nvcsrs
 
 
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, 2012
Date of Reporting Period
 
 

 


 

Item 1. Reports to Stockholders

 


 

     
Eaton Vance
Tax-Managed Diversified
Equity Income Fund (ETY)

Semiannual Report
April 30, 2012
 
(TROPHY GRAPHIC)

 
 
 
(EATON VANCE INVESTMENT MANAGERS LOGO)


 

 
 
Managed Distribution Plan. On March 10, 2009, the Fund received authorization from the Securities and Exchange Commission to distribute long-term capital gains to shareholders more frequently than once per year. In this connection, the Board of Trustees formally approved the implementation of a Managed Distribution Plan (MDP) to make quarterly cash distributions to common shareholders, stated in terms of a fixed amount per common share.
 
The Fund intends to pay quarterly cash distributions equal to $0.2530 per share. 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.
 
With each distribution, the Fund will issue a notice to shareholders and an accompanying press release which will provide detailed information required by the Fund’s exemptive order. The Fund’s Board of Trustees 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.
 
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, 2012
Eaton Vance
Tax-Managed Diversified Equity Income Fund
         
Table of Contents
       
 
Performance
    2  
Fund Profile
    3  
Endnotes and Additional Disclosures
    4  
Financial Statements
    5  
Board of Trustees’ Contract Approval
    18  
Officers and Trustees
    21  
Important Notices
    22  

 


 

Eaton Vance
Tax-Managed Diversified Equity Income Fund
April 30, 2012
Portfolio Managers Walter A. Row III, CFA, CMT, and Michael A. Allison, CFA
Performance1
 
                                         
                                    Since 
% Average Annual Total Returns   Inception Date   Six Months   One Year   Five Years   Inception 
 
Fund at NAV
    11/30/2006       9.85 %     -0.44 %     1.04 %     2.62
Fund at Market Price
          10.70       -4.23       -2.15       -0.26  
S&P 500 Index
    11/30/2006       12.77 %     4.76 %     1.00 %     2.12 %  
CBOE S&P 500 BuyWrite Index
    11/30/2006       11.41       7.63       2.17       2.45  
         
% Premium/Discount to NAV
       
 
 
    -14.30 %  
         
Distributions2
       
 
Total Distributions per share for the period
  $ 0.579  
Distribution Rate at NAV
    10.35 %  
Distribution Rate at Market Price
    12.08 %  
See Endnotes and Additional Disclosures in this report.
Past performance is no guarantee of future results. Returns are historical and are calculated by determining the percentage change in net asset value (NAV) or market price (as applicable) with all distributions reinvested. Fund performance at market price will differ from its results at NAV due to factors such as changing perceptions about the Fund, market conditions, fluctuations in supply and demand for Fund shares, or changes in Fund distributions. Investment return and principal value will fluctuate so that shares, when sold, may be worth more or less than their original cost. Performance less than 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 www.eatonvance.com.

2


 

Eaton Vance
Tax-Managed Diversified Equity Income Fund
April 30, 2012
Fund Profile
 
Sector Allocation (% of total investments)3
 
(BAR CHART)
Country Allocation (% of total investments)
 
(BAR CHART)
         
Top 10 Holdings (% of total investments)3
       
 
 
     
 
Apple, Inc.
    3.3 %
Exxon Mobil Corp.
    2.8  
Coca-Cola Co. (The)
    2.5  
International Business Machines Corp.
    2.3  
Danaher Corp.
    2.2  
QUALCOMM, Inc.
    2.0  
Amazon.com, Inc.
    1.9  
JPMorgan Chase & Co.
    1.9  
Philip Morris International, Inc.
    1.9  
Pfizer, Inc.
    1.8  
 
Total
    22.6 %
 
See Endnotes and Additional Disclosures in this report.

3


 

Eaton Vance
Tax-Managed Diversified Equity Income Fund
April 30, 2012
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. CBOE S&P 500 BuyWrite Index 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 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 composed of ordinary income, tax-exempt income, net realized capital gains and return of capital. In recent years, a significant portion of the Fund’s distributions has been characterized as a return of capital. Subsequent distributions declared, but not reflected in Fund Performance, reflect a reduction of the quarterly distribution rate.
 
3   Depictions do not reflect the Fund’s option positions. Excludes cash and cash equivalents.
 
    Fund profile subject to change due to active management.

4


 

 
Eaton Vance
Tax-Managed Diversified Equity Income Fund
 
April 30, 2012
 
 
Portfolio of Investments (Unaudited)

                     
Common Stocks — 95.0%
 
Security   Shares     Value      
 
 
 
Aerospace & Defense — 1.6%
 
Boeing Co. (The)
    253,623     $ 19,478,247      
United Technologies Corp. 
    101,099       8,253,722      
 
 
            $ 27,731,969      
 
 
 
 
Automobiles — 0.4%
 
Bayerische Motoren Werke AG
    64,364     $ 6,121,798      
 
 
            $ 6,121,798      
 
 
 
 
Beverages — 3.7%
 
Anheuser-Busch InBev NV
    106,915     $ 7,705,950      
Beam, Inc. 
    123,546       7,014,942      
Coca-Cola Co. (The)
    552,117       42,137,570      
Diageo PLC
    222,800       5,619,741      
 
 
            $ 62,478,203      
 
 
 
 
Biotechnology — 2.4%
 
Celgene Corp.(1)
    248,863     $ 18,147,090      
Gilead Sciences, Inc.(1)
    424,047       22,054,684      
 
 
            $ 40,201,774      
 
 
 
 
Capital Markets — 0.9%
 
Deutsche Bank AG
    47,128     $ 2,045,972      
Goldman Sachs Group, Inc. (The)
    93,418       10,757,083      
UBS AG(1)
    186,902       2,334,067      
 
 
            $ 15,137,122      
 
 
 
 
Chemicals — 2.1%
 
Air Liquide SA
    27,971     $ 3,597,827      
BASF SE
    97,600       8,035,711      
Monsanto Co. 
    324,189       24,696,718      
 
 
            $ 36,330,256      
 
 
 
 
Commercial Banks — 4.8%
 
Banco Bilbao Vizcaya Argentaria SA
    477,882     $ 3,233,849      
Banco Santander SA
    634,421       3,983,290      
Bank of Nova Scotia (The)
    207,509       11,508,449      
Barclays PLC
    1,308,215       4,631,532      
BNP Paribas
    47,989       1,936,809      
HSBC Holdings PLC
    729,942       6,589,313      
Intesa Sanpaolo SpA
    1,728,701       2,620,458      
Itau Unibanco Holding SA ADR, PFC Shares
    476,155       7,470,872      
PNC Financial Services Group, Inc. 
    140,973       9,349,329      
Royal Bank of Scotland Group PLC(1)
    4,085,694       1,611,824      
Societe Generale
    96,538       2,285,464      
Wells Fargo & Co. 
    775,220       25,915,605      
 
 
            $ 81,136,794      
 
 
 
 
Communications Equipment — 2.0%
 
QUALCOMM, Inc. 
    536,733     $ 34,265,035      
 
 
            $ 34,265,035      
 
 
 
 
Computers & Peripherals — 3.7%
 
Apple, Inc.(1)
    97,226     $ 56,803,318      
EMC Corp.(1)
    234,001       6,601,168      
 
 
            $ 63,404,486      
 
 
 
 
Construction & Engineering — 1.3%
 
Fluor Corp. 
    385,631     $ 22,270,190      
 
 
            $ 22,270,190      
 
 
 
 
Consumer Finance — 0.9%
 
American Express Co. 
    251,154     $ 15,121,982      
 
 
            $ 15,121,982      
 
 
 
 
Diversified Financial Services — 2.9%
 
Citigroup, Inc. 
    491,743     $ 16,247,189      
JPMorgan Chase & Co. 
    763,501       32,815,273      
 
 
            $ 49,062,462      
 
 
 
 
Diversified Telecommunication Services — 3.3%
 
AT&T, Inc. 
    737,785     $ 24,280,504      
CenturyLink, Inc. 
    592,590       22,850,271      
France Telecom SA
    163,783       2,245,148      
Koninklijke KPN NV
    268,320       2,408,944      
Vivendi SA
    284,150       5,255,794      
 
 
            $ 57,040,661      
 
 
 
 
Electric Utilities — 2.8%
 
American Electric Power Co., Inc. 
    257,104     $ 9,985,919      
Duke Energy Corp. 
    324,468       6,953,349      
Edison International
    161,770       7,119,498      
Enel SpA
    573,649       1,881,222      
PPL Corp. 
    277,219       7,581,940      

 
See Notes to Financial Statements.
5


 

 
Eaton Vance
Tax-Managed Diversified Equity Income Fund
 
April 30, 2012
 
 
Portfolio of Investments (Unaudited) — continued

                     
Security   Shares     Value      
 
 
Electric Utilities (continued)
 
                     
Southern Co. (The)
    153,213     $ 7,038,605      
SSE PLC
    319,852       6,858,712      
 
 
            $ 47,419,245      
 
 
 
 
Electrical Equipment — 0.7%
 
ABB, Ltd.(1)
    309,717     $ 5,643,937      
Emerson Electric Co. 
    136,773       7,186,053      
 
 
            $ 12,829,990      
 
 
 
 
Energy Equipment & Services — 2.2%
 
Halliburton Co. 
    594,027     $ 20,327,604      
Schlumberger, Ltd. 
    243,855       18,079,410      
 
 
            $ 38,407,014      
 
 
 
 
Food & Staples Retailing — 1.7%
 
Costco Wholesale Corp. 
    299,656     $ 26,420,669      
Tesco PLC
    629,574       3,243,988      
 
 
            $ 29,664,657      
 
 
 
 
Food Products — 1.7%
 
Danone SA
    45,394     $ 3,195,695      
Nestle SA
    249,616       15,298,778      
Unilever NV
    286,140       9,801,525      
 
 
            $ 28,295,998      
 
 
 
 
Health Care Equipment & Supplies — 3.4%
 
Covidien PLC
    436,615     $ 24,114,247      
St. Jude Medical, Inc. 
    615,829       23,844,899      
Varian Medical Systems, Inc.(1)
    162,327       10,294,778      
 
 
            $ 58,253,924      
 
 
 
 
Health Care Providers & Services — 1.1%
 
UnitedHealth Group, Inc. 
    336,581     $ 18,899,023      
 
 
            $ 18,899,023      
 
 
 
 
Hotels, Restaurants & Leisure — 1.8%
 
McDonald’s Corp. 
    307,816     $ 29,996,669      
 
 
            $ 29,996,669      
 
 
 
 
Household Products — 2.0%
 
Colgate-Palmolive Co. 
    142,561     $ 14,104,985      
Procter & Gamble Co. 
    314,015       19,983,915      
 
 
            $ 34,088,900      
 
 
 
 
Industrial Conglomerates — 2.7%
 
Danaher Corp. 
    685,952     $ 37,192,317      
Siemens AG
    104,342       9,685,065      
 
 
            $ 46,877,382      
 
 
 
 
Insurance — 2.0%
 
Aflac, Inc. 
    208,202     $ 9,377,418      
AXA SA
    356,429       5,064,909      
MetLife, Inc. 
    294,880       10,624,526      
Prudential PLC
    698,928       8,565,989      
 
 
            $ 33,632,842      
 
 
 
 
Internet & Catalog Retail — 1.9%
 
Amazon.com, Inc.(1)
    142,751     $ 33,103,957      
 
 
            $ 33,103,957      
 
 
 
 
Internet Software & Services — 1.5%
 
eBay, Inc.(1)
    243,638     $ 10,001,340      
Google, Inc., Class A(1)
    25,351       15,343,186      
 
 
            $ 25,344,526      
 
 
 
 
IT Services — 3.9%
 
Accenture PLC, Class A
    427,178     $ 27,745,211      
International Business Machines Corp. 
    188,505       39,035,616      
 
 
            $ 66,780,827      
 
 
 
 
Machinery — 0.8%
 
Deere & Co. 
    170,980     $ 14,081,913      
 
 
            $ 14,081,913      
 
 
 
 
Media — 2.3%
 
Comcast Corp., Class A
    582,058     $ 17,653,819      
Walt Disney Co. (The)
    510,035       21,987,609      
 
 
            $ 39,641,428      
 
 
 
 
Metals & Mining — 1.8%
 
Anglo American PLC
    128,438     $ 4,963,454      
BHP Billiton, Ltd. ADR
    88,062       6,543,006      

 
See Notes to Financial Statements.
6


 

 
Eaton Vance
Tax-Managed Diversified Equity Income Fund
 
April 30, 2012
 
 
Portfolio of Investments (Unaudited) — continued

                     
Security   Shares     Value      
 
 
Metals & Mining (continued)
 
                     
Cliffs Natural Resources, Inc. 
    169,192     $ 10,533,894      
Freeport-McMoRan Copper & Gold, Inc. 
    214,523       8,216,231      
 
 
            $ 30,256,585      
 
 
 
 
Multi-Utilities — 0.7%
 
National Grid PLC
    403,800     $ 4,360,446      
Sempra Energy
    119,017       7,705,160      
 
 
            $ 12,065,606      
 
 
 
 
Multiline Retail — 0.9%
 
Macy’s, Inc. 
    378,647     $ 15,532,100      
 
 
            $ 15,532,100      
 
 
 
 
Oil, Gas & Consumable Fuels — 9.6%
 
Anadarko Petroleum Corp. 
    149,499     $ 10,944,822      
Apache Corp. 
    150,217       14,411,819      
BG Group PLC
    241,074       5,688,183      
BP PLC
    1,332,877       9,628,834      
ConocoPhillips
    358,500       25,679,355      
Exxon Mobil Corp. 
    563,101       48,618,140      
Occidental Petroleum Corp. 
    133,829       12,207,881      
Royal Dutch Shell PLC, Class B
    494,662       18,101,929      
Statoil ASA
    380,385       10,206,633      
Total SA
    170,001       8,160,660      
 
 
            $ 163,648,256      
 
 
 
 
Personal Products — 0.7%
 
Estee Lauder Cos., Inc. (The), Class A
    193,494     $ 12,644,833      
 
 
            $ 12,644,833      
 
 
 
 
Pharmaceuticals — 7.1%
 
Allergan, Inc. 
    144,827     $ 13,903,392      
AstraZeneca PLC
    85,139       3,730,910      
Bayer AG
    138,165       9,735,643      
GlaxoSmithKline PLC
    364,935       8,430,540      
Johnson & Johnson
    358,401       23,328,321      
Novartis AG
    225,108       12,429,616      
Novo Nordisk A/S, Class B
    58,342       8,600,950      
Pfizer, Inc. 
    1,322,306       30,320,476      
Sanofi SA
    141,378       10,798,707      
 
 
            $ 121,278,555      
 
 
 
 
Real Estate Investment Trusts (REITs) — 1.1%
 
AvalonBay Communities, Inc. 
    54,184     $ 7,878,354      
Boston Properties, Inc. 
    94,121       10,188,598      
 
 
            $ 18,066,952      
 
 
 
 
Road & Rail — 1.1%
 
Union Pacific Corp. 
    165,349     $ 18,591,842      
 
 
            $ 18,591,842      
 
 
 
 
Software — 2.6%
 
Microsoft Corp. 
    587,164     $ 18,800,991      
Oracle Corp. 
    714,517       20,999,655      
SAP AG
    73,892       4,900,037      
 
 
            $ 44,700,683      
 
 
 
 
Specialty Retail — 1.8%
 
Home Depot, Inc. (The)
    275,637     $ 14,275,240      
Industria de Diseno Textil SA
    114,472       10,317,846      
Kingfisher PLC
    1,170,119       5,518,231      
 
 
            $ 30,111,317      
 
 
 
 
Textiles, Apparel & Luxury Goods — 2.0%
 
LVMH Moet Hennessy Louis Vuitton SA
    58,445     $ 9,695,772      
NIKE, Inc., Class B
    218,019       24,389,786      
 
 
            $ 34,085,558      
 
 
 
 
Tobacco — 2.3%
 
British American Tobacco PLC
    120,651     $ 6,188,129      
Philip Morris International, Inc. 
    364,717       32,645,819      
 
 
            $ 38,833,948      
 
 
 
 
Wireless Telecommunication Services — 0.8%
 
Vodafone Group PLC
    4,962,479     $ 13,735,940      
 
 
            $ 13,735,940      
 
 
     
Total Common Stocks
   
(identified cost $1,368,598,225)
  $ 1,621,173,202      
 
 
                     
                     

 
See Notes to Financial Statements.
7


 

 
Eaton Vance
Tax-Managed Diversified Equity Income Fund
 
April 30, 2012
 
 
Portfolio of Investments (Unaudited) — continued

                     
Short-Term Investments — 5.3%
 
    Interest
           
Description   (000’s omitted)     Value      
 
 
Eaton Vance Cash Reserves Fund, LLC, 0.09%(2)
  $ 90,389     $ 90,389,429      
 
 
     
Total Short-Term Investments
   
(identified cost $90,389,429)
  $ 90,389,429      
 
 
     
Total Investments — 100.3%
   
(identified cost $1,458,987,654)
  $ 1,711,562,631      
 
 
 
                                     
Call Options Written — (0.5)%
 
    Number of
    Strike
    Expiration
           
Description   Contracts     Price     Date     Value      
 
 
S&P 500 Index
    2,905     $ 1,395       5/19/12     $ (5,272,575 )    
S&P 500 Index
    2,960       1,405       5/19/12       (3,774,000 )    
 
 
             
Total Call Options Written
           
(premiums received $9,381,871)
  $ (9,046,575 )    
 
 
             
Other Assets, Less Liabilities — 0.2%
  $ 3,561,944      
 
 
             
Net Assets — 100.0%
  $ 1,706,078,000      
 
 
 
The percentage shown for each investment category in the Portfolio of Investments is based on net assets.
 
     
ADR
 
- American Depositary Receipt
PFC Shares
 
- Preference Shares
 
(1) Non-income producing security.
 
(2) Affiliated investment company available to Eaton Vance portfolios and funds which invests in high quality, U.S. dollar denominated money market instruments. The rate shown is the annualized seven-day yield as of April 30, 2012.
 
                     
Country Concentration of Portfolio
 
    Percentage
           
Country   of Net Assets     Value      
 
 
United States
    77.8 %   $ 1,327,485,075      
United Kingdom
    6.9       117,467,695      
France
    3.1       52,236,785      
Ireland
    3.0       51,859,458      
Germany
    2.4       40,524,226      
Switzerland
    2.1       35,706,398      
Spain
    1.0       17,534,985      
Netherlands
    0.7       12,210,469      
Canada
    0.7       11,508,449      
Norway
    0.6       10,206,633      
Denmark
    0.5       8,600,950      
Belgium
    0.4       7,705,950      
Brazil
    0.4       7,470,872      
Australia
    0.4       6,543,006      
Italy
    0.3       4,501,680      
 
 
Total Investments
    100.3 %   $ 1,711,562,631      
 
 

 
See Notes to Financial Statements.
8


 

 
Eaton Vance
Tax-Managed Diversified Equity Income Fund
 
April 30, 2012
 
 
Statement of Assets and Liabilities (Unaudited)

             
Assets   April 30, 2012    
 
Unaffiliated investments, at value (identified cost, $1,368,598,225)
  $ 1,621,173,202      
Affiliated investment, at value (identified cost, $90,389,429)
    90,389,429      
Foreign currency, at value (identified cost, $905,941)
    910,410      
Dividends receivable
    2,402,575      
Interest receivable from affiliated investment
    5,134      
Tax reclaims receivable
    1,875,794      
 
 
Total assets
  $ 1,716,756,544      
 
 
             
             
 
Liabilities
 
Written options outstanding, at value (premiums received, $9,381,871)
  $ 9,046,575      
Payable to affiliates:
           
Investment adviser fee
    1,383,280      
Trustees’ fees
    5,497      
Accrued expenses
    243,192      
 
 
Total liabilities
  $ 10,678,544      
 
 
Net Assets
  $ 1,706,078,000      
 
 
             
             
 
Sources of Net Assets
 
Common shares, $0.01 par value, unlimited number of shares authorized, 152,472,416 shares issued and outstanding
  $ 1,524,724      
Additional paid-in capital
    1,977,194,114      
Accumulated net realized loss
    (447,921,544 )    
Accumulated distributions in excess of net investment income
    (77,889,118 )    
Net unrealized appreciation
    253,169,824      
 
 
Net Assets
  $ 1,706,078,000      
 
 
             
             
 
Net Asset Value
 
($1,706,078,000 ¸ 152,472,416 common shares issued and outstanding)
  $ 11.19      
 
 

 
See Notes to Financial Statements.
9


 

 
Eaton Vance
Tax-Managed Diversified Equity Income Fund
 
April 30, 2012
 
 
Statement of Operations (Unaudited)

             
    Six Months Ended
   
Investment Income   April 30, 2012    
 
Dividends (net of foreign taxes, $600,337)
  $ 19,107,538      
Interest income allocated from affiliated investment
    33,955      
Expenses allocated from affiliated investment
    (5,429 )    
 
 
Total investment income
  $ 19,136,064      
 
 
             
             
 
Expenses
 
Investment adviser fee
  $ 8,220,897      
Trustees’ fees and expenses
    34,305      
Custodian fee
    203,559      
Transfer and dividend disbursing agent fees
    9,858      
Legal and accounting services
    52,006      
Printing and postage
    209,385      
Miscellaneous
    100,502      
 
 
Total expenses
  $ 8,830,512      
 
 
             
Net investment income
  $ 10,305,552      
 
 
             
             
 
Realized and Unrealized Gain (Loss)
 
Net realized gain (loss) —
           
Investment transactions
  $ (1,973,893 )    
Investment transactions allocated from affiliated investment
    753      
Written options
    (4,775,175 )    
Foreign currency transactions
    22,928      
 
 
Net realized loss
  $ (6,725,387 )    
 
 
Change in unrealized appreciation (depreciation) —
           
Investments
  $ 133,408,166      
Written options
    5,923,759      
Foreign currency
    (103,247 )    
 
 
Net change in unrealized appreciation (depreciation)
  $ 139,228,678      
 
 
             
Net realized and unrealized gain
  $ 132,503,291      
 
 
             
Net increase in net assets from operations
  $ 142,808,843      
 
 

 
See Notes to Financial Statements.
10


 

 
Eaton Vance
Tax-Managed Diversified Equity Income Fund
 
April 30, 2012
 
 
Statements of Changes in Net Assets

                     
    Six Months Ended
       
    April 30, 2012
  Year Ended
   
Increase (Decrease) in Net Assets   (Unaudited)   October 31, 2011    
 
From operations —
                   
Net investment income
  $ 10,305,552     $ 18,397,491      
Net realized gain (loss) from investment transactions, written options and foreign currency transactions
    (6,725,387 )     5,585,186      
Net change in unrealized appreciation (depreciation) from investments, written options and foreign currency
    139,228,678       (40,058,615 )    
 
 
Net increase (decrease) in net assets from operations
  $ 142,808,843     $ (16,075,938 )    
 
 
Distributions to shareholders —
                   
From net investment income
  $ (88,281,529 )*   $ (18,540,049 )    
Tax return of capital
          (175,734,205 )    
 
 
Total distributions
  $ (88,281,529 )   $ (194,274,254 )    
 
 
                     
Net increase (decrease) in net assets
  $ 54,527,314     $ (210,350,192 )    
 
 
                     
                     
 
Net Assets
 
At beginning of period
  $ 1,651,550,686     $ 1,861,900,878      
 
 
At end of period
  $ 1,706,078,000     $ 1,651,550,686      
 
 
                     
                     
 
Accumulated undistributed (distributions in excess of) net investment income
included in net assets
 
At end of period
  $ (77,889,118 )   $ 86,859      
 
 
 
* A portion of the distributions may be deemed a tax return of capital at year-end. See Note 2.

 
See Notes to Financial Statements.
11


 

 
Eaton Vance
Tax-Managed Diversified Equity Income Fund
 
April 30, 2012
 
 
Financial Highlights

 
                                                     
    Six Months Ended
  Year Ended October 31,        
    April 30, 2012
 
  Period Ended
   
    (Unaudited)   2011   2010   2009   2008   October 31, 2007(1)    
 
Net asset value — Beginning of period
  $ 10.830     $ 12.210     $ 12.810     $ 12.940     $ 19.600     $ 19.100 (2)    
 
 
                                                     
                                                     
 
Income (Loss) From Operations
 
Net investment income(3)
  $ 0.068     $ 0.121     $ 0.138     $ 0.186     $ 0.267     $ 1.314      
Net realized and unrealized gain (loss)
    0.871       (0.227 )     0.941       1.534       (5.077 )     0.583      
 
 
Total income (loss) from operations
  $ 0.939     $ (0.106 )   $ 1.079     $ 1.720     $ (4.810 )   $ 1.897      
 
 
                                                     
                                                     
 
Less Distributions
 
From net investment income
  $ (0.579 )*   $ (0.122 )   $ (0.137 )   $ (0.187 )   $ (0.239 )   $ (1.290 )    
Tax return of capital
          (1.152 )     (1.542 )     (1.663 )     (1.611 )     (0.098 )    
 
 
Total distributions
  $ (0.579 )   $ (1.274 )   $ (1.679 )   $ (1.850 )   $ (1.850 )   $ (1.388 )    
 
 
                                                     
Offering costs charged to paid-in capital(3)
  $     $     $     $     $     $ (0.009 )    
 
 
                                                     
Net asset value — End of period
  $ 11.190     $ 10.830     $ 12.210     $ 12.810     $ 12.940     $ 19.600      
 
 
                                                     
Market value — End of period
  $ 9.590     $ 9.210     $ 11.620     $ 12.470     $ 11.900     $ 17.130      
 
 
                                                     
Total Investment Return on Net Asset Value(4)
    9.85 %(5)     (0.27 )%     9.26 %     17.86 %     (26.02 )%     10.26 %(5)(6)    
 
 
                                                     
Total Investment Return on Market Value(4)
    10.70 %(5)     (10.88 )%     6.82 %     24.76 %     (22.15 )%     (3.63 )%(5)(6)    
 
 
                                                     
                                                     
 
Ratios/Supplemental Data
 
Net assets, end of period (000’s omitted)
  $ 1,706,078     $ 1,651,551     $ 1,861,901     $ 1,924,016     $ 1,937,783     $ 2,933,710      
Ratios (as a percentage of average daily net assets):
                                                   
Expenses(7)
    1.07 %(8)     1.07 %     1.07 %     1.07 %     1.05 %     1.06 %(8)    
Net investment income
    1.25 %(8)     1.03 %     1.11 %     1.55 %     1.56 %     7.27 %(8)    
Portfolio Turnover
    18 %(5)     63 %     25 %     45 %     95 %     221 %(5)    
 
 
 
(1) For the period from the start of business, November 30, 2006, to October 31, 2007.
(2) Net asset value at beginning of period reflects the deduction of the sales load of $0.90 per share paid by the shareholder from the $20.00 offering price.
(3) Computed using average shares outstanding.
(4) Returns are historical and are calculated by determining the percentage change in net asset value or market value with all distributions reinvested.
(5) Not annualized.
(6) Total investment return on net asset value is calculated assuming a purchase at the offering price of $20.00 less the sales load of $0.90 per share paid by the shareholder on the first day and a sale at the net asset value on the last day of the period reported with all distributions reinvested. Total investment return on market value is calculated assuming a purchase at the offering price of $20.00 less the sales load of $0.90 per share paid by the shareholder on the first day and a sale at the current market price on the last day of the period reported with all distributions reinvested.
(7) Excludes the effect of custody fee credits, if any, of less than 0.005%.
(8) Annualized.
* A portion of the distributions may be deemed a tax return of capital at year-end. See Note 2.

 
See Notes to Financial Statements.
12


 

 
Eaton Vance
Tax-Managed Diversified Equity Income Fund
 
April 30, 2012
 
 
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.
 
A Investment Valuation — Equity securities (including common shares of closed-end investment companies) 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 asked prices therefore 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 asked prices or, in the case of preferred equity securities that are not listed or traded in the over-the-counter market, by a third party pricing service that will use various techniques that consider factors including, but not limited to, prices or yields of securities with similar characteristics, benchmark yields, broker/dealer quotes, quotes of underlying common stock, issuer spreads, as well as industry and economic events. Exchange-traded options are valued at the mean between the bid and asked prices at valuation time as reported by the Options Price Reporting Authority for U.S. listed options or by the relevant exchange or board of trade for non-U.S. listed options. 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. Short-term obligations purchased with a remaining maturity of sixty days or less are generally valued at amortized cost, which approximates market value. 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.
 
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 fairly reflects the security’s value, or 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 condition, and an evaluation of the forces that influence the issuer and the market(s) in which the security is purchased and sold.
 
The Fund may invest in Eaton Vance Cash Reserves Fund, LLC (Cash Reserves Fund), an affiliated investment company managed by Eaton Vance Management (EVM). Cash Reserves Fund generally values its investment securities utilizing the amortized cost valuation technique in accordance with Rule 2a-7 under the 1940 Act. This technique involves initially valuing a portfolio security at its cost and thereafter assuming a constant amortization to maturity of any discount or premium. If amortized cost is determined not to approximate fair value, Cash Reserves Fund may value its investment securities based on available market quotations provided by a third party pricing service.
 
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. Interest income is recorded on the basis of interest accrued, adjusted for amortization of premium or accretion of discount.
 
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.
 
At October 31, 2011, the Fund, for federal income tax purposes, had a capital loss carryforward of $445,775,309 which will reduce its taxable income arising from future net realized gains on investment transactions, if any, to the extent permitted by the Internal Revenue Code, and thus will reduce the amount of distributions to shareholders, which would otherwise be necessary to relieve the Fund of any liability for federal income or excise tax. Such capital loss carryforward will expire on October 31, 2015 ($98,912,884), October 31, 2017 ($293,314,901) and October 31, 2018 ($53,547,524). In addition, such capital loss carryforward cannot be utilized prior to the utilization of new capital losses, if any, created after October 31, 2011.

 
13


 

 
Eaton Vance
Tax-Managed Diversified Equity Income Fund
 
April 30, 2012
 
 
Notes to Financial Statements (Unaudited) — continued

 
As of April 30, 2012, 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.
 
E Expense Reduction — State Street Bank and Trust Company (SSBT) serves as custodian of the Fund. Pursuant to the custodian agreement, SSBT receives a fee reduced by credits, which are determined based on the average daily cash balance the Fund maintains with SSBT. All credit balances, if any, used to reduce the Fund’s custodian fees are reported as a reduction of expenses in the Statement of Operations.
 
F 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.
 
G Use of Estimates — The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America 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.
 
H 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 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.
 
I 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 strike 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 strike 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.
 
J Interim Financial Statements — The interim financial statements relating to April 30, 2012 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
 
Subject to its Managed Distribution Plan, the Fund intends to make quarterly 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 (reduced by available capital loss carryforwards from prior years, if any). Distributions are recorded on the ex-dividend date. The Fund distinguishes between distributions on a tax basis and a financial reporting basis. Accounting principles generally accepted in the United States of America require that only distributions in excess of tax basis earnings and profits be 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, 2012, the amount of distributions estimated to be a tax return of capital was approximately $80,218,000. 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.
 
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

 
14


 

 
Eaton Vance
Tax-Managed Diversified Equity Income Fund
 
April 30, 2012
 
 
Notes to Financial Statements (Unaudited) — continued

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 the Trustees and shareholders. The Fund invests its cash in Cash Reserves Fund. EVM does not currently receive a fee for advisory services provided to Cash Reserves Fund. For the six months ended April 30, 2012, the Fund’s investment adviser fee amounted to $8,220,897 or 1.00% (annualized) of the Fund’s average daily gross assets. EVM also serves as administrator of the Fund, but receives no compensation.
 
Except for Trustees of the Fund who are not members of EVM’s organization, officers and Trustees 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, 2012, 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 $288,522,847 and $388,728,499, respectively, for the six months ended April 30, 2012.
 
5 Common Shares of Beneficial Interest
 
The Fund may issue common shares pursuant to its dividend reinvestment plan. There were no transactions in common shares for the six months ended April 30, 2012 and year ended October 31, 2011.
 
6 Federal Income Tax Basis of Investments
 
The cost and unrealized appreciation (depreciation) of investments of the Fund at April 30, 2012, as determined on a federal income tax basis, were as follows:
 
             
Aggregate cost
  $ 1,459,910,106      
             
 
 
Gross unrealized appreciation
  $ 308,903,405      
Gross unrealized depreciation
    (57,250,880 )    
             
 
 
Net unrealized appreciation
  $ 251,652,525      
             
 
 
 
7 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 written call options at April 30, 2012 is included in the Portfolio of Investments.
 
Written call options activity for the six months ended April 30, 2012 was as follows:
 
                     
    Number of
  Premiums
   
    Contracts   Received    
 
 
Outstanding, beginning of period
    6,345     $ 23,069,562      
Options written
    36,760       90,698,884      
Options terminated in closing purchase transactions
    (37,240 )     (104,386,575 )    
                     
 
 
Outstanding, end of period
    5,865     $ 9,381,871      
                     
 
 
 
All of the assets of the Fund are subject to segregation to satisfy the requirements of the escrow agent. At April 30, 2012, the Fund had sufficient cash and/or securities to cover commitments under these contracts.

 
15


 

 
Eaton Vance
Tax-Managed Diversified Equity Income Fund
 
April 30, 2012
 
 
Notes to Financial Statements (Unaudited) — continued

 
The Fund is subject to equity price risk in the normal course of pursuing its investment objectives. The Fund writes index call options above the current value of the index to generate premium income. In writing index call options, the Fund in effect, sells potential appreciation in the value of the applicable index above the exercise price in exchange for the option premium received. The Fund retains the risk of loss, minus the premium received, should the price of the underlying index decline. The Fund is not subject to counterparty credit risk with respect to its written options as the Fund, not the counterparty, is obligated to perform under such derivatives.
 
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, 2012 was as follows:
 
                     
    Fair Value    
   
Derivative   Asset Derivative   Liability Derivative    
 
 
Written options
  $      —     $ (9,046,575 )(1)    
                     
 
 
 
(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, 2012 was as follows:
 
                     
    Realized Gain (Loss)
  Change in Unrealized
   
    on Derivatives Recognized
  Appreciation (Depreciation) on
   
Derivative   in Income   Derivatives Recognized in Income    
 
 
Written options
  $ (4,775,175 )(1)   $ 5,923,759 (2)    
                     
 
 
 
(1) Statement of Operations location: Net realized gain (loss) – Written options.
(2) Statement of Operations location: Change in unrealized appreciation (depreciation) – Written options.
 
8 Risks Associated with Foreign Investments
 
Investing in securities issued by companies whose principal business activities are outside the United States may involve significant risks not present in domestic investments. For example, there is generally less publicly available information about foreign companies, particularly those not subject to the disclosure and reporting requirements of the U.S. securities laws. Certain foreign issuers are generally not bound by uniform accounting, auditing, and financial reporting requirements and standards of practice comparable to those applicable to domestic issuers. Investments in foreign securities also involve the risk of possible adverse changes in investment or exchange control regulations, expropriation or confiscatory taxation, limitation on the removal of funds or other assets of the Fund, political or financial instability or diplomatic and other developments which could affect such investments. Foreign securities markets, while growing in volume and sophistication, are generally not as developed as those in the United States, and securities of some foreign issuers (particularly those located in developing countries) may be less liquid and more volatile than securities of comparable U.S. companies. In general, there is less overall governmental supervision and regulation of foreign securities markets, broker/dealers and issuers than in the United States.
 
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.

 
16


 

 
Eaton Vance
Tax-Managed Diversified Equity Income Fund
 
April 30, 2012
 
 
Notes to Financial Statements (Unaudited) — continued

 
At April 30, 2012, the hierarchy of inputs used in valuing the Fund’s investments and open derivative instruments, which are carried at value, were as follows:
 
                                     
Asset Description   Level 1   Level 2   Level 3   Total    
 
 
Common Stocks
                                   
Consumer Discretionary
  $ 156,939,180     $ 31,653,647     $      —     $ 188,592,827      
Consumer Staples
    162,658,683       43,347,856             206,006,539      
Energy
    150,269,031       51,786,239             202,055,270      
Financials
    167,254,678       44,903,476             212,158,154      
Health Care
    184,906,910       53,726,366             238,633,276      
Industrials
    132,698,221       9,685,065             142,383,286      
Information Technology
    229,595,520       4,900,037             234,495,557      
Materials
    49,989,849       16,596,992             66,586,841      
Telecommunication Services
    47,130,775       23,645,826             70,776,601      
Utilities
    46,384,471       13,100,380             59,484,851      
                                     
 
 
Total Common Stocks
  $ 1,327,827,318     $ 293,345,884 *   $     $ 1,621,173,202      
                                     
 
 
Short-Term Investments
  $     $ 90,389,429     $     $ 90,389,429      
                                     
 
 
Total Investments
  $ 1,327,827,318     $ 383,735,313     $     $ 1,711,562,631      
                                     
 
 
                                     
Liability Description
                                   
                                     
 
 
Call Options Written
  $ (9,046,575 )   $     $     $ (9,046,575 )    
                                     
 
 
Total
  $ (9,046,575 )   $     $     $ (9,046,575 )    
                                     
 
 
 
*   Includes foreign equity securities whose values were adjusted to reflect market trading of comparable securities or other correlated instruments that occurred after the close of trading in their applicable foreign markets.
 
The Fund held no investments or other financial instruments as of October 31, 2011 whose fair value was determined using Level 3 inputs. At April 30, 2012, the value of investments transferred between Level 1 and Level 2, if any, during the six months then ended was not significant.

 
17


 

 
Eaton Vance
Tax-Managed Diversified Equity Income Fund
 
April 30, 2012
 
 
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 each investment advisory agreement between a fund and its investment adviser will continue in effect from year to year only if its continuation is approved at least annually by the fund’s board of trustees, including by a vote of 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 of the Boards of Trustees (each a “Board”) of the Eaton Vance group of mutual funds (the “Eaton Vance Funds”) held on April 23, 2012, the Board, including a majority of the Independent Trustees, voted to approve continuation of existing advisory and sub-advisory agreements for the Eaton Vance Funds for an additional one-year period. In voting its approval, the Board relied upon the affirmative recommendation of the Contract Review Committee of the Board, which is a committee comprised exclusively of Independent Trustees. Prior to making its recommendation, the Contract Review Committee reviewed information furnished by each adviser to the Eaton Vance Funds (including information specifically requested by the Board) for a series of meetings of the Contract Review Committee held between February and April 2012, as well as information considered during prior meetings of the committee. Such information included, among other things, the following:
 
Information about Fees, Performance and Expenses
 
  •  An independent report comparing the advisory and related fees paid by each fund with fees paid by comparable funds;
  •  An independent report comparing each fund’s total expense ratio and its components to comparable funds;
  •  An independent report comparing the investment performance of each fund (including, where relevant, yield data, Sharpe ratios and information ratios) to the investment performance of comparable funds over various time periods;
  •  Data regarding investment performance in comparison to benchmark indices and customized peer groups, in each case as approved by the Board with respect to the funds;
  •  For each fund, comparative information concerning the fees charged and the services provided by each adviser in managing other accounts (including mutual funds, other collective investment funds and institutional accounts) using investment strategies and techniques similar to those used in managing such fund;
  •  Profitability analyses for each adviser with respect to each fund;
 
Information about Portfolio Management and Trading
 
  •  Descriptions of the investment management services provided to each fund, including the investment strategies and processes employed, and any changes in portfolio management processes and personnel;
  •  Information about the allocation of brokerage and the benefits received by each adviser as a result of brokerage allocation, including information concerning the acquisition of research through client commission arrangements and the fund’s policies with respect to “soft dollar” arrangements;
  •  Data relating to portfolio turnover rates of each fund;
  •  The procedures and processes used to determine the fair value of fund assets and actions taken to monitor and test the effectiveness of such procedures and processes;
  •  Information about each adviser’s processes for monitoring best execution of portfolio transactions, and other policies and practices of each adviser with respect to trading;
 
Information about each Adviser
 
  •  Reports detailing the financial results and condition of each adviser;
  •  Descriptions of the qualifications, education and experience of the individual investment professionals whose responsibilities include portfolio management and investment research for the funds, and information relating to their compensation and responsibilities with respect to managing other mutual funds and investment accounts;
  •  Copies of the Codes of Ethics of each adviser and its affiliates, together with information relating to compliance with and the administration of such codes;
  •  Copies of or descriptions of each adviser’s policies and procedures relating to proxy voting, the handling of corporate actions and class actions;
  •  Information concerning the resources devoted to compliance efforts undertaken by each adviser and its affiliates on behalf of the funds (including descriptions of various compliance programs) and their record of compliance with investment policies and restrictions, including policies with respect to market-timing, late trading and selective portfolio disclosure, and with policies on personal securities transactions;
  •  Descriptions of the business continuity and disaster recovery plans of each adviser and its affiliates;
  •  A description of Eaton Vance Management’s procedures for overseeing third party advisers and sub-advisers, including with respect to regulatory and compliance issues, investment management and other matters;

 
18


 

 
Eaton Vance
Tax-Managed Diversified Equity Income Fund
 
April 30, 2012
 
 
Board of Trustees’ Contract Approval — continued

 
Other Relevant Information
 
  •  Information concerning the nature, cost and character of the administrative and other non-investment management services provided by Eaton Vance Management and its affiliates;
  •  Information concerning management of the relationship with the custodian, subcustodians and fund accountants by each adviser or the funds’ administrator; and
  •  The terms of each advisory agreement.
 
In addition to the information identified above, the Contract Review Committee considered information provided from time to time by each adviser throughout the year at meetings of the Board and its committees. Over the course of the twelve-month period ended April 30, 2012, with respect to one or more funds, the Board met ten times and the Contract Review Committee, the Audit Committee, the Governance Committee, the Portfolio Management Committee and the Compliance Reports and Regulatory Matters Committee, each of which is a Committee comprised solely of Independent Trustees, met ten, nineteen, seven, eight and fourteen times respectively. At such meetings, the Trustees participated in investment and performance reviews with the portfolio managers and other investment professionals of each adviser relating to each fund. The Board and its Committees considered the investment and trading strategies used in pursuing each fund’s investment objective, including, where relevant, the use of derivative instruments, as well as risk management techniques. The Board and its Committees also 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 and other fund advisers with respect to such matters.
 
For funds that invest through one or more underlying portfolios, the Board considered similar information about the portfolio(s) when considering the approval of advisory agreements. In addition, in cases where the fund’s investment adviser has engaged a sub-adviser, the Board considered similar information about the sub-adviser when considering the approval of any sub-advisory agreement.
 
The Contract Review Committee was assisted throughout the contract review process by Goodwin Procter LLP, legal counsel for the Independent Trustees. The members of the Contract Review Committee relied upon the advice of such counsel and their own business judgment in determining the material factors to be considered in evaluating each advisory and sub-advisory agreement and the weight to be given to each such factor. The conclusions reached with respect to each advisory 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 advisory and sub-advisory agreement.
 
Results of the Process
 
Based on its consideration of the foregoing, and such other information as it deemed relevant, including the factors and conclusions described below, the Contract Review Committee concluded that the continuation of the investment advisory agreement of Eaton Vance Tax-Managed Diversified Equity Income Fund (the “Fund”) with Eaton Vance Management (the “Adviser”), including its fee structure, is in the interests of shareholders and, therefore, the Contract Review Committee recommended to the Board approval of the agreement. The Board accepted the recommendation of the Contract Review Committee as well as the factors considered and conclusions reached by the Contract Review Committee with respect to the agreement. Accordingly, 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 of 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 process with respect to the types of investments held by the Fund, including the education, experience and number of its investment professionals and other personnel who provide portfolio management, investment research, and similar services to the Fund. In particular, the Board considered the abilities and experience of such investment personnel in analyzing factors such as tax efficiency and special considerations relevant to investing in stocks and selling call options on various indexes. The Board also took into account the resources dedicated to portfolio management and other services, including the compensation methods of the Adviser to recruit and retain investment personnel, and the time and attention devoted to the Fund by senior management.
 
The Board reviewed the compliance programs of the Adviser and relevant affiliates thereof. Among other matters, the Board considered compliance and reporting matters relating to personal trading by investment personnel, selective disclosure of portfolio holdings, late trading, frequent trading, portfolio valuation, business continuity and the allocation of investment opportunities. The Board also evaluated 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 shareholder and other administrative services provided or managed 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 family of funds.
 
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.

 
19


 

 
Eaton Vance
Tax-Managed Diversified Equity Income Fund
 
April 30, 2012
 
 
Board of Trustees’ Contract Approval — continued

 
Fund Performance
 
The Board compared the Fund’s investment performance to a relevant universe of similarly managed funds identified by an independent data provider as well as a customized peer group of similarly managed funds and appropriate benchmark indices. The Board reviewed comparative performance data for the one- and three-year periods ended September 30, 2011 for the Fund. On the basis of the foregoing and other relevant information provided by the Adviser in response to inquiries from the Contract Review Committee, the Board concluded that the performance of the Fund was satisfactory.
 
Management Fees and Expenses
 
The Board reviewed contractual investment advisory fee rates payable by the Fund (referred to as “management fees”). As part of its review, the Board considered the management fees and the Fund’s total expense ratio for the year ended September 30, 2011, as compared to a group of similarly managed funds selected by an independent data provider. The Board considered that the Adviser had waived fees and/or paid expenses for the Fund. The Board also considered factors that had an impact on Fund expense ratios, as identified by management in response to inquiries from the Contract Review Committee, as well as actions taken by management in recent years to reduce expenses at the Eaton Vance fund complex level, including the negotiation of reduced fees for transfer agency and custody services.
 
After reviewing 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
 
The Board reviewed 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 revenue sharing or other payments by the Adviser and its affiliates to third parties in respect of distribution services. The Board also considered other direct or indirect benefits received by the Adviser and its affiliates in connection with their 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 Portfolio and other investment advisory clients.
 
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 reasonable.
 
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 the economies of scale with respect to the management of any specific fund or group of funds. The 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. The Board also concluded that, assuming reasonably foreseeable increases in the assets of the Fund, the structure of the advisory fee, which includes breakpoints at several asset levels, will allow the Fund to continue to benefit from economies of scale in the future.

 
20


 

 
Eaton Vance
Tax-Managed Diversified Equity Income Fund
 
April 30, 2012
 
 
Officers and Trustees

     
Officers of Eaton Vance Tax-Managed Diversified Equity Income Fund
 
 
Walter A. Row, III
President

Duncan W. Richardson
Vice President

Barbara E. Campbell
Treasurer
 
Maureen A. Gemma
Vice President, Secretary and Chief Legal Officer

Paul M. O’Neil
Chief Compliance Officer
 
     
Trustees of Eaton Vance Tax-Managed Diversified Equity Income Fund
 
 
Ralph F. Verni
Chairman

Scott E. Eston

Benjamin C. Esty

Thomas E. Faust Jr.*

Allen R. Freedman
 
William H. Park

Ronald A. Pearlman

Helen Frame Peters

Lynn A. Stout

Harriett Tee Taggart
 
* Interested Trustee
 
 
Number of Employees
 
The Fund is organized as a Massachusetts business trust and is registered under the Investment Company Act of 1940, as amended, as a closed-end management investment company and has no employees.
 
Number of Shareholders
 
As of April 30, 2012, Fund records indicate that there are 183 registered shareholders and approximately 79,752 shareholders owning the Fund shares in street name, such as through brokers, banks, and financial intermediaries.
 
If you are a street name shareholder and wish to receive Fund reports directly, which contain important information about the Fund, please write or call:
 
Eaton Vance Distributors, Inc.
Two International Place
Boston, MA 02110
1-800-262-1122
 
New York Stock Exchange symbol
 
The New York Stock Exchange symbol is ETY.

 
21


 

 
Eaton Vance
Tax-Managed Diversified Equity Income Fund
 
April 30, 2012
 
 
IMPORTANT NOTICES

 
Privacy. The Eaton Vance organization is committed to ensuring your financial privacy. Each of the financial institutions identified below has in effect the following policy (“Privacy Policy”) with respect to nonpublic personal information about its customers:
 
•  Only such information received from you, through application forms or otherwise, and information about your Eaton Vance fund transactions will be collected. This may include information such as name, address, social security number, tax status, account balances and transactions.
 
•  None of such information about you (or former customers) will be disclosed to anyone, except as permitted by law (which includes disclosure to employees necessary to service your account). In the normal course of servicing a customer’s account, Eaton Vance may share information with unaffiliated third parties that perform various required services such as transfer agents, custodians and broker/dealers.
 
•  Policies and procedures (including physical, electronic and procedural safeguards) are in place that are designed to protect the confidentiality of such information.
 
•  We reserve the right to change our Privacy Policy at any time upon proper notification to you. Customers may want to review our Privacy Policy periodically for changes by accessing the link on our homepage: www.eatonvance.com.
 
Our pledge of privacy 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’s Real Estate Investment Group and Boston Management and Research. In addition, our Privacy Policy applies only to those Eaton Vance customers who are individuals and who have a direct relationship with us. If a customer’s account (i.e., fund shares) is held in the name of a third-party financial advisor/broker-dealer, it is likely that only such advisor’s privacy policies apply to the customer. This notice supersedes all previously issued privacy disclosures. For more information about Eaton Vance’s Privacy Policy, 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. Eaton Vance, or your financial advisor, may household the mailing of your documents indefinitely unless you instruct Eaton Vance, or your financial advisor, otherwise. If you would prefer that your Eaton Vance documents not be householded, please contact Eaton Vance at 1-800-262-1122, or contact your financial advisor. Your instructions that householding not apply to delivery of your Eaton Vance documents will be effective within 30 days of receipt by Eaton Vance or your financial advisor.
 
Portfolio Holdings. Each Eaton Vance Fund and its underlying Portfolio(s) (if applicable) will file a schedule of portfolio holdings on Form N-Q with the SEC for the first and third quarters of each fiscal year. The Form N-Q 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. Form N-Q may also be reviewed and copied at the SEC’s public reference room in Washington, D.C. (call 1-800-732-0330 for information on the operation of the public reference room).
 
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.
 
Additional Notice to Shareholders. The Fund may purchase shares of its common stock in the open market when they trade at a discount to net asset value or at other times if the Fund determines such purchases are advisable. There can be no assurance that the Fund will take such action or that such purchases would reduce the discount.
 
Closed-End Fund Information. The Eaton Vance closed-end funds make certain quarterly fund performance data and information about portfolio characteristics (such as top holdings and asset allocation) available on the Eaton Vance website after the end of each calendar quarter-end. Certain month end fund performance data for the funds, including total returns, are posted to the website shortly after the end of each calendar month. Portfolio holdings for the most recent calendar quarter-end are also posted to the website approximately 30 days following the end of the quarter. This information is available at www.eatonvance.com on the fund information pages under “Individual Investors — Closed-End Funds”.

 
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Investment Adviser and Administrator
Eaton Vance Management
Two International Place
Boston, MA 02110
 
Custodian
State Street Bank and Trust Company
200 Clarendon Street
Boston, MA 02116
Transfer Agent
American Stock Transfer & Trust Company
59 Maiden Lane
Plaza Level
New York, NY 10038
 
Fund Offices
Two International Place
Boston, MA 02110
 
 
 


 

 
(EATON VANCE INVESTMENT MANAGERS LOGO)
 
2897-6/12 CE-TMDEISRC


 

Item 2. Code of Ethics
Not required in this filing.
Item 3. Audit Committee Financial Expert
The registrant’s Board has designated William H. Park, an independent trustee, as its audit committee financial expert. Mr. Park is a certified public accountant who is a consultant and private investor. Previously, he served as the Chief Financial Officer of Aveon Group, L.P. (an investment management firm), as the Vice Chairman of Commercial Industrial Finance Corp. (specialty finance company), as President and Chief Executive Officer of Prizm Capital Management, LLC (investment management firm), as Executive Vice President and Chief Financial Officer of United Asset Management Corporation (an institutional investment management firm) and as a Senior Manager at Price Waterhouse (now PricewaterhouseCoopers) (an independent registered public accounting firm).
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
Not required in this filing.
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 second fiscal quarter of 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. 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/ Walter A. Row, III    
    Walter A. Row, III   
    President   
Date: June 8, 2012
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/ Barbara E. Campbell    
    Barbara E. Campbell   
    Treasurer   
Date: June 8, 2012
         
     
  By:   /s/ Walter A. Row, III    
    Walter A. Row, III   
    President   
Date: June 8, 2012