Eaton Vance Risk-Managed Diversified Equity Income Fund

 

 

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: 811-22044

 

 

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)

December 31

Date of Fiscal Year End

December 31, 2016

Date of Reporting Period

 

 

 

Item 1. Reports to Stockholders

LOGO

 

 

Eaton Vance

Risk-Managed Diversified Equity Income Fund (ETJ)

Annual Report

December 31, 2016

 

 

 

 

LOGO

 

Commodity Futures Trading Commission Registration. Effective December 31, 2012, the Commodity Futures Trading Commission (“CFTC”) adopted certain regulatory changes that subject registered investment companies and advisers to regulation by the CFTC if a fund invests more than a prescribed level of its assets in certain CFTC-regulated instruments (including futures, certain options and swap agreements) or markets itself as providing investment exposure to such instruments. The Fund has claimed an exclusion from the definition of the term “commodity pool operator” under the Commodity Exchange Act. Accordingly, neither the Fund nor the adviser with respect to the operation of the Fund is subject to CFTC regulation. Because of its management of other strategies, the Fund’s adviser is registered with the CFTC as a commodity pool operator and a commodity trading advisor.

Managed Distribution Plan. Pursuant to an exemptive order issued by the Securities and Exchange Commission (Order), the Fund is authorized to distribute long-term capital gains to shareholders more frequently than once per year. Pursuant to the Order, the Fund’s Board of Trustees approved a Managed Distribution Plan (MDP) pursuant to which the Fund makes monthly cash distributions to common shareholders, stated in terms of a fixed amount per common share.

The Fund currently distributes monthly cash distributions equal to $0.0930 per share in accordance with the MDP. You should not draw any conclusions about the Fund’s investment performance from the amount of these distributions or from the terms of the MDP. The MDP will be subject to regular periodic review by the Fund’s Board of Trustees and the Board may amend or terminate the MDP at any time without prior notice to Fund shareholders. However, at this time there are no reasonably foreseeable circumstances that might cause the termination of the MDP.

The Fund may distribute more than its net investment income and net realized capital gains and, therefore, a distribution may include a return of capital. A return of capital distribution does not necessarily reflect the Fund’s investment performance and should not be confused with “yield” or “income.” With each distribution, the Fund will issue a notice to shareholders and a press release containing information about the amount and sources of the distribution and other related information. The amounts and sources of distributions contained in the notice and press release are only estimates and are not provided for tax purposes. The amounts and sources of the Fund’s distributions for tax purposes will be reported to shareholders on Form 1099-DIV for each calendar year.

Fund shares are not insured by the FDIC and are not deposits or other obligations of, or guaranteed by, any depository institution. Shares are subject to investment risks, including possible loss of principal invested.

Annual Report December 31, 2016

Eaton Vance

Risk-Managed Diversified Equity Income Fund

Table of Contents

 

Management’s Discussion of Fund Performance

      2  

Performance

      3  

Fund Profile

      3  

Fund Snapshot

      4  

Endnotes and Additional Disclosures

      5  

Financial Statements

      6  

Report of Independent Registered Public Accounting Firm

      19  

Federal Tax Information

      20  

Dividend Reinvestment Plan

      21  

Management and Organization

      23  

Important Notices

      26  

Eaton Vance

Risk-Managed Diversified Equity Income Fund

December 31, 2016

 

Management’s Discussion of Fund Performance1

 

 

Economic and Market Conditions

U.S. stock markets rose in the 12-month period ended December 31, 2016, as the nation’s economy continued to strengthen and the outcome of the U.S. presidential election gave stocks a late-period boost.

U.S. stocks as well as international markets opened the period on the downside amid worries about falling oil prices, declining interest rates and slowing global growth, particularly in China. The pullback began in early January 2016 and continued into mid-February, when stocks turned around and soon overcame the earlier losses. Coinciding with the move was a reversal in crude oil prices, which rose following a prolonged decline.

In June 2016, U.S. stocks plunged along with international markets following Britain’s “Brexit” vote to leave the European Union. However, equity markets, led by the U.S., quickly rallied from the two-day tailspin and recovered the lost ground. Helped by stronger U.S. economic indicators, major U.S. stock indexes reached multiple record highs during July and August 2016.

U.S. equity markets retreated in late August 2016 amid falling oil prices and fears about a possible interest rate increase. The U.S. Federal Reserve’s (the Fed’s) decision at its September 2016 meeting to leave rates unchanged, along with an agreement by the Organization of the Petroleum Exporting Countries (OPEC) to curb oil production, sent stocks briefly higher. In November 2016, stocks rallied sharply following the victory of Donald Trump in the U.S. presidential election. The broad-based “Trump Bump” was led by financial stocks as well as the aerospace & defense industry. Financial stocks got another boost in mid-December 2016 when the Fed raised its benchmark interest rate amid stronger economic growth reports.

For the 12-month period, the blue-chip Dow Jones Industrial Average2 advanced 16.50%, while the broader U.S. equity market, as represented by the S&P 500 Index, returned 11.96%. The technology-laden NASDAQ Composite Index delivered an 8.87% gain. Small-cap U.S. stocks, as measured by the Russell 2000® Index outperformed their large-cap counterparts, as measured by the S&P 500 Index during the period. Value stocks as a group outpaced growth stocks in both the large- and small-cap categories, as measured by the Russell value and growth indexes.

Fund Performance

For the 12-month period ended December 31, 2016, Eaton Vance Risk-Managed Diversified Equity Income Fund (the Fund) had a total return of 0.60% at net asset value (NAV), underperforming the 11.96% return of the Fund’s equity benchmark, the S&P 500 Index (the Index) and the 4.14% return of the Fund’s options benchmark, the CBOE S&P 500 95-110 Collar Index.

The Fund’s collared options strategy as well as its underlying stock portfolio detracted from Fund performance relative to the Index. The collared options strategy can be beneficial during times of market weakness, but may detract from Fund performance relative to the Index during periods of market strength. For the first half of the period, the options strategy performed approximately in line with the Index. In late June of 2016, however, the options strategy greatly underperformed the Index and added significant underperformance to the Fund, when equity markets rallied back sharply after initially declining post-Brexit (Great Britain’s June 23 vote to leave the European Union). Thus for the period as a whole, the options strategy was a net detractor from Fund performance versus the Index.

Within the Fund’s common stock portfolio, stock selection in the information technology, consumer discretionary and health care sectors detracted from performance versus the Index. Within information technology, the Fund’s out-of-Index holding in Tableau Software, Inc. lost value because its sales cycle for new software contracts lengthened, causing growth expectations for the company to fall. In consumer discretionary, the Fund’s overweight position, relative to the Index, in apparel maker Nike, Inc. declined in value on concern that a strengthening U.S. dollar would lower the value of overseas profits. Concern that tax policies under a new U.S. administration might be unfavorable to companies with offshore manufacturing weighed on Nike’s stock as well. The Fund’s out-of-Index holding in Teva Pharmaceutical Industries, Ltd. ADR and overweight position in drug maker Allegan PLC detracted from performance versus the Index in the health care sector. Both stocks were hurt by headline news about high drug prices, which raised concerns during an election year that a new administration might press for increased scrutiny of drug prices. Tableau Software, Teva and Allergan were sold during the period.

In contrast, an overweight and security selection in the strong-performing telecommunication services sector aided Fund performance versus the Index. The Fund’s out-of-Index holding in Zayo Group Holdings, Inc., a provider of fiber optic transmission lines, benefited from strong traffic growth in wireless data, streaming video and data center business. Elsewhere in the sector, the Fund’s overweight position in Verizon Communications, Inc., a dividend-paying stock, rose in value as investors sought out income during the low-rate environment that existed for much of the period. Verizon stock also benefited from the perception that firms doing most of their business in the U.S. might see lower tax rates under a new U.S. administration.

 

 

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 include 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 or equal to one year is cumulative. Performance is for the stated time period only; due to market volatility, current Fund performance may be lower or higher than the quoted return. For performance as of the most recent month-end, please refer to eatonvance.com.

 

  2  

Eaton Vance

Risk-Managed Diversified Equity Income Fund

December 31, 2016

 

Performance2,3

 

Portfolio Managers Michael A. Allison, CFA and Kevin J. Amell

 

% Average Annual Total Returns    Inception Date      One Year      Five Years      Since
Inception		  

Fund at NAV

      07/31/2007        0.60 %       6.01 %       4.04 % 

Fund at Market Price

      —        –0.88        7.77        2.86  

S&P 500 Index

      —        11.96 %       14.64 %       6.98 % 

CBOE S&P 500 95-110 Collar Index

      —        4.14        7.61        —  
           
% Premium/Discount to NAV4                                
              –10.22 % 
           
Distributions5                                

Total Distributions per share for the period

             $ 1.116  

Distribution Rate at NAV

               11.18 % 

Distribution Rate at Market Price

               12.46 % 

Fund Profile

 

Sector Allocation (% of total investments)6

 

 

LOGO

Top 10 Holdings (% of total investments)6

 

 

Alphabet, Inc., Class C

     4.4 % 

Apple, Inc.

     4.3  

Microsoft Corp.

     3.9  

JPMorgan Chase & Co.

     3.5  

Amazon.com, Inc.

     3.4  

Johnson & Johnson

     3.4  

General Electric Co.

     3.3  

Altria Group, Inc.

     3.1  

Visa, Inc., Class A

     2.8  

Home Depot, Inc. (The)

     2.7  

Total

     34.8 % 
 

 

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 include 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 or equal to one year is cumulative. Performance is for the stated time period only; due to market volatility, current Fund performance may be lower or higher than the quoted return. For performance as of the most recent month-end, please refer to eatonvance.com.

 

  3  

Eaton Vance

Risk-Managed Diversified Equity Income Fund

December 31, 2016

 

Fund Snapshot

 

 

Objective   The primary investment objective is to provide current income and gains, with a secondary objective of capital appreciation.
Strategy  

 

The Fund invests in a diversified portfolio of common stocks and purchases out-of-the-money, short-dated S&P 500 Index put options and sells out-of-the-money S&P 500 Index call options of the same term as the put options with roll dates that are staggered across the options portfolio. The Fund evaluates returns on an after tax basis and seeks to minimize and defer federal income taxes incurred by shareholders in connection with their investment in the Fund.

 

Options Strategy  

Write Index Covered Calls;

Buy Index Puts

 

Equity Benchmarks2

   S&P 500 Index

 

Morningstar Category

  Large Blend

 

Distribution Frequency

   Monthly
Common Stock Portfolio    

 

Positions Held

   53

 

% US / Non-US

   99.0/1.0

 

Average Market Cap

   $174.3 Billion

Call Options Written

    

 

% of Stock Portfolio

   96%

 

Average Days to Expiration

   16 days

 

% Out of the Money

   2.2%

Put Options Purchased

    

 

% of Stock Portfolio

   96%

 

Average Days to Expiration

   16 days

 

% Out of the Money

   2.1%

The following terms as used in the Fund snapshot:

Average Market Cap: An indicator of the size of the companies in which the Fund invests and is the sum of each security’s weight in the portfolio multiplied by its market cap. Market Cap is determined by multiplying the price of a share of a company’s common stock by the number of shares outstanding.

Call Option: For an index call option, the buyer has the right to receive from the seller (or writer) a cash payment at the option expiration date equal to any positive difference between the value of the index at contract expiration and the exercise price. The buyer of a call option makes a cash payment (premium) to the seller (writer) of the option upon entering into the option contract.

Covered Call Strategy: A strategy of owning a portfolio of common stocks and writing call options on all or a portion of such stocks to generate current earnings from option premium.

Index Put Option: Gives the option buyer the right to receive from the option seller (writer) a cash payment if the value of the index exceeds a specified value (exercise price or strike price) on or before a specified date (option expiration date). The buyer makes a cash payment (premium) to the seller of the option upon entering into the contract.

Out of the Money: For a call option on an index, the extent to which the exercise price of the option exceeds the current price of the value of the index. For an index put option, the extent to which the current value of the index exceeds the exercise price of the option.

    

 

 

See Endnotes and Additional Disclosures in this report.

 

  4  

Eaton Vance

Risk-Managed Diversified Equity Income Fund

December 31, 2016

 

Endnotes and Additional Disclosures

 

 

1

The views expressed in this report are those of the portfolio manager(s) and are current only through the date stated at the top of this page. These views are subject to change at any time based upon market or other conditions, and Eaton Vance and the Fund(s) disclaim any responsibility to update such views. These views may not be relied upon as investment advice and, because investment decisions are based on many factors, may not be relied upon as an indication of trading intent on behalf of any Eaton Vance fund. This commentary may contain statements that are not historical facts, referred to as “forward looking statements”. The Fund’s actual future results may differ significantly from those stated in any forward looking statement, depending on factors such as changes in securities or financial markets or general economic conditions, the volume of sales and purchases of Fund shares, the continuation of investment advisory, administrative and service contracts, and other risks discussed from time to time in the Fund’s filings with the Securities and Exchange Commission.

 

2

Dow Jones Industrial Average is a price-weighted average of 30 blue-chip stocks that are generally the leaders in their industry. S&P 500 Index is an unmanaged index of large-cap stocks commonly used as a measure of U.S. stock market performance. NASDAQ Composite Index is a market capitalization-weighted index of all domestic and international securities listed on NASDAQ. Russell 2000® Index is an unmanaged index of 2,000 U.S. small- cap stocks. CBOE S&P 500 95-110 Collar Index is an unmanaged index of the S&P 500 stocks with a collar option strategy of buying put options and selling call options. Unless otherwise stated, index returns do not reflect the effect of any applicable sales charges, commissions, expenses, taxes or leverage, as applicable. It is not possible to invest directly in an index. Performance since inception for an index, if presented, is the performance since the Fund’s or oldest share class’ inception, as applicable. The CBOE S&P 500 95-110 Collar Index commenced on September 2008; accordingly the Since Inception return is not available.

 

3

During the year ended December 31, 2008, the Fund elected to retain a portion of its realized long-term gains and pay the required federal corporate income tax on such amount. The total returns include the economic benefit to common shareholders of the tax credit or refund available to them, which equaled their pro rata share of the tax paid by the Fund. If this benefit was not included, the returns for since inception would have been 3.66% (at NAV) and 2.48% (at Market Price).

 

4

The shares of the Fund often trade at a discount or premium from their net asset value. The discount or premium of the Fund may vary over time and may be higher or lower than what is quoted in this report. For up-to-date premium/discount information, please refer to http://eatonvance.com/closedend.

 

5 

The Distribution Rate is based on the Fund’s last regular distribution per share in the period (annualized) divided by the Fund’s NAV or market price at the end of the period. The Fund’s distributions may be comprised of amounts characterized for federal income tax purposes as qualified and non-qualified ordinary dividends, capital gains and nondividend distributions, also known as return of capital. For additional information about nondividend distributions, please refer to Eaton Vance Closed-End Fund Distribution Notices (19a) posted on our website, eatonvance.com. The Fund will determine the federal income tax character of distributions paid to a shareholder after the end of the calendar year. This is reported on the IRS form 1099-DIV and provided to the shareholder shortly after each year-end. For information about the tax character of distributions made in prior calendar years, please refer to Performance-Tax Character of Distributions on the Fund’s webpage available at eatonvance.com. In recent years, a significant portion of the Fund’s distributions has been characterized as a return of capital. The Fund’s distributions are determined by the investment adviser based on its current assessment of the Fund’s long-term return potential. Fund distributions may be affected by numerous factors including changes in Fund performance, the cost of financing for leverage, portfolio holdings, realized and projected returns, and other factors. As portfolio and market conditions change, the rate of distributions paid by the Fund could change.

 

6

Depictions do not reflect the Fund’s option positions. Excludes cash and cash equivalents.

 

   Fund snapshot and profile subject to change due to active management.

Important Notice to Shareholders

  

Effective February 10, 2017, the Fund changed its secondary benchmark to the CBOE S&P 500 95-110 Collar Index.

 

 

  5  

Eaton Vance

Risk-Managed Diversified Equity Income Fund

December 31, 2016

 

Portfolio of Investments

 

 

Common Stocks — 99.2%   
   
Security   Shares     Value  

Air Freight & Logistics — 1.8%

                

C.H. Robinson Worldwide, Inc.

     154,137      $ 11,292,077   
                 
  $ 11,292,077   
                 

Auto Components — 1.0%

                

Goodyear Tire & Rubber Co. (The)

     209,176      $ 6,457,263   
                 
  $ 6,457,263   
                 

Banks — 6.0%

                

JPMorgan Chase & Co.

     258,629      $ 22,317,096   

PNC Financial Services Group, Inc. (The)

     104,746        12,251,092   

Wells Fargo & Co.

     62,978        3,470,718   
                 
  $ 38,038,906   
                 

Beverages — 2.4%

                

Constellation Brands, Inc., Class A

     47,829      $ 7,332,664   

PepsiCo, Inc.

     77,650        8,124,519   
                 
  $ 15,457,183   
                 

Biotechnology — 2.4%

                

Celgene Corp.(1)

     129,067      $ 14,939,505   
                 
  $ 14,939,505   
                 

Capital Markets — 4.5%

                

Charles Schwab Corp. (The)

     377,572      $ 14,902,767   

Goldman Sachs Group, Inc. (The)

     57,006        13,650,086   
                 
  $ 28,552,853   
                 

Chemicals — 1.2%

                

PPG Industries, Inc.

     83,398      $ 7,902,794   
                 
  $ 7,902,794   
                 

Communications Equipment — 1.8%

                

Cisco Systems, Inc.

     374,326      $ 11,312,132   
                 
  $ 11,312,132   
                 

Containers & Packaging — 1.4%

                

International Paper Co.

     163,660      $ 8,683,800   
                 
  $ 8,683,800   
                 
Security   Shares     Value  

Distributors — 1.4%

                

LKQ Corp.(1)

     287,853      $ 8,822,694   
                 
  $ 8,822,694   
                 

Diversified Telecommunication Services — 2.6%

  

Verizon Communications, Inc.

     225,355      $ 12,029,450   

Zayo Group Holdings, Inc.(1)

     143,314        4,709,298   
                 
  $ 16,738,748   
                 

Electric Utilities — 1.6%

                

NextEra Energy, Inc.

     84,013      $ 10,036,193   
                 
  $ 10,036,193   
                 

Energy Equipment & Services — 2.2%

                

Oceaneering International, Inc.

     186,729      $ 5,267,625   

Schlumberger, Ltd.

     107,331        9,010,438   
                 
  $ 14,278,063   
                 

Equity Real Estate Investment Trusts (REITs) — 2.5%

  

Equity Residential

     91,885      $ 5,913,719   

Federal Realty Investment Trust

     71,120        10,106,863   
                 
  $ 16,020,582   
                 

Food Products — 1.4%

                

General Mills, Inc.

     147,299      $ 9,098,659   
                 
  $ 9,098,659   
                 

Health Care Equipment & Supplies — 3.5%

                

Danaher Corp.

     177,545      $ 13,820,103   

Zimmer Biomet Holdings, Inc.

     82,814        8,546,405   
                 
  $ 22,366,508   
                 

Household Durables — 1.7%

                

Newell Brands, Inc.

     82,739      $ 3,694,296   

Whirlpool Corp.

     40,079        7,285,160   
                 
  $ 10,979,456   
                 

Industrial Conglomerates — 3.3%

                

General Electric Co.

     657,073      $ 20,763,507   
                 
  $ 20,763,507   
                 

Insurance — 3.3%

                

American Financial Group, Inc.

     99,389      $ 8,758,159   
 

 

  6   See Notes to Financial Statements.

Eaton Vance

Risk-Managed Diversified Equity Income Fund

December 31, 2016

 

Portfolio of Investments — continued

 

 

Security   Shares     Value  

Insurance (continued)

                

Chubb, Ltd.

     89,928      $ 11,881,287   
                 
  $ 20,639,446   
                 

Internet & Direct Marketing Retail — 3.4%

                

Amazon.com, Inc.(1)

     28,995      $ 21,742,481   
                 
  $ 21,742,481   
                 

Internet Software & Services — 5.9%

  

Alphabet, Inc., Class C(1)

     36,145      $ 27,897,434   

Facebook, Inc., Class A(1)

     23,192        2,668,240   

GoDaddy, Inc., Class A(1)

     191,109        6,679,259   
                 
  $ 37,244,933   
                 

IT Services — 2.8%

                

Visa, Inc., Class A

     227,964      $ 17,785,751   
                 
  $ 17,785,751   
                 

Machinery — 3.6%

                

Caterpillar, Inc.

     95,628      $ 8,868,541   

Fortive Corp.

     264,324        14,175,696   
                 
  $ 23,044,237   
                 

Multi-Utilities — 1.6%

                

Sempra Energy

     103,217      $ 10,387,759   
                 
  $ 10,387,759   
                 

Oil, Gas & Consumable Fuels — 5.7%

                

Chevron Corp.

     118,928      $ 13,997,826   

EOG Resources, Inc.

     109,544        11,074,898   

Occidental Petroleum Corp.

     156,653        11,158,393   
                 
  $ 36,231,117   
                 

Personal Products — 1.6%

                

Estee Lauder Cos., Inc. (The), Class A

     128,609      $ 9,837,302   
                 
  $ 9,837,302   
                 

Pharmaceuticals — 8.3%

                

Eli Lilly & Co.

     125,193      $ 9,207,945   

Johnson & Johnson

     187,003        21,544,616   

Pfizer, Inc.

     440,879        14,319,750   

Zoetis, Inc.

     143,254        7,668,386   
                 
  $ 52,740,697   
                 
Security   Shares     Value  

Road & Rail — 1.5%

                

Union Pacific Corp.

     89,891      $ 9,319,899   
                 
  $ 9,319,899   
                 

Semiconductors & Semiconductor Equipment — 3.4%

  

Intel Corp.

     411,605      $ 14,928,914   

NXP Semiconductors NV(1)

     65,424        6,412,206   
                 
  $ 21,341,120   
                 

Software — 3.9%

  

Microsoft Corp.

     394,929      $ 24,540,888   
                 
  $ 24,540,888   
                 

Specialty Retail — 2.7%

                

Home Depot, Inc. (The)

     129,541      $ 17,368,857   
                 
  $ 17,368,857   
                 

Technology Hardware, Storage & Peripherals — 4.3%

  

Apple, Inc.

     237,313      $ 27,485,592   
                 
  $ 27,485,592   
                 

Textiles, Apparel & Luxury Goods — 1.4%

                

NIKE, Inc., Class B

     178,632      $ 9,079,865   
                 
  $ 9,079,865   
                 

Tobacco — 3.1%

                

Altria Group, Inc.

     293,179      $ 19,824,764   
                 
  $ 19,824,764   
                 

Total Common Stocks
(identified cost $502,318,772)

   

   $ 630,355,631   
                 
 

 

  7   See Notes to Financial Statements.

Eaton Vance

Risk-Managed Diversified Equity Income Fund

December 31, 2016

 

Portfolio of Investments — continued

 

 

Put Options Purchased — 0.4%  
Exchange-Traded Options — 0.4%  
       
Description  

Number of

Contracts

     Strike
Price		    

Expiration

Date

     Value  

S&P 500 Index

     226     $ 2,140       1/3/17     $ 12,995  

S&P 500 Index

     227       2,175       1/4/17       19,295  

S&P 500 Index

     224       2,190       1/6/17       55,440  

S&P 500 Index

     225       2,190       1/9/17       79,875  

S&P 500 Index

     227       2,205       1/11/17       169,115  

S&P 500 Index

     225       2,200       1/13/17       194,625  

S&P 500 Index

     226       2,200       1/17/17       228,260  

S&P 500 Index

     227       2,210       1/18/17       299,640  

S&P 500 Index

     224       2,200       1/20/17       278,880  

S&P 500 Index

     223       2,210       1/23/17       361,260  

S&P 500 Index

     223       2,200       1/25/17       345,650  

S&P 500 Index

     224       2,170       1/27/17       243,249  
                                 

Total Put Options Purchased
(identified cost $2,508,616)

 

   $ 2,288,284  
                                 
Short-Term Investments — 0.6%    
   
Description   Units     Value  

Eaton Vance Cash Reserves Fund, LLC, 0.81%(2)

     3,925,941     $ 3,926,333  
                 

Total Short-Term Investments
(identified cost $3,926,333)

 

   $ 3,926,333  
                 

Total Investments — 100.2%
(identified cost $508,753,721)

 

   $ 636,570,248  
                 
Call Options Written — (0.2)%  
Exchange-Traded Options — (0.2)%  
       
Description  

Number of

Contracts

    

Strike

Price

    

Expiration

Date

     Value  

S&P 500 Index

     226       2,235       1/3/17     $ (231,650 ) 

S&P 500 Index

     227       2,265       1/4/17       (26,672 ) 

S&P 500 Index

     224       2,290       1/6/17       (11,760 ) 

S&P 500 Index

     225       2,290       1/9/17       (20,250 ) 

S&P 500 Index

     227       2,310       1/11/17       (12,485 ) 

S&P 500 Index

     225       2,300       1/13/17       (32,063 ) 

S&P 500 Index

     226       2,295       1/17/17       (57,630 ) 

S&P 500 Index

     227       2,300       1/18/17       (55,048 ) 

S&P 500 Index

     224       2,295       1/20/17       (86,240 ) 

S&P 500 Index

     223       2,300       1/23/17       (81,395 ) 

S&P 500 Index

     223       2,300       1/25/17       (98,120 ) 

S&P 500 Index

     224       2,280       1/27/17       (257,172 ) 
                                 

Total Call Options Written
(premiums received $2,523,232)

 

   $ (970,485 ) 
                                 

Other Assets, Less Liabilities — (0.0)%(3)

 

   $ (5,076 ) 
                                 

Net Assets — 100.0%

 

   $ 635,594,687  
                                 

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 December 31, 2016.

 

(3) 

Amount is less than (0.05)%.

 

 

  8   See Notes to Financial Statements.

Eaton Vance

Risk-Managed Diversified Equity Income Fund

December 31, 2016

 

Statement of Assets and Liabilities

 

 

Assets   December 31, 2016  

Unaffiliated investments, at value (identified cost, $504,827,388)

   $ 632,643,915  

Affiliated investment, at value (identified cost, $3,926,333)

     3,926,333  

Dividends receivable

     978,266  

Dividends receivable from affiliated investment

     1,624  

Receivable for premiums on written options

     257,172  

Tax reclaims receivable

     219,691  

Total assets

   $ 638,027,001  
Liabilities        

Written options outstanding, at value (premiums received, $2,523,232)

   $ 970,485  

Payable for investments purchased

     243,248  

Payable for closed written options

     443,570  

Payable to affiliates:

  

Investment adviser fee

     540,602  

Trustees’ fees

     8,635  

Accrued expenses

     225,774  

Total liabilities

   $ 2,432,314  

Net Assets

   $ 635,594,687  
Sources of Net Assets        

Common shares, $0.01 par value, unlimited number of shares authorized, 63,667,079 shares issued and outstanding

   $ 636,671  

Additional paid-in capital

     697,872,297  

Accumulated net realized loss

     (192,286,098 ) 

Accumulated net investment loss

     (5,011 ) 

Net unrealized appreciation

     129,376,828  

Net Assets

   $ 635,594,687  
Net Asset Value        

($635,594,687 ÷ 63,667,079 common shares issued and outstanding)

   $ 9.98  

 

  9   See Notes to Financial Statements.

Eaton Vance

Risk-Managed Diversified Equity Income Fund

December 31, 2016

 

Statement of Operations

 

 

Investment Income  

Year Ended

December 31, 2016

  

Dividends (net of foreign taxes, $22,681)

   $ 14,111,594   

Interest allocated from/dividends from affiliated investment

     35,118   

Expenses allocated from affiliated investment

     (658 ) 

Total investment income

   $ 14,146,054   
Expenses        

Investment adviser fee

   $ 6,566,191   

Trustees’ fees and expenses

     34,695   

Custodian fee

     238,415   

Transfer and dividend disbursing agent fees

     18,421   

Legal and accounting services

     77,132   

Printing and postage

     254,539   

Miscellaneous

     78,144   

Total expenses

   $ 7,267,537   

Net investment income

   $ 6,878,517   
Realized and Unrealized Gain (Loss)        

Net realized gain (loss) —

  

Investment transactions

   $ 14,451,823   

Investment transactions in/allocated from affiliated investment

     1,600   

Written options

     (14,786,208 ) 

Foreign currency and forward foreign currency exchange contract transactions

     (228,984 ) 

Net realized loss

   $ (561,769 ) 

Change in unrealized appreciation (depreciation) —

  

Investments

   $ (9,470,543 ) 

Written options

     (361,587 ) 

Foreign currency

     (3,225 ) 

Net change in unrealized appreciation (depreciation)

   $ (9,835,355 ) 

Net realized and unrealized loss

   $ (10,397,124 ) 

Net decrease in net assets from operations

   $ (3,518,607 ) 

 

  10   See Notes to Financial Statements.

Eaton Vance

Risk-Managed Diversified Equity Income Fund

December 31, 2016

 

Statements of Changes in Net Assets

 

 

    Year Ended December 31,  
Increase (Decrease) in Net Assets   2016     2015  

From operations —

    

Net investment income

   $ 6,878,517     $ 12,559,158  

Net realized gain (loss) from investment transactions, written options and foreign currency and forward foreign currency exchange contract transactions

     (561,769 )      65,820,793  

Net change in unrealized appreciation (depreciation) from investments, written options and foreign currency

     (9,835,355 )      (65,384,129 ) 

Net increase (decrease) in net assets from operations

   $ (3,518,607 )    $ 12,995,822  

Distributions to shareholders —

    

From net investment income

   $ (5,920,985 )    $ (71,065,480 ) 

Tax return of capital

     (65,131,475 )      —  

Total distributions

   $ (71,052,460 )    $ (71,065,480 ) 

Capital share transactions —

    

Cost of shares repurchased (see Note 5)

   $ —     $ (966,414 ) 

Net decrease in net assets from capital share transactions

   $ —     $ (966,414 ) 

Net decrease in net assets

   $ (74,571,067 )    $ (59,036,072 ) 
Net Assets  

At beginning of year

   $ 710,165,754     $ 769,201,826  

At end of year

   $ 635,594,687     $ 710,165,754  
Accumulated net investment loss
included in net assets		                

At end of year

   $ (5,011 )    $ —  

 

  11   See Notes to Financial Statements.

Eaton Vance

Risk-Managed Diversified Equity Income Fund

December 31, 2016

 

Financial Highlights

 

 

    Year Ended December 31,  
     2016     2015     2014     2013     2012  

Net asset value — Beginning of year

   $ 11.150      $ 12.060      $ 12.720      $ 11.950      $ 12.640   
Income (Loss) From Operations                                        

Net investment income(1)

   $ 0.108      $ 0.197      $ 0.065      $ 0.088      $ 0.131   

Net realized and unrealized gain (loss)

     (0.162 )      0.007        0.335        1.734        0.281   

Total income (loss) from operations

   $ (0.054 )    $ 0.204      $ 0.400      $ 1.822      $ 0.412   
Less Distributions                                        

From net investment income

   $ (0.093 )    $ (1.116 )    $ (1.116 )    $ (0.098 )    $ (0.129 ) 

Tax return of capital

     (1.023 )      —        —        (1.018 )      (1.028 ) 

Total distributions

   $ (1.116 )    $ (1.116 )    $ (1.116 )    $ (1.116 )    $ (1.157 ) 

Anti-dilutive effect of share repurchase program (see Note 5)(1)

   $ —      $ 0.002      $ 0.056      $ 0.064      $ 0.055   

Net asset value — End of year

   $ 9.980      $ 11.150      $ 12.060      $ 12.720      $ 11.950   

Market value — End of year

   $ 8.960      $ 10.160      $ 10.660      $ 11.270      $ 10.430   

Total Investment Return on Net Asset Value(2)

     0.60 %      2.76 %      4.49 %      17.59 %      5.42 % 

Total Investment Return on Market Value(2)

     (0.88 )%      5.93 %      4.25 %      19.47 %      11.20 % 
Ratios/Supplemental Data                                        

Net assets, end of year (000’s omitted)

   $ 635,595      $ 710,166      $ 769,202      $ 851,013      $ 839,703   

Ratios (as a percentage of average daily net assets):

          

Expenses(3)

     1.11 %      1.10 %      1.10 %      1.10 %      1.09 % 

Net investment income

     1.05 %      1.68 %      0.52 %      0.71 %      1.07 % 

Portfolio Turnover

     79 %      77 %      66 %      42 %      48 % 

 

(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) 

Excludes the effect of custody fee credits, if any, of less than 0.005%. Effective September 1, 2015, custody fee credits, which were earned on cash deposit balances, were discontinued by the custodian.

 

  12   See Notes to Financial Statements.

Eaton Vance

Risk-Managed Diversified Equity Income Fund

December 31, 2016

 

Notes to Financial Statements

 

 

1  Significant Accounting Policies

Eaton Vance Risk-Managed Diversified Equity Income Fund (the Fund) is a Massachusetts business trust registered under the Investment Company Act of 1940, as amended (the 1940 Act), as a diversified, closed-end management investment company. The Fund’s primary investment objective is to provide current income and gains, with a secondary objective of capital appreciation.

The following is a summary of significant accounting policies of the Fund. The policies are in conformity with accounting principles generally accepted in the United States of America (U.S. GAAP). The Fund is an investment company and follows accounting and reporting guidance in the Financial Accounting Standards Board (FASB) Accounting Standards Codification Topic 946.

A  Investment Valuation — The following methodologies are used to determine the market value or fair value of investments.

Equity Securities. Equity securities listed on a U.S. securities exchange generally are valued at the last sale or closing price on the day of valuation or, if no sales took place on such date, at the mean between the closing bid and asked prices therefore on the exchange where such securities are principally traded. Equity securities listed on the NASDAQ Global or Global Select Market generally are valued at the NASDAQ official closing price. Unlisted or listed securities for which closing sales prices or closing quotations are not available are valued at the mean between the latest available bid and asked prices.

Derivatives. Exchange-traded options (other than FLexible EXchange traded options) are valued at the mean between the bid and asked prices at valuation time as reported by the Options Price Reporting Authority for U.S. listed options or by the relevant exchange or board of trade for non-U.S. listed options. Over-the-counter options and FLexible EXchange traded options traded at the Chicago Board Options Exchange are valued by a third party pricing service using techniques that consider factors including the value of the underlying instrument, the volatility of the underlying instrument and the period of time until option expiration. Forward foreign currency exchange contracts are generally valued at the mean of the average bid and average asked prices that are reported by currency dealers to a third party pricing service at the valuation time. Such third party pricing service valuations are supplied for specific settlement periods and the Fund’s forward foreign currency exchange contracts are valued at an interpolated rate between the closest preceding and subsequent settlement period reported by the third party pricing service.

Foreign Securities and Currencies. Foreign securities and currencies are valued in U.S. dollars, based on foreign currency exchange rate quotations supplied by a third party pricing service. The pricing service uses a proprietary model to determine the exchange rate. Inputs to the model include reported trades and implied bid/ask spreads. The daily valuation of exchange-traded foreign securities generally is determined as of the close of trading on the principal exchange on which such securities trade. Events occurring after the close of trading on foreign exchanges may result in adjustments to the valuation of foreign securities to more accurately reflect their fair value as of the close of regular trading on the New York Stock Exchange. When valuing foreign equity securities that meet certain criteria, the Fund’s Trustees have approved the use of a fair value service that values such securities to reflect market trading that occurs after the close of the applicable foreign markets of comparable securities or other instruments that have a strong correlation to the fair-valued securities.

Affiliated Fund. The Fund may invest in Eaton Vance Cash Reserves Fund, LLC (Cash Reserves Fund), an affiliated investment company managed by Eaton Vance Management (EVM). 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. Prior to Cash Reserves Fund’s issuance of units in October 2016, the value of the Fund’s investment in Cash Reserves Fund reflected the Fund’s proportionate interest in its net assets and the Fund recorded its pro-rata share of Cash Reserves Fund’s income, expenses and realized gain or loss.

Fair Valuation. Investments for which valuations or market quotations are not readily available or are deemed unreliable are valued at fair value using methods determined in good faith by or at the direction of the Trustees of the Fund in a manner that fairly reflects the 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 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 condition, and an evaluation of the forces that influence the issuer and the market(s) in which the security is purchased and sold.

B  Investment Transactions — Investment transactions for financial statement purposes are accounted for on a trade date basis. Realized gains and losses on investments sold are determined on the basis of identified cost.

C  Income — Dividend income is recorded on the ex-dividend date for dividends received in cash and/or securities. However, if the ex-dividend date has passed, certain dividends from foreign securities are recorded as the Fund is informed of the ex-dividend date. Withholding taxes on foreign dividends and capital gains have been provided for in accordance with the Fund’s understanding of the applicable countries’ tax rules and rates. Interest income is recorded on the basis of interest accrued, adjusted for amortization of premium or accretion of discount.

D  Federal Taxes — The Fund’s policy is to comply with the provisions of the Internal Revenue Code applicable to regulated investment companies and to distribute to shareholders each year substantially all of its net investment income, and all or substantially all of its net realized capital gains. Accordingly, no provision for federal income or excise tax is necessary.

 

  13  

Eaton Vance

Risk-Managed Diversified Equity Income Fund

December 31, 2016

 

Notes to Financial Statements — continued

 

 

As of December 31, 2016, the Fund had no uncertain tax positions that would require financial statement recognition, de-recognition, or disclosure. The Fund files a U.S. federal income tax return annually after its fiscal year-end, which is subject to examination by the Internal Revenue Service for a period of three years from the date of filing.

E  Foreign Currency Translation — Investment valuations, other assets, and liabilities initially expressed in foreign currencies are translated each business day into U.S. dollars based upon current exchange rates. Purchases and sales of foreign investment securities and income and expenses denominated in foreign currencies are translated into U.S. dollars based upon currency exchange rates in effect on the respective dates of such transactions. Recognized gains or losses on investment transactions attributable to changes in foreign currency exchange rates are recorded for financial statement purposes as net realized gains and losses on investments. That portion of unrealized gains and losses on investments that results from fluctuations in foreign currency exchange rates is not separately disclosed.

F  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 the Fund’s organizational documents, its officers and Trustees may be indemnified against certain liabilities and expenses arising out of the performance of their duties to the Fund. Under Massachusetts law, if certain conditions prevail, shareholders of a Massachusetts business trust (such as the Fund) could be deemed to have personal liability for the obligations of the Fund. However, the Fund’s Declaration of Trust contains an express disclaimer of liability on the part of Fund shareholders and the By-laws provide that the Fund shall assume the defense on behalf of any Fund shareholders. Moreover, the By-laws also provide for indemnification out of Fund property of any shareholder held personally liable solely by reason of being or having been a shareholder for all loss or expense arising from such liability. Additionally, in the normal course of business, the Fund enters into agreements with service providers that may contain indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred.

H  Forward Foreign Currency Exchange Contracts — The Fund may enter into forward foreign currency exchange contracts for the purchase or sale of a specific foreign currency at a fixed price on a future date. The forward foreign currency exchange contracts are adjusted by the daily exchange rate of the underlying currency and any gains or losses are recorded as unrealized until such time as the contracts have been closed. Risks may arise upon entering these contracts from the potential inability of counterparties to meet the terms of their contracts and from movements in the value of a foreign currency relative to the U.S. dollar.

I  Written Options — Upon the writing of a call or a put option, the premium received by the Fund is included in the Statement of Assets and Liabilities as a liability. The amount of the liability is subsequently marked-to-market to reflect the current market value of the option written, in accordance with the Fund’s policies on investment valuations discussed above. Premiums received from writing options which expire are treated as realized gains. Premiums received from writing options which are exercised or are closed are added to or offset against the proceeds or amount paid on the transaction to determine the realized gain or loss. When an index option is exercised, the Fund is required to deliver an amount of cash determined by the excess of the strike price of the option over the value of the index (in the case of a put) or the excess of the value of the index over the strike price of the option (in the case of a call) at contract termination. If a put option on a security is exercised, the premium reduces the cost basis of the securities purchased by the Fund. The Fund, as a writer of an option, may have no control over whether the underlying securities or other assets may be sold (call) or purchased (put) and, as a result, bears the market risk of an unfavorable change in the price of the securities or other assets underlying the written option. The Fund may also bear the risk of not being able to enter into a closing transaction if a liquid secondary market does not exist.

J  Purchased Options — Upon the purchase of a call or put option, the premium paid by the Fund is included in the Statement of Assets and Liabilities as an investment. The amount of the investment is subsequently marked-to-market to reflect the current market value of the option purchased, in accordance with the Fund’s policies on investment valuations discussed above. As the purchaser of an index option, the Fund has the right to receive a cash payment equal to any depreciation in the value of the index below the strike price of the option (in the case of a put) or equal to any appreciation in the value of the index over the strike price of the option (in the case of a call) as of the valuation date of the option. If an option which the Fund had purchased expires on the stipulated expiration date, the Fund will realize a loss in the amount of the cost of the option. If the Fund enters into a closing sale transaction, the Fund will realize a gain or loss, depending on whether the sales proceeds from the closing sale transaction are greater or less than the cost of the option. If the Fund exercises a put option on a security, it will realize a gain or loss from the sale of the underlying security, and the proceeds from such sale will be decreased by the premium originally paid. If the Fund exercises a call option on a security, the cost of the security which the Fund purchases upon exercise will be increased by the premium originally paid. The risk associated with purchasing options is limited to the premium originally paid. Purchased options traded over-the-counter involve risk that the issuer or counterparty will fail to perform its contractual obligations.

2  Distributions to Shareholders and Income Tax Information

Subject to its Managed Distribution Plan, the Fund makes monthly distributions from its cash available for distribution, which consists of the Fund’s dividends and interest income after payment of Fund expenses, net option premiums and net realized and unrealized gains on stock investments. The Fund intends to distribute all or substantially all of its net realized capital gains (reduced by available capital loss carryforwards from prior years). Distributions 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

 

  14  

Eaton Vance

Risk-Managed Diversified Equity Income Fund

December 31, 2016

 

Notes to Financial Statements — continued

 

 

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 and current year earnings and profits attributable to realized gains are considered to be from ordinary income. Distributions in any year may include a substantial return of capital component.

The tax character of distributions declared for the years ended December 31, 2016 and December 31, 2015 was as follows:

 

    Year Ended December 31,  
     2016      2015  

Distributions declared from:

     

Ordinary income

   $ 5,920,985       $ 71,065,480   

Tax return of capital

   $ 65,131,475       $ —   

During the year ended December 31, 2016, accumulated net realized loss was decreased by $1,463,574, accumulated undistributed net investment income was decreased by $962,543 and paid-in capital was decreased by $501,031 due to differences between book and tax accounting, primarily for foreign currency gain (loss) and distributions from real estate investment trusts. These reclassifications had no effect on the net assets or net asset value per share of the Fund.

As of December 31, 2016, the components of distributable earnings (accumulated losses) on a tax basis were as follows:

 

Capital loss carryforwards and post October capital losses

   $ (190,581,265 ) 

Late year ordinary losses

   $ (5,011 ) 

Net unrealized appreciation

   $ 127,671,995   

The differences between components of distributable earnings (accumulated losses) on a tax basis and the amounts reflected in the Statement of Assets and Liabilities are primarily due to wash sales, options contracts and investments in partnerships.

At December 31, 2016, the Fund, for federal income tax purposes, had capital loss carryforwards of $189,481,522 which would reduce its taxable income arising from future net realized gains on investment transactions, if any, to the extent permitted by the Internal Revenue Code, and thus would reduce the amount of distributions to shareholders, which would otherwise be necessary to relieve the Fund of any liability for federal income or excise tax. Such capital loss carryforwards will expire on December 31, 2017 ($90,364,771) and December 31, 2018 ($99,116,751), and their character is short-term. 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 the 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 ordering rule, capital loss carryforwards may be more likely to expire unused.

During the year ended December 31, 2016, capital loss carryforwards of $501,031 were utilized to offset net realized gains by the Fund.

Additionally, at December 31, 2016, the Fund had a net capital loss of $1,099,743 attributable to security transactions incurred after October 31, 2016 that it has elected to defer. This net capital loss is treated as arising on the first day of the Fund’s taxable year ending December 31, 2017.

Additionally, at December 31, 2016, the Fund had a late year ordinary loss of $5,011, related to certain specified losses realized after October 31, 2016, which it has elected to defer to the following taxable year pursuant to income tax regulations.

The cost and unrealized appreciation (depreciation) of investments of the Fund at December 31, 2016, as determined on a federal income tax basis, were as follows:

 

Aggregate cost

   $ 506,617,523   

Gross unrealized appreciation

   $ 134,535,164   

Gross unrealized depreciation

     (6,870,723 ) 

Net unrealized appreciation

   $ 127,664,441   

 

  15  

Eaton Vance

Risk-Managed Diversified Equity Income Fund

December 31, 2016

 

Notes to Financial Statements — continued

 

 

3  Investment Adviser Fee and Other Transactions with Affiliates

The investment adviser fee is earned by EVM as compensation for management and investment advisory services rendered to the Fund. The fee is computed at an annual rate of 1.00% of the Fund’s average daily gross assets and is payable monthly. Gross assets as referred to herein represent net assets plus obligations attributable to investment leverage, if any. For the year ended December 31, 2016, the Fund’s investment adviser fee amounted to $6,566,191. The Fund invests its cash in Cash Reserves Fund. EVM does not currently receive a fee for advisory services provided to Cash Reserves Fund. EVM also serves as administrator of the Fund, but receives no compensation.

Trustees and officers of the Fund who are members of EVM’s organization receive remuneration for their services to the Fund out of the investment adviser fee. Trustees of the Fund who are not affiliated with EVM may elect to defer receipt of all or a percentage of their annual fees in accordance with the terms of the Trustees Deferred Compensation Plan. For the year ended December 31, 2016, no significant amounts have been deferred. Certain officers and Trustees of the Fund are officers of EVM.

4  Purchases and Sales of Investments

Purchases and sales of investments, other than short-term obligations, aggregated $516,310,725 and $629,083,287, respectively, for the year ended December 31, 2016.

5  Common Shares of Beneficial Interest

The Fund may issue common shares pursuant to its dividend reinvestment plan. There were no common shares issued by the Fund for the years ended December 31, 2016 and December 31, 2015.

The Board of Trustees of the Fund approved the continuation of the Fund’s share repurchase program that has been in effect since August 6, 2012. Pursuant to the terms of the reauthorization of the program, the Fund may repurchase up to 10% of its common shares outstanding as of September 30, 2013 in open market transactions at a discount to net asset value (NAV). The terms of the reauthorization increased the number of shares available for repurchase. The repurchase program does not obligate the Fund to purchase a specific amount of shares. There were no repurchases of common shares by the Fund for the year ended December 31, 2016. During the year ended December 31, 2015, the Fund repurchased 90,000 of its common shares under the share repurchase program at a cost, including brokerage commissions, of $966,414 and an average price per share of $10.74. The weighted average discount per share to NAV on these repurchases amounted to 11.20% for the year ended December 31, 2015.

6  Financial Instruments

The Fund may trade in financial instruments with off-balance sheet risk in the normal course of its investing activities. These financial instruments may include written options and forward foreign currency exchange contracts and may involve, to a varying degree, elements of risk in excess of the amounts recognized for financial statement purposes. The notional or contractual amounts of these instruments represent the investment the Fund has in particular classes of financial instruments and do not necessarily represent the amounts potentially subject to risk. The measurement of the risks associated with these instruments is meaningful only when all related and offsetting transactions are considered. A summary of obligations under these financial instruments at December 31, 2016 is included in the Portfolio of Investments. 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 December 31, 2016, the Fund had sufficient cash and/or securities to cover commitments under these contracts.

At December 31, 2016, there were no forward foreign currency exchange contracts outstanding.

Written options activity for the year ended December 31, 2016 was as follows:

 

     Number of
Contracts		      Premiums
Received		  

Outstanding, beginning of year

     3,313       $ 4,796,936   

Options written

     38,679         47,621,767   

Options terminated in closing purchase transactions

     (7,324 )       (9,597,679 ) 

Options exercised

     (8,721 )       (12,044,134 ) 

Options expired

     (23,246 )       (28,253,658 ) 

Outstanding, end of year

     2,701       $ 2,523,232   

 

  16  

Eaton Vance

Risk-Managed Diversified Equity Income Fund

December 31, 2016

 

Notes to Financial Statements — continued

 

 

In the normal course of pursuing its investment objectives, the Fund is subject to the following risks:

Equity Price Risk:  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.

Foreign Exchange Risk:  The Fund may hold foreign currency denominated investments. The value of these investments and related receivables and payables may change due to future changes in foreign currency exchange rates. To hedge against this risk, the Fund entered into forward foreign currency exchange contracts during the year ended December 31, 2016.

The Fund enters into forward foreign currency exchange contracts that may contain provisions whereby the counterparty may terminate the contract under certain conditions, including but not limited to a decline in the Fund’s net assets below a certain level over a certain period of time, which would trigger a payment by the Fund for those derivatives in a liability position. At December 31, 2016, the Fund had no open derivatives with credit-related contingent features in a net liability position.

The over-the-counter (OTC) derivatives in which the Fund invests (except for written options as the Fund, not the counterparty, is obligated to perform) are subject to the risk that the counterparty to the contract fails to perform its obligations under the contract. To mitigate this risk, the Fund has entered into an International Swaps and Derivatives Association, Inc. Master Agreement (“ISDA Master Agreement”) or similar agreement with substantially all its derivative counterparties. An ISDA Master Agreement is a bilateral agreement between the Fund and a counterparty that governs certain OTC derivatives and typically contains, among other things, set-off provisions in the event of a default and/or termination event as defined under the relevant ISDA Master Agreement. Under an ISDA Master Agreement, the Fund may, under certain circumstances, offset with the counterparty certain derivative financial instruments’ payables and/or receivables with collateral held and/or posted and create one single net payment. The provisions of the ISDA Master Agreement typically permit a single net payment in the event of default including the bankruptcy or insolvency of the counterparty. However, bankruptcy or insolvency laws of a particular jurisdiction may impose restrictions on or prohibitions against the right of offset in bankruptcy or insolvency. Certain ISDA Master Agreements allow counterparties to OTC derivatives to terminate derivative contracts prior to maturity in the event the Fund’s net assets decline by a stated percentage or the Fund fails to meet the terms of its ISDA Master Agreements, which would cause the counterparty to accelerate payment by the Fund of any net liability owed to it.

The collateral requirements for derivatives traded under an ISDA Master Agreement are governed by a Credit Support Annex to the ISDA Master Agreement. Collateral requirements are determined at the close of business each day and are typically based on changes in market values for each transaction under an ISDA Master Agreement and netted into one amount for such agreement. Generally, the amount of collateral due from or to a counterparty is subject to a minimum transfer threshold amount before a transfer is required, which may vary by counterparty. Collateral pledged for the benefit of the Fund and/or counterparty is held in segregated accounts by the Fund’s custodian and cannot be sold, re-pledged, assigned or otherwise used while pledged. The portion of such collateral representing cash, if any, is reflected as restricted cash and, in the case of cash pledged by a counterparty for the benefit of the Fund, a corresponding liability on the Statement of Assets and Liabilities. Securities pledged by the Fund as collateral, if any, are identified as such in the Portfolio of Investments.

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 December 31, 2016 was as follows:

 

    Fair Value  
Derivative   Asset Derivative(1)      Liability Derivative(2)  

Purchased options

   $ 2,288,284       $ —   

Written options

     —         (970,485 ) 

Total

   $ 2,288,284       $ (970,485 ) 

 

(1) 

Statement of Assets and Liabilities location: Unaffiliated investments, at value.

 

(2) 

Statement of Assets and Liabilities location: Written options outstanding, at value.

 

  17  

Eaton Vance

Risk-Managed Diversified Equity Income Fund

December 31, 2016

 

Notes to Financial Statements — continued

 

 

The effect of derivative instruments (not considered to be hedging instruments for accounting disclosure purposes) on the Statement of Operations by risk exposure for the year ended December 31, 2016 was as follows:

 

Risk   Derivative  

Realized Gain (Loss)

on Derivatives Recognized

in Income(1)

    

Change in Unrealized

Appreciation (Depreciation) on
Derivatives Recognized in Income(2)

  

Equity Price

  

Purchased options

   $ (31,433,269 )    $ 2,093,319  

Equity Price

  

Written options

     (14,786,208 )      (361,587 ) 

Foreign Exchange

  

Forward foreign currency exchange contracts

     (182,227 )      —  

Total

       $ (46,401,704 )    $ 1,731,732  

 

(1) 

Statement of Operations location: Net realized gain (loss) – Investment transactions, Written options, and Foreign currency and forward foreign currency exchange contract transactions, respectively.

 

(2) 

Statement of Operations location: Change in unrealized appreciation (depreciation) – Investments and Written options, respectively.

The average notional amount of forward foreign currency exchange contracts outstanding during the year ended December 31, 2016, which is indicative of the volume of this derivative type, was approximately $545,000.

The average number of purchased options contracts outstanding during the year ended December 31, 2016, which is indicative of the volume of this derivative type, was 3,021 contracts.

7  Fair Value Measurements

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

 

•  

Level 1 – quoted prices in active markets for identical investments

 

•  

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

 

•  

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

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

At December 31, 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

   $ 630,355,631 *     $ —      $         —      $ 630,355,631  

Put Options Purchased

     2,288,284        —        —        2,288,284  

Short-Term Investments

     —        3,926,333        —        3,926,333  

Total Investments

   $ 632,643,915      $ 3,926,333      $ —      $ 636,570,248  

Liability Description

                                   

Call Options Written

   $ (970,485 )     $ —      $ —      $ (970,485 ) 

Total

   $ (970,485 )     $ —      $ —      $ (970,485 ) 

 

* The level classification by major category of investments is the same as the category presentation in the Portfolio of Investments.

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

 

  18  

Eaton Vance

Risk-Managed Diversified Equity Income Fund

December 31, 2016

 

Report of Independent Registered Public Accounting Firm

 

 

To the Trustees and Shareholders of Eaton Vance Risk-Managed Diversified Equity Income Fund:

We have audited the accompanying statement of assets and liabilities of Eaton Vance Risk-Managed Diversified Equity Income Fund (the “Fund”), including the portfolio of investments, as of December 31, 2016, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended. These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of December 31, 2016, by correspondence with the custodian and brokers; where replies were not received from brokers, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Eaton Vance Risk-Managed Diversified Equity Income Fund as of December 31, 2016, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America.

DELOITTE & TOUCHE LLP

Boston, Massachusetts

February 17, 2017

 

  19  

Eaton Vance

Risk-Managed Diversified Equity Income Fund

December 31, 2016

 

Federal Tax Information (Unaudited)

 

 

The Form 1099-DIV you received in February 2017 showed the tax status of all distributions paid to your account in calendar year 2016. Shareholders are advised to consult their own tax adviser with respect to the tax consequences of their investment in the Fund. As required by the Internal Revenue Code and/or regulations, shareholders must be notified regarding the status of qualified dividend income for individuals and the dividends received deduction for corporations.

Qualified Dividend Income.  For the fiscal year ended December 31, 2016, the Fund designates approximately $11,769,132, or up to the maximum amount of such dividends allowable pursuant to the Internal Revenue Code, as qualified dividend income eligible for the reduced tax rate of 15%.

Dividends Received Deduction.  Corporate shareholders are generally entitled to take the dividends received deduction on the portion of the Fund’s dividend distribution that qualifies under tax law. For the Fund’s fiscal 2016 ordinary income dividends, 100% qualifies for the corporate dividends received deduction.

 

  20  

Eaton Vance

Risk-Managed Diversified Equity Income Fund

December 31, 2016

 

Dividend Reinvestment Plan

 

 

The Fund offers a dividend reinvestment plan (Plan) pursuant to which shareholders may elect to have distributions automatically reinvested in common shares (Shares) of the Fund. You may elect to participate in the Plan by completing the Dividend Reinvestment Plan Application Form. If you do not participate, you will receive all distributions in cash paid by check mailed directly to you by American Stock Transfer & Trust Company, LLC (AST) as dividend paying agent. On the distribution payment date, if the NAV per Share is equal to or less than the market price per Share plus estimated brokerage commissions, then new Shares will be issued. The number of Shares shall be determined by the greater of the NAV per Share or 95% of the market price. Otherwise, Shares generally will be purchased on the open market by AST, the Plan agent (Agent). Distributions subject to income tax (if any) are taxable whether or not Shares are reinvested.

If your Shares are in the name of a brokerage firm, bank, or other nominee, you can ask the firm or nominee to participate in the Plan on your behalf. If the nominee does not offer the Plan, you will need to request that the Fund’s transfer agent re-register your Shares in your name or you will not be able to participate.

The Agent’s service fee for handling distributions will be paid by the Fund. Plan participants will be charged their pro rata share of brokerage commissions on all open-market purchases.

Plan participants may withdraw from the Plan at any time by writing to the Agent at the address noted on the following page. If you withdraw, you will receive Shares in your name for all Shares credited to your account under the Plan. If a participant elects by written notice to the Agent to sell part or all of his or her Shares and remit the proceeds, the Agent is authorized to deduct a $5.00 fee plus brokerage commissions from the proceeds.

If you wish to participate in the Plan and your Shares are held in your own name, you may complete the form on the following page and deliver it to the Agent. Any inquiries regarding the Plan can be directed to the Agent at 1-866-439-6787.

 

  21  

Eaton Vance

Risk-Managed Diversified Equity Income Fund

December 31, 2016

 

Application for Participation in Dividend Reinvestment Plan

 

 

 

This form is for shareholders who hold their common shares in their own names. If your common shares are held in the name of a brokerage firm, bank, or other nominee, you should contact your nominee to see if it will participate in the Plan on your behalf. If you wish to participate in the Plan, but your brokerage firm, bank, or nominee is unable to participate on your behalf, you should request that your common shares be re-registered in your own name which will enable your participation in the Plan.

The following authorization and appointment is given with the understanding that I may terminate it at any time by terminating my participation in the Plan as provided in the terms and conditions of the Plan.

 

 

Please print exact name on account

 

Shareholder signature                                                           Date

 

Shareholder signature                                                           Date

Please sign exactly as your common shares are registered. All persons whose names appear on the share certificate must sign.

YOU SHOULD NOT RETURN THIS FORM IF YOU WISH TO RECEIVE YOUR DISTRIBUTIONS IN CASH. THIS IS NOT A PROXY.

This authorization form, when signed, should be mailed to the following address:

Eaton Vance Risk-Managed Diversified Equity Income Fund

c/o American Stock Transfer & Trust Company, LLC

P.O. Box 922

Wall Street Station

New York, NY 10269-0560

 

 

Number of Employees

The Fund is organized as a Massachusetts business trust and is registered under the Investment Company Act of 1940, as amended, as a closed-end management investment company and has no employees.

Number of Shareholders

As of December 31, 2016, Fund records indicate that there are 13 registered shareholders and approximately 30,278 shareholders owning the Fund shares in street name, such as through brokers, banks, and financial intermediaries.

If you are a street name shareholder and wish to receive Fund reports directly, which contain important information about the Fund, please write or call:

Eaton Vance Distributors, Inc.

Two International Place

Boston, MA 02110

1-800-262-1122

New York Stock Exchange symbol

The New York Stock Exchange symbol is ETJ.

 

  22  

Eaton Vance

Risk-Managed Diversified Equity Income Fund

December 31, 2016

 

Management and Organization

 

 

Fund Management.  The Trustees of Eaton Vance Risk-Managed Diversified Equity Income Fund (the Fund) are responsible for the overall management and supervision of the Fund’s affairs. The Trustees and officers of the Fund are listed below. Except as indicated, each individual has held the office shown or other offices in the same company for the last five years. The “Noninterested Trustees” consist of those Trustees who are not “interested persons” of the Fund, as that term is defined under the 1940 Act. The business address of each Trustee and officer is Two International Place, Boston, Massachusetts 02110. As used below, “EVC” refers to Eaton Vance Corp., “EV” refers to Eaton Vance, Inc., “EVM” refers to Eaton Vance Management, “BMR” refers to Boston Management and Research, “EVMI” refers to Eaton Vance Management (International) Limited and “EVD” refers to Eaton Vance Distributors, Inc. EVC and EV are the corporate parent and trustee, respectively, of EVM and BMR. EVMI is an indirect, wholly-owned subsidiary of EVC. EVD is a wholly-owned subsidiary of EVC. Each officer affiliated with Eaton Vance may hold a position with other Eaton Vance affiliates that is comparable to his or her position with EVM listed below. Each Trustee oversees 177 portfolios in the Eaton Vance Complex (including all master and feeder funds in a master feeder structure). Each officer serves as an officer of certain other Eaton Vance funds. Each Trustee serves for a three year term. Each officer serves until his or her successor is elected.

 

Name and Year of Birth   

Position(s)

with the

Fund

     

Term Expiring;

Trustee
Since(1)

     

Principal Occupation(s) and Directorships

During Past Five Years and Other Relevant Experience

Interested Trustee

             

Thomas E. Faust Jr.

1958

   

Class I

Trustee

     

Until 2017.

Trustee since 2007.

     

Chairman, Chief Executive Officer and President of EVC, Director and President of EV, Chief Executive Officer and President of EVM and BMR, and Director of EVD and EVMI. Trustee and/or officer of 177 registered investment companies. Mr. Faust is an interested person because of his positions with EVM, BMR, EVD, EVMI, EVC and EV, which are affiliates of the Fund.

Directorships in the Last Five Years.(2) Director of EVC and Hexavest Inc. (investment management firm).

            

Noninterested Trustees

             

Scott E. Eston

1956

   

Class I

Trustee

     

Until 2017.

Trustee since 2011.

     

Private investor. Formerly held various positions at Grantham, Mayo, Van Otterloo and Co., LLC (investment management firm) (1997-2009), including Chief Operating Officer (2002-2009), Chief Financial Officer (1997-2009) and Chairman of the Executive Committee (2002-2008); President and Principal Executive Officer, GMO Trust (open-end registered investment company) (2006-2009). Former Partner, Coopers and Lybrand LLP (now PricewaterhouseCoopers) (a registered public accounting firm) (1987-1997). Mr. Eston has apprised the Board of Trustees that he intends to retire as a Trustee of all Eaton Vance funds effective September 30, 2017.

Directorships in the Last Five Years.(2) None.

Mark R. Fetting(3)

1954

   

Class III

Trustee

     

Until 2019.

Trustee since

2016.

     

Private investor. Formerly held various positions at Legg Mason, Inc. (investment management firm) (2000-2012), including President, Chief Executive Officer, Director and Chairman (2008-2012), Senior Executive Vice President (2004-2008) and Executive Vice President (2001-2004). Formerly, President of Legg Mason family of funds (2001-2008). Formerly, Division President and Senior Officer of Prudential Financial Group, Inc. and related companies (investment management firm) (1991-2000).

Directorships in the Last Five Years. Formerly, Director and Chairman of Legg Mason, Inc. (2008-2012); Director/Trustee and Chairman of Legg Mason family of funds (14 funds) (2008-2012); and Director/Trustee of the Royce family of funds (35 funds) (2001-2012).

Cynthia E. Frost

1961

   

Class I

Trustee

     

Until 2017.

Trustee since 2014.

     

Private investor. Formerly, Chief Investment Officer of Brown University (university endowment) (2000-2012); Portfolio Strategist for Duke Management Company (university endowment manager) (1995-2000); Managing Director, Cambridge Associates (investment consulting company) (1989-1995); Consultant, Bain and Company (management consulting firm) (1987-1989); Senior Equity Analyst, BA Investment Management Company (1983-1985).

Directorships in the Last Five Years. None.

George J. Gorman

1952

   

Class II

Trustee

     

Until 2018.

Trustee since 2014.

     

Principal at George J. Gorman LLC (consulting firm). Formerly, Senior Partner at Ernst & Young LLP (a registered public accounting firm) (1974-2009).

Directorships in the Last Five Years. Formerly, Trustee of the BofA Funds Series Trust (11 funds) (2011-2014) and of the Ashmore Funds (9 funds) (2010-2014).

 

  23  

Eaton Vance

Risk-Managed Diversified Equity Income Fund

December 31, 2016

 

Management and Organization — continued

 

 

Name and Year of Birth   

Position(s)

with the

Fund

     

Term Expiring;

Trustee
Since(1)

     

Principal Occupation(s) and Directorships

During Past Five Years and Other Relevant Experience

Noninterested Trustees (continued)

Valerie A. Mosley

1960

   

Class III

Trustee

     

Until 2019.

Trustee since 2014.

     

Chairwoman and Chief Executive Officer of Valmo Ventures (a consulting and investment firm). Former Partner and Senior Vice President, Portfolio Manager and Investment Strategist at Wellington Management Company, LLP (investment management firm) (1992-2012). Former Chief Investment Officer, PG Corbin Asset Management (1990-1992). Formerly worked in institutional corporate bond sales at Kidder Peabody (1986-1990).

Directorships in the Last Five Years.(2) Director of Dynex Capital, Inc. (mortgage REIT) (since 2013).

William H. Park

1947

    Chairperson of the Board and Class II Trustee     

Until 2018.

Chairperson of the Board since 2016 and Trustee since 2003.

     

Private investor. Formerly, Consultant (management and transactional) (2012-2014). Formerly, Chief Financial Officer, Aveon Group L.P. (investment management firm) (2010-2011). Formerly, Vice Chairman, Commercial Industrial Finance Corp. (specialty finance company) (2006-2010). Formerly, President and Chief Executive Officer, Prizm Capital Management, LLC (investment management firm) (2002-2005). Formerly, Executive Vice President and Chief Financial Officer, United Asset Management Corporation (investment management firm) (1982-2001). Formerly, Senior Manager, Price Waterhouse (now PricewaterhouseCoopers) (a registered public accounting firm) (1972-1981).

Directorships in the Last Five Years.(2) None.

Helen Frame Peters

1948

   

Class II

Trustee

     

Until 2018.

Trustee since 2008.

     

Professor of Finance, Carroll School of Management, Boston College. Formerly, Dean, Carroll School of Management, Boston College (2000-2002). Formerly, Chief Investment Officer, Fixed Income, Scudder Kemper Investments (investment management firm) (1998-1999). Formerly, Chief Investment Officer, Equity and Fixed Income, Colonial Management Associates (investment management firm) (1991-1998).

Directorships in the Last Five Years.(2) Formerly, Director of BJ’s Wholesale Club, Inc. (wholesale club retailer) (2004-2011). Formerly, Trustee of SPDR Index Shares Funds and SPDR Series Trust (exchange traded funds) (2000-2009). Formerly, Director of Federal Home Loan Bank of Boston (a bank for banks) (2007-2009).

Susan J. Sutherland

1957

   

Class II

Trustee

     

Until 2018.

Trustee since 2015.

     

Private investor. Formerly, Associate, Counsel and Partner at Skadden, Arps, Slate, Meagher & Flom LLP (law firm) (1982-2013).

Directorships in the Last Five Years. Formerly, Director of Montpelier Re Holdings Ltd. (global provider of customized insurance and reinsurance products) (2013-2015).

Harriett Tee Taggart

1948

   

Class III

Trustee

     

Until 2019.

Trustee since 2011.

     

Managing Director, Taggart Associates (a professional practice firm). Formerly, Partner and Senior Vice President, Wellington Management Company, LLP (investment management firm) (1983-2006).

Directorships in the Last Five Years.(2) Director of Albemarle Corporation (chemicals manufacturer) (since 2007) and The Hanover Group (specialty property and casualty insurance company) (since 2009). Formerly, Director of Lubrizol Corporation (specialty chemicals) (2007-2011).

Ralph F. Verni

1943

   

Class III

Trustee

     

Until 2019.

Trustee since 2005.

     

Consultant and private investor. Formerly, Chief Investment Officer (1982-1992), Chief Financial Officer (1988-1990) and Director (1982-1992), New England Life. Formerly, Chairperson, New England Mutual Funds (1982-1992). Formerly, President and Chief Executive Officer, State Street Management & Research (1992-2000). Formerly, Chairperson, State Street Research Mutual Funds (1992-2000). Formerly, Director, W.P. Carey, LLC (1998-2004) and First Pioneer Farm Credit Corp. (financial services cooperative) (2002-2006). Consistent with the Trustee retirement policy, Mr. Verni is currently expected to retire as a Trustee of all Eaton Vance funds effective July 1, 2017.

Directorships in the Last Five Years.(2) None.

Scott E. Wennerholm(3)

1959

   

Class I

Trustee

     

Until 2017.

Trustee since 2016.

     

Consultant at GF Parish Group (executive recruiting firm). Trustee at Wheelock College (postsecondary institution) (since 2012). Formerly, Chief Operating Officer and Executive Vice President at BNY Mellon Asset Management (investment management firm) (2005-2011). Formerly, Chief Operating Officer and Chief Financial Officer at Natixis Global Asset Management (investment management firm) (1997-2004). Formerly, Vice President at Fidelity Investments Institutional Services (investment management firm) (1994-1997).

Directorships in the Last Five Years. None.

 

  24  

Eaton Vance

Risk-Managed Diversified Equity Income Fund

December 31, 2016

 

Management and Organization — continued

 

 

Principal Officers who are not Trustees

Name and Year of Birth   

Position(s)

with the

Fund

      Officer
Since(4)		     

Principal Occupation(s)

During Past Five Years

Edward J. Perkin

1972

    President      2014      Vice President and Chief Equity Investment Officer of EVM and BMR. Prior to joining EVM in 2014, Mr. Perkin was Chief Investment Officer, International and Emerging Markets Equity, and Managing Director, Portfolio Manager, Europe, EAFE and Global, at Goldman Sachs Asset Management.

Maureen A. Gemma

1960

    Vice President, Secretary and Chief Legal Officer      2005      Vice President of EVM and BMR. Also Vice President of Calvert Research and Management (“CRM”).

James F. Kirchner

1967

    Treasurer      2007      Vice President of EVM and BMR. Also Vice President of CRM.

Paul M. O’Neil

1953

    Chief Compliance Officer      2004      Vice President of EVM and BMR.

 

(1) 

Year first appointed to serve as Trustee for a fund in the Eaton Vance family of funds. Each Trustee has served continuously since appointment unless indicated otherwise. Each Trustee holds office until the annual meeting for the year in which his or her term expires and until his or her successor is elected and qualified, subject to a prior death, resignation, retirement, disqualification or removal.

(2) 

During their respective tenures, the Trustees (except for Mmes. Frost and Sutherland and Messrs. Fetting, Gorman and Wennerholm) also served as Board members of one or more of the following funds (which operated in the years noted): eUnitsTM 2 Year U.S. Market Participation Trust: Upside to Cap / Buffered Downside (launched in 2012 and terminated in 2014); eUnitsTM 2 Year U.S. Market Participation Trust II: Upside to Cap / Buffered Downside (launched in 2012 and terminated in 2014); and Eaton Vance National Municipal Income Trust (launched in 1998 and terminated in 2009). However, Ms. Mosley did not serve as a Board member of eUnitsTM 2 Year U.S. Market Participation Trust: Upside to Cap / Buffered Downside (launched in 2012 and terminated in 2014).

(3) 

Messrs. Fetting and Wennerholm began serving as Trustees effective September 1, 2016.

(4) 

Year first elected to serve as officer of a fund in the Eaton Vance family of funds when the officer has served continuously. Otherwise, year of most recent election as an officer of a fund in the Eaton Vance family of funds. Titles may have changed since initial election.

 

  25  

Eaton Vance Funds

 

IMPORTANT NOTICES

 

 

Privacy.  The Eaton Vance organization is committed to ensuring your financial privacy. Each of the financial institutions identified below has in effect the following policy (“Privacy Policy”) with respect to nonpublic personal information about its customers:

 

•  

Only such information received from you, through application forms or otherwise, and information about your Eaton Vance fund transactions will be collected. This may include information such as name, address, social security number, tax status, account balances and transactions.

 

•  

None of such information about you (or former customers) will be disclosed to anyone, except as permitted by law (which includes disclosure to employees necessary to service your account). In the normal course of servicing a 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.

 

•  

Policies and procedures (including physical, electronic and procedural safeguards) are in place that are designed to protect the confidentiality of such information.

 

•  

We reserve the right to change our Privacy Policy at any time upon proper notification to you. Customers may want to review our Privacy Policy periodically for changes by accessing the link on our homepage: www.eatonvance.com.

Our pledge of privacy applies to the following entities within the Eaton Vance organization: the Eaton Vance Family of Funds, Eaton Vance Management, Eaton Vance Investment Counsel, Eaton Vance Distributors, Inc., Eaton Vance Trust Company, Eaton Vance Management (International) Limited, 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. American Stock Transfer and Trust Company, LLC (“AST”), the closed-end funds transfer agent, or your financial advisor, may household the mailing of your documents indefinitely unless you instruct AST, or your financial advisor, otherwise. If you would prefer that your Eaton Vance documents not be householded, please contact AST or your financial advisor. Your instructions that householding not apply to delivery of your Eaton Vance documents will typically be effective within 30 days of receipt by AST 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 Fund’s Board of Trustees has approved a share repurchase program authorizing the 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 the Fund to purchase a specific amount of shares. The Fund’s repurchase activity, including the number of shares purchased, average price and average discount to net asset value, is disclosed in the Fund’s annual and semi-annual reports to shareholders.

Additional Notice to Shareholders.  If applicable, a Fund may also redeem or purchase its outstanding preferred shares in order to maintain compliance with regulatory requirements, borrowing or rating agency requirements or for other purposes as it deems appropriate or necessary.

Closed-End Fund Information.  Eaton Vance closed-end funds make fund performance data and certain information about portfolio characteristics available on the Eaton Vance website shortly after the end of each month. Other information about the funds is available on the website. The funds’ net asset value per share is readily accessible on the Eaton Vance website. Portfolio holdings for the most recent month-end are also posted to the website approximately 30 days following the end of the month. This information is available at www.eatonvance.com on the fund information pages under “Individual Investors — Closed-End Funds”.

 

  26  

 

 

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Investment Adviser and Administrator

Eaton Vance Management

Two International Place

Boston, MA 02110

Custodian

State Street Bank and Trust Company

State Street Financial Center, One Lincoln Street

Boston, MA 02111

Transfer Agent

American Stock Transfer & Trust Company, LLC

6201 15th Avenue

Brooklyn, NY 11219

Independent Registered Public Accounting Firm

Deloitte & Touche LLP

200 Berkeley Street

Boston, MA 02116-5022

Fund Offices

Two International Place

Boston, MA 02110

 

LOGO

3079    12.31.16

Item 2. Code of Ethics

The registrant has adopted a code of ethics applicable to its Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer. The registrant undertakes to provide a copy of such code of ethics to any person upon request, without charge, by calling 1-800-262-1122. The registrant has amended the code of ethics as described in Form N-CSR during the period covered by this report to make clarifying changes consistent with Rule 21F-17 of the Securities Exchange Act of 1934, as amended. The registrant has not granted any waiver, including an implicit waiver, from a provision of the code of ethics as described in Form N-CSR during the period covered by this report.

Item 3. Audit Committee Financial Expert

The registrant’s Board has designated William H. Park, an independent trustee, as its audit committee financial expert. Mr. Park is a certified public accountant who is a private investor. Previously, he served as a consultant, as the Chief Financial Officer of Aveon Group, L.P. (an investment management firm), as the Vice Chairman of Commercial Industrial Finance Corp. (specialty finance company), as President and Chief

Executive Officer of Prizm Capital Management, LLC (investment management firm), as Executive Vice President and Chief Financial Officer of United Asset Management Corporation (an institutional investment management firm) and as a Senior Manager at Price Waterhouse (now PricewaterhouseCoopers) (an independent registered public accounting firm).

Item 4. Principal Accountant Fees and Services

Rule 2-01(c)(1)(ii)(A) of Regulation S-X (the “Loan Rule”) prohibits an accounting firm, such as the Fund’s principal accountant, Deloitte & Touche LLP (“D&T”), from having certain financial relationships with their audit clients and affiliated entities. Specifically, the Loan Rule provides, in relevant part, that an accounting firm generally would not be independent if it receives a loan from a lender that is a “record or beneficial owner of more than ten percent of the audit client’s equity securities.” Based on information provided to the Audit Committee of the Board of Trustees (the “Audit Committee”) of the Eaton Vance family of funds by D&T, certain relationships between D&T and its affiliates (“Deloitte Entities”) and its lenders who are record owners of shares of one or more funds within the Eaton Vance family of funds (the “Funds”) implicate the Loan Rule, calling into question D&T’s independence with respect to the Funds. The Funds are providing this disclosure to explain the facts and circumstances as well as D&T’s conclusions concerning D&T’s objectivity and impartiality with respect to the audits of the Funds.

D&T advised the Audit Committee of its conclusion that, in light of the facts surrounding its lending relationships, D&T’s objectivity and impartiality in the planning and conduct of the audits of the Funds financial statements will not be compromised, D&T is in a position to continue as the auditor for the Funds and no actions need to be taken with respect to previously issued reports by D&T. D&T has advised the Audit Committee that these conclusions were based in part on the following considerations: (1) Deloitte Entity personnel responsible for managing the lending relationships have had no interactions with the audit engagement team; (2) the lending relationships are in good standing and the principal and interest payments are up-to-date; (3) the lending relationships are not significant to the Deloitte Entities or to D&T.

On June 20, 2016, the U.S. Securities and Exchange Commission (the “SEC”) issued no-action relief to another mutual fund complex (see Fidelity Management & Research Company et al., No-Action Letter (June 20, 2016) (the “No-Action Letter”)) related to the auditor independence issue described above. In the No-Action Letter, the SEC indicated that it would not recommend enforcement action against the fund group if the auditor is not in compliance with the Loan Rule provided that: (1) the auditor has complied with PCAOB Rule 3526(b)(1) and 3526(b)(2); (2) the auditor’s non-compliance under the Loan Rule is with respect to certain lending relationships; and (3) notwithstanding such non-compliance, the auditor has concluded that it is objective and impartial with respect to the issues encompassed within its engagement as auditor of the funds. Based on information provided by D&T, the requirements of the No-Action Letter appear to be met with respect to D&T’s lending relationships described above. After giving consideration to the guidance provided in the No-Action Letter, D&T affirmed to the Audit Committee that D&T is an independent accountant with respect to the Funds within the meaning of the rules and standards of the PCAOB and the securities laws and regulations administered by the SEC. The SEC has indicated that the no-action relief will expire 18 months from its issuance.

(a) –(d)

The following table presents the aggregate fees billed to the registrant for the registrant’s fiscal years ended December 31, 2015 and December 31, 2016 by D&T for professional services rendered for the audit of the registrant’s annual financial statements and fees billed for other services rendered by D&T during such periods.

Fiscal Years Ended

    12/31/15      12/31/16  

Audit Fees

    $ 49,000      $ 49,850  

Audit-Related Fees(1)

    $ 0      $ 0  

Tax Fees(2)

    $ 10,393      $ 11,997  

All Other Fees(3)

    $ 0      $ 0  
  

 

 

     

 

 

  

Total

    $ 59,393      $ 61,847  
  

 

 

     

 

 

  

 

(1)  Audit-related fees consist of the aggregate fees billed for assurance and related services that are reasonably related to the performance of the audit of financial statements and are not reported under the category of audit fees.
(2)  Tax fees consist of the aggregate fees billed for professional services rendered by the principal accountant relating to tax compliance, tax advice, and tax planning and specifically include fees for tax return preparation and other related tax compliance/planning matters.
(3)  All other fees consist of the aggregate fees billed for products and services provided by the principal accountant other than audit, audit-related, and tax services.

(e)(1) The registrant’s audit committee has adopted policies and procedures relating to the pre-approval of services provided by the registrant’s principal accountant (the “Pre-Approval Policies”). The Pre-Approval Policies establish a framework intended to assist the audit committee in the proper discharge of its pre-approval responsibilities. As a general matter, the Pre-Approval Policies (i) specify certain types of audit, audit-related, tax, and other services determined to be pre-approved by the audit committee; and (ii) delineate specific procedures governing the mechanics of the pre-approval process, including the approval and monitoring of audit and non-audit service fees. Unless a service is specifically pre-approved under the Pre-Approval Policies, it must be separately pre-approved by the audit committee.

The Pre-Approval Policies and the types of audit and non-audit services pre-approved therein must be reviewed and ratified by the registrant’s audit committee at least annually. The registrant’s audit committee maintains full responsibility for the appointment, compensation, and oversight of the work of the registrant’s principal accountant.

(e)(2) No services described in paragraphs (b)-(d) above were approved by the registrant’s audit committee pursuant to the “de minimis exception” set forth in Rule 2-01(c)(7)(i)(C) of Regulation S-X.

(f) Not applicable.

(g) The following table presents (i) the aggregate non-audit fees (i.e., fees for audit-related, tax, and other services) billed to the registrant by D&T for the registrant’s fiscal years ended December 31, 2015 and December 31, 2016; and (ii) the aggregate non-audit fees (i.e., fees for audit-related, tax, and other services) billed to the Eaton Vance organization by D&T for the same time periods.

 

Fiscal Years Ended

    12/31/15      12/31/16  

Registrant

    $ 10,393      $ 11,997  

Eaton Vance(1)

    $ 56,434      $ 46,000  

 

(1)  The investment adviser to the registrant, as well as any of its affiliates that provide ongoing services to the registrant, are subsidiaries of Eaton Vance Corp.

(h) The registrant’s audit committee has considered whether the provision by the registrant’s principal accountant of non-audit services to the registrant’s investment adviser and any entity controlling, controlled by, or under common control with the adviser that provides ongoing services to the registrant that were not pre-approved pursuant to Rule 2-01(c)(7)(ii) of Regulation S-X is compatible with maintaining the principal accountant’s independence.

Item 5. Audit Committee of Listed Registrants

The registrant has a separately-designated standing audit committee established in accordance with Section 3(a)(58)(A) of the Securities and Exchange Act of 1934, as amended. Ralph F. Verni (Chair), Scott E. Eston, George J. Gorman, William H. Park and Scott E. Wennerholm are the members of the registrant’s audit committee.

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

The Board of Trustees of the Trust has adopted a proxy voting policy and procedure (the “Fund Policy”), pursuant to which the Trustees have delegated proxy voting responsibility to the Fund’s investment adviser and adopted the investment adviser’s proxy voting policies and procedures (the “Policies”) which are described below. The Trustees will review the Fund’s proxy voting records from time to time and will annually consider approving the Policies for the upcoming year. In the event that a conflict of interest arises between the Fund’s shareholders and the investment adviser, the administrator, or any of their affiliates or any affiliate of the Fund, the investment adviser will generally refrain from voting the proxies related to the companies giving rise to such conflict until it consults with the Board’s Special Committee except as contemplated under the Fund Policy. The Board’s Special Committee will instruct the investment adviser on the appropriate course of action.

The Policies are designed to promote accountability of a company’s management to its shareholders and to align the interests of management with those shareholders. An independent proxy voting service (“Agent”), currently Institutional Shareholder Services, Inc., has been retained to assist in the voting of proxies through the provision of vote analysis, implementation and recordkeeping and disclosure services. The investment adviser will generally vote proxies through the Agent. The Agent is required to vote all proxies and/or refer them back to the investment adviser pursuant to the Policies. It is generally the policy of the investment adviser to vote in accordance with the recommendation of the Agent. The Agent shall refer to the investment adviser proxies relating to mergers and restructurings, and the disposition of assets, termination, liquidation and mergers contained in mutual fund proxies. The investment adviser will normally vote against anti-takeover measures and other proposals designed to limit the ability of shareholders to act on possible transactions, except in the case of closed-end management investment companies. The investment adviser generally supports management on social and environmental proposals. The investment adviser may abstain from voting from time to time where it determines that the costs associated with voting a proxy outweighs the benefits derived from exercising the right to vote or the economic effect on shareholders interests or the value of the portfolio holding is indeterminable or insignificant.

In addition, the investment adviser will monitor situations that may result in a conflict of interest between the Fund’s shareholders and the investment adviser, the administrator, or any of their affiliates or any affiliate of the Fund by maintaining a list of significant existing and prospective corporate clients. The investment adviser’s personnel responsible for reviewing and voting proxies on behalf of the Fund will report any proxy received or expected to be received from a company included on that list to the personnel of the investment adviser

identified in the Policies. If such personnel expects to instruct the Agent to vote such proxies in a manner inconsistent with the guidelines of the Policies or the recommendation of the Agent, the personnel will consult with members of senior management of the investment adviser to determine if a material conflict of interests exists. If it is determined that a material conflict does exist, the investment adviser will seek instruction on how to vote from the Special Committee.

Information on how the Fund voted proxies relating to portfolio securities during the most recent 12 month period ended June 30 is available (1) without charge, upon request, by calling 1-800-262-1122, and (2) on the Securities and Exchange Commission’s website at http://www.sec.gov.

Item 8. Portfolio Managers of Closed-End Management Investment Companies

Eaton Vance Management (“EVM” or “Eaton Vance”) is the investment adviser of the Fund. Michael A. Allison and Kevin J. Amell comprise the investment team responsible for the overall and day-to-day management of the Fund’s investments.

Mr. Allison is a Vice President of EVM, is a member of EVM’s Equity Strategy Committee and has been a portfolio manager of the Fund since July 2007. Mr. Allison has managed other Eaton Vance portfolios for more than five years. Mr. Amell is a Vice President of EVM and has been a portfolio manager of the Fund since October 2012. This information is provided as of the date of filing this report.

The following table shows, as of the Fund’s most recent fiscal year end, the number of accounts each portfolio manager managed in each of the listed categories and the total assets (in millions of dollars) in the accounts managed within each category. The table also shows the number of accounts with respect to which the advisory fee is based on the performance of the account, if any, and the total assets (in millions of dollars) in those accounts.

 

     Number of
All
Accounts		      Total Assets of
All
Accounts		     Number of
Accounts
Paying a
Performance Fee		      Total Assets
of Accounts
Paying
a Performance
Fee		  

Michael A. Allison

           

Registered Investment Companies

      15      $ 25,774.5       0      $ 0  

Other Pooled Investment Vehicles

      14      $ 12,705.4 (1)      0      $ 0  

Other Accounts

      17      $ 42.0       0      $ 0  

Kevin J. Amell

           

Registered Investment Companies

      1      $ 635.6       0      $ 0  

Other Pooled Investment Vehicles

      0      $ 0       0      $ 0  

Other Accounts

      0      $ 0       0      $ 0  

 

(1)  Certain of these “Other Pooled Investment Vehicles” invest a substantial portion of their assets either in a registered investment company or in a separate pooled investment vehicle managed by this portfolio manager or another Eaton Vance portfolio manager.

The following table shows the dollar range of Fund shares beneficially owned by each portfolio manager as of the Fund’s most recent fiscal year end.

 

Portfolio Manager

    Dollar Range of Equity Securities
Beneficially Owned in the Fund

Michael A. Allison

    $10,001-$50,000

Kevin J. Amell

    None

Potential for Conflicts of Interest. It is possible that conflicts of interest may arise in connection with a portfolio manager’s management of the Fund’s investments on the one hand and the investments of other accounts for which a portfolio manager is responsible on the other. For example, a portfolio manager may have conflicts of interest in allocating management time, resources and investment opportunities among the Fund and other accounts he advises. In addition, due to differences in the investment strategies or restrictions between the Fund and the other accounts, the portfolio manager may take action with respect to another account that differs from the action taken with respect to the Fund. In some cases, another account managed by a portfolio manager may compensate the investment adviser based on the performance of the securities held by that account. The existence of such a performance based fee may create additional conflicts of interest for the portfolio manager in the allocation of management time, resources and investment opportunities. Whenever conflicts of interest arise, the portfolio manager will endeavor to exercise his discretion in a manner that he believes is equitable to all interested persons. EVM has adopted several policies and procedures designed to address these potential conflicts including a code of ethics and policies that govern the investment adviser’s trading practices, including among other things the aggregation and allocation of trades among clients, brokerage allocations, cross trades and best execution.

Compensation Structure for EVM

Compensation of EVM’s portfolio managers and other investment professionals has three primary components: (1) a base salary, (2) an annual cash bonus, and (3) annual stock-based compensation consisting of options to purchase shares of Eaton Vance Corp.’s (“EVC’s”) nonvoting common stock and restricted shares of EVC’s nonvoting common stock. EVM’s investment professionals also receive certain retirement, insurance and other benefits that are broadly available to EVM’s employees. Compensation of EVM’s investment professionals is reviewed primarily on an annual basis. Cash bonuses, stock-based compensation awards, and adjustments in base salary are typically paid or put into effect at or shortly after the October 31st fiscal year end of EVC.

Method to Determine Compensation. EVM compensates its portfolio managers based primarily on the scale and complexity of their portfolio responsibilities and the total return performance of managed funds and accounts versus the benchmark(s) stated in the prospectus, as well as an appropriate peer group (as described below). In addition to rankings within peer groups of funds on the basis of absolute performance, consideration may also be given to relative risk-adjusted performance. Risk-adjusted performance measures include, but are not limited to, the Sharpe ratio (Sharpe ratio uses standard deviation and excess return to determine reward per unit of risk). Performance is normally based on periods ending on the September 30th preceding fiscal year end. Fund performance is normally evaluated primarily versus peer groups of funds as determined by Lipper Inc. and/or Morningstar, Inc. When a fund’s peer group as determined by Lipper or Morningstar is deemed by EVM’s management not to provide a fair comparison, performance may instead be evaluated primarily against a custom peer group or market index. In evaluating the performance of a fund and its manager, primary emphasis is normally placed on three-year performance, with secondary consideration of performance over longer and shorter periods. A portion of the compensation payable to equity portfolio managers and investment professionals will be determined based on the ability of one or more accounts managed by such manager to

achieve a specified target average annual gross return over a three year period in excess of the account benchmark. The cash bonus to be payable at the end of the three year term will be established at the inception of the term and will be adjusted positively or negatively to the extent that the average annual gross return varies from the specified target return. For funds that are tax-managed or otherwise have an objective of after-tax returns, performance is measured net of taxes. For other funds, performance is evaluated on a pre-tax basis. For funds with an investment objective other than total return (such as current income), consideration will also be given to the fund’s success in achieving its objective. For managers responsible for multiple funds and accounts, investment performance is evaluated on an aggregate basis, based on averages or weighted averages among managed funds and accounts. Funds and accounts that have performance-based advisory fees are not accorded disproportionate weightings in measuring aggregate portfolio manager performance.

The compensation of portfolio managers with other job responsibilities (such as heading an investment group or providing analytical support to other portfolios) will include consideration of the scope of such responsibilities and the managers’ performance in meeting them.

EVM seeks to compensate portfolio managers commensurate with their responsibilities and performance, and competitive with other firms within the investment management industry. EVM participates in investment-industry compensation surveys and utilizes survey data as a factor in determining salary, bonus and stock-based compensation levels for portfolio managers and other investment professionals. Salaries, bonuses and stock-based compensation are also influenced by the operating performance of EVM and its parent company. The overall annual cash bonus pool is generally based on a substantially fixed percentage of pre-bonus adjusted operating income. While the salaries of EVM’s portfolio managers are comparatively fixed, cash bonuses and stock-based compensation may fluctuate significantly from year to year, based on changes in manager performance and other factors as described herein. For a high performing portfolio manager, cash bonuses and stock-based compensation may represent a substantial portion of total compensation.

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.
(c)   Registrant’s notices to shareholders pursuant to Registrant’s exemptive order granting an exemption from Section 19(b) of the 1940 Act and Rule 19b-1 thereunder regarding distributions paid pursuant to the Registrant’s Managed Distribution Plan.

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/ Edward J. Perkin

  Edward J. Perkin
  President

Date: February 27, 2017

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: February 27, 2017

 

By:  

/s/ Edward J. Perkin

  Edward J. Perkin
  President

Date: February 27, 2017