<PAGE> 1
EATON VANCE MUNICIPALS TRUST II
FOR THE FUNDS:
- EV Marathon Florida Insured Tax Free Fund
- EV Marathon Hawaii Tax Free Fund
- EV Marathon Kansas Tax Free Fund
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[EATON VANCE LOGO]
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SEMI-ANNUAL SHAREHOLDER REPORT
JULY 31, 1995
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ITEM PAGE
<S> <C>
Six-month results ..............................................2
President's letter to shareholders .............................3
Management Reports:
EV Marathon Florida Insured Tax Free Fund .............4
EV Marathon Hawaii Tax Free Fund ......................5
EV Marathon Kansas Tax Free Fund ......................6
Financial Results .....................................7
</TABLE>
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INFORMATION ABOUT YOUR MUTUAL FUND INVESTMENT
<TABLE>
<CAPTION>
RESULTS FOR THE SIX MONTHS ENDING JULY 31, 1995
------------------------------------------------------------------------------------------------
FINANCIAL DATA TAX DATA
---------------------------------------- ----------------------------------------------
Fund's If your combined The after-tax
Dividends NAV per distribution Federal & equivalent
paid by Fund share at rate at state tax you would
(During period) 7/31/95 7/31/95 rate is... need is...
--------------- -------- ------------ ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
EV Marathon FLORIDA INSURED
Tax Free Fund $0.257 $10.53 4.89% [Graphic] 36.00% 7.56%
EV Marathon HAWAII Tax Free Fund $0.244 $ 9.53 5.14% [Graphic] 42.40% 8.84%
EV Marathon KANSAS Tax Free Fund $0.241 $ 9.88 4.98% [Graphic] 41.57% 8.31%
</TABLE>
2
<PAGE> 3
TO SHAREHOLDERS
The global economy continues to demonstrate a pattern of slow growth with low
inflation. The U.S. economy is no exception, as Gross Domestic Product should
grow only modestly during 1995 at between 2 and 3%, with inflation of less than
3%. These characteristics bode well for all capital markets and particularly
fixed income markets, including municipal bonds.
Indeed, municipal bonds performed well during the first half of 1995 by
realizing strong capital appreciation as a result of this favorable investment
environment. However, during this period the municipal market underperformed the
taxable market because of concern about the potential passage of major tax
reform (e.g., flat tax, value added tax or consumption tax) legislation.
Were major tax reform to become law, municipal bonds would likely be
underperformers relative to taxable bonds because the current tax-advantaged
status of municipal bonds likely would be eliminated.
- --------------------------------------------------------------------------------
[Chart entitled "Despite tax policy uncertainty, tax-exempt bonds yield more
than 88% of Treasury yields"]
This is a bar chart. The first of two bars shows the yield for 30-year AA-rated
General Obligation (GO) bonds as 6.05%.
Below that bar is a second bar, showing the yield of 30-year Treasury bonds as
6.90%.
Extending to the right of the upper bar--the one describing general obligation
yield--is an additional bar labeled 9.45% - Taxable equivalent yield of
investment of couple in 35% tax bracket.
An asterisk after "30-year AA General Obligation (GO) bonds" refers to the
following footnote: "Source: Bloomberg, L.P. GO yield is a compilation of a
representative variety of general obligation bonds and is not necessarily
represented by the Fund's yield."
Other footnotes:
Principal and interest payments of Treasury securities are guaranteed by the
U.S. government. Statistics as of July 31, 1995. Past performance is no
guarantee of future results.
- --------------------------------------------------------------------------------
However, we at Eaton Vance believe there is little chance of major tax reform
legislation being enacted. Many factors have led us to this conclusion. For
example, the inherent regressivity of the various flat tax proposals will
provoke much opposition, as will proposals to eliminate such tax breaks as
deductions for mortgage interest and state and local taxes. Also, such proposals
could seriously depress entire sectors of the U.S. economy.
Accordingly, we view this recent underperformance by municipal bonds (because of
fears of tax reform) as a potential buying opportunity. Municipal bonds could
represent an attractive asset class at these current relative trading
relationships, with the potential for future outperformance for those investors
willing to adopt a patient, long-term investment horizon.
In addition, proposals are now circulating in both Congress and the White House
to reduce the nation's budget deficit by severely cutting expenditures over the
next decade. If enacted, such a concept would drastically reduce the federal
government's borrowing needs and, as a result, would exert a meaningful downward
influence on interest rates across the entire yield curve. All fixed-income
instruments, including municipal bonds, would benefit.
We will continue to monitor changes in economic and political conditions and to
pursue the goal of your Fund: to provide you with a competitive distribution of
tax-free income from a portfolio of quality municipal bonds.+
[PHOTO]
Sincerely,
THOMAS J. FETTER
Thomas J. Fetter
President
September 20, 1995
+ A portion of the Portfolios' income could be subject to Federal alternative
minimum tax.
3
<PAGE> 4
EV MARATHON FLORIDA INSURED TAX FREE FUND
The Florida economy can be generally characterized as moving from a reliance on
seasonal tourism and agriculture to a substantial base in the service and trade
sectors. The state has been able to rely on continual business expansion in
recent years, as well as more year-round tourism.
During the six months ending July 31, 1995, the Florida economy continued to
grow. The state's economic recovery continues to be among the strongest in its
region, with solid employment gains. It is estimated that the unemployment rate
through 1995 will be 6.1 percent, a significant drop from 8.2 percent at the
peak of the recession in 1992.
During 1995, Florida's residential construction industry has been hampered by
higher interest rates, with the number of private housing starts falling during
the period.
The 1995 legislative session ended with approval of budget appropriations which,
adjusted for inflation, represent the smallest increase in state spending in
more
- --------------------------------------------------------------------------------
PORTFOLIO OVERVIEW
Based on market value as of July 31, 1995
<TABLE>
<S> <C> <C>
Number of issues................................. 39
[GRAPHIC] Average quality.................................. AAA
Investment grade................................. 100.0%
Effective maturity (years)....................... 19.85
</TABLE>
<TABLE>
<S> <C>
Largest sectors:
Insured special tax revenue................. 20.9%*
Insured water and sewer..................... 17.5*
Housing..................................... 13.7
Insured transportation...................... 10.1*
Insured Pollution control revenue........... 7.1*
</TABLE>
* Private insurance does not remove the risk of loss of principal due to changes
in market conditions that is associated with these investments.
- --------------------------------------------------------------------------------
than 10 years. Despite the need for substantial state expenditures to
accommodate its continuing growth, Florida is considered to have a moderate
level of debt and a stable economy.
- --------------------------------------------------------------------------------
YOUR INVESTMENT AT WORK
DADE PUBLIC HEALTH [GRAPHIC]
JACKSON MEMORIAL
HOSPITAL
These bonds, issued in 1993, were used for several purposes, all related to
Jackson Memorial Hospital, a large hospital owned by Dade County and located
near downtown Miami.
In addition to refunding a portion of a 1988 bond issue, the proceeds were used
to build the hospital's new primary care facility in Sweetwater, and for
additional parking, office and retail space near the Medical Center Campus in
Miami. The funds also were used to consolidate the hospital's Mental Health
Institute facilities and to build a new Diagnostic Imaging Center.
In addition, because of increased demand in the northern part of Dade County,
the hospital used some of the money to consolidate the Jackson North Maternity
Center and the North Dade Health Center into a more comprehensive health care
facility.
Based on the number of admissions to a single facility, Jackson Memorial is
considered one of the nation's busiest medical centers.
- --------------------------------------------------------------------------------
FROM THE PORTFOLIO MANAGER
"The Florida health care market has been somewhat in disarray because of health
care reform. Through our proprietary research, we have been able to buy
high-quality hospital bonds at very attractive prices.
"We continue to look for "story" (or research-driven) bonds that we can have
secondarily insured to add yield and insurance protection to the Portfolio.
"We are still very positive on the Florida economy and continue to look for
discount coupon bonds that add attractive characteristics to the Portfolio."
- Thomas J. Fetter
- --------------------------------------------------------------------------------
4
<PAGE> 5
EV MARATHON HAWAII TAX FREE FUND
Hawaii continues to recover gradually from recession. Many economic indicators
continue to be negative, but the state's economy and residents have benefited
from a significant decline in inflation.
In early 1995, the state's construction industry continued to follow a cyclical
downward course, while higher interest rates hurt the state's residential real
estate market.
The number of visitors to the islands increased only slightly during the first
quarter of 1995. However, the state's retail stores reported increased spending
by Japanese tourists, fueled by the strength of the yen.
Hawaii's economy relies heavily on military bases and other federal
installations. Fortunately, while Hawaii has felt the sting of some military
cutbacks, it has fared better than mainland states in terms of cutbacks and base
closings.
The state is under some fiscal constraints as it attempts to deal with a budget
deficit. It is expected that the state will solve this problem through spending
cuts.
- --------------------------------------------------------------------------------
PORTFOLIO OVERVIEW
Based on market value as of July 31, 1995
<TABLE>
<S> <C> <C>
[GRAPHIC] Number of issues.................................. 37
Average quality................................... AA
Investment grade.................................. 99.3%
Effective maturity (years)........................ 16.04
</TABLE>
<TABLE>
<S> <C>
Largest sectors:
General obligation............................. 19.2%
Transportation................................. 16.1
Insured general obligation..................... 13.5*
Insured transportation......................... 13.0*
Housing........................................ 7.9
</TABLE>
* Private insurance does not remove the risk of loss of principal due to changes
in market conditions that is associated with these investments.
- --------------------------------------------------------------------------------
YOUR INVESTMENT AT WORK [GRAPHIC]
UNIVERSITY OF HAWAII
UNIVERSITY REVENUE BONDS
These bonds have been used to purchase new telecommunications distribution
facilities for the University of Hawaii at Manoa. This is part of a project
carried out over a period of several years to replace the university's outmoded
telecommunications system. The project included planning, designing and building
the facilities. The project involved installation of a uniform cable
distribution system of wiring and fiber optic cables for voice, video and data
transmission.
Under the plan, the University receives revenues from the project by charging
user fees. In all, more than $16.1 million in insured bonds were issued in 1992
for this project.
The university began the project to upgrade its telecommunications system in
1986. Completely new facilities, including 10 miles of fiber optic cable, were
installed throughout the campus in the period from 1988 to 1990.
- --------------------------------------------------------------------------------
FROM THE PORTFOLIO MANAGER
"New Hawaii bond issues are relatively scarce, which means that Hawaii bonds
tend to be somewhat higher in price and lower in yield than they might be
otherwise.
[PHOTO]
"In general, we try to minimize our exposure to current coupon bonds and instead
purchase either premiums or discounts.
"In addition, because the Portfolio is relatively new, it has tended to have
many small blocks of bonds. To make the Portfolio easier to manage, we've tried
to consolidate blocks of bonds into larger holdings. We've done this without
impeding the Portfolio's diversification.
"We are maintaining a low exposure to uninsured health care bonds. This is
because the health care market is especially competitive and uncertain in this
era of health care reform. These characteristics seem to be especially true of
the market in Hawaii, where health care costs are an especially important
issue."
- Robert B. MacIntosh
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5
<PAGE> 6
EV MARATHON KANSAS TAX FREE FUND
Kansas continues to be characterized by solid economic performance, positive
finances (with a comfortable accumulated surplus), and a low debt position.
The Kansas economy has diversified away from agriculture but remains vulnerable
to weaknesses in the aircraft manufacturing industry. This is reflected in the
state's rate of employment growth, which lags behind that of the nation because
of a downturn in the aircraft industry.
With both a new Republican governor and a Republican legislature, the budget
process for the 1996 fiscal year was more focused than in previous years;
relative to many other states, Kansas is on a much firmer financial footing.
Despite softer-than-expected tax revenue performance in the 1995 fiscal year,
the state's budget will be balanced. In addition, the state has a requirement to
maintain cash balances equivalent to at least 7.5 percent of expenditures.
- --------------------------------------------------------------------------------
PORTFOLIO OVERVIEW
Based on market value as of July 31, 1995
<TABLE>
<S> <C> <C>
Number of issues.................................. 47
[GRAPHIC] Average quality................................... AA+
Investment grade.................................. 100.0%
Effective maturity (years)........................ 22.05
</TABLE>
<TABLE>
<S> <C>
Largest sectors:
Housing....................................... 22.4%
Insured general obligation school districts... 19.9*
Transportation................................ 9.2
Hospitals..................................... 8.6
General obligation school districts........... 6.2
</TABLE>
* Private insurance does not remove the risk of loss of principal due to
changes in market conditions that is associated with this investment.
- --------------------------------------------------------------------------------
YOUR INVESTMENT AT WORK [GRAPHIC]
SHAWNEE COUNTY, KS
SISTERS OF CHARITY
This debt was issued in early 1994 to finance capital improvements at St.
Francis Hospital in Topeka, which is run by the Sisters of Charity of
Leavenworth Health Services Corp.
Debt service is paid by the Sisters of Charity health care organization, which
encompasses an eight-hospital system located in midwestern and western states.
Moody's Aa rating reflects the health care system's low debt and sound financial
operations. After an earthquake affected one of the health care system's
California hospitals, we were able to add bonds to our position in the Kansas
Portfolio as the bonds' price dropped and their yield rose to compensate for
credit concerns.
- --------------------------------------------------------------------------------
FROM THE PORTFOLIO MANAGER
"The Kansas new issue municipal market is dominated by local school district
bond sales. These competitively sold bond issues typically do not offer the most
attractive coupon structures and call protection to investors.
[PHOTO]
"In order to provide our shareholders with the most attractive returns and
performance potential, we continuously monitor the secondary market for
interesting Kansas bonds that provide above-average yield.
"With the market rallying during the first half of 1995, we sold current coupons
and replaced them with a combination of higher-coupon bonds for defensive
purposes and lower-coupon, performance-oriented bonds."
- Nicole Anderes
- --------------------------------------------------------------------------------
6
<PAGE> 7
EV MARATHON TAX FREE FUNDS
FINANCIAL STATEMENTS
STATEMENTS OF ASSETS AND LIABILITIES
- -------------------------------------------------------------------------------
July 31, 1995 (Unaudited)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARATHON MARATHON MARATHON
FLORIDA INSURED HAWAII KANSAS
FUND FUND FUND
--------------- ----------- ----------
<S> <C> <C> <C>
ASSETS:
Investments in Portfolio -
Identified cost $13,472,604 $14,094,253 $8,841,393
Unrealized appreciation 706,243 634,742 247,680
----------- ----------- ----------
Total investment in Portfolio, at value (Note 1A) $14,178,847 $14,728,995 $9,089,073
Receivable for Fund shares sold 301,447 5,000 42,000
Receivable from the Administrator (Note 4) - 11,756 3,270
Deferred organization expenses (Note 1D) 12,503 16,461 12,365
----------- ----------- ----------
Total assets $14,492,797 $14,762,212 $9,146,708
----------- ----------- ----------
LIABILITIES:
Dividends payable $ 26,204 $ 28,962 $ 17,260
Payable for shares redeemed - 10 3,241
Payable to affiliates -
Trustee fees 40 14 30
Custodian fee 84 84 84
Accrued expenses 2,644 3,065 2,242
----------- ----------- ----------
Total liabilities $ 28,972 $ 32,135 $ 22,857
----------- ----------- ----------
NET ASSETS $14,463,825 $14,730,077 $9,123,851
=========== =========== ==========
SOURCES OF NET ASSETS:
Paid-in capital $14,081,283 $14,805,543 $8,978,350
Accumulated net realized loss on investment and financial
futures transactions (computed on the basis of identified cost) (321,429) (707,937) (100,739)
Accumulated distributions in excess of net investment income (2,272) (2,271) (1,440)
Unrealized appreciation of investments and financial futures contracts
from Portfolio (computed on the basis of identified cost) 706,243 634,742 247,680
----------- ----------- ----------
Total $14,463,825 $14,730,077 $9,123,851
=========== =========== ==========
SHARES OF BENEFICIAL INTEREST OUTSTANDING (NOTE 3) 1,373,881 1,545,330 923,455
=========== =========== ==========
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE
(NOTE 6) PER SHARE (net assets/shares of beneficial interest outstanding) $ 10.53 $ 9.53 $ 9.88
=========== =========== ==========
</TABLE>
See notes to financial statements
7
<PAGE> 8
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
For the Six Months Ended July 31, 1995 (Unaudited)
- ----------------------------------------------------------------------------------------------------------------------------------
MARATHON MARATHON MARATHON
FLORIDA INSURED HAWAII KANSAS
FUND FUND FUND
--------------- ----------- ----------
<S> <C> <C> <C>
INVESTMENT INCOME (NOTE 1B):
Interest income allocated from Portfolio $ 387,048 $ 426,335 $260,079
Expenses allocated from Portfolio (180) - (205)
--------- --------- --------
Net investment income from Portfolio $ 386,868 $ 426,335 $259,874
--------- --------- --------
Expenses -
Compensation of Trustees not members of the
Administrator's organization $ 109 $ 83 $ 99
Distribution costs (Note 5) 49,502 54,281 33,515
Custodian fees (Note 4) 84 432 84
Transfer and dividend disbursing agent fees 9,229 7,138 4,760
Legal and accounting services 7,125 10,274 7,446
Printing and postage 6,281 8,009 6,151
Amortization of organization expenses (Note 1D) 1,731 2,275 1,711
Registration costs 1,382 559 202
Miscellaneous 1,306 1,734 854
--------- --------- --------
Total expenses $ 76,749 $ 84,785 $ 54,822
Deduct preliminary allocation of expenses to the Administrator (Note 4) - 11,756 3,270
--------- --------- --------
Net expenses $ 76,749 $ 73,029 $ 51,552
--------- --------- --------
Net investment income $ 310,119 $ 353,306 $208,322
--------- --------- --------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) from Portfolio -
Investment transactions (identified cost basis) $ 8,691 $ (4,619) $ 14,041
Financial futures contracts (280,526) (214,431) (95,077)
--------- --------- --------
Net realized loss on investments $(271,835) $(219,050) $(81,036)
Change in unrealized appreciation of investments 540,230 748,932 335,480
--------- --------- --------
Net realized and unrealized gain $ 268,395 $ 529,882 $254,444
--------- --------- --------
Net increase in net assets from operations $ 578,514 $ 883,188 $462,766
========= ========= ========
</TABLE>
See notes to financial statements
8
<PAGE> 9
STATEMENTS OF NET CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
For the Six Months Ended July 31, 1995 (Unaudited)
- ----------------------------------------------------------------------------------------------------------------------------------
MARATHON MARATHON MARATHON
FLORIDA INSURED HAWAII KANSAS
FUND FUND FUND
--------------- ----------- -----------
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations -
Net investment income $ 310,119 $ 353,306 $ 208,322
Net realized loss on investments (271,835) (219,050) (81,036)
Change in unrealized appreciation of investments 540,230 748,932 335,480
----------- ----------- ----------
Net increase in net assets from operations $ 578,514 $ 883,188 $ 462,766
----------- ----------- ----------
Distributions to shareholders (Note 2) -
From net investment income $ (310,119) $ (353,306) $ (208,322)
In excess of net investment income (30) (2,271) (459)
----------- ----------- ----------
Total distributions to shareholders $ (310,149) $ (355,577) $ (208,781)
----------- ----------- ----------
Transactions in shares of beneficial interest (Note 3) -
Proceeds from sales of shares $ 3,003,338 $ 1,994,513 $1,158,830
Net asset value of shares issued to shareholders in payment
of distributions declared 107,952 160,280 110,544
Cost of shares redeemed (511,822) (553,037) (152,226)
----------- ----------- ----------
Increase in net assets from Fund share transactions $ 2,599,468 $ 1,601,756 $1,117,148
----------- ----------- ----------
Net increase in net assets $ 2,867,833 $ 2,129,367 $1,371,133
NET ASSETS:
At beginning of period 11,595,992 12,600,710 7,752,718
----------- ----------- ----------
At end of period $14,463,825 $14,730,077 $9,123,851
=========== =========== ==========
ACCUMULATED DISTRIBUTIONS IN EXCESS OF NET INVESTMENT
INCOME INCLUDED IN NET ASSETS AT END OF PERIOD $ (2,272) (2,271) $ (1,440)
=========== =========== ==========
</TABLE>
See notes to financial statements
9
<PAGE> 10
STATEMENTS OF NET CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
MARATHON MARATHON MARATHON
FLORIDA INSURED HAWAII KANSAS
FUND* FUND* FUND*
--------------- ----------- -----------
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations -
Net investment income $ 221,353 $ 413,617 $ 208,622
Net realized loss on investments (49,594) (488,887) (19,703)
Unrealized appreciation (depreciation) of investments 166,013 (114,190) (87,800)
----------- ----------- ----------
Net increase (decrease) in net assets from operations $ 337,772 $ (189,460) $ 101,119
----------- ----------- ----------
Distributions to shareholders (Note 2) -
From net investment income $ (221,353) $ (413,617) $ (208,622)
In excess of net investment income (21,238) (42,490) (22,703)
----------- ----------- ----------
Total distribution to shareholders $ (242,591) $ (456,107) $ (231,325)
----------- ----------- ----------
Transactions in shares of beneficial interest (Note 3) -
Proceeds from sales of shares $12,720,425 $13,251,281 $7,999,770
Net asset value of shares issued to shareholders in payment
of distributions declared 80,833 188,721 128,516
Cost of shares redeemed 1,400,447) (193,735) (245,372)
----------- ----------- ----------
Increase in net assets from Fund share transactions $11,400,811 $13,246,267 $7,882,914
----------- ----------- ----------
Net increase in net assets $11,495,992 $12,600,700 $7,752,708
NET ASSETS
At beginning of period 100,000 10 10
----------- ----------- ----------
At end of period $11,595,992 $12,600,710 $7,752,718
=========== =========== ==========
ACCUMULATED DISTRIBUTIONS IN EXCESS OF NET INVESTMENT
INCOME INCLUDED IN NET ASSETS AT END OF PERIOD $ (2,242) $ - $ (981)
=========== =========== ==========
</TABLE>
* For the period from the start of business, March 2, 1994, to January 31, 1995.
See notes to financial statements
10
<PAGE> 11
FINANCIAL HIGHLIGHTS
<TABLE>
- -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
MARATHON FLORIDA INSURED MARATHON HAWAII MARATHON KANSAS
------------------------ ------------------------- -------------------------
SIX MONTHS SIX MONTHS SIX MONTHS
ENDED YEAR ENDED YEAR ENDED YEAR
JULY 31, ENDED JULY 31, ENDED JULY 31, ENDED
1995 JANUARY 31, 1995 JANUARY 31, 1995 JANUARY 31,
(UNAUDITED) 1995** (UNAUDITED) 1995** (UNAUDITED) 1995**
------------------------ ------------------------- -------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.260 $10.000 $ 9.150 $10.000 $ 9.560 $10.000
------- ------- ------- ------- ------- -------
INCOME(LOSS) FROM OPERATIONS:
Net investment income $ 0.255 $ 0.456 $ 0.241 $ 0.434 $ 0.239 $ 0.435
Net realized and unrealized gain
(loss) on investments 0.270 0.304 0.382 (0.805) 0.321 (0.393)
------- ------- ------- ------- ------- -------
Total income (loss) from operations $ 0.525 $ 0.760 $ 0.623 $(0.371) $ 0.560 $ 0.042
------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
From net investment income $(0.255) $(0.456) $(0.241) $(0.434) $(0.239) $(0.435)
In excess of net investment income - (0.044) (0.002) (0.045) (0.001) (0.047)
------- ------- ------- ------- ------- -------
Total distributions $(0.255) $(0.500) $(0.243) $(0.479) $(0.240) $(0.482)
------- ------- ------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD $10.530 $10.260 $ 9.530 $ 9.150 $ 9.880 $ 9.560
======= ======= ======= ======= ======= =======
TOTAL RETURN (2) 5.13% 7.10% 6.85% (4.01%) 5.88% 0.16%
RATIOS/SUPPLEMENTAL DATA*:
Net assets, end of period (000's omitted) $14,464 $11,596 $14,730 $12,601 $ 9,124 $ 7,753
Ratio of net expenses to average daily net
assets (1) 1.20%+ 0.75%+ 1.05%+ 0.87%+ 1.21%+ 0.75%+
Ratio of net investment income to average
daily net assets 4.81%+ 4.79%+ 5.08%+ 5.03%+ 4.86%+ 4.81%+
* For the six months ended July 31, 1995 and the period from the start of
business, March 2, 1994 to January 31, 1995, the operating expenses of the Funds
and the Portfolios reflect a reduction of expenses by the Administrator and/or
Investment Adviser. Had such actions not been taken, net investment income per
share and the ratios would have been as follows:
NET INVESTMENT INCOME PER SHARE $ 0.232 $ 0.374 $0.214 $0.387 $0.209 $ 0.397
======= ======= ======= ======= ======= =======
RATIOS (As a percentage of average daily net assets):
Expenses (1) 1.62%+ 1.62%+ 1.62%+ 1.41%+ 1.81%+ 1.60%+
Net investment income 4.39%+ 3.93%+ 4.51%+ 4.49%+ 4.26%+ 3.96%+
</TABLE>
+ Annualized.
(1) Includes the Fund's share of its corresponding Portfolio's allocated
expenses.
(2) Total return is calculated assuming a purchase at the net asset value on the
first day and a sale at the net asset value on the last day of each period
reported. Dividends and distributions, if any, are assumed to be reinvested
at the net asset value on the payable date. Total return is not computed on
an annualized basis.
** For the period from the start of business, March 2, 1994 to January 31,
1995.
See notes to financial statements
11
<PAGE> 12
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
- --------------------------------------------------------------------------------
(1) SIGNIFICANT ACCOUNTING POLICIES
Eaton Vance Municipals Trust II (the Trust) is an entity of the type commonly
known as a Massachusetts business trust and is registered under the Investment
Company Act of 1940, as amended, as an open-end management investment company.
The Trust presently consists of nine Funds, three of which are included in these
financial statements. They include EV Marathon Florida Insured Tax Free Fund,
("Marathon Florida Insured Fund"), EV Marathon Hawaii Tax Free Fund ("Marathon
Hawaii Fund") and EV Marathon Kansas Tax Free Fund ("Marathon Kansas Fund").
Each Fund invests all of its investable assets in interests in a separate
corresponding open-end management investment company (a "Portfolio"), a New York
Trust, having the same investment objective as its corresponding Fund. The
Marathon Florida Insured Fund invests its assets in the Florida Insured Tax Free
Portfolio, the Marathon Hawaii Fund invests its assets in the Hawaii Tax Free
Portfolio and the Marathon Kansas Fund invests its assets in the Kansas Tax Free
Portfolio. The value of each Fund's investment in its corresponding Portfolio
reflects the Fund's proportionate interest in the net assets of that Portfolio
(82.2%, 97.6% and 92.3% at July 31, 1995 for the Marathon Florida Insured Fund,
Marathon Hawaii Fund and Marathon Kansas Fund, respectively.) The performance of
each Fund is directly affected by the performance of its corresponding
Portfolio. The financial statements of each Portfolio, including the portfolio
of investments, are included elsewhere in this report and should be read in
conjunction with each Fund's financial statements. The following is a summary of
significant accounting policies consistently followed by the Trust in the
preparation of its financial statements. The policies are in conformity with
generally accepted accounting principles.
A. INVESTMENT VALUATIONS - Valuation of securities by the Portfolios is
discussed in Note 1 of the Portfolios' Notes to Financial Statements which are
included elsewhere in this report.
B. INCOME - Each Fund's net investment income consists of the Fund's pro rata
share of the net investment income of its corresponding Portfolio, less all
actual and accrued expenses of each Fund determined in accordance with generally
accepted accounting principles.
C. FEDERAL TAXES - Each Fund's policy is to comply with the provisions of the
Internal Revenue Code applicable to regulated investment companies and to
distribute to shareholders each year all of its taxable and tax-exempt income,
including any net realized gain on investments. Accordingly, no provision for
federal income or excise tax is necessary. At January 31, 1995, the Funds, for
federal income tax purposes had capital loss carryovers of $1,221, $67,778, and
$5,909 respectively, which will reduce taxable income arising from future net
realized gain on investments, if any, to the extent permitted by the Internal
Revenue Code, and this will reduce the amount of the distributions to
shareholders which would otherwise be necessary to relieve the Funds of any
liability for federal income or excise tax. Such capital loss carryovers will
expire on January 31, 2003. In addition, at January 31, 1995, Marathon Florida
Insured Fund, Marathon Hawaii Fund and Marathon Kansas Fund had net capital
losses of $47,228, $436,011 and $20,691, respectively, attributable to security
transactions incurred after October 31, 1994 are treated as arising on the first
day of the Funds' current taxable year. Dividends paid by each Fund from net
interest on tax-exempt municipal bonds allocated from its corresponding
Portfolio are not includable by shareholders as gross income for federal income
tax purposes because each Fund and Portfolio intend to meet certain requirements
of the Internal Revenue Code applicable to regulated investment companies which
will enable the Funds to pay exempt-interest dividends. The portion of such
interest, if any, earned on private activity bonds issued after August 7, 1986,
may be considered a tax preference item to shareholders.
D. DEFERRED ORGANIZATION EXPENSES - Costs incurred by a Fund in connection with
its organization, including registration costs, are being amortized on the
straight-line basis over five years.
E. OTHER - Investment transactions are accounted for on a trade date basis.
F. INTERIM FINANCIAL INFORMATION - The interim financial statements relating to
July 31, 1995 and for the six-month period then ended have not been audited by
independent certified public accountants, but in the opinion of the Funds'
management, reflect all adjustments, consisting only of normal recurring
adjustments, necessary for the fair presentation of the financial statements.
12
<PAGE> 13
- --------------------------------------------------------------------------------
(2) DISTRIBUTIONS TO SHAREHOLDERS
The net income of a Fund is determined daily and substantially all of the net
income so determined is declared as a dividend to shareholders of record at the
time of declaration. Distributions are paid monthly. Distributions of allocated
realized capital gains, if any, are made at least annually. Shareholders may
reinvest capital gain distributions in additional shares of a Fund at the net
asset value as of the ex-dividend date. Distributions are paid in the form of
additional shares or, at the election of the shareholder, in cash. The Funds
distinguish between distributions on a tax basis and a financial reporting
basis. Generally accepted accounting principles require that only distributions
in excess of tax basis earnings and profits be reported in the financial
statements as a return of capital. Differences in the recognition or
classification of income between the financial statements and tax earnings and
profits which result in temporary over distributions for financial statements
purposes are classified as distributions in excess of net investment income or
accumulated net realized gains. Permanent differences between book and tax
accounting relating to distributions are reclassified to paid-in capital.
- --------------------------------------------------------------------------------
(3) SHARES OF BENEFICIAL INTEREST
The Fund's Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest (without par value).
Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
MARATHON MARATHON MARATHON
FLORIDA INSURED HAWAII KANSAS
------------------------- -------------------------- --------------------------
SIX MONTHS SIX MONTHS SIX MONTHS
ENDED YEAR ENDED ENDED YEAR ENDED ENDED YEAR ENDED
JULY 31, 1995 JANUARY 31, JULY 31, 1995 JANUARY 31, JULY 31, 1995 JANUARY 31,
(UNAUDITED) 1995* (UNAUDITED) 1995* (UNAUDITED) 1995*
------------- ----------- ------------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Sales 281,922 1,253,189 209,882 1,377,160 117,190 823,534
Issued to shareholders electing to receive
payments of distributions in Fund shares 10,119 8,053 16,769 20,432 11,144 13,363
Redemptions (48,060) (141,342) (57,872) (21,041) (15,462) (26,314)
------- --------- ------- --------- ------- -------
Net increase 243,981 1,119,900 168,779 1,376,551 112,872 810,583
======= ========= ======= ========= ======= =======
</TABLE>
* The Fund share activity is for the period from the start of business, March 2,
1994, to January 31, 1995.
- --------------------------------------------------------------------------------
(4) TRANSACTIONS WITH AFFILIATES
Eaton Vance Management (EVM) serves as the administrator of each Fund, but
receives no compensation. Each of the Portfolios has engaged Boston Management
and Research (BMR), a subsidiary of EVM, to render investment advisory services.
See Note 2 of the Portfolios' Notes to Financial Statements which are included
elsewhere in this report. To enhance the net income of the Funds, $11,756 and
$3,270 of expenses related to the operation of the Marathon Hawaii Fund and
Marathon Kansas Fund, respectively, were allocated, on a preliminary basis, to
EVM. Except as to Trustees of the Funds and the Portfolios who are not members
of EVM's or BMR's organization, officers and Trustees receive remuneration for
their services to each Fund out of such investment adviser fee. Investors Bank &
Trust Company (IB&T), an affiliate of EVM, serves as custodian to the Funds and
the Portfolios. Pursuant to the respective custodian agreements, IB&T receives a
fee reduced by credits which are determined based on the average cash balances
the Funds or the Portfolios maintain with IB&T. Certain of the officers and
Trustees of the Funds and Portfolios are officers and directors/trustees of the
above organizations (Note 5).
13
<PAGE> 14
- --------------------------------------------------------------------------------
(5) DISTRIBUTION PLAN
Each Fund has adopted a distribution plan (the Plan) pursuant to Rule 12b-1
under the Investment Company Act of 1940. The Plans require each of the Funds to
pay the principal underwriter, Eaton Vance Distributors, Inc. (EVD), amounts
equal to 1/365 of 0.75% of a Fund's daily net assets, for providing ongoing
distribution services and facilities to a Fund. A Fund will automatically
discontinue payments to EVD during any period in which there are no outstanding
Uncovered Distribution Charges, which are equivalent to the sum of (i) 5% of the
aggregate amount received by the Fund for shares sold plus (ii) distribution
fees calculated by applying the rate of 1% over the prevailing prime rate to the
outstanding balance of Uncovered Distribution Charges of EVD, reduced by the
aggregate amount of contingent deferred sales charges (Note 6) and daily amounts
theretofore paid to EVD. The amount payable to EVD with respect to each day is
accrued on such day as a liability of each Fund and, accordingly, reduces the
Fund's net assets. For the six months ended July 31, 1995, Marathon Florida
Insured Fund, Marathon Hawaii Fund and Marathon Kansas Fund paid or accrued
$48,189, $52,078 and $32,146, respectively, to or payable to EVD representing
0.75% (annualized) of average daily net assets. At July 31, 1995, the amount of
Uncovered Distribution Charges of EVD calculated under the Plans for Marathon
Florida Insured Fund, Marathon Hawaii Fund and Marathon Kansas Fund were
approximately $553,000, $678,000 and $390,000, respectively.
In addition, the Plans authorize the Funds to make payments of service fees to
the Principal Underwriter, Authorized Firms and other persons in amounts not
exceeding 0.25% of each Fund's average daily net assets for any fiscal year. The
Trustees have initially implemented the Plans by authorizing the Funds to make
quarterly service fee payments to the Principal Underwriter and Authorized Firms
in amounts not expected to exceed 0.20% of each Fund's average daily net assets
based on the value of each Fund's shares sold by such persons and remaining
outstanding for at least one year. During the six months ended July 31, 1995,
Marathon Florida Insured Fund, Marathon Hawaii Fund, and Marathon Kansas Fund
paid or accrued service fees to or payable to EVD in the amount of $1,313,
$2,203, and $1,369, respectively. Service fee payments are made for personal
services and/or maintenance of shareholder accounts. Service fees paid to EVD
and Authorized Firms are separate and distinct from the sales commissions and
distribution fees payable by a Fund to EVD, and as such are not subject to
automatic discontinuance when there are no outstanding Uncovered Distribution
Charges of EVD.
Certain of the officers and Trustees of the Funds are officers or directors of
EVD.
- --------------------------------------------------------------------------------
(6) CONTINGENT DEFERRED SALES CHARGES
A contingent deferred sales charge (CDSC) is imposed on any redemption of a
Fund's shares made within six years of purchase. Generally, the CDSC is based
upon the lower of the net asset value at date of redemption or date of purchase.
No charge is levied on shares acquired by reinvestment of dividends or capital
gain distributions. The CDSC is imposed at rates that begin at 5% in the case of
redemptions in the first and second year after purchase (6% and 5%,
respectively, for shares purchased prior to August 1, 1994), declining one
percentage point each subsequent year. No CDSC is levied on shares which have
been sold to EVM or its affiliates or to their respective employees or clients.
CDSC charges are paid to EVD to reduce the amount of Uncovered Distribution
Charges calculated under each Fund's Distribution Plan. CDSC charges received
when no Uncovered Distribution Charges exist will be credited to the Fund. EVD
received approximately $16,000, $13,900 and $3,000 of CDSC paid by shareholders
for the six months ended July 31, 1995 for the Marathon Florida Insured Fund,
Marathon Hawaii Fund and Marathon Kansas Fund, respectively.
- --------------------------------------------------------------------------------
(7) INVESTMENT TRANSACTIONS
Increases and decreases in each Fund's investment in its corresponding Portfolio
for six months ended July 31, 1995 were as follows:
<TABLE>
<CAPTION>
MARATHON FLORIDA MARATHON MARATHON
INSURED FUND HAWAII FUND KANSAS FUND
---------------- ----------- -----------
<S> <C> <C> <C>
Increases $2,751,124 $2,129,294 $1,311,478
Decreases 834,166 868,881 300,721
</TABLE>
14
<PAGE> 15
FLORIDA INSURED TAX FREE PORTFOLIO
PORTFOLIO OF INVESTMENTS -- JULY 31, 1995 (UNAUDITED)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
TAX-EXEMPT INVESTMENTS - 100%
- ----------------------------------------------------------------------------------------------------
RATINGS (UNAUDITED) PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ESCROWED - 3.9%
Aaa AAA $500 Gainesville Florida
Utility System, 8.125%,
10/1/14 $640,190
--------
HOUSING - 13.7%
Aaa AAA $500 Duval County HFA
SFMR (GNMA Backed),
6.70%, 10/1/26 (AMT) $503,845
Aaa NR 750 Escambia HFA SFMR
(GNMA Backed), 7.00%,
4/1/28 (AMT) 772,193
NR AAA 1,000 Pinellas County HFA
SFMR (GNMA Backed),
6.70%, 2/1/28 (AMT) 1,009,560
----------
$2,285,598
----------
INSURED EDUCATION - 2.3%
Aaa AAA $400 University of Florida
(MBIA), 5.50%, 7/1/23 $380,828
--------
INSURED GENERAL
OBLIGATION - 4.0%
Aaa AAA $750 Puerto Rico (MBIA),
5.00%, 7/1/21 $670,020
--------
INSURED HEALTHCARE - 6.4%
Aaa AAA $1,200 Tampa Allegany Health
System - St. Joseph's
(MBIA), 5.125%,
12/1/23 $1,062,132
----------
INSURED HOSPITAL - 3.9%
Aaa AAA $450 Dade Florida Public
Facilities, Jackson Memorial
Hospital, (MBIA), 5.625%,
6/1/18 $430,200
Aaa AAA 200 Dade Florida Public
Facilities, Jackson Memorial
Hospital, (MBIA), 4.875%,
6/1/15 174,096
Aaa AAA 50 Hillsborough County
Hospital Authority, Tampa
General Hospital (FSA),
6.375%, 10/1/13 51,836
--------
$656,132
--------
INSURED HOUSING - 3.1%
Aaa Aaa $500 FL HFA Maitland Club
Apartments Project
(AMBAC), 6.875%,
8/1/26 (AMT) $513,385
--------
INSURED POLLUTION
CONTROL REVENUE - 7.1%
Aaa AAA $445 Citrus County -
FL Power & Light
(MBIA), 6.35%, 2/1/22 $462,279
Aaa AAA 750 Escambia County -
Gulf Power (MBIA),
5.80%, 6/1/23 723,855
----------
$1,186,134
----------
INSURED SOLID WASTE - 0.6%
Aaa AAA $100 Broward County Solid
Waste System (MBIA),
6.00%, 7/1/13 (AMT) $100,215
--------
INSURED SPECIAL
TAX REVENUES - 20.9%
Aaa AAA $450 Escambia County (FGIC),
5.80%, 1/1/15 $441,752
Aaa AAA 150 Florida State Department
of Natural Resources
(FSA), 5.80%, 7/1/13 148,182
Aaa AAA 1,225 Florida State Department of
Environmental Preservation
(MBIA), 4.75%, 7/1/09 1,127,466
Aaa AAA 745 Jacksonville Florida Sales
Tax, River City Project
(FGIC), 5.375%, 10/1/18 688,812
</TABLE>
15
<PAGE> 16
FLORIDA INSURED TAX FREE PORTFOLIO (CONTINUED)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
TAX-EXEMPT INVESTMENTS (CONTINUED)
- ----------------------------------------------------------------------------------------------------
RATINGS (UNAUDITED) PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INSURED SPECIAL
TAX REVENUES - (continued)
Aaa AAA 250 Orange County Florida
Tourist Development
(MBIA), 6.00%, 10/1/24 247,258
Aaa AAA 795 St. Petersburg Excise Tax
(FGIC), 5.00%, 10/1/16 711,740
Aaa AAA 340 Sunrise Florida Public
Facilities (MBIA), 0%,
10/1/15 101,434
----------
$3,466,644
----------
INSURED TRANSPORTATION - 10.1%
Aaa AAA $700 Florida State Turnpike
Authority (FGIC), 5.00%,
7/1/19 $614,089
Aaa AAA 50 Greater Orlando Aviation
Authority (FGIC), 6.375%,
10/1/21 (AMT) 51,196
Aaa AAA 1,000 Lee County Florida
Transportation Facilities
(MBIA), 5.75%, 10/1/22 970,510
Aaa AAA 50 Orlando & Orange County
Expressway Authority Junior
Lien (FGIC), 5.125%,
7/1/20 44,436
----------
$1,680,231
----------
INSURED UTILITIES - 6.5%
Aaa AAA $895 FL Municipal Power Authority,
Stanton II Project (AMBAC),
4.50%, 10/1/27 $700,400
Aaa AAA 50 Key West Florida Utility
(AMBAC), 6.75%,
10/1/13 53,831
Aaa AAA 305 New Smyrna Beach Florida
Utility System (FGIC),
5.00%, 10/1/19 268,086
Aaa AAA 50 Puerto Rico Electric
Power Authority Revenue
Bonds-Stripes (FSA),
Variable, 7/1/02 (1) 54,165
----------
$1,076,482
----------
INSURED WATER
& SEWER - 17.5%
Aaa AAA $50 Broward County Water
and Sewer Utility (AMBAC),
5.00%, 10/1/18 $44,468
Aaa AAA 75 City of Cocoa Water and
Sewer System (AMBAC),
5.00%, 10/1/23 65,778
Aaa AAA 735 Enterprise Community
Water & Sewer (MBIA),
6.125%, 5/1/24 740,542
Aaa AAA 75 City of Key West Sewer
(FGIC), 5.70%, 10/1/26 71,735
Aaa AAA 70 City of North Port Utility
System (FGIC), 6.25%,
10/1/17 71,758
Aaa AAA 500 City of North Port Utility
System (FGIC), 6.25%,
10/1/22 510,780
Aaa AAA 155 Sanford Florida Water &
Sewer (AMBAC), 4.50%,
10/1/21 125,012
Aaa AAA 400 Titusville Florida Water &
Sewer (MBIA), 6.00%,
10/1/24 401,572
Aaa AAA 1,000 Vero Beach Water &
Sewer (FGIC), 5.00%,
12/1/21 877,960
----------
$2,909,605
----------
TOTAL TAX-EXEMPT INVESTMENTS
(IDENTIFIED COST $15,731,571) $16,627,596
===========
</TABLE>
16
<PAGE> 17
FLORIDA INSURED TAX FREE PORTFOLIO (CONTINUED)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
TAX-EXEMPT INVESTMENTS (CONTINUED)
- ----------------------------------------------------------------------------------------------------
RATINGS (UNAUDITED) PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
</TABLE>
(1) The above designated securities have been issued as inverse floater bonds.
The Portfolio invests primarily in debt securities issued by Florida
municipalities. The ability of the issuers of the debt securities to meet their
obligations may be affected by economic developments in a specific industry or
municipality. In order to reduce the risk associated with such economic
developments, at July 31, 1995, 82.4% of the securities in the portfolio of
investments are backed by bond insurance of various financial institutions and
financial guaranty assurance agencies. The aggregate percentages by financial
institution were as follows at July 31, 1995:
<TABLE>
<S> <C>
AMBAC, Inc. (AMBAC) 9.0%
Financial Guaranty Insurance Corp. (FGIC) 26.3%
Financial Security Insurance Inc. (FSA) 1.5%
Municipal Bond Investors Assurance Corp. (MBIA) 45.6%
-----
82.4%
=====
</TABLE>
See notes to financial statements
17
<PAGE> 18
HAWAII TAX FREE PORTFOLIO
PORTFOLIO OF INVESTMENTS -- JULY 31, 1995 (UNAUDITED)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
TAX-EXEMPT INVESTMENTS - 100%
- ----------------------------------------------------------------------------------------------------
RATINGS (UNAUDITED) PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
EDUCATION - 3.5%
NR BBB- $500 Puerto Rico Industrial, Tourist,
Educational, Medical and
Environmental Control
Authority, Polytechnic
University, 6.50%,
8/1/24 $499,995
--------
GENERAL OBLIGATIONS - 19.2%
Aa AA $140 State of Hawaii, 5.75%,
1/1/11 $140,133
Aa AA 1,000 State of Hawaii, 5.25%,
6/1/13 936,140
Aa AA 750 City and County of
Honolulu, 4.75%,
9/1/17 645,098
Baa1 A 100 Commonwealth of Puerto
Rico Public Improvement,
5.25%, 7/1/18 90,490
NR BBB 340 Government of Guam,
5.375%, 11/15/13 299,390
Baa1 A 500 Puerto Rico Public Buildings
Authority, Public Education
and Health Facilities, 5.50%,
7/1/21 458,120
Baa1 A 100 Commonwealth of Puerto Rico
Aqueduct and Sewer Authority,
7.00%, 7/1/19 106,130
NR NR 100 Virgin Islands Public
Finance Authority, 7.25%,
10/1/18 103,155
----------
$2,778,656
----------
HOSPITALS - 6.9%
Aa2 AA $400 State of Hawaii Depart-
ment of Budget and
Finance, Kaiser Permanente,
6.25%, 3/1/21 $397,448
A A 625 State of Hawaii Department
of Budget and Finance
Kapiolani Health System,
6.00%, 7/1/19 601,200
--------
$998,648
--------
HOUSING - 7.9%
Aa A $1,000 State of Hawaii Housing
Finance and Development
SFMB, 5.90%,
7/1/27 (2) $941,300
Aa A 215 State of Hawaii Housing
Finance and Development
SFMB, 6.00%, 7/1/26 200,735
----------
$1,142,035
----------
INDUSTRIAL DEVELOPMENT/
POLLUTION CONTROL - 7.1%
Aaa NR $550 Puerto Rico Industrial, Tourist,
Educational, Medical and
Environmental Control
Authority, Upjohn Company
Project, 7.50%, 12/1/23 $601,161
Aa3 AA- 400 Puerto Rico Industrial, Tourist,
Educational, Medical and
Environmental Control
Authority, Motorola Inc.
Project, 6.75%, 1/1/14 423,296
----------
$1,024,457
----------
INSURED EDUCATION - 3.4%
Aaa AAA $500 University of Hawaii Board
of Regents, University
System, (AMBAC), 5.65%,
10/1/12 $495,620
--------
</TABLE>
18
<PAGE> 19
HAWAII TAX FREE PORTFOLIO (CONTINUED)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
TAX-EXEMPT INVESTMENTS (CONTINUED)
- ----------------------------------------------------------------------------------------------------
RATINGS (UNAUDITED) PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INSURED GENERAL
OBLIGATION - 13.5%
Aaa AAA $700 County of Hawaii, Hawaii,
(FGIC), 5.55%, 5/1/10 $707,672
Aaa AAA 305 County of Kauai, Hawaii,
(MBIA), 5.90%, 2/1/14 311,457
Aaa AAA 250 County of Maui, Hawaii,
(FGIC), 5.75%, 1/1/13 252,385
Aaa AAA 250 County of Maui, Hawaii,
(FGIC), 5.125%,
12/15/13 238,117
Aaa AAA 500 Commonwealth of Puerto
Rico, (MBIA), 5.00%,
7/1/21 446,680
----------
$1,956,311
----------
INSURED HOSPITALS - 1.4%
Aaa AAA $100 State of Hawaii Department
of Budget and Finance Queen's
Medical Center, (FGIC),
6.50%, 7/1/12 $103,110
Aaa AAA 100 State of Hawaii Department
of Budget and Finance,
St. Francis Medical Centers,
(CGIC), 6.50%, 7/1/22 103,894
--------
$207,004
--------
INSURED HOUSING - 3.7%
Aaa AAA $500 Honolulu Hawaii City &
County Mortgage Revenue
Bonds, Smith Beretania
Project, (MBIA), 7.80%,
7/1/24 $537,185
--------
INSURED
TRANSPORTATION - 13.0%
Aaa AAA $500 State of Hawaii Airports
System, (FGIC), 7.50%,
7/1/20 $556,325
Aaa AAA 100 State of Hawaii Airports
System, (MBIA), 6.90%,
7/1/12 111,977
Aaa AAA 245 State of Hawaii Airports
System, (MBIA), 7.00%,
7/1/18 268,432
Aaa AAA 250 State of Hawaii Harbor
Revenue, (MBIA), 7.00%,
7/1/17 272,243
Aaa AAA 650 State of Hawaii Harbor
Revenue, (FGIC), 6.375%,
7/1/24 670,313
----------
$1,879,290
----------
INSURED UTILITY - 4.3%
Aaa AAA $500 State of Hawaii Department
of Budget and Finance
Hawaiian Electric Company,
Inc., (MBIA), 6.60%,
1/1/25 $518,240
Aaa AAA 100 Puerto Rico Electric
Power Authority "Stripes",
Variable, 7/1/03 (1) 109,497
--------
$627,737
--------
TRANSPORTATION - 16.1%
NR BBB $200 Guam Airport Authority,
6.70%, 10/1/23 $199,974
Aa AA 700 State of Hawaii Highway
Revenue, 5.00%, 7/1/11 638,890
Aa AA 800 State of Hawaii Highway
Revenue, 5.00%, 7/1/12 727,552
Baa1 A 500 Commonwealth of Puerto
Rico Highway and Trans-
portation Authority, 5.00%,
7/1/22 422,485
Baa1 A 200 Commonwealth of Puerto
Rico Highway and Trans-
portation Authority, 6.625%,
7/1/18 206,982
Baa3 BB+ 130 Puerto Rico Port Authority,
American Airlines, 6.30%,
6/1/23 126,170
----------
$2,322,053
----------
TOTAL TAX-EXEMPT INVESTMENTS
(IDENTIFIED COST $13,821,873) $14,468,991
===========
</TABLE>
19
<PAGE> 20
HAWAII TAX FREE PORTFOLIO (CONTINUED)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
TAX-EXEMPT INVESTMENTS (CONTINUED)
- ----------------------------------------------------------------------------------------------------
RATINGS (UNAUDITED) PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
</TABLE>
(1) The above designated securities have been issued as inverse floater bonds.
(2) Security has been segregated to cover margin requirements on open financial
futures contracts.
The Portfolio invests primarily in debt securities issued by Hawaii
municipalities. The ability of the issuers of the debt securities to meet their
obligations may be affected by economic developments in a specific industry or
municipality. In order to reduce the risk associated with such economic
developments, at July 31, 1995, 39.3% of the securities in the portfolio of
investments are backed by bond insurance of various financial institutions and
financial guaranty assurance agencies. The aggregate percentage by financial
institution ranged from 0.7% to 17.5% of total investments.
See notes to financial statements
20
<PAGE> 21
KANSAS TAX FREE PORTFOLIO
PORTFOLIO OF INVESTMENTS - JULY 31, 1995 (UNAUDITED)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
TAX-EXEMPT INVESTMENTS - 100%
- ----------------------------------------------------------------------------------------------------
RATINGS (UNAUDITED) PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
EDUCATION - 1.0%
NR BBB- $100 Puerto Rico Industrial, Tourist,
Educational, Medical and
Higher Education Bonds,
(Polytechnic University),
5.70%, 8/1/13 $92,081
-------
ELECTRIC UTILITY - 2.5%
NR BBB $100 Guam Power Authority
Revenue Bonds, 5.25%,
10/1/13 $88,727
NR BBB 150 Guam Power Authority
Revenue Bonds, 6.625%,
10/1/14 152,048
--------
$240,775
--------
GENERAL OBLIGATION
LOCAL - 4.5%
Aa NR $150 Shawnee County, 5.75%,
9/1/13 $148,496
Aa AA 170 City of Witchita, 4.00%,
9/1/09 142,419
A1 AA- 50 City of Olathe, 5.00%,
10/1/06 48,012
Baa1 A 100 Puerto Rico Public
Building Authority Bonds,
5.50%, 7/1/21 91,624
--------
$430,551
--------
GENERAL OBLIGATION
SCHOOL DISTRICT - 6.2%
Aa NR $400 Douglas County, (Lawrence),
USD No. 497, 6.00%,
9/1/15 $406,364
Aa AA 100 Johnson and Miami Counties,
(Blue Valley), USD No. 229,
5.125%, 10/1/13 92,368
Aa NR 100 Riley County, (Manhattan),
USD No. 383, 5.50%,
11/1/14 96,651
$595,383
--------
HOSPITALS - 8.6%
A NR $250 City of Lawrence,
(Lawrence Memorial),
Revenue Bonds,
6.20%, 7/1/19 $251,000
Aa NR 670 Shawnee County, (Sisters
of Charity), Revenue Bonds,
5.00%, 12/1/23 571,142
--------
$822,142
--------
HOUSING - 22.4%
Aaa AAA $230 City of Kansas City,
MFHRB (FHA Insured-
Rainbow Towers), 6.70%,
7/1/23 $230,646
NR AAA 250 City of Olathe, Kansas,
MFHRB, (FNMA)
Program Deerfield Apart-
ments, 6.45%, 6/1/19 251,518
Aaa NR 215 Cities of Olathe
and of Labette,
CSFMRB (GNMA),
8.10%, 8/1/23 235,638
NR AA 250 Puerto Rico Housing
Finance Corporation,
MFMRB 7.50%,
4/1/22 263,310
Aaa AAA 200 Sedgwick and Shawnee
Counties, CSFMRB
(GNMA), 7.50%,
12/1/09 207,408
Aaa AAA 135 Sedgwick and Shawnee
Counties, CSFMRB
(GNMA), 7.50%,
12/1/10 140,000
</TABLE>
21
<PAGE> 22
KANSAS TAX FREE PORTFOLIO (CONTINUED)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
TAX-EXEMPT INVESTMENTS (CONTINUED)
- ----------------------------------------------------------------------------------------------------
RATINGS (UNAUDITED) PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
HOUSING - (CONTINUED)
Aaa NR 240 Sedgwick and Shawnee
Counties, CSFMRB
(GNMA), 7.75%, 11/1/24
(2) 266,765
Aaa NR 480 Sedgwick and Shawnee
Counties, CSFMRB
(GNMA), 8.00%, 5/1/25 538,685
----------
$2,133,970
----------
INDUSTRIAL DEVELOPMENT REVENUE - 1.9%
Aaa NR $100 Puerto Rico I.M.E.
(American Home Products),
5.10%, 12/1/18 $88,085
Baa3 BB+ 100 Puerto Rico Port
Authority, (American
Airlines), 6.30%, 6/1/23 97,055
--------
$185,140
--------
INSURED COLLEGE AND
UNIVERSITY - 4.8%
Aaa AAA $500 University of Puerto
Rico (MBIA), 5.25%,
6/1/25 $456,545
--------
INSURED ELECTRIC - 4.0%
Aaa AAA $255 City of Burlington, PCR
(Kansas Gas & Electric Co.)
(MBIA), 7.00%, 6/1/31 $277,942
Aaa AAA 100 Puerto Rico Electric Power
Authority, Power Revenue
Bonds (FSA), Residual
Interest Bonds, Variable
7/1/02 (1) 108,331
$386,273
--------
INSURED GENERAL - 5.3%
Aaa AAA $150 City of Garnett, Combined
Utility Revenue Bonds
(MBIA), 6.00%, 10/1/17 $150,753
Aaa AAA 200 City of Kansas City, Utility
System Revenue Bonds
(FGIC), 6.375%, 9/1/23 207,468
Aaa AAA 150 Kansas Development Finance
Authority, Revenue Bonds
(MBIA), 5.90%, 10/1/09 152,211
--------
$510,432
--------
INSURED GENERAL
OBLIGATIONS SCHOOL
DISTRICT - 19.9%
Aaa AAA $150 Atchison County, USD
No. 409, (CGIC), 5.375%,
9/1/15 $142,659
Aaa AAA 200 Johnson and Miami
Counties, (Blue Valley),
USD No. 229, (FGIC),
4.90%, 9/1/10 182,248
Aaa AAA 350 Johnson County, (Olathe),
USD No. 233 (AMBAC),
5.625%, 9/1/11 347,603
Aaa AAA 235 McPherson County,
(McPherson), USD No.
418, (CGIC), 6.00%,
9/1/11 237,277
Aaa AAA 200 Sedgwick County, USD
No. 266, (FGIC), 5.25%,
9/1/13 186,498
Aaa AAA 250 Sedgwick County, USD
No. 267, (AMBAC),
6.15%, 11/1/09 260,385
Aaa AAA 230 Sedgwick County, USD
No. 267, (AMBAC),
6.15%, 11/1/10 238,646
Aaa AAA 165 Shawnee County, (Seaman),
USD No. 345, (MBIA),
5.75%, 9/1/11 164,819
</TABLE>
22
<PAGE> 23
KANSAS TAX FREE PORTFOLIO (CONTINUED)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
TAX-EXEMPT INVESTMENTS (CONTINUED)
- ----------------------------------------------------------------------------------------------------
RATINGS (UNAUDITED) PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INSURED GENERAL
OBLIGATIONS SCHOOL
DISTRICT - (Continued)
Aaa AAA 150 Sumner County, (Belle Plaine),
USD No. 357, (AMBAC),
5.55%, 9/1/13 144,527
----------
$1,904,662
----------
INSURED HOSPITALS - 4.2%
Aaa AAA $200 City of Olathe, Health
Facilities Revenue Bonds,
(Olathe Medical Ctr)
(AMBAC), 6.00%,
9/1/11 $201,422
Aaa AAA 200 City of Olathe, Health
Facilities Revenue Bonds,
(Evangelical Lutheran
Good Samaritan Society)
(AMBAC), 6.00%,
5/1/19 201,552
--------
$402,974
--------
INSURED TOLLS AND
TURNPIKES - 0.5%
Aaa AAA $50 Kansas Turnpike Authority,
Turnpike Revenue Bonds
(AMBAC)5.25%, 9/1/17 $45,159
-------
INSURED WATER
AND SEWER - 2.9%
Aaa AAA $200 City of Emporia, Water
System Revenue Bonds
(AMBAC), 5.875%,
12/1/14 $199,866
Aaa AAA 80 City of Salina, Water and
Sewage Systems, Revenue
Bonds, (MBIA), 5.25%,
9/1/12 74,203
--------
$274,069
--------
TRANPORTATION - 9.2%
NR BBB $100 Guam Airport Authority
General Revenue Bonds,
6.50%, 10/1/23 $99,349
Aa AA 480 State of Kansas Department
of Transportation Highway
Revenue Bonds, 5.375%,
3/1/13 451,632
Aa AA 110 State of Kansas Department
of Transportation Highway
Revenue Bonds, 4.625%,
9/1/06 102,870
Baa1 A 250 Puerto Rico Highway and
Transportation Authority,
Highway Revenue Bonds,
5.25%, 7/1/20 220,335
--------
$874,186
--------
WATER AND SEWER - 2.1%
Aa AA+ $200 Water District No. 1 of
Johnson County, Water
Revenue Bonds, 5.75%,
12/1/19 $199,407
--------
TOTAL TAX-EXEMPT INVESTMENTS
(IDENTIFIED COST $9,309,873) $9,553,749
==========
</TABLE>
(1) The above designated securities have been issued as inverse floater bonds.
(2) Security has been segregated to cover margin requirements on open financial
futures contracts.
The Portfolio invests primarily in debt securities issued by Kansas
municipalities. The ability of the issuers of the debt securities to meet their
obligations may be affected by economic developments in a specific industry or
municipality. In order to reduce the risk associated with such economic
developments, at July 31, 1995, 41.6% of the securities in the portfolio of
investments are backed by bond insurance of various financial institutions and
financial guaranty assurance agencies. The aggregate percentage by financial
institution ranged from 1.1% to 17.2% of total investments.
See notes to financial statements
23
<PAGE> 24
<TABLE>
TAX FREE PORTFOLIOS
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
- ---------------------------------------------------------------------------------------------------------------------------------
JULY 31, 1995 (UNAUDITED)
- ---------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
FLORIDA INSURED HAWAII KANSAS
PORTFOLIO PORTFOLIO PORTFOLIO
--------------- --------- ---------
<S> <C> <C> <C>
INVESTMENT INCOME:
Investments -
Identified cost $15,731,571 $13,821,873 $9,309,873
Unrealized appreciation 896,025 647,118 243,876
----------- ----------- ----------
Total investments, at value (Note 1A) $16,627,596 $14,468,991 $9,553,749
Cash 321,485 353,648 89,699
Receivable for investments sold - 101,345 -
Receivable from the Investment Adviser (Note 2) 21,272 17,081 17,249
Interest receivable 266,451 144,690 180,547
Deferred organization expenses (Note 1D) 8,700 7,957 7,864
----------- ----------- ----------
Total assets $17,245,504 $15,093,712 $9,849,108
----------- ----------- ----------
LIABILITIES:
Payable for daily variation margin on open financial
futures contracts (Note 1E) $ - $ 2,656 $ 2,656
Payable to affiliates -
Trustee fees 14 14 14
Custodian fees - 214 -
Accrued expenses 1,081 1,011 1,176
----------- ----------- ----------
Total liabilities $ 1,095 $ 3,895 $ 3,846
----------- ----------- ----------
NET ASSETS APPLICABLE TO INVESTORS' INTEREST IN PORTFOLIO $17,244,409 $15,089,817 $9,845,262
=========== =========== ==========
SOURCES OF NET ASSETS:
Net proceeds from capital contributions and withdrawals $16,348,384 $14,440,887 $9,597,542
Unrealized appreciation of investments and financial
futures contracts (computed on the basis of identified cost) 896,025 648,930 247,720
----------- ----------- ----------
Total $17,244,409 $15,089,817 $9,845,262
=========== =========== ==========
</TABLE>
See notes to financial statements.
24
<PAGE> 25
<TABLE>
STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------------------------------------------------------
For the Six Months Ended July 31, 1995 (Unaudited)
- --------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
FLORIDA INSURED HAWAII KANSAS
PORTFOLIO PORTFOLIO PORTFOLIO
--------------- --------- ---------
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest income $ 475,072 $ 436,921 $ 281,753
--------- --------- ---------
Expenses -
Investment adviser fee (Note 2) $ 12,606 $ 11,460 $ 7,447
Compensation of Trustees not members of the
Investment Adviser's organization 83 83 83
Custodian fees (Note 2) - 382 -
Legal and accounting services 16,033 14,333 14,654
Interest expense (Note 5) 2,571 35 236
Bond pricing 1,481 1,024 1,281
Amortization of organization expenses (Note 1D) 1,202 1,099 1,092
Registration costs 125 125 125
--------- --------- ---------
Total expenses $ 34,101 $ 28,541 $ 24,918
--------- --------- ---------
Deduct -
Preliminary reduction of investment adviser fee (Note 2) $ 12,606 $ 11,460 $ 7,447
Preliminary allocation of expenses to the Investment Adviser (Note 2) 21,272 17,081 17,249
--------- --------- ---------
Total $ 33,878 $ 28,541 $ 24,696
--------- --------- ---------
Net expenses $ 223 $ - $ 222
--------- --------- ---------
Net investment income $ 474,849 $ 436,921 $ 281,531
--------- --------- ---------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) -
Investment transactions (identified cost basis) $ 10,440 $ (4,729) $ 14,971
Financial futures contracts (342,335) (219,818) (103,006)
--------- --------- ---------
Net realized loss on investments $(331,895) $(224,547) $ (88,035)
--------- --------- ---------
Change in unrealized appreciation (depreciation) -
Investments $ 667,784 $ 751,745 $ 353,991
Financial futures contracts - 17,163 11,457
--------- --------- ---------
Net unrealized appreciation of investments $ 667,784 $ 768,908 $ 365,448
--------- --------- ---------
Net realized and unrealized gain $ 335,889 $ 544,361 $ 277,413
--------- --------- ---------
Net increase in net assets from operations $ 810,738 $ 981,282 $ 558,944
========= ========= =========
</TABLE>
See notes to financial statements
25
<PAGE> 26
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
For the Six Months Ended July 31, 1995 (Unaudited)
- --------------------------------------------------------------------------------------------------------------------------------
FLORIDA INSURED HAWAII KANSAS
PORTFOLIO PORTFOLIO PORTFOLIO
--------------- --------- ---------
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations -
Net investment income $ 474,849 $ 436,921 $ 281,531
Net realized loss on investment transactions (331,895) (224,547) (88,035)
Change in unrealized appreciation of investments 667,784 768,908 365,448
----------- ----------- ----------
Net increase in net assets from operations $ 810,738 $ 981,282 $ 558,944
----------- ----------- ----------
Capital transactions -
Contributions $ 3,524,863 $ 2,195,918 $1,498,646
Withdrawals (1,491,143) (951,922) (518,356)
----------- ----------- ----------
Increase in net assets resulting from capital transactions $ 2,033,720 $ 1,243,996 $ 980,290
----------- ----------- ----------
Total increase in net assets $ 2,844,458 $ 2,225,278 $1,539,234
NET ASSETS:
At beginning of period 14,399,951 12,864,539 8,306,028
----------- ----------- ----------
At end of period $17,244,409 $15,089,817 $9,845,262
=========== =========== ==========
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
For the period from the start of business, March 2, 1994, to January 31, 1995
- --------------------------------------------------------------------------------------------------------------------------------
FLORIDA INSURED HAWAII KANSAS
PORTFOLIO PORTFOLIO PORTFOLIO
--------------- --------- ---------
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations -
Net investment income $ 307,971 $ 497,012 $ 275,220
Net realized loss on investment transactions (57,512) (507,442) (22,782)
Unrealized appreciation (depreciation) of investments 228,241 (119,978) (117,728)
----------- ----------- ----------
Net increase (decrease) in net assets from operations $ 478,700 $ (130,408) $ 134,710
----------- ----------- ----------
Capital transactions -
Contributions $16,016,246 $13,464,081 $9,002,789
Withdrawals (2,195,015) (569,154) (931,491)
----------- ----------- ----------
Increase in net assets resulting from capital transactions $13,821,231 $12,894,927 $8,071,298
----------- ----------- ----------
Total increase in net assets $14,299,931 $12,764,519 $8,206,008
NET ASSETS:
At beginning of period 100,020 100,020 100,020
----------- ----------- ----------
At end of period $14,399,951 $12,864,539 $8,306,028
=========== =========== ==========
</TABLE>
See notes to financial statements
26
<PAGE> 27
SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
FLORIDA INSURED PORTFOLIO HAWAII PORTFOLIO KANSAS PORTFOLIO
------------------------- ------------------------- --------------------------
SIX MONTHS SIX MONTHS SIX MONTHS
ENDED YEAR ENDED YEAR ENDED YEAR
JULY 31, ENDED JULY 31, ENDED JULY 31, ENDED
1995 JANUARY 31, 1995 JANUARY 31, 1995 JANUARY 31,
(UNAUDITED) 1995* (UNAUDITED) 1995* (UNAUDITED) 1995*
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
RATIOS (As a percentage of average
daily net assets)**:
Net expenses 0.00%+ 0.01%+ 0.00%+ 0.06%+ 0.00%+ 0.01%+
Net investment income 6.03%+ 5.73%+ 6.16%+ 6.03%+ 6.07%+ 5.68%+
PORTFOLIO TURNOVER 14% 33% 8% 66% 7% 12%
NET ASSETS, end of period (000 omitted) $17,244 $14,400 $15,090 $12,865 $ 9,845 $ 8,306
</TABLE>
**The operating expenses of the Portfolios may reflect a reduction of the
investment adviser fee and/or allocation of expenses to the Investment
Adviser. Had such actions not been taken, the ratios would have been as
follows:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
RATIOS (As a percentage of average
daily net assets):
Expenses 0.43%+ 0.41%+ 0.40%+ 0.38%+ 0.54%+ 0.43%+
Net investment income 5.60%+ 5.33%+ 5.76%+ 5.70%+ 5.53%+ 5.26%+
</TABLE>
+ Annualized.
* For the period from the start of business, March 2, 1994, to January 31, 1995.
See notes to financial statements
27
<PAGE> 28
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
- --------------------------------------------------------------------------------
(1) SIGNIFICANT ACCOUNTING POLICIES
Florida Insured Tax Free Portfolio ("Florida Insured Portfolio"), Hawaii Tax
Free Portfolio ("Hawaii Portfolio") and Kansas Tax Free Portfolio ("Kansas
Portfolio"), collectively the Portfolios, are registered under the Investment
Company Act of 1940 as non-diversified open-end management investment companies
which were organized as trusts under the laws of the State of New York on May 1,
1992 for the Hawaii Portfolio and October 25, 1993 for the Florida Insured
Portfolio and Kansas Portfolio. The Declarations of Trust permit the Trustees to
issue interests in the Portfolios. The following is a summary of significant
accounting policies of the Portfolios. The policies are in conformity with
generally accepted accounting principles.
A. INVESTMENT VALUATIONS - Municipal bonds are normally valued on the basis of
valuations furnished by a pricing service. Taxable obligations, if any, for
which price quotations are readily available are normally valued at the mean
between the latest bid and asked prices. Futures contracts listed on commodity
exchanges are valued at closing settlement prices. Short-term obligations,
maturing in sixty days or less, are valued at amortized cost, which approximates
value. Investments for which valuations or market quotations are unavailable are
valued at fair value using methods determined in good faith by or at the
direction of the Trustees.
B. INCOME - Interest income is determined on the basis of interest accrued,
adjusted for amortization of premium or discount when required for federal
income tax purposes.
C. INCOME TAXES - The Portfolios are treated as partnerships for Federal tax
purposes. No provision is made by the Portfolios for federal or state taxes on
any taxable income of the Portfolios because each investor in the Portfolios is
ultimately responsible for the payment of any taxes. Since some of the
Portfolios' investors are regulated investment companies that invest all or
substantially all of their assets in the Portfolios, the Portfolios normally
must satisfy the applicable source of income and diversification requirements
(under the Internal Revenue Code) in order for their respective investors to
satisfy them. The Portfolios will allocate at least annually among their
respective investors each investor's distributive share of the Portfolios' net
taxable (if any) and tax-exempt investment income, net realized capital gains,
and any other items of income, gain, loss, deductions or credit. Interest income
received by the Portfolios on investments in municipal bonds, which is
excludable from gross income under the Internal Revenue Code, will retain its
status as income exempt from federal income tax when allocated to each
Portfolio's investors. The portion of such interest, if any, earned on private
activity bonds issued after August 7, 1986, may be considered a tax preference
item for investors.
D. DEFERRED ORGANIZATION EXPENSES - Costs incurred by a Portfolio in connection
with its organization are being amortized on the straight-line basis over five
years.
E. FINANCIAL FUTURES CONTRACTS - Upon the entering of a financial futures
contract, a Portfolio is required to deposit ("initial margin") either in cash
or securities an amount equal to a certain percentage of the purchase price
indicated in the financial futures contract. Subsequent payments are made or
received by a Portfolio ("margin maintenance") each day, dependent on the daily
fluctuations in the value of the underlying security, and are recorded for book
purposes as unrealized gains or losses by a Portfolio. A Portfolio's investment
in financial futures contracts is designed only to hedge against anticipated
future changes in interest rates. Should interest rates move unexpectedly, a
Portfolio may not achieve the anticipated benefits of the financial futures
contracts and may realize a loss.
F. OTHER - Investment transactions are accounted for on a trade date basis.
G. INTERIM FINANCIAL INFORMATION - The interim financial statements relating to
July 31, 1995 and for the six month period then ended have not been audited by
independent certified public accountants, but in the opinion of each Portfolio's
management, reflect all adjustments, consisting only of normal recurring
adjustments necessary for the fair presentation of the financial statements.
28
<PAGE> 29
- --------------------------------------------------------------------------------
(2) INVESTMENT ADVISER FEE AND OTHER TRANSACTIONS
WITH AFFILIATES
The investment adviser fee is earned by Boston Management and Research (BMR), a
wholly-owned subsidiary of Eaton Vance Management (EVM), as compensation for
management and investment advisory services rendered to each Portfolio. The fee
is based upon a percentage of average daily net assets plus a percentage of
gross income (i.e., income other than gains from the sale of securities). For
the six month period ended July 31, 1995, the fee for the Florida Insured
Portfolio, Hawaii Portfolio and Kansas Portfolio was equivalent to 0.16%, 0.16%
and 0.16% (annualized), respectively, of each Portfolio's average net assets for
such period and amounted to $12,606, $11,460 and $7,447, respectively. To
enhance the net income of the Florida Insured Portfolio, Hawaii Portfolio and
Kansas Portfolio, BMR made a preliminary reduction of its fee in the amount of
$12,606, $11,460 and $7,447, respectively, and $21,272, $17,081 and $17,249,
respectively, of expenses related to the operation of the Portfolios were
allocated, on a preliminary basis, to BMR. Except as to Trustees of the
Portfolios who are not members of EVM's or BMR's organization, officers and
Trustees receive remuneration for their services to the Portfolios out of such
investment adviser fee. Investors Bank & Trust Company (IB&T), an affiliate of
EVM and BMR, serves as custodian of the Portfolios. Pursuant to the respective
custodian agreements, IB&T receives a fee reduced by credits which are
determined based on the average daily cash balances each Portfolio maintains
with IB&T. Certain of the officers and Trustees of the Portfolios are officers
and directors/trustees of the above organizations. Trustees of the Portfolios
that are not affiliated with the Investment Adviser may elect to defer receipt
of all or a percentage of their annual fees in accordance with the terms of the
Trustees Deferred Compensation Plan. For the six months ended July 31, 1995, no
significant amounts have been deferred.
- --------------------------------------------------------------------------------
(3) INVESTMENTS
Purchases and sales of investments, other than U.S. Government securities and
short-term obligations, for the six months ended July 31, 1995, were as follows:
<TABLE>
<CAPTION>
FLORIDA INSURED PORTFOLIO HAWAII PORTFOLIO KANSAS PORTFOLIO
------------------------- ---------------- ----------------
<S> <C> <C> <C>
Purchases $3,867,422 $2,261,966 $1,551,089
Sales 2,105,500 1,155,365 641,409
</TABLE>
- --------------------------------------------------------------------------------
(4) FEDERAL INCOME TAX BASIS OF INVESTMENTS
The cost and unrealized appreciation/depreciation in value of the investments
owned by each Portfolio at July 31, 1995, as computed on a federal income tax
basis, are as follows:
<TABLE>
<CAPTION>
FLORIDA INSURED PORTFOLIO HAWAII PORTFOLIO KANSAS PORTFOLIO
------------------------- ---------------- ----------------
<S> <C> <C> <C>
Aggregate Cost $15,731,571 $13,821,873 $9,309,873
=========== =========== ==========
Gross unrealized appreciation $ 935,785 $ 697,192 $ 264,205
Gross unrealized depreciation 39,760 50,074 20,329
----------- ----------- ----------
Net unrealized appreciation $ 896,025 $ 647,118 $ 243,876
=========== =========== ==========
</TABLE>
- --------------------------------------------------------------------------------
(5) LINE OF CREDIT
The Portfolios participate with other portfolios and funds managed by BMR and
EVM in a $120 million unsecured line of credit agreement with a bank. The line
of credit consists of a $20 million committed facility and a $100 million
discretionary facility. Each Portfolio may temporarily borrow up to 5% of its
total assets to satisfy redemption requests or settle securities transaction.
Interest is charged to each portfolio or fund based on its borrowings at an
amount above either the bank's adjusted certificate of deposit rate, a variable
adjusted certificate of deposit rate, or a federal funds effective rate. In
addition, a fee computed at an annual rate of 1/4 of 1% on the $20 million
committed facility and on the daily unused portion of the $100 million
discretionary facility is allocated among the participating funds and portfolios
at the end of each quarter. The Hawaii Portfolio and the Kansas Portfolio did
not have any significant borrowings or allocated fees during the period. For the
six months ended July 31, 1995, the average daily loan balance outstanding
pursuant to this line of credit for the Florida Insured Portfolio was $315,250
and the average interest rate was 7.54%. The maximum borrowing outstanding
during the six months ended July 31, 1995 was $819,000.
29
<PAGE> 30
- --------------------------------------------------------------------------------
(6) FINANCIAL INSTRUMENTS
The Portfolios regularly trade in financial instruments with off-balance sheet
risk in the normal course of their investing activities to assist in managing
exposure to various market risks. These financial instruments include written
options and futures contracts and may involve, to a varying degree, elements of
risk in excess of the amounts recognized for financial statement purposes.
The notional or contractual amounts of these instruments represent the
investment a Portfolio has in particular classes of financial instruments and
does not necessarily represent the amounts potentially subject to risk. The
measurement of the risks associated with these instruments is meaningful only
when all related and offsetting transactions are considered.
A summary of obligations under these financial instruments at July 31, 1995 is
as follows:
<TABLE>
<CAPTION>
FUTURES
CONTRACTS NET UNREALIZED
PORTFOLIO EXPIRATION DATE CONTRACTS POSITION APPRECIATION
- --------- --------------- --------- -------- --------------
<S> <C> <C> <C> <C>
Florida Insured - - - -
Hawaii 9/95 5 U.S. Treasury Short $1,812
======
Kansas 9/95 5 U.S. Treasury Short $3,844
======
</TABLE>
At July 31, 1995, the Hawaii Portfolio and Kansas Portfolio had sufficient cash
and/or securities segregated to cover margin requirements on open futures
contracts. The Florida Insured Portfolio did not have any open financial futures
contracts at July 31, 1995.
30
<PAGE> 31
INVESTMENT MANAGEMENT
- --------------------------------------------------------------------------------
FUNDS
OFFICERS
THOMAS J. FETTER
President
JAMES B. HAWKES
Vice President, Trustee
ROBERT B. MACINTOSH
Vice President
JAMES L. O'CONNOR
Treasurer
THOMAS OTIS
Secretary
INDEPENDENT TRUSTEES
DONALD R. DWIGHT
President, Dwight Partners, Inc.
Chairman, Newspaper of New England, Inc.
SAMUEL L. HAYES, III
Jacob H. Schiff Professor of Investment
Banking, Harvard University Graduate
School of Business Administration
NORTON H. REAMER
President and Director, United Asset
Management Corporation
JOHN L. THORNDIKE
Director, Fiduciary Company Incorporated
JACK L. TREYNOR
Investment Adviser and Consultant
- --------------------------------------------------------------------------------
PORTFOLIOS
OFFICERS
Thomas J. Fetter
President and Portfolio Manager of Florida
Insured Tax Free Portfolio
JAMES B. HAWKES
Vice President, Trustee
ROBERT B. MACINTOSH
Vice President of Florida Insured,
Hawaii and Kansas Tax Free Portfolios
Portfolio Manager of Hawaii Tax Free
Portfolio
NICOLE ANDERES
Vice President and Portfolio Manager
of Kansas Tax Free Portfolio
JAMES L. O'CONNOR
Treasurer
THOMAS OTIS
Secretary
INDEPENDENT TRUSTEES
DONALD R. DWIGHT
President, Dwight Partners, Inc.
Chairman, Newspaper of New England, Inc.
SAMUEL L. HAYES, III
Jacob H. Schiff Professor of Investment
Banking, Harvard University Graduate
School of Business Administration
NORTON H. REAMER
President and Director, United Asset
Management Corporation
JOHN L. THORNDIKE
Director, Fiduciary Company Incorporated
JACK L. TREYNOR
Investment Adviser and Consultant
31
<PAGE> 32
PORTFOLIO INVESTMENT ADVISER
Boston Management and Research
24 Federal Street
Boston, MA 02110
FUND ADMINISTRATOR
Eaton Vance Management
24 Federal Street
Boston, MA 02110
PRINCIPAL UNDERWRITER
Eaton Vance Distributors, Inc.
24 Federal Street
Boston, MA 02110
(617) 482-8260
CUSTODIAN
Investors Bank & Trust Company
24 Federal Street
Boston, MA 02110
TRANSFER AGENT
The Shareholder Services Group, Inc.
BOS725
P.O. Box 1559
Boston, MA 02104
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This report must be preceded or accompanied by a current prospectus which
contains more complete information on the Funds, including distribution plan,
sales charges and expenses. Please read the prospectus carefully before you
invest or send money.
EATON VANCE MUNICIPALS TRUST II
24 FEDERAL STREET
BOSTON, MA 02110
M-CSRC
