EV Traditional
High Yield
Municipals
Fund
[LOGO]
Annual
Shareholder Report
January 31, 1996
To Shareholders:
EV Traditional High Yield Municipals Fund paid to its shareholders
monthly income dividends totaling $0.340 per share during the period
since the Fund's inception on August 7, 1995 until January 31, 1996.
Based on the most recent dividend paid and the Fund's net asset value
per share of $10.70 on January 31, 1996, the Fund's annualized
distribution rate at net asset value was 6.68%. To equal this rate in a
taxable investment, a couple in the 36% Federal tax bracket would have
to receive 10.42%+.
The municipal bond market rallied strongly throughout 1995, gaining back
most of the losses of the previous year. Twice during the year, the
Federal Reserve lowered short-term interest rates, further buoying the
market. Realistically, it may be difficult for the market to match last
year's gains. Still, there are many reasons to be optimistic about the
municipal bond market in 1996 and to believe that an investment in
municipal bonds represents good value and should be a part of a wise
investor's fixed-income portfolio.
The U.S. economy continues in its favorable pattern of slow growth and
low inflation, an especially good sign for the municipal bond market.
Another plus is that if the Fed makes further moves in 1996, it is more
likely to lower rates than raise them.
During 1995 the municipal market underperformed the taxable market
because of concern about the possible passage of major tax reform
legislation. We at Eaton Vance continue to believe there is little
chance that significant reform, in the form of a flat tax, consumption
tax or value-added tax, will be enacted during the year. Flat tax and
other reforms will be debated, but they are so controversial and
sweeping that we believe the process needed to secure agreement and
subsequent passage of a plan is years away.
Portfolio Overview
[GRAPHIC OF THE CONTINENTAL UNITED STATES OMMITTED]
Based on market value as of Jan. 31, 1996
Number of issues 45
Average quality BBB-
Investment grade 36.9%
Effective
maturity (years) 15.5
Largest sectors:
Hospitals 22.3%
Industrial development revenue 18.5
Cogeneration 14.9
Nursing homes 11.8
Transportation 7.7
There is no doubt that the Presidential campaigns will focus attention
on proposals to balance the budget and to reduce the nation's structural
deficit by cutting expenses. Any positive results are likely to provide
additional momentum to the bond market.
As always, achieving investment rewards depends on an investor's
willingness to adopt a long-term investment horizon. That's why we at
Eaton Vance believe patience is a key to successful investing.
Naturally, there is no guarantee that the patterns of past periods will
be repeated. However, with increasing numbers of taxpayers seeking tax
relief and fewer municipal bonds available, the value of outstanding
bonds may well increase.
[PHOTOGRAPH OF THOMAS J. FETTER OMMITTED]
Sincerely,
/S/ Thomas J. Fetter
Thomas J. Fetter
President
March 19, 1996
+ The Fund's income could be subject to state, local and/or Federal
alternative minimum tax.
Management Report
An interview with Thomas M. Metzold, manager of the High Yield
Municipals Portfolio.
Q. Tom, could you describe the investment climate during the period
since the Fund was created until January 31, 1996?
A. This was a very positive period for municipal bond investing,
although the gains in the municipal bond market have in large part been
overshadowed by those in the stock market. The economy continued to
demonstrate slow growth with low inflation. The Federal Reserve helped
the economic and financial climates with two decreases in the Federal
Funds rate.
In this favorable economic environment, some companies have demonstrated
strong profitability and cash flow. Investments made in those companies,
of course, are likely to be worth more now than previously.
Q. What kinds of businesses have benefited from these economic
conditions?
A. Two types that come to mind immediately are airlines and paper
manufacturers. The Portfolio is investing in these companies by, for
example, purchasing bonds issued by a governmental agency that was the
financing authority for a paper company's expansion or its pollution
control project. Or we might buy bonds issued by a government agency
that were issued to finance an airport facility expansion for an
airline.
These bonds are issued by a governmental agency because there is some
public purpose for the project -- improving transportation facilities,
increasing employment or reducing pollution, to cite just a few
possibilities.
Companies in these industries have demonstrated solid profitability in
recent months. And in both cases, the Portfolio benefits from a rise in
the company's fortunes. Profits increase, which causes the relative
value of the company itself to rise. At the same time, the relative
value of the company's debt itself has risen because the company has
demonstrated an enhanced ability to pay its debts.
[PHOTO OF THOMAS M. METZOLD OMMITTED]
Q. But what happens if the economy slows? Couldn't some of those
companies experience economic difficulties?
A. Yes. A significant economic slowdown could have a negative effect on
the industrial sector, and the value of such bonds might suffer. That's
why the proportion of the Portfolio devoted to these bonds is smaller
than the proportion that we've invested in what I call "recession-
resistant" sectors.
Q. What are those?
A. A recession-resistant sector is one that is not affected to a great
degree if there is an economic downturn. Two good examples are health
care and facilities for the elderly. If you break your leg, you're going
to need medical attention regardless of the state of the economy. And
that's why health care is affected less by a recession than are some
other sectors.
The group comprising people age 75 and up is the fastest-growing
population in the United States, and we think it's wise for the
Portfolio to take advantage of that growth by investing in facilities
designed to meet the needs of the elderly. Because these elderly people
will need some level of these services, regardless of the state of the
economy, we believe this sector also is recession-resistant.
"A recession-resistant sector is one that is not affected to a great
degree if there is an economic downturn ."
When we invest in one of these facilities, we're really making an
investment in a four-pronged approach to providing services for elderly
people. There is first a housing component, along with a medical care
component.Third, there often is a form of insurance involved, because
many of these facilities agree to provide health care for the rest of
the patient's life. Fourth, there's a service component, because many of
these facilities provide meals as well as other amenities and services.
In short, we're always looking for investments that are performing well
or will perform well because of economic or demographic trends.
Q. Are there other examples in which you've capitalized on one of these
trends?
A. Yes. Some of our bonds represent investments in resource recovery or
cogeneration facilities that are economically feasible and socially
responsible. For instance, we might invest in a solid waste mass-burn
facility that saves landfill space, increases recycling and generates
electricity.
Q. Can you talk about a specific example of one of these projects?
A. One in which we've invested is the Northampton Generating Company
Project in Northampton, PA, just north of Allentown. It burns waste
anthracite coal, a byproduct of coal mining that has accumulated in huge
piles over the last 100 years all over Eastern Pennsylvania. Using
state-of-the-art anti-pollution equipment, the project burns the coal to
produce electricity that's sold to the local utility, as well as steam
that will be sold to a paper recycling mill now under construction.
[PHOTO OF NORTHAMPTON GENERATING COMPANY, NORTHAMPTON, PA WITH CAPTION
BELOW:]
Northampton Generating Company, Northampton, PA
This is a privately-developed project, financed with tax-exempt bonds,
that generates cheap electricity and reduces the stockpile of waste
coal, reclaiming acres of land in the process. The consumers and the
environment win.
Q. How would you describe the process you use to select bonds?
A. We begin with a fundamental analysis of the project being considered
as an investment. We want to know that the project is demand-driven.
That is, there must be a demonstration of a basic need for the project.
Our Research Department then conducts site visits to add a further level
of scrutiny. We assess all the project participants, including the
companies that will manage the projects once they are completed. We also
apply strong security provisions and subject each potential investment
to legal review. We also hire independent consultants to monitor
construction and to assess technology used in the projects. Finally, any
investments must be approved by our credit committee before we proceed.
It's important to stress that this is a process that continues
throughout the time we hold a bond. We maintain surveillance over the
operations and financial status of the company or entity that is paying
the debt. This process is designed to alert us in advance to any
possible downgrade or deterioration in credit quality.
Q. How do you view the economic outlook for municipal bonds?
A. I believe people who are considering an investment in municipal bonds
have a tremendous opportunity, because a great deal of apathy has built
up among potential investors. This has happened for two reasons. First,
as I said earlier, investments in the municipal bond market have been
overshadowed by the returns achieved by stock investments.
Second, people are afraid of what might happen to municipal bond yields
if a flat tax proposal is approved. As Fund President Tom Fetter pointed
out in his letter earlier in this report, the chances of a flat tax
being approved are slim, and even if it should occur, it will not go
into effect for a number of years.
All these factors create a window of opportunity for the investor. If
you believe that tax reform will not occur, and/or that municipal bonds
will retain their status as the only tax-exempt security, then munis
represent an excellent value because tax reform is, in effect, already
partially priced into the market. Therefore, we believe munis are
undervalued and their potential for total return is
extremely positive.
[GRAPHIC OMMITTED: PERFORMANCE CHART. THE FOLLOWING INFORMATION DESCRIBES
THE CONTENTS OF THE PERFORMANCE CHART.]
Comparison of Change in Value of a $10,000 Investment in EV Traditional
High Yield Municipal Fund and the Lehman Brothers Municipal Bond Index
from August 31, 1995 through January 31, 1996
[GRAPHIC OMMITTED: BOX APPEARS ON WORM CHART]
CUMULATIVE TOTAL RETURN Life of Fund*
With max. sales charge 6.4%
Without max. sales charge 10.5%
Label Date Trad. HY NAV Trad. High Yield Lehman Bond 8/96
1 8/95+ $10,000 $9,622 $10,000
2 9/95 $10,229 $9,842 $10,063
3 10/95 $10,420 $10,026 $10,209
4 11/95 $10,680 $10,277 $10,379
5 12/95 $10,824 $10,414 $10,479
6 1/96 $10,854 $10,444 $10,558
Past performance is not indicative of future results. Investment returns
and principal will fluctuate so that an investor's shares, when
redeemed, may be worth more or less than their original cost. Source:
Towers Data Systems, Bethesda, MD.
* Investment operations commenced on 8/7/95.
+ Index information is available only at month-end; therefore, the line
comparison begins at the next month-end following the commencement of
the Fund's investment operations.
Fund Performance
In accordance with guidelines issued by the Securities and Exchange
Commission, the performance chart above compares your Fund's total
return with that of a broad-based securities market index. The lines on
the chart represent the total returns of $10,000 hypothetical
investments in the Fund and the unmanaged Lehman Brothers Municipal Bond
Index.
Federal income tax
information on distributions...
For Federal income tax purposes, 99.41% of the total dividends paid by
the Fund from net investment income during the period from the Fund's
inception August 7, 1995 until January 31, 1996 is designated as an
exempt-interest dividend. Tax legislation eliminated the exemption to
market discount rules applicable to tax-exempt obligations. As a result,
certain tax-exempt obligations acquired by the Portfolio subsequent to
April 30, 1993 at market discounts may generate a small amount of
ordinary taxable income.
Total Return Figures
The solid colored line on the chart represents the Fund's performance at
net asset value. The Fund's total return figure reflects fund expenses
and portfolio transaction costs, and assumes the reinvestment of income
dividends and capital gains distributions.
The black line represents the Fund's performance adjusted for the
maximum initial 3.75% sales charge. It reflects Fund expenses and
Portfolio transaction costs and assumes the reinvestment of all
dividends and capital gain distributions.
The dashed line represents the performance of the Lehman Brothers
Municipal Bond Index, a broad-based, widely recognized unmanaged index
of municipal bonds. The Index's total return does not reflect any
commissions or expenses that would be incurred if an investor
individually purchased or sold the securities represented in the Index.
<TABLE>
<CAPTION>
EV Traditional High Yield Municipals Fund
Financial Statements
Statement of Assets and Liabilities
- ----------------------------------------------------------------------------------------------------------------------------
January 31, 1996
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets:
Investment in High Yield Municipals Portfolio (Portfolio), at value (Note 1A) $29,890,310
(identified cost, $29,086,535)
Receivable for Fund shares sold 706,522
Receivable from Administrator (Note 4) 26,174
Deferred organization expenses (Note 1D) 46,005
-----------
Total assets $30,669,011
Liabilities:
Dividends payable $113,042
Payable to affiliate -
Trustees' fees 13
Accrued organization expense 8,225
Accrued expenses 13,117
--------
Total liabilities 134,397
-----------
Net Assets for 2,854,506 shares of beneficial interest outstanding $30,534,614
===========
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 $29,726,653
Accumulated net realized gain on investment transactions
(computed on the basis of identified cost) 4,443
Unrealized appreciation of investments (computed on the basis of identified cost) 803,775
Accumulated distributions in excess of net investment income (257)
-----------
Total $30,534,614
===========
Net Asset Value and Redemption Price Per Share
($30,534,614 (divided by) 2,854,506 shares of beneficial interest) $10.70
======
Computation of Offering Price:
Offering price per share (100(divided by)96.25) of $10.70 $11.12
======
On sales of $100,000 or more the offering price is reduced.
See notes to financial statements
</TABLE>
<TABLE>
<CAPTION>
Statement of Operations
- -------------------------------------------------------------------------------------------------------------------------
For the period from the start of business, August 7, 1995 to January 31, 1996
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Investment Income (Note 1B):
Interest income allocated from Portfolio $542,012
Expenses allocated from Portfolio (4,721)
----------
Total investment income $537,291
Expenses:
Compensation of Trustees not members of the
Administrator's organization (Note 4) $51
Custodian fee (Note 4) 526
Transfer and dividend disbursing agent fees 5,638
Printing and postage 1,751
Legal and accounting services 209
Registration fees 14,645
Amortization of organization expenses (Note 1D) 4,695
Miscellaneous 1,375
-------
Total expenses $28,890
Deduct -
Allocation of expenses to the Administrator (Note 4) 26,174
-------
Net expenses 2,716
----------
Net investment income $534,575
Realized and Unrealized Gain from Portfolio:
Net realized gain on investments (identified cost basis) $4,443
Unrealized appreciation of investments 803,775
-------
Net realized and unrealized gain on investments 808,218
----------
Net increase in net assets resulting from operations $1,342,793
==========
See notes to financial statements
</TABLE>
<TABLE>
<CAPTION>
Financial Statements (Continued)
Statement of Changes in Net Assets
- -----------------------------------------------------------------------------------------------
For the period from the start of business, August 7, 1995 to January 31, 1996
- -----------------------------------------------------------------------------------------------
<S> <C>
Increase (Decrease) in Net Assets:
From operations -
Net investment income $534,575
Net realized gain on investments 4,443
Unrealized appreciation of investments 803,775
-----------
Net increase in net assets resulting from operations $1,342,793
-----------
Distributions to shareholders-
From net investment income ($534,575)
In excess of net investment income (257)
-----------
Total distributions to shareholders ($534,832)
-----------
Transactions in shares of capital stock (Note 3) -
Proceeds from sale of shares $30,289,128
Net asset value of shares issued to shareholders 173,528
in payment of distributions declared
Cost of shares redeemed (736,003)
-----------
Net increase in net assets from Fund share transactions $29,726,653
-----------
Net increase in net assets $30,534,614
Net Assets:
At beginning of period --
-----------
At end of period (including accumulated distributions in $30,534,614
excess of net investment income of $257) ===========
See notes to financial statements
</TABLE>
<TABLE>
<CAPTION>
Financial Highlights
- ------------------------------------------------------------------------------
For the period from the start of business, August 7, 1995 to January 31, 1996
- ------------------------------------------------------------------------------
<S> <C>
Net asset value - Beginning of period $10.000
-------
Income from operations:
Net investment income $0.340
Net realized and unrealized gain on investments 0.700
-------
Total income from operations $1.040
-------
Less distributions:
From net investment income ($0.340)
Net asset value - End of period $10.700
=======
Total Return (2) 10.50%
Ratios/Supplemental Data*
Net assets, end of period (000's omitted) $30,535
Ratio of net expenses to average net assets (1) 0.09%+
Ratio of net investment income to average net assets 6.60%+
* 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 $0.291
======
Ratios/Supplemental Data:
Expenses (1) 1.04%+
Net investment income 5.65%+
+ Computed on an annualized basis.
(1) Includes the Fund's share of High Yield Municpals 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
(1) Significant Accounting Policies
EV Traditional High Yield Municipals Fund (the Fund) is a non-
diversified series of Eaton Vance Municipal 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 the 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 (41.5% at January 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 Valuation -- 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 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 the 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. 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.
F. Other -- Investment transactions are accounted for on a trade date
basis.
(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 temporary 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.
(3) Share 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 for the period from the start of
business, August 7, 1995, to January 31, 1996, were as follows:
Sales 2,907,342
Issued to shareholders electing to receive
payments of distributions in Fund shares 16,353
Redemptions (69,189)
---------
Net increase 2,854,506
=========
(4) 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 $26,174 of expenses related to the operation of
the Fund were allocated 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. Eaton Vance Distributors, Inc.
(EVD), a subsidiary of EVM and the Fund's principal underwriter did not
receive any portion of the sales charge on sales of Fund shares for the
period ended January 31, 1996. EVD also receives a contingent deferred
sales charge (CDSC) on shareholder redemptions made within one year of
purchase, where initial investment in the Fund was $1 million or more.
EVD received no CDSC during the period. Investors Bank & Trust Company
(IBT) serves as custodian to the Fund and the Portfolio. Prior to
November 10, 1995, IBT was an affiliate of EVM. Pursuant to the
respective custodian agreements, IBT receives a fee reduced by credits
which are determined based on the average cash balances the Fund or the
Portfolio maintains with IBT. No significant credit balances were used
to reduce the Fund's custody fees. Certain of the officers and Trustees
of the Fund and the Portfolio are officers and/or directors/trustees of
the above organizations (Note 5).
(5) Service Plan
The Fund has adopted a Service Plan designed to meet the service fee
requirements of the sales charge rule of The National Association of
Securities Dealers, Inc. The Service Plan provides that the Fund may
make service fee payments to the Principal Underwriter, Eaton Vance
Distributors, Inc. (EVD), a subsidiary of Eaton Vance Management,
Authorized Firms or other persons in amounts not exceeding 0.25% of the
Fund's average daily net assets for any fiscal year. The Trustees have
initially implemented the Plan by authorizing the Fund to make quarterly
service fee payments to the Principal Underwriter and Authorized Firms
in amounts not exceeding 0.25% of the Fund's average daily net assets
for any fiscal year which is attributable to shares of the Fund 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. The Fund expects to begin accruing for its
service fee payments during the quarter ending September 30, 1996.
Certain of the officers and Trustees of the Fund are officers and
directors of EVD.
(6) Investment Transactions
Increases and decreases in the Fund's investment in the Portfolio for
the period from the start of business, August 7, 1995, to January 31,
1996 aggregated $29,594,449 to $1,049,648, respectively.
Independent Auditors' Report
To the Trustees and Investors of
Eaton Vance Municipal Trust II:
We have audited the accompanying statement of assets and liabilities of
EV Traditional High Yield Municipals Fund (one of the series of Eaton
Vance Municipals Trust II) as of January 31, 1996, and the related
statements of operations and changes in net assets and the financial
highlights for the period from the start of business, August 7, 1995,
to January 31, 1996. These financial statements and financial highlights
are the responsibility of the Trust's management. Our responsibility is
to express an opinion on these financial statements and financial
highlights based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for
our opinion.
In our opinion, such financial statements and financial highlights
present fairly, in all material respects, the financial position of the
EV Traditional High Yield Municipals Fund series of Eaton Vance
Municipals Trust II at January 31, 1996, and the results of its
operations, the changes in its net assets, and its financial highlights
for the period from the start of business, August 7, 1995, to January
31, 1996, in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
March 1, 1996
<TABLE>
<CAPTION>
High Yield Municipals Portfolio
Portfolio of Investments
January 31, 1996
- -----------------------------------------------------------------------------------------------------------------
Tax-Exempt Investments -- 100%
- -----------------------------------------------------------------------------------------------------------------
Principal
Amount
(000
Omitted) Security Value
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Transportation- 7.7%
$1,500 Denver, Colorado, Special Facilities Airport Revenue Bonds, United Airlines
Project (AMT), 6.875%, 10/1/32 $1,551,645
1,500 Kenton County, Kentucky, Special Facilities Revenue Bonds, Delta Airlines, Inc.
Project (AMT), 6.125%, 2/1/22 1,477,935
1,000 Missouri Bridge System, Lake of the Ozarks Bridge Corp., 6.4%, 12/1/25 (2) 991,990
1,500 Tulsa, Oklahoma, Municipal Airport, American Airlines, 6.25%, 6/1/20 1,514,520
-----------
$5,536,090
-----------
Assisted Living- 7.0%
$2,500 Arizona Health Facilities Authority, Care Institute-Mesa Project, 7.625%, 1/1/26 $2,360,075
1,000 Chester County, Pennsylvania, Industrial Development Authority, Senior
LifeChoice of Kimberton (AMT), 8.5%, 9/1/25 1,019,220
1,600 Delaware County, Pennsylvania, Industrial Development Authority, Senior
Quarters at Glen Riddle Project (AMT), 8.625%, 9/1/25 1,646,224
-----------
$5,025,519
-----------
Cogeneration Facilities- 14.9%
$2,500 Maryland Energy Cogeneration, AES Warrior Run Project (AMT), 7.4%, 9/1/19 $2,637,100
2,000 Palm Beach County, Florida, Osceola Power Project (AMT), 6.95%, 1/1/22 2,077,280
4,950 Pennsylvania Economic Development Financing Authority, Northhampton
Generating Project (AMT), 6.6%, 1/1/19 4,953,218
1,000 Pennsylvania Economic Development Finance Authority, Northhampton
Generating Project-Subordinated (AMT), 6.875%, 1/1/11 995,770
-----------
$10,663,368
-----------
Escrowed- 4.4%
$1,400 Colorado Health Facilities Authority, Liberty Heights Project, 0%, 7/15/20 $303,520
2,995 Colorado Health Facilities Authority, Liberty Heights Project, 0%, 7/15/22 573,003
10,000 Dawson Ridge Metropolitan District #1, Douglas County, Colorado, 0%, 10/1/22 1,808,200
3,295 Illinois Development Finance Authority, Regency Park Project, 0%, 7/15/25 515,206
-----------
$3,199,929
-----------
Hospitals- 22.3%
$1,750 LaFourche Parish, Louisiana, Hospital Service District #3, 6%, 10/1/23 $1,688,120
3,000 Lufkin, Texas, Memorial Health System, 6.875%, 2/15/26 2,967,960
1,000 Michigan Housing Finance Authority, Presbyterian Village, 6.5%, 1/1/25 989,630
275 Missouri Health and Education, Jefferson Memorial Hospital, 6%, 8/15/23 254,504
1,000 Montgomery County, Pennsylvania, United Hospitals, 8.375%, 11/1/11 1,066,080
1,000 Montgomery County, Pennsylvania, United Hospitals, 7.5%, 11/1/15 1,019,370
2,500 Philadelphia, Pennsylvania, Temple Hospital-93A, 6.625%, 11/15/23 2,623,450
2,350 Prince George's, Maryland, Greater Southeast Health, 6.375%, 1/1/23 2,235,555
1,500 Scranton-Lackawanna, Pennsylvania, Moses Taylor Hospital, 8.5%, 7/1/20 1,638,255
1,500 Vermont Health & Education, Northwest Medical Center Project, 6.25%, 9/1/18 1,478,490
-----------
$15,961,414
-----------
Industrial Development Revenue Bonds - 18.5%
$2,500 East Chicago, Indiana, PCR, Inland Steel, 6.8%, 6/1/13 $2,588,325
2,500 Kansas City, Missouri, IDA, AFCO Cargo MCI (AMT), 8.5%, 1/1/17 2,532,225
1,000 Michigan Strategic, PCR, Roseville K-Mart Co., 6.25%,10/1/06 858,190
1,000 Michigan Strategic, PCR, S.D. Warren Series 87C (AMT), 7.375%, 1/15/22 1,048,950
1,000 Mobile, Alabama, IDA, Mobile Energy Project, 6.95%, 1/1/20 1,064,440
1,135 New Albany, Indiana, IDA, K-Mart Co., 7.4%, 6/1/06 1,049,773
500 New Jersey EDA, 777 Pattison Ave., Inc. (AMT), 8.95%, 12/15/18 530,405
2,000 Oregon State EDA, Georgia Pacific Corp. (AMT), 6.35%, 8/1/25 2,010,240
500 Philadelphia, Pennsylvania, IDA, Refrigerated Enterprises (AMT), 9.05%, 12/1/19 533,745
1,000 Polk County, Florida, IDA, IMC Fertilizer (AMT), 7.525%, 1/1/15 1,060,880
-----------
$13,277,173
-----------
Insured General Obligation - 0.8%
$600 California State, General Obligation (FGIC), 4.75%, 9/1/23 $548,772
-----------
Lease/Certificate of Participation - 2.7%
$9,190 Los Angeles, California, COPs, Disney Parking Project, 0%, 9/1/19 $1,916,023
-----------
Multi-Purpose Utilities- 2.9%
$2,000 Southern California Public Power Authority, Residual Interest Bonds,
Variable Rate, 7/1/12 (1) $2,110,000
-----------
Nursing Homes- 11.8%
$1,250 Greene County, Ohio, Fairview Extended Care-91, 10.125%, 1/1/11 $1,420,525
1,850 Massachusetts Health & Education Finance Authority, Fairview Extended Care,
10.125%,1/1/11 2,109,315
2,500 Massachusetts Industrial Finance Authority, AGE Institute of Massachusetts,
8.05%, 11/1/25 2,523,825
1,000 Mississippi Business Finance Corp.,Magnolia Health Care 95A, 7.99%, 7/1/25 989,820
1,250 Wilkins Area, Pennsylvania, Industrial Development Authority, Fairview Extended
Care, 10.25%, 1/1/21 1,435,900
-----------
$8,479,385
-----------
Solid Waste- 7.0%
$10,090 Mercer County, New Jersey, Solid Waste Improvement Bonds (AMT), 0%, 4/1/15 $2,536,222
2,500 Robbins, Cook County, Illinois, Resource Recovery 94B, 9.25%, 10/15/14 2,453,700
-----------
$4,989,922
-----------
Total Tax-Exempt Investments (identified cost $70,055,986) $71,707,595
===========
(1) The above designated security has been issued as an inverse floater bond.
(2) When-issued security.
See notes to financial statements
</TABLE>
<TABLE>
<CAPTION>
High Yield Municipals Portfolio
Financial Statements
Statement of Assets and Liabilities
- -------------------------------------------------------------------------------------------------
January 31, 1996
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets:
Investments, at value (Note 1A) $71,707,595
(identified cost, $70,055,986)
Cash 471,713
Interest receivable 863,416
Receivable from Investment Adviser (Note 2) 10,465
Deferred organization expenses (Note 1D) 20,008
-----------
Total assets $73,073,197
Liabilities:
Payable for when-issued security (Note 1G) $980,340
Payable to affiliate --
Trustees' fees 13
Accrued expenses 15,377
--------
Total liabilities 995,730
-----------
Net Assets applicable to investors' interest in Portfolio $72,077,467
===========
Sources of Net Assets:
Net proceeds from capital contributions and withdrawals $70,425,858
Unrealized appreciation of investments (computed on 1,651,609
the basis of identified cost) -----------
Total $72,077,467
===========
See notes to financial statements
</TABLE>
<TABLE>
<CAPTION>
Statement of Operations
- --------------------------------------------------------------------------------------
For the period from the start of business, August 7, 1995 to January 31, 1996
- --------------------------------------------------------------------------------------
<S> <C> <C>
Investment Income (Note 1B):
Interest Income $1,196,627
Expenses --
Investment adviser fee (Note 2) $100,763
Compensation of Trustees not members of the
Investment Adviser's organization (Note 2) 51
Custodian fee (Note 2) 623
Interest expense (Note 5) 15,725
Legal and accounting services 1,460
Amortization of organization expenses (Note 1D) 2,042
Miscellaneous 907
---------
Total expenses $121,571
Deduct -
Reduction of investment adviser fee (Note 2) $100,763
Allocation of expenses to adviser (Note 2) 10,465
---------
Total $111,228
---------
Net expenses 10,343
----------
Net investment income $1,186,284
Realized and Unrealized Gain on Investments:
Net realized gain on investments (identified cost basis) $9,767
Unrealized appreciation of investments 1,651,609
---------
Net realized and unrealized gain on investments 1,661,376
----------
Net increase in net assets resulting from operations $2,847,660
==========
See notes to financial statements
</TABLE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
- -------------------------------------------------------------------------------------------------
For the period from the start of business, August 7, 1995 to January 31, 1996
- -------------------------------------------------------------------------------------------------
<S> <C>
Increase (Decrease) in Net Assets:
From operations --
Net investment income $1,186,284
Net realized gain on investments 9,767
Unrealized appreciation of investments 1,651,609
-----------
Net increase in net assets resulting from operations $2,847,660
-----------
Capital transactions --
Contributions $71,481,492
Withdrawals (2,351,685)
-----------
Increase in net assets resulting from capital transactions $69,129,807
-----------
Total increase in net $71,977,467
Net Assets:
At beginning of period 100,000
-----------
At end of period $72,077,467
===========
</TABLE>
<TABLE>
<CAPTION>
Supplementary Data
- -----------------------------------------------------------------------------------
For the period from the start of business, August 7, 1995 to January 31, 1996
- -----------------------------------------------------------------------------------
<S> <C>
Ratios (as a percentage of net assets)*:
Expenses 0.06%+
Net investment income 6.95%+
Portfolio Turnover 32%
* The operating expenses of the Portfolio reflect a reduction of the investment
adviser fee and an allocation of expenses to the Investment Adviser. Had such
actions not been taken, the ratios would have been as follows:
Ratios (as a percentage of net assets):
Expenses 0.71%+
Net investment income 6.30%+
+ Annualized.
See notes to financial statements
</TABLE>
Notes to Financial Statements
(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 investors'
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. 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.
I. Other -- Investment transactions are accounted for on a trade date
basis.
(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 period from the start of business,
August 7, 1995, to January 31, 1996, the fee was equivalent to 0.59%
(annualized) of the Portfolio's average net assets for such period and
amounted to $100,763. To enhance the net income of the Portfolio, BMR
made a reduction of its fee in the amount of $100,763 and $10,465 of
expenses related to the operation of the Portfolio were allocated to
BMR. 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.
Investors Bank and Trust Company (IBT) serves as custodian of the
Portfolio. Prior to November 10, 1995, IBT was an affiliate of EVM and
BMR. Pursuant to the custodian agreement, IBT receives a fee reduced by
credits which are determined based on the average daily cash balances
the Portfolio maintains with IBT. No significant credit balances were
used to reduce the fund's custody fees. 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 period ended January 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 $82,921,735 and
$12,950,298, respectively.
(4) Federal Income Tax Basis of Investments
The cost and unrealized appreciation/depreciation in value of the
investments owned at January 31, 1996, as computed on a federal income
tax basis, were as follows:
Aggregate cost $70,055,986
===========
Gross unrealized appreciation $ 1,979,931
Gross unrealized depreciation 328,322
-----------
Net unrealized appreciation $ 1,651,609
===========
(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 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. For the period ended January 31,
1996, the average daily loan balance was $1,395,000 and the average
daily interest rate was 7.165%. The maximum borrowings during the period
ended January 31, 1996 was $4,493,000.
(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 January 31, 1996.
Independent Auditors' Report
To the Trustees and Investors of
High Yield Municipals Portfolio:
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of High Yield Municipals
Portfolio as of January 31, 1996, and the related statements of
operations, changes in net assets and the supplementary data for the
period from the start of business, August 7, 1995, to January 31, 1996.
These financial statements and supplementary data are the responsibility
of the Trust's management. Our responsibility is to express an opinion
on these financial statements and supplementary data based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
and supplementary data are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included
confirmation of securities owned at January 31, 1996 by correspondence
with the custodian and brokers; where replies were not received from
brokers, we performed other auditing procedures. An audit also includes
assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for
our opinion.
In our opinion, such financial statements and supplementary data present
fairly, in all material respects, the financial position of High Yield
Municipals Portfolio at January 31, 1996, and the results of its
operations, the changes in its net assets, and its supplementary data
for the period from the start of business, August 7, 1995, to January
31, 1996 in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
March 1, 1996
Investment Management
EV Traditional
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
Investment Adviser of
High Yield Municipals Portfolio
Boston Management and Research
24 Federal Street
Boston, MA 02110
Administrator of
EV Traditional 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 Investor Services Group, Inc.
BOS725
P.O. Box 1559
Boston, MA 02104
(800) 262-1122
Independent Auditors
Deloitte & Touche LLP
125 Summer Street
Boston, MA 02110
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 Traditional
High Yield Municipals Fund
24 Federal Street
Boston, MA 02110 T-HYSRC-3/96
