-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KfZsSYQT1r3ls+K1c1UmIJlKLQgTLq0LGeOUMhQK2yFQ0LNE9nnMNjJvU79hjPoH FW+lfpGZrya6hD9rg/KhRA== 0000891554-97-000029.txt : 19970115 0000891554-97-000029.hdr.sgml : 19970115 ACCESSION NUMBER: 0000891554-97-000029 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19961031 FILED AS OF DATE: 19970114 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: EATON VANCE CORP CENTRAL INDEX KEY: 0000350797 STANDARD INDUSTRIAL CLASSIFICATION: INVESTMENT ADVICE [6282] IRS NUMBER: 042718215 STATE OF INCORPORATION: MD FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-08100 FILM NUMBER: 97505244 BUSINESS ADDRESS: STREET 1: 24 FEDERAL ST CITY: BOSTON STATE: MA ZIP: 02110 BUSINESS PHONE: 6174828260 MAIL ADDRESS: STREET 1: 24 FEDERAL STREET STREET 2: 11TH FLOOR CITY: BOSTON STATE: MA ZIP: 02110 10-K 1 ANNUAL REPORT ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended October 31, 1996 Commission File Number 1-8100 EATON VANCE CORP. (Exact name of registrant as specified in its charter) Maryland 04-2718215 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 24 Federal Street, Boston, Massachusetts 02110 (Address of principal executive offices) (Zip Code) (617) 482-8260 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Name of each exchange on Title of each class which registered Non-Voting Common Stock ($0.0625 par value) Boston Stock Exchange Non-Voting Common Stock ($0.0625 par value) New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: Non-Voting Common Stock par value $0.0625 per share Title of Class Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the close of the latest practicable date. Class Outstanding at December 31, 1996 Non-Voting Common Stock, $0.0625 par value 9,431,559 Common Stock, $0.0625 par value 19,360 Portions of registrant's Annual Report to Stockholders for the fiscal year ended October 31, 1996, (Exhibit 13.1 hereto) have been incorporated by reference into the following Parts of this report: Part I, Part II and Part IV. ================================================================================ PART I Item 1. Business The Company's principal business is creating, marketing and managing mutual funds and providing management and counseling services to institutions and individuals. The Company has been in the investment management business for over seventy years, tracing its history to two Boston-based investment managers: Eaton & Howard, formed in 1924, and Vance, Sanders & Company, organized in 1934. As of October 31, 1996, the Company managed $17.3 billion in portfolios with investment objectives ranging from high current income to maximum capital gain. Investment Management Activities The Company conducts its investment management and counseling business through two wholly-owned subsidiaries, Eaton Vance Management ("EVM") and Boston Management and Research ("BMR"), each of which is a Massachusetts business trust registered with the Securities and Exchange Commission ("the Commission") as an investment adviser under the Investment Advisers Act of 1940, as amended (the "Advisers Act"). Eaton Vance Distributors, Inc. ("EVD"), a wholly owned broker/dealer registered under the Securities Exchange Act of 1934 (the "Exchange Act"), markets and sells the Eaton Vance Funds. Effective November 1, 1996, all of the business operations, employees, registered representative licenses, distribution agreements, and other assets and liabilities of Eaton Vance Distributors, Inc., were transferred to EV Distributors, Inc., also a wholly-owned subsidiary of the Company. EV Distributors, Inc. changed its name to Eaton Vance Distributors, Inc., effective November 1, 1996. As of October 31, 1996, the Company provided investment advisory and administration services to over 160 Funds ("Funds") and to over 800 separately managed individual and institutional accounts. At that date, the Funds had aggregate net assets of $15.6 billion and the Company's separately managed accounts had aggregate net assets of $1.7 billion. The following table shows net assets in the Funds and the separately managed accounts for the dates indicated: Fund and Separately Managed Account Assets At October 31, --------------------------------------------- 1996 1995 1994 1993 1992 --------------------------------------------- Funds: (in millions) Money Market $ 200 $ 200 $ 200 $ 200 $ 400 Equities 3,100 2,400 2,300 2,200 1,600 Bank Loans 2,800 1,400 600 800 1,100 Taxable Fixed Income 1,300 1,300 1,300 1,100 1,500 Non-Taxable Fixed Income 8,200 8,900 9,000 8,900 4,600 ----------------------------------------------- Total 15,600 14,200 13,400 13,200 9,200 ----------------------------------------------- Separately Managed Accounts 1,700 1,800 1,600 2,200 2,100 ----------------------------------------------- Total $17,300 $16,000 $15,000 $15,400 $11,300 =============================================== 1 Item 1. Business (continued) Investment decisions for all but eleven of the over 160 Funds are made by portfolio managers employed by the Company and are made in accordance with each Fund's investment objectives and policies. Investment decisions for ten of the Company's international equity funds are made by Lloyd George Management, an independent investment management company based in Hong Kong. Investment decisions for the Eaton Vance Worldwide Health Sciences Fund are made by Mehta and Isaly Asset Management, Inc., an independent investment management company based in New York. The Company's portfolio management staff consists of 39 portfolio managers and analysts who have, on average, more than 20 years of experience in the securities industry. The Company's investment advisory agreements with each of the Funds provide for fees ranging from 45 to 95 basis points of average net assets annually for management services provided. The investment advisory agreements must be approved annually by the trustees of the respective Funds, including a majority of the independent trustees, i.e., those unaffiliated with the management company. Amendments to the investment advisory agreements must be approved by Fund shareholders. These agreements are generally terminable upon 30 to 60 days notice without penalty. Investment decisions for the separately managed accounts are made by twenty investment counselors employed by the Company. The investment counselors are assisted by an additional eleven financial analysts and managers with part-time counseling responsibilities. The Company's investment counselors use the same sources of information as Fund portfolio managers but tailor investment decisions to the needs of individual clients. The Company's investment advisory fee agreements for the separately managed accounts provide for fees ranging from 30 to 80 basis points of average net assets on an annual basis. These agreements are generally terminable upon 30 to 60 days notice without penalty. The following table shows investment advisory and administration fees received for the past five years ended October 31, 1996:
Investment Advisory and Administration Fees* Year ended October 31, ---------------------------------------------- 1996 1995 1994 1993 1992 ---------------------------------------------- (in thousands) Investment Advisory Fees - Funds $81,473 $69,094 $68,284 $59,322 $50,776 Separately Managed Accounts 8,865 8,712 9,807 8,934 8,949 Administration Fees - Funds 7,793 4,631 4,257 3,295 4,685 ----------------------------------------------- Total $98,131 $82,437 $82,348 $71,551 $64,410 ===============================================
* Excludes gold mining investment management fees and administration fees received from funds other than Eaton Vance Funds. The Company's growth has resulted from its ability to develop, offer successfully and manage effectively new funds and to increase the assets of existing Funds. The Company's strategy is to develop and manage products with clearly understood and clearly presented investment characteristics coupled with distribution arrangements that are attractive to third-party distributors of the Funds. 2 Item 1. Business (continued) In 1993, the Company introduced the Hub and Spoke structure. Hub and Spoke is a two-tiered arrangement in which mutual funds (Spokes) with substantially identical investment objectives pool their assets by investing in a common portfolio (Hub). Eaton Vance used Hub and Spoke to introduce four distinct mutual fund families (Traditional, Marathon, Classic and Medallion), with each family having its own prospectus, sales literature, product design and distribution structure (see Marketing and Distribution of Fund Shares below). The structure is intended to benefit fund shareholders through lower operating costs, while allowing the Company to offer cost-effective distribution alternatives to the broker/dealers and their clients. The Company has converted most of its Funds to the Hub and Spoke structure. In 1995, the Company increased its ownership interest in Lloyd George Management (BVI) Limited (LGM), an independent investment management company based in Hong Kong. The two firms became affiliated in 1992 with the introduction of the Eaton Vance Greater China Funds, which are advised by Lloyd George Management from its headquarters in Hong Kong. The investment management capabilities of LGM, with offices in Hong Kong, London and Bombay, coupled with the introduction of the EV Medallion family of offshore funds, allows Eaton Vance both to manage and to distribute mutual funds globally. In July, 1996, the directors of the Medical Research Investment Fund, Inc., approved the conversion of the Fund to the Hub and Spoke structure and engaged EVM as administrator and EVD as distributor. As part of the conversion, the fund changed its name to EV Traditional Worldwide Health Sciences Fund and became a member of the Eaton Vance Family of Funds. The Fund, which concentrates investments in equity securities of domestic and foreign companies engaged in research and the health care industry, has been managed since inception by Mehta and Isaly Asset Management, Inc. ("Mehta and Isaly"), an independent New York-based management company. Mehta and Isaly continues to act as adviser to the Fund under Eaton Vance's sponsorship. Investment Advisory Agreements and Distribution Plans Each Eaton Vance Fund (excluding those managed by LGM and Mehta and Isaly) has entered into an investment advisory agreement with either EVM or BMR. Although the specific terms of each such agreement vary, the basic terms of the agreements are similar. Pursuant to the agreements, either EVM or BMR, as applicable, provides overall management services to each of the Funds, subject to the supervision of each Fund's Board of Trustees in accordance with each Fund's fundamental investment objectives and policies. The investment advisory agreements are approved by Fund shareholders and their continuance must be approved annually by the trustees of the respective Funds, including a majority of the Independent Trustees. Amendments to the investment advisory agreements must be approved by Fund shareholders. EVM also serves as administrator or manager under an Administration Agreement or Management Contract (each an "Agreement") to certain Funds (including those managed by LGM). Under such Agreement(s) EVM is responsible for managing the business affairs of these Funds, subject to the supervision of each Fund's Board of Trustees. EVM's services include recordkeeping, preparing and filing documents required to comply with federal and state securities laws, supervising the activities of the Funds' custodian and transfer agent, providing assistance in connection with the Funds' shareholders meetings and other administrative services, including furnishing office space and office facilities, equipment and personnel which may be necessary for managing and administering the business affairs of the Funds. EVM (or an affiliate) may or may not provide investment management or advisory services to these Funds. For the services provided under the Agreement(s), each Fund is required, in some cases, to pay EVM a monthly fee calculated at an annual rate not to exceed 0.25% of average daily net assets. Each Agreement remains in full force and effect indefinitely, but only to the extent that the continuance of such Agreement is specifically approved at least annually by the Fund's Board of Trustees. 3 Item 1. Business (continued) In addition, certain of the Funds have adopted distribution plans which, subject to applicable law, provide for the reimbursement to the Company for the payment of applicable sales commissions to the retail distribution firms through the payment of an ongoing distribution fee (i.e., a 12b-1 fee). These distribution plans are implemented through a distribution agreement between EVD and the Fund. Although the specific terms of each such agreement may vary, the basic terms of the agreements are similar. Pursuant to the agreements, EVD acts as underwriter for the Fund and distributes shares of the Fund through unaffiliated dealers. Pursuant to the terms of the distribution plans and agreements and the Investment Company Act, each distribution plan and agreement is initially approved and its subsequent continuance must be approved annually by the trustees of the respective Funds, including a majority of the Independent Trustees. Each Fund bears all expenses associated with its operation and the issuance and redemption or repurchase of its securities, except for the compensation of directors and officers of the fund who are employed by the Company. Under some circumstances, particularly in connection with new fund introductions and special promotions, EVM or BMR may waive a portion of its fee and pay for some expenses of the Fund. EVM has entered into investment advisory agreements which set forth investment objectives and fee schedules with respect to each separately managed account. Pursuant to the agreements, EVM invests the assets of the accounts in accordance with the stated investment objectives. The Company's investment counselors may assist clients in formulating investment strategy. Marketing and Distribution of Fund Shares The Company markets and distributes the Funds through EVD. EVD sells the Funds through a retail network of national and regional dealers, including those affiliated with banks, insurance companies and financial planners. Although the firms in the Company's retail distribution network have entered into a selling agreement with the Company, such agreements (which generally are terminable by either party) do not legally obligate the firms to sell any specific amount of the Company's investment products. For the 1996, 1995 and 1994 calendar years, the five dealer firms responsible for the largest volume of fund sales accounted for approximately 37%, 42% and 56%, respectively, of the Company's fund sales volume. EVD currently maintains a sales force of more than 30 wholesalers and 30 sales assistants. Wholesalers and their assistants work closely with the retail distribution network to assist in selling Eaton Vance Funds. While a substantial majority of sales are made through national and large regional firms, in 1990 the Company embarked on a program to broaden its channels of distribution by establishing the Independent Financial Institutions sales force, a separate wholesaling force focusing on banks and financial planners. EVD currently sells its U.S. registered Funds under three separate commission structures: 1) front-end load commission (Traditional); 2) spread-load commission (Marathon); and 3) level-load commission (Classic). In the front-end load commission structure (Traditional), the shareholder pays the broker's commission and EVD receives an underwriting commission of up to 75 basis points of the dollar value of the Fund shares sold. The Fund pays a service fee to authorized firms not to exceed 25 basis points of average net assets. In the spread-load commission structure (Marathon), EVD pays a commission to the dealer at the time of sale and such payments are capitalized and amortized in the Company's financial statements over a four to six year period. The shareholder pays a contingent sales charge to EVD in the event shares are redeemed within a four, five or six year period from the date of purchase. EVD uses its own funds (which may be borrowed) to pay such commissions. EVD recovers the dealer commissions paid on behalf of the shareholder through distribution plan payments limited to an annual rate of 75 basis points of the average net assets of the Fund in accordance with a 4 Item 1. Business (continued) distribution plan adopted by the Fund pursuant to Rule 12b-1 under the Investment Company Act. Like the investment advisory agreement, the distribution plan and related payments must be approved annually by a vote of the trustees, including a majority of the independent trustees. The Commission has taken the position that Rule 12b-1 would not permit a Fund to continue making compensation payments to EVD after termination of the plan and that any continuance of such payments may subject the Fund to legal action. These distribution plans are terminable at any time without notice or penalty. In addition, the Fund pays a service fee to authorized firms not to exceed 25 basis points of average net assets. In the level-load commission structure (Classic), the shareholder pays no front-end commissions or contingent deferred sales charges after the first year. EVD pays a commission and the first year's service fees to the dealer at the time of sale. The Fund makes monthly distribution plan payments to EVD similar to the spread-load Funds, equal to 75 basis points of average net assets of the Fund. Service fees are paid by the Fund to EVD in the first year and to authorized firms in subsequent years, at an annual rate not to exceed 25 basis points of average net assets. The introduction of level-load shares is consistent with the efforts of many broker/dealers to rely less on transaction fees and more on continuing fees for servicing assets. In addition to its U.S. registered Funds, the Company also sponsors a family of Cayman Island domiciled off-shore funds known as the EV Medallion family of funds. The Medallion funds are sold by certain dealer firms through EVD to non-U.S. persons with commission structures similar to U.S. registered funds. The Company earns distribution, administration and advisory fees directly or indirectly from the Medallion Funds. Reference is made to Note 12 of the Notes to Consolidated Financial Statements contained in the Eaton Vance Corp. Annual Report to Shareholders for the fiscal year ended October 31, 1996 (which report is furnished as Exhibit 13.1 hereto) for a description of the major customers that provided over 10% of the total revenue of the Company. Competitive Conditions The Company is subject to substantial competition in all aspects of its business. The Company's ability to market investment products is highly dependent on access to the retail distribution systems of national and regional securities dealer firms, banks and independent financial planners which generally offer competing internally and externally managed investment products. Although the Company has historically been successful in gaining access to these channels, there can be no assurance that it will continue to do so. The inability to have such access could have a material adverse effect on the Company's business. There are few barriers to entry by new investment management firms. The Company's funds compete against an ever increasing number of investment products sold to the public by investment dealers, banks, insurance companies and others that sell tax-free investments, taxable income funds, equity funds and other investment products. Many institutions competing with the Company have greater resources than the Company. The Company competes with other providers of investment products on the basis of the range of products offered, the investment performance of such products, quality of service, fees charged, the level and type of sales representative compensation, the manner in which such products are marketed and distributed and the services provided to investors. Regulation EVM and BMR are each registered with the Commission under the Advisers Act. The Advisers Act imposes numerous obligations on registered investment advisers including fiduciary duties, recordkeeping requirements, operational requirements and disclosure obligations. Each Eaton Vance Fund is registered with the Commission 5 Item 1. Business (continued) under the Investment Company Act of 1940. Each Fund is also required to make notice filings with all states where it is offered for sale. Virtually all aspects of the Company's investment management business are subject to various federal and state laws and regulations. These laws and regulations are primarily intended to benefit shareholders of the Funds and investment counseling clients and generally grant supervisory agencies and bodies broad administrative powers, including the power to limit or restrict the Company from carrying on its investment management business in the event that it fails to comply with such laws and regulations. In such event, the possible sanctions which may be imposed include the suspension of individual employees, limitations on EVM's or BMR's engaging in the investment management business for specified periods of time, the revocation of EVM's or BMR's registration as an investment adviser and other censures or fines. EVD is registered as a broker/dealer under the Securities Exchange Act of 1934 and is subject to regulation by the Commission, the National Association of Securities Dealers (NASD) and other federal and state agencies. EVD is subject to the Commission's net capital rule designed to enforce minimum standards regarding the general financial condition and liquidity of a broker/dealer. Under certain circumstances, this rule limits the ability of the Company to make withdrawals of capital and receive dividends from EVD. EVD's regulatory net capital has consistently exceeded such minimum net capital requirements. The securities industry is one of the most highly regulated in the United States, and failure to comply with related laws and regulations can result in the revocation of broker/dealer licenses, the imposition of censures or fines and the suspension or expulsion from the securities business of a firm, its officers or employees. The Company's officers, directors and employees may from time to time own securities which are held by one or more of the Funds. The Company's internal policies with respect to individual investments require prior clearance of most types of transactions and reporting of all securities transactions, and restrict certain transactions so as to avoid the possibility of conflicts of interest. Employees On October 31, 1996, the Company and its wholly-owned subsidiaries had 362 full-time employees. On October 31, 1995, the comparable figure was 361. Item 2. Properties (a) Northeast Properties, Inc., a wholly-owned subsidiary of the Company, owns various investment properties including an office building located at 24 Federal Street in Boston in which the Company is the primary tenant. For information with respect to the properties, reference is made to Schedule III and Notes 4 and 5 of the Notes to Consolidated Financial Statements contained in the Eaton Vance Corp. 1996 Annual Report to Shareholders (Exhibit 13.1 hereto), which are incorporated herein by reference. (b) The Company presently owns 100% of the capital stock of Energex Energy Corporation, which owns interests in certain oil and gas properties. Item 3. Legal Proceedings Certain of the Company's subsidiaries are subject to legal proceedings arising in the ordinary course of business. On the basis of information presently available and advice received from counsel, it is the opinion of management that the disposition or ultimate determination of such legal proceedings will not have a material adverse effect on the financial position of the Company. 6 Item 4. Submission of Matters to a Vote of Security Holders Not applicable. 7 PART II Item 5. Market for Registrants' Common Equity and Related Stockholder Matters The Company's Voting Common Stock, $0.0625 par value, is not traded and is held by five Voting Trustees pursuant to the Voting Trust described in paragraph (A) of Item 12 hereof, which paragraph (A) is incorporated herein by reference. The Company's Non-Voting Common Stock, $0.0625 par value, is traded on the Boston Stock Exchange and the New York Stock Exchange under the symbol EV. The approximate number of holders of record of the Company's Non-Voting Common Stock at October 31, 1996, was 985. The additional information required to be disclosed in Item 5 is found on page 4 of the Company's 1996 Annual Report to Shareholders (furnished as Exhibit 13.1 hereto), under the caption "Eaton Vance Corp.", and is incorporated herein by reference. Item 6. Selected Financial Data Selected financial data appearing under the caption "Five Year Summary" on page 11 of the Company's 1996 Annual Report to Shareholders, furnished as Exhibit 13.1 hereto, is incorporated herein by reference. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Management's discussion and analysis of financial condition and results of operations appearing on pages 12 through 16 of the Company's 1996 Annual Report to Shareholders, furnished as Exhibit 13.1 hereto, is incorporated herein by reference. Item 8. Financial Statements and Supplementary Data The Company's consolidated financial statements and related notes thereto and the independent auditors' report appearing on pages 17 through 32 of the Company's 1996 Annual Report to Shareholders, furnished as Exhibit 13.1 hereto, are incorporated herein by reference. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Not applicable. 8 PART III Item 10. Directors and Executive Officers of the Registrant The following table sets forth the name, age and positions of each of the Company's directors and executive officers at December 31, 1996. Name Age Position - -------------------------------------------------------------------------------- Landon T. Clay 70 Chairman of the Board of Directors M. Dozier Gardner 63 Vice Chairman of the Board of Directors James B. Hawkes 55 President, Chief Executive Officer and Director Benjamin A. Rowland, Jr. 61 Vice President and Director John G. L. Cabot 62 Director Ralph Z. Sorenson 63 Director Alan R. Dynner 56 Vice President and Chief Legal Officer Thomas Otis 65 Vice President and Secretary Laurie G. Russell 30 Vice President and Internal Auditor John P. Rynne 54 Vice President and Corporate Controller William M. Steul 54 Vice President and Chief Financial Officer Eaton Vance Corp. was formed as a holding company by its subsidiary, Eaton & Howard, Vance Sanders, Inc., in February, 1981. Eaton & Howard, Vance Sanders, Inc. (renamed Eaton Vance Management, Inc. in June, 1984 and reorganized as Eaton Vance Management in October, 1990) was formed at the time of the acquisition of Eaton & Howard, Incorporated by Vance, Sanders & Company, Inc. on May 1, 1979. In this paragraph, the absence of a corporate name indicates that, depending on the dates involved, the executive held the indicated titles in a firm in the chain of Vance, Sanders & Company, Inc., Eaton & Howard, Vance Sanders Inc., or Eaton Vance Corp. In general, the following officers hold their positions for a period of one year or until their successors are duly chosen or elected. Mr. Clay has been Chairman of the Board since 1971. He was Chief Executive Officer of the Company from October, 1971 until October, 1990 and a Vice President of the Company from November, 1968 until October, 1971. Mr. Clay serves as a member of the Management Committee established by the Company's Board of Directors. Mr. Clay is an officer, trustee, director or general partner of three registered investment companies of which Eaton Vance Management or Boston Management and Research acts as investment adviser. He is Vice President and Director of Fulcrum Management, Inc., and MinVen, Inc., both wholly-owned subsidiaries of Eaton Vance Corp. Mr. Clay is a Director of ADE Corp. (a manufacturer of non-contact measuring devices). Mr. Gardner was elected Vice Chairman of the Board of Directors in October, 1996. He was Chief Executive Officer of the Company from October, 1990 to October, 1996 and President of the Company from October 1979 to October, 1996. He has been a Director since July, 1970. Mr. Gardner serves as a member of the Management and Compensation Committees established by the Company's Board of Directors. Mr. Gardner is an officer or trustee of 16 registered investment companies for which Eaton Vance Management or Boston Management and Research acts as investment adviser. 9 Item 10. Directors and Executive Officers of the Registrant (continued) Mr. Hawkes was elected President and Chief Executive Officer in October, 1996. He was Executive Vice President of the Company from January, 1990 to October, 1996 and a Vice President of the Company from June, 1975 to January, 1990. He has been a Director since January, 1982. Mr. Hawkes serves as a member of the Management Committee established by the Company's Board of Directors. Mr. Hawkes is an officer, trustee or director of 73 registered investment companies for which Eaton Vance Management or Boston Management and Research acts as investment adviser. He is also a Director of Eaton Vance Distributors, Inc., a wholly-owned subsidiary of Eaton Vance Management. Mr. Rowland has been a Vice President of the Company since April, 1969 and a Director since January, 1982. He serves as a member of the Management Committee established by the Company's Board of Directors. Mr. Rowland is a Director of Energex Energy Corporation, a wholly-owned subsidiary of Eaton Vance Corp., Northeast Properties, Inc., a wholly-owned subsidiary of Eaton Vance Management, and Eaton Vance Distributors, Inc. Mr. Cabot has served as a Director of the Company since March, 1989. He is Chairman of the Audit Committee and serves as a member of the Compensation and Option Committees established by the Company's Board of Directors. Mr. Sorenson has served as a Director of the Company since March, 1989. He is Chairman of the Compensation Committee and serves as a member of the Audit and Option Committees established by the Company's Board of Directors. Mr. Dynner joined the Company as Vice President and Chief Legal Officer of the Company in November, 1996. Prior to joining the Company, Mr. Dynner was a senior partner with the law firm of Kirkpatrick & Lockhart LLP in its New York and Washington, D.C. offices. From February, 1994 to September, 1995 he was Executive Vice President of Newberger & Berman Management, Inc., a mutual fund management company. Mr. Dynner is a member of the Management Committee established by the Company's Board of Directors. Mr. Otis has been Secretary since October, 1969 and a Vice President of the Company since April, 1973. He has been the Company's counsel since 1966. Ms. Russell has been a Vice President and Internal Auditor of the Company since June, 1994. Prior to joining the Company, Ms. Russell was a Senior Accountant with Deloitte & Touche LLP. Mr. Rynne has been a Vice President and Corporate Controller of the Company since January, 1984. Mr. Steul has been a Vice President and Chief Financial Officer of the Company since December, 1994. Prior to joining the Company, Mr. Steul was Vice President, Finance and Chief Financial Officer of Digital Equipment Corporation. Mr. Steul is a member of the Management Committee established by the Company's Board of Directors. Mr. Steul is also a Director of Eaton Vance Distributors, Inc. and Northeast Properties, Inc. 10 Item 10. Directors and Executive Officers of the Registrant (continued) Compliance with Section 16(a) of the Securities Exchange Act of 1934 Section 16(a) of the Securities Exchange Act of 1934 requires the Company's officers and directors and persons who own more than ten percent of a registered class of the Company's equity securities to file forms reporting their affiliation with the Company and reports of ownership and changes in ownership of the Company's equity securities with the Securities and Exchange Commission and the New York Stock Exchange. These persons and entities are required by SEC regulations to furnish the Company with copies of all Section 16(a) forms they file. To the best of the Company's knowledge, all Section 16(a) filing requirements applicable to the Company's officers and directors were complied with for the 1996 fiscal year. 11 Item 11. Executive Compensation (A) Summary Compensation Table The following table sets forth certain information concerning the compensation for each of the last three fiscal years of the Chief Executive Officer of the Company and the four other most highly compensated executive officers of the Company (hereafter referred to in this document as the "named executive officers").
Long Term Compensation --------------- Annual Compensation Awards ------------------------------------------------------------------------------- Other Annual Securities All Other Compensation Underlying Compensation Year Salary Bonus(1) (2) Options (3) ----------------------------------------------------------------------------------- Name and Principal Position ($) ($) ($) (#) ($) - --------------------------------------------------------------------------------------------------------------------- James B. Hawkes 1996 375,000 520,000 4,703 10,000 30,000 Chief Executive Officer 1995 350,000 391,460 4,488 - 23,783 1994 330,000 550,413 723 - 30,000 - --------------------------------------------------------------------------------------------------------------------- Landon T. Clay 1996 290,000 229,380 18,758 - 30,000 Chairman of the Board 1995 365,000 217,374 8,614 - 23,753 1994 350,000 273,648 15,291 - 30,000 - --------------------------------------------------------------------------------------------------------------------- M. Dozier Gardner 1996 360,577 444,891 9,034 - 30,000 Vice Chairman of the Board 1995 385,000 333,014 8,618 - 23,783 1994 365,000 344,046 3,346 - 30,000 - --------------------------------------------------------------------------------------------------------------------- Benjamin A. Rowland, Jr. 1996 250,000 429,380 - - 30,000 Vice President 1995 255,000 181,460 - 5,000 23,255 1994 240,000 200,000 - 4,000 30,000 - --------------------------------------------------------------------------------------------------------------------- Wharton P. Whitaker 1996 225,000 428,557 9,034 6,000 30,000 President, EVD 1995 220,000 277,409 8,618 - 23,871 1994 198,000 411,245 3,346 - 30,000 - ---------------------------------------------------------------------------------------------------------------------
12 Item 11. Executive Compensation (continued) (1) Bonuses include payments in lieu of option grants to Mr. Clay of $29,380, $35,520 and $43,520 in 1996, 1995 and 1994, respectively. Mr. Gardner and Mr. Rowland also received bonuses in lieu of option grants in 1996 totaling $44,070 and $29,380, respectively. (2) The amounts appearing under "Other Annual Compensation" represent the 10% discount on the purchase of the Company's stock under the Company's Employee Stock Purchase Plan and Incentive Plan - Stock Alternative. (3) The amounts appearing under "All Other Compensation" represent contributions by the Company to the Company's Profit Sharing, Supplemental Profit Sharing and 401(k) Plans. (B) Option Grants in Last Fiscal Year The following table summarizes stock option grants during 1996 to the named executive officers.
Potential Realizable Value at Assumed Annual Rates of Stock Price Appreciation for Option Term (1) -------------------------- Percentage Number of of Total Securities Options Underlying Granted to Exercise Options Employees in Price Expiration Name Granted Fiscal Year ($/Share) Date 5% ($) 10% ($) - --------------------------------------------------------------------------------------------------------------------- James B. Hawkes 10,000 7% 31.075 12/15/00 85,854 189,716 Landon T. Clay None (Cash - - - - - bonus in lieu of options) M. Dozier Gardner None (Cash - - - - - bonus in lieu of options) Benjamin A. Rowland, Jr. None (Cash - - - - - bonus in lieu of options) Wharton P. Whitaker 6,000 4% 28.250 12/15/00 46,830 103,481
(1) Amounts calculated using 5% and 10% assumed annual rates of stock price appreciation represent hypothetical gains that could be achieved for the respective options if exercised at the end of the option term. Actual gains, if any, on stock option exercises will depend on the future performance of the Company's stock and the dates on which the options are exercised. 13 Item 11. Executive Compensation (continued) (C) Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values The following table summarizes stock options exercised during 1996 and stock options held as of October 31, 1996 by the named executive officers.
Number Shares of Securities Value of Unexercised Acquired Value Underlying Unexercised In-the-Money Options at on Exercise Realized Options at Fiscal Year End Fiscal Year End (1) ----------------------------------------------------------------------------------------- Exercisable Unexercisable Exercisable Unexercisable Name (#) ($) (#) (#) ($) ($) - ----------------------------------------------------------------------------------------------------------------------- James B. Hawkes 18,297 380,285 123,843 25,103 3,072,479 446,873 Landon T. Clay 22,956 488,596 0 0 0 0 M. Dozier Gardner 39,267 872,511 20,137 4,027 426,824 85,356 Benjamin A. Rowland, Jr. 12,082 263,194 22,352 3,021 512,765 55,846 Wharton P. Whitaker 6,041 129,930 33,184 3,021 784,189 64,033
(1) Based on the fair market value of the Company's common stock on October 31, 1996 ($43.75) as reported on the New York Stock Exchange, less the option exercise price. (D) Compensation of Directors Directors not otherwise employed by the Company receive a retainer of $4,000 per quarter and $750 per meeting. During the fiscal year ended October 31, 1996, John G.L. Cabot and Ralph Z. Sorenson each received $25,000; in addition, each was granted options for 885 shares. (E) Compensation Committee Interlocks and Insider Participation M. Dozier Gardner, Vice Chairman of the Board, is a member of the Compensation Committee of the Board of Directors of the Company. 14 Item 12. Security Ownership of Certain Beneficial Owners and Management (A) Common Stock All outstanding shares of the Company's Common Stock, $0.0625 par value, (which is the only class of the Company's stock having voting rights) are deposited in a Voting Trust, of which the Voting Trustees were (as of December 31, 1996), Landon T. Clay (Chairman of the Board of Directors of the Company), M. Dozier Gardner (Vice Chairman of the Board of Directors of the Company), James B. Hawkes (President, Chief Executive Officer and a Director of the Company), Benjamin A. Rowland, Jr. (a Vice President and a Director of the Company) and Thomas E. Faust, Jr. (a Vice President of the Company). The Voting Trust (a copy of which is incorporated by reference as Exhibit 9.1 hereto) expires December 31, 1997. The Voting Trustees have unrestricted voting rights for the election of the Company's directors. At December 31, 1996, the Company had outstanding 19,360 shares of Common Stock. Inasmuch as the five Voting Trustees of said Voting Trust have unrestricted voting rights with respect to said Common Stock (except that the Voting Trust Agreement provides that the Voting Trustees shall not vote such Stock in favor of the sale, mortgage or pledge of all or substantially all of the Company's assets or for any change in the capital structure or powers of the Company or in connection with a merger, consolidation, reorganization or dissolution of the Company without the written consent of the holders of Voting Trust Receipts representing at least a majority of such Stock subject at the time to the Voting Trust Agreement), they may be deemed to be the beneficial owners of all of the Company's outstanding Common Stock by virtue of Rule 13d-3(a)(1) under the Securities Exchange Act of 1934. The Voting Trust Agreement provides that the Voting Trustees shall act by a majority if there be three or more Voting Trustees; otherwise they shall act unanimously except as otherwise provided in the Voting Trust Agreement. The address of said Voting Trustees is 24 Federal Street, Boston, Massachusetts 02110. The following table sets forth the beneficial owners at December 31, 1996, of the Voting Trust Receipts issued under said Voting Trust Agreement, which Receipts cover the aggregate of 19,360 shares of the Common Stock then outstanding: Number of Shares of Voting Common Stock Covered by % of Title of Class Name Receipts Class - -------------------------------------------------------------------------------- Voting Common Stock Landon T. Clay 4,640 24% Voting Common Stock M. Dozier Gardner 4,640 24% Voting Common Stock James B. Hawkes 4,640 24% Voting Common Stock Benjamin A. Rowland, Jr. 2,920 15% Voting Common Stock Thomas E. Faust, Jr. 2,520 13% Messrs. Clay, Gardner, Hawkes and Rowland are all officers and Directors of the Company and Voting Trustees of the Voting Trust; Mr. Faust is an officer of the Company and Voting Trustee of the Voting Trust. No transfer of any kind of the Voting Trust Receipts issued under the Voting Trust may be made at any time unless they have first been offered to the Company at book value. In the event of the death or termination of employment by the Company of a holder of the Voting Trust Receipts, they must be offered to the Company at book value. Similar restrictions exist with respect to the Common Stock, all shares of which are deposited and held of record in the Voting Trust. 15 Item 12. Security Ownership of Certain Beneficial Owners and Management (continued) (B) Non-Voting Common Stock The Articles of Incorporation of Eaton Vance Corp. ("EVC") provide that EVC's Non-Voting Common Stock, $0.0625 par value, shall have no voting rights under any circumstances whatsoever. As of December 31, 1996, the officers and directors of EVC, as a group, beneficially owned 2,845,391 shares of such Non-Voting Common Stock or 29.56% of the 9,626,710 shares then outstanding. (Such figures include 195,151 shares subject to options exercisable within 60 days and is based solely upon information furnished by the officers and directors.) The following table sets forth the beneficial ownership of the Company's Non-Voting Common Stock by (i) each person known by the Company to own beneficially more than 5% of the outstanding shares of Non-Voting Common Stock, (ii) each director of the Company, and (iii) each of the named executive officers of the Company (as defined in Item 11, "Executive Compensation") as of December 31, 1996 (such investment power being sole unless otherwise indicated):
Amount of Beneficial Percentage of Title of Class Beneficial Owners Ownership (a) Class (b) - ------------------------------------------------------------------------------------ Non-Voting Common Stock Landon T. Clay 1,789,476 (d)(g) 18.97 Non-Voting Common Stock M. Dozier Gardner 370,982 (c)(f) 3.92 Non-Voting Common Stock James B. Hawkes 303,846 (c)(d)(f) 3.19 Non-Voting Common Stock Benjamin A. Rowland,Jr. 212,467 (c)(e) 2.25 Non-Voting Common Stock Wharton P. Whitaker 64,437 (c) 0.68 Non-Voting Common Stock John G. L. Cabot 22,766 (c)(h) 0.24 Non-Voting Common Stock Ralph Z. Sorenson 8,869 (c) 0.09
(a) Based solely upon information furnished by the officers and directors. (b) Based on 9,431,559 outstanding shares plus options exercisable within 60 days of 24,164 for Mr. Gardner, 106,032 for Mr. Hawkes, 16,915 for Mr. Rowland, 19,263 for Mr. Whitaker, 2,538 for Mr. Cabot and 2,538 for Mr. Sorenson. (c) Includes shares subject to options exercisable within 60 days granted to, but not exercised by, each named executive officer and director as listed in Note (b) above. (d) Includes 6,599 shares held by Mr. Hawkes' daughter and 2,500 shares held by Mr. Clay's children. (e) Includes 1,200 shares owned by Mr. Rowland's spouse as to which Mr. Rowland disclaims beneficial ownership. (f) Includes 37,609 shares owned by Mr. Gardner's spouse, and 11,645 shares owned by Mr. Hawkes' spouse. 16 Item 12. Security Ownership of Certain Beneficial Owners and Management (continued) (g) Includes 1,045 shares held in the trust of Profit Sharing Retirement Plan for employees of Flowers Antigua, of which the sole beneficiary is the spouse of Mr. Clay. Also includes 6,355 shares held in trust of Profit Sharing Retirement Plan for employees of LTC Corp., wholly owned by Mr. Clay. (h) Includes 4,000 shares held in a Family Limited Partnership and 2,000 shares held in a Grantor Retained Annuity Trust. Item 13. Certain Relationships and Related Transactions (A) Transactions with Management and Others On November 4, 1987, the Company became a limited partner in VenturesTrident II, L.P. ("VenturesTrident II"), a Delaware Limited Partnership formed to invest in equity securities of public and private mining ventures, principally in precious metals. As a limited partner, the Company has invested $3,000,000 in cash in VenturesTrident II. The investment by the Company was made entirely from internally generated funds. The Company, through its ownership of such limited partnership interest, currently owns a 3.042% interest in VenturesTrident II. In addition to the above, MinVen, Inc. ("MinVen"), a wholly-owned subsidiary of the Company, has acquired a general partnership interest in the general partner of VenturesTrident II. This acquisition required MinVen to pay $748,235 to such general partner. The general partner of VenturesTrident II is Fulcrum Management Partners II, L.P. ("Fulcrum Partners II"), a Delaware Limited Partnership of which Landon T. Clay (the Company's Chairman of the Board and principal stockholder) and MinVen, Inc. are the general partners. MinVen owns a 82.13% interest in Fulcrum Partners II, and Mr. Clay owns a 3.87% interest therein. The Company, by reason of MinVen's 82.13% interest in Fulcrum Partners II, indirectly owns an additional 16.43% interest in VenturesTrident II. VenturesTrident II has entered into a service agreement with Fulcrum Management, Inc. ("Fulcrum Management"), a wholly-owned subsidiary of the Company, whereby Fulcrum Management will provide management and administration services to VenturesTrident II for a quarterly fee equal to .675% of VenturesTrident II's aggregate committed capital. Mr. Clay and entities controlled by Mr. Clay, other than the Company, acquired limited partnership interests in VenturesTrident II for cash investments aggregating $2,650,000. Mr. Clay and such entities, solely through their ownership of such limited partnership interests, in the aggregate currently own a 2.69% interest in VenturesTrident II; Mr. Clay, by reason of his 3.87% interest in Fulcrum Partners II, indirectly owns an additional .77% interest in VenturesTrident II. Investors Bank & Trust Company, as custodian for the benefit of Thomas M. Clay and Richard T. Clay (both of whom are minor children of Landon T. Clay), acquired limited partnership interests in VenturesTrident II for investments of $100,000 for each such child; each such child currently owns a .10% interest in VenturesTrident II. Certain institutions and other investors have also acquired limited partnership interests in VenturesTrident II. Two other directors of the Company, M. Dozier Gardner and Benjamin A. Rowland, Jr., have acquired limited partnership interests in VenturesTrident II; each of such investments amounts to $50,000, and each such director currently owns a .05% interest in VenturesTrident II. Mr. Clay and the other directors of the Company, by reason of their positions with and ownership of stock of the Company, have an indirect interest in the aggregate 19.47% interest in VenturesTrident II directly and indirectly owned by the Company. 17 Item 13. Certain Relationships and Related Transactions (continued) All net operating income and losses and all net realized capital gains and losses of VenturesTrident II with respect to each of its fiscal years will generally be allocated 80% to the limited partners (which include the Company, Mr. Clay, Mr. Clay's minor children and the other two directors of the Company who own limited partnership interests) of VenturesTrident II and 20% to Fulcrum Partners II (of which Mr. Clay owns a 3.87% interest and the Company owns through MinVen a 82.13% interest). Mr. Clay is an officer and director of both MinVen and Fulcrum Management. (B) Certain Business Relationships Landon T. Clay, M. Dozier Gardner and James B. Hawkes, each of whom is a director and executive officer of the Company, are officers and directors, trustees or general partners of various investment companies for which the Company's wholly-owned subsidiary, Eaton Vance Management or Boston Management and Research, serves as investment adviser and for which Eaton Vance Distributors, Inc. (a wholly-owned subsidiary of Eaton Vance Management) acts as principal underwriter; such investment companies make substantial payments to Eaton Vance Management or Boston Management and Research for advisory and management services and substantial payments to Eaton Vance Distributors, Inc. under their distribution plans. (C) Indebtedness of Management In 1995, the Company increased to $10,000,000 the amount of money in the Executive Loan Program which is available for loans to certain key employees for the purpose of financing the exercise of stock options for shares of the Company's Non-Voting Common Stock. Such loans are written for a seven-year period, at varying fixed interest rates, and notes evidencing them require repayment in annual installments commencing with the third year in which the loan is outstanding. Loans outstanding under this program amounted to $3,221,000 at October 31, 1996. The following table sets forth the executive officers and Directors of the Company who were indebted to the Company under the foregoing loan programs at any time since November 1, 1995, in an aggregate amount in excess of $60,000: Largest Amount of Loans Rate of Interest Loans Outstanding Outstanding as Charged on Loans as Since 11/1/95 of 12/31/96 of 12/31/96 - -------------------------------------------------------------------------------- Landon T. Clay $154,805 $ 76,969 8.06% (1) M. Dozier Gardner 678,180 656,185 6.22%- 8.06% (2) James B. Hawkes 590,982 527,462 5.31%- 8.06% (3) H. Day Brigham, Jr. 332,300 315,100 5.31%- 8.06% (4) Wharton P. Whitaker 221,070 157,501 6.77% (5) John P. Rynne 114,745 113,245 5.74%-8.28% (6) (1) 8.06% interest payable on $76,969 principal amount of loan. 18 Item 13. Certain Relationships and Related Transactions (continued) (2) 6.22% interest payable on $88,000 principal amount of loan, 7.55% interest payable on $138,600 principal amount, 8.06% interest payable on $76,969 principal amount, 6.36% interest payable on $250,244 principal amount, and 7.07% interest payable on $102,372 principal amount. (3) 5.31% interest payable on $156,888 principal amount, 5.74% interest payable on $63,102 principal amount, 6.11% interest payable on $99,000 principal amount, 7.61% interest payable on $38,500 principal amount, 8.06% interest payable on $69,972 principal amount and 6.77% interest payable on $100,000 principal amount. (4) 5.31% interest payable on $177,100 principal amount of loan, 6.11% interest payable on $79,200 principal amount, and 8.06% interest payable on $58,800 principal amount. (5) 6.77% interest payable on $157,501 principal amount. (6) 5.74% interest payable on $13,500 principal amount of loan, 7.32% interest payable on $42,000 principal amount of loan, 8.28% interest payable on $26,250 principal amount of loan, and 7.12% interest payable on $31,495 principal amount of loan. 19 PART IV Item 14. Exhibits and Financial Statement Schedules (1) The following consolidated financial statements of Eaton Vance Corp. and report of independent accountants, included on pages 17 through 32 of the Annual Report, are incorporated by reference as a part of this Form 10-K: Separate Document Eaton Vance Corp. 1996 Annual Report to Shareholders Page Number - -------------------------------------------------------------------------------- Consolidated Statements of Income for each of the three years in the period ended October 31, 1996 17 Consolidated Balance Sheets as of October 31, 1996 and 1995 18-19 Consolidated Statements of Cash Flows for each of the three years in the period ended October 31, 1996 20 Consolidated Statements of Shareholders' Equity for each of the three years in the period ended October 31, 1996 21-22 Notes to Consolidated Financial Statements 23-31 Independent Auditors' Report 32 (2) The following financial statement schedules and independent accountants' report are filed as part of this Form 10-K and are located on the following pages: Description Page Number - -------------------------------------------------------------------------------- Independent Auditors' Report on Financial Statement Schedules 21 Schedule II Valuation and Qualifying Accounts 22 Schedule III Real Estate and Accumulated Depreciation 23-24 All other schedules have been omitted because they are not required, are not applicable or the information is otherwise shown in the consolidated financial statements or notes thereto. (3) The list of exhibits required by Item 601 of Regulation S-K is set forth in the Exhibit Index and is incorporated herein by reference. 20 INDEPENDENT AUDITORS' REPORT To the Board of Directors and Shareholders of Eaton Vance Corp.: We have audited the consolidated financial statements of Eaton Vance Corp. and its subsidiaries as of October 31, 1996 and 1995, and for each of the three years in the period ended October 31, 1996, and have issued our report thereon dated November 26, 1996; such consolidated financial statements and report are included in your 1996 Annual Report to Shareholders and are incorporated herein by reference. Our audits also included the consolidated financial statement schedules of Eaton Vance Corp. and its subsidiaries, listed in Item 14. These consolidated financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, such consolidated financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly in all material respects the information set forth therein. DELOITTE & TOUCHE LLP Boston, Massachusetts November 26, 1996 21 Eaton Vance Corp. Valuation and Qualifying Accounts Schedule II
Years Ended October 31, 1996, 1995 and 1994 - ------------------------------------------------------------------------------------------------------- Additions Balance at Charged to Beginning Costs and Balance at Description of Year Expenses Deductions End of Year - ------------------------------------------------------------------------------------------------------- Valuation accounts deducted from assets to which they apply: Allowance for doubtful accounts on notes receivable and receivables from affiliates: Year ended October 31: 1996 $1,200,000 $ 300,000 $ 725,000 $ 775,000 1995 $ 800,000 $ 400,000 -- $1,200,000 1994 $ 800,000 -- -- $ 800,000
22 Eaton Vance Corp. Real Estate and Accumulated Depreciation Schedule III
October 31, 1996 - -------------------------------------------------------------------------------- Initial Cost Costs -------------------- Capitalized Subsequent to Acquisition Description Encumbrances Land Buildings (Improvements) - -------------------------------------------------------------------------------- Shopping center - Goffstown, NH -- $ 244,532 $ 1,373,276 $ 5,923,211 Shopping mall and office building - Troy, NY $ 2,564,722 834,100 4,033,921 3,172,924 Office building - Boston, MA -- 280,800 4,009,836 1,749,211 Warehouses: Colonie, NY 2,179,786 137,966 1,596,385 611,947 Springfield, MA 1,349,184 145,833 1,967,684 193,338 Commercial land - Boston, MA -- 78,203 -- -- ------------------------------------------------------- Total $ 6,093,692 $ 1,721,434 $12,981,102 $11,650,631 ======================================================= Gross Carrying Amount October 31, 1996 (1) ---------------------------- Accumulated Date of Date Depreciable Description Land Buildings Depreciation Construction Acquired Life - ---------------------------------------------------------------------------------------------------------------------- Shopping center - Goffstown, NH $ 244,532 $ 7,296,487 $ 2,009,506 1973 10/17/83 30 yrs. Shopping mall and office building - Troy, NY 834,100 7,206,845 1,579,143 1978 05/01/87 31.5 yrs. Office building - Boston, MA 280,800 5,759,047 2,394,904 1920 10/31/90 20 yrs. Warehouses: Colonie, NY 137,966 2,208,332 730,845 1964 11/13/84 30 yrs. Springfield, MA 145,833 2,161,022 819,883 1974 11/02/84 30 yrs. Commercial land - Boston, MA 78,203 -- -- N/A 01/08/88 N/A --------------------------------------------------------------------------------------------- Total 1,721,434 $24,631,733 $ 7,534,281 ===============================================
(1) The aggregate cost of real estate for federal income tax purposes is approximately the same as the gross carrying amount recorded for book purposes. 23 Eaton Vance Corp. Real Estate and Accumulated Depreciation (Continued) Schedule III
Years Ended October 31, 1996, 1995 and 1994 - ------------------------------------------------------------------------------------------------- 1996 1995 1994 -------------------------------------------- Land and Buildings: Gross carrying amount, beginning of year $ 30,288,033 $ 29,812,704 $ 29,447,609 Additions during period: Improvements 1,650,801 475,329 365,095 Deductions during period: Reclassification of asset held for sale (1) (5,585,667) -- -- ------------------------------------------- Gross carrying amount, end of year $ 26,353,167 $ 30,288,033 $ 29,812,704 =========================================== Accumulated depreciation, beginning of year $ 8,424,489 $ 7,510,277 $ 6,594,381 Additions during period: Depreciation 918,105 914,212 915,896 Deductions during period: Reclassification of asset held for sale (1) (1,808,313) -- -- ------------------------------------------- Accumulated depreciation, end of year $ 7,534,281 $ 8,424,489 $ 7,510,277 ===========================================
(1) In the fourth quarter of 1996, the Company committed to a plan to sell an office building located in Boston, Massachusetts and recognized a pre-tax impairment loss of $1.3 million based on the estimated net realizable value of the property (estimated fair value less estimated selling costs). Estimated fair value of the property was calculated using market appraisals and other available valuation techniques. At October 31, 1996, the property was reclassified as a current asset held for sale for financial reporting purposes. 24 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Eaton Vance Corp. has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. EATON VANCE CORP. /s/ James B. Hawkes --------------------------- James B. Hawkes President, Director and Principal Executive Officer January 8, 1997 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of Eaton Vance Corp. and in the capacities and on the dates indicated:
/s/ Landon T. Clay Chairman and Director January 8, 1997 --------------------------- Landon T. Clay /s/ M. Dozier Gardner Vice Chairman and Director January 8, 1997 --------------------------- M. Dozier Gardner /s/ James B. Hawkes President, Director and January 8, 1997 --------------------------- James B. Hawkes Principal Executive Officer /s/ William M. Steul Chief Financial Officer January 8, 1997 --------------------------- William M. Steul /s/ John P. Rynne Corporate Controller January 8, 1997 --------------------------- John P. Rynne /s/ Benjamin A. Rowland, Jr. Director January 8, 1997 --------------------------- Benjamin A. Rowland, Jr. /s/ John G.L. Cabot Director January 8, 1997 --------------------------- John G.L. Cabot /s/ Ralph Z. Sorenson Director January 8, 1997 --------------------------- Ralph Z. Sorenson
25 EXHIBIT INDEX Each Exhibit is listed in this index according to the number assigned to it in the exhibit table set forth in Item 601 of Regulation S-K. The following Exhibits are filed as a part of this Report or incorporated herein by reference pursuant to Rule 12b-32 under the Securities Exchange Act of 1934: Exhibit No. Description 3.1 The Company's Amended Articles of Incorporation are filed as Exhibit 3.1 to the Company's registration statement on Form 8-B dated February 4, 1981, filed pursuant to Section 12(b) or (g) of the Securities Exchange Act of 1934 (S.E.C. File No. 1-8100) and are incorporated herein by reference. 3.2 The Company's By-Laws are filed as Exhibit 3.2 to the Company's registration statement of Form 8-B dated February 4, 1981, filed pursuant to Section 12(b) or (g) of the Securities Exchange Act of 1934 (S.E.C. File No. 1-8100) and are incorporated herein by reference. 3.3 Copy of the Company's Articles of Amendment effective at the close of business on November 22, 1983, has been filed as Exhibit 3.3 to the Annual Report on Form 10-K of the Company for the fiscal year ended October 31, 1983, (S.E.C. File No. 1-8100) and is incorporated herein by reference. 3.4 Copy of the Company's Articles of Amendment effective at the close of business on February 25, 1986 has been filed as Exhibit 3.4 to the Annual Report on Form 10-K of the Company for the fiscal year ended October 31, 1986, (S.E.C. File No. 1-8100) and is incorporated herein by reference. 4.1 The rights of the holders of the Company's Common Stock, par value $.0625 per share, and Non-Voting Common Stock, par value $.0625 per share, are described in the Company's Amended Articles of Incorporation (particularly Articles Sixth, Seventh and Ninth thereof) and the Company's By-Laws (particularly Article II thereof). See Exhibits 3.1, 3.2, 3.3 and 3.4 above as incorporated herein by reference. 9.1 Copy of the Voting Trust Agreement made as of December 31, 1996 is filed herewith. 10.1 Description of Performance Bonus Arrangement for Members of Investment Division of Eaton Vance Management has been filed as Exhibit 10.1 to the Annual Report on Form 10-K of the Company for the fiscal year ended October 31, 1995, (S.E.C. File No. 1-8100) and is incorporated herein by reference. 10.2 Description of Incentive Bonus Arrangement for Marketing Personnel of Eaton Vance Distributors, Inc. has been filed as Exhibit 10.2 to the Annual Report on Form 10-K of the Company for the fiscal year ended October 31, 1995, (S.E.C. File No. 1-8100) and is incorporated herein by reference. 26 EXHIBIT INDEX (continued) Exhibit No. Description 10.3 Copy of 1984 Executive Loan Program relating to financing or refinancing the exercise of options, the purchase of stock, the tax obligations associated with such exercise or purchase and similar undertakings by key directors, officers, and employees adopted by the Company's Directors on October 19, 1984, has been filed as Exhibit 10.8 to the Annual Report on Form 10-K of the Company for the fiscal year ended October 31, 1984, (S.E.C. File No. 1-8100) and is incorporated herein by reference. 10.4 Copy of 1988 Profit Improvement Bonus Plan of Eaton Vance Management, Inc. has been filed as Exhibit 10.9 of the Annual Report on Form 10-K of the Company for the fiscal year ended October 31, 1987 (S.E.C. File No 1-8100) and is incorporated herein by reference. 10.5 Description of 1990 Performance and Retention of Officers Pool (bonus plan to reward key officers of Eaton Vance Management and Eaton Vance Distributors, Inc.) of Eaton Vance Corp. has been filed as Exhibit 10.5 to the Annual Report on Form 10-K of the Company for the fiscal year ended October 31, 1995, (S.E.C. File No. 1-8100) and is incorporated herein by reference. 10.6 Copy of 1992 Stock Option Plan as adopted by the Eaton Vance Corp. Board of Directors on April 8, 1992 has been filed as Exhibit 10.12 to the Annual Report on Form 10-K of the Company for the fiscal year ended October 31, 1992 (S.E.C. File No. 1-8100), and is incorporated herein by reference. 10.7 Copy of 1986 Employee Stock Purchase Plan as amended and restated by the Eaton Vance Corp. Board of Directors on April 8, 1992 has been filed as Exhibit 10.13 to the Annual Report on Form 10-K of the Company for the fiscal year ended October 31, 1992 (S.E.C. File No. 1-8100), and is incorporated herein by reference. 10.8 Copy of 1992 Incentive Plan - Stock Alternative as adopted by the Eaton Vance Corp. Board of Directors on July 17, 1992 has been filed as Exhibit 10.14 to the Annual Report on Form 10-K of the Company for the fiscal year ended October 31, 1992 (S.E.C. File No. 1-8100), and is incorporated herein by reference. 10.9 Copy of 1995 Stock Option Plan as adopted by the Eaton Vance Corp. Board of Directors on October 12, 1995, has been filed as Exhibit 10.9 to the Annual Report on Form 10-K of the Company for the fiscal year ended October 31, 1995, (S.E.C. File No. 1-8100) and is incorporated herein by reference. 10.10 Copy of 1986 Employee Stock Purchase Plan as amended and restated by the Eaton Vance Corp. Board of Directors on October 12, 1995, has been filed as Exhibit 10.10 to the Annual Report on Form 10-K of the Company for the fiscal year ended October 31, 1995, (S.E.C. File No. 1-8100) and is incorporated herein by reference. 27 EXHIBIT INDEX (continued) Exhibit No. Description 10.11 Copy of 1995 Executive Loan Program relating to financing or refinancing the exercise of options by key directors, officers, and employees adopted by the Company's Directors on October 12, 1995, has been filed as Exhibit 10.2 to the Annual Report on Form 10-K of the Company for the fiscal year ended October 31, 1995, (S.E.C. File No. 1-8100) and is incorporated herein by reference. 10.12 Copy of the Eaton Vance Corp. Supplemental Profit Sharing Plan adopted by the Company's Directors on October 9, 1996, is filed herewith. 11.1 Statement of Computation of average number of Shares outstanding (filed herewith). 13.1 Copy of the Company's Annual Report to Shareholders for the fiscal year ended October 31, 1996 (furnished herewith - such Annual Report, except for those portions thereof which are expressly incorporated by reference in this report on Form 10-K, is furnished solely for the information of the Securities and Exchange Commission and is not to be deemed "filed" as a part of this report on Form 10-K). 21.1 List of the Company's Subsidiaries as of October 31, 1996 (filed herewith). 23.1 Independent Auditors' Consent (filed herewith). 27.1 Financial Data Schedule as of October 31, 1996 (filed herewith - electronic filing only). 99.2 List of Eaton Vance Corp. Open Registration Statements (filed herewith). 28 EX-9.1 2 VOTING TRUST AGREEMENT EXHIBIT 9.1 VOTING TRUST AGREEMENT THIS VOTING TRUST AGREEMENT is made as of the opening of business on December 31, 1996, by and between (1) Landon T. Clay, M. Dozier Gardner, James B. Hawkes, Benjamin A. Rowland, Jr. and Thomas E. Faust, Jr. (the "Voting Trustees"); (2) the undersigned holders (the "Stockholders") of all of the outstanding 19,360 shares of voting Common Stock, $.0625 par value (the "Stock"), of Eaton Vance Corp., a Maryland corporation; and (3) Eaton Vance Corp. (the "Company"). WITNESSETH THAT WHEREAS, the Company has authorized 80,000 shares of the Stock, of which 19,360 shares were prior to December 30, 1996 held in the voting trust created by the Voting Trust Agreement made as of December 22, 1993 as heretofore amended and extended (the "1993 Agreement"); WHEREAS, the voting trust created by the 1993 Agreement has been terminated in accordance with its terms, the Stock has been distributed to the former holders of the voting trust receipts issued under the 1993 Agreement, and such holders have become Stockholders by virtue of such distribution; and WHEREAS, the Stockholders wish to create and constitute a new voting trust and to deposit the Stock with the Voting Trustees to be held hereunder subject to all of the provisions of this Agreement, and the Stockholders desire that all of the outstanding Stock be held by the Voting Trustees subject to the terms of this Agreement in order to ensure the successful prosecution and development of the Company's business by providing a consistent policy of management through vesting in the Voting Trustees the power and authority conferred upon them hereby; NOW THEREFORE, in consideration of the premises and of the deposit of the Stock by the Stockholders hereunder, it is agreed as follows: 1. This Voting Trust Agreement (this "Agreement") shall become operative and effective as of the opening of business on December 31, 1996. Each Stockholder hereby acknowledges that, upon such effectiveness, he has directed the shares of his Stock set against his name to be deposited with the Voting Trustees and registered on the books of the Company in the name of the Voting Trustees, and further acknowledges that his Stock shall be held by the Voting Trustees hereunder subject to all of the terms and provisions of this Agreement. This Agreement shall be binding both with respect to its benefits and obligations upon the Stockholders and the holders of the Voting Trust Receipts issued hereunder, and upon their respective executors, administrators and assigns, and upon the Voting Trustees and their successors in office. The Company hereby acknowledges notice of and consents to all of the terms and provisions of this Agreement and the voting trust created hereby. The Company does not ordinarily issue certificates for shares of its voting Common Stock, and therefore has caused all shares of Stock deposited in this voting trust to be registered on its books in the names of the Voting Trustees under this Agreement. One duplicate original of the Agreement shall be kept at the office of the Company in Boston, Massachusetts, where it may be inspected by any of the Stockholders during ordinary business hours. 29 EXHIBIT 9.1 (continued) 2. The Voting Trustees shall be five in number and until further changed as hereinbelow provided shall be Landon T. Clay, M. Dozier Gardner, James B. Hawkes, Benjamin A. Rowland, Jr. and Thomas E. Faust, Jr. In all respects and for all purposes hereunder the Voting Trustees shall act by a majority if there be three or more Voting Trustees; if there be less than three Voting Trustees they shall act unanimously except as may be specifically otherwise provided herein. In the event of a vacancy caused by the death or resignation of one of the Voting Trustees, the remaining Voting Trustees shall appoint a successor Trustee. Whenever a vacancy in the Voting Trustees shall occur, until such vacancy is filled by the remaining Voting Trustees, or while any Voting Trustee is physically or mentally incapacitated by reason of disease or otherwise, the other Voting Trustees shall have all the powers hereunder and the certificate of the other Voting Trustees as to such vacancy, absence or incapacity shall be conclusive, provided, however, that no vacancy shall remain unfilled for a period longer than sixty days. Any succeeding Voting Trustee shall, by virtue of his appointment, succeed to all the duties and powers of an original Voting Trustee. 3. The Voting Trustees may terminate this voting trust at any time. Unless so terminated the trust shall continue until December 31, 1997, and may at any time and from time to time be extended for one or more additional periods in accordance with applicable law. Any such extension shall be effective for such additional period only as to those Stockholders who consent in writing and only if the holders of a majority of the Stock outstanding at the time of consent shall so consent. Any Stockholder not so consenting shall receive his Stock at the time when the trust would have terminated but for such extension. Inasmuch as the Company does not ordinarily issue certificates for shares of voting Common Stock, the Voting Trustees shall cause the Company to record on its books the name of the nonconsenting Stockholder as the stockholder of record of his shares of Stock which are being withdrawn from the trust. 4. The Voting Trustees shall issue Voting Trust Receipts in the form attached hereto as Exhibit A for all shares deposited, which shall entitle the holders to receive the equivalent of all cash dividends that may be paid to the Voting Trustees with respect to the deposited Stock. The Voting Trustees may provide for direct payment of such cash dividends to the holders of Voting Trust Receipts by a dividend order to the Company. In case of any stock dividend upon the deposited shares, the Voting Trustees shall issue and deliver to the record holders of the Voting Trust Receipts additional Voting Trust Receipts for a corresponding number of shares in this voting trust. If the capital stock of the Company shall be increased and the Voting Trustees as holders of the deposited shares shall be entitled to subscribe for additional shares, they shall notify the holders of record of the Voting Trust Receipts outstanding, and shall provide appropriate forms for subscription or assignment of corresponding rights in this voting trust, and fix a time for payment to the Voting Trustees of the amount required to take up subscription rights and enable them to purchase on behalf of the trust the new Stock to which they may be entitled, and upon receipt of said sums, the Voting Trustees shall subscribe for the new shares and hold them as part of the deposited Stock under this Agreement and shall issue and deliver to the subscribing holders of Voting Trust Receipts, additional Voting Trust Receipts representing a corresponding number of the additional shares of the Stock so purchased. In case the holder of any Voting Trust Receipts shall fail to furnish the money for subscription for such new Stock, the Voting Trustees shall be under no obligation to subscribe, but they may sell such rights, and shall account to the holders of the Voting Trust Receipts entitled thereto for the proceeds of any rights sold, but they shall be under no duty to sell such rights, and shall not be liable for failure to make such sale. 5. At the termination of this voting trust the deposited Stock, if not previously sold by the Voting Trustees under powers hereby vested in them, shall be distributed among the holders of the Voting Trust Receipts then outstanding, according to their respective interests. Such distribution shall be 30 EXHIBIT 9.1 (continued) accomplished by causing the Company to record on its books the name of each holder as the stockholder of record of the number of shares of Stock to which he is entitled. 6. Voting Trust Receipts shall be transferable with the consent in writing of the Voting Trustees, who shall record such transfers upon books kept by them for that purpose, on surrender of the Voting Trust Receipt duly endorsed for transfer, or accompanied by a transfer in writing signed by the record holder thereof. All Voting Trust Receipts shall at all times be held subject to the conditions and restrictions set forth below, the provisions of which shall at all times apply equally both to an original holder and to each and every subsequent holder thereof; and each holder of any Voting Trust Receipt, by acceptance thereof, agrees with the Company and each other such holder in consideration of such agreement by each other holder, to the following conditions and restrictions: (i) No transfer of any kind of the Voting Trust Receipts shall be made at any time unless they have first been offered to the Company for purchase by it at book value. (ii) In the event of death of a holder of the Voting Trust Receipts or in the event such a holder who is an employee of the Company or of a subsidiary of the Company ceases for any reason to be such an employee, such Voting Trust Receipts shall be offered to the Company for purchase by it at book value. (iii) Book value shall mean the book value of the deposited shares of the Stock represented by such Voting Trust Receipts as of the last financial statements of the Company audited by the Company's independent public accountants. In the event there shall be any disagreement as to the book value, the determination of the Company's independent public accountants shall be final. 7. Title to the Stock deposited hereunder shall be vested in the Voting Trustees. Stock deposited shall be pooled and shall not be sold or disposed of during the term of this voting trust, except that the Voting Trustees may sell all, but not less than all, of the shares deposited, at a price approved in writing by all the holders of Voting Trust Receipts. In case of sale, the proceeds (less any brokerage fees, transfer taxes and other expenses of sale and any legal or other expenses and liabilities incurred by the Voting Trustees in the performance of their duties hereunder) shall be divided, as soon as conveniently practicable, among the holders of Voting Trust Receipts according to their holdings. 8. Whenever the Company shall become the owner of any Voting Trust Receipt, the Voting Trustees at the request of the Company shall deliver to the Company the deposited shares of Stock represented by such Voting Trust Receipt against surrender of such Voting Trust Receipt accompanied by all requisite stock transfer tax stamps. Thereafter, such shares of Stock shall be held in the treasury of the Company subject to being disposed of only in such manner as the Board of Directors of the Company shall determine. Any shares of Stock (or any other shares of voting Common Stock, $.0625 par value, of the Company) acquired by any person from the Company may be deposited with the Voting Trustees to be held in this voting trust and subject to the terms of this Agreement, as it may from time to time be amended. The Voting Trustees shall issue to such depositor an appropriate Voting Trust Receipt for the shares so deposited, and thereafter the depositor shall for all purposes of the Agreement be deemed to be a holder of a Voting Trust Receipt and a Stockholder hereunder and the shares so deposited shall be deemed to be Stock held hereunder. 9. The decision of the Voting Trustees for the time being shall be sufficient and controlling with respect to the voting of the deposited Stock upon all questions on which stockholders of the Company are entitled to vote, and in all matters pertaining to the administration of this voting trust, except in cases 31 EXHIBIT 9.1 (continued) expressly governed by other provisions of the Agreement. The Stock shall not, however, be voted by the Voting Trustees in favor of the sale, mortgage or pledge of all or substantially all of the assets of the Company or for any change in the capital structure or the powers of the Company or in connection with a merger, consolidation, reorganization, or dissolution, except with the written consent of the holders of Voting Trust Receipts representing at least a majority of the Stock subject at the time to the Agreement. 10. The Voting Trustees shall have power to prescribe the method of deposit of shares, the issue of Voting Trust Receipts, the division of proceeds of sale of the deposited Stock among the holders of the Voting Trust Receipts, the redemption of the deposited Stock, if not sold, and all other details incidental to the operation and management of this voting trust. They shall have power to appoint and remove at their discretion depositories to hold any certificates which the Company may issue for the deposited Stock, and agents to act under them in administering the trust, and proxies to vote the deposited Stock. 11. No Voting Trustee shall be liable for the acts or defaults of any other Voting Trustee, or of any depository, agent or attorney employed by the Voting Trustees, or for any error of judgment or mistake of law or fact, or for anything except his own willful misconduct or gross negligence. The Voting Trustees shall serve without remuneration. They shall be entitled to indemnity out of the trust property against any loss or liability incurred in the performance of their duties. Any Voting Trustee may acquire, hold and sell for himself or in any fiduciary capacity Voting Trust Receipts issued under the Agreement, and may be an officer, director, and/or shareholder of the Company, and may vote as a shareholder for his own election to office, and may accept employment from the Company, and have any dealings with the Company as freely as if he were not a Voting Trustee. No purchaser from the Voting Trustees shall be liable for their disposal of the purchase money and any statement signed by them concerning this trust, or any act done by them as Voting Trustees, shall be conclusive evidence that the statement is true and the act is within their powers. 12. This Agreement may be amended from time to time by the Voting Trustees with the consent in writing of the holders of the Voting Trust Receipts representing at least a majority of the Stock subject at the time to the Agreement, and a duplicate original of such amendment shall thereupon be filed with the duplicate original of the Agreement at the office of the Company. Any such amendment so adopted shall become binding upon all the depositors and holders of Voting Trust Receipts. Any Certificate signed by the Voting Trustees, or a majority them, and filed as aforesaid, shall be exclusive evidence, for all purposes, of the facts certified herein. 13. This Agreement and any amendment hereof may be executed in several counterparts which shall however in each case be treated as a single instrument for all purposes. IN WITNESS WHEREOF, the Voting Trustees, the Company and the Stockholders have hereunto set their hands, all as of the day and year first shown above written: 32 EXHIBIT 9.1 (continued) THE COMPANY VOTING TRUSTEES EATON VANCE CORP. /s/ James B. Hawkes /s/ Landon T. Clay - ----------------------------- ----------------------------- James B. Hawkes Landon T. Clay its President /s/ M. Dozier Gardner ----------------------------- M. Dozier Gardner /s/ James B. Hawkes ----------------------------- James B. Hawkes /s/ Benjamin A. Rowland, Jr. ----------------------------- Benjamin A. Rowland, Jr. /s/ Thomas E. Faust, Jr. ----------------------------- Thomas E. Faust, Jr. 33 EXHIBIT 9.1 (continued) STOCKHOLDERS Number of Shares of Stock Covered by Voting Trust Receipt ----------------------- /s/ Landon T. Clay - ----------------------------- Landon T. Clay 4,640 /s/ M. Dozier Gardner - ----------------------------- M. Dozier Gardner 4,640 /s/ James B. Hawkes - ----------------------------- James B. Hawkes 4,640 /s/ Benjamin A. Rowland, Jr. - ----------------------------- Benjamin A. Rowland, Jr. 2,920 /s/ Thomas E. Faust, Jr. - ----------------------------- Thomas E. Faust, Jr. 2,520 34 EXHIBIT 9.1 (continued) EXHIBIT A EATON VANCE CORP. VOTING TRUST RECEIPT FOR VOTING COMMON STOCK No.___________ __________ SHARES This certifies that__________________________________________________ will be entitled to receive from the Voting Trustees under a Voting Trust Agreement dated December 31, 1996 as heretofore and hereafter amended, and lodged in the office of the Company at Boston, Massachusetts, or their successors or assigns, a certificate or certificates issued by Eaton Vance Corp., a Maryland corporation, for shares of its common stock, par value $.0625 per share, or, if the Company does not then issue certificates for its shares of common stock, will be entitled to have such shares registered in his name on the books of the Company; and that pending the sale or distribution of the stock held by the Voting Trustees under said Agreement, the registered holder hereof from time to time, as cash dividends and distributions of assets are paid by the Company, will be entitled to receive in respect of this Receipt the equivalent of said dividends or distributions upon the number of shares represented by this Voting Trust Receipt. This Receipt is issued under and subject to the provisions (including but not limited to Section 6 which is set forth on the reverse side hereof) of said Agreement as heretofore and hereafter amended to which the holder hereof by accepting this Receipt assents and agrees to be bound. No voting right attaches to this Receipt or passes to the holder thereof under any agreement expressed or implied, and no stock certificate will be due or deliverable hereunder, except according to the provisions of said Agreement. This Receipt is transferable on the books of the Voting Trustees by the registered holder in person or by attorney on surrender of this Receipt and upon the written consent of the Voting Trustees in the spaces provided on the reverse side hereof and upon compliance with the provisions of Section 6 of said Agreement. Until so transferred the Voting Trustees may treat the registered holder as owner of this Receipt for all purposes. IN WITNESS WHEREOF, a majority of the Voting Trustees hereunto subscribe their names this________ day of______________ , 19___ ------------------------------ VOTING TRUSTEE ------------------------------ VOTING TRUSTEE ------------------------------ VOTING TRUSTEE 35 EXHIBIT 9.1 (continued) For Value Received,_____________________________________ hereby sell, assign and transfer the interest represented by the within Receipt and all right, title and interest of the undersigned in, or in respect of, the stock represented thereby, under and subject to the terms of the Agreement within mentioned, and do hereby irrevocably constitute and appoint____________________________________ attorney to make such transfer upon the books of the Voting Trustees with full power of substitution in the premises. Dated:_________________, 19___ --------------------------------- Witness: - -------------------------------- (The signature to this assignment must correspond exactly with the name as written on the face of the Receipt.) We hereby consent to the sale, assignment and transfer of the interest represented by the within Receipt. Dated:_________________, 19___ ------------------------------ VOTING TRUSTEE ------------------------------ VOTING TRUSTEE ------------------------------ VOTING TRUSTEE Section 6 of the Voting Trust Agreement dated December 31, 1996 states as follows: "6. Voting Trust Receipts shall be transferable with the consent in writing of the Voting Trustees, who shall record such transfers upon books kept by them for that purpose, on surrender of the Voting Trust Receipt duly endorsed for transfer, or accompanied by a transfer in writing signed by the record holder thereof. All Voting Trust Receipts shall at all times be held subject to the conditions and restrictions set forth below, the provisions of which shall at all times apply equally both to an original holder and to each and every subsequent holder thereof; and each holder of any Voting Trust Receipt, by acceptance thereof, agrees with the Company and each other such holder, in consideration of such agreement by each other holder, to the following conditions and restrictions: 36 EXHIBIT 9.1 (continued) (i) No transfer of any kind of the Voting Trust Receipts shall be made at any time unless they have first been offered to the Company for purchase by it at book value. (ii) In the event of death of a holder of the Voting Trust Receipts or in the event such a holder who is an employee of the Company or of a subsidiary of the Company ceases for any reason to be such an employee, such Voting Trust Receipts shall be offered to the Company for purchase by it at book value. (iii) Book value shall mean the book value of the deposited shares of the Stock represented by such Voting Trust Receipts as of the last financial statements of the Company audited by the Company's independent public accountants. In the event there shall be any disagreement as to the book value, the determination of the Company's independent public accountants shall be final." 37 EX-10.12 3 SUPPLEMENTAL PROFIT SHARING PLAN EXHIBIT 10.12 EATON VANCE CORP. SUPPLEMENTAL PROFIT SHARING PLAN I. Name and Purpose The name of this plan is the Eaton Vance Corp. Supplemental Profit Sharing Plan (the "Plan"). Its purpose is to provide certain employees of Eaton Vance Corp. and its subsidiaries (collectively, the "Company") with the opportunity to receive profit-sharing contributions in excess of the amounts allowed under the Eaton Vance Prototype Defined Contribution Retirement Plan (the "Qualified Plan") as a result of Internal Revenue Code Section 401(a)(17). II. Effective Date The Plan shall be effective as of November 1, 1995. The Plan Year shall be November 1 to October 31. III. Participant Except as otherwise provided for under the Plan, each employee who is eligible under the Qualified Plan, whose compensation exceeds the limitations imposed under Section 401(a)(17) of the Internal Revenue Code of 1986, as amended, and who is within a select group of management or highly compensated employees as defined under ERISA, shall be eligible to participate in the Plan (a "Participant"). The Company will establish for each Participant an unfunded account (the "Plan Account"), as specified in Section IV. IV. Supplemental Profit Sharing Plan Account (A) A separate Plan Account shall be established and maintained for each Participant. The Plan Account shall reflect the amounts credited pursuant to the Plan and all changes in investment value from time to time. (B) The Company shall credit an amount to each Plan Account at the time it credits amounts to the Qualified Plan, in an amount equal to each Participant's base salary multiplied by the Company profit sharing contribution percentage less the amount actually contributed to the Qualified Plan, including forfeitures, on behalf of such Participant. Such Participant's allocation under this Plan and under the Qualified Plan shall not exceed $30,000 in any given Plan Year. (C) Each Participant's Plan Account shall be credited or debited to reflect changes in value as though the balance standing to the Plan Account had been invested identically to the Participant's interest in the Qualified Plan. (D) A Participant will receive a statement of his Plan Account balance within sixty (60) days of the end of the Plan Year. With respect to distributions from the Plan, value changes will be made through the end of the fiscal quarter preceding the date of actual distribution. 38 EXHIBIT 10.12 (continued) V. Security Payment obligations under the Plan are unfunded. The Participant shall have the status of a general unsecured creditor of the Company. This Plan constitutes a mere promise by the Company to make benefit payments in the future. It is the intention of the Company and the Participant that the arrangements hereunder be unfunded for tax purposes and for purposes of Title I of ERISA. VI. Distribution Payments (A) In the event the Participant separates from service with the Company for any reason, the balance of the Plan Account will be distributed to the Participant in cash in a single sum as soon as practicable after the quarterly valuation date following termination of employment. (B) In the event of a Participant's death prior to receiving the balance of his Plan Account, the Participant's beneficiary(ies) shall be entitled to receive the balance of the Participant's Plan Account, in cash in a single sum as soon as is practicable after the quarterly valuation date following the Participant's death. Each Participant's beneficiary(ies) under the Plan shall be the same as such Participant's beneficiary(ies) under the Qualified Plan. VII. Limitation of Rights Establishment of the Plan shall not be construed as giving the Participant the right to be employed by the Company or the right to receive any benefits not specifically provided for under the Plan. The Participant shall not have any interest in the amounts contributed or earnings credited to his Plan Account balance until such Plan Account is distributed in accordance with the terms of the Plan. All amounts contributed and held for the Plan Account of the Participant shall remain the sole property of the Company, subject to the claims of its general creditors. With respect to amounts contributed or otherwise held for the Plan Account of the Participant, the Participant is merely a general creditor of the Company; and the obligation of the Company hereunder is purely contractual and shall not be funded or secured in any way. VIII. Non-alienability and Non-transferability The rights of the Participant to the payment of amounts credited under the Plan shall not be assigned, transferred, pledged or encumbered or be subject in any manner to alienation or anticipation. The Participant may not borrow against his Plan Account. The Plan Account shall not be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, charge, garnishment, execution or levy of any kind, whether voluntary or involuntary, including but not limited to any liability which is for alimony or other payments for the support of a spouse or former spouse, or for any other relative of the Participant. IX. Administration The Administrator of this Plan shall be Eaton Vance Management (the "Plan Administrator"). The Plan Administrator shall have authority to adopt rules and regulations for carrying out the Plan and to interpret, construe and implement the provisions hereof. Any decision or interpretation of any provision of the Plan adopted by the Plan Administrator shall be final and conclusive. 39 EXHIBIT 10.12 (continued) X. Amendment and Termination of the Plan and Succession of the Plan Trustee The Plan may, at any time or from time to time, be amended, modified or terminated by the Board of Directors of the Company. However, no amendment, modification or termination of the Plan shall, without the consent of the Participant, adversely affect such Participant's rights with respect to the balance then standing to his Plan Account. XI. General Provisions (A) Administrative Expenses. All expenses of administering the Plan shall be paid by the Company and no part thereof shall be charged against any Participant's Plan Account. (B) Controlling Law. Except to the extent superseded by federal law, the laws of the Commonwealth of Massachusetts shall be controlling in all matters relating to the Plan, including construction and performance hereof. (C) Facility of Payment. Any amounts payable hereunder to any person who is under legal disability or who, in the judgment of the Plan Administrator, is unable to properly manage his financial affairs may be paid to the legal representative of such person or may be applied for the benefit of such person in any manner which the Plan Administrator may select, and any such payment shall be deemed to be payment for such person's Plan Account and shall be a complete discharge of all liability of the Company with respect to the amount so paid. (D) Withholding Payroll Taxes. To the extent required by the laws in effect at the time payments are made, the Company shall withhold from such payments any taxes required to be withheld for federal, state or local government purposes. XII. Unfunded Status of the Plan Any and all payments made to the Participant pursuant to the Plan shall be made only from the general assets of the Company. All Plan Accounts under the Plan shall be for bookkeeping purposes only and shall not represent a claim against specific assets of the Company. IN WITNESS WHEREOF, the Company has caused this Plan to be executed this 9th day of October, 1996. EATON VANCE CORP. By: /s/ Benjamin A. Rowland, Jr. ---------------------------- 40 EX-11.1 4 STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS EXHIBIT 11.1 Computation of average number of shares outstanding in accordance with Securities and Exchange Commission Act of 1934, Release No. 9083 October 31, --------------------------------- 1996 1995 1994 --------------------------------- Primary: Weighted average number of voting and non-voting common shares outstanding 9,431,523 9,211,433 9,196,888 Assumed exercise of certain non-voting stock options based on average market value and shares reserved for issuance under employeestock purchase plan 145,203 77,104 276,071 --------------------------------- Weighted average number of shares used in primary per share computations 9,576,726 9,288,537 9,472,959 ================================= Fully diluted: Weighted average number of voting and non-voting common shares outstanding 9,431,523 9,211,433 9,196,888 Assumed exercise of certain non-voting stock options based on higher of average or closing market value and shares reserved for issuance under employee stock purchase plan 370,460 322,774 283,680 -------------------------------- Weighted average number of shares used in fully diluted per share computations 9,801,983 9,534,207 9,480,568 ================================= 41 EX-13.1 5 EATON VANCE - ANNUAL REPORT 1996 Eaton Vance Corp. 1996 Annual Report EATON VANCE CORP. Eaton Vance Corp. is the investment adviser and distributor of over 160 mutual funds. The Company also manages investments for approximately 800 individual and institutional clients. Eaton Vance Corp. was formed by the 1979 merger of two Boston-based investment firms: Eaton & Howard, founded in 1924, and Vance, Sanders & Company, founded in 1934. EATON VANCE CORP. DIRECTORS AND OFFICERS Landon T. Clay Chairman of the Board of Directors M. Dozier Gardner Vice Chairman and Director James B. Hawkes President, Chief Executive Officer and Director Benjamin A. Rowland, Jr. Vice President and Director John G. L. Cabot Director Ralph Z. Sorenson Director Alan R. Dynner Vice President and Chief Legal Officer Thomas Otis Vice President and Secretary Laurie G. Russell Vice President and Internal Auditor John P. Rynne Vice President and Corporate Controller William M. Steul Vice President and Chief Financial Officer Cover: Eaton Vance Corp.'s headquarters in Boston, Massachusetts. Designed by Curran & Connors,Inc. / Photography by Stu Rosner / Additional image enhancement by Marco Garsed Sanchez INVESTOR INFORMATION Eaton Vance Corp. and Form 10-K Eaton Vance Corp. has filed an Annual Report on Form 10-K with the Securities and Exchange Commission for the 1996 fiscal year. For a copy of that Report, which is available free of charge to shareholders of Eaton Vance Corp. upon request, or other information regarding the Company, please contact: William M. Steul, Chief Financial Officer Eaton Vance Corp. 24 Federal Street Boston, MA 02110 (617) 482-8260 Transfer Agent and Registrar BostonEquiserve is the Transfer Agent and Registrar for the Company's common stock and maintains shareholder accounting records. The Transfer Agent should be contacted on questions of change in address, name or ownership, lost certificates and consolidation of accounts. When corresponding with the Transfer Agent, shareholders should state the exact name(s) in which the stock is registered and the certificate number, as well as pertinent account information. Contact: BostonEquiserve Shareholder Correspondence, Mail Stop 45-02-09 Post Office Box 64 Boston, MA 02102-0644 (617) 575-3400 Auditors Deloitte & Touche LLP 125 Summer Street Boston, MA 02110 (617) 261-8000 FINANCIAL HIGHLIGHTS 1996 1995 - ------------------------------------------------------------------------- (in billions of dollars) Assets Under Management.............. $ 17.3 $ 16.0 Sales of Mutual Funds................ 2.6 1.6 (in millions of dollars) Revenue.............................. $181.4 $167.9 Net Income........................... 37.4 30.4 Shareholders' Equity................. 210.8 194.5 Per Common Share (in dollars) Net Income........................... $ 3.91 $ 3.27 Shareholders' Equity................. 22.46 20.84 Dividends............................ 0.71 0.65 - ------------------------------------------------------------------------- [The following table was represented as a bar graph in the printed material] EARNINGS PER SHARE Fiscal Year EPS - ----------- ------ 1987 $ 1.35 1988 1.37 1989 0.99 1990 1.03 1991 1.74 1992 2.49 1993 3.09 1994 3.14 1995 3.27 1996 3.91 [The following table was represented as a bar graph in the printed material] DIVIDENDS PER SHARE Fiscal Year DIVIDEND - ----------- -------- 1987 $ 0.15 1988 0.19 1989 0.21 1990 0.24 1991 0.29 1992 0.36 1993 0.49 1994 0.60 1995 0.65 1996 0.71 1 TO SHAREHOLDERS Eaton Vance Corp. earned a record $37.4 million in fiscal 1996. Earnings per share of $3.91 were 20 percent greater than 1995's $3.27. Last year's earnings per share included $0.37 from Investors Bank & Trust Company. Because of the distribution of Eaton Vance's ownership of the Bank to Eaton Vance's shareholders on November 10, 1995, the Bank's contribution to fiscal 1996 earnings was insignificant. Shareholders' equity per share increased to $22.46 on October 31, 1996, from $20.84 at the prior year's end, notwithstanding the distribution early in the fiscal year of $1.51 per share equity in Investors Bank & Trust Company. The Company's earnings and shareholders' equity per share have grown at 17 percent and 20 percent annual rates, respectively, over the last ten years. On October 9, the Company's dividend was increased 18 percent to an effective annual rate of $0.80 per share. The Company's dividend has increased in each of the last sixteen years and has grown at an annual rate of 18 percent since 1986. Gross and net mutual fund sales increased significantly in 1996. Gross sales were $2.6 billion, 63 percent higher than a year ago. Redemptions were $2.1 billion in both fiscal year 1996 and 1995. Net sales in 1996 were a positive $0.5 billion compared to a negative $0.5 billion in 1995. New sales of mutual fund shares and the influence of favorable securities markets on asset values raised Eaton Vance Corp.'s assets under management to $17.3 billion at year end from $16.0 billion a year ago. An important objective for the year was the extension of the Company's equity mutual fund product line. Progress was made with the marketing of the Eaton Vance Information Age Fund, introduced in late 1995, and with the initial offering in September, 1996, of Eaton Vance Worldwide Health Sciences Fund, sponsored by Eaton Vance and managed by New York-based Mehta and Isaly Asset Management, Inc. Eaton Vance Tax-Managed Growth Fund, which builds on Eaton Vance's long experience managing equities for superior after-tax returns, was introduced in May, 1996. Replace with new photo A M. Dozier Gardner, Vice Chairman 2 Efforts continue to acquire investment managers with investment skills and mutual funds that will complement the Company's present offerings. With strong financial capacity and effective distribution through investment professionals in this country and abroad, Eaton Vance has much to offer to candidate companies. On November 1, 1996, James B. Hawkes succeeded M. Dozier Gardner as President and Chief Executive Officer of Eaton Vance. Jim Hawkes, an officer of Eaton Vance for over twenty years and an important contributor to its growth, is well qualified to lead the Company. Dozier Gardner, President for the last seventeen years, will become the Company's Vice Chairman. Another planned management change was the retirement of H. Day Brigham, Jr., as Chief Legal Officer at the end of the fiscal year after thirty highly productive years with Eaton Vance and one of its predecessors, Eaton & Howard. He was succeeded by Alan R. Dynner, who has had extensive mutual fund experience with the law firm of Kirkpatrick & Lockhart. The mutual fund industry has enjoyed a period of high growth for more than a decade. As savings and investment grow globally, the need for capable investment managers can only increase--a favorable background for the mutual fund industry. In recent years both large and small mutual fund sponsors have succeeded when they have developed products with investment merit, marketed them vigorously and managed them competently. These continue to be Eaton Vance's objectives. January 10, 1997 [photo] James B. Hawkes, President & Chief Executive Officer [photo] Landon T. Clay, Chairman 3 EATON VANCE CORP. [The following table was represented as a bar graph in the printed material] Quarterly High and Low Stock Prices Fiscal Year high low - --------------- ------ ------ 1987 Quarter 1 $15.25 $ 9.31 2 16.25 12.00 3 13.88 10.63 4 13.50 6.50 1988 1 9.50 6.50 2 11.75 8.88 3 11.00 9.63 4 10.38 9.38 1989 1 11.50 9.88 2 13.88 11.50 3 12.13 11.00 4 14.00 11.00 1990 1 14.13 13.25 2 14.00 11.00 3 11.50 10.63 4 11.00 7.63 1991 1 9.00 7.88 2 12.25 10.75 3 12.63 10.50 4 14.50 12.25 1992 1 18.75 13.75 2 19.13 16.00 3 17.63 15.63 4 23.75 16.50 1993 1 38.50 20.50 2 37.50 29.00 3 36.25 30.75 4 41.25 34.25 1994 1 38.00 30.50 2 37.50 29.25 3 30.75 26.50 4 34.25 25.50 1995 1 32.25 24.50 2 32.75 28.25 3 34.13 30.00 4 39.25 31.25 1996 1 38.50 26.00 2 34.75 30.50 3 40.25 30.00 4 44.65 36.50 Price and Dividend Information The Company's non-voting common stock was listed on the New York Stock Exchange on August 15, 1996, and trades under the symbol EV. Prior to that date the stock was traded on the Nasdaq National Market System. The range of price and the dividend declared on these shares during each quarter of the last two years were as follows: High Low Dividend Quarter Ended Price Price Per Share - -------------------------------------------------------- January 31, 1996 $38 1/2 $26 $0.17 April 30, 1996 34 3/4 30 1/2 0.17 July 31, 1996 40 1/4 30 0.17 October 31, 1996 44 5/8 36 1/2 0.20 January 31, 1995 $32 1/4 $24 1/2 $0.16 April 30, 1995 32 3/4 28 1/4 0.16 July 31, 1995 34 1/8 30 0.16 October 31, 1995 39 1/4 31 3/4 0.17 [The following table was represented as a bar graph in the printed material] Shareholders' Equity per Share Fiscal Year End 87 $ 4.84 88 $ 4.95 89 $ 5.71 90 $ 6.43 91 $ 7.81 92 $10.09 93 $15.87 94 $18.18 95 $20.84 96 $22.46 4 INVESTMENT MANAGEMENT Fiscal Year 1996 Highlights o Assets under management increased 8 percent in fiscal 1996 to $17.3 billion due to positive net mutual fund sales and a rising stock market. o Managed assets in mutual funds increased 10 percent to $15.6 billion. o Gross mutual fund sales of $2.6 billion exceeded 1995 sales of $1.6 billion by 63 percent because of strong investor demand for Eaton Vance's floating-rate bank loan funds, the successful introduction of three new equity funds and rising offshore fund sales. o Eaton Vance Tax-Managed Growth Fund, a new equity fund designed to maximize after-tax returns, was launched in April and added over $100 million in new mutual fund assets. o Eaton Vance Worldwide Health Sciences Fund, advised by medical sciences investment specialist Mehta and Isaly Asset Management, Inc. was introduced in the fourth quarter, broadening the Company's offerings of global funds focused on the leading growth sectors of the world economy. [The following table was represented as a bar graph in the printed material] Assets Under Management (in billions) Fiscal Year End Total Assets - --------------- ------------ 1987 5.4 1988 4.9 1989 7.1 1990 7.3 1991 9.4 1992 11.3 1993 15.4 1994 15.0 1995 16.0 1996 17.3 5 INVESTMENT MANAGEMENT FUND ASSETS INCREASED 10 PERCENT IN FISCAL 1996 TO $15.6 BILLION Gross sales of Eaton Vance funds, excluding money market funds and reinvested dividends, were $2.6 billion, significantly higher than last year's $1.6 billion. The $1.0 billion increase in gross sales was the result of the introduction of several new products that were of value to the investing public, higher sales of the Company's floating-rate bank loan funds, and continued penetration of the offshore market by the Company's Medallion family of funds. Fund redemptions were the same as last year at $2.1 billion. New fund sales and market returns also improved the diversification of the Company's managed assets, as equity and bank loan assets grew relative to municipal bond fund assets. Net fund sales of $0.5 billion helped fund assets under management increase 10 percent to $15.6 billion from $14.2 billion at October 31, 1995. Sales benefited from the Company's distribution relationships with a wide variety of national, regional, independent and bank broker/dealers. Eaton Vance operates two separate mutual fund sales teams, the first focused on large national and regional broker/dealers and the second servicing independent broker/dealers and banks. Targeted marketing, which responds to the different service and support needs of these organizations, contributed significantly to the growth of sales in 1996. In addition, Eaton Vance has recently begun the marketing of its mutual funds through independent fee-based advisers. A meaningful increment to sales was provided by the Eaton Vance Medallion family of offshore funds in fiscal year 1996. Continuing development of dealer relationships overseas and strong sales of income funds in Latin America were indications of success. Eaton Vance offers two domestic funds and two offshore funds investing through the Hub and Spoke format in a single portfolio of senior, secured, floating-rate bank loans. This common portfolio, or hub, doubled in size from $1.4 billion at the end of fiscal year 1995 to $2.8 billion by the end of fiscal year 1996. These funds have maintained stable net asset values while providing yields in excess of money market funds since the portfolio's inception in 1989. 6 INVESTMENT MANAGEMENT STRONG INVESTMENT PERFORMANCE IN FISCAL 1996 BUOYED ASSETS UNDER MANAGEMENT The goal of Eaton Vance is to provide superior investment performance in each asset class. In 1996, investment results generally achieved that goal. Particularly noteworthy were EV Traditional National Municipals Fund and EV Traditional High Yield Municipals Fund, each ranked in the top 5 percent of its investment category for the twelve months ending October 31, 1996, by Lipper Analytical Services. Other Eaton Vance mutual funds were recognized by Morningstar, Inc. with four- and five-star ratings during the past year, including EV Marathon High Income Fund and Eaton Vance Income Fund of Boston, which invest in high yield bonds; EV Traditional Government Obligations Fund and Eaton Vance Short Term Treasury Fund, which invest in U.S. Government securities; and EV Traditional Worldwide Health Sciences Fund, a global equity fund. [The Following table was originally represented as a pie chart in the printed material] Assets Under Management by Distribution Method October 31, 1996 Level Load 8% Front End 12% Exchange 6% Investment Counsel 10% No Commission 1% Spread Commission 63% 7 INVESTMENT MANAGEMENT NEW AND RECENTLY INTRODUCED FUNDS WERE WELL RECEIVED Eaton Vance Tax-Managed Growth Fund, introduced in April, builds on thirty-five years of Eaton Vance's experience managing equity funds for tax-conscious investors. The fund invests in high-quality growth stocks and seeks to maximize after-tax returns by careful initial selection, and by minimizing current dividend income and net realized capital gains. Eaton Vance has followed this strategy successfully since its first exchange fund was offered to high net worth individuals in 1961. Now Eaton Vance is able to offer the same management expertise to a broader group of investors. Eaton Vance Worldwide Health Sciences Fund, first offered in September, provides investors a way to participate in new developments taking place around the world in biotechnology and other medical sciences. The fund is advised by Mehta and Isaly Asset Management, Inc., recognized investment specialists in medical sciences companies. Mehta and Isaly advised the predecessor to the Eaton Vance Worldwide Health Sciences Fund since 1989, compiling an enviable record of investment performance. Worldwide Health Sciences Fund will be offered to offshore investors in 1997. Two funds introduced late in fiscal year 1995 caught the attention of investors this year. Eaton Vance Information Age Fund, sold both in the United States and offshore, demonstrated the soundness of its strategy of investing worldwide in growth companies that participate in the creation, processing and distribution of information of all kinds. Eaton Vance High Yield Municipals Fund was also successful in attracting investors interested in returns available from low-rated and non-rated municipal bonds. The fund benefits from Eaton Vance's capabilities as investment manager of $8.2 billion in municipal bond assets. The Broadmoor I Exchange Fund was launched in December, 1995 and completed its offering period in May, 1996. The fund allows investors to diversify large holdings of low-tax-cost common stock. Performance of the fund in its first year was particularly strong. 8 INVESTMENT MANAGEMENT INVESTMENT COUNSEL Investment counsel assets remained level in fiscal 1996 at $1.8 billion. The rise in domestic equity market values along with new emerging-market equity and taxable bond assignments offset losses in domestic equity accounts. The encouraging trend in the marketing of new fixed-income accounts continued through the fiscal year end. Several new and substantial counseling relationships will close in the early months of fiscal 1997. OUTLOOK The market for asset management services, and particularly for mutual funds invested in long-term assets, continues to be attractive. Leading industry analysts forecast rapid growth over the next several years. Eaton Vance is well positioned to offer its services to the large market of investors, both in the United States and offshore, who seek the assistance of financial professionals when making their investment decisions. Eaton Vance's experience managing tax-efficient equity portfolios and municipal bond portfolios that produce tax-free income matches the needs of many investors who recognize the importance of maximizing after-tax returns. [The Following table was originally represented as a pie chart in the printed material] Assets Under Management by Asset Class October 31, 1996 Equities 20% Taxable Fixed 8% Non-Taxable Fixed 53% Bank Loans 18% Money Market 1% 9 REAL ESTATE [The Following table was originally represented as a pie chart in the printed material] Rental Property by Property Type October 31, 1996 Industrial 224,000 Sq. Ft. Retail 262,000 Sq. Ft. Office 184,000 Sq. Ft. Northeast Properties, Inc., a wholly owned subsidiary of Eaton Vance Corp., invests in income- producing real estate. The markets in which Northeast Properties operates generally strengthened in 1996, and rental income and cash flow improved versus the prior year. In fiscal 1996 management was able to retire, at a discount, a mortgage on one property with a remaining unpaid balance of $4.0 million. The extraordinary gain realized as a result of the retirement was $1.6 million, net of income taxes. Management committed to a plan to sell this property in the fourth quarter of 1996 and recognized a pre-tax impairment loss of $1.3 million based on the estimated net realizable value of the property. At year end, Northeast Properties owned 670,000 square feet of income producing real estate in Massachusetts, New Hampshire and New York. In fiscal 1997, the focus of Northeast Properties will remain on improving the occupancy rate of existing properties, currently at 89 percent. No net increase in owned real estate is planned. PRECIOUS METAL MINING The Company's gold mining partnerships contributed income of $1.2 million in 1996 compared to a loss of $1.4 million a year earlier. The income in fiscal 1996 resulted primarily from increases in the portfolio valuations of the partnerships. VenturesTrident, L.P., the first of two gold mining partnerships sponsored by the Company, was terminated effective December 31, 1995. By the end of calendar 1996, substantially all of the partnership's investments had been distributed to its partners. VenturesTrident II, L.P., is scheduled for termination at the end of calendar 1997. 10 FIVE-YEAR FINANCIAL SUMMARY
1996 1995 1994 1993 1992 - --------------------------------------------------------------------------------------------------------------------------- Income Statement Data (in thousands, except per share figures) Revenue: Investment adviser and administration fees $ 100,450 $ 85,393 $ 85,769 $ 75,193 $ 68,493 Distribution income 75,554 77,978 80,069 71,651 47,059 Income from real estate activities 3,597 3,347 4,224 3,758 4,056 Other income 1,760 1,199 1,154 1,674 1,103 - --------------------------------------------------------------------------------------------------------------------------- Total revenue 181,361 167,917 171,216 152,276 120,711 - --------------------------------------------------------------------------------------------------------------------------- Expenses: Compensation of officers and employees 41,420 38,947 39,265 39,668 35,053 Amortization of deferred sales commissions 52,585 50,186 52,794 40,892 27,965 Other expenses 28,335 31,350 31,291 27,576 22,690 - --------------------------------------------------------------------------------------------------------------------------- Total expenses 122,340 120,483 123,350 108,136 85,708 - --------------------------------------------------------------------------------------------------------------------------- Operating income 59,021 47,434 47,866 44,140 35,003 - --------------------------------------------------------------------------------------------------------------------------- Other Income (Expense): Interest income 3,735 2,641 963 856 800 Interest expense (3,742) (4,702) (5,337) (4,914) (4,893) Gain (loss) on sale of investments 546 (250) -- -- -- Equity in net income (loss) of affiliates 1,639 (1,382) (289) 3,894 (160) Impairment loss on real estate (1,277) -- -- -- -- - --------------------------------------------------------------------------------------------------------------------------- Income from continuing operations before income taxes, extraordinary item and cumulative effect of change in accounting for income taxes 59,922 43,741 43,203 43,976 30,750 Income taxes 24,088 16,773 17,393 18,459 12,663 - --------------------------------------------------------------------------------------------------------------------------- Income from continuing operations before extraordinary item and cumulative effect of change in accounting for income taxes 35,834 26,968 25,810 25,517 18,087 Income from discontinued operations, net of income taxes -- 3,408 2,676 1,824 1,220 Extraordinary gain on early retirement of debt, net of income taxes 1,590 -- -- -- -- Cumulative effect of change in accounting for income taxes -- -- 1,300 -- -- - --------------------------------------------------------------------------------------------------------------------------- Net income $ 37,424 $ 30,376 $ 29,786 $ 27,341 $ 19,307 =========================================================================================================================== Earnings per share from continuing operations before extraordinary item and cumulative effect of change in accounting for income taxes $ 3.74 $ 2.90 $ 2.72 $ 2.88 $ 2.33 Earnings per share from discontinued operations, net of income taxes -- 0.37 0.28 0.21 0.16 Extraordinary gain on early retirement of debt, net of income taxes, per share 0.17 -- -- -- -- Cumulative effect of change in accounting for income taxes, per share -- -- 0.14 -- -- - --------------------------------------------------------------------------------------------------------------------------- Earnings per share $ 3.91 $ 3.27 $ 3.14 $ 3.09 $ 2.49 =========================================================================================================================== Dividends declared, per share $ 0.71 $ 0.65 $ 0.60 $ 0.49 $ 0.36 =========================================================================================================================== Average common shares outstanding 9,577 9,289 9,473 8,848 7,752 =========================================================================================================================== Balance Sheet Data Total assets $ 360,262 $ 357,586 $ 455,506 $ 425,547 $ 318,199 Long-term debt $ 54,549 $ 56,102 $ 60,311 $ 73,228 $ 78,358 Shareholders' equity $ 210,780 $ 194,520 $ 165,608 $ 145,300 $ 75,801 Shareholders' equity per share $ 22.46 $ 20.84 $ 18.18 $ 15.87 $ 10.09
11 MANAGEMENT'S DISCUSSION AND ANALYSIS The Company's primary sources of revenue are investment adviser fees and distribution fees received from the Eaton Vance funds and adviser fees received from separately managed accounts. These fees are generally based on the net asset value of the investment portfolios managed by the Company and fluctuate with changes in the total value of the assets under management. The Company's major expenses, other than the amortization of deferred sales commissions, are employee compensation, occupancy costs, service fees and other marketing costs. Results of Operations Fiscal Year 1996 Compared to Fiscal Year 1995 Eaton Vance Corp. reported record earnings of $37.4 million or $3.91 per share in 1996, significantly higher than the $30.4 million or $3.27 per share reported a year ago. Net income for the year ended October 31, 1996 included an extraordinary gain of $1.6 million, or $0.17 per share, related to the early retirement at a discount of mortgage debt on an office building owned by the Company. In the fourth quarter of 1996, management committed to a plan to sell this property and recognized a pre-tax impairment loss of $1.3 million based on the estimated net realizable value of the property. Net income for the year ended October 31, 1995 included income from discontinued banking operations of $3.4 million or $0.37 per share. Assets under management of $17.3 billion on October 31, 1996 were 8 percent higher than the $16.0 billion reported a year earlier. Mutual fund sales for the year ended October 31, 1996 of $2.6 billion were 63 percent higher than the $1.6 billion reported in fiscal 1995. Mutual fund redemptions were $2.1 billion in both fiscal 1996 and 1995. Investment adviser and administration fees increased by 18 percent to $100.4 million in fiscal 1996 from $85.4 million in fiscal 1995. The increase can be attributed to the increase in total assets under management as well as to the current year growth in the Company's Senior Debt Portfolio and equity portfolios which have higher management and administration fee rates than the Company's other portfolios. Assets under management in the Senior Debt Portfolio increased to $2.8 billion on October 31, 1996 from $1.4 billion on October 31,1995. Distribution fees decreased by $2.5 million or 3 percent to $75.5 million from $78.0 million in fiscal 1995. The decrease in distribution fees can be attributed to a decrease in average assets under management in the Company's spread-commission funds. Total operating expenses of $122.3 million were 1 percent greater than the $120.5 million recorded a year earlier. Compensation expense increased by $2.5 million to $41.4 million in fiscal 1996, primarily as a result of an increase in sales incentives associated with the increase in mutual fund sales. Amortization expense increased by $2.4 million, or 5 percent, to $52.6 million primarily as a result of the increase in gross sales of Eaton Vance Prime Rate Reserves, a spread-commission fund which invests in the Company's Senior Debt Portfolio. The increases noted in compensation and amortization expense were offset by a decrease in other expenses compared to 1995. Last year's other expenses included a one-time charge of $2.2 million resulting from a National Association of Securities Dealers (NASD) arbitration panel award. The Company has appealed the decision to the courts and continues to pursue all legal steps to overturn the decision. 12 MANAGEMENT'S DISCUSSION AND ANALYSIS The Company's gold mining partnerships contributed income of $1.2 million in the year ended October 31, 1996 compared to a loss of $1.4 million a year earlier. The losses in 1995 resulted primarily from reductions in the portfolio valuations of the partnerships. The general partner of VenturesTrident, L.P., the first of the Company's two gold mining partnerships, terminated the partnership effective December 31, 1995. VenturesTrident II, L.P., the second of the two partnerships, is scheduled for termination effective December 31, 1997. Interest income increased 42 percent to $3.7 million in fiscal 1996 from $2.6 million in fiscal 1995, largely as a result of a 47 percent increase in cash, cash equivalents and short-term investments. Interest expense decreased $1.0 million to $3.7 million in fiscal 1996 as a result of the retirement of mortgage debt in both the second quarter of 1996 and the fourth quarter of 1995. Due to the absence of gold mining losses which reduced taxes in fiscal 1995, the Company's effective tax rate rose to 40 percent in fiscal 1996 from 38 percent in fiscal 1995. In fiscal 1997, the Company will be required to adopt Statement of Financial Accounting Standards (SFAS) No. 123 "Accounting for Stock-Based Compensation." SFAS No. 123 establishes financial accounting and reporting standards for stock-based employee compensation plans and requires certain disclosures about employee stock options based on their fair value at the date of grant. The adoption of this Statement will not have an impact on the Company's financial position or results of operations. Results of Operations Fiscal Year 1995 Compared to Fiscal Year 1994 Assets under management of $16.0 billion on October 31, 1995 were 7 percent higher than the $15.0 billion reported a year earlier. Market appreciation and reinvested dividends contributed to the increase in the Company's assets under management. Mutual fund sales for the year ended October 31, 1995 of $1.6 billion were 53 percent below the $3.4 billion reported in fiscal 1994. Redemptions of $2.1 billion in 1995 were 17 percent above the $1.8 billion in 1994. Net sales (gross sales minus redemptions), however, improved in every quarter in 1995. On November 10, 1995, the Company completed the spin-off of Investors Financial Services Corp. (IFSC), the new parent company of Investors Bank & Trust Company (IB&T), in a tax-free distribution to Eaton Vance Corp. shareholders. Under the plan of distribution, the Company transferred net banking assets totaling approximately $14.1 million, including $10.1 million in cash and cash equivalents, to the newly formed bank holding company. The banking business has been treated as a discontinued operation in the accompanying consolidated statements of income and cash flows, and fiscal year 1994 has been restated to reflect this accounting treatment. Total revenue from continuing operations decreased $3.3 million to $167.9 million in 1995. Investment adviser and distribution fees decreased by $2.4 million in 1995 to $163.4 million from $165.8 million a year earlier. The decrease in investment adviser and distribution fees can be attributed primarily to lower average assets under management in comparison with the same period a year ago and to redemptions in excess of new mutual fund sales early in the 13 MANAGEMENT'S DISCUSSION AND ANALYSIS year. The impact of the decrease in mutual fund sales on distribution fees was partially offset by an increase in contingent deferred sales charges received on early redemptions. Total operating expenses decreased $2.9 million to $120.5 million in fiscal 1995. Compensation expense of $38.9 million was little changed from the prior year's expense of $39.3 million. Other expenses for fiscal 1995 include a one-time charge of $2.2 million relating to the accrual of a National Association of Securities Dealers (NASD) arbitration panel award in the first quarter of 1995. Other expenses for the comparable period a year ago included $1.4 million in development costs associated with two fund products that were not launched in 1994. A decrease in the average dollar value of assets in spread-commission funds due to redemptions in excess of mutual fund sales in fiscal 1995 resulted in a decrease in the amortization of deferred sales commissions of $2.6 million. The Company's two gold mining partnerships contributed losses of $1.4 million and $0.3 million during 1995 and 1994, respectively. These losses resulted primarily from fluctuations in the portfolio valuations of the two partnerships. After accounting for management fees, operating expenses and income taxes, the Company's gold mining and energy operations had no impact on total fiscal year 1995 or 1994 earnings. The realization for tax purposes of gold mining losses in fiscal 1995 resulted in a decrease in the Company's effective tax rate on income from continuing operations from 40 percent in 1994 to 38 percent in 1995. Income from discontinued banking operations, net of taxes, increased by 26 percent from $2.7 million, or $0.28 per share, for the year ended October 31, 1994, to $3.4 million, or $0.37 per share, for the year ended October 31, 1995. Net income from continuing operations of the Company amounted to $27.0 million for the year ended October 31, 1995, compared to $27.1 million for the year ended October 31, 1994. Earnings per share from continuing operations were $2.90 and $2.86 for 1995 and 1994, respectively. Net income and earnings per share from continuing operations for 1994 included a gain of $1.3 million, or $0.14 per share, resulting from the implementation of Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes." Total assets, excluding discontinued banking operations, increased 5 percent to $343.6 million at October 31, 1995 from $327.9 million at October 31, 1994. Cash and cash equivalents and short-term investments increased by $54.4 million to $79.1 million at October 31, 1995. Investments in affiliates increased by $6.1 million, primarily due to an increase in the Company's investment in Lloyd George Management (BVI) Limited, an independent investment management company based in Hong Kong. Deferred sales commissions decreased $46.8 million to $209.5 million at October 31, 1995 primarily due to amortization and redemptions in excess of new sales in spread-commission funds in fiscal 1995. 14 MANAGEMENT'S DISCUSSION AND ANALYSIS Liquidity and Capital Resources Cash, cash equivalents and short-term investments aggregated $116.4 million at October 31, 1996, an increase of $37.3 million from October 31, 1995. Operating activities generated cash of $49.4 million in 1996 compared to $63.6 million in 1995. The decrease can primarily be attributed to an increase in commissions paid to brokers in connection with the sale of the Company's spread-commission funds and a decrease in the collection of capitalized sales charges received on early redemptions. In fiscal 1996, the Company paid $55.8 million in sales commissions associated with the sale of spread-commission mutual funds, compared to $39.8 million in the previous year. Capitalized sales charges collected decreased to $32.6 million in fiscal 1996 from $36.2 million in fiscal 1995. The Company's investing cash flows, consisting primarily of purchases and sales of short-term investments, totaled $50.7 million and $19.1 million in fiscal 1996 and 1995, respectively. Financing activities for the Company reduced cash and cash equivalents by $10.8 million in fiscal 1996 and $10.9 million in fiscal 1995. Significant financing activities during fiscal 1996 included the repurchase of 154,000 shares of the Company's non-voting common stock and the retirement, at a discount, of an existing mortgage with a remaining unpaid balance of $4.0 million. The Company's dividend was increased in the fourth quarter of 1996 to an effective annual rate of $0.80 per share. On October 15, 1996, the Company entered into a $50 million five-year, senior unsecured revolving credit agreement with six unaffiliated banks. This facility replaced the Company's existing $75 million unsecured revolving credit and term loan agreement. The terms of the facility provide for various borrowing rate options and allow the Company to increase the facility amount to a maximum of $75 million at any time during the five-year period. At October 31, 1996, the Company had no borrowings under this facility. The Company anticipates that cash flows from operations and available debt will be sufficient to meet the Company's foreseeable cash requirements and provide the Company with the financial resources to take advantage of strategic growth opportunities. Certain Factors That May Affect Future Results From time to time, information provided by the Company or information included in its filings with the Securities and Exchange Commission (including this Annual Report) may contain statements which are not historical facts, for this purpose referred to as "forward-looking statements." The Company's actual future results may differ significantly from those stated in any forward-looking statements. Important factors that could cause actual results to differ materially from those indicated by such forward-looking statements include, but are not limited to, the factors discussed below. 15 MANAGEMENT'S DISCUSSION AND ANALYSIS The Company is subject to substantial competition in all aspects of its business. The Company's ability to market investment products is highly dependent on access to the retail distribution systems of national and regional securities dealer firms, which generally offer competing internally and externally managed investment products. Although the Company has historically been successful in gaining access to these channels, there can be no assurance that it will continue to do so. The inability to have such access could have a material adverse effect on the Company's business. There are few barriers to entry by new investment management firms. The Company's funds compete against an ever increasing number of investment products sold to the public by investment dealers, banks, insurance companies and others that sell tax-free investments, taxable income funds, equity funds and other investment products. Many institutions competing with the Company have greater resources than the Company. The Company competes with other providers of investment products on the basis of the range of products offered, the investment performance of such products, quality of service, fees charged, the level and type of sales representative compensation, the manner in which such products are marketed and distributed and the services provided to investors. The Company derives almost all of its revenues from investment adviser and administration fees and distribution income received from the Eaton Vance funds and separately managed accounts. As a result, the Company is dependent upon the contractual relationships it maintains with these funds and separately managed accounts. In the event that any of the management contracts, administration contracts, underwriting contracts or service agreements are not renewed pursuant to the terms of these contracts or agreements, the Company's financial results may be adversely affected. The major sources of revenue for the Company-- i.e., investment adviser fees, administration fees and distribution fees--are calculated as percentages of assets under management. A decline in securities prices in general would reduce fee income. If, as a result of inflation, expenses rise and assets under management decline, lower fee income and higher expenses will reduce or eliminate profits. If expenses rise and assets rise, bringing increased fees to offset the increased expenses, profits may not be affected by inflation. There is no predictable relationship between changes in financial assets under management and the rate of inflation. If inflation leads to increases in the price of gold or in the price of real estate, the value of the Company's investments in gold mining securities or real estate may be increased. 16 Eaton Vance Corp. 24 Federal Street Boston, MA 02110 CONSOLIDATED STATEMENTS OF INCOME Years Ended October 31, 1996, 1995 and 1994
1996 1995 1994 ===================================================================================================================== (in thousands, except per share figures) Revenue: Investment adviser and administration fees $ 100,450 $ 85,393 $ 85,769 Distribution income 75,554 77,978 80,069 Income from real estate activities 3,597 3,347 4,224 Other income 1,760 1,199 1,154 - --------------------------------------------------------------------------------------------------------------------- Total revenue 181,361 167,917 171,216 - --------------------------------------------------------------------------------------------------------------------- Expenses: Compensation of officers and employees 41,420 38,947 39,265 Amortization of deferred sales commissions 52,585 50,186 52,794 Other expenses 28,335 31,350 31,291 - --------------------------------------------------------------------------------------------------------------------- Total expenses 122,340 120,483 123,350 - --------------------------------------------------------------------------------------------------------------------- Operating income 59,021 47,434 47,866 Other Income (Expense): Interest income 3,735 2,641 963 Interest expense (3,742) (4,702) (5,337) Gain (loss) on sale of investments 546 (250) -- Equity in net income (loss) of affiliates 1,639 (1,382) (289) Impairment loss on real estate (1,277) -- -- - --------------------------------------------------------------------------------------------------------------------- Income from continuing operations before income taxes, extraordinary item and cumulative effect of change in accounting for income taxes 59,922 43,741 43,203 Income taxes 24,088 16,773 17,393 - --------------------------------------------------------------------------------------------------------------------- Income from continuing operations before extraordinary item and cumulative effect of change in accounting for income taxes 35,834 26,968 25,810 Income from discontinued operations, net of income taxes -- 3,408 2,676 Extraordinary gain on early retirement of debt, net of income taxes 1,590 -- -- Cumulative effect of change in accounting for income taxes -- -- 1,300 - --------------------------------------------------------------------------------------------------------------------- Net income $ 37,424 $ 30,376 $ 29,786 ===================================================================================================================== Earnings per share from continuing operations before extraordinary item and cumulative effect of change in accounting for income taxes $ 3.74 $ 2.90 $ 2.72 Earnings per share from discontinued operations, net of income taxes -- 0.37 0.28 Extraordinary gain on early retirement of debt, net of income taxes, per share 0.17 -- -- Cumulative effect of change in accounting for income taxes, per share -- -- 0.14 - --------------------------------------------------------------------------------------------------------------------- Earnings per share $ 3.91 $ 3.27 $ 3.14 ===================================================================================================================== Dividends declared, per share $ 0.71 $ 0.65 $ 0.60 ===================================================================================================================== Average common shares outstanding 9,577 9,289 9,473 =====================================================================================================================
See notes to consolidated financial statements. 17 CONSOLIDATED BALANCE SHEETS October 31, 1996 and 1995
Assets 1996 1995 ========================================================================================================= (all figures in thousands) Current Assets: Cash and equivalents $ 55,583 $ 67,650 Short-term investments 60,792 11,471 Investment adviser fees and other receivables 7,650 3,342 Asset held for sale 2,500 -- Net assets of discontinued operations -- 13,961 Other current assets 3,547 2,178 - --------------------------------------------------------------------------------------------------------- Total current assets 130,072 98,602 - --------------------------------------------------------------------------------------------------------- Other Assets: Investments: Real estate 18,541 21,606 Investment in affiliates 9,565 10,113 Investment companies 8,965 7,542 Other investments 5,763 2,338 Notes receivable and receivables from affiliates 1,241 3,458 Deferred sales commissions 180,283 209,542 Equipment and leasehold improvements, net of accumulated depreciation and amortization of $4,713 and $4,191, respectively 2,828 2,855 Goodwill, net of accumulated amortization of $2,924 and $2,422, respectively 3,004 1,530 - --------------------------------------------------------------------------------------------------------- Total other assets 230,190 258,984 - --------------------------------------------------------------------------------------------------------- Total assets $360,262 $357,586 =========================================================================================================
18 See notes to consolidated financial statements. CONSOLIDATED BALANCE SHEETS October 31, 1996 and 1995 Liabilities & Shareholders' Equity 1996 1995 ================================================================================ (in thousands, except share figures) Current Liabilities: Accrued compensation $ 10,981 $ 9,341 Accounts payable and accrued expenses 7,839 7,482 Dividend payable 1,881 1,590 Current portion of mortgage notes payable 1,545 4,189 Other current liabilities 1,835 2,125 - -------------------------------------------------------------------------------- Total current liabilities 24,081 24,727 - -------------------------------------------------------------------------------- Other Liabilities: 6.22% Senior Note 50,000 50,000 Mortgage notes payable 4,549 6,102 - -------------------------------------------------------------------------------- Total other liabilities 54,549 56,102 - -------------------------------------------------------------------------------- Deferred income taxes 70,852 82,237 - -------------------------------------------------------------------------------- Commitments and contingencies -- -- - -------------------------------------------------------------------------------- Shareholders' Equity: Common stock, par value $.0625 per share: Authorized, 80,000 shares Issued, 19,360 shares 1 1 Non-voting common stock, par value $.0625 per share: Authorized, 11,920,000 shares Issued, 9,364,788 and 9,315,712 shares, respectively 585 582 Additional paid-in capital 36,788 53,753 Unrealized gain on investments 3,598 1,186 Notes receivable from stock option exercises (3,221) (3,313) Retained earnings 173,029 142,311 - -------------------------------------------------------------------------------- Total shareholders' equity 210,780 194,520 - -------------------------------------------------------------------------------- Total liabilities and shareholders' equity $ 360,262 $ 357,586 ================================================================================ See notes to consolidated financial statements. 19 CONSOLIDATED STATEMENTS OF CASH FLOWS Years Ended October 31, 1996, 1995 and 1994
1996 1995 1994 ================================================================================================================== (all figures in thousands) Cash and equivalents (including IB&T for 1995 and 1994), beginning of year $ 67,650 $ 34,025 $ 28,655 - ------------------------------------------------------------------------------------------------------------------ Cash Flows from Operating Activities: Net income, excluding discontinued operations 37,424 26,968 27,110 Adjustments to reconcile net income to net cash provided by (used for) operating activities: Extraordinary gain on early retirement of debt (1,590) -- -- Equity in net (income) loss of affiliates (1,639) 1,382 289 Impairment loss on real estate 1,277 -- -- Deferred income taxes (12,239) (8,440) 13,712 Cumulative effect of change in accounting for income taxes -- -- (1,300) Amortization of deferred sales commissions 52,585 50,186 52,794 Depreciation and other amortization 2,420 2,377 2,336 Payment of sales commissions (55,784) (39,843) (93,663) Capitalized sales charges received 32,580 36,218 24,838 (Gain) loss on sale of investments (546) 250 -- Changes in other assets and liabilities (5,073) 3,061 2,544 Cash used for discontinued operations -- (8,574) (7,994) - ------------------------------------------------------------------------------------------------------------------ Net cash provided by operating activities 49,415 63,585 20,666 - ------------------------------------------------------------------------------------------------------------------ Cash Flows from Investing Activities: Additions to real estate, equipment and leasehold improvements (2,680) (1,172) (1,722) Investment in partnership -- (88) (252) Net increase (decrease) in notes and receivables from affiliates 563 (1,121) (465) Investment in affiliate -- (4,812) -- Net increase in investment companies and other investments (2,762) (945) (371) Acquisition of management and distribution contracts (2,000) -- -- Proceeds from sale of investments 16,125 64 2,901 Purchase of short-term investments (59,939) (11,000) -- - ------------------------------------------------------------------------------------------------------------------ Net cash provided by (used for) investing activities (50,693) (19,074) 91 - ------------------------------------------------------------------------------------------------------------------ Cash Flows from Financing Activities: Proceeds from 6.22% Senior Note -- -- 50,000 Proceeds from note payable to unaffiliated banks -- -- 70,950 Payments on notes payable (1,486) (6,469) (113,573) Redemption of subordinated debentures -- -- (14,169) Proceeds from the issuance of non-voting common stock 2,602 3,351 3,169 Dividends paid (6,415) (5,891) (5,342) Repurchase of non-voting common stock (5,490) (1,877) (6,422) - ------------------------------------------------------------------------------------------------------------------ Net cash used for financing activities (10,789) (10,886) (15,387) - ------------------------------------------------------------------------------------------------------------------ Net increase (decrease) in cash and equivalents (12,067) 33,625 5,370 - ------------------------------------------------------------------------------------------------------------------ Cash and equivalents (including IB&T at October 31, 1994), end of year $ 55,583 $ 67,650 $ 34,025 ================================================================================================================== Supplemental Information: Interest paid $ 3,748 $ 4,708 $ 5,651 ================================================================================================================== Income taxes paid $ 38,723 $ 27,662 $ 3,980 ==================================================================================================================
See notes to consolidated financial statements. 20 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY Years Ended October 31, 1996, 1995 and 1994
Notes Non- Receivable Total Voting Additional Unrealized from Stock Share- Common Common Paid-in Gain on Option Retained holders' Shares Stock Stock Capital Investments Exercises Earnings Equity ==================================================================================================================================== Balance, (all figures in thousands) October 31, 1993 9,154 $ 1 $ 571 $ 52,845 $ -- $ (1,804) $ 93,687 $ 145,300 Add (Deduct): Net income -- -- -- -- -- -- 29,786 29,786 Dividends declared ($0.60 per share) -- -- -- -- -- -- (5,518) (5,518) Issuance of non-voting common stock-- On exercise of stock options 141 -- 9 1,742 -- (1,062) -- 689 For employee stock purchase plan 25 -- 2 731 -- -- -- 733 For employee incentive plan 24 -- 1 684 -- -- -- 685 Repurchase of non-voting common stock (234) -- (15) (6,407) -- -- -- (6,422) Collection of notes receivable -- -- -- -- -- 355 -- 355 - ----------------------------------------------------------------------------------------------------------------------------------- Balance, October 31, 1994 9,110 $ 1 $ 568 $ 49,595 $ -- $ (2,511) $ 117,955 $ 165,608 Add (Deduct): Net income -- -- -- -- -- -- 30,376 30,376 Dividends declared ($0.65 per share) -- -- -- -- -- -- (6,020) (6,020) Issuance of non-voting common stock-- On exercise of stock options 174 -- 11 2,371 -- (1,258) -- 1,124 For employee stock purchase plan 25 -- 1 674 -- -- -- 675 For employee incentive plan 11 -- 1 293 -- -- -- 294 For investment in affiliate 83 -- 5 2,693 -- -- -- 2,698 Repurchase of non-voting common stock (68) -- (4) (1,873) -- -- -- (1,877) Unrealized gain on investments -- -- -- -- 1,186 -- -- 1,186 Collection of notes receivable -- -- -- -- -- 456 -- 456 - ----------------------------------------------------------------------------------------------------------------------------------- Balance, October 31, 1995 9,335 $ 1 $ 582 $ 53,753 $ 1,186 $ (3,313) $ 142,311 $ 194,520 ====================================================================================================================================
See notes to consolidated financial statements. 21 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY Years Ended October 31, 1996, 1995 and 1994 (continued)
Notes Non- Receivable Total Voting Additional Unrealized from Stock Share- Common Common Paid-in Gain on Option Retained holders' Shares Stock Stock Capital Investments Exercises Earnings Equity ==================================================================================================================================== Balance, (all figures in thousands) October 31, 1995 9,335 $ 1 $ 582 $ 53,753 $ 1,186 $ (3,313) $ 142,311 $ 194,520 Add (Deduct): Net income -- -- -- -- -- -- 37,424 37,424 Dividends declared ($0.71 per share) -- -- -- -- -- -- (6,706) (6,706) Issuance of non-voting common stock-- On exercise of stock options 166 -- 10 1,623 -- (747) -- 886 For employee stock purchase plan 26 -- 2 646 -- -- -- 648 For employee incentive plan 11 -- 1 320 -- -- -- 321 Repurchase of non-voting common stock (154) -- (10) (5,480) -- -- -- (5,490) Unrealized gain on investments -- -- -- -- 2,412 -- -- 2,412 Distribution of Investors Financial Services Corp. -- -- -- (14,074) -- -- -- (14,074) Collection of notes receivable -- -- -- -- -- 839 -- 839 - ----------------------------------------------------------------------------------------------------------------------------------- Balance, October 31, 1996 9,384 $ 1 $ 585 $ 36,788 $ 3,598 $ (3,221) $ 173,029 $ 210,780 ====================================================================================================================================
See notes to consolidated financial statements. 22 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Summary of Significant Accounting Policies Business and Organization Eaton Vance Corp. and subsidiaries (the "Company") provide investment advisory and distribution services to mutual funds and investment management services to private counsel clients. The Company's business and results of operations are, to some extent, dependent on investment trends of the financial markets. Principles of Consolidation The consolidated financial statements include the accounts of Eaton Vance Corp. and all of its majority owned subsidiaries. The equity method of accounting is used for investments in affiliates in which the Company's ownership ranges from 20 to 50 percent. All material intercompany accounts and transactions have been eliminated. Cash and Equivalents Cash equivalents consist principally of short-term, highly liquid investments and are recorded at cost, which is equivalent to market value. Investments Investments in short-term investments, investment companies and certain other investments are classified as available-for-sale and are carried at their estimated fair value with unrealized gains and losses included as a separate component of shareholders' equity. The Company, as a non-managing general partner of an investment company partnership, is required to maintain a minimum investment in such partnership. At October 31, 1996, the Company's investment exceeded the minimum $0.9 million required under the terms of the partnership agreement. Investments in investment companies held in connection with the Company's activities as principal underwriter are recorded at market value. Other investments are carried at the lower of cost or management's estimate of net realizable value. Real Estate Effective November 1, 1994, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," which requires that long-lived assets, including goodwill, be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Therefore, real estate properties are carried at the lower of cost or fair value less cost to sell, with depreciation provided using the straight-line method over the estimated useful lives of the assets. Equipment and Leasehold Improvements Equipment and leasehold improvements are stated at cost, less accumulated depreciation and amortization. Depreciation and amortization are provided principally by the straight-line method over the estimated useful lives of the related assets, or over the terms of the related leases, if shorter. Deferred Sales Commissions Sales commissions paid to brokers and dealers in connection with sales of shares of certain investment companies are capitalized and amortized over various periods, none of which exceeds six years. Distribution plan payments received by the Company from investment companies are recorded in income as earned. Early withdrawal charges received by the Company from redeeming shareholders reduce unamortized deferred sales commissions first, with any remaining amount recorded in income. Goodwill Goodwill represents the excess of the cost of the Company's investment in the net assets or stock of acquired companies over the fair value of the underlying net assets at dates of acquisition. Goodwill also includes the cost of management contracts acquired. Amortization is provided on a straight-line basis over the estimated useful lives of these assets, not exceeding fifteen years. Mutual Fund Underwriting Activities In connection with the Company's activities as principal underwriter, the sales of shares of investment companies are accounted for on a settlement date basis with the related commission income and expenses recorded on a trade date basis. 22 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Summary of Significant Accounting Policies (Continued) Income Taxes Deferred income taxes reflect the impact of temporary differences between the amount of assets and liabilities recognized for financial reporting purposes and such amounts recognized for tax purposes, measured by applying currently enacted tax rates. Such taxes relate principally to the recording of sales commissions paid to brokers and dealers, which are deducted currently for tax purposes. Earnings Per Share Earnings per share are based upon the weighted average number of common, non-voting common and non-voting common equivalent shares outstanding. Earnings per common and common equivalent share assuming full dilution have not been presented because the dilutive effect is immaterial. Accounting Estimates The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results may differ from those estimates. Reclassifications Certain prior year amounts have been reclassified to conform to the current year presentation and to reflect the spin-off of IB&T. 2. Investment in Affiliates The Company has a 23 percent equity interest in Lloyd George Management (BVI) Limited (LGM), an independent investment management company based in Hong Kong that manages a series of emerging market mutual funds sponsored by the Company. The Company's investment in LGM was $8.4 million and $8.5 million at October 31, 1996 and 1995, respectively. At October 31, 1996, the Company's investment exceeded its share of the underlying net assets of LGM by $6.6 million. This excess is being amortized over a twenty-year period. The Company also maintains an 82 percent general partnership interest in Fulcrum Management Partners II, L.P. (FMPII), a Delaware limited partnership of which a principal officer of the Company is the other general partner. FMPII is a 20 percent general partner of VenturesTrident II, L.P. (VTII), a Delaware limited partnership formed to invest in equity securities of public and private gold mining ventures. In addition to its general partnership interest in FMPII, the Company maintains a direct 3 percent limited partnership interest in VTII. In May of 1996, the Company received gold mining securities with a value of $1.4 million in a distribution from VTII resulting from its general and limited partnership interests. The partnership will complete its tenth and final year in 1997 and is scheduled for termination effective December 31, 1997. In fiscal 1996, the Company received gold mining securities with a value of approximately $0.3 million resulting from the termination of a second gold mining partnership (VenturesTrident, L.P.) and the subsequent distribution of that partnership's assets. The Company also received gold mining securities with a value of $1.8 million in settlement of notes receivable for management services provided to the partnership. The Company's investment in these gold mining partnerships was $1.2 million and $1.6 million at October 31, 1996 and 1995, respectively. 3. Discontinued Operations On November 10, 1995, the Company completed the spinoff of its banking operations in a tax-free distribution to its shareholders of shares of Investors Financial Services Corp. (IFSC), a newly created holding company for IB&T. Under the plan of distribution, the Company transferred to IFSC approximately $14.1 million of net banking assets, 24 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 3. Discontinued Operations (continued) including $10.1 million in cash. Each shareholder of the Company received 2.799 shares of Common Stock of IFSC and .538 shares of Class A Stock of IFSC for each ten shares of Eaton Vance Corp. stock held at the close of business on October 30, 1995, which was the record date of the distribution. The consolidated statements of income and cash flows have been restated to reflect the banking business as a discontinued operation. Revenue applicable to discontinued operations was $57.4 million in 1995 and $47.8 million in 1994. Income taxes applicable to discontinued operations were $2.8 million in 1995 and $1.9 million in 1994. The contribution to fiscal year 1996 net income from IFSC was not material to the consolidated financial statements. 4. Real Estate Investments Real estate investments held at October 31, 1996 and 1995 follow: 1996 1995 ================================================================= (in thousands) Buildings $ 24,632 $ 27,831 Land 1,721 2,457 - ----------------------------------------------------------------- Total 26,353 30,288 Less accumulated depreciation 7,534 8,424 - ----------------------------------------------------------------- Net book value 18,819 21,864 Share of accumulated losses in excess of partnership interest (278) (258) - ----------------------------------------------------------------- Total $ 18,541 $ 21,606 ================================================================= In the second quarter of 1996, the Company's real estate subsidiary retired at a discount an existing mortgage with a remaining unpaid balance of $4.0 million. The Company realized an extraordinary gain on the retirement of $1.6 million, net of income taxes of $1.1 million. At the time of the retirement, the future cash inflows expected to be generated by the property (undiscounted and without interest charges) exceeded the carrying value of the property and as a result no impairment loss was recognized. In the fourth quarter of 1996, the Company committed to a plan to sell the property and recognized a pre-tax impairment loss of $1.3 million based on the estimated net realizable value of the property (estimated fair value less estimated selling costs). Estimated fair value of the property was calculated using market appraisals and other available valuation techniques. The Company expects the sale of the property to be completed in fiscal 1997. At October 31, 1996, the carrying value of the property was $2.5 million. 5. Long-term Debt 6.22% Senior Note The Company has a $50 million 6.22% Senior Note due March 2004. Principal payments on the note are due in equal annual installments of approximately $7.1 million, beginning March 1998. The note may be prepaid in part or in whole on or after March 1996. Certain covenants in the Senior Note Purchase Agreement require specific levels of cash flow and net income and others restrict additional investment and indebtedness. Revolving Credit Facility On October 15, 1996, the Company entered into a $50 million five-year, senior unsecured revolving credit agreement with six unaffiliated banks. This facility replaced the Company's existing $75 million unsecured revolving credit and term loan agreement. The terms of the facility provide for various borrowing rate options and allow the Company to increase the facility amount to a maximum of $75 million at any time during the five-year period. The agreement contains financial covenants with respect to borrowings, tangible net worth leverage and interest coverage and requires the Company to pay an annual facility fee on the total commitment. The facility fee is calculated on a pricing grid based on the Company's total debt to earnings ratio. At October 31, 1996, the Company had no borrowings under this facility. 25 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 5. Long-term Debt (continued) Mortgage Notes Payable The balance of mortgage notes payable on October 31, 1996 and 1995 follow: Maturity Interest Rate 1996 1995 ====================================================================== (in thousands) -- 9.00% $ -- $3,961 1997 Prime +1% (9.25% at October 31, 1996) 1,349 1,395 2002 8.22% 2,180 2,230 2015-2016 60% of Prime (4.95% at October 31, 1996) 2,565 2,705 - ---------------------------------------------------------------------- Total $6,094 $10,291 ====================================================================== These mortgage notes are secured by real property and require monthly or quarterly payments of principal and interest with all unpaid principal due at maturity. At October 31, 1996 non-recourse mortgages totaled approximately $4.8 million. Principal payments due on mortgage notes outstanding at October 31, 1996 for each of the next five years and in the aggregate thereafter follow: Year Ending October 31 Payments Due =============================================================== (in thousands) 1997 $1,545 1998 203 1999 209 2000 214 2001 222 Thereafter 3,701 - --------------------------------------------------------------- Total $6,094 =============================================================== 6. Lease Commitments The Company leases certain real estate and equipment under noncancelable operating leases. Rent expense under these leases in 1996, 1995 and 1994 amounted to NOTES TO CONSOLIDATED FINANCIAL STATEMENTS $0.7 million, $0.7 million and $0.6 million, respectively. Future minimum lease commitments are as follows: Year Ending October 31 Amount ================================================================= (in thousands) 1997 $ 817 1998 847 1999 824 2000 777 2001 766 Thereafter 738 - ----------------------------------------------------------------- Total $4,769 ================================================================= 7. Stock Plans Stock Option Plan The Company has a Stock Option Plan administered by the Option Committee of the Board of Directors under which stock options may be granted to key employees of the Company. No stock options may be granted under the plan with an exercise price of less than the fair market value of the stock at the time the stock option is granted. Outstanding options to subscribe to shares of non-voting common stock issued under the current plan and predecessor plans are summarized as follows: Shares Option Under Option Price Range ================================================================ Balance, October 31, 1994 732,748 $ 8.75-34.00 Exercised (174,327) 8.75-34.00 Granted 133,300 27.75-32.25 Cancelled/Expired (22,000) 8.75-34.00 - ---------------------------------------------------------------- Balance, October 31, 1995 669,721 8.75-34.00 Adjustment for distribution of IB&T 139,408 - ---------------------------------------------------------------- Adjusted balance 809,129 7.24-28.14 Exercised (166,360) 7.24-28.14 Granted 141,270 28.25-31.08 Cancelled/Expired (67,392) 22.55-28.25 - ---------------------------------------------------------------- Balance, October 31, 1996 716,647 $13.04-31.08 ================================================================ 26 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 7. Stock Plans (continued) At October 31, 1996 options for 469,066 shares were exercisable. Options for 247,581 additional shares will become exercisable over the next four years. As a result of the spinoff of IB&T (Note 3), all outstanding options to subscribe to shares of the Company's non-voting common stock at November 10, 1995 were adjusted to reflect the decreased value of the stock. In November and December 1996, the Company granted options for an additional 243,192 shares at prices ranging from $41.75 to $45.93. These options will become exercisable over the next four years. Employee Stock Purchase Plan A total of 412,000 shares of the Company's non-voting common stock has been reserved for issuance under an Employee Stock Purchase Plan. The plan permits eligible full-time employees to direct up to 15 percent of their salaries toward the purchase of Eaton Vance Corp. non-voting common stock at the lower of 90 percent of the fair value of the non-voting common stock at the beginning or at the end of each six-month offering period. Through October 31, 1996, 335,258 shares have been issued pursuant to this plan. Incentive Plan--Stock Alternative A total of 300,000 shares of the Company's non-voting common stock has been reserved for issuance under the Incentive Plan--Stock Alternative. The plan permits employees and officers to direct up to half of their monthly and annual incentive bonuses toward the purchase of non-voting common stock at 90 percent of the fair market price of the stock. Through October 31, 1996, 79,337 shares have been issued pursuant to this plan. Executive Loan Program The Company has established an Executive Loan Program under which a maximum of $10 million is available for loans to certain key employees for purposes of financing the exercise of stock options for shares of the Company's non-voting common stock. Such loans are written for a seven year period, at varying fixed interest rates (currently ranging from 5.3 percent to 8.6 percent), and are payable in annual installments commencing with the third year in which the loan is outstanding. Loans outstanding under this program at October 31, 1996 and 1995 amounted to $3.2 million and $3.3 million, respectively. Stock-Based Compensation In fiscal 1997, the Company will be required to adopt Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation." SFAS No. 123 encourages, but does not require, the recognition of compensation expense for the fair value of stock options and other equity instruments issued to employees. If the fair value provisions of SFAS No. 123 are not adopted, the Company will be required to disclose certain pro forma amounts of net income and earnings per share that would have been reported had these provisions been adopted. The Company does not intend to adopt the fair-value provisions of SFAS No. 123. The Company will continue to account for its stock-based compensation in accordance with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and will include the pro forma disclosures required by SFAS No. 123, if material. 27 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 8. Employee Benefit Plans Profit Sharing Retirement Plan The Company has a discretionary profit sharing retirement plan for the benefit of substantially all employees of it and its wholly owned subsidiaries whereby up to 15 percent of eligible compensation of participants may be contributed. The Company has contributed $2.7 million, $2.8 million and $2.7 million, the maximum amounts permitted under the plan, for the years ended October 31, 1996, 1995 and 1994, respectively. Savings Plan and Trust The Company has a Savings Plan and Trust which is qualified under Section 401 of the Internal Revenue Code. All full-time employees who have met certain age and length of service requirements are eligible to participate in the plan. This savings plan allows participating employees to contribute up to eight percent of their gross salary on a pretax basis to the plan. The Company then matches each participant's contribution on a dollar-for-dollar basis up to a maximum of $1,040. The Company's expenses under the plan were $0.3 million, $0.3 million and $0.2 million for the years ended October 31, 1996, 1995 and 1994, respectively. Supplemental Profit Sharing Plan Effective November 1, 1995, the Company has an unfunded, non-qualified Supplemental Profit Sharing Plan whereby certain key employees of the Company may receive profit sharing contributions in excess of the amounts allowed under the Profit Sharing Retirement Plan. No employee may receive combined contributions in excess of $30,000 to the Profit Sharing Retirement Plan and the Supplemental Profit Sharing Plan. The Company's expense under the plan for the year ended October 31, 1996 was $0.1 million. 9. Common Stock Repurchases On January 6, 1995, the Company's Board of Directors authorized the purchase by the Company of up to 500,000 shares of the Company's non-voting common stock in open market transactions. Through October 31, 1996, 172,000 shares have been acquired under this authorization. 10. Income Taxes Effective November 1, 1993, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes." This statement requires an asset and liability approach for financial accounting and reporting for deferred income taxes. The cumulative effect of the accounting change resulted in a $1.3 million gain, or $0.14 per share, for the year ended October 31, 1994. Income taxes, stated as a percentage of income before income taxes, are comprised of the following: 1996 1995 1994 ================================================================================ Federal statutory tax rate 35.0% 35.0% 35.0% Increases (decreases) in taxes from: State income tax (net of effect of Federal tax) 4.2 3.9 4.9 Tax deductible losses on mining investments (1.7) (5.4) (0.5) Other 2.7 4.8 0.9 - -------------------------------------------------------------------------------- Effective tax rate 40.2% 38.3% 40.3% ================================================================================ Taxes on income consisted of: Current: (in thousands) Federal $ 30,450 $ 19,505 $ 600 State 5,877 5,708 3,081 Deferred: Federal (10,261) (5,459) 13,121 State (1,978) (2,981) 591 - -------------------------------------------------------------------------------- Income taxes $ 24,088 $ 16,773 $ 17,393 ================================================================================ Deferred income taxes reflect the net tax effects of (a) temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, and (b) operating 28 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 10. Income Taxes loss and tax credit carryforwards. The tax effects of significant items comprising the Company's net deferred tax liability as of October 31, 1996 and 1995 are as follows: 1996 1995 ============================================================== (in thousands) Deferred tax liabilities: Deferred sales commissions $69,809 $81,238 Differences between book and tax basis of property 1,648 1,594 Unrealized net holding gains on investments 1,992 1,138 Other 1,300 294 - --------------------------------------------------------------- Total 74,749 84,264 - --------------------------------------------------------------- Deferred tax assets: Capital loss carryback 1,931 1,547 Unrealized losses on gold mining partnerships 466 2,231 Impairment loss on real estate 522 -- Other 1,444 480 - --------------------------------------------------------------- Total 4,363 4,258 - --------------------------------------------------------------- Valuation allowance 466 2,231 - --------------------------------------------------------------- Net deferred tax liability $70,852 $82,237 ============================================================== The net decrease in the valuation allowance for the year ended October 31, 1996 was $1.8 million. The valuation allowance relates to unrealized losses on gold mining partnerships. 11. Financial Instruments The estimated fair value of the Company's financial instruments have been determined by the Company using available market information and appropriate valuation methodologies. The fair value amounts shown below are not necessarily indicative of either the amounts the Company would realize upon disposition of these instruments or the Company's intent or ability to dispose of these assets. Cash and Equivalents, Short-term Investments and Investment in Investment Companies The estimated fair value of cash and equivalents, short-term investments and investment in investment companies approximates their carrying value. Other Investments Included in other investments are certain investments carried at cost, amounting to $1.1 million and $1.3 million at October 31, 1996 and 1995, respectively. Management believes it is impracticable to calculate the fair values of these investments due to the difficulty of predicting future returns and the period in which these amounts will be received. Accordingly, the Company values these investments at cost with adjustments for impairment, if needed. The estimated fair value of the remaining financial instruments in other investments, amounting to $4.7 million and $1.0 million at October 31, 1996 and 1995, respectively, approximates their carrying value. Notes Receivable and Receivables from Affiliates The estimated fair value of notes receivable and receivables from affiliates has been calculated by discounting expected future cash flows using management's estimate of current market interest rates for such notes and receivables. The estimated fair value of these notes and receivables approximates their carrying value. Included in this category are "Notes receivable from stock option exercises" which are a component of shareholders' equity on the consolidated balance sheet. 6.22% Senior Note The estimated fair value of the Company's $50 million Senior Note at October 31, 1996 and 1995 is $49.6 million and $48.7 million, respectively, based on discounted future cash flows using a market interest rate calculated in the same manner as the fixed rate of interest applicable to the note. Mortgage Notes Payable The estimated fair value of the Company's mortgage notes payable at October 31, 1996 and 1995 is $5.9 million and $7.4 million, respectively, based on discounted cash flow analyses using current market interest rates applicable to mortgaged properties. 29 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 11. Financial Instruments (contininued) Unrealized Securities Holding Gains Effective November 1, 1994, the Company adopted SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities." The Company has classified as available for sale securities having an aggregate fair value of $74.4 million and $20.0 million at October 31, 1996 and 1995, respectively. These securities are classified as "Short-term investments," "Investments in investment companies," and "Other investments" on the Company's balance sheet. Gross unrealized gains of $5.6 million and $3.1 million and gross unrealized losses of $44,000 and $759,000 at October 31, 1996 and 1995, respectively, have been excluded from earnings and reported as a separate component of shareholders' equity, net of deferred taxes. 12. Related Party Transactions Investment advisory and distribution income earned from investment companies sponsored by the Company were $174.9 million, $161.6 million and $163.8 million in 1996, 1995 and 1994, respectively. The portfolios and related funds that provided over 10 percent of the total revenue of the Company are as follows: 1996 1995 1994 ================================================================================ (in thousands) National Municipals Portfolio and related funds Investment adviser fees, distribution plan payments and early withdrawal charges $ 26,547 $ 26,892 $ 26,474 Percent of total revenue 14.6% 16.0% 15.5% Senior Debt Portfolio and related funds Investment adviser fees, distribution plan payments and early withdrawal charges $ 26,526 $ 10,327 $ 7,964 Percent of total revenue 14.6% 6.2% 4.7% Investments in sponsored mutual funds, which are classified as "Cash and equivalents," "Short-term investments" and "Investment in investment companies" in the accompanying consolidated financial statements, aggregate approximately $104.2 million and $70.7 million at October 31, 1996 and 1995, respectively. Dividend and interest income earned on these investments aggregated approximately $3.0 million in 1996, $1.7 million in 1995 and $0.1 million in 1994. The Company recognized net gains of approximately $0.6 million in 1996 resulting from the disposition of sponsored fund investments. The Company earned fees of $1.1 million, $1.7 million and $2.1 million in 1996, 1995 and 1994, respectively, for providing management and administration services to VenturesTrident, L.P., and VenturesTrident II, L.P. Amounts outstanding for these services were $1.2 million and $3.2 million at October 31, 1996 and 1995, respectively, and are included in "Notes receivable and receivables from affiliates." 13. Regulatory Requirements Two subsidiaries of the Company are subject to the Securities and Exchange Commission uniform net capital rule (Rule 15c3-1) which requires the maintenance of minimum net capital. For purposes of this rule, the subsidiaries had net capital of $33.8 million and $0.4 million, respectively, which exceeds their respective minimum net capital requirements of $298,000 and $10,000 at October 31, 1996. The ratio of aggregate indebtedness to net capital at October 31, 1996 for the two subsidiaries was 0.13 to 1 and 0.39 to 1, respectively. 30 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 14. Subsequent Event Effective November 1, 1996, all of the business operations, employees, registered representative licenses, distribution agreements, and other assets and liabilities of Eaton Vance Distributors, Inc., a wholly owned subsidiary and principal underwriter of the Eaton Vance Funds, were transferred to EV Distributors, Inc., also a wholly owned subsidiary. The transfer had no impact on the consolidated financial statements as of October 31, 1996. EV Distributors, Inc. changed its name to Eaton Vance Distributors, Inc., effective November 1, 1996. 15. Comparative Quarterly Financial Information (Unaudited) The 1995 comparative quarterly financial information has been restated to reflect the spin-off of IB&T as discontinued operations.
1996 ==================================================================================================================================== First Second Third Fourth Full Quarter Quarter Quarter Quarter Year - ------------------------------------------------------------------------------------------------------------------------------------ (in thousands, except per share figures) - ------------------------------------------------------------------------------------------------------------------------------------ Total revenue $ 44,498 $ 45,461 $ 45,062 $ 46,340 $181,361 - ------------------------------------------------------------------------------------------------------------------------------------ Income from: Continuing operations $ 9,798 $ 8,811 $ 9,495 $ 7,730 $ 35,834 Extraordinary item -- 1,590 -- -- 1,590 - ------------------------------------------------------------------------------------------------------------------------------------ Net income $ 9,798 $ 10,401 $ 9,495 $ 7,730 $ 37,424 - ------------------------------------------------------------------------------------------------------------------------------------ Earnings per share from: Continuing operations $ 1.04 $ 0.93 $ 0.98 $ 0.79 $ 3.74 Extraordinary item -- 0.17 -- -- 0.17 - ------------------------------------------------------------------------------------------------------------------------------------ Earnings per share $ 1.04 $ 1.10 $ 0.98 $ 0.79 $ 3.91 - ------------------------------------------------------------------------------------------------------------------------------------ 1995 ==================================================================================================================================== First Second Third Fourth Full Quarter Quarter Quarter Quarter Year - ------------------------------------------------------------------------------------------------------------------------------------ (in thousands, except per share figures) - ------------------------------------------------------------------------------------------------------------------------------------ Total revenue $ 41,538 $ 40,733 $ 42,690 $ 42,961 $167,922 - ------------------------------------------------------------------------------------------------------------------------------------ Income from: Continuing operations $ 5,604 $ 5,918 $ 8,522 $ 6,924 $ 26,968 Discontinued operations 799 1,468 512 629 3,408 - ------------------------------------------------------------------------------------------------------------------------------------ Net income $ 6,403 $ 7,386 $ 9,034 $ 7,553 $ 30,376 - ------------------------------------------------------------------------------------------------------------------------------------ Earnings per share from: Continuing operations $ 0.61 $ 0.65 $ 0.92 $ 0.72 $ 2.90 Discontinued operations 0.09 0.16 0.06 0.07 0.37 - ------------------------------------------------------------------------------------------------------------------------------------ Earnings per share $ 0.70 $ 0.81 $ 0.98 $ 0.79 $ 3.27 - ------------------------------------------------------------------------------------------------------------------------------------
31 INDEPENDENT AUDITORS' REPORT To the Board of Directors and Shareholders of Eaton Vance Corp. We have audited the accompanying consolidated balance sheets of Eaton Vance Corp. and its subsidiaries as of October 31, 1996 and 1995, and the related consolidated statements of income, shareholders' equity, and cash flows for each of the three years in the period ended October 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Eaton Vance Corp. and its subsidiaries as of October 31, 1996 and 1995, and the results of their operations and their cash flows for each of the three years in the period ended October 31, 1996 in conformity with generally accepted accounting principles. As discussed in Note 10 to the consolidated financial statements, the Company changed its method of accounting for income taxes effective November 1, 1993, to conform with Statement of Accounting Standards No. 109. As discussed in Notes 1 and 11 to the consolidated financial statements, effective November 1, 1994, the Company adopted Statements of Financial Accounting Standards Nos. 115 and 121. DELOITTE & TOUCHE LLP Boston, Massachusetts November 26, 1996 32 EX-21.1 6 SUBSIDIARIES OF THE REGISTRANT EXHIBIT 21.1 List of Subsidiaries As of October 31, 1996* State or Name Under Jurisdiction of Which Incorporation Subsidiary or Organization Does Business --------------------------------- First Tier Subsidiaries of Eaton Vance Corp.: Eaton Vance Management Massachusetts Same Fulcrum Management, Inc. Massachusetts Same EV Gold, Inc. Massachusetts Same MinVen, Inc. Massachusetts Same Certain Subsidiaries of Eaton Vance Management: Eaton Vance Distributors, Inc. Massachusetts Same Northeast Properties, Inc. Massachusetts Same Boston Management and Research Massachusetts Same * The names of certain subsidiaries have been omitted in this list inasmuch as the unnamed subsidiaries, considered in the aggregate as a single subsidiary, would not constitute a significant subsidiary as of the Company's fiscal year ended October 31, 1996. 42 EX-23.1 7 CONSENTS OF EXPERTS AND COUNSEL EXHIBIT 23.1 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in the Registration Statements listed at Exhibit 99.2 of Eaton Vance Corp. (the Company) on Forms S-8 and S-3 of our report dated November 26, 1996 appearing in the Annual Report on Form 10-K of the Company for the year ended October 31, 1996. DELOITTE & TOUCHE LLP Boston, Massachusetts January 8, 1997 43 EX-27 8
5 12-MOS OCT-31-1996 OCT-31-1996 55583 60792 7650 0 0 130072 2828 0 360262 24081 0 0 0 586 210194 360262 0 181361 0 0 122340 0 3742 59922 24088 35834 0 1590 0 37424 3.91 3.91
EX-99.2 9 OPEN REGISTRATION STATEMENTS EXHIBIT 99.2 Eaton Vance Corp. Open Registration Statements
Registration Statement Filing Date Consent Date Filing Number ---------------------- ----------- ------------ ------------- Form S-3 June 28, 1995 June 22, 1995 33-60649 Form S-8 June 27, 1995 June 22, 1995 33-60617 Form S-8 December 1, 1994 December 1, 1994 33-56701 Form S-8 June 8, 1994 June 8, 1994 33-54035 Form S-8 March 8, 1994 March 4, 1994 33-52559 Form S-8 April 23, 1992 April 21, 1992 33-47405 Form S-8 April 23, 1992 April 21, 1992 33-47403 Form S-8 April 23, 1992 April 21, 1992 33-47402 Form S-8 April 23, 1992 April 21, 1992 33-47401 Form S-3 February 13, 1992 February 11, 1992 33-45685 Form S-8 September 16, 1991 September 16, 1991 33-42667 Form S-8 October 11, 1989 October 5, 1989 33-31382 Form S-8 April 10, 1987 April 8, 1987 33-13217
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