Eaton Vance Risk-Managed Diversified Equity Income Fund

 

 

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form N-Q

QUARTERLY SCHEDULE OF PORTFOLIO HOLDINGS OF REGISTERED

MANAGEMENT INVESTMENT COMPANIES

811-22044

Investment Company Act File Number

Eaton Vance Risk-Managed Diversified Equity Income Fund

(Exact Name of Registrant as Specified in Charter)

Two International Place, Boston, Massachusetts 02110

(Address of Principal Executive Offices)

Maureen A. Gemma

Two International Place, Boston, Massachusetts 02110

(Name and Address of Agent for Services)

(617) 482-8260

(Registrant’s Telephone Number, Including Area Code)

December 31

Date of Fiscal Year End

March 31, 2014

Date of Reporting Period

 

 

 


Item 1. Schedule of Investments


Eaton Vance

Risk-Managed Diversified Equity Income Fund

March 31, 2014

PORTFOLIO OF INVESTMENTS (Unaudited)

Common Stocks — 99.6%

 

                                                 
Security    Shares      Value  

Aerospace & Defense — 2.6%

  

Boeing Co. (The)

     98,873       $ 12,407,573   

United Technologies Corp.

     71,615         8,367,496   
     

 

 

 
      $ 20,775,069   
     

 

 

 

Air Freight & Logistics — 0.9%

  

C.H. Robinson Worldwide, Inc.

     142,934       $ 7,488,312   
     

 

 

 
      $ 7,488,312   
     

 

 

 

Automobiles — 0.6%

  

Honda Motor Co., Ltd.

     147,278       $ 5,182,220   
     

 

 

 
      $ 5,182,220   
     

 

 

 

Banks — 9.4%

  

Bank of America Corp.

     889,559       $ 15,300,415   

Citigroup, Inc.

     282,112         13,428,531   

JPMorgan Chase & Co.

     295,261         17,925,295   

PNC Financial Services Group, Inc.

     115,903         10,083,561   

Regions Financial Corp.

     925,813         10,285,783   

SunTrust Banks, Inc.

     230,852         9,185,601   
     

 

 

 
      $ 76,209,186   
     

 

 

 

Beverages — 1.1%

  

Constellation Brands, Inc., Class A(1)

     107,351       $ 9,121,614   
     

 

 

 
      $ 9,121,614   
     

 

 

 

Biotechnology — 4.7%

  

Biogen Idec, Inc.(1)

     6,001       $ 1,835,526   

Celgene Corp.(1)

     99,695         13,917,422   

Gilead Sciences, Inc.(1)

     310,545         22,005,219   
     

 

 

 
      $ 37,758,167   
     

 

 

 

Capital Markets — 1.6%

  

Charles Schwab Corp. (The)

     181,726       $ 4,966,571   

Morgan Stanley

     254,457         7,931,425   
     

 

 

 
      $ 12,897,996   
     

 

 

 

Chemicals — 3.7%

  

LyondellBasell Industries NV, Class A

     111,450       $ 9,912,363   

Monsanto Co.

     156,779         17,836,747   

PPG Industries, Inc.

     13,561         2,623,511   
     

 

 

 
      $ 30,372,621   
     

 

 

 

Communications Equipment — 2.7%

  

QUALCOMM, Inc.

     174,834       $ 13,787,409   

Telefonaktiebolaget LM Ericsson, Class B

     632,549         8,436,521   
     

 

 

 
   $ 22,223,930   
     

 

 

 

 

1

 

 


                                                 
Security    Shares      Value  

Consumer Finance — 2.1%

     

American Express Co.

     71,694       $ 6,454,611   

Discover Financial Services

     178,276         10,373,880   
     

 

 

 
   $ 16,828,491   
     

 

 

 

Diversified Telecommunication Services — 2.4%

     

AT&T, Inc.

     195,286       $ 6,848,680   

Verizon Communications, Inc.

     269,548         12,822,398   
     

 

 

 
   $ 19,671,078   
     

 

 

 

Electric Utilities — 1.9%

     

Duke Energy Corp.

     65,511       $ 4,665,693   

Edison International

     103,463         5,857,041   

NextEra Energy, Inc.

     52,252         4,996,336   
     

 

 

 
   $ 15,519,070   
     

 

 

 

Electrical Equipment — 2.9%

     

Emerson Electric Co.

     210,973       $ 14,092,996   

Rockwell Automation, Inc.

     77,231         9,619,121   
     

 

 

 
   $ 23,712,117   
     

 

 

 

Electronic Equipment, Instruments & Components — 2.2%

     

Corning, Inc.

     862,811       $ 17,963,725   
     

 

 

 
   $ 17,963,725   
     

 

 

 

Energy Equipment & Services — 0.5%

     

FMC Technologies, Inc.(1)

     84,035       $ 4,394,190   
     

 

 

 
   $ 4,394,190   
     

 

 

 

Food & Staples Retailing — 1.5%

     

Costco Wholesale Corp.

     110,320       $ 12,320,538   
     

 

 

 
   $ 12,320,538   
     

 

 

 

Food Products — 3.6%

     

Hershey Co. (The)

     118,029       $ 12,322,227   

Mondelez International, Inc., Class A

     480,185         16,590,392   
     

 

 

 
   $ 28,912,619   
     

 

 

 

Health Care Equipment & Supplies — 2.3%

     

Abbott Laboratories

     273,662       $ 10,538,724   

Covidien PLC

     114,791         8,455,505   
     

 

 

 
   $ 18,994,229   
     

 

 

 

Health Care Providers & Services — 1.1%

     

Express Scripts Holding Co.(1)

     118,586       $ 8,904,623   
     

 

 

 
      $ 8,904,623   
     

 

 

 

Hotels, Restaurants & Leisure — 1.0%

     

McDonald’s Corp.

     81,526       $ 7,991,994   
     

 

 

 
      $ 7,991,994   
     

 

 

 

Household Durables — 0.7%

     

Mohawk Industries, Inc.(1)

     43,060       $ 5,855,299   
     

 

 

 
      $ 5,855,299   
     

 

 

 

Industrial Conglomerates — 1.7%

     

Danaher Corp.

     186,467       $ 13,985,025   
     

 

 

 
      $ 13,985,025   
     

 

 

 

 

2

 

 


                                                 
Security    Shares      Value  

Insurance — 2.6%

     

ACE, Ltd.

     44,948       $ 4,452,549   

Aflac, Inc.

     154,957         9,768,489   

MetLife, Inc.

     123,374         6,514,147   
     

 

 

 
      $ 20,735,185   
     

 

 

 

Internet & Catalog Retail — 2.6%

     

Amazon.com, Inc.(1)

     43,395       $ 14,603,285   

Netflix, Inc.(1)

     17,586         6,190,800   
     

 

 

 
      $ 20,794,085   
     

 

 

 

Internet Software & Services — 6.9%

     

eBay, Inc.(1)

     215,191       $ 11,887,151   

Facebook, Inc., Class A(1)

     222,007         13,373,701   

Google, Inc., Class A(1)

     27,898         31,092,600   
     

 

 

 
      $ 56,353,452   
     

 

 

 

IT Services — 2.2%

     

Accenture PLC, Class A

     75,713       $ 6,035,841   

Visa, Inc., Class A

     53,170         11,477,276   
     

 

 

 
      $ 17,513,117   
     

 

 

 

Machinery — 2.2%

     

Caterpillar, Inc.

     87,303       $ 8,675,299   

Deere & Co.

     104,137         9,455,640   
     

 

 

 
      $ 18,130,939   
     

 

 

 

Media — 2.7%

     

Lions Gate Entertainment Corp.

     240,138       $ 6,418,889   

Walt Disney Co. (The)

     191,418         15,326,839   
     

 

 

 
      $ 21,745,728   
     

 

 

 

Metals & Mining — 0.5%

     

Freeport-McMoRan Copper & Gold, Inc.

     125,922       $ 4,164,241   
     

 

 

 
      $ 4,164,241   
     

 

 

 

Multi-Utilities — 0.8%

     

Sempra Energy

     69,500       $ 6,724,820   
     

 

 

 
      $ 6,724,820   
     

 

 

 

Multiline Retail — 2.1%

     

Dollar General Corp.(1)

     124,000       $ 6,879,520   

Macy’s, Inc.

     164,626         9,760,676   
     

 

 

 
      $ 16,640,196   
     

 

 

 

Oil, Gas & Consumable Fuels — 9.9%

     

Anadarko Petroleum Corp.

     42,382       $ 3,592,298   

Chevron Corp.

     146,102         17,372,989   

Concho Resources, Inc.(1)

     43,355         5,310,988   

EOG Resources, Inc.

     20,321         3,986,371   

Exxon Mobil Corp.

     171,174         16,720,276   

Occidental Petroleum Corp.

     177,834         16,945,802   

Phillips 66

     121,022         9,325,955   

Range Resources Corp.

     80,955         6,716,836   
     

 

 

 
      $ 79,971,515   
     

 

 

 

 

3

 

 


                                                 
Security    Shares      Value  

Pharmaceuticals — 5.7%

     

Johnson & Johnson

     76,271       $ 7,492,100   

Merck & Co., Inc.

     352,519         20,012,504   

Roche Holding AG PC

     28,692         8,629,511   

Shire PLC ADR

     70,041         10,403,190   
     

 

 

 
      $ 46,537,305   
     

 

 

 

Real Estate Investment Trusts (REITs) — 1.7%

     

AvalonBay Communities, Inc.

     51,239       $ 6,728,705   

Simon Property Group, Inc.

     41,148         6,748,272   
     

 

 

 
      $ 13,476,977   
     

 

 

 

Semiconductors & Semiconductor Equipment — 1.6%

     

NXP Semiconductors NV(1)

     223,944       $ 13,170,147   
     

 

 

 
      $ 13,170,147   
     

 

 

 

Software — 1.0%

     

Microsoft Corp.

     204,298       $ 8,374,175   
     

 

 

 
      $ 8,374,175   
     

 

 

 

Specialty Retail — 1.9%

     

AutoNation, Inc.(1)

     123,999       $ 6,600,467   

Home Depot, Inc. (The)

     108,846         8,612,984   
     

 

 

 
      $ 15,213,451   
     

 

 

 

Technology Hardware, Storage & Peripherals — 2.5%

     

Apple, Inc.

     38,492       $ 20,660,196   
     

 

 

 
      $ 20,660,196   
     

 

 

 

Textiles, Apparel & Luxury Goods — 0.6%

     

NIKE, Inc., Class B

     62,675       $ 4,629,176   
     

 

 

 
      $ 4,629,176   
     

 

 

 

Thrifts & Mortgage Finance — 0.1%

     

Federal National Mortgage Association(1)

     209,655       $ 817,655   
     

 

 

 
      $ 817,655   
     

 

 

 

Tobacco — 0.8%

     

Altria Group, Inc.

     168,819       $ 6,318,895   
     

 

 

 
      $ 6,318,895   
     

 

 

 

Total Common Stocks
(identified cost $549,550,672)

      $ 809,053,368   
     

 

 

 

 

                                                                                                   

Put Options Purchased — 0.2%

           
Description   

Number of

Contracts

    

Strike

Price

    

Expiration

Date

     Value  

S&P 500 Index

     348       $ 1,815         4/4/14       $ 38,280   

S&P 500 Index

     345         1,775         4/11/14         47,438   

S&P 500 Index

     344         1,820         4/19/14         209,840   

S&P 500 Index

     342         1,800         4/25/14         215,460   

S&P 500 Index FLEX

     349         1,815         4/2/14         330   

S&P 500 Index FLEX

     351         1,805         4/7/14         21,742   

S&P 500 Index FLEX

     349         1,795         4/9/14         28,274   

S&P 500 Index FLEX

     345         1,785         4/14/14         56,392   

S&P 500 Index FLEX

     346         1,810         4/16/14         131,248   

S&P 500 Index FLEX

     347         1,785         4/21/14         122,238   

S&P 500 Index FLEX

     342         1,800         4/23/14         182,813   

S&P 500 Index FLEX

     341         1,805         4/28/14         273,695   
           

 

 

 

Total Put Options Purchased
(identified cost $4,084,899)

            $ 1,327,750   
           

 

 

 

 

4

 

 


                                                 

Short-Term Investments — 0.5%

  

Description   

Interest

(000’s omitted)

     Value  

Eaton Vance Cash Reserves Fund, LLC, 0.14%(2)

   $ 4,025       $ 4,025,394   
     

 

 

 

Total Short-Term Investments
(identified cost $4,025,394)

   

   $ 4,025,394   
     

 

 

 

Total Investments — 100.3%
(identified cost $557,660,965)

      $ 814,406,512   
     

 

 

 
                                                                                                   

Call Options Written — (0.4)%

  

Description   

Number of

Contracts

     Strike
Price
     Expiration
Date
     Value  

S&P 500 Index

     348       $ 1,905         4/4/14       $ (18,270

S&P 500 Index

     345         1,875         4/11/14         (432,975

S&P 500 Index

     344         1,905         4/19/14         (132,440

S&P 500 Index

     342         1,895         4/25/14         (343,710

S&P 500 Index FLEX

     349         1,901         4/2/14         (5,108

S&P 500 Index FLEX

     351         1,902         4/7/14         (68,259

S&P 500 Index FLEX

     349         1,892         4/9/14         (176,771

S&P 500 Index FLEX

     345         1,890         4/14/14         (293,743

S&P 500 Index FLEX

     346         1,901         4/16/14         (210,909

S&P 500 Index FLEX

     347         1,886         4/21/14         (472,025

S&P 500 Index FLEX

     342         1,891         4/23/14         (424,960

S&P 500 Index FLEX

     341         1,900         4/28/14         (367,045
           

 

 

 

Total Call Options Written
(premiums received $4,269,713)

            $ (2,946,215
           

 

 

 

Other Assets, Less Liabilities — 0.1%

            $ 990,087   
           

 

 

 

Net Assets — 100.0%

            $ 812,450,384   
           

 

 

 

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

 

ADR

  -   American Depositary Receipt

FLEX

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

PC

  -   Participation Certificate

 

(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 March 31, 2014. Net income allocated from the investment in Eaton Vance Cash Reserves Fund, LLC for the fiscal year to date ended March 31, 2014 was $3,589.

 

5

 

 


The cost and unrealized appreciation (depreciation) of investments of the Fund at March 31, 2014, as determined on a federal income tax basis, were as follows:

 

Aggregate cost

   $     558,174,730   
  

 

 

 

Gross unrealized appreciation

   $ 262,754,696   

Gross unrealized depreciation

     (6,522,914
  

 

 

 

Net unrealized appreciation

   $ 256,231,782   
  

 

 

 

A summary of obligations under these financial instruments at March 31, 2014 is as follows:

 

Forward Foreign Currency Exchange Contracts   
Settlement
Date
    

Deliver

  

In Exchange For

  

Counterparty

   Unrealized
Appreciation
     Unrealized
(Depreciation)
     Net  Unrealized
Appreciation
 
4/30/14      Japanese Yen
521,985,000
   United States Dollar
5,112,338
   Credit Suisse International    $ 54,303       $       $ 54,303   
             

 

 

    

 

 

    

 

 

 
   $     54,303       $     —       $     54,303   
             

 

 

    

 

 

    

 

 

 

Written options activity for the fiscal year to date ended March 31, 2014 was as follows:

 

     Number of
Contracts
    Premiums
Received
 

Outstanding, beginning of period

     4,408      $ 3,738,388   

Options written

     13,900        13,294,461   

Options terminated in closing purchase transactions

     (5,852     (5,848,485

Options expired

     (8,307     (6,914,651
  

 

 

   

 

 

 

Outstanding, end of period

     4,149      $     4,269,713   
  

 

 

   

 

 

 

All of the assets of the Fund are subject to segregation to satisfy the requirements of the escrow agent. At March 31, 2014, the Fund had sufficient cash and/or securities to cover commitments under these contracts.

In the normal course of pursuing its investment objective, 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: Because the Fund holds foreign currency denominated investments, the value of these investments and related receivables and payables may change due to future changes in foreign currency exchange rates. To hedge against the risk, the Fund enters into forward foreign currency exchange contracts.

The fair value of open derivative instruments (not considered to be hedging instruments for accounting disclosure purposes) by risk exposure at March 31, 2014 was as follows:

 

          Fair Value  

Risk

  

Derivative

   Asset
Derivative
     Liability
Derivative
 
Equity Price    Purchased options    $ 1,327,750       $   
Equity Price    Written options              (2,946,215
Foreign Exchange    Forward foreign currency exchange contracts    $ 54,303       $   
     

 

 

    

 

 

 
Total       $     1,382,053       $     (2,946,215
     

 

 

    

 

 

 

 

6

 

 


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 March 31, 2014, the hierarchy of inputs used in valuing the Fund’s investments and open derivative instruments, which are carried at value, were as follows:

 

Asset Description    Level 1     Level 2     Level 3      Total  
Common Stocks          

Consumer Discretionary

   $ 92,869,929      $ 5,182,220      $       $ 98,052,149   

Consumer Staples

     56,673,666                       56,673,666   

Energy

     84,365,705                       84,365,705   

Financials

     140,965,490                       140,965,490   

Health Care

     103,564,813        8,629,511                112,194,324   

Industrials

     84,091,462                       84,091,462   

Information Technology

     147,822,221        8,436,521                156,258,742   

Materials

     34,536,862                       34,536,862   

Telecommunication Services

     19,671,078                       19,671,078   

Utilities

     22,243,890                       22,243,890   

Total Common Stocks

   $     786,805,116      $     22,248,252   $       $ 809,053,368   

Put Options Purchased

   $ 511,018      $ 816,732      $       $ 1,327,750   

Short-Term Investments

            4,025,394                4,025,394   

Total Investments

   $ 787,316,134      $ 27,090,378      $       $ 814,406,512   

Forward Foreign Currency Exchange Contracts

            54,303                54,303   

Total

   $ 787,316,134      $ 27,144,681      $       $     814,460,815   
Liability Description                              

Call Options Written

   $ (927,395   $ (2,018,820   $       $ (2,946,215

Total

   $ (927,395   $ (2,018,820   $     —       $ (2,946,215

 

* Includes foreign equity securities whose values were adjusted to reflect market trading of comparable securities or other correlated instruments that occurred after the close of trading in their applicable foreign markets.

The Fund held no investments or other financial instruments as of December 31, 2013 whose fair value was determined using Level 3 inputs. At March 31, 2014, there were no investments transferred between Level 1 and Level 2 during the fiscal year to date then ended.

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

 

7

 

 


Item 2. Controls and Procedures

(a) It is the conclusion of the registrant’s principal executive officer and principal financial officer that the effectiveness of the registrant’s current disclosure controls and procedures (such disclosure controls and procedures having been evaluated within 90 days of the date of this filing) provide reasonable assurance that the information required to be disclosed by the registrant on this Form N-Q has been recorded, processed, summarized and reported within the time period specified in the Commission’s rules and forms and that the information required to be disclosed by the registrant on this Form N-Q has been accumulated and communicated to the registrant’s principal executive officer and principal financial officer in order to allow timely decisions regarding required disclosure.

(b) There have been no changes in the registrant’s internal controls over financial reporting during the fiscal quarter for which the report is being filed that have materially affected, or are reasonably likely to materially affect the registrant’s internal control over financial reporting.


Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Eaton Vance Risk-Managed Diversified Equity Income Fund

 

By:   /s/ Walter A. Row, III
  Walter A. Row, III
  President
Date:   May 23, 2014

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/ Walter A. Row, III
  Walter A. Row, III
  President
Date:   May 23, 2014

 

By:   /s/ James F. Kirchner
  James F. Kirchner
  Treasurer
Date:   May 23, 2014