Book Capital Accounts and Tax Capital Accounts are intended
to comply with Treasury Regulations Section 1.704-1(b), and shall be
interpreted and applied in a manner consistent with such Treasury
Regulations.
The Trustees shall make any appropriate modifications in the
event unanticipated events might otherwise cause these procedures not to
comply with Treasury Regulations Section 1.704-1(b), including the
requirements described in Treasury Regulations Section 1.704-
1(b)(2)(ii)(b)(1) and Treasury Regulations Section 1.704-1(b)(2)(iv).
Such modifications are hereby incorporated into these procedures by this
reference as though fully set forth herein.
ARTICLE IV
Distributions of Cash and Assets
4.1. Distributions of Distributable Cash. Except as otherwise
provided in Article VII hereof, Distributable Cash for each Fiscal Year
may be distributed to the Holders at such times, if any, and in such
amounts as shall be determined in the sole discretion of the Trustees. In
exercising such discretion, the Trustees shall distribute such
Distributable Cash so that Holders that are regulated investment companies
can comply with the distribution requirements set forth in Code
Section 852 and avoid the excise tax imposed by Code Section 4982.
4.2. Division Among Holders. All distributions to the Holders
with respect to any Fiscal Year pursuant to Section 4.1 hereof shall be
made to the Holders in proportion to the Taxable Income, Tax-Exempt Income
or Tax Loss allocated to the Holders with respect to such Fiscal Year
pursuant to the terms of these procedures.
4.3. Distributions Upon Liquidation of a Holder's Interest in
the Trust. Upon liquidation of a Holder's interest in the Trust, the
proceeds will be distributed to the Holder as provided in Section 5.6,
Article VI, and Article VII hereof. If such Holder has a negative book
capital account balance, the provisions of Section 7.4 will apply.
4.4. Amounts Withheld. All amounts withheld pursuant to the
Code or any provision of any state or local tax law with respect to any
payment or distribution to the Trust or the Holders shall be treated as
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amounts distributed to such Holders pursuant to this Article IV for all
purposes under these procedures. The Trustees may allocate any such
amount among the Holders in any manner that is in accordance with
applicable law.
ARTICLE V
Allocations
5.1. Allocation of Items to Book Capital Accounts.
(a) Increase in Net Unrealized Gains or Decrease in Net
Unrealized Losses. Any decrease in Net Unrealized Loss due to realization
of items shall be allocated to the Holder receiving the allocation of
Loss, in the same amount, under Section 5.1(c) hereof. Subject to Section
5.1(d) hereof, any increase in Net Unrealized Gains or decrease in Net
Unrealized Loss on any day during the Fiscal Year shall be allocated to
the Holders' Book Capital Accounts at the end of such day, in proportion
to the Holders' respective Book Capital Account balances at the
commencement of such day.
(b) Decrease in Net Unrealized Gains or Increase in Net
Unrealized Losses. Any decrease in Net Unrealized Gains due to
realization of items shall be allocated to the Holder receiving the
allocation of Profit, in the same amount, under Section 5.1(c) hereof.
Subject to Section 5.1(d) hereof, any decrease in Net Unrealized Gains or
increase in Net Unrealized Loss on any day during the Fiscal Year shall be
allocated to the Holders' Book Capital Accounts at the end of such day, in
proportion to the Holders' respective Book Capital Account balances at the
commencement of such day.
(c) Profit and Loss. Subject to Section 5.1(d) hereof, Profit
and Loss occurring on any day during the Fiscal Year shall be allocated to
the Holders' Book Capital Accounts at the end of such day in proportion to
the Holders' respective Book Capital Account balances at the commencement
of such day.
(d) Other Book Capital Account Adjustments.
(i) Any allocation pursuant to Section 5.1(a), (b)
or (c) above shall be prorated for increases in each
Holder's Book Capital Account resulting from Capital
Contributions, or distributions or withdrawals from the
Trust or Redemptions by the Trust occurring, during such
Fiscal Year as of the day after the Capital Contribution,
distribution, withdrawal or Redemption is accepted, made
or effected by the Trust.
(ii) For purposes of determining the Profit, Loss,
and Net Unrealized Gain or Net Unrealized Loss or any
other item allocable to any Fiscal Year, Profit, Loss,
and Net Unrealized Gain or Net Unrealized Loss and any
such other item shall be determined by or on behalf of
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the Trustees using any reasonable method under Code
Section 706 and the Treasury Regulations thereunder.
5.2. Allocation of Taxable Income and Tax Loss to Tax Capital
Accounts.
(a) Taxable Income and Tax Loss. Subject to Section 5.2(b) and
Section 5.3 hereof, which shall take precedence over this Section 5.2(a),
Taxable Income or Tax Loss for any Fiscal Year shall be allocated at least
annually to the Holders' Tax Capital Accounts as follows:
(i) First, Taxable Income and Tax Loss, whether
constituting ordinary income (or loss) or capital gain
(or loss), derived from the sale or other disposition of
a Tax Lot of securities or other property shall be
allocated as of the date such income, gain or loss is
recognized for federal income tax purposes solely in
proportion to the amount of unrealized appreciation (in
the case of such income or capital gain, but not in the
case of any such loss) or depreciation (in the case of
any such loss, but not in the case of any such income or
capital gain) from that Tax Lot which was allocated to
the Holders' Book Capital Accounts each day that such
securities or other property was held by the Trust
pursuant to Section 5.1(a) and (b) hereof; and
(ii) Second, any remaining amounts at the end of
the Fiscal Year, to the Holders in proportion to their
respective daily average Book Capital Account balances
determined for the Fiscal Year of the allocation.
(b) Matched Income or Loss. Notwithstanding the provisions of
Section 5.2(a) hereof, Taxable Income, Tax-Exempt Income or Tax Loss
accruing on any day during the Fiscal Year constituting Matched Income or
Loss, shall be allocated daily to the Holders' Tax Capital Accounts solely
in proportion to and to the extent of corresponding allocations of Profit
or Loss to the Holders' Book Capital Accounts pursuant to the first
sentence of Section 5.1(c) hereof.
5.3. Special Allocations to Book and Tax Capital Accounts.
(a) The Designated Expenses computed for each Holder shall be
allocated separately (not included in the allocations of Matched Income or
Loss, Loss or Tax Loss) to the Book Capital Account and Tax Capital
Account of each Holder.
(b) If the Trust incurs any nonrecourse indebtedness, then
allocations of items attributable to nonrecourse indebtedness shall be
made to the Tax Capital Account of each Holder in accordance with the
requirements of Treasury Regulations Section 1.704-1(b)(4)(iv)(d).
(c) In accordance with Code Section 704(c) and the Treasury
Regulations thereunder, Taxable Income and Tax Loss with respect to any
property contributed to the capital of the Trust shall be allocated to the
Tax Capital Account of each Holder so as to take into account any
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variation between the adjusted tax basis of such property to the Trust for
federal income tax purposes and such property's Fair Market Value at the
time of contribution to the Trust.
5.4. Other Adjustments to Book and Tax Capital Accounts.
(a) Any election or other decision relating to such allocations
shall be made by the Trustees in any manner that reasonably reflects the
purpose and intention of these procedures.
(b) Each Holder will report its share of Trust income and loss
for federal income tax purposes in accordance with the allocations
effected pursuant to Section 5.2 hereof.
5.5. Timing of Tax Allocations to Book and Tax Capital
Accounts. Allocation of Taxable Income, Tax-Exempt Income and Tax Loss
pursuant to Section 5.2 hereof for any Fiscal Year, unless specified above
to the contrary, shall be made only after corresponding adjustments have
been made to the Book Capital Accounts of the Holders for the Fiscal Year
as provided pursuant to Section 5.1 hereof.
5.6. Redemptions During the Fiscal Year. If a Redemption
occurs prior to the end of a Fiscal Year, the Trust will treat the Fiscal
Year as ended for the purposes of computing the redeeming Holder's
distributive share of Trust items and allocations of all items to such
Holder will be made as though each Holder were receiving its allocable
share of Trust items at such time. All items so allocated to the
redeeming Holder will be subtracted from the items to be allocated among
the other non-redeeming Holders at the actual end of the Fiscal Year. All
items allocated among the redeeming and non-redeeming Holders will be made
subject to the rules of Code Sections 702, 704, 706 and 708 and the
Treasury Regulations promulgated thereunder.
ARTICLE VI
Withdrawals
6.1. Partial Withdrawals. At any time any Holder shall be
entitled to request a withdrawal of such portion of the Interest held by
such Holder as such Holder shall request.
6.2. Redemptions. At any time a Holder shall be entitled to
request a Redemption of all of its Interest. A Holder's Interest may be
redeemed at any time during the Fiscal Year as provided in Section 6.3
hereof by a cash distribution or, at the option of a Holder, by a
distribution of a proportionate amount except for fractional shares of
each Trust asset at the option of the Trust. However, the Holder may be
redeemed by a distribution of a proportionate amount of the Trust's assets
only at the end of a Fiscal Year. However, if the Holder has contributed
any property to the Trust other than cash, if such property remains in the
Trust at the time the Holder requests withdrawal, then such property will
be sold by the Trust prior to the time at which the Holder withdraws from
the Trust.
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6.3. Distribution in Kind. If a withdrawing Holder receives a
distribution in kind of its proportionate part of Trust property, then
unrealized income, gain, loss or deduction attributable to such property
shall be allocated among the Holders as if there had been a disposition of
the property on the date of distribution in compliance with the
requirements of Treasury Regulations Section 1.704-1(b)(2)(iv)(e).
ARTICLE VII
Liquidation
7.1. Liquidation Procedure. Subject to Section 7.4 hereof,
upon dissolution of the Trust, the Trustees shall liquidate the assets of
the Trust, apply and distribute the proceeds thereof as follows:
(a) first to the payment of all debts and obligations of the
Trust to third parties, including without limitation the retirement of
outstanding debt, including any debt owed to Holders or their affiliates,
and the expenses of liquidation, and to the setting up of any Reserves for
contingencies which may be necessary; and
(b) then in accordance with the Holders' positive Book Capital
Account balances after adjusting Book Capital Accounts for allocations
provided in Article V hereof and in accordance with the requirements
described in Treasury Regulations Section 1.704-1(b)(2) (ii)(b)(2).
7.2. Alternative Liquidation Procedure. Notwithstanding the
foregoing, if the Trustees shall determine that an immediate sale of part
or all of the Trust assets would cause undue loss to the Holders, the
Trustees, in order to avoid such loss, may, after having given
notification to all the Holders, to the extent not then prohibited by the
law of any jurisdiction in which the Trust is then formed or qualified and
applicable in the circumstances, either defer liquidation of and withhold
from distribution for a reasonable time any assets of the Trust except
those necessary to satisfy the Trust's debts and obligations or distribute
the Trust's assets to the Holders in liquidation.
7.3. Cash Distributions Upon Liquidation. Except as provided
in Section 7.2 hereof, amounts distributed in liquidation of the Trust
shall be paid solely in cash.
7.4. Treatment of Negative Book Capital Account Balance. If a
Holder has a negative balance in its Book Capital Account following the
liquidation of its Interest, as determined after taking into account all
capital account adjustments for the Fiscal Year during which the
liquidation occurs, then such Holder shall restore the amount of such
negative balance to the Trust by the later of the end of the Fiscal Year
or 90 days after the date of such liquidation so as to comply with the
requirements of Treasury Regulations Section 1.704-1(b)(2)(ii)(b)(3).
Such amount shall, upon liquidation, be paid to creditors of the Trust or
distributed to other Holders in accordance with their positive Book
Capital Account balances.
-9-
<PAGE>
AMENDMENT TO
MASTER CUSTODIAN AGREEMENT
between
EATON VANCE HUB PORTFOLIOS
and
INVESTORS BANK & TRUST COMPANY
This Amendment, dated as of October 23, 1995, is made to the
MASTER CUSTODIAN AGREEMENT (the "Agreement") between each investment
company advised by Boston Management and Research which has adopted the
Agreement (the "Trusts") and Investors Bank & Trust Company (the
"Custodian") pursuant to Section 10 of the Agreement.
The Trusts and the Custodian agree that Section 10 of the
Agreement shall, as of October 23, 1995, be amended to read as follows:
Unless otherwise defined herein, terms which are defined in the
Agreement and used herein are so used as so defined.
10. Effective Period, Termination and Amendment; Successor Custodian
This Agreement shall become effective as of its execution, shall
continue in full force and effect until terminated by either party after
August 31, 2000 by an instrument in writing delivered or mailed, postage
prepaid to the other party, such termination to take effect not sooner
than sixty (60) days after the date of such delivery or mailing; provided,
that the Trust may at any time by action of its Board, (i) substitute
another bank or trust company for the Custodian by giving notice as
described above to the Custodian in the event the Custodian assigns this
Agreement to another party without consent of the noninterested Trustees
of the Trust, or (ii) immediately terminate this Agreement in the event of
the appointment of a conservator or receiver for the Custodian by the
Federal Deposit Insurance Corporation or by the Banking Commissioner of
The Commonwealth of Massachusetts or upon the happening of a like event at
the direction of an appropriate regulatory agency or court of competent
jurisdiction. Upon termination of the Agreement, the Trust shall pay to
the Custodian such compensation as may be due as of the date of such
termination (and shall likewise reimburse the Custodian for its costs,
expenses and disbursements).
This Agreement may be amended at any time by the written
agreement of the parties hereto. If a majority of the non-interested
trustees of any of the Trusts determines that the performance of the
Custodian has been unsatisfactory or adverse to the interests of Trust
holders of any Trust or Trusts or that the terms of the Agreement are no
longer consistent with publicly available industry standards, then the
Trust or Trusts shall give written notice to the Custodian of such
determination and the Custodian shall have 60 days to (1) correct such
performance to the satisfaction of the non-interested trustees or (2)
renegotiate terms which are satisfactory to the non-interested trustees of
the Trusts. If the conditions of the preceding sentence are not met then
the Trust or Trusts may terminate this Agreement on sixty (60) days
written notice.
<PAGE>
The Board of the Trust shall, forthwith, upon giving or receiving
notice of termination of this Agreement, appoint as successor custodian, a
bank or trust company having the qualifications required by the Investment
Company Act of 1940 and the Rules thereunder. The Bank, as Custodian,
Agent or otherwise, shall, upon termination of the Agreement, deliver to
such successor custodian, all securities then held hereunder and all funds
or other properties of the Trust deposited with or held by the Bank
hereunder and all books of account and records kept by the Bank pursuant
to this Agreement, and all documents held by the Bank relative thereto.
In the event that no written order designating a successor custodian shall
have been delivered to the Bank on or before the date when such
termination shall become effective, then the Bank shall not deliver the
securities, funds and other properties of the Trust to the Trust but shall
have the right to deliver to a bank or trust company doing business in
Boston, Massachusetts of its own selection meeting the above required
qualifications, all funds, securities and properties of the Trust held by
or deposited with the Bank, and all books of account and records kept by
the Bank pursuant to this Agreement, and all documents held by the Bank
relative thereto. Thereafter such bank or trust company shall be the
successor of the Custodian under this Agreement.
Except as expressly provided herein, the Agreement shall remain
unchanged and in full force and effect.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment
to be executed by their duly authorized officers, as of the day and year
first above written.
Alabama Tax Free Portfolio
Arizona Tax Free Portfolio
Arkansas Tax Free Portfolio
Cash Management Portfolio
Colorado Tax Free Portfolio
Connecticut Tax Free Portfolio
Florida Insured Tax Free Portfolio
Florida Tax Free Portfolio
Georgia Tax Free Portfolio
Government Obligations Portfolio
Growth Portfolio
Hawaii Tax Free Portfolio
High Yield Municipals Portfolio
Investors Portfolio
Kansas Tax Free Portfolio
Kentucky Tax Free Portfolio
Louisiana Tax Free Portfolio
Maryland Tax Free Portfolio
Massachusetts Tax Free Portfolio
Michigan Tax Free Portfolio
Minnesota Tax Free Portfolio
Mississippi Tax Free Portfolio
Missouri Tax Free Portfolio
2
<PAGE>
National Municipals Portfolio
New Jersey Tax Free Portfolio
New York Tax Free Portfolio
North Carolina Tax Free Portfolio
Ohio Tax Free Portfolio
Oregon Tax Free Portfolio
Pennsylvania Tax Free Portfolio
Rhode Island Tax Free Portfolio
South Carolina Tax Free Portfolio
Special Investment Portfolio
Stock Portfolio
Strategic Income Portfolio
Tax Free Reserves Portfolio
Tennessee Tax Free Portfolio
Texas Tax Free Portfolio
Total Return Portfolio
Virginia Tax Free Portfolio
West Virginia Tax Free Portfolio
Arizona Limited Maturity Tax Free Portfolio
California Tax Free Portfolio
California Limited Maturity Tax Free Portfolio
Connecticut Limited Maturity Tax Free Portfolio
Florida Limited Maturity Tax Free Portfolio
Massachusetts Limited Maturity Tax Free Portfolio
Michigan Limited Maturity Tax Free Portfolio
National Limited Maturity Tax Free Portfolio
New Jersey Limited Maturity Tax Free Portfolio
New York Limited Maturity Tax Free Portfolio
North Carolina Limited Maturity Tax Free Portfolio
Ohio Limited Maturity Tax Free Portfolio
Pennsylvania Limited Maturity Tax Free Portfolio
Virginia Limited Maturity Tax Free Portfolio
By: /s/James L. O'Connor
----------------------
Treasurer
INVESTORS BANK & TRUST COMPANY
By: /s/Michael F. Rogers
-----------------------
3
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000945433
<NAME> HIGH YIELD MUNICIPALS PORTFOLIO
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-31-1996
<PERIOD-END> JAN-31-1996
<INVESTMENTS-AT-COST> 70056
<INVESTMENTS-AT-VALUE> 71708
<RECEIVABLES> 874
<ASSETS-OTHER> 20
<OTHER-ITEMS-ASSETS> 472
<TOTAL-ASSETS> 73074
<PAYABLE-FOR-SECURITIES> 980
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 16
<TOTAL-LIABILITIES> 996
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 70426
<SHARES-COMMON-STOCK> 0
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<NET-ASSETS> 72078
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1197
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<EXPENSES-NET> 10
<NET-INVESTMENT-INCOME> 1187
<REALIZED-GAINS-CURRENT> 10
<APPREC-INCREASE-CURRENT> 1652
<NET-CHANGE-FROM-OPS> 2849
<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> 71977
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 101
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 122
<AVERAGE-NET-ASSETS> 34980
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PAGE>
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0.06
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<PAGE>
</TABLE>
