<PAGE>
[EATON VANCE DOOR Investing
LOGO APPEARS HERE] for the
21st
Century
[PHOTO OF STOCK CERTIFICATES APPEAR HERE]
Annual Report January 31, 1999
[PHOTO OF PAUL REVERE EATON VANCE
STATUE APPEARS HERE] HIGH YIELD
MUNICIPALS
FUND
[PHOTO OF BOSTON SKYLINE APPEARS HERE]
<PAGE>
Eaton Vance High Yield Municipals Fund as of January 31, 1999
Letter to Shareholders
[PHOTO APPEARS HERE]
Thomas J. Fetter
President
Eaton Vance High Yield Municipals Fund, Class A, had a total return of 4.2% for
the year ended January 31, 1999. That return was the result of a decline in net
asset value (NAV) from $11.57 on January 31, 1998 to $11.38 on January 31, 1999,
and the reinvestment of $0.661 in tax-exempt dividends./1/
Class B shares had a total return of 3.4% for the year, the result of a decline
in NAV from $11.52 to $11.33, and the reinvestment of $0.577 in tax-exempt
dividends./1/
Class C shares had a total return of 3.2% for the year, the result of a decline
in NAV from $10.68 to $10.49, and the reinvestment of $0.527 in tax-exempt
dividends distributions./1/
Based on the Fund's most recent dividends and net asset values of $11.38,
$11.33, and $10.49, respectively, the Fund's Class A, B, and C shares had
distribution rates of 5.76%, 4.99%, and 4.91%, respectively, at January 31,
1999.2 SEC 30-day yields for Classes A, B, and C were 5.34%, 4.84%, and 4.77%,
respectively, at January 31, 1999./3/
Municipal bonds are now among the most undervalued asset classes...
As the year ended, municipal bonds represented one of the most undervalued asset
classes in the financial markets. Historically, municipal bond yields have
averaged around 85% of Treasury bond yields. However, in the flight to
Treasuries that characterized the bond market in late 1998, that ratio has been
skewed dramatically, especially among the high-yield segment of the municipal
market. At January 31, 1999, representative 30-year tax-exempt bonds were
yielding 5.1%, or 100% of 30-year Treasury yields! Considering their
tax-exemption, that is one of the true market anomalies of the decade. By any
measure of historical valuation, municipal bonds today represent a remarkable
bargain.
Taxes remain high, while tax reform is again stalled in Congress...
The election year promises of tax cuts appear to have reached a roadblock in
Washington. Meanwhile, it is estimated that the average American worked until
May 10 to pay his or her taxes in 1998, according to the Tax Foundation. That
poses an enormous financial burden - and an increasing challenge for those who
may be simultaneously paying for college tuition, caring for elderly parents, or
trying to plan for their own retirement.
Amid low inflation and growing federal budget surpluses, we believe that the
outlook for bonds remains attractive. At their recent levels, municipal bonds
are especially appealing. Moreover, municipal bonds remain an excellent
fixed-income alternative - to diversify one's investment portfolio and to help
lower one's tax burden.
Sincerely,
/s/ Thomas J. Fetter
Thomas J. Fetter
President
March 9, 1999
Fund Information
as of January 31, 1999
<TABLE>
<CAPTION>
Performance/4/ Class A Class B Class C
- --------------------------------------------------------------------------------
Average Annual Total Returns (at net asset value)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
One Year 4.2% 3.4% 3.2%
Life of Fund+ 10.5 9.5 8.4
<CAPTION>
SEC Average Annual Total Returns (including sales charge or applicable CDSC)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
One Year -0.8% -1.5% 2.2%
Life of Fund+ 8.9 8.8 8.4
+Inception dates: Class A:
8/7/95; Class B: 8/7/95; Class C: 6/18/97
<CAPTION>
Five Largest Sector Weightings/5/
- --------------------------------------------------------------------------------
<S> <C>
Industrial Development Revenue 18.4%
Senior Living/Life Care 10.6%
Escrowed/Prerefunded 10.3%
Hospitals 9.5%
Miscellaneous 9.2%
</TABLE>
- --------------------------------------------------------------------------------
Federal income tax information on distributions. For federal income tax
purposes, 99.86% of the total dividends paid by the Fund from net investment
income during the year ended January 31, 1999 was designated as an
exempt-interest dividend.
- --------------------------------------------------------------------------------
/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 charge (CDSC) for
Class B or C shares. A portion of the Fund's income may be subject to federal
income and/or alternative minimum tax. Income may be subject to state tax. /2/
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. /3/ 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. /4/ 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. Class C 1-year SEC return reflects 1% CDSC.
/5/ Five largest sector weightings account for 58.0% of the Portfolio's
investments, determined by dividing the total market value of the holdings by
the total investments of the Portfolio. Holdings are subject to change.
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.
2
<PAGE>
Eaton Vance High Yield Municipals Fund as of January 31, 1999
Management Discussion
[PHOTO APPEARS HERE]
Thomas M. Metzold
Portfolio Manager
An interview with Thomas M. Metzold, portfolio manager of Eaton Vance High Yield
Municipals Fund.
Q: Tom, this was an extremely volatile year in the financial markets. What kind
of impact did that volatility have on the high-yield municipal market?
A: In 1998, there was a sharp distinction between the Treasury market and the
non-Treasury market, including municipal bonds. That produced a very
challenging climate for fixed-income investors. With an economic crisis
abroad and a growing credit crunch, investors were drawn to quality. To many
investors, that meant U.S. Treasury bonds.
One result of this trend was that non-Treasury bonds - and especially
non-investment-grade bonds - lagged Treasuries in performance. That was
especially true of the high-yield sector of the municipal market, where
conflicting economic evidence had investors concerned about the direction of
the economy. Heavy municipal supply - about $300 billion according to the
Bond Market Association - provided additional pressures on the municipal
market. In short, while the high-yield municipal market again registered
positive returns, this year provided its share of hurdles.
Q: Despite a difficult year, the Fund's risk- adjusted performance again earned
its Class A and Class B shares a Five-Star Overall MorningstarTM Rating among
1,571 municipal bond funds./1/ What is behind the Fund's success?
A: This Fund maintains a longer-term view, searching for undervalued bonds and
trying to compound superior tax-exempt yields over time. Because this is a
long-term bond fund, we tend not to overreact to changing market conditions
with major adjustments to duration. Instead, we tend to stay the course and
use market setbacks as buying opportunities. That time-tested approach has
historically proven to be a sound strategy and has contributed to the Fund's
success. Moreover, while this past year was difficult, the Fund continued to
rank high within Lipper's High Yield Municipal Debt fund category for the
three-year period. The Fund's Class A shares were ranked first among 38 funds
for the three-year period ended January 31, 1999. /2/
Q: How have you positioned the Portfolio in recent months?
A: Industrial development bonds remained the Portfolio's largest sector
weighting at January 31, 1999 representing 18.4% of the Portfolio. IDBs are
bonds that are issued by development agencies to promote economic and
industrial
Portfolio Quality Weightings/3/
- --------------------------------------------------------------------------------
[PIE CHART APPEARS HERE]
Non-Rated 68.8%
BB 7.0%
BBB 4.6%
B 3.7%
AA 3.3%
A 1.7%
AAA 10.9%
Portfolio Overview/3/
- --------------------------------------------------------------------------------
Number of Issues 144
Average Rating BBB
Average Maturity 24.14 Yrs.
Effective Maturity 13.64 Yrs.
Average Call 9.2 Yrs.
Average Dollar Price $100.92
/1/ Morningstar ratings reflect historical risk-adjusted performance through
1/31/99 and are subject to change every month. Past performance is no guarantee
of future results. Funds are assigned ratings from 1 star (lowest) to 5 stars
(highest). Ratings are calculated from the Fund's 3-,5-, and 10-year average
annual returns (with fee adjustment) in excess of 90-day Treasury bill returns,
and a risk factor that reflects fund performance below 90-day Treasury bill
returns. The top 10% of the funds in a category receive 5 stars. For the 3-year
period, the Fund was rated 5 stars (1,577 funds). Ratings refer to Class A and
Class B only. Class C shares do not yet have a Morningstar rating. /2/ Source:
Lipper, Inc., a nationally recognized monitor of mutual fund performance. Lipper
rankings are based on total return and do not take sales charges into
consideration. In Lipper's High Yield Municipal Debt category as of 1/31/99,
Eaton Vance High Yield Municipals Fund, Class A, ranked # 45 out of 53 funds for
1 year. It is not possible to invest directly in an Average or Index. /3/
Because the Fund is actively managed, Portfolio Ratings and Portfolio Overview
are subject to change.
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
3
<PAGE>
Eaton Vance High Yield Municipals Fund as of January 31, 1999
Management Discussion Cont'd
development. They support public works, such as transportation projects or
co-generation facilities; private industrial developments; and pollution
control facilities that assist in environmental clean-up.
These bonds benefit the public because they typically finance industrial
projects and promote job creation; they are popular with private enterprise
because they provide vital financial support; and they're prized by investors
because they offer very attractive tax-exempt yields.
Because of the uncertain economic climate, we directed our efforts at further
diversifying the Portfolio's IDB bonds. We believe that some sectors we have
emphasized recently are less likely to suffer if the economy weakens.
Q: In what other areas did you focus the Portfolio's investments?
A: Senior living and life care facilities again played a large role in the
Portfolio. We have found excellent opportunities within this segment of the
municipal market. With the rapid aging of the nation's population, this area
has been viewed as a growth industry. However, we've been careful to avoid
those communities where there is a danger of overbuilding.
Your Investment at Work
- ---------------------------------------
Grove City, PA [MEDICAL SYMBOL
Area Hospital Authority APPEARS HERE]
Grove Manor Project
. Grove Manor Nursing Home was founded in 1966 as a non-profit corporation
whose mission is to operate nursing and personal care homes for elderly and
dependent residents.
. The home is managed by Extendicare Health Services, Inc., which manages 194
nursing facilities and 37 assisted living facilities in 15 states.
Extendicare has won a reputation for providing quality care and hospitality
with an underlying respect for the dignity of the individual.
. The bonds have a very attractive 6.625% coupon from a well-regarded
Authority. Issued in 1998, the bonds provide more than 9 years of call
protection.
These facilities - which are sometimes referred to as Continuing Care
Retirement Communities - provide a wider range of care than traditional
nursing homes, depending on the particular needs of their residents. For
example, they may provide apartments to accommodate those who are able to
live independently. Another level of care may provide assisted living for
those who need some assistance but not an institutional level of care. And
for those in need of more advanced attention, some facilities provide full
nursing home care.
Q: Nursing homes and hospital bonds were among the Portfolio's largest
weightings. What did you find attractive about those sectors?
A: In response to a changing health care climate, the hospital industry has been
undergoing a major restructuring in recent years. In that changing landscape,
we've tried to focus on the quality institutions that we believe will emerge
from the shakeout in a position of strength.
These institutions may be the product of hospital mergers, or a facility in
an especially good demographic location, or one such as Grove Manor {profiled
to the bottom left}, which has earned a reputation for delivering quality
nursing home care for the elderly.
Q: You also maintained a strong exposure to housing bonds. What attracted you to
that area?
A: We were able to find some attractive situations among housing bonds. The
housing market has benefited significantly in recent years from a fairly good
economy and a decline in interest rates. Those favorable conditions have led
to a surge in residential construction, some of which has been financed in
part by municipal issues. The Fund's housing bonds represented a wide range
of issuers in many different regions.
4
<PAGE>
Eaton Vance High Yield Municipals Fund as of January 31, 1999
Management Discussion Cont'd
of the country. We also diversified among the types of bonds, including
affordable housing, multi-family housing, and single-family housing bonds.
Q: Tom, what is your outlook for the municipal market in the coming year?
A: The outlook for bonds, in general, is favorable. While the economy is
generating strong growth, inflation does not appear to be a threat. Moreover,
with the budget now registering a surplus, we should be able to start
reducing the nation's outstanding debt. Those factors are very positive for
the overall bond market.
As for the municipal market, we continue to see tax-exempt yields that are
roughly 100% of Treasury yields. Given that the ratio has historically been
around 85% and that the prospect of an imminent tax cut is questionable at
best, these recent trends suggest that there may be unprecedented value in
municipal bonds. In my view, there is clearly a place for income-producing
vehicles in nearly every investor's portfolio. If you factor in their
tax-exempt status, municipal bonds offer some of today's best opportunities
for the income-oriented investor./1/
/1/ A portion of the Fund's income may be subject to federal income and/or
alternative minimum tax. Income may be subject to state tax.
[GRAPH APPEARS HERE]
Comparison of Change in Value of a $10,000 Investment in Eaton Vance High Yield
Municipals Fund, Class A vs. the Lehman Brothers Municipal Bond Index*
Date Fund/NAV Fund/MOP LBMBI
---- -------- -------- -----
8/31/95 $10,000 $9,523 $10,000
9/30/95 $10,229 $9,741 $10,063
10/31/95 $10,420 $9,923 $10,209
11/30/95 $10,680 $10,171 $10,379
12/31/95 $10,824 $10,307 $10,479
1/31/96 $10,854 $10,337 $10,558
2/28/96 $10,770 $10,256 $10,487
3/31/96 $10,617 $10,111 $10,353
4/30/96 $10,524 $10,022 $10,323
5/31/96 $10,669 $10,160 $10,319
6/30/96 $10,781 $10,267 $10,432
7/31/96 $10,938 $10,416 $10,526
8/31/96 $11,021 $10,496 $10,524
9/30/96 $11,177 $10,643 $10,671
10/31/96 $11,345 $10,804 $10,791
11/30/96 $11,523 $10,974 $10,989
12/31/96 $11,554 $11,003 $10,943
1/31/97 $11,563 $11,011 $10,963
2/28/97 $11,664 $11,107 $11,064
3/31/97 $11,574 $11,022 $10,917
4/30/97 $11,658 $11,102 $11,008
5/31/97 $11,788 $11,226 $11,174
6/30/97 $12,105 $11,528 $11,293
7/31/97 $12,560 $11,961 $11,605
8/31/97 $12,513 $11,916 $11,497
9/30/97 $12,633 $12,030 $11,633
10/31/97 $12,800 $12,190 $11,708
11/30/97 $12,898 $12,283 $11,777
12/31/97 $13,159 $12,531 $11,949
1/31/98 $13,352 $12,715 $12,072
2/28/98 $13,457 $12,815 $12,076
3/31/98 $13,534 $12,889 $12,086
4/30/98 $13,493 $12,849 $12,032
5/31/98 $13,653 $13,002 $12,222
6/30/98 $13,717 $13,063 $12,270
7/31/98 $13,619 $12,969 $12,301
8/31/98 $13,816 $13,157 $12,491
9/30/98 $13,857 $13,196 $12,647
10/31/98 $13,828 $13,168 $12,647
11/30/98 $13,796 $13,138 $12,691
12/31/98 $13,791 $13,133 $12,723
1/31/99 $13,907 $13,244 $12,874
[GRAPH APPEARS HERE]
Comparison of Change in Value of a $10,000 Investment in Eaton Vance High Yield
Municipals Fund, Class B vs. the Lehman Brothers Municipal Bond Index*
Date Fund/NAV LBMBI
---- -------- -----
8/31/95 $10,000 $10,000
9/30/95 $10,183 $10,063
10/31/95 $10,358 $10,209
11/30/95 $10,612 $10,379
12/31/95 $10,747 $10,479
1/31/96 $10,764 $10,558
2/28/96 $10,687 $10,487
3/31/96 $10,526 $10,353
4/30/96 $10,428 $10,323
5/31/96 $10,564 $10,319
6/30/96 $10,675 $10,432
7/31/96 $10,821 $10,526
8/31/96 $10,897 $10,524
9/30/96 $11,049 $10,671
10/31/96 $11,206 $10,791
11/30/96 $11,378 $10,989
12/31/96 $11,403 $10,943
1/31/97 $11,403 $10,963
2/28/97 $11,506 $11,064
3/31/97 $11,404 $10,917
4/30/97 $11,478 $11,008
5/31/97 $11,598 $11,174
6/30/97 $11,909 $11,293
7/31/97 $12,348 $11,605
8/31/97 $12,294 $11,497
9/30/97 $12,408 $11,633
10/31/97 $12,564 $11,708
11/30/97 $12,649 $11,777
12/31/97 $12,904 $11,949
1/31/98 $13,075 $12,072
2/28/98 $13,182 $12,076
3/31/98 $13,243 $12,086
4/30/98 $13,195 $12,032
5/31/98 $13,342 $12,222
6/30/98 $13,399 $12,270
7/31/98 $13,292 $12,301
8/31/98 $13,482 $12,491
9/30/98 $13,513 $12,647
10/31/98 $13,462 $12,647
11/30/98 $13,426 $12,691
12/31/98 $13,420 $12,723
1/31/99 $13,524 $12,874
<TABLE>
<CAPTION>
Performance** Class A Class B Class C
- --------------------------------------------------------------------------------
Average Annual Total Returns (at net asset value)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
One Year 4.2% 3.4% 3.2%
Life of Fund++ 10.5 9.5 8.4
<CAPTION>
SEC Average Annual Total Returns (including sales charge or applicable CDSC)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
One Year -0.8% -1.5% 2.2%
Life of Fund++ 8.9 8.8 8.4
++ Inception dates: Class A: 8/7/95; Class B: 8/7/95; Class C: 6/18/97
</TABLE>
* Source: Towers Data Systems, Bethesda, MD.
The chart compares the Fund's total return with that of the Lehman Brothers
Municipal Bond Index, a broad-based, unmanaged market index of municipal
bonds. Returns are calculated by determining the percentage change in net
asset value (NAV) with all distributions reinvested. The lines on the chart
represent the 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. An investment in the Fund's Class C shares on 6/30/97
at net asset value would have been worth $11,370 on January 31, 1999.
** Returns are calculated by determining the percentage change in net asset
value (NAV) 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. SEC 1-Year return for
Class C reflects 1% 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.
5
<PAGE>
Eaton Vance High Yield Municipals Fund as of January 31, 1999
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
As of January 31, 1999
Assets
- -------------------------------------------------------------------------
Investment in High Yield Municipals Portfolio,
at value (identified cost $370,853,037) $390,765,345
Receivable for Fund shares sold 1,108,902
Deferred organization expenses 46,894
- -------------------------------------------------------------------------
Total assets $391,921,141
- -------------------------------------------------------------------------
Liabilities
- -------------------------------------------------------------------------
Dividends payable $ 934,198
Payable for Fund shares redeemed 422,535
Other accrued expenses 144,596
- -------------------------------------------------------------------------
Total liabilities $ 1,501,329
- -------------------------------------------------------------------------
Net Assets $390,419,812
- -------------------------------------------------------------------------
Sources of Net Assets
- -------------------------------------------------------------------------
Paid-in capital $373,106,995
Accumulated net realized loss from Portfolio
(computed on the basis of identified cost) (1,665,293)
Accumulated distributions in excess of net
investment income (934,198)
Net unrealized appreciation from Portfolio (computed
on the basis of identified cost) 19,912,308
- -------------------------------------------------------------------------
Total $390,419,812
- -------------------------------------------------------------------------
Class A Shares
- -------------------------------------------------------------------------
Net Assets $128,347,155
Shares Outstanding 11,278,108
Net Asset Value and Redemption Price Per Share
(net assets / shares of beneficial interest
outstanding) $ 11.38
Maximum Offering Price Per Share
(100 / 95.25 of $11.38) $ 11.95
- -------------------------------------------------------------------------
Class B Shares
- -------------------------------------------------------------------------
Net Assets $237,496,847
Shares Outstanding 20,969,751
Net Asset Value, Offering Price and Redemption Price
Per Share (net assets / shares of beneficial interest
interest outstanding) $ 11.33
- -------------------------------------------------------------------------
Class C Shares
- -------------------------------------------------------------------------
Net Assets $ 24,575,810
Shares Outstanding 2,341,724
Net Asset Value, Offering Price and Redemption Price
Per Share (net assets / shares of beneficial interest
outstanding) $ 10.49
- -------------------------------------------------------------------------
On sales of $25,000 or more, the offering price of Class A shares is reduced.
Statement of Operations
For the Year Ended
January 31, 1999
Investment Income
- -------------------------------------------------------------------------
Interest allocated from Portfolio $ 23,001,213
Expenses allocated from Portfolio (2,312,326)
- -------------------------------------------------------------------------
Net investment income from Portfolio $ 20,688,887
- -------------------------------------------------------------------------
Expenses
- -------------------------------------------------------------------------
Trustees fees and expenses $ 2,569
Distribution and service fees
Class A 172,915
Class B 1,997,587
Class C 166,614
Transfer and dividend disbursing agent fees 284,828
Registration fees 95,103
Custodian fee 30,967
Amortization of organization expenses 23,872
Printing and postage 23,782
Legal and accounting services 2,232
Miscellaneous 18,618
- -------------------------------------------------------------------------
Total expenses $ 2,819,087
- -------------------------------------------------------------------------
Net investment income $ 17,869,800
- -------------------------------------------------------------------------
Realized and Unrealized
Gain (Loss) from Portfolio
- -------------------------------------------------------------------------
Net realized gain (loss) --
Investment transactions (identified cost basis) $ 1,680,263
Financial futures contracts 346,045
- -------------------------------------------------------------------------
Net realized gain $ 2,026,308
- -------------------------------------------------------------------------
Change in unrealized appreciation (depreciation)--
Investments $ (8,485,319)
Financial futures contracts 880,633
- -------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) $ (7,604,686)
- -------------------------------------------------------------------------
Net realized and unrealized loss $ (5,578,378)
- -------------------------------------------------------------------------
Net increase in net assets from operations $ 12,291,422
- -------------------------------------------------------------------------
See notes to financial statements
6
<PAGE>
Eaton Vance High Yield Municipals Fund as of January 31, 1999
FINANCIAL STATEMENTS CONT'D
Statements of Changes in Net Assets
Increase (Decrease) Year Ended Year Ended
in Net Assets January 31, 1999 January 31, 1998
- -----------------------------------------------------------------------------
From operations --
Net investment income $ 17,869,800 $ 8,302,448
Net realized gain (loss) 2,026,308 (1,592,605)
Net change in unrealized
appreciation (depreciation) (7,604,686) 15,064,035
- ----------------------------------------------------------------------------
Net increase in net assets
from operations $ 12,291,422 $ 21,773,878
- ----------------------------------------------------------------------------
Distributions to shareholders --
- ----------------------------------------------------------------------------
From net investment income
Class A $ (6,551,562) $ --
Class B (10,527,829) (8,302,448)
Class C (790,409) --
In excess of net
investment income
Class A (143,542) --
Class B (422,357) (269,780)
Class C (32,682) --
- ----------------------------------------------------------------------------
Total distributions to
shareholders $(18,468,381) $ (8,572,228)
- ----------------------------------------------------------------------------
Transactions in shares of
beneficial interest --
Proceeds from sale of shares
Class A $ 48,904,668 $ --
Class B 70,941,243 72,750,202
Class C 18,783,566 --
Issued in reorganization
of EV Traditional and
EV Classic High Yield
Municipals Funds
Class A 103,128,404 --
Class C 9,447,074 --
Net asset value of shares
issued to shareholders
in payment of
distributions declared
Class A 2,724,257 --
Class B 3,952,176 2,871,887
Class C 495,975 --
Cost of shares redeemed
Class A (24,448,279) --
Class B (25,227,540) (20,141,026)
Class C (3,811,012) --
- ----------------------------------------------------------------------------
Net increase in net assets
from Fund share transactions $204,890,532 $ 55,481,063
- ----------------------------------------------------------------------------
Net increase in net assets $198,713,573 $ 68,682,713
- ----------------------------------------------------------------------------
Net Assets
- ----------------------------------------------------------------------------
At beginning of year $191,706,239 $ 123,023,526
- ----------------------------------------------------------------------------
At end of year $390,419,812 $ 191,706,239
- ----------------------------------------------------------------------------
Accumulated
distributions in excess
of net investment income
included in net assets
- ----------------------------------------------------------------------------
At end of year $ (934,198) $ (294,661)
- ----------------------------------------------------------------------------
See notes to financial statements
7
<PAGE>
Eaton Vance High Yield Municipals Fund as of January 31, 1999
FINANCIAL STATEMENTS CONT'D
Financial Highlights
<TABLE>
<CAPTION>
Year Ended January 31,
----------------------------------------------------------------------------
1999(1) 1998 1997 1996(2)
------------------------------------- -------------------------------------
Class A Class B Class C Class B Class B Class B
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value -- Beginning of year $11.570 $11.520 $10.680 $10.620 $10.650 $10.000
- ----------------------------------------------------------------------------------------------------------------------
Income (loss) from operations
- ----------------------------------------------------------------------------------------------------------------------
Net investment income $ 0.647 $ 0.554 $ 0.506 $ 0.594 $ 0.626 $ 0.299
Net realized and unrealized gain (loss) (0.176) (0.167) (0.169) 0.916 (0.026) 0.657
- ----------------------------------------------------------------------------------------------------------------------
Total income from operations $ 0.471 $ 0.387 $ 0.337 $ 1.510 $ 0.600 $ 0.956
- ----------------------------------------------------------------------------------------------------------------------
Less distributions
- ----------------------------------------------------------------------------------------------------------------------
From net investment income $ (0.64) $(0.554) $(0.506) $(0.594) $(0.626) $(0.299)
In excess of net investment income (0.014) (0.023) (0.021) (0.016) (0.003) (0.007)
From net realized gain -- -- -- -- (0.001) --
- ----------------------------------------------------------------------------------------------------------------------
Total distributions $(0.661) $(0.577) $(0.527) $(0.610) $(0.630) $(0.306)
- ----------------------------------------------------------------------------------------------------------------------
Net asset value -- End of year $ 11.380 $ 11.330 $ 10.490 $ 11.520 $ 10.620 $ 10.650
- ----------------------------------------------------------------------------------------------------------------------
Total Return (3) 4.16% 3.44% 3.22% 14.67% 5.90% 9.40%
- ----------------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data +
- ----------------------------------------------------------------------------------------------------------------------
Net assets, end of year (000's omitted) $128,347 $237,497 $24,576 $191,706 $123,024 $43,520
Ratios (As a percentage of average
daily net assets):
Net expenses (4) 0.95% 1.72% 1.79% 1.76% 1.36% 0.88%(5)
Net expenses after custodian fee
reduction (4) 0.94% 1.71% 1.78% 1.74% 1.32% 0.88%(5)
Net investment income 5.60% 4.83% 4.73% 5.36% 5.91% 5.86%(5)
- ----------------------------------------------------------------------------------------------------------------------
<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:
Ratios (As a percentage of average daily net assets):
<S> <C> <C>
Expenses (4) 1.73% 1.77%(5)
Expenses after custodian fee reduction (4) 1.69% 1.77%(5)
Net investment income 5.54% 4.97%(5)
Net investment income per share $ 0.587 $ 0.254
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Net investment income per share was computed using average shares
outstanding.
(2) For the period from the start of business, August 7, 1995, to January 31,
1996.
(3) 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.
(4) Includes the Fund's share of the Portfolio's allocated expenses.
(5) Annualized.
See notes to financial statements
8
<PAGE>
Eaton Vance High Yield Municipals Fund as of January 31, 1999
NOTES TO FINANCIAL STATEMENTS
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 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. Net investment income, other than class specific
expenses, is allocated daily to each class of shares based upon the ratio of
the value of each class' paid shares to the total value of all paid shares.
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 January 31, 1999).
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,
1999, the Fund, for federal income tax purposes, had a capital loss
carryover of $1,420,815, 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, 2006. 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.
9
<PAGE>
Eaton Vance High Yield Municipals Fund as of January 31, 1999
NOTES TO FINANCIAL STATEMENTS CONT'D
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. During the year ended
January 31, 1999, $68,698 was reclassified from accumulated distributions in
excess of net investment income to paid-in capital due to permanent
differences between book and tax accounting for distributions. Net
investment income, net realized gains and net assets were not affected by
these reclassifications.
3 Shares of Beneficial Interest
----------------------------------------------------------------------------
The Declaration of Trust permits the Trustees to issue an unlimited number
of full and fractional shares of beneficial interest (without par value).
Transactions in Fund shares were as follows:
Year Ended
Class A January 31, 1999
----------------------------------------------------------------------------
Sales 4,249,799
Issued to shareholders electing to receive payment
of distributions in Fund shares 236,663
Redemptions (2,125,063)
Issued to EV Traditional High Yield Municipals
Fund shareholders 8,916,709
----------------------------------------------------------------------------
Net increase 11,278,108
----------------------------------------------------------------------------
Year Ended January 31,
--------------------------------
Class B 1999 1998
----------------------------------------------------------------------------
Sales 6,184,460 6,630,440
Issued to shareholders electing to receive
payments of distributions in Fund shares 344,632 261,353
Redemptions (2,202,194) (1,832,927)
----------------------------------------------------------------------------
Net increase 4,326,898 5,058,866
----------------------------------------------------------------------------
Year Ended
Class C January 31, 1999
----------------------------------------------------------------------------
Sales 1,770,160
Issued to shareholders electing to receive
payment of distributions in Fund shares 46,821
Redemptions (360,167)
Issued to EV Classic High Yield Municipals
Fund shareholders 884,910
----------------------------------------------------------------------------
Net increase 2,341,724
----------------------------------------------------------------------------
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 advisor 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 $67,298 as its portion of the sales
charge on sales of Class A shares for the year ended January 31, 1999.
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, the Plans). The Plans require 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) interest calculated by applying the rate of 1%
over the prevailing prime rate to the outstanding balance of Uncovered
Distribution Charges
10
<PAGE>
Eaton Vance High Yield Municipals Fund as of January 31, 1999
NOTES TO FINANCIAL STATEMENTS CONT'D
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 $1,629,956 and $124,961 for Class B and
Class C shares, respectively, to EVD for the year ended January 31, 1999,
representing 0.75% and 0.75% of the average daily net assets for Class B and
Class C shares, respectively. At January 31, 1999, the amount of Uncovered
Distribution Charges of EVD calculated under the Plan was approximately
$9,309,000 and $1,437,000 for Class B and Class C shares, respectively.
In addition, the Plans authorize 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 year ended January 31, 1999 amounted to
$172,915, $367,631, and $41,653 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 $589,000 and $15,000 of CDSC paid by shareholders for
Class B shares and Class C shares, respectively, for the year ended January
31, 1999.
7 Investment Transactions
----------------------------------------------------------------------------
Increases and decreases in the Fund's investment in the Portfolio for the
year ended January 31, 1999 aggregated $141,274,518 and $68,691,387,
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 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.
11
<PAGE>
Eaton Vance High Yield Municipals Fund as of January 31, 1999
INDEPENDENT AUDITORS' REPORT
To the Trustees and Shareholders
of Eaton Vance Municipals Trust II:
- --------------------------------------------------------------------------------
We have audited the accompanying statement of assets and liabilities of Eaton
Vance High Yield Municipals Fund (one of the series of Eaton Vance Municipals
Trust II) as of January 31, 1999, the related statement of operations for the
year then ended, the statements of changes in net assets for the years ended
January 31, 1999 and 1998 and the financial highlights for the three years ended
January 31, 1999 and for the period from the start of business, August 7, 1995,
to January 31, 1996. These financial statements and financial highlights are the
responsibility of the Trust's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Eaton Vance High
Yield Municipals Fund at January 31, 1999, the results of its operations, the
changes in its net assets and its financial highlights for the respective stated
periods in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
March 5, 1999
12
<PAGE>
High Yield Municipals Portfolio as of January 31, 1999
PORTFOLIO OF INVESTMENTS
Tax-Exempt Investments -- 100.0%
Principal
Amount
Security (000's Omitted) Value
- ----------------------------------------------------------------------
Assisted Living -- 4.9%
- ----------------------------------------------------------------------
Arizona Health Facilities
Authority, (Care Institute,
Inc.-Mesa), 7.625%, 1/1/26 $ 2,500 $ 2,619,150
Chester, PA, IDA, (Senior
Life-Choice of Kimberton),
(AMT), 8.50%, 9/1/25 1,000 1,144,020
Chester, PA, IDA, (Senior
Life-Choice of Paoli L.P.),
8.05%, 1/1/24 2,000 2,233,160
Delaware, PA, IDA, (Glen
Riddle), (AMT), 8.625%, 9/1/25 1,600 1,841,120
Glen Cove, NY, IDA, (The
Regency at Glen Cove), 0.00%,
1/1/13 1,000 301,300
Glen Cove, NY, IDA, (The
Regency at Glen Cove), 0.00%,
7/1/13 1,000 288,600
Glen Cove, NY, IDA, (The
Regency at Glen Cove), 0.00%,
1/1/14 1,000 276,430
Glen Cove, NY, IDA, (The
Regency at Glen Cove), 0.00%,
7/1/14 1,000 264,770
Glen Cove, NY, IDA, (The
Regency at Glen Cove), 0.00%,
1/1/15 1,000 253,990
Glen Cove, NY, IDA, (The
Regency at Glen Cove), 0.00%,
7/1/15 1,000 243,300
Glen Cove, NY, IDA, (The
Regency at Glen Cove), 0.00%,
1/1/16 1,000 233,050
Glen Cove, NY, IDA, (The
Regency at Glen Cove), 0.00%,
7/1/16 1,000 223,230
Glen Cove, NY, IDA, (The
Regency at Glen Cove), 0.00%,
1/1/17 1,000 213,460
Glen Cove, NY, IDA, (The
Regency at Glen Cove), 0.00%,
7/1/17 1,000 204,460
Glen Cove, NY, IDA, (The
Regency at Glen Cove), 0.00%,
1/1/18 1,000 195,840
Glen Cove, NY, IDA, (The
Regency at Glen Cove), 0.00%,
7/1/18 1,000 187,580
Glen Cove, NY, IDA, (The
Regency at Glen Cove), 0.00%,
1/1/19 1,000 179,670
Glen Cove, NY, IDA, (The
Regency at Glen Cove), 0.00%,
7/1/19 1,000 172,090
Illinois Development Finance
Authority, (Care Institute,
Inc.), 7.80%, 6/1/25 3,740 4,109,101
New Jersey EDA, (Chelsea at
East Brunswick), (AMT), 8.25%,
10/1/20 3,500 3,893,190
- ----------------------------------------------------------------------
$ 19,077,511
- ----------------------------------------------------------------------
Cogeneration -- 4.6%
- ----------------------------------------------------------------------
Maryland Energy Cogeneration,
(AES Warrior Run), (AMT),
7.40%, 9/1/19 $ 7,000 $ 7,399,629
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),
Junior Liens, (AMT),
6.875%, 1/1/11 1,000 1,054,690
Pennsylvania EDA, (Northampton
Generating), (AMT), 6.60%,
1/1/19 3,500 3,728,375
- ----------------------------------------------------------------------
$ 18,142,694
- ----------------------------------------------------------------------
Education -- 0.6%
- ----------------------------------------------------------------------
New Hampshire HEFA,
(Colby-Sawyer College), 7.50%,
6/1/26 $ 2,000 $ 2,210,480
- ----------------------------------------------------------------------
$ 2,210,480
- ----------------------------------------------------------------------
Electric Utilities -- 6.3%
- ----------------------------------------------------------------------
Apache County, AZ, IDA,
(Tuscon Electric Power Co.),
5.85%, 3/1/28 $ 4,000 $ 3,961,680
Connecticut State Development
Authority, (Connecticut Light
and Power), 5.85%, 9/1/28 2,500 2,514,025
Connecticut State Development
Authority, (Western
Massachusetts Electric Co.),
5.85%, 9/1/28 5,000 5,018,700
Eugene, OR, (Trojan Nuclear
Power), 5.90%, 9/1/09 1,000 1,029,900
Intermountain Power Agency,
UT, Variable Rate, 7/1/11/(2)/ 3,500 3,933,125
Long Island, NY, Power
Authority, (RITES), Variable
Rate, 12/1/29 5,000 5,323,800
New York State Energy,
Research and Development
Authority, (Long Island
Lighting Co.), (AMT), 7.15%,
9/1/19 2,500 2,738,800
- ----------------------------------------------------------------------
$ 24,520,030
- ----------------------------------------------------------------------
Escrowed / Prerefunded -- 10.3%
- ----------------------------------------------------------------------
Colorado Health Facilities
Authority, (Liberty Heights),
Escrowed to Maturity,
0.00%, 7/15/20 $ 3,410 $ 1,100,441
Colorado Health Facilities
Authority, (Liberty Heights),
Escrowed to Maturity,
0.00%, 7/15/22 13,445 3,904,831
Colorado Health Facilities
Authority, (Liberty Heights),
Escrowed to Maturity,
0.00%, 7/15/24 14,115 3,689,379
Dawson Ridge, CO, Metropolitan
District #1, Escrowed to
Maturity, 0.00%, 10/1/22 10,000 2,859,000
Dawson Ridge, CO, Metropolitan
District #1, Escrowed to
Maturity, 0.00%, 10/1/22 3,500 1,000,650
See notes to financial statements
13
<PAGE>
High Yield Municipals Portfolio as of January 31, 1999
PORTFOLIO OF INVESTMENTS CONT'D
Principal
Amount
Security (000's Omitted) Value
- ----------------------------------------------------------------------
Escrowed / Prerefunded (continued)
- ----------------------------------------------------------------------
Detroit, MI, Sewer Disposal,
(FGIC), Prerefunded to
7/17/03, Variable Rate,
7/1/23/(2)/ $ 2,290 $ 2,716,513
Illinois Development Finance
Authority, (Regency Park),
Escrowed to Maturity, 0.00%,
7/15/25 3,295 784,045
Kansas City, MO, IDA,
(Kingswood United Methodist
Manor), Prerefunded to
11/15/03, 9.00%, 11/15/13 3,685 4,562,546
Maricopa County, AZ, IDA,
(Place Five and The Greenery),
Escrowed to Maturity,
6.625%, 1/1/27 2,500 2,927,425
Maricopa County, AZ, IDA,
(Place Five and The Greenery),
Escrowed to Maturity,
8.625%, 1/1/27 1,725 2,282,658
Massachusetts HEFA,
(Milford-Whitinsville
Hospital), Prerefunded to
7/15/02, 7.75%, 7/15/17 3,000 3,454,170
Saint Tammany, LA, Public
Finance, (Christwood),
Prerefunded to 5/15/05, 9.00%,
11/15/25 3,955 5,246,663
San Joaquin Hills
Transportation Corridor
Agency, CA, Toll Road Bonds,
Escrowed to Maturity, 0.00%,
1/1/25 10,000 2,803,900
San Joaquin Hills
Transportation Corridor
Agency, CA, Toll Road Bonds,
Escrowed to Maturity, 0.00%,
1/1/26 10,000 2,666,900
- ----------------------------------------------------------------------
$ 39,999,121
- ----------------------------------------------------------------------
Gas Utilities -- 0.6%
- ----------------------------------------------------------------------
Southern California Public
Power Authority, Variable
Rate, 7/1/12/(2)/ $ 2,000 $ 2,310,000
- ----------------------------------------------------------------------
$ 2,310,000
- ----------------------------------------------------------------------
Hospital -- 9.5%
- ----------------------------------------------------------------------
Colorado Health Facilities
Authority, (Rocky Mountain
Adventist), (RITES),
Variable Rate, 2/1/22/(2)/ $ 5,000 $ 5,701,200
Forsyth County, GA, Hospital
Authority Revenue, (Georgia
Baptist Health Care System),
6.25%, 10/1/18 3,685 3,643,544
Forsyth County, GA, Hospital
Authority Revenue, (Georgia
Baptist Health Care System),
6.375%, 10/1/28 3,700 3,663,111
Hidalgo County, TX, (Health
Services Corp., Mission
Hospital, Inc.), 6.875%,
8/15/26 2,500 2,756,450
Illinois Health Facilities
Authority, (Proctor Community
Hospital), 7.375%, 1/1/23 2,500 2,647,175
Louisiana Public Facilities
Authority, (General Health
Systems), 6.80%, 11/1/16 2,915 3,227,663
Monroeville, PA, Hospital
Authority, (Forbes Health
System), 5.75%, 10/1/05 400 360,000
Monroeville, PA, Hospital
Authority, (Forbes Health
System), 6.25%, 10/1/15 1,000 880,000
New Hampshire HEFA, (Littleton
Hospital Assn.), 6.00%, 5/1/28
Philadelphia, PA, HEFA, 2,000 2,030,040
(Graduate Health System),
6.625%, 7/1/21/(1)/ 2,205 837,900
Philadelphia, PA, HEFA,
(Graduate Health System),
7.00%, 7/1/05/(1)/ 3,170 1,204,600
Prince George's County, MD,
(Greater Southeast Healthcare
System), 6.375%, 1/1/13 875 542,500
Prince George's County, MD,
(Greater Southeast Healthcare
System), 6.375%, 1/1/23 5,900 3,658,000
San Bernadino, CA, (San
Bernadino Community Hospital),
7.875%, 12/1/08 1,000 1,038,330
San Bernadino, CA, (San
Bernadino Community Hospital),
7.875%, 12/1/19 1,325 1,374,674
San Gorgonio, CA, (Memorial
Health Care District), 5.75%,
5/1/20 1,785 1,758,993
Wells County, IN,
(Caylor-Nickel Medical
Center), 8.75%, 4/15/12 1,500 1,723,080
- ----------------------------------------------------------------------
$ 37,047,260
- ----------------------------------------------------------------------
Housing -- 7.5%
- ----------------------------------------------------------------------
Atlanta, GA, Urban Residential
Finance Authority, (John
Hope), 7.25%, 6/1/07 $ 2,000 $ 2,027,140
Colorado HFA, Single Family
Housing, (AMT), 7.65%, 12/1/25 3,440 3,834,740
Cuyahoga County, OH, (Rolling
Hills Apartment), (AMT),
8.00%, 1/1/28 2,430 2,497,408
Florence, KY, Housing
Facilities, (Blue Grass
Housing), 7.625%, 5/1/27 2,430 3,017,453
Lake Creek, CO, Affordable
Housing Corp., Multifamily,
7.00%, 12/1/23 1,000 1,018,110
Lucas County, OH, (Country
Creek), (AMT), 8.00%, 7/1/26 3,735 3,776,645
Maricopa County, AZ, IDA,
(National Health Facilities
II), 6.375%, 1/1/19 4,500 4,572,225
Maricopa County, AZ, IDA,
(National Health Facilities
II), 6.625%, 7/1/33 1,500 1,523,775
Minneapolis, MN, Community
Development, (Lindsay
Brothers), 9.50%, 12/1/07 1,725 1,939,556
North Little Rock, AR,
Residential Housing
Facilities, (Parkstone Place),
9.75%, 8/1/21 4,665 4,904,454
- ----------------------------------------------------------------------
$ 29,111,506
- ----------------------------------------------------------------------
14
<PAGE>
High Yield Municipals Portfolio as of January 31, 1999
PORTFOLIO OF INVESTMENTS CONT'D
Principal
Amount
Security (000's Omitted) Value
- ----------------------------------------------------------------------
Industrial Development Revenue -- 18.4%
- ----------------------------------------------------------------------
ABIA Development Corp.,
(Austin Cargoport Development,
L.L.C.), (AMT),
9.25%, 10/1/21 $ 2,815 $ 3,220,923
Camden County, NJ, (Holt
Hauling), (AMT), 9.875%, 1/1/21 2,000 2,485,760
Carbon County, UT, (Laidlaw
Environmental Services Inc.),
(AMT), 7.45%, 7/1/17 3,900 4,287,348
Clark County, NV, (Nevada
Power), (RITES), (AMT),
Variable Rate, 11/1/30 5,000 5,043,900
Florence County, SC, (Stone
Container Co.), 7.375%, 2/1/07 1,570 1,675,190
Hancock County, KY, (Southwire
Co.), (AMT), 7.75%, 7/1/26 2,700 2,915,028
Iowa Finance Authority,
(Southbridge Mall), 6.375%,
12/1/13 3,715 3,837,001
Kansas City, MO, IDA, (Airline
Cargo Facilities), (AMT),
8.50%, 1/1/17 3,960 4,471,474
Kimball, NE, EDA, (Clean
Harbors, Inc.), 10.75%, 9/1/26 3,000 3,284,820
Michigan Strategic Fund,
(Crown Paper), (AMT), 6.50%,
8/1/21 1,700 1,546,099
Michigan Strategic Fund, (S.D.
Warren Co.), (AMT), 7.375%,
1/15/22 3,500 3,872,190
Morgantown, KY, (IMCO
Recycling, Inc)., 7.45%, 5/1/22 3,400 3,612,398
New Albany, IN, IDA, (K-Mart
Co.), 7.40%, 6/1/06 1,095 1,170,982
New Hampshire Business Finance
Authority, (Crown Paper Co.),
(AMT), 7.875%, 7/1/26 2,750 2,731,988
New Hampshire, (Public Service
Co. of NH), (AMT), 7.65%, 5/1/21 3,420 3,632,963
New Jersey EDA, (Holt
Hauling), 8.95%, 12/15/18 500 552,250
New Jersey EDA, (Holt
Hauling), (AMT), 7.90%, 3/1/27 4,000 4,516,800
Ohio Solid Waste Revenue,
(Republic Engineered Steels,
Inc.), (AMT), 9.00%, 6/1/21 4,000 4,295,360
Perry County, KY, (TJ
International, Inc.), (AMT),
6.55%, 4/15/27 2,000 2,163,820
Philadelphia, PA, IDA,
(Refrigerated Enterprises),
(AMT), 9.05%, 12/1/19 500 559,085
Riverdale Village, IL, (ACME
Metals, Inc.), (AMT), 7.90%,
4/1/24 3,500 3,150,070
Riverdale Village, IL, (ACME
Metals, Inc.), (AMT), 7.95%,
4/1/25 3,345 2,943,600
Robbins, IL, Resource
Recovery, (AMT), 8.375%,
10/15/10 1,500 810,000
Robbins, IL, Resource
Recovery, (AMT), 8.375%,
10/15/16 3,500 1,890,000
Skowhegan, ME, (S.D. Warren
Co.), (AMT), 6.65%, 10/15/15 3,000 3,202,710
- ----------------------------------------------------------------------
$ 71,871,759
- ----------------------------------------------------------------------
Insured-Lease Revenue /
Certificates of Participation -- 0.8%
- ----------------------------------------------------------------------
San Mateo County, CA, Joint
Powers Financing Authority,
(FSA), 5.00%, 7/15/29 $ 3,000 $ 3,000,000
- ----------------------------------------------------------------------
$ 3,000,000
Insured-Senior Living / Life Care -- 0.6%
- ----------------------------------------------------------------------
Hancock, MI HFA, (Portage
Health), (MBIA), 5.45%, 8/1/47 $ 2,200 $ 2,269,982
- ----------------------------------------------------------------------
$ 2,269,982
- ----------------------------------------------------------------------
Insured-Transportation -- 2.0%
- ----------------------------------------------------------------------
Central Puget Sound, WA,
Transportation Authority,
(FGIC), 4.75%, 2/1/28 $ 4,000 $ 3,832,960
San Francisco, CA, City and
County Airports Commission,
(International Airport),
(FSA), 4.75%, 5/1/29 4,000 3,884,080
- ----------------------------------------------------------------------
$ 7,717,040
- ----------------------------------------------------------------------
Insured-Water and Sewer -- 0.2%
- ----------------------------------------------------------------------
Detroit, MI, Sewer Disposal,
(FGIC), Variable Rate,
7/1/23/(2)/ $ 710 $ 798,750
- ----------------------------------------------------------------------
$ 798,750
- ----------------------------------------------------------------------
Lease Revenue /
Certificates of Participation -- 1.2%
- ----------------------------------------------------------------------
Hardeman County, TN,
(Correctional Facilities
Corp.), 7.75%, 8/1/17 $ 4,000 $ 4,529,480
- ----------------------------------------------------------------------
$ 4,529,480
- ----------------------------------------------------------------------
Miscellaneous -- 9.2%
- ----------------------------------------------------------------------
Atlanta, GA, Downtown
Development Authority,
(Central Atlanta Hospitality
Childcare, Inc.), 8.00%, 1/1/26 $ 3,760 $ 4,200,822
Colorado River Indian Tribe,
6.25%, 8/1/04 3,000 3,034,290
Osceola County, FL, IDA,
Community Pooled Loan-93,
7.75%, 7/1/17 2,000 2,164,040
See notes to financial statements
15
<PAGE>
High Yield Municipals Portfolio as of January 31, 1999
PORTFOLIO OF INVESTMENTS CONT'D
Principal
Amount
Security (000's Omitted) Value
- ----------------------------------------------------------------------
Miscellaneous (continued)
- ----------------------------------------------------------------------
Pittsfield Township, MI,
(Arbor Hospice), 8.125%,
8/15/17 $ 1,350 $ 1,421,928
Santa Fe, NM, (1st Interstate
Plaza), 8.00%, 7/1/13 3,251 3,552,698
Santa Fe, NM, (Crow Hobbs),
8.50%, 9/1/16 3,300 3,677,586
Tax Exempt Securities Trust,
8.50%, 12/1/36/(3)/ 2,360 2,609,331
Tax Exempt Securities Trust,
8.81%, 12/1/36/(3)/ 1,982 2,274,149
Tax Exempt Securities Trust,
7.00%, 12/1/36/(3)/ 1,318 1,465,379
Tax Exempt Securities Trust,
8.70%, 12/1/36/(3)/ 991 1,129,831
Tax Exempt Securities Trust,
7.00%, 12/1/36/(3)/ 1,090 1,211,968
Tax Exempt Securities Trust,
8.875%, 12/1/36/(3)/ 595 684,391
Tax Exempt Securities Trust,
6.75%, 12/1/36/(3)/ 2,557 2,799,538
Tax Exempt Securities Trust,
8.375%, 12/1/36/(3)/ 852 953,853
Tax Exempt Securities Trust,
7.75%, 12/1/36/(3)/ 2,378 2,564,363
Tax Exempt Securities Trust,
7.90%, 12/1/36/(3)/ 2,000 2,188,880
- ----------------------------------------------------------------------
$ 35,933,047
- ----------------------------------------------------------------------
Nursing Home -- 5.7%
- ----------------------------------------------------------------------
Clovis, NM, IDR, (Retirement
Ranches, Inc.), 7.75%, 4/1/19 $ 3,475 $ 3,836,053
Kansas City, MO, IDA, (Beverly
Enterprises), 8.00%, 12/1/02 2,175 2,334,993
Massachusetts IFA, (Age
Institute of Massachusetts),
8.05%, 11/1/25 2,500 2,815,550
Minneapolis, MN, (Walker
Methodist Senior Services),
6.00%, 11/15/28 3,200 3,251,072
Mississippi Business Finance
Corp., (Magnolia Healthcare),
7.99%, 7/1/25 1,200 1,302,108
Tarrant County, TX, Health
Facilities, (3927 Foundation),
10.25%, 9/1/19 4,500 4,709,070
Westmoreland, PA, (Highland
Health Systems, Inc.), 9.25%,
6/1/22 3,460 3,904,610
- ----------------------------------------------------------------------
$ 22,153,456
- ----------------------------------------------------------------------
Senior Living / Life Care -- 10.6%
- ----------------------------------------------------------------------
Albuquerque, NM, Retirement
Facility Revenue, 6.60%,
12/15/28 $ 8,000 $ 7,968,159
Colorado Health Facilities
Authority, Revenue Refunding
and Improvement, (Volunteers),
5.75%, 7/1/20 2,300 2,278,909
Colorado Health Facilities
Authority, Revenue Refunding
and Improvement, (Volunteers),
5.875%, 7/1/28 3,600 3,599,784
Delaware County, PA, (White
Horse Village), 7.30%, 7/1/14 3,500 3,798,865
Grove City, PA, Area Hospital
Health Facilities Authority,
(Grove Manor), 6.625%, 8/15/29 2,000 2,001,500
Kansas City, MO, IDA,
(Kingswood United Methodist
Manor), 5.875%, 11/15/29 7,500 7,352,775
Louisiana Housing Finance
Agency, (HCC Assisted Living
Group 1), (AMT), 9.00%, 3/1/25 3,545 3,987,593
Massachusetts IFA, (Forge
Hill), (AMT), 6.75%, 4/1/30 5,355 5,198,634
North Miami, FL, Health Care
Facilities, (Imperial Club),
8.00%, 1/1/33 5,240 5,239,895
- ----------------------------------------------------------------------
$ 41,426,114
- ----------------------------------------------------------------------
Special Tax Revenue -- 4.0%
- ----------------------------------------------------------------------
Brentwood, CA, Infrastructure
Financing Authority, 5.60%,
9/2/19 $ 1,700 $ 1,685,618
Cottonwood, CO, Water and
Sanitation District, 7.75%,
12/1/20 3,800 4,114,868
Dulles, VA, Community
Development Authority, (Dulles
Town Center), 6.25%, 3/1/26 1,500 1,536,060
Fontana, CA, (Community Fac
Dist.), 6.375%, 9/1/17 4,000 4,000,040
Frederick County, MD, Urbana
Community Development
Authority, 6.625%, 7/1/25 4,250 4,297,473
- ----------------------------------------------------------------------
$ 15,634,059
- ----------------------------------------------------------------------
Transportation -- 3.0%
- ----------------------------------------------------------------------
Eagle County, CO, (Airport
Terminal), (AMT), 7.50%, 5/1/21 $ 500 $ 544,020
New Jersey State
Transportation Trust Fund,
Variable Rate, 6/15/17/(2)/ 5,000 5,120,550
Northwest Arkansas Regional
Airport Authority, (AMT),
7.625%, 2/1/27 5,250 6,094,358
- ----------------------------------------------------------------------
$ 11,758,928
- ----------------------------------------------------------------------
Total Tax-Exempt Investments -- 100.0%
(identified cost $369,583,392) $389,511,217
- ----------------------------------------------------------------------
AMT - Interest earned from these securities may be considered a
tax preference item for purpose of the Federal Alternative
Minimum Tax.
At January 31, 1999, 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)/ Security has been issued as an inverse floater bond.
/(3)/ Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At January 31,
1999, the value of these securities amounted to $17,881,683 or 4.6% of the
Portfolio's net assets.
See notes to financial statements
16
<PAGE>
High Yield Municipals Portfolio as of January 31, 1999
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
As of January 31, 1999
Assets
- ----------------------------------------------------------------
Investments, at value
(identified cost, $369,583,392) $389,511,217
Cash 3,050,730
Receivable for investments sold 316,913
Interest receivable 6,587,082
Deferred organization expenses 6,332
- ----------------------------------------------------------------
Total assets $399,472,274
- ----------------------------------------------------------------
Liabilities
- ----------------------------------------------------------------
Payable for investments purchased $ 8,538,751
Other accrued expenses 24,559
- ----------------------------------------------------------------
Total liabilities $ 8,563,310
- ----------------------------------------------------------------
Net Assets applicable to investors' interest
in Portfolio $390,908,964
- ----------------------------------------------------------------
Sources of Net Assets
- ----------------------------------------------------------------
Net proceeds from capital contributions and
withdrawals $370,981,139
Net unrealized appreciation (computed on the
basis of identified cost) 19,927,825
- ----------------------------------------------------------------
Total $390,908,964
- ----------------------------------------------------------------
Statement of Operations
For the Year Ended
January 31, 1999
Investment Income
- ----------------------------------------------------------------
Interest $ 23,010,435
- ----------------------------------------------------------------
Total investment income $ 23,010,435
- ----------------------------------------------------------------
Expenses
- ----------------------------------------------------------------
Investment adviser fee $ 2,048,637
Trustees fees and expenses 25,817
Custodian fee 167,137
Legal and accounting services 32,923
Amortization of organization expenses 1,460
Miscellaneous 85,009
- ----------------------------------------------------------------
Total expenses $ 2,360,983
- ----------------------------------------------------------------
Deduct --
Reduction of custodian fee $ 47,730
- ----------------------------------------------------------------
Total expense reductions $ 47,730
- ----------------------------------------------------------------
Net expenses $ 2,313,253
- ----------------------------------------------------------------
Net investment income $ 20,697,182
- ----------------------------------------------------------------
Realized and Unrealized
Gain (Loss)
- ----------------------------------------------------------------
Net realized gain (loss) --
Investment transactions (identified cost
basis) $ 1,681,645
Financial futures contracts 346,179
- ----------------------------------------------------------------
Net realized gain $ 2,027,824
- ----------------------------------------------------------------
Change in unrealized appreciation (depreciation) --
Investments (identified cost basis) $ (8,489,463)
Financial futures contracts 881,125
- ----------------------------------------------------------------
Net change in unrealized appreciation $ (7,608,338)
(depreciation)
- ----------------------------------------------------------------
Net realized and unrealized loss $ (5,580,514)
- ----------------------------------------------------------------
Net increase in net assets from operations $ 15,116,668
- ----------------------------------------------------------------
See notes to financial statements
17
<PAGE>
High Yield Municipals Portfolio as of January 31, 1999
FINANCIAL STATEMENTS CONT'D
Statements of Changes in Net Assets
Increase (Decrease) Year Ended Year Ended
in Net Assets January 31, 1999 January 31, 1998
- ---------------------------------------------------------------
From operations--
Net investment income $ 20,697,182 $ 15,142,576
Net realized gain
(loss) 2,027,824 (2,433,190)
Net change in
unrealized
appreciation
(depreciation) (7,608,338) 22,980,129
- ---------------------------------------------------------------
Net increase in net
assets from
operations $ 15,116,668 $ 35,689,515
- ---------------------------------------------------------------
Capital transactions --
Contributions $141,274,518 $128,845,777
Withdrawals (68,691,387) (42,026,586)
- ---------------------------------------------------------------
Net increase in net
assets from
capital transactions $ 72,583,131 $ 86,819,191
- ---------------------------------------------------------------
Net increase in net
assets $ 87,699,799 $122,508,706
- ---------------------------------------------------------------
Net Assets
- ---------------------------------------------------------------
At beginning of year $303,209,165 $180,700,459
- ---------------------------------------------------------------
At end of year $390,908,964 $303,209,165
- ---------------------------------------------------------------
See notes to financial statements
18
<PAGE>
High Yield Municipals Portfolio as of January 31, 1999
FINANCIAL STATEMENTS CONT'D
Supplementary Data
<TABLE>
<CAPTION>
Year Ended January 31,
--------------------------------------------------------------------------
1999 1998 1997 1996(1)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Ratios to average daily net assets+
- ----------------------------------------------------------------------------------------------------------------------------
Net expenses 0.67% 0.68% 0.34% 0.06%(2)
Net expenses after custodian fee reduction 0.66% 0.66% 0.30% 0.06%(2)
Net investment income 5.88% 6.43% 6.96% 6.95%(2)
Portfolio Turnover 25% 8% 41% 32%
- ----------------------------------------------------------------------------------------------------------------------------
Net assets, end of year (000's omitted) $ 390,909 $ 303,209 $ 180,700 $ 72,077
- ----------------------------------------------------------------------------------------------------------------------------
+ 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:
Expenses 0.71% 0.71%(2)
Expenses after custodian fee reduction 0.67% 0.71%(2)
Net investment income 6.59% 6.30%(2)
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) For the period from the start of business, August 7, 1995, to January 31,
1996.
(2) Annualized.
See notes to financial statements
19
<PAGE>
High Yield Municipals Portfolio as of January 31, 1999
NOTES TO FINANCIAL STATEMENTS
1 Significant Accounting Policies
-----------------------------------------------------------------------------
High Yield Municipals Portfolio (the Portfolio) is registered under the
Investment Company Act of 1940, as a non-diversified open-end management
investment company. The Portfolio, which was organized as a trust under the
laws of the State of New York on May 1, 1995, seeks to provide high current
income exempt from regular federal income tax. The Declaration of Trust
permits the Trustees to issue interests in the Portfolio. The following is a
summary of significant accounting policies of the Portfolio. The policies are
in conformity with generally accepted accounting principles.
A Investment 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.
20
<PAGE>
High Yield Municipals Portfolio as of January 31, 1999
NOTES TO FINANCIAL STATEMENTS 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.
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 year ended January 31, 1999, the fee was equivalent to 0.58% of the
Portfolio's average net assets for such period and amounted to $2,048,637.
Except as to Trustees of the Portfolio who are not members of EVM's or BMR's
organization, officers and Trustees receive remuneration for their services to
the Portfolio out of such investment adviser fee. Certain of the officers and
Trustees of the Portfolio are officers and directors/trustees of the above
organizations. Trustees of the Portfolio that are not affiliated with the
Investment Adviser may elect to defer receipt of all or a percentage of their
annual fees in accordance with the terms of the Trustees Deferred Compensation
Plan. For the year ended January 31, 1999, no significant amounts have been
deferred.
3 Investments
-----------------------------------------------------------------------------
Purchases and sales of investments, other than U.S. Government securities and
short-term obligations, aggregated $179,091,682 and $84,947,041, respectively,
for the year ended January 31, 1999.
4 Federal Income Tax Basis of Investments
-----------------------------------------------------------------------------
The cost and unrealized appreciation/depreciation in value of the investments
owned at January 31, 1999, as computed on a federal income tax basis, were as
follows:
Aggregate cost $369,827,540
-----------------------------------------------------------------------------
Gross unrealized appreciation 29,000,797
Gross unrealized depreciation (9,317,120)
-----------------------------------------------------------------------------
Net unrealized appreciation $ 19,683,677
-----------------------------------------------------------------------------
5 Line of Credit
-----------------------------------------------------------------------------
The Portfolio participates with other portfolios and funds managed by BMR and
EVM and its affiliates in a $130 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 January 31,
1999, 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 January 31, 1999, the
Portfolio had no open futures contracts.
21
<PAGE>
High Yield Municipals Portfolio as of January 31, 1999
INDEPENDENT AUDITORS' REPORT
To the Trustees and Investors
of High Yield Municipals Portfolio:
- --------------------------------------------------------------------------------
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of High Yield Municipals Portfolio as of January
31, 1999, the related statement of operations for the year then ended, the
statements of changes in net assets for the years ended January 31, 1999 and
1998 and the supplementary data for the three years ended January 31, 1999 and
for the period from the start of business, August 7, 1995, to January 31, 1996.
These financial statements and supplementary data are the responsibility of the
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 owned as of
January 31, 1999 by correspondence with the custodian and brokers; where replies
were not received from brokers, we performed other auditing 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 present fairly,
in all material respects, the financial position of High Yield Municipals
Portfolio at January 31, 1999, the results of its operations, the changes in its
net assets and its supplementary data for the respective stated periods in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
March 5, 1999
22
<PAGE>
Eaton Vance High Yield Municipals Fund as of January 31, 1999
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
Jessica M. Bibliowicz
President and Chief Operating Officer,
John A. Levin & Co.
Director, Baker, Fentress & Company
Donald R. Dwight
President, Dwight Partners, Inc.
Samuel L. Hayes, III
Jacob H. Schiff Professor of Investment Banking, Emeritus, Harvard University
Graduate School of Business Administration
Norton H. Reamer
Chairman and Chief Executive Officer, United Asset
Management Corporation
Lynn A. Stout
Professor of Law,
Georgetown University Law Center
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
Jessica M. Bibliowicz
President and Chief Operating Officer,
John A. Levin & Co.
Director, Baker, Fentress & Company
Donald R. Dwight
President, Dwight Partners, Inc.
Samuel L. Hayes, III
Jacob H. Schiff Professor of Investment Banking, Emeritus, Harvard University
Graduate School of Business Administration
Norton H. Reamer
Chairman and Chief Executive Officer, United Asset
Management Corporation
Lynn A. Stout
Professor of Law,
Georgetown University Law Center
John L. Thorndike
Formerly Director, Fiduciary Company Incorporated
Jack L. Treynor
Investment Adviser and Consultant
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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
Independent Auditors
Deloitte & Touche LLP
125 Summer Street
Boston, MA 02110
Eaton Vance High Yield Fund
24 Federal Street
Boston, MA 02110
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This report must be preceded or accompanied by a current prospectus which
contains more complete information on the Fund, including its distribution plan,
sales charges and expenses. Please read the prospectus carefully before you
invest or send money.
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HYSRC1/99
