EV Marathon
High Yield
Municipals Fund
[LOGO OMITTED IN GRAPHIC SIDE BAR]
Semi-Annual
Shareholder Report
July 31, 1996
To Shareholders
EV Marathon High Yield Municipals Fund paid its shareholders monthly
income dividends totaling $0.318 per share during the six months ended
July 31, 1996.+ Based on the most recent dividend paid and the Fund's
net asset value per share of $10.38 on July 31, 1996, the Fund's
annualized distribution rate at net asset value was 6.17%. To equal this
rate in a taxable investment, a couple in the 36% Federal tax bracket
would have to receive 9.64%.
The year started favorably enough, with the Federal Reserve lowering
short-term interest rates. Investors' optimism was short-lived, however,
as the Fed indicated its next move would likely be to raise rates.
Subsequent employment data showed that the labor market was indeed
tightening.
While job growth has cooled in recent months, the economy has
nonetheless failed to give a clear indication of its long-term
direction. Accordingly, the Federal Reserve has effectively put its
monetary policy on hold, while maintaining a bias toward higher rates.
Despite the uncertainty in the market, there are several reasons we
believe an investment in municipal bonds continues to represent good
value for tax-conscious investors. First, while turning in somewhat
faster growth than expected, the nation's economy remains subdued. GDP
grew at a revised 4.8% annualized rate in the second quarter -- a
relatively strong showing -- but one that is unlikely to be continued
over the balance of the year. By most measures, inflation remains well
under control. Second, whatever the outcome of the various tax cut proposals
that have marked the campaign of both major political parties, we believe
it is certain that the tax structure will remain sharply progressive.
That means that municipal bonds will retain their relative value.
Fund shares are not guaranteed by the FDIC and are not deposits or other
obligations of, or guaranteed by, any depository institution. Shares are
subject to investment risks, including possible loss of principal
invested.
[GRAPHIC OF THE CONTINENTAL UNITED STATES OMITTED]
Portfolio Overview
Based on market value as of July 31, 1996
Number of issues 67
Average quality BB+
Investment grade 39.5%
Effective maturity (years) 16.5
Largest sectors:
Industrial development 25.5%
Hospitals 22.9
Nursing homes 9.6
Cogeneration facilities 8.7
Solid waste 4.6
Third, on the budget front, the deficit has been reduced significantly.
At present, the deficit as a percentage of GDP is the smallest of all
industrialized nations, alleviating near-term borrowing needs.
Finally, and perhaps most important of all, the tax burden of our
citizens is still extraordinarily high. Municipal bonds remain the best
way for most individuals to relieve that burden and keep more of what
they work so hard to earn.We believe that, despite the occasional market
fluctuations, steadfast, long-term outlook is the best way to reap the
advantages of tax-free investing.
[PHOTO OF THOMAS J. FETTER OMITTED]
Sincerely,
/S/Thomas J. Fetter
Thomas J. Fetter
President
September 10, 1996
+ A portion of the Fund's income could be subject to state, local and/or
Federal alternative minimum tax.
Management Report
An interview with Thomas M. Metzold, portfolio manager of the High Yield
Municipals Portfolio.
Q. Tom, how would you evaluate the municipal market and the Fund's
performance through the first half of 1996?
A. The bond market has featured some volatility during 1996 in response
to an uncertain economic outlook and wide fluctuations in interest
rates. However, the municipal market has managed to outperform the
taxable market during this six-month period and the high-yield muni
sector has fared even better. Despite the difficult climate for the bond
market, the Fund registered a positive total return during the period,
while many other fixed-income vehicles posted negative returns.
It's especially important to note that municipal bonds have rallied
significantly since the sharp decline of 1994. As a result, those
investors who stayed with the municipal market throughout that period
have fared very well.
Q. Have you made many changes to the Portfolio in the past six months?
A. I've made relatively few changes during the period. We continue our
fully-invested posture, and with strongly positive cash flow, we've put
that investment to work. But, in a quiet market such as the past six
months, I prefer not to initiate change for the sake of mere window
dressing. Given my market outlook, I'm comfortable with the way the
Portfolio is structured. Frankly, there has to be a very compelling
reason to make a change.
Q. There have been some contradictory economic indicators of late. How
have you dealt with these changing views?
A. The Portfolio's investment mix includes a variety of projects that
help to insulate the Portfolio from swings in the economy. For example,
among our industrial development bonds, we own bonds with an exposure to
a wide range of industries, including the steel sector, energy,
fertilizers, and retailing. Elsewhere, we've maintained positions in
transportation-related bonds that finance airport facilities for the
nation's major airlines. Thus, our cyclical invest-ments are spread
across a wide economic spectrum.
[PHOTO OF THOMAS M. METZOLD OMITTED]
Caption reads: Thomas M. Metzold
Of course, we also maintain investments in non-cyclical projects,
including hospitals, assisted living centers, and nursing homes. These
projects are less economically-sensitive and tend to be influenced more
by demographic changes and population shifts within their service
areas. They therefore add another level of diversification and help to
nicely balance the Portfolio.
Q. Is diversification an important element of your investment process?
A. Yes, diversification is one of the keys to managing the Portfolio.
To accomplish that end, I rely heavily on our strong analytical
resources here at Eaton Vance. We try to maintain a Portfolio that
represents a good cross-section of the market according to industry and
bond type. We also diversify according to geographical distribution to
avoid concentrating too much in a single region of the country. Finally,
there is diversification in terms of maturity distribution.
"The Fund provides
the opportunity to
invest in projects
across the nation
that provide vital
community
services and help
rebuild our
infrastructure."
Q. You mentioned Eaton Vance's research capabilities. Could you expand
on that theme?
A. Yes. At Eaton Vance, we maintain a strong research effort that
provides a reliable flow of information, ensures that our standards are
applied uniformly, and facilitates the monitoring of our investments. By
applying our own strict investment guidelines, we arrive at a complete
picture of how a bond stacks up. Only after meeting our internal credit
standards is a bond considered for the Portfolio.
Q. What is the role of the Eaton Vance analyst?
A. Our analysts visit hundreds of company, state, local, and agency
officials annually. In additon, they maintain close contact with outside
research sources and major credit ratings agencies to monitor fiscal
developments at the state and local level. That way, we can detect which
situations may present a good opportunity and, equally as important,
which ones should be avoided. Our analysts study fundamentals regarding
the overall economic outlook, as well as those developments that may
impact a specific project. Bond issuers may range from very large state
general obligations to a relatively small industrial project. Whatever
the size of the bond, each potential investment is held to an exacting
set of criteria by Eaton Vance analysts.
Q. What are the main reasons to own High Yield Municipals Fund?
A. In my view, there are several reasons why this fund merits
consideration. First and foremost, there is its relatively high level of
tax-exempt income. While, naturally, the Fund's past performance is no
guarantee of future performance, to enjoy this level of income in a
taxable investment, an investor would need to invest in B-rated
corporate bonds. A second reason is that the Portfolio adds a good measure of
diversification to an investor's overall portfolio, which may include
equities as well. Over time, one's overall risk may be smoothed out somewhat
by investing in different asset classes.
Finally, the Portfolio provides the opportunity to invest in projects across
the nation that provide vital community services and help make
improvements to our infrastructure. Investors can have the confidence
that their investments are benefiting the community at large.
Q. That last point is an interesting one. Can you give an example of
such a situation?
A. Yes. The Portfolio owns revenue bonds issued by the Downtown Development
Authority of Atlanta, GA for the The Atlanta Inn for Children. The bonds
have an 8% coupon and come due in 2026. The bonds are being used to
finance a daycare facility currently under construction in Atlanta. The
project is sponsored by a consortium of major hotels, including
Marriott, Omni, and Hyatt. The center will be managed by Americare Early
Learning Centers, Inc. and is designed to provide early learning and
daycare for children of hotel employees, as well as classes in parent-
ing skills. The sponsors of the project have entered into service
agreements by which they guarantee specific student enrollment and a
weekly revenue stream. This bond is an excellent example of an
investment that provides a unique, tax-exempt opportunity for investors
and is in concert with a project that will provide greatly needed
services to a community.
[GRAPHIC SKETCH OF THE ATLANTA'S INN FOR CHILDREN OMITTED]
Q. In closing, Tom, what is your outlook for the municipal market?
A. I'm optimistic about the market for several reasons. First, the
economy continues to muddle along, marked by steady but unspectacular
growth and low inflation. That is certainly a good scenario for bonds.
Second, the equity market has again reached record highs without a
significant correction. That suggests that bonds may be a better value
at this point than equities. Finally, tax-exempt income continues to
have great appeal for investors. Municipal bonds represent the last,
readily available way for taxpayers to reduce their tax burden. For
these reasons, I believe municipals remain a source of continuing value
for investors and should merit consideration for their portfolios.
<TABLE>
<CAPTION>
EV Marathon High Yield Municipals Fund
Financial Statements
Statement of Assets and Liabilities
- --------------------------------------------------------------------------------------------------------
July 31, 1996 (Unaudited)
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets:
Investment in High Yield Municipals Portfolio (Portfolio), at value (Note 1A)
(identified cost, $82,980,072) $83,182,338
Receivable for Fund shares sold 758,887
Receivable from Administrator (Note 4) 23,157
Deferred organization expenses (Note 1D) 38,191
-----------
Total assets $84,002,573
Liabilities:
Dividends payable $215,592
Payable for Fund shares redeemed 65,764
Payable to affiliate --
Trustees' fees 14
Accrued expenses 27,597
-----------
Total liabilities 308,967
-----------
Net Assets for 8,062,507 shares of beneficial interest outstanding $83,693,606
===========
Sources of Net Assets:
Proceeds from sales of shares (including shares issued to shareholders electing
to receive payment of distributions in shares), less cost of shares redeemed $83,751,261
Accumulated undistributed net realized loss on investment transactions
(computed on the basis of identified cost) (255,180)
Unrealized appreciation of investments (computed on the basis of identified cost) 202,266
Accumulated distributions in excess of net investment income (4,741)
-----------
Total $83,693,606
===========
Net Asset Value, Offering and Redemption Price (Note 6) Per Share
($83,693,606 (divided by) 8,062,507 shares of beneficial interest) $10.38
======
See notes to financial statements
</TABLE>
<TABLE>
<CAPTION>
Statement of Operations
- --------------------------------------------------------------------------------------------------------
For the Six Months Ended July 31, 1996 (Unaudited)
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Investment Income (Note 1B):
Interest income allocated from Portfolio $2,305,754
Expenses allocated from Portfolio (27,660)
----------
Total investment income $2,278,094
Expenses --
Compensation of Trustees not members of the Administrator's organization (Note 4) $1,141
Custodian fee 1,401
Distribution fees (Note 5) 245,124
Transfer and dividend disbursing agent fees 27,020
Printing and postage 16,735
Legal and accounting services 7,450
Registration costs 32,296
Amortization of organization expenses (Note 1D) 4,222
Miscellaneous 11,206
----------
Total expenses $346,595
Deduct:
Preliminary allocation of expenses to the Administrator (Note 4) 23,157
----------
Net expenses 323,438
----------
Net investment income $1,954,656
Realized and Unrealized Loss from Portfolio:
Net realized loss on investments (identified cost basis) ($255,180)
Change in unrealized appreciation (depreciation) of investments (637,984)
----------
Net realized and unrealized loss on investments (893,164)
----------
Net increase in net assets resulting from operations $1,061,492
==========
See notes to financial statments
</TABLE>
<TABLE>
<CAPTION>
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------------------------------
Six Months Year
Ended Ended
July 31, 1996 January 31,
(Unaudited) 1996*
-------------- --------------
<S> <C> <C>
Increase (Decrease) in Net Assets:
From operations --
Net investment income $1,954,656 $565,889
Net realized gain (loss) on investments (255,180) 5,322
Change in unrealized appreciation (depreciation) of investments (637,984) 840,250
----------- -----------
Net increase in net assets resulting from operations $1,061,492 $1,411,461
----------- -----------
Distributions to shareholders --
From net investment income ($1,954,656) ($565,889)
In excess of net investment income (5,616) (13,320)
In excess of net realized gain on investments (5,322) --
----------- -----------
Total distributions to shareholders ($1,965,594) ($579,209)
----------- -----------
Transactions in shares of capital stock (Note 3) --
Proceeds from sale of shares $43,352,253 $43,338,440
Net asset value of shares issued to shareholders in payment of
distributions declared 645,374 201,331
Cost of shares redeemed (2,919,634) (852,308)
----------- -----------
Net increase in net assets from Fund share transactions $41,077,993 $42,687,463
----------- -----------
Net increase in net assets $40,173,891 $43,519,715
Net Assets:
At beginning of period 43,519,715 --
----------- -----------
At end of period (including accumulated undistributed (distributions in
excess of) net investment income of ($4,741) and $875, respectively) $83,693,606 $43,519,715
=========== ===========
* For the period from the start of business, August 7, 1995, to January 31, 1996.
See notes to financial statements
</TABLE>
<TABLE>
<CAPTION>
Financial Highlights
- --------------------------------------------------------------------------------------------------------
Six Months Year
Ended Ended
July 31, 1996 January 31,
(Unaudited) 1996*
---------- ----------
<S> <C> <C>
Net asset value -- Beginning of period $10.650 $10.000
------- -------
Income from operations:
Net investment income $0.317 $0.299
Net realized and unrealized gain (loss) on investments ($0.268) $0.657
------- -------
Total income (loss) from operations $0.049 $0.956
------- -------
Less distributions:
From net investment income ($0.317) ($0.299)
In excess of net investment income ($0.001) ($0.007)
In excess of net realized gain on investments ($0.001) --
------- -------
Total distributions ($0.319) ($0.306)
------- -------
Net asset value -- End of period $10.380 $10.650
======= =======
Total Return (2) 0.52% 9.40%
Ratios/Supplemental Data**:
Net assets, end of period (000's omitted) $83,694 $43,520
Ratio of net expenses to average daily net assets (1) 1.12%+ 0.88%+
Ratio of net expenses to average daily net assets after custodian
fee reduction (1) 1.10%+ 0.88%+
Ratio of net investment income to average daily net assets 6.11%+ 5.86%+
**The expenses related to the operation of the Fund and Portfolio reflect an assumption of expenses by
the Administrator 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 $0.282 $0.254
======= =======
Ratios/Supplemental Data:
Expenses (1) 1.79%+ 1.77%+
Expenses after custodian fee reduction (1) 1.77%+ 1.77%+
Net investment income 5.44%+ 4.97%+
+ Computed on an annualized basis.
* For the period from the start of business, August 7, 1995, to January 31, 1996.
(1) Includes the Fund's share of High Yield Municipals Portfolio's allocated expenses.
(2) Total investment return is calculated assuming a purchase at the net asset value on
the first day and a sale at the net asset value on the last day of each period reported.
Dividends and distributions, if any, are assumed to be reinvested at the net asset value
on the payable date. Total return is computed on a non-annualized basis.
See notes to financial statements
</TABLE>
Notes to Financial Statements
(Unaudited)
(1) Significant Accounting Policies
EV Marathon High Yield Municipals Fund (the Fund) is a non-diversified
series of Eaton Vance Municipals Trust II (the Trust). 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 Fund invests all of its
investable assets in interests in High Yield Municipals Portfolio (the
Portfolio), a New York Trust, having the same investment objective as
the Fund. The value of the Fund's investment in the Portfolio reflects
the Fund's proportionate interest in the net assets of the Portfolio
(65.5% at July 31, 1996). The performance of the Fund is directly
affected by the performance of the Portfolio. The financial statements
of the Portfolio, including the portfolio of investments, are included
elsewhere in this report and should be read in conjunction with the
Fund's financial statements. The following is a summary of significant
accounting policies consistently followed by the Fund 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 Portfolio is
discussed in Note 1 of the Portfolio's Notes to Financial Statements
which are included elsewhere in this report.
B. Income -- The Fund's net investment income consists of the Fund's
pro rata share of the net investment income of the Portfolio, less all
actual and accrued expenses of the Fund determined in accordance with
generally accepted accounting principles.
C. Federal Taxes -- The 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.
Dividends paid by the Fund from net tax-exempt interest on municipal
bonds allocated from the Portfolio are not includable by shareholders as
gross income for federal income tax purposes because the Fund and
Portfolio intend to meet certain requirements of the Internal Revenue
Code applicable to regulated investment companies which will enable the
Fund 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 the Fund in
connection with its organization are being amortized on the straight-
line basis over five years.
E. Expense Reduction -- Investors Bank & Trust Company (IBT) serves as
custodian of the Fund. Pursuant to the custodian agreement, IBT receives
a fee reduced by credits which are determined based on the average daily
cash balance the Fund maintains with IBT. All significant credit
balances used to reduce the Fund's custodian fees are reported as a
reduction of expenses in the statement of operations.
F. Use of Estimates -- The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expense during the
reporting period. Actual results could differ from those estimates.
G. Other -- Investment transactions are accounted for on a trade date
basis.
H. Interim Financial Information -- The interim financial statements
relating to July 31, 1996 and for the six months then ended have not
been audited by independent certified public accountants, but in the
opinion of the Fund's management, reflect all adjustments, consisting
only of normal recurring adjustments, necessary for the fair
presentation of the financial statements.
(2) Distributions to Shareholders
The net income of the 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 the 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 Fund distinguishes
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 over-distributions for financial
statement 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.
For the six months ended July 31, 1996, $5,322 ($0.001 per share) was
reclassified from distributions from net investment income to
distributions from net realized gain on investments.
(3) Shares of Beneficial Interest
The 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:
Six Months Year Ended
Ended January 31,
July 31, 1996 1996*
------------- ------------
Sales 4,198,354 4,146,946
Issued to shareholders
electing to receive
payments of distributions in
Fund shares 62,940 19,130
Redemptions (283,910) (80,953)
---------- ----------
Net increase 3,977,384 4,085,123
========== ==========
* For the period from the start of business, August 7, 1995, to January
31, 1996.
(4) Investment Adviser Fee and Other Transactions with Affiliates
Eaton Vance Management (EVM) serves as the administrator of the Fund,
but receives no compensation. The Portfolio has engaged Boston
Management and Research (BMR), a subsidiary of EVM, to render investment
advisory services. See Note 2 of the Portfolio's Notes to Financial
Statements which are included elsewhere in this report. To enhance the
net income of the Fund, $23,157 of expenses related to the operation of
the Fund were allocated, on a preliminary basis, to EVM. Except as to
Trustees of the Fund and the Portfolio who are not members of EVM's or
BMR's organization, officers and Trustees receive remuneration for their
services to the Fund out of such investment adviser fee. Certain of the
officers and Trustees of the Fund and Portfolio are officers and
directors/trustees of the above organizations (Note 5).
(5) Distribution Plan
The Fund has adopted a distribution plan (the Plan) pursuant to Rule
12b-1 under the Investment Company Act of 1940. The Plan requires the
Fund to pay the Principal Underwriter, Eaton Vance Distributors, Inc.
(EVD), amounts equal to 1/365 of 0.75% of the Fund's daily net assets,
for providing ongoing distribution services and facilities to the Fund.
The 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 (see 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 the
Fund and, accordingly, reduces the Fund's net assets. The Fund paid or
accrued $245,124 to or payable to EVD for the six months ended July 31,
1996, representing 0.75% (annualized) of average daily net assets. At
July 31, 1996, the amount of Uncovered Distribution Charges of EVD
calculated under the Plan was approximately $3,844,000.
In addition, the Plan authorizes the Fund to make payments of service
fees to the Principal Underwriter, Authorized Firms and other persons in
amounts not exceeding 0.25% of the Fund's average daily net assets for
each fiscal year. The Trustees have initially implemented the Plan by
authorizing the Fund to make quarterly payments of service fees to the
Principal Underwriter and Authorized Firms in amounts not expected to
exceed 0.25% per annum of the Fund's average daily net assets based on
the value of Fund shares sold by such persons and remaining outstanding
for at least one year. Service fee payments are made for personal
services and/or the 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 the Fund to EVD, and,
as such, are not subject to automatic discontinuance where there are no
outstanding Uncovered Distribution Charges of EVD. The Fund expects to
begin accruing for its service fee payments during the quarter ending
September 30, 1996.
Certain officers and Trustees of the Fund are officers or directors of
EVD.
(6) Contingent Deferred Sales Charge
A contingent deferred sales charge (CDSC) is imposed on any redemption
of Fund shares made within six years of purchase. Generally, the CDSC is
based upon the lower of 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
declining rates that begin at 5% in the case of redemptions in the first
or second year after purchase, 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 the Fund's Distribution Plan. CDSC charges
received when no Uncovered Distribution Charges exist will be credited
to the Fund. EVD received approximately $49,000 of CDSC paid by
shareholders for the six months ended July 31, 1996.
(7) Investment Transactions
Increases and decreases in the Fund's investment in the Portfolio for
the six months ended July 31, 1996 aggregated $44,223,913 and
$4,502,639, respectively.
<TABLE>
<CAPTION>
High Yield Municipals Portfolio
Portfolio of Investments
July 31, 1996
(Unaudited)
- -------------------------------------------------------------------------------------------------------------------------
Tax-Exempt Investments -- 100%
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assisted Living -- 3.8%
$2,500 Arizona Health Facilities Authority, Care Institute-Mesa Project, 7.625%, 1/1/26 $2,265,825
1,000 Chester County, Pennsylvania, IDA, Senior LifeChoice of Kimberton (AMT), 8.5%,
9/1/25 1,018,770
1,600 Delaware County, Pennsylvania, Industrial Development Authority, Senior
Quarters at Glen Riddle Project (AMT), 8.625%, 9/1/25 1,600,400
------------
$4,884,995
------------
Cogeneration Facilities -- 8.7%
$3,500 Maryland Energy Cogeneration, AES Warrior Run Project (AMT), 7.4%, 9/1/19 $3,639,160
3,500 Palm Beach County, Florida, Osceola Power Project (AMT), 6.95%, 1/1/22 3,208,730
3,500 Pennsylvania Economic Development Financing Authority, Northampton
Generating Project (AMT), 6.6%, 1/1/19 3,315,305
1,000 Pennsylvania Economic Development Finance Authority, Northampton
Generating Project-Subordinated (AMT), 6.875%, 1/1/11 968,710
------------
$11,131,905
------------
Colleges & Universities -- 1.6%
$2,000 New Hampshire Higher Educational and Health Facilities Authority, Colby-Sawyer
College, 7.5%, 6/1/26 $2,024,720
------------
Escrowed -- 4.3%
$1,400 Colorado Health Facilities Authority, Liberty Heights Project, 0%, 7/15/20 $266,868
2,995 Colorado Health Facilities Authority, Liberty Heights Project, 0%, 7/15/22 484,831
10,000 Dawson Ridge Metropolitan District #1, Douglas County, Colorado, 0%, 10/1/22 1,592,100
3,500 Dawson Ridge Metropolitan District #1, Douglas County, Colorado, 0%, 10/1/22 557,235
3,295 Illinois Development Finance Authority, Regency Park Project, 0%, 7/15/25 420,244
1,000 Montgomery County, Pennsylvania, United Hospitals, 8.375%, 11/1/11 1,131,680
1,000 Montgomery County, Pennsylvania, United Hospitals, 7.5%, 11/1/15 1,088,880
------------
$5,541,838
------------
Hospitals -- 22.9%
$2,500 Hidalgo County, Texas, Health Services Corp., Mission Hospital, Inc., 6.875%, 8/15/26 $2,492,025
3,000 Louisiana Public Finance Authority, General Health Systems Project, 6.8%, 11/1/16 2,993,010
3,000 Lufkin, Texas, Memorial Health System, 6.875%, 2/15/26 2,998,020
3,000 Massachusetts Health and Education Facilities Authority, Sisters of Providence
Hospital, 6.625%, 11/15/22 2,935,680
3,000 Massachusetts Health and Education Facilities Authority, Milford-Whitinsville Hospital 3,089,190
7.75%, 7/15/17
1,000 Michigan State Hospital Finance Authority, Central Michigan Community Hospital, 6.25%,
10/1/27 940,100
275 Missouri Health and Education Facilities Authority, Jefferson Memorial Hospital, 6%,
8/15/23 246,703
1,950 Missouri Health and Education Facilities Authority, Jefferson Memorial Hospital
Association Project, 6.8%, 5/15/25 1,939,957
Hospitals (Continued)
2,205 Philadelphia, Pennsylvania, Graduate Health System, 6.625%, 7/1/21 2,130,603
2,650 Prince George's, Maryland, Greater Southeast Health, 6.375%, 1/1/23 2,442,691
1,000 San Bernadino, California, San Bernadino Community Hospital, 7.875%, 12/1/08 1,006,050
1,325 San Bernadino, California, San Bernadino Community Hospital, 7.875%, 12/1/19 1,333,016
1,500 Scranton-Lackawanna, Pennsylvania, Moses Taylor Hospital, 8.5%, 7/1/20 1,604,445
1,500 Vermont Health & Education, Northwest Medical Center Project, 6.25%, 9/1/18 1,430,940
1,500 Wells County, Indiana, Caylor-Nickel Medical Center, 8.75%, 4/15/12 1,696,965
------------
$29,279,395
------------
Housing -- 1.9%
$2,500 Lucas County, Ohio, EDA, County Creek Project (AMT), 8%, 7/1/26 $2,377,775
------------
Industrial Development Revenue Bonds -- 25.5%
$2,000 Camden County, New Jersey, Holt Hauling and Warehousing System, Inc. Project (AMT),
9.875%, 1/1/21 $2,011,020
2,000 Florence County, Kentucky, IDR, Stone Container Co., 7.375%, 2/1/07 2,046,700
3,000 Gulf Coast Waste Disposal, Texas, Champion International Corporation (AMT),
6.875%, 12/1/28 3,093,720
2,700 Hancock County, Kentucky, Southwire Co. Project (AMT), 7.75%, 7/1/25 2,756,483
2,500 Kansas City, Missouri, IDA, AFCO Cargo MCI (AMT), 8.5%, 1/1/17 2,708,800
1,000 Michigan Strategic, PCR, Roseville K-Mart Co., 6.25%,10/1/06 904,790
3,500 Michigan Strategic, PCR, S.D. Warren Series-87C (AMT), 7.375%, 1/15/22 3,544,240
1,000 Mobile, Alabama, IDA, Mobile Energy Project, 6.95%, 1/1/20 1,032,800
1,135 New Albany, Indiana, IDA, K-Mart Co., 7.4%, 6/1/06 1,118,531
2,750 New Hampshire Business Finance Authority, Crown Paper Co. (AMT), 7.875%, 7/1/26 2,779,563
1,500 New Jersey EDA, Holt Hauling and Warehousing System, Inc. (AMT), 9.75%, 12/15/16 1,554,480
500 New Jersey EDA, 777 Pattison Ave., Inc. (AMT), 8.95%, 12/15/18 521,935
2,500 State of Ohio Solid Waste, Republic Engineered Steel, Inc. Project (AMT), 9%, 6/1/21 2,568,450
500 Philadelphia, Pennsylvania, IDA, Refrigerated Enterprises (AMT), 9.05%, 12/1/19 528,890
3,345 Riverdale Village, Illinois, IDA, ACME Metals, Inc. Project (AMT), 7.95%, 4/1/25 3,374,771
2,000 Tooele County, Utah, IDA, Laidlaw/USPCI Incineration, Inc. (AMT), 6.75%, 8/1/10 2,054,460
------------
$32,599,633
------------
Insured Water and Sewer -- 2.1%
$3,000 Detroit, Michigan, Sewer Revenue, (FGIC), Variable Rate, 7/1/23 (1) $2,737,500
------------
Lease/Certificates of Participation -- 1.5%
$9,190 Los Angeles, California, COP, Disney Parking Project, 0%, 9/1/19 $1,877,425
------------
Life Care -- 2.8%
$3,500 Delaware County, Pennsylvania, White Horse Village, 7.3%, 7/1/14 $3,510,675
------------
Miscellaneous -- 1.7%
$2,300 Atlanta, Georgia, Downtown Development Authority, Central Atlanta Hospitality
Childcare, Inc., 8%, 1/1/26 $2,178,468
------------
Multi-Purpose Utilities -- 3.5%
$2,500 New York State Energy, Research and Development Authority, Long Island Lighting Co.
(AMT), 7.15%, 9/1/19 $2,493,900
2,000 Southern California Public Power Authority, Variable Rate, 7/1/12 (1) 2,010,000
------------
$4,503,900
------------
Nursing Homes -- 9.6%
$1,500 Cuyahoga County, Ohio, Health Care Facilities, Judson Retirement Community, 8.875%,
7/1/12 1,614,915
1,250 Greene County, Ohio, IDA, Fairview Extended Care-91, 10.125%, 1/1/11 1,411,725
1,850 Massachusetts Health & Education Facilities Authority, Fairview Extended Care,
10.125%,1/1/11 2,089,353
2,500 Massachusetts Industrial Finance Authority, AGE Institute of Massachusetts, 8.05%, 11/ 2,471,775
1,000 Mississippi Business Finance Corp., Magnolia Health Care-95A, 7.99%, 7/1/25 973,540
2,175 Missouri Economic Development Authority, Beverly Enterprises, Inc., 8%, 12/1/02 2,257,324
1,250 Wilkins Area, Pennsylvania, IDA, Fairview Extended Care, 10.25%, 1/1/21 1,417,525
------------
$12,236,157
------------
Pooled Loans -- 1.6%
$2,000 Osceola County, Florida, IDA, Community Pooled Loan-93, 7.75%, 7/1/17 $2,011,240
------------
Solid Waste -- 4.6%
$10,090 Mercer County, New Jersey, Solid Waste Improvement Bonds (AMT), 0%, 4/1/15 $2,403,337
3,500 Robbins, Cook County, Illinois, Resource Recovery-94B (AMT), 9.25%, 10/15/14 3,412,500
------------
$5,815,837
------------
Transportation -- 3.9%
$1,500 Denver, Colorado, Special Facilities Airport Revenue Bonds, United Airlines
Project (AMT), 6.875%, 10/1/32 $1,526,460
500 Eagle County, Colorado, Airport Terminal Project, 7.5%, 5/1/21 511,750
10,000 San Joaquin Hills, California, Toll Roads, 0%, 1/1/25 1,500,600
10,000 San Joaquin Hills, California, Toll Roads, 0%, 1/1/26 1,403,600
------------
$4,942,410
------------
Total Tax-Exempt Investments (identified cost $127,211,380) $127,653,873
============
(1) The above designated securities have been issued as inverse floater bonds.
AMT -- Interest earned from these securities may be considered a tax preference item for purpose of the Federal
Alternative Minimum Tax.
At July 31, 1996, the concentration of the Portfolio's investments in various states
determined as a percentage of total investments is as follows:
Pennsylvania 14.40%
Others, representing less than 10% individually 85.60%
See notes to financial statements
</TABLE>
<TABLE>
<CAPTION>
High Yield Municipals Portfolio
Financial Statements
Statement of Assets and Liabilities
- ----------------------------------------------------------------------------------------------------------------------
July 31, 1996 (Unaudited)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets:
Investments, at value (Note 1A) (identified cost, $127,211,380) $127,653,873
Cash 60,280
Receivable for investments sold 985,227
Interest receivable 1,672,766
Deferred organization expenses (Note 1D) 9,990
------------
Total assets $130,382,136
Liabilities:
Demand note payable (Note 5) $3,308,000
Payable to affiliate --
Trustees' fees 564
Accrued expenses 7,535
------------
Total liabilities 3,316,099
------------
Net Assets applicable to investors' interest in Portfolio $127,066,037
============
Sources of Net Assets:
Net proceeds from capital contributions and withdrawals $126,623,544
Unrealized appreciation of investments (computed on the basis of identified cost) 442,493
------------
Total $127,066,037
============
See notes to financial statements
</TABLE>
<TABLE>
<CAPTION>
Statement of Operations
- ----------------------------------------------------------------------------------------------------------------------
For the Six Months Ended July 31, 1996 (Unaudited)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Investment Income:
Interest income $3,662,446
Expenses --
Investment adviser fee (Note 2) $304,120
Compensation of Trustees not members of the
Investment Adviser's organization (Note 2) 3,925
Custodian fee 13,760
Legal and accounting services 21,649
Amortization of organization expenses (Note 1D) 200
Miscellaneous 14,198
----------
Total expenses $357,852
----------
Deduct --
Preliminary reduction of investment advisor fee (Note 2) $302,904
Deduct reduction of custodian fee (Note 1H) 10,948
----------
Total $313,852
----------
Net expenses 44,000
----------
Net investment income $3,618,446
Realized and Unrealized Loss on Investments:
Net realized loss on investments (identified cost basis) ($405,635)
Change in unrealized appreciation (depreciation) of investments (1,209,116)
----------
Net realized and unrealized loss on investments (1,614,751)
----------
Net increase in net assets resulting from operations $2,003,695
==========
See notes to financial statements
</TABLE>
<TABLE>
<CAPTION>
Statements of Changes in Net Assets
- ----------------------------------------------------------------------------------------------------------------------
Six Months Year
Ended Ended
July 31, 1996 January 31,
(Unaudited) 1996*
-------------- --------------
<S> <C> <C>
Increase (Decrease) in Net Assets:
From operations --
Net investment income $3,618,446 $1,186,284
Net realized gain (loss) on investments (405,635) 9,767
Change in unrealized appreciation (depreciation) of investments (1,209,116) 1,651,609
------------ -----------
Net increase in net assets resulting from operations $2,003,695 $2,847,660
------------ -----------
Capital transactions --
Contributions $61,611,160 $71,481,492
Withdrawals (8,626,285) (2,351,685)
------------ -----------
Increase in net assets resulting from capital transactions $52,984,875 $69,129,807
------------ -----------
Total increase in net assets $54,988,570 $71,977,467
Net Assets:
At beginning of period 72,077,467 100,000
------------ -----------
At end of period $127,066,037 $72,077,467
============ ===========
* For the period from the start of business, August 7, 1995, to January 31, 1996.
- ----------------------------------------------------------------------------------------------------------------------
Supplementary Data
- ----------------------------------------------------------------------------------------------------------------------
Six Months Year
Ended Ended
July 31, 1996 January 31,
(Unaudited) 1996*
-------------- --------------
Ratios (as a percentage of average daily net assets)**:
Expenses 0.11%+ 0.06%+
Expenses after custodian fee reduction 0.09%+ 0.06%+
Net investment income 7.18%+ 6.95%+
Portfolio Turnover 26% 32%
** The operating expenses of the Portfolio reflect a reduction of the investment adviser fee. Had such action
not been taken, the ratios would have been as follows:
Ratios (as a percentage of average daily net assets):
Expenses 0.71%+ 0.71%+
Expenses after custodian fee reduction 0.69%+ 0.71%+
Net investment income 6.57%+ 6.30%+
+ Annualized.
* For the period from the start of business, August 7, 1995, to January 31, 1996.
See notes to financial statements
</TABLE>
Notes to Financial Statements
(Unaudited)
(1) Significant Accounting Policies
High Yield Municipals Portfolio (the Portfolio) is registered under the
Investment Company Act of 1940 as a non-diversified open-end management
investment company. The Portfolio, which was organized as a trust under
the laws of the State of New York on May 1, 1995, seeks to provide high
current income exempt from regular federal income tax. The Declaration
of Trust permits the Trustees to issue interests in the Portfolio. The
following is a summary of significant accounting policies of the
Portfolio. 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 Portfolio is treated as a partnership for Federal
tax purposes. No provision is made by the Portfolio for federal or state
taxes on any taxable income of the Portfolio because each investor in
the Portfolio is ultimately responsible for the payment of any taxes.
Since some of the Portfolio's investors are regulated investment
companies that invest all or substantially all of their assets in the
Portfolio, the Portfolio normally must satisfy the applicable source of
income and diversification requirements (under the Internal Revenue
Code) in order for its investors to satisfy them. The Portfolio will
allocate at least annually among its investors each investor's
distributive share of the Portfolio's net taxable (if any) and tax-
exempt investment income, net realized capital gains, and any other
items of income, gain, loss, deduction or credit. Interest income
received by the Portfolio 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 the 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 the 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, the 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 the 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 the Portfolio. The Portfolio's
investment in financial futures contracts is designed only to hedge
against anticipated future changes in interest rates. Should interest
rates move unexpectedly, the Portfolio may not achieve the anticipated
benefits of the financial futures contracts and may realize a loss.
F.Legal Fees -- Legal fees and other related expenses incurred as part
of negotiations of the terms and requirements of capital infusions, or
that are expected to result in the restructuring of or a plan of
reorganization for an investment are recorded as realized losses.
Ongoing expenditures to protect or enhance an investment are treated as
operating expenses.
G.When-issued and Delayed Delivery Transactions -- The Portfolio may
engage in when-issued and delayed delivery transactions. The Portfolio
records when-issued securities on trade date and maintains security
positions such that sufficient liquid assets will be available to make
payments for the securities purchased. Securities purchased on a when-
issued or delayed delivery basis are marked to market daily and begin
accruing interest on settlement date.
H.Expense Reduction -- Investors Bank & Trust Company (IBT) serves as
custodian of the Portfolio. Pursuant to the custodian agreement, IBT
receives a fee reduced by credits which are determined based on the
average daily cash balance the Portfolio maintains with IBT. All
significant credit balances used to reduce the Portfolio's custodian
fees are reported as a reduction of expenses in the statment of
operations.
I.Use of Estimates -- The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expense during the
reporting period. Actual results could differ from those estimates.
J.Other -- Investment transactions are accounted for on a trade date
basis.
K.Interim Financial Information -- The interim financial statements
relating to July 31, 1996 and for the six months then ended have not
been audited by independent certified public accountants, but in the
opinion of the Portfolio's management, reflect all adjustments,
consisting only of normal recurring adjustments, necessary for the fair
presentation of the financial statements.
(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
the 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 months ended July 31, 1996,
the fee was equivalent to 0.60% (annualized) of the Portfolio's average
net assets for such period and amounted to $304,120. To enhance the net
income of the Portfolio, BMR made a preliminary reduction of its fee in
the amount of $302,904. Except as to Trustees of the Portfolio who are
not members of EVM's or BMR's organization, officers and Trustees
receive remuneration for their services to the Portfolio out of such
investment adviser fee. Certain of the officers and Trustees of the
Portfolio are officers and directors/trustees of the above
organizations.
Trustees of the Portfolio 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, 1996, no
significant amounts have been deferred.
(3)Investments
Purchases and sales of investments, other than U.S. Government
securities and short term obligations, aggregated $83,108,151 and
$25,803,085, respectively.
(4)Federal Income Tax Basis of Investments
The cost and unrealized appreciation/depreciation in value of the
investments owned at July 31, 1996, as computed on a federal income tax
basis, were as follows:
Aggregate cost $127,211,380
============
Gross unrealized appreciation $1,797,573
Gross unrealized depreciation 1,355,080
------------
Net unrealized appreciation $ 442,493
============
(5)Line of Credit
The Portfolio participates 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. Borrowings will be made by
the Portfolio solely to facilitate the handling of unusual and/or
unanticipated short-term cash requirements. 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
portfolios and funds at the end of each quarter. The Portfolio did not
have any significant borrowing or allocated fees during the six months
ended July 31, 1996. At July 31, 1996, the Portfolio had a loan balance
outstanding pursuant to this line of credit of $3,308,000.
(6)Financial Instruments
The Portfolio regularly trades in financial instruments with off-balance
sheet risk in the normal course of its 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 the 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. The Portfolio did not have any open
obligations under these financial instruments at July 31, 1996.
Investment Management
EV Marathon
High Yield
Municipals Fund
24 Federal Street
Boston, MA 02110
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, Newspapers 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
High Yield
Municipals
Portfolio
24 Federal Street
Boston, MA 02110
Officers
Thomas J. Fetter
President
James B. Hawkes
Vice President, Trustee
Thomas M. Metzold
Vice President
and Portfolio Manager
James L. O'Connor
Treasurer
Thomas Otis
Secretary
Independent Trustees
Donald R. Dwight
President, Dwight Partners, Inc.
Chairman, Newspapers 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
[THIS PAGE INTENTIONALLY LEFT BLANK]
Investment Adviser of
High Yield Municipals Portfolio
Boston Management and Research
24 Federal Street
Boston, MA 02110
Administrator of
EV Marathon High Yield
Municipals Fund
Eaton Vance Management
24 Federal Street
Boston, MA 02110
Principal Underwriter
Eaton Vance Distributors, Inc.
24 Federal Street
Boston, MA 02110
(617) 482-8260
Custodian
Investors Bank & Trust Company
89 South Street
P.O. Box 1537
Boston, MA 02205-1537
Transfer Agent
First Data Investors Services Group
Attn: Eaton Vance Funds
P.O. Box 5123
Westborough, MA 01581-5123
(800) 262-1122
This report must be preceded or accompanied by a current prospectus
which contains more complete information on the Fund, including its
distribution plan, sales charges and expenses. Please read the prospectus
carefully before you invest or send money.
EV Marathon
High Yield Municipals Fund
24 Federal Street
Boston, MA 02110 M-HYSRC-9/96
