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[LOGO OF EATON VANCE MUTUAL FUNDS APPEARS HERE]
Investing for the 21st Century
[PICTURE OF DESK WITH BONDS APPEARS HERE]
Semiannual Report July 31, 1998
[PICTURE OF PAUL REVERE STATUE APPEARS HERE]
EATON VANCE
HIGH YIELD
MUNICIPALS
FUND
Global Management -- Global Distribution
[PICTURE OF BOSTON SKYLINE APPEARS HERE]
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Eaton Vance High Yield Municipals Fund as of July 31, 1998
Investment Update
[PHOTO OF THOMAS M. METZOLD, PORTFOLIO MANAGER APPEARS HERE]
Investment Environment
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The Economy
. Following a period of sustained growth, the U.S. economy showed some
anecdotal signs of slowing in the summer of 1998. Continued Asian and
emerging market weakness resulted in slower demand for U.S. exports,
while volatile financial markets somewhat restrained consumer confidence.
. Gross Domestic Product increased by a stronger-than-expected 5.4% in the
first quarter of 1998, but slowed to a moderate 1.6% rate in the second
quarter. Meanwhile, unemployment remained at a 24-year low. On the
inflation front, inflation rose just 1.7% in the twelve months ended July
31, 1998.
. Due to supply pressures caused by a flood of municipal refundings, the
municipal bond market underperformed the Treasury market during the period.
The high-yield segment of the municipal market again outpaced the
investment-grade sector.
Management Update
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. Management continued to maintain a highly diversified Portfolio. Efforts
focused on uncovering opportunities in under-researched bonds. Recent
purchases included several bonds backed by commercial real estate.
. The period was characterized by a continued compression in quality spreads
the difference in yields between bonds of varying quality. In an adverse
risk-reward climate, management took the opportunity to upgrade the overall
quality of the Portfolio.
. As the economy showed signs of a likely slowdown, the Portfolio has begun
to reduce its exposure to commodity-based, industrial development revenue
bonds.
The Fund
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The Past Six Months
. During the six months ended July 31, 1998, the Fund's Class A shares had a
total return of 2.0%./1/ This return resulted from a decline in net asset
value (NAV) to $11.47 per share on July 31, 1998 from $11.57 on January 31,
1998, and the reinvestment of $0.330 in tax-free income./2/ Based on the
Fund's most recent dividend, and a net asset value of $11.47 per share, the
Fund's distribution rate on July 31, 1998 was 5.80%./3/
. The Fund's Class B shares had a total return of 1.7% during the period,/1/
the result of a decline in NAV to $11.42 per share from $11.52 per share,
and the reinvestment of $0.291 in tax-free income./2/ Based on the Fund's
most recent dividend, and a net asset value of $11.42, the Fund's
distribution rate on July 31, 1998 was 5.12%./3/
. The Fund's Class C shares had a total return of 1.6% during the period,/1/
the result of a decline in NAV to $10.58 per share from $10.68 per share,
and the reinvestment of $0.266 in tax-free income./2/ Based on the Fund's
most recent dividend, and a net asset value of $10.58, the Fund's
distribution rate on July 31, 1998 was 5.06%./3/
. The SEC yields at July 31 were 5.28%, 4.63% and 4.63% for the A, B, and C
shares, respectively./4/
Your Investment at Work
- --------------------------------------------------------------------------------
ABIA Development Corp.
Austin, TX Cargoport Development
. These bonds financed the construction of new cargo handling facilities at
Austin's Cargoport.
. In recent years, more sophisticated management of inventories has been
accompanied by a sharp rise in the use of cargo facilities by freight
carriers like FedEx and UPS as well as other major carriers.
. These non-rated bonds enjoy a dependable revenue stream from a growing
business. With a very attractive yield of 9.25%, they represented our
efforts to add to the Portfolio's yield through smaller, non-rated issues.
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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.
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- --------------------------------------------------------------------------------
Fund Information
as of July 31, 1998
Performance/5/ Class A Class B Class C
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Average Annual Total Returns (at net asset value)
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One Year 8.4% 7.7% 7.5%
Life of Fund+ 11.6 10.6 10.7
SEC Average Annual Total Returns (including sales charge or applicable CDSC)
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One Year 3.3% 2.7% 6.5%
Life of Fund+ 9.8 9.5 10.7
+Inception Dates - Class A: 8/7/95; Class B: 8/7/95; Class C: 6/18/97
5 Largest Sectors/6/
- --------------------------------------------------------------------------------
By total investments
Industrial Development Bonds 26.8%
Escrowed 12.7%
Housing 8.1%
Hospitals 7.6%
Nursing Homes 5.5%
/1/ These returns do not include the 4.75% maximum sales charge for the Fund's
Class A shares or the applicable contingent deferred sales charges (CDSC)
for Class B and C shares.
/2/ A portion of the Fund's income could be subject to federal income tax
and/or alternative minimum tax.
/3/ The Fund's distribution rate represents actual distributions paid to
shareholders and is calculated 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 offering price at the end of the
period and annualizing the result.
/5/ Returns are historical and are calculated by determining the percentage
change in net asset value with all distributions reinvested. SEC returns
for Class A reflect the maximum 4.75% sales charge. SEC returns for Class B
reflect applicable CDSC based on the following schedule: 5% - 1st and 2nd
years; 4% - 3rd year; 3% - 4th year; 2% - 5th year; 1% - 6th year. 1-year
SEC return for Class C reflects 1% CDSC.
/6/ As of 7/31/98. Five largest sectors accounted for 60.7% of the Portfolio's
investments. Holdings are subject to change. Past performance is not
indicative 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.
2
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Eaton Vance High Yield Municipals Fund as of July 31, 1998
FINANCIAL STATEMENTS (Unaudited)
Statement of Assets and Liabilities
As of July 31, 1998
Assets
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Investment in High Yield Municipals Portfolio,
at value (identified cost $325,297,282) $ 350,588,596
Receivable for Fund shares sold 1,956,749
Deferred organization expenses 58,961
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Total assets $ 352,604,306
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Liabilities
- --------------------------------------------------------------------------------
Dividends payable $ 854,742
Payable for Fund shares redeemed 209,762
Payable to affiliate for Trustees' fees 472
Other accrued expenses 58,415
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Total liabilities $ 1,123,391
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Net Assets $ 351,480,915
- --------------------------------------------------------------------------------
Sources of Net Assets
- --------------------------------------------------------------------------------
Paid-in capital $ 331,129,120
Accumulated net realized loss on investments from
Portfolio (computed on the basis of identified cost) (4,299,108)
Accumulated distributions in excess of net investment income (640,411)
Net unrealized appreciation from Portfolio (computed on
the basis of identified cost) 25,291,314
- --------------------------------------------------------------------------------
Total $ 351,480,915
- --------------------------------------------------------------------------------
Class A Shares
- --------------------------------------------------------------------------------
Net Assets $ 117,608,907
Shares Outstanding 10,251,182
Net Asset Value and Redemption Price Per Share
(net assets / shares of beneficial $ 11.47
interest outstanding)
Maximum Offering Price Per Share
(100 / 95.25 of $11.47) $ 12.04
- --------------------------------------------------------------------------------
Class B Shares
- --------------------------------------------------------------------------------
Net Assets $ 217,204,513
Shares Outstanding 19,019,080
Net Asset Value, Offering Price and
Redemption Price Per Share
(net assets / shares of beneficial
interest outstanding) $ 11.42
- --------------------------------------------------------------------------------
Class C Shares
- --------------------------------------------------------------------------------
Net Assets $ 16,667,495
Shares Outstanding 1,575,175
Net Asset Value, Offering Price and
Redemption Price Per Share
(net assets / shares of beneficial
interest outstanding) $ 10.58
- --------------------------------------------------------------------------------
On sales of $25,000 or more, the offering price of Class A shares is reduced.
Statement of Operations
For the Six Months Ended
July 31, 1998
Investment Income
- --------------------------------------------------------------------------------
Interest allocated from Portfolio $ 10,837,265
Expenses allocated from Portfolio (1,100,160)
- --------------------------------------------------------------------------------
Net investment income from Portfolio $ 9,737,105
- --------------------------------------------------------------------------------
Expenses
- --------------------------------------------------------------------------------
Trustees fees and expenses $ 2,907
Distribution and service fees
Class A 66,066
Class B 890,357
Class C 62,023
Transfer and dividend disbursing agent fees 152,778
Registration fees 55,500
Printing and postage 16,798
Custodian fee 15,762
Amortization of organization expenses 11,805
Legal and accounting services 4,522
Miscellaneous 6,995
- --------------------------------------------------------------------------------
Total expenses $ 1,285,513
- --------------------------------------------------------------------------------
Net investment income $ 8,451,592
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Realized and Unrealized
Gain (Loss) from Portfolio
- --------------------------------------------------------------------------------
Net realized gain (loss) --
Investment transactions (identified cost basis) $ (609,319)
Financial futures contracts 1,812
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Net realized loss $ (607,507)
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Change in unrealized appreciation (depreciation) --
Investments $ (3,106,313)
Financial futures contracts 880,633
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Net change in unrealized appreciation
(depreciation) $ (2,225,680)
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Net realized and unrealized loss $ (2,833,187)
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Net increase in net assets from operations $ 5,618,405
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See notes to financial statements
3
<PAGE>
Eaton Vance High Yield Municipals Fund as of July 31, 1998
FINANCIAL STATEMENTS CONT'D
Statements of Changes in Net Assets
Six Months Ended
Increase (Decrease) July 31, 1998 Year Ended
in Net Assets (Unaudited) January 31, 1998
- --------------------------------------------------------------------------------
From operations --
Net investment income $ 8,451,592 $ 8,302,448
Net realized loss (607,507) (1,592,605)
Net change in unrealized
appreciation (depreciation) (2,225,680) 15,064,035
- --------------------------------------------------------------------------------
Net increase in net assets
from operations $ 5,618,405 $ 21,773,878
- --------------------------------------------------------------------------------
Distributions to shareholders --
From net investment income
Class A $ (3,127,721) $ --
Class B (5,028,774) (8,302,448)
Class C (295,097) --
In excess of net investment income
Class A (41,091) --
Class B (179,334) (269,780)
Class C (15,671) --
- --------------------------------------------------------------------------------
Total distributions to shareholders $ (8,687,688) $ (8,572,228)
- --------------------------------------------------------------------------------
Transactions in shares of beneficial interest --
Proceeds from sale of shares
Class A $ 23,265,989 $ --
Class B 38,505,080 72,750,202
Class C 8,511,423 --
Net asset value of shares issued to
shareholders in payment of
distributions declared
Class A 1,289,638 --
Class B 1,855,610 2,871,887
Class C 170,896 --
Cost of shares
redeemed
Class A (9,086,790) --
Class B (12,934,411) (20,141,026)
Class C (1,308,954) --
- --------------------------------------------------------------------------------
Net increase in net assets from Fund
share transactions $ 50,268,481 $ 55,481,063
- --------------------------------------------------------------------------------
Contributions from EV
Traditional and EV Classic High
Yield Municipals Funds $ 112,575,478 $ --
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Net increase in net assets $ 159,774,676 $ 68,682,713
- --------------------------------------------------------------------------------
Net Assets
- --------------------------------------------------------------------------------
At beginning of period $ 191,706,239 $ 123,023,526
- --------------------------------------------------------------------------------
At end of period $ 351,480,915 $ 191,706,239
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Accumulated distributions in
excess of net investment
income included in net assets
- --------------------------------------------------------------------------------
At end of period $ (640,411) $ (294,661)
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See notes to financial statements
4
<PAGE>
Eaton Vance High Yield Municipals Fund as of July 31, 1998
FINANCIAL STATEMENTS CONT'D
Financial Highlights
<TABLE>
<CAPTION>
Six Months Ended Year Ended January 31,
July 31, 1998++ ------------------------------------------
(Unaudited) 1998 1997 1996*
------------------------------------------ -------------------------------------------
Class A Class B Class C Class B Class B Class B
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value- Beginning of period $ 11.570 $ 11.520 $10.680 $ 10.620 $ 10.650 $10.000
- ----------------------------------------------------------------------------------------------------------------------------------
Income (loss) from operations
- ----------------------------------------------------------------------------------------------------------------------------------
Net investment income $ 0.326 $ 0.280 $ 0.252 $ 0.594 $ 0.626 $ 0.299
Net realized and unrealized gain (loss) (0.096) (0.090) (0.087) 0.916 (0.026) 0.657
- ----------------------------------------------------------------------------------------------------------------------------------
Total income from operations $ 0.230 $ 0.190 $ 0.165 $ 1.510 $ 0.600 $ 0.956
- ----------------------------------------------------------------------------------------------------------------------------------
Less distributions
- ----------------------------------------------------------------------------------------------------------------------------------
From net investment income $ (0.326) $ (0.280) $(0.252) $ (0.594) $ (0.626) $(0.299)
In excess of net investment income (0.004) (0.010) (0.013) (0.016) (0.003) (0.007)
From net realized gain -- -- -- -- (0.001) --
- ----------------------------------------------------------------------------------------------------------------------------------
Total distributions $ (0.330) $ (0.290) $(0.265) $ (0.610) $ (0.630) $(0.306)
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value -- End of period $ 11.470 $ 11.420 $ 10.580 $ 11.520 $ 10.620 $10.650
- ----------------------------------------------------------------------------------------------------------------------------------
Total Return/(1)/ 1.99% 1.66% 1.56% 14.67% 5.90% 9.40%
- ----------------------------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data+
- ----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000's omitted) $117,609 $217,205 $16,667 $191,706 $123,024 $43,520
Ratios (As a percentage of average daily
net assets):
Net expenses/(2)/ 0.97%+ 1.72%+ 1.84%+ 1.76% 1.36% 0.88%+
Net expenses after custodian fee
reduction/(2)/ 0.95%+ 1.70%+ 1.82%+ 1.74% 1.32% 0.88%+
Net investment income 5.65%+ 4.89%+ 4.72%+ 5.36% 5.91% 5.86%+
- ----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
+ The operating expenses of the Fund and the Portfolio may reflect a reduction of the Investment Adviser fee, an allocation of
expenses to the Administrator, or both. Had such actions not been taken, the ratios and net investment income per share would
have been as follows:
<S> <C> <C>
Ratios (As a percentage of average daily net assets):
Expenses/(2)/ 1.73% 1.77%+
Expenses after custodian fee reduction/(2)/ 1.69% 1.77%+
Net investment income 5.54% 4.97%+
Net investment income per share $ 0.587 $ 0.254
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
+ Annualized.
++ Net investment income per share was computed using average shares
outstanding.
* For the period from the start of business, August 7, 1995, to January 31,
1996.
/(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
reinvested at the net asset value on the reinvestment date. Total return is
not computed on an annualized basis.
/(2)/Includes the Fund's share of its Portfolio's allocated expenses.
See notes to financial statements
5
<PAGE>
Eaton Vance High Yield Municipals Fund as of July 31, 1998
NOTES TO FINANCIAL STATEMENTS (Unaudited)
1 Significant Accounting Policies
-----------------------------------------------------------------------------
Eaton Vance High Yield Municipals Fund (the Fund) is a non-diversified series
of Eaton Vance Municipals Trust II (the Trust). The Trust is an entity of the
type commonly known as a Massachusetts business trust and is registered under
the Investment Company Act of 1940, as amended, as an open-end, management
investment company. The Fund offers three classes of shares. Class A shares
are sold subject to a sales charge imposed at the time of purchase. Class B
and Class C shares are sold at net asset value and are subject to a declining
contingent deferred sales charge (See Note 6). All classes of shares have
equal rights to assets and voting privileges. Realized and unrealized gains
and losses and net investment income, other than class specific expenses, are
allocated daily to each class of shares based on the relative net assets of
each class to the total net assets of the Fund. Each class of shares differs
in its distribution plan and certain other class specific expenses. The Fund
invests all of its investable assets in interests in High Yield Municipals
Portfolio (the Portfolio), a New York Trust, having the same investment
objective as the Fund. The value of the Fund's investment in the Portfolio
reflects the Fund's proportionate interest in the net assets of the Portfolio
(100.0% at July 31, 1998). The performance of the Fund is directly affected
by the performance of the Portfolio. The financial statements of the
Portfolio, including the portfolio of investments, are included elsewhere in
this report and should be read in conjunction with the Fund's financial
statements.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles.
A Investment Valuations -- Valuation of securities by the Portfolio is
discussed in Note 1A of the Portfolio's Notes to Financial Statements which
are included elsewhere in this report.
B Income -- The Fund's net investment income consists of the Fund's pro rata
share of the net investment income of the Portfolio, less all actual and
accrued expenses of the Fund determined in accordance with generally accepted
accounting principles.
C Federal Taxes -- The Fund's policy is to comply with the provisions of the
Internal Revenue Code applicable to regulated investment companies and to
distribute to shareholders each year all of its taxable (if any) 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 Fund, for federal income tax purposes, had a capital loss carryover
of $3,506,679, which will reduce the Fund's taxable income arising from
future net realized gain on investments, if any, to the extent permitted by
the Internal Revenue Code, and thus will reduce the amount of distributions
to shareholders which would otherwise be necessary to relieve the Fund of any
liability for federal income or excise tax. A portion of such capital loss
carryovers were acquired through the Fund Reorganization (See Note 8) and may
be subject to certain limitations. Such capital loss carryover will expire
January 31, 2005 ($87,918) and January 31, 2006 ($3,418,761). Dividends paid
by the Fund from net tax-exempt interest on municipal bonds allocated from
the Portfolio are not includable by shareholders as gross income for federal
income tax purposes because the Fund and Portfolio intend to meet certain
requirements of the Internal Revenue Code applicable to regulated investment
companies which will enable the Fund to pay exempt-interest dividends. The
portion of such interest, if any, earned on private activity bonds issued
after August 7, 1986, may be considered a tax preference item to
shareholders.
D Deferred Organization Expenses -- Costs incurred by the Fund in connection
with its organization are being amortized on the straight-line basis over
five years.
E Expense Reduction -- Investors Bank & Trust Company (IBT) serves as
custodian to the Fund and the Portfolio. Pursuant to the respective custodian
agreements, IBT receives a fee reduced by credits which are determined based
on the average daily cash balances the Fund or the Portfolio maintain with
IBT. All significant credit balances used to reduce the Fund's custodian fees
are reported as a reduction of operating expenses in the Statement of
Operations.
F Use of Estimates -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts
of revenue and expense during the reporting period. Actual results could
differ from those estimates.
G Other -- Investment transactions are accounted for on a trade date basis.
6
<PAGE>
Eaton Vance High Yield Municipals Fund as of July 31, 1998
NOTES TO FINANCIAL STATEMENTS (Unaudited) CONT'D
H Interim Financial Information -- The interim financial statements relating
to July 31, 1998 and for the six months then ended have not been audited by
independent certified public accountants, but in the opinion of the Fund's
management reflect all adjustments, consisting only of normal recurring
adjustments, necessary for the fair presentation of the financial statements.
2 Distributions to Shareholders
-----------------------------------------------------------------------------
The net income of the Fund is determined daily, and substantially all of the
net income so determined is declared as a dividend to shareholders of record
at the time of declaration. Distributions are paid monthly. Distributions of
allocated realized capital gains, if any, are made at least annually.
Shareholders may reinvest capital gain distributions in additional shares of
the Fund at the net asset value as of the ex-dividend date. Distributions are
paid in the form of additional shares or, at the election of the shareholder,
in cash. The Fund distinguishes between distributions on a tax basis and a
financial reporting basis. Generally accepted accounting principles require
that only distributions in excess of tax basis earnings and profits be
reported in the financial statements as a return of capital. Differences in
the recognition or classification of income between the financial statements
and tax earnings and profits which result in temporary over-distributions for
financial statement purposes are classified as distributions in excess of net
investment income or net realized gain on investments. Permanent differences
between book and tax accounting relating to distributions are reclassified to
paid-in capital.
3 Shares of Beneficial Interest
-----------------------------------------------------------------------------
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value).
Transactions in Fund shares were as follow:
Six Months Ended
July 31, 1998
Class A (Unaudited)
-----------------------------------------------------------------------------
Sales 2,007,698
Issued to shareholders electing to receive payment of
distributions in Fund shares 111,415
Redemptions (784,640)
Issued to EV Traditional High Yield Municipals
Fund shareholders 8,916,709
-----------------------------------------------------------------------------
Net increase 10,251,182
-----------------------------------------------------------------------------
Six Months Ended
July 31, 1998 Year Ended
Class B (Unaudited) January 31, 1998
-----------------------------------------------------------------------------
Sales 3,336,791 6,630,440
Issued to shareholders electing to
receive payments of distributions
in Fund shares 160,695 261,353
Redemptions (1,121,259) (1,832,927)
-----------------------------------------------------------------------------
Net increase 2,376,227 5,058,866
-----------------------------------------------------------------------------
Six Months Ended
July 31, 1998
Class C (Unaudited)
-----------------------------------------------------------------------------
Sales 796,469
Issued to shareholders electing to receive payment of
distributions in Fund shares 15,997
Redemptions (122,201)
Issued to EV Classic High Yield Municipals
Fund shareholders 884,910
-----------------------------------------------------------------------------
Net increase 1,575,175
-----------------------------------------------------------------------------
4 Investment Adviser Fee and Other Transactions with Affiliates
-----------------------------------------------------------------------------
Eaton Vance Management (EVM) serves as the administrator of the Fund, but
receives no compensation. The Portfolio has engaged Boston Management and
Research (BMR), a subsidiary of EVM, to render investment advisory services
(See Note 2 of the Portfolio's Notes to Financial Statements which are
included elsewhere in this report). Except as to Trustees of the Fund and the
Portfolio who are not members of EVM's or BMR's organization, officers and
Trustees receive remuneration for their services to the Fund out of the
investment adviser fee earned by BMR. Certain of the officers and Trustees of
the Fund and the Portfolio are officers and directors/trustees of EVM and
BMR. Eaton Vance Distributors, Inc. (EVD), a subsidiary of EVM and the Fund's
principal underwriter, received $34,671 as its portion of the sales charge on
sales of Class A shares for the six months ended July 31, 1998.
7
<PAGE>
Eaton Vance High Yield Municipals Fund as of July 31, 1998
NOTES TO FINANCIAL STATEMENTS (Unaudited) CONT'D
5 Distribution and Service Plans
-----------------------------------------------------------------------------
The Fund has adopted distribution plans (Class B Plan and Class C Plan)
pursuant to Rule 12b-1 under the Investment Company Act of 1940 and a service
plan (Class A Plan) (collectively, the Plans). The Plans requires the Fund to
pay the Principal Underwriter, Eaton Vance Distributors, Inc. (EVD) amounts
equal to 1/365 of 0.75% of the Fund's average daily net assets attributable
to Class B and Class C shares for providing ongoing distribution services and
facilities to the Fund. The Fund will automatically discontinue payments to
EVD during any period in which there are no outstanding Uncovered
Distribution Charges, which are equivalent to the sum of (i) 5% and 6.25% of
the aggregate amount received by the Fund for the Class B and Class C shares
sold, respectively, 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 (see Note 6) and daily amounts theretofore
paid to EVD by each respective class. The Fund paid or accrued $767,548 and
$46,517 for Class B and Class C shares, respectively, to EVD for the six
months ended July 31, 1998, representing 0.75% and 0.75% (annualized) of the
average daily net assets for Class B and Class C shares, respectively. At
July 31, 1998, the amount of Uncovered Distribution Charges of EVD calculated
under the Plans was approximately $8,499,000 and $936,000 for Class B and
Class C shares, respectively.
In addition, the Plans authorizes the Fund to make payments of service fees
to EVD, Authorized Firms and other persons in amounts not exceeding 0.25% of
the Fund's average daily net assets attributable to Class A, Class B, and
Class C shares for each fiscal year. The Trustees have initially implemented
the Plans by authorizing the Fund to make quarterly payments of service fees
to EVD and Authorized Firms in amounts not expected to exceed 0.25% per annum
of the Fund's average daily net assets attributable to Class A and Class B
shares based on the value of Fund shares sold by such persons and remaining
outstanding for at least one year. The Class C Plan permits the Fund to make
monthly payments of service fees in amounts not expected to exceed 0.25% of
the Fund's average daily net assets attributable to Class C shares for any
fiscal year. Service fee payments will be made for personal services and/or
the maintenance of shareholder accounts. Service fees are separate and
distinct from the sales commissions and distribution fees payable by the Fund
to EVD and, as such are not subject to automatic discontinuance where there
are no outstanding Uncovered Distribution Charges of EVD. Service fee
payments for the six months ended July 31, 1998 amounted to $66,066,
$122,809, and $15,506 for Class A, Class B, and Class C shares respectively.
6 Contingent Deferred Sales Charge
-----------------------------------------------------------------------------
A contingent deferred sales charge (CDSC) is imposed on any redemption of
Class B shares made within six years of purchase. A CDSC is imposed on
certain Class C shares redeemed within one year 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 gain distributions. Class B 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.
Class C shares will be subject to a 1% CDSC if redeemed within one year of
purchase. No CDSC is levied on shares which have been sold to EVM or its
affiliates or to their respective employees or clients. CDSC charges are paid
to EVD to reduce the amount of Uncovered Distribution Charges calculated
under the Fund's Distribution Plan (See Note 5). CDSC charges received when
no Uncovered Distribution Charges exist will be credited to the Fund. EVD
received approximately $327,000 and $10,000 of CDSC paid by shareholders for
Class B shares and Class C shares, respectively, for the six months ended
July 31, 1998.
7 Investment Transactions
-----------------------------------------------------------------------------
Increases and decreases in the Fund's investment in the Portfolio for the six
months ended July 31, 1998 aggregated $71,539,613 and $30,926,640,
respectively.
8 Transfer of Net Assets
-----------------------------------------------------------------------------
On February 1, 1998, EV Marathon High Yield Municipals Fund acquired the net
assets of the EV Traditional High Yield Municipals Fund and EV Classic High
Yield Municipals Fund pursuant to an Agreement and Plan of Reorganization
dated June 23, 1997. In accordance with the agreement, EV Marathon High Yield
Municipals Fund, at the closing, issued 8,916,709 Class A shares and 884,910
Class C shares of the Fund having an aggregate value of $103,128,404 and
$9,447,074, respectively. As a result, the Fund issued one Class A share and
one Class C share for each share of EV Traditional High Yield Municipals Fund
8
<PAGE>
Eaton Vance High Yield Municipals Fund as of July 31, 1998
NOTES TO FINANCIAL STATEMENTS (Unaudited) CONT'D
and EV Classic High Yield Municipals Fund, respectively. The transaction was
structured for tax purposes to qualify as a tax free reorganization under the
Internal Revenue Code. The EV Traditional High Yield Municipals Fund's and EV
Classic High Yield Municipals Fund's net assets at February 1, 1998 were
$103,128,404 and $9,447,074, respectively, including $9,165,643 and $297,279
of unrealized appreciation. Directly after the merger, the combined net
assets of the Eaton Vance High Yield Municipals Fund (formerly "EV Marathon
High Yield Municipals Fund") were $304,281,717 with a net asset value of
$11.57, $11.52 and $10.68 for Class A, Class B and Class C shares,
respectively.
9 Name Change
-----------------------------------------------------------------------------
On February 1, 1998, EV Marathon High Yield Municipals Fund changed its name
to Eaton Vance High Yield Municipals Fund.
9
<PAGE>
High Yield Municipals Portfolio as of July 31, 1998
PORTFOLIO OF INVESTMENTS (Unaudited)
Tax-Exempt Investments -- 100.0%
Principal
Amount
Security (000's Omitted) Value
- --------------------------------------------------------------------------------
Assisted Living -- 5.4%
- --------------------------------------------------------------------------------
Arizona HFA, (Care Institute, Inc.-Mesa),
7.625%, 1/1/26 $ 2,500 $ 2,608,150
Chester, PA, IDA, (Senior Life-Choice of
Kimberton), (AMT), 8.50%, 9/1/25 1,000 1,145,890
Chester, PA, IDA, (Senior Life-Choice of
Paoli L.P.), (AMT), 8.05%, 1/1/24 2,000 2,237,520
Delaware, PA, IDA, (Glen Riddle), (AMT),
8.625%, 9/1/25 1,600 1,844,720
Glen Cove, NY, IDA, (The Regency at Glen
Cove), 0.00%, 1/1/13 1,000 273,420
Glen Cove, NY, IDA, (The Regency at Glen
Cove), 0.00%, 7/1/13 1,000 261,400
Glen Cove, NY, IDA, (The Regency at Glen
Cove), 0.00%, 1/1/14 1,000 249,900
Glen Cove, NY, IDA, (The Regency at Glen
Cove), 0.00%, 7/1/14 1,000 238,910
Glen Cove, NY, IDA, (The Regency at Glen
Cove), 0.00%, 1/1/15 1,000 228,770
Glen Cove, NY, IDA, (The Regency at Glen
Cove), 0.00%, 7/1/15 1,000 218,720
Glen Cove, NY, IDA, (The Regency at Glen
Cove), 0.00%, 1/1/16 1,000 209,110
Glen Cove, NY, IDA, (The Regency at Glen
Cove), 0.00%, 7/1/16 1,000 199,920
Glen Cove, NY, IDA, (The Regency at Glen
Cove), 0.00%, 1/1/17 1,000 191,140
Glen Cove, NY, IDA, (The Regency at Glen
Cove), 0.00%, 7/1/17 1,000 182,740
Glen Cove, NY, IDA, (The Regency at Glen
Cove), 0.00%, 1/1/18 1,000 175,040
Glen Cove, NY, IDA, (The Regency at Glen
Cove), 0.00%, 7/1/18 1,000 167,360
Glen Cove, NY, IDA, (The Regency at Glen
Cove), 0.00%, 1/1/19 1,000 160,010
Glen Cove, NY, IDA, (The Regency at Glen
Cove), 0.00%, 7/1/19 1,000 152,990
Illinois Development Finance Authority,
(Care Institute, Inc.), 7.80%, 6/1/25 3,740 4,107,530
New Jersey EDA, (Chelsea at East
Brunswick), (AMT), 8.25%, 10/1/20 3,500 3,892,560
- --------------------------------------------------------------------------------
$ 18,745,800
- --------------------------------------------------------------------------------
Cogeneration -- 4.2%
- --------------------------------------------------------------------------------
Maryland Energy Cogeneration, (AES Warrior
Run), (AMT), 7.40%, 9/1/19 $ 3,500 $ 3,878,105
Palm Beach County, FL, (Okeelanta Power),
(AMT), 6.85%, 2/15/21/(1)/ 3,500 2,800,000
Palm Beach County, FL, (Osceola Power),
(AMT), 6.95%, 1/1/22/(1)/ 4,000 3,160,000
Pennsylvania EDA, (Northampton Generating
Subordinated), (AMT), 6.875%, 1/1/11 1,000 1,057,820
Pennsylvania EDA, (Northampton
Generating), (AMT), 6.60%, 1/1/19 3,500 3,745,525
- --------------------------------------------------------------------------------
$ 14,641,450
- --------------------------------------------------------------------------------
Colleges and Universities -- 0.6%
- --------------------------------------------------------------------------------
New Hampshire HEFA, (Colby-Sawyer
College), 7.50%, 6/1/26 $ 2,000 $ 2,201,020
- --------------------------------------------------------------------------------
$ 2,201,020
- --------------------------------------------------------------------------------
Education -- 0.8%
- --------------------------------------------------------------------------------
New Hampshire HEFA, (Franklin Pierce Law
Center), 5.50%, 7/1/28/(2)/ $ 3,000 $ 2,956,500
- --------------------------------------------------------------------------------
$ 2,956,500
- --------------------------------------------------------------------------------
Electric Utilities -- 3.4%
- --------------------------------------------------------------------------------
Intermountain Power Agency, UT, Variable
Rate, 7/1/11/(3)/ $ 3,500 $ 3,806,250
Long Island, NY, Power Authority, (RITES),
6.19%, 12/1/29/(3)/ 5,000 5,173,799
New York State Energy, Research and
Development Authority, (Long Island
Lighting Co.), (AMT), 7.15%, 9/1/19 2,500 2,737,475
- --------------------------------------------------------------------------------
$ 11,717,524
- --------------------------------------------------------------------------------
Escrowed / Prerefunded -- 12.7%
- --------------------------------------------------------------------------------
Colorado HFA, (Liberty Heights), Escrowed
to Maturity, 0.00%, 7/15/20 $ 8,410 $ 2,566,227
Colorado HFA, (Liberty Heights), Escrowed
to Maturity, 0.00%, 7/15/24 19,115 4,698,467
Colorado HFA, (Liberty Heights), Escrowed
to Maturity, 0.00%, 7/15/22 13,445 3,682,182
Cuyahoga County, OH, (Judson Retirement
Community), Prerefunded to 11/15/99,
8.875%, 11/15/19 1,500 1,637,790
Dawson Ridge, CO, Metropolitan District #1,
Escrowed to Maturity, 0.00%, 10/1/22 10,000 2,589,300
Dawson Ridge, CO, Metropolitan District #1,
Escrowed to Maturity, 0.00%, 10/1/22 3,500 906,255
See notes to financial statements
10
<PAGE>
High Yield Municipals Portfolio as of July 31, 1998
PORTFOLIO OF INVESTMENTS (Unaudited) CONT'D
Principal
Amount
Security (000's Omitted) Value
- --------------------------------------------------------------------------------
Escrowed / Prerefunded (continued)
- --------------------------------------------------------------------------------
Greene County, OH, IDA, (Fairview Extended
Care), Prerefunded to 1/1/01,
10.125%, 1/1/11 $ 1,175 $ 1,358,089
Illinois Development Finance Authority,
(Regency Park), Escrowed to Maturity,
0.00%, 7/15/25 3,295 757,290
Maricopa County, AZ, IDA, (Place Five and
The Greenery), Escrowed to Maturity,
6.625%, 1/1/27 2,500 2,904,925
Maricopa County, AZ, IDA, (Place Five and
The Greenery), Escrowed to Maturity,
8.625%, 1/1/11 1,725 2,267,133
Massachusetts HEFA (Milford-Whitinsville
Hospital), Prerefunded to 7/15/02,
7.75%, 7/15/17 3,000 3,437,010
Massachusetts HEFA, (Fairview Extended
Care), Prerefunded to 1/1/01, 10.125%, 1/1/11 1,730 1,997,112
Montgomery County, PA, (United Hospitals),
Prerefunded to 11/1/99, 8.375%, 11/1/11 1,000 1,075,710
Montgomery County, PA, (United Hospitals),
Prerefunded to 11/1/99, 7.50%, 11/1/15 1,000 1,046,020
Saint Tammany, LA, Public Finance,
(Christwood), Prerefunded to 5/15/05,
9.00%, 11/15/25 3,955 5,151,822
San Joaquin Hills, CA, Toll Road Bonds,
Escrowed to Maturity, 0.00%, 1/1/25 10,000 2,589,900
San Joaquin Hills, CA, Transportation
Corridor Agency, Toll Road Bonds, 0.00%, 1/1/26 10,000 2,460,800
Scranton-Lackawanna, PA, Health and
Welfare Authority, (Moses Taylor
Hospital), Prerefunded to 9/1/01, 8.50%, 7/1/20 1,500 1,709,175
Wilkins Area, PA, IDA, (Fairview Extended
Care), Prerefunded to 1/1/01, 10.25%, 1/1/21 1,250 1,460,038
- --------------------------------------------------------------------------------
$ 44,295,245
- --------------------------------------------------------------------------------
Gas Utilities -- 0.7%
- --------------------------------------------------------------------------------
Southern California Public Power
Authority, Variable Rate, 7/1/12/(3)/ $ 2,000 $ 2,277,500
- --------------------------------------------------------------------------------
$ 2,277,500
- --------------------------------------------------------------------------------
Hospitals -- 7.6%
- --------------------------------------------------------------------------------
Colorado HFA, (Rocky Mountain Adventist),
(RITES), 8.509%, 2/1/22/(3)/ $ 5,000 $ 5,722,749
Hidalgo County, TX, (Health Services
Corp., Mission Hospital, Inc.), 6.875%,
8/15/26/(4)/ 2,500 2,750,250
Louisiana PFA, (General Health Systems),
6.80%, 11/1/16/(4)/ 3,000 3,320,280
New Hampshire HEFA, (Littleton Hospital
Assn.), 6.00%, 5/1/28 1,000 1,008,700
New Hampshire HEFA, (Monadnock Community
Hospital), 5.70%, 10/1/20 2,580 2,599,918
Philadelphia, PA, (Graduate Health
System), 7.00%, 7/1/05/(5)/ 3,170 1,587,156
Philadelphia, PA, HEFA, 6.625%, 7/1/21/(5)/ 2,205 1,105,014
Prince George's, MD, (Greater Southeast
Healthcare System), 6.375%, 1/1/23/(4)/ 2,650 2,529,558
San Bernadino, CA, (San Bernadino
Community Hospital), 7.875%, 12/1/08 1,000 1,047,760
San Bernadino, CA, (San Bernadino
Community Hospital), 7.875%, 12/1/19 1,325 1,386,533
San Gorgonio, CA, (Memorial Health Care
District), 5.75%, 5/1/20 1,785 1,741,571
Wells County, IN, (Caylor-Nickel Medical
Center), 8.75%, 4/15/12 1,500 1,736,070
- --------------------------------------------------------------------------------
$ 26,535,559
- --------------------------------------------------------------------------------
Housing -- 8.1%
- --------------------------------------------------------------------------------
Atlanta, GA, Urban Residential Finance
Authority, (John Hope), 7.25%, 6/1/07 $ 2,000 $ 2,004,880
Colorado HFA, Single Family Housing,
(AMT), 7.65%, 12/1/25 4,040 4,542,132
Cuyahoga County, OH, (Rolling Hills
Apartment), (AMT), 8.00%, 1/1/28 2,440 2,454,225
Florence, KY, Housing Facilities, (Blue
Grass Housing), 7.625%, 5/1/27 2,430 2,660,753
Lucas County, OH (Country Creek), (AMT),
8.00%, 7/1/26 3,750 3,737,138
Maricopa County, AZ, IDA, Multifamily,
(National Health Facilities II),
6.625%, 7/1/33 1,500 1,500,480
Maricopa County, AZ, IDA, (National Health
Facilities II), 6.375%, 1/1/19 4,500 4,501,485
Minneapolis, MN, Community Development,
Multifamily (Lindsay Brothers),
9.50%, 12/1/07 1,760 1,971,235
North Little Rock, AR, Residential Housing
Facilities, (Parkstone Place), 9.75%, 8/1/21 4,665 4,896,571
- --------------------------------------------------------------------------------
$ 28,268,899
- --------------------------------------------------------------------------------
Industrial Development Revenue /
Pollution Control Revenue -- 26.8%
- --------------------------------------------------------------------------------
ABIA Development Corp., Austin Cargoport
Development, L.L.C., (AMT), 9.25%, 10/1/21 $ 2,815 $ 3,228,355
Apache County, AZ, IDA, (Tuscon Electric
Power Co.), 5.85%, 3/1/28 10,000 10,010,799
See notes to financial statements
11
<PAGE>
High Yield Municipals Portfolio as of July 31, 1998
PORTFOLIO OF INVESTMENTS (Unaudited) CONT'D
Principal
Amount
Security (000's Omitted) Value
- --------------------------------------------------------------------------------
Industrial Development Revenue /
Pollution Control Revenue (continued)
- --------------------------------------------------------------------------------
Camden County, NJ, (Holt Hauling), (AMT),
9.875%, 1/1/21 $ 2,000 $ 2,538,000
Carbon County, UT, (Laidlaw Environmental
Services Inc.), 7.45%, 7/1/17 3,900 4,301,076
Clark County, NV, (Nevada Power), (RITES),
(AMT), 6.967%, 10/1/30 5,000 5,148,350
College Park, GA (Airport Parking
Venture), 7.00%, 5/15/16 3,860 3,898,523
Effingham County, GA, Solid Waste
Disposal, (Fort James), (AMT), 5.625%, 7/1/18/(2)/ 4,000 4,000,000
Florence County, SC, (Stone Container
Co.), 7.375%, 2/1/07 1,735 1,868,751
Hancock County, KY, (Southwire Co.),
(AMT), 7.75%, 7/1/26 2,700 2,923,236
Iowa Finance Authority, Commercial
Development Revenue, (Southbridge Mall),
6.375%, 12/1/13 3,715 3,766,639
Kansas City, IDA, (Airline Cargo
Facilities), 8.50%, 1/1/17 4,030 4,569,214
Kimball, NE, EDA, (Clean Harbors, Inc.)
(AMT), 10.75%, 9/1/26 3,000 3,294,870
Michigan Strategic Fund, (Crown Paper),
(AMT), 6.50%, 8/1/21 1,200 1,228,884
Michigan Strategic Fund, (S.D. Warren
Co.), (AMT), 7.375%, 1/15/22 3,500 3,888,430
Morgantown, KY, (IMCO Recycling, Inc).,
7.45%, 5/1/22 3,400 3,619,504
New Albany, IN, IDA, (K-Mart Co.),
7.40%, 6/1/06 1,095 1,179,742
New Hampshire Business Finance Authority,
(Crown Paper Co.), (AMT), 7.875%, 7/1/26 2,750 3,106,345
New Hampshire, (Public Service Co. of NH),
7.65%, 5/1/21 3,420 3,644,352
New Jersey EDA, (Holt Hauling),
7.90%, 3/1/27 4,000 4,562,880
New Jersey EDA, (Holt Hauling),
8.95%, 12/15/18 500 559,120
Ohio Solid Waste Revenue, (Republic
Engineered Steels, Inc.), (AMT), 9.00%, 6/1/21 4,000 4,303,520
Perry County, KY, (TJ International,
Inc.), (AMT), 6.55%, 4/15/27 2,000 2,202,140
Philadelphia, PA, IDA, (Refrigerated
Enterprises), (AMT), 9.05%, 12/1/19 500 567,020
Riverdale Village, IL, (ACME Metals,
Inc.), (AMT), 7.95%, 4/1/25 3,345 3,402,099
Robbins, IL, Resource Recovery, (AMT),
8.375%, 10/15/16/(4)/ 3,500 3,641,505
Robbins, IL, Resources Recovery, (AMT),
8.375%, 10/15/10 1,500 1,560,645
Skowhegan, ME, (S. D. Warren Co.), (AMT),
6.65%, 10/15/15 3,000 3,209,430
West Feliciana Parish, LA, (Gulf States),
5.80%, 12/1/15 3,000 3,033,240
- --------------------------------------------------------------------------------
$ 93,256,669
- --------------------------------------------------------------------------------
Insured-Housing -- 1.6%
- --------------------------------------------------------------------------------
Alaska State Housing Finance Corp.,
(MBIA), (AMT), 5.75%, 6/1/24/(4)/ $ 5,250 $ 5,426,294
- --------------------------------------------------------------------------------
$ 5,426,294
- --------------------------------------------------------------------------------
Insured-Life Care -- 0.6%
- --------------------------------------------------------------------------------
Hancock, MI HFA, (Portage Health), (MBIA),
5.45%, 8/1/47 $ 2,200 $ 2,222,814
- --------------------------------------------------------------------------------
$ 2,222,814
- --------------------------------------------------------------------------------
Insured-Water and Sewer -- 0.9%
- --------------------------------------------------------------------------------
Detroit, MI, Sewer Revenue, (FGIC),
Variable Rate, 7/1/23/(3)/ $ 3,000 $ 3,240,000
- --------------------------------------------------------------------------------
$ 3,240,000
- --------------------------------------------------------------------------------
Lease Revenue /
Certificates of Participation -- 2.1%
- --------------------------------------------------------------------------------
Hardeman County, TN, (Correctional
Facilities Corp.), 7.75%, 8/1/17 $ 4,000 $ 4,505,080
Los Angeles, CA, COP, (Disney Parking),
0.00%, 9/1/19 9,190 2,862,317
- --------------------------------------------------------------------------------
$ 7,367,397
- --------------------------------------------------------------------------------
Life Care -- 5.0%
- --------------------------------------------------------------------------------
Delaware County, PA, (White Horse
Village), 7.30%, 7/1/14 $ 3,500 $ 3,792,390
Kansas City, MO, IDA, (Kingswood United
Methodist Manor), 9.00%, 11/15/13 3,840 4,439,194
Louisiana Housing Finance Agency, (HCC
Assisted Living Group 1), (AMT),
9.00%, 3/1/25 3,545 3,993,230
Massachusetts State IFA, (Sr. Living
Facilities-Forge Hill), (AMT), 6.75%, 4/1/30 5,355 5,145,298
- --------------------------------------------------------------------------------
$ 17,370,112
- --------------------------------------------------------------------------------
See notes to financial statements
12
<PAGE>
High Yield Municipals Portfolio as of July 31, 1998
PORTFOLIO OF INVESTMENTS (Unaudited) CONT'D
Principal
Amount
Security (000's Omitted) Value
- --------------------------------------------------------------------------------
Miscellaneous -- 10.5%
- --------------------------------------------------------------------------------
Atlanta, GA, Downtown Development
Authority, (Central Atlanta Hospitality
Childcare, Inc.), 8.00%, 1/1/26 $ 3,765 $ 4,208,216
Colorado River Indian Tribe, 6.25%, 8/1/04 3,000 3,015,900
Little River County, AR, (Georgia-Pacific
Corp.), (AMT), 5.60%, 10/1/26 2,500 2,504,525
Osceola County, IDA, Community Pooled
Loan-93, 7.75%, 7/1/17 2,000 2,169,760
Pittsfield Township, MI, (Arbor Hospice),
8.125%, 8/15/17 1,350 1,424,939
Santa Fe, NM, (1st Interstate Plaza),
8.00%, 7/1/13 3,299 3,615,923
Santa Fe, NM, (Crow Hobbs),
8.50%, 9/1/16/(4)/ 3,300 3,691,248
Tax Exempt Securities Trust, 8.50%, 12/1/36/(6)/ 2,382 2,624,083
Tax Exempt Securities Trust, 8.81%, 12/1/36/(6)/ 2,000 2,286,040
Tax Exempt Securities Trust, 7.00%, 12/1/36/(6)/ 1,330 1,477,271
Tax Exempt Securities Trust, 8.70%, 12/1/36/(6)/ 1,000 1,135,070
Tax Exempt Securities Trust, 7.00%, 12/1/36/(6)/ 1,100 1,221,803
Tax Exempt Securities Trust, 8.875%, 12/1/36/(6)/ 600 687,834
Tax Exempt Securities Trust, 6.75%, 12/1/36/(6)/ 2,580 2,820,404
Tax Exempt Securities Trust, 8.375%, 12/1/36/(6)/ 860 957,541
Tax Exempt Securities Trust, 7.75%, 12/1/36/(6)/ 2,400 2,565,192
- --------------------------------------------------------------------------------
$ 36,405,749
- --------------------------------------------------------------------------------
Nursing Homes -- 5.5%
- --------------------------------------------------------------------------------
Clovis, NM, IDR, (Retirement Ranches,
Inc.), 7.75%, 4/1/19 $ 3,475 $ 3,826,462
Kansas City, MO, IDA, (Beverly
Enterprises), 8.00%, 12/1/02 2,175 2,347,151
Massachusetts IFA, (Age Institute of
Massachusetts), 8.05%, 11/1/25 2,500 2,815,150
Mississippi Business Finance Corp.,
(Magnolia Healthcare), 7.99%, 7/1/25 1,200 1,299,888
Tarrant County Health Facilities, TX,
(3927 Foundation), 10.25%, 9/1/19 4,500 4,765,590
Westmoreland County, PA, IDA, (Highland
Health Systems, Inc.), 9.25%, 6/1/22 3,460 3,939,556
- --------------------------------------------------------------------------------
$ 18,993,797
- --------------------------------------------------------------------------------
Special Tax Revenue -- 1.6%
- --------------------------------------------------------------------------------
Cottonwood Water and Sanitation District,
CO, 7.75%, 12/1/20 $ 3,800 $ 4,088,572
Dulles, VA, Community Development
Authority, (Dulles Town Center), 6.25%, 3/1/26 $ 1,500 $ 1,518,390
- --------------------------------------------------------------------------------
$ 5,606,962
- --------------------------------------------------------------------------------
Transportation -- 1.9%
- --------------------------------------------------------------------------------
Eagle County, CO, (Airport Terminal)
(AMT), 7.50%, 5/1/21 $ 500 $ 546,115
Northwest Arkansas Regional Airport
Authority, (AMT), 7.625%, 2/1/27 5,250 6,022,484
- --------------------------------------------------------------------------------
$ 6,568,599
- --------------------------------------------------------------------------------
Total Tax-Exempt Investments -- 100.0%
(identified cost $322,788,255) $348,097,890
- --------------------------------------------------------------------------------
AMT - Interest earned from these securities may be considered a tax preference
item for purpose of the Federal Alternative Minimum Tax.
At July 31, 1998, the concentration of the Portfolio's investments in various
states determined as a percentage of total investments individually represent
less than 10% in each state.
/(1)/ Non-income producing security.
/(2)/ When-issued security.
/(3)/ Security has been issued as an inverse floater bond.
/(4)/ Security (or a portion thereof) has been segregated to cover when-issued
securities.
/(5)/ Effective July 1, 1998, the Portfolio is not accruing interest on this
security.
/(6)/ Restricted security. These securities (representing 4.5% of net assets)
were restricted as to public resale.
See notes to financial statements
13
<PAGE>
High Yield Municipals Portfolio as of July 31, 1998
FINANCIAL STATEMENTS (Unaudited)
Statement of Assets and Liabilities
As of July 31, 1998
Assets
- --------------------------------------------------------------------------------
Investments, at value
(identified cost, $322,788,255) $ 348,097,890
Cash 4,235,732
Receivable for investments sold 136,148
Interest receivable 5,267,741
Deferred organization expenses 7,062
- --------------------------------------------------------------------------------
Total assets $ 357,744,573
- --------------------------------------------------------------------------------
Liabilities
- --------------------------------------------------------------------------------
Payable for when-issued securities $ 6,990,292
Other accrued expenses 25,222
- --------------------------------------------------------------------------------
Total liabilities $ 7,015,514
- --------------------------------------------------------------------------------
Net Assets applicable to investors' interest in Portfolio $ 350,729,059
- --------------------------------------------------------------------------------
Sources of Net Assets
- --------------------------------------------------------------------------------
Net proceeds from capital contributions and withdrawals $ 325,419,424
Net unrealized appreciation (computed on the basis of
identified cost) 25,309,635
- --------------------------------------------------------------------------------
Total $ 350,729,059
- --------------------------------------------------------------------------------
Statement of Operations
For the Six Months Ended
July 31, 1998
Investment Income
- --------------------------------------------------------------------------------
Interest $ 10,841,829
- --------------------------------------------------------------------------------
Total investment income $ 10,841,829
- --------------------------------------------------------------------------------
Expenses
- --------------------------------------------------------------------------------
Investment adviser fee $ 964,207
Trustees fees and expenses 14,753
Custodian fee 83,819
Legal and accounting services 31,431
Amortization of organization expenses 730
Miscellaneous 37,468
- --------------------------------------------------------------------------------
Total expenses $ 1,132,408
- --------------------------------------------------------------------------------
Deduct --
Reduction of custodian fee $ 31,786
- --------------------------------------------------------------------------------
Total expense reductions $ 31,786
- --------------------------------------------------------------------------------
Net expenses $ 1,100,622
- --------------------------------------------------------------------------------
Net investment income $ 9,741,207
- --------------------------------------------------------------------------------
Realized and Unrealized
Gain (Loss)
- --------------------------------------------------------------------------------
Net realized gain (loss) --
Investment transactions (identified cost basis) $ (609,570)
Financial futures contracts 1,812
- --------------------------------------------------------------------------------
Net realized loss $ (607,758)
- --------------------------------------------------------------------------------
Change in unrealized appreciation (depreciation) --
Investments (identified cost basis) $ (3,107,653)
Financial futures contracts 881,125
- --------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) $ (2,226,528)
- --------------------------------------------------------------------------------
Net realized and unrealized loss $ (2,834,286)
- --------------------------------------------------------------------------------
Net increase in net assets from operations $ 6,906,921
- --------------------------------------------------------------------------------
See notes to financial statements
14
<PAGE>
High Yield Municipals Portfolio as of July 31, 1998
FINANCIAL STATEMENTS CONT'D
Statements of Changes in Net Assets
Six Months Ended
Increase (Decrease) July 31, 1998 Year Ended
in Net Assets (Unaudited) January 31, 1998
- --------------------------------------------------------------------------------
From operations --
Net investment income $ 9,741,207 $ 15,142,576
Net realized loss (607,758) (2,433,190)
Net change in unrealized
appreciation (depreciation) (2,226,528) 22,980,129
- --------------------------------------------------------------------------------
Net increase in net assets
from operations $ 6,906,921 $ 35,689,515
- --------------------------------------------------------------------------------
Capital transactions --
Contributions $ 71,539,613 $ 128,845,777
Withdrawals (30,926,640) (42,026,586)
- --------------------------------------------------------------------------------
Net increase in net assets from
capital transactions $ 40,612,973 $ 86,819,191
- --------------------------------------------------------------------------------
Net increase in net assets $ 47,519,894 $ 122,508,706
- --------------------------------------------------------------------------------
Net Assets
- --------------------------------------------------------------------------------
At beginning of period $ 303,209,165 $ 180,700,459
- --------------------------------------------------------------------------------
At end of period $ 350,729,059 $ 303,209,165
- --------------------------------------------------------------------------------
See notes to financial statements
15
<PAGE>
High Yield Municipals Portfolio as of July 31, 1998
FINANCIAL STATEMENTS CONT'D
Supplementary Data
<TABLE>
<CAPTION>
Six Months Ended Year Ended January 31,
July 31, 1998 ---------------------------------------------
(Unaudited) 1998 1997 1996*
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Ratios to average daily net assets+
- ------------------------------------------------------------------------------------------------------------------
Net expenses 0.69%+ 0.68% 0.34 % 0.06%+
Net expenses after custodian fee reduction 0.67%+ 0.66% 0.30 % 0.06%+
Net investment income 5.91%+ 6.43% 6.96 % 6.95%+
Portfolio Turnover 11% 8% 41 % 32%
- ------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000's omitted) $350,729 $303,209 $180,700 $72,077
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
+ The operating expenses of the Portfolio may reflect a reduction of the
Investment Adviser fee, an allocation of expenses to the Investment Adviser,
or both. Had such action not been taken, the ratios would have been as
follows:
<TABLE>
<S> <C> <C>
Expenses 0.71% 0.71%+
Expenses after custodian fee reduction 0.67% 0.71%+
Net investment income 6.59% 6.30%+
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
+ Annualized.
* For the period from the start of business, August 7, 1995, to January 31,
1996.
See notes to financial statements
16
<PAGE>
High Yield Municipals Portfolio as of July 31, 1998
NOTES TO FINANCIAL STATEMENTS (Unaudited)
1 Significant Accounting Policies
---------------------------------------------------------------------------
High Yield Municipals Portfolio (the Portfolio) is registered under the
Investment Company Act of 1940, as a non-diversified open-end management
investment company. The Portfolio, which was organized as a trust under the
laws of the State of New York on May 1, 1995, seeks to provide high current
income exempt from regular federal income tax. The Declaration of Trust
permits the Trustees to issue interests in the Portfolio. The following is
a summary of significant accounting policies of the Portfolio. The policies
are in conformity with generally accepted accounting principles.
A Investment Valuation -- Municipal bonds are normally valued on the basis
of valuations furnished by a pricing service. Taxable obligations, if any,
for which price quotations are readily available are normally valued at the
mean between the latest bid and asked prices. Futures contracts listed on
commodity exchanges are valued at closing settlement prices. Short-term
obligations maturing in sixty days or less are valued at amortized cost
which approximates value. Investments for which valuations or market
quotations are unavailable are valued at fair value using methods
determined in good faith by or at the direction of the Trustees.
B Income -- Interest income is determined on the basis of interest accrued,
adjusted for amortization of premium or discount when required for federal
income tax purposes.
C Income Taxes -- The Portfolio is treated as a partnership for federal tax
purposes. No provision is made by the Portfolio for federal or state taxes
on any taxable income of the Portfolio because each investor in the
Portfolio is ultimately responsible for the payment of any taxes. Since
some of the Portfolio's investors are regulated investment companies that
invest all or substantially all of their assets in the Portfolio, the
Portfolio normally must satisfy the applicable source of the income and
diversification requirements (under the Internal Revenue Code) in order for
its investors to satisfy them. The Portfolio will allocate at least
annually among its investors each investor's distributive share of the
Portfolio's net taxable (if any) and tax-exempt investment income, net
realized capital gains, and any other items of income, gain, loss,
deduction or credit. Interest income received by the Portfolio on
investments in municipal bonds, which is excludable from gross income under
the Internal Revenue Code, will retain its status as income exempt from
Federal income tax when allocated to the Portfolio's investors. The portion
of such interest, if any, earned on private activity bonds issued after
August 7, 1986 may be considered a tax preference item for investors.
D Deferred Organization Expenses -- Costs incurred by the Portfolio in
connection with its organization are being amortized on the straight-line
basis over five years.
E Financial Futures Contracts -- Upon the entering of a financial futures
contract, the Portfolio is required to deposit ("initial margin") either in
cash or securities an amount equal to a certain percentage of the purchase
price indicated in the financial futures contract. Subsequent payments are
made or received by the Portfolio ("margin maintenance") each day,
dependent on the daily fluctuations in the value of the underlying
security, and are recorded for book purposes as unrealized gains or losses
by the Portfolio. The Portfolio's investment in financial futures contracts
is designed only to hedge against anticipated futures changes in interest
rates. Should interest rates move unexpectedly, the Portfolio may not
achieve the anticipated benefits of the financial futures contracts and may
realize a loss.
F Legal Fees -- Legal fees and other related expenses incurred as part of
negotiations of the terms and requirements of capital infusions, or that
are expected to result in the restructuring of or a plan of reorganization
for an investment are recorded as realized losses. Ongoing expenditures to
protect or enhance an investment are treated as operating expenses.
G When-issued and Delayed Delivery Transactions -- The Portfolio may engage
in when-issued and delayed delivery transactions. The Portfolio records
when-issued securities on trade date and maintains security positions such
that sufficient liquid assets will be available to make payments for the
securities purchased. Securities purchased on when-issued or delayed
delivery basis are marked to market daily and begin accruing interest on
settlement date.
H Expense Reduction -- Investors Bank & Trust Company (IBT) serves as
custodian of the Portfolio. Pursuant to the custodian agreement, IBT
receives a fee reduced by credits which are determined based on the average
daily cash balances the Portfolio maintains with IBT. All significant
credit balances used to reduce the Portfolio's custodian fees are reported
as a reduction of operating expenses in the Statement of Operations.
17
<PAGE>
High Yield Municipals Portfolio as of July 31, 1998
NOTES TO FINANCIAL STATEMENTS (Unaudited) CONT'D
I Use of Estimates -- The preparation of the financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities at the date of the financial statements
and the reported amounts of revenue and expense during the reporting
period. Actual results could differ from those estimates.
J Other -- Investment transactions are accounted for on a trade date basis.
K Interim Financial Information -- The interim financial statements
relating to July 31, 1998 and for the six months then ended have not been
audited by independent certified public accountants, but in the opinion of
the Fund's management reflect all adjustments, consisting only of normal
recurring adjustments, necessary for the fair presentation of the financial
statements.
2 Investment Adviser Fee and Other Transactions with Affiliates
---------------------------------------------------------------------------
The investment adviser fee is earned by Boston Management and Research
(BMR), a wholly-owned subsidiary of Eaton Vance Management (EVM), as
compensation for management and investment advisory services rendered to
the Portfolio. The fee is based upon a percentage of average daily net
assets plus a percentage of gross income (i.e. income other than gains from
the sales of securities). For the six months ended July 31, 1998, the fee
was equivalent to 0.59 % of the Portfolio's average net assets for such
period and amounted to $964,207. Except as to Trustees of the Portfolio who
are not members of EVM's or BMR's organization, officers and Trustees
receive remuneration for their services to the Portfolio out of such
investment adviser fee. Certain of the officers and Trustees of the
Portfolio are officers and directors/trustees of the above organizations.
Trustees of the Portfolio that are not affiliated with the Investment
Adviser may elect to defer receipt of all or a percentage of their annual
fees in accordance with the terms of the Trustees Deferred Compensation
Plan. For the six months ended July 31, 1998, no significant amounts have
been deferred.
3 Investments
---------------------------------------------------------------------------
Purchases and sales of investments, other than U.S. Government securities
and short-term obligations, aggregated $86,778,559 and $36,706,053,
respectively, for the six months ended July 31, 1998.
4 Federal Income Tax Basis of Investments
---------------------------------------------------------------------------
The cost and unrealized appreciation/depreciation in value of the
investments owned at July 31, 1998, as computed on a federal income tax
basis, were as follows:
Aggregate cost $ 322,788,255
---------------------------------------------------------------------------
Gross unrealized appreciation 28,930,176
Gross unrealized depreciation (3,620,541)
---------------------------------------------------------------------------
Net unrealized appreciation $ 25,309,635
---------------------------------------------------------------------------
5 Line of Credit
---------------------------------------------------------------------------
The Portfolio participates 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 Portfolio
solely to facilitate the handling of unusual and/or unanticipated
short-term cash requirements. Interest is charged to each participating
portfolio or fund based on its borrowings at an amount above either the
Eurodollar rate or federal funds rate. In addition, a fee computed at an
annual rate of 0.10% on the daily unused portion of the line of credit is
allocated among the participating portfolios and funds at the end of each
quarter. At July 31, 1998, the Portfolio had no balance outstanding
pursuant to the line of credit.
6 Financial Instruments
---------------------------------------------------------------------------
The Portfolio regularly trades in financial instruments with off-balance
sheet risk in the normal course of its investing activities to assist in
managing exposure to various market risks. These financial instruments
include futures contracts and may involve, to a varying degree, elements of
risk in excess of the amounts recognized for financial statement purposes.
The notional or contractual amounts of these instruments represent the
investment the Portfolio has in particular classes of financial instruments
and do not necessarily represent the amounts potentially subject to risk.
The measurement of the risks associated with these instruments is
meaningful only when all related and offsetting transactions are
considered. At July 31, 1998, the Portfolio had no open futures contracts.
18
<PAGE>
Eaton Vance High Yield Municipals Fund as of July 31, 1998
INVESTMENT MANAGEMENT
Eaton Vance High Yield Municipals Fund
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
Chairman and Chief Executive Officer, United Asset
Management Corporation
John L. Thorndike
Formerly Director, Fiduciary Company Incorporated
Jack L. Treynor
Investment Adviser and Consultant
High Yield Municipals Portfolio
Officers
Thomas J. Fetter
President
James B. Hawkes
Vice President and Trustee
Thomas Metzold
Vice President and
Portfolio Manager
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
Formerly Director, Fiduciary Company Incorporated
Jack L. Treynor
Investment Adviser and Consultant
19
<PAGE>
Investment Adviser of
High Yield Municipals Portfolio
Boston Management and Research
24 Federal Street
Boston, MA 02110
Administrator of
Eaton Vance High Yield Municipals Fund
Eaton Vance Management
24 Federal Street
Boston, MA 02110
Principal Underwriter
Eaton Vance Distributors, Inc.
24 Federal Street
Boston, MA 02110
(617) 482-8260
Custodian
Investors Bank & Trust Company
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
Eaton Vance High Yield Municipals Fund
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 distribution plan,
sale charges and expenses. Please read the prospectus carefully before you
invest or send money.
HYSRC - 9/98
