UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Form N-CSR

 

 

CERTIFIED SHAREHOLDER REPORT OF REGISTERED

MANAGEMENT INVESTMENT COMPANIES

Investment Company Act File Number: 811-21832

 

 

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)

October 31

Date of Fiscal Year End

April 30, 2020

Date of Reporting Period

 

 

 


Item 1.

Reports to Stockholders


LOGO

 

 

Eaton Vance

Tax-Managed Diversified Equity Income Fund (ETY)

Semiannual Report

April 30, 2020

 

 

 

 

Important Note. Beginning on January 1, 2021, as permitted by regulations adopted by the Securities and Exchange Commission, paper copies of the Fund’s annual and semi-annual shareholder reports will no longer be sent by mail unless you specifically request paper copies of the reports. Instead, the reports will be made available on the Fund’s website (funds.eatonvance.com/closed-end-fund-and-term-trust-documents.php), and you will be notified by mail each time a report is posted and provided with a website address to access the report.

If you already elected to receive shareholder reports electronically, you will not be affected by this change and you need not take any action. If you hold shares at the Fund’s transfer agent, American Stock Transfer & Trust Company, LLC (“AST”), you may elect to receive shareholder reports and other communications from the Fund electronically by contacting AST. If you own your shares through a financial intermediary (such as a broker-dealer or bank), you must contact your financial intermediary to sign up.

You may elect to receive all future Fund shareholder reports in paper free of charge. If you hold shares at AST, you can inform AST that you wish to continue receiving paper copies of your shareholder reports by calling 1-866-439-6787. If you own these shares through a financial intermediary, you must contact your financial intermediary or follow instructions included with this disclosure, if applicable, to elect to continue to receive paper copies of your shareholder reports. Your election to receive reports in paper will apply to all funds held with AST or to all funds held through your financial intermediary, as applicable.

 

LOGO


Commodity Futures Trading Commission Registration. Effective December 31, 2012, the Commodity Futures Trading Commission (“CFTC”) adopted certain regulatory changes that subject registered investment companies and advisers to regulation by the CFTC if a fund invests more than a prescribed level of its assets in certain CFTC-regulated instruments (including futures, certain options and swap agreements) or markets itself as providing investment exposure to such instruments. The investment adviser has claimed an exclusion from the definition of “commodity pool operator” under the Commodity Exchange Act with respect to its management of the Fund. Accordingly, neither the Fund nor the adviser with respect to the operation of the Fund is subject to CFTC regulation. Because of its management of other strategies, the Fund’s adviser is registered with the CFTC as a commodity pool operator. The adviser is also registered as a commodity trading advisor.

Managed Distribution Plan. Pursuant to an exemptive order issued by the Securities and Exchange Commission (Order), the Fund is authorized to distribute long-term capital gains to shareholders more frequently than once per year. Pursuant to the Order, the Fund’s Board of Trustees approved a Managed Distribution Plan (MDP) pursuant to which the Fund makes monthly cash distributions to common shareholders, stated in terms of a fixed amount per common share.

The Fund currently distributes monthly cash distributions equal to $0.0843 per share in accordance with the MDP. You should not draw any conclusions about the Fund’s investment performance from the amount of these distributions or from the terms of the MDP. The MDP will be subject to regular periodic review by the Fund’s Board of Trustees and the Board may amend or terminate the MDP at any time without prior notice to Fund shareholders. However, at this time there are no reasonably foreseeable circumstances that might cause the termination of the MDP.

The Fund may distribute more than its net investment income and net realized capital gains and, therefore, a distribution may include a return of capital. A return of capital distribution does not necessarily reflect the Fund’s investment performance and should not be confused with “yield” or “income.” With each distribution, the Fund will issue a notice to shareholders and a press release containing information about the amount and sources of the distribution and other related information. The amounts and sources of distributions contained in the notice and press release are only estimates and are not provided for tax purposes. The amounts and sources of the Fund’s distributions for tax purposes will be reported to shareholders on Form 1099-DIV for each calendar year.

Fund shares are not insured by the FDIC and are not deposits or other obligations of, or guaranteed by, any depository institution. Shares are subject to investment risks, including possible loss of principal invested.


Semiannual Report April 30, 2020

Eaton Vance

Tax-Managed Diversified Equity Income Fund

Table of Contents

 

Performance

     2  

Fund Profile

     2  

Fund Snapshot

     3  

Endnotes and Additional Disclosures

     4  

Financial Statements

     5  

Board of Trustees’ Contract Approval

     17  

Officers and Trustees

     21  

Important Notices

     22  


Eaton Vance

Tax-Managed Diversified Equity Income Fund

April 30, 2020

 

Performance1

 

Portfolio Managers Michael A. Allison, CFA and G.R. Nelson

 

% Average Annual Total Returns

   Inception Date      Six Months      One Year      Five Years      Ten Years  

Fund at NAV

     11/30/2006        –4.01      –1.55      6.62      8.46

Fund at Market Price

            –8.98        –5.94        7.26        7.55  

S&P 500® Index

            –3.16      0.86      9.11      11.68

Cboe S&P 500 BuyWrite IndexSM

            –16.81        –13.18        2.05        4.77  
              
% Premium/Discount to NAV2                                        
                 –4.78
              
Distributions3                                        

Total Distributions per share for the period

               $ 0.506  

Distribution Rate at NAV

                 9.29

Distribution Rate at Market Price

                 9.76

Fund Profile

 

 

Sector Allocation (% of total investments)4

 

 

LOGO

Top 10 Holdings (% of total investments)4

 

 

Microsoft Corp.

     7.3

Amazon.com, Inc.

     6.2  

Apple, Inc.

     5.2  

Intel Corp.

     2.8  

Visa, Inc., Class A

     2.7  

JPMorgan Chase & Co.

     2.6  

Verizon Communications, Inc.

     2.6  

Vertex Pharmaceuticals, Inc.

     2.6  

Abbott Laboratories

     2.6  

Bank of America Corp.

     2.5  

Total

     37.1
 

 

See Endnotes and Additional Disclosures in this report.

Past performance is no guarantee of future results. Returns are historical and are calculated net of management fees and other expenses by determining the percentage change in net asset value (NAV) or market price (as applicable) with all distributions reinvested in accordance with the Fund’s Dividend Reinvestment Plan. Performance at market price will differ from performance at NAV due to variations in the Fund’s market price versus NAV, which may reflect factors such as fluctuations in supply and demand for Fund shares, changes in Fund distributions, shifting market expectations for the Fund’s future returns and distribution rates, and other considerations affecting the trading prices of closed-end funds. Investment return and principal value will fluctuate so that shares, when sold, may be worth more or less than their original cost. Performance for periods less than or equal to one year is cumulative. Performance is for the stated time period only; due to market volatility, current Fund performance may be lower or higher than the quoted return. For performance as of the most recent month-end, please refer to eatonvance.com.

 

  2  


Eaton Vance

Tax-Managed Diversified Equity Income Fund

April 30, 2020

 

Fund Snapshot

 

 

 

Objective    The primary investment objective is to provide current income and gains, with a secondary objective of capital appreciation.

 

 
 

Strategy    The Fund invests in a diversified portfolio of domestic and foreign common stocks with an emphasis on dividend paying stocks and writes (sells) S&P 500® Index call options with respect to a portion of the value of its common stock portfolio to generate current cash flow from the options premium received. The Fund evaluates returns on an after tax basis and seeks to minimize and defer federal income taxes incurred by shareholders in connection with their investment in the Fund.

 

 

 

 

 

Options Strategy

   Write Index Covered Calls  
 

Equity Benchmark1

   S&P 500® Index    
 

Morningstar Category

   Option Writing  
 

Distribution Frequency

   Monthly  
 

Common Stock Portfolio

      
 

Positions Held

   50  
 

% US / Non-US

   95.9/4.1  
 

Average Market Cap

   $381.4 Billion  
 

Call Options Written

      
 

% of Stock Portfolio

   48%  
 

Average Days to Expiration

   14 days  
 

% In the Money

   –4.7%  
 

 

The following terms as used in the Fund snapshot:

 

 
             Average Market Cap: An indicator of the size of the
companies in which the Fund invests and is the sum of each
security’s weight in the portfolio multiplied by its market cap.
Market Cap is determined by multiplying the price of a share
of a company’s common stock by the number of shares
outstanding.

 

   
    Call Option: For an index call option, the buyer has the right
to receive from the seller (or writer) a cash payment at the
option expiration date equal to any positive difference
between the value of the index at contract expiration and the
exercise price. The buyer of a call option makes a cash
payment (premium) to the seller (writer) of the option upon
entering into the option contract.

 

   
    Covered Call Strategy: A strategy of owning a portfolio of
common stocks and writing call options on all or a portion of
such stocks to generate current earnings from option
premium.

    
In the Money: For a call option on an index, the extent to
which the current price of the index exceeds the exercise price
of the option.

 

   

See Endnotes and Additional Disclosures in this report.

 

 

  3  


Eaton Vance

Tax-Managed Diversified Equity Income Fund

April 30, 2020

 

Endnotes and Additional Disclosures

 

 

1

S&P 500® Index is an unmanaged index of large-cap stocks commonly used as a measure of U.S. stock market performance. S&P Dow Jones Indices are a product of S&P Dow Jones Indices LLC (“S&P DJI”) and have been licensed for use. S&P® and S&P 500® are registered trademarks of S&P DJI; Dow Jones® is a registered trademark of Dow Jones Trademark Holdings LLC (“Dow Jones”); S&P DJI, Dow Jones and their respective affiliates do not sponsor, endorse, sell or promote the Fund, will not have any liability with respect thereto and do not have any liability for any errors, omissions, or interruptions of the S&P Dow Jones Indices. Cboe S&P 500 BuyWrite IndexSM measures the performance of a hypothetical buy-write strategy on the S&P 500® Index. Unless otherwise stated, index returns do not reflect the effect of any applicable sales charges, commissions, expenses, taxes or leverage, as applicable. It is not possible to invest directly in an index.

 

2 

The shares of the Fund often trade at a discount or premium to their net asset value. The discount or premium may vary over time and may be higher or lower than what is quoted in this report. For up-to-date premium/discount information, please refer to https://funds.eatonvance.com/closed-end-fund-prices.php.

 

3 

The Distribution Rate is based on the Fund’s last regular distribution per share in the period (annualized) divided by the Fund’s NAV or market price at the end of the period. The Fund’s distributions may be comprised of amounts characterized for federal income tax purposes as qualified and non-qualified ordinary dividends, capital gains and nondividend distributions, also known as return of capital. As of 4/30/2020, distributions included estimates of return of capital. For additional information about nondividend distributions, please refer to Eaton Vance Closed-End Fund Distribution Notices (19a) posted on our website, eatonvance.com. The Fund will determine the federal income tax character of distributions paid to a shareholder after the end of the calendar year. This is reported on the IRS form 1099-DIV and provided to the shareholder shortly after each year-end. For information about the tax character of distributions made in prior calendar years, please refer to Performance-Tax Character of Distributions on the Fund’s webpage available at eatonvance.com. In recent years, a significant portion of the Fund’s distributions has been characterized as a return of capital. The Fund’s distributions are determined by the investment adviser based on its current assessment of the Fund’s long-term return potential. Fund distributions may be affected by numerous factors including changes in Fund performance, the cost of financing for leverage, portfolio holdings, realized and projected returns, and other factors. As portfolio and market conditions change, the rate of distributions paid by the Fund could change.

 

4

Depictions do not reflect the Fund’s option positions. Excludes cash and cash equivalents.

 

  

Fund snapshot and profile subject to change due to active management.

 

 

  4  


Eaton Vance

Tax-Managed Diversified Equity Income Fund

April 30, 2020

 

Portfolio of Investments (Unaudited)

 

 

Common Stocks — 101.8%

 

Security   Shares     Value  
Banks — 6.3%  

Bank of America Corp.(1)

    1,788,891     $ 43,022,828  

JPMorgan Chase & Co.(1)

    462,060       44,246,866  

PNC Financial Services Group, Inc. (The)

    152,607       16,278,589  
      $ 103,548,283  
Beverages — 1.8%  

PepsiCo, Inc.

    220,432     $ 29,160,949  
      $ 29,160,949  
Biotechnology — 2.6%  

Vertex Pharmaceuticals, Inc. (1) (2)

    173,803     $ 43,659,314  
      $ 43,659,314  
Capital Markets — 1.5%  

Goldman Sachs Group, Inc. (The)(1)

    135,651     $ 24,881,106  
      $ 24,881,106  
Commercial Services & Supplies — 1.5%  

Waste Management, Inc.

    241,628     $ 24,167,633  
      $ 24,167,633  
Communications Equipment — 1.6%  

Cisco Systems, Inc.

    614,667     $ 26,049,588  
      $ 26,049,588  
Consumer Finance — 1.6%  

American Express Co.(1)

    292,496     $ 26,690,260  
      $ 26,690,260  
Diversified Telecommunication Services — 2.6%  

Verizon Communications, Inc.(1)

    763,034     $ 43,836,303  
      $ 43,836,303  
Electric Utilities — 1.8%  

NextEra Energy, Inc.(1)

    127,173     $ 29,392,224  
      $ 29,392,224  
Electrical Equipment — 1.9%  

Eaton Corp. PLC(1)

    377,278     $ 31,502,713  
      $ 31,502,713  
Security   Shares     Value  
Entertainment — 2.2%  

Walt Disney Co. (The)(1)

    330,648     $ 35,759,581  
      $ 35,759,581  
Equity Real Estate Investment Trusts (REITs) — 2.4%  

American Tower Corp.

    89,020     $ 21,186,760  

AvalonBay Communities, Inc.

    114,456       18,650,605  
      $ 39,837,365  
Food & Staples Retailing — 1.4%  

Walmart, Inc.

    194,887     $ 23,688,515  
      $ 23,688,515  
Food Products — 1.7%  

Mondelez International, Inc., Class A(1)

    551,080     $ 28,347,555  
      $ 28,347,555  
Health Care Equipment & Supplies — 5.1%  

Abbott Laboratories(1)

    470,537     $ 43,331,752  

Danaher Corp.(1)

    254,345       41,575,234  
      $ 84,906,986  
Health Care Providers & Services — 2.2%  

UnitedHealth Group, Inc.(1)

    127,173     $ 37,194,287  
      $ 37,194,287  
Hotels, Restaurants & Leisure — 1.3%  

Starbucks Corp.

    275,540     $ 21,142,184  
      $ 21,142,184  
Household Durables — 0.9%  

D.R. Horton, Inc.

    326,409     $ 15,413,033  
      $ 15,413,033  
Household Products — 2.5%  

Procter & Gamble Co. (The)(1)

    347,605     $ 40,972,201  
      $ 40,972,201  
Insurance — 2.0%  

Progressive Corp. (The)(1)

    423,908     $ 32,768,088  
      $ 32,768,088  
 

 

  5   See Notes to Financial Statements.


Eaton Vance

Tax-Managed Diversified Equity Income Fund

April 30, 2020

 

Portfolio of Investments (Unaudited) — continued

 

 

Security   Shares     Value  
Interactive Media & Services — 4.1%  

Alphabet, Inc., Class C(2)

    24,664     $ 33,263,350  

Facebook, Inc., Class A(1)(2)

    165,324       33,843,476  
      $ 67,106,826  
Internet & Direct Marketing Retail — 6.3%  

Amazon.com, Inc.(1)(2)

    42,390     $ 104,872,860  
      $ 104,872,860  
IT Services — 6.1%  

Accenture PLC, Class A(1)

    199,236     $ 36,896,515  

GoDaddy, Inc., Class A(2)

    262,823       18,247,801  

Visa, Inc., Class A(1)

    258,584       46,214,132  
      $ 101,358,448  
Machinery — 2.0%  

Caterpillar, Inc.(1)

    279,780     $ 32,560,796  
      $ 32,560,796  
Metals & Mining — 2.5%  

Franco-Nevada Corp.

    186,520     $ 24,659,809  

Rio Tinto PLC ADR

    351,844       16,251,675  
      $ 40,911,484  
Multi-Utilities — 1.2%  

Sempra Energy

    165,324     $ 20,475,377  
      $ 20,475,377  
Oil, Gas & Consumable Fuels — 3.1%  

Chevron Corp.

    224,672     $ 20,669,824  

ConocoPhillips

    250,106       10,529,462  

EOG Resources, Inc.

    224,672       10,674,167  

Phillips 66

    135,651       9,925,584  
      $ 51,799,037  
Pharmaceuticals — 5.6%  

Bristol-Myers Squibb Co.(1)

    576,515     $ 35,057,877  

Sanofi

    284,019       27,741,195  

Zoetis, Inc.

    224,672       29,052,337  
      $ 91,851,409  
Road & Rail — 2.0%  

CSX Corp.

    491,733     $ 32,567,477  
      $ 32,567,477  
Security   Shares     Value  
Semiconductors & Semiconductor Equipment — 4.9%  

Intel Corp.(1)

    805,425     $ 48,309,392  

Texas Instruments, Inc.(1)

    288,258       33,458,106  
      $ 81,767,498  
Software — 9.3%  

Intuit, Inc.

    105,977     $ 28,593,654  

Microsoft Corp.(1)

    695,209       124,588,405  
      $ 153,182,059  
Specialty Retail — 2.6%  

Best Buy Co., Inc.(1)

    173,803     $ 13,335,904  

Lowe’s Cos., Inc.(1)

    284,019       29,750,991  
      $ 43,086,895  
Technology Hardware, Storage & Peripherals — 5.4%  

Apple, Inc.(1)

    300,974     $ 88,426,161  
      $ 88,426,161  
Textiles, Apparel & Luxury Goods — 1.8%  

NIKE, Inc., Class B

    334,888     $ 29,195,536  
      $ 29,195,536  

Total Common Stocks
(identified cost $1,250,605,108)

 

  $ 1,682,080,031  
Short-Term Investments — 0.9%

 

Description   Units     Value  

Eaton Vance Cash Reserves Fund, LLC, 0.47%(3)

    14,163,952     $ 14,163,952  

Total Short-Term Investments
(identified cost $14,162,532)

 

  $ 14,163,952  

Total Investments — 102.7%
(identified cost $1,264,767,640)

 

  $ 1,696,243,983  

Total Written Call Options — (2.7)%
(premiums received $26,502,181)

 

  $ (45,044,405

Other Assets, Less Liabilities — 0.0%(4)

 

  $ 243,230  

Net Assets — 100.0%

 

  $ 1,651,442,808  

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

 

 

  6   See Notes to Financial Statements.


Eaton Vance

Tax-Managed Diversified Equity Income Fund

April 30, 2020

 

Portfolio of Investments (Unaudited) — continued

 

 

(1) 

Security (or a portion thereof) has been pledged as collateral for written options.

 

(2) 

Non-income producing security.

 

(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 April 30, 2020.

 

(4) 

Amount is less than 0.05%.

 

 

Written Call Options — (2.7)%  
Exchange-Traded Options — (2.7)%  
Description    Number of
Contracts
     Notional
Amount
     Exercise
Price
     Expiration
Date
    Value  
S&P 500 Index      233      $ 67,859,619      $ 2,650        5/1/20     $ (6,054,505
S&P 500 Index      235        68,442,105        2,650        5/4/20       (6,112,350
S&P 500 Index      231        67,277,133        2,800        5/6/20       (2,802,030
S&P 500 Index      230        66,985,890        2,800        5/8/20       (2,926,750
S&P 500 Index      227        66,112,161        2,800        5/11/20       (2,989,590
S&P 500 Index      226        65,820,918        2,750        5/13/20       (4,068,000
S&P 500 Index      227        66,112,161        2,750        5/15/20       (4,204,040
S&P 500 Index      228        66,403,404        2,850        5/18/20       (2,495,460
S&P 500 Index      234        68,150,862        2,725        5/20/20       (4,983,030
S&P 500 Index      228        66,403,404        2,800        5/22/20       (3,564,780
S&P 500 Index      228        66,403,404        2,850        5/26/20       (2,783,880
S&P 500 Index      226        65,820,918        2,900        5/27/20       (2,059,990

Total

                                      $ (45,044,405

Abbreviations:

 

ADR     American Depositary Receipt

 

  7   See Notes to Financial Statements.


Eaton Vance

Tax-Managed Diversified Equity Income Fund

April 30, 2020

 

Statement of Assets and Liabilities (Unaudited)

 

 

Assets    April 30, 2020  

Unaffiliated investments, at value (identified cost, $1,250,605,108)

   $ 1,682,080,031  

Affiliated investment, at value (identified cost, $14,162,532)

     14,163,952  

Dividends receivable

     2,094,422  

Dividends receivable from affiliated investment

     12,878  

Receivable for premiums on written options

     2,017,276  

Tax reclaims receivable

     24,537  

Total assets

   $ 1,700,393,096  
Liabilities

 

Written options outstanding, at value (premiums received, $26,502,181)

   $ 45,044,405  

Due to custodian

     2,017,276  

Payable to affiliates:

  

Investment adviser fee

     1,296,299  

Trustees’ fees

     7,652  

Accrued expenses

     584,656  

Total liabilities

   $ 48,950,288  

Net Assets

   $ 1,651,442,808  
Sources of Net Assets

 

Common shares, $0.01 par value, unlimited number of shares authorized, 151,717,016 shares issued and outstanding

   $ 1,517,170  

Additional paid-in capital

     1,357,347,440  

Distributable earnings

     292,578,198  

Net Assets

   $ 1,651,442,808  
Net Asset Value         

($1,651,442,808 ÷ 151,717,016 common shares issued and outstanding)

   $ 10.89  

 

  8   See Notes to Financial Statements.


Eaton Vance

Tax-Managed Diversified Equity Income Fund

April 30, 2020

 

Statement of Operations (Unaudited)

 

 

Investment Income   

Six Months Ended

April 30, 2020

 

Dividends (net foreign taxes, $7,097)

   $ 17,533,998  

Dividends from affiliated investment

     172,937  

Total investment income

   $ 17,706,935  
Expenses         

Investment adviser fee

   $ 8,708,084  

Trustees’ fees and expenses

     46,145  

Custodian fee

     216,912  

Transfer and dividend disbursing agent fees

     9,759  

Legal and accounting services

     53,106  

Printing and postage

     280,726  

Miscellaneous

     104,927  

Total expenses

   $ 9,419,659  

Net investment income

   $ 8,287,276  
Realized and Unrealized Gain (Loss)         

Net realized gain (loss) —

  

Investment transactions

   $ (9,960,875

Investment transactions — affiliated investment

     (12,436

Written options

     (43,517,812

Foreign currency transactions

     114,469  

Net realized loss

   $ (53,376,654

Change in unrealized appreciation (depreciation) —

  

Investments

   $ (14,731,475

Investments — affiliated investment

     799  

Written options

     (13,686,079

Foreign currency

     (7,160

Net change in unrealized appreciation (depreciation)

   $ (28,423,915

Net realized and unrealized loss

   $ (81,800,569

Net decrease in net assets from operations

   $ (73,513,293

 

  9   See Notes to Financial Statements.


Eaton Vance

Tax-Managed Diversified Equity Income Fund

April 30, 2020

 

Statements of Changes in Net Assets

 

 

Increase (Decrease) in Net Assets    Six Months Ended
April 30, 2020
(Unaudited)
    

Year Ended

October 31, 2019

 

From operations —

     

Net investment income

   $ 8,287,276      $ 15,065,428  

Net realized gain (loss)

     (53,376,654      90,237,036  

Net change in unrealized appreciation (depreciation)

     (28,423,915      48,062,137  

Net increase (decrease) in net assets from operations

   $ (73,513,293    $ 153,364,601  

Distributions to shareholders

   $ (76,518,053 )*     $ (97,061,994

Tax return of capital to shareholders

   $      $ (54,494,528

Capital share transactions —

     

Proceeds from shelf offering, net of offering costs (see Note 5)

   $ 16,857,924      $ 1,882,126  

Reinvestment of distributions

     2,252,483        3,118,883  

Net increase in net assets from capital share transactions

   $ 19,110,407      $ 5,001,009  

Net increase (decrease) in net assets

   $ (130,920,939    $ 6,809,088  
Net Assets

 

At beginning of period

   $ 1,782,363,747      $ 1,775,554,659  

At end of period

   $ 1,651,442,808      $ 1,782,363,747  

 

*

A portion of the distributions may be deemed a tax return of capital at year-end. See Note 2.

 

  10   See Notes to Financial Statements.


Eaton Vance

Tax-Managed Diversified Equity Income Fund

April 30, 2020

 

Financial Highlights

 

 

    Six Months Ended
April 30, 2020
(Unaudited)
    Year Ended October 31,  
    2019     2018     2017     2016     2015  
             

Net asset value — Beginning of period

  $ 11.870     $ 11.860     $ 11.960     $ 11.140     $ 12.010     $ 12.340  
Income (Loss) From Operations                                                

Net investment income(1)

  $ 0.055     $ 0.101     $ 0.082     $ 0.100     $ 0.119     $ 0.211  

Net realized and unrealized gain (loss)

    (0.530     0.921       0.830       1.732       0.023       0.471  

Total income (loss) from operations

  $ (0.475   $ 1.022     $ 0.912     $ 1.832     $ 0.142     $ 0.682  
Less Distributions                                                

From net investment income

  $ (0.506 )*    $ (0.100   $ (0.081   $ (0.096   $ (0.095   $ (0.212

From net realized gain

          (0.548     (0.486     (0.285     (0.071     (0.800

Tax return of capital

          (0.364     (0.445     (0.631     (0.846      

Total distributions

  $ (0.506   $ (1.012   $ (1.012   $ (1.012   $ (1.012   $ (1.012

Premium from common shares sold through shelf offering (see Note 5)(1)

  $ 0.001     $ 0.000 (2)      $     $     $     $  

Net asset value — End of period

  $ 10.890     $ 11.870     $ 11.860     $ 11.960     $ 11.140     $ 12.010  

Market value — End of period

  $ 10.370     $ 11.920     $ 11.460     $ 11.640     $ 10.290     $ 11.310  

Total Investment Return on Net Asset Value(3)

    (4.01 )%(4)       9.24     7.75     17.51     1.98     6.38

Total Investment Return on Market Value(3)

    (8.98 )%(4)       13.53 %      6.98     23.81     0.04     5.57
Ratios/Supplemental Data                                                

Net assets, end of period (000’s omitted)

  $ 1,651,443     $ 1,782,364     $ 1,775,555     $ 1,787,846     $ 1,665,148     $ 1,795,490  

Ratios (as a percentage of average daily net assets):

           

Expenses(5)

    1.08 %(6)      1.07     1.07     1.08     1.08     1.07

Net investment income

    0.95 %(6)      0.86     0.66     0.86     1.05     1.72

Portfolio Turnover

    25 %(4)      57     48     75     86     85

 

(1) 

Computed using average shares outstanding.

 

(2) 

Amount is less than $0.0005.

 

(3) 

Returns are historical and are calculated by determining the percentage change in net asset value or market value with all distributions reinvested. Distributions are assumed to be reinvested at prices obtained under the Fund’s dividend reinvestment plan.

 

(4) 

Not annualized.

 

(5) 

Excludes the effect of custody fee credits, if any, of less than 0.005%. Effective September 1, 2015, custody fee credits, which were earned on cash deposit balances, were discontinued by the custodian.

 

(6) 

Annualized.

 

*

A portion of the distributions may be deemed from net realized gain or a tax return of capital at year-end. See Note 2.

 

  11   See Notes to Financial Statements.


Eaton Vance

Tax-Managed Diversified Equity Income Fund

April 30, 2020

 

Notes to Financial Statements (Unaudited)

 

 

1  Significant Accounting Policies

Eaton Vance Tax-Managed Diversified Equity Income Fund (the Fund) is a Massachusetts business trust registered under the Investment Company Act of 1940, as amended (the 1940 Act), as a diversified, closed-end management investment company. The Fund’s primary investment objective is to provide current income and gains, with a secondary objective of capital appreciation.

The following is a summary of significant accounting policies of the Fund. The policies are in conformity with accounting principles generally accepted in the United States of America (U.S. GAAP). The Fund is an investment company and follows accounting and reporting guidance in the Financial Accounting Standards Board (FASB) Accounting Standards Codification Topic 946.

A  Investment Valuation — The following methodologies are used to determine the market value or fair value of investments.

Equity Securities. Equity securities listed on a U.S. securities exchange generally are valued at the last sale or closing price on the day of valuation or, if no sales took place on such date, at the mean between the closing bid and ask prices on the exchange where such securities are principally traded. Equity securities listed on the NASDAQ Global or Global Select Market generally are valued at the NASDAQ official closing price. Unlisted or listed securities for which closing sales prices or closing quotations are not available are valued at the mean between the latest available bid and ask prices.

Derivatives. U.S. exchange-traded options are valued at the mean between the bid and ask prices at valuation time as reported by the Options Price Reporting Authority. Non U.S. exchange-traded options and over-the-counter options are valued by a third party pricing service using techniques that consider factors including the value of the underlying instrument, the volatility of the underlying instrument and the period of time until option expiration.

Foreign Securities and Currencies. Foreign securities and currencies are valued in U.S. dollars, based on foreign currency exchange rate quotations supplied by a third party pricing service. The pricing service uses a proprietary model to determine the exchange rate. Inputs to the model include reported trades and implied bid/ask spreads. The daily valuation of exchange-traded foreign securities generally is determined as of the close of trading on the principal exchange on which such securities trade. Events occurring after the close of trading on foreign exchanges may result in adjustments to the valuation of foreign securities to more accurately reflect their fair value as of the close of regular trading on the New York Stock Exchange. When valuing foreign equity securities that meet certain criteria, the Fund’s Trustees have approved the use of a fair value service that values such securities to reflect market trading that occurs after the close of the applicable foreign markets of comparable securities or other instruments that have a strong correlation to the fair-valued securities.

Affiliated Fund. The Fund may invest in Eaton Vance Cash Reserves Fund, LLC (Cash Reserves Fund), an affiliated investment company managed by Eaton Vance Management (EVM). While Cash Reserves Fund is not a registered money market mutual fund, it conducts all of its investment activities in accordance with the requirements of Rule 2a-7 under the 1940 Act. Investments in Cash Reserves Fund are valued at the closing net asset value per unit on the valuation day. Cash Reserves Fund generally values its investment securities based on available market quotations provided by a third party pricing service.

Fair Valuation. Investments for which valuations or market quotations are not readily available or are deemed unreliable are valued at fair value using methods determined in good faith by or at the direction of the Trustees of the Fund in a manner that most fairly reflects the security’s “fair value”, which is the amount that the Fund might reasonably expect to receive for the security upon its current sale in the ordinary course. Each such determination is based on a consideration of relevant factors, which are likely to vary from one pricing context to another. These factors may include, but are not limited to, the type of security, the existence of any contractual restrictions on the security’s disposition, the price and extent of public trading in similar securities of the issuer or of comparable companies or entities, quotations or relevant information obtained from broker/dealers or other market participants, information obtained from the issuer, analysts, and/or the appropriate stock exchange (for exchange-traded securities), an analysis of the company’s or entity’s financial statements, and an evaluation of the forces that influence the issuer and the market(s) in which the security is purchased and sold.

B  Investment Transactions — Investment transactions for financial statement purposes are accounted for on a trade date basis. Realized gains and losses on investments sold are determined on the basis of identified cost.

C  Income — Dividend income is recorded on the ex-dividend date for dividends received in cash and/or securities. However, if the ex-dividend date has passed, certain dividends from foreign securities are recorded as the Fund is informed of the ex-dividend date. Withholding taxes on foreign dividends and capital gains have been provided for in accordance with the Fund’s understanding of the applicable countries’ tax rules and rates. In consideration of recent decisions rendered by European courts, the Fund has filed additional tax reclaims for previously withheld taxes on dividends earned in certain European Union countries. These filings are subject to various administrative and judicial proceedings within these countries. Due to the uncertainty as to the ultimate resolution of these proceedings, the likelihood of receipt of these reclaims, and the potential timing of payment, no amounts are reflected in the financial statements for such outstanding reclaims.

D  Federal Taxes — The Fund’s policy is to comply with the provisions of the Internal Revenue Code applicable to regulated investment companies and to distribute to shareholders each year substantially all of its net investment income, and all or substantially all of its net realized capital gains. Accordingly, no provision for federal income or excise tax is necessary.

As of April 30, 2020, the Fund had no uncertain tax positions that would require financial statement recognition, de-recognition, or disclosure. The Fund files a U.S. federal income tax return annually after its fiscal year-end, which is subject to examination by the Internal Revenue Service for a period of three years from the date of filing.

 

 

  12  


Eaton Vance

Tax-Managed Diversified Equity Income Fund

April 30, 2020

 

Notes to Financial Statements (Unaudited) — continued

 

 

E  Foreign Currency Translation — Investment valuations, other assets, and liabilities initially expressed in foreign currencies are translated each business day into U.S. dollars based upon current exchange rates. Purchases and sales of foreign investment securities and income and expenses denominated in foreign currencies are translated into U.S. dollars based upon currency exchange rates in effect on the respective dates of such transactions. Recognized gains or losses on investment transactions attributable to changes in foreign currency exchange rates are recorded for financial statement purposes as net realized gains and losses on investments. That portion of unrealized gains and losses on investments that results from fluctuations in foreign currency exchange rates is not separately disclosed.

F  Use of Estimates — The preparation of the financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of income and expense during the reporting period. Actual results could differ from those estimates.

G  Indemnifications — Under the Fund’s organizational documents, its officers and Trustees may be indemnified against certain liabilities and expenses arising out of the performance of their duties to the Fund. Under Massachusetts law, if certain conditions prevail, shareholders of a Massachusetts business trust (such as the Fund) could be deemed to have personal liability for the obligations of the Fund. However, the Fund’s Declaration of Trust contains an express disclaimer of liability on the part of Fund shareholders and the By-laws provide that the Fund shall assume, upon request by the shareholder, the defense on behalf of any Fund shareholders. Moreover, the By-laws also provide for indemnification out of Fund property of any shareholder held personally liable solely by reason of being or having been a shareholder for all loss or expense arising from such liability. Additionally, in the normal course of business, the Fund enters into agreements with service providers that may contain indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred.

H  Written Options — Upon the writing of a call or a put option, the premium received by the Fund is included in the Statement of Assets and Liabilities as a liability. The amount of the liability is subsequently marked-to-market to reflect the current market value of the option written, in accordance with the Fund’s policies on investment valuations discussed above. Premiums received from writing options which expire are treated as realized gains. Premiums received from writing options which are exercised or are closed are added to or offset against the proceeds or amount paid on the transaction to determine the realized gain or loss. When an index option is exercised, the Fund is required to deliver an amount of cash determined by the excess of the exercise price of the option over the value of the index (in the case of a put) or the excess of the value of the index over the exercise price of the option (in the case of a call) at contract termination. If a put option on a security is exercised, the premium reduces the cost basis of the securities purchased by the Fund. The Fund, as a writer of an option, may have no control over whether the underlying securities or other assets may be sold (call) or purchased (put) and, as a result, bears the market risk of an unfavorable change in the price of the securities or other assets underlying the written option. The Fund may also bear the risk of not being able to enter into a closing transaction if a liquid secondary market does not exist.

I  Interim Financial Statements — The interim financial statements relating to April 30, 2020 and for the six months then ended have not been audited by an independent registered public accounting firm, but in the opinion of the Fund’s management, reflect all adjustments, consisting only of normal recurring adjustments, necessary for the fair presentation of the financial statements.

2  Distributions to Shareholders and Income Tax Information

Subject to its Managed Distribution Plan, the Fund makes monthly distributions from its cash available for distribution, which consists of the Fund’s dividends and interest income after payment of Fund expenses, net option premiums and net realized and unrealized gains on stock investments. The Fund intends to distribute all or substantially all of its net realized capital gains. Distributions are recorded on the ex-dividend date. Distributions to shareholders are determined in accordance with income tax regulations, which may differ from U.S. GAAP. As required by U.S. GAAP, only distributions in excess of tax basis earnings and profits are reported in the financial statements as a return of capital. Permanent differences between book and tax accounting relating to distributions are reclassified to paid-in capital. For tax purposes, distributions from short-term capital gains are considered to be from ordinary income. Distributions in any year may include a substantial return of capital component. For the six months ended April 30, 2020, the amount of distributions estimated to be a tax return of capital was approximately $68,781,000. The final determination of tax characteristics of the Fund’s distributions will occur at the end of the year, at which time it will be reported to the shareholders.

The cost and unrealized appreciation (depreciation) of investments, including open derivative contracts, of the Fund at April 30, 2020, as determined on a federal income tax basis, were as follows:

 

Aggregate cost

   $ 1,241,863,585  

Gross unrealized appreciation

   $ 448,186,704  

Gross unrealized depreciation

     (38,850,711

Net unrealized appreciation

   $ 409,335,993  

 

  13  


Eaton Vance

Tax-Managed Diversified Equity Income Fund

April 30, 2020

 

Notes to Financial Statements (Unaudited) — continued

 

 

3  Investment Adviser Fee and Other Transactions with Affiliates

The investment adviser fee is earned by EVM as compensation for management and investment advisory services rendered to the Fund. Pursuant to the investment advisory agreement and subsequent fee reduction agreement, the fee is computed at an annual rate of 1.00% of the Fund’s average daily gross assets up to and including $1.5 billion, 0.98% over $1.5 billion up to and including $3 billion and at reduced rates on daily gross assets over $3 billion, and is payable monthly. Gross assets as referred to herein represent net assets plus obligations attributable to investment leverage, if any. The fee reduction cannot be terminated without the consent of a majority of Trustees and a majority of shareholders. For the six months ended April 30, 2020, the Fund’s investment adviser fee amounted to $8,708,084 or 1.00% (annualized) of the Fund’s average daily gross assets. The Fund invests its cash in Cash Reserves Fund. EVM does not currently receive a fee for advisory services provided to Cash Reserves Fund. EVM also serves as administrator of the Fund, but receives no compensation.

Trustees and officers of the Fund who are members of EVM’s organization receive remuneration for their services to the Fund out of the investment adviser fee. Trustees of the Fund who are not affiliated with EVM may elect to defer receipt of all or a percentage of their annual fees in accordance with the terms of the Trustees Deferred Compensation Plan. For the six months ended April 30, 2020, no significant amounts have been deferred. Certain officers and Trustees of the Fund are officers of EVM.

4  Purchases and Sales of Investments

Purchases and sales of investments, other than short-term obligations, aggregated $426,917,567 and $496,809,267, respectively, for the six months ended April 30, 2020.

5  Common Shares of Beneficial Interest and Shelf Offering

Common shares issued by the Fund pursuant to its dividend reinvestment plan for the six months ended April 30, 2020 and the year ended October 31, 2019 were 186,395 and 262,676, respectively.

In August 2012, the Board of Trustees initially approved a share repurchase program for the Fund. Pursuant to the reauthorization of the share repurchase program by the Board of Trustees in March 2019, the Fund is authorized to repurchase up to 10% of its common shares outstanding as of the last day of the prior calendar year at market prices when shares are trading at a discount to net asset value. The share repurchase program does not obligate the Fund to purchase a specific amount of shares. There were no repurchases of common shares by the Fund for the six months ended April 30, 2020 and the year ended October 31, 2019.

Pursuant to a registration statement filed with and declared effective on May 9, 2019 by the SEC, the Fund is authorized to issue up to an additional 22,462,218 common shares through an equity shelf offering program (the “shelf offering”). Under the shelf offering, the Fund, subject to market conditions, may raise additional capital from time to time and in varying amounts and offering methods at a net price at or above the Fund’s net asset value per common share.

During the six months ended April 30, 2020 and the year ended October 31, 2019, the Fund sold 1,361,759 and 158,062 common shares, respectively, and received proceeds (net of offering costs) of $16,857,924 and $1,882,126, respectively, through its shelf offering. The net proceeds in excess of the net asset value of the shares sold were $139,775 and $15,939, respectively. Offering costs (other than the applicable sales commissions) incurred in connection with the shelf offering were borne directly by EVM. Eaton Vance Distributors, Inc. (EVD), an affiliate of EVM, is the distributor of the Fund’s shares and is entitled to receive a sales commission from the Fund of 1.00% of the gross sales price per share, a portion of which is re-allowed to sales agents. The Fund was informed that the sales commissions retained by EVD during the six months ended April 30, 2020 and the year ended October 31, 2019 were $34,057 and $3,802, respectively.

6  Financial Instruments

The Fund may trade in financial instruments with off-balance sheet risk in the normal course of its investing activities. These financial instruments may include written options and may involve, to a varying degree, elements of risk in excess of the amounts recognized for financial statement purposes. The notional or contractual amounts of these instruments represent the investment the Fund has in particular classes of financial instruments and do not necessarily represent the amounts potentially subject to risk. The measurement of the risks associated with these instruments is meaningful only when all related and offsetting transactions are considered. A summary of obligations under these financial instruments at April 30, 2020 is included in the Portfolio of Investments. At April 30, 2020, the Fund had sufficient cash and/or securities to cover commitments under these 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 value of the underlying index decline.

 

  14  


Eaton Vance

Tax-Managed Diversified Equity Income Fund

April 30, 2020

 

Notes to Financial Statements (Unaudited) — continued

 

 

The fair value of open derivative instruments (not considered to be hedging instruments for accounting disclosure purposes) and whose primary underlying risk exposure is equity price risk at April 30, 2020 was as follows:

 

     Fair Value  
Derivative    Asset Derivative      Liability Derivative(1)  

Written options

   $         —      $ (45,044,405

 

(1) 

Statement of Assets and Liabilities location: Written options outstanding, at value.

The effect of derivative instruments (not considered to be hedging instruments for accounting disclosure purposes) on the Statement of Operations and whose primary underlying risk exposure is equity price risk for the six months ended April 30, 2020 was as follows:

 

Derivative    Realized Gain(Loss)
on Derivatives Recognized
in Income
(1)
     Change in Unrealized
Appreciation (Depreciation) on
Derivatives Recognized in  Income
(2)
 

Written options

   $ (43,517,812    $ (13,686,079

 

(1) 

Statement of Operations location: Net realized gain (loss) – Written options.

 

(2) 

Statement of Operations location: Change in unrealized appreciation (depreciation) – Written options.

The average number of written options contracts outstanding during the six months ended April 30, 2020, which is indicative of the volume of this derivative type, was 2,761 contracts.

7  Overdraft Advances

Pursuant to the custodian agreement, State Street Bank and Trust Company (SSBT) may, in its discretion, advance funds to the Fund to make properly authorized payments. When such payments result in an overdraft, the Fund is obligated to repay SSBT at the current rate of interest charged by SSBT for secured loans (currently, the Federal Funds rate plus 2%). This obligation is payable on demand to SSBT. SSBT has a lien on the Fund’s assets to the extent of any overdraft. At April 30, 2020, the Fund had a payment due to SSBT pursuant to the foregoing arrangement of $2,017,276. Based on the short-term nature of these payments and the variable interest rate, the carrying value of the overdraft advances approximated its fair value at April 30, 2020. If measured at fair value, overdraft advances would have been considered as Level 2 in the fair value hierarchy (see Note 9) at April 30, 2020. The Fund’s average overdraft advances during the six months ended April 30, 2020 were not significant.

8  Investments in Affiliated Funds

At April 30, 2020, the value of the Fund’s investment in affiliated funds was $14,163,952 which represents 0.9% of the Fund’s net assets. Transactions in affiliated funds by the Fund for the six months ended April 30, 2020 were as follows:

 

Name of affiliated fund   Value,
beginning of
period
    Purchases     Sales
proceeds
    Net
realized
gain (loss)
    Change in
unrealized
appreciation
(depreciation)
    Value, end of
period
    Dividend
income
    Units, end
of period
 

Short-Term Investments

 

Eaton Vance Cash Reserves Fund, LLC

  $ 15,233,398     $ 245,122,878     $ (246,180,687   $ (12,436   $ 799     $ 14,163,952     $ 172,937       14,163,952  

 

  15  


Eaton Vance

Tax-Managed Diversified Equity Income Fund

April 30, 2020

 

Notes to Financial Statements (Unaudited) — continued

 

 

9  Fair Value Measurements

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 April 30, 2020, 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

 

Communication Services

   $ 146,702,710      $      $         —      $ 146,702,710  

Consumer Discretionary

     213,710,508                      213,710,508  

Consumer Staples

     122,169,220                      122,169,220  

Energy

     51,799,037                      51,799,037  

Financials

     187,887,737                      187,887,737  

Health Care

     229,870,801        27,741,195               257,611,996  

Industrials

     120,798,619                      120,798,619  

Information Technology

     450,783,754                      450,783,754  

Materials

     40,911,484                      40,911,484  

Real Estate

     39,837,365                      39,837,365  

Utilities

     49,867,601                      49,867,601  

Total Common Stocks

   $ 1,654,338,836      $ 27,741,195    $      $ 1,682,080,031  

Short-Term Investments

   $      $ 14,163,952      $      $ 14,163,952  

Total Investments

   $ 1,654,338,836      $ 41,905,147      $      $ 1,696,243,983  

Liability Description

 

                 

Written Call Options

   $ (45,044,405    $      $      $ (45,044,405

Total

   $ (45,044,405    $      $      $ (45,044,405

 

*

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.

10  Risks and Uncertainties

An outbreak of respiratory disease caused by a novel coronavirus that was first detected in China in December 2019 has spread rapidly internationally. This coronavirus has resulted in closing borders, enhanced health screenings, changes to healthcare service preparation and delivery, quarantines, cancellations, disruptions to supply chains and customer activity, as well as general concern and uncertainty. The impact of this outbreak has negatively affected the worldwide economy, as well as the economies of individual countries and individual companies and can affect the market in general in significant and unforeseen ways. Health crises caused by outbreaks, such as the coronavirus outbreak, may exacerbate other pre-existing political, social and economic risks and disrupt normal market conditions and operations. The near-term impact of this coronavirus has resulted in substantial market volatility, which may have an adverse effect on the Fund’s investments.

 

  16  


Eaton Vance

Tax-Managed Diversified Equity Income Fund

April 30, 2020

 

Board of Trustees’ Contract Approval

 

 

Overview of the Contract Review Process

The Investment Company Act of 1940, as amended (the “1940 Act”), provides, in substance, that the investment advisory agreement between a fund and its investment adviser will continue in effect from year-to-year only if its continuation is approved on an annual basis by a vote of the fund’s board of trustees, including a majority of the trustees who are not “interested persons” of the fund (“independent trustees”), cast in person at a meeting called for the purpose of considering such approval.

At a meeting held on April 22, 2020 (the “April 2020 Meeting”), the Boards of Trustees/Directors comprised of the same individuals (collectively, the “Board”) that oversees a majority of the registered investment companies advised by Eaton Vance Management or its affiliate, Boston Management and Research (the “Eaton Vance Funds”), including a majority of the independent trustees (the “Independent Trustees”), voted to approve the continuation of existing investment advisory agreements and sub-advisory agreements1 for each of the Eaton Vance Funds for an additional one-year period. The Board relied upon the affirmative recommendation of its Contract Review Committee, which is a committee exclusively comprised of Independent Trustees. Prior to making its recommendation, the Contract Review Committee reviewed information furnished by the adviser and sub-adviser to each of the Eaton Vance Funds (including information specifically requested by the Board) for a series of formal meetings held between February and April 2020. Members of the Contract Review Committee also considered information received at prior meetings of the Board and its committees, to the extent such information was relevant to the Contract Review Committee’s annual evaluation of the investment advisory agreements and sub-advisory agreements.

In connection with its evaluation of the investment advisory agreements and sub-advisory agreements, the Board considered various information relating to the Eaton Vance Funds. This included information applicable to all or groups of Eaton Vance Funds, which is referenced immediately below, and information applicable to the particular Eaton Vance Fund covered by this report (additional fund-specific information is referenced below under “Results of the Contract Review Process”). (For funds that invest through one or more underlying portfolios, references to “each fund” in this section may include information that was considered at the portfolio-level.)

Information about Fees, Performance and Expenses

 

   

A report from an independent data provider comparing advisory and other fees paid by each fund to such fees paid by comparable funds, as identified by the independent data provider (“comparable funds”);

 

   

A report from an independent data provider comparing each fund’s total expense ratio (and its components) to those of comparable funds;

 

   

A report from an independent data provider comparing the investment performance of each fund (including, as relevant, total return data, income data, Sharpe ratios and information ratios) to the investment performance of comparable funds and, as applicable, benchmark indices, over various time periods;

 

   

In certain instances, data regarding investment performance relative to customized groups of peer funds and blended indices identified by the adviser in consultation with the Portfolio Management Committee of the Board;

 

   

Comparative information concerning the fees charged and services provided by the adviser and sub-adviser to each fund in managing other accounts (which may include other mutual funds, collective investment funds and institutional accounts) using investment strategies and techniques similar to those used in managing such fund(s), if any;

 

   

Profitability analyses with respect to the adviser and sub-adviser to each of the funds;

Information about Portfolio Management and Trading

 

   

Descriptions of the investment management services provided to each fund, as well as each of the funds’ investment strategies and policies;

 

   

The procedures and processes used to determine the fair value of fund assets, when necessary, and actions taken to monitor and test the effectiveness of such procedures and processes;

 

   

Information about the policies and practices of each fund’s adviser and sub-adviser (in the context of a sub-adviser, only those with trading responsibilities) with respect to trading, including their processes for seeking best execution of portfolio transactions;

 

   

Information about the allocation of brokerage transactions and the benefits, if any, received by the adviser and sub-adviser (in the context of a sub-adviser, only those with trading responsibilities) to each fund as a result of brokerage allocation, including, as applicable, information concerning the acquisition of research through client commission arrangements and policies with respect to “soft dollars”;

 

   

Data relating to the portfolio turnover rate of each fund;

Information about each Adviser and Sub-adviser

 

   

Reports detailing the financial results and condition of the adviser and sub-adviser to each fund;

 

   

Information regarding the individual investment professionals whose responsibilities include portfolio management and investment research for the funds, and, for portfolio managers and certain other investment professionals, information relating to their responsibilities with respect to managing other mutual funds and investment accounts, as applicable;

 

 

1 

Not all Eaton Vance Funds have entered into a sub-advisory agreement with a sub-adviser. Accordingly, references to “sub-adviser” or “sub-advisory agreement” in this “Overview” section may not be applicable to the particular Eaton Vance Fund covered by this report.

 

  17  


Eaton Vance

Tax-Managed Diversified Equity Income Fund

April 30, 2020

 

Board of Trustees’ Contract Approval — continued

 

 

   

The Code of Ethics of the adviser and its affiliates and the sub-adviser of each fund, together with information relating to compliance with, and the administration of, such codes;

 

   

Policies and procedures relating to proxy voting and the handling of corporate actions and class actions;

 

   

Information concerning the resources devoted to compliance efforts undertaken by the adviser and its affiliates and the sub-adviser of each fund, if any, including descriptions of their various compliance programs and their record of compliance;

 

   

Information concerning the business continuity and disaster recovery plans of the adviser and its affiliates and the sub-adviser of each fund, if any;

 

   

A description of Eaton Vance Management’s and Boston Management and Research’s oversight of sub-advisers, including with respect to regulatory and compliance issues, investment management and other matters;

Other Relevant Information

 

   

Information concerning the nature, cost and character of the administrative and other non-investment advisory services provided by Eaton Vance Management and its affiliates;

 

   

Information concerning oversight of the relationship with the custodian, subcustodians and fund accountants by the adviser and/or administrator to each of the funds;

 

   

For an Eaton Vance Fund structured as an exchange-listed closed-end fund, information concerning the benefits of the closed-end fund structure, as well as, where relevant, the closed-end fund’s market prices, trading volume data, distribution rates and other relevant matters; and

 

   

The terms of each investment advisory agreement and sub-advisory agreement.

During the various meetings of the Board and its committees throughout the twelve months ended April 2020, the Trustees received information from portfolio managers and other investment professionals of the advisers and sub-advisers of the funds regarding investment and performance matters, and considered various investment and trading strategies used in pursuing the funds’ investment objectives. The Trustees also received information regarding risk management techniques employed in connection with the management of the funds. The Board and its committees evaluated issues pertaining to industry and regulatory developments, compliance procedures, fund governance and other issues with respect to the funds, and received and participated in reports and presentations provided by Eaton Vance Management, Boston Management and Research and fund sub-advisers, with respect to such matters. In addition to the formal meetings of the Board and its committees, the Independent Trustees held regular teleconferences to discuss, among other topics, matters relating to the continuation of investment advisory agreements and sub-advisory agreements.

The Contract Review Committee was advised throughout the contract review process by Goodwin Procter LLP, independent legal counsel for the Independent Trustees. The members of the Contract Review Committee, with the advice of such counsel, exercised their own business judgment in determining the material factors to be considered in evaluating each investment advisory agreement and sub-advisory agreement and the weight to be given to each such factor. The conclusions reached with respect to each investment advisory agreement and sub-advisory agreement were based on a comprehensive evaluation of all the information provided and not any single factor. Moreover, each member of the Contract Review Committee may have placed varying emphasis on particular factors in reaching conclusions with respect to each investment advisory agreement and sub-advisory agreement. In evaluating each investment advisory agreement and sub-advisory agreement, including the fee structures and other terms contained in such agreements, the members of the Contract Review Committee were also informed by multiple years of analysis and discussion with the adviser and sub-adviser to each of the Eaton Vance Funds.

In voting its approval of the continuation of existing investment advisory agreements and sub-advisory agreements at the April 2020 Meeting, the Board relied on an order issued by the Securities and Exchange Commission on March 25, 2020, which provided temporary relief from the in-person voting requirements under Section 15 of the 1940 Act in response to the impacts of the COVID-19 pandemic.

Results of the Contract Review Process

Based on its consideration of the foregoing, and such other information it deemed relevant, including the factors and conclusions described below, the Contract Review Committee concluded that the continuation of the investment advisory agreement between Eaton Vance Tax-Managed Diversified Equity Income Fund (the “Fund”) and Eaton Vance Management (the “Adviser”), including its fee structure, is in the interests of shareholders and, therefore, recommended to the Board approval of the agreement. Based on the recommendation of the Contract Review Committee, the Board, including a majority of the Independent Trustees, voted to approve continuation of the investment advisory agreement for the Fund.

Nature, Extent and Quality of Services

In considering whether to approve the investment advisory agreement for the Fund, the Board evaluated the nature, extent and quality of services provided to the Fund by the Adviser.

The Board considered the Adviser’s management capabilities and investment processes in light of the types of investments held by the Fund, including the education, experience and number of investment professionals and other personnel who provide portfolio management, investment research, and similar services to the Fund, including recent changes to such personnel. In particular, the Board considered the abilities and experience of the Adviser’s

 

  18  


Eaton Vance

Tax-Managed Diversified Equity Income Fund

April 30, 2020

 

Board of Trustees’ Contract Approval — continued

 

 

investment professionals in analyzing factors such as tax efficiency and special considerations relevant to investing in stocks and selling covered S&P 500 Index call options. The Board also took into account the resources dedicated to portfolio management and other services, the compensation methods of the Adviser and other factors, including the reputation and resources of the Adviser to recruit and retain highly qualified research, advisory and supervisory investment professionals. In addition, the Board considered the time and attention devoted to the Eaton Vance Funds, including the Fund, by senior management, as well as the infrastructure, operational capabilities and support staff in place to assist in the portfolio management and operations of the Fund, including the provision of administrative services. The Board also considered the business-related and other risks to which the Adviser or its affiliates may be subject in managing the Fund. The Board considered the deep experience of the Adviser and its affiliates with managing and operating funds organized as exchange-listed closed-end funds, such as the Fund. In this regard, the Board considered, among other things, the Adviser’s and its affiliates’ experience monitoring and assessing trading price discounts and premiums and adhering to the requirements of securities exchanges.

The Board considered the compliance programs of the Adviser and relevant affiliates thereof. The Board considered compliance and reporting matters regarding, among other things, personal trading by investment professionals, disclosure of portfolio holdings, late trading, frequent trading, portfolio valuation, business continuity and the allocation of investment opportunities. The Board also considered the responses of the Adviser and its affiliates to requests in recent years from regulatory authorities, such as the Securities and Exchange Commission and the Financial Industry Regulatory Authority.

The Board considered other administrative services provided or overseen by Eaton Vance Management and its affiliates, including transfer agency and accounting services. The Board evaluated the benefits to shareholders of investing in a fund that is a part of a large fund complex offering exposure to a variety of asset classes and investment disciplines.

After consideration of the foregoing factors, among others, the Board concluded that the nature, extent and quality of services provided by the Adviser, taken as a whole, are appropriate and consistent with the terms of the investment advisory agreement.

Fund Performance

The Board compared the Fund’s investment performance to that of comparable funds identified by an independent data provider (the peer group), as well as appropriate benchmark indices and a custom peer group of similarly managed funds. The Board’s review included comparative performance data with respect to the Fund for the one-, three-, five- and ten-year periods ended September 30, 2019. In this regard, the Board noted that the performance of the Fund was higher than the median performance of the Fund’s peer group and custom peer group for the three-year period. The Board also noted that the performance of the Fund was higher than its secondary benchmark index and lower than its primary benchmark index for the three-year period. The Board concluded that the performance of the Fund was satisfactory.

Management Fees and Expenses

The Board considered contractual fee rates payable by the Fund for advisory and administrative services (referred to collectively as “management fees”). As part of its review, the Board considered the Fund’s management fees and total expense ratio for the one-year period ended September 30, 2019, as compared to those of comparable funds, before and after giving effect to any undertaking to waive fees or reimburse expenses. The Board also considered factors that had an impact on the Fund’s total expense ratio relative to comparable funds.

After considering the foregoing information, and in light of the nature, extent and quality of the services provided by the Adviser, the Board concluded that the management fees charged for advisory and related services are reasonable.

Profitability and “Fall-Out” Benefits

The Board considered the level of profits realized by the Adviser and relevant affiliates thereof in providing investment advisory and administrative services to the Fund and to all Eaton Vance Funds as a group. The Board considered the level of profits realized without regard to marketing support or other payments by the Adviser and its affiliates to third parties in respect of distribution or other services.

The Board concluded that, in light of the foregoing factors and the nature, extent and quality of the services rendered, the profits realized by the Adviser and its affiliates are deemed not to be excessive.

The Board also considered direct or indirect fall-out benefits received by the Adviser and its affiliates in connection with their respective relationships with the Fund, including the benefits of research services that may be available to the Adviser as a result of securities transactions effected for the Fund and other investment advisory clients.

Economies of Scale

In reviewing management fees and profitability, the Board also considered the extent to which the Adviser and its affiliates, on the one hand, and the Fund, on the other hand, can expect to realize benefits from economies of scale as the assets of the Fund increase. The Board acknowledged the difficulty in accurately measuring the benefits resulting from economies of scale, if any, with respect to the management of any specific fund or group of funds. The

 

  19  


Eaton Vance

Tax-Managed Diversified Equity Income Fund

April 30, 2020

 

Board of Trustees’ Contract Approval — continued

 

 

Board reviewed data summarizing the increases and decreases in the assets of the Fund and of all Eaton Vance Funds as a group over various time periods, and evaluated the extent to which the total expense ratio of the Fund and the profitability of the Adviser and its affiliates may have been affected by such increases or decreases. Based upon the foregoing, the Board concluded that the Fund currently shares in the benefits from economies of scale, if any, when they are realized by the Adviser. The Board also considered the fact that the Fund is not continuously offered in the same manner as an open-end fund and that the Fund is authorized to issue additional common shares through a shelf offering. The Board also concluded that the structure of the advisory fee, which includes breakpoints at several asset levels, will allow the Fund to continue to benefit from any economies of scale in the future.

 

  20  


Eaton Vance

Tax-Managed Diversified Equity Income Fund

April 30, 2020

 

Officers and Trustees

 

 

Officers

 

Edward J. Perkin

President

Maureen A. Gemma

Vice President, Secretary and Chief Legal Officer

James F. Kirchner

Treasurer

Richard F. Froio

Chief Compliance Officer

Trustees

 

 

William H. Park

Chairperson

Thomas E. Faust Jr.*

Mark R. Fetting

Cynthia E. Frost

George J. Gorman

Valerie A. Mosley

Helen Frame Peters

Keith Quinton

Marcus L. Smith

Susan J. Sutherland

Scott E. Wennerholm

 

 

*

Interested Trustee

 

  21  


Eaton Vance Funds

 

IMPORTANT NOTICES

 

 

Privacy.  The Eaton Vance organization is committed to ensuring your financial privacy. Each entity listed below has adopted a privacy policy and procedures (“Privacy Program”) Eaton Vance believes is reasonably designed to protect your personal information and to govern when and with whom Eaton Vance may share your personal information.

 

 

At the time of opening an account, Eaton Vance generally requires you to provide us with certain information such as name, address, social security number, tax status, account numbers, and account balances. This information is necessary for us to both open an account for you and to allow us to satisfy legal requirements such as applicable anti-money laundering reviews and know-your-customer requirements.

 

 

On an ongoing basis, in the normal course of servicing your account, Eaton Vance may share your information with unaffiliated third parties that perform various services for Eaton Vance and/or your account. These third parties include transfer agents, custodians, broker/dealers and our professional advisers, including auditors, accountants, and legal counsel. Eaton Vance may additionally share your personal information with our affiliates.

 

 

We believe our Privacy Program is reasonably designed to protect the confidentiality of your personal information and to prevent unauthorized access to that information.

 

 

We reserve the right to change our Privacy Program at any time upon proper notification to you. You may want to review our Privacy Program periodically for changes by accessing the link on our homepage: www.eatonvance.com.

Our pledge of protecting your personal information applies to the following entities within the Eaton Vance organization: the Eaton Vance Family of Funds, Eaton Vance Management, Eaton Vance Investment Counsel, Eaton Vance Distributors, Inc., Eaton Vance Trust Company, Eaton Vance Management (International) Limited, Eaton Vance Advisers International Limited, Eaton Vance Global Advisors Limited, Eaton Vance Management’s Real Estate Investment Group, Boston Management and Research, Calvert Research and Management, and Calvert Funds. This Privacy Notice supersedes all previously issued privacy disclosures. For more information about our Privacy Program or about how your personal information may be used, please call 1-800-262-1122.

Delivery of Shareholder Documents.  The Securities and Exchange Commission (SEC) permits funds to deliver only one copy of shareholder documents, including prospectuses, proxy statements and shareholder reports, to fund investors with multiple accounts at the same residential or post office box address. This practice is often called “householding” and it helps eliminate duplicate mailings to shareholders. American Stock Transfer & Trust Company, LLC (“AST”), the closed-end funds transfer agent, or your financial intermediary, may household the mailing of your documents indefinitely unless you instruct AST, or your financial intermediary, otherwise. If you would prefer that your Eaton Vance documents not be householded, please contact AST or your financial intermediary. Your instructions that householding not apply to delivery of your Eaton Vance documents will typically be effective within 30 days of receipt by AST or your financial intermediary.

Portfolio Holdings.  Each Eaton Vance Fund and its underlying Portfolio(s) (if applicable) files a schedule of portfolio holdings on Part F to Form N-PORT with the SEC for the first and third quarters of each fiscal year. The Form N-PORT will be available on the Eaton Vance website at www.eatonvance.com, by calling Eaton Vance at 1-800-262-1122 or in the EDGAR database on the SEC’s website at www.sec.gov.

Proxy Voting.  From time to time, funds are required to vote proxies related to the securities held by the funds. The Eaton Vance Funds or their underlying Portfolios (if applicable) vote proxies according to a set of policies and procedures approved by the Funds’ and Portfolios’ Boards. You may obtain a description of these policies and procedures and information on how the Funds or Portfolios voted proxies relating to portfolio securities during the most recent 12-month period ended June 30, without charge, upon request, by calling 1-800-262-1122 and by accessing the SEC’s website at www.sec.gov.

Share Repurchase Program.  The Fund’s Board of Trustees has approved a share repurchase program authorizing the Fund to repurchase up to 10% of its common shares outstanding as of the last day of the prior calendar year in open-market transactions at a discount to net asset value. The repurchase program does not obligate the Fund to purchase a specific amount of shares. The Fund’s repurchase activity, including the number of shares purchased, average price and average discount to net asset value, is disclosed in the Fund’s annual and semi-annual reports to shareholders.

Additional Notice to Shareholders.  If applicable, a Fund may also redeem or purchase its outstanding preferred shares in order to maintain compliance with regulatory requirements, borrowing or rating agency requirements or for other purposes as it deems appropriate or necessary.

Closed-End Fund Information.  Eaton Vance closed-end funds make fund performance data and certain information about portfolio characteristics available on the Eaton Vance website shortly after the end of each month. Other information about the funds is available on the website. The funds’ net asset value per share is readily accessible on the Eaton Vance website. Portfolio holdings for the most recent month-end are also posted to the website approximately 30 days following the end of the month. This information is available at www.eatonvance.com on the fund information pages under “Individual Investors — Closed-End Funds”.

 

  22  


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Investment Adviser and Administrator

Eaton Vance Management

Two International Place

Boston, MA 02110

Custodian

State Street Bank and Trust Company

State Street Financial Center, One Lincoln Street

Boston, MA 02111

Transfer Agent

American Stock Transfer & Trust Company, LLC

6201 15th Avenue

Brooklyn, NY 11219

Fund Offices

Two International Place

Boston, MA 02110

 


LOGO

 

LOGO

7751    4.30.20


Item 2.

Code of Ethics

Not required in this filing.

 

Item 3.

Audit Committee Financial Expert

Not required in this filing.

 

Item 4.

Principal Accountant Fees and Services

Not required in this filing.

 

Item 5.

Audit Committee of Listed Registrants

Not required in this filing.


Item 6.

Schedule of Investments

Please see schedule of investments contained in the Report to Stockholders included under Item 1 of this Form N-CSR.

 

Item 7.

Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies

Not required in this filing.

 

Item 8.

Portfolio Managers of Closed-End Management Investment Companies

Eaton Vance Management (“EVM” or “Eaton Vance”) is the investment adviser of the Fund. Michael A. Allison and G.R. Nelson are responsible for the overall and day-to-day management of the Fund’s investments. Mr. Allison is a Vice President of EVM, has been a portfolio manager of the Fund since November 2006 and has managed other Eaton Vance portfolios for more than five years. Mr. Nelson is a Vice President of Eaton Vance, has been employed by Eaton Vance for more than five years and has been a portfolio manager of the Fund since December 2019. This information is provided as of the date of filing this report.

The following table shows, as of April 30, 2020, the number of accounts each portfolio manager managed in each of the listed categories and the total assets (in millions of dollars) in the accounts managed within each category. The table also shows the number of accounts with respect to which the advisory fee is based on the performance of the account, if any, and the total assets (in millions of dollars) in those accounts.

 

     Number of
All
Accounts
     Total Assets of
All
Accounts
    Number of
Accounts
Paying a
Performance Fee
     Total Assets
of Accounts Paying
a Performance Fee
 

Michael A. Allison(1)

          

Registered Investment Companies

     17      $ 33,621.8       0      $ 0  

Other Pooled Investment Vehicles

     14      $ 23,459.3 (2)      0      $ 0  

Other Accounts

     1      $ 0.4       0      $ 0  

G.R. Nelson

          

Registered Investment Companies

     3      $ 2,849.5       0      $ 0  

Other Pooled Investment Vehicles

     0      $ 0       0      $ 0  

Other Accounts

     1      $ 1.1       0      $ 0  

 

(1)

This portfolio manager serves as portfolio manager of one or more registered investment companies that invests or may invest in one or more underlying registered investment companies in the Eaton Vance family of funds or other pooled investment vehicles sponsored by Eaton Vance. The underlying investment companies may be managed by this portfolio manager or another portfolio manager.

(2)

Certain of these “Other Pooled Investment Vehicles” invest a substantial portion of their assets either in a registered investment company in the Eaton Vance family of funds and/or in a separate pooled investment vehicle sponsored by Eaton Vance which may be managed by this portfolio manager or another portfolio manager.


The following table shows the dollar range of Fund shares beneficially owned by each portfolio manager as of April 30, 2020.

 

Portfolio Manager

   Dollar Range of Equity Securities
Beneficially Owned in the Fund

Michael A. Allison

   $50,001 - $100,000

G.R. Nelson

   None

Potential for Conflicts of Interest. It is possible that conflicts of interest may arise in connection with a portfolio manager’s management of the Fund’s investments on the one hand and the investments of other accounts for which a portfolio manager is responsible on the other. For example, a portfolio manager may have conflicts of interest in allocating management time, resources and investment opportunities among the Fund and other accounts he advises. In addition, due to differences in the investment strategies or restrictions between the Fund and the other accounts, the portfolio manager may take action with respect to another account that differs from the action taken with respect to the Fund. In some cases, another account managed by a portfolio manager may compensate the investment adviser based on the performance of the securities held by that account. The existence of such a performance based fee may create additional conflicts of interest for the portfolio manager in the allocation of management time, resources and investment opportunities. Whenever conflicts of interest arise, the portfolio manager will endeavor to exercise his discretion in a manner that he believes is equitable to all interested persons. EVM has adopted several policies and procedures designed to address these potential conflicts including a code of ethics and policies that govern the investment adviser’s trading practices, including among other things the aggregation and allocation of trades among clients, brokerage allocations, cross trades and best execution.

Compensation Structure for EVM

Compensation of EVM’s portfolio managers and other investment professionals has the following primary components: (1) a base salary, (2) an annual cash bonus, (3) annual non-cash compensation consisting of options to purchase shares of Eaton Vance Corp. (“EVC”) nonvoting common stock and/or restricted shares of EVC nonvoting common stock that generally are subject to a vesting schedule and (4) (for equity portfolio managers) a Deferred Alpha Incentive Plan, which pays a deferred cash award tied to future excess returns in certain equity strategy portfolios. EVM’s investment professionals also receive certain retirement, insurance and other benefits that are broadly available to EVM’s employees. Compensation of EVM’s investment professionals is reviewed primarily on an annual basis. Cash bonuses, stock-based compensation awards, and adjustments in base salary are typically paid or put into effect at or shortly after the October 31st fiscal year end of EVC.

Method to Determine Compensation. EVM compensates its portfolio managers based primarily on the scale and complexity of their portfolio responsibilities and the total return performance of managed funds and accounts versus the benchmark(s) stated in the prospectus, as well as an appropriate peer group (as described below). In addition to rankings within peer groups of funds on the basis of absolute performance, consideration may also be given to relative risk-adjusted performance. Risk-adjusted performance measures include, but are not limited to Sharpe ratio, which uses standard deviation and excess return to determine reward per unit of risk. Performance is normally based on periods ending on the September 30th preceding fiscal year end. Fund performance is normally evaluated primarily versus peer groups of funds as determined by Lipper Inc. and/or Morningstar, Inc. When a fund’s peer group as determined by Lipper or Morningstar is deemed by EVM’s management not to provide a fair comparison, performance may instead be evaluated primarily against a custom peer group or market index. In evaluating the performance of a fund and its manager, primary emphasis is normally placed on three-year performance, with secondary consideration of performance over longer and


shorter periods. For funds that are tax-managed or otherwise have an objective of after-tax returns, performance is measured net of taxes. For other funds, performance is evaluated on a pre-tax basis. For funds with an investment objective other than total return (such as current income), consideration will also be given to the fund’s success in achieving its objective. For managers responsible for multiple funds and accounts, investment performance is evaluated on an aggregate basis, based on averages or weighted averages among managed funds and accounts. Funds and accounts that have performance-based advisory fees are not accorded disproportionate weightings in measuring aggregate portfolio manager performance. Pursuant to the Deferred Alpha Incentive Plan, a portion of the compensation payable to equity portfolio managers and investment professionals will be determined based on the ability of one or more accounts managed by such manager, that are not advised by Calvert Management and Research to achieve a specified target average annual gross return over a three year period in excess of the account benchmark. The cash award to be payable at the end of the three year term will be established at the inception of the term and will be adjusted positively or negatively to the extent that the average annual gross return varies from the specified target return.

The compensation of portfolio managers with other job responsibilities (such as heading an investment group or providing analytical support to other portfolios) will include consideration of the scope of such responsibilities and the managers’ performance in meeting them.

EVM seeks to compensate portfolio managers commensurate with their responsibilities and performance, and competitive with other firms within the investment management industry. EVM participates in investment-industry compensation surveys and utilizes survey data as a factor in determining salary, bonus and stock-based compensation levels for portfolio managers and other investment professionals. Salaries, bonuses and stock-based compensation are also influenced by the operating performance of EVM and its parent company. The overall annual cash bonus pool is generally based on a substantially fixed percentage of pre-bonus adjusted operating income. While the salaries of EVM’s portfolio managers are comparatively fixed, cash bonuses and stock-based compensation may fluctuate significantly from year to year, based on changes in manager performance and other factors as described herein. For a high performing portfolio manager, cash bonuses and stock-based compensation may represent a substantial portion of total compensation.

 

Item 9.

Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers

No such purchases this period.

 

Item 10.

Submission of Matters to a Vote of Security Holders

No material changes.

 

Item 11.

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 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 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 period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.


Item 12.

Disclosure of Securities Lending Activities for Closed-End Management Investment Companies

No activity to report for the Registrant’s most recent fiscal year end.

 

Item 13.

Exhibits

(a)(1)   Registrant’s Code of Ethics – Not applicable (please see Item 2).
(a)(2)(i)   Treasurer’s Section 302 certification.
(a)(2)(ii)   President’s Section 302 certification.
(b)   Combined Section 906 certification.
(c)   Registrant’s notices to shareholders pursuant to Registrant’s exemptive order granting an exemption from Section  19(b) of the 1940 Act and Rule 19b-1 thereunder regarding distributions paid pursuant to the Registrant’s Managed Distribution Plan.

 


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/ Edward J. Perkin

  Edward J. Perkin
  President
Date:   June 18, 2020

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/ James F. Kirchner

  James F. Kirchner
  Treasurer
Date:   June 18, 2020
By:  

/s/ Edward J. Perkin

  Edward J. Perkin
  President
Date:   June 18, 2020

 

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