Prospectus Supplement
(To Prospectus dated February 18, 2022)
Eaton Vance Tax-Managed Diversified Equity Income Fund
Up to 11,231,109 Common Shares
Eaton Vance Tax-Managed Diversified Equity Income Fund (the “Fund,” “we,” or “our”) is a diversified, closed-end management investment company which commenced operations on November 27, 2006. Our investment objective is to provide current income and gains, with a secondary objective of capital appreciation. The Fund may offer and sell up to 11,231,109 common shares of beneficial interest, $0.01 par value (“Common Shares”). Of the 11,231,109 Common Shares, 5,337,990 have been issued and 5,893,119 remain available for sale. In addition, the Fund has registered, and may take down, additional shares at a later date.
The Fund has entered into a distribution agreement dated June 8, 2022 (the “Distribution Agreement”) with Eaton Vance Distributors, Inc. (the “Distributor”) relating to the Common Shares offered by this Prospectus Supplement and the accompanying Prospectus dated February 18, 2022. The Distributor has entered into a dealer agreement, dated June 8, 2022 (the “Dealer Agreement”) with UBS Securities LLC (the “Dealer”) with respect to the Fund relating to the Common Shares offered by this Prospectus Supplement and the accompanying Prospectus. In accordance with the terms of the Dealer Agreement, we may offer and sell our Common Shares, $0.01 par value per share, from time to time through the Dealer as sub-placement agent for the offer and sale of the Common Shares. Under the Investment Company Act of 1940, as amended (the “1940 Act”), the Fund may not sell any Common Shares at a price below the current net asset value of such Common Shares, exclusive of any distributing commission or discount.
Prior to March 1, 2021, the Distributor was a direct, wholly owned subsidiary of Eaton Vance Corp. (“EVC”).On March 1, 2021, Morgan Stanley acquired EVC (the “Transaction”) and the Distributor became an indirect, wholly owned subsidiary of Morgan Stanley.
Our Common Shares are listed on the New York Stock Exchange (“NYSE”) under the symbol “ETY.” As of June 3, 2022, the last reported sales price for our Common Shares on the NYSE was $12.40 per share.
Sales of our Common Shares, if any, under this Prospectus Supplement and the accompanying Prospectus may be made in negotiated transactions or transactions that are deemed to be “at the market” as defined in Rule 415 under the Securities Act of 1933, as amended (the “1933 Act”), including sales made directly on the NYSE or sales made to or through a market maker other than on an exchange.
The Fund will compensate the Distributor with respect to sales of the Common Shares at a commission rate of 1.00% of the gross proceeds of the sale of Common Shares. The Distributor will compensate the Dealer out of this commission at a certain percentage rate of the gross proceeds of the sale of Common Shares sold under the Dealer Agreement, with the exact amount of such compensation to be mutually agreed upon by the Distributor and the Dealer from time to time. In connection with the sale of the Common Shares on the Fund’s behalf, the Distributor may be deemed to be an “underwriter” within the meaning of the 1933 Act and the compensation of the Dealer may be deemed to be underwriting commissions or discounts.
The Common Shares have traded both at a premium and a discount to net asset value (“NAV”). The Fund cannot predict whether Common Shares will trade in the future at a premium or discount to NAV. The provisions of the 1940 Act generally require that the public offering price of common shares (less any underwriting commissions and discounts) must equal or exceed the NAV per share of a company’s common stock. The Fund’s issuance of Common Shares may have an adverse effect on prices in the secondary market for the Fund’s Common Shares by increasing the number of Common Shares available, which may put downward pressure on the market price for the Fund’s Common Shares. Shares of common stock of closed-end investment companies frequently trade at a discount from NAV, which may increase investors’ risk of loss.
Investing in our securities involves certain risks. You could lose some or all of your investment. See “Investment Objectives, Policies and Risks” beginning on page 25 of the accompanying Prospectus. You should consider carefully these risks together with all of the other information contained in this Prospectus Supplement and the accompanying Prospectus before making a decision to purchase our securities.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this Prospectus Supplement or the accompanying Prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
Prospectus Supplement dated June 8, 2022
This Prospectus Supplement, together with the accompanying Prospectus, sets forth concisely information about the Fund that you should know before investing. You should read this Prospectus Supplement and the accompanying Prospectus, which contain important information, before deciding whether to invest in our securities. You should retain the accompanying Prospectus and this Prospectus Supplement for future reference. A Statement of Additional Information (“SAI”), dated February 18, 2022 as supplemented from time to time, containing additional information about the Fund, has been filed with the Securities and Exchange Commission (the “SEC”) and is incorporated by reference in its entirety into this Prospectus Supplement and the accompanying Prospectus. This Prospectus Supplement, the accompanying Prospectus and the SAI are part of a “shelf” registration statement that we filed with the SEC. This Prospectus Supplement describes the specific details regarding this offering, including the method of distribution. If information in this Prospectus Supplement is inconsistent with the accompanying Prospectus or the SAI, you should rely on this Prospectus Supplement. You may request a free copy of the SAI, the table of contents of which is on page 59 of the accompanying Prospectus, a free copy of our annual and semi-annual reports to shareholders, obtain other information or make shareholder inquiries, by calling toll-free 1-800-262-1122 or by writing to the Fund at Two International Place, Boston, Massachusetts 02110. The Fund’s SAI and annual and semi-annual reports also are available free of charge on our website at http://www.eatonvance.com and on the SEC’s website (http://www.sec.gov). You may also obtain these documents, after paying a duplication fee, by electronic request at the following email address: publicinfo@sec.gov.
Our securities do not represent a deposit or obligation of, and are not guaranteed or endorsed by, any bank or other insured depository institution and are not federally insured by the Federal Deposit Insurance Corporation, the Federal Reserve Board or any other government agency.
ii
TABLE OF CONTENTS
You should rely only on the information contained in, or incorporated by reference into, this Prospectus Supplement and the accompanying Prospectus in making your investment decisions. The Fund has not authorized any person to provide you with different information. If anyone provides you with different or inconsistent information, you should not rely on it. The Fund is not making an offer to sell the securities in any jurisdiction where the offer or sale is not permitted. You should assume that the information in this Prospectus Supplement and the accompanying Prospectus is accurate only as of the dates on their covers. The Fund’s business, financial condition and prospects may have changed since the date of its description in this Prospectus Supplement or the date of its description in the accompanying Prospectus.
Prospectus Supplement
|
Prospectus Supplement Summary
| 1
|
Capitalization
| 2
|
Summary of Fund Expenses
| 3
|
Market and Net Asset Value Information
| 4
|
Use of Proceeds
| 5
|
Plan of Distribution
| 5
|
Legal Matters
| 6
|
Incorporation by Reference
| 6
|
Available Information
| 7
|
Prospectus
|
Prospectus Summary
| 6
|
Summary of Fund Expenses
| 20
|
Financial Highlights and Investment Performance
| 21
|
The Fund
| 23
|
Use of Proceeds
| 24
|
Investment Objectives, Policies and Risks
| 24
|
Management of the Fund
| 40
|
Plan of Distribution
| 41
|
Distributions
| 42
|
Federal Income Tax Matters
| 43
|
Dividend Reinvestment Plan
| 46
|
Description of Capital Structure
| 46
|
Custodian and Transfer Agent
| 51
|
Legal Matters
| 51
|
Reports to Shareholders
| 51
|
Independent Registered Public Accounting Firm
| 51
|
Potential Conflicts of Interest
| 51
|
Additional Information
| 53
|
Incorporation by Reference
| 54
|
The Fund's Privacy Policy
| 55
|
Table of Contents for the Statement of Additional Information
| 56
|
Until July 3, 2022 (25 days after the date of this Prospectus Supplement),
all dealers that buy, sell or trade the Common Shares, whether or not participating in this offering, may be required to deliver the
Prospectus and this Prospectus Supplement. This requirement is in addition to the dealers’ obligation to deliver the Prospectus
and this Prospectus Supplement when acting as underwriters and with respect to their unsold allotments or subscriptions.
iii
CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
This Prospectus Supplement, the accompanying Prospectus and the SAI contain “forward-looking statements.” Forward-looking statements can be identified by the words “may,” “will,” “intend,” “expect,” “estimate,” “continue,” “plan,” “anticipate,” and similar terms and the negative of such terms. Such forward-looking statements may be contained in this Prospectus Supplement as well as in the accompanying Prospectus. By their nature, all forward-looking statements involve risks and uncertainties, and actual results could differ materially from those contemplated by the forward-looking statements. Several factors that could materially affect our actual results are the performance of the portfolio of securities we hold, the price at which our shares will trade in the public markets and other factors discussed in our periodic filings with the SEC.
Although we believe that the expectations expressed in our forward-looking statements are reasonable, actual results could differ materially from those projected or assumed in our forward-looking statements. Our future financial condition and results of operations, as well as any forward-looking statements, are subject to change and are subject to inherent risks and uncertainties, such as those disclosed in the “Investment Objectives, Policies and Risks” section of the accompanying Prospectus. All forward-looking statements contained or incorporated by reference in this Prospectus Supplement or the accompanying Prospectus are made as of the date of this Prospectus Supplement or the accompanying Prospectus, as the case may be. Except for our ongoing obligations under the federal securities laws, we do not intend, and we undertake no obligation, to update any forward-looking statement. The forward-looking statements contained in this Prospectus Supplement, the accompanying Prospectus and the SAI are excluded from the safe harbor protection provided by section 27A of the 1933 Act.
Currently known risk factors that could cause actual results to differ materially from our expectations include, but are not limited to, the factors described in the “Investment Objectives, Policies and Risks” section of the accompanying Prospectus. We urge you to review carefully that section for a more detailed discussion of the risks of an investment in our securities.
iv
Prospectus Supplement Summary
The following summary is qualified in its entirety by reference to the more detailed information included elsewhere in this Prospectus Supplement and in the accompanying Prospectus and in the SAI.
THE FUND
Eaton Vance Tax-Managed Diversified Equity Income Fund (the “Fund,” “we,” or “our”) is a diversified, closed-end management investment company, which commenced operations on November 27, 2006. The Fund seeks to provide current income and gains, with a secondary objective of capital appreciation. Investments are based on Eaton Vance Management’s (“Eaton Vance” or the “Adviser”) internal research and management. An investment in the Fund may not be appropriate for all investors. There is no assurance that the Fund will achieve its investment objectives.
THE ADVISER
Eaton Vance acts as the Fund’s investment adviser under an Investment Advisory Agreement (the “Advisory Agreement”). The Adviser’s principal office is located at Two International Place, Boston, MA 02110. Eaton Vance, its affiliates and predecessor companies have been managing assets of individuals and institutions since 1924 and of investment companies since 1931. Prior to March 1, 2021, Eaton Vance was a wholly owned subsidiary of Eaton Vance Corp. (“EVC”).
On March 1, 2021, Morgan Stanley acquired EVC (the “Transaction”) and Eaton Vance became an indirect, wholly owned subsidiary of Morgan Stanley. In connection with the Transaction, the Fund entered into a new investment advisory agreement with Eaton Vance. The agreement was approved by shareholders prior to the consummation of the Transaction and was effective upon its closing. Effective March 1, 2021, any fee reduction agreement previously applicable to the Fund was incorporated into its new investment advisory agreement with Eaton Vance.
Morgan Stanley (NYSE: MS), whose principal offices are at 1585 Broadway, New York, New York 10036, is a preeminent global financial services firm engaged in securities trading and brokerage activities, as well as providing investment banking, research and analysis, financing and financial advisory services. As of March 31, 2022, Morgan Stanley’s asset management operations had aggregate assets under management of approximately $1.4 trillion.
Under the general supervision of the Fund’s Board, Eaton Vance is responsible for the Fund’s overall investment program, structuring and managing the Fund’s common stock portfolio, including dividend capture trading, tax-loss harvesting (i.e., periodically selling positions that have depreciated in value to realize capital losses that can be used to offset capital gains realized by the Fund) and other tax-management techniques. The Adviser will compensate all Trustees and officers of the Fund who are members of the Adviser’s organization and who render investment services to the Fund, and will also compensate all other Adviser personnel who provide research and investment services to the Fund. In connection with the Transaction, the Fund entered into an investment advisory agreement (the “New Agreement”) with Eaton Vance, which took effect on March 1, 2021. Pursuant to the New Agreement (and the Fund’s investment advisory agreement with Eaton Vance in effect prior to March 1, 2021), the Fund has agreed to pay the Adviser an investment advisory fee, payable on a monthly basis, at an annual rate of 1.000% of the average daily gross assets of the Fund up to and including $1.5 billion, 0.980% of the average daily gross assets of the Fund over $1.5 billion up to and including $3 billion, 0.960% of the average daily gross assets of the Fund over $3 billion up to and including $5 billion, and 0.940% of the average daily gross assets of the Fund over $5 billion. Compensation is based on the average daily gross assets of the Fund. For purposes of this calculation, “gross assets” of the Fund shall mean total assets of the Fund, including any form of investment leverage, minus all accrued expenses incurred in the normal course of operations, but not excluding any liabilities or obligations attributable to investment leverage obtained through (i) indebtedness of any type (including, without limitation, borrowing through a credit facility or the issuance of debt securities), (ii) the issuance of preferred stock or other similar preference securities, (iii) the reinvestment of collateral received for securities loaned in accordance with the Fund's investment objectives and policies, and/or (iv) any other means. During periods in which the Fund is using leverage, the fees paid to Eaton Vance for investment advisory services will be higher than if the Fund did not use leverage because the fees paid will be calculated on the basis of the Fund’s gross assets, including proceeds from borrowings and from the issuance of preferred shares (if applicable). The Fund is responsible for all expenses not expressly stated by another party (such as the expenses required to be paid pursuant to an agreement with the investment adviser or administrator).
1
THE OFFERING
The Fund has entered into a distribution agreement dated June 8, 2022 (the “Distribution Agreement”) with Eaton Vance Distributors, Inc. (the “Distributor”) relating to the common shares of beneficial interest (the “Common Shares”), offered by this Prospectus Supplement and the accompanying Prospectus dated February 18, 2022 (the “Offering”). The Distributor has entered into a dealer agreement dated June 8, 2022 (the “Dealer Agreement”) with UBS Securities LLC (the “Dealer”) with respect to the Fund relating to the Common Shares offered by this Prospectus Supplement and the accompanying Prospectus. In accordance with the terms of the Dealer Agreement, the Fund may offer and sell up to 11,231,109 Common Shares, par value $0.01 per Common Share, from time to time through the Dealer as sub-placement agent for the offer and sale of the Common Shares. Of the 11,231,109 Common Shares, 5,337,990 have been issued and 5,893,119 remain available for sale. In addition, the Fund has registered, and may take down, additional shares at a later date.
Offerings of the Common Shares will be subject to the provisions of the 1940 Act, which generally require that the public offering price of common shares of a closed-end investment company (exclusive of distribution commissions and discounts) must equal or exceed the net asset value per share of the company’s common shares, absent shareholder approval or under certain other circumstances.
Sales of the Common Shares, if any, under this Prospectus Supplement and the accompanying Prospectus may be made in negotiated transactions or transactions that are deemed to be “at the market” as defined in Rule 415 under the 1933 Act, including sales made directly on the New York Stock Exchange (“NYSE”) or sales made to or through a market maker other than on an exchange. The Common Shares may not be sold through agents, underwriters or dealers without delivery or deemed delivery of a Prospectus and an accompanying Prospectus Supplement describing the method and terms of the offering of Common Shares.
Prior to March 1, 2021, the Distributor was a direct, wholly owned
subsidiary of EVC. Upon the closing of the Transaction on March 1, 2021, the Distributor became an indirect, wholly owned subsidiary of Morgan Stanley.
LISTING AND SYMBOL
The Fund’s currently outstanding Common Shares are listed on the NYSE under the symbol “ETY.” Any new Common Shares offered and sold hereby are expected to be listed on the NYSE and trade under this symbol. The net asset value of the Common Shares on June 3, 2022 was $12.21 per share. As of June 3, 2022, the last reported sales price for the Common Shares was $12.40.
USE OF PROCEEDS
The Fund currently intends to invest substantially all of the net proceeds of any sales of Common Shares pursuant to this Prospectus Supplement in accordance with its investment objectives and policies as described in the accompanying Prospectus under “Investment Objectives, Policies and Risks” within three months of receipt of such proceeds. Such investments may be delayed up to three months if suitable investments are unavailable at the time or for other reasons, such as market volatility and lack of liquidity in the markets of suitable investments. Pending such investment, the Fund anticipates that it will invest the proceeds in short-term money market instruments, securities with remaining maturities of less than one year, cash or cash equivalents. A delay in the anticipated use of proceeds could lower returns and reduce the Fund’s distribution to the holders of Common Shares (“Common Shareholders”) or result in a distribution consisting principally of a return of capital.
Capitalization
We may offer and sell up to 11,231,109 of our Common Shares, $0.01 par value per share, from time to time through the Dealer as sub-placement agent under this Prospectus Supplement and the accompanying Prospectus. Of the 11,231,109 Common Shares, 5,337,990 have been issued and 5,893,119 remain available for sale. In addition, the Fund has registered, and may take down, additional shares at a later date. There is no guarantee that there will be any sales of our Common Shares pursuant to this Prospectus Supplement and the accompanying Prospectus. The table below assumes that we will sell 5,893,119 Common Shares at a price of $12.40 per share (the last reported sales price per share of our Common Shares on the NYSE on June 3, 2022). Actual sales, if any, of our Common Shares under this Prospectus Supplement and the accompanying Prospectus may be greater or less than $12.40 per share, depending on the market price of our Common Shares at the time of any such sale. To the extent that the market price per share of our Common Shares on any given day is less than the net asset value per share on such day, we will instruct the Dealer not to make any sales on such day.
2
The following table sets forth our capitalization:
•on a historical basis as of October 31, 2021 (audited); and
•on a pro forma as adjusted basis to reflect the assumed sale of 5,893,119 Common Shares at $12.40 per share (the last reported sales price for our Common Shares on the NYSE on June 3, 2022), in an offering under this Prospectus Supplement and the accompanying Prospectus, after deducting the assumed commission of $730,747 (representing an estimated commission to the Distributor of 1.00% of the gross proceeds of the sale of Common Shares, of which a certain percentage will be paid to the Dealer in connection with sales of Common Shares effected in this offering).
| As of
October 31, 2021
(audited)
| Pro Forma
(unaudited)
|
| Actual
| As Adjusted
|
Net assets
| $2,211,924,508
| $2,284,268,437
|
$0.01 par value per share of common shares outstanding
| $1,540,674
| $1,599,606
|
Additional paid-in capital
| $1,169,394,851
| $1,241,738,780
|
Distributable earnings
| $1,040,988,983
| $1,040,930,051
|
Net assets
| $2,211,924,508
| $2,284,268,437
|
Net asset value per share
| $14.36
| $14.28
|
Common shares issued and outstanding
| 154,067,440
| 159,960,559
|
Summary of Fund Expenses
The purpose of the table below is to help you understand all fees and expenses that you, as a Common Shareholder, would bear directly or indirectly. The table shows Fund expenses as a percentage of net assets attributable to Common Shares for the year ended October 31, 2021.
Common Shareholder transaction expenses
|
|
Sales load paid by you (as a percentage of offering price)
| 1.00%(1)
|
Offering expenses (as a percentage of offering price)
| None(2)
|
Dividend reinvestment plan fees
| $5.00(3)
|
Annual expenses
| Percentage of net assets
attributable to Common Shares(4)
|
Investment adviser fee
| 0.99%(5)
|
Other expenses
| 0.08%
|
Total annual Fund operating expenses
| 1.07%
|
3
EXAMPLE
The following example illustrates the expenses that Common Shareholders would pay on a $1,000 investment in Common Shares, assuming (i) total annual expenses of 1.07% of net assets attributable to Common Shares in years 1 through 10; (ii) a sales load of 1.00%; (iii) a 5% annual return; and (iv) all distributions are reinvested at NAV:
1 Year
| 3 Years
| 5 Years
| 10 Years
|
$21
| $44
| $68
| $139
|
The above table and example and the assumption in the example of a 5% annual return are required by regulations of the SEC that are applicable to all investment companies; the assumed 5% annual return is not a prediction of, and does not represent, the projected or actual performance of the Fund’s Common Shares. For more complete descriptions of certain of the Fund’s costs and expenses, see “Management of the Fund.” In addition, while the example assumes reinvestment of all dividends and distributions at NAV, participants in the Fund’s dividend reinvestment plan may receive Common Shares purchased or issued at a price or value different from NAV. See “Distributions” and “Dividend Reinvestment Plan.” The example does not include estimated offering costs, which would cause the expenses shown in the example to increase.
The example should not be considered a representation of past or future expenses, and the Fund’s actual expenses may be greater or less than those shown. Moreover, the Fund’s actual rate of return may be greater or less than the hypothetical 5% return shown in the example.
__________
(1)Represents the estimated commission with respect to the Fund’s Common Shares being sold in this offering. There is no guarantee that there will be any sales of the Fund’s Common Shares pursuant to this Prospectus Supplement and the accompanying Prospectus. Actual sales of the Fund’s Common Shares under this Prospectus Supplement and the accompanying Prospectus, if any, may be less than as set forth under “Capitalization” above. In addition, the price per share of any such sale may be greater or less than the price set forth under “Capitalization” above, depending on market price of the Fund’s Common Shares at the time of any such sale.
(2)Eaton Vance will pay the expenses of the Offering (other than the applicable commissions); therefore, Offering expenses are not included in the Summary of Fund Expenses. Offering expenses generally include, but are not limited to, the preparation, review and filing with the SEC of the Fund’s registration statement (including this Prospectus Supplement, the accompanying Prospectus and the SAI), the preparation, review and filing of any associated marketing or similar materials, costs associated with the printing, mailing or other distribution of this Prospectus Supplement, the accompanying Prospectus, SAI and/or marketing materials, associated filing fees, NYSE listing fees, and legal and auditing fees associated with the Offering.
(3)You will be charged a $5.00 service charge and pay brokerage charges if you direct the plan agent to sell your Common Shares held in a dividend reinvestment account.
(4)Stated as a percentage of average net assets attributable to Common Shares for the year ended October 31, 2021.
(5)The adviser fee paid by the Fund to the Adviser is based on the average daily gross assets of the Fund, including all assets attributable to any form of investment leverage that the Fund may utilize. Accordingly, if the Fund were to increase investment leverage in the future, the adviser fee will increase as a percentage of net assets.
Market and Net Asset Value Information
Our Common Shares are listed on the NYSE under the symbol “ETY.” Our Common Shares commenced trading on the NYSE in 2006.
Our Common Shares have traded both at a premium and a discount to net asset value or NAV. We cannot predict whether our shares will trade in the future at a premium or discount to NAV. The provisions of the 1940 Act generally require that the public offering price of Common Shares (less any underwriting commissions and discounts) must equal or exceed the NAV per share of a company’s common stock. Our issuance of Common Shares may have an adverse effect on prices in the secondary market for our Common Shares by increasing the number of Common Shares available, which may put downward pressure on the market price for our Common Shares. Shares of Common Stock of closed-end investment companies frequently trade at a discount from NAV. See “Prospectus Summary—Special Risk Considerations—Discount from or premium to NAV” on page 12 of the accompanying Prospectus.
4
The following table sets forth for the period indicated the high and low closing market prices for Common Shares on the NYSE, and the corresponding NAV per share and the premium or discount to NAV per share at which the Fund’s Common Shares were trading as of the same date. NAV is determined no less frequently than daily, generally on each day of the week that the NYSE is open for trading. See “Determination of Net Asset Value” on page 22 of the accompanying SAI for information as to the determination of the Fund’s net asset value.
| Market Price
| NAV per Share on Date of Market Price
| NAV Premium/(Discount) on Date of Market Price
|
Fiscal Quarter Ended
| High
| Low
| High
| Low
| High
| Low
|
April 30, 2022
| $14.35
| $12.58
| $13.95
| $12.38
| 2.87%
| 1.62%
|
On June 3, 2022, the last reported sale price, NAV per Common Share and percentage premium/(discount) to NAV per Common Share, were $12.40, $12.21 and 1.56%, respectively. As of June 3, 2022, the Fund had 156,163,910 Common Shares outstanding and net assets of $1,906,391,677.
The following table provides information about our outstanding Common Shares as of June 3, 2022:
Title of Class
| Amount Authorized
| Amount Held by the Fund or for its Account
| Amount Outstanding
|
Common Shares
| Unlimited
| 0
| 156,163,910
|
Use of Proceeds
Sales of our Common Shares, if any, under this Prospectus Supplement and the accompanying Prospectus may be made in negotiated transactions or transactions that are deemed to be “at the market” as defined in Rule 415 under the 1933 Act, including sales made directly on the NYSE or sales made to or through a market maker other than on an exchange. There is no guarantee that there will be any sales of our Common Shares pursuant to this Prospectus Supplement and the accompanying Prospectus. Actual sales, if any, of our Common Shares under this Prospectus Supplement and the accompanying Prospectus may be less than as set forth below in this paragraph. In addition, the price per share of any such sale may be greater or less than the price set forth in this paragraph, depending on the market price of our Common Shares at the time of any such sale. As a result, the actual net proceeds we receive may be more or less than the amount of net proceeds estimated in this Prospectus Supplement. Assuming the sale of all of the Common Shares offered under this Prospectus Supplement and the accompanying Prospectus, at the last reported sales price of $12.40 per share for our Common Shares on the NYSE as of June 3, 2022 we estimate that the net proceeds of this offering will be approximately $72,343,929 after deducting the estimated sales load and the estimated offering expenses payable by the Fund, if any.
Subject to the remainder of this section, the Fund currently intends to invest substantially all of the net proceeds of any sales of Common Shares pursuant to this Prospectus Supplement in accordance with its investment objectives and policies as described in the accompanying Prospectus under “Investment Objectives, Policies and Risks” within three months of receipt of such proceeds. Such investments may be delayed up to three months if suitable investments are unavailable at the time or for other reasons, such as market volatility and lack of liquidity in the markets of suitable investments. Pending such investment, the Fund anticipates that it will invest the proceeds in short-term money market instruments, securities with remaining maturities of less than one year, cash or cash equivalents. A delay in the anticipated use of proceeds could lower returns and reduce the Fund’s distribution to Common Shareholders or result in a distribution consisting principally of a return of capital.
Plan of Distribution
Under the Dealer Agreement between the Distributor and the Dealer, upon written instructions from the Distributor, the Dealer will use its reasonable best efforts, to sell, as sub-placement agent, the Common Shares under the terms and subject to the conditions set forth in the Dealer Agreement. The Dealer’s solicitation will continue until the Distributor instructs the Dealer to suspend the solicitations and offers. The Distributor will instruct the Dealer as to the amount of Common Shares to be sold by the Dealer. The Distributor may instruct the Dealer not to sell Common Shares if the sales cannot be effected at or above the price designated by the Distributor in any instruction. To the extent that the market price per share of the Fund’s Common Shares on any given day is less than the net asset value per share on such day, the Distributor will instruct the Dealer not to make any sales on such day. The Distributor or the Dealer may suspend the offering of Common Shares upon proper notice and subject to other conditions.
5
The Dealer will provide written confirmation to the Distributor following the close of trading on the day on which Common Shares are sold under the Dealer Agreement. Each confirmation will include the number of shares sold on the preceding day, the net proceeds to the Fund and the compensation payable by the Distributor to the Dealer in connection with the sales.
The Fund will compensate the Distributor with respect to sales of the Common Shares at a commission rate of 1.00% of the gross proceeds of the sale of Common Shares. The Distributor will compensate the Dealer for its services in acting as sub-placement agent in the sale of Common Shares out of this commission at a certain percentage rate of the gross proceeds of the sale of Common Shares sold under the Dealer Agreement, with the exact amount of such compensation to be mutually agreed upon by the Distributor and the Dealer from time to time. There is no guarantee that there will be any sales of the Common Shares pursuant to this Prospectus Supplement and the accompanying Prospectus. Actual sales, if any, of the Common Shares under this Prospectus Supplement and the accompanying Prospectus may be conducted at a price that is greater or less than the last reported sales price set forth in this Prospectus Supplement, depending on the market price of Common Shares at the time of any such sale. Eaton Vance will pay the expenses of the Offering (other than the applicable commissions).
Settlement for sales of Common Shares will occur on the second trading day following the date on which such sales are made, in return for payment of the net proceeds to the Fund. There is no arrangement for funds to be received in an escrow, trust or similar arrangement.
The Distributor has agreed to provide indemnification and contribution to the Dealer against certain civil liabilities, including liabilities under the 1933 Act.
The Dealer Agreement will remain in full force and effect unless terminated by either party upon 5 days’ written notice to the other party.
The principal business address of the Dealer is 1285 Avenue of the Americas, New York, NY 10019.
The Dealer and its affiliates hold or may hold in the future, directly or indirectly, investment interests in the Distributor and its funds. The interests held by the Dealer or its affiliates are not attributable to, and no investment discretion is held by, the Dealer or its affiliates.
Legal Matters
Certain legal matters in connection with the Common Shares will be passed upon for the Fund by internal counsel for Eaton Vance.
Incorporation by Reference
This Prospectus Supplement is part of a registration statement filed with the SEC. The Fund is permitted to “incorporate by reference” the information filed with the SEC, which means that the Fund can disclose important information to you by referring you to those documents. The information incorporated by reference is considered to be part of this Prospectus Supplement, and later information that the Fund files with the SEC will automatically update and supersede this information.
The documents listed below, and any reports and other documents subsequently filed with the SEC pursuant to Rule 30(b)(2) under the 1940 Act and Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act, prior to the termination of the Offering will be incorporated by reference into this Prospectus Supplement and deemed to be part of this Prospectus Supplement from the date of the filing of such reports and documents:
| •
|
| The Fund’s Statement of Additional Information (“SAI”), dated February 18, 2022, filed with the accompanying Prospectus;
|
| •
|
| The Fund’s annual report on Form N-CSR for the fiscal year ended October 31, 2021 filed with the SEC on December 23, 2021; and
|
| •
|
| The description of the Fund’s Common Shares contained in its Registration Statement on Form 8-A filed with the SEC on December 19, 2005, including any amendment or report filed for the purpose of updating such description prior to the termination of the offering registered hereby.
|
6
The Fund will provide without charge to each person, including any beneficial owner, to whom this Prospectus Supplement is delivered, upon written or oral request, a copy of any and all of the documents that have been or may be incorporated by reference in this Prospectus Supplement, Prospectus, and SAI. You should direct requests for documents by calling (800) 262-1122.
The Fund makes available this Prospectus Supplement, Prospectus, SAI and the Fund’s annual and semi-annual reports, free of charge, at http://www.eatonvance.com. You may also obtain this Prospectus Supplement, Prospectus, SAI, other documents incorporated by reference and other information the Fund files electronically, including reports and proxy statements, on the SEC website (http://www.sec.gov) or with the payment of a duplication fee, by electronic request at publicinfo@sec.gov. Information contained in, or that can be accessed through, the Fund’s website is not part of this Prospectus Supplement, Prospectus or SAI.
Available Information
We are subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the 1940 Act and are required to file reports, including annual and semi-annual reports, proxy statements and other information with the SEC. These documents are available on the SEC’s EDGAR system.
This Prospectus Supplement, the accompanying Prospectus and the SAI do not contain all of the information in our registration statement, including amendments, exhibits, and schedules that the Fund has filed with the SEC (File No. 333-262833). Statements in this Prospectus Supplement and the accompanying Prospectus about the contents of any contract or other document are not necessarily complete and in each instance reference is made to the copy of the contract or other document filed as an exhibit to the registration statement, each such statement being qualified in all respects by this reference.
Additional information about us can be found in our registration statement (including amendments, exhibits, and schedules) on Form N-2 filed with the SEC. The SEC maintains a web site (http://www.sec.gov) that contains our registration statement, other documents incorporated by reference, and other information we have filed electronically with the SEC, including proxy statements and reports filed under the Exchange Act.
As permitted by regulations adopted by the Securities and Exchange Commission, paper copies of the Fund’s annual and semi-annual shareholder reports are no longer being sent by mail unless you specifically request paper copies of the reports. Instead, the reports are being 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.
7
BASE PROSPECTUS
Up to 22,462,218 Shares
Eaton Vance Tax-Managed Diversified Equity
Income Fund
Common Shares
Investment
Objectives and Policies. Eaton Vance Tax-Managed Diversified Equity Income Fund (the “Fund”) is a diversified,
closed-end management investment company, which commenced operations on November 27, 2006. The Fund’s primary investment objective
is to provide current income and gains, with a secondary objective of capital appreciation. In pursuing its investment objectives, the
Fund will evaluate returns on an after-tax basis, seeking to minimize and defer shareholder federal income taxes.
Portfolio
Management Strategies. Under normal market conditions, the Fund’s investment program consists of owning a diversified
portfolio of common stocks. The Fund will seek to earn high levels of tax-advantaged income and gains by (1) emphasizing investments in
stocks that pay dividends that qualify for favorable federal income tax treatment and (2) writing (selling) stock index call options with
respect to a portion of its common stock portfolio value.
Call options on broad-based stock indices generally qualify for treatment
as “Section 1256 contracts,” as defined in the Internal Revenue Code of 1986, as amended, on which capital gains and losses
are generally treated as 60% long-term and 40% short-term, regardless of holding period.
Investment
Adviser. The Fund’s investment adviser is Eaton Vance Management (“Eaton Vance” or the “Adviser”).
Prior to March 1, 2021, Eaton Vance was a wholly owned subsidiary of Eaton Vance Corp. (“EVC”). On March 1, 2021, Morgan
Stanley acquired EVC (the “Transaction”) and Eaton Vance became an indirect, wholly owned subsidiary of Morgan Stanley.
Morgan Stanley (NYSE: MS), whose principal offices are at 1585 Broadway,
New York, New York 10036, is a preeminent global financial services firm engaged in securities trading and brokerage activities,
as well as providing investment banking, research and analysis, financing and financial advisory services. As of December 31, 2021,
Morgan Stanley’s asset management operations had aggregate assets under management of approximately $1.6 trillion
The Offering.
The Fund may offer, from time to time, in one or more offerings (each, an “Offering”), the Fund’s common shares of beneficial
interest, $0.01 par value (“Common Shares”). Common Shares may be offered at prices and on terms to be set forth in one or
more supplements to this Prospectus (each, a “Prospectus Supplement”). You should read this Prospectus and the applicable
Prospectus Supplement carefully before you invest in Common Shares. Common Shares may be offered directly to one or more purchasers, through
agents designated from time to time by us, or to or through underwriters or dealers. The Prospectus Supplement relating to the Offering
will identify any agents, underwriters or dealers involved in the offer or sale of Common Shares, and will set forth any applicable offering
price, sales load, fee, commission or discount arrangement between the Fund and its agents or underwriters, or among its underwriters,
or the basis upon which such amount may be calculated, net proceeds and use of proceeds, and the terms of any sale. The Fund may not sell
any Common Shares through agents, underwriters or dealers without delivery of a Prospectus Supplement describing the method and terms
of the particular Offering of the Common Shares.
The Common
Shares have traded both at a premium and a discount to net asset value (“NAV”). The Fund cannot predict whether
Common Shares will trade in the future at a premium or discount to its NAV. The provisions of the Investment Company Act of 1940, as amended
(the “1940 Act”) generally require that the public offering price of common shares (less any underwriting commissions and
discounts) must equal or exceed the NAV per share of a company’s common stock. The Fund’s issuance of Common Shares may have
an adverse effect on prices in the secondary market for the Fund’s Common Shares by increasing the number of Common Shares available,
which may put downward pressure on the market price for the Fund’s Common Shares. Shares of common stock of closed-end investment
companies frequently trade at a discount from NAV, which may increase investors’ risk of loss.
Investing in shares involves certain risks. See “Investment
Objectives, Policies and Risks” beginning at page 24.
Neither the Securities and Exchange Commission (“SEC”)
nor any state securities commission has approved or disapproved of these securities or determined if this Prospectus is truthful or complete.
Any representation to the contrary is a criminal offense.
(continued from previous page)
Portfolio
Contents. Under normal market conditions, the Fund invests at least
80% of its total assets in a combination of (1) dividend-paying common stocks and (2) common stocks the value of which is subject to covered
written index call options. The Fund invests primarily in common stocks of United States issuers, but may invest up to 40% of its assets
in common stocks of foreign issuers, including up to 5% of its total assets in securities of issuers located in emerging markets. The
Fund may not invest 25% or more of its total assets in the securities of issuers in any single industry. The Fund may consider investments
in stocks that pay dividends that qualify for federal income taxation at rates applicable to long-term capital gains, and may seek to
enhance the level of tax-advantaged dividend income it receives by engaging in dividend capture trading. In a dividend capture trade,
the Fund sells a stock on or shortly after the stock’s ex-dividend date and uses the sale proceeds to purchase one or more other
stocks that are expected to pay dividends before the next dividend payment on the stock being sold. Through this practice, the Fund may
receive more dividend payments over a given time period than if it held a single stock. By complying with applicable holding period and
other requirements while engaging in dividend capture trading, the Fund may enhance the level of tax-advantaged dividend income it receives.
The use of dividend capture trading strategies will expose the Fund to increased trading costs and potentially higher short-term gain
or loss. The Fund may use derivatives to manage exposure to certain sectors and/or markets in connection with its use of dividend capture
trading. The Fund may buy and sell equity index futures contracts for this purpose, but may also engage in other types of derivatives
to manage such exposures.
The Fund writes call options on one or more broad-based stock indices
that the Adviser believes collectively approximate the characteristics of its common stock portfolio (or that portion of its portfolio
against which options are written) and that present attractive opportunities to earn options premiums. The Fund writes call options on
the S&P 500® Index, and may also
write call options on other domestic and foreign stock indices. Over time, the indices on which the Fund writes call options may vary
as a result of changes in the availability and liquidity of various listed index options, changes in stock portfolio holdings, the Adviser’s
evaluation of equity market conditions and other factors. Writing index call options involves a tradeoff between the option premiums received
and reduced participation in potential future stock price appreciation.
The Fund seeks to generate current earnings from dividends on stocks
held and from option premiums. The Fund employs a variety of tax-management techniques and strategies as described herein, seeking in
part to minimize the Fund’s ordinary income (other than qualified dividend income) and net realized short-term capital gains in
excess of net realized long-term capital losses and Fund expenses. To the extent that the Fund’s ordinary income (other than qualified
dividend income) and net realized short-term gains over net realized long-term losses exceed Fund expenses, dividends with respect to
such amounts when paid to Common Shareholders (as defined below) will be taxable as ordinary income.
During unusual market conditions, the Fund may invest up to 100% of
its assets in cash or cash equivalents temporarily, which may be inconsistent with its investment objectives, principal strategies and
other policies.
Exchange
Listing. As of February 14, 2022, the Fund had 155,979,565 Common Shares outstanding. The Fund’s Common Shares are traded
on the New York Stock Exchange (“NYSE”) under the symbol “ETY.” As of February 14, 2022, the last reported sale
price of a Common Share of the Fund on the NYSE was $13.61. Common Shares offered and sold pursuant to this Registration Statement will
also be listed on the NYSE and trade under this symbol.
This Prospectus, together with any applicable Prospectus Supplement,
sets forth concisely information you should know before investing in the shares of the Fund. Please read and retain this Prospectus for
future reference. A Statement of Additional Information (“SAI”) dated February 18, 2022, has been filed with the SEC and is
incorporated by reference into this Prospectus. You may request a free copy of the SAI, the table of contents of which is on page 56 of
this Prospectus, a free copy of our annual and semi-annual reports to shareholders (when available), obtain other information or make
shareholder inquiries, by calling toll-free 1-800-262-1122 or by writing to the Fund at Two International Place, Boston, Massachusetts
02110. The Fund’s SAI and annual and semi-annual reports also are available free of charge on our website at http://www.eatonvance.com
and on the SEC’s website (http://www.sec.gov). You may obtain these documents, after paying a duplication fee, by electronic request
at the following email address: publicinfo@sec.gov. Information contained in, or that can be accessed through, the Fund’s website
is not part of this Prospectus.
The Fund’s shares do not represent a deposit or obligation of,
and are not guaranteed or endorsed by, any bank or other insured depository institution, and are not federally insured by the Federal
Deposit Insurance Corporation, the Federal Reserve Board or any other government agency.
You should rely only on the information contained or incorporated
by reference in this Prospectus. The Fund has not authorized anyone to provide you with different information. The Fund is not making
an offer of these securities in any state where the offer is not permitted. You should not assume that the information contained in this
Prospectus is accurate as of any date other than the date on the front of this Prospectus. The Fund’s business, financial condition,
results of operations and prospects may have changed since that date.
Eaton Vance Tax-Managed Diversified Equity Income Fund | 2 | Prospectus dated February 18, 2022 |
Table of Contents
Prospectus Summary |
6 |
Summary of Fund Expenses |
20 |
Financial Highlights and Investment Performance |
21 |
The Fund |
23 |
Use of Proceeds |
24 |
Investment Objectives, Policies and Risks |
24 |
Management of the Fund |
40 |
Plan of Distribution |
41 |
Distributions |
42 |
Federal Income Tax Matters |
43 |
Dividend Reinvestment Plan |
46 |
Description of Capital Structure |
46 |
Custodian and Transfer Agent |
51 |
Legal Matters |
51 |
Reports to Shareholders |
51 |
Independent Registered Public Accounting Firm |
51 |
Potential Conflicts of Interest |
51 |
Additional Information |
53 |
Incorporation by Reference |
54 |
The Fund’s Privacy Policy |
55 |
Table of Contents for the Statement of Additional Information |
56 |
Eaton Vance Tax-Managed Diversified Equity Income Fund | 3 | Prospectus dated February 18, 2022 |
CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
This Prospectus, any accompanying Prospectus Supplement and the SAI
contain “forward-looking statements.” Forward-looking statements can be identified by the words “may,” “will,”
“intend,” “expect,” “estimate,” “continue,” “plan,” “anticipate,”
and similar terms and the negative of such terms. Such forward-looking statements may be contained in this Prospectus as well as in any
accompanying Prospectus Supplement. By their nature, all forward-looking statements involve risks and uncertainties, and actual results
could differ materially from those contemplated by the forward-looking statements. Several factors that could materially affect our actual
results are the performance of the portfolio of securities we hold, the price at which our shares will trade in the public markets and
other factors discussed in our periodic filings with the SEC.
Although we believe that the expectations expressed in our forward-looking
statements are reasonable, actual results could differ materially from those projected or assumed in our forward-looking statements. Our
future financial condition and results of operations, as well as any forward-looking statements, are subject to change and are subject
to inherent risks and uncertainties, such as those disclosed in the “Investment Objectives, Policies and Risks” section of
this Prospectus. All forward-looking statements contained or incorporated by reference in this Prospectus or any accompanying Prospectus
Supplement are made as of the date of this Prospectus or the accompanying Prospectus Supplement, as the case may be. Except for our ongoing
obligations under the federal securities laws, we do not intend, and we undertake no obligation, to update any forward-looking statement.
The forward-looking statements contained in this Prospectus, any accompanying prospectus supplement and the SAI are excluded from the
safe harbor protection provided by Section 27A of the Securities Act of 1933, as amended (the “1933 Act”).
Currently known risk factors that could cause actual results to differ
materially from our expectations include, but are not limited to, the factors described in the “Investment Objectives, Policies
and Risks” section of this Prospectus. We urge you to review carefully that section for a more detailed discussion of the risks
of an investment in our securities.
Prospectus dated February 18, 2022
Eaton Vance Tax-Managed Diversified Equity Income Fund | 4 | Prospectus dated February 18, 2022 |
Prospectus Summary
The following summary is qualified in its entirety by reference to
the more detailed information included elsewhere in this Prospectus, in any related Prospectus Supplement, and in the SAI.
THE FUND
Eaton Vance Tax-Managed Diversified Equity Income Fund (the “Fund”)
is a diversified, closed-end management investment company, which commenced operations on November 27, 2006. The Fund seeks to provide
current income and gains, with a secondary objective of capital appreciation. Investments are based on Eaton Vance Management’s
(“Eaton Vance” or the “Adviser”) internal research and management. An investment in the Fund may not be appropriate
for all investors.
THE OFFERING
The Fund may offer, from time to time, in one or more offerings (each,
an “Offering”), up to 22,462,218 of the Fund’s common shares of beneficial interest, $0.01 par value (“Common
Shares”), on terms to be determined at the time of the Offering. The Common Shares may be offered at prices and on terms to be set
forth in one or more Prospectus Supplements. You should read this Prospectus and the applicable Prospectus Supplement carefully before
you invest in Common Shares. Common Shares may be offered directly to one or more purchasers, through agents designated from time to time
by the Fund, or to or through underwriters or dealers. The Prospectus Supplement relating to the Offering will identify any agents, underwriters
or dealers involved in the offer or sale of Common Shares, and will set forth any applicable offering price, sales load, fee, commission
or discount arrangement between the Fund and its agents or underwriters, or among its underwriters, or the basis upon which such amount
may be calculated, net proceeds and use of proceeds, and the terms of any sale. See “Plan of Distribution.” The Fund may not
sell any of Common Shares through agents, underwriters or dealers without delivery of a Prospectus Supplement describing the method and
terms of the particular Offering of Common Shares.
INVESTMENT OBJECTIVES, POLICIES AND RISKS
The Fund’s primary investment objective is to provide current
income and gains, with a secondary objective of capital appreciation. In pursuing its investment objectives, the Fund will evaluate returns
on an after-tax basis, seeking to minimize and defer shareholder federal income taxes. There can be no assurance that the Fund will achieve
its investment objectives.
Under normal market conditions, the Fund’s investment program
consists of owning a diversified portfolio of common stocks. The Fund seeks to earn high levels of tax-advantaged income and gains by
(1) investing in stocks that pay dividends that qualify for favorable federal income tax treatment and/or (2) writing (selling) stock
index call options with respect to a portion of its common stock portfolio value.
Under normal market conditions, the Fund invests at least 80% of its
total assets in a combination of (1) dividend-paying common stocks and (2) common stocks the value of which is subject to covered written
index call options.
Typically, the Fund invests in common stocks of United States issuers.
The Fund may invest up to 40% of its total assets in securities of foreign issuers, including securities evidenced by American Depositary
Receipts (“ADRs”), Global Depositary Receipts (“GDRs”) and European Depositary Receipts (“EDRs”).
The Fund may invest up to 5% of its total assets in securities of emerging market issuers. The Fund expects that its assets will normally
be invested across a broad range of industries and market sectors. The Fund may not invest 25% or more of its total assets in the securities
of issuers in any single industry. The Fund may invest a portion of its assets in stocks of mid-capitalization companies. Eaton Vance
generally considers mid-capitalization companies to be those companies having market capitalizations within the range of capitalizations
for the S&P MidCap 400® Index
(the “S&P MidCap 400®”).
As of January 31, 2022, the median market capitalization of companies in the S&P MidCap 400®
was approximately $5.8 billion.
The Fund writes call options on one or more broad-based stock indices
that the Adviser believes collectively approximate the characteristics of its common stock portfolio (or that portion of its portfolio
against which options are written) and that present attractive opportunities to earn options premiums. The Fund writes call options on
the S&P 500® Index (the “S&P
500®”), and may also write
call options on other domestic and foreign stock indices. Over time, the indices on which the Fund writes call options may vary as a
result of changes in the availability and liquidity of various listed index options, changes in stock portfolio holdings, the Adviser’s
evaluation of equity market conditions and other factors. Writing index call options involves a tradeoff between the option premiums
received and reduced participation in potential future stock price appreciation.
Eaton Vance Tax-Managed Diversified Equity Income Fund | 5 | Prospectus dated February 18, 2022 |
The Fund may consider investments in stocks that pay dividends that
qualify for federal income taxation at rates applicable to long-term capital gains, and may seek to enhance the level of tax-advantaged
dividend income it receives by engaging in dividend capture trading. In a dividend capture trade, the Fund sells a stock on or shortly
after the stock’s ex-dividend date and uses the sale proceeds to purchase one or more other stocks that are expected to pay dividends
before the next dividend payment on the stock being sold. Through this practice, the Fund may receive more dividend payments over a given
time period than if it held a single stock. By complying with applicable holding period and other requirements while engaging in dividend
capture trading, the Fund may enhance the level of tax-advantaged dividend income it receives. The use of dividend capture trading strategies
will expose the Fund to increased trading costs and potentially higher short-term gain or loss. The Fund may use derivatives to manage
exposure to certain sectors and/or markets in connection with its use of dividend capture trading. The Fund may buy and sell equity index
futures contracts for this purpose, but may also engage in other types of derivatives to manage such exposures.
The Fund generally sells index call options that are exchange-listed
and “European style,” meaning that the options may be exercised only on the expiration date of the option. Index options
differ from options on individual securities in that index options (i) typically are settled in cash rather than by delivery of securities
and (ii) reflect price fluctuations in a group of securities or segments of the securities market rather than price fluctuations in a
single security.
As the seller of index call options, the Fund will receive cash (the
premiums) from option purchasers. The purchaser of an index call option has the right to any appreciation in the value of the applicable
index over a fixed price (the exercise price) as of a specified date in the future (the option valuation date). Generally, the Fund sells
call options that are slightly “out-of-the-money” (i.e., the exercise price generally will be slightly above the current level
of the applicable index when the option is sold). The Fund may also sell index options that are more substantially “out-of-the-money.”
Such options that are more substantially “out-of-the-money” provide greater potential for the Fund to realize capital appreciation,
but generally would pay a lower premium than options that are slightly “out-of-the-money.” In writing index options, the Fund
will, in effect, sell the potential appreciation in the value of the applicable index above the exercise price in exchange for the option
premium received. If, at expiration, an index call option sold by the Fund is exercised, the Fund will pay the purchaser the difference
between the cash value of the applicable index and the exercise price of the option. The premium, the exercise price and the market value
of the applicable index will determine the gain or loss realized by the Fund as the seller of the index call option.
The Fund’s policy that, under normal market conditions, the Fund
invests at least 80% of its total assets in a combination of (1) dividend-paying common stocks and (2) common stocks the value of which
is subject to covered written index call options is a non-fundamental policy that may be changed by the Fund’s Board of Trustees
(the “Board”) without Common Shareholder approval following the provision of 60 days’ prior written notice to Common
Shareholders.
In implementing the Fund’s investment strategy, the Adviser employs
a variety of techniques and strategies designed to minimize and defer the federal income taxes incurred by Common Shareholders in connection
with their investment in the Fund as described below.
During unusual market conditions, the Fund may invest up to 100% of
its assets in cash or cash equivalents temporarily, which may be inconsistent with its investment objectives, principal strategies and
other policies.
The S&P 500®
is an unmanaged index of 500 stocks maintained and published by S&P Global Ratings (“S&P”) that is market-capitalization
weighted and generally representative of the performance of larger stocks traded in the United States.
INVESTMENT STRATEGIES
Eaton Vance is responsible for the Fund’s overall investment program,
structuring and managing the Fund’s common stock portfolio, including dividend capture trading, tax-loss harvesting (i.e., periodically
selling positions that have depreciated in value to realize capital losses that can be used to offset capital gains realized by the Fund)
and other tax-management techniques.
Eaton Vance is responsible for the overall management of the Fund’s
investments, including decisions about asset allocation and securities selection. The portfolio manager utilizes information provided
by, and the expertise of, the Adviser’s research staff in making investment decisions. Investment decisions are made primarily on
the basis of fundamental research, which involves consideration of the various company-specific and general business, economic and market
factors that may influence the future performance of individual companies and equity investments therein. The Adviser will also consider
a variety of other factors in constructing and maintaining the Fund’s stock portfolio, including, but not limited to, stock dividend
yields and payment schedules, overlap between the Fund’s stock holdings and the indices on which it has outstanding options positions,
realization of tax-loss harvesting (i.e., periodically selling positions that have depreciated in value to realize capital losses that
can be used to offset capital gains realized by the Fund) opportunities and other tax management considerations.
Eaton Vance Tax-Managed Diversified Equity Income Fund | 6 | Prospectus dated February 18, 2022 |
The Adviser believes that a strategy of owning a portfolio of common
stocks and selling covered call options (a “buy-write strategy”) with respect to a portion thereof can provide current income
and gains and attractive risk-adjusted returns. The Fund will sell only “covered” call options. Options may be “covered,”
meaning that the party required to deliver the reference instrument if the option is exercised owns that instrument (or has set aside
sufficient assets to meet its obligation to deliver the instrument). Although the Fund generally writes stock index call options with
respect to only a portion of its common stock portfolio value, the Fund may in market circumstances deemed appropriate by the Adviser
write covered index call options on up to 100% of the value of its assets.
To avoid being subject to the “straddle rules” under
federal income tax law, the Fund intends to generally limit the overlap between its stock holdings (and any subset thereof) and each index
on which it has outstanding options positions to less than 70% on an ongoing basis. Under the “straddle rules,” “offsetting
positions with respect to personal property” generally are considered to be straddles. In general, investment positions will be
offsetting if there is a substantial diminution in the risk of loss from holding one position by reason of holding one or more other positions.
The Fund expects that the index call options it writes will not be considered straddles because its stock holdings will be sufficiently
dissimilar from the components of each index on which it has open call options positions under applicable guidance established by the
Internal Revenue Service (the “IRS”). Under certain circumstances, however, the Fund may enter into options transactions or
certain other investments that may constitute positions in a straddle. See “Federal Income Tax Matters.”
The Fund’s index option strategy is designed to produce current
cash flow from options premiums and to moderate the volatility of the Fund’s returns. This index option strategy is of a hedging
nature, and is not designed to speculate on equity market performance. The Adviser believes that the Fund’s index option strategy
moderates the volatility of the Fund’s returns because the option premiums received will help to mitigate the impact of downward
price movements in the stocks held by the Fund, while the Fund’s obligations under index calls written constrains the Fund’s
ability to participate in upward price movements in portfolio stocks.
The Fund expects normally to sell index call options on a portion of
its common stock portfolio value. The Adviser does not intend to sell index call options representing amounts, in the aggregate, greater
than the value of the Fund’s common stock portfolio (i.e., take a “naked” position). The Adviser generally sells index
call options that are exchange-listed and “European style,” meaning that the options may only be exercised on the expiration
date of the option. Exchange-traded index options are typically settled in cash and provide that the holder of the option has the right
to receive an amount of cash determined by the excess of the exercise-settlement value of the index over the exercise price of the option.
The exercise-settlement value is calculated based on opening sales prices of the component index stocks on the option valuation date,
which is the last business day before the expiration date. Generally, the Adviser sells index call options that are slightly “out-of-the-money,”
meaning that option exercise prices generally are slightly above the current level of the index at the time the options are written. The
Fund may also sell index options that are more substantially “out-of-the-money.” Such options that are more substantially
“out-of-the-money” provide greater potential for the Fund to realize capital appreciation on its portfolio stocks but generally
would pay a lower premium than options that are slightly “out-of-the-money.” The Adviser expects to follow a primary options
strategy of selling index call options with a remaining maturity of between approximately one and three months and maintaining its short
call options positions until approximately their option valuation date, at which time replacement call option positions with a remaining
maturity within this range are written.
In implementing the Fund’s investment strategy, the Adviser
employs a variety of techniques and strategies designed to minimize and defer the federal income taxes incurred by Common Shareholders
in connection with their investment in the Fund. These generally include, without limitation: (1) investing in stocks that pay dividends
that qualify for federal income taxation at rates applicable to long-term capital gains and complying with the holding period and other
requirements for favorable tax treatment; (2) selling index call options that qualify for treatment as Section 1256 contracts under the
Code on which capital gains and losses are generally treated as 60% long-term and 40% short-term, regardless of holding period; (3) limiting
the overlap between the Fund’s stock holdings (and any subset thereof) and each index on which it has outstanding options positions
to less than 70% on an ongoing basis so that the Fund’s stock holdings and index call options are not subject to the “straddle
rules;” (4) engaging in a systematic program of tax-loss harvesting in the Fund’s stock portfolio, periodically selling stock
positions that have depreciated in value to realize capital losses that can be used to offset capital gains realized by the Fund; and
(5) managing the sale of appreciated stock positions so as to minimize the Fund’s net realized short-term capital gains in excess
of net realized long-term capital losses. When an appreciated security is sold, the Fund intends to select for sale the share lots resulting
in the most favorable tax treatment, generally those with holding periods sufficient to qualify for long-term capital gains treatment
that have the highest cost basis. However, the Fund’s investment program and the tax treatment of Fund distributions may be affected
by IRS interpretations of the Code and future changes in tax laws and regulations.
Eaton Vance Tax-Managed Diversified Equity Income Fund | 7 | Prospectus dated February 18, 2022 |
The Fund may seek to enhance the level of tax-advantaged dividend income
it receives by engaging in dividend capture trading. In a dividend capture trade, the Fund sells a stock on or shortly after the stock’s
ex-dividend date and uses the sale proceeds to purchase one or more other stocks that are expected to pay dividends before the next dividend
payment on the stock being sold. Through this practice, the Fund may receive more dividend payments over a given time period than if it
held a single stock. In order for dividends received by the Fund to qualify for favorable tax treatment, the Fund must comply with the
holding period and other requirements set forth in the preceding paragraph. By complying with applicable holding period and other requirements
while engaging in dividend capture trading, the Fund may be able to enhance the level of tax-advantaged dividend income it receives because
it will receive more dividend payments qualifying for favorable treatment during the same time period than if it simply held its portfolio
stocks. The use of dividend capture trading strategies will expose the Fund to increased trading costs and potentially higher short-term
gain or loss. The Fund may use derivatives to manage exposure to certain sectors and/or markets in connection with its use of dividend
capture trading. The Fund may buy and sell equity index futures contracts for this purpose, but may also engage in other types of derivatives
to manage such exposures.
The foregoing policies relating to investments in common stocks and
options writing are the Fund’s primary investment policies. In addition to its primary investment policies, the Fund may invest
to a limited extent in other types of securities and engage in certain other investment practices. In addition to writing index call options,
the Fund may write call options on up to 20% of the value of its total assets on futures contracts based upon broad-based securities indices.
The Fund’s use of such options on index futures would be substantially similar to its use of options directly on indices. The loss
on derivative instruments (other than purchased options) may substantially exceed an investment in these instruments. To seek to protect
against price declines in securities holdings with large accumulated gains, the Fund may use various hedging techniques (such as the purchase
and sale of futures contracts on stocks and stock indices and options thereon, equity swaps, covered short sales, forward sales of stocks
and the purchase and sale of forward currency exchange contracts and currency futures).
LISTING
As of February 14, 2022, the Fund had 155,979,565 Common Shares outstanding.
The Fund’s Common Shares are traded on the New York Stock Exchange (“NYSE”) under the symbol “ETY.” As of
February 14, 2022, the last reported sale price of a Common Share of the Fund on the NYSE was $13.61. Common Shares offered and sold pursuant
to this Registration Statement will also be listed on the NYSE and trade under this symbol.
INVESTMENT ADVISER AND ADMINISTRATOR
Eaton Vance is the Fund’s investment adviser and administrator.
Prior to March 1, 2021, Eaton Vance was a wholly owned subsidiary of Eaton Vance Corp. (“EVC”). On March 1, 2021, Morgan Stanley
acquired EVC (the “Transaction”) and Eaton Vance became an indirect, wholly owned subsidiary of Morgan Stanley. As of
December 31, 2021, Morgan Stanley’s asset management operations had aggregate assets under management of approximately $1.6 trillion.
PLAN OF DISTRIBUTION
The Fund may sell the Common Shares being offered under this Prospectus
in any one or more of the following ways: (i) directly to purchasers; (ii) through agents; (iii) to or through underwriters; or (iv) through
dealers. The Prospectus Supplement relating to the Offering will identify any agents, underwriters or dealers involved in the offer or
sale of Common Shares, and will set forth any applicable offering price, sales load, fee, commission or discount arrangement between the
Fund and its agents or underwriters, or among its underwriters, or the basis upon which such amount may be calculated, net proceeds and
use of proceeds, and the terms of any sale.
The Fund may distribute Common Shares from time to time in one or more
transactions at: (i) a fixed price or prices that may be changed; (ii) market prices prevailing at the time of sale; (iii) prices related
to prevailing market prices; or (iv) negotiated prices; provided, however, that in each case the offering price per Common Share (less
any underwriting commission or discount) must equal or exceed the NAV per Common Share.
The Fund from time to time may offer its Common Shares through or
to certain broker-dealers, including UBS Securities LLC, that have entered into selected dealer agreements relating to
at-the-market offerings.
The Fund may directly solicit offers to purchase Common Shares, or the
Fund may designate agents to solicit such offers. The Fund will, in a Prospectus Supplement relating to such Offering, name any agent
that could be viewed as an underwriter under the 1933 Act, and describe any commissions the Fund must pay to such agent(s). Any such agent
will be acting on a reasonable best efforts basis for the period of its appointment or, if indicated in the applicable Prospectus Supplement
or other offering materials, on a firm commitment basis. Agents, dealers and underwriters may be customers of, engage in transactions
with, or perform services for the Fund in the ordinary course of business.
Eaton Vance Tax-Managed Diversified Equity Income Fund | 8 | Prospectus dated February 18, 2022 |
If any underwriters or agents are used in the sale of Common Shares
in respect of which this Prospectus is delivered, the Fund will enter into an underwriting agreement or other agreement with them at the
time of sale to them, and the Fund will set forth in the Prospectus Supplement relating to such Offering their names and the terms of
the Fund’s agreement with them.
If a dealer is utilized in the sale of Common Shares in respect of which
this Prospectus is delivered, the Fund will sell such Common Shares to the dealer, as principal. The dealer may then resell such Common
Shares to the public at varying prices to be determined by such dealer at the time of resale.
The Fund may engage in at-the-market offerings to or through a market
maker or into an existing trading market, on an exchange or otherwise, in accordance with Rule 415(a)(4) under the 1933 Act. An at-the-market
offering may be through an underwriter or underwriters acting as principal or agent for the Fund.
Agents, underwriters and dealers may be entitled under agreements which
they may enter into with the Fund to indemnification by the Fund against certain civil liabilities, including liabilities under the 1933
Act, and may be customers of, engage in transactions with or perform services for the Fund in the ordinary course of business.
In order to facilitate the Offering of Common Shares, any underwriters
may engage in transactions that stabilize, maintain or otherwise affect the price of Common Shares or any other Common Shares the prices
of which may be used to determine payments on the Common Shares. Specifically, any underwriters may over-allot in connection with the
Offering, creating a short position for their own accounts. In addition, to cover over-allotments or to stabilize the price of Common
Shares or of any such other Common Shares, the underwriters may bid for, and purchase, Common Shares or any such other Common Shares in
the open market. Finally, in any Offering of Common Shares through a syndicate of underwriters, the underwriting syndicate may reclaim
selling concessions allowed to an underwriter or a dealer for distributing Common Shares in the Offering if the syndicate repurchases
previously distributed Common Shares in transactions to cover syndicate short positions, in stabilization transactions or otherwise. Any
of these activities may stabilize or maintain the market price of Common Shares above independent market levels. Any such underwriters
are not required to engage in these activities and may end any of these activities at any time.
The Fund may enter into derivative transactions with third parties,
or sell Common Shares not covered by this Prospectus to third parties in privately negotiated transactions. If the applicable Prospectus
Supplement indicates, in connection with those derivatives, the third parties may sell Common Shares covered by this Prospectus and the
applicable Prospectus Supplement or other offering materials, including in short sale transactions. If so, the third parties may use Common
Shares pledged by the Fund or borrowed from the Fund or others to settle those sales or to close out any related open borrowings of securities,
and may use Common Shares received from the Fund in settlement of those derivatives to close out any related open borrowings of securities.
The third parties in such sale transactions will be underwriters and, if not identified in this Prospectus, will be identified in the
applicable Prospectus Supplement or other offering materials (or a post-effective amendment).
The maximum amount of compensation to be received by any member of the
Financial Industry Regulatory Authority, Inc. will not exceed 8% of the initial gross proceeds from the sale of any security being sold
with respect to each particular Offering of Common Shares made under a single Prospectus Supplement.
Any underwriter, agent or dealer utilized in the Offering of Common
Shares will not confirm sales to accounts over which it exercises discretionary authority without the prior specific written approval
of its customer.
DISTRIBUTIONS
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. Shareholders
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 is 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 is treated as a non-dividend distribution for tax purposes
and is not subject to current tax. A return of capital reduces a shareholder’s tax cost basis in fund shares. 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 are reported to shareholders on Form 1099-DIV for each calendar
year.
Eaton Vance Tax-Managed Diversified Equity Income Fund | 9 | Prospectus dated February 18, 2022 |
Subject to its MDP, the Fund makes monthly distributions to Common Shareholders
sourced from the Fund’s cash available for distribution. “Cash available for distribution” 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 taxable to shareholders as ordinary income. Distributions in any year may include a substantial
return of capital component. The Fund’s distribution rate may be adjusted from time-to-time. The Board may modify this distribution
policy at any time without obtaining the approval of Common Shareholders.
Common Shareholders will automatically have distributions reinvested
in additional Common Shares under the Fund's dividend reinvestment plan unless they elect otherwise through their investment dealer. See
“Distributions” and “Dividend Reinvestment Plan.”
DIVIDEND REINVESTMENT PLAN
The Fund has established a dividend reinvestment plan (the “Plan”).
Under the Plan, unless a Common Shareholder elects to receive distributions in cash, all distributions will be automatically reinvested
in additional Common Shares. American Stock Transfer & Trust Company, LLC (“AST” or the “Plan Agent”) serves
as agent for the Common Shareholders in administering the Plan. Common Shareholders who elect not to participate in the Plan will receive
all Fund distributions in cash paid by check mailed directly to the Common Shareholder of record (or, if the Common Shares are held in
street or other nominee name, then to the nominee) by AST, as disbursing agent. Participation in the Plan is completely voluntary and
may be terminated or resumed at any time without penalty by written notice if received by the Plan Agent prior to any distribution record
date. See “Dividend Reinvestment Plan.”
CLOSED-END STRUCTURE
Closed-end funds differ from open-end management investment companies
(commonly referred to as mutual funds) in that closed-end funds generally list their shares for trading on a securities exchange and do
not redeem their shares at the option of the shareholder. By comparison, mutual funds issue securities redeemable at NAV at the option
of the shareholder and typically engage in a continuous offering of their shares. Mutual funds are subject to continuous asset in-flows
and out-flows that can complicate portfolio management, whereas closed-end funds generally can stay more fully invested in securities
consistent with the closed-end fund’s investment objectives and policies. In addition, in comparison to open-end funds, closed-end
funds have greater flexibility in the employment of financial leverage and in the ability to make certain types of investments, including
investments in illiquid securities.
However, common shares of closed-end funds frequently trade at a discount
from their NAV. Since inception, the market price of the Common Shares has fluctuated and at times traded below the Fund’s NAV,
and at times has traded above NAV. In recognition of this possibility that the Common Shares might trade at a discount to NAV and that
any such discount may not be in the interest of Common Shareholders, the Fund’s Board, in consultation with Eaton Vance, from time
to time may review possible actions to reduce any such discount. The Board might consider open market repurchases or tender offers for
Common Shares at NAV. There can be no assurance that the Board will decide to undertake any of these actions or that, if undertaken, such
actions would result in the Common Shares trading at a price equal to or close to NAV per Common Share. The Board might also consider
the conversion of the Fund to an open-end mutual fund. The Board believes, however, that the closed-end structure is desirable, given
the Fund’s investment objectives and policies. Investors should assume, therefore, that it is highly unlikely that the Board would
vote to convert the Fund to an open-end investment company.
SPECIAL RISK CONSIDERATIONS
Risk is inherent in all investing. Investing in any investment company
security involves risk, including the risk that you may receive little or no return on your investment or you may lose part or all of
your investment.
Discount
From or Premium to NAV. The Offering is conducted only when
Common Shares of the Fund are trading at a price equal to or above the Fund’s NAV per Common Share plus the per Common Share
amount of commissions. As with any security, the market value of the Common Shares may increase or decrease from the amount
initially paid for the Common Shares. The Fund’s Common Shares have traded both at a premium and at a discount relative to
NAV. The shares of closed-end management investment companies frequently trade at a discount from their NAV. This is a risk separate
and distinct from the risk that the Fund’s NAV may decrease.
Eaton Vance Tax-Managed Diversified Equity Income Fund | 10 | Prospectus dated February 18, 2022 |
Secondary
Market for the Common Shares. The issuance of Common Shares through
the Offering may have an adverse effect on the secondary market for the Common Shares. The increase in the amount of the Fund’s
outstanding Common Shares resulting from the Offering may put downward pressure on the market price for the Common Shares of the Fund.
Common Shares will not be issued pursuant to the Offering at any time when Common Shares are trading at a price lower than a price equal
to the Fund’s NAV per Common Share plus the per Common Share amount of commissions.
The Fund also issues Common Shares of the Fund through its dividend
reinvestment plan. See “Dividend Reinvestment Plan.” Common Shares may be issued under the plan at a discount to the market
price for such Common Shares, which may put downward pressure on the market price for Common Shares of the Fund.
When the Common Shares are trading at a premium, the Fund may also issue
Common Shares of the Fund that are sold through transactions effected on the NYSE. The increase in the amount of the Fund’s outstanding
Common Shares resulting from that offering may also put downward pressure on the market price for the Common Shares of the Fund.
The voting power of current shareholders is diluted to the extent that
such shareholders do not purchase shares in any future Common Share offerings or do not purchase sufficient shares to maintain their percentage
interest. In addition, if the Adviser is unable to invest the proceeds of such offering as intended, the Fund’s per share distribution
may decrease (or may consist of return of capital) and the Fund may not participate in market advances to the same extent as if such proceeds
were fully invested as planned.
Market
Discount Risk. As with any security, the market value of the Common Shares may increase or decrease from the amount initially
paid for the Common Shares. The Fund’s Common Shares have traded both at a premium and at a discount relative to NAV. The shares
of closed-end management investment companies frequently trade at a discount from their NAV. This is a risk separate and distinct from
the risk that the Fund’s NAV may decrease.
Investment
and Market Risk. An investment in Common Shares is subject to investment
risk, including the possible loss of the entire principal amount invested. An investment in Common Shares represents an indirect investment
in the securities owned by the Fund, which are generally traded on a securities exchange or in the over-the-counter markets. The value
of these securities, like other market investments, may move up or down, sometimes rapidly and unpredictably. Because the Fund normally
sells stock index call options on a portion of its common stock portfolio value, the Fund’s appreciation potential from equity market
performance is more limited than if the Fund did not engage in selling stock index call options. The Common Shares at any point in time
may be worth less than the original investment, even after taking into account any reinvestment of distributions.
Market
Risk. The value of investments held by the Fund may increase or decrease in response to economic, political, financial, public
health crises (such as epidemics or pandemics) or other disruptive events (whether real, expected or perceived) in the U.S. and global
markets. These events may negatively impact broad segments of businesses and populations and may exacerbate pre-existing risks to the
Fund. The frequency and magnitude of changes cannot be predicted. Certain securities and other investments held by the Fund may experience
increased volatility, illiquidity, or other potentially adverse effects in reaction to changing market conditions. Actions taken by the
U.S. Federal Reserve or foreign central banks to stimulate or stabilize economic growth, such as decreases or increases in short-term
interest rates, could cause high volatility in markets. Monetary and/or fiscal actions taken by U.S. or foreign governments to stimulate
or stabilize the global economy may not be effective and could lead to high market volatility. No active trading market may exist for
certain investments, which may impair the ability of the Fund to sell or to realize the current valuation of such investments in the event
of the need to liquidate such assets. Fixed-income markets may experience periods of relatively high volatility in an environment where
U.S. treasury yields are rising.
Issuer Risk. The value of securities held by the Fund may decline
for a number of reasons that directly relate to the issuer, such as management performance, financial leverage and reduced demand for
the issuer’s goods and services.
Equity
Risk. Under normal market conditions, the Fund’s investment
program consists of owning a diversified portfolio of common stocks. Therefore, a principal risk of investing in the Fund is equity risk.
Equity risk is the risk that the value of equity securities and related instruments may decline in response to adverse changes in the
economy or the economic outlook; deterioration in investor sentiment; interest rate, currency, and commodity price fluctuations; adverse
geopolitical, social or environmental developments; issuer- and sector-specific considerations; unexpected trading activity among retail
investors; and other factors. Market conditions may affect certain types of stocks to a greater extent than other types of stocks. If
the stock market declines, the value of Fund shares will also likely decline. Although stock prices can rebound, there is no assurance
that values will return to previous levels. An adverse event, such as an unfavorable earnings report, may depress the value of equity
securities of an issuer held by the Fund; the price of common stock of an issuer may be particularly sensitive to general movements in the stock market;
or a drop in the stock market may depress the price of most or all of the common stocks held by the Fund. In addition, common stock of
an issuer in the Fund’s portfolio may decline in price if the issuer reduces or eliminates its dividend or fails to make anticipated
dividend increases. Common stocks in which the Fund invests are structurally subordinated to preferred stocks, bonds and other debt instruments
in a company’s capital structure, in terms of priority to corporate income, and therefore will be subject to greater dividend risk
than preferred stocks or debt instruments of such issuers. Finally, common stock prices may be sensitive to rising interest rates, as
the costs of capital rise and borrowing costs increase.
Eaton Vance Tax-Managed Diversified Equity Income Fund | 11 | Prospectus dated February 18, 2022 |
Risks of
Investing in Smaller and Mid-Sized Companies. The Fund may make
investments in stocks of companies whose market capitalization is considered middle sized or “mid-cap.” Smaller and mid-sized
companies often are newer or less established companies than larger capitalization companies. Investments in smaller and mid-sized companies
carry additional risks because earnings of these companies tend to be less predictable; they often have limited product lines, markets,
distribution channels or financial resources; and the management of such companies may be dependent upon one or a few key people. The
market movements of equity securities of smaller and mid-sized companies may be more abrupt or erratic than the market movements of equity
securities of larger, more established companies or the stock market in general. Historically, smaller and mid-sized companies have sometimes
gone through extended periods when they did not perform as well as larger companies. In addition, equity securities of smaller and mid-sized
companies generally are less liquid than those of larger companies. This means that the Fund could have greater difficulty selling such
securities at the time and price that the Fund would like.
Risk of
Selling Index Call Options. Under normal market conditions, a portion
of the Fund’s common stock portfolio value is subject to written index call options. The purchaser of an index call option has the
right to any appreciation in the value of the index over the exercise price of the call option as of the valuation date of the option.
Because their exercise is settled in cash, sellers of index call options such as the Fund cannot provide in advance for their potential
settlement obligations by acquiring and holding the underlying securities. The Fund intends to mitigate the risks of its options activities
by writing options on one or more broad-based stock indices that the Adviser believes collectively approximate the characteristics of
the Fund’s common stock portfolio (or that portion of its portfolio against which options are written). The Fund will not, however,
hold stocks that fully replicate the indices on which it writes call options. Due to tax considerations, the Fund intends to generally
limit the overlap between its stock holdings (and any subset thereof) and each index on which it has outstanding options positions to
less than 70% on an ongoing basis. The Fund’s stock holdings will normally include stocks not included in the indices on which it
writes call options. Consequently, the Fund bears the risk that the performance of its stock portfolio will vary from the performance
of the indices on which it writes call options. For example, with respect to the portion of its stock portfolio against which S&P
500® index call options have been
written, the Fund will suffer a loss if the S&P 500®
appreciates above the exercise price of the options written while the associated securities held by the Fund fail to appreciate as much
or decline in value over the life of the written option. Index options written by the Fund is priced on a daily basis. Their value is
affected primarily by changes in the prices and dividend rates of the underlying common stocks in such index, changes in actual or perceived
volatility of such index and the remaining time to the options’ expiration. The trading price of index call options will also be
affected by liquidity considerations and the balance of purchase and sale orders.
A decision as to whether, when and how to use options involves the exercise
of skill and judgment, and even a well-conceived and well-executed options program may be adversely affected by market behavior or unexpected
events. As the writer of index call options, the Fund will forgo, during the option’s life, the opportunity to profit from increases
in the value of the applicable index above the sum of the option premium received and the exercise price of the call option, but retains
the risk of loss, minus the option premium received, should the value of the applicable index decline. When a call option is exercised,
the Fund is required to deliver an amount of cash determined by the excess of the value of the applicable index at contract termination
over the exercise price of the option. Thus, the exercise of index call options sold by the Fund may require the Fund to sell portfolio
securities to generate cash at inopportune times or for unattractive prices.
To the extent that the Fund writes options on indices based upon foreign
stocks, the Fund generally sells options on broad-based foreign country and/or regional stock indices that are listed for trading in the
United States or which otherwise qualify as Section 1256 contracts under the Code. Options on foreign indices that are listed for trading
in the United States or which otherwise qualify as Section 1256 contracts under the Code may trade in substantially lower volumes and
with substantially wider bid-ask spreads than other options contracts on the same or similar indices that trade on other markets outside
the United States. To implement its options program most effectively, the Fund may sell index options that do not qualify as Section 1256
contracts under the Code. Gain or loss on index options not qualifying as Section 1256 contracts under the Code would be realized upon
disposition, lapse or settlement of the positions and would be treated as short-term gain or loss.
Eaton Vance Tax-Managed Diversified Equity Income Fund | 12 | Prospectus dated February 18, 2022 |
The trading price of options may be adversely affected if the market
for such options becomes less liquid or smaller. The Fund may close out a call option by buying the option instead of letting it expire
or be exercised. There can be no assurance that a liquid market will exist when the Fund seeks to close out a call option position by
buying the option. Reasons for the absence of a liquid secondary market on an exchange include the following: (i) there may be insufficient
trading interest in certain options; (ii) restrictions may be imposed by an exchange on opening transactions or closing transactions or
both; (iii) trading halts, suspensions or other restrictions may be imposed with respect to particular classes or series of options; (iv)
unusual or unforeseen circumstances may interrupt normal operations on an exchange; (v) the facilities of an exchange or the Options Clearing
Corporation (the “OCC”) may not at all times be adequate to handle current trading volume; or (vi) one or more exchanges could,
for economic or other reasons, decide or be compelled to discontinue the trading of options (or a particular class or series of options)
at some future date. If trading were discontinued, the secondary market on that exchange (or in that class or series of options) would
cease to exist. However, outstanding options on that exchange that had been issued by the OCC as a result of trades on that exchange would
continue to be exercisable in accordance with their terms.
The hours of trading for options may not conform to the hours during
which common stocks held by the Fund are traded. To the extent that the options markets close before the markets for securities, significant
price and rate movements can take place in the securities markets that would not be reflected concurrently in the options markets. Index
call options are marked to market daily and their value is affected by changes in the value and dividend rates of the securities represented
in the underlying index, changes in interest rates, changes in the actual or perceived volatility of the associated index and the remaining
time to the options’ expiration, as well as trading conditions in the options market.
Tax Risk.
Reference is made to “Federal Income Tax Matters” for an explanation of the federal income
tax consequences and attendant risks of investing in the Fund. Although the Fund seeks to minimize and defer the federal income taxes
incurred by Common Shareholders in connection with their investment in the Fund, there can be no assurance that it will be successful
in this regard. The tax treatment and characterization of the Fund’s distributions may change over time due to changes in the Fund’s
mix of investment returns and changes in the federal tax laws, regulations and administrative and judicial interpretations, potentially
with retroactive effect. The Fund’s investment program and the tax treatment of Fund distributions may be affected by IRS interpretations
of the Code and future changes in tax laws and regulations. As described more fully under “Federal Income Tax Matters.”, while
the Fund generally intends to use a variety of techniques and strategies designed to minimize and defer the federal income taxes incurred
by Common Shareholders in connection with their investment in the Fund, certain of the Fund’s investment practices are subject to
complex federal income tax provisions that may, among other things, cause Common Shareholders to pay more tax than they otherwise would
have, or to accelerate Common Shareholders’ recognition of taxable income or gains.
Foreign Security
Risk. The value of foreign securities is affected by changes in currency rates, foreign tax laws (including withholding tax),
government policies (in this country or abroad), relations between nations and trading, settlement, custodial and other operational risks.
In addition, the costs of investing abroad (such as foreign brokerage costs, custodial expenses and other fees) are generally higher than
in the United States, and foreign securities markets may be less liquid, more volatile and less subject to governmental supervision than
markets in the United States. Foreign investments also could be affected by other factors not present in the United States, including
expropriation of assets, armed conflict, confiscatory taxation, lack of uniform accounting and auditing standards, less publicly available
financial and other information and potential difficulties in enforcing contractual obligations or repatriating capital invested in foreign
countries, and the imposition of economic sanctions. Settlements of securities transactions in foreign countries are subject to risk of
loss, may be delayed and are generally less frequent than in the United States, which could affect the liquidity of the Fund’s assets.
As an alternative to holding foreign-traded securities, the Fund may invest in dollar-denominated securities of foreign companies that
trade on United States exchanges or in the United States over-the-counter market (including depositary receipts, which evidence ownership
in underlying foreign securities). Since the Fund may invest in securities denominated or quoted in currencies other than the United States
dollar, the Fund may be affected by changes in foreign currency exchange rates (and exchange control regulations) which affect the value
of investments held by the Fund and the accrued income and appreciation or depreciation of the investments in United States dollars. Changes
in foreign currency exchange rates relative to the United States dollar will affect the United States dollar value of the Fund’s
assets denominated in that currency and the Fund’s return on such assets as well as any temporary uninvested reserves in bank deposits
in foreign currencies. In addition, the Fund will incur costs in connection with conversions between various currencies. Foreign securities
may not be eligible for the reduced rate of taxation applicable to qualified dividend income.
Eaton Vance Tax-Managed Diversified Equity Income Fund | 13 | Prospectus dated February 18, 2022 |
Because foreign companies may not be subject to accounting,
auditing and financial reporting standards, practices and requirements comparable to those applicable to United States companies,
there may be less or less reliable publicly available information about a foreign company than about a domestic company. There is
generally less government supervision and regulation of securities exchanges, broker-dealers and listed companies than in the United
States. Mail service between the United States and foreign countries may be slower or less reliable than within the United States,
thus increasing the risk of delayed settlements of portfolio transactions for, or loss of certificates of, portfolio securities.
Payment for securities before delivery may be required. In addition, with respect to certain foreign countries, there is the
possibility of expropriation or confiscatory taxation, political or social instability, or diplomatic developments that could
adversely affect investments in those countries. Moreover, individual foreign economies may differ favorably or unfavorably from the
United States economy in such respects as growth of gross national product, rate of inflation, capital reinvestment, resource
self-sufficiency and balance of payments position. 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 United States companies. The risks of
foreign investments described above apply to an even greater extent to investments in emerging markets.
Political events in foreign countries may cause market disruptions.
In June 2016, the United Kingdom (“UK”) voted in a referendum to leave the European Union (“EU”) (“Brexit”).
Effective January 31, 2020, the UK ceased to be a member of the EU and, following a transition period during which the EU and the UK Government
engaged in a series of negotiations regarding the terms of the UK’s future relationship with the EU, the EU and the UK Government
signed an agreement on December 30, 2020 regarding the economic relationship between the UK and the EU. This agreement became effective
on a provisional basis on January 1, 2021 and entered into full force on May 1, 2021. There remains significant market uncertainty regarding
Brexit’s ramifications, and the range and potential implications of the possible political, regulatory, economic, and market outcomes
in the UK, EU and beyond are difficult to predict. The end of the Brexit transition period may cause greater market volatility and illiquidity,
currency fluctuations, deterioration in economic activity, a decrease in business confidence, and an increased likelihood of a recession
in the UK. If one or more additional countries leave the EU or the EU dissolves, the world’s securities markets likely will be significantly
disrupted.
Emerging
Market Security Risk. The risks of foreign investments described above apply to an even greater extent to investments in emerging
markets. The securities markets of emerging countries are generally smaller, less developed, less liquid, and more volatile than the securities
markets of the United States and developed foreign markets. Disclosure and regulatory standards in many respects are less stringent than
in the United States and developed foreign markets. There also may be a lower level of monitoring and regulation of securities markets
in emerging market countries and the activities of investors in such markets and enforcement of existing regulations may be limited. Many
emerging countries have experienced substantial, and in some periods extremely high, rates of inflation for many years. Inflation and
rapid fluctuations in inflation rates have had and may continue to have very negative effects on the economies and securities markets
of certain emerging countries. Economies in emerging markets generally are heavily dependent upon international trade and, accordingly,
have been and may continue to be affected adversely by trade barriers, exchange controls, managed adjustments in relative currency values,
and other protectionist measures imposed or negotiated by the countries with which they trade. The economies of these countries also have
been and may continue to be adversely affected by economic conditions in the countries in which they trade. The economies of countries
with emerging markets may also be predominantly based on only a few industries or dependent on revenues from particular commodities. In
addition, custodial services and other costs relating to investment in foreign markets may be more expensive in emerging markets than
in many developed foreign markets, which could reduce the Fund’s income from such securities.
In many cases, governments of emerging countries continue to exercise
significant control over their economies, and government actions relative to the economy, as well as economic developments generally,
may affect the Fund’s investments in those countries. In addition, there is a heightened possibility of expropriation or confiscatory
taxation, imposition of withholding taxes on dividend and interest payments, or other similar developments that could affect investments
in those countries. There can be no assurance that adverse political changes will not cause the Fund to suffer a loss of any or all of
its investments.
Foreign Currency
Transactions Risk. The value of foreign assets as measured in U.S.
dollars may be affected favorably or unfavorably by changes in foreign currency rates and exchange control regulations. Currency exchange
rates can also be affected unpredictably by intervention by U.S. or foreign governments or central banks, or the failure to intervene,
or by currency controls or political developments in the United States or abroad. The Fund may (but is not required to) engage in transactions
to hedge against changes in foreign currencies, and will use such hedging techniques when the Adviser deems appropriate. Foreign currency
exchange transactions may be conducted on a spot (i.e., cash) basis at the rate currently prevailing in the foreign currency exchange
market, or through entering into derivative currency transactions. Currency futures contracts are exchange-traded instruments similar
in structure to futures contracts on stocks and stock indices, but change in value to reflect the movements of a currency or basket of
currencies rather than a stock or stock index. Settlement is made in a designated currency. Changes in foreign currency exchange rates
relative to the U.S. dollar will affect the U.S. dollar value of the Fund’s assets denominated in that currency and the Fund’s
return on such assets as well as any temporary uninvested reserves in bank deposits in foreign currencies. In addition, the Fund will
incur costs in connection with conversions between various currencies.
Eaton Vance Tax-Managed Diversified Equity Income Fund | 14 | Prospectus dated February 18, 2022 |
The Fund may attempt to protect against adverse changes in the value
of the U.S. dollar in relation to a foreign currency by entering into a forward contract for the purchase or sale of the amount of foreign
currency invested or to be invested, or by buying or selling a foreign currency option or futures contract for such amount. Such strategies
may be employed before the Fund purchases a foreign security traded in the currency which the Fund anticipates acquiring or between the
date the foreign security is purchased or sold and the date on which payment therefor is made or received. Seeking to protect against
a change in the value of a foreign currency in the foregoing manner does not eliminate fluctuations in the prices of portfolio securities
or prevent losses if the prices of such securities decline. Furthermore, such transactions reduce or preclude the opportunity for gain
if the value of the currency should move in the direction opposite to the position taken. Adverse movements in hedged currencies may result
in poorer overall performance for the Fund than if it had not entered into such contracts. Forward foreign currency exchange contracts
are individually negotiated and privately traded contracts between currency traders and their customers. Such contracts may be used by
the Fund when a security denominated in a foreign currency is purchased or sold, or when the receipt in a foreign currency of dividend
or interest payments on such a security is anticipated. A forward contract can “lock in” the U.S. dollar price of the security
or the U.S. dollar equivalent of such dividend or interest payment, as the case may be. Additionally, when the Adviser believes that the
currency of a particular foreign country may suffer a substantial decline against the U.S. dollar, it may enter into a forward contract
to sell, for a fixed amount of dollars, the amount of foreign currency approximating the value of some or all of the securities held that
are denominated in such foreign currency. The precise matching of the forward contract amounts and the value of the securities involved
will not generally be possible. In addition, it may not be possible to hedge against long-term currency changes. Cross-hedging may be
performed by using forward contracts in one currency (or basket of currencies) to hedge against fluctuations in the value of securities
denominated in a different currency if the Adviser determines that there is a pattern of correlation between the two currencies (or the
basket of currencies and the underlying currency). Use of a different foreign currency magnifies exposure to foreign currency exchange
rate fluctuations. Forward contracts may also be used to shift exposure to foreign currency exchange rate changes from one currency to
another. Short-term hedging provides a means of fixing the dollar value of only a portion of portfolio assets. Income or gains earned
on any of the Fund’s foreign currency transactions generally will be treated as fully taxable income (i.e. income other than tax-advantaged
dividends).
Currency transactions are dependent upon the creditworthiness of counterparties
and subject to the risk of political and economic factors applicable to the countries issuing the underlying currencies. Furthermore,
unlike trading in most other types of instruments, there is no systematic reporting of last sale information with respect to the foreign
currencies underlying derivative currency transactions. As a result, available information may not be complete. In an over-the-counter
trading environment, there are generally no daily price fluctuation limits. There may be no liquid secondary market to close out positions
entered into until their exercise, expiration or maturity. There is also the risk of default by, or the bankruptcy of, the financial institution
serving as counterparty.
Interest
Rate Risk. The premiums from writing index call options and amounts available for distribution from the Fund’s options
activity may decrease in declining interest rate environments. The value of the Fund’s common stock investments may also be influenced
by changes in interest rates. Higher yielding stocks and stocks of issuers whose businesses are substantially affected by changes in interest
rates may be particularly sensitive to interest rate risk.
Derivatives
Risk. In addition to writing index call options, the risks of which are described above, the Fund may also invest in other
derivative for purposes, such as hedging, to enhance return, or as a substitute for the purchase or sale of securities or currencies.
Other permitted derivatives include futures contracts on securities, non-equity indices and currencies, options on futures contracts,
equity and interest rate swaps, covered short sales, forward sales of stocks, and forward currency exchange contracts. The Fund may invest
in derivatives without limitation and use of derivatives may be extensive. The use of derivatives can lead to losses because of adverse
movements in the price or value of the asset, index, rate or instrument underlying a derivative, due to failure of a counterparty or due
to tax or regulatory constraints. Derivatives may create investment leverage in the Fund, which magnifies the Fund’s exposure to
the underlying investment. Derivative risks may be more significant when they are used to enhance return or as a substitute for a position
or security, rather than solely to hedge the risk of a position or security held by the Fund. Derivatives for hedging purposes may not
reduce risk if they are not sufficiently correlated to the position being hedged. A decision as to whether, when and how to use derivatives
involves the exercise of specialized skill and judgment, and even a well-conceived transaction may be unsuccessful to some degree because
of market behavior or unexpected events. Changes in the value of the derivative may not correlate perfectly with the underlying asset,
rate or index, and the Fund could lose more than the principal amount invested in derivatives. Derivative instruments traded in over-the-counter
markets may be difficult to value, may be illiquid, and may be subject to wide swings in valuation caused by changes in the value of the
underlying instrument. The loss on derivative transactions may substantially exceed the initial investment. As a general matter, dividends
received on hedged stock positions are characterized as ordinary income and are not eligible for favorable tax treatment. Dividends received
on securities with respect to which the Fund is obligated to make related payments (pursuant to short sales or otherwise) will not constitute
tax-advantaged dividend income and will be taxable as ordinary income. In addition, use of derivatives may give rise to short-term
capital gains and other income that would not qualify as tax-advantaged dividend income.
Eaton Vance Tax-Managed Diversified Equity Income Fund | 15 | Prospectus dated February 18, 2022 |
The U.S. and non-U.S. derivatives markets have undergone substantial
changes in recent years as a result of changes under the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank
Act”) in the United States and regulatory changes in Europe, Asia and other non-U.S. jurisdictions. In particular, the Dodd-Frank
Act and related regulations require many derivatives to be cleared and traded on an exchange, expand entity registration requirements,
impose business conduct requirements on counterparties, and impose other regulatory requirements that will continue to change derivatives
markets as regulations are implemented. As of October 28, 2020, the SEC has adopted new regulations that may significantly alter the Fund’s
regulatory obligations with regard to its derivatives usage. In particular, the new regulations will, upon implementation, eliminate the
current asset segregation framework for covering derivatives and certain other financial instruments, impose new responsibilities on the
Board and establish new reporting and recordkeeping requirements for the Fund and may, depending on the extent to which the Fund uses
derivatives, impose value at risk limitations on the Fund’s use of derivatives, and require the Fund’s Board to adopt a derivative
risk management program. The implementation of these requirements may limit the ability of the Fund to use derivative instruments as part
of its investment strategy, increase the costs of using these instruments or make them less effective. Additional future regulation of
the derivatives markets may make the use of derivatives more costly, may limit the availability or reduce the liquidity of derivatives,
and may impose limits or restrictions on the counterparties with which the Fund engages in derivative transactions. Fund management cannot
predict the effects of any new governmental regulation that may be implemented, and there can be no assurance that any new government
regulation will not adversely affect the Fund’s performance or ability to achieve its investment objective.
Counterparty
Risk. A financial institution or other counterparty with whom the Fund does business (such as trading or as a derivatives counterparty),
or that underwrites, distributes or guarantees any instruments that the Fund owns or is otherwise exposed to, may decline in financial
condition and become unable to honor its commitments. This could cause the value of Fund shares to decline or could delay the return or
delivery of collateral or other assets to the Fund. Counterparty risk is increased for contracts with longer maturities.
Dividend Capture Trading Risk. The
use of dividend capture strategies will expose the Fund to higher portfolio turnover, increased trading costs and potential for capital
loss or gain, including short-term capital gain taxable as ordinary income, particularly in the event of significant short-term price
movements of stocks subject to dividend capture trading.
Liquidity Risk. The Fund may invest up to 15% of its total assets
in securities for which there is no readily available trading market or which are otherwise illiquid. The Fund is exposed to liquidity
risk when trading volume, lack of a market maker, or legal restrictions impair the Fund’s ability to sell particular investments
or close derivative positions at an advantageous market price. Trading opportunities are also more limited for securities and other instruments
that are not widely held or are traded in less developed markets. These factors may make it more difficult to sell or buy a security
at a favorable price or time. Consequently, the Fund may have to accept a lower price to sell an investment or continue to hold it or
keep the position open, sell other investments to raise cash or abandon an investment opportunity, any of which could have a negative
effect on the Fund’s performance. It also may be more difficult to value less liquid investments. These effects may be exacerbated
during times of financial or political stress. In addition, the limited liquidity could affect the market price of the investments, thereby
adversely affecting the Fund's net asset value and ability to make dividend distributions.
Inflation
Risk. Inflation risk is the risk that the purchasing power of assets or income from investments is worth less in the future
as inflation decreases the value of money. As inflation increases, the real value of the Common Shares and distributions thereon can decline.
Market Price
of Common Shares. The Fund’s share price will fluctuate and, at the time of sale, shares may be worth more or less than
the original investment or the Fund’s then current NAV. The Fund cannot predict whether its shares will trade at a price at, above
or below its NAV. Shares of closed-end funds frequently trade at a discount to their NAV.
Financial
Leverage Risk. Although the Fund has no current intention to do so, the Fund is authorized and reserves the flexibility to
utilize leverage through the issuance of preferred shares and/or borrowings, including the issuance of debt securities. In the event that
the Fund determines in the future to utilize investment leverage, there can be no assurance that such a leveraging strategy will be successful
during any period in which it is employed. Leverage creates risks for Common Shareholders, including the likelihood of greater volatility
of NAV and market price of the Common Shares and the risk that fluctuations in distribution rates on any preferred shares or fluctuations
in borrowing costs may affect the return to Common Shareholders. To the extent the returns derived from securities purchased with proceeds
received from leverage exceeds the cost of leverage, the Fund’s distributions may be greater than if leverage had not been used.
Conversely, if the returns from the securities purchased with such proceeds are not sufficient to cover the cost of leverage, the amount
available for distribution to Common Shareholders will be less than if leverage had not been used.
Eaton Vance Tax-Managed Diversified Equity Income Fund | 16 | Prospectus dated February 18, 2022 |
In the latter case, Eaton Vance, in its best judgment, may nevertheless
determine to maintain the Fund’s leveraged position if it deems such action to be appropriate. The costs of an offering of preferred
shares and/or a borrowing program would be borne by Common Shareholders and consequently would result in a reduction of the NAV
of Common Shares. In addition, the fee paid to Eaton Vance is calculated on the basis of the Fund’s average daily gross assets,
including proceeds from the issuance of preferred shares and/or borrowings, so the fee is higher when leverage is utilized, which may
create an incentive for the Adviser to employ financial leverage. In this regard, holders of preferred shares do not bear the investment
advisory fee. Rather, Common Shareholders bear the portion of the investment advisory fee attributable to the assets purchased with the
proceeds of the preferred shares offering.
Management
Risk. The Fund is subject to management risk because it is actively managed. Eaton Vance and the portfolio manager invest the
assets of the Fund as they deem appropriate in implementing the Fund’s investment strategy. Accordingly, the success of the Fund
depends upon the investment skills and analytical abilities of Eaton Vance and the portfolio manager to develop and effectively implement
strategies that achieve the Fund’s investment objectives. There is no assurance that Eaton Vance and the portfolio manager will
be successful in developing and implementing the Fund’s investment strategy. Subjective decisions made by Eaton Vance and the portfolio
manager may cause the Fund to incur losses or to miss profit opportunities.
Cybersecurity
Risk. With the increased use of technologies by Fund service providers to conduct business, such as the Internet, the
Fund is susceptible to operational, information security and related risks. The Fund relies on communications technology, systems,
and networks to engage with clients, employees, accounts, shareholders, and service providers, and a cyber incident may inhibit the
Fund’s ability to use these technologies. In general, cyber incidents can result from deliberate attacks or unintentional
events. Cyber attacks include, but are not limited to, gaining unauthorized access to digital systems (e.g., through
“hacking” or malicious software coding) for purposes of misappropriating assets or sensitive information, corrupting
data, or causing operational disruption. Cyber attacks may also be carried out in a manner that does not require gaining
unauthorized access, such as causing denial-of-service attacks on websites or via “ransomware” that renders systems
inoperable until appropriate actions are taken. A denial-of-service attack is an effort to make network services unavailable to
intended users, which could cause shareholders to lose access to their electronic accounts, potentially indefinitely. Employees and
service providers also may not be able to access electronic systems to perform critical duties for the Fund, such as trading NAV
calculation, shareholder accounting or fulfillment of Fund share purchases and redemptions during a denial-of-service attack. There
is also the possibility for systems failures due to malfunctions, user error and misconduct by employees and agents, natural
disasters, or other foreseeable and unforeseeable events.
Because technology is consistently changing, new ways to carry out cyber
attacks are always developing. Therefore, there is a chance that some risks have not been identified or prepared for, or that an attack
may not be detected, which puts limitations on the Fund's ability to plan for or respond to a cyber attack. Like other Funds and business
enterprises, the Fund and its service providers have experienced, and will continue to experience, cyber incidents consistently. In addition
to deliberate cyber attacks, unintentional cyber incidents can occur, such as the inadvertent release of confidential information by the
Fund or its service providers.
The Fund uses third party service providers who are also heavily dependent
on computers and technology for their operations. Cybersecurity failures or breaches by the Fund’s investment adviser or administrator
and other service providers (including, but not limited to, the custodian or transfer agent), and the issuers of securities in which the
Fund invests, may disrupt and otherwise adversely affect their business operations. This may result in financial losses to the Fund, impede
Fund trading, interfere with the Fund’s ability to calculate its NAV, or cause violations of applicable privacy and other laws,
regulatory fines, penalties, reputational damage, reimbursement or other compensation costs, litigation costs, or additional compliance
costs. While many of the Fund service providers have established business continuity plans and risk management systems intended to identify
and mitigate cyber attacks, there are inherent limitations in such plans and systems including the possibility that certain risks have
not been identified. The Fund cannot control the cybersecurity plans and systems put in place by service providers to the Fund and issuers
in which the Fund invests. The Fund and its shareholders could be negatively impacted as a result.
Recent Market
Conditions. An outbreak of respiratory disease caused by a novel coronavirus was first detected in China in late 2019 and subsequently
spread 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 coronavirus may last for an extended period of time and result in a substantial economic downturn. Health crises
caused by outbreaks of disease, such as the coronavirus outbreak, may exacerbate other pre-existing political, social and economic risks
and disrupt normal market conditions and operations. The impact of this outbreak has negatively affected the worldwide economy, as well
as the economies of individual countries and industries, and could continue to affect the market in significant and unforeseen ways. Other
epidemics and pandemics that may arise in the future may have similar effects. For example, a global pandemic or other widespread health
crisis could cause substantial market volatility and exchange trading suspensions and closures. In addition, the increasing interconnectedness
of markets around the world may result
Eaton Vance Tax-Managed Diversified Equity Income Fund | 17 | Prospectus dated February 18, 2022 |
in many markets being affected by events or conditions in a single country
or region or events affecting a single or small number of issuers. The coronavirus outbreak and public and private sector responses thereto
have led to large portions of the populations of many countries working from home for indefinite periods of time, temporary or permanent
layoffs, disruptions in supply chains, and lack of availability of certain goods. The impact of such responses could adversely affect
the information technology and operational systems upon which the Fund and the Fund’s service providers rely, and could otherwise
disrupt the ability of the employees of the Fund’s service providers to perform critical tasks relating to the Fund. Any such impact
could adversely affect the Fund’s performance, or the performance of the securities in which the Fund invests and may lead to losses
on your investment in the Fund.
Market Disruption.
Global instability, war, geopolitical tensions and terrorist attacks in the United States and around the world have previously resulted,
and may continue to result in market volatility and may have long-term effects on the United States and worldwide financial markets and
may cause further economic uncertainties in the United States and worldwide. The Fund cannot predict the effects of significant future
events on the global economy and securities markets. A similar disruption of the financial markets could impact interest rates, auctions,
secondary trading, ratings, credit risk, inflation and other factors relating to the Common Shares.
Anti-Takeover
Provisions. The Fund’s Agreement and Declaration of Trust (the “Declaration of Trust”) and Amended and Restated
By-Laws (the “By-Laws” and together with the Declaration of Trust, the “Organizational Documents”) include provisions
that could have the effect of limiting the ability of other persons or entities to acquire control of the Fund or to change the composition
of its Board. For example, pursuant to the Fund’s Declaration of Trust, the Fund Board is divided into three classes of Trustees
with each class serving for a three-year term and certain types of transactions require the favorable vote of holders of at least 75%
of the outstanding shares of the Fund. See “Description of Capital Structure - Certain Provisions of the Organizational Documents
- Anti-Takeover Provisions in the Organizational Documents.”
Eaton Vance Tax-Managed Diversified Equity Income Fund | 18 | Prospectus dated February 18, 2022 |
Summary
of Fund Expenses
The purpose of the table below is to help you understand all fees
and expenses that you, as a Common Shareholder, would bear directly or indirectly. The table shows Fund expenses as a percentage of net
assets attributable to Common Shares for the year ended October 31, 2021.
Common Shareholder Transaction Expenses |
|
Sales Load Paid By You (as a percentage of offering price) |
--(1) |
Offering Expenses (as a percentage of offering price) |
None(2) |
Dividend Reinvestment Plan Fees |
$5.00(3) |
|
|
Annual Expenses |
Percentage of Net Assets
Attributable to Common Shares(4) |
Investment Adviser Fee |
0.99%(5) |
Other Expenses |
0.08% |
Total Annual Fund Operating Expenses |
1.07% |
|
|
EXAMPLE
The following Example illustrates the expenses that Common Shareholders
would pay on a $1,000 investment in Common Shares, assuming (i) total annual expenses of 1.07% of net assets attributable to Common Shares
in years 1 through 10; (ii) a 5% annual return; and (iii) all distributions are reinvested at NAV:
1 Year |
3 Years |
5 Years |
10 Years |
$11 |
$34 |
$59 |
$131 |
The above table and example and the assumption in the example of a 5%
annual return are required by regulations of the SEC that are applicable to all investment companies; the assumed 5% annual return is
not a prediction of, and does not represent, the projected or actual performance of the Fund’s Common Shares. For more complete
descriptions of certain of the Fund’s costs and expenses, see “Management of the Fund.” In addition, while the example
assumes reinvestment of all dividends and distributions at NAV, participants in the Fund’s dividend reinvestment plan may receive
Common Shares purchased or issued at a price or value different from NAV. See “Distributions” and “Dividend Reinvestment
Plan.” The example does not include sales load or estimated offering costs, which would cause the expenses shown in the example
to increase.
The example should not be considered a representation of past or
future expenses, and the Fund’s actual expenses may be greater or less than those shown. Moreover, the Fund’s actual rate
of return may be greater or less than the hypothetical 5% return shown in the example.
| (1) | If Common Shares are sold to or through underwriters, the Prospectus Supplement will set forth any applicable sales load. |
| (2) | The Adviser will pay the expenses of the Offering (other than the applicable commissions); therefore, Offering expenses are not included
in the Summary of Fund Expenses. Offering expenses generally include, but are not limited to, the preparation, review and filing with
the SEC of the Fund’s registration statement (including this Prospectus and the SAI), the preparation, review and filing of any
associated marketing or similar materials, costs associated with the printing, mailing or other distribution of the Prospectus, SAI and/or
marketing materials, associated filing fees, NYSE listing fees, and legal and auditing fees associated with the Offering. |
| (3) | You will be charged a $5.00 service charge and pay brokerage charges if you direct the plan agent to sell your Common Shares held
in a dividend reinvestment account. |
| (4) | Stated as a percentage of average net assets attributable to Common Shares for the period
ended October 31, 2021. |
| (5) | The adviser fee paid by the Fund to the Adviser is based on the average daily gross assets
of the Fund, including all assets attributable to any form of investment leverage that the Fund may utilize. Accordingly, if the Fund
were to increase investment leverage in the future, the adviser fee will increase as a percentage of net assets. |
Eaton Vance Tax-Managed Diversified Equity Income Fund | 19 | Prospectus dated February 18, 2022 |
Financial
Highlights and Investment Performance
FINANCIAL HIGHLIGHTS
This table details the financial performance of the Common Shares, including
total return information showing how much an investment in the Fund has increased or decreased each period. This information has been
audited by Deloitte & Touche LLP, an independent registered public accounting firm. The report of Deloitte & Touche LLP and the Fund’s financial statements are incorporated by reference and included in the Fund’s annual report, which is available upon request.
Selected data for a Common Share outstanding during the periods stated.
|
Year Ended October 31, |
|
2021 |
2020 |
2019 |
2018 |
2017 |
Net asset value – Beginning of year |
$ 11.600 |
$ 11.870 |
$ 11.860 |
$ 11.960 |
$ 11.140 |
Income (Loss) From Operations |
|
|
|
|
|
Net investment income(1) |
$ 0.054 |
$ 0.093 |
$ 0.101 |
$ 0.082 |
$ 0.100 |
Net realized and unrealized gain |
3.740 |
0.648 |
0.921 |
0.830 |
1.732 |
Total income from operations |
$ 3.794 |
$ 0.741 |
$ 1.022 |
$ 0.912 |
$ 1.832 |
Less Distributions |
|
|
|
|
|
From net investment income |
$ (0.054) |
$ (0.093) |
$ (0.100) |
$ (0.081) |
$ (0.096) |
From net realized gain |
(0.445) |
— |
(0.548) |
(0.486) |
(0.285) |
Tax return of capital |
(0.538) |
(0.919) |
(0.364) |
(0.445) |
(0.631) |
Total distributions |
$ (1.037) |
$ (1.012) |
$ (1.012) |
$ (1.012) |
$ (1.012) |
Premium from common shares sold through shelf offering(1) |
$ 0.003 |
$ 0.001 |
$ 0.000(2) |
$ — |
$ — |
Net asset value – End of year |
$ 14.360 |
$ 11.600 |
$ 11.870 |
$ 11.860 |
$ 11.960 |
Market value – End of year |
$ 14.610 |
$ 10.340 |
$ 11.920 |
$ 11.460 |
$ 11.640 |
Total Investment Return on Net Asset Value(3) |
33.85% |
7.02% |
9.24% |
7.75% |
17.51% |
Total Investment Return on Market Value(3) |
52.78% |
(5.01)% |
13.53% |
6.98% |
23.81% |
Ratios/Supplemental Data |
|
|
|
|
|
Net assets, end of year (000’s omitted) |
$ 2,211,925 |
$ 1,759,628 |
$ 1,782,364 |
$ 1,775,555 |
$ 1,787,846 |
Ratios (as a percentage of average daily net assets): |
|
|
|
|
|
Expenses |
1.07% |
1.08% |
1.07% |
1.07% |
1.08% |
Net investment income |
0.40% |
0.80% |
0.86% |
0.66% |
0.86% |
Portfolio Turnover |
36% |
40% |
57% |
48% |
75% |
(See
related footnotes.)
Eaton Vance Tax-Managed Diversified Equity Income Fund | 20 | Prospectus dated February 18, 2022 |
Financial
Highlights (continued)
|
Year Ended October 31, |
|
2016 |
2015 |
2014 |
2013 |
2012 |
Net asset value – Beginning of year |
$12.010 |
$12.340 |
$11.870 |
$10.960 |
$10.830 |
Income (Loss) From Operations |
|
|
|
|
|
Net investment income(1) |
$0.119 |
$0.211 |
$0.324(5) |
$0.195 |
$0.138 |
Net realized and unrealized gain |
0.023 |
0.471 |
1.157 |
1.798 |
1.062 |
Total income from operations |
$0.142 |
$0.682 |
$1.481 |
$1.993 |
$1.200 |
Less Distributions |
|
|
|
|
|
From net investment income |
$(0.095) |
$(0.212) |
$(0.327) |
$(0.398) |
$(0.137) |
From net realized gain |
(0.071) |
(0.800) |
— |
(0.698) |
— |
Tax return of capital |
(0.846) |
— |
(0.685) |
— |
(0.948) |
Total distributions |
$(1.012) |
$(1.012) |
$(1.012) |
$(1.096) |
$(1.085) |
Anti-dilutive effect of share repurchase program(1) |
$— |
$— |
$0.001 |
$0.013 |
$0.015 |
Net asset value – End of year |
$11.140 |
$12.010 |
$12.340 |
$11.870 |
$10.960 |
Market value – End of year |
$10.290 |
$11.310 |
$11.710 |
$10.720 |
$9.510 |
Total Investment Return on Net Asset Value(3) |
1.98% |
6.38% |
13.64% |
20.61% |
13.68% |
Total Investment Return on Market Value(3) |
0.04% |
5.57% |
19.41% |
25.53% |
15.99% |
Ratios/Supplemental Data |
|
|
|
|
|
Net assets, end of year (000’s omitted) |
$1,665,148 |
$1,795,490 |
$1,844,442 |
$1,775,015 |
$1,654,326 |
Ratios (as a percentage of average daily net assets): |
|
|
|
|
|
Expenses(4) |
1.08% |
1.07% |
1.08% |
1.09% |
1.07% |
Net investment income |
1.05% |
1.72% |
2.65%(5) |
1.71% |
1.27% |
Portfolio Turnover |
86% |
85% |
83% |
130% |
30% |
| (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) | 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. |
| (5) | Net investment income per share includes special dividends which amounted to $0.234 per share. Excluding special dividends, the ratio
of net investment income to average daily net assets would have been 0.74%. |
Eaton Vance Tax-Managed Diversified Equity Income Fund | 21 | Prospectus dated February 18, 2022 |
TRADING AND NAV INFORMATION
The Fund’s Common Shares have traded both at a premium and
a discount to NAV. The Fund cannot predict whether its shares will trade in the future at a premium or discount to NAV. The provisions
of the 1940 Act generally require that the public offering price of Common Shares (less any underwriting commissions and discounts) must
equal or exceed the NAV per share of a company’s common stock. The issuance of Common Shares may have an adverse effect on prices
in the secondary market for the Fund’s Common Shares by increasing the number of Common Shares available, which may put downward
pressure on the market price for the Fund’s Common Shares. Shares of common stock of closed-end investment companies frequently
trade at a discount from their NAV. See “Risk Considerations - Discount From or Premium to NAV”.
In addition, the Fund’s Board of Trustees has authorized the Fund
to repurchase up to 10% of its outstanding common shares as of the day of the prior calendar year-end 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.
The results of the share repurchase program are disclosed in the Fund’s annual and semi-annual reports to shareholders. See
“Description of Capital Structure—Repurchase of Common Shares and Other Discount Measures.”
The following table sets forth for each of the periods indicated the
high and low closing market prices for Common Shares on the NYSE, and the corresponding NAV per share and the premium or discount to NAV
per share at which the Fund’s Common Shares were trading as of such date.
|
|
Market Price |
|
NAV per Share on Date of Market Price |
|
NAV Premium/(Discount) on Date of Market Price |
Fiscal Quarter Ended |
|
High |
Low |
|
High |
Low |
|
High |
Low |
1/31/2022 |
|
$15.05 |
$13.25 |
|
$14.54 |
$13.19 |
|
3.51% |
0.45% |
10/31/2021 |
|
$14.61 |
$13.79 |
|
$14.22 |
$13.79 |
|
2.74% |
0.00% |
7/31/2021 |
|
$14.37 |
$13.12 |
|
$13.90 |
$13.28 |
|
3.38% |
(1.20)% |
4/30/2021 |
|
$13.44 |
$12.09 |
|
$13.61 |
$12.77 |
|
(1.25)% |
(5.32)% |
1/31/2021 |
|
$12.69 |
$10.39 |
|
$13.04 |
$11.74 |
|
(2.68)% |
(11.50)% |
10/31/2020 |
|
$11.73 |
$10.34 |
|
$12.53 |
$11.60 |
|
(6.38)% |
(10.86)% |
7/31/2020 |
|
$11.11 |
$10.05 |
|
$11.49 |
$10.79 |
|
(3.31)% |
(6.86)% |
4/30/2020 |
|
$12.94 |
$7.32 |
|
$12.70 |
$8.63 |
|
1.89% |
(15.18)% |
1/31/2020 |
|
$12.86 |
$11.99 |
|
$12.58 |
$11.94 |
|
2.23% |
0.42% |
On February 14, 2022, the last reported sale price, NAV per Common
Share and percentage premium/(discount) to NAV per Common Share, were $13.61, $13.47 and 1.04%, respectively. As of February 14, 2022,
the Fund had 155,979,565 Common Shares outstanding and net assets of $2,101,179,861.
The following table provides information about our outstanding Common
Shares as of February 14, 2022:
Title of Class |
Amount Authorized |
Amount Held by the Fund for its Account |
Amount Outstanding |
Common Shares |
Unlimited |
0 |
155,979,565 |
The Fund
The Fund is a diversified, closed-end management investment company
registered under the 1940 Act. The Fund was organized as a Massachusetts business trust on October 5, 2005 pursuant to an Agreement and
Declaration of Trust, as amended, governed by the laws of the Commonwealth of Massachusetts. The Fund’s principal office is located
at Two International Place, Boston, Massachusetts 02110, and its telephone number is 1-800-262-1122.
Eaton Vance Tax-Managed Diversified Equity Income Fund | 22 | Prospectus dated February 18, 2022 |
Use of Proceeds
Subject to the remainder of this section, and unless otherwise specified
in a Prospectus Supplement, the Fund intends to invest substantially all of the net proceeds of any sales of Common Shares pursuant to
this Prospectus in accordance with the Fund’s investment objectives and policies. The Fund anticipates that it will be possible
to invest the proceeds of the Offering consistent with the Fund’s investment objective and policies as soon as practicable, but
in no event, assuming normal market conditions, later than three months after the receipt thereof. Pending such investment, the proceeds
may be invested in short-term money market instruments, securities with remaining maturities of less than one year, cash and/or cash equivalents.
A delay in the anticipated use of proceeds could lower returns and reduce the Fund’s distribution to Common Shareholders or result
in a distribution consisting principally of a return of capital.
Investment
Objectives, Policies and Risks
INVESTMENT OBJECTIVES
The Fund’s primary investment objective is to provide current
income and gains, with a secondary objective of capital appreciation. In pursuing its investment objectives, the Fund will evaluate returns
on an after-tax basis, seeking to minimize and defer shareholder federal income taxes. There can be no assurance that the Fund will achieve
its investment objectives.
Under normal market conditions, the Fund’s investment program
consists of owning a diversified portfolio of common stocks. The Fund will seek to earn high levels of tax-advantaged income and gains
by (1) investing in stocks that pay dividends that qualify for favorable federal income tax treatment and/or (2) writing (selling) stock
index call options with respect to a portion of its common stock portfolio value.
PRIMARY INVESTMENT POLICIES
General Composition
of the Fund. Under normal market conditions, the Fund invests at least 80% of its total assets in a combination of (1) dividend-paying
common stocks and (2) common stocks the value of which is subject to covered written index call options.
Typically, the Fund invests primarily in common stocks of United
States issuers. The Fund may invest up to 40% of its total assets in securities of foreign issuers, including securities evidenced by
American Depositary Receipts (“ADRs”), Global Depositary Receipts (“GDRs”) and European Depositary Receipts (“EDRs”).
The Fund may invest up to 5% of its total assets in securities of emerging market issuers. The Fund expects that its assets will normally
be invested across a broad range of industries and market sectors. The Fund may not invest 25% or more of its total assets in the securities
of issuers in any single industry. The Fund may invest a portion of its assets in stocks of mid-capitalization companies. Eaton Vance
generally considers mid-capitalization companies to be those companies having market capitalizations within the range of capitalizations
for the S&P MidCap 400® Index
(the “S&P MidCap 400®”).
As of January 31, 2022, the median market capitalization of companies in the S&P MidCap 400®
was approximately $5.8 billion.
The Fund writes call options on one or more broad-based stock indices
that the Adviser believes collectively approximate the characteristics of its common stock portfolio (or that portion of its portfolio
against which options are written) and that present attractive opportunities to earn options premiums. The Fund writes call options on
the S&P 500® Index (the “S&P
500®”), and may also write
call options on other domestic and foreign stock indices. Over time, the indices on which the Fund writes call options may vary as a result
of changes in the availability and liquidity of various listed index options, changes in stock portfolio holdings, the Adviser’s
evaluation of equity market conditions and other factors. Writing index call options involves a tradeoff between the option premiums received
and reduced participation in potential future stock price appreciation. Due to tax considerations, the Fund intends to limit the overlap
between its stock holdings (and any subset thereof) and each index on which it has outstanding options positions to less than 70% on an
ongoing basis. The Fund’s stock holdings normally include stocks not included in the indices on which it writes call options.
The Fund may consider investments in stocks that pay dividends that
qualify for federal income taxation at rates applicable to long-term capital gains, and may seek to enhance the level of tax-advantaged
dividend income it receives by engaging in dividend capture trading. In a dividend capture trade, the Fund sells a stock on or shortly
after the stock’s ex-dividend date and uses the sale proceeds to purchase one or more other stocks that are expected to pay dividends
before the next dividend payment on the stock being sold. Through this practice, the Fund may receive more dividend payments over a given
time period than if it held a single stock. By complying with applicable holding period and other requirements while engaging in dividend
capture trading, the Fund may enhance the level of tax-advantaged dividend income it receives. The use of dividend capture trading strategies
will expose the Fund to increased trading costs and potentially higher short-term gain or loss. The Fund may use derivatives to manage
exposure to certain sectors and/or markets in connection with its use of dividend capture trading. The Fund may buy and sell equity index
futures contracts for this purpose, but may also engage in other types of derivatives to manage such exposures.
Eaton Vance Tax-Managed Diversified Equity Income Fund | 23 | Prospectus dated February 18, 2022 |
The Fund generally sells stock index call options that are exchange-listed
and “European style,” meaning that the options may be exercised only on the expiration date of the option. Index options differ
from options on individual securities in that index options (i) typically are settled in cash rather than by delivery of securities and
(ii) reflect price fluctuations in a group of securities or segments of the securities market rather than price fluctuations in a single
security.
As the seller of index call options, the Fund will receive cash (the
premiums) from option purchasers. The purchaser of an index call option has the right to any appreciation in the value of the applicable
index over a fixed price (the exercise price) as of a specified date in the future (the option valuation date). Generally, the Fund sells
call options that are slightly “out-of-the-money” (i.e., the exercise price generally will be slightly above the current level
of the applicable index when the option is sold). The Fund may also sell index options that are more substantially “out-of-the-money.”
Such options that are more substantially “out-of-the-money” provide greater potential for the Fund to realize capital appreciation,
but generally would pay a lower premium than options that are slightly “out-of-the-money.” In writing index options, the Fund,
in effect, sells the potential appreciation in the value of the applicable index above the exercise price in exchange for the option premium
received. If, at expiration, an index call option sold by the Fund is exercised, the Fund will pay the purchaser the difference between
the cash value of the applicable index and the exercise price of the option. The premium, the exercise price and the market value of the
applicable index will determine the gain or loss realized by the Fund as the seller of the index call option.
The Fund expects to maintain high turnover in index call options, based
on the Adviser’s intent to sell index call options on a portion of its stock portfolio value and roll forward its options positions
approximately every one to three months.
The Fund’s policy that, under normal market conditions, the Fund
invests at least 80% of its total assets in a combination of (1) dividend-paying common stocks and (2) common stocks the value of which
is subject to covered written index call options is a non-fundamental policy that may be changed by the Fund’s Board of Trustees
(the “Board”) without Common Shareholder approval following the provision of 60 days’ prior written notice to Common
Shareholders.
In implementing the Fund’s investment strategy, the Adviser employs
a variety of techniques and strategies designed to minimize and defer the federal income taxes incurred by shareholders in connection
with their investment in the Fund as described below.
During unusual market conditions, the Fund may invest up to 100% of
its assets in cash or cash equivalents temporarily, which may be inconsistent with its investment objectives, principal strategies and
other policies.
The S&P 500®
is an unmanaged index of 500 stocks maintained and published by S&P that is market-capitalization weighted and generally representative
of the performance of larger stocks traded in the United States.
Investment
Strategy. Eaton Vance is responsible for the Fund’s overall investment program, structuring and managing the Fund’s
common stock portfolio, including dividend capture trading, tax-loss harvesting (i.e., periodically selling positions that have depreciated
in value to realize capital losses that can be used to offset capital gains realized by the Fund) and other tax-management techniques.
See “Management of the Fund.”
Eaton Vance is responsible for the overall management of the Fund’s
investments, including decisions about asset allocation and securities selection. The portfolio manager utilizes information provided
by, and the expertise of, the Adviser’s research staff in making investment decisions. Investment decisions are made primarily on
the basis of fundamental research, which involves consideration of the various company-specific and general business, economic and market
factors that may influence the future performance of individual companies and equity investments therein. The Adviser will also consider
a variety of other factors in constructing and maintaining the Fund’s stock portfolio, including, but not limited to, stock dividend
yields and payment schedules, overlap between the Fund’s stock holdings and the indices on which it has outstanding options positions,
realization of tax-loss harvesting (i.e., periodically selling positions that have depreciated in value to realize capital losses that
can be used to offset capital gains realized by the Fund) opportunities and other tax management considerations.
The Adviser believes that a strategy of owning a portfolio of common
stocks and selling covered call options (a “buy-write strategy”) with respect to a portion thereof can provide current income
and gains and attractive risk-adjusted returns. The Fund will sell only “covered” call options. Although the Fund generally
writes stock index call options with respect to only a portion of its common stock portfolio value, the Fund may in market circumstances
deemed appropriate by the Adviser write covered index call options on up to 100% of the value of its assets.
Eaton Vance Tax-Managed Diversified Equity Income Fund | 24 | Prospectus dated February 18, 2022 |
To avoid being subject to the “straddle rules” under
federal income tax law, the Fund intends to generally limit the overlap between its stock holdings (and any subset thereof) and each index
on which it has outstanding options positions to less than 70% on an ongoing basis. Under the “straddle rules,” “offsetting
positions with respect to personal property” generally are considered to be straddles. In general, investment positions will be
offsetting if there is a substantial diminution in the risk of loss from holding one position by reason of holding one or more other positions.
The Fund expects that the index call options it writes will not be considered straddles because its
stock holdings will be sufficiently dissimilar from the components of each index on which it has open call options positions under applicable
guidance established by the IRS. Under certain circumstances, however, the Fund may enter into options transactions or certain other investments
that may constitute positions in a straddle. In addition, in keeping with the Fund's strategy, described
below, of selling index call options and purchasing index put options that qualify for treatment as Section 1256 contracts under the Code
on which capital gains and losses are generally treated as 60% long-term and 40% short-term, regardless of holding period, the Fund may
be limited in the manner in which it writes options on indices based upon foreign stocks. Because many foreign-traded stock index options
do not currently qualify for treatment as Section 1256 contracts under the Code, the Fund generally intends to sell options on broad-based
foreign country and/or regional stock indices that are listed for trading in the United States or which otherwise qualify Section 1256
contracts under the Code. Options on foreign indices that are listed for trading in the United States or which otherwise qualify as Section
1256 contracts under the Code may trade in substantially lower volumes and with substantially wider bid-ask spreads than other options
contracts on the same or similar indices that trade on other markets outside the United States. To implement its options program most
effectively, the Fund may buy and sell index options that do not qualify as Section 1256 contracts under the Code.
The Fund’s index option strategy is designed to produce current
cash flow from option premiums and to moderate the volatility of the Fund’s returns. This index option strategy is of a hedging
nature, and is not designed to speculate on equity market performance. The Adviser believes that the Fund’s index option strategy
moderates the volatility of the Fund’s returns because the option premiums received will help to mitigate the impact of downward
price movements in the stocks held by the Fund, while the Fund’s obligations under index calls written constrains the Fund’s
ability to participate in upward price movements in portfolio stocks.
The Fund expects normally to sell index call options on a portion of
its common stock portfolio value. The Adviser does not intend to sell index call options representing amounts, in the aggregate, greater
than the value of the Fund’s common stock portfolio (i.e., take a “naked” position). The Adviser generally sells index
call options that are exchange-listed and “European style,” meaning that the options may only be exercised on the expiration
date of the option. Exchange-traded index options are typically settled in cash and provide that the holder of the option has the right
to receive an amount of cash determined by the excess of the exercise-settlement value of the index over the exercise price of the option.
The exercise-settlement value is calculated based on opening sales prices of the component index stocks on the option valuation date,
which is the last business day before the expiration date. Generally, the Adviser sells index call options that are slightly “out-of-the-money,”
meaning that option exercise prices generally will be slightly above the current level of the index at the time the options are written.
The Fund may also sell index options that are more substantially “out-of-the-money.” Such options that are more substantially
“out-of-the-money” provide greater potential for the Fund to realize capital appreciation on its portfolio stocks but generally
would pay a lower premium than options that are slightly “out-of-the-money.” The Adviser expects to follow a options strategy
of selling index call options with a remaining maturity of between approximately one and three months and maintaining its short call options
positions until approximately their option valuation date, at which time replacement call option positions with a remaining maturity within
this range are written.
The foregoing policies relating to investments in common stocks and
options writing are the Fund’s primary investment policies. In addition to its primary investment policies, the Fund may invest
to a limited extent in other types of securities and engage in certain other investment practices. In addition to writing index call options,
the Fund may write call options on up to 20% of the value of its total assets on futures contracts based upon broad-based securities indices.
The Fund’s use of such options on index futures would be substantially similar to its use of options directly on indices. The loss
on derivative instruments (other than purchased options) may substantially exceed an investment in these instruments. To seek to protect
against price declines in securities holdings with large accumulated gains, the Fund may use various hedging techniques (such as the purchase
and sale of futures contracts on stocks and stock indices and options thereon, equity swaps, covered short sales, forward sales of stocks
and the purchase and sale of forward currency exchange contracts and currency futures).
Tax-Managed
Investing. Taxes are a major influence on the net after-tax returns that investors receive on their taxable investments. In
implementing the Fund’s investment strategy, the Adviser employs a variety of techniques and strategies designed to minimize and
defer the federal income taxes incurred by Common Shareholders in connection with their investment in the Fund. These currently include,
without limitation: (1) investing in stocks that pay dividends that qualify for federal income taxation at rates applicable to long-term
capital gains and complying with the holding period and other requirements for favorable tax treatment; (2) selling index call options
that qualify for treatment as Section 1256 contracts under the Code, on which capital gains and losses are generally treated as 60% long-term
and 40% short-term, regardless of holding period; (3) limiting the overlap between the Fund’s stock holdings (and any subset thereof)
and each index on which it has outstanding options positions to less than 70% on an ongoing basis so that the Fund’s stock holdings
and index call options are not subject to the “straddle rules;” (4) engaging in a systematic program of tax-loss harvesting
in the Fund’s stock portfolio, periodically selling stock positions that have depreciated in value to realize capital losses that can be used to offset capital gains realized by the Fund;
and (5) managing the sale of appreciated stock positions so as to minimize the Fund’s net realized short-term capital gains in excess
of net realized long-term capital losses. When an appreciated security is sold, the Fund intends to select for sale the share lots resulting
in the most favorable tax treatment, generally those with holding periods sufficient to qualify for long-term capital gains treatment
that have the highest cost basis. However, the Fund’s investment program and the tax treatment of
Fund distributions may be affected by IRS interpretations of the Code and future changes in tax laws and regulations.
Eaton Vance Tax-Managed Diversified Equity Income Fund | 25 | Prospectus dated February 18, 2022 |
Common Stocks.
Under normal market conditions, the Fund’s investment program consists of owning a diversified portfolio of common stocks. Common
stock represents an equity ownership interest in the issuing corporation. Holders of common stock generally have voting rights in the
issuer and are entitled to receive common stock dividends when, as and if declared by the corporation’s board of directors. Common
stock normally occupies the most subordinated position in an issuer’s capital structure. Returns on common stock investments consist
of any dividends received plus the amount of appreciation or depreciation in the value of the stock.
Although common stocks have historically generated higher average returns
than fixed-income securities over the long term and particularly during periods of high or rising concerns about inflation, common stocks
also have experienced significantly more volatility in returns and may not maintain their real value during inflationary periods. An adverse
event, such as an unfavorable earnings report, may depress the value of a particular common stock held by the Fund. Also, the prices of
common stocks are sensitive to general movements in the stock market and a drop in the stock market may depress the price of common stocks
to which the Fund has exposure. Common stock prices fluctuate for many reasons, including changes in investors’ perceptions of the
financial condition of an issuer or the general condition of the relevant stock market, or when political or economic events affecting
the issuer occur. In addition, common stock prices may be sensitive to rising interest rates as the costs of capital rise and borrowing
costs increase.
Foreign Securities.
The value of foreign securities is affected by changes in currency rates, foreign tax laws (including withholding tax), government policies
(in this country or abroad), relations between nations and trading, settlement, custodial and other operational risks. In addition, the
costs of investing abroad are generally higher than in the United States, and foreign securities markets may be less liquid, more volatile
and less subject to governmental supervision than markets in the United States. Foreign investments also could be affected by other factors
not present in the United States, including expropriation, armed conflict, confiscatory taxation, lack of uniform accounting and auditing
standards, less publicly available financial and other information and potential difficulties in enforcing contractual obligations. As
an alternative to holding foreign-traded securities, the Fund may invest in dollar-denominated securities of foreign companies that trade
on U.S. exchanges or in the U.S. over-the-counter market (including depositary receipts, which evidence ownership in underlying foreign
securities). Dividends received with respect to stock of a foreign corporation may qualify for the reduced rates of federal income taxation
applicable to qualified dividend income only if such corporation satisfies the requirements to be a “qualified foreign corporation.”
Because foreign companies may not be subject to accounting, auditing
and financial reporting standards, practices and requirements comparable to those applicable to U.S. companies, there may be less or less
reliable publicly available information about a foreign company than about a domestic company. There is generally less government supervision
and regulation of securities exchanges, broker-dealers and listed companies than in the United States. Mail service between the United
States and foreign countries may be slower or less reliable than within the United States, thus increasing the risk of delayed settlements
of portfolio transactions or loss of certificates for portfolio securities. Payment for securities before delivery may be required. In
addition, with respect to certain foreign countries, there is the possibility of expropriation or confiscatory taxation, political or
social instability, or diplomatic developments, which could affect investments in those countries. Moreover, individual foreign economies
may differ favorably or unfavorably from the U.S. economy in such respects as growth of gross national product, rate of inflation, capital
reinvestment, resource self-sufficiency and balance of payments position. 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.
The Fund may invest in ADRs, EDRs and GDRs, which are certificates evidencing
ownership of shares of foreign issuers and are alternatives to purchasing directly the underlying foreign securities in their national
markets and currencies. However, they continue to be subject to many of the risks associated with investing directly in foreign securities.
These risks include foreign exchange risk as well as the political and economic risks of the underlying issuer’s country. ADRs,
EDRs and GDRs may be sponsored or unsponsored. Unsponsored receipts are established without the participation of the issuer. Unsponsored
receipts may involve higher expenses, they may not pass through voting or other shareholder rights, and may be less liquid than sponsored
receipts.
Eaton Vance Tax-Managed Diversified Equity Income Fund | 26 | Prospectus dated February 18, 2022 |
Emerging Markets. The risks of foreign investments described
above apply to an even greater extent to investments in emerging markets. The securities markets of emerging market countries are generally
smaller, less developed, less liquid and more volatile than the securities markets of the United States and developed foreign markets.
Disclosure and regulatory standards in many respects are less stringent than in the United States and developed foreign markets. There
also may be a lower level of monitoring and regulation of securities markets in emerging market countries, and enforcement of existing
regulations may be limited. Many emerging market countries have experienced substantial, and in some periods extremely high, rates of
inflation for many years. Inflation and rapid fluctuations in inflation rates have had and may continue to have very negative effects
on the economies and securities markets of certain emerging market countries. Economies in emerging markets generally are heavily dependent
upon international trade and, accordingly, have been and may continue to be affected adversely by trade barriers, exchange controls,
managed adjustments in relative currency values, and other protectionist measures imposed or negotiated by the countries with which they
trade. The economies of these countries also have been and may continue to be adversely affected by economic conditions in the countries
in which they trade. The economies of countries with emerging markets may also be predominantly based on only a few industries or dependent
on revenues from particular commodities. In addition, custodial services and other costs relating to investment in foreign markets may
be more expensive in emerging markets than in many developed foreign markets, which could reduce the Fund’s income from such securities.
Index Options
Generally. The Fund will pursue its objectives in part by writing (selling) stock index call options with respect to a portion
of its common stock portfolio value. The Fund generally sells index options that are exchange-listed and “European style,”
meaning that the options may be exercised only on the expiration date of the option. Index options differ from options on individual securities
in that index options (i) typically are settled in cash rather than by delivery of securities (meaning the exercise of an index option
does not involve the actual purchase or sale of securities) and (ii) reflect price fluctuations in a group of securities or segments of
the securities market rather than price fluctuations in a single security.
United States listed options contracts are originated and standardized
by the Options Clearing Corporation (the “OCC”). Currently, United States listed index options are available on approximately
144 indexes, with new listings added periodically. In the United States, the Fund generally sells index call options that are issued,
guaranteed and cleared by the OCC. The Fund may also sell index call options in the United States and outside the United States that are
not issued, guaranteed or cleared by the OCC. The Adviser believes that there exists sufficient liquidity in the index options markets
to fulfill the Fund’s requirements to implement its strategy.
Selling Index
Call Options. The Fund’s index option strategy is designed to produce current cash flow from options premiums and to
moderate the volatility of the Fund’s returns. This index option strategy is of a hedging nature, and is not designed to speculate
on equity market performance.
As the seller of index call options, the Fund will receive cash (the
premium) from the purchasers thereof. The purchaser of an index option has the right to any appreciation in the value of the applicable
index over a fixed price (the exercise price) as of a specified date in the future (the option valuation date). Generally, the Fund sells
index call options that are slightly “out-of-the-money” (i.e., the exercise price generally will be slightly above the current
level of the applicable index when the option is sold). The Fund may also sell index options that are more substantially “out-of-the-money.”
Such options that are more substantially “out-of-the-money” provide greater potential for the Fund to realize capital appreciation
on its portfolio stocks but generally would pay a lower premium than options that are slightly “out-of-the-money.” When it
writes index call options, the Fund will, in effect, sell the potential appreciation in the value of the applicable index above the exercise
price in exchange for the option premium received. If, at expiration, an index call option sold by the Fund is exercised, the Fund will
pay the purchaser the difference between the cash value of the applicable index and the exercise price of the option. The premium, the
exercise price and the market value of the applicable index will determine the gain or loss realized by the Fund as the seller of the
index call option.
Prior to expiration, the Fund may close an option position by making
an offsetting market purchase of identical option contracts (same type, underlying index, exercise price and expiration). The cost of
closing transactions and payments in settlement of exercised options will reduce the net option premiums available for distribution to
Common Shareholders by the Fund. The reduction in net option premiums due to a rise in stock prices should generally be offset, at least
in part, by appreciation in the value of common stocks held and by the opportunity to realize higher premium income from selling new index
options at higher exercise prices.
In certain extraordinary market circumstances, to limit the risk of
loss on the Fund’s index option strategy, the Fund may enter into “spread” transactions by purchasing index call options
with higher exercise prices than those of index call options written. The Fund will only engage in such transactions when Eaton Vance
believes that certain extraordinary events temporarily have depressed equity prices and substantial short-term appreciation of such prices
is expected. By engaging in spread transactions in such circumstances the Fund will reduce the limitation imposed on its ability to participate
in such recovering equity markets that exist if the Fund only writes index call options. The premiums paid to purchase such call options
are expected to be lower than the premiums earned from the call options written at lower exercise prices. However, the payment of these
premiums will reduce amounts available for distribution from the Fund’s option activity.
Eaton Vance Tax-Managed Diversified Equity Income Fund | 27 | Prospectus dated February 18, 2022 |
The Fund will sell only “covered” call options. Options
may be “covered,” meaning that the party required to deliver the reference instrument if the option is exercised owns that
instrument (or has set aside sufficient assets to meet its obligation to deliver the instrument).
If an option written by the Fund expires unexercised, the Fund realizes
on the expiration date a capital gain equal to the premium received by the Fund at the time the option was written. If an option written
by the Fund is exercised, the Fund realizes on the expiration date a capital gain if the cash payment made by the Fund upon exercise is
less than the premium received from writing the option and a capital loss if the cash payment made is more than the premium received.
If a written option is repurchased, the Fund realizes upon the closing purchase transaction a capital gain if the cost of repurchasing
the option is less than the premium received from writing the option and a capital loss if the cost of repurchasing the option is more
than the premium received.
For written index options that qualify as Section 1256 contracts, the
Fund’s gains and losses thereon generally will be treated as 60% long-term and 40% short-term capital gain or loss, regardless of
holding period. In addition, the Fund generally will be required to “mark to market” (i.e., treat as sold for fair market
value) each outstanding index option position at the close of each taxable year (and on October 31 of each year for excise tax purposes)
and to adjust the amount of gain or loss subsequently realized to reflect the marking to market. Gain or loss on index options not qualifying
as Section 1256 contracts under the Code would be realized upon disposition, lapse or exercise of the positions and would be treated as
short-term gain or loss.
The principal factors affecting the market value of an option contract
include supply and demand in the options market, interest rates, the current market price of the underlying index in relation to the exercise
price of the option, the actual or perceived volatility associated with the underlying index, and the time remaining until the expiration
date. The premium received for an option written by the Fund is recorded as an asset of the Fund and its obligation under the option contract
as an initially equivalent liability. The Fund then adjusts over time the liability as the market value of the option changes. The value
of each written option is marked to market daily and valued at the closing price on the exchange on which it is traded or, if not traded
on an exchange or no closing price is available, at the mean between the last bid and asked prices or otherwise at fair value.
The transaction costs of buying and selling options consist primarily
of commissions (which are imposed in opening, closing and exercise transactions), but may also include margin and interest costs in particular
transactions. The impact of transaction costs on the profitability of a transaction may often be greater for options transactions than
for transactions in the underlying securities because these costs are often greater in relation to option premiums than in relation to
the prices of underlying securities. Transaction costs may be especially significant in option strategies calling for multiple purchases
and sales of options over short periods of time or concurrently. Transaction costs associated with the Fund’s options strategy will
vary depending on market circumstances and other factors.
Writing index call options can lower the variability of potential return
outcomes and can enhance returns in three of four market performance scenarios (down, flat or moderately up). Only when the level of the
index at option expiration exceeds the sum of the premium received and the option exercise price would the buy-write strategy be expected
to provide lower returns than the stock portfolio-only alternative. The amount of downside protection afforded by the buy-write strategy
in declining market scenarios is limited, however, to the amount of option premium received. If an index declines by an amount greater
than the option premium, a buy-write strategy consisting of owning all of the stocks in the index and writing index options on the value
thereof would generate an investment loss. The Fund’s returns from implementing a buy-write strategy using index options will also
be substantially affected by the performance of the Fund’s stock portfolio versus the indices on which it writes call options and
by the percentage of portfolio value on which options are written. The returns on the Fund’s portfolio are unlikely to be the same
as the returns on the indices on which it writes options.
ADDITIONAL INVESTMENT PRACTICES
In addition to its primary investment strategies as described above,
the Fund may engage in the following investment practices.
Temporary
Investments. During unusual market conditions, the Fund may invest up to 100% of its assets in cash or cash equivalents temporarily,
which may be inconsistent with its investment objectives, principal strategies and other policies. Cash equivalents are highly liquid,
short-term securities such as commercial paper, time deposits, certificates of deposit, short-term notes and short-term United States
government obligations. In moving to a substantial temporary investments position and in transitioning from such a position back into
conformity with the Fund’s normal investment policies, the Fund may incur transaction costs that would not be incurred if the Fund
had remained fully invested in accordance with such normal policies. The transition to and from a substantial temporary investments position
may also result in the Fund having to sell common stocks and/or close out options positions and then later purchase common stocks and
open new options positions in circumstances that might not otherwise be optimal. The Fund’s investment in such temporary investments under unusual market circumstances may not
be in furtherance of the Fund’s investment objectives.
Eaton Vance Tax-Managed Diversified Equity Income Fund | 28 | Prospectus dated February 18, 2022 |
When-Issued
Securities and Forward Commitments. Securities may be purchased on a “forward commitment” or “when-issued”
basis (meaning securities are purchased or sold with payment and delivery taking place in the future) in order to secure what is considered
to be an advantageous price and yield at the time of entering into the transaction. However, the return on a comparable security when
the transaction is consummated may vary from the return on the security at the time that the forward commitment or when-issued transaction
was made. From the time of entering into the transaction until delivery and payment is made at a later date, the transacted securities
are subject to market fluctuations. In forward commitment or when-issued transactions, if the seller or buyer, as the case may be, fails
to consummate the transaction, the counterparty may miss the opportunity of obtaining a price or yield considered to be advantageous.
Forward commitment or when-issued transactions may occur a month or more before delivery is due. However, no payment or delivery is made
until payment is received or delivery is made from the other party to the transaction. The Fund does not intend to enter into forward
commitment or when-issued transactions for the purpose of investment leverage.
Restricted
Securities. Securities held by the Fund may be legally restricted as to resale (such as those issued in private placements),
including commercial paper issued pursuant to Section 4(a)(2) of the 1933 Act and securities eligible for resale pursuant to Rule 144A
thereunder, and securities of U.S. and non-U.S. issuers initially offered and sold outside the United States pursuant to Regulation S
thereunder. Restricted securities may not be listed on an exchange and may have no active trading market. The Fund may incur additional
expense when disposing of restricted securities, including all or a portion of the cost to register the securities. The Fund also may
acquire securities through private placements under which it may agree to contractual restrictions on the resale of such securities that
are in addition to applicable legal restrictions. In addition, if the Adviser receives material non-public information about the issuer,
the Fund may as a result be unable to sell the securities. Restricted securities may be difficult to value properly and may involve greater
risks than securities that are not subject to restrictions on resale. It may be difficult to sell restricted securities at a price representing
fair value until such time as the securities may be sold publicly. Under adverse market or economic conditions or in the event of adverse
changes in the financial condition of the issuer, the Fund could find it more difficult to sell such securities when the Adviser believes
it advisable to do so or may be able to sell such securities only at prices lower than if such securities were more widely held. Holdings
of restricted securities may increase the level of Fund illiquidity if eligible buyers become uninterested in purchasing them. Restricted
securities may involve a high degree of business and financial risk, which may result in substantial losses.
Illiquid
Investments. The Fund may invest up to 15% of its total assets in investments for which there is no readily available trading
market or are otherwise illiquid. It may be difficult to sell illiquid investments at a price representing their fair value until
such time as such investments may be sold publicly. Where registration is required, a considerable period may elapse between a decision
by the Fund to sell such investments and the time when it would be permitted to sell. Thus, the Fund may not be able to obtain as favorable
a price as that prevailing at the time of the decision to sell. The Fund may also acquire investments through private placements under
which it may agree to contractual restrictions on the resale of such investments. Such restrictions might prevent their sale at a time
when such sale would otherwise be desirable.
At times, a portion of the Fund’s assets may be invested in investments
as to which the Fund, by itself or together with other accounts managed by the Adviser and its affiliates, holds a major portion or all
of such investments. Under adverse market or economic conditions or in the event of adverse changes in the financial condition of the
issuer, the Fund could find it more difficult to sell such investments when the Adviser believes it advisable to do so or may be able
to sell such investments only at prices lower than if such investments were more widely held. It may also be more difficult to determine
the fair value of such investments for purposes of computing the Fund’s net asset value.
Other Derivative
Instruments. In addition to the intended strategy of writing index call options, the Fund may also invest in other derivative
instruments for hedging, risk management and investment purposes (to gain exposure to securities, securities markets, market indices and/or
currencies consistent with its investment objectives and policies. These strategies may be executed through the use of derivative contracts
in the United States or abroad. In the course of pursuing these investment strategies, the Fund may purchase and sell derivatives including
futures contracts on securities, non-equity indices and currencies, options on futures contracts, equity and interest rate swaps, covered
short sales, forward sales of stocks, and forward currency exchange contracts. In addition, derivatives may also include new techniques,
instruments or strategies that are not currently available. Derivative instruments may be used by the Fund to enhance returns or as a
substitute for the purchase or sale of securities. The Fund may invest in derivatives without limitation and use of derivatives may be
extensive. The loss on derivative instruments (other than purchased options) may substantially exceed an investment in these instruments.
Eaton Vance Tax-Managed Diversified Equity Income Fund | 29 | Prospectus dated February 18, 2022 |
Swaps.
Swap contracts may be purchased or sold to hedge against fluctuations in securities prices, interest rates or market conditions, to mitigate
non-payment or default risk or to gain exposure to particular securities, baskets of securities, indices or currencies. In a standard
“swap” transaction, two parties agree to exchange the returns (or differentials in rates of return) on different currencies,
securities, baskets of currencies or securities, indices or other instruments, which returns are calculated with respect to a “notional
amount,” i.e., the designated referenced amount of exposure to the underlying instruments. The Fund will enter into swaps only on
a net basis, i.e., the two payment streams are netted out, with the Fund receiving or paying, as the case may be, only the net amount
of the two payments. If the other party to a swap defaults, the Fund’s risk of loss consists of the net amount of payments that
the Fund is contractually entitled to receive. The net amount of the excess, if any, of the Fund’s obligations over its entitlements
are maintained in a segregated account by the Fund’s custodian. The Fund will not enter into any swap unless the claims-paying ability
of the other party thereto is considered to be investment grade by the Adviser. If there is a default by the other party to such a transaction,
the Fund will have contractual remedies pursuant to the agreements related to the transaction. Swaps are traded in the over-the-counter
market. The use of swaps is a highly specialized activity, which involves investment techniques and risks different from those associated
with ordinary portfolio securities transactions. If the Adviser is incorrect in its forecasts of market values, interest rates and other
applicable factors, the total return performance of the Fund would be unfavorably affected.
Total Return
Swaps. Total return swaps are contracts in which one party agrees to make payments of the total return from the designated
underlying asset(s), which may include securities, baskets of securities, or securities indices during the specified period, in return
for payments equal to a fixed or floating rate of interest or the total return from other designated underlying asset(s).
Interest
Rate Swaps. Interest rate swaps involve the exchange by the Fund with another party of their respective commitments to pay
or receive interest (e.g., an exchange of fixed rate payments for floating rate payments).
Futures and
Options on Futures. The Fund may purchase and sell various kinds of financial futures contracts and options thereon to seek
to hedge against changes in stock prices or interest rates, for other risk management purposes or to gain exposure to certain securities,
indices and currencies. Futures contracts may be based on various securities indices and securities. Such transactions involve a risk
of loss or depreciation due to adverse changes in securities prices, which may exceed the Fund’s initial investment in these contracts.
The Fund will only purchase or sell futures contracts or related options in compliance with the rules of the Commodity Futures Trading
Commission. These transactions involve transaction costs. Sales of futures contracts and related options generally result in realization
of short-term or long-term capital gain depending on the period for which the investment is held. To the extent that any futures contract
or options on futures contract held by the Fund is a Section 1256 contract under the Code, the contract will be marked-to-market annually
and any gain or loss will be treated as 60% long-term and 40% short-term, regardless of the holding period for such contract.
Short Sales.
The Fund may sell a security short if it owns at least an equal amount of the security sold short or another security convertible or exchangeable
for an equal amount of the security sold short without payment of further compensation (a short sale against-the-box). In a short sale
against-the-box, the short seller is exposed to the risk of being forced to deliver stock that it holds to close the position if the borrowed
stock is called in by the lender, which would cause gain or loss to be recognized on the delivered stock. The Fund expects normally to
close its short sales against-the-box by delivering newly acquired stock.
Short sales against-the-box can be a tax-efficient alternative to the
sale of an appreciated securities position. The ability to use short sales against-the-box as a tax-efficient management technique with
respect to holdings of appreciated securities is limited to circumstances in which the hedging transaction is closed out not later than
thirty days after the end of the Fund’s taxable year in which the transaction was initiated, and the underlying appreciated securities
position is held unhedged for at least the next sixty days after the hedging transaction is closed. Not meeting these requirements would
trigger the recognition of gain on the underlying appreciated securities position under the federal tax laws applicable to constructive
sales.
Securities
Lending. The Fund may seek to earn income by lending portfolio securities to broker-dealers or other institutional borrowers.
As with other extensions of credit, there are risks of delay in recovery or even loss of rights in the securities loaned if the borrower
of the securities fails financially. Loans are made only to organizations whose credit quality or claims paying ability is considered
by the Adviser to be at least investment grade and when the expected return, net of administrative expenses and any finders’ fees,
justifies the attendant risk. Securities loans currently are required to be secured continuously by collateral in cash, cash equivalents
(such as money market instruments) or other liquid securities held by the custodian and maintained in an amount at least equal to the
market value of the securities loaned. The financial condition of the borrower is monitored by the Adviser on an ongoing basis.
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Borrowings.
The Fund may borrow money to the extent permitted under the 1940 Act as interpreted, modified or otherwise permitted by the regulatory
authority having jurisdiction. Although it does not currently intend to do so, the Fund may in the future from time to time borrow money
to add leverage to the portfolio. The Fund may also borrow money for temporary administrative purposes or to meet temporary cash needs.
Reverse Repurchase
Agreements. The Fund may enter into reverse repurchase agreements. Under a reverse repurchase agreement, the Fund temporarily
transfers possession of a portfolio instrument to another party, such as a bank or broker-dealer, in return for cash. At the same time,
the Fund agrees to repurchase the instrument at an agreed upon time and price, which reflects an interest payment. The Fund may enter
into such agreements when it is able to invest the cash acquired at a rate higher than the cost of the agreement, which would increase
earned income. Income realized on reverse repurchase agreements is taxable as ordinary income.
When the Fund enters into a reverse repurchase agreement, any fluctuations
in the market value of either the securities transferred to another party or the securities in which the proceeds may be invested would
affect the market value of the Fund’s assets. As a result, such transactions may increase fluctuations in the market value of the
Fund’s assets. There is a risk that large fluctuations in the market value of the Fund’s assets could affect NAV and the market
price of Common Shares. Because reverse repurchase agreements may be considered to be the practical equivalent of borrowing funds, they
constitute a form of leverage and may be subject to leverage risks. Such agreements are treated as subject to investment restrictions
as mentioned above under “Borrowings.” If the Fund reinvests the proceeds of a reverse repurchase agreement at a rate lower
than the cost of the agreement, entering into the agreement will lower the Fund’s cash available for distribution.
Research
Process. The Fund’s portfolio management utilizes the information provided by, and the expertise of, the research staff
of the investment adviser and its affiliates in making investment decisions. As part of the research process, portfolio management may
consider financially material environmental, social and governance (“ESG”) factors. Such factors, alongside other relevant
factors, may be taken into account in the Fund’s securities selection process.
Portfolio
Turnover. The Fund cannot accurately predict its portfolio turnover rate, but the annual turnover rate may exceed 100% (excluding
turnover of securities having a maturity of one year or less). A high turnover rate (100% or more) necessarily involves greater expenses
to the Fund. The portfolio turnover rate(s) for the Fund for the fiscal years ended October 31, 2021 and 2020 were 36% and 40%, respectively.
RISK CONSIDERATIONS
Risk is inherent in all investing. Investing in any investment company
security involves risk, including the risk that you may receive little or no return on your investment or even that you may lose part
or all of your investment.
Discount
From or Premium to NAV. The Offering is conducted only when Common
Shares of the Fund are trading at a price equal to or above the Fund’s NAV per Common Share plus the per Common Share amount of
commissions. As with any security, the market value of the Common Shares may increase or decrease from the amount initially paid for the
Common Shares. The Fund’s Common Shares have traded both at a premium and at a discount relative to NAV. The shares of closed-end
management investment companies frequently trade at a discount from their NAV. This is a risk separate and distinct from the risk that
the Fund’s NAV may decrease.
Secondary
Market for the Common Shares. The issuance of Common Shares through
the Offering may have an adverse effect on the secondary market for the Common Shares. The increase in the amount of the Fund’s
outstanding Common Shares resulting from the Offering may put downward pressure on the market price for the Common Shares of the Fund.
Common Shares will not be issued pursuant to the Offering at any time when Common Shares are trading at a price lower than a price equal
to the Fund’s NAV per Common Share plus the per Common Share amount of commissions.
The Fund also issues Common Shares of the Fund through its dividend
reinvestment plan. See “Dividend Reinvestment Plan.” Common Shares may be issued under the plan at a discount to the market
price for such Common Shares, which may put downward pressure on the market price for Common Shares of the Fund.
When the Common Shares are trading at a premium, the Fund may also issue
Common Shares of the Fund that are sold through transactions effected on the NYSE. The increase in the amount of the Fund’s outstanding
Common Shares resulting from that offering may also put downward pressure on the market price for the Common Shares of the Fund.
The voting power of current shareholders is diluted to the extent that
such shareholders do not purchase shares in any future Common Share offerings or do not purchase sufficient shares to maintain their percentage
interest. In addition, if the Adviser is unable to invest the proceeds of such offering as intended, the Fund’s per share distribution
may decrease (or may consist of return of capital) and the Fund may not participate in market advances to the same extent as if such proceeds
were fully invested as planned.
Eaton Vance Tax-Managed Diversified Equity Income Fund | 31 | Prospectus dated February 18, 2022 |
Market
Discount Risk. As with any security, the market value of the Common Shares may increase or decrease from the amount initially
paid for the Common Shares. The Fund’s Common Shares have traded both at a premium and at a discount relative to NAV. The shares
of closed-end management investment companies frequently trade at a discount from their NAV. This is a risk separate and distinct from
the risk that the Fund’s NAV may decrease.
Investment
and Market Risk. An investment in Common Shares is subject to investment
risk, including the possible loss of the entire principal amount invested. An investment in Common Shares represents an indirect investment
in the securities owned by the Fund, which are generally traded on a securities exchange or in the over-the-counter markets. The value
of these securities, like other market investments, may move up or down, sometimes rapidly and unpredictably. Because the Fund normally
sells stock index call options on a portion of its common stock portfolio value, the Fund’s appreciation potential from equity market
performance is more limited than if the Fund did not engage in selling stock index call options. The Common Shares at any point in time
may be worth less than the original investment, even after taking into account any reinvestment of distributions.
Market
Risk. The value of investments held by the Fund may increase or decrease in response to economic, political, financial, public
health crises (such as epidemics or pandemics) or other disruptive events (whether real, expected or perceived) in the U.S. and global
markets. These events may negatively impact broad segments of businesses and populations and may exacerbate pre-existing risks to the
Fund. The frequency and magnitude of changes cannot be predicted. Certain securities and other investments held by the Fund may experience
increased volatility, illiquidity, or other potentially adverse effects in reaction to changing market conditions. Actions taken by the
U.S. Federal Reserve or foreign central banks to stimulate or stabilize economic growth, such as decreases or increases in short-term
interest rates, could cause high volatility in markets. Monetary and/or fiscal actions taken by U.S. or foreign governments to stimulate
or stabilize the global economy may not be effective and could lead to high market volatility. No active trading market may exist for
certain investments, which may impair the ability of the Fund to sell or to realize the current valuation of such investments in the event
of the need to liquidate such assets. Fixed-income markets may experience periods of relatively high volatility in an environment where
U.S. treasury yields are rising.
Issuer Risk. The value of securities held by the Fund may decline
for a number of reasons that directly relate to the issuer, such as management performance, financial leverage and reduced demand for
the issuer’s goods and services.
Equity
Risk. Under normal market conditions, the Fund’s investment
program consists of owning a diversified portfolio of common stocks. Therefore, a principal risk of investing in the Fund is equity risk.
Equity risk is the risk that the value of equity securities and related instruments may decline in response to adverse changes in the
economy or the economic outlook; deterioration in investor sentiment; interest rate, currency, and commodity price fluctuations; adverse
geopolitical, social or environmental developments; issuer- and sector-specific considerations; unexpected trading activity among retail
investors; and other factors. Market conditions may affect certain types of stocks to a greater extent than other types of stocks. If
the stock market declines, the value of Fund shares will also likely decline. Although stock prices can rebound, there is no assurance
that values will return to previous levels. An adverse event, such as an unfavorable earnings report, may depress the value of equity
securities of an issuer held by the Fund; the price of common stock of an issuer may be particularly sensitive to general movements in
the stock market; or a drop in the stock market may depress the price of most or all of the common stocks held by the Fund. In addition,
common stock of an issuer in the Fund’s portfolio may decline in price if the issuer reduces or eliminates its dividend or fails
to make anticipated dividend increases. Common stocks in which the Fund invests are structurally subordinated to preferred stocks, bonds
and other debt instruments in a company’s capital structure, in terms of priority to corporate income, and therefore will be subject
to greater dividend risk than preferred stocks or debt instruments of such issuers. Finally, common stock prices may be sensitive to rising
interest rates, as the costs of capital rise and borrowing costs increase.
Risks of
Investing in Smaller and Mid-Sized Companies. The Fund may make
investments in stocks of companies whose market capitalization is considered middle sized or “mid-cap.” Smaller and mid-sized
companies often are newer or less established companies than larger capitalization companies. Investments in smaller and mid-sized companies
carry additional risks because earnings of these companies tend to be less predictable; they often have limited product lines, markets,
distribution channels or financial resources; and the management of such companies may be dependent upon one or a few key people. The
market movements of equity securities of smaller and mid-sized companies may be more abrupt or erratic than the market movements of equity
securities of larger, more established companies or the stock market in general. Historically, smaller and mid-sized companies have sometimes
gone through extended periods when they did not perform as well as larger companies. In addition, equity securities of smaller and mid-sized
companies generally are less liquid than those of larger companies. This means that the Fund could have greater difficulty selling such
securities at the time and price that the Fund would like.
Eaton Vance Tax-Managed Diversified Equity Income Fund | 32 | Prospectus dated February 18, 2022 |
Risk of
Selling Index Call Options. Under normal market conditions, a portion
of the Fund’s common stock portfolio value is subject to written index call options. The purchaser of an index call option has the
right to any appreciation in the value of the index over the exercise price of the call option as of the valuation date of the option.
Because their exercise is settled in cash, sellers of index call options such as the Fund cannot provide in advance for their potential
settlement obligations by acquiring and holding the underlying securities. The Fund intends to mitigate the risks of its options activities
by writing options on one or more broad-based stock indices that the Adviser believes collectively approximate the characteristics of
the Fund’s common stock portfolio (or that portion of its portfolio against which options are written). The Fund will not, however,
hold stocks that fully replicate the indices on which it writes call options. Due to tax considerations, the Fund intends to generally
limit the overlap between its stock holdings (and any subset thereof) and each index on which it has outstanding options positions to
less than 70% on an ongoing basis. The Fund’s stock holdings will normally include stocks not included in the indices on which it
writes call options. Consequently, the Fund bears the risk that the performance of its stock portfolio will vary from the performance
of the indices on which it writes call options. For example, with respect to the portion of its stock portfolio against which S&P
500® index call options have been
written, the Fund will suffer a loss if the S&P 500®
appreciates above the exercise price of the options written while the associated securities held by the Fund fail to appreciate as much
or decline in value over the life of the written option. Index options written by the Fund is priced on a daily basis. Their value is
affected primarily by changes in the prices and dividend rates of the underlying common stocks in such index, changes in actual or perceived
volatility of such index and the remaining time to the options’ expiration. The trading price of index call options will also be
affected by liquidity considerations and the balance of purchase and sale orders.
A decision as to whether, when and how to use options involves the exercise
of skill and judgment, and even a well-conceived and well-executed options program may be adversely affected by market behavior or unexpected
events. As the writer of index call options, the Fund will forgo, during the option’s life, the opportunity to profit from increases
in the value of the applicable index above the sum of the option premium received and the exercise price of the call option, but retains
the risk of loss, minus the option premium received, should the value of the applicable index decline. When a call option is exercised,
the Fund is required to deliver an amount of cash determined by the excess of the value of the applicable index at contract termination
over the exercise price of the option. Thus, the exercise of index call options sold by the Fund may require the Fund to sell portfolio
securities to generate cash at inopportune times or for unattractive prices.
To the extent that the Fund writes options on indices based upon foreign
stocks, the Fund generally sells options on broad-based foreign country and/or regional stock indices that are listed for trading in the
United States or which otherwise qualify as Section 1256 contracts under the Code. Options on foreign indices that are listed for trading
in the United States or which otherwise qualify as Section 1256 contracts under the Code may trade in substantially lower volumes and
with substantially wider bid-ask spreads than other options contracts on the same or similar indices that trade on other markets outside
the United States. To implement its options program most effectively, the Fund may sell index options that do not qualify as Section 1256
contracts under the Code. Gain or loss on index options not qualifying as Section 1256 contracts under the Code would be realized upon
disposition, lapse or settlement of the positions and would be treated as short-term gain or loss.
The trading price of options may be adversely affected if the market
for such options becomes less liquid or smaller. The Fund may close out a call option by buying the option instead of letting it expire
or be exercised. There can be no assurance that a liquid market will exist when the Fund seeks to close out a call option position by
buying the option. Reasons for the absence of a liquid secondary market on an exchange include the following: (i) there may be insufficient
trading interest in certain options; (ii) restrictions may be imposed by an exchange on opening transactions or closing transactions or
both; (iii) trading halts, suspensions or other restrictions may be imposed with respect to particular classes or series of options; (iv)
unusual or unforeseen circumstances may interrupt normal operations on an exchange; (v) the facilities of an exchange or the Options Clearing
Corporation (the “OCC”) may not at all times be adequate to handle current trading volume; or (vi) one or more exchanges could,
for economic or other reasons, decide or be compelled to discontinue the trading of options (or a particular class or series of options)
at some future date. If trading were discontinued, the secondary market on that exchange (or in that class or series of options) would
cease to exist. However, outstanding options on that exchange that had been issued by the OCC as a result of trades on that exchange would
continue to be exercisable in accordance with their terms.
The hours of trading for options may not conform to the hours during
which common stocks held by the Fund are traded. To the extent that the options markets close before the markets for securities, significant
price and rate movements can take place in the securities markets that would not be reflected concurrently in the options markets. Index
call options are marked to market daily and their value is affected by changes in the value and dividend rates of the securities represented
in the underlying index, changes in interest rates, changes in the actual or perceived volatility of the associated index and the remaining
time to the options’ expiration, as well as trading conditions in the options market.
Eaton Vance Tax-Managed Diversified Equity Income Fund | 33 | Prospectus dated February 18, 2022 |
Tax Risk.
Reference is made to “Federal Income Tax Matters” for an explanation of the federal income tax consequences and attendant
risks of investing in the Fund. Although the Fund seeks to minimize and defer the federal income taxes incurred by Common Shareholders
in connection with their investment in the Fund, there can be no assurance that it will be successful in this regard. The tax treatment
and characterization of the Fund’s distributions may change over time due to changes in the Fund’s mix of investment returns
and changes in the federal tax laws, regulations and administrative and judicial interpretations, potentially with retroactive effect.
The Fund’s investment program and the tax treatment of Fund distributions may be affected by IRS interpretations of the Code and
future changes in tax laws and regulations. As described more fully under “Federal Income Tax Matters.”, while the Fund generally
intends to use a variety of techniques and strategies designed to minimize and defer the federal income taxes incurred by Common Shareholders
in connection with their investment in the Fund, certain of the Fund’s investment practices are subject to complex federal income
tax provisions that may, among other things, cause Common Shareholders to pay more tax than they otherwise would have, or to accelerate
Common Shareholders’ recognition of taxable income or gains.
Foreign Security
Risk. The value of foreign securities is affected by changes in currency rates, foreign tax laws (including withholding tax),
government policies (in this country or abroad), relations between nations and trading, settlement, custodial and other operational risks.
In addition, the costs of investing abroad (such as foreign brokerage costs, custodial expenses and other fees) are generally higher than
in the United States, and foreign securities markets may be less liquid, more volatile and less subject to governmental supervision than
markets in the United States. Foreign investments also could be affected by other factors not present in the United States, including
expropriation of assets, armed conflict, confiscatory taxation, lack of uniform accounting and auditing standards, less publicly available
financial and other information and potential difficulties in enforcing contractual obligations or repatriating capital invested in foreign
countries, and the imposition of economic sanctions. Settlements of securities transactions in foreign countries are subject to risk of
loss, may be delayed and are generally less frequent than in the United States, which could affect the liquidity of the Fund’s assets.
As an alternative to holding foreign-traded securities, the Fund may invest in dollar-denominated securities of foreign companies that
trade on United States exchanges or in the United States over-the-counter market (including depositary receipts, which evidence ownership
in underlying foreign securities). Since the Fund may invest in securities denominated or quoted in currencies other than the United States
dollar, the Fund may be affected by changes in foreign currency exchange rates (and exchange control regulations) which affect the value
of investments held by the Fund and the accrued income and appreciation or depreciation of the investments in United States dollars. Changes
in foreign currency exchange rates relative to the United States dollar will affect the United States dollar value of the Fund’s
assets denominated in that currency and the Fund’s return on such assets as well as any temporary uninvested reserves in bank deposits
in foreign currencies. In addition, the Fund will incur costs in connection with conversions between various currencies. Foreign securities
may not be eligible for the reduced rate of taxation applicable to qualified dividend income.
Because foreign companies may not be subject to accounting, auditing
and financial reporting standards, practices and requirements comparable to those applicable to United States companies, there may be
less or less reliable publicly available information about a foreign company than about a domestic company. There is generally less government
supervision and regulation of securities exchanges, broker-dealers and listed companies than in the United States. Mail service between
the United States and foreign countries may be slower or less reliable than within the United States, thus increasing the risk of delayed
settlements of portfolio transactions for, or loss of certificates of, portfolio securities. Payment for securities before delivery may
be required. In addition, with respect to certain foreign countries, there is the possibility of expropriation or confiscatory taxation,
political or social instability, or diplomatic developments that could adversely affect investments in those countries. Moreover, individual
foreign economies may differ favorably or unfavorably from the United States economy in such respects as growth of gross national product,
rate of inflation, capital reinvestment, resource self-sufficiency and balance of payments position. 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 United States
companies. The risks of foreign investments described above apply to an even greater extent to investments in emerging markets.
Political events in foreign countries may cause market disruptions.
In June 2016, the United Kingdom (“UK”) voted in a referendum to leave the European Union (“EU”) (“Brexit”).
Effective January 31, 2020, the UK ceased to be a member of the EU and, following a transition period during which the EU and the UK
Government engaged in a series of negotiations regarding the terms of the UK’s future relationship with the EU, the EU and the
UK Government signed an agreement on December 30, 2020 regarding the economic relationship between the UK and the EU. This agreement
became effective on a provisional basis on January 1, 2021 and entered into full force on May 1, 2021. There remains significant market
uncertainty regarding Brexit’s ramifications, and the range and potential implications of the possible political, regulatory, economic,
and market outcomes in the UK, EU and beyond are difficult to predict. The end of the Brexit transition period may cause greater market
volatility and illiquidity, currency fluctuations, deterioration in economic activity, a decrease in business confidence, and an increased
likelihood of a recession in the UK. If one or more additional countries leave the EU or the EU dissolves, the world’s securities
markets likely will be significantly disrupted.
Eaton Vance Tax-Managed Diversified Equity Income Fund | 34 | Prospectus dated February 18, 2022 |
Emerging
Market Security Risk. The risks of foreign investments described above apply to an even greater extent to investments in emerging
markets. The securities markets of emerging countries are generally smaller, less developed, less liquid, and more volatile than the securities
markets of the United States and developed foreign markets. Disclosure and regulatory standards in many respects are less stringent than
in the United States and developed foreign markets. There also may be a lower level of monitoring and regulation of securities markets
in emerging market countries and the activities of investors in such markets and enforcement of existing regulations may be limited. Many
emerging countries have experienced substantial, and in some periods extremely high, rates of inflation for many years. Inflation and
rapid fluctuations in inflation rates have had and may continue to have very negative effects on the economies and securities markets
of certain emerging countries. Economies in emerging markets generally are heavily dependent upon international trade and, accordingly,
have been and may continue to be affected adversely by trade barriers, exchange controls, managed adjustments in relative currency values,
and other protectionist measures imposed or negotiated by the countries with which they trade. The economies of these countries also have
been and may continue to be adversely affected by economic conditions in the countries in which they trade. The economies of countries
with emerging markets may also be predominantly based on only a few industries or dependent on revenues from particular commodities. In
addition, custodial services and other costs relating to investment in foreign markets may be more expensive in emerging markets than
in many developed foreign markets, which could reduce the Fund’s income from such securities.
In many cases, governments of emerging countries continue to exercise
significant control over their economies, and government actions relative to the economy, as well as economic developments generally,
may affect the Fund’s investments in those countries. In addition, there is a heightened possibility of expropriation or confiscatory
taxation, imposition of withholding taxes on dividend and interest payments, or other similar developments that could affect investments
in those countries. There can be no assurance that adverse political changes will not cause the Fund to suffer a loss of any or all of
its investments.
Foreign Currency
Transactions Risk. The value of foreign assets as measured in U.S.
dollars may be affected favorably or unfavorably by changes in foreign currency rates and exchange control regulations. Currency exchange
rates can also be affected unpredictably by intervention by U.S. or foreign governments or central banks, or the failure to intervene,
or by currency controls or political developments in the United States or abroad. The Fund may (but is not required to) engage in transactions
to hedge against changes in foreign currencies, and will use such hedging techniques when the Adviser deems appropriate. Foreign currency
exchange transactions may be conducted on a spot (i.e., cash) basis at the rate currently prevailing in the foreign currency exchange
market, or through entering into derivative currency transactions. Currency futures contracts are exchange-traded instruments similar
in structure to futures contracts on stocks and stock indices, but change in value to reflect the movements of a currency or basket of
currencies rather than a stock or stock index. Settlement is made in a designated currency. Changes in foreign currency exchange rates
relative to the U.S. dollar will affect the U.S. dollar value of the Fund’s assets denominated in that currency and the Fund’s
return on such assets as well as any temporary uninvested reserves in bank deposits in foreign currencies. In addition, the Fund will
incur costs in connection with conversions between various currencies.
The Fund may attempt to protect against adverse changes in the value
of the U.S. dollar in relation to a foreign currency by entering into a forward contract for the purchase or sale of the amount of foreign
currency invested or to be invested, or by buying or selling a foreign currency option or futures contract for such amount. Such strategies
may be employed before the Fund purchases a foreign security traded in the currency which the Fund anticipates acquiring or between the
date the foreign security is purchased or sold and the date on which payment therefor is made or received. Seeking to protect against
a change in the value of a foreign currency in the foregoing manner does not eliminate fluctuations in the prices of portfolio securities
or prevent losses if the prices of such securities decline. Furthermore, such transactions reduce or preclude the opportunity for gain
if the value of the currency should move in the direction opposite to the position taken. Adverse movements in hedged currencies may result
in poorer overall performance for the Fund than if it had not entered into such contracts. Forward foreign currency exchange contracts
are individually negotiated and privately traded contracts between currency traders and their customers. Such contracts may be used by
the Fund when a security denominated in a foreign currency is purchased or sold, or when the receipt in a foreign currency of dividend
or interest payments on such a security is anticipated. A forward contract can “lock in” the U.S. dollar price of the security
or the U.S. dollar equivalent of such dividend or interest payment, as the case may be. Additionally, when the Adviser believes that the
currency of a particular foreign country may suffer a substantial decline against the U.S. dollar, it may enter into a forward contract
to sell, for a fixed amount of dollars, the amount of foreign currency approximating the value of some or all of the securities held that
are denominated in such foreign currency. The precise matching of the forward contract amounts and the value of the securities involved
will not generally be possible. In addition, it may not be possible to hedge against long-term currency changes. Cross-hedging may be
performed by using forward contracts in one currency (or basket of currencies) to hedge against fluctuations in the value of securities
denominated in a different currency if the Adviser determines that there is a pattern of correlation
between the two currencies (or the basket of currencies and the underlying currency). Use of a different foreign currency magnifies exposure
to foreign currency exchange rate fluctuations. Forward contracts may also be used to shift exposure to foreign currency exchange rate
changes from one currency to another. Short-term hedging provides a means of fixing the dollar value of only a portion of portfolio assets.
Income or gains earned on any of the Fund’s foreign currency transactions generally will be treated as fully taxable income (i.e.
income other than tax-advantaged dividends).
Eaton Vance Tax-Managed Diversified Equity Income Fund | 35 | Prospectus dated February 18, 2022 |
Currency transactions are dependent upon the creditworthiness of counterparties
and subject to the risk of political and economic factors applicable to the countries issuing the underlying currencies. Furthermore,
unlike trading in most other types of instruments, there is no systematic reporting of last sale information with respect to the foreign
currencies underlying derivative currency transactions. As a result, available information may not be complete. In an over-the-counter
trading environment, there are generally no daily price fluctuation limits. There may be no liquid secondary market to close out positions
entered into until their exercise, expiration or maturity. There is also the risk of default by, or the bankruptcy of, the financial institution
serving as counterparty.
Interest
Rate Risk. The premiums from writing index call options and amounts available for distribution from the Fund’s options
activity may decrease in declining interest rate environments. The value of the Fund’s common stock investments may also be influenced
by changes in interest rates. Higher yielding stocks and stocks of issuers whose businesses are substantially affected by changes in interest
rates may be particularly sensitive to interest rate risk.
Derivatives
Risk. In addition to writing index call options, the risks of which are described above, the Fund may also invest in other
derivative for purposes, such as hedging, to enhance return, or as a substitute for the purchase or sale of securities or currencies.
Other permitted derivatives include futures contracts on securities, non-equity indices and currencies, options on futures contracts,
equity and interest rate swaps, covered short sales, forward sales of stocks, and forward currency exchange contracts. The Fund may invest
in derivatives without limitation and use of derivatives may be extensive. The use of derivatives can lead to losses because of adverse
movements in the price or value of the asset, index, rate or instrument underlying a derivative, due to failure of a counterparty or due
to tax or regulatory constraints. Derivatives may create investment leverage in the Fund, which magnifies the Fund’s exposure to
the underlying investment. Derivative risks may be more significant when they are used to enhance return or as a substitute for a position
or security, rather than solely to hedge the risk of a position or security held by the Fund. Derivatives for hedging purposes may not
reduce risk if they are not sufficiently correlated to the position being hedged. A decision as to whether, when and how to use derivatives
involves the exercise of specialized skill and judgment, and even a well-conceived transaction may be unsuccessful to some degree because
of market behavior or unexpected events. Changes in the value of the derivative may not correlate perfectly with the underlying asset,
rate or index, and the Fund could lose more than the principal amount invested in derivatives. Derivative instruments traded in over-the-counter
markets may be difficult to value, may be illiquid, and may be subject to wide swings in valuation caused by changes in the value of the
underlying instrument. The loss on derivative transactions may substantially exceed the initial investment. As a general matter, dividends
received on hedged stock positions are characterized as ordinary income and are not eligible for favorable tax treatment. Dividends received
on securities with respect to which the Fund is obligated to make related payments (pursuant to short sales or otherwise) will not constitute
tax-advantaged dividend income and will be taxable as ordinary income. In addition, use of derivatives may give rise to short-term capital
gains and other income that would not qualify as tax-advantaged dividend income.
The U.S. and non-U.S. derivatives markets have undergone substantial
changes in recent years as a result of changes under the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank
Act”) in the United States and regulatory changes in Europe, Asia and other non-U.S. jurisdictions. In particular, the Dodd-Frank
Act and related regulations require many derivatives to be cleared and traded on an exchange, expand entity registration requirements,
impose business conduct requirements on counterparties, and impose other regulatory requirements that will continue to change derivatives
markets as regulations are implemented. As of October 28, 2020, the SEC has adopted new regulations that may significantly alter the Fund’s
regulatory obligations with regard to its derivatives usage. In particular, the new regulations will, upon implementation, eliminate the
current asset segregation framework for covering derivatives and certain other financial instruments, impose new responsibilities on the
Board and establish new reporting and recordkeeping requirements for the Fund and may, depending on the extent to which the Fund uses
derivatives, impose value at risk limitations on the Fund’s use of derivatives, and require the Fund’s Board to adopt a derivative
risk management program. The implementation of these requirements may limit the ability of the Fund to use derivative instruments as part
of its investment strategy, increase the costs of using these instruments or make them less effective. Additional future regulation of
the derivatives markets may make the use of derivatives more costly, may limit the availability or reduce the liquidity of derivatives,
and may impose limits or restrictions on the counterparties with which the Fund engages in derivative transactions. Fund management cannot
predict the effects of any new governmental regulation that may be implemented, and there can be no assurance that any new government
regulation will not adversely affect the Fund’s performance or ability to achieve its investment objective.
Eaton Vance Tax-Managed Diversified Equity Income Fund | 36 | Prospectus dated February 18, 2022 |
Counterparty
Risk. A financial institution or other counterparty with whom the Fund does business (such as trading or as a derivatives counterparty),
or that underwrites, distributes or guarantees any instruments that the Fund owns or is otherwise exposed to, may decline in financial
condition and become unable to honor its commitments. This could cause the value of Fund shares to decline or could delay the return or
delivery of collateral or other assets to the Fund. Counterparty risk is increased for contracts with longer maturities.
Dividend Capture Trading Risk. The
use of dividend capture strategies will expose the Fund to higher portfolio turnover, increased trading costs and potential for capital
loss or gain, including short-term capital gain taxable as ordinary income, particularly in the event of significant short-term price
movements of stocks subject to dividend capture trading.
Liquidity Risk. The Fund may invest up to 15% of its total assets
in securities for which there is no readily available trading market or which are otherwise illiquid. The Fund is exposed to liquidity
risk when trading volume, lack of a market maker, or legal restrictions impair the Fund’s ability to sell particular investments
or close derivative positions at an advantageous market price. Trading opportunities are also more limited for securities and other instruments
that are not widely held or are traded in less developed markets. These factors may make it more difficult to sell or buy a security
at a favorable price or time. Consequently, the Fund may have to accept a lower price to sell an investment or continue to hold it or
keep the position open, sell other investments to raise cash or abandon an investment opportunity, any of which could have a negative
effect on the Fund’s performance. It also may be more difficult to value less liquid investments. These effects may be exacerbated
during times of financial or political stress. In addition, the limited liquidity could affect the market price of the investments, thereby
adversely affecting the Fund's net asset value and ability to make dividend distributions.
Inflation
Risk. Inflation risk is the risk that the purchasing power of assets or income from investments is worth less in the future
as inflation decreases the value of money. As inflation increases, the real value of the Common Shares and distributions thereon can decline.
Market Price
of Common Shares. The Fund’s share price will fluctuate and, at the time of sale, shares may be worth more or less than
the original investment or the Fund’s then current NAV. The Fund cannot predict whether its shares will trade at a price at, above
or below its NAV. Shares of closed-end funds frequently trade at a discount to their NAV.
Financial
Leverage Risk. Although the Fund has no current intention to do so, the Fund is authorized and reserves the flexibility to
utilize leverage through the issuance of preferred shares and/or borrowings, including the issuance of debt securities. In the event that
the Fund determines in the future to utilize investment leverage, there can be no assurance that such a leveraging strategy will be successful
during any period in which it is employed. Leverage creates risks for Common Shareholders, including the likelihood of greater volatility
of NAV and market price of the Common Shares and the risk that fluctuations in distribution rates on any preferred shares or fluctuations
in borrowing costs may affect the return to Common Shareholders. To the extent the returns derived from securities purchased with proceeds
received from leverage exceeds the cost of leverage, the Fund’s distributions may be greater than if leverage had not been used.
Conversely, if the returns from the securities purchased with such proceeds are not sufficient to cover the cost of leverage, the amount
available for distribution to Common Shareholders will be less than if leverage had not been used. In the latter case, Eaton Vance, in
its best judgment, may nevertheless determine to maintain the Fund’s leveraged position if it deems such action to be appropriate.
The costs of an offering of preferred shares and/or a borrowing program would be borne by Common Shareholders and consequently would result
in a reduction of the NAV of Common Shares. In addition, the fee paid to Eaton Vance is calculated on the basis of the Fund’s average
daily gross assets, including proceeds from the issuance of preferred shares and/or borrowings, so the fee is higher when leverage is
utilized, which may create an incentive for the Adviser to employ financial leverage. In this regard, holders of preferred shares do not
bear the investment advisory fee. Rather, Common Shareholders bear the portion of the investment advisory fee attributable to the assets
purchased with the proceeds of the preferred shares offering.
Management
Risk. The Fund is subject to management risk because it is actively managed. Eaton Vance and the portfolio manager invest the
assets of the Fund as they deem appropriate in implementing the Fund’s investment strategy. Accordingly, the success of the Fund
depends upon the investment skills and analytical abilities of Eaton Vance and the portfolio manager to develop and effectively implement
strategies that achieve the Fund’s investment objectives. There is no assurance that Eaton Vance and the portfolio manager will
be successful in developing and implementing the Fund’s investment strategy. Subjective decisions made by Eaton Vance and the portfolio
manager may cause the Fund to incur losses or to miss profit opportunities.
Cybersecurity
Risk. With the increased use of technologies by Fund service providers to conduct business, such as the Internet, the
Fund is susceptible to operational, information security and related risks. The Fund relies on communications technology, systems,
and networks to engage with clients, employees, accounts, shareholders, and service providers, and a cyber incident may inhibit the
Fund’s ability to use these technologies. In general, cyber incidents can result from deliberate attacks or unintentional
events. Cyber attacks include, but are not limited to, gaining unauthorized access to digital systems (e.g., through
“hacking” or malicious software coding) for purposes of misappropriating assets or sensitive information, corrupting
data, or causing operational disruption. Cyber attacks may also be carried out in a manner that does not require gaining
unauthorized access, such as causing denial-of-service attacks on websites or via “ransomware” that renders systems
inoperable until appropriate actions are taken. A denial-of-service attack is an effort to make network services unavailable to
intended users, which could cause shareholders to lose access to their electronic accounts, potentially indefinitely. Employees and
service providers also may not be able to access electronic systems to perform critical duties for the Fund, such as trading NAV
calculation, shareholder accounting or fulfillment of Fund share purchases and redemptions during a denial-of-service attack. There
is also the possibility for systems failures due to malfunctions, user error and misconduct by employees and agents, natural
disasters, or other foreseeable and unforeseeable events.
Eaton Vance Tax-Managed Diversified Equity Income Fund | 37 | Prospectus dated February 18, 2022 |
Because technology is consistently changing, new ways to carry out cyber
attacks are always developing. Therefore, there is a chance that some risks have not been identified or prepared for, or that an attack
may not be detected, which puts limitations on the Fund's ability to plan for or respond to a cyber attack. Like other Funds and business
enterprises, the Fund and its service providers have experienced, and will continue to experience, cyber incidents consistently. In addition
to deliberate cyber attacks, unintentional cyber incidents can occur, such as the inadvertent release of confidential information by the
Fund or its service providers.
The Fund uses third party service providers who are also heavily dependent
on computers and technology for their operations. Cybersecurity failures or breaches by the Fund’s investment adviser or administrator
and other service providers (including, but not limited to, the custodian or transfer agent), and the issuers of securities in which the
Fund invests, may disrupt and otherwise adversely affect their business operations. This may result in financial losses to the Fund, impede
Fund trading, interfere with the Fund’s ability to calculate its NAV, or cause violations of applicable privacy and other laws,
regulatory fines, penalties, reputational damage, reimbursement or other compensation costs, litigation costs, or additional compliance
costs. While many of the Fund service providers have established business continuity plans and risk management systems intended to identify
and mitigate cyber attacks, there are inherent limitations in such plans and systems including the possibility that certain risks have
not been identified. The Fund cannot control the cybersecurity plans and systems put in place by service providers to the Fund and issuers
in which the Fund invests. The Fund and its shareholders could be negatively impacted as a result.
Recent Market
Conditions. An outbreak of respiratory disease caused by a novel coronavirus was first detected in China in late 2019 and subsequently
spread 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 coronavirus may last for an extended period of time and result in a substantial economic downturn. Health crises
caused by outbreaks of disease, such as the coronavirus outbreak, may exacerbate other pre-existing political, social and economic risks
and disrupt normal market conditions and operations. The impact of this outbreak has negatively affected the worldwide economy, as well
as the economies of individual countries and industries, and could continue to affect the market in significant and unforeseen ways. Other
epidemics and pandemics that may arise in the future may have similar effects. For example, a global pandemic or other widespread health
crisis could cause substantial market volatility and exchange trading suspensions and closures. In addition, the increasing interconnectedness
of markets around the world may result in many markets being affected by events or conditions in a single country or region or events
affecting a single or small number of issuers. The coronavirus outbreak and public and private sector responses thereto have led to large
portions of the populations of many countries working from home for indefinite periods of time, temporary or permanent layoffs, disruptions
in supply chains, and lack of availability of certain goods. The impact of such responses could adversely affect the information technology
and operational systems upon which the Fund and the Fund’s service providers rely, and could otherwise disrupt the ability of the
employees of the Fund’s service providers to perform critical tasks relating to the Fund. Any such impact could adversely affect
the Fund’s performance, or the performance of the securities in which the Fund invests and may lead to losses on your investment
in the Fund.
Market Disruption.
Global instability, war, geopolitical tensions and terrorist attacks in the United States and around the world have previously resulted,
and may continue to result in market volatility and may have long-term effects on the United States and worldwide financial markets and
may cause further economic uncertainties in the United States and worldwide. The Fund cannot predict the effects of significant future
events on the global economy and securities markets. A similar disruption of the financial markets could impact interest rates, auctions,
secondary trading, ratings, credit risk, inflation and other factors relating to the Common Shares.
Anti-Takeover
Provisions. The Fund’s Agreement and Declaration of Trust (the “Declaration of Trust”) and Amended and Restated
By-Laws (the “By-Laws” and together with the Declaration of Trust, the “Organizational Documents”) include provisions
that could have the effect of limiting the ability of other persons or entities to acquire control of the Fund or to change the composition
of its Board. For example, pursuant to the Fund’s Declaration of Trust, the Fund Board is divided into three classes of Trustees
with each class serving for a three-year term and certain types of transactions require the favorable vote of holders of at least 75% of the outstanding shares
of the Fund. See “Description of Capital Structure - Certain Provisions of the Organizational Documents
- Anti-Takeover Provisions in the Organizational Documents.”
Eaton Vance Tax-Managed Diversified Equity Income Fund | 38 | Prospectus dated February 18, 2022 |
Management of the Fund
BOARD OF TRUSTEES
The management of the Fund, including general supervision of the duties
performed by the Adviser under the Advisory Agreement (as defined below), is the responsibility of the Fund’s Board under the laws
of the Commonwealth of Massachusetts and the 1940 Act.
THE ADVISER
Eaton Vance acts as the Fund’s investment adviser under an
Investment Advisory Agreement (the “Advisory Agreement”). Eaton Vance has offices at Two International Place, Boston, MA
02110. EV, LLC (“EV”) serves as trustee of Eaton Vance. Eaton Vance and its predecessor organizations have been managing
assets since 1924 and managing investment funds since 1931. Prior to March 1, 2021, Eaton Vance was a wholly owned subsidiary of
Eaton Vance Corp. (“EVC”).
On March 1, 2021, Morgan Stanley acquired EVC (the “Transaction”)
and Eaton Vance became an indirect, wholly owned subsidiary of Morgan Stanley. In connection with the Transaction, the Fund entered into
a new investment advisory agreement with Eaton Vance. The agreement was approved by shareholders prior to the consummation of the Transaction
and was effective upon its closing. Effective March 1, 2021, any fee reduction agreement previously applicable to the Fund was incorporated
into its new investment advisory agreement with Eaton Vance.
Morgan Stanley (NYSE: MS), whose principal offices are at 1585 Broadway,
New York, New York 10036, is a preeminent global financial services firm engaged in securities trading and brokerage activities, as well
as providing investment banking, research and analysis, financing and financial advisory services. As of December 31, 2021, Morgan Stanley’s
asset management operations had aggregate assets under management of approximately $1.6 trillion.
Under the general supervision of the Fund’s Board, Eaton Vance
is responsible for the Fund’s overall investment program, structuring and managing the Fund’s common stock portfolio, including
dividend capture trading, tax-loss harvesting (i.e., periodically selling positions that have depreciated in value to realize capital
losses that can be used to offset capital gains realized by the Fund) and other tax-management techniques. The Adviser will compensate
all Trustees and officers of the Fund who are members of the Adviser’s organization and who render investment services to the Fund,
and will also compensate all other Adviser personnel who provide research and investment services to the Fund. In connection with the
Transaction, the Fund entered into an investment advisory agreement (the “New Agreement”) with Eaton Vance, which took effect
on March 1, 2021. Pursuant to the New Agreement (and the Fund’s investment advisory agreement with Eaton Vance in effect prior to
March 1, 2021), the Fund has agreed to pay the Adviser an investment advisory fee, payable on a monthly basis, at an annual rate of 1.000%
of the average daily gross assets of the Fund up to and including $1.5 billion, 0.980% of the average daily gross assets of the Fund over
$1.5 billion up to and including $3 billion, 0.960% of the average daily gross assets of the Fund over $3 billion up to and including
$5 billion, and 0.940% of the average daily gross assets of the Fund over $5 billion. Compensation is based on the average daily gross
assets of the Fund. For purposes of this calculation, “gross assets” of the Fund shall mean total assets of the Fund, including
any form of investment leverage, minus all accrued expenses incurred in the normal course of operations, but not excluding any liabilities
or obligations attributable to investment leverage obtained through (i) indebtedness of any type (including, without limitation, borrowing
through a credit facility or the issuance of debt securities), (ii) the issuance of preferred stock or other similar preference securities,
(iii) the reinvestment of collateral received for securities loaned in accordance with the Fund's investment objectives and policies,
and/or (iv) any other means. During periods in which the Fund is using leverage, the fees paid to Eaton Vance for investment advisory
services will be higher than if the Fund did not use leverage because the fees paid will be calculated on the basis of the Fund’s
gross assets, including proceeds from borrowings and from the issuance of preferred shares (if applicable). The Fund is responsible for
all expenses not expressly stated by another party (such as the expenses required to be paid pursuant to an agreement with the investment
adviser or administrator).
G.R. Nelson is responsible for managing the Fund’s overall
investment program. Mr. Nelson is a Vice President of Eaton Vance, has been a portfolio manager of the Fund since December 2019, has been
employed by Eaton Vance for more than five years and manages other Eaton Vance funds.
Additional Information Regarding Portfolio Managers
The SAI provides additional information about the portfolio managers’
compensation, other accounts managed by the portfolio managers, and the portfolio managers’ ownership of securities in the Fund.
The SAI is available free of charge by calling 1-800-262-1122 or by visiting the Fund’s website at http://www.eatonvance.com. The
information contained in, or that can be accessed through, the Fund’s website is not part of this prospectus or the SAI.
Eaton Vance Tax-Managed Diversified Equity Income Fund | 39 | Prospectus dated February 18, 2022 |
The Fund and the Adviser have adopted Codes of Ethics relating to personal
securities transactions. The Codes of Ethics permit Adviser personnel to invest in securities (including securities that may be purchased
or held by the Fund) for their own accounts, subject to the provisions of the Codes of Ethics and certain employees are also subject to
certain pre-clearance, reporting and other restrictions and procedures contained in such Codes of Ethics.
The Fund’s semiannual shareholder report contains information
regarding the basis for the Trustees’ approval of the Fund’s Advisory Agreement.
THE ADMINISTRATOR
Eaton Vance serves as administrator of the Fund under an Administrative
Services Agreement (the “Administration Agreement”), but currently receives no compensation for providing administrative services
to the Fund. Under the Administration Agreement, Eaton Vance has been engaged to administer the Fund’s affairs, subject to the supervision
of the Board, and shall furnish office space and all necessary office facilities, equipment and personnel for administering the affairs
of the Fund.
Plan of Distribution
The Fund may sell the Common Shares being offered under this Prospectus
in any one or more of the following ways: (i) directly to purchasers; (ii) through agents; (iii) to or through underwriters; or (iv) through
dealers. The Prospectus Supplement relating to the Offering will identify any agents, underwriters or dealers involved in the offer or
sale of Common Shares, and will set forth any applicable offering price, sales load, fee, commission or discount arrangement between the
Fund and its agents or underwriters, or among its underwriters, or the basis upon which such amount may be calculated, net proceeds and
use of proceeds, and the terms of any sale.
The Fund may distribute Common Shares from time to time in one or more
transactions at: (i) a fixed price or prices that may be changed; (ii) market prices prevailing at the time of sale; (iii) prices related
to prevailing market prices; or (iv) negotiated prices; provided, however, that in each case the offering price per Common Share (less
any underwriting commission or discount) must equal or exceed the NAV per Common Share.
The Fund from time to time may offer its Common Shares through or
to certain broker-dealers, including UBS Securities LLC, that have entered into selected dealer agreements relating to
at-the-market offerings.
The Fund may directly solicit offers to purchase Common Shares, or the
Fund may designate agents to solicit such offers. The Fund will, in a Prospectus Supplement relating to such Offering, name any agent
that could be viewed as an underwriter under the 1933 Act, and describe any commissions the Fund must pay to such agent(s). Any such agent
will be acting on a reasonable best efforts basis for the period of its appointment or, if indicated in the applicable Prospectus Supplement
or other offering materials, on a firm commitment basis. Agents, dealers and underwriters may be customers of, engage in transactions
with, or perform services for the Fund in the ordinary course of business.
If any underwriters or agents are used in the sale of Common Shares
in respect of which this Prospectus is delivered, the Fund will enter into an underwriting agreement or other agreement with them at the
time of sale to them, and the Fund will set forth in the Prospectus Supplement relating to such Offering their names and the terms of
the Fund’s agreement with them.
If a dealer is utilized in the sale of Common Shares in respect of which
this Prospectus is delivered, the Fund will sell such Common Shares to the dealer, as principal. The dealer may then resell such Common
Shares to the public at varying prices to be determined by such dealer at the time of resale.
The Fund may engage in at-the-market offerings to or through a market
maker or into an existing trading market, on an exchange or otherwise, in accordance with Rule 415(a)(4) under the 1933 Act. An at-the-market
offering may be through an underwriter or underwriters acting as principal or agent for the Fund.
Agents, underwriters and dealers may be entitled under agreements which
they may enter into with the Fund to indemnification by the Fund against certain civil liabilities, including liabilities under the 1933
Act, and may be customers of, engage in transactions with or perform services for the Fund in the ordinary course of business.
In order to facilitate the Offering of Common Shares, any underwriters
may engage in transactions that stabilize, maintain or otherwise affect the price of Common Shares or any other Common Shares the prices
of which may be used to determine payments on the Common Shares. Specifically, any underwriters may over-allot in connection with the
Offering, creating a short position for their own accounts. In addition, to cover over-allotments or to stabilize the price of Common
Shares or of any such other Common Shares, the underwriters may bid for, and purchase, Common Shares or any such other Common Shares in
the open market. Finally, in any Offering of Common Shares through a syndicate of underwriters, the underwriting syndicate may reclaim
selling concessions allowed to an underwriter or a dealer for distributing Common Shares in the Offering if the syndicate repurchases
previously distributed Common Shares in transactions to cover syndicate short positions, in stabilization transactions
or otherwise. Any of these activities may stabilize or maintain the market price of Common Shares above independent market levels. Any
such underwriters are not required to engage in these activities and may end any of these activities at any time.
Eaton Vance Tax-Managed Diversified Equity Income Fund | 40 | Prospectus dated February 18, 2022 |
The Fund may enter into derivative transactions with third parties,
or sell Common Shares not covered by this Prospectus to third parties in privately negotiated transactions. If the applicable Prospectus
Supplement indicates, in connection with those derivatives, the third parties may sell Common Shares covered by this Prospectus and the
applicable Prospectus Supplement or other offering materials, including in short sale transactions. If so, the third parties may use Common
Shares pledged by the Fund or borrowed from the Fund or others to settle those sales or to close out any related open borrowings of securities,
and may use Common Shares received from the Fund in settlement of those derivatives to close out any related open borrowings of securities.
The third parties in such sale transactions will be underwriters and, if not identified in this Prospectus, will be identified in the
applicable Prospectus Supplement or other offering materials (or a post-effective amendment).
The maximum amount of compensation to be received by any member of the
Financial Industry Regulatory Authority, Inc. will not exceed 8% of the initial gross proceeds from the sale of any security being sold
with respect to each particular Offering of Common Shares made under a single Prospectus Supplement.
Any underwriter, agent or dealer utilized in the Offering of Common
Shares will not confirm sales to accounts over which it exercises discretionary authority without the prior specific written approval
of its customer.
Distributions
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. Shareholders
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 is 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 is treated as a non-dividend distribution for tax purposes
and is not subject to current tax. A return of capital reduces a shareholder’s tax cost basis in fund shares. 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 are reported to shareholders on Form 1099-DIV for each calendar year.
Subject to its MDP, the Fund makes monthly distributions to Common Shareholders
sourced from the Fund’s cash available for distribution. “Cash available for distribution” 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 taxable to shareholders as ordinary income. Distributions in any year may include a substantial
return of capital component. The Fund’s distribution rate may be adjusted from time-to-time. The Board may modify this distribution
policy at any time without obtaining the approval of Common Shareholders.
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 taxable to shareholders as ordinary income.
Common Shareholders will automatically have distributions reinvested
in additional Common Shares under the Fund's dividend reinvestment plan unless they elect otherwise through their investment dealer. See
“Distributions” and “Dividend Reinvestment Plan.”
Eaton Vance Tax-Managed Diversified Equity Income Fund | 41 | Prospectus dated February 18, 2022 |
Federal Income Tax Matters
The Fund has elected to be treated and intends to qualify each year
as a regulated investment company (a “RIC”) under the Internal Revenue Code of 1986, as amended (“Code”). Accordingly,
the Fund intends to satisfy certain requirements relating to sources of its income and diversification of its assets and to distribute
substantially all of its net investment income and net capital gains (after reduction by certain capital loss carryforwards) in accordance
with the timing requirements imposed by the Code, so as to maintain its RIC status and to avoid paying federal income or excise tax thereon.
To the extent it qualifies for treatment as a RIC and satisfies the above-mentioned distribution requirements, the Fund will not be subject
to federal income tax on income paid to its shareholders in the form of dividends.
At least annually, the Fund intends to distribute any net capital
gain (which is the excess of net long-term capital gain over net short-term capital loss) or, alternatively, to retain all or a portion
of the year’s net capital gain and pay federal income tax on the retained gain. If the Fund retains all or a portion of the year’s
net capital gain, it may designate the retained amounts as undistributed capital gains in a notice to Common Shareholders of record as
of the end of the Fund’s taxable year, who will include their attributable share of the retained gain in their income for the year
as long-term capital gain (regardless of their holding period in the Common Shares) and will be entitled to a tax credit or refund for
the tax deemed paid on their behalf by the Fund on the retained gain. Common Shareholders of record for the retained capital gain will
also be entitled to increase their tax basis in their Common Shares by the difference between the amount of the includable gains and the
tax deemed paid by the Common Shareholder. The Fund is not required to, and there can be no assurance the Fund will, make this designation
if it retains all or a portion of its net capital gain in a taxable year. Distributions of the Fund’s net capital gain that are
properly reported by the Fund as capital gain dividends (“capital gain distributions”), if any, are taxable to Common Shareholders
as long-term capital gain, regardless of their holding period in the Common Shares. Distributions of the Fund’s net realized short-term
gains are generally taxable as ordinary income.
If, for any taxable year, the Fund’s total distributions exceed
the Fund’s current and accumulated earnings and profits, the excess will be treated as a tax-free return of capital to each Common
Shareholder (up to the amount of the Common Shareholder’s basis in his or her Common Shares) and thereafter as gain from the sale
of Common Shares (assuming the Common Shares are held as a capital asset). The amount treated as a tax-free return of capital will reduce
the Common Shareholder’s adjusted basis in his or her Common Shares, thereby increasing his or her potential gain or reducing his
or her potential loss on the subsequent sale or other disposition of his or her Common Shares. A corporation that owns Fund shares generally
will only be entitled to the dividends-received deduction (“DRD”) to the extent of the amount of eligible dividends received
by the Fund from domestic corporations for the taxable year, and only if holding period and other requirements are met at the shareholder
and Fund levels.
If the Fund does not qualify as a RIC for any taxable year, the Fund’s
taxable income will be subject to corporate income taxes, and all distributions from earnings and profits, including distributions of
net long-term capital gain (if any), will be taxable to the shareholder as ordinary income. Such distributions may be eligible (i) to
be treated as qualified dividend income in the case of individual and other noncorporate shareholders and (ii) for the DRD in the case
of corporate shareholders, provided, in both cases, the shareholder meets certain holding period and other requirements in respect of
the Fund's shares. In addition, in order to requalify for taxation as a RIC, the Fund may be required to recognize unrealized gains, pay
substantial taxes and interest, and make certain distributions.
Certain of the Fund’s investment practices are subject to special
and complex federal income tax provisions that may, among other things, (i) convert dividends that would otherwise constitute qualified
dividend income into ordinary income, (ii) treat dividends that would otherwise be eligible for the corporate DRD as ineligible for such
treatment, (iii) disallow, suspend or otherwise limit the allowance of certain losses or deductions, (iv) convert long-term capital gain
into short-term capital gain or ordinary income, (v) convert an ordinary loss or deduction into a capital loss (the deductibility of which
is more limited), (vi) cause the Fund to recognize income or gain without a corresponding receipt of cash, (vii) adversely affect the
time as to when a purchase or sale of stock or securities is deemed to occur, (viii) adversely alter the characterization of certain complex
financial transactions, and (ix) produce income that will not constitute qualifying income for purposes of the 90% gross income requirement
that applies to RICs. While it may not always be successful in doing so, the Fund will seek to avoid or minimize the adverse tax consequences
of its investment practices.
The tax treatment of certain positions entered into by the Fund (including
regulated futures contracts, certain foreign currency positions and certain listed non-equity options) will be governed by Section 1256
of the Code (“Section 1256 contracts”). Section 1256 of the Code generally requires any gain or loss arising from a Section
1256 contract to be treated as 60% long-term and 40% short-term capital gain or loss, although certain foreign currency gains and losses
from such contracts may be treated as ordinary in character. In addition, the Fund generally will be required to “mark to market”
(i.e., treat as sold for fair market value) each Section 1256 contract at the close of each taxable year (and, for purposes of the 4%
excise tax, on certain other dates as prescribed under the Code). If a Section 1256 contract held by the Fund at the end of a taxable year is sold in the following year, the amount
of any gain or loss realized on such sale will be adjusted to reflect the gain or loss previously taken into account under the “mark
to market” rules.
Eaton Vance Tax-Managed Diversified Equity Income Fund | 42 | Prospectus dated February 18, 2022 |
The taxation of equity options that the Fund expects to write that do
not qualify as Section 1256 contracts are governed by Code Section 1234. Pursuant to Code Section 1234, the premium received by the Fund
for selling a call option is not included in income at the time of receipt. If an option written by the Fund expires unexercised, the
premium is short-term capital gain to the Fund. If the Fund enters into a closing transaction, the difference between the amount paid
to close out its position and the premium received for writing the option is short-term capital gain or loss. If a call option written
by the Fund is exercised, thereby requiring the Fund to sell the underlying security, the premium will increase the amount realized upon
the sale of the security and any resulting gain or loss will be long-term or short-term, depending upon the holding period of the security.
If securities are purchased by the Fund pursuant to the exercise of a put option written by it, the Fund generally will subtract the premium
received for purposes of computing its cost basis in the securities purchased. With respect to a put or call option that is purchased
by the Fund, if the option is sold, any resulting gain or loss will be a capital gain or loss, and will be short-term or long-term, depending
upon the holding period for the option. If the option expires, the resulting loss is a capital loss and is short-term or long-term, depending
upon the holding period for the option. If the option is exercised, the cost of the option, in the case of a call option, is added to
the basis of the purchased security and, in the case of a put option, reduces the amount realized on the underlying security in determining
gain or loss. Because the Fund does not have control over the exercise of the call options it writes, such exercise or other required
sales of the underlying securities may cause the Fund to realize capital gains or losses at inopportune times.
Section 1092 of the Code contains special rules that apply to “straddles,”
defined generally as the holding of “offsetting positions with respect to personal property.” For example, the straddle rules
normally apply when a taxpayer holds stock and an offsetting option with respect to such stock or substantially identical stock or securities.
In general, investment positions will be offsetting if there is a substantial diminution in the risk of loss from holding one position
by reason of holding one or more other positions. The Fund expects that the index call options it writes will not be considered straddles
for this purpose because the Fund’s portfolio of common stocks will be sufficiently dissimilar from the components of each index
on which it has outstanding option positions under applicable guidance established by the Internal Revenue Service (the “IRS”).
Under certain circumstances, however, the Fund may enter into option transactions or certain other investments that may constitute positions
in a straddle. If two or more positions constitute a straddle, recognition of a realized loss from one position must generally be deferred
to the extent of unrecognized gain in an offsetting position. In addition, long-term capital gain may be recharacterized as short-term
capital gain, or short-term capital loss as long-term capital loss. Interest and other carrying charges allocable to personal property
that is part of a straddle are not currently deductible but must instead be capitalized. Similarly, “wash sale” rules apply
to prevent the recognition of loss by the Fund from the disposition of stock or securities at a loss in a case in which identical or substantially
identical stock or securities (or an option to acquire such property) is or has been acquired within a prescribed period.
The Code allows a taxpayer to elect to offset gains and losses from
positions that are part of a “mixed straddle.” Generally a “mixed straddle” is a straddle in which one or more
but not all positions are Section 1256 contracts. The Fund may be eligible to elect to establish one or more mixed straddle accounts for
certain of its mixed straddle trading positions. The mixed straddle account rules require a daily “marking to market” of all
open positions in the account and a daily netting of gains and losses from all positions in the account. At the end of a taxable year,
the annual net gains or losses from the mixed straddle account are recognized for tax purposes. The net capital gain or loss is treated
as 60% long-term and 40% short-term capital gain or loss if attributable to the Section 1256 contract positions, or all short-term capital
gain or loss if attributable to the non-Section 1256 contract positions.
The Fund may recognize gain (but not loss) from a constructive sale
of certain “appreciated financial positions” if the Fund enters into a short sale, offsetting notional principal contract,
or forward contract transaction with respect to the appreciated position or substantially identical property. Appreciated financial positions
subject to this constructive sale treatment include interests (including options and forward contracts and short sales) in stock and certain
other instruments. Constructive sale treatment does not apply if the transaction is closed out not later than thirty days after the end
of the taxable year in which the transaction was initiated, and the underlying appreciated securities position is held unhedged for at
least the next sixty days after the hedging transaction is closed.
Gain or loss from a short sale of property is generally considered as
capital gain or loss to the extent the property used to close the short sale constitutes a capital asset in the Fund’s hands. Except
with respect to certain situations where the property used to close a short sale has a long-term holding period on the date the short
sale is entered into, gains on short sales generally are short-term capital gains. A loss on a short sale will be treated as a long-term
capital loss if, on the date of the short sale, “substantially identical property” has been held by the Fund for more than
one year. In addition, entering into a short sale may result in suspension of the holding period of “substantially identical property”
held by the Fund.
Eaton Vance Tax-Managed Diversified Equity Income Fund | 43 | Prospectus dated February 18, 2022 |
Gain or loss on a short sale will generally not be realized until such
time as the short sale is closed. However, as described above in the discussion of constructive sales, if the Fund holds a short sale
position with respect to securities that has appreciated in value, and it then acquires property that is the same as or substantially
identical to the property sold short, the Fund generally will recognize gain on the date it acquires such property as if the short sale
were closed on such date with such property. Similarly, if the Fund holds an appreciated financial position with respect to securities
and then enters into a short sale with respect to the same or substantially identical property, the Fund generally will recognize gain
as if the appreciated financial position were sold at its fair market value on the date it enters into the short sale. The subsequent
holding period for any appreciated financial position that is subject to these constructive sale rules will be determined as if such position
were acquired on the date of the constructive sale.
“Qualified dividend income” received by an individual is
generally taxed at the rates applicable to long-term capital gain. In order for a dividend received by Fund shareholders to be qualified
dividend income, the Fund must meet holding period and other requirements with respect to the dividend-paying stock in its portfolio and
the shareholders must meet holding period and other requirements with respect to the Fund’s shares. A dividend will not be treated
as qualified dividend income (at either the Fund or shareholder level) (1) if the dividend is received with respect to any Common Share
of stock held for fewer than 61 days during the 121-day period beginning at the date which is 60 days before the date on which such Common
Share becomes ex-dividend with respect to such dividend (or, in the case of certain preferred stock, 91 days during the 181-day period
beginning 90 days before such date), (2) to the extent that the recipient is under an obligation (whether pursuant to a short sale or
otherwise) to make related payments with respect to positions in substantially similar or related property, (3) if the recipient elects
to have the dividend income treated as investment income for purposes of the limitation on deductibility of investment interest, or (4)
if the dividend is received from a foreign corporation that is (a) not eligible for the benefits of a comprehensive income tax treaty
with the U.S. (with the exception of dividends paid on stock of such a foreign corporation readily tradable on an established securities
market in the U.S.) or (b) treated as a passive foreign investment company. Payments in lieu of dividends, such as payments pursuant to
securities lending arrangements, also do not qualify to be treated as qualified dividend income. In general, distributions of investment
income properly reported by the Fund as derived from qualified dividend income will be treated as qualified dividend income by a shareholder
taxed as an individual provided the shareholder meets the holding period and other requirements described above with respect to the Fund’s
shares.
There can be no assurance as to what portion of the Fund’s dividend
distributions will qualify for favorable treatment as qualified dividend income. The Fund’s investment program and the tax treatment
of Fund distributions may be affected by IRS interpretations of the Code and future changes in tax laws and regulations.
Distributions are taxable as described herein whether Common Shareholders
receive them in cash or reinvest them in additional shares. The Fund will inform Common Shareholders of the source and tax status of all
distributions promptly after the close of each calendar year.
Selling Common Shareholders will generally recognize gain or loss in
an amount equal to the difference between the amount realized on the sale and the Common Shareholder’s adjusted tax basis in the
Common Shares sold. If the Common Shares are held as a capital asset, the gain or loss will be a capital gain or loss. Any loss on a disposition
of Common Shares held for six months or less will be treated as a long-term capital loss to the extent of any capital gain dividends received
(or deemed received) with respect to those Common Shares. For purposes of determining whether Common Shares have been held for six months
or less, the holding period is suspended for any periods during which the Common Shareholder’s risk of loss is diminished as a result
of holding one or more other positions in substantially similar or related property, or through certain options or short sales. Any loss
realized on a sale or exchange of Common Shares will be disallowed to the extent those Common Shares are replaced by other Common Shares
within a period of 61 days beginning 30 days before and ending 30 days after the date of disposition of the Common Shares (whether through
the reinvestment of distributions or otherwise). In that event, the basis of the replacement Common Shares will be adjusted to reflect
the disallowed loss.
The net investment income of certain U.S. individuals, estates and trusts
is subject to a 3.8% Medicare contribution tax. For individuals, the tax is on the lesser of the “net investment income” and
the excess of modified adjusted gross income over $200,000 (or $250,000 if married filing jointly). Net investment income includes, among
other things, interest, dividends, and gross income and capital gains derived from passive activities and trading in securities or commodities.
Net investment income is reduced by deductions “properly allocable” to this income.
An investor should be aware that, if Common Shares are purchased shortly
before the record date for any taxable distribution (including a capital gain distribution), the purchase price likely will reflect the
value of the distribution and the investor then would receive a taxable distribution that is likely to reduce the trading value of such
Common Shares, in effect resulting in a taxable return of some of the purchase price. Taxable distributions to certain individuals and
certain other non-corporate Common Shareholders, including those who have not provided their correct taxpayer identification number and
other required certifications, may be subject to “backup” federal income tax withholding. Backup withholding is not an additional tax. Any amounts withheld may be credited against
the Common Shareholder's U.S. federal income tax liability, provided the appropriate information is furnished to the IRS.
Eaton Vance Tax-Managed Diversified Equity Income Fund | 44 | Prospectus dated February 18, 2022 |
An investor should also be aware that the benefits of the reduced tax
rate applicable to long-term capital gains and qualified dividend income may be impacted by the application of the alternative minimum
tax to individual shareholders.
Certain foreign entities including foreign entities acting as intermediaries
may be subject to a 30% withholding tax on ordinary dividend income paid under the Foreign Account Tax Compliance Act (“FATCA”).
To avoid withholding, foreign financial institutions subject to FATCA must agree to disclose to the relevant revenue authorities certain
information regarding their direct and indirect U.S. owners and other foreign entities must certify certain information regarding their
direct and indirect U.S. owners to the Fund. In addition, the IRS and the Department of the Treasury have issued proposed regulations
providing that these withholding rules will not be applicable to the gross proceeds of share redemptions or capital gain dividends the
Fund pays. For more detailed information regarding FATCA withholding and compliance, please refer to the SAI.
The foregoing briefly summarizes some of the important federal income
tax consequences to Common Shareholders of investing in Common Shares, reflects the U.S. federal tax law as of the date of this Prospectus,
and does not address special tax rules applicable to certain types of investors, such as corporate and foreign investors. A more complete
discussion of the tax rules applicable to the Fund and the Common Shareholders can be found in the SAI that is incorporated by reference
into this Prospectus. Unless otherwise noted, this discussion assumes that an investor is a United States person and holds Common Shares
as a capital asset. This discussion is based upon current provisions of the Code, the regulations promulgated thereunder, and judicial
and administrative ruling authorities, all of which are subject to change or differing interpretations by the courts or the IRS retroactively
or prospectively. Investors should consult their tax advisors regarding other federal, state, local and, where applicable, foreign tax
considerations that may be applicable in their particular circumstances, as well as any proposed tax law changes.
Dividend Reinvestment Plan
The Fund offers a dividend reinvestment plan (the “Plan”)
pursuant to which Common Shareholders automatically have distributions reinvestment in Common Shares of the Fund unless they elect otherwise
through their investment dealer. Common Shareholders who elect not to participate in the Plan will receive all Fund distributions in cash
paid by check mailed directly to the Common Shareholder of record (or, if the Common Shares are held in street or other nominee name,
then to the nominee) by American Stock Transfer & Trust Company, LLC (“AST” or the “Plan Agent”), as disbursing
agent. On the distribution payment date, if the net asset value per Common Share is equal to or less than the market price per Common
Share plus estimated brokerage commissions, then new Common Shares will be issued. The number of Common Shares shall be determined by
the greater of the net asset value per Common Share or 95% of the market price. Otherwise, Common Shares generally will be purchased on
the open market by the Plan Agent. Distributions subject to income tax (if any) are taxable whether or not shares are reinvested.
If your shares are in the name of a brokerage firm, bank, or other nominee,
you can ask the firm or nominee to participate in the Plan on your behalf. If the nominee does not offer the Plan, you will need to request
that your shares be re-registered in your name with the Fund’s transfer agent, AST, or you will not be able to participate.
The Plan Agent’s service fee for handling distributions will be
paid by the Fund. Each participant will be charged their pro rata share of brokerage commissions on all open-market purchases.
Plan participants may withdraw from the Plan at any time by writing
to the Plan Agent at the address noted on page 51. If you withdraw, you will receive shares in your name for all Common Shares credited
to your account under the Plan. If a participant elects by written notice to the Plan Agent to have the Plan Agent sell part or all of
his or her Common Shares and remit the proceeds, the Plan Agent is authorized to deduct a $5.00 fee plus brokerage commissions from the
proceeds.
Any inquiries regarding the Plan can be directed to the Plan Agent,
AST, at 1-866-439-6787.
Description of Capital Structure
The Fund is an unincorporated business trust established under the laws
of the Commonwealth of Massachusetts by an Agreement and Declaration of Trust (the “Declaration of Trust”). The Declaration
of Trust provides that the Board may authorize separate classes of shares of beneficial interest. The Board has authorized an unlimited
number of Common Shares. The Fund intends to hold annual meetings of Common Shareholders in compliance with the requirements of the NYSE.
Eaton Vance Tax-Managed Diversified Equity Income Fund | 45 | Prospectus dated February 18, 2022 |
COMMON SHARES
The Declaration of Trust permits the Fund to issue an unlimited number
of full and fractional Common Shares. Each Common Share represents an equal proportionate interest in the assets of the Fund with each
other Common Share in the Fund. Common Shareholders will be entitled to the payment of distributions when, as and if declared by the Board.
The 1940 Act or the terms of any future borrowings or issuance of preferred shares may limit the payment of distributions to the Common
Shareholders. Each whole Common Share shall be entitled to one vote as to matters on which it is entitled to vote pursuant to the terms
of the Declaration of Trust on file with the SEC.
The Fund’s By-Laws include provisions (the “Control Share
Provisions”), pursuant to which a shareholder who obtains beneficial ownership of Fund shares in a “Control Share Acquisition”
may exercise voting rights with respect to such shares only to the extent the authorization of such voting rights is approved by other
shareholders of the Fund. The By-Laws define a “Control Share Acquisition,” pursuant to various conditions and exceptions,
to include an acquisition of Fund shares that would give the beneficial owner, upon the acquisition of such shares, the ability to exercise
voting power, but for the Control Share Provisions, in the election of Fund Trustees in any of the following ranges: (i) one-tenth or
more, but less than one-fifth of all voting power; (ii) one-fifth or more, but less than one-third of all voting power; (iii) one-third
or more, but less than a majority of all voting power; or (iv) a majority or more of all voting power. Subject to various conditions and
procedural requirements, including the delivery of a “Control Share Acquisition Statement” to the Fund’s secretary setting
forth certain required information, a shareholder who obtains beneficial ownership of shares in a Control Share Acquisition generally
may request a vote of Fund shareholders (excluding such acquiring shareholder and certain other interested shareholders) to approve the
authorization of voting rights for such shares at the next annual meeting of Fund shareholders following the Control Share Acquisition.
See “Certain Provisions of the Organizational Documents” below for more information.
The By-Laws establish qualification criteria applicable to prospective
Trustees and generally require that advance notice be given to the Fund in the event a shareholder desires to nominate a person for election
to the Board or to transact any other business at a meeting of shareholders. Any notice by a shareholder must be accompanied by certain
information as required by the By-Laws. No shareholder proposal will be considered at any meeting of shareholders of the Fund if such
proposal is submitted by a shareholder who does not satisfy all applicable requirements set forth in the By-Laws.
In the event of the liquidation of the Fund, after paying or adequately
providing for the payment of all liabilities of the Fund and the liquidation preference with respect to any outstanding preferred shares,
and upon receipt of such releases, indemnities and refunding agreements as they deem necessary for their protection, the Board may distribute
the remaining assets of the Fund among the Common Shareholders. The Declaration of Trust provides that Common Shareholders are not liable
for any liabilities of the Fund and permits inclusion of a clause to that effect in every agreement entered into by the Fund and in coordination
with the Fund’s By-laws indemnifies shareholders against any such liability. Although shareholders of an unincorporated business
trust established under Massachusetts law may, in certain limited circumstances, be held personally liable for the obligations of the
business trust as though they were general partners, the provisions of the Fund’s Organizational Documents described in the foregoing
sentence make the likelihood of such personal liability remote.
The Fund has no current intention to issue preferred shares or to borrow
money. However, if at some future time there are any borrowings or preferred shares outstanding, the Fund may not be permitted to declare
any cash distribution on its Common Shares, unless at the time of such declaration, (i) all accrued distributions on preferred shares
or accrued interest on borrowings have been paid and (ii) the value of the Fund’s total assets (determined after deducting the amount
of such distribution), less all liabilities and indebtedness of the Fund not represented by senior securities, is at least 300% of the
aggregate amount of such securities representing indebtedness and at least 200% of the aggregate amount of securities representing indebtedness
plus the aggregate liquidation value of the outstanding preferred shares. In addition to the requirements of the 1940 Act, the Fund may
be required to comply with other asset coverage requirements as a condition of the Fund obtaining a rating of preferred shares from a
nationally recognized statistical rating agency (a “Rating Agency”). These requirements may include an asset coverage test
more stringent than under the 1940 Act. This limitation on the Fund’s ability to make distributions on its Common Shares could in
certain circumstances impair the ability of the Fund to maintain its qualification for taxation as a regulated investment company for
federal income tax purposes. If the Fund were in the future to issue preferred shares or borrow money, it would intend, however, to the
extent possible to purchase or redeem preferred shares or reduce borrowings from time to time to maintain compliance with such asset coverage
requirements and may pay special distributions to the holders of the preferred shares in certain circumstances in connection with any
potential impairment of the Fund’s status as a regulated investment company. See “Federal Income Tax Matters.” Depending
on the timing of any such redemption or repayment, the Fund may be required to pay a premium in addition to the liquidation preference
of the preferred shares to the holders thereof.
Eaton Vance Tax-Managed Diversified Equity Income Fund | 46 | Prospectus dated February 18, 2022 |
The Fund has no present intention of offering additional Common Shares,
except as described herein. Other offerings of its Common Shares, if made, will require approval of the Board. Any additional offering
will not be sold at a price per Common Share below the then current net asset value (exclusive of underwriting discounts and commissions)
except in connection with an offering to existing Common Shareholders or with the consent of a majority of the outstanding Common Shares.
The Common Shares have no preemptive rights.
The Fund generally will not issue Common Share certificates. However,
upon written request to the Fund’s transfer agent, a share certificate will be issued for any or all of the full Common Shares credited
to an investor’s account. Common Share certificates that have been issued to an investor may be returned at any time.
REPURCHASE OF COMMON SHARES AND OTHER DISCOUNT MEASURES
Because shares of closed-end management investment companies frequently
trade at a discount to their NAVs, the Board has determined that from time-to-time it may be in the interest of Common Shareholders for
the Fund to take corrective actions to reduce trading discounts in the Common Shares. The Board, in consultation with Eaton Vance, will
review at least annually the possibility of open market repurchases and/or tender offers for the Common Shares and will consider such
factors as the market price of the Common Shares, the NAV of the Common Shares, the liquidity of the assets of the Fund, the effect on
the Fund’s expenses, whether such transactions would impair the Fund’s status as a regulated investment company or result
in a failure to comply with applicable asset coverage requirements, general economic conditions and such other events or conditions that
may have a material effect on the Fund’s ability to consummate such transactions. There are no assurances that the Board will, in
fact, decide to undertake either of these actions or, if undertaken, that such actions will result in the Common Shares trading at a price
equal to or approximating their NAV. In recognition of the possibility that the Common Shares might trade at a discount to NAV and that
any such discount may not be in the interest of shareholders, the Board, in consultation with Eaton Vance, from time to time may review
possible actions to reduce any such discount.
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. Results of the share repurchase program are disclosed in the Fund's annual and semiannual reports to shareholders.
PREFERRED SHARES
The Fund has no current intention of issuing any shares other than the
Common Shares. However, the Declaration of Trust authorizes the issuance of an unlimited number of shares of beneficial interest with
preference rights (the “preferred shares”) in one or more series, with rights as determined by the Board, by action of the
Board without the approval of the Common Shareholders.
Under the requirements of the 1940 Act, the Fund must, immediately after
the issuance of any preferred shares, have an “asset coverage” of at least 200%. Asset coverage means the ratio which the
value of the total assets of the Fund, less all liabilities and indebtedness not represented by senior securities (as defined in the 1940
Act), bears to the aggregate amount of senior securities representing indebtedness of the Fund, if any, plus the aggregate liquidation
preference of the preferred shares. If the Fund seeks a rating for preferred shares, asset coverage requirements in addition to those
set forth in the 1940 Act may be imposed. The liquidation value of any preferred shares would be expected to equal their aggregate original
purchase price plus redemption premium, if any, together with any accrued and unpaid distributions thereon (on a cumulative basis), whether
or not earned or declared. The terms of any preferred shares, including their distribution rate, voting rights, liquidation preference
and redemption provisions, will be determined by the Board (subject to applicable law and the Fund’s Declaration of Trust) if and
when it authorizes preferred shares. The Fund may issue preferred shares that provide for the periodic redetermination of the distribution
rate at relatively short intervals through an auction or remarketing procedure, although the terms of such preferred shares may also enable
the Fund to lengthen such intervals. At times, the distribution rate on any preferred shares may exceed the Fund’s return after
expenses on the investment of proceeds from the preferred shares and the Fund’s leverage structure, resulting in a lower rate of
return to Common Shareholders than if the Fund were not so structured.
In the event of any voluntary or involuntary liquidation, dissolution
or winding up of the Fund, the terms of any preferred shares may entitle the holders of preferred shares to receive a preferential liquidating
distribution (expected to equal the original purchase price per share plus redemption premium, if any, together with accrued and unpaid
dividends, whether or not earned or declared and on a cumulative basis) before any distribution of assets is made to Common Shareholders.
After payment of the full amount of the liquidating distribution to which they are entitled, the preferred shareholders would not be entitled
to any further participation in any distribution of assets by the Fund.
Eaton Vance Tax-Managed Diversified Equity Income Fund | 47 | Prospectus dated February 18, 2022 |
Holders of preferred shares, voting as a class, would be entitled to
elect two of the Fund’s Trustees if any preferred shares are issued. The holders of both the Common Shares and the preferred shares
(voting together as a single class with each share entitling its holder to one vote) shall be entitled to elect the remaining Trustees
of the Fund. Under the 1940 Act, if at any time dividends on the preferred shares are unpaid in an amount equal to two full years’
dividends thereon, the holders of all outstanding preferred shares, voting as a class, will be allowed to elect a majority of the Board
until all distributions in arrears have been paid or declared and set apart for payment. In addition, if required by a Rating Agency rating
the preferred shares or if the Board determines it to be in the best interests of the Common Shareholders, issuance of the preferred shares
may result in more restrictive provisions than required under the 1940 Act. In this regard, holders of preferred shares may be entitled
to elect a majority of the Board in other circumstances, for example, if one payment on the preferred shares is in arrears. The differing
rights of the holders of preferred and Common Shares with respect to the election of Trustees do not affect the obligation of all Trustees
to take actions they believe to be consistent with the best interests of the Fund. All such actions must be consistent with (i) the obligations
of the Fund with respect to the holders of preferred shares (which obligations arise primarily from the contractual terms of the preferred
shares, as specified in the Declaration of Trust and By-laws of the Fund) and (ii) the fiduciary duties owed to the Fund, which include
the duties of loyalty and care.
In the event of any future issuance of preferred shares, the Fund likely
would seek a credit rating for such preferred shares from a Rating Agency. In such event, as long as preferred shares are outstanding,
the composition of its portfolio will reflect guidelines established by such Rating Agency. Based on previous guidelines established by
Rating Agencies for the securities of other issuers, the Fund anticipates that the guidelines with respect to any preferred shares would
establish a set of tests for portfolio composition and asset coverage that supplement (and in some cases are more restrictive than) the
applicable requirements under the 1940 Act. Although no assurance can be given as to the nature or extent of the guidelines that may be
imposed in connection with obtaining a rating of any preferred shares, the Fund anticipates that such guidelines would include asset coverage
requirements that are more restrictive than those under the 1940 Act, restrictions on certain portfolio investments and investment practices
and certain mandatory redemption requirements relating to any preferred shares. No assurance can be given that the guidelines actually
imposed with respect to any preferred shares by a Rating Agency would be more or less restrictive than those described in this Prospectus.
CREDIT FACILITY/COMMERCIAL PAPER PROGRAM
The Fund has no current intention to borrow money for the purpose of
obtaining investment leverage. If, in the future, the Fund determines to engage in investment leverage using borrowings, the Fund may
enter into definitive agreements with respect to a credit facility/commercial paper program or other borrowing program (“Program”),
pursuant to which the Fund would expect to be entitled to borrow up to a specified amount. Any such borrowings would constitute financial
leverage. Borrowings under such a Program would not be expected to be convertible into any other securities of the Fund. Outstanding amounts
would be expected to be prepayable by the Fund prior to final maturity without significant penalty, and no sinking fund or mandatory retirement
provisions would be expected to apply. Outstanding amounts would be payable at maturity or such earlier times as required by the agreement.
The Fund may be required to prepay outstanding amounts under the Program or incur a penalty rate of interest in the event of the occurrence
of certain events of default. The Fund would be expected to indemnify the lenders under the Program against liabilities they may incur
in connection with the Program.
In addition, the Fund expects that any such Program would contain covenants
that, among other things, likely would limit the Fund’s ability to pay distributions in certain circumstances, incur additional
debt, change its fundamental investment policies and engage in certain transactions, including mergers and consolidations, and may require
asset coverage ratios in addition to those required by the 1940 Act. The Fund may be required to pledge its assets and to maintain a portion
of its assets in cash or high-grade securities as a reserve against interest or principal payments and expenses. The Fund expects that
any Program would have customary covenant, negative covenant and default provisions. There can be no assurance that the Fund will enter
into an agreement for a Program on terms and conditions representative of the foregoing, or that additional material terms will not apply.
In addition, if entered into, any such Program may in the future be replaced or refinanced by one or more credit facilities having substantially
different terms or by the issuance of preferred shares or debt securities.
EFFECTS OF POSSIBLE FUTURE LEVERAGE
As discussed above, the Fund has no current intention to issue preferred
shares or to borrow money for the purpose of obtaining investment leverage. In the event that the Fund determines in the future to utilize
investment leverage, there can be no assurance that such a leveraging strategy would be successful during any period in which it is employed.
Leverage creates risks for Common Shareholders, including the likelihood of greater volatility of NAV and market price of the Common Shares
and the risk that fluctuations in distribution rates on any preferred shares or fluctuations in borrowing costs may affect the return
to Common Shareholders. To the extent that amounts available for distribution derived from securities purchased with the proceeds of leverage exceed the cost of
such leverage, the Fund’s distributions would be greater than if leverage had not been used. Conversely, if the amounts available
for distribution derived from securities purchased with leverage proceeds are not sufficient to cover the cost of leverage, distributions
to Common Shareholders would be less than if leverage had not been used. In the latter case, Eaton Vance, in its best judgment, may nevertheless
determine to maintain the Fund’s leveraged position if it deems such action to be appropriate. The costs of an offering of preferred
shares and/or a borrowing program would be borne by Common Shareholders and consequently would result in a reduction of the NAV of Common
Shares. See “Risk Factors -- Financial Leverage Risk.”
Eaton Vance Tax-Managed Diversified Equity Income Fund | 48 | Prospectus dated February 18, 2022 |
In addition, the fee paid to Eaton Vance is calculated on the basis
of the Fund’s average daily gross assets, including proceeds from the issuance of preferred shares and/or borrowings, so the fees
would be higher if leverage is utilized. In this regard, holders of preferred shares would not bear the investment advisory fee. Rather,
Common Shareholders would bear the portion of the investment advisory fee attributable to the assets purchased with the proceeds of the
preferred shares offering. See “Risk Factors -- Financial Leverage Risk.”
CERTAIN PROVISIONS OF THE ORGANIZATIONAL DOCUMENTS
Summary of Anti-Takeover Provisions in the Organizational Documents
Pursuant to the Organizational Documents, the Board is divided into
three classes, with the term of one class expiring at each annual meeting of holders of Common Shares and preferred shares. At each annual
meeting, one class of Trustees is elected to a three-year term. This provision could delay the replacement of a majority of the Board,
thereby increasing stability of the composition of the Board. In addition, in the event a Trustee is not elected at an annual meeting
at which such Trustee’s term expires, and a nominee presented to shareholders as such Trustee’s successor is also not elected,
then the incumbent Trustee shall remain a member of the relevant class of Trustees and hold office until the expiration of the term applicable
to Trustees in that class. In a contested Trustee election, a nominee must receive the affirmative vote of a majority of the shares outstanding
and entitled to vote in order to be elected. A Trustee may be removed from office only for cause by a written instrument signed by the
remaining Trustees or by a vote of the holders of at least two-thirds of the class of shares of the Fund that elects such Trustee and
are entitled to vote on the matter. These provisions similarly could delay the replacement of Trustees, which similarly increases stability
of the composition of the Board.
The Organizational Documents establish supermajority voting requirements
with respect to certain other matters. The Declaration of Trust requires the favorable vote of the holders of at least 75% of the outstanding
shares of each class of the Fund, voting as a class, then entitled to vote to approve, adopt or authorize certain transactions with 5%-or-greater
holders (“Principal Shareholders”) of a class of shares and their associates, unless the Board shall by resolution have approved
a memorandum of understanding with such holders, in which case normal voting requirements would be in effect. For purposes of these provisions,
a Principal Shareholder refers to any person who, whether directly or indirectly and whether alone or together with its affiliates and
associates, beneficially owns 5% or more of the outstanding shares of any class of beneficial interest of the Fund. The transactions subject
to these special approval requirements are: (i) the merger or consolidation of the Fund or any subsidiary of the Fund with or into any
Principal Shareholder; (ii) the issuance of any securities of the Fund to any Principal Shareholder for cash; (iii) the sale, lease or
exchange of all or any substantial part of the assets of the Fund to any Principal Shareholder (except assets having an aggregate fair
market value of less than $1,000,000, aggregating for the purpose of such computation all assets sold, leased or exchanged in any series
of similar transactions within a twelve-month period); or (iv) the sale, lease or exchange to or with the Fund or any subsidiary thereof,
in exchange for securities of the Fund, of any assets of any Principal Shareholder (except assets having an aggregate fair market value
of less than $1,000,000, aggregating for the purposes of such computation all assets sold, leased or exchanged in any series of similar
transactions within a twelve-month period). For information on the Control Share Provisions and the qualification criteria applicable
to prospective Trustees in the Fund’s By-Laws, see “Description of Capital Structure – Common Shares.”
The Board believes that these provisions are in the best interests
of the Fund and its shareholders. These provisions may provide some protection to the Fund against insurgent campaigns from “activist”
investors that may, under some circumstances, impede the Fund’s ability to achieve its investment objective and may otherwise threaten
to harm the long-term interests of the Fund and its other shareholders. These provisions promote continuity and stability and enhance
the Fund’s ability to pursue the Fund’s investment strategies that are consistent with its stated investment objective and
investment policies. Because these provisions may discourage third parties from seeking to obtain control of the Fund or from seeking
to effect a tender offer or similar transaction, they may reduce opportunities for Common Shareholders to sell their Common Shares at
a short-term premium over the then-current market price. However, they allow the Board to balance the interests of the entire shareholder
base in evaluating these and other types of transactions rather than prioritizing the interests of certain shareholders.
The voting thresholds described above that are higher than those
(if any) established under Massachusetts or federal. The Board has determined that these voting requirements are in the best interest
of holders of Common Shares and preferred shares generally. Reference is made to the Organizational
Documents on file with the SEC for the full text of these provisions.
Eaton Vance Tax-Managed Diversified Equity Income Fund | 49 | Prospectus dated February 18, 2022 |
Conversion to Open-End Fund
The Fund may be converted to an open-end management investment company
at any time if approved by the lesser of (i) two-thirds or more of the Fund’s then outstanding Common Shares and preferred shares
(if any), each voting separately as a class, or (ii) more than 50% of the then outstanding Common Shares and preferred shares (if any),
voting separately as a class if such conversion is recommended by at least 75% of the Trustees then in office. If approved in the foregoing
manner, conversion of the Fund could not occur until 90 days after the shareholders’ meeting at which such conversion was approved
and would also require at least 30 days’ prior notice to all shareholders. Conversion of the Fund to an open-end management investment
company also would require the redemption of any outstanding preferred shares and could require the repayment of borrowings, which would
eliminate any future leveraged capital structure of the Fund with respect to the Common Shares. In the event of conversion, the Common
Shares would cease to be listed on the NYSE or other national securities exchange or market system. The Board believes that the closed-end
structure is desirable, given the Fund’s investment objectives and policies. Investors should assume, therefore, that it is unlikely
that the Board would vote to convert the Fund to an open-end management investment company. Shareholders of an open-end management investment
company may require the company to redeem their shares at any time (except in certain circumstances as authorized by or under the 1940
Act) at their NAV, less such redemption charge, if any, as might be in effect at the time of a redemption. If the Fund were to convert
to an open-end investment company, the Fund expects it would pay all such redemption requests in cash, but would likely reserve the right
to pay redemption requests in a combination of cash or securities. If such partial payment in securities were made, investors may incur
brokerage costs in converting such securities to cash. If the Fund were converted to an open-end fund, it is likely that new Common Shares
would be sold at NAV plus a sales load.
Custodian and Transfer Agent
State Street Bank and Trust Company (“State Street”), State
Street Financial Center, One Lincoln Street, Boston, MA 02111, is the custodian of the Fund and will maintain custody of the securities
and cash of the Fund. State Street maintains the Fund’s general ledger and computes NAV per share at least weekly. State Street
also attends to details in connection with the sale, exchange, substitution, transfer and other dealings with the Fund’s investments,
and receives and disburses all funds. State Street also assists in preparation of shareholder reports and the electronic filing of such
reports with the SEC.
American Stock Transfer & Trust Company, LLC, 6201 15th
Avenue, Brooklyn, NY 11219 is the transfer agent and dividend disbursing agent of the Fund.
Legal Matters
Certain legal matters in connection with the Common Shares is passed
upon for the Fund by internal counsel for Eaton Vance.
Reports to Shareholders
The Fund will send to Common Shareholders unaudited semi-annual and
audited annual reports, including a list of investments held.
Independent Registered Public Accounting Firm
Deloitte & Touche LLP (“Deloitte”), 200 Berkeley
Street, Boston, MA 02116, independent registered public accounting firm, audits the Fund’s financial statements. Deloitte and/or
its affiliates provide other audit, tax and related services to the Fund.
Eaton Vance Tax-Managed Diversified Equity Income Fund | 50 | Prospectus dated February 18, 2022 |
Potential
Conflicts of Interest
As a diversified global financial services firm, Morgan Stanley,
the parent company of the investment adviser, engages in a broad spectrum of activities, including financial advisory services, investment
management activities, lending, commercial banking, sponsoring and managing private investment funds, engaging in broker-dealer transactions
and principal securities, commodities and foreign exchange transactions, research publication and other activities. In the ordinary course
of its business, Morgan Stanley is a full-service investment banking and financial services firm and therefore engages in activities where
Morgan Stanley’s interests or the interests of its clients may conflict with the interests of a Fund or Portfolio, as applicable
(collectively, for purposes of this section, “Fund” or “Funds”). Morgan Stanley advises clients and sponsors,
manages or advises other investment funds and investment programs, accounts and businesses (collectively, together with any new or successor
Morgan Stanley funds, programs, accounts or businesses, (other than funds, programs, accounts or businesses sponsored, managed, or advised
by former direct or indirect subsidiaries of Eaton Vance Corp. (“Eaton Vance Investment Accounts”)), the “MS Investment
Accounts,” and, together with the Eaton Vance Investment Accounts, the ‘‘Affiliated Investment Accounts’’)
with a wide variety of investment objectives that in some instances may overlap or conflict with a Fund’s investment objectives
and present conflicts of interest. In addition, Morgan Stanley or the investment adviser may also from time to time create new or successor
Affiliated Investment Accounts that may compete with a Fund and present similar conflicts of interest. The discussion below enumerates
certain actual, apparent and potential conflicts of interest. There is no assurance that conflicts of interest will be resolved in favor
of Fund shareholders and, in fact, they may not be. Conflicts of interest not described below may also exist.
The discussions below with respect to actual, apparent and potential
conflicts of interest also may be applicable to or arise from the MS Investment Accounts whether or not specifically identified. For more
information about conflicts of interest, see the section entitled “Potential Conflicts of Interest” in the SAI.
Material
Non-public Information. It is expected that confidential or material non-public information regarding an investment or potential
investment opportunity may become available to the investment adviser. If such information becomes available, the investment adviser may
be precluded (including by applicable law or internal policies or procedures) from pursuing an investment or disposition opportunity with
respect to such investment or investment opportunity. Morgan Stanley has established certain information barriers and other policies to
address the sharing of information between different businesses within Morgan Stanley. In limited circumstances, however, including for
purposes of managing business and reputational risk, and subject to policies and procedures and any applicable regulations, Morgan Stanley
personnel, including personnel of the investment adviser, on one side of an information barrier may have access to information and personnel
on the other side of the information barrier through “wall crossings.” The investment adviser faces conflicts of interest
in determining whether to engage in such wall crossings. Information obtained in connection with such wall crossings may limit or restrict
the ability of the investment adviser to engage in or otherwise effect transactions on behalf of the Fund(s) (including purchasing or
selling securities that the investment adviser may otherwise have purchased or sold for a Fund in the absence of a wall crossing).
Investments
by Morgan Stanley and its Affiliated Investment Accounts. In serving in multiple capacities to Affiliated Investment Accounts,
Morgan Stanley, including the investment adviser and its investment teams, may have obligations to other clients or investors in Affiliated
Investment Accounts, the fulfillment of which may not be in the best interests of a Fund or its shareholders. A Fund’s investment
objectives may overlap with the investment objectives of certain Affiliated Investment Accounts. As a result, the members of an investment
team may face conflicts in the allocation of investment opportunities among a Fund and other investment funds, programs, accounts and
businesses advised by or affiliated with the investment adviser. Certain Affiliated Investment Accounts may provide for higher management
or incentive fees or greater expense reimbursements or overhead allocations, all of which may contribute to this conflict of interest
and create an incentive for the investment adviser to favor such other accounts. To seek to reduce potential conflicts of interest and
to attempt to allocate such investment opportunities in a fair and equitable manner, the investment adviser has implemented allocation
policies and procedures. These policies and procedures are intended to give all clients of the investment adviser, including the Fund(s),
fair access to investment opportunities consistent with the requirements of organizational documents, investment strategies, applicable
laws and regulations, and the fiduciary duties of the investment adviser.
Investments
by Separate Investment Departments. The entities and individuals that provide investment-related services for the Fund and
certain other Eaton Vance Investment Accounts (the “Eaton Vance Investment Department”) may be different from the entities
and individuals that provide investment-related services to MS Investment Accounts (the “MS Investment Department” and, together
with the Eaton Vance Investment Department, the “Investment Departments”). Although Morgan Stanley has implemented information
barriers between the Investment Departments in accordance with internal policies and procedures, each Investment Department may engage
in discussions and share information and resources with the other Investment Department on certain investment-related matters. A MS Investment
Account could
Eaton Vance Tax-Managed Diversified Equity Income Fund | 51 | Prospectus dated February 18, 2022 |
trade in advance of a Fund (and vice versa), might complete trades
more quickly and efficiently than a Fund, and/or achieve different execution than a Fund on the same or similar investments made contemporaneously,
even when the Investment Departments shared research and viewpoints that led to that investment decision. Any sharing of information or
resources between the Investment Department servicing the Fund and the MS Investment Department may result, from time to time, in a Fund
simultaneously or contemporaneously seeking to engage in the same or similar transactions as an account serviced by the other Investment
Department and for which there are limited buyers or sellers on specific securities, which could result in less favorable execution for
the Fund than such account.
Payments
to Broker-Dealers and Other Financial Intermediaries. The investment adviser and/or EVD may pay compensation, out of their
own funds and not as an expense of a Fund, to certain financial intermediaries (which may include affiliates of the investment adviser
and EVD), including recordkeepers and administrators of various deferred compensation plans, in connection with the sale, distribution,
marketing and retention of shares of the Fund and/or shareholder servicing. The prospect of receiving, or the receipt of, additional compensation,
as described above, by financial intermediaries may provide such financial intermediaries and their financial advisors and other salespersons
with an incentive to favor sales of shares of a Fund over other investment options with respect to which these financial intermediaries
do not receive additional compensation (or receive lower levels of additional compensation). These payment arrangements, however, will
not change the price that an investor pays for shares of a Fund or the amount that the Fund receives to invest on behalf of an investor.
Investors may wish to take such payment arrangements into account when considering and evaluating any recommendations relating to Fund
shares and should review carefully any disclosures provided by financial intermediaries as to their compensation. In addition, in certain
circumstances, the investment adviser may restrict, limit or reduce the amount of a Fund’s investment, or restrict the type of governance
or voting rights it acquires or exercises, where the Fund (potentially together with Morgan Stanley) exceeds a certain ownership interest,
or possesses certain degrees of voting or control or has other interests.
Morgan
Stanley Trading and Principal Investing Activities. Notwithstanding anything to the contrary herein, Morgan Stanley will generally
conduct its sales and trading businesses, publish research and analysis, and render investment advice without regard for a Fund’s
holdings, although these activities could have an adverse impact on the value of one or more of the Fund’s investments, or could
cause Morgan Stanley to have an interest in one or more portfolio investments that is different from, and potentially adverse to, that
of a Fund.
Morgan
Stanley’s Investment Banking and Other Commercial Activities. Morgan Stanley advises clients on a variety of mergers,
acquisitions, restructuring, bankruptcy and financing transactions. Morgan Stanley may act as an advisor to clients, including other investment
funds that may compete with a Fund and with respect to investments that a Fund may hold. Morgan Stanley may give advice and take action
with respect to any of its clients or proprietary accounts that may differ from the advice given, or may involve an action of a different
timing or nature than the action taken, by a Fund. Morgan Stanley may give advice and provide recommendations to persons competing with
a Fund and/or any of a Fund’s investments that are contrary to the Fund’s best interests and/or the best interests of any
of its investments. Morgan Stanley’s activities on behalf of its clients (such as engagements as an underwriter or placement agent)
may restrict or otherwise limit investment opportunities that may otherwise be available to a Fund.
Morgan Stanley may be engaged to act as a financial advisor to a
company in connection with the sale of such company, or subsidiaries or divisions thereof, may represent potential buyers of businesses
through its mergers and acquisition activities and may provide lending and other related financing services in connection with such transactions.
Morgan Stanley’s compensation for such activities is usually based upon realized consideration and is usually contingent, in substantial
part, upon the closing of the transaction. Under these circumstances, a Fund may be precluded from participating in a transaction with
or relating to the company being sold or participating in any financing activity related to merger or acquisition.
General
Process for Potential Conflicts. All of the transactions described above involve the potential for conflicts of interest between
the investment adviser, related persons of the investment adviser and/or their clients. The Investment Advisers Act of 1940, as amended
(the “Advisers Act”) the 1940 Act and ERISA impose certain requirements designed to decrease the possibility of conflicts
of interest between an investment adviser and its clients. In some cases, transactions may be permitted subject to fulfillment of certain
conditions. Certain other transactions may be prohibited. In addition, the investment adviser has instituted policies and procedures designed
to prevent conflicts of interest from arising and, when they do arise, to ensure that it effects transactions for clients in a manner
that is consistent with its fiduciary duty to its clients and in accordance with applicable law. The investment adviser seeks to ensure
that potential or actual conflicts of interest are appropriately resolved taking into consideration the overriding best interests of the
client.
Eaton Vance Tax-Managed Diversified Equity Income Fund | 52 | Prospectus dated February 18, 2022 |
Additional Information
The Prospectus and the SAI do not contain all of the information set
forth in the Registration Statement that the Fund has filed with the SEC. The complete Registration Statement may be obtained from the
SEC upon payment of the fee prescribed by its rules and regulations. The SAI can be obtained without charge by calling 1-800-262-1122.
Statements contained in this Prospectus as to the contents of any contract
or other documents referred to are not necessarily complete, and, in each instance, reference is made to the copy of such contract or
other document filed as an exhibit to the Registration Statement of which this Prospectus forms a part, each such statement being qualified
in all respects by such reference.
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 are no longer being
sent by mail unless you specifically request paper copies of the reports. Instead, the reports are being 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.
Incorporation by Reference
This Prospectus is part of a registration statement filed with the
SEC. The Fund is permitted to “incorporate by reference” the information filed with the SEC, which means that the Fund can
disclose important information to you by referring you to those documents. The information incorporated by reference is considered to
be part of this Prospectus, and later information that the Fund files with the SEC will automatically update and supersede this information.
The documents listed below, and any reports and other documents subsequently
filed with the SEC pursuant to Rule 30(b)(2) under the 1940 Act and Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act, prior to the
termination of the Offering will be incorporated by reference into this Prospectus and deemed to be part of this Prospectus from the date
of the filing of such reports and documents:
|
• |
|
The Fund’s SAI, dated February 18, 2022, filed with this Prospectus; |
|
• |
|
The Fund’s annual report on Form N-CSR for the fiscal year ended October 31, 2021 filed with the SEC on December 23, 2021; and |
|
• |
|
The description of the Fund’s Common Shares contained in its Registration Statement on Form 8-A filed with the SEC on December 19, 2005, including any amendment or report filed for the purpose of updating such description prior to the termination of the offering registered hereby. |
The Fund will provide without charge to each person, including any
beneficial owner, to whom this Prospectus is delivered, upon written or oral request, a copy of any and all of the documents that have
been or may be incorporated by reference in this the Prospectus or the accompanying prospectus supplement. You should direct requests
for documents by calling (800) 262-1122.
The Fund makes available this Prospectus, SAI and the Fund’s
annual and semi-annual reports, free of charge, at http://www.eatonvance.com. You may also obtain this Prospectus, the SAI, other documents
incorporated by reference and other information the Fund files electronically, including reports and proxy statements, on the SEC website
(http://www.sec.gov) or with the payment of a duplication fee, by electronic request at publicinfo@sec.gov. Information contained in,
or that can be accessed through, the Fund’s website is not part of this Prospectus or the accompanying prospectus supplement.
Eaton Vance Tax-Managed Diversified Equity Income Fund | 53 | Prospectus dated February 18, 2022 |
The Fund’s Privacy Policy
The Eaton Vance organization is committed to ensuring your financial
privacy. Each entity listed below has adopted 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 share your personal information with
our affiliates. Eaton Vance may also share your information as required or permitted by applicable law. |
| · | 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 WaterOak Advisors,
Eaton Vance Distributors, Inc., Eaton Vance Trust Company, Eaton Vance Management (International) Limited, Eaton Vance Advisers International
Ltd., 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 notice supersedes all previously issued privacy disclosures.
For more information about Eaton Vance’s Privacy Program or about
how your personal information may be used, please call 1-800-262-1122.
Eaton Vance Tax-Managed Diversified Equity Income Fund | 54 | Prospectus dated February 18, 2022 |
Table of Contents for the Statement of Additional Information
|
Page |
Additional Investment Information and Restrictions |
2 |
Trustees and Officers |
11 |
Investment Advisory and Other Services |
20 |
Determination of Net Asset Value |
23 |
Portfolio Trading |
24 |
Taxes |
27 |
Other Information |
33 |
Custodian |
33 |
Independent Registered Public Accounting Firm |
34 |
Control Persons and Principal Holders of Securities |
34 |
Potential Conflicts of Interest |
34 |
Incorporation by Reference |
41 |
Financial Statements |
42 |
APPENDIX A: Ratings |
43 |
APPENDIX B: Eaton Vance Funds Proxy Voting Policy and Procedures |
52 |
APPENDIX C: Adviser Proxy Voting Policies and Procedures |
54 |
Eaton Vance Tax-Managed Diversified Equity Income Fund | 55 | Prospectus dated February 18, 2022 |
Up to 22,462,218 Shares
Eaton Vance Tax-Managed Diversified Equity Income Fund
Common Shares
Prospectus February 18, 2022
Printed on recycled paper.
STATEMENT OF
ADDITIONAL INFORMATION
February 18, 2022
Eaton Vance Tax-Managed Diversified Equity
Income Fund
Two International Place
Boston, Massachusetts 02110
1-800-262-1122
Table of Contents
|
Page |
Additional Investment Information and Restrictions |
2 |
Trustees and Officers |
11 |
Investment Advisory and Other Services |
20 |
Determination of Net Asset Value |
23 |
Portfolio Trading |
24 |
Taxes |
27 |
Other Information |
33 |
Custodian |
34 |
Independent Registered Public Accounting Firm |
34 |
Control Persons and Principal Holders of Securities |
34 |
Potential Conflicts of Interest |
34 |
Incorporation by Reference |
41 |
Financial Statements |
42 |
APPENDIX A: Ratings |
43 |
APPENDIX B: Eaton Vance Funds Proxy Voting Policy and Procedures |
52 |
APPENDIX C: Adviser Proxy Voting Policies and Procedures |
54 |
THIS STATEMENT OF ADDITIONAL INFORMATION (“SAI”)
IS NOT A PROSPECTUS AND IS AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE INVESTORS ONLY IF PRECEDED OR ACCOMPANIED BY THE PROSPECTUS OF EATON
VANCE TAX-MANAGED DIVERSIFIED EQUITY INCOME FUND (THE “FUND”) DATED FEBRUARY 18, 2022, (THE “PROSPECTUS”) AS SUPPLEMENTED
FROM TIME TO TIME, WHICH IS INCORPORATED HEREIN BY REFERENCE. THIS SAI SHOULD BE READ IN CONJUNCTION WITH SUCH PROSPECTUS, A COPY OF WHICH
MAY BE OBTAINED WITHOUT CHARGE BY CONTACTING YOUR FINANCIAL INTERMEDIARY OR CALLING THE FUND AT 1-800-262-1122.
Capitalized terms used in this SAI and not otherwise defined have the
meanings given them in the Fund’s Prospectus and any related Prospectus Supplements.
ADDITIONAL INVESTMENT INFORMATION AND RESTRICTIONS
Primary investment
strategies are described in the Prospectus. The following is a description of the various investment policies that may be engaged
in, whether as a primary or secondary strategy, and a summary of certain attendant risks.
Equity Investments.
As described in the Prospectus, the Fund invests in common stocks.
Preferred
Stocks. The Fund may invest in preferred stocks of both domestic and foreign issuers. Under normal market conditions, the Fund
expects, with respect to that portion of its total assets invested in preferred stocks, to invest only in preferred stocks of investment
grade quality as determined by S&P, Fitch or Moody’s or, if unrated, determined to be of comparable quality by Eaton Vance.
The foregoing credit quality policies apply only at the time a security is purchased, and the Fund is not required to dispose of a security
in the event of a downgrade of an assessment of credit quality or the withdrawal of a rating.
Preferred stock represents an equity interest in a corporation, company
or trust that has a higher claim on the assets and earnings than common stock. Preferred stock usually has limited voting rights. Preferred
stock involves credit risk, which is the risk that a preferred stock will decline in price, or fail to pay dividends when expected, because
the issuer experiences a decline in its financial status. A company’s preferred stock generally pays dividends after the company
makes the required payments to holders of its bonds and other debt instruments but before dividend payments are made to common stockholders.
However, preferred stock may not pay scheduled dividends or dividend payments may be in arrears. The value of preferred stock may react
more strongly than bonds and other debt instruments to actual or perceived changes in the company’s financial condition or prospects.
Certain preferred stocks may be convertible to common stock. Preferred stock may be subject to redemption at the option of the issuer
at a predetermined price. Because they may make regular income payments, preferred stocks may be considered fixed-income securities for
purposes of a Fund’s investment restrictions. In addition to credit risk, investment in preferred stocks involves certain other
risks as more fully described in the Prospectus.
Derivative
Instruments. Generally, derivatives can be characterized as financial instruments whose performance is derived at least in
part from the performance of an underlying reference instrument. Derivative instruments may be acquired in the United States or abroad
and include the various types of exchange-traded and over-the-counter (“OTC”) instruments described herein and other instruments
with substantially similar characteristics and risks. Depending on the type of derivative instrument and the Fund’s investment strategy,
a derivative instrument may be based on a security, instrument, index, currency, commodity, economic indicator or event (referred to as
“reference instruments”). Fund obligations created pursuant to derivative instruments may be subject to the requirements described
under “Asset Coverage” herein.
In seeking to manage exposure to certain sectors and/or markets in
connection with its use of dividend capture trading, the Fund may buy and sell equity index futures contracts and may engage in
other types of derivatives to manage such exposures. The Fund may also invest in derivative instruments acquired for hedging, risk
management and investment purposes (to gain exposure to securities, securities markets, markets indices and/or currencies consistent
with its investment objective and policies). Other permitted derivatives include futures contracts on securities and non-equity
indices, options on futures contracts, the purchase of put options and the sale of call options on securities held, equity swaps,
interest rate swaps, covered short sales, forward sales of stocks, forward currency exchange contracts and currency futures
contracts. Derivative instruments may also be used by the Fund to enhance returns or as a substitute for the purchase or sale of
securities. The Fund may invest in the foregoing derivatives without limitation and use of derivatives may be extensive.
Derivative instruments are subject to a number of risks, including
adverse or unexpected movements in the price of the reference instrument, and counterparty, credit, interest rate, leverage, liquidity,
market and tax risks. Use of derivative instruments may cause the realization of higher amounts of short-term capital gains (generally
taxed at ordinary income tax rates) than if such instruments had not been used. Success in using derivative instruments to hedge portfolio
assets depends on the degree of price correlation between the derivative instruments and the hedged asset. Derivatives also involve the risk that changes in their value may not correlate perfectly
with the assets, rates or indices they are designed to hedge or closely track. Imperfect correlation may be caused by several factors,
including temporary price disparities among the trading markets for the derivative instrument, the reference instrument and the Fund’s
assets. To the extent that a derivative instrument is intended to hedge against an event that does not occur, the Fund may realize losses.
Eaton Vance Tax-Managed Diversified Equity Income Fund | 2 | SAI dated February 18, 2022 |
The regulation of derivatives has undergone substantial change in
recent years. In particular, although many provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank
Act”) have yet to be fully implemented or are subject to phase-in periods, it is possible that upon implementation these provisions,
or any future regulatory or legislative activity, could limit or restrict the ability of the Fund to use derivative instruments, including
futures, options on futures and swap agreements as a part of its investment strategy, increase the costs of using these instruments or
make them less effective. New position limits imposed on the Fund or its counterparty may also impact the Fund’s ability to efficiently
utilize futures, options, and swaps.
As of October 28, 2020, the SEC has adopted new regulations that
may significantly alter the Fund’s regulatory obligations with regard to its derivatives usage. In particular, the new regulations
will, upon implementation, eliminate the current asset segregation framework for covering derivatives and certain other financial instruments,
impose new responsibilities on the Board and establish new reporting and recordkeeping requirements for the Fund and may, depending on
the extent to which the Fund uses derivatives, impose value at risk limitations on the Fund’s use of derivatives, and require the
Fund’s Board to adopt a derivative risk management program. The implementation of these requirements may limit the ability of the
Fund to use derivative instruments as part of its investment strategy, increase the costs of using these instruments or make them less
effective. Limits or restrictions applicable to the counterparties with which the Fund engages in derivative transactions also could prevent
the Fund from using these instruments or affect the pricing or other factors relating to these instruments, or may change the availability
of certain investments.
Legislation may be enacted that could negatively affect the assets
of the Fund. Legislation or regulation may also change the way in which the Fund itself is regulated. The effects of any new governmental
regulation cannot be predicted and there can be no assurance that any new governmental regulation will not adversely affect the Fund’s
performance or ability to achieve its investment objective.
The Fund may use derivative instruments and trading strategies, including
the following:
Options on
Securities, Indices and Currencies. The Fund may engage in transactions in exchange traded and over-the-counter (“OTC”)
options. In general, exchange-traded options have standardized exercise prices and expiration dates and require the parties to post margin
against their obligations, and the performance of the parties’ obligations in connection with such options is guaranteed by the
exchange or a related clearing corporation. OTC options have more flexible terms negotiated between the buyer and the seller, but generally
do not require the parties to post margin and are subject to greater credit risk. OTC options also involve greater liquidity risk.
Call Options.
The Fund is authorized to write (i.e., sell) call options and to enter into closing purchase transactions with respect to certain of such
options. A covered call option is an option in which the Fund, in return for a premium, gives another party a right to buy specified securities
owned by the Fund at a specified future date and price set at the time of the contract.
The principal reason for writing call options is the attempt to realize,
through the receipt of premiums, a greater return than would be realized on the securities alone. By writing covered call options, the
Fund gives up the opportunity, while the option is in effect, to profit from any price increase in the underlying security above the option
exercise price. In addition, the Fund’s ability to sell the underlying security will be limited while the option is in effect unless
the Fund enters into a closing purchase transaction. A closing purchase transaction cancels out the Fund’s position as the writer
of an option by means of an offsetting purchase of an identical option prior to the expiration of the option it has written. Covered call
options also serve as a partial hedge to the extent of the premium received against the price of the underlying security declining.
Put Options.
The Fund is authorized to purchase put options to seek to hedge against a decline in the value of its securities or to enhance its return.
By buying a put option, the Fund acquires a right to sell the underlying securities or instruments at the exercise price, thus limiting
the Fund’s risk of loss through a decline in the market value of the securities or instruments until the put option expires. The
amount of any appreciation in the value of the underlying securities or instruments will be partially offset by the amount of the premium
paid for the put option and any related transaction costs. Prior to its expiration, a put option may be sold in a closing sale transaction
and profit or loss from the sale will depend on whether the amount received is more or less than the premium paid for the put option plus
the related transaction costs. A closing sale transaction cancels out the Fund’s
position as the purchaser of an option by means of an offsetting sale of an identical option prior to the expiration of the option it
has purchased. The Fund also may purchase uncovered put options.
Eaton Vance Tax-Managed Diversified Equity Income Fund | 3 | SAI dated February 18, 2022 |
Futures.
The Fund may engage in transactions in futures and options on futures. Futures are standardized, exchange-traded contracts that obligate
a purchaser to take delivery, and a seller to make delivery, of a specific amount of an asset at a specified future date at a specified
price. No price is paid upon entering into a futures contract. Rather, upon purchasing or selling a futures contract the Fund is required
to deposit collateral (“margin”) equal to a percentage (generally less than 10%) of the contract value. Each day thereafter
until the futures position is closed, the Fund will pay additional margin representing any loss experienced as a result of the futures
position the prior day or be entitled to a payment representing any profit experienced as a result of the futures position the prior day.
Futures involve substantial leverage risk. The sale of a futures contract limits the Fund’s risk of loss from a decline in the market
value of portfolio holdings correlated with the futures contract prior to the futures contract’s expiration date. In the event the
market value of the Fund holdings correlated with the futures contract increases rather than decreases, however, the Fund will realize
a loss on the futures position and a lower return on the Fund holdings than would have been realized without the purchase of the futures
contract.
The purchase of a futures contract may protect the Fund from having
to pay more for securities as a consequence of increases in the market value for such securities during a period when the Fund was attempting
to identify specific securities in which to invest in a market the Fund believes to be attractive. In the event that such securities decline
in value or the Fund determines not to complete an anticipatory hedge transaction relating to a futures contract, however, the Fund may
realize a loss relating to the futures position.
The Fund is also authorized to purchase or sell call and put options
on futures contracts including financial futures and stock indices. Generally, these strategies would be used under the same market and
market sector conditions (i.e., conditions relating to specific types of investments) in which the Fund entered into futures transactions.
The Fund may purchase put options or write call options on futures contracts and stock indices in lieu of selling the underlying futures
contract in anticipation of a decrease in the market value of its securities. Similarly, the Fund can purchase call options, or write
put options on futures contracts and stock indices, as a substitute for the purchase of such futures to hedge against the increased cost
resulting from an increase in the market value of securities which the Fund intends to purchase.
Risks Associated
with Futures. The primary risks associated with the use of futures contracts and options are (a) the imperfect correlation
between the change in market value of the instruments held by the Fund and the price of the futures contract or option; (b) possible lack
of a liquid secondary market for a futures contract and the resulting inability to close a futures contract when desired; (c) losses caused
by unanticipated market movements, which are potentially unlimited; (d) the investment adviser’s inability to predict correctly
the direction of securities prices, interest rates, currency exchange rates and other economic factors; and (e) the possibility that the
counterparty will default in the performance of its obligations.
The Fund has claimed an exclusion from the definition of the term Commodity
Pool Operator (“CPO”) under the Commodity Exchange Act and therefore is not subject to registration as a CPO.
Forward Foreign
Currency Exchange Contracts. Forward foreign currency exchange contracts are OTC contracts to purchase or sell a specified
amount of a specified currency or multinational currency unit at a price and future date set at the time of the contract. Spot foreign
exchange transactions are similar but require current, rather than future, settlement. The Fund will enter into foreign exchange transactions
for purposes of hedging either a specific transaction or the Fund position or, to seek to enhance returns. Proxy hedging is often used
when the currency to which the Fund is exposed is difficult to hedge or to hedge against the dollar. Proxy hedging entails entering into
a forward contract to sell a currency whose changes in value are generally considered to be linked to a currency or currencies in which
some or all of the Fund’s securities are, or are expected to be, denominated, and to buy U.S. dollars. Proxy hedging involves some
of the same risks and considerations as other transactions with similar instruments. Currency transactions can result in losses to the
Fund if the currency being hedged fluctuates in value to a degree or in a direction that is not anticipated. In addition, there is the
risk that the perceived linkage between various currencies may not be present or may not be present during the particular time that the
Fund is engaged in proxy hedging. The Fund may also cross-hedge currencies by entering into forward contracts to sell one or more currencies
that are expected to decline in value relative to other currencies to which the Fund has or in which the Fund expects to have portfolio
exposure. Some of the forward foreign currency contracts entered into by the Fund are classified as non-deliverable forwards (“NDF”).
NDFs are cash-settled, short-term forward contracts that may be thinly traded or are denominated in non-convertible foreign currency,
where the profit or loss at the time at the settlement date is calculated by taking the difference between the agreed upon exchange rate
and the spot rate at the time of settlement, for an agreed upon notional amount of
funds. NDFs are commonly quoted for time periods of one month up to two years, and are normally quoted and settled in U.S. dollars. They
are often used to gain exposure to and/or hedge exposure to foreign currencies that are not internationally traded.
Eaton Vance Tax-Managed Diversified Equity Income Fund | 4 | SAI dated February 18, 2022 |
Foreign Currency
Transactions. The Fund may engage in spot transactions and forward foreign currency exchange contracts and currency swaps,
purchase and sell options on currencies and purchase and sell currency futures and related options thereon (collectively, “Currency
Instruments”) for purposes of hedging against the decline in the value of currencies in which its portfolio holdings are denominated
against the U.S. dollar or, to seek to enhance returns. Such transactions could be effected with respect to hedges on foreign dollar denominated
securities owned by the Fund, sold by the Fund but not yet delivered, or committed or anticipated to be purchased by the Fund.
As measured in U.S. dollars, the value of assets denominated in foreign
currencies may be affected favorably or unfavorably by changes in foreign currency rates and exchange control regulations. Currency exchange
rates can also be affected unpredictably by intervention by U.S. or foreign governments or central banks, or the failure to intervene,
or by currency controls or political developments in the United States or abroad. Foreign currency exchange transactions may be conducted
on a spot (i.e., cash) basis at the spot rate prevailing in the foreign currency exchange market or through entering into derivative currency
transactions. Currency transactions are subject to the risk of a number of complex political and economic factors applicable to the countries
issuing the underlying currencies. Furthermore, unlike trading in most other types of instruments, there is no systematic reporting of
last sale information with respect to the foreign currencies underlying the derivative currency transactions. As a result, available information
may not be complete. In an over-the-counter trading environment, there are no daily price fluctuation limits.
Currency
Options. The Fund may seek to enhance returns or hedge against the decline in the value of a currency through the use of currency
options. Currency options are similar to options on securities. For example, in consideration for an option premium the writer of a currency
option is obligated to sell (in the case of a call option) or purchase (in the case of a put option) a specified amount of a specified
currency on or before the expiration date for a specified amount of another currency. The Fund may engage in transactions in options on
currencies either on exchanges or OTC markets. Currency options involve substantial currency risk, and may also involve credit, leverage
or liquidity risk.
Currency
Futures. The Fund may also seek to enhance returns or hedge against the decline in the value of a currency through use of currency
futures or options thereon. Currency futures are similar to forward foreign exchange transactions except that futures are standardized,
exchange-traded contracts while forward foreign exchange transactions are traded in the OTC market. Currency futures involve substantial
currency risk, and also involve leverage risk.
Risk Factors
in Hedging Foreign Currency. Hedging transactions involving Currency Instruments involve substantial risks, including correlation
risk. Although Currency Instruments will be used with the intention of hedging against adverse currency movements, transactions in Currency
Instruments involve the risk that anticipated currency movements will not be accurately predicted and that the Fund’s hedging strategies
will be ineffective. To the extent that the Fund hedges against anticipated currency movements that do not occur, the Fund may realize
losses and decrease its total return as the result of its hedging transactions. Furthermore, the Fund will only engage in hedging activities
from time to time and may not be engaging in hedging activities when movements in currency exchange rates occur.
Swap Agreements.
Swap agreements are two-party contracts entered into primarily by institutional investors for periods ranging from a few weeks to more
than one year. In a standard “swap” transaction, two parties agree to exchange the returns (or differentials in rates of return)
earned or realized on particular predetermined investments or instruments, which can be adjusted for an interest factor. The gross returns
to be exchanged or “swapped” between the parties are generally calculated with respect to a “notional amount,”
i.e., the return on or increase in value of a particular dollar amount invested at a particular interest rate or in a “basket”
of securities representing a particular index. Whether the Fund’s use of swap agreements will be successful in furthering its investment
objective will depend on the investment adviser’s ability to predict correctly whether certain types of investments are likely to
produce greater returns than other investments. Because they are two-party contracts and because they may have terms of greater than seven
days, swap agreements may be considered to be illiquid. Moreover, the Fund bears the risk of loss of the amount expected to be received
under a swap agreement in the event of the default or bankruptcy of a swap agreement counterparty. The Fund will enter into swap agreements
only with counterparties that meet certain standards of creditworthiness. If there is a default by the other party to such a transaction,
the Fund will have contractual remedies pursuant to the agreements related to the transaction. Swap agreements are also subject to the
risk that the Fund will not be able to meet its obligations to the counterparty. The Fund, however, will segregate liquid assets equal
to or greater than the market value of the liabilities under the swap agreement or the amount it would cost the Fund initially to make
an equivalent direct investment, plus or minus any amount the Fund is obligated to pay or is to receive under the swap agreement. The
swap market has grown substantially in recent years with a large number of
banks and investment banking firms acting both as principals and as agents utilizing standardized swap documentation. As a result, the
swap market has become relatively liquid. The swaps market is largely unregulated. It is possible that developments in the swaps market,
including potential government regulation, could adversely affect the Fund’s ability to terminate existing swap agreements or to
realize amounts to be received under such agreements.
Eaton Vance Tax-Managed Diversified Equity Income Fund | 5 | SAI dated February 18, 2022 |
Interest
Rate Swaps. Interest rate swaps are OTC contracts in which each party agrees to make a periodic interest payment based on an
index or the value of an asset in return for a periodic payment from the other party based on a different index or asset. The Fund usually
will enter into interest rate swap transactions on a net basis (i.e., the two payment streams are netted out, with the Fund receiving
or paying, as the case may be, only the net amount of the two payments). The net amount of the excess, if any, of the Fund’s obligations
over its entitlements with respect to each interest rate swap will be accrued on a daily basis. If the interest rate swap transaction
is entered into on other than a net basis, the full amount of the Fund’s obligations will be accrued on a daily basis. Certain federal
income tax requirements may limit the Fund’s ability to engage in certain interest rate transactions.
Total Return
Swaps. Total return swaps are contracts in which one party agrees to make payments of the total return from the underlying
asset(s), which may include securities, baskets of securities, or securities indices during the specified period, in return for payments
equal to a fixed or floating-rate of interest or the total return from other underlying asset(s).
Dividend
Capture Trading. In a typical dividend capture trade, the Fund would buy a stock prior to its ex-dividend date and sell the
stock at a point either on or after the ex-dividend date. The use of a dividend capture trading strategy exposes the Fund to higher
portfolio turnover, increased trading costs and potential for capital loss or gain, particularly in the event of significant short-term
price movements of stocks subject to dividend capture trading.
Short
Sales. The Fund may sell a security short if it owns at least an equal amount of the security sold short or another security
convertible or exchangeable for an equal amount of the security sold short without payment of further compensation (a short sale against-the-box).
The Fund may sell a security short if it owns at least an equal amount of the security sold short or another security convertible or exchangeable
for an equal amount of the security sold short without payment of further compensation (a short sale against-the-box). Short sales are
transactions in which a party sells a security it does not own in anticipation of a decline in the market value of that security. To complete
such a transaction, the party must borrow the security to make delivery to the buyer. When the party is required to return the borrowed
security, it typically will purchase the security in the open market. The price at such time may be more or less than the price at which
the party sold the security. Until the security is replaced, the party is required to repay the lender any dividends or interest, which
accrues during the period of the loan. To borrow the security, it also may be required to pay a premium, which would increase the cost
of the security sold. The net proceeds of the short sale will be retained by the broker, to the extent necessary to meet margin requirements,
until the short position is closed out. Transaction costs are incurred in effecting short sales. A short seller will incur a loss as a
result of a short sale if the price of the security increases between the date of the short sale and the date on which it replaces the
borrowed security. A gain will be realized if the price of the security declines in price between those dates. The amount of any gain
will be decreased, and the amount of any loss increased, by the amount of the premium, dividends or interest the short seller may be required
to pay, if any, in connection with a short sale. Short sales may be “against the box” or uncovered. In a short sale “against
the box,” at the time of the sale, the short seller owns or has the immediate and unconditional right to acquire the identical security
at no additional cost. In an uncovered short sale, the short seller does not own the underlying security and, as such, losses from uncovered
short sales may be significant. The Fund may sell short securities representing an index or basket of securities whose constituents the
Fund holds in whole or in part. A short sale of an index or basket of securities will be a covered short sale if the underlying index
or basket of securities is the same or substantially identical to securities held by the Fund. Use of short sales is limited by the Fund’s
non-fundamental restriction relating thereto. Although the Fund reserves the right to utilize short sales, the Adviser is under no obligation
to utilize short-sales at all.
Securities
Lending. The Fund may seek to earn income by lending portfolio securities to major banks, broker-dealers and other financial
institutions in compliance with the 1940 Act. No lending may be made with any companies affiliated with the investment adviser. These
loans earn income and are collateralized by cash, securities or letters of credit. The Fund may realize a loss if it is not able to invest
cash collateral at rates higher than the costs to enter into the loan. The Fund invests cash collateral in an unaffiliated money market
fund that operates in compliance with the requirements of Rule 2a-7 under the 1940 Act and seeks to maintain a stable $1.00 net asset
value per share. When the loan is closed, the lender is obligated to return the collateral to the borrower. The lender could suffer a
loss if the value of the collateral is below the market value of the borrowed securities or if the borrower defaults on the loan. The
lender may pay reasonable finder’s, lending agent, administrative and custodial fees in connection with its loans. The investment
adviser will use its reasonable efforts to instruct the securities lending agent to terminate loans and recall securities with voting
rights so that the securities may be voted in accordance with the Fund’s proxy voting policy and procedures.
Eaton Vance Tax-Managed Diversified Equity Income Fund | 6 | SAI dated February 18, 2022 |
Real Estate
Investments. Companies primarily engaged in the real estate industry and other real estate-related investments may include
publicly traded real estate investment trusts (“REITs”) or real estate operating companies that either own properties or make
construction or mortgage loans, real estate developers, companies with substantial real estate holdings and other companies whose products
and services are related to the real estate industry, such as lodging operators, brokers, property management companies, building supply
manufacturers, mortgage lenders, or mortgage servicing companies. REITs tend to be small to medium-sized companies, and may include equity
REITs and mortgage REITs. The value of a REIT can depend on the structure of and cash flow generated by the REIT. REITs are pooled investment
vehicles that have expenses of their own, so the Fund will indirectly bear its proportionate share of those expenses. The Fund will not
own real estate directly.
Real estate investments are subject to special risks including changes
in real estate values, property taxes, interest rates, cash flow of underlying real estate assets, occupancy rates, government regulations
affecting zoning, land use, and rents, and the management skill and creditworthiness of the issuer. Companies in the real estate
industry may also be subject to liabilities under environmental and hazardous waste laws, among others. Changes in underlying real
estate values may have an exaggerated effect to the extent that investments concentrate in particular geographic regions or property types.
Equity REITs may be affected by changes in the value of the underlying
property owned by the REIT, while mortgage REITs may be affected by the quality of any credit extended. Further, equity and mortgage REITs
are dependent upon management skills and generally may not be diversified. Equity and mortgage REITs are also subject to heavy cash
flow dependency, defaults by borrowers, and self-liquidations. In addition, equity and mortgage REITs could possibly fail to qualify
for tax-free pass through of income or to maintain their exemptions from registration under the 1940 Act. The above factors may also adversely
affect a borrower’s or a lessee’s ability to meet its obligations to a REIT. In the event of a default by a borrower or lessee,
a REIT may experience delays in enforcing its rights as a mortgagee or lessor and may incur substantial costs associated with protecting
its investments.
Shares of REITs may trade less frequently and, therefore, are subject
to more erratic price movements than securities of larger issuers. REITs are also subject to credit, market, liquidity and interest rate
risks.
REITs may issue debt securities to fund their activities. The
value of these debt securities may be affected by changes in the value of the underlying property owned by the REIT, the creditworthiness
of the REIT, interest rates, and tax and regulatory requirements, among other things.
Exchange-Traded
Funds. The Fund may invest in shares of exchange-traded funds (collectively, “ETFs”) which are designed to provide
investment results corresponding to an index. These indexes may be either broad-based, sector or international.
ETFs are pooled investment vehicles that trade their shares on stock
exchanges at market prices (rather than net asset value) and are only redeemable from the ETF itself in large increments or in exchange
for baskets of securities. As an exchange traded security, an ETF’s shares are priced continuously and trade throughout the day.
ETFs may track a securities index, a particular market sector, a particular segment of a securities index or market sector (“Passive
ETFs”), or they may be actively managed (“Active ETFs”). An investment in an ETF generally involves the same primary
risks as an investment in a fund that is not exchange-traded that has the same investment objectives, strategies and policies of the ETF,
such as liquidity risk, sector risk and foreign and emerging market risk, as well as risks associated with equity securities, fixed income
securities, real estate investments and commodities, as applicable. In addition, a Passive ETF may fail to accurately track the market
segment or index that underlies its investment objective or may fail to fully replicate its underlying index, in which case the Passive
ETF’s investment strategy may not produce the intended results. The way in which shares of ETFs are traded, purchased and redeemed
involves certain risks. An ETF may trade at a price that is lower than its net asset value. Secondary market trading of an ETF may result
in frequent price fluctuations, which in turn may result in a loss to a Fund. Additionally, there is no guarantee that an active market
for the ETF’s shares will develop or be maintained. An ETF may fail to meet the listing requirements of any applicable exchanges
on which it is listed. Further, trading in an ETF may be halted if the trading in one or more of the securities held by an ETF is halted.
The existence of extreme market volatility or potential lack of an active trading market for an ETF’s shares could result in such
shares trading at a significant premium or discount to their NAV.
A Fund will indirectly bear its proportionate share of any management
fees and other operating expenses of an ETF in which it invests. A Fund may pay brokerage commissions in connection with the purchase
and sale of shares of ETFs.
Eaton Vance Tax-Managed Diversified Equity Income Fund | 7 | SAI dated February 18, 2022 |
Pooled
Investment Vehicles. The Fund reserves the right to invest up to 10% of its total assets, calculated at the time of purchase,
in the securities of pooled investment vehicles including other investment companies unaffiliated with the Adviser. The 10% limitation
does not apply to the Fund’s investment in money market funds and certain other pooled investment vehicles. Pooled investment vehicles
include other open-end or closed-end investment companies affiliated or unaffiliated with the investment adviser, exchange-traded funds
and other collective investment pools. Closed-end investment company securities are usually traded on an exchange. The demand for a closed-end
fund’s securities is independent of the demand for the underlying portfolio assets, and accordingly, such securities can trade at
a discount from, or a premium over, their net asset value. The Fund generally will indirectly bear its proportionate share of any management
fees paid by a pooled investment vehicle in which it invests in addition to the investment advisory fee paid by the Fund.
Cybersecurity
Risk. With the increased use of technologies by Fund service providers to conduct business, such as the Internet, the
Fund is susceptible to operational, information security and related risks. The Fund relies on communications technology, systems,
and networks to engage with clients, employees, accounts, shareholders, and service providers, and a cyber incident may inhibit the
Fund’s ability to use these technologies. In general, cyber incidents can result from deliberate attacks or unintentional
events. Cyber attacks include, but are not limited to, gaining unauthorized access to digital systems (e.g., through
“hacking” or malicious software coding) for purposes of misappropriating assets or sensitive information, corrupting
data, or causing operational disruption. Cyber attacks may also be carried out in a manner that does not require gaining
unauthorized access, such as causing denial-of-service attacks on websites or via “ransomware” that renders the systems
inoperable until appropriate actions are taken. A denial-of-service attack is an effort to make network services unavailable to
intended users, which could cause shareholders to lose access to their electronic accounts, potentially indefinitely. Employees and
service providers also may not be able to access electronic systems to perform critical duties for the Fund, such as trading NAV
calculation, shareholder accounting or fulfillment of Fund share purchases and redemptions during a denial-of-service attack. There
is also the possibility for systems failures due to malfunctions, user error and misconduct by employees and agents, natural
disasters, or other foreseeable and unforeseeable events.
Because technology is consistently changing, new ways to carry out
cyber attacks are always developing. Therefore, there is a chance that some risks have not been identified or prepared for, or that an
attack may not be detected, which puts limitations on the Fund's ability to plan for or respond to a cyber attack. Like other funds and
business enterprises, the Fund and its service providers have experienced, and will continue to experience, cyber incidents consistently.
In addition to deliberate cyber attacks, unintentional cyber incidents can occur, such as the inadvertent release of confidential information
by the Fund or its service providers. To date, cyber incidents have not had a material adverse effect on the Fund’s business operations
or performance.
The Fund uses third party service providers who are also heavily dependent
on computers and technology for their operations. Cybersecurity failures by or breaches of the Fund’s investment adviser or administrator
and other service providers (including, but not limited to, the custodian or transfer agent), and the issuers of securities in which the
Fund invests, may disrupt and otherwise adversely affect their business operations. This may result in financial losses to the Fund, impede
Fund trading, interfere with the Fund’s ability to calculate its NAV, limit a shareholder’s ability to purchase or redeem
shares of the Fund or cause violations of applicable privacy and other laws, regulatory fines, penalties, reputational damage, reimbursement
or other compensation costs, litigation costs, or additional compliance costs. While many of the Fund’s service providers have established
business continuity plans and risk management systems intended to identify and mitigate cyber attacks, there are inherent limitations
in such plans and systems, including the possibility that certain risks have not been identified. The Fund cannot control the cybersecurity
plans and systems put in place by service providers to the Fund and issuers in which the Fund invests. The Fund and its shareholders
could be negatively impacted as a result.
Operational
Risk. The Fund’s service providers, including the investment adviser, may experience disruptions or operating errors
that could negatively impact the Fund. Disruptive events, including (but not limited to) natural disasters and public health crises,
may adversely affect the Fund’s ability to conduct business, in particular if the Fund’s employees or the employees of its
service providers are unable or unwilling to perform their responsibilities as a result of any such event. While service providers are
expected to have appropriate operational risk management policies and procedures, their methods of operational risk management may differ
from the Fund’s in the setting of priorities, the personnel and resources available or the effectiveness of relevant controls.
It also is not possible for Fund service providers to identify all of the operational risks that may affect the Fund or to develop processes
and controls to completely eliminate or mitigate their occurrence or effects.
Temporary
Investments. The Fund may invest in cash equivalents to invest daily cash balances or for temporary
defensive purposes. Cash equivalents are highly liquid, short-term securities such as commercial paper, time deposits, certificates of
deposit, short-term notes and short-term U.S. Government obligations.
Eaton Vance Tax-Managed Diversified Equity Income Fund | 8 | SAI dated February 18, 2022 |
LIBOR. The London Interbank Offered Rate or LIBOR is the average offered rate for various maturities
of short-term loans between major international banks who are members of the British Bankers Association. It is used throughout global
banking and financial industries to determine interest rates for a variety of financial instruments (such as debt instruments and derivatives)
and borrowing arrangements. In July 2017, the Financial Conduct Authority (the “FCA”),
the United Kingdom financial regulatory body, announced a desire to phase out the use of LIBOR. The ICE Benchmark Administration Limited,
the administrator of LIBOR, ceased publishing certain LIBOR settings on December 31, 2021, and is expected to cease publishing the remaining
LIBOR settings on June 30, 2023. Many market participants are in the process of transitioning to the use of alternative reference or benchmark
rates.
On September 29, 2021 the FCA announced that it will compel the ICE Benchmark Administration Limited (the “IBA”) to publish
a subset of non-U.S. LIBOR maturities after December 31, 2021 using a “synthetic” methodology that is not based on panel bank
contributions and has indicated that it may also require IBA to publish a subset of U.S. LIBOR maturities after June 30, 2023, using a
similar synthetic methodology. However, these synthetic publications are expected to be published for a limited period of time and would
be considered non-representative of the underlying market.
Although the transition process away from LIBOR has become increasingly
well-defined, the impact on certain debt securities, derivatives and other financial instruments that utilize LIBOR remains uncertain.
The transition process may involve, among other things, increased volatility or illiquidity in markets for instruments that currently
rely on LIBOR. The transition may also result in a change in (i) the value of certain instruments held by the Fund, (ii) the cost of borrowing
or the dividend rate for preferred shares, or (iii) the effectiveness of related Fund transactions such as hedges, as applicable.
Various financial industry groups are planning for the transition
away from LIBOR, but there are obstacles to converting certain longer term securities and transactions to a new benchmark. In June 2017,
the Alternative Reference Rates Committee, a group of large U.S. banks working with the Federal Reserve, announced its selection of a
new Secured Overnight Financing Rate (“SOFR”), which is intended to be a broad measure of secured overnight U.S. Treasury
repo rates, as an appropriate replacement for LIBOR. Bank working groups and regulators in other countries have suggested other alternatives
for their markets, including the Sterling Overnight Interbank Average Rate (“SONIA”) in England. Both SOFR and SONIA, as well
as certain other proposed replacement rates, are materially different from LIBOR, and changes in the applicable spread for financial instruments
transitioning away from LIBOR need to be made to accommodate the differences. Liquid markets for newly-issued instruments that use an
alternative reference rate are still developing. Consequently, there may be challenges for a Fund to enter into hedging transactions against
instruments tied to alternative reference rates until a market for such hedging transactions develops.
Additionally, while some existing LIBOR-based instruments may contemplate
a scenario where LIBOR is no longer available by providing for an alternative or “fallback” rate-setting methodology, there
may be significant uncertainty regarding the effectiveness of any such alternative methodologies to replicate LIBOR. Not all existing
LIBOR-based instruments have such fallback provisions, and many that do, do not contemplate the permanent cessation of LIBOR. While it
is expected that market participants will amend legacy financial instruments referencing LIBOR to include fallback provisions to alternative
reference rates, there remains uncertainty regarding the willingness and ability of parties to add or amend such fallback provisions in
legacy instruments maturing after the end of 2021, particularly with respect to legacy cash products. Although there are ongoing efforts
among certain government entities and other organizations to address these uncertainties, the ultimate effectiveness of such efforts is
not yet known.
Any effects of the transition away from LIBOR and the adoption of
alternative reference rates, as well as other unforeseen effects, could result in losses to the Fund, and such effects may occur prior
to the discontinuation of the remaining LIBOR settings in 2023. Furthermore, the risks associated with the discontinuation
of LIBOR and transition to replacement rates may be exacerbated if an orderly transition to an alternative reference rate is not completed
in a timely manner.
Asset
Coverage Requirements. To the extent required by SEC guidance, if a transaction creates a future obligation of the Fund to
another party the Fund will: (1) cover the obligation by entering into an offsetting position or transaction; and/or (2) segregate cash
and/or liquid securities with a value (together with any collateral posted with respect to the obligation) at least equal to the marked-to
market value of the obligations. Assets used as cover or segregated cannot be sold while the position(s) requiring cover is open unless
replaced with other appropriate assets. The types of transactions that may require asset coverage include (but are not limited to) reverse
repurchase agreements, repurchase agreements, short sales, securities lending, forward contracts, certain options, forward commitments,
futures contracts, when-issued securities, swap agreements, residual interest bonds, and participation in revolving credit facilities.
Investment
Restrictions. The following investment restrictions of the Fund are designated as fundamental policies and as such cannot be
changed without the approval of the holders of a majority of the Fund’s outstanding voting securities, which as used in this SAI
means the lesser of (a) 67% of the shares of the Fund present or represented by proxy at a meeting if the holders of more than 50% of
the outstanding shares are present or represented at the meeting or (b) more than 50% of outstanding shares of the Fund. As a matter of
fundamental policy, the Fund may not:
Eaton Vance Tax-Managed Diversified Equity Income Fund | 9 | SAI dated February 18, 2022 |
| (1) | Borrow money, except as permitted by the Investment Company Act of 1940, as amended (the “1940 Act”). The 1940 Act currently
requires that any indebtedness incurred by a closed-end investment company have an asset coverage of at least 300%; |
| (2) | Issue senior securities, as defined in the 1940 Act, other than (i) preferred shares which immediately after issuance will have asset
coverage of at least 200%, (ii) indebtedness which immediately after issuance will have asset coverage of at least 300%, or (iii) the
borrowings permitted by investment restriction (1) above. The 1940 Act currently defines “senior security” as any bond, debenture,
note or similar obligation or instrument constituting a security and evidencing indebtedness and any stock of a class having priority
over any other class as to distribution of assets or payment of dividends. Debt and equity securities issued by a closed-end investment
company meeting the foregoing asset coverage provisions are excluded from the general 1940 Act prohibition on the issuance of senior securities; |
| (3) | Purchase securities on margin (but the Fund may obtain such short-term credits as may be necessary for the clearance of purchases
and sales of securities). The purchase of investment assets with the proceeds of a permitted borrowing or securities offering will not
be deemed to be the purchase of securities on margin; |
| (4) | Underwrite securities issued by other persons, except insofar as it may technically be deemed to be an underwriter under the Securities
Act of 1933, as amended, in selling or disposing of a portfolio investment; |
| (5) | Make loans to other persons, except by (a) the acquisition of loans, loan interests, debt securities and other obligations in which
the Fund is authorized to invest in accordance with its investment objectives and policies, (b) entering into repurchase agreements and
(c) lending its portfolio securities; |
| (6) | Purchase or sell real estate, although it may purchase and sell securities which are secured by interests in real estate and securities
of issuers which invest or deal in real estate. The Fund reserves the freedom of action to hold and to sell real estate acquired as a
result of the ownership of securities; |
| (7) | Purchase or sell physical commodities or contracts for the purchase or sale of physical commodities. Physical commodities do not include
futures contracts with respect to securities, securities indices, currency or other financial instruments; |
| (8) | With respect to 75% of its total assets, invest more than 5% of its total assets in the securities of a single issuer or purchase
more than 10% of the outstanding voting securities of a single issuer, except obligations issued or guaranteed by the U.S. government,
its agencies or instrumentalities and except securities of other investment companies; and |
| (9) | Invest 25% or more of its total assets in any single industry (other than securities issued or guaranteed by the U.S. government or
its agencies or instrumentalities). |
In regard to 5(c), the value of the securities loaned by the Fund may
not exceed 33 1⁄3% of its total assets.
The Fund may borrow money as a temporary measure for extraordinary or
emergency purposes, including the payment of dividends and the settlement of securities transactions which otherwise might require untimely
dispositions of Fund securities. The 1940 Act currently requires that the Fund have 300% asset coverage with respect to all borrowings
other than temporary borrowings.
For purposes of construing restriction (9), securities of the U.S. Government,
its agencies, or instrumentalities are not considered to represent industries. Municipal obligations backed by the credit of a governmental
entity are also not considered to represent industries.
The Fund has adopted the following nonfundamental investment policy
which may be changed by the Board without approval of the Fund’s shareholders. As a matter of nonfundamental policy, the Fund may
not make short sales of securities or maintain a short position, unless at all times when a short position is open the Fund either owns
an equal amount of such securities or owns securities convertible into or exchangeable, without payment of any further consideration,
for securities of the same issue as, and equal in amount to, the securities sold short.
Eaton Vance Tax-Managed Diversified Equity Income Fund | 10 | SAI dated February 18, 2022 |
Upon the Board’s approval, the Fund may invest more than 10% of
its total assets in one or more other management investment companies (or may invest in affiliated investment companies) to the extent
permitted by the 1940 Act and rules thereunder.
Whenever an investment policy or investment restriction set forth
in the Prospectus or this SAI states a maximum percentage of assets that may be invested in any security or other asset or describes a
policy regarding quality standards, such percentage limitation or standard shall be determined immediately after and as a result of the
Fund’s acquisition of such security or asset. Accordingly, any later increase or decrease resulting from a change in values, assets
or other circumstances or any subsequent rating change made by a rating service (or as determined by the Adviser if the security is not
rated by a rating agency) will not compel the Fund to dispose of such security or other asset. Notwithstanding the foregoing, the Fund
must always be in compliance with the borrowing policies set forth above. If a Fund is required to reduce borrowings, it will do so in
a manner that is consistent with the 1940 Act and guidance of the SEC or its staff, and that complies with any applicable SEC exemptive
order.
TRUSTEES AND OFFICERS
The Board of Trustees of the Fund (the “Board”) is responsible
for the overall management and supervision of the affairs of the Fund. The Board members and officers of the Fund are listed below. Except
as indicated, each individual has held the office shown or other offices in the same company for the last five years. Each Trustee holds
office until the annual meeting for the year in which his or her term expires and until his or her successor is elected and qualified,
subject to a prior death, resignation, retirement, disqualification or removal. Under the terms of the Fund’s current Trustee retirement
policy, an Independent Trustee must retire and resign as a Trustee on the earlier of: (i) the first day of July following his or her 74th
birthday; or (ii), with limited exception, December 31st of the 20th year in which he or she has served as a Trustee. However, if such
retirement and resignation would cause the Fund to be out of compliance with Section 16 of the 1940 Act, as amended (the “1940 Act”)
or any other regulations or guidance of the Securities and Exchange Commission (“SEC”), then such retirement and resignation
will not become effective until such time as action has been taken for the Fund to be in compliance therewith. The “noninterested
Trustees” consist of those Trustees who are not “interested persons” of the Fund, as that term is defined under the
1940 Act. The business address of each Board member and officer is Two International Place, Boston, Massachusetts 02110. As used in this
SAI, “BMR” refers to Boston Management and Research, “EVC” refers to Eaton Vance Corp., “EV” refers
to EV, LLC, “Eaton Vance” or “EVM” refers to Eaton Vance Management and “EVD” refers to
Eaton Vance Distributors, Inc. EV is the trustee of each of Eaton Vance and BMR. Effective March 1, 2021, each of Eaton Vance, BMR, EVD
and EV are indirect wholly owned subsidiaries of Morgan Stanley. Each officer affiliated with Eaton Vance may hold a position with other
Eaton Vance affiliates that is comparable to his or her position with Eaton Vance listed below.
Name and Year of Birth |
|
Fund
Position(s)(1) |
|
Length of Service |
|
Principal Occupation(s) During Past Five Years
and Other Relevant Experience |
|
Number of Portfolios
in Fund Complex
Overseen By
Trustee(2) |
|
Other Directorships Held
During Last Five Years |
Interested Trustee |
|
|
|
|
|
|
|
|
|
|
THOMAS E. FAUST JR.
1958 |
|
Class I
Trustee |
|
Until 2022.
3 years.
Since 2007. |
|
Chairman of Morgan Stanley Investment Management, Inc. (MSIM), member of the Board of Managers and President of EV, Chief Executive Officer and President of Eaton Vance and BMR, and Director of EVD. Formerly, Chairman, Chief Executive Officer and President of EVC. Mr. Faust is an interested person because of his positions with MSIM, BMR, Eaton Vance, EVD and EV, which are affiliates of the Fund, and his former position with EVC, which was an affiliate of the Fund prior to March 1, 2021. |
|
137 |
|
Formerly, Director of EVC (2007-2021) and Hexavest Inc. (investment management firm) (2012-2021). |
Eaton Vance Tax-Managed Diversified Equity Income Fund | 11 | SAI dated February 18, 2022 |
Name and Year of Birth |
|
Fund
Position(s)(1) |
|
Length of Service |
|
Principal Occupation(s) During Past Five Years
and Other Relevant Experience |
|
Number of Portfolios
in Fund Complex
Overseen By
Trustee(2) |
|
Other Directorships Held
During Last Five Years |
Noninterested Trustees |
|
|
|
|
|
|
|
|
|
|
MARK R. FETTING
1954 |
|
Class III
Trustee |
|
Until 2024.
3 years.
Since 2016. |
|
Private investor. Formerly held various positions at Legg Mason, Inc. (investment management firm) (2000-2012), including President, Chief Executive Officer, Director and Chairman (2008-2012), Senior Executive Vice President (2004-2008) and Executive Vice President (2001-2004). Formerly, President of Legg Mason family of funds (2001-2008). Formerly, Division President and Senior Officer of Prudential Financial Group, Inc. and related companies (investment management firm) (1991-2000). |
|
138 |
|
None |
CYNTHIA E. FROST
1961 |
|
Class I
Trustee |
|
Until 2022.
3 years.
Since 2014. |
|
Private investor. Formerly, Chief Investment Officer of Brown University (university endowment) (2000-2012). Formerly, Portfolio Strategist for Duke Management Company (university endowment manager) (1995-2000). Formerly, Managing Director, Cambridge Associates (investment consulting company) (1989-1995). Formerly, Consultant, Bain and Company (management consulting firm) (1987-1989). Formerly, Senior Equity Analyst, BA Investment Management Company (1983-1985). |
|
137 |
|
None |
GEORGE J. GORMAN
1952 |
|
Chairperson of the Board and Class II
Trustee |
|
Until 2023.
3 years.
Chairperson of the Board since 2021 and Trustee since 2014. |
|
Principal at George J. Gorman LLC (consulting firm). Formerly, Senior Partner at Ernst & Young LLP (a registered public accounting firm) (1974-2009). |
|
138 |
|
None |
VALERIE A. MOSLEY
1960 |
|
Class III
Trustee |
|
Until 2024.
3 years.
Since 2014. |
|
Chairwoman and Chief Executive Officer of Valmo Ventures (a consulting and investment firm). Founder of Upward Wealth, Inc., dba BrightUP, a fintech platform. Formerly, Partner and Senior Vice President, Portfolio Manager and Investment Strategist at Wellington Management Company, LLP (investment management firm) (1992-2012). Formerly, Chief Investment Officer, PG Corbin Asset Management (1990-1992). Formerly worked in institutional corporate bond sales at Kidder Peabody (1986-1990). |
|
138 |
|
Director of DraftKings, Inc. (digital sports entertainment and gaming company) (since September 2020). Director of Groupon, Inc. (e-commerce provider) (since April 2020). Director of Envestnet, Inc. (provider of intelligent systems for wealth management and financial wellness) (since 2018). Formerly, Director of Dynex Capital, Inc. (mortgage REIT) (2013-2020). |
Eaton Vance Tax-Managed Diversified Equity Income Fund | 12 | SAI dated February 18, 2022 |
Name and Year of Birth |
|
Fund
Position(s)(1) |
|
Length of Service |
|
Principal Occupation(s) During Past Five Years
and Other Relevant Experience |
|
Number of Portfolios
in Fund Complex
Overseen By
Trustee(2) |
|
Other Directorships Held
During Last Five Years |
WILLIAM H. PARK
1947 |
|
Class II
Trustee |
|
Until 2023.
3 years.
Since 2003. |
|
Private investor. Formerly, Consultant (management and transactional) (2012-2014). Formerly, Chief Financial Officer, Aveon Group, L.P. (investment management firm) (2010-2011). Formerly, Vice Chairman, Commercial Industrial Finance Corp. (specialty finance company) (2006-2010). Formerly, President and Chief Executive Officer, Prizm Capital Management, LLC (investment management firm) (2002-2005). Formerly, Executive Vice President and Chief Financial Officer, United Asset Management Corporation (investment management firm) (1982-2001). Formerly, Senior Manager, Price Waterhouse (now PricewaterhouseCoopers) (a registered public accounting firm) (1972-1981). |
|
138 |
|
None |
HELEN FRAME PETERS
1948
|
|
Class III
Trustee |
|
Until 2024.
3 years.
Since 2008. |
|
Professor of Finance, Carroll School of Management, Boston College. Formerly, Dean, Carroll School of Management, Boston College (2000-2002). Formerly, Chief Investment Officer, Fixed Income, Scudder Kemper Investments (investment management firm) (1998-1999). Formerly, Chief Investment Officer, Equity and Fixed Income, Colonial Management Associates (investment management firm) (1991-1998). |
|
138 |
|
None |
KEITH QUINTON
1958 |
|
Class II
Trustee |
|
Until 2023.
3 years.
Since 2018. |
|
Private investor, researcher and lecturer. Independent Investment Committee Member at New Hampshire Retirement System (since 2017). Formerly, Portfolio Manager and Senior Quantitative Analyst at Fidelity Investments (investment management firm) (2001-2014). |
|
138 |
|
Formerly, Director (2016-2021) and Chairman (2019-2021) of New Hampshire Municipal Bond Bank. |
MARCUS L. SMITH
1966 |
|
Class III
Trustee |
|
Until 2024.
3 years.
Since 2018. |
|
Private investor and independent corporate director. Formerly, Chief Investment Officer, Canada (2012-2017), Chief Investment Officer,
Asia (2010-2012), Director of Asian Research (2004-2010) and portfolio manager (2001-2017) at MFS Investment Management (investment management
firm). |
|
138 |
|
Director of First Industrial Realty Trust, Inc. (an industrial REIT) (since 2021). Director of MSCI Inc. (global provider of investment decision support tools) (since 2017). Formerly, Director of DCT Industrial Trust Inc. (logistics real estate company) (2017-2018). |
SUSAN J. SUTHERLAND
1957 |
|
Class II
Trustee |
|
Until 2023.
3 years.
Since 2015. |
|
Private investor. Director of Ascot Group Limited and certain of its subsidiaries (insurance and reinsurance) (since 2017). Formerly, Director of Hagerty Holding Corp. (insurance) (2015-2018) and Montpelier Re Holdings Ltd. (insurance and reinsurance) (2013-2015). Formerly, Associate, Counsel and Partner at Skadden, Arps, Slate, Meagher & Flom LLP (law firm) (1982-2013). |
|
138 |
|
Director of Kairos Acquisition Corp. (insurance/InsurTech acquisition company) (since 2021). |
|
|
|
|
|
|
|
|
|
|
|
|
|
Eaton Vance Tax-Managed Diversified Equity Income Fund | 13 | SAI dated February 18, 2022 |
Name and Year of Birth |
|
Fund
Position(s)(1) |
|
Length of Service |
|
Principal Occupation(s) During Past Five Years
and Other Relevant Experience |
|
Number of Portfolios
in Fund Complex
Overseen By
Trustee(2) |
|
Other Directorships Held
During Last Five Years |
SCOTT E. WENNERHOLM
1959 |
|
Class I
Trustee |
|
Until 2022.
3 years.
Since 2016. |
|
Private investor. Formerly, Trustee at Wheelock College (postsecondary institution) (2012-2018). Formerly, Consultant at GF Parish Group (executive recruiting firm) (2016-2017). Formerly, Chief Operating Officer and Executive Vice President at BNY Mellon Asset Management (investment management firm) (2005-2011). Formerly, Chief Operating Officer and Chief Financial Officer at Natixis Global Asset Management (investment management firm) (1997-2004). Formerly, Vice President at Fidelity Investments Institutional Services (investment management firm) (1994-1997). |
|
137 |
|
None |
| (1) | The Board of Trustees is divided into three classes, each class having a term of three years to expire on the date of the third annual
meeting following its election. |
| (2) | Includes both funds and portfolios in a hub and spoke structure. |
Principal Officers who are not Trustees |
Name and Year of Birth |
|
Fund Position(s) |
|
Length of Service |
|
Principal Occupation(s) During Past Five Years |
EDWARD
J. PERKIN
1972 |
|
President |
|
Since
2017 |
|
Chief Equity Investment Officer and Vice President of Eaton Vance and BMR. Officer of 22 registered investment companies managed by Eaton Vance or BMR. Also Vice President of Calvert Research and Management (“CRM”) since 2016. |
DEIDRE E. WALSH
1971 |
|
Vice President and Chief Legal Officer |
|
Since 2021 |
|
Vice President of Eaton Vance and BMR. Officer of 138 registered investment companies managed by Eaton Vance or BMR. Also Vice President of CRM and officer of 39 registered investment companies advised or administered by CRM since 2021. |
JAMES
F. KIRCHNER
1967 |
|
Treasurer |
|
Since
2013 |
|
Vice President of Eaton Vance and BMR. Officer of 138 registered investment companies managed by Eaton Vance or BMR. Also Vice President of CRM and officer of 39 registered investment companies advised or administered by CRM since 2016. |
JILL
R. DAMON
1984 |
|
Secretary |
|
Since
2022 |
|
Vice President of Eaton Vance and BMR since 2017. Officer of 138 registered investment companies managed by Eaton Vance or BMR. Formerly, associate at Dechert LLP (2009-2017). |
RICHARD
F. FROIO
1968 |
|
Chief
Compliance Officer |
|
Since
2017 |
|
Vice President of Eaton Vance and BMR since 2017. Officer of 138 registered investment companies managed by Eaton Vance or BMR. Formerly, Deputy Chief Compliance Officer (Adviser/Funds) and Chief Compliance Officer (Distribution) at PIMCO (2012-2017) and Managing Director at BlackRock/Barclays Global Investors (2009-2012). |
The Board has general oversight responsibility with respect to the business
and affairs of the Fund. The Board has engaged an investment adviser and (if applicable) a sub-adviser(s) (collectively the “adviser”)
to manage the Fund and an administrator to administer the Fund and is responsible for overseeing such adviser and administrator
and other service providers to the Fund. The Board is currently composed of eleven Trustees, including ten Trustees who are not “interested
persons” of the Fund, as that term is defined in the 1940 Act (each a “noninterested Trustee”). In addition to
six regularly scheduled meetings per year, the Board holds special meetings or informal conference calls to discuss specific matters that
may require action prior to the next regular meeting. As discussed below, the Board has established six committees to assist the Board
in performing its oversight responsibilities.
Eaton Vance Tax-Managed Diversified Equity Income Fund | 14 | SAI dated February 18, 2022 |
The Board has appointed a noninterested Trustee to serve in the role
of Chairperson. The Chairperson’s primary role is to participate in the preparation of the agenda for meetings of the Board and
the identification of information to be presented to the Board with respect to matters to be acted upon by the Board. The Chairperson
also presides at all meetings of the Board and acts as a liaison with service providers, officers, attorneys, and other Board members
generally between meetings. The Chairperson may perform such other functions as may be requested by the Board from time to time. In addition,
the Board may appoint a noninterested Trustee to serve in the role of Vice-Chairperson. The Vice-Chairperson has the power and authority
to perform any or all of the duties and responsibilities of the Chairperson in the absence of the Chairperson and/or as requested by the
Chairperson. Except for any duties specified herein or pursuant to the Fund’s Declaration of Trust or By-laws, the designation of
Chairperson or Vice-Chairperson does not impose on such noninterested Trustee any duties, obligations or liability that is greater than
the duties, obligations or liability imposed on such person as a member of the Board, generally.
The Fund is subject to a number of risks, including, among others, investment,
compliance, operational, and valuation risks. Risk oversight is part of the Board’s general oversight of the Fund and is addressed
as part of various activities of the Board and its Committees. As part of its oversight of the Fund, the Board directly, or through a
Committee, relies on and reviews reports from, among others, Fund management, the adviser, the administrator, the principal underwriter,
the Chief Compliance Officer (the “CCO”), and other Fund service providers responsible for day-to-day oversight of Fund investments,
operations and compliance to assist the Board in identifying and understanding the nature and extent of risks and determining whether,
and to what extent, such risks can or should be mitigated. The Board also interacts with the CCO and with senior personnel of the adviser,
administrator, principal underwriter and other Fund service providers and provides input on risk management issues during meetings of
the Board and its Committees. Each of the adviser, administrator, principal underwriter and the other Fund service providers has its own,
independent interest and responsibilities in risk management, and its policies and methods for carrying out risk management functions
will depend, in part, on its individual priorities, resources and controls. It is not possible to identify all of the risks that may affect
the Fund or to develop processes and controls to eliminate or mitigate their occurrence or effects. Moreover, it is necessary to
bear certain risks (such as investment-related risks) to achieve the Fund’s goals.
The Board, with the assistance of management and with input from the
Board's various committees, reviews investment policies and risks in connection with its review of Fund performance. The Board has appointed
a Fund CCO who oversees the implementation and testing of the Fund compliance program and reports to the Board regarding compliance matters
for the Fund and its principal service providers. In addition, as part of the Board’s periodic review of the advisory, subadvisory
(if applicable), distribution and other service provider agreements, the Board may consider risk management aspects of their operations
and the functions for which they are responsible. With respect to valuation, the Board approves and periodically reviews valuation policies
and procedures applicable to valuing the Fund’s shares. The administrator, the investment adviser and the sub-adviser (if applicable)
are responsible for the implementation and day-to-day administration of these valuation policies and procedures and provides reports to
the Audit Committee of the Board and the Board regarding these and related matters. In addition, the Audit Committee of the Board or the
Board receives reports periodically from the independent public accounting firm for the Fund regarding tests performed by such firm on
the valuation of all securities, as well as with respect to other risks associated with mutual funds. Reports received from service providers,
legal counsel and the independent public accounting firm assist the Board in performing its oversight function.
The Fund’s Declaration of Trust does not set forth any specific
qualifications to serve as a Trustee. The Charter of the Governance Committee also does not set forth any specific qualifications, but
does set forth certain factors that the Committee may take into account in considering noninterested Trustee candidates. In general, no
one factor is decisive in the selection of an individual to join the Board. Among the factors the Board considers when concluding that
an individual should serve on the Board are the following: (i) knowledge in matters relating to the mutual fund industry; (ii) experience
as a director or senior officer of public companies; (iii) educational background; (iv) reputation for high ethical standards and professional
integrity; (v) specific financial, technical or other expertise, and the extent to which such expertise would complement the Board members’
existing mix of skills, core competencies and qualifications; (vi) perceived ability to contribute to the ongoing functions of the Board,
including the ability and commitment to attend meetings regularly and work collaboratively with other members of the Board; (vii) the
ability to qualify as a noninterested Trustee for purposes of the 1940 Act and any other actual or potential conflicts of interest involving
the individual and the Fund; and (viii) such other factors as the Board determines to be relevant in light of the existing composition
of the Board.
Among the attributes or skills common to all Board members are their
ability to review critically, evaluate, question and discuss information provided to them, to interact effectively with the other members
of the Board, management, sub-advisers, other service providers, counsel and independent registered public accounting firms, and to exercise
effective and independent business judgment in the performance of their duties as members of the Board. Each Board member’s ability
to perform his or her duties effectively has been attained through the Board member’s business, consulting, public
Eaton Vance Tax-Managed Diversified Equity Income Fund | 15 | SAI dated February 18, 2022 |
service and/or academic positions and through experience from service
as a member of the Boards of the Eaton Vance family of funds (“Eaton Vance Fund Boards”) (and/or in other capacities, including
for any predecessor funds), public companies, or non-profit entities or other organizations as set forth below. Each Board member’s
ability to perform his or her duties effectively also has been enhanced by his or her educational background, professional training, and/or
other life experiences.
In respect of each current member of the Board, the individual’s
substantial professional accomplishments and experience, including in fields related to the operations of registered investment companies,
were a significant factor in the determination that the individual should serve as a member of the Board. The following is a summary of
each Board member’s particular professional experience and additional considerations that contributed to the Board’s conclusion
that he or she should serve as a member of the Board:
Thomas
E. Faust Jr. Mr. Faust has served as a member of the Eaton Vance Fund Boards since 2007. Effective March 1, 2021, he is Chairman
of MSIM. He is also a member of the Board of Managers and President of EV, Chief Executive Officer and President of Eaton Vance and BMR,
and Director of EVD. Mr. Faust previously served as Chairman and Chief Executive Officer of EVC from 2007 through March 1, 2021 and as
President of EVC from 2006 through March 1, 2021. Mr. Faust served as a Director of Hexavest Inc. from 2012-2021. From 2016 through 2019,
Mr. Faust served as a Director of SigFig Wealth Management LLC. Mr. Faust previously served as an equity analyst, portfolio manager, Director
of Equity Research and Management and Chief Investment Officer of Eaton Vance from 1985-2007. He holds B.S. degrees in Mechanical Engineering
and Economics from the Massachusetts Institute of Technology and an MBA from Harvard Business School. Mr. Faust has been a Chartered Financial
Analyst since 1988. He is a trustee and member of the executive committee of the Boston Symphony Orchestra, Inc. and trustee emeritus
of Wellesley College.
Mark R.
Fetting. Mr. Fetting has served as a member of the Eaton Vance Fund Boards since 2016 and is the Chairperson of the Contract
Review Committee. He has over 30 years of experience in the investment management industry as an executive and in various leadership roles.
From 2000 through 2012, Mr. Fetting served in several capacities at Legg Mason, Inc., including most recently serving as President, Chief
Executive Officer, Director and Chairman from 2008 to his retirement in 2012. He also served as a Director/Trustee and Chairman of the
Legg Mason family of funds from 2008-2012 and Director/Trustee of the Royce family of funds from 2001-2012. From 2001 through 2008, Mr.
Fetting also served as President of the Legg Mason family of funds. From 1991 through 2000, Mr. Fetting served as Division President and
Senior Officer of Prudential Financial Group, Inc. and related companies. Early in his professional career, Mr. Fetting was a Vice President
at T. Rowe Price and served in leadership roles within the firm’s mutual fund division from 1981-1987.
Cynthia E. Frost. Ms. Frost has served as a member of the Eaton
Vance Fund Boards since 2014 and is the Chairperson of the Portfolio Management Committee. From 2000 through 2012, Ms. Frost was the Chief
Investment Officer of Brown University, where she oversaw the evaluation, selection and monitoring of the third party investment managers
who managed the university’s endowment. From 1995 through 2000, Ms. Frost was a Portfolio Strategist for Duke Management Company,
which oversaw Duke University’s endowment. Ms. Frost also served in various investment and consulting roles at Cambridge Associates
from 1989-1995, Bain and Company from 1987-1989 and BA Investment Management Company from 1983-1985. She serves as a member of the investment
committee of The MCNC Endowment.
George
J. Gorman. Mr. Gorman has served as a member of the Eaton Vance Fund Boards since 2014 and is the Independent Chairperson of
the Board. From 1974 through 2009, Mr. Gorman served in various capacities at Ernst & Young LLP, including as a Senior Partner in
the Asset Management Group (from 1988) specializing in managing engagement teams responsible for auditing mutual funds registered with
the SEC, hedge funds and private equity funds. Mr. Gorman also has experience serving as an independent trustee of other mutual fund complexes,
including the Bank of America Money Market Funds Series Trust from 2011-2014 and the Ashmore Funds from 2010-2014.
Valerie
A. Mosley. Ms. Mosley has served as a member of the Eaton Vance Fund Boards since 2014 and is the Chairperson of the Governance
Committee. She currently owns and manages a consulting and investment firm, Valmo Ventures, and in 2020 founded Upward Wealth, Inc., doing
business as BrightUP, a fintech platform focused on helping everyday workers grow their net worth and reinforce their self-worth. From
1992 through 2012, Ms. Mosley served in several capacities at Wellington Management Company, LLP, an investment management firm, including
as a Partner, Senior Vice President, Portfolio Manager and Investment Strategist. Ms. Mosley also served as Chief Investment Officer at
PG Corbin Asset Management from 1990-1992 and worked in institutional corporate bond sales at Kidder Peabody from 1986-1990. She was also
a Director of Progress Investment Management Company, a manager of emerging managers until 2020. She is a Director of Groupon, Inc., an
ecommerce provider, and a Director of Envestnet, Inc., a
Eaton Vance Tax-Managed Diversified Equity Income Fund | 16 | SAI dated February 18, 2022 |
provider of intelligent systems for wealth management and financial
wellness. She is also a Director of DraftKings, Inc., a digital sports entertainment and gaming company and a board member of Caribou
Financial, Inc., an auto loan refinancing company. Ms. Mosley previously served as a Director of Dynex Capital, Inc., a mortgage REIT,
from 2013-2020. She serves as a trustee or board member of several major non-profit organizations and endowments. In addition, she is
a member of the Risk Audit Committee of the United Auto Workers Retiree Medical Benefits Trust.
William
H. Park. Mr. Park has served as a member of the Eaton Vance Fund Boards since 2003 and was formerly the Independent Chairperson
of the Board from 2016-2021. Mr. Park was formerly a consultant from 2012-2014 and formerly the Chief Financial Officer of Aveon Group,
L.P. from 2010-2011. Mr. Park also served as Vice Chairman of Commercial Industrial Finance Corp. from 2006-2010, as President and Chief
Executive Officer of Prizm Capital Management, LLC from 2002-2005, as Executive Vice President and Chief Financial Officer of United Asset
Management Corporation from 1982-2001 and as Senior Manager of Price Waterhouse (now PricewaterhouseCoopers) from 1972-1981.
Helen Frame
Peters. Dr. Peters has served as a member of the Eaton Vance Fund Boards since 2008. Dr. Peters is currently a Professor of
Finance at Carroll School of Management, Boston College and was formerly Dean of Carroll School of Management from 2000-2002. Dr. Peters
was previously a Director of BJ’s Wholesale Club, Inc. from 2004-2011. In addition, Dr. Peters was the Chief Investment Officer,
Fixed Income at Scudder Kemper Investments from 1998-1999 and Chief Investment Officer, Equity and Fixed Income at Colonial Management
Associates from 1991-1998. Dr. Peters also served as a Trustee of SPDR Index Shares Funds and SPDR Series Trust from 2000-2009 and as
a Director of the Federal Home Loan Bank of Boston from 2007-2009.
Keith
Quinton. Mr. Quinton has served as a member of the Eaton Vance Fund Boards since October 1, 2018. He had over thirty years
of experience in the investment industry before retiring from Fidelity Investments in 2014. Prior to joining Fidelity, Mr. Quinton was
a vice president and quantitative analyst at MFS Investment Management from 2000-2001. From 1997 through 2000, he was a senior quantitative
analyst at Santander Global Advisors and, from 1995 through 1997, Mr. Quinton was senior vice president in the quantitative equity research
department at Putnam Investments. Prior to joining Putnam Investments, Mr. Quinton served in various investment roles at Eberstadt Fleming,
Falconwood Securities Corporation and Drexel Burnham Lambert, where he began his career in the investment industry as a senior quantitative
analyst in 1983. Mr. Quinton served as an Independent Investment Committee Member of the New Hampshire Retirement System, a five member
committee that manages investments based on the investment policy and asset allocation approved by the board of trustees (2017-2021),
and as a Director, (2016-2021) and Chairman, (2019-2021) of the New Hampshire Municipal Bond Bank.
Marcus
L. Smith. Mr. Smith has served as a member of the Eaton Vance Fund Boards since October 1, 2018 and is the
Chairperson of the Ad Hoc Committee for Closed-End Fund Matters. Mr. Smith has been a Director of First Industrial Realty Trust,
Inc., a fully integrated owner, operator and developer of industrial real estate, since 2021, where he serves on the Investment and
Nominating/Corporate Governance Committees. Since 2017, Mr. Smith has been a Director of MSCI Inc., a leading provider of investment
decision support tools worldwide, where he serves on the Compensation and Talent Management Committee and Strategy & Finance
Committee. From 2017 through 2018, he served as a Director of DCT Industrial Trust Inc., a leading logistics real estate company,
where he served as a member of the Nominating and Corporate Governance and Audit Committees. From 1994 through 2017, Mr. Smith
served in several capacities at MFS Investment Management, an investment management firm, where he managed the MFS Institutional
International Fund for 17 years and the MFS Concentrated International Fund for 10 years. In addition to his portfolio management
duties, Mr. Smith served as Chief Investment Officer, Canada from 2012-2017, Chief Investment Officer, Asia from 2010-2012, and
Director of Asian Research from 2005-2010. Prior to joining MFS, Mr. Smith was a senior consultant at Andersen Consulting (now known
as Accenture) from 1988-1992. Mr. Smith served as a United States Army Reserve Officer from 1987-1992. He was also a trustee of the
University of Mount Union from 2008-2020 and served on the Boston advisory board of the Posse Foundation from 2015-2021. Mr. Smith
currently sits on the Harvard Medical School Advisory Council on Education, the Board of Directors for Facing History and Ourselves
and is a Trustee of the Core Knowledge Foundation.
Susan
J. Sutherland. Ms. Sutherland has served as a member of the Eaton Vance Fund Boards since 2015 and is the Chairperson of the
Compliance Reports and Regulatory Matters Committee. She is also a Director of Ascot Group Limited and certain of its subsidiaries. Ascot
Group Limited, through its related businesses including Syndicate 1414 at Lloyd’s of London, is a leading global underwriter of
specialty property and casualty insurance and reinsurance. In addition, Ms. Sutherland is a Director of Kairos Acquisition Corp., which
is concentrating on acquisition and business combination efforts within the insurance and insurance technology (also known as “InsurTech”)
sectors. Ms. Sutherland was a Director of Montpelier Re Holdings Ltd., a global provider of customized reinsurance and insurance products,
from 2013 until its sale in 2015 and of Hagerty Holding Corp., a leading provider of specialized automobile and marine insurance from
2015-2018. From 1982 through 2013, Ms. Sutherland was an associate, counsel and then a partner in the Financial Institutions Group of
Skadden, Arps, Slate, Meagher & Flom LLP, where she primarily represented U.S. and international insurance and reinsurance companies, investment banks
and private equity firms in insurance-related corporate transactions. In addition, Ms. Sutherland is qualified as a Governance Fellow
of the National Association of Corporate Directors and has also served as a board member of prominent non-profit organizations.
Eaton Vance Tax-Managed Diversified Equity Income Fund | 17 | SAI dated February 18, 2022 |
Scott
E. Wennerholm. Mr. Wennerholm has served as a member of the Eaton Vance Fund Boards since 2016 and is the Chairperson of the
Audit Committee. He has over 30 years of experience in the financial services industry in various leadership and executive roles. Mr.
Wennerholm served as Chief Operating Officer and Executive Vice President at BNY Mellon Asset Management from 2005-2011. He also served
as Chief Operating Officer and Chief Financial Officer at Natixis Global Asset Management from 1997-2004 and was a Vice President at Fidelity
Investments Institutional Services from 1994-1997. In addition, Mr. Wennerholm served as a Trustee at Wheelock College, a postsecondary
institution from 2012-2018.
The Board(s) of the Fund has several standing Committees, including
the Governance Committee, the Audit Committee, the Portfolio Management Committee, the Compliance Reports and Regulatory Matters Committee,
the Contract Review Committee and the Ad Hoc Committee for Closed-End Fund Matters. Each of the Committees are comprised of only noninterested
Trustees.
Mmes. Mosley (Chairperson), Frost, Peters and Sutherland, and Messrs.
Fetting, Gorman, Park, Quinton, Smith and Wennerholm are members of the Governance Committee. The purpose of the Governance Committee
is to consider, evaluate and make recommendations to the Board with respect to the structure, membership and operation of the Board and
the Committees thereof, including the nomination and selection of noninterested Trustees and a Chairperson of the Board and the compensation
of such persons. During the fiscal year ended October 31, 2021, the Governance Committee convened seven times.
The Governance Committee will, when a vacancy exists, consider a nominee
for Trustee recommended by a shareholder, provided that such recommendation is submitted in writing to the Fund’s Secretary
at the principal executive office of the Fund. Such recommendations must be accompanied by biographical and occupational data on the candidate
(including whether the candidate would be an “interested person” of the Fund), a written consent by the candidate to be named
as a nominee and to serve as Trustee if elected, record and ownership information for the recommending shareholder with respect to the
Fund, and a description of any arrangements or understandings regarding recommendation of the candidate for consideration.
Messrs. Wennerholm (Chairperson), Gorman, Park and Quinton and
Ms. Peters are members of the Audit Committee. The Board has designated Messrs. Gorman, Park and Wennerholm, each a noninterested
Trustee, as audit committee financial experts. The Audit Committee’s purposes are to (i) oversee the Fund's accounting
and financial reporting processes, its internal control over financial reporting, and, as appropriate, the internal control over
financial reporting of certain service providers; (ii) oversee or, as appropriate, assist Board oversight of the quality and
integrity of the Fund's financial statements and the independent audit thereof; (iii) oversee, or, as appropriate, assist Board
oversight of, the Fund's compliance with legal and regulatory requirements that relate to the Fund's accounting and
financial reporting, internal control over financial reporting and independent audits; (iv) approve prior to appointment the
engagement and, when appropriate, replacement of the independent registered public accounting firm, and, if applicable, nominate the
independent registered public accounting firm to be proposed for shareholder ratification in any proxy statement of the Fund;
(v) evaluate the qualifications, independence and performance of the independent registered public accounting firm and the audit
partner in charge of leading the audit; and (vi) prepare, as necessary, audit committee reports consistent with the requirements of
applicable SEC and stock exchange rules for inclusion in the proxy statement of the Fund. During the fiscal year ended October
31, 2021, the Audit Committee convened ten times.
Messrs. Fetting (Chairperson), Gorman, Park, Quinton, Smith and Wennerholm, and Mmes. Frost, Mosley, Peters and Sutherland are members of the Contract Review Committee. The purposes of the Contract
Review Committee are to consider, evaluate and make recommendations to the Board concerning the following matters: (i) contractual
arrangements with each service provider to the Fund, including advisory, sub-advisory, transfer agency, custodial and fund
accounting, distribution services and administrative services; (ii) any and all other matters in which any service provider
(including Eaton Vance or any affiliated entity thereof) has an actual or potential conflict of interest with the interests of the
Fund; and (iii) any other matter appropriate for review by the noninterested Trustees, unless the matter is within the
responsibilities of the other Committees of the Board. During the fiscal year ended October 31, 2021, the Contract Review Committee
convened seven times.
Eaton Vance Tax-Managed Diversified Equity Income Fund | 18 | SAI dated February 18, 2022 |
Mmes. Frost (Chairperson), Mosley and Peters and Messrs. Smith and
Wennerholm are members of the Portfolio Management Committee. The purposes of the Portfolio Management Committee are to: (i) assist the
Board in its oversight of the portfolio management process employed by the Fund and its investment adviser and sub-adviser(s), if applicable,
relative to the Fund's stated objective(s), strategies and restrictions; (ii) assist the Board in its oversight of the trading policies
and procedures and risk management techniques applicable to the Fund; and (iii) assist the Board in its monitoring of the performance
results of all funds and portfolios, giving special attention to the performance of certain funds and portfolios that it or the Board
identifies from time to time. During the fiscal year ended October 31, 2021, the Portfolio Management Committee convened seven times.
Ms. Sutherland (Chairperson) and Messrs. Fetting, Park and
Quinton are members of the Compliance Reports and Regulatory Matters Committee. The purposes of the Compliance Reports and
Regulatory Matters Committee are to: (i) assist the Board in its oversight role with respect to compliance issues and certain other
regulatory matters affecting the Fund; (ii) serve as a liaison between the Board and the Fund's CCO; and (iii) serve as a
“qualified legal compliance committee” within the rules promulgated by the SEC. During the fiscal year ended October 31,
2021, the Compliance Reports and Regulatory Matters Committee convened seven times.
Messrs. Smith (Chairperson) and Fetting and Ms. Sutherland are members of the
Ad Hoc Committee for Closed-End Fund Matters. The purpose of the Ad Hoc Committee for Closed-End Fund Matters is to consider, evaluate
and make recommendations to the Board with respect to issues specifically related to Eaton Vance Closed-End Funds. During the fiscal year
ended October 31, 2021, the Ad Hoc Committee for Closed-End Fund Matters convened five times.
Share
Ownership. The following table shows the dollar range of equity securities beneficially owned by each Trustee in the Fund and
in the Eaton Vance family of funds overseen by the Trustee as of December 31, 2021.
Name of Trustee |
Dollar Range of Equity Securities
Beneficially Owned in the Fund |
Aggregate Dollar Range of Equity
Securities Beneficially Owned in Funds
Overseen by Trustee in the
Eaton Vance Family of Funds |
Interested Trustee |
|
|
Thomas E. Faust Jr. |
None |
Over $100,000 |
Noninterested Trustees |
|
|
Mark R. Fetting |
None |
Over $100,000 |
Cynthia E. Frost |
None |
Over $100,000 |
George J. Gorman |
None |
Over $100,000 |
Valerie A. Mosley |
None |
Over $100,000 |
William H. Park |
None |
Over $100,000 |
Helen Frame Peters |
None |
Over $100,000 |
Keith Quinton |
None |
Over $100,000 |
Marcus L. Smith |
None |
Over $100,000 |
Susan J. Sutherland |
None |
Over $100,000(1) |
Scott E. Wennerholm |
None |
Over $100,000(1) |
(1) Includes shares which may be deemed to be beneficially owned through the Trustee Deferred Compensation Plan. |
As of December 31, 2021, no noninterested Trustee or any of their
immediate family members owned beneficially or of record any class of securities of Morgan Stanley, EVD, any sub-adviser, if applicable,
or any person controlling, controlled by or under common control with Morgan Stanley or EVD or any sub-adviser, if applicable, collectively
(“Affiliated Entity”).
Eaton Vance Tax-Managed Diversified Equity Income Fund | 19 | SAI dated February 18, 2022 |
During the calendar years ended December 31, 2020 and December 31,
2021, no noninterested Trustee (or their immediate family members) had:
| (1) | Any direct or indirect interest in any Affiliated Entity; |
| (2) | Any direct or indirect material interest in any transaction or series of similar transactions with (i) the Fund; (ii) another fund
managed or distributed by any Affiliated Entity; (iii) any Affiliated Entity; or (iv) an officer of any of the above; or |
| (3) | Any direct or indirect relationship with (i) the Fund; (ii) another fund managed or distributed by any Affiliated Entity; (iii) any
Affiliated Entity; or (iv) an officer of any of the above. |
During the calendar years ended December 31, 2020 and December 31,
2021, no officer of any Affiliated Entity served on the Board of Directors of a company where a noninterested Trustee of the Fund or any
of their immediate family members served as an officer.
Noninterested Trustees may elect to defer receipt of all or a percentage
of their annual fees in accordance with the terms of a Trustees Deferred Compensation Plan (the “Deferred Compensation Plan”).
Under the Deferred Compensation Plan, an eligible Board member may elect to have all or a portion of his or her deferred fees invested
in the shares of one or more funds in the Eaton Vance family of funds, and the amount paid to the Board members under the Deferred Compensation
Plan will be determined based upon the performance of such investments. Deferral of Board members’ fees in accordance with the Deferred
Compensation Plan will have a negligible effect on the assets, liabilities, and net income of a participating fund or portfolio, and do
not require that a participating Board member be retained. There is no retirement plan for Board members.
The fees and expenses of the Trustees of the Fund are paid by the
Fund. (A Board member who is a member of the Eaton Vance organization receives no compensation from the Fund.) During the fiscal year
ended October 31, 2021, the Trustees of the Fund earned the following compensation in their capacities as Board members from the Fund.
For the year ended December 31, 2021, the Board members earned the following compensation in their capacities as members of the Eaton
Vance Fund Boards(1):
Source of Compensation |
Mark R.
Fetting |
Cynthia E.
Frost |
George J.
Gorman |
Valerie A.
Mosley |
William H.
Park |
Helen Frame
Peters |
Keith
Quinton |
Marcus L.
Smith |
Susan J.
Sutherland |
Scott E.
Wennerholm |
Fund |
$9,270 |
$9,746(2) |
$10,863 |
$9,746 |
$11,616 |
$9,238 |
$8,851 |
$8,920 |
$9,872(3) |
$10,127 |
Fund and Fund Complex(1) |
$364,625 |
$383,375(4) |
$427,125 |
$383,375 |
$457,125 |
$363,375 |
$348,179 |
$350,875 |
$388,375(5) |
$398,375 |
| (1) | As of February 14, 2022, the Eaton Vance fund complex consists of 138 registered investment companies or series thereof. |
| (2) | Includes $6,422 of deferred compensation. |
| (3) | Includes $9,872 of deferred compensation. |
| (4) | Includes $250,000 of deferred compensation. |
| (5) | Includes $384,337 of deferred compensation. |
Proxy Voting
Policy. The Board adopted a proxy voting policy and procedures (the “Fund Policy”), pursuant to which the Board
has delegated proxy voting responsibility to the Adviser and adopted the Adviser’s proxy voting policies and procedures (the “Adviser
Policies”). An independent proxy voting service has been retained to assist in the voting of Fund proxies through the provision
of vote analysis, implementation and recordkeeping and disclosure services. The members of the Board will review the Fund’s proxy
voting records from time to time and will annually consider approving the Adviser Policies for the upcoming year. For a copy of the Fund
Policy and the Adviser Policies, see Appendix B and C, respectively. Pursuant to certain provisions of the 1940 Act and certain exemptive
orders relating to funds investing in other funds, a Fund may be required or may elect to vote its interest in another fund in the same
proportion as the holders of all other shares of that fund. Information on how the Fund voted proxies relating to portfolio securities
during the most recent 12-month period ended June 30 is available (1) without charge, upon request, by calling 1-800-262-1122, and (2)
on the SEC’s website at http://www.sec.gov.
Eaton Vance Tax-Managed Diversified Equity Income Fund | 20 | SAI dated February 18, 2022 |
INVESTMENT ADVISORY AND OTHER SERVICES
The Adviser.
The investment adviser manages the investments and affairs of the Fund and provides related office facilities and personnel subject to
the supervision of the Trust’s Board. The investment adviser furnishes investment research, advice and supervision, furnishes an
investment program and determines what securities will be purchased, held or sold by the Fund and what portion, if any, of the Fund’s
assets will be held uninvested. The Investment Advisory Agreement on behalf of the Fund requires the investment adviser to pay the compensation
and expenses of all officers and Trustees of the Fund who are members of the investment adviser’s organization and all personnel
of the investment adviser performing services relating to research and investment activities.
As described in the Prospectus, upon the closing of the transaction
by which Morgan Stanley acquired EVC (the “Transaction”), the Fund entered into a new investment advisory agreement with Eaton
Vance. The Fund will be responsible for all of its costs and expenses not expressly stated to be payable by Eaton Vance under the Investment
Advisory Agreement (the “Advisory Agreement”) or the Administrative Services Agreement (the “Administration Agreement”).
Effective March 1, 2021, any fee reduction agreement previously applicable to the Fund was incorporated into its new investment advisory
agreement with Eaton Vance.
The Advisory Agreement with the Adviser continues in effect through
and including the second anniversary of its execution and shall continue in full force and effect indefinitely thereafter, but only so
long as such continuance after such second anniversary is specifically approved at least annually (i) by the vote of a majority of those
Trustees of the Fund who are not interested persons of the Adviser or the Fund cast in person at a meeting specifically called for the
purpose of voting on such approval and (ii) by the Fund’s Board or by vote of a majority of the outstanding voting securities of
the Fund. The Administration Agreement continues in effect through and including the second anniversary of its execution and shall continue
in full force and effect indefinitely thereafter, but only so long as such continuance after such second anniversary is specifically approved
at least annually (i) by the Board of Trustees of the Fund and (ii) by the vote of a majority of those Trustees of the Fund who are not
interested persons of Eaton Vance or the Fund. Each Agreement may be terminated at any time without penalty on sixty (60) days’
written notice by either party, or by vote of the majority of the outstanding voting securities of the Fund, and the Advisory Agreement
will terminate automatically in the event of its assignment. Each Agreement provides that the investment adviser may render services to
others. Each Agreement also provides that Eaton Vance shall not be liable for any loss incurred in connection with the performance of
its duties, or action taken or omitted under the Agreements, in the absence of willful misfeasance, bad faith, gross negligence or reckless
disregard of its obligations and duties thereunder, and Eaton Vance shall not be liable for any losses sustained in the acquisition, holding
or disposition of any security or other investment. Each Agreement is not intended to, and does not, confer upon any person not a party
to it any right, benefit or remedy of any nature.
For the fiscal years ended October 31, 2021, 2020 and 2019, the Fund
incurred $20,261,125, $17,604,925 and $17,473,232, respectively, in advisory fees.
Information
About Eaton Vance. Eaton Vance is a business trust organized under the laws of the Commonwealth of Massachusetts. EV
serves as trustee of Eaton Vance. As described in the Prospectus, following the closing of the Transaction on March 1, 2021, EV and Eaton
Vance became indirect wholly owned subsidiaries of Morgan Stanley (NYSE: MS), a preeminent global financial services firm engaged in securities
trading and brokerage activities, as well as providing investment banking, research and analysis, financing and financial advisory services.
Prior to March 1, 2021, EV and Eaton Vance were wholly owned subsidiaries
of EVC, a Maryland corporation and publicly-held holding company, and BMR was an indirect wholly owned subsidiary of EVC. EVC, through
its subsidiaries and affiliates, engaged primarily in investment management, administration and marketing activities. The Directors of
EVC were Thomas E. Faust Jr., Ann E. Berman, Leo I. Higdon, Jr., Paula A. Johnson, Brian D. Langstraat, Dorothy E. Puhy, Winthrop H. Smith,
Jr. and Richard A. Spillane, Jr. All shares of the outstanding Voting Common Stock of EVC were deposited in a Voting Trust, the Voting
Trustees of which were Mr. Faust, Paul W. Bouchey, Craig R. Brandon, Daniel C. Cataldo, Michael A. Cirami, Cynthia J. Clemson, James H.
Evans, Maureen A. Gemma, Laurie G. Hylton, Mr. Langstraat, Thomas Lee, Frederick S. Marius, David C. McCabe, Edward J. Perkin, Lewis R.
Piantedosi, Charles B. Reed, Craig P. Russ, Thomas C. Seto, John L. Shea, Eric A. Stein, John H. Streur, Andrew N. Sveen, Payson F. Swaffield,
R. Kelly Williams and Matthew J. Witkos (all of whom are or were officers of Eaton Vance or its affiliates). The Voting Trustees had unrestricted
voting rights for the election of Directors of EVC. Prior to March 1, 2021, all of the outstanding voting trust receipts issued under
said Voting Trust were owned by certain of the officers of BMR and Eaton Vance who may also have been officers, or officers and Directors
of EVC and EV. As indicated under “Trustees and Officers,” all of the officers of the Fund (as well as Mr. Faust who is also
a Trustee) are employees of Eaton Vance and/or BMR.
Eaton Vance Tax-Managed Diversified Equity Income Fund | 21 | SAI dated February 18, 2022 |
Code of Ethics.
The Adviser and the Fund have adopted codes of ethics (the “Codes of Ethics”) governing personal securities transactions pursuant
to Rule 17j-1 under the 1940 Act. Under the Codes of Ethics, employees of the Adviser may purchase and sell securities (including securities
held or eligible for purchase by the Fund) subject to the provisions of the Codes of Ethics and certain employees are also subject to
pre-clearance, reporting requirements and/or other procedures.
The Codes of Ethics can be reviewed on the EDGAR Database on the SEC’s
Internet site (http://www.sec.gov), or a copy of the Codes of Ethics may be requested by electronic mail at publicinfo@sec.gov.
Portfolio
Manager. The portfolio manager(s) of the Fund are listed below. The following table shows, as of the Fund’s most recent
fiscal year end, 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 |
G.R. Nelson |
|
|
|
|
Registered Investment Companies |
7 |
$ 7,133.9 |
0 |
$ 0 |
Other Pooled Investment Vehicles |
0 |
$ 0 |
0 |
$ 0 |
Other Accounts |
2 |
$ 2.3 |
0 |
$ 0 |
The following table shows the dollar range of shares of the Fund
beneficially owned by each portfolio manager as of the Fund’s most recent fiscal year ended October 31, 2021 and in the Eaton Vance
Family of Funds as of December 31, 2021.
Portfolio Manager |
Dollar Range of Equity Securities
Beneficially Owned in the Fund |
Aggregate Dollar Range of Equity
Securities Beneficially Owned in
the Eaton Vance Family of Funds |
G.R. Nelson |
None |
$500,001 - $1,000,000 |
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. The Adviser 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 Eaton Vance. Compensation of the Adviser’s portfolio managers and other investment professionals has the
following primary components: (1) a base salary and (2) discretionary variable compensation that is comprised of cash bonus and depending
on eligibility, may also include deferred compensation consisting of restricted shares of Morgan Stanley stock and deferred cash that
are subject to a fixed vesting and distribution schedule. The Adviser’s investment professionals also receive certain retirement,
insurance and other benefits that are broadly available to the Adviser’s employees. Compensation of the Adviser’s investment
professionals is reviewed primarily on an annual basis. Cash bonuses and deferred compensation awards, and adjustments in base salary
are typically paid or put into effect shortly after the December 31st fiscal year end of Morgan Stanley.
Eaton Vance Tax-Managed Diversified Equity Income Fund | 22 | SAI dated February 18, 2022 |
Method to Determine Compensation. The Adviser compensates
its portfolio managers based on company and team business results, and individual performance, including 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 the Sharpe ratio, which uses standard deviation and excess return to determine reward per unit of risk. 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 the Adviser’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.
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.
The Adviser seeks to compensate portfolio managers commensurate with
their responsibilities and performance, and competitive with other firms within the investment management industry. The Adviser participates
in investment-industry compensation surveys and utilizes survey data as a factor in determining salary and variable compensation levels
for portfolio managers and other investment professionals. Salaries and variable compensation are also influenced by the operating performance
of the Adviser and Morgan Stanley. While the salaries of the Adviser’s portfolio managers are comparatively fixed, variable compensation
may fluctuate significantly from year to year, based on changes in company and team performance, manager performance and other factors
as described herein. For a high performing portfolio manager, variable compensation may represent a substantial portion of total compensation.
Investment
Advisory Services. Under the general supervision of the Fund’s Board, Eaton Vance will carry out the investment and reinvestment
of the assets of the Fund, will furnish continuously an investment program with respect to the Fund, will determine which securities should
be purchased, sold or exchanged, and will implement such determinations. Eaton Vance will furnish to the Fund investment advice and provide
related office facilities and personnel for servicing the investments of the Fund. Eaton Vance will compensate all Trustees and officers
of the Fund who are members of the Eaton Vance organization and who render investment services to the Fund, and will also compensate all
other Eaton Vance personnel who provide research and investment services to the Fund.
Commodity
Futures Trading Commission Registration. The Commodity Futures Trading Commission (“CFTC”) has adopted regulations
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 swaps agreements) or markets itself as providing
investment exposure to such instruments. The 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, Eaton Vance is registered with
the CFTC as a commodity pool operator. Eaton Vance is also registered as a commodity trading advisor. The CFTC has neither reviewed nor
approved the Fund’s investment strategies or this SAI.
Administrative
Services. Eaton Vance serves as administrator of the Fund under the Administration Agreement, but currently receives no compensation
for providing administrative services to the Fund. Under the Administration Agreement, Eaton Vance has been engaged to administer the
Fund’s affairs, subject to the supervision of the Board, and shall furnish office space and all necessary office facilities, equipment
and personnel for administering the affairs of the Fund.
Eaton Vance Tax-Managed Diversified Equity Income Fund | 23 | SAI dated February 18, 2022 |
DETERMINATION OF NET ASSET VALUE
The net asset value of the Fund is determined by State Street Bank
and Trust Company (as agent and custodian) by subtracting the liabilities of the Fund from the value of its total assets. The Fund is
closed for business and will not issue a net asset value on the following business holidays and any other business day that the New York
Stock Exchange (the “Exchange”) is closed: New Year’s Day, Martin Luther King, Jr. Day, Presidents’ Day, Good
Friday, Memorial Day, Juneteenth, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
The Board has approved procedures pursuant to which investments are
valued for purposes of determining the Fund’s net asset value. Listed below is a summary of the methods generally used to value
investments (some or all of which may be held by the Fund) under the procedures.
| · | Equity securities (including common stock, exchange-traded funds, closed end funds, preferred equity securities, exchange-traded
notes and other instruments that trade on recognized stock exchanges) are valued at the last sale, official close or, if there are no
reported sales, at the mean between the bid and asked price on the primary exchange on which they are traded. |
| · | Most debt obligations are valued on the basis of market valuations furnished by a pricing service or at the mean of the bid and
asked prices provided by recognized broker/dealers of such securities. The pricing service may use a pricing matrix to determine valuation. |
| · | Short-term instruments with remaining maturities of less than 397 days are valued on the basis of market valuations furnished by
a pricing service or based on dealer quotations. |
| · | Foreign securities and currencies are valued in U.S. dollars based on foreign currency exchange quotations supplied by a pricing service. |
| · | Senior and Junior Loans are valued on the basis of prices furnished by a pricing service. The pricing service uses transactions
and market quotations from brokers in determining values. |
| · | Futures contracts are valued at the settlement or closing price on the primary exchange or board of trade on which they are traded. |
| · | Exchange-traded options are valued at the mean of the bid and asked prices. Over-the-counter options are valued based on quotations
obtained from a pricing service or from a broker (typically the counterparty to the option). |
| · | Non-exchange traded derivatives (including swap agreements, forward contracts and equity participation notes) are generally valued
on the basis of valuations provided by a pricing service or using quotes provided by a broker/dealer (typically the counterparty) or,
for total return swaps, based on market index data. |
| · | Precious metals are valued at the New York Composite mean quotation. |
| · | Liabilities with a payment or maturity date of 364 days or less are stated at their principal value and longer dated liabilities generally
will be carried at their fair value. |
| · | Valuations of foreign equity securities and total return swaps and exchange-traded futures contracts on non-North American equity
indices are generally based on fair valuation provided by a pricing service. |
Investments which are unable to be valued in accordance with the
foregoing methodologies are valued at fair value using methods determined in good faith by or at the direction of the members of the
Board. Such methods may include consideration of relevant factors, including but not limited to (i) the type of security, the existence
of any contractual restrictions on the security’s disposition, (ii) the price and extent of public trading in similar securities
of the issuer or of comparable companies or entities, (iii) quotations or relevant information obtained from broker-dealers or other
market participants, (iv) information obtained from the issuer, analysts, and/or the appropriate stock exchange (for exchange-traded
securities), (v) an analysis of the company’s or entity’s financial statements, (vi) an evaluation of the forces that influence
the issuer and the market(s) in which the security is purchased and sold, (vii) any transaction involving the issuer of such securities,
and (viii) any other factors deemed relevant by the investment adviser. For purposes of a valuation, the portfolio managers of one Eaton
Vance fund that invests in Senior and Junior Loans may not possess the same information about a Senior or Junior Loan as the portfolio
managers of another Eaton Vance fund. As such, at times the fair value of a Loan determined by certain Eaton Vance portfolio managers
may vary from the fair value of the same Loan determined by other portfolio managers.
Eaton Vance Tax-Managed Diversified Equity Income Fund | 24 | SAI dated February 18, 2022 |
The Fund may invest in Eaton Vance Cash Reserves Fund, LLC (Cash Reserves
Fund), an affiliated investment company managed by Eaton Vance. 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 in the same manner as debt obligations described
above.
PORTFOLIO TRADING
Decisions concerning the execution of portfolio security transactions,
including the selection of the market and the broker-dealer firm, or other financial intermediary (each an “intermediary”),
are made by the investment adviser. The Fund is responsible for the expenses associated with its portfolio transactions. The investment
adviser is also responsible for the execution of transactions for all other accounts managed by it. The investment adviser places the
portfolio security transactions for execution with one or more intermediaries. The investment adviser uses its best efforts to obtain
execution of portfolio security transactions at prices that in the investment adviser’s judgment are advantageous to the client
and at a reasonably competitive spread or (when a disclosed commission is being charged) at reasonably competitive commission rates. In
seeking such execution, the investment adviser will use its best judgment in evaluating the terms of a transaction, and will give consideration
to various relevant factors, which may include, without limitation, the full range and quality of the intermediary’s services, responsiveness
of the intermediary to the investment adviser, the size and type of the transaction, the nature and character of the market for the security,
the confidentiality, speed and certainty of effective execution required for the transaction, the general execution and operational capabilities
of the intermediary, the reputation, reliability, experience and financial condition of the intermediary, the value and quality of the
services rendered by the intermediary in this and other transactions, and the amount of the spread or commission, if any. In addition,
the investment adviser may consider the receipt of Research Services (as defined below), provided it does not compromise the investment
adviser’s obligation to seek best overall execution for the Fund and is otherwise in compliance with applicable law. The investment
adviser may engage in portfolio transactions with an intermediary that sells shares of Eaton Vance funds, provided such transactions are
not directed to that intermediary as compensation for the promotion or sale of such shares.
As described in the Prospectus, following the closing of the Transaction
on March 1, 2021, the investment adviser became an “affiliated person,” as defined in the 1940 Act, of Morgan Stanley and
its affiliates, including certain intermediaries (as previously defined). As a result, the investment adviser is subject to certain restrictions
regarding transactions with Morgan Stanley-affiliated intermediaries, as set forth in the 1940 Act. Under certain circumstances, such
restrictions may limit the investment adviser’s ability to place portfolio transactions on behalf of the Fund at the desired
time or price. Any transaction the investment adviser enters into with a Morgan Stanley-affiliated intermediary on behalf of the Fund
will be done in compliance with applicable laws, rules, and regulations; will be subject to any restrictions contained in the Fund’s
investment advisory agreement; will be subject to the investment adviser’s duty to seek best execution; and, will comply with any
applicable policies and procedures of the investment adviser, as described below.
Subject to the overriding objective of obtaining the best execution
of orders and applicable rules and regulations, as described above, the Fund may use an affiliated intermediary, including a Morgan
Stanley-affiliated intermediary, to effect Fund portfolio transactions, including transactions in futures contracts and options on futures
contracts, under procedures adopted by the Board. In order to use such affiliated intermediaries, the Fund’s Board must approve
and periodically review procedures reasonably designed to ensure that commission rates and other remuneration paid to the affiliated intermediaries
are fair and reasonable in comparison to those of other intermediaries for comparable transactions involving similar securities being
purchased or sold during a comparable time period.
Pursuant to an order issued by the SEC, the Fund is
permitted to engage in principal transactions in money market instruments, subject to certain conditions, with Morgan Stanley &
Co. LLC, a broker-dealer affiliated with Morgan Stanley, a broker-dealer affiliated with Morgan Stanley. Since March 1, 2021,
the Fund did not effect any principal transactions with any broker-dealer affiliated with Morgan Stanley.
Eaton Vance Tax-Managed Diversified Equity Income Fund | 25 | SAI dated February 18, 2022 |
Transactions on stock exchanges and other agency transactions involve
the payment of negotiated brokerage commissions. Such commissions vary among different broker-dealer firms, and a particular broker-dealer
may charge different commissions according to such factors as the difficulty and size of the transaction and the volume of business done
with such broker-dealer. Transactions in foreign securities often involve the payment of brokerage commissions, which may be higher than
those in the United States. There is generally no stated commission in the case of securities traded in the over-the-counter markets including
transactions in fixed-income securities which are generally purchased and sold on a net basis (i.e., without commission) through intermediaries
and banks acting for their own account rather than as brokers. Such intermediaries attempt to profit from such transactions by buying
at the bid price and selling at the higher asked price of the market for such obligations, and the difference between the bid and asked
price is customarily referred to as the spread. Fixed-income transactions may also be transacted directly with the issuer of the obligations.
In an underwritten offering the price paid often includes a disclosed fixed commission or discount retained by the underwriter or dealer.
Although spreads or commissions paid on portfolio security transactions will, in the judgment of the investment adviser, be reasonable
in relation to the value of the services provided, commissions exceeding those which another firm might charge may be paid to intermediaries
who were selected to execute transactions on behalf of the investment adviser’s clients in part for providing brokerage and research
services to the investment adviser as permitted by applicable law.
Pursuant to the safe harbor provided in Section 28(e) of the Securities
Exchange Act of 1934, as amended (“Section 28(e)”) and to the extent permitted by other applicable law, a broker or dealer
who executes a portfolio transaction on behalf of the investment adviser client may receive a commission that is in excess of the amount
of commission another broker or dealer would have charged for effecting that transaction if the investment adviser determines in good
faith that such compensation was reasonable in relation to the value of the brokerage and research services provided. This determination
may be made on the basis of either that particular transaction or on the basis of the overall responsibility which the investment adviser
and its affiliates have for accounts over which they exercise investment discretion. “Research Services” as used herein includes
any and all brokerage and research services to the extent permitted by Section 28(e) and other applicable law. Generally, Research Services
may include, but are not limited to, such matters as research, analytical and quotation services, data, information and other services
products and materials which assist the investment adviser in the performance of its investment responsibilities. More specifically, Research
Services may include general economic, political, business and market information, industry and company reviews, evaluations of securities
and portfolio strategies and transactions, technical analysis of various aspects of the securities markets, recommendations as to the
purchase and sale of securities and other portfolio transactions, certain financial, industry and trade publications, certain news and
information services, and certain research oriented computer software, data bases and services. Any particular Research Service obtained
through a broker-dealer may be used by the investment adviser in connection with client accounts other than those accounts which pay commissions
to such broker-dealer, to the extent permitted by applicable law. Any such Research Service may be broadly useful and of value to the
investment adviser in rendering investment advisory services to all or a significant portion of its clients, or may be relevant and useful
for the management of only one client’s account or of a few clients’ accounts, or may be useful for the management of merely
a segment of certain clients’ accounts, regardless of whether any such account or accounts paid commissions to the broker-dealer
through which such Research Service was obtained. The investment adviser evaluates the nature and quality of the various Research Services
obtained through broker-dealer firms and, to the extent permitted by applicable law, may attempt to allocate sufficient portfolio security
transactions to such firms to ensure the continued receipt of Research Services which the investment adviser believes are useful or of
value to it in rendering investment advisory services to its clients. The investment adviser may also receive brokerage and Research Services
from underwriters and dealers in fixed-price offerings, when permitted under applicable law.
Research Services provided by (and produced by) broker-dealers that
execute portfolio transactions or from affiliates of executing broker-dealers are referred to as “Proprietary Research.”
Except for trades executed in jurisdictions where such consideration is not permissible, the investment adviser may and does consider
the receipt of Proprietary Research Services as a factor in selecting broker dealers to execute client portfolio transactions, provided
it does not compromise the investment adviser’s obligation to seek best overall execution. In jurisdictions where permissible,
the investment adviser also may consider the receipt of Research Services under so called “client commission arrangements”
or “commission sharing arrangements” (both referred to as “CCAs”) as a factor in selecting broker dealers to
execute transactions, provided it does not compromise the investment adviser’s obligation to seek best overall execution. Under
a CCA arrangement, the investment adviser may cause client accounts to effect transactions through a broker-dealer and request that the
broker-dealer allocate a portion of the commissions paid on those transactions to a pool of commission credits that are paid to other
firms that provide Research Services to the investment adviser. Under a CCA, the broker-dealer that provides the Research Services need
not execute the trade. Participating in CCAs may enable the investment adviser to consolidate payments for research using accumulated
client commission credits from transactions executed through a particular broker-dealer to periodically pay for Research Services obtained
from and provided by other firms, including other broker-dealers that supply Research Services. The investment adviser believes that
CCAs offer the potential to optimize the execution of trades and the acquisition of a variety of high quality Research Services that
the investment adviser might not be provided access to absent CCAs. The investment adviser may enter into CCA arrangements with a number
of broker-dealers and other firms, including certain affiliates of the investment adviser. The investment adviser will only enter into
and utilize CCAs to the extent permitted by Section 28(e) and other applicable law.
Eaton Vance Tax-Managed Diversified Equity Income Fund | 26 | SAI dated February 18, 2022 |
The EU’s Markets in Financial Instruments Directive II (“MiFID II”), which became effective January 3, 2018, requires
investment advisers regulated under MiFID II to pay for research services separately from trade execution services, either through their
own resources or a research payment account funded by a specific charge to a client. Following its withdrawal from the EU, the United
Kingdom adopted many of the provisions of MiFID II, and investment managers in the United Kingdom are required to comply with certain
MiFID II equivalent requirements in accordance with rules and guidance issued by the Financial Conduct Authority.
Although the Adviser
is not directly subject to the provisions of MiFID II, certain of its affiliated advisers are subject to MiFID II or equivalent requirements
under the law of the United Kingdom, such as Morgan Stanley Investment Management Limited and Eaton Vance Advisers International Ltd (collectively,
the “Affiliated Advisers”); accordingly, as applicable, the Adviser makes a reasonable valuation and allocation of the cost
of research services as between MiFID II client accounts and other accounts that are able to participate in CSAs, and the Affiliated Adviser
will pay for research services received with respect to MiFID II client accounts from its own resources.
The investment companies sponsored by the investment adviser or certain
of its affiliates also may allocate brokerage commissions to acquire information relating to the performance, fees and expenses of such
companies and other investment companies, which information is used by the members of the Board of such companies to fulfill their responsibility
to oversee the quality of the services provided to various entities, including the investment adviser, to such companies. Such companies
may also pay cash for such information.
Securities considered as investments for the Fund may also be appropriate
for other investment accounts managed by the investment adviser or certain of its affiliates. Whenever decisions are made to buy or sell
securities by the Fund and one or more of such other accounts simultaneously, the investment adviser will allocate the security transactions
(including “new” issues) in a manner which it believes to be equitable under the circumstances. As a result of such allocations,
there may be instances where the Fund will not participate in a transaction that is allocated among other accounts. If an aggregated order
cannot be filled completely, allocations will generally be made on a pro rata basis. An order may not be allocated on a pro rata basis
where, for example: (i) consideration is given to portfolio managers who have been instrumental in developing or negotiating a particular
investment; (ii) consideration is given to an account with specialized investment policies that coincide with the particulars of a specific
investment; (iii) pro rata allocation would result in odd-lot or de minimis amounts being allocated to a portfolio or other client; or
(iv) where the investment adviser reasonably determines that departure from a pro rata allocation is advisable. While these aggregation
and allocation policies could have a detrimental effect on the price or amount of the securities available to the Fund from time to time,
it is the opinion of the members of the Board that the benefits from the investment adviser organization outweigh any disadvantage that
may arise from exposure to simultaneous transactions.
The following table shows brokerage commissions paid during the fiscal
years ended October 31, 2021, 2020 and 2019, as well as the amount of Fund security transactions for the most recent fiscal year (if any)
that were directed to firms that provided some Research Services to the investment adviser or its affiliates (see above), and the commissions
paid in connection therewith.
Fiscal Year End |
Brokerage Commission Paid |
Amount of Transactions Directed to Firms Providing Research |
Commissions Paid on Transactions Directed to Firms Providing Research |
October 31, 2021 |
$ 479,754 |
$ 1,325,995,257 |
$ 374,038 |
October 31, 2020 |
$ 572,955 |
|
|
October 31, 2019 |
$ 1,089,471 |
|
|
Eaton Vance Tax-Managed Diversified Equity Income Fund | 27 | SAI dated February 18, 2022 |
The following table shows brokerage commissions paid to broker-dealers
affiliated with Morgan Stanley (“Morgan Stanley affiliated broker-dealers”) during the three fiscal years ended October 31,
2021, as well as the percentage of aggregate brokerage commissions paid to Morgan Stanley affiliated broker-dealers and the percentage
of total brokered transactions effected through Morgan Stanley affiliated broker-dealers for the most recent fiscal year.
Brokerage Commissions Paid to Morgan Stanley
Affiliated Broker-Dealers for the Fiscal Year Ended |
Percentage of Aggregate Brokerage Commissions
Paid to Morgan Stanley
Affiliated Broker-Dealers |
Percentage of Total Brokered Transactions Effected
Through Morgan Stanley
Affiliated Broker-Dealer |
10/31/21 |
10/31/20 |
10/31/19 |
10/31/21 |
10/31/21 |
$0 |
$7,574 |
$124,128 |
0% |
0% |
During the fiscal year ended October 31, 2021, the Fund held securities
of its “regular brokers or dealers”, as that term is defined in Rule 10b-1 of the 1940 Act, and the value of such securities
as of the Fund’s fiscal year end was as follows:
Broker/Dealer |
Amount |
J.P. Morgan Chase & Co. |
$63,880,849 |
Goldman Sachs Group, Inc. |
$32,137,549 |
TAXES
The Fund has elected to be treated and intends to qualify each year
as a regulated investment company (“RIC”) under the Internal Revenue Code of 1986, as amended (the “Code”). Accordingly,
the Fund intends to satisfy certain requirements relating to sources of its income and diversification of its assets and to distribute
substantially all of its net investment income and net capital gains, if any, (after reduction by certain capital loss carryforwards)
in accordance with the timing requirements imposed by the Code, so as to maintain its RIC status and to avoid paying any federal income
or excise tax. To the extent it qualifies for treatment as a RIC and satisfies the above-mentioned distribution requirements, the Fund
will not be subject to federal income tax on income paid to its shareholders in the form of dividends.
In order to qualify for the special tax treatment accorded RICs and
their shareholders, the Fund must, among other things:
(a) derive at least 90%
of its annual gross income from dividends, interest, payments with respect to certain securities loans, and gains from the sale or other
disposition of stock, securities, and foreign currencies, or other income (including but not limited to gains from options, futures, or
forward contracts) derived with respect to its business of investing in such stock, securities, or currencies, and net income derived
from interests in qualified publicly traded partnerships (a partnership (a) the interests in which are traded on an established securities
market or are readily tradable on a secondary market or the substantial equivalent thereof and (b) that derives less than 90% of its income
from the qualifying income described above);
(b) distribute with respect
to each taxable year at least the sum of 90% of its investment company taxable income (as that term is defined in the Code without regard
to the deduction for dividends paid--generally, taxable ordinary income and the excess, if any, of net short-term capital gains over net
long-term capital losses) and 90% of its net tax-exempt interest income, for such year; and
(c) diversify its holdings
so that, at the end of each quarter of the Fund’s taxable year: (i) at least 50% of the value of the Fund’s total assets is
represented by cash and cash items, U.S. government securities, securities of other RICs, and other securities limited in respect of any
one issuer to a value not greater than 5% of the value of the Fund’s total assets and not more than 10% of the outstanding voting
securities of such issuer; and (ii) not more than 25% of the value of the Fund’s total assets is invested, including through corporations
in which the Fund owns a 20% or more voting stock interest, (x) in the securities (other than those of the U.S. government or other RICs)
of any one issuer or of two or more issuers that the Fund controls and that are engaged in the same, similar, or related trades or businesses,
or (y) in the securities of one or more qualified publicly traded partnerships.
In general, for purposes of the 90% gross income requirement described
in paragraph (a) above, income derived from a partnership will be treated as qualifying income only to the extent such income is attributable
to items of income of the partnership which would be qualifying income if realized by the RIC. However, 100% of the net income derived
from an interest in a “qualified publicly traded partnership” will be treated as qualifying income. In addition, although
in general the passive loss rules of the Code do not apply to RICs, such rules do apply to a RIC with respect to items attributable to
an interest in a qualified publicly traded partnership. For purposes of paragraph (c) above, the term “outstanding voting securities
of such issuer” will include the equity securities of a qualified publicly traded partnership. In addition, for purposes of the
diversification test in (c) above, the identification of the issuer (or, in some cases, issuers) of a particular Fund investment can
depend on the terms and conditions of that investment. In some cases, identification of the issuer (or issuers) is uncertain under current
law, and an adverse determination or future guidance by the Internal Revenue Service (“IRS”) with respect to issuer identification
for a particular type of investment may adversely affect the Fund's ability to meet the diversification test in (c) above.
Eaton Vance Tax-Managed Diversified Equity Income Fund | 28 | SAI dated February 18, 2022 |
As a result of qualifying as a RIC, the Fund will not be subject
to U.S. federal income tax on its net investment income (i.e., its investment company taxable income, as that term is defined in the Code,
determined without regard to the deduction for dividends paid) and net capital gain (i.e., the excess of its net realized long-term capital
gain over its net realized short-term capital loss), if any, that it distributes to its shareholders in each taxable year, provided that
it distributes to its shareholders at least the sum of 90% of its net investment income and 90% of its net tax-exempt interest income
(if any) for such taxable year.
In order to avoid incurring a nondeductible 4% federal excise tax obligation,
the Code requires that the Fund distribute (or be deemed to have distributed) by December 31 of each calendar year an amount at least
equal to the sum of (i) 98% of its ordinary income for such year, (ii) 98.2% of its capital gain net income, generally computed on the
basis of the one-year period ending on October 31 (or later if the Fund is permitted to elect and so elects) of such year, and (iii) 100%
of any ordinary income and capital gain net income from the prior year (as previously computed) that were not paid out during such year
and on which the Fund paid no federal income tax. Under current law, provided that the Fund qualifies as a RIC for federal income tax
purposes, the Fund should not be liable for any income, corporate excise or franchise tax in The Commonwealth of Massachusetts.
If the Fund were to fail to meet the income, diversification or distribution
test described above, the Fund could in some cases cure such failure, including by paying a Fund-level tax, paying interest, making additional
distributions, or disposing of certain assets.
If the Fund were ineligible to or otherwise did not cure such failure
for any year, or if the Fund were otherwise to fail to qualify as a RIC for such taxable year, the Fund’s taxable income will be
subject to corporate income taxes, and all distributions from earnings and profits, including distributions of net capital gain (if any),
will be taxable to the shareholder as ordinary income. Such distributions may be eligible (i) to be treated as qualified dividend income
in the case of individual and other noncorporate shareholders and (ii) for the dividends-received deduction (“DRD”) in the
case of corporate shareholders, provided, in both cases, the shareholder meets certain holding period and other requirements in respect
of the Fund’s shares. In addition, in order to requalify for taxation as a RIC, the Fund may be required to recognize unrealized
gains, pay substantial taxes and interest, and make certain distributions.
For U.S. federal income tax purposes, distributions paid out of the
Fund’s current or accumulated earnings and profits will, except in the case of distributions of qualified dividend income and capital
gain dividends described below, generally be taxable as ordinary income. “Qualified dividend income” received by an individual
is generally taxed at the rates applicable to long-term capital gain. In order for a dividend received by Fund shareholders to be qualified
dividend income, the Fund must meet holding period and other requirements with respect to the dividend-paying stock in its portfolio and
the shareholders must meet holding period and other requirements with respect to the Fund’s shares. A dividend will not be treated
as qualified dividend income (at either the Fund or shareholder level) (1) if the dividend is received with respect to any share of stock
held for fewer than 61 days during the 121-day period beginning at the date which is 60 days before the date on which such share becomes
ex-dividend with respect to such dividend (or, in the case of certain preferred stock, 91 days during the 181-day period beginning 90
days before such date), (2) to the extent that the recipient is under an obligation (whether pursuant to a short sale or otherwise) to
make related payments with respect to positions in substantially similar or related property, (3) if the recipient elects to have the
dividend income treated as investment income for purposes of the limitation on deductibility of investment interest, or (4) if the dividend
is received from a foreign corporation that is (a) not eligible for the benefits of a comprehensive income tax treaty with the U.S. (with
the exception of dividends paid on stock of such a foreign corporation readily tradable on an established securities market in the U.S.)
or (b) treated as a passive foreign investment company (“PFIC”). Payments in lieu of dividends, such as payments pursuant
to securities lending arrangements, also do not qualify to be treated as qualified dividend income.
Eaton Vance Tax-Managed Diversified Equity Income Fund | 29 | SAI dated February 18, 2022 |
In general, distributions of investment income designated by the
Fund as derived from qualified dividend income will be treated as qualified dividend income by a shareholder taxed as an individual provided
the shareholder meets the holding period and other requirements described above with respect to the Fund’s shares. If the aggregate
qualified dividend income received by the Fund during any taxable year is 95% or more of its gross income (excluding net long-term capital
gain over net short-term capital loss), then 100% of the Fund’s dividends (other than properly designated capital gain dividends)
will be eligible to be treated as qualified dividend income.
A portion of distributions made by the Fund which are derived from dividends
from U.S. corporations may qualify for the DRD in the case of corporate shareholders. The DRD is reduced to the extent the Fund shares
with respect to which the dividends are received are treated as debt-financed under the Code and is eliminated if the shares are deemed
to have been held for less than a minimum period, generally more than 45 days (more than 90 days in the case of certain preferred stock)
during the 91-day period beginning 45 days before the ex-dividend date (during the 181-day period beginning 90 days before such date in
the case of certain preferred stock) or if the recipient is under an obligation (whether pursuant to a short sale or otherwise) to make
related payments with respect to positions in substantially similar or related property. Receipt of certain distributions qualifying for
the DRD may result in a reduction of the tax basis of the corporate shareholder’s shares. Payments in lieu of dividends, such as
payments pursuant to securities lending arrangements, also do not qualify for the DRD.
For federal income tax purposes, net capital losses incurred by the
Fund in a particular taxable year can be carried forward to offset net capital gains in any subsequent year until such loss carryforwards
have been fully used, and such capital losses carried forward will retain their character as either short-term or long-term capital losses.
To the extent subsequent net capital gains are offset by such losses, they would not result in federal income tax liability to the Fund
and would not be distributed as such to shareholders.
Distributions of net capital gain, if any, designated as capital gains
dividends are taxable to a shareholder as long-term capital gains, regardless of how long the shareholder has held Fund shares. The IRS
and the Department of the Treasury have issued regulations that impose special rules in respect of capital gain dividends received through
partnership interests constituting “applicable partnership interests” under Section 1061 of the Code. A distribution of an
amount in excess of the Fund’s current and accumulated earnings and profits will be treated by a shareholder as a return of capital
which is applied against and reduces the shareholder’s basis in his or her shares. To the extent that the amount of any such distribution
exceeds the shareholder’s basis in his or her shares, the excess will be treated by the shareholder as gain from a sale or exchange
of the shares. Distributions of gains from the sale of investments that the Fund owned for one year or less will give rise to short-term
capital gain.
The Fund may elect to retain its net capital gain or a portion thereof
for investment and be taxed at corporate rates on the amount retained. In such case, it may designate the retained amount as undistributed
capital gains in a notice to its shareholders who will be treated as if each received a distribution of his or her pro rata share of such
gain, with the result that each shareholder will (i) be required to report his or her pro rata share of such gain on his or her tax return
as long-term capital gain, (ii) receive a refundable tax credit for his or her pro rata share of tax paid by the Fund on the gain and
(iii) increase the tax basis for his or her shares by an amount equal to the deemed distribution less the tax credit. The Fund is not
required to, and there can be no assurance that the Fund will, make this designation if it retains all or a portion of its net capital
gain in a taxable year.
Distributions are taxable as described herein whether shareholders receive
them in cash or in additional shares of the Fund.
Shareholders receiving dividends or distributions in the form of
additional shares pursuant to a dividend reinvestment plan will be treated for U.S. federal income tax purposes as receiving a dividend
in an amount equal to either (i) if the shares are trading below net asset value, the amount of cash allocated to the shareholder for
the purchase of shares on its behalf in the open market, or (ii) if shares are trading at or above net asset value, generally the fair
market value of the new shares issued to the shareholder, and will have a cost basis in the shares received equal to such amount. The
Fund will inform shareholders of the source and tax status of all distributions promptly after the close of each calendar year.
The benefits of the reduced tax rates applicable to long-term capital
gains and qualified dividend income may be impacted by the application of the alternative minimum tax to individual shareholders.
Eaton Vance Tax-Managed Diversified Equity Income Fund | 30 | SAI dated February 18, 2022 |
From time to time, the Fund may make a tender offer for its shares.
Shareholders who tender all shares held, or considered to be held, by them will generally be treated as having sold their shares and generally
will realize a capital gain or loss. If a shareholder tenders fewer than all of its shares, such shareholder may be treated as having
received a distribution under Section 301 of the Code (“Section 301 distribution”) unless the redemption is treated as being
either (i) “substantially disproportionate” with respect to such shareholder or (ii) otherwise “not essentially equivalent
to a dividend” under the relevant rules of the Code. A Section 301 distribution is not treated as a sale or exchange giving rise
to a capital gain or loss, but rather is treated as a dividend to the extent supported by the Fund’s current and accumulated earnings
and profits, with the excess treated as a return of capital reducing the shareholder’s tax basis in Fund shares, and thereafter
as capital gain. Where a redeeming shareholder is treated as receiving a dividend, there is a risk that non-tendering shareholders whose
interests in the Fund increase as a result of such tender will be treated as having received a taxable distribution from the Fund. The
extent of such risk will vary depending upon the particular circumstances of the tender offer, in particular whether such offer is a single
and isolated event or is part of a plan for periodically redeeming the shares of the Fund; if isolated, any such risk is likely remote.
Certain net investment income received by an individual having adjusted
gross income in excess of $200,000 (or $250,000 for married individuals filing jointly) may be subject to a tax of 3.8%. Undistributed
net investment income of trusts and estates in excess of a specified amount also may be subject to this tax. Dividends and capital gains
distributed by the Fund, and gain realized on the sale of Fund shares, will constitute investment income of the type subject to this tax.
The tax treatment of certain positions entered into by the Fund (including
regulated futures contracts, certain foreign currency positions and certain listed non-equity options) will be governed by Section 1256
of the Code (“Section 1256 contracts”). Section 1256 of the Code generally requires any gain or loss arising from a Section
1256 contract to be treated as 60% long-term and 40% short-term capital gain or loss, although certain foreign currency gains and losses
from such contracts may be treated as ordinary in character. In addition, the Fund generally will be required to “mark-to-market”
(i.e., treat as sold for fair market value) each Section 1256 contract which it holds at the close of each taxable year (and for purposes
of the 4% excise tax, on certain other dates as prescribed by the Code). If a Section 1256 contract held by the Fund at the end of a taxable
year is sold in the following year, the amount of any gain or loss realized on such sale will be adjusted to reflect the gain or loss
previously taken into account under the “mark-to-market” rules.
The taxation of equity options that the Fund expects to write that do
not qualify as section 1256 contracts are governed by Code Section 1234. Pursuant to Code Section 1234, the premium received by the Fund
for selling a call option is not included in income at the time of receipt. If an option written by the Fund expires unexercised, the
premium is short-term capital gain to the Fund. If the Fund enters into a closing transaction, the difference between the amount paid
to close out its position and the premium received for writing the option is short-term capital gain or loss. If a call option written
by the Fund is exercised, thereby requiring the Fund to sell the underlying security, the premium will increase the amount realized upon
the sale of the security and any resulting gain or loss will be long-term or short-term, depending upon the holding period of the security.
If securities are purchased by the Fund pursuant to the exercise of a put option written by it, the Fund generally will subtract the premium
received for purposes of computing its cost basis in the securities purchased. With respect to a put or call option that is purchased
by the Fund, if the option is sold, any resulting gain or loss will be a capital gain or loss, and will be short-term or long-term, depending
upon the holding period for the option. If the option expires, the resulting loss is a capital loss and is short-term or long-term, depending
upon the holding period for the option. If the option is exercised, the cost of the option, in the case of a call option, is added to
the basis of the purchased security and, in the case of a put option, reduces the amount realized on the underlying security in determining
gain or loss. Because the Fund does not have control over the exercise of the call options it writes, such exercise or other required
sales of the underlying securities may cause the Fund to realize capital gains or losses at inopportune times.
The Code contains special rules that apply to “straddles,”
defined generally as the holding of offsetting positions with respect to personal property. For example, the straddle rules normally
apply when a taxpayer holds stock and an offsetting option with respect to such stock or substantially identical stock or securities.
In general, investment positions will be offsetting if there is a substantial diminution in the risk of loss from holding one position
by reason of holding one or more other positions. The Fund expects that the index call options it writes will not be considered straddles
for this purpose because the Fund’s portfolio of common stocks will be sufficiently dissimilar from the components of the indices
on which it has outstanding option positions under applicable guidance established by the IRS. Under certain circumstances, however,
the Fund may enter into option transactions or certain other investments that may constitute positions in a straddle. If two or more
positions constitute a straddle, recognition of a realized loss from one position must generally be deferred to the extent of unrecognized
gain in an offsetting position. In addition, long-term capital gain may be recharacterized as short-term capital gain, or short-term
capital loss as long-term capital loss. Interest and other carrying charges allocable to personal property that is part of a straddle
are not currently deductible but must instead be capitalized. Similarly, “wash sale” rules apply to prevent the recognition
of loss by the Fund from the disposition of stock or securities at a loss in a case in which identical or substantially identical stock
or securities (or an option to acquire such property) is or has been acquired within a prescribed period.
Eaton Vance Tax-Managed Diversified Equity Income Fund | 31 | SAI dated February 18, 2022 |
The Code allows a taxpayer to elect to offset gains and losses from
positions that are part of a “mixed straddle.” Generally a “mixed straddle” is a straddle in which one or more
but not all positions are Section 1256 contracts. The Fund may be eligible to elect to establish one or more mixed straddle accounts for
certain of its mixed straddle trading positions. The mixed straddle account rules require a daily “marking to market” of all
open positions in the account and a daily netting of gains and losses from all positions in the account. At the end of a taxable year,
the annual net gains or losses from the mixed straddle account are recognized for tax purposes. The net capital gain or loss is treated
as 60% long-term and 40% short-term capital gain or loss if attributable to the Section 1256 contract positions, or all short-term capital
gain or loss if attributable to the non-Section 1256 contract positions.
The Fund may recognize gain (but not loss) from a constructive sale
of certain “appreciated financial positions” if the Fund enters into a short sale, offsetting notional principal contract,
or forward contract transaction with respect to the appreciated position or substantially identical property. Appreciated financial positions
subject to this constructive sale treatment include interests (including options and forward contracts and short sales) in stock and certain
other instruments. Constructive sale treatment does not apply if the transaction is closed out not later than thirty days after the end
of the taxable year in which the transaction was initiated, and the underlying appreciated securities position is held unhedged for at
least the next sixty days after the hedging transaction is closed.
Gain or loss from a short sale of property is generally considered as
capital gain or loss to the extent the property used to close the short sale constitutes a capital asset in the Fund’s hands. Except
with respect to certain situations where the property used to close a short sale has a long-term holding period on the date the short
sale is entered into, gains on short sales generally are short-term capital gains. A loss on a short sale will be treated as a long-term
capital loss if, on the date of the short sale, “substantially identical property” has been held by the Fund for more than
one year. In addition, entering into a short sale may result in suspension of the holding period of “substantially identical property”
held by the Fund.
Gain or loss on a short sale will generally not be realized until such
time as the short sale is closed. However, as described above in the discussion of constructive sales, if the Fund holds a short sale
position with respect to securities that has appreciated in value, and it then acquires property that is the same as or substantially
identical to the property sold short, the Fund generally will recognize gain on the date it acquires such property as if the short sale
were closed on such date with such property. Similarly, if the Fund holds an appreciated financial position with respect to securities
and then enters into a short sale with respect to the same or substantially identical property, the Fund generally will recognize gain
as if the appreciated financial position were sold at its fair market value on the date it enters into the short sale.
The subsequent holding period for any appreciated financial position
that is subject to these constructive sale rules will be determined as if such position was acquired on the date of the constructive sale.
The Fund’s transactions in futures contracts and options will
be subject to special provisions of the Code that, among other things, may affect the character of gains and losses realized by the Fund
(i.e., may affect whether gains or losses are ordinary or capital, or short-term or long-term), may accelerate recognition of income to
the Fund and may defer Fund losses. These rules could, therefore, affect the character, amount and timing of distributions to shareholders.
These provisions also (a) will require the Fund to mark-to-market certain types of the positions in its portfolio (i.e., treat them as
if they were closed out), and (b) may cause the Fund to recognize income without receiving cash with which to make distributions in amounts
necessary to satisfy the 90% distribution requirement for qualifying to be taxed as a RIC and the 98% and 98.2% distribution requirements
for avoiding excise taxes.
In particular, the Fund expects to write call options with respect to
certain securities held by the Fund. Depending on whether such options are exercised or lapse, or whether the securities or options are
sold, the existence of these options will affect the amount and timing of the recognition of income and whether the income qualifies as
long-term capital gain.
Further, certain of the Fund’s investment practices, such as its
transactions in options, are subject to special and complex federal income tax provisions that may, among other things, (i) convert dividends
that would otherwise constitute qualified dividend income into short-term capital gain or ordinary income taxed at the higher rate applicable
to ordinary income, (ii) treat dividends that would otherwise be eligible for the corporate DRD as ineligible for such treatment, (iii)
disallow, suspend or otherwise limit the allowance of certain losses or deductions, (iv) convert long-term capital gain into short-term
capital gain or ordinary income, (v) convert an ordinary loss or deduction into a capital loss (the deductibility of which is more limited),
(vi) cause the Fund to recognize income or gain without a corresponding receipt of cash, (vii) adversely affect the time as to when a purchase or sale of stock or securities
is deemed to occur, (viii) adversely alter the characterization of certain complex financial transactions, and (ix) produce income that
will not constitute qualifying income for purposes of the 90% annual gross income requirement described above.
Eaton Vance Tax-Managed Diversified Equity Income Fund | 32 | SAI dated February 18, 2022 |
Any loss realized upon the sale or exchange of Fund shares with a holding
period of six months or less will be treated as a long-term capital loss to the extent of any capital gain dividends received with respect
to such shares. In addition, all or a portion of a loss realized on a sale or other disposition of Fund shares may be disallowed under
“wash sale” rules to the extent the shareholder acquires other shares of the same Fund (whether through the reinvestment of
distributions or otherwise) within a period of 61 days beginning 30 days before and ending 30 days after the date of disposition of the
shares. Any disallowed loss will result in an adjustment to the shareholder’s tax basis in some or all of the other shares acquired.
Sales charges paid upon a purchase of shares cannot be taken into account
for purposes of determining gain or loss on a sale of the shares before the 91st day after their purchase to the extent a sales charge
is reduced or eliminated in a subsequent acquisition of shares of the Fund (or of another fund), during the period beginning on the date
of such sale and ending on January 31 of the calendar year following the calendar year in which such sale was made, pursuant to the reinvestment
or exchange privilege. Any disregarded amounts will result in an adjustment to the shareholder’s tax basis in some or all of any
other shares acquired.
Dividends and distributions on the Fund’s shares are generally
subject to federal income tax as described herein to the extent they do not exceed the Fund’s realized income and gains, even though
such dividends and distributions may economically represent a return of a particular shareholder’s investment. Such distributions
are likely to occur in respect of shares purchased at a time when the Fund’s net asset value reflects gains that are either unrealized,
or realized but not distributed. Such realized gains may be required to be distributed even when the Fund’s net asset value also
reflects unrealized losses. Certain distributions declared in October, November or December and paid in the following January will be
taxed to shareholders as if received on December 31 of the year in which they were declared. In addition, certain other distributions
made after the close of a taxable year of the Fund may be “spilled back” and treated as paid by the Fund (except for purposes
of the non-deductible 4% federal excise tax) during such taxable year. In such case, shareholders will be treated as having received such
dividends in the taxable year in which the distributions were actually made.
Dividends and interest received, and gains realized, by the Fund on
foreign securities may be subject to income, withholding or other taxes imposed by foreign countries and U.S. possessions (collectively
“foreign taxes”) that would reduce the return on its securities. Tax conventions between certain countries and the United
States, however, may reduce or eliminate foreign taxes, and many foreign countries do not impose taxes on capital gains in respect of
investments by foreign investors. If more than 50% of the Fund’s assets at taxable year end consists of the securities of foreign
corporations, the Fund may elect to permit shareholders to claim a credit or deduction on their income tax returns for their pro rata
portions of qualified taxes paid by the Fund to foreign countries in respect of foreign securities that the Fund has held for at least
the minimum period specified in the Code. In such a case, shareholders will include in gross income from foreign sources their pro rata
shares of such taxes paid by the Fund. A shareholder’s ability to claim an offsetting foreign tax credit or deduction in respect
of foreign taxes paid by the Fund is subject to certain limitations imposed by the Code, which may result in the shareholder’s not
receiving a full credit or deduction (if any) for the amount of such taxes. Shareholders who do not itemize on their U.S. federal income
tax returns may claim a credit (but not a deduction) for such foreign taxes. Even if the Fund were eligible to make such an election for
a given year, it may determine not to do so.
The Fund may invest in the stock of PFICs. A PFIC is any foreign corporation
(with certain exceptions) that, in general, meets either of the following tests: (1) at least 75% of its gross income is passive or (2)
an average of at least 50% of its assets produce, or are held for the production of, passive income. Under certain circumstances, the
Fund will be subject to federal income tax on a portion of any “excess distribution” received on the stock of a PFIC or of
any gain from disposition of that stock (collectively “PFIC income”), plus interest thereon, even if the Fund distributes
the PFIC income as a taxable dividend to its shareholders. The balance of the PFIC income will be included in the Fund’s investment
company taxable income and, accordingly, will not be taxable to it to the extent it distributes that income to its shareholders.
If the Fund invests in a PFIC and elects to treat the PFIC as a “qualified
electing fund” (“QEF”), then in lieu of the foregoing tax and interest obligation, the Fund will be required to include
in income each year its pro rata share of the QEF’s annual ordinary earnings and net capital gain -- which it may have to distribute
to satisfy the distribution requirement and avoid imposition of the excise tax -- even if the QEF does not distribute those earnings and
gain to the Fund. There can be no assurance that the Fund will be able to make a
QEF election with respect to any investment in a PFIC.
Eaton Vance Tax-Managed Diversified Equity Income Fund | 33 | SAI dated February 18, 2022 |
The Fund may elect to “mark to market” its stock in any
PFIC. “Marking-to-market,” in this context, means including in ordinary income each taxable year the excess, if any, of the
fair market value of a PFIC’s stock over the Fund’s adjusted basis therein as of the end of that year. Pursuant to the election,
the Fund also would be allowed to deduct (as an ordinary, not capital, loss) the excess, if any, of its adjusted basis in PFIC stock over
the fair market value thereof as of the taxable year-end, but only to the extent of any net mark-to-market gains (reduced by any prior
deductions) with respect to that stock included by the Fund for prior taxable years under the election. The Fund’s adjusted basis
in each PFIC’s stock with respect to which it has made this election will be adjusted to reflect the amounts of income included
and deductions taken thereunder.
Under Section 988 of the Code, gains or losses attributable to fluctuations
in exchange rates between the time the Fund accrues income or receivables or expenses or other liabilities denominated in a foreign currency
and the time the Fund actually collects such income or receivables or pays such liabilities are generally treated as ordinary income or
loss. Similarly, gains or losses on foreign currency forward contracts and the disposition of debt securities denominated in a foreign
currency, to the extent attributable to fluctuations in exchange rates between the acquisition and disposition dates, are also treated
as ordinary income or loss.
Amounts paid by the Fund to individuals and certain other shareholders
who have not provided the Fund with their correct taxpayer identification number (“TIN”) and certain certifications required
by the IRS as well as shareholders with respect to whom the Fund has received certain information from the IRS or a broker may be subject
to “backup” withholding of federal income tax arising from the Fund’s taxable dividends and other distributions as well
as the gross proceeds of sales of shares. Backup withholding is not an additional tax. Any amounts withheld under the backup withholding
rules from payments made to a shareholder may be refunded or credited against such shareholder’s federal income tax liability, if
any, provided that the required information is timely furnished to the IRS.
Non-U.S. investors not engaged in a U.S. trade or business with which
their investment in the Fund is effectively connected will be subject to U.S. federal income tax treatment that is different from that
described above. Such non-U.S. investors may be subject to withholding tax at the rate of 30% (or a lower rate under an applicable tax
treaty) on amounts treated as ordinary dividends from the Fund. Capital gain dividends, if any, are not subject to the 30% withholding
tax. Exemptions from this withholding tax are also provided for dividends properly designated as interest related dividends or as short-term
capital gain dividends paid by the Fund with respect to its qualified net interest income or qualified short-term gain. Unless an effective
IRS Form W-8BEN or other authorized withholding certificate is on file, backup withholding will apply to certain other payments from the
Fund. Non-U.S. investors should consult their tax advisors regarding such treatment and the application of foreign taxes to an investment
in the Fund.
Code Sections 1471 through 1474 and the U.S. Treasury Regulations
and IRS guidance issued thereunder (collectively, “FATCA”) generally require a Fund to obtain information sufficient to identify
the status of each of its shareholders under FATCA or under an applicable intergovernmental agreement (an “IGA”) between the
United States and a foreign government. If a shareholder of the Fund fails to provide the requested information or otherwise fails to
comply with FATCA or an IGA, the Fund may be required to withhold under FATCA at a rate of 30% with respect to that shareholder on ordinary
dividends it pays. The IRS and the Department of the Treasury have issued proposed regulations providing that these withholding rules
will not apply to the gross proceeds of share redemptions or capital gain dividends the Fund pays. If a payment by the Fund is subject
to withholding under FATCA, the Fund is required to withhold even if such payment would otherwise be exempt from withholding under the
rules applicable to foreign shareholders described above (e.g. interest-related dividends). Shareholders should consult their own tax
advisors regarding the possible implications of these requirements on their investment in the Fund.
If a shareholder realizes a loss on disposition of the Fund’s
shares in any single tax year of $2 million or more for an individual shareholder or $10 million or more for a corporate shareholder,
or, in any combination of tax years, $4 million or more for an individual shareholder or $20 million or more for a corporate shareholder,
the shareholder must file with the IRS a disclosure statement on Form 8886. Direct shareholders of portfolio securities are in many cases
excepted from this reporting requirement, but under current guidance, shareholders of a RIC are not excepted. Future guidance may extend
the current exception from this reporting requirement to shareholders of most or all RICs.
Eaton Vance Tax-Managed Diversified Equity Income Fund | 34 | SAI dated February 18, 2022 |
The foregoing briefly summarizes some of the important U.S. federal
income tax consequences to shareholders of investing in Fund shares, reflects the U.S. federal tax law as of the date of this SAI, and
does not address special tax rules applicable to certain types of investors, such as corporate and foreign investors. Unless otherwise
noted, this discussion assumes that an investor is a U.S. shareholder and holds
shares as a capital asset. This discussion is based upon present provisions of the Code, the regulations promulgated thereunder, and judicial
and administrative ruling authorities, all of which are subject to change or differing interpretations by the courts or the IRS retroactively
or prospectively. For instance, the House of Representatives recently passed the Build Back Better Act, which would make significant changes
to the Code if enacted into law, and this summary does not contain a description of such potential changes. No attempt has been made to
present a complete explanation of the U.S. federal tax treatment of the Fund or the implications to shareholders, and the discussions
here and in the prospectus are not intended as a substitute for careful tax planning. Investors should consult their tax advisors regarding
other federal, state, local and, where applicable, foreign tax considerations that may be applicable to their particular circumstances,
as well as any proposed tax law changes.
State and
Local Taxes. Shareholders should consult their own tax advisors
as to the state or local tax consequences of investing in the Fund.
OTHER INFORMATION
The Fund is an organization of the type commonly known as a “Massachusetts
business trust.” Under Massachusetts law, shareholders of such a trust may, in certain circumstances, be held personally liable
as partners for the obligations of the trust. The Declaration of Trust contains an express disclaimer of shareholder liability in connection
with Fund property or the acts, obligations or affairs of the Fund. The Declaration of Trust, in coordination with the Fund’s By-laws,
also provides for indemnification out of Fund property of any shareholder held personally liable for the claims and liabilities to which
a shareholder may become subject by reason of being or having been a shareholder. Thus, the risk of a shareholder incurring financial
loss on account of shareholder liability is limited to circumstances in which the Fund itself is unable to meet its obligations. The Fund
has been advised by its counsel that the risk of any shareholder incurring any liability for the obligations of the Fund is remote.
The Declaration of Trust provides that the Trustees will not be liable
for errors of judgment or mistakes of fact or law; but nothing in the Declaration of Trust protects a Trustee against any liability to
the Fund or its shareholders to which he or she would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence,
or reckless disregard of the duties involved in the conduct of his or her office. Voting rights are not cumulative, which means that the
holders of more than 50% of the shares voting for the election of Trustees can elect 100% of the Trustees and, in such event, the holders
of the remaining less than 50% of the shares voting on the matter will not be able to elect any Trustees.
The Declaration of Trust provides that no person shall serve as a Trustee
if shareholders holding two-thirds of the outstanding shares have removed him from that office either by a written declaration filed with
the Fund’s custodian or by votes cast at a meeting called for that purpose. The Declaration of Trust further provides that the Trustees
of the Fund shall promptly call a meeting of the shareholders for the purpose of voting upon a question of removal of any such Trustee
or Trustees when requested in writing to do so by the record holders of not less than 10 per centum of the outstanding shares.
The Fund’s Prospectus, any related Prospectus Supplement, and
this SAI do not contain all of the information set forth in the Registration Statement that the Fund has filed with the SEC. The complete
Registration Statement may be obtained from the SEC upon payment of the fee prescribed by its Rules and Regulations.
CUSTODIAN
State Street Bank and Trust Company (“State Street”), State
Street Financial Center, One Lincoln Street, Boston, MA 02111, is the custodian of the Fund and will maintain custody of the securities
and cash of the Fund. State Street maintains the Fund’s general ledger and computes net asset value per share at least weekly. State
Street also attends to details in connection with the sale, exchange, substitution, transfer and other dealings with the Fund’s
investments, and receives and disburses all funds. State Street also assists in preparation of shareholder reports and the electronic
filing of such reports with the SEC.
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Deloitte & Touche LLP (“Deloitte”), 200 Berkeley
Street, Boston, MA 02116, independent registered public accounting firm, audits the Fund’s financial statements. Deloitte and/or
its affiliates provide other audit, tax and related services to the Fund.
Eaton Vance Tax-Managed Diversified Equity Income Fund | 35 | SAI dated February 18, 2022 |
CONTROL PERSONS AND PRINCIPAL HOLDERS OF
SECURITIES
As of February 14, 2022, the officers and Trustees of the Fund as
a group owned less than 1% of the outstanding shares of the Fund.
According to filings made on Schedule 13D and 13G pursuant to Sections
13(d) and 13(g), respectively, of the Securities Exchange Act of 1934, as amended, the following shareholders own 5% or more of the Fund’s
Common Shares. Information in the table below is based on filings made on or before February 14, 2022. To the knowledge of the Fund, no
other person owned 5% or more of the outstanding Common Shares of the Fund as of such date. Owners of 25% or more of common shares of
a fund are presumed to be a control person of such fund.
Title of Class |
Name and Address of Owner |
Aggregate Share Amount Owned |
Percent |
Common Shares |
Morgan Stanley
Morgan Stanley Smith Barney LLC
1585 Broadway
New York, NY 10036 |
12,938,593 |
8.40% |
POTENTIAL CONFLICTS OF INTEREST
As a diversified global financial services firm, Morgan Stanley engages
in a broad spectrum of activities, including financial advisory services, investment management activities, lending, commercial banking,
sponsoring and managing private investment funds, engaging in broker-dealer transactions and principal securities, commodities and foreign
exchange transactions, research publication and other activities. In the ordinary course of its business, Morgan Stanley is a full-service
investment banking and financial services firm and therefore engages in activities where Morgan Stanley’s interests or the interests
of its clients may conflict with the interests of a Fund or Portfolio, if applicable, (collectively for the purposes of this section,
“Fund” or “Funds”). Morgan Stanley advises clients and sponsors, manages or advises other investment funds and
investment programs, accounts and businesses (collectively, together with the Morgan Stanley funds, any new or successor funds, programs,
accounts or businesses (other than funds, programs, accounts or businesses sponsored, managed, or advised by former direct or indirect
subsidiaries of Eaton Vance Corp. (“Eaton Vance Investment Accounts”)), the ‘‘MS Investment Accounts, and, together
with the Eaton Vance Investment Accounts, the “Affiliated Investment Accounts’’) with a wide variety of investment objectives
that in some instances may overlap or conflict with a Fund’s investment objectives and present conflicts of interest. In addition,
Morgan Stanley or the investment adviser may also from time to time create new or successor Affiliated Investment Accounts that may compete
with a Fund and present similar conflicts of interest. The discussion below enumerates certain actual, apparent and potential conflicts
of interest. There is no assurance that conflicts of interest will be resolved in favor of Fund shareholders and, in fact, they may not
be. Conflicts of interest not described below may also exist.
The discussions below with respect to actual, apparent and potential
conflicts of interest also may be applicable to or arise from the MS Investment Accounts whether or not specifically identified.
Material
Non-public and Other Information. It is expected that confidential or material non-public information regarding an investment
or potential investment opportunity may become available to the investment adviser. If such information becomes available, the investment
adviser may be precluded (including by applicable law or internal policies or procedures) from pursuing an investment or disposition opportunity
with respect to such investment or investment opportunity. The investment adviser may also from time to time be subject to contractual
‘‘stand-still’’ obligations and/or confidentiality obligations that may restrict its ability to trade in certain
investments on a Fund’s behalf. In addition, the investment adviser may be precluded from disclosing such information to an investment
team, even in circumstances in which the information would be beneficial if disclosed. Therefore, the investment team may not be provided
access to material non-public information in the possession of Morgan Stanley that might be relevant to an investment decision to be made
on behalf of a Fund, and the investment team may initiate a transaction or sell an investment that, if such information had been known
to it, may not have been undertaken. In addition, certain members of the investment team may be recused from certain investment-related
discussions so that such members do not receive information that would limit their ability to perform functions of their employment with
the investment adviser or its affiliates unrelated to that of a Fund. Furthermore, access to certain parts of Morgan Stanley may be subject
to third party confidentiality obligations and to information barriers established by Morgan Stanley in order to manage potential conflicts
of interest and regulatory restrictions, including without limitation joint transaction restrictions pursuant to the 1940 Act. Accordingly,
the investment adviser’s ability to source investments from other business units within Morgan Stanley may be limited and there
can be no assurance that the investment adviser will be able to source any investments from any one or more parts of the Morgan Stanley
network.
Eaton Vance Tax-Managed Diversified Equity Income Fund | 36 | SAI dated February 18, 2022 |
The investment adviser may restrict its investment decisions and
activities on behalf of the Funds in various circumstances, including because of applicable regulatory requirements or information held
by the investment adviser or Morgan Stanley. The investment adviser might not engage in transactions or other activities for, or enforce
certain rights in favor of, a Fund due to Morgan Stanley’s activities outside the Funds. In instances where trading of an investment
is restricted, the investment adviser may not be able to purchase or sell such investment on behalf of a Fund, resulting in the Fund’s
inability to participate in certain desirable transactions. This inability to buy or sell an investment could have an adverse effect on
a Fund’s portfolio due to, among other things, changes in an investment’s value during the period its trading is restricted.
Also, in situations where the investment adviser is required to aggregate its positions with those of other Morgan Stanley business units
for position limit calculations, the investment adviser may have to refrain from making investments due to the positions held by other
Morgan Stanley business units or their clients. There may be other situations where the investment adviser refrains from making an investment
due to additional disclosure obligations, regulatory requirements, policies, and reputational risk, or the investment adviser may limit
purchases or sales of securities in respect of which Morgan Stanley is engaged in an underwriting or other distribution capacity.
Morgan Stanley has established certain information barriers and other
policies to address the sharing of information between different businesses within Morgan Stanley. As a result of information barriers,
the investment adviser generally will not have access, or will have limited access, to certain information and personnel in other areas
of Morgan Stanley and generally will not manage the Funds with the benefit of the information held by such other areas. Morgan Stanley,
due to its access to and knowledge of funds, markets and securities based on its prime brokerage and other businesses, may make decisions
based on information or take (or refrain from taking) actions with respect to interests in investments of the kind held (directly or indirectly)
by the Funds in a manner that may be adverse to the Funds, and will not have any obligation or other duty to share information with the
investment adviser.
In limited circumstances, however, including for purposes of managing
business and reputational risk, and subject to policies and procedures and any applicable regulations, Morgan Stanley personnel, including
personnel of the investment adviser, on one side of an information barrier may have access to information and personnel on the other side
of the information barrier through “wall crossings.” The investment adviser faces conflicts of interest in determining whether
to engage in such wall crossings. Information obtained in connection with such wall crossings may limit or restrict the ability of the
investment adviser to engage in or otherwise effect transactions on behalf of the Funds (including purchasing or selling securities that
the investment adviser may otherwise have purchased or sold for a Fund in the absence of a wall crossing). In managing conflicts of interest
that arise because of the foregoing, the investment adviser generally will be subject to fiduciary requirements. The investment adviser
may also implement internal information barriers or ethical walls, and the conflicts described herein with respect to information barriers
and otherwise with respect to Morgan Stanley and the investment adviser will also apply internally within the investment adviser. As a
result, a Fund may not be permitted to transact in (e.g., dispose of a security in whole or in part) during periods when it otherwise
would have been able to do so, which could adversely affect a Fund. Other investors in the security that are not subject to such restrictions
may be able to transact in the security during such periods. There may also be circumstances in which, as a result of information held
by certain portfolio management teams in the investment adviser, the investment adviser limits an activity or transaction for a Fund,
including if the Fund is managed by a portfolio management team other than the team holding such information.
Investments
by Morgan Stanley and its Affiliated Investment Accounts. In serving in multiple capacities to Affiliated Investment Accounts,
Morgan Stanley, including the investment adviser and its investment teams, may have obligations to other clients or investors in Affiliated
Investment Accounts, the fulfillment of which may not be in the best interests of a Fund or its shareholders. A Fund’s investment
objectives may overlap with the investment objectives of certain Affiliated Investment Accounts. As a result, the members of an investment
team may face conflicts in the allocation of investment opportunities among a Fund and other investment funds, programs, accounts and
businesses advised by or affiliated with the investment adviser. Certain Affiliated Investment Accounts may provide for higher management
or incentive fees or greater expense reimbursements or overhead allocations, all of which may contribute to this conflict of interest
and create an incentive for the investment adviser to favor such other accounts.
Morgan Stanley currently invests and plans to continue to invest
on its own behalf and on behalf of its Affiliated Investment Accounts in a wide variety of investment opportunities globally. Morgan Stanley
and its Affiliated Investment Accounts, to the extent consistent with applicable law and policies and procedures, will be permitted to
invest in investment opportunities without making such opportunities available to a Fund beforehand. Subject to the foregoing, Morgan
Stanley may offer investments that fall into the investment objectives of an Affiliated Investment Account to such account or make such
investment on its own behalf, even though such investment also falls within a Fund’s investment objectives. A Fund may invest in
opportunities that Morgan Stanley and/or one or more Affiliated Investment Accounts has declined, and vice versa. All of the foregoing
may reduce the number of investment opportunities available to a Fund and may create conflicts of interest in allocating investment opportunities.
Investors should note that the conflicts inherent in making such allocation decisions may not always be resolved to a
Fund’s advantage. There can be no assurance that a Fund will have an opportunity to participate in certain opportunities that fall
within their investment objectives.
Eaton Vance Tax-Managed Diversified Equity Income Fund | 37 | SAI dated February 18, 2022 |
To seek to reduce potential conflicts of interest and to attempt
to allocate such investment opportunities in a fair and equitable manner, the investment adviser has implemented allocation policies and
procedures. These policies and procedures are intended to give all clients of the investment adviser, including the Funds, fair access
to investment opportunities consistent with the requirements of organizational documents, investment strategies, applicable laws and regulations,
and the fiduciary duties of the investment adviser. Each client of the investment adviser that is subject to the allocation policies and
procedures, including each Fund, is assigned an investment team and portfolio manager(s) by the investment adviser. The investment team
and portfolio managers review investment opportunities and will decide with respect to the allocation of each opportunity considering
various factors and in accordance with the allocation policies and procedures. The allocation policies and procedures are subject to change.
Investors should note that the conflicts inherent in making such allocation decisions may not always be resolved to the advantage of a
Fund.
It is possible that Morgan Stanley or an Affiliated Investment Account,
including another Eaton Vance fund, will invest in or advise a company that is or becomes a competitor of a company of which a Fund holds
an investment. Such investment could create a conflict between the Fund, on the one hand, and Morgan Stanley or the Affiliated Investment
Account, on the other hand. In such a situation, Morgan Stanley may also have a conflict in the allocation of its own resources to the
portfolio investment. Furthermore, certain Affiliated Investment Accounts will be focused primarily on investing in other funds which
may have strategies that overlap and/or directly conflict and compete with a Fund.
In addition, certain investment professionals who are involved in
a Fund’s activities remain responsible for the investment activities of other Affiliated Investment Accounts managed by the investment
adviser and its affiliates, and they will devote time to the management of such investments and other newly created Affiliated Investment
Accounts (whether in the form of funds, separate accounts or other vehicles), as well as their own investments. In addition, in connection
with the management of investments for other Affiliated Investment Accounts, members of Morgan Stanley and its affiliates may serve on
the boards of directors of or advise companies which may compete with a Fund’s portfolio investments. Moreover, these Affiliated
Investment Accounts managed by Morgan Stanley and its affiliates may pursue investment opportunities that may also be suitable for a Fund.
It should be noted that Morgan Stanley may, directly or indirectly,
make large investments in certain of its Affiliated Investment Accounts, and accordingly Morgan Stanley’s investment in a Fund may
not be a determining factor in the outcome of any of the foregoing conflicts. Nothing herein restricts or in any way limits the activities
of Morgan Stanley, including its ability to buy or sell interests in, or provide financing to, equity and/or debt instruments, funds or
portfolio companies, for its own accounts or for the accounts of Affiliated Investment Accounts or other investment funds or clients in
accordance with applicable law.
Different clients of the investment adviser, including a Fund, may
invest in different classes of securities of the same issuer, depending on the respective clients’ investment objectives and policies.
As a result, the investment adviser and its affiliates, at times, will seek to satisfy fiduciary obligations to certain clients owning
one class of securities of a particular issuer by pursuing or enforcing rights on behalf of those clients with respect to such class of
securities, and those activities may have an adverse effect on another client which owns a different class of securities of such issuer.
For example, if one client holds debt securities of an issuer and another client holds equity securities of the same issuer, if the issuer
experiences financial or operational challenges, the investment adviser and its affiliates may seek a liquidation of the issuer on behalf
of the client that holds the debt securities, whereas the client holding the equity securities may benefit from a reorganization of the
issuer. Thus, in such situations, the actions taken by the investment adviser or its affiliates on behalf of one client can negatively
impact securities held by another client. These conflicts also exist as between the investment adviser’s clients, including the
Funds, and the Affiliated Investment Accounts managed by Morgan Stanley.
The investment adviser and its affiliates may give advice and recommend
securities to other clients which may differ from advice given to, or securities recommended or bought for, a Fund even though such other
clients’ investment objectives may be similar to those of the Fund.
The investment adviser and its affiliates manage long and short portfolios.
The simultaneous management of long and short portfolios creates conflicts of interest in portfolio management and trading in that opposite
directional positions may be taken in client accounts, including client accounts managed by the same investment team, and creates risks
such as: (i) the risk that short sale activity could adversely affect the market value of long positions in one or more portfolios (and
vice versa) and (ii) the risks associated with the trading desk receiving opposing orders in the same security simultaneously. The investment
adviser and its affiliates have adopted policies and procedures that are reasonably designed to mitigate these conflicts. In certain circumstances, the
investment adviser invests on behalf of itself in securities and other instruments that would be appropriate for, held by, or may fall
within the investment guidelines of its clients, including a Fund. At times, the investment adviser may give advice or take action for
its own accounts that differs from, conflicts with, or is adverse to advice given or action taken for any client.
Eaton Vance Tax-Managed Diversified Equity Income Fund | 38 | SAI dated February 18, 2022 |
From time to time, conflicts also arise due to the fact that certain
securities or instruments may be held in some client accounts, including a Fund, but not in others, or that client accounts may have different
levels of holdings in certain securities or instruments. . In addition, due to differences in the investment strategies or restrictions
among client accounts, the investment adviser may take action with respect to one account that differs from the action taken with respect
to another account. In some cases, a client account 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 investment adviser
in the allocation of management time, resources and investment opportunities. The investment adviser 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.
In addition, at times an investment adviser investment team will
give advice or take action with respect to the investments of one or more clients that is not given or taken with respect to other clients
with similar investment programs, objectives, and strategies. Accordingly, clients with similar strategies will not always hold the same
securities or instruments or achieve the same performance. The investment adviser’s investment teams also advise clients with conflicting
programs, objectives or strategies. These conflicts also exist as between the investment adviser’s clients, including the Funds,
and the Affiliated Investment Accounts managed by Morgan Stanley.
The investment adviser maintains separate trading desks by investment
team and generally based on asset class, including two trading desks trading equity securities. These trading desks operate independently
of one another. The two equity trading desks do not share information. The separate equity trading desks may result in one desk competing
against the other desk when implementing buy and sell transactions, possibly causing certain accounts to pay more or receive less for
a security than other accounts. In addition, Morgan Stanley and its affiliates maintain separate trading desks that operate independently
of each other and do not share trading information with the investment adviser. These trading desks may compete against the investment
adviser trading desks when implementing buy and sell transactions, possibly causing certain Affiliated Investment Accounts to pay more
or receive less for a security than other Affiliated Investment Accounts.
Investments
by Separate Investment Departments. The entities and individuals that provide investment-related services for the Fund and
certain other Eaton Vance Investment Accounts (the “Eaton Vance Investment Department”) may be different from the entities
and individuals that provide investment-related services to MS Investment Accounts (the “MS Investment Department and, together
with the Eaton Vance Investment Department, the ”Investment Departments“). Although Morgan Stanley has implemented information
barriers between the Investment Departments in accordance with internal policies and procedures, each Investment Department may engage
in discussions and share information and resources with the other Investment Department on certain investment-related matters. The sharing
of information and resources between the Investment Departments is designed to further increase the knowledge and effectiveness of each
Investment Department. Because each Investment Department generally makes investment decisions and executes trades independently of the
other, the quality and price of execution, and the performance of investments and accounts, can be expected to vary. In addition, each
Investment Department may use different trading systems and technology and may employ differing investment and trading strategies. As
a result, a MS Investment Account could trade in advance of the Fund (and vice versa), might complete trades more quickly and efficiently
than the Fund, and/or achieve different execution than the Fund on the same or similar investments made contemporaneously, even when the
Investment Departments shared research and viewpoints that led to that investment decision. Any sharing of information or resources between
the Investment Department servicing the Fund and the MS Investment Department may result, from time to time, in the Fund simultaneously
or contemporaneously seeking to engage in the same or similar transactions as an account serviced by the other Investment Department and
for which there are limited buyers or sellers on specific securities, which could result in less favorable execution for the Fund than
such account. The Eaton Vance Investment Department will not knowingly or intentionally cause the Fund to engage in a cross trade with
an account serviced by the MS Investment Department, however, subject to applicable law and internal policies and procedures, the Fund
may conduct cross trades with other accounts serviced by the Eaton Vance Investment Department. Although the Eaton Vance Investment Department
may aggregate the Fund’s trades with trades of other accounts serviced by the Eaton Vance Investment Department, subject to applicable
law and internal policies and procedures, there will be no aggregation or coordination of trades with accounts serviced by the MS Investment
Department, even when both Investment Departments are seeking to acquire or dispose of the same investments contemporaneously.
Eaton Vance Tax-Managed Diversified Equity Income Fund | 39 | SAI dated February 18, 2022 |
Payments
to Broker-Dealers and Other Financial Intermediaries. The investment adviser and/or EVD may pay compensation, out of their
own funds and not as an expense of the Funds, to certain financial intermediaries (which may include affiliates of the investment adviser
and EVD), including recordkeepers and administrators of various deferred compensation plans, in connection with the sale, distribution,
marketing and retention of shares of the Funds and/or shareholder servicing. For example, the investment adviser or EVD may pay additional
compensation to a financial intermediary for, among other things, promoting the sale and distribution of Fund shares, providing access
to various programs, mutual fund platforms or preferred or recommended mutual fund lists that may be offered by a financial intermediary,
granting EVD access to a financial intermediary’s financial advisors and consultants, providing assistance in the ongoing education
and training of a financial intermediary’s financial personnel, furnishing marketing support, maintaining share balances and/or
for sub-accounting, recordkeeping, administrative, shareholder or transaction processing services. Such payments are in addition to any
distribution fees, shareholder servicing fees and/or transfer agency fees that may be payable by the Funds. The additional payments may
be based on various factors, including level of sales (based on gross or net sales or some specified minimum sales or some other similar
criteria related to sales of the Funds and/or some or all other Eaton Vance funds), amount of assets invested by the financial intermediary’s
customers (which could include current or aged assets of the Funds and/or some or all other Eaton Vance funds), a Fund’s advisory
fee, some other agreed upon amount or other measures as determined from time to time by the investment adviser and/or EVD. The amount
of these payments may be different for different financial intermediaries.
The prospect of receiving, or the receipt of, additional compensation,
as described above, by financial intermediaries may provide such financial intermediaries and their financial advisors and other salespersons
with an incentive to favor sales of shares of the Funds over other investment options with respect to which these financial intermediaries
do not receive additional compensation (or receive lower levels of additional compensation). These payment arrangements, however, will
not change the price that an investor pays for shares of the Funds or the amount that the Funds receive to invest on behalf of an investor.
Investors may wish to take such payment arrangements into account when considering and evaluating any recommendations relating to Fund
shares and should review carefully any disclosures provided by financial intermediaries as to their compensation. In addition, in certain
circumstances, the investment adviser may restrict, limit or reduce the amount of a Fund's investment, or restrict the type of governance
or voting rights it acquires or exercises, where the Fund (potentially together with Morgan Stanley) exceeds a certain ownership interest,
or possesses certain degrees of voting or control or has other interests.
Morgan
Stanley Trading and Principal Investing Activities. Notwithstanding anything to the contrary herein, Morgan Stanley will generally
conduct its sales and trading businesses, publish research and analysis, and render investment advice without regard for a Fund’s
holdings, although these activities could have an adverse impact on the value of one or more of the Fund’s investments, or could
cause Morgan Stanley to have an interest in one or more portfolio investments that is different from, and potentially adverse to that
of a Fund. Furthermore, from time to time, the investment adviser or its affiliates may invest “seed” capital in a Fund, typically
to enable the Fund to commence investment operations and/or achieve sufficient scale. The investment adviser and its affiliates may hedge
such seed capital exposure by investing in derivatives or other instruments expected to produce offsetting exposure. Such hedging transactions,
if any, would occur outside of a Fund.
Morgan Stanley’s sales and trading, financing and principal
investing businesses (whether or not specifically identified as such, and including Morgan Stanley’s trading and principal investing
businesses) will not be required to offer any investment opportunities to a Fund. These businesses may encompass, among other things,
principal trading activities as well as principal investing.
Morgan Stanley’s sales and trading, financing and principal
investing businesses have acquired or invested in, and in the future may acquire or invest in, minority and/or majority control positions
in equity or debt instruments of diverse public and/or private companies. Such activities may put Morgan Stanley in a position to exercise
contractual, voting or creditor rights, or management or other control with respect to securities or loans of portfolio investments or
other issuers, and in these instances Morgan Stanley may, in its discretion and subject to applicable law, act to protect its own interests
or interests of clients, and not a Fund’s interests.
Subject to the limitations of applicable law, a Fund may purchase
from or sell assets to, or make investments in, companies in which Morgan Stanley has or may acquire an interest, including as an owner,
creditor or counterparty.
Morgan
Stanley’s Investment Banking and Other Commercial Activities. Morgan Stanley advises clients on a variety of mergers,
acquisitions, restructuring, bankruptcy and financing transactions. Morgan Stanley may act as an advisor to clients, including other investment
funds that may compete with a Fund and with respect to investments that a Fund may hold. Morgan Stanley may give advice and take action
with respect to any of its clients or proprietary accounts that may differ from the advice given, or may involve an action of a different
timing or nature than the action taken, by a Fund. Morgan Stanley may give advice and provide recommendations to persons competing with
a Fund and/or any of a Fund’s investments that are contrary to the Fund’s best interests and/or the best interests of any
of its investments.
Eaton Vance Tax-Managed Diversified Equity Income Fund | 40 | SAI dated February 18, 2022 |
Morgan Stanley could be engaged in financial advising, whether on
the buy-side or sell-side, or in financing or lending assignments that could result in Morgan Stanley’s determining in its discretion
or being required to act exclusively on behalf of one or more third parties, which could limit a Fund’s ability to transact with
respect to one or more existing or potential investments. Morgan Stanley may have relationships with third-party funds, companies or investors
who may have invested in or may look to invest in portfolio companies, and there could be conflicts between a Fund’s best interests,
on the one hand, and the interests of a Morgan Stanley client or counterparty, on the other hand.
To the extent that Morgan Stanley advises creditor or debtor companies
in the financial restructuring of companies either prior to or after filing for protection under Chapter 11 of the U.S. Bankruptcy Code
or similar laws in other jurisdictions, the investment adviser’s flexibility in making investments in such restructurings on a Fund’s
behalf may be limited.
Morgan Stanley could provide investment banking services to competitors
of portfolio companies, as well as to private equity and/or private credit funds; such activities may present Morgan Stanley with a conflict
of interest vis-a-vis a Fund’s investment and may also result in a conflict in respect of the allocation of investment banking resources
to portfolio companies.
To the extent permitted by applicable law, Morgan Stanley may provide
a broad range of financial services to companies in which a Fund invests, including strategic and financial advisory services, interim
acquisition financing and other lending and underwriting or placement of securities, and Morgan Stanley generally will be paid fees (that
may include warrants or other securities) for such services. Morgan Stanley will not share any of the foregoing interest, fees and other
compensation received by it (including, for the avoidance of doubt, amounts received by the investment adviser) with a Fund, and any advisory
fees payable will not be reduced thereby.
Morgan Stanley may be engaged to act as a financial advisor to a
company in connection with the sale of such company, or subsidiaries or divisions thereof, may represent potential buyers of businesses
through its mergers and acquisition activities and may provide lending and other related financing services in connection with such transactions.
Morgan Stanley’s compensation for such activities is usually based upon realized consideration and is usually contingent, in substantial
part, upon the closing of the transaction. Under these circumstances, a Fund may be precluded from participating in a transaction with
or relating to the company being sold or participating in any financing activity related to merger or acquisition.
The involvement or presence of Morgan Stanley in the investment banking
and other commercial activities described above (or the financial markets more broadly) may restrict or otherwise limit investment
opportunities that may otherwise be available to the Funds. For example, issuers may hire and compensate Morgan Stanley to provide
underwriting, financial advisory, placement agency, brokerage services or other services and, because of limitations imposed by applicable
law and regulation, a Fund may be prohibited from buying or selling securities issued by those issuers or participating in related
transactions or otherwise limited in its ability to engage in such investments.
Morgan
Stanley’s Marketing Activities. Morgan Stanley is engaged in the business of underwriting, syndicating, brokering, administering,
servicing, arranging and advising on the distribution of a wide variety of securities and other investments in which a Fund may invest.
Subject to the restrictions of the 1940 Act, including Sections 10(f) and 17(e) thereof, a Fund may invest in transactions in which Morgan
Stanley acts as underwriter, placement agent, syndicator, broker, administrative agent, servicer, advisor, arranger or structuring agent
and receives fees or other compensation from the sponsors of such products or securities. Any fees earned by Morgan Stanley in such capacity
will not be shared with the investment adviser or the Funds. Certain conflicts of interest, in addition to the receipt of fees or other
compensation, would be inherent in these transactions. Moreover, the interests of one of Morgan Stanley’s clients with respect to
an issuer of securities in which a Fund has an investment may be adverse to the investment adviser’s or a Fund’s best interests.
In conducting the foregoing activities, Morgan Stanley will be acting for its other clients and will have no obligation to act in the
investment adviser’s or a Fund’s best interests.
Client
Relationships. Morgan Stanley has existing and potential relationships with a significant number of corporations, institutions
and individuals. In providing services to its clients, Morgan Stanley may face conflicts of interest with respect to activities recommended
to or performed for such clients, on the one hand, and a Fund, its shareholders or the entities in which the Fund invests, on the other
hand. In addition, these client relationships may present conflicts of interest in determining whether to offer certain investment opportunities
to a Fund.
Eaton Vance Tax-Managed Diversified Equity Income Fund | 41 | SAI dated February 18, 2022 |
In acting as principal or in providing advisory and other services
to its other clients, Morgan Stanley may engage in or recommend activities with respect to a particular matter that conflict with or are
different from activities engaged in or recommended by the investment adviser on a Fund’s behalf.
Principal
Investments. To the extent permitted by applicable law, there may be situations in which a Fund’s interests may conflict
with the interests of one or more general accounts of Morgan Stanley and its affiliates or accounts managed by Morgan Stanley or its affiliates.
This may occur because these accounts hold public and private debt and equity securities of many issuers which may be or become portfolio
companies, or from whom portfolio companies may be acquired.
Transactions
with Portfolio Companies of Affiliated Investment Accounts. The companies in which a Fund may invest may be counterparties
to or participants in agreements, transactions or other arrangements with portfolio companies or other entities of portfolio investments
of Affiliated Investment Accounts (for example, a company in which a Fund invests may retain a company in which an Affiliated Investment
Account invests to provide services or may acquire an asset from such company or vice versa). Certain of these agreements, transactions
and arrangements involve fees, servicing payments, rebates and/or other benefits to Morgan Stanley or its affiliates. For example, portfolio
entities may, including at the encouragement of Morgan Stanley, enter into agreements regarding group procurement and/or vendor discounts.
Morgan Stanley and its affiliates may also participate in these agreements and may realize better pricing or discounts as a result of
the participation of portfolio entities. To the extent permitted by applicable law, certain of these agreements may provide for commissions
or similar payments and/or discounts or rebates to be paid to a portfolio entity of an Affiliated Investment Account, and such payments
or discounts or rebates may also be made directly to Morgan Stanley or its affiliates. Under these arrangements, a particular portfolio
company or other entity may benefit to a greater degree than the other participants, and the funds, investment vehicles and accounts (which
may or may not include a Fund) that own an interest in such entity will receive a greater relative benefit from the arrangements than
the Eaton Vance funds, investment vehicles or accounts that do not own an interest therein. Fees and compensation received by portfolio
companies of Affiliated Investment Accounts in relation to the foregoing will not be shared with a Fund or offset advisory fees payable.
Investments
in Portfolio Investments of Other Funds. To the extent permitted by applicable law, when a Fund invests in certain companies
or other entities, other funds affiliated with the investment adviser may have made or may be making an investment in such companies or
other entities. Other funds that have been or may be managed by the investment adviser may invest in the companies or other entities in
which a Fund has made an investment. Under such circumstances, a Fund and such other funds may have conflicts of interest (e.g., over
the terms, exit strategies and related matters, including the exercise of remedies of their respective investments). If the interests
held by a Fund are different from (or take priority over) those held by such other funds, the investment adviser may be required to make
a selection at the time of conflicts between the interests held by such other funds and the interests held by a Fund.
Allocation
of Expenses. Expenses may be incurred that are attributable to a Fund and one or more other Affiliated Investment Accounts
(including in connection with issuers in which a Fund and such other Affiliated Investment Accounts have overlapping investments). The
allocation of such expenses among such entities raises potential conflicts of interest. The investment adviser and its affiliates intend
to allocate such common expenses among a Fund and any such other Affiliated Investment Accounts on a pro rata basis or in such other manner
as the investment adviser deems to be fair and equitable or in such other manner as may be required by applicable law.
Temporary
Investments. To more efficiently invest short-term cash balances held by a Fund, the investment adviser may invest such balances
on an overnight “sweep” basis in shares of one or more money market funds or other short-term vehicles. It is anticipated
that the investment adviser to these money market funds or other short-term vehicles may be the investment adviser (or an affiliate) to
the extent permitted by applicable law, including Rule 12d1-1 under the 1940 Act. The Fund may invest in Eaton Vance Cash Reserves Fund,
LLC (Cash Reserves Fund), an affiliated investment company managed by Eaton Vance, for this purpose. Eaton Vance does not currently receive
a fee for advisory services provided to Cash Reserves Fund.
Transactions
with Affiliates. The investment adviser and any investment sub-adviser might purchase securities from underwriters or placement
agents in which a Morgan Stanley affiliate is a member of a syndicate or selling group, as a result of which an affiliate might benefit
from the purchase through receipt of a fee or otherwise. Neither the investment adviser nor any investment sub-adviser will purchase securities
on behalf of a Fund from an affiliate that is acting as a manager of a syndicate or selling group. Purchases by the investment adviser
on behalf of a Fund from an affiliate acting as a placement agent must meet the requirements of applicable law. Furthermore, Morgan Stanley
may face conflicts of interest when the Funds use service providers affiliated with Morgan
Stanley because Morgan Stanley receives greater overall fees when they are used.
Eaton Vance Tax-Managed Diversified Equity Income Fund | 42 | SAI dated February 18, 2022 |
General
Process for Potential Conflicts. All of the transactions described above involve the potential for conflicts of interest between
the investment adviser, related persons of the investment adviser and/or their clients. The Advisers Act, the 1940 Act and ERISA impose
certain requirements designed to decrease the possibility of conflicts of interest between an investment adviser and its clients. In some
cases, transactions may be permitted subject to fulfillment of certain conditions. Certain other transactions may be prohibited. In addition,
the investment adviser has instituted policies and procedures designed to prevent conflicts of interest from arising and, when they do
arise, to ensure that it effects transactions for clients in a manner that is consistent with its fiduciary duty to its clients and in
accordance with applicable law. The investment adviser seeks to ensure that potential or actual conflicts of interest are appropriately
resolved taking into consideration the overriding best interests of the client.
INCORPORATION BY REFERENCE
This SAI is part of a registration statement filed with the SEC.
The Fund is permitted to “incorporate by reference” the information filed with the SEC, which means that the Fund can disclose
important information to you by referring you to those documents. The information incorporated by reference is considered to be part of
this SAI, and later information that the Fund files with the SEC will automatically update and supersede this information.
The documents listed below, and any reports and other documents subsequently
filed with the SEC pursuant to Rule 30(b)(2) under the 1940 Act and Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act, prior to the
termination of the Offering will be incorporated by reference into this SAI and deemed to be part of this SAI from the date of the filing
of such reports and documents
|
• |
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The Fund’s Prospectus, dated February 18, 2022, filed with this SAI; |
|
• |
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The Fund’s annual report on Form N-CSR for the fiscal year ended October 31, 2021 filed with the SEC on December 23, 2021; and |
|
• |
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The description of the Fund’s Common Shares contained in its Registration Statement on Form 8-A filed with the SEC on December 19, 2005, including any amendment or report filed for the purpose of updating such description prior to the termination of the offering registered hereby. |
The Fund will provide without charge to each person, including any
beneficial owner, to whom this SAI is delivered, upon written or oral request, a copy of any and all of the documents that have been or
may be incorporated by reference in this SAI, the Prospectus or the accompanying prospectus supplement. You should direct requests for
documents by calling (800) 262-1122.
The Fund makes available the Prospectus, SAI and the Fund’s
annual and semi-annual reports, free of charge, at http://www.eatonvance.com. You may also obtain this SAI, the Prospectus, other
documents incorporated by reference and other information the Fund files electronically, including reports and proxy statements, on the
SEC website (http://www.sec.gov) or with the payment of a duplication fee, by electronic request at publicinfo@sec.gov. Information contained
in, or that can be accessed through, the Fund’s website is not part of this SAI, the Prospectus or the accompanying prospectus supplement.
FINANCIAL STATEMENTS
The audited financial statements and the report of the independent
registered public accounting firm of the Fund, for the fiscal year ended October 31, 2021, are incorporated herein by reference from the
Fund’s most recent Annual Report to Common Shareholders filed with the SEC on December 23, 2021 (Accession No. 0001193125-21-365942)
on Form N-CSR pursuant to Rule 30b2-1 under the 1940 Act.
Eaton Vance Tax-Managed Diversified Equity Income Fund | 43 | SAI dated February 18, 2022 |
APPENDIX A
RATINGS
The ratings indicated herein are believed to be the most recent ratings
available at the date of this SAI for the securities listed. Ratings are generally given to securities at the time of issuance. While
the rating agencies may from time to time revise such ratings, they undertake no obligation to do so, and the ratings indicated do not
necessarily represent ratings which would be given to these securities on a particular date.
MOODY’S INVESTORS SERVICE, INC. (“Moody’s”)
Ratings assigned on Moody’s global long-term and short-term rating
scales are forward-looking opinions of the relative credit risks of financial obligations issued by non-financial corporates, financial
institutions, structured finance vehicles, project finance vehicles, and public sector entities. Long-term ratings are assigned to issuers
or obligations with an original maturity of one year or more and reflect both the likelihood of a default or impairment on contractual
financial obligations and the expected financial loss suffered in the event of default or impairment. Short-term ratings are assigned
to obligations with an original maturity of thirteen months or less and reflect the likelihood of a default or impairment on contractual
financial obligations and the expected financial loss suffered in the event of a default or impairment.
GLOBAL LONG-TERM RATINGS SCALE
Aaa:
Obligations rated Aaa are judged to be of the highest quality, subject to the lowest level of credit risk.
Aa:
Obligations rated Aa are judged to be of high quality and are subject to very low credit risk.
A:
Obligations rated A are considered upper-medium grade and are subject to low credit risk.
Baa:
Obligations rated Baa are judged to be medium-grade and subject to moderate credit risk and as such may possess certain speculative characteristics
Ba:
Obligations rated Ba are judged to be speculative and are subject to substantial credit risk.
B:
Obligations rated B are considered speculative and are subject to high credit risk.
Caa:
Obligations rated Caa are judged to be speculative of poor standing and are subject to very high credit risk.
Ca:
Obligations rated Ca are highly speculative and are likely in, or very near, default, with some prospect of recovery of principal and
interest.
C:
Obligations rated C are the lowest rated and are typically in default, with little prospect for recovery of principal or interest.
Note:
Moody’s appends numerical modifiers, 1, 2, and 3 to each generic rating classification from Aa through Caa. The modifier 1 indicates
that the obligation ranks in the higher end of its generic rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates a ranking in the lower end of that generic rating category.
GLOBAL SHORT-TERM RATING SCALE
Moody’s short-term ratings are opinions of the ability of issuers
to honor short-term financial obligations. Ratings may be assigned to issuers, short-term programs or to individual short-term debt instruments.
Such obligations generally have an original maturity not exceeding thirteen months, unless explicitly noted.
P-1:
Issuers (or supporting institutions) rated Prime-1 have a superior ability to repay short-term debt obligations.
P-2:
Issuers (or supporting institutions) rated Prime-2 have a strong ability to repay short-term debt obligations.
P-3:
Issuers (or supporting institutions) rated Prime-3 have an acceptable ability to repay short-term obligations.
NP:
Issuers (or supporting institutions) rated Not Prime do not fall within any of the Prime ratings categories.
Eaton Vance Tax-Managed Diversified Equity Income Fund | 44 | SAI dated February 18, 2022 |
ISSUER RATINGS
Issuer Ratings are opinions of the ability of entities to honor senior
unsecured debt and debt like obligations. As such, Issuer Ratings incorporate any external support that is expected to apply to all current
and future issuance of senior unsecured financial obligations and contracts, such as explicit support stemming from a guarantee of all
senior unsecured financial obligations and contracts, and/or implicit support for issuers subject to joint default analysis (e.g. banks
and government-related issuers). Issuer Ratings do not incorporate support arrangements, such as guarantees, that apply only to specific
(but not to all) senior unsecured financial obligations and contracts.
US MUNICIPAL SHORT-TERM OBLIGATION RATINGS AND DEMAND OBLIGATION
RATINGS
SHORT-TERM OBLIGATION RATINGS
The global short-term ‘prime’ rating scale is applied to
commercial paper issued by U.S. municipalities and nonprofits. These commercial paper programs may be backed by external letters of credit
or liquidity facilities, or by an issuer’s self-liquidity.
For other short-term municipal obligations, Moody’s uses one of
two other short-term rating scales, the Municipal Investment Grade (MIG) and Variable Municipal Investment Grade (VMIG) scales discussed
below.
The MIG scale is used for U.S. municipal cash flow notes, bond anticipation
notes and certain other short-term obligations, which typically mature in three years or less. Under certain circumstances, the MIG scale
is used for bond anticipation notes with maturities of up to five years.
MIG 1
This designation denotes superior credit quality. Excellent protection is afforded by established cash flows, highly reliable liquidity
support, or demonstrated broad-based access to the market for refinancing.
MIG 2
This designation denotes strong credit quality. Margins of protection are ample, although not as large as in the preceding group.
MIG 3
This designation denotes acceptable credit quality. Liquidity and cash-flow protection may be narrow, and market access for refinancing
is likely to be less well-established.
SG
This designation denotes speculative-grade credit quality. Debt instruments in this category may lack sufficient margins of protection.
Demand Obligation Ratings
In the case of variable rate demand obligations (VRDOs), a two-component
rating is assigned. The components are a long-term rating and a short-term demand obligation rating. The long-term rating addresses the
issuer’s ability to meet scheduled principal and interest payments. The short-term demand obligation rating addresses the ability
of the issuer or the liquidity provider to make payments associated with the purchase-price-upon demand feature (“demand feature”)
of the VRDO. The short-term demand obligation rating uses the VMIG scale. VMIG ratings with liquidity support use as an input the short-term
counterparty risk assessment of the support provider, or the long-term rating of the underlying obligor in the absence of third party
liquidity support. Transitions of VMIG ratings of demand obligations with conditional liquidity support differ from transitions on the
Prime scale to reflect the risk that external liquidity support will terminate if the issuer’s long-term rating drops below investment
grade.
VMIG 1:
This designation denotes superior credit quality. Excellent protection is afforded by the superior short-term credit strength of the liquidity
provider and structural and legal protections that ensure the timely payment of purchase price upon demand.
VMIG 2:
This designation denotes strong credit quality. Good protection is afforded by the strong short-term credit strength of the liquidity
provider and structural and legal protections that ensure the timely payment of purchase price upon demand.
VMIG 3:
This designation denotes acceptable credit quality. Adequate protection is afforded by the satisfactory short-term credit strength of
the liquidity provider and structural and legal protections that ensure the timely payment of purchase price upon demand.
Eaton Vance Tax-Managed Diversified Equity Income Fund | 45 | SAI dated February 18, 2022 |
SG:
This designation denotes speculative-grade credit quality. Demand features rated in this category may be supported by a liquidity provider
that does not have a sufficiently strong short-term rating or may lack the structural or legal protections necessary to ensure the timely
payment of purchase price upon demand.
S&P GLOBAL RATINGS (“S&P”)
ISSUE CREDIT RATINGS DEFINITIONS
An S&P issue credit rating is a forward-looking opinion about the
creditworthiness of an obligor with respect to a specific financial obligation, a specific class of financial obligations, or a specific
financial program (including ratings on medium-term note programs and commercial paper programs). It takes into consideration the creditworthiness
of guarantors, insurers, or other forms of credit enhancement on the obligation and takes into account the currency in which the obligation
is denominated. The opinion reflects S&P’s view of the obligor's capacity and willingness to meet its financial commitments
as they come due, and may assess terms, such as collateral security and subordination, which could affect ultimate payment in the event
of default.
Issue credit ratings can be either long-term or short-term. Short-term
issue credit ratings are generally assigned to those obligations considered short-term in the relevant market. Short-term issue credit
ratings are also used to indicate the creditworthiness of an obligor with respect to put features on long-term obligations. Medium-term
notes are assigned long-term ratings.
LONG-TERM ISSUE CREDIT RATINGS:
Issue credit ratings are based, in varying degrees, on S&P’s
analysis of the following considerations:
· Likelihood of payment—capacity
and willingness of the obligor to meet its financial commitment on an obligation in accordance with the terms of the obligation;
· Nature of and provisions
of the financial obligation and the promise that it is imputed; and
· Protection afforded
by, and relative position of, the financial obligation in the event of bankruptcy, reorganization, or other arrangement under the laws
of bankruptcy and other laws affecting creditors' rights.
Issue ratings are an assessment of default risk, but may incorporate
an assessment of relative seniority or ultimate recovery in the event of default. Junior obligations are typically rated lower than senior
obligations, to reflect the lower priority in bankruptcy, as noted above. (Such differentiation may apply when an entity has both senior
and subordinated obligations, secured and unsecured obligations, or operating company and holding company obligations.)
AAA:
An obligation rated ‘AAA’ has the highest rating assigned by S&P. The obligor’s capacity to meet its financial commitment
on the obligation is extremely strong.
AA:
An obligation rated ‘AA’ differs from the highest-rated obligors only to a small degree. The obligor’s capacity to meet
its financial commitments on the obligation is very strong.
A:
An obligation rated ‘A’ is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions
than obligations in higher-rated categories. However, the obligor’s capacity to meet its financial commitments on the obligation
is still strong.
BBB:
An obligation rated ‘BBB’ exhibits adequate protection parameters. However, adverse economic conditions or changing circumstances
are more likely to weaken the obligor’s capacity to meet its financial commitments on the obligation.
BB, B, CCC, CC and C
Obligations rated ‘BB’, ‘B’, ‘CCC’,
‘CC’, and ‘C’ are regarded as having significant speculative characteristics. ‘BB’ indicates the least
degree of speculation and ‘C’ the highest. While such obligations will likely have some quality and protective characteristics,
these may be outweighed by large uncertainties or major exposures to adverse conditions.
BB:
An obligation rated ‘BB’ is less vulnerable to non-payment than other speculative issues. However, it faces major ongoing
uncertainties or exposure to adverse business, financial, or economic conditions that could lead to the obligor’s inadequate capacity
to meet its financial commitment on the obligation.
Eaton Vance Tax-Managed Diversified Equity Income Fund | 46 | SAI dated February 18, 2022 |
B:
An obligation rated ‘B’ is more vulnerable to nonpayment than obligations rated ‘BB’, but the obligor currently
has the capacity to meet its financial commitment on the obligation. Adverse business, financial or economic conditions will likely impair
the obligor’s capacity or willingness to meet its financial commitment on the obligation.
CCC:
An obligation rated ‘CCC’ is currently vulnerable to nonpayment, and is dependent upon favorable business, financial, and
economic conditions for the obligor to meet its financial commitments on the obligation. In the event of adverse business, financial or,
economic conditions, the obligor is not likely to have the capacity to meet its financial commitment on the obligation.
CC:
An obligation rated ‘CC’ is currently highly vulnerable to nonpayment. The 'CC' rating is used when a default has not yet
occurred, but S&P expects default to be a virtual certainty, regardless of the anticipated time to default.
C:
An obligation rated 'C' is currently highly vulnerable to nonpayment, and the obligation is expected to have lower relative seniority
or lower ultimate recovery compared to obligations that are rated higher.
D:
An obligation rated 'D' is in default or in breach of an imputed promise. For non-hybrid capital instruments, the 'D' rating category
is used when payments on an obligation are not made on the date due, unless S&P believes that such payments will be made within five
business days in the absence of a stated grace period or within the earlier of the stated grace period or 30 calendar days. The 'D' rating
also will be used upon the filing of a bankruptcy petition or the taking of similar action and where default on an obligation is a virtual
certainty, for example due to automatic stay provisions. An obligation's rating is lowered to 'D' if it is subject to a distressed exchange
offer.
NR:
This indicates that a rating has not been assigned or is no longer assigned.
Plus (+)
or Minus (-): The ratings from ‘AA’ to’ CCC’ may be modified by the addition of a plus (+) or minus
(-) sign to show relative standing within the major rating categories.
SHORT-TERM ISSUE CREDIT RATINGS
A-1:
A short-term obligation rated ‘A-1’ is rated in the highest category by S&P. The obligor’s capacity to meet its
financial commitment on the obligation is strong. Within this category, certain obligations are designated with a plus sign (+). This
indicates that the obligor’s capacity to meet its financial commitments on the obligation is extremely strong.
A-2:
A short-term obligation rated ‘A-2’ is somewhat more susceptible to the adverse effects of changes in circumstances and economic
conditions than obligations in higher rating categories. However, the obligor’s capacity to meet its financial commitment on the
obligation is satisfactory.
A-3:
A short-term obligation rated ‘A-3’ exhibits adequate protection parameters. However, adverse economic conditions or changing
circumstances are more likely to weaken an obligor’s capacity to meet its financial commitment on the obligation.
B:
A short-term obligation rated ‘B’ is regarded as vulnerable and has significant speculative characteristics. The obligor currently
has the capacity to meet its financial commitments; however, it faces major ongoing uncertainties which could lead to the obligor's inadequate
capacity to meet its financial commitments.
C:
A short-term obligation rated ‘C’ is currently vulnerable to nonpayment and is dependent upon favorable business, financial
and economic conditions for the obligor to meet its financial commitments on the obligation.
D:
A short-term obligation rated 'D' is in default or in breach of an imputed promise. For non-hybrid capital instruments, the 'D' rating
category is used when payments on an obligation are not made on the date due, unless S&P believes that such payments will be made
within any stated grace period. However, any stated grace period longer than five business days will be treated as five business days.
The 'D' rating also will be used upon the filing of a bankruptcy petition or the taking of a similar action and where default on an obligation
is a virtual certainty, for example due to automatic stay provisions. A rating on an obligation is lowered to 'D' if it is subject to
a distressed exchange offer.
ISSUER CREDIT RATINGS DEFINITIONS
S&P’s issuer credit rating is a forward-looking opinion about
an obligor's overall creditworthiness. This opinion focuses on the obligor's capacity and willingness to meet its financial commitments
as they come due. It does not apply to any specific financial obligation, as it does not take into account the
nature of and provisions of the obligation, its standing in bankruptcy or liquidation, statutory preferences, or the legality and enforceability
of the obligation.
Eaton Vance Tax-Managed Diversified Equity Income Fund | 47 | SAI dated February 18, 2022 |
Sovereign credit ratings are forms of issuer credit ratings.
Issuer credit ratings can be either long-term or short-term.
LONG-TERM ISSUER CREDIT RATINGS
AAA:
An obligor rated ‘AAA’ has extremely strong capacity to meet its financial commitments. ‘AAA’ is the highest issuer
credit rating assigned by S&P.
AA:
An obligor rated ‘AA’ has very strong capacity to meet its financial commitments. It differs from the highest-rated obligors
only to a small degree.
A:
An obligor rated ‘A’ has strong capacity to meet its financial commitments but is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than obligors in higher-rated categories.
BBB:
An obligor rated ‘BBB’ has adequate capacity to meet its financial commitments. However, adverse economic conditions or changing
circumstances are more likely to weaken the obligor’s capacity to meet its financial commitments.
BB, B, CCC and CC
Obligors rated ‘BB’, ‘B’, ‘CCC’,
and ‘CC’ are regarded as having significant speculative characteristics. ‘BB’ indicates the least degree of speculation
and ‘CC’ the highest. While such obligors will likely have some quality and protective characteristics, these may be outweighed
by large uncertainties or major exposure to adverse conditions.
BB:
An obligor ‘BB’ is less vulnerable in the near term than other lower-rated obligors. However, it faces major ongoing uncertainties
and exposure to adverse business, financial, or economic conditions that could lead to the obligor’s inadequate capacity to meet
its financial commitments.
B:
An obligor rated ‘B’ is more vulnerable than the obligors rated ‘BB’, but the obligor currently has the capacity
to meet its financial commitments. Adverse business, financial, or economic conditions will likely impair the obligor’s capacity
or willingness to meets its financial commitments.
CCC:
An obligor rated ‘CCC’ is currently vulnerable, and is dependent upon favorable business, financial, and economic conditions
to meet its financial commitments.
CC:
An obligor rated ‘CC’ is currently highly vulnerable. The 'CC' rating is used when a default has not yet occurred, but S&P
expects default to be a virtual certainty, regardless of the anticipated time to default.
SD and D: An obligor is rated 'SD' (selective default) or 'D'
if S&P considers there to be a default on one or more of its financial obligations, whether long -or short-term, including rated and
unrated financial obligations but excluding hybrid instruments classified as regulatory capital or in non-payment according to terms.
A 'D' rating is assigned when S&P believes that the default will be a general default and that the obligor will fail to pay all or
substantially all of its obligations as they come due. An 'SD' rating is assigned when S&P believes that the obligor has selectively
defaulted on a specific issue or class of obligations but it will continue to meet its payment obligations on other issues or classes
of obligations in a timely manner. A rating on an obligor is lowered to 'D' or 'SD' if it is conducting a distressed exchange offer.
NR:
Indicates that a rating has not been assigned or is no longer assigned.
Plus (+)
or Minus (-): The ratings from ‘AA’ to’ CCC’ may be modified by the addition of a plus (+) or minus
(-) sign to show relative standing within the major rating categories.
SHORT-TERM ISSUER CREDIT RATINGS
A-1:
An obligor rated ‘A-1’ has strong capacity to meet its financial commitments. It is rated in the highest category by S&P.
Within this category, certain obligors are designated with a plus sign (+). This indicates that the obligor’s capacity to meet its
financial commitments is extremely strong.
Eaton Vance Tax-Managed Diversified Equity Income Fund | 48 | SAI dated February 18, 2022 |
A-2:
An obligor rated ‘A-2’ has satisfactory capacity to meet its financial commitments. However, it is somewhat more susceptible
to the adverse effects of changes in circumstances and economic conditions than obligors in the highest rating category.
A-3:
An obligor rated ‘A-3’ has adequate capacity to meet its financial obligations. However, adverse economic conditions or changing
circumstances are more likely to weaken the obligor’s capacity to meet its financial commitments.
B:
An obligor rated ‘B’ is regarded as vulnerable and has significant speculative characteristics. The obligor currently has
the capacity to meet its financial commitments; however, it faces major ongoing uncertainties which could lead to the obligor’s
inadequate capacity to meet its financial commitments.
C:
An obligor rated 'C' is currently vulnerable to nonpayment that would result in a 'SD' or 'D' issuer rating, and is dependent upon favorable
business, financial, and economic conditions for it to meet its financial commitments.
SD and D:
An obligor is rated 'SD' (selective default) or 'D' if S&P considers there to be a default on one or more of its financial obligations,
whether long- or short-term, including rated and unrated obligations but excluding hybrid instruments classified as regulatory capital
or in nonpayment according to term. An obligor is considered in default unless S&P believes that such payments will be made within
any stated grace period. However, any stated grace period longer than five business days will be treated as five business days. A 'D'
rating is assigned when S&P believes that the default will be a general default and that the obligor will fail to pay all or substantially
all of its obligations as they come due. An 'SD' rating is assigned when S&P believes that the obligor has selectively defaulted on
a specific issue or class of obligations, excluding hybrid instruments classified as regulatory capital, but it will continue to meet
its payment obligations on other issues or classes of obligations in a timely manner. An obligor's rating is lowered to 'D' or 'SD' if
it is conducting a distressed exchange offer.
NR: Indicates
that a rating has not been assigned or is no longer assigned.
MUNICIPAL SHORT-TERM NOTE RATINGS
SHORT-TERM
NOTES: An S&P U.S. municipal note rating reflects S&P opinions about the liquidity factors and market access risks
unique to notes. Notes due in three years or less will likely receive a note rating. Notes with an original maturity of more than three
years will most likely receive a long-term debt rating. In determining which type of rating, if any, to assign, S&P’s analysis
will review the following considerations: Amortization schedule--the larger the final maturity relative to other maturities, the more
likely it will be treated as a note; and Source of payment--the more dependent the issue is on the market for its refinancing, the more
likely it will be treated as a note.
Municipal Short-Term Note rating symbols are as follows:
SP-1:
Strong capacity to pay principal and interest. An issue determined to possess a very strong capacity to pay debt will be given a plus
(+) designation.
SP-2:
Satisfactory capacity to pay principal and interest, with some vulnerability to adverse financial and economic changes over the term of
the notes.
SP-3:
Speculative capacity to pay principal and interest.
D: ‘D’
is assigned upon failure to pay the note when due, completion of a distressed exchange offer, or the filing of a bankruptcy petition or
the taking of similar action and where default on an obligation is a virtual certainty, for example due to automatic stay provisions.
FITCH RATINGS
LONG-TERM CREDIT RATINGS
Issuer Default Ratings
AAA: Highest
credit quality. ‘AAA’ ratings denote the lowest expectation of default risk. They are assigned only in case of
exceptionally strong capacity for payment of financial commitments. The capacity is highly unlikely to be adversely affected by foreseeable
events.
AA: Very
high credit quality. ‘AA’ ratings denote expectations of very low default risk. They indicate very strong capacity
for payment of financial commitments. This capacity is not significantly vulnerable to foreseeable events.
Eaton Vance Tax-Managed Diversified Equity Income Fund | 49 | SAI dated February 18, 2022 |
A: High credit
quality. ‘A’ ratings denote expectations of low default risk. The capacity for payment of financial commitments
is considered strong. The capacity may, nevertheless, be more vulnerable to changes in circumstances or in economic conditions than is
the case for higher ratings.
BBB: Good
credit quality. 'BBB' ratings indicate that expectations of default risk are currently low. The capacity for payment of financial
commitments is considered adequate but adverse business or economic conditions are more likely to impair this capacity.
BB: Speculative.
'BB' ratings indicate an elevated vulnerability to default risk, particularly in the event of adverse changes in business or economic
conditions over time; however, business or financial flexibility exist that supports the servicing of financial commitments.
B: Highly
speculative. B' ratings indicate that material default risk is present, but a limited margin of safety remains. Financial commitments
are currently being met; however, capacity for continued payment is vulnerable to deterioration in the business and economic environment.
CCC: Substantial
credit risk. Default is a real possibility.
CC: Very
high levels of credit risk. Default of some kind appears probable.
C: Near default.
A default or default-like process has begun, or the issuer is in standstill, or for a closed funding vehicle, payment capacity is irrevocably
impaired. Conditions that are indicative of a ‘C’ category rating for an issuer include:
• The issuer has entered into a grace or cure period following
non-payment of a material financial obligation;
• The issuer had entered into a temporary negotiated waiver or
standstill agreement following a payment default on a material financial obligation;
• The formal announcement by the issuer or their agent of distressed
debt exchange;
• A closed financing vehicle where payment capacity is irrevocably
impaired such that it is not expected to pay interest and/or principal in full during the life of the transaction, but where no payment
default is imminent.
RD: Restricted
Default. ‘RD’ ratings indicate an issuer that in Fitch’s opinion has experienced:
• An unsecured payment default or distressed debt exchange on
a bond, loan or other material financial obligation, but
• Has not entered into bankruptcy filings, administration, receivership,
liquidation, or other formal winding-up procedure, and
• Has not otherwise ceased operating.
This would include:
• The selective payment default on specific class or currency
of debt;
• The uncured expiry of any applicable grace period, cure period
or default forbearance period following a payment default on a bank loan, capital markets security or other material financial obligation;
• The extension of multiple waivers of forbearance periods upon
a payment default on one or more material financial obligations, either in series or in parallel; ordinary execution of a distressed debt
exchange on one or more material financial obligations.
D: Default.
‘D’ ratings indicate an issuer that in Fitch’s opinion has entered into bankruptcy filings, administration, receivership,
liquidation or other formal winding-up procedure or that has otherwise ceased business.
• Default ratings are not assigned prospectively to entities
or their obligations; within this context, non-payment on an instrument that contains a deferral feature or grace period will
generally not be considered a default until after the expiration of the deferral or grace period, unless a default is otherwise
driven by bankruptcy or other similar circumstance, or by a distressed debt exchange.
• In all cases, the assignment of default rating reflects the
agency’s opinion as to the most appropriate rating category consistent with the rest of its universe of ratings and may differ from
the definition of default under the terms of an issuer’s financial obligations or local commercial practice.
Eaton Vance Tax-Managed Diversified Equity Income Fund | 50 | SAI dated February 18, 2022 |
Notes to Long-Term ratings:
The modifiers “+” or “-” may be appended to
a rating to denote relative status within major rating categories. Such suffixes are not added to the ‘AAA’ Long-Term IDR
category, or to Long-Term IDR categories below ‘B’.
Short-Term Credit Ratings Assigned to Issuers and Obligations
A short-term issuer or obligation rating is based in all cases on the
short-term vulnerability to default of the rated entity and relates to the capacity to meet financial obligations in accordance with the
documentation governing the relevant obligation. Short-Term Ratings are assigned to obligations whose initial maturity is viewed as "short
term" based on market convention. Typically, this means up to 13 months for corporate, sovereign, and structured obligations, and
up to 36 months for obligations in U.S. public finance markets.
F1: Highest
short-term credit quality. Indicates the strongest intrinsic capacity for timely payment of financial commitments; may
have an added "+" to denote any exceptionally strong credit feature.
F2: Good
short-term credit quality. Good intrinsic capacity for timely payment of financial commitments.
F3: Fair
short-term credit quality. The intrinsic capacity for timely payment of financial commitments is adequate.
B: Speculative
short-term credit quality. Minimal capacity for timely payment of financial commitments, plus heightened vulnerability to near
term adverse changes in financial and economic conditions.
C: High short-term
default risk. Default is a real possibility.
RD: Restricted
default. Indicates an entity that has defaulted on one or more of its financial commitments, although it continues to meet
other financial obligations. Typically applicable to entity ratings only.
D:
Indicates a broad-based default event for an entity, or the default of a short-term obligation.
DESCRIPTION OF INSURANCE FINANCIAL STRENGTH RATINGS
Moody’s Investors Service, Inc. Insurance Financial Strength
Ratings
Moody’s Insurance Financial Strength Ratings are opinions of the
ability of insurance companies to repay punctually senior policyholder claims and obligations and also reflect the expected financial
loss suffered in the event of default.
S&P Insurer Financial Strength Ratings
An S&P insurer financial strength rating is a forward-looking opinion
about the financial security characteristics of an insurance organization with respect to its ability to pay under its insurance policies
and contracts in accordance with their terms. Insurer financial strength ratings are also assigned to health maintenance organizations
and similar health plans with respect to their ability to pay under their policies and contracts in accordance with their terms.
This opinion is not specific to any particular policy or contract, nor
does it address the suitability of a particular policy or contract for a specific purpose or purchaser. Furthermore, the opinion does
not take into account deductibles, surrender or cancellation penalties, timeliness of payment, nor the likelihood of the use of a defense
such as fraud to deny claims.
Insurer financial strength ratings do not refer to an organization's
ability to meet nonpolicy (i.e., debt) obligations. Assignment of ratings to debt issued by insurers or to debt issues that are fully
or partially supported by insurance policies, contracts, or guarantees is a separate process from the determination of insurer financial
strength ratings, and it follows procedures consistent with those used to assign an issue credit rating. An insurer financial strength
rating is not a recommendation to purchase or discontinue any policy or contract issued by an insurer.
Eaton Vance Tax-Managed Diversified Equity Income Fund | 51 | SAI dated February 18, 2022 |
Long-Term Insurer Financial Strength Ratings
Category Definition
AAA
An insurer rated 'AAA' has extremely strong financial security characteristics.
'AAA' is the highest insurer financial strength rating assigned by S&P.
AA
An insurer rated 'AA' has very strong financial security characteristics,
differing only slightly from those rated higher.
A
An insurer rated 'A' has strong financial security characteristics,
but is somewhat more likely to be affected by adverse business conditions than are insurers with higher ratings.
BBB
An insurer rated 'BBB' has good financial security characteristics,
but is more likely to be affected by adverse business conditions than are higher-rated insurers.
BB, B, CCC and CC
An insurer rated 'BB' or lower is regarded as having vulnerable characteristics
that may outweigh its strengths. 'BB' indicates the least degree of vulnerability within the range and 'CC' the highest.
BB
An insurer rated 'BB' has marginal financial security characteristics.
Positive attributes exist, but adverse business conditions could lead to insufficient ability to meet financial commitments.
B
An insurer rated 'B' has weak financial security characteristics. Adverse
business conditions will likely impair its ability to meet financial commitments.
CCC
An insurer rated 'CCC' has very weak financial security characteristics,
and is dependent on favorable business conditions to meet financial commitments.
CC
An insurer rated 'CC' has extremely weak financial security characteristics
and is likely not to meet some of its financial commitments.
SD or D
An insurer rated 'SD' (selective default) or 'D' is in default on one
or more of its insurance policy obligations. The 'D' rating also will be used upon the filing of a bankruptcy petition or the taking of
similar action if payments on a policy obligation are at risk. A 'D' rating is assigned when S&P believes that the default will be
a general default and that the obligor will fail to pay substantially all of its obligations in full in accordance with the policy terms.
An 'SD' rating is assigned when S&P believes that the insurer has selectively defaulted on a specific class of policies but it will
continue to meet its payment obligations on other classes of obligations. A selective default includes the completion of a distressed
exchange offer. Claim denials due to lack of coverage or other legally permitted defenses are not considered defaults.
NR: Indicates that a rating has
not been assigned or is no longer assigned.
Plus (+)
or Minus (-): The ratings from ‘AA’ to’ CCC’ may be modified by the addition of a plus (+) or minus
(-) sign to show relative standing within the major rating categories.
Eaton Vance Tax-Managed Diversified Equity Income Fund | 52 | SAI dated February 18, 2022 |
Fitch Insurer Financial Strength Rating
The Insurer Financial Strength (IFS) Rating provides an assessment of
the financial strength of an insurance organization. The IFS Rating is assigned to the insurance company's policyholder obligations, including
assumed reinsurance obligations and contract holder obligations, such as guaranteed investment contracts. The IFS Rating reflects both
the ability of the insurer to meet these obligations on a timely basis, and expected recoveries received by claimants in the event the
insurer stops making payments or payments are interrupted, due to either the failure of the insurer or some form of regulatory intervention.
In the context of the IFS Rating, the timeliness of payments is considered relative to both contract and/or policy terms but also recognizes
the possibility of reasonable delays caused by circumstances common to the insurance industry, including claims reviews, fraud investigations
and coverage disputes.
The IFS Rating does not encompass policyholder obligations residing
in separate accounts, unit-linked products or segregated funds, for which the policyholder bears investment or other risks. However, any
guarantees provided to the policyholder with respect to such obligations are included in the IFS Rating.
Expected recoveries are based on the agency's assessments of the sufficiency
of an insurance company's assets to fund policyholder obligations, in a scenario in which payments have ceased or been interrupted. Accordingly,
expected recoveries exclude the impact of recoveries obtained from any government sponsored guaranty or policyholder protection funds.
Expected recoveries also exclude the impact of collateralization or security, such as letters of credit or trusteed assets, supporting
select reinsurance obligations.
IFS Ratings can be assigned to insurance and reinsurance companies in
any insurance sector, including the life & annuity, non-life, property/casualty, health, mortgage, financial guaranty, residual value
and title insurance sectors, as well as to managed care companies such as health maintenance organizations.
The IFS Rating uses the same symbols used by the agency for its International
and National credit ratings of long-term or short-term debt issues. However, the definitions associated with the ratings reflect the unique
aspects of the IFS Rating within an insurance industry context.
Obligations for which a payment interruption has occurred due to either
the insolvency or failure of the insurer or some form of regulatory intervention will generally be rated between 'B' and 'C' on the Long-Term
IFS Rating scales (both International and National). International Short-Term IFS Ratings assigned under the same circumstances will align
with the insurer's International Long-Term IFS Ratings.
Eaton Vance Tax-Managed Diversified Equity Income Fund | 53 | SAI dated February 18, 2022 |
APPENDIX B
Eaton Vance Funds
Proxy Voting Policy and Procedures
I. Overview
The Boards of Trustees (the “Board”) of the Eaton Vance
Funds1 have determined that it is in
the interests of the Funds’ shareholders to adopt these written proxy voting policy and procedures (the “Policy”). For
purposes of this Policy:
| · | “Fund” means each registered investment company sponsored by the Eaton Vance organization; and |
| · | “Adviser” means the adviser or sub-adviser responsible for the day-to-day management of all or a portion of the Fund’s
assets. |
II. Delegation of Proxy Voting Responsibilities
The Board hereby delegates to the Adviser responsibility for voting
the Fund’s proxies as described in this Policy. In this connection, the Adviser is required to provide the Board with a copy of
its proxy voting policies and procedures (“Adviser Procedures”) and all Fund proxies will be voted in accordance with the
Adviser Procedures, provided that in the event a material conflict of interest arises with respect to a proxy to be voted for the Fund
(as described in Section IV below) the Adviser shall follow the process for voting such proxy as described in Section IV below.
The Adviser is required to report any material change to the Adviser
Procedures to the Board in the manner set forth in Section V below. In addition, the Board will review the Adviser Procedures annually.
III. Delegation of Proxy Voting Disclosure Responsibilities
Pursuant to Rule 30b1-4 promulgated under the Investment Company Act
of 1940, as amended (the “1940 Act”), the Fund is required to file Form N-PX no later than August 31st of each year. On Form
N-PX, the Fund is required to disclose, among other things, information concerning proxies relating to the Fund’s portfolio investments,
whether or not the Fund (or its Adviser) voted the proxies relating to securities held by the Fund and how it voted on the matter and
whether it voted for or against management.
To facilitate the filing of Form N-PX for the Fund:
| · | The Adviser is required to record, compile and transmit in a timely manner all data required to be filed on Form N-PX for the Fund
that it manages. Such data shall be transmitted to Eaton Vance Management, which acts as administrator to the Fund (the “Administrator”)
or the third party service provider designated by the Administrator; and |
| · | the Administrator is required to file Form N-PX on behalf of the Fund with the Securities and Exchange Commission (“Commission”)
as required by the 1940 Act. The Administrator may delegate the filing to a third party service party provided each such filing is reviewed
and approved by the Administrator. |
IV. Conflicts of Interest
The Board expects the Adviser, as a fiduciary to the Fund it manages,
to put the interests of the Fund and its shareholders above those of the Adviser. When required to vote a proxy for the Fund, the Adviser
may have material business relationships with the issuer soliciting the proxy that could give rise to a potential material conflict of
interest for the Adviser.2 In the event
such a material conflict of interest arises, the Adviser, to the extent it is aware or reasonably should have been aware of the material
conflict, will refrain from voting any proxies related to companies giving rise to such material conflict until it notifies and consults
with the appropriate Board, or any committee, sub-committee or group of Independent Trustees identified by the Board (as long as such
committee, sub-committee or group contains at least two or more Independent Trustees) (the “Board Members”), concerning the
material conflict.3 For ease of communicating
with the Board Members, the Adviser is required to provide the foregoing notice to the Fund’s Chief Legal Officer who will then
notify and facilitate a consultation with the Board Members.
Once the Board Members have been notified of the material conflict:
| · | They shall convene a meeting to review and consider all relevant materials related to the proxies involved. This meeting shall be
convened within 3 business days, provided that it an effort will be made to convene the meeting sooner if the proxy must be voted in less
than 3 business days; |
| · | In considering such proxies, the Adviser shall make available all materials requested by the Board Members and make reasonably available
appropriate personnel to discuss the matter upon request. |
Eaton Vance Tax-Managed Diversified Equity Income Fund | 54 | SAI dated February 18, 2022 |
| · | The Board Members will then instruct the Adviser on the appropriate course of action with respect to the proxy at issue. |
If the Board Members are unable to meet and the failure to vote a proxy
would have a material adverse impact on the Fund(s) involved, the Adviser will have the right to vote such proxy, provided that it discloses
the existence of the material conflict to the Chairperson of the Board as soon as practicable and to the Board at its next meeting. Any
determination regarding the voting of proxies of the Fund that is made by the Board Members shall be deemed to be a good faith determination
regarding the voting of proxies by the full Board.
V. Reports and Review
The Administrator shall make copies of each Form N-PX filed on behalf
of the Fund available for the Boards’ review upon the Boards’ request. The Administrator (with input from the Adviser for
the Fund) shall also provide any reports reasonably requested by the Board regarding the proxy voting records of the Fund.
The Adviser shall report any material changes to the Adviser Procedures
to the Board as soon as practicable and the Boards will review the Adviser Procedures annually.
The Adviser also shall report any material changes to the Adviser Procedures
to the Fund Chief Legal Officer prior to implementing such changes in order to enable the Administrator to effectively coordinate the
Fund’s disclosure relating to the Adviser Procedures.
To the extent requested by the Commission, the Policy and the Adviser
Procedures shall be appended to the Fund’s statement of additional information included in its registration statement.
| 1 | The Eaton Vance Funds may be organized as trusts or corporations. For ease of reference, the Funds may be referred to herein as Trusts
and the Funds’ Board of Trustees or Board of Directors may be referred to collectively herein as the Board. |
| 2 | An Adviser is expected to maintain a process for identifying a potential material conflict of interest. As an example only, such potential
conflicts may arise when the issuer is a client of the Adviser and generates a significant amount of fees to the Adviser or the issuer
is a distributor of the Adviser’s products. |
| 3 | If a material conflict of interest exists with respect to a particular proxy and the proxy voting procedures of the relevant Adviser
require that proxies are to be voted in accordance with the recommendation of a third party proxy voting vendor, the requirements of this
Section IV shall only apply if the Adviser intends to vote such proxy in a manner inconsistent with such third party recommendation. |
Eaton Vance Tax-Managed Diversified Equity Income Fund | 55 | SAI dated February 18, 2022 |
APPENDIX C
EATON VANCE MANAGEMENT
BOSTON MANAGEMENT AND RESEARCH
EATON VANCE WATEROAK ADVISORS
EATON VANCE MANAGEMENT (INTERNATIONAL) LIMITED
EATON VANCE GLOBAL ADVISORS LIMITED
EATON VANCE ADVISERS INTERNATIONAL LTD.
PROXY VOTING POLICIES AND PROCEDURES
I. Introduction
Eaton Vance Management, Boston Management and Research, Eaton Vance
WaterOak Advisors, Eaton Vance Management (International) Limited, Eaton Vance Global Advisors Limited and Eaton Vance Advisers International
Ltd. (each an “Adviser” and collectively the “Advisers”) have each adopted and implemented policies and procedures
that each Adviser believes are reasonably designed to ensure that proxies are voted in the best interest of clients, in accordance with
its fiduciary duties and, to the extent applicable, Rule 206(4)-6 under the Investment Advisers Act of 1940, as amended. The Advisers’
authority to vote the proxies of their clients is established by their advisory contracts or similar documentation. These proxy policies
and procedures are intended to reflect current requirements applicable to investment advisers registered with the U.S. Securities and
Exchange Commission (“SEC”). These procedures may change from time to time.
II. Overview
Each Adviser manages its clients’ assets with the overriding goal
of seeking to provide the greatest possible return to such clients consistent with governing laws and the investment policies of each
client. In pursuing that goal, each Adviser seeks to exercise its clients’ rights as shareholders of voting securities to support
sound corporate governance of the companies issuing those securities with the principle aim of maintaining or enhancing the companies’
economic value.
The exercise of shareholder rights is generally done by casting votes
by proxy at shareholder meetings on matters submitted to shareholders for approval (for example, the election of directors or the approval
of a company’s stock option plans for directors, officers or employees). Each Adviser has established guidelines (“Guidelines”)
as described below and generally will utilize such Guidelines in voting proxies on behalf of its clients. The Guidelines are largely based
on those developed by the Agent (defined below) but also reflect input from the Global Proxy Group (defined below) and other Adviser investment
professionals and are believed to be consistent with the views of the Adviser on the various types of proxy proposals. These Guidelines
are designed to promote accountability of a company’s management and board of directors to its shareholders and to align the interests
of management with those of shareholders. The Guidelines provide a framework for analysis and decision making but do not address all potential
issues.
Except as noted below, each Adviser will vote any proxies received by
a client for which it has sole investment discretion through a third-party proxy voting service (“Agent”) in accordance with
the Guidelines in a manner that is reasonably designed to eliminate any potential conflicts of interest, as described more fully below.
The Agent is currently Institutional Shareholder Services Inc. Where applicable, proxies will be voted in accordance with client-specific
guidelines or, in the case of an Eaton Vance Fund that is sub-advised, pursuant to the sub-adviser’s proxy voting policies and procedures.
Although an Adviser retains the services of the Agent for research and voting recommendations, the Adviser remains responsible for proxy
voting decisions.
III. Roles and Responsibilities
A. Proxy Administrator
The Proxy Administrator and/or her designee coordinate the
consideration of proxies referred back to the Adviser by the Agent, and otherwise administers these Procedures. In the Proxy Administrator’s
absence, another employee of the Adviser may perform the Proxy Administrator’s responsibilities as deemed appropriate by the Global
Proxy Group. The Proxy Administrator also may designate another employee to perform certain of the Proxy Administrator’s duties
hereunder, subject to the oversight of the Proxy Administrator.
Eaton Vance Tax-Managed Diversified Equity Income Fund | 56 | SAI dated February 18, 2022 |
B. Agent
The Agent is responsible for coordinating with the clients’
custodians and the Advisers to ensure that all proxy materials received by the custodians relating to the portfolio securities are processed
in a timely fashion. Each Adviser shall instruct the custodian for its clients to deliver proxy ballots and related materials to the Agent.
The Agent shall vote and/or refer all proxies in accordance with the Guidelines. The Agent shall retain a record of all proxy votes handled
by the Agent. With respect to each Eaton Vance Fund memorialized therein, such record must reflect all of the information required to
be disclosed in the Fund’s Form N-PX pursuant to Rule 30b1-4 under the Investment Company Act of 1940, to the extent applicable.
In addition, the Agent is responsible for maintaining copies of all proxy statements received by issuers and to promptly provide such
materials to an Adviser upon request.
Subject to the oversight of the Advisers, the Agent shall
establish and maintain adequate internal controls and policies in connection with the provision of proxy voting services to the Advisers,
including methods to reasonably ensure that its analysis and recommendations are not influenced by a conflict of interest, and shall disclose
such controls and policies to the Advisers when and as provided for herein. Unless otherwise specified, references herein to recommendations
of the Agent shall refer to those in which no conflict of interest has been identified. The Advisers are responsible for the ongoing oversight
of the Agent as contemplated by SEC Staff Legal Bulletin No. 20 (June 30, 2014) and interpretive guidance issued by the SEC in August
2019 regarding proxy voting responsibilities of investment advisers (Release Nos. IA-5325 and IC-33605). Such oversight currently may
include one or more of the following and may change from time to time:
| · | periodic review of Agent’s proxy voting platform and reporting capabilities (including recordkeeping); |
| · | periodic review of a sample of ballots for accuracy and correct application of the Guidelines; |
| · | periodic meetings with Agent’s client services team; |
| · | periodic in-person and/or web-based due diligence meetings; |
| · | receipt and review of annual certifications received from the Agent; |
| · | annual review of due diligence materials provided by the Agent, including review of procedures and practices regarding potential conflicts
of interests; |
| · | periodic review of relevant changes to Agent’s business; and/or |
| · | periodic review of the following to the extent not included in due diligence materials provided by the Agent: (i) Agent’s staffing,
personnel and/or technology; (ii) Agent’s process for seeking timely input from issuers (e.g., with respect to proxy voting
policies, methodologies and peer group construction); (iii) Agent’s process for use of third-party information; (iv) the Agent’s
policies and procedures for obtaining current and accurate information relevant to matters in its research and on which it makes voting
recommendations; and (v) Agent’s business continuity program (“BCP”) and any service/operational issues experienced
due to the enacting of Agent’s BCP. |
C. Global Proxy Group
The Adviser shall establish a Global Proxy Group which is
responsible for establishing the Guidelines (described below) and reviewing such Guidelines at least annually. The Global Proxy Group
shall also review recommendations to vote proxies in a manner that is contrary to the Guidelines and when the proxy relates to a conflicted
company of the Adviser or the Agent as described below.
The members of the Global Proxy Group shall include the Chief
Equity Investment Officer of Eaton Vance Management (“EVM”) and selected members of the Equity Departments of EVM and Eaton
Vance Advisers International Ltd. (“EVAIL”) and EVM’s Global Income Department. The Proxy Administrator is not a voting
member of the Global Proxy Group. Members of the Global Proxy Group may be changed from time to time at the Advisers’ discretion.
Matters that require the approval of the Global Proxy Group may be acted upon by its member(s) available to consider the matter.
IV. Proxy Voting
A. The Guidelines
The Global Proxy Group shall establish recommendations for
the manner in which proxy proposals shall be voted (the “Guidelines”). The Guidelines shall identify when ballots for specific
types of proxy proposals shall be voted(1) or
referred to the Adviser. The Guidelines shall address a wide variety of individual topics, including, among other matters, shareholder
voting rights, anti-takeover defenses, board structures, the election of directors, executive and director compensation, reorganizations,
mergers, issues of corporate social responsibility and other proposals affecting shareholder rights. In determining the Guidelines, the
Global Proxy Group considers the recommendations of the Agent as well as input from the Advisers’ portfolio managers and analysts
and/or other internally developed or third party research.
Eaton Vance Tax-Managed Diversified Equity Income Fund | 57 | SAI dated February 18, 2022 |
The Global Proxy Group shall review the Guidelines at least
annually and, in connection with proxies to be voted on behalf of the Eaton Vance Funds, the Adviser will submit amendments to the Guidelines
to the Fund Boards each year for approval.
With respect to the types of proxy proposals listed below,
the Guidelines will generally provide as follows:
1. Proposals Regarding Mergers and Corporate Restructurings/Disposition
of Assets/Termination/Liquidation and Mergers
The Agent shall be directed to refer proxy proposals accompanied
by its written analysis and voting recommendation to the Proxy Administrator and/or her designee for all proposals relating to Mergers
and Corporate Restructurings.
2. Corporate Structure Matters/Anti-Takeover Defenses
As a general matter, the Advisers will normally vote against
anti-takeover measures and other proposals designed to limit the ability of shareholders to act on possible transactions (except in the
case of closed-end management investment companies).
3. Proposals Regarding Proxy Contests
The Agent shall be directed to refer contested proxy proposals
accompanied by its written analysis and voting recommendation to the Proxy Administrator and/or her designee.
4. Social and Environmental Issues
The Advisers will vote social and environmental proposals
on a “case-by-case” basis taking into consideration industry best practices and existing management policies and practices.
Interpretation and application of the Guidelines is not intended
to supersede any law, regulation, binding agreement or other legal requirement to which an issuer or the Adviser may be or become subject.
The Guidelines generally relate to the types of proposals that are most frequently presented in proxy statements to shareholders. In certain
circumstances, an Adviser may determine to vote contrary to the Guidelines subject to the voting procedures set forth below.
B. Voting Procedures
Except as noted in Section V below, the Proxy Administrator
and/or her designee shall instruct the Agent to vote proxies as follows:
1. Vote in Accordance with Guidelines
If the Guidelines prescribe the manner in which the proxy
is to be voted, the Agent shall vote in accordance with the Guidelines, which for certain types of proposals, are recommendations of the
Agent made on a case-by-case basis.
2. Seek Guidance for a Referred Item or a Proposal for
which there is No Guideline
If (i) the Guidelines state that the proxy shall be referred
to the Adviser to determine the manner in which it should be voted or (ii) a proxy is received for a proposal for which there is no Guideline,
the Proxy Administrator and/or her designee shall consult with the analyst(s) covering the company subject to the proxy proposal and shall
instruct the Agent to vote in accordance with the determination of the analyst. The Proxy Administrator and/or her designee will maintain
a record of all proxy proposals that are referred by the Agent, as well as all applicable recommendations, analysis and research received
and the resolution of the matter. Where more than one analyst covers a particular company and the recommendations of such analysts for
voting a proposal subject to this Section IV.B.2 conflict, the Global Proxy Group shall review such recommendations and any other available
information related to the proposal and determine the manner in which it should be voted, which may result in different recommendations
for clients (including Funds).
3. Votes Contrary to the Guidelines or Where Agent is
Conflicted
In the event an analyst with respect to companies within
his or her coverage area may recommend a vote contrary to the Guidelines, the Proxy Administrator and/or her designee will provide the
Global Proxy Group with the Agent’s recommendation for the proposal along with any other relevant materials, including a description
of the basis for the analyst’s recommendation via email and the Proxy Administrator and/or designee will then instruct the Agent
to vote the proxy in the manner determined by the Global Proxy Group. Should the vote by the
Global Proxy Group concerning one or more
recommendations result in a tie, EVM’s Chief Equity Investment
Officer will determine the manner in
which the proxy will be voted.
The Adviser will provide a report to the Boards of Trustees of the Eaton Vance Funds reflecting any votes cast on behalf of the
Eaton Vance Funds contrary to the Guidelines, and shall do so quarterly. A similar process will be followed if the Agent
has a conflict of interest with respect to a proxy as described in Section VI.B.
Eaton Vance Tax-Managed Diversified Equity Income Fund | 58 | SAI dated February 18, 2022 |
4. Do Not Cast a Vote
It shall generally be the policy of the Advisers to take
no action on a proxy for which no client holds a position or otherwise maintains an economic interest in the relevant security at the
time the vote is to be cast. In addition, the Advisers may determine not to vote (i) if the economic effect on shareholders' interests
or the value of the portfolio holding is indeterminable or insignificant (e.g., proxies in connection with securities no longer
held in the portfolio of a client or proxies being considered on behalf of a client that is no longer in existence); (ii) if the cost
of voting a proxy outweighs the benefits (e.g., certain international proxies, particularly in cases in which share blocking practices
may impose trading restrictions on the relevant portfolio security); or (iii) in markets in which shareholders' rights are limited; and
(iv) the Adviser is unable to access or access timely ballots or other proxy information. Non-Votes may also result in certain cases in
which the Agent's recommendation has been deemed to be conflicted, as provided for herein.
C. Securities on Loan
When a fund client participates in the lending of its securities
and the securities are on loan at the record date for a shareholder meeting, proxies related to such securities generally will not be
forwarded to the relevant Adviser by the fund’s custodian and therefore will not be voted. In the event that the Adviser determines
that the matters involved would have a material effect on the applicable fund’s investment in the loaned securities, the Adviser
will make reasonable efforts to terminate the loan in time to be able to cast such vote or exercise such consent. The Adviser shall instruct
the fund’s security lending agent to refrain from lending the full position of any security held by a fund to ensure that the Adviser
receives notice of proxy proposals impacting the loaned security.
V. Recordkeeping
The Advisers will maintain records relating to the proxies they vote
on behalf of their clients in accordance with Section 204-2 of the Investment Advisers Act of 1940, as amended. Those records will include:
| · | A copy of the Advisers’ proxy voting policies and procedures; |
| · | Proxy statements received regarding client securities. Such proxy statements received from issuers are either in the SEC’s EDGAR
database or are kept by the Agent and are available upon request; |
| · | A record of each vote cast; |
| · | A copy of any document created by the Advisers that was material to making a decision on how to vote a proxy for a client or that
memorializes the basis for such a decision; and |
| · | Each written client request for proxy voting records and the Advisers’ written response to any client request (whether written
or oral) for such records. |
All records described above will be maintained in an easily accessible
place for five years and will be maintained in the offices of the Advisers or their Agent for two years after they are created.
Notwithstanding anything contained in this Section V, Eaton Vance Trust
Company shall maintain records relating to the proxies it votes on behalf of its clients in accordance with laws and regulations applicable
to it and its activities. In addition, EVAIL shall maintain records relating to the proxies it votes on behalf of its clients in accordance
with UK law.
VI. Assessment of Agent and Identification and Resolution of Conflicts
with Clients
A. Assessment
of Agent
The Advisers shall establish that the Agent (i) is independent
from the Advisers, (ii) has resources that indicate it can competently provide analysis of proxy issues, and (iii) can make recommendations
in an impartial manner and in the best interests of the clients and, where applicable, their beneficial owners. The Advisers shall utilize,
and the Agent shall comply with, such methods for establishing the foregoing as the Advisers may deem reasonably appropriate and shall
do so not less than annually as well as prior to engaging the services of any new proxy voting service. The Agent shall also notify the
Advisers in writing within fifteen (15) calendar days of any material change to information previously provided to an Adviser in connection
with establishing the Agent’s independence, competence or impartiality.
B. Conflicts of Interest
As fiduciaries to their clients, each Adviser puts the interests
of its clients ahead of its own. In order to ensure that relevant personnel of the Advisers are able to identify potential material conflicts
of interest, each Adviser will take the following steps:
Eaton Vance Tax-Managed Diversified Equity Income Fund | 59 | SAI dated February 18, 2022 |
| · | Quarterly, the Eaton Vance Legal and Compliance Department will seek information from the department heads of each department of the
Advisers and of Eaton Vance Distributors, Inc. (“EVD”) (an affiliate of the Advisers and principal underwriter of certain
Eaton Vance Funds). Each department head will be asked to provide a list of significant clients or prospective clients of the Advisers
or EVD. |
| · | A representative of the Legal and Compliance Department will compile a list of the companies identified (the “Conflicted Companies”)
and provide that list to the Proxy Administrator. |
| · | The Proxy Administrator will compare the list of Conflicted Companies with the names of companies for which he or she has been referred
a proxy statement (the “Proxy Companies”). If a Conflicted Company is also a Proxy Company, the Proxy Administrator will report
that fact to the Global Proxy Group. |
| · | If the Proxy Administrator expects to instruct the Agent to vote the proxy of the Conflicted Company strictly according to the Guidelines
contained in these Proxy Voting Policies and Procedures (the “Policies”) or the recommendation of the Agent, as applicable,
he or she will (i) inform the Global Proxy Group of that fact, (ii) instruct the Agent to vote the proxies and (iii) record the existence
of the material conflict and the resolution of the matter. |
| · | If the Proxy Administrator intends to instruct the Agent to vote in a manner inconsistent with the Guidelines, the Global Proxy Group
will then determine if a material conflict of interest exists between the relevant Adviser and its clients (in consultation with the Legal
and Compliance Department if needed). If the Global Proxy Group determines that a material conflict exists, prior to instructing the Agent
to vote any proxies relating to these Conflicted Companies the Adviser will seek instruction on how the proxy should be voted from: |
| · | The client, in the case of an individual, corporate, institutional or benefit plan client; |
| · | In the case of a Fund, its board of directors, any committee, sub-committee or group of Independent Trustees (as long as such committee,
sub-committee or group contains at least two or more Independent Trustees); or |
| · | The adviser, in situations where the Adviser acts as a sub-adviser to such adviser. |
The Adviser will provide all reasonable assistance to each party to
enable such party to make an informed decision.
If the client, Fund board or adviser, as the case may be, fails to instruct
the Adviser on how to vote the proxy, the Adviser will generally instruct the Agent, through the Proxy Administrator, to abstain from
voting in order to avoid the appearance of impropriety. If however, the failure of the Adviser to vote its clients’ proxies would
have a material adverse economic impact on the Advisers’ clients’ securities holdings in the Conflicted Company, the Adviser
may instruct the Agent, through the Proxy Administrator, to vote such proxies in order to protect its clients’ interests. In either
case, the Proxy Administrator will record the existence of the material conflict and the resolution of the matter.
The Advisers shall also identify and address conflicts that may arise
from time to time concerning the Agent. Upon the Advisers’ request, which shall be not less than annually, and within fifteen (15)
calendar days of any material change to such information previously provided to an Adviser, the Agent shall provide the Advisers with
such information as the Advisers deem reasonable and appropriate for use in determining material relationships of the Agent that may pose
a conflict of interest with respect to the Agent’s proxy analysis or recommendations. Such information shall include, but is not
limited to, a monthly report from the Agent detailing the Agent’s Corporate Securities Division clients and related revenue data.
The Advisers shall review such information on a monthly basis. The Proxy Administrator shall instruct the Agent to refer any proxies for
which a material conflict of the Agent is deemed to be present to the Proxy Administrator. Any such proxy referred by the Agent shall
be referred to the Global Proxy Group for consideration accompanied by the Agent’s written analysis and voting recommendation. The
Proxy Administrator will instruct the Agent to vote the proxy as recommended by the Global Proxy Group.
| (1) | The Guidelines will prescribe how a proposal shall be voted or provide factors to be considered on a case-by-case basis by the Agent
in recommending a vote pursuant to the Guidelines. |
Eaton Vance Tax-Managed Diversified Equity Income Fund | 60 | SAI dated February 18, 2022 |
Eaton Vance Tax-Managed Diversified Equity
Income Fund
Statement of Additional Information
February 18, 2022
_______________
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
Independent Registered Public Accounting Firm
Deloitte & Touche LLP
200 Berkeley Street
Boston, MA 02116
Eaton Vance Tax-Managed Diversified Equity Income Fund | 61 | SAI dated February 18, 2022 |
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