Eaton Vance Short Duration Diversified Income Fund (EVG) lifts return and revises strategy
Filing Impact
Filing Sentiment
Form Type
N-CSR
Rhea-AI Filing Summary
Eaton Vance Short Duration Diversified Income Fund delivered a strong 10.32% total return at net asset value for the year ended October 31, 2025, outperforming both the Bloomberg U.S. Aggregate Bond Index at 6.16% and its blended custom benchmark at 6.97%. Shares traded at a modest 1.32% discount to NAV at period end.
The Fund benefited from leverage, which magnified gains in a year of generally falling interest rates. Key contributors included emerging-market debt, commercial mortgage-backed securities that returned 24.18%, collateralized loan obligation debt, high yield corporate bonds at 7.98%, and agency and non-agency mortgage-backed securities. Floating-rate loans lagged the loan index, and positioning in certain emerging markets and shorter-duration agency MBS weighed on relative results.
The Fund distributed $0.90 per share for the period, implying a 7.89% distribution rate at NAV and 7.99% at market price, supported by total leverage of 13.66% from borrowings and 16.68% from derivatives. Effective October 17, 2025, the Fund revised its principal strategies by removing a 25% minimum allocation to its core sectors and eliminating its weighted average credit quality restriction, which increases flexibility but leaves the existing high-income objective unchanged.
Positive
- None.
Negative
- None.
Insights
EVG outperformed key bond benchmarks and loosened its credit constraints.
The Fund’s
The strategy change effective
From an investor perspective, this combination of benchmark-beating performance, meaningful use of leverage, and more flexible credit guidelines may influence how the Fund is positioned in a diversified income portfolio. Future reports around subsequent fiscal periods will show how management uses the expanded latitude in sector and credit allocations within the existing short-duration framework.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act File Number: 811-21563
Eaton Vance Short Duration Diversified Income Fund
(Exact Name of Registrant as Specified in Charter)
One Post Office Square, Boston, Massachusetts 02109
(Address of Principal Executive Offices)
Deidre E. Walsh
One Post Office Square, Boston, Massachusetts 02109
(Name and Address of Agent for Services)
(617) 482-8260
(Registrant’s Telephone Number)
October 31
Date of Fiscal Year End
October 31, 2025
Date of Reporting Period
Item 1. Reports to Stockholders
(a)
Eaton Vance
Short Duration Diversified Income Fund (EVG)
Annual Report
October 31, 2025
Commodity Futures Trading Commission Registration. The Commodity Futures Trading Commission (“CFTC”) has adopted regulations 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
investment adviser has claimed an exclusion from the definition of “commodity pool operator” under the Commodity Exchange Act with respect to its management of the Fund. Accordingly, neither the Fund nor the adviser with respect to the
operation of the Fund is subject to CFTC regulation. Because of its management of other strategies, the Fund’s adviser is registered with the CFTC as a commodity pool operator. The adviser is also registered as a commodity trading
advisor.
Fund shares are not insured by the FDIC and
are not deposits or other obligations of, or guaranteed by, any depository institution. Shares are subject to investment risks, including possible loss of principal invested.
Annual Report October 31,
2025
Eaton Vance
Short Duration Diversified Income Fund
| Table of Contents | |
| Management’s Discussion of Fund Performance | 2 |
| Performance | 4 |
| Fund Profile | 5 |
| The Fund's Investment Objectives, Principal Strategies and Principal Risks | 6 |
| Endnotes and Additional Disclosures | 11 |
| Financial Statements | 13 |
| Report of Independent Registered Public Accounting Firm | 53 |
| Federal Tax Information | 54 |
| Dividend Reinvestment Plan | 55 |
| Board of Trustees’ Contract Approval | 57 |
| Management and Organization | 61 |
| U.S. Customer Privacy Notice | 63 |
| Potential Conflicts of Interest | 66 |
| Important Notices | 74 |
Table of Contents
Eaton Vance
Short Duration Diversified Income Fund
October 31, 2025
Management’s Discussion of Fund Performance†
Economic and Market Conditions
For fixed-income investors, the 12-month period ended October
31, 2025, was characterized by broad-based strength across fixed-income sectors, driven by declining rates and resilient economic growth amid uncertainty over tariffs, inflation, and the strength of the labor market.
Interest-rate policy shifts by the U.S. Federal Reserve (the
Fed) dominated the period. Following its initial rate cut in September 2024, the Fed implemented two reductions during the first two months of the period. The U.S. central bank then held rates steady for nearly a year, with additional reductions
punctuating the period in September and October 2025. These moves aimed to counter slowing growth and labor market weakness.
Meanwhile, uncertainty regarding U.S. trade policy and new
global tariffs in March and April 2025 weighed on sentiment, while international markets benefited from attractive valuations and a weaker U.S. dollar. During the latter half of the 12-month period, concerns lingered over U.S. labor market weakness,
central bank independence, ongoing trade disputes, and a prolonged U.S. government shutdown.
Despite these concerns, falling interest rates and steady
economic conditions fueled positive returns across most fixed-income sectors. Benefiting from declining yields, U.S. Treasuries posted gains, with the Bloomberg U.S. Treasury Index returning 5.19% for the period. Mortgage-backed securities (MBS) saw
positive returns during the period alongside the rally in interest rates, with the ICE BofA U.S. Mortgage-Backed Securities Index gaining 7.22%.
Meanwhile, emerging-market (EM) debt delivered strong returns
over the period, supported by resilient fundamentals, easing monetary policy across several EM economies, robust inflows, and improving risk sentiment. For the 12-month period, the J.P. Morgan EM Bond Index (EMBI) Global Diversified returned a
robust 12.76%.
Below-investment grade corporate credit
benefited from investor risk appetite as defaults stayed near historical lows and yields remained high. The ICE BofA U.S. High Yield Index advanced 8.03%, reflecting strong demand for income-generating assets. The senior loan market saw more muted
returns as rate cuts reduced coupon income, but the asset class remained positive, with the Morningstar® LSTA® US Leveraged Loan IndexSM returning 6.32%
for the 12-month period.
Fund Performance
For the 12-month period ended October 31, 2025, Eaton Vance
Short Duration Diversified Income Fund (the Fund) returned 10.32% at net asset value of its common shares (NAV). The Fund outperformed its primary benchmark, the Bloomberg U.S. Aggregate Bond Index (the Index), which returned 6.16% during the
period.
In addition, the Fund outperformed its custom
benchmark -- consisting of 33.33% Morningstar® LSTA® US Leveraged Loan IndexSM (the Loan Index), 33.33% ICE BofA U.S. Mortgage-Backed Securities Index (the MBS
Index), and 33.34% J.P. Morgan Emerging Market Bond Index (EMBI) Global Diversified Spread Index (the EMD Index) -- which returned 6.97% during the period.
The Fund’s use of investment leverage, which is not
employed by the Index, contributed to performance versus the Index. The use of leverage magnifies exposure to the underlying investments in both up- and down-market environments. During a period of generally positive returns for the underlying
allocations of the Fund, leverage contributed to Index-relative performance.
The Fund’s allocation to emerging-market debt –
comprising a mix of emerging-market bonds and derivative positions – contributed to performance and meaningfully outperformed the EMD Index during the period. On a relative basis, an overweight position to Venezuelan sovereign and corporate
credit, overweight to Lebanese sovereign credit, and an overweight to Ethiopian sovereign credit contributed to performance. Top detractors included an overweight to Argentine sovereign credit, underweight to Turkish sovereign credit, and
underweight to Panama sovereign credit.
The Fund’s
allocation to agency mortgage-backed securities (MBS) outperformed the Index and the MBS Index during the period. The Fund’s allocation to fixed-rate collateralized mortgage obligations (CMOs) contributed to performance relative to the MBS
Index during the period. Modest exposure to non-agency MBS also boosted returns, as did the Fund’s allocation to fixed-rate specified MBS pools. The Fund’s exposure to shorter-duration agency MBS detracted from returns relative to the
MBS Index, as they lagged the performance of longer duration MBS amidst the rally in interest rates.
The Fund’s exposure to floating-rate corporate loans
performed in line with the Index but trailed the Loan Index during the period. At the sector level, positioning was a headwind to relative performance in professional services and machinery (negative selection effect in each) as well as diversified
telecommunication services (an underweight exposure). This was almost entirely offset by positive credit selection in the automobile components and pharmaceuticals industries.
See Endnotes and Additional Disclosures in this report.
Past performance is no guarantee of future results.
Returns are historical and are calculated net of management fees and other expenses by determining the percentage change in net asset value (NAV) or market price (as applicable) with all distributions reinvested in accordance with the Fund’s
Dividend Reinvestment Plan. Furthermore, returns do not reflect the deduction of taxes that shareholders may have to pay on Fund distributions or upon the sale of Fund shares. Performance at market price will differ from performance at NAV due to
variations in the Fund’s market price versus NAV, which may reflect factors such as fluctuations in supply and demand for Fund shares, changes in Fund distributions, shifting market expectations for the Fund’s future returns and
distribution rates, and other considerations affecting the trading prices of closed-end funds. Investment return and principal value will fluctuate so that shares, when sold, may be worth more or less than their original cost. Performance for
periods less than or equal to one year is cumulative. Performance is for the stated time period only; due to market volatility, current Fund performance may be lower or higher than the quoted return. For performance as of the most recent month-end,
please refer to eatonvance.com.
2
Table of Contents
Eaton Vance
Short Duration Diversified Income Fund
October 31, 2025
Management’s
Discussion of Fund Performance† — continued
The Fund’s out-of-Index exposure to commercial MBS
meaningfully contributed to Index-relative performance, as this portion of the Fund returned 24.18% during the period. Similarly, the Fund’s allocation to collateralized loan obligation (CLO) debt within the Fund’s senior loan category
contributed to returns versus the Index during the period. The Fund was primarily allocated to CLO debt rated BB and BBB, which returned 10.78% and 7.50%, respectively. Elsewhere, the Fund’s high yield corporate bond allocation returned 7.98%
during the period, outpacing the Index and contributing to Index-relative returns.
See Endnotes and Additional Disclosures in this report.
Past performance is no guarantee of future results.
Returns are historical and are calculated net of management fees and other expenses by determining the percentage change in net asset value (NAV) or market price (as applicable) with all distributions reinvested in accordance with the Fund’s
Dividend Reinvestment Plan. Furthermore, returns do not reflect the deduction of taxes that shareholders may have to pay on Fund distributions or upon the sale of Fund shares. Performance at market price will differ from performance at NAV due to
variations in the Fund’s market price versus NAV, which may reflect factors such as fluctuations in supply and demand for Fund shares, changes in Fund distributions, shifting market expectations for the Fund’s future returns and
distribution rates, and other considerations affecting the trading prices of closed-end funds. Investment return and principal value will fluctuate so that shares, when sold, may be worth more or less than their original cost. Performance for
periods less than or equal to one year is cumulative. Performance is for the stated time period only; due to market volatility, current Fund performance may be lower or higher than the quoted return. For performance as of the most recent month-end,
please refer to eatonvance.com.
3
Table of Contents
Eaton Vance
Short Duration Diversified Income Fund
October 31, 2025
Performance
Portfolio Manager(s) Catherine
C. McDermott, Andrew Szczurowski, CFA, Akbar A. Causer and Federico Sequeda, CFA
| % Average Annual Total Returns1,2 | Inception Date | One Year | Five Years | Ten Years |
| Fund at NAV | 02/28/2005 | 10.32% | 6.14% | 5.13% |
| Fund at Market Price | — | 9.06 | 8.22 | 6.29 |
|
| ||||
| Bloomberg U.S. Aggregate Bond Index | — | 6.16% | (0.24)% | 1.90% |
| Blended Index | — | 6.97 | 3.90 | — |
| % Premium/Discount to NAV3 | |
| As of period end | (1.32)% |
| Distributions 4 | |
| Total Distributions per share for the period | $0.90 |
| Distribution Rate at NAV | 7.89% |
| Distribution Rate at Market Price | 7.99 |
| % Total Leverage5 | |
| Borrowings | 13.66% |
| Derivatives | 16.68 |
Growth of $10,000
This graph shows the change in value of a hypothetical
investment of $10,000 in the Fund for the period indicated. For comparison, the same investment is shown in the indicated index.
See Endnotes and Additional Disclosures in this report.
Past performance is no guarantee of future results.
Returns are historical and are calculated net of management fees and other expenses by determining the percentage change in net asset value (NAV) or market price (as applicable) with all distributions reinvested in accordance with the Fund’s
Dividend Reinvestment Plan. Furthermore, returns do not reflect the deduction of taxes that shareholders may have to pay on Fund distributions or upon the sale of Fund shares. Performance at market price will differ from performance at NAV due to
variations in the Fund’s market price versus NAV, which may reflect factors such as fluctuations in supply and demand for Fund shares, changes in Fund distributions, shifting market expectations for the Fund’s future returns and
distribution rates, and other considerations affecting the trading prices of closed-end funds. Investment return and principal value will fluctuate so that shares, when sold, may be worth more or less than their original cost. Performance for
periods less than or equal to one year is cumulative. Performance is for the stated time period only; due to market volatility, current Fund performance may be lower or higher than the quoted return. For performance as of the most recent month-end,
please refer to eatonvance.com.
4
Table of Contents
Eaton Vance
Short Duration Diversified Income Fund
October 31, 2025
Fund Profile
| Asset Allocation (% of total investments)1 |
Footnotes:
| 1 | Including the Fund’s use of leverage, Asset Allocation as a percentage of the Fund’s net assets amounted to 124.9%. |
5
Table of Contents
Eaton Vance
Short Duration Diversified Income Fund
October 31, 2025
The Fund's Investment
Objectives, Principal Strategies and Principal Risks‡
Investment Objectives. The Fund’s 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 consistent with its primary goal of high current
income.
Principal Strategies. The Fund normally invests in the following investment categories: (1) senior, secured floating rate loans made to corporate and other business entities, which are typically rated below investment grade (“Senior
Loans”); (2) bank deposits denominated in foreign currencies, debt obligations of foreign governmental and corporate issuers, including emerging market issuers, which are denominated in foreign currencies or U.S. dollars, and positions in
foreign currencies; and (3) mortgage-backed securities that are issued, backed or otherwise guaranteed by the U.S. Government or its agencies or instrumentalities or that are issued by private issuers. The Fund may invest without limit, within its
Senior Loans category, in collateralized loan obligations (“CLOs”) and in U.S. corporate debt obligations rated below investment grade (“U.S. High Yield Bonds”), commonly referred to as “junk” bonds.
At least 80% of the Fund’s total leveraged assets will be
invested in its three principal investment categories, including through the use of derivatives. Total leveraged assets are net assets plus liabilities or obligations attributable to investment leverage and the notional value of long and short
forward foreign currency contracts, futures contracts and swaps held by the Fund. The Fund may obtain investment exposures through long or short positions in derivative instruments, including derivatives with U.S. High Yield Bonds as reference
instruments (such as credit default swap indices), and through investment in other investment companies. The Fund may enter into forward commitments to buy or sell agency mortgage-backed securities (to-be-announced transaction, or
“TBAs”).
The Fund may also invest in
investment grade bonds, including corporate bonds, asset-backed securities and commercial mortgage-backed securities (“CMBS”), and other permitted investments. The Fund is required to maintain a duration of no more than three years,
including the effect of leverage.
The Fund may execute
short sales of sovereign bonds and may enter into reverse repurchase agreements.
The Fund employs leverage to seek opportunities for additional
income. Leverage may amplify the effect on the Fund’s net asset value (“NAV”) of any increase or decrease in the value of investments held. There can be no assurance that the use of borrowings will be successful. The Fund has
borrowed to establish leverage. The Fund also may establish leverage through derivatives and reverse repurchase agreements.
When deemed by the investment adviser to be relevant to its
evaluation of creditworthiness and when applicable information is available, the investment adviser considers environmental, social and/or governance issues (referred to as ESG) which may impact the prospects of an issuer (or obligor) or financial
performance of an obligation. When considered, one or more ESG issues are taken into account alongside other factors in the investment decision-making process and are not the sole determinant of whether an investment can be made or will remain in
the Fund’s portfolio.
Principal Risks
Market Discount Risk. As with
any security, the market value of the Fund’s common shares may increase or decrease from the amount initially paid for the common shares. The Fund’s common shares have traded both at a premium and at a discount relative to NAV. The
shares of closed-end management investment companies frequently trade at a discount from their NAV. This is a risk separate and distinct from the risk that the Fund’s NAV may decrease.
Investment and Market Risk. An
investment in the Fund’s common shares is subject to investment risk, including the possible loss of the entire principal amount invested. An investment in common shares represents an indirect investment in the securities owned by the Fund,
which are generally traded on a securities exchange or in the over-the-counter markets. The value of these securities, like other market investments, may move up or down, sometimes rapidly and unpredictably. The common shares at any point in time
may be worth less than the original investment, even after taking into account any reinvestment of distributions.
The value of investments held by the Fund may increase or
decrease in response to social, economic, political, financial, public health crises or other disruptive events (whether real, expected or perceived) in the U.S. and global markets and include events such as war, natural disasters, epidemics and
pandemics, terrorism, conflicts and social unrest. These events may negatively impact broad segments of businesses and populations and may exacerbate pre-existing risks to the Fund. The frequency and magnitude of resulting changes in the value of
the Fund’s investments cannot be predicted. Certain securities and other investments held by the Fund may experience increased volatility, illiquidity, or other potentially adverse effects in reaction to changing market conditions. Monetary
and/or fiscal actions taken by U.S. or foreign governments to stimulate or stabilize the global economy may not be effective and could lead to high market volatility. No active trading market may exist for certain investments held by the Fund, which
may impair the ability of the Fund to sell or to realize the current valuation of such investments in the event of the need to liquidate such assets.
Credit Risk. Investments in
fixed income and other debt obligations, including loans, (referred to below as “debt instruments”) are subject to the risk of non-payment of scheduled principal and interest. Changes in economic conditions or other circumstances may
reduce the capacity of the party obligated to make principal and interest payments on such instruments and may lead to defaults. Such non-payments and defaults may reduce the value of Fund shares and income distributions. The value of debt
instruments also may decline because of concerns about the issuer’s ability to make principal and interest payments. In addition, the credit ratings of debt instruments may be lowered if the financial condition of the party obligated to make
payments with respect to such instruments deteriorates. In the event of bankruptcy of the issuer of a debt instrument, the Fund could experience delays or limitations with respect to its ability to realize the benefits of any collateral securing the
instrument. In order to enforce its rights in the event of a default, bankruptcy or similar situation, the Fund may be required to retain legal or similar counsel, which may increase the Fund’s operating expenses and adversely affect net asset
value.
See Endnotes and Additional Disclosures in this report.
6
Table of Contents
Eaton Vance
Short Duration Diversified Income Fund
October 31, 2025
The Fund's Investment
Objectives, Principal Strategies and Principal Risks‡ — continued
Foreign Investment Risk.
Foreign investments can be adversely affected by political, economic and market developments abroad, including the imposition of economic and other sanctions by the United States or another country against a particular country or countries,
organizations, entities and/or individuals. There may be less publicly available information about foreign issuers because they may not be subject to reporting practices, requirements or regulations comparable to those to which United States
companies are subject. Adverse changes in investment regulations, capital requirements or exchange controls could adversely affect the value of the Fund’s investments. Foreign markets may be smaller, less liquid and more volatile than the
major markets in the United States, and as a result, Fund share values may be more volatile. Trading in foreign markets typically involves higher expense than trading in the United States. The Fund may have difficulties enforcing its legal or
contractual rights in a foreign country. Economic data as reported by sovereign entities may be delayed, inaccurate or fraudulent. In the event of a default by a sovereign entity, there are typically no assets to be seized or cash flows to be
attached. Furthermore, the willingness or ability of a sovereign entity to restructure defaulted debt may be limited. Therefore, losses on sovereign defaults may far exceed the losses from the default of a similarly rated United States debt
issuer.
Emerging Markets Investment Risk. Investment markets within emerging market countries are typically smaller, less liquid, less developed and more volatile than those in more developed markets like the United States, and may be focused in certain
sectors. Emerging market securities often involve greater risks than developed market securities. The information available about an emerging market issuer may be less reliable than for comparable issuers in more developed capital
markets.
Currency Risk. Exchange rates for currencies fluctuate daily. The value of foreign investments may be affected favorably or unfavorably by changes in currency exchange rates in relation to the U.S. dollar. Currency markets generally
are not as regulated as securities markets and currency transactions are subject to settlement, custodial and other operational risks.
Interest Rate Risk. In general,
the value of income securities will fluctuate based on changes in interest rates. The value of these securities is likely to increase when interest rates fall and decline when interest rates rise. Duration measures the time-weighted expected cash
flows of a fixed-income security, while maturity refers to the amount of time until a fixed-income security matures. Generally, securities with longer durations or maturities are more sensitive to changes in interest rates than securities with
shorter durations or maturities, causing them to be more volatile. Conversely, fixed-income securities with shorter durations or maturities will be less volatile but may provide lower returns than fixed-income securities with longer durations or
maturities. The Fund may own individual investments that have longer durations than the average duration of the Fund. The impact of interest rate changes is significantly less for floating-rate instruments that have relatively short periodic rate
resets (e.g., ninety days or less). In a rising interest rate environment, the durations or maturities of income securities that have the ability to be prepaid or called by the issuer may be extended. In a declining interest rate environment, the
proceeds from prepaid or maturing instruments may have to be reinvested at a lower interest rate.
Benchmark Reference Rates Risk.
Many debt securities, derivatives, and other financial instruments utilize benchmark or reference rates for variable interest rate calculations, including the Euro Interbank Offer Rate, Sterling Overnight Index Average Rate, and the Secured
Overnight Financing Rate (each a “Reference Rate”). Instruments in which the Fund invests may pay interest at floating rates based on such Reference Rates or may be subject to interest caps or floors based on such Reference Rates. The
Fund and issuers of instruments in which the Fund invests may also obtain financing at floating rates based on such Reference Rates. The elimination of a Reference Rate or any other changes to or reforms of the determination or supervision of
Reference Rates could have an adverse impact on the market for, or value of, any instruments or payments linked to those Reference Rates.
For example, some Reference Rates, as well as other types of
rates and indices, are described as “benchmarks” and have been the subject of ongoing national and international regulatory reform, including under the European Union regulation on indices used as benchmarks in financial instruments and
financial contracts. As a result, the manner of administration of benchmarks has changed and may further change in the future, with the result that relevant benchmarks may perform differently than in the past, the use of benchmarks that are not
compliant with the new standards by certain supervised entities may be restricted, and certain benchmarks may be eliminated entirely. Such changes could cause increased market volatility and disruptions in liquidity for instruments that rely on or
are impacted by such benchmarks. Additionally, there could be other consequences which cannot be predicted.
Loans Risk. Loans are traded in
a private, unregulated inter-dealer or inter-bank resale market and are generally subject to contractual restrictions that must be satisfied before a loan can be bought or sold. These restriction may impede the Fund’s ability to buy or sell
loans (thus affecting their liquidity) and may negatively impact the transaction price. See also “Investment and Market Risk” above. It also may take longer than seven days for transactions in loans to settle. The types of covenants
included in loan agreements generally vary depending on market conditions, the creditworthiness of the issuer, the nature of the collateral securing the loan and possibly other factors. Loans with fewer covenants that restrict activities of the
borrower may provide the borrower with more flexibility to take actions that may be detrimental to the loan holders and provide fewer investor protections in the event of such actions or if covenants are breached. The Fund may experience relatively
greater realized or unrealized losses or delays and expense in enforcing its rights with respect to loans with fewer restrictive covenants. Loans to entities located outside of the U.S. may have substantially different lender protections and
covenants as compared to loans to U.S. entities and may involve greater risks. The Fund may have difficulties and incur expense enforcing its rights with respect to non-U.S. loans and such loans could be subject to bankruptcy laws that are
materially different than in the U.S. Loans may be structured such that they are not securities under securities law, and in the event of fraud or misrepresentation by a borrower, lenders may not have the protection of the anti-fraud provisions of
the federal securities laws. Loans are also subject to risks associated with other types of income investments, including credit risk and risks of lower rated investments.
See Endnotes and Additional Disclosures in this report.
7
Table of Contents
Eaton Vance
Short Duration Diversified Income Fund
October 31, 2025
The Fund's Investment
Objectives, Principal Strategies and Principal Risks‡ — continued
Mortgage- and Asset-Backed Securities Risk. Mortgage- and asset-backed securities represent interests in “pools” of commercial or residential mortgages or other assets, including consumer loans or receivables. Movements in interest rates (both
increases and decreases) may quickly and significantly reduce the value of certain types of mortgage- and asset-backed securities. Although certain mortgage- and asset-backed securities are guaranteed as to timely payment of interest and principal
by a government entity, the market price for such securities is not guaranteed and will fluctuate. The purchase of mortgage- and asset-backed securities issued by non-government entities may entail greater risk than such securities that are issued
or guaranteed by a government entity. Mortgage and asset-backed securities issued by non-government entities may offer higher yields than those issued by government entities, but may also be subject to greater volatility than government issues and
can also be subject to greater credit risk and the risk of default on the underlying mortgages or other assets. Investments in mortgage- and asset-backed securities are subject to both extension risk, where borrowers pay off their debt obligations
more slowly in times of rising interest rates, and prepayment risk, where borrowers pay off their debt obligations sooner than expected in times of declining interest rates. Asset-backed securities represent interests in a pool of assets, such as
home equity loans, CMBS, automobile receivables or credit card receivables, and include CLOs and stripped securities. Interests in CLOs are split into two or more portions, called tranches, which vary in risk, maturity, payment priority and yield.
Each CLO tranche is entitled to scheduled debt payments from the underlying loans and assumes the risk of a default by the underlying loans. The Fund will indirectly bear any management fees and expenses incurred by a CLO.
Lower Rated Investments Risk.
Investments rated below investment grade and comparable unrated investments (sometimes referred to as “junk”) are speculative because of increased credit risk relative to other fixed income investments. Changes in economic conditions or
other circumstances typically have a greater effect on the ability of issuers of lower rated investments to make principal and interest payments than they do on issuers of higher rated investments. An economic downturn generally leads to a higher
non-payment rate, and a lower rated investment may lose significant value before a default occurs. Lower rated investments typically are subject to greater price volatility and illiquidity than higher rated investments.
Derivatives Risk. The
Fund’s exposure to derivatives involves risks different from, or possibly greater than, the risks associated with investing directly in securities and other investments. The use of derivatives can lead to losses because of adverse movements in
the price or value of the security, instrument, index, currency, commodity, economic indicator or event underlying a derivative (“reference instrument”), due to failure of a counterparty or due to tax or regulatory constraints.
Derivatives may create leverage in the Fund, which represents a non-cash exposure to the underlying reference instrument. Leverage can increase both the risk and return potential of the Fund. Derivatives risk may be more significant when derivatives
are used to enhance return or as a substitute for a cash investment position, rather than solely to hedge the risk of a position held by the Fund. Use of derivatives involves the exercise of specialized skill and judgment, and a transaction may be
unsuccessful in whole or in part because of market behavior or unexpected events. Changes in the value of a derivative (including one used for hedging) may not correlate perfectly with the underlying reference instrument. Derivative instruments
traded in over-the-counter markets may be difficult to value, may be illiquid, and may be subject to wide swings in valuation caused by changes in the value of the underlying reference instrument. If a derivative’s counterparty is unable to
honor its commitments, the value of Fund shares may decline and the Fund could experience delays in (or be unable to achieve) the return of collateral or other assets held by the counterparty. The loss on derivative transactions may substantially
exceed the initial investment. A derivative investment also involves the risks relating to the reference instrument underlying the investment.
Leverage Risk. Certain Fund
transactions may give rise to leverage. Leverage can result from a non-cash exposure to the underlying reference instrument. Leverage can increase both the risk and return potential of the Fund. The use of leverage may cause the Fund to maintain
liquid assets or liquidate portfolio positions when it may not be advantageous to do so to satisfy its obligations. Leverage may cause the Fund’s share price to be more volatile than if it had not been leveraged, as certain types of leverage
may exaggerate the effect of any increase or decrease in the value of the Fund’s portfolio securities. The Fund may not be able to adjust its use of leverage rapidly enough to respond to interest rate volatility, inflation, and other changing
market conditions. As a result, the Fund’s use of leverage may have a negative impact on the Fund’s performance from time to time. The loss on leveraged investments may substantially exceed the initial investment.
Liquidity Risk. The Fund is
exposed to liquidity risk when trading volume, lack of a market maker or trading partner, large position size, market conditions, or legal restrictions impair its ability to sell particular investments or to sell them at advantageous market prices.
Consequently, the Fund may have to accept a lower price to sell an investment or continue to hold it or keep the position open, sell other investments to raise cash or abandon an investment opportunity, any of which could have a negative effect on
the Fund’s performance. These effects may be exacerbated during times of financial or political stress.
Reverse Repurchase Agreements.
In the event of the insolvency of the counterparty to a reverse repurchase agreement, recovery of the securities sold by the Fund may be delayed. In a reverse repurchase agreement, the counterparty’s insolvency may result in a loss equal to
the amount by which the value of the securities sold by the Fund exceeds the repurchase price payable by the Fund. When the Fund enters into a reverse repurchase agreement, any fluctuations in the market value of either the securities sold to the
counterparty or the securities which the Fund purchases with the proceeds under the agreement would affect the value of the Fund’s assets. As a result, such agreements may increase fluctuations in the net asset value of the Fund’s
shares. Reverse repurchase agreements, which are economically equivalent to secured borrowings, create leverage for the Fund are considered to be a form of borrowing by the Fund (and a loan from the counterparty), they create leverage.
Short Sale Risk. The Fund will
incur a loss as a result of a short sale if the price of the security sold short increases in value between the date of the short sale and the date on which the Fund purchases the security to replace the borrowed security. Short sale risks include,
among others, the potential loss of more money than the actual cost of the investment, and the risk that the third party to the short sale may fail to honor its contract terms, causing a loss to the Fund.
See Endnotes and
Additional Disclosures in this report.
8
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Eaton Vance
Short Duration Diversified Income Fund
October 31, 2025
The Fund's Investment
Objectives, Principal Strategies and Principal Risks‡ — continued
When-Issued and Forward Commitment Risk. Securities purchased on a when-issued or forward commitment basis are subject to the risk that when delivered they will be worth less than the agreed upon payment price.
U.S. Government Securities
Risk. Different types of U.S. government securities are subject to different levels of credit risk, including the risk of default, depending on the nature of the particular government support for that security.
Although certain U.S. Government-sponsored agencies (such as the Federal Home Loan Mortgage Corporation and the Federal National Mortgage Association) may be chartered or sponsored by acts of Congress, their securities are neither issued nor
guaranteed by the U.S. Treasury. With respect to U.S. government securities that are not backed by the full faith and credit of the United States, there is a risk that the U.S. Government will not provide financial support to such U.S. government
agencies, instrumentalities or sponsored enterprises if not obligated to do so by law. U.S. Treasury and U.S. Government agency securities generally have a lower return than other obligations because of their higher credit quality and market
liquidity.
ESG Investment Risk. To the extent that the investment adviser considers environmental, social and/or governance ("ESG") issues as a component in its investment decision-making process, the Fund's performance may be impacted. Additionally,
the investment adviser’s consideration of ESG issues in its investment decision-making process may require subjective analysis and the ability of the investment adviser to consider ESG issues may be difficult if data about a particular issuer
(or obligor) is limited. The investment adviser’s consideration of ESG issues may contribute to the investment adviser’s decision to forgo opportunities to buy certain securities. ESG issues with respect to an issuer (or obligor) or the
investment adviser’s assessment of such may change over time.
Cash and Money Market Instruments; Temporary Defensive Positions. The Fund may invest in cash or money market instruments, including high quality short-term instruments or an affiliated investment company that invests in such instruments. During unusual market conditions, including
for temporary defensive purposes, the Fund may invest up to 100% of its assets in cash or money market instruments, which may be inconsistent with its investment objective(s) and other policies, and as such, the Fund may not achieve its investment
objective(s) during this period. Money market instruments may be adversely affected by market and economic events, such as a sharp rise in prevailing short-term interest rates; adverse developments in the banking industry, which issues or guarantees
many money market instruments; adverse economic, political or other developments affecting issuers of money market instruments; changes in the credit quality of issuers; and default by a counterparty.
Risks Associated with Active Management. The success of the Fund’s investment strategy depends on portfolio management’s successful application of analytical skills and investment judgment. Active management involves subjective decisions and there
is no guarantee that such decisions will produce the desired results or expected returns.
Recent Market Conditions. Both
U.S. and international markets have experienced significant volatility in recent months and years. As a result of such volatility, investment returns may fluctuate significantly. National economies are substantially interconnected, as are global
financial markets, which creates the possibility that conditions in one country or region might adversely impact issuers in a different country or region. However, the interconnectedness of economies and/or markets may be diminishing, which may
impact such economies and markets in ways that cannot be foreseen at this time.
The U.S. government and the U.S. Federal Reserve, as well as
certain foreign governments and central banks, have from time to time taken steps to support financial markets. The U.S. government and the U.S. Federal Reserve may, conversely, reduce market support activities, including by taking action intended
to increase certain interest rates. This and other government intervention may not work as intended, particularly if the efforts are perceived by investors as being unlikely to achieve the desired results. Changes in government activities in this
regard, such as changes in interest rate policy, can negatively affect financial markets generally, increase market volatility and reduce the value and liquidity of securities in which the Fund invests.
Some countries, including the United States, have adopted more
protectionist trade policies. Slowing global economic growth, the rise in protectionist trade policies, changes to some major international trade agreements, risks associated with the trade agreement between the United Kingdom and the European
Union, and the risks associated with trade negotiations between the United States and China, could affect the economies of many nations in ways that cannot necessarily be foreseen at the present time. In addition, the current strength of the U.S.
dollar may decrease foreign demand for U.S. assets, which could have a negative impact on certain issuers and/or industries.
Regulators in the United States have proposed and adopted a
number of changes to regulations involving the markets and issuers, some of which apply to the Fund. The full effect of various newly adopted regulations is not currently known. Additionally, it is not currently known whether any of the proposed
regulations will be adopted. However, due to the scope of regulations being proposed and adopted, certain of these changes to regulation could limit the Fund’s ability to pursue its investment strategies or make certain investments, may make
it more costly for it to operate, or adversely impact performance.
Tensions, war, or open conflict between nations, such as
between Russia and Ukraine, in the Middle East, or in eastern Asia could affect the economies of many nations, including the United States. The duration of ongoing hostilities and any sanctions and related events cannot be predicted. Those events
present material uncertainty and risk with respect to markets globally and the performance of the Fund and its investments or operations could be negatively impacted.
There is widespread concern about the potential effects of
global climate change on property and security values. Certain issuers, industries and regions may be adversely affected by the impact of climate change in ways that cannot be foreseen. The impact of legislation, regulation and international accords
related to climate change may negatively impact certain issuers and/or industries.
See Endnotes and Additional Disclosures in this report.
9
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Short Duration Diversified Income Fund
October 31, 2025
The Fund's Investment
Objectives, Principal Strategies and Principal Risks‡ — continued
Cybersecurity Risk. With the
increased use of technologies by Fund service providers to conduct business, such as the Internet, the Fund is susceptible to operational, information security and related risks. In general, cyber incidents can result from deliberate attacks or
unintentional events. Cybersecurity failures by or breaches of the Fund’s investment adviser or administrator and other service providers (including, but not limited to, the custodian or transfer agent), and the issuers of securities in which
the Fund invests, may disrupt and otherwise adversely affect their business operations. This may result in financial losses to the Fund, impede Fund trading, interfere with the Fund’s ability to calculate its net asset value, interfere with
the Fund’s ability to transact business or cause violations of applicable privacy and other laws, regulatory fines, penalties, reputational damage, reimbursement or other compensation costs, or additional compliance costs.
Focused Investment Risk. To the
extent the Fund has substantial investments in a relatively small number of securities or issuers, or a particular market, industry, group of industries, country, region, group of countries, asset class or sector the Fund’s performance will be
more susceptible to any single economic, market, political, or regulatory occurrence affecting those particular securities or issuers or that particular market, industry, group of industries, country, region, group of countries, assets class, or
sector than a fund that invests more broadly.
General Fund Investing Risks.
The Fund is not a complete investment program and there is no guarantee that the Fund will achieve its investment objectives. It is possible to lose money by investing in the Fund. An investment in the Fund is not a deposit in a bank and is not
insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.
Anti-Takeover Provisions. The
Fund’s Agreement and Declaration of Trust and Amended and Restated By-Laws include provisions that could have the effect of making it more difficult to acquire control of the Fund and/or to change the composition of its Board.
Important Notice to Shareholders
Effective as of October 17, 2025, the Fund revised its
principal investment strategies to: (i) remove the Fund’s 25% minimum investment requirement in the Fund’s stated investment categories and (ii) remove the Fund’s current weighted average credit quality restriction. This annual
report reflects the changes to the Fund’s principal investment strategies.
See Endnotes and Additional Disclosures in this report.
10
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Eaton Vance
Short Duration Diversified Income Fund
October 31, 2025
Endnotes and
Additional Disclosures
11
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Short Duration Diversified Income Fund
October 31, 2025
Endnotes and
Additional Disclosures — continued
| Duration is a measure of the expected change in price of a bond — in percentage terms — given a one percent change in interest rates, all else being constant. Securities with lower durations tend to be less sensitive to interest rate changes. |
12
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October 31, 2025
Portfolio of
Investments
13
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Portfolio of
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14
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15
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16
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17
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18
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19
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20
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21
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22
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23
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Investments — continued
24
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Investments — continued
25
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26
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27
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28
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29
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30
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31
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Portfolio of
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| Forward Foreign Currency Exchange Contracts (Centrally Cleared) | |||||
| Currency Purchased | Currency Sold | Settlement
Date |
Value/Unrealized
Appreciation (Depreciation) | ||
| EUR | 81,963 | USD | 95,131 | 12/17/25 | $ (426) |
| EUR | 200,000 | USD | 232,132 | 12/17/25 | (1,040) |
| EUR | 79,000 | USD | 93,144 | 12/17/25 | (1,862) |
| EUR | 220,693 | USD | 260,205 | 12/17/25 | (5,203) |
| EUR | 260,292 | USD | 306,893 | 12/17/25 | (6,136) |
| EUR | 279,643 | USD | 329,709 | 12/17/25 | (6,592) |
| USD | 781,532 | EUR | 662,857 | 12/17/25 | 15,626 |
| USD | 500,847 | EUR | 424,794 | 12/17/25 | 10,014 |
| USD | 404,541 | EUR | 343,111 | 12/17/25 | 8,088 |
| USD | 389,082 | EUR | 330,000 | 12/17/25 | 7,779 |
| USD | 387,238 | EUR | 328,435 | 12/17/25 | 7,743 |
| USD | 350,244 | EUR | 297,060 | 12/17/25 | 7,003 |
| USD | 260,205 | EUR | 220,693 | 12/17/25 | 5,203 |
| USD | 252,205 | EUR | 213,908 | 12/17/25 | 5,043 |
| USD | 158,621 | EUR | 134,535 | 12/17/25 | 3,171 |
| USD | 118,030 | EUR | 100,107 | 12/17/25 | 2,360 |
| USD | 97,909 | EUR | 83,042 | 12/17/25 | 1,958 |
| USD | 149,424 | EUR | 128,740 | 12/17/25 | 669 |
| USD | 116,066 | EUR | 100,000 | 12/17/25 | 520 |
| USD | 78,517 | EUR | 67,649 | 12/17/25 | 352 |
| $54,270 | |||||
32
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October 31, 2025
Portfolio of
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| Forward Foreign Currency Exchange Contracts (OTC) | |||||||
| Currency Purchased | Currency Sold | Counterparty | Settlement
Date |
Unrealized
Appreciation |
Unrealized
(Depreciation) | ||
| USD | 465,284 | EUR | 395,203 | Standard Chartered Bank | 11/4/25 | $ 9,753 | $ — |
| EUR | 65,775 | USD | 76,244 | JPMorgan Chase Bank, N.A. | 11/7/25 | — | (415) |
| EUR | 117,311 | USD | 135,912 | JPMorgan Chase Bank, N.A. | 11/7/25 | — | (670) |
| USD | 445,932 | EUR | 380,000 | UBS AG | 11/7/25 | 7,850 | — |
| USD | 46,092 | EUR | 39,262 | Australia and New Zealand Banking Group Limited | 11/28/25 | 776 | — |
| USD | 46,124 | EUR | 39,262 | HSBC Bank USA, N.A. | 11/28/25 | 807 | — |
| USD | 37,310 | EUR | 31,774 | HSBC Bank USA, N.A. | 11/28/25 | 636 | — |
| USD | 55,036 | EUR | 46,880 | State Street Bank and Trust Company | 11/28/25 | 926 | — |
| USD | 456,857 | EUR | 395,203 | Standard Chartered Bank | 12/2/25 | 607 | — |
| USD | 83,507 | EUR | 70,722 | Deutsche Bank AG | 12/31/25 | 1,725 | — |
| USD | 82,935 | EUR | 70,344 | Deutsche Bank AG | 12/31/25 | 1,590 | — |
| USD | 69,570 | EUR | 58,934 | State Street Bank and Trust Company | 12/31/25 | 1,419 | — |
| $26,089 | $(1,085) | ||||||
| Futures Contracts | |||||
| Description | Number
of Contracts |
Position | Expiration
Date |
Notional
Amount |
Value/Unrealized
Appreciation (Depreciation) |
| Interest Rate Futures | |||||
| U.S. 5-Year Treasury Note | 92 | Long | 12/31/25 | $10,047,406 | $ 12,148 |
| U.S. Ultra 10-Year Treasury Note | 8 | Long | 12/19/25 | 923,875 | 12,944 |
| Euro-Bobl | (7) | Short | 12/8/25 | (954,187) | (4,276) |
| Euro-Bund | (8) | Short | 12/8/25 | (1,193,131) | (11,893) |
| Euro-Buxl | (1) | Short | 12/8/25 | (133,846) | (5,187) |
| U.S. 5-Year Treasury Note | (36) | Short | 12/31/25 | (3,931,594) | (2,226) |
| U.S. 10-Year Treasury Note | (47) | Short | 12/19/25 | (5,295,578) | (16,343) |
| U.S. Long Treasury Bond | (11) | Short | 12/19/25 | (1,290,438) | (18,213) |
| U.S. Ultra-Long Treasury Bond | (15) | Short | 12/19/25 | (1,819,219) | (56,241) |
| $ (89,287) | |||||
| Credit Default Swaps - Sell Protection (Centrally Cleared) | |||||||
| Reference Entity | Notional
Amount* (000's omitted) |
Contract
Annual Fixed Rate** |
Current
Market Annual Fixed Rate*** |
Termination
Date |
Value | Unamortized
Upfront Receipts (Payments) |
Unrealized
Appreciation (Depreciation) |
| Colombia | $ 5,000 | 1.00%
(pays quarterly)(1) |
1.91% | 12/20/30 | $ (200,049) | $192,562 | $ (7,487) |
| Croatia | 5,000 | 1.00%
(pays quarterly)(1) |
0.62 | 12/20/30 | 94,344 | (93,392) | 952 |
| Egypt | 180 | 1.00%
(pays quarterly)(1) |
2.50 | 12/20/28 | (7,541) | 34,318 | 26,777 |
33
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Short Duration Diversified Income Fund
October 31, 2025
Portfolio of
Investments — continued
| Credit Default Swaps - Sell Protection (Centrally Cleared) (continued) | |||||||
| Reference Entity | Notional
Amount* (000's omitted) |
Contract
Annual Fixed Rate** |
Current
Market Annual Fixed Rate*** |
Termination
Date |
Value | Unamortized
Upfront Receipts (Payments) |
Unrealized
Appreciation (Depreciation) |
| Hungary | $ 2,200 | 1.00%
(pays quarterly)(1) |
1.08% | 12/20/30 | $ (5,334) | $ 12,112 | $ 6,778 |
| Indonesia | 3,000 | 1.00%
(pays quarterly)(1) |
0.74 | 12/20/30 | 39,727 | (31,751) | 7,976 |
| Mexico | 2,500 | 1.00%
(pays quarterly)(1) |
0.93 | 12/20/30 | 11,299 | (6,929) | 4,370 |
| Peru | 2,000 | 1.00%
(pays quarterly)(1) |
0.65 | 12/20/30 | 34,930 | (26,062) | 8,868 |
| Total | $19,880 | $ (32,624) | $ 80,858 | $48,234 | |||
| Credit Default Swaps - Buy Protection (Centrally Cleared) | |||||||
| Reference Entity | Notional
Amount (000's omitted) |
Contract
Annual Fixed Rate** |
Termination
Date |
Value | Unamortized
Upfront Receipts (Payments) |
Unrealized
Appreciation (Depreciation) | |
| Markit CDX Emerging Markets Index (CDX.EM.43.V1) | $50 | 1.00%
(pays quarterly)(1) |
6/20/30 | $ 433 | $ (1,619) | $ (1,186) | |
| Total | $433 | $(1,619) | $(1,186) | ||||
| Credit Default Swaps - Sell Protection (OTC) | ||||||||
| Reference Entity | Counterparty | Notional
Amount* (000's omitted) |
Contract
Annual Fixed Rate** |
Current
Market Annual Fixed Rate*** |
Termination
Date |
Value | Unamortized
Upfront Receipts (Payments) |
Unrealized
Appreciation (Depreciation) |
| Angola | Deutsche Bank AG | $ 500 | 1.00%
(pays quarterly)(1) |
5.27% | 12/20/30 | $ (86,958) | $ 89,508 | $ 2,550 |
| Brazil | Bank of America, N.A. | 2,518 | 1.00%
(pays quarterly)(1) |
1.38 | 12/20/30 | (41,721) | 39,405 | (2,316) |
| Brazil | Citibank, N.A. | 1,050 | 1.00%
(pays quarterly)(1) |
1.65 | 12/20/31 | (35,345) | 93,351 | 58,006 |
| Ivory Coast | Deutsche Bank AG | 1,369 | 1.00%
(pays quarterly)(1) |
1.32 | 6/20/27 | (5,385) | 58,064 | 52,679 |
| Ivory Coast | Deutsche Bank AG | 1,525 | 1.00%
(pays quarterly)(1) |
1.32 | 6/20/27 | (6,000) | 64,617 | 58,617 |
| Mexico | Citibank, N.A. | 688 | 1.00%
(pays quarterly)(1) |
1.14 | 12/20/31 | (4,391) | 18,862 | 14,471 |
| Petroleos Mexicanos | Barclays Bank PLC | 182 | 1.00%
(pays quarterly)(1) |
1.29 | 12/20/26 | (394) | 2,614 | 2,220 |
| Petroleos Mexicanos | Barclays Bank PLC | 95 | 1.00%
(pays quarterly)(1) |
1.48 | 6/20/27 | (622) | 2,585 | 1,963 |
| Petroleos Mexicanos | Barclays Bank PLC | 181 | 1.00%
(pays quarterly)(1) |
1.48 | 6/20/27 | (1,185) | 4,223 | 3,038 |
| Petroleos Mexicanos | Goldman Sachs International | 88 | 1.00%
(pays quarterly)(1) |
1.18 | 6/20/26 | 5 | 2,136 | 2,141 |
34
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Short Duration Diversified Income Fund
October 31, 2025
Portfolio of
Investments — continued
| Credit Default Swaps - Sell Protection (OTC) (continued) | ||||||||
| Reference Entity | Counterparty | Notional
Amount* (000's omitted) |
Contract
Annual Fixed Rate** |
Current
Market Annual Fixed Rate*** |
Termination
Date |
Value | Unamortized
Upfront Receipts (Payments) |
Unrealized
Appreciation (Depreciation) |
| Petroleos Mexicanos | Goldman Sachs International | $ 46 | 1.00%
(pays quarterly)(1) |
1.18% | 6/20/26 | $ 0 | $ 359 | $ 359 |
| Petroleos Mexicanos | Goldman Sachs International | 35 | 1.00%
(pays quarterly)(1) |
1.48 | 6/20/27 | (229) | 788 | 559 |
| Petroleos Mexicanos | Goldman Sachs International | 180 | 1.00%
(pays quarterly)(1) |
1.48 | 6/20/27 | (1,178) | 4,080 | 2,902 |
| Petroleos Mexicanos | JPMorgan Chase Bank, N.A. | 68 | 1.00%
(pays quarterly)(1) |
1.45 | 6/20/27 | (411) | 1,717 | 1,306 |
| U.S. Single Family Rental | Goldman Sachs International | 674 | 7.85%
(pays monthly)(1) |
7.68 | 3/15/28 | 11,206 | 795 | 12,001 |
| Total | $9,199 | $ (172,608) | $383,104 | $210,496 | ||||
| Credit Default Swaps - Buy Protection (OTC) | |||||||
| Reference Entity | Counterparty | Notional
Amount (000's omitted) |
Contract
Annual Fixed Rate** |
Termination
Date |
Value | Unamortized
Upfront Receipts (Payments) |
Unrealized
Appreciation (Depreciation) |
| Ivory Coast | Barclays Bank PLC | $2,894 | 1.00%
(pays quarterly)(1) |
6/20/27 | $ 11,385 | $ (81,818) | $ (70,433) |
| Total | $11,385 | $(81,818) | $(70,433) | ||||
| * | If the Fund is the seller of credit protection, the notional amount is the maximum potential amount of future payments the Fund could be required to make if a credit event, as defined in the credit default swap agreement, were to occur. At October 31, 2025, such maximum potential amount for all open credit default swaps in which the Fund is the seller was $29,079,000. |
| ** | The contract annual fixed rate represents the fixed rate of interest received by the Fund (as a seller of protection) or paid by the Fund (as a buyer of protection) on the notional amount of the credit default swap contract. |
| *** | Current market annual fixed rates, utilized in determining the net unrealized appreciation or depreciation as of period end, serve as an indicator of the market’s perception of the current status of the payment/performance risk associated with the credit derivative. The current market annual fixed rate of a particular reference entity reflects the cost, as quoted by the pricing vendor, of selling protection against default of that entity as of period end and may include upfront payments required to be made to enter into the agreement. The higher the fixed rate, the greater the market perceived risk of a credit event involving the reference entity. A rate identified as “Defaulted” indicates a credit event has occurred for the reference entity. |
| (1) | Upfront payment is exchanged with the counterparty as a result of the standardized trading coupon. |
35
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Table of Contents
Eaton Vance
Short Duration Diversified Income Fund
October 31, 2025
Statement of Assets
and Liabilities
| October 31, 2025 | |
| Assets | |
| Unaffiliated investments, at value (identified cost $178,924,982) | $ 173,034,821 |
| Affiliated investments, at value (identified cost $18,531,048) | 18,319,053 |
| Cash | 213,269 |
| Deposits for derivatives collateral: | |
| Futures contracts | 393,004 |
| Centrally cleared derivatives | 3,754,458 |
| Foreign currency, at value (identified cost $127,497) | 125,945 |
| Interest receivable | 1,261,895 |
| Interest and dividends receivable from affiliated investments | 54,521 |
| Receivable for investments sold | 9,992,661 |
| Receivable for variation margin on open futures contracts | 9,207 |
| Receivable for variation margin on open centrally cleared derivatives | 18,392 |
| Receivable for open forward foreign currency exchange contracts | 26,089 |
| Receivable for open swap contracts | 212,812 |
| Upfront payments on open OTC swap contracts | 81,818 |
| Tax reclaims receivable | 127 |
| Trustees' deferred compensation plan | 94,373 |
| Prepaid upfront fees on notes payable | 10,726 |
| Prepaid expenses | 2,536 |
| Total assets | $207,605,707 |
| Liabilities | |
| Notes payable | $ 30,000,000 |
| Payable for investments purchased | 387,162 |
| Payable for when-issued/forward commitment securities | 22,902,949 |
| Payable for open forward foreign currency exchange contracts | 1,085 |
| Payable for open swap contracts | 72,749 |
| Upfront receipts on open OTC swap contracts | 383,104 |
| Payable to affiliates: | |
| Investment adviser fee | 152,678 |
| Trustees' fees | 1,252 |
| Trustees' deferred compensation plan | 94,373 |
| Accrued expenses | 421,096 |
| Total liabilities | $ 54,416,448 |
| Commitments and contingencies (see Note 11) | |
| Net Assets | $153,189,259 |
| Sources of Net Assets | |
| Common shares, $0.01 par value, unlimited number of shares authorized | $ 134,569 |
| Additional paid-in capital | 189,237,310 |
| Accumulated loss | (36,182,620) |
| Net Assets | $153,189,259 |
| Common Shares Issued and Outstanding | 13,456,906 |
| Net Asset Value Per Common Share | |
| Net assets ÷ common shares issued and outstanding | $ 11.38 |
36
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Eaton Vance
Short Duration Diversified Income Fund
October 31, 2025
Statement of
Operations
| Year Ended | |
| October 31, 2025 | |
| Investment Income | |
| Dividend income from affiliated investments | $ 339,890 |
| Interest income | 12,615,001 |
| Interest income from affiliated investments | 76,559 |
| Other income | 46,896 |
| Total investment income | $13,078,346 |
| Expenses | |
| Investment adviser fee | $ 1,723,807 |
| Trustees’ fees and expenses | 15,987 |
| Custodian fee | 272,133 |
| Transfer and dividend disbursing agent fees | 17,185 |
| Legal and accounting services | 179,350 |
| Printing and postage | 91,481 |
| Interest expense and fees | 1,838,945 |
| Miscellaneous | 57,672 |
| Total expenses | $ 4,196,560 |
| Deduct: | |
| Waiver and/or reimbursement of expenses by affiliates | $ 11,497 |
| Total expense reductions | $ 11,497 |
| Net expenses | $ 4,185,063 |
| Net investment income | $ 8,893,283 |
| Realized and Unrealized Gain (Loss) | |
| Net realized gain (loss): | |
| Investment transactions | $ (809,759) |
| Investment transactions - affiliated investments | 2,095 |
| Futures contracts | (196,343) |
| Swap contracts | 891,892 |
| Foreign currency transactions | 98,311 |
| Forward foreign currency exchange contracts | (192,705) |
| Net realized loss | $ (206,509) |
| Change in unrealized appreciation (depreciation): | |
| Investments | $ 5,928,107 |
| Investments - affiliated investments | 78,673 |
| Futures contracts | 112,392 |
| Swap contracts | (8,940) |
| Foreign currency | 37,160 |
| Forward foreign currency exchange contracts | 3,413 |
| Net change in unrealized appreciation (depreciation) | $ 6,150,805 |
| Net realized and unrealized gain | $ 5,944,296 |
| Net increase in net assets from operations | $14,837,579 |
37
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Table of Contents
Eaton Vance
Short Duration Diversified Income Fund
October 31, 2025
Statements of Changes
in Net Assets
| Year Ended October 31, | ||
| 2025 | 2024 | |
| Increase (Decrease) in Net Assets | ||
| From operations: | ||
| Net investment income | $ 8,893,283 | $ 10,021,007 |
| Net realized loss | (206,509) | (244,470) |
| Net change in unrealized appreciation (depreciation) | 6,150,805 | 12,119,180 |
| Net increase in net assets from operations | $ 14,837,579 | $ 21,895,717 |
| Distributions to shareholders | $ (9,799,820) | $ (11,079,527) |
| Tax return of capital to shareholders | $ (2,288,384) | $ (1,578,299) |
| Capital share transactions: | ||
| Reinvestment of distributions | $ 103,719 | $ 56,523 |
| Net increase in net assets from capital share transactions | $ 103,719 | $ 56,523 |
| Net increase in net assets | $ 2,853,094 | $ 9,294,414 |
| Net Assets | ||
| At beginning of year | $ 150,336,165 | $ 141,041,751 |
| At end of year | $153,189,259 | $150,336,165 |
38
See Notes to Financial Statements.
Table of Contents
Eaton Vance
Short Duration Diversified Income Fund
October 31, 2025
Statement of Cash
Flows
| Year Ended | |
| October 31, 2025 | |
| Cash Flows From Operating Activities | |
| Net increase in net assets from operations | $ 14,837,579 |
| Adjustments to reconcile net increase in net assets from operations to net cash provided by operating activities: | |
| Investments purchased | (222,055,980) |
| Investments sold and principal repayments | 235,958,020 |
| Increase in short-term investments, net | (9,543,936) |
| Net amortization/accretion of premium (discount) | 156,713 |
| Amortization of prepaid upfront fees on notes payable | 31,814 |
| Decrease in interest receivable | 186,325 |
| Increase in interest and dividends receivable from affiliated investments | (30,690) |
| Increase in receivable for variation margin on open futures contracts | (9,207) |
| Increase in receivable for variation margin on open centrally cleared derivatives | (18,392) |
| Increase in receivable for open swap contracts | (59,656) |
| Increase in upfront payments on open OTC swap contracts | (81,818) |
| Decrease in receivable from the transfer agent | 30,646 |
| Increase in tax reclaims receivable | (10) |
| Increase in Trustees’ deferred compensation plan | (3,321) |
| Increase in prepaid expenses | (1,018) |
| Decrease in payable for variation margin on open centrally cleared derivatives | (33,973) |
| Decrease in payable for variation margin on open futures contracts | (24,770) |
| Increase in payable for open swap contracts | 65,880 |
| Decrease in upfront receipts on open OTC swap contracts | (54,035) |
| Decrease in payable to affiliates for investment adviser fee | (18,937) |
| Increase in payable to affiliates for Trustees' fees | 280 |
| Increase in payable to affiliates for Trustees' deferred compensation plan | 3,321 |
| Decrease in accrued expenses | (80,201) |
| Increase in unfunded loan commitments | 50,742 |
| Net change in unrealized (appreciation) depreciation from investments | (6,006,780) |
| Net change in unrealized (appreciation) depreciation from forward foreign currency exchange contracts (OTC) | (11,559) |
| Net realized loss from investments | 807,664 |
| Net cash provided by operating activities | $ 14,094,701 |
| Cash Flows From Financing Activities | |
| Cash distributions paid | $ (11,984,485) |
| Proceeds from notes payable | 4,000,000 |
| Repayments of notes payable | (9,000,000) |
| Payment of upfront fees on notes payable | (30,000) |
| Net cash used in financing activities | $ (17,014,485) |
| Net decrease in cash and restricted cash* | $ (2,919,784) |
| Cash and restricted cash at beginning of year (including foreign currency) | $ 7,406,460 |
| Cash and restricted cash at end of year (including foreign currency) | $ 4,486,676 |
| Supplemental disclosure of cash flow information: | |
| Noncash financing activities not included herein consist of: | |
| Reinvestment of dividends and distributions | $ 103,719 |
| Cash paid for interest and fees on borrowings | 1,873,608 |
| * | Includes net change in unrealized (appreciation) depreciation on foreign currency of $1,962. |
39
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Table of Contents
Eaton Vance
Short Duration Diversified Income Fund
October 31, 2025
Statement of Cash
Flows — continued
The
following table provides a reconciliation of cash and restricted cash reported within the Statement of Assets and Liabilities that sum to the total of such amounts shown on the Statement of Cash Flows.
| October 31, 2025 | |
| Cash | $ 213,269 |
| Deposits for derivatives collateral: | |
| Futures contracts | 393,004 |
| Centrally cleared derivatives | 3,754,458 |
| Foreign currency | 125,945 |
| Total cash and restricted cash as shown on the Statement of Cash Flows | $4,486,676 |
40
See Notes to Financial Statements.
Table of Contents
Eaton Vance
Short Duration Diversified Income Fund
October 31, 2025
Financial
Highlights
| Year Ended October 31, | |||||
| 2025 | 2024 | 2023 | 2022 | 2021 | |
| Net asset value — Beginning of year | $ 11.18 | $ 10.49 | $ 10.48 | $ 13.31 | $ 13.23 |
| Income (Loss) From Operations | |||||
| Net investment income(1) | $ 0.66 | $ 0.75 | $ 0.77 | $ 0.56 | $ 0.71 |
| Net realized and unrealized gain (loss) | 0.44 | 0.88 | 0.22 | (2.19) | 0.42 |
| Total income (loss) from operations | $ 1.10 | $ 1.63 | $ 0.99 | $ (1.63) | $ 1.13 |
| Less Distributions | |||||
| From net investment income | $ (0.73) | $ (0.82) | $ (0.87) | $ (0.67) | $ (0.60) |
| Tax return of capital | (0.17) | (0.12) | (0.11) | (0.53) | (0.49) |
| Total distributions | $ (0.90) | $ (0.94) | $ (0.98) | $ (1.20) | $ (1.09) |
| Discount on tender offer(1) | $ — | $ — | $ — | $ — | $ 0.04 |
| Net asset value — End of year | $ 11.38 | $ 11.18 | $ 10.49 | $ 10.48 | $ 13.31 |
| Market value — End of year | $ 11.23 | $ 11.16 | $ 9.95 | $ 10.64 | $ 13.53 |
| Total Investment Return on Net Asset Value(2) | 10.32% | 16.12% | 10.20% | (12.67)% | 9.29% |
| Total Investment Return on Market Value(2) | 9.06% | 22.32% | 2.86% | (12.71)% | 23.94% |
| Ratios/Supplemental Data | |||||
| Net assets, end of year (000’s omitted) | $153,189 | $150,336 | $141,042 | $140,883 | $178,651 |
| Ratios (as a percentage of average daily net assets):(3) | |||||
| Expenses excluding interest and fees | 1.55% | 1.54% | 1.44% | 1.47% | 1.35% |
| Interest and fee expense(4) | 1.22% | 1.53% | 1.24% | 0.75% | 0.28% |
| Total expenses | 2.77% | 3.07% | 2.68% | 2.22% | 1.63% |
| Net expenses | 2.77% (5) | 3.07% (5) | 2.68% (5) | 2.22% (5) | 1.63% |
| Net investment income | 5.89% | 6.70% | 7.14% | 4.70% | 5.16% |
| Portfolio Turnover | 129% (6) | 156% (6) | 231% (6) | 182% (6) | 76% (6) |
| Senior Securities: | |||||
| Total notes payable outstanding (in 000’s) | $ 30,000 | $ 35,000 | $ 25,500 | $ 32,000 | $ 43,000 |
| Asset coverage per $1,000 of notes payable(7) | $ 6,106 | $ 5,295 | $ 6,531 | $ 5,403 | $ 5,155 |
| (1) | Computed using average common shares outstanding. |
| (2) | Returns are historical and are calculated by determining the percentage change in net asset value or market value with all distributions reinvested. Distributions are assumed to be reinvested at prices obtained under the Fund's dividend reinvestment plan. |
| (3) | Total expenses do not reflect amounts reimbursed and/or waived by the adviser and certain of its affiliates, if applicable. Net expenses are net of all reductions and represent the net expenses paid by the Fund. |
| (4) | Interest and fee expense relates to borrowings for the purpose of financial leverage (see Note 7). |
| (5) | Includes a reduction by the investment adviser of a portion of its adviser fee due to the Fund’s investment in the Liquidity Fund (equal to less than 0.01%, less than 0.01%, less than 0.01% and less than 0.005% of average daily net assets for the years ended October 31, 2025, 2024, 2023 and 2022, respectively). |
| (6) | Includes the effect of To Be Announced (TBA) transactions. |
| (7) | Calculated by subtracting the Fund’s total liabilities (not including the notes payable) from the Fund’s total assets, and dividing the result by the notes payable balance in thousands. |
41
See Notes to Financial Statements.
Table of Contents
Eaton Vance
Short Duration Diversified Income Fund
October 31, 2025
Notes to Financial
Statements
1 Significant Accounting Policies
Eaton Vance Short Duration Diversified Income Fund (the Fund)
is a Massachusetts business trust registered under the Investment Company Act of 1940, as amended (the 1940 Act), as a diversified, closed-end management investment company. The Fund’s 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 consistent with its primary goal of high current income.
The following is a summary of significant accounting policies
of the Fund. The policies are in conformity with accounting principles generally accepted in the United States of America (U.S. GAAP). The Fund is an investment company and follows accounting and reporting guidance in the Financial Accounting
Standards Board (FASB) Accounting Standards Codification Topic 946.
A Investment
Valuation—The following methodologies are used to determine the market value or fair value of
investments.
Senior Floating-Rate Loans. Interests in senior floating-rate loans (Senior Loans) are valued generally at the average mean of bid and ask quotations obtained from a third party pricing service. Senior Loans, for which a valuation is not available
or deemed unreliable, are fair valued by the investment adviser utilizing one or more of the valuation techniques described below to assess the likelihood that the borrower will make a full repayment of the loan underlying such Senior Loan. 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 relative to yields on other Senior
Loans issued by companies of comparable credit quality. If the investment adviser believes there is not a reasonable likelihood of full repayment, the investment adviser will determine fair value using analyses that include, but are not limited to:
(i) a comparison of the value of the borrower’s outstanding equity and debt to that of comparable public companies; (ii) a discounted cash flow analysis; or (iii) when the investment adviser believes it is likely that a borrower will be
liquidated or sold, an analysis of the terms of such liquidation or sale. In certain cases, the investment adviser will use a combination of analytical methods to determine fair value, such as when only a portion of a borrower’s assets are
likely to be sold. In conducting its assessment and analyses for purposes of determining fair value of a Senior Loan, the investment adviser will use its discretion and judgment in considering and appraising relevant factors. Junior Loans (i.e.,
subordinated loans and second lien loans) are valued in the same manner as Senior Loans.
Debt Obligations. Debt
obligations 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
ask prices, broker/dealer quotations, prices or yields of securities with similar characteristics, interest rates, anticipated prepayments, benchmark curves or information pertaining to the issuer, as well as industry and economic events. The
pricing services may use a matrix approach, which considers information regarding securities with similar characteristics to determine the valuation for a security. Short-term debt obligations purchased with a remaining maturity of sixty days or
less for which a valuation from a third party pricing service is not readily available may be valued at amortized cost, which approximates fair value.
Equity Securities. Equity
securities listed on a U.S. securities exchange generally are valued at the last sale or closing price on the day of valuation or, if no sales took place on such date, at the mean between the closing bid and ask prices on the exchange where such
securities are principally traded. Equity securities listed on the NASDAQ National Market System 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 ask prices or, in the case of preferred equity securities that are not listed or traded in the over-the-counter market, by a third party pricing service that uses various techniques
that consider factors including, but not limited to, prices or yields of securities with similar characteristics, benchmark yields, broker/dealer quotes, quotes of underlying common stock, issuer spreads, as well as industry and economic
events.
Derivatives. 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 ask prices that are reported by currency dealers to a third party pricing service at the valuation time. Such third party pricing service valuations are supplied for specific settlement periods and the Fund’s forward
foreign currency exchange contracts are valued at an interpolated rate between the closest preceding and subsequent settlement period reported by the third party pricing service. Swaps are normally valued using valuations provided by a third party
pricing service. Such pricing service valuations are based on the present value of fixed and projected floating rate cash flows over the term of the swap contract, and in the case of credit default swaps, based on credit spread quotations obtained
from broker/dealers and expected default recovery rates determined by the pricing service using proprietary models. Future cash flows on swaps are discounted to their present value using swap rates provided by electronic data services or by
broker/dealers.
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.
Other.
Investments in management investment companies (including money market funds) that do not trade on an exchange are valued at the net asset value as of the close of each business day.
Fair Valuation. In connection
with Rule 2a-5 of the 1940 Act, the Trustees have designated the Fund’s investment adviser as its valuation designee. Investments for which valuations or market quotations are not readily available or are deemed unreliable are valued by the
investment adviser, as valuation designee, at fair value using methods that most fairly reflect the security’s “fair value”, which is the amount that the Fund might reasonably expect to
42
Table of Contents
Eaton Vance
Short Duration Diversified Income Fund
October 31, 2025
Notes to Financial
Statements — continued
receive for the
security upon its current sale in the ordinary course. Each such determination is based on a consideration of relevant factors, which are likely to vary from one pricing context to another. These factors may include, but are not limited to, the type
of security, the existence of any contractual restrictions on the security’s disposition, the price and extent of public trading in similar securities of the issuer or of comparable companies or entities, quotations or relevant information
obtained from broker/dealers or other market participants, information obtained from the issuer, analysts, and/or the appropriate stock exchange (for exchange-traded securities), an analysis of the company’s or entity’s financial
statements, 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 in connection
with investments in senior floating-rate loans may include amendment fees, consent fees and prepayment fees, which are recorded to income as earned and included in Other income on the Statement of Operations. Dividend income is recorded on the
ex-dividend date for dividends received in cash and/or securities.
D Federal
Taxes—The Fund’s policy is to comply with the provisions of the Internal Revenue Code applicable
to regulated investment companies and to distribute to shareholders each year substantially all of its net investment income, and all or substantially all of its net realized capital gains. Accordingly, no provision for federal income or excise tax
is necessary.
As of October 31, 2025, the Fund had
no uncertain tax positions that would require financial statement recognition, de-recognition, or disclosure. The Fund files a U.S. federal income tax return annually after its fiscal year-end, which is subject to examination by the Internal Revenue
Service for a period of three years from the date of filing.
E Foreign Currency Translation—Investment valuations, other assets, and liabilities initially expressed in foreign currencies are
translated each business day into U.S. dollars based upon current exchange rates. Purchases and sales of foreign investment securities and income and expenses denominated in foreign currencies are translated into U.S. dollars based upon currency
exchange rates in effect on the respective dates of such transactions. Recognized gains or losses on investment transactions attributable to changes in foreign currency exchange rates are recorded for financial statement purposes as net realized
gains and losses on investments. That portion of unrealized gains and losses on investments that results from fluctuations in foreign currency exchange rates is not separately disclosed.
F Unfunded Loan Commitments—The Fund may enter into certain loan agreements all or a portion of which may be unfunded. The Fund is
obligated to fund these commitments at the borrower's discretion. These commitments, if any, are disclosed in the accompanying Portfolio of Investments. At October 31, 2025, the Fund had sufficient cash and/or securities to cover these
commitments.
G Use of Estimates—The preparation of the financial statements in conformity with U.S. GAAP requires management to make
estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of income and expense during the reporting period. Actual results could differ from those
estimates.
H Indemnifications—Under the Fund’s organizational documents, its officers and Trustees may be indemnified against
certain liabilities and expenses arising out of the performance of their duties to the Fund. Under Massachusetts law, if certain conditions prevail, shareholders of a Massachusetts business trust (such as the Fund) could be deemed to have personal
liability for the obligations of the Fund. However, the Fund’s Declaration of Trust contains an express disclaimer of liability on the part of Fund shareholders and the By-laws provide that the Fund shall assume, upon request by the
shareholder, the defense on behalf of any Fund shareholders. Moreover, the By-laws also provide for indemnification out of Fund property of any shareholder held personally liable solely by reason of being or having been a shareholder for all loss or
expense arising from such liability. Additionally, in the normal course of business, the Fund enters into agreements with service providers that may contain indemnification clauses. The Fund’s maximum exposure under these arrangements is
unknown as this would involve future claims that may be made against the Fund that have not yet occurred.
I Futures
Contracts—Upon entering into a 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 futures contracts. Should market conditions change unexpectedly, the
Fund may not achieve the anticipated benefits of the futures contracts and may realize a loss. Futures contracts have minimal counterparty risk as they are exchange traded and the clearinghouse for the exchange is substituted as the counterparty,
guaranteeing counterparty performance.
J Forward Foreign Currency Exchange Contracts—The Fund may enter into forward foreign currency exchange contracts for the purchase or sale of a specific
foreign currency at a fixed price on a future date. The forward foreign currency exchange contracts are adjusted by the daily exchange rate of the underlying currency and any gains or losses are recorded as unrealized until such time as the
contracts have been closed. While forward foreign currency exchange contracts are privately negotiated agreements between the Fund and a counterparty, certain contracts may be “centrally cleared”, whereby all payments made or received by
the Fund pursuant to the contract are with a central clearing party (CCP) rather than the original counterparty. The CCP guarantees the performance of the original parties to the contract. Upon entering into centrally cleared contracts, the Fund is
required to deposit with the
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Eaton Vance
Short Duration Diversified Income Fund
October 31, 2025
Notes to Financial
Statements — continued
CCP, either in cash
or securities, an amount of initial margin determined by the CCP, which is subject to adjustment. For centrally cleared contracts, the daily change in valuation is recorded as a receivable or payable for variation margin and settled in cash with the
CCP daily. 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. In the case of
centrally cleared contracts, counterparty risk is minimal due to protections provided by the CCP.
K Credit Default
Swaps—When the Fund is the buyer of a credit default swap contract, the Fund is entitled to receive
the par (or other agreed-upon) value of a referenced debt obligation (or basket of debt obligations) from the counterparty (or CCP in the case of a centrally cleared swap) to the contract if a credit event by a third party, such as a U.S. or
foreign corporate issuer or sovereign issuer, on the debt obligation occurs. In return, the Fund pays the counterparty a periodic stream of payments over the term of the contract provided that no credit event has occurred. If no credit event occurs,
the Fund would have spent the stream of payments and received no proceeds from the contract. When the Fund is the seller of a credit default swap contract, it receives the stream of payments, but is obligated to pay to the buyer of the protection an
amount up to the notional amount of the swap and in certain instances take delivery of securities of the reference entity upon the occurrence of a credit event, as defined under the terms of that particular swap agreement. Credit events are contract
specific but may include bankruptcy, failure to pay, restructuring, obligation acceleration and repudiation/moratorium. If the Fund is a seller of protection and a credit event occurs, the maximum potential amount of future payments that the Fund
could be required to make would be an amount equal to the notional amount of the agreement. This potential amount would be partially offset by any recovery value of the respective referenced obligation, or net amount received from the settlement of
a buy protection credit default swap agreement entered into by the Fund for the same referenced obligation. As the seller, the Fund may create economic leverage to its portfolio because, in addition to its total net assets, the Fund is subject to
investment exposure on the notional amount of the swap. The interest fee paid or received on the swap contract, which is based on a specified interest rate on a fixed notional amount, is accrued daily as a component of unrealized appreciation
(depreciation) and is recorded as realized gain upon receipt or realized loss upon payment. The Fund also records an increase or decrease to unrealized appreciation (depreciation) in an amount equal to the daily valuation. For centrally cleared
swaps, the daily change in valuation is recorded as a receivable or payable for variation margin and settled in cash with the CCP daily. All upfront payments and receipts, if any, are amortized over the life of the swap contract as realized gains or
losses. Those upfront payments or receipts for non-centrally cleared swaps are recorded as other assets or other liabilities, respectively, net of amortization. For financial reporting purposes, unamortized upfront payments or receipts, if any, are
netted with unrealized appreciation or depreciation on swap contracts to determine the market value of swaps as presented in Notes 6 and 9. These transactions involve certain risks, including the risk that the seller may be unable to fulfill the
transaction. In the case of centrally cleared swaps, counterparty risk is minimal due to protections provided by the CCP.
L When-Issued Securities and Delayed Delivery
Transactions—The Fund may purchase securities on a delayed delivery, when-issued or forward commitment
basis, including TBA (To Be Announced) securities. Payment and delivery may take place after the customary settlement period for that security. At the time the transaction is negotiated, the price of the security that will be delivered is fixed.
Securities purchased on a delayed delivery, when-issued or forward commitment basis are marked-to-market daily and begin earning interest on settlement date. Such security purchases are subject to the risk that when delivered they will be worth less
than the agreed upon payment price. Losses may also arise if the counterparty does not perform under the contract. A forward purchase commitment may also be closed by entering into an offsetting commitment. If an offsetting commitment is entered
into, the Fund will realize a gain or loss on investments based on the price established when the Fund entered into the commitment.
M Stripped Mortgage-Backed Securities—The Fund may invest in Interest Only (IO) and Principal Only (PO) securities, a form of stripped
mortgage-backed securities, whereby the IO security receives all the interest and the PO security receives all the principal on a pool of mortgage assets. The yield to maturity on an IO security is extremely sensitive to the rate of principal
payments (including prepayments) on the related underlying mortgage assets, and a rapid rate of principal payments may have a material adverse effect on the yield to maturity from these securities. If the underlying mortgages experience greater than
anticipated prepayments of principal, the Fund may fail to recoup its initial investment in an IO security. The market value of IO and PO securities can be unusually volatile due to changes in interest rates.
N Segment
Reporting—During this reporting period, the Fund adopted FASB Accounting Standards Update No. 2023-07,
Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (ASU 2023-07), which requires incremental disclosures related to a
public entity’s reportable segments. The Fund operates as a single reportable segment, an investment company whose investment objective(s) is included in Note 1. In connection with the adoption of ASU 2023-07, the Fund’s President acts
as the Fund's Chief Operating Decision Maker (CODM), who is responsible for assessing the performance of the Fund's single segment and deciding how to allocate the segment’s resources. To perform this function, the CODM reviews the information
in the Fund’s financial statements.
44
Table of Contents
Eaton Vance
Short Duration Diversified Income Fund
October 31, 2025
Notes to Financial
Statements — continued
2 Distributions to Shareholders and Income Tax
Information
The Fund intends to make monthly
distributions to shareholders and at least one distribution annually of all or substantially all of its net realized capital gains. In its distributions, the Fund intends to include amounts attributable to the imputed interest on foreign currency
exposures through long and short positions in forward currency exchange contracts (represented by the difference between the foreign currency spot rate and the foreign currency forward rate) and the imputed interest derived from certain other
derivative positions. Distributions are recorded on the ex-dividend date. Distributions to shareholders are determined in accordance with income tax regulations, which may differ from U.S. GAAP. As required by U.S. GAAP, only distributions in excess
of tax basis earnings and profits are reported in the financial statements as a return of capital. Permanent differences between book and tax accounting relating to distributions are reclassified to paid-in capital. For tax purposes, distributions
from short-term capital gains are considered to be from ordinary income. In certain circumstances, a portion of distributions to shareholders may include a return of capital component.
The tax character of distributions declared for the years ended
October 31, 2025 and October 31, 2024 was as follows:
| Year Ended October 31, | ||
| 2025 | 2024 | |
| Ordinary income | $9,799,820 | $11,079,527 |
| Tax return of capital | $2,288,384 | $ 1,578,299 |
As of October 31, 2025, the components of distributable
earnings (accumulated loss) on a tax basis were as follows:
| Deferred capital losses | $ (29,478,258) |
| Net unrealized depreciation | (6,704,362) |
| Accumulated loss | $(36,182,620) |
At October 31, 2025, the Fund, for
federal income tax purposes, had deferred capital losses of $29,478,258 which would reduce its taxable income arising from future net realized gains on investment transactions, if any, to the extent permitted by the Internal Revenue Code, and thus
would reduce the amount of distributions to shareholders, which would otherwise be necessary to relieve the Fund of any liability for federal income or excise tax. The deferred capital losses are treated as arising on the first day of the
Fund’s next taxable year and retain the same short-term or long-term character as when originally deferred. Of the deferred capital losses at October 31, 2025, $7,626,734 are short-term and $21,851,524 are long-term.
The cost and unrealized appreciation (depreciation) of
investments, including open derivative contracts, of the Fund at October 31, 2025, as determined on a federal income tax basis, were as follows:
| Aggregate cost | $ 198,141,807 |
| Gross unrealized appreciation | $ 7,467,418 |
| Gross unrealized depreciation | (14,222,396) |
| Net unrealized depreciation | $ (6,754,978) |
45
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Eaton Vance
Short Duration Diversified Income Fund
October 31, 2025
Notes to Financial
Statements — continued
3 Investment Adviser Fee and Other Transactions
with Affiliates
The investment adviser fee is earned by
Eaton Vance Management (EVM), an indirect, wholly-owned subsidiary of Morgan Stanley, as compensation for investment advisory services rendered to the Fund. The fee is computed at an annual rate of 0.75% of the Fund’s average daily total
leveraged assets, subject to the limitation described below, and is payable monthly. Total leveraged assets as referred to herein represent the value of all assets of the Fund (including assets acquired with financial leverage), plus the notional
value of long and short forward foreign currency contracts and futures contracts and swaps based upon foreign currencies, issuers or markets held by the Fund, minus all accrued expenses incurred in the normal course of operations, but not excluding
any liabilities or obligations attributable to investment leverage obtained through (i) indebtedness of any type (including, without limitation, borrowing through a credit facility/commercial paper program or the issuance of debt securities), (ii)
the issuance of preferred stock or other similar preference securities, (iii) the reinvestment of collateral received for securities loaned in accordance with the Fund’s investment objectives and policies, and/or (iv) any other means. Accrued
expenses includes other liabilities other than indebtedness attributable to leverage. The notional value of a contract for purposes of calculating total leveraged assets is the stated dollar value of the underlying reference instrument at the time
the derivative position is entered into and remains constant throughout the life of the derivative contract. However, the derivative contracts are marked-to-market daily and any unrealized appreciation or depreciation is reflected in the
Fund’s net assets. When the Fund holds both long and short forward currency contracts in the same foreign currency, the offsetting positions are netted for purposes of determining total leveraged assets. When the Fund holds other long and
short positions in foreign obligations in a given country denominated in the same currency, total leveraged assets are calculated by excluding the smaller of the long or short position.
The investment advisory agreement provides that if investment
leverage exceeds 40% of the Fund's total leveraged assets, EVM shall not be entitled to receive the above described compensation with respect to total leveraged assets in excess of this amount. As of October 31, 2025, the Fund's investment leverage
was 30% of its total leveraged assets. For the year ended October 31, 2025, the investment adviser fee amounted to $1,723,807 or 0.75% of the Fund’s average daily total leveraged assets and 1.14% of the Fund's average daily net assets.
The Fund may invest in a money market fund, the Institutional
Class of the Morgan Stanley Institutional Liquidity Funds - Government Portfolio (the “Liquidity Fund”), an open-end management investment company managed by Morgan Stanley Investment Management Inc., a wholly-owned subsidiary of Morgan
Stanley. The investment adviser fee paid by the Fund is reduced by an amount equal to its pro rata share of the advisory and administration fees paid by the Fund due to its investment in the Liquidity Fund. For the year ended October 31, 2025, the
investment adviser fee paid was reduced by $11,497 relating to the Fund’s investment in the Liquidity Fund.
Trustees and officers of the Fund who are members of EVM's
organization receive remuneration for their services to the Fund out of the investment adviser fee. Trustees of the Fund who are not affiliated with EVM may elect to defer receipt of all or a percentage of their annual fees in accordance with the
terms of the Trustees Deferred Compensation Plan. Certain officers and Trustees of the Fund are officers of EVM.
4 Purchases and Sales of Investments
Purchases and sales of investments, other than short-term
obligations and including maturities, paydowns, principal repayments on Senior Loans and TBA transactions, for the year ended October 31, 2025 were as follows:
| Purchases | Sales | |
| Investments (non-U.S. Government) | $ 48,511,164 | $ 68,309,883 |
| U.S. Government and Agency Securities | 182,964,427 | 177,096,092 |
| $231,475,591 | $245,405,975 |
5 Common Shares of
Beneficial Interest
The Fund may issue common shares
pursuant to its dividend reinvestment plan. Common shares issued by the Fund pursuant to its dividend reinvestment plan for the years ended October 31, 2025 and October 31, 2024 were 9,182 and 5,027, respectively.
In November 2013, the Board of Trustees initially approved a
share repurchase program for the Fund. Pursuant to the reauthorization of the share repurchase program by the Board of Trustees in March 2019, the Fund is authorized to repurchase up to 10% of its common shares outstanding as of the last day of the
prior calendar year at market prices when shares are trading at a discount to net asset value. The share repurchase program does not obligate the Fund to purchase a specific amount of shares. There were no repurchases of common shares by the Fund
for the years ended October 31, 2025 and the October 31, 2024.
At October 31, 2025, according to the filings made on Schedule
13D and 13G pursuant to Sections 13(d) and 13(g) of the Securities Exchange Act of as amended, two affiliated entities together owned 11.3% of the Fund’s common shares.
46
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Eaton Vance
Short Duration Diversified Income Fund
October 31, 2025
Notes to Financial
Statements — continued
6 Financial Instruments
The Fund may trade in financial instruments with off-balance
sheet risk in the normal course of its investing activities. These financial instruments may include forward foreign currency exchange contracts, futures contracts and swap contracts and may involve, to a varying degree, elements of risk in excess
of the amounts recognized for financial statement purposes. The notional or contractual amounts of these instruments represent the investment the Fund has in particular classes of financial instruments and do not necessarily represent the
amounts potentially subject to risk. The measurement of the risks associated with these instruments is meaningful only when all related and offsetting transactions are considered. A summary of obligations under these financial instruments at October
31, 2025 is included in the Portfolio of Investments. At October 31, 2025, the Fund had sufficient cash and/or securities to cover commitments under these contracts.
In the normal course of pursuing its investment objectives, the
Fund is subject to the following risks:
Credit Risk: The
Fund enters into credit default swap contracts to enhance total return and/or as a substitute for the purchase of securities.
Foreign Exchange Risk: The Fund holds foreign currency
denominated investments. The value of these investments and related receivables and payables may change due to future changes in foreign currency exchange rates. To hedge against this risk, the Fund enters into forward foreign currency exchange
contracts.
Interest Rate Risk: The Fund utilizes futures
contracts to manage the duration of its portfolio and to hedge against fluctuations in securities prices due to interest rates.
The Fund enters into over-the-counter (OTC) derivatives that
may contain provisions whereby the counterparty may terminate the contract under certain conditions, including but not limited to a decline in the Fund's net assets below a certain level over a certain period of time, which would trigger a payment
by the Fund for those derivatives in a liability position. At October 31, 2025, the fair value of derivatives with credit-related contingent features in a net liability position was $184,904. The aggregate fair value of assets pledged as collateral
by the Fund for such liability was $492,154 at October 31, 2025.
The OTC derivatives in which the Fund invests are subject to
the risk that the counterparty to the contract fails to perform its obligations under the contract. To mitigate this risk, the Fund has entered into an International Swaps and Derivatives Association, Inc. Master Agreement (“ISDA Master
Agreement”) or similar agreement with substantially all its derivative counterparties. An ISDA Master Agreement is a bilateral agreement between the Fund and a counterparty that governs certain OTC derivatives and typically contains, among
other things, set-off provisions in the event of a default and/or termination event as defined under the relevant ISDA Master Agreement. Under an ISDA Master Agreement, the Fund may, under certain circumstances, offset with the counterparty certain
derivative financial instruments’ payables and/or receivables with collateral held and/or posted and create one single net payment. The provisions of the ISDA Master Agreement typically permit a single net payment in the event of default
including the bankruptcy or insolvency of the counterparty. However, bankruptcy or insolvency laws of a particular jurisdiction may impose restrictions on or prohibitions against the right of offset in bankruptcy or insolvency. Certain ISDA Master
Agreements allow counterparties to OTC derivatives to terminate derivative contracts prior to maturity in the event the Fund’s net assets decline by a stated percentage or the Fund fails to meet the terms of its ISDA Master Agreements, which
would cause the counterparty to accelerate payment by the Fund of any net liability owed to it.
The collateral requirements for derivatives traded under an
ISDA Master Agreement are governed by a Credit Support Annex to the ISDA Master Agreement. Collateral requirements are determined at the close of business each day and are typically based on changes in market values for each transaction under an
ISDA Master Agreement and netted into one amount for such agreement. Generally, the amount of collateral due from or to a counterparty is subject to a minimum transfer threshold amount before a transfer is required, which may vary by counterparty.
Collateral pledged for the benefit of the Fund and/or counterparty is held in segregated accounts by the Fund’s custodian and cannot be sold, re-pledged, assigned or otherwise used while pledged. The portion of such collateral representing
cash, if any, is reflected as deposits for derivatives collateral and, in the case of cash pledged by a counterparty for the benefit of the Fund, a corresponding liability on the Statement of Assets and Liabilities. Securities pledged by the Fund as
collateral, if any, are identified as such in the Portfolio of Investments.
47
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Eaton Vance
Short Duration Diversified Income Fund
October 31, 2025
Notes to Financial
Statements — continued
The
fair value of open derivative instruments (not considered to be hedging instruments for accounting disclosure purposes) by risk exposure at October 31, 2025 was as follows:
| Fair Value | ||||
| Statement of Assets and Liabilities Caption | Credit | Foreign
Exchange |
Interest
Rate |
Total |
| Accumulated loss | $ 180,733(1) | $ 75,529(1) | $ 25,092(1) | $ 281,354 |
| Receivable for open forward foreign currency exchange contracts | — | 26,089 | — | 26,089 |
| Receivable/Payable for open swap contracts; Upfront payments/receipts on open OTC swap contracts | 22,596 | — | — | 22,596 |
| Total Asset Derivatives | $ 203,329 | $101,618 | $ 25,092 | $ 330,039 |
| Derivatives not subject to master netting or similar agreements | $ 180,733 | $ 75,529 | $ 25,092 | $ 281,354 |
| Total Asset Derivatives subject to master netting or similar agreements | $ 22,596 | $ 26,089 | $ — | $ 48,685 |
| Accumulated loss | $ (212,924)(1) | $ (21,259)(1) | $ (114,379)(1) | $ (348,562) |
| Payable for open forward foreign currency exchange contracts | — | (1,085) | — | (1,085) |
| Payable for open swap contracts; Upfront receipts on open OTC swap contracts | (183,819) | — | — | (183,819) |
| Total Liability Derivatives | $(396,743) | $ (22,344) | $(114,379) | $(533,466) |
| Derivatives not subject to master netting or similar agreements | $(212,924) | $ (21,259) | $(114,379) | $(348,562) |
| Total Liability Derivatives subject to master netting or similar agreements | $(183,819) | $ (1,085) | $ — | $(184,904) |
| (1) | For futures contracts and centrally cleared derivatives, amount represents value as shown in the Portfolio of Investments. Only the current day’s variation margin on open futures contracts and centrally cleared derivatives is reported within the Statement of Assets and Liabilities as Receivable or Payable for variation margin on open futures contracts and centrally cleared derivatives, as applicable. |
The Fund's derivative assets and liabilities at fair value by
risk, which are reported gross in the Statement of Assets and Liabilities, are presented in the table above. The following tables present the Fund's derivative assets and liabilities by counterparty, net of amounts available for offset under a
master netting agreement and net of the related collateral received by the Fund for such assets and pledged by the Fund for such liabilities as of October 31, 2025.
| Counterparty | Derivative
Assets Subject to Master Netting Agreement |
Derivatives
Available for Offset |
Non-cash
Collateral Received(a) |
Cash
Collateral Received(a) |
Net
Amount of Derivative Assets(b) |
| Australia and New Zealand Banking Group Limited | $ 776 | $ — | $ — | $ — | $ 776 |
| Barclays Bank PLC | 11,385 | (2,201) | — | — | 9,184 |
| Deutsche Bank AG | 3,315 | (3,315) | — | — | — |
| Goldman Sachs International | 11,211 | (1,407) | — | — | 9,804 |
| HSBC Bank USA, N.A. | 1,443 | — | — | — | 1,443 |
| Standard Chartered Bank | 10,360 | — | — | — | 10,360 |
| State Street Bank and Trust Company | 2,345 | — | — | — | 2,345 |
| UBS AG | 7,850 | — | — | — | 7,850 |
| $48,685 | $(6,923) | $ — | $ — | $41,762 |
48
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Eaton Vance
Short Duration Diversified Income Fund
October 31, 2025
Notes to Financial
Statements — continued
| Counterparty | Derivative
Liabilities Subject to Master Netting Agreement |
Derivatives
Available for Offset |
Non-cash
Collateral Pledged(a) |
Cash
Collateral Pledged(a) |
Net
Amount of Derivative Liabilities(c) |
| Bank of America, N.A. | $ (41,721) | $ — | $ 29,900 | $ — | $ (11,821) |
| Barclays Bank PLC | (2,201) | 2,201 | — | — | — |
| Citibank, N.A. | (39,736) | — | 39,736 | — | — |
| Deutsche Bank AG | (98,343) | 3,315 | — | — | (95,028) |
| Goldman Sachs International | (1,407) | 1,407 | — | — | — |
| JPMorgan Chase Bank, N.A. | (1,496) | — | — | — | (1,496) |
| $(184,904) | $6,923 | $69,636 | $ — | $(108,345) |
| (a) | In some instances, the total 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. |
The effect of derivative instruments (not considered to be
hedging instruments for accounting disclosure purposes) on the Statement of Operations by risk exposure for the year ended October 31, 2025 was as follows:
| Statement of Operations Caption | Credit | Foreign
Exchange |
Interest
Rate |
Total |
| Net realized gain (loss): | ||||
| Futures contracts | $ — | $ — | $ (196,343) | $ (196,343) |
| Swap contracts | 891,892 | — | — | 891,892 |
| Forward foreign currency exchange contracts | — | (192,705) | — | (192,705) |
| Total | $891,892 | $(192,705) | $(196,343) | $ 502,844 |
| Change in unrealized appreciation (depreciation): | ||||
| Futures contracts | $ — | $ — | $ 112,392 | $ 112,392 |
| Swap contracts | (8,940) | — | — | (8,940) |
| Forward foreign currency exchange contracts | — | 3,413 | — | 3,413 |
| Total | $ (8,940) | $ 3,413 | $ 112,392 | $ 106,865 |
The average notional cost of futures contracts and average
notional amounts of other derivative contracts outstanding during the year ended October 31, 2025, which are indicative of the volume of these derivative types, were approximately as follows:
| Futures
Contracts — Long |
Futures
Contracts — Short |
Forward
Foreign Currency Exchange Contracts1 |
Swap
Contracts |
| $19,394,000 | $13,167,000 | $7,162,000 | $31,360,000 |
| 1 | The average notional amount for forward foreign currency exchange contracts is based on the absolute value of notional amounts of currency purchased and currency sold. |
49
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Eaton Vance
Short Duration Diversified Income Fund
October 31, 2025
Notes to Financial
Statements — continued
7 Credit Agreement
The Fund has entered into a Credit Agreement, as amended, (the
Agreement) with a bank to borrow up to a limit of $60 million ($70 million prior to March 11, 2025) pursuant to a revolving line of credit. Borrowings under the Agreement are secured by the assets of the Fund. Interest is generally charged at a
rate above the Secured Overnight Financing Rate (SOFR) and is payable monthly. Under the terms of the Agreement, in effect through March 10, 2026, the Fund pays a commitment fee of 0.15% on the borrowing limit. In connection with the renewal of the
Agreement on March 11, 2025, the Fund paid an upfront fee of $30,000, which is being amortized to interest expense through March 10, 2026. The unamortized balance at October 31, 2025 is approximately $11,000 and is included in prepaid upfront fees
on notes payable on the Statement of Assets and Liabilities. The Fund is required to maintain certain net asset levels during the term of the Agreement. At October 31, 2025, the Fund had borrowings outstanding under the Agreement of $30,000,000 at
an annual interest rate of 5.03%. Based on the short-term nature of the borrowings under the Agreement and the variable interest rate, the carrying amount of the borrowings at October 31, 2025 approximated its fair value. If measured at fair value,
borrowings under the Agreement would have been considered as Level 2 in the fair value hierarchy (see Note 9) at October 31, 2025. For the year ended October 31, 2025, the average borrowings under the Agreement and the average annual interest rate
(excluding fees) were $31,997,260 and 5.28%, respectively.
8 Affiliated Investments
At October 31, 2025, the value of the Fund’s investment
in issuers and funds that may be deemed to be affiliated was $18,319,053, which represents 12.0% of the Fund’s net assets. Transactions in such investments by the Fund for the year ended October 31, 2025 were as follows:
| Name | Value,
beginning of period |
Purchases | Sales
proceeds |
Net
realized gain (loss) |
Change
in unrealized appreciation (depreciation) |
Value,
end of period |
Interest/
Dividend income |
Principal
amount ($)/ Shares, end of period |
| Commercial Mortgage-Backed Securities | ||||||||
| Morgan Stanley Bank of America Merrill Lynch Trust: | ||||||||
| Series 2014-C16, Class B, 4.305%, 6/15/47 | $ 83,615 | $ — | $ (87,615) | $ 2,095 | $ (3,287) | $ — | $ 6,000 | $ — |
| Series 2016-C29, Class D, 3.00%, 5/15/49 | 858,749 | — | — | — | (100,835) | 763,709 | 35,129 | $1,000,000 |
| Series 2016-C32, Class D, 3.396%, 12/15/49 | 178,800 | — | — | — | 29,044 | 209,438 | 10,084 | $ 250,000 |
| Morgan Stanley Capital I Trust, Series 2016-UBS12, Class D, 3.312%, 12/15/49 | 546,013 | 76,725 | — | — | 153,751 | 787,706 | 25,346 | $1,227,333 |
| Short-Term Investments | ||||||||
| Liquidity Fund | 7,221,157 | 82,337,206 | (73,000,163) | — | — | 16,558,200 | 339,890 | 16,558,200 |
| Total | $2,095 | $ 78,673 | $18,319,053 | $416,449 | ||||
9 Fair Value Measurements
Under generally accepted accounting principles for fair value
measurements, a three-tier hierarchy to prioritize the assumptions, referred to as inputs, is used in valuation techniques to measure fair value. The three-tier hierarchy of inputs is summarized in the three broad levels listed below.
| • | Level 1 – quoted prices in active markets for identical investments |
| • | Level 2 – other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.) |
| • | Level 3 – significant unobservable inputs (including a fund's own assumptions in determining the fair value of investments) |
In cases where the inputs used to measure fair value fall in
different levels of the fair value hierarchy, the level disclosed is determined based on the lowest level input that is significant to the fair value measurement in its entirety. The inputs or methodology used for valuing securities are not
necessarily an indication of the risk associated with investing in those securities.
50
Table of Contents
Eaton Vance
Short Duration Diversified Income Fund
October 31, 2025
Notes to Financial
Statements — continued
At
October 31, 2025, the hierarchy of inputs used in valuing the Fund’s investments and open derivative instruments, which are carried at fair value, were as follows:
| Asset Description | Level 1 | Level 2 | Level 3* | Total |
| Asset-Backed Securities | $ — | $ 12,708,668 | $ — | $ 12,708,668 |
| Collateralized Mortgage Obligations | — | 36,685,134 | — | 36,685,134 |
| Commercial Mortgage-Backed Securities | — | 10,125,938 | — | 10,125,938 |
| Common Stocks | 7,681 | 1,022,201 | 147,196 | 1,177,078 |
| Corporate Bonds | — | 23,378,310 | — | 23,378,310 |
| Preferred Stocks | — | 35,597 | 44,432 | 80,029 |
| Senior Floating-Rate Loans (Less Unfunded Loan Commitments) | — | 37,415,118 | 10,432 | 37,425,550 |
| Sovereign Government Bonds | — | 30,094,117 | — | 30,094,117 |
| Sovereign Loans | — | 1,281,144 | — | 1,281,144 |
| U.S. Government Agency Mortgage-Backed Securities | — | 20,852,699 | — | 20,852,699 |
| Warrants | — | — | 0 | 0 |
| Miscellaneous | — | — | 0 | 0 |
| Short-Term Investments: | ||||
| Affiliated Fund | 16,558,200 | — | — | 16,558,200 |
| U.S. Treasury Obligations | — | 987,007 | — | 987,007 |
| Total Investments | $ 16,565,881 | $ 174,585,933 | $ 202,060 | $ 191,353,874 |
| Forward Foreign Currency Exchange Contracts | $ — | $ 101,618 | $ — | $ 101,618 |
| Futures Contracts | 25,092 | — | — | 25,092 |
| Swap Contracts | — | 203,329 | — | 203,329 |
| Total | $ 16,590,973 | $ 174,890,880 | $ 202,060 | $ 191,683,913 |
| Liability Description | ||||
| Forward Foreign Currency Exchange Contracts | $ — | $ (22,344) | $ — | $ (22,344) |
| Futures Contracts | (114,379) | — | — | (114,379) |
| Swap Contracts | — | (396,743) | — | (396,743) |
| Total | $ (114,379) | $ (419,087) | $ — | $ (533,466) |
| * | None of the unobservable inputs for Level 3 assets, individually or collectively, had a material impact on the Fund. |
Level 3 investments at the beginning and/or end of the period
in relation to net assets were not significant and accordingly, a reconciliation of Level 3 assets for the year ended October 31, 2025 is not presented.
10 Risks and Uncertainties
Risks Associated with Foreign Investments
Foreign investments can be adversely affected by political,
economic and market developments abroad, including the imposition of economic and other sanctions by the United States or another country, and by acts of terrorism and war. There may be less publicly available information about foreign issuers
because they may not be subject to reporting practices, requirements or regulations comparable to those to which United States companies are subject. Foreign markets may be smaller, less liquid and more volatile than the major markets in the United
States. Trading in foreign markets typically involves higher expense than trading in the United States. The Fund may have difficulties enforcing its legal or contractual rights in a foreign country. Securities that trade or are denominated in
currencies other than the U.S. dollar may be adversely affected by fluctuations in currency exchange rates.
51
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Eaton Vance
Short Duration Diversified Income Fund
October 31, 2025
Notes to Financial
Statements — continued
Emerging market securities often involve greater risks than
developed market securities. Investment markets within emerging market countries are typically smaller, less liquid, less developed and more volatile than those in more developed markets like the United States, and may be focused in certain economic
sectors. The information available about an emerging market issuer may be less reliable than for comparable issuers in more developed capital markets. Governmental actions can have a significant effect on the economic conditions in emerging market
countries. It may be more difficult to make a claim or obtain a judgment in the courts of these countries than it is in the United States. The possibility of fraud, negligence, undue influence being exerted by an issuer or refusal to recognize
ownership exists in some emerging markets. Disruptions due to work stoppages and trading improprieties in foreign securities markets have caused such markets to close. Emerging market securities are also subject to speculative trading, which
contributes to their volatility.
Economic data as
reported by sovereign entities may be delayed, inaccurate or fraudulent. In the event of a default by a sovereign entity, there are typically no assets to be seized or cash flows to be attached. Furthermore, the willingness or ability of a sovereign
entity to restructure defaulted debt may be limited. Therefore, losses on sovereign defaults may far exceed the losses from the default of a similarly rated U.S. debt issuer.
11 Commitments and Contingencies
In connection with the Serta Chapter 11 bankruptcy proceeding,
on December 31, 2024, the U.S. Fifth Circuit Court of Appeals reversed a bankruptcy court’s ruling that held permissible an “uptier” agreement (the “2020 Agreement”) entered into by Serta with certain participating
lenders, including the Fund. The 2020 Agreement had the effect of subordinating the existing debt of certain non-participating lenders to that of the participating lenders. The non-participating lenders brought claims for breach of contract, arguing
that the participating lenders had breached an earlier agreement by entering into the 2020 Agreement. The appellate court found that the bankruptcy court had erred in determining that the 2020 Agreement was permitted by the terms of the earlier
agreement and remanded the breach of contract claims for further consideration by the bankruptcy court. The appellate court further held that indemnification of the participating lenders in the 2020 Agreement was impermissible under the U.S.
Bankruptcy Code.
A request by the Fund and the other
participating lenders for a rehearing of this matter before the Fifth Circuit en banc was denied. The matter has been remanded to the bankruptcy court to determine whether the participating lenders are liable for the breach of contract claims.
A trial is scheduled to begin in February 2026. At this time, the Fund cannot reliably predict the outcome of these proceedings or the effect, if any, on the Fund's net asset value.
52
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Eaton Vance
Short Duration Diversified Income Fund
October 31, 2025
Report of Independent
Registered Public Accounting Firm
To the
Trustees and Shareholders of Eaton Vance Short Duration Diversified Income Fund:
Opinion on the Financial Statements and Financial
Highlights
We have audited the accompanying statement of
assets and liabilities of Eaton Vance Short Duration Diversified Income Fund (the “Fund”), including the portfolio of investments, as of October 31, 2025, the related statements of operations and cash flows for the year then ended, the
statements of changes in net assets for each of the two years in the period then ended, the financial highlights for each of the five years in the period then ended, and the related notes (collectively referred to as the “financial statements
and financial highlights”). In our opinion, the financial statements and financial highlights present fairly, in all material respects, the financial position of the Fund as of October 31, 2025, and the results of its operations and its cash
flows for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally
accepted in the United States of America.
Basis for
Opinion
These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on the Fund's financial statements and financial highlights based on our audits. We are a public accounting firm registered with the Public
Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange
Commission and the PCAOB.
We conducted our audits in
accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement, whether due to
error or fraud. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial
reporting but not for the purpose of expressing an opinion on the effectiveness of the Fund’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks
of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts
and disclosures in the financial statements and financial highlights. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial
statements and financial highlights. Our procedures included confirmation of securities and senior loans owned as of October 31, 2025, by correspondence with the custodian, brokers and agent banks; when replies were not received from brokers and
agent banks, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion.
/s/ Deloitte & Touche LLP
Boston, Massachusetts
December 19, 2025
Boston, Massachusetts
December 19, 2025
We have served as the auditor of one
or more Eaton Vance investment companies since 1959.
53
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Eaton Vance
Short Duration Diversified Income Fund
October 31, 2025
Federal Tax
Information (Unaudited)
The
Form 1099-DIV you receive in February 2026 will show the tax status of all distributions paid to your account in calendar year 2025. Shareholders are advised to consult their own tax adviser with respect to the tax consequences of their
investment in the Fund. As required by the Internal Revenue Code and/or regulations, shareholders must be notified regarding the status of 163(j) interest dividends.
163(j) Interest Dividends. For
the fiscal year ended October 31, 2025, the Fund designates 57.40% of distributions from net investment income as a 163(j) interest dividend.
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Eaton Vance
Short Duration Diversified Income Fund
October 31, 2025
Dividend Reinvestment
Plan
The Fund offers a dividend reinvestment plan (Plan) pursuant to
which shareholders may elect to have distributions automatically reinvested in common shares (Shares) of the Fund. You may elect to participate in the Plan by completing the Dividend Reinvestment Plan Application Form. If you do not participate, you
will receive all distributions in cash paid by check mailed directly to you by Equiniti Trust Company, LLC (“EQ”) as dividend paying agent. On the distribution payment date, if the NAV per Share is equal to or less than the market price
per Share plus estimated brokerage commissions, then new Shares will be issued. The number of Shares shall be determined by the greater of the NAV per Share or 95% of the market price. Otherwise, Shares generally will be purchased on the open market
by EQ, the Plan agent (Agent). Distributions subject to income tax (if any) are taxable whether or not Shares are reinvested.
If your Shares are in the name of a brokerage firm, bank, or
other nominee, you can ask the firm or nominee to participate in the Plan on your behalf. If the nominee does not offer the Plan, you will need to request that the Fund’s transfer agent re-register your Shares in your name or you will not be
able to participate.
The Agent’s service fee for
handling distributions will be paid by the Fund. Plan participants will be charged their pro rata share of brokerage commissions on all open-market purchases.
Plan participants may withdraw from the Plan at any time by
writing to the Agent at the address noted on the following page. If you withdraw, you will receive Shares in your name for all Shares credited to your account under the Plan. If a participant elects by written notice to the Agent to sell part or all
of his or her Shares and remit the proceeds, the Agent is authorized to deduct a $5.00 fee plus brokerage commissions from the proceeds.
If you wish to participate in the Plan and your Shares are held
in your own name, you may complete the form on the following page and deliver it to the Agent. Any inquiries regarding the Plan can be directed to the Agent at 1-866-439-6787.
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Eaton Vance
Short Duration Diversified Income Fund
October 31, 2025
Application for
Participation in Dividend Reinvestment Plan
This form is for shareholders who hold
their common shares in their own names. If your common shares are held in the name of a brokerage firm, bank, or other nominee, you should contact your nominee to see if it will participate in the Plan on your behalf. If you wish to participate in
the Plan, but your brokerage firm, bank, or nominee is unable to participate on your behalf, you should request that your common shares be re-registered in your own name which will enable your participation in the Plan.
The following authorization and appointment
is given with the understanding that I may terminate it at any time by terminating my participation in the Plan as provided in the terms and conditions of the Plan.
| Please print exact name on account | |
| Shareholder signature | Date |
| Shareholder signature | Date |
| Please sign exactly as your common shares are registered. All persons whose names appear on the share certificate must sign. | |
YOU SHOULD NOT RETURN THIS FORM IF YOU WISH TO
RECEIVE YOUR DISTRIBUTIONS IN CASH. THIS IS NOT A PROXY.
This authorization form, when signed, should
be mailed to the following address:
Eaton Vance Short Duration Diversified
Income Fund
c/o Equiniti Trust Company, LLC (“EQ”)
P.O. Box 10027
Newark, NJ 07101
c/o Equiniti Trust Company, LLC (“EQ”)
P.O. Box 10027
Newark, NJ 07101
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Eaton Vance
Short Duration Diversified Income Fund
October 31, 2025
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 the investment advisory agreement between a fund and its investment adviser will continue in effect from year-to-year only if its continuation is approved on an annual basis by a vote of the fund’s
board of trustees, including 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 held on June 12, 2025, the Boards of
Trustees/Directors (collectively, the “Board”) that oversee the registered investment companies advised by Eaton Vance Management or its affiliate, Boston Management and Research (the “Eaton Vance Funds”), including a
majority of the independent trustees (the “Independent Trustees”), voted to approve the continuation of existing investment advisory agreements and sub-advisory
agreements1 for each of the Eaton Vance Funds for an additional one-year period. The Board relied upon the affirmative recommendation of its Contract Review Committee, which is
a committee comprised of all of the Independent Trustees. Prior to making its recommendation, the Contract Review Committee reviewed information furnished by the adviser and sub-adviser to each of the Eaton Vance Funds (including information
specifically requested by the Board) for a series of meetings held between April and June 2025, as well as certain additional information provided in response to specific requests from the Independent Trustees as members of the Contract Review
Committee. Members of the Contract Review Committee also considered information received at prior meetings of the Board and its committees, to the extent such information was relevant to the Contract Review Committee’s annual evaluation of the
investment advisory agreements and sub-advisory agreements.
In connection with its evaluation of the investment advisory
agreements and sub-advisory agreements, the Board (directly or through one or more of its committees) considered various information relating to the Eaton Vance Funds. This included information applicable to all or groups of the Eaton Vance Funds,
which is referenced immediately below, and information applicable to the particular Eaton Vance Fund covered by this report (each Eaton Vance Fund is referred to below as a “fund”). (For funds that invest through one or more underlying
portfolios, references to “each fund” in this section may include information that was considered at the portfolio-level.)
Information about Fees, Performance and Expenses
• A report from an independent
data provider comparing advisory and other fees paid by each fund to such fees paid by comparable funds, as identified by the independent data provider (“comparable funds”);
• A report from an independent
data provider comparing each fund’s total expense ratio (and its components) to those of comparable funds;
• A report from an independent
data provider comparing the investment performance of each fund to the investment performance of comparable funds and, as applicable, benchmark indices, over various time periods;
• In certain instances, data
regarding investment performance relative to customized groups of peer funds and blended indices identified by the adviser in consultation with the Portfolio Management Committee of the Board (a committee exclusively comprised of Independent
Trustees);
• Comparative
information concerning the fees charged and services provided by the adviser and sub-adviser to each fund in managing other accounts (which may include other funds, collective investment trusts and institutional accounts) with the same or
substantially similar investment objective as the fund and with a significant overlap in holdings based on criteria set by the Board, if any;
• Profitability analyses on a
fund-by-fund basis for the adviser and its affiliates and for each sub-adviser not affiliated with the adviser;
Information about Portfolio Management and Trading
• Descriptions of the investment
management services provided to each fund, as well as each of the funds’ investment strategies and policies;
• The procedures and processes
used by the adviser to determine the value of fund assets, including, when necessary, the determination of “fair value” by the adviser in its role as each fund’s valuation designee and actions taken to monitor and test the
effectiveness of such procedures and processes;
• Information about the policies
and practices of each fund’s adviser and sub-adviser with respect to trading, including their processes for seeking best execution of portfolio transactions;
• Information about the
allocation of brokerage transactions and the benefits, if any, received by the adviser and sub-adviser to each fund as a result of brokerage allocation, including, as applicable, information concerning the acquisition of research through client
commission arrangements and policies with respect to “soft dollars”;
• Data relating to the portfolio
turnover rate of each fund and related information regarding active management in the context of particular strategies;
Information about each Adviser and Sub-Adviser
• Reports regarding the
financial results and condition of the adviser and certain of its affiliates and of each sub-adviser not affiliated with the adviser;
1 Not all Eaton Vance Funds have entered into a sub-advisory agreement with a sub-adviser. Accordingly, references to
“sub-adviser” or “sub-advisory agreement” in this “Overview” section may not be applicable to the particular Eaton Vance Fund covered by this report. Eaton Vance Management and Boston Management and Research are
referred to collectively as the “adviser.”
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Eaton Vance
Short Duration Diversified Income Fund
October 31, 2025
Board of
Trustees’ Contract Approval — continued
• Information regarding the
individual investment professionals whose responsibilities include portfolio management and investment research for the funds, and, for portfolio managers and certain other investment professionals, information relating to their responsibilities
with respect to managing other funds and investment accounts, as applicable;
• Information regarding the
adviser’s and its parent company’s (Morgan Stanley’s) efforts to retain and attract talented investment professionals, including in the context of a competitive marketplace for talent;
• Information regarding the
adviser’s compensation methodology for its investment professionals and the incentives and accountability it creates, along with investment professionals’ investments in the fund(s) they manage;
• The personal trading codes of
ethics of the adviser and its affiliates and the sub-adviser of each fund, together with information relating to compliance with, and the administration of, such codes;
• Policies and procedures
relating to proxy voting, including regular reporting with respect to fund proxy voting activities;
• Information regarding the
handling of corporate actions and class actions, as well as information regarding litigation and other regulatory matters;
• Information concerning the
resources devoted to compliance efforts undertaken by the adviser and its affiliates and the sub-adviser of each fund, including descriptions of their various compliance programs and their record of compliance and remediation;
• Information concerning the
business continuity and disaster recovery plans of the adviser and its affiliates and the sub-adviser of each fund;
• A description of the
adviser’s oversight of sub-advisers, including with respect to regulatory and compliance issues, investment management and other matters, if any;
Other Relevant Information
• Information regarding
ongoing initiatives to further integrate and harmonize, where applicable, the investment management and other departments of the adviser and its affiliates with the overall investment management infrastructure of Morgan Stanley, in light of Morgan
Stanley’s acquisition of Eaton Vance Corp. on March 1, 2021;
• Information concerning the
nature, cost, and character of the administrative and other non-investment advisory services provided by the adviser and its affiliates;
• Information concerning
oversight of the relationship with the custodian, subcustodians, fund accountants, and other third-party service providers by the adviser and/or administrator to each of the funds;
• Information concerning efforts
to maintain policies and procedures with respect to various regulations applicable to the funds, including, without limitation, Rule 22e-4 (the Liquidity Risk Management Rule), Rule 12d1-4 (the Fund-of-Funds Rule), Rule 18f-4 (the Derivatives Rule),
and Rule 2a-5 (the Fair Valuation Rule);
• For the Eaton Vance Fund
structured as an interval fund, information regarding the interval fund’s periodic repurchase offers under Rule 23c-3 and related policies and procedures;
• For each Eaton Vance Fund
structured as an exchange-listed closed-end fund, information concerning the benefits of the closed-end fund structure, as well as, where relevant, the closed-end fund’s market prices (including as compared to the closed-end fund’s net
asset value (NAV)), trading volume data, continued use of auction preferred shares (where applicable), distribution rates, and other relevant matters;
• The risks that the adviser
and/or its affiliates incur in connection with the management and operation of the funds, including, among others, litigation, regulatory, entrepreneurial, data privacy and cybersecurity, and other business risks (and the associated costs of such
risks, if any); and
• The
terms of each investment advisory agreement and sub-advisory agreement.
During the various meetings of the Board and its committees
over the course of the year leading up to the June 12, 2025 meeting, the Board and its committees received information from portfolio managers and other investment professionals of the adviser and sub-advisers of the funds regarding investment and
performance matters, and considered various investment and trading strategies used in pursuing the funds’ investment objectives. The Board and its committees also received information regarding risk management techniques employed in connection
with the management of the funds. The Board and its committees 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 the adviser, sub-advisers, and certain other service providers, with respect to such matters. In addition to the formal meetings of the Board and its committees, the Independent Trustees met in executive
sessions and held regular video or telephone conferences to discuss, among other topics, matters relating to the continuation of investment advisory agreements and sub-advisory agreements.
Each of the Contract Review Committee and the Board was advised
throughout the contract review process by Kirkland & Ellis LLP, independent legal counsel for the Independent Trustees. The members of the Contract Review Committee and the members of the Board, with the advice of such counsel, exercised
their own business judgment in determining the material factors to be considered in evaluating each investment advisory agreement and sub-advisory agreement and the weight to be given to each such factor. The conclusions reached with respect to each
investment advisory agreement 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 and Board may have placed varying
emphasis on particular factors in reaching conclusions with respect to each investment advisory agreement and sub-advisory agreement. In evaluating each investment advisory agreement and sub-advisory agreement, including the fee structures and other
terms contained in such agreements, the members of the Contract Review Committee and Board were also informed by multiple years of analysis and discussion with the adviser and sub-adviser to each of the Eaton Vance Funds.
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Eaton Vance
Short Duration Diversified Income Fund
October 31, 2025
Board of
Trustees’ Contract Approval — continued
Results of the Contract Review Process
Based on its consideration of the foregoing, and such other
information it deemed relevant, including the factors and conclusions described below, the Contract Review Committee concluded that the continuation of the investment advisory agreement between Eaton Vance Short Duration Diversified Income Fund (the
“Fund”) and Eaton Vance Management (the “Adviser”), including its fee structure, is in the interests of shareholders and, therefore, recommended to the Board approval of the agreement. Based on the recommendation of the
Contract Review Committee, 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 for the Fund, the Board evaluated the nature, extent and quality of services provided to the Fund by the Adviser.
The Board considered the Adviser’s management
capabilities and investment processes in light of the types of investments held by the Fund, including the education and experience of the investment professionals who provide services to the Fund. In particular, the Board considered the abilities
and experience of the Adviser’s investment professionals in analyzing factors such as credit risk and special considerations relevant to investing in senior, secured floating rate loans, foreign debt obligations, including debt of emerging
market issuers, and mortgage-backed securities. The Board considered the Adviser’s in-house research capabilities as well as other resources available to personnel of the Adviser. The Board also took into account the resources dedicated to
portfolio management and other services, the compensation methods of the Adviser and other factors, including the reputation and resources of the Adviser to recruit and retain highly qualified research, advisory and supervisory investment
professionals. In addition, the Board considered the time and attention devoted to the Eaton Vance Funds, including the Fund, by senior management, as well as the infrastructure, operational capabilities and support staff in place to assist in the
portfolio management and operations of the Fund, including the provision of administrative services. The Board also considered the business-related and other risks to which the Adviser or its affiliates may be subject in managing the Fund. The Board
considered the deep experience of the Adviser and its affiliates with managing and operating funds organized as exchange-listed closed-end funds, such as the Fund. In this regard, the Board considered, among other things, the Adviser’s and its
affiliates’ experience with implementing leverage arrangements, monitoring and assessing trading price discounts and premiums and adhering to the requirements of securities exchanges.
The Board considered the compliance programs of the Adviser and
relevant affiliates thereof. The Board considered compliance and reporting matters regarding, among other things, personal trading by investment professionals, disclosure of portfolio holdings, compliance with policies and procedures, portfolio
valuation, business continuity and the allocation of investment opportunities. The Board also considered relevant examinations of the Adviser and its affiliates by regulatory authorities, such as the Securities and Exchange Commission and the
Financial Industry Regulatory Authority.
The Board
considered other administrative services provided or overseen by Eaton Vance Management and its affiliates, including transfer agency and accounting services. The Board evaluated the benefits to shareholders of investing in a fund that is a part of
a large fund complex offering exposure to a variety of asset classes and investment disciplines.
After consideration of the foregoing factors, among others, the
Board concluded that the nature, extent and quality of services provided by the Adviser, taken as a whole, are appropriate and consistent with the terms of the investment advisory agreement.
Fund Performance
The Board compared the Fund’s investment performance to
that of comparable funds identified by an independent data provider (the peer group), as well as an appropriate benchmark index and a custom benchmark index. The Board’s review included comparative performance data with respect to the Fund for
the one-, three-, five- and ten-year periods ended December 31, 2024. In this regard, the Board noted that the performance of the Fund was higher than the median performance of the Fund’s peer group for the three-year period. The Board also
noted that the performance of the Fund was higher than its primary performance benchmark and custom benchmark indexes for the three-year period. The Board concluded that the performance of the Fund was satisfactory.
Management Fees and Expenses
The Board considered contractual fee rates payable by the Fund
for advisory and administrative services (referred to collectively as “management fees”). As part of its review, the Board considered the Fund’s management fees and total expense ratio for the one-year period ended December 31,
2024, as compared to those of comparable funds, before and after giving effect to any undertaking to waive fees or reimburse expenses. The Board also considered factors that had an impact on the Fund’s total expense ratio relative to
comparable funds.
After considering the foregoing
information, and in light of the nature, extent and quality of the services provided by the Adviser, the Board concluded that the management fees charged for advisory and related services are reasonable.
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Eaton Vance
Short Duration Diversified Income Fund
October 31, 2025
Board of
Trustees’ Contract Approval — continued
Profitability and “Fall-Out” Benefits
The Board considered the level of profits realized by the
Adviser and relevant affiliates thereof in providing investment advisory and administrative services to the Fund and to all Eaton Vance Funds as a group. The Board considered the level of profits realized without regard to marketing support or other
payments by the Adviser and its affiliates to third parties in respect of distribution or other services.
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 not excessive.
The Board also considered direct or indirect fall-out benefits
received by the Adviser and its affiliates in connection with their respective 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.
Economies of
Scale
In reviewing management fees and profitability, the
Board also considered the extent to which the Adviser and its affiliates, on the one hand, and the Fund, on the other hand, can expect to realize benefits from economies of scale as the assets of the Fund increase. The Board acknowledged the
difficulty in accurately measuring the benefits resulting from economies of scale, if any, with respect to the management of any specific fund or group of funds. To assist in the evaluation of the sharing of any economies of scale, the Board
received data for recent years showing asset levels, Adviser profitability and total expense ratios. Based upon the foregoing, the Board concluded that the Fund currently shares in the benefits from economies of scale, if any, when they are realized
by the Adviser. The Board also considered the fact that the Fund is not continuously offered and that the Fund’s assets are not expected to increase materially in the foreseeable future. Accordingly, the Board concluded that the implementation
of breakpoints in the advisory fee schedule is not warranted at this time.
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Eaton Vance
Short Duration Diversified Income Fund
October 31, 2025
Management and
Organization
Fund
Management. The Board of Trustees of the Fund (the “Board”) is responsible for the overall management and supervision of the affairs of the Fund. The Board members and officers of the Fund are listed
below. Except as indicated, each individual has held the office shown or other offices in the same company for the last five years. Each Trustee holds office until the annual meeting for the year in which his or her term expires and until his or her
successor is elected and qualified, subject to a prior death, resignation, retirement, disqualification or removal. Under the terms of the Fund’s current Trustee retirement policy, an Independent Trustee must retire and resign as a Trustee on
the earlier of: (i) the first day of July following his or her 76th birthday; or (ii), with limited exception, December 31st of the 20th year in which he or she has served as a Trustee. However, if such retirement and resignation would cause the
Fund to be out of compliance with Section 16 of the 1940 Act or any other regulations or guidance of the Securities and Exchange Commission, then such retirement and resignation will not become effective until such time as action has been taken for
the Fund to be in compliance therewith. The “noninterested Trustees” consist of those Trustees who are not “interested persons” of the Fund, as that term is defined under the 1940 Act. The business address of each Board
member and officer is One Post Office Square, Boston, Massachusetts 02109. As used below, “BMR” refers to Boston Management and Research, “EV” refers to EV LLC, “EVM” refers to Eaton Vance Management,
“MSIM” refers to Morgan Stanley Investment Management Inc. and “EVD” refers to Eaton Vance Distributors, Inc. EV is the trustee of each of EVM and BMR. Each of EVM, BMR, EVD and EV are indirect, wholly owned subsidiaries of
Morgan Stanley. Each officer affiliated with EVM may hold a position with other EVM affiliates that is comparable to his or her position with EVM listed below. Each Trustee oversees 123 funds in the Eaton Vance fund complex (including both funds and
portfolios in a hub and spoke structure).
| Name and Year of Birth | Fund
Position(s) |
Length of Service | Principal
Occupation(s) and Other Directorships During Past Five Years and Other Relevant Experience |
| Noninterested Trustees | |||
| Alan
C. Bowser 1962 |
Class
II Trustee |
Until
2028. 3 years. Since 2023. |
Private investor.
Formerly, Co-Head of the Americas Region, Chief Diversity Officer, Partner and a Member of the Operating Committee, at Bridgewater Associates, an asset management firm (2011-2023). Formerly, Managing Director and Head of Investment Services at UBS
Wealth Management Americas (2007-2010). Formerly, Managing Director and Head of Client Solutions, Citibank Private Bank (1999-2007). Other Directorships. Independent Director of Stout Risius Ross (a middle market professional services advisory firm) (since 2021). |
| Cynthia
E. Frost 1961 |
Class
I Trustee |
Until
2027. 3 years. Since 2014. |
Private investor.
Formerly, Chief Investment Officer of Brown University (university endowment) (2000-2012). Formerly, Portfolio Strategist for Duke Management Company (university endowment manager) (1995-2000). Formerly, Managing Director, Cambridge Associates
(investment consulting company) (1989-1995). Formerly, Consultant, Bain and Company (management consulting firm) (1987-1989). Formerly, Senior Equity Analyst, BA Investment Management Company (1983-1985). Other Directorships. None. |
| George
J. Gorman 1952 |
Class
II Trustee |
Until
2028. 3 years. Since 2014. |
Principal
at George J. Gorman LLC (consulting firm). Formerly, Senior Partner at Ernst & Young LLP (a registered public accounting firm) (1974-2009). Other Directorships. None. |
| Valerie
A. Mosley 1960 |
Class
III Trustee |
Until
2026. 3 years. Since 2014. |
Private investor.
Chairwoman and Chief Executive Officer of Valmo Ventures (a consulting and investment firm). Founder of Upward Wealth, Inc., dba BrightUp, a fintech platform. Formerly, Partner and Senior Vice President, Portfolio Manager and Investment Strategist
at Wellington Management Company, LLP (investment management firm) (1992-2012). Formerly, Chief Investment Officer, PG Corbin Asset Management (1990-1992). Formerly worked in institutional corporate bond sales at Kidder Peabody (1986-1990). Other Directorships. Director of DraftKings, Inc. (digital sports entertainment and gaming company) (since September 2020). Formerly, Director of Dynex Capital, Inc. (mortgage REIT) (2013-2020), Groupon, Inc. (e-commerce provider) (2020-2022), and Envestnet, Inc. (provider of intelligent systems for wealth management and financial wellness) (2018-2024). |
| Keith
Quinton 1958 |
Class
II Trustee |
Until
2028. 3 years. Since 2018. |
Private
investor, researcher and lecturer. Formerly, Independent Investment Committee Member at New Hampshire Retirement System (2017-2021). Formerly, Portfolio Manager and Senior Quantitative Analyst at Fidelity Investments (investment management firm)
(2001-2014). Other Directorships. Formerly, Director (2016-2021) and Chairman (2019-2021) of New Hampshire Municipal Bond Bank. |
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Eaton Vance
Short Duration Diversified Income Fund
October 31, 2025
Management and
Organization — continued
| Name and Year of Birth | Fund
Position(s) |
Length of Service | Principal
Occupation(s) and Other Directorships During Past Five Years and Other Relevant Experience |
| Noninterested Trustees (continued) | |||
| Marcus
L. Smith 1966 |
Class
III Trustee |
Until
2026. 3 years. Since 2018. |
Private investor
and independent corporate director. Formerly, Chief Investment Officer, Canada (2012-2017), Chief Investment Officer, Asia (2010-2012), Director of Asian Research (2004-2010) and portfolio manager (2001-2017) at MFS Investment Management
(investment management firm). Other Directorships. Director of First Industrial Realty Trust, Inc. (an industrial REIT) (since 2021). Director of MSCI Inc. (global provider of investment decision support tools) (since 2017). |
| Nancy
Wiser Stefani 1967 |
Class
III Trustee |
Until
2026. 3 years. Since 2022. |
Private investor.
Formerly, Executive Vice President, Global Head of Operations, Wells Fargo Asset Management (2011-2021) and Treasurer of Wells Fargo open-end and closed-end funds (2012-2021); Chief Operating Officer and Chief Compliance Officer at LightBox Capital
Management (2008-2011) and GMN Capital Management (2006-2007). Other Directorships. None. |
| Susan
J. Sutherland 1957 |
Class
I Trustee |
Until
2027. 3 years. Since 2015. |
Private investor.
Director of Ascot Underwriting Limited (since 2023), a UK based subsidiary of Ascot Group Limited (insurance and reinsurance). Formerly, Director of Ascot Group Limited (2017-2025), Director of Hagerty Holding Corp. (insurance) (2015-2018) and
Montpelier Re Holdings Ltd. (insurance and reinsurance) (2013-2015). Formerly, Associate, Counsel and Partner at Skadden, Arps, Slate, Meagher & Flom LLP (law firm) (1982-2013). Other Directorships. Formerly, Director of Kairos Acquisition Corp. (insurance/InsurTech acquisition company) (2021-2023). |
| Scott
E. Wennerholm 1959 |
Chairperson
of the Board and Class I Trustee |
Until
2027. 3 years. Since 2016. |
Private
investor. Formerly, Trustee at Wheelock College (postsecondary institution) (2012-2018). Formerly, Consultant at GF Parish Group (executive recruiting firm) (2016-2017). Formerly, Chief Operating Officer and Executive Vice President at BNY Mellon
Asset Management (investment management firm) (2005-2011). Formerly, Chief Operating Officer and Chief Financial Officer at Natixis Global Asset Management (investment management firm) (1997-2004). Formerly, Vice President at Fidelity Investments
Institutional Services (investment management firm) (1994-1997). Other Directorships. None. |
| Name and Year of Birth | Fund
Position(s) |
Length of Service | Principal
Occupation(s) During Past Five Years |
| Principal Officers who are not Trustees | |||
| Kenneth
A. Topping 1966 |
President | Since 2023 | Vice President and Chief Administrative Officer of EVM and BMR and Chief Operating Officer for Public Markets at MSIM. Also Vice President of Calvert Research and Management (“CRM”) since 2021. Formerly, Chief Operating Officer for Goldman Sachs Asset Management 'Classic’ (2009-2020). |
| Deidre
E. Walsh 1971 |
Vice
President and Chief Legal Officer |
Since 2009 | Vice President of EVM and BMR. Also Vice President of CRM. |
| James
F. Kirchner 1967 |
Treasurer | Since 2007 | Vice President of EVM and BMR. Also Vice President of CRM. |
| Nicholas
S. Di Lorenzo 1987 |
Secretary | Since 2022 | Formerly, associate (2012-2021) and counsel (2022) at Dechert LLP. |
| Laura
T. Donovan 1976 |
Chief
Compliance Officer |
Since 2024 | Vice President of EVM and BMR. |
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| U.S. Customer Privacy Notice | March 2024 |
| FACTS | WHAT DOES EATON VANCE DO WITH YOUR PERSONAL INFORMATION? |
| Why? | Financial companies choose how they share your personal information. Federal law gives consumers the right to limit some but not all sharing. Federal law also requires us to tell you how we collect, share, and protect your personal information. Please read this notice carefully to understand what we do. |
| What? | The
types of personal information we collect and share depend on the product or service you have with us. This information can include:■ Social Security number and income ■ investment experience and risk tolerance ■ checking account information and wire transfer instructions |
| How? | All financial companies need to share customers’ personal information to run their everyday business. In the section below, we list the reasons financial companies can share their customers’ personal information; the reasons Eaton Vance chooses to share; and whether you can limit this sharing. |
| Reasons we can share your personal information | Does
Eaton Vance share? |
Can
you limit this sharing? |
| For our everyday business purposes — such as to process your transactions, maintain your account(s), respond to court orders and legal investigations, or report to credit bureaus | Yes | No |
| For our marketing purposes — to offer our products and services to you | Yes | No |
| For joint marketing with other financial companies | No | We don’t share |
| For our affiliates’ everyday business purposes — information about your transactions and experiences | Yes | No* |
| For our affiliates’ everyday business purposes — information about your creditworthiness | Yes | Yes* |
| For our affiliates to market to you | Yes | Yes* |
| For nonaffiliates to market to you | No | We don’t share |
| To
limit our sharing |
Call toll-free 1-800-262-1122 or email: EVPrivacy@eatonvance.comPlease note:If you are a new customer, we can begin sharing your information 30 days from the date we sent this notice. When you are no longer our customer, we continue to share your information as described in this notice. However, you can contact us at any time to limit our sharing. |
| Questions? | Call toll-free 1-800-262-1122 or email: EVPrivacy@eatonvance.com |
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| Who we are | |
| Who is providing this notice? | Eaton Vance Management and our investment management affiliates (“Eaton Vance”) (see Affiliates definition below.) |
| What we do | |
| How
does Eaton Vance protect my personal information? |
To protect your personal information from unauthorized access and use, we use security measures that comply with federal law. These measures include computer safeguards and secured files and buildings. We have policies governing the proper handling of customer information by personnel and requiring third parties that provide support to adhere to appropriate security standards with respect to such information. |
| How
does Eaton Vance collect my personal information? |
We
collect your personal information, for example, when you■ open an account or make deposits or withdrawals from your account ■ buy securities from us or make a wire transfer ■ give us your contact informationWe also collect your personal information from others, such as credit bureaus, affiliates, or other companies. |
| Why can’t I limit all sharing? | Federal
law gives you the right to limit only■ sharing for affiliates’ everyday business purposes — information about your creditworthiness ■ affiliates from using your information to market to you ■ sharing for nonaffiliates to market to youState laws and individual companies may give you additional rights to limit sharing. (See below for more on your rights under state law.) |
| What
happens when I limit sharing for an account I hold jointly with someone else? |
Your choices will apply to everyone on your account. |
| Definitions | |
| Affiliates | Companies related by common ownership or control. They can be financial and nonfinancial companies.■ Our affiliates include registered investment advisers such as Eaton Vance Management, Eaton Vance Advisers International Ltd., Boston Management and Research, Calvert Research and Management, Parametric Portfolio Associates LLC, Atlanta Capital Management Company LLC, Morgan Stanley Investment Management Inc., Morgan Stanley Investment Management Co.; registered broker-dealers such as Morgan Stanley Distributors Inc. and Eaton Vance Distributors, Inc. (together, the “Investment Management Affiliates”); and companies with a Morgan Stanley name and financial companies such as Morgan Stanley Smith Barney LLC and Morgan Stanley & Co. (the “Morgan Stanley Affiliates”). |
| Nonaffiliates | Companies not related by common ownership or control. They can be financial and nonfinancial companies.■ Eaton Vance does not share with nonaffiliates so they can market to you. |
| Joint marketing | A formal agreement between nonaffiliated financial companies that together market financial products or services to you.■ Eaton Vance does not jointly market. |
| Other important information | |
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| *PLEASE NOTE: Eaton Vance does not share your creditworthiness information or your transactions and experiences information with the Morgan Stanley Affiliates, nor does Eaton Vance enable the Morgan Stanley Affiliates to market to you. Your opt outs will prevent Eaton Vance from sharing your creditworthiness information with the Investment Management Affiliates and will prevent the Investment Management Affiliates from marketing their products to you.Vermont: Except as permitted by law, we will not share personal information we collect about Vermont residents with Nonaffiliates unless you provide us with your written consent to share such information.California: Except as permitted by law, we will not share personal information we collect about California residents with Nonaffiliates and we will limit sharing such personal information with our Affiliates to comply with California privacy laws that apply to us. |
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Eaton Vance
Short Duration Diversified Income Fund
October 31, 2025
Potential Conflicts of
Interest
As a
diversified global financial services firm, Morgan Stanley, the parent company of the investment adviser, engages in a broad spectrum of activities, including financial advisory services, investment management activities, lending, commercial
banking, sponsoring and managing private investment funds, engaging in broker-dealer transactions and principal securities, commodities and foreign exchange transactions, research publication and other activities. In the ordinary course of its
business, Morgan Stanley is a full-service investment banking and financial services firm and therefore engages in activities where Morgan Stanley’s interests or the interests of its clients may conflict with the interests of a Fund or
Portfolio, if applicable, (collectively for the purposes of this section, “Fund” or “Funds”). Morgan Stanley advises clients and sponsors, manages or advises other investment funds and investment programs, accounts and
businesses (collectively, together with any new or successor funds, programs, accounts or businesses sponsored, managed, or advised by the investment adviser or one of its investment adviser affiliates, the “Affiliated Investment
Accounts”) with a wide variety of investment objectives that in some instances may overlap or conflict with a Fund’s investment objectives and present conflicts of interest. In addition, Morgan Stanley, the investment adviser and/or the
investment adviser’s investment adviser affiliates may also from time to time create new or successor Affiliated Investment Accounts that may compete with a Fund and present similar conflicts of interest. The discussion below enumerates
certain actual, apparent and potential conflicts of interest. There is no assurance that conflicts of interest will be resolved in favor of Fund shareholders and, in fact, they may not be. The conflicts herein do not purport to be a complete list or
explanation of the conflicts associated with the financial or other interests the investment adviser or its affiliates may have now or in the future. Conflicts of interest not described below may also exist. References to the investment adviser in
this section include a Fund’s affiliated sub-adviser (if any) unless otherwise noted.
The discussions below with respect to actual, apparent and
potential conflicts of interest may be applicable to or arise from the Affiliated Investment Accounts managed by the investment adviser’s investment adviser affiliates whether or not specifically identified.
Material Non-Public and Other Information. It is expected that confidential or material non-public information regarding an investment or potential investment opportunity may become available to the investment adviser. If such information becomes available, the
investment adviser may be precluded (including by applicable law or internal policies or procedures) from pursuing an investment or disposition opportunity with respect to such investment or disposition opportunity including for an extended period
of time. The investment adviser may also from time to time be subject to contractual “stand-still” obligations and/or confidentiality obligations that may restrict its ability to transact in certain investments on the Fund’s
behalf. In addition, the investment adviser may be precluded from disclosing such information to an investment team, even in circumstances in which the information would be beneficial if disclosed. Therefore, the investment team may not be provided
access to material non-public information in the possession of Morgan Stanley that might be relevant to an investment decision to be made on behalf of the Fund, and the investment team may initiate a transaction or sell an investment that, if such
information had been known to it, may not have been undertaken. In addition, certain members of the investment team may be recused from certain investment-related discussions so that such members do not receive information that would limit their
ability to perform functions of their employment with the investment adviser or its affiliates unrelated to that of the Fund. Furthermore, access to information held by certain parts of Morgan Stanley may be subject to third party confidentiality
obligations and to information barriers established by Morgan Stanley designed to manage potential conflicts of interest and regulatory restrictions, including, without limitation, joint transaction restrictions pursuant to the 1940 Act.
Accordingly, the investment adviser’s ability to source investments from, or invest alongside, other business units within Morgan Stanley may be limited and there can be no assurance that the investment adviser will be able to source any
investments from any one or more parts of the Morgan Stanley network.
The investment adviser may restrict its investment decisions
and activities on behalf of the Fund in various circumstances, including because of applicable regulatory requirements or information held by the investment adviser, the investment adviser’s investment adviser affiliates or Morgan Stanley. The
investment adviser might not engage in transactions or other activities for, or enforce certain rights in favor of, the Fund due to Morgan Stanley’s activities outside the Fund. Furthermore, Morgan Stanley could have an interest that is
different from, and potentially adverse to, that of the Fund, which may impede the Fund from participating in certain opportunities. In instances where trading of an investment is restricted, the investment adviser may not be able to purchase or
sell such investment on behalf of the Fund including for an extended period of time, resulting in the Fund’s inability to participate in certain desirable transactions. This inability to buy or sell an investment could have an adverse effect
on the Fund’s portfolio due to, among other things, changes in an investment’s value during the period its trading is restricted.
Morgan Stanley has established certain information barriers and
other policies designed to address the sharing of information between different businesses within Morgan Stanley. As a result of information barriers, the investment adviser, in certain instances, will not have access, or will have limited access,
to certain information and personnel in other areas of Morgan Stanley and, in such instances, will not manage the Fund with the benefit of the information held by such other areas. Morgan Stanley, due to its access to and knowledge of funds, markets
and securities based on its various businesses, may make decisions based on information or take (or refrain from taking) actions with respect to interests in investments of the kind held (directly or indirectly) by the Fund in a manner that may be
adverse to the Fund, and will not have any obligation or other duty to share information with the investment adviser.
In other instances, Morgan Stanley personnel, including
personnel of the investment adviser, will have access to information and personnel of its affiliates. For example, the investment adviser may, in certain instances, share information with its affiliates regarding due diligence of companies and other
investment-related due diligence. The investment adviser may face conflicts of interest in determining whether to engage in the sharing of information with its affiliates. Information sharing may limit or restrict the ability of the investment
adviser to engage in or otherwise effect transactions on behalf of the Fund (including purchasing or selling securities that the investment adviser may otherwise have purchased or sold for the Fund in the absence of the sharing of information).
Also, it may adversely affect the Fund's investments, ability to invest in, or divest from, a company or engage in transactions or otherwise disadvantage the Fund. In managing conflicts of interest that arise because of the foregoing, the investment
adviser generally will be subject to fiduciary requirements. The investment adviser may also implement internal information barriers or ethical walls or other internal information sharing protocols, and the conflicts described herein with respect to
information barriers and otherwise with respect to Morgan Stanley and the investment adviser will also apply
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Short Duration Diversified Income Fund
October 31, 2025
Potential Conflicts of
Interest — continued
internally within the
investment adviser. As a result, the Fund may not be permitted to transact in (e.g., dispose of a security in whole or in part) during periods when it otherwise would have been desirable and able to do so, which could adversely affect the Fund.
Other investors in the security that are not subject to such restrictions may be able to transact in the security during such periods. There may also be circumstances in which, as a result of information held by certain portfolio management teams in
the investment adviser, the investment adviser limits an activity or transaction for the Fund, including if the Fund is managed by a portfolio management team other than the team holding such information.
Morgan Stanley and its personnel will not be under any
obligation or other duty to share certain information with the investment adviser or personnel involved in decision-making for Affiliated Investment Accounts (including the Fund), as applicable, and the investment adviser may make investment
decisions for the Fund that differ from those the investment adviser would have made if Morgan Stanley, or other parts, of the investment adviser had provided such information, and the Fund be disadvantaged as a result thereof. Additionally,
different portfolio management teams within the investment adviser may make decisions based on information or take (or refrain from taking) actions with respect to Affiliated Investment Accounts they advise in a manner different than or adverse to
the Fund.
Investments by Morgan Stanley and its Affiliated
Investment Accounts. In serving in multiple capacities to Affiliated Investment Accounts, Morgan Stanley, including the investment adviser and its investment teams, may have obligations to other clients or investors
in Affiliated Investment Accounts, the fulfillment of which may not be in the best interests of the Fund or its shareholders. An investment team may have obligations to Affiliated Investment Accounts managed by both the investment adviser and one or
more of the investment adviser’s investment adviser affiliates. The Fund’s investment objectives may overlap with the investment objectives of certain Affiliated Investment Accounts. As a result, the members of an investment team may
face conflicts in the allocation of investment opportunities among the Fund and other investment funds, programs, accounts and businesses advised by or affiliated with the investment adviser or its investment adviser affiliates. Certain Affiliated
Investment Accounts may provide for higher management or incentive fees or greater expense reimbursements or overhead allocations, all of which may contribute to this conflict of interest and create an incentive for the investment adviser to favor
such other accounts.
Morgan Stanley currently
invests and plans to continue to invest on its own behalf and on behalf of its Affiliated Investment Accounts in a wide variety of investment opportunities globally. Morgan Stanley and its Affiliated Investment Accounts, to the extent consistent
with applicable law and policies and procedures, will be permitted to invest in investment opportunities without making such opportunities available to the Fund. Subject to the foregoing, Morgan Stanley may offer investments that fall into the
investment objectives of an Affiliated Investment Account to such account or make such investment on its own behalf, even though such investment also falls within the Fund’s investment objectives. The Fund may invest in opportunities that
Morgan Stanley and/or one or more Affiliated Investment Accounts has declined, and vice versa. All of the foregoing may reduce the number of investment opportunities available to the Fund and may create conflicts of interest in allocating investment
opportunities. Investors should note that the conflicts inherent in making such allocation decisions may not always be resolved to the Fund’s advantage. There can be no assurance that the Fund will have an opportunity to participate in certain
opportunities that fall within their investment objectives. The interests of Morgan Stanley in an investment or a company may present certain conflicts of interest with respect to an investment by the Fund in the same investment or the Fund's
participation in a transaction with such company.
To the
extent the investment adviser utilizes quantitative models or risk management or optimization investment techniques, the decision on when to initiate a purchase or sale transaction may differ, and be done for different reasons, than the investment
adviser or its affiliates take on Affiliated Investment Accounts on the same securities when not utilizing such techniques. This could create conflicts of interest, and it is possible that one or more accounts managed by the investment adviser will
achieve investment results that are substantially more or less favorable than those results achieved by the Fund.
To seek to reduce potential conflicts of interest and to
attempt to allocate such investment opportunities in a fair and equitable manner, the investment adviser has implemented allocation policies and procedures. These policies and procedures are intended to give all clients of the investment adviser,
including the Fund, fair access to investment opportunities consistent with the requirements of organizational documents, investment strategies, applicable laws and regulations, and the fiduciary duties of the investment adviser. Each client of the
investment adviser that is subject to the allocation policies and procedures, including the Fund, is assigned an investment team and portfolio manager(s) by the investment adviser. The investment team and portfolio managers review investment
opportunities and will decide with respect to the allocation of each opportunity considering various factors and in accordance with the allocation policies and procedures. The allocation policies and procedures are subject to change. Investors
should note that the conflicts inherent in making such allocation decisions may not always be resolved to the advantage of the Fund.
It is possible that Morgan Stanley or an Affiliated Investment
Account, including another Morgan Stanley Fund, will invest in or advise (in the case of Morgan Stanley) a company that is or becomes a competitor of a company of which the Fund holds an investment. Such investment could create a conflict between
the Fund, on the one hand, and Morgan Stanley or the Affiliated Investment Account, on the other hand. In such a situation, Morgan Stanley may also have a conflict in the allocation of its own resources to the portfolio investment. Furthermore,
certain Affiliated Investment Accounts will be focused primarily on investing in other funds which may have strategies that overlap and/or directly conflict and compete with the Fund.
In addition, certain investment professionals who are involved
in the Fund’s activities remain responsible for the investment activities of other Affiliated Investment Accounts managed by the investment adviser and its affiliates, and they will devote time to the management of such investments and other
newly created Affiliated Investment Accounts (whether in the form of funds, separate accounts or other vehicles), as well as their own investments. In
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Potential Conflicts of
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addition, in
connection with the management of investments for other Affiliated Investment Accounts, members of Morgan Stanley and its affiliates may serve on the boards of directors of or advise companies which may compete with the Fund’s portfolio
investments. Moreover, these Affiliated Investment Accounts managed by Morgan Stanley and its affiliates may pursue investment opportunities that may also be suitable for the Fund.
It should be noted that Morgan Stanley may, directly or
indirectly, make large investments in certain of its Affiliated Investment Accounts, and accordingly Morgan Stanley’s investment in the Fund may not be a determining factor in the outcome of any of the foregoing conflicts. Nothing herein
restricts or in any way limits the activities of Morgan Stanley, including its ability to buy or sell interests in, or provide financing to, equity and/or debt instruments, funds or portfolio companies, for its own accounts or for the accounts of
Affiliated Investment Accounts or other investment funds or clients in accordance with applicable law.
Different clients of the investment adviser and its affiliates,
including the Fund, may invest in (1) different classes of securities of the same issuer (including, without limitation, different parts of an issuer's capital structure), depending on the respective clients’ investment objectives and policies
and/or (2) the same class of securities of the same issuer while seeking different investment objectives or executing different investment strategies (such as long-term v. short-term investment horizons), and the investment adviser may face
conflicts with respect to the interests involved. As a result, the investment adviser and its affiliates, at times, will seek to satisfy fiduciary obligations to certain clients owning one / the same class of securities of a particular issuer by
pursuing or enforcing rights on behalf of those clients with respect to such (class of) securities, and those activities may have an adverse effect on another client which owns a different class of securities of such issuer. For example, if one
client holds debt securities of an issuer and another client holds equity securities of the same issuer, if the issuer experiences financial or operational challenges, the investment adviser and its affiliates may seek a liquidation of the issuer on
behalf of the client that holds the debt securities, whereas the client holding the equity securities may benefit from a reorganization of the issuer. Thus, in such situations, the actions taken by the investment adviser or its affiliates on behalf
of one client can negatively impact securities held by another client. Alternatively, for example, if a client owns a security while seeking short-term capital appreciation that investment adviser may vote proxies or engage with the issuer (as
applicable) in pursuit of that goal – which could negatively impact clients who hold the same security but are seeking long-term capital appreciation. These conflicts also exist as between the investment adviser’s clients, including the
Fund, and the Affiliated Investment Accounts managed by the investment adviser’s investment adviser affiliates.
In addition, in certain circumstances, the investment adviser
restricts, limits or reduces the amount of the Fund’s investment, or restricts the type of governance or voting rights it acquires or exercises, where the Fund (potentially together with Morgan Stanley) exceeds a certain ownership interest, or
possesses certain degrees of voting or control or has other interests.
The investment adviser and its affiliates may give advice and
recommend securities to other clients which may differ from advice given to, or securities recommended or bought for, the Fund even though such other clients’ investment objectives may be similar to those of the Fund and the investment adviser
may make decisions for the Fund that may be more beneficial to one type of shareholder than another.
The investment adviser and its affiliates manage long and short
portfolios. The simultaneous management of long and short portfolios creates conflicts of interest in portfolio management and trading in that opposite directional positions may be taken in client accounts, including client accounts managed by the
same investment team, and creates risks such as: (i) the risk that short sale activity could adversely affect the market value of long positions in one or more portfolios (and vice versa) and (ii) the risks associated with the trading desk receiving
opposing orders in the same security simultaneously. The investment adviser and its affiliates have adopted policies and procedures that are reasonably designed to mitigate these conflicts. In certain circumstances, the investment adviser invests on
behalf of itself in securities and other instruments that would be appropriate for, held by, or may fall within the investment guidelines of its clients, including the Fund. At times, the investment adviser may give advice or take action for its own
accounts that differs from, conflicts with, or is adverse to advice given or action taken for any client.
From time to time, conflicts also arise due to the fact that
certain securities or instruments may be held in some client accounts, including the Fund, but not in others, or that client accounts may have different amounts of holdings in certain securities or instruments. In addition, due to differences in the
investment strategies or restrictions among client accounts, the investment adviser may take action with respect to one account that differs from the action taken with respect to another account. In some cases, a client account may compensate the
investment adviser based on the performance of the securities held by that account or pay a higher overall fee rate. The existence of such a performance based fee or higher fee rates may create additional conflicts of interest for the investment
adviser in the allocation of management time, resources and investment opportunities. The investment adviser has adopted several policies and procedures designed to address these potential conflicts including a code of ethics and policies that
govern the investment adviser’s trading practices, including, among other things, the aggregation and allocation of trades among clients, brokerage allocations, cross trades and best execution.
In addition, at times an investment team will give advice or
take action with respect to the investments of one or more clients that is not given or taken with respect to other clients with similar investment programs, objectives, and strategies. Accordingly, clients with similar strategies will not always
hold the same securities or instruments or achieve the same performance. The investment adviser’s investment teams also advise clients with conflicting programs, objectives or strategies. These conflicts also exist as between the investment
adviser’s clients, including the Fund, and the Affiliated Investment Accounts managed by the investment adviser’s investment adviser affiliates.
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Short Duration Diversified Income Fund
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Potential Conflicts of
Interest — continued
From
time to time, the investment adviser or its affiliates may provide opportunities to Affiliated Investment Accounts (including potentially the Fund) or other clients to make investments in companies (such as in equity, debt or other securities issued
by companies) or to engage in transactions involving companies (such as refinancing, restructuring or other transactions) in which certain Affiliated Investment Accounts (including potentially the Fund) or other clients have already invested. These
investments can create conflicts of interest, including those associated with the assets of the Fund potentially providing value to, or otherwise supporting the investments of, other Affiliated Investment Accounts or other clients and potentially
diluting or otherwise adversely affecting the Fund previously invested in the company.
Morgan Stanley and its affiliates maintain separate trading
desks that operate independently of each other and do not share information with the investment adviser. The Morgan Stanley and affiliate trading desks may compete against the investment adviser trading desks when implementing buy and sell
transactions, possibly causing certain Affiliated Investment Accounts to pay more or receive less for a security than other Affiliated Investment Accounts.
Investments by Separate Investment Departments. For the investment adviser and certain of its investment adviser affiliates, the entities and individuals that provide investment-related services can differ by client, investment function, or business line (each, an
“Investment Department” and collectively, the “Investment Departments”). Nonetheless, Investment Departments (with certain exceptions) can engage in discussions and share information and resources with another Investment
Department (or a team within the other Investment Department) regarding investment-related matters. The sharing of information and resources between the Investment Departments is designed to further increase the knowledge and effectiveness of each
Investment Department. However, an investment team’s decisions as to the use of shared research and participation in discussions with another Investment Department could adversely impact a client. Certain investment teams within one Investment
Department could make investment decisions and execute trades together with investment teams within other Investment Departments. Other investment teams make investment decisions and execute trades independently. This could cause the quality and
price of execution, and the performance of investments and accounts, to vary. Internal policies and procedures set forth the guidelines under which securities and securities trades can be crossed, aggregated, and coordinated between accounts
serviced by different Investment Departments. Internal policies and procedures take into consideration a variety of factors, including the primary market in which such security trades. If a security or securities trade is ineligible for crossing,
aggregation, or other coordinated trading, then each Investment Department will execute such trades independently of the other.
Payments to Broker-Dealers and Other Financial Intermediaries. The investment adviser, Eaton Vance Distributors, Inc. (the “Distributor”) and/or their affiliates may pay compensation, out of their own funds and not as an expense of the Fund, to certain Financial
Intermediaries (which may include affiliates of the investment adviser and the Distributor), including recordkeepers and administrators of various deferred compensation plans, in connection with the sale, distribution, marketing and retention of
shares of the Fund and/or shareholder servicing. For example, the investment adviser or the Distributor may pay additional compensation to a Financial Intermediary for, among other things, promoting the sale and distribution of Fund shares,
providing access to various programs, mutual fund platforms or preferred or recommended mutual fund lists that may be offered by a Financial Intermediary, granting the Distributor access to a Financial Intermediary’s financial advisors and
consultants, providing assistance in the ongoing education and training of a Financial Intermediary’s financial personnel, furnishing marketing support, maintaining share balances and/or for sub-accounting, recordkeeping, administrative,
shareholder or transaction processing services. Such payments are in addition to any distribution fees, shareholder servicing fees and/or transfer agency fees that may be payable by the Fund. The additional payments may be based on various factors,
including level of sales (based on gross or net sales or some specified minimum sales or some other similar criteria related to sales of the Fund and/or some or all other Morgan Stanley Funds), amount of assets invested by the Financial
Intermediary’s customers (which could include current or aged assets of the Fund and/or some or all other Morgan Stanley Funds), the Fund’s advisory fee, some other agreed upon amount or other measures as determined from time to time by
the investment adviser and/or the Distributor. The amount of these payments may be different for different Financial Intermediaries. In certain cases, payments to broker-dealers and other Financial Intermediaries may be shared by and among the
investment adviser, the Distributor and their affiliates.
The prospect of receiving, or the receipt of, additional
compensation, as described above, by Financial Intermediaries may provide such Financial Intermediaries and their financial advisors and other salespersons with an incentive to favor sales of shares of the Fund over other investment options with
respect to which these Financial Intermediaries do not receive additional compensation (or receives lower levels of additional compensation). These payment arrangements, however, will not change the price that an investor pays for shares of the Fund
or the amount that the Fund receives to invest on behalf of an investor. Investors may wish to take such payment arrangements into account when considering and evaluating any recommendations relating to Fund shares and should review carefully any
disclosures provided by Financial Intermediaries as to their compensation.
The additional compensation received by a given Financial
Intermediary from the investment adviser and/or the Distributor may vary from the additional compensation received by the Financial Intermediary in respect of an Affiliated Investment Account managed by an affiliate of the investment adviser or
principally underwritten by an affiliate of the Distributor. In such circumstances, differences in the prospect of receiving, or the receipt of, additional compensation, as described above, by Financial Intermediaries may provide such Financial
Intermediaries and their financial advisors and other salespersons with an incentive to favor sales of shares of one Affiliated Investment Account over other investment options with respect to which these Financial Intermediaries do not receive
additional compensation (or receives lower levels of additional compensation).
Morgan Stanley Trading and Principal Investing Activities. Notwithstanding anything to the contrary herein, Morgan Stanley will generally conduct its sales and trading businesses, publish research and analysis, and render investment advice without regard for the Fund’s
holdings, although these activities could have an adverse impact on the value of one or more of the Fund’s investments, or could cause Morgan Stanley to have an interest in one or more portfolio investments that is different from and
potentially adverse to that of the Fund. Furthermore, from time to time, the investment adviser or its affiliates may
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invest
“seed” capital in a Fund, typically to enable such Fund to commence investment operations and/or achieve sufficient scale, as further described below. The investment adviser and its affiliates may hedge such seed capital exposure by
investing in derivatives or other instruments expected to produce offsetting exposure. Such hedging transactions, if any, would occur outside of such Fund.
Morgan Stanley’s sales and trading, financing and
principal investing businesses (whether or not specifically identified as such, and including Morgan Stanley’s trading and principal investing businesses) will not be required to offer any investment opportunities to the Fund. These businesses
may encompass, among other things, principal trading activities as well as principal investing.
Morgan Stanley’s sales and trading, financing and
principal investing businesses have acquired or invested in, and in the future may acquire or invest in, minority and/or majority control positions in equity or debt instruments of diverse public and/or private companies. Such activities may put
Morgan Stanley in a position to exercise contractual, voting or creditor rights, or management or other control with respect to securities or loans of portfolio investments or other issuers, and in these instances Morgan Stanley may, in its
discretion and subject to applicable law, act to protect its own interests or interests of clients, and not the Fund’s interests.
Subject to the limitations of applicable law, the Fund may
purchase from or sell assets to, or make investments in, companies in which Morgan Stanley has or may acquire an interest, including as an owner, creditor or counterparty.
Morgan Stanley’s Investment Banking and Other Commercial
Activities. Morgan Stanley advises clients on a variety of mergers, acquisitions, restructuring, bankruptcy and financing transactions. Morgan Stanley may act as an advisor to clients, including other investment
funds that may compete with the Fund and with respect to investments that the Fund may hold. Morgan Stanley may give advice and take action with respect to any of its clients or proprietary accounts that may differ from the advice given, or may
involve an action of a different timing or nature than the action taken, by the Fund. Morgan Stanley may give advice and provide recommendations to persons competing with the Fund and/or any of the Fund’s investments that are contrary to the
Fund’s best interests and/or the best interests of any of its investments.
Morgan Stanley could be engaged in financial advising, whether
on the buy-side or sell-side, or in financing or lending assignments that could result in Morgan Stanley’s determining in its discretion or being required to act exclusively on behalf of one or more third parties, which could limit the
Fund’s ability to transact with respect to one or more existing or potential investments. Morgan Stanley may have relationships with third-party funds, companies or investors who may have invested in or may look to invest in portfolio
companies, and there could be conflicts between the Fund’s best interests, on the one hand, and the interests of a Morgan Stanley client or counterparty, on the other hand.
To the extent that Morgan Stanley advises companies in
financial restructurings outside of, prior to or after filing for protection under Chapter 11 of the U.S. Bankruptcy Code or similar laws in other jurisdictions, the investment adviser’s flexibility in making investments in such restructurings
on the Fund’s behalf, or participating on steering committees and other committees in connection with existing investments, may be limited.
Morgan Stanley could provide investment banking services to
competitors of portfolio companies, as well as to private equity and/or private credit funds; such activities may present Morgan Stanley with a conflict of interest vis-a-vis the Fund’s investment and may also result in a conflict in respect
of the allocation of investment banking resources to portfolio companies.
To the extent permitted by applicable law, Morgan Stanley may
provide a broad range of financial services to companies in which the Fund invests, including strategic and financial advisory services, interim acquisition financing and other lending and underwriting or placement of securities, and Morgan Stanley
generally will be paid fees (that may include warrants or other securities) for such services. Morgan Stanley will not share any of the foregoing interest, fees and other compensation received by it (including, for the avoidance of doubt, amounts
received by the investment adviser) with the Fund, and any advisory fees payable will not be reduced thereby.
Morgan Stanley may be engaged to act as a financial advisor to
a company in connection with the sale of such company, or subsidiaries or divisions thereof, may represent potential buyers of businesses through its mergers and acquisition activities and may provide lending and other related financing services in
connection with such transactions. Morgan Stanley’s compensation for such activities is usually based upon realized consideration and is usually contingent, in substantial part, upon the closing of the transaction. Under these circumstances,
the Fund may be precluded from participating in a transaction with or relating to the company being sold or participating in any financing activity related to merger or acquisition.
The involvement or presence of Morgan Stanley in the investment
banking and other commercial activities described above (or the financial markets more broadly) may restrict or otherwise limit investment opportunities that may otherwise be available to the Fund. For example, issuers may hire and compensate Morgan
Stanley to provide underwriting, financial advisory, placement agency, brokerage services or other services and, because of limitations imposed by applicable law and regulation, the Fund may be prohibited from buying or selling securities issued by
those issuers or participating in related transactions or otherwise limited in its ability to engage in such investments.
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In
addition, in situations where the investment adviser is required to aggregate its positions with those of other Morgan Stanley business units for position limit calculations, the investment adviser may have to refrain from making investments due to
the positions held by other Morgan Stanley business units or their clients. There may be other situations where the investment adviser refrains from making an investment or refrains from taking certain actions related to the management of such
investment due to, among other reasons, additional disclosure obligations, regulatory requirements, policies, and reputational risk, or the investment adviser may limit purchases or sales of securities in respect of which Morgan Stanley is engaged
in an underwriting or other distribution capacity.
Morgan
Stanley’s Marketing Activities. Morgan Stanley is engaged in the business of underwriting, syndicating, brokering, administering, servicing, arranging and advising on the distribution of a wide variety of
securities and other investments in which the Fund may invest. Subject to the restrictions of the 1940 Act, including Sections 10(f) and 17(e) thereof, the Fund may invest in transactions in which Morgan Stanley acts as underwriter, placement agent,
syndicator, broker, administrative agent, servicer, advisor, arranger or structuring agent and receives fees or other compensation from the sponsors of such products or securities. Any fees earned by Morgan Stanley in such capacity will not be
shared with the investment adviser or the Fund. Certain conflicts of interest, in addition to the receipt of fees or other compensation, would be inherent in these transactions. Moreover, the interests of one of Morgan Stanley’s clients with
respect to an issuer of securities in which the Fund has an investment may be adverse to the investment adviser’s or the Fund’s best interests. In conducting the foregoing activities, Morgan Stanley will be acting for its other clients
and will have no obligation to act in the investment adviser’s or the Fund’s best interests. Due to the restrictions of the 1940 Act, the Fund may be restricted from participating in certain transactions in which Morgan Stanley acts as
underwriter, placement agent, syndicator, broker, administrative agent, servicer, advisor, arranger or structuring agent, including transactions that would otherwise be beneficial to the Fund.
Client Relationships. Morgan
Stanley has existing and potential relationships with a significant number of corporations, institutions and individuals. In providing services to its clients, Morgan Stanley may face conflicts of interest with respect to activities recommended to
or performed for such clients, on the one hand, and the Fund, its shareholders or the entities in which the Fund invests, on the other hand. In addition, these client relationships may present conflicts of interest in determining whether to offer
certain investment opportunities to the Fund.
In
acting as principal or in providing advisory and other services to its other clients, Morgan Stanley may engage in or recommend activities with respect to a particular matter that conflict with or are different from activities engaged in or
recommended by the investment adviser on the Fund’s behalf.
Principal Investments. There
may be situations in which the Fund’s interests may conflict with the interests of one or more general accounts of Morgan Stanley and its affiliates or accounts managed by Morgan Stanley or its affiliates. This may occur because these accounts
hold public and private debt and equity securities of many issuers which may be or become portfolio companies, or from whom portfolio companies may be acquired.
Transactions with Portfolio Companies of Affiliated Investment
Accounts. The companies in which the Fund may invest may be counterparties to or participants in agreements, transactions or other arrangements with portfolio companies or other entities of portfolio investments of
Affiliated Investment Accounts (for example, a company in which the Fund invests may retain a company in which an Affiliated Investment Account invests to provide services or may acquire an asset from such company or vice versa). Certain of these
agreements, transactions and arrangements involve fees, servicing payments, rebates and/or other benefits to Morgan Stanley or its affiliates. For example, portfolio entities may, including at the encouragement of Morgan Stanley, enter into
agreements regarding group procurement and/or vendor discounts. Morgan Stanley and its affiliates may also participate in these agreements and may realize better pricing or discounts as a result of the participation of portfolio entities. To the
extent permitted by applicable law, certain of these agreements may provide for commissions or similar payments and/or discounts or rebates to be paid to a portfolio entity of an Affiliated Investment Account, and such payments or discounts or
rebates may also be made directly to Morgan Stanley or its affiliates. Under these arrangements, a particular portfolio company or other entity may benefit to a greater degree than the other participants, and the Morgan Stanley Funds, investment
vehicles and accounts (which may or may not include the Fund) that own an interest in such entity will receive a greater relative benefit from the arrangements than the Morgan Stanley Funds, investment vehicles or accounts that do not own an
interest therein. Fees and compensation received by portfolio companies of Affiliated Investment Accounts in relation to the foregoing will not be shared with a Fund or offset advisory fees payable.
Investments in Portfolio Investments of Other Funds. To the extent permitted by applicable law, when the Fund invests in certain companies or other entities, other funds affiliated with the investment adviser may have made or may be making an investment in such companies
or other entities. Other funds that have been or may be managed by the investment adviser may invest in the companies or other entities in which the Fund has made an investment. Under such circumstances, the Fund and such other funds may have
conflicts of interest (e.g., over the terms, exit strategies and related matters, including the exercise of remedies of their respective investments). If the interests held by the Fund are different from (or take priority over) those held by such
other funds, the investment adviser may be required to make a selection at the time of conflicts between the interests held by such other funds and the interests held by the Fund.
Investments in Morgan Stanley Funds and Other Funds. To the extent permitted by applicable law, the Fund may invest in a fund affiliated with the investment adviser or its affiliates or a fund advised by the investment adviser or its affiliates. In connection with any
such investments, an investing Fund, to the extent permitted by the 1940 Act, will pay all advisory, administrative and/or Rule 12b-1 fees applicable to the investment. Investments by a Fund in a fund affiliated with the investment adviser or its
affiliates or a fund advised by the investment adviser or its affiliates present potential conflicts of interest, including potential incentives to invest in smaller or newer funds to increase asset levels or provide greater viability. The
investment adviser voluntarily waives advisory fees of a Fund associated with investments by the Fund in a fund advised by the investment adviser or its affiliates which will reduce, but will not eliminate, these types of conflicts.
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Eaton Vance
Short Duration Diversified Income Fund
October 31, 2025
Potential Conflicts of
Interest — continued
The
Affiliated Investment Accounts (including the Funds) may, individually or in the aggregate, own a substantial percentage of a Fund. Further, the Adviser, its affiliates, or another entity (i.e., a seed investor) may invest in the Funds at or near
the establishment of such Funds, which may facilitate the Funds achieving a specified size or scale. The Adviser and/or its affiliates may make payments to an investor that contributes seed capital to a Fund. Such payments may continue for a
specified period of time and/or until a specified dollar amount is reached, and will be made from the assets of the Adviser and/or such affiliates (and not the applicable Fund). Seed investors may contribute all or a majority of the assets in a
Fund. There is a risk that such seed investors may redeem their investments in the Fund, particularly after payments from the Adviser and/or its affiliates have ceased. Such redemptions could negatively impact a Fund’s liquidity, expenses and
market price of its shares, as applicable.
Allocation of
Expenses. Expenses may be incurred that are attributable to the Fund and one or more other Affiliated Investment Accounts (including in connection with issuers in which the Fund and such other Affiliated Investment
Accounts have overlapping investments). The allocation of such expenses among such entities raises potential conflicts of interest. The investment adviser and its affiliates intend to allocate such common expenses among the Fund and any such other
Affiliated Investment Accounts on a pro rata basis or in such other manner as the investment adviser deems to be fair and equitable or in such other manner as may be required by applicable law.
Temporary Investments. To more
efficiently invest short-term cash balances held by the Fund, the investment adviser may invest such balances on an overnight “sweep” basis in shares of one or more money market funds or other short-term vehicles. It is anticipated that
the investment adviser to these money market funds or other short-term vehicles may be the investment adviser (or an affiliate) to the extent permitted by applicable law, including Rule 12d1-1 under the 1940 Act. In such a case, the affiliated
investment adviser may receive asset-based fees in respect of the Fund’s investment (which will reduce the net return realized by the Fund).
Transactions with Affiliates.
The investment adviser and any investment sub-adviser might purchase securities from underwriters or placement agents in which a Morgan Stanley affiliate is a member of a syndicate or selling group, as a result of which an affiliate might benefit
from the purchase through receipt of a fee or otherwise. Neither the investment adviser nor any investment sub-adviser will purchase securities on behalf of the Fund from an affiliate that is acting as a manager of a syndicate or selling group.
Purchases by the investment adviser on behalf of the Fund from an affiliate acting as a placement agent must meet the requirements of applicable law. Furthermore, Morgan Stanley may face conflicts of interest when a Fund uses service providers
affiliated with Morgan Stanley because Morgan Stanley receives greater overall fees when they are used.
Affiliated Indexes. Affiliates
of the investment adviser develop, own and operate indexes (“Indexes”), and may continue to do so in the future, based on investment and trading strategies and concepts developed by the investment adviser or its affiliates
(“Adviser Strategies”). Some of the Funds seek to track the performance of the Indexes. The investment adviser manages Accounts which track the same Indexes used by the Funds or which are based on the same, or substantially similar,
Adviser Strategies that are used in the operation of the Indexes and the Funds. The operation of the Indexes, the Funds and the Accounts in this manner gives rise to potential conflicts of interest. For example, Accounts that track the same Indexes
used by the Funds may engage in purchases and sales of securities prior to when the Index and the Funds engage in similar transactions because such Accounts may be managed and rebalanced on an ongoing basis, whereas the Funds’ portfolios are
only rebalanced on a periodic or other basis subsequent to the rebalancing of the Index.
The investment adviser has adopted policies and procedures that
are designed to address potential conflicts that arise in connection with the operation of the Indexes, the Funds and the Accounts. The investment adviser has established certain information barriers and other policies designed to address the
sharing of information between different businesses within the investment adviser, including with respect to personnel responsible for constructing and maintaining the Indexes and those involved in decision-making for the Funds.
Valuation of the Fund’s Investments. The investment adviser performs certain valuation services related to securities and other assets held by the Fund and performs such services in accordance with its valuation policies. The investment adviser will face a
conflict with respect to valuation of the Fund’s investments generally because of the effect of such valuations on the investment adviser’s fees and other compensation and performance of the Fund.
Proxy Voting by the Adviser.
The investment adviser has implemented processes designed to prevent conflicts of interest from influencing proxy voting decisions that it makes on behalf of advisory clients, including the Funds, and to help ensure that such decisions are made in
accordance with its fiduciary obligations to its clients. Notwithstanding such proxy voting processes, proxy voting decisions made by the investment adviser in respect of securities held by the Fund may benefit the interests of Morgan Stanley and/or
accounts other than the Fund. Further, the investment adviser may make different proxy voting decisions in respect of the same security held by clients with different investment objectives or strategies.
Potential Conflict of Interest Related to Use of Sub-Adviser(s). To the extent the Fund’s investment adviser engages affiliated and/or unaffiliated sub-advisers, the investment adviser generally expects to compensate the sub-adviser out of the advisory fee it receives from the
Fund, which creates an incentive for the investment adviser to select sub-adviser(s) with lower fee rates or to select affiliated sub-adviser(s). In addition, a sub-adviser may have interests and relationships that create actual or potential
conflicts of interest related to their management of Fund assets allocated to or managed by the sub-adviser. These conflicts may be similar to or different from the conflicts described herein related to Morgan Stanley and its investment advisory
affiliates. For additional information about potential conflicts of interest for each sub-adviser(s) can be found in the relevant sub-adviser’s Form ADV. A copy of Part 1 and Part 2 of a sub-adviser’s Form ADV is available on the
SEC’s website (www.adviserinfo.sec.gov).
Electronic Communication Networks and Alternative Trading
Systems. The investment adviser’s affiliate(s) have ownership interests in and/or board seats on electronic communication networks (“ECNs”) or other alternative trading systems
(“ATSs”). In certain instances the investment adviser’s affiliate(s) could be deemed to control one or more of such ECNs or ATSs based on the level of such ownership interests and whether such affiliates are represented on
the
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Eaton Vance
Short Duration Diversified Income Fund
October 31, 2025
Potential Conflicts of
Interest — continued
board of such ECNs or
ATSs. Consistent with its fiduciary obligation to seek best execution, the Adviser may, from time to time, directly or indirectly, effect client trades through ECNs or other ATSs in which the Firm’s affiliates have or could acquire an interest
or board seat. These affiliates might receive an indirect economic benefit based upon their ownership in the ECNs or other ATSs. The investment adviser will, directly or indirectly, execute through an ECN or other ATSs in which an affiliate has an
interest only in situations where the Firm or the broker dealer through whom it is accessing the ECN or ATS reasonably believes such transaction will be in the best interest of its clients and the requirements of applicable law have been
satisfied.
General Process for Potential Conflicts. All of the transactions described above involve the potential for conflicts of interest between the investment adviser, related persons of the investment adviser and/or their clients. The Advisers Act, the 1940 Act and
ERISA impose certain requirements designed to decrease the possibility of conflicts of interest between an investment adviser and its clients. In some cases, transactions may be permitted subject to fulfillment of certain conditions. Certain other
transactions may be prohibited. In addition, the investment adviser has instituted policies and procedures designed to prevent conflicts of interest from arising and, when they do arise, to ensure that it effects transactions for clients in a manner
that is consistent with its fiduciary duty to its clients and in accordance with applicable law. The investment adviser seeks to ensure that potential or actual conflicts of interest are appropriately resolved taking into consideration the
overriding best interests of the client.
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Eaton Vance Funds
IMPORTANT NOTICES
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. Equiniti Trust Company, LLC (“EQ”), the closed-end funds transfer agent, or your financial intermediary, may household the mailing of your documents
indefinitely unless you instruct EQ, or your financial intermediary, otherwise. If you would prefer that your Eaton Vance documents not be householded, please contact EQ or your financial
intermediary. Your instructions that householding not apply to delivery of your Eaton Vance documents will typically be effective within 30 days of receipt by EQ or your financial intermediary.
Portfolio
Holdings. Each Eaton Vance Fund and its underlying Portfolio(s) (if applicable) files a schedule of portfolio holdings on Part F to Form N-PORT with the
SEC. Certain information filed on Form N-PORT may be viewed on the Eaton Vance website at www.eatonvance.com, by calling Eaton Vance at 1-800-262-1122 or in the EDGAR database on the SEC’s website at www.sec.gov.
Proxy
Voting. From time to time, funds are required to vote proxies related to the securities held by the funds. The Eaton Vance Funds or their underlying
Portfolios (if applicable) vote proxies according to a set of policies and procedures approved by the Funds’ and Portfolios’ Boards. You may obtain a description of these policies and procedures and information on how the Funds or
Portfolios voted proxies relating to portfolio securities during the most recent 12-month period ended June 30, without charge, upon request, by calling 1-800-262-1122 and by accessing the SEC’s website at www.sec.gov. You may also access
proxy voting information for the Eaton Vance Funds or their underlying Portfolios at www.eatonvance.com/
proxyvoting.
proxyvoting.
Share Repurchase
Program. The Fund’s Board of Trustees has approved a share repurchase program authorizing the Fund to repurchase up to 10% of its common shares
outstanding as of the last day of the prior calendar year in open-market transactions at a discount to net asset value. The repurchase program does not obligate the Fund to purchase a specific amount of shares. The Fund’s repurchase activity,
including the number of shares purchased, average price and average discount to net asset value, is disclosed in the Fund’s annual and semi-annual reports to shareholders.
Additional Notice to Shareholders. If applicable, a Fund may also redeem or purchase its outstanding preferred shares in order to maintain compliance with regulatory requirements, borrowing or
rating agency requirements or for other purposes as it deems appropriate or necessary.
Closed-End Fund Information. Eaton Vance closed-end funds make fund performance data and certain information about portfolio characteristics available on the Eaton Vance website shortly
after the end of each month. Other information about the funds is available on the website. The funds’ net asset value per share is readily accessible on the Eaton Vance website. Portfolio holdings for the most recent month-end are also posted
to the website approximately 30 days following the end of the month. This information is available at www.eatonvance.com on the fund information pages under “Closed-End Funds & Term Trusts.”
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2319 10.31.25
(b) Not applicable
Item 2. Code of Ethics
The registrant (sometimes referred to as the “Fund”) has adopted a code of ethics applicable to its Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer. The registrant undertakes to provide a copy of such code of ethics to any person upon request, without charge, by calling 1-800-262-1122. The registrant has not amended the code of ethics as described in Form N-CSR during the period covered by this report. The registrant has not granted any waiver, including an implicit waiver, from a provision of the code of ethics as described in Form N-CSR during the period covered by this report.
Item 3. Audit Committee Financial Expert
The registrant’s Board of Trustees has determined that George J. Gorman, an “independent” Trustee, is an “audit committee financial expert” serving on its audit committee. Under applicable securities laws, a person who is determined to be an audit committee financial expert will not be deemed an “expert” for any purpose, including without limitation for the purposes of Section 11 of the Securities Act of 1933, as a result of being designated or identified as an audit committee financial expert. The designation or identification of a person as an audit committee financial expert does not impose on such person any duties, obligations, or the liabilities that are greater than the duties, obligations, and liabilities imposed on such person as a member of the audit committee and Board of Trustees in the absence of such designation or identification.
Item 4. Principal Accountant Fees and Services
(a) –(d)
The following table presents the aggregate fees billed to the registrant for the registrant’s fiscal years ended October 31, 2024 and October 31, 2025 by the registrant’s principal accountant, Deloitte & Touche LLP (“D&T”), for professional services rendered for the audit of the registrant’s annual financial statements and fees billed for other services rendered by D&T during such periods.
| Fiscal Years Ended |
10/31/24 | 10/31/25 | ||||||
| Audit Fees |
$ | 101,342 | $ | 101,467 | ||||
| Audit-Related Fees(1) |
$ | 0 | $ | 0 | ||||
| Tax Fees(2) |
$ | 0 | $ | 0 | ||||
| All Other Fees(3) |
$ | 0 | $ | 1,196 | ||||
|
|
|
|
|
|||||
| Total |
$ | 101,342 | $ | 102,663 | ||||
|
|
|
|
|
|||||
| (1) | Audit-related fees consist of the aggregate fees billed for assurance and related services that are reasonably related to the performance of the audit of the registrant’s financial statements and are not reported under the category of audit fees. |
| (2) | Tax fees consist of the aggregate fees billed for professional services rendered by the principal accountant relating to tax compliance, tax advice, and tax planning and specifically include fees for tax return preparation and other related tax compliance/planning matters. |
| (3) | All other fees consist of the aggregate fees billed for products and services provided by the principal accountant other than audit, audit-related, and tax services. |
(e)(1) The registrant’s audit committee has adopted policies and procedures relating to the pre-approval of services provided by the registrant’s principal accountant (the “Pre-Approval Policies”). The Pre-Approval Policies establish a framework intended to assist the audit committee in the proper discharge of its pre-approval responsibilities. As a general matter, the Pre-Approval Policies (i) specify certain types of audit, audit-related, tax, and other services determined to be pre-approved by the audit committee; and (ii) delineate specific procedures governing the mechanics of the pre-approval process, including the approval and monitoring of audit and non-audit service fees. Unless a service is specifically pre-approved under the Pre-Approval Policies, it must be separately pre-approved by the audit committee.
The Pre-Approval Policies and the types of audit and non-audit services pre-approved therein must be reviewed and ratified by the registrant’s audit committee at least annually. The registrant’s audit committee maintains full responsibility for the appointment, compensation, and oversight of the work of the registrant’s principal accountant.
(e)(2) No services described in paragraphs (b)-(d) above were approved by the registrant’s audit committee pursuant to the “de minimis exception” set forth in Rule 2-01(c)(7)(i)(C) of Regulation S-X.
(f) Not applicable.
(g) The following table presents (i) the aggregate non-audit fees (i.e., fees for audit-related, tax, and other services) billed to the registrant by D&T for the registrant’s fiscal years ended October 31, 2024 and October 31, 2025; and (ii) the aggregate non-audit fees (i.e., fees for audit-related, tax, and other services) billed to the Eaton Vance organization by D&T for the same time periods.
| Fiscal Years Ended |
10/31/24 | 10/31/25 | ||||||
| Registrant |
$ | 0 | $ | 1,196 | ||||
| Eaton Vance(1) |
$ | 18,490 | $ | 18,490 | ||||
| (1) | The investment adviser to the registrant, as well as any of its affiliates that provide ongoing services to the registrant, are subsidiaries of Morgan Stanley. |
(h) The registrant’s audit committee has considered whether the provision by the registrant’s principal accountant of non-audit services to the registrant’s investment adviser and any entity controlling, controlled by, or under common control with the adviser that provides ongoing services to the registrant that were not pre-approved pursuant to Rule 2-01(c)(7)(ii) of Regulation S-X is compatible with maintaining the principal accountant’s independence.
(i) Not applicable.
(j) Not applicable.
Item 5. Audit Committee of Listed Registrants
The registrant has a separately-designated standing audit committee established in accordance with Section 3(a)(58)(A) of the Securities and Exchange Act of 1934, as amended. George J. Gorman, Keith Quinton, Scott E. Wennerholm (Chair), and Nancy Wiser Stefani are the members of the registrant’s audit committee.
Item 6. Schedule of Investments
| (a) | Please see schedule of investments contained in the Report to Stockholders included under Item 1 of this Form N-CSR. |
| (b) | Not applicable. |
Item 7. Financial Statements and Financial Highlights for Open-End Management Investment Companies
Not applicable.
Item 8. Changes in and Disagreements with Accountants for Open-End Management Investment Companies
Not applicable.
Item 9. Proxy Disclosures for Open-End Management Investment Companies
Not applicable.
Item 10. Remuneration Paid to Directors, Officers, and Others of Open-End Management Investment Companies
Not applicable.
Item 11. Statement Regarding Basis for Approval of Investment Advisory Contract
The information is included in Item 1 of this Form N-CSR.
Item 12. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies
The Board of the Fund has adopted a proxy voting policy and procedure (the “Fund Policy”), pursuant to which the trustees have delegated proxy voting responsibility to the Fund’s investment adviser and adopted the investment adviser’s proxy voting policies and procedures (the “Policies”) which are described below. The trustees will review the Policies annually. In the event that a conflict of interest arises between the Fund’s shareholders and the investment adviser, the administrator, or any of their affiliates or any affiliate of the Fund, the investment adviser will generally refrain from voting the proxies related to the companies giving rise to such conflict until it consults with the Board, or any committee, sub-committee or group of independent trustees identified by the Board, which will instruct the investment adviser on the appropriate course of action. If the Board Members are unable to meet and the failure to vote a proxy would have a material adverse impact on the Fund, the investment adviser may vote such proxy, provided that it discloses the existence of the material conflict to the Chairperson of the Fund’s Board as soon as practicable and to the Board at its next meeting.
The Policies are designed to promote accountability of a company’s management to its shareholders and to align the interests of management with those shareholders. An independent proxy voting service (“Agent”), currently Institutional Shareholder Services, Inc., has been retained to assist in the voting of proxies through the provision of vote analysis, implementation and recordkeeping and disclosure services. The investment adviser will generally vote proxies through the Agent. The Agent is required to vote all proxies in accordance with customized proxy voting guidelines (the “Guidelines”) and/or refer them back to the investment adviser pursuant to the Policies.
The Agent is required to establish and maintain adequate internal controls and policies in connection with the provision of proxy voting services, including methods to reasonably ensure that its analysis and recommendations are not influenced by a conflict of interest. The Guidelines include voting guidelines for matters relating to, among other things, the election of directors, approval of independent auditors, executive compensation, corporate structure and anti-takeover defenses. The investment adviser may cause the Fund to abstain from voting from time to time where it determines that the costs associated with voting a proxy outweigh the benefits derived from exercising the right to vote or it is unable to access or access timely ballots or other proxy information, among other stated reasons. The Agent will refer Fund proxies to the investment adviser for instructions under circumstances where, among others: (1) the application of the Guidelines is unclear; (2) a particular proxy question is not covered by the Guidelines; or (3) the Guidelines require input from the investment adviser. When a proxy voting issue has been referred to the investment adviser, the analyst (or portfolio manager if applicable) covering the company subject to the proxy proposal determines the final vote (or decision not to vote) and the investment adviser’s Proxy Administrator (described below) instructs the Agent to vote accordingly for securities held by the Fund. Where more than one analyst covers a particular company and the recommendations of such analysts voting a proposal conflict, the investment adviser’s Global Proxy Group (described below) will review such recommendations and any other available information related to the proposal and determine the manner in which it should be voted, which may result in different recommendations for the Fund that may differ from other clients of the investment adviser.
The investment adviser has appointed a Proxy Administrator to assist in the coordination of the voting of client proxies (including the Fund’s) in accordance with the Guidelines and the Policies. The investment adviser and its affiliates have also established a Global Proxy Group. The Global Proxy Group develops the investment adviser’s positions on all major corporate issues, creates the Guidelines and oversees the proxy voting process. The Proxy Administrator maintains a record of all proxy questions that have been referred by the Agent, all applicable recommendations, analysis and research received and any resolution of the matter. Before instructing the Agent to vote contrary to the Guidelines or the recommendation of the Agent, the Proxy Administrator will provide the Global Proxy Group with the Agent’s recommendation for the proposal along with any other relevant materials, including the basis for the analyst’s recommendation. The Proxy Administrator will then instruct the Agent to vote the proxy in the manner determined by the Global Proxy Group. A similar process will be followed if the Agent has a conflict of interest with respect to a proxy. The investment adviser will report to the Fund’s Board any votes cast contrary to the Guidelines or Agent recommendations, as applicable, no less than annually.
The investment adviser’s Global Proxy Group is responsible for monitoring and resolving possible material conflicts with respect to proxy voting. Because the Guidelines are predetermined and designed to be in the best interests of shareholders, application of the Guidelines to vote client proxies should, in most cases, adequately address any possible conflict of interest. The investment adviser will monitor situations that may result in a conflict of interest between any of its clients and the investment adviser or any of its affiliates by maintaining a list of significant existing and prospective corporate clients. The Proxy Administrator will compare such list with the names of companies of which he or she has been referred a proxy statement (the “Proxy Companies”). If a company on the list is also a Proxy Company, the Proxy Administrator will report that fact to the Global Proxy Group. If the Proxy Administrator intends to instruct the Agent to vote in a manner inconsistent with the Guidelines, the Global Proxy Group will first determine, in consultation with legal counsel if necessary, whether a material conflict exists. If it is determined that a material conflict exists, the investment adviser will seek instruction on how the proxy should be voted from the Fund’s Board, or any committee or subcommittee identified by the Board. If a matter is referred to the Global Proxy Group, the decision made and basis for the decision will be documented by the Proxy Administrator and/or Global Proxy Group.
Information on how the Fund voted proxies relating to portfolio securities during the most recent 12 month period ended June 30 is available (1) without charge, upon request, by calling 1-800-262-1122, and (2) on the Securities and Exchange Commission’s website at http://www.sec.gov.
Item 13. Portfolio Managers of Closed-End Management Investment Companies
Eaton Vance Management (“EVM” or “Eaton Vance”) is the investment adviser of the Fund. Akbar A. Causer, Catherine M. McDermott, Federico Sequeda, and Andrew Szczurowski comprise the investment team responsible for the overall and day-to-day management of the Fund’s investments.
Mr. Causer is a Vice President of EVM, has been a portfolio manager of the Fund since September 2021 and has been employed by EVM since 2017. Ms. McDermott is a Vice President of EVM and has been a portfolio manager of the Fund since January 2008. Mr. Sequeda is a Vice President of EVM, has been a portfolio manager of the Fund since September 2021 and has been employed by EVM for more than five years. Mr. Szczurowski is a Vice President of EVM and has been a portfolio manager of the Fund since November 2011. Ms. McDermott and Mr. Szczurowski have managed other Eaton Vance portfolios for more than five years. This information is provided as of the date of filing this report.
The following table shows, as of the Fund’s most recent fiscal year end, the number of accounts each portfolio manager managed in each of the listed categories and the total assets (in millions of dollars) in the accounts managed within each category. The table also shows the number of accounts with respect to which the advisory fee is based on the performance of the account, if any, and the total assets (in millions of dollars) in those accounts.
| Number of All Accounts |
Total Assets of All Accounts |
Number of Accounts Paying a Performance Fee |
Total Assets of Accounts Paying a Performance Fee |
|||||||||||||
| Akbar A. Causer |
||||||||||||||||
| Registered Investment Companies |
4 | $ | 5,096.5 | 0 | $ | 0 | ||||||||||
| Other Pooled Investment Vehicles |
5 | $ | 4,179.8 | 0 | $ | 0 | ||||||||||
| Other Accounts |
3 | $ | 1,101.7 | 0 | $ | 0 | ||||||||||
| Catherine C. McDermott |
||||||||||||||||
| Registered Investment Companies |
6 | $ | 3,809.8 | 0 | $ | 0 | ||||||||||
| Other Pooled Investment Vehicles |
0 | $ | 0 | 0 | $ | 0 | ||||||||||
| Other Accounts |
0 | $ | 0 | 0 | $ | 0 | ||||||||||
| Federico Sequeda, CFA |
||||||||||||||||
| Registered Investment Companies |
13 | $ | 29,068.2 | 0 | $ | 0 | ||||||||||
| Other Pooled Investment Vehicles |
9 | $ | 5,451.5 | 0 | $ | 0 | ||||||||||
| Other Accounts |
2 | $ | 1,056.6 | 0 | $ | 0 | ||||||||||
| Andrew Szczurowski, CFA(1) |
||||||||||||||||
| Registered Investment Companies |
10 | $ | 36,397.1 | 0 | $ | 0 | ||||||||||
| Other Pooled Investment Vehicles |
1 | $ | 176.4 | 0 | $ | 0 | ||||||||||
| Other Accounts |
0 | $ | 0 | 0 | $ | 0 | ||||||||||
| (1) | This portfolio manager serves as portfolio manager of one or more registered investment companies and/or pooled investment vehicles that invest or may invest in one or more underlying registered investment companies and/or separate pooled investment vehicles in the Eaton Vance family of funds. The underlying investment companies may be managed by this portfolio manager or another portfolio manager. |
The following table shows the dollar range of Fund shares beneficially owned by each portfolio manager as of the Fund’s most recent fiscal year end.
| Portfolio Manager |
Dollar Range of Equity Securities Beneficially Owned in the Fund | |
| Akbar A. Causer | None | |
| Catherine C. McDermott | None | |
| Federico Sequeda, CFA | None | |
| Andrew Szczurowski | None |
Potential for Conflicts of Interest. It is possible that conflicts of interest may arise in connection with a portfolio manager’s management of the Fund’s investments on the one hand and the investments of other accounts for which a portfolio manager is responsible on the other. For example, a portfolio manager may have conflicts of interest in allocating management time, resources and investment opportunities among the Fund and other accounts he or she advises. In addition, due to differences in the investment strategies or restrictions between the Fund and the other accounts, the portfolio manager may take action with respect to another account that differs from the action taken with respect to the Fund. In some cases, another account managed by a portfolio manager may compensate the investment adviser based on the performance of the securities held by that account. The existence of such a performance based fee may create additional conflicts of interest for the portfolio manager in the allocation of management time, resources and investment opportunities. Whenever conflicts of interest arise, the portfolio manager will endeavor to exercise his or her discretion in a manner that he or she believes is equitable to all interested persons. EVM has adopted several policies and procedures designed to address these potential conflicts including a code of ethics and policies that govern the investment adviser’s trading practices, including among other things the aggregation and allocation of trades among clients, brokerage allocations, cross trades and best execution.
Compensation Structure for EVM
The compensation structure of Eaton Vance and its affiliates that are investment advisers (for purposes of this section “Eaton Vance”) is based on a total reward system of base salary and incentive compensation, which is paid either in the form of cash bonus, or for employees meeting the specified deferred compensation eligibility threshold, partially as a cash bonus and partially as mandatory deferred compensation. Deferred compensation granted to Eaton Vance employees is generally granted as a mix of deferred cash awards under the Investment Management Alignment Plan (IMAP) and equity-based awards in the form of stock units. The portion of incentive compensation granted in the form of a deferred compensation award and the terms of such awards are determined annually by the Compensation, Management Development and Succession Committee of Morgan Stanley.
Base salary compensation. Generally, portfolio managers receive base salary compensation based on the level of their position with the adviser.
Incentive compensation. In addition to base compensation, portfolio managers may receive discretionary year-end compensation. Incentive compensation may include:
| • | Cash bonus |
| • | Deferred compensation: |
| • | A mandatory program that defers a portion of incentive compensation into restricted stock units or other awards based on Morgan Stanley common stock or other plans that are subject to vesting and other conditions. |
| • | IMAP is a cash-based deferred compensation plan designed to increase the alignment of participants’ interests with the interests of clients. For eligible employees, a portion of their deferred compensation is mandatorily deferred into IMAP on an annual basis. Awards granted under IMAP are notionally invested in referenced funds available pursuant to the plan, which are funds advised by MSIM and its affiliates that are investment advisers. Portfolio managers are required to notionally invest a minimum of 40% of their account balance in the designated funds that they manage and are included in the IMAP notional investment fund menu. |
| • | Deferred compensation awards are typically subject to vesting over a multi-year period and are subject to cancellation through the payment date for competition, cause (i.e., any act or omission that constitutes a breach of obligation to the Funds, including failure to comply with internal compliance, ethics or risk management standards, and failure or refusal to perform duties satisfactorily, including supervisory and management duties), disclosure of proprietary information, and solicitation of employees or clients. Awards are also subject to clawback through the payment date if an employee’s act or omission (including with respect to direct supervisory responsibilities) causes a restatement of the firm’s consolidated financial results, constitutes a violation of the firm’s global risk management principles, policies and standards, or causes a loss of revenue associated with a position on which the employee was paid and the employee operated outside of internal control policies. |
Eaton Vance compensates employees based on principles of pay-for-performance, market competitiveness and risk management. Eligibility for, and the amount of any, discretionary compensation is subject to a multi-dimensional process. Specifically, consideration is given to one or more of the following factors, which can vary by portfolio management team and circumstances:
| • | Revenue and profitability of the business and/or each fund/account managed by the portfolio manager |
| • | Revenue and profitability of the Firm |
| • | Return on equity and risk factors of both the business units and Morgan Stanley |
| • | Assets managed by the portfolio manager |
| • | External market conditions |
| • | New business development and business sustainability |
| • | Contribution to client objectives |
| • | Team, product and/or MSIM and its affiliates that are investment advisers (including Eaton Vance) performance |
| • | The pre-tax investment performance of the funds/accounts managed by the portfolio manager (which may, in certain cases, be measured against the applicable benchmark(s) and/or peer group(s) over one, three and five-year periods) |
| • | Individual contribution and performance |
Further, the firm’s Global Incentive Compensation Discretion Policy requires compensation managers to consider only legitimate, business related factors when exercising discretion in determining variable incentive compensation, including adherence to Morgan Stanley’s core values, conduct, disciplinary actions in the current performance year, risk management and risk outcomes.
Item 14. Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers
No such purchases this period.
Item 15. Submission of Matters to a Vote of Security Holders
There have been no material changes to the procedures by which shareholders may recommend nominee to the Fund’s Board of Trustees since the Fund last provided disclosure in response to this item.
Item 16. Controls and Procedures
| (a) | It is the conclusion of the registrant’s principal executive officer and principal financial officer that the effectiveness of the registrant’s current disclosure controls and procedures (such disclosure controls and procedures having been evaluated within 90 days of the date of this filing) provide reasonable assurance that the information required to be disclosed by the registrant has been recorded, processed, summarized and reported within the time period specified in the Commission’s rules and forms and that the information required to be disclosed by the registrant has been accumulated and communicated to the registrant’s principal executive officer and principal financial officer in order to allow timely decisions regarding required disclosure. |
| (b) | There have been no changes in the registrant’s internal control over financial reporting during the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting. |
Item 17. Disclosure of Securities Lending Activities for Closed-End Management Investment Companies
No activity to report for the registrant’s most recent fiscal year end.
Item 18. Recovery of Erroneously Awarded Compensation
Not applicable.
Item 19. Exhibits
| (a)(1) | Registrant’s Code of Ethics – Not applicable (please see Item 2). | |
| (a)(2)(i) | Principal Financial Officer’s Section 302 certification. | |
| (a)(2)(ii) | Principal Executive Officer’s Section 302 certification. | |
| (b) | Combined Section 906 certification. | |
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Eaton Vance Short Duration Diversified Income Fund
| By: | /s/ Kenneth A. Topping | |
| Kenneth A. Topping | ||
| Principal Executive Officer | ||
| Date: | December 23, 2025 | |
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 | ||
| Principal Financial Officer | ||
| Date: | December 23, 2025 | |
| By: | /s/ Kenneth A. Topping | |
| Kenneth A. Topping | ||
| Principal Executive Officer | ||
| Date: | December 23, 2025 | |
FAQ
How did Eaton Vance Short Duration Diversified Income Fund (EVG) perform over the last year?
For the 12 months ended October 31, 2025, EVG returned 10.32% at NAV, beating the Bloomberg U.S. Aggregate Bond Index at 6.16% and its blended custom benchmark at 6.97%. Market-price return was 9.06%.
What income did EVG pay and what is its distribution rate?
EVG paid $0.90 per share in total distributions for the period. This equates to a 7.89% distribution rate at NAV and 7.99% at market price, based on the last regular distribution annualized and the period-end NAV and share price.
How much leverage does Eaton Vance Short Duration Diversified Income Fund use?
The Fund reports total leverage of 30.34%, consisting of 13.66% from borrowings and 16.68% from derivatives, calculated as a percentage of aggregate net assets plus the absolute notional value of derivatives and borrowings.
Which sectors contributed most to EVG’s outperformance versus its benchmarks?
Positive contributors included emerging-market debt, commercial mortgage-backed securities returning 24.18%, CLO debt tranches rated BB and BBB returning 10.78% and 7.50%, high yield corporate bonds at 7.98%, and allocations to agency and non-agency mortgage-backed securities.
What recent strategy changes has EVG made to its investment approach?
Effective October 17, 2025, the Fund removed its 25% minimum investment requirement in its three principal categories and eliminated its weighted average credit quality restriction. The primary objective of high current income and the requirement to keep duration at or below three years, including leverage, remain in place.
What are the main risks highlighted for Eaton Vance Short Duration Diversified Income Fund?
The report emphasizes market and investment risk, credit risk, foreign and emerging markets risk, currency and interest rate risk, as well as derivatives, leverage, liquidity, mortgage- and asset-backed securities, loan, and cybersecurity risks. As a closed-end fund, its shares may trade at a premium or discount to NAV, and there is no guarantee of achieving its income objective.
EV Short Duration Diversified