EV Marathon
High Yield
Municipals
Fund
[LOGO: DOOR]
Annual
Shareholder Report
January 31, 1997
To Shareholders
EV Marathon High Yield Municipals Fund paid to its shareholders
monthly income dividends totaling $0.63 per share during the year
ended January 31, 1997. Based on the most recent dividend paid and the
Fund's net asset value per share of $10.62 on January 31, 1997, the
Fund's annualized distribution rate at net asset value was 5.74%. To
equal this rate in a taxable investment, a couple in the 36% Federal
tax bracket would have to receive 8.97%.
The municipal bond market in 1996 was characterized by heightened
volatility as investors reacted to a seesaw interest rate environment
and a politically-charged debate over the possibility of a flat tax.
At the outset of the year, the economy seemed poised for a slowdown,
and the Federal Reserve appeared ready to revive growth through
interest rate reductions. In January, the Fed lowered the Federal
Funds Rate -- the rate banks charge each other for overnight loans and
a key short-term interest rate barometer -- to 5.25%. However, it soon
became apparent that the economy was stronger than anticipated and
that inflation, while still at a low level, would bear further
watching. Long-term bond yields climbed steadily higher, reaching
their peak in mid-June.
Investors were heartened by economic reports in the second half of the
year that showed a scenario of slow growth and low inflation. In
addition, the federal budget deficit, which had ballooned in the
1980s, fell to just 1.5% of gross domestic product. Against that
favorable backdrop, bond yields finished the year at lower levels than
at mid-year.
Looking ahead to 1997, we believe an investment in municipal bonds
continues to represent good value for several reasons. First, the
nation's economy should continue to grow at a fairly modest pace in
1997, which is favorable for bonds in general. Second, due to public
demand, it is increasingly likely that Congress and the Clinton
Administration will make progress toward a balanced budget. Third,
with the equity markets having turned in two consecutive years of
performances well above historical averages, investors may look for
alternatives within the bond markets. Finally, taxes remain a burden
and, for most investors, municipal bonds are the last remaining
vehicle for tax relief. For these reasons, we believe that the
municipal market will continue to be a favored avenue for tax-
conscious investors. Eaton Vance's municipal bond department will
continue to seek high, tax-free current income for shareholders.
Sincerely,
/S/THOMAS J. FETTER
Thomas J. Fetter
President
March 6, 1997
[PHOTO OF THOMAS J. FETTER OMITTED]
Portfolio Overview
[GRAPHIC OF UNITED STATES OMITTED]
Based on market value as of Jan. 31, 1997
Number of issues 92
Average quality BBB-
Investment grade 36.7%
Effective maturity (years) 14.9
Largest sectors:
Industrial development revenue 19.6%
Hospitals 12.1
Assisted living 11.5
Housing 8.8
Nursing homes 8.2
Management Report
An interview with Thomas M. Metzold, portfolio manager of the High
Yield Municipals Portfolio.
Q. Tom, how would you characterize the bond market in the past year?
A. The overall bond market was fairly volatile throughout the past
year. Investors were torn for much of the period between two differing
economic scenarios. At times, government data suggested that the
economy was growing at a stronger than expected pace, which caused the
market to sell off as investors feared a renewed inflationary trend.
Alternately, the data indicated that the economy remained in a slow-
growth mode, with inflation well under control, prompting the market
to rally. Adding to the market volatility was the fact that the
Federal Reserve Board -- led by chairman Greenspan -- continued to
signal its bias for high rates. That uncertainty characterized the
market for much of the year.
[PHOTO OF THOMAS M. METZOLD OMITTED]
Meanwhile, the municipal market outper-formed the Treasury market. As
discussion of the flat-tax faded from the political agenda, investors
once again focused on the excellent values that tax-exempt bonds
represent. That gave additional momentum to the municipal market.
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.
Q. The Fund's total return of 5.9% during the year ended January 31
far outpaced the 3.9% average of all high-yield municipal bond funds,
according to Lipper Analytical Services, Inc., a mutual fund ranking
service.* What accounted for the Fund's strong performance?
A. The Fund benefited from its investments in a wide range of
projects and special situations. These projects produced higher-than-
average yields while maintaining strong underlying fundamentals. In a
difficult interest environ-ment, these bonds generally held their
values well, while continuing to pay high tax-exempt income.
Unlike the broader bond market, which is very highly sensitive to
fluctuations in interest rates, the Fund's investment universe is made
up of bonds that are more credit-driven. That means that investors
focus more on the strength of the projects involved and the underlying
funda-mentals of individual deals. While these bonds required more in-
depth attentive analysis and more attentive monitoring, they produced
superior returns in the past year.
Q. Have you made many changes to the Portfolio in the past six months?
A. The Portfolio remained extremely well-diversified, including a
large exposure to industrial development bonds as well as a wide
variety of health care-related projects. The Portfolio continued to
enjoy strongly positive cash flows during the year, and we had no
trouble putting those investments to work.
*Lipper average of 43 high yield municipal bond funds reflects
historical performance through 1/31/97. Performance is based on the
funds' total returns and does not take sales charges into
consideration. It is not possible to invest directly in the Lipper
average. Past performance is no guarantee of future results.
There have been some sector shifts in the past year, as the Portfolio
increased its exposure to nursing homes, assisted living facilities,
and continuing care retirement communities. These projects address --
each in its own way -- a specific stage in the care of our older
citizens. Because they provide care for people at different stages of
the aging process, they are likely to play an increasingly vital role
in our efforts to deliver health care to a rapidly aging population.
Q. How do these sectors differ?
A. These projects provide a variety of retirement living services for
senior citizens, depending upon their particular needs. For example,
independent-living communities address the needs of seniors who are
still fairly active and prefer to take care of their own daily needs.
They maintain separate living facilities with all the amenities and
allow residents to continue an independent lifestyle.
Assisted-living communities provide an enhanced degree of services for
those who, while still ambulatory, may require periodic medical
attention. Nursing homes provide services for those who may need more
chronic care and increased personal attention.
A concept that combines all of these areas is that of continuing care
retirement communities (CCRCs). These facilities provide a full
spectrum of independent living, assisted living and nursing care, all
within the same complex. Because everything is under the same roof,
the CCRCs make changes in living status much less disruptive for the
residents and make it easier for families to make important life
decisions.
Q. Could you briefly profile one of these investments?
A. Certainly. Among the projects we're very enthusiastic about is
White Horse Village, a continuing care retirement community located in
Edgmont Township, Pennsylvania, about 20 miles west of Philadelphia.
The project consists of a Residential Center with 306 residential
units, a Health Center featuring 59 skilled nursing beds and 39
personal care beds, and a Commons Building that houses activity areas,
dining facilities, a gift shop, a branch bank, and administrative
offices.
[GRAPHIC OMITTED: Tax-exempt bonds yield 82% of Treasury yields chart]
Tax-exempt bonds yield 82% of Treasury yields
30-yr. AAA General Obligation (GO) Bonds* 5.55%
Taxable equivalent yield for investor
in 36% tax bracket 8.67%
30-year Treasury Bond 6.79%
Principal and interest payments 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 neccessarily represented by
the Fund's yield. Statistics as of January 31, 1997.
Past performance is no guarantee of future results.
Source: Bloomberg, L.P.
The White Horse project benefits from favorable demographics. The
population aged 70 and above within the project's defined market area
grew 7 times as fast as the general population from 1990-1996. That
trend is expected to gain further momentum in coming years. The bonds
are attractive to investors because of their above-average 7.3%
coupon. The issue is additionally attractive because it helped finance
a novel solution to what is sure to be a growing challenge in the
years ahead.
Q. Are high-yield municipal bonds like these typically available to
retail investors?
A. No. Typically, these are private placements or limited public
offerings that are available only to institutional investors like
insurance companies or mutual funds like High Yield Municipals
Portfolio. Often, we are able to take an active part in structuring
the deal, which gives us an added degree of security. As I indicated
earlier, these bonds are often special situations that call for
especially rigorous credit analysis. At Eaton Vance we view these
bonds as a way to add significant value. Therefore, we have increased
the resources we devote to this segment of the market. We maintain our
own internal, proprietary credit parameters, and we adhere to those
strict standards of creditworthiness.
Q. Tom, why should investors have a portion of their assets in
municipal bond investments?
A. There are several reasons. First, over the past two years, bonds
have been overshadowed by the extraordinary returns in the equity
market. I think it's important for investors to realize that those
returns are well beyond the historical averages for stocks and that
it's very likely that stock market returns will revert over time to
their historical norm.
Second, sound investment theory suggests that a diversified portfolio
should include a portion devoted to bonds. Bonds provide current
income and help cushion the impact of equity fluctuations on an
overall portfolio.
Finally, municipal bonds - and high-yield municipals in particular -
have historically offered above-average, after-tax total returns. In
an era of continuing high income taxes, municipals represent one of
the few remaining ways to cut one's tax bill.
Naturally, past performance is no guarantee of future trends. But in
my view, these are all worthwhile factors to consider and compelling
reasons to own municipal bonds.
[GRAPHIC OMITTED: worm chart]
Comparison of Change in Value of a $10,000 Investment in EV Marathon
High Yield Municipals Fund and the Lehman Brothers Municipal Bond Index
From August 31, 1995, through January 31, 1997
[Plot Points read:]
Fund w/
Date Fund at NAV CDSC Index
8/31/95 $10,000 NA $10,000
9/30/95 $10,183 NA $10,063
10/31/95 $10,358 NA $10,209
11/30/95 $10,612 NA $10,379
12/31/95 $10,747 NA $10,479
1/31/96 $10,764 NA $10,558
2/28/96 $10,687 NA $10,487
3/31/96 $10,526 NA $10,353
4/30/96 $10,428 NA $10,323
5/31/96 $10,564 NA $10,319
6/30/96 $10,675 NA $10,432
7/31/96 $10,821 NA $10,526
8/31/96 $10,897 NA $10,524
9/30/96 $11,049 NA $10,671
10/31/96 $11,206 NA $10,791
11/30/96 $11,378 NA $10,989
12/31/96 $11,403 NA $10,943
1/31/97 $11,403 $10,903 $10,963
Footnote reads:
Past performance is not indicative of the future results. Investment
returns and principal value 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; therefor, the line comparison begins at he 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, 99.63% of the total dividends paid by
the Fund from net investment income during the year ended January 31,
1997 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.
The 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 second dollar
figure reflects the Fund's maximum applicable contingent deferred
sales charge (CDSC) deducted at redemption as follows: 5%, 1st and 2nd
years; 4%, 3rd year; 3%, 4th year; 2%, 5th year; and 1%, 6th year.
The solid black 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 individ-
ually purchased or sold the securities represented in the Index. It is
not possible to invest directly in the Index.
EV Marathon High Yield Municipals Fund
Financial Statements
<TABLE>
<CAPTION>
Statement of Assets and Liabilities
January 31, 1997
<S> <C> <C>
Assets:
Investment in High Yield Municipals Portfolio (Portfolio),
at value (Note 1A) (identified cost, $119,551,409) $122,541,446
Receivable for Fund shares sold 969,690
Deferred organization expenses (Note 1D) 33,433
------------
Total assets $123,544,569
Liabilities:
Dividends payable $303,254
Payable for Fund shares redeemed 169,191
Payable to affiliate --
Trustees' fees (Note 4) 130
Accrued expenses 48,468
--------
Total liabilities 521,043
------------
Net Assets for 11,583,987 shares of beneficial
interest outstanding $123,023,526
============
Sources of Net Assets:
Paid-in capital $120,924,175
Accumulated net realized loss on investment transactions
and financial futures contracts from Portfolio
(computed on the basis of identified cost) (865,805)
Unrealized appreciation of investments
and financial futures contracts from Portfolio 2,990,037
Accumulated distributions in excess of net investment income (24,881)
------------
Total $123,023,526
============
Net Asset Value, Offering and Redemption Price (Note 6) Per Share
($123,023,526 (divided by) 11,583,987 shares of beneficial interest) $10.62
======
See notes to financial statements
</TABLE>
<TABLE>
<CAPTION>
Statement of Operations
For the Year Ended January 31, 1997
<S> <C> <C>
Investment Income (Note 1B):
Interest income allocated from Portfolio $6,101,069
Expenses allocated from Portfolio (256,631)
------------
Total investment income $5,844,438
Expenses --
Compensation of Trustees not members of the
Administrator's organization (Note 4) $ 1,859
Custodian fee (Note 1E) 6,813
Distribution fees (Note 5) 668,072
Transfer and dividend disbursing agent fees 71,386
Printing and postage 28,553
Legal and accounting services 7,350
Registration fees 61,339
Amortization of organization expenses (Note 1D) 13,389
Miscellaneous 4,576
----------
Total expenses $ 863,337
Deduct --
Reduction of custodian fee (Note 1E) (3,344)
----------
Net expenses 859,993
------------
Net investment income $4,984,445
Realized and Unrealized Gain (Loss) from Portfolio:
Net realized loss --
Investment transactions (identified cost basis) $ (174,900)
Financial futures contracts (690,905)
----------
Net realized loss on investment transactions $ (865,805)
Change in unrealized appreciation 2,149,787
----------
Net realized and unrealized gain 1,283,982
------------
Net increase in net assets resulting from operations $6,268,427
============
See notes to financial statements
</TABLE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
Year Ended January 31,
------------------------------------
1997 1996*
------------ -----------
<S> <C> <C>
Increase (Decrease) in Net Assets:
From operations --
Net investment income $ 4,984,445 $ 565,889
Net realized gain (loss) on investments (865,805) 5,322
Change in unrealized appreciation of investments 2,149,787 840,250
------------ -----------
Net increase in net assets resulting from operations $ 6,268,427 $ 1,411,461
------------ -----------
Distributions to shareholders (Note 2) --
From net investment income $ (4,985,320) $ (565,889)
In excess of net investment income (24,881) (13,320)
From net realized gain on investments (5,322) --
------------ -----------
Total distributions to shareholders $ (5,015,523) $ (579,209)
------------ -----------
Transactions in shares of beneficial
interest (Note 3) --
Proceeds from sale of shares $ 84,693,070 $43,338,440
Net asset value of shares issued to shareholders
in payment of distributions declared 1,648,815 201,331
Cost of shares redeemed (8,090,978) (852,308)
------------ -----------
Net increase in net assets from Fund share transactions $ 78,250,907 $42,687,463
------------ -----------
Net increase in net assets $ 79,503,811 $43,519,715
Net Assets:
At beginning of year 43,519,715 --
------------ -----------
At end of year (including accumulated
undistributed (distributions in excess of)
net investment income of ($24,881) and $875,
respectively) $123,023,526 $43,519,715
============ ===========
* For the period from the start of business, August 7, 1995 to January 31, 1996.
See notes to financial statements
</TABLE>
<TABLE>
<CAPTION>
Financial Highlights
Year Ended January 31,
---------------------------
1997 1996*
------- -------
<S> <C> <C>
Net asset value -- Beginning of year $10.650 $10.000
------- -------
Income from operations:
Net investment income $0.626 $0.299
Net realized and unrealized gain
(loss) on investments (0.026) 0.657
------- -------
Total income from operations $0.600 $0.956
------- -------
Less distributions:
From net investment income $(0.626) $(0.299)
In excess of net investment income (0.003) (0.007)
From net realized gain on investments (0.001) --
------- -------
Total distributions $(0.630) $(0.306)
------- -------
Net asset value -- End of year $10.620 $10.650
======= =======
Total Return (2) 5.9% 9.40%
Ratios/Supplemental Data**
Net assets, end of year (000's omitted) $123,024 $43,520
Ratio of net expenses to average net assets (1) 1.36% 0.88%+
Ratio of net expenses to average net assets
after custodian fee reduction (1) 1.32% 0.88%+
Ratio of net investment income to average net assets 5.91% 5.86%+
**The expenses related to the operation of the Fund and Portfolio reflect an assumption of
expenses by the Administrator or Investment Adviser. Had such actions not been taken, net
investment income per share and the ratios would have been as follows:
Net investment income per share $ 0.587 $ 0.254
======= =======
Ratios/Supplemental Data:
Expenses (1) 1.73% 1.77%+
Expenses after custodian fee reduction (1) 1.69% 1.77%+
Net investment income 5.54% 4.97%+
+ Computed on an annualized basis.
* For the period from the start of business, August 7, 1995, to January 31, 1996.
(1) Includes the Fund's share of High Yield Municipals Portfolio's allocated expenses.
(2) Total investment return is calculated assuming a purchase at the net asset value on the
first day and a sale at the net asset value on the last day of each period reported.
Dividends and distributions, if any, are assumed to be reinvested at the net asset
value on the payable date. Total return is not computed on an annualized basis.
See notes to financial statements
</TABLE>
Notes to Financial Statements
(1) Significant Accounting Policies
EV Marathon High Yield Municipals Fund (the Fund) is a non-
diversified series of Eaton Vance Municipals Trust II (the Trust).
The Trust is an entity of the type commonly known as a Massachusetts
business trust and is registered under the Investment Company Act of
1940, as amended, as an open-end management investment company. The
Fund invests all of its investable assets in interests in High Yield
Municipals Portfolio (the Portfolio), a New York Trust, having the
same investment objective as the Fund. The value of the Fund's
investment in the Portfolio reflects the Fund's proportionate
interest in the net assets of the Portfolio (67.8% at January 31,
1997). The performance of the Fund is directly affected by the
performance of the Portfolio. The financial statements of the
Portfolio, including the portfolio of investments, are included
elsewhere in this report and should be read in conjunction with the
Fund's financial statements. The following is a summary of
significant accounting policies consistently followed by the Fund in
the preparation of its financial statements. The policies are in
conformity with generally accepted accounting principles.
A. Investment Valuations -- Valuation of securities by the Portfolio
is discussed in Note 1A of the Portfolio's Notes to Financial
Statements which are included elsewhere in this report.
B. Income -- The Fund's net investment income consists of the Fund's
pro rata share of the net investment income of the Portfolio, less
all actual and accrued expenses of the Fund determined in accordance
with generally accepted accounting principles.
C. Federal Taxes -- The Fund's policy is to comply with the
provisions of the Internal Revenue Code applicable to regulated
investment companies and to distribute to shareholders each year all
of its taxable and tax-exempt income, including any net realized gain
on investments. Accordingly, no provision for federal income or
excise tax is necessary. At January 31, 1997, the Fund, for federal
income tax purposes, had a capital loss carryover of $79,992,
expiring on January 31, 2005, which will reduce the Fund's 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 Fund of any liability for
federal income or excise tax. Additionally, at January 31, 1997, net
capital losses of $919,520 attributable to security transactions
incurred after October 31, 1996, are treated as arising on the first
day of the Fund's next taxable year. Dividends paid by the Fund from
net tax-exempt interest on municipal bonds allocated from the
Portfolio are not includable by shareholders as gross income for
federal income tax purposes because the Fund and Portfolio intend to
meet certain requirements of the Internal Revenue Code applicable to
regulated investment companies which will enable the Fund to pay
exempt-interest dividends. The portion of such interest, if any,
earned on private activity bonds issued after August 7, 1986, may be
considered a tax preference item to shareholders.
D. Deferred Organization Expenses -- Costs incurred by the Fund in
connection with its organization are being amortized on the straight-
line basis over five years.
E. Expense Reduction -- Investors Bank & Trust Company (IBT) serves
as custodian of the Fund. Pursuant to the custodian agreement, IBT
receives a fee reduced by credits which are determined based on the
average daily cash balance the Fund maintains with IBT. All
significant cash balances used to reduce the Fund's custodian fees
are reported as a reduction of expenses in the statement of
operations.
F. Use of Estimates -- The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expense during the
reporting period. Actual results could differ from those estimates.
G. Other -- Investment transactions are accounted for on a trade date
basis.
(2) Distributions to Shareholders
The net income of the Fund is determined daily, and substantially all
of the net income so determined is declared as a dividend to
shareholders of record at the time of declaration. Distributions are
paid monthly. Distributions of allocated realized capital gains, if
any, are made at least annually. Shareholders may reinvest capital
gain distributions in additional shares of the Fund at the net asset
value as of the ex-dividend date. Distributions are paid in the form
of additional shares or, at the election of the shareholder, in cash.
The Fund distinguishes between distributions on a tax basis and a
financial reporting basis.
Generally accepted accounting principles require that only
distributions in excess of tax basis earnings and profits be reported
in the financial statements as a return of capital. Differences in
the recognition or classification of income between the financial
statements and tax earnings and profits which result in over-
distributions for financial statement purposes are classified as
distributions in excess of net investment income or accumulated net
realized gains. Permanent differences between book and tax accounting
relating to distributions are reclassified to paid-in capital.
For the year ended January 31, 1997, $5,322 ($0.001 per share) was
redesignated from distributions from net investment income to
distributions from net realized gain on investments.
(3) Shares of Beneficial Interest
The Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest (without
par value). Transactions in Fund shares were as follows:
Year Ended Year Ended
January 31, January 31,
1997 1996*
--------- ----------
Sales 8,113,649 4,146,946
Issued to shareholders
electing to receive
payments of distributions
in Fund shares 158,020 19,130
Redemptions (772,805) (80,953)
--------- ----------
Net increase 7,498,864 4,085,123
========= ==========
*For the period from the start of business, August 7, 1995, to
January 31, 1996.
(4) Investment Adviser Fee and Other Transactions with Affiliates
Eaton Vance Management (EVM) serves as the administrator of the Fund,
but receives no compensation. The Portfolio has engaged Boston
Management and Research (BMR), a subsidiary of EVM, to render
investment advisory services (See Note 2 of the Portfolio's Notes to
Financial Statements which are included elsewhere in this report).
Except as to Trustees of the Fund and the Portfolio who are
not members of EVM's or BMR's organization, officers and Trustees
receive remuneration for their services to the Fund out of such
investment adviser fee. Certain of the officers and Trustees of the
Fund and Portfolio are officers and directors/trustees of the above
organizations.
(5) Distribution Plan
The Fund has adopted a distribution plan (the Plan) pursuant to Rule
12b-1 under the Investment Company Act of 1940. The Plan requires the
Fund to pay the Principal Underwriter, Eaton Vance Distributors, Inc.
(EVD), amounts equal to 1/365 of 0.75% of the Fund's daily net
assets, for providing ongoing distribution services and facilities to
the Fund. The Fund will automatically discontinue payments to EVD
during any period in which there are no outstanding Uncovered
Distribution Charges, which are equivalent to the sum of (i) 5% of
the aggregate amount received by the Fund for shares sold, plus, (ii)
distribution fees calculated by applying the rate of 1% over the
prevailing prime rate to the outstanding balance of Uncovered
Distribution Charges of EVD reduced by the aggregate amount of
contingent deferred sales charges (Note 6) and daily amounts
theretofore paid to EVD. The amount payable to EVD with respect to
each day is accrued on such day as a liability of the Fund and,
accordingly, reduces the Fund's net assets. The Fund paid $630,903 to
EVD for the year ended January 31, 1997, representing 0.75%
(annualized) of average daily net assets. At January 31, 1997, the
amount of Uncovered Distribution Charges of EVD calculated under the
Plan was approximately $5,375,000.
In addition, the Plan authorizes the Fund to make payments of service
fees to the Principal Underwriter, Authorized Firms and other persons
in amounts not exceeding 0.25% of the Fund's average daily net
assets for each fiscal year. The Trustees have initially implemented
the Plan by authorizing the Fund to make quarterly payments of
service fees to the Principal Underwriter and Authorized Firms in
amounts not expected to exceed 0.25% per annum of the Fund's average
daily net assets based on the value of Fund shares sold by such
persons and remaining outstanding for at least one year. The Fund
paid or accrued service fees to or payable to EVD for the year ended
January 31, 1997, in the amount of $37,169. Service fee payments are
made for personal services and/or the maintenance of shareholder
accounts. Service fees paid to EVD and Authorized Firms are separate
and distinct from the sales commissions and distribution fees payable
by the Fund to EVD, and, as such, are not subject to automatic
discontinuance where there are no outstanding Uncovered Distribution
Charges of EVD.
Certain officers and Trustees of the Fund are officers or directors
of EVD.
(6) Contingent Deferred Sales Charge
A contingent deferred sales charge (CDSC) is imposed on any
redemption of Fund shares made within six years of purchase.
Generally, the CDSC is based upon the lower of net asset value at
date of redemption or date of purchase.
No charge is levied on shares acquired by reinvestment of dividends
or capital gain distributions. The CDSC is imposed at declining rates
that begin at 5% in the case of redemptions in the first or second
year after purchase, declining one percentage point each subsequent
year. No CDSC is levied on shares which have been sold to EVM or its
affiliates or to their respective employees or clients. CDSC charges
are paid to EVD to reduce the amount of Uncovered Distribution
Charges calculated under the Fund's Distribution Plan. CDSC charges
received when no Uncovered Distribution Charges exist will be
credited to the Fund. EVD received approximately $158,000 of CDSC
paid by shareholders for the year ended January 31, 1997.
(7) Investment Transactions
Increases and decreases in the Fund's investment in the Portfolio for
the year ended January 31, 1997 aggregated $85,553,529 and
$12,216,643, respectively.
Independent Auditors' Report
To the Trustees and Shareholders of
Eaton Vance Municipals Trust II:
We have audited the accompanying statement of assets and liabilities
of EV Marathon High Yield Municipals Fund (one of the series of Eaton
Vance Municipals Trust II) as of January 31, 1997, the related
statement of operations for the year then ended, and the statements
of changes in net assets and the financial highlights for the year
ended January 31, 1997 and 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 audits.
We conducted our audits 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 audits
provide 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 Marathon High Yield Municipals Fund series of Eaton Vance
Municipals Trust II at January 31, 1997, and the results of its
operations, the changes in its net assets, and its financial
highlights for the respective stated periods in conformity with
generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
March 7, 1997
High Yield Municipals Portfolio
Portfolio of Investments
January 31, 1997
<TABLE>
<CAPTION>
Tax-Exempt Investment -- 100%
- -----------------------------------------------------------------------------------------------------------------
Principal
Amount
(000
Omitted) Security VALUE
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assisted Living -- 11.5%
$2,500 Arizona Health Facilities Authority, Care Institute-Mesa Project,
7.625%, 1/01/26 $2,359,950
2,000 Chester County, Pennsylvania, IDA, Senior LifeChoice of Paoli, (AMT)
8.05%, 1/01/24 2,039,120
1,000 Chester County, Pennsylvania, IDA, Senior LifeChoice of Kimberton
(AMT), 8.50%, 9/01/25 1,054,670
1,600 Delaware County, Pennsylvania, Industrial Development Authority, Senior
Quarters at Glen Riddle Project (AMT), 8.625%, 9/01/25 1,685,936
1,000 Glen Cove Industrial Development Agency, New York,
The Regency at Glen Cove, 0%, 1/01/13 231,760
1,000 Glen Cove Industrial Development Agency, New York,
The Regency at Glen Cove, 0%, 7/01/13 221,350
1,000 Glen Cove Industrial Development Agency, New York,
The Regency at Glen Cove, 0%, 1/01/14 211,420
1,000 Glen Cove Industrial Development Agency, New York,
The Regency at Glen Cove, 0%, 7/01/14 201,930
1,000 Glen Cove Industrial Development Agency, New York,
The Regency at Glen Cove, 0%, 1/01/15 192,860
1,000 Glen Cove Industrial Development Agency, New York,
The Regency at Glen Cove, 0%, 7/01/15 184,200
1,000 Glen Cove Industrial Development Agency, New York,
The Regency at Glen Cove, 0%, 1/01/16 175,930
1,000 Glen Cove Industrial Development Agency, New York,
The Regency at Glen Cove, 0%, 7/01/16 168,040
1,000 Glen Cove Industrial Development Agency, New York,
The Regency at Glen Cove, 0%, 1/01/17 160,490
1,000 Glen Cove Industrial Development Agency, New York,
The Regency at Glen Cove, 0%, 7/01/17 153,290
1,000 Glen Cove Industrial Development Agency, New York,
The Regency at Glen Cove, 0%, 1/01/18 146,410
1,000 Glen Cove Industrial Development Agency, New York,
The Regency at Glen Cove, 0%, 7/01/18 139,840
1,000 Glen Cove Industrial Development Agency, New York,
The Regency at Glen Cove, 0%, 1/01/19 133,560
1,000 Glen Cove Industrial Development Agency, New York,
The Regency of Glen Cove, 0%, 7/01/19 127,560
3,740 Illinois Development Finance Authority, Care Institute, 7.80%, 6/01/25 3,666,659
3,545 Louisiana Housing Finance Agency, HCC Assisted Living Group I (AMT),
9.00%, 3/01/25 3,749,263
3,500 New Jersey Economic Development Authority, The Chelsea
at East Brunswick Project (AMT), 8.25%, 10/01/26 3,491,635
------------
$20,495,875
------------
Cogeneration Facilities -- 7.3%
$3,500 Maryland Energy Cogeneration, AES Warrior Run Project
(AMT), 7.40%, 9/01/19(2) $3,687,950
3,500 Palm Beach County, Florida, Okeelanta Power Limited Partnership
Project (AMT), 6.85%, 2/15/21 3,100,055
2,000 Palm Beach County, Florida, Osceola Power Project (AMT), 6.95%, 1/01/22 1,790,220
3,500 Pennsylvania Economic Development Financing Authority, Northampton
Generating Project (AMT), 6.60%, 1/01/19 3,473,715
1,000 Pennsylvania Economic Development Financing Authority, Northampton
Generating Project-Subordinated (AMT), 6.875%, 1/01/11 983,000
------------
$13,034,940
------------
Colleges & Universities -- 1.2%
$2,000 New Hampshire Higher Educational and Health Facilities Authority,
Colby-Sawyer College, 7.50%, 6/01/26 $2,043,320
------------
Escrowed -- 7.0%
$2,600 Colorado Health Facilities Authority, Liberty Heights Project, 0%, 7/15/20 $532,012
17,000 Colorado Health Facilities Authority, Liberty Heights Project, 0%, 7/15/24 2,661,010
13,445 Colorado Health Facilities Authority, Liberty Heights Project, 0%, 7/15/22 2,408,941
1,500 Cuyahoga County, Ohio, Judson Retirement Community, 8.875%, 11/15/19 1,715,895
10,000 Dawson Ridge Metropolitan District #1, Douglas County, Colorado, 0%,
10/1/22 1,847,000
3,500 Dawson Ridge Metropolitan District #1, Douglas County, Colorado, 0%,
10/1/22 646,450
3,295 Illinois Development Finance Authority, Regency Park Project, 0%, 7/15/25 482,058
1,000 Montgomery County, Pennsylvania, United Hospitals, 8.375%, 11/01/11 1,124,460
1,000 Montgomery County, Pennsylvania, United Hospitals, 7.50%, 11/01/15 1,085,180
------------
$12,503,006
------------
Hospitals -- 12.1%
$2,500 Hidalgo County, Texas, Health Services Corp., Mission Hospital, Inc.,
6.875%, 8/15/26 $2,525,875
3,000 Louisiana Public Finance Authority, General Health Systems Project,
6.80%, 11/01/16 3,040,260
2,250 Massachusetts Health and Education Facilities Authority, Sisters of Providence
Hospital, 6.625%, 11/15/22 2,247,210
3,000 Massachusetts Health and Education Facilities Authority,
Milford-Whitinsville Hospital, 7.75%, 7/15/17 3,155,100
2,205 Philadelphia, Pennsylvania, Graduate Health System, 6.625%, 7/01/21 2,176,754
2,650 Prince George's, Maryland, Greater Southeast Health, 6.375%, 1/01/23 2,609,534
1,000 San Bernadino, California, San Bernadino Community Hospital,
7.875%, 12/01/08 1,038,110
1,325 San Bernadino, California, San Bernadino Community Hospital,
7.875%, 12/01/19 1,375,496
1,500 Scranton-Lackawanna, Pennsylvania, Moses Taylor Hospital,
8.50%, 7/01/20 1,622,730
1,500 Wells County, Indiana, Caylor-Nickel Medical Center, 8.75%, 4/15/12 1,706,580
------------
$21,497,649
------------
Housing -- 8.8%
$4,850 Colorado Housing Finance Authority, Single Family Mortgage Revenue
(AMT), 7.65%, 12/01/25 $5,373,315
2,450 Cuyahoga County, Ohio, Rolling Hills Apartment Project (AMT),
8.00%, 1/01/28 2,397,643
2,500 Lucas County, Ohio, EDA, County Creek Project (AMT), 8.00%, 7/01/26 2,407,000
2,500 Maricopa County, Arizona, Industrial Development Authority,
Place Five and The Greenery Apartment Projects, 6.625%, 1/01/27 2,507,975
1,725 Maricopa County, Arizona, Industrial Development Authority,
Place Five and The Greenery Apartment Projects, 8.625%, 1/01/11 1,728,847
1,150 Texas Department of Housing and Community Affairs, NHP
Foundation-Asmara Project, 6.40%, 1/01/27 1,156,590
------------
$15,571,370
------------
Industrial Development Revenue -- 19.6%
$2,815 ABIA Development Corporation, Austin Cargoport Development,
L.L.C. Project (AMT), 9.25%, 10/01/21 $2,838,787
2,000 Camden County, New Jersey, Holt Hauling and Warehousing System, Inc.
Project (AMT), 9.875%, 1/01/21 2,186,840
1,895 Florence County, Kentucky, IDR, Stone Container Co., 7.375%, 2/01/07 1,987,703
2,700 Hancock County, Kentucky, Southwire Co. Project (AMT), 7.75%, 7/01/25 2,783,079
2,500 Kansas City, Missouri, IDA, AFCO Cargo MCI (AMT), 8.50%, 1/01/17 2,729,700
3,000 Kimball, Nebraska, Clean Harbors, Inc. Series-96 (AMT), 10.75%, 9/01/26 3,033,810
1,000 Michigan Strategic, PCR, Roseville K-Mart Co., 6.25%,10/01/06 968,310
3,500 Michigan Strategic, PCR, S.D. Warren Series-87C (AMT), 7.375%, 1/15/22 3,605,420
1,000 Mobile, Alabama, IDA, Mobile Energy Project, 6.95%, 1/01/20 1,060,950
1,135 New Albany, Indiana, IDA, K-Mart Co., 7.40%, 6/01/06 1,173,726
2,750 New Hampshire Business Finance Authority, Crown Paper Co. (AMT),
7.875%, 7/01/26 2,862,365
1,500 New Jersey EDA, Holt Hauling and Warehousing System, Inc. (AMT),
9.75%, 12/15/16 1,589,190
500 New Jersey EDA, 777 Pattison Ave., Inc. (AMT), 8.95%, 12/15/18 535,230
3,500 State of Ohio Solid Waste, Republic Engineered Steel, Inc. Project (AMT),
9.00%, 6/01/21 3,601,920
500 Philadelphia, Pennsylvania, IDA, Refrigerated Enterprises (AMT),
9.05%, 12/01/19 530,175
3,345 Riverdale Village, Illinois, IDA, ACME Metals, Inc. Project (AMT),
7.95%, 4/01/25 3,354,968
------------
$34,842,173
------------
Insured Water and Sewer -- 1.6%
$3,000 Detroit, Michigan, Sewer Revenue, (FGIC), Variable Rate, 7/01/23 (1) $2,801,250
------------
Lease/Certificates of Participation -- 1.2%
$9,190 Los Angeles, California, COP, Disney Parking Project, 0%, 9/01/19 $2,092,930
------------
Life Care -- 2.0%
$3,500 Delaware County, Pennsylvania, White Horse Village, 7.30%, 7/01/14 $3,581,305
------------
Miscellaneous -- 5.1%
$2,300 Atlanta, Georgia, Downtown Development Authority,
Central Atlanta Hospitality Childcare, Inc., 8.00%, 1/01/26 $2,240,729
3,300 Santa Fe, New Mexico, Crow Hobbs No. 1, 8.50%, 9/01/16 3,372,237
3,449 Santa Fe, New Mexico, First Interstate Plaza Associates Project,
8.00%, 7/01/13 3,450,713
------------
$9,063,679
------------
Miscellaneous Healthcare -- 2.5%
$2,000 Osceola County, Florida, IDA, Community Pooled Loan-93, 7.75%, 7/01/17 $2,051,380
2,382 Tax Exempt Securities Trust, Mezzanine Certificates Series-96, 8.50%, 12/01/36 2,382,000
------------
$4,433,380
------------
Multi-Purpose Utilities -- 4.0%
$2,500 Intermountain Power Agency, Utah, Variable Rate, 7/01/11, (1) $2,396,875
2,500 New York State Energy, Research and Development Authority,
Long Island Lighting Co. (AMT), 7.15%, 9/01/19 2,674,975
2,000 Southern California Public Power Authority, Variable Rate, 7/01/12 (1) 2,097,500
------------
$7,169,350
------------
Nursing Homes -- 8.2%
$1,220 Greene County, Ohio, IDA, Fairview Extended Care-91, 10.125%, 1/01/11 $1,379,430
1,790 Massachusetts Health & Education Facilities Authority, Fairview Extended Care,
10.125%, 1/01/11 2,023,917
2,500 Massachusetts Industrial Finance Authority, AGE Institute of Massachusetts,
8.05%, 11/01/25 2,531,150
1,200 Mississippi Business Finance Corp., Magnolia Health Care-95A,
7.99%, 7/01/25 1,195,332
2,175 Missouri Economic Development Authority, Beverly Enterprises, Inc.,
8.00%, 12/01/02 2,280,553
3,500 Westmoreland County, PA, Highland Health Systems, 9.25%, 6/01/22 3,761,065
1,250 Wilkins Area, Pennsylvania, IDA, Fairview Extended Care, 10.25%, 1/01/21 1,418,625
------------
$14,590,072
------------
Solid Waste -- 3.6%
$10,090 Mercer County, New Jersey, Solid Waste Improvement Bonds (AMT),
0%, 4/01/15 $2,685,857
3,500 Robbins, Cook County, Illinois, Resource Recovery-94B (AMT),
8.375%, 10/15/16 3,641,330
------------
$6,327,187
------------
Special Tax General -- 2.1%
$3,800 Cottonwood Water and Sanitation District, General Obligation
(Limited Tax Through 2000), 7.75%, 12/01/20 $3,808,132
------------
Transportation -- 2.2%
$500 Eagle County, Colorado, Airport Terminal Project, 7.50%, 5/01/21 $516,145
10,000 San Joaquin Hills, California, Toll Roads, 0%, 1/01/25 1,746,200
10,000 San Joaquin Hills, California, Toll Roads, 0%, 1/01/26 1,640,400
------------
$3,902,745
------------
Total Tax-Exempt Investments (identified cost, $172,859,583) $177,758,361
============
(1) Security has been issued as an inverse floater bond.
(2) The 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 purpose of the Federal
Alternative Minimum Tax.
At January 31, 1997, the concentration of the Portfolio's investments in various states determined as a
percentage of total investments is as follows:
Pennsylvania 13.8%
Colorado 10.0%
Others, representing less than 10% individually 76.2%
See notes to financial statements
</TABLE>
High Yield Muinicipals Portfolio
Financial Statements
<TABLE>
<CAPTION>
Statement of Assets and Liabilities
January 31, 1997
<S> <C> <C>
Assets:
Investments, at value (Note 1A) (identified cost, $172,859,583) $177,758,361
Cash 1,649,611
Receivable for investments sold 145,510
Interest receivable 2,407,062
Deferred organization expenses (Note 1D) 9,252
------------
Total assets $181,969,796
Liabilities:
Payable for investments purchased $1,037,250
Payable for daily variation margin on open
financial futures contracts (Note 1E) 218,750
Payable to affiliate --
Trustees' fees 750
Accrued expenses 12,587
----------
Total liabilities 1,269,337
------------
Net Assets applicable to investors' interest in Portfolio $180,700,459
============
Sources of Net Assets:
Net proceeds from capital contributions and withdrawals $176,144,425
Unrealized appreciation of investments and financial futures contracts
(computed on the basis of identified cost) 4,556,034
------------
Total $180,700,459
============
See notes to financial statements
</TABLE>
<TABLE>
<CAPTION>
Statement of Operations
For the Year Ended January 31, 1997
<S> <C> <C>
Investment Income (Note 1B):
Interest income $ 9,301,713
Expenses --
Investment adviser fee (Note 2) $ 772,713
Compensation of Trustees not members of the
Investment Adviser's organization (Note 2) 8,411
Custodian fee (Note 1H) 55,405
Legal and accounting services 21,966
Bond pricing 11,895
Amortization of organization expenses (Note 1D) 10,756
Miscellaneous 29,553
-----------
Total expenses $ 910,699
-----------
Deduct --
Reduction of investment advisor fee (Note 2) $ 478,420
Reduction of custodian fee (Note 1H) 49,391
-----------
Total $ 527,811
-----------
Net expenses 382,888
-----------
Net investment income $ 8,918,825
Realized and Unrealized Gain (Loss) on Investments:
Net realized loss --
Investment transactions (identified cost basis) $ (231,719)
Financial futures contracts (1,027,871)
-----------
Net realized loss $(1,259,590)
-----------
Change in net unrealized appreciation (depreciation) --
Investments $ 3,247,169
Financial futures contracts (342,744)
-----------
Net unrealized appreciation $ 2,904,425
-----------
Net realized and unrealized gain 1,644,835
-----------
Net increase in net assets resulting from operations $10,563,660
===========
See notes to financial statements
</TABLE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
Year Ended January 31,
------------------------------------
1997 1996*
------------ -----------
<S> <C> <C>
Increase (Decrease) in Net Assets:
From operations --
Net investment income $ 8,918,825 $ 1,186,284
Net realized gain (loss) on investments (1,259,590) 9,767
Change in unrealized appreciation of investments 2,904,425 1,651,609
------------ -----------
Net increase in net assets resulting from operations $ 10,563,660 $ 2,847,660
------------ -----------
Capital transactions --
Contributions $118,977,124 $71,481,492
Withdrawals (20,917,792) (2,351,685)
------------ -----------
Increase in net assets resulting from capital transactions $ 98,059,332 $69,129,807
------------ -----------
Total increase in net assets $108,622,992 $71,977,467
Net Assets:
At beginning of year 72,077,467 100,000
------------ -----------
At end of year $180,700,459 $72,077,467
============ ===========
* For the period from the start of business, August 7, 1995 to January 31, 1996.
<CAPTION>
Supplementary Data
Year Ended January 31,
------------------------------------
1997 1996*
------------ -----------
Ratios (as a percentage of net assets)**:
Expenses 0.34% 0.06%+
Expenses after custodian fee reduction 0.30% 0.06%+
Net investment income 6.96% 6.95%+
Portfolio Turnover 41% 32%
** The operating expenses of the Portfolio reflect a reduction of the investment advisor fee. Had such
action not been taken, net investment income per share and the ratios would have been as follows:
Ratios (as a percentage of average daily net assets):
Expenses 0.71% 0.71%+
Expenses after custodian fee reduction 0.67% 0.71%+
Net investment income 6.59% 6.30%+
+ Annualized.
* For the period from the start of business, August 7, 1995, to January 31, 1996.
See notes to financial statements
</TABLE>
Notes to Financial Statements
(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 the income and diversification requirements
(under the Internal Revenue Code) in order for its investors to
satisfy them. The Portfolio will allocate at least annually among its
investors each investor's distributive share of the Portfolio's net
taxable (if any) and tax-exempt investment income, net realized
capital gains, and any other items of income, gain, loss, deduction
or credit. Interest income received by the Portfolio on investments
in municipal bonds, which is excludable from gross income under the
Internal Revenue Code, will retain its status as income exempt from
Federal income tax when allocated to the Portfolio's investors. The
portion of such interest, if any, earned on private activity bonds
issued after August 7, 1986 may be considered a tax preference item
for investors.
D. Deferred Organization Expenses -- Costs incurred by the Portfolio
in connection with its organization are being amortized on the
straight-line basis over five years.
E. Financial Futures Contracts -- Upon the entering of a financial
futures contract, the Portfolio is required to deposit ("initial
margin") either in cash or securities an amount equal to a certain
percentage of the purchase price indicated in the financial futures
contract. Subsequent payments are made or received by the Portfolio
("margin maintenance") each day, dependent on the daily fluctuations
in the value of the underlying security, and are recorded for book
purposes as unrealized gains or losses by the Portfolio. The
Portfolio's investment in financial futures contracts is designed
only to hedge against anticipated future changes in interest rates.
Should interest rates move unexpectedly, the Portfolio may not
achieve the anticipated benefits of the financial futures contracts
and may realize a loss.
F. Legal Fees -- Legal fees and other related expenses incurred as
part of negotiations of the terms and requirements of capital
infusions, or that are expected to result in the restructuring of or
a plan of reorganization for an investment are recorded as realized
losses. Ongoing expenditures to protect or enhance an investment are
treated as operating expenses.
G. When-issued and Delayed Delivery Transactions -- The Portfolio may
engage in when-issued and delayed delivery transactions. The
Portfolio records when-issued securities on trade date and maintains
security positions such that sufficient liquid assets will be
available to make payments for the securities purchased. Securities
purchased on when-issued or delayed delivery basis are marked to
market daily and begin accruing interest on settlement date.
H. Expense Reduction -- Investors Bank & Trust Company (IBT) serves
as custodian of the Portfolio. Pursuant to the custodian agreement,
IBT receives a fee reduced by credits which are determined based on
the average daily cash balance the Portfolio maintains with IBT. All
significant credit balances used to reduce the Portfolio's custodian
fees are reported as a reduction of expenses in the statement 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.
(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 year ended January 31, 1997, the fee was equivalent to 0.60%
(annualized) of the Portfolio's average net assets for such period
and amounted to $772,713. To enhance the net income of the Portfolio,
BMR made a reduction of its fee in the amount of $478,420. Except as
to Trustees of the Portfolio who are not members of EVM's or BMR's
organization, officers and Trustees receive remuneration for their
services to the Portfolio out of such investment adviser fee. Certain
of the officers and Trustees of the Portfolio are officers and
directors/trustees of the above organizations. Trustees of the
Portfolio that are not affiliated with the Investment Adviser may
elect to defer receipt of all or a percentage of their annual fees in
accordance with the terms of the Trustees Deferred Compensation Plan.
For the year ended January 31, 1997, no significant amounts have been
deferred.
(3) Investments
Purchases and sales of investments, other than U.S. Government
securities and short term obligations, aggregated $154,349,851 and
$51,977,848, respectively, for the year ended January 31, 1997.
(4) Federal Income Tax Basis of Investments
The cost and unrealized appreciation/depreciation in value of the
investments owned at January 31, 1997, as computed on a federal
income tax basis, were as follows:
Aggregate cost $172,859,583
============
Gross unrealized appreciation $ 5,065,286
Gross unrealized depreciation 166,508
------------
Net unrealized appreciation $ 4,898,778
============
(5) Line of Credit
The Fund participates with other portfolios and funds managed by EVM
and affiliates in a $120 million unsecured line of credit with a
bank. Borrowings will be made by the Portfolio or Fund solely to
facilitate the handling of unusual and/or unanticipated short-term
cash requirements. Interest is charged to each participating
portfolio or fund based on its borrowings at the bank's base rate or
at an amount above either the bank's adjusted certificate of deposit
rate, a Eurodollar rate, or a federal funds effective rate. In
addition, a fee computed at an annual rate of 0.15% on the daily
unused portion facility is allocated among the participating funds
and portfolios at the end of each quarter. The Fund did not have any
significant borrowings or allocated fees during the year ended
January 31, 1997.
(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 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 do not necessarily
represent the amounts potentially subject to risk. The measurement of
the risks associated with these instruments is meaningful only when
all related and offsetting transactions are considered. A summary of
obligations under these financial instruments at January 31, 1997 is
as follows:
Futures
Contracts Net Unrealized
Expiration Date Contracts Position Depreciation
- --------------- --------- ----------- --------------
3/97 250 U.S. Treasury Bond Short $342,744
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, 1997, the related statement of operations
for the year then ended, and the statements of changes in net assets
and the supplementary data for the year ended January 31, 1997 and
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 audits.
We conducted our audits 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.
Our procedures included confirmation of securities owned at January
31, 1997, by correspondence with the custodian and brokers. 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 audits
provide 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
the High Yield Municipals Portfolio at January 31, 1997, and the
results of its operations, the changes in its net assets, and its
supplementary data for the respective stated periods, in conformity
with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
March 7, 1997
[THIS PAGE INTENTIONALLY LEFT BLANK]
Investment Management
EV Marathon
High Yield
Municipals Fund
24 Federal Street
Boston, MA 02110
Officers
Thomas J. Fetter
President
James B. Hawkes
Vice President, Trustee
Robert B. MacIntosh, CFA
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
Formerly 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
Robert B. MacIntosh, CFA
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
Formerly 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 Marathon High Yield Municipals Fund
Eaton Vance Management
24 Federal Street
Boston, MA 02110
(617) 482-8260
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
(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 Marathon
High Yield Municipals Fund
24 Federal Street
Boston, MA 02110 M-HYSRC-3/97
