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: 811-21142
Eaton Vance Municipal Bond Fund
(Exact Name of Registrant as Specified in Charter)
Two International Place, Boston, Massachusetts 02110
(Address of Principal Executive Offices)
Maureen A. Gemma
Two International Place, Boston, Massachusetts 02110
(Name and Address of Agent for Services)
(617) 482-8260
(Registrant’s Telephone Number)
September 30
Date of Fiscal Year End
March 31, 2015
Date of Reporting Period
Item 1. Reports to Stockholders
Eaton Vance
Municipal Bond Funds
Semiannual Report
March 31, 2015
Municipal (EIM) • California (EVM) • New York (ENX)
Commodity Futures Trading Commission Registration. Effective December 31, 2012, the Commodity Futures Trading Commission (“CFTC”) adopted certain regulatory changes that subject registered investment companies and advisers to regulation by the CFTC if a fund invests more than a prescribed level of its assets in certain CFTC-regulated instruments (including futures, certain options and swap agreements) or markets itself as providing investment exposure to such instruments. Each Fund has claimed an exclusion from the definition of the term “commodity pool operator” under the Commodity Exchange Act. Accordingly, neither the Funds nor the adviser with respect to the operation of the Funds is subject to CFTC regulation. Because of its management of other strategies, each Fund’s adviser is registered with the CFTC as a commodity pool operator and a commodity trading advisor.
Fund shares are not insured by the FDIC and are not deposits or other obligations of, or guaranteed by, any depository institution. Shares are subject to investment risks, including possible loss of principal invested.
Semiannual Report March 31, 2015
Eaton Vance
Municipal Bond Funds
Table of Contents
| Performance and Fund Profile |
||||
| Municipal Bond Fund |
2 | |||
| California Municipal Bond Fund |
3 | |||
| New York Municipal Bond Fund |
4 | |||
| Endnotes and Additional Disclosures |
5 | |||
| Financial Statements |
6 | |||
| Officers and Trustees |
33 | |||
| Important Notices |
34 | |||
Eaton Vance
Municipal Bond Fund
March 31, 2015
Performance1,2
Portfolio Manager Cynthia J. Clemson
| % Average Annual Total Returns | Inception Date | Six Months | One Year | Five Years | Ten Years | |||||||||||||||
| Fund at NAV |
08/30/2002 | 4.56 | % | 15.97 | % | 9.76 | % | 6.40 | % | |||||||||||
| Fund at Market Price |
— | 6.22 | 15.42 | 6.75 | 6.20 | |||||||||||||||
| Barclays Long (22+) Year Municipal Bond Index |
— | 3.98 | % | 10.76 | % | 6.89 | % | 5.41 | % | |||||||||||
| % Premium/Discount to NAV3 | ||||||||||||||||||||
| –8.76 | % | |||||||||||||||||||
| Distributions4 | ||||||||||||||||||||
| Total Distributions per share for the period |
$ | 0.383 | ||||||||||||||||||
| Distribution Rate at NAV |
5.41 | % | ||||||||||||||||||
| Taxable-Equivalent Distribution Rate at NAV |
9.56 | % | ||||||||||||||||||
| Distribution Rate at Market Price |
5.93 | % | ||||||||||||||||||
| Taxable-Equivalent Distribution Rate at Market Price |
10.48 | % | ||||||||||||||||||
| % Total Leverage5 | ||||||||||||||||||||
| Residual Interest Bond (RIB) Financing |
38.39 | % | ||||||||||||||||||
Fund Profile
See Endnotes and Additional Disclosures in this report.
Past performance is no guarantee of future results. Returns are historical and are calculated by determining the percentage change in net asset value (NAV) or market price (as applicable) with all distributions reinvested and includes management fees and other expenses. Fund performance at market price will differ from its results at NAV due to factors such as changing perceptions about the Fund, market conditions, fluctuations in supply and demand for Fund shares, or changes in Fund distributions. Investment return and principal value will fluctuate so that shares, when sold, may be worth more or less than their original cost. Performance less than one year is cumulative. Performance is for the stated time period only; due to market volatility, current Fund performance may be lower or higher than the quoted return. For performance as of the most recent month-end, please refer to eatonvance.com.
| 2 |
Eaton Vance
California Municipal Bond Fund
March 31, 2015
Performance1,2
Portfolio Manager Craig R. Brandon, CFA
| % Average Annual Total Returns | Inception Date | Six Months | One Year | Five Years | Ten Years | |||||||||||||||
| Fund at NAV |
08/30/2002 | 3.29 | % | 12.94 | % | 8.34 | % | 5.35 | % | |||||||||||
| Fund at Market Price |
— | 8.96 | 17.18 | 6.28 | 5.26 | |||||||||||||||
| Barclays Long (22+) Year Municipal Bond Index |
— | 3.98 | % | 10.76 | % | 6.89 | % | 5.41 | % | |||||||||||
| % Premium/Discount to NAV3 | ||||||||||||||||||||
| –7.18 | % | |||||||||||||||||||
| Distributions4 | ||||||||||||||||||||
| Total Distributions per share for the period |
$ | 0.342 | ||||||||||||||||||
| Distribution Rate at NAV |
5.28 | % | ||||||||||||||||||
| Taxable-Equivalent Distribution Rate at NAV |
10.76 | % | ||||||||||||||||||
| Distribution Rate at Market Price |
5.69 | % | ||||||||||||||||||
| Taxable-Equivalent Distribution Rate at Market Price |
11.60 | % | ||||||||||||||||||
| % Total Leverage5 | ||||||||||||||||||||
| RIB Financing |
40.07 | % | ||||||||||||||||||
Fund Profile
See Endnotes and Additional Disclosures in this report.
Past performance is no guarantee of future results. Returns are historical and are calculated by determining the percentage change in net asset value (NAV) or market price (as applicable) with all distributions reinvested and includes management fees and other expenses. Fund performance at market price will differ from its results at NAV due to factors such as changing perceptions about the Fund, market conditions, fluctuations in supply and demand for Fund shares, or changes in Fund distributions. Investment return and principal value will fluctuate so that shares, when sold, may be worth more or less than their original cost. Performance less than one year is cumulative. Performance is for the stated time period only; due to market volatility, current Fund performance may be lower or higher than the quoted return. For performance as of the most recent month-end, please refer to eatonvance.com.
| 3 |
Eaton Vance
New York Municipal Bond Fund
March 31, 2015
Performance1,2
Portfolio Manager Craig R. Brandon, CFA
| % Average Annual Total Returns | Inception Date | Six Months | One Year | Five Years | Ten Years | |||||||||||||||
| Fund at NAV |
08/30/2002 | 3.44 | % | 12.71 | % | 7.56 | % | 5.50 | % | |||||||||||
| Fund at Market Price |
— | 6.18 | 12.27 | 4.44 | 5.34 | |||||||||||||||
| Barclays Long (22+) Year Municipal Bond Index |
— | 3.98 | % | 10.76 | % | 6.89 | % | 5.41 | % | |||||||||||
| % Premium/Discount to NAV3 | ||||||||||||||||||||
| –9.86 | % | |||||||||||||||||||
| Distributions4 | ||||||||||||||||||||
| Total Distributions per share for the period |
$ | 0.359 | ||||||||||||||||||
| Distribution Rate at NAV |
5.08 | % | ||||||||||||||||||
| Taxable-Equivalent Distribution Rate at NAV |
9.84 | % | ||||||||||||||||||
| Distribution Rate at Market Price |
5.64 | % | ||||||||||||||||||
| Taxable-Equivalent Distribution Rate at Market Price |
10.93 | % | ||||||||||||||||||
| % Total Leverage5 | ||||||||||||||||||||
| RIB Financing |
39.21 | % | ||||||||||||||||||
Fund Profile
See Endnotes and Additional Disclosures in this report.
Past performance is no guarantee of future results. Returns are historical and are calculated by determining the percentage change in net asset value (NAV) or market price (as applicable) with all distributions reinvested and includes management fees and other expenses. Fund performance at market price will differ from its results at NAV due to factors such as changing perceptions about the Fund, market conditions, fluctuations in supply and demand for Fund shares, or changes in Fund distributions. Investment return and principal value will fluctuate so that shares, when sold, may be worth more or less than their original cost. Performance less than one year is cumulative. Performance is for the stated time period only; due to market volatility, current Fund performance may be lower or higher than the quoted return. For performance as of the most recent month-end, please refer to eatonvance.com.
| 4 |
Eaton Vance
Municipal Bond Funds
March 31, 2015
Endnotes and Additional Disclosures
| 5 |
Eaton Vance
Municipal Bond Fund
March 31, 2015
Portfolio of Investments (Unaudited)
| 6 | See Notes to Financial Statements. |
Eaton Vance
Municipal Bond Fund
March 31, 2015
Portfolio of Investments (Unaudited) — continued
| 7 | See Notes to Financial Statements. |
Eaton Vance
Municipal Bond Fund
March 31, 2015
Portfolio of Investments (Unaudited) — continued
| 8 | See Notes to Financial Statements. |
Eaton Vance
Municipal Bond Fund
March 31, 2015
Portfolio of Investments (Unaudited) — continued
| 9 | See Notes to Financial Statements. |
Eaton Vance
Municipal Bond Fund
March 31, 2015
Portfolio of Investments (Unaudited) — continued
| 10 | See Notes to Financial Statements. |
Eaton Vance
California Municipal Bond Fund
March 31, 2015
Portfolio of Investments (Unaudited)
| 11 | See Notes to Financial Statements. |
Eaton Vance
California Municipal Bond Fund
March 31, 2015
Portfolio of Investments (Unaudited) — continued
| 12 | See Notes to Financial Statements. |
Eaton Vance
California Municipal Bond Fund
March 31, 2015
Portfolio of Investments (Unaudited) — continued
| 13 | See Notes to Financial Statements. |
Eaton Vance
New York Municipal Bond Fund
March 31, 2015
Portfolio of Investments (Unaudited)
| 14 | See Notes to Financial Statements. |
Eaton Vance
New York Municipal Bond Fund
March 31, 2015
Portfolio of Investments (Unaudited) — continued
| 15 | See Notes to Financial Statements. |
Eaton Vance
New York Municipal Bond Fund
March 31, 2015
Portfolio of Investments (Unaudited) — continued
| 16 | See Notes to Financial Statements. |
Eaton Vance
Municipal Bond Funds
March 31, 2015
Statements of Assets and Liabilities (Unaudited)
| March 31, 2015 | ||||||||||||
| Assets | Municipal Fund | California Fund | New York Fund | |||||||||
| Investments — |
||||||||||||
| Identified cost |
$ | 1,390,779,926 | $ | 429,556,085 | $ | 329,492,070 | ||||||
| Unrealized appreciation |
154,088,477 | 39,090,410 | 30,577,151 | |||||||||
| Investments, at value |
$ | 1,544,868,403 | $ | 468,646,495 | $ | 360,069,221 | ||||||
| Cash |
$ | 3,727,633 | $ | 9,694,525 | $ | — | ||||||
| Restricted cash* |
928,000 | 488,000 | 205,000 | |||||||||
| Interest receivable |
19,036,816 | 5,092,824 | 4,412,106 | |||||||||
| Receivable for investments sold |
66,219 | — | — | |||||||||
| Deferred debt issuance costs |
387,703 | 140,069 | 31,108 | |||||||||
| Total assets |
$ | 1,569,014,774 | $ | 484,061,913 | $ | 364,717,435 | ||||||
| Liabilities | ||||||||||||
| Payable for floating rate notes issued |
$ | 601,550,000 | $ | 185,200,000 | $ | 142,670,000 | ||||||
| Payable for when-issued securities |
— | 21,146,700 | — | |||||||||
| Payable for variation margin on open financial futures contracts |
93,031 | 63,344 | 20,313 | |||||||||
| Due to custodian |
— | — | 375,999 | |||||||||
| Payable to affiliates: |
||||||||||||
| Investment adviser fee |
796,094 | 234,874 | 200,405 | |||||||||
| Interest expense and fees payable |
1,101,366 | 322,722 | 212,784 | |||||||||
| Accrued expenses |
143,121 | 64,638 | 69,365 | |||||||||
| Total liabilities |
$ | 603,683,612 | $ | 207,032,278 | $ | 143,548,866 | ||||||
| Net Assets |
$ | 965,331,162 | $ | 277,029,635 | $ | 221,168,569 | ||||||
| Sources of Net Assets | ||||||||||||
| Common shares, $0.01 par value, unlimited number of shares authorized |
$ | 681,683 | $ | 213,912 | $ | 156,586 | ||||||
| Additional paid-in capital |
958,234,857 | 302,760,817 | 221,022,853 | |||||||||
| Accumulated net realized loss |
(147,580,463 | ) | (66,869,707 | ) | (32,361,854 | ) | ||||||
| Accumulated undistributed net investment income |
658,633 | 2,313,304 | 1,938,031 | |||||||||
| Net unrealized appreciation |
153,336,452 | 38,611,309 | 30,412,953 | |||||||||
| Net Assets |
$ | 965,331,162 | $ | 277,029,635 | $ | 221,168,569 | ||||||
| Common Shares Outstanding | 68,168,250 | 21,391,186 | 15,658,585 | |||||||||
| Net Asset Value | ||||||||||||
| Net assets ÷ common shares issued and outstanding |
$ | 14.16 | $ | 12.95 | $ | 14.12 | ||||||
| * | Represents restricted cash on deposit at the broker for open financial futures contracts. |
| 17 | See Notes to Financial Statements. |
Eaton Vance
Municipal Bond Funds
March 31, 2015
Statements of Operations (Unaudited)
| Six Months Ended March 31, 2015 | ||||||||||||
| Investment Income | Municipal Fund | California Fund | New York Fund | |||||||||
| Interest |
$ | 32,928,512 | $ | 9,447,705 | $ | 7,428,055 | ||||||
| Total investment income |
$ | 32,928,512 | $ | 9,447,705 | $ | 7,428,055 | ||||||
| Expenses | ||||||||||||
| Investment adviser fee |
$ | 4,696,777 | $ | 1,377,650 | $ | 1,180,207 | ||||||
| Trustees’ fees and expenses |
34,000 | 11,377 | 9,029 | |||||||||
| Custodian fee |
158,648 | 57,811 | 48,179 | |||||||||
| Transfer and dividend disbursing agent fees |
10,117 | 9,115 | 9,284 | |||||||||
| Legal and accounting services |
70,356 | 44,469 | 41,778 | |||||||||
| Printing and postage |
34,725 | 11,636 | 10,220 | |||||||||
| Interest expense and fees |
1,780,816 | 513,455 | 403,781 | |||||||||
| Miscellaneous |
35,823 | 16,322 | 15,946 | |||||||||
| Total expenses |
$ | 6,821,262 | $ | 2,041,835 | $ | 1,718,424 | ||||||
| Deduct — |
||||||||||||
| Reduction of custodian fee |
$ | 753 | $ | 412 | $ | 118 | ||||||
| Total expense reductions |
$ | 753 | $ | 412 | $ | 118 | ||||||
| Net expenses |
$ | 6,820,509 | $ | 2,041,423 | $ | 1,718,306 | ||||||
| Net investment income |
$ | 26,108,003 | $ | 7,406,282 | $ | 5,709,749 | ||||||
| Realized and Unrealized Gain (Loss) | ||||||||||||
| Net realized gain (loss) — |
||||||||||||
| Investment transactions |
$ | (3,860,934 | ) | $ | 1,356,873 | $ | 573,156 | |||||
| Extinguishment of debt |
(34 | ) | — | — | ||||||||
| Financial futures contracts |
(2,594,725 | ) | (1,180,357 | ) | (565,710 | ) | ||||||
| Net realized gain (loss) |
$ | (6,455,693 | ) | $ | 176,516 | $ | 7,446 | |||||
| Change in unrealized appreciation (depreciation) — |
||||||||||||
| Investments |
$ | 22,396,853 | $ | 1,501,319 | $ | 1,418,047 | ||||||
| Financial futures contracts |
(1,127,645 | ) | (672,138 | ) | (246,092 | ) | ||||||
| Net change in unrealized appreciation (depreciation) |
$ | 21,269,208 | $ | 829,181 | $ | 1,171,955 | ||||||
| Net realized and unrealized gain |
$ | 14,813,515 | $ | 1,005,697 | $ | 1,179,401 | ||||||
| Net increase in net assets from operations |
$ | 40,921,518 | $ | 8,411,979 | $ | 6,889,150 | ||||||
| 18 | See Notes to Financial Statements. |
Eaton Vance
Municipal Bond Funds
March 31, 2015
Statements of Changes in Net Assets
| Six Months Ended March 31, 2015 (Unaudited) | ||||||||||||
| Increase (Decrease) in Net Assets | Municipal Fund | California Fund | New York Fund | |||||||||
| From operations — |
||||||||||||
| Net investment income |
$ | 26,108,003 | $ | 7,406,282 | $ | 5,709,749 | ||||||
| Net realized gain (loss) from investment transactions, extinguishment of debt and financial futures contracts |
(6,455,693 | ) | 176,516 | 7,446 | ||||||||
| Net change in unrealized appreciation (depreciation) from investments and financial futures contracts |
21,269,208 | 829,181 | 1,171,955 | |||||||||
| Net increase in net assets from operations |
$ | 40,921,518 | $ | 8,411,979 | $ | 6,889,150 | ||||||
| Distributions to common shareholders — |
||||||||||||
| From net investment income |
$ | (26,109,122 | ) | $ | (7,316,213 | ) | $ | (5,623,297 | ) | |||
| Total distributions to common shareholders |
$ | (26,109,122 | ) | $ | (7,316,213 | ) | $ | (5,623,297 | ) | |||
| Capital share transactions — |
||||||||||||
| Cost of shares repurchased (See Note 5) |
$ | — | $ | (87,649 | ) | $ | (287,318 | ) | ||||
| Net decrease in net assets from capital share transactions |
$ | — | $ | (87,649 | ) | $ | (287,318 | ) | ||||
| Net increase in net assets |
$ | 14,812,396 | $ | 1,008,117 | $ | 978,535 | ||||||
| Net Assets | ||||||||||||
| At beginning of period |
$ | 950,518,766 | $ | 276,021,518 | $ | 220,190,034 | ||||||
| At end of period |
$ | 965,331,162 | $ | 277,029,635 | $ | 221,168,569 | ||||||
| Accumulated undistributed net investment income included in net assets |
||||||||||||
| At end of period |
$ | 658,633 | $ | 2,313,304 | $ | 1,938,031 | ||||||
| 19 | See Notes to Financial Statements. |
Eaton Vance
Municipal Bond Funds
March 31, 2015
Statements of Changes in Net Assets — continued
| Year Ended September 30, 2014 | ||||||||||||
| Increase (Decrease) in Net Assets | Municipal Fund | California Fund | New York Fund | |||||||||
| From operations — |
||||||||||||
| Net investment income |
$ | 53,349,688 | $ | 15,088,430 | $ | 11,858,752 | ||||||
| Net realized gain (loss) from investment transactions, extinguishment of debt and financial futures contracts |
190,580 | (2,717,813 | ) | (1,552,854 | ) | |||||||
| Net change in unrealized appreciation (depreciation) from investments and financial futures contracts |
111,749,614 | 31,277,572 | 20,855,535 | |||||||||
| Net increase in net assets from operations |
$ | 165,289,882 | $ | 43,648,189 | $ | 31,161,433 | ||||||
| Distributions to common shareholders — |
||||||||||||
| From net investment income |
$ | (52,218,243 | ) | $ | (14,152,654 | ) | $ | (10,885,152 | ) | |||
| Total distributions to common shareholders |
$ | (52,218,243 | ) | $ | (14,152,654 | ) | $ | (10,885,152 | ) | |||
| Capital share transactions — |
||||||||||||
| Cost of shares repurchased (See Note 5) |
$ | — | $ | (3,881,323 | ) | $ | (2,538,716 | ) | ||||
| Net decrease in net assets from capital share transactions |
$ | — | $ | (3,881,323 | ) | $ | (2,538,716 | ) | ||||
| Net increase in net assets |
$ | 113,071,639 | $ | 25,614,212 | $ | 17,737,565 | ||||||
| Net Assets | ||||||||||||
| At beginning of year |
$ | 837,447,127 | $ | 250,407,306 | $ | 202,452,469 | ||||||
| At end of year |
$ | 950,518,766 | $ | 276,021,518 | $ | 220,190,034 | ||||||
| Accumulated undistributed net investment income included in net assets |
||||||||||||
| At end of year |
$ | 659,752 | $ | 2,223,235 | $ | 1,851,579 | ||||||
| 20 | See Notes to Financial Statements. |
Eaton Vance
Municipal Bond Funds
March 31, 2015
Statements of Cash Flows (Unaudited)
| Six Months Ended March 31, 2015 | ||||||||||||
| Cash Flows From Operating Activities | Municipal Fund | California Fund | New York Fund | |||||||||
| Net increase in net assets from operations |
$ | 40,921,518 | $ | 8,411,979 | $ | 6,889,150 | ||||||
| Adjustments to reconcile net increase in net assets from operations to net cash provided by (used in) operating activities: |
||||||||||||
| Investments purchased |
(73,810,677 | ) | (20,931,110 | ) | (14,360,165 | ) | ||||||
| Investments sold |
71,306,581 | 20,206,104 | 8,764,294 | |||||||||
| Net amortization/accretion of premium (discount) |
(1,520,512 | ) | (291,750 | ) | 144,110 | |||||||
| Amortization of deferred debt issuance costs |
51,252 | 9,464 | 7,602 | |||||||||
| Decrease in restricted cash |
105,000 | 42,000 | 20,000 | |||||||||
| Decrease (increase) in interest receivable |
(134,390 | ) | 44,270 | (20,935 | ) | |||||||
| Decrease in receivable for variation margin on open financial futures contracts |
139,750 | 60,844 | 30,469 | |||||||||
| Increase in payable for variation margin on open financial futures contracts |
93,031 | 63,344 | 20,313 | |||||||||
| Increase in payable to affiliate for investment adviser fee |
32,294 | 8,850 | 7,126 | |||||||||
| Decrease in interest expense and fees payable |
(69,609 | ) | (19,480 | ) | (9,931 | ) | ||||||
| Decrease in accrued expenses |
(75,344 | ) | (54,823 | ) | (49,183 | ) | ||||||
| Net change in unrealized (appreciation) depreciation from investments |
(22,396,853 | ) | (1,501,319 | ) | (1,418,047 | ) | ||||||
| Net realized (gain) loss from investments |
3,860,934 | (1,356,873 | ) | (573,156 | ) | |||||||
| Net realized loss on extinguishment of debt |
34 | — | — | |||||||||
| Net cash provided by (used in) operating activities |
$ | 18,503,009 | $ | 4,691,500 | $ | (548,353 | ) | |||||
| Cash Flows From Financing Activities | ||||||||||||
| Repurchase of common shares |
$ | — | $ | (87,649 | ) | $ | (287,318 | ) | ||||
| Distributions paid to common shareholders, net of reinvestments |
(26,109,122 | ) | (7,316,213 | ) | (5,623,297 | ) | ||||||
| Proceeds from secured borrowings |
27,400,000 | 8,000,000 | — | |||||||||
| Repayment of secured borrowings |
(28,880,000 | ) | (6,300,000 | ) | — | |||||||
| Increase in due to custodian |
— | — | 375,999 | |||||||||
| Net cash used in financing activities |
$ | (27,589,122 | ) | $ | (5,703,862 | ) | $ | (5,534,616 | ) | |||
| Net decrease in cash |
$ | (9,086,113 | ) | $ | (1,012,362 | ) | $ | (6,082,969 | ) | |||
| Cash at beginning of period |
$ | 12,813,746 | $ | 10,706,887 | $ | 6,082,969 | ||||||
| Cash at end of period |
$ | 3,727,633 | $ | 9,694,525 | $ | — | ||||||
| Supplemental disclosure of cash flow information: | ||||||||||||
| Cash paid for interest and fees |
$ | 1,799,173 | $ | 523,471 | $ | 406,110 | ||||||
| 21 | See Notes to Financial Statements. |
Eaton Vance
Municipal Bond Funds
March 31, 2015
Financial Highlights
| Municipal Fund | ||||||||||||||||||||||||
| Six Months Ended March 31, 2015 (Unaudited) |
Year Ended September 30, | |||||||||||||||||||||||
| 2014 | 2013 | 2012 | 2011 | 2010 | ||||||||||||||||||||
| Net asset value — Beginning of period |
$ | 13.940 | $ | 12.290 | $ | 14.100 | $ | 12.560 | $ | 13.080 | $ | 13.170 | ||||||||||||
| Income (Loss) From Operations | ||||||||||||||||||||||||
| Net investment income(1) |
$ | 0.383 | $ | 0.783 | $ | 0.768 | $ | 0.763 | $ | 0.878 | $ | 0.878 | ||||||||||||
| Net realized and unrealized gain (loss) |
0.220 | 1.633 | (1.812 | ) | 1.584 | (0.482 | ) | (0.059 | ) | |||||||||||||||
| Total income (loss) from operations |
$ | 0.603 | $ | 2.416 | $ | (1.044 | ) | $ | 2.347 | $ | 0.396 | $ | 0.819 | |||||||||||
| Less Distributions | ||||||||||||||||||||||||
| From net investment income |
$ | (0.383 | ) | $ | (0.766 | ) | $ | (0.766 | ) | $ | (0.807 | ) | $ | (0.916 | ) | $ | (0.909 | ) | ||||||
| Total distributions |
$ | (0.383 | ) | $ | (0.766 | ) | $ | (0.766 | ) | $ | (0.807 | ) | $ | (0.916 | ) | $ | (0.909 | ) | ||||||
| Net asset value — End of period |
$ | 14.160 | $ | 13.940 | $ | 12.290 | $ | 14.100 | $ | 12.560 | $ | 13.080 | ||||||||||||
| Market value — End of period |
$ | 12.910 | $ | 12.520 | $ | 11.560 | $ | 14.460 | $ | 12.350 | $ | 13.900 | ||||||||||||
| Total Investment Return on Net Asset Value(2) |
4.56 | %(3) | 21.00 | % | (7.59 | )% | 19.33 | % | 3.89 | % | 6.77 | % | ||||||||||||
| Total Investment Return on Market Value(2) |
6.22 | %(3) | 15.44 | % | (15.17 | )% | 24.45 | % | (3.87 | )% | 13.55 | % | ||||||||||||
| Ratios/Supplemental Data | ||||||||||||||||||||||||
| Net assets, end of period (000’s omitted) |
$ | 965,331 | $ | 950,519 | $ | 837,447 | $ | 960,528 | $ | 855,705 | $ | 889,539 | ||||||||||||
| Ratios (as a percentage of average daily net assets): |
||||||||||||||||||||||||
| Expenses excluding interest and fees(4) |
1.05 | %(5) | 1.12 | % | 1.15 | % | 1.30 | % | 1.25 | % | 1.12 | % | ||||||||||||
| Interest and fee expense(6) |
0.37 | %(5) | 0.43 | % | 0.47 | % | 0.48 | % | 0.56 | % | 0.54 | % | ||||||||||||
| Total expenses(4) |
1.42 | %(5) | 1.55 | % | 1.62 | % | 1.78 | % | 1.81 | % | 1.66 | % | ||||||||||||
| Net investment income |
5.43 | %(5) | 6.01 | % | 5.67 | % | 5.75 | % | 7.54 | % | 7.04 | % | ||||||||||||
| Portfolio Turnover |
3 | %(3) | 9 | % | 18 | % | 17 | % | 18 | % | 18 | % | ||||||||||||
| (1) | Computed using average shares outstanding. |
| (2) | Returns are historical and are calculated by determining the percentage change in net asset value or market value with all distributions reinvested. Distributions are assumed to be reinvested at prices obtained under the Fund’s dividend reinvestment plan. |
| (3) | Not annualized. |
| (4) | Excludes the effect of custody fee credits, if any, of less than 0.005%. |
| (5) | Annualized. |
| (6) | Interest and fee expense relates to the liability for floating rate notes issued in conjunction with residual interest bond transactions (see Note 1H). |
| 22 | See Notes to Financial Statements. |
Eaton Vance
Municipal Bond Funds
March 31, 2015
Financial Highlights — continued
| California Fund | ||||||||||||||||||||||||
| Six Months Ended March 31, 2015 (Unaudited) |
Year Ended September 30, | |||||||||||||||||||||||
| 2014 | 2013 | 2012 | 2011 | 2010 | ||||||||||||||||||||
| Net asset value — Beginning of period |
$ | 12.900 | $ | 11.510 | $ | 12.980 | $ | 11.740 | $ | 12.610 | $ | 12.940 | ||||||||||||
| Income (Loss) From Operations | ||||||||||||||||||||||||
| Net investment income(1) |
$ | 0.346 | $ | 0.700 | $ | 0.698 | $ | 0.689 | $ | 0.801 | $ | 0.847 | ||||||||||||
| Net realized and unrealized gain (loss) |
0.046 | 1.326 | (1.514 | ) | 1.282 | (0.822 | ) | (0.331 | ) | |||||||||||||||
| Total income (loss) from operations |
$ | 0.392 | $ | 2.026 | $ | (0.816 | ) | $ | 1.971 | $ | (0.021 | ) | $ | 0.516 | ||||||||||
| Less Distributions | ||||||||||||||||||||||||
| From net investment income |
$ | (0.342 | ) | $ | (0.657 | ) | $ | (0.654 | ) | $ | (0.731 | ) | $ | (0.849 | ) | $ | (0.846 | ) | ||||||
| Total distributions |
$ | (0.342 | ) | $ | (0.657 | ) | $ | (0.654 | ) | $ | (0.731 | ) | $ | (0.849 | ) | $ | (0.846 | ) | ||||||
| Anti-dilutive effect of share repurchase program (see Note 5)(1) |
$ | 0.000 | (2) | $ | 0.021 | $ | — | $ | — | $ | — | $ | — | |||||||||||
| Net asset value — End of period |
$ | 12.950 | $ | 12.900 | $ | 11.510 | $ | 12.980 | $ | 11.740 | $ | 12.610 | ||||||||||||
| Market value — End of period |
$ | 12.020 | $ | 11.350 | $ | 10.330 | $ | 12.650 | $ | 12.270 | $ | 13.300 | ||||||||||||
| Total Investment Return on Net Asset Value(3) |
3.29 | %(4) | 18.96 | % | (6.18 | )% | 17.34 | % | 0.48 | % | 4.53 | % | ||||||||||||
| Total Investment Return on Market Value(3) |
8.96 | %(4) | 16.62 | % | (13.60 | )% | 9.42 | % | (0.43 | )% | 10.00 | % | ||||||||||||
| Ratios/Supplemental Data | ||||||||||||||||||||||||
| Net assets, end of period (000’s omitted) |
$ | 277,030 | $ | 276,022 | $ | 250,407 | $ | 282,353 | $ | 255,294 | $ | 273,914 | ||||||||||||
| Ratios (as a percentage of average daily net assets): |
||||||||||||||||||||||||
| Expenses excluding interest and fees(5) |
1.10 | %(6) | 1.16 | % | 1.22 | % | 1.25 | % | 1.42 | % | 1.16 | % | ||||||||||||
| Interest and fee expense(7) |
0.37 | %(6) | 0.42 | % | 0.46 | % | 0.48 | % | 0.57 | % | 0.56 | % | ||||||||||||
| Total expenses(5) |
1.47 | %(6) | 1.58 | % | 1.68 | % | 1.73 | % | 1.99 | % | 1.72 | % | ||||||||||||
| Net investment income |
5.35 | %(6) | 5.75 | % | 5.56 | % | 5.57 | % | 7.20 | % | 7.01 | % | ||||||||||||
| Portfolio Turnover |
4 | %(4) | 7 | % | 22 | % | 27 | % | 21 | % | 11 | % | ||||||||||||
| (1) | Computed using average shares outstanding. |
| (2) | Amount is less than $0.0005. |
| (3) | Returns are historical and are calculated by determining the percentage change in net asset value or market value with all distributions reinvested. Distributions are assumed to be reinvested at prices obtained under the Fund’s dividend reinvestment plan. |
| (4) | Not annualized. |
| (5) | Excludes the effect of custody fee credits, if any, of less than 0.005%. |
| (6) | Annualized. |
| (7) | Interest and fee expense relates to the liability for floating rate notes issued in conjunction with residual interest bond transactions (see Note 1H). |
| 23 | See Notes to Financial Statements. |
Eaton Vance
Municipal Bond Funds
March 31, 2015
Financial Highlights — continued
| New York Fund | ||||||||||||||||||||||||
| Six Months Ended March 31, 2015 (Unaudited) |
Year Ended September 30, | |||||||||||||||||||||||
| 2014 | 2013 | 2012 | 2011 | 2010 | ||||||||||||||||||||
| Net asset value — Beginning of period |
$ | 14.040 | $ | 12.740 | $ | 14.460 | $ | 13.170 | $ | 13.610 | $ | 13.640 | ||||||||||||
| Income (Loss) From Operations | ||||||||||||||||||||||||
| Net investment income(1) |
$ | 0.365 | $ | 0.752 | $ | 0.735 | $ | 0.728 | $ | 0.797 | $ | 0.831 | ||||||||||||
| Net realized and unrealized gain (loss) |
0.072 | 1.219 | (1.767 | ) | 1.308 | (0.412 | ) | (0.041 | ) | |||||||||||||||
| Total income (loss) from operations |
$ | 0.437 | $ | 1.971 | $ | (1.032 | ) | $ | 2.036 | $ | 0.385 | $ | 0.790 | |||||||||||
| Less Distributions | ||||||||||||||||||||||||
| From net investment income |
$ | (0.359 | ) | $ | (0.690 | ) | $ | (0.688 | ) | $ | (0.746 | ) | $ | (0.825 | ) | $ | (0.820 | ) | ||||||
| Total distributions |
$ | (0.359 | ) | $ | (0.690 | ) | $ | (0.688 | ) | $ | (0.746 | ) | $ | (0.825 | ) | $ | (0.820 | ) | ||||||
| Anti-dilutive effect of share repurchase program (see Note 5)(1) |
$ | 0.002 | $ | 0.019 | $ | — | $ | — | $ | — | $ | — | ||||||||||||
| Net asset value — End of period |
$ | 14.120 | $ | 14.040 | $ | 12.740 | $ | 14.460 | $ | 13.170 | $ | 13.610 | ||||||||||||
| Market value — End of period |
$ | 12.730 | $ | 12.330 | $ | 11.540 | $ | 14.660 | $ | 13.450 | $ | 14.010 | ||||||||||||
| Total Investment Return on Net Asset Value(2) |
3.44 | %(3) | 16.72 | % | (7.16 | )% | 15.87 | % | 3.37 | % | 6.16 | % | ||||||||||||
| Total Investment Return on Market Value(2) |
6.18 | %(3) | 13.16 | % | (17.05 | )% | 15.03 | % | 2.56 | % | 5.56 | % | ||||||||||||
| Ratios/Supplemental Data | ||||||||||||||||||||||||
| Net assets, end of period (000’s omitted) |
$ | 221,169 | $ | 220,190 | $ | 202,452 | $ | 229,792 | $ | 209,003 | $ | 215,453 | ||||||||||||
| Ratios (as a percentage of average daily net assets): |
||||||||||||||||||||||||
| Expenses excluding interest and fees(4) |
1.18 | %(5) | 1.22 | % | 1.21 | % | 1.22 | % | 1.39 | % | 1.12 | % | ||||||||||||
| Interest and fee expense(6) |
0.37 | %(5) | 0.40 | % | 0.42 | % | 0.43 | % | 0.52 | % | 0.55 | % | ||||||||||||
| Total expenses(4) |
1.55 | %(5) | 1.62 | % | 1.63 | % | 1.65 | % | 1.91 | % | 1.67 | % | ||||||||||||
| Net investment income |
5.17 | %(5) | 5.65 | % | 5.29 | % | 5.29 | % | 6.37 | % | 6.30 | % | ||||||||||||
| Portfolio Turnover |
0 | % | 7 | % | 12 | % | 17 | % | 29 | % | 11 | % | ||||||||||||
| (1) | Computed using average shares outstanding. |
| (2) | Returns are historical and are calculated by determining the percentage change in net asset value or market value with all distributions reinvested. Distributions are assumed to be reinvested at prices obtained under the Fund’s dividend reinvestment plan. |
| (3) | Not annualized. |
| (4) | Excludes the effect of custody fee credits, if any, of less than 0.005%. |
| (5) | Annualized. |
| (6) | Interest and fee expense relates to the liability for floating rate notes issued in conjunction with residual interest bond transactions (see Note 1H). |
| 24 | See Notes to Financial Statements. |
Eaton Vance
Municipal Bond Funds
March 31, 2015
Notes to Financial Statements (Unaudited)
1 Significant Accounting Policies
Eaton Vance Municipal Bond Fund, Eaton Vance California Municipal Bond Fund and Eaton Vance New York Municipal Bond Fund, (each individually referred to as the Fund, and collectively, the Funds), are Massachusetts business trusts registered under the Investment Company Act of 1940, as amended (the 1940 Act), as non-diversified, closed-end management investment companies. The Funds’ investment objective is to provide current income exempt from regular federal income tax, including alternative minimum tax, and, in state specific funds, taxes in its specified state.
The following is a summary of significant accounting policies of the Funds. The policies are in conformity with accounting principles generally accepted in the United States of America (U.S. GAAP). Each 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.
Debt Obligations. Debt obligations (including short-term obligations with a remaining maturity of more than sixty days) are generally valued on the basis of valuations provided by third party pricing services, as derived from such services’ pricing models. Inputs to the models may include, but are not limited to, reported trades, executable bid and asked prices, broker/dealer quotations, prices or yields of securities with similar characteristics, interest rates, anticipated prepayments, benchmark curves or information pertaining to the issuer, as well as industry and economic events. The pricing services may use a matrix approach, which considers information regarding securities with similar characteristics to determine the valuation for a security. Short-term obligations purchased with a remaining maturity of sixty days or less are generally valued at amortized cost, which approximates market value.
Derivatives. Financial futures contracts are valued at the closing settlement price established by the board of trade or exchange on which they are traded.
Fair Valuation. Investments for which valuations or market quotations are not readily available or are deemed unreliable are valued at fair value using methods determined in good faith by or at the direction of the Trustees of a Fund in a manner that fairly reflects the security’s value, or the amount that the Fund might reasonably expect to receive for the security upon its current sale in the ordinary course. Each such determination is based on a consideration of relevant factors, which are likely to vary from one pricing context to another. These factors may include, but are not limited to, the type of security, the existence of any contractual restrictions on the security’s disposition, the price and extent of public trading in similar securities of the issuer or of comparable 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 entity’s financial condition, and an evaluation of the forces that influence the issuer and the market(s) in which the security is purchased and sold.
B Investment Transactions and Related Income — 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. Interest income is recorded on the basis of interest accrued, adjusted for amortization of premium or accretion of discount.
C Federal Taxes — Each 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 taxable, if any, and tax-exempt 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. Each Fund intends to satisfy conditions which will enable it to designate distributions from the interest income generated by its investments in non-taxable municipal securities, which are exempt from regular federal income tax when received by each Fund, as exempt-interest dividends.
As of March 31, 2015, the Funds had no uncertain tax positions that would require financial statement recognition, de-recognition, or disclosure. Each 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.
D Expense Reduction — State Street Bank and Trust Company (SSBT) serves as custodian of the Funds. Pursuant to the custodian agreement, SSBT receives a fee reduced by credits, which are determined based on the average daily cash balance each Fund maintains with SSBT. All credit balances, if any, used to reduce each Fund’s custodian fees are reported as a reduction of expenses in the Statements of Operations.
E Legal Fees — Legal fees and other related expenses incurred as part of negotiations of the terms and requirement of capital infusions, or that are expected to result in the restructuring of, or a plan of reorganization for, an investment are recorded as realized losses. Ongoing expenditures to protect or enhance an investment are treated as operating expenses.
F 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.
G Indemnifications — Under each 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 each Fund. Under Massachusetts law, if certain conditions prevail, shareholders of a Massachusetts business trust (such as a Fund) could be deemed to have personal liability for the obligations of the Fund. However, each Fund’s Declaration of Trust contains an express disclaimer of liability on the part of Fund shareholders and the By-laws provide that the Fund shall assume the defense on behalf of any Fund shareholders. Moreover, the By-laws also provide for indemnification out of Fund property of any shareholder held personally liable solely by reason of being or having been a shareholder for all loss or expense arising from such liability. Additionally, in the normal course of business, each Fund
| 25 |
Eaton Vance
Municipal Bond Funds
March 31, 2015
Notes to Financial Statements (Unaudited) — continued
enters into agreements with service providers that may contain indemnification clauses. Each Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against each Fund that have not yet occurred.
H Floating Rate Notes Issued in Conjunction with Securities Held — The Funds may invest in residual interest bonds, also referred to as inverse floating rate securities, whereby a Fund may sell a variable or fixed rate bond to a broker for cash. At the same time, the Fund buys a residual interest in the assets and cash flows of a Special-Purpose Vehicle (the SPV), (which is generally organized as a trust), set up by the broker. The broker deposits a bond into the SPV with the same CUSIP number as the bond sold to the broker by the Fund, and which may have been, but is not required to be, the bond purchased from the Fund (the Bond). The SPV also issues floating rate notes (Floating Rate Notes) which are sold to third-parties. The residual interest bond held by a Fund gives the Fund the right (1) to cause the holders of the Floating Rate Notes to generally tender their notes at par, and (2) to have the broker transfer the Bond held by the SPV to the Fund, thereby terminating the SPV. Should the Fund exercise such right, it would generally pay the broker the par amount due on the Floating Rate Notes and exchange the residual interest bond for the underlying Bond. Pursuant to generally accepted accounting principles for transfers and servicing of financial assets and extinguishment of liabilities, the Funds account for the transaction described above as a secured borrowing by including the Bond in their Portfolio of Investments and the Floating Rate Notes as a liability under the caption “Payable for floating rate notes issued” in their Statement of Assets and Liabilities. The Floating Rate Notes have interest rates that generally reset weekly and their holders have the option to tender their notes to the broker for redemption at par at each reset date. Accordingly, the fair value of the payable for floating rate notes issued approximates its carrying value. If measured at fair value, the payable for floating rate notes would have been considered as Level 2 in the fair value hierarchy (see Note 8) at March 31, 2015. Interest expense related to the Funds’ liability with respect to Floating Rate Notes is recorded as incurred. The SPV may be terminated by the Fund, as noted above, or by the broker upon the occurrence of certain termination events as defined in the trust agreement, such as a downgrade in the credit quality of the underlying Bond, bankruptcy of or payment failure by the issuer of the underlying Bond, the inability to remarket Floating Rate Notes that have been tendered due to insufficient buyers in the market, or the failure by the SPV to obtain renewal of the liquidity agreement under which liquidity support is provided for the Floating Rate Notes up to one year. Structuring fees paid to the liquidity provider upon the creation of an SPV have been recorded as debt issuance costs and are being amortized as interest expense to the expected maturity of the related trust. Unamortized structuring fees related to a terminated SPV are recorded as a realized loss on extinguishment of debt. At March 31, 2015, the amounts of the Funds’ Floating Rate Notes and related interest rates and collateral were as follows:
| Municipal Fund |
California Fund |
New York Fund |
||||||||||
| Floating Rate Notes Outstanding |
$ | 601,550,000 | $ | 185,200,000 | $ | 142,670,000 | ||||||
| Interest Rate or Range of Interest Rates (%) |
0.02 - 0.22 | 0.02 - 0.04 | 0.02 - 0.04 | |||||||||
| Collateral for Floating Rate Notes Outstanding |
$ | 746,486,577 | $ | 234,757,031 | $ | 178,475,748 | ||||||
For the six months ended March 31, 2015, the Funds’ average Floating Rate Notes outstanding and the average interest rate (annualized) including fees and amortization of deferred debt issuance costs were as follows:
| Municipal Fund |
California Fund |
New York Fund |
||||||||||
| Average Floating Rate Notes Outstanding |
$ | 601,594,945 | $ | 182,117,582 | $ | 142,670,000 | ||||||
| Average Interest Rate |
0.59 | % | 0.57 | % | 0.57 | % | ||||||
The Funds may enter into shortfall and forbearance agreements with the broker by which a Fund agrees to reimburse the broker, in certain circumstances, for the difference between the liquidation value of the Bond held by the SPV and the liquidation value of the Floating Rate Notes, as well as any shortfalls in interest cash flows. The Funds had no shortfalls as of March 31, 2015.
The Funds may also purchase residual interest bonds from brokers in a secondary market transaction without first owning the underlying bond. Such transactions are not required to be treated as secured borrowings. Shortfall agreements, if any, related to residual interest bonds purchased in a secondary market transaction are disclosed in the Portfolio of Investments.
The Funds’ investment policies and restrictions expressly permit investments in residual interest bonds. Such bonds typically offer the potential for yields exceeding the yields available on fixed rate bonds with comparable credit quality and maturity. These securities tend to underperform the market for fixed rate bonds in a rising long-term interest rate environment, but tend to outperform the market for fixed rate bonds when long-term interest rates decline. The value and income of residual interest bonds are generally more volatile than that of a fixed rate bond. The Funds’ investment policies do not allow the Funds to borrow money except as permitted by the 1940 Act. Management believes that the Funds’ restrictions on borrowing money and issuing senior securities (other than as specifically permitted) do not apply to Floating Rate Notes issued by the SPV and included as a liability in the Funds’ Statement of Assets and Liabilities. As secured indebtedness issued by an SPV, Floating Rate Notes are distinct from the borrowings and senior securities to which the Funds’ restrictions apply. Residual interest bonds held by the Funds are securities exempt from registration under Rule 144A of the Securities Act of 1933.
| 26 |
Eaton Vance
Municipal Bond Funds
March 31, 2015
Notes to Financial Statements (Unaudited) — continued
On December 10, 2013, five U.S. federal agencies published final rules implementing section 619 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Volcker Rule”). The Volcker Rule prohibits banking entities from engaging in proprietary trading of certain instruments and limits such entities’ investments in, and relationships with, covered funds (such as SPVs), as defined in the rules. The compliance date for the Volcker Rule for certain covered funds is July 21, 2015 while for other covered funds the compliance date is July 21, 2016. The Volcker Rule precludes banking entities and their affiliates from (i) sponsoring residual interest bond programs (as such programs are presently structured) and (ii) continuing relationships with or services for existing residual interest bond programs. As a result, residual interest bond trusts will need to be restructured or unwound. There can be no assurances that residual interest bond trusts can be restructured, that new sponsors of residual interest bond programs will develop, or that alternative forms of leverage will be available to the Funds. The effects of the Volcker Rule may make it more difficult for the Funds to maintain current or desired levels of leverage and may cause the Funds to incur additional expenses to maintain their leverage.
As of March 31, 2015, the Funds’ investments in residual interest bonds that must be compliant with the Volcker Rule by July 21, 2015, if any, are anticipated to be restructured by the required compliance date.
I Financial Futures Contracts — Upon entering into a financial futures contract, a Fund is required to deposit with the broker, either in cash or securities, an amount equal to a certain percentage of the contract amount (initial margin). Subsequent payments, known as variation margin, are made or received by the Fund each business day, depending on the daily fluctuations in the value of the underlying security, and are recorded as unrealized gains or losses by the Fund. Gains (losses) are realized upon the expiration or closing of the financial futures contracts. Should market conditions change unexpectedly, the Fund may not achieve the anticipated benefits of the financial futures contracts and may realize a loss. Futures contracts have minimal counterparty risk as they are exchange traded and the clearinghouse for the exchange is substituted as the counterparty, guaranteeing counterparty performance.
J When-Issued Securities and Delayed Delivery Transactions — The Funds may purchase or sell securities on a delayed delivery or when-issued basis. Payment and delivery may take place after the customary settlement period for that security. At the time the transaction is negotiated, the price of the security that will be delivered is fixed. The Funds maintain security positions for these commitments such that sufficient liquid assets will be available to make payments upon settlement. Securities purchased on a delayed delivery or when-issued basis are marked-to-market daily and begin earning interest on settlement date. Losses may arise due to changes in the market value of the underlying securities or if the counterparty does not perform under the contract.
K Statement of Cash Flows — The cash amount shown in the Statement of Cash Flows of a Fund is the amount included in the Fund’s Statement of Assets and Liabilities and represents the unrestricted cash on hand at its custodian and does not include any short-term investments.
L Interim Financial Statements — The interim financial statements relating to March 31, 2015 and for the six months then ended have not been audited by an independent registered public accounting firm, but in the opinion of the Funds’ management, reflect all adjustments, consisting only of normal recurring adjustments, necessary for the fair presentation of the financial statements.
2 Distributions to Shareholders and Income Tax Information
Each Fund intends to make monthly distributions of net investment income to common shareholders. In addition, at least annually, each Fund intends to distribute all or substantially all of its net realized capital gains (reduced by available capital loss carryforwards). 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.
At September 30, 2014, the following Funds, for federal income tax purposes, had capital loss carryforwards and deferred capital losses which will reduce the respective Fund’s taxable income arising from future net realized gains on investment transactions, if any, to the extent permitted by the Internal Revenue Code, and thus will reduce the amount of distributions to shareholders, which would otherwise be necessary to relieve the Funds of any liability for federal income or excise tax. Under tax regulations, capital losses incurred in taxable years beginning after December 2010 are considered deferred capital losses and are treated as arising on the first day of a Fund’s next taxable year, retaining the same short-term or long-term character as when originally deferred. Deferred capital losses are required to be used prior to capital loss carryforwards, which carry an expiration date. As a result of this
| 27 |
Eaton Vance
Municipal Bond Funds
March 31, 2015
Notes to Financial Statements (Unaudited) — continued
ordering rule, capital loss carryforwards may be more likely to expire unused. The amounts and expiration dates of the capital loss carryforwards, whose character is short-term, and the amounts of the deferred capital losses are as follows:
| Expiration Date | Municipal Fund |
California Fund |
New York Fund |
|||||||||
| September 30, 2015 |
$ | 31,250 | $ | — | $ | — | ||||||
| September 30, 2016 |
6,857,645 | 533,889 | — | |||||||||
| September 30, 2017 |
18,034,628 | 4,562,453 | 7,946,914 | |||||||||
| September 30, 2018 |
56,183,712 | 23,169,615 | 8,909,352 | |||||||||
| September 30, 2019 |
16,458,561 | 7,665,268 | 6,463,209 | |||||||||
| Total capital loss carryforwards |
$ | 97,565,796 | $ | 35,931,225 | $ | 23,319,475 | ||||||
| Deferred capital losses: |
||||||||||||
| Short-term |
$ | 29,965,380 | $ | 8,535,820 | $ | 3,986,542 | ||||||
| Long-term |
$ | 16,974,126 | $ | 20,989,441 | $ | 4,774,270 | ||||||
The cost and unrealized appreciation (depreciation) of investments of each Fund at March 31, 2015, as determined on a federal income tax basis, were as follows:
| Municipal Fund |
California Fund |
New York Fund |
||||||||||
| Aggregate cost |
$ | 786,261,365 | $ | 245,087,726 | $ | 187,086,971 | ||||||
| Gross unrealized appreciation |
$ | 159,570,964 | $ | 39,657,276 | $ | 32,157,318 | ||||||
| Gross unrealized depreciation |
(2,513,926 | ) | (1,298,507 | ) | (1,845,068 | ) | ||||||
| Net unrealized appreciation |
$ | 157,057,038 | $ | 38,358,769 | $ | 30,312,250 | ||||||
3 Investment Adviser Fee and Other Transactions with Affiliates
The investment adviser fee is earned by Eaton Vance Management (EVM) as compensation for investment advisory services rendered to each Fund. Pursuant to the investment advisory agreement for New York Fund, the fee is computed at an annual rate of 0.65% of its average weekly gross assets. Pursuant to the investment advisory agreement and a subsequent fee reduction agreement between each of Municipal Fund and California Fund and EVM, the fee is calculated at an annual rate of 0.60% of each Fund’s average weekly gross assets. The fee reductions cannot be terminated without the consent of a majority of Trustees and a majority of shareholders. Average weekly gross assets include the principal amount of any indebtedness for money borrowed, including debt securities issued by a Fund. Pursuant to a fee reduction agreement between each Fund and EVM, average weekly gross assets are calculated by adding to net assets the amount payable by the Fund to floating rate note holders, such adjustment being limited to the value of the Auction Preferred Shares (APS) outstanding prior to any APS redemptions by the Fund. The investment adviser fee is payable monthly. EVM also serves as the administrator of each Fund, but receives no compensation. For the six months ended March 31, 2015, the investment adviser fees were as follows:
| Municipal Fund |
California Fund |
New York Fund |
||||||||||
| Investment Adviser Fee |
$ | 4,696,777 | $ | 1,377,650 | $ | 1,180,207 | ||||||
Trustees and officers of the Funds who are members of EVM’s organization receive remuneration for their services to the Funds out of the investment adviser fee. Trustees of the Funds who are not affiliated with the investment adviser may elect to defer receipt of all or a percentage of their annual fees in accordance with the terms of the Trustees Deferred Compensation Plan. For the six months ended March 31, 2015, no significant amounts have been deferred. Certain officers and Trustees of the Funds are officers of EVM.
| 28 |
Eaton Vance
Municipal Bond Funds
March 31, 2015
Notes to Financial Statements (Unaudited) — continued
4 Purchases and Sales of Investments
Purchases and sales of investments, other than short-term obligations, for the six months ended March 31, 2015 were as follows:
| Municipal Fund |
California Fund |
New York Fund |
||||||||||
| Purchases |
$ | 52,173,239 | $ | 33,318,300 | $ | — | ||||||
| Sales |
$ | 65,060,284 | $ | 20,206,104 | $ | 5,646,440 | ||||||
5 Common Shares of Beneficial Interest
The Funds may issue common shares pursuant to their dividend reinvestment plans. There were no common shares issued by the Funds for the six months ended March 31, 2015 and the year ended September 30, 2014.
On November 11, 2013, the Boards of Trustees of the Funds authorized the repurchase by each Fund of up to 10% of its then currently outstanding common shares in open-market transactions at a discount to net asset value (NAV). The repurchase program does not obligate the Funds to purchase a specific amount of shares. During the six months ended March 31, 2015 and the year ended September 30, 2014, the number, cost (including brokerage commissions), average price per share and weighted average discount per share to NAV of common shares repurchased, were as follows:
| Six Months Ended March 31, 2015 | ||||||||||||
| Municipal Fund |
California Fund |
New York Fund |
||||||||||
| Common shares repurchased |
— | 7,500 | 23,000 | |||||||||
| Cost, including brokerage commissions, of common shares repurchased |
— | $ | 87,649 | $ | 287,318 | |||||||
| Average price per share |
— | $ | 11.69 | $ | 12.49 | |||||||
| Weighted average discount per share to NAV |
— | 9.90 | % | 11.61 | % | |||||||
| Year Ended September 30, 2014 | ||||||||||||
| Municipal Fund |
California Fund |
New York Fund |
||||||||||
| Common shares repurchased |
— | 357,500 | 215,000 | |||||||||
| Cost, including brokerage commissions, of common shares repurchased |
— | $ | 3,881,323 | $ | 2,538,716 | |||||||
| Average price per share |
— | $ | 10.86 | $ | 11.81 | |||||||
| Weighted average discount per share to NAV |
— | 10.57 | % | 10.38 | % | |||||||
6 Overdraft Advances
Pursuant to the custodian agreement, SSBT may, in its discretion, advance funds to the Funds to make properly authorized payments. When such payments result in an overdraft, the Funds are obligated to repay SSBT at the current rate of interest charged by SSBT for secured loans (currently, the Federal Funds rate plus 2%). This obligation is payable on demand to SSBT. SSBT has a lien on a Fund’s assets to the extent of any overdraft. At March 31, 2015, the New York Fund had payments due to SSBT pursuant to the foregoing arrangement of $375,999. Based on the short-term nature of these payments and the variable interest rate, the carrying value of the overdraft advances approximated its fair value at March 31, 2015. If measured at fair value, overdraft advances would have been considered as Level 2 in the fair value hierarchy (see Note 8) at March 31, 2015. The Funds’ average overdraft advances during the six months ended March 31, 2015 were not significant.
7 Financial Instruments
The Funds may trade in financial instruments with off-balance sheet risk in the normal course of their investing activities. These financial instruments may include financial futures 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 a Fund has in particular classes of financial instruments and
| 29 |
Eaton Vance
Municipal Bond Funds
March 31, 2015
Notes to Financial Statements (Unaudited) — continued
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 March 31, 2015 is as follows:
| Futures Contracts | ||||||||||||||||||||
| Fund | Expiration Month/Year |
Contracts | Position | Aggregate Cost |
Value | Net Unrealized Depreciation |
||||||||||||||
| Municipal | 6/15 | 229 U.S. Long Treasury Bond | Short | $ | (36,775,350 | ) | $ | (37,527,375 | ) | $ | (752,025 | ) | ||||||||
| California | 6/15 | 100 U.S. 10-Year Treasury Note | Short | $ | (12,670,956 | ) | $ | (12,890,625 | ) | $ | (219,669 | ) | ||||||||
| 6/15 | 79 U.S. Long Treasury Bond | Short | (12,686,693 | ) | (12,946,125 | ) | (259,432 | ) | ||||||||||||
| New York | 6/15 | 50 U.S. Long Treasury Bond | Short | $ | (8,029,552 | ) | $ | (8,193,750 | ) | $ | (164,198 | ) | ||||||||
At March 31, 2015, the Funds had sufficient cash and/or securities to cover commitments under these contracts.
Each Fund is subject to interest rate risk in the normal course of pursuing its investment objective. Because the Funds hold fixed-rate bonds, the value of these bonds may decrease if interest rates rise. The Funds enter into U.S. Treasury futures contracts to hedge against changes in interest rates.
The fair values of open derivative instruments (not considered to be hedging instruments for accounting disclosure purposes) and whose primary underlying risk exposure is interest rate risk at March 31, 2015 were as follows:
| Municipal Fund |
California Fund |
New York Fund |
||||||||||
| Liability Derivative: |
||||||||||||
| Futures Contracts |
$ | (752,025 | )(1) | $ | (479,101 | )(1) | $ | (164,198 | )(1) | |||
| Total |
$ | (752,025 | ) | $ | (479,101 | ) | $ | (164,198 | ) | |||
| (1) | Amount represents cumulative unrealized depreciation on futures contracts in the Futures Contracts table above. Only the current day’s variation margin on open futures contracts is reported within the Statement of Assets and Liabilities as Receivable or Payable for variation margin, as applicable. |
The effect of derivative instruments (not considered to be hedging instruments for accounting disclosure purposes) on the Statement of Operations and whose primary underlying risk exposure is interest rate risk for the six months ended March 31, 2015 was as follows:
| Municipal Fund |
California Fund |
New York Fund |
||||||||||
| Realized Gain (Loss) on Derivatives Recognized in Income |
$ | (2,594,725 | )(1) | $ | (1,180,357 | )(1) | $ | (565,710 | )(1) | |||
| Change in Unrealized Appreciation (Depreciation) on Derivatives Recognized in Income |
$ | (1,127,645 | )(2) | $ | (672,138 | )(2) | $ | (246,092 | )(2) | |||
| (1) | Statement of Operations location: Net realized gain (loss) – Financial futures contracts. |
| (2) | Statement of Operations location: Change in unrealized appreciation (depreciation) – Financial futures contracts. |
| 30 |
Eaton Vance
Municipal Bond Funds
March 31, 2015
Notes to Financial Statements (Unaudited) — continued
The average notional amounts of futures contracts outstanding during the six months ended March 31, 2015, which are indicative of the volume of this derivative type, were approximately as follows:
| Municipal Fund |
California Fund |
New York Fund |
||||||||||
| Average Notional Amount: |
||||||||||||
| Futures Contracts – Short |
$ | 44,901,000 | $ | 28,126,000 | $ | 9,793,000 | ||||||
8 Fair Value Measurements
Under generally accepted accounting principles for fair value measurements, a three-tier hierarchy to prioritize the assumptions, referred to as inputs, is used in valuation techniques to measure fair value. The three-tier hierarchy of inputs is summarized in the three broad levels listed below.
| Ÿ | Level 1 – quoted prices in active markets for identical investments |
| Ÿ | Level 2 – other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.) |
| Ÿ | Level 3 – significant unobservable inputs (including a fund’s own assumptions in determining the fair value of investments) |
In cases where the inputs used to measure fair value fall in different levels of the fair value hierarchy, the level disclosed is determined based on the lowest level input that is significant to the fair value measurement in its entirety. The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
At March 31, 2015, the hierarchy of inputs used in valuing the Funds’ investments and open derivative instruments, which are carried at value, were as follows:
| Municipal Fund |
||||||||||||||||
| Asset Description | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| Tax-Exempt Investments |
$ | — | $ | 1,544,868,403 | $ | — | $ | 1,544,868,403 | ||||||||
| Total Investments |
$ | — | $ | 1,544,868,403 | $ | — | $ | 1,544,868,403 | ||||||||
| Liability Description |
||||||||||||||||
| Futures Contracts |
$ | (752,025 | ) | $ | — | $ | — | $ | (752,025 | ) | ||||||
| Total |
$ | (752,025 | ) | $ | — | $ | — | $ | (752,025 | ) | ||||||
| California Fund |
||||||||||||||||
| Asset Description | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| Tax-Exempt Investments |
$ | — | $ | 468,646,495 | $ | — | $ | 468,646,495 | ||||||||
| Total Investments |
$ | — | $ | 468,646,495 | $ | — | $ | 468,646,495 | ||||||||
| Liability Description |
||||||||||||||||
| Futures Contracts |
$ | (479,101 | ) | $ | — | $ | — | $ | (479,101 | ) | ||||||
| Total |
$ | (479,101 | ) | $ | — | $ | — | $ | (479,101 | ) | ||||||
| 31 |
Eaton Vance
Municipal Bond Funds
March 31, 2015
Notes to Financial Statements (Unaudited) — continued
| New York Fund |
||||||||||||||||
| Asset Description | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| Tax-Exempt Investments |
$ | — | $ | 360,069,221 | $ | — | $ | 360,069,221 | ||||||||
| Total Investments |
$ | — | $ | 360,069,221 | $ | — | $ | 360,069,221 | ||||||||
| Liability Description |
||||||||||||||||
| Futures Contracts |
$ | (164,198 | ) | $ | — | $ | — | $ | (164,198 | ) | ||||||
| Total |
$ | (164,198 | ) | $ | — | $ | — | $ | (164,198 | ) | ||||||
California Fund and New York Fund held no investments or other financial instruments as of September 30, 2014 whose fair value was determined using Level 3 inputs. Level 3 investments held by Municipal Fund at the beginning and/or end of the period in relation to net assets were not significant and accordingly, a reconciliation of Level 3 assets for the six months ended March 31, 2015 is not presented.
At March 31, 2015, there were no investments transferred between Level 1 and Level 2 during the six months then ended.
| 32 |
Eaton Vance
Municipal Bond Funds
March 31, 2015
Officers and Trustees
Officers of Eaton Vance Municipal Bond Funds
Trustees of Eaton Vance Municipal Bond Funds
| * | Interested Trustee |
Number of Employees
Each Fund is organized as a Massachusetts business trust and is registered under the Investment Company Act of 1940, as amended, as a closed-end management investment company and has no employees.
Number of Shareholders
As of March 31, 2015, Fund records indicate that there are 161, 30 and 42 registered shareholders for Municipal Bond Fund, California Municipal Bond Fund and New York Municipal Bond Fund, respectively, and approximately 23,062, 5,429 and 4,718 shareholders owning the Fund shares in street name, such as through brokers, banks and financial intermediaries for Municipal Bond Fund, California Municipal Bond Fund and New York Municipal Bond Fund, respectively.
If you are a street name shareholder and wish to receive Fund reports directly, which contain important information about a Fund, please write or call:
Eaton Vance Distributors, Inc.
Two International Place
Boston, MA 02110
1-800-262-1122
NYSE MKT symbols
| Municipal Bond Fund | EIM | |
| California Municipal Bond Fund | EVM | |
| New York Municipal Bond Fund | ENX |
| 33 |
Eaton Vance Funds
IMPORTANT NOTICES
Privacy. The Eaton Vance organization is committed to ensuring your financial privacy. Each of the financial institutions identified below has in effect the following policy (“Privacy Policy”) with respect to nonpublic personal information about its customers:
| Ÿ | Only such information received from you, through application forms or otherwise, and information about your Eaton Vance fund transactions will be collected. This may include information such as name, address, social security number, tax status, account balances and transactions. |
| Ÿ | None of such information about you (or former customers) will be disclosed to anyone, except as permitted by law (which includes disclosure to employees necessary to service your account). In the normal course of servicing a customer’s account, Eaton Vance may share information with unaffiliated third parties that perform various required services such as transfer agents, custodians and broker-dealers. |
| Ÿ | Policies and procedures (including physical, electronic and procedural safeguards) are in place that are designed to protect the confidentiality of such information. |
| Ÿ | We reserve the right to change our Privacy Policy at any time upon proper notification to you. Customers may want to review our Privacy Policy periodically for changes by accessing the link on our homepage: www.eatonvance.com. |
Our pledge of privacy applies to the following entities within the Eaton Vance organization: the Eaton Vance Family of Funds, Eaton Vance Management, Eaton Vance Investment Counsel, Eaton Vance Distributors, Inc., Eaton Vance Trust Company, Eaton Vance Management’s Real Estate Investment Group and Boston Management and Research. In addition, our Privacy Policy applies only to those Eaton Vance customers who are individuals and who have a direct relationship with us. If a customer’s account (i.e., fund shares) is held in the name of a third-party financial advisor/broker-dealer, it is likely that only such advisor’s privacy policies apply to the customer. This notice supersedes all previously issued privacy disclosures. For more information about Eaton Vance’s Privacy Policy, please call 1-800-262-1122.
Delivery of Shareholder Documents. The Securities and Exchange Commission (SEC) permits funds to deliver only one copy of shareholder documents, including prospectuses, proxy statements and shareholder reports, to fund investors with multiple accounts at the same residential or post office box address. This practice is often called “householding” and it helps eliminate duplicate mailings to shareholders. Eaton Vance, or your financial advisor, may household the mailing of your documents indefinitely unless you instruct Eaton Vance, or your financial advisor, otherwise. If you would prefer that your Eaton Vance documents not be householded, please contact Eaton Vance at 1-800-262-1122, or contact your financial advisor. Your instructions that householding not apply to delivery of your Eaton Vance documents will be effective within 30 days of receipt by Eaton Vance or your financial advisor.
Portfolio Holdings. Each Eaton Vance Fund and its underlying Portfolio(s) (if applicable) will file a schedule of portfolio holdings on Form N-Q with the SEC for the first and third quarters of each fiscal year. The Form N-Q will be available on the Eaton Vance website at www.eatonvance.com, by calling Eaton Vance at 1-800-262-1122 or in the EDGAR database on the SEC’s website at www.sec.gov. Form N-Q may also be reviewed and copied at the SEC’s public reference room in Washington, D.C. (call 1-800-732-0330 for information on the operation of the public reference room).
Proxy Voting. From time to time, funds are required to vote proxies related to the securities held by the funds. The Eaton Vance Funds or their underlying Portfolios (if applicable) vote proxies according to a set of policies and procedures approved by the Funds’ and Portfolios’ Boards. You may obtain a description of these policies and procedures and information on how the Funds or Portfolios voted proxies relating to portfolio securities during the most recent 12-month period ended June 30, without charge, upon request, by calling 1-800-262-1122 and by accessing the SEC’s website at www.sec.gov.
Share Repurchase Program. The Funds’ Boards of Trustees have approved a share repurchase program authorizing each Fund to repurchase up to 10% of its outstanding common shares as of the approved date in open-market transactions at a discount to net asset value. The repurchase program does not obligate a Fund to purchase a specific amount of shares. The Funds’ repurchase activity, including the number of shares purchased, average price and average discount to net asset value, is disclosed in the Funds’ annual and semi-annual reports to shareholders.
Additional Notice to Shareholders. If applicable, a Fund may also redeem or purchase its outstanding preferred shares in order to maintain compliance with regulatory requirements, borrowing or rating agency requirements or for other purposes as it deems appropriate or necessary.
Closed-End Fund Information. Eaton Vance closed-end funds make fund performance data and certain information about portfolio characteristics available on the Eaton Vance website shortly after the end of each month. Other information about the funds is available on the website. The funds’ net asset value per share is readily accessible on the Eaton Vance website. Portfolio holdings for the most recent month-end are also posted to the website approximately 30 days following the end of the month. This information is available at www.eatonvance.com on the fund information pages under “Individual Investors — Closed-End Funds”.
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| 7727 3.31.15 |
Item 2. Code of Ethics
Not required in this filing.
Item 3. Audit Committee Financial Expert
Not required in this filing.
Item 4. Principal Accountant Fees and Services
Not required in this filing.
Item 5. Audit Committee of Listed Registrants
Not required in this filing.
Item 6. Schedule of Investments
Please see schedule of investments contained in the Report to Stockholders included under Item 1 of this Form N-CSR.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies
Not required in this filing.
Item 8. Portfolio Managers of Closed-End Management Investment Companies
Not required in this filing.
Item 9. Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers
No such purchases this period.
Item 10. Submission of Matters to a Vote of Security Holders
No material changes.
Item 11. Controls and Procedures
(a) It is the conclusion of the registrant’s principal executive officer and principal financial officer that the effectiveness of the registrant’s current disclosure controls and procedures (such disclosure controls and procedures having been evaluated within 90 days of the date of this filing) provide reasonable assurance that the information required to be disclosed by the registrant has been recorded, processed, summarized and reported within the time period specified in the Commission’s rules and forms and that the information required to be disclosed by the registrant has been accumulated and communicated to the registrant’s principal executive officer and principal financial officer in order to allow timely decisions regarding required disclosure.
(b) There have been no changes in the registrant’s internal controls over financial reporting during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.
Item 12. Exhibits
| (a)(1) | Registrant’s Code of Ethics – Not applicable (please see Item 2). | |||
| (a)(2)(i) | Treasurer’s Section 302 certification. | |||
| (a)(2)(ii) | President’s Section 302 certification. | |||
| (b) | Combined Section 906 certification. | |||
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Eaton Vance Municipal Bond Fund
| By: |
/s/ Payson F. Swaffield | |
| Payson F. Swaffield | ||
| President | ||
| Date: |
May 18, 2015 | |
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| By: |
/s/ James F. Kirchner | |
| James F. Kirchner | ||
| Treasurer | ||
| Date: |
May 18, 2015 | |
| By: |
/s/ Payson F. Swaffield | |
| Payson F. Swaffield | ||
| President | ||
| Date: |
May 18, 2015 | |