Notes to Financial Statements
1 Significant Accounting Policies
Eaton Vance High Yield Municipal Income Fund (the Fund)
is a diversified series of Eaton Vance Municipals Trust II (the Trust). The Trust is a Massachusetts business trust registered under the Investment Company Act of 1940, as amended (the 1940 Act), as an open-end management investment company. The
Fund seeks to provide high current income exempt from regular federal income tax. The Fund primarily invests in high yield municipal obligations with maturities of ten years or more. The Fund offers four classes of shares. Class A shares are
generally sold subject to a sales charge imposed at time of purchase. Class B and Class C shares are sold at net asset value and are generally subject to a contingent deferred sales charge (see Note 5). Class I shares are sold at net asset value and
are not subject to a sales charge. Class B shares automatically convert to Class A shares eight years after their purchase as described in the Fund’s prospectus. Beginning January 1, 2012, Class B shares are only available for
purchase upon exchange from another Eaton Vance fund or through reinvestment of distributions. Each class represents a pro-rata interest in the Fund, but votes separately on class-specific matters and (as noted below) is subject to different
expenses. 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’s 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 following is a summary of significant accounting policies of the Fund. The policies are in conformity with accounting principles generally accepted
in the United States of America.
A Investment Valuation
— Debt obligations (including short-term obligations with a remaining maturity of more than sixty days) are generally valued on the basis of valuations provided by third party pricing services, as derived
from such services’ pricing models. Inputs to the models may include, but are not limited to, reported trades, executable bid and asked prices, broker/dealer quotations, prices or yields of securities with similar characteristics, benchmark
curves or information pertaining to the issuer, as well as industry and economic events. The pricing services may use a matrix approach, which considers information regarding securities with similar characteristics to determine the valuation for a
security. Short-term obligations purchased with a remaining maturity of sixty days or less are generally valued at amortized cost, which approximates market value. Financial futures contracts are valued at the closing settlement price established by
the board of trade or exchange on which they are traded. Investments for which valuations or market quotations are not readily available or are deemed unreliable are valued at fair value using methods determined in good faith by or at the direction
of the Trustees of the Fund in a manner that fairly reflects the security’s value, or the amount that the Fund might reasonably expect to receive for the security upon its current sale in the ordinary course. Each such determination is based on
a consideration of relevant factors, which are likely to vary from one pricing context to another. These factors may include, but are not limited to, the type of security, the existence of any contractual restrictions on the security’s
disposition, the price and extent of public trading in similar securities of the issuer or of comparable entities, quotations or relevant information obtained from broker/dealers or other market participants, information obtained from the issuer,
analysts, and/or the appropriate stock exchange (for exchange-traded securities), an analysis of the entity’s financial condition, and an evaluation of the forces that influence the issuer and the market(s) in which the security is purchased
and sold.
B Investment Transactions and Related Income
— Investment transactions for financial statement purposes are accounted for on a trade date basis. Realized gains and losses on investments sold are determined on the basis of identified cost. Interest
income is recorded on the basis of interest accrued, adjusted for amortization of premium or accretion of discount.
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 substantially all of its taxable, if any, and tax-exempt net investment income, and all or substantially all of its net realized capital gains. Accordingly, no provision for federal
income or excise tax is necessary. The Fund intends to satisfy conditions which will enable it to designate distributions from the interest income generated by its investments in non-taxable municipal securities, which are exempt from regular
federal income tax when received by the Fund, as 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.
At January 31, 2013, the Fund, for federal income tax purposes, had a capital loss carryforward of $195,870,739 and current year deferred capital losses of
$48,252,392 which will reduce its taxable income arising from future net realized gains on investment transactions, 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. The capital loss carryforward will expire on January 31, 2014 ($6,453,293), January 31, 2016 ($14,863,328), January 31, 2017
($49,195,524), January 31, 2018 ($115,791,581) and January 31, 2019 ($9,567,013). The current year deferred capital losses are treated as arising on the first day of the Fund’s next taxable year and are treated as realized prior to
the utilization of the capital loss carryforward.
As of January 31, 2013, the Fund had no uncertain tax positions that would require financial
statement recognition, de-recognition, or disclosure. The Fund files a U.S. federal income tax return annually after its fiscal year-end, which is subject to examination by the Internal Revenue Service for a period of three years from the date of
filing.
D Expenses
— The
majority of expenses of the Trust are directly identifiable to an individual fund. Expenses which are not readily identifiable to a specific fund are allocated taking into consideration, among other things, the nature and type of expense and the
relative size of the funds.
Eaton Vance
High Yield Municipal Income Fund
January 31, 2013
Notes to Financial Statements — continued
E Expense Reduction
— State Street Bank and Trust Company (SSBT) serves as custodian
of the Fund. Pursuant to the custodian agreement, SSBT receives a fee reduced by credits, which are determined based on the average daily cash balance the Fund maintains with SSBT. All credit balances, if any, used to reduce the Fund’s
custodian fees are reported as a reduction of expenses in the Statement of Operations.
F Legal Fees
— Legal fees and other
related expenses incurred as part of negotiations of the terms and requirement 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 Use of Estimates
— The preparation
of the financial statements in conformity with accounting principles generally accepted in the United States of America 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 income and expense during the reporting period. Actual results could differ from those estimates.
H Indemnifications
— Under the
Trust’s organizational documents, its officers and Trustees may be indemnified against certain liabilities and expenses arising out of the performance of their duties to the Fund. Under Massachusetts law, if certain conditions prevail,
shareholders of a Massachusetts business trust (such as the Trust) could be deemed to have personal liability for the obligations of the Trust. However, the Trust’s Declaration of Trust contains an express disclaimer of liability on the part of
Fund shareholders and the By-laws provide that the Trust shall assume the defense on behalf of any Fund shareholders. Moreover, the By-laws also provide for indemnification out of Fund property of any shareholder held personally liable solely by
reason of being or having been a shareholder for all loss or expense arising from such liability. Additionally, in the normal course of business, the Fund enters into agreements with service providers that may contain indemnification clauses. The
Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred.
I Floating Rate Notes Issued in Conjunction with Securities Held
— The Fund may invest
in residual interest bonds, also referred to as inverse floating rate securities, whereby the Fund may sell a variable or fixed rate bond to a broker for cash. At the same time, the Fund buys a residual interest in the assets and cash flows of a
Special-Purpose Vehicle (the SPV), (which is generally organized as a trust), set up by the broker. The broker deposits a bond into the SPV with the same CUSIP number as the bond sold to the broker by the Fund, and which may have been, but is not
required to be, the bond purchased from the Fund (the Bond). The SPV also issues floating rate notes (Floating Rate Notes) which are sold to third-parties. The residual interest bond held by the Fund gives the Fund the right (1) to cause the
holders of the Floating Rate Notes to generally tender their notes at par, and (2) to have the broker transfer the Bond held by the SPV to the Fund, thereby terminating the SPV. Should the Fund exercise such right, it would generally pay the
broker the par amount due on the Floating Rate Notes and exchange the residual interest bond for the underlying Bond. Pursuant to generally accepted accounting principles for transfers and servicing of financial assets and extinguishment of
liabilities, the Fund accounts for the transaction described above as a secured borrowing by including the Bond in its Portfolio of Investments and the Floating Rate Notes as a liability under the caption “Payable for floating rate notes
issued” in its Statement of Assets and Liabilities. The Floating Rate Notes have interest rates that generally reset weekly and their holders have the option to tender their notes to the broker for redemption at par at each reset date.
Accordingly, the fair value of the payable for floating rate notes issued approximates its carrying value. If measured at fair value, the payable for floating rate notes would have been considered as Level 2 in the fair value hierarchy (see Note 11)
at January 31, 2013. Interest expense related to the Fund’s liability with respect to Floating Rate Notes is recorded as incurred. The SPV may be terminated by the Fund, as noted above, or by the broker upon the occurrence of certain
termination events as defined in the trust agreement, such as a downgrade in the credit quality of the underlying Bond, bankruptcy of or payment failure by the issuer of the underlying Bond, the inability to remarket Floating Rate Notes that have
been tendered due to insufficient buyers in the market, or the failure by the SPV to obtain renewal of the liquidity agreement under which liquidity support is provided for the Floating Rate Notes up to one year. At January 31, 2013, the amount
of the Fund’s Floating Rate Notes outstanding and the related collateral were $95,167,000 and $158,959,715, respectively. The range of interest rates on the Floating Rate Notes outstanding at January 31, 2013 was 0.10% to 0.25%. For the
year ended January 31, 2013, the Fund’s average Floating Rate Notes outstanding and the average interest rate including fees were $92,777,000 and 0.78%, respectively.
The Fund may enter into shortfall and forbearance agreements with the broker by which the Fund agrees to reimburse the broker, in certain circumstances, for the difference between the liquidation value of the Bond
held by the SPV and the liquidation value of the Floating Rate Notes, as well as any shortfalls in interest cash flows. The Fund had no shortfalls as of January 31, 2013.
The Fund may also purchase residual interest bonds from brokers in a secondary market transaction without first owning the underlying bond. Such transactions are not required to be treated as secured borrowings.
Shortfall agreements, if any, related to residual interest bonds purchased in a secondary market transaction are disclosed in the Portfolio of Investments.
The Fund’s investment policies and restrictions expressly permit investments in residual interest bonds. Such bonds typically offer the potential for yields exceeding the yields available on fixed rate bonds
with comparable credit quality and maturity. These securities tend to underperform the market for fixed rate bonds in a rising long-term interest rate environment, but tend to outperform the market for fixed rate bonds when long-term interest rates
decline. The value and income of residual interest bonds are generally more volatile than that of a fixed rate bond. The Fund’s investment policies do not allow the Fund to borrow money except as permitted by the 1940 Act. Management believes
that the Fund’s restrictions on borrowing money and issuing senior securities (other than as specifically permitted) do not apply to Floating Rate Notes issued by the SPV and included as a liability in the Fund’s Statement of Assets and
Liabilities. As secured indebtedness issued by an SPV, Floating Rate Notes are distinct from the borrowings and senior securities to which the Fund’s restrictions apply. Residual interest bonds held by the Fund are securities exempt from
registration under Rule 144A of the Securities Act of 1933.
Eaton Vance
High Yield Municipal Income Fund
January 31, 2013
Notes to Financial Statements — continued
J Financial Futures Contracts
— Upon entering into a financial futures contract, the
Fund is required to deposit with the broker, either in cash or securities, an amount equal to a certain percentage of the purchase price (initial margin). Subsequent payments, known as variation margin, are made or received by the Fund each business
day, depending on the daily fluctuations in the value of the underlying security, and are recorded as unrealized gains or losses by the Fund. Gains (losses) are realized upon the expiration or closing of the financial futures contracts. Should
market conditions change unexpectedly, the Fund may not achieve the anticipated benefits of the financial futures contracts and may realize a loss. Futures contracts have minimal counterparty risk as they are exchange traded and the clearinghouse
for the exchange is substituted as the counterparty, guaranteeing counterparty performance.
K When-Issued Securities and Delayed Delivery Transactions
— The Fund may purchase or sell securities on a delayed delivery or
when-issued basis. Payment and delivery may take place after the customary settlement period for that security. At the time the transaction is negotiated, the price of the security that will be delivered is fixed. The Fund maintains security
positions for these commitments such that sufficient liquid assets will be available to make payments upon settlement. Securities purchased on a delayed delivery or when-issued basis are marked-to-market daily and begin earning interest on
settlement date. Losses may arise due to changes in the market value of the underlying securities or if the counterparty does not perform under the contract.
L Statement of Cash Flows
— The cash amount shown in the Statement of Cash Flows of
the Fund is the amount included in the Fund’s Statement of Assets and Liabilities and represents the cash on hand at its custodian and does not include any short-term investments.
2 Distributions to Shareholders
The net investment income of the Fund is determined daily
and substantially all of the net investment income so determined is declared as a dividend to shareholders of record at the time of declaration. Distributions are declared separately for each class of shares. Distributions are paid monthly.
Distributions of realized capital gains (reduced by available capital loss carryforwards, if any) are made at least annually. Shareholders may reinvest income and capital gain distributions in additional shares of the same class of the Fund at the
net asset value as of the reinvestment date or, at the election of the shareholder, receive distributions in cash. The Fund distinguishes between distributions on a tax basis and a financial reporting basis. Accounting principles generally accepted
in the United States of America require that only distributions in excess of tax basis earnings and profits be reported in the financial statements as a return of capital. Permanent differences between book and tax accounting relating to
distributions are reclassified to paid-in capital. For tax purposes, distributions from short-term capital gains are considered to be from ordinary income.
The tax character of distributions declared for the years ended January 31, 2013 and January 31, 2012 was as follows:
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Year Ended January 31,
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2013
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2012
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Distributions declared from:
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Tax-exempt income
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$
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33,462,523
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$
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35,033,065
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Ordinary income
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$
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779,033
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$
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101,884
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|
During the year ended January 31, 2013, accumulated net realized loss was decreased by $23,647,951, accumulated undistributed
net investment income was decreased by $615,641 and paid-in capital was decreased by $23,032,310 due to expired capital loss carryforwards and differences between book and tax accounting, primarily for accretion of market discount and expenditures
on defaulted bonds. These reclassifications had no effect on the net assets or net asset value per share of the Fund.
As of January 31, 2013, the
components of distributable earnings (accumulated losses) and unrealized appreciation (depreciation) on a tax basis were as follows:
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Undistributed tax-exempt income
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$
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2,845,534
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Capital loss carryforward and deferred capital losses
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$
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(244,123,131
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)
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Net unrealized appreciation
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$
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50,941,925
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Other temporary differences
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$
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(572,780
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)
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The differences between components of distributable earnings (accumulated losses) on a tax basis and the amounts reflected in the
Statement of Assets and Liabilities are primarily due to the timing of recognizing distributions to shareholders, wash sales, futures contracts, residual interest bonds, expenditures on defaulted bonds, defaulted bond interest and accretion of
market discount.
Eaton Vance
High Yield Municipal Income Fund
January 31, 2013
Notes to Financial Statements — continued
3 Investment Adviser Fee and Other Transactions with Affiliates
The investment adviser fee
is earned by Boston Management and Research (BMR), a subsidiary of Eaton Vance Management (EVM), as compensation for management and investment advisory services rendered to the Fund. Pursuant to the investment advisory agreement and subsequent fee
reduction agreements between the Fund and BMR, 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) as presented in the following table and is
payable monthly.
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Daily Net Assets
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Annual Asset
Rate
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Daily Income
Rate
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Up to $500 million
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0.3150
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%
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3.1500
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%
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$500 million but less than $750 million
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0.2925
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2.9250
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$750 million but less than $1 billion
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0.2700
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2.9250
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$1 billion but less than $1.5 billion
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0.2700
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2.7000
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|
On average daily net assets of $1.5 billion or more, the rates are further reduced. The fee reductions cannot be terminated without
the consent of the Trustees and shareholders. For the year ended January 31, 2013, the investment adviser fee amounted to $3,466,804 or 0.49% of the Fund’s average daily net assets. EVM serves as the administrator of the Fund, but receives
no compensation. EVM serves as the sub-transfer agent of the Fund and receives from the transfer agent an aggregate fee based upon the actual expenses incurred by EVM in the performance of these services. For the year ended January 31, 2013,
EVM earned $12,766 in sub-transfer agent fees. The Fund was informed that Eaton Vance Distributors, Inc. (EVD), an affiliate of EVM and the Fund’s principal underwriter, received $129,687 as its portion of the sales charge on sales of
Class A shares for the year ended January 31, 2013. EVD also received distribution and service fees from Class A, Class B and Class C shares (see Note 4) and contingent deferred sales charges (see Note 5).
Trustees and officers of the Fund who are members of EVM’s or BMR’s organizations receive remuneration for their services to the Fund out of the
investment adviser fee. Trustees of the Fund who 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, 2013, no significant amounts have been deferred. Certain officers and Trustees of the Fund are officers of the above organizations.
4 Distribution Plans
The Fund has in effect a distribution plan for Class A shares
(Class A Plan) pursuant to Rule 12b-1 under the 1940 Act. Pursuant to the Class A Plan, the Fund pays EVD a distribution and service fee of 0.25% per annum of its average daily net assets attributable to Class A shares for
distribution services and facilities provided to the Fund by EVD, as well as for personal services and/or the maintenance of shareholder accounts. Distribution and service fees paid or accrued to EVD for the year ended January 31, 2013 amounted
to $978,892 for Class A shares.
The Fund also has in effect distribution plans for Class B shares (Class B Plan) and Class C shares (Class C Plan)
pursuant to Rule 12b-1 under the 1940 Act. Pursuant to the Class B and Class C Plans, the Fund pays EVD amounts equal to 0.75% per annum of its 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 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 of
EVD of each respective class, reduced by the aggregate amount of contingent deferred sales charges (see Note 5) and amounts theretofore paid or payable to EVD by each respective class. For the year ended January 31, 2013, the Fund paid or
accrued to EVD $141,058 and $1,185,470 for Class B and Class C shares, respectively, representing 0.75% of the average daily net assets for Class B and Class C shares. At January 31, 2013, the amounts of Uncovered Distribution Charges of EVD
calculated under the Class B and Class C Plans were approximately $9,229,000 and $32,129,000, respectively.
Pursuant to the Class B and Class C Plans,
the Fund also makes payments of service fees to EVD, financial intermediaries and other persons in amounts equal to 0.25% per annum of its average daily net assets attributable to that class. Service fees paid or accrued are for personal
services and/or the maintenance of shareholder accounts. They are separate and distinct from the sales commissions and distribution fees payable to EVD and, as such, are not subject to automatic discontinuance when there are no outstanding Uncovered
Distribution Charges of EVD. Service fees paid or accrued for the year ended January 31, 2013 amounted to $47,019 and $395,157 for Class B and Class C shares, respectively.
5 Contingent Deferred Sales Charges
A contingent deferred sales charge (CDSC) generally is
imposed on redemptions of Class B shares made within six years of purchase and on redemptions of Class C shares made within one year of purchase. Class A shares may be subject to a 1% CDSC if redeemed within eighteen months of purchase
(depending on the circumstances 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. The CDSC for Class B shares is imposed at
Eaton Vance
High Yield Municipal Income Fund
January 31, 2013
Notes to Financial Statements — continued
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 are 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 and may be waived under certain other limited conditions. CDSCs received on Class B
and Class C redemptions are paid to EVD to reduce the amount of Uncovered Distribution Charges calculated under the Fund’s Class B and Class C Plans. CDSCs received on Class B and Class C redemptions when no Uncovered Distribution Charges exist
are credited to the Fund. For the year ended January 31, 2013, the Fund was informed that EVD received approximately $2,000, $28,000 and $6,000 of CDSCs paid by Class A, Class B and Class C shareholders, respectively.
6 Purchases and Sales of Investments
Purchases and sales of investments, other than short-term obligations, aggregated $192,466,635 and $173,464,707, respectively, for the year ended January 31,
2013.
7 Shares of Beneficial Interest
The Fund’s Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest (without par value). Such shares may be issued in a number of different
series (such as the Fund) and classes. Transactions in Fund shares were as follows:
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Year Ended January 31,
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Class A
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2013
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2012
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Sales
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14,609,849
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8,170,023
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Issued to shareholders electing to receive payments of distributions in Fund shares
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1,830,088
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1,733,505
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Redemptions
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(15,715,863
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)
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(14,468,455
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)
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Exchange from Class B shares
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749,767
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980,073
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Net increase (decrease)
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1,473,841
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(3,584,854
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)
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Year Ended January 31,
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Class B
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2013
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2012
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Sales
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44,726
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164,979
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Issued to shareholders electing to receive payments of distributions in Fund shares
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70,072
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101,480
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Redemptions
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(431,682
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)
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(767,833
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)
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Exchange to Class A shares
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(751,874
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)
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(982,879
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)
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Net decrease
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(1,068,758
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)
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(1,484,253
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)
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Year Ended January 31,
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Class C
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2013
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2012
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Sales
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4,162,312
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2,447,498
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Issued to shareholders electing to receive payments of distributions in Fund shares
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583,536
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571,124
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Redemptions
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(3,466,419
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)
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(4,381,497
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)
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Net increase (decrease)
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1,279,429
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(1,362,875
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)
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Eaton Vance
High Yield Municipal Income Fund
January 31, 2013
Notes to Financial Statements — continued
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Year Ended January 31,
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Class I
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2013
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2012
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Sales
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10,095,198
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8,990,368
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Issued to shareholders electing to receive payments of distributions in Fund shares
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703,073
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586,498
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Redemptions
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(7,505,361
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)
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(3,316,956
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)
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Net increase
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3,292,910
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6,259,910
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8 Federal Income Tax Basis of Investments
The cost and unrealized appreciation (depreciation) of investments of the Fund at January 31, 2013, as determined on a federal income tax basis, were as follows:
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Aggregate cost
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$
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679,110,890
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Gross unrealized appreciation
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$
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84,450,581
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Gross unrealized depreciation
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(33,508,656
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)
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Net unrealized appreciation
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$
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50,941,925
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9 Line of Credit
The Fund participates with other portfolios and funds managed by EVM and its affiliates in a $600 million unsecured line of credit agreement with a group of banks. Borrowings are made by the Fund solely to
facilitate the handling of unusual and/or unanticipated short-term cash requirements. Interest is charged to the 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 0.08% on the daily unused portion of the line of credit is allocated among the participating portfolios and funds at the end of each quarter. Because the line of credit is not available exclusively to the Fund, it may be unable to
borrow some or all of its requested amounts at any particular time. The Fund did not have any significant borrowings or allocated fees during the year ended January 31, 2013.
10 Financial Instruments
The Fund may trade in financial instruments with off-balance
sheet risk in the normal course of its investing activities. These financial instruments may include financial 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 Fund 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.
A summary of obligations under
these financial instruments at January 31, 2013 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Futures Contracts
|
|
Expiration
Month/Year
|
|
Contracts
|
|
Position
|
|
Aggregate Cost
|
|
|
Value
|
|
|
Net
Unrealized
Appreciation
|
|
|
|
|
|
|
|
|
|
3/13
|
|
325
U.S. 10-Year Treasury Note
|
|
Short
|
|
$
|
(43,242,266
|
)
|
|
$
|
(42,666,406
|
)
|
|
$
|
575,860
|
|
|
3/13
|
|
268
U.S. 30-Year Treasury Bond
|
|
Short
|
|
|
(40,197,416
|
)
|
|
|
(38,449,625
|
)
|
|
|
1,747,791
|
|
|
|
|
|
|
|
|
$
|
2,323,651
|
|
At January 31, 2013, the Fund had sufficient cash and/or securities to cover commitments under these contracts.
The Fund is subject to interest rate risk in the normal course of pursuing its investment objective. Because the Fund holds fixed-rate bonds, the value of these
bonds may decrease if interest rates rise. The Fund purchases and sells U.S. Treasury futures contracts to hedge against changes in interest rates.
Eaton Vance
High Yield Municipal Income Fund
January 31, 2013
Notes to Financial Statements — continued
The fair value of open derivative instruments (not considered to be hedging instruments for accounting disclosure purposes) and whose primary underlying risk exposure is interest rate risk at January 31, 2013
was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value
|
|
|
|
|
Asset Derivative
|
|
|
Liability Derivative
|
|
|
|
|
|
|
Futures Contracts
|
|
$
|
2,323,651
|
(1)
|
|
$
|
—
|
|
|
|
|
|
|
Total
|
|
$
|
2,323,651
|
|
|
$
|
—
|
|
|
(1)
|
Amount represents cumulative unrealized appreciation on futures contracts in the Futures Contracts table above. Only the current day’s variation margin on
open futures contracts is reported within the Statement of Assets and Liabilities as Receivable or Payable for variation margin, as applicable.
|
The effect of derivative instruments (not considered to be hedging instruments for accounting disclosure purposes) on the Statement of Operations and whose primary underlying risk exposure is interest rate risk for
the year ended January 31, 2013 was as follows:
Report of Independent Registered Public Accounting Firm
To the Trustees of Eaton Vance Municipals Trust II and Shareholders of Eaton Vance High Yield Municipal Income Fund:
We have audited the accompanying statement of assets and liabilities of Eaton Vance High Yield Municipal Income Fund (the “Fund”) (one of the funds
constituting Eaton Vance Municipals Trust II), including the portfolio of investments, as of January 31, 2013, and the related statements of operations and cash flows for the year then ended, the statements of changes in net assets for each of
the two years in the period then ended, and the financial highlights for each of the five years in the period then ended. These financial statements and financial highlights are the responsibility of the Fund’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 the
standards of the Public Company Accounting Oversight Board (United States). 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. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund’s internal control over financial reporting. Accordingly, we express no such opinion. An
audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall
financial statement presentation. Our procedures included confirmation of securities owned as of January 31, 2013, by correspondence with the custodian and brokers; where replies were not received from brokers, we performed other auditing
procedures. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights
referred to above present fairly, in all material respects, the financial position of Eaton Vance High Yield Municipal Income Fund as of January 31, 2013, the results of its operations and its cash flows for the year then ended, the changes in
its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
March 19, 2013
Eaton Vance
High Yield Municipal Income Fund
January 31, 2013
Federal Tax Information (Unaudited)
The Form 1099-DIV you receive in January 2014 will show the tax status of all distributions paid to your account in calendar year 2013. Shareholders are advised to consult their own tax adviser with respect to the
tax consequences of their investment in the Fund. As required by the Internal Revenue Code and/or regulations, shareholders must be notified regarding exempt-interest dividends.
Exempt-Interest Dividends.
The Fund designates 97.72% of dividends from net investment income as an exempt-interest dividend.
Eaton Vance
High Yield Municipal Income Fund
January 31, 2013
Management and Organization
Fund Management.
The Trustees of Eaton Vance Municipals Trust II (the Trust) are responsible for the overall management and supervision of the Trust’s affairs. The Trustees and officers of
the Trust are listed below. Except as indicated, each individual has held the office shown or other offices in the same company for the last five years. Trustees and officers of the Trust hold indefinite terms of office. The “Noninterested
Trustees” consist of those Trustees who are not “interested persons” of the Trust, as that term is defined under the 1940 Act. The business address of each Trustee and officer is Two International Place, Boston, Massachusetts 02110.
As used below, “EVC” refers to Eaton Vance Corp., “EV” refers to Eaton Vance, Inc., “EVM” refers to Eaton Vance Management, “BMR” refers to Boston Management and Research and “EVD” refers to Eaton
Vance Distributors, Inc. EVC and EV are the corporate parent and trustee, respectively, of EVM and BMR. EVD is the Fund’s principal underwriter and a wholly-owned subsidiary of EVC. Each officer affiliated with Eaton Vance may hold a position
with other Eaton Vance affiliates that is comparable to his or her position with EVM listed below. Each Trustee oversees 183 portfolios in the Eaton Vance Complex (including all master and feeder funds in a master feeder structure). Each officer
serves as an officer of certain other Eaton Vance funds. Each Trustee and officer serves until his or her successor is elected.
|
|
|
|
|
|
|
|
|
Name and Year of Birth
|
|
Position(s)
with the
Trust
|
|
Length of
Service
|
|
Principal Occupation(s) and Directorships
During Past Five Years and Other Relevant Experience
|
|
Interested Trustee
|
|
|
|
|
|
|
Thomas E. Faust Jr.
1958
|
|
Trustee
|
|
Since 2007
|
|
Chairman, Chief Executive Officer and President of EVC, Director and President of EV, Chief Executive Officer and President of EVM and BMR, and
Director of EVD. Trustee and/or officer of 183 registered investment companies. Mr. Faust is an interested person because of his positions with EVM, BMR, EVD, EVC and EV, which are affiliates of the Trust.
Directorships in the Last Five Years.
(1)
Director of EVC and Hexavest
Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterested Trustees
|
|
|
|
|
|
|
Scott E. Eston
1956
|
|
Trustee
|
|
Since 2011
|
|
Private investor. Formerly held various positions at Grantham, Mayo, Van Otterloo and Co., L.L.C. (investment management firm) (1997-2009),
including Chief Operating Officer (2002-2009), Chief Financial Officer (1997-2009) and Chairman of the Executive Committee (2002-2008); President and Principal Executive Officer, GMO Trust (open-end registered investment company) (2006-2009). Former
Partner, Coopers and Lybrand L.L.P. (now PricewaterhouseCoopers) (public accounting firm) (1987-1997).
Directorships in the Last Five Years.
None.
|
|
|
|
|
|
|
Benjamin C. Esty
1963
|
|
Trustee
|
|
Since 2005
|
|
Roy and Elizabeth Simmons Professor of Business Administration and Finance Unit Head, Harvard University Graduate School of Business
Administration.
Directorships in the Last Five Years.
(1)
None.
|
|
|
|
|
|
|
Allen R. Freedman
1940
|
|
Trustee
|
|
Since 2007
|
|
Private Investor. Former Chairman (2002-2004) and a Director (1983-2004) of Systems & Computer Technology Corp. (provider of software to
higher education). Formerly, a Director of Loring Ward International (fund distributor) (2005-2007). Former Chairman and a Director of Indus International, Inc. (provider of enterprise management software to the power generating industry)
(2005-2007). Former Chief Executive Officer of Assurant, Inc. (insurance provider) (1979-2000).
Directorships in the Last Five Years.
(1)
Director of Stonemor Partners, L.P. (owner and operator of cemeteries). Formerly,
Director of Assurant, Inc. (insurance provider) (1979-2011).
|
|
|
|
|
|
|
William H. Park
1947
|
|
Trustee
|
|
Since 2003
|
|
Consultant and private investor. Formerly, Chief Financial Officer, Aveon Group L.P. (investment management firm) (2010-2011). Formerly, Vice
Chairman, Commercial Industrial Finance Corp. (specialty finance company) (2006-2010). Formerly, President and Chief Executive Officer, Prizm Capital Management, LLC (investment management firm) (2002-2005). Formerly, Executive Vice President and
Chief Financial Officer, United Asset Management Corporation (investment management firm) (1982-2001). Formerly, Senior Manager, Price Waterhouse (now PricewaterhouseCoopers) (an independent registered public accounting firm) (1972-1981).
Directorships in the Last Five Years.
(1)
None.
|
|
|
|
|
|
|
Ronald A. Pearlman
1940
|
|
Trustee
|
|
Since 2003
|
|
Professor of Law, Georgetown University Law Center. Formerly, Deputy Assistant Secretary (Tax Policy) and Assistant Secretary (Tax Policy), U.S.
Department of the Treasury (1983-1985). Formerly, Chief of Staff, Joint Committee on Taxation, U.S. Congress (1988-1990).
Directorships in the
Last Five Years.
(1)
None.
|
Eaton Vance
High Yield Municipal Income Fund
January 31, 2013
Management and Organization — continued
|
|
|
|
|
|
|
|
|
Name and Year of Birth
|
|
Position(s)
with the
Trust
|
|
Length of
Service
|
|
Principal Occupation(s) and Directorships
During Past Five Years and Other Relevant Experience
|
|
Noninterested Trustees (continued)
|
|
|
|
|
|
|
Helen Frame Peters
1948
|
|
Trustee
|
|
Since 2008
|
|
Professor of Finance, Carroll School of Management, Boston College. Formerly, Dean, Carroll School of Management, Boston College (2000-2002).
Formerly, Chief Investment Officer, Fixed Income, Scudder Kemper Investments (investment management firm) (1998-1999). Formerly, Chief Investment Officer, Equity and Fixed Income, Colonial Management Associates (investment management firm)
(1991-1998).
Directorships in the Last Five Years.
(1)
Formerly,
Director of BJ’s Wholesale Club, Inc. (wholesale club retailer) (2004-2011). Formerly, Trustee of SPDR Index Shares Funds and SPDR Series Trust (exchange traded funds) (2000-2009). Formerly, Director of Federal Home Loan Bank of Boston (a bank
for banks) (2007-2009).
|
|
|
|
|
|
|
Lynn A. Stout
1957
|
|
Trustee
|
|
Since 1998
|
|
Distinguished Professor of Corporate and Business Law, Jack G. Clarke Business Law Institute, Cornell University Law School. Formerly, the Paul
Hastings Professor of Corporate and Securities Law (2006-2012) and Professor of Law (2001-2006), University of California at Los Angeles School of Law.
Directorships in the Last Five Years.
(1)
None.
|
|
|
|
|
|
|
Harriett Tee Taggart
1948
|
|
Trustee
|
|
Since 2011
|
|
Managing Director, Taggart Associates (a professional practice firm). Formerly, Partner and Senior Vice President, Wellington Management Company,
LLP (investment management firm) (1983-2006).
Directorships in the Last Five Years.
Director of Albemarle Corporation (chemicals
manufacturer) (since 2007) and The Hanover Group (specialty property and casualty insurance company) (since 2009). Formerly, Director of Lubrizol Corporation (specialty chemicals) (2007-2011).
|
|
|
|
|
|
|
Ralph F. Verni
1943
|
|
Chairman of the Board and
Trustee
|
|
Chairman of the Board since 2007 and Trustee since 2005
|
|
Consultant and private investor. Formerly, Chief Investment Officer (1982-1992), Chief Financial Officer (1988-1990) and Director (1982-1992), New
England Life. Formerly, Chairperson, New England Mutual Funds (1982-1992). Formerly, President and Chief Executive Officer, State Street Management & Research (1992-2000). Formerly, Chairperson, State Street Research Mutual Funds (1992-2000).
Formerly, Director, W.P. Carey, LLC (1998-2004) and First Pioneer Farm Credit Corp. (2002-2006).
Directorships in the Last Five Years.
(1)
None.
|
|
Principal Officers who are not Trustees
|
|
Name and Year of Birth
|
|
Position(s)
with the
Trust
|
|
Length of
Service
|
|
Principal Occupation(s)
During Past Five Years
|
|
Cynthia J. Clemson
1963
|
|
President
|
|
Since 2005
|
|
Vice President of EVM and BMR.
|
|
|
|
|
|
|
Payson F. Swaffield
1956
|
|
Vice President
|
|
Since 2011
|
|
Vice President and Chief Income Investment Officer of EVM and BMR.
|
|
|
|
|
|
|
Maureen A. Gemma
1960
|
|
Vice President, Secretary and Chief Legal Officer
|
|
Vice President since 2011; Secretary since 2007 and Chief Legal Officer since 2008
|
|
Vice President of EVM and BMR.
|
|
|
|
|
|
|
James F. Kirchner
(2)
1967
|
|
Treasurer
|
|
Since 2013
|
|
Vice President of EVM and BMR.
|
|
|
|
|
|
|
Paul M. O’Neil
1953
|
|
Chief Compliance Officer
|
|
Since 2004
|
|
Vice President of EVM and BMR.
|
|
(1)
|
During their respective tenures, the Trustees (except Mr. Eston and Ms. Taggart) also served as trustees of one or more of the following Eaton Vance
funds (which operated in the years noted): Eaton Vance Credit Opportunities Fund (launched in 2005 and terminated in 2010); Eaton Vance Insured Florida Plus Municipal Bond Fund (launched in 2002 and terminated in 2009); and Eaton Vance National
Municipal Income Trust (launched in 1998 and terminated in 2009).
|
|
(2)
|
Prior to 2013, Mr. Kirchner served as Assistant Treasurer of the Trust since 2007.
|
The SAI for the Fund includes additional information about the Trustees and officers of the Fund and can be obtained without charge on Eaton Vance’s website at www.eatonvance.com or by calling 1-800-262-1122.
Eaton Vance Funds
IMPORTANT NOTICES
Privacy.
The Eaton Vance organization is committed to ensuring your financial privacy. Each of the financial institutions identified below has in effect the following
policy (“Privacy Policy”) with respect to nonpublic personal information about its customers:
|
Ÿ
|
|
Only such information received from you, through application forms or otherwise, and information about your Eaton Vance fund transactions will be collected. This
may include information such as name, address, social security number, tax status, account balances and transactions.
|
|
Ÿ
|
|
None of such information about you (or former customers) will be disclosed to anyone, except as permitted by law (which includes disclosure to employees
necessary to service your account). In the normal course of servicing a customer’s account, Eaton Vance may share information with unaffiliated third parties that perform various required services such as transfer agents, custodians and
broker/dealers.
|
|
Ÿ
|
|
Policies and procedures (including physical, electronic and procedural safeguards) are in place that are designed to protect the confidentiality of such
information.
|
|
Ÿ
|
|
We reserve the right to change our Privacy Policy at any time upon proper notification to you. Customers may want to review our Privacy Policy periodically for
changes by accessing the link on our homepage: www.eatonvance.com.
|
Our pledge of privacy applies to the following entities within the
Eaton Vance organization: the Eaton Vance Family of Funds, Eaton Vance Management, Eaton Vance Investment Counsel, Eaton Vance Distributors, Inc., Eaton Vance Trust Company, Eaton Vance Management’s Real Estate Investment Group and Boston
Management and Research. In addition, our Privacy Policy applies only to those Eaton Vance customers who are individuals and who have a direct relationship with us. If a customer’s account (i.e., fund shares) is held in the name of a
third-party financial advisor/broker-dealer, it is likely that only such advisor’s privacy policies apply to the customer. This notice supersedes all previously issued privacy disclosures. For more information about Eaton Vance’s Privacy
Policy, please call 1-800-262-1122.
Delivery of Shareholder Documents.
The Securities and Exchange Commission (SEC) permits funds to deliver only one copy of shareholder documents, including prospectuses, proxy statements and
shareholder reports, to fund investors with multiple accounts at the same residential or post office box address. This practice is often called “householding” and it helps eliminate duplicate mailings to shareholders.
Eaton Vance, or
your financial advisor, may household the mailing of your documents indefinitely unless you instruct Eaton Vance, or your financial advisor, otherwise.
If you would prefer that your Eaton Vance documents not be householded, please contact Eaton
Vance at 1-800-262-1122, or contact your financial advisor. Your instructions that householding not apply to delivery of your Eaton Vance documents will be effective within 30 days of receipt by Eaton Vance or your financial advisor.
Portfolio Holdings.
Each Eaton Vance Fund and its underlying Portfolio(s) (if applicable) will file a schedule of portfolio holdings on Form N-Q with the SEC for the first and third quarters of each fiscal year. The Form N-Q will be
available on the Eaton Vance website at www.eatonvance.com, by calling Eaton Vance at 1-800-262-1122 or in the EDGAR database on the SEC’s website at www.sec.gov. Form N-Q may also be reviewed and copied at the SEC’s public reference room
in Washington, D.C. (call 1-800-732-0330 for information on the operation of the public reference room).
Proxy Voting.
From time to time, funds are required to vote proxies related to the securities held
by the funds. The Eaton Vance Funds or their underlying Portfolios (if applicable) vote proxies according to a set of policies and procedures approved by the Funds’ and Portfolios’ Boards. You may obtain a description of these policies and
procedures and information on how the Funds or Portfolios voted proxies relating to portfolio securities during the most recent 12-month period ended June 30, without charge, upon request, by calling 1-800-262-1122 and by accessing the SEC’s
website at www.sec.gov.
Investment Adviser
Boston Management and Research
Two
International Place
Boston, MA 02110
Administrator
Eaton Vance Management
Two International Place
Boston, MA 02110
Principal
Underwriter*
Eaton Vance Distributors, Inc.
Two International Place
Boston, MA
02110
(617) 482-8260
Custodian
State Street Bank and
Trust Company
200 Clarendon Street
Boston, MA 02116
Transfer Agent
BNY Mellon Investment Servicing (US) Inc.
Attn: Eaton Vance Funds
P.O. Box 9653
Providence,
RI 02940-9653
(800) 262-1122
Independent Registered Public Accounting Firm
Deloitte & Touche LLP
200 Berkeley
Street
Boston, MA 02116-5022
Fund Offices
Two International Place
Boston, MA 02110
|
*
|
FINRA BrokerCheck.
Investors may check the background of their Investment Professional by contacting the Financial Industry Regulatory Authority (FINRA). FINRA
BrokerCheck is a free tool to help investors check the professional background of current and former FINRA-registered securities firms and brokers. FINRA BrokerCheck is available by calling 1-800-289-9999 and at www.FINRA.org. The FINRA BrokerCheck
brochure describing this program is available to investors at www.FINRA.org.
|
|
|
|
|
|
Eaton Vance
Tax-Advantaged Bond Strategies Funds
Annual Report
January 31, 2013
|
|
|
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.
This report must be preceded or accompanied by a current prospectus or summary prospectus. Before investing,
investors should consider carefully a Fund’s investment objective(s), risks, and charges and expenses. A Fund’s current prospectus or summary prospectus contains this and other information about the Fund and is available through your
financial advisor. Please read the prospectus carefully before you invest or send money. For further information, please call 1-800-262-1122.
Annual Report
January 31, 2013
Eaton Vance
Tax-Advantaged Bond Strategies Funds
Table of Contents
|
|
|
|
|
|
|
Management’s Discussion of Fund Performance
|
|
|
2
|
|
|
|
|
|
Performance and Fund Profile
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax-Advantaged Bond Strategies Short Term Fund
|
|
|
4
|
|
|
Tax-Advantaged Bond Strategies Intermediate Term Fund
|
|
|
6
|
|
|
Tax-Advantaged Bond Strategies Long Term Fund
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Endnotes and Additional Disclosures
|
|
|
10
|
|
|
|
|
|
Fund Expenses
|
|
|
11
|
|
|
|
|
|
Financial Statements
|
|
|
13
|
|
|
|
|
|
Report of Independent Registered Public Accounting Firm
|
|
|
47
|
|
|
|
|
|
Federal Tax Information
|
|
|
48
|
|
|
|
|
|
Management and Organization
|
|
|
49
|
|
|
|
|
|
Important Notices
|
|
|
51
|
|
Eaton Vance
Tax-Advantaged Bond Strategies Funds
January 31, 2013
Management’s Discussion of Fund
Performance
1
Economic and Market Conditions
Two intertwined forces dominated fixed-income markets during the 12-month period ended January 31, 2013: a low interest-rate environment that drove investors to search for yield; and investors’ increased
appetite for risk.
Highly accommodative monetary policies instituted by central banks around the world exerted an unusual amount of influence on
financial markets, pushing interest rates to historic lows. The U.S. Federal Reserve (the Fed) acted several times during the period to maintain downward pressure on rates. In spring 2012, the Fed extended Operation Twist, the central bank’s
swapping of its short-term holdings for long-term Treasury bonds. In September 2012, the Fed began purchasing approximately $40 billion of agency mortgage-backed securities (MBS) monthly. And in December 2012, it replaced Operation Twist, which was
expiring, with outright purchases of another $40 billion or so of Treasuries and agency MBS each month. This downward pressure on yields drove investors to look elsewhere for income. The result was that many investors increased their allocation to
higher-yielding bonds, pushing up prices for those securities.
At the same time, improving economic conditions, especially in the second half of the
period ended January 31, 2013, made fixed-income investors more comfortable with riskier asset classes. In the United States, unemployment began to gradually decline, and the battered housing market appeared to be finally turning around — in
part because of the Fed’s downward pressure on mortgage rates. Overseas, actions by the European Central Bank calmed many investors’ fears that Europe’s debt crisis would lead to a fracturing of the eurozone and drag the U.S. and
global economies back into recession.
Against this backdrop, municipal bonds rallied during the one-year period ended January 31,
2013, led by the long end of the yield curve and lower credit-quality bonds. The Barclays Capital Municipal Bond Index
2
— an unmanaged index of municipal bonds traded in the United States — returned 4.80% for the period. As yields on high-quality bonds fell, investors moved out on the yield curve, buying longer-maturity
municipal bonds to potentially take advantage of higher yields at the long end of the yield curve. In their quest for income, investors also favored lower-quality, higher-yielding issues over higher-quality, lower-yielding bonds. As a result,
longer-
duration
7
,
lower-credit-quality bonds were the best performers in the municipal space during the period.
For the one-year period ended January 31, 2013, municipal
bonds outperformed Treasuries and offered higher taxable-equivalent yields.
Fund Performance
For the fiscal year ended January 31, 2013, Eaton Vance Tax-Advantaged Bond Strategies (TABS) Short Term Fund and Eaton Vance Tax-Advantaged Bond Strategies (TABS)
Intermediate Term Fund Class A shares at net asset value (NAV) underperformed their respective benchmark indexes. During the same time period, Eaton Vance Tax-Advantaged Bond Strategies (TABS) Long Term Fund Class A shares at NAV outperformed that
Fund’s benchmark.
The TABS Short Term, TABS Intermediate Term and TABS Long Term Funds seek after-tax total return. The Funds
invest in municipals, Treasury and agency bonds of high quality — generally rated AA
6
and above — and of limited, intermediate or long duration, respectively. Management strives to add value by crossing over from municipals to U.S. government bonds and vice versa, according to which sector is
more attractively valued at a given time. Management also pursues after-tax total return through relative value trading to take advantage of inefficiencies within the municipal market. The Funds do not employ leverage or hedging as part of their
strategy.
For all three Funds, the strategy of overweighting higher-quality bonds detracted from relative performance versus their respective
benchmarks, as lower-rated municipal bonds outperformed higher-rated issues during the 12-month period. In contrast, relative value trading was a positive contributor to relative results versus their respective benchmarks for all Funds.
Because municipal bonds were more attractively valued than Treasuries throughout the period, all Funds were fully invested in municipal bonds during the fiscal year
and the crossover strategy was not employed.
All three Funds maintained a duration close to that of their respective benchmarks during the period, and
duration was not a material factor in the relative performance of any Fund.
See Endnotes and Additional
Disclosures in this report.
Past performance is no guarantee of future results. Returns are historical and are calculated by determining the
percentage change in net asset value (NAV) or offering price (as applicable) with all distributions reinvested. Investment return and principal value will fluctuate so that shares, when redeemed, may be worth more or less than their original cost.
Performance less than one year is cumulative. Performance is for the stated time period only; due to market volatility, the Fund’s current performance may be lower or higher than quoted. Returns are before taxes unless otherwise noted. For
performance as of the most recent month end, please refer to www.eatonvance.com.
Eaton Vance
Tax-Advantaged Bond Strategies Funds
January 31, 2013
Management’s Discussion of Fund Performance
1
— continued
Fund-specific Results
Eaton Vance TABS Short Term Fund Class A shares at NAV returned 1.20%, underperforming the 2.41% return of the Fund’s primary benchmark, the Barclays Capital 5 Year Municipal Bond Index.
The primary detractor from the Fund’s performance versus its benchmark during the period was an overweighting in higher-quality issues, as noted earlier.
Whereas the Fund had a small investment in bonds rated below AA, the Barclays Index held an average 20% position in A-rated issues and an average 7% position in BBB-rated issues during a period when lower-rated bonds outperformed. In contrast,
relative value trading contributed to Fund performance versus its benchmark.
Eaton Vance TABS Intermediate Term Fund Class A shares at NAV returned
2.79%, lagging the 2.99% return of the Fund’s primary benchmark, the Barclays Capital Managed Money Intermediate (1-17 Year) Index.
As with the
TABS Short Term Fund, higher credit-quality was the primary detractor from TABS Intermediate Term Fund’s performance relative to its benchmark during the period. Although TABS Intermediate Term Fund and its benchmark were both limited to
investing in bonds rated AA and higher, the Fund had an average 47% weighting in AAA issues during the period, while its benchmark had a smaller 23% weighting in that highest-rated category.
In contrast, yield curve positioning aided relative performance versus the Index during the 12-month period. While TABS Intermediate Term Fund’s benchmark is limited to bonds with 17 or fewer years remaining
to maturity, the Fund held, on average over the period, 7% of holdings in issues with maturities beyond 17 years — during a period when longer-maturity bonds outperformed. As noted earlier, relative value trading also contributed to results
versus the benchmark.
Eaton Vance TABS Long Term Fund Class A shares at NAV returned 6.55%, outperforming the 5.94% return of the Fund’s primary
benchmark, the Barclays Capital Managed Money 10+ Year Index.
Relative value trading was the primary contributor to TABS Long Term Fund’s
outperformance versus its benchmark during the period. Detractors from relative results versus the benchmark included an overweighting in high-quality issues as well as yield curve positioning. On average over the period, the Fund had 45% of its
assets in AAA-rated issues, while
its Barclays benchmark held only 17.5% of its assets in that highest-credit-quality category. With regard to yield curve positioning, the Fund was overweighted in the 15- to 20-year area of the
yield curve and underweighted in the 20- to 30-year portion of the yield curve, during a period when longer-maturity bonds outperformed shorter-maturity issues.
See Endnotes and Additional
Disclosures in this report.
Past performance is no guarantee of future results. Returns are historical and are calculated by determining the
percentage change in net asset value (NAV) or offering price (as applicable) with all distributions reinvested. Investment return and principal value will fluctuate so that shares, when redeemed, may be worth more or less than their original cost.
Performance less than one year is cumulative. Performance is for the stated time period only; due to market volatility, the Fund’s current performance may be lower or higher than quoted. Returns are before taxes unless otherwise noted. For
performance as of the most recent month end, please refer to www.eatonvance.com.
Eaton Vance
Tax-Advantaged Bond Strategies Short Term Fund
January 31, 2013