The Eaton Vance Municipals Trust II EV_Com.EDG
For the High Yield Municipals Portfolio
[LOGO]
Annual Shareholder Report
January 31, 1996
Investment Adviser of
High Yield Municipals Portfolio
Boston Management and Research
24 Federal Street
Boston, MA 02110
Fund Administrator
Eaton Vance Management
24 Federal Street
Boston, MA 02110
(617) 482-8260
Principal Underwriter
Eaton Vance Distributors, Inc.
24 Federal Street
Boston, MA 02110
(617) 482-8260
Custodian
Investors Bank & Trust Company
89 South Street
P.O. Box 1537
Boston, MA 02205-1537
Transfer Agent
First Data Services Group, Inc.
BOS725
P.O. Box 1559
Boston, MA 02104
Independent Auditors
Deloitte & Touche LLP
125 Summer Street
Boston, MA 02110
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High Yield Municipals Portfolio
Portfolio of Investments
January 31, 1996
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Tax-Exempt Investments -- 100%
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Principal
Amount
(000
Omitted) Security Value
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Transportation- 7.7%
$1,500 Denver, Colorado, Special Facilities Airport Revenue Bonds, United Airlines
Project (AMT), 6.875%, 10/1/32 $1,551,645
1,500 Kenton County, Kentucky, Special Facilities Revenue Bonds, Delta Airlines, Inc.
Project (AMT), 6.125%, 2/1/22 1,477,935
1,000 Missouri Bridge System, Lake of the Ozarks Bridge Corp., 6.4%, 12/1/25 (2) 991,990
1,500 Tulsa, Oklahoma, Municipal Airport, American Airlines, 6.25%, 6/1/20 1,514,520
-----------
$5,536,090
-----------
Assisted Living- 7.0%
$2,500 Arizona Health Facilities Authority, Care Institute-Mesa Project, 7.625%, 1/1/26 $2,360,075
1,000 Chester County, Pennsylvania, Industrial Development Authority, Senior
LifeChoice of Kimberton (AMT), 8.5%, 9/1/25 1,019,220
1,600 Delaware County, Pennsylvania, Industrial Development Authority, Senior
Quarters at Glen Riddle Project (AMT), 8.625%, 9/1/25 1,646,224
-----------
$5,025,519
-----------
Cogeneration Facilities- 14.9%
$2,500 Maryland Energy Cogeneration, AES Warrior Run Project (AMT), 7.4%, 9/1/19 $2,637,100
2,000 Palm Beach County, Florida, Osceola Power Project (AMT), 6.95%, 1/1/22 2,077,280
4,950 Pennsylvania Economic Development Financing Authority, Northhampton
Generating Project (AMT), 6.6%, 1/1/19 4,953,218
1,000 Pennsylvania Economic Development Finance Authority, Northhampton
Generating Project-Subordinated (AMT), 6.875%, 1/1/11 995,770
-----------
$10,663,368
-----------
Escrowed- 4.4%
$1,400 Colorado Health Facilities Authority, Liberty Heights Project, 0%, 7/15/20 $303,520
2,995 Colorado Health Facilities Authority, Liberty Heights Project, 0%, 7/15/22 573,003
10,000 Dawson Ridge Metropolitan District #1, Douglas County, Colorado, 0%, 10/1/22 1,808,200
3,295 Illinois Development Finance Authority, Regency Park Project, 0%, 7/15/25 515,206
-----------
$3,199,929
-----------
Hospitals- 22.3%
$1,750 LaFourche Parish, Louisiana, Hospital Service District #3, 6%, 10/1/23 $1,688,120
3,000 Lufkin, Texas, Memorial Health System, 6.875%, 2/15/26 2,967,960
1,000 Michigan Housing Finance Authority, Presbyterian Village, 6.5%, 1/1/25 989,630
275 Missouri Health and Education, Jefferson Memorial Hospital, 6%, 8/15/23 254,504
1,000 Montgomery County, Pennsylvania, United Hospitals, 8.375%, 11/1/11 1,066,080
1,000 Montgomery County, Pennsylvania, United Hospitals, 7.5%, 11/1/15 1,019,370
2,500 Philadelphia, Pennsylvania, Temple Hospital-93A, 6.625%, 11/15/23 2,623,450
2,350 Prince George's, Maryland, Greater Southeast Health, 6.375%, 1/1/23 2,235,555
1,500 Scranton-Lackawanna, Pennsylvania, Moses Taylor Hospital, 8.5%, 7/1/20 1,638,255
1,500 Vermont Health & Education, Northwest Medical Center Project, 6.25%, 9/1/18 1,478,490
-----------
$15,961,414
-----------
Industrial Development Revenue Bonds - 18.5%
$2,500 East Chicago, Indiana, PCR, Inland Steel, 6.8%, 6/1/13 $2,588,325
2,500 Kansas City, Missouri, IDA, AFCO Cargo MCI (AMT), 8.5%, 1/1/17 2,532,225
1,000 Michigan Strategic, PCR, Roseville K-Mart Co., 6.25%,10/1/06 858,190
1,000 Michigan Strategic, PCR, S.D. Warren Series 87C (AMT), 7.375%, 1/15/22 1,048,950
1,000 Mobile, Alabama, IDA, Mobile Energy Project, 6.95%, 1/1/20 1,064,440
1,135 New Albany, Indiana, IDA, K-Mart Co., 7.4%, 6/1/06 1,049,773
500 New Jersey EDA, 777 Pattison Ave., Inc. (AMT), 8.95%, 12/15/18 530,405
2,000 Oregon State EDA, Georgia Pacific Corp. (AMT), 6.35%, 8/1/25 2,010,240
500 Philadelphia, Pennsylvania, IDA, Refrigerated Enterprises (AMT), 9.05%, 12/1/19 533,745
1,000 Polk County, Florida, IDA, IMC Fertilizer (AMT), 7.525%, 1/1/15 1,060,880
-----------
$13,277,173
-----------
Insured General Obligation - 0.8%
$600 California State, General Obligation (FGIC), 4.75%, 9/1/23 $548,772
-----------
Lease/Certificate of Participation - 2.7%
$9,190 Los Angeles, California, COPs, Disney Parking Project, 0%, 9/1/19 $1,916,023
-----------
Multi-Purpose Utilities- 2.9%
$2,000 Southern California Public Power Authority, Residual Interest Bonds,
Variable Rate, 7/1/12 (1) $2,110,000
-----------
Nursing Homes- 11.8%
$1,250 Greene County, Ohio, Fairview Extended Care-91, 10.125%, 1/1/11 $1,420,525
1,850 Massachusetts Health & Education Finance Authority, Fairview Extended Care,
10.125%,1/1/11 2,109,315
2,500 Massachusetts Industrial Finance Authority, AGE Institute of Massachusetts,
8.05%, 11/1/25 2,523,825
1,000 Mississippi Business Finance Corp.,Magnolia Health Care 95A, 7.99%, 7/1/25 989,820
1,250 Wilkins Area, Pennsylvania, Industrial Development Authority, Fairview Extended
Care, 10.25%, 1/1/21 1,435,900
-----------
$8,479,385
-----------
Solid Waste- 7.0%
$10,090 Mercer County, New Jersey, Solid Waste Improvement Bonds (AMT), 0%, 4/1/15 $2,536,222
2,500 Robbins, Cook County, Illinois, Resource Recovery 94B, 9.25%, 10/15/14 2,453,700
-----------
$4,989,922
-----------
Total Tax-Exempt Investments (identified cost $70,055,986) $71,707,595
===========
(1) The above designated security has been issued as an inverse floater bond.
(2) When-issued security.
See notes to financial statements
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High Yield Municipals Portfolio
Financial Statements
Statement of Assets and Liabilities
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January 31, 1996
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<S> <C> <C>
Assets:
Investments, at value (Note 1A) $71,707,595
(identified cost, $70,055,986)
Cash 471,713
Interest receivable 863,416
Receivable from Investment Adviser (Note 2) 10,465
Deferred organization expenses (Note 1D) 20,008
-----------
Total assets $73,073,197
Liabilities:
Payable for when-issued security (Note 1G) $980,340
Payable to affiliate --
Trustees' fees 13
Accrued expenses 15,377
--------
Total liabilities 995,730
-----------
Net Assets applicable to investors' interest in Portfolio $72,077,467
===========
Sources of Net Assets:
Net proceeds from capital contributions and withdrawals $70,425,858
Unrealized appreciation of investments (computed on 1,651,609
the basis of identified cost) -----------
Total $72,077,467
===========
See notes to financial statements
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Statement of Operations
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For the period from the start of business, August 7, 1995 to January 31, 1996
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<S> <C> <C>
Investment Income (Note 1B):
Interest Income $1,196,627
Expenses --
Investment adviser fee (Note 2) $100,763
Compensation of Trustees not members of the
Investment Adviser's organization (Note 2) 51
Custodian fee (Note 2) 623
Interest expense (Note 5) 15,725
Legal and accounting services 1,460
Amortization of organization expenses (Note 1D) 2,042
Miscellaneous 907
---------
Total expenses $121,571
Deduct -
Reduction of investment adviser fee (Note 2) $100,763
Allocation of expenses to adviser (Note 2) 10,465
---------
Total $111,228
---------
Net expenses 10,343
----------
Net investment income $1,186,284
Realized and Unrealized Gain on Investments:
Net realized gain on investments (identified cost basis) $9,767
Unrealized appreciation of investments 1,651,609
---------
Net realized and unrealized gain on investments 1,661,376
----------
Net increase in net assets resulting from operations $2,847,660
==========
See notes to financial statements
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Statement of Changes in Net Assets
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For the period from the start of business, August 7, 1995 to January 31, 1996
- -------------------------------------------------------------------------------------------------
<S> <C>
Increase (Decrease) in Net Assets:
From operations --
Net investment income $1,186,284
Net realized gain on investments 9,767
Unrealized appreciation of investments 1,651,609
Net increase in net assets resulting from operations $2,847,660
Capital transactions --
Contributions $71,481,492
Withdrawals (2,351,685)
Increase in net assets resulting from capital transactions $69,129,807
Total increase in net $71,977,467
Net Assets:
At beginning of period 100,000
At end of period $72,077,467
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Supplementary Data
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For the period from the start of business, August 7, 1995 to January 31, 1996
- -----------------------------------------------------------------------------------
<S> <C>
Ratios (as a percentage of net assets)*:
Expenses 0.06%+
Net investment income 6.95%+
Portfolio Turnover 32%
* The operating expenses of the Portfolio reflect a reduction of the investment
adviser fee and an allocation of expenses to the Investment Adviser. Had such
actions not been taken, the ratios would have been as follows:
Ratios (as a percentage of net assets):
Expenses 0.71%+
Net investment income 6.30%+
+ Annualized.
See notes to financial statements
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Notes to Financial Statements
(1) Significant Accounting Policies
High Yield Municipals Portfolio (the Portfolio) is registered under the
Investment Company Act of 1940 as a non-diversified open-end management
investment company. The Portfolio, which was organized as a trust under
the laws of the State of New York on May 1, 1995, seeks to provide high
current income exempt from regular federal income tax. The Declaration
of Trust permits the Trustees to issue interests in the Portfolio. The
following is a summary of significant accounting policies of the
Portfolio. The policies are in conformity with generally accepted
accounting principles.
A. Investment Valuations -- Municipal bonds are normally valued on the
basis of valuations furnished by a pricing service. Taxable obligations,
if any, for which price quotations are readily available are normally
valued at the mean between the latest bid and asked prices. Futures
contracts listed on commodity exchanges are valued at closing settlement
prices. Short-term obligations, maturing in sixty days or less, are
valued at amortized cost, which approximates value. Investments for
which valuations or market quotations are unavailable are valued at fair
value using methods determined in good faith by or at the direction of
the Trustees.
B. Income -- Interest income is determined on the basis of interest
accrued, adjusted for amortization of premium or discount when required
for federal income tax purposes.
C. Income Taxes -- The Portfolio is treated as a partnership for Federal
tax purposes. No provision is made by the Portfolio for federal or state
taxes on any taxable income of the Portfolio because each investor in
the Portfolio is ultimately responsible for the payment of any taxes.
Since some of the Portfolio's investors are regulated investment
companies that invest all or substantially all of their assets in the
Portfolio, the Portfolio normally must satisfy the applicable source of
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 investors'
distributive share of the Portfolio's net taxable (if any) and tax-
exempt investment income, net realized capital gains, and any other
items of income, gain, loss, deduction or credit. Interest income
received by the Portfolio on investments in municipal bonds, which is
excludable from gross income under the Internal Revenue Code, will
retain its status as income exempt from Federal income tax when
allocated to the Portfolio's investors. The portion of such interest, if
any, earned on private activity bonds issued after August 7, 1986 may be
considered a tax preference item for investors.
D. Deferred Organization Expenses -- Costs incurred by the Portfolio in
connection with its organization are being amortized on the straight-
line basis over five years.
E. Financial Futures Contracts -- Upon the entering of a financial
futures contract, the Portfolio is required to deposit ("initial
margin") either in cash or securities an amount equal to a certain
percentage of the purchase price indicated in the financial futures
contract. Subsequent payments are made or received by the Portfolio
("margin maintenance") each day, dependent on the daily fluctuations in
the value of the underlying security, and are recorded for book purposes
as unrealized gains or losses by the Portfolio. The Portfolio's
investment in financial futures contracts is designed only to hedge
against anticipated future changes in interest rates. Should interest
rates move unexpectedly, the Portfolio may not achieve the anticipated
benefits of the financial futures contracts and may realize a loss.
F. Legal Fees -- Legal fees and other related expenses incurred as part
of negotiations of the terms and requirements of capital infusions, or
that are expected to result in the restructuring of or a plan of
reorganization for an investment are recorded as realized losses.
Ongoing expenditures to protect or enhance an investment are treated as
operating expenses.
G. When-issued and Delayed Delivery Transactions -- The Portfolio may
engage in when-issued and delayed delivery transactions. The Portfolio
records when-issued securities on trade date and maintains security
positions such that sufficient liquid assets will be available to make
payments for the securities purchased. Securities purchased on a when-
issued or delayed delivery basis are marked to market daily and begin
accruing interest on settlement date.
H. 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.
I. Other -- Investment transactions are accounted for on a trade date
basis.
(2) Investment Adviser Fee and Other Transactions with Affiliates
The investment adviser fee is earned by Boston Management and Research
(BMR), a wholly-owned subsidiary of Eaton Vance Management (EVM), as
compensation for management and investment advisory services rendered to
the Portfolio. The fee is based upon a percentage of average daily net
assets plus a percentage of gross income (i.e. income other than gains
from the sale of securities). For the period from the start of business,
August 7, 1995, to January 31, 1996, the fee was equivalent to 0.59%
(annualized) of the Portfolio's average net assets for such period and
amounted to $100,763. To enhance the net income of the Portfolio, BMR
made a reduction of its fee in the amount of $100,763 and $10,465 of
expenses related to the operation of the Portfolio were allocated to
BMR. Except as to Trustees of the Portfolio who are not members of EVM's
or BMR's organization, officers and Trustees receive remuneration for
their services to the Portfolio out of such investment adviser fee.
Investors Bank and Trust Company (IBT) serves as custodian of the
Portfolio. Prior to November 10, 1995, IBT was an affiliate of EVM and
BMR. 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. No significant credit balances were
used to reduce the fund's custody fees. 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 period ended January 31, 1996, no significant
amounts have been deferred.
(3) Investments
Purchases and sales of investments, other than U.S. Government
securities and short term obligations, aggregated $82,921,735 and
$12,950,298, respectively.
(4) Federal Income Tax Basis of Investments
The cost and unrealized appreciation/depreciation in value of the
investments owned at January 31, 1996, as computed on a federal income
tax basis, were as follows:
Aggregate cost $70,055,986
===========
Gross unrealized appreciation $ 1,979,931
Gross unrealized depreciation 328,322
-----------
Net unrealized appreciation $ 1,651,609
===========
(5) Line of Credit
The Portfolio participates with other portfolios and funds managed by
BMR and EVM in a $120 million unsecured line of credit agreement with a
bank. The line of credit consists of a $20 million committed facility
and a $100 million discretionary facility. 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
Portfolio based on its borrowings at an amount above either the bank's
adjusted certificate of deposit rate, a variable adjusted certificate of
deposit rate, or a federal funds effective rate. In addition, a fee
computed at an annual rate of 1/4 of 1% on the $20 million committed
facility and on the daily unused portion of the $100 million
discretionary facility is allocated among the participating funds and
portfolios at the end of each quarter. For the period ended January 31,
1996, the average daily loan balance was $1,395,000 and the average
daily interest rate was 7.165%. The maximum borrowings during the period
ended January 31, 1996 was $4,493,000.
(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 written options and 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 does not necessarily represent the amounts potentially
subject to risk. The measurement of the risks associated with these
instruments is meaningful only when all related and offsetting
transactions are considered. The Portfolio did not have any open
obligations under these financial instruments at January 31, 1996.
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, 1996, and the related statements of
operations, changes in net assets and the supplementary data 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 Trust's management. Our responsibility is to express an opinion
on these financial statements and supplementary data based on our audit.
We conducted our audit 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 at January 31, 1996 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 audit provides 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, 1996, and the results of its
operations, the changes in its net assets, and its supplementary data
for the period from the start of business, August 7, 1995, to January
31, 1996 in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
March 1, 1996
INVESTMENT MANAGEMENT FOR HIGH YIELD
MUNICIPALS PORTFOLIO
Officers
Thomas J. Fetter
President
James B. Hawkes
Vice President, Trustee
Thomas M. Metzold
Vice President
and Portfolio Manager
James L. O'Connor
Treasurer
Thomas Otis
Secretary
Independent Trustees
Donald R. Dwight
President, Dwight Partners, Inc.
Chairman, Newspapers of
New England, Inc.
Samuel L. Hayes, III
Jacob H. Schiff Professor of
Investment Banking, Harvard
University Graduate School of
Business Administration
Norton H. Reamer
President and Director, United Asset
Management Corporation
John L. Thorndike
Vice President and Director,
Fiduciary Company Incorporated
Jack L. Treynor
Investment Adviser and Consultant
