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, 2016

Date of Reporting Period

 

 

 

Item 1. Schedule of Investments

Eaton Vance

Tax-Managed Diversified Equity Income Fund

January 31, 2016

PORTFOLIO OF INVESTMENTS (Unaudited)

Common Stocks — 100.2%

 

                                                 
Security    Shares      Value  

Aerospace & Defense — 1.9%

      

United Technologies Corp.

      360,783       $ 31,637,061   
     

 

 

  
      $ 31,637,061   
     

 

 

  

Air Freight & Logistics — 1.1%

      

C.H. Robinson Worldwide, Inc.

      297,050       $ 19,239,928   
     

 

 

  
      $ 19,239,928   
     

 

 

  

Banks — 3.7%

      

JPMorgan Chase & Co.

      701,875       $ 41,761,562   

PNC Financial Services Group, Inc. (The)

      236,584         20,500,004   
     

 

 

  
      $ 62,261,566   
     

 

 

  

Beverages — 2.2%

      

Constellation Brands, Inc., Class A

      240,749       $ 36,709,408   
     

 

 

  
      $ 36,709,408   
     

 

 

  

Biotechnology — 1.6%

      

Celgene Corp.(1)

      272,958       $ 27,383,147   
     

 

 

  
      $ 27,383,147   
     

 

 

  

Capital Markets — 3.2%

      

Credit Suisse Group AG

      1,345,884       $ 23,842,828   

Credit Suisse Group AG(2)

      416,677         7,381,604   

Goldman Sachs Group, Inc. (The)

      137,625         22,234,695   
     

 

 

  
      $ 53,459,127   
     

 

 

  

Chemicals — 0.6%

      

PPG Industries, Inc.

      114,526       $ 10,893,713   
     

 

 

  
      $ 10,893,713   
     

 

 

  

Consumer Finance — 1.6%

      

Synchrony Financial(1)

      974,047       $ 27,682,416   
     

 

 

  
      $ 27,682,416   
     

 

 

  

Diversified Telecommunication Services — 2.7%

      

Verizon Communications, Inc.

      595,289       $ 29,746,591   

Zayo Group Holdings, Inc.(1)

      628,142         15,716,113   
     

 

 

  
      $ 45,462,704   
     

 

 

  

Electric Utilities — 2.0%

      

NextEra Energy, Inc.

      296,375       $ 33,108,051   
     

 

 

  
      $ 33,108,051   
     

 

 

  

Electronic Equipment, Instruments & Components — 2.3%

      

Corning, Inc.

      2,066,928       $ 38,465,530   
     

 

 

  
      $ 38,465,530   
     

 

 

  

Energy Equipment & Services — 1.0%

      

Schlumberger, Ltd.

      242,648       $ 17,536,171   
     

 

 

  
      $ 17,536,171   
     

 

 

  

Food & Staples Retailing — 1.9%

      

Kroger Co. (The)

      817,423       $ 31,724,187   
     

 

 

  
      $ 31,724,187   
     

 

 

  

 

1

 

 

                                                 
Security    Shares      Value  

Food Products — 3.9%

      

General Mills, Inc.

      617,234       $ 34,879,893   

Mondelez International, Inc., Class A

      715,696         30,846,498   
     

 

 

  
      $ 65,726,391   
     

 

 

  

Health Care Equipment & Supplies — 1.7%

      

Medtronic PLC

      379,699       $ 28,826,748   
     

 

 

  
      $ 28,826,748   
     

 

 

  

Household Durables — 1.0%

      

Newell Rubbermaid, Inc.

      443,292       $ 17,190,864   
     

 

 

  
      $ 17,190,864   
     

 

 

  

Industrial Conglomerates — 5.8%

      

Danaher Corp.

      492,114       $ 42,641,678   

General Electric Co.

      1,910,468         55,594,619   
     

 

 

  
      $ 98,236,297   
     

 

 

  

Insurance — 4.7%

      

Aflac, Inc.

      435,917       $ 25,265,749   

American Financial Group, Inc.

      188,740         13,396,765   

MetLife, Inc.

      310,422         13,860,342   

XL Group PLC

      724,283         26,262,502   
     

 

 

  
      $ 78,785,358   
     

 

 

  

Internet & Catalog Retail — 2.9%

      

Amazon.com, Inc.(1)

      83,757       $ 49,165,359   
     

 

 

  
      $ 49,165,359   
     

 

 

  

Internet Software & Services — 6.8%

      

Alphabet, Inc., Class C(1)

      100,446       $ 74,626,356   

Facebook, Inc., Class A(1)

      349,966         39,269,685   
     

 

 

  
      $ 113,896,041   
     

 

 

  

IT Services — 3.2%

      

Visa, Inc., Class A

      717,702       $ 53,461,622   
     

 

 

  
      $ 53,461,622   
     

 

 

  

Media — 3.9%

      

Live Nation Entertainment, Inc.(1)

      851,054       $ 19,318,926   

Walt Disney Co. (The)

      492,678         47,208,406   
     

 

 

  
      $ 66,527,332   
     

 

 

  

Multi-Utilities — 1.7%

      

Sempra Energy

      309,027       $ 29,280,308   
     

 

 

  
      $ 29,280,308   
     

 

 

  

Multiline Retail — 2.2%

      

Dollar General Corp.

      269,452       $ 20,225,067   

Target Corp.

      232,568         16,842,575   
     

 

 

  
      $ 37,067,642   
     

 

 

  

Oil, Gas & Consumable Fuels — 5.3%

      

Chevron Corp.

      286,837       $ 24,802,795   

Devon Energy Corp.

      498,183         13,899,306   

EOG Resources, Inc.

      163,803         11,633,289   

Occidental Petroleum Corp.

      338,315         23,286,221   

Royal Dutch Shell PLC, Class B

      756,604         16,484,835   
     

 

 

  
      $ 90,106,446   
     

 

 

  

Pharmaceuticals — 11.3%

      

Allergan PLC(1)

      111,690       $ 31,767,987   

Bristol-Myers Squibb Co.

      370,426         23,025,680   

 

2

 

 

                                                 
Security    Shares      Value  

Eli Lilly & Co.

      308,417       $ 24,395,785   

Johnson & Johnson

      490,074         51,183,328   

Perrigo Co. PLC

      240,790         34,813,418   

Teva Pharmaceutical Industries, Ltd. ADR

      412,620         25,367,878   
     

 

 

  
      $ 190,554,076   
     

 

 

  

Real Estate Investment Trusts (REITs) — 2.9%

      

Equity Residential

      324,659       $ 25,027,962   

Federal Realty Investment Trust

      156,199         23,559,495   
     

 

 

  
      $ 48,587,457   
     

 

 

  

Semiconductors & Semiconductor Equipment — 3.8%

      

Intel Corp.

      1,087,960       $ 33,748,519   

NXP Semiconductors NV(1)

      400,915         29,980,424   
     

 

 

  
      $ 63,728,943   
     

 

 

  

Software — 4.7%

      

Microsoft Corp.

      432,252       $ 23,812,763   

Oracle Corp.

      1,047,327         38,028,443   

Tableau Software, Inc., Class A(1)

      207,508         16,650,442   
     

 

 

  
      $ 78,491,648   
     

 

 

  

Technology Hardware, Storage & Peripherals — 3.7%

      

Apple, Inc.

      635,510       $ 61,860,543   
     

 

 

  
      $ 61,860,543   
     

 

 

  

Textiles, Apparel & Luxury Goods — 3.2%

      

Hanesbrands, Inc.

      638,809       $ 19,528,391   

NIKE, Inc., Class B

      559,769         34,711,276   
     

 

 

  
      $ 54,239,667   
     

 

 

  

Tobacco — 1.7%

      

Altria Group, Inc.

      481,156       $ 29,403,443   
     

 

 

  
      $ 29,403,443   
     

 

 

  

Total Common Stocks — 100.2%
(identified cost $1,651,201,512)

       $ 1,690,699,194   
     

 

 

  

Short-Term Investments — 0.2%

      
Description    Interest
(000’s omitted)		      Value  

Eaton Vance Cash Reserves Fund, LLC, 0.40%(3)

    $ 3,879       $ 3,879,287   
     

 

 

  

Total Short-Term Investments
(identified cost $3,879,287)

       $ 3,879,287   
     

 

 

  

Total Investments — 100.4%
(identified cost $1,655,080,799)

       $ 1,694,578,481   
     

 

 

  

Call Options Written — (0.6)%

      

 

                                                                                                   
Description    Number of
Contracts		      Strike
Price		      Expiration
Date		     

Value

  

S&P 500 Index

      1,250       $ 1,980         2/5/16       $ (384,375 ) 

S&P 500 Index

      850         1,930         2/12/16         (2,584,000 ) 

S&P 500 Index

      1,055         1,930         2/19/16         (3,602,825 ) 

S&P 500 Index

      920         1,935         2/26/16         (3,348,800 ) 
           

 

 

  

 

3

 

 

                        
      Value  

Total Call Options Written
(premiums received $9,917,383)

    $ (9,920,000 ) 
  

 

 

  

Other Assets, Less Liabilities — 0.2%

    $ 3,509,655   
  

 

 

  

Net Assets — 100.0%

    $ 1,688,168,136   
  

 

 

  

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

 

(1) Non-income producing security.

 

(2) Security was acquired in a private offering and may be resold on a designated offshore securities market pursuant to Regulation S under the Securities Act of 1933.

 

(3) 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, 2016. Net income allocated from the investment in Eaton Vance Cash Reserves Fund, LLC for the fiscal year to date ended January 31, 2016 was $7,996.

Abbreviations:

 

ADR

   -   American Depositary Receipt

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

 

     Number of
Contracts		      Premiums
Received		  
Outstanding, beginning of period      4,135       $ 7,580,439   
Options written      13,110         26,659,887   
Options terminated in closing purchase transactions      (4,570 )       (8,575,112 ) 
Options expired      (8,600 )       (15,747,831 ) 
  

 

 

     

 

 

  
Outstanding, end of period      4,075       $     9,917,383   
  

 

 

     

 

 

  

All of the assets of the Fund are subject to segregation to satisfy the requirements of the escrow agent. At January 31, 2016, the Fund had sufficient cash and/or securities to cover commitments under open derivative contracts.

The Fund is subject to equity price risk in the normal course of pursuing its investment objectives. 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.

At January 31, 2016, the aggregate fair value of open derivative instruments (not considered to be hedging instruments for accounting disclosure purposes) in a liability position and whose primary underlying risk exposure is equity price risk was $9,920,000.

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

 

Aggregate cost

    $     1,657,463,577   
  

 

 

  

Gross unrealized appreciation

    $ 148,267,374   

Gross unrealized depreciation

      (111,152,470 ) 
  

 

 

  

Net unrealized appreciation

    $ 37,114,904   
  

 

 

  

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.

 

4

 

 

•  

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, 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

    $ 224,190,864       $ —       $ —       $ 224,190,864   

Consumer Staples

      163,563,429         —         —         163,563,429   

Energy

      91,157,782         16,484,835         —         107,642,617   

Financials

      239,551,492         31,224,432         —         270,775,924   

Health Care

      246,763,971         —         —         246,763,971   

Industrials

      149,113,286         —         —         149,113,286   

Information Technology

      409,904,327         —         —         409,904,327   

Materials

      10,893,713         —         —         10,893,713   

Telecommunication Services

      45,462,704         —         —         45,462,704   

Utilities

      62,388,359         —         —         62,388,359   

Total Common Stocks

    $ 1,642,989,927       $ 47,709,267 *     $ —       $ 1,690,699,194   

Short-Term Investments

    $ —       $ 3,879,287       $ —       $ 3,879,287   

Total Investments

    $     1,642,989,927       $     51,588,554       $ —       $     1,694,578,481   
Liability Description                                

Call Options Written

    $ (9,920,000 )     $ —       $ —       $ (9,920,000 ) 

Total

    $ (9,920,000 )     $ —       $ —       $ (9,920,000 ) 

 

* 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, 2015 whose fair value was determined using Level 3 inputs. At January 31, 2016, 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.

 

5

 

 

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:   March 28, 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:   March 28, 2016

 

By:   /s/ James F. Kirchner
  James F. Kirchner
  Treasurer
Date:   March 28, 2016