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, 2016

Date of Reporting Period

 

 

 

Item 1. Schedule of Investments

Eaton Vance

Tax-Managed Diversified Equity Income Fund

July 31, 2016

PORTFOLIO OF INVESTMENTS (Unaudited)

Common Stocks — 100.1%

 

                                                 
Security    Shares      Value  

Aerospace & Defense — 2.0%

      

United Technologies Corp.

      317,343       $ 34,161,974   
     

 

 

  
      $ 34,161,974   
     

 

 

  

Air Freight & Logistics — 1.0%

      

C.H. Robinson Worldwide, Inc.

      244,014       $ 16,988,255   
     

 

 

  
      $ 16,988,255   
     

 

 

  

Banks — 5.6%

      

JPMorgan Chase & Co.

      611,155       $ 39,095,585   

PNC Financial Services Group, Inc. (The)

      240,624         19,887,574   

Wells Fargo & Co.

      764,045         36,651,239   
     

 

 

  
      $ 95,634,398   
     

 

 

  

Beverages — 1.2%

      

Constellation Brands, Inc., Class A

      127,659       $ 21,016,501   
     

 

 

  
      $ 21,016,501   
     

 

 

  

Biotechnology — 1.6%

      

Celgene Corp.(1)

      238,885       $ 26,800,508   
     

 

 

  
      $ 26,800,508   
     

 

 

  

Capital Markets — 3.3%

      

Charles Schwab Corp. (The)

      1,215,023       $ 34,530,954   

Goldman Sachs Group, Inc. (The)

      142,610         22,647,894   
     

 

 

  
      $ 57,178,848   
     

 

 

  

Chemicals — 1.4%

      

PPG Industries, Inc.

      224,981       $ 23,557,760   
     

 

 

  
      $ 23,557,760   
     

 

 

  

Communications Equipment — 1.4%

      

Cisco Systems, Inc.

      765,419       $ 23,368,242   
     

 

 

  
      $ 23,368,242   
     

 

 

  

Containers & Packaging — 1.1%

      

International Paper Co.

      431,937       $ 19,787,034   
     

 

 

  
      $ 19,787,034   
     

 

 

  

Distributors — 1.1%

      

LKQ Corp.(1)

      545,416       $ 18,756,856   
     

 

 

  
      $ 18,756,856   
     

 

 

  

Diversified Telecommunication Services — 3.2%

      

Verizon Communications, Inc.

      532,442       $ 29,502,611   

Zayo Group Holdings, Inc.(1)

      910,626         25,770,716   
     

 

 

  
      $ 55,273,327   
     

 

 

  

Electric Utilities — 1.8%

      

NextEra Energy, Inc.

      245,729       $ 31,524,573   
     

 

 

  
      $ 31,524,573   
     

 

 

  

Electrical Equipment — 1.5%

      

Rockwell Automation, Inc.

      229,324       $ 26,234,666   
     

 

 

  
      $ 26,234,666   
     

 

 

  

 

1

 

 

                                                 
Security    Shares      Value  

Energy Equipment & Services — 1.1%

      

Schlumberger, Ltd.

      246,791       $ 19,871,611   
     

 

 

  
      $ 19,871,611   
     

 

 

  

Food & Staples Retailing — 1.8%

      

Kroger Co. (The)

      899,915       $ 30,768,094   
     

 

 

  
      $ 30,768,094   
     

 

 

  

Food Products — 3.2%

      

General Mills, Inc.

      345,963       $ 24,871,280   

Kellogg Co.

      356,496         29,485,784   
     

 

 

  
      $ 54,357,064   
     

 

 

  

Health Care Equipment & Supplies — 1.2%

      

Zimmer Biomet Holdings, Inc.

      157,604       $ 20,668,189   
     

 

 

  
      $ 20,668,189   
     

 

 

  

Health Care Providers & Services — 0.7%

      

Humana, Inc.

      69,507       $ 11,993,433   
     

 

 

  
      $ 11,993,433   
     

 

 

  

Household Durables — 2.3%

      

Newell Brands, Inc.

      450,863       $ 23,652,273   

Whirlpool Corp.

      82,439         15,857,966   
     

 

 

  
      $ 39,510,239   
     

 

 

  

Industrial Conglomerates — 4.0%

      

Danaher Corp.

      319,180       $ 25,994,019   

General Electric Co.

      1,377,653         42,900,115   
     

 

 

  
      $ 68,894,134   
     

 

 

  

Insurance — 1.5%

      

Aflac, Inc.

      156,599       $ 11,318,976   

American Financial Group, Inc.

      191,963         14,032,495   
     

 

 

  
      $ 25,351,471   
     

 

 

  

Internet & Catalog Retail — 3.5%

      

Amazon.com, Inc.(1)

      78,402       $ 59,492,222   
     

 

 

  
      $ 59,492,222   
     

 

 

  

Internet Software & Services — 6.6%

      

Alphabet, Inc., Class C(1)

      111,372       $ 85,621,680   

Facebook, Inc., Class A(1)

      219,143         27,160,583   
     

 

 

  
      $ 112,782,263   
     

 

 

  

IT Services — 2.8%

      

Visa, Inc., Class A

      613,869       $ 47,912,475   
     

 

 

  
      $ 47,912,475   
     

 

 

  

Machinery — 2.1%

      

Fortive Corp.(1)

      560,842       $ 27,038,193   

Komatsu, Ltd.

      445,376         8,654,436   
     

 

 

  
      $ 35,692,629   
     

 

 

  

Media — 1.6%

      

ITV PLC

      3,209,796       $ 8,322,778   

Time Warner, Inc.

      252,018         19,317,180   
     

 

 

  
      $ 27,639,958   
     

 

 

  

Multi-Utilities — 1.6%

      

Sempra Energy

      249,951       $ 27,964,518   
     

 

 

  
      $ 27,964,518   
     

 

 

  

 

2

 

 

                                                 
Security    Shares      Value  

Oil, Gas & Consumable Fuels — 5.5%

      

Chevron Corp.

      330,599       $ 33,879,785   

EOG Resources, Inc.

      254,643         20,804,333   

Occidental Petroleum Corp.

      305,009         22,793,323   

Royal Dutch Shell PLC, Class B

      669,376         17,804,543   
     

 

 

  
      $ 95,281,984   
     

 

 

  

Pharmaceuticals — 11.6%

      

Allergan PLC(1)

      165,940       $ 41,974,523   

Bristol-Myers Squibb Co.

      425,417         31,825,446   

Eli Lilly & Co.

      326,560         27,068,558   

Johnson & Johnson

      408,844         51,199,534   

Pfizer, Inc.

      803,916         29,656,461   

Teva Pharmaceutical Industries, Ltd. ADR

      317,148         16,967,418   
     

 

 

  
      $ 198,691,940   
     

 

 

  

Real Estate Investment Trusts (REITs) — 3.9%

      

Equity Residential

      330,802       $ 22,491,228   

Federal Realty Investment Trust

      120,330         20,420,001   

Simon Property Group, Inc.

      105,520         23,957,261   
     

 

 

  
      $ 66,868,490   
     

 

 

  

Semiconductors & Semiconductor Equipment — 3.7%

      

Intel Corp.

      736,374       $ 25,669,998   

NXP Semiconductors NV(1)

      459,691         38,655,416   
     

 

 

  
      $ 64,325,414   
     

 

 

  

Software — 3.5%

      

Microsoft Corp.

      1,066,778       $ 60,464,977   
     

 

 

  
      $ 60,464,977   
     

 

 

  

Specialty Retail — 4.0%

      

Home Depot, Inc. (The)

      245,527       $ 33,941,652   

Lowe’s Cos., Inc.

      310,183         25,521,857   

Sally Beauty Holdings, Inc.(1)

      293,587         8,610,907   
     

 

 

  
      $ 68,074,416   
     

 

 

  

Technology Hardware, Storage & Peripherals — 3.7%

      

Apple, Inc.

      607,555       $ 63,313,307   
     

 

 

  
      $ 63,313,307   
     

 

 

  

Textiles, Apparel & Luxury Goods — 1.6%

      

NIKE, Inc., Class B

      482,954       $ 26,803,947   
     

 

 

  
      $ 26,803,947   
     

 

 

  

Tobacco — 2.4%

      

Altria Group, Inc.

      604,761       $ 40,942,320   
     

 

 

  
      $ 40,942,320   
     

 

 

  

Total Common Stocks
(identified cost $1,507,771,138)

       $ 1,717,948,037   
     

 

 

  

Short-Term Investments — 0.6%

      
Description    Interest
(000’s omitted)		      Value  

Eaton Vance Cash Reserves Fund, LLC, 0.56%(2)

    $ 9,958       $ 9,957,757   
     

 

 

  

Total Short-Term Investments
(identified cost $9,957,757)

       $ 9,957,757   
     

 

 

  

Total Investments — 100.7%
(identified cost $1,517,728,895)

       $     1,727,905,794   
     

 

 

  

 

3

 

 

                                                                                                   

Call Options Written — (0.6)%

            
Description    Number of
Contracts		      Strike
Price		      Expiration
Date		      Value  

S&P 500 Index

      475       $ 2,100         8/3/16       $ (3,505,500 ) 

S&P 500 Index

      475         2,135         8/5/16         (1,902,375 ) 

S&P 500 Index

      470         2,170         8/10/16         (693,250 ) 

S&P 500 Index

      470         2,180         8/12/16         (505,250 ) 

S&P 500 Index

      470         2,175         8/17/16         (730,850 ) 

S&P 500 Index

      465         2,165         8/19/16         (1,046,250 ) 

S&P 500 Index

      470         2,180         8/24/16         (756,700 ) 

S&P 500 Index

      465         2,180         8/26/16         (812,178 ) 
           

 

 

  

Total Call Options Written
(premiums received $6,769,698)

             $ (9,952,353 ) 
           

 

 

  

Other Assets, Less Liabilities — (0.1)%

             $ (1,970,599 ) 
           

 

 

  

Net Assets — 100.0%

             $     1,715,982,842   
           

 

 

  

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 July 31, 2016. Net income allocated from the investment in Eaton Vance Cash Reserves Fund, LLC for the fiscal year to date ended July 31, 2016 was $47,071.

Forward Foreign Currency Exchange Contracts

 

Currency
Purchased		      Currency
Sold		     

Counterparty

    Settlement
Date		      Unrealized
Appreciation		      Unrealized
(Depreciation)		  
USD      8,672,936       JPY      921,127,395       State Street Bank and Trust Company      8/31/16       $     —       $     (363,411 ) 

Abbreviations:

 

ADR

   -   American Depositary Receipt

Currency Abbreviations:

 

JPY

   -   Japanese Yen

USD

   -   United States Dollar

Written options activity for the fiscal year to date ended July 31, 2016 was as follows:

 

     Number of
Contracts		      Premiums
Received		  
Outstanding, beginning of period      4,135       $ 7,580,439   
Options written      38,325         79,424,590   
Options terminated in closing purchase transactions      (19,730 )       (44,629,278 ) 
Options exercised      (1,915 )       (3,180,234 ) 
Options expired      (17,055 )       (32,425,819 ) 
  

 

 

     

 

 

  

Outstanding, end of period

      3,760       $ 6,769,698   
  

 

 

     

 

 

  

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 July 31, 2016, the Fund had sufficient cash and/or securities to cover commitments under open derivative 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.

 

4

 

 

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, 2016 was as follows:

 

          Fair Value  

Risk

   

Derivative

    Asset
Derivative		      Liability
Derivative		  
Equity Price    Options Written    $ —       $ (9,952,353 ) 
     

 

 

     

 

 

  

Total

       $ —       $     (9,952,353 ) 
     

 

 

     

 

 

  
        
Foreign Exchange    Forward Foreign Currency Exchange Contracts    $ —       $ (363,411 ) 
     

 

 

     

 

 

  

Total

       $     —       $ (363,411 ) 
     

 

 

     

 

 

  

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

 

Aggregate cost

    $     1,520,111,673   
  

 

 

  

Gross unrealized appreciation

    $ 238,444,610   

Gross unrealized depreciation

      (30,650,489 ) 
  

 

 

  

Net unrealized appreciation

    $ 207,794,121   
  

 

 

  

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 July 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

            

Consumer Discretionary

    $ 231,954,860       $ 8,322,778       $ —       $ 240,277,638   

Consumer Staples

      147,083,979         —         —         147,083,979   

Energy

      97,349,052         17,804,543         —         115,153,595   

Financials

      245,033,207         —         —         245,033,207   

Health Care

      258,154,070         —         —         258,154,070   

Industrials

      173,317,222         8,654,436         —         181,971,658   

Information Technology

      372,166,678         —         —         372,166,678   

Materials

      43,344,794         —         —         43,344,794   

Telecommunication Services

      55,273,327         —         —         55,273,327   

Utilities

      59,489,091         —         —         59,489,091   

Total Common Stocks

    $ 1,683,166,280       $ 34,781,757 *     $ —       $ 1,717,948,037   

Short-Term Investments

    $ —       $ 9,957,757       $ —       $ 9,957,757   

Total Investments

    $     1,683,166,280       $     44,739,514       $     —       $     1,727,905,794   
Liability Description                                

Call Options Written

    $ (9,952,353 )     $ —       $ —       $ (9,952,353 ) 

Forward Foreign Currency Exchange Contracts

      —         (363,411 )       —         (363,411 ) 

Total

    $ (9,952,353 )     $ (363,411 )     $ —       $ (10,315,764 ) 

 

* 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.

 

5

 

 

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

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.

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.

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

 

6

 

 

Item 2. Controls and Procedures

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

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

Signatures

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

Eaton Vance Tax-Managed Diversified Equity Income Fund

 

By:   /s/ Michael A. Allison
  Michael A. Allison
  President
Date:   September 26, 2016

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

By:   /s/ Michael A. Allison
  Michael A. Allison
  President
Date:   September 26, 2016

 

By:   /s/ James F. Kirchner
  James F. Kirchner
  Treasurer
Date:   September 26, 2016