Certified Annual Shareholder Report for Management Investment Companies (n-csr)

Economic and Market Conditions

For the first eight months of the fiscal year ended August 31, 2013, two intertwined forces dominated fixed-income markets: a low interest-rate environment that drove many investors to search for yield and investors’ increased appetite for risk. Highly accommodative monetary policies instituted by central banks around the world pushed interest rates to historic lows. The U.S. Federal Reserve (the Fed) acted twice during the period to maintain downward pressure on rates. In September 2012, the Fed began purchasing approximately $40 billion of agency mortgage-backed securities monthly. This was in addition to its existing Operation Twist, the central bank’s swapping of its short-term holdings for long-term Treasury bonds. In December 2012, the Fed replaced Operation Twist, which was expiring, with outright purchases of $45 billion of Treasuries each month. This extraordinary downward pressure on yields drove investors to look for other sources of income. One beneficiary was the municipal bond market, which rallied during the first eight months of the period in response to strong investor demand.

In late May 2013, however, Fed Chairman Ben Bernanke surprised the markets by indicating that the Fed’s $85 billion in monthly asset purchases, known collectively as quantitative easing, could slow down and end sooner than most investors had expected. The negative effect on the bond market was swift and dramatic. Investors rushed to sell fixed-income assets in anticipation of rising interest rates, causing nearly every fixed-income asset class to decline dramatically in value. Historic outflows had a particularly significant effect on municipal bonds because, unlike other fixed-income asset classes, the municipal bond market is generally impacted more by the actions of small individual investors than other fixed-income asset classes. Even after the Fed tried to temper its comments and calm the markets, moderating the outflows in other fixed-income classes, heavy selling in municipals continued through the end of the fiscal year. The Funds’ primary benchmark, the Barclays Municipal Bond Index (the Index) ² — an unmanaged index of municipal bonds traded in the United States — returned -3.70% for the one-year period.

Adding to the pressure in the municipal market, the City of Detroit filed Chapter 9 bankruptcy on July 18. Although not a surprise, because the city’s fiscal problems have been well-documented for many years, the bankruptcy’s negative headlines injected additional fear into the municipal bond market. While Detroit’s general obligation bonds represented less than 6% of the city’s reported overall debt, investors were watching the case closely to see how the bonds would be treated by the federal bankruptcy court.

Fund Performance

For the fiscal year ended August 31, 2013, the Alabama, Arkansas, Georgia, Maryland, Missouri, North Carolina, Oregon, South Carolina, Tennessee and Virginia Funds’ Class A shares at net asset value (NAV) underperformed the -3.70% return of the Index, while the Kentucky Fund’s Class A shares at NAV outperformed the Index.

Generally speaking, the Funds’ overall strategy is to normally invest in municipal bonds with maturities of ten years or more, in order to capture their typically higher yields and greater income stream. Management hedges to various degrees against the potential risk of volatility at the long end of the yield curve by using Treasury futures. As a risk management strategy, hedging is intended to moderate performance on both the upside and the downside. So in a period when municipal and Treasury bond prices declined sharply, the Funds’ hedging through Treasury futures mitigated a portion of the Funds’ negative performance versus the Index. Hedging was a contributor to relative results versus the Index for all 11 Funds.

All Funds (except the Arkansas, Kentucky and Tennessee Funds which held little or no leveraged investments) held leveraged6 investments throughout the year that detracted from relative results versus the Index. For the Alabama, North Carolina, Oregon, South Carolina and Virginia Funds, the negative effect of holding leveraged investments was more significant, compared with the remaining Funds where leveraged investments were a minor detractor from performance versus the Index. Management held leveraged investments in an effort to enhance those Funds’ tax-exempt income. The use of leveraged investments has the effect of achieving additional exposure to the municipal market and magnifies a fund’s exposure to its underlying investments in both up and down markets. As a result, during this period of negative performance for municipal bonds, leveraged investments hurt performance versus the Index.

State-specific Results

Eaton Vance Alabama Municipal Income Fund’s Class A shares at NAV had a total return of -6.85%, underperforming the -3.70% return of the Index during the fiscal year ended August 31, 2013. An overweighting in Puerto Rico bonds detracted from results versus the Index as the perceived risk of those issues increased during the period. Additional detractors from performance relative to the Index included leveraged investments, as mentioned earlier, and an overweighting in long-maturity bonds, which underperformed shorter-maturity issues during the period. Contributors to performance versus the Index included the Fund’s hedging strategy, as noted earlier, and an overweighting in prerefunded bonds. Prerefunded, or escrowed, bonds

 

comprise a relatively defensive asset category that historically has been less sensitive to rising interest rates.

Eaton Vance Arkansas Municipal Income Fund’s Class A shares at NAV returned -5.05%, lagging the -3.70% return of the Index. Significant detractors from results versus the Index included an overweighting and security selection in both Puerto Rico bonds and zero-coupon bonds. Because zero-coupon issues are among the longest duration8 bonds, they were particularly sensitive to the negative effects of rising rates on bond prices during the period. Contributors to performance relative to the Index included the Fund’s hedging strategy, an overweighting in prerefunded bonds, and an overweighting in below-investment-grade and nonrated7 bonds. The generally higher coupon structure of below-investment-grade and nonrated bonds provided stability to overall total return in a rising interest-rate environment.

Eaton Vance Georgia Municipal Income Fund’s Class A shares at NAV returned -5.98%, underperforming the -3.70% return of the Index. The major detractors from performance versus the Index were an overweighting and security selection in both Puerto Rico bonds and water & sewer bonds, as well as an overweighting in long-maturity issues. In contrast, the Fund’s hedging strategy aided results versus the Index.

Eaton Vance Kentucky Municipal Income Fund’s Class A shares at NAV returned -2.63%, outperforming the -3.70% return of the Index. The Fund’s hedging strategy, an overweighting in prerefunded bonds and security selection in long-maturity bonds all contributed to the Fund’s outperformance versus the Index. Detractors from performance versus the Index included an overweighting in Puerto Rico bonds, an overweighting and security selection in hospital bonds, and security selection in intermediate-maturity bonds — issues with five to 10 years remaining to maturity.

Eaton Vance Maryland Municipal Income Fund’s Class A shares at NAV returned -5.14%, trailing the -3.70% return of the Index. Significant detractors from performance versus the Index included security selection in Puerto Rico bonds, an overweighting and security selection in hospital bonds, and security selection in A-rated and AA-rated bonds. In contrast, the Fund’s hedging strategy and overweights in both prerefunded and nonrated bonds helped performance versus the Index.

Eaton Vance Missouri Municipal Income Fund’s Class A shares at NAV returned -6.49%, lagging the -3.70% return of the Index. An overweighting and security selection in Puerto Rico bonds, security selection in long-maturity issues and an overweighting in zero-coupon bonds detracted from

results versus the Index. Contributors to performance versus the Index included the Fund’s hedging strategy, an overweighting and security selection in bonds rated BBB and below, and security selection in hospital bonds.

Eaton Vance North Carolina Municipal Income Fund’s Class A shares at NAV returned -8.46%, underperforming the -3.70% return of the Index. Leveraged investments, an overweighting and security selection in Puerto Rico bonds, and an overweighting in hospital bonds were significant detractors from performance versus the Index. Contributors to performance versus the Index included the Fund’s hedging strategy and an overweighting in prerefunded bonds.

Eaton Vance Oregon Municipal Income Fund’s Class A shares at NAV returned -12.19%, underperforming the -3.70% return of the Index. Detractors from performance versus the Index included an overweighting and security selection in both Puerto Rico bonds and zero-coupon bonds. Leveraged investments detracted from results versus the Index as well. In contrast, the Fund’s hedging strategy aided performance versus the Index.

Eaton Vance South Carolina Municipal Income Fund’s Class A shares at NAV returned -8.73%, trailing the -3.70% return of the Index. Leveraged investments, an overweighting and security selection in Puerto Rico bonds, and an overweighting in bonds with coupon rates below 5% all detracted from performance relative to the Index. Contributors to performance versus the Index included the Fund’s hedging strategy and an overweighting in prerefunded bonds.

Eaton Vance Tennessee Municipal Income Fund’s Class A shares at NAV returned -4.82%, lagging the -3.70% return of the Index. An overweighting and security selection in Puerto Rico bonds and an overweighting in zero-coupon bonds were the key detractors from performance relative to the Index. Contributors to results versus the Index included the Fund’s hedging strategy, an overweighting in prerefunded bonds and security selection in intermediate-maturity bonds.

Eaton Vance Virginia Municipal Income Fund’s Class A shares at NAV returned -4.25%, underperforming the -3.70% return of the Index. Detractors from results versus the Index included an overweighting and security selection in Puerto Rico bonds, security selection in zero-coupon bonds and leveraged investments. In contrast, the Fund’s hedging strategy, an overweighting in prerefunded bonds and security selection in industrial development revenue bonds helped performance relative to the Index.