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

July 31, 2013

Date of Reporting Period

 

 

 

Item 1. Schedule of Investments

Eaton Vance

Tax-Managed Diversified Equity Income Fund

July 31, 2013

PORTFOLIO OF INVESTMENTS (Unaudited)

Common Stocks — 98.5%

 

                                                 
Security    Shares      Value  

Aerospace & Defense — 2.5%

      

Boeing Co. (The)

      253,623       $ 26,655,777   

United Technologies Corp.

      163,440         17,254,361   
     

 

 

  
      $ 43,910,138   
     

 

 

  

Automobiles — 0.6%

      

Honda Motor Co., Ltd.

      299,436       $ 11,091,425   
     

 

 

  
      $ 11,091,425   
     

 

 

  

Beverages — 2.4%

      

Anheuser-Busch InBev NV

      56,918       $ 5,473,309   

Beam, Inc.

      123,546         8,029,254   

Coca-Cola Co. (The)

      540,759         21,673,621   

Diageo PLC

      222,800         6,982,288   
     

 

 

  
      $ 42,158,472   
     

 

 

  

Biotechnology — 4.5%

      

Celgene Corp.(1)

      248,863       $ 36,548,020   

Gilead Sciences, Inc.(1)

      669,834         41,161,299   
     

 

 

  
      $ 77,709,319   
     

 

 

  

Capital Markets — 2.0%

      

Charles Schwab Corp. (The)

      444,126       $ 9,810,743   

Credit Suisse Group AG(1)

      178,275         5,236,610   

Goldman Sachs Group, Inc. (The)

      93,418         15,323,355   

UBS AG(1)

      186,902         3,680,291   
     

 

 

  
      $ 34,050,999   
     

 

 

  

Chemicals — 3.1%

      

BASF SE

      66,221       $ 5,869,064   

Linde AG

      13,547         2,609,595   

LyondellBasell Industries NV, Class A

      203,597         13,989,150   

Monsanto Co.

      188,296         18,599,879   

PPG Industries, Inc.

      77,420         12,421,265   
     

 

 

  
      $ 53,488,953   
     

 

 

  

Commercial Banks — 7.0%

      

Barclays PLC

      1,308,215       $ 5,715,570   

HSBC Holdings PLC

      1,289,229         14,637,201   

Natixis

      5,000,000         25,549,734   

PNC Financial Services Group, Inc. (The)

      243,381         18,509,125   

Regions Financial Corp.

      1,484,242         14,857,263   

Standard Chartered PLC

      192,588         4,466,830   

Wells Fargo & Co.

      867,073         37,717,676   
     

 

 

  
      $ 121,453,399   
     

 

 

  

 

 

1

 

 

                                                 
Security    Shares      Value  

Communications Equipment — 0.8%

      

QUALCOMM, Inc.

      216,370       $ 13,966,683   
     

 

 

  
      $ 13,966,683   
     

 

 

  

Computers & Peripherals — 1.9%

      

Apple, Inc.

      74,024       $ 33,495,860   
     

 

 

  
      $ 33,495,860   
     

 

 

  

Consumer Finance — 1.3%

      

American Express Co.

      317,838       $ 23,446,909   
     

 

 

  
      $ 23,446,909   
     

 

 

  

Diversified Financial Services — 5.0%

      

Bank of America Corp.

      2,079,183       $ 30,356,072   

Citigroup, Inc.

      609,493         31,778,965   

JPMorgan Chase & Co.

      428,138         23,860,131   
     

 

 

  
      $ 85,995,168   
     

 

 

  

Diversified Telecommunication Services — 2.1%

      

AT&T, Inc.

      234,075       $ 8,255,825   

Verizon Communications, Inc.

      579,409         28,669,158   
     

 

 

  
      $ 36,924,983   
     

 

 

  

Electric Utilities — 2.5%

      

American Electric Power Co., Inc.

      257,104       $ 11,916,770   

Duke Energy Corp.

      108,156         7,679,076   

Edison International

      161,770         8,064,234   

PPL Corp.

      277,219         8,807,248   

SSE PLC

      319,852         7,657,111   
     

 

 

  
      $ 44,124,439   
     

 

 

  

Electrical Equipment — 1.5%

      

Emerson Electric Co.

      379,580       $ 23,294,825   

Schneider Electric SA

      44,819         3,570,319   
     

 

 

  
      $ 26,865,144   
     

 

 

  

Electronic Equipment, Instruments & Components — 0.4%

      

Corning, Inc.

      405,565       $ 6,160,532   
     

 

 

  
      $ 6,160,532   
     

 

 

  

Energy Equipment & Services — 1.5%

      

Cameron International Corp.(1)

      78,820       $ 4,674,026   

Halliburton Co.

      460,123         20,792,958   
     

 

 

  
      $ 25,466,984   
     

 

 

  

Food & Staples Retailing — 1.1%

      

Costco Wholesale Corp.

      167,065       $ 19,595,054   
     

 

 

  
      $ 19,595,054   
     

 

 

  

 

 

2

 

 

                                                 
Security    Shares      Value  

Food Products — 3.8%

      

Danone SA

      45,394       $ 3,595,002   

Hershey Co. (The)

      113,358         10,754,273   

Kraft Foods Group, Inc.

      144,357         8,167,719   

Mondelez International, Inc., Class A

      400,724         12,530,640   

Nestle SA

      291,091         19,701,795   

Unilever NV

      286,140         11,480,348   
     

 

 

  
      $ 66,229,777   
     

 

 

  

Health Care Equipment & Supplies — 1.8%

      

Abbott Laboratories

      399,732       $ 14,642,183   

Covidien PLC

      266,799         16,442,823   
     

 

 

  
      $ 31,085,006   
     

 

 

  

Health Care Providers & Services — 0.8%

      

Express Scripts Holding Co.(1)

      215,675       $ 14,137,496   
     

 

 

  
      $ 14,137,496   
     

 

 

  

Hotels, Restaurants & Leisure — 0.8%

      

McDonald’s Corp.

      138,196       $ 13,554,264   
     

 

 

  
      $ 13,554,264   
     

 

 

  

Household Products — 3.2%

      

Colgate-Palmolive Co.

      407,224       $ 24,380,501   

Procter & Gamble Co.

      314,015         25,215,405   

Svenska Cellulosa AB, Class B

      206,913         5,473,409   
     

 

 

  
      $ 55,069,315   
     

 

 

  

Industrial Conglomerates — 3.3%

      

Danaher Corp.

      366,447       $ 24,676,541   

General Electric Co.

      1,153,817         28,118,520   

Siemens AG

      41,917         4,603,796   
     

 

 

  
      $ 57,398,857   
     

 

 

  

Insurance — 1.5%

      

ACE, Ltd.

      133,630       $ 12,211,109   

Allianz SE

      31,696         4,939,232   

Old Mutual PLC

      814,041         2,404,120   

Prudential PLC

      340,666         6,050,163   
     

 

 

  
      $ 25,604,624   
     

 

 

  

Internet & Catalog Retail — 2.2%

      

Amazon.com, Inc.(1)

      100,581       $ 30,297,009   

Netflix, Inc.(1)

      29,334         7,163,949   
     

 

 

  
      $ 37,460,958   
     

 

 

  

Internet Software & Services — 3.4%

      

eBay, Inc.(1)

      323,504       $ 16,721,922   

Google, Inc., Class A(1)

      47,602         42,251,535   
     

 

 

  
      $ 58,973,457   
     

 

 

  

 

3

 

 

                                                 
Security    Shares      Value  

IT Services — 4.0%

      

Accenture PLC, Class A

      291,081       $ 21,484,689   

International Business Machines Corp.

      168,839         32,930,358   

Visa, Inc., Class A

      83,328         14,749,889   
     

 

 

  
      $ 69,164,936   
     

 

 

  

Machinery — 0.8%

      

Deere & Co.

      170,980       $ 14,203,309   
     

 

 

  
      $ 14,203,309   
     

 

 

  

Media — 3.2%

      

Comcast Corp., Class A

      553,182       $ 24,937,445   

Walt Disney Co. (The)

      468,328         30,277,405   
     

 

 

  
      $ 55,214,850   
     

 

 

  

Metals & Mining — 0.5%

      

BHP Billiton, Ltd. ADR

      88,062       $ 5,524,129   

Freeport-McMoRan Copper & Gold, Inc.

      104,202         2,946,833   
     

 

 

  
      $ 8,470,962   
     

 

 

  

Multi-Utilities — 0.9%

      

National Grid PLC

      403,800       $ 4,825,946   

Sempra Energy

      119,017         10,429,460   
     

 

 

  
      $ 15,255,406   
     

 

 

  

Multiline Retail — 2.3%

      

Dollar General Corp.(1)

      490,001       $ 26,788,355   

Macy’s, Inc.

      274,001         13,245,208   
     

 

 

  
      $ 40,033,563   
     

 

 

  

Oil, Gas & Consumable Fuels — 8.6%

      

Anadarko Petroleum Corp.

      149,499       $ 13,233,651   

Chevron Corp.

      130,085         16,376,401   

ConocoPhillips

      358,500         23,252,310   

ENI SpA

      203,631         4,497,623   

EOG Resources, Inc.

      81,800         11,901,082   

Exxon Mobil Corp.

      163,920         15,367,500   

HollyFrontier Corp.

      94,314         4,296,003   

Occidental Petroleum Corp.

      231,814         20,643,037   

Phillips 66

      283,058         17,408,067   

Royal Dutch Shell PLC, Class B

      494,662         17,496,394   

Statoil ASA

      189,469         4,112,734   
     

 

 

  
      $ 148,584,802   
     

 

 

  

Pharmaceuticals — 7.0%

      

AstraZeneca PLC

      172,680       $ 8,759,320   

Bayer AG

      115,622         13,439,309   

GlaxoSmithKline PLC

      189,684         4,852,805   

Johnson & Johnson

      185,461         17,340,603   

Mallinckrodt PLC(1)

      1         40   

 

4

 

 

                                                 
Security    Shares      Value  

Novo Nordisk A/S, Class B

      58,342       $ 9,898,653   

Pfizer, Inc.

      1,075,613         31,440,168   

Roche Holding AG PC

      69,467         17,095,063   

Sanofi

      141,378         14,799,973   

Shire PLC ADR

      35,005         3,827,797   
     

 

 

  
      $ 121,453,731   
     

 

 

  

Real Estate Investment Trusts (REITs) — 1.2%

      

AvalonBay Communities, Inc.

      67,827       $ 9,179,706   

Boston Properties, Inc.

      107,429         11,489,532   
     

 

 

  
      $ 20,669,238   
     

 

 

  

Road & Rail — 1.5%

      

Union Pacific Corp.

      165,349       $ 26,222,698   
     

 

 

  
      $ 26,222,698   
     

 

 

  

Software — 2.2%

      

Microsoft Corp.

      587,164       $ 18,689,430   

Oracle Corp.

      391,526         12,665,866   

SAP AG

      83,684         6,131,645   
     

 

 

  
      $ 37,486,941   
     

 

 

  

Specialty Retail — 1.3%

      

Home Depot, Inc. (The)

      149,833       $ 11,841,302   

Industria de Diseno Textil SA

      43,482         5,804,178   

Kingfisher PLC

      725,941         4,391,933   
     

 

 

  
      $ 22,037,413   
     

 

 

  

Textiles, Apparel & Luxury Goods — 1.6%

      

Adidas AG

      38,724       $ 4,316,367   

Compagnie Financiere Richemont SA, Class A

      42,000         4,108,547   

LVMH Moet Hennessy Louis Vuitton SA

      32,049         5,833,859   

NIKE, Inc., Class B

      221,135         13,913,814   
     

 

 

  
      $ 28,172,587   
     

 

 

  

Tobacco — 1.5%

      

British American Tobacco PLC

      120,651       $ 6,436,341   

Philip Morris International, Inc.

      217,659         19,410,830   
     

 

 

  
      $ 25,847,171   
     

 

 

  

Wireless Telecommunication Services — 0.9%

      

Vodafone Group PLC

      4,962,479       $ 14,862,993   
     

 

 

  
      $ 14,862,993   
     

 

 

  

Total Common Stocks
(identified cost $1,198,375,880)

       $ 1,707,098,815   
     

 

 

  

 

 

5

 

 

                                                                                                   

Covered Put Options Purchased — 0.0%(2)

            
Security    Number of
Contracts		      Strike
Price		     

Expiration

Date

      Value  

Netflix, Inc.

      293       $ 250.00         8/17/13       $ 335,485   
           

 

 

  

Total Covered Put Options Purchased
(identified cost $427,021)

             $ 335,485   
           

 

 

  

Total Investments — 98.5%
(identified cost $1,198,802,901)

             $ 1,707,434,300   
           

 

 

  

Call Options Written — (0.2)%

            
Description    Number of
Contracts		      Strike
Price		      Expiration
Date		      Value  

S&P 500 Index

      4,825       $ 1,775.00         10/19/13       $ (2,798,500 ) 
           

 

 

  

Total Call Options Written
(premiums received $2,598,659)

             $ (2,798,500 ) 
           

 

 

  

Covered Call Options Written — (0.0)%(2)

            
Security    Number of
Contracts		      Strike
Price		      Expiration
Date		      Value  

Netflix, Inc.

      293       $ 300.00         8/17/13       $ (6,299 ) 
           

 

 

  

Total Covered Call Options Written
(premiums received $308,359)

             $ (6,299 ) 
           

 

 

  

Covered Put Options Written — (0.0)%(2)

            
Security    Number of
Contracts		      Strike
Price		      Expiration
Date		      Value  

Netflix, Inc.

      293       $ 215.00         8/17/13       $ (25,638 ) 
           

 

 

  

Total Covered Put Options Written
(premiums received $129,275)

             $ (25,638 ) 
           

 

 

  

Other Assets, Less Liabilities — 1.7%

             $ 28,999,725   
           

 

 

  

Net Assets — 100.0%

             $ 1,733,603,588   
           

 

 

  

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

During the fiscal year to date ended July 31, 2013, the Fund held interests in Eaton Vance Cash Reserves Fund, LLC, an affiliated investment company, available to Eaton Vance portfolios and funds, which invests in high quality, U.S. dollar denominated money market instruments. Net income allocated from the investment in Eaton Vance Cash Reserves Fund, LLC for the fiscal year to date ended July 31, 2013 was $13,515.

 

ADR

   -     American Depositary Receipt

PC

   -     Participation Certificate

 

(1) Non-income producing security.

 

(2) Amount is less than 0.05%.

 

 

6

 

 

                                                 

Country Concentration of Portfolio

     
Country    Percentage of
Net Assets		     Value  

United States

      76.2 %    $ 1,321,503,668   

United Kingdom

      6.5        113,366,812   

Switzerland

      3.6        62,033,415   

France

      3.1        53,348,887   

Germany

      2.4        41,909,008   

Ireland

      2.2        37,927,552   

Netherlands

      1.5        25,469,498   

Japan

      0.7        11,091,425   

Denmark

      0.6        9,898,653   

Spain

      0.3        5,804,178   

Australia

      0.3        5,524,129   

Sweden

      0.3        5,473,409   

Belgium

      0.3        5,473,309   

Italy

      0.3        4,497,623   

Norway

      0.2        4,112,734   
  

 

 

    

 

 

  

Total Investments

      98.5 %    $     1,707,434,300   
  

 

 

    

 

 

  

The cost and unrealized appreciation (depreciation) of investments of the Fund at July 31, 2013, as determined on a federal income tax basis, were as follows:

 

Aggregate cost

    $     1,199,385,348   
  

 

 

  

Gross unrealized appreciation

    $ 511,655,453   

Gross unrealized depreciation

      (3,606,501 ) 
  

 

 

  

Net unrealized appreciation

    $ 508,048,952   
  

 

 

  

A summary of open financial instruments at July 31, 2013 is as follows:

Forward Foreign Currency Exchange Contracts

Sales

 

Settlement

Date

   

Deliver

    In Exchange For   

Counterparty

    Net Unrealized
Depreciation		  
8/30/13   

Japanese Yen

1,099,083,000

    United States Dollar

11,218,395

    Credit Suisse International      $    (8,662)   

 

7

 

 

Written options activity for the fiscal year to date ended July 31, 2013 was as follows:

 

     Number of
Contracts		     Premiums
Received		  

Outstanding, beginning of period

      5,900      $ 6,140,573   

Options written

      54,281        87,681,745   

Options terminated in closing purchase transactions

      (48,045 )      (80,355,832 ) 

Options expired

      (6,725 )      (10,430,193 ) 
  

 

 

    

 

 

  

Outstanding, end of period

      5,411      $     3,036,293   
  

 

 

    

 

 

  

All of the assets of the Fund are subject to segregation to satisfy the requirements of the escrow agent. At July 31, 2013, 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. During the fiscal year to date ended July 31, 2013, the Fund also entered into a combination of option transactions on an individual security to seek return and/or to seek to reduce the Fund’s exposure to a decline in the stock price.

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.

The fair value of open derivative instruments (not considered to be hedging instruments for accounting disclosure purposes) by risk exposure at July 31, 2013 was as follows:

 

          Fair Value  

Risk

   

Derivative

    Asset
Derivative		      Liability
Derivative		  
Equity Price    Options Purchased    $     335,485       $ —   
Equity Price    Options Written      —         (2,830,437 ) 
     

 

 

     

 

 

  
      $ 335,485       $     (2,830,437 ) 
     

 

 

     

 

 

  
             
Foreign Exchange    Forward Foreign Currency Exchange Contracts    $ —       $ (8,662 ) 
     

 

 

     

 

 

  
      $ —       $ (8,662 ) 
     

 

 

     

 

 

  

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)

 

8

 

 

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 July 31, 2013, 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

    $ 172,018,751      $ 35,546,309      $ —       $ 207,565,060   

Consumer Staples

      149,757,297        59,142,492        —         208,899,789   

Energy

      147,945,035        26,106,751        —         174,051,786   

Financials

      264,090,320        47,130,017        —         311,220,337   

Health Care

      175,540,429        68,845,123        —         244,385,552   

Industrials

      160,426,031        8,174,115        —         168,600,146   

Information Technology

      213,116,764        6,131,645        —         219,248,409   

Materials

      53,481,256        8,478,659        —         61,959,915   

Telecommunication Services

      36,924,983        14,862,993        —         51,787,976   

Utilities

      46,896,788        12,483,057        —         59,379,845   

Total Common Stocks

    $     1,420,197,654      $     286,901,161 *    $     —       $     1,707,098,815   

Covered Put Options Purchased

    $ 335,485      $ —      $ —       $ 335,485   

Total Investments

    $ 1,420,533,139      $ 286,901,161      $ —       $ 1,707,434,300   
Liability Description                              

Call Options Written

    $ (2,798,500 )    $ —      $ —       $ (2,798,500 ) 

Covered Call Options Written

      (6,299 )      —        —         (6,299 ) 

Covered Put Options Written

      (25,638 )      —        —         (25,638 ) 

Forward Foreign Currency Exchange Contracts

      —        (8,662 )      —         (8,662 ) 

Total

    $ (2,830,437 )    $ (8,662 )    $ —       $ (2,839,099 ) 

 

* 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, 2012 whose fair value was determined using Level 3 inputs. At July 31, 2013, 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.

 

9

 

 

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:   September 23, 2013

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:   September 23, 2013

 

By:   /s/ James F. Kirchner
  James F. Kirchner
  Treasurer
Date:   September 23, 2013