<PAGE>
[LOGO OF Investing
EATON VANCE for the
MUTUAL FUNDS 21st EDUCATION
APPEARS HERE] Century
Annual Report January 31, 1998
[PICTURE OF
HIGHWAY
APPEARS HERE] EATON VANCE
MUNICIPALS Florida Insured
TRUST II
MARATHON Hawaii
Global Management-Global Distribution
Kansas
[PICTURE OF
BRIDGE
APPEARS HERE]
<PAGE>
EV Marathon Municipals Funds as of January 31, 1998
LETTER TO SHAREHOLDERS
[PHOTO OF THOMAS J. FETTER APPEARS HERE]
Thomas J. Fetter,
President
The past year has been very favorable for the municipal bond market. Low
inflation and declining interest rates produced strong returns for the tax-
exempt sector. As a measure of overall municipal bond market performance, the
Lehman Brothers Municipal Bond Index* -- a widely recognized, unmanaged index of
municipal bonds -- had a total return of 10.1% for the year ended January 31,
1998.
Amid volatile global markets, more investors were drawn to municipal bonds...
Against a backdrop of moderate-to-strong economic growth and low inflation,
investors in 1997 again focused on the unique advantages of municipals, which
remain among the best tax-advantaged vehicles. In addition, the municipal market
attracted an increasing number of crossover investors from other markets. Many
investors bought municipals in a flight to quality as the domestic equity market
reached overvalued levels and emerging markets were caught up in the turmoil of
the Asian currency crisis.
A sound economy has resulted in improving municipal credits...
The upbeat economic climate of recent years has provided strong support for the
municipal market. Steady job growth has generated increased tax revenues for
states and local issuers. As a result, many areas hard-hit in the recessions of
the 1970s and 1980s have since recovered, a fact reflected in the value of their
bonds. We expect to see many more such stories emerge in the coming year.
Municipal bonds yield 88% of Treasury yields
- ------------------------- -------------------------
5.13% 8.02%
- ------------------------- -------------------------
30 Year AAA-rated General Taxable equivalent
Obligation (GO) Bonds* yield in 36% tax bracket
- -------------------------
5.80%
- -------------------------
30-Year Treasury bond
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
January 31, 1998.
Past performance is no guarantee of future results.
Source: Bloomberg, L.P.
1998 should bring more opportunities for municipal investors...
At present, there is little sign of inflation on the horizon, and, with the
Asian turmoil of recent months, it's possible that the economy may slow somewhat
in the next year. Meanwhile, the federal budget situation has improved
dramatically in the past several years.
Naturally, those conditions are subject to change over time. The market could be
vulnerable if the economy strengthens or the budget situation unexpectedly
worsens. We will, of course, continue to closely monitor economic progress.
As for the tax-exempt market, municipal bonds currently represent unusual value
relative to their taxable counterparts. We believe that municipals will continue
to serve their traditional function of financing vital public works, while
offering good opportunities for tax-conscious investors.
Sincerely,
/s/ Thomas J. Fetter
Thomas J. Fetter,
President
March 6, 1998
*It is not possible to invest directly in an index.
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Effective November 24, 1997, Timothy T. Browse became Portfolio Manager of the
Kansas Municipals Portfolio, replacing Nicole Anderes. Mr. Browse, a Vice
President of Eaton Vance Management and Boston Management and Research,
also manages other Eaton Vance municipal portfolios.
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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 January 31, 1998
INVESTMENT UPDATE
[PHOTO OF THOMAS J. FETTER APPEARS HERE]
Thomas J. Fetter,
Portfolio Manager
The Economy
- ------------------------------------------------------------------------------
. Florida's economy continues to enjoy great strength, driven by a diverse base
that includes a booming service sector. The service sector accounts for over
35% of total non-farm employment and is dominated by tourism.
. Florida's tourism industry includes amusement and recreation services, which
added over 49,000 jobs last year and lead to increased employment in the
hotel industry. According to the Travel Industry Association, Florida has
surpassed California and Hawaii as the number one tourist destination in the
U.S.
. Other important sectors in the Florida economy include construction -- which
slowed somewhat in 1997 from the rapid growth of the mid-1990's -- and
manufacturing, which accounts for almost 8% of total employment. Within
manufacturing, the aerospace, telecommunications equipment, and defense
industries should continue to show strength.
Management Update
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. 1997 was a positive year for the bond market, with above-average returns
resulting from a general decline in interest rates. This decline occurred in
response to a favorable economic period in which growth was strong and
inflation remained low. In 1998, these conditions are expected to continue.
. As of January 31, 1998, 84% of the Portfolio's investments were insured by
private municipal bond insurance companies. While private insurance does not
remove interest rate risk, it typically provides investors with an extra
margin of credit safety.
. We continue to manage for longer call protection. In the past six months, the
Fund's average call increased to over eight years. We also remain on the
lookout for bonds with low coupons, which tend to have better upside
potential.
The Fund
- --------------------------------------------------------------------------------
. During the year ended January 31, 1998, the Fund had a total return of
9.6%./1/ This return resulted from an increase in net asset value per share
to $11.23 on January 31, 1998 from $10.71 on January 31, 1997, and the
reinvestment of $0.48 per share in tax-free dividend income./2/
. Based on the Fund's most recent dividend, and a net asset value of $11.23 per
share, the Fund's distribution rate on January 31, 1998 was 4.27%./3/ The SEC
30-day yield on that date was 3.76%./4/
. To equal 4.27% in a taxable investment, a couple in the 39.0% combined
federal and state tax bracket would need a yield of 7.0%.
Your Investment at Work
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Dade County, Florida -- Seaport General [GRAPHIC OF SHIP APPEARS HERE]
Obligation Refunding Bonds, Ser. 1996
. The Dade County Bond Ordinance permits the county to issue GO bonds from time
to time for the purpose of financing seaport capital projects. Examples of
such projects include a proposal to lease land from the City of Miami to
build a Maritime Park which would include four new cruise ship berths,
museums, retail shops, entertainment facilities, and an historical center.
. These bonds are secured by a pledge of net revenues of the Seaport Department
and have received triple-A ratings from both the Standard & Poor's and
Moody's bond rating services.
- --------------------------------------------------------------------------------
/1/ This return does not include the applicable contingent deferred sales charge
(CDSC). /2/A portion of the Fund's income may be subject to federal and state
income taxes and/or federal alternative minimum tax. /3/The Fund's distribution
rate represents actual distributions paid to shareholders and is calculated
daily by dividing the last distribution per share (annualized) by the net asset
value. /4/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. /5/Returns are calculated by determining the
percentage change in net asset value with all distributions reinvested. SEC
returns reflect applicable CDSC based on the following schedule: 5% - 1st year;
5% - 2nd year; 4% - 3rd year; 3% - 4th year; 2% - 5th year; 1% - 6th year.
*Source: Towers Data Systems, Bethesda, MD. Investment operations commenced on
3/2/94. Index information is available only at month-end; therefore, the line
comparison begins at the next month-end following the commencement of the Fund's
investment operations. **This represents the Fund's performance including
applicable CDSC.
Past performance is no guarantee of future results. Investment return and
principal value will fluctuate so that shares, when redeemed, may be worth more
or less than their original cost.
- --------------------------------------------------------------------------------
Fund Information
as of January 31, 1998
Performance/5/
- --------------------------------------------------------------------------------
Average Annual Total Returns (at net asset value)
- --------------------------------------------------------------------------------
One Year 9.6%
Life of Fund (3/2/94) 7.9
SEC Average Annual Total Returns (including applicable CDSC)
- --------------------------------------------------------------------------------
One Year 4.6%
Life of Fund (3/2/94) 7.3
Comparison of Change in Value of a $10,000 Investment in EV Marathon Florida
Insured Municipals Fund vs. Lehman Brothers Municipal Bond Index*
From March 31, 1994, through January 31, 1998
[LINE GRAPH APPEARS HERE]
EV Marathon
Florida Insured Lehman Brothers Municipal
Date Municipals Fund Fund/w. CDSC** Bond Index
---- --------------- -------------- -------------------------
3/31/94 $10,000 - $10,000
4/30/94 $10,403 - $10,085
5/31/94 $10,561 - $10,172
6/30/94 $10,456 - $10,113
7/31/94 $10,696 - $10,295
8/31/94 $10,666 - $10,331
9/30/94 $10,471 - $10,180
10/31/94 $10,194 - $ 9,999
11/30/94 $ 9,975 - $ 9,818
12/31/94 $10,319 - $10,034
1/31/95 $10,710 - $10,321
2/28/95 $11,120 - $10,621
3/31/95 $11,172 - $10,743
4/30/95 $11,167 - $10,756
5/31/95 $11,441 - $11,099
6/30/95 $11,190 - $11,002
7/31/95 $11,259 - $11,106
8/31/95 $11,336 - $11,247
9/30/95 $11,404 - $11,318
10/31/95 $11,634 - $11,483
11/30/95 $11,940 - $11,673
12/31/95 $12,128 - $11,785
1/31/96 $12,143 - $11,874
2/28/96 $11,981 - $11,794
3/31/96 $11,751 - $11,644
4/30/96 $11,710 - $11,610
5/31/96 $11,711 - $11,606
6/30/96 $11,828 - $11,733
7/31/96 $11,937 - $11,839
8/31/96 $11,915 - $11,836
9/30/96 $12,121 - $12,001
10/31/96 $12,188 - $12,137
11/30/96 $12,383 - $12,359
12/31/96 $12,294 - $12,307
1/31/97 $12,282 - $12,331
2/28/97 $12,414 - $12,444
3/31/97 $12,213 - $12,278
4/30/97 $12,292 - $12,381
5/31/97 $12,500 - $12,567
6/30/97 $12,630 - $12,701
7/31/97 $12,991 - $13,053
8/31/97 $12,792 - $12,930
9/30/97 $12,958 - $13,084
10/31/97 $13,076 - $13,168
11/30/97 $13,163 - $13,245
12/31/97 $13,374 - $13,439
1/31/98 $13,458 $13,158 $13,577
The chart compares the Fund's total return with that of the Lehman Brothers
Municipal Bond Index, a broad-based, unmanaged market index. Returns are
calculated by determining the percentage change in net asset value (NAV) with
all distributions reinvested. The lines on the chart represent total returns of
$10,000 hypothetical investments in the Fund and the Index. The Index's total
return does not reflect commissions or expenses that would have been incurred if
an investor individually purchased or sold the securities represented in the
Index. It is not possible to invest directly in an Index.
- --------------------------------------------------------------------------------
Federal income tax information on distributions: For federal income tax
purposes, 98.77% of the total dividends paid by the Fund from net investment
income during the year ended January 31, 1998 is designated as an exempt-
interest dividend.
- --------------------------------------------------------------------------------
3
<PAGE>
EV Marathon Hawaii Municipals Fund as of January 31, 1998
INVESTMENT UPDATE
[PHOTO OF ROBERT B. MACINTOSH APPEARS HERE]
Robert B. MacIntosh,
Portfolio Manager
The Economy
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. Hawaii's economy will likely feel the effects of Asia's economic turmoil in
1998. Japanese tourists, the mainstay of the tourism industry, are expected
to decline in number as they seek more affordable destinations. Fortunately,
as a result of the booming U.S. economy, increased arrivals from the
mainland should help offset a Japanese decline.
. The state economy's slump began in 1992 and is now beginning to level off.
Construction should grow 2% in 1998, as public projects and bond issues boost
this sector. Overall job growth of 0.2% and Gross State Product growth of 1%
are forecast for 1998. Inflation, currently at 1%, is virtually nonexistent.
. To spur more aggressive growth, the Hawaii Economic Revitalization Task
Force -- convened by Governor Cayetano and the state legislature in 1995 --
unveiled a plan to cut taxes by $100 million, increase tourism marketing and
incentives, improve the regulatory climate, and strengthen public education.
The state is expected to act on these proposals in the coming year.
Management Update
- --------------------------------------------------------------------------------
. 1997 was a positive year for the bond market, with above-average returns
resulting from a general decline in interest rates. This decline occurred in
response to a favorable economic period in which growth was strong and
inflation remained low. In 1998, these conditions are expected to continue.
. Hawaii's economy, while showing signs of growth, is still sluggish. To
minimize risk, the Portfolio's exposure to uninsured state GOs has been
reduced to 0.8%. In addition, we have added several zero coupon bonds, which
perform well when interest rates decline.
. We continue to seek bonds with longer call protection and lower coupons. Both
features can significantly enhance performance.
The Fund
- --------------------------------------------------------------------------------
. During the year ended January 31, 1998, the Fund had a total return of
9.1%./1/ This return resulted from an increase in net asset value per share
to $10.13 on January 31, 1998 from $9.73 on January 31, 1997, and the
reinvestment of $0.459 per share in tax-free dividend income./2/
. Based on the Fund's most recent dividend, and a net asset value of $10.13 per
share, the Fund's distribution rate on January 31, 1998 was 4.54%./3/ The SEC
30-day yield on that date was 3.87%./4/
. To equal 4.54% in a taxable investment, a couple in the 42.4% combined
federal and state tax bracket would need a yield of 7.88%.
Your Investment at Work
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State of Hawaii Airport System [GRAPHIC OF AIRPLANE
Revenue Bonds - Second Series, 1990 APPEARS HERE]
. Proceeds from this bond issue finance ongoing improvements to the entire
Hawaii Airports System, which includes 14 airports and one heliport on the
state's islands. Improvements thus far have included new systems for
security, public address and operations control, as well as major
construction projects on a recently-completed inter-island terminal at Oahu-
based Hawaii International Airport.
. Interest on the bonds is payable from the receipts of the aviation fuel tax
and the revenues of the State of Hawaii Airport System.
- --------------------------------------------------------------------------------
/1/This return does not include the applicable contingent deferred sales charge
(CDSC). /2/A portion of the Fund's income may be subject to federal and state
income taxes and/or federal alternative minimum tax. /3/The Fund's distribution
rate represents actual distributions paid to shareholders and is calculated
daily by dividing the last distribution per share (annualized) by the net asset
value. /4/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. /5/Returns are calculated by determining the
percentage change in net asset value with all distributions reinvested. SEC
returns reflect applicable CDSC based on the following schedule: 5% - 1st year;
5% - 2nd year; 4% - 3rd year; 3% - 4th year; 2% - 5th year; 1% - 6th year.
*Source: Towers Data Systems, Bethesda, MD. Investment operations commenced on
3/2/94. Index information is available only at month-end; therefore, the line
comparison begins at the next month-end following the commencement of the Fund's
investment operations. **This represents the Fund's performance including
applicable CDSC.
Past performance is no guarantee of future results. Investment return and
principal value will fluctuate so that shares, when redeemed, may be worth more
or less than their original cost.
- --------------------------------------------------------------------------------
Fund Information
as of January 31, 1998
Performance/5/
- --------------------------------------------------------------------------------
Average Annual Total Returns (at net asset value)
- --------------------------------------------------------------------------------
One Year 9.1%
Life of Fund (3/2/94) 5.4
SEC Average Annual Total Returns (including applicable CDSC)
- --------------------------------------------------------------------------------
One Year 4.1%
Life of Fund (3/2/94) 4.8
Comparison of Change in Value of a $10,000 Investment in EV Marathon Hawaii
Municipals Fund vs. Lehman Brothers Municipal Bond Index*
From March 31, 1994, through January 31, 1998
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
EV Marathon Hawaii Lehman Brothers
Date Municipals Fund Fund/w.CDSC** Municipal Bond Index
---- -------------------- ----------- ---------------------
<S> <C> <C> <C>
3/31/94 $10,000 - $10,000
4/30/94 $10,023 - $10,085
5/31/94 $10,101 - $10,172
6/30/94 $9,949 - $10,113
7/31/94 $10,134 - $10,295
8/31/94 $10,152 - $10,331
9/30/94 $9,968 - $10,180
10/31/94 $9,668 - $9,999
11/30/94 $9,394 - $9,818
12/31/94 $9,631 - $10,034
1/31/95 $9,926 - $10,321
2/28/95 $10,285 - $10,621
3/31/95 $10,413 - $10,743
4/30/95 $10,395 - $10,756
5/31/95 $10,689 - $11,099
6/30/95 $10,514 - $11,002
7/31/95 $10,606 - $11,106
8/31/95 $10,694 - $11,247
9/30/95 $10,785 - $11,318
10/31/95 $10,944 - $11,483
11/30/95 $11,159 - $11,673
12/31/95 $11,307 - $11,785
1/31/96 $11,389 - $11,874
2/28/96 $11,274 - $11,794
3/31/96 $11,100 - $11,644
4/30/96 $11,066 - $11,610
5/31/96 $11,029 - $11,606
6/30/96 $11,161 - $11,733
7/31/96 $11,262 - $11,839
8/31/96 $11,238 - $11,836
9/30/96 $11,404 - $12,001
10/31/96 $11,520 - $12,137
11/30/96 $11,710 - $12,359
12/31/96 $11,663 - $12,307
1/31/97 $11,662 - $12,331
2/28/97 $11,761 - $12,444
3/31/97 $11,585 - $12,278
4/30/97 $11,690 - $12,381
5/31/97 $11,857 - $12,567
6/30/97 $11,955 - $12,701
7/31/97 $12,293 - $13,053
8/31/97 $12,157 - $12,930
9/30/97 $12,267 - $13,084
10/31/97 $12,351 - $13,168
11/30/97 $12,416 - $13,245
12/31/97 $12,609 - $13,439
1/31/98 $12,720 $12,420 $13,577
</TABLE>
The chart compares the Fund's total return with that of the Lehman Brothers
Municipal Bond Index, a broad-based, unmanaged market index. Returns are
calculated by determining the percentage change in net asset value (NAV) with
all distributions reinvested. The lines on the chart represent total returns of
$10,000 hypothetical investments in the Fund and the Index. The Index's total
return does not reflect commissions or expenses that would have been incurred if
an investor individually purchased or sold the securities represented in the
Index. It is not possible to invest directly in an Index.
- --------------------------------------------------------------------------------
Federal income tax information on distributions: For federal income tax
purposes, 98.58% of the total dividends paid by the Fund from net investment
income during the year ended January 31, 1998 is designated as an exempt-
interest dividend.
- --------------------------------------------------------------------------------
4
<PAGE>
EV Marathon Kansas Municipals Fund as of January 31, 1998
INVESTMENT UPDATE
[PHOTO OF TIMOTHY T. BROWSE APPEARS HERE]
Timothy T. Browse,
Portfolio Manager
The Economy
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. The Kansas economy shared the growth of the national economy in 1997 and is
expected to continue growing at a healthy rate in 1998. Non-farm wage and
salary employment increased 3%, following a solid 2.3% rise in 1996. In 1998,
analysts expect non-farm job growth of 2.7%. Personal income in Kansas rose
5.6% in 1997 and is expected to increase 5.3% in 1998.
. Unemployment fell to 3.7% in December, 1997 from 4.6% in December, 1996, while
total employment rose to 1.28 million from 1.25 million in the same 12-month
period.
. The primary engines powering the Kansas economy have been durable goods
manufacturing, led by the aircraft industry, as well as the construction,
transportation, utilities, and FIRE (finance, insurance, and real estate)
sectors. The aircraft manufacturing industry -- employing over 37,000 -- grew
10.5% in 1996 and 11.7% in 1997.
Management Discussion
- --------------------------------------------------------------------------------
. The past 12 months have been favorable for the bond market, with a general
decline in yields and a corresponding increase in prices. We continually
strive to maintain a balanced portfolio of high and low coupon issues for
optimal performance in this type of environment.
. We have found upside potential in such issues as escrowed zero coupon bonds
and have hedged the Fund's downside risk by acquiring higher-yielding bonds.
In addition, by seeking out low coupons and lengthening our call protection
where possible, we have been able to maintain good portfolio structure.
. The strong economy has provided an extra measure of credit quality for local
GO bonds, which make up a significant portion of municipal offerings in
Kansas.
The Fund
- ------------------------------------------------------------------------------
. During the year ended January 31, 1998, the Fund had a total return of
8.9%./1/ This return resulted from an increase in net asset value per share to
$10.38 on January 31, 1998 from $10.08 on January 31, 1997, and the
reinvestment of $0.462 per share in tax-free dividend income/2/ and $0.11 in
capital gains.
. Based on the Fund's most recent dividend, and a net asset value of $10.38 per
share, the Fund's distribution rate on January 31, 1998 was 4.46%./3/ The SEC
30-day yield on that date was 3.82%./4/
. To equal 4.46% in a taxable investment, a couple in the 42.05% combined
federal and state tax bracket would need a yield of 7.70%.
Your Investment at Work
- --------------------------------------------------------------------------------
Sedgwick County, Kansas and Shawnee County, Kansas
Collateralized Single Family Mortgage Refunding [GRAPHIC OF HOUSE
Revenue Bonds -- Series 1994C-III APPEARS HERE]
. The proceeds from this bond issue will be used to help provide residential,
single family housing for low and moderate income persons in Sedgwick and
Shawnee counties.
. The mortgages generated by this program will be sold by the Issuers (the two
counties) to the Government National Mortgage Association (GNMA), a wholly-
owned agency of the U.S. government, which guarantees timely payment of
principal and interest to investors. The bonds are rated "Aaa" by Moody's.
- -------------------------------------------------------------------------------
/1/This return does not include the applicable contingent deferred sales charge
(CDSC). /2/A portion of the Fund's income may be subject to federal and state
income taxes and/or federal alternative minimum tax. /3/The Fund's distribution
rate represents actual distributions paid to shareholders and is calculated
daily by dividing the last distribution per share (annualized) by the net asset
value. /4/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. /5/Returns are calculated by determining the
percentage change in net asset value with all distributions reinvested. SEC
returns reflect applicable CDSC based on the following schedule: 5% - 1st year;
5% - 2nd year; 4% - 3rd year; 3% - 4th year; 2% - 5th year; 1% - 6th year.
*Source: Towers Data Systems, Bethesda, MD. Investment operations commenced on
3/2/94. Index information is available only at month-end; therefore, the line
comparison begins at the next month-end following the commencement of the Fund's
investment operations. **This represents the Fund's performance including
applicable CDSC.
Past performance is no guarantee of future results. Investment return and
principal value will fluctuate so that shares, when redeemed, may be worth more
or less than their original cost.
- -------------------------------------------------------------------------------
Fund Information
as of January 31, 1998
Performance/5/
- -------------------------------------------------------------------------------
Average Annual Total Returns (at net asset value)
- -------------------------------------------------------------------------------
One Year 8.9%
Life of Fund (3/2/94) 6.2
SEC Average Annual Total Returns (including applicable CDSC)
- -------------------------------------------------------------------------------
One Year 3.9%
Life of Fund (3/2/94) 5.5
Comparison of Change in Value of a $10,000 Investment in EV Marathon Kansas
Municipals Fund vs. Lehman Brothers Municipal Bond Index*
From March 31, 1994, through January 31, 1998
[LINE GRAPH APPEARS HERE]
EV Marathon Kansas Lehman Brothers Municipal
Date Municipals Fund Fund/w. CDSC** Bond Index
---- --------------------- -------------- -------------------------
3/31/94 $10,000 -- $10,000
4/30/94 $10,136 -- $10,085
5/31/94 $10,275 -- $10,172
6/30/94 $10,162 -- $10,113
7/31/94 $10,375 -- $10,295
8/31/94 $10,393 -- $10,331
9/30/94 $10,179 -- $10,180
10/31/94 $ 9,933 -- $ 9,999
11/30/94 $ 9,662 -- $ 9,818
12/31/94 $ 9,928 -- $10,034
1/31/95 $10,273 -- $10,321
2/28/95 $10,617 -- $10,621
3/31/95 $10,711 -- $10,743
4/30/95 $10,704 -- $10,756
5/31/95 $10,962 -- $11,099
6/30/95 $10,809 -- $11,002
7/31/95 $10,877 -- $11,106
8/31/95 $10,998 -- $11,247
9/30/95 $11,076 -- $11,318
10/31/95 $11,266 -- $11,483
11/30/95 $11,455 -- $11,673
12/31/95 $11,567 -- $11,785
1/31/96 $11,636 -- $11,874
2/28/96 $11,523 -- $11,794
3/31/96 $11,351 -- $11,644
4/30/96 $11,328 -- $11,610
5/31/96 $11,326 -- $11,606
6/30/96 $11,421 -- $11,733
7/31/96 $11,533 -- $11,839
8/31/96 $11,544 -- $11,836
9/30/96 $11,719 -- $12,001
10/31/96 $11,821 -- $12,137
11/30/96 $12,032 -- $12,359
12/31/96 $11,947 -- $12,307
1/31/97 $11,922 -- $12,331
2/28/97 $12,033 -- $12,444
3/31/97 $11,895 -- $12,278
4/30/97 $12,011 -- $12,381
5/31/97 $12,164 -- $12,567
6/30/97 $12,284 -- $12,701
7/31/97 $12,618 -- $13,053
8/31/97 $12,472 -- $12,930
9/30/97 $12,617 -- $13,084
10/31/97 $12,664 -- $13,168
11/30/97 $12,740 -- $13,245
12/31/97 $12,907 -- $13,439
1/31/98 $12,980 $12,680 $13,577
The chart compares the Fund's total return with that of the Lehman Brothers
Municipal Bond Index, a broad-based, unmanaged market index. Returns are
calculated by determining the percentage change in net asset value (NAV) with
all distributions reinvested. The lines on the chart represent total returns of
$10,000 hypothetical investments in the Fund and the Index. The Index's total
return does not reflect commissions or expenses that would have been incurred if
an investor individually purchased or sold the securities represented in the
Index. It is not possible to invest directly in an Index.
- -------------------------------------------------------------------------------
Federal income tax information on distributions: For federal income tax
purposes, 95.22% of the total dividends paid by the Fund from net investment
income during the year ended January 31, 1998 is designated as an exempt-
interest dividend.
- -------------------------------------------------------------------------------
5
<PAGE>
EV Marathon Municipals Funds as of January 31, 1998
FINANCIAL STATEMENTS
Statements of Assets and Liabilities
As of January 31, 1998
<TABLE>
<CAPTION>
Marathon
Florida Insured Marathon Marathon
Fund Hawaii Fund Kansas Fund
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Assets
- ------------------------------------------------------------------------------------------------------------------------
Investment in Portfolio --
Identified cost $20,454,011 $17,914,754 $ 9,512,024
Unrealized appreciation 1,514,745 1,542,134 566,465
- ------------------------------------------------------------------------------------------------------------------------
Total investment in Portfolio, at value (Note 1A) $21,968,756 $19,456,888 $10,078,489
- ------------------------------------------------------------------------------------------------------------------------
Receivable for Fund shares sold $ 85,015 $ 6,010 $ 2,061
Deferred organization expenses (Note 1D) 3,765 4,972 3,728
- ------------------------------------------------------------------------------------------------------------------------
Total assets $22,057,536 $19,467,870 $10,084,278
- ------------------------------------------------------------------------------------------------------------------------
Liabilities
- ------------------------------------------------------------------------------------------------------------------------
Dividends payable $ 41,047 $ 38,550 $ 19,870
Payable for Fund shares redeemed 24,037 5,867
Payable to affiliate for Trustees' fees (Note 4) 22 22 22
Accrued expenses 19,361 22,845 14,659
- ------------------------------------------------------------------------------------------------------------------------
Total liabilities $ 84,467 $ 67,284 $ 34,551
- ------------------------------------------------------------------------------------------------------------------------
Net Assets $21,973,069 $19,400,586 $10,049,727
- ------------------------------------------------------------------------------------------------------------------------
Sources of Net Assets
- ------------------------------------------------------------------------------------------------------------------------
Paid-in capital $20,488,904 $18,424,748 $ 9,429,636
Accumulated net realized gain (loss) on investments from
Portfolio (computed on the basis of identified cost) (54,007) (527,746) 54,099
Accumulated undistributed (distributions in excess of)
net investment income 23,427 (38,550) (473)
Net unrealized appreciation of investments from Portfolio
(computed on the basis of identified cost) 1,514,745 1,542,134 566,465
- ------------------------------------------------------------------------------------------------------------------------
Total $21,973,069 $19,400,586 $10,049,727
- ------------------------------------------------------------------------------------------------------------------------
Shares of Beneficial Interest Outstanding
- ------------------------------------------------------------------------------------------------------------------------
1,956,109 1,915,733 968,390
- ------------------------------------------------------------------------------------------------------------------------
Net Asset Value, Offering and
Redemption Price Per Share (Note 6)
- ------------------------------------------------------------------------------------------------------------------------
(Net assets / shares of beneficial interest outstanding) $ 11.23 $ 10.13 $ 10.38
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to financial statements
6
<PAGE>
EV Marathon Municipals Funds as of January 31, 1998
FINANCIAL STATEMENTS CONT'D
Statements of Operations
For the Year Ended January 31, 1998
<TABLE>
<CAPTION>
Marathon
Florida Insured Marathon Marathon
Fund Hawaii Fund Kansas Fund
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Investment Income (Note 1B)
- ----------------------------------------------------------------------------------------------------------------------------
Interest income allocated from Portfolio $1,188,657 $1,007,201 $ 593,190
- ----------------------------------------------------------------------------------------------------------------------------
Net investment income from Portfolio $1,188,657 $1,007,201 $ 593,190
- ----------------------------------------------------------------------------------------------------------------------------
Expenses
- ----------------------------------------------------------------------------------------------------------------------------
Compensation of Trustees not members of the
Administrator's organization (Note 4) $ 176 $ 189 $ 176
Distribution and service fees (Note 5) 193,660 164,974 94,475
Legal and accounting services 16,489 17,253 13,617
Transfer and dividend disbursing agent fees 16,979 15,442 9,119
Printing and postage 7,354 7,877 8,976
Amortization of organization expenses (Note 1D) 3,480 4,575 3,440
Custodian fee (Note 1F) 2,945 4,636 3,950
Registration fees 1,290 284 677
Miscellaneous 779 2,719 1,636
- ----------------------------------------------------------------------------------------------------------------------------
Total expenses $ 243,152 $ 217,949 $ 136,066
- ----------------------------------------------------------------------------------------------------------------------------
Net investment income $ 945,505 $ 789,252 $ 457,124
- ----------------------------------------------------------------------------------------------------------------------------
Realized and Unrealized Gain (Loss) from Portfolio
- ----------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) --
Investment transactions (identified cost basis) $ 527,819 $ 360,515 $ 104,321
Financial futures contracts (246,471) (99,083) (25,569)
- ----------------------------------------------------------------------------------------------------------------------------
Net realized gain on investment transactions $ 281,348 $ 261,432 $ 78,752
- ----------------------------------------------------------------------------------------------------------------------------
Change in unrealized appreciation (depreciation) --
Investments $ 719,999 $ 534,940 $ 348,883
Financial futures contracts (3,605) (31,920) (10,835)
- ----------------------------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) of investments $ 716,394 $ 503,020 $ 338,048
- ----------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain on investments $ 997,742 $ 764,452 $ 416,800
- ----------------------------------------------------------------------------------------------------------------------------
Net increase in net assets from operations $1,943,247 $1,553,704 $ 873,924
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to financial statements
7
<PAGE>
EV Marathon Municipals Funds as of January 31, 1998
FINANCIAL STATEMENTS CONT'D
Statements of Changes in Net Assets
For the Year Ended January 31, 1998
<TABLE>
<CAPTION>
Marathon
Florida Insured Marathon Marathon
Increase (Decrease) in Net Assets Fund Hawaii Fund Kansas Fund
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
From operations --
Net investment income $ 945,505 $ 789,252 $ 457,124
Net realized gain on investment transactions 281,348 261,432 78,752
Net change in unrealized appreciation (depreciation) of investments 716,394 503,020 338,048
- --------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets from operations $ 1,943,247 $ 1,553,704 $ 873,924
- --------------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders (Note 2) --
From net investment income $ (927,338) $ (789,252) $ (461,231)
In excess of net investment income -- (32,067) (473)
From net realized gain on investments -- -- (105,309)
- --------------------------------------------------------------------------------------------------------------------------------
Total distributions to shareholders $ (927,338) $ (821,319) $ (567,013)
- --------------------------------------------------------------------------------------------------------------------------------
Transactions in shares of beneficial interest (Note 3) --
Proceeds from sale of shares $ 4,059,139 $ 4,672,367 $ 1,127,364
Net asset value of shares issued
to shareholders in payment of
distributions declared 380,352 338,412 318,497
Cost of shares redeemed (5,198,944) (1,894,316) (2,195,014)
- --------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets from Fund share transactions $ (759,453) $ 3,116,463 $ (749,153)
- --------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets $ 256,456 $ 3,848,848 $ (442,242)
- --------------------------------------------------------------------------------------------------------------------------------
Net Assets
- --------------------------------------------------------------------------------------------------------------------------------
At beginning of year $21,716,613 $ 15,551,738 $10,491,969
- --------------------------------------------------------------------------------------------------------------------------------
At end of year $21,973,069 $ 19,400,586 $10,049,727
- --------------------------------------------------------------------------------------------------------------------------------
Accumulated undistributed
(distributions in excess of) net investment
income included in net assets
- --------------------------------------------------------------------------------------------------------------------------------
At end of year $ 23,427 $ (38,550) $ (473)
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to financial statements
8
<PAGE>
EV Marathon Municipals Funds as of January 31, 1998
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 on investments -- -- (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 January 31, 1998
FINANCIAL STATEMENTS CONT'D
Financial Highlights
<TABLE>
<CAPTION>
Marathon Florida Insured Fund
---------------------------------------------
Year Ended January 31,
---------------------------------------------
1998 1997 1996 1995*
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value -- Beginning of year $10.710 $11.090 $10.260 $10.000
- ---------------------------------------------------------------------------------------------------------
Income (loss) from operations
- ---------------------------------------------------------------------------------------------------------
Net investment income $ 0.488 $ 0.499 $ 0.512 $ 0.456
Net realized and unrealized gain (loss) on investments 0.511 (0.385) 0.832 0.304
- ---------------------------------------------------------------------------------------------------------
Total income (loss) from operations $ 0.999 $ 0.114 $ 1.344 $ 0.760
- ---------------------------------------------------------------------------------------------------------
Less distributions
- ---------------------------------------------------------------------------------------------------------
From net investment income $(0.479) $(0.494) $(0.512) $(0.456)
In excess of net investment income -- -- (0.002) (0.044)
- ---------------------------------------------------------------------------------------------------------
Total distributions $(0.479) $(0.494) $(0.514) $(0.500)
- ---------------------------------------------------------------------------------------------------------
Net asset value -- End of year $11.230 $10.710 $11.090 $10.260
- ---------------------------------------------------------------------------------------------------------
Total Return/(1)/ 9.57% 1.14% 13.39% 7.10%
- ---------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data++
- ---------------------------------------------------------------------------------------------------------
Net assets, end of year (000's omitted) $21,973 $21,717 $18,391 $11,596
Ratio of net expenses to average daily net assets/(2)(3)/ 1.23% 1.21% 1.10% 0.75%+
Ratio of net expenses to average daily net assets after
custodian fee reduction/(2)/ 1.16% 1.12% 1.00% --
Ratio of net investment income to average daily net assets 4.50% 4.67% 4.76% 4.79%+
- ---------------------------------------------------------------------------------------------------------
</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
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)/ 1.65% 1.51% 1.49% 1.62%+
Expenses after custodian fee reduction/(2)/ 1.58% 1.42% 1.39% --
Net investment income 4.08% 4.37% 4.37% 3.92%+
Net investment income per share $ 0.443 $ 0.467 $ 0.470 $ 0.374
- ---------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Marathon Hawaii Fund
-------------------------------------------
Year Ended January 31,
-------------------------------------------
1998 1997 1996 1995*
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value -- Beginning of year $ 9.730 $ 9.980 $ 9.150 $10.000
- ------------------------------------------------------------------------------------------------------------
Income (loss) from operations
- ------------------------------------------------------------------------------------------------------------
Net investment income $ 0.441 $ 0.466 $ 0.484 $ 0.434
Net realized and unrealized gain (loss) on investments 0.418 (0.241) 0.835 (0.805)
- ------------------------------------------------------------------------------------------------------------
Total income (loss) from operations $ 0.859 $ 0.225 $ 1.319 $(0.371)
- ------------------------------------------------------------------------------------------------------------
Less distributions
- ------------------------------------------------------------------------------------------------------------
From net investment income $(0.441) $(0.466) $(0.484) $(0.434)
In excess of net investment income (0.018) (0.009) (0.005) (0.045)
- ------------------------------------------------------------------------------------------------------------
Total distributions $(0.459) $(0.475) $(0.489) $(0.479)
- ------------------------------------------------------------------------------------------------------------
Net asset value -- End of year $10.130 $ 9.730 $ 9.980 $ 9.150
- ------------------------------------------------------------------------------------------------------------
Total Return/(1)/ 9.08% 2.40% 14.74% (4.01)%
- ------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data++
- ------------------------------------------------------------------------------------------------------------
Net assets, end of year (000's omitted) $19,401 $15,552 $15,126 $12,601
Ratio of net expenses to average daily net assets/(2)(3)/ 1.27% 1.20% 1.05% 0.87%+
Ratio of net expenses to average daily net assets after
custodian fee reduction/(2)/ 1.24% 1.15% 0.98% --
Ratio of net investment income to average daily net assets 4.47% 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
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)/ 1.70% 1.61% 1.53% 1.41%+
Expenses after custodian fee reduction/(2)/ 1.67% 1.56% 1.46% --
Net investment income 4.04% 4.40% 4.51% 4.49%+
Net investment income per share $ 0.399 $ 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 each Fund's share of its corresponding Portfolio's allocated
expenses.
/(3)/ The expense ratios for the year ended January 31, 1996 and thereafter 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 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 January 31, 1998
FINANCIAL STATEMENTS CONT'D
Financial Highlights
<TABLE>
<CAPTION>
Marathon Kansas Fund
-------------------------------------------
Year Ended January 31,
-------------------------------------------
1998 1997 1996 1995*
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value -- Beginning of year $10.080 $ 10.320 $ 9.560 $ 10.000
- ---------------------------------------------------------------------------------------------------------------------------------
Income (loss) from operations
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income $ 0.458 $ 0.479 $ 0.481 $ 0.435
Net realized and unrealized gain (loss) on investments 0.414 (0.238) 0.761 (0.393)
- ---------------------------------------------------------------------------------------------------------------------------------
Total income from operations $ 0.872 $ 0.241 $ 1.242 $ 0.042
- ---------------------------------------------------------------------------------------------------------------------------------
Less distributions
- ---------------------------------------------------------------------------------------------------------------------------------
From net investment income $(0.462) $ (0.473) $ (0.481) $ (0.435)
In excess of net investment income --** -- (0.001) (0.047)
From net realized gain on investments (0.110) (0.008) -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Total distributions $(0.572) $ (0.481) $ (0.482) $ (0.482)
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value -- End of year $10.380 $ 10.080 $ 10.320 $ 9.560
- ---------------------------------------------------------------------------------------------------------------------------------
Total Return/(1)/ 8.87% 2.46% 13.26% 0.16%
- ---------------------------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data++
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets, end of year (000's omitted) $10,050 $ 10,492 $ 10,782 $ 7,753
Ratio of net expenses to average daily net assets/(2)(3)/ 1.38% 1.25% 1.20% 0.75%+
Ratio of net expenses to average daily net assets after
custodian fee reduction/(2)/ 1.33% 1.15% 1.08% --
Ratio of net investment income to average daily net assets 4.48% 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 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)/ 1.90% 1.68% 1.59% 1.60%+
Expenses after custodian fee reduction/(2)/ 1.85% 1.58% 1.47% --
Net investment income 3.96% 4.34% 4.40% 3.96%+
Net investment income per share $ 0.405 $ 0.436 $ 0.442 $ 0.397
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
+ Annualized.
* For the period from the start of business, March 2, 1994, to January 31,
1995.
** Distributions in excess of net investment income are less than $0.001 per
share.
/(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 January 31, 1998
NOTES TO FINANCIAL STATEMENTS
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 (88.4%, 97.9% and 88.3% at January 31, 1998
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.
On June 23, 1997, the Board of Trustees of the Trust adopted a multiple
class plan for the EV Marathon Florida Insured Municipals Fund, EV Marathon
Hawaii Municipals Fund and Marathon Kansas Municipals Fund which permits the
Funds to issue more than one class of shares. Initially, the Funds will
offer two classes of shares and, effective February 1, 1998 the existing
shares of the Funds will be designated Class B shares. On June 23, 1997, the
Board of Trustees also approved a Plan of Reorganization (the "Plan") for
the Trust. Under the terms of the Plan, the Funds will acquire substantially
all of the assets and liabilities of the EV Traditional Florida Insured
Municipals Fund, the EV Traditional Hawaii Municipals Fund and the EV
Traditional Kansas Municipals Fund, respectively. The transaction will be
structured for tax purposes to qualify as a tax-free reorganization under
the Internal Revenue Code. As a result of the reorganization, shareholders
of the corresponding Traditional Funds will receive Class A shares. The
reorganization will occur after the close of business, January 31, 1998.
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,
1998, the Marathon Florida Insured Fund and the Marathon Hawaii Fund, for
federal income tax purposes, had capital loss carryovers which will reduce
taxable income arising from future net realized gain on investments, if any,
to the extent permitted by the Internal Revenue Code, and thus will reduce
the amount of distributions to shareholders which would otherwise be
necessary to relieve the Funds of any liability for federal income or excise
tax. The amounts and expiration dates of the capital loss carryovers are as
follows:
Fund Amount Expires
---------------------------------------------------------------------------
Marathon Florida Insured Fund $ 65,345 January 31, 2005
Marathon Hawaii Fund $ 25,582 January 31, 2005
514,615 January 31, 2004
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,
12
<PAGE>
EV Marathon Municipals Funds as of January 31, 1998
NOTES TO FINANCIAL STATEMENTS CONT'D
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 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.
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. During the year ended January 31, 1998, the
following reclassifications were made due to permanent differences between
book and tax accounting for distributions:
Marathon
Florida Insured Marathon Hawaii
Increase/(decrease) Fund Fund
----------------------------------------------------------------------------
Accumulated undistributed
(distributions in excess of)
net investment income $ -- $ 15,053
Accumulated net realized gain
(loss) on investments
from Portfolio (135,820) --
Paid-in capital 135,820 (15,053)
----------------------------------------------------------------------------
Net investment income, net realized gain on investment transactions and net
assets were not affected by these reclassifications.
The tax treatment of distributions for the calendar year will be reported to
shareholders prior to February 1, 1999 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:
Marathon Florida Insured Fund
-------------------------------------------
Year Ended January 31,
-------------------------------------------
1998 1997
----------------------------------------------------------------------------
Sales 370,922 565,644
Issued to shareholders
electing to receive
payments of
distributions in Fund
shares 34,868 33,964
Redemptions (477,263) (230,160)
----------------------------------------------------------------------------
Net increase (decrease) (71,473) 369,448
----------------------------------------------------------------------------
Marathon Hawaii Fund
-------------------------------------------
Year Ended January 31,
-------------------------------------------
1998 1997
----------------------------------------------------------------------------
Sales 475,254 201,234
Issued to shareholders
electing to receive
payments of
distributions in Fund
shares 34,260 32,289
Redemptions (192,930) (149,829)
----------------------------------------------------------------------------
Net increase 316,584 83,694
----------------------------------------------------------------------------
13
<PAGE>
EV Marathon Municipals Funds as of January 31, 1998
NOTES TO FINANCIAL STATEMENTS CONT'D
Marathon Kansas Fund
----------------------------------------
Year Ended January 31,
----------------------------------------
1998 1997
----------------------------------------------------------------------------
Sales 110,259 178,247
Issued to shareholders
electing to receive
payments of
distributions in Fund
shares 30,986 24,491
Redemptions (213,928) (206,951)
----------------------------------------------------------------------------
Net decrease (72,683) (4,213)
----------------------------------------------------------------------------
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.
Certain of the officers and Trustees of the Funds and Portfolios are
officers and directors/trustees of the above organizations.
5 Distribution and Service Plans
----------------------------------------------------------------------------
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 year ended January 31, 1998, Marathon Florida Insured Fund, Marathon
Hawaii Fund and Marathon Kansas Fund paid $157,703, $132,435 and $76,576,
respectively, to EVD, representing 0.75% of each Fund's average daily net
assets. For the year ended January 31, 1998, 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 $676,000, $738,000 and $363,000, 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
year ended January 31, 1998, 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 $35,957, $32,539 and $17,899, 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
14
<PAGE>
EV Marathon Municipals Funds as of January 31, 1998
NOTES TO FINANCIAL STATEMENTS CONT'D
under each Fund's Distribution Plan. CDSC charges received when no Uncovered
Distribution Charges exist will be credited to the Fund. EVD received
approximately $99,000, $45,000 and $60,000 of CDSC paid by shareholders of
Marathon Florida Insured Fund, Marathon Hawaii Fund and Marathon Kansas
Fund, respectively, for the year ended January 31, 1998.
7 Investment Transactions
----------------------------------------------------------------------------
Increases and decreases in each Fund's investment in its corresponding
Portfolio for the year ended January 31, 1998 were as follows:
Marathon Florida Insured Fund
---------------------------------------------------------------------------
Increases $ 4,020,293
Decreases (6,015,122)
Marathon Hawaii Fund
---------------------------------------------------------------------------
Increases $ 4,685,688
Decreases (2,583,258)
Marathon Kansas Fund
---------------------------------------------------------------------------
Increases $ 1,175,412
Decreases (2,645,960)
8 Subsequent Event
---------------------------------------------------------------------------
Effective February 1, 1998, EV Marathon Florida Insured Municipals Fund, EV
Marathon Hawaii Municipals Fund and EV Marathon Kansas Municipals Fund will
change their respective names to Eaton Vance Florida Insured Municipals
Fund, Eaton Vance Hawaii Municipals Fund and Eaton Vance Kansas Municipals
Fund and shares of the Funds are designated Class B shares. One additional
class of shares will also be offered.
15
<PAGE>
EV Marathon Municipals Funds as of January 31, 1998
INDEPENDENT AUDITORS' REPORT
To the Trustees and Shareholders of
Eaton Vance Municipals Trust II:
- --------------------------------------------------------------------------------
We have audited the accompanying statements of assets and liabilities of EV
Marathon Florida Insured Municipals Fund, EV Marathon Hawaii Municipals Fund and
EV Marathon Kansas Municipals Fund (certain of the series constituting Eaton
Vance Municipals Trust II) as of January 31, 1998, the related statements of
operations for the year then ended, the statements of changes in net assets for
the years ended January 31, 1998 and 1997 and the financial highlights for each
of the three years ended January 31, 1998 and for the period from the start of
business, March 2, 1994, to January 31, 1995. These financial statements and
financial highlights are the responsibility of the Trust's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
aforementioned funds of Eaton Vance Municipals Trust II at January 31, 1998, the
results of their operations, the changes in their net assets, and their
financial highlights for the respective stated periods in conformity with
generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
March 13, 1998
<PAGE>
Florida Insured Municipals Portfolio as of January 31, 1998
PORTFOLIO OF INVESTMENTS
Tax-Exempt Investments -- 100.0%
Ratings (Unaudited)
- ------------------- Principal
Amount
Standard (000's
Moody's & Poor's omitted) Security Value
- --------------------------------------------------------------------------------
Housing -- 16.0%
- --------------------------------------------------------------------------------
Aaa NR $ 360 Duval County, FL, Housing
Finance Authority, Single
Family Mortgage Revenue,
(GNMA), (AMT),
6.70%, 10/1/26 $ 386,104
Aaa AAA 750 Escambia, FL, HFA, SFMR,
(GNMA), (AMT), 7.00%, 4/1/28 827,415
Aaa NR 730 Manatee, FL, HFA, SFMR,
(GNMA), (AMT), 6.875%,
11/1/26 810,110
Aaa NR 1,000 Pinellas County, FL, HFA,
SFMR, (AMT), 5.80%, 3/1/29 1,029,620
NR AAA 795 Pinellas, FL, HFA, SFMR,
(GNMA), (AMT), 6.70%, 2/1/28 853,274
- --------------------------------------------------------------------------------
$ 3,906,523
- --------------------------------------------------------------------------------
Insured-Education -- 2.1%
- --------------------------------------------------------------------------------
Aaa AAA $ 500 Florida A&M University,
(Student Apartment
Facilties), (MBIA), 5.625%,
7/1/25 $ 524,375
- --------------------------------------------------------------------------------
$ 524,375
- --------------------------------------------------------------------------------
Insured-Electric Utilities -- 9.6%
- --------------------------------------------------------------------------------
Aaa AAA $ 445 Citrus County, FL, PCR,
(MBIA), 6.35%, 2/1/22 $ 488,374
Aaa AAA 895 Florida State Municipal
Power Agency, (Stanton
Project), (AMBAC),
4.50%, 10/1/27 817,099
Aaa AAA 1,000 Puerto Rico Electric Power
Authority, (MBIA), 5.50%,
7/1/25 1,032,510
- --------------------------------------------------------------------------------
$ 2,337,983
- --------------------------------------------------------------------------------
Insured-Hospitals -- 0.8%
- --------------------------------------------------------------------------------
Aaa AAA $ 200 Dade, FL, Public Facilities
Revenue, (Jackson Memorial
Hospital), (MBIA), 4.875%,
6/1/15 $ 197,796
- --------------------------------------------------------------------------------
$ 197,796
- --------------------------------------------------------------------------------
Insured-Housing -- 14.5%
- --------------------------------------------------------------------------------
NR A $ 375 Clearwater, FL, HFA,
(Hamptons at Clearwater),
(ACA), 5.30%, 5/1/18 $ 376,136
NR A 500 Clearwater, FL, HFA,
(Hamptons at Clearwater),
(ACA), 5.35%, 5/1/24 501,510
Aaa AAA 500 Florida Health Facilities
Authority, (Maitland Club
Apartments), (AMBAC),
(AMT), 6.875%, 8/1/26 545,740
Aaa AAA 1,000 Florida HFA, (Mariner Club
Apartments), (AMBAC),
(AMT), 6.375%, 9/1/36/(1)/ 1,072,770
Aaa AAA 500 Florida HFA, (MBIA), (AMT),
5.90%, 7/1/29 520,210
Aaa AAA 500 Florida HFA, (Spinnaker
Cove Apartments), (AMBAC),
(AMT), 6.50%, 7/1/36 538,405
- --------------------------------------------------------------------------------
$ 3,554,771
- --------------------------------------------------------------------------------
Insured-Industrial Development Revenue -- 2.2%
- --------------------------------------------------------------------------------
Aaa AAA $ 500 Dade County, FL, Resources
Recovery Facilities,
(AMBAC), (AMT),
5.50%, 10/1/13 $ 525,085
- --------------------------------------------------------------------------------
$ 525,085
- --------------------------------------------------------------------------------
Insured-Special Tax Revenue -- 18.4%
- --------------------------------------------------------------------------------
Aaa AAA $1,000 Bradenton, FL, Special
Revenue Sub-Lien, (FGIC),
5.00%, 10/1/15 $ 1,004,500
Aaa AAA 1,000 Jacksonville, FL, Excise
Taxes Revenue, (FGIC),
5.00%, 10/1/16 1,003,740
Aaa AAA 1,000 Jacksonville, FL, Excise
Taxes Revenue, (FGIC),
(AMT), 5.70%, 10/1/09 1,049,980
Aaa AAA 250 Orange, FL, Tourist
Development Tax, (MBIA),
6.00%, 10/1/24 272,825
Aaa AAA 505 St. Petersburg, FL, Excise
Tax Revenue, (FGIC), 5.00%,
10/1/16 506,101
Aaa AAA 340 Sunrise, FL, Public
Facilities Revenue, (MBIA),
0.00%, 10/1/15 144,293
Aaa AAA 500 Tampa, FL, Occupational
License Tax Revenue,
(FGIC), 5.50%, 10/1/27 521,700
- --------------------------------------------------------------------------------
$ 4,503,139
- --------------------------------------------------------------------------------
See notes to financial statements
17
<PAGE>
Florida Insured Municipals Portfolio as of January 31, 1998
PORTFOLIO OF INVESTMENTS CONT'D
Ratings (Unaudited)
- ------------------- Principal
Amount
Standard (000's
Moody's & Poor's omitted) Security Value
- --------------------------------------------------------------------------------
Insured-Transportation -- 12.3%
- --------------------------------------------------------------------------------
Aaa AAA $1,000 Dade County, FL, Aviation
Revenue, (Miami International
Airport-Series B), (FSA),
(AMT), 5.125%, 10/1/22 $ 990,940
Aaa AAA 1,000 Dade County, FL, Seaport
Revenue, (MBIA), 5.125%,
10/1/16 1,011,820
Aaa AAA 1,000 Florida Ports Financing
Commission, (State
Transportation Trust Fund),
(MBIA), (AMT), 5.375%,
6/1/27 1,013,920
- --------------------------------------------------------------------------------
$ 3,016,680
- --------------------------------------------------------------------------------
Insured-Water and Sewer -- 24.1%
- --------------------------------------------------------------------------------
Aaa AAA $ 500 Dade County, FL, Water And
Sewer System Revenue,
(FGIC), 5.25%, 10/1/26 $ 506,060
Aaa AAA 325 Dade County, FL, Water and
Sewer System, (FGIC),
5.375%, 10/1/16 337,110
Aaa AAA 735 Enterprise Community
Development District, FL,
Water and Sewer Revenue,
(MBIA), 6.125%, 5/1/24 803,414
Aaa AAA 1,000 Jacksonville, FL, Water and
Sewer Revenue, (AMBAC),
(AMT), 6.35%, 8/1/25 1,108,030
Aaa AAA 1,000 Lee County, FL, (Bonita
Springs), (MBIA), (AMT),
6.05%, 11/1/20 1,087,520
Aaa AAA 70 North Port, FL, Utility
Revenue, (FGIC), 6.25%,
10/1/17 76,861
Aaa AAA 500 North Port, FL, Utility
Revenue, (FGIC), 6.25%,
10/1/22 549,015
Aaa AAA 400 Titisville, FL, Water and
Sewer Revenue, (MBIA),
6.00%, 10/1/24 436,520
Aaa AAA 1,000 Vero Beach, FL, Water and
Sewer Revenue, (FGIC),
5.00%, 12/1/21 983,520
- --------------------------------------------------------------------------------
$ 5,888,050
- --------------------------------------------------------------------------------
Total Tax-Exempt Investments -- 100%
(identified cost $22,620,877) $24,454,402
- --------------------------------------------------------------------------------
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 January 31, 1998, 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 January 31, 1998, the Portfolio's
insured securities by financial institution are as follows:
% of
Market Value Market Value
- --------------------------------------------------------------------------------
American Capital Access (ACA) $ 877,646 3.6%
American Municipal Bond Assurance
Corp. (AMBAC) 4,607,129 18.8
Financial Guaranty Insurance
Corp. (FGIC) 6,538,588 26.7
Financial Security Assurance
(FSA) 990,940 4.1
Municipal Bond Insurance Assoc.
(MBIA) 7,533,577 30.8
- --------------------------------------------------------------------------------
Total $20,547,880 84.0%
- --------------------------------------------------------------------------------
/(1)/ Security (or a portion thereof) has been segregated to cover margin
requirements on open financial futures contracts.
See notes to financial statements
18
<PAGE>
Hawaii Municipals Portfolio as of January 31, 1998
PORTFOLIO OF INVESTMENTS
Tax-Exempt Investments -- 100.0%
Ratings (Unaudited)
- -------------------- Principal
Amount
Standard (000's
Moody's & Poor's omitted) Security Value
- --------------------------------------------------------------------------------
Electric Utilities -- 2.9%
- --------------------------------------------------------------------------------
Baa1 BBB+ $1,500 Puerto Rico Electric Power
Authority, 0.00%, 7/1/17 $ 568,395
- --------------------------------------------------------------------------------
$ 568,395
- --------------------------------------------------------------------------------
General Obligations -- 7.3%
- --------------------------------------------------------------------------------
Aa2 AA $ 750 City and County of Honolulu,
HI, 4.75%, 9/1/17 $ 724,905
Baa1 A 285 Commonwealth of Puerto
Rico, Public Improvement,
0.00%, 7/1/15 121,598
NR BBB 400 Government of Guam, 5.375%,
11/15/13 406,452
Aa3 A+ 140 State of Hawaii, 5.75%,
1/1/11 155,617
- --------------------------------------------------------------------------------
$ 1,408,572
- --------------------------------------------------------------------------------
Hospitals -- 14.7%
- --------------------------------------------------------------------------------
A2 A+ $ 400 State of Hawaii Department
of Budget and Finance,
(Kaiser Permanente), 6.25%,
3/1/21 $ 425,004
A A 635 State of Hawaii Department
of Budget and Finance,
(Kapiolani Health System),
6.00%, 7/1/19 669,506
Aa3 AA 870 State of Hawaii Department
of Budget and Finance,
(Queens Health System),
5.75%, 7/1/26 918,111
NR BBB- 750 State of Hawaii Department
of Budget and Finance,
Special Purpose Mortgage
Revenue, (Wahiawa General
Hospital), 7.50%, 7/1/12 828,083
- --------------------------------------------------------------------------------
$ 2,840,704
- --------------------------------------------------------------------------------
Housing -- 8.9%
- --------------------------------------------------------------------------------
Aa1 AA $ 500 State of Hawaii Housing
Finance and Development
Corp., 5.75%, 7/1/30 $ 511,750
Aa1 AA 1,000 State of Hawaii Housing
Finance and Development,
Single Family Mortgage
Bonds, 5.90%, 7/1/27/(1)/ 1,038,899
Aa1 AA 175 State of Hawaii Housing
Finance and Development,
Single Family Mortgage
Bonds, (AMT), 6.00%, 7/1/26 181,183
- --------------------------------------------------------------------------------
$ 1,731,832
- --------------------------------------------------------------------------------
Industrial Development Revenue/Pollution Control Revenue -- 4.2%
- --------------------------------------------------------------------------------
A1 AA- $ 550 Puerto Rico Industrial,
Tourist, Educational,
Medical and Environmental
Control Authority, (Upjohn
Co.), 7.50%, 12/1/23 $ 584,144
Ba3 BB- 220 State Department of
Transportation, HI,
(Continental Airlines,
Inc.), (AMT), 5.625%,
11/15/27 220,581
- --------------------------------------------------------------------------------
$ 804,725
- --------------------------------------------------------------------------------
Insured-Education -- 5.5%
- --------------------------------------------------------------------------------
Aaa AAA $ 500 Hawaii State Housing
Development Corp.,
(University of Hawaii),
(AMBAC), 5.65%, 10/1/16 $ 528,855
Aaa AAA 500 University of Hawaii Board
of Regents, University
System, (AMBAC),
5.65%, 10/1/12 530,150
- --------------------------------------------------------------------------------
$ 1,059,005
- --------------------------------------------------------------------------------
Insured-Electric Utilities -- 11.8%
- --------------------------------------------------------------------------------
Aaa AAA $ 100 Puerto Rico Electric Power
Authority, "STRIPES", (FSA),
Variable Rate, 7/1/03/(2)/ $ 115,875
Aaa AAA 500 State of Hawaii Department
of Budget and Finance,
(Hawaii Electric Co.,
Inc.), (AMT), (MBIA),
6.20%, 5/1/26 546,995
Aaa AAA 500 State of Hawaii Department
of Budget and Finance,
(Hawaii Electric Co.,
Inc.), (AMT), (MBIA),
6.60%, 1/1/25 557,285
Aaa AAA 1,000 State of Hawaii Department
of Budget and Finance, HI,
(Hawaiian Electric Co.),
(MBIA), (AMT), 5.65%, 10/1/27 1,055,999
- --------------------------------------------------------------------------------
$ 2,276,154
- --------------------------------------------------------------------------------
Insured-General Obligations -- 21.0%
- --------------------------------------------------------------------------------
Aaa AAA $ 250 City and County of
Honolulu, HI, (FGIC),
5.00%, 11/1/16 $ 250,423
Aaa AAA 700 County of Hawaii, HI,
(FGIC), 5.55%, 5/1/10 768,943
Aaa AAA 305 County of Kauai, HI,
(MBIA), 5.90%, 2/1/14 332,014
See notes to financial statements
19
<PAGE>
Hawaii Municipals Portfolio as of January 31, 1998
PORTFOLIO OF INVESTMENTS CONT'D
Ratings (Unaudited) Principal
- -------------------- Amount
Standard (000's
Moody's & Poor's omitted) Security Value
- --------------------------------------------------------------------------------
Insured-General Obligations (continued)
- --------------------------------------------------------------------------------
Aaa AAA $ 910 County of Maui, HI, (FGIC),
5.00%, 9/1/17 $ 911,547
Aaa AAA 420 County of Maui, HI, (FGIC),
5.30%, 9/1/14 438,249
Aaa AAA 250 County of Maui, HI, (FGIC),
5.75%, 1/1/13 262,325
Aaa AAA 1,100 State Series Corporate Purpose,
HI, (FGIC), 5.00%, 10/1/17 1,097,194
- --------------------------------------------------------------------------------
$ 4,060,695
- --------------------------------------------------------------------------------
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 $ 101,184
Aaa AAA 100 State of Hawaii Department
of Budget and Finance, (St.
Francis Medical Centers),
(CGIC), 6.50%, 7/1/22 109,531
- --------------------------------------------------------------------------------
$ 210,715
- --------------------------------------------------------------------------------
Insured-Housing -- 2.7%
- --------------------------------------------------------------------------------
Aaa AAA $ 490 City and County of Honolulu,
HI, Mortgage Revenue Bonds,
(Smith Beretania), (MBIA),
7.80%, 7/1/24 $ 526,378
- --------------------------------------------------------------------------------
$ 526,378
- --------------------------------------------------------------------------------
Insured-Transportation -- 9.9%
- --------------------------------------------------------------------------------
Aaa AAA $ 500 State of Hawaii Airports
System, (AMT), (FGIC),
7.50%, 7/1/20 $ 544,060
Aaa AAA 100 State of Hawaii Airports
System, (AMT), (MBIA),
6.90%, 7/1/12 120,040
Aaa AAA 245 State of Hawaii Airports
System, (AMT), (MBIA),
7.00%, 7/1/18 268,326
Aaa AAA 650 State of Hawaii Harbor
Revenue, (AMT), (FGIC),
6.375%, 7/1/24 715,923
Aaa AAA 250 State of Hawaii Harbor
Revenue, (AMT), (MBIA),
7.00%, 7/1/17 269,193
- --------------------------------------------------------------------------------
$ 1,917,542
- --------------------------------------------------------------------------------
Special Tax Revenue -- 0.8%
- --------------------------------------------------------------------------------
Baa1 A $ 50 Puerto Rico Highway and
Transportation Authority,
5.50%, 7/1/36 $ 53,171
NR NR 100 Virgin Islands Public
Finance Authority, 7.25%,
10/1/18 112,585
- --------------------------------------------------------------------------------
$ 165,756
- --------------------------------------------------------------------------------
Transportation -- 5.9%
- --------------------------------------------------------------------------------
NR BBB $ 200 Guam Airport Authority,
(AMT), 6.70%, 10/1/23 $ 220,236
Baa3 BBB- 180 Puerto Rico Port Authority,
(American Airlines), (AMT),
6.30%, 6/1/23 192,586
Aa3 AA 715 State of Hawaii Highway
Revenue, 5.00%, 7/1/12 723,809
- --------------------------------------------------------------------------------
$ 1,136,631
- --------------------------------------------------------------------------------
Water and Sewer -- 3.3%
- --------------------------------------------------------------------------------
Aa3 AA $ 600 City and County of Honolulu,
HI, Water Supply System, 5.80%,
7/1/16 $ 639,570
- --------------------------------------------------------------------------------
$ 639,570
- --------------------------------------------------------------------------------
Total Tax-Exempt Investments -- 100%
(identified cost $17,754,788) $19,346,674
- --------------------------------------------------------------------------------
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 January 31, 1998, 52% 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 1.2% to 26.7% of total investments.
/(1)/ Security (or a portion thereof) 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>
Kansas Municipals Portfolio as of January 31, 1998
PORTFOLIO OF INVESTMENTS
Tax-Exempt Investments -- 100.0%
Ratings (Unaudited)
- -------------------- Principal
Amount
Standard (000's
Moody's & Poor's omitted) Security Value
- --------------------------------------------------------------------------------
Electric Utilities -- 1.5%
- --------------------------------------------------------------------------------
NR BBB $ 150 Guam Power Authority Revenue,
6.625%, 10/1/14 $ 167,184
- --------------------------------------------------------------------------------
$ 167,184
- --------------------------------------------------------------------------------
General Obligations -- 13.1%
- --------------------------------------------------------------------------------
Baa1 A $ 500 Commonwealth of Puerto Rico,
Public Improvement, 0.00%,
7/1/18 $ 179,870
Aa NR 400 Douglas County, KS, USD #497,
6.00%, 9/1/15 429,736
Aa1 AA 890 Johnson County, KS, USD #229,
5.00%, 10/1/16 893,879
- --------------------------------------------------------------------------------
$ 1,503,485
- --------------------------------------------------------------------------------
Hospitals -- 2.3%
- --------------------------------------------------------------------------------
A3 NR $ 250 Lawrence, KS, Hospital Revenue,
(Lawrence Memorial Hospital),
6.20%, 7/1/19 $ 266,008
- --------------------------------------------------------------------------------
$ 266,008
- --------------------------------------------------------------------------------
Housing -- 29.3%
- --------------------------------------------------------------------------------
Aaa NR $ 70 Kansas City, KS, Mortgage
Revenue, (AMT), (GNMA), 5.30%,
5/1/07 $ 72,210
Aaa NR 70 Kansas City, KS, Mortgage
Revenue, (AMT), (GNMA), 5.30%,
11/1/07 72,304
Aaa NR 160 Kansas City, KS, Mortgage
Revenue, (AMT), (GNMA), 5.90%,
11/1/27 165,075
NR AAA 380 Kansas City, KS, Mortgage
Revenue, (AMT), (GNMA), 7.00%,
12/1/11 403,150
NR AAA 220 Kansas City, KS, Multifamily
Housing Revenue, (FHA), 6.70%,
7/1/23 229,645
Aa NR 100 Kansas Development Authority,
Single Family Housing, (FHA),
(Martin Creek), 6.60%, 8/1/34 105,137
Aaa A- 415 Labette County, KS, Single Family
Mortgage Revenue, 0.00%, 12/1/14 181,143
Aaa NR 175 Olathe and Labette County, KS,
Single Family Mortgage Revenue,
(AMT), (GNMA), 8.10%, 8/1/23 196,889
NR AAA 205 Olathe, KS, Mortgage Loan
Revenue, (AMT), (GNMA), 7.60%,
3/1/07 217,056
NR AAA 250 Olathe, KS, Multifamily Housing
Revenue, (FNMA), 6.45%, 6/1/19 266,030
NR AA 250 Puerto Rico Housing Finance Corp.,
7.50%, 4/1/22 265,373
Aaa NR 235 Sedgwick and Shawnee County, KS,
Single Family Revenue, (GNMA),
7.75%, 11/1/24/(1)/ 269,453
Aaa NR 455 Sedgwick County, KS, Single Family
Mortgage Revenue, (GNMA), 8.00%,
5/1/25 514,546
Aaa NR 45 Sedgwick County, KS, Single Family
Mortgage Revenue, (GNMA), 8.20%,
5/1/14 50,845
NR AAA 350 Wichita, KS, Multifamily Housing
Revenue, (Broadmoor Chelsea
Apartments), (AMT), (FNMA), 5.65%,
7/1/16 360,021
- --------------------------------------------------------------------------------
$ 3,368,877
- --------------------------------------------------------------------------------
Industrial Development Revenue / Pollution Control Revenue -- 2.3%
- --------------------------------------------------------------------------------
A2 NR $ 100 Puerto Rico Industrial, Medical
and Environmental Pollution
Control Facility Finance
Authority, (American Home
Products), 5.10%, 12/1/18 $ 99,485
Baa3 BBB- 150 Puerto Rico Port Authority,
(American Airlines), (AMT),
6.30%, 6/1/23 160,488
- --------------------------------------------------------------------------------
$ 259,973
- --------------------------------------------------------------------------------
Insured-Electric Utilities -- 4.3%
- --------------------------------------------------------------------------------
Aaa AAA $ 345 Burlington, KS, Pollution Control
Revenue, (Kansas Gas & Electric
Co.), (MBIA), 7.00%, 6/1/31/(1)/ $ 377,813
Aaa AAA 100 Puerto Rico Electric Power
Authority, "STRIPES", (FSA),
Variable Rate, 7/1/02/(2)/ 113,125
- --------------------------------------------------------------------------------
$ 490,938
- --------------------------------------------------------------------------------
Insured-General Obligations -- 14.3%
- --------------------------------------------------------------------------------
Aaa AAA $ 200 County of Johnson Unified, KS,
(School District), (FGIC),
6.00%, 10/1/16/(3)/ $ 228,290
Aaa AAA 150 Garnett, KS, Combined Utility
Revenue Bonds, (MBIA), 6.00%,
10/1/17 159,792
See notes to financial statements
21
<PAGE>
Kansas Municipals Portfolio as of January 31, 1998
PORTFOLIO OF INVESTMENTS CONT'D
Ratings (Unaudited)
- -------------------- Principal
Amount
Standard (000's
Moody's & Poor's omitted) Security Value
- --------------------------------------------------------------------------------
Insured-General Obligations (continued)
- --------------------------------------------------------------------------------
Aaa AAA $ 200 Kansas City, KS, Utility
Systems Revenue, (FGIC),
6.375%, 9/1/23 $ 225,208
Aaa AAA 500 Puerto Rico Public Building
Authority, (AMBAC), 5.00%,
7/1/27 496,170
Aaa AAA 250 Sedgwick County, KS, USD #267,
(AMBAC), 6.15%, 11/1/09 279,325
Aaa AAA 230 Sedgwick County, KS, USD #267,
(AMBAC), 6.15%, 11/1/10 256,275
- --------------------------------------------------------------------------------
$ 1,645,060
- --------------------------------------------------------------------------------
Insured-Hospitals -- 25.5%
- --------------------------------------------------------------------------------
Aaa AAA $1,000 Kansas State Development
Finance Authority, Health
Facilities Revenue, (St.
Luke's), (MBIA), 5.375%,
11/15/26/(4)/ $ 1,017,539
Aaa AAA 500 Kansas State Development
Finance Authority, Health
Facilities, (Stormont-Vail)
(MBIA), 5.80%, 11/15/11 541,970
Aaa AAA 200 Olathe, KS, Health Facilities,
(Evangelical Lutheran Good
Samaritan Society), (AMBAC),
6.00%, 5/1/19 216,806
Aaa AAA 895 Shawnee County, KS, Health
Care Facilities, (Menninger
Foundation), (FSA), 5.00%,
8/15/16 889,630
Aaa NR 250 State Development Finance
Authority, KS, (Medical
Center Inc.), (MBIA),
5.50%, 11/15/22 258,783
- --------------------------------------------------------------------------------
$ 2,924,728
- --------------------------------------------------------------------------------
Insured-Housing -- 3.6%
- --------------------------------------------------------------------------------
NR AA $ 100 Puerto Rico Housing Finance
Corp., (AMBAC), 7.50%, 10/1/11 $ 104,213
Aaa AAA 195 Sedgwick County, KS, Mortgage
Loan Revenue, (MBIA), (AMT),
(GNMA), 7.50%, 12/1/09 205,150
Aaa AAA 100 Sedgwick County, KS, Mortgage
Loan Revenue, (MBIA), (AMT),
(GNMA), 7.50%, 12/1/10 105,205
- --------------------------------------------------------------------------------
$ 414,568
- --------------------------------------------------------------------------------
Transportation -- 3.8%
- --------------------------------------------------------------------------------
NR BBB $ 100 Guam Airport Authority, 6.50%,
10/1/23 $ 109,818
NR BBB 300 Guam Airport Authority, (AMT),
6.70%, 10/1/23 330,354
- --------------------------------------------------------------------------------
$ 440,172
- --------------------------------------------------------------------------------
Total Tax-Exempt Investments -- 100%
(identified cost $10,851,895) $11,480,993
- --------------------------------------------------------------------------------
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 January 31, 1998, 47.7% 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 4.0% to 20.8% of total investments.
/(1)/ Security (or a portion thereof) has been segregated to cover margin
requirements on open financial futures contracts.
/(2)/ Security has been issued as an inverse floater bond.
/(3)/ When-issued security.
/(4)/ Security has been segregated to cover when-issued securities.
See notes to financial statements
22
<PAGE>
EV Municipals Portfolios as of January 31, 1998
FINANCIAL STATEMENTS
Statements of Assets and Liabilities
As of January 31, 1998
<TABLE>
<CAPTION>
Florida Insured Hawaii Kansas
Portfolio Portfolio Portfolio
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Assets
- ------------------------------------------------------------------------------------------------------------------------------------
Investments --
Identified cost $22,620,877 $17,754,788 $10,851,895
Unrealized appreciation 1,833,525 1,591,886 629,098
- ------------------------------------------------------------------------------------------------------------------------------------
Investments at value (Note 1A) $24,454,402 $19,346,674 $11,480,993
- ------------------------------------------------------------------------------------------------------------------------------------
Cash $ 620 $ 267,743 $ 503
Receivable for investments sold -- -- 5,000
Interest receivable 419,466 222,032 166,286
Receivable from the Investment Adviser (Note 2) 56,285 50,117 42,013
Deferred organization expenses (Note 1D) 2,631 2,409 2,380
- ------------------------------------------------------------------------------------------------------------------------------------
Total assets $24,933,404 $19,888,975 $11,697,175
- ------------------------------------------------------------------------------------------------------------------------------------
Liabilities
- ------------------------------------------------------------------------------------------------------------------------------------
Payable for when-issued securities (Note 1G) $ -- $ -- $ 226,431
Demand note payable (Note 5) 50,000 -- 33,000
Payable for daily variation margin on open financial futures
contracts (Notes 1E and 6) 10,235 3,250 1,975
Payable to affiliate for Trustees' fees (Note 2) 22 22 22
Accrued expenses 23,074 21,569 17,123
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities $ 83,331 $ 24,841 $ 278,551
- ------------------------------------------------------------------------------------------------------------------------------------
Net Assets applicable to investors' interest in Portfolio $24,850,073 $19,864,134 $11,418,624
- ------------------------------------------------------------------------------------------------------------------------------------
Sources of Net Assets
- ------------------------------------------------------------------------------------------------------------------------------------
Net proceeds from capital contributions and withdrawals $23,029,531 $18,284,546 $10,795,895
Net unrealized appreciation of investments and financial futures
contracts (computed on the basis of identified cost) 1,820,542 1,579,588 622,729
- ------------------------------------------------------------------------------------------------------------------------------------
Total $24,850,073 $19,864,134 $11,418,624
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to financial statements
23
<PAGE>
EV Municipals Portfolios as of January 31, 1998
FINANCIAL STATEMENTS CONT'D
Statements of Operations
For the Year Ended January 31, 1998
<TABLE>
<CAPTION>
Florida Insured Hawaii Kansas
Portfolio Portfolio Portfolio
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Investment Income (Note 1B)
- ------------------------------------------------------------------------------------------------------------------------------------
Interest income $1,337,092 $1,031,743 $ 666,134
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment income $1,337,092 $1,031,743 $ 666,134
- ------------------------------------------------------------------------------------------------------------------------------------
Expenses
- ------------------------------------------------------------------------------------------------------------------------------------
Investment adviser fee (Note 2) $ 42,792 $ 28,115 $ 17,995
Compensation of Trustees not members of the
Investment Adviser's organization (Note 2) 176 176 176
Custodian fee (Note 1H) 24,783 16,503 13,626
Legal and accounting services 30,388 30,387 22,906
Bond pricing 4,480 4,719 4,667
Amortization of organization expenses (Note 1D) 2,417 2,210 2,184
Interest expense (Note 5) 8,175 365 2,265
Miscellaneous 1,831 1,798 1,648
- ------------------------------------------------------------------------------------------------------------------------------------
Total expenses $ 115,042 $ 84,273 $ 65,467
- ------------------------------------------------------------------------------------------------------------------------------------
Deduct --
Reduction of investment adviser fee (Note 2) $ 42,792 $ 28,115 $ 17,995
Allocation of expenses to the Investment Adviser (Note 2) 56,285 50,117 42,013
Reduction of custodian fee (Note 1H) 15,965 6,041 5,459
- ------------------------------------------------------------------------------------------------------------------------------------
Total expense reductions $ 115,042 $ 84,273 $ 65,467
- ------------------------------------------------------------------------------------------------------------------------------------
Net expenses $ -- $ -- $ --
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income $1,337,092 $1,031,743 $ 666,134
- ------------------------------------------------------------------------------------------------------------------------------------
Realized and Unrealized Gain (Loss) on Investments
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) --
Investment transactions (identified cost basis) $ 576,556 $ 370,520 $ 115,006
Financial futures contracts (274,762) (101,480) (28,812)
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized gain on investment transactions $ 301,794 $ 269,040 $ 86,194
- ------------------------------------------------------------------------------------------------------------------------------------
Change in unrealized appreciation (depreciation) --
Investments (identified cost basis) $ 815,395 $ 546,709 $ 395,133
Financial futures contracts (4,239) (32,719) (12,158)
- ------------------------------------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) of investments $ 811,156 $ 513,990 $ 382,975
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain on investments $1,112,950 $ 783,030 $ 469,169
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets from operations $2,450,042 $1,814,773 $1,135,303
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to financial statements
24
<PAGE>
EV Municipals Portfolios as of January 31, 1998
FINANCIAL STATEMENTS CONT'D
Statements of Changes in Net Assets
For the Year Ended January 31, 1998
<TABLE>
<CAPTION>
Florida Insured Hawaii Kansas
Increase (Decrease) in Net Assets Portfolio Portfolio Portfolio
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
From operations --
Net investment income $ 1,337,092 $ 1,031,743 $ 666,134
Net realized gain on investment transactions 301,794 269,040 86,194
Net change in unrealized appreciation (depreciation)
of investments 811,156 513,990 382,975
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets from operations $ 2,450,042 $ 1,814,773 $ 1,135,303
- ------------------------------------------------------------------------------------------------------------------------------------
Capital transactions --
Contributions $ 5,342,239 $ 4,723,447 $ 1,495,952
Withdrawals (7,146,067) (2,688,011) (2,948,351)
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets from capital transactions $(1,803,828) $ 2,035,436 $(1,452,399)
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets $ 646,214 $ 3,850,209 $ (317,096)
- ------------------------------------------------------------------------------------------------------------------------------------
Net Assets
- ------------------------------------------------------------------------------------------------------------------------------------
At beginning of year $24,203,859 $16,013,925 $11,735,720
- ------------------------------------------------------------------------------------------------------------------------------------
At end of year $24,850,073 $19,864,134 $11,418,624
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to financial statements
25
<PAGE>
EV Municipals Portfolios as of January 31, 1998
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 investment transactions (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
- ------------------------------------------------------------------------------------------------------------------------------------
Net Assets
- ------------------------------------------------------------------------------------------------------------------------------------
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
26
<PAGE>
EV Municipals Portfolios as of January 31, 1998
FINANCIAL STATEMENTS CONT'D
Supplementary Data
<TABLE>
<CAPTION>
Florida Insured Portfolio Hawaii Portfolio
--------------------------------------- ---------------------------------------
Year Ended January 31, Year Ended January 31,
--------------------------------------- ---------------------------------------
1998 1997 1996 1995* 1998 1997 1996 1995*
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Ratios to average daily net assets++:
- ------------------------------------------------------------------------------------------------------------------------------
Net 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 5.63% 5.76% 5.82% 5.73%+ 5.70% 5.96% 6.01% 6.03%+
Portfolio Turnover 34% 36% 32% 33% 27% 21% 19% 66%
- ------------------------------------------------------------------------------------------------------------------------------
Net assets, end of year (000's omitted) $24,850 $24,204 $21,416 $14,400 $19,864 $16,014 $15,578 $12,865
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
++ The operating expenses of the Portfolios may reflect a reduction of the
investment adviser fee, an allocation of expenses to the Adviser, or both. Had
such actions not been taken, the ratios would have been as follows:
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Expenses/(1)/ 0.48% 0.39% 0.39% 0.41%+ 0.46% 0.43% 0.41% 0.38%+
Expenses after custodian fee reduction 0.41% 0.32% 0.32% -- 0.43% 0.39% 0.35% --
Net investment income 5.22% 5.46% 5.50% 5.33%+ 5.27% 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 year ended January 31, 1996 and thereafter have
been adjusted to reflect a change in reporting requirements. The new
reporting guidelines require each Portfolio to increase its expense ratios
by the effect of any 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
27
<PAGE>
EV Municipals Portfolios as of January 31, 1998
FINANCIAL STATEMENTS CONT'D
Supplementary Data
<TABLE>
<CAPTION>
Kansas Portfolio
-------------------------------------------------------
Year Ended January 31,
-------------------------------------------------------
1998 1997 1996 1995*
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Ratios to average daily net assets++:
- -----------------------------------------------------------------------------------------------------------------------------------
Net 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 5.79% 5.91% 5.93% 5.68%+
Portfolio Turnover 17% 49% 21% 12%
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of year (000's omitted) $11,419 $11,736 $11,609 $8,306
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
++ The operating expenses of the Portfolio may reflect a reduction of the
investment adviser fee, an allocation of expenses to the Adviser, or both.
Had such actions not been taken, the ratios would have been as follows:
<TABLE>
<S> <C> <C> <C> <C>
Expenses/(1)/ 0.57% 0.48% 0.50% 0.43%+
Expenses after custodian fee reduction 0.52% 0.40% 0.41% --
Net investment income 5.27% 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 year ended January 31, 1996 and thereafter have
been adjusted to reflect a change in reporting requirements. The new
reporting guidelines require the Portfolio to increase its expense ratios
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
28
<PAGE>
EV Municipals Portfolios as of January 31, 1998
NOTES TO FINANCIAL STATEMENTS
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.
29
<PAGE>
EV Municipals Portfolios as of January 31, 1998
NOTES TO FINANCIAL STATEMENTS 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.
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 year ended January 31, 1998, each Portfolio incurred
advisory fees as follows:
Portfolio Amount Effective Rate*
-----------------------------------------------------------------------------
Florida Insured $42,792 0.18%
Hawaii 28,115 0.16%
Kansas 17,995 0.16%
*As a percentage of average daily net assets.
To enhance the net income of the Florida Insured Portfolio, Hawaii Portfolio
and Kansas Portfolio, BMR made a reduction of its fee in the amount of
$42,792, $28,115 and $17,995, respectively, and $56,285, $50,117 and $42,013,
respectively, of expenses related to the operation of the Portfolios were
allocated to BMR. Except as to Trustees of the Portfolio who are not members
of EVM's or BMR's organization, officers and Trustees receive remuneration
for their services to the 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 year ended January 31, 1998, no significant amounts have been
deferred.
3 Investments
-----------------------------------------------------------------------------
Purchases and sales of investments, other than U.S. Government securities,
put option transactions and short-term obligations, for the year ended
January 31, 1998 were as follows:
Florida Insured Portfolio
-----------------------------------------------------------------------------
Purchases $8,003,690
Sales 9,834,142
Hawaii Portfolio
-----------------------------------------------------------------------------
Purchases $7,286,096
Sales 4,720,701
Kansas Portfolio
-----------------------------------------------------------------------------
Purchases $1,889,771
Sales 2,229,865
30
<PAGE>
EV Municipals Portfolios as of January 31, 1998
NOTES TO FINANCIAL STATEMENTS CONT'D
4 Federal Income Tax Basis of Investments
-----------------------------------------------------------------------------
The cost and unrealized appreciation (depreciation) in value of the
investments owned by each Portfolio at January 31, 1998, as computed on a
federal income tax basis, are as follows:
Florida Insured Portfolio
-----------------------------------------------------------------------------
Aggregate Cost $22,620,877
-----------------------------------------------------------------------------
Gross unrealized appreciation $ 1,837,729
Gross unrealized depreciation (4,204)
-----------------------------------------------------------------------------
Net unrealized appreciation $ 1,833,525
-----------------------------------------------------------------------------
Hawaii Portfolio
-----------------------------------------------------------------------------
Aggregate Cost $17,754,788
-----------------------------------------------------------------------------
Gross unrealized appreciation $ 1,593,406
Gross unrealized depreciation (1,520)
-----------------------------------------------------------------------------
Net unrealized appreciation $ 1,591,886
-----------------------------------------------------------------------------
Kansas Portfolio
-----------------------------------------------------------------------------
Aggregate Cost $10,851,895
-----------------------------------------------------------------------------
Gross unrealized appreciation $ 637,933
Gross unrealized depreciation (8,835)
-----------------------------------------------------------------------------
Net unrealized appreciation $ 629,098
-----------------------------------------------------------------------------
5 Line of Credit
-----------------------------------------------------------------------------
The Portfolios participate with other portfolios and funds managed by BMR and
EVM and its affiliates in a $100 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 0.10% on the
daily unused portion of the facility is allocated among the participating
portfolios and funds at the end of each quarter. At January 31, 1998, the
Florida Insured Portfolio and the Kansas Portfolio had balances outstanding
pursuant to this line of credit of $50,000 and $33,000, respectively. The
Florida Insured Portfolio, the Hawaii Portfolio and the Kansas Portfolio did
not have any significant borrowings or allocated fees during the year ended
January 31, 1998.
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 January 31,
1998, is as follows:
Futures
Contracts
Expiration Net Unrealized
Portfolio Date Contracts Position Depreciation
-----------------------------------------------------------------------------
Florida Insured 3/98 22 U.S. Treasury Bond Short $12,983
-----------------------------------------------------------------------------
Hawaii 3/98 8 U.S. Treasury Bond Short $12,298
-----------------------------------------------------------------------------
Kansas 3/98 4 U.S. Treasury Bond Short $ 6,369
-----------------------------------------------------------------------------
At January 31, 1998, each Portfolio had sufficient cash and/or securities to
cover margin requirements on open futures contracts.
31
<PAGE>
EV Municipals Portfolios as of January 31, 1998
INDEPENDENT AUDITORS' REPORT
To the Trustees and Investors of Florida Insured Municipals Portfolio, Hawaii
Municipals Portfolio, and Kansas Municipals Portfolio:
- --------------------------------------------------------------------------------
We have audited the accompanying statements of assets and liabilities, including
the portfolios of investments, of Florida Insured Municipals Portfolio, Hawaii
Municipals Portfolio and Kansas Municipals Portfolio as of January 31, 1998, the
related statements of operations for the year then ended, the statements of
changes in net assets for the years ended January 31, 1998 and 1997 and the
supplementary data for each of the three years in the period ended January 31,
1998 and for the period from the start of business, March 2, 1994, to
January 31, 1995. These financial statements and supplementary data are the
responsibility of each Portfolio's management. Our responsibility is to express
an opinion on these financial statements and supplementary data based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and supplementary
data are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities held as of
January 31, 1998 by correspondence with the custodian and brokers; where replies
were not received from brokers, we performed other audit procedures. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements and supplementary data referred to
above present fairly, in all material respects, the financial position of
Florida Insured Municipals Portfolio, Hawaii Municipals Portfolio and Kansas
Municipals Portfolio at January 31, 1998, and the results of their operations,
the changes in their net assets, and their supplementary data for the respective
stated periods in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
March 13, 1998
32
<PAGE>
EV Marathon Municipals Funds as of January 31, 1998
INVESTMENT MANAGEMENT
EV Marathon Municipals Funds
Officers
Thomas J. Fetter
President
James B. Hawkes
Vice President and Trustee
Robert B. MacIntosh
Vice President
James L. O'Connor
Treasurer
Alan R. Dynner
Secretary
Independent Trustees
Donald R. Dwight
President, Dwight Partners, Inc.
Samuel L. Hayes, III
Jacob H. Schiff Professor of Investment Banking, Harvard University Graduate
School of Business Administration
Norton H. Reamer
President and Director, United Asset Management Corporation
John L. Thorndike
Director, Fiduciary Company Incorporated
Jack L. Treynor
Investment Adviser and Consultant
Municipals Portfolios
Officers
Thomas J. Fetter
President of the Florida Insured, Hawaii and Kansas Municipals Portfolios and
Portfolio Manager of Florida Insured Municipals Portfolio
James B. Hawkes
Vice President and Trustee
Robert B. MacIntosh
Vice President of Florida Insured, Hawaii and Kansas Municipals Portfolios and
Portfolio Manager of Hawaii Municipals Portfolio
Timothy T. Browse
Vice President and Portfolio Manager of Kansas Municipals Portfolio
James L. O'Connor
Treasurer
Alan R. Dynner
Secretary
Independent Trustees
Donald R. Dwight
President, Dwight Partners, Inc.
Samuel L. Hayes, III
Jacob H. Schiff Professor of Investment Banking, Harvard University Graduate
School of Business Administration
Norton H. Reamer
President and Director, United Asset Management Corporation
John L. Thorndike
Director, Fiduciary Company Incorporated
Jack L. Treynor
Investment Adviser and Consultant
33
<PAGE>
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<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 Investor Services Group
Attention: Eaton Vance Funds
P.O. Box 5123
Westborough, MA 01581-5123
Independent Accountants
Deloitte & Touche LLP
125 Summer Street
Boston, MA 02110
Eaton Vance 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.
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M-MCSRC-3/98
