Eaton Vance Tax-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

811-21832

Investment Company Act File Number

Eaton Vance Tax-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)

October 31

Date of Fiscal Year End

January 31, 2014

Date of Reporting Period

 

 

 

Item 1. Schedule of Investments

Eaton Vance

Tax-Managed Diversified Equity Income Fund

January 31, 2014

PORTFOLIO OF INVESTMENTS (Unaudited)

Common Stocks — 97.6%

 

                                                 
Security    Shares      Value  

Aerospace & Defense — 2.1%

      

Boeing Co. (The)

      174,481       $ 21,855,490   

United Technologies Corp.

      131,687         15,014,952   
     

 

 

  
      $ 36,870,442   
     

 

 

  

Air Freight & Logistics — 1.0%

      

C.H. Robinson Worldwide, Inc.

      298,791       $ 17,491,225   
     

 

 

  
      $ 17,491,225   
     

 

 

  

Auto Components — 0.6%

      

TRW Automotive Holdings Corp.(1)

      145,446       $ 10,784,821   
     

 

 

  
      $ 10,784,821   
     

 

 

  

Automobiles — 0.8%

      

Honda Motor Co., Ltd.

      360,319       $ 13,505,890   
     

 

 

  
      $ 13,505,890   
     

 

 

  

Beverages — 0.8%

      

Anheuser-Busch InBev NV

      52,330       $ 5,015,450   

Diageo PLC

      282,729         8,384,660   
     

 

 

  
      $ 13,400,110   
     

 

 

  

Biotechnology — 3.8%

      

Biogen Idec, Inc.(1)

      25,189       $ 7,875,089   

Celgene Corp.(1)

      131,475         19,974,996   

Gilead Sciences, Inc.(1)

      493,772         39,822,712   
     

 

 

  
      $ 67,672,797   
     

 

 

  

Capital Markets — 2.0%

      

Charles Schwab Corp. (The)

      316,175       $ 7,847,464   

Credit Suisse Group AG(1)

      139,892         4,215,077   

Deutsche Bank AG

      63,794         3,070,688   

Morgan Stanley

      516,846         15,252,125   

UBS AG(1)

      219,841         4,360,388   
     

 

 

  
      $ 34,745,742   
     

 

 

  

Chemicals — 3.2%

      

Akzo Nobel NV

      36,274       $ 2,608,897   

BASF SE

      65,992         7,055,327   

Linde AG

      14,741         2,785,571   

LyondellBasell Industries NV, Class A

      183,381         14,443,088   

Monsanto Co.

      134,705         14,352,818   

PPG Industries, Inc.

      81,532         14,868,175   
     

 

 

  
      $ 56,113,876   
     

 

 

  

Commercial Banks — 5.3%

      

Banco Bilbao Vizcaya Argentaria SA

      280,332       $ 3,344,022   

Barclays PLC

      996,275         4,447,619   

BNP Paribas SA

      108,389         8,368,182   

DNB ASA

      229,482         3,897,125   

HSBC Holdings PLC

      815,361         8,367,020   

PNC Financial Services Group, Inc. (The)

      214,287         17,117,246   

Regions Financial Corp.

      1,788,839         18,192,493   

Skandinaviska Enskilda Banken AB, Class A

      299,350         3,857,029   

Societe Generale

      123,153         6,958,122   

 

1

 

 

                                                 
Security    Shares      Value  

SunTrust Banks, Inc.

      386,658       $ 14,314,079   

Swedbank AB, Class A

      190,775         4,978,204   
     

 

 

  
      $ 93,841,141   
     

 

 

  

Communications Equipment — 1.3%

      

QUALCOMM, Inc.

      310,677       $ 23,058,447   
     

 

 

  
      $ 23,058,447   
     

 

 

  

Computers & Peripherals — 2.8%

      

Apple, Inc.

      100,416       $ 50,268,250   
     

 

 

  
      $ 50,268,250   
     

 

 

  

Consumer Finance — 1.4%

      

American Express Co.

      299,195       $ 25,437,559   
     

 

 

  
      $ 25,437,559   
     

 

 

  

Diversified Consumer Services — 0.4%

      

Sotheby’s

      154,065       $ 7,382,795   
     

 

 

  
      $ 7,382,795   
     

 

 

  

Diversified Financial Services — 4.6%

      

Bank of America Corp.

      1,698,055       $ 28,442,421   

Citigroup, Inc.

      504,353         23,921,463   

JPMorgan Chase & Co.

      525,086         29,068,761   
     

 

 

  
      $ 81,432,645   
     

 

 

  

Electric Utilities — 2.0%

      

Duke Energy Corp.

      108,156       $ 7,637,977   

Edison International

      161,770         7,790,843   

NextEra Energy, Inc.

      171,384         15,755,331   

SSE PLC

      228,931         4,911,476   
     

 

 

  
      $ 36,095,627   
     

 

 

  

Electrical Equipment — 2.1%

      

Emerson Electric Co.

      272,674       $ 17,980,124   

Rockwell Automation, Inc.

      164,518         18,893,247   
     

 

 

  
      $ 36,873,371   
     

 

 

  

Electronic Equipment, Instruments & Components — 1.9%

      

Corning, Inc.

      1,918,152       $ 33,011,396   
     

 

 

  
      $ 33,011,396   
     

 

 

  

Energy Equipment & Services — 1.0%

      

Cameron International Corp.(1)

      150,525       $ 9,026,984   

FMC Technologies, Inc.(1)

      177,742         8,787,565   
     

 

 

  
      $ 17,814,549   
     

 

 

  

Food & Staples Retailing — 0.8%

      

Costco Wholesale Corp.

      127,824       $ 14,362,305   
     

 

 

  
      $ 14,362,305   
     

 

 

  

Food Products — 3.4%

      

Hershey Co. (The)

      214,725       $ 21,343,665   

Kerry Group PLC, Class A

      56,491         3,799,611   

Mondelez International, Inc., Class A

      660,801         21,641,233   

Nestle SA

      185,525         13,445,237   
     

 

 

  
      $ 60,229,746   
     

 

 

  

Health Care Equipment & Supplies — 1.6%

      

Abbott Laboratories

      430,534       $ 15,783,376   

Covidien PLC

      187,316         12,782,444   
     

 

 

  
      $ 28,565,820   
     

 

 

  

Health Care Providers & Services — 1.0%

      

Express Scripts Holding Co.(1)

      249,267       $ 18,617,752   
     

 

 

  
      $ 18,617,752   
     

 

 

  

 

2

 

 

                                                 
Security    Shares      Value  

Hotels, Restaurants & Leisure — 0.7%

      

McDonald’s Corp.

      139,686       $ 13,154,231   
     

 

 

  
      $ 13,154,231   
     

 

 

  

Household Durables — 0.4%

      

Mohawk Industries, Inc.(1)

      50,947       $ 7,243,644   
     

 

 

  
      $ 7,243,644   
     

 

 

  

Household Products — 2.0%

      

Procter & Gamble Co.

      268,664       $ 20,585,035   

Reckitt Benckiser Group PLC

      90,201         6,753,586   

Svenska Cellulosa AB SCA, Class B

      264,928         7,533,326   
     

 

 

  
      $ 34,871,947   
     

 

 

  

Industrial Conglomerates — 1.7%

      

Danaher Corp.

      197,747       $ 14,710,400   

Koninklijke Philips NV

      254,231         8,820,322   

Siemens AG

      57,877         7,322,248   
     

 

 

  
      $ 30,852,970   
     

 

 

  

Insurance — 3.6%

      

ACE, Ltd.

      73,400       $ 6,885,654   

Aflac, Inc.

      268,962         16,885,434   

Allianz SE

      42,498         7,064,882   

AXA SA

      184,289         4,834,075   

MetLife, Inc.

      216,490         10,618,835   

Muenchener Rueckversicherungs-Gesellschaft AG

      15,217         3,135,924   

Progressive Corp.

      350,000         8,134,000   

Prudential PLC

      297,029         5,979,238   
     

 

 

  
      $ 63,538,042   
     

 

 

  

Internet & Catalog Retail — 2.0%

      

Amazon.com, Inc.(1)

      64,846       $ 23,259,612   

Netflix, Inc.(1)

      29,077         11,902,088   
     

 

 

  
      $ 35,161,700   
     

 

 

  

Internet Software & Services — 6.2%

      

eBay, Inc.(1)

      342,931       $ 18,243,929   

Facebook, Inc., Class A(1)

      425,629         26,631,607   

Google, Inc., Class A(1)

      54,990         64,941,540   
     

 

 

  
      $ 109,817,076   
     

 

 

  

IT Services — 2.2%

      

Accenture PLC, Class A

      196,031       $ 15,658,956   

Visa, Inc., Class A

      107,612         23,182,853   
     

 

 

  
      $ 38,841,809   
     

 

 

  

Machinery — 1.0%

      

Deere & Co.

      170,052       $ 14,617,670   

IMI PLC

      110,038         2,700,274   
     

 

 

  
      $ 17,317,944   
     

 

 

  

Media — 2.1%

      

Lions Gate Entertainment Corp.

      397,120       $ 12,838,890   

Walt Disney Co. (The)

      334,633         24,297,702   
     

 

 

  
      $ 37,136,592   
     

 

 

  

Metals & Mining — 0.7%

      

BHP Billiton PLC

      154,654       $ 4,552,793   

Freeport-McMoRan Copper & Gold, Inc.

      104,202         3,377,187   

Glencore Xstrata PLC

      983,805         5,187,074   
     

 

 

  
      $ 13,117,054   
     

 

 

  

 

3

 

 

                                                 
Security    Shares      Value  

Multi-Utilities — 0.6%

      

Sempra Energy

      117,968       $ 10,936,813   
     

 

 

  
      $ 10,936,813   
     

 

 

  

Multiline Retail — 1.7%

      

Dollar General Corp.(1)

      273,138       $ 15,383,132   

Macy’s, Inc.

      269,955         14,361,606   
     

 

 

  
      $ 29,744,738   
     

 

 

  

Oil, Gas & Consumable Fuels — 8.9%

      

BP PLC

      866,111       $ 6,787,756   

Chevron Corp.

      130,918         14,614,376   

Concho Resources, Inc.(1)

      202,581         19,810,396   

ENI SpA

      203,631         4,624,182   

Exxon Mobil Corp.

      91,720         8,452,915   

Marathon Oil Corp.

      407,589         13,364,843   

Occidental Petroleum Corp.

      362,583         31,751,393   

Phillips 66

      257,200         18,798,748   

Range Resources Corp.

      129,622         11,172,120   

Royal Dutch Shell PLC, Class B

      358,088         13,097,837   

Statoil ASA

      116,501         2,761,150   

Total SA

      238,058         13,581,597   
     

 

 

  
      $ 158,817,313   
     

 

 

  

Personal Products — 1.0%

      

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

      247,958       $ 17,044,633   
     

 

 

  
      $ 17,044,633   
     

 

 

  

Pharmaceuticals — 7.3%

      

AstraZeneca PLC

      165,237       $ 10,478,355   

Bayer AG

      59,581         7,841,198   

GlaxoSmithKline PLC

      103,724         2,666,137   

Johnson & Johnson

      116,001         10,262,608   

Merck & Co., Inc.

      717,131         37,986,429   

Novartis AG

      133,491         10,551,238   

Roche Holding AG PC

      93,341         25,609,556   

Sanofi

      96,405         9,424,637   

Shire PLC ADR

      102,300         15,306,126   
     

 

 

  
      $ 130,126,284   
     

 

 

  

Real Estate Investment Trusts (REITs) — 1.3%

      

AvalonBay Communities, Inc.

      93,758       $ 11,579,113   

Boston Properties, Inc.

      114,002         12,322,476   
     

 

 

  
      $ 23,901,589   
     

 

 

  

Road & Rail — 0.8%

      

Canadian Pacific Railway, Ltd.

      93,996       $ 14,238,514   
     

 

 

  
      $ 14,238,514   
     

 

 

  

Semiconductors & Semiconductor Equipment — 1.2%

      

NXP Semiconductors NV(1)

      450,213       $ 21,767,798   
     

 

 

  
      $ 21,767,798   
     

 

 

  

Software — 0.9%

      

Microsoft Corp.

      407,239       $ 15,413,996   

SAP AG

      9,792         749,182   
     

 

 

  
      $ 16,163,178   
     

 

 

  

Specialty Retail — 1.5%

      

AutoNation, Inc.(1)

      85,305       $ 4,213,214   

Home Depot, Inc. (The)

      176,073         13,531,210   

Industria de Diseno Textil SA

      36,468         5,431,332   

Kingfisher PLC

      574,902         3,485,780   
     

 

 

  
      $ 26,661,536   
     

 

 

  

 

4

 

 

                                                 
Security    Shares      Value  

Textiles, Apparel & Luxury Goods — 0.9%

      

Adidas AG

      23,495       $ 2,619,491   

Compagnie Financiere Richemont SA, Class A

      52,013         4,811,460   

NIKE, Inc., Class B

      119,272         8,688,965   
     

 

 

  
      $ 16,119,916   
     

 

 

  

Tobacco — 1.0%

      

British American Tobacco PLC

      117,992       $ 5,630,306   

Philip Morris International, Inc.

      153,479         11,992,849   
     

 

 

  
      $ 17,623,155   
     

 

 

  

Wireless Telecommunication Services — 4.0%

      

Vodafone Group PLC

      19,014,895       $ 70,463,797   
     

 

 

  
      $ 70,463,797   
     

 

 

  

Total Common Stocks
(identified cost $1,691,723,040)

       $ 1,732,238,579   
     

 

 

  

Short-Term Investments — 1.5%

      
Description   

Interest

(000’s omitted)

      Value  

Eaton Vance Cash Reserves Fund, LLC, 0.13%(2)

    $ 27,301       $ 27,301,442   
     

 

 

  

Total Short-Term Investments
(identified cost $27,301,442)

       $ 27,301,442   
     

 

 

  

Total Investments — 99.1%
(identified cost $1,719,024,482)

       $ 1,759,540,021   
     

 

 

  
                                                                                                   

Call Options Written — (0.2)%

            
Description    Number of
Contracts		      Strike
Price		      Expiration
Date		      Value  

S&P 500 Index

      1,190       $ 1,845         2/7/14       $ (35,700 ) 

S&P 500 Index

      1,220         1,850         2/14/14         (161,650 ) 

S&P 500 Index

      1,170         1,830         2/22/14         (649,350 ) 

S&P 500 Index

      985         1,790         2/28/14         (2,359,075 ) 
           

 

 

  

Total Call Options Written
(premiums received $7,362,941)

             $ (3,205,775 ) 
           

 

 

  

Other Assets, Less Liabilities — 1.1%

             $ 18,702,410   
           

 

 

  

Net Assets — 100.0%

             $     1,775,036,656   
           

 

 

  

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

 

ADR

   -   American Depositary Receipt

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 January 31, 2014. Net income allocated from the investment in Eaton Vance Cash Reserves Fund, LLC for the fiscal year to date ended January 31, 2014 was $6,635.

 

5

 

 

Country Concentration of Portfolio

 

                                                 
Country    Percentage of
Net Assets		     Value  

United States

      72.7 %    $ 1,291,026,201   

United Kingdom

      10.1        179,199,834   

Switzerland

      3.9        69,878,610   

France

      2.4        43,166,613   

Germany

      2.3        41,644,511   

Netherlands

      1.9        33,197,017   

Ireland

      1.8        32,241,011   

Sweden

      0.9        16,368,559   

Canada

      0.8        14,238,514   

Japan

      0.8        13,505,890   

Spain

      0.5        8,775,354   

Norway

      0.4        6,658,275   

Belgium

      0.3        5,015,450   

Italy

      0.3        4,624,182   
  

 

 

    

 

 

  

Total Investments

      99.1 %    $     1,759,540,021   
  

 

 

    

 

 

  

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

 

Aggregate cost

    $     1,721,948,525   
  

 

 

  

Gross unrealized appreciation

    $ 76,501,319   

Gross unrealized depreciation

      (38,909,823 ) 
  

 

 

  

Net unrealized appreciation

    $ 37,591,496   
  

 

 

  

A summary of open financial instruments at January 31, 2014 is as follows:

Forward Foreign Currency Exchange Contracts

 

Settlement
Date		     

Deliver

   

In Exchange For

   

Counterparty

    Unrealized
Appreciation		      Unrealized
(Depreciation)		      Net Unrealized
Appreciation		  
2/28/14      Japanese Yen
1,375,644,000		    United States Dollar
13,480,362		    Credit Suisse International    $ 14,634       $ —       $ 14,634   
             

 

 

     

 

 

     

 

 

  
   $ 14,634       $ —       $ 14,634   
             

 

 

     

 

 

     

 

 

  

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

 

     Number of
Contracts		     Premiums
Received		  
Outstanding, beginning of period      3,565      $ 5,790,147   
Options written      16,160            25,709,360   
Options terminated in closing purchase transactions      (11,715 )      (18,689,387 ) 
Options expired      (3,445 )      (5,447,179 ) 
  

 

 

    

 

 

  
Outstanding, end of period      4,565      $ 7,362,941   
  

 

 

    

 

 

  

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

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

Equity Price Risk: The Fund writes index call options above the current value of the index to generate premium income. In writing index call options, the Fund in effect, sells potential appreciation in the value of the applicable index above the exercise price in exchange for the option premium received. The Fund retains the risk of loss, minus the premium received, should the price of the underlying index decline.

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 this risk, the Fund enters into forward foreign currency exchange contracts.

 

6

 

 

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

 

          Fair Value  

Risk

   

Derivative

    Asset
Derivative		      Liability
Derivative		  
Equity Price    Written options    $ —       $ (3,205,775 ) 
Foreign Exchange    Forward foreign currency exchange contracts    $ 14,634       $ —   
     

 

 

     

 

 

  

Total

       $     14,634       $     (3,205,775 ) 
     

 

 

     

 

 

  

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 January 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

    $ 167,041,910      $ 29,853,953      $ —       $ 196,895,863   

Consumer Staples

      106,969,720        50,562,176        —         157,531,896   

Energy

      135,779,340        40,852,522        —         176,631,862   

Financials

      246,019,123        76,877,595        —         322,896,718   

Health Care

      178,411,532        66,571,121        —         244,982,653   

Industrials

      134,801,622        18,842,844        —         153,644,466   

Information Technology

      292,178,772        749,182        —         292,927,954   

Materials

      47,041,268        22,189,662        —         69,230,930   

Telecommunication Services

      —        70,463,797        —         70,463,797   

Utilities

      42,120,964        4,911,476        —         47,032,440   

Total Common Stocks

    $ 1,350,364,251      $ 381,874,328 *    $ —       $ 1,732,238,579   

Short-Term Investments

    $ —      $ 27,301,442      $ —       $ 27,301,442   

Forward Foreign Currency Exchange Contracts

    $ —      $ 14,634      $ —       $ 14,634   

Total

    $     1,350,364,251      $     409,190,404      $     —       $     1,759,554,655   
Liability Description                              

Call Options Written

    $ (3,205,775 )    $ —      $ —       $ (3,205,775 ) 

Total

    $ (3,205,775 )    $ —      $ —       $ (3,205,775 ) 

 

* 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 October 31, 2013 whose fair value was determined using Level 3 inputs. At January 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 Tax-Managed Diversified Equity Income Fund

 

By:   /s/ Walter A. Row, III
  Walter A. Row, III
  President
Date:   March 24, 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:   March 24, 2014

 

By:   /s/ James F. Kirchner
  James F. Kirchner
  Treasurer
Date:   March 24, 2014