Eaton Vance Risk-Managed Diversified Equity Income Fund

 

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form N-Q

QUARTERLY SCHEDULE OF PORTFOLIO HOLDINGS OF REGISTERED

MANAGEMENT INVESTMENT COMPANIES

811-22044

Investment Company Act File Number

Eaton Vance Risk-Managed Diversified Equity Income Fund

(Exact Name of Registrant as Specified in Charter)

Two International Place Boston, Massachusetts 02110

(Address of Principal Executive Offices)

Maureen A. Gemma

Two International Place Boston, Massachusetts 02110

(Name and Address of Agent for Services)

(617) 482-8260

(Registrant’s Telephone Number, Including Area Code)

December 31

Date of Fiscal Year End

September 30, 2016

Date of Reporting Period

 

 

 

Item 1. Schedule of Investments

 

Eaton Vance

Risk-Managed Diversified Equity Income Fund

September 30, 2016

PORTFOLIO OF INVESTMENTS (Unaudited)

Common Stocks — 97.6%

 

                                                 
Security    Shares      Value  

Aerospace & Defense — 1.9%

      

United Technologies Corp.

      119,763       $ 12,167,921   
     

 

 

  
      $ 12,167,921   
     

 

 

  

Air Freight & Logistics — 1.0%

      

C.H. Robinson Worldwide, Inc.

      92,190       $ 6,495,707   
     

 

 

  
      $ 6,495,707   
     

 

 

  

Auto Components — 0.5%

      

Goodyear Tire & Rubber Co. (The)

      109,896       $ 3,549,641   
     

 

 

  
      $ 3,549,641   
     

 

 

  

Banks — 6.0%

      

JPMorgan Chase & Co.

      233,029       $ 15,517,401   

PNC Financial Services Group, Inc. (The)

      94,753         8,536,298   

Wells Fargo & Co.

      330,560         14,637,197   
     

 

 

  
      $ 38,690,896   
     

 

 

  

Beverages — 1.7%

      

Constellation Brands, Inc., Class A

      65,404       $ 10,889,112   
     

 

 

  
      $ 10,889,112   
     

 

 

  

Biotechnology — 2.4%

      

Celgene Corp.(1)

      149,198       $ 15,595,667   
     

 

 

  
      $ 15,595,667   
     

 

 

  

Capital Markets — 4.1%

      

Charles Schwab Corp. (The)

      483,580       $ 15,266,621   

Goldman Sachs Group, Inc. (The)

      71,234         11,487,907   
     

 

 

  
      $ 26,754,528   
     

 

 

  

Chemicals — 1.4%

      

PPG Industries, Inc.

      85,197       $ 8,805,962   
     

 

 

  
      $ 8,805,962   
     

 

 

  

Communications Equipment — 1.9%

      

Cisco Systems, Inc.

      382,400       $ 12,129,728   
     

 

 

  
      $ 12,129,728   
     

 

 

  

Containers & Packaging — 1.4%

      

International Paper Co.

      189,315       $ 9,083,334   
     

 

 

  
      $ 9,083,334   
     

 

 

  

Distributors — 1.6%

      

LKQ Corp.(1)

      294,062       $ 10,427,438   
     

 

 

  
      $ 10,427,438   
     

 

 

  

Diversified Telecommunication Services — 2.7%

      

Verizon Communications, Inc.

      142,853       $ 7,425,499   

Zayo Group Holdings, Inc.(1)

      344,834         10,245,018   
     

 

 

  
      $ 17,670,517   
     

 

 

  

 

1

 

 

                                                 
Security    Shares      Value  

Electric Utilities — 1.6%

      

NextEra Energy, Inc.

      82,366       $ 10,075,009   
     

 

 

  
      $ 10,075,009   
     

 

 

  

Electrical Equipment — 1.6%

      

Rockwell Automation, Inc.

      86,547       $ 10,588,160   
     

 

 

  
      $ 10,588,160   
     

 

 

  

Energy Equipment & Services — 1.2%

      

Schlumberger, Ltd.

      95,379       $ 7,500,604   
     

 

 

  
      $ 7,500,604   
     

 

 

  

Equity Real Estate Investment Trusts (REITs) — 2.4%

      

Equity Residential

      88,747       $ 5,709,094   

Federal Realty Investment Trust

      64,764         9,969,123   
     

 

 

  
      $ 15,678,217   
     

 

 

  

Food & Staples Retailing — 1.7%

      

CVS Health Corp.

      126,260       $ 11,235,877   
     

 

 

  
      $ 11,235,877   
     

 

 

  

Food Products — 3.1%

      

General Mills, Inc.

      134,989       $ 8,623,097   

Kellogg Co.

      147,172         11,401,415   
     

 

 

  
      $ 20,024,512   
     

 

 

  

Health Care Equipment & Supplies — 4.5%

      

Danaher Corp.

      189,605       $ 14,863,136   

Zimmer Biomet Holdings, Inc.

      107,677         14,000,163   
     

 

 

  
      $ 28,863,299   
     

 

 

  

Health Care Providers & Services — 1.1%

      

Humana, Inc.

      41,778       $ 7,390,110   
     

 

 

  
      $ 7,390,110   
     

 

 

  

Household Durables — 1.9%

      

Newell Brands, Inc.

      137,096       $ 7,219,475   

Whirlpool Corp.

      31,238         5,065,554   
     

 

 

  
      $ 12,285,029   
     

 

 

  

Industrial Conglomerates — 2.4%

      

General Electric Co.

      520,050       $ 15,403,881   
     

 

 

  
      $ 15,403,881   
     

 

 

  

Insurance — 1.0%

      

American Financial Group, Inc.

      90,373       $ 6,777,975   
     

 

 

  
      $ 6,777,975   
     

 

 

  

Internet & Direct Marketing Retail — 3.8%

      

Amazon.com, Inc.(1)

      29,621       $ 24,801,959   
     

 

 

  
      $ 24,801,959   
     

 

 

  

Internet Software & Services — 6.9%

      

Alphabet, Inc., Class C(1)

      33,341       $ 25,915,626   

Facebook, Inc., Class A(1)

      92,785         11,901,532   

GoDaddy, Inc., Class A(1)

      195,230         6,741,292   
     

 

 

  
      $ 44,558,450   
     

 

 

  

IT Services — 3.0%

      

Visa, Inc., Class A

      232,881       $ 19,259,259   
     

 

 

  
      $ 19,259,259   
     

 

 

  

 

2

 

 

                                                 
Security    Shares      Value  

Machinery — 3.1%

      

Caterpillar, Inc.

      97,690       $ 8,671,941   

Fortive Corp.

      225,627         11,484,415   
     

 

 

  
      $ 20,156,356   
     

 

 

  

Media — 1.4%

      

Time Warner, Inc.

      112,971       $ 8,993,621   
     

 

 

  
      $ 8,993,621   
     

 

 

  

Multi-Utilities — 1.4%

      

Sempra Energy

      86,772       $ 9,301,091   
     

 

 

  
      $ 9,301,091   
     

 

 

  

Oil, Gas & Consumable Fuels — 5.7%

      

Chevron Corp.

      130,559       $ 13,437,132   

EOG Resources, Inc.

      127,806         12,360,118   

Occidental Petroleum Corp.

      153,596         11,200,221   
     

 

 

  
      $ 36,997,471   
     

 

 

  

Pharmaceuticals — 5.8%

      

Allergan PLC(1)

      40,821       $ 9,401,484   

Eli Lilly & Co.

      113,853         9,137,842   

Johnson & Johnson

      162,552         19,202,268   
     

 

 

  
      $ 37,741,594   
     

 

 

  

Semiconductors & Semiconductor Equipment — 3.1%

      

Intel Corp.

      345,639       $ 13,047,872   

NXP Semiconductors NV(1)

      66,835         6,817,839   
     

 

 

  
      $ 19,865,711   
     

 

 

  

Software — 3.6%

      

Microsoft Corp.

      403,446       $ 23,238,490   
     

 

 

  
      $ 23,238,490   
     

 

 

  

Specialty Retail — 2.6%

      

Home Depot, Inc. (The)

      116,795       $ 15,029,181   

Sally Beauty Holdings, Inc.(1)

      61,890         1,589,335   
     

 

 

  
      $ 16,618,516   
     

 

 

  

Technology Hardware, Storage & Peripherals — 4.2%

      

Apple, Inc.

      237,838       $ 26,887,586   
     

 

 

  
      $ 26,887,586   
     

 

 

  

Textiles, Apparel & Luxury Goods — 1.5%

      

NIKE, Inc., Class B

      182,484       $ 9,607,783   
     

 

 

  
      $ 9,607,783   
     

 

 

  

Tobacco — 2.4%

      

Altria Group, Inc.

      241,694       $ 15,282,312   
     

 

 

  
      $ 15,282,312   
     

 

 

  

Total Common Stocks
(identified cost $507,478,910)

       $ 631,393,323   
     

 

 

  

 

3

 

 

                                                                                                   

Put Options Purchased — 0.1%

            
Description    Number of
Contracts		      Strike
Price		      Expiration
Date		      Value  

S&P 500 Index

      236       $ 2,115         10/5/16       $ 29,500   

S&P 500 Index

      238         2,075         10/7/16         19,635   

S&P 500 Index

      235         2,040         10/12/16         25,850   

S&P 500 Index

      236         2,050         10/14/16         44,250   

S&P 500 Index

      118         2,070         10/19/16         48,970   

S&P 500 Index

      118         2,075         10/19/16         53,100   

S&P 500 Index

      236         2,100         10/21/16         188,800   

S&P 500 Index

      234         2,085         10/26/16         184,860   

S&P 500 Index

      232         2,095         10/28/16         245,089   

S&P 500 Index FLEX

      236         2,120         10/3/16         5,899   

S&P 500 Index FLEX

      236         2,030         10/10/16         7,322   

S&P 500 Index FLEX

      237         2,065         10/17/16         72,420   

S&P 500 Index FLEX

      238         2,065         10/24/16         136,138   
           

 

 

  

Total Put Options Purchased
(identified cost $3,084,841)

             $ 1,061,833   
           

 

 

  

Short-Term Investments — 0.5%

  

Description                    Interest
(000’s omitted)		      Value  

Eaton Vance Cash Reserves Fund, LLC, 0.64%(2)

          $ 3,061       $ 3,061,202   
           

 

 

  

Total Short-Term Investments
(identified cost $3,061,202)

   

    $ 3,061,202   
           

 

 

  

Total Investments — 98.2%
(identified cost $513,624,953)

   

    $ 635,516,358   
           

 

 

  
Call Options Written — (0.5)%            
Description    Number of
Contracts		      Strike
Price		      Expiration
Date		      Value  

S&P 500 Index

      236       $ 2,205         10/5/16       $ (5,900 ) 

S&P 500 Index

      238         2,185         10/7/16         (102,340 ) 

S&P 500 Index

      235         2,170         10/12/16         (351,325 ) 

S&P 500 Index

      236         2,175         10/14/16         (329,220 ) 

S&P 500 Index

      236         2,185         10/19/16         (265,500 ) 

S&P 500 Index

      236         2,195         10/21/16         (191,160 ) 

S&P 500 Index

      234         2,185         10/26/16         (341,640 ) 

S&P 500 Index

      232         2,195         10/28/16         (254,871 ) 

S&P 500 Index FLEX

      236         2,203         10/3/16         (14,833 ) 

S&P 500 Index FLEX

      236         2,177         10/10/16         (341,522 ) 

S&P 500 Index FLEX

      237         2,187         10/17/16         (353,562 ) 

S&P 500 Index FLEX

      238         2,182         10/24/16         (513,343 ) 
           

 

 

  

Total Call Options Written
(premiums received $3,246,512)

             $ (3,065,216 ) 
           

 

 

  

Other Assets, Less Liabilities — 2.3%

             $ 14,567,283   
           

 

 

  

Net Assets — 100.0%

             $ 647,018,425   
           

 

 

  

 

4

 

 

The percentage shown for each investment category in the Portfolio of Investments is based on net assets.

 

(1) Non-income producing security.

 

(2) Affiliated investment company, available to Eaton Vance portfolios and funds, which invests in high quality, U.S. dollar denominated money market instruments. The rate shown is the annualized seven-day yield as of September 30, 2016. Net income allocated from the investment in Eaton Vance Cash Reserves Fund, LLC for the fiscal year to date ended September 30, 2016 was $22,537.

Abbreviations:

 

FLEX

   -   FLexible EXchange traded option, representing a customized option contract with negotiated contract terms.

Written options activity for the fiscal year to date ended September 30, 2016 was as follows:

 

     Number of
Contracts		      Premiums
Received		  

Outstanding, beginning of period

      3,313       $ 4,796,936   

Options written

      29,676         37,616,991   

Options terminated in closing purchase transactions

      (3,614 )       (5,034,868 ) 

Options exercised

      (7,556 )       (10,757,176 ) 

Options expired

      (18,989 )           (23,375,371 ) 
  

 

 

     

 

 

  

Outstanding, end of period

      2,830       $     3,246,512   
  

 

 

     

 

 

  

All of the securities of the Fund, unless otherwise pledged, are subject to segregation to satisfy the requirements of the escrow agent with respect to exchange-traded options. At September 30, 2016, the Fund had sufficient cash and/or securities to cover commitments under open derivative contracts.

The Fund is subject to equity price risk in the normal course of pursuing its investment objectives.

The Fund pursues a “collared” options strategy which consists of buying S&P 500 index put options below the current value of the index and writing S&P 500 index call options above the current value of the index with the same expiration. The strategy uses the premium income from the written call options to buy an equal number of put options. In buying put options on an index, the Fund in effect, acquires protection against decline in the value of the applicable index below the exercise price in exchange for the option premium paid. In writing index call options, the Fund in effect, sells potential appreciation in the value of the applicable index above the exercise price. The Fund retains the risk of lost appreciation, minus the premium received, should the price of the underlying index rise above the strike price. Under normal market conditions, the Fund’s use of option collars is expected to provide a more consistent level of market exposure and market protection.

The fair value of open derivative instruments (not considered to be hedging instruments for accounting disclosure purposes) and whose primary underlying risk exposure is equity price risk at September 30, 2016 was as follows:

 

     Fair Value  

Derivative

    Asset
Derivative		      Liability
Derivative		  

Purchased options

    $ 1,061,833       $ —   

Written options

      —         (3,065,216 ) 
  

 

 

     

 

 

  

Total

    $     1,061,833       $     (3,065,216 ) 
  

 

 

     

 

 

  

 

5

 

 

The cost and unrealized appreciation (depreciation) of investments of the Fund at September 30, 2016, as determined on a federal income tax basis, were as follows:

 

Aggregate cost

    $     511,568,258   
  

 

 

  

Gross unrealized appreciation

    $ 133,659,571   

Gross unrealized depreciation

      (10,773,304 ) 
  

 

 

  

Net unrealized appreciation

    $ 122,886,267   
  

 

 

  

Under generally accepted accounting principles for fair value measurements, a three-tier hierarchy to prioritize the assumptions, referred to as inputs, is used in valuation techniques to measure fair value. The three-tier hierarchy of inputs is summarized in the three broad levels listed below.

 

•  

Level 1 — quoted prices in active markets for identical investments

 

•  

Level 2 — other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.)

 

•  

Level 3 — significant unobservable inputs (including a fund’s own assumptions in determining the fair value of investments)

In cases where the inputs used to measure fair value fall in different levels of the fair value hierarchy, the level disclosed is determined based on the lowest level input that is significant to the fair value measurement in its entirety. The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.

At September 30, 2016, the hierarchy of inputs used in valuing the Fund’s investments and open derivative instruments, which are carried at value, were as follows:

 

Asset Description    Level 1      Level 2      Level 3      Total  
Common Stocks            

Consumer Discretionary

    $ 86,283,987       $ —       $ —       $ 86,283,987   

Consumer Staples

      57,431,813         —         —         57,431,813   

Energy

      44,498,075         —         —         44,498,075   

Financials

      72,223,399         —         —         72,223,399   

Health Care

      89,590,670         —         —         89,590,670   

Industrials

      64,812,025         —         —         64,812,025   

Information Technology

      145,939,224         —         —         145,939,224   

Materials

      17,889,296         —         —         17,889,296   

Real Estate

      15,678,217         —         —         15,678,217   

Telecommunication Services

      17,670,517         —         —         17,670,517   

Utilities

      19,376,100         —         —         19,376,100   

Total Common Stocks

    $ 631,393,323       $ —       $ —       $ 631,393,323   

Put Options Purchased

    $ 840,054       $ 221,779       $ —       $ 1,061,833   

Short-Term Investments

      —         3,061,202         —         3,061,202   

Total Investments

    $     632,233,377       $ 3,282,981       $ —       $     635,516,358   
Liability Description                                

Call Options Written

    $ (1,841,956 )     $ (1,223,260 )     $ —       $ (3,065,216 ) 

Total

    $ (1,841,956 )     $     (1,223,260 )     $ —       $ (3,065,216 ) 

The Fund held no investments or other financial instruments as of December 31, 2015 whose fair value was determined using Level 3 inputs. At September 30, 2016, there were no investments transferred between Level 1 and Level 2 during the fiscal year to date then ended.

For information on the Fund’s policy regarding the valuation of investments and other significant accounting policies, please refer to the Fund’s most recent financial statements included in its semiannual or annual report to shareholders.

 

6

 

 

Item 2. 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 on this Form N-Q 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 on this Form N-Q 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 fiscal quarter for which the report is being filed that have materially affected, or are reasonably likely to materially affect the registrant’s internal control over financial reporting.

 

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 Risk-Managed Diversified Equity Income Fund

 

By:   /s/ Michael A. Allison
  Michael A. Allison
  President
Date:   November 21, 2016

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/ Michael A. Allison
  Michael A. Allison
  President
Date:   November 21, 2016

 

By:   /s/ James F. Kirchner
  James F. Kirchner
  Treasurer
Date:   November 21, 2016