Eaton Vance Municipals Trust II
For the Funds:
(bullet) EV Traditional Florida Insured Municipals Fund
(bullet) EV Traditional Hawaii Municipals Fund
(bullet) EV Traditional Kansas Municipals Fund
[LOGO]
Semi-Annual Shareholder Report
July 31, 1996
Table of Contents
Item Page
Six month results and current distribution rates 2
President's letter to shareholders 3
Management Reports:
EV Marathon Florida Insured Municipals Fund 4
EV Marathon Hawaii Municipals Fund 5
EV Marathon Kansas Municipals Fund 6
Financial Results 7
<TABLE>
<CAPTION>
Information about your mutual fund investment:
Results for the six months Dividends If your The after-tax
ending July 31, 1996 paid Fund's combined equivalent
Total return by Fund NAV distribution Federal & distribution
(excl. sales (during per share rate state tax rate you would
charge)* period) at 7/31/96 at 7/31/96 rate is... need is...
<S> <C> <C> <C> <C> <C> <C>
EV Traditional Florida Insured
Municipals Fund -1.2% $0.288 $10.79 5.28% 38.76% 8.56%
EV Traditional Hawaii
Municipals Fund -0.5% $0.261 $9.45 5.32% 42.40% 9.16%
EV Traditional Kansas
Municipals Fund -0.2% $0.274 $9.97 5.30% 42.05% 9.11%
*Total return figures represent the percent change in net asset value with all distributions reinvested, and do not include
applicable sales charges, and distribution and/or service fees.
[GRAPHICS OMITTED IN COL 5 OF FLORIDA, HAWAII, & KANSAS]
</TABLE>
To Shareholders
Following an upbeat year in 1995, the bond market encountered difficulty
in the first half of 1996, as the investment climate changed
dramatically.
The year started favorably enough, with the Federal Reserve lowering the
Federal Funds Rate - the rate banks charge each other for overnight
loans and a key short-term interest rate barometer - to 5.25%.
Investors' optimism was short-lived, however, as Fed Chairman Alan
Greenspan suggested in his spring Congressional testimony that, in light
of current economic growth, the next move in rates would likely be
higher. Subsequent employment data showed that job creation was
exceeding market estimates, and that the labor market was indeed
tightening.
While job growth has cooled in recent months from the blistering pace
set early in the year, 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% rate in the second quarter - a relatively strong
showing - but one not likely to be sustained over the balance of the
year. Interestingly, recent indicators, including the Federal Reserve's
"beige book," an anecdotal regional economic survey, suggest a possible
slowdown in the second half of the year. Most importantly, by most
measures, inflation remains well under control.
Second, whatever the outcome of the various tax cut proposals that have
marked the campaigns of both major political parties, it is certain that
the tax structure will remain sharply progressive. That means that
municipal bonds will retain their relative value.
[GRAPHIC OMITTED: Tax exempt bonds yield 85% of Treasury yields chart]
30-yr. AAA General Obligation (GO) Bonds* 5.89%
Taxable equivalent yield of investment for
couple in 36% tax bracket 9.20%
30-year Treasury Bonds 6.94%
Principal and interest payments of Treasury securities are
guaranteed by the U.S. government.
*GO yield is a compilation of a representative variety of general
obligation bonds and is not necessarily represented by the Fund's
yield. Statistics as of July 31, 1996.
Past Performance is no guarantee of future results.
Source: Bloomberg, L.P.
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, a steadfast, long-term outlook is the best way to reap the
advantages of tax-free investing.
Sincerely,
/S/ Thomas J. Fetter
Thomas J. Fetter
President
September 10, 1996
[PHOTO OF THOMAS J. FETTER OMITTED]
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.
EV Traditional Florida Insured Municipals Fund
Florida's economy has grown steadily since 1993, led by a strong service
sector which comprises over one-third of the state's employment and
consists mainly of health and business services. Total employment
increased by 5% from 1993 to 1995, and the unemployment rate decreased
from 8.2% in 1992 to 5.3% at the end of last year. Other strong sectors
include construction and trade, which, along with service, account for
two-thirds of employment in Florida. Tourism was hit hard by the
recession in the early 1990s, but has rebounded strongly in the past few
years. The tourism industry provides the foundation for much of the
state's economy and is expected to grow by 4.3% through fiscal 1997,
according to Standard & Poor's.
Despite a strong dependency on the cyclical 6% sales and use tax,
Florida's finances are very well managed. As a result of a 1994
constitutional amendment, revenue growth is tied to personal income
growth. In addition, the State maintains a healthy working capital
reserve. Governor Chiles has proposed bond issuance totalling $1.14
billion for fiscal 1997. There are four main areas which will benefit
from the revenues raised: Public Education, Environmental Preservation,
Right-of-Way Acquisition, and Prison and Detention. As required by law,
all bond issues must be backed by a specific revenue stream to receive
the "full faith and credit" approval from the Florida State government.
Portfolio Overview
[GRAPHIC OF FLORIDA OMITTED]
Based on market value as of July 31, 1996
Number of issues 40
Average quality AAA
Investment grade 100.0%
Effective maturity 18.22 yrs.
Largest sectors:
Insured Water & Sewer 25.45%*
Insured Special Tax 25.14*
Insured Transportation 13.45*
Housing 13.23
Insured Electric Utilities 5.69*
* Private insurance does not remove the market risk associated with
this investment.
[PHOTO OF TIMOTHY T. BROWSE OMITTED]
"I am generally bullish about the bond market over the long term.
I am positioning the portfolio to perform by including some discount
bonds in my purchases, and, as always, by managing for call protection.
At times, we can increase call protection without a significant hit on
the yield or net asset value because institutional buyers like Eaton
Vance often get first pick at new bonds and can sometimes buy them at
lower prices. In addition, we have increased the weighting in federal
alternative minimum tax (AMT) bonds to 27.5% from below 20% last year,
which is a way to increase yield without increasing risk.
This portfolio is broadly diversified and maintains a triple-A
investment rating. Moreover, the Fund has significant positions in
essential services such as water & sewer, housing, and transportation.
The insurance, in addition to the good credit of these issuers, provides
investors with an extra margin of safety."
Timothy T. Browse - Portfolio Manager
[GRAPHIC OF MAN OPENING VALVE ON WATER PIPE OMITTED]
Your investment at work:
Lee County Industrial
Development Authority Utility
System Revenue Bonds
Bonita Springs Utility, a publicly regulated utility, is currently
engaged in the pumping, treatment, transmission, and distribution of
potable water to residential and commercial customers. The utility is
also responsible for the collection, treatment, and disposal of
wastewater in a 58 square mile area in southwest Lee County, Florida.
Bonita Springs, a non-profit corporation, has entered into an exclusive
franchise agreement with Lee County to provide water and sewer services
within this franchise area.
The Series 1996 bonds, maturing in November of 2020, will help finance
the acquisition, construction, expansion, improvement, and equipping of
the sewer system operated by Bonita Springs.
EV Traditional Hawaii Municipals Fund
The Hawaiian economy is relatively stable, supported by two consistent
elements - tourism and the military. Tourism can be somewhat cyclical,
but not dramatically so, while the military presence provides a
predictable economic stimulus. The down side of this stability is an
inability to grow the economy from one year to the next beyond a certain
level. Indeed, according to the First Hawaiian Bank, the forecast for
Hawaii's Real Gross State Product is a slow acceleration from 1-2%
annually in 1996 to 2-3% by the end of the decade. A positive effect of
the state's consistent economic base is that municipal bonds are
generally of high quality.
To the extent that growth can occur, tourism is the driving force.
Hawaii's tourism growth has improved considerably in 1996 over 1995.
Cold weather in the U.S., and an improving Japanese economy increased
tourist arrivals 11% in January and February of this year, with hotel
occupancies of 83%, representing a five-year high. In addition, the
average number of daily visitors this past February grew 7.5% over
February of 1995. While tourism has contributed positively to the
State's economy, other factors - such as the high cost of doing business
- - have hindered it. These costs consist of taxes, labor, and energy, and
have had a stronger impact in the 1990s than previously. In addition,
the large State government is in a period of fiscal restraint, which has
further reduced hiring.
Portfolio Overview
[GRAPHIC OF HAWAII OMITTED]
Based on market value as of July 31, 1996
Number of issues 38
Average quality AA
Investment grade 99.3%
Effective maturity 15.70 yrs.
Largest sectors:
General Obligations 18.51%
Insured General Obligations 12.74*
Insured Transportation 12.16*
Hospitals 12.03
Housing 7.59
* Private insurance does not remove the market risk associated with
this investment.
[PHOTO OF ROBERT B. MACINTOSH OMITTED]
"The consistency of Hawaii's economic base results in high-quality
municipal bonds, which means that good yields are hard to find. State
and county bonds are rated AA. Generally, we adopt a buy-and-hold
strategy because Hawaiian municipal bonds are in short supply.
We employ the same strategies that we use in all of our funds; namely,
we manage for call protection, try to stay away from par bonds - which
are priced at $100 - and upgrade our quality when spreads are tight, as
is the case currently. Occasionally, to increase the Fund's yield, we
will use Puerto Rico and Guam holdings, but not as much as in the other
state portfolios because of the low turnover. We have increased federal
alternative minimum tax (AMT) exposure somewhat, but again, not as much
as in other state funds. The most high-yielding bond we have added is an
American Airlines bond issued by the Puerto Rico Port Authority."
Robert B. MacIntosh - Portfolio Manager
Your investment at work
[GRAPHIC OF AIRPLANE OMITTED]
State of Hawaii
Airport System
Revenue Bonds
The Hawaii Department of Transportation operates and maintains 14
airports and one heliport at various locations within the State. Hawaii
International Airport, on the island of Oahu, is the largest airport and
the primary one for overseas flights. One other airport on Oahu and
three others on the islands of Maui, Hawaii, and Kauai also offer flights
to and from the continental U.S. The remaining nine airports provide facilities
for the military, air carriers, and general aviation. HIA is one of the
busiest airports in the world, ranking 18th globally, 13th in the U.S.,
and 4th in the Pacific Rim. These bonds will finance on-going
improvements to the entire Hawaiian Airports System including new
systems for security, public address, and operations control. They have also
helped pay for major construction projects on a new, recently completed,
inter-island terminal at HIA.
EV Traditional Kansas Municipals Fund
The Kansas economy has improved over the past few years after lagging
the U.S. economy in 1994. Of particular significance is an increase in
1995 in the growth of manufactured goods to 5.2% annually, which
exceeded that of the service sector for only the second time in 15
years. Aircraft production - an important part of the State's economy -
has begun a modest recovery after several years in the doldrums. The
improved out-look for the aircraft industry has been aided by recent
congressional legislation reducing manufacturers' liability and an
expansion in manufacturing capacity in 1996.
Other strong-performing sectors include construction - aided by a large
state highway improvement program - transportation, public utilities,
wholesale and retail trade, and the State government. Farming, which had
been in decline since 1983, showed positive growth for two consecutive
years (1994 and 1995).
The only declining sectors were finance, insurance and real estate,
which have undergone significant restructuring as a result of bank and
savings and loan failures over the last 12 years.
Portfolio Overview
[GRAPHIC OF KANSAS OMITTED]
Based on market value as of July 31, 1996
Number of issues 47
Average quality AA+
Investment grade 100%
Effective maturity 13.3 yrs.
Largest sectors:
Housing 28.84%
Insured General Obligations
(School District) 10.53*
Insured Hospitals 8.75*
General Obligations (School District) 7.63
Hospitals 7.50
* Private insurance does not remove the market risk associated with
this investment.
The general outlook for the Kansas economy is positive, with the above-
mentioned trends supporting continued growth in their respective
sectors. The State government is fiscally very strong, which adds to the
attraction of its municipal bonds.
[PHOTO OF NICOLE ANDERES OMITTED]
"Kansas is a financially conservative, homogeneous market for municipal
bonds. New issues usually have ratings of A1, AA, or are insured, and it
is hard to find higher yielding issues. Housing bonds are one of the
best ways to increase yield in Kansas while preserving credit quality.
Moreover, they tend to be less volatile in a down market, like that of
the first half of 1996. I ended the Fund's fiscal year with almost 30%
in housing and increased the federal alternative minimum tax (AMT)
exposure to 12%. This portfolio strategy worked well for the first half
of 1996.
As always, we manage for call protection, which increases the potential
for price appreciation. We insist on 10-year calls on new issue bonds,
and turn over issues in which the time to call has decreased.
Finally, we have used our research effectively to improve yield. In a
recent case, we replaced Puerto Rico bonds with Guam airport bonds which
were not only higher yielding but also offered more upside potential."
Nicole Anderes - Portfolio Manager
Your investment at work
[GRAPHIC OF MEDICAL SYMBOL OMITTED]
Stormont-Vail
Medical Center
Topeka, KS
With 300 beds, Stormont-Vail Medical Center in Topeka is one of the two
leading health care providers in the City. St. Francis Hospital is the
other. Proceeds from this bond issue were used to refund outstanding
debt and to finance capital projects, including building renovations and
acquisitions, and the purchase of medical and computer equipment. The
bonds carry triple A ratings due to the presence of MBIA bond insurance.
Financial operations of the Medical Center have been positive.
EV Traditional Municipals Funds
Financial Statements
<TABLE>
<CAPTION>
Statements of Assets and Liabilities
July 31, 1996 (Unaudited)
Traditional Traditional Traditional
Florida Insured Hawaii Kansas
------------------ -------------- --------------
<S> <C> <C> <C>
Assets:
Investment in Portfolio --
Identified cost $ 1,716,936 $ 324,341 $ 845,861
Unrealized appreciation 46,594 13,581 1,349
------------ ------------ ------------
Total investment in Portfolio, at value (Note 1A) $ 1,763,530 $ 337,922 $ 847,210
Receivable from the Administrator (Note 5) 13,132 16,422 15,483
Deferred organization expenses (Note 1D) 6,661 10,932 9,721
------------ ------------ ------------
Total assets $ 1,783,323 $ 365,276 $ 872,414
------------ ------------ ------------
Liabilities:
Dividends payable $ 5,788 $ 597 $ 620
Accrued expenses 7,991 8,467 8,010
------------ ------------ ------------
Total liabilities $ 13,779 $ 9,064 $ 8,630
------------ ------------ ------------
Net Assets $ 1,769,544 $ 356,212 $ 863,784
============ ============ ============
Sources of Net Assets:
Paid-in capital $ 1,726,659 $ 359,011 $ 868,285
Accumulated net realized loss on investment and
financial futures transactions (computed on the basis
of identified cost) (874) (15,929) (5,622)
Accumulated distributions in excess of
net investment income (2,835) (451) (228)
Unrealized appreciation of investments and
financial futures contracts from Portfolio
(computed on the basis of identified cost) 46,594 13,581 1,349
------------ ------------ ------------
Total $ 1,769,544 $ 356,212 $ 863,784
============ ============ ============
Shares of Beneficial Interest Outstanding 164,045 37,677 86,665
============ ============ ============
Net Asset Value and Redemption Price Per Share
(net assets (divided by) shares of beneficial interest outstanding) $ 10.79 $ 9.45 $ 9.97
============ ============ ===========
Computation of Offering Price Per Share
(100(divided by)96.25 of net asset value per share) $ 11.21 $ 9.82 $ 10.36
============ ============ ===========
On sales of $50,000 or more, the offering price is reduced.
See notes to financial statements
</TABLE>
<TABLE>
<CAPTION>
Statements of Operations
For the Six Months Ended July 31, 1996 (Unaudited)
Traditional Traditional Traditional
Florida Insured Hawaii Kansas
------------------ -------------- --------------
<S> <C> <C> <C>
Investment Income (Note 1B):
Interest income allocated from Portfolio $ 47,690 $ 9,803 $ 24,171
Expenses allocated from Portfolio -- -- --
------------ ------------ ------------
Net investment income from Portfolio $ 47,690 $ 9,803 $ 24,171
------------ ------------ ------------
Expenses --
Service fees (Note 6) $ 746 $ 347 $ 845
Printing and postage 7,248 7,955 8,287
Legal and accounting services 3,955 2,553 2,815
Custodian fees (Note 1F) 3,000 1,677 2,403
Amortization of organization expenses (Note 1D) 1,287 2,082 1,875
Transfer and dividend disbursing agent fees 538 530 241
Miscellaneous 2,402 2,075 2,527
------------ ------------ ------------
Total expenses $ 19,176 $ 17,219 $ 18,993
------------ ------------ ------------
Deduct --
Preliminary allocation of expenses to the Administrator (Note 5) $ 13,132 $ 16,422 $ 15,483
Reduction of custodian fee (Note 1F) 3,000 86 1,663
------------ ------------ ------------
Total $ 16,132 $ 16,508 $ 17,146
------------ ------------ ------------
Net expenses $ 3,044 $ 711 $ 1,847
------------ ------------ ------------
Net investment income $ 44,646 $ 9,092 $ 22,324
------------ ------------ ------------
Realized and Unrealized Gain (Loss) on Investments:
Net realized gain (loss) from Portfolio --
Investment transactions (identified cost basis) $ 11,056 $ (567) $ 783
Financial futures contracts 4,749 872 742
------------ ------------ ------------
Net realized gain on investments $ 15,805 $ 305 $ 1,525
Change in unrealized appreciation (depreciation) of investments
and financial futures contracts (79,675) (10,838) (26,892)
------------ ------------ ------------
Net realized and unrealized loss $ (63,870) $ (10,533) $ (25,367)
------------ ------------ ------------
Net decrease in net assets from operations $ (19,224) $ (1,441) $ (3,043)
============ ============ ============
See notes to financial statements
</TABLE>
<TABLE>
<CAPTION>
Statements of Changes in Net Assests
For the Six Months Ended July 31, 1996 (Unaudited)
Traditional Traditional Traditional
Florida Insured Hawaii Kansas
------------------ -------------- --------------
<S> <C> <C> <C>
Increase (Decrease) in Net Assets:
From operations --
Net investment income $ 44,646 $ 9,092 $ 22,324
Net realized gain on investments 15,805 305 1,525
Change in unrealized appreciation (depreciation) of investments (79,675) (10,838) (26,892)
------------ ------------ ------------
Net decrease in net assets from operations $ (19,224) $ (1,441) $ (3,043)
------------ ------------ ------------
Distributions to shareholders (Note 3) --
From net investment income $ (44,492) $ (9,092) $ (22,324)
In excess of net investment income -- (86) (94)
------------ ------------ ------------
Total distributions to shareholders $ (44,492) $ (9,178) $ (22,418)
------------ ------------ ------------
Transactions in shares of beneficial interest (Note 4) --
Proceeds from sales of shares $ 254,121 $ 23,066 $ 40,589
Net asset value of shares issued to shareholders in payment
of distributions declared 12,885 6,749 20,342
Cost of shares redeemed (41,123) -- (18,879)
------------ ------------ ------------
Increase in net assets from Fund share transactions $ 225,883 $ 29,815 $ 42,052
------------ ------------ ------------
Net increase in net assets $ 162,167 $ 19,196 $ 16,591
Net Assets:
At beginning of period 1,607,377 337,016 847,193
------------ ------------ ------------
At end of period $ 1,769,544 $ 356,212 $ 863,784
============ ============ ============
Accumulated distributions in excess of net
investment income included in net assets at end of period $ (2,835) $ (451) $ (228)
============ ============ ============
See notes to financial statements
</TABLE>
<TABLE>
<CAPTON>
Statements of Changes in Net Assets
For the Year Ended January 31, 1996
Traditional Traditional Traditional
Florida Insured Hawaii Kansas
---------- ---------- ----------
<S> <C> <C> <C>
Increase (Decrease) in Net Assets:
From operations --
Net investment income $73,532 $13,090 $32,414
Net realized loss on investments (9,126) (4,251) (4,424)
Change in unrealized appreciation of investments 117,760 27,819 54,610
---------- ---------- ----------
Net increase in net assets from operations $182,166 $36,658 $82,600
---------- ---------- ----------
Distributions to shareholders (Note 3) --
From net investment income ($73,532) ($13,090) ($31,831)
In excess of net investment income (2,683) (1,133) --
---------- ---------- ----------
Total distributions to shareholders ($76,215) ($14,223) ($31,831)
---------- ---------- ----------
Transactions in shares of beneficial interest (Note 4) --
Proceeds from sales of shares $871,777 $84,657 $380,427
Net asset value of shares issued to shareholders in payment
of distributions declared 15,828 11,893 29,148
Cost of shares redeemed (599,576) (38,793) (278,035)
---------- ---------- ----------
Increase in net assets from Fund share transactions $288,029 $57,757 $131,540
---------- ---------- ----------
Net increase in net assets $393,980 $80,192 $182,309
Net Assets:
At beginning of year 1,213,397 256,824 664,884
---------- ---------- ----------
At end of year $1,607,377 $337,016 $847,193
========== ========== ==========
Accumulated distributions in excess of net
investment income included in net assets at end of year ($2,989) ($365) ($134)
========== ========== ==========
See notes to financial statements
</TABLE>
<TABLE>
<CAPTION>
Financial Highlights
Traditional Florida Insured Traditional Hawaii Fund
------------------------------------------- ----------------------------------------------
Six Months Ended Year Ended January 31, Six Months Ended Year Ended January 31,
July 31, 1996 ------------------------ July 31, 1996 ------------------------
(Unaudited) 1996 1995** (Unaudited) 1996 1995**
-------------- ---------- ---------- ---------------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $11.220 $10.430 $10.000 $ 9.760 $ 9.040 $10.000
-------- -------- -------- -------- -------- --------
Income (loss) from operations:
Net investment income $ 0.292 $ 0.564 $ 0.509 $ 0.249 $ 0.424 $ 0.365
Net realized and unrealized gain
(loss) on investments (0.434) 0.811 0.435 (0.308) 0.757 (0.880)++
-------- -------- -------- -------- -------- --------
Total income (loss) from operations $ (0.142) $ 1.375 $ 0.944 $ (0.059) $ 1.181 $ (0.515)
-------- -------- -------- -------- -------- --------
Less distributions:
From net investment income $ (0.288) $ (0.564) $ (0.509) $ (0.249) $ (0.424) $ (0.365)
In excess of net investment income -- (0.021) (0.005) (0.002) (0.037) (0.080)
-------- -------- -------- -------- -------- --------
Total distributions $ (0.288) $ (0.585) $ (0.514) $ (0.251) $ (0.461) $ (0.445)
-------- -------- -------- -------- -------- --------
Net asset value, end of period $10.790 $11.220 $10.430 $ 9.450 $ 9.760 $ 9.040
======== ======== ======== ======== ======== ========
Total Return (2) (1.23%) 13.51% 9.18% (0.48%) 13.34% (5.23%)
Ratios/Supplemental Data**:
Net assets, end of period (000 omitted) $ 1,770 $ 1,607 $ 1,213 $ 356 $ 337 $ 257
Ratio of net expenses to average
daily net assets (1)(3) 0.87%+ 0.82% 0.01%+ 0.53%+ 1.04% 1.01%+
Ratio of net expenses to
average daily net assets,
after custodian fee reduction (1)(3) 0.37%+ 0.54% -- 1.41%+ 0.95% --
Ratio of net investment income to average
daily net assets 5.36%+ 5.20% 5.37%+ 5.21%+ 4.48% 4.44%+
** The operating expenses of the Funds and Portfolios may reflect a reduction of expenses by the Administrator or Investment
Adviser. Had such actions not been taken, net investment income (loss) per share and the ratios would have been as follows:
Net investment income (loss) per share $ 0.186 $ 0.401 $ 0.226 $ 0.224 $ 0.362 $ 0.153
======= ======= ======= ======= ======= =======
Ratios (As a percentage of average
daily net assets):
Expenses (1)(3) 2.82%+ 2.32% 3.00%+ 10.47%+ 9.34% 7.31%+
Expenses, after custodian
fee reduction (1)(3) 2.32%+ 2.04% -- 10.35%+ 9.25% --
Net investment income 3.41%+ 3.70% 2.38%+ (4.73%)+ (3.82%) (1.86)%+
(1) Includes each Fund's share of its corresponding Portfolio's allocated expenses.
(2) Total return is calculated assuming a purchase at the net asset value on the first day and a sale at the net asset value on
the last day of each period reported. Dividends and distributions, if any, are assumed to be reinvested at the net asset
value on the payable date. Computed on a non-annualized basis.
(3) The expense ratios for the six months ended July 31, 1996 and the year ended January 31, 1996 have been adjusted to reflect
a change in reporting requirements. The new reporting guidelines require each Fund, as well as its corresponding Portfolio,
to increase its expense ratio by the effect of any expense offset arrangements with its service providers. The expense
ratios for the period ended January 31, 1995 have not been adjusted to reflect this change. The expense ratios, after
custodian fee reductions, for the year ended January 31, 1996 are unaudited.
+ Computed on an annualized basis.
++ The per share amount is not in accord with the net realized and unrealized gain (loss) for the period because of the timing
of sales of Fund shares and the amount of per share realized and unrealized gains and losses at such time.
* For the Traditional Florida Insured and Traditional Hawaii Funds, the Financial Highlights are for the period from the start
of business, March 3, 1994 and March 14, 1994, respectively, to January 31, 1995.
See notes to financial statements
</TABLE>
<TABLE>
<CAPTION>
Financial Highlights
Traditional Kansas
------------------------------------------------
Six Months Ended Year Ended January 31,
July 31, 1996 ----------------------------
(Unaudited) 1996 1995*
------------------ -------- --------
<S> <C> <C> <C>
Net asset value, beginning of period $10.270 $ 9.540 $10.000
-------- -------- --------
Income (loss) from operations:
Net investment income $ 0.262 $ 0.461 $ 0.379
Net realized and unrealized gain
(loss) on investments (0.299) 0.730 (0.386)++
-------- -------- --------
Total income (loss) from operations $ (0.037 $ 1.191 $ 0.007
-------- -------- --------
Less distributions:
From net investment income $ (0.262) $ (0.461) $ (0.379)
In excess of net investment income (0.001) -- (0.074)
-------- -------- --------
Total distributions $ (0.263) $ (0.461) $ (0.453)
-------- -------- --------
Net asset value, end of period $ 9.970 $10.270 $ 9.540
======== ======== ========
Total Return (2) (0.22%) 12.73% 0.11%
Ratios/Supplemental Data**:
Net assets, end of period (000 omitted) $ 864 $ 847 $ 665
Ratio of net expenses to average
daily net assets (1)(3) 1.00%+ 1.29% 0.95%+
Ratio of net expenses to average daily
net assets, after custodian fee reduction (1)(3) 0.44%+ 0.95% --
Ratio of net investment income to average
daily net assets 5.27%+ 4.70% 4.32%+
** The operating expenses of the Fund and Portfolio may reflect a reduction 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 $ 0.037 $ 0.068 $ 0.139
======== ======== ========
Ratios (As a percentage of average
daily net assets):
Expenses (1)(3) 5.53%+ 5.30% 3.68%+
Expenses after custodian fee reduction (1)(3) 4.97%+ 4.96% --
Net investment income 0.74%+ 0.69% 1.59%+
(1) Includes the Fund's share of its corresponding Portfolio's allocated expenses.
(2) Total return is calculated assuming a purchase at the net asset value on the first day and a sale
at the net asset value on the last day of each period reported. Dividends and distributions, if
any, are assumed to be reinvested at the net asset value on the payable date. Computed on a non-annualized
basis.
(3) The expense ratios for the six months ended July 31, 1996 and year ended January 31,1996 have been adjusted
to reflect a change in reporting requirements. The new reporting guidelines require the Fund, as well as its
corresponding Portfolios to increase its expense ratio by the effect of any expense offset arrangements with its
service providers. The expense ratios for period ended January 31, 1995 have not been adjusted to reflect
this change. The expense ratios, after custodian fee reductions, for the year ended January 31, 1996 are unaudited.
+ Computed on an annualized basis.
++ The per share amount is not in accord with the net realized and unrealized gain (loss) for the period because of
the timing of sales of Fund shares and the amount of per share realized and unrealized gains and losses at such time.
* For the period from the start of business, March 3, 1994 to January 31, 1995.
See notes to financial statements
</TABLE>
Notes to Financial Statements
(Unaudited)
(1) Significant Accounting Policies
Eaton Vance Municipals Trust II (the Trust) is an entity of the type
commonly known as a Massachusetts business trust and is registered
under the Investment Company Act of 1940, as amended, as an open-end
management investment company. The Trust presently consists of nine
non-diversified Funds, three of which are included in these
financial statements. They include EV Traditional Florida Insured
Municipals Fund ("Traditional Florida Insured Fund"), EV Traditional
Hawaii Municipals Fund ("Traditional Hawaii Fund") and EV
Traditional Kansas Municipals Fund ("Traditional Kansas Fund"). Each
Fund invests all of its investable assets in interests in a separate
corresponding open-end management investment company (a
"Portfolio"), a New York Trust, having the same investment objective
as its corresponding Fund. The Traditional Florida Insured Fund
invests its assets in the Florida Insured Municipals Portfolio, the
Traditional Hawaii Fund invests its assets in the Hawaii Municipals
Portfolio and the Traditional Kansas Fund invests its assets in the
Kansas Municipals Portfolio. The value of each Fund's investment in
its corresponding Portfolio reflects the Fund's proportionate
interest in the net assets of that Portfolio (7.6%, 2.2% and 7.3% at
July 31, 1996 for the Traditional Florida Insured Fund, Traditional
Hawaii Fund and Traditional Kansas Fund, respectively.) The
performance of each Fund is directly affected by the performance of
its corresponding Portfolio. The financial statements of each
Portfolio, including the portfolio of investments, are included
elsewhere in this report and should be read in conjunction with each
Fund's financial statements. The following is a summary of
significant accounting policies consistently followed by the Trust
in the preparation of its financial statements. The policies are in
conformity with generally accepted accounting principles.
A. Investment Valuation - Valuation of securities by the Portfolios
is discussed in Note 1 of the Portfolios' Notes to Financial
Statements which are included elsewhere in this report.
B. Income - Each Fund's net investment income consists of each
Fund's pro rata share of the net investment income of its
corresponding Portfolio, less all actual and accrued expenses of
each Fund determined in accordance with generally accepted
accounting principles.
C. Federal Taxes - Each Fund's policy is to comply with the
provisions of the Internal Revenue Code applicable to regulated
investment companies and to distribute to shareholders each year all
of its taxable and tax-exempt income, including any net realized
gain on investments. Accordingly, no provision for federal income or
excise tax is necessary. At January 31, 1996, the Traditional
Florida Insured Fund, Traditional Hawaii Fund and Traditional Kansas
Fund, for federal income tax purposes, had capital loss carryovers
which will reduce taxable income arising from future net realized
gain on investments, if any, to the extent permitted by the Internal
Revenue Code, and thus will reduce the amount of distributions to
shareholders which would otherwise be necessary to relieve the Funds
of any liability for federal income or excise tax. The amounts and
expiration dates of the capital loss carryovers are as follows:
Fund Amount Expires
-------------- ------------ --------------
Traditional Florida Insured Fund $14,510 January 31, 2004
518 January 31, 2003
Traditional Hawaii Fund $14,198 January 31, 2004
1,941 January 31, 2003
Traditional Kansas Fund $4,657 January 31, 2004
745 January 31, 2003
Dividends paid by each Fund from net interest on tax-exempt
municipal bonds allocated from its corresponding Portfolio are not
includable by shareholders as gross income for federal income tax
purposes because each Fund and Portfolio intends to meet certain
requirements of the Internal Revenue Code applicable to regulated
investment companies which will enable the Funds to pay exempt-
interest dividends. The portion of such interest, if any, earned on
private activity bonds issued after August 7, 1986, may be
considered a tax preference item to shareholders.
D. Deferred Organization Expenses - Costs incurred by a Fund in
connection with its organization, including registration costs, are
being amortized on the straight-line basis over five years.
E. 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. Expense Reduction - Investors Bank & Trust Company (IBT) serves
as custodian to the Funds and the Portfolios. Pursuant to the
respective custodian agreements, IBT receives a fee reduced by
credits which are determined based on the average cash balances the
Funds or the Portfolios maintain with IBT. All significant credit
balances used to reduce each Fund's custodian fees are reflected as
a reduction of operating expenses on the statement of operations.
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 month period then ended
have not been audited by independent certified public accountants,
but in the opinion of the Funds' management reflect all adjustments
consisting only of normal recurring adjustments, necessary for the
fair presentation of the financial statements.
(2) Fund Name Changes
Effective February 1, 1996, the EV Classic Hawaii Municipals Fund
and the EV Classic Kansas Municipals Fund changed their respective
names to EV Traditional Hawaii Municipals Fund and EV Traditional
Kansas Municipals Fund. The Funds have adopted new service plans
(see Note 6) which allow for the quarterly payment of service fees
to the Principal Underwriter and authorized firms. Purchases of Fund
shares on or after February 1, 1996 will be subject to a Maximum
Initial Sales Charge of 3.75% on amounts up to $50,000 and at
declining rates on purchases in excess of such amount.
(3) Distributions to Shareholders
The net income of each Fund is determined daily and substantially
all of the net income so determined is declared as a dividend to
shareholders of record at the time of declaration. Distributions are
paid monthly. Distributions of allocated realized capital gains, if
any, are made at least annually. Shareholders may reinvest capital
gain distributions in additional shares of a Fund at the net asset
value as of the ex-dividend date. Distributions from net income are
paid in the form of additional shares or, at the election of the
shareholder, in cash.
The Funds distinguish between distributions on a tax basis and a
financial reporting basis. Generally accepted accounting principles
require that only distributions in excess of tax basis earnings and
profits be reported in the financial statements as a return of
capital. Differences in the recognition or classification of income
between the financial statements and tax earnings and profits which
result in temporary over distribution 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.
The tax treatment of distributions for the calendar year will be
reported to shareholders prior to February 1, 1997 and will be based
on tax accounting methods which may differ from amounts determined
for financial statement purposes.
(4) Shares of Beneficial Interest
<TABLE>
<CAPTION>
The Fund's Declaration of Trust permits the Trustees to issue an
unlimited number of full and fractional shares of beneficial
interest (without par value). Transactions in Fund shares were as
follows:
Traditional Traditional Traditional
Florida Insured Hawaii Kansas
---------------------------- -------------------------- -------------------------
Six Months Year Six Months Year Six Months Year
Ended Ended Ended Ended Ended Ended
July 31, 1996 January 31, July 31, 1996 January 31, July 31, 1996 January 31,
(Unaudited) 1996 (Unaudited) 1996 (Unaudited) 1996
------------- ------------- ------------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Sales 23,439 80,298 2,441 8,969 4,046 38,101
Issued to shareholders electing
to receive payments of distributions
in Fund shares 1,194 1,454 714 1,257 2,041 2,922
Redemptions (3,819) (54,892) -- (4,120) (1,911) (28,246)
------- -------- ------- -------- -------- --------
Net increase 20,814 26,859 3,155 6,106 4,176 12,777
======= ======= ======= ======== ======== ========
</TABLE>
(5) Transactions with Affiliates
Eaton Vance Management (EVM) serves as the Administrator of each
Fund, but receives no compensation. Each of the Portfolios have
engaged Boston Management and Research (BMR), a subsidiary of EVM,
to render investment advisory services. See Note 2 of the
Portfolios' Notes to Financial Statements which are included
elsewhere in this report. To enhance the net income of the Funds for
the six months ended July 31, 1996, $13,132, $16,422 and $15,483 of
expenses related to the operation of the Traditional Florida Insured
Fund, Traditional Hawaii Fund and Traditional Kansas Fund, respectively,
were allocated, on a preliminary basis, to EVM.
Certain of the officers and Trustees of the Funds and Portfolios are
officers and directors/trustees of the above organizations. Except
as to Trustees of the Funds and the Portfolios who are not members
of EVM's or BMR's organization, officers and Trustees receive
renumeration for their services to each Fund out of the investment
adviser fee earned by BMR.
(6) Service Plan
Each 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 Plans provide
that each Fund may make service fee payments to Eaton Vance
Distributors, Inc. (EVD), Authorized Firms or other persons in
amounts not exceeding 0.25% of each Fund's average daily net assets
for any fiscal year. The Trustees have initially implemented each
Plan by authorizing each Fund to make quarterly service fee payments
to the Principal Underwriter and Authorized Firms in amounts not
exceeding 0.20% of each Fund's average daily net assets for any
fiscal year which is attributable to shares of a 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. For the six months ended July 31, 1996,
Traditional Florida Insured Fund, Traditional Hawaii Fund and
Traditional Kansas Fund paid or accrued service fees of $746, $347
and $845, respectively.
Certain of the officers and Trustees of the Funds are officers or
directors of EVD.
(7) Investment Transactions
<TABLE>
<CAPTION>
Increases and decreases in each Fund's investment in its corresponding Portfolio for the six months ended July 31, 1996
were as follows:
Traditional Florida Traditional Traditional
Insured Fund Hawaii Fund Kansas Fund
------------------------ -------------------- ----------------------
<S> <C> <C> <C>
Increases 371,152 47,235 127,268
Decreases 82,240 10,655 30,586
</TABLE>
<TABLE>
<CAPTION>
Florida Insured Municipals Portfolio
Portfolio of Investments - July 31, 1996 (Unaudited)
Tax-Exempt Investments - 99.97%
Ratings (Unaudited)
- -------------------- Principal
Amount
Standard (000
Moody's & Poor's Omitted) Security Value
- --------------------------------------------------------------------------------------------
Escrowed - 2.79%
<S> <C> <C> <C> <C>
Aaa AAA $ 500 Gainsville, Florida
Utility, 8.125%,
10/1/14 (4) $ 629,385
-----------
Housing - 13.23%
Aaa NR $ 365 Duval, Florida HFA
SFMR (GNMA)
(AMT), 6.70%,
10/1/26 $ 379,954
Aaa AAA 750 Escambia, Florida
HFA SFMR (GNMA)
(AMT), 7.00%, 4/1/28 759,442
Aaa NR 750 Manatee, Florida HFA
SFMR (GNMA)
(AMT), 6.875%,
11/1/26 802,860
NR AAA 1000 Pinellas, Florida HFA
SFMR (GNMA)
(AMT), 6.70%, 2/1/28 1,038,910
-----------
$ 2,981,166
-----------
Insured Education - 3.89%
Aaa AAA $ 500 Florida A&M
University (MBIA),
5.625%, 7/1/25 $490,520
Aaa AAA 400 University of Florida
(MBIA), 5.50%, 7/1/23 386,368
-----------
$876,888
-----------
Insured Electric
Utilities - 5.69%
Aaa AAA $ 445 Citrus, Florida PCR
FL Power (MBIA),
6.35%, 2/1/22 $ 463,641
Aaa AAA 895 Florida State Municipal
Power Agency, Stanton II
Project (AMBAC),
4.50%, 10/1/27 709,807
Aaa AAA 50 Key West, Florida
Utility Board Electric
Revenue (AMBAC),
6.75%, 10/1/13 54,134
Aaa AAA 50 Puerto Rico Electric
Power Authority,
STRIPES (FSA),
Variable, 7/1/02 (1) 54,078
-----------
$ 1,281,660
-----------
Insured General
Obligation - 4.31%
Aaa AAA $1,000 Florida Board of
Education (MBIA),
5.60%, 6/1/25 $ 972,060
-----------
Insured Hospitals - 1.02%
Aaa AAA $ 200 Dade, Jackson Memorial
Hospital (MBIA),
4.875%, 6/1/15 $ 178,538
Aaa AAA 50 Hillsborough, Tampa
General Hospital (FSA),
6.375%, 10/1/13 52,139
-----------
$ 230,677
-----------
Insured Housing - 4.55%
Aaa AAA $ 500 Florida HFA, Maitland
Club Apartments
(AMBAC) (AMT),
6.875%, 8/1/26 $ 521,430
Aaa AAA 500 Florida HFA, Spinnaker
Cove Apartments
(AMBAC) (AMT),
6.50%, 7/1/36 504,080
-----------
$ 1,025,510
-----------
Insured Solid Waste - 0.45%
Aaa AAA $ 100 Broward, Florida Solid
Waste (MBIA) (AMT),
6.00%, 7/1/13 $ 101,298
-----------
Insured Special Tax - 25.14%
Aaa AAA $1,500 Bradenton, Florida
Special Revenue Sub
Lien (FGIC), 5.00%,
10/1/15 $ 1,373,535
Aaa AAA 500 Dade, Florida
Convention Center
Special Tax (AMBAC),
5.00%, 10/1/35 436,965
Aaa AAA 1,225 Florida State Finance
Department,
Environmental
Preservation (MBIA),
4.75%, 7/1/09 1,147,285
Aaa AAA 1,000 Jacksonville, Florida
Excise Taxes Revenue
(FGIC), 5.00%, 10/1/16 914,430
Aaa AAA $ 745 Jacksonville, Florida Sales
Tax River City (FGIC),
5.375%, 10/1/18 $ 716,496
Aaa AAA 250 Orange, Florida Tourist
Development Tax (MBIA),
6.00%, 10/1/24 254,540
Aaa AAA 795 St. Petersburg, Florida
Excise Tax (FGIC), 5.00%,
10/1/16 711,231
Aaa AAA 340 Sunrise, Florida Public
Facilities Capital
Appreciation (MBIA),
0%, 10/1/15 111,411
------------
$ 5,665,893
------------
Insured Transportation - 13.45%
Aaa AAA $1,000 Dade, Florida Seaport
Revenue (MBIA),
5.125%, 10/1/16 $ 928,150
Aaa AAA 1,200 Florida State Turnpike
Authority (FGIC),
5.00%, 7/1/19 (3) 1,081,896
Aaa AAA 1,000 Florida State Turnpike
Authority (FGIC),
5.50%, 7/1/21 968,340
Aaa AAA 50 Greater Orlando, Florida
Aviation Authority
(FGIC) (AMT),
6.375%, 10/1/21 51,744
-----------
$ 3,030,130
-----------
Insured Water & Sewer - 25.45%
Aaa AAA $ 130 Charlotte, Florida
Utility Revenue (FGIC),
5.625%, 10/1/21 (2) $ 127,502
Aaa AAA 75 Cocoa, Florida Water &
Sewer (FGIC), 5.00%,
10/1/23 (4) 66,840
Aaa AAA 750 Dade, Florida Water &
Sewer System (FGIC),
5.50%, 10/1/25 718,463
Aaa AAA 735 Enterprise, Florida
Community District
Water & Sewer (MBIA),
6.125%, 5/1/24 (3) 753,140
Aaa AAA 1,000 Jacksonville, Florida
Water & Sewer
(AMBAC), 6.35%,
8/1/25 1,034,360
Aaa AAA 1,000 Lee, Florida Utility,
Bonita Springs Project
(MBIA) (AMT),
6.05%, 11/1/20 1,011,260
Aaa AAA 70 North Port, Florida
Utility (FGIC), 6.25%,
10/1/17 72,893
Aaa AAA 500 North Port, Florida
Utility (FGIC), 6.25%,
10/1/22 519,010
Aaa AAA 155 Sanford, Florida Water
& Sewer (AMBAC),
4.50%, 10/1/21 128,492
Aaa AAA 400 Titisville, Florida Water
& Sewer (MBIA),
6.00%, 10/1/24 408,808
Aaa AAA 1,000 Vero Beach, Florida
Water & Sewer (FGIC),
5.00%, 12/1/21 894,410
-----------
$ 5,735,178
-----------
Total Tax-Exempt Investments
(identified cost, $21,836,812) $22,529,845
-----------
<CAPTION>
Put Options on Financial Futures Contracts - 0.03%
- --------------------------------------------------------------------------------------------
Contracts Security Value
- --------------------------------------------------------------------------------------------
<S> <C> <C>
16 30-year U.S. Treasury
Bond, American,
expiration 9/19/96,
Strike price $104.00 $ 1,500
19 30-year U.S. Treasury
Bond, American,
expiration 9/19/96,
Strike price $106.00 $ 6,235
-----------
Total Put Options on Financial Futures
Contracts (identified cost, $28,201) $ 7,735
-----------
Total Investments
(identified cost, $21,865,013) $22,537,580
===========
(1) The above designated securities have been issued as inverse
floater bonds.
(2) When-issued security.
(3) Security has been segregated to cover when-issued securities.
(4) Security has been segregated to cover margin requirements for open
financial futures contracts.
AMT - Interest earned from these securities may be considered a tax
preference item for purposes of the Federal Alternative Minimum
Tax. The Portfolio primarily invests in debt securities issued
by Florida municipalities. The ability of the issuers of the
debt securities to meet their obligations may be affected by
economic developments in a specific industry or municipality.
In order to reduce the risk associated with such economic
developments, at July 31, 1996, 84.0% of the securities in the
portfolio of investments are backed by bond insurance of various
financial institutions and financial guaranty assurance
agencies. At July 31, 1996, the Portfolio's insured securities
by financial institution are as follows:
Percentage of
Total Investments Value
---------------- ----------------
American Municipal Bond
Assurance Corp. (AMBAC) 15.0% $ 3,380,637
Financial Guaranty
Insurance Corp. (FGIC) 36.5% 8,226,216
Financial Security
Insurance Inc. (FSA) 0.5% 112,688
Municipal Bond Investors
Assurance Corp. (MBIA) 32.0% 7,212,025
----- -----------
84.0% $18,931,566
==== ===========
See notes to financial statements
</TABLE>
<TABLE>
<CAPTION>
Hawaii Municipals Portfolio
Portfolio of Investments - July 31, 1996 (Unaudited)
Tax-Exempt Investments - 99.995%
Ratings (Unaudited)
- -------------------- Principal
Amount
Standard (000
Moody's & Poor's Omitted) Security Value
- --------------------------------------------------------------------------------------------
Escrowed/Prerefunded - 0.70%
<S> <C> <C> <C> <C>
Baa1 AAA $ 100 Commonwealth of
Puerto Rico Aqueduct
and Sewer Authority,
Prerefunded to 7/1/98,
7.00%, 7/1/19 $ 107,531
-----------
General Obligations - 18.51%
Aa AA $ 140 State of Hawaii, 5.75%,
1/1/11 $ 143,723
Aa AA 1,000 State of Hawaii, 5.25%,
6/1/13 948,530
Aa AA 750 City and County of
Honolulu, 4.75%,
9/1/17 652,418
NR BBB 590 Government of Guam,
5.375%, 11/15/13 527,259
Baa1 A 500 Puerto Rico Public
Buildings Authority,
Public Education and
Health Facilities, 5.50%,
7/1/21 465,420
NR NR 100 Virgin Islands Public
Finance Authority,
7.25%, 10/1/18 105,713
-----------
$ 2,843,063
-----------
Hospitals - 12.03%
Aa3 AA $ 400 State of Hawaii
Department of Budget
and Finance, Kaiser
Permanente, 6.25%,
3/1/21 $ 409,260
A A 625 State of Hawaii
Department of Budget
and Finance, Kapiolani
Health System, 6.00%,
7/1/19 610,519
Aa AA 600 State of Hawaii
Department of Budget
and Finance, Queens
Health System, 5.75%,
7/1/26 574,410
NR AAA $ 250 Puerto Rico Industrial,
Tourist, Educational,
Medical and
Environmental Control
Authority, Doctor Pila
Hospital Project, (FHA),
6.25%, 8/1/32 $ 253,167
-----------
$ 1,847,356
-----------
Housing - 7.59%
Aa A $1,000 State of Hawaii
Housing Finance and
Development Single
Family Mortgage
Bonds, 5.90%, 7/1/27 $ 992,900
Aa A 175 State of Hawaii
Housing Finance and
Development Single
Family Mortgage
Bonds, (AMT), 6.00%,
7/1/26 172,594
-----------
$ 1,165,494
-----------
Industrial Development/
Pollution Control - 6.22%
A1 AA- $ 550 Puerto Rico Industrial,
Tourist, Educational,
Medical and
Environmental Control
Authority, Upjohn
Company Project,
7.50%, 12/1/23 $ 599,929
Baa3 BB+ 175 Puerto Rico Port
Authority, American
Airlines, (AMT),
6.25%, 6/1/26 174,979
Baa3 BB+ 180 Puerto Rico Port
Authority, American
Airlines, (AMT),
6.30%, 6/1/23 180,583
-----------
$ 955,491
-----------
Insured Education - 6.48%
Aaa AAA $ 500 University of Hawaii
Board of Regents,
University System,
(AMBAC), 5.65%,
10/1/12 $ 498,905
Aaa AAA $ 500 Hawaii State Housing
Development
Corporation, University
of Hawaii, (AMBAC),
5.65%, 10/1/16 $ 495,800
-----------
$ 994,705
-----------
Insured General
Obligations - 12.74%
Aaa AAA $ 700 County of Hawaii,
(FGIC), 5.55%, 5/1/10 $ 707,993
Aaa AAA 305 County of Kauai,
(MBIA), 5.90%, 2/1/14 309,865
Aaa AAA 250 County of Maui,
(FGIC), 5.75%, 1/1/13 253,590
Aaa AAA 250 County of Maui,
(FGIC), 5.125%,
12/15/13 234,793
Aaa AAA 500 Commonwealth of
Puerto Rico, (MBIA),
5.00%, 7/1/21 450,035
-----------
$ 1,956,276
-----------
Insured Hospitals - 1.35%
Aaa AAA $ 100 State of Hawaii
Department of Budget
and Finance Queen's
Medical Center, (FGIC),
6.50%, 7/1/12 $ 102,286
Aaa AAA 100 State of Hawaii
Department of Budget
and Finance St. Francis
Medical Centers, (CGIC),
6.50%, 7/1/22 104,898
-----------
$ 207,184
-----------
Insured Housing - 3.52%
Aaa AAA $ 500 Honolulu Hawaii
City & County
Mortgage Revenue
Bonds, Smith Beretania
Project, (MBIA),
7.80%, 7/1/24 $ 539,820
-----------
Insured Transportation - 12.16%
Aaa AAA $ 500 State of Hawaii Airports
System, (AMT), (FGIC),
7.50%, 7/1/20 $ 548,880
Aaa AAA 100 State of Hawaii Airports
System, (AMT), (MBIA),
6.90%, 7/1/12 112,771
Aaa AAA $ 245 State of Hawaii Airports
System, (AMT), (MBIA),
7.00%, 7/1/18 $ 265,232
Aaa AAA 250 State of Hawaii Harbor
Revenue, (AMT), (MBIA),
7.00%, 7/1/17 269,150
Aaa AAA 650 State of Hawaii Harbor
Revenue, (AMT), (FGIC),
6.375%, 7/1/24 671,879
----------
$ 1,867,912
-----------
Insured Utilities - 7.44%
Aaa AAA $ 500 State of Hawaii
Department of Budget
and Finance, Hawaii
Electric Company, Inc.,
(AMT), (MBIA),
6.60%, 1/1/25 $ 524,215
Aaa AAA 500 State of Hawaii
Department of Budget
and Finance, Hawaii
Electric Company, Inc.,
(AMT), (MBIA),
6.20%, 5/1/26 508,960
Aaa AAA 100 Puerto Rico Electric
Power Authority
"Stripes", (FSA),
Variable, 7/1/03 (1) 109,240
-----------
$ 1,142,415
-----------
Special Tax - 1.66%
Baa1 A $ 275 Puerto Rico Highway
and Transportation
Authority, 5.50%,
7/1/36 $ 255,400
-----------
Transportation - 5.64%
Aa AA $ 715 State of Hawaii
Highway Revenue,
5.00%, 7/1/12 $ 663,070
NR BBB 200 Guam Airport
Authority, (AMT),
6.70%, 10/1/23 203,116
-----------
$ 866,186
-----------
Water and Sewer - 3.91%
Aa AA $ 600 Honolulu City and
County Water Supply
System, 5.80%, 7/1/16 $ 599,958
-----------
Total Tax-Exempt Investments
(identified cost, $14,524,940) $15,348,791
-----------
<CAPTION>
- --------------------------------------------------------------------------------------------
Put Option on Financial Futures Contracts - 0.05%
- --------------------------------------------------------------------------------------------
Contracts Security Value
- --------------------------------------------------------------------------------------------
<S> <C> <C>
25 30-year U.S. Treasury
Bond, American,
expiration 9/19/96,
Strike Price $106.00
(identified
cost, $17,742) $ 8,203
-----------
Total Investments
(identified cost, $14,542,682) $15,356,994
===========
(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
purposes of the Federal Alternative Minimum Tax.
The Portfolio primarily invests in debt securities issued by Hawaii municipalities. The
ability of the issuers of the debt securities to meet their obligations may be affected by
economic developments in a specific industry or municipality. In order to reduce the risk
associated with such economic developments, at July 31, 1996, 43.7% of the securities in the
portfolio of investments are backed by bond insurance of various financial institutions and
financial guaranty assurance agencies. The percentage by financial institution ranged from
0.7% to 19.4% of total investments.
See notes to financial statements
</TABLE>
<TABLE>
<CAPTION>
Kansas Municipals Portfolio
Portfolio of Investments - July 31, 1996 (Unaudited)
Tax-Exempt Investments - 100%
Ratings (Unaudited)
- -------------------- Principal
Amount
Standard (000
Moody's & Poor's Omitted) Security Value
- --------------------------------------------------------------------------------------------
General Obligation
Local - 3.65%
<S> <C> <C> <C> <C>
Aa1 NR $300 City of Leawood,
5.00%, 9/1/15 $ 278,058
Aa AA 170 City of Witchita,
4.00%, 9/1/09 145,727
-----------
$ 423,785
-----------
General Obligation
(School Districts) - 7.63%
Aa NR $400 Douglas County,
(Lawrence), USD No.
497, 6.00%, 9/1/15 $ 419,920
Aa NR 500 Johnson/Miami Cos.
KS USD #229, 5.00%,
10/1/14 466,585
-----------
$ 886,505
-----------
General Obligation
(Territory) - 1.88%
Baa1 A $250 Puerto Rico Aqueduct
& Sewer Authority,
Revenue Bonds
5.00%, 7/1/19 $ 218,513
-----------
Hospitals - 7.50%
A NR $250 City of Lawrence,
(Lawrence Memorial),
Hospital RevenueBonds,
6.20%, 7/1/19 $ 252,467
Aa NR 705 Shawnee County,
(Sisters of Charity),
Revenue Bonds, 5.00%,
12/1/23 619,357
-----------
$ 871,824
-----------
Housing - 28.84%
Aaa AAA $230 City of Kansas City,
Multifamily Housing
Revenue Bonds
(MFHRB) (FHA
Insured-Rainbow
Towers), 6.70%, 7/1/23 $ 236,541
NR AAA 440 City of Kansas City,
Single Family Housing
(SFH) (GNMA),
7.00%, 12/1/11 440,525
Aaa NR $ 85 City of Kansas City,
SFH (GNMA)
5.30%, 5/1/07 $ 83,492
Aaa NR 85 City of Kansas City,
SFH (GNMA)
5.30%, 11/1/07 83,441
Aaa NR 200 City of Kansas City,
SFH (GNMA)
5.90%, 11/1/27 196,892
NR AAA 240 City of Olathe, Kansas,
SFH (AMT), (GNMA)
7.60%, 3/1/07 253,786
NR AAA 250 City of Olathe, Kansas,
MFHRB (FNMA
Program Deerfield
Apartments), 6.45%,
6/1/19 254,150
Aaa NR 210 Cities of Olathe and
of Labette, Collateralized
Single Family Mortgage
Revenue Bonds
(CSFMRB) (GNMA),
8.10%, 8/1/23 231,500
Aa NR 100 Kansas Development
Authority SFH FHA
(Martin Creek), 6.60%,
8/1/34 102,145
Aaa NR 45 Sedgwick County SFH
(GNMA) Ser 94 B
8.20%, 5/1/14 49,424
Aaa AAA 240 Sedgwick and Shawnee
Counties, CSFMRB
(GNMA), 7.50%,
12/1/09 242,105
Aaa AAA 130 Sedgwick and Shawnee
Counties, CSFMRB
(GNMA), 7.50%,
12/1/10 126,019
Aaa NR 235 Sedgwick and Shawnee
Counties, CSFMRB
(GNMA), 7.75%,
11/1/24 (2) 265,085
Aaa NR $475 Sedgwick and Shawnee
Counties, CSFMRB
(GNMA), 8.00%,
5/1/25 $ 522,744
NR AA 250 Puerto Rico Housing
Finance Corporation,
MFMRB 7.50%,
4/1/22 262,485
-----------
$ 3,350,334
-----------
Industrial Development Revenue - 2.50%
A2 NR $100 Puerto Rico I.M.E.
(American Home
Products), 5.10%,
12/1/18 $ 90,020
Baa3 BB+ 200 Puerto Rico Port
Authority, (American
Airlines), 6.30%, 6/1/23 200,648
-----------
$ 290,668
-----------
Insured Health Care - 4.35%
Aaa AAA $500 Kansas Development
Finance, Health
Facilities, (Stormont-
Vail), (MBIA)
5.80%, 11/15/11 $ 504,960
-----------
Insured Housing - 0.89%
NR AA $100 Puerto Rico Housing
Finance Corp. ,
MFHRB, (AMBAC)
7.50%, 10/1/11 $ 103,457
-----------
Insured Utilities - 4.18%
Aaa AAA $345 City of Burlington,
PCR (Kansas Gas &
Electric Co.) (MBIA),
7.00%, 6/1/31 (2) $ 377,623
Aaa AAA 100 Puerto Rico Electric
Power Authority, Power
Revenue Bonds (FSA),
Residual Interest Bonds,
Variable Rate, 7/1/02 (1) 108,155
-----------
$ 485,778
-----------
Insured General
Obligations- 4.44%
Aaa AAA $150 City of Garnett,
Combined Utility
Revenue Bonds
(MBIA), 6.00%,
10/1/17 $ 153,129
Aaa AAA 200 City of Kansas City,
Utility System
Revenue Bonds (FGIC),
6.375%, 9/1/23 208,978
Aaa AAA 150 Kansas Development
Finance Authority,
Revenue Bonds (MBIA),
5.90%, 10/1/09 153,985
-----------
$ 516,092
-----------
Insured General
Obligations (School
District) - 10.53%
Aaa AAA $150 Atchison County, USD
No. 409, (FSA),
5.375%, 9/1/15 $ 142,860
Aaa AAA 350 Johnson County, Olathe,
USD No. 233
(AMBAC), 5.625%,
9/1/11 353,483
Aaa AAA 250 Sedgwick County,
USD No. 267,
(AMBAC), 6.15%,
11/1/09 266,280
Aaa AAA 230 Sedgwick County,
USD No. 267,
(AMBAC), 6.15%,
11/1/10 244,113
Aaa AAA 165 Shawnee County,
Seaman, USD No. 345,
(MBIA), 5.75%, 9/1/11 167,330
Aaa AAA 50 Shawnee County, USD
No. 345, (MBIA),
5.50%, 9/1/13 49,669
-----------
$ 1,223,735
-----------
Insured Hospitals - 8.75%
Aaa AAA $200 City of Olathe, Health
Facilities Revenue
Bonds, Evangelical
Lutheran Good
Samaritan Society,
(AMBAC), 6.00%,
5/1/19 $ 205,016
Aaa AAA 895 Shawnee County,
Health Facilities
Revenue Bonds,
Menninger Foundation,
(FSA), 5.00%, 8/15/16 811,792
-----------
$ 1,016,808
-----------
Insured Water and
Sewer - 4.85%
Aaa AAA $270 Junction City Kansas
Water & Sewer
(MBIA) 5.20%, 9/1/10 $ 261,865
Aaa AAA 300 Haysville Kansas Water
& Waste Water Utility,
(FSA) 5.70%, 10/1/11 301,581
-----------
$ 563,446
-----------
Transportation - 7.49%
NR BBB $100 Guam Airport
Authority General
Revenue Bonds,
6.50%, 10/1/23 $ 100,880
NR BBB 300 Guam Airport
Authority General
Revenue Bonds,
(AMT), 6.70%, 10/1/23 304,674
Aa AA 480 State of Kansas
Department of
Transportation
Highway Revenue
Bonds, 5.375%, 3/1/13 464,390
-----------
$ 869,944
-----------
Utilities - 2.09%
NR BBB $100 Guam Power Authority
Revenue Bonds,
5.25%, 10/1/13 $ 88,882
NR BBB 150 Guam Power Authority
Revenue Bonds,
6.625%, 10/1/14 153,373
-----------
$ 242,255
-----------
Water and Sewer - 0.43%
Aa AA+ $ 50 Water District No. 1
of Johnson County,
Water Revenue Bonds,
5.75%, 12/1/19 $ 49,489
-----------
Total Tax-Exempt Investments
(identified cost, $11,375,782) $11,617,593
===========
(1) The above designated securities have been issued as inverse floater bonds.
(2) Security has been segregated to cover margin requirements for open financial futures
contracts.
AMT - Interest earned from these securities may be considered a tax preference item for
purposes of the Federal Alternative Minimum Tax.
The Portfolio primarily invests in debt securities issued by Kansas municipalities. The
ability of the issuers of the debt securities to meet their obligations may be affected by
economic developments in a specific industry or municipality. In order to reduce the risk
associated with such economic developments, at July 31, 1996, 38.0% of the securities in
the portfolio of investments are backed by bond insurance of various financial institutions
and financial guaranty assurance agencies. The aggregate percentage by financial
institution ranged from 1.2% to 14.4% of total investments.
See notes to financial statements
</TABLE>
<TABLE>
<CAPTION>
Municipals Portfolios
Financial Statements
Statements of Assets and Liabilities
July 31, 1996 (Unaudited)
Florida Insured Hawaii Kansas
Portfolio Portfolio Portfolio
------------------ -------------- --------------
<S> <C> <C> <C>
Assets:
Investments --
Identified cost $ 21,865,013 $ 14,542,682 $ 11,375,782
Unrealized appreciation 672,567 814,312 241,811
------------ ------------ ------------
Total investments, at value (Note 1A) $ 22,537,580 $ 15,356,994 $ 11,617,593
Cash 369,103 41,458 32
Receivable from the Investment Adviser (Note 2) 22,937 27,897 19,494
Interest receivable 385,498 157,398 204,651
Deferred organization expenses (Note 1D) 6,269 5,737 5,668
------------ ------------ ------------
Total assets $ 23,321,387 $ 15,589,484 $ 11,847,438
------------ ------------ ------------
Liabilities:
Payable for when-issued securities (Note 1G) $ 126,767 $ -- $ --
Payable for daily variation margin on open
financial futures contracts (Note 1E) 17,188 10,406 3,438
Demand note payable (Note 5) -- -- 189,000
Payable to affiliate --
Trustees' fees 14 14 14
Accrued expenses 2,395 3,879 2,479
------------ ------------ ------------
Total liabilities $ 146,364 $ 14,299 $ 194,931
------------ ------------ ------------
Net Assets applicable to investors' interest in Portfolio $ 23,175,023 $ 15,575,185 $ 11,652,507
============ ============ ============
Sources of Net Assets:
Net proceeds from capital contributions and withdrawals $ 22,552,130 $ 14,774,331 $ 11,414,665
Unrealized appreciation of investments and financial
futures contracts (computed on the basis of identified cost) 622,893 800,854 237,842
------------ ------------ ------------
Total $ 23,175,023 $ 15,575,185 $ 11,652,507
============ ============ ============
See notes to financial statement
</TABLE>
<TABLE>
<CAPTION>
Statements of Operations
For the Six Months Ended July 31, 1996 (Unaudited)
Florida Insured Hawaii Kansas
Portfolio Portfolio Portfolio
------------------ -------------- --------------
<S> <C> <C> <C>
Investment Income:
Interest income $ 635,898 $ 456,177 $ 342,635
------------ ------------ ------------
Expenses --
Investment adviser fee (Note 2) $ 18,958 $ 12,123 $ 9,288
Compensation of Trustees not members of the
Investment Adviser's organization 58 58 58
Custodian fees (Note 1H) 15,614 11,083 10,474
Legal and accounting services 17,649 17,649 14,549
Bond pricing 3,486 3,116 3,590
Amortization of organization expenses (Note 1D) 1,208 1,103 1,092
Miscellaneous 536 1,379 205
------------ ------------ ------------
Total expenses $ 57,509 $ 46,511 $ 39,256
------------ ------------ ------------
Deduct --
Preliminary reduction of investment adviser fee (Note 2) $ 18,958 $ 12,123 $ 9,288
Preliminary allocation of expenses to the Investment Adviser (Note 2) 22,937 27,897 19,494
Reduction of custodian fee (Note 1H) 15,614 6,491 10,474
------------ ------------ ------------
Total $ 57,509 $ 46,511 $ 39,256
------------ ------------ ------------
Net expenses $ -- $ -- $ --
------------ ------------ ------------
Net investment income $ 635,898 $ 456,177 $ 342,635
------------ ------------ ------------
Realized and Unrealized Gain (Loss):
Net realized gain (loss) --
Investment transactions (identified cost basis) $ 145,608 $ (23,229) $ 11,139
Financial futures contracts 62,720 39,643 10,787
------------ ------------ ------------
Net realized gain $ 208,328 $ 16,414 $ 21,926
------------ ------------ ------------
Change in unrealized appreciation (depreciation) --
Investments $ (1,002,946) $ (541,183) $ (397,352)
Financial futures contracts (49,674) (13,458) (3,143)
------------ ------------ ------------
Net unrealized depreciation $ (1,052,620) $ (554,641) $ (400,495)
------------ ------------ ------------
Net realized and unrealized loss $ (844,292) $ (538,227) $ (378,569)
------------ ------------ ------------
Net decrease in net assets from operations $ (208,394) $ (82,050) $ (35,934)
============ ============ ============
See notes to financial statements
</TABLE>
<TABLE>
<CAPTION>
Statements of Changes in Net Assets
For the Six Months Ended July 31, 1996 (Unaudited)
Florida Insured Hawaii Kansas
Portfolio Portfolio Portfolio
------------------ -------------- --------------
<S> <C> <C> <C>
Increase (Decrease) in Net Assets:
From operations --
Net investment income $ 635,898 $ 456,177 $ 342,635
Net realized gain 208,328 16,414 21,926
Change in unrealized appreciation (depreciation) (1,052,620) (554,641) (400,495)
------------ ------------ ------------
Net decrease in net assets from operations $ (208,394) $ (82,050) $ (35,934)
------------ ------------ ------------
Capital transactions --
Contributions $ 3,152,766 $ 1,093,748 $ 1,257,392
Withdrawals (1,185,149) (1,014,590) (1,177,592)
------------ ------------ ------------
Increase in net assets resulting from capital transactions $ 1,967,617 $ 79,158 $ 79,800
------------ ------------ ------------
Total increase (decrease) in net assets $ 1,759,223 $ (2,892) $ 43,866
Net Assets:
At beginning of period 21,415,800 15,578,077 11,608,641
------------ ------------ ------------
At end of period $ 23,175,023 $ 15,575,185 $ 11,652,507
============ ============ ============
- -----------------------------------------------------------------------------------------------------------------------------
For the Year Ended January 31, 1996
- -----------------------------------------------------------------------------------------------------------------------------
Florida Insured Hawaii Kansas
Portfolio Portfolio Portfolio
---------------- -------------- --------------
Increase (Decrease) in Net Assets:
From operations --
Net investment income $ 1,016,847 $ 890,336 $ 590,562
Net realized loss (93,236) (221,382) (12,613)
Change in unrealized appreciation 1,447,272 1,475,473 756,065
------------ ------------ ------------
Net increase in net assets from operations $ 2,370,883 $ 2,144,427 $ 1,334,014
------------ ------------ ------------
Capital transactions --
Contribtutions $ 7,413,811 $ 3,305,491 $ 3,013,009
Withdrawals (2,768,845) (2,736,380) (1,044,410)
------------ ------------ ------------
Increase in net assets resulting from capital transactions $ 4,644,966 $ 569,111 $ 1,968,599
------------ ------------ ------------
Total increase in net assets $ 7,015,849 $ 2,713,538 $ 3,302,613
Net Assets:
At beginning of year 14,399,951 12,864,539 8,306,028
------------ ------------ ------------
At end of year $ 21,415,800 $ 15,578,077 $ 11,608,641
============ ============ ============
See notes to financial statements
</TABLE>
<TABLE>
<CAPTION>
Supplementary Data
Florida Insured Portfolio Hawaii Portfolio
------------------------------------ --------------------------------------
Six Months Ended Year Ended January 31, Six Months Ended Year Ended January 31,
July 31, 1996 ----------------------- July 31, 1996 -------------------
(Unaudited) 1996 1995* (Unaudited) 1996 1995*
--------------- ---------- ---------- --------------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Ratios (As a percentage of average
daily net assets)**:
Net expenses (1) 0.14%+ 0.07% 0.01%+ 0.09%+ 0.06% 0.06%+
Net expenses, after custodian fee reduction (1) 0.00%+ 0.00% -- 0.00%+ 0.00% --
Net investment income 5.80%+ 5.82% 5.73%+ 6.03%+ 6.01% 6.03%+
Portfolio Turnover 23% 32% 33% 19% 19% 66%
**The operating expenses of the Portfolios reflect a reduction of the investment adviser fee and/or allocation of expenses to
the Investment Adviser. Had such actions not been taken, the ratios would have been as follows:
Ratios (As a percentage of average
daily net assets):
Expenses (1) 0.52%+ 0.39% 0.41%+ 0.62%+ 0.41% 0.38%+
Expenses after custodian fee reduction (1) 0.38%+ 0.32% -- 0.53%+ 0.35% --
Net investment income 5.42%+ 5.50% 5.33%+ 5.50%+ 5.66% 5.70%+
+ Annualized.
* For the period from the start of business, March 2, 1994, to January 31, 1995.
(1) The expense ratios for the six months ended July 31, 1996 and year ended January 31, 1996 have been adjusted to reflect a
change in reporting requirements. The reporting guidelines require each Portfolio to increase its expense ratio by the
effect of any expense offset arrangements with its service providers. The expense ratios for the period ended January 31,
1995 have not been adjusted to reflect this change. The expense ratios, after custodian fee reductions, for the year ended
January 31, 1996 are unaudited.
See notes to financial statements
</TABLE>
<TABLE>
<CAPTION>
Supplementary Data
Kansas Portfolio
------------------------------------------------
Six Months Ended Year Ended January 31,
July 31, 1996 ----------------------------
(Unaudited) 1996 1995*
------------------ ---------- ----------
<S> <C> <C> <C>
Ratios (As a percentage of average daily net assets)**:
Net expenses (1) 0.18%+ 0.09% 0.01%+
Net expenses, after custodian fee reduction (1) 0.00%+ 0.00% --
Net investment income 5.84%+ 5.93% 5.68%+
Portfolio Turnover 17% 21% 12%
**The operating expenses of the Portfolio reflect a reduction of the investment adviser fee and/or
allocation of expenses to the Investment Adviser. Had such actions not been taken, the ratios
would have been as follows:
Ratios (As a percentage of average daily net assets):
Expenses (1) 0.67%+ 0.50% 0.43%+
Expenses, after custodian fee reduction (1) 0.49%+ 0.41% --
Net investment income 5.35%+ 5.52% 5.26%+
+ Annualized.
* For the period from the start of business, March 2, 1994, to January 31, 1995.
(1) The expense ratios for the six months ended July 31, 1996 and year ended January 31, 1996 have been
adjusted to reflect a change in reporting requirements. The reporting guidelines require the Portfolio
to increase its expense ratio by the effect of any expense offset arrangements with its service providers.
The expense ratios for the period ended January 31, 1995 have not been adjusted to reflect this change.
The expense ratios, after custodian fee reductions, for the year ended January 31, 1996 are unaudited.
See notes to financial statements
</TABLE>
Notes to Financial Statements
(Unaudited)
(1) Significant Accounting Policies
Florida Insured Municipals Portfolio ("Florida Insured Portfolio"),
Hawaii Municipals Portfolio ("Hawaii Portfolio") and Kansas
Municipals Portfolio ("Kansas Portfolio"), collectively the
Portfolios, are registered under the Investment Company Act of 1940
as non-diversified open-end management investment companies which
were organized as trusts under the laws of the State of New York on
May 1, 1992 for the Hawaii Portfolio and October 25, 1993 for the
Florida Insured Portfolio and Kansas Portfolio. The Declarations of
Trust permit the Trustees to issue interests in the Portfolios. The
following is a summary of significant accounting policies
consistently followed by the Portfolios in the preparation of their
financial statements. 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 and options on financial futures
contracts listed on commodity exchanges are valued at closing
settlement prices. Over the counter options on financial futures
contracts are normally valued at the mean between the latest bid and
asked prices. Short-term obligations, maturing in sixty days or
less, are valued at amortized cost, which approximates value.
Investments for which valuations or market quotations are
unavailable are valued at fair value using methods determined in
good faith by or at the direction of the Trustees.
B. Income - Interest income is determined on the basis of interest
accrued, adjusted for amortization of premium or discount when
required for federal income tax purposes.
C. Income Taxes - The Portfolios are treated as partnerships for
Federal tax purposes. No provision is made by the Portfolios for
federal or state taxes on any taxable income of the Portfolios
because each investor in the Portfolios is ultimately responsible
for the payment of any taxes. Since some of the Portfolios'
investors are regulated investment companies that invest all or
substantially all of their assets in the Portfolios, the Portfolios
normally must satisfy the applicable source of income and
diversification requirements (under the Internal Revenue Code) in
order for their respective investors to satisfy them. The Portfolios
will allocate at least annually among their respective investors
each investor's distributive share of the Portfolios' net taxable
(if any) and tax-exempt investment income, net realized capital
gains, and any other items of income, gain, loss, deductions or
credit. Interest income received by the Portfolios on investments in
municipal bonds which is excludable from gross income under the
Internal Revenue Code, will retain its status as income exempt from
federal income tax when allocated to each Portfolio's investors. The
portion of such interest, if any, earned on private activity bonds
issued after August 7, 1986, may be considered a tax preference item
for investors.
D. Deferred Organization Expenses - Costs incurred by a Portfolio in
connection with its organization are being amortized on the
straight-line basis over five years.
E. Financial Futures Contracts - Upon the entering of a financial
futures contract, a Portfolio is required to deposit ("initial
margin") either in cash or securities an amount equal to a certain
percentage of the purchase price indicated in the financial futures
contract. Subsequent payments are made or received by a Portfolio
("margin maintenance") each day, dependent on the daily fluctuations
in the value of the underlying security, and are recorded for book
purposes as unrealized gains or losses by a Portfolio. A Portfolio's
investment in financial futures contract is designed only to hedge
against anticipated future changes in interest rates. Should
interest rates move unexpectedly, a Portfolio may not achieve the
anticipated benefits of the financial futures contracts and may
realize a loss.
F. Options on Financial Futures Contracts - Upon the purchase of a
put option on a financial futures contract by a Portfolio, the
premium paid is recorded as an investment, the value of which is
marked-to-market daily. When a purchased option expires, a Portfolio
will realize a loss in the amount of the cost of the option. When a
Portfolio enters into a closing sales transaction, the Portfolio
will realize a gain or loss depending on whether the sales proceeds
from the closing sales transaction is greater or less than the cost
of the option. When a Portfolio exercises a put option, settlement
is made in cash. The risk associated with purchasing options is
limited to the premium originally paid.
G. When-issued and Delayed Delivery Transactions - The Portfolios
may engage in when-issued and delayed delivery transactions. The
Portfolios record when-issued securities on trade date and maintain
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 Portfolios. Pursuant to the respective custodian
agreements, IBT receives a fee reduced by credits which are
determined based on the average daily cash balances each Portfolio
maintains with IBT. All significant credit balances used to reduce
the Portfolios' custodian fees are reported as a reduction of
expenses in the statements 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 month period then ended
have not been audited by independent certified public accountants,
but in the opinion of the Portfolio's management, reflect all
adjustments, consisting of only 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 each Portfolio. The fee is based upon a
percentage of average daily net assets plus a percentage of gross
income (i.e., income other than gains from the sale of securities).
For the six months ended July 31, 1996, the fee for the Florida
Insured Portfolio, Hawaii Portfolio and Kansas Portfolio was
equivalent to 0.16% of each Portfolio's average net assets and
amounted to $18,958, $12,123 and $9,288 respectively. To enhance the
net income of the Florida Insured Portfolio, Hawaii Portfolio and
Kansas Portfolio, BMR made a preliminary reduction of its fee in the
amount of $18,958, $12,123 and $9,288, respectively, and $22,937,
$27,897 and $19,494, respectively, of expenses related to the
operation of the Portfolios were allocated, on a preliminary basis,
to BMR. Except as to Trustees of the Portfolios who are not members
of EVM's or BMR's organization, officers and Trustees receive
remuneration for their services to the Portfolios out of such
investment adviser fee.
Certain of the officers and Trustees of the Portfolios are officers
and directors/trustees of the above organizations.
Trustees of the Portfolios that are not affiliated with the
Investment Adviser may elect to defer receipt of all or a percentage
of their annual fees in accordance with the terms of the Trustees
Deferred Compensation Plan. For the six months ended July 31, 1996,
no significant amounts have been deferred.
(3) Investments
Purchases and sales of investments, other than U.S. Government
securities, put option transactions and short-term obligations, for
the six months ended July 31, 1996 were as follows:
<TABLE>
<CAPTION>
Florida Hawaii Kansas
Insured Portfolio Portfolio Portfolio
------------------ ------------------- --------------------
<S> <C> <C> <C>
Purchases $8,051,725 $3,333,000 $2,722,686
Sales 4,960,581 2,846,489 1,949,049
</TABLE>
<TABLE>
<CAPTION>
(4) Federal Income Tax Basis of Investments
The cost and unrealized appreciation/depreciation in value of the investments owned by each Portfolio at
July 31, 1996, as computed on a federal income tax basis, are as follows:
Florida Hawaii Kansas
Insured Portfolio Portfolio Portfolio
-------------------- -------------------- --------------------
<S> <C> <C> <C>
Aggregate Cost $ 21,865,013 $ 14,542,682 $ 11,375,782
============ ============ ============
Gross unrealized appreciation $ 731,624 $ 832,310 $ 322,169
Gross unrealized depreciation 59,057 17,998 80,358
------------ ------------ ------------
Net unrealized appreciation $ 672,567 $ 814,312 $ 241,811
============ ============ ============
</TABLE>
(5) Line of Credit
The Portfolios participate with other portfolios and funds managed
by BMR and EVM in a $120 million unsecured line of credit agreement
with a bank. The line of credit consists of a $20 million committed
facility and a $100 million discretionary facility. Each Portfolio
may temporarily borrow up to 5% of its total assets to satisfy
redemption requests or settle securities transactions. Interest is
charged to each portfolio or fund based on its borrowings at an
amount above either the bank's adjusted certificate of deposit rate,
a variable adjusted certificate of deposit rate, or a federal funds
effective rate. In addition, a fee computed at an annual rate of 1/4
of 1% on the $20 million committed facility and on the daily unused
portion of the $100 million discretionary facility is allocated
among the participating funds and portfolios at the end of each
quarter. At July 31, 1996, the Kansas Portfolio had a balance
outstanding pursuant to this line of credit of $189,000. The Florida
Insured Portfolio, Hawaii Portfolio and the Kansas Portfolio did not
have any significant borrowings or allocated fees during the six
months ended July 31, 1996.
(6) Financial Instruments
The Portfolios regularly trade in financial instruments with off-
balance sheet risk in the normal course of their investing
activities to assist in managing exposure to various market risks.
These financial instruments include written options and futures
contracts and may involve, to a varying degree, elements of risk in
excess of the amounts recognized for financial statement purposes.
The notional or contractual amounts of these instruments represent
the investment a Portfolio has in particular classes of financial
instruments and does not necessarily represent the amounts
potentially subject to risk. The measurement of the risks associated
with these instruments is meaningful only when all related and
offsetting transactions are considered.
<TABLE>
<CAPTION>
A summary of obligations under these financial instruments at July
31, 1996 is as follows:
Futures
Contracts Net Unrealized
Portfolio Expiration Date Contracts Position Depreciation
- ---------- -------------------- ------------ ---------- ----------------
<S> <C> <C> <C> <C>
Florida Insured 9/96 25 U.S. Treasury Bond Short $(49,674)
Hawaii 9/96 15 U.S. Treasury Bond Short (13,458)
Kansas 9/96 5 U.S. Treasury Bond Short (3,969)
At July 31, 1996, the Portfolios had sufficient cash and/or securities segregated to cover margin
requirements on open futures contracts.
</TABLE>
Investment Management
Funds
Officers
Thomas J. Fetter
President
James B. Hawkes
Vice President, Trustee
Robert B. MacIntosh
Vice President
James L. O'Connor
Treasurer
Thomas Otis
Secretary
Independent Trustees
Donald R. Dwight
President, Dwight Partners, Inc.
Chairman, Newspaper of New England, Inc.
Samuel L. Hayes, III
Jacob H. Schiff Professor of Investment
Banking, Harvard University Graduate School
of Business Administration
Norton H. Reamer
President and Director, United Asset
Management Corporation
John L. Thorndike
Director, Fiduciary Company Incorporated
Jack L. Treynor
Investment Adviser and Consultant
Portfolios
Officers
Thomas J. Fetter
President
James B. Hawkes
Vice President, Trustee
Robert B. MacIntosh
Vice President of Florida Insured,
Hawaii and Kansas Municipals Portfolios
and Portfolio Manager of Hawaii
Municipals Portfolio
Nicole Anderes
Vice President and Portfolio Manager
of Kansas Municipals Portfolio
Timothy T. Browse
Vice President and Portfolio Manager of
Florida Insured Municipals Portfolio
James L. O'Connor
Treasurer
Thomas Otis
Secretary
Independent Trustees
Donald R. Dwight
President, Dwight Partners, Inc.
Chairman, Newspaper of New England, Inc.
Samuel L. Hayes, III
Jacob H. Schiff Professor of Investment
Banking, Harvard University Graduate School
of Business Administration
Norton H. Reamer
President and Director, United Asset
Management Corporation
John L. Thorndike
Director, Fiduciary Company Incorporated
Jack L. Treynor
Investment Adviser and Consultant
Portfolio Investment Adviser
Boston Management and Research
24 Federal Street
Boston, MA 02110
Fund Administrator
Eaton Vance Management
24 Federal Street
Boston, MA 02110
Principal Underwriter
Eaton Vance Distributors, Inc.
24 Federal Street
Boston, MA 02110
(617) 482-8260
Custodian
Investors Bank & Trust Company
89 South Street
P.O. Box 1537
Boston, MA 02205-1537
Transfer Agent
First Data Investor Services Group
Attn: Eaton Vance Funds
P.O. Box 5123
Westborough, MA 01581-5123
This report must be preceded or accompanied by a current prospectus
which contains more complete information on the Funds, including
distribution plan, sales charges and expenses. Please read the
prospectus carefully before you invest or send money.
Eaton Vance Municipals Trust II
24 Federal Street
Boston, MA 02110
T-FLISRC-9/96
