UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act File Number: 811-21323
Eaton Vance Limited Duration Income Fund
(Exact Name of Registrant as Specified in Charter)
Two International Place, Boston, Massachusetts 02110
(Address of Principal Executive Offices)
Maureen A. Gemma
Two International Place, Boston, Massachusetts 02110
(Name and Address of Agent for Services)
(617) 482-8260
(Registrant’s Telephone Number)
March 31
Date of Fiscal Year End
March 31, 2015
Date of Reporting Period
Item 1. Reports to Stockholders
Eaton Vance
Limited Duration Income
Fund (EVV)
Annual Report
March 31, 2015
Commodity Futures Trading Commission Registration. Effective December 31, 2012, the Commodity Futures Trading Commission (“CFTC”) adopted certain regulatory changes that subject registered investment companies and advisers to regulation by the CFTC if a fund invests more than a prescribed level of its assets in certain CFTC-regulated instruments (including futures, certain options and swap agreements) or markets itself as providing investment exposure to such instruments. The Fund has claimed an exclusion from the definition of the term “commodity pool operator” under the Commodity Exchange Act. Accordingly, neither the Fund nor the adviser with respect to the operation of the Fund is subject to CFTC regulation. Because of its management of other strategies, the Fund’s adviser is registered with the CFTC as a commodity pool operator and a commodity trading advisor.
Fund shares are not insured by the FDIC and are not deposits or other obligations of, or guaranteed by, any depository institution. Shares are subject to investment risks, including possible loss of principal invested.
Annual Report March 31, 2015
Eaton Vance
Limited Duration Income Fund
Table of Contents
| Management’s Discussion of Fund Performance |
2 | |||
| Performance |
3 | |||
| Fund Profile |
3 | |||
| Endnotes and Additional Disclosures |
4 | |||
| Financial Statements |
5 | |||
| Report of Independent Registered Public Accounting Firm |
57 | |||
| Federal Tax Information |
58 | |||
| Annual Meeting of Shareholders |
59 | |||
| Dividend Reinvestment Plan |
60 | |||
| Management and Organization |
62 | |||
| Important Notices |
65 | |||
Eaton Vance
Limited Duration Income Fund
March 31, 2015
Management’s Discussion of Fund Performance1
See Endnotes and Additional Disclosures in this report.
Past performance is no guarantee of future results. Returns are historical and are calculated by determining the percentage change in net asset value (NAV) or market price (as applicable) with all distributions reinvested and includes management fees and other expenses. Fund performance at market price will differ from its results at NAV due to factors such as changing perceptions about the Fund, market conditions, fluctuations in supply and demand for Fund shares, or changes in Fund distributions. Investment return and principal value will fluctuate so that shares, when sold, may be worth more or less than their original cost. Performance less than one year is cumulative. Performance is for the stated time period only; due to market volatility, current Fund performance may be lower or higher than the quoted return. For performance as of the most recent month-end, please refer to eatonvance.com.
| 2 |
Eaton Vance
Limited Duration Income Fund
March 31, 2015
Performance3
Portfolio Managers Scott H. Page, CFA, Payson F.
Swaffield, CFA, Michael W. Weilheimer, CFA, Catherine McDermott, Andrew Szczurowski, CFA, and
Eric A. Stein, CFA
| % Average Annual Total Returns | Inception Date | One Year | Five Years | Ten Years | ||||||||||||
| Fund at NAV |
05/30/2003 | 4.73 | % | 7.81 | % | 7.53 | % | |||||||||
| Fund at Market Price |
— | 2.47 | 6.21 | 6.70 | ||||||||||||
| % Premium/Discount to NAV4 | ||||||||||||||||
| –10.12 | % | |||||||||||||||
| Distributions5 | ||||||||||||||||
| Total Distributions per share for the period |
$1.220 | |||||||||||||||
| Distribution Rate at NAV |
7.62 | % | ||||||||||||||
| Distribution Rate at Market Price |
8.48 | % | ||||||||||||||
| % Total Leverage6 | ||||||||||||||||
| Auction Preferred Shares (APS) |
8.66 | % | ||||||||||||||
| Borrowings |
30.22 | |||||||||||||||
Fund Profile
See Endnotes and Additional Disclosures in this report.
Past performance is no guarantee of future results. Returns are historical and are calculated by determining the percentage change in net asset value (NAV) or market price (as applicable) with all distributions reinvested and includes management fees and other expenses. Fund performance at market price will differ from its results at NAV due to factors such as changing perceptions about the Fund, market conditions, fluctuations in supply and demand for Fund shares, or changes in Fund distributions. Investment return and principal value will fluctuate so that shares, when sold, may be worth more or less than their original cost. Performance less than one year is cumulative. Performance is for the stated time period only; due to market volatility, current Fund performance may be lower or higher than the quoted return. For performance as of the most recent month-end, please refer to eatonvance.com.
| 3 |
Eaton Vance
Limited Duration Income Fund
March 31, 2015
Endnotes and Additional Disclosures
| 4 |
Eaton Vance
Limited Duration Income Fund
March 31, 2015
Portfolio of Investments
| 5 | See Notes to Financial Statements. |
Eaton Vance
Limited Duration Income Fund
March 31, 2015
Portfolio of Investments — continued
| 6 | See Notes to Financial Statements. |
Eaton Vance
Limited Duration Income Fund
March 31, 2015
Portfolio of Investments — continued
| 7 | See Notes to Financial Statements. |
Eaton Vance
Limited Duration Income Fund
March 31, 2015
Portfolio of Investments — continued
| 8 | See Notes to Financial Statements. |
Eaton Vance
Limited Duration Income Fund
March 31, 2015
Portfolio of Investments — continued
| 9 | See Notes to Financial Statements. |
Eaton Vance
Limited Duration Income Fund
March 31, 2015
Portfolio of Investments — continued
| 10 | See Notes to Financial Statements. |
Eaton Vance
Limited Duration Income Fund
March 31, 2015
Portfolio of Investments — continued
| 11 | See Notes to Financial Statements. |
Eaton Vance
Limited Duration Income Fund
March 31, 2015
Portfolio of Investments — continued
| 12 | See Notes to Financial Statements. |
Eaton Vance
Limited Duration Income Fund
March 31, 2015
Portfolio of Investments — continued
| 13 | See Notes to Financial Statements. |
Eaton Vance
Limited Duration Income Fund
March 31, 2015
Portfolio of Investments — continued
| 14 | See Notes to Financial Statements. |
Eaton Vance
Limited Duration Income Fund
March 31, 2015
Portfolio of Investments — continued
| 15 | See Notes to Financial Statements. |
Eaton Vance
Limited Duration Income Fund
March 31, 2015
Portfolio of Investments — continued
| 16 | See Notes to Financial Statements. |
Eaton Vance
Limited Duration Income Fund
March 31, 2015
Portfolio of Investments — continued
| 17 | See Notes to Financial Statements. |
Eaton Vance
Limited Duration Income Fund
March 31, 2015
Portfolio of Investments — continued
| 18 | See Notes to Financial Statements. |
Eaton Vance
Limited Duration Income Fund
March 31, 2015
Portfolio of Investments — continued
| 19 | See Notes to Financial Statements. |
Eaton Vance
Limited Duration Income Fund
March 31, 2015
Portfolio of Investments — continued
| 20 | See Notes to Financial Statements. |
Eaton Vance
Limited Duration Income Fund
March 31, 2015
Portfolio of Investments — continued
| 21 | See Notes to Financial Statements. |
Eaton Vance
Limited Duration Income Fund
March 31, 2015
Portfolio of Investments — continued
| 22 | See Notes to Financial Statements. |
Eaton Vance
Limited Duration Income Fund
March 31, 2015
Portfolio of Investments — continued
| 23 | See Notes to Financial Statements. |
Eaton Vance
Limited Duration Income Fund
March 31, 2015
Portfolio of Investments — continued
| 24 | See Notes to Financial Statements. |
Eaton Vance
Limited Duration Income Fund
March 31, 2015
Portfolio of Investments — continued
| 25 | See Notes to Financial Statements. |
Eaton Vance
Limited Duration Income Fund
March 31, 2015
Portfolio of Investments — continued
| 26 | See Notes to Financial Statements. |
Eaton Vance
Limited Duration Income Fund
March 31, 2015
Portfolio of Investments — continued
| 27 | See Notes to Financial Statements. |
Eaton Vance
Limited Duration Income Fund
March 31, 2015
Portfolio of Investments — continued
| 28 | See Notes to Financial Statements. |
Eaton Vance
Limited Duration Income Fund
March 31, 2015
Portfolio of Investments — continued
| 29 | See Notes to Financial Statements. |
Eaton Vance
Limited Duration Income Fund
March 31, 2015
Portfolio of Investments — continued
| 30 | See Notes to Financial Statements. |
Eaton Vance
Limited Duration Income Fund
March 31, 2015
Portfolio of Investments — continued
| 31 | See Notes to Financial Statements. |
Eaton Vance
Limited Duration Income Fund
March 31, 2015
Portfolio of Investments — continued
| 32 | See Notes to Financial Statements. |
Eaton Vance
Limited Duration Income Fund
March 31, 2015
Portfolio of Investments — continued
| 33 | See Notes to Financial Statements. |
Eaton Vance
Limited Duration Income Fund
March 31, 2015
Portfolio of Investments — continued
| 34 | See Notes to Financial Statements. |
Eaton Vance
Limited Duration Income Fund
March 31, 2015
Portfolio of Investments — continued
| 35 | See Notes to Financial Statements. |
Eaton Vance
Limited Duration Income Fund
March 31, 2015
Portfolio of Investments — continued
| 36 | See Notes to Financial Statements. |
Eaton Vance
Limited Duration Income Fund
March 31, 2015
Portfolio of Investments — continued
| 37 | See Notes to Financial Statements. |
Eaton Vance
Limited Duration Income Fund
March 31, 2015
Portfolio of Investments — continued
| 38 | See Notes to Financial Statements. |
Eaton Vance
Limited Duration Income Fund
March 31, 2015
Statement of Assets and Liabilities
| Assets | March 31, 2015 | |||
| Unaffiliated investments, at value (identified cost, $2,984,792,819) |
$ | 3,005,399,481 | ||
| Affiliated investment, at value (identified cost, $29,795,838) |
29,795,838 | |||
| Cash |
12,260,110 | |||
| Restricted cash* |
831,978 | |||
| Foreign currency, at value (identified cost, $3,575,885) |
3,542,940 | |||
| Interest and dividends receivable |
27,348,260 | |||
| Interest receivable from affiliated investment |
4,291 | |||
| Receivable for investments sold |
21,010,431 | |||
| Receivable for open forward foreign currency exchange contracts |
1,625,335 | |||
| Tax reclaims receivable |
4,139 | |||
| Prepaid upfront fees on notes payable |
959,020 | |||
| Prepaid expenses |
40,881 | |||
| Total assets |
$ | 3,102,822,704 | ||
| Liabilities | ||||
| Notes payable |
$ | 803,200,000 | ||
| Cash collateral due to broker |
320,000 | |||
| Payable for reverse repurchase agreements, including accrued interest of $18,755 |
127,300,854 | |||
| Written swaptions outstanding, at value (premiums received, $2,031,750) |
143,535 | |||
| Payable for investments purchased |
15,748,913 | |||
| Payable for when-issued securities |
4,249,837 | |||
| Payable for variation margin on open financial futures contracts |
138,594 | |||
| Payable for open forward foreign currency exchange contracts |
8,646 | |||
| Payable to affiliates: |
||||
| Investment adviser fee |
1,952,804 | |||
| Accrued expenses |
1,142,148 | |||
| Total liabilities |
$ | 954,205,331 | ||
| Auction preferred shares (10,665 shares outstanding) at liquidation value plus cumulative unpaid dividends |
$ | 266,629,053 | ||
| Net assets applicable to common shares |
$ | 1,881,988,320 | ||
| Sources of Net Assets | ||||
| Common shares, $0.01 par value, unlimited number of shares authorized, 117,547,018 shares issued and outstanding |
$ | 1,175,470 | ||
| Additional paid-in capital |
2,145,887,859 | |||
| Accumulated net realized loss |
(288,538,396 | ) | ||
| Net unrealized appreciation |
23,463,387 | |||
| Net assets applicable to common shares |
$ | 1,881,988,320 | ||
| Net Asset Value Per Common Share | ||||
| ($1,881,988,320 ÷ 117,547,018 common shares issued and outstanding) |
$ | 16.01 | ||
| * | Represents restricted cash on deposit at the custodian and the brokers for open derivative contracts and reverse repurchase agreements. |
| 39 | See Notes to Financial Statements. |
Eaton Vance
Limited Duration Income Fund
March 31, 2015
Statement of Operations
| Investment Income | Year Ended March 31, 2015 |
|||
| Interest and other income (net of foreign taxes $603) |
$ | 155,678,021 | ||
| Dividends |
3,002,167 | |||
| Interest allocated from affiliated investment |
45,001 | |||
| Expenses allocated from affiliated investment |
(5,786 | ) | ||
| Total investment income |
$ | 158,719,403 | ||
| Expenses | ||||
| Investment adviser fee |
$ | 23,460,119 | ||
| Trustees’ fees and expenses |
68,000 | |||
| Custodian fee |
865,943 | |||
| Transfer and dividend disbursing agent fees |
19,186 | |||
| Legal and accounting services |
322,397 | |||
| Printing and postage |
413,864 | |||
| Interest expense and fees |
10,294,940 | |||
| Preferred shares service fee |
392,463 | |||
| Miscellaneous |
173,282 | |||
| Total expenses |
$ | 36,010,194 | ||
| Deduct — |
||||
| Reduction of custodian fee |
$ | 290 | ||
| Total expense reductions |
$ | 290 | ||
| Net expenses |
$ | 36,009,904 | ||
| Net investment income |
$ | 122,709,499 | ||
| Realized and Unrealized Gain (Loss) | ||||
| Net realized gain (loss) — |
||||
| Investment transactions |
$ | 14,432,426 | ||
| Investment transactions allocated from affiliated investment |
299 | |||
| Financial futures contracts |
(2,622,481 | ) | ||
| Swap contracts |
165,929 | |||
| Foreign currency and forward foreign currency exchange contract transactions |
8,797,686 | |||
| Net realized gain |
$ | 20,773,859 | ||
| Change in unrealized appreciation (depreciation) — |
||||
| Investments |
$ | (70,907,745 | ) | |
| Written swaptions |
1,058,872 | |||
| Financial futures contracts |
(826,593 | ) | ||
| Foreign currency and forward foreign currency exchange contracts |
2,173,341 | |||
| Net change in unrealized appreciation (depreciation) |
$ | (68,502,125 | ) | |
| Net realized and unrealized loss |
$ | (47,728,266 | ) | |
| Distributions to preferred shareholders |
||||
| From net investment income |
$ | (357,993 | ) | |
| Net increase in net assets from operations |
$ | 74,623,240 | ||
| 40 | See Notes to Financial Statements. |
Eaton Vance
Limited Duration Income Fund
March 31, 2015
Statements of Changes in Net Assets
| Year Ended March 31, | ||||||||
| Increase (Decrease) in Net Assets | 2015 | 2014 | ||||||
| From operations — |
||||||||
| Net investment income |
$ | 122,709,499 | $ | 119,684,666 | ||||
| Net realized gain from investment transactions, financial futures contracts, swap contracts, and foreign currency and forward foreign currency exchange contract transactions |
20,773,859 | 12,591,992 | ||||||
| Net change in unrealized appreciation (depreciation) from investments, written swaptions, financial futures contracts, foreign currency and forward foreign currency exchange contracts |
(68,502,125 | ) | (19,178,834 | ) | ||||
| Distributions to preferred shareholders — |
||||||||
| From net investment income |
(357,993 | ) | (311,324 | ) | ||||
| Net increase in net assets from operations |
$ | 74,623,240 | $ | 112,786,500 | ||||
| Distributions to common shareholders — |
||||||||
| From net investment income |
$ | (140,697,182 | ) | $ | (138,510,416 | ) | ||
| Tax return of capital |
(2,757,200 | ) | (4,937,999 | ) | ||||
| Total distributions to common shareholders |
$ | (143,454,382 | ) | $ | (143,448,415 | ) | ||
| Capital share transactions — |
||||||||
| Reinvestment of distributions to common shareholders |
$ | — | $ | 663,888 | ||||
| Net increase in net assets from capital share transactions |
$ | — | $ | 663,888 | ||||
| Net decrease in net assets |
$ | (68,831,142 | ) | $ | (29,998,027 | ) | ||
| Net Assets Applicable to Common Shares | ||||||||
| At beginning of year |
$ | 1,950,819,462 | $ | 1,980,817,489 | ||||
| At end of year |
$ | 1,881,988,320 | $ | 1,950,819,462 | ||||
| Accumulated distributions in excess of net investment income included in net assets applicable to common shares |
||||||||
| At end of year |
$ | — | $ | (232,187 | ) | |||
| 41 | See Notes to Financial Statements. |
Eaton Vance
Limited Duration Income Fund
March 31, 2015
Statement of Cash Flows
| Cash Flows From Operating Activities | Year Ended March 31, 2015 |
|||
| Net increase in net assets from operations |
$ | 74,623,240 | ||
| Distributions to preferred shareholders |
357,993 | |||
| Net increase in net assets from operations excluding distributions to preferred shareholders |
$ | 74,981,233 | ||
| Adjustments to reconcile net increase in net assets from operations to net cash provided by operating activities: |
||||
| Investments purchased |
(1,097,016,453 | ) | ||
| Investments sold and principal repayments |
1,095,040,415 | |||
| Increase in short-term investments, net |
(14,272,578 | ) | ||
| Net amortization/accretion of premium (discount) |
32,951,692 | |||
| Amortization of prepaid upfront fees on notes payable |
40,980 | |||
| Decrease in restricted cash |
887,247 | |||
| Decrease in interest and dividends receivable |
2,942,863 | |||
| Increase in interest receivable from affiliated investment |
(1,934 | ) | ||
| Decrease in receivable for variation margin on open financial futures contracts |
1,406 | |||
| Increase in receivable for open forward foreign currency exchange contracts |
(1,621,821 | ) | ||
| Increase in tax reclaims receivable |
(3,184 | ) | ||
| Decrease in prepaid expenses |
3,688 | |||
| Increase in cash collateral due to broker |
320,000 | |||
| Decrease in written swaptions outstanding |
(1,058,872 | ) | ||
| Increase in payable for variation margin on open financial futures contracts |
138,594 | |||
| Decrease in payable for open forward foreign currency exchange contracts |
(423,014 | ) | ||
| Decrease in payable to affiliate for investment adviser fee |
(59,393 | ) | ||
| Decrease in accrued expenses |
(40,267 | ) | ||
| Increase in accrued interest on reverse repurchase agreements |
8,025 | |||
| Decrease in unfunded loan commitments |
(616,267 | ) | ||
| Net change in unrealized (appreciation) depreciation from investments |
70,907,745 | |||
| Net realized gain from investments |
(14,432,426 | ) | ||
| Net cash provided by operating activities |
$ | 148,677,679 | ||
| Cash Flows From Financing Activities | ||||
| Distributions paid to common shareholders, net of reinvestments |
$ | (143,456,701 | ) | |
| Cash distributions paid to preferred shareholders |
(357,535 | ) | ||
| Payment of prepaid upfront fees on notes payable |
(1,000,000 | ) | ||
| Proceeds from notes payable |
85,000,000 | |||
| Repayment of notes payable |
(110,000,000 | ) | ||
| Proceeds from reverse repurchase agreements, net |
9,562,099 | |||
| Net cash used in financing activities |
$ | (160,252,137 | ) | |
| Net decrease in cash* |
$ | (11,574,458 | ) | |
| Cash at beginning of year(1) |
$ | 27,377,508 | ||
| Cash at end of year(1) |
$ | 15,803,050 | ||
| Supplemental disclosure of cash flow information: | ||||
| Cash paid for interest and fees on borrowings and reverse repurchase agreements |
$ | 11,307,756 | ||
| * | Includes net change in unrealized appreciation (depreciation) on foreign currency of $(31,730). |
| (1) | Balance includes foreign currency, at value. |
| 42 | See Notes to Financial Statements. |
Eaton Vance
Limited Duration Income Fund
March 31, 2015
Financial Highlights
Selected data for a common share outstanding during the periods stated
| Year Ended March 31, | Period Ended March 31, 2012(1) |
Year Ended April 30, | ||||||||||||||||||||||
| 2015 | 2014 | 2013 | 2011 | 2010 | ||||||||||||||||||||
| Net asset value — Beginning of period (Common shares) |
$ | 16.600 | $ | 16.860 | $ | 16.550 | $ | 17.060 | $ | 16.630 | $ | 12.960 | ||||||||||||
| Income (Loss) From Operations | ||||||||||||||||||||||||
| Net investment income(2) |
$ | 1.044 | $ | 1.018 | $ | 1.041 | $ | 1.007 | $ | 1.118 | $ | 1.213 | ||||||||||||
| Net realized and unrealized gain (loss) |
(0.411 | ) | (0.055 | ) | 0.516 | (0.368 | ) | 0.697 | 3.809 | |||||||||||||||
| Distributions to preferred shareholders |
||||||||||||||||||||||||
| From net investment income(2) |
(0.003 | ) | (0.003 | ) | (0.004 | ) | (0.003 | ) | (0.007 | ) | (0.007 | ) | ||||||||||||
| Total income from operations |
$ | 0.630 | $ | 0.960 | $ | 1.553 | $ | 0.636 | $ | 1.808 | $ | 5.015 | ||||||||||||
| Less Distributions to Common Shareholders | ||||||||||||||||||||||||
| From net investment income |
$ | (1.197 | ) | $ | (1.178 | ) | $ | (1.210 | ) | $ | (1.103 | ) | $ | (1.319 | ) | $ | (1.345 | ) | ||||||
| Tax return of capital |
(0.023 | ) | (0.042 | ) | (0.033 | ) | (0.043 | ) | (0.059 | ) | — | |||||||||||||
| Total distributions to common shareholders |
$ | (1.220 | ) | $ | (1.220 | ) | $ | (1.243 | ) | $ | (1.146 | ) | $ | (1.378 | ) | $ | (1.345 | ) | ||||||
| Net asset value — End of period (Common shares) |
$ | 16.010 | $ | 16.600 | $ | 16.860 | $ | 16.550 | $ | 17.060 | $ | 16.630 | ||||||||||||
| Market value — End of period (Common shares) |
$ | 14.390 | $ | 15.250 | $ | 17.100 | $ | 16.050 | $ | 16.080 | $ | 16.600 | ||||||||||||
| Total Investment Return on Net Asset Value(3) |
4.73 | % | 6.50 | % | 9.80 | % | 4.44 | %(4) | 11.68 | % | 40.73 | % | ||||||||||||
| Total Investment Return on Market Value(3) |
2.47 | % | (3.53 | )% | 14.83 | % | 7.40 | %(4) | 5.52 | % | 57.21 | % | ||||||||||||
| 43 | See Notes to Financial Statements. |
Eaton Vance
Limited Duration Income Fund
March 31, 2015
Financial Highlights — continued
Selected data for a common share outstanding during the periods stated
| Year Ended March 31, | Period Ended March 31, 2012(1) |
Year Ended April 30, | ||||||||||||||||||||||
| Ratios/Supplemental Data | 2015 | 2014 | 2013 | 2011 | 2010 | |||||||||||||||||||
| Net assets applicable to common shares, end of period (000’s omitted) |
$ | 1,881,988 | $ | 1,950,819 | $ | 1,980,817 | $ | 1,941,504 | $ | 2,001,368 | $ | 1,950,179 | ||||||||||||
| Ratios (as a percentage of average daily net assets applicable to common shares):(5)† |
||||||||||||||||||||||||
| Expenses excluding interest and fees(6) |
1.35 | % | 1.27 | % | 1.16 | % | 1.19 | %(7) | 1.15 | % | 1.02 | % | ||||||||||||
| Interest and fee expense(8) |
0.54 | % | 0.44 | % | 0.44 | % | 0.52 | %(7) | 0.61 | % | 1.04 | % | ||||||||||||
| Total expenses |
1.89 | % | 1.71 | % | 1.60 | % | 1.71 | %(7) | 1.76 | % | 2.06 | % | ||||||||||||
| Net investment income |
6.44 | % | 6.16 | % | 6.25 | % | 6.68 | %(7) | 6.73 | % | 7.90 | % | ||||||||||||
| Portfolio Turnover |
35 | % | 37 | % | 46 | % | 42 | %(4) | 46 | % | 46 | % | ||||||||||||
| Senior Securities: |
||||||||||||||||||||||||
| Total notes payable outstanding (in 000’s) |
$ | 803,200 | $ | 828,200 | $ | 496,200 | $ | 439,200 | $ | 418,200 | $ | 526,200 | ||||||||||||
| Asset coverage per $1,000 of notes payable(9) |
$ | 3,675 | $ | 3,677 | $ | 5,529 | $ | 6,028 | $ | 6,423 | $ | 5,213 | ||||||||||||
| Total preferred shares outstanding |
10,665 | 10,665 | 10,665 | 10,665 | 10,665 | 10,665 | ||||||||||||||||||
| Asset coverage per preferred share(10) |
$ | 68,979 | $ | 69,546 | $ | 89,917 | $ | 93,767 | $ | 98,061 | $ | 86,494 | ||||||||||||
| Involuntary liquidation preference per preferred share(11) |
$ | 25,000 | $ | 25,000 | $ | 25,000 | $ | 25,000 | $ | 25,000 | $ | 25,000 | ||||||||||||
| Approximate market value per preferred share(11) |
$ | 25,000 | $ | 25,000 | $ | 25,000 | $ | 25,000 | $ | 25,000 | $ | 25,000 | ||||||||||||
| (1) | For the eleven months ended March 31, 2012. The Fund changed its fiscal year-end from April 30 to March 31. |
| (2) | Computed using average common shares outstanding. |
| (3) | Returns are historical and are calculated by determining the percentage change in net asset value or market value with all distributions reinvested. Distributions are assumed to be reinvested at prices obtained under the Fund’s dividend reinvestment plan. |
| (4) | Not annualized. |
| (5) | Ratios do not reflect the effect of dividend payments to preferred shareholders. |
| (6) | Excludes the effect of custody fee credits, if any, of less than 0.005%. |
| (7) | Annualized. |
| (8) | Interest and fee expense relates to the notes payable, a portion of which was incurred to partially redeem the Fund’s APS (see Note 9), and the reverse repurchase agreements (see Note 10). |
| (9) | Calculated by subtracting the Fund’s total liabilities (not including the notes payable and preferred shares) from the Fund’s total assets, and dividing the result by the notes payable balance in thousands. |
| (10) | Calculated by subtracting the Fund’s total liabilities (not including the notes payable and preferred shares) from the Fund’s total assets, dividing the result by the sum of the value of the notes payable and liquidation value of the preferred shares, and multiplying the result by the liquidation value of one preferred share. Such amount equates to 276%, 278%, 360%, 375%, 392% and 346% at March 31, 2015, 2014, 2013 and 2012 and at April 30, 2011 and 2010, respectively. |
| (11) | Plus accumulated and unpaid dividends. |
| † | Ratios based on net assets applicable to common shares plus preferred shares and borowings are presented below. Ratios do not reflect the effect of dividend payments to preferred shareholders and exclude the effect of custody fee credits, if any. Ratios for periods less than one year are annualized. |
| Year Ended March 31, | Period Ended March 31, 2012 |
Year Ended April 30, | ||||||||||||||||||||||
| 2015 | 2014 | 2013 | 2011 | 2010 | ||||||||||||||||||||
| Expenses excluding interest and fees |
0.86 | % | 0.86 | % | 0.85 | % | 0.86 | % | 0.83 | % | 0.69 | % | ||||||||||||
| Interest and fee expense |
0.34 | % | 0.30 | % | 0.32 | % | 0.38 | % | 0.44 | % | 0.70 | % | ||||||||||||
| Total expenses |
1.20 | % | 1.16 | % | 1.17 | % | 1.24 | % | 1.27 | % | 1.39 | % | ||||||||||||
| Net investment income |
4.10 | % | 4.16 | % | 4.57 | % | 4.82 | % | 4.85 | % | 5.31 | % | ||||||||||||
| 44 | See Notes to Financial Statements. |
Eaton Vance
Limited Duration Income Fund
March 31, 2015
Notes to Financial Statements
1 Significant Accounting Policies
Eaton Vance Limited Duration Income Fund (the Fund) is a Massachusetts business trust registered under the Investment Company Act of 1940, as amended (the 1940 Act), as a diversified, closed-end management investment company. The Fund’s primary investment objective is to provide a high level of current income. The Fund may, as a secondary objective, also seek capital appreciation to the extent it is consistent with its primary objective.
The following is a summary of significant accounting policies of the Fund. The policies are in conformity with accounting principles generally accepted in the United States of America (U.S. GAAP). The Fund is an investment company and follows accounting and reporting guidance in the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification Topic 946.
A Investment Valuation — The following methodologies are used to determine the market value or fair value of investments.
Senior Floating-Rate Loans. Interests in senior floating-rate loans (Senior Loans) for which reliable market quotations are readily available are valued generally at the average mean of bid and ask quotations obtained from a third party pricing service. Other Senior Loans are valued at fair value by the investment adviser under procedures approved by the Trustees. In fair valuing a Senior Loan, the investment adviser utilizes one or more of the valuation techniques described in (i) through (iii) below to assess the likelihood that the borrower will make a full repayment of the loan underlying such Senior Loan relative to yields on other Senior Loans issued by companies of comparable credit quality. If the investment adviser believes that there is a reasonable likelihood of full repayment, the investment adviser will determine fair value using a matrix pricing approach that considers the yield on the Senior Loan. If the investment adviser believes there is not a reasonable likelihood of full repayment, the investment adviser will determine fair value using analyses that include, but are not limited to: (i) a comparison of the value of the borrower’s outstanding equity and debt to that of comparable public companies; (ii) a discounted cash flow analysis; or (iii) when the investment adviser believes it is likely that a borrower will be liquidated or sold, an analysis of the terms of such liquidation or sale. In certain cases, the investment adviser will use a combination of analytical methods to determine fair value, such as when only a portion of a borrower’s assets are likely to be sold. In conducting its assessment and analyses for purposes of determining fair value of a Senior Loan, the investment adviser will use its discretion and judgment in considering and appraising relevant factors. Fair value determinations are made by the portfolio managers of the Fund based on information available to such managers. The portfolio managers of other funds managed by the investment adviser that invest in Senior Loans may not possess the same information about a Senior Loan borrower as the portfolio managers of the Fund. At times, the fair value of a Senior Loan determined by the portfolio managers of other funds managed by the investment adviser that invest in Senior Loans may vary from the fair value of the same Senior Loan determined by the portfolio managers of the Fund. The fair value of each Senior Loan is periodically reviewed and approved by the investment adviser’s Valuation Committee and by the Trustees based upon procedures approved by the Trustees. Junior Loans (i.e., subordinated loans and second lien loans) are valued in the same manner as Senior Loans.
Debt Obligations. Debt obligations (including short-term obligations with a remaining maturity of more than sixty days) are generally valued on the basis of valuations provided by third party pricing services, as derived from such services’ pricing models. Inputs to the models may include, but are not limited to, reported trades, executable bid and asked prices, broker/dealer quotations, prices or yields of securities with similar characteristics, interest rates, anticipated prepayments, benchmark curves or information pertaining to the issuer, as well as industry and economic events. The pricing services may use a matrix approach, which considers information regarding securities with similar characteristics to determine the valuation for a security. Short-term obligations purchased with a remaining maturity of sixty days or less are generally valued at amortized cost, which approximates market value.
Equity Securities. Equity securities listed on a U.S. securities exchange generally are valued at the last sale or closing price on the day of valuation or, if no sales took place on such date, at the mean between the closing bid and asked prices therefore on the exchange where such securities are principally traded. Equity securities listed on the NASDAQ Global or Global Select Market generally are valued at the NASDAQ official closing price. Unlisted or listed securities for which closing sales prices or closing quotations are not available are valued at the mean between the latest available bid and asked prices or, in the case of preferred equity securities that are not listed or traded in the over-the-counter market, by a third party pricing service that uses various techniques that consider factors including, but not limited to, prices or yields of securities with similar characteristics, benchmark yields, broker/dealer quotes, quotes of underlying common stock, issuer spreads, as well as industry and economic events.
Derivatives. Options on interest rate swaps (“swaptions”) 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. Future cash flows are discounted to their present value using swap rates provided by electronic data services or by broker/dealers. Alternatively, swaptions may be valued at the valuation provided by a broker/dealer (usually the counterparty to the option), so determined using similar techniques as those employed by the pricing service. Financial futures contracts are valued at the closing settlement price established by the board of trade or exchange on which they are traded. Forward foreign currency exchange contracts are generally valued at the mean of the average bid and average asked prices that are reported by currency dealers to a third party pricing service at the valuation time. Such third party pricing service valuations are supplied for specific settlement periods and the Fund’s forward foreign currency exchange contracts are valued at an interpolated rate between the closest preceding and subsequent settlement period reported by the third party pricing service.
Foreign Securities and Currencies. Foreign securities and currencies are valued in U.S. dollars, based on foreign currency exchange rate quotations supplied by a third party pricing service. The pricing service uses a proprietary model to determine the exchange rate. Inputs to the model include reported trades and implied bid/ask spreads. The daily valuation of exchange-traded foreign securities generally is determined as of the close of trading on the principal exchange on which such securities trade. Events occurring after the close of trading on foreign exchanges may result in adjustments to the valuation of foreign securities to more accurately reflect their fair value as of the close of regular trading on the New York Stock Exchange. When valuing foreign equity securities that meet certain criteria, the Fund’s Trustees have approved the use of a fair value service that values such securities to reflect
| 45 |
Eaton Vance
Limited Duration Income Fund
March 31, 2015
Notes to Financial Statements — continued
market trading that occurs after the close of the applicable foreign markets of comparable securities or other instruments that have a strong correlation to the fair-valued securities.
Affiliated Fund. The Fund may invest in Eaton Vance Cash Reserves Fund, LLC (Cash Reserves Fund), an affiliated investment company managed by Eaton Vance Management (EVM). The value of the Fund’s investment in Cash Reserves Fund reflects the Fund’s proportionate interest in its net assets. Cash Reserves Fund generally values its investment securities utilizing the amortized cost valuation technique in accordance with Rule 2a-7 under the 1940 Act. This technique involves initially valuing a portfolio security at its cost and thereafter assuming a constant amortization to maturity of any discount or premium. If amortized cost is determined not to approximate fair value, Cash Reserves Fund may value its investment securities in the same manner as debt obligations described above.
Fair Valuation. Investments for which valuations or market quotations are not readily available or are deemed unreliable are valued at fair value using methods determined in good faith by or at the direction of the Trustees of the Fund in a manner that fairly reflects the security’s value, or the amount that the Fund might reasonably expect to receive for the security upon its current sale in the ordinary course. Each such determination is based on a consideration of relevant factors, which are likely to vary from one pricing context to another. These factors may include, but are not limited to, the type of security, the existence of any contractual restrictions on the security’s disposition, the price and extent of public trading in similar securities of the issuer or of comparable companies or entities, quotations or relevant information obtained from broker/dealers or other market participants, information obtained from the issuer, analysts, and/or the appropriate stock exchange (for exchange-traded securities), an analysis of the company’s or entity’s financial condition, and an evaluation of the forces that influence the issuer and the market(s) in which the security is purchased and sold.
B Investment Transactions — Investment transactions for financial statement purposes are accounted for on a trade date basis. Realized gains and losses on investments sold are determined on the basis of identified cost.
C Income — Interest income is recorded on the basis of interest accrued, adjusted for amortization of premium or accretion of discount. Fees associated with loan amendments are recognized immediately. Dividend income is recorded on the ex-dividend date for dividends received in cash and/or securities. Withholding taxes on foreign interest have been provided for in accordance with the Fund’s understanding of the applicable countries’ tax rules and rates.
D Federal Taxes — The Fund’s policy is to comply with the provisions of the Internal Revenue Code applicable to regulated investment companies and to distribute to shareholders each year substantially all of its net investment income, and all or substantially all of its net realized capital gains. Accordingly, no provision for federal income or excise tax is necessary.
As of March 31, 2015, 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 Statement of Operations.
F Foreign Currency Translation — Investment valuations, other assets, and liabilities initially expressed in foreign currencies are translated each business day into U.S. dollars based upon current exchange rates. Purchases and sales of foreign investment securities and income and expenses denominated in foreign currencies are translated into U.S. dollars based upon currency exchange rates in effect on the respective dates of such transactions. Recognized gains or losses on investment transactions attributable to changes in foreign currency exchange rates are recorded for financial statement purposes as net realized gains and losses on investments. That portion of unrealized gains and losses on investments that results from fluctuations in foreign currency exchange rates is not separately disclosed.
G Unfunded Loan Commitments — The Fund may enter into certain loan agreements all or a portion of which may be unfunded. The Fund is obligated to fund these commitments at the borrower’s discretion. These commitments, if any, are disclosed in the accompanying Portfolio of Investments.
H Use of Estimates — The preparation of the financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of income and expense during the reporting period. Actual results could differ from those estimates.
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.
| 46 |
Eaton Vance
Limited Duration Income Fund
March 31, 2015
Notes to Financial Statements — continued
J Financial Futures Contracts — Upon entering into a financial futures contract, the Fund is required to deposit with the broker, either in cash or securities, an amount equal to a certain percentage of the 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, and are recorded as unrealized gains or losses by the Fund. Gains (losses) are realized upon the expiration or closing of the financial futures contracts. Should market conditions change unexpectedly, the Fund may not achieve the anticipated benefits of the financial futures contracts and may realize a loss. Futures contracts have minimal counterparty risk as they are exchange traded and the clearinghouse for the exchange is substituted as the counterparty, guaranteeing counterparty performance.
K Forward Foreign Currency Exchange Contracts — The Fund may enter into forward foreign currency exchange contracts for the purchase or sale of a specific foreign currency at a fixed price on a future date. The forward foreign currency exchange contracts are adjusted by the daily exchange rate of the underlying currency and any gains or losses are recorded as unrealized until such time as the contracts have been closed. Risks may arise upon entering these contracts from the potential inability of counterparties to meet the terms of their contracts and from movements in the value of a foreign currency relative to the U.S. dollar.
L Credit Default Swaps — Swap contracts are privately negotiated agreements between the Fund and a counterparty. Certain swap contracts may be centrally cleared (“centrally cleared swaps”), whereby all payments made or received by the Fund pursuant to the contract are with a central clearing party (CCP) rather than the original counterparty. The CCP guarantees the performance of the original parties to the contract. 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 (or CCP in the case of of centrally cleared swaps) 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. For centrally cleared swaps, the daily change in valuation is recorded as a receivable or payable for variation margin and settled in cash with the CCP daily. 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. 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. Upon entering into centrally cleared swaps, the Fund is required to deposit with the CCP, either in cash or securities, an amount equal to a certain percentage of the notional amount (initial margin), which is subject to adjustment. These transactions involve certain risks, including the risk that the seller may be unable to fulfill the transaction. In the case of centrally cleared swaps, counterparty risk is minimal due to protections provided by the CCP.
M Swaptions — A purchased swaption contract grants the Fund, in return for payment of the purchase price, the right, but not the obligation, to enter into a new swap agreement or to shorten, extend, cancel or otherwise modify an existing swap agreement, at some designated future time on specified terms. When the Fund purchases a swaption, the premium paid to the writer is recorded as an investment and subsequently marked to market to reflect the current value of the swaption. A written swaption gives the Fund the obligation, if exercised by the purchaser, to enter into a swap contract according to the terms of the underlying agreement. When the Fund writes a swaption, the premium received by the Fund is recorded as a liability and subsequently marked to market to reflect the current value of the swaption. When a swaption is exercised, the cost of the swap is adjusted by the amount of the premium paid or received. When a swaption expires or an unexercised swaption is closed, a gain or loss is recognized in the amount of the premium paid or received, plus the cost to close. The Fund’s risk for purchased swaptions is limited to the premium paid. The writer of a swaption bears the risk of unfavorable changes in the preset terms of the underlying swap contract.
N When-Issued Securities and Delayed Delivery Transactions — The Fund may purchase or sell securities on a delayed delivery or when-issued basis. Payment and delivery may take place after the customary settlement period for that security. At the time the transaction is negotiated, the price of the security that will be delivered is fixed. The Fund maintains security positions for these commitments such that sufficient liquid assets will be available to make payments upon settlement. Securities purchased on a delayed delivery or when-issued basis are marked-to-market daily and begin earning interest on settlement date. Losses may arise due to changes in the market value of the underlying securities or if the counterparty does not perform under the contract.
| 47 |
Eaton Vance
Limited Duration Income Fund
March 31, 2015
Notes to Financial Statements — continued
O Reverse Repurchase Agreements — Under a reverse repurchase agreement, the Fund temporarily transfers possession of a portfolio security to another party, such as a bank or broker/dealer, in return for cash. At the same time, the Fund agrees to repurchase the security at an agreed upon time and price, which reflects an interest payment. Because the Fund retains effective control over the transferred security, the transaction is accounted for as a secured borrowing. The Fund may enter into such agreements when it is able to invest the cash acquired at a rate higher than the cost of the agreement, which would increase earned income. When the Fund enters into a reverse repurchase agreement, any fluctuations in the market value of either the securities transferred to another party or the securities in which the proceeds may be invested would affect the market value of the Fund’s assets. Because reverse repurchase agreements may be considered to be the practical equivalent of borrowing funds, they constitute a form of leverage. The Fund segregates cash or liquid assets equal to its obligation to repurchase the security during the term of the agreement. In the event the counterparty to a reverse repurchase agreement becomes insolvent, recovery of the security transferred by the Fund may be delayed or the Fund may incur a loss equal to the amount by which the value of the security transferred by the Fund exceeds the repurchase price payable by the Fund.
P 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.
Q Statement of Cash Flows — The cash amount shown in the Statement of Cash Flows of the Fund is the amount included in the Fund’s Statement of Assets and Liabilities and represents the unrestricted cash on hand at its custodian and does not include any short-term investments.
2 Auction Preferred Shares
The Fund issued Auction Preferred Shares (APS) on July 25, 2003 in a public offering. Dividends on the APS, which accrue daily, are cumulative at rates which are reset every seven days by an auction, unless a special dividend period has been set. Series of APS are identical in all respects except for the reset dates of the dividend rates. If the APS auctions do not successfully clear, the dividend payment rate over the next period for the APS holders is set at a specified maximum applicable rate until such time as the APS auctions are successful. Auctions have not cleared since February 13, 2008 and the rate since that date has been the maximum applicable rate (see Note 3). The maximum applicable rate on the APS is 150% of the “AA” Financial Composite Commercial Paper Rate on the date of the auction. The stated spread over the reference benchmark rate is determined based on the credit rating of the APS.
The number of APS issued and outstanding as of March 31, 2015 is as follows:
| APS Issued and Outstanding |
||||
| Series A |
2,133 | |||
| Series B |
2,133 | |||
| Series C |
2,133 | |||
| Series D |
2,133 | |||
| Series E |
2,133 | |||
The APS are redeemable at the option of the Fund at a redemption price equal to $25,000 per share, plus accumulated and unpaid dividends, on any dividend payment date. The APS are also subject to mandatory redemption at a redemption price equal to $25,000 per share, plus accumulated and unpaid dividends, if the Fund is in default for an extended period on its asset maintenance requirements with respect to the APS. If the dividends on the APS remain unpaid in an amount equal to two full years’ dividends, the holders of the APS as a class have the right to elect a majority of the Board of Trustees. In general, the holders of the APS and the common shares have equal voting rights of one vote per share, except that the holders of the APS, as a separate class, have the right to elect at least two members of the Board of Trustees. The APS have a liquidation preference of $25,000 per share, plus accumulated and unpaid dividends. The Fund is required to maintain certain asset coverage with respect to the APS as defined in the Fund’s By-Laws and the 1940 Act. The Fund pays an annual fee up to 0.15% of the liquidation value of the APS to broker/dealers as a service fee if the auctions are unsuccessful; otherwise, the annual fee is 0.25%.
3 Distributions to Shareholders and Income Tax Information
The Fund intends to make monthly distributions of net investment income to common shareholders, after payment of any dividends on any outstanding APS. In addition, at least annually, the Fund intends to distribute all or substantially all of its net realized capital gains (reduced by available capital loss carryforwards from prior years). Distributions to common shareholders are recorded on the ex-dividend date. Distributions to preferred shareholders are
| 48 |
Eaton Vance
Limited Duration Income Fund
March 31, 2015
Notes to Financial Statements — continued
recorded daily and are payable at the end of each dividend period. The dividend rates for the APS at March 31, 2015, and the amount of dividends accrued (including capital gains, if any) to APS shareholders, average APS dividend rates, and dividend rate ranges for the year then ended were as follows:
| APS Dividend Rates at March 31, 2015 |
Dividends Accrued to APS Shareholders |
Average APS Dividend Rates |
Dividend Rate Ranges (%) |
|||||||||||||
| Series A |
0.14 | % | $ | 70,334 | 0.13 | % | 0.06–0.23 | |||||||||
| Series B |
0.12 | 74,256 | 0.14 | 0.08–0.23 | ||||||||||||
| Series C |
0.14 | 70,459 | 0.13 | 0.08–0.23 | ||||||||||||
| Series D |
0.14 | 70,538 | 0.13 | 0.08–0.20 | ||||||||||||
| Series E |
0.14 | 72,406 | 0.14 | 0.08–0.23 | ||||||||||||
Beginning February 13, 2008 and consistent with the patterns in the broader market for auction-rate securities, the Fund’s APS auctions were unsuccessful in clearing due to an imbalance of sell orders over bids to buy the APS. As a result, the dividend rates of the APS were reset to the maximum applicable rate. The table above reflects such maximum dividend rate for each series as of March 31, 2015.
Distributions to shareholders are determined in accordance with income tax regulations, which may differ from U.S. GAAP. As required by U.S. GAAP, only distributions in excess of tax basis earnings and profits are reported in the financial statements as a return of capital. Permanent differences between book and tax accounting relating to distributions are reclassified to paid-in capital. For tax purposes, distributions from short-term capital gains are considered to be from ordinary income.
The tax character of distributions declared for the years ended March 31, 2015 and March 31, 2014 was as follows:
| Year Ended March 31, | ||||||||
| 2015 | 2014 | |||||||
| Distributions declared from: |
||||||||
| Ordinary income |
$ | 141,055,175 | $ | 138,821,740 | ||||
| Tax return of capital |
$ | 2,757,200 | $ | 4,937,999 | ||||
During the year ended March 31, 2015, accumulated net realized loss was increased by $4,378,772, accumulated distributions in excess of net investment income was decreased by $18,577,863 and paid-in capital was decreased by $14,199,091 due to expired capital loss carryforwards and differences between book and tax accounting, primarily for paydown gain (loss), premium amortization, tax straddles, defaulted bond interest, investments in partnerships, swap contracts, accretion of market discount and foreign currency gain (loss). These reclassifications had no effect on the net assets or net asset value per share of the Fund.
As of March 31, 2015, the components of distributable earnings (accumulated losses) and unrealized appreciation (depreciation) on a tax basis were as follows:
| Capital loss carryforwards and deferred capital losses |
$ | (266,939,878 | ) | |
| Net unrealized appreciation |
$ | 1,864,869 |
The differences between components of distributable earnings (accumulated losses) on a tax basis and the amounts reflected in the Statement of Assets and Liabilities are primarily due to wash sales, futures contracts, investments in partnerships, accretion of market discount and premium amortization.
At March 31, 2015, the Fund, for federal income tax purposes, had capital loss carryforwards of $244,070,985 and deferred capital losses of $22,868,893, 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. Such capital loss carryforwards will expire on March 31, 2016 ($42,273,076), March 31, 2017 ($112,795,908), March 31, 2018 ($67,565,640) and March 31, 2019 ($21,436,361) and their character is short-term. Under tax regulations, capital losses incurred in taxable years beginning after December 2010 are considered deferred capital losses and are treated as arising on the first day of the Fund’s next taxable year, retaining the same short-term or long-term character as when originally deferred. Deferred capital losses are required to be used
| 49 |
Eaton Vance
Limited Duration Income Fund
March 31, 2015
Notes to Financial Statements — continued
prior to capital loss carryforwards, which carry an expiration date. As a result of this ordering rule, capital loss carryforwards may be more likely to expire unused. Of the deferred capital losses at March 31, 2015, $22,868,893 are long-term.
Included in the amounts above are capital loss carryforwards of $40,573,851 as a result of reorganizations which occurred in prior years. Utilization of these capital loss carryforwards may be limited in accordance with certain income tax regulations.
The cost and unrealized appreciation (depreciation) of investments of the Fund at March 31, 2015, as determined on a federal income tax basis, were as follows:
| Aggregate cost |
$ | 3,036,838,104 | ||
| Gross unrealized appreciation |
$ | 70,488,417 | ||
| Gross unrealized depreciation |
(72,131,202 | ) | ||
| Net unrealized depreciation |
$ | (1,642,785 | ) | |
4 Investment Adviser Fee and Other Transactions with Affiliates
The investment adviser fee is earned by EVM as compensation for management and investment advisory services rendered to the Fund. The fee is computed at an annual rate of 0.75% of the Fund’s average weekly gross assets and is payable monthly. Gross assets as referred to herein represent net assets plus obligations attributable to investment leverage. For the year ended March 31, 2015, the Fund’s investment adviser fee amounted to $23,460,119. The Fund invests its cash in Cash Reserves Fund. EVM does not currently receive a fee for advisory services provided to Cash Reserves Fund. EVM also serves as administrator of the Fund, but receives no compensation.
Trustees and officers of the Fund who are members of EVM’s organization receive remuneration for their services to the Fund out of the investment adviser fee. Trustees of the Fund who are not affiliated with EVM may elect to defer receipt of all or a percentage of their annual fees in accordance with the terms of the Trustees Deferred Compensation Plan. For the year ended March 31, 2015, no significant amounts have been deferred. Certain officers and Trustees of the Fund are officers of EVM.
5 Purchases and Sales of Investments
Purchases and sales of investments, other than short-term obligations and including maturities, paydowns and principal repayments on Senior Loans, for the year ended March 31, 2015 were as follows:
| Purchases | Sales | |||||||
| Investments (non-U.S. Government) |
$ | 910,424,266 | $ | 918,839,044 | ||||
| U.S. Government and Agency Securities |
164,551,482 | 186,392,172 | ||||||
| $ | 1,074,975,748 | $ | 1,105,231,216 | |||||
6 Common Shares of Beneficial Interest
The Fund may issue common shares pursuant to its dividend reinvestment plan. There were no common shares issued by the Fund for the year ended March 31, 2015. Common shares issued by the Fund pursuant to its dividend reinvestment plan for the year ended March 31, 2014 were 39,354.
On November 11, 2013, the Board of Trustees of the Fund authorized the repurchase by the Fund of up to 10% of its then currently outstanding common shares in open-market transactions at a discount to net asset value. The repurchase program does not obligate the Fund to purchase a specific amount of shares. There were no repurchases of common shares by the Fund for the years ended March 31, 2015 and March 31, 2014.
7 Restricted Securities
At March 31, 2015, the Fund owned the following securities (representing 0.2% of net assets applicable to common shares) which were restricted as to public resale and not registered under the Securities Act of 1933 (excluding Rule 144A securities). The Fund has various registration rights (exercisable
| 50 |
Eaton Vance
Limited Duration Income Fund
March 31, 2015
Notes to Financial Statements — continued
under a variety of circumstances) with respect to these securities. The value of these securities is determined based on valuations provided by brokers when available, or if not available, they are valued at fair value using methods determined in good faith by or at the direction of the Trustees.
| Description | Date of Acquisition |
Shares | Cost | Value | ||||||||||||
| Common Stocks |
||||||||||||||||
| Panolam Holdings Co. |
12/30/09 | 3,677 | $ | 2,020,511 | $ | 3,228,994 | ||||||||||
| Total Restricted Securities |
$ | 2,020,511 | $ | 3,228,994 | ||||||||||||
8 Financial Instruments
The Fund may trade in financial instruments with off-balance sheet risk in the normal course of its investing activities. These financial instruments may include forward foreign currency exchange contracts, financial futures contracts, swap contracts and written swaptions 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 swaptions at March 31, 2015, is included in the Portfolio of Investments.
A summary of obligations under these financial instruments at March 31, 2015 is as follows:
| Forward Foreign Currency Exchange Contracts | ||||||||||||||||||
| Settlement Date | Deliver | In Exchange For | Counterparty | Unrealized Appreciation |
Unrealized (Depreciation) |
Net Unrealized (Depreciation) |
||||||||||||
| 5/29/15 | British Pound Sterling 5,177,731 | United States Dollar 8,016,733 |
JPMorgan Chase Bank, N.A. | $ | 339,075 | $ | — | $ | 339,075 | |||||||||
| 5/29/15 | Canadian Dollar 3,109,764 | United States Dollar 2,485,993 |
State Street Bank and Trust Company | 32,598 | — | 32,598 | ||||||||||||
| 5/29/15 | Euro 250,365 |
United States Dollar 272,522 | Citibank, N.A. | 3,114 | — | 3,114 | ||||||||||||
| 5/29/15 | Euro 20,290,456 |
United States Dollar 23,063,654 | Goldman Sachs International | 1,229,858 | — | 1,229,858 | ||||||||||||
| 5/29/15 | Euro 522,375 |
United States Dollar 553,462 | HSBC Bank USA, N.A. | — | (8,646 | ) | (8,646 | ) | ||||||||||
| 6/30/15 | British Pound Sterling 5,305,240 | United States Dollar 7,885,709 | Goldman Sachs International | 20,690 | — | 20,690 | ||||||||||||
| $ | 1,625,335 | $ | (8,646 | ) | $ | 1,616,689 | ||||||||||||
| Futures Contracts | ||||||||||||||||||||
| Expiration Month/Year |
Contracts | Position | Aggregate Cost |
Value | Net Unrealized Depreciation |
|||||||||||||||
| 6/15 | 165 U.S. 2-Year Treasury Note |
Short | $ | (36,048,313 | ) | $ | (36,160,782 | ) | $ | (112,469 | ) | |||||||||
| 6/15 | 245 U.S. 5-Year Treasury Note |
Short | (29,191,306 | ) | (29,451,680 | ) | (260,374 | ) | ||||||||||||
| 6/15 | 210 U.S. 10-Year Treasury Note |
Short | (26,792,227 | ) | (27,070,313 | ) | (278,086 | ) | ||||||||||||
| $ | (650,929 | ) | ||||||||||||||||||
| 51 |
Eaton Vance
Limited Duration Income Fund
March 31, 2015
Notes to Financial Statements — continued
There was no written swaptions activity for the year ended March 31, 2015.
At March 31, 2015, the Fund had sufficient cash and/or securities to cover commitments under these contracts.
In the normal course of pursuing its investment objective, the Fund is subject to the following risks:
Credit Risk: During the year ended March 31, 2015, the Fund entered into credit default swap contracts to manage certain investment risks and/or to enhance total return.
Foreign Exchange Risk: The Fund holds foreign currency denominated investments. The value of these investments and related receivables and payables may change due to future changes in foreign currency exchange rates. To hedge against this risk, the Fund enters into forward foreign currency exchange contracts.
Interest Rate Risk: The Fund utilizes various interest rate derivatives including futures contracts and interest rate swaptions to manage the duration of its portfolio and to hedge against fluctuations in securities prices due to interest rates.
The Fund enters into forward foreign currency exchange contracts and written swaptions 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 March 31, 2015, the fair value of derivatives with credit-related contingent features in a net liability position was $152,181. The aggregate fair value of assets pledged as collateral by the Fund for such liability was $159,978 at March 31, 2015.
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 swaptions as the Fund, not the counterparty, is obligated to perform under such derivatives. To mitigate this risk, the Fund has entered into an International Swaps and Derivatives Association, Inc. Master Agreement (“ISDA Master Agreement”) or similar agreement with substantially all its derivative counterparties. An ISDA Master Agreement is a bilateral agreement between the Fund and a counterparty that governs certain OTC derivatives and typically contains, among other things, set-off provisions in the event of a default and/or termination event as defined under the relevant ISDA Master Agreement. Under an ISDA Master Agreement, the Fund may, under certain circumstances, offset with the counterparty certain derivative financial instruments’ payables and/or receivables with collateral held and/or posted and create one single net payment. The provisions of the ISDA Master Agreement typically permit a single net payment in the event of default including the bankruptcy or insolvency of the counterparty. However, bankruptcy or insolvency laws of a particular jurisdiction may impose restrictions on or prohibitions against the right of offset in bankruptcy or insolvency. Certain ISDA Master Agreements allow counterparties to OTC derivatives to terminate derivative contracts prior to maturity in the event the Fund’s net assets decline by a stated percentage or the Fund fails to meet the terms of its ISDA Master Agreements, which would cause the counterparty to accelerate payment by the Fund of any net liability owed to it.
The collateral requirements for derivatives traded under an ISDA Master Agreement are governed by a Credit Support Annex to the ISDA Master Agreement. Collateral requirements are determined at the close of business each day and are typically based on changes in market values for each transaction under an ISDA Master Agreement and netted into one amount for such agreement. Generally, the amount of collateral due from or to a counterparty is subject to a minimum transfer threshold amount before a transfer is required, which may vary by counterparty. Collateral pledged for the benefit of the Fund and/or counterparty is held in segregated accounts by the Fund’s custodian and cannot be sold, re-pledged, assigned or otherwise used while pledged. The portion of such collateral representing cash, if any, is reflected as restricted cash and, in the case of cash pledged by a counterparty for the benefit of the Fund, a corresponding liability on the Statement of Assets and Liabilities. Securities pledged by the Fund as collateral, if any, are identified as such in the Portfolio of Investments. The carrying amount of the liability for cash collateral due to broker at March 31, 2015 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 12) at March 31, 2015.
| 52 |
Eaton Vance
Limited Duration Income Fund
March 31, 2015
Notes to Financial Statements — continued
The fair value of open derivative instruments (not considered to be hedging instruments for accounting disclosure purposes) by risk exposure at March 31, 2015 was as follows:
| Fair Value | ||||||||||
| Risk | Derivative | Asset Derivative |
Liability Derivative |
|||||||
| Foreign Exchange |
Forward foreign currency exchange contracts |
$ | 1,625,335 | (1) | $ | (8,646 | )(2) | |||
| Interest Rate |
Financial futures contracts | — | (650,929 | )(3) | ||||||
| Interest Rate |
Interest rate swaptions purchased | 143,535 | (4) | — | ||||||
| Interest Rate |
Interest rate swaptions written |
— | (143,535 | )(5) | ||||||
| Total |
$ | 1,768,870 | $ | (803,110 | ) | |||||
|
Derivatives not subject to master netting or similar agreements |
$ | — | $ | (650,929 | ) | |||||
| Total Derivatives subject to master netting or similar agreements |
$ | 1,768,870 | $ | (152,181 | ) | |||||
| (1) | Statement of Assets and Liabilities location: Receivable for open forward foreign currency exchange contracts; Net unrealized appreciation. |
| (2) | Statement of Assets and Liabilities location: Payable for open forward foreign currency exchange contracts; Net unrealized appreciation. |
| (3) | Amount represents cumulative unrealized depreciation on futures contracts in the Futures Contracts table above. Only the current day’s variation margin on open futures contracts is reported within the Statement of Assets and Liabilities as Payable for variation margin. |
| (4) | Statement of Assets and Liabilities location: Unaffiliated investments, at value. |
| (5) | Statement of Assets and Liabilities location: Written swaptions outstanding, at value. |
The Fund’s derivative assets and liabilities at fair value by risk, which are reported gross in the Statement of Assets and Liabilities, are presented in the table above. The following tables present the Fund’s derivative assets and liabilities by counterparty, net of amounts available for offset under a master netting agreement and net of the related collateral received by the Fund for assets and pledged by the Fund for liabilities as of March 31, 2015.
| Counterparty | Derivative Assets Subject to Master Netting Agreement |
Derivatives Available for Offset |
Non-cash Collateral Received(a) |
Cash Collateral Received(a) |
Net Amount of Derivative Assets(b) |
|||||||||||||||
| Citibank, N.A. | $ | 3,114 | $ | (3,114 | ) | $ | — | $ | — | $ | — | |||||||||
| Credit Suisse International | 143,535 | — | (143,535 | ) | — | — | ||||||||||||||
| Goldman Sachs International | 1,250,548 | — | (1,250,548 | ) | — | — | ||||||||||||||
| JPMorgan Chase Bank, N.A. | 339,075 | — | — | (320,000 | ) | 19,075 | ||||||||||||||
| State Street Bank and Trust Company |
32,598 | — | (8,983 | ) | — | 23,615 | ||||||||||||||
| $ | 1,768,870 | $ | (3,114 | ) | $ | (1,403,066 | ) | $ | (320,000 | ) | $ | 42,690 | ||||||||
| Counterparty | Derivative Liabilities Subject to Master Netting Agreement |
Derivatives Available for Offset |
Non-cash Collateral Pledged(a) |
Cash Collateral Pledged(a) |
Net Amount of Derivative Liabilities(c) |
|||||||||||||||
| Citibank, N.A. | $ | (143,535 | ) | $ | 3,114 | $ | — | $ | 140,421 | $ | — | |||||||||
| HSBC Bank USA, N.A. |
(8,646 | ) | — | — | — | (8,646 | ) | |||||||||||||
| $ | (152,181 | ) | $ | 3,114 | $ | — | $ | 140,421 | $ | (8,646 | ) | |||||||||
| (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. |
| 53 |
Eaton Vance
Limited Duration Income Fund
March 31, 2015
Notes to Financial Statements — continued
Information with respect to reverse repurchase agreements at March 31, 2015 is included at Note 10.
The effect of derivative instruments (not considered to be hedging instruments for accounting disclosure purposes) on the Statement of Operations by risk exposure for the year ended March 31, 2015 was as follows:
| Risk | Derivative | Realized Gain (Loss) on Derivatives Recognized in Income(1) |
Change in Unrealized Appreciation (Depreciation) on Derivatives Recognized in Income(2) |
|||||||
| Credit |
Swap contracts |
$ | 165,929 | $ | — | |||||
| Foreign Exchange |
Forward foreign currency exchange contracts | 9,308,840 | 2,044,835 | |||||||
| Interest Rate |
Financial futures contracts | (2,622,481 | ) | (826,593 | ) | |||||
| Interest Rate |
Interest rate swaptions purchased | — | (1,058,872 | ) | ||||||
| Interest Rate |
Interest rate swaptions written |
— | 1,058,872 | |||||||
| Total |
$ | 6,852,288 | $ | 1,218,242 | ||||||
| (1) | Statement of Operations location: Net realized gain (loss) – Swap contracts, Foreign currency and forward foreign currency exchange contract transactions and Financial futures contracts, respectively. |
| (2) | Statement of Operations location: Change in unrealized appreciation (depreciation) – Foreign currency and forward foreign currency exchange contracts, Financial futures contracts, Investments and Written swaptions, respectively. |
The average notional amounts of derivative contracts outstanding during the year ended March 31, 2015, which are indicative of the volume of these derivative types, were as follows:
| Futures Contracts — Short |
Forward Foreign Currency Exchange Contracts |
Interest Rate Swaptions Purchased |
Swap Contracts |
|||||||||||
| $85,214,000 | $ | 66,209,000 | $ | 52,500,000 | $ | 2,292,000 | ||||||||
9 Revolving Credit and Security Agreement
Effective March 17, 2015, the Fund renewed its Revolving Credit and Security Agreement, as amended (the Agreement) with conduit lenders and a bank to borrow up to a limit of $1 billion. The Agreement provides for a renewable 364-day backstop financing arrangement, which ensures that alternate financing will continue to be available to the Fund should the conduits be unable to place their commercial paper. Borrowings under the Agreement are secured by the assets of the Fund. Interest is charged at a rate above the conduits’ commercial paper issuance rate and is payable monthly. Under the terms of the Agreement, in effect through March 15, 2016, the Fund pays a program fee of 0.67% (0.80% prior to March 17, 2015) per annum on its outstanding borrowings to administer the facility and a liquidity fee of 0.15% (0.25% if the Fund’s outstanding borrowings are equal to or less than 50% of the borrowing limit) per annum on the borrowing limit under the Agreement. Program and liquidity fees for the year ended March 31, 2015, totaled $8,155,777 and are included in interest expense and fees on the Statement of Operations. The Fund also paid a renewal fee of $1,000,000, which is being amortized to interest expense over a period of one year through March 2016. The unamortized balance at March 31, 2015 is approximately $959,000 and is included in prepaid upfront fees on notes payable in the Statement of Assets and Liabilities. The Fund is required to maintain certain net asset levels during the term of the Agreement. At March 31, 2015, the Fund had borrowings outstanding under the Agreement of $803,200,000 at an interest rate of 0.22%. Based on the short-term nature of the borrowings under the Agreement and the variable interest rate, the carrying amount of the borrowings at March 31, 2015 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 12) at March 31, 2015. For the year ended March 31, 2015, the average borrowings under the Agreement and the average interest rate (excluding fees) were $823,090,410 and 0.21%, respectively.
| 54 |
Eaton Vance
Limited Duration Income Fund
March 31, 2015
Notes to Financial Statements — continued
10 Reverse Repurchase Agreements
Reverse repurchase agreements outstanding as of March 31, 2015 were as follows:
| Counterparty | Trade Date |
Maturity Date |
Interest Rate Paid |
Principal Amount |
Value Including Interest |
|||||||||||||||
| Bank of America |
3/2/15 | 4/2/15 | 0.35 | % | $ | 59,711,532 | $ | 59,728,948 | ||||||||||||
| KGS Alpha Capital |
3/30/15 | 4/20/15 | 0.34 | 53,511,749 | 53,512,760 | |||||||||||||||
| KGS Alpha Capital |
3/30/15 | 4/20/15 | 0.42 | 14,058,818 | 14,059,146 | |||||||||||||||
For the year ended March 31, 2015, the average borrowings under reverse repurchase agreements and the average annual interest rate were $127,951,637 and 0.31%, respectively. The reverse repurchase agreements entered into by the Fund are subject to Master Repurchase Agreements (MRA), which permit the Fund, under certain circumstances, including an event of default (such as bankruptcy or insolvency), to offset payables and/or receivables under the MRA with collateral held and/or posted to the counterparty and create one single net payment due to or from the Fund. At March 31, 2015, the market value of securities and cash pledged for the benefit of counterparties for reverse repurchase agreements, which exceeded the amount of borrowings by counterparty, was $132,508,994. Based on the short-term nature of the borrowings under the reverse repurchase agreements, the carrying value of the payable for reverse repurchase agreements approximated its fair value at March 31, 2015. If measured at fair value, borrowings under the reverse repurchase agreements would have been considered as Level 2 in the fair value hierarchy (see Note 12) at March 31, 2015.
11 Risks Associated with Foreign Investments
Investing in securities issued by companies whose principal business activities are outside the United States may involve significant risks not present in domestic investments. For example, there is generally less publicly available information about foreign companies, particularly those not subject to the disclosure and reporting requirements of the U.S. securities laws. Certain foreign issuers are generally not bound by uniform accounting, auditing, and financial reporting requirements and standards of practice comparable to those applicable to domestic issuers. Investments in foreign securities also involve the risk of possible adverse changes in investment or exchange control regulations, expropriation or confiscatory taxation, limitation on the removal of funds or other assets of the Fund, political or financial instability or diplomatic and other developments which could affect such investments. Foreign securities markets, while growing in volume and sophistication, are generally not as developed as those in the United States, and securities of some foreign issuers (particularly those located in developing countries) may be less liquid and more volatile than securities of comparable U.S. companies. In general, there is less overall governmental supervision and regulation of foreign securities markets, broker/dealers and issuers than in the United States.
12 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.
| 55 |
Eaton Vance
Limited Duration Income Fund
March 31, 2015
Notes to Financial Statements — continued
At March 31, 2015, 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 |
$ | — | $ | 1,052,100,227 | $ | 319,025 | $ | 1,052,419,252 | ||||||||
| Corporate Bonds & Notes |
— | 1,138,379,171 | 47,709 | 1,138,426,880 | ||||||||||||
| Foreign Government Agency Bonds |
— | 900,387 | — | 900,387 | ||||||||||||
| Foreign Government Securities |
— | 1,074,315 | — | 1,074,315 | ||||||||||||
| Mortgage Pass-Throughs |
— | 290,606,077 | — | 290,606,077 | ||||||||||||
| Collateralized Mortgage Obligations |
— | 214,629,853 | — | 214,629,853 | ||||||||||||
| Commercial Mortgage-Backed Securities |
— | 158,172,752 | — | 158,172,752 | ||||||||||||
| Asset-Backed Securities |
— | 58,991,827 | — | 58,991,827 | ||||||||||||
| U.S. Government Agency Obligations |
— | 23,117,862 | — | 23,117,862 | ||||||||||||
| U.S. Treasury Obligations |
— | 32,417,975 | — | 32,417,975 | ||||||||||||
| Common Stocks |
355,718 | 945,107 | 6,184,000 | 7,484,825 | ||||||||||||
| Convertible Preferred Stocks |
555,324 | 626,900 | — | 1,182,224 | ||||||||||||
| Preferred Stocks |
133,883 | 5,719,499 | — | 5,853,382 | ||||||||||||
| Closed-End Funds |
19,881,116 | — | — | 19,881,116 | ||||||||||||
| Warrants |
— | — | 17 | 17 | ||||||||||||
| Miscellaneous |
43,990 | 39,838 | 13,374 | 97,202 | ||||||||||||
| Interest Rate Swaptions Purchased |
— | 143,535 | — | 143,535 | ||||||||||||
| Short-Term Investments |
— | 29,795,838 | — | 29,795,838 | ||||||||||||
| Total Investments |
$ | 20,970,031 | $ | 3,007,661,163 | $ | 6,564,125 | $ | 3,035,195,319 | ||||||||
| Forward Foreign Currency Exchange Contracts |
$ | — | $ | 1,625,335 | $ | — | $ | 1,625,335 | ||||||||
| Total |
$ | 20,970,031 | $ | 3,009,286,498 | $ | 6,564,125 | $ | 3,036,820,654 | ||||||||
| Liability Description |
||||||||||||||||
| Interest Rate Swaptions Written |
$ | — | $ | (143,535 | ) | $ | — | $ | (143,535 | ) | ||||||
| Forward Foreign Currency Exchange Contracts |
— | (8,646 | ) | — | (8,646 | ) | ||||||||||
| Futures Contracts |
(650,929 | ) | — | — | (650,929 | ) | ||||||||||
| Total |
$ | (650,929 | ) | $ | (152,181 | ) | $ | — | $ | (803,110 | ) | |||||
| * | None of the unobservable inputs for Level 3 assets, individually or collectively, had a material impact on the Fund. |
Level 3 investments at the beginning and/or end of the period in relation to net assets were not significant and accordingly, a reconciliation of Level 3 assets for the year ended March 31, 2015 is not presented.
At March 31, 2015, there were no investments transferred between Level 1 and Level 2 during the year then ended.
| 56 |
Eaton Vance
Limited Duration Income Fund
March 31, 2015
Report of Independent Registered Public Accounting Firm
To the Trustees and Shareholders of Eaton Vance Limited Duration Income Fund:
We have audited the accompanying statement of assets and liabilities of Eaton Vance Limited Duration Income Fund (the “Fund”), including the portfolio of investments, as of March 31, 2015, and the related statements of operations and cash flows for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the periods presented. These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Our procedures included confirmation of securities and senior loans owned as of March 31, 2015, by correspondence with the custodian, brokers and selling or agent banks; where replies were not received from brokers and selling or agent banks, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Eaton Vance Limited Duration Income Fund as of March 31, 2015, the results of its operations and its cash flows for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the periods presented, in conformity with accounting principles generally accepted in the United States of America.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
May 19, 2015
| 57 |
Eaton Vance
Limited Duration Income Fund
March 31, 2015
Federal Tax Information (Unaudited)
The Form 1099-DIV you receive in February 2016 will show the tax status of all distributions paid to your account in calendar year 2015. Shareholders are advised to consult their own tax adviser with respect to the tax consequences of their investment in the Fund. As required by the Internal Revenue Code and/or regulations, shareholders must be notified regarding the status of qualified dividend income for individuals and the dividends received deduction for corporations.
Qualified Dividend Income. For the fiscal year ended March 31, 2015, the Fund designates approximately $2,344,147 or up to the maximum amount of such dividends allowable pursuant to the Internal Revenue Code, as qualified dividend income eligible for the reduced tax rate of 15%.
Dividends Received Deduction. Corporate shareholders are generally entitled to take the dividends received deduction on the portion of the Fund’s dividend distribution that qualifies under tax law. For the Fund’s fiscal 2015 ordinary income dividends, 0.43% qualifies for the corporate dividends received deduction.
| 58 |
Eaton Vance
Limited Duration Income Fund
March 31, 2015
Annual Meeting of Shareholders (Unaudited)
The Fund held its Annual Meeting of Shareholders on January 22, 2015. George J. Gorman, Ronald A. Pearlman and Helen Frame Peters were elected Class III Trustees of the Fund for a three-year term expiring in 2018. Mr. Verni had been nominated for election by the holders of the Fund’s APS. Due to the lack of quorum of APS, the Fund was unable to act on the election of Mr. Verni. Accordingly, Mr. Verni will remain in office and continue to serve as Trustee of the Fund until his successor is elected and qualified.
| Nominee for Trustee Elected by All Shareholders |
Number of Shares | |||||||
| For | Withheld | |||||||
| George J. Gorman |
101,959,016 | 2,065,734 | ||||||
| Ronald A. Pearlman |
101,604,198 | 2,420,552 | ||||||
| Helen Frame Peters |
101,740,304 | 2,284,446 | ||||||
| Nominee for Trustee Elected by APS Shareholders |
Number of Shares | |||||||
| For | Withheld | |||||||
| Ralph F. Verni |
2,150 | 243 | ||||||
| 59 |
Eaton Vance
Limited Duration Income Fund
March 31, 2015
Dividend Reinvestment Plan
The Fund offers a dividend reinvestment plan (Plan) pursuant to which shareholders may elect to have distributions automatically reinvested in common shares (Shares) of the Fund. You may elect to participate in the Plan by completing the Dividend Reinvestment Plan Application Form. If you do not participate, you will receive all distributions in cash paid by check mailed directly to you by American Stock Transfer & Trust Company, LLC (AST) as dividend paying agent. On the distribution payment date, if the NAV per Share is equal to or less than the market price per Share plus estimated brokerage commissions, then new Shares will be issued. The number of Shares shall be determined by the greater of the NAV per Share or 95% of the market price. Otherwise, Shares generally will be purchased on the open market by AST, the Plan agent (Agent). Distributions subject to income tax (if any) are taxable whether or not Shares are reinvested.
If your Shares are in the name of a brokerage firm, bank, or other nominee, you can ask the firm or nominee to participate in the Plan on your behalf. If the nominee does not offer the Plan, you will need to request that the Fund’s transfer agent re-register your Shares in your name or you will not be able to participate.
The Agent’s service fee for handling distributions will be paid by the Fund. Plan participants will be charged their pro rata share of brokerage commissions on all open-market purchases.
Plan participants may withdraw from the Plan at any time by writing to the Agent at the address noted on the following page. If you withdraw, you will receive Shares in your name for all Shares credited to your account under the Plan. If a participant elects by written notice to the Agent to sell part or all of his or her Shares and remit the proceeds, the Agent is authorized to deduct a $5.00 fee plus brokerage commissions from the proceeds.
If you wish to participate in the Plan and your Shares are held in your own name, you may complete the form on the following page and deliver it to the Agent. Any inquiries regarding the Plan can be directed to the Agent at 1-866-439-6787.
| 60 |
Eaton Vance
Limited Duration Income Fund
March 31, 2015
Application for Participation in Dividend Reinvestment Plan
This form is for shareholders who hold their common shares in their own names. If your common shares are held in the name of a brokerage firm, bank, or other nominee, you should contact your nominee to see if it will participate in the Plan on your behalf. If you wish to participate in the Plan, but your brokerage firm, bank, or nominee is unable to participate on your behalf, you should request that your common shares be re-registered in your own name which will enable your participation in the Plan.
The following authorization and appointment is given with the understanding that I may terminate it at any time by terminating my participation in the Plan as provided in the terms and conditions of the Plan.
Please print exact name on account:
Shareholder signature Date
Shareholder signature Date
Please sign exactly as your common shares are registered. All persons whose names appear on the share certificate must sign.
YOU SHOULD NOT RETURN THIS FORM IF YOU WISH TO RECEIVE YOUR DISTRIBUTIONS IN CASH. THIS IS NOT A PROXY.
This authorization form, when signed, should be mailed to the following address:
Eaton Vance Limited Duration Income Fund
c/o American Stock Transfer & Trust Company, LLC
P.O. Box 922
Wall Street Station
New York, NY 10269-0560
Number of Employees
The Fund is organized as a Massachusetts business trust and is registered under the Investment Company Act of 1940, as amended, as a closed-end management investment company and has no employees.
Number of Shareholders
As of March 31, 2015, Fund records indicate that there are 93 registered shareholders and approximately 85,053 shareholders owning the Fund shares in street name, such as through brokers, banks, and financial intermediaries.
If you are a street name shareholder and wish to receive Fund reports directly, which contain important information about the Fund, please write or call:
Eaton Vance Distributors, Inc.
Two International Place
Boston, MA 02110
1-800-262-1122
NYSE MKT symbol
The NYSE MKT symbol is EVV.
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Eaton Vance
Limited Duration Income Fund
March 31, 2015
Management and Organization
Fund Management. The Trustees of Eaton Vance Limited Duration Income Fund (the Fund) are responsible for the overall management and supervision of the Fund’s affairs. The Trustees and officers of the Fund are listed below. Except as indicated, each individual has held the office shown or other offices in the same company for the last five years. The “Noninterested Trustees” consist of those Trustees who are not “interested persons” of the Fund, as that term is defined under the 1940 Act. The business address of each Trustee and officer is Two International Place, Boston, Massachusetts 02110. As used below, “EVC” refers to Eaton Vance Corp., “EV” refers to Eaton Vance, Inc., “EVM” refers to Eaton Vance Management, “BMR” refers to Boston Management and Research and “EVD” refers to Eaton Vance Distributors, Inc. EVC and EV are the corporate parent and trustee, respectively, of EVM and BMR. EVD is a wholly-owned subsidiary of EVC. Each officer affiliated with Eaton Vance may hold a position with other Eaton Vance affiliates that is comparable to his or her position with EVM listed below. Each Trustee oversees 178 portfolios in the Eaton Vance Complex (including all master and feeder funds in a master feeder structure). Each officer serves as an officer of certain other Eaton Vance funds. Each Trustee serves for a three year term. Each officer serves until his or her successor is elected.
| Name and Year of Birth | Position(s) with the Fund |
Term Expiring; Trustee |
Principal Occupation(s) and Directorships During Past Five Years and Other Relevant Experience | |||
| Interested Trustee | ||||||
| Thomas E. Faust Jr. 1958 |
Class II Trustee | Until 2017. Trustee since 2007. |
Chairman, Chief Executive Officer and President of EVC, Director and President of EV, Chief Executive Officer and President of EVM and BMR, and Director of EVD. Trustee and/or officer of 178 registered investment companies. Mr. Faust is an interested person because of his positions with EVM, BMR, EVD, EVC and EV, which are affiliates of the Fund. Directorships in the Last Five Years.(2) Director of EVC and Hexavest Inc. | |||
| Noninterested Trustees |
||||||
| Scott E. Eston 1956 |
Class I Trustee | Until 2016. Trustee since 2011. |
Private investor. Formerly held various positions at Grantham, Mayo, Van Otterloo and Co., L.L.C. (investment management firm) (1997-2009), including Chief Operating Officer (2002-2009), Chief Financial Officer (1997-2009) and Chairman of the Executive Committee (2002-2008); President and Principal Executive Officer, GMO Trust (open-end registered investment company) (2006-2009). Former Partner, Coopers and Lybrand L.L.P. (now PricewaterhouseCoopers) (public accounting firm) (1987-1997). Directorships in the Last Five Years.(2) None. | |||
| Cynthia E. Frost(3) 1961 |
Class I Trustee | Until 2016. Trustee since 2014. |
Private investor. Formerly, Chief Investment Officer of Brown University (university endowment) (2000-2012); Portfolio Strategist for Duke Management Company (university endowment manager) (1995-2000); Managing Director, Cambridge Associates (1989-1995); Consultant, Bain and Company (1987-1989); Senior Equity Analyst, BA Investment Management Company (1983-1985). Directorships in the Last Five Years. None. | |||
| George J. Gorman(3) 1952 |
Class III Trustee | Until 2018. Trustee since 2014. |
Principal at George J. Gorman LLC (consulting firm). Formerly, Senior Partner at Ernst & Young LLP (public accounting firm) (1974-2009). Directorships in the Last Five Years. Formerly, Trustee of the Bank of America Money Market Funds Series Trust (2011-2014) and of the Ashmore Funds (2010-2014). | |||
| Valerie A. Mosley 1960 |
Class I Trustee |
Until 2016. Trustee since 2014. |
Chairwoman and Chief Executive Officer of Valmo Ventures (a consulting and investment firm). Former Partner and Senior Vice President, Portfolio Manager and Investment Strategist at Wellington Management Company, LLP (investment management firm) (1992-2012). Former Chief Investment Officer, PG Corbin Asset Management (1990-1992). Formerly worked in institutional corporate bond sales at Kidder Peabody (1986-1990). Directorships in the Last Five Years.(2) Director of Dynex Capital, Inc. (mortgage REIT) (since 2013). | |||
| William H. Park(A) 1947 |
Class II Trustee | Until 2017(5). Trustee since 2003. |
Private investor. Formerly, Consultant (2012-2014). Formerly, Chief Financial Officer, Aveon Group L.P. (investment management firm) (2010-2011). Formerly, Vice Chairman, Commercial Industrial Finance Corp. (specialty finance company) (2006-2010). Formerly, President and Chief Executive Officer, Prizm Capital Management, LLC (investment management firm) (2002-2005). Formerly, Executive Vice President and Chief Financial Officer, United Asset Management Corporation (investment management firm) (1982-2001). Formerly, Senior Manager, Price Waterhouse (now PricewaterhouseCoopers) (an independent registered public accounting firm) (1972-1981). Directorships in the Last Five Years.(2) None. | |||
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Eaton Vance
Limited Duration Income Fund
March 31, 2015
Management and Organization — continued
| Name and Year of Birth | Position(s) with the Fund |
Term Expiring; Trustee |
Principal Occupation(s) and Directorships During Past Five Years and Other Relevant Experience | |||
| Noninterested Trustees (continued) |
||||||
| Ronald A. Pearlman 1940 |
Class III Trustee | Until 2018. Trustee since 2003. |
Lawyer and consultant. Formerly, Professor of Law, Georgetown University Law Center (1999-2014). Formerly, Partner, Covington & Burling LLP (law firm) (1991-2000). Formerly, Chief of Staff, Joint Committee on Taxation, U.S. Congress (1988-1990). Formerly, Deputy Assistant Secretary (Tax Policy) and Assistant Secretary (Tax Policy), U.S. Department of the Treasury (1983-1985). Directorships in the Last Five Years.(2) None. | |||
| Helen Frame Peters 1948 |
Class III Trustee | Until 2018. Trustee since 2008. |
Professor of Finance, Carroll School of Management, Boston College. Formerly, Dean, Carroll School of Management, Boston College (2000-2002). Formerly, Chief Investment Officer, Fixed Income, Scudder Kemper Investments (investment management firm) (1998-1999). Formerly, Chief Investment Officer, Equity and Fixed Income, Colonial Management Associates (investment management firm) (1991-1998). Directorships in the Last Five Years.(2) Formerly, Director of BJ’s Wholesale Club, Inc. (wholesale club retailer) (2004-2011). Formerly, Trustee of SPDR Index Shares Funds and SPDR Series Trust (exchange traded funds) (2000-2009). Formerly, Director of Federal Home Loan Bank of Boston (a bank for banks) (2007-2009). | |||
| Susan J. Sutherland(4) 1957 |
Class III Trustee | Until 2018. Trustee since 2015. |
Private investor. Formerly, Associate, Counsel and Partner at Skadden, Arps, Slate, Meagher & Flom LLP (law firm) (1982-2013). Directorships in the Last Five Years. Director of Montpelier Re Holdings Ltd. (global provider of customized insurance and reinsurance products) (since 2013). | |||
| Harriett Tee Taggart 1948 |
Class II Trustee | Until 2017. Trustee since 2011. |
Managing Director, Taggart Associates (a professional practice firm). Formerly, Partner and Senior Vice President, Wellington Management Company, LLP (investment management firm) (1983-2006). Directorships in the Last Five Years.(2) Director of Albemarle Corporation (chemicals manufacturer) (since 2007) and The Hanover Group (specialty property and casualty insurance company) (since 2009). Formerly, Director of Lubrizol Corporation (specialty chemicals) (2007-2011). | |||
| Ralph F. Verni(A) 1943 |
Chairman of the Board and Class III Trustee |
Until 2018(6). Trustee since 2005 and Chairman since 2007. |
Consultant and private investor. Formerly, Chief Investment Officer (1982-1992), Chief Financial Officer (1988-1990) and Director (1982-1992), New England Life. Formerly, Chairperson, New England Mutual Funds (1982-1992). Formerly, President and Chief Executive Officer, State Street Management & Research (1992-2000). Formerly, Chairperson, State Street Research Mutual Funds (1992-2000). Formerly, Director, W.P. Carey, LLC (1998-2004) and First Pioneer Farm Credit Corp. (2002-2006). Directorships in the Last Five Years.(2) None. | |||
| Principal Officers who are not Trustees |
||||||
| Name and Year of Birth | Position(s) with the Fund |
Officer Since(7) |
Principal Occupation(s) During Past Five Years | |||
| Payson F. Swaffield 1956 |
President | Since 2003 | Vice President and Chief Income Investment Officer of EVM and BMR. | |||
| Maureen A. Gemma 1960 |
Vice President, Secretary and Chief Legal Officer | Since 2005 | Vice President of EVM and BMR. | |||
| James F. Kirchner 1967 |
Treasurer | Since 2007 | Vice President of EVM and BMR. | |||
| Paul M. O’Neil 1953 |
Chief Compliance Officer | Since 2004 | Vice President of EVM and BMR. | |||
| (1) | Year first appointed to serve as Trustee for a fund in the Eaton Vance family of funds. Each Trustee has served continuously since appointment unless indicated otherwise. Each Trustee holds office until the annual meeting for the year in which his or her term expires and until his or her successor is elected and qualified, subject to a prior death, resignation, retirement, disqualification or removal. |
| (2) | During their respective tenures, the Trustees (except for Mmes. Frost and Sutherland and Mr. Gorman) also served as Board members of one or more of the following funds (which operated in the years noted): eUnitsTM 2 Year U.S. Market Participation Trust: Upside to Cap / Buffered Downside (launched in 2012 and |
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Eaton Vance
Limited Duration Income Fund
March 31, 2015
Management and Organization — continued
| terminated in 2014); eUnitsTM 2 Year U.S. Market Participation Trust II: Upside to Cap / Buffered Downside (launched in 2012 and terminated in 2014); Eaton Vance Credit Opportunities Fund (launched in 2005 and terminated in 2010); Eaton Vance Insured Florida Plus Municipal Bond Fund (launched in 2002 and terminated in 2009); and Eaton Vance National Municipal Income Trust (launched in 1998 and terminated in 2009). However, Ms. Mosley did not serve as a Board member of eUnitsTM 2 Year U.S. Market Participation Trust: Upside to Cap / Buffered Downside (launched in 2012 and terminated in 2014). |
| (3) | Ms. Frost and Mr. Gorman began serving as Trustees effective May 29, 2014. |
| (4) | Ms. Sutherland began serving as a Trustee effective May 1, 2015. |
| (5) | Due to a lack of quorum of APS, the Fund was unable to act on election of Mr. Park. Accordingly, Mr. Park will remain in office and continue to serve as Trustee of the Fund. |
| (6) | Due to a lack of quorum of APS, the Fund was unable to act on election of Mr. Verni. Accordingly, Mr. Verni will remain in office and continue to serve as Trustee of the Fund. |
| (7) | Year first elected to serve as officer of a fund in the Eaton Vance family of funds when the officer has served continuously. Otherwise, year of most recent election as an officer of a fund in the Eaton Vance family of funds. Titles may have changed since initial election. |
| (A) | APS Trustee. |
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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. The Fund’s Board of Trustees has approved a share repurchase program authorizing the Fund to repurchase up to 10% of its outstanding common shares as of the approved date in open-market transactions at a discount to net asset value. The repurchase program does not obligate the Fund to purchase a specific amount of shares. The Fund’s repurchase activity, including the number of shares purchased, average price and average discount to net asset value, is disclosed in the Fund’s annual and semi-annual reports to shareholders.
Additional Notice to Shareholders. If applicable, a Fund may also redeem or purchase its outstanding preferred shares in order to maintain compliance with regulatory requirements, borrowing or rating agency requirements or for other purposes as it deems appropriate or necessary.
Closed-End Fund Information. Eaton Vance closed-end funds make fund performance data and certain information about portfolio characteristics available on the Eaton Vance website shortly after the end of each month. Other information about the funds is available on the website. The funds’ net asset value per share is readily accessible on the Eaton Vance website. Portfolio holdings for the most recent month-end are also posted to the website approximately 30 days following the end of the month. This information is available at www.eatonvance.com on the fund information pages under “Individual Investors — Closed-End Funds”.
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| 1856 3.31.15 |
Item 2. Code of Ethics
The registrant has adopted a code of ethics applicable to its Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer. The registrant undertakes to provide a copy of such code of ethics to any person upon request, without charge, by calling 1-800-262-1122.
Item 3. Audit Committee Financial Expert
The registrant’s Board has designated William H. Park, an independent trustee, as its audit committee financial expert. Mr. Park is a certified public accountant who is a private investor. Previously, he served as a consultant, as the Chief Financial Officer of Aveon Group, L.P. (an investment management firm), as the Vice Chairman of Commercial Industrial Finance Corp. (specialty finance company), as President and Chief Executive Officer of Prizm Capital Management, LLC (investment management firm), as Executive Vice President and Chief Financial Officer of United Asset Management Corporation (an institutional investment management firm) and as a Senior Manager at Price Waterhouse (now PricewaterhouseCoopers) (an independent registered public accounting firm).
Item 4. Principal Accountant Fees and Services
(a) –(d)
The following table presents the aggregate fees billed to the registrant for the registrant’s fiscal years ended March 31, 2014 and March 31, 2015 by the registrant’s principal accountant, Deloitte & Touche LLP (“D&T”), for professional services rendered for the audit of the registrant’s annual financial statements and fees billed for other services rendered by D&T during such periods.
| Fiscal Years Ended |
3/31/14 | 3/31/15 | ||||||
| Audit Fees |
$ | 103,940 | $ | 120,940 | ||||
| Audit-Related Fees(1) |
$ | 0 | $ | 18,000 | ||||
| Tax Fees(2) |
$ | 19,730 | $ | 20,880 | ||||
| All Other Fees(3) |
$ | 0 | $ | 0 | ||||
|
|
|
|
|
|||||
| Total |
$ | 123,670 | $ | 159,820 | ||||
|
|
|
|
|
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| (1) | Audit-related fees consist of the aggregate fees billed for assurance and related services that are reasonably related to the performance of the audit of financial statements and are not reported under the category of audit fees and specifically include fees for the performance of certain agreed-upon procedures relating to the registrant’s revolving credit and security agreement |
| (2) | Tax fees consist of the aggregate fees billed for professional services rendered by the principal accountant relating to tax compliance, tax advice, and tax planning and specifically include fees for tax return preparation and other related tax compliance/planning matters. |
| (3) | All other fees consist of the aggregate fees billed for products and services provided by the principal accountant other than audit, audit-related, and tax services. |
(e)(1) The registrant’s audit committee has adopted policies and procedures relating to the pre-approval of services provided by the registrant’s principal accountant (the “Pre-Approval Policies”). The Pre-Approval Policies establish a framework intended to assist the audit committee in the proper discharge of its pre-approval responsibilities. As a general matter, the Pre-Approval Policies (i) specify certain types of audit, audit-related, tax, and other services determined to be pre-approved by the audit committee; and (ii) delineate specific procedures governing the mechanics of the pre-approval process, including the approval and monitoring of audit and non-audit service fees. Unless a service is specifically pre-approved under the Pre-Approval Policies, it must be separately pre-approved by the audit committee.
The Pre-Approval Policies and the types of audit and non-audit services pre-approved therein must be reviewed and ratified by the registrant’s audit committee at least annually. The registrant’s audit committee maintains full responsibility for the appointment, compensation, and oversight of the work of the registrant’s principal accountant.
(e)(2) No services described in paragraphs (b)-(d) above were approved by the registrant’s audit committee pursuant to the “de minimis exception” set forth in Rule 2-01(c)(7)(i)(C) of Regulation S-X.
(f) Not applicable.
(g) The following table presents (i) the aggregate non-audit fees (i.e., fees for audit-related, tax, and other services) billed to the registrant by D&T for the registrant’s fiscal years ended March 31, 2014 and March 31, 2015; and (ii) the aggregate non-audit fees (i.e., fees for audit-related, tax, and other services) billed to the Eaton Vance organization by D&T for the same time periods.
| Fiscal Years Ended |
3/31/14 | 3/31/15 | ||||||
| Registrant |
$ | 19,730 | $ | 38,880 | ||||
| Eaton Vance(1) |
$ | 394,075 | $ | 76,000 | ||||
| (1) | The Investment adviser to the registrant, as well as any of its affiliates that provide ongoing services to the registrant, are subsidiaries of Eaton Vance Corp. |
(h) The registrant’s audit committee has considered whether the provision by the registrant’s principal accountant of non-audit services to the registrant’s investment adviser and any entity controlling, controlled by, or under common control with the adviser that provides ongoing services to the registrant that were not pre-approved pursuant to Rule 2-01(c)(7)(ii) of Regulation S-X is compatible with maintaining the principal accountant’s independence.
Item 5. Audit Committee of Listed Registrants
The registrant has a separately-designated standing audit committee established in accordance with Section 3(a)(58)(A) of the Securities and Exchange Act of 1934, as amended. William H. Park (Chair), Scott E. Eston, Cynthia E. Frost, Ronald A. Pearlman and Ralph F. Verni are the members of the registrant’s audit committee.
Item 6. Schedule of Investments
Please see schedule of investments contained in the Report to Stockholders included under Item 1 of this Form N-CSR.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies
The Board of Trustees of the Trust has adopted a proxy voting policy and procedure (the “Fund Policy”), pursuant to which the Trustees have delegated proxy voting responsibility to the Fund’s investment adviser and adopted the investment adviser’s proxy voting policies and procedures (the “Policies”) which are described below. The Trustees will review the Fund’s proxy voting records from time to time and will annually consider approving the Policies for the upcoming year. In the event that a conflict of interest arises between the Fund’s shareholders and the investment adviser, the administrator, or any of their affiliates or any affiliate of the Fund, the investment adviser will generally refrain from voting the proxies related to the companies giving rise to such conflict until it consults with the Board’s Special Committee except as contemplated under the Fund Policy. The Board’s Special Committee will instruct the investment adviser on the appropriate course of action.
The Policies are designed to promote accountability of a company’s management to its shareholders and to align the interests of management with those shareholders. An independent proxy voting service (“Agent”), currently Institutional Shareholder Services, Inc., has been retained to assist in the voting of proxies through the provision of vote analysis, implementation and recordkeeping and disclosure services. The investment adviser will generally vote proxies through the Agent. The Agent is required to vote all proxies and/or refer them back to the investment adviser pursuant to the Policies. It is generally the policy of the investment adviser to vote in accordance with the recommendation of the Agent. The Agent shall refer to the investment adviser proxies relating to mergers and restructurings,
and the disposition of assets, termination, liquidation and mergers contained in mutual fund proxies. The investment adviser will normally vote against anti-takeover measures and other proposals designed to limit the ability of shareholders to act on possible transactions, except in the case of closed-end management investment companies. The investment adviser generally supports management on social and environmental proposals. The investment adviser may abstain from voting from time to time where it determines that the costs associated with voting a proxy outweighs the benefits derived from exercising the right to vote or the economic effect on shareholders interests or the value of the portfolio holding is indeterminable or insignificant.
In addition, the investment adviser will monitor situations that may result in a conflict of interest between the Fund’s shareholders and the investment adviser, the administrator, or any of their affiliates or any affiliate of the Fund by maintaining a list of significant existing and prospective corporate clients. The investment adviser’s personnel responsible for reviewing and voting proxies on behalf of the Fund will report any proxy received or expected to be received from a company included on that list to the personnel of the investment adviser identified in the Policies. If such personnel expects to instruct the Agent to vote such proxies in a manner inconsistent with the guidelines of the Policies or the recommendation of the Agent, the personnel will consult with members of senior management of the investment adviser to determine if a material conflict of interests exists. If it is determined that a material conflict does exist, the investment adviser will seek instruction on how to vote from the Special Committee.
Information on how the Fund voted proxies relating to portfolio securities during the most recent 12 month period ended June 30 is available (1) without charge, upon request, by calling 1-800-262-1122, and (2) on the Securities and Exchange Commission’s website at http://www.sec.gov.
Item 8. Portfolio Managers of Closed-End Management Investment Companies
Catherine C. McDermott, Scott H. Page, Eric A. Stein, Payson F. Swaffield, Andrew Szczurowski and Michael W. Weilheimer and other Eaton Vance Management (“EVM” or “Eaton Vance”) investment professionals comprise the investment team responsible for the overall management of the Fund’s investments as well as allocations of the Fund’s assets between common and preferred stocks. Ms. McDermott and Messrs. Page, Stein, Swaffield, Szczurowski and Weilheimer are the portfolio managers responsible for the day-to-day management of specific segments of the Fund’s investment portfolio.
Ms. McDermott has been an EVM portfolio manager since 2008. Mr. Page has been an EVM portfolio manager since 1996 and is Co-Director of EVM’s Bank Loan Investment Group. Mr. Stein has been an EVM portfolio manager since 2009 and is Co-Director of EVM’s Global Income Group. Mr. Swaffield has been an EVM portfolio manager since 1996 and is Chief Income Investment Officer. Mr. Szczurowski has been an analyst since 2008 and an EVM portfolio manager since 2011. Mr. Weilheimer has been an EVM portfolio manager since 1996 and is Director of EVM’s High Yield Investments Group. Ms. McDermott and Messrs. Page, Stein, Swaffield, Szczurowski and Weilheimer are Vice Presidents of EVM. This information is provided as of the date of filing of this report.
The following table shows, as of the Fund’s most recent fiscal year end, the number of accounts each portfolio manager managed in each of the listed categories and the total assets (in millions of dollars) in the accounts managed within each category. The table also shows the number of accounts with respect to which the advisory fee is based on the performance of the account, if any, and the total assets (in millions of dollars) in those accounts.
| Number of All Accounts |
Total Assets of All Accounts |
Number of Accounts Paying a Performance Fee |
Total Assets of Accounts Paying a Performance Fee |
|||||||||
| Catherine C. McDermott |
||||||||||||
| Registered Investment Companies |
2 | $ | 3,469.6 | 0 | $ | 0 | ||||||
| Other Pooled Investment Vehicles |
0 | $ | 0 | 0 | $ | 0 | ||||||
| Other Accounts |
0 | $ | 0 | 0 | $ | 0 | ||||||
| Scott H. Page |
||||||||||||
| Registered Investment Companies |
14 | $ | 28,297.0 | (3) | 0 | $ | 0 | |||||
| Other Pooled Investment Vehicles |
11 | $ | 10,489.1 | (4) | 1 | $ | 127.3 | |||||
| Other Accounts |
7 | $ | 2,723.3 | 0 | $ | 0 | ||||||
| Eric A. Stein(1) |
||||||||||||
| Registered Investment Companies |
15 | $ | 20,204.2 | 0 | $ | 0 | ||||||
| Other Pooled Investment Vehicles |
3 | $ | 431.6 | 1 | $ | 20.4 | ||||||
| Other Accounts |
0 | $ | 0 | 0 | $ | 0 | ||||||
| Payson F. Swaffield |
||||||||||||
| Registered Investment Companies |
2 | $ | 3,469.6 | 0 | $ | 0 | ||||||
| Other Pooled Investment Vehicles |
0 | $ | 0 | 0 | $ | 0 | ||||||
| Other Accounts |
0 | $ | 0 | 0 | $ | 0 | ||||||
| Andrew Szczurowski(1) |
||||||||||||
| Registered Investment Companies |
6 | $ | 7,043.4 | 0 | $ | 0 | ||||||
| Other Pooled Investment Vehicles |
1 | $ | 377.5 | 0 | $ | 0 | ||||||
| Other Accounts |
0 | $ | 0 | 0 | $ | 0 | ||||||
| Michael W. Weilheimer(2) |
||||||||||||
| Registered Investment Companies |
5 | $ | 9,289.1 | 0 | $ | 0 | ||||||
| Other Pooled Investment Vehicles |
4 | $ | 552.7 | 0 | $ | 0 | ||||||
| Other Accounts |
7 | $ | 445.3 | 0 | $ | 0 |
| (1) | This portfolio manager serves as portfolio manager of one or more registered investment companies and pooled investment vehicles that invest or may invest in one or more underlying registered investment companies in the Eaton Vance family of funds. The underlying investment companies may be managed by this portfolio manager or another portfolio manager. |
| (2) | This portfolio manager serves as portfolio manager of one or more registered investment companies that invests or may invest in one or more underlying registered investment companies in the Eaton Vance family of funds or other pooled investment vehicles sponsored by Eaton Vance. The underlying investment companies may be managed by this portfolio manager or another portfolio manager. |
| (3) | This portfolio manager provides investment advice with respect to only a portion of the total assets of certain of these accounts. Only the assets allocated to this portfolio manager as of the Fund’s most recent fiscal year end are reflected in the table. |
| (4) | Certain of these “Other Pooled Investment Vehicles” invest a substantial portion of their assets either in a registered investment company or in a separate pooled investment vehicle managed by this portfolio manager or another Eaton Vance portfolio manager. |
The following table shows the dollar range of Fund shares beneficially owned by each portfolio manager as of the Fund’s most recent fiscal year end.
| Portfolio Manager |
Dollar Range of Equity Securities Owned in the Fund | |
| Catherine C. McDermott |
None | |
| Scott H. Page |
$100,001 - $500,000 | |
| Eric A. Stein |
$1 - $10,000 | |
| Payson F. Swaffield |
$100,001 - $500,000 | |
| Andrew Szczurowski |
None | |
| Michael W. Weilheimer |
None |
Potential for Conflicts of Interest. It is possible that conflicts of interest may arise in connection with a portfolio manager’s management of the Fund’s investments on the one hand and investments of other accounts for which a portfolio manager is responsible on the other. For example, a portfolio manager may have conflicts of interest in allocating management time, resources and investment opportunities among the Fund and other accounts he or she advises. In addition, due to differences in the investment strategies or restrictions between the Fund and the other accounts, a portfolio manager may take action with respect to another account that differs from the action taken with respect to the Fund. In some cases, another account managed by a portfolio manager may compensate the investment adviser based on the performance of the securities held by that account. The existence of such a performance based fee may create additional conflicts of interest for a portfolio manager in the allocation of management time, resources and investment opportunities. Whenever conflicts of interest arise, a portfolio manager will endeavor to exercise his or her discretion in a manner that he or she believes is equitable to all
interested persons. EVM has adopted several policies and procedures designed to address these potential conflicts including a code of ethics and policies which govern the investment adviser’s trading practices, including among other things the aggregation and allocation of trades among clients, brokerage allocation, cross trades and best execution.
Compensation Structure for EVM
Compensation of EVM’s portfolio managers and other investment professionals has three primary components: (1) a base salary, (2) an annual cash bonus, and (3) annual stock-based compensation consisting of options to purchase shares of EVC’s nonvoting common stock and/or restricted shares of EVC’s nonvoting common stock. EVM’s investment professionals also receive certain retirement, insurance and other benefits that are broadly available to EVM’s employees. Compensation of EVM’s investment professionals is reviewed primarily on an annual basis. Cash bonuses, stock-based compensation awards, and adjustments in base salary are typically paid or put into effect at or shortly after the October 31st fiscal year end of EVC.
Method to Determine Compensation. EVM compensates its portfolio managers based primarily on the scale and complexity of their portfolio responsibilities and the total return performance of managed funds and accounts versus the benchmark(s) stated in the prospectus, as well as an appropriate peer group (as described below). In addition to rankings within peer groups of funds on the basis of absolute performance, consideration may also be given to relative risk-adjusted performance. Risk-adjusted performance measures include, but are not limited to, the Sharpe Ratio. Performance is normally based on periods ending on the September 30th preceding fiscal year end. Fund performance is normally evaluated primarily versus peer groups of funds as determined by Lipper Inc. and/or Morningstar, Inc. When a fund’s peer group as determined by Lipper or Morningstar is deemed by EVM’s management not to provide a fair comparison, performance may instead be evaluated primarily against a custom peer group or market index. In evaluating the performance of a fund and its manager, primary emphasis is normally placed on three-year performance, with secondary consideration of performance over longer and shorter periods. For funds that are tax-managed or otherwise have an objective of after-tax returns, performance is measured net of taxes. For other funds, performance is evaluated on a pre-tax basis. For funds with an investment objective other than total return (such as current income), consideration will also be given to the fund’s success in achieving its objective. For managers responsible for multiple funds and accounts, investment performance is evaluated on an aggregate basis, based on averages or weighted averages among managed funds and accounts. Funds and accounts that have performance-based advisory fees are not accorded disproportionate weightings in measuring aggregate portfolio manager performance.
The compensation of portfolio managers with other job responsibilities (such as heading an investment group or providing analytical support to other portfolios) will include consideration of the scope of such responsibilities and the managers’ performance in meeting them.
EVM seeks to compensate portfolio managers commensurate with their responsibilities and performance, and competitive with other firms within the investment management industry. EVM participates in investment-industry compensation surveys and utilizes survey data as a factor in determining salary, bonus and stock-based compensation levels for portfolio managers and other investment professionals. Salaries, bonuses and stock-based compensation are also influenced by the operating performance of EVM and its parent company. The overall annual cash bonus pool is based on a substantially fixed percentage of pre-bonus operating income. While the salaries of EVM’s portfolio managers are comparatively fixed, cash bonuses and stock-based compensation may fluctuate significantly from year to year, based on changes in manager performance and other factors as described herein. For a high performing portfolio manager, cash bonuses and stock-based compensation may represent a substantial portion of total compensation.
Item 9. Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers
No such purchases this period.
Item 10. Submission of Matters to a Vote of Security Holders
No material changes.
Item 11. Controls and Procedures
(a) It is the conclusion of the registrant’s principal executive officer and principal financial officer that the effectiveness of the registrant’s current disclosure controls and procedures (such disclosure controls and procedures having been evaluated within 90 days of the date of this filing) provide reasonable assurance that the information required to be disclosed by the registrant has been recorded, processed, summarized and reported within the time period specified in the Commission’s rules and forms and that the information required to be disclosed by the registrant has been accumulated and communicated to the registrant’s principal executive officer and principal financial officer in order to allow timely decisions regarding required disclosure.
(b) There have been no changes in the registrant’s internal controls over financial reporting during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.
Item 12. Exhibits
| (a)(1) | Registrant’s Code of Ethics – Not applicable (please see Item 2). | |
| (a)(2)(i) | Treasurer’s Section 302 certification. | |
| (a)(2)(ii) | President’s Section 302 certification. | |
| (b) | Combined Section 906 certification. | |
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Eaton Vance Limited Duration Income Fund
| By: | /s/ Payson F. Swaffield | |
| Payson F. Swaffield | ||
| President | ||
| Date: | May 18, 2015 | |
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: | May 18, 2015 | |
| By: | /s/ Payson F. Swaffield | |
| Payson F. Swaffield | ||
| President | ||
| Date: | May 18, 2015 | |