Notes to Financial Statements (Unaudited)
1 Significant Accounting Policies
Eaton Vance High Income 2021 Target Term Trust (the
Trust) 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 Trust’s investment objectives are high current income and
to return $9.85 per share, the original net asset value per common share before deducting offering costs of $0.02 per common share (“Original NAV”), to holders of common shares on or about July 1, 2021 (the “Termination
Date”). On or about the Termination Date, the Trust intends to cease its investment operations, liquidate its portfolio, retire or redeem its leverage facilities, and seek to return Original NAV to common shareholders, unless the term is
extended for one period of up to six months by a vote of the Trust’s Board of Trustees.
The following is a summary of significant accounting
policies of the Trust. The policies are in conformity with accounting principles generally accepted in the United States of America (U.S. GAAP). The Trust 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 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.
Senior Floating-Rate Loans. Interests in senior floating-rate loans (Senior Loans) for which reliable market quotations are readily available are valued generally at the average mean of bid and ask
quotations obtained from a third party pricing service. Other Senior Loans are valued at fair value by the investment adviser under procedures approved by the Trustees. In fair valuing a Senior Loan, the investment adviser utilizes one or more of
the valuation techniques described in (i) through (iii) below to assess the likelihood that the borrower will make a full repayment of the loan underlying such Senior Loan relative to yields on other Senior Loans issued by companies of
comparable credit quality. If the investment adviser believes that there is a reasonable likelihood of full repayment, the investment adviser will determine fair value using a matrix pricing approach that considers the yield on the Senior Loan. If
the investment adviser believes there is not a reasonable likelihood of full repayment, the investment adviser will determine fair value using analyses that include, but are not limited to: (i) a comparison of the value of the borrower’s
outstanding equity and debt to that of comparable public companies; (ii) a discounted cash flow analysis; or (iii) when the investment adviser believes it is likely that a borrower will be liquidated or sold, an analysis of the terms of
such liquidation or sale. In certain cases, the investment adviser will use a combination of analytical methods to determine fair value, such as when only a portion of a borrower’s assets are likely to be sold. In conducting its assessment and
analyses for purposes of determining fair value of a Senior Loan, the investment adviser will use its discretion and judgment in considering and appraising relevant factors. Fair value determinations are made by the portfolio managers of the Trust
based on information available to such managers. The portfolio managers of other funds managed by the investment adviser that invest in Senior Loans may not possess the same information about a Senior Loan borrower as the portfolio managers of the
Trust. At times, the fair value of a Senior Loan determined by the portfolio managers of other funds managed by the investment adviser that invest in Senior Loans may vary from the fair value of the same Senior Loan determined by the portfolio
managers of the Trust. The fair value of each Senior Loan is periodically reviewed and approved by the investment adviser’s Valuation Committee and by the Trustees based upon procedures approved by the Trustees. Junior Loans (i.e., subordinated
loans and second lien loans) are valued in the same manner as Senior Loans.
Affiliated Fund. The Trust may invest in Eaton Vance Cash Reserves
Fund, LLC (Cash Reserves Fund), an affiliated investment company managed by Eaton Vance Management (EVM). While Cash Reserves Fund is not a registered money market mutual fund, it conducts all of its investment activities in accordance with the
requirements of Rule 2a-7 under the 1940 Act. Investments in Cash Reserves Fund are valued at the closing net asset value per unit on the valuation day. Cash Reserves Fund generally values its investment securities based on available market
quotations provided by a third party pricing service.
Fair Valuation. Investments for which valuations or market quotations are not readily
available or are deemed unreliable are valued at fair value using methods determined in good faith by or at the direction of the Trustees of the Trust in a manner that most fairly reflects the security’s “fair value”, which is the
amount that the Trust might reasonably expect to receive for the security upon its current sale in the ordinary course. Each such determination is based on a consideration of relevant factors, which are likely to vary from one pricing context to
another. These factors may include, but are not limited to, the type of security, the existence of any contractual restrictions on the security’s disposition, the price and extent of public trading in similar securities of the issuer or of
comparable companies or entities, quotations or relevant information obtained from broker/dealers or other market participants, information obtained from the issuer, analysts, and/or the appropriate stock exchange (for exchange-traded securities),
an analysis of the company’s or entity’s financial 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 associated with loan amendments are recognized immediately. Dividend income is recorded on the ex-dividend date for dividends received in cash and/or securities.
Eaton Vance
High Income 2021 Target Term Trust
September 30, 2019
Notes to Financial Statements (Unaudited) — continued
D Federal Taxes — The Trust intends to make monthly distributions of net investment income and any net realized capital gains in
amounts necessary to maintain its taxation as a regulated investment company for U.S. federal income tax purposes. For the purpose of pursuing its investment objective of returning Original NAV, the Trust may retain a portion of its net investment
income and some or all of its net capital gains, which would result in the Trust paying U.S. federal excise and corporate income taxes.
As of
September 30, 2019, the Trust had no uncertain tax positions that would require financial statement recognition, de-recognition, or disclosure. The Trust 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 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.
F Indemnifications — Under the Trust’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 Trust. Under Massachusetts law, if certain conditions prevail, shareholders of a Massachusetts business trust (such as the Trust) could be deemed to have personal
liability for the obligations of the Trust. However, the Trust’s Declaration of Trust contains an express disclaimer of liability on the part of Trust shareholders and the By-laws provide that the Trust shall assume, upon request by the
shareholder, the defense on behalf of any Trust shareholders. Moreover, the By-laws also provide for indemnification out of Trust 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 Trust enters into agreements with service providers that may contain indemnification clauses. The Trust’s maximum exposure under these arrangements is
unknown as this would involve future claims that may be made against the Trust that have not yet occurred.
G Interim
Financial Statements — The interim financial statements relating to September 30, 2019 and for the six months then ended have not been audited by an independent registered public accounting
firm, but in the opinion of the Trust’s 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
The Trust intends to make monthly distributions of net investment income to common shareholders. The Trust may also distribute net realized capital gains, if any, generally not more than once per year.
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 March 31, 2019, the Trust, for federal income tax purposes, had deferred capital losses of
$817,327 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 Trust of any liability for federal income or excise tax. The deferred capital losses are treated as arising on the first day of the Trust’s next taxable year and retain the same short-term or
long-term character as when originally deferred. Of the deferred capital losses at March 31, 2019, $449,675 are short-term and $367,652 are long-term.
The cost and unrealized appreciation (depreciation) of investments of the Trust at September 30, 2019, as determined on a federal income tax basis, were as follows:
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Aggregate cost
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$
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237,652,962
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Gross unrealized appreciation
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$
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5,367,759
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Gross unrealized depreciation
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(1,815,831
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)
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Net unrealized appreciation
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$
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3,551,928
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3 Investment Adviser Fee and Other Transactions with Affiliates
The investment adviser fee is earned by EVM as compensation for investment advisory services rendered to the Trust. The fee is computed at an annual rate of 0.70%
of the Trust’s average daily managed assets and is payable monthly. Managed assets as referred to herein represent total assets of the Trust (including assets attributable to borrowings, any outstanding preferred shares, or other forms of
leverage) less accrued liabilities (other than liabilities representing borrowings or such other forms of leverage). For the six months ended September 30, 2019, the investment adviser fee amounted to $926,934. The Trust invests its cash in
Cash Reserves Fund. EVM does not currently receive a fee for investment advisory services provided to Cash Reserves Fund. EVM also serves as administrator of the Trust, but receives no compensation.
Eaton Vance
High Income 2021 Target Term Trust
September 30, 2019
Notes to Financial Statements (Unaudited) — continued
Trustees and officers of the Trust who are members of EVM’s organization receive remuneration for their services to the Trust out of the investment adviser fee. Trustees of the Trust who are not affiliated
with EVM may elect to defer receipt of all or a percentage of their annual fees in accordance with the terms of the Trustees Deferred Compensation Plan. For the six months ended September 30, 2019, no significant amounts have been deferred.
Certain officers and Trustees of the Trust are officers of EVM.
4 Purchases and Sales of Investments
Purchases and sales of investments, other than short-term obligations and including maturities and principal repayments on Senior Loans, aggregated $13,259,261 and
$51,105,303, respectively, for the six months ended September 30, 2019.
5 Common Shares of Beneficial Interest
The Trust may issue common shares pursuant to its dividend reinvestment plan. There were no common shares issued by the Trust for the six months ended
September 30, 2019 and for the year ended March 31, 2018.
6 Credit Agreement
The Trust has entered into a Credit Agreement, as amended (the Agreement) with a bank to borrow up to a limit of $60 million ($75 million prior to June 3,
2019). Borrowings under the Agreement are secured by the assets of the Trust. Interest is charged at a rate above the London Interbank Offered Rate (LIBOR) and is payable monthly. Under the terms of the Agreement, in effect through June 1,
2020, the Trust pays a facility fee of 0.15% per annum on the borrowing limit. Prior to June 3, 2019, the Trust paid a facility fee of 0.25% (0.35% if the Trust’s outstanding borrowings were less than 65% of the borrowing limit). In
connection with the renewal of the Agreement in June 2019, the Trust paid an upfront fee of $30,000 which is being amortized to interest expense over a period of one year. The unamortized balance at September 30, 2019 is approximately $20,000
and is included in prepaid upfront fees on notes payable in the Statement of Assets and Liabilities. The Trust is required to maintain certain net asset levels during the term of the Agreement. At September 30, 2019, the Trust had borrowings
outstanding under the Agreement of $25,000,000 at an interest rate of 2.80%. Based on the short-term nature of the borrowings under the Agreement and the variable interest rate, the carrying amount of the borrowings at September 30, 2019
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 September 30, 2019. Facility fees for the six months ended
September 30, 2019 totaled $62,813 and are included in interest expense and fees on the Statement of Operations. For the six months ended September 30, 2019, the average borrowings under the Agreement and average interest rate (excluding
fees) were $49,737,705 and 3.27%, respectively.
7 Credit Risk
The Trust primarily invests in lower rated and comparable quality unrated high yield securities. These investments have different risks than investments in debt securities rated investment grade. Risk of loss upon
default by the borrower is significantly greater with respect to such debt than with other debt securities because these securities are generally unsecured and are more sensitive to adverse economic conditions, such as recession or increasing
interest rates, than are investment grade issuers.
8 Investments in Affiliated Funds
At September 30, 2019, the value of the Trust’s investment in affiliated funds was $890,169, which represents 0.4% of the Trust’s net assets.
Transactions in affiliated funds by the Trust for the six months ended September 30, 2019 were as follows:
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Name of affiliated fund
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Value,
beginning
of period
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Purchases
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Sales
proceeds
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Net realized
gain (loss)
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Change in
unrealized
appreciation
(depreciation)
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Value,
end of
period
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Dividend
income
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Units, end
of period
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Short-Term Investments
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Eaton Vance Cash Reserves Fund, LLC, 2.09%
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$
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982,298
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$
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49,816,506
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$
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(49,908,204
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)
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$
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(510
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)
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$
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79
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$
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890,169
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$
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24,599
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890,258
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Eaton Vance
High Income 2021 Target Term Trust
September 30, 2019
Notes to Financial Statements (Unaudited) — continued
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.
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•
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Level 1 – quoted prices in active markets for identical investments
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•
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Level 2 – other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.)
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•
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Level 3 – significant unobservable inputs (including a fund’s own assumptions in determining the fair value of investments)
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In cases where the inputs used to measure fair value fall in different levels of the fair value hierarchy, the level disclosed is
determined based on the lowest level input that is significant to the fair value measurement in its entirety. The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those
securities.
At September 30, 2019, the hierarchy of inputs used in valuing the Trust’s investments, which are carried at value, were as
follows:
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Asset Description
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Level 1
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Level 2
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Level 3
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Total
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Corporate Bonds & Notes
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$
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—
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$
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215,802,053
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$
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—
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$
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215,802,053
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Senior Floating-Rate Loans
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—
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20,869,159
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—
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20,869,159
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Convertible Bonds
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—
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3,643,509
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—
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3,643,509
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Short-Term Investments
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—
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890,169
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—
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890,169
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Total Investments
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$
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—
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$
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241,204,890
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$
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—
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$
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241,204,890
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Eaton Vance
High Income 2021 Target Term Trust
September 30, 2019
Notice to Shareholders (Unaudited)
The purpose of this notice is to inform Fund shareholders that the London Interbank Offered Rate (“LIBOR”) will be phased out by the end of 2021 and of certain risks associated with this change.
LIBOR is the average offered rate for various maturities of short-term loans between major international banks who are members of the British Bankers
Association (“BBA”). LIBOR is the most common benchmark interest rate index used to make adjustments to variable-rate loans. It is used throughout global banking and financial industries to determine interest rates for a variety
of financial instruments (such as debt instruments and derivatives) and borrowing arrangements, and to determine dividend rates for preferred shares.
The use of LIBOR started to come under pressure following manipulation allegations in 2012. Despite increased regulation and other corrective actions since that
time, concerns have arisen regarding its viability as a benchmark, due largely to reduced activity in the financial markets that it measures. In July 2017, the Financial Conduct Authority (the “FCA”), the United Kingdom financial
regulatory body, announced a desire to phase out the use of LIBOR by the end of 2021.
Although the period from the FCA announcement until the end of
2021 is generally expected to be enough time for market participants to transition to the use of a different benchmark for new securities and transactions, there remains uncertainty regarding the future utilization of LIBOR and the specific
replacement rate or rates. As such, the potential effect of a transition away from LIBOR on the Fund or the financial instruments held by the Fund cannot yet be determined. The transition process may involve, among other things, increased volatility
or illiquidity in markets for instruments that currently rely on LIBOR. The transition may also result in a change in (i) the value of certain instruments held by the Fund, (ii) the cost of borrowing or the dividend rate for preferred
shares, or (iii) the effectiveness of related Fund transactions such as hedges, as applicable. When LIBOR is discontinued, the LIBOR replacement rate may be lower than market expectations, which could have an adverse impact on the value of
preferred and debt-securities with floating or fixed-to-floating rate coupons. Any such effects of the transition away from LIBOR, as well as other unforeseen effects, could result in losses to the Fund. Since the usefulness of LIBOR as a
benchmark could deteriorate during the transition period, these effects could occur prior to the end of 2021.
Various financial industry groups have
begun planning for the transition away from LIBOR, but there are obstacles to converting certain longer term securities and transactions to a new benchmark. In June 2017, the Alternative Reference Rates Committee, a group of large U.S. banks working
with the Federal Reserve, announced its selection of a new Secured Overnight Financing Rate (“SOFR”), which is intended to be a broad measure of secured overnight U.S. Treasury repo rates, as an appropriate replacement for LIBOR. The
Federal Reserve Bank of New York began publishing the SOFR earlier in 2018, with the expectation that it could be used on a voluntary basis in new instruments and transactions. Bank working groups and regulators in other countries have suggested
other alternatives for their markets, including the Sterling Overnight Interbank Average Rate (“SONIA”) in England.
Eaton Vance
High Income 2021 Target Term Trust
September 30, 2019
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 April 24, 2019, the Boards of Trustees/Directors (collectively, the “Board”) of 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 and sub-advisory agreements for each of the Eaton Vance Funds for an additional one-year period. In voting its approval, the Board relied upon the affirmative recommendation of its Contract Review Committee, which is
a committee exclusively comprised of Independent Trustees. Prior to making its recommendation, the Contract Review Committee reviewed information furnished by the adviser and sub-adviser (where applicable) to each of the Eaton Vance Funds (including
information specifically requested by the Board) for a series of meetings held between February and April 2019. 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 and sub-advisory agreements.
Among other things, the information the Board considered included the following (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
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•
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A report from an independent data provider comparing advisory and related fees paid by each fund to such fees paid by comparable funds, as identified by the
independent data provider (“comparable funds”);
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A report from an independent data provider comparing each fund’s total expense ratio (and its components) to those of comparable funds;
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A report from an independent data provider comparing the investment performance of each fund (including, where relevant, yield data, Sharpe ratios and
information ratios) to the investment performance of comparable funds over various time periods;
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Data regarding investment performance relative to benchmark indices and, in certain instances, to customized groups of peer funds and blended indices identified
by the adviser in consultation with the Portfolio Management Committee of the Board;
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Comparative information concerning the fees charged and services provided by the adviser and sub-adviser (where applicable) to each fund in managing other
accounts (including mutual funds, other collective investment funds and institutional accounts) using investment strategies and techniques similar to those used in managing such fund(s), if any;
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•
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Profitability analyses with respect to the adviser and sub-adviser (where applicable) to each of the funds;
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Information about Portfolio Management and Trading
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Descriptions of the investment management services provided to each fund, as well as each of the funds’ investment strategies and policies;
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The procedures and processes used to determine the fair value of fund assets, when necessary, and actions taken to monitor and test the effectiveness of such
procedures and processes;
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Information about the policies and practices of each fund’s adviser and sub-adviser (where applicable and in the context of a sub-adviser with trading
responsibilities) with respect to trading, including their processes for seeking best execution of portfolio transactions;
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•
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Information about the allocation of brokerage transactions and the benefits, if any, received by the adviser and sub-adviser (where applicable and in the context
of a sub-adviser with trading responsibilities) to each fund as a result of brokerage allocation, including information concerning the acquisition of research through client commission arrangements and policies with respect to “soft
dollars”;
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Data relating to the portfolio turnover rate of each fund;
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Information about each Adviser and Sub-adviser
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Reports detailing the financial results and condition of the adviser and sub-adviser (where applicable) to each fund;
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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 mutual funds and investment accounts, if applicable;
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•
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The Code of Ethics of the adviser and its affiliates and the sub-adviser (where applicable) of each fund, together with information relating to compliance with,
and the administration of, such codes;
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•
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Policies and procedures relating to proxy voting and the handling of corporate actions and class actions;
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•
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Information concerning the resources devoted to compliance efforts undertaken by the adviser and its affiliates and the sub-adviser (where applicable) of each
fund, if any, including descriptions of their various compliance programs and their record of compliance;
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•
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Information concerning the business continuity and disaster recovery plans of the adviser and its affiliates and the sub-adviser (where applicable) of each fund,
if any;
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Eaton Vance
High Income 2021 Target Term Trust
September 30, 2019
Board of Trustees’ Contract Approval — continued
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•
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A description of Eaton Vance Management’s and Boston Management and Research’s oversight of sub-advisers, including with respect to regulatory and
compliance issues, investment management and other matters;
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Other Relevant Information
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•
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Information concerning the nature, cost and character of the administrative and other non-investment advisory services provided by Eaton Vance Management and its
affiliates;
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Information concerning management of the relationship with the custodian, subcustodians and fund accountants by the adviser or administrator to each of the
funds; and
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•
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The terms of each investment advisory agreement.
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During the various meetings of the Board and its committees throughout the twelve months ended April 2019, the Trustees received information from portfolio managers
and other investment professionals of the advisers and sub-advisers (where applicable) of the funds regarding investment and performance matters, and considered various investment and trading strategies used in pursuing the funds’ investment
objectives. The Trustees 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 Eaton Vance Management, Boston Management and Research and fund
sub-advisers (as applicable), with respect to such matters. In addition to the formal meetings of the Board and its committees, the Independent Trustees held regular teleconferences to discuss, among other
topics, matters relating to the continuation of investment advisory and sub-advisory agreements.
The Contract Review Committee was advised throughout
the contract review process by Goodwin Procter LLP, independent legal counsel for the Independent Trustees. The members of the Contract Review Committee, with the advice of such counsel, exercised their own business judgment in determining the
material factors to be considered in evaluating each investment advisory and sub-advisory agreement and the weight to be given to each such factor. The conclusions reached with respect to each investment advisory and sub-advisory agreement were
based on a comprehensive evaluation of all the information provided and not any single factor. Moreover, each member of the Contract Review Committee may have placed varying emphasis on particular factors in reaching conclusions with respect to each
investment advisory and sub-advisory agreement. In evaluating each investment advisory and sub-advisory agreement, including the fee structures and other terms contained in such agreements, the members of the Contract Review Committee were also
informed by multiple years of analysis and discussion with the adviser and sub-adviser (where applicable) to each of the Eaton Vance Funds.
Results of the Process
Based on its consideration of the foregoing, and such other information as it
deemed relevant, including the factors and conclusions described below, the Contract Review Committee concluded that the continuation of the investment advisory and administrative agreement between Eaton Vance High Income 2021 Target Term Trust (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 and administrative agreement for the Fund.
Nature, Extent and Quality of Services
In considering whether to approve the investment advisory and
administrative 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, experience and number of investment professionals and other personnel who provide
portfolio management, investment research, and similar services to the Fund. In particular, the Board considered the abilities and experience of the Adviser’s investment professionals in analyzing special considerations relevant to investing in
high-yield debt. In this regard, the Board considered the experience of the investment professionals in managing other funds that invest in high-yield debt. The Board also considered information regarding the management of the Fund’s portfolio
in the context of the target term structure and noted the Adviser’s experience with this structure. 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 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, late trading, frequent trading, portfolio valuation, business continuity and the allocation of investment opportunities. The Board also considered the responses of the Adviser and its affiliates to requests in recent years from regulatory
authorities, such as the Securities and Exchange Commission and the Financial Industry Regulatory Authority.
Eaton Vance
High Income 2021 Target Term Trust
September 30, 2019
Board of Trustees’ Contract Approval — continued
The Board considered shareholder and other administrative services provided or managed by Eaton Vance Management and its affiliates, including transfer agency and accounting services. The Board evaluated the
benefits to shareholders of investing in a fund that is a part of a large 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 and administrative agreement.
Fund Performance
The Board compared the Fund’s investment performance to that of comparable funds and appropriate benchmark indices, as well as a customized peer group of
similarly managed funds. In light of the Fund’s relatively brief operating history, the Board concluded that additional time is required to evaluate Fund performance.
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 September 30,
2018, 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.
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 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 deemed not to be 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. The
Board reviewed data summarizing the increases and decreases in the assets of the Fund and of all Eaton Vance Funds as a group over various time periods, and evaluated the extent to which the total expense ratio of the Fund and the profitability of
the Adviser and its affiliates may have been affected by such increases or decreases. Based upon the foregoing, the Board concluded that the Fund currently shares in the benefits from economies of scale, 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.
Eaton Vance
High Income 2021 Target Term Trust
September 30, 2019