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: 811-21323
Eaton Vance Limited Duration 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)
March 31
Date of Fiscal Year End
September 30, 2016
Date of Reporting Period
Item 1. Reports to Stockholders
Eaton Vance
Limited Duration Income Fund (EVV)
Semiannual Report
September 30, 2016
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 has claimed an exclusion from the definition of the term “commodity pool operator” under the Commodity Exchange Act. Accordingly, neither the Fund nor the adviser with respect to the operation of the Fund is subject to CFTC regulation. Because of its management of other strategies, the Fund’s adviser is registered with the CFTC as a commodity pool operator and a commodity trading advisor.
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.
Semiannual Report September 30, 2016
Eaton Vance
Limited Duration Income Fund
Table of Contents
| Performance |
2 | |||
| Fund Profile |
2 | |||
| Endnotes and Additional Disclosures |
3 | |||
| Financial Statements |
4 | |||
| Board of Trustees’ Contract Approval |
60 | |||
| Officers and Trustees |
63 | |||
| Important Notices |
64 | |||
Eaton Vance
Limited Duration Income Fund
September 30, 2016
Performance1
Portfolio Managers Scott H. Page, CFA, Payson F. Swaffield, CFA, Michael W. Weilheimer, CFA, Catherine McDermott, Andrew Szczurowski, CFA, and Eric A. Stein, CFA
| % Average Annual Total Returns | Inception Date | Six Months | One Year | Five Years | Ten Years | |||||||||||||||
| Fund at NAV |
05/30/2003 | 8.81 | % | 10.79 | % | 7.55 | % | 7.28 | % | |||||||||||
| Fund at Market Price |
— | 8.69 | 18.51 | 7.14 | 6.49 | |||||||||||||||
| % Premium/Discount to NAV2 | ||||||||||||||||||||
| –9.27 | % | |||||||||||||||||||
| Distributions3 | ||||||||||||||||||||
| Total Distributions per share for the period |
$0.595 | |||||||||||||||||||
| Distribution Rate at NAV |
6.89 | % | ||||||||||||||||||
| Distribution Rate at Market Price |
7.59 | % | ||||||||||||||||||
| % Total Leverage4 | ||||||||||||||||||||
| Auction Preferred Shares (APS) |
9.66 | % | ||||||||||||||||||
| Borrowings |
26.73 | |||||||||||||||||||
Fund Profile
MBS refers to Mortgage-Backed Securities
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 include 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 or equal to 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
Limited Duration Income Fund
September 30, 2016
Endnotes and Additional Disclosures
| 3 |
Eaton Vance
Limited Duration Income Fund
September 30, 2016
Portfolio of Investments (Unaudited)
| 4 | See Notes to Financial Statements. |
Eaton Vance
Limited Duration Income Fund
September 30, 2016
Portfolio of Investments (Unaudited) — continued
| 5 | See Notes to Financial Statements. |
Eaton Vance
Limited Duration Income Fund
September 30, 2016
Portfolio of Investments (Unaudited) — continued
| 6 | See Notes to Financial Statements. |
Eaton Vance
Limited Duration Income Fund
September 30, 2016
Portfolio of Investments (Unaudited) — continued
| 7 | See Notes to Financial Statements. |
Eaton Vance
Limited Duration Income Fund
September 30, 2016
Portfolio of Investments (Unaudited) — continued
| 8 | See Notes to Financial Statements. |
Eaton Vance
Limited Duration Income Fund
September 30, 2016
Portfolio of Investments (Unaudited) — continued
| 9 | See Notes to Financial Statements. |
Eaton Vance
Limited Duration Income Fund
September 30, 2016
Portfolio of Investments (Unaudited) — continued
| 10 | See Notes to Financial Statements. |
Eaton Vance
Limited Duration Income Fund
September 30, 2016
Portfolio of Investments (Unaudited) — continued
| 11 | See Notes to Financial Statements. |
Eaton Vance
Limited Duration Income Fund
September 30, 2016
Portfolio of Investments (Unaudited) — continued
| 12 | See Notes to Financial Statements. |
Eaton Vance
Limited Duration Income Fund
September 30, 2016
Portfolio of Investments (Unaudited) — continued
| 13 | See Notes to Financial Statements. |
Eaton Vance
Limited Duration Income Fund
September 30, 2016
Portfolio of Investments (Unaudited) — continued
| 14 | See Notes to Financial Statements. |
Eaton Vance
Limited Duration Income Fund
September 30, 2016
Portfolio of Investments (Unaudited) — continued
| 15 | See Notes to Financial Statements. |
Eaton Vance
Limited Duration Income Fund
September 30, 2016
Portfolio of Investments (Unaudited) — continued
| 16 | See Notes to Financial Statements. |
Eaton Vance
Limited Duration Income Fund
September 30, 2016
Portfolio of Investments (Unaudited) — continued
| 17 | See Notes to Financial Statements. |
Eaton Vance
Limited Duration Income Fund
September 30, 2016
Portfolio of Investments (Unaudited) — continued
| 18 | See Notes to Financial Statements. |
Eaton Vance
Limited Duration Income Fund
September 30, 2016
Portfolio of Investments (Unaudited) — continued
| 19 | See Notes to Financial Statements. |
Eaton Vance
Limited Duration Income Fund
September 30, 2016
Portfolio of Investments (Unaudited) — continued
| 20 | See Notes to Financial Statements. |
Eaton Vance
Limited Duration Income Fund
September 30, 2016
Portfolio of Investments (Unaudited) — continued
| 21 | See Notes to Financial Statements. |
Eaton Vance
Limited Duration Income Fund
September 30, 2016
Portfolio of Investments (Unaudited) — continued
| 22 | See Notes to Financial Statements. |
Eaton Vance
Limited Duration Income Fund
September 30, 2016
Portfolio of Investments (Unaudited) — continued
| 23 | See Notes to Financial Statements. |
Eaton Vance
Limited Duration Income Fund
September 30, 2016
Portfolio of Investments (Unaudited) — continued
| 24 | See Notes to Financial Statements. |
Eaton Vance
Limited Duration Income Fund
September 30, 2016
Portfolio of Investments (Unaudited) — continued
| 25 | See Notes to Financial Statements. |
Eaton Vance
Limited Duration Income Fund
September 30, 2016
Portfolio of Investments (Unaudited) — continued
| 26 | See Notes to Financial Statements. |
Eaton Vance
Limited Duration Income Fund
September 30, 2016
Portfolio of Investments (Unaudited) — continued
| 27 | See Notes to Financial Statements. |
Eaton Vance
Limited Duration Income Fund
September 30, 2016
Portfolio of Investments (Unaudited) — continued
| 28 | See Notes to Financial Statements. |
Eaton Vance
Limited Duration Income Fund
September 30, 2016
Portfolio of Investments (Unaudited) — continued
| 29 | See Notes to Financial Statements. |
Eaton Vance
Limited Duration Income Fund
September 30, 2016
Portfolio of Investments (Unaudited) — continued
| 30 | See Notes to Financial Statements. |
Eaton Vance
Limited Duration Income Fund
September 30, 2016
Portfolio of Investments (Unaudited) — continued
| 31 | See Notes to Financial Statements. |
Eaton Vance
Limited Duration Income Fund
September 30, 2016
Portfolio of Investments (Unaudited) — continued
| 32 | See Notes to Financial Statements. |
Eaton Vance
Limited Duration Income Fund
September 30, 2016
Portfolio of Investments (Unaudited) — continued
| 33 | See Notes to Financial Statements. |
Eaton Vance
Limited Duration Income Fund
September 30, 2016
Portfolio of Investments (Unaudited) — continued
| 34 | See Notes to Financial Statements. |
Eaton Vance
Limited Duration Income Fund
September 30, 2016
Portfolio of Investments (Unaudited) — continued
| 35 | See Notes to Financial Statements. |
Eaton Vance
Limited Duration Income Fund
September 30, 2016
Portfolio of Investments (Unaudited) — continued
| 36 | See Notes to Financial Statements. |
Eaton Vance
Limited Duration Income Fund
September 30, 2016
Portfolio of Investments (Unaudited) — continued
| 37 | See Notes to Financial Statements. |
Eaton Vance
Limited Duration Income Fund
September 30, 2016
Portfolio of Investments (Unaudited) — continued
| 38 | See Notes to Financial Statements. |
Eaton Vance
Limited Duration Income Fund
September 30, 2016
Portfolio of Investments (Unaudited) — continued
| Forward Foreign Currency Exchange Contracts | ||||||||||||||||||||||||
| Currency Purchased | Currency Sold | Counterparty | Settlement Date |
Unrealized Appreciation |
Unrealized (Depreciation) |
|||||||||||||||||||
| EUR | 397,297 | USD | 444,845 | State Street Bank and Trust Company | 10/4/16 | $ | 1,458 | $ | — | |||||||||||||||
| USD | 683,326 | EUR | 608,613 | State Street Bank and Trust Company | 10/4/16 | — | (359 | ) | ||||||||||||||||
| USD | 21,912 | EUR | 19,297 | Goldman Sachs International | 10/5/16 | 234 | — | |||||||||||||||||
| USD | 6,089 | EUR | 5,364 | Goldman Sachs International | 10/5/16 | 63 | — | |||||||||||||||||
| USD | 32,240 | EUR | 28,648 | Goldman Sachs International | 10/5/16 | 57 | — | |||||||||||||||||
| USD | 10,260 | EUR | 9,088 | Goldman Sachs International | 10/5/16 | 50 | — | |||||||||||||||||
| USD | 14,036 | EUR | 12,472 | Goldman Sachs International | 10/5/16 | 25 | — | |||||||||||||||||
| USD | 10,489 | EUR | 9,328 | Goldman Sachs International | 10/5/16 | 10 | — | |||||||||||||||||
| USD | 20,778 | EUR | 18,491 | Goldman Sachs International | 10/5/16 | 5 | — | |||||||||||||||||
| USD | 3,441 | EUR | 3,084 | Goldman Sachs International | 10/5/16 | — | (24 | ) | ||||||||||||||||
| USD | 28,630 | EUR | 25,643 | Goldman Sachs International | 10/5/16 | — | (178 | ) | ||||||||||||||||
| USD | 133,904 | EUR | 120,000 | Goldman Sachs International | 10/5/16 | — | (904 | ) | ||||||||||||||||
| USD | 2,418,179 | EUR | 2,177,559 | Goldman Sachs International | 10/5/16 | — | (28,092 | ) | ||||||||||||||||
| EUR | 103,366 | USD | 115,929 | Goldman Sachs International | 10/21/16 | 279 | — | |||||||||||||||||
| EUR | 80,729 | USD | 91,287 | Goldman Sachs International | 10/21/16 | — | (528 | ) | ||||||||||||||||
| 39 | See Notes to Financial Statements. |
Eaton Vance
Limited Duration Income Fund
September 30, 2016
Portfolio of Investments (Unaudited) — continued
| Forward Foreign Currency Exchange Contracts (continued) | ||||||||||||||||||||||||
| Currency Purchased | Currency Sold | Counterparty | Settlement Date |
Unrealized Appreciation |
Unrealized (Depreciation) |
|||||||||||||||||||
| EUR | 79,988 | USD | 90,688 | Goldman Sachs International | 10/21/16 | $ | — | $ | (762 | ) | ||||||||||||||
| EUR | 239,923 | USD | 271,870 | Goldman Sachs International | 10/21/16 | — | (2,141 | ) | ||||||||||||||||
| EUR | 384,480 | USD | 436,419 | Goldman Sachs International | 10/21/16 | — | (4,174 | ) | ||||||||||||||||
| USD | 432,908 | EUR | 391,452 | Goldman Sachs International | 10/21/16 | — | (7,175 | ) | ||||||||||||||||
| USD | 548,237 | EUR | 497,034 | Goldman Sachs International | 10/21/16 | — | (10,546 | ) | ||||||||||||||||
| CHF | 14,000 | USD | 14,533 | State Street Bank and Trust Company | 10/31/16 | — | (99 | ) | ||||||||||||||||
| EUR | 240,251 | USD | 269,153 | Deutsche Bank AG | 10/31/16 | 1,071 | — | |||||||||||||||||
| EUR | 324,860 | USD | 364,110 | State Street Bank and Trust Company | 10/31/16 | 1,280 | — | |||||||||||||||||
| EUR | 608,613 | USD | 684,202 | State Street Bank and Trust Company | 10/31/16 | 340 | — | |||||||||||||||||
| USD | 648,125 | CHF | 640,900 | State Street Bank and Trust Company | 10/31/16 | — | (12,629 | ) | ||||||||||||||||
| USD | 4,856,845 | EUR | 4,401,469 | Goldman Sachs International | 10/31/16 | — | (93,748 | ) | ||||||||||||||||
| USD | 918,579 | EUR | 820,000 | State Street Bank and Trust Company | 10/31/16 | — | (3,724 | ) | ||||||||||||||||
| USD | 613,509 | EUR | 550,000 | State Street Bank and Trust Company | 10/31/16 | — | (5,109 | ) | ||||||||||||||||
| USD | 769,674 | EUR | 690,000 | State Street Bank and Trust Company | 10/31/16 | — | (6,409 | ) | ||||||||||||||||
| USD | 440,264 | EUR | 400,000 | State Street Bank and Trust Company | 10/31/16 | — | (9,640 | ) | ||||||||||||||||
| USD | 11,593,813 | EUR | 10,504,135 | State Street Bank and Trust Company | 10/31/16 | — | (220,809 | ) | ||||||||||||||||
| USD | 1,454,769 | GBP | 1,106,591 | State Street Bank and Trust Company | 10/31/16 | 19,665 | — | |||||||||||||||||
| USD | 629,326 | GBP | 485,000 | State Street Bank and Trust Company | 10/31/16 | 345 | — | |||||||||||||||||
| USD | 33,955 | GBP | 26,000 | State Street Bank and Trust Company | 10/31/16 | 236 | — | |||||||||||||||||
| USD | 331,739 | EUR | 292,492 | Deutsche Bank AG | 11/21/16 | 2,457 | — | |||||||||||||||||
| USD | 200,432 | EUR | 176,360 | Deutsche Bank AG | 11/21/16 | 1,889 | — | |||||||||||||||||
| USD | 199,824 | EUR | 176,105 | Deutsche Bank AG | 11/21/16 | 1,569 | — | |||||||||||||||||
| EUR | 701,391 | USD | 787,044 | State Street Bank and Trust Company | 11/30/16 | 2,869 | — | |||||||||||||||||
| EUR | 316,952 | USD | 357,643 | State Street Bank and Trust Company | 11/30/16 | — | (688 | ) | ||||||||||||||||
| USD | 4,224,274 | CAD | 5,530,377 | Goldman Sachs International | 11/30/16 | 7,131 | — | |||||||||||||||||
| USD | 1,223,909 | CAD | 1,600,000 | HSBC Bank USA, N.A. | 11/30/16 | 3,842 | — | |||||||||||||||||
| USD | 620,690 | EUR | 550,000 | Deutsche Bank AG | 11/30/16 | 1,274 | — | |||||||||||||||||
| USD | 405,248 | EUR | 360,000 | Deutsche Bank AG | 11/30/16 | — | (188 | ) | ||||||||||||||||
| USD | 1,688,681 | EUR | 1,500,000 | Deutsche Bank AG | 11/30/16 | — | (635 | ) | ||||||||||||||||
| USD | 512,631 | EUR | 455,855 | Deutsche Bank AG | 11/30/16 | — | (758 | ) | ||||||||||||||||
| USD | 2,532,689 | EUR | 2,258,015 | Deutsche Bank AG | 11/30/16 | — | (10,311 | ) | ||||||||||||||||
| USD | 14,244,097 | EUR | 12,573,683 | State Street Bank and Trust Company | 11/30/16 | 83,484 | — | |||||||||||||||||
| USD | 512,598 | EUR | 453,158 | State Street Bank and Trust Company | 11/30/16 | 2,248 | — | |||||||||||||||||
| USD | 282,020 | EUR | 250,000 | State Street Bank and Trust Company | 11/30/16 | 467 | — | |||||||||||||||||
| USD | 281,349 | EUR | 250,000 | State Street Bank and Trust Company | 11/30/16 | — | (204 | ) | ||||||||||||||||
| USD | 445,815 | EUR | 397,297 | State Street Bank and Trust Company | 11/30/16 | — | (1,625 | ) | ||||||||||||||||
| USD | 6,076,045 | GBP | 4,589,595 | HSBC Bank USA, N.A. | 11/30/16 | 121,018 | — | |||||||||||||||||
| USD | 786,439 | EUR | 691,576 | Goldman Sachs International | 12/7/16 | 7,331 | — | |||||||||||||||||
| USD | 175,707 | EUR | 156,000 | Goldman Sachs International | 12/7/16 | — | (37 | ) | ||||||||||||||||
| USD | 2,793,618 | EUR | 2,483,958 | Goldman Sachs International | 12/7/16 | — | (4,732 | ) | ||||||||||||||||
| USD | 2,741,875 | EUR | 2,428,974 | Citibank, N.A. | 1/13/17 | 268 | — | |||||||||||||||||
| $ | 260,965 | $ | (426,228 | ) | ||||||||||||||||||||
| 40 | See Notes to Financial Statements. |
Eaton Vance
Limited Duration Income Fund
September 30, 2016
Portfolio of Investments (Unaudited) — continued
| Futures Contracts | ||||||||||||||||||||||||
| Description | Contracts | Position | Expiration Month/Year |
Aggregate Cost | Value | Net Unrealized Appreciation |
||||||||||||||||||
| Interest Rate Futures |
||||||||||||||||||||||||
| Euro-Bobl | 54 | Short | Dec-16 | $ | (7,984,183 | ) | $ | (8,012,694 | ) | $ | (28,511 | ) | ||||||||||||
| U.S. 2-Year Treasury Note | 88 | Short | Dec-16 | (19,223,875 | ) | (19,225,250 | ) | (1,375 | ) | |||||||||||||||
| U.S. 5-Year Deliverable Interest Rate Swap | 30 | Short | Dec-16 | (3,040,031 | ) | (3,040,312 | ) | (281 | ) | |||||||||||||||
| U.S. 5-Year Treasury Note | 305 | Short | Dec-16 | (37,050,076 | ) | (37,062,266 | ) | (12,190 | ) | |||||||||||||||
| U.S. 10-Year Deliverable Interest Rate Swap | 157 | Short | Dec-16 | (15,964,679 | ) | (16,048,344 | ) | (83,665 | ) | |||||||||||||||
| U.S. 10-Year Treasury Note | 165 | Short | Dec-16 | (21,656,250 | ) | (21,635,625 | ) | 20,625 | ||||||||||||||||
| $ | (105,397 | ) | ||||||||||||||||||||||
Euro-Bobl: Medium-term debt securities issued by the Federal Republic of Germany with a term to maturity of 4.5 to 5 years.
| Centrally Cleared Interest Rate Swaps | ||||||||||||||||||||||||
| Counterparty | Notional Amount (000’s omitted) |
Fund Pays/Receives Floating Rate |
Floating Rate |
Annual Fixed Rate |
Termination Date |
Net Appreciation |
||||||||||||||||||
| CME Group, Inc.(1) | USD | 119 | Receives | 3-month USD-LIBOR-BBA | 2.25 | %(2) | 12/21/46 | $ | 827 | |||||||||||||||
| LCH.Clearnet(1) | EUR | 1,227 | Receives | 6-month Euro Interbank Offered Rate | 0.25 | (2) | 12/21/21 | (3,317 | ) | |||||||||||||||
| LCH.Clearnet(1) | EUR | 82 | Receives | 6-month Euro Interbank Offered Rate | 0.75 | (2) | 12/21/26 | (907 | ) | |||||||||||||||
| $ | (3,397 | ) | ||||||||||||||||||||||
| (1) | Effective date, which represents the date on which the Fund and the counterparty to the interest rate swap begin interest payment accrual, is after September 30, 2016. |
| (2) | Upfront payment is exchanged with the counterparty as a result of the standardized trading coupon. |
| Credit Default Swaps — Sell Protection | ||||||||||||||||||||||||||||||||
| Reference Entity |
Counterparty | Notional Amount* (000’s omitted) |
Contract Annual Fixed Rate** |
Termination Date |
Current Market Annual Fixed Rate*** |
Market Value |
Unamortized Upfront Payments Received |
Net Unrealized Appreciation |
||||||||||||||||||||||||
| Bahamas | Deutsche Bank AG | $ | 1,150 | 1.00 | %(1) | 6/20/22 | 3.05 | % | $ | (117,849 | ) | $ | 118,136 | $ | 287 | |||||||||||||||||
| Brazil | Deutsche Bank AG | 1,800 | 1.00 | (1) | 9/20/20 | 2.03 | (69,098 | ) | 96,931 | 27,833 | ||||||||||||||||||||||
| Brazil | Goldman Sachs International | 600 | 1.00 | (1) | 9/20/20 | 2.03 | (23,032 | ) | 42,521 | 19,489 | ||||||||||||||||||||||
| Russia | Citibank, N.A. | 1,000 | 1.00 | (1) | 6/20/21 | 1.98 | (43,356 | ) | 54,888 | 11,532 | ||||||||||||||||||||||
| Russia | Deutsche Bank AG | 1,200 | 1.00 | (1) | 9/20/20 | 1.70 | (31,647 | ) | 103,577 | 71,930 | ||||||||||||||||||||||
| Russia | Goldman Sachs International | 600 | 1.00 | (1) | 9/20/20 | 1.70 | (15,823 | ) | 58,094 | 42,271 | ||||||||||||||||||||||
| Turkey | Deutsche Bank AG | 1,780 | 1.00 | (1) | 9/20/19 | 1.66 | (33,662 | ) | 43,192 | 9,530 | ||||||||||||||||||||||
| Total |
$ | 8,130 | $ | (334,467 | ) | $ | 517,339 | $ | 182,872 | |||||||||||||||||||||||
| * | If the Fund is the seller of credit protection, the notional amount is the maximum potential amount of future payments the Fund could be required to make if a credit event, as defined in the credit default swap agreement, were to occur. At September 30, 2016, such maximum potential amount for all open credit default swaps in which the Fund is the seller was $8,130,000. |
| ** | The contract annual fixed rate represents the fixed rate of interest received by the Fund (as a seller of protection) on the notional amount of the credit default swap contract. |
| 41 | See Notes to Financial Statements. |
Eaton Vance
Limited Duration Income Fund
September 30, 2016
Portfolio of Investments (Unaudited) — continued
| *** | Current market annual fixed rates, utilized in determining the net unrealized appreciation or depreciation as of period end, serve as an indicator of the market’s perception of the current status of the payment/performance risk associated with the credit derivative. The current market annual fixed rate of a particular reference entity reflects the cost, as quoted by the pricing vendor, of selling protection against default of that entity as of period end and may include upfront payments required to be made to enter into the agreement. The higher the fixed rate, the greater the market perceived risk of a credit event involving the reference entity. A rate identified as “Defaulted” indicates a credit event has occurred for the reference entity. |
| (1) | Upfront payment is exchanged with the counterparty as a result of the standardized trading coupon. |
Abbreviations:
| DIP | – | Debtor In Possession | ||
| PIK | – | Payment In Kind |
Currency Abbreviations:
| CAD | – | Canadian Dollar | ||
| CHF | – | Swiss Franc | ||
| EUR | – | Euro | ||
| GBP | – | British Pound Sterling | ||
| USD | – | United States Dollar |
| 42 | See Notes to Financial Statements. |
Eaton Vance
Limited Duration Income Fund
September 30, 2016
Statement of Assets and Liabilities (Unaudited)
| Assets | September 30, 2016 | |||
| Unaffiliated investments, at value (identified cost, $2,741,194,064) |
$ | 2,739,677,386 | ||
| Affiliated investment, at value (identified cost, $41,061,701) |
41,061,701 | |||
| Cash |
3,666,968 | |||
| Restricted cash* |
1,638,799 | |||
| Foreign currency, at value (identified cost, $2,724,958) |
2,737,605 | |||
| Interest receivable |
24,021,937 | |||
| Interest receivable from affiliated investment |
27,091 | |||
| Receivable for investments sold |
12,256,979 | |||
| Receivable for variation margin on open financial futures contracts |
232,245 | |||
| Receivable for open forward foreign currency exchange contracts |
260,965 | |||
| Receivable for open swap contracts |
182,872 | |||
| Receivable for closed swap contracts |
131,739 | |||
| Tax reclaims receivable |
2,417 | |||
| Prepaid upfront fees on notes payable |
1,167,286 | |||
| Prepaid expenses |
28,193 | |||
| Total assets |
$ | 2,827,094,183 | ||
| Liabilities | ||||
| Notes payable |
$ | 596,000,000 | ||
| Payable for reverse repurchase agreements, including accrued interest of $51,994 |
141,756,403 | |||
| Payable for investments purchased |
55,567,105 | |||
| Payable for when-issued securities |
6,860,604 | |||
| Payable for variation margin on open centrally cleared swap contracts |
12,288 | |||
| Payable for open forward foreign currency exchange contracts |
426,228 | |||
| Premium received on open non-centrally cleared swap contracts |
517,339 | |||
| Payable to affiliates: |
||||
| Investment adviser fee |
1,700,537 | |||
| Accrued expenses |
2,009,363 | |||
| Total liabilities |
$ | 804,849,867 | ||
| Auction preferred shares (10,665 shares outstanding) at liquidation value plus cumulative unpaid dividends |
$ | 266,640,476 | ||
| Net assets applicable to common shares |
$ | 1,755,603,840 | ||
| Sources of Net Assets | ||||
| Common shares, $0.01 par value, unlimited number of shares authorized, 116,147,018 shares issued and outstanding |
$ | 1,161,470 | ||
| Additional paid-in capital |
2,072,902,289 | |||
| Accumulated net realized loss |
(300,561,693 | ) | ||
| Accumulated distributions in excess of net investment income |
(16,122,745 | ) | ||
| Net unrealized depreciation |
(1,775,481 | ) | ||
| Net assets applicable to common shares |
$ | 1,755,603,840 | ||
| Net Asset Value Per Common Share | ||||
| ($1,755,603,840 ÷ 116,147,018 common shares issued and outstanding) |
$ | 15.12 | ||
| * | Represents restricted cash on deposit at the custodian and brokers for open derivative contracts. |
| 43 | See Notes to Financial Statements. |
Eaton Vance
Limited Duration Income Fund
September 30, 2016
Statement of Operations (Unaudited)
| Investment Income | Six Months Ended September 30, 2016 |
|||
| Interest and other income (net of foreign taxes, $164) |
$ | 70,846,145 | ||
| Dividends |
844,595 | |||
| Interest allocated from affiliated investment |
136,134 | |||
| Expenses allocated from affiliated investment |
(3,497 | ) | ||
| Total investment income |
$ | 71,823,377 | ||
| Expenses | ||||
| Investment adviser fee |
$ | 10,414,411 | ||
| Trustees’ fees and expenses |
34,000 | |||
| Custodian fee |
399,419 | |||
| Transfer and dividend disbursing agent fees |
9,032 | |||
| Legal and accounting services |
213,942 | |||
| Printing and postage |
262,888 | |||
| Interest expense and fees |
6,156,231 | |||
| Preferred shares service fee |
150,765 | |||
| Miscellaneous |
93,719 | |||
| Total expenses |
$ | 17,734,407 | ||
| Net investment income |
$ | 54,088,970 | ||
| Realized and Unrealized Gain (Loss) | ||||
| Net realized gain (loss) — |
||||
| Investment transactions |
$ | (3,267,631 | ) | |
| Investment transactions allocated from affiliated investment |
755 | |||
| Financial futures contracts |
(1,111,215 | ) | ||
| Swap contracts |
88,175 | |||
| Foreign currency and forward foreign currency exchange contract transactions |
866,348 | |||
| Net realized loss |
$ | (3,423,568 | ) | |
| Change in unrealized appreciation (depreciation) — |
||||
| Investments |
$ | 88,360,384 | ||
| Financial futures contracts |
(31,729 | ) | ||
| Swap contracts |
168,720 | |||
| Foreign currency and forward foreign currency exchange contracts |
1,388,064 | |||
| Net change in unrealized appreciation (depreciation) |
$ | 89,885,439 | ||
| Net realized and unrealized gain |
$ | 86,461,871 | ||
| Distributions to preferred shareholders |
||||
| From net investment income |
$ | (832,565 | ) | |
| Net increase in net assets from operations |
$ | 139,718,276 | ||
| 44 | See Notes to Financial Statements. |
Eaton Vance
Limited Duration Income Fund
September 30, 2016
Statements of Changes in Net Assets
| Increase (Decrease) in Net Assets | Six Months Ended September 30, 2016 (Unaudited) |
Year Ended March 31, 2016 |
||||||
| From operations — |
||||||||
| Net investment income |
$ | 54,088,970 | $ | 114,289,361 | ||||
| Net realized loss from investment transactions, written swaptions, financial futures contracts, swap contracts, and foreign currency and forward foreign currency exchange contract transactions |
(3,423,568 | ) | (34,311,012 | ) | ||||
| Net change in unrealized appreciation (depreciation) from investments, written swaptions, financial futures contracts, swap contracts, foreign currency and forward foreign currency exchange contracts |
89,885,439 | (115,124,307 | ) | |||||
| Distributions to preferred shareholders — |
||||||||
| From net investment income |
(832,565 | ) | (805,466 | ) | ||||
| Net increase (decrease) in net assets from operations |
$ | 139,718,276 | $ | (35,951,424 | ) | |||
| Distributions to common shareholders — |
||||||||
| From net investment income |
$ | (69,130,706 | ) | $ | (130,062,758 | ) | ||
| Tax return of capital |
— | (12,378,448 | ) | |||||
| Total distributions to common shareholders |
$ | (69,130,706 | ) | $ | (142,441,206 | ) | ||
| Capital share transactions — |
||||||||
| Cost of shares repurchased (see Note 6) |
$ | — | $ | (18,579,420 | ) | |||
| Net decrease in net assets from capital share transactions |
$ | — | $ | (18,579,420 | ) | |||
| Net increase (decrease) in net assets |
$ | 70,587,570 | $ | (196,972,050 | ) | |||
| Net Assets Applicable to Common Shares | ||||||||
| At beginning of period |
$ | 1,685,016,270 | $ | 1,881,988,320 | ||||
| At end of period |
$ | 1,755,603,840 | $ | 1,685,016,270 | ||||
| Accumulated distributions in excess of net investment income included in net assets applicable to common shares |
||||||||
| At end of period |
$ | (16,122,745 | ) | $ | (248,444 | ) | ||
| 45 | See Notes to Financial Statements. |
Eaton Vance
Limited Duration Income Fund
September 30, 2016
Statement of Cash Flows (Unaudited)
| Cash Flows From Operating Activities | Six Months Ended September 30, 2016 |
|||
| Net increase in net assets from operations |
$ | 139,718,276 | ||
| Distributions to preferred shareholders |
832,565 | |||
| Net increase in net assets from operations excluding distributions to preferred shareholders |
$ | 140,550,841 | ||
| Adjustments to reconcile net increase in net assets from operations to net cash provided by operating activities: |
||||
| Investments purchased |
(575,331,094 | ) | ||
| Investments sold and principal repayments |
646,113,449 | |||
| Decrease in short-term investments, net |
3,424,930 | |||
| Net amortization/accretion of premium (discount) |
9,177,000 | |||
| Amortization of prepaid upfront fees on notes payable |
261,750 | |||
| Increase in restricted cash |
(47,070 | ) | ||
| Decrease in interest receivable |
2,689,920 | |||
| Increase in interest receivable from affiliated investment |
(9,637 | ) | ||
| Increase in receivable for variation margin on open financial futures contracts |
(232,245 | ) | ||
| Increase in receivable for open forward foreign currency exchange contracts |
(199,719 | ) | ||
| Increase in receivable for open swap contracts |
(110,888 | ) | ||
| Increase in receivable for closed swap contracts |
(131,739 | ) | ||
| Decrease in tax reclaims receivable |
1,078 | |||
| Decrease in prepaid expenses |
1,633 | |||
| Decrease in payable for variation margin on open financial futures contracts |
(182,929 | ) | ||
| Increase in payable for variation margin on open centrally cleared swap contracts |
12,204 | |||
| Decrease in payable for open forward foreign currency exchange contracts |
(1,222,856 | ) | ||
| Decrease in payable for open swap contracts |
(59,762 | ) | ||
| Increase in premium received on open non-centrally cleared swap contracts |
85,159 | |||
| Decrease in payable to affiliate for investment adviser fee |
(45,409 | ) | ||
| Increase in accrued expenses |
153,101 | |||
| Increase in accrued interest on reverse repurchase agreements |
11,007 | |||
| Increase in unfunded loan commitments |
113,328 | |||
| Net change in unrealized (appreciation) depreciation from investments |
(88,360,384 | ) | ||
| Net realized (gain) loss from investments |
3,267,631 | |||
| Net cash provided by operating activities |
$ | 139,929,299 | ||
| Cash Flows From Financing Activities | ||||
| Distributions paid to common shareholders, net of reinvestments |
$ | (69,130,706 | ) | |
| Cash distributions paid to preferred shareholders |
(830,206 | ) | ||
| Proceeds from notes payable |
40,000,000 | |||
| Repayments of notes payable |
(104,000,000 | ) | ||
| Proceeds from reverse repurchase agreements, net |
(9,124,905 | ) | ||
| Net cash used in financing activities |
$ | (143,085,817 | ) | |
| Net decrease in cash* |
$ | (3,156,518 | ) | |
| Cash at beginning of period(1) |
$ | 9,561,091 | ||
| Cash at end of period(1) |
$ | 6,404,573 | ||
| Supplemental disclosure of cash flow information: | ||||
| Cash paid for interest and fees on borrowings and reverse repurchase agreements |
$ | 5,952,184 | ||
| * | Includes net change in unrealized appreciation (depreciation) on foreign currency of $1,150. |
| (1) | Balance includes foreign currency, at value. |
| 46 | See Notes to Financial Statements. |
Eaton Vance
Limited Duration Income Fund
September 30, 2016
Financial Highlights
Selected data for a common share outstanding during the periods stated
| Six Months Ended September 30, 2016 (Unaudited) |
Year Ended March 31, | Period Ended March 31, 2012(1) |
Year Ended April 30, 2011 |
|||||||||||||||||||||||||
| 2016 | 2015 | 2014 | 2013 | |||||||||||||||||||||||||
| Net asset value — Beginning of period (Common shares) |
$ | 14.510 | $ | 16.010 | $ | 16.600 | $ | 16.860 | $ | 16.550 | $ | 17.060 | $ | 16.630 | ||||||||||||||
| Income (Loss) From Operations | ||||||||||||||||||||||||||||
| Net investment income(2) |
$ | 0.466 | $ | 0.979 | $ | 1.044 | $ | 1.018 | $ | 1.041 | $ | 1.007 | $ | 1.118 | ||||||||||||||
| Net realized and unrealized gain (loss) |
0.746 | (1.278 | ) | (0.411 | ) | (0.055 | ) | 0.516 | (0.368 | ) | 0.697 | |||||||||||||||||
| Distributions to preferred shareholders |
||||||||||||||||||||||||||||
| From net investment income(2) |
(0.007 | ) | (0.007 | ) | (0.003 | ) | (0.003 | ) | (0.004 | ) | (0.003 | ) | (0.007 | ) | ||||||||||||||
| Total income (loss) from operations |
$ | 1.205 | $ | (0.306 | ) | $ | 0.630 | $ | 0.960 | $ | 1.553 | $ | 0.636 | $ | 1.808 | |||||||||||||
| Less Distributions to Common Shareholders | ||||||||||||||||||||||||||||
| From net investment income |
$ | (0.595 | ) | $ | (1.114 | ) | $ | (1.197 | ) | $ | (1.178 | ) | $ | (1.210 | ) | $ | (1.103 | ) | $ | (1.319 | ) | |||||||
| Tax return of capital |
— | (0.106 | ) | (0.023 | ) | (0.042 | ) | (0.033 | ) | (0.043 | ) | (0.059 | ) | |||||||||||||||
| Total distributions to common shareholders |
$ | (0.595 | ) | $ | (1.220 | ) | $ | (1.220 | ) | $ | (1.220 | ) | $ | (1.243 | ) | $ | (1.146 | ) | $ | (1.378 | ) | |||||||
| Anti-dilutive effect of share repurchase program |
$ | — | $ | 0.026 | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||||
| Net asset value — End of period (Common shares) |
$ | 15.120 | $ | 14.510 | $ | 16.010 | $ | 16.600 | $ | 16.860 | $ | 16.550 | $ | 17.060 | ||||||||||||||
| Market value — End of period (Common shares) |
$ | 13.710 | $ | 13.180 | $ | 14.390 | $ | 15.250 | $ | 17.100 | $ | 16.050 | $ | 16.080 | ||||||||||||||
| Total Investment Return on Net Asset Value(3) |
8.81 | %(4) | (0.62 | )% | 4.73 | % | 6.50 | % | 9.80 | % | 4.44 | %(4) | 11.68 | % | ||||||||||||||
| Total Investment Return on Market Value(3) |
8.69 | %(4) | 0.44 | % | 2.47 | % | (3.53 | )% | 14.83 | % | 7.40 | %(4) | 5.52 | % | ||||||||||||||
| 47 | See Notes to Financial Statements. |
Eaton Vance
Limited Duration Income Fund
September 30, 2016
Financial Highlights — continued
Selected data for a common share outstanding during the periods stated
| Six Months Ended September 30, 2016 (Unaudited) |
Year Ended March 31, | Period Ended March 31, 2012(1) |
Year Ended April 30, 2011 |
|||||||||||||||||||||||||
| Ratios/Supplemental Data | 2016 | 2015 | 2014 | 2013 | ||||||||||||||||||||||||
| Net assets applicable to common shares, end of period |
$ | 1,755,604 | $ | 1,685,016 | $ | 1,881,988 | $ | 1,950,819 | $ | 1,980,817 | $ | 1,941,504 | $ | 2,001,368 | ||||||||||||||
| Ratios (as a percentage of average daily net assets applicable to common shares):(5)† |
||||||||||||||||||||||||||||
| Expenses excluding interest |
1.34 | %(7) | 1.37 | % | 1.35 | % | 1.27 | % | 1.16 | % | 1.19 | %(7) | 1.15 | % | ||||||||||||||
| Interest and fee expense(8) |
0.71 | %(7) | 0.63 | % | 0.54 | % | 0.44 | % | 0.44 | % | 0.52 | %(7) | 0.61 | % | ||||||||||||||
| Total expenses(6) |
2.05 | %(7) | 2.00 | % | 1.89 | % | 1.71 | % | 1.60 | % | 1.71 | %(7) | 1.76 | % | ||||||||||||||
| Net investment income |
6.26 | %(7) | 6.49 | % | 6.44 | % | 6.16 | % | 6.25 | % | 6.68 | %(7) | 6.73 | % | ||||||||||||||
| Portfolio Turnover |
22 | %(4) | 33 | % | 35 | % | 37 | % | 46 | % | 42 | %(4) | 46 | % | ||||||||||||||
| Senior Securities: |
||||||||||||||||||||||||||||
| Total notes payable outstanding (in 000’s) |
$ | 596,000 | $ | 660,000 | $ | 803,200 | $ | 828,200 | $ | 496,200 | $ | 439,200 | $ | 418,200 | ||||||||||||||
| Asset coverage per $1,000 of notes payable(9) |
$ | 4,393 | $ | 3,957 | $ | 3,675 | $ | 3,677 | $ | 5,529 | $ | 6,028 | $ | 6,423 | ||||||||||||||
| Total preferred shares outstanding |
10,665 | 10,665 | 10,665 | 10,665 | 10,665 | 10,665 | 10,665 | |||||||||||||||||||||
| Asset coverage per preferred share(10) |
$ | 75,880 | $ | 70,461 | $ | 68,979 | $ | 69,546 | $ | 89,917 | $ | 93,767 | $ | 98,061 | ||||||||||||||
| Involuntary liquidation preference per preferred share(11) |
$ | 25,000 | $ | 25,000 | $ | 25,000 | $ | 25,000 | $ | 25,000 | $ | 25,000 | $ | 25,000 | ||||||||||||||
| Approximate market value per preferred share(11) |
$ | 25,000 | $ | 25,000 | $ | 25,000 | $ | 25,000 | $ | 25,000 | $ | 25,000 | $ | 25,000 | ||||||||||||||
| (1) | For the eleven months ended March 31, 2012. The Fund changed its fiscal year-end from April 30 to March 31. |
| (2) | Computed using average shares outstanding. |
| (3) | 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. |
| (4) | Not annualized. |
| (5) | Ratios do not reflect the effect of dividend payments to preferred shareholders. |
| (6) | Excludes the effect of custody fee credits, if any, of less than 0.005%. Effective September 1, 2015, custody fee credits, which were earned on cash deposit balances, were discontinued by the custodian. |
| (7) | Annualized. |
| (8) | Interest and fee expense relates to the notes payable, a portion of which was incurred to partially redeem the Fund’s APS (see Note 8), and the reverse repurchase agreements (see Note 9). |
| (9) | Calculated by subtracting the Fund’s total liabilities (not including the notes payable and preferred shares) from the Fund’s total assets, and dividing the result by the notes payable balance in thousands. |
| (10) | Calculated by subtracting the Fund’s total liabilities (not including the notes payable and preferred shares) from the Fund’s total assets, dividing the result by the sum of the value of the notes payable and liquidation value of the preferred shares, and multiplying the result by the liquidation value of one preferred share. Such amount equates to 304%, 282%, 276%, 278%, 360%, 375% and 392% at September 30, 2016, March 31, 2016, 2015, 2014, 2013 and 2012 and at April 30, 2011, respectively. |
| (11) | Plus accumulated and unpaid dividends. |
| † | Ratios based on net assets applicable to common shares plus preferred shares and borrowings are presented below. Ratios do not reflect the effect of dividend payments to preferred shareholders and exclude the effect of custody fee credits, if any. Ratios for periods less than one year are annualized. |
| Six Months Ended September 30, 2016 (Unaudited) |
Year Ended March 31, | Period Ended March 31, 2012 |
Year Ended April 30, 2011 |
|||||||||||||||||||||||||
| 2016 | 2015 | 2014 | 2013 | |||||||||||||||||||||||||
| Expenses excluding interest and fees |
0.88 | % | 0.88 | % | 0.86 | % | 0.86 | % | 0.85 | % | 0.86 | % | 0.83 | % | ||||||||||||||
| Interest and fee expense |
0.47 | % | 0.40 | % | 0.34 | % | 0.30 | % | 0.32 | % | 0.38 | % | 0.44 | % | ||||||||||||||
| Total expenses |
1.35 | % | 1.28 | % | 1.20 | % | 1.16 | % | 1.17 | % | 1.24 | % | 1.27 | % | ||||||||||||||
| Net investment income |
4.11 | % | 4.15 | % | 4.10 | % | 4.16 | % | 4.57 | % | 4.82 | % | 4.85 | % | ||||||||||||||
| 48 | See Notes to Financial Statements. |
Eaton Vance
Limited Duration Income Fund
September 30, 2016
Notes to Financial Statements (Unaudited)
1 Significant Accounting Policies
Eaton Vance Limited Duration 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. The Fund may, as a secondary objective, also seek capital appreciation to the extent it is consistent with its primary objective.
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 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 or, in the case of preferred equity securities that are not listed or traded in the over-the-counter market, by a third party pricing service that uses various techniques that consider factors including, but not limited to, prices or yields of securities with similar characteristics, benchmark yields, broker/dealer quotes, quotes of underlying common stock, issuer spreads, as well as industry and economic events.
Derivatives. Financial 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. 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 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. 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. The daily valuation of exchange-traded foreign securities generally is determined as of the close of trading on the principal exchange on which such securities trade. Events occurring after the close of trading on foreign exchanges may result in adjustments to the valuation of foreign securities to more accurately reflect their fair value as of the close of regular trading on the New York Stock Exchange. When valuing foreign equity securities that meet certain criteria, the Fund’s Trustees have approved the use of a fair value service that values such securities to reflect
| 49 |
Eaton Vance
Limited Duration Income Fund
September 30, 2016
Notes to Financial Statements (Unaudited) — continued
market trading that occurs after the close of the applicable foreign markets of comparable securities or other instruments that have a strong correlation to the fair-valued securities.
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. To comply with amendments to Rule 2a-7, on or before October 14, 2016 the Cash Reserves Fund began calculating a net asset value (NAV) per share and valuing its 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. Fees associated with loan amendments are recognized immediately. Dividend income is recorded on the ex-dividend date for dividends received in cash and/or securities. Withholding taxes on foreign interest have been provided for in accordance with the Fund’s understanding of the applicable countries’ tax rules and rates. Distributions from investment companies are recorded as dividend income, capital gains or return of capital based on the nature of the distribution.
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.
As of September 30, 2016, 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 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.
F Unfunded Loan Commitments — The Fund may enter into certain loan 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 Portfolio of Investments. At September 30, 2016, the Fund had sufficient cash and/or securities to cover these commitments.
G Use of Estimates — The preparation of the 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 financial statements and the reported amounts of income and expense during the reporting period. Actual results could differ from those estimates.
H Indemnifications — Under the 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.
I Financial Futures Contracts — Upon entering into a financial futures contract, the Fund is required to deposit with the broker, either in cash or securities, an amount equal to a certain percentage of the contract amount (initial margin). Subsequent payments, known as variation margin, are made or received
| 50 |
Eaton Vance
Limited Duration Income Fund
September 30, 2016
Notes to Financial Statements (Unaudited) — continued
by the Fund each business day, depending on the daily fluctuations in the value of the underlying security, and are recorded as unrealized gains or losses by the Fund. Gains (losses) are realized upon the expiration or closing of the financial futures contracts. Should market conditions change unexpectedly, the Fund may not achieve the anticipated benefits of the financial futures contracts and may realize a loss. Futures contracts have minimal counterparty risk as they are exchange traded and the clearinghouse for the exchange is substituted as the counterparty, guaranteeing counterparty performance.
J Forward Foreign Currency Exchange 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. Risks may arise upon entering these contracts from the potential inability of counterparties to meet the terms of their contracts and from movements in the value of a foreign currency relative to the U.S. dollar.
K 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 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.
L 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 7 and 11. 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.
M When-Issued Securities and Delayed Delivery Transactions — The Fund may purchase or sell securities on a delayed delivery or when-issued basis. Payment and delivery may take place after the customary settlement period for that security. At the time the transaction is negotiated, the price of the security that will be delivered is fixed. The Fund maintains cash and/or security positions for these commitments such that sufficient liquid assets will be available to make payments upon settlement. Securities purchased on a delayed delivery or when-issued basis are marked-to-market daily and begin earning interest on settlement date. Losses may arise due to changes in the market value of the underlying securities or if the counterparty does not perform under the contract.
N Reverse Repurchase Agreements — Under a reverse repurchase agreement, the Fund temporarily transfers possession of a portfolio security to another party, such as a bank or broker/dealer, in return for cash. At the same time, the Fund agrees to repurchase the security at an agreed upon time and price, which reflects an interest payment. In periods of increased demand for a security, the Fund may receive a payment from the counterparty for the use of the security, which is recorded as interest income. Because the Fund retains effective control over the transferred security, the transaction is accounted for as a secured borrowing. The Fund may enter into such agreements when it believes it is able to invest the cash acquired at a rate higher than the cost of the
| 51 |
Eaton Vance
Limited Duration Income Fund
September 30, 2016
Notes to Financial Statements (Unaudited) — continued
agreement, which would increase earned income. When the Fund enters into a reverse repurchase agreement, any fluctuations in the market value of either the securities transferred to another party or the securities in which the proceeds may be invested would affect the market value of the Fund’s assets. Because reverse repurchase agreements may be considered to be the practical equivalent of borrowing funds (and the counterparty making a loan), they constitute a form of leverage. The Fund segregates cash or liquid assets equal to its obligation to repurchase the security. During the term of the agreement, the Fund may also be obligated to pledge additional cash and/or securities in the event of a decline in the fair value of the transferred security. In the event the counterparty to a reverse repurchase agreement becomes insolvent, recovery of the security transferred by the Fund may be delayed or the Fund may incur a loss equal to the amount by which the value of the security transferred by the Fund exceeds the repurchase price payable by the Fund.
O 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.
P Statement of Cash Flows — The cash amount shown in the Statement of Cash Flows of the Fund is the amount included in the Fund’s Statement of Assets and Liabilities and represents the unrestricted cash on hand at its custodian and does not include any short-term investments.
Q Interim Financial Statements — The interim financial statements relating to September 30, 2016 and for the six months then ended have not been audited by an independent registered public accounting firm, but in the opinion of the Fund’s management, reflect all adjustments, consisting only of normal recurring adjustments, necessary for the fair presentation of the financial statements.
2 Auction Preferred Shares
The Fund issued Auction Preferred Shares (APS) on July 25, 2003 in a public offering. Dividends on the APS, which accrue daily, are cumulative at rates which are reset every seven days by an auction, unless a special dividend period has been set. Series of APS are identical in all respects except for the reset dates of the dividend rates. If the APS auctions do not successfully clear, the dividend payment rate over the next period for the APS holders is set at a specified maximum applicable rate until such time as the APS auctions are successful. Auctions have not cleared since February 13, 2008 and the rate since that date has been the maximum applicable rate (see Note 3). The maximum applicable rate on the APS is 150% of the “AA” Financial Composite Commercial Paper Rate at the date of the auction. The stated spread over the reference benchmark rate is determined based on the credit rating of the APS.
The number of APS issued and outstanding as of September 30, 2016 is as follows:
| APS Issued and Outstanding |
||||
| Series A |
2,133 | |||
| Series B |
2,133 | |||
| Series C |
2,133 | |||
| Series D |
2,133 | |||
| Series E |
2,133 | |||
The APS are redeemable at the option of the Fund at a redemption price equal to $25,000 per share, plus accumulated and unpaid dividends, on any dividend payment date. The APS are also subject to mandatory redemption at a redemption price equal to $25,000 per share, plus accumulated and unpaid dividends, if the Fund is in default for an extended period on its asset maintenance requirements with respect to the APS. If the dividends on the APS remain unpaid in an amount equal to two full years’ dividends, the holders of the APS as a class have the right to elect a majority of the Board of Trustees. In general, the holders of the APS and the common shares have equal voting rights of one vote per share, except that the holders of the APS, as a separate class, have the right to elect at least two members of the Board of Trustees. The APS have a liquidation preference of $25,000 per share, plus accumulated and unpaid dividends. The Fund is required to maintain certain asset coverage with respect to the APS as defined in the Fund’s By-Laws and the 1940 Act. The Fund pays an annual fee up to 0.15% of the liquidation value of the APS to broker/dealers as a service fee if the auctions are unsuccessful; otherwise, the annual fee is 0.25%.
3 Distributions to Shareholders and Income Tax Information
The Fund intends to make monthly distributions of net investment income to common shareholders, after payment of any dividends on any outstanding APS. In addition, at least annually, the Fund intends to distribute all or substantially all of its net realized capital gains (reduced by available capital loss
carryforwards from prior years). Distributions to common shareholders are recorded on the ex-dividend date. Distributions to preferred shareholders are
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Eaton Vance
Limited Duration Income Fund
September 30, 2016
Notes to Financial Statements (Unaudited) — continued
recorded daily and are payable at the end of each dividend period. The dividend rates for the APS at September 30, 2016, and the amount of dividends accrued (including capital gains, if any) to APS shareholders, average APS dividend rates (annualized), and dividend rate ranges for the six months then ended were as follows:
| APS Dividend Rates at |
Dividends Accrued to APS Shareholders |
Average APS Dividend Rates |
Dividend Rate Ranges (%) |
|||||||||||||
| Series A |
0.65 | % | $ | 166,575 | 0.62 | % | 0.50–0.77 | |||||||||
| Series B |
0.71 | 165,905 | 0.62 | 0.48–0.72 | ||||||||||||
| Series C |
0.71 | 161,709 | 0.60 | 0.42–0.71 | ||||||||||||
| Series D |
0.71 | 171,731 | 0.64 | 0.48–0.78 | ||||||||||||
| Series E |
0.72 | 166,645 | 0.62 | 0.48–0.72 | ||||||||||||
Beginning February 13, 2008 and consistent with the patterns in the broader market for auction-rate securities, the Fund’s APS auctions were unsuccessful in clearing due to an imbalance of sell orders over bids to buy the APS. As a result, the dividend rates of the APS were reset to the maximum applicable rates. The table above reflects such maximum dividend rate for each series as of September 30, 2016.
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 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.
Distributions in any year may include a return of capital component. For the six months ended September 30, 2016, the amount of distributions estimated to be a tax return of capital was approximately $8,990,000. The final determination of tax characteristics of the Fund’s distributions will occur at the end of the year, at which time it will be reported to the shareholders.
At March 31, 2016, the Fund, for federal income tax purposes, had capital loss carryforwards of $201,797,909 and deferred capital losses of $72,685,363, which would 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 would 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. Such capital loss carryforwards will expire on March 31, 2017 ($112,795,908), March 31, 2018 ($67,565,640) and March 31, 2019 ($21,436,361) and their 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. Of the deferred capital losses at March 31, 2016, $9,401,490 are short-term and $63,283,873 are long-term.
Capital loss carryforwards of $17,523,307 included in the amounts above are available to the Fund as a result of a reorganization which occured in a prior year. Utilization of these capital loss carryforwards may be limited in accordance with certain income tax regulations.
Additionally, at March 31, 2016, the Fund had a late year ordinary loss of $65,971 which it has elected to defer to the following taxable year pursuant to income tax regulations. Late year ordinary losses represent certain specified losses realized in that portion of a taxable year after October 31 that are treated as ordinary for tax purposes plus ordinary losses attributable to that portion of a taxable year after December 31.
The cost and unrealized appreciation (depreciation) of investments of the Fund at September 30, 2016, as determined on a federal income tax basis, were as follows:
| Aggregate cost |
$ | 2,803,946,590 | ||
| Gross unrealized appreciation |
$ | 64,969,302 | ||
| Gross unrealized depreciation |
(88,176,805 | ) | ||
| Net unrealized depreciation |
$ | (23,207,503 | ) | |
4 Investment Adviser Fee and Other Transactions with Affiliates
The investment adviser fee is earned by EVM as compensation for management and investment advisory services rendered to the Fund. The fee is computed at an annual rate of 0.75% of the Fund’s average weekly gross assets and is payable monthly. Gross assets as referred to herein represent net
| 53 |
Eaton Vance
Limited Duration Income Fund
September 30, 2016
Notes to Financial Statements (Unaudited) — continued
assets plus obligations attributable to investment leverage. For the six months ended September 30, 2016, the Fund’s investment adviser fee amounted to $10,414,411. 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 six months ended September 30, 2016, no significant amounts have been deferred. Certain officers and Trustees of the Fund are officers of EVM.
5 Purchases and Sales of Investments
Purchases and sales of investments, other than short-term obligations and including maturities, paydowns and principal repayments on Senior Loans, for the six months ended September 30, 2016 were as follows:
| Purchases | Sales | |||||||
| Investments (non-U.S. Government) |
$ | 420,830,714 | $ | 544,659,305 | ||||
| U.S. Government and Agency Securities |
166,009,687 | 107,984,671 | ||||||
| $ | 586,840,401 | $ | 652,643,976 | |||||
6 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 six months ended September 30, 2016 and the year ended March 31, 2016.
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. The repurchase program does not obligate the Fund to purchase a specific amount of shares. There were no repurchases of common shares by the Fund for the six months ended September 30, 2016. During the year ended March 31, 2016, the Fund repurchased 1,400,000 of its common shares under the share repurchase program at a cost, including brokerage commissions, of $18,579,420 and an average price per share of $13.27. The weighted average discount per share to NAV on these repurchases amounted to 13.92% for the year ended March 31, 2016.
7 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, financial futures contracts and swap contracts and may involve, to a varying degree, elements of risk in excess of the amounts recognized for financial statement purposes. The notional or contractual amounts of these instruments represent the investment the Fund has in particular classes of financial instruments and do not necessarily represent the amounts potentially subject to risk. The measurement of the risks associated with these instruments is meaningful only when all related and offsetting transactions are considered. A summary of obligations under these financial instruments at September 30, 2016 is included in the Portfolio of Investments. At September 30, 2016, 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:
Credit Risk: The Fund enters into credit default swap contracts to enhance total return and/or as a substitute for the purchase of securities.
Foreign Exchange Risk: The Fund holds foreign currency denominated investments. The value of these investments and related receivables and payables may change due to future changes in foreign currency exchange rates. To hedge against this risk, the Fund enters into forward foreign currency exchange contracts.
Interest Rate Risk: The Fund utilizes various interest rate derivatives including futures contracts and interest rate swaps to manage the duration of its portfolio and to hedge against fluctuations in securities prices due to interest rates.
The Fund enters into over-the-counter (OTC) derivatives 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 September 30, 2016, the fair value of derivatives with credit-related contingent features in a net liability position was $760,695. The aggregate fair value of assets pledged as collateral by the Fund for such liability was $740,000 at September 30, 2016.
| 54 |
Eaton Vance
Limited Duration Income Fund
September 30, 2016
Notes to Financial Statements (Unaudited) — continued
The 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. To mitigate this risk, the Fund 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 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/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 Statement of Assets and Liabilities. Securities pledged by the Fund as collateral, if any, are identified as such in the Portfolio of Investments.
The fair value of open derivative instruments (not considered to be hedging instruments for accounting disclosure purposes) by risk exposure at September 30, 2016 was as follows:
| Fair Value | ||||||||||||||||
| Statement of Assets and Liabilities Caption | Credit | Foreign Exchange |
Interest Rate |
Total | ||||||||||||
| Net unrealized depreciation* |
$ | — | $ | — | $ | 21,452 | $ | 21,452 | ||||||||
| Receivable for open forward foreign currency exchange contracts |
— | 260,965 | — | 260,965 | ||||||||||||
| Total Asset Derivatives |
$ | — | $ | 260,965 | $ | 21,452 | $ | 282,417 | ||||||||
| Derivatives not subject to master netting or similar agreements |
$ | — | $ | — | $ | 21,452 | $ | 21,452 | ||||||||
| Total Asset Derivatives subject to master netting or similar agreements |
$ | — | $ | 260,965 | $ | — | $ | 260,965 | ||||||||
| Credit | Foreign Exchange |
Interest Rate |
Total | |||||||||||||
| Net unrealized depreciation* |
$ | — | $ | — | $ | (130,246 | ) | $ | (130,246 | ) | ||||||
| Payable for open forward foreign currency exchange contracts |
— | (426,228 | ) | — | (426,228 | ) | ||||||||||
| Receivable for open swap contracts; Premium received on open non-centrally cleared swap contracts |
(334,467 | ) | — | — | (334,467 | ) | ||||||||||
| Total Liability Derivatives |
$ | (334,467 | ) | $ | (426,228 | ) | $ | (130,246 | ) | $ | (890,941 | ) | ||||
| Derivatives not subject to master netting or similar agreements |
$ | — | $ | — | $ | (130,246 | ) | $ | (130,246 | ) | ||||||
| Total Liability Derivatives subject to master netting or similar agreements |
$ | (334,467 | ) | $ | (426,228 | ) | $ | — | $ | (760,695 | ) | |||||
| * | Amount represents cumulative unrealized appreciation or (depreciation) on futures contracts and centrally cleared swap contracts. Only the current day’s variation margin on open futures contracts and centrally cleared swap contracts is reported within the Statement of Assets and Liabilities as Receivable or Payable for variation margin, as applicable. |
The Fund’s derivative assets and liabilities at fair value by risk, which are reported gross in the 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 master
| 55 |
Eaton Vance
Limited Duration Income Fund
September 30, 2016
Notes to Financial Statements (Unaudited) — continued
netting agreement and net of the related collateral received by the Fund for such assets and pledged by the Fund for such liabilities as of September 30, 2016.
| 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) |
|||||||||||||||
| Citibank, N.A. |
$ | 268 | $ | (268 | ) | $ | — | $ | — | $ | — | |||||||||
| Deutsche Bank AG |
8,260 | (8,260 | ) | — | — | — | ||||||||||||||
| Goldman Sachs International |
15,185 | (15,185 | ) | — | — | — | ||||||||||||||
| HSBC Bank USA, N.A. |
124,860 | — | — | — | 124,860 | |||||||||||||||
| State Street Bank and Trust Company |
112,392 | (112,392 | ) | — | — | — | ||||||||||||||
| $ | 260,965 | $ | (136,105 | ) | $ | — | $ | — | $ | 124,860 | ||||||||||
| 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) |
|||||||||||||||
| Citibank, N.A. |
$ | (43,356 | ) | $ | 268 | $ | — | $ | — | $ | (43,088 | ) | ||||||||
| Deutsche Bank AG |
(264,148 | ) | 8,260 | — | 255,888 | — | ||||||||||||||
| Goldman Sachs International |
(191,896 | ) | 15,185 | — | — | (176,711 | ) | |||||||||||||
| State Street Bank and Trust Company |
(261,295 | ) | 112,392 | — | 148,903 | — | ||||||||||||||
| $ | (760,695 | ) | $ | 136,105 | $ | — | $ | 404,791 | $ | (219,799 | ) | |||||||||
| (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. |
Information with respect to reverse repurchase agreements at September 30, 2016 is included at Note 9.
The effect of derivative instruments (not considered to be hedging instruments for accounting disclosure purposes) on the Statement of Operations by risk exposure for the six months ended September 30, 2016 was as follows:
| Statement of Operations Caption | Credit | Foreign Exchange |
Interest Rate |
|||||||||
| Net realized gain (loss) — |
||||||||||||
| Financial futures contracts |
$ | — | $ | — | $ | (1,111,215 | ) | |||||
| Swap contracts |
100,122 | — | (11,947 | ) | ||||||||
| Foreign currency and forward foreign currency exchange contract transactions |
— | 806,252 | — | |||||||||
| Total |
$ | 100,122 | $ | 806,252 | $ | (1,123,162 | ) | |||||
| Change in unrealized appreciation (depreciation) — |
||||||||||||
| Financial futures contracts |
$ | — | $ | — | $ | (31,729 | ) | |||||
| Swap contracts |
170,650 | — | (1,930 | ) | ||||||||
| Foreign currency and forward foreign currency exchange contracts |
— | 1,422,575 | — | |||||||||
| Total |
$ | 170,650 | $ | 1,422,575 | $ | (33,659 | ) | |||||
| 56 |
Eaton Vance
Limited Duration Income Fund
September 30, 2016
Notes to Financial Statements (Unaudited) — continued
The average notional amounts of derivative contracts outstanding during the six months ended September 30, 2016, which are indicative of the volume of these derivative types, were as follows:
| Futures Contracts — Short |
Forward Foreign Currency Exchange Contracts |
Swap Contracts |
||||||||
| $102,629,000 | $ | 67,350,000 | $ | 8,110,000 | ||||||
8 Credit Agreement
Effective December 22, 2015, the Fund entered into a Credit Agreement (the Agreement) with major financial institutions to borrow up to $900 million. 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, in effect through December 21, 2018, the Fund pays a facility fee of 0.25% (0.35% if the Fund’s outstanding borrowings are less than 65% of the borrowing limit) per annum on the borrowing limit. The Fund also paid an upfront fee of $1,620,000, which is being amortized to interest expense over a period of three years through December 2018. The unamortized balance at September 30, 2016 is approximately $1,167,000 and is included in prepaid upfront fees on notes payable in the Statement of Assets and Liabilities. The Fund is required to maintain certain net asset levels during the term of the Agreement. At September 30, 2016, the Fund had borrowings outstanding under the Agreement of $596,000,000 at an interest rate of 1.35%. Based on the short-term nature of the borrowings under the Agreement and the variable interest rate, the carrying amount of the borrowings at September 30, 2016 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 11) at September 30, 2016. Facility fees for the six months ended September 30, 2016 totaled $1,143,750 and are included in interest expense and fees on the Statement of Operations. For the six months ended September 30, 2016, the average borrowings under the Agreement and the average annual interest rate (excluding fees) were $633,289,617 and 1.34%, respectively.
9 Reverse Repurchase Agreements
Reverse repurchase agreements outstanding as of September 30, 2016 were as follows:
| Counterparty | Trade Date |
Maturity Date |
Interest Rate |
Principal Amount |
Value Including Accrued Interest |
U.S. Treasury and Agency Securities Pledged as |
||||||||||||||||||
| Bank of America |
9/14/16 | 10/18/16 | 0.70 | % | $ | 29,400,000 | $ | 29,411,107 | $ | 29,773,925 | ||||||||||||||
| Bank of America |
9/14/16 | 10/18/16 | 0.80 | 57,992,905 | 58,014,813 | 59,756,076 | ||||||||||||||||||
| KGS Alpha Capital |
9/13/16 | 10/18/16 | 0.74 | 54,311,504 | 54,330,483 | 56,536,332 | ||||||||||||||||||
| Total |
$ | 141,704,409 | $ | 141,756,403 | $ | 146,066,333 | ||||||||||||||||||
At September 30, 2016, the remaining contractual maturity of all reverse repurchase agreements was less than 30 days.
For the six months ended September 30, 2016, the average borrowings under settled reverse repurchase agreements and the average annual interest rate were $146,923,851 and 0.67%, respectively. The reverse repurchase agreements entered into by the Fund are subject to Master Repurchase Agreements (MRA), which permit the Fund, under certain circumstances, including an event of default (such as bankruptcy or insolvency), to offset payables and/or receivables under the MRA with collateral held and/or posted to the counterparty and create one single net payment due to or from the Fund. At September 30, 2016, the market value of securities pledged for the benefit of counterparties for reverse repurchase agreements exceeded the amount of borrowings for each counterparty. Based on the short-term nature of the borrowings under the reverse repurchase agreements, the carrying value of the payable for reverse repurchase agreements approximated its fair value at September 30, 2016. If measured at fair value, borrowings under the reverse repurchase agreements would have been considered as Level 2 in the fair value hierarchy (see Note 11) at September 30, 2016.
10 Risks Associated with Foreign Investments
Investing in securities issued by companies or entities whose principal business activities are outside the United States may involve significant risks not present in domestic investments. For example, there is generally less publicly available information about foreign companies, particularly those not subject to the disclosure and reporting requirements of the U.S. securities laws. Certain foreign issuers are generally not bound by uniform accounting, auditing,
| 57 |
Eaton Vance
Limited Duration Income Fund
September 30, 2016
Notes to Financial Statements (Unaudited) — continued
and financial reporting requirements and standards of practice comparable to those applicable to domestic issuers. Investments in foreign securities also involve the risk of possible adverse changes in investment or exchange control regulations, expropriation or confiscatory taxation, limitation on the removal
of funds or other assets of the Fund, political or financial instability or diplomatic and other developments which could affect such investments. Foreign securities markets, while growing in volume and sophistication, are generally not as developed as those in the United States, and securities of some foreign issuers (particularly those located in developing countries) may be less liquid and more volatile than securities of comparable U.S. companies. In general, there is less overall governmental supervision and regulation of foreign securities markets, broker/dealers and issuers than in the United States.
11 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.
| • | Level 1 – quoted prices in active markets for identical investments |
| • | Level 2 – other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.) |
| • | 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 September 30, 2016, 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 Loans (Less Unfunded Loan Commitments) |
$ | — | $ | 996,371,599 | $ | 2,060,200 | $ | 998,431,799 | ||||||||
| Corporate Bonds & Notes |
— | 942,370,500 | 14,042 | 942,384,542 | ||||||||||||
| Foreign Government and Agency Securities |
— | 61,430,918 | — | 61,430,918 | ||||||||||||
| Sovereign Loans |
— | 1,147,125 | 319,363 | 1,466,488 | ||||||||||||
| Mortgage Pass-Throughs |
— | 210,844,290 | — | 210,844,290 | ||||||||||||
| Collateralized Mortgage Obligations |
— | 285,054,506 | — | 285,054,506 | ||||||||||||
| Commercial Mortgage-Backed Securities |
— | 91,569,120 | — | 91,569,120 | ||||||||||||
| Asset-Backed Securities |
— | 54,607,844 | — | 54,607,844 | ||||||||||||
| U.S. Government Agency Obligations |
— | 33,964,716 | — | 33,964,716 | ||||||||||||
| U.S. Treasury Obligations |
— | 29,773,925 | — | 29,773,925 | ||||||||||||
| Common Stocks |
1,121,525 | 1,399,940 | 4,883,470 | 7,404,935 | ||||||||||||
| Convertible Bonds |
— | 221,484 | — | 221,484 | ||||||||||||
| Convertible Preferred Stocks |
— | — | 2,484 | 2,484 | ||||||||||||
| Preferred Stocks |
— | 862,949 | 17,456 | 880,405 | ||||||||||||
| Closed-End Funds |
21,062,786 | — | — | 21,062,786 | ||||||||||||
| Warrants |
— | 58,195 | 0 | 58,195 | ||||||||||||
| Miscellaneous |
5,059 | 13,990 | 0 | 19,049 | ||||||||||||
| Short-Term Investments — |
||||||||||||||||
| U.S. Treasury Obligations |
— | 499,900 | — | 499,900 | ||||||||||||
| Other |
— | 41,061,701 | — | 41,061,701 | ||||||||||||
| Total Investments |
$ | 22,189,370 | $ | 2,751,252,702 | $ | 7,297,015 | $ | 2,780,739,087 | ||||||||
| Forward Foreign Currency Exchange Contracts |
$ | — | $ | 260,965 | $ | — | $ | 260,965 | ||||||||
| Futures Contracts |
20,625 | — | — | 20,625 | ||||||||||||
| Swap Contracts |
— | 827 | — | 827 | ||||||||||||
| Total |
$ | 22,209,995 | $ | 2,751,514,494 | $ | 7,297,015 | $ | 2,781,021,504 | ||||||||
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Eaton Vance
Limited Duration Income Fund
September 30, 2016
Notes to Financial Statements (Unaudited) — continued
| Liability Description | Level 1 | Level 2 | Level 3* | Total | ||||||||||||
| Forward Foreign Currency Exchange Contracts |
$ | — | $ | (426,228 | ) | $ | — | $ | (426,228 | ) | ||||||
| Futures Contracts |
(126,022 | ) | — | — | (126,022 | ) | ||||||||||
| Swap Contracts |
— | (338,691 | ) | — | (338,691 | ) | ||||||||||
| Total |
$ | (126,022 | ) | $ | (764,919 | ) | $ | — | $ | (890,941 | ) | |||||
| * | 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 six months ended September 30, 2016 is not presented.
At September 30, 2016, the value of investments transferred between Level 1 and Level 2 during the six months then ended was not significant.
12 Legal Proceedings
In May 2015, the Fund was served with an amended complaint filed in an adversary proceeding in the United States Bankruptcy Court for the Southern District of New York. The adversary proceeding was filed by the Motors Liquidation Company Avoidance Action Trust (“AAT”) against the former holders of a $1.5 billion term loan issued by General Motors Corp. (“GM”) in 2006 (the “Term Loan Lenders”) who received a full repayment of the term loan pursuant to a court order in the GM bankruptcy proceeding. The court order was made with the understanding that the term loan was fully secured at the time of GM’s bankruptcy filing in June 2009. The AAT is seeking (1) a determination from the Bankruptcy Court that the security interest held by the Term Loan Lenders was not perfected at the time GM filed for Chapter 11 Bankruptcy protection and thus the Term Loan Lenders should have been treated in the same manner as GM’s unsecured creditors, (2) disgorgement of any interest payments made to the Term Loan Lenders within ninety days of GM’s filing for Chapter 11 Bankruptcy protection, and (3) disgorgement of the $1.5 billion term loan repayment that was made to the Term Loan Lenders. The value of the payment received under the term loan agreement by the Fund is approximately $4,460,000 (equal to 0.25% of net assets applicable to common shares at September 30, 2016). The Fund cannot predict the outcome of these proceedings or the effect, if any, on the Fund’s net asset value. The attorneys’ fees and costs related to these actions are expensed by the Fund as incurred.
| 59 |
Eaton Vance
Limited Duration Income Fund
September 30, 2016
Board of Trustees’ Contract Approval
Overview of the Contract Review Process
The Investment Company Act of 1940, as amended (the “1940 Act”), provides, in substance, that each investment advisory agreement between a fund and its investment adviser will continue in effect from year to year only if its continuation is approved at least annually by the fund’s board of trustees, including by a vote of a majority of the trustees who are not “interested persons” of the fund (“Independent Trustees”), cast in person at a meeting called for the purpose of considering such approval.
At a meeting of the Boards of Trustees (each a “Board”) of the registered investment companies advised, administered and/or distributed by Eaton Vance Management or its affiliates (the “Eaton Vance Funds”) held on April 26, 2016, the Board, including a majority of the Independent Trustees, voted to approve continuation of existing investment advisory and sub-advisory agreements for the Eaton Vance Funds for an additional one-year period. In voting its approval, the Board relied upon the affirmative recommendation of its Contract Review Committee, which is a committee comprised exclusively of Independent Trustees. Prior to making its recommendation, the Contract Review Committee reviewed information furnished by each adviser to the Eaton Vance Funds (including information specifically requested by the Board) for a series of meetings of the Contract Review Committee held between February and April 2016. The Contract Review Committee also considered information received at prior meetings of the Board and its committees, as relevant to its annual evaluation of the investment advisory and sub-advisory agreements.
The information that the Board considered included, among other things, the following (for funds that invest through one or more underlying portfolio(s), references to “each fund” in this section may include information that was considered at the portfolio-level):
Information about Fees, Performance and Expenses
| • | A report from an independent data provider comparing the advisory and related fees paid by each fund with fees paid by comparable funds as identified by the independent data provider (“comparable funds”); |
| • | A report from an independent data provider comparing each fund’s total expense ratio and its components to comparable funds; |
| • | A report from an independent data provider comparing the investment performance of each fund (including, where relevant, yield data, Sharpe ratios and information ratios) to the investment performance of comparable funds over various time periods; |
| • | Data regarding investment performance in comparison to benchmark indices and customized groups of peer funds identified by the adviser in consultation with the Board; |
| • | For each fund, comparative information concerning the fees charged and the services provided by each adviser in managing other accounts (including mutual funds, other collective investment funds and institutional accounts) using investment strategies and techniques similar to those used in managing such fund; |
| • | Profitability analyses for each adviser with respect to each fund; |
Information about Portfolio Management and Trading
| • | Descriptions of the investment management services provided to each fund, including the investment strategies and processes it employs; |
| • | The procedures and processes used to determine the fair value of fund assets and actions taken to monitor and test the effectiveness of such procedures and processes; |
| • | Information about each adviser’s policies and practices with respect to trading, including each adviser’s processes for monitoring best execution of portfolio transactions; |
| • | Information about the allocation of brokerage transactions and the benefits received by each adviser as a result of brokerage allocation, including information concerning the acquisition of research through client commission arrangements and policies with respect to “soft dollars”; |
| • | Data relating to portfolio turnover rates of each fund; |
Information about each Adviser
| • | Reports detailing the financial results and condition of each adviser; |
| • | Descriptions of the qualifications, education and experience of the individual investment professionals whose responsibilities include portfolio management and investment research for the funds, and information relating to their compensation and responsibilities with respect to managing other mutual funds and investment accounts; |
| • | The Code of Ethics of each adviser and its affiliates, together with information relating to compliance with and the administration of such codes; |
| • | Policies and procedures relating to proxy voting and the handling of corporate actions and class actions; |
| • | Information concerning the resources devoted to compliance efforts undertaken by each adviser and its affiliates (including descriptions of various compliance programs) and their record of compliance; |
| • | Information concerning the business continuity and disaster recovery plans of each adviser and its affiliates; |
| • | A description of Eaton Vance Management’s procedures for overseeing third party advisers and sub-advisers, including with respect to regulatory and compliance issues, investment management and other matters; |
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Eaton Vance
Limited Duration Income Fund
September 30, 2016
Board of Trustees’ Contract Approval — continued
Other Relevant Information
| • | Information concerning the nature, cost and character of the administrative and other non-investment advisory services provided by Eaton Vance Management and its affiliates; |
| • | Information concerning management of the relationship with the custodian, subcustodians and fund accountants by each adviser or the funds’ administrator; and |
| • | The terms of each investment advisory agreement. |
Over the course of the twelve-month period ended April 30, 2016, with respect to one or more funds, the Board met ten times and the Contract Review Committee, the Audit Committee, the Governance Committee, the Portfolio Management Committee and the Compliance Reports and Regulatory Matters Committee, each of which is a Committee comprised solely of Independent Trustees, met seven, sixteen, four, nine and eleven times, respectively. At such meetings, the Trustees participated in investment and performance reviews with the portfolio managers and other investment professionals of each investment adviser relating to each fund, and considered various investment and trading strategies used in pursuing each fund’s investment objective, such as the use of derivative instruments, as well as risk management techniques. The Board and its Committees also evaluated issues pertaining to industry and regulatory developments, compliance procedures, fund governance and other issues with respect to the funds, and received and participated in reports and presentations provided by Eaton Vance Management and other fund advisers with respect to such matters. In addition to the formal meetings of the Board and its Committees, the Independent Trustees hold regular teleconferences in between meetings to discuss, among other topics, matters relating to the continuation of investment advisory and sub-advisory agreements.
For funds that invest through one or more underlying portfolios, the Board considered similar information about the portfolio(s) when considering the approval of investment advisory agreements. In addition, in cases where the fund’s investment adviser has engaged a sub-adviser, the Board considered similar information about the sub-adviser when considering the approval of any sub-advisory agreement.
The Contract Review Committee was assisted throughout the contract review process by Goodwin Procter LLP, independent legal counsel for the Independent Trustees. The members of the Contract Review Committee relied upon the advice of such counsel and their own business judgment in determining the material factors to be considered in evaluating each investment advisory and sub-advisory agreement and the weight to be given to each such factor. The conclusions reached with respect to each investment advisory and sub-advisory agreement were based on a comprehensive evaluation of all the information provided and not any single factor. Moreover, each member of the Contract Review Committee may have placed varying emphasis on particular factors in reaching conclusions with respect to each investment advisory and sub-advisory agreement. In evaluating each investment advisory and sub-advisory agreement, including the specific fee structures and other terms of the agreements, the Contract Review Committee was informed by multiple years of analysis and discussion among the Independent Trustees and the Eaton Vance Funds’ advisers and sub-advisers.
Results of the Process
Based on its consideration of the foregoing, and such other information as it deemed relevant, including the factors and conclusions described below, the Contract Review Committee concluded that the continuation of the investment advisory agreement of Eaton Vance Limited Duration Income Fund (the “Fund”) with Eaton Vance Management (the “Adviser”), including its fee structure, is in the interests of shareholders and, therefore, the Contract Review Committee recommended to the Board approval of the agreement. The Board accepted the recommendation of the Contract Review Committee based on the material factors considered and conclusions reached by the Contract Review Committee with respect to the agreement. Accordingly, the Board, including a majority of the Independent Trustees, voted to approve continuation of the investment advisory agreement for the Fund.
Nature, Extent and Quality of Services
In considering whether to approve the investment advisory agreement of the Fund, the Board evaluated the nature, extent and quality of services provided to the Fund by the Adviser.
The Board considered the Adviser’s management capabilities and investment process with respect to the types of investments held by the Fund, including the education, experience and number of its investment professionals and other personnel who provide portfolio management, investment research, and similar services to the Fund. In particular, the Board considered the abilities and experience of such investment professionals in analyzing factors such as credit risk and special considerations relevant to investing in senior secured floating rate loans, mortgage-backed securities and high-yield bonds. The Board considered the resources available to investment professionals of the Adviser. The Board also took into account the resources dedicated to portfolio management and other services, as well as the compensation methods of the Adviser and other factors, such as the reputation and resources of the Adviser to recruit and retain highly qualified research, advisory and supervisory investment professionals. In addition, the Board considered the time and attention devoted to the Eaton Vance Funds, including the Fund, by senior management, as well as the infrastructure, operational capabilities and support staff in place to assist in the portfolio management and operations of the Fund, including the provision of administrative services.
The Board considered the compliance programs of the Adviser and relevant affiliates thereof. Among other matters, the Board considered compliance and reporting matters relating to personal trading by investment professionals, selective disclosure of portfolio holdings, late trading, frequent trading, portfolio valuation, business continuity and the allocation of investment opportunities. The Board also considered the responses of the Adviser and its affiliates to requests in recent years from regulatory authorities such as the Securities and Exchange Commission and the Financial Industry Regulatory Authority.
| 61 |
Eaton Vance
Limited Duration Income Fund
September 30, 2016
Board of Trustees’ Contract Approval — continued
The Board considered shareholder and other administrative services provided or managed by Eaton Vance Management and its affiliates, including transfer agency and accounting services. The Board evaluated the benefits to shareholders of investing in a fund that is a part of a large fund complex offering exposure to a variety of asset classes and investment disciplines.
After consideration of the foregoing factors, among others, the Board concluded that the nature, extent and quality of services provided by the Adviser, taken as a whole, are appropriate and consistent with the terms of the investment advisory agreement.
Fund Performance
The Board compared the Fund’s investment performance to that of comparable funds and appropriate benchmark indices, as well as a customized peer group of similarly managed funds. The Board’s review included comparative performance data for the one-, three-, five- and ten-year periods ended September 30, 2015 for the Fund. The Board concluded that the performance of the Fund was satisfactory.
Management Fees and Expenses
The Board considered contractual fee rates payable by the Fund for advisory and administrative services (referred to collectively as “management fees”). As part of its review, the Board considered the Fund’s management fees and total expense ratio for the one year period ended September 30, 2015, as compared to those of comparable funds, before and after giving effect to any undertaking to waive fees or reimburse expenses. The Board also considered factors that had an impact on Fund expense ratios relative to comparable funds.
After considering the foregoing information, and in light of the nature, extent and quality of the services provided by the Adviser, the Board concluded that the management fees charged for advisory and related services are reasonable.
Profitability and Other “Fall-Out” Benefits
The Board considered the level of profits realized by the Adviser and relevant affiliates thereof in providing investment advisory and administrative services to the Fund and to all Eaton Vance Funds as a group. The Board considered the level of profits realized without regard to marketing support or other payments by the Adviser and its affiliates to third parties in respect of distribution services. The Board also considered other direct or indirect fall-out benefits received by the Adviser and its affiliates in connection with their relationships with the Fund, including the benefits of research services that may be available to the Adviser as a result of securities transactions effected for the Fund and other investment advisory clients.
The Board concluded that, in light of the foregoing factors and the nature, extent and quality of the services rendered, the profits realized by the Adviser and its affiliates are deemed not to be excessive.
Economies of Scale
In reviewing management fees and profitability, the Board also considered the extent to which the Adviser and its affiliates, on the one hand, and the Fund, on the other hand, can expect to realize benefits from economies of scale as the assets of the Fund increase. The Board acknowledged the difficulty in accurately measuring the benefits resulting from economies of scale, if any, with respect to the management of any specific fund or group of funds. The Board reviewed data summarizing the increases and decreases in the assets of the Fund and of all Eaton Vance Funds as a group over various time periods, and evaluated the extent to which the total expense ratio of the Fund and the profitability of the Adviser and its affiliates may have been affected by such increases or decreases. Based upon the foregoing, the Board concluded that the Fund currently shares in any benefits from economies of scale. The Board also considered the fact that the Fund is not continuously offered and that the Fund’s assets are not expected to increase materially in the foreseeable future. The Board concluded that, in light of the level of the Adviser’s profits with respect to the Fund, the implementation of breakpoints in the advisory fee schedule is not warranted at this time.
| 62 |
Eaton Vance
Limited Duration Income Fund
September 30, 2016
Officers and Trustees
Officers of Eaton Vance Limited Duration Income Fund
Trustees of Eaton Vance Limited Duration Income Fund
| * | Interested Trustee |
| ** | Messrs. Fetting and Wennerholm began serving as Trustees effective September 1, 2016. |
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 September 30, 2016, Fund records indicate that there are 80 registered shareholders and approximately 76,309 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
NYSE MKT symbol
The NYSE MKT symbol is EVV.
| 63 |
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:
| • | 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. |
| • | 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. |
| • | Policies and procedures (including physical, electronic and procedural safeguards) are in place that are designed to protect the confidentiality of such information. |
| • | 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 (International) Limited, 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. American Stock Transfer and Trust Company, LLC (“AST”), the closed-end funds transfer agent, or your financial advisor, may household the mailing of your documents indefinitely unless you instruct AST, or your financial advisor, otherwise. If you would prefer that your Eaton Vance documents not be householded, please contact AST or your financial advisor. Your instructions that householding not apply to delivery of your Eaton Vance documents will typically be effective within 30 days of receipt by AST 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”.
| 64 |
7731 9.30.16
Item 2. Code of Ethics
Not required in this filing.
Item 3. Audit Committee Financial Expert
Not required in this filing.
Item 4. Principal Accountant Fees and Services
Rule 2-01(c)(1)(ii)(A) of Regulation S-X (the “Loan Rule”) prohibits an accounting firm, such as the Fund’s principal accountant, Deloitte & Touche LLP (“D&T”), from having certain financial relationships with their audit clients and affiliated entities. Specifically, the Loan Rule provides, in relevant part, that an accounting firm generally would not be independent if it receives a loan from a lender that is a “record or beneficial owner of more than ten percent of the audit client’s equity securities.” Based on information provided to the Audit
Committee of the Board of Trustees (the “Audit Committee”) of the Eaton Vance family of funds by D&T, certain relationships between D&T and its affiliates (“Deloitte Entities”) and its lenders who are record owners of shares of one or more funds within the Eaton Vance family of funds (the “Funds”) implicate the Loan Rule, calling into question D&T’s independence with respect to the Funds. The Funds are providing this disclosure to explain the facts and circumstances as well as D&T’s conclusions concerning D&T’s objectivity and impartiality with respect to the audits of the Funds.
D&T advised the Audit Committee of its conclusion that, in light of the facts surrounding its lending relationships, D&T’s objectivity and impartiality in the planning and conduct of the audits of the Funds financial statements will not be compromised, D&T is in a position to continue as the auditor for the Funds and no actions need to be taken with respect to previously issued reports by D&T. D&T has advised the Audit Committee that these conclusions were based in part on the following considerations: (1) Deloitte Entity personnel responsible for managing the lending relationships have had no interactions with the audit engagement team; (2) the lending relationships are in good standing and the principal and interest payments are up-to-date; (3) the lending relationships are not significant to the Deloitte Entities or to D&T.
On June 20, 2016, the U.S. Securities and Exchange Commission (the “SEC”) issued no-action relief to another mutual fund complex (see Fidelity Management & Research Company et al., No-Action Letter (June 20, 2016) (the “No-Action Letter”)) related to the auditor independence issue described above. In the No-Action Letter, the SEC indicated that it would not recommend enforcement action against the fund group if the auditor is not in compliance with the Loan Rule provided that: (1) the auditor has complied with PCAOB Rule 3526(b)(1) and 3526(b)(2); (2) the auditor’s non-compliance under the Loan Rule is with respect to certain lending relationships; and (3) notwithstanding such non-compliance, the auditor has concluded that it is objective and impartial with respect to the issues encompassed within its engagement as auditor of the funds. Based on information provided by D&T, the requirements of the No-Action Letter appear to be met with respect to D&T’s lending relationships described above. After giving consideration to the guidance provided in the No-Action Letter, D&T affirmed to the Audit Committee that D&T is an independent accountant with respect to the Funds within the meaning of the rules and standards of the PCAOB and the securities laws and regulations administered by the SEC. The SEC has indicated that the no-action relief will expire 18 months from its issuance.
Item 5. Audit Committee of Listed Registrants
Not required in this filing.
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
Not required in this filing.
Item 8. Portfolio Managers of Closed-End Management Investment Companies
Not required in this filing.
Item 9. Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers
No such purchases this period.
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. | |
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 Limited Duration Income Fund
| By: | /s/ Payson F. Swaffield | |
| Payson F. Swaffield | ||
| President | ||
| Date: |
November 17, 2016 | |
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: | November 17, 2016 | |
| By: | /s/ Payson F. Swaffield | |
| Payson F. Swaffield | ||
| President | ||
| Date: | November 17, 2016 | |