UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act File Number: 811-21563
Eaton Vance Short Duration Diversified Income Fund
(Exact Name of Registrant as Specified in Charter)
Two International Place, Boston, Massachusetts 02110
(Address of Principal Executive Offices)
Maureen A. Gemma
Two International Place, Boston, Massachusetts 02110
(Name and Address of Agent for Services)
(617) 482-8260
(Registrant’s Telephone Number)
October 31
Date of Fiscal Year End
October 31, 2014
Date of Reporting Period
Item 1. Reports to Stockholders
Eaton Vance
Short Duration Diversified Income Fund (EVG)
Annual Report
October 31, 2014
Commodity Futures Trading Commission Registration. Effective December 31, 2012, the Commodity Futures Trading Commission (“CFTC”) adopted certain regulatory changes that subject registered investment companies and advisers to regulation by the CFTC if a fund invests more than a prescribed level of its assets in certain CFTC-regulated instruments (including futures, certain options and swap agreements) or markets itself as providing investment exposure to such instruments. The Fund is considered to be a commodity pool operator under CFTC regulations. The Fund’s adviser is registered with the CFTC as a commodity pool operator and a commodity trading advisor. The CFTC has neither reviewed nor approved the Fund’s investment strategies.
Managed Distribution Plan. Pursuant to an exemptive order issued by the Securities and Exchange Commission (Order), the Fund is authorized to distribute long-term capital gains to shareholders more frequently than once per year. Pursuant to the Order, the Fund’s Board of Trustees approved a Managed Distribution Plan (MDP) pursuant to which the Fund makes monthly cash distributions to common shareholders, stated in terms of a fixed amount per common share.
The Fund currently distributes monthly cash distributions equal to $0.09 per share in accordance with the MDP. You should not draw any conclusions about the Fund’s investment performance from the amount of these distributions or from the terms of the MDP. The MDP will be subject to regular periodic review by the Fund’s Board of Trustees and the Board may amend or terminate the MDP at any time without prior notice to Fund shareholders. However, at this time there are no reasonably foreseeable circumstances that might cause the termination of the MDP.
The Fund may distribute more than its net investment income and net realized capital gains and, therefore, a distribution may include a return of capital. A return of capital distribution does not necessarily reflect the Fund’s investment performance and should not be confused with “yield” or “income.” With each distribution, the Fund will issue a notice to shareholders and a press release containing information about the amount and sources of the distribution and other related information. The amounts and sources of distributions contained in the notice and press release are only estimates and are not provided for tax purposes. The amounts and sources of the Fund’s distributions for tax purposes will be reported to shareholders on Form 1099-DIV for each calendar year.
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.
Annual Report October 31, 2014
Eaton Vance
Short Duration Diversified Income Fund
Table of Contents
| Management’s Discussion of Fund Performance |
2 | |||
| Performance |
3 | |||
| Fund Profile |
3 | |||
| Endnotes and Additional Disclosures |
4 | |||
| Consolidated Financial Statements |
5 | |||
| Report of Independent Registered Public Accounting Firm |
46 | |||
| Federal Tax Information |
47 | |||
| Dividend Reinvestment Plan |
48 | |||
| Management and Organization |
50 | |||
| Important Notices |
52 | |||
Eaton Vance
Short Duration Diversified Income Fund
October 31, 2014
Management’s Discussion of Fund Performance1
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 market price (as applicable) with all distributions reinvested and includes management fees and other expenses. Fund performance at market price will differ from its results at NAV due to factors such as changing perceptions about the Fund, market conditions, fluctuations in supply and demand for Fund shares, or changes in Fund distributions. Investment return and principal value will fluctuate so that shares, when sold, 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, current Fund performance may be lower or higher than the quoted return. For performance as of the most recent month-end, please refer to eatonvance.com.
| 2 |
Eaton Vance
Short Duration Diversified Income Fund
October 31, 2014
Performance2
Portfolio Managers Scott H. Page, CFA, Payson F. Swaffield, CFA, Catherine C. McDermott, Andrew Szczurowski, CFA and Eric Stein, CFA
| % Average Annual Total Returns | Inception Date | One Year | Five Years | Since Inception |
||||||||||||
| Fund at NAV |
02/28/2005 | 4.10 | % | 5.37 | % | 5.98 | % | |||||||||
| Fund at Market Price |
— | 2.05 | 5.41 | 4.63 | ||||||||||||
| % Premium/Discount to NAV3 | ||||||||||||||||
| –11.67 | % | |||||||||||||||
| Distributions4 | ||||||||||||||||
| Total Distributions per share for the period |
$ | 1.080 | ||||||||||||||
| Distribution Rate at NAV |
6.57 | % | ||||||||||||||
| Distribution Rate at Market Price |
7.43 | % | ||||||||||||||
| % Total Leverage5 | ||||||||||||||||
| Derivatives |
24.32 | % | ||||||||||||||
| Borrowings |
22.31 | |||||||||||||||
Fund Profile
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 market price (as applicable) with all distributions reinvested and includes management fees and other expenses. Fund performance at market price will differ from its results at NAV due to factors such as changing perceptions about the Fund, market conditions, fluctuations in supply and demand for Fund shares, or changes in Fund distributions. Investment return and principal value will fluctuate so that shares, when sold, 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, current Fund performance may be lower or higher than the quoted return. For performance as of the most recent month-end, please refer to eatonvance.com.
| 3 |
Eaton Vance
Short Duration Diversified Income Fund
October 31, 2014
Endnotes and Additional Disclosures
| 4 |
Eaton Vance
Short Duration Diversified Income Fund
October 31, 2014
Consolidated Portfolio of Investments
| 5 | See Notes to Consolidated Financial Statements. |
Eaton Vance
Short Duration Diversified Income Fund
October 31, 2014
Consolidated Portfolio of Investments — continued
| 6 | See Notes to Consolidated Financial Statements. |
Eaton Vance
Short Duration Diversified Income Fund
October 31, 2014
Consolidated Portfolio of Investments — continued
| 7 | See Notes to Consolidated Financial Statements. |
Eaton Vance
Short Duration Diversified Income Fund
October 31, 2014
Consolidated Portfolio of Investments — continued
| 8 | See Notes to Consolidated Financial Statements. |
Eaton Vance
Short Duration Diversified Income Fund
October 31, 2014
Consolidated Portfolio of Investments — continued
| 9 | See Notes to Consolidated Financial Statements. |
Eaton Vance
Short Duration Diversified Income Fund
October 31, 2014
Consolidated Portfolio of Investments — continued
| 10 | See Notes to Consolidated Financial Statements. |
Eaton Vance
Short Duration Diversified Income Fund
October 31, 2014
Consolidated Portfolio of Investments — continued
| 11 | See Notes to Consolidated Financial Statements. |
Eaton Vance
Short Duration Diversified Income Fund
October 31, 2014
Consolidated Portfolio of Investments — continued
| 12 | See Notes to Consolidated Financial Statements. |
Eaton Vance
Short Duration Diversified Income Fund
October 31, 2014
Consolidated Portfolio of Investments — continued
| 13 | See Notes to Consolidated Financial Statements. |
Eaton Vance
Short Duration Diversified Income Fund
October 31, 2014
Consolidated Portfolio of Investments — continued
| 14 | See Notes to Consolidated Financial Statements. |
Eaton Vance
Short Duration Diversified Income Fund
October 31, 2014
Consolidated Portfolio of Investments — continued
| 15 | See Notes to Consolidated Financial Statements. |
Eaton Vance
Short Duration Diversified Income Fund
October 31, 2014
Consolidated Portfolio of Investments — continued
| 16 | See Notes to Consolidated Financial Statements. |
Eaton Vance
Short Duration Diversified Income Fund
October 31, 2014
Consolidated Portfolio of Investments — continued
| 17 | See Notes to Consolidated Financial Statements. |
Eaton Vance
Short Duration Diversified Income Fund
October 31, 2014
Consolidated Portfolio of Investments — continued
| 18 | See Notes to Consolidated Financial Statements. |
Eaton Vance
Short Duration Diversified Income Fund
October 31, 2014
Consolidated Portfolio of Investments — continued
| 19 | See Notes to Consolidated Financial Statements. |
Eaton Vance
Short Duration Diversified Income Fund
October 31, 2014
Consolidated Portfolio of Investments — continued
| 20 | See Notes to Consolidated Financial Statements. |
Eaton Vance
Short Duration Diversified Income Fund
October 31, 2014
Consolidated Portfolio of Investments — continued
| 21 | See Notes to Consolidated Financial Statements. |
Eaton Vance
Short Duration Diversified Income Fund
October 31, 2014
Consolidated Portfolio of Investments — continued
| 22 | See Notes to Consolidated Financial Statements. |
Eaton Vance
Short Duration Diversified Income Fund
October 31, 2014
Consolidated Statement of Assets and Liabilities
| Assets | October 31, 2014 | |||
| Unaffiliated investments, at value (identified cost, $420,230,695) |
$ | 422,704,698 | ||
| Affiliated investment, at value (identified cost, $6,172,400) |
6,172,400 | |||
| Cash |
2,112,442 | |||
| Restricted cash* |
295,284 | |||
| Foreign currency, at value (identified cost, $1,055,092) |
1,040,371 | |||
| Interest receivable |
2,475,574 | |||
| Interest receivable from affiliated investment |
1,690 | |||
| Receivable for investments sold |
581,104 | |||
| Receivable for open forward foreign currency exchange contracts |
2,810,986 | |||
| Receivable for open swap contracts |
559,300 | |||
| Premium paid on open swap contracts |
503,211 | |||
| Tax reclaims receivable |
21,418 | |||
| Other assets |
5,253 | |||
| Total assets |
$ | 439,283,731 | ||
| Liabilities | ||||
| Notes payable |
$ | 128,000,000 | ||
| Cash collateral due to brokers |
295,074 | |||
| Payable for investments purchased |
1,541,639 | |||
| Payable for Fund shares repurchased |
8,755 | |||
| Payable for variation margin on open centrally cleared swap contracts |
350 | |||
| Payable for open forward foreign currency exchange contracts |
1,781,385 | |||
| Payable for open swap contracts |
734,751 | |||
| Payable to affiliates: |
||||
| Investment adviser fee |
326,152 | |||
| Trustees’ fees |
2,000 | |||
| Accrued expenses |
383,314 | |||
| Total liabilities |
$ | 133,073,420 | ||
| Net Assets |
$ | 306,210,311 | ||
| Sources of Net Assets | ||||
| Common shares, $0.01 par value, unlimited number of shares authorized, 18,602,496 shares issued and outstanding |
$ | 186,025 | ||
| Additional paid-in capital |
325,980,905 | |||
| Accumulated net realized loss |
(22,764,862 | ) | ||
| Accumulated distributions in excess of net investment income |
(501,328 | ) | ||
| Net unrealized appreciation |
3,309,571 | |||
| Net Assets |
$ | 306,210,311 | ||
| Net Asset Value | ||||
| ($306,210,311 ÷ 18,602,496 common shares issued and outstanding) |
$ | 16.46 | ||
| * | Represents restricted cash on deposit at the custodian and the broker for open derivative contracts. |
| 23 | See Notes to Consolidated Financial Statements. |
Eaton Vance
Short Duration Diversified Income Fund
October 31, 2014
Consolidated Statement of Operations
| Investment Income | Year Ended October 31, 2014 |
|||
| Interest (net of foreign taxes, $124,950) |
$ | 20,884,665 | ||
| Dividends |
197,917 | |||
| Interest allocated from affiliated investment |
11,350 | |||
| Expenses allocated from affiliated investment |
(1,408 | ) | ||
| Total investment income |
$ | 21,092,524 | ||
| Expenses | ||||
| Investment adviser fee |
$ | 3,941,332 | ||
| Trustees’ fees and expenses |
23,209 | |||
| Custodian fee |
457,223 | |||
| Transfer and dividend disbursing agent fees |
18,536 | |||
| Legal and accounting services |
187,882 | |||
| Printing and postage |
103,434 | |||
| Interest expense and fees |
1,146,943 | |||
| Interest expense on securities sold short |
799 | |||
| Miscellaneous |
88,779 | |||
| Total expenses |
$ | 5,968,137 | ||
| Deduct — |
||||
| Reduction of custodian fee |
$ | 1,499 | ||
| Total expense reductions |
$ | 1,499 | ||
| Net expenses |
$ | 5,966,638 | ||
| Net investment income |
$ | 15,125,886 | ||
| Realized and Unrealized Gain (Loss) | ||||
| Net realized gain (loss) — |
||||
| Investment transactions (including a loss of $631,772 from precious metals) |
$ | (443,629 | ) | |
| Investment transactions allocated from affiliated investment |
116 | |||
| Written options |
161,343 | |||
| Securities sold short |
7,386 | |||
| Futures contracts |
(215,638 | ) | ||
| Swap contracts |
(512,354 | ) | ||
| Foreign currency and forward foreign currency exchange contract transactions |
(592,543 | ) | ||
| Net realized loss |
$ | (1,595,319 | ) | |
| Change in unrealized appreciation (depreciation) — |
||||
| Investments (including net increase of $454,469 from precious metals) |
$ | (4,012,287 | ) | |
| Written options |
(96,845 | ) | ||
| Securities sold short |
(4,042 | ) | ||
| Futures contracts |
12,901 | |||
| Swap contracts |
(377,840 | ) | ||
| Foreign currency and forward foreign currency exchange contracts |
1,172,606 | |||
| Net change in unrealized appreciation (depreciation) |
$ | (3,305,507 | ) | |
| Net realized and unrealized loss |
$ | (4,900,826 | ) | |
| Net increase in net assets from operations |
$ | 10,225,060 | ||
| 24 | See Notes to Consolidated Financial Statements. |
Eaton Vance
Short Duration Diversified Income Fund
October 31, 2014
Consolidated Statements of Changes in Net Assets
| Year Ended October 31, | ||||||||
| Increase (Decrease) in Net Assets | 2014 | 2013 | ||||||
| From operations — |
||||||||
| Net investment income |
$ | 15,125,886 | $ | 15,562,697 | ||||
| Net realized loss from investment transactions, written options, securities sold short, futures contracts, swap contracts, forward commodity contracts, and foreign currency and forward foreign currency exchange contract transactions |
(1,595,319 | ) | (2,850,387 | ) | ||||
| Net change in unrealized appreciation (depreciation) from investments, written options, securities sold short, futures contracts, swap contracts, forward commodity contracts, foreign currency and forward foreign currency exchange contracts |
(3,305,507 | ) | (9,201,618 | ) | ||||
| Net increase in net assets from operations |
$ | 10,225,060 | $ | 3,510,692 | ||||
| Distributions to shareholders — |
||||||||
| From net investment income |
$ | (14,281,714 | ) | $ | (13,169,455 | ) | ||
| Tax return of capital |
(6,033,550 | ) | (7,228,069 | ) | ||||
| Total distributions |
$ | (20,315,264 | ) | $ | (20,397,524 | ) | ||
| Capital share transactions — |
||||||||
| Cost of shares repurchased (see Note 5) |
$ | (4,213,097 | ) | $ | — | |||
| Net decrease in net assets from capital share transactions |
$ | (4,213,097 | ) | $ | — | |||
| Net decrease in net assets |
$ | (14,303,301 | ) | $ | (16,886,832 | ) | ||
| Net Assets | ||||||||
| At beginning of year |
$ | 320,513,612 | $ | 337,400,444 | ||||
| At end of year |
$ | 306,210,311 | $ | 320,513,612 | ||||
| Accumulated distributions in excess of net investment income included in net assets |
| |||||||
| At end of year |
$ | (501,328 | ) | $ | (321,218 | ) | ||
| 25 | See Notes to Consolidated Financial Statements. |
Eaton Vance
Short Duration Diversified Income Fund
October 31, 2014
Consolidated Statement of Cash Flows
| Cash Flows From Operating Activities | Year Ended October 31, 2014 |
|||
| Net increase in net assets from operations |
$ | 10,225,060 | ||
| Adjustments to reconcile net increase in net assets from operations to net cash used in operating activities: |
||||
| Investments purchased, including repurchases of securities sold short |
(223,174,672 | ) | ||
| Investments sold and principal repayments |
185,353,431 | |||
| Increase in short-term investments, net, excluding foreign government securities |
(1,421,670 | ) | ||
| Net amortization/accretion of premium (discount) |
8,397,067 | |||
| Decrease in restricted cash |
104,716 | |||
| Decrease in interest receivable |
101,288 | |||
| Increase in interest receivable from affiliated investment |
(969 | ) | ||
| Increase in receivable for open forward foreign currency exchange contracts |
(1,881,611 | ) | ||
| Decrease in receivable for open swap contracts |
719,594 | |||
| Decrease in premium paid on open swap contracts |
268,883 | |||
| Increase in tax reclaims receivable |
(2,117 | ) | ||
| Increase in other assets |
(209 | ) | ||
| Decrease in cash collateral due to brokers |
(104,926 | ) | ||
| Decrease in written options outstanding, at value |
(49,859 | ) | ||
| Decrease in payable for variation margin on open futures contracts |
(82,898 | ) | ||
| Increase in payable for variation margin on open centrally cleared swap contracts |
350 | |||
| Increase in payable for open forward foreign currency exchange contracts |
717,132 | |||
| Decrease in payable for open swap contracts |
(366,112 | ) | ||
| Decrease in payable to affiliate for investment adviser fee |
(13,966 | ) | ||
| Decrease in payable to affiliate for Trustees’ fees |
(178 | ) | ||
| Decrease in interest payable for securities sold short |
(1,417 | ) | ||
| Decrease in accrued expenses |
(127,539 | ) | ||
| Increase in unfunded loan commitments |
46,124 | |||
| Net change in unrealized (appreciation) depreciation from: |
||||
| Investments |
4,012,287 | |||
| Securities sold short |
4,042 | |||
| Net realized (gain) loss from: |
||||
| Investments |
443,629 | |||
| Securities sold short |
(7,386 | ) | ||
| Net cash used in operating activities |
$ | (16,841,926 | ) | |
| Cash Flows From Financing Activities | ||||
| Distributions paid, net of reinvestments |
$ | (20,315,264 | ) | |
| Repurchase of common shares |
(4,204,342 | ) | ||
| Proceeds from notes payable |
69,000,000 | |||
| Repayment of notes payable |
(36,000,000 | ) | ||
| Net cash provided by financing activities |
$ | 8,480,394 | ||
| Net decrease in cash* |
$ | (8,361,532 | ) | |
| Cash at beginning of year(1) |
$ | 11,514,345 | ||
| Cash at end of year(1) |
$ | 3,152,813 | ||
| Supplemental disclosure of cash flow information | ||||
| Cash paid for interest and fees |
$ | 1,203,729 | ||
| (1) | Balance includes foreign currency, at value. |
| * | Includes net change in unrealized appreciation (depreciation) on foreign currency of $(11,062). |
| 26 | See Notes to Consolidated Financial Statements. |
Eaton Vance
Short Duration Diversified Income Fund
October 31, 2014
Consolidated Financial Highlights
| Year Ended October 31, | ||||||||||||||||||||
| 2014 | 2013 | 2012 | 2011 | 2010 | ||||||||||||||||
| Net asset value — Beginning of year |
$ | 16.970 | $ | 17.860 | $ | 17.800 | $ | 18.270 | $ | 17.660 | ||||||||||
| Income (Loss) From Operations | ||||||||||||||||||||
| Net investment income(1) |
$ | 0.804 | $ | 0.824 | $ | 0.867 | $ | 0.822 | $ | 1.051 | ||||||||||
| Net realized and unrealized gain (loss) |
(0.261 | ) | (0.634 | ) | 0.273 | (0.132 | ) | 0.639 | ||||||||||||
| Total income from operations |
$ | 0.543 | $ | 0.190 | $ | 1.140 | $ | 0.690 | $ | 1.690 | ||||||||||
| Less Distributions | ||||||||||||||||||||
| From net investment income |
$ | (0.759 | ) | $ | (0.697 | ) | $ | (0.732 | ) | $ | (1.160 | ) | $ | (1.080 | ) | |||||
| Tax return of capital |
(0.321 | ) | (0.383 | ) | (0.348 | ) | — | — | ||||||||||||
| Total distributions |
$ | (1.080 | ) | $ | (1.080 | ) | $ | (1.080 | ) | $ | (1.160 | ) | $ | (1.080 | ) | |||||
| Anti-dilutive effect of share repurchase program (see Note 5)(1) |
$ | 0.027 | $ | — | $ | — | $ | — | $ | — | ||||||||||
| Net asset value — End of year |
$ | 16.460 | $ | 16.970 | $ | 17.860 | $ | 17.800 | $ | 18.270 | ||||||||||
| Market value — End of year |
$ | 14.530 | $ | 15.290 | $ | 17.320 | $ | 16.350 | $ | 17.600 | ||||||||||
| Total Investment Return on Net Asset Value(2) |
4.10 | % | 1.47 | % | 6.92 | % | 4.35 | % | 10.26 | % | ||||||||||
| Total Investment Return on Market Value(2) |
2.05 | % | (5.72 | )% | 12.87 | % | (0.51 | )% | 20.48 | % | ||||||||||
| Ratios/Supplemental Data | ||||||||||||||||||||
| Net assets, end of year (000’s omitted) |
$ | 306,210 | $ | 320,514 | $ | 337,400 | $ | 336,165 | $ | 345,073 | ||||||||||
| Ratios (as a percentage of average daily net assets): |
||||||||||||||||||||
| Expenses excluding interest and fees(3) |
1.53 | % | 1.55 | % | 1.47 | % | 1.38 | % | 1.27 | % | ||||||||||
| Interest and fee expense(4) |
0.36 | % | 0.47 | % | 0.55 | % | 0.51 | % | 0.46 | % | ||||||||||
| Total expenses(3) |
1.89 | % | 2.02 | % | 2.02 | % | 1.89 | % | 1.73 | % | ||||||||||
| Net investment income |
4.80 | % | 4.72 | % | 4.87 | % | 4.52 | % | 5.81 | % | ||||||||||
| Portfolio Turnover |
41 | % | 48 | % | 42 | % | 35 | % | 21 | % | ||||||||||
| Senior Securities: |
||||||||||||||||||||
| Total notes payable outstanding (in 000’s) |
$ | 128,000 | $ | 95,000 | $ | 115,000 | $ | 98,000 | $ | 98,000 | ||||||||||
| Asset coverage per $1,000 of notes payable(5) |
$ | 3,392 | $ | 4,374 | $ | 3,934 | $ | 4,430 | $ | 4,521 | ||||||||||
| (1) | Computed using average common shares outstanding. |
| (2) | Returns are historical and are calculated by determining the percentage change in net asset value or market value with all distributions reinvested. Distributions are assumed to be reinvested at prices obtained under the Fund’s dividend reinvestment plan. |
| (3) | Excludes the effect of custody fee credits, if any, of less than 0.005%. |
| (4) | Interest and fee expense relates to borrowings for the purpose of financial leverage (see Note 7) and securities sold short. |
| (5) | Calculated by subtracting the Fund’s total liabilities (not including the notes payable) from the Fund’s total assets, and dividing the result by the notes payable balance in thousands. |
| 27 | See Notes to Consolidated Financial Statements. |
Eaton Vance
Short Duration Diversified Income Fund
October 31, 2014
Notes to Consolidated Financial Statements
1 Significant Accounting Policies
Eaton Vance Short Duration Diversified Income Fund (the Fund) is a Massachusetts business trust registered under the Investment Company Act of 1940, as amended (the 1940 Act), as a diversified, closed-end management investment company. The Fund’s primary investment objective is to provide a high level of current income, with a secondary objective of seeking capital appreciation to the extent consistent with its primary goal.
The Fund seeks to gain exposure to the commodity markets, in whole or in part, through investments in Eaton Vance EVG Commodity Subsidiary, Ltd. (the Subsidiary), a wholly-owned subsidiary of the Fund organized under the laws of the Cayman Islands with the same objective and investment policies and restrictions as the Fund. The Fund may invest up to 25% of its total assets in the Subsidiary. The net assets of the Subsidiary at October 31, 2014 were $1,425,341 or 0.5% of the Fund’s consolidated net assets. The accompanying consolidated financial statements include the accounts of the Subsidiary. Intercompany balances and transactions have been eliminated in consolidation.
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 (U.S. GAAP). The Fund is an investment company and follows accounting and reporting guidance in the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification Topic 946.
A Investment Valuation — The following methodologies are used to determine the market value or fair value of investments.
Senior Floating-Rate Loans. Interests in senior floating-rate loans (Senior Loans) for which reliable market quotations are readily available are valued generally at the average mean of bid and ask quotations obtained from a third party pricing service. Other Senior Loans are valued at fair value by the investment adviser under procedures approved by the Trustees. In fair valuing a Senior Loan, the investment adviser utilizes one or more of the valuation techniques described in (i) through (iii) below to assess the likelihood that the borrower will make a full repayment of the loan underlying such Senior Loan relative to yields on other Senior Loans issued by companies of comparable credit quality. If the investment adviser believes that there is a reasonable likelihood of full repayment, the investment adviser will determine fair value using a matrix pricing approach that considers the yield on the Senior Loan. If the investment adviser believes there is not a reasonable likelihood of full repayment, the investment adviser will determine fair value using analyses that include, but are not limited to: (i) a comparison of the value of the borrower’s outstanding equity and debt to that of comparable public companies; (ii) a discounted cash flow analysis; or (iii) when the investment adviser believes it is likely that a borrower will be liquidated or sold, an analysis of the terms of such liquidation or sale. In certain cases, the investment adviser will use a combination of analytical methods to determine fair value, such as when only a portion of a borrower’s assets are likely to be sold. In conducting its assessment and analyses for purposes of determining fair value of a Senior Loan, the investment adviser will use its discretion and judgment in considering and appraising relevant factors. Fair value determinations are made by the portfolio managers of the Fund based on information available to such managers. The portfolio managers of other funds managed by the investment adviser that invest in Senior Loans may not possess the same information about a Senior Loan borrower as the portfolio managers of the Fund. At times, the fair value of a Senior Loan determined by the portfolio managers of other funds managed by the investment adviser that invest in Senior Loans may vary from the fair value of the same Senior Loan determined by the portfolio managers of the Fund. The fair value of each Senior Loan is periodically reviewed and approved by the investment adviser’s Valuation Committee and by the Trustees based upon procedures approved by the Trustees. Junior Loans (i.e., subordinated loans and second lien loans) are valued in the same manner as Senior Loans.
Debt Obligations. 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, interest rates, anticipated prepayments, 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 (excluding those that are non-U.S. dollar denominated, which typically are valued by a pricing service or dealer quotes) are generally valued at amortized cost, which approximates market value.
Equity Securities. Equity securities listed on a U.S. securities exchange generally are valued at the last sale or closing price on the day of valuation or, if no sales took place on such date, at the mean between the closing bid and asked prices therefore on the exchange where such securities are principally traded. Equity securities listed on the NASDAQ Global or Global Select Market generally are valued at the NASDAQ official closing price. Unlisted or listed securities for which closing sales prices or closing quotations are not available are valued at the mean between the latest available bid and asked prices.
Commodities. Precious metals are valued at the New York composite mean quotation reported by Bloomberg at the valuation time.
Derivatives. Exchange-traded options are valued at the mean between the bid and asked prices at valuation time as reported by the Options Price Reporting Authority for U.S. listed options or by the relevant exchange or board of trade for non-U.S. listed options. Over-the-counter options (including options on securities, indices and foreign currencies) are valued by a third party pricing service using techniques that consider factors including the value of the underlying instrument, the volatility of the underlying instrument and the period of time until option expiration. Financial and commodities futures contracts are valued at the closing settlement price established by the board of trade or exchange on which they are traded. Forward foreign currency exchange contracts are generally valued at the mean of the average bid and average asked prices that are reported by currency dealers to a third party pricing service at the valuation time. Such third party pricing service valuations are supplied for specific settlement periods and the Fund’s forward foreign currency exchange contracts are valued at an interpolated rate between the closest preceding and subsequent settlement period reported by the third party pricing service. Forward commodity contracts are generally valued based on the price of the underlying futures or forward contract provided by the exchange on which the underlying instruments are traded or if unavailable, based on forward rates provided by broker/dealers. Swaps (other than centrally cleared) are normally valued using valuations provided by a third party pricing service. Such pricing service valuations are based on the present value of
| 28 |
Eaton Vance
Short Duration Diversified Income Fund
October 31, 2014
Notes to Consolidated Financial Statements — continued
fixed and projected floating rate cash flows over the term of the swap contract, and in the case of credit default swaps, based on credit spread quotations obtained from broker/dealers and expected default recovery rates determined by the pricing service using proprietary models. In the case of total return swaps, the pricing service valuations are based on the value of the underlying index or instrument and reference interest rate. Future cash flows on swaps are discounted to their present value using swap rates provided by electronic data services or by broker/dealers. Centrally cleared swaps are valued at the daily settlement price provided by the central clearing counterparty.
Foreign Securities and Currencies. Foreign securities and currencies are valued in U.S. dollars, based on foreign currency exchange rate quotations supplied by a third party pricing service. The pricing service uses a proprietary model to determine the exchange rate. Inputs to the model include reported trades and implied bid/ask spreads.
Affiliated Fund. The Fund may invest in Eaton Vance Cash Reserves Fund, LLC (Cash Reserves Fund), an affiliated investment company managed by Eaton Vance Management (EVM). The value of the Fund’s investment in Cash Reserves Fund reflects the Fund’s proportionate interest in its net assets. Cash Reserves Fund generally values its investment securities utilizing the amortized cost valuation technique in accordance with Rule 2a-7 under the 1940 Act. This technique involves initially valuing a portfolio security at its cost and thereafter assuming a constant amortization to maturity of any discount or premium. If amortized cost is determined not to approximate fair value, Cash Reserves Fund may value its investment securities in the same manner as debt obligations described above.
Fair Valuation. 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 companies or 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 company’s or 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 — 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.
C Income — Interest income is recorded on the basis of interest accrued, adjusted for amortization of premium or accretion of discount. Dividend income is recorded on the ex-dividend date for dividends received in cash and/or securities. Fees associated with loan amendments are recognized immediately. Inflation adjustments to the principal amount of inflation-adjusted bonds and notes are reflected as interest income. Withholding taxes on foreign interest have been provided for in accordance with the Fund’s understanding of the applicable countries’ tax rules and rates.
D 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 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 Subsidiary is treated as a controlled foreign corporation under the Internal Revenue Code and is not expected to be subject to U.S. federal income tax. The Fund is treated as a U.S. shareholder of the Subsidiary. As a result, the Fund is required to include in gross income for U.S. federal tax purposes all of the Subsidiary’s income, whether or not such income is distributed by the Subsidiary. If a net loss is realized by the Subsidiary, such loss is not generally available to offset the income earned by the Fund.
As of October 31, 2014, 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.
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 Consolidated Statement of Operations.
F Foreign Currency Translation — Investment valuations, other assets, and liabilities initially expressed in foreign currencies are translated each business day into U.S. dollars based upon current exchange rates. Purchases and sales of foreign investment securities and income and expenses denominated in foreign currencies are translated into U.S. dollars based upon currency exchange rates in effect on the respective dates of such transactions. Recognized gains or losses on investment transactions attributable to changes in foreign currency exchange rates are recorded for financial statement purposes as net realized gains and losses on investments. That portion of unrealized gains and losses on investments that results from fluctuations in foreign currency exchange rates is not separately disclosed.
G Unfunded Loan Commitments — The Fund may enter into certain credit agreements all or a portion of which may be unfunded. The Fund is obligated to fund these commitments at the borrower’s discretion. These commitments are disclosed in the accompanying Consolidated Portfolio of Investments.
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Eaton Vance
Short Duration Diversified Income Fund
October 31, 2014
Notes to Consolidated Financial Statements — continued
H Use of Estimates — The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of income and expense during the reporting period. Actual results could differ from those estimates.
I Indemnifications — Under the Fund’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 Fund) could be deemed to have personal liability for the obligations of the Fund. However, the Fund’s Declaration of Trust contains an express disclaimer of liability on the part of Fund shareholders and the By-laws provide that the Fund 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.
J Financial and Commodities Futures Contracts — Upon entering into a financial or commodities 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 contract amount (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, commodity or currency, and are recorded as unrealized gains or losses by the Fund. Gains (losses) are realized upon the expiration or closing of the financial or commodities futures contracts. Should market conditions change unexpectedly, the Fund may not achieve the anticipated benefits of the financial or commodities 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 Forward Foreign Currency Exchange and Forward Commodity Contracts — The Fund may enter into forward foreign currency exchange contracts for the purchase or sale of a specific foreign currency at a fixed price on a future date. The forward foreign currency exchange contracts are adjusted by the daily exchange rate of the underlying currency and any gains or losses are recorded as unrealized until such time as the contracts have been closed. Unrealized and realized gains and losses on forward commodity contracts, which are entered into for the purchase or sale of a specific commodity at a fixed price on a future date, are accounted for as described above. Risks may arise upon entering these contracts from the potential inability of counterparties to meet the terms of their contracts and, in the case of forward foreign currency exchange contracts, from movements in the value of a foreign currency relative to the U.S. dollar.
L Written Options — Upon the writing of a call or a put option, the premium received by the Fund is included in the Consolidated Statement of Assets and Liabilities as a liability. The amount of the liability is subsequently marked-to-market to reflect the current market value of the option written, in accordance with the Fund’s policies on investment valuations discussed above. Premiums received from writing options which expire are treated as realized gains. Premiums received from writing options which are exercised or are closed are added to or offset against the proceeds or amount paid on the transaction to determine the realized gain or loss. When an index option is exercised, the Fund is required to deliver an amount of cash determined by the excess of the strike price of the option over the value of the index (in the case of a put) or the excess of the value of the index over the strike price of the option (in the case of a call) at contract termination. If a put option on a security is exercised, the premium reduces the cost basis of the securities purchased by the Fund. The Fund, as a writer of an option, may have no control over whether the underlying securities or other assets may be sold (call) or purchased (put) and, as a result, bears the market risk of an unfavorable change in the price of the securities or other assets underlying the written option. The Fund may also bear the risk of not being able to enter into a closing transaction if a liquid secondary market does not exist.
M Purchased Options — Upon the purchase of a call or put option, the premium paid by the Fund is included in the Consolidated Statement of Assets and Liabilities as an investment. The amount of the investment is subsequently marked-to-market to reflect the current market value of the option purchased, in accordance with the Fund’s policies on investment valuations discussed above. As the purchaser of an index option, the Fund has the right to receive a cash payment equal to any depreciation in the value of the index below the strike price of the option (in the case of a put) or equal to any appreciation in the value of the index over the strike price of the option (in the case of a call) as of the valuation date of the option. If an option which the Fund had purchased expires on the stipulated expiration date, the Fund will realize a loss in the amount of the cost of the option. If the Fund enters into a closing sale transaction, the Fund will realize a gain or loss, depending on whether the sales proceeds from the closing sale transaction are greater or less than the cost of the option. If the Fund exercises a put option on a security, it will realize a gain or loss from the sale of the underlying security, and the proceeds from such sale will be decreased by the premium originally paid. If the Fund exercises a call option on a security, the cost of the security which the Fund purchases upon exercise will be increased by the premium originally paid. The risk associated with purchasing options is limited to the premium originally paid.
N Interest Rate Swaps — Swap contracts are privately negotiated agreements between the Fund and a counterparty. Certain swap contracts may be centrally cleared (“centrally cleared swaps”), whereby all payments made or received by the Fund pursuant to the contract are with a central clearing party (CCP) rather than the original counterparty. The CCP guarantees the performance of the original parties to the contract. Upon entering into centrally cleared swaps, the Fund is required to deposit with the CCP, either in cash or securities, an amount of initial margin determined by the CCP, which is subject to adjustment.
Pursuant to interest rate swap agreements, the Fund either makes floating-rate payments to the counterparty (or CCP in the case of centrally cleared swaps) based on a benchmark interest rate in exchange for fixed-rate payments or the Fund makes fixed-rate payments to the counterparty (or CCP in the case of a centrally cleared swap) in exchange for payments on a floating benchmark interest rate. Payments received or made are recorded as realized
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Eaton Vance
Short Duration Diversified Income Fund
October 31, 2014
Notes to Consolidated Financial Statements — continued
gains or losses. During the term of the outstanding swap agreement, changes in the underlying value of the swap are recorded as unrealized gains or losses. For centrally cleared swaps, the daily change in valuation is recorded as a receivable or payable for variation margin and settled in cash with the CCP daily. The value of the swap is determined by changes in the relationship between two rates of interest. The Fund is exposed to credit loss in the event of non-performance by the swap counterparty. In the case of centrally cleared swaps, counterparty risk is minimal due to protections provided by the CCP. Risk may also arise from movements in interest rates.
O Cross-Currency Swaps — Cross-currency swaps are interest rate swaps in which interest cash flows are exchanged between two parties based on the notional amounts of two different currencies. The notional amounts are typically determined based on the spot exchange rates at the inception of the trade. Cross-currency swaps also involve the exchange of the notional amounts at the start of the contract at the current spot rate with an agreement to re-exchange such amounts at a later date at either the same exchange rate, a specified rate or the then current spot rate. The entire principal value of a cross-currency swap is subject to the risk that the counterparty to the swap will default on its contractual delivery obligations.
P Credit Default Swaps — When the Fund is the buyer of a credit default swap contract, the Fund is entitled to receive the par (or other agreed-upon) value of a referenced debt obligation (or basket of debt obligations) from the counterparty to the contract if a credit event by a third party, such as a U.S. or foreign corporate issuer or sovereign issuer, on the debt obligation occurs. In return, the Fund pays the counterparty a periodic stream of payments over the term of the contract provided that no credit event has occurred. If no credit event occurs, the Fund would have spent the stream of payments and received no proceeds from the contract. When the Fund is the seller of a credit default swap contract, it receives the stream of payments, but is obligated to pay to the buyer of the protection an amount up to the notional amount of the swap and in certain instances take delivery of securities of the reference entity upon the occurrence of a credit event, as defined under the terms of that particular swap agreement. Credit events are contract specific but may include bankruptcy, failure to pay, restructuring, obligation acceleration and repudiation/moratorium. If the Fund is a seller of protection and a credit event occurs, the maximum potential amount of future payments that the Fund could be required to make would be an amount equal to the notional amount of the agreement. This potential amount would be partially offset by any recovery value of the respective referenced obligation, or net amount received from the settlement of a buy protection credit default swap agreement entered into by the Fund for the same referenced obligation. As the seller, the Fund may create economic leverage to its portfolio because, in addition to its total net assets, the Fund is subject to investment exposure on the notional amount of the swap. The interest fee paid or received on the swap contract, which is based on a specified interest rate on a fixed notional amount, is accrued daily as a component of unrealized appreciation (depreciation) and is recorded as realized gain upon receipt or realized loss upon payment. The Fund also records an increase or decrease to unrealized appreciation (depreciation) in an amount equal to the daily valuation. Upfront payments or receipts, if any, are recorded as other assets or other liabilities, respectively, and amortized over the life of the swap contract as realized gains or losses. For financial reporting purposes, unamortized upfront payments, if any, are netted with unrealized appreciation or depreciation on swap contracts to determine the market value of swaps as presented in Notes 6 and 9. The Fund segregates assets in the form of cash or liquid securities in an amount equal to the notional amount of the credit default swaps of which it is the seller. The Fund segregates assets in the form of cash or liquid securities in an amount equal to any unrealized depreciation of the credit default swaps of which it is the buyer, marked to market on a daily basis. These transactions involve certain risks, including the risk that the seller may be unable to fulfill the transaction.
Q Total Return Swaps — In a total return swap, the buyer receives a periodic return equal to the total return of a specified security, securities or index for a specified period of time. In return, the buyer pays the counterparty a variable stream of payments, typically based upon short-term interest rates, possibly plus or minus an agreed upon spread. During the term of the outstanding swap agreement, changes in the underlying value of the swap are recorded as unrealized gains and losses. Periodic payments received or made are recorded as realized gains or losses. The Fund is exposed to credit loss in the event of nonperformance by the swap counterparty. Risk may also arise from the unanticipated movements in value of exchange rates, interest rates, securities, or the index.
R Repurchase Agreements — A repurchase agreement is the purchase by the Fund of securities from a counterparty in exchange for cash that is coupled with an agreement to resell those securities to the counterparty at a specified date and price. When a repurchase agreement is entered, the Fund typically receives securities with a value that equals or exceeds the repurchase price, including any accrued interest earned on the agreement. The value of such securities will be marked to market daily, and cash or additional securities will be exchanged between the parties as needed. Except in the case of a repurchase agreement entered to settle a short sale, the value of the securities delivered to the Fund will be at least equal to 90% of the repurchase price during the term of the repurchase agreement. The terms of a repurchase agreement entered to settle a short sale may provide that the cash purchase price paid by the Fund is more than the value of purchased securities that effectively collateralize the repurchase price payable by the counterparty. Since in such a transaction, the Fund normally will have used the purchased securities to settle the short sale, the Fund will segregate liquid assets equal to the marked to market value of the purchased securities that it is obligated to return to the counterparty under the repurchase agreement. In the event of insolvency of the counterparty to a repurchase agreement, recovery of the repurchase price owed to the Fund may be delayed. Such an insolvency also may result in a loss to the extent that the value of the purchased securities decreases during the delay or that value has otherwise not been maintained at an amount at least equal to the repurchase price.
S Securities Sold Short — A short sale is a transaction in which the Fund sells a security it does not own in anticipation of a decline in the market value of that security. To complete such a transaction, the Fund must borrow the security to make delivery to the buyer with an obligation to replace such borrowed security at a later date. Until the security is replaced, the Fund is required to repay the lender any interest, which accrues during the period of the loan. The proceeds received from a short sale are recorded as a liability and the Fund records an unrealized gain or loss to the extent of the difference between the proceeds received and the value of the open short position on the day of determination. A gain, limited to the price at which the Fund sold the security short, or a loss, potentially unlimited as there is no upward limit on the price of a security, is recorded when the short position is terminated. Interest payable on securities sold short is recorded as an expense.
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Eaton Vance
Short Duration Diversified Income Fund
October 31, 2014
Notes to Consolidated Financial Statements — continued
T Stripped Mortgage-Backed Securities — The Fund may invest in Interest Only (IO) and Principal Only (PO) securities, a form of stripped mortgage-backed securities, whereby the IO security receives all the interest and the PO security receives all the principal on a pool of mortgage assets. The yield to maturity on an IO security is extremely sensitive to the rate of principal payments (including prepayments) on the related underlying mortgage assets, and a rapid rate of principal payments may have a material adverse effect on the yield to maturity from these securities. If the underlying mortgages experience greater than anticipated prepayments of principal, the Fund may fail to recoup its initial investment in an IO security. The market value of IO and PO securities can be unusually volatile due to changes in interest rates.
U Consolidated Statement of Cash Flows — The cash amount shown in the Consolidated Statement of Cash Flows of the Fund is the amount included in the Fund’s Consolidated Statement of Assets and Liabilities and represents the unrestricted cash on hand at its custodian and does not include any short-term investments.
2 Distributions to Shareholders and Income Tax Information
Subject to its Managed Distribution Plan, the Fund intends to make monthly distributions to shareholders and to distribute all or substantially all of its net realized capital gains (reduced by available capital loss carryforwards from prior years). In its distributions, the Fund intends to include amounts attributable to the imputed interest on foreign currency exposures through long and short positions in forward currency exchange contracts (represented by the difference between the foreign currency spot rate and the foreign currency forward rate) and the imputed interest derived from certain other derivative positions. Distributions are recorded on the ex-dividend date. Distributions to shareholders are determined in accordance with income tax regulations, which may differ from U.S. GAAP. As required by U.S. GAAP, only distributions in excess of tax basis earnings and profits are reported in the consolidated 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. In certain circumstances, a portion of distributions to shareholders may include a return of capital component.
The tax character of distributions declared for the years ended October 31, 2014 and October 31, 2013 was as follows:
| Year Ended October 31, | ||||||||
| 2014 | 2013 | |||||||
| Distributions declared from: |
||||||||
| Ordinary income |
$ | 14,281,714 | $ | 13,169,455 | ||||
| Tax return of capital |
$ | 6,033,550 | $ | 7,228,069 | ||||
During the year ended October 31, 2014, accumulated net realized loss was decreased by $2,278,572, accumulated undistributed net investment income was decreased by $1,024,282 and paid-in capital was decreased by $1,254,290 due to differences between book and tax accounting, primarily for foreign currency gain (loss), paydown gain (loss), premium amortization, swap contracts, mixed straddles, investments in partnerships and investment in the Subsidiary. These reclassifications had no effect on the net assets or net asset value per share of the Fund.
As of October 31, 2014, the components of distributable earnings (accumulated losses) and unrealized appreciation (depreciation) on a tax basis were as follows:
| Capital loss carryforward |
$ | (21,088,086 | ) | |
| Net unrealized appreciation |
$ | 1,131,467 |
The differences between components of distributable earnings (accumulated losses) on a tax basis and the amounts reflected in the Consolidated Statement of Assets and Liabilities are primarily due to wash sales, foreign currency transactions, premium amortization, swap contracts, straddle adjustments and investments in partnerships.
At October 31, 2014, the Fund, for federal income tax purposes, had a capital loss carryforward of $21,088,086 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 October 31, 2016 ($13,612,131), October 31, 2017 ($738,126), October 31, 2018 ($5,165,932) and October 31, 2019 ($1,571,897) and its character is short-term. Under tax regulations, capital losses incurred in taxable years beginning after December 2010 are considered deferred capital losses and are treated as arising on the first day of the Fund’s next taxable year, retaining the same short-term or long-term character as when originally deferred. Deferred capital losses are required to be used prior to capital loss carryforwards, which carry an expiration date. As a result of this ordering rule, capital loss carryforwards may be more likely to expire unused.
During the year ended October 31, 2014, a capital loss carryforward of $489,102 was utilized to offset net realized gains by the Fund.
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Eaton Vance
Short Duration Diversified Income Fund
October 31, 2014
Notes to Consolidated Financial Statements — continued
The cost and unrealized appreciation (depreciation) of investments of the Fund, including the Fund’s investment in the Subsidiary, at October 31, 2014, as determined on a federal income tax basis, were as follows:
| Aggregate cost |
$ | 431,851,835 | ||
| Gross unrealized appreciation |
$ | 5,574,388 | ||
| Gross unrealized depreciation |
(8,123,786 | ) | ||
| Net unrealized depreciation |
$ | (2,549,398 | ) | |
3 Investment Adviser Fee and Other Transactions with Affiliates
The investment adviser fee is earned by EVM as compensation for investment advisory services rendered to the Fund and the Subsidiary. Pursuant to the investment advisory agreement and subsequent fee reduction agreement between the Fund and EVM and the investment advisory agreement between the Subsidiary and EVM, the Fund and Subsidiary each pay EVM a fee at an annual rate of 0.75% of its respective average daily total leveraged assets (excluding its interest in the Subsidiary in the case of the Fund), subject to the limitation described below, and is payable monthly. Total leveraged assets as referred to herein represent net assets plus liabilities or obligations attributable to investment leverage and the notional value of long and short forward currency contracts, futures contracts and swaps held by the Fund. The notional value of a contract for purposes of calculating total leveraged assets is the stated dollar value of the underlying reference instrument at the time the derivative position is entered into and remains constant throughout the life of the derivative contract. However, the derivative contracts are marked to market daily and any unrealized appreciation or depreciation is reflected in the Fund’s net assets. When the Fund holds both long and short forward currency contracts in the same foreign currency, the offsetting positions are netted for purposes of determining total leveraged assets. When the Fund holds other long and short positions in foreign obligations denominated in the same currency, total leveraged assets are calculated by excluding the smaller of the long or short position.
The advisory agreements provide that if investment leverage exceeds 40% of the Fund’s total leveraged assets, EVM will not receive a management fee on total leveraged assets in excess of this amount. As of October 31, 2014, the Fund’s investment leverage was 47% of its total leveraged assets. For the year ended October 31, 2014, the Fund’s investment adviser fee amounted to $3,941,332 or 0.71% of the Fund’s average daily total leveraged assets and 1.25% of the Fund’s average daily net assets. The Fund invests its cash in Cash Reserves Fund. EVM does not currently receive a fee for advisory services provided to Cash Reserves Fund. EVM also serves as administrator of the Fund, but receives no compensation.
Trustees and officers of the Fund who are members of EVM’s organization receive remuneration for their services to the Fund out of the investment adviser fee. Trustees of the Fund who are not affiliated with EVM 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 October 31, 2014, no significant amounts have been deferred. Certain officers and Trustees of the Fund are officers of EVM.
4 Purchases and Sales of Investments
Purchases and sales of investments, other than short-term obligations and including maturities, paydowns, principal repayments on Senior Loans and securities sold short, for the year ended October 31, 2014 were as follows:
| Purchases | Sales | |||||||
| Investments (non-U.S. Government) |
$ | 145,270,552 | $ | 118,587,009 | ||||
| U.S. Government and Agency Securities |
39,931,966 | 34,087,825 | ||||||
| $ | 185,202,518 | $ | 152,674,834 | |||||
5 Common Shares of Beneficial Interest
The Fund may issue common shares pursuant to its dividend reinvestment plan. There were no common shares issued by the Fund for the years ended October 31, 2014 and October 31, 2013.
On November 11, 2013, the Board of Trustees of the Fund authorized the repurchase by the Fund of up to 10% of its then currently outstanding common shares in open-market transactions at a discount to net asset value (NAV). The repurchase program does not obligate the Fund to purchase a specific amount of shares. During the year ended October 31, 2014, the Fund repurchased 284,100 of its common shares under the share repurchase program at a cost, including brokerage commissions, of $4,213,097 and an average price per share of $14.83. The weighted average discount per share to NAV on these repurchases amounted to 10.75% for the year ended October 31, 2014.
| 33 |
Eaton Vance
Short Duration Diversified Income Fund
October 31, 2014
Notes to Consolidated Financial Statements — continued
6 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 forward foreign currency exchange contracts, futures contracts, swap contracts and written options 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 October 31, 2014 is as follows:
| Forward Foreign Currency Exchange Contracts | ||||||||||||||||||
| Settlement Date |
Deliver | In Exchange For | Counterparty | Unrealized Appreciation |
Unrealized (Depreciation) |
Net Unrealized Appreciation (Depreciation) |
||||||||||||
| 11/3/14 | Chilean Peso 799,383,290 |
United States Dollar 1,377,829 | BNP Paribas | $ | — | $ | (11,388 | ) | $ | (11,388 | ) | |||||||
| 11/3/14 | Chilean Peso 799,383,290 |
United States Dollar 1,386,254 | Citibank, N.A. | — | (2,963 | ) | (2,963 | ) | ||||||||||
| 11/3/14 | United States Dollar 1,386,254 |
Chilean Peso 799,383,290 | BNP Paribas | 2,963 | — | 2,963 | ||||||||||||
| 11/3/14 | United States Dollar 1,390,232 |
Chilean Peso 799,383,290 | Citibank, N.A. | — | (1,015 | ) | (1,015 | ) | ||||||||||
| 11/4/14 | Brazilian Real 3,796,000 |
United States Dollar 1,519,616 | Morgan Stanley & Co. International PLC | — | (12,327 | ) | (12,327 | ) | ||||||||||
| 11/4/14 | Brazilian Real 3,796,000 |
United States Dollar 1,553,064 | Standard Chartered Bank | 21,122 | — | 21,122 | ||||||||||||
| 11/4/14 | United States Dollar 1,553,064 |
Brazilian Real 3,796,000 | Morgan Stanley & Co. International PLC | — | (21,122 | ) | (21,122 | ) | ||||||||||
| 11/4/14 | United States Dollar 1,639,458 |
Brazilian Real 3,796,000 | Standard Chartered Bank | — | (107,515 | ) | (107,515 | ) | ||||||||||
| 11/5/14 | Euro 4,654,197 |
Romanian Leu 20,739,100 | BNP Paribas | 60,223 | — | 60,223 | ||||||||||||
| 11/5/14 | Romanian Leu 10,421,141 |
Euro 2,360,662 |
Bank of America, N.A. | — | (2,710 | ) | (2,710 | ) | ||||||||||
| 11/5/14 | Romanian Leu 5,274,000 |
Euro 1,193,369 |
BNP Paribas | — | (3,038 | ) | (3,038 | ) | ||||||||||
| 11/5/14 | Romanian Leu 5,043,959 |
Euro 1,132,002 |
BNP Paribas | — | (14,579 | ) | (14,579 | ) | ||||||||||
| 11/12/14 | Euro 871,603 |
United States Dollar 1,170,268 | Citibank, N.A. | 77,963 | — | 77,963 | ||||||||||||
| 11/12/14 | United States Dollar 1,417,754 |
Mexican Peso 18,902,060 | BNP Paribas | — | (14,787 | ) | (14,787 | ) | ||||||||||
| 11/12/14 | United States Dollar 1,587,709 |
Mexican Peso 20,952,000 | Deutsche Bank AG | — | (32,589 | ) | (32,589 | ) | ||||||||||
| 11/14/14 | United States Dollar 1,037,007 |
Indian Rupee 64,227,000 | Barclays Bank PLC | 7,731 | — | 7,731 | ||||||||||||
| 11/14/14 | United States Dollar 542,432 |
Indian Rupee 33,350,000 | Citibank, N.A. | 51 | — | 51 | ||||||||||||
| 11/14/14 | United States Dollar 476,120 |
Indian Rupee 29,273,000 | Deutsche Bank AG | 44 | — | 44 | ||||||||||||
| 11/14/14 | United States Dollar 1,128,740 |
Indian Rupee 69,948,000 | Standard Chartered Bank | 9,058 | — | 9,058 | ||||||||||||
| 11/14/14 | United States Dollar 2,347,263 |
Indonesian Rupiah 27,831,494,048 | Australia and New Zealand Banking Group Limited | — | (46,822 | ) | (46,822 | ) | ||||||||||
| 34 |
Eaton Vance
Short Duration Diversified Income Fund
October 31, 2014
Notes to Consolidated Financial Statements — continued
| Forward Foreign Currency Exchange Contracts (continued) | ||||||||||||||||||
| Settlement Date |
Deliver | In Exchange For | Counterparty | Unrealized Appreciation |
Unrealized (Depreciation) |
Net Unrealized Appreciation (Depreciation) |
||||||||||||
| 11/17/14 | United States Dollar 731,875 |
Singapore Dollar 935,000 | Australia and New Zealand Banking Group Limited | $ | — | $ | (4,131 | ) | $ | (4,131 | ) | |||||||
| 11/17/14 | United States Dollar 3,076,737 |
South Korean Won 3,202,729,000 | BNP Paribas | — | (88,426 | ) | (88,426 | ) | ||||||||||
| 11/20/14 | Indonesian Rupiah 2,592,239,000 |
United States Dollar 218,736 | BNP Paribas | 4,613 | — | 4,613 | ||||||||||||
| 11/20/14 | Indonesian Rupiah 2,370,157,000 |
United States Dollar 200,030 | Standard Chartered Bank | 4,252 | — | 4,252 | ||||||||||||
| 11/21/14 | Euro 894,321 |
United States Dollar 1,186,745 | Bank of America, N.A. | 65,904 | — | 65,904 | ||||||||||||
| 11/21/14 | Euro 2,005,050 |
United States Dollar 2,575,116 | Bank of America, N.A. | 62,214 | — | 62,214 | ||||||||||||
| 11/21/14 | Euro 1,276,518 |
United States Dollar 1,627,465 | Bank of America, N.A. | 27,622 | — | 27,622 | ||||||||||||
| 11/21/14 | Euro 85,074 |
United States Dollar 113,440 | Bank of America, N.A. | 6,818 | — | 6,818 | ||||||||||||
| 11/21/14 | Euro 160,100 |
United States Dollar 201,887 | Bank of America, N.A. | 1,236 | — | 1,236 | ||||||||||||
| 11/21/14 | Euro 113,122 |
United States Dollar 150,167 | Goldman Sachs International | 8,393 | — | 8,393 | ||||||||||||
| 11/21/14 | United States Dollar 409,477 |
Chilean Peso 240,875,000 | BNP Paribas | 8,447 | — | 8,447 | ||||||||||||
| 11/21/14 | United States Dollar 618,396 |
Chilean Peso 364,249,000 | Citibank, N.A. | 13,585 | — | 13,585 | ||||||||||||
| 11/21/14 | United States Dollar 981,874 |
Indian Rupee 60,724,000 | Citibank, N.A. | 5,021 | — | 5,021 | ||||||||||||
| 11/21/14 | United States Dollar 1,030,545 |
Indian Rupee 63,765,000 | JPMorgan Chase Bank, N.A. | 5,773 | — | 5,773 | ||||||||||||
| 11/21/14 | United States Dollar 970,074 |
Indian Rupee 60,033,000 | Standard Chartered Bank | 5,592 | — | 5,592 | ||||||||||||
| 11/21/14 | United States Dollar 1,748,157 |
Indonesian Rupiah 21,542,540,000 | Deutsche Bank AG | 31,091 | — | 31,091 | ||||||||||||
| 11/21/14 | United States Dollar 2,469,476 |
Indonesian Rupiah 30,419,007,000 | Goldman Sachs International | 42,900 | — | 42,900 | ||||||||||||
| 11/24/14 | United States Dollar 2,380,155 |
Singapore Dollar 3,020,000 | Standard Chartered Bank | — | (29,668 | ) | (29,668 | ) | ||||||||||
| 11/26/14 | Euro 6,716,354 |
United States Dollar 9,010,511 | Morgan Stanley & Co. International PLC | 592,730 | — | 592,730 | ||||||||||||
| 11/26/14 | United States Dollar 562,327 |
Euro 419,003 |
Standard Chartered Bank | — | (37,180 | ) | (37,180 | ) | ||||||||||
| 11/28/14 | Euro 3,448,673 |
United States Dollar 4,551,576 | Goldman Sachs International | 229,209 | — | 229,209 | ||||||||||||
| 11/28/14 | United States Dollar 562,642 |
Euro 445,072 |
Goldman Sachs International | — | (4,814 | ) | (4,814 | ) | ||||||||||
| 11/28/14 | United States Dollar 2,253,834 |
Israeli Shekel 8,227,282 | BNP Paribas | — | (88,788 | ) | (88,788 | ) | ||||||||||
| 12/2/14 | United States Dollar 1,507,905 |
Brazilian Real 3,796,000 | Morgan Stanley & Co. International PLC | 10,908 | — | 10,908 | ||||||||||||
| 35 |
Eaton Vance
Short Duration Diversified Income Fund
October 31, 2014
Notes to Consolidated Financial Statements — continued
| Forward Foreign Currency Exchange Contracts (continued) | ||||||||||||||||||
| Settlement Date |
Deliver | In Exchange For | Counterparty | Unrealized Appreciation |
Unrealized (Depreciation) |
Net Unrealized Appreciation (Depreciation) |
||||||||||||
| 12/4/14 | British Pound Sterling 1,778,000 |
Euro 2,212,433 |
Standard Chartered Bank | $ | — | $ | (70,532 | ) | $ | (70,532 | ) | |||||||
| 12/4/14 | Euro 4,673,285 |
British Pound Sterling 3,719,000 | Deutsche Bank AG | 90,387 | — | 90,387 | ||||||||||||
| 12/9/14 | Ghanaian Cedi 1,184,000 |
United States Dollar 431,330 | Citibank, N.A. | 73,444 | — | 73,444 | ||||||||||||
| 12/9/14 | Ghanaian Cedi 1,175,000 |
United States Dollar 431,193 | Standard Bank PLC | 76,028 | — | 76,028 | ||||||||||||
| 12/9/14 | Ghanaian Cedi 1,183,000 |
United States Dollar 431,358 | Standard Bank PLC | 73,775 | — | 73,775 | ||||||||||||
| 12/9/14 | United States Dollar 395,550 |
Ghanaian Cedi 1,184,000 | Citibank, N.A. | — | (37,665 | ) | (37,665 | ) | ||||||||||
| 12/9/14 | United States Dollar 787,759 |
Ghanaian Cedi 2,358,000 | Standard Bank PLC | — | (75,012 | ) | (75,012 | ) | ||||||||||
| 12/9/14 | United States Dollar 1,213,794 |
Indian Rupee 74,357,000 | Citibank, N.A. | — | (8,174 | ) | (8,174 | ) | ||||||||||
| 12/11/14 | Euro 2,409,215 |
Norwegian Krone 19,841,000 | Standard Chartered Bank | — | (81,940 | ) | (81,940 | ) | ||||||||||
| 12/11/14 | Euro 2,414,081 |
Swedish Krona 22,193,000 | Deutsche Bank AG | — | (20,198 | ) | (20,198 | ) | ||||||||||
| 12/11/14 | New Zealand Dollar 3,153,000 |
United States Dollar 2,582,228 | Standard Chartered Bank | 133,264 | — | 133,264 | ||||||||||||
| 12/11/14 | United States Dollar 2,587,699 |
New Zealand Dollar 3,153,000 | Morgan Stanley & Co. International PLC | — | (138,735 | ) | (138,735 | ) | ||||||||||
| 12/12/14 | Euro 1,266,709 |
United States Dollar 1,639,741 | BNP Paribas | 51,978 | — | 51,978 | ||||||||||||
| 12/12/14 | Ghanaian Cedi 1,196,000 |
United States Dollar 431,146 | Standard Bank PLC | 70,310 | — | 70,310 | ||||||||||||
| 12/12/14 | United States Dollar 398,999 |
Ghanaian Cedi 1,196,000 | Standard Bank PLC | — | (38,162 | ) | (38,162 | ) | ||||||||||
| 12/15/14 | United States Dollar 2,402,847 |
Yuan Renminbi Offshore 14,821,000 | Citibank, N.A. | 7,319 | — | 7,319 | ||||||||||||
| 12/15/14 | United States Dollar 1,541,929 |
Yuan Renminbi Offshore 9,510,000 | Deutsche Bank AG | 4,571 | — | 4,571 | ||||||||||||
| 12/16/14 | United States Dollar 310,345 |
Zambian Kwacha 1,980,000 | Barclays Bank PLC | 349 | — | 349 | ||||||||||||
| 12/19/14 | Ghanaian Cedi 1,203,000 |
United States Dollar 431,183 | Standard Bank PLC | 69,810 | — | 69,810 | ||||||||||||
| 12/19/14 | United States Dollar 400,000 |
Ghanaian Cedi 1,203,000 | Standard Bank PLC | — | (38,627 | ) | (38,627 | ) | ||||||||||
| 12/19/14 | United States Dollar 1,669,332 |
Mauritian Rupee 52,200,000 | Citibank, N.A. | — | (7,711 | ) | (7,711 | ) | ||||||||||
| 12/22/14 | United States Dollar 697,632 |
Chilean Peso 411,408,000 | JPMorgan Chase Bank, N.A. | 14,275 | — | 14,275 | ||||||||||||
| 12/26/14 | United States Dollar 3,334,821 |
Peruvian New Sol 9,716,000 | BNP Paribas | — | (30,445 | ) | (30,445 | ) | ||||||||||
| 12/26/14 | United States Dollar 2,833,934 |
Peruvian New Sol 8,251,000 | Citibank, N.A. | — | (27,800 | ) | (27,800 | ) | ||||||||||
| 36 |
Eaton Vance
Short Duration Diversified Income Fund
October 31, 2014
Notes to Consolidated Financial Statements — continued
| Forward Foreign Currency Exchange Contracts (continued) | ||||||||||||||||||
| Settlement Date |
Deliver | In Exchange For | Counterparty | Unrealized Appreciation |
Unrealized (Depreciation) |
Net Unrealized Appreciation (Depreciation) |
||||||||||||
| 12/31/14 | British Pound Sterling 1,121,762 |
United States Dollar 1,826,526 |
Goldman Sachs International | $ | 32,849 | $ | — | $ | 32,849 | |||||||||
| 12/31/14 | Euro 84,712 |
United States Dollar 107,555 |
HSBC Bank USA, N.A. | 1,359 | — | 1,359 | ||||||||||||
| 1/12/15 | United States Dollar 117,024 |
Ugandan Shilling 320,060,000 |
Citibank, N.A. | — | (1,020 | ) | (1,020 | ) | ||||||||||
| 1/12/15 | United States Dollar 683,978 |
Ugandan Shilling 1,867,261,000 |
Standard Chartered Bank | — | (7,201 | ) | (7,201 | ) | ||||||||||
| 1/13/15 | United States Dollar 2,900,084 |
Colombian Peso 5,955,323,000 |
Citibank, N.A. | — | (25,961 | ) | (25,961 | ) | ||||||||||
| 1/14/15 | United States Dollar 601,782 |
Egyptian Pound 4,390,000 |
Citibank, N.A. | 2,024 | — | 2,024 | ||||||||||||
| 1/20/15 | Euro 1,638,792 |
Polish Zloty 6,962,164 |
BNP Paribas | 4,995 | — | 4,995 | ||||||||||||
| 1/20/15 | Euro 3,446,078 |
Polish Zloty 14,636,784 |
Nomura International PLC | 9,510 | — | 9,510 | ||||||||||||
| 1/28/15 | United States Dollar 3,134,293 |
Mexican Peso 42,664,000 |
HSBC Bank USA, N.A. | 18,123 | — | 18,123 | ||||||||||||
| 1/30/15 | British Pound Sterling 84,097 |
United States Dollar 135,613 |
HSBC Bank USA, N.A. | 1,178 | — | 1,178 | ||||||||||||
| 1/30/15 | United States Dollar 1,366,818 |
Chilean Peso 799,383,290 |
BNP Paribas | 11,606 | — | 11,606 | ||||||||||||
| 2/4/15 | Euro 2,351,924 |
Romanian Leu 10,421,141 |
Bank of America, N.A. | 1,822 | — | 1,822 | ||||||||||||
| 2/5/15 | Kazakhstani Tenge 259,474,000 |
United States Dollar 1,384,969 |
Deutsche Bank AG | 54,586 | — | 54,586 | ||||||||||||
| 2/5/15 | United States Dollar 1,563,096 |
Kazakhstani Tenge 259,474,000 | Deutsche Bank AG | — | (232,713 | ) | (232,713 | ) | ||||||||||
| 2/6/15 | United States Dollar 483,871 |
Uruguayan Peso 12,000,000 | Citibank, N.A. | — | (1,494 | ) | (1,494 | ) | ||||||||||
| 2/13/15 | United States Dollar 513,078 |
Uruguayan Peso 12,750,000 | Citibank, N.A. | — | (1,695 | ) | (1,695 | ) | ||||||||||
| 2/23/15 | Argentine Peso 1,000,000 |
United States Dollar 96,432 | Citibank, N.A. | — | (8,728 | ) | (8,728 | ) | ||||||||||
| 2/23/15 | Argentine Peso 1,000,000 |
United States Dollar 96,395 | Citibank, N.A. | — | (8,766 | ) | (8,766 | ) | ||||||||||
| 2/23/15 | Argentine Peso 1,000,000 |
United States Dollar 95,831 | Citibank, N.A. | — | (9,329 | ) | (9,329 | ) | ||||||||||
| 2/23/15 | United States Dollar 258,621 |
Argentine Peso 3,000,000 | Citibank, N.A. | 56,860 | — | 56,860 | ||||||||||||
| 2/24/15 | Argentine Peso 770,000 |
United States Dollar 73,734 | Citibank, N.A. | — | (7,132 | ) | (7,132 | ) | ||||||||||
| 2/24/15 | Argentine Peso 1,230,000 |
United States Dollar 117,613 | Citibank, N.A. | — | (11,561 | ) | (11,561 | ) | ||||||||||
| 2/24/15 | United States Dollar 172,414 |
Argentine Peso 2,000,000 | Citibank, N.A. | 37,626 | — | 37,626 | ||||||||||||
| 2/25/15 | Argentine Peso 1,000,000 |
United States Dollar 95,547 | Citibank, N.A. | — | (9,333 | ) | (9,333 | ) | ||||||||||
| 37 |
Eaton Vance
Short Duration Diversified Income Fund
October 31, 2014
Notes to Consolidated Financial Statements — continued
| Forward Foreign Currency Exchange Contracts (continued) | ||||||||||||||||||
| Settlement Date |
Deliver | In Exchange For | Counterparty | Unrealized Appreciation |
Unrealized (Depreciation) |
Net Unrealized Appreciation (Depreciation) |
||||||||||||
| 2/25/15 | Argentine Peso 2,000,000 |
United States Dollar 192,604 | Citibank, N.A. | $ | — | $ | (17,156 | ) | $ | (17,156 | ) | |||||||
| 2/25/15 | Argentine Peso 2,000,000 |
United States Dollar 191,681 | Citibank, N.A. | — | (18,079 | ) | (18,079 | ) | ||||||||||
| 2/25/15 | United States Dollar 432,900 |
Argentine Peso 5,000,000 | Citibank, N.A. | 91,501 | — | 91,501 | ||||||||||||
| 3/5/15 | Kenyan Shilling 62,297,000 |
United States Dollar 674,940 | JPMorgan Chase Bank, N.A. | — | (3,470 | ) | (3,470 | ) | ||||||||||
| 3/12/15 | Russian Ruble 30,380,000 |
United States Dollar 777,181 | Bank of America, N.A. | 94,534 | — | 94,534 | ||||||||||||
| 3/12/15 | United States Dollar 772,144 |
Russian Ruble 30,380,000 | Credit Suisse International | — | (89,497 | ) | (89,497 | ) | ||||||||||
| 3/13/15 | Euro 256,884 |
Serbian Dinar 32,560,000 | Citibank, N.A. | 13,672 | — | 13,672 | ||||||||||||
| 3/23/15 | United States Dollar 1,076,807 |
Zambian Kwacha 7,150,000 | Standard Chartered Bank | 3,196 | — | 3,196 | ||||||||||||
| 4/30/15 | United States Dollar 710,900 |
Uruguayan Peso 18,000,000 | Citibank, N.A. | — | (6,015 | ) | (6,015 | ) | ||||||||||
| 5/21/15 | New Turkish Lira 8,058,000 |
United States Dollar 3,360,599 | BNP Paribas | — | (113,531 | ) | (113,531 | ) | ||||||||||
| 5/21/15 | United States Dollar 5,534,049 |
New Turkish Lira 13,409,000 | Standard Chartered Bank | 247,113 | — | 247,113 | ||||||||||||
| 6/11/15 | United States Dollar 309,444 |
Zambian Kwacha 2,310,000 | Standard Chartered Bank | 29,012 | — | 29,012 | ||||||||||||
| 6/12/15 | United States Dollar 191,934 |
Zambian Kwacha 1,404,000 | Citibank, N.A. | 13,702 | — | 13,702 | ||||||||||||
| 6/12/15 | United States Dollar 310,948 |
Zambian Kwacha 2,186,900 | Citibank, N.A. | 9,355 | — | 9,355 | ||||||||||||
| 6/12/15 | United States Dollar 127,284 |
Zambian Kwacha 906,900 | Citibank, N.A. | 5,544 | — | 5,544 | ||||||||||||
| 6/15/15 | United States Dollar 2,369,549 |
Ugandan Shilling 6,570,760,006 | Citibank, N.A. | — | (109,841 | ) | (109,841 | ) | ||||||||||
| 6/17/15 | United States Dollar 307,517 |
Zambian Kwacha 2,265,000 | Standard Chartered Bank | 23,619 | — | 23,619 | ||||||||||||
| 6/18/15 | United States Dollar 421,527 |
Zambian Kwacha 3,084,300 | Standard Chartered Bank | 29,224 | — | 29,224 | ||||||||||||
| 6/18/15 | United States Dollar 179,806 |
Zambian Kwacha 1,311,000 | Standard Chartered Bank | 11,788 | — | 11,788 | ||||||||||||
| 6/25/15 | United States Dollar 598,298 |
Zambian Kwacha 4,253,900 | Barclays Bank PLC | 21,797 | — | 21,797 | ||||||||||||
| 7/24/15 | United States Dollar 624,387 |
Azerbaijani Manat 509,000 | Standard Bank PLC | 9,644 | — | 9,644 | ||||||||||||
| 10/8/15 | United States Dollar 899,484 |
Azerbaijani Manat 732,000 | Standard Bank PLC | 3,774 | — | 3,774 | ||||||||||||
| $ | 2,810,986 | $ | (1,781,385 | ) | $ | 1,029,601 | ||||||||||||
| 38 |
Eaton Vance
Short Duration Diversified Income Fund
October 31, 2014
Notes to Consolidated Financial Statements — continued
| Centrally Cleared Interest Rate Swaps | ||||||||||||||||||
| Counterparty | Notional Amount (000’s omitted) |
Fund Pays/Receives Floating Rate |
Floating Rate Index |
Annual Fixed Rate |
Termination Date |
Net Unrealized Appreciation (Depreciation) |
||||||||||||
| LCH.Clearnet | HUF 80,000 | Pays | 6-month HUF BUBOR | 5.12 | % | 1/16/17 | $ | 31,953 | ||||||||||
| LCH.Clearnet | HUF 80,000 | Receives | 6-month HUF BUBOR | 7.63 | 1/16/17 | (56,311 | ) | |||||||||||
| $ | (24,358 | ) | ||||||||||||||||
| HUF | – | Hungarian Forint |
| Interest Rate Swaps | ||||||||||||||||||||
| Counterparty | Notional Amount (000’s omitted) |
Fund Pays/Receives Floating Rate |
Floating Rate Index | Annual Fixed Rate |
Termination Date |
Net Unrealized Appreciation (Depreciation) |
||||||||||||||
| Bank of America, N.A. | HUF | 139,000 | Pays | 6-month HUF BUBOR | 5.13 | % | 12/21/16 | $ | 55,557 | |||||||||||
| Bank of America, N.A. | PLN | 838 | Pays | 6-month PLN WIBOR | 4.34 | 7/30/17 | 17,908 | |||||||||||||
| Bank of America, N.A. | PLN | 838 | Receives | 6-month PLN WIBOR | 3.35 | 7/30/17 | (10,726 | ) | ||||||||||||
| Bank of America, N.A. | PLN | 2,560 | Pays | 6-month PLN WIBOR | 3.83 | 11/14/17 | 66,440 | |||||||||||||
| Bank of America, N.A. | PLN | 2,560 | Receives | 6-month PLN WIBOR | 3.61 | 11/14/17 | (59,544 | ) | ||||||||||||
| Bank of America, N.A. | PLN | 2,900 | Receives | 6-month PLN WIBOR | 3.52 | 11/16/17 | (64,310 | ) | ||||||||||||
| Barclays Bank PLC | PLN | 2,900 | Pays | 6-month PLN WIBOR | 3.81 | 11/16/17 | 74,556 | |||||||||||||
| Barclays Bank PLC | PLN | 4,890 | Pays | 6-month PLN WIBOR | 3.82 | 11/19/17 | 126,600 | |||||||||||||
| Barclays Bank PLC | PLN | 4,890 | Receives | 6-month PLN WIBOR | 3.53 | 11/19/17 | (109,163 | ) | ||||||||||||
| BNP Paribas | PLN | 2,147 | Pays | 6-month PLN WIBOR | 4.25 | 8/7/17 | 44,153 | |||||||||||||
| BNP Paribas | PLN | 2,147 | Receives | 6-month PLN WIBOR | 3.60 | 8/7/17 | (32,105 | ) | ||||||||||||
| BNP Paribas | PLN | 400 | Pays | 6-month PLN WIBOR | 3.85 | 11/13/17 | 10,476 | |||||||||||||
| BNP Paribas | PLN | 400 | Receives | 6-month PLN WIBOR | 3.38 | 11/13/17 | (8,258 | ) | ||||||||||||
| Citibank, N.A. | PLN | 2,130 | Pays | 6-month PLN WIBOR | 3.82 | 11/19/17 | 54,918 | |||||||||||||
| Citibank, N.A. | PLN | 2,130 | Receives | 6-month PLN WIBOR | 3.60 | 11/19/17 | (49,362 | ) | ||||||||||||
| Deutsche Bank AG | PLN | 550 | Pays | 6-month PLN WIBOR | 3.79 | 11/16/17 | 14,010 | |||||||||||||
| Deutsche Bank AG | PLN | 550 | Receives | 6-month PLN WIBOR | 3.60 | 11/16/17 | (12,746 | ) | ||||||||||||
| JPMorgan Chase Bank, N.A. | HUF | 139,000 | Receives | 6-month HUF BUBOR | 7.36 | 12/21/16 | (93,394 | ) | ||||||||||||
| JPMorgan Chase Bank, N.A. | HUF | 82,000 | Pays | 6-month HUF BUBOR | 5.09 | 1/20/17 | 32,195 | |||||||||||||
| JPMorgan Chase Bank, N.A. | HUF | 82,000 | Receives | 6-month HUF BUBOR | 7.75 | 1/20/17 | (58,689 | ) | ||||||||||||
| $ | (1,484 | ) | ||||||||||||||||||
| HUF | – | Hungarian Forint | ||
| PLN | – | Polish Zloty |
| Credit Default Swaps — Buy Protection | ||||||||||||||||||||||||||
| Reference Entity | Counterparty | Notional Amount (000’s omitted) |
Contract Annual Fixed Rate* |
Termination Date |
Market Value |
Unamortized Upfront Payments Received (Paid) |
Net Unrealized Appreciation (Depreciation) |
|||||||||||||||||||
| China | Bank of America, N.A. | $ | 500 | 1.00 | %(1) | 3/20/17 | $ | (8,598 | ) | $ | (7,116 | ) | $ | (15,714 | ) | |||||||||||
| China | Barclays Bank PLC | 863 | 1.00 | (1) | 3/20/17 | (14,840 | ) | (11,178 | ) | (26,018 | ) | |||||||||||||||
| China | Deutsche Bank AG | 316 | 1.00 | (1) | 3/20/17 | (5,434 | ) | (3,890 | ) | (9,324 | ) | |||||||||||||||
| China | Deutsche Bank AG | 369 | 1.00 | (1) | 3/20/17 | (6,345 | ) | (4,543 | ) | (10,888 | ) | |||||||||||||||
| Croatia | BNP Paribas | 870 | 1.00 | (1) | 12/20/17 | 25,921 | (36,749 | ) | (10,828 | ) | ||||||||||||||||
| 39 |
Eaton Vance
Short Duration Diversified Income Fund
October 31, 2014
Notes to Consolidated Financial Statements — continued
| Credit Default Swaps — Buy Protection (continued) | ||||||||||||||||||||||||||
| Reference Entity | Counterparty | Notional Amount (000’s omitted) |
Contract Annual Fixed Rate* |
Termination Date |
Market Value |
Unamortized Upfront Payments Received (Paid) |
Net Unrealized Appreciation (Depreciation) |
|||||||||||||||||||
| Croatia | Citibank, N.A. | $ | 1,500 | 1.00 | %(1) | 12/20/17 | $ | 44,691 | $ | (62,603 | ) | $ | (17,912 | ) | ||||||||||||
| Egypt | Bank of America, N.A. | 1,400 | 1.00 | (1) | 9/20/15 | 8,348 | (11,862 | ) | (3,514 | ) | ||||||||||||||||
| Egypt | Citibank, N.A. | 300 | 1.00 | (1) | 6/20/20 | 25,586 | (18,744 | ) | 6,842 | |||||||||||||||||
| Egypt | Deutsche Bank AG | 300 | 1.00 | (1) | 6/20/20 | 25,587 | (16,667 | ) | 8,920 | |||||||||||||||||
| Egypt | Deutsche Bank AG | 350 | 1.00 | (1) | 6/20/20 | 29,851 | (21,972 | ) | 7,879 | |||||||||||||||||
| Egypt | Deutsche Bank AG | 300 | 1.00 | (1) | 6/20/20 | 25,587 | (18,859 | ) | 6,728 | |||||||||||||||||
| Guatemala | Citibank, N.A. | 1,286 | 1.00 | (1) | 9/20/20 | 90,255 | (58,137 | ) | 32,118 | |||||||||||||||||
| Lebanon | Barclays Bank PLC | 500 | 1.00 | (1) | 12/20/14 | (289 | ) | (1,033 | ) | (1,322 | ) | |||||||||||||||
| Lebanon | Barclays Bank PLC | 100 | 1.00 | (1) | 3/20/15 | 40 | (548 | ) | (508 | ) | ||||||||||||||||
| Lebanon | Barclays Bank PLC | 100 | 1.00 | (1) | 3/20/15 | 39 | (626 | ) | (587 | ) | ||||||||||||||||
| Lebanon | Barclays Bank PLC | 300 | 1.00 | (1) | 3/20/15 | 119 | (1,614 | ) | (1,495 | ) | ||||||||||||||||
| Lebanon | Citibank, N.A. | 350 | 1.00 | (1) | 12/20/14 | (202 | ) | (709 | ) | (911 | ) | |||||||||||||||
| Lebanon | Citibank, N.A. | 500 | 1.00 | (1) | 12/20/14 | (289 | ) | (1,033 | ) | (1,322 | ) | |||||||||||||||
| Lebanon | Citibank, N.A. | 1,000 | 1.00 | (1) | 12/20/14 | (578 | ) | (2,098 | ) | (2,676 | ) | |||||||||||||||
| Lebanon | Citibank, N.A. | 300 | 1.00 | (1) | 3/20/15 | 120 | (1,438 | ) | (1,318 | ) | ||||||||||||||||
| Lebanon | Credit Suisse International | 200 | 1.00 | (1) | 3/20/15 | 80 | (1,082 | ) | (1,002 | ) | ||||||||||||||||
| Lebanon | Credit Suisse International | 800 | 1.00 | (1) | 3/20/15 | 318 | (4,301 | ) | (3,983 | ) | ||||||||||||||||
| Lebanon | Credit Suisse International | 100 | 1.00 | (1) | 6/20/15 | 138 | (836 | ) | (698 | ) | ||||||||||||||||
| Lebanon | Deutsche Bank AG | 200 | 1.00 | (1) | 3/20/15 | 79 | (998 | ) | (919 | ) | ||||||||||||||||
| Lebanon | Deutsche Bank AG | 100 | 1.00 | (1) | 6/20/15 | 138 | (836 | ) | (698 | ) | ||||||||||||||||
| Lebanon | HSBC Bank USA, N.A. | 1,250 | 1.00 | (1) | 12/20/17 | 72,772 | (111,676 | ) | (38,904 | ) | ||||||||||||||||
| Philippines | Barclays Bank PLC | 1,100 | 1.85 | 12/20/14 | (4,829 | ) | — | (4,829 | ) | |||||||||||||||||
| Philippines | Barclays Bank PLC | 655 | 1.00 | (1) | 3/20/15 | (2,914 | ) | (1,450 | ) | (4,364 | ) | |||||||||||||||
| Philippines | Citibank, N.A. | 800 | 1.84 | 12/20/14 | (3,492 | ) | — | (3,492 | ) | |||||||||||||||||
| Philippines | JPMorgan Chase Bank, N.A. | 656 | 1.00 | (1) | 3/20/15 | (2,919 | ) | (1,452 | ) | (4,371 | ) | |||||||||||||||
| Thailand | Barclays Bank PLC | 1,900 | 0.97 | 9/20/19 | (18,827 | ) | — | (18,827 | ) | |||||||||||||||||
| Thailand | Citibank, N.A. | 1,600 | 0.86 | 12/20/14 | (3,191 | ) | — | (3,191 | ) | |||||||||||||||||
| Thailand | Citibank, N.A. | 900 | 0.95 | 9/20/19 | (8,049 | ) | — | (8,049 | ) | |||||||||||||||||
| Thailand | JPMorgan Chase Bank, N.A. | 800 | 0.87 | 12/20/14 | (1,616 | ) | — | (1,616 | ) | |||||||||||||||||
| Tunisia | Barclays Bank PLC | 350 | 1.00 | (1) | 9/20/17 | 11,449 | (18,567 | ) | (7,118 | ) | ||||||||||||||||
| Tunisia | Citibank, N.A. | 360 | 1.00 | (1) | 9/20/17 | 11,776 | (20,014 | ) | (8,238 | ) | ||||||||||||||||
| Tunisia | Deutsche Bank AG | 500 | 1.00 | (1) | 6/20/17 | 14,098 | (20,860 | ) | (6,762 | ) | ||||||||||||||||
| Tunisia | Goldman Sachs International | 300 | 1.00 | (1) | 9/20/17 | 9,813 | (14,048 | ) | (4,235 | ) | ||||||||||||||||
| Tunisia | Nomura International PLC | 400 | 1.00 | (1) | 12/20/17 | 14,851 | (25,672 | ) | (10,821 | ) | ||||||||||||||||
| $ | 329,244 | $ | (503,211 | ) | $ | (173,967 | ) | |||||||||||||||||||
| * | The contract annual fixed rate represents the fixed rate of interest received by the Fund (as a seller of protection) or paid by the Fund (as a buyer of protection) annually on the notional amount of the credit default swap contract. |
| (1) | Upfront payment is exchanged with the counterparty as a result of the standardized trading coupon. |
| 40 |
Eaton Vance
Short Duration Diversified Income Fund
October 31, 2014
Notes to Consolidated Financial Statements — continued
Written options activity for the year ended October 31, 2014 was as follows:
| Principal Amount of Contracts (000’s omitted) |
Principal Amount of Contracts (000’s omitted) |
Principal Amount of Contracts (000’s omitted) |
Premiums Received |
|||||||||||||
| Outstanding, beginning of year |
INR 225,360 | COP — | GBP | 10,151 | $ | 146,704 | ||||||||||
| Options written |
184,670 | 1,558,590 | — | 14,639 | ||||||||||||
| Options expired |
(410,030 | ) | (1,558,590 | ) | (10,151 | ) | (161,343 | ) | ||||||||
| Outstanding, end of year |
INR — | COP — | GBP | — | $ | — | ||||||||||
| COP | – | Colombian Peso | ||
| GBP | – | British Pound Sterling | ||
| INR | – | Indian Rupee |
At October 31, 2014, the Fund had sufficient cash and/or securities to cover commitments under these contracts.
In the normal course of pursuing its investment objectives, the Fund is subject to the following risks:
Commodity Risk: During the year ended October 31, 2014, the Fund invested in commodities-linked derivative investments, including commodity futures contracts, that provided exposure to the investment returns of certain commodities. Commodities-linked derivative investments were used to enhance total return and/or as a substitute for the purchase or sale of commodities.
Credit Risk: The Fund enters into credit default swap contracts to manage certain investment risks and/or to enhance total return.
Foreign Exchange Risk: The Fund engages in forward foreign currency exchange contracts, currency options and total return swaps to enhance total return, to seek to hedge against fluctuations in currency exchange rates and/or as a substitute for the purchase or sale of securities or currencies.
Interest Rate Risk: The Fund utilizes various interest rate derivatives including interest rate futures contracts and interest rate swaps to enhance total return, to seek to hedge against fluctuations in interest rates, and/or to change the effective duration of its portfolio.
The Fund enters into swap contracts (other than centrally cleared swaps), over-the-counter written options and forward foreign currency exchange contracts that may contain provisions whereby the counterparty may terminate the contract under certain conditions, including but not limited to a decline in the Fund’s net assets below a certain level over a certain period of time, which would trigger a payment by the Fund for those derivatives in a liability position. At October 31, 2014, the fair value of derivatives with credit-related contingent features in a net liability position was $2,362,094. The aggregate fair value of assets pledged as collateral by the Fund for such liability was $918,170 at October 31, 2014.
The over-the-counter (OTC) derivatives in which the Fund invests are subject to the risk that the counterparty to the contract fails to perform its obligations under the contract. The Fund is not subject to counterparty credit risk with respect to its written options as the Fund, not the counterparty, is obligated to perform under such derivatives. To mitigate this risk, the Fund (and Subsidiary) has entered into an International Swaps and Derivatives Association, Inc. Master Agreement (“ISDA Master Agreement”) or similar agreement with substantially all its derivative counterparties. An ISDA Master Agreement is a bilateral agreement between the Fund and a counterparty that governs certain OTC derivatives and typically contains, among other things, set-off provisions in the event of a default and/or termination event as defined under the relevant ISDA Master Agreement. Under an ISDA Master Agreement, the Fund (and Subsidiary) may, under certain circumstances, offset with the counterparty certain derivative financial instruments’ payables and/or receivables with collateral held and/or posted and create one single net payment. The provisions of the ISDA Master Agreement typically permit a single net payment in the event of default including the bankruptcy or insolvency of the counterparty. However, bankruptcy or insolvency laws of a particular jurisdiction may impose restrictions on or prohibitions against the right of offset in bankruptcy or insolvency. Certain ISDA Master Agreements allow counterparties to OTC derivatives to terminate derivative contracts prior to maturity in the event the Fund’s net assets decline by a stated percentage or the Fund fails to meet the terms of its ISDA Master Agreements, which would cause the counterparty to accelerate payment by the Fund of any net liability owed to it.
The collateral requirements for derivatives traded under an ISDA Master Agreement are governed by a Credit Support Annex to the ISDA Master Agreement. Collateral requirements are determined at the close of business each day and are typically based on changes in market values for each transaction under an ISDA Master Agreement and netted into one amount for such agreement. Generally, the amount of collateral due from or to a counterparty is subject to a minimum transfer threshold amount before a transfer is required, which may vary by counterparty. Collateral pledged for the benefit of the Fund (and Subsidiary) and/or counterparty is held in segregated accounts by the Fund’s custodian and cannot be sold, re-pledged, assigned or otherwise used while pledged. The portion of such collateral representing cash, if any, is reflected as restricted cash and, in the case of cash pledged by a counterparty for the benefit of the Fund, a corresponding liability on the Consolidated Statement of Assets and Liabilities. Securities pledged by the Fund as collateral, if any,
| 41 |
Eaton Vance
Short Duration Diversified Income Fund
October 31, 2014
Notes to Consolidated Financial Statements — continued
are identified as such in the Consolidated Portfolio of Investments. The carrying amount of the liability for cash collateral due to brokers at October 31, 2014 approximated its fair value. If measured at fair value, such liability would have been considered as Level 2 in the fair value hierarchy (see Note 9) at October 31, 2014. Because the Subsidiary is not registered under the 1940 Act, it may not be able to negotiate terms with its counterparties that are equivalent to those a registered fund may negotiate. As a result, the Subsidiary may have greater exposure to those counterparties than a registered fund.
The fair value of open derivative instruments (not considered to be hedging instruments for accounting disclosure purposes) by risk exposure at October 31, 2014 was as follows:
| Fair Value | ||||||||||||||||
| Consolidated Statement of Assets and Liabilities Caption | Credit | Foreign Exchange |
Interest Rate |
Total | ||||||||||||
| Net unrealized appreciation* |
$ | — | $ | — | $ | 31,953 | $ | 31,953 | ||||||||
| Receivable for open forward foreign currency exchange contracts |
— | 2,810,986 | — | 2,810,986 | ||||||||||||
| Receivable for open swap contracts; Premium paid on open swap contracts |
411,656 | — | 496,813 | 908,469 | ||||||||||||
| Total Asset Derivatives |
$ | 411,656 | $ | 2,810,986 | $ | 528,766 | $ | 3,751,408 | ||||||||
| Derivatives not subject to master netting or similar agreements |
$ | — | $ | — | $ | 31,953 | $ | 31,953 | ||||||||
| Total Asset Derivatives subject to master netting or similar agreements |
$ | 411,656 | $ | 2,810,986 | $ | 496,813 | $ | 3,719,455 | ||||||||
| Credit | Foreign Exchange |
Interest Rate |
Total | |||||||||||||
| Net unrealized appreciation* |
$ | — | $ | — | $ | (56,311 | ) | $ | (56,311 | ) | ||||||
| Payable for open forward foreign currency exchange contracts |
— | (1,781,385 | ) | — | (1,781,385 | ) | ||||||||||
| Payable for open swap contracts; Premium paid on open swap contracts |
(82,412 | ) | — | (498,297 | ) | (580,709 | ) | |||||||||
| Total Liability Derivatives |
$ | (82,412 | ) | $ | (1,781,385 | ) | $ | (554,608 | ) | $ | (2,418,405 | ) | ||||
| Derivatives not subject to master netting or similar agreements |
$ | — | $ | — | $ | (56,311 | ) | $ | (56,311 | ) | ||||||
| Total Liability Derivatives subject to master netting or similar agreements |
$ | (82,412 | ) | $ | (1,781,385 | ) | $ | (498,297 | ) | $ | (2,362,094 | ) | ||||
| * | Amount represents cumulative unrealized appreciation or (depreciation) on centrally cleared swap contracts in the Centrally Cleared Swaps Contracts table above. Only the current day’s variation margin on open centrally cleared swap contracts is reported within the Consolidated Statement of Assets and Liabilities as Receivable or Payable for variation margin, as applicable. |
During the current reporting period, the Fund adopted the new disclosure requirements for offsetting assets and liabilities, pursuant to which an entity is required to disclose both gross and net information for assets and liabilities related to derivatives, repurchase and reverse repurchase agreements, and securities lending and securities borrowing transactions that are eligible for offset or subject to an enforceable master netting or similar agreement. The Fund’s derivative assets and liabilities at fair value by risk, which are reported gross in the Consolidated Statement of Assets and Liabilities, are presented in the table above. The following tables present the Fund’s derivative assets and liabilities by counterparty, net of amounts available for offset under a
| 42 |
Eaton Vance
Short Duration Diversified Income Fund
October 31, 2014
Notes to Consolidated Financial Statements — continued
master netting agreement and net of the related collateral received by the Fund (and Subsidiary) for assets and pledged by the Fund (and Subsidiary) for liabilities as of October 31, 2014.
| Counterparty | Derivative Assets Subject to Master Netting Agreement |
Derivatives Available for Offset |
Non-cash Collateral Received(a) |
Cash Collateral Received(a) |
Net Amount of Derivative Assets(b) |
|||||||||||||||
| Bank of America, N.A. |
$ | 408,403 | $ | (145,888 | ) | $ | — | $ | — | $ | 262,515 | |||||||||
| Barclays Bank PLC |
242,680 | (150,862 | ) | — | — | 91,818 | ||||||||||||||
| BNP Paribas |
225,375 | (225,375 | ) | — | — | — | ||||||||||||||
| Citibank, N.A. |
635,013 | (386,601 | ) | — | (248,412 | ) | — | |||||||||||||
| Credit Suisse International |
536 | (536 | ) | — | — | — | ||||||||||||||
| Deutsche Bank AG |
290,029 | (290,029 | ) | — | — | — | ||||||||||||||
| Goldman Sachs International |
323,164 | (4,814 | ) | — | — | 318,350 | ||||||||||||||
| HSBC Bank USA, N.A. |
93,432 | — | (93,432 | ) | — | — | ||||||||||||||
| JPMorgan Chase Bank, N.A. |
52,243 | (52,243 | ) | — | — | — | ||||||||||||||
| Morgan Stanley & Co. International PLC |
603,638 | (172,184 | ) | (319,224 | ) | — | 112,230 | |||||||||||||
| Nomura International PLC |
24,361 | — | — | — | 24,361 | |||||||||||||||
| Standard Bank PLC |
303,341 | (151,801 | ) | — | — | 151,540 | ||||||||||||||
| Standard Chartered Bank |
517,240 | (334,036 | ) | — | — | 183,204 | ||||||||||||||
| $ | 3,719,455 | $ | (1,914,369 | ) | $ | (412,656 | ) | $ | (248,412 | ) | $ | 1,144,018 | ||||||||
| Counterparty | Derivative Liabilities Subject to Master Netting Agreement |
Derivatives Available for Offset |
Non-cash Collateral Pledged(a) |
Cash Collateral Pledged(a) |
Net Amount of Derivative Liabilities(c) |
|||||||||||||||
| Australia and New Zealand Banking Group Limited |
$ | (50,953 | ) | $ | — | $ | — | $ | — | $ | (50,953 | ) | ||||||||
| Bank of America, N.A. |
(145,888 | ) | 145,888 | — | — | — | ||||||||||||||
| Barclays Bank PLC |
(150,862 | ) | 150,862 | — | — | — | ||||||||||||||
| BNP Paribas |
(405,345 | ) | 225,375 | 179,970 | — | — | ||||||||||||||
| Citibank, N.A. |
(386,601 | ) | 386,601 | — | — | — | ||||||||||||||
| Credit Suisse International |
(89,497 | ) | 536 | — | — | (88,961 | ) | |||||||||||||
| Deutsche Bank AG |
(310,025 | ) | 290,029 | 19,996 | — | — | ||||||||||||||
| Goldman Sachs International |
(4,814 | ) | 4,814 | — | — | — | ||||||||||||||
| JPMorgan Chase Bank, N.A. |
(160,088 | ) | 52,243 | 107,845 | — | — | ||||||||||||||
| Morgan Stanley & Co. International PLC |
(172,184 | ) | 172,184 | — | — | — | ||||||||||||||
| Standard Bank PLC |
(151,801 | ) | 151,801 | — | — | — | ||||||||||||||
| Standard Chartered Bank |
(334,036 | ) | 334,036 | — | — | — | ||||||||||||||
| $ | (2,362,094 | ) | $ | 1,914,369 | $ | 307,811 | $ | — | $ | (139,914 | ) | |||||||||
| (a) | In some instances, the actual collateral received and/or pledged may be more than the amount shown due to overcollateralization. |
| (b) | Net amount represents the net amount due from the counterparty in the event of default. |
| (c) | Net amount represents the net amount payable to the counterparty in the event of default. |
| 43 |
Eaton Vance
Short Duration Diversified Income Fund
October 31, 2014
Notes to Consolidated Financial Statements — continued
The effect of derivative instruments (not considered to be hedging instruments for accounting disclosure purposes) on the Consolidated Statement of Operations by risk exposure for the year ended October 31, 2014 was as follows:
| Consolidated Statement of Operations Caption | Commodity | Credit | Foreign Exchange |
Interest Rate |
||||||||||||
| Net realized gain (loss) — |
||||||||||||||||
| Investment transactions |
$ | — | $ | — | $ | (299,921 | ) | $ | — | |||||||
| Futures contracts |
(196,603 | ) | — | — | (19,035 | ) | ||||||||||
| Written options |
— | — | 161,343 | — | ||||||||||||
| Swap contracts |
— | (532,609 | ) | 109,006 | (88,751 | ) | ||||||||||
| Foreign currency and forward foreign currency exchange contract transactions |
— | — | (139,933 | ) | — | |||||||||||
| Total |
$ | (196,603 | ) | $ | (532,609 | ) | $ | (169,505 | ) | $ | (107,786 | ) | ||||
| Change in unrealized appreciation (depreciation) — |
||||||||||||||||
| Investments |
$ | — | $ | — | $ | 281,529 | $ | — | ||||||||
| Futures contracts |
(3,454 | ) | — | — | 16,355 | |||||||||||
| Written options |
— | — | (96,845 | ) | — | |||||||||||
| Swap contracts |
— | (458,641 | ) | (16,138 | ) | 96,939 | ||||||||||
| Foreign currency and forward foreign currency exchange contracts |
— | — | 1,164,479 | — | ||||||||||||
| Total |
$ | (3,454 | ) | $ | (458,641 | ) | $ | 1,333,025 | $ | 113,294 | ||||||
The average notional amounts of derivative contracts outstanding during the year ended October 31, 2014, which are indicative of the volume of these derivative types, were as follows:
| Futures Contracts – Long |
Futures Contracts – Short |
Forward Foreign Currency Exchange Contracts |
Swap Contracts |
|||||||||||
| $544,000 | $ | 58,000 | $ | 139,232,000 | $ | 43,549,000 | ||||||||
The average principal amount of purchased currency options contracts outstanding during the year ended October 31, 2014, which is indicative of the volume of this derivative type, was approximately $8,453,000.
7 Credit Agreement
The Fund has entered into a Credit Agreement (the Agreement) with a bank to borrow up to a limit of $150 million pursuant to a 364-day revolving line of credit. Borrowings under the Agreement are secured by the assets of the Fund. Interest is charged at a rate above the London Interbank Offered Rate (LIBOR) and is payable monthly. Under the terms of the Agreement, the Fund pays a commitment fee of 0.15% on the borrowing limit. The Fund is required to maintain certain net asset levels during the term of the Agreement. At October 31, 2014, the Fund had borrowings outstanding under the Agreement of $128,000,000 at an interest rate of 0.92%. Based on the short-term nature of the borrowings under the Agreement and the variable interest rate, the carrying amount of the borrowings at October 31, 2014 approximated its fair value. If measured at fair value, borrowings under the Agreement would have been considered as Level 2 in the fair value hierarchy (see Note 9) at October 31, 2014. For the year ended October 31, 2014, the average borrowings under the Agreement and the average interest rate (excluding fees) were $98,276,712 and 0.93%, respectively.
8 Risks Associated with Foreign Investments
The Fund’s investments in foreign instruments can be adversely affected by changes in currency exchange rates and political, economic and market developments abroad. In emerging or less developed countries, these risks can be more significant. Investment markets in emerging market countries are typically substantially smaller, less liquid and more volatile than the major markets in developed countries. Emerging market countries may have relatively unstable governments and economies. Emerging market investments often are subject to speculative trading, which typically contributes to volatility.
| 44 |
Eaton Vance
Short Duration Diversified Income Fund
October 31, 2014
Notes to Consolidated Financial Statements — continued
The Fund may have difficulties enforcing its legal or contractual rights in a foreign country. Economic data as reported by foreign governments and other issuers may be delayed, inaccurate or fraudulent. In the event of a default by a sovereign entity, there are typically no assets to be seized or cash flows to be attached. Furthermore, the willingness or ability of a foreign government to renegotiate defaulted debt may be limited.
9 Fair Value Measurements
Under generally accepted accounting principles for fair value measurements, a three-tier hierarchy to prioritize the assumptions, referred to as inputs, is used in valuation techniques to measure fair value. The three-tier hierarchy of inputs is summarized in the three broad levels listed below.
| Ÿ | Level 1 – quoted prices in active markets for identical investments |
| Ÿ | Level 2 – other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.) |
| Ÿ | Level 3 – significant unobservable inputs (including a fund’s own assumptions in determining the fair value of investments) |
In cases where the inputs used to measure fair value fall in different levels of the fair value hierarchy, the level disclosed is determined based on the lowest level input that is significant to the fair value measurement in its entirety. The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
At October 31, 2014, the hierarchy of inputs used in valuing the Fund’s investments and open derivative instruments, which are carried at value, were as follows:
| Asset Description | Level 1 | Level 2 | Level 3* | Total | ||||||||||||
| Senior Floating-Rate Interests (Less Unfunded Loan Commitments) |
$ | — | $ | 167,362,335 | $ | 20,662 | $ | 167,382,997 | ||||||||
| Collateralized Mortgage Obligations |
— | 63,792,529 | — | 63,792,529 | ||||||||||||
| Commercial Mortgage-Backed Securities |
— | 21,764,370 | — | 21,764,370 | ||||||||||||
| Mortgage Pass-Throughs |
— | 75,290,754 | — | 75,290,754 | ||||||||||||
| Asset-Backed Securities |
— | 11,841,651 | — | 11,841,651 | ||||||||||||
| Corporate Bonds & Notes |
— | 3,084,224 | — | 3,084,224 | ||||||||||||
| Foreign Corporate Bonds |
— | 728,546 | — | 728,546 | ||||||||||||
| Foreign Government Bonds |
— | 32,528,058 | — | 32,528,058 | ||||||||||||
| U.S. Treasury Obligations |
— | 9,752,340 | — | 9,752,340 | ||||||||||||
| Common Stocks |
— | 570,136 | 683,763 | 1,253,899 | ||||||||||||
| Short-Term Investments — |
||||||||||||||||
| Foreign Government Securities |
— | 32,285,324 | — | 32,285,324 | ||||||||||||
| U.S. Treasury Obligations |
— | 3,000,006 | — | 3,000,006 | ||||||||||||
| Other |
— | 6,172,400 | — | 6,172,400 | ||||||||||||
| Total Investments |
$ | — | $ | 428,172,673 | $ | 704,425 | $ | 428,877,098 | ||||||||
| Forward Foreign Currency Exchange Contracts |
$ | — | $ | 2,810,986 | $ | — | $ | 2,810,986 | ||||||||
| Swap Contracts |
— | 940,422 | — | 940,422 | ||||||||||||
| Total |
$ | — | $ | 431,924,081 | $ | 704,425 | $ | 432,628,506 | ||||||||
| Liability Description |
||||||||||||||||
| Forward Foreign Currency Exchange Contracts |
$ | — | $ | (1,781,385 | ) | $ | — | $ | (1,781,385 | ) | ||||||
| Swap Contracts |
— | (637,020 | ) | — | (637,020 | ) | ||||||||||
| Total |
$ | — | $ | (2,418,405 | ) | $ | — | $ | (2,418,405 | ) | ||||||
| * | None of the unobservable inputs for Level 3 assets, individually or collectively, had a material impact on the Fund. |
Level 3 investments at the beginning and/or end of the period in relation to net assets were not significant and accordingly, a reconciliation of Level 3 assets for the year ended October 31, 2014 is not presented.
At October 31, 2014, there were no investments transferred between Level 1 and Level 2 during the year then ended.
| 45 |
Eaton Vance
Short Duration Diversified Income Fund
October 31, 2014
Report of Independent Registered Public Accounting Firm
To the Trustees and Shareholders of Eaton Vance Short Duration Diversified Income Fund:
We have audited the accompanying consolidated statement of assets and liabilities of Eaton Vance Short Duration Diversified Income Fund and subsidiary (the “Fund”), including the consolidated portfolio of investments, as of October 31, 2014, and the related consolidated statements of operations and cash flows for the year then ended, the consolidated statements of changes in net assets for each of the two years in the period then ended, and the consolidated 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 and senior loans owned as of October 31, 2014, by correspondence with the custodian, brokers and selling or agent banks; where replies were not received from brokers and selling or agent banks, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements and consolidated financial highlights referred to above present fairly, in all material respects, the financial position of Eaton Vance Short Duration Diversified Income Fund and subsidiary as of October 31, 2014, the results of their operations and their cash flows for the year then ended, the changes in their 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
December 17, 2014
| 46 |
Eaton Vance
Short Duration Diversified Income Fund
October 31, 2014
Federal Tax Information (Unaudited)
The Form 1099-DIV you receive in February 2015 will show the tax status of all distributions paid to your account in calendar year 2014. 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 the status of qualified dividend income for individuals.
Qualified Dividend Income. For the fiscal year ended October 31, 2014, the Fund designates approximately $156,293, or up to the maximum amount of such dividends allowable pursuant to the Internal Revenue Code, as qualified dividend income eligible for the reduced tax rate of 15%.
| 47 |
Eaton Vance
Short Duration Diversified Income Fund
October 31, 2014
Dividend Reinvestment Plan
The Fund offers a dividend reinvestment plan (Plan) pursuant to which shareholders may elect to have distributions automatically reinvested in common shares (Shares) of the Fund. You may elect to participate in the Plan by completing the Dividend Reinvestment Plan Application Form. If you do not participate, you will receive all distributions in cash paid by check mailed directly to you by American Stock Transfer & Trust Company, LLC (AST) as dividend paying agent. On the distribution payment date, if the NAV per Share is equal to or less than the market price per Share plus estimated brokerage commissions, then new Shares will be issued. The number of Shares shall be determined by the greater of the NAV per Share or 95% of the market price. Otherwise, Shares generally will be purchased on the open market by AST, the Plan agent (Agent). Distributions subject to income tax (if any) are taxable whether or not Shares are reinvested.
If your Shares are in the name of a brokerage firm, bank, or other nominee, you can ask the firm or nominee to participate in the Plan on your behalf. If the nominee does not offer the Plan, you will need to request that the Fund’s transfer agent re-register your Shares in your name or you will not be able to participate.
The Agent’s service fee for handling distributions will be paid by the Fund. Plan participants will be charged their pro rata share of brokerage commissions on all open-market purchases.
Plan participants may withdraw from the Plan at any time by writing to the Agent at the address noted on the following page. If you withdraw, you will receive Shares in your name for all Shares credited to your account under the Plan. If a participant elects by written notice to the Agent to sell part or all of his or her Shares and remit the proceeds, the Agent is authorized to deduct a $5.00 fee plus brokerage commissions from the proceeds.
If you wish to participate in the Plan and your Shares are held in your own name, you may complete the form on the following page and deliver it to the Agent. Any inquiries regarding the Plan can be directed to the Agent at 1-866-439-6787.
| 48 |
Eaton Vance
Short Duration Diversified Income Fund
October 31, 2014
Application for Participation in Dividend Reinvestment Plan
This form is for shareholders who hold their common shares in their own names. If your common shares are held in the name of a brokerage firm, bank, or other nominee, you should contact your nominee to see if it will participate in the Plan on your behalf. If you wish to participate in the Plan, but your brokerage firm, bank, or nominee is unable to participate on your behalf, you should request that your common shares be re-registered in your own name which will enable your participation in the Plan.
The following authorization and appointment is given with the understanding that I may terminate it at any time by terminating my participation in the Plan as provided in the terms and conditions of the Plan.
Please print exact name on account:
Shareholder signature Date
Shareholder signature Date
Please sign exactly as your common shares are registered. All persons whose names appear on the share certificate must sign.
YOU SHOULD NOT RETURN THIS FORM IF YOU WISH TO RECEIVE YOUR DISTRIBUTIONS IN CASH. THIS IS NOT A PROXY.
This authorization form, when signed, should be mailed to the following address:
Eaton Vance Short Duration Diversified Income Fund
c/o American Stock Transfer & Trust Company, LLC
P.O. Box 922
Wall Street Station
New York, NY 10269-0560
Number of Employees
The Fund is organized as a Massachusetts business trust and is registered under the Investment Company Act of 1940, as amended, as a closed-end management investment company and has no employees.
Number of Shareholders
As of October 31, 2014, Fund records indicate that there are 9 registered shareholders and approximately 10,683 shareholders owning the Fund shares in street name, such as through brokers, banks, and financial intermediaries.
If you are a street name shareholder and wish to receive Fund reports directly, which contain important information about the Fund, please write or call:
Eaton Vance Distributors, Inc.
Two International Place
Boston, MA 02110
1-800-262-1122
New York Stock Exchange symbol
The New York Stock Exchange symbol is EVG.
| 49 |
Eaton Vance
Short Duration Diversified Income Fund
October 31, 2014
Management and Organization
Fund Management. The Trustees of Eaton Vance Short Duration Diversified Income Fund (the Fund) are responsible for the overall management and supervision of the Fund’s affairs. The Trustees and officers of the Fund 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. The “Noninterested Trustees” consist of those Trustees who are not “interested persons” of the Fund, 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 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 180 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 serves for a three year term. Each officer serves until his or her successor is elected.
| Name and Year of Birth | Position(s) with the Fund |
Term Expiring; Trustee Since(1) |
Principal Occupation(s) and Directorships During Past Five Years and Other Relevant Experience | |||
| Interested Trustee | ||||||
| Thomas E. Faust Jr. 1958 |
Class I Trustee |
Until 2015. 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 180 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 Fund. Directorships in the Last Five Years.(2) Director of EVC and Hexavest Inc. | |||
| Noninterested Trustees | ||||||
| Scott E. Eston 1956 |
Class I Trustee |
Until 2015. 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.(2) None. | |||
| Cynthia E. Frost(3) 1961 |
Class I Trustee |
Until 2015. Trustee since 2014. |
Private investor. Formerly, Chief Investment Officer of Brown University (university endowment) (2000-2012); Portfolio Strategist for Duke Management Company (university endowment manager) (1995-2000); Managing Director, Cambridge Associates (1989-1995); Consultant, Bain and Company (1987-1989); Senior Equity Analyst, BA Investment Management Company (1983-1985). Directorships in the Last Five Years. None. | |||
| George J. Gorman(3) 1952 |
Class II Trustee |
Until 2016. Trustee since 2014. |
Principal at George J. Gorman LLC (consulting firm). Formerly, Senior Partner at Ernst & Young LLP (public accounting firm) (1974-2009). Directorships in the Last Five Years. Formerly, Trustee of the Bank of America Money Market Funds Series Trust (2011-2014) and of the Ashmore Funds (2010-2014). | |||
| Valerie A. Mosley(4) 1960 |
Class III Trustee |
Until 2017. Trustee since 2014. |
Chairwoman and Chief Executive Officer of Valmo Ventures (a consulting and investment firm). Former Partner and Senior Vice President, Portfolio Manager and Investment Strategist at Wellington Management Company, LLP (investment management firm) (1992-2012). Former Chief Investment Officer, PG Corbin Asset Management (1990-1992). Formerly worked in institutional corporate bond sales at Kidder Peabody (1986-1990). Directorships in the Last Five Years.(2) Director of Dynex Capital, Inc. (mortgage REIT) (since 2013). | |||
| William H. Park 1947 |
Class II Trustee |
Until 2016. 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.(2) None. | |||
| 50 |
Eaton Vance
Short Duration Diversified Income Fund
October 31, 2014
Management and Organization — continued
| Name and Year of Birth | Position(s) with the Fund |
Term Expiring; Trustee Since(1) |
Principal Occupation(s) and Directorships During Past Five Years and Other Relevant Experience | |||
| Noninterested Trustees (continued) | ||||||
| Ronald A. Pearlman 1940 |
Class II Trustee |
Until 2016. Trustee since 2003. |
Lawyer and consultant. Formerly, Professor of Law, Georgetown University Law Center (1999-2014). Formerly, Partner, Covington & Burling LLP (law firm) (1991-2000). Formerly, Chief of Staff, Joint Committee on Taxation, U.S. Congress (1988-1990). Formerly, Deputy Assistant Secretary (Tax Policy) and Assistant Secretary (Tax Policy), U.S. Department of the Treasury (1983-1985). Directorships in the Last Five Years.(2) None. | |||
| Helen Frame Peters 1948 |
Class III Trustee |
Until 2017. 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.(2) 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). | |||
| Harriett Tee Taggart 1948 |
Class II Trustee |
Until 2016. 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.(2) 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 Class III Trustee |
Until 2017. Trustee since 2005 and Chairman since 2007. |
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.(2) None. | |||
| Principal Officers who are not Trustees | ||||||
| Name and Year of Birth | Position(s) Fund |
Officer Since(5) |
Principal Occupation(s) During Past Five Years | |||
| Payson F. Swaffield 1956 |
President | 2003 | Vice President and Chief Income Investment Officer of EVM and BMR. | |||
| Maureen A. Gemma 1960 |
Vice President, Secretary and Chief Legal Officer | 2005 | Vice President of EVM and BMR. | |||
| James F. Kirchner 1967 |
Treasurer | 2007 | Vice President of EVM and BMR. | |||
| Paul M. O’Neil 1953 |
Chief Compliance Officer | 2004 | Vice President of EVM and BMR. | |||
| (1) | Year first appointed to serve as Trustee for a fund in the Eaton Vance family of funds. Each Trustee has served continuously since appointment unless indicated otherwise. Each Trustee holds office until the annual meeting for the year in which his or her term expires and until his or her successor is elected and qualified, subject to a prior death, resignation, retirement, disqualification or removal. |
| (2) | During their respective tenures, the Trustees (except for Ms. Frost and Mr. Gorman) also served as Board members of one or more of the following funds (which operated in the years noted): eUnitsTM 2 Year U.S. Market Participation Trust: Upside to Cap / Buffered Downside (launched in 2012 and terminated in 2014); eUnitsTM 2 Year U.S. Market Participation Trust II: Upside to Cap / Buffered Downside (launched in 2012 and terminated in 2014); 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). However, Ms. Mosley did not serve as a Board member of eUnitsTM 2 Year U.S. Market Participation Trust: Upside to Cap / Buffered Downside (launched in 2012 and terminated in 2014). |
| (3) | Ms. Frost and Mr. Gorman began serving as Trustees effective May 29, 2014. |
| (4) | Ms. Mosley began serving as a Trustee effective January 1, 2014. |
| (5) | Year first elected to serve as officer of a fund in the Eaton Vance family of funds when the officer has served continuously. Otherwise, year of most recent election as an officer of a fund in the Eaton Vance family of funds. Titles may have changed since initial election. |
| 51 |
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.
Share Repurchase Program. The Fund’s Board of Trustees has approved a share repurchase program authorizing the Fund to repurchase up to 10% of its outstanding common shares as of the approved date in open-market transactions at a discount to net asset value. The repurchase program does not obligate the Fund to purchase a specific amount of shares. The Fund’s repurchase activity, including the number of shares purchased, average price and average discount to net asset value, is disclosed in the Fund’s annual and semi-annual reports to shareholders.
Additional Notice to Shareholders. If applicable, a Fund may also redeem or purchase its outstanding preferred shares in order to maintain compliance with regulatory requirements, borrowing or rating agency requirements or for other purposes as it deems appropriate or necessary.
Closed-End Fund Information. Eaton Vance closed-end funds make fund performance data and certain information about portfolio characteristics available on the Eaton Vance website shortly after the end of each month. Other information about the funds is available on the website. The funds’ net asset value per share is readily accessible on the Eaton Vance website. Portfolio holdings for the most recent month-end are also posted to the website approximately 30 days following the end of the month. This information is available at www.eatonvance.com on the fund information pages under “Individual Investors — Closed-End Funds”.
| 52 |
| 2319 10.31.14 |
Item 2. Code of Ethics
The registrant has adopted a code of ethics applicable to its Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer. The registrant undertakes to provide a copy of such code of ethics to any person upon request, without charge, by calling 1-800-262-1122.
Item 3. Audit Committee Financial Expert
The registrant’s Board has designated William H. Park, an independent trustee, as its audit committee financial expert. Mr. Park is a certified public accountant who is a consultant and private investor. Previously, he served as the Chief Financial Officer of Aveon Group, L.P. (an investment management firm), as the Vice Chairman of Commercial Industrial Finance Corp. (specialty finance company), as President and Chief Executive Officer of Prizm Capital Management, LLC (investment management firm), as Executive Vice President and Chief Financial Officer of United Asset Management Corporation (an institutional investment management firm) and as a Senior Manager at Price Waterhouse (now PricewaterhouseCoopers) (an independent registered public accounting firm).
Item 4. Principal Accountant Fees and Services
(a) –(d)
The following table presents the aggregate fees billed to the registrant for the registrant’s fiscal years ended October 31, 2013 and October 31, 2014 by the registrant’s principal accountant, Deloitte & Touche LLP (“D&T”), for professional services rendered for the audit of the registrant’s annual financial statements and fees billed for other services rendered by D&T during such periods.
| Fiscal Years Ended |
10/31/13 | 10/31/14 | ||||||
| Audit Fees |
$ | 95,110 | $ | 115,442 | ||||
| Audit-Related Fees(1) |
$ | 0 | $ | 0 | ||||
| Tax Fees(2) |
$ | 40,050 | $ | 41,340 | ||||
| All Other Fees(3) |
$ | 0 | $ | 0 | ||||
|
|
|
|
|
|||||
| Total |
$ | 135,160 | 156,782 | |||||
|
|
|
|
|
|||||
| (1) | Audit-related fees consist of the aggregate fees billed for assurance and related services that are reasonably related to the performance of the audit of the registrant’s financial statements and are not reported under the category of audit fees. |
| (2) | Tax fees consist of the aggregate fees billed for professional services rendered by the principal accountant relating to tax compliance, tax advice, and tax planning and specifically include fees for tax return preparation and other related tax compliance/planning matters. |
| (3) | All other fees consist of the aggregate fees billed for products and services provided by the principal accountant other than audit, audit-related, and tax services. |
(e)(1) The registrant’s audit committee has adopted policies and procedures relating to the pre-approval of services provided by the registrant’s principal accountant (the “Pre-Approval Policies”). The Pre-Approval Policies establish a framework intended to assist the audit committee in the proper discharge of its pre-approval responsibilities. As a general matter, the Pre-Approval Policies (i) specify certain types of audit, audit-related, tax, and other services determined to be pre-approved by the audit committee; and (ii) delineate specific procedures governing the mechanics of the pre-approval process, including the approval and monitoring of audit and non-audit service fees. Unless a service is specifically pre-approved under the Pre-Approval Policies, it must be separately pre-approved by the audit committee.
The Pre-Approval Policies and the types of audit and non-audit services pre-approved therein must be reviewed and ratified by the registrant’s audit committee at least annually. The registrant’s audit committee maintains full responsibility for the appointment, compensation, and oversight of the work of the registrant’s principal accountant.
(e)(2) No services described in paragraphs (b)-(d) above were approved by the registrant’s audit committee pursuant to the “de minimis exception” set forth in Rule 2-01 (c)(7)(i)(C) of Regulation S-X.
(f) Not applicable.
(g) The following table presents (i) the aggregate non-audit fees (i.e., fees for audit-related, tax, and other services) billed to the registrant by D&T for the registrant’s fiscal years ended October 31, 2013 and October 31, 2014; and (ii) the aggregate non-audit fees (i.e., fees for audit-related, tax, and other services) billed to the Eaton Vance organization by D&T for the same time periods.
| Fiscal Years Ended |
10/31/13 | 10/31/14 | ||||||
| Registrant |
$ | 40,050 | $ | 41,340 | ||||
| Eaton Vance(1) |
$ | 526,385 | $ | 99,750 | ||||
| (1) | The investment adviser to the registrant, as well as any of its affiliates that provide ongoing services to the registrant, are subsidiaries of Eaton Vance Corp. |
(h) The registrant’s audit committee has considered whether the provision by the registrant’s principal accountant of non-audit services to the registrant’s investment adviser and any entity controlling, controlled by, or under common control with the adviser that provides ongoing services to the registrant that were not pre-approved pursuant to Rule 2-01(c)(7)(ii) of Regulation S-X is compatible with maintaining the principal accountant’s independence.
Item 5. Audit Committee of Listed Registrants
The registrant has a separately-designated standing audit committee established in accordance with Section 3(a)(58)(A) of the Securities and Exchange Act of 1934, as amended. William H. Park (Chair), Scott E. Eston, Ronald A. Pearlman, Helen Frame Peters and Ralph F. Verni are the members of the registrant’s audit committee.
Item 6. Schedule of Investments
Please see schedule of investments contained in the Report to Stockholders included under Item 1 of this Form N-CSR.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies
The Board of Trustees of the Trust has adopted a proxy voting policy and procedure (the “Fund Policy”), pursuant to which the Trustees have delegated proxy voting responsibility to the Fund’s investment adviser and adopted the investment adviser’s proxy voting policies and procedures (the “Policies”) which are described below. The Trustees will review the Fund’s proxy voting records from time to time and will annually consider approving the Policies for the upcoming year. In the event that a conflict of interest arises between the Fund’s shareholders and the investment adviser, the administrator, or any of their affiliates or any affiliate of the Fund, the investment adviser will generally refrain from voting the proxies related to the companies giving rise to such conflict until it consults with the Board’s Special Committee except as contemplated under the Fund Policy. The Board’s Special Committee will instruct the investment adviser on the appropriate course of action.
The Policies are designed to promote accountability of a company’s management to its shareholders and to align the interests of management with those shareholders. An independent proxy voting service (“Agent”), currently Institutional Shareholder Services, Inc., has been retained to assist in the voting of proxies through the provision of vote analysis, implementation and recordkeeping and disclosure services. The investment adviser will generally vote proxies through the Agent. The Agent is required to vote all proxies and/or refer them back to the investment adviser pursuant to the Policies. It is generally the policy of the investment adviser to vote in accordance with the recommendation of the Agent. The Agent shall refer to the investment adviser proxies relating to mergers and restructurings, and the disposition of assets, termination, liquidation and mergers contained in mutual fund proxies. The investment adviser will normally vote against anti-takeover measures and other proposals designed to limit the ability of shareholders to act on possible transactions, except in the case of closed-end management investment companies. The investment adviser generally supports management on social and environmental proposals. The investment adviser may abstain from voting from time to time where it determines that the costs associated with voting a proxy outweighs the benefits derived from exercising the right to vote or the economic effect on shareholders interests or the value of the portfolio holding is indeterminable or insignificant.
In addition, the investment adviser will monitor situations that may result in a conflict of interest between the Fund’s shareholders and the investment adviser, the administrator, or any of their affiliates or any affiliate of the Fund by maintaining a list of significant existing and prospective corporate clients. The investment adviser’s personnel responsible for reviewing and voting proxies on behalf of the Fund will report any proxy received or expected to be received from a company included on that list to the personnel of the investment adviser identified in the Policies. If such personnel expects to instruct the Agent to vote such proxies in a manner inconsistent with the guidelines of the Policies or the recommendation of the Agent, the personnel will consult with members of senior management of the investment adviser to determine if a material conflict of interests exists. If it is determined that a material conflict does exist, the investment adviser will seek instruction on how to vote from the Special Committee.
Information on how the Fund voted proxies relating to portfolio securities during the most recent 12 month period ended June 30 is available (1) without charge, upon request, by calling 1-800-262-1122, and (2) on the Securities and Exchange Commission’s website at http://www.sec.gov.
Item 8. Portfolio Managers of Closed-End Management Investment Companies
Catherine M. McDermott, Scott H. Page, Eric A. Stein, Payson F. Swaffield and Andrew Szczurowski and other Eaton Vance Management (“EVM” of “Eaton Vance”) investment professionals comprise the investment team responsible for the overall and day-to-day management of the Fund’s investments as well as allocations among the Fund’s three principal investment categories.
Ms. McDermott has been an EVM portfolio manager since 2008. Mr. Page has been an EVM portfolio manager since 1996 and is Co-Director of EVM’s Bank Loan Investment Group. Mr. Stein has been an EVM portfolio manager since 2009 and is Co-Director of EVM’s Global Income Group. Mr. Swaffield has been an EVM portfolio manager since 1996 and is Chief Income Investment Officer. Mr. Szczurowski has been an analyst since 2008 and an EVM portfolio manager since 2011. Ms. McDermott and Messrs. Page, Stein, Swaffield and Szczurowski are Vice Presidents of EVM. This information is provided as of the date of filing of this report.
The following table shows, as of the Fund’s most recent fiscal year end, the number of accounts each portfolio manager managed in each of the listed categories and the total assets (in millions of dollars), in the accounts managed within each category. The table also shows the number of accounts with respect to which the advisory fee is based on the performance of the account, if any, and the total assets (in millions of dollars) in those accounts.
| Number of All Accounts |
Total Assets of All Accounts |
Number of Paying a |
Total Assets of Accounts Paying a Performance Fee |
|||||||||||||
| Catherine C. McDermott |
||||||||||||||||
| Registered Investment Companies |
2 | $ | 3,551.4 | 0 | $ | 0 | ||||||||||
| Other Pooled Investment Vehicles |
0 | $ | 0 | 0 | $ | 0 | ||||||||||
| Other Accounts |
0 | $ | 0 | 0 | $ | 0 | ||||||||||
| Scott H. Page |
||||||||||||||||
| Registered Investment Companies |
18 | $ | 32,381.3 | 0 | $ | 0 | ||||||||||
| Other Pooled Investment Vehicles |
8 | $ | 11,005.4 | (1) | 1 | $ | 143.9 | |||||||||
| Other Accounts |
3 | $ | 1,901.6 | 0 | $ | 0 | ||||||||||
| Eric A. Stein(2) |
||||||||||||||||
| Registered Investment Companies |
14 | (3) | $ | 19,256.7 | 0 | $ | 0 | |||||||||
| Other Pooled Investment Vehicles |
3 | $ | 435.9 | 1 | $ | 21.1 | ||||||||||
| Other Accounts |
0 | $ | 0 | 0 | $ | 0 | ||||||||||
| Payson F. Swaffield |
||||||||||||||||
| Registered Investment Companies |
2 | $ | 3,551.4 | 0 | $ | 0 | ||||||||||
| Other Pooled Investment Vehicles |
0 | $ | 0 | 0 | $ | 0 | ||||||||||
| Other Accounts |
0 | $ | 0 | 0 | $ | 0 | ||||||||||
| Andrew Szczurowski(2) |
||||||||||||||||
| Registered Investment Companies |
6 | $ | 6,623.5 | 0 | $ | 0 | ||||||||||
| Other Pooled Investment Vehicles |
1 | $ | 378.6 | 0 | $ | 0 | ||||||||||
| Other Accounts |
0 | $ | 0 | 0 | $ | 0 | ||||||||||
| (1) | Certain of these “Other Pooled Investment Vehicles” invest a substantial portion of their assets either in a registered investment company or in a separate pooled investment vehicle managed by this portfolio manager or another Eaton Vance portfolio manager. |
| (2) | This portfolio manager serves as portfolio manager of one or more registered investment companies and pooled investment vehicles that invest or may invest in one or more underlying registered investment companies in the Eaton Vance family of funds. The underlying investment companies may be managed by this portfolio manager or another portfolio manager. |
| (3) | This portfolio manager provides investment advice with respect to only a portion of the total assets of certain of these accounts. Only the assets allocated to this portfolio manager as of the Fund’s most recent fiscal year end are reflected in the table. |
The following table shows the dollar range of Fund shares beneficially owned by each portfolio manager as of the Fund’s most recent fiscal year end.
| Portfolio Manager | Dollar Range of Owned in the Fund | |
| Catherine C. McDermott |
None | |
| Scott H. Page |
None | |
| Eric A. Stein |
$1 - $10,000 | |
| Payson F. Swaffield |
None | |
| Andrew Szczurowski |
None |
Potential for Conflicts of Interest. It is possible that conflicts of interest may arise in connection with a portfolio manager’s management of the Fund’s investments on the one hand and investments of other accounts for which a portfolio manager is responsible on the other. For example, a portfolio manager may have conflicts of interest in allocating management time, resources and investment opportunities among the Fund and other accounts he or she advises. In addition, due to differences in the investment strategies or restrictions between the Fund and the other accounts, a portfolio manager may take action with respect to another account that differs from the action taken with respect to the Fund. In some cases, another account managed by a portfolio manager may compensate the investment adviser based on the performance of the securities held by that account. The existence of such a performance based fee may create additional conflicts of interest for a portfolio manager in the allocation of management time, resources and investment opportunities. Whenever conflicts of interest arise, a portfolio manager will endeavor to exercise his or her discretion in a manner that he or she believes is equitable to all interested persons. EVM has adopted several policies and procedures designed to address these potential conflicts including a code of ethics and policies which govern the investment adviser’s trading practices, including among other things the aggregation and allocation of trades among clients, brokerage allocation, cross trades and best execution.
Compensation Structure for EVM
Compensation of EVM’s portfolio managers and other investment professionals has three primary components: (1) a base salary, (2) an annual cash bonus, and (3) annual stock-based compensation consisting of options to purchase shares of EVC’s nonvoting common stock and/or restricted shares of EVC’s nonvoting common stock. EVM’s investment professionals also receive certain retirement, insurance and other benefits that are broadly available to EVM’s employees. Compensation of EVM’s investment professionals is reviewed primarily on an annual basis. Cash bonuses, stock-based compensation awards, and adjustments in base salary are typically paid or put into effect at or shortly after the October 31st fiscal year end of EVC.
Method to Determine Compensation. EVM compensates its portfolio managers based primarily on the scale and complexity of their portfolio responsibilities and the total return performance of managed funds and accounts versus the benchmark(s) stated in the prospectus, as well as an appropriate peer group (as described below). In addition to rankings within peer groups of funds on the basis of absolute performance, consideration may also be given to relative risk-adjusted performance. Risk-adjusted performance measures include, but are not limited to, the Sharpe Ratio. Performance is
normally based on periods ending on the September 30th preceding fiscal year end. Fund performance is normally evaluated primarily versus peer groups of funds as determined by Lipper Inc. and/or Morningstar, Inc. When a fund’s peer group as determined by Lipper or Morningstar is deemed by EVM’s management not to provide a fair comparison, performance may instead be evaluated primarily against a custom peer group or market index. In evaluating the performance of a fund and its manager, primary emphasis is normally placed on three-year performance, with secondary consideration of performance over longer and shorter periods. For funds that are tax-managed or otherwise have an objective of after-tax returns, performance is measured net of taxes. For other funds, performance is evaluated on a pre-tax basis. For funds with an investment objective other than total return (such as current income), consideration will also be given to the fund’s success in achieving its objective. For managers responsible for multiple funds and accounts, investment performance is evaluated on an aggregate basis, based on averages or weighted averages among managed funds and accounts. Funds and accounts that have performance-based advisory fees are not accorded disproportionate weightings in measuring aggregate portfolio manager performance.
The compensation of portfolio managers with other job responsibilities (such as heading an investment group or providing analytical support to other portfolios) will include consideration of the scope of such responsibilities and the managers’ performance in meeting them.
EVM seeks to compensate portfolio managers commensurate with their responsibilities and performance, and competitive with other firms within the investment management industry. EVM participates in investment-industry compensation surveys and utilizes survey data as a factor in determining salary, bonus and stock-based compensation levels for portfolio managers and other investment professionals. Salaries, bonuses and stock-based compensation are also influenced by the operating performance of EVM and its parent company. The overall annual cash bonus pool is based on a substantially fixed percentage of pre-bonus operating income. While the salaries of EVM’s portfolio managers are comparatively fixed, cash bonuses and stock-based compensation may fluctuate significantly from year to year, based on changes in manager performance and other factors as described herein. For a high performing portfolio manager, cash bonuses and stock-based compensation may represent a substantial portion of total compensation.
Item 9. Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers
REGISTRANT PURCHASES OF EQUITY SECURITIES
| Period* |
Total Number of Shares Purchased |
Average Price Paid per Share |
Total Number of Shares Purchased as Part of Publicly Announced Programs |
Maximum Number of Shares that May Yet Be Purchased Under the Programs |
||||||||||||
| November 2013 |
— | — | — | 1,888,660 | ||||||||||||
| December 2013 |
56,000 | $ | 15.18 | 56,000 | 1,832,660 | |||||||||||
| January 2014 |
— | — | — | 1,832,660 | ||||||||||||
| February 2014 |
— | — | — | 1,832,660 | ||||||||||||
| March 2014 |
— | — | — | 1,832,660 | ||||||||||||
| April 2014 |
— | — | — | 1,832,660 | ||||||||||||
| May 2014 |
— | — | — | 1,832,660 | ||||||||||||
| June 2014 |
— | — | — | 1,832,660 | ||||||||||||
| July 2014 |
— | — | — | 1,832,660 | ||||||||||||
| August 2014 |
— | — | — | 1,832,660 | ||||||||||||
| September 2014 |
149,000 | $ | 14.80 | 149,000 | 1,683,660 | |||||||||||
| October 2014 |
79,100 | $ | 14.63 | 79,100 | 1,604,560 | |||||||||||
| Total |
284,100 | $ | 14.83 | 284,100 | ||||||||||||
| * | On November 11, 2013, the Fund’s Board of Trustees approved a share repurchase program authorizing the Fund to repurchase up to 10% of its then currently outstanding common shares in open-market transactions at a discount to net asset value. The repurchase program was announced on November 15, 2013. |
Item 10. Submission of Matters to a Vote of Security Holders
No Material Changes.
Item 11. Controls and Procedures
(a) It is the conclusion of the registrant’s principal executive officer and principal financial officer that the effectiveness of the registrant’s current disclosure controls and procedures (such disclosure controls and procedures having been evaluated within 90 days of the date of this filing) provide reasonable assurance that the information required to be disclosed by the registrant has been recorded, processed, summarized and reported within the time period specified in the Commission’s rules and forms and that the information required to be disclosed by the registrant has been accumulated and communicated to the registrant’s principal executive officer and principal financial officer in order to allow timely decisions regarding required disclosure.
(b) There have been no changes in the registrant’s internal controls over financial reporting during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.
Item 12. Exhibits
| (a)(1) | Registrant’s Code of Ethics – Not applicable (please see Item 2). | |
| (a)(2)(i) | Treasurer’s Section 302 certification. | |
| (a)(2)(ii) | President’s Section 302 certification. | |
| (b) | Combined Section 906 certification. | |
| (c) | Registrant’s notices to shareholders pursuant to Registrant’s exemptive order granting an exemption from Section 19(b) of the 1940 Act and Rule 19b-1 thereunder regarding distributions paid pursuant to the Registrant’s Managed Distribution Plan. | |
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Eaton Vance Short Duration Diversified Income Fund
| By: | /s/ Payson F. Swaffield | |
| Payson F. Swaffield | ||
| President | ||
| Date: December 11, 2014 | ||
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| By: | /s/ James F. Kirchner | |
| James F. Kirchner | ||
| Treasurer | ||
| Date: December 11, 2014 | ||
| By: | /s/ Payson F. Swaffield | |
| Payson F. Swaffield | ||
| President | ||
| Date: December 11, 2014 | ||