<PAGE>
[LOGO OF DOOR & Investing
EATON VANCE
APPEARS HERE] for the
21st
Century
[PHOTO OF BRICK WALL &
"EDUCATION" SIGN
APPEARS HERE]
Semiannual Report July 31, 1997
EATON VANCE
MUNICIPALS
TRUST II
[PHOTO OF HIGHWAY
TRAFFIC AT NIGHT
APPEARS HERE]
MARATHON
Global Management-Global Distribution
Florida Insured
Hawaii
Kansas
[PHOTO OF SUSPENSION
BRIDGE APPEARS HERE]
<PAGE>
EV Marathon Municipals Funds as of July 31, 1997
- --------------------------------------------------------------------------------
Letter to Shareholders
- --------------------------------------------------------------------------------
[PHOTO OF THOMAS J. FETTER APPEARS HERE]
Thomas J. Fetter,
President
The municipal bond market has continued to respond favorably in 1997 to an
economic climate characterized by solid growth and low inflation. First quarter
GDP rose 4.9%, while GDP in the second quarter was revised upward to 3.6%,
according to the U.S. Commerce Department. Meanwhile, inflation has remained in
the 2-to-3% range. While the Federal Reserve elected to raise short-term rates
slightly in March, it has since maintained a generally stable interest rate
policy in response to a benign inflation outlook. Not surprisingly, municipal
bonds have turned in solid returns, with the Lehman Brothers Municipal Bond
Index* -- an unmanaged index of municipal bonds -- rising 10.3% during the year
ended July 31, 1997.
The municipal bond market has been characterized by heavy issuance and strong
investor demand
According to Standard & Poor's, nearly $227 billion in municipal securities were
brought to market in 1996, a 14% increase from the prior year. Thus far in 1997,
municipal issuance has kept up that pace. Issuers have redeemed older bonds with
relatively high coupons and replaced them with new bonds bearing lower coupons.
This municipal refunding activity has been sparked in part by the strong market
rally of recent months that has seen yields for 30-year AAA-rated general
obligations decline to the 5.2% level at July 31, according to Bloomberg. At
that level, municipal yields represent 80.9% of 30-year Treasury yields, making
them an attractive option for investors.
Amid Washington's newly found fiscal responsibility, the outlook for municipal
bonds appears bright
We believe the long-term outlook for municipal bonds has improved in the past
year for several reasons. First, with Congress and the Clinton Administration
having reached agreement on a
Municipal bonds yield 81% of Treasury yields.
[BAR CHART OF MUNICIPAL BONDS YIELD 81% OF TREASURY YIELDS APPEARS HERE]
30-Year AAA-rated General Obligation (GO) Bonds* 5.20%
Taxable equivalent yield in 36% tax bracket 8.13%
[BAR CHART OF 30 YR. TREASURY BOND APPEARS HERE]
30-Year Treasury bond 6.43%
Principal and interest payments of Treasury securities are guaranteed by the
U.S. government.
* GO yields are a compilation of a representative variety of general obligations
and are not necessarily representative of the Fund's yield. Statistics as of
July 31, 1997.
Past performance is no guarantee of future results.
Source: Bloomberg, L.P.
plan to balance the budget by 2002, the budgetary nightmare that has long
plagued the nation may be coming to an end. A balanced budget would sharply
reduce the government's borrowing needs, leading to lower interest rates and
channeling investments into more productive areas of the economy. Second, even
after the recently enacted capital gains tax cut, the marginal tax rates of many
taxpayers remain high. For those taxpayers, municipal bonds may still be the
best vehicle for tax relief. And finally, a balanced investment portfolio
features a mix of equities, bonds, and cash. We believe, that following three
years of stock market outperformance, investors should consider reallocating a
portion of their portfolios to bonds in order to maintain a prudent asset
allocation. For these reasons, we believe that the municipal market will
continue to attract investments from tax-conscious investors. Eaton Vance will
continue its leadership role in seeking high, tax-free income for investors.
Sincerely,
/s/ Thomas J. Fetter
Thomas J. Fetter,
President
September 9, 1997
*It is not possible to invest directly in an index.
- --------------------------------------------------------------------------------
Mutual fund shares are not insured 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.
- --------------------------------------------------------------------------------
2
<PAGE>
EV Marathon Florida Insured Municipals Fund as of July 31, 1997
- --------------------------------------------------------------------------------
Investment Update
- --------------------------------------------------------------------------------
[PHOTO OF THOMAS J. FETTER APPEARS HERE]
Thomas J. Fetter,
Portfolio Manager
The Economy
- --------------------------------------------------------------------------------
. Florida remains one of the fastest growing states in the nation. Its economy
is buoyed by strong trade and services sectors, with tourism and business
services playing particularly vital roles.
. Job growth has slowed somewhat over the pace set in recent years, but it
remains steady. In the 12 months ending March 31, 1997, non-agricultural
employment grew by 2.8%.
. The business services sector has added 250,000 new jobs since 1991, the worst
year of the recession, representing 30% of non-farm growth in this period.
. State revenues in fiscal 1997 are expected to be $15.6 billion, signifying a
6.3% increase over FY1996. In FY1998, revenues are expected to grow
approximately 5.1%, for an increase of roughly $790 million over FY1997.
Management Update
- --------------------------------------------------------------------------------
. The Florida Insured Portfolio remains broadly diversified among sectors and
has continued to maintain its triple-A rating. The Fund has positions in
essential services, including water & sewer, housing, utilities, and
transportation.
. The large number of insured issues -- which generally translates into higher
credit quality compared to non-insured funds -- provides investors with an
extra margin of safety.
. We continue to manage for call protection, which helps reduce volatility in
the Fund's net asset value, and have increased the number of alternative
minimum tax (AMT) bonds. AMT issues generally offer higher yield without a
significant increase in risk.
The Fund
- --------------------------------------------------------------------------------
. During the six months ended July 31, 1997, the Fund had a total return of
5.8%./1/
. This return resulted from an increase in net asset value per share to $11.08
on July 31, 1997 from $10.71 on December 31, 1996, and the reinvestment of
$0.238 per share in tax-free dividend income./2/
. Based on the Fund's most recent dividend, and a net asset value of $11.08 per
share, the Fund's distribution rate on July 31, 1997 was 4.33%. The SEC 30-day
yield on that date was 4.14%./3/
. To equal 4.33% in a taxable investment, a couple in the 38.96% combined
federal and state tax bracket would need a yield of 7.09%.
Your Investment at Work
- --------------------------------------------------------------------------------
State of Florida Department of Environmental Protection -- Preservation
2000 Revenue Bonds
[CLIP ART OF FAMILY & TREE APPEARS HERE]
. The proceeds from this bond issue are being used to acquire land for outdoor
recreation and natural resources conservation in the state of Florida.
. The bonds were issued in accordance with the Florida Preservation 2000 Act,
which authorized the issuance of debt revenue for the purpose of environmental
protection and preservation.
. Uses of the revenues include purchasing public lands, one-fifth of which are
coastal lands, and financing the regulatory efforts of water management
districts.
- --------------------------------------------------------------------------------
/1/ This return does not include the maximum 5% contingent deferred sales
charge (CDSC).
/2/ A portion of the Fund's income could be subject to federal income tax and/
or alternative minimum tax.
/3/ The Fund's SEC yield is calculated by dividing the net investment income
per share for the 30-day period by the net asset value at the end of the
period and annualizing the result.
/4/ Returns are calculated by determining the percentage change in net asset
value (NAV) with all distributions reinvested. SEC average annual returns
reflect applicable CDSC on the following schedule: 5%-1st and 2nd years;
4%-3rd year; 3%-4th year; 2%-5th year; 1%-6th year. Past performance is no
guarantee of future results. The value of an investment in the Fund will
fluctuate so that shares, when redeemed, may be worth more or less than
their original cost.
/5/ Based on market value as of 7/31/97. May not represent the Portfolio's
current or future investments.
/6/ Private insurance does not remove the interest rate risks associated with
these investments.
- --------------------------------------------------------------------------------
Fund Information
as of July 31, 1997
Average Annual Total Returns/4/
- ---------------------------------
One Year 8.8%
Life of Fund (3/2/94) 8.0
SEC Average Annual Total Returns/4/
- -------------------------------------
One Year 3.8%
Life of Fund (3/2/94) 7.2
5 Largest Sectors/5/
- ----------------------
By total investments
[BAR CHART OF 5 LARGEST SECTORS APPEARS HERE]
Insured Special Tax Revenue 29.6%/6/
Insured Water & Sewer 24.9%/6/
Housing 16.0%.
Insured Housing 10.9%/6/
Insured Electric Utilities 4.5%/6/
Portfolio Overview/5/
- -----------------------
Number of Issues 37
Average Maturity 24.9 Yrs.
Effective Maturity 13.0 Yrs.
Average Rating AAA
Average Call 7.81 Yrs.
Average Dollar Price $102.53
3
<PAGE>
EV Marathon Hawaii Municipals Fund as of July 31, 1997
- --------------------------------------------------------------------------------
Investment Update
- --------------------------------------------------------------------------------
[PHOTO OF ROBERT B. MACINTOSH PORTFOLIO MGR. APPEARS HERE]
Robert B. MacIntosh,
Portfolio Manager
The Economy
- --------------------------------------------------------------------------------
. Hawaii's economy, which grew at a very slow rate during the early 1990's, is
beginning to show signs of life. While gross state product grew only 0.2%
annually between 1992 and 1994, it grew at a 0.9% rate in 1996 and is expected
to reach a 1.0% rate in 1997.
. Construction and tourism, which represent significant portions of Hawaii's
economy, stabilized in 1995 and 1996 after poor performance the previous three
years. Construction spending is expected to reach $3 billion in 1997, a slight
increase over 1996. Tourism started off slowly in 1997, but is expected to
continue the upward trend set during the past two years.
. Perhaps the brightest economic statistic is Hawaii's inflation rate. Inflation
was problematic several years ago -- in 1991, it was 7.1%, versus 4.2% for the
nation. By 1996, however, the inflation rate in Hawaii had dropped to only
1.5%, versus 2.9% for the U.S.
Management Update
- --------------------------------------------------------------------------------
. Hawaii's economy has improved recently, which helps the credit ratings of the
state's general obligation (GO) bonds. The state was quick to react to the
slowdown in tourism a few years ago, which was an important step in
maintaining its sound financial condition.
. There is typically little activity in the market for Hawaii's municipal bonds
-- both in the new issue and secondary markets -- but we have been able to
find some attractive additions to the Portfolio. These include Maui County GOs
and Hawaii State Housing Development Corp.
. We continue to diversify the Fund, as opportunities arise, in an effort to
keep calls long and to reduce overall volatility.
The Fund
- --------------------------------------------------------------------------------
. During the six months ended July 31, 1997, the Fund had a total return of
5.4%./1/
. This return resulted from an increase in net asset value per share to $10.02
on July 31, 1997 from $9.73 on December 31, 1996, and the reinvestment of
$0.228 per share in tax-free dividend income./2/
. Based on the Fund's most recent dividend, and a net asset value of $10.02 per
share, the Fund's distribution rate on July 31, 1997 was 4.59%. The SEC 30-day
yield on that date was 3.85%./3/
. To equal 4.59% in a taxable investment, a couple in the 42.4% combined federal
and state tax bracket would need a yield of 7.97%.
Your Investment at Work
- --------------------------------------------------------------------------------
Hawaii Department of Budget and Finance -- Hawaiian Electric Co., Inc.
[CLIP ART OF UTILITY POLES APPEARS HERE]
. This recent bond issue, which is guaranteed by Hawaiian Electric Company,
Inc., is being used to finance the land acquisition and construction related
to three separate electric utility systems.
. The facilities will provide electric generation, transmission and
distribution in the City and County of Honolulu, the County of Maui, and the
County of Hawaii.
. The bonds are MBIA-insured, and are rated AAA by Standard & Poor's and Aaa
by Moody's -- the highest rating issued by both services.
- --------------------------------------------------------------------------------
/1/ This return does not include the maximum 5% contingent deferred sales
charge (CDSC).
/2/ A portion of the Fund's income could be subject to federal income tax and/or
alternative minimum tax.
/3/ The Fund's SEC yield is calculated by dividing the net investment income per
share for the 30-day period by the net asset value at the end of the period
and annualizing the result.
/4/ Returns are calculated by determining the percentage change in net asset
value (NAV) with all distributions reinvested. SEC average annual returns
reflect applicable CDSC on the following schedule: 5%-1st and 2nd years; 4%-
3rd year; 3%-4th year; 2%-5th year; 1%-6th year. Past performance is no
guarantee of future results. The value of an investment in the Fund will
fluctuate so that shares, when redeemed, may be worth more or less than
their original cost.
/5/ Based on market value as of 7/31/97. May not represent the Portfolio's
current or future investments.
/6/ Private insurance does not remove the interest rate risks associated with
these investments.
- --------------------------------------------------------------------------------
Fund Information
as of July 31, 1997
Average Annual Total Returns/4/
- ---------------------------------
One Year 9.2%
Life of Fund (3/2/94) 5.2
SEC Average Annual Total Returns/4/
- ------------------------------------
One Year 4.2%
Life of Fund (3/2/94) 4.4
5 Largest Sectors/5/
- ----------------------
By total investments
[BAR CHART OF 5 LARGEST SECTORS APPEARS HERE]
Insured General Obligations 17.3%/6/
Hospitals 15.7%
General Obligation 15.4%
Insured Transportation 9.7%/6/
Housing 8.7%
Portfolio Overview/5/
- -----------------------
Number of Issues 41
Average Maturity 22.2 Yrs.
Effective Maturity 11.2 Yrs.
Average Rating AA
Average Call 8.0 Yrs.
Average Dollar Price $103.85
4
<PAGE>
EV Marathon Kansas Municipals Fund as of July 31, 1997
- --------------------------------------------------------------------------------
Investment Update
- --------------------------------------------------------------------------------
[PHOTO OF NICOLE ANDERES PORTFOLIO MGR. APPEARS HERE]
Nicole Anderes,
Portfolio Manager
The Economy
- --------------------------------------------------------------------------------
. The economy in Kansas has experienced solid growth over the past few years --
a trend that is expected to continue through the end of this year. Strength in
the aircraft manufacturing, construction, financial services, and trade
sectors is expected to characterize the state's economy through the end of
1997.
. Job growth has been steady in Kansas. In 1996, total employment in the state
increased by 2.6%, after a 3.0% rise in 1995 and 2.9% in 1994. Forecasters
expect a 2.4% increase in employment for 1997. In June, 1997, the unemployment
rate dropped to 3.8%, a sharp decrease from the 4.6% level reported in June,
1996.
. After slow years from 1993 to 1995, the financial services sector rebounded in
1996, led by expansion in the banking industry.
Management Discussion
- --------------------------------------------------------------------------------
. The past six months has been a stable, quiet, and positive period for both the
Fund and the bond market. Despite the surge in the stock market, redemptions
were not an issue for the Fund during the period, in contrast to the general
experience of bond funds during the past few years.
. We have found upside potential in certain issues, such as escrowed zero coupon
bonds; we have hedged the Fund's downside risk by acquiring bonds in the
housing sector. In addition, by seeking out low coupons and lengthening our
call protection where possible, we have been able to maintain sound portfolio
structure.
. The strong economy has provided an extra measure of credit quality for local
GO bonds, which make up a significant portion of the state's municipal
offerings.
The Fund
- --------------------------------------------------------------------------------
. During the six months ended July 31, 1997, the Fund had a total return of
5.8%./1/
. This return resulted from an increase in net asset value per share to $10.43
on July 31, 1997 from $10.08 on December 31, 1996, and the reinvestment of
$0.230 per share in tax-free dividend income./2/
. Based on the Fund's most recent dividend, and a net asset value of $10.43 per
share, the Fund's distribution rate on July 31, 1997 was 4.44%. The SEC 30-day
yield on that date was 3.85%./3/
. To equal 4.44% in a taxable investment, a couple in the 42.05% combined
federal and state tax bracket would need a yield of 7.66%.
Your Investment at Work
- --------------------------------------------------------------------------------
City of Witchita, Kansas Multifamily Housing Revenue Bonds -- Broadmoor at
Chelsea Apartment Project
[CLIP ART OF HOUSE APPEARS HERE]
. The proceeds from this new issue will be used to finance the acquisition and
renovation of the Broadmoor at Chelsea Apartment complex, an existing 240-unit
project in Witchita.
. This project, a federally-qualified low income housing project built in
1979-1980, comprises 23 apartment buildings and a clubhouse. It includes a
swimming pool, tennis court and parking.
. The bonds are AAA-rated by Standard & Poor's and the underlying mortgages
are collateralized by the Federal National Mortgage Company.
- --------------------------------------------------------------------------------
/1/ This return does not include the maximum 5% contingent deferred sales
charge (CDSC).
/2/ A portion of the Fund's income could be subject to federal income tax and/or
alternative minimum tax.
/3/ The Fund's SEC yield is calculated by dividing the net investment income per
share for the 30-day period by the net asset value at the end of the period
and annualizing the result.
/4/ Returns are calculated by determining the percentage change in net asset
value (NAV) with all distributions reinvested. SEC average annual returns
reflect applicable CDSC on the following schedule: 5%-1st and 2nd years;
4%-3rd year; 3%-4th year; 2%-5th year; 1%-6th year. Past performance is no
guarantee of future results. The value of an investment in the Fund will
fluctuate so that shares, when redeemed, may be worth more or less than
their original cost.
/5/ Based on market value as of 7/31/97. May not represent the Portfolio's
current or future investments.
/6/ Private insurance does not remove the interest rate risks associated with
these investments.
- --------------------------------------------------------------------------------
Fund Information
as of July 31, 1997
Average Annual Total Returns/4/
- ---------------------------------
One Year 9.4%
Life of Fund (3/2/94) 6.3
SEC Average Annual Total Returns/4/
- -------------------------------------
One Year 4.4%
Life of Fund (3/2/94) 5.5
5 Largest Sectors/5/
- -----------------------
By total investments
[BAR CHART OF 5 LARGEST SECTORS APPEARS HERE]
Housing 28.6%
General Obligations 24.4%
Insured Hospital 22.0%/6/
Insured General Obligations 7.7%/6/
Insured Electric Utilities 4.2%/6/
Portfolio Overview/5/
- -----------------------
Number of Issues 40
Average Maturity 21.0 Yrs.
Effective Maturity 10.8 Yrs.
Average Rating AA+
Average Call 7.4 Yrs.
Average Dollar Price $103.43
5
<PAGE>
EV Marathon Municipals Funds as of July 31, 1997
FINANCIAL STATEMENTS (Unaudited)
Statements of Assets and Liabilities
As of July 31, 1997
<TABLE>
<CAPTION>
Marathon Marathon Marathon
Florida Insured Hawaii Kansas
Fund Fund Fund
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Assets
- ----------------------------------------------------------------------------------------------------------------------
Investment in Portfolio --
Identified cost $19,717,733 $17,410,084 $ 9,860,686
Unrealized appreciation 1,436,537 1,542,826 528,303
- ----------------------------------------------------------------------------------------------------------------------
Total investment in Portfolio, at value (Note 1A) $21,154,270 $18,952,910 $10,388,989
- ----------------------------------------------------------------------------------------------------------------------
Receivable for Fund shares sold $ -- $ 24,487 $ --
Deferred organization expenses (Note 1D) 5,515 7,272 5,458
- ----------------------------------------------------------------------------------------------------------------------
Total assets $21,159,785 $18,984,669 $10,394,447
- ----------------------------------------------------------------------------------------------------------------------
Liabilities
- ----------------------------------------------------------------------------------------------------------------------
Dividends payable $ 40,296 $ 37,828 $ 20,753
Payable for Fund shares redeemed 191,971 2,200 --
Payable to affiliate for Trustees' fees (Note 4) -- 31 31
Accrued expenses 4,226 5,158 3,670
- ----------------------------------------------------------------------------------------------------------------------
Total liabilities $ 236,493 $ 45,217 $ 24,454
- ----------------------------------------------------------------------------------------------------------------------
Net Assets $20,923,292 $18,939,452 $10,369,993
- ----------------------------------------------------------------------------------------------------------------------
Sources of Net Assets
- ----------------------------------------------------------------------------------------------------------------------
Paid-in capital $19,612,088 $18,188,654 $ 9,699,237
Accumulated net realized gain (loss) from Portfolio
(computed on basis of identified cost) (150,162) (763,548) 134,470
Accumulated undistributed (distributions in excess of)
net investment income 24,829 (28,480) 7,983
Net unrealized appreciation of investments (computed on
basis of identified cost) 1,436,537 1,542,826 528,303
- ----------------------------------------------------------------------------------------------------------------------
Total $20,923,292 $18,939,452 $10,369,993
- ----------------------------------------------------------------------------------------------------------------------
Shares of Beneficial Interest Outstanding
- ----------------------------------------------------------------------------------------------------------------------
1,889,209 1,890,772 994,504
- ----------------------------------------------------------------------------------------------------------------------
Net Asset Value, Offering Price and
Redemption Price Per Share (Note 6)
- ----------------------------------------------------------------------------------------------------------------------
(Net assets / shares of beneficial interest outstanding) $ 11.08 $ 10.02 $ 10.43
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to financial statements
6
<PAGE>
EV Marathon Municipals Funds as of July 31, 1997
FINANCIAL STATEMENTS (Unaudited) CONT'D
Statements of Operations
As of July 31, 1997
<TABLE>
<CAPTION>
Marathon Marathon Marathon
Florida Insured Hawaii Kansas
Fund Fund Fund
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Investment Income (Note 1B)
- --------------------------------------------------------------------------------------------------------------------
Interest income allocated from Portfolio $ 602,489 $473,159 $ 306,646
Expenses allocated from Portfolio -- -- --
- --------------------------------------------------------------------------------------------------------------------
Net investment income from Portfolio $ 602,489 $473,159 $ 306,646
- --------------------------------------------------------------------------------------------------------------------
Expenses
- --------------------------------------------------------------------------------------------------------------------
Compensation of Trustees not members of the
Administrator's organization (Note 4) $ 102 $ 115 $ 102
Distribution and service fees (Note 5) 93,832 74,288 46,627
Legal and accounting services 8,333 9,250 6,982
Transfer and dividend disbursing agent fees 8,142 7,013 4,280
Printing and postage 4,711 4,463 4,463
Amortization of organization expenses (Note 1D) 1,730 2,275 1,710
Custodian fee (Note 1F) 1,064 1,053 1,202
Registration fees 885 992 992
Miscellaneous -- 1,210 779
- --------------------------------------------------------------------------------------------------------------------
Total expenses $ 118,799 $100,659 $ 67,137
- --------------------------------------------------------------------------------------------------------------------
Deduct --
Reduction of custodian fee (Note 1F) $ 1,552 $ -- $ 667
- --------------------------------------------------------------------------------------------------------------------
Total expense reductions $ 1,552 $ -- $ 667
- --------------------------------------------------------------------------------------------------------------------
Net expenses $ 117,247 $100,659 $ 66,470
- --------------------------------------------------------------------------------------------------------------------
Net investment income $ 485,242 $372,500 $ 240,176
- --------------------------------------------------------------------------------------------------------------------
Realized and Unrealized Gain (Loss) from Portfolio
- --------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) --
Investment transactions (identified cost basis) $ 179,718 $ 12,816 $ 45,318
Financial futures contracts (130,345) 12,814 8,496
- --------------------------------------------------------------------------------------------------------------------
Net realized gain on investments $ 49,373 $ 25,630 $ 53,814
- --------------------------------------------------------------------------------------------------------------------
Change in unrealized appreciation (depreciation) --
Investments $ 745,379 $593,336 $ 330,594
Financial futures contracts (107,193) (89,624) (30,708)
- --------------------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation of investments $ 638,186 $503,712 $ 299,886
- --------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain on investments $ 687,559 $529,342 $ 353,700
- --------------------------------------------------------------------------------------------------------------------
Net increase in net assets from operations $1,172,801 $901,842 $ 593,876
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to financial statements
7
<PAGE>
EV Marathon Municipals Funds as of July 31, 1997
FINANCIAL STATEMENTS (Unaudited) CONT'D
Statements of Changes in Net Assets
For the Six Months Ended July 31, 1997
<TABLE>
<CAPTION>
Marathon Marathon Marathon
Florida Insured Hawaii Kansas
Increase (Decrease) in Net Assets Fund Fund Fund
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
From operations --
Net investment income $ 485,242 $ 372,500 $ 240,176
Net realized gain on investment transactions 49,373 25,630 53,814
Net change in unrealized appreciation (depreciation) of
investments 638,186 503,712 299,886
- -----------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets from operations $ 1,172,801 $ 901,842 $ 593,876
- -----------------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders (Note 2) --
From net investment income $ (465,673) $ (372,500) $ (236,300)
In excess of net investment income -- (6,944) --
- -----------------------------------------------------------------------------------------------------------------------------------
Total distributions to shareholders $ (465,673) $ (379,444) $ (236,300)
- -----------------------------------------------------------------------------------------------------------------------------------
Transactions in shares of beneficial interest (Note 3) --
Proceeds from sale of shares $ 1,561,094 $ 3,751,485 $ 600,772
Net asset value of shares issued to shareholders in payment of
distributions declared 183,199 153,777 122,090
Cost of shares redeemed (3,244,742) (1,039,946) (1,202,414)
- -----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets from Fund share transactions $(1,500,449) $ 2,865,316 $ (479,552)
- -----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets $ (793,321) $ 3,387,714 $ (121,976)
- -----------------------------------------------------------------------------------------------------------------------------------
Net Assets
- -----------------------------------------------------------------------------------------------------------------------------------
At beginning of period $21,716,613 $15,551,738 $10,491,969
- -----------------------------------------------------------------------------------------------------------------------------------
At end of period $20,923,292 $18,939,452 $10,369,993
- -----------------------------------------------------------------------------------------------------------------------------------
Accumulated undistributed
(distributions in excess of) net investment
income included in net assets
- -----------------------------------------------------------------------------------------------------------------------------------
At end of period $ 24,829 $ (28,480) $ 7,983
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to financial statements
8
<PAGE>
EV Marathon Municipals Funds as of July 31, 1997
FINANCIAL STATEMENTS CONT'D
Statements of Changes in Net Assets
For the Year Ended January 31, 1997
<TABLE>
<CAPTION>
Marathon Marathon Marathon
Florida Insured Hawaii Kansas
Increase (Decrease) in Net Assets Fund Fund Fund
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
From operations --
Net investment income $ 927,719 $ 724,832 $ 511,199
Net realized gain (loss) on investment transactions (67,250) (85,447) 116,275
Net change in unrealized appreciation (depreciation) of
investments (580,040) (283,079) (376,548)
- ----------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets from operations $ 280,429 $ 356,306 $ 250,926
- ----------------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders (Note 2) --
From net investment income $ (917,648) $ (724,832) $ (504,743)
In excess of net investment income -- (14,581) --
From net realized gain -- -- (8,270)
- ----------------------------------------------------------------------------------------------------------------------------------
Total distributions to shareholders $ (917,648) $ (739,413) $ (513,013)
- ----------------------------------------------------------------------------------------------------------------------------------
Transactions in shares of beneficial interest (Note 3) --
Proceeds from sale of shares $6,069,588 $1,947,078 $1,798,659
Net asset value of shares issued to shareholders in payment of
distributions declared 362,763 312,044 245,745
Cost of shares redeemed (2,469,758) (1,450,253) (2,072,541)
- ----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets from Fund share transactions $3,962,593 $ 808,869 $ (28,137)
- ----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets $3,325,374 $ 425,762 $ (290,224)
- ----------------------------------------------------------------------------------------------------------------------------------
Net Assets
- ----------------------------------------------------------------------------------------------------------------------------------
At beginning of year $18,391,239 $15,125,976 $10,782,193
- ----------------------------------------------------------------------------------------------------------------------------------
At end of year $21,716,613 $15,551,738 $10,491,969
- ----------------------------------------------------------------------------------------------------------------------------------
Accumulated undistributed
(distributions in excess of) net investment
income included in net assets
- ----------------------------------------------------------------------------------------------------------------------------------
At end of year $ 5,260 $ (21,536) $ 4,107
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to financial statements
9
<PAGE>
EV Marathon Municipals Funds as of July 31, 1997
FINANCIAL STATEMENTS CONT'D
Financial Highlights
<TABLE>
<CAPTION>
Marathon Florida Insured Fund Marathon Hawaii Fund
------------------------------------------ -------------------------------------------
Six Months Six Months
Ended Year Ended January 31, Ended Year Ended January 31,
July 31, 1997 ---------------------------- July 31, 1997 ------------------------------
(Unaudited) 1997 1996 1995* (Unaudited) 1997 1996 1995*
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value-- Beginning of period $10.710 $11.090 $10.260 $10.000 $ 9.730 $ 9.980 $ 9.150 $ 10.000
- ------------------------------------------------------------------------------------------------------------------------------------
Income (loss) from operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income $ 0.250 $ 0.499 $ 0.512 $ 0.456 $ 0.224 $ 0.466 $ 0.484 $ 0.434
Net realized and unrealized gain (loss)
on investments 0.358 (0.385) 0.832 0.304 0.294 (0.241) 0.835 (0.805)
- ------------------------------------------------------------------------------------------------------------------------------------
Total income (loss) from operations $ 0.608 $ 0.114 $ 1.344 $ 0.760 $ 0.518 $ 0.225 $ 1.319 $ (0.371)
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions
- ------------------------------------------------------------------------------------------------------------------------------------
From net investment income $(0.238) $(0.494) $(0.512) $(0.456) $(0.224) $(0.466) $(0.484) $ (0.434)
In excess of net investment income -- -- (0.002) (0.044) (0.004) (0.009) (0.005) (0.045)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions $(0.238) $(0.494) $(0.514) $(0.500) $(0.228) $(0.475) $(0.489) $ (0.479)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value--End of period $11.080 $10.710 $11.090 $10.260 $10.020 $ 9.730 $ 9.980 $ 9.150
- ------------------------------------------------------------------------------------------------------------------------------------
Total Return/(1)/ 5.77% 1.14% 13.39% 7.10% 5.42% 2.40% 14.74% (4.01)%
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data+
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $20,923 $21,717 $18,391 $11,596 $18,939 $15,552 $15,126 $ 12,601
Ratio of net expenses to average daily
net assets/(2)(3)/ 1.21%+ 1.21% 1.10% 0.75%+ 1.27%+ 1.20% 1.05% 0.87%+
Ratio of net expenses to average daily
net assets, after custodian fee
reduction/(2)/ 1.13%+ 1.12% 1.00% -- 1.25%+ 1.15% 0.98% --
Ratio of net investment income to average
daily net assets 4.66%+ 4.67% 4.76% 4.79%+ 4.60%+ 4.81% 5.03% 5.03%+
</TABLE>
+ The operating expenses of the Funds and the Portfolios may reflect a
reduction of the investment adviser fee, an allocation of expenses to the
Investment Adviser and/or Administrator, or both. Had such actions not been
taken, the ratios and net investment income per share would have been as
follows:
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Ratios (As a percentage of average daily net assets):
Expenses/(2)(3)/ 1.63%+ 1.51% 1.49% 1.62%+ 1.76%+ 1.61% 1.53% 1.41%+
Expenses after custodian fee reduction/(2)/ 1.54%+ 1.42% 1.39% -- 1.73%+ 1.56% 1.46% --
Net investment income 4.24%+ 4.37% 4.37% 3.92%+ 4.12%+ 4.40% 4.51% 4.49%+
Net investment income per share $ 0.228 $ 0.467 $ 0.470 $ 0.374 $ 0.201 $ 0.426 $ 0.434 $ 0.387
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
+ Annualized.
* For the period from the start of business, March 2, 1994, to January 31,
1995.
/(1)/ Total return is calculated assuming a purchase at the net asset value on
the first day and a sale at the net asset value on the last day of each
period reported. Dividends and distributions, if any, are assumed to be
reinvested at the net asset value on the payable date. Total return is not
computed on an annualized basis.
/(2)/ Includes the Fund's share of its corresponding Portfolio's allocated
expenses.
/(3)/ The expense ratios for the periods ended on and after 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
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.
See notes to financial statements
10
<PAGE>
EV Marathon Municipals Funds as of July 31, 1997
FINANCIAL STATEMENTS CONT'D
Financial Highlights
<TABLE>
<CAPTION>
Marathon Kansas Fund
-----------------------------------------------
Six Months
Ended Year Ended January 31,
July 31, 1997 --------------------------------
(Unaudited) 1997 1996 1995*
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value-- Beginning of period $10.080 $ 10.320 $ 9.560 $ 10.000
- -------------------------------------------------------------------------------------------------------------
Income (loss) from operations
- -------------------------------------------------------------------------------------------------------------
Net investment income $ 0.233 $ 0.479 $ 0.481 $ 0.435
Net realized and unrealized gain (loss) on investments 0.347 (0.238) 0.761 (0.393)
- -------------------------------------------------------------------------------------------------------------
Total income from operations $ 0.580 $ 0.241 $ 1.242 $ 0.042
- -------------------------------------------------------------------------------------------------------------
Less distributions
- -------------------------------------------------------------------------------------------------------------
From net investment income $(0.230) $ (0.473) $ (0.481) $ (0.435)
In excess of net investment income -- -- (0.001) (0.047)
From net realized gain on investments -- (0.008) -- --
- -------------------------------------------------------------------------------------------------------------
Total distributions $(0.230) $ (0.481) $ (0.482) $ (0.482)
- -------------------------------------------------------------------------------------------------------------
Net asset value--End of period $10.430 $ 10.080 $ 10.320 $ 9.560
- -------------------------------------------------------------------------------------------------------------
Total Return/(1)/ 5.84% 2.46% 13.26% 0.16%
- -------------------------------------------------------------------------------------------------------------
<CAPTION>
Ratios/Supplemental Data++
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net assets, end of period (000 omitted) $10,370 $ 10,492 $ 10,782 $ 7,753
Ratio of net expenses to average daily net assets/(2)(3)/ 1.35%+ 1.25% 1.20% 0.75%+
Ratio of net expenses to average daily net assets, after
custodian fee reduction/(2)/ 1.29%+ 1.15% 1.08% --
Ratio of net investment income to average daily net assets 4.65%+ 4.77% 4.79% 4.81%+
</TABLE>
++ The operating expenses of the Fund and the Portfolio may reflect a reduction
of the investment adviser fee, an allocation of expenses to the Investment
Adviser and/or Administrator, or both. Had such actions not been taken, the
ratios and net investment income per share would have been as follows:
<TABLE>
<CAPTION>
Ratios (As a percentage of average daily net assets):
<S> <C> <C> <C> <C>
Expenses/(2)(3)/ 1.89%+ 1.68% 1.59% 1.60%+
Expenses after custodian fee reduction/(2)/ 1.83%+ 1.58% 1.47% --
Net investment income 4.10%+ 4.34% 4.40% 3.96%+
Net investment income per share $ 0.205 $ 0.436 $ 0.442 $ 0.397
- -------------------------------------------------------------------------------------------------------------
</TABLE>
+ Annualized.
* For the period from the start of business, March 2, 1994, to January 31,
1995.
(1) Total return is calculated assuming a purchase at the net asset value on the
first day and a sale at the net asset value on the last day of each period
reported. Dividends and distributions, if any, are assumed to be reinvested
at the net asset value on the payable date. Total return is not computed on
an annualized basis.
(2) Includes the Fund's share of its corresponding Portfolio's allocated
expenses.
(3) The expense ratios for the periods ended on and after 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
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.
See notes to financial statements
11
<PAGE>
EV Marathon Municipals Funds as of July 31, 1997
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 Marathon Florida
Insured Municipals Fund ("Marathon Florida Insured Fund"), EV Marathon Hawaii
Municipals Fund ("Marathon Hawaii Fund") and EV Marathon Kansas Municipals
Fund ("Marathon Kansas Fund"). Each Fund invests all of its investable assets
in interests in a separate corresponding open-end management investment
company (a "Portfolio"), a New York Trust, having the same investment
objective as its corresponding Fund. The Marathon Florida Insured Fund invests
its assets in the Florida Insured Municipals Portfolio, the Marathon Hawaii
Fund invests its assets in the Hawaii Municipals Portfolio and the Marathon
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 (89.1%, 97.6% and
89.3% at July 31, 1997 for the Marathon Florida Insured Fund, Marathon Hawaii
Fund and Marathon Kansas Fund, respectively). The performance of each Fund is
directly affected by the performance of its corresponding Portfolio. The
financial statements of each Portfolio, including the portfolio of
investments, are included elsewhere in this report and should be read in
conjunction with each Fund's financial statements. The following is a summary
of significant accounting policies consistently followed by the Trust in the
preparation of its financial statements. The policies are in conformity with
generally accepted accounting principles.
A Investment Valuations -- Valuation of securities by the Portfolios is
discussed in Note 1A 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, 1997, the Funds, 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:
<TABLE>
<CAPTION>
Fund Amount Expires
-----------------------------------------------------------------------------
<S> <C> <C>
Marathon Florida Insured Fund $ 72,722 January 31, 2004
Marathon Hawaii Fund $ 25,582 January 31, 2005
636,278 January 31, 2004
67,778 January 31, 2003
</TABLE>
Additionally, at January 31, 1997, net capital losses of $134,097 for the
Marathon Florida Insured Fund attributable to security transactions incurred
after October 31, 1996, are treated as arising on the first day of the Fund's
current taxable year. Dividends paid by each Fund from net interest on tax-
exempt municipal bonds allocated from its corresponding Portfolio are not
includable by shareholders as gross income for federal income tax purposes
because each Fund and Portfolio intend to meet certain requirements of the
Internal Revenue Code applicable to regulated investment companies which will
enable the Funds to pay exempt-interest dividends. The portion of such
interest, if any, earned on private activity bonds issued after August 7, 1986
may be considered a tax preference item to shareholders.
D Deferred Organization Expenses -- Costs incurred by each Fund in connection
with its organization, including registration costs, are being amortized on a
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 and Portfolios
maintain with IBT. All significant
12
<PAGE>
EV Marathon Municipals Funds as of July 31, 1997
NOTES TO FINANCIAL STATEMENTS (Unaudited) CONT'D
credit balances used to reduce each Fund's custodian fees are reported as a
reduction of operating expenses on the statements 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, 1997 and for the six months 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 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
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 Funds distinguish between distributions on a tax basis and a financial
reporting basis. Generally accepted accounting principles require that only
distributions in excess of tax basis earnings and profits be reported in the
financial statements as a return of capital. Differences in the recognition or
classification of income between the financial statements and tax earnings and
profits which result in temporary over distributions for financial 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, 1998 and will be based on tax accounting
methods which may differ from amounts determined for financial statement
purposes.
3 Shares of Beneficial Interest
------------------------------------------------------------------------------
The Funds' Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest (without par
value). Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
Marathon Florida Insured Fund
------------------------------------------------
Six Months Ended
July 31, 1997 Year Ended
(Unaudited) January 31, 1997
------------------------------------------------------------------------------
<S> <C> <C>
Sales 144,983 565,644
Issued to shareholders
electing to receive
payments of
distributions
in Fund shares 17,003 33,964
Redemptions (300,359) (230,160)
------------------------------------------------------------------------------
Net increase (decrease) (138,373) 369,448
------------------------------------------------------------------------------
<CAPTION>
Marathon Hawaii Fund
------------------------------------------------
Six Months Ended
July 31, 1997 Year Ended
(Unaudited) January 31, 1997
------------------------------------------------------------------------------
<S> <C> <C>
Sales 383,044 201,234
Issued to shareholders
electing to receive
payments of
distributions
in Fund shares 15,744 32,289
Redemptions (107,165) (149,829)
------------------------------------------------------------------------------
Net increase 291,623 83,694
------------------------------------------------------------------------------
<CAPTION>
Marathon Kansas Fund
------------------------------------------------
Six Months Ended
July 31, 1997 Year Ended
(Unaudited) January 31, 1997
------------------------------------------------------------------------------
<S> <C> <C>
Sales 59,397 172,247
Issued to shareholders
electing to receive
payments of
distributions
in Fund shares 12,022 24,491
Redemptions (117,988) (206,951)
------------------------------------------------------------------------------
Net decrease (46,569) (4,213)
------------------------------------------------------------------------------
</TABLE>
4 Transactions with Affiliates
------------------------------------------------------------------------------
Eaton Vance Management (EVM) serves as the Administrator of each Fund, but
receives no compensation. Each of the Portfolios has engaged Boston Management
and Research (BMR), a subsidiary of EVM, to render investment advisory
services. See Note 2 of the Portfolios' Notes to Financial Statements which
are included elsewhere in this report. Except as to Trustees of the Funds and
Portfolios who are not members of EVM's or BMR's organization, officers and
Trustees receive remuneration for their services to each fund out of the
investment adviser fee earned by BMR.
13
<PAGE>
EV Marathon Municipals Funds as of July 31, 1997
NOTES TO FINANCIAL STATEMENTS (Unaudited) CONT'D
Certain of the officers and Trustees of the Funds and Portfolios are officers
and directors/trustees of the above organizations.
5 Distribution Plan
------------------------------------------------------------------------------
Each Fund has adopted a distribution plan (the Plans) pursuant to Rule 12b-1
under the Investment Company Act of 1940. The Plans require each of the Funds
to pay the principal underwriter, Eaton Vance Distributors, Inc. (EVD),
amounts equal to 0.75% of a Fund's average daily net assets, for providing
ongoing distribution services and facilities to the Fund. A Fund will
automatically discontinue payments to EVD, during any period in which there
are no outstanding Uncovered Distribution Charges, which are equivalent to the
sum of (i) 5% of the aggregate amount received by the Fund for shares sold
plus (ii) distribution fees calculated by applying the rate of 1% over the
prevailing prime rate to the outstanding balance of Uncovered Distribution
Charges of EVD reduced by the aggregate amount of contingent deferred sales
charges (Note 6) and amounts theretofore paid to EVD. The amount payable to
EVD with respect to each day is accrued on such day as a liability of each
Fund, and accordingly, reduces the Fund's net assets. For the six months ended
July 31, 1997, Marathon Florida Insured Fund, Marathon Hawaii Fund and
Marathon Kansas Fund paid $78,111, $60,561 and $38,782, respectively, to EVD,
representing 0.75% of each Fund's average daily net assets. For the six months
ended July 31, 1997, the amount of Uncovered Distribution Charges of EVD
calculated under the Plans for Marathon Florida Insured Fund, Marathon Hawaii
Fund and Marathon Kansas Fund were approximately $657,000, $758,000 and
$396,000, respectively.
In addition, the Plans authorize the Funds to make payments of service fees to
the Principal Underwriter, Authorized Firms and other persons in amounts not
exceeding 0.25% of each Fund's average daily net assets for any fiscal year.
The Trustees have initially implemented the Plans by authorizing the Funds to
make quarterly service fee payments to the Principal Underwriter and
Authorized Firms in amounts not expected to exceed 0.20% per annum of each
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. For the six months
ended July 31, 1997, Marathon Florida Insured Fund, Marathon Hawaii Fund and
Marathon Kansas Fund, paid or accrued service fees to or payable to EVD in the
amount of $15,721, $13,727 and $7,845, respectively. Service fee payments are
made for personal services and/or maintenance of shareholder accounts. Service
fees paid to EVD and Authorized Firms are separate and distinct from the sales
commissions and distribution fees payable by each Fund to EVD, and as such are
not subject to automatic discontinuance when there are no outstanding
Uncovered Distribution Charges of EVD.
Certain officers and Trustees of the Funds 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 the net asset value at date of redemption or date of purchase. No
charge is levied on shares acquired by reinvestment of dividends or capital
gains distributions. The CDSC is imposed at declining rates that begin at 5%
in the case of redemptions in the first and 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 each Fund's Distribution Plan.
CDSC charges received when no Uncovered Distribution Charges exist will be
credited to the Fund. EVD received approximately $65,000, $23,000 and $31,000
of CDSC paid by shareholders of Marathon Florida Insured Fund, Marathon Hawaii
Fund and Marathon Kansas Fund, respectively, for the six months ended July 31,
1997.
7 Investment Transactions
------------------------------------------------------------------------------
Increases and decreases in each Fund's investment in its corresponding
Portfolio for the six months ended July 31, 1997 were as follows:
<TABLE>
<CAPTION>
Marathon Florida Insured Fund
------------------------------------------------------------------------------
<S> <C>
Increases $1,583,944
Decreases 3,496,907
<CAPTION>
Marathon Hawaii Fund
------------------------------------------------------------------------------
<S> <C>
Increases $3,740,622
Decreases 1,373,020
<CAPTION>
Marathon Kansas Fund
------------------------------------------------------------------------------
<S> <C>
Increases $ 639,510
Decreases 1,449,916
</TABLE>
14
<PAGE>
Florida Insured Municipals Portfolio as of July 31, 1997
PORTFOLIO OF INVESTMENTS (Unaudited)
Tax-Exempt Investments -- 100.0%
<TABLE>
<CAPTION>
Ratings (Unaudited) Principal
- ------------------- Amount
Standard (000
Moody's & Poor's omitted) Security Value
- -------------------------------------------------------------------------
Housing -- 16.0%
- -------------------------------------------------------------------------
<C> <C> <C> <S> <C>
Aaa NR $ 360 Duval County, FL, Housing
Finance Authority, Single
Family Mortgage Revenue,
(GNMA), (AMT),
6.70%, 10/1/26 $ 383,803
Aaa AAA 750 Escambia, FL, HFA, SFMR,
(GNMA), (AMT), 7.00%, 4/1/28 814,178
Aaa NR 740 Manatee, FL, HFA, SFMR,
(GNMA), (AMT), 6.875%,
11/1/26 818,810
Aaa NR 1,000 Pinellas County, FL, HFA,
SFMR, (AMT), 5.80%, 3/1/29 1,016,820
NR AAA 795 Pinellas, FL, HFA, SFMR,
(GNMA), (AMT), 6.70%, 2/1/28 849,092
- -------------------------------------------------------------------------
$ 3,882,703
- -------------------------------------------------------------------------
Insured-Education -- 2.1%
- -------------------------------------------------------------------------
Aaa AAA $ 500 Florida A&M University,
(Student Apartment
Facilities), (MBIA), 5.625%,
7/1/25 $ 513,935
- -------------------------------------------------------------------------
$ 513,935
- -------------------------------------------------------------------------
Insured-Electric Utilities -- 4.5%
- -------------------------------------------------------------------------
Aaa AAA $ 445 Citrus County, FL, PCR,
(MBIA), 6.35%, 2/1/22 $ 489,460
Aaa AAA 895 Florida State Municipal
Power Agency, (Stanton
Project), (AMBAC),
4.50%, 10/1/27 798,823
Aaa AAA 50 Key West, FL, Utility Board
of Electric Revenue,
(AMBAC),
6.75%, 10/1/13 55,300
- -------------------------------------------------------------------------
$ 1,343,583
- -------------------------------------------------------------------------
Insured-General Obligations -- 4.0%
- -------------------------------------------------------------------------
Aaa AAA $1,000 Massachusetts State
Turnpike Authority, (FGIC),
5.125%, 1/1/23 $ 981,150
- -------------------------------------------------------------------------
$ 981,150
- -------------------------------------------------------------------------
Insured-Hospitals -- 0.8%
- -------------------------------------------------------------------------
Aaa AAA $ 200 Dade, FL, Public Facilities
Revenue, (Jackson Memorial
Hospital), (MBIA), 4.875%,
6/1/15 $ 191,594
- -------------------------------------------------------------------------
$ 191,594
- -------------------------------------------------------------------------
Insured-Housing -- 10.9%
- -------------------------------------------------------------------------
Aaa AAA $ 500 Florida Health Facilities
Authority, (Maitland Club
Apartments), (AMBAC),
(AMT), 6.875%, 8/1/26 $ 541,375
Aaa AAA 1,000 Florida HFA, (Mariner Club
Apartments), (AMBAC),
(AMT), 6.375%, 9/1/36/(1)/ 1,054,840
Aaa AAA 500 Florida HFA, (MBIA),
5.90%, 7/1/29 512,890
Aaa AAA 500 Florida HFA, (Spinnaker
Cove Apartments), (AMBAC),
(AMT), 6.50%, 7/1/36 532,570
- -------------------------------------------------------------------------
$ 2,641,675
- -------------------------------------------------------------------------
Insured-Industrial Development Revenue -- 2.1%
- -------------------------------------------------------------------------
Aaa AAA $ 500 Dade County, FL, Resources
Recovery Facilities,
(AMBAC), (AMT),
5.50%, 10/1/13/(2)/ $ 515,110
- -------------------------------------------------------------------------
$ 515,110
- -------------------------------------------------------------------------
Insured-Special Tax Revenue -- 29.6%
- -------------------------------------------------------------------------
Aaa AAA $1,000 Bradenton, FL, Special
Revenue Sub-Lien, (FGIC),
5.00%, 10/1/15 $ 994,030
Aaa AAA 1,225 Florida State Finance
Department, Environmental
Preservation, (MBIA),
4.75%, 7/1/09 1,226,556
Aaa AAA 1,000 Jacksonville, FL, Excise
Taxes Revenue, (FGIC),
5.00%, 10/1/16 986,590
Aaa AAA 1,000 Jacksonville, FL, Excise
Taxes Revenue, (FGIC),
5.70%, 10/1/09 1,044,380
Aaa AAA 745 Jacksonville, FL, Sales
Tax, (River City
Renaissance Project),
(FGIC), 5.375%, 10/1/18 752,189
Aaa AAA 500 Lakeland, FL, Capital
Improvement Revenue,
(MBIA),
5.00%, 10/1/17(3) 491,855
Aaa AAA 250 Orange, FL, Tourist
Development Tax, (MBIA),
6.00%, 10/1/24 268,375
Aaa AAA 290 St. Petersburg, FL, Excise
Tax Revenue, (FGIC), 5.00%,
10/1/16 288,388
Aaa AAA 505 St. Petersburg, FL, Excise
Tax Revenue, (FGIC), 5.00%,
10/1/16 492,804
Aaa AAA 340 Sunrise, FL, Public
Facilities Revenue, (MBIA),
0.00%, 10/1/15 133,800
Aaa AAA 500 Tampa, FL, Occupational
License Tax Revenue,
(FGIC), 5.50%, 10/1/27 509,150
- -------------------------------------------------------------------------
$ 7,188,117
- -------------------------------------------------------------------------
</TABLE>
See notes to financial statements
15
<PAGE>
Florida Insured Municipals Portfolio as of July 31, 1997
PORTFOLIO OF INVESTMENTS (Unaudited) CONT'D
<TABLE>
<CAPTION>
Ratings (Unaudited) Principal
- ------------------- Amount
Standard (000
Moody's & Poor's omitted) Security Value
- -------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Insured-Transportation -- 4.1%
- -------------------------------------------------------------------------
Aaa AAA $1,000 Dade County, FL, Seaport
Revenue, (MBIA), 5.125%,
10/1/16 $ 993,290
- -------------------------------------------------------------------------
$ 993,290
- -------------------------------------------------------------------------
Insured-Water and Sewer -- 24.9%
- -------------------------------------------------------------------------
Aaa AAA $ 325 Dade County, FL, Water and
Sewer System, (FGIC),
5.375%, 10/1/16 $ 333,005
Aaa AAA 750 Dade County, FL, Water and
Sewer System, (FGIC),
5.50%, 10/1/25 763,388
Aaa AAA 735 Enterprise Community
Development District, FL,
Water and Sewer Revenue,
(MBIA), 6.125%, 5/1/24/(2)/ 787,075
Aaa AAA 1,000 Jacksonville, FL, Water and
Sewer Revenue, (AMBAC),
6.35%, 8/1/25 1,085,690
Aaa AAA 1,000 Lee County, FL, (Bonita
Springs), (MBIA), (AMT),
6.05%, 11/1/20 1,054,579
Aaa AAA 70 North Port, FL, Utility
Revenue, (FGIC), 6.25%,
10/1/17 76,089
Aaa AAA 500 North Port, FL, Utility
Revenue, (FGIC), 6.25%,
10/1/22 542,770
Aaa AAA 400 Titisville, FL, Water and
Sewer Revenue, (MBIA),
6.00%, 10/1/24 429,400
Aaa AAA 1,000 Vero Beach, FL, Water and
Sewer Revenue, (FGIC),
5.00%, 12/1/21 965,800
- -------------------------------------------------------------------------
$ 6,037,796
- -------------------------------------------------------------------------
Total Tax-Exempt Investments -- 100%
(identified cost $22,448,019) $24,288,953
- -------------------------------------------------------------------------
</TABLE>
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, 1997, 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, 1997, the Portfolio's insured
securities by financial institution are as follows:
<TABLE>
<CAPTION>
% of
Market Value Market Value
- --------------------------------------------------------------------------------
<S> <C> <C>
American Municipal Bond Assurance Corp.
(AMBAC) $4,583,708 18.9%
Financial Guaranty Insurance Corp.
(FGIC) 8,729,733 35.9
Municipal Bond Insurance Assoc. (MBIA) 7,092,810 29.2
- --------------------------------------------------------------------------------
Total $20,406,251 84.0%
- --------------------------------------------------------------------------------
</TABLE>
/(1)/ Security (or a portion thereof) has been segregated to cover margin
requirements on open financial futures contracts.
/(2)/ Security has been segregated to cover when-issued securities.
/(3)/ When-issued security.
See notes to financial statements
16
<PAGE>
Hawaii Municipals Portfolio as of July 31, 1997
PORTFOLIO OF INVESTMENTS (Unaudited)
Tax-Exempt Investments -- 100.0%
<TABLE>
<CAPTION>
Ratings (Unaudited)
- ------------------- Principal
Amount
Standard (000
Moody's & Poor's omitted) Security Value
- -------------------------------------------------------------------------
<S> <C> <C> <C> <C>
General Obligations -- 15.4%
- -------------------------------------------------------------------------
Aa AA $ 750 City and County of
Honolulu, HI, 4.75%, 9/1/17 $ 712,695
NR BBB 640 Government of Guam,
5.375%, 11/15/13 634,803
Baa1 A 500 Puerto Rico Public
Buildings Authority, Public
Education and Health
Facilities, 5.50%, 7/1/21 503,480
Aa3 A+ 1,000 State of Hawaii, 5.25%,
6/1/13/(1)/ 1,008,230
Aa3 A+ 140 State of Hawaii, 5.75%,
1/1/11 153,184
- -------------------------------------------------------------------------
$ 3,012,392
- -------------------------------------------------------------------------
Hospitals -- 15.7%
- -------------------------------------------------------------------------
NR AAA $ 250 Puerto Rico Industrial,
Tourist, Educational,
Medical and Environmental
Control Authority, (Doctor
Pila Hospital), (FHA),
6.25%, 8/1/32 $ 272,925
Aa3 AA 400 State of Hawaii Department
of Budget and Finance,
(Kaiser Permanente), 6.25%,
3/1/21 423,984
A A 625 State of Hawaii Department
of Budget and Finance,
(Kapiolani Health System),
6.00%, 7/1/19 648,456
Aa3 AA 870 State of Hawaii Department
of Budget and Finance,
(Queens Health System),
5.75%, 7/1/26 898,449
NR BBB- 750 State of Hawaii Department
of Budget and Finance,
Special Purpose Mortgage
Revenue, (Wahiawa General
Hospital), 7.50%, 7/1/12 827,273
- -------------------------------------------------------------------------
$ 3,071,087
- -------------------------------------------------------------------------
Housing -- 8.7%
- -------------------------------------------------------------------------
Aa1 AA $ 500 State of Hawaii Housing
Finance and Development
Corp., 5.75%, 7/1/30/(2)/ $ 502,545
Aa1 AA 1,000 State of Hawaii Housing
Finance and Development,
Single Family Mortgage
Bonds, 5.90%, 7/1/27/(3)/ 1,025,010
Aa1 AA 175 State of Hawaii Housing
Finance and Development,
Single Family Mortgage
Bonds, (AMT), 6.00%, 7/1/26 178,866
- -------------------------------------------------------------------------
$ 1,706,421
- -------------------------------------------------------------------------
Industrial Development Revenue / Pollution
Control Revenue -- 3.0%
- -------------------------------------------------------------------------
A1 AA- $ 550 Puerto Rico Industrial,
Tourist, Educational,
Medical and Environmental
Control Authority, (Upjohn
Co.), 7.50%, 12/1/23 $ 592,642
- -------------------------------------------------------------------------
$ 592,642
- -------------------------------------------------------------------------
Insured-Education -- 5.3%
- -------------------------------------------------------------------------
Aaa AAA $ 500 Hawaii State Housing
Development Corp.,
(University of Hawaii),
(AMBAC), 5.65%, 10/1/16 $ 519,795
Aaa AAA 500 University of Hawaii Board
of Regents, University
System, (AMBAC),
5.65%, 10/1/12 521,045
- -------------------------------------------------------------------------
$ 1,040,840
- -------------------------------------------------------------------------
Insured-Electric Utilities -- 6.1%
- -------------------------------------------------------------------------
Aaa AAA $ 100 Commonwealth of Puerto Rico
Electric Power Authority,
(FSA), Variable
Rate, 7/1/03/(4)/ $ 114,125
- -------------------------------------------------------------------------
Aaa AAA 500 State of Hawaii Department
of Budget and Finance,
(Hawaii Electric Co.,
Inc.), (AMT), (MBIA),
6.20%, 5/1/26 533,085
- -------------------------------------------------------------------------
Aaa AAA 500 State of Hawaii Department
of Budget and Finance,
(Hawaii Electric Co.,
Inc.), (AMT), (MBIA),
6.60%, 1/1/25 551,200
- -------------------------------------------------------------------------
$ 1,198,410
- -------------------------------------------------------------------------
Insured-General Obligations -- 17.3%
- -------------------------------------------------------------------------
Aaa AAA $ 500 Commonwealth of Puerto
Rico, (MBIA), 5.00%, 7/1/21 $ 487,715
Aaa AAA 700 County of Hawaii, HI,
(FGIC), 5.55%, 5/1/10 756,525
Aaa AAA 305 County of Kauai, HI,
(MBIA), 5.90%, 2/1/14 323,733
Aaa AAA 910 County of Maui, HI, (FGIC),
5.00%, 9/1/17 891,882
Aaa AAA 250 County of Maui, HI, (FGIC),
5.125%, 12/15/13 251,270
Aaa AAA 420 County of Maui, HI, (FGIC),
5.30%, 9/1/14 430,156
Aaa AAA 250 County of Maui, HI, (FGIC),
5.75%, 1/1/13 258,240
- -------------------------------------------------------------------------
$ 3,399,521
- -------------------------------------------------------------------------
</TABLE>
See notes to financial statements
17
<PAGE>
Hawaii Municipals Portfolio as of July 31, 1997
PORTFOLIO OF INVESTMENTS (Unaudited) CONT'D
<TABLE>
<CAPTION>
Ratings (Unaudited) Principal
- ------------------- Amount
Standard (000
Moody's & Poor's omitted) Security Value
- -------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Insured-Hospitals -- 1.1%
- -------------------------------------------------------------------------
Aaa AAA $ 100 State of Hawaii Department
of Budget and Finance,
(Queen's Medical Center),
(FGIC), 6.50%, 7/1/12 $ 102,460
Aaa AAA 100 State of Hawaii Department
of Budget and Finance, (St.
Francis Medical Centers),
(CGIC), 6.50%, 7/1/22 110,289
- -------------------------------------------------------------------------
$ 212,749
- -------------------------------------------------------------------------
Insured-Housing -- 7.7%
- -------------------------------------------------------------------------
Aaa AAA $ 490 City and County of
Honolulu, HI, Mortgage
Revenue Bonds, (Smith
Beretania), (MBIA), 7.80%,
7/1/24 $ 528,700
Aaa AAA 1,000 Puerto Rico Public
Buildings Authority,
(AMBAC), 5.00%, 7/1/27 972,730
- -------------------------------------------------------------------------
$ 1,501,430
- -------------------------------------------------------------------------
Insured-Transportation -- 9.7%
- -------------------------------------------------------------------------
Aaa AAA $ 500 State of Hawaii Airports
System, (AMT), (FGIC),
7.50%, 7/1/20 $ 548,895
Aaa AAA 100 State of Hawaii Airports
System, (AMT), (MBIA),
6.90%, 7/1/12 118,405
Aaa AAA 245 State of Hawaii Airports
System, (AMT), (MBIA),
7.00%, 7/1/18 268,738
Aaa AAA 650 State of Hawaii Harbor
Revenue, (AMT), (FGIC),
6.375%, 7/1/24/(1)/ 700,219
Aaa AAA 250 State of Hawaii Harbor
Revenue, (AMT), (MBIA),
7.00%, 7/1/17 271,070
- -------------------------------------------------------------------------
$ 1,907,327
- -------------------------------------------------------------------------
Special Tax Revenue -- 1.1%
- -------------------------------------------------------------------------
Baa1 A $ 100 Puerto Rico Highway and
Transportation Authority,
5.50%, 7/1/36 $ 102,245
NR NR 100 Virgin Islands Public
Finance Authority, 7.25%,
10/1/18 110,901
- -------------------------------------------------------------------------
$ 213,146
- -------------------------------------------------------------------------
Transportation -- 5.7%
- -------------------------------------------------------------------------
NR BBB $ 200 Guam Airport Authority,
(AMT), 6.70%, 10/1/23 $ 215,578
Baa3 BBB- 180 Puerto Rico Port Authority,
(American Airlines), (AMT),
6.30%, 6/1/23 190,751
Aa3 AA 715 State of Hawaii Highway
Revenue, 5.00%, 7/1/12 711,253
- -------------------------------------------------------------------------
$ 1,117,582
- -------------------------------------------------------------------------
Water and Sewer -- 3.2%
- -------------------------------------------------------------------------
Aa AA $ 600 City and County of
Honolulu, HI, Water Supply
System,
5.80%, 7/1/16 $ 631,386
- -------------------------------------------------------------------------
$ 631,386
- -------------------------------------------------------------------------
Total Tax-Exempt Investments -- 100%
(identified cost $17,950,322) $19,604,933
- -------------------------------------------------------------------------
</TABLE>
AMT - Interest earned from these securities may be considered a tax
preference item for purposes of the Federal Alternative
Minimum Tax.
The portfolio invests primarily in debt securities issued by Hawaii
municipalities. The ability of the issuers of the debt securities to meet their
obligations may be affected by the economic developments in a specific industry
or municipality. In order to reduce the risk associated with such economic
developments, at July 31, 1997, 47.2% 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 insured by
financial institutions ranged from 0.6% to 20.7% of total investments.
(1) Security has been segregated to cover when-issued securities.
(2) When-issued security.
(3) Security has been segregated to cover margin requirements on open financial
futures contracts.
(4) Security has been issued as an inverse floater bond.
See notes to financial statements
18
<PAGE>
Kansas Municipals Portfolio as of July 31, 1997
PORTFOLIO OF INVESTMENTS (Unaudited)
Tax-Exempt Investments -- 100.0%
Ratings (Unaudited)
- --------------------Principal
Standard Amount
& (000
Moody's Poor's omitted) Security Value
- --------------------------------------------------------------------------------
Electric Utilities -- 1.4%
- --------------------------------------------------------------------------------
NR BBB $ 150 Guam Power Authority
Revenue, 6.625%, 10/1/14 $ 163,302
- --------------------------------------------------------------------------------
$ 163,302
- --------------------------------------------------------------------------------
General Obligations -- 24.4%
- --------------------------------------------------------------------------------
Aa NR $ 400 Douglas County, KS, USD
#497, 6.00%, 9/1/15 $ 428,092
Aa1 AA 300 Johnson County, KS, USD
#229, 5.00%, 10/1/14 300,579
Aa1 AA 890 Johnson County, KS, USD
#229, 5.00%, 10/1/16 885,594
Aa1 AA 500 Johnson County, KS, USD
#512, 5.125%, 10/1/16 500,180
Aa1 NR 300 Leawood, KS, 5.00%, 9/1/15 301,074
Baa1 A 500 Puerto Rico Aqueduct and
Sewer Authority, 5.00%,
7/1/19 483,185
- --------------------------------------------------------------------------------
$ 2,898,704
- --------------------------------------------------------------------------------
Hospitals -- 2.2%
- --------------------------------------------------------------------------------
A3 NR $ 250 Lawrence, KS, Hospital
Revenue, (Lawrence Memorial
Hospital), 6.20%, 7/1/19 $ 264,355
- --------------------------------------------------------------------------------
$ 264,355
- --------------------------------------------------------------------------------
Housing -- 28.6%
- --------------------------------------------------------------------------------
Aaa NR $ 70 Kansas City, KS, Mortgage
Revenue, (AMT), (GNMA),
5.30%, 5/1/07 $ 71,000
Aaa NR 70 Kansas City, KS, Mortgage
Revenue, (AMT), (GNMA),
5.30%, 11/1/07 71,040
Aaa NR 160 Kansas City, KS, Mortgage
Revenue, (AMT), (GNMA),
5.90%, 11/1/27 162,658
NR AAA 395 Kansas City, KS, Mortgage
Revenue, (AMT), (GNMA),
7.00%, 12/1/11 418,874
NR AAA 220 Kansas City, KS,
Multifamily Housing
Revenue, (FHA), 6.70%,
7/1/23 226,292
Aa NR 100 Kansas Development
Authority, Single Family
Housing, (FHA), (Martin
Creek), 6.60%, 8/1/34 104,009
Aaa A- $ 415 Labette County, KS, Single
Family Mortgage Revenue,
0.00%, 12/1/14 168,876
Aaa NR 195 Olathe and Labette County,
KS, Single Family Mortgage
Revenue, (GNMA), 8.10%,
8/1/23 218,837
NR AAA 220 Olathe, KS, Mortgage Loan
Revenue, (GNMA), 7.60%,
3/1/07 232,826
NR AAA 250 Olathe, KS, Multifamily
Housing Revenue, (FNMA),
6.45%, 6/1/19 262,670
NR AA 250 Puerto Rico Housing Finance
Corp., 7.50%, 4/1/22 264,180
Aaa NR 235 Sedgwick and Shawnee
County, KS, Single Family
Revenue, (GNMA), 7.75%,
11/1/24 272,786
Aaa NR 455 Sedgwick County, KS, Single
Family Mortgage Revenue,
(GNMA), 8.00%,
5/1/25 514,396
Aaa NR 45 Sedgwick County, KS, Single
Family Mortgage Revenue,
(GNMA), 8.20%,
5/1/14 50,863
NR AAA 350 Wichita, KS, Multifamily
Housing Revenue, (Broadmoor
Chelsea Apartments), (AMT)
(FNMA), 5.65%,
7/1/16 356,902
- --------------------------------------------------------------------------------
$ 3,396,209
- --------------------------------------------------------------------------------
Industrial Development Revenue /
Pollution Control Revenue -- 2.2%
- --------------------------------------------------------------------------------
A2 NR $ 100 Puerto Rico Industrial,
Medical and Environmental
Pollution Control Facility
Finance Authority,
(American Home Products),
5.10%, 12/1/18 $ 98,207
- --------------------------------------------------------------------------------
Baa3 BBB- 150 Puerto Rico Port Authority,
(American Airlines), (AMT),
6.30%, 6/1/23 158,960
- --------------------------------------------------------------------------------
$ 257,167
- --------------------------------------------------------------------------------
Insured-Electric Utilities -- 4.2%
- --------------------------------------------------------------------------------
Aaa AAA $ 345 Burlington, KS, Pollution
Control Revenue, (Kansas
Gas & Electric Co.),
(MBIA), 7.00%, 6/1/31/(1)/ $ 382,267
- --------------------------------------------------------------------------------
Aaa AAA 100 Puerto Rico Electric Power
Authority, (FSA), Variable
Rate, 7/1/02/(2)/ 112,000
- --------------------------------------------------------------------------------
$ 494,267
- --------------------------------------------------------------------------------
See notes to financial statements
19
<PAGE>
Kansas Municipals Portfolio as of July 31, 1997
PORTFOLIO OF INVESTMENTS (Unaudited) CONT'D
<TABLE>
<CAPTION>
Ratings (Unaudited) Principal
- ------------------- Amount
Standard (000
Moody's & Poor's omitted) Security Value
- -------------------------------------------------------------------------
<C> <C> <C> <S> <C>
Insured-General Obligations -- 7.7%
- -------------------------------------------------------------------------
Aaa AAA $ 150 Garnett, KS, Combined
Utility Revenue Bonds,
(MBIA), 6.00%, 10/1/17 $ 157,770
Aaa AAA 200 Kansas City, KS, Utility
Systems Revenue, (FGIC),
6.375%, 9/1/23 222,214
Aaa AAA 250 Sedgwick County, KS, USD
#267, (AMBAC), 6.15%,
11/1/09 277,055
Aaa AAA 230 Sedgwick County, KS, USD
#267, (AMBAC), 6.15%,
11/1/10 253,396
- -------------------------------------------------------------------------
$ 910,435
- -------------------------------------------------------------------------
Insured-Hospitals -- 22.0%
- -------------------------------------------------------------------------
Aaa AAA $1,000 Kansas State Development
Finance Authority, Health
Facilities Revenue, (St.
Luke's), (MBIA),
5.375%, 11/15/26 $ 1,002,849
Aaa AAA 500 Kansas State Development
Finance Authority, Health
Facilities, (Stormont-Vail)
(MBIA), 5.80%, 11/15/11 534,065
Aaa AAA 200 Olathe, KS, Health
Facilities, (Evangelical
Lutheran Good Samaritan
Society), (AMBAC), 6.00%,
5/1/19 211,692
Aaa AAA 895 Shawnee County, KS, Health
Care Facilities, (Menninger
Foundation), (FSA), 5.00%,
8/15/16 867,200
- -------------------------------------------------------------------------
$ 2,615,806
- -------------------------------------------------------------------------
Insured-Housing -- 3.7%
- -------------------------------------------------------------------------
Aaa AAA $ 100 Puerto Rico Housing Finance
Corp., (AMBAC), 7.50%,
10/1/11 $ 104,585
Aaa AAA 205 Sedgwick County, KS,
Mortgage Loan Revenue,
(MBIA), (GNMA),
7.50%, 12/1/09 216,935
Aaa AAA 110 Sedgwick County, KS,
Mortgage Loan Revenue,
(MBIA), (GNMA),
7.50%, 12/1/10 116,345
- -------------------------------------------------------------------------
$ 437,865
- -------------------------------------------------------------------------
Transportation -- 3.6%
- -------------------------------------------------------------------------
NR BBB $ 100 Guam Airport Authority,
6.50%, 10/1/23 $ 106,702
NR BBB 300 Guam Airport Authority,
(AMT), 6.70%, 10/1/23 323,367
- -------------------------------------------------------------------------
$ 430,069
- -------------------------------------------------------------------------
Total Tax-Exempt Investments -- 100%
(identified cost $11,264,704) $11,868,179
- -------------------------------------------------------------------------
</TABLE>
AMT - Interest earned from these securities may be considered a tax preference
item for purposes of the Federal Alternative Minimum Tax.
The Portfolio invests primarily in debt securities issued by Kansas
municipalities. The ability of the issuers of the debt securities to meet their
obligations may be affected by economic developments in a specific industry or
municipality. In order to reduce the risk associated with such economic
developments, at July 31, 1997, 36.6% of the securities in the portfolio of
investments are backed by bond insurance of various financial institutions and
financial guaranty assurance agencies. The aggregate percentage by financial
institution ranged from 1.9% to 17.5% of total investments.
/(1)/ Security has been segregated to cover margin requirements on open
financial futures contracts.
/(2)/ Security has been issued as an inverse floater bond.
See notes to financial statements
20
<PAGE>
EV Municipals Portfolios as of July 31, 1997
FINANCIAL STATEMENTS (Unaudited)
Statements of Assets and Liabilities
As of July 31, 1997
<TABLE>
<CAPTION>
Florida Insured Hawaii Kansas
Portfolio Portfolio Portfolio
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Assets
- ------------------------------------------------------------------------------------------------------------------------------------
Investments --
Identified cost $22,448,019 $ 17,950,322 $11,264,704
Unrealized appreciation 1,840,934 1,654,611 603,475
- ------------------------------------------------------------------------------------------------------------------------------------
Investments at value (Note 1A) $24,288,953 $ 19,604,933 $11,868,179
- ------------------------------------------------------------------------------------------------------------------------------------
Cash $ 265 $ 107,333 $ 566
Receivable for investments sold 205,000 -- --
Interest receivable 397,841 180,004 194,465
Receivable from Investment Adviser (Note 2) 27,593 27,059 22,356
Deferred organization expenses (Note 1D) 3,846 3,520 3,478
- ------------------------------------------------------------------------------------------------------------------------------------
Total assets $24,923,498 $ 19,922,849 $12,089,044
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Liabilities
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Payable for investments purchased $ 488,622 $ 503,274 $ --
Demand note payable (Note 5) 665,000 -- 442,000
Payable for variation margin on open financial futures contracts (Note 1E) 7,125 2,625 1,500
Accrued expenses 8,166 5,396 6,753
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities $ 1,168,913 $ 511,295 $ 450,253
- ------------------------------------------------------------------------------------------------------------------------------------
Net Assets applicable to investors' interest in Portfolio $23,754,585 $ 19,411,554 $11,638,791
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Sources of Net Assets
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net proceeds from capital contributions and withdrawals $22,041,431 $ 17,828,574 $11,063,839
Net unrealized appreciation of investments (computed on the basis of
identified cost) 1,713,154 1,582,980 574,952
- ------------------------------------------------------------------------------------------------------------------------------------
Total $23,754,585 $ 19,411,554 $11,638,791
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to financial statements
21
<PAGE>
EV Municipals Portfolios as of July 31, 1997
FINANCIAL STATEMENTS (Unaudited) CONT'D
Statements of Operations
For the Six Months Ended July 31, 1997
<TABLE>
<CAPTION>
Florida Insured Hawaii Kansas
Portfolio Portfolio Portfolio
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Investment Income (Note 1B)
- -------------------------------------------------------------------------------------------------------------------------------
Interest $ 674,768 $ 486,177 $ 342,233
- -------------------------------------------------------------------------------------------------------------------------------
Total investment income $ 674,768 $ 486,177 $ 342,233
- -------------------------------------------------------------------------------------------------------------------------------
Expenses
- -------------------------------------------------------------------------------------------------------------------------------
Investment adviser fee (Note 2) $ 21,264 $ 12,927 $ 9,004
Compensation of Trustees not members of the
Investment Adviser's organization (Note 2) 102 102 102
Custodian fee (Note 1H) 7,612 4,988 2,930
Legal and accounting services 16,838 16,837 12,821
Bond pricing 3,502 1,470 3,523
Amortization of organization expenses (Note 1D) 1,202 1,099 1,086
Miscellaneous 6,493 4,900 4,824
- -------------------------------------------------------------------------------------------------------------------------------
Total expenses $ 57,013 $ 42,323 $ 34,290
- -------------------------------------------------------------------------------------------------------------------------------
Deduct --
Preliminary allocation of expenses to the Investment Adviser (Note 2) $ 27,593 $ 27,059 $ 22,356
Preliminary reduction of investment adviser fee (Note 2) 21,264 12,927 9,004
Reduction of custodian fee (Note 1H) 8,156 2,337 2,930
- -------------------------------------------------------------------------------------------------------------------------------
Total expense reductions $ 57,013 $ 42,323 $ 34,290
- -------------------------------------------------------------------------------------------------------------------------------
Net expenses $ -- $ -- $ --
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income $ 674,768 $ 486,177 $ 342,233
- -------------------------------------------------------------------------------------------------------------------------------
Realized and Unrealized Gain (Loss) on Investments
- -------------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) --
Investment transactions (identified cost basis) $ 201,129 $ 13,184 $ 50,554
Financial futures contracts (145,778) 13,158 9,476
- -------------------------------------------------------------------------------------------------------------------------------
Net realized gain on investment transactions $ 55,351 $ 26,342 $ 60,030
- -------------------------------------------------------------------------------------------------------------------------------
Change in unrealized appreciation (depreciation) --
Investments (identified cost basis) $ 822,804 $ 609,434 $ 369,510
Financial futures contracts (119,036) (92,052) (34,312)
- -------------------------------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) of investments $ 703,768 $ 517,382 $ 335,198
- -------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain on investments $ 759,119 $ 543,724 $ 395,228
- -------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets from operations $1,433,887 $1,029,901 $ 737,461
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to financial statements
22
<PAGE>
EV Municipals Portfolios as of July 31, 1997
FINANCIAL STATEMENTS (Unaudited) CONT'D
Statements of Changes in Net Assets
For the Six Months Ended July 31, 1997
<TABLE>
<CAPTION>
Florida Insured Hawaii Kansas
Increase (Decrease) in Net Assets Portfolio Portfolio Portfolio
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
From operations --
Net investment income $ 674,768 $ 486,177 $ 342,233
Net realized gain on investments 55,351 26,342 60,030
Net change in unrealized appreciation (depreciation)
of investments 703,768 517,382 335,198
- ----------------------------------------------------------------------------------------------------------------------------
Net increase in net assets from operations $ 1,433,887 $ 1,029,901 $ 737,461
- ----------------------------------------------------------------------------------------------------------------------------
Capital transactions --
Contributions $ 2,201,073 $ 3,763,737 $ 702,792
Withdrawals (4,084,234) (1,396,009) (1,537,182)
- ----------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets from capital transactions $(1,883,161) $ 2,367,728 $ (834,390)
- ----------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets $ (449,274) $ 3,397,629 $ (96,929)
- ----------------------------------------------------------------------------------------------------------------------------
Net Assets
- ----------------------------------------------------------------------------------------------------------------------------
At beginning of period $24,203,859 $ 16,013,925 $11,735,720
- ----------------------------------------------------------------------------------------------------------------------------
At end of period $23,754,585 $ 19,411,554 $11,638,791
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to financial statements
23
<PAGE>
EV Municipals Portfolios as of July 31, 1997
FINANCIAL STATEMENTS CONT'D
Statements of Changes in Net Assets
For the Year Ended January 31, 1997
<TABLE>
<CAPTION>
Florida Insured Hawaii Kansas
Increase (Decrease) in Net Assets Portfolio Portfolio Portfolio
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
From operations --
Net investment income $ 1,329,075 $ 924,536 $ 696,638
Net realized gain (loss) on investments (66,180) (88,245) 116,773
Net change in unrealized appreciation (depreciation)
of investments (666,127) (289,897) (398,583)
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets from operations $ 596,768 $ 546,394 $ 414,828
- ------------------------------------------------------------------------------------------------------------------------------------
Capital transactions --
Contributions $ 7,574,982 $ 2,082,938 $ 2,234,921
Withdrawals (5,383,691) (2,193,484) (2,522,670)
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets from capital transactions $ 2,191,291 $ (110,546) $ (287,749)
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets $ 2,788,059 $ 435,848 $ 127,079
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Net Assets
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
At beginning of year $21,415,800 $ 15,578,077 $11,608,641
- ------------------------------------------------------------------------------------------------------------------------------------
At end of year $24,203,859 $ 16,013,925 $11,735,720
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to financial statements
24
<PAGE>
EV Municipals Portfolios as of July 31, 1997
FINANCIAL STATEMENTS CONT'D
Supplementary Data
<TABLE>
<CAPTION>
Florida Insured Portfolio Hawaii Portfolio
---------------------------------------- -----------------------------------------
Six Months Six Months
Ended Year Ended January 31, Ended Year Ended January 31,
July 31, 1997 -------------------------- July 31, 1997 ---------------------------
(Unaudited) 1997 1996 1995* (Unaudited) 1997 1996 1995*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios to average daily net assets: ++
- ------------------------------------------------------------------------------------------------------------------------------------
Expenses/(1)/ 0.07%++ 0.09% 0.07% 0.01%++ 0.03% ++ 0.04% 0.06% 0.06%++
Net expenses, after custodian fee reduction 0.00%++ 0.02% 0.00% -- 0.00%++ 0.00% 0.00% --
Net investment income 5.77%++ 5.76% 5.82% 5.73%++ 5.87%++ 5.96% 6.01% 6.03%++
Portfolio Turnover 11% 36% 32% 33% 6% 21% 19% 66%
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000s omitted) $ 23,755 $24,204 $21,416 $14,400 $ 19,412 $16,014 $15,578 $12,865
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
++ The operating expenses of the Portfolios may reflect a reduction of the
investment adviser fee and/or an allocation of expenses to the Investment
Adviser. Had such actions not been taken, the ratios would have been as
follows:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Expenses/(1)/ 0.49%+ 0.39% 0.39% 0.41%+ 0.51%+ 0.43% 0.41% 0.38%+
Expenses after custodian fee reduction 0.42%+ 0.32% 0.32% -- 0.48%+ 0.39% 0.35% --
Net investment income 5.35%+ 5.46% 5.50% 5.33%+ 5.38%+ 5.57% 5.66% 5.70%+
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
+ Annualized.
* For the period from the start of business, March 2, 1994, to January 31,
1995.
/(1)/ The expense ratios for the periods ended on and after, 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 ratios by the effect of any offset
arrangements with service providers. The expense ratios for the period
ended January 31, 1995 have not been adjusted to reflect this change.
See notes to financial statements
25
<PAGE>
EV Municipals Portfolios as of July 31, 1997
FINANCIAL STATEMENTS CONT'D
Supplementary Data
<TABLE>
<CAPTION>
Kansas Portfolio
-----------------------------------------
Six Months
Ended Year Ended January 31,
July 31, 1997 ------------------------
(Unaudited) 1997 1996 1995*
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Ratios to average daily net assets++:
- --------------------------------------------------------------------------------------------------------------------------
Expenses /(1)/ 0.05%+ 0.08% 0.09% 0.01%+
Net expenses, after custodian fee reduction 0.00%+ 0.00% 0.00% --
Net investment income 5.92%+ 5.91% 5.93% 5.68%+
Portfolio Turnover 5% 49% 21% 12%
- --------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000s omitted) $ 11,639 $11,736 $11,609 $ 8,306
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
++ The operating expenses of the Portfolio reflect a reduction of the
investment adviser fee and/or an allocation of expenses to the Investment
Adviser. Had such actions not been taken, the ratios would have been as
follows:
<TABLE>
<S> <C> <C> <C> <C>
Expenses/(1)/ 0.59%+ 0.48% 0.50% 0.43%+
Expenses after custodian fee reduction 0.54%+ 0.40% 0.41% --
Net investment income 5.38%+ 5.51% 5.52% 5.26%+
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
+ Annualized.
* For the period from the start of business, March 2, 1994, to January 31,
1995.
/(1)/ The expense ratios for the periods ended on and after 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 ratios by the effect of any offset
arrangements with service providers. The expense ratios for the period
ended January 31, 1995 have not been adjusted to reflect this change.
See notes to financial statements
26
<PAGE>
EV Municipals Portfolio as of July 31, 1997
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 amended, as non-diversified open-end
management investment companies. The Portfolios 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 the
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, deduction
or credit. Interest income received by the Portfolios on investments in
municipal bonds, which is excludable from gross income under the Internal
Revenue Code, will retain its status as income exempt from federal income tax
when allocated to each Portfolio's investors. The portion of such interest,
if any, earned on private activity bonds issued after August 7, 1986, may be
considered a tax preference item for investors.
D Deferred Organization Expenses -- Costs incurred by a Portfolio in
connection with its organization are being amortized on the straight-line
basis over five years.
E Financial Futures Contracts -- Upon the entering of a financial futures
contract, a Portfolio is required to deposit ("initial margin") either in
cash or securities an amount equal to a certain percentage of the purchase
price indicated in the financial futures contract. Subsequent payments are
made or received by a Portfolio ("margin maintenance") each day, dependent on
the daily fluctuations in the value of the underlying security, and are
recorded for book purposes as unrealized gains or losses by a Portfolio. A
Portfolio's investment in financial futures contracts is designed only to
hedge against anticipated future changes in interest rates. Should interest
rates move unexpectedly, a Portfolio may not achieve the anticipated benefits
of the financial futures contracts and may realize a loss.
F 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, the Portfolio will realize a loss in the amount of
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 sale transaction are 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.
27
<PAGE>
EV Municipals Portfolio as of July 31, 1997
NOTES TO FINANCIAL STATEMENTS (Unaudited) CONT'D
G When-issued and Delayed Delivery Transactions -- The Portfolios may engage
in when-issued or 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
reflected as a reduction of expenses on 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.
K Interim Financial Information -- The interim financial statements relating
to July 31, 1997 and for the six months then ended have not been audited by
independent certified public accountants, but in the opinion of the
Portfolios' management reflect all adjustments, consisting only of normal
recurring adjustments, necessary for the fair presentation of the financial
statements.
2 Investment Adviser Fee and Other Transactions with Affiliates
-----------------------------------------------------------------------------
The investment adviser fee is earned by Boston Management and Research (BMR),
a wholly-owned subsidiary of Eaton Vance Management (EVM), as compensation
for management and investment advisory services rendered to 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, 1997, each Portfolio incurred
advisory fees as follows:
<TABLE>
<CAPTION>
Portfolio Amount Effective Rate*
-----------------------------------------------------------------------------
<S> <C> <C>
Florida Insured $21,264 0.18%
Hawaii 12,927 0.16%
Kansas 9,004 0.16%
</TABLE>
*As a percentage of average daily net assets (annualized).
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 $21,264, $12,927, and $9,004, respectively, and $27,593, $27,059,
and $22,356, respectively, of expenses related to the operation of the
Portfolios were allocated, on a preliminary basis, to BMR. Except as to
Trustees of the Portfolio who are not members of EVM's or BMR's organization,
officers and Trustees receive remuneration for their services to the
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, 1997, no significant amounts have been
deferred.
28
<PAGE>
EV Municipals Portfolio as of July 31, 1997
NOTES TO FINANCIAL STATEMENTS (Unaudited) CONT'D
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, 1997 were as follows:
<TABLE>
<CAPTION>
Florida Insured Portfolio
---------------------------------------------------
<S> <C>
Purchases $2,643,655
Sales 4,255,871
Hawaii Portfolio
---------------------------------------------------
Purchases $4,127,395
Sales 996,178
Kansas Portfolio
---------------------------------------------------
Purchases $ 723,272
Sales 582,901
</TABLE>
4 Federal Income Tax Basis of Investments
-----------------------------------------------------------------------------
The cost and unrealized appreciation (depreciation) in value of the
investments owned by each Portfolio at July 31, 1997, as computed on a
federal income tax basis, are as follows:
<TABLE>
<CAPTION>
Florida Insured Portfolio
---------------------------------------------------
<S> <C>
Aggregate Cost $22,448,019
---------------------------------------------------
Gross unrealized appreciation $ 1,840,934
Gross unrealized depreciation -
---------------------------------------------------
Net unrealized appreciation $ 1,840,934
---------------------------------------------------
Hawaii Portfolio
---------------------------------------------------
Aggregate Cost $17,950,322
---------------------------------------------------
Gross unrealized appreciation $ 1,656,339
Gross unrealized depreciation 1,728
---------------------------------------------------
Net unrealized appreciation $ 1,654,611
---------------------------------------------------
Kansas Portfolio
---------------------------------------------------
Aggregate Cost $11,264,704
---------------------------------------------------
Gross unrealized appreciation $ 603,475
Gross unrealized depreciation -
---------------------------------------------------
Net unrealized appreciation $ 603,475
---------------------------------------------------
</TABLE>
5 Line of Credit
-----------------------------------------------------------------------------
The Portfolios participate with other portfolios and funds managed by BMR and
EVM and its affiliates in a $120 million unsecured line of credit agreement
with a group of banks. Borrowings will be made by the Portfolios solely to
facilitate the handling of unusual and/or unanticipated short-term cash
requirements. Interest is charged to each fund or portfolio based on its
borrowings at the bank's base rate or at an amount above either the bank's
adjusted certificate of deposit rate, Eurodollar rate or federal funds
effective rate. In addition, a fee computed at an annual rate of 0.15% on the
daily unused portion of the facility is allocated among the participating
portfolios and funds at the end of each quarter. At July 31, 1997, the
Florida Insured Portfolio and the Kansas Portfolio had balances outstanding
pursuant to this line of credit of $665,000 and $442,000, respectively. The
Portfolios did not have any significant borrowings or allocated fees during
the six months ended July 31, 1997.
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 futures contracts and may involve, to a varying degree, elements of
risk in excess of the amounts recognized for financial statement purposes.
The notional or contractual amounts of these instruments represent the
investment a Portfolio has in particular classes of financial instruments and
does not necessarily represent the amounts potentially subject to risk. The
measurement of the risks associated with these instruments is meaningful only
when all related and offsetting transactions are considered.
A summary of obligations under these financial instruments at July 31, 1997,
is as follows:
<TABLE>
<CAPTION>
Futures
Contracts
Expiration Net Unrealized
Portfolio Date Contracts Position Depreciation
--------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Florida
Insured 9/97 19 US Treasury Bond Short $127,780
--------------------------------------------------------------------------
Hawaii 9/97 10 US Treasury Bond Short $ 71,631
--------------------------------------------------------------------------
Kansas 9/97 4 US Treasury Bond Short $ 28,523
--------------------------------------------------------------------------
</TABLE>
At July 31,1997 each Portfolio had sufficient cash and/or securities to
cover margin requirements on open futures contracts.
29
<PAGE>
EV Marathon Municipals Funds as of July 31, 1997
INVESTMENT MANAGEMENT
<TABLE>
<CAPTION>
EV Marathon Municipals Funds
<S> <C>
Officers Independent Trustees
Thomas J. Fetter Donald R. Dwight
President President, Dwight Partners, Inc.
Chairman, Newspapers of New England, Inc.
James B. Hawkes
Vice President and Trustee Samuel L. Hayes, III
Jacob H. Schiff Professor of Investment
Robert B. MacIntosh Banking, Harvard University Graduate School of
Vice President Business Administration
James L. O'Connor Norton H. Reamer
Treasurer President and Director, United Asset
Management Corporation
Alan R. Dynner
Secretary John L. Thorndike
Formerly Director, Fiduciary Company Incorporated
Jack L. Treynor
Investment Adviser and Consultant
<CAPTION>
EV Municipals Portfolios
<S> <C>
Officers Independent Trustees
Thomas J. Fetter Donald R. Dwight
President of the Florida President, Dwight Partners, Inc.
Insured, Hawaii and Kansas Chairman, Newspaper of New England, Inc.
Municipals Portfolios and
Portfolio Manager of Florida Samuel L. Hayes, III
Insured Municipals Portfolio Jacob H. Schiff Professor of Investment
Banking, Harvard University Graduate School of
James B. Hawkes Business Administration
Vice President and Trustee
Norton H. Reamer
Robert B. MacIntosh President and Director, United Asset
Vice President of Florida Management Corporation
Insured, Hawaii and Kansas
Municipals Portfolios and John L. Thorndike
Portfolio Manager of Hawaii Formerly Director, Fiduciary Company Incorporated
Municipals Portfolio
Jack L. Treynor
Nicole Anderes Investment Adviser and Consultant
Vice President and Portfolio
Manager of Kansas
Municipals Portfolio
James L. O'Connor
Treasurer
Alan R. Dynner
Secretary
</TABLE>
30
<PAGE>
This Page Intentionally Left Blank
<PAGE>
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
200 Clarendon Street, 16th Floor
Boston, MA 02116
Transfer Agent
First Data Services Group
Attention: Eaton Vance Funds
P.O. Box 5123
Westborough, MA 01581-5123
EV Municipals Trust II
24 Federal 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 sales charges and
expenses. Please read the prospectus carefully before you invest or send money.
- --------------------------------------------------------------------------------
M-3CSRC-10/97
