UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act File Number: 811-21563
Eaton Vance Short Duration Diversified Income Fund
(Exact Name of Registrant as Specified in Charter)
Two International Place, Boston, Massachusetts 02110
(Address of Principal Executive Offices)
Maureen A. Gemma
Two International Place, Boston, Massachusetts 02110
(Name and Address of Agent for Services)
(617) 482-8260
(Registrant’s Telephone Number)
October 31
Date of Fiscal Year End
April 30, 2014
Date of Reporting Period
Item 1. Reports to Stockholders
Eaton Vance
Short Duration Diversified Income Fund (EVG)
Semiannual Report
April 30, 2014
Commodity Futures Trading Commission Registration. Effective December 31, 2012, the Commodity Futures Trading Commission (“CFTC”) adopted certain regulatory changes that subject registered investment companies and advisers to regulation by the CFTC if a fund invests more than a prescribed level of its assets in certain CFTC-regulated instruments (including futures, certain options and swap agreements) or markets itself as providing investment exposure to such instruments. The Fund is considered to be a commodity pool operator under CFTC regulations. The Fund’s adviser is registered with the CFTC as a commodity pool operator and a commodity trading advisor. The CFTC has neither reviewed nor approved the Fund’s investment strategies.
Managed Distribution Plan. Pursuant to an exemptive order issued by the Securities and Exchange Commission (Order), the Fund is authorized to distribute long-term capital gains to shareholders more frequently than once per year. Pursuant to the Order, the Fund’s Board of Trustees approved a Managed Distribution Plan (MDP) pursuant to which the Fund makes monthly cash distributions to common shareholders, stated in terms of a fixed amount per common share.
The Fund currently distributes monthly cash distributions equal to $0.09 per share in accordance with the MDP. You should not draw any conclusions about the Fund’s investment performance from the amount of these distributions or from the terms of the MDP. The MDP will be subject to regular periodic review by the Fund’s Board of Trustees and the Board may amend or terminate the MDP at any time without prior notice to Fund shareholders. However, at this time there are no reasonably foreseeable circumstances that might cause the termination of the MDP.
The Fund may distribute more than its net investment income and net realized capital gains and, therefore, a distribution may include a return of capital. A return of capital distribution does not necessarily reflect the Fund’s investment performance and should not be confused with “yield” or “income.” With each distribution, the Fund will issue a notice to shareholders and a press release containing information about the amount and sources of the distribution and other related information. The amounts and sources of distributions contained in the notice and press release are only estimates and are not provided for tax purposes. The amounts and sources of the Fund’s distributions for tax purposes will be reported to shareholders on Form 1099-DIV for each calendar year.
Fund shares are not insured by the FDIC and are not deposits or other obligations of, or guaranteed by, any depository institution. Shares are subject to investment risks, including possible loss of principal invested.
Semiannual Report April 30, 2014
Eaton Vance
Short Duration Diversified Income Fund
Table of Contents
| Performance |
2 | |||
| Fund Profile |
2 | |||
| Endnotes and Additional Disclosures |
3 | |||
| Consolidated Financial Statements |
4 | |||
| Annual Meeting of Shareholders |
44 | |||
| Board of Trustees’ Contract Approval |
45 | |||
| Officers and Trustees |
48 | |||
| Important Notices |
49 | |||
Eaton Vance
Short Duration Diversified Income Fund
April 30, 2014
Performance1
Portfolio Managers Scott H. Page, CFA, Payson F. Swaffield, CFA, Catherine C. McDermott, Andrew Szczurowski, CFA and Eric Stein, CFA
| % Average Annual Total Returns | Inception Date | Six Months | One Year | Five Years | Since Inception |
|||||||||||||||
| Fund at NAV |
02/28/2005 | 1.94 | % | 1.06 | % | 8.45 | % | 6.08 | % | |||||||||||
| Fund at Market Price |
— | 2.84 | –6.39 | 9.83 | 4.98 | |||||||||||||||
| % Premium/Discount to NAV2 | ||||||||||||||||||||
| –9.10 | % | |||||||||||||||||||
| Distributions3 | ||||||||||||||||||||
| Total Distributions per share for the period |
$ | 0.540 | ||||||||||||||||||
| Distribution Rate at NAV |
6.47 | % | ||||||||||||||||||
| Distribution Rate at Market Price |
7.11 | % | ||||||||||||||||||
| % Total Leverage4 | ||||||||||||||||||||
| Derivatives |
26.82 | % | ||||||||||||||||||
| Borrowings |
15.28 | |||||||||||||||||||
Fund Profile
Asset Allocation (% of total investments)5
See Endnotes and Additional Disclosures in this report.
Past performance is no guarantee of future results. Returns are historical and are calculated by determining the percentage change in net asset value (NAV) or market price (as applicable) with all distributions reinvested and includes management fees and other expenses. Fund performance at market price will differ from its results at NAV due to factors such as changing perceptions about the Fund, market conditions, fluctuations in supply and demand for Fund shares, or changes in Fund distributions. Investment return and principal value will fluctuate so that shares, when sold, may be worth more or less than their original cost. Performance less than one year is cumulative. Performance is for the stated time period only; due to market volatility, current Fund performance may be lower or higher than the quoted return. For performance as of the most recent month end, please refer to eatonvance.com.
| 2 |
Eaton Vance
Short Duration Diversified Income Fund
April 30, 2014
Endnotes and Additional Disclosures
| 3 |
Eaton Vance
Short Duration Diversified Income Fund
April 30, 2014
Consolidated Portfolio of Investments (Unaudited)
| 4 | See Notes to Consolidated Financial Statements. |
Eaton Vance
Short Duration Diversified Income Fund
April 30, 2014
Consolidated Portfolio of Investments (Unaudited) — continued
| 5 | See Notes to Consolidated Financial Statements. |
Eaton Vance
Short Duration Diversified Income Fund
April 30, 2014
Consolidated Portfolio of Investments (Unaudited) — continued
| 6 | See Notes to Consolidated Financial Statements. |
Eaton Vance
Short Duration Diversified Income Fund
April 30, 2014
Consolidated Portfolio of Investments (Unaudited) — continued
| 7 | See Notes to Consolidated Financial Statements. |
Eaton Vance
Short Duration Diversified Income Fund
April 30, 2014
Consolidated Portfolio of Investments (Unaudited) — continued
| 8 | See Notes to Consolidated Financial Statements. |
Eaton Vance
Short Duration Diversified Income Fund
April 30, 2014
Consolidated Portfolio of Investments (Unaudited) — continued
| 9 | See Notes to Consolidated Financial Statements. |
Eaton Vance
Short Duration Diversified Income Fund
April 30, 2014
Consolidated Portfolio of Investments (Unaudited) — continued
| 10 | See Notes to Consolidated Financial Statements. |
Eaton Vance
Short Duration Diversified Income Fund
April 30, 2014
Consolidated Portfolio of Investments (Unaudited) — continued
| 11 | See Notes to Consolidated Financial Statements. |
Eaton Vance
Short Duration Diversified Income Fund
April 30, 2014
Consolidated Portfolio of Investments (Unaudited) — continued
| 12 | See Notes to Consolidated Financial Statements. |
Eaton Vance
Short Duration Diversified Income Fund
April 30, 2014
Consolidated Portfolio of Investments (Unaudited) — continued
| 13 | See Notes to Consolidated Financial Statements. |
Eaton Vance
Short Duration Diversified Income Fund
April 30, 2014
Consolidated Portfolio of Investments (Unaudited) — continued
| 14 | See Notes to Consolidated Financial Statements. |
Eaton Vance
Short Duration Diversified Income Fund
April 30, 2014
Consolidated Portfolio of Investments (Unaudited) — continued
| 15 | See Notes to Consolidated Financial Statements. |
Eaton Vance
Short Duration Diversified Income Fund
April 30, 2014
Consolidated Portfolio of Investments (Unaudited) — continued
| 16 | See Notes to Consolidated Financial Statements. |
Eaton Vance
Short Duration Diversified Income Fund
April 30, 2014
Consolidated Portfolio of Investments (Unaudited) — continued
| 17 | See Notes to Consolidated Financial Statements. |
Eaton Vance
Short Duration Diversified Income Fund
April 30, 2014
Consolidated Portfolio of Investments (Unaudited) — continued
| 18 | See Notes to Consolidated Financial Statements. |
Eaton Vance
Short Duration Diversified Income Fund
April 30, 2014
Consolidated Portfolio of Investments (Unaudited) — continued
| 19 | See Notes to Consolidated Financial Statements. |
Eaton Vance
Short Duration Diversified Income Fund
April 30, 2014
Consolidated Portfolio of Investments (Unaudited) — continued
| 20 | See Notes to Consolidated Financial Statements. |
Eaton Vance
Short Duration Diversified Income Fund
April 30, 2014
Consolidated Statement of Assets and Liabilities (Unaudited)
| Assets | April 30, 2014 | |||
| Unaffiliated investments, at value (identified cost, $381,866,416) |
$ | 389,557,094 | ||
| Affiliated investment, at value (identified cost, $7,590,604) |
7,590,604 | |||
| Cash |
2,237,750 | |||
| Restricted cash* |
270,000 | |||
| Foreign currency, at value (identified cost, $1,227,559) |
1,222,533 | |||
| Interest receivable |
2,455,008 | |||
| Interest receivable from affiliated investment |
899 | |||
| Receivable for investments sold |
157,122 | |||
| Receivable for open forward foreign currency exchange contracts |
1,415,358 | |||
| Receivable for open swap contracts |
791,010 | |||
| Premium paid on open swap contracts |
616,142 | |||
| Tax reclaims receivable |
23,207 | |||
| Other assets |
5,081 | |||
| Total assets |
$ | 406,341,808 | ||
| Liabilities | ||||
| Notes payable |
$ | 83,000,000 | ||
| Cash collateral due to brokers |
270,000 | |||
| Written options outstanding, at value (premiums received, $62,253) |
1,415 | |||
| Payable for investments purchased |
5,892,490 | |||
| Payable for open forward foreign currency exchange contracts |
1,310,447 | |||
| Payable for open swap contracts |
697,393 | |||
| Payable to affiliates: |
||||
| Investment adviser fee |
323,723 | |||
| Trustees’ fees |
1,898 | |||
| Accrued expenses |
341,376 | |||
| Total liabilities |
$ | 91,838,742 | ||
| Net Assets |
$ | 314,503,066 | ||
| Sources of Net Assets | ||||
| Common shares, $0.01 par value, unlimited number of shares authorized, 18,830,596 shares issued and outstanding |
$ | 188,306 | ||
| Additional paid-in capital |
336,629,250 | |||
| Accumulated net realized loss |
(27,413,360 | ) | ||
| Accumulated distributions in excess of net investment income |
(2,860,136 | ) | ||
| Net unrealized appreciation |
7,959,006 | |||
| Net Assets |
$ | 314,503,066 | ||
| Net Asset Value | ||||
| ($314,503,066 ÷ 18,830,596 common shares issued and outstanding) |
$ | 16.70 | ||
| * | Represents restricted cash pledged for the benefit of the Fund for open derivative contracts. |
| 21 | See Notes to Consolidated Financial Statements. |
Eaton Vance
Short Duration Diversified Income Fund
April 30, 2014
Consolidated Statement of Operations (Unaudited)
| Investment Income | Six Months Ended April 30, 2014 |
|||
| Interest (net of foreign taxes, $34,814) |
$ | 10,436,676 | ||
| Dividends |
92,826 | |||
| Interest allocated from affiliated investment |
6,234 | |||
| Expenses allocated from affiliated investment |
(818 | ) | ||
| Total investment income |
$ | 10,534,918 | ||
| Expenses | ||||
| Investment adviser fee |
$ | 1,964,770 | ||
| Trustees’ fees and expenses |
11,104 | |||
| Custodian fee |
209,477 | |||
| Transfer and dividend disbursing agent fees |
9,279 | |||
| Legal and accounting services |
74,904 | |||
| Printing and postage |
48,556 | |||
| Interest expense and fees |
541,901 | |||
| Interest expense on securities sold short |
787 | |||
| Miscellaneous |
40,925 | |||
| Total expenses |
$ | 2,901,703 | ||
| Deduct — |
||||
| Reduction of custodian fee |
$ | 1,429 | ||
| Total expense reductions |
$ | 1,429 | ||
| Net expenses |
$ | 2,900,274 | ||
| Net investment income |
$ | 7,634,644 | ||
| Realized and Unrealized Gain (Loss) | ||||
| Net realized gain (loss) — |
||||
| Investment transactions (including a loss of $631,772 from precious metals) |
$ | (2,551,187 | ) | |
| Investment transactions allocated from affiliated investment |
67 | |||
| Written options |
84,532 | |||
| Securities sold short |
7,386 | |||
| Futures contracts |
(215,638 | ) | ||
| Swap contracts |
(320,391 | ) | ||
| Foreign currency and forward foreign currency exchange contract transactions |
(970,014 | ) | ||
| Net realized loss |
$ | (3,965,245 | ) | |
| Change in unrealized appreciation (depreciation) — |
||||
| Investments (including net increase of $454,469 from precious metals) |
$ | 1,204,388 | ||
| Written options |
(36,007 | ) | ||
| Securities sold short |
(4,042 | ) | ||
| Futures contracts |
12,901 | |||
| Swap contracts |
(84,414 | ) | ||
| Foreign currency and forward foreign currency exchange contracts |
251,102 | |||
| Net change in unrealized appreciation (depreciation) |
$ | 1,343,928 | ||
| Net realized and unrealized loss |
$ | (2,621,317 | ) | |
| Net increase in net assets from operations |
$ | 5,013,327 | ||
| 22 | See Notes to Consolidated Financial Statements. |
Eaton Vance
Short Duration Diversified Income Fund
April 30, 2014
Consolidated Statements of Changes in Net Assets
| Increase (Decrease) in Net Assets | Six Months Ended April 30, 2014 (Unaudited) |
Year Ended October 31, 2013 |
||||||
| From operations — |
||||||||
| Net investment income |
$ | 7,634,644 | $ | 15,562,697 | ||||
| Net realized loss from investment transactions, written options, securities sold short, futures contracts, swap contracts, forward commodity contracts, and foreign currency and forward foreign currency exchange contract transactions |
(3,965,245 | ) | (2,850,387 | ) | ||||
| Net change in unrealized appreciation (depreciation) from investments, written options, securities sold short, futures contracts, swap contracts, forward commodity contracts, foreign currency and forward foreign currency exchange contracts |
1,343,928 | (9,201,618 | ) | |||||
| Net increase in net assets from operations |
$ | 5,013,327 | $ | 3,510,692 | ||||
| Distributions to shareholders — |
||||||||
| From net investment income |
$ | (10,173,562 | )* | $ | (13,169,455 | ) | ||
| Tax return of capital |
— | (7,228,069 | ) | |||||
| Total distributions |
$ | (10,173,562 | ) | $ | (20,397,524 | ) | ||
| Capital share transactions — |
||||||||
| Cost of shares repurchased (see Note 5) |
$ | (850,311 | ) | $ | — | |||
| Net decrease in net assets from capital share transactions |
$ | (850,311 | ) | $ | — | |||
| Net decrease in net assets |
$ | (6,010,546 | ) | $ | (16,886,832 | ) | ||
| Net Assets | ||||||||
| At beginning of period |
$ | 320,513,612 | $ | 337,400,444 | ||||
| At end of period |
$ | 314,503,066 | $ | 320,513,612 | ||||
| Accumulated distributions in excess of net investment income included in net assets |
||||||||
| At end of period |
$ | (2,860,136 | ) | $ | (321,218 | ) | ||
| * | A portion of the distributions may be deemed a tax return of capital at year-end. See Note 2. |
| 23 | See Notes to Consolidated Financial Statements. |
Eaton Vance
Short Duration Diversified Income Fund
April 30, 2014
Consolidated Statement of Cash Flows (Unaudited)
| Cash Flows From Operating Activities | Six Months Ended April 30, 2014 |
|||
| Net increase in net assets from operations |
$ | 5,013,327 | ||
| Adjustments to reconcile net increase in net assets from operations to net cash provided by operating activities: |
||||
| Investments purchased, including repurchases of securities sold short |
(92,699,191 | ) | ||
| Investments sold and principal repayments |
100,660,994 | |||
| Increase in short-term investments, net, excluding foreign government securities |
(3,589,741 | ) | ||
| Net amortization/accretion of premium (discount) |
4,641,568 | |||
| Decrease in restricted cash |
130,000 | |||
| Decrease in interest receivable |
121,854 | |||
| Increase in interest receivable from affiliated investment |
(178 | ) | ||
| Increase in receivable for open forward foreign currency exchange contracts |
(485,983 | ) | ||
| Decrease in receivable for open swap contracts |
487,884 | |||
| Decrease in premium paid on open swap contracts |
155,952 | |||
| Increase in tax reclaims receivable |
(3,906 | ) | ||
| Increase in other assets |
(37 | ) | ||
| Decrease in cash collateral due to brokers |
(130,000 | ) | ||
| Decrease in written options outstanding, at value |
(48,444 | ) | ||
| Decrease in payable for variation margin on open futures contracts |
(82,898 | ) | ||
| Increase in payable for open forward foreign currency exchange contracts |
246,194 | |||
| Decrease in payable for open swap contracts |
(403,470 | ) | ||
| Decrease in payable to affiliate for investment adviser fee |
(16,395 | ) | ||
| Decrease in payable to affiliate for Trustees’ fees |
(280 | ) | ||
| Decrease in interest payable for securities sold short |
(1,417 | ) | ||
| Decrease in accrued expenses |
(169,477 | ) | ||
| Decrease in unfunded loan commitments |
(200,000 | ) | ||
| Net change in unrealized (appreciation) depreciation from: |
||||
| Investments |
(1,204,388 | ) | ||
| Securities sold short |
4,042 | |||
| Net realized (gain) loss from: |
||||
| Investments |
2,551,187 | |||
| Securities sold short |
(7,386 | ) | ||
| Net cash provided by operating activities |
$ | 14,969,811 | ||
| Cash Flows From Financing Activities | ||||
| Distributions paid, net of reinvestments |
$ | (10,173,562 | ) | |
| Repurchase of common shares |
(850,311 | ) | ||
| Proceeds from notes payable |
20,000,000 | |||
| Repayment of notes payable |
(32,000,000 | ) | ||
| Net cash used in financing activities |
$ | (23,023,873 | ) | |
| Net decrease in cash* |
$ | (8,054,062 | ) | |
| Cash at beginning of period(1) |
$ | 11,514,345 | ||
| Cash at end of period(1) |
$ | 3,460,283 | ||
| Supplemental disclosure of cash flow information | ||||
| Cash paid for interest and fees |
$ | 565,341 | ||
| (1) | Balance includes foreign currency, at value. |
| * | Includes net change in unrealized appreciation (depreciation) on foreign currency of $(1,367). |
| 24 | See Notes to Consolidated Financial Statements. |
Eaton Vance
Short Duration Diversified Income Fund
April 30, 2014
Consolidated Financial Highlights
| Six Months Ended April 30, 2014 (Unaudited) |
Year Ended October 31, | |||||||||||||||||||||||
| 2013 | 2012 | 2011 | 2010 | 2009 | ||||||||||||||||||||
| Net asset value — Beginning of period |
$ | 16.970 | $ | 17.860 | $ | 17.800 | $ | 18.270 | $ | 17.660 | $ | 14.970 | ||||||||||||
| Income (Loss) From Operations | ||||||||||||||||||||||||
| Net investment income(1) |
$ | 0.405 | $ | 0.824 | $ | 0.867 | $ | 0.822 | $ | 1.051 | $ | 1.130 | ||||||||||||
| Net realized and unrealized gain (loss) |
(0.140 | ) | (0.634 | ) | 0.273 | (0.132 | ) | 0.639 | 2.670 | |||||||||||||||
| Total income from operations |
$ | 0.265 | $ | 0.190 | $ | 1.140 | $ | 0.690 | $ | 1.690 | $ | 3.800 | ||||||||||||
| Less Distributions | ||||||||||||||||||||||||
| From net investment income |
$ | (0.540 | )* | $ | (0.697 | ) | $ | (0.732 | ) | $ | (1.160 | ) | $ | (1.080 | ) | $ | (1.001 | ) | ||||||
| Tax return of capital |
— | (0.383 | ) | (0.348 | ) | — | — | (0.109 | ) | |||||||||||||||
| Total distributions |
$ | (0.540 | ) | $ | (1.080 | ) | $ | (1.080 | ) | $ | (1.160 | ) | $ | (1.080 | ) | $ | (1.110 | ) | ||||||
| Anti-dilutive effect of share repurchase program (see Note 5)(1) |
$ | 0.005 | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||
| Net asset value — End of period |
$ | 16.700 | $ | 16.970 | $ | 17.860 | $ | 17.800 | $ | 18.270 | $ | 17.660 | ||||||||||||
| Market value — End of period |
$ | 15.180 | $ | 15.290 | $ | 17.320 | $ | 16.350 | $ | 17.600 | $ | 15.570 | ||||||||||||
| Total Investment Return on Net Asset Value(2) |
1.94 | %(3) | 1.47 | % | 6.92 | % | 4.35 | % | 10.26 | % | 28.04 | % | ||||||||||||
| Total Investment Return on Market Value(2) |
2.84 | %(3) | (5.72 | )% | 12.87 | % | (0.51 | )% | 20.48 | % | 33.90 | % | ||||||||||||
| Ratios/Supplemental Data | ||||||||||||||||||||||||
| Net assets, end of period (000’s omitted) |
$ | 314,503 | $ | 320,514 | $ | 337,400 | $ | 336,165 | $ | 345,073 | $ | 333,484 | ||||||||||||
| Ratios (as a percentage of average daily net assets): |
||||||||||||||||||||||||
| Expenses excluding interest and fees(4) |
1.50 | %(5) | 1.55 | % | 1.47 | % | 1.38 | % | 1.27 | % | 1.22 | % | ||||||||||||
| Interest and fee expense(6) |
0.35 | %(5) | 0.47 | % | 0.55 | % | 0.51 | % | 0.46 | % | 0.41 | % | ||||||||||||
| Total expenses(4) |
1.85 | %(5) | 2.02 | % | 2.02 | % | 1.89 | % | 1.73 | % | 1.63 | % | ||||||||||||
| Net investment income |
4.86 | %(5) | 4.72 | % | 4.87 | % | 4.52 | % | 5.81 | % | 7.17 | % | ||||||||||||
| Portfolio Turnover |
22 | %(3) | 48 | % | 42 | % | 35 | % | 21 | % | 32 | % | ||||||||||||
| Senior Securities: |
||||||||||||||||||||||||
| Total notes payable outstanding (in 000’s) |
$ | 83,000 | $ | 95,000 | $ | 115,000 | $ | 98,000 | $ | 98,000 | $ | 111,000 | ||||||||||||
| Asset coverage per $1,000 of notes payable(7) |
$ | 4,789 | $ | 4,374 | $ | 3,934 | $ | 4,430 | $ | 4,521 | $ | 4,004 | ||||||||||||
| (1) | Computed using average common shares outstanding. |
| (2) | Returns are historical and are calculated by determining the percentage change in net asset value or market value with all distributions reinvested. Distributions are assumed to be reinvested at prices obtained under the Fund’s dividend reinvestment plan. |
| (3) | Not annualized. |
| (4) | Excludes the effect of custody fee credits, if any, of less than 0.005%. |
| (5) | Annualized. |
| (6) | Interest expense relates to borrowings for the purpose of financial leverage (see Note 8) and securities sold short. |
| (7) | Calculated by subtracting the Fund’s total liabilities (not including the notes payable) from the Fund’s total assets, and dividing the result by the notes payable balance in thousands. |
| * | A portion of the distributions may be deemed a tax return of capital at year-end. See Note 2. |
| 25 | See Notes to Consolidated Financial Statements. |
Eaton Vance
Short Duration Diversified Income Fund
April 30, 2014
Notes to Consolidated Financial Statements (Unaudited)
1 Significant Accounting Policies
Eaton Vance Short Duration Diversified Income Fund (the Fund) is a Massachusetts business trust registered under the Investment Company Act of 1940, as amended (the 1940 Act), as a diversified, closed-end management investment company. The Fund’s primary investment objective is to provide a high level of current income, with a secondary objective of seeking capital appreciation to the extent consistent with its primary goal.
The Fund seeks to gain exposure to the commodity markets, in whole or in part, through investments in Eaton Vance EVG Commodity Subsidiary, Ltd. (the Subsidiary), a wholly-owned subsidiary of the Fund organized under the laws of the Cayman Islands with the same objective and investment policies and restrictions as the Fund. The Fund may invest up to 25% of its total assets in the Subsidiary. The net assets of the Subsidiary at April 30, 2014 were $1,451,404 or 0.5% of the Fund’s consolidated net assets. The accompanying consolidated financial statements include the accounts of the Subsidiary. Intercompany balances and transactions have been eliminated in consolidation.
The following is a summary of significant accounting policies of the Fund. The policies are in conformity with accounting principles generally accepted in the United States of America.
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, 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. Seasoned, fixed-rate 30-year mortgage-backed securities are valued either through the use of the investment adviser’s matrix pricing system or on the basis of prices furnished by a pricing service. The valuation methodologies take into account bond prices, yield differentials, anticipated prepayments and interest rates. Short-term obligations purchased with a remaining maturity of sixty days or less (excluding those that are non-U.S. dollar denominated, which typically are valued by a pricing service or dealer quotes) are generally valued at amortized cost, which approximates market value.
Equity Securities. Equity securities (including common shares of closed-end investment companies) listed on a U.S. securities exchange generally are valued at the last sale or closing price on the day of valuation or, if no sales took place on such date, at the mean between the closing bid and asked prices therefore on the exchange where such securities are principally traded. Equity securities listed on the NASDAQ Global or Global Select Market generally are valued at the NASDAQ official closing price. Unlisted or listed securities for which closing sales prices or closing quotations are not available are valued at the mean between the latest available bid and asked prices.
Commodities. Precious metals are valued at the New York composite mean quotation reported by Bloomberg at the valuation time.
Derivatives. Exchange-traded options are valued at the mean between the bid and asked prices at valuation time as reported by the Options Price Reporting Authority for U.S. listed options or by the relevant exchange or board of trade for non-U.S. listed options. Over-the-counter options (including options on securities, indices and foreign currencies) are valued by a third party pricing service using techniques that consider factors including the value of the underlying instrument, the volatility of the underlying instrument and the period of time until option expiration. Financial and commodities futures contracts are valued at the closing settlement price established by the board of trade or exchange on which they are traded. Forward foreign currency exchange contracts are generally valued at the mean of the average bid and average asked prices that are reported by currency dealers to a third party pricing service at the valuation time. Such third party pricing service valuations are supplied for specific settlement periods and the Fund’s forward foreign currency exchange contracts are valued at an interpolated rate between the closest preceding and subsequent settlement period reported by the third party pricing service. Forward commodity contracts are generally valued based on the price of the underlying futures or forward contract provided by the
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Eaton Vance
Short Duration Diversified Income Fund
April 30, 2014
Notes to Consolidated Financial Statements (Unaudited) — continued
exchange on which the underlying instruments are traded or if unavailable, based on forward rates provided by broker/dealers. Swaps 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. In the case of total return swaps, the pricing service valuations are based on the value of the underlying index or instrument and reference interest rate. Future cash flows on swaps are discounted to their present value using swap rates provided by electronic data services or by broker/dealers.
Foreign Securities and Currencies. Foreign securities and currencies are valued in U.S. dollars, based on foreign currency exchange rate quotations supplied by a third party pricing service. The pricing service uses a proprietary model to determine the exchange rate. Inputs to the model include reported trades and implied bid/ask spreads.
Affiliated Fund. The Fund may invest in Eaton Vance Cash Reserves Fund, LLC (Cash Reserves Fund), an affiliated investment company managed by Eaton Vance Management (EVM). The value of the Fund’s investment in Cash Reserves Fund reflects the Fund’s proportionate interest in its net assets. Cash Reserves Fund generally values its investment securities utilizing the amortized cost valuation technique in accordance with Rule 2a-7 under the 1940 Act. This technique involves initially valuing a portfolio security at its cost and thereafter assuming a constant amortization to maturity of any discount or premium. If amortized cost is determined not to approximate fair value, Cash Reserves Fund may value its investment securities in the same manner as debt obligations described above.
Fair Valuation. Investments for which valuations or market quotations are not readily available or are deemed unreliable are valued at fair value using methods determined in good faith by or at the direction of the Trustees of the Fund in a manner that fairly reflects the security’s value, or the amount that the Fund might reasonably expect to receive for the security upon its current sale in the ordinary course. Each such determination is based on a consideration of relevant factors, which are likely to vary from one pricing context to another. These factors may include, but are not limited to, the type of security, the existence of any contractual restrictions on the security’s disposition, the price and extent of public trading in similar securities of the issuer or of comparable companies or entities, quotations or relevant information obtained from broker/dealers or other market participants, information obtained from the issuer, analysts, and/or the appropriate stock exchange (for exchange-traded securities), an analysis of the company’s or entity’s financial condition, and an evaluation of the forces that influence the issuer and the market(s) in which the security is purchased and sold.
B Investment Transactions — Investment transactions for financial statement purposes are accounted for on a trade date basis. Realized gains and losses on investments sold are determined on the basis of identified cost.
C Income — Interest income is recorded on the basis of interest accrued, adjusted for amortization of premium or accretion of discount. Dividend income is recorded on the ex-dividend date for dividends received in cash and/or securities. Fees associated with loan amendments are recognized immediately. Inflation adjustments to the principal amount of inflation-adjusted bonds and notes are reflected as interest income. Withholding taxes on foreign interest have been provided for in accordance with the Fund’s understanding of the applicable countries’ tax rules and rates.
D Federal Taxes — The Fund’s policy is to comply with the provisions of the Internal Revenue Code applicable to regulated investment companies and to distribute to shareholders each year substantially all of its net investment income, and all or substantially all of its net realized capital gains. Accordingly, no provision for federal income or excise tax is necessary.
The Subsidiary is treated as a controlled foreign corporation under the Internal Revenue Code and is not expected to be subject to U.S. federal income tax. The Fund is treated as a U.S. shareholder of the Subsidiary. As a result, the Fund is required to include in gross income for U.S. federal tax purposes all of the Subsidiary’s income, whether or not such income is distributed by the Subsidiary. If a net loss is realized by the Subsidiary, such loss is not generally available to offset the income earned by the Fund.
At October 31, 2013, the Fund, for federal income tax purposes, had a capital loss carryforward of $21,577,188 and deferred capital losses of $254,328 which will reduce its taxable income arising from future net realized gains on investment transactions, if any, to the extent permitted by the Internal Revenue Code, and thus will reduce the amount of distributions to shareholders, which would otherwise be necessary to relieve the Fund of any liability for federal income or excise tax. The capital loss carryforward will expire on October 31, 2016 ($14,101,233), October 31, 2017 ($738,126), October 31, 2018 ($5,165,932) and October 31, 2019 ($1,571,897) and its character is short-term. The deferred capital losses are treated as arising on the first day of the Fund’s next taxable year and are treated as realized prior to the utilization of the capital loss carryforward.
As of April 30, 2014, the Fund had no uncertain tax positions that would require financial statement recognition, de-recognition, or disclosure. The Fund files a U.S. federal income tax return annually after its fiscal year-end, which is subject to examination by the Internal Revenue Service for a period of three years from the date of filing.
E Expense Reduction — State Street Bank and Trust Company (SSBT) serves as custodian of the Fund. Pursuant to the custodian agreement, SSBT receives a fee reduced by credits, which are determined based on the average daily cash balance the Fund maintains with SSBT. All credit balances, if any, used to reduce the Fund’s custodian fees are reported as a reduction of expenses in the Consolidated Statement of Operations.
F Foreign Currency Translation — Investment valuations, other assets, and liabilities initially expressed in foreign currencies are translated each business day into U.S. dollars based upon current exchange rates. Purchases and sales of foreign investment securities and income and expenses denominated in foreign currencies are translated into U.S. dollars based upon currency exchange rates in effect on the respective dates of such transactions. Recognized
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Short Duration Diversified Income Fund
April 30, 2014
Notes to Consolidated Financial Statements (Unaudited) — continued
gains or losses on investment transactions attributable to changes in foreign currency exchange rates are recorded for financial statement purposes as net realized gains and losses on investments. That portion of unrealized gains and losses on investments that results from fluctuations in foreign currency exchange rates is not separately disclosed.
G Unfunded Loan Commitments — The Fund may enter into certain credit agreements all or a portion of which may be unfunded. The Fund is obligated to fund these commitments at the borrower’s discretion. These commitments, if any, are disclosed in the accompanying Consolidated Portfolio of Investments.
H Use of Estimates — The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of income and expense during the reporting period. Actual results could differ from those estimates.
I Indemnifications — Under the Fund’s organizational documents, its officers and Trustees may be indemnified against certain liabilities and expenses arising out of the performance of their duties to the Fund. Under Massachusetts law, if certain conditions prevail, shareholders of a Massachusetts business trust (such as the Fund) could be deemed to have personal liability for the obligations of the Fund. However, the Fund’s Declaration of Trust contains an express disclaimer of liability on the part of Fund shareholders and the By-laws provide that the Fund shall assume the defense on behalf of any Fund shareholders. Moreover, the By-laws also provide for indemnification out of Fund property of any shareholder held personally liable solely by reason of being or having been a shareholder for all loss or expense arising from such liability. Additionally, in the normal course of business, the Fund enters into agreements with service providers that may contain indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred.
J Financial and Commodities Futures Contracts — Upon entering into a financial or commodities futures contract, the Fund is required to deposit with the broker, either in cash or securities, an amount equal to a certain percentage of the contract amount (initial margin). Subsequent payments, known as variation margin, are made or received by the Fund each business day, depending on the daily fluctuations in the value of the underlying security, commodity or currency, and are recorded as unrealized gains or losses by the Fund. Gains (losses) are realized upon the expiration or closing of the financial or commodities futures contracts. Should market conditions change unexpectedly, the Fund may not achieve the anticipated benefits of the financial or commodities futures contracts and may realize a loss. Futures contracts have minimal counterparty risk as they are exchange traded and the clearinghouse for the exchange is substituted as the counterparty, guaranteeing counterparty performance.
K Forward Foreign Currency Exchange and Forward Commodity Contracts — The Fund may enter into forward foreign currency exchange contracts for the purchase or sale of a specific foreign currency at a fixed price on a future date. The forward foreign currency exchange contracts are adjusted by the daily exchange rate of the underlying currency and any gains or losses are recorded as unrealized until such time as the contracts have been closed. Unrealized and realized gains and losses on forward commodity contracts, which are entered into for the purchase or sale of a specific commodity at a fixed price on a future date, are accounted for as described above. Risks may arise upon entering these contracts from the potential inability of counterparties to meet the terms of their contracts and, in the case of forward foreign currency exchange contracts, from movements in the value of a foreign currency relative to the U.S. dollar.
L Written Options — Upon the writing of a call or a put option, the premium received by the Fund is included in the Consolidated Statement of Assets and Liabilities as a liability. The amount of the liability is subsequently marked-to-market to reflect the current market value of the option written, in accordance with the Fund’s policies on investment valuations discussed above. Premiums received from writing options which expire are treated as realized gains. Premiums received from writing options which are exercised or are closed are added to or offset against the proceeds or amount paid on the transaction to determine the realized gain or loss. When an index option is exercised, the Fund is required to deliver an amount of cash determined by the excess of the strike price of the option over the value of the index (in the case of a put) or the excess of the value of the index over the strike price of the option (in the case of a call) at contract termination. If a put option on a security is exercised, the premium reduces the cost basis of the securities purchased by the Fund. The Fund, as a writer of an option, may have no control over whether the underlying securities or other assets may be sold (call) or purchased (put) and, as a result, bears the market risk of an unfavorable change in the price of the securities or other assets underlying the written option. The Fund may also bear the risk of not being able to enter into a closing transaction if a liquid secondary market does not exist.
M Purchased Options — Upon the purchase of a call or put option, the premium paid by the Fund is included in the Consolidated Statement of Assets and Liabilities as an investment. The amount of the investment is subsequently marked-to-market to reflect the current market value of the option purchased, in accordance with the Fund’s policies on investment valuations discussed above. As the purchaser of an index option, the Fund has the right to receive a cash payment equal to any depreciation in the value of the index below the strike price of the option (in the case of a put) or equal to any appreciation in the value of the index over the strike price of the option (in the case of a call) as of the valuation date of the option. If an option which the Fund had purchased expires on the stipulated expiration date, the Fund will realize a loss in the amount of the cost of the option. If the Fund enters into a closing sale transaction, the Fund will realize a gain or loss, depending on whether the sales proceeds from the closing sale transaction are greater or less than the cost of the option. If the Fund exercises a put option on a security, it will realize a gain or loss from the sale of the underlying security, and the proceeds from such sale will be decreased by the premium originally paid. If the Fund exercises a call option on a security, the cost of the security which the Fund purchases upon exercise will be increased by the premium originally paid. The risk associated with purchasing options is limited to the premium originally paid.
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Eaton Vance
Short Duration Diversified Income Fund
April 30, 2014
Notes to Consolidated Financial Statements (Unaudited) — continued
N Interest Rate Swaps — Pursuant to interest rate swap agreements, the Fund either makes floating-rate payments to the counterparty based on a benchmark interest rate in exchange for fixed-rate payments or the Fund makes fixed-rate payments to the counterparty 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. 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. Risk may also arise from movements in interest rates.
O Cross-Currency Swaps — Cross-currency swaps are interest rate swaps in which interest cash flows are exchanged between two parties based on the notional amounts of two different currencies. The notional amounts are typically determined based on the spot exchange rates at the inception of the trade. Cross-currency swaps also involve the exchange of the notional amounts at the start of the contract at the current spot rate with an agreement to re-exchange such amounts at a later date at either the same exchange rate, a specified rate or the then current spot rate. The entire principal value of a cross-currency swap is subject to the risk that the counterparty to the swap will default on its contractual delivery obligations.
P Credit Default Swaps — When the Fund is the buyer of a credit default swap contract, the Fund is entitled to receive the par (or other agreed-upon) value of a referenced debt obligation (or basket of debt obligations) from the counterparty to the contract if a credit event by a third party, such as a U.S. or foreign corporate issuer or sovereign issuer, on the debt obligation occurs. In return, the Fund pays the counterparty a periodic stream of payments over the term of the contract provided that no credit event has occurred. If no credit event occurs, the Fund would have spent the stream of payments and received no proceeds from the contract. When the Fund is the seller of a credit default swap contract, it receives the stream of payments, but is obligated to pay to the buyer of the protection an amount up to the notional amount of the swap and in certain instances take delivery of securities of the reference entity upon the occurrence of a credit event, as defined under the terms of that particular swap agreement. Credit events are contract specific but may include bankruptcy, failure to pay, restructuring, obligation acceleration and repudiation/moratorium. If the Fund is a seller of protection and a credit event occurs, the maximum potential amount of future payments that the Fund could be required to make would be an amount equal to the notional amount of the agreement. This potential amount would be partially offset by any recovery value of the respective referenced obligation, or net amount received from the settlement of a buy protection credit default swap agreement entered into by the Fund for the same referenced obligation. As the seller, the Fund may create economic leverage to its portfolio because, in addition to its total net assets, the Fund is subject to investment exposure on the notional amount of the swap. The interest fee paid or received on the swap contract, which is based on a specified interest rate on a fixed notional amount, is accrued daily as a component of unrealized appreciation (depreciation) and is recorded as realized gain upon receipt or realized loss upon payment. The Fund also records an increase or decrease to unrealized appreciation (depreciation) in an amount equal to the daily valuation. Upfront payments or receipts, if any, are recorded as other assets or other liabilities, respectively, and amortized over the life of the swap contract as realized gains or losses. For financial reporting purposes, unamortized upfront payments, if any, are netted with unrealized appreciation or depreciation on swap contracts to determine the market value of swaps as presented in Notes 7 and 10. The Fund segregates assets in the form of cash or liquid securities in an amount equal to the notional amount of the credit default swaps of which it is the seller. The Fund segregates assets in the form of cash or liquid securities in an amount equal to any unrealized depreciation of the credit default swaps of which it is the buyer, marked to market on a daily basis. These transactions involve certain risks, including the risk that the seller may be unable to fulfill the transaction.
Q Total Return Swaps — In a total return swap, the buyer receives a periodic return equal to the total return of a specified security, securities or index for a specified period of time. In return, the buyer pays the counterparty a variable stream of payments, typically based upon short-term interest rates, possibly plus or minus an agreed upon spread. During the term of the outstanding swap agreement, changes in the underlying value of the swap are recorded as unrealized gains and losses. Periodic payments received or made are recorded as realized gains or losses. The Fund is exposed to credit loss in the event of nonperformance by the swap counterparty. Risk may also arise from the unanticipated movements in value of exchange rates, interest rates, securities, or the index.
R Repurchase Agreements — A repurchase agreement is the purchase by the Fund of securities from a counterparty in exchange for cash that is coupled with an agreement to resell those securities to the counterparty at a specified date and price. When a repurchase agreement is entered, the Fund typically receives securities with a value that equals or exceeds the repurchase price, including any accrued interest earned on the agreement. The value of such securities will be marked to market daily, and cash or additional securities will be exchanged between the parties as needed. Except in the case of a repurchase agreement entered to settle a short sale, the value of the securities delivered to the Fund will be at least equal to 90% of the repurchase price during the term of the repurchase agreement. The terms of a repurchase agreement entered to settle a short sale may provide that the cash purchase price paid by the Fund is more than the value of purchased securities that effectively collateralize the repurchase price payable by the counterparty. Since in such a transaction, the Fund normally will have used the purchased securities to settle the short sale, the Fund will segregate liquid assets equal to the marked to market value of the purchased securities that it is obligated to return to the counterparty under the repurchase agreement. In the event of insolvency of the counterparty to a repurchase agreement, recovery of the repurchase price owed to the Fund may be delayed. Such an insolvency also may result in a loss to the extent that the value of the purchased securities decreases during the delay or that value has otherwise not been maintained at an amount at least equal to the repurchase price.
S Securities Sold Short — A short sale is a transaction in which the Fund sells a security it does not own in anticipation of a decline in the market value of that security. To complete such a transaction, the Fund must borrow the security to make delivery to the buyer with an obligation to replace such borrowed security at a later date. Until the security is replaced, the Fund is required to repay the lender any interest, which accrues during the period of the loan. The proceeds received from a short sale are recorded as a liability and the Fund records an unrealized gain or loss to the extent of the difference between the proceeds received and the value of the open short position on the day of determination. A gain, limited to the price at which the Fund sold the security
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Eaton Vance
Short Duration Diversified Income Fund
April 30, 2014
Notes to Consolidated Financial Statements (Unaudited) — continued
short, or a loss, potentially unlimited as there is no upward limit on the price of a security, is recorded when the short position is terminated. Interest payable on securities sold short is recorded as an expense.
T Stripped Mortgage-Backed Securities — The Fund may invest in Interest Only (IO) and Principal Only (PO) securities, a form of stripped mortgage-backed securities, whereby the IO security receives all the interest and the PO security receives all the principal on a pool of mortgage assets. The yield to maturity on an IO security is extremely sensitive to the rate of principal payments (including prepayments) on the related underlying mortgage assets, and a rapid rate of principal payments may have a material adverse effect on the yield to maturity from these securities. If the underlying mortgages experience greater than anticipated prepayments of principal, the Fund may fail to recoup its initial investment in an IO security. The market value of IO and PO securities can be unusually volatile due to changes in interest rates.
U Consolidated Statement of Cash Flows — The cash amount shown in the Consolidated Statement of Cash Flows of the Fund is the amount included in the Fund’s Consolidated Statement of Assets and Liabilities and represents the unrestricted cash on hand at its custodian and does not include any short-term investments.
V Interim Consolidated Financial Statements — The interim consolidated financial statements relating to April 30, 2014 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 consolidated financial statements.
2 Distributions to Shareholders
Subject to its Managed Distribution Plan, the Fund intends to make monthly distributions to shareholders and to distribute all or substantially all of its net realized capital gains (reduced by available capital loss carryforwards from prior years). In its distributions, the Fund intends to include amounts attributable to the imputed interest on foreign currency exposures through long and short positions in forward currency exchange contracts (represented by the difference between the foreign currency spot rate and the foreign currency forward rate) and the imputed interest derived from certain other derivative positions. Distributions are recorded on the ex-dividend date. The Fund distinguishes between distributions on a tax basis and a financial reporting basis. Accounting principles generally accepted in the United States of America require that only distributions in excess of tax basis earnings and profits be reported in the consolidated financial statements as a return of capital. Permanent differences between book and tax accounting relating to distributions are reclassified to paid-in capital. For tax purposes, distributions from short-term capital gains are considered to be from ordinary income. In certain circumstances, a portion of distributions to shareholders may include a return of capital component. For the six months ended April 30, 2014, the amount of distributions estimated to be a tax return of capital was approximately $3,002,000. 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.
3 Investment Adviser Fee and Other Transactions with Affiliates
The investment adviser fee is earned by EVM as compensation for investment advisory services rendered to the Fund and the Subsidiary. Pursuant to the investment advisory agreement and subsequent fee reduction agreement between the Fund and EVM and the investment advisory agreement between the Subsidiary and EVM, the Fund and Subsidiary each pay EVM a fee at an annual rate of 0.75% of its respective average daily total leveraged assets (excluding its interest in the Subsidiary in the case of the Fund), subject to the limitation described below, and is payable monthly. Total leveraged assets as referred to herein represent net assets plus liabilities or obligations attributable to investment leverage and the notional value of long and short forward currency contracts, futures contracts and swaps held by the Fund. The notional value of a contract for purposes of calculating total leveraged assets is the stated dollar value of the underlying reference instrument at the time the derivative position is entered into and remains constant throughout the life of the derivative contract. However, the derivative contracts are marked to market daily and any unrealized appreciation or depreciation is reflected in the Fund’s net assets. When the Fund holds both long and short forward currency contracts in the same foreign currency, the offsetting positions are netted for purposes of determining total leveraged assets. When the Fund holds other long and short positions in foreign obligations denominated in the same currency, total leveraged assets are calculated by excluding the smaller of the long or short position.
The advisory agreements provide that if investment leverage exceeds 40% of the Fund’s total leveraged assets, EVM will not receive a management fee on total leveraged assets in excess of this amount. As of April 30, 2014, the Fund’s investment leverage was 42% of its total leveraged assets. For the six months ended April 30, 2014, the Fund’s investment adviser fee amounted to $1,964,770 or 0.72% (annualized) of the Fund’s average daily total leveraged assets and 1.25% (annualized) of the Fund’s average daily net assets. The Fund invests its cash in Cash Reserves Fund. EVM does not currently receive a fee for advisory services provided to Cash Reserves Fund. EVM also serves as administrator of the Fund, but receives no compensation.
Trustees and officers of the Fund who are members of EVM’s organization receive remuneration for their services to the Fund out of the investment adviser fee. Trustees of the Fund who are not affiliated with EVM may elect to defer receipt of all or a percentage of their annual fees in accordance with the terms of the Trustees Deferred Compensation Plan. For the six months ended April 30, 2014, no significant amounts have been deferred. Certain officers and Trustees of the Fund are officers of EVM.
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Short Duration Diversified Income Fund
April 30, 2014
Notes to Consolidated Financial Statements (Unaudited) — continued
4 Purchases and Sales of Investments
Purchases and sales of investments, other than short-term obligations and including maturities, paydowns, principal repayments on Senior Loans and securities sold short, for the six months ended April 30, 2014 were as follows:
| Purchases | Sales | |||||||
| Investments (non-U.S. Government) |
$ | 60,015,805 | $ | 69,012,115 | ||||
| U.S. Government and Agency Securities |
19,549,978 | 16,826,406 | ||||||
| $ | 79,565,783 | $ | 85,838,521 | |||||
5 Common Shares of Beneficial Interest
The Fund may issue common shares pursuant to its dividend reinvestment plan. There were no common shares issued by the Fund for the six months ended April 30, 2014 and the year ended October 31, 2013.
On November 11, 2013, the Board of Trustees of the Fund authorized the repurchase by the Fund of up to 10% of its then currently outstanding common shares in open-market transactions at a discount to net asset value (NAV). The repurchase program does not obligate the Fund to purchase a specific amount of shares. During the six months ended April 30, 2014, the Fund repurchased 56,000 of its common shares under the share repurchase program at a cost, including brokerage commissions, of $850,311 and an average price per share of $15.18. The weighted average discount per share to NAV on these repurchases amounted to 10.18% for the six months ended April 30, 2014.
6 Federal Income Tax Basis of Investments
The cost and unrealized appreciation (depreciation) of investments of the Fund at April 30, 2014, as determined on a federal income tax basis, were as follows:
| Aggregate cost |
$ | 391,174,721 | ||
| Gross unrealized appreciation |
$ | 10,521,202 | ||
| Gross unrealized depreciation |
(4,548,225 | ) | ||
| Net unrealized appreciation |
$ | 5,972,977 | ||
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, futures contracts, swap contracts and written options and may involve, to a varying degree, elements of risk in excess of the amounts recognized for financial statement purposes. The notional or contractual amounts of these instruments represent the investment the Fund has in particular classes of financial instruments and do not necessarily represent the amounts potentially subject to risk. The measurement of the risks associated with these instruments is meaningful only when all related and offsetting transactions are considered. A summary of written options at April 30, 2014 is included in the Consolidated Portfolio of Investments.
A summary of obligations under these financial instruments at April 30, 2014 is as follows:
| Forward Foreign Currency Exchange Contracts | ||||||||||||||||||
| Settlement Date | Deliver | In Exchange For | Counterparty | Unrealized Appreciation |
Unrealized (Depreciation) |
Net Unrealized Appreciation (Depreciation) |
||||||||||||
| 5/5/14 | Brazilian Real 1,966,469 |
United States Dollar 881,825 | BNP Paribas | $ | — | $ | (99 | ) | $ | (99 | ) | |||||||
| 5/5/14 | Brazilian Real 1,829,531 |
United States Dollar 819,866 | Citibank NA | — | (643 | ) | (643 | ) | ||||||||||
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Eaton Vance
Short Duration Diversified Income Fund
April 30, 2014
Notes to Consolidated Financial Statements (Unaudited) — continued
| Forward Foreign Currency Exchange Contracts (continued) | ||||||||||||||||||
| Settlement Date | Deliver | In Exchange For | Counterparty | Unrealized Appreciation |
Unrealized (Depreciation) |
Net Unrealized Appreciation (Depreciation) |
||||||||||||
| 5/5/14 | Brazilian Real 3,796,000 |
United States Dollar 1,697,674 | Standard Chartered Bank | $ | — | $ | (4,759 | ) | $ | (4,759 | ) | |||||||
| 5/5/14 | Chilean Peso 799,383,290 |
United States Dollar 1,426,961 | Citibank NA | 10,255 | — | 10,255 | ||||||||||||
| 5/5/14 | Euro 615,821 |
Romanian Leu 2,795,100 | BNP Paribas | 20,011 | — | 20,011 | ||||||||||||
| 5/5/14 | Euro 4,015,216 |
Romanian Leu 17,944,000 | Deutsche Bank | 42,782 | — | 42,782 | ||||||||||||
| 5/5/14 | Romanian Leu 20,739,100 |
Euro 4,662,043 |
Bank of America | — | (19,776 | ) | (19,776 | ) | ||||||||||
| 5/5/14 | United States Dollar 879,458 |
Brazilian Real 1,966,469 | BNP Paribas | 2,465 | — | 2,465 | ||||||||||||
| 5/5/14 | United States Dollar 818,216 |
Brazilian Real 1,829,531 | Citibank NA | 2,293 | — | 2,293 | ||||||||||||
| 5/5/14 | United States Dollar 1,585,300 |
Brazilian Real 3,796,000 | Standard Chartered Bank | 117,133 | — | 117,133 | ||||||||||||
| 5/5/14 | United States Dollar 1,448,946 |
Chilean Peso 799,383,290 | Bank of America | — | (32,240 | ) | (32,240 | ) | ||||||||||
| 5/5/14 | United States Dollar 360,357 |
Paraguayan Guarani 1,698,000,000 | Citibank NA | 22,558 | — | 22,558 | ||||||||||||
| 5/6/14 | United States Dollar 961,889 |
Paraguayan Guarani 4,508,371,751 | Citibank NA | 54,766 | — | 54,766 | ||||||||||||
| 5/7/14 | Euro 1,782,643 |
United States Dollar 2,435,233 | Standard Chartered Bank | — | (37,904 | ) | (37,904 | ) | ||||||||||
| 5/9/14 | Euro 426,500 |
Icelandic Krona 85,300,000 | Morgan Stanley & Co. International PLC | — | (21,711 | ) | (21,711 | ) | ||||||||||
| 5/9/14 | United States Dollar 3,948,049 |
New Turkish Lira 8,350,518 | Deutsche Bank | — | (640 | ) | (640 | ) | ||||||||||
| 5/9/14 | United States Dollar 3,967,537 |
New Turkish Lira 8,398,482 | Standard Chartered Bank | 2,545 | — | 2,545 | ||||||||||||
| 5/12/14 | United States Dollar 1,159,526 |
Indian Rupee 70,045,000 | Bank of America | 751 | — | 751 | ||||||||||||
| 5/12/14 | United States Dollar 1,061,697 |
Indian Rupee 64,130,000 | Citibank NA | 600 | — | 600 | ||||||||||||
| 5/12/14 | United States Dollar 2,411,324 |
Mexican Peso 31,868,060 | Citibank NA | 23,177 | — | 23,177 | ||||||||||||
| 5/12/14 | United States Dollar 697,762 |
Paraguayan Guarani 3,149,000,000 | Citibank NA | 12,241 | — | 12,241 | ||||||||||||
| 5/13/14 | United States Dollar 380,594 |
Paraguayan Guarani 1,718,000,000 | Citibank NA | 6,753 | — | 6,753 | ||||||||||||
| 5/14/14 | Euro 8,061,222 |
United States Dollar 10,959,232 | UBS AG | — | (224,265 | ) | (224,265 | ) | ||||||||||
| 5/14/14 | United States Dollar 187,631 |
Euro 138,003 |
Standard Chartered Bank | 3,823 | — | 3,823 | ||||||||||||
| 5/14/14 | United States Dollar 389,334 |
Euro 281,000 |
Standard Chartered Bank | 503 | — | 503 | ||||||||||||
| 5/14/14 | United States Dollar 1,609,895 |
Euro 1,184,182 |
UBS AG | 32,944 | — | 32,944 | ||||||||||||
| 32 |
Eaton Vance
Short Duration Diversified Income Fund
April 30, 2014
Notes to Consolidated Financial Statements (Unaudited) — continued
| Forward Foreign Currency Exchange Contracts (continued) | ||||||||||||||||||
| Settlement Date | Deliver | In Exchange For | Counterparty | Unrealized Appreciation |
Unrealized (Depreciation) |
Net Unrealized Appreciation (Depreciation) |
||||||||||||
| 5/19/14 | United States Dollar 380,456 |
Paraguayan Guarani 1,717,000,000 | Citibank NA | $ | 6,606 | $ | — | $ | 6,606 | |||||||||
| 5/20/14 | United States Dollar 634,168 |
Paraguayan Guarani 2,862,000,000 | Citibank NA | 10,994 | — | 10,994 | ||||||||||||
| 5/21/14 | United States Dollar 1,575,800 |
New Taiwan Dollar 47,543,470 | Deutsche Bank | — | (520 | ) | (520 | ) | ||||||||||
| 5/27/14 | Russian Ruble 43,224,000 |
United States Dollar 1,186,658 | Bank of America | — | (17,770 | ) | (17,770 | ) | ||||||||||
| 5/27/14 | United States Dollar 3,179,017 |
Mexican Peso 42,664,000 | Nomura International PLC | 76,261 | — | 76,261 | ||||||||||||
| 5/27/14 | United States Dollar 1,282,649 |
Russian Ruble 43,224,000 | Bank of America | — | (78,222 | ) | (78,222 | ) | ||||||||||
| 5/30/14 | Euro 3,457,188 |
United States Dollar 4,731,196 | Citibank NA | — | (64,852 | ) | (64,852 | ) | ||||||||||
| 5/30/14 | United States Dollar 349,014 |
British Pound Sterling 209,567 | Goldman Sachs International | 4,741 | — | 4,741 | ||||||||||||
| 5/30/14 | United States Dollar 1,445,350 |
Indian Rupee 91,052,000 | Goldman Sachs International | 59,429 | — | 59,429 | ||||||||||||
| 5/30/14 | United States Dollar 1,484,204 |
Indian Rupee 93,470,000 | Standard Chartered Bank | 60,536 | — | 60,536 | ||||||||||||
| 6/3/14 | United States Dollar 556,599 |
Indonesian Rupiah 6,589,578,000 | Standard Chartered Bank | 12,508 | — | 12,508 | ||||||||||||
| 6/3/14 | United States Dollar 588,960 |
Philippine Peso 26,323,000 | Bank of America | 2,690 | — | 2,690 | ||||||||||||
| 6/5/14 | United States Dollar 6,317,511 |
Peruvian New Sol 17,967,000 | Bank of America | 53,766 | — | 53,766 | ||||||||||||
| 6/10/14 | United States Dollar 792,678 |
Kazakhstani Tenge 127,859,000 | Deutsche Bank | — | (94,871 | ) | (94,871 | ) | ||||||||||
| 6/12/14 | Euro 1,266,709 |
United States Dollar 1,742,770 | Citibank NA | — | (14,438 | ) | (14,438 | ) | ||||||||||
| 6/12/14 | Euro 449,322 |
United States Dollar 620,064 | Deutsche Bank | — | (3,245 | ) | (3,245 | ) | ||||||||||
| 6/13/14 | Euro 1,761,538 |
Norwegian Krone 14,587,300 | Deutsche Bank | 6,538 | — | 6,538 | ||||||||||||
| 6/13/14 | Euro 1,187,817 |
Swedish Krona 10,512,775 | Citibank NA | — | (32,083 | ) | (32,083 | ) | ||||||||||
| 6/13/14 | Swedish Krona 10,512,775 |
Euro 1,153,242 |
State Street Bank and Trust Co. | — | (15,880 | ) | (15,880 | ) | ||||||||||
| 6/16/14 | United States Dollar 4,132,774 |
South Korean Won 4,295,729,000 | Bank of America | 20,849 | — | 20,849 | ||||||||||||
| 6/18/14 | Euro 1,628,384 |
Polish Zloty 6,940,417 | BNP Paribas | 27,048 | — | 27,048 | ||||||||||||
| 6/18/14 | Euro 1,378,869 |
Polish Zloty 5,878,531 | Standard Chartered Bank | 23,426 | — | 23,426 | ||||||||||||
| 6/18/14 | Euro 2,098,596 |
Polish Zloty 8,780,000 | Standard Chartered Bank | — | (19,332 | ) | (19,332 | ) | ||||||||||
| 6/23/14 | Euro 403,654 |
United States Dollar 562,026 | Bank of America | 2,084 | — | 2,084 | ||||||||||||
| 33 |
Eaton Vance
Short Duration Diversified Income Fund
April 30, 2014
Notes to Consolidated Financial Statements (Unaudited) — continued
| Forward Foreign Currency Exchange Contracts (continued) | ||||||||||||||||||
| Settlement Date | Deliver | In Exchange For | Counterparty | Unrealized Appreciation |
Unrealized (Depreciation) |
Net Unrealized Appreciation (Depreciation) |
||||||||||||
| 6/23/14 | Euro 113,122 |
United States Dollar 157,505 | Goldman Sachs International | $ | 584 | $ | — | $ | 584 | |||||||||
| 6/30/14 | British Pound Sterling 191,745 |
United States Dollar 318,439 | Citibank NA | — | (5,155 | ) | (5,155 | ) | ||||||||||
| 6/30/14 | Euro 467,298 |
United States Dollar 642,168 | HSBC Bank USA | — | (6,047 | ) | (6,047 | ) | ||||||||||
| 6/30/14 | New Turkish Lira 2,313,248 |
United States Dollar 1,023,924 | HSBC Bank USA | — | (54,996 | ) | (54,996 | ) | ||||||||||
| 6/30/14 | New Turkish Lira 1,026,752 |
United States Dollar 454,617 | Standard Chartered Bank | — | (24,270 | ) | (24,270 | ) | ||||||||||
| 6/30/14 | Sri Lankan Rupee 82,572,000 |
United States Dollar 622,903 | Standard Chartered Bank | — | (4,357 | ) | (4,357 | ) | ||||||||||
| 7/2/14 | United States Dollar 867,471 |
Brazilian Real 1,966,469 | BNP Paribas | — | (312 | ) | (312 | ) | ||||||||||
| 7/2/14 | United States Dollar 806,529 |
Brazilian Real 1,829,531 | Citibank NA | 243 | — | 243 | ||||||||||||
| 7/16/14 | United States Dollar 3,309,655 |
Colombian Peso 6,432,314,000 | Bank of America | — | (10,926 | ) | (10,926 | ) | ||||||||||
| 7/17/14 | United States Dollar 1,151,016 |
Armenian Dram 504,260,000 | VTB Capital PLC | 51,580 | — | 51,580 | ||||||||||||
| 7/17/14 | United States Dollar 1,094,080 |
Armenian Dram 464,984,000 | VTB Capital PLC | 14,848 | — | 14,848 | ||||||||||||
| 7/17/14 | United States Dollar 746,263 |
Singapore Dollar 935,000 | Bank of America | — | (460 | ) | (460 | ) | ||||||||||
| 7/21/14 | United States Dollar 3,565,619 |
Indonesian Rupiah 41,375,443,000 | Bank of America | — | (19,851 | ) | (19,851 | ) | ||||||||||
| 7/24/14 | United States Dollar 2,409,147 |
Israeli Shekel 8,391,120 | Citibank NA | 14,176 | — | 14,176 | ||||||||||||
| 7/24/14 | United States Dollar 2,503,863 |
Israeli Shekel 8,721,580 | Deutsche Bank | 14,896 | — | 14,896 | ||||||||||||
| 7/24/14 | United States Dollar 4,240,286 |
Singapore Dollar 5,317,000 | Goldman Sachs International | 835 | — | 835 | ||||||||||||
| 7/31/14 | British Pound Sterling 619,510 |
United States Dollar 1,040,476 | HSBC Bank USA | — | (4,774 | ) | (4,774 | ) | ||||||||||
| 7/31/14 | Euro 320,810 |
United States Dollar 444,261 | Goldman Sachs International | — | (733 | ) | (733 | ) | ||||||||||
| 7/31/14 | United States Dollar 411,885 |
New Zealand Dollar 485,840 | Australia and New Zealand Banking Group Limited | 3,830 | — | 3,830 | ||||||||||||
| 8/4/14 | United States Dollar 1,413,837 |
Chilean Peso 799,383,290 | Citibank NA | — | (10,831 | ) | (10,831 | ) | ||||||||||
| 8/5/14 | Euro 4,635,990 |
Romanian Leu 20,739,100 | Bank of America | 18,594 | — | 18,594 | ||||||||||||
| 8/6/14 | United States Dollar 359,061 |
Paraguayan Guarani 1,698,000,000 | Citibank NA | 22,327 | — | 22,327 | ||||||||||||
| 8/13/14 | United States Dollar 249,230 |
Paraguayan Guarani 1,133,000,000 | Citibank NA | 5,168 | — | 5,168 | ||||||||||||
| 8/14/14 | United States Dollar 2,449,955 |
Indonesian Rupiah 27,831,494,048 | Barclays Bank PLC | — | (75,067 | ) | (75,067 | ) | ||||||||||
| 34 |
Eaton Vance
Short Duration Diversified Income Fund
April 30, 2014
Notes to Consolidated Financial Statements (Unaudited) — continued
| Forward Foreign Currency Exchange Contracts (continued) | ||||||||||||||||||
| Settlement Date | Deliver | In Exchange For | Counterparty | Unrealized Appreciation |
Unrealized (Depreciation) |
Net Unrealized Appreciation (Depreciation) |
||||||||||||
| 8/20/14 | Indonesian Rupiah 4,962,396,000 |
United States Dollar 426,359 | Standard Chartered Bank | $ | 3,372 | $ | — | $ | 3,372 | |||||||||
| 8/27/14 | United States Dollar 179,894 |
Argentine Peso 1,700,000 | Bank of America | 15,375 | — | 15,375 | ||||||||||||
| 9/8/14 | United States Dollar 196,097 |
Argentine Peso 1,859,000 | Bank of America | 14,967 | — | 14,967 | ||||||||||||
| 9/9/14 | Zambian Kwacha 541,000 |
United States Dollar 90,453 | Standard Bank | 8,313 | — | 8,313 | ||||||||||||
| 9/9/14 | Zambian Kwacha 250,000 |
United States Dollar 41,806 | Standard Chartered Bank | 3,848 | — | 3,848 | ||||||||||||
| 9/15/14 | United States Dollar 394,186 |
Azerbaijani Manat 320,000 | VTB Capital PLC | 7,622 | — | 7,622 | ||||||||||||
| 9/23/14 | Zambian Kwacha 1,227,000 |
United States Dollar 206,218 | Barclays Bank PLC | 20,812 | — | 20,812 | ||||||||||||
| 9/23/14 | Zambian Kwacha 1,077,000 |
United States Dollar 176,847 | Barclays Bank PLC | 14,106 | — | 14,106 | ||||||||||||
| 10/9/14 | United States Dollar 632,724 |
Azerbaijani Manat 512,000 | VTB Capital PLC | 8,398 | — | 8,398 | ||||||||||||
| 10/9/14 | United States Dollar 147,239 |
Azerbaijani Manat 120,000 | VTB Capital PLC | 3,024 | — | 3,024 | ||||||||||||
| 10/9/14 | United States Dollar 122,775 |
Azerbaijani Manat 100,000 | VTB Capital PLC | 2,444 | — | 2,444 | ||||||||||||
| 12/9/14 | Ghanaian Cedi 1,184,000 |
United States Dollar 431,330 | Citibank NA | 61,200 | — | 61,200 | ||||||||||||
| 12/9/14 | Ghanaian Cedi 1,175,000 |
United States Dollar 431,193 | Standard Bank | 63,876 | — | 63,876 | ||||||||||||
| 12/9/14 | Ghanaian Cedi 1,183,000 |
United States Dollar 431,358 | Standard Bank | 61,541 | — | 61,541 | ||||||||||||
| 12/9/14 | United States Dollar 395,550 |
Ghanaian Cedi 1,184,000 | Citibank NA | — | (25,420 | ) | (25,420 | ) | ||||||||||
| 12/9/14 | United States Dollar 787,759 |
Ghanaian Cedi 2,358,000 | Standard Bank | — | (50,625 | ) | (50,625 | ) | ||||||||||
| 12/12/14 | Ghanaian Cedi 1,196,000 |
United States Dollar 431,146 | Standard Bank | 57,853 | — | 57,853 | ||||||||||||
| 12/12/14 | United States Dollar 398,999 |
Ghanaian Cedi 1,196,000 | Standard Bank | — | (25,706 | ) | (25,706 | ) | ||||||||||
| 12/19/14 | Ghanaian Cedi 1,203,000 |
United States Dollar 431,183 | Standard Bank | 57,078 | — | 57,078 | ||||||||||||
| 12/19/14 | United States Dollar 400,000 |
Ghanaian Cedi 1,203,000 | Standard Bank | — | (25,895 | ) | (25,895 | ) | ||||||||||
| 1/12/15 | United States Dollar 117,024 |
Ugandan Shilling 320,060,000 | Citibank NA | 2,289 | — | 2,289 | ||||||||||||
| 1/12/15 | United States Dollar 683,978 |
Ugandan Shilling 1,867,261,000 | Standard Chartered Bank | 12,104 | — | 12,104 | ||||||||||||
| 2/5/15 | United States Dollar 1,563,096 |
Kazakhstani Tenge 259,474,000 | Deutsche Bank | — | (223,219 | ) | (223,219 | ) | ||||||||||
| 2/6/15 | United States Dollar 483,871 |
Uruguayan Peso 12,000,000 | Citibank NA | — | (11,968 | ) | (11,968 | ) | ||||||||||
| 35 |
Eaton Vance
Short Duration Diversified Income Fund
April 30, 2014
Notes to Consolidated Financial Statements (Unaudited) — continued
| Forward Foreign Currency Exchange Contracts (continued) | ||||||||||||||||||
| Settlement Date | Deliver | In Exchange For | Counterparty | Unrealized Appreciation |
Unrealized (Depreciation) |
Net Unrealized Appreciation (Depreciation) |
||||||||||||
| 2/13/15 | United States Dollar 513,078 |
Uruguayan Peso 12,750,000 | Citibank NA | $ | — | $ | (12,911 | ) | $ | (12,911 | ) | |||||||
| 2/23/15 | United States Dollar 258,621 |
Argentine Peso 3,000,000 | Citibank NA | 31,185 | — | 31,185 | ||||||||||||
| 2/24/15 | United States Dollar 172,414 |
Argentine Peso 2,000,000 | Citibank NA | 20,607 | — | 20,607 | ||||||||||||
| 2/25/15 | United States Dollar 432,900 |
Argentine Peso 5,000,000 | Citibank NA | 49,193 | — | 49,193 | ||||||||||||
| 3/12/15 | Russian Ruble 30,380,000 |
United States Dollar 777,181 | Bank of America | — | (10,575 | ) | (10,575 | ) | ||||||||||
| 3/12/15 | United States Dollar 772,144 |
Russian Ruble 30,380,000 | Credit Suisse International | 15,612 | — | 15,612 | ||||||||||||
| 3/13/15 | Euro 256,884 |
Serbian Dinar 32,560,000 | Citibank NA | 10,382 | — | 10,382 | ||||||||||||
| 4/30/15 | United States Dollar 710,900 |
Uruguayan Peso 18,000,000 | Citibank NA | — | (23,099 | ) | (23,099 | ) | ||||||||||
| $ | 1,415,358 | $ | (1,310,447 | ) | $ | 104,911 | ||||||||||||
| Interest Rate Swaps | ||||||||||||||||||
| Counterparty | Notional Amount (000’s omitted) |
Fund Pays/Receives Floating Rate |
Floating Rate Index |
Annual Fixed Rate |
Termination Date |
Net Unrealized Appreciation (Depreciation) |
||||||||||||
| Bank of America | HUF | 139,000 | Pays | 6-month HUF BUBOR | 5.13 | % | 12/21/16 | $ | 34,163 | |||||||||
| Bank of America | PLN | 838 | Pays | 6-month PLN WIBOR | 4.34 | 7/30/17 | 16,436 | |||||||||||
| Bank of America | PLN | 838 | Receives | 6-month PLN WIBOR | 3.35 | 7/30/17 | (6,162 | ) | ||||||||||
| Bank of America | PLN | 2,560 | Pays | 6-month PLN WIBOR | 3.83 | 11/14/17 | 20,310 | |||||||||||
| Bank of America | PLN | 2,560 | Receives | 6-month PLN WIBOR | 3.61 | 11/14/17 | (13,241 | ) | ||||||||||
| Bank of America | PLN | 2,900 | Receives | 6-month PLN WIBOR | 3.52 | 11/16/17 | (11,756 | ) | ||||||||||
| Barclays Bank PLC | PLN | 2,900 | Pays | 6-month PLN WIBOR | 3.81 | 11/16/17 | 22,081 | |||||||||||
| Barclays Bank PLC | PLN | 4,890 | Pays | 6-month PLN WIBOR | 3.82 | 11/19/17 | 38,149 | |||||||||||
| Barclays Bank PLC | PLN | 4,890 | Receives | 6-month PLN WIBOR | 3.53 | 11/19/17 | (20,156 | ) | ||||||||||
| BNP Paribas | PLN | 2,147 | Pays | 6-month PLN WIBOR | 4.25 | 8/7/17 | 39,545 | |||||||||||
| BNP Paribas | PLN | 2,147 | Receives | 6-month PLN WIBOR | 3.60 | 8/7/17 | (22,300 | ) | ||||||||||
| BNP Paribas | PLN | 400 | Pays | 6-month PLN WIBOR | 3.85 | 11/13/17 | 3,277 | |||||||||||
| BNP Paribas | PLN | 400 | Receives | 6-month PLN WIBOR | 3.38 | 11/13/17 | (976 | ) | ||||||||||
| Citibank NA | PLN | 2,130 | Pays | 6-month PLN WIBOR | 3.82 | 11/19/17 | 16,379 | |||||||||||
| Citibank NA | PLN | 2,130 | Receives | 6-month PLN WIBOR | 3.60 | 11/19/17 | (10,683 | ) | ||||||||||
| Credit Suisse International | HUF | 80,000 | Pays | 6-month HUF BUBOR | 5.12 | 1/16/17 | 19,268 | |||||||||||
| Credit Suisse International | HUF | 80,000 | Receives | 6-month HUF BUBOR | 7.63 | 1/16/17 | (45,145 | ) | ||||||||||
| Deutsche Bank | PLN | 550 | Pays | 6-month PLN WIBOR | 3.79 | 11/16/17 | 4,051 | |||||||||||
| Deutsche Bank | PLN | 550 | Receives | 6-month PLN WIBOR | 3.60 | 11/16/17 | (2,796 | ) | ||||||||||
| JPMorgan Chase Bank | HUF | 173,000 | Pays | 6-month HUF BUBOR | 6.93 | 12/19/16 | 82,283 | |||||||||||
| JPMorgan Chase Bank | HUF | 173,000 | Receives | 6-month HUF BUBOR | 7.26 | 12/19/16 | (89,661 | ) | ||||||||||
| JPMorgan Chase Bank | HUF | 103,000 | Pays | 6-month HUF BUBOR | 6.94 | 12/20/16 | 49,405 | |||||||||||
| 36 |
Eaton Vance
Short Duration Diversified Income Fund
April 30, 2014
Notes to Consolidated Financial Statements (Unaudited) — continued
| Interest Rate Swaps (continued) | ||||||||||||||||||
| Counterparty | Notional Amount (000’s omitted) |
Fund Pays/Receives Floating Rate |
Floating Rate Index |
Annual Fixed Rate |
Termination Date |
Net Unrealized Appreciation (Depreciation) |
||||||||||||
| JPMorgan Chase Bank | HUF | 103,000 | Receives | 6-month HUF BUBOR | 7.34% | 12/20/16 | $ | (54,759 | ) | |||||||||
| JPMorgan Chase Bank | HUF | 139,000 | Receives | 6-month HUF BUBOR | 7.36 | 12/21/16 | (74,262 | ) | ||||||||||
| JPMorgan Chase Bank | HUF | 80,000 | Pays | 6-month HUF BUBOR | 6.99 | 12/22/16 | 38,917 | |||||||||||
| JPMorgan Chase Bank | HUF | 80,000 | Receives | 6-month HUF BUBOR | 7.30 | 12/22/16 | (42,118 | ) | ||||||||||
| JPMorgan Chase Bank | HUF | 78,000 | Pays | 6-month HUF BUBOR | 5.10 | 12/27/16 | 18,872 | |||||||||||
| JPMorgan Chase Bank | HUF | 78,000 | Receives | 6-month HUF BUBOR | 7.37 | 12/27/16 | (41,691 | ) | ||||||||||
| JPMorgan Chase Bank | HUF | 82,000 | Pays | 6-month HUF BUBOR | 5.09 | 1/20/17 | 19,321 | |||||||||||
| JPMorgan Chase Bank | HUF | 82,000 | Receives | 6-month HUF BUBOR | 7.75 | 1/20/17 | (47,414 | ) | ||||||||||
| $ | (60,663 | ) | ||||||||||||||||
| HUF | – | Hungarian Forint | ||
| PLN | – | Polish Zloty |
| Credit Default Swaps — Buy Protection | ||||||||||||||||||||||||||
| Reference Entity | Counterparty | Notional Amount (000’s omitted) |
Contract Annual Fixed Rate* |
Termination Date |
Market Value |
Unamortized Upfront Payments Received (Paid) |
Net Unrealized Appreciation (Depreciation) |
|||||||||||||||||||
| China | Bank of America | $ | 500 | 1.00 | %(1) | 3/20/17 | $ | (8,747 | ) | $ | (8,621 | ) | $ | (17,368 | ) | |||||||||||
| China | Barclays Bank PLC | 863 | 1.00 | (1) | 3/20/17 | (15,097 | ) | (13,542 | ) | (28,639 | ) | |||||||||||||||
| China | Deutsche Bank | 316 | 1.00 | (1) | 3/20/17 | (5,528 | ) | (4,712 | ) | (10,240 | ) | |||||||||||||||
| China | Deutsche Bank | 369 | 1.00 | (1) | 3/20/17 | (6,455 | ) | (5,503 | ) | (11,958 | ) | |||||||||||||||
| Croatia | BNP Paribas | 870 | 1.00 | (1) | 12/20/17 | 51,088 | (42,655 | ) | 8,433 | |||||||||||||||||
| Croatia | Citibank NA | 1,500 | 1.00 | (1) | 12/20/17 | 88,082 | (72,663 | ) | 15,419 | |||||||||||||||||
| Egypt | Bank of America | 1,400 | 1.00 | (1) | 9/20/15 | 43,623 | (18,620 | ) | 25,003 | |||||||||||||||||
| Egypt | Citibank NA | 300 | 1.00 | (1) | 6/20/20 | 44,353 | (20,420 | ) | 23,933 | |||||||||||||||||
| Egypt | Deutsche Bank | 350 | 1.00 | (1) | 6/20/20 | 51,745 | (23,936 | ) | 27,809 | |||||||||||||||||
| Egypt | Deutsche Bank | 300 | 1.00 | (1) | 6/20/20 | 44,353 | (18,156 | ) | 26,197 | |||||||||||||||||
| Egypt | Deutsche Bank | 300 | 1.00 | (1) | 6/20/20 | 44,353 | (20,544 | ) | 23,809 | |||||||||||||||||
| Guatemala | Citibank NA | 1,286 | 1.00 | (1) | 9/20/20 | 107,806 | (63,113 | ) | 44,693 | |||||||||||||||||
| Lebanon | Barclays Bank PLC | 500 | 1.00 | (1) | 12/20/14 | 710 | (4,914 | ) | (4,204 | ) | ||||||||||||||||
| Lebanon | Barclays Bank PLC | 100 | 1.00 | (1) | 3/20/15 | 371 | (1,273 | ) | (902 | ) | ||||||||||||||||
| Lebanon | Barclays Bank PLC | 100 | 1.00 | (1) | 3/20/15 | 370 | (1,455 | ) | (1,085 | ) | ||||||||||||||||
| Lebanon | Barclays Bank PLC | 300 | 1.00 | (1) | 3/20/15 | 1,112 | (3,750 | ) | (2,638 | ) | ||||||||||||||||
| Lebanon | Citibank NA | 1,200 | 3.30 | 9/20/14 | (13,558 | ) | — | (13,558 | ) | |||||||||||||||||
| Lebanon | Citibank NA | 350 | 1.00 | (1) | 12/20/14 | 497 | (3,371 | ) | (2,874 | ) | ||||||||||||||||
| Lebanon | Citibank NA | 500 | 1.00 | (1) | 12/20/14 | 710 | (4,914 | ) | (4,204 | ) | ||||||||||||||||
| Lebanon | Citibank NA | 1,000 | 1.00 | (1) | 12/20/14 | 1,420 | (9,976 | ) | (8,556 | ) | ||||||||||||||||
| Lebanon | Citibank NA | 300 | 1.00 | (1) | 3/20/15 | 1,112 | (3,341 | ) | (2,229 | ) | ||||||||||||||||
| Lebanon | Credit Suisse International | 200 | 1.00 | (1) | 3/20/15 | 741 | (2,513 | ) | (1,772 | ) | ||||||||||||||||
| Lebanon | Credit Suisse International | 800 | 1.00 | (1) | 3/20/15 | 2,965 | (9,994 | ) | (7,029 | ) | ||||||||||||||||
| Lebanon | Credit Suisse International | 100 | 1.00 | (1) | 6/20/15 | 602 | (1,502 | ) | (900 | ) | ||||||||||||||||
| 37 |
Eaton Vance
Short Duration Diversified Income Fund
April 30, 2014
Notes to Consolidated Financial Statements (Unaudited) — continued
| Credit Default Swaps — Buy Protection (continued) | ||||||||||||||||||||||||||
| Reference Entity | Counterparty | Notional Amount (000’s omitted) |
Contract Annual Fixed Rate* |
Termination Date |
Market Value |
Unamortized Upfront Payments Received (Paid) |
Net Unrealized Appreciation (Depreciation) |
|||||||||||||||||||
| Lebanon | Deutsche Bank | $ | 200 | 1.00 | %(1) | 3/20/15 | $ | 741 | $ | (2,320 | ) | $ | (1,579 | ) | ||||||||||||
| Lebanon | Deutsche Bank | 100 | 1.00 | (1) | 6/20/15 | 603 | (1,503 | ) | (900 | ) | ||||||||||||||||
| Lebanon | HSBC Bank USA | 1,250 | 1.00 | (1) | 12/20/17 | 92,102 | (129,623 | ) | (37,521 | ) | ||||||||||||||||
| Philippines | Barclays Bank PLC | 1,100 | 1.85 | 12/20/14 | (14,441 | ) | — | (14,441 | ) | |||||||||||||||||
| Philippines | Barclays Bank PLC | 655 | 1.00 | (1) | 3/20/15 | (5,583 | ) | (3,370 | ) | (8,953 | ) | |||||||||||||||
| Philippines | Citibank NA | 800 | 1.84 | 12/20/14 | (10,441 | ) | — | (10,441 | ) | |||||||||||||||||
| Philippines | JPMorgan Chase Bank | 656 | 1.00 | (1) | 3/20/15 | (5,592 | ) | (3,375 | ) | (8,967 | ) | |||||||||||||||
| Thailand | Barclays Bank PLC | 1,900 | 0.97 | 9/20/19 | 26,331 | — | 26,331 | |||||||||||||||||||
| Thailand | Citibank NA | 1,600 | 0.86 | 12/20/14 | (8,196 | ) | — | (8,196 | ) | |||||||||||||||||
| Thailand | Citibank NA | 900 | 0.95 | 9/20/19 | 13,408 | — | 13,408 | |||||||||||||||||||
| Thailand | JPMorgan Chase Bank | 800 | 0.87 | 12/20/14 | (4,159 | ) | — | (4,159 | ) | |||||||||||||||||
| Tunisia | Barclays Bank PLC | 350 | 1.00 | (1) | 9/20/17 | 23,068 | (21,809 | ) | 1,259 | |||||||||||||||||
| Tunisia | Citibank NA | 360 | 1.00 | (1) | 9/20/17 | 23,727 | (23,507 | ) | 220 | |||||||||||||||||
| Tunisia | Deutsche Bank | 500 | 1.00 | (1) | 6/20/17 | 29,777 | (24,850 | ) | 4,927 | |||||||||||||||||
| Tunisia | Goldman Sachs International | 300 | 1.00 | (1) | 9/20/17 | 19,772 | (16,500 | ) | 3,272 | |||||||||||||||||
| Tunisia | Nomura International PLC | 400 | 1.00 | (1) | 12/20/17 | 28,837 | (29,797 | ) | (960 | ) | ||||||||||||||||
| $ | 646,582 | $ | (616,142 | ) | $ | 30,440 | ||||||||||||||||||||
| * | The contract annual fixed rate represents the fixed rate of interest received by the Fund (as a seller of protection) or paid by the Fund (as a buyer of protection) annually on the notional amount of the credit default swap contract. |
| (1) | Upfront payment is exchanged with the counterparty as a result of the standardized trading coupon. |
| Total Return Swaps | ||||||||||||
| Counterparty | Fund Receives | Fund Pays | Termination Date |
Net Unrealized Appreciation |
||||||||
| Citibank NA | Total return on GTQ 17,500,000 Banco de Guatemala, 0%, due 6/3/14 |
3-month USD-LIBOR-BBA + 50 bp on $2,141,980 (Notional Amount) plus Notional Amount at termination date | 6/5/14 | $ | 113,648 | |||||||
| Citibank NA | Total return on GTQ 2,400,000 Banco de Guatemala, 0%, due 6/3/14 |
3-month USD-LIBOR-BBA + 50 bp on $298,900 (Notional Amount) plus Notional Amount at termination date | 6/9/14 | 10,192 | ||||||||
| $ | 123,840 | |||||||||||
| GTQ | – | Guatemalan Quetzal |
| 38 |
Eaton Vance
Short Duration Diversified Income Fund
April 30, 2014
Notes to Consolidated Financial Statements (Unaudited) — continued
Written options activity for the six months ended April 30, 2014 was as follows:
| Principal Amount of Contracts (000’s omitted) |
Principal Amount of Contracts (000’s omitted) |
Principal Amount of Contracts (000’s omitted) |
Premiums Received |
|||||||||||||
| Outstanding, beginning of period |
INR 225,360 | COP — | GBP | 10,151 | $ | 146,704 | ||||||||||
| Options written |
— | 1,558,590 | — | 80 | ||||||||||||
| Options expired |
— | (1,558,590 | ) | (10,151 | ) | (84,531 | ) | |||||||||
| Outstanding, end of period |
INR 225,360 | COP — | GBP | — | $ | 62,253 | ||||||||||
| COP | – | Colombian Peso | ||
| GBP | – | British Pound Sterling | ||
| INR | – | Indian Rupee |
At April 30, 2014, the Fund had sufficient cash and/or securities to cover commitments under these contracts.
In the normal course of pursuing its investment objectives, the Fund is subject to the following risks:
Commodity Risk: During the six months ended April 30, 2014, the Fund invested in commodities-linked derivative investments, including commodity futures contracts, that provided exposure to the investment returns of certain commodities. Commodities-linked derivative investments were used to enhance total return and/or as a substitute for the purchase or sale of commodities.
Credit Risk: The Fund enters into credit default swap contracts to manage certain investment risks and/or to enhance total return.
Foreign Exchange Risk: The Fund engages in forward foreign currency exchange contracts, options on currencies and total return swaps to enhance total return, to seek to hedge against fluctuations in currency exchange rates and/or as a substitute for the purchase or sale of securities or currencies.
Interest Rate Risk: The Fund utilizes various interest rate derivatives including futures contracts and interest rate swaps to enhance total return, to seek to hedge against fluctuations in interest rates, and/or to change the effective duration of its portfolio.
The Fund enters into swap contracts, over-the-counter written options and forward foreign currency exchange contracts that may contain provisions whereby the counterparty may terminate the contract under certain conditions, including but not limited to a decline in the Fund’s net assets below a certain level over a certain period of time, which would trigger a payment by the Fund for those derivatives in a liability position. At April 30, 2014, the fair value of derivatives with credit-related contingent features in a net liability position was $1,892,779. The aggregate fair value of assets pledged as collateral by the Fund for such liability was $616,036 at April 30, 2014.
The over-the-counter (OTC) derivatives in which the Fund invests are subject to the risk that the counterparty to the contract fails to perform its obligations under the contract. The Fund is not subject to counterparty credit risk with respect to its written options as the Fund, not the counterparty, is obligated to perform under such derivatives. To mitigate this risk, the Fund (and Subsidiary) has entered into an International Swaps and Derivatives Association, Inc. Master Agreement (“ISDA Master Agreement”) or similar agreement with substantially all its derivative counterparties. An ISDA Master Agreement is a bilateral agreement between the Fund and a counterparty that governs certain OTC derivatives and typically contains, among other things, set-off provisions in the event of a default and/or termination event as defined under the relevant ISDA Master Agreement. Under an ISDA Master Agreement, the Fund (and Subsidiary) may, under certain circumstances, offset with the counterparty certain derivative financial instruments’ payables and/or receivables with collateral held and/or posted and create one single net payment. The provisions of the ISDA Master Agreement typically permit a single net payment in the event of default including the bankruptcy or insolvency of the counterparty. However, bankruptcy or insolvency laws of a particular jurisdiction may impose restrictions on or prohibitions against the right of offset in bankruptcy or insolvency. Certain ISDA Master Agreements allow counterparties to OTC derivatives to terminate derivative contracts prior to maturity in the event the Fund’s net assets decline by a stated percentage or the Fund fails to meet the terms of its ISDA Master Agreements, which would cause the counterparty to accelerate payment by the Fund of any net liability owed to it.
The collateral requirements for derivatives traded under an ISDA Master Agreement are governed by a Credit Support Annex to the ISDA Master Agreement. Collateral requirements are determined at the close of business each day and are typically based on changes in market values for each transaction under an ISDA Master Agreement and netted into one amount for such agreement. Generally, the amount of collateral due from or to a counterparty is subject to a minimum transfer threshold amount before a transfer is required, which may vary by counterparty. Collateral pledged for the benefit of the Fund (and Subsidiary) and/or counterparty is held in segregated accounts by the Fund’s custodian and cannot be sold, re-pledged, assigned or otherwise used while pledged. The portion of such collateral representing cash, if any, is reflected as restricted cash and, in the case of cash pledged by a counterparty for the benefit of the Fund, a corresponding liability on the Consolidated Statement of Assets and Liabilities. Securities pledged by the Fund as collateral, if any,
| 39 |
Eaton Vance
Short Duration Diversified Income Fund
April 30, 2014
Notes to Consolidated Financial Statements (Unaudited) — continued
are identified as such in the Consolidated Portfolio of Investments. The carrying amount of the liability for cash collateral due to brokers at April 30, 2014 approximated its fair value. If measured at fair value, such liability would have been considered as Level 2 in the fair value hierarchy (see Note 10) at April 30, 2014. Because the Subsidiary is not registered under the 1940 Act, it may not be able to negotiate terms with its counterparties that are equivalent to those a registered fund may negotiate. As a result, the Subsidiary may have greater exposure to those counterparties than a registered fund.
The fair value of open derivative instruments (not considered to be hedging instruments for accounting disclosure purposes) by risk exposure at April 30, 2014 was as follows:
| Fair Value | ||||||||||||||||
| Consolidated Statement of Assets and Liabilities Caption | Credit | Foreign Exchange |
Interest Rate |
Total | ||||||||||||
| Receivable for open forward foreign currency exchange contracts |
$ | — | $ | 1,415,358 | $ | — | $ | 1,415,358 | ||||||||
| Receivable for open swap contracts; Premium paid on open swap contracts |
744,379 | 123,840 | 422,457 | 1,290,676 | ||||||||||||
| Total Asset Derivatives subject to master netting or similar agreements |
$ | 744,379 | $ | 1,539,198 | $ | 422,457 | $ | 2,706,034 | ||||||||
| Credit | Foreign Exchange |
Interest Rate |
Total | |||||||||||||
| Written options outstanding, at value |
$ | — | $ | (1,415 | ) | $ | — | $ | (1,415 | ) | ||||||
| Payable for open forward foreign currency exchange contracts |
— | (1,310,447 | ) | — | (1,310,447 | ) | ||||||||||
| Payable for open swap contracts; Premium paid on open swap contracts |
(97,797 | ) | — | (483,120 | ) | (580,917 | ) | |||||||||
| Total Liability Derivatives subject to master netting or similar agreements |
$ | (97,797 | ) | $ | (1,311,862 | ) | $ | (483,120 | ) | $ | (1,892,779 | ) | ||||
During the current reporting period, the Fund adopted the new disclosure requirements for offsetting assets and liabilities, pursuant to which an entity is required to disclose both gross and net information for assets and liabilities related to derivatives, repurchase and reverse repurchase agreements, and securities lending and securities borrowing transactions that are eligible for offset or subject to an enforceable master netting or similar agreement. The Fund’s derivative assets and liabilities at fair value by risk, which are reported gross in the Consolidated Statement of Assets and Liabilities, are presented in the table above. The following tables present the Fund’s derivative assets and liabilities by counterparty, net of amounts available for offset under a
| 40 |
Eaton Vance
Short Duration Diversified Income Fund
April 30, 2014
Notes to Consolidated Financial Statements (Unaudited) — continued
master netting agreement and net of the related collateral received by the Fund (and Subsidiary) for assets and pledged by the Fund (and Subsidiary) for liabilities as of April 30, 2014.
| Counterparty | Derivative Assets Subject to Master Netting Agreement |
Derivatives Available for Offset |
Non-cash Collateral Received(a) |
Cash Collateral Received(a) |
Net Amount of Derivative Assets(b) |
|||||||||||||||
| Australia and New Zealand Banking Group Limited |
$ | 3,830 | $ | — | $ | — | $ | — | $ | 3,830 | ||||||||||
| Bank of America |
243,608 | (229,726 | ) | — | — | 13,882 | ||||||||||||||
| Barclays Bank PLC |
147,110 | (130,344 | ) | — | — | 16,766 | ||||||||||||||
| BNP Paribas |
143,434 | (23,687 | ) | — | — | 119,747 | ||||||||||||||
| Citibank NA |
788,347 | (244,278 | ) | (257,903 | ) | — | 286,166 | |||||||||||||
| Credit Suisse International |
39,188 | (39,188 | ) | — | — | — | ||||||||||||||
| Deutsche Bank |
239,839 | (239,839 | ) | — | — | — | ||||||||||||||
| Goldman Sachs International |
85,361 | (1,458 | ) | — | — | 83,903 | ||||||||||||||
| HSBC Bank USA |
92,102 | (65,817 | ) | (26,285 | ) | — | — | |||||||||||||
| JPMorgan Chase Bank |
208,798 | (208,798 | ) | — | — | — | ||||||||||||||
| Nomura International PLC |
105,098 | — | — | — | 105,098 | |||||||||||||||
| Standard Bank |
248,661 | (102,226 | ) | — | — | 146,435 | ||||||||||||||
| Standard Chartered Bank |
239,798 | (90,622 | ) | — | (149,176 | ) | — | |||||||||||||
| UBS AG |
32,944 | (32,944 | ) | — | — | — | ||||||||||||||
| VTB Capital PLC |
87,916 | — | — | — | 87,916 | |||||||||||||||
| $ | 2,706,034 | $ | (1,408,927 | ) | $ | (284,188 | ) | $ | (149,176 | ) | $ | 863,743 | ||||||||
| 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) |
|||||||||||||||
| Bank of America |
$ | (229,726 | ) | $ | 229,726 | $ | — | $ | — | $ | — | |||||||||
| Barclays Bank PLC |
(130,344 | ) | 130,344 | — | — | — | ||||||||||||||
| BNP Paribas |
(23,687 | ) | 23,687 | — | — | — | ||||||||||||||
| Citibank NA |
(244,278 | ) | 244,278 | — | — | — | ||||||||||||||
| Credit Suisse International |
(45,145 | ) | 39,188 | — | — | (5,957 | ) | |||||||||||||
| Deutsche Bank |
(337,274 | ) | 239,839 | 97,435 | — | — | ||||||||||||||
| Goldman Sachs International |
(1,458 | ) | 1,458 | — | — | — | ||||||||||||||
| HSBC Bank USA |
(65,817 | ) | 65,817 | — | — | — | ||||||||||||||
| JPMorgan Chase Bank |
(360,346 | ) | 208,798 | 151,548 | — | — | ||||||||||||||
| Morgan Stanley & Co. International PLC |
(21,711 | ) | — | — | — | (21,711 | ) | |||||||||||||
| Standard Bank |
(102,226 | ) | 102,226 | — | — | — | ||||||||||||||
| Standard Chartered Bank |
(90,622 | ) | 90,622 | — | — | — | ||||||||||||||
| State Street Bank and Trust Co. |
(15,880 | ) | — | — | — | (15,880 | ) | |||||||||||||
| UBS AG |
(224,265 | ) | 32,944 | — | — | (191,321 | ) | |||||||||||||
| $ | (1,892,779 | ) | $ | 1,408,927 | $ | 248,983 | $ | — | $ | (234,869 | ) | |||||||||
| (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. |
| 41 |
Eaton Vance
Short Duration Diversified Income Fund
April 30, 2014
Notes to Consolidated Financial Statements (Unaudited) — continued
The effect of derivative instruments (not considered to be hedging instruments for accounting disclosure purposes) on the Consolidated Statement of Operations by risk exposure for the six months ended April 30, 2014 was as follows:
| Consolidated Statement of Operations Caption | Commodity | Credit | Foreign Exchange |
Interest Rate |
||||||||||||
| Net realized gain (loss) — |
||||||||||||||||
| Investment transactions |
$ | — | $ | — | $ | (285,362 | ) | $ | — | |||||||
| Futures contracts |
(196,603 | ) | — | — | (19,035 | ) | ||||||||||
| Written options |
— | — | 84,532 | — | ||||||||||||
| Swap contracts |
— | (264,452 | ) | (1,296 | ) | (54,643 | ) | |||||||||
| Foreign currency and forward foreign currency exchange contract transactions |
— | — | (717,016 | ) | — | |||||||||||
| Total |
$ | (196,603 | ) | $ | (264,452 | ) | $ | (919,142 | ) | $ | (73,678 | ) | ||||
| Change in unrealized appreciation (depreciation) — |
||||||||||||||||
| Investments |
$ | — | $ | — | $ | 281,529 | $ | — | ||||||||
| Futures contracts |
(3,454 | ) | — | — | 16,355 | |||||||||||
| Written options |
— | — | (36,007 | ) | — | |||||||||||
| Swap contracts |
— | (254,234 | ) | 107,702 | 62,118 | |||||||||||
| Foreign currency and forward foreign currency exchange contracts |
— | — | 239,789 | — | ||||||||||||
| Total |
$ | (3,454 | ) | $ | (254,234 | ) | $ | 593,013 | $ | 78,473 | ||||||
The average notional amounts of derivative instruments outstanding during the six months ended April 30, 2014, which are indicative of the volume of these derivative types, were as follows:
| Futures Contracts – Long |
Futures |
Forward Foreign Currency Exchange Contracts |
Swap Contracts | |||
| $1,010,000 | $107,000 | $132,194,000 | $47,788,000 |
The average principal amount of purchased currency options contracts outstanding during the six months ended April 30, 2014, which is indicative of the volume of this derivative type, was approximately $15,251,000.
8 Credit Agreement
The Fund has entered into a Credit Agreement (the Agreement) with a bank to borrow up to a limit of $150 million pursuant to a 364-day revolving line of credit. Borrowings under the Agreement are secured by the assets of the Fund. Interest is charged at a rate above the London Interbank Offered Rate (LIBOR) and is payable monthly. Under the terms of the Agreement, the Fund pays a commitment fee of 0.15% on the borrowing limit. The Fund is required to maintain certain net asset levels during the term of the Agreement. At April 30, 2014, the Fund had borrowings outstanding under the Agreement of $83,000,000 at an interest rate of 0.92%. Based on the short-term nature of the borrowings under the Agreement and the variable interest rate, the carrying amount of the borrowings at April 30, 2014 approximated its fair value. If measured at fair value, borrowings under the Agreement would have been considered as Level 2 in the fair value hierarchy (see Note 10) at April 30, 2014. For the six months ended April 30, 2014, the average borrowings under the Agreement and the average annual interest rate (excluding fees) were $92,353,591 and 0.94%, respectively.
9 Risks Associated with Foreign Investments
The Fund’s investments in foreign instruments can be adversely affected by changes in currency exchange rates and political, economic and market developments abroad. In emerging or less developed countries, these risks can be more significant. Investment markets in emerging market countries are typically substantially smaller, less liquid and more volatile than the major markets in developed countries. Emerging market countries may have relatively unstable governments and economies. Emerging market investments often are subject to speculative trading, which typically contributes to volatility.
| 42 |
Eaton Vance
Short Duration Diversified Income Fund
April 30, 2014
Notes to Consolidated Financial Statements (Unaudited) — continued
The Fund may have difficulties enforcing its legal or contractual rights in a foreign country. Economic data as reported by foreign governments and other issuers may be delayed, inaccurate or fraudulent. In the event of a default by a sovereign entity, there are typically no assets to be seized or cash flows to be attached. Furthermore, the willingness or ability of a foreign government to renegotiate defaulted debt may be limited.
10 Fair Value Measurements
Under generally accepted accounting principles for fair value measurements, a three-tier hierarchy to prioritize the assumptions, referred to as inputs, is used in valuation techniques to measure fair value. The three-tier hierarchy of inputs is summarized in the three broad levels listed below.
| Ÿ | Level 1 – quoted prices in active markets for identical investments |
| Ÿ | Level 2 – other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.) |
| Ÿ | Level 3 – significant unobservable inputs (including a fund’s own assumptions in determining the fair value of investments) |
In cases where the inputs used to measure fair value fall in different levels of the fair value hierarchy, the level disclosed is determined based on the lowest level input that is significant to the fair value measurement in its entirety. The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
At April 30, 2014, the hierarchy of inputs used in valuing the Fund’s investments and open derivative instruments, which are carried at value, were as follows:
| Asset Description | Level 1 | Level 2 | Level 3* | Total | ||||||||||||
| Senior Floating-Rate Interests |
$ | — | $ | 152,374,967 | $ | 206,975 | $ | 152,581,942 | ||||||||
| Collateralized Mortgage Obligations |
— | 56,239,483 | — | 56,239,483 | ||||||||||||
| Commercial Mortgage-Backed Securities |
— | 14,696,686 | — | 14,696,686 | ||||||||||||
| Mortgage Pass-Throughs |
— | 84,440,479 | — | 84,440,479 | ||||||||||||
| Asset-Backed Securities |
— | 4,367,649 | — | 4,367,649 | ||||||||||||
| Corporate Bonds & Notes |
— | 2,307,646 | — | 2,307,646 | ||||||||||||
| Foreign Government Bonds |
— | 30,295,918 | — | 30,295,918 | ||||||||||||
| U.S. Treasury Obligations |
— | 9,501,560 | — | 9,501,560 | ||||||||||||
| Common Stocks |
— | 83,888 | 2,343,370 | 2,427,258 | ||||||||||||
| Short-Term Investments — |
||||||||||||||||
| Foreign Government Securities |
— | 28,948,600 | — | 28,948,600 | ||||||||||||
| U.S. Treasury Obligations |
— | 3,749,873 | — | 3,749,873 | ||||||||||||
| Other |
— | 7,590,604 | — | 7,590,604 | ||||||||||||
| Total Investments |
$ | — | $ | 394,597,353 | $ | 2,550,345 | $ | 397,147,698 | ||||||||
| Forward Foreign Currency Exchange Contracts |
$ | — | $ | 1,415,358 | $ | — | $ | 1,415,358 | ||||||||
| Swap Contracts |
— | 1,290,676 | — | 1,290,676 | ||||||||||||
| Total |
$ | — | $ | 397,303,387 | $ | 2,550,345 | $ | 399,853,732 | ||||||||
| Liability Description |
||||||||||||||||
| Currency Put Options Written |
$ | — | $ | (1,415 | ) | $ | — | $ | (1,415 | ) | ||||||
| Forward Foreign Currency Exchange Contracts |
— | (1,310,447 | ) | — | (1,310,447 | ) | ||||||||||
| Swap Contracts |
— | (580,917 | ) | — | (580,917 | ) | ||||||||||
| Total |
$ | — | $ | (1,892,779 | ) | $ | — | $ | (1,892,779 | ) | ||||||
| * | 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 April 30, 2014 is not presented.
At April 30, 2014, there were no investments transferred between Level 1 and Level 2 during the six months then ended.
| 43 |
Eaton Vance
Short Duration Diversified Income Fund
April 30, 2014
Annual Meeting of Shareholders (Unaudited)
The Fund held its Annual Meeting of Shareholders on February 20, 2014. The following action was taken by the shareholders:
Item 1: The election of Valerie A. Mosley, Helen Frame Peters and Ralph F. Verni as Class III Trustees of the Fund, each for a three-year term expiring in 2017.
| Nominee for Trustee Elected by All Shareholders |
Number of Shares | |||||||
| For | Withheld | |||||||
| Valerie A. Mosley |
15,366,727 | 1,126,582 | ||||||
| Helen Frame Peters |
15,372,991 | 1,120,318 | ||||||
| Ralph F. Verni |
15,375,604 | 1,117,705 | ||||||
| 44 |
Eaton Vance
Short Duration Diversified Income Fund
April 30, 2014
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 Eaton Vance group of mutual funds (the “Eaton Vance Funds”) held on April 28, 2014, the Board, including a majority of the Independent Trustees, voted to approve continuation of existing 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 the Contract Review Committee of the Board, 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 2014, as well as information considered throughout the year at meetings of the Board and its committees. Such information included, among other things, the following:
Information about Fees, Performance and Expenses
| Ÿ | An independent report comparing the advisory and related fees paid by each fund with fees paid by comparable funds; |
| Ÿ | An independent report comparing each fund’s total expense ratio and its components to comparable funds; |
| Ÿ | An independent report 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; |
| Ÿ | Data regarding investment performance in comparison to benchmark indices and customized peer groups identified by the adviser in consultation with the Board; |
| Ÿ | 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; |
| Ÿ | Profitability analyses for each adviser with respect to each fund; |
Information about Portfolio Management and Trading
| Ÿ | Descriptions of the investment management services provided to each fund, including the investment strategies and processes employed, and any changes in portfolio management processes and personnel; |
| Ÿ | Information about the allocation of brokerage 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 the fund’s policies with respect to “soft dollar” arrangements; |
| Ÿ | Data relating to portfolio turnover rates of each fund; |
| Ÿ | 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; |
| Ÿ | Information about each adviser’s processes for monitoring best execution of portfolio transactions, and other policies and practices of each adviser with respect to trading; |
Information about each Adviser
| Ÿ | Reports detailing the financial results and condition of each adviser; |
| Ÿ | 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; |
| Ÿ | Copies of the Codes of Ethics of each adviser and its affiliates, together with information relating to compliance with and the administration of such codes; |
| Ÿ | Copies of or descriptions of each adviser’s policies and procedures relating to proxy voting, the handling of corporate actions and class actions; |
| Ÿ | Information concerning the resources devoted to compliance efforts undertaken by each adviser and its affiliates on behalf of the funds (including descriptions of various compliance programs) and their record of compliance with investment policies and restrictions, including policies with respect to market-timing, late trading and selective portfolio disclosure, and with policies on personal securities transactions; |
| Ÿ | Descriptions of the business continuity and disaster recovery plans of each adviser and its affiliates; |
| Ÿ | 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; |
Other Relevant Information
| Ÿ | Information concerning the nature, cost and character of the administrative and other non-investment management services provided by Eaton Vance Management and its affiliates; |
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Eaton Vance
Short Duration Diversified Income Fund
April 30, 2014
Board of Trustees’ Contract Approval — continued
| Ÿ | Information concerning management of the relationship with the custodian, subcustodians and fund accountants by each adviser or the funds’ administrator; and |
| Ÿ | The terms of each advisory agreement. |
Over the course of the twelve-month period ended April 30, 2014, with respect to one or more funds, the Board met nine 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, seventeen, eleven, six and ten times respectively. At such meetings, the Trustees participated in investment and performance reviews with the portfolio managers and other investment professionals of each adviser relating to each fund, and considered the investment and trading strategies used in pursuing each fund’s investment objective, including, where relevant, the use of derivative instruments, as well as processes for monitoring best execution of portfolio transactions and 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.
For funds that invest through one or more underlying portfolios, the Board considered similar information about the portfolio(s) when considering the approval of 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, 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 advisory and sub-advisory agreement and the weight to be given to each such factor. The conclusions reached with respect to each 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 advisory and sub-advisory agreement. In evaluating each 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 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 Short Duration Diversified 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 as well as the 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 evaluated the abilities and experience of such investment personnel in analyzing factors such as credit risk and special considerations relevant to investing in senior, secured floating rate loans, foreign debt obligations, including debt of emerging market issuers, and mortgage-backed securities. The Board considered the Adviser’s in-house research capabilities as well as other resources available to personnel of the Adviser. The Board also took into account the resources dedicated to portfolio management and other services, including the compensation methods of the Adviser to recruit and retain investment personnel, and the time and attention devoted to the Fund by senior management.
The Board reviewed 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 personnel, selective disclosure of portfolio holdings, late trading, frequent trading, portfolio valuation, business continuity and the allocation of investment opportunities. The Board also evaluated 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.
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 family of funds.
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.
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Eaton Vance
Short Duration Diversified Income Fund
April 30, 2014
Board of Trustees’ Contract Approval — continued
Fund Performance
The Board compared the Fund’s investment performance to a relevant universe of similarly managed funds identified by an independent data provider and appropriate benchmark indices. The Board reviewed comparative performance data for the one-, three- and five-year periods ended September 30, 2013 for the Fund. The Board concluded that the performance of the Fund was satisfactory.
Management Fees and Expenses
The Board reviewed contractual fee rates for investment advisory and administrative services payable by the Fund (referred to as “management fees”). As part of its review, the Board considered the management fees and the Fund’s total expense ratio for the year ended September 30, 2013, as compared to a group of similarly managed funds selected by an independent data provider. The Board noted that the Adviser had waived fees and/or paid expenses for the Fund. The Board noted that the Fund has established a wholly-owned subsidiary to accommodate the Fund’s investing in commodity-related investments. The subsidiary is managed by the Adviser pursuant to a separate investment advisory agreement that is subject to annual approval by the Board. The subsidiary’s fee rates are the same as those charged to the Fund, and the Fund will not pay any additional management fees with respect to its assets invested in the subsidiary. The Board also considered factors that had an impact on Fund expense ratios, as identified by management in response to inquiries from the Contract Review Committee, as well as actions taken by management in recent years to reduce expenses at the fund complex level, including the negotiation of reduced fees for transfer agency and custody services.
After reviewing 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
The Board reviewed 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 revenue sharing 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 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 reasonable.
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 the economies of scale 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 the 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.
| 47 |
Eaton Vance
Short Duration Diversified Income Fund
April 30, 2014
Officers and Trustees
Officers of Eaton Vance Short Duration Diversified Income Fund
Trustees of Eaton Vance Short Duration Diversified Income Fund
| * | Interested Trustee |
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 April 30, 2014, Fund records indicate that there are 10 registered shareholders and approximately 11,904 shareholders owning the Fund shares in street name, such as through brokers, banks, and financial intermediaries.
If you are a street name shareholder and wish to receive Fund reports directly, which contain important information about the Fund, please write or call:
Eaton Vance Distributors, Inc.
Two International Place
Boston, MA 02110
1-800-262-1122
New York Stock Exchange symbol
The New York Stock Exchange symbol is EVG.
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Eaton Vance Funds
IMPORTANT NOTICES
Privacy. The Eaton Vance organization is committed to ensuring your financial privacy. Each of the financial institutions identified below has in effect the following policy (“Privacy Policy”) with respect to nonpublic personal information about its customers:
| Ÿ | Only such information received from you, through application forms or otherwise, and information about your Eaton Vance fund transactions will be collected. This may include information such as name, address, social security number, tax status, account balances and transactions. |
| Ÿ | None of such information about you (or former customers) will be disclosed to anyone, except as permitted by law (which includes disclosure to employees necessary to service your account). In the normal course of servicing a customer’s account, Eaton Vance may share information with unaffiliated third parties that perform various required services such as transfer agents, custodians and broker-dealers. |
| Ÿ | Policies and procedures (including physical, electronic and procedural safeguards) are in place that are designed to protect the confidentiality of such information. |
| Ÿ | We reserve the right to change our Privacy Policy at any time upon proper notification to you. Customers may want to review our Privacy Policy periodically for changes by accessing the link on our homepage: www.eatonvance.com. |
Our pledge of privacy applies to the following entities within the Eaton Vance organization: the Eaton Vance Family of Funds, Eaton Vance Management, Eaton Vance Investment Counsel, Eaton Vance Distributors, Inc., Eaton Vance Trust Company, Eaton Vance Management’s Real Estate Investment Group and Boston Management and Research. In addition, our Privacy Policy applies only to those Eaton Vance customers who are individuals and who have a direct relationship with us. If a customer’s account (i.e., fund shares) is held in the name of a third-party financial advisor/broker-dealer, it is likely that only such advisor’s privacy policies apply to the customer. This notice supersedes all previously issued privacy disclosures. For more information about Eaton Vance’s Privacy Policy, please call 1-800-262-1122.
Delivery of Shareholder Documents. The Securities and Exchange Commission (SEC) permits funds to deliver only one copy of shareholder documents, including prospectuses, proxy statements and shareholder reports, to fund investors with multiple accounts at the same residential or post office box address. This practice is often called “householding” and it helps eliminate duplicate mailings to shareholders. Eaton Vance, or your financial advisor, may household the mailing of your documents indefinitely unless you instruct Eaton Vance, or your financial advisor, otherwise. If you would prefer that your Eaton Vance documents not be householded, please contact Eaton Vance at 1-800-262-1122, or contact your financial advisor. Your instructions that householding not apply to delivery of your Eaton Vance documents will be effective within 30 days of receipt by Eaton Vance or your financial advisor.
Portfolio Holdings. Each Eaton Vance Fund and its underlying Portfolio(s) (if applicable) will file a schedule of portfolio holdings on Form N-Q with the SEC for the first and third quarters of each fiscal year. The Form N-Q will be available on the Eaton Vance website at www.eatonvance.com, by calling Eaton Vance at 1-800-262-1122 or in the EDGAR database on the SEC’s website at www.sec.gov. Form N-Q may also be reviewed and copied at the SEC’s public reference room in Washington, D.C. (call 1-800-732-0330 for information on the operation of the public reference room).
Proxy Voting. From time to time, funds are required to vote proxies related to the securities held by the funds. The Eaton Vance Funds or their underlying Portfolios (if applicable) vote proxies according to a set of policies and procedures approved by the Funds’ and Portfolios’ Boards. You may obtain a description of these policies and procedures and information on how the Funds or Portfolios voted proxies relating to portfolio securities during the most recent 12-month period ended June 30, without charge, upon request, by calling 1-800-262-1122 and by accessing the SEC’s website at www.sec.gov.
Share Repurchase Program. On November 11, 2013, the Fund’s Board of Trustees approved a share repurchase program authorizing the Fund to repurchase up to 10% of its 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. 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. 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”.
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| 7741 4.30.14 |
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
Not required in this filing.
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
REGISTRANT PURCHASES OF EQUITY SECURITIES
| Period* |
Total Number of Shares Purchased |
Average Price Paid per Share |
Total Number of Shares Purchased as Part of Publicly Announced Programs |
Maximum Number of Shares that May Yet Be Purchased Under the Programs* |
||||||||||||
| November 2013 |
— | — | — | 1,888,660 | ||||||||||||
| December 2013 |
56,000 | $ | 15.18 | 56,000 | 1,832,660 | |||||||||||
| January 2014 |
— | — | — | 1,832,660 | ||||||||||||
| February 2014 |
— | — | — | 1,832,660 | ||||||||||||
| March 2014 |
— | — | — | 1,832,660 | ||||||||||||
| April 2014 |
— | — | — | 1,832,660 | ||||||||||||
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| Total |
56,000 | $ | 15.18 | 56,000 | ||||||||||||
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| * | On November 11, 2013, the Fund’s Board of Trustees approved a share repurchase program authorizing the Fund to repurchase up to 10% of its then currently outstanding common shares in open-market transactions at a discount to net asset value. The repurchase program was announced on November 15, 2013. |
Item 10. Submission of Matters to a Vote of Security Holders
No material changes.
Item 11. Controls and Procedures
(a) It is the conclusion of the registrant’s principal executive officer and principal financial officer that the effectiveness of the registrant’s current disclosure controls and procedures (such disclosure controls and procedures having been evaluated within 90 days of the date of this filing) provide reasonable assurance that the information required to be disclosed by the registrant has been recorded, processed, summarized and reported within the time period specified in the Commission’s rules and forms and that the information required to be disclosed by the registrant has been accumulated and communicated to the registrant’s principal executive officer and principal financial officer in order to allow timely decisions regarding required disclosure.
(b) There have been no changes in the registrant’s internal controls over financial reporting during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.
| Item 12. Exhibits | ||
| (a)(1) | Registrant’s Code of Ethics – Not applicable (please see Item 2). | |
| (a)(2)(i) | Treasurer’s Section 302 certification. | |
| (a)(2)(ii) | President’s Section 302 certification. | |
| (b) | Combined Section 906 certification. | |
| (c) | Registrant’s notices to shareholders pursuant to Registrant’s exemptive order granting an exemption from Section 19(b) of the 1940 Act and Rule 19b-1 thereunder regarding distributions paid pursuant to the Registrant’s Managed Distribution Plan. | |
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Eaton Vance Short Duration Diversified Income Fund
| By: | /s/ Payson F. Swaffield | |
| Payson F. Swaffield | ||
| President | ||
| Date: | June 6, 2014 | |
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| By: | /s/ James F. Kirchner | |
| James F. Kirchner | ||
| Treasurer | ||
| Date: | June 6, 2014 | |
| By: | /s/ Payson F. Swaffield | |
| Payson F. Swaffield | ||
| President | ||
| Date: | June 6, 2014 | |