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
(Registrants Telephone Number)
March 31
Date of Fiscal Year End
September 30, 2013
Date of Reporting Period
Item 1. Reports to Stockholders
Eaton Vance
Limited Duration Income
Fund (EVV)
Semiannual Report
September 30, 2013
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 and is not subject to the CFTC regulation. Because of its management of other strategies, the Funds adviser is registered with the CFTC as a commodity pool operator.
Fund shares are not insured by the FDIC and are not deposits or other obligations of, or guaranteed by, any depository institution. Shares are subject to investment risks, including possible loss of principal invested.
Semiannual Report September 30, 2013
Eaton Vance
Limited Duration Income Fund
Table of Contents
Performance |
2 | |||
Fund Profile |
2 | |||
Endnotes and Additional Disclosures |
3 | |||
Financial Statements |
4 | |||
Board of Trustees Contract Approval |
54 | |||
Officers and Trustees |
57 | |||
Important Notices |
58 |
Eaton Vance
Limited Duration Income Fund
September 30, 2013
Performance1
Portfolio Managers Scott H. Page, CFA, Payson F. Swaffield, CFA, Michael W. Weilheimer, CFA, Catherine McDermott, Andrew Szczurowski, CFA, and Eric A. Stein, CFA
% Average Annual Total Returns | Inception Date | Six Months | One Year | Five Years | Ten Years | |||||||||||||||
Fund at NAV |
05/30/2003 | 0.73 | % | 5.33 | % | 11.36 | % | 7.51 | % | |||||||||||
Fund at Market Price |
| 4.94 | 0.67 | 17.11 | 7.37 | |||||||||||||||
% Premium/Discount to NAV2 | ||||||||||||||||||||
4.28 | % | |||||||||||||||||||
Distributions3 | ||||||||||||||||||||
Total Distributions per share for the period |
$ | 0.610 | ||||||||||||||||||
Distribution Rate at NAV |
7.47 | % | ||||||||||||||||||
Distribution Rate at Market Price |
7.80 | % | ||||||||||||||||||
% Total Leverage4 | ||||||||||||||||||||
Auction Preferred Shares (APS) |
8.96 | % | ||||||||||||||||||
Borrowings |
26.49 |
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 www.eatonvance.com.
2 |
Eaton Vance
Limited Duration Income Fund
September 30, 2013
Endnotes and Additional Disclosures
3 |
Eaton Vance
Limited Duration Income Fund
September 30, 2013
Portfolio of Investments (Unaudited)
4 | See Notes to Financial Statements. |
Eaton Vance
Limited Duration Income Fund
September 30, 2013
Portfolio of Investments (Unaudited) continued
5 | See Notes to Financial Statements. |
Eaton Vance
Limited Duration Income Fund
September 30, 2013
Portfolio of Investments (Unaudited) continued
6 | See Notes to Financial Statements. |
Eaton Vance
Limited Duration Income Fund
September 30, 2013
Portfolio of Investments (Unaudited) continued
7 | See Notes to Financial Statements. |
Eaton Vance
Limited Duration Income Fund
September 30, 2013
Portfolio of Investments (Unaudited) continued
8 | See Notes to Financial Statements. |
Eaton Vance
Limited Duration Income Fund
September 30, 2013
Portfolio of Investments (Unaudited) continued
9 | See Notes to Financial Statements. |
Eaton Vance
Limited Duration Income Fund
September 30, 2013
Portfolio of Investments (Unaudited) continued
10 | See Notes to Financial Statements. |
Eaton Vance
Limited Duration Income Fund
September 30, 2013
Portfolio of Investments (Unaudited) continued
11 | See Notes to Financial Statements. |
Eaton Vance
Limited Duration Income Fund
September 30, 2013
Portfolio of Investments (Unaudited) continued
12 | See Notes to Financial Statements. |
Eaton Vance
Limited Duration Income Fund
September 30, 2013
Portfolio of Investments (Unaudited) continued
13 | See Notes to Financial Statements. |
Eaton Vance
Limited Duration Income Fund
September 30, 2013
Portfolio of Investments (Unaudited) continued
14 | See Notes to Financial Statements. |
Eaton Vance
Limited Duration Income Fund
September 30, 2013
Portfolio of Investments (Unaudited) continued
15 | See Notes to Financial Statements. |
Eaton Vance
Limited Duration Income Fund
September 30, 2013
Portfolio of Investments (Unaudited) continued
16 | See Notes to Financial Statements. |
Eaton Vance
Limited Duration Income Fund
September 30, 2013
Portfolio of Investments (Unaudited) continued
17 | See Notes to Financial Statements. |
Eaton Vance
Limited Duration Income Fund
September 30, 2013
Portfolio of Investments (Unaudited) continued
18 | See Notes to Financial Statements. |
Eaton Vance
Limited Duration Income Fund
September 30, 2013
Portfolio of Investments (Unaudited) continued
19 | See Notes to Financial Statements. |
Eaton Vance
Limited Duration Income Fund
September 30, 2013
Portfolio of Investments (Unaudited) continued
20 | See Notes to Financial Statements. |
Eaton Vance
Limited Duration Income Fund
September 30, 2013
Portfolio of Investments (Unaudited) continued
21 | See Notes to Financial Statements. |
Eaton Vance
Limited Duration Income Fund
September 30, 2013
Portfolio of Investments (Unaudited) continued
22 | See Notes to Financial Statements. |
Eaton Vance
Limited Duration Income Fund
September 30, 2013
Portfolio of Investments (Unaudited) continued
23 | See Notes to Financial Statements. |
Eaton Vance
Limited Duration Income Fund
September 30, 2013
Portfolio of Investments (Unaudited) continued
24 | See Notes to Financial Statements. |
Eaton Vance
Limited Duration Income Fund
September 30, 2013
Portfolio of Investments (Unaudited) continued
25 | See Notes to Financial Statements. |
Eaton Vance
Limited Duration Income Fund
September 30, 2013
Portfolio of Investments (Unaudited) continued
26 | See Notes to Financial Statements. |
Eaton Vance
Limited Duration Income Fund
September 30, 2013
Portfolio of Investments (Unaudited) continued
27 | See Notes to Financial Statements. |
Eaton Vance
Limited Duration Income Fund
September 30, 2013
Portfolio of Investments (Unaudited) continued
28 | See Notes to Financial Statements. |
Eaton Vance
Limited Duration Income Fund
September 30, 2013
Portfolio of Investments (Unaudited) continued
29 | See Notes to Financial Statements. |
Eaton Vance
Limited Duration Income Fund
September 30, 2013
Portfolio of Investments (Unaudited) continued
30 | See Notes to Financial Statements. |
Eaton Vance
Limited Duration Income Fund
September 30, 2013
Portfolio of Investments (Unaudited) continued
31 | See Notes to Financial Statements. |
Eaton Vance
Limited Duration Income Fund
September 30, 2013
Portfolio of Investments (Unaudited) continued
32 | See Notes to Financial Statements. |
Eaton Vance
Limited Duration Income Fund
September 30, 2013
Portfolio of Investments (Unaudited) continued
33 | See Notes to Financial Statements. |
Eaton Vance
Limited Duration Income Fund
September 30, 2013
Portfolio of Investments (Unaudited) continued
34 | See Notes to Financial Statements. |
Eaton Vance
Limited Duration Income Fund
September 30, 2013
Portfolio of Investments (Unaudited) continued
35 | See Notes to Financial Statements. |
Eaton Vance
Limited Duration Income Fund
September 30, 2013
Portfolio of Investments (Unaudited) continued
36 | See Notes to Financial Statements. |
Eaton Vance
Limited Duration Income Fund
September 30, 2013
Statement of Assets and Liabilities (Unaudited)
Assets | September 30, 2013 | |||
Unaffiliated investments, at value (identified cost, $2,940,574,486) |
$ | 3,000,787,846 | ||
Affiliated investment, at value (identified cost, $38,600,809) |
38,600,809 | |||
Cash |
9,624,924 | |||
Restricted cash* |
3,617,000 | |||
Foreign currency, at value (identified cost, $2,938,443) |
2,937,045 | |||
Interest receivable |
29,700,573 | |||
Interest receivable from affiliated investment |
2,029 | |||
Receivable for investments sold |
3,633,307 | |||
Tax reclaims receivable |
204 | |||
Prepaid expenses |
41,269 | |||
Total assets |
$ | 3,088,945,006 | ||
Liabilities | ||||
Notes payable |
$ | 680,200,000 | ||
Written swaptions outstanding, at value (premiums received, $2,031,750) |
2,226,578 | |||
Cash collateral due to broker |
97,000 | |||
Payable for reverse repurchase agreements, including accrued interest of $7,494 |
108,199,494 | |||
Payable for investments purchased |
105,893,361 | |||
Payable for variation margin on open financial futures contracts |
29,257 | |||
Payable for open forward foreign currency exchange contracts |
1,563,933 | |||
Payable to affiliates: |
||||
Investment adviser fee |
1,797,482 | |||
Accrued expenses |
1,018,751 | |||
Total liabilities |
$ | 901,025,856 | ||
Auction preferred shares (10,665 shares outstanding) at liquidation value plus cumulative unpaid dividends |
$ | 266,627,519 | ||
Net assets applicable to common shares |
$ | 1,921,291,631 | ||
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 |
2,200,090,717 | |||
Accumulated net realized loss |
(322,884,183 | ) | ||
Accumulated distributions in excess of net investment income |
(14,461,905 | ) | ||
Net unrealized appreciation |
57,371,532 | |||
Net assets applicable to common shares |
$ | 1,921,291,631 | ||
Net Asset Value Per Common Share | ||||
($1,921,291,631 ÷ 117,547,018 common shares issued and outstanding) |
$ | 16.34 |
* | Represents restricted cash on deposit at the custodian for open derivative contracts. |
37 | See Notes to Financial Statements. |
Eaton Vance
Limited Duration Income Fund
September 30, 2013
Statement of Operations (Unaudited)
Investment Income | Six Months Ended September 30, 2013 |
|||
Interest and other income |
$ | 72,758,553 | ||
Dividends |
412,899 | |||
Interest allocated from affiliated investment |
14,410 | |||
Expenses allocated from affiliated investment |
(2,006 | ) | ||
Total investment income |
$ | 73,183,856 | ||
Expenses | ||||
Investment adviser fee |
$ | 10,743,405 | ||
Trustees fees and expenses |
34,000 | |||
Custodian fee |
387,459 | |||
Transfer and dividend disbursing agent fees |
9,709 | |||
Legal and accounting services |
151,151 | |||
Printing and postage |
265,514 | |||
Interest expense and fees |
3,627,647 | |||
Preferred shares service fee |
196,769 | |||
Miscellaneous |
117,377 | |||
Total expenses |
$ | 15,533,031 | ||
Deduct |
||||
Reduction of custodian fee |
$ | 237 | ||
Total expense reductions |
$ | 237 | ||
Net expenses |
$ | 15,532,794 | ||
Net investment income |
$ | 57,651,062 | ||
Realized and Unrealized Gain (Loss) | ||||
Net realized gain (loss) |
||||
Investment transactions |
$ | 6,615,814 | ||
Investment transactions allocated from affiliated investment |
173 | |||
Financial futures contracts |
2,086,333 | |||
Foreign currency and forward foreign currency exchange contract transactions |
(887,215 | ) | ||
Net realized gain |
$ | 7,815,105 | ||
Change in unrealized appreciation (depreciation) |
||||
Investments |
$ | (49,939,911 | ) | |
Written swaptions |
(194,828 | ) | ||
Financial futures contracts |
(791,680 | ) | ||
Foreign currency and forward foreign currency exchange contracts |
(2,846,395 | ) | ||
Net change in unrealized appreciation (depreciation) |
$ | (53,772,814 | ) | |
Net realized and unrealized loss |
$ | (45,957,709 | ) | |
Distributions to preferred shareholders |
||||
From net investment income |
$ | (162,206 | ) | |
Net increase in net assets from operations |
$ | 11,531,147 |
38 | See Notes to Financial Statements. |
Eaton Vance
Limited Duration Income Fund
September 30, 2013
Statements of Changes in Net Assets
Increase (Decrease) in Net Assets | Six Months Ended September 30, 2013 |
Year Ended March 31, 2013 |
||||||
From operations |
||||||||
Net investment income |
$ | 57,651,062 | $ | 122,176,628 | ||||
Net realized gain from investment transactions, financial futures contracts, and foreign currency and forward foreign currency exchange contract transactions |
7,815,105 | 39,746,247 | ||||||
Net change in unrealized appreciation (depreciation) from investments, written swaptions, financial futures contracts, foreign currency and forward foreign currency exchange contracts |
(53,772,814 | ) | 21,071,202 | |||||
Distributions to preferred shareholders |
||||||||
From net investment income |
(162,206 | ) | (487,368 | ) | ||||
Net increase in net assets from operations |
$ | 11,531,147 | $ | 182,506,709 | ||||
Distributions to common shareholders |
||||||||
From net investment income |
$ | (71,720,893 | ) | $ | (142,076,310 | ) | ||
Tax return of capital |
| (3,846,735 | ) | |||||
Total distributions to common shareholders |
$ | (71,720,893 | ) | $ | (145,923,045 | ) | ||
Capital share transactions |
||||||||
Reinvestment of distributions to common shareholders |
$ | 663,888 | $ | 2,729,513 | ||||
Net increase in net assets from capital share transactions |
$ | 663,888 | $ | 2,729,513 | ||||
Net increase (decrease) in net assets |
$ | (59,525,858 | ) | $ | 39,313,177 | |||
Net Assets Applicable to Common Shares | ||||||||
At beginning of period |
$ | 1,980,817,489 | $ | 1,941,504,312 | ||||
At end of period |
$ | 1,921,291,631 | $ | 1,980,817,489 | ||||
Accumulated distributions in excess of net investment income included in net assets applicable to common shares |
||||||||
At end of period |
$ | (14,461,905 | ) | $ | (229,868 | ) |
39 | See Notes to Financial Statements. |
Eaton Vance
Limited Duration Income Fund
September 30, 2013
Statement of Cash Flows (Unaudited)
Cash Flows From Operating Activities | Six Months Ended September 30, 2013 |
|||
Net increase in net assets from operations |
$ | 11,531,147 | ||
Distributions to preferred shareholders |
162,206 | |||
Net increase in net assets from operations excluding distributions to preferred shareholders |
$ | 11,693,353 | ||
Adjustments to reconcile net increase in net assets from operations to net cash used in operating activities: |
||||
Investments purchased |
(710,323,238 | ) | ||
Investments sold and principal repayments |
552,720,725 | |||
Increase in short-term investments, net |
(20,383,882 | ) | ||
Net amortization/accretion of premium (discount) |
9,799,572 | |||
Increase in restricted cash |
(3,617,000 | ) | ||
Increase in interest receivable |
(2,410,610 | ) | ||
Increase in interest receivable from affiliated investment |
(256 | ) | ||
Decrease in receivable for variation margin on open financial futures contracts |
51,676 | |||
Decrease in receivable for open forward foreign currency exchange contracts |
1,267,317 | |||
Increase in tax reclaims receivable |
(204 | ) | ||
Increase in prepaid expenses |
(225 | ) | ||
Decrease in other assets |
173,655 | |||
Increase in written swaptions outstanding |
2,226,578 | |||
Increase in payable for variation margin on open financial futures contracts |
29,257 | |||
Increase in payable for open forward foreign currency exchange contracts |
1,514,504 | |||
Increase in cash collateral due to broker |
97,000 | |||
Increase in payable to affiliate for investment adviser fee |
6,032 | |||
Increase in accrued expenses |
38,302 | |||
Decrease in accrued interest on reverse repurchase agreements |
(4,979 | ) | ||
Decrease in unfunded loan commitments |
(1,052,778 | ) | ||
Net change in unrealized (appreciation) depreciation from investments |
49,939,911 | |||
Net realized gain from investments |
(6,615,814 | ) | ||
Net cash used in operating activities |
$ | (114,851,104 | ) | |
Cash Flows From Financing Activities | ||||
Distributions paid to common shareholders, net of reinvestments |
$ | (71,057,005 | ) | |
Cash distributions to preferred shareholders |
(163,766 | ) | ||
Proceeds from notes payable |
279,000,000 | |||
Repayment of notes payable |
(95,000,000 | ) | ||
Proceeds from reverse repurchase agreements, net |
1,281,000 | |||
Net cash provided by financing activities |
$ | 114,060,229 | ||
Net decrease in cash* |
$ | (790,875 | ) | |
Cash at beginning of period(1) |
$ | 13,352,844 | ||
Cash at end of period(1) |
$ | 12,561,969 | ||
Supplemental disclosure of cash flow information: | ||||
Noncash financing activities not included herein consist of: |
||||
Reinvestment of dividends and distributions |
$ | 663,888 | ||
Cash paid for interest and fees on borrowings and reverse repurchase agreements |
$ | 3,536,339 |
(1) | Balance includes foreign currency, at value. |
* | Includes net change in unrealized appreciation (depreciation) on foreign currency of $(209). |
40 | See Notes to Financial Statements. |
Eaton Vance
Limited Duration Income Fund
September 30, 2013
Financial Highlights
Selected data for a common share outstanding during the periods stated
Six Months Ended September 30, 2013 (Unaudited) |
Year Ended March 31, 2013 |
Period Ended March 31, 2012(1) |
Year Ended April 30, | |||||||||||||||||||||||||
2011 | 2010 | 2009 | 2008 | |||||||||||||||||||||||||
Net asset value Beginning of period (Common shares) |
$ | 16.860 | $ | 16.550 | $ | 17.060 | $ | 16.630 | $ | 12.960 | $ | 16.330 | $ | 18.320 | ||||||||||||||
Income (Loss) From Operations | ||||||||||||||||||||||||||||
Net investment income(2) |
$ | 0.490 | $ | 1.041 | $ | 1.007 | $ | 1.118 | $ | 1.213 | $ | 1.348 | $ | 1.700 | ||||||||||||||
Net realized and unrealized gain (loss) |
(0.399 | ) | 0.516 | (0.368 | ) | 0.697 | 3.809 | (3.290 | ) | (1.817 | ) | |||||||||||||||||
Distributions to preferred shareholders from net investment income(2) |
(0.001 | ) | (0.004 | ) | (0.003 | ) | (0.007 | ) | (0.007 | ) | (0.058 | ) | (0.360 | ) | ||||||||||||||
Total income (loss) from operations |
$ | 0.090 | $ | 1.553 | $ | 0.636 | $ | 1.808 | $ | 5.015 | $ | (2.000 | ) | $ | (0.477 | ) | ||||||||||||
Less Distributions to Common Shareholders | ||||||||||||||||||||||||||||
From net investment income |
$ | (0.610 | ) | $ | (1.210 | ) | $ | (1.103 | ) | $ | (1.319 | ) | $ | (1.345 | ) | $ | (1.347 | ) | $ | (1.513 | ) | |||||||
Tax return of capital |
| (0.033 | ) | (0.043 | ) | (0.059 | ) | | (0.023 | ) | | |||||||||||||||||
Total distributions to common shareholders |
$ | (0.610 | ) | $ | (1.243 | ) | $ | (1.146 | ) | $ | (1.378 | ) | $ | (1.345 | ) | $ | (1.370 | ) | $ | (1.513 | ) | |||||||
Net asset value End of period (Common shares) |
$ | 16.340 | $ | 16.860 | $ | 16.550 | $ | 17.060 | $ | 16.630 | $ | 12.960 | $ | 16.330 | ||||||||||||||
Market value End of period (Common shares) |
$ | 15.640 | $ | 17.100 | $ | 16.050 | $ | 16.080 | $ | 16.600 | $ | 11.580 | $ | 15.300 | ||||||||||||||
Total Investment Return on Net Asset Value(3) |
0.73 | %(4) | 9.80 | % | 4.44 | %(4) | 11.68 | % | 40.73 | % | (10.71 | )% | (1.99 | )% | ||||||||||||||
Total Investment Return on Market Value(3) |
(4.94 | )%(4) | 14.83 | % | 7.40 | %(4) | 5.52 | % | 57.21 | % | (14.85 | )% | (10.04 | )% |
41 | See Notes to Financial Statements. |
Eaton Vance
Limited Duration Income Fund
September 30, 2013
Financial Highlights continued
Selected data for a common share outstanding during the periods stated
Six Months Ended September 30, 2013 (Unaudited) |
Year Ended March 31, 2013 |
Period Ended March 31, 2012(1) |
Year Ended April 30, | |||||||||||||||||||||||||
Ratios/Supplemental Data | 2011 | 2010 | 2009 | 2008 | ||||||||||||||||||||||||
Net assets applicable to common shares, end of period (000s omitted) |
$ | 1,921,292 | $ | 1,980,817 | $ | 1,941,504 | $ | 2,001,368 | $ | 1,950,179 | $ | 1,456,963 | $ | 1,836,391 | ||||||||||||||
Ratios (as a percentage of average daily net assets applicable to common shares):(5) |
||||||||||||||||||||||||||||
Expenses excluding interest and fees(6) |
1.22 | %(7) | 1.16 | % | 1.19 | %(7) | 1.15 | % | 1.02 | % | 1.09 | % | 1.07 | % | ||||||||||||||
Interest and fee expense(8) |
0.37 | %(7) | 0.44 | % | 0.52 | %(7) | 0.61 | % | 1.04 | % | 1.37 | % | | |||||||||||||||
Total expenses |
1.59 | %(7) | 1.60 | % | 1.71 | %(7) | 1.76 | % | 2.06 | % | 2.46 | % | 1.07 | % | ||||||||||||||
Net investment income |
5.91 | %(7) | 6.25 | % | 6.68 | %(7) | 6.73 | % | 7.90 | % | 9.91 | % | 9.89 | % | ||||||||||||||
Portfolio Turnover |
19 | %(4) | 46 | % | 42 | %(4) | 46 | % | 46 | % | 27 | % | 39 | % | ||||||||||||||
The ratios reported above are based on net assets applicable solely to common shares. The ratios based on net assets, including amounts related to preferred shares and borrowings under the credit agreement, are as follows: |
| |||||||||||||||||||||||||||
Ratios (as a percentage of average daily net assets applicable to common shares plus preferred shares and borrowings):(5) |
|
|||||||||||||||||||||||||||
Expenses excluding interest and fees(6) |
0.86 | %(7) | 0.85 | % | 0.86 | %(7) | 0.83 | % | 0.69 | % | 0.71 | % | 0.76 | % | ||||||||||||||
Interest and fee expense(8) |
0.26 | %(7) | 0.32 | % | 0.38 | %(7) | 0.44 | % | 0.70 | % | 0.90 | % | | |||||||||||||||
Total expenses |
1.12 | %(7) | 1.17 | % | 1.24 | %(7) | 1.27 | % | 1.39 | % | 1.61 | % | 0.76 | % | ||||||||||||||
Net investment income |
4.17 | %(7) | 4.57 | % | 4.82 | %(7) | 4.85 | % | 5.31 | % | 6.48 | % | 7.00 | % | ||||||||||||||
Senior Securities: |
||||||||||||||||||||||||||||
Total notes payable outstanding (in 000s) |
$ | 680,200 | $ | 496,200 | $ | 439,200 | $ | 418,200 | $ | 526,200 | $ | 619,200 | $ | | ||||||||||||||
Asset coverage per $1,000 of notes payable(9) |
$ | 4,217 | $ | 5,529 | $ | 6,028 | $ | 6,423 | $ | 5,213 | $ | 3,784 | $ | | ||||||||||||||
Total preferred shares outstanding |
10,665 | 10,665 | 10,665 | 10,665 | 10,665 | 10,665 | 32,000 | |||||||||||||||||||||
Asset coverage per preferred share |
$ | 75,730 | (10) | $ | 89,917 | (10) | $ | 93,767 | (10) | $ | 98,061 | (10) | $ | 86,494 | (10) | $ | 66,119 | (10) | $ | 82,395 | (11) | |||||||
Involuntary liquidation preference per preferred share(12) |
$ | 25,000 | $ | 25,000 | $ | 25,000 | $ | 25,000 | $ | 25,000 | $ | 25,000 | $ | 25,000 | ||||||||||||||
Approximate market value per preferred share(12) |
$ | 25,000 | $ | 25,000 | $ | 25,000 | $ | 25,000 | $ | 25,000 | $ | 25,000 | $ | 25,000 |
(1) | For the eleven months ended March 31, 2012. The Fund changed its fiscal year-end from April 30 to March 31. |
(2) | Computed using average 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 Funds 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 incurred primarily to partially redeem the Funds APS (see Note 10), the reverse repurchase agreements (see Note 11), and/or other borrowings. |
(9) | Calculated by subtracting the Funds total liabilities (not including the notes payable and preferred shares) from the Funds total assets, and dividing the result by the notes payable balance in thousands. |
(10) | Calculated by subtracting the Funds total liabilities (not including the notes payables and preferred shares) from the Funds 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 303%, 360%, 375%, 392%, 346% and 264% at September 30, 2013, March 31, 2013 and 2012 and at April 30, 2011, 2010 and 2009, respectively. |
(11) | Calculated by subtracting the Funds total liabilities (not including the preferred shares) from the Funds total assets, and dividing the result by the number of preferred shares outstanding. |
(12) | Plus accumulated and unpaid dividends. |
42 | See Notes to Financial Statements. |
Eaton Vance
Limited Duration Income Fund
September 30, 2013
Notes to Financial Statements (Unaudited)
1 Significant Accounting Policies
Eaton Vance Limited Duration Income Fund (the Fund) is a Massachusetts business trust registered under the Investment Company Act of 1940, as amended (the 1940 Act), as a diversified, closed-end management investment company. The Funds 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.
A Investment Valuation The following methodologies are used to determine the market value or fair value of investments.
Senior Floating-Rate Notes. 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 borrowers 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 borrowers 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 advisers 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 and excluding most seasoned, fixed-rate 30-year mortgage-backed securities as noted below) are generally valued on the basis of valuations provided by third party pricing services, as derived from such services pricing models. Inputs to the models may include, but are not limited to, reported trades, executable bid and asked prices, broker/dealer quotations, prices or yields of securities with similar characteristics, benchmark curves or information pertaining to the issuer, as well as industry and economic events. The pricing services may use a matrix approach, which considers information regarding securities with similar characteristics to determine the valuation for a security. Most seasoned, fixed-rate 30-year mortgage-backed securities are valued through the use of the investment advisers matrix pricing system, which takes into account bond prices, yield differentials, anticipated prepayments and interest rates provided by dealers. 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 (including common shares of closed-end investment companies) listed on a U.S. securities exchange generally are valued at the last sale or closing price on the day of valuation or, if no sales took place on such date, at the mean between the closing bid and asked prices therefore on the exchange where such securities are principally traded. Equity securities listed on the NASDAQ Global or Global Select Market generally are valued at the NASDAQ official closing price. Unlisted or listed securities for which closing sales prices or closing quotations are not available are valued at the mean between the latest available bid and asked prices 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 will use 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 Funds 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
43 |
Eaton Vance
Limited Duration Income Fund
September 30, 2013
Notes to Financial Statements (Unaudited) continued
foreign equity securities that meet certain criteria, the Funds Trustees have approved the use of a fair value service that values such securities to reflect 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 Funds investment in Cash Reserves Fund reflects the Funds 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 based on available market quotations provided by a third party pricing service.
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 securitys 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 securitys 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 companys or entitys 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.
D Federal Taxes The Funds 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.
At March 31, 2013, the Fund, for federal income tax purposes, had a capital loss carryforward of $291,841,849 and deferred capital losses of $24,032,288, 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 carryforward will expire on March 31, 2014 ($28,843,098), March 31, 2015 ($18,927,766), 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). The deferred capital losses are treated as arising on the first day of the Funds next taxable year and are treated as realized prior the utilization of the capital loss carryforward.
As of September 30, 2013, the Fund had no uncertain tax positions that would require financial statement recognition, de-recognition, or disclosure. The Fund files a U.S. federal income tax return annually after its fiscal year-end which is subject to examination by the Internal Revenue Service for a period of three years from the date of filing.
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 Funds 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 credit agreements all or a portion of which may be unfunded. The Fund is obligated to fund these commitments at the borrowers discretion. These commitments are disclosed in the accompanying Portfolio of Investments. At September 30, 2013, the Fund had sufficient cash and/or securities to cover these commitments.
H Use of Estimates The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of income and expense during the reporting period. Actual results could differ from those estimates.
44 |
Eaton Vance
Limited Duration Income Fund
September 30, 2013
Notes to Financial Statements (Unaudited) continued
I Indemnifications Under the Funds 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 Funds 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 Funds maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred.
J Financial 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 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 Funds risk for purchased swaptions is limited to the premium paid. The writer of a swaption bears the risk of unfavorable changes in the present terms of the underlying swap contract.
M 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 Funds 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.
N 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 pre-payments) 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 to changes in interest rates.
O Statement of Cash Flows The cash amount shown in the Statement of Cash Flows of the Fund is the amount included in the Funds Statement of Assets and Liabilities and represents the unrestricted cash on hand at its custodian and does not include any short-term investments.
P Interim Financial Statements The interim financial statements relating to September 30, 2013 and for the six months then ended have not been audited by an independent registered public accounting firm, but in the opinion of the Funds management, reflect all adjustments, consisting only of normal recurring adjustments, necessary for the fair presentation of the financial statements.
45 |
Eaton Vance
Limited Duration Income Fund
September 30, 2013
Notes to Financial Statements (Unaudited) continued
2 Auction Preferred Shares
The Fund issued Auction Preferred Shares (APS) on July 25, 2003 in a public offering. The underwriting discount and other offering costs incurred in connection with the offering were recorded as a reduction of the paid-in capital of the common shares. 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 September 30, 2013 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 Funds 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
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 recorded daily and are payable at the end of each dividend period. The dividend rates for the APS at September 30, 2013, and the amount of dividends accrued (including capital gains, if any) to APS shareholders, average APS dividend rates (annualized), and dividend rate ranges for the six months then ended were as follows:
APS Dividend Rates at September 30, 2013 |
Dividends Accrued to APS Shareholders |
Average APS Dividend Rates |
Dividend Rate Ranges (%) |
|||||||||||||
Series A |
0.08 | % | $ | 32,198 | 0.12 | % | 0.080.21 | |||||||||
Series B |
0.15 | 33,138 | 0.12 | 0.080.23 | ||||||||||||
Series C |
0.09 | 34,193 | 0.13 | 0.080.23 | ||||||||||||
Series D |
0.06 | 29,509 | 0.11 | 0.060.17 | ||||||||||||
Series E |
0.09 | 33,168 | 0.12 | 0.050.23 |
Beginning February 13, 2008 and consistent with the patterns in the broader market for auction-rate securities, the Funds APS auctions were unsuccessful in clearing due to an imbalance of sell orders over bids to buy the APS. As a result, the dividend rates of the APS were reset to the maximum applicable rates. The table above reflects such maximum dividend rate for each series as of September 30, 2013.
46 |
Eaton Vance
Limited Duration Income Fund
September 30, 2013
Notes to Financial Statements (Unaudited) continued
The Fund distinguishes between distributions on a tax basis and a financial reporting basis. Accounting principles generally accepted in the United States of America require that only distributions in excess of tax basis earnings and profits be reported in the financial statements as a return of capital. Permanent differences between book and tax accounting relating to distributions are reclassified to paid-in capital. For tax purposes, distributions from short-term capital gains are considered to be from ordinary income.
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 Funds 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 six months ended September 30, 2013, the Funds investment adviser fee amounted to $10,743,405. 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 EVMs organization receive remuneration for their services to the Fund out of the investment adviser fee. Trustees of the Fund who are not affiliated with EVM may elect to defer receipt of all or a percentage of their annual fees in accordance with the terms of the Trustees Deferred Compensation Plan. For the six months ended September 30, 2013, no significant amounts have been deferred. Certain officers and Trustees of the Fund are officers of EVM.
5 Purchases and Sales of Investments
Purchases and sales of investments, other than short-term obligations and including maturities, paydowns and principal repayments on Senior Loans, for the six months ended September 30, 2013 were as follows:
Purchases | Sales | |||||||
Investments (non-U.S. Government) |
$ | 657,121,567 | $ | 476,995,963 | ||||
U.S. Government and Agency Securities |
85,102,136 | 66,496,925 | ||||||
$ | 742,223,703 | $ | 543,492,888 |
6 Common Shares of Beneficial Interest
The Fund may issue common shares pursuant to its dividend reinvestment plan. Transactions in common shares were as follows:
Six Months Ended September 30, 2013 |
Year Ended March 31, 2013 |
|||||||
Issued to shareholders electing to receive payments of distributions in Fund shares |
39,354 | 163,511 | ||||||
Net increase |
39,354 | 163,511 |
7 Federal Income Tax Basis of Investments
The cost and unrealized appreciation (depreciation) of investments of the Fund at September 30, 2013, as determined on a federal income tax basis, were as follows:
Aggregate cost |
$ | 2,995,617,001 | ||
Gross unrealized appreciation |
$ | 83,078,897 | ||
Gross unrealized depreciation |
(39,307,243 | ) | ||
Net unrealized appreciation |
$ | 43,771,654 |
47 |
Eaton Vance
Limited Duration Income Fund
September 30, 2013
Notes to Financial Statements (Unaudited) continued
8 Restricted Securities
At September 30, 2013, the Fund owned the following securities (representing 0.3% 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 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 |
Principal Amount/ Shares |
Cost | Value | ||||||||||||
Convertible Bonds |
||||||||||||||||
Mood Media Corp. |
7/30/12 | 75,000 | $ | 0 | $ | 41,550 | ||||||||||
Total Convertible Bonds |
$ | 0 | $ | 41,550 | ||||||||||||
Common Stocks |
||||||||||||||||
Environmental Systems Products Holdings, Inc. |
10/25/07 | 2,484 | $ | 0 | $ | 189,430 | ||||||||||
Panolam Holdings Co. |
12/30/09 | 3,677 | 2,020,511 | 4,826,761 | ||||||||||||
Total Common Stocks |
$ | 2,020,511 | $ | 5,016,191 | ||||||||||||
Preferred Stocks |
||||||||||||||||
Environmental Systems Products Holdings, Inc., Series A |
10/25/07 | 569 | $ | 9,958 | $ | 35,750 | ||||||||||
Total Preferred Stocks |
$ | 9,958 | $ | 35,750 | ||||||||||||
Total Restricted Securities |
$ | 2,030,469 | $ | 5,093,491 |
9 Financial Instruments
The Fund may trade in financial instruments with off-balance sheet risk in the normal course of its investing activities. These financial instruments may include forward foreign currency exchange contracts, financial futures contracts and 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 September 30, 2013 is included in the Portfolio of Investments.
A summary of obligations under these financial instruments at September 30, 2013 is as follows:
Forward Foreign Currency Exchange Contracts | ||||||||||
Sales |
||||||||||
Settlement Date | Deliver | In Exchange For | Counterparty | Net Depreciation |
||||||
10/31/13 | British Pound Sterling 4,496,040 | United States Dollar 6,890,923 |
HSBC Bank USA | $ | (386,061 | ) | ||||
10/31/13 | Canadian Dollar 898,803 |
United States Dollar 870,942 |
Citibank NA | (1,001 | ) | |||||
10/31/13 | Euro 2,859,729 |
United States Dollar 3,789,570 |
Deutsche Bank | (79,492 | ) | |||||
11/29/13 | British Pound Sterling 6,944,270 | United States Dollar 10,771,604 |
Goldman Sachs International | (465,581 | ) |
48 |
Eaton Vance
Limited Duration Income Fund
September 30, 2013
Notes to Financial Statements (Unaudited) continued
Forward Foreign Currency Exchange Contracts (continued) | ||||||||||
Sales |
||||||||||
Settlement Date | Deliver | In Exchange For | Counterparty | Net Depreciation |
||||||
11/29/13 | Euro 28,860,316 |
United States Dollar 38,477,728 |
Citibank NA | $ | (571,973 | ) | ||||
12/31/13 | British Pound Sterling 3,060,938 |
United States Dollar 4,899,950 |
Citibank NA | (52,196 | ) | |||||
12/31/13 | Euro 1,667,937 |
United States Dollar 2,249,363 |
HSBC Bank USA | (7,629 | ) | |||||
$ | (1,563,933 | ) |
Futures Contracts | ||||||||||||||||
Expiration Month/Year |
Contracts | Position | Aggregate Cost | Value | Net Unrealized Depreciation |
|||||||||||
12/13 | 125 U.S. 2-Year Treasury Note |
Short | $ | (27,455,078 | ) | $ | (27,533,203 | ) | $ | (78,125 | ) | |||||
12/13 | 175 U.S. 5-Year Treasury Note |
Short | (20,924,805 | ) | (21,183,204 | ) | (258,399 | ) | ||||||||
12/13 | 235 U.S. 10-Year Treasury Note |
Short | (29,171,211 | ) | (29,701,797 | ) | (530,586 | ) | ||||||||
12/13 | 30 U.S. Long Treasury Bond |
Short | (3,931,406 | ) | (4,001,250 | ) | (69,844 | ) | ||||||||
$ | (936,954 | ) |
Written swaptions activity for the six months ended September 30, 2013 was as follows:
Notional Amount (000s omitted) |
Premiums Received |
|||||||
Outstanding, beginning of period |
$ | | $ | | ||||
Swaptions written |
52,500 | 2,031,750 | ||||||
Outstanding, end of period |
$ | 52,500 | $ | 2,031,750 |
At September 30, 2013, the Fund had sufficient cash and/or securities to cover commitments under these contracts.
49 |
Eaton Vance
Limited Duration Income Fund
September 30, 2013
Notes to Financial Statements (Unaudited) continued
In the normal course of pursuing its investment objective, the Fund is subject to the following risks:
Foreign Exchange Risk: Because 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 price 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 Funds net assets below a certain level over a certain period of time, which would trigger a payment by the Fund for those derivatives in a liability position. At September 30, 2013 the fair value of derivatives with credit-related contingent features in a net liability position was $3,790,511.
The non-exchange traded derivatives in which the Fund invests, including forward foreign currency exchange contracts and purchased swaptions contracts, are subject to the risk that the counterparty to the contract fails to perform its obligations under the contract. To mitigate this risk, the Fund has entered into master netting agreements with substantially all of its derivative counterparties, which allows it and a counterparty to aggregate amounts owed by each of them for derivative transactions under the agreement into a single net amount payable by either the Fund or the counterparty. Counterparties may be required to pledge collateral in the form of cash, U.S. Government securities or highly-rated bonds for the benefit of the Fund if the net amount due from the counterparty with respect to a derivative contract exceeds a certain threshold. The amount of collateral posted by the counterparties with respect to such contracts would also reduce the amount of any loss incurred. Collateral pledged for the benefit of the Fund is held in a segregated account by the Funds custodian. The portion of such collateral representing cash of $97,000 is reflected as restricted cash with a corresponding liability on the Statement of Assets and Liabilities. The carrying amount of the liability at September 30, 2013 approximated its fair value. If measured at fair value, the liability for cash collateral due to broker would have been considered as Level 2 in the fair value hierarchy (see Note 13) at September 30, 2013.
The fair value of open derivative instruments (not considered to be hedging instruments for accounting disclosure purposes) by risk exposure at September 30, 2013 was as follows:
Fair Value | ||||||||||
Risk | Derivative | Asset Derivative | Liability Derivative | |||||||
Foreign Exchange | Forward foreign currency exchange contracts | $ | | $ | (1,563,933 | )(1) | ||||
Interest rate | Financial futures contracts | | (936,954 | )(2) | ||||||
Interest rate | Interest rate swaptions | 2,226,578 | (3) | | ||||||
Interest rate | Interest rate swaptions written | | (2,226,578 | )(4) | ||||||
Total |
$ | 2,226,578 | $ | (4,727,465 | ) | |||||
Derivatives not subject to master netting agreements |
$ | | $ | (936,954 | ) | |||||
Total Derivatives subject to master netting agreements |
$ | 2,226,578 | $ | (3,790,511 | ) |
(1) | Statement of Assets and Liabilities location: Payable for open forward foreign currency exchange contracts; Net unrealized appreciation. |
(2) | Amount represents cumulative unrealized depreciation on futures contracts in the Futures Contracts table above. Only the current days variation margin on open futures contracts is reported within the Statement of Assets and Liabilities as Receivable or Payable for variation margin, as applicable. |
(3) | Statement of Assets and Liabilities location: Unaffiliated investments, at value. |
(4) | Statement of Assets and Liabilities location: Written swaptions outstanding, at value. |
50 |
Eaton Vance
Limited Duration Income Fund
September 30, 2013
Notes to Financial Statements (Unaudited) continued
During the current reporting period, the Fund adopted the new disclosure requirements for offsetting assets and liabilities, pursuant to which an entity is required to disclose both gross and net information for assets and liabilities related to derivatives, repurchase and reverse repurchase agreements, and securities lending and securities borrowing transactions that are eligible for offset or subject to an enforceable master netting or similar agreement. The Funds 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 Funds 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 September 30, 2013.
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) |
|||||||||||||||
Credit Suisse International |
$ | 2,226,578 | $ | | $ | (2,129,578 | ) | $ | (97,000 | ) | $ | | ||||||||
$ | 2,226,578 | $ | | $ | (2,129,578 | ) | $ | (97,000 | ) | $ | | |||||||||
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 NA |
$ | (2,851,748 | ) | $ | | $ | | $ | 2,851,748 | $ | | |||||||||
Deutsche Bank |
(79,492 | ) | | | | (79,492 | ) | |||||||||||||
Goldman Sachs International |
(465,581 | ) | | | 260,000 | (205,581 | ) | |||||||||||||
HSBC |
(393,690 | ) | | 123,690 | 270,000 | | ||||||||||||||
$ | (3,790,511 | ) | $ | | $ | 123,690 | $ | 3,381,748 | $ | (285,073 | ) |
(a) | In some instances, the actual collateral received and/or pledged may be more than the amount shown due to overcollateralization. |
(b) | Net amount represents the net amount due from the counterparty in the event of default. |
(c) | Net amount represents the net amount payable to the counterparty in the event of default. |
Information with respect to reverse repurchase agreements at September 30, 2013 is included at Note 11.
The effect of derivative instruments (not considered to be hedging instruments for accounting disclosure purposes) on the Statement of Operations by risk exposure for the six months ended September 30, 2013 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) |
|||||||
Foreign Exchange | Forward foreign currency exchange contracts | $ | (1,057,888 | ) | $ | (2,781,821 | ) | |||
Interest Rate | Futures contracts | 2,086,333 | (791,680 | ) | ||||||
Interest Rate | Interest rate swaptions | (504,000 | ) | 1,741,058 | ||||||
Interest Rate | Interest rate swaptions written | | (194,828 | ) | ||||||
Total |
$ | 524,445 | $ | (2,027,271 | ) |
(1) | Statement of Operations location: Net realized gain (loss) Foreign currency and forward foreign currency exchange contract transactions, Financial futures contracts and Investment transactions, 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. |
51 |
Eaton Vance
Limited Duration Income Fund
September 30, 2013
Notes to Financial Statements (Unaudited) continued
The average notional amounts of forward foreign currency exchange contracts, financial futures contracts and purchased swaptions outstanding during the six months ended September 30, 2013, which are indicative of the volume of these derivative types, were approximately $67,390,000, $69,000,000 and $82,500,000, respectively.
10 Revolving Credit and Security Agreement
Effective March 28, 2013, 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 $715,625,000. Effective September 3, 2013, the Fund increased its borrowing limit to $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 19, 2014, the Fund pays a program fee of 0.80% per annum on its outstanding borrowings to administer the facility and a liquidity fee of 0.15% (0.25% if the Funds 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 six months ended September 30, 2013 totaled $2,790,071 and are included in interest expense and fees on the Statement of Operations. The Fund is required to maintain certain net asset levels during the term of the Agreement. At September 30, 2013, the Fund had borrowings outstanding under the Agreement of $680,200,000 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 September 30, 2013 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 13) at September 30, 2013. For the six months ended September 30, 2013, the average borrowings under the Agreement and the average annual interest rate (excluding fees) were $543,746,448 and 0.23%, respectively.
11 Reverse Repurchase Agreements
Reverse repurchase agreements outstanding as of September 30, 2013 were as follows:
Counterparty | Trade Date |
Maturity Date |
Interest Rate |
Principal Amount |
Principal Amount Including Accrued Interest |
|||||||||||||||
Bank of America |
9/24/13 | 10/24/13 | 0.39 | % | $ | 108,192,000 | $ | 108,199,494 |
For the six months ended September 30, 2013, the average borrowings under reverse repurchase agreements and the average annual interest rate were $104,965,891 and 0.39%, respectively. At September 30, 2013, the market value of securities pledged for the benefit of the counterparty for reverse repurchase agreements, which exceeded the amount of borrowings, was $116,928,386. Based on the short-term nature of the borrowings under the reverse repurchase agreements, the carrying value of the payable for reverse repurchase agreements approximated its fair value at September 30, 2013. 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 13) at September 30, 2013.
12 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.
13 Fair Value Measurements
Under generally accepted accounting principles for fair value measurements, a three-tier hierarchy to prioritize the assumptions, referred to as inputs, is used in valuation techniques to measure fair value. The three-tier hierarchy of inputs is summarized in the three broad levels listed below.
| Level 1 quoted prices in active markets for identical investments |
| Level 2 other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.) |
| Level 3 significant unobservable inputs (including a funds own assumptions in determining the fair value of investments) |
52 |
Eaton Vance
Limited Duration Income Fund
September 30, 2013
Notes to Financial Statements (Unaudited) continued
In cases where the inputs used to measure fair value fall in different levels of the fair value hierarchy, the level disclosed is determined based on the lowest level input that is significant to the fair value measurement in its entirety. The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
At September 30, 2013, the hierarchy of inputs used in valuing the Funds investments and open derivative instruments, which are carried at value, were as follows:
Asset Description | Level 1 | Level 2 | Level 3* | Total | ||||||||||||
Senior Floating-Rate Interests (Less Unfunded Loan Commitments) |
$ | | $ | 1,153,660,665 | $ | 2,188,185 | $ | 1,155,848,850 | ||||||||
Corporate Bonds & Notes |
| 1,051,396,228 | 5,993,322 | 1,057,389,550 | ||||||||||||
Foreign Corporate Bonds |
| 1,213,266 | | 1,213,266 | ||||||||||||
Foreign Government Securities |
| 1,076,000 | | 1,076,000 | ||||||||||||
Mortgage-Pass-Throughs |
| 392,506,927 | | 392,506,927 | ||||||||||||
Collateralized Mortgage Obligations |
| 118,772,605 | | 118,772,605 | ||||||||||||
Commercial Mortgage-Backed Securities |
| 171,347,471 | | 171,347,471 | ||||||||||||
Asset-Backed Securities |
| 11,418,415 | | 11,418,415 | ||||||||||||
U.S. Government Agency Obligations |
| 29,501,042 | | 29,501,042 | ||||||||||||
U.S. Treasury Obligations |
| 34,630,850 | | 34,630,850 | ||||||||||||
Tax-Exempt Investments |
| 181,074 | | 181,074 | ||||||||||||
Common Stocks |
| 5,291,330 | 15,423,411 | 20,714,741 | ||||||||||||
Convertible Bonds |
| | 41,550 | 41,550 | ||||||||||||
Preferred Stocks |
1,045,455 | 2,400,297 | 35,750 | 3,481,502 | ||||||||||||
Warrants |
| 253,025 | 37,200 | 290,225 | ||||||||||||
Miscellaneous |
| 147,200 | 0 | 147,200 | ||||||||||||
Interest Rate Swaptions Purchased |
| 2,226,578 | | 2,226,578 | ||||||||||||
Short-Term Investments |
| 38,600,809 | | 38,600,809 | ||||||||||||
Total Investments |
$ | 1,045,455 | $ | 3,014,623,782 | $ | 23,719,418 | $ | 3,039,388,655 | ||||||||
Liability Description |
||||||||||||||||
Interest Rate Swaptions Written |
$ | | $ | (2,226,578 | ) | $ | | $ | (2,226,578 | ) | ||||||
Forward Foreign Currency Exchange Contracts |
| (1,563,933 | ) | | (1,563,933 | ) | ||||||||||
Futures Contracts |
(936,954 | ) | | | (936,954 | ) | ||||||||||
Total |
$ | (936,954 | ) | $ | (3,790,511 | ) | $ | | $ | (4,727,465 | ) |
* | None of the unobservable inputs for Level 3 assets, individually or collectively, had a material impact on the Fund. |
Level 3 investments at the beginning and/or end of the period in relation to net assets were not significant and accordingly, a reconciliation of Level 3 assets for the six months ended September 30, 2013 is not presented.
At September 30, 2013, there were no investments transferred between Level 1 and Level 2 during the six months then ended.
53 |
Eaton Vance
Limited Duration Income Fund
September 30, 2013
Board of Trustees Contract Approval
Overview of the Contract Review Process
The Investment Company Act of 1940, as amended (the 1940 Act), provides, in substance, that each investment advisory agreement between a fund and its investment adviser will continue in effect from year to year only if its continuation is approved at least annually by the funds board of trustees, including by a vote of a majority of the trustees who are not interested persons of the fund (Independent Trustees), cast in person at a meeting called for the purpose of considering such approval.
At a meeting of the Boards of Trustees (each a Board) of the Eaton Vance group of mutual funds (the Eaton Vance Funds) held on April 23, 2013, the Board, including a majority of the Independent Trustees, voted to approve continuation of existing advisory and sub-advisory agreements for the Eaton Vance Funds for an additional one-year period. In voting its approval, the Board relied upon the affirmative recommendation of the Contract Review Committee of the Board, which is a committee comprised exclusively of Independent Trustees. Prior to making its recommendation, the Contract Review Committee reviewed information furnished by each adviser to the Eaton Vance Funds (including information specifically requested by the Board) for a series of meetings of the Contract Review Committee held between February and April 2013, as well as information considered during prior meetings of the committee. Such information included, among other things, the following:
Information about Fees, Performance and Expenses
| An independent report comparing the advisory and related fees paid by each fund with fees paid by comparable funds; |
| An independent report comparing each funds total expense ratio and its components to comparable funds; |
| An independent report comparing the investment performance of each fund (including, where relevant, yield data, Sharpe ratios and information ratios) to the investment performance of comparable funds over various time periods; |
| Data regarding investment performance in comparison to benchmark indices and customized peer groups, in each case as approved by the Board with respect to the funds; |
| For each fund, comparative information concerning the fees charged and the services provided by each adviser in managing other accounts (including mutual funds, other collective investment funds and institutional accounts) using investment strategies and techniques similar to those used in managing such fund; |
| Profitability analyses for each adviser with respect to each fund; |
Information about Portfolio Management and Trading
| Descriptions of the investment management services provided to each fund, including the investment strategies and processes employed, and any changes in portfolio management processes and personnel; |
| Information about the allocation of brokerage and the benefits received by each adviser as a result of brokerage allocation, including information concerning the acquisition of research through client commission arrangements and the funds policies with respect to soft dollar arrangements; |
| Data relating to portfolio turnover rates of each fund; |
| The procedures and processes used to determine the fair value of fund assets and actions taken to monitor and test the effectiveness of such procedures and processes; |
| Information about each advisers processes for monitoring best execution of portfolio transactions, and other policies and practices of each adviser with respect to trading; |
Information about each Adviser
| Reports detailing the financial results and condition of each adviser; |
| Descriptions of the qualifications, education and experience of the individual investment professionals whose responsibilities include portfolio management and investment research for the funds, and information relating to their compensation and responsibilities with respect to managing other mutual funds and investment accounts; |
| Copies of the Codes of Ethics of each adviser and its affiliates, together with information relating to compliance with and the administration of such codes; |
| Copies of or descriptions of each advisers policies and procedures relating to proxy voting, the handling of corporate actions and class actions; |
| Information concerning the resources devoted to compliance efforts undertaken by each adviser and its affiliates on behalf of the funds (including descriptions of various compliance programs) and their record of compliance with investment policies and restrictions, including policies with respect to market-timing, late trading and selective portfolio disclosure, and with policies on personal securities transactions; |
| Descriptions of the business continuity and disaster recovery plans of each adviser and its affiliates; |
| A description of Eaton Vance Managements procedures for overseeing third party advisers and sub-advisers, including with respect to regulatory and compliance issues, investment management and other matters; |
54 |
Eaton Vance
Limited Duration Income Fund
September 30, 2013
Board of Trustees Contract Approval continued
Other Relevant Information
| Information concerning the nature, cost and character of the administrative and other non-investment management services provided by Eaton Vance Management and its affiliates; |
| Information concerning management of the relationship with the custodian, subcustodians and fund accountants by each adviser or the funds administrator; and |
| The terms of each advisory agreement. |
In addition to the information identified above, the Contract Review Committee considered information provided from time to time by each adviser throughout the year at meetings of the Board and its committees. Over the course of the twelve-month period ended April 30, 2013, with respect to one or more funds, the Board met eight times and the Contract Review Committee, the Audit Committee, the Governance Committee, the Portfolio Management Committee and the Compliance Reports and Regulatory Matters Committee, each of which is a Committee comprised solely of Independent Trustees, met eight, twenty-one, five, nine and thirteen times respectively. At such meetings, the Trustees participated in investment and performance reviews with the portfolio managers and other investment professionals of each adviser relating to each fund. The Board and its Committees considered the investment and trading strategies used in pursuing each funds investment objective, including, where relevant, the use of derivative instruments, as well as processes for monitoring best execution of portfolio transactions and risk management techniques. The Board and its Committees also evaluated issues pertaining to industry and regulatory developments, compliance procedures, fund governance and other issues with respect to the funds, and received and participated in reports and presentations provided by Eaton Vance Management and other fund advisers with respect to such matters.
For funds that invest through one or more underlying portfolios, the Board considered similar information about the portfolio(s) when considering the approval of advisory agreements. In addition, in cases where the funds investment adviser has engaged a sub-adviser, the Board considered similar information about the sub-adviser when considering the approval of any sub-advisory agreement.
The Contract Review Committee was assisted throughout the contract review process by Goodwin Procter LLP, legal counsel for the Independent Trustees. The members of the Contract Review Committee relied upon the advice of such counsel and their own business judgment in determining the material factors to be considered in evaluating each advisory and sub-advisory agreement and the weight to be given to each such factor. The conclusions reached with respect to each advisory and sub-advisory agreement were based on a comprehensive evaluation of all the information provided and not any single factor. Moreover, each member of the Contract Review Committee may have placed varying emphasis on particular factors in reaching conclusions with respect to each advisory and sub-advisory agreement.
Results of the Process
Based on its consideration of the foregoing, and such other information as it deemed relevant, including the factors and conclusions described below, the Contract Review Committee concluded that the continuation of the investment advisory agreement of Eaton Vance Limited Duration Income Fund (the Fund) with Eaton Vance Management (the Adviser), including its fee structure, is in the interests of shareholders and, therefore, the Contract Review Committee recommended to the Board approval of the agreement. The Board accepted the recommendation of the Contract Review Committee as well as the factors considered and conclusions reached by the Contract Review Committee with respect to the agreement. Accordingly, the Board, including a majority of the Independent Trustees, voted to approve continuation of the investment advisory agreement for the Fund.
Nature, Extent and Quality of Services
In considering whether to approve the investment advisory agreement of the Fund, the Board evaluated the nature, extent and quality of services provided to the Fund by the Adviser.
The Board considered the Advisers management capabilities and investment process with respect to the types of investments held by the Fund, including the education, experience and number of its investment professionals and other personnel who provide portfolio management, investment research, and similar services to the Fund, including recent changes to such personnel. In particular, the Board considered, where relevant, the abilities and experience of such investment personnel in analyzing factors such as credit risk and special considerations relevant to investing in senior secured floating rate loans, mortgage-backed securities and high-yield bonds. The Board considered the resources available to personnel of the Adviser, including research services. The Board also took into account the resources dedicated to portfolio management and other services, including the compensation methods of the Adviser to recruit and retain investment personnel, and the time and attention devoted to the Fund by senior management.
The Board reviewed the compliance programs of the Adviser and relevant affiliates thereof. Among other matters, the Board considered compliance and reporting matters relating to personal trading by investment personnel, selective disclosure of portfolio holdings, late trading, frequent trading, portfolio valuation, business continuity and the allocation of investment opportunities. The Board also evaluated the responses of the Adviser and its affiliates to requests in recent years from regulatory authorities such as the Securities and Exchange Commission and the Financial Industry Regulatory Authority.
The Board considered shareholder and other administrative services provided or managed by Eaton Vance Management and its affiliates, including transfer agency and accounting services. The Board evaluated the benefits to shareholders of investing in a fund that is a part of a large family of funds.
55 |
Eaton Vance
Limited Duration Income Fund
September 30, 2013
Board of Trustees Contract Approval continued
After consideration of the foregoing factors, among others, the Board concluded that the nature, extent and quality of services provided by the Adviser, taken as a whole, are appropriate and consistent with the terms of the investment advisory agreement.
Fund Performance
The Board compared the Funds investment performance to a relevant universe of comparable funds identified by an independent data provider and appropriate benchmark indices, as well as a customized peer group of similarly managed funds approved by the Board. The Board reviewed comparative performance data for the one-, three- and five-year periods ended September 30, 2012 for the Fund. On the basis of the foregoing and other relevant information provided by the Adviser in response to inquiries from the Contract Review Committee, the Board concluded that the performance of the Fund was satisfactory.
Management Fees and Expenses
The Board reviewed contractual investment advisory fee rates payable by the Fund (referred to as management fees). As part of its review, the Board considered the management fees and the Funds total expense ratio for the year ended September 30, 2012, as compared to a group of similarly managed funds selected by an independent data provider. The Board considered the fact that the Adviser had waived fees and/or paid expenses for the Fund. The Board also considered factors that had an impact on Fund expense ratios, as identified by management in response to inquiries from the Contract Review Committee, as well as actions taken by management in recent years to reduce expenses at the Eaton Vance fund complex level, including the negotiation of reduced fees for transfer agency and custody services.
After reviewing the foregoing information, and in light of the nature, extent and quality of the services provided by the Adviser, the Board concluded that the management fees charged for advisory and related services are reasonable.
Profitability
The Board reviewed the level of profits realized by the Adviser and relevant affiliates thereof in providing investment advisory and administrative services to the Fund and to all Eaton Vance Funds as a group. The Board considered the level of profits realized without regard to revenue sharing or other payments by the Adviser and its affiliates to third parties in respect of distribution services. The Board also considered other direct or indirect benefits received by the Adviser and its affiliates in connection with their relationships with the Fund, including the benefits of research services that may be available to the Adviser as a result of securities transactions effected for the Fund and other investment advisory clients.
The Board concluded that, in light of the foregoing factors and the nature, extent and quality of the services rendered, the profits realized by the Adviser and its affiliates are reasonable.
Economies of Scale
In reviewing management fees and profitability, the Board also considered the extent to which the Adviser and its affiliates, on the one hand, and the Fund, on the other hand, can expect to realize benefits from economies of scale as the assets of the Fund increase. The Board acknowledged the difficulty in accurately measuring the benefits resulting from the economies of scale with respect to the management of any specific fund or group of funds. The Board reviewed data summarizing the increases and decreases in the assets of the Fund and of all Eaton Vance Funds as a group over various time periods, and evaluated the extent to which the total expense ratio of the Fund and the profitability of the Adviser and its affiliates may have been affected by such increases or decreases. Based upon the foregoing, the Board concluded that the Fund currently shares in the benefits from economies of scale. The Board also considered the fact that the Fund is not continuously offered and that the Funds assets are not expected to increase materially in the foreseeable future. The Board concluded that, in light of the level of the Advisers profits with respect to the Fund, the implementation of breakpoints in the advisory fee schedule is not appropriate at this time.
56 |
Eaton Vance
Limited Duration Income Fund
September 30, 2013
Officers and Trustees
Officers of Eaton Vance Limited Duration Income Fund
Trustees of Eaton Vance Limited Duration Income Fund
* | Interested Trustee |
Number of Employees
The Fund is organized as a Massachusetts business trust and is registered under the Investment Company Act of 1940, as amended, as a closed-end management investment company and has no employees.
Number of Shareholders
As of September 30, 2013, Fund records indicate that there are 103 registered shareholders and approximately 89,098 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.
57 |
Eaton Vance Funds
IMPORTANT NOTICES
Privacy. The Eaton Vance organization is committed to ensuring your financial privacy. Each of the financial institutions identified below has in effect the following policy (Privacy Policy) with respect to nonpublic personal information about its customers:
| Only such information received from you, through application forms or otherwise, and information about your Eaton Vance fund transactions will be collected. This may include information such as name, address, social security number, tax status, account balances and transactions. |
| None of such information about you (or former customers) will be disclosed to anyone, except as permitted by law (which includes disclosure to employees necessary to service your account). In the normal course of servicing a customers account, Eaton Vance may share information with unaffiliated third parties that perform various required services such as transfer agents, custodians and broker-dealers. |
| Policies and procedures (including physical, electronic and procedural safeguards) are in place that are designed to protect the confidentiality of such information. |
| We reserve the right to change our Privacy Policy at any time upon proper notification to you. Customers may want to review our Privacy Policy periodically for changes by accessing the link on our homepage: www.eatonvance.com. |
Our pledge of privacy applies to the following entities within the Eaton Vance organization: the Eaton Vance Family of Funds, Eaton Vance Management, Eaton Vance Investment Counsel, Eaton Vance Distributors, Inc., Eaton Vance Trust Company, Eaton Vance Managements 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 customers account (i.e., fund shares) is held in the name of a third-party financial advisor/broker-dealer, it is likely that only such advisors privacy policies apply to the customer. This notice supersedes all previously issued privacy disclosures. For more information about Eaton Vances 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 SECs website at www.sec.gov. Form N-Q may also be reviewed and copied at the SECs 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 SECs website at www.sec.gov.
Share Repurchase Program. On November 11, 2013, the Funds Board of Trustees approved a share repurchase program authorizing the Fund to repurchase up to 10% of its currently outstanding common shares in open-market transactions at a discount to net asset value. The repurchase program does not obligate the Fund to purchase a specific amount of shares. The Funds repurchase activity, including the number of shares purchased, average price and average discount to net asset value, will be disclosed in the Funds annual and semi-annual reports to shareholders.
Additional Notice to Shareholders. If applicable, a Fund may redeem or purchase its outstanding auction preferred shares (APS) in order to maintain compliance with regulatory requirements, borrowing or rating agency requirements or for other purposes as it deems appropriate or necessary.
Closed-End Fund Information. Eaton Vance closed-end funds make fund performance data and certain information about portfolio characteristics available on the Eaton Vance website shortly after the end of each month. The funds net asset value per share is readily accessible on the Eaton Vance website. Portfolio holdings for the most recent month-end are also posted to the website approximately 30 days following the end of the month. This information is available at www.eatonvance.com on the fund information pages under Individual Investors Closed-End Funds.
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1856-11/13 | CE-LDISRC |
Item 2. Code of Ethics
Not required in this filing.
Item 3. Audit Committee Financial Expert
The registrants Board has designated William H. Park, an independent trustee, as its audit committee financial expert. Mr. Park is a certified public accountant who is a consultant and private investor. Previously, he served as the Chief Financial Officer of Aveon Group, L.P. (an investment management firm), as the Vice Chairman of Commercial Industrial Finance Corp. (specialty finance company), as President and Chief Executive Officer of Prizm Capital Management, LLC (investment management firm), as Executive Vice President and Chief Financial Officer of United Asset Management Corporation (an institutional investment management firm) and as a Senior Manager at Price Waterhouse (now PricewaterhouseCoopers) (an independent registered public accounting firm).
Item 4. Principal Accountant Fees and Services
Not required in this filing.
Item 5. Audit Committee of Listed Registrants
Not required in this filing.
Item 6. Schedule of Investments
Please see schedule of investments contained in the Report to Stockholders included under Item 1 of this Form N-CSR.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies
Not required in this filing.
Item 8. Portfolio Managers of Closed-End Management Investment Companies
Not required in this filing.
Item 9. Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers
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 registrants principal executive officer and principal financial officer that the effectiveness of the registrants 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 Commissions rules and forms and that the information required to be disclosed by the registrant has been accumulated and communicated to the registrants principal executive officer and principal financial officer in order to allow timely decisions regarding required disclosure.
(b) There have been no changes in the registrants 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 registrants internal control over financial reporting.
Item 12. Exhibits
(a)(1) | Registrants Code of Ethics Not applicable (please see Item 2). | |
(a)(2)(i) | Treasurers Section 302 certification. | |
(a)(2)(ii) | Presidents Section 302 certification. | |
(b) | Combined Section 906 certification. |
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Eaton Vance Limited Duration Income Fund | ||
By: | /s/ Payson F. Swaffield | |
Payson F. Swaffield | ||
President |
Date: November 7, 2013
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
By: | /s/ James F. Kirchner | |
James F. Kirchner | ||
Treasurer |
Date: November 7, 2013
By: | /s/ Payson F. Swaffield | |
Payson F. Swaffield | ||
President |
Date: November 7, 2013
Eaton Vance Limited Duration Income Fund
FORM N-CSR
Exhibit 12(a)(2)(i)
CERTIFICATION
I, James F. Kirchner, certify that:
1. I have reviewed this report on Form N-CSR of Eaton Vance Limited Duration Income Fund;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and
(d) Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
5. The registrants other certifying officer(s) and I have disclosed to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize, and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting.
Date: November 7, 2013
/s/ James F. Kirchner |
James F. Kirchner |
Treasurer |
Eaton Vance Limited Duration Income Fund
FORM N-CSR
Exhibit 12(a)(2)(ii)
CERTIFICATION
I, Payson F. Swaffield, certify that:
1. I have reviewed this report on Form N-CSR of Eaton Vance Limited Duration Income Fund;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and
(d) Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
5. The registrants other certifying officer(s) and I have disclosed to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize, and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting.
Date: November 7, 2013
/s/ Payson F. Swaffield |
Payson F. Swaffield |
President |
Form N-CSR Item 12(b) Exhibit
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
The undersigned hereby certify in their capacity as Treasurer and President, respectively, of Eaton Vance Limited Duration Income Fund (the Fund), that:
(a) | The Semi-Annual Report of the Trust on Form N-CSR for the period ended September 30, 2013 (the Report) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and |
(b) | The information contained in the Report fairly presents, in all material respects, the financial condition and the results of operations of the Fund for such period. |
A signed original of this written statement required by section 906 has been provided to the Fund and will be retained by the Fund and furnished to the Securities and Exchange Commission or its staff upon request.
Eaton Vance Limited Duration Income Fund
Date: November 7, 2013
/s/ James F. Kirchner |
James F. Kirchner |
Treasurer |
Date: November 7, 2013
/s/ Payson F. Swaffield |
Payson F. Swaffield |
President |
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