-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, r4iQeDbRuX4tT6Wv29D3Dmyf2C4o6bcsUfDE8p2DnZkqhyhpl6v1Y/i5MIF30Md4 5pImqvlVOaTwgmOWVZldqA== 0000350797-95-000002.txt : 19950608 0000350797-95-000002.hdr.sgml : 19950608 ACCESSION NUMBER: 0000350797-95-000002 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19941031 FILED AS OF DATE: 19950118 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: EATON VANCE CORP CENTRAL INDEX KEY: 0000350797 STANDARD INDUSTRIAL CLASSIFICATION: 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: 95501860 BUSINESS ADDRESS: STREET 1: 24 FEDERAL ST CITY: BOSTON STATE: MA ZIP: 02110 BUSINESS PHONE: 6174828260 10-K 1 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, 1994 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 Title of each class on which registered Non-Voting Common Stock par value $0.0625 per share Boston Stock Exchange Securities registered pursuant to Section 12(g) of the Act: Title of Class Non-Voting Common Stock par value $0.0625 per share 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 (229.405 of this chapter) 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, 1994 Non-Voting Common Stock, $0.0625 par value 9,103,142 Common Stock, $0.0625 par value 19,360 Portions of registrant's Annual Report to Stockholders for the fiscal year ended October 31, 1994, (Exhibit 13.1 hereto) have been incorporated by reference into the following Parts of this report: Part I, Part II and Part IV. -1- 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, 1994, the Company managed $15.0 billion in portfolios with investment objectives ranging from high current income to maximum capital gain. In addition to its investment management activities, the Company has three additional lines of business: 1) fiduciary and related banking services; 2) real estate; and 3) precious metal mining. On October 31, 1994, the Company and its wholly owned subsidiaries had 385 full-time employees. Investors Bank & Trust Company (IB&T), a 77.3% owned subsidiary, had an additional 632 employees. On October 31, 1993, the comparable figures were 356 and 517. 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, 1994 (which report is furnished as Exhibit 13.1 hereto) for financial information including total income, operating profit or loss and identifiable assets attributable to each of the Company's business segments. INVESTMENT MANAGEMENT OVERVIEW 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 ("EVD"), a wholly owned broker/dealer registered under the Exchange Act, markets and sells the Eaton Vance Funds. As of October 31, 1994, the Company provided investment advisory and administration services to 147 Funds ("Funds") and to over 1,000 separately managed accounts. At that date the Funds had aggregate net assets of $13.4 billion and the Company's separately managed accounts had aggregate net assets of $1.6 billion. The following table shows net assets in the Funds and the separately managed accounts for the dates indicated: Fund And Separate Account Assets (in millions) At October 31,
1994 1993 1992 1991 1990 Funds $13,400 $13,100 $ 9,200 $7,400 $5,900 Separately Managed Accounts 1,600 2,200 2,100 2,000 1,300 Total $15,000 $15,400 $11,300 $9,400 $7,200
-2- ITEM 1. BUSINESS (Continued) Investment decisions for all but ten of the 147 Funds are made by portfolio managers employed by the Company and are made in accordance with each Fund's fundamental investment objectives. The Company's portfolio management staff consists of 58 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 the eighteen investment counselors employed by the Company. The investment counselors are assisted by an additional twelve 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, 1994: Investment Advisory And Administration Fees* (in thousands) Year ended October 31,
1994 1993 1992 1991 1990 Investment Advisory Fees - Funds $68,284 $59,322 $50,776 $44,550 $40,366 Separately Managed Accounts 9,807 8,934 8,949 6,957 5,922 Administration Fees - Funds 4,257 3,295 4,685 5,388 4,529 Total $82,348 $71,551 $64,410 $56,895 $50,817 * 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 and offer successfully new funds and to increase the assets of existing Funds. The Company's strategy is to develop products with clearly understood and clearly presented investment characteristics coupled with distribution arrangements that are attractive to third-party distributors of the Funds. In 1985 the Company was a leader in the introduction of spread commission funds with self-liquidating distribution payment plans. The Company has built on this concept by creating state specific double-tax-free mutual funds which utilize this distribution method. -3- ITEM 1. BUSINESS (Continued) In 1990, the Company introduced the first of its single-state tax-exempt Funds. In 1991, it introduced nine additional single-state tax-exempt Funds, a short-term treasury Fund and Eaton Vance Short-Term Global Income Fund, which invests in domestic and foreign fixed income securities. In 1992, the Company introduced 21 new Funds, including 13 long maturity single-state tax-free Funds, seven limited maturity single-state tax-free Funds, and the Eaton Vance Greater China Funds, which seek long-term capital appreciation through investments in equity securities of companies which will benefit from the economic development and growth of Southeast Asia. In 1993, the Company introduced the Hub and Spoke structure. "Hub and Spoke" is a two-tiered arrangement in which mutual substantially identical investment objectives pool their assets by investing in a common portfolio (Hub). The structure benefits fund shareholder through lower operating costs, while allowing the Company to offer cost-effective distribution alternatives to the broker/dealer community and its clients. In 1994, the Company converted most of its continuously off Funds to a Hub and Spoke structure and plans to utilize this structure for future funds. The Company also used the Hub and Spoke structure in 1994 to create five private-label tax-free funds for G.R. Phelps & Co., a subsidiary of Connecticut Mutual Life Insurance Company. G.R. Phelps manages and distributes a growing family of funds through its own 2,000-member sales force as well as through other distribution channels. By offering spokes into mature Eaton Vance tax-free hubs, G.R. Phelps was able to broaden its product line to include one national and four state tax-free funds without the delays and business risks typically associated with starting new mutual funds. The Company continues to pursue similar opportunities with other mutual fund sponsors. In April of 1994 the EV Greater India Funds were introduced. The Greater India Funds were the first United States open-end investment companies with an investment focus on India and the surrounding countries of the Indian sub-continent and complement the Eaton Vance Greater China Funds. In addition, the Company entered the offshore fund market with five new "EV Medallion" funds sold to non-U.S. investors. Each fund is a spoke investing in an existing hub which also serves U.S. investors by way of a domestic spoke. The Medallion family consists of a Greater China Growth Fund, a Greater India Fund, a new Emerging Markets Fund, a High Yield Fund, and a U.S. Government Income Fund. Additional spokes for the Medallion family are planned for 1995. The Medallion funds will be sold by U.S. broker/dealers to non-U.S. clients as well as by broker/dealers operating offshore. 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 and insurance companies. 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 1994 and 1993 calendar years, the five dealer firms responsible for the largest volume of fund sales accounted for approximately 56% and 59%, respectively, of the Company's fund sales volume. 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 a separate wholesaling force focusing on banks and financial planners. EVD currently maintains a -4- ITEM 1. BUSINESS (Continued) sales force of more than 30 wholesalers and 30 sales assistants. Whole- salers and their assistants work closely with the retail distribution network to assist in selling Eaton Vance Funds. EVD currently sells the Funds under three separate commission structures: 1) front-end load commission; 2) spread-load commission; and 3) level-load commission. In the front-end load commission structure, the shareholder pays the broker's commission and EVD receives an underwriting commission equal to 0 to 75 basis points of the dollar value of the Fund shares sold. In the spread-load commission structure, 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 then 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 distribution plan adopted by the Fund pursuant to Rule 12b-1 under the Investment Company Act. Like the investment advisory agreement, the distribution plan 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 the level-load commission structure, the shareholder pays no front-end commissions, contingent deferred sales charges or underwriting commissions. The Fund does, however, make monthly distribution plan payments similar to the spread-load Funds, equal to 75 basis points of average net assets and service fees equal to 25 basis points of average net assets on an annual basis to the broker/dealer. 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. 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, 1994 (which report is furnished as Exhibit 13.1 hereto) for a description of the major customers that provided over 10% of the total income 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, 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. -5- ITEM 1. BUSINESS (Continued) 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 under the Investment Company Act and each nationally offered Fund is qualified for sale (or is exempt) in all states in the United States and District of Columbia; and each single-state Fund is qualified for sale (or is exempt) in the state for which it is named and other designated states. 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 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. IB&T and, to a lesser extent, the other lines of business of the Company are also subject to state and federal regulation. 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 certain types of transactions and reporting of all securities transactions, and restrict certain transactions so as to avoid the possibility of conflicts of interest. -6- FIDUCIARY AND RELATED BANKING SERVICES Through its 77.3% owned subsidiary Investors Bank & Trust Company (IB&T), the Company provides domestic and foreign securities processing for pooled investment vehicles, including investment companies, unit investment trusts and common trust funds. IB&T also offers a full range of private banking, custody and trustee services to individuals, investment advisers, attorneys and private trustees. IB&T opened an office in Toronto, Canada in 1993, and in Dublin, Ireland in 1994, allowing the Bank to better serve the growing offshore mutual fund market. Eaton & Howard, one of the Company's two predecessors, formed IB&T in 1969. IB&T was the first "non-bank bank" in the country to obtain FDIC insurance. While it has a charter with full banking powers from the Commonwealth of Massachusetts, IB&T has elected not to make commercial loans. As a result of enactment of the Competitive Equality Banking Act of 1987 ("CEBA"), IB&T, as an FDIC-insured depository institution, became a "bank" for purposes of the Bank Holding Company Act of 1956 (the "BHC Act"). Pursuant to CEBA, the Company is permitted to retain its ownership of IB&T without being treated as a bank holding company for purposes of the BHC Act provided that, among other requirements, (a) neither the Company nor any of its affiliates acquires control of an additional insured depository institution, (b) IB&T does not engage in any activity in which it was not lawfully engaged as of March 5, 1987, (c) IB&T limits the increase in its assets to no more than 7% during any 12-month period beginning after August 10, 1988 (this limitation does not apply to assets under custody) and (d) IB&T does not engage in certain cross-marketing activities with affiliates. The Company currently is not considered to be a bank holding company under the BHC Act. REAL ESTATE Through Northeast Properties, Inc., a wholly owned subsidiary of the Company, the Company owns and operates retail, industrial and office rental properties located in New England and New York State. The book value of such real estate on October 31, 1994 was $22.2 million, with non-recourse mortgages of $15.4 million and recourse mortgages of $1.4 million on the properties. The Company believes the value of its real estate to be higher than the book value. PRECIOUS METAL MINING The Company sponsored and is a limited and general partner in two gold mining partnerships which invest in the equity and debt securities of developers of gold mines in North America and Australia. The Company has a 28% net profits interest in one partnership and a 19% net profits interest in the other. In addition, the Company owns directly 615,000 shares (approximately 4% of the total outstanding shares) of Dakota Mining Corporation, an important holding of both partnerships. One partnership terminates in 1995 and the other in 1997. The Company has marked to market its investments in equity and debt securities of companies engaged in gold mining operations held directly by the Company and through the two gold mining partnerships. This practice is not expected to have a material effect on the Company's net income in the future. 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. -7- ITEM 2. PROPERTIES (Continued) For information with respect to the properties, reference is made to Schedule XI and Notes 4 and 6 of the Notes to Consolidated Financial Statements contained in the Eaton Vance Corp. 1994 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 Marblehead Energy Corp. and Energex Corporation, which own interests in certain oil and gas properties. For further information with respect to such properties, reference is made to Note 12 of the Notes to Consolidated Financial Statements contained in the Eaton Vance Corp. Annual Report to Shareholders (Exhibit 13.1 hereto), which is incorporated herein by reference. ITEM 3. LEGAL PROCEEDINGS At October 31, 1994, there were no material pending legal proceedings to which the Company or any of its subsidiaries was a party or of which any of its property was the subject. The Company was informed on January 13, 1995, however, that a National Association of Securities Dealers (NASD) arbitration panel in Tampa, Florida awarded a former wholesaler for the firm $625,000 in damages and an additional $1,250,000 as punitive damages in response to his claim for wrongful termination of employment. One member of the three-person panel dissented as to the award of punitive damages. The Company had requested dismissal of the wholesaler's claim and counterclaimed for damages of $435,000. It believes that the wholesaler's termination was fully justified and even compelled by the facts, and that there is no basis for the award of actual or punitive damages. As a result, the Company is examining all possible legal steps to overturn what it regards as a most inequitable decision, and affirms that it will pursue the matter to the fullest. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not Applicable. -8- PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's Voting Common Stock, $0.0625 par value, is not traded and, as of October 31, 1994, was 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 in the Over-the-Counter market on the NASDAQ National Market System under the symbol EAVN. The approximate number of holders of record of the Company's Non-Voting Common Stock at October 31, 1994, was 1,109. The additional information required to be disclosed in Item 5 is found on page 4 of the Company's 1994 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 Eaton Vance Corp. Selected Financial Data (Unaudited) (in thousands, except per share figures) Year Ended October 31,
1994 1993 1992 1991 1990 Total income $218,006 $189,145 $153,153 $121,464 $ 95,808 Net income 29,786 27,341 19,307 12,718 7,674 Total assets 455,506 425,547 318,199 273,713 222,494 Long-term obligations 60,311 73,228 78,358 63,961 50,633 Per common share- Net Income $3.14 $3.09 $2.49 $1.74 $1.02 Cash dividends declared 0.60 0.49 0.36 0.29 0.24
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The Company's largest sources of revenues are investment adviser fees and distribution fees received from the Eaton Vance funds and investment counsel fees from the separately managed accounts. Such fees and payments 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. Bank fee income, also a significant source of revenue, is dependent upon assets custodied and administered by IB&T. The Company's expenses other than the amortization of deferred sales commissions include primarily employee compensation, occupancy costs, service fees and other marketing costs. -9- RESULTS OF OPERATIONS YEAR ENDED OCTOBER 31, 1994 COMPARED TO YEAR ENDED OCTOBER 31, 1993 Total revenues rose $28.9 million to $218.0 million from $189.1 million in 1993. This increase can be attributed primarily to increases in investment adviser fees and distribution income which increased $10.6 million and $8.4 million, respectively, in 1994. Both investment adviser fees and distribution income are based on the average net asset values of portfolios managed by the Company, which increased significantly to $15.5 billion for the year ended October 31, 1994, from $13.1 billion for the year ended October 31, 1993. Fund assets under management were increased by net sales of mutual funds of $2.0 billion in 1994 and were reduced, primarily, by depreciation in the market value of managed assets of $1.8 billion. Separately managed accounts, in contrast, decreased to $1.6 billion in 1994 from $2.2 billion in 1993. This decrease was primarily due to the withdrawal of one large public retirement client. Gross sales of mutual funds of $3.4 billion for 1994 were down 21% from 1993 when the Company achieved record sales of $4.3 billion. Consistent with the experience of other mutual fund sponsors, 1994 redemptions rose 38 percent to $1.8 billion from 1993's redemptions of $1.3 billion. Bank fee income was also a significant contributor to overall revenue growth in 1994, increasing 31% to $42.5 million from $32.5 million a year earlier. Like investment adviser and distribution fees, bank fee income is based on assets custodied and administered by IB&T. The Company experienced significant growth in these assets in 1994. The Company was advised in November, however, that a large client intended to terminate its custodial relationship with IB&T for unit investment trusts for reasons not related to performance and withdraw such accounts, which amounted to 16.3% of IB&T's bank fee income in 1994. Such termination is not anticipated to have a material adverse effect on IB&T's revenues and income, as successful efforts are being made to replace revenues attributable to this client. The two major components of total expenses are compensation of officers and employees and amortization of deferred sales commissions. In 1994, total operating expenses increased $24.1 million to $165.8 million. The increase in compensation expense resulted from the hiring of additional personnel at IB&T to service the additional assets under custody. Larger average dollar value of assets in spread commission funds increased the amortization of deferred sales commissions by $11.9 million. Other expenses rose a total of $7.4 million to $46.4 million in 1994 from $39.0 million in 1993. This increase was primarily due to an increase in IB&T's equipment leasing costs of $1.2 million, $1.4 million in development costs associated with two fund products that were not launched in 1994, and higher marketing and administrative costs incurred to increase the distribution of the Company's funds. The Company sponsored and is a limited and a general partner in two gold mining partnerships which invest in the equity and debt securities of developers of gold mines in North America and Australia. Portfolio -10- valuations of these gold mining investment partnerships contributed net partnership losses of $0.3 million in 1994, in comparison with net partnership gains of $3.9 million in 1993. Net income of the Company amounted to $29.8 million in 1994 compared to $27.3 million in 1993. Earnings per share were $3.14 and $3.09, respectively. During 1994 the Company's total assets increased significantly due to the increase in deferred sales commissions to $256.3 million from $240.0 million in 1993 resulting from substantial sales of shares in the Company's spread-commission funds. Payment of these commissions was funded primarily by cash flows from operating activities. The difference between the book and tax accounting treatment for these commissions caused deferred income taxes to increase by $13.7 million. The increase in deferred income taxes was partially offset by the cumulative effect of the change in accounting for income taxes of $1.3 million resulting from the Company's implementation of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes", on November 1, 1993. YEAR ENDED OCTOBER 31, 1993 COMPARED TO YEAR ENDED OCTOBER 31, 1992 Total revenues rose $36.0 million to $189.1 million from $153.1 million in 1992. This increase can be primarily attributed to increases in investment advisory fees and distribution income, which increased $6.7 million and $24.6 million, respectively, in 1993. Investment advisory fees rose less than distribution income because fund sales were concentrated in spread commission municipal bond funds, which pay distribution plan fees, while redemptions were largely from the Eaton Vance Prime Rate Reserves Fund, which pays an adviser fee incorporating the equivalent of distribution payments. Both investment adviser fees and distribution income are based on the average net asset value of portfolios managed by the Company. Ending assets under management increased significantly in 1993 to $15.4 billion from $11.3 billion in 1992. Total assets under management were increased by net sales of mutual funds of $3.0 billion, market appreciation and growth of separately managed accounts. Gross sales of mutual funds rose 46% to $4.3 billion from $2.9 billion a year earlier. Redemptions of the Company's fund shares fell 13% to $1.3 billion from $1.5 billion a year earlier. The increase in distribution fee income in comparison with the prior year was restricted by the implementation on July 7, 1993 of an NASD rule limiting distribution plan payments to 75 basis points per year. At the time of the implementation, the rule affected approximately $6.8 billion in assets from which the Company was receiving distribution plan payments at an annual rate of 1 percent. Although the rule allows the Company to receive the same present value of distribution plan payments, it requires the payments to be spread over a longer time period. Bank fee income was also a significant contributor to overall revenue growth in 1993, increasing 12% to $32.5 million from $29.0 million a year earlier. Like investment adviser and distribution fees, bank fee income is based on assets custodied and administered by IB&T. The assets for which IB&T provides custody and related services increased 41% to $61.2 billion in 1993 from $43.3 billion in 1992. The two major components of total expenses are compensation of officers and employees and amortization of deferred sales commissions. In 1993, total operating expenses increased $26.1 million to $141.7 million. Higher salaries and benefits, marketing incentives and expenses associated with -11- the higher level of fund sales caused compensation to increase. Larger average dollar value of assets in spread commission funds increased the amortization of deferred sales commissions by $12.9 million. Other expenses rose a total of $6.7 million to $39.0 million in 1993 from $32.3 million in 1992, primarily due to increases in marketing costs associated with the higher level of sales, expenses from the Bank's custody activities and expenses associated with the Company's gold mining activities. The Company sponsored and is a limited and a general partner in two gold mining partnerships which invest in the equity and debt securities of developers of gold mines in North America and Australia. Portfolio valuations of these gold mining investment partnerships contributed net partnership gains of $3.9 million in 1993, in comparison with net partnership losses of $0.2 million in 1992. Net income of the Company amounted to $27.3 million in 1993 compared to $19.3 million in 1992. Earnings per share were $3.09 and $2.49, respectively. During 1993, the Company's total assets increased significantly due to the increase in deferred sales commissions to $240.0 million from $159.8 million in 1992 resulting from substantial sales of shares in the Company's spread-commission funds. Payment of these commissions was funded by cash flows from operating activities and borrowings. The difference between the book and tax accounting treatment for these commissions caused deferred income taxes to increase by $17.1 million. LIQUIDITY AND CAPITAL RESOURCES In 1994, retained earnings of $24.3 million and net proceeds of $2.4 million from the issuance of new stock to employees under stock purchase and stock option plans, less $6.4 million used to repurchase outstanding shares of the Company's stock, increased the Company's consolidated net worth from $145.3 million at the end of 1993 to $165.6 million on October 31, 1994. The Company's primary sources of cash flow from operating activities were net income of $29.8 million, amortization of deferred sales commissions of $52.8 million, capitalized sales charges received on early redemption of spread-commission funds of $24.8 million and deferred income taxes of $13.7 million. In 1994, the primary use of capital was for commission payments associated with sales of spread-commission mutual funds, which were primarily financed by cash flows from operating activities of $32.9 million. The Company anticipates that the primary use of cash will continue to be the payment of sales commissions on sales of the Company's spread- commission funds. The Company anticipates funding the payment of these commissions through cash flows generated from operating activities and, if necessary, through borrowings. On March 18, 1994, the Company privately placed, with three insurance companies, a $50 million 6.22% Senior note due March, 2004. Principal payments on the note are due in equal annual installments beginning March 18, 1998. The note may be prepaid in part or in whole on or after March 16, 1996. The proceeds were used to call the Company's outstanding $14 million of 10% Subordinated Debentures and to reduce the borrowings under a $75 million revolving line of credit with two unaffiliated banks. Certain covenants in the Senior Note Purchase Agreement and the bank credit agreement require specific levels of cash flow and net income and others restrict additional investment and indebtedness. At year end, the Company had no borrowings under its $75 million bank credit facility. The Company expects a small continuing cash flow from its real estate activities. The Company has no present plans for significant investments in new real estate properties. -12- EFFECTS OF INFLATION The major sources of revenue for the Company, i.e., adviser fees, administrative fees and distribution plan payments, are calculated as percentages of assets under management. 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 relation- ship 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 precious metal properties or real estate may be increased. 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 20 through 42 of the Company's 1994 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. -13- PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The names of all directors and executive officers of Eaton Vance Corp. as of October 31, 1994, as well as their ages, family relationships between them, and offices with The Company held by each of them, are as follows: Family Name Age Relationship Office Landon T. Clay (1)(2) 68 None Chairman of the Board of Directors M. Dozier Gardner (1)(2) 61 None President, Chief Executive Officer and Director James B. Hawkes (1)(2) 53 None Executive Vice President and Director H. Day Brigham, Jr. (1)(2) 68 None Vice President, Director and Chairman of Management Committee John G. L. Cabot 60 None Director Curtis H. Jones (1) 65 None Vice President, Treasurer and Director Benjamin A. Rowland, Jr. (1)(2) 59 None Vice President and Director Ralph Z. Sorenson 61 None Director Thomas Otis 63 None Vice President and Secretary Laurie G. Russell 28 None Vice President and Internal Auditor John P. Rynne 52 None Vice President and Corporate Controller (1) Member of Management Committee of the Company's Board of Directors (2) Voting Trustee. See Item 12(a) hereof. 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 re- organized as Eaton Vance Management in October, 1990) was formed at 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 titlesin a firm in the chain of Vance, Sanders & Company, Inc., Eaton & Howard, Vance Sanders Inc., or Eaton Vance Corp. Mr. Clay has been Chairman of the Board of Directors and was Chief Executive Officer from October, 1971 until October, 1990; he has been a Director of the Company since January, 1970, and was a Vice President from November, 1968, until October, 1971. Mr. Gardner was elected President effective October, 1979; he has been a Director since July, 1970 and the Chief Executive Officer -14- ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT (Continued) since October, 1990. Mr. Brigham has been a Director since April, 1979; from 1967 through 1973 he was Vice President and General Counsel of Eaton & Howard, Incorporated, and from 1973 until April, 1979, he was President of Eaton & Howard. Mr. Cabot, Vice Chairman of Cabot Corporation, became a Director of Eaton Vance Corp. in March, 1989. Mr. Hawkes has been Executive Vice President since January, 1990, a Vice President since June, 1975, and a Director since January, 1982. Mr. Jones was a Vice President of Eaton Vance Corp. since March, 1982, and Treasurer and a Director from January, 1984. Mr. Jones retired as Vice President, Treasurer and a Director in November, 1994, and was succeeded by William M. Steul, who most recently was Vice President, Finance and Chief Financial Officer of Digital Equipment Corporation. Mr. Rowland has been a Vice President since April, 1969, and a Director since January, 1973. Mr. Sorenson became a Director of Eaton Vance Corp. in March, 1989. Ms. Russell joined Eaton Vance Corp. in August, 1994. Ms. Russell was most recently a Senior Accountant with Deloitte & Touche LLP. Mr. Otis has been Secretary since October, 1969, a Vice President since April, 1973, and has been the Company's counsel since 1966. Mr. Rynne has been Corporate Controller of Eaton Vance Corp. since January, 1984. In general, the foregoing officers hold their positions for a period of one year or until their successors are duly chosen or elected. Mr. Clay is an officer, trustee, director or general partner of a number of investment companies of which Eaton Vance Management or Boston Management and Research acts as investment adviser. He is Vice President and a Director of Fulcrum Management, Inc., MinVen, Inc., Vector Mining, Inc., and Compass Mining, Inc. Mr. Clay is also a Director of Energex Corporation and ADE Corp. (a manufacturer of non-contact measuring devices). Mr. Gardner is an officer or trustee of a number of investment companies for which Eaton Vance Management or Boston Management and Research acts as investment adviser. Mr. Brigham is an officer or trustee of a number of investment companies for which Eaton Vance Management or Boston Management and Research acts as investment adviser, and Vice President, Secretary and Trustee of EquiFund- Wright National Fiduciary Equity Funds, The Wright Managed Equity Trust, The Wright Managed Income Trust and The Wright Managed Money Market Trust. He is a Director and Secretary of Investors Bank & Trust Company and a Director of Northeast Properties, Inc. Mr. Hawkes is an officer, trustee or director of a number of investment companies for which Eaton Vance Management or Boston Management and Research acts as investment adviser. He is also a Director of Investors Bank & Trust Company. Mr. Rowland is a Director of Investors Bank & Trust Company, Marblehead Energy Corp., and Energex Corporation. -15- ITEM 11. EXECUTIVE COMPENSATION (a) SUMMARY COMPENSATION TABLE Other All Annual Compensation Annual Options Other Year Salary Bonus Comp. Granted Comp.
Name ($) ($)* ($) (#) ($) M. Dozier Gardner 1994 365,000 344,046 3,346 0 30,000 Chief Executive 1993 350,000 302,179 13,326 20,000 30,000 Officer 1992 332,000 254,138 9,468 13,000 30,000 Landon T. Clay 1994 350,000 273,648 15,291 0 30,000 Chairman of 1993 335,000 269,500 11,939 0 30,000 the Board 1992 318,000 224,100 9,459 0 30,000 James B. Hawkes 1994 330,000 550,413 723 0 30,000 Executive 1993 315,000 500,997 6,202 75,000 30,000 Vice President 1992 300,000 400,720 4,922 40,000 30,000 Curtis H. Jones 1994 240,000 234,816 1,387 0 30,000 Vice President 1993 229,000 223,600 11,939 0 30,000 & Treasurer 1992 218,000 187,800 9,468 0 30,000 Wharton P. Whitaker 1994 198,000 411,245 3,346 0 30,000 President, EVD 1993 189,000 640,654 11,939 15,000 28,838 1992 180,000 481,012 9,468 10,000 26,896 * Bonuses include payments in lieu of option grants to Mr. Clay in 1994 of $43,520, in 1993 of $54,500 and in 1992 of $44,100, and to Mr. Jones in 1994 of $34,816, in 1993 of $43,600 and in 1992 of $37,800.
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 Stock Alternative Plan. The amounts appearing under "All Other Compensation" represent the Company's contribution to its Profit Sharing and 401(k) Plans. The Company's contribution to the Profit Sharing Plan is 15% of the base compensation of all eligible employees, is allocated based on the employee's salary and years of service, and is vested at the rate of 20% for each year of employment. The Company's contribution to the 401(k) plan, which is presently known as the Savings Plan and Trust, is a 100% matching of the first $20.00 of the participant's weekly contribution. Vesting in the Savings Plan and Trust is 100%. The overall contribution to the employee benefit plans may not exceed the statutory limitation of $30,000 per year. -16- ITEM 11. EXECUTIVE COMPENSATION (Continued) (b) OPTION GRANTS IN LAST FISCAL YEAR
Number of Percentage of Exercise Expiration Potential Realized Securities Options Granted Price Date Value at Assumed Underlying to Employees ($/Sh) Annual Rates of Options in Fiscal Year Stock Price Granted Appreciation Name (#) 5%($) 10%($) M. Dozier Gardner None Landon T. Clay None (Cash bonus in lieu of options) James B. Hawkes None Curtis H. Jones None (Cash bonus in lieu of options) Wharton P. Whitaker None
(c) AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION VALUES Number of Securities Underlying Number of Unexercised Value of Unexercised Options Value Options at Fiscal In-the-Money Options Exercised Realized Year End (#) at Fiscal Year End ($) Name (#) ($) Exercisable Unexercisable Exercisable Unexercisable M. Dozier Gardner 3,000 59,550 33,917 27,583 595,642 313,070 Landon T. Clay 0 0 25,000 0 515,350 0 James B. Hawkes 16,856 303,835 63,928 70,216 928,604 443,190 Curtis H. Jones 12,200 294,000 0 0 0 0 Wharton P. Whitaker 5,000 135,000 20,752 15,248 346,188 98,312
-17- (d) COMPENSATION OF DIRECTORS Directors not otherwise employed by the Company receive a retainer of $3,500 per quarter and $750 per meeting. During the fiscal year ended October 31, 1994, John G.L. Cabot received $20,750 and Ralph Z. Sorenson received $20,000; in addition, each was granted options for 735 shares. (e) COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION M. Dozier Gardner, President of the Company, is a member of the Compensa- tion Committee of the Board of Directors of the Company. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT (a) SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS 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 14, 1994), Landon T. Clay (Chairman of the Board of Directors of the Company), M. Dozier Gardner (President and a Director of the Company), Benjamin A. Rowland, Jr. (a Vice President and a Director of the Company), H. Day Brigham, Jr. (a Vice President and a Director of the Company) and James B. Hawkes (Executive Vice President and a Director of the Company). The Voting Trust (a copy of which is incorporated by reference as Exhibit 9.1 hereto) expires December 31, 1996. The Voting Trustees have unrestricted voting rights for the election of the Company's directors. At December 14, 1994, 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; other- wise 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 14, 1994, 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:
Title of Class Name Number of Shares of % Voting Common Stock of Covered by 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 H. Day Brigham, Jr. 2,520 13%
-18- (a) SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS (Continued) Messrs. Clay, Gardner, Rowland, Brigham, and Hawkes are all officers and Directors of the Company and Voting Trustees 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. (b) SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT (1) 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 14, 1994, the officers and directors of EVC, as a group, beneficially owned 2,955,135 shares of such Non-Voting Common Stock or 31.71% of the 9,318,094 shares then outstanding. (Such figures include 241,278 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 (i.e., investment power within the meaning of Rule 13d-3(a)(2) under the Securities Exchange Act of 1934) of EVC's Directors and named executive officers of such Non- Voting Common Stock as at December 14, 1994 (such investment power being sole unless otherwise indicated):
Title of Class Beneficial Owners Amount of % Beneficial of Ownership (1) Class (2) Non-Voting Common Stock Landon T. Clay 1,811,419 (3)(4)(7) 19.90 Non-Voting Common Stock M. Dozier Gardner 330,225 (3)(6) 3.62 Non-Voting Common Stock James B. Hawkes 259,530 (3)(4)(6) 2.83 Non-Voting Common Stock Benjamin A. Rowland Jr. 207,404 (3)(5) 2.28 Non-Voting Common Stock H. Day Brigham, Jr. 137,900 1.52 Non-Voting Common Stock Curtis H. Jones 75,175 (6) .83 Non-Voting Common Stock Wharton P. Whitaker 58,500 (3) .64 Non-Voting Common Stock John G. L. Cabot 20,142 (3) .22 Non-Voting Common Stock Ralph Z. Sorenson 8,142 (3) .09 (1) Based solely upon information furnished by the officers and directors. (2) Based on 9,076,816 outstanding shares plus options exercisable within 60 days of 25,000 for Mr. Clay, 42,500 for Mr. Gardner, 92,644 for Mr. Hawkes, 24,000 for Mr. Rowland, 28,500 for Mr. Whitaker, 6,142 for Mr. Cabot and 4,142 for Mr. Sorenson. (3) Includes shares subject to options exercisable within 60 days granted to, but not exercised by, each officer and director as listed in Note (2) above. -19- (b) SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT (Continued) (4) Includes 4,800 shares held by Mr. Hawkes as custodian for a minor child, 635 shares held by Mr. Hawkes' daughter and 2,500 shares held by Mr. Clay's children. (5) Includes 1,200 shares owned by Mr. Rowland's spouse as to which Mr. Rowland disclaims beneficial ownership. (6) Includes 36,073 shares owned by Mr. Jones' spouse, 37,609 shares owned by Mr. Gardner's spouse, and 10,300 shares owned by Mr. Hawkes' spouse. (7) 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.
(2) As of October 31, 1994, certain directors and officers of EVC held various partnership interests in VenturesTrident, L.P., VenturesTrident II, L.P., Fulcrum Management Partners, L.P. and Fulcrum Management Partners II, L.P. (limited partnerships described in Item 13(a) below), each of which may be deemed to be an "affiliate" of MinVen, Inc. (see Item 13 below) and EVC as that term is defined in Rule 12b-2 under the Securities Exchange Act of 1934. These partnership interests are described in Item 13(a) below, which description is incorporated in this Item by reference. (3) Landon T. Clay (a director and officer of EVC) owned 15 shares of common stock of Investors Bank & Trust Company (a 77.3% owned subsidiary) as at October 31, 1994. As at such date Messrs. Brigham, Hawkes, Jones and Rowland (directors and officers of EVC) each owned qualifying shares (10 shares) of common stock of Investors Bank & Trust Company, enabling them to serve as directors of said bank. All officers and directors of the Company, as a group, beneficially owned in the aggregate 55 shares of such common stock (or 0.55% of the outstanding common stock of Investors Bank & Trust Company). ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS (a) TRANSACTIONS WITH MANAGEMENT AND OTHERS On February 28, 1985, the Company became a limited partner in VenturesTrident, L.P. ("VenturesTrident"), 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 an aggregate of $5,000,000 in cash in VenturesTrident. The investment by the Company was made entirely from internally generated funds. The general partner of VenturesTrident is Fulcrum Management Partners, L.P. ("Fulcrum Partners"), a Delaware Limited Partnership of which Landon T. Clay (the Company's Chairman of the Board and principal stockholder) and MinVen are the general partners. MinVen owns a 79.24% interest in Fulcrum Partners, and Mr. Clay owns a 16.09% interest therein. The Company, by reason of MinVen's 79.24% interest in Fulcrum Partners, indirectly owns an additional 15.85% interest in VenturesTrident. VenturesTrident has entered into a service agreement with Fulcrum Management, Inc. ("Fulcrum Management"), a Denver based wholly-owned subsidiary of the Company, whereby Fulcrum Management provides management -20- (a) TRANSACTIONS WITH MANAGEMENT AND OTHERS (Continued) and administration services to VenturesTrident for a quarterly fee of $50,000. Such fee will not be paid to Fulcrum Management by VenturesTrident during the calendar year ending December 31, 1995, and it is currently anticipated that VenturesTrident may be liquidated during 1995 or shortly thereafter. Fulcrum Management has entered into a separate agreement with Castle Group, Inc., a Colorado corporation, pursuant to which Castle will provide such services to VenturesTrident. Mr. Clay and entities controlled by Mr. Clay, other than the Company, have acquired limited partnership interests in VenturesTrident for cash investments aggregating $5,550,000. Mr. Clay and such entities, solely through their ownership of such limited partnership interests, in the aggregate currently own a 13.48% interest in VenturesTrident; Mr. Clay, by reason of his 16.093% interest in Fulcrum Partners, indirectly owns an additional 3.219% interest in VenturesTrident. Mr. Clay's wife, Lavinia D. Clay, acquired a limited partnership interest in VenturesTrident for an investment of $100,000; she currently owns a .24% interest in VenturesTrident. Certain institutions and other investors have also acquired limited partnership interests in VenturesTrident. Two other directors of the Company, M. Dozier Gardner and Benjamin A. Rowland, Jr., have acquired limited partnership interests in VenturesTrident; each of such investments amounts to $50,000, and each such director owns a .12% interest in VenturesTrident. 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 27.988% interest in VenturesTrident directly and indirectly owned by the Company. All net operating income and losses and all net realized capital gains and losses of VenturesTrident with respect to each of its fiscal years will generally be allocated 80% to the limited partners (which include the Company, Mr. and Mrs. Clay and the other two directors of the Company who own limited partnership interests) of VenturesTrident and 20% to Fulcrum Partners (of which Mr. Clay owns a 16.093% interest and the Company owns through MinVen a 79.24% interest). Mr. Clay is an officer and director of MinVen and Fulcrum Management. On November 4, 1987, the Company became a limited partner in VenturesTrident II, L.P. ("VenturesTrident II"), a Delaware Limited Partner- ship 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 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. -21- (a) TRANSACTIONS WITH MANAGEMENT AND OTHERS (continued) VenturesTrident II has entered into a service agreement with Fulcrum Management, Inc. ("Fulcrum Management"), a Denver based wholly-owned subsidiary of the Company, whereby Fulcrum Management will provide manage- ment and administration services to VenturesTrident II for a quarterly fee equal to .675% of VenturesTrident II's aggregate committed capital. Fulcrum Management has entered into a separate agreement with Castle Group, Inc., a Colorado corporation, pursuant to which Castle will provide such services to VenturesTrident II. 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 interest, 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. 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 MinVen and Fulcrum Management. (b) CERTAIN BUSINESS RELATIONSHIPS Landon T. Clay, M. Dozier Gardner, James B. Hawkes and H. Day Brigham, Jr., 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, for which Eaton Vance Distributors, Inc. (a wholly-owned subsidiary of Eaton Vance Management) acts as principal underwriter, and for which Investors Bank & Trust Company (a 77.3% owned subsidiary of Eaton Vance Corp.) serves as custodian; such investment companies make substantial payments to Eaton Vance Management or Boston Management and Research for advisory and management services, substantial payments to Eaton Vance Distributors, Inc. under their distribution plans, and substantial payments to Investors Bank & Trust Company for custodial services. -22- (c) INDEBTEDNESS OF MANAGEMENT In 1993, the Company increased to $6,100,000 the amount of money in the Executive Loan Program which is available for loans to certain key employees for the purpose of financing or refinancing the exercise of stock options for shares of the Company's Non-Voting Common Stock, other purchases of the Company's Non-Voting Common Stock, and any tax obligations arising from such transactions. 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 $2,511,000 at October 31, 1994. 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, 1993, in an aggregate amount in excess of $60,000:
Largest Amount of Loans Rate of Interest Loans Outstanding Outstanding Charged on Loans Since 11/1/93 as of as of 12/12/94 12/12/94 Landon T. Clay $210,216 $176,940 8.06%- 8.58% (1) M. Dozier Gardner 401,580 347,560 6.22%- 8.06% (2) James B. Hawkes 590,152 508,066 5.31%- 8.58% (3) H. Day Brigham, Jr. 400,759 364,295 5.31%- 8.57% (4) Curtis H. Jones 217,000 157,000 5.47%- 8.06% (5) Benjamin A. Rowland Jr. 92,500 42,500 5.31% (6) (1) 8.06% interest payable on $98,960 principal amount of loan, and 8.58% interest payable on $77,980 principal amount. (2) 6.22% interest payable on $110,000 principal amount of loan, 7.55% interest payable on $138,600 principal amount, and 8.06% interest payable on $98,960 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 $110,000 principal amount, 7.61% interest payable on $38,500 principal amount, 8.06% interest payable on $89,963 principal amount and 8.58% interest payable on $49,613 principal amount. (4) 5.31% interest payable on $177,100 principal amount of loan, 6.11% interest payable on $88,000 principal amount, 8.06% interest payable on $75,600 principal amount and 8.57% interest payable on $23,595 principal amount. (5) 5.47% interest payable on $133,000 principal amount and 8.06% interest payable on $24,000 principal amount. (6) 5.31% interest payable on $42,500 principal amount of loan.
(d) TRANSACTIONS WITH PROMOTERS Not applicable. -23- PART IV ITEM 14. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a) (1) The following financial statements of Eaton Vance Corp. and the independent auditors' report relating thereto, are incorporated herein by reference into Item 8 hereto: Separate Document Eaton Vance Corp. 1994 Annual Report to Shareholders P a g e Number Independent Auditor's Report 42 Consolidated Balance Sheets as of October 31, 1994 and 1993 20-21 Consolidated Statements of Income for each of the three years in the period ended October 31, 1994 22 Consolidated Statements of Shareholders' Equity for each of the three years in the period ended October 31, 1994 23 Consolidated Statements of Cash Flows for each of the three years in the period ended October 31, 1994 24 Notes to Consolidated Financial Statements 25-41 The following auditors' report relating to the consolidated financial statement schedules of Eaton Vance Corp. is filed herewith and included in Item 14(a)(1): Independent Auditors' Report 25 (a) (2) The following financial statement schedules are included herein: Schedule Number Description P a g e Number VIII Valuation and Qualifying Accounts 26 XI Real Estate and Accumulated Depreciation 27-29 XII Mortgage Notes Receivable on Real Estate 30-31 All Schedules not listed above are omitted because they are not applicable, or the required information is shown in the financial statements or in the notes thereto, or there have been no changes in the information required to be filed from that last previously reported. (b) 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. -24- 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, 1994 and 1993, and for each of the three years in the period ended October 31, 1994, and have issued our report thereon dated December 13, 1994; such consolidated financial statements and report are included in your 1994 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 December 13, 1994 -25- EATON VANCE CORP. VALUATION AND QUALIFYING ACCOUNTS Schedule VIII Years ended October 31, 1994, 1993 and 1992
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 receivable from affiliates: Year ended October 31: 1994 $800,000 $ - $ - $800,000 1993 $ - $800,000 $ - $800,000 1992 $ - $ - $ - $ -
- 26 - EATON VANCE CORP. REAL ESTATE AND ACCUMULATED DEPRECIATION Schedule XI October 31, 1994
Costs Capitalized Initial Cost Subsequent to Acquisition Carrying Description Encumbrances Land Buildings Improvements Costs Income producing: Shopping center- Goffstown, NH $ 6,199,743 $ 244,532 $ 1,373,276 $5,610,691 $ - Shopping mall and office building- Troy, NY 2,844,663 834,100 4,033,921 1,750,182 - Office Buildings- Boston, MA 4,008,470 495,000 4,447,898 516,868 - Boston, MA - 280,800 4,009,836 1,267,351 - Warehouses- Colonie, NY 2,270,088 137,966 1,596,385 586,493 - Springfield, MA 1,437,046 145,833 1,967,684 187,078 - Total 16,760,010 2,138,231 17,429,000 9,918,663 - Commercial land: Bedford, NH - 137,773 - - 72,431 Boston, MA - 78,203 - - - Residential land- Canton, OH - 38,403 - - - Total - 254,379 - - 72,431 TOTAL $16,760,010 $2,392,610 $17,429,000 $9,918,664 $72,431
- 27 - EATON VANCE CORP. REAL ESTATE AND ACCUMULATED DEPRECIATION (Continued) Schedule XI October 31, 1994
Gross Carrying Amount October 31, 1994 (1) Accumulated Date of Date Depreciable Description Land Buildings Depreciation Construction Acquired Life Income producing: Shopping center- Goffstown, NH $ 244,532 $ 6,983,967 $1,555,354 1973 10/17/83 30 yrs. Shopping mall and office building- Troy, NY 834,100 5,784,103 1,209,598 1978 05/01/87 31.5 yrs. Office buildings- Boston, MA 495,000 4,964,766 1,476,080 1888 08/15/85 30 yrs. Boston, MA 280,800 5,277,187 2,005,474 1920 10/31/90 20 yrs. Warehouses- Colonie, NY 137,966 2,182,878 587,170 1964 11/13/84 30 yrs. Springfield, MA 145,833 2,154,762 676,601 1974 11/02/84 30 yrs. Total 2,138,231 27,347,663 7,510,277 Commercial land: Bedford, NH 210,204 - - N/A 05/13/85 N/A Boston, MA 78,203 - - N/A 01/08/88 N/A Residential land- Canton, OH 38,403 - - N/A 10/17/83 N/A Total 326,810 - - TOTAL $2,465,041 $27,347,663 $7,510,277 (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.
- 28 - EATON VANCE CORP. REAL ESTATE AND ACCUMULATED DEPRECIATION (Continued) Schedule XI
October 31, 1994 1993 1992 LAND AND BUILDINGS Gross carrying amount: Balance, beginning of year $29,447,609 $28,949,047 $28,303,498 Additions - improvements, etc. 365,095 528,562 645,549 Balance, end of year $29,812,704 $29,477,609 $28,949,047 Accumulated depreciation: Balance, beginning of year $ 6,594,381 $ 5,691,142 $ 4,811,298 Depreciation 915,896 903,239 879,844 Balance, end of year $ 7,510,277 $ 6,594,381 $ 5,691,142
- 29 - EATON VANCE CORP. MORTGAGE NOTES RECEIVABLE ON REAL ESTATE Schedule XII October 31, 1994
Principal Amount of Notes Number Original Carrying Subject to of Final Periodic Face Amount of Delinquent Mortgage Interest Maturity Payment Prior Amount of Mortgages Principal Description Notes Rate Dates Terms Liens Mortgages (B) (C) or Interest FIRST MORTGAGE NOTES: Residential permanent notes: FHA - Original note amounts under $30,000 15 5.25% 1995-2000 (A) None $277,400 $ 50,091 $ - VA - Original note amounts under $30,000 2 5.25% 1995 (A) None 35,100 2,342 - Conventional - Original note amounts under $225,000 2 8-9.75% 1997-2005 (A) None 259,600 248,978 - TOTAL 19 $572,100 $301,411 $ - NOTES: (A) Periodic payment terms - FHA and VA Notes - Interest and principal payments are made at variable amounts over life to maturity, no prepayment penalty. Conventional Notes - $225,000 Note with interest payable at level amounts over life to maturity. Balloon payment of $225,000 due in 1997, no prepayment penalty. $34,600 Note with interest and principal payments made at level amounts, no prepayment penalty.
- 30 - EATON VANCE CORP. MORTGAGE NOTES RECEIVABLE ON REAL ESTATE (Continued) Schedule XII October 31, 1994 (B) Reconciliation of the Carrying Amount of Mortgage Notes -
1994 1993 1992 Balance, beginning of year $330,654 $360,906 $169,045 Issuance of mortgage notes receivable - - 225,000 Collections on principal (29,243) (30,252) (33,139) Write-off of note - - - Balance, end of year $301,411 $330,654 $360,906
(C) The aggregate cost for federal income tax purposes is equal to the carrying amount of the mortgages. - 31 - 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/M. Dozier Gardner M. Dozier Gardner President, Director and Principal Executive Officer January 18, 1995 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 18, 1995 /s/M. Dozier Gardner President, Director and January 18, 1995 Principal Executive Officer /s/William M. Steul Chief Financial Officer January 18, 1995 /s/John P. Rynne Corporate Controller January 18, 1995 /s/James B. Hawkes Director January 18, 1995 /s/H. Day Brigham, Jr. Director January 18, 1995 /s/Benjamin A. Rowland, Jr. Director January 18, 1995 /s/John G.L. Cabot Director January 18, 1995 /s/Ralph Z. Sorenson Director January 18, 1995 - 32 - 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: Page in Sequential Exhibit No. Description Numbering System 3.1 The Company's Amended Articles of Incorporation are 21 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 28 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 50-52 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 54-55 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 and 3.3 above as incorporated herein by reference. 4.2 The rights of the holders of the Company's 10% Subordinated 65-97 Debentures due April 1, 1998 are set forth in the Indenture dated as of April 1, 1988 between the Company and the First National Bank of Boston, a copy of which Indenture has been filed as Exhibit 4.2 to 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. - 33 - EXHIBIT INDEX (Continued) Page in Sequential Exhibit No. Description Numbering System 9.1 Copy of the Voting Trust Agreement made as of December 39-47 22, 1993 is filed as Exhibit 9.1 to the Annual Report on Form 10-K of the Company for the fiscal year ended October 31, 1993, (SEC File No. 1-8100) and is incorporated herein by reference. 10.1 Description of Performance Bonus Arrangement for Members 54 of Investment Division of Eaton Vance Management, Inc. is filed as Exhibit 10.3 to the Annual Report on Form 10-K of the Company for the fiscal year ended October 31, 1985, (S.E.C. File No. 1-8100) and is incorporated herein by reference. 10.2 Description of Incentive Bonus Arrangement for Marketing 55 Personnel of Eaton Vance Distributors, Inc. is filed as Exhibit 10.4 to the Annual Report on Form 10-K of the Company for the fiscal year ended October 31, 1985, (S.E.C. File No. 1-8100) and is incorporated herein by reference. 10.3 Copy of 1984 Executive Loan Program relating to financing 65-69 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 61 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 Copy of 1989 Stock Option Plan adopted by the Company's 40-45 Directors on July 21, 1989 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, 1989, (S.E.C. File No. 1-8100) and is incorporated herein by reference. 10.6 Description of 1990 Performance and Retention of Officers 42 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 10.11 to the Annual Report on Form 10-K of the Company for the fiscal year ended October 31, 1990 (S.E.C. File No. 1-8100) and is incorporated herein by reference. - 34 - EXHIBIT INDEX (Continued) Page in Sequential Exhibit No. Description Numbering System 10.7 Copy of 1992 Stock Option Plan as adopted by the Eaton 36-43 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. 10.8 Copy of 1986 Employee Stock Purchase Plan as amended and 44-54 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. 10.9 Copy of 1992 Incentive Plan - Stock Alternative as 55-58 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. 11.1 Statement of Computation of average number of Shares 36 outstanding (filed herewith). 13.1 Copy of the Company's Annual Report to Stockholders 37-84 for the fiscal year ended October 31, 1994 (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, 1994 85 (filed herewith). 23.1 Independent Auditors' Consent (filed herewith). 86 27.1 Financial Data Schedule as of October 31, 1994 87-89 (filed herewith - electronic filing only). - 35 - EX-11 2 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, 1994 October 31, 1993 October 31, 1992 PRIMARY Weighted average number of voting and non-voting common shares outstanding 9,196,888 8,446,448 7,494,910 Assumed exercise of certain non-voting stock options based on average market value and shares reserved for issuance under employee stock purchase plan 276,071 401,883 257,036 Weighted average number of shares used in primary per share computations 9,472,959 8,848,331 7,751,946 FULLY DILUTED Weighted average number of voting and non-voting common shares outstanding 9,196,888 8,446,448 7,494,910 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 283,680 429,169 272,132 Weighted average number of shares used in fully diluted per share computations 9,480,568 (a) 8,875,617 (a) 7,767,132 (a) (a) In accordance with APB Opinion No. 15, these outstanding share figures were not used in the fully diluted E.P.S. calculation, as the dilution was less than 3% of the weighted average shares outstanding.
EX-13 3 37 - - ------------------------------------------------------------------------------- EATON VANCE CORP. ANNUAL REPORT 1994 --------- 1924 - 94 38 EATON VANCE CORP. SUBSIDIARIES - - -------------------------------------------------------------------------------- EATON VANCE MANAGEMENT and its subsidiary, BOSTON MANAGEMENT AND RESEARCH, act as investment advisers to the Company's 147 mutual funds, as well as to individual and institutional accounts. EATON VANCE DISTRIBUTORS, INC. markets the Company's mutual funds. INVESTORS BANK & TRUST COMPANY provides fiduciary and related banking services to institutions and individuals. NORTHEAST PROPERTIES, INC. invests in income-producing real estate. FULCRUM MANAGEMENT, INC., MINVEN, INC. and EV GOLD, INC. invest in and manage precious metal mining properties. MARBLEHEAD ENERGY CORP. and ENERGEX CORPORATION invest in oil and gas properties. Cover: Eaton Vance and its predecessor companies, Eaton & Howard and Vance, Sanders & Company, have served individual and institutional investors for 70 years. Eaton & Howard was founded by Charles F. Eaton, Jr., and John G. Howard in December 1924. 39 Financial Highlights - - --------------------------------------------------------------------------------
1993 1994 - - -------------------------------------------------------------------------------- (in millions of dollars) Assets Under Management.......................... $15,400 $15,000 Sales of Mutual Funds............................ 4,300 3,400 Total Income..................................... 189 218 Net Income....................................... 27 30 Shareholders' Equity............................. 145 166 PER COMMON SHARE: (in dollars) Net Income....................................... $3.09 $3.14 Net Income Excluding Gold Mining Investments........................ 2.83 3.14 Shareholders' Equity............................. 15.87 18.18 Dividends........................................ 0.49 0.60 - - --------------------------------------------------------------------------------
NET INCOME EXCLUDING GOLD Fiscal Year MINING INVESTMENTS NET INCOME '85 $0.63 $0.64 '86 0.80 0.81 '87 1.25 1.35 '88 1.36 1.37 '89 1.15 0.99 '90 1.42 1.03 '91 1.58 1.75 '92 2.48 2.49 '93 2.83 3.09 '94 3.14 3.14
Fiscal year DIVIDENDS PER SHARE '85 $0.110 '86 $0.125 '87 $0.150 '88 $0.185 '89 $0.205 '90 $0.235 '91 $0.290 '92 $0.360 '93 $0.490 '94 $0.600
40 TO SHAREHOLDERS - - -------------------------------------------------------------------------------- Eaton Vance Corp.'s net income in fiscal 1994 was a record $29.8 million, 9 percent above the $27.3 million reported in 1993. Earnings per share in 1994 of $3.14 were 2 percent higher than 1993's $3.09. Gold mining activities, which contributed $0.26 to 1993's results, made no contribution to 1994's. Mandatory adoption of Statement of Financial Accounting Standards No. 109, changing the method of accounting for deferred income taxes, increased 1994 earnings by $0.14 per share. Earnings per share excluding the effect of gold mining operations and the accounting change were $3.00 in 1994 and $2.83 in 1993. Average shares outstanding rose from 8.8 million in 1993 to 9.5 million in 1994 primarily as a result of a public offering of 1.4 million shares in April 1993 at $33.75 per share. During fiscal year 1994, the Company repurchased 234,000 shares at an average price per share of $27.44. Dividends per share increased 22 percent from $0.49 in fiscal year 1993 to $0.60 in fiscal year 1994. The Company's dividend has increased in each of the last 14 years and has grown at a compound annual rate of 19 percent since 1980. Assets under management of $15.0 billion on October 31, 1994, were 3 percent lower than the $15.4 billion reported a year earlier. Sharply rising interest rates and the consequent fall in bond prices had a negative effect on sales of bond funds and reduced the market value of fixed-income assets under management. Nevertheless, fund sales for the year were $3.4 billion, the second highest in the Company's history, and net sales of mutual funds (sales and reinvested dividends, less redemptions) of $2.0 billion substantially offset the depreciation in the market value of managed assets and a net loss of Investment Counsel assignments. Total income rose 15 percent in 1994 to $218.0 million in spite of a full year's reduction in income caused by a National Association of Securities Dealers (NASD) rule effective July 7, 1993, limiting the amount of annual payments by spread commission funds to their sponsors. The increase was largely the result of higher average assets under management in 1994 than in 1993 and a 31 percent increase in fee income of Investors Bank & Trust (IB&T), 77 percent owned by Eaton Vance Corp. Expenses grew 17 percent in 1994 to $165.8 million with a 29 percent increase in the amortization of deferred sales commissions following the strong growth in sales reported for 1992 and 1993. Higher marketing and administrative costs were incurred in 1994 to increase the distribution of the Company's funds. 41 - - -------------------------------------------------------------------------------- In March 1994, the Company issued $50.0 million of 6.22 percent 10-Year Senior Notes to three insurance companies. Proceeds were used to call the remaining $14.2 million of 10 percent subordinated debentures and to pay down variable rate bank debt. At year end the Company had cash and cash equivalents of $24.7 million and no borrowings under its $75.0 million bank credit facility. Shareholders' equity at fiscal year end was $165.6 million, or $18.18 per common share. Investment management activities accounted for 76 percent of the Company's revenues and 93 percent of net income in 1994. IB&T contributed 22 percent of revenues and the balance of net income. IB&T increased custodied and administered assets by 18 percent and net profits by 47 percent in 1994. Its very successful year is reported on pages 11-12. Growth of the mutual fund industry and of Eaton Vance Corp. decelerated in 1994. Considering difficult bond and stock market conditions and the allure of cash equivalent investments with competitive yields, this was to be expected. We are confident that the long-term growth prospects of the industry and of Eaton Vance Corp. remain outstanding. The industry offers an unmatched array of investment alternatives, conveniently packaged, efficiently priced, and widely available to meet investors' needs. Eaton Vance expects to participate fully in the industry's growth. The Consolidated Statements of Cash Flows on page 24 illustrate the cash flow that accompanies a decline in Eaton Vance's mutual fund sales. Net cash generated in the Company's final quarter alone was $11.2 million. A strong financial condition and positive cash flow in a period of reduced sales gives Eaton Vance an opportunity to accelerate new product development, build through acquisition and repurchase common shares if market conditions depress the price of the Company's stock. All of these opportunities are either being pursued or are under careful consideration. A section of this report, pages 14-15, presents some of the international dimensions of Eaton Vance's activities. The Company is giving increasing priority to the investment management and the marketing of assets globally. At the close of the fiscal year, Curtis H. Jones retired as Vice President, Treasurer and Director of Eaton Vance Corp. Curt contributed significantly to the Company's growth from 1982 to 1994. We will miss him. /s/ Landon T. Clay /s/ M. Dozier Gardner LANDON T. CLAY M. DOZIER GARDNER Chairman President January 12, 1995 42 EATON VANCE CORP. - - -------------------------------------------------------------------------------- QUARTERLY HIGH AND LOW STOCK PRICES Quarter ended High Low 1/85 $5.7500 $4.2500 4/85 6.8750 5.4375 7/85 8.1250 6.2500 10/85 10.2500 7.1250 1/86 12.8750 9.6250 4/86 15.0625 10.5000 7/86 11.0000 8.0000 10/86 10.8750 8.2500 1/87 15.5000 9.3125 4/87 16.3750 12.0000 7/87 14.0000 10.0000 10/87 13.8750 6.4375 1/88 9.5000 6.5000 4/88 11.7500 8.8750 7/88 11.0000 9.6250 10/88 10.3750 9.3750 1/89 11.5000 9.8750 4/89 13.8750 11.5000 7/89 12.1250 11.0000 10/89 14.0000 11.0000 1/90 14.1250 13.2500 4/90 14.0000 11.0000 7/90 11.5000 10.6250 10/90 11.0000 7.6250 1/91 9.0000 7.8125 4/91 11.8750 9.1250 7/91 12.6250 9.7500 10/91 14.5000 11.5000 1/92 18.7500 13.7500 4/92 19.1250 16.0000 7/92 17.6250 15.6250 10/92 23.7500 16.5000 1/93 38.5000 20.5000 4/93 37.5000 29.0000 7/93 36.2500 30.7500 10/93 41.2500 34.2500 1/94 38.0000 30.5000 4/94 37.5000 29.2500 7/94 30.7500 26.5000 10/94 34.2500 25.5000 PRICE AND DIVIDEND INFORMATION The Company's non-voting common stock is traded on the over-the-counter market, where it is reported on the NASDAQ National Market system under the symbol EAVN. The stock is also traded on the Boston Stock Exchange. The range of price and the dividend declared on these shares during each quarter of the last two years are as follows:
HIGH LOW DIVIDEND QUARTER ENDED PRICE PRICE PER SHARE - - ----------------------------------------------------------------------------------------- January 31, 1993 $38 1\2 $20 1\2 $0.11 April 30, 1993 37 1\2 29 0.12 July 31, 1993 36 1\4 30 3\4 0.12 October 31, 1993 41 1\4 34 1\4 0.14 January 31, 1994 $38 $30 1\2 $0.14 April 30, 1994 37 1\2 29 1\4 0.15 July 31, 1994 30 3\4 26 1\2 0.15 October 31, 1994 34 1\4 25 1\2 0.16
43 EATON VANCE CORP. - - -------------------------------------------------------------------------------- SOURCES OF REVENUES [PIE CHART WITH THE FOLLOWING VALUES:]
SOURCE INVESTMENT MANAGEMENT: MUTUAL FUNDS 67% INVESTMENT COUNSEL 9 FIDUCIARY AND RELATED BANKING SERVICES 22 REAL ESTATE 1 PRECIOUS METAL MINING 1
Eaton Vance Corp. is a holding company deriving its revenues primarily from investment advisory fees and distribution fees received from the Eaton Vance Funds and separately managed accounts. Wholly owned subsidiaries Eaton Vance Management and Boston Management & Research act as adviser to 147 mutual funds, various institutions and individuals. On October 31, 1994, the Company managed $15.0 billion in portfolios with objectives ranging from high current income to maximum capital gain. Bank fee income, based on assets custodied and administered by Investors Bank & Trust, is also a significant contributor. Additional revenues are provided by the Company's real estate activities and precious metal mining partnerships. A detailed discussion of these business sectors appears on pages 6-15. 44 INVESTMENT MANAGEMENT - MUTUAL FUNDS - - -------------------------------------------------------------------------------- 1994 HIGHLIGHTS - - - Mutual fund sales were $3.4 billion, below 1993's but the second highest in the Company's history. - - - Mutual fund assets increased by 2 percent from $13.1 billion to $13.3 billion. - - - The Hub and Spoke Registration Mark structure was used to create a new 50-fund Classic family of level-load funds and to expand the existing Marathon and Traditional families. - - - Third-party spokes investing in Eaton Vance hubs were established by G.R. Phelps & Co., Inc., a subsidiary of Connecticut Mutual Life Insurance Company. - - - The EV Greater India Funds, the first continuously offered funds sold in the United States with an investment focus on India and surrounding countries, were introduced. - - - A Medallion family of funds was offered to investors in Asia, Latin America and the Middle East. EATON VANCE MUTUAL FUND SALES (in billions)
Fiscal year SALES '85 $0.413 '86 1.204 '87 1.062 '88 0.280 '89 2.170 '90 0.941 '91 1.805 '92 2.900 '93 4.300 '94 3.400
RISING INTEREST RATES PROVIDE A CHALLENGING ENVIRONMENT Sales of mutual funds, excluding money market funds and reinvested dividends, were $3.4 billion, below last year's record sales of $4.3 billion but, nonetheless, the second highest in the Company's history. With reinvested dividends of $0.4 billion and after redemptions of $1.8 billion, net sales for the year were $2.0 billion. Total mutual fund assets under management increased to $13.3 billion from $13.1 billion, as market depreciation of $1.8 billion was more than offset by net sales increases for the year. 45 - - --------------------------------------------------------------------------------
INTEREST RATE: OCTOBER 1992-OCTOBER 1994 (30-year Treasuries) Date Yield 10/30/92 7.63% 11/6/92 7.76 11/13/92 7.57 11/20/92 7.54 11/27/92 7.59 12/4/92 7.49 12/11/92 7.44 12/18/92 7.43 12/25/92 7.36 1/1/93 7.40 1/8/93 7.47 1/15/93 7.35 1/22/93 7.29 1/29/93 7.20 2/5/93 7.16 2/12/93 7.13 2/19/93 7.01 2/26/93 6.90 3/5/93 6.74 3/12/93 6.86 3/19/93 6.80 3/26/93 6.94 4/2/93 7.05 4/9/93 6.85 4/16/93 6.76 4/23/93 6.79 4/30/93 6.93 5/7/93 6.84 5/14/93 6.95 5/21/93 7.03 5/28/93 6.98 6/4/93 6.91 6/11/93 6.80 6/18/93 6.81 6/25/93 6.70 7/2/93 6.66 7/9/93 6.64 7/16/93 6.54 7/23/93 6.70 7/30/93 6.57 8/6/93 6.53 8/13/93 6.35 8/20/93 6.22 8/27/93 6.13 9/3/93 5.94 9/10/93 5.88 9/17/93 6.04 9/24/93 6.05 10/1/93 5.99 10/8/93 5.92 10/15/93 5.79 10/22/93 5.98 10/29/93 5.97 11/5/93 6.21 11/12/93 6.15 11/19/93 6.34 11/26/93 6.26 12/3/93 6.25 12/10/93 6.19 12/17/93 6.28 12/24/93 6.21 12/31/93 6.35 1/7/94 6.23 1/14/94 6.30 1/21/94 6.28 1/28/94 6.22 2/4/94 6.36 2/11/94 6.41 2/18/94 6.63 2/25/94 6.71 3/4/94 6.84 3/11/94 6.90 3/18/94 6.92 3/25/94 7.02 4/1/94 7.26 4/8/94 7.27 4/15/94 7.29 4/22/94 7.23 4/29/94 7.31 5/6/94 7.54 5/13/94 7.49 5/20/94 7.30 5/27/94 7.39 6/3/94 7.27 6/10/94 7.31 6/17/94 7.45 6/24/94 7.52 7/1/94 7.62 7/8/94 7.69 7/15/94 7.55 7/22/94 7.56 7/29/94 7.40 8/5/94 7.55 8/12/94 7.48 8/19/94 7.49 8/26/94 7.48 9/2/94 7.49 9/9/94 7.70 9/16/94 7.77 9/23/94 7.79 9/30/94 7.82 10/7/94 7.91 10/14/94 7.83 10/21/94 7.98 10/28/94 7.96 10/31/94 7.97
Source: Bloomberg, L.P. Rising interest rates were a negative influence throughout the year on bond funds, which represent the largest portion of Eaton Vance's mutual fund assets. As the chart above shows, interest rates bottomed (and bond prices peaked) in mid-October of 1993, just prior to the beginning of the fiscal year, and moved steadily higher as the year progressed. As a result, bond prices (and bond fund net asset values) were in a declining trend throughout the year. EV CLASSIC LEVEL-LOAD FUNDS CREATED Early in the fiscal year a new 50-fund Classic family of level-load funds was created and offered. Level-load funds replace a commission to selling broker/dealers at time of sale with a stream of on-going fees. Investors purchase these funds without initial sales charges and with the acquisition cost expensed over a period of years. The Hub and Spoke structure allowed the rapid and effective introduction of the Classic family, which includes spokes of equity and both taxable and tax-exempt bond funds. Sales of Classic funds, the largest family of level-load funds offered by any sponsor in the mutual fund industry, were $519.0 million in fiscal 1994. Additional funds were added to the Traditional family of front-end sales charge funds and to the Marathon family of spread-commission funds. The development of three separate families of funds with different sales charge structures allows Eaton Vance to meet the disparate needs of both investors and broker/dealers. For example, the Classic family is well-suited for the small-plan 401(k) market and helps the established broker "annuitize" his book of business. The Traditional family is compatible with the growing 46 - - -------------------------------------------------------------------------------- wrap-fee business; and the Marathon family offers the broker/dealer a full commission at time of sale without a sales charge being deducted from client assets at time of purchase. The availability of separate fund families allows the broker/dealer to select the particular distribution structure compatible with both the client's requirements and the broker/dealer's business plan. FUND ASSETS UNDER MANAGEMENT (in billions)
Fiscal year end Assets '85 $2.18 '86 3.33 '87 3.58 '88 3.58 '89 5.60 '90 5.92 '91 7.43 '92 9.20 '93 13.1 '94 13.3
FIRST PRIVATE-LABEL SPOKES ESTABLISHED Eaton Vance also used the Hub and Spoke structure to create five private-label tax-free funds for G.R. Phelps & Co., Inc., a subsidiary of Connecticut Mutual Life Insurance Company. G.R. Phelps manages and distributes a growing family of funds through its own 2,000-member sales force as well as through other distribution channels. By offering spokes into mature Eaton Vance tax-free hubs, G.R. Phelps was able to broaden its product line to include one national and four state tax-free funds without the delays,business risks and level of expense typically associated with starting new mutual funds. Eaton Vance continues to pursue similar opportunities with other mutual fund sponsors. NEW INDIA AND OFFSHORE FUNDS ARE OFFERED In April, Traditional and Marathon versions of the EV Greater India Fund were introduced. The Greater India Funds were the first continuously offered United States funds with an investment focus on India and the surrounding countries of the Indian sub-continent. They complement the EV Greater China Funds, which were intro- 47 - - -------------------------------------------------------------------------------- FUND ASSETS UNDER MANAGEMENT BY DISTRIBUTION METHOD
October 31, 1994 SPREAD COMMISSION FUNDS 78% FRONT-END COMMISSION FUNDS 14 EXCHANGE FUNDS 5 LEVEL-LOAD FUNDS 2 MONEY MARKET & OTHER FUNDS 1
FUND ASSETS UNDER MANAGEMENT BY TYPE OF FUND
October 31, 1994 NON-TAXABLE FIXED INCOME 61% EQUITIES 21 TAXABLE FIXED-INCOME 12 BANK LOANS 4 MONEY MARKET 2
duced in 1992. Like Greater China, the Greater India Funds combine the management expertise of Hong Kong and Bombay-based Lloyd George Management with the distribution and administrative capabilities of Eaton Vance. By fiscal year-end, the Greater India Funds had grown to $58.3 million. Eaton Vance entered the offshore funds market with a new "EV Medallion" family of funds. Each fund is a spoke investing in an existing hub which also serves U.S. investors by way of domestic spokes. The Medallion family consists of a Greater China Growth Fund, a Greater India Fund, a new Emerging Markets Fund, a High Yield Fund, and a U.S. Government Income Fund. Additional spokes for the Medallion family are planned for 1995. The Medallion funds will be sold by U.S. broker/dealers to non-U.S. clients as well as by broker/dealers operating offshore. Target markets in 1995 include Asia, Latin America and the Middle East. Donald Webber, a marketing executive with broad experience in the mutual fund industry, joined Eaton Vance in mid-year to lead the offshore marketing effort. OUTLOOK The environment at the beginning of fiscal 1995 is much different from that at the beginning of last year. A flattening of the yield curve, as short-term rates have moved closer to long-term rates, will likely slow sales of long-term funds in 1995. Nevertheless, the Company is well-positioned for the changed environment. Eaton Vance's product line has been substantially expanded in recent years, both to broaden distribution options and to offer products with appeal in a rising interest rate environment. In particular, the introduction of a broad family of limited maturity state and national tax-free funds has strengthened Eaton Vance's municipal bond fund industry position. Furthermore, products which were introduced in earlier years, such as Prime Rate Reserves and Short-Term Strategic Income Fund, provide alternatives for investors who wish to minimize exposure to interest rate movements. Eaton Vance's goal in 1995 will be to continue to increase its mutual fund industry market share with effective sales and service, competitive investment performance and timely new product introductions. 48 INVESTMENT MANAGEMENT - INVESTMENT COUNSEL - - -------------------------------------------------------------------------------- COUNSEL ASSETS BY TYPE OF CLIENT
October 31, 1994 INDIVIDUALS & TRUSTS 55% EMPLOYEE BENEFIT PLANS 23 OTHER TAX-EXEMPT INSTUTIONS 20 TAXABLE INSTUTIONS 2
Through its offices in Boston and San Francisco, Eaton Vance acts as investment adviser to more than 1,000 individual and institutional clients, including public and corporate employee benefit plans, Taft-Hartley plans, endowments, foundations and trusts. This past year was marked by the contributions of the professionals of the former Gardner & Preston Moss Division of INVESCO, and those of Winslow Management, who joined Eaton Vance in late 1993. Their investment experience and excellent relationships with clients, largely individuals, were important in the successful introduction of those clients to Eaton Vance's services. For the Division's institutional clients, where investment returns are weighed against market benchmarks and often for short periods, results were mixed. Generally, fixed-income accounts did quite well, adding to a solid long-term record of above-average returns. Retention was high, and for the core bond discipline, accounts and assets under management grew. The Division's institutional equity account base decreased considerably with the loss of one large public retirement fund client. Additions to the investment research staff and organizational changes are expected to improve equity performance in 1995. Overall, the Division finished the year with $1.6 billion of assets under management, significantly lower than the prior year's total of $2.2 billion. Marketing efforts are being concentrated on the fixed-income products where, as noted above, results have been above average. Also, the marketing to institutional investors of Lloyd George Management's capabilities in managing equity investments in the Pacific Basin is gaining momentum. 49 FIDUCIARY AND RELATED BANKING SERVICES - - -------------------------------------------------------------------------------- 1994 HIGHLIGHTS - - - Custodied and administered assets increased 18 percent to $72.4 billion. - - - Investors Bank & Trust Company (IB&T) was rated the number one Global Full Service Custodian and number one Domestic Full Service Custodian in the 1994 Dalbar Custody Ranking Survey. - - - Revenues increased 27 percent to $47.8 million. - - - Net income increased 47 percent to $3.5 million. - - - Return on equity and return on assets achieved new highs. Assets custodied and administered by IB&T increased 18 percent to $72.4 billion at fiscal 1994 year end. The Bank now has significant relationships with five of the top 25 U.S. insurance companies and five of the nation's largest banks. ASSETS UNDER CUSTODY (in billions)
Fiscal year end Assets '85 $ 3.6 '86 5.6 '87 6.3 '88 6.5 '89 8.8 '90 26.4 '91 37.3 '92 42.8 '93 61.0 '94 72.4
The success of IB&T's marketing to new clients was complemented by growth in business from existing clients. Many pooled products offered multiple classes of shares, each class with its own accounting and pricing requirements. In addition, the number of clients utilizing ancillary services such as securities lending increased by 85 percent over the year. Total revenues reached a new high of $47.8 million in 1994. Fee income totaled $43.0 million, up from $33.0 million a year ago. Net interest income increased 6 percent to $4.8 million. Net income rose 47 percent to $3.5 million. 50 - - -------------------------------------------------------------------------------- Return on average equity improved to 29 percent from 26 percent a year ago, while return on average assets increased to 3 percent in 1994 from 2 percent in 1993. DALBAR RANKING In June 1994, IB&T was rated the number one Global Full Service Custodian and the number one Domestic Full Service Custodian in the Dalbar Custody Ranking Survey. This was the third year out of the last five in which IB&T received Dalbar's number one Domestic rating. Dalbar, a Boston-based mutual fund research company, derived its rankings from survey results covering 212 mutual fund company/custodian relationships, constituting 48 percent of all fund assets under custody in the $2 trillion industry. REVENUES (in millions)
Fiscal year FEE INCOME NET INTEREST INCOME '85 $ 3.14 $1.41 '86 4.03 1.43 '87 5.37 1.65 '88 6.37 2.00 '89 6.94 2.08 '90 15.75 2.74 '91 25.55 3.73 '92 29.66 3.66 '93 33.02 4.49 '94 43.05 4.78
OFFSHORE OPERATIONS IB&T expanded its offshore operations during 1994. In July, the Bank received authorization from Irish regulatory authorities to open an office in Dublin. This office qualifies for a number of tax incentives as part of the International Financial Services Centre (IFSC). Like the Bank's offshore center in Toronto, Canada, the new Dublin office supports offshore fund accounting services with IB&T's proprietary Fund Accounting and Custody Tracking System. The distributed architecture of this system is a critical advantage in the offshore market, particularly for mutual funds using the Hub and Spoke structure. OUTLOOK The outlook for the coming year is positive. Termination of an important unit investment trust relationship after the close of the fiscal year will have a short-term negative influence on revenues. The action was unrelated to performance, and IB&T expects compensation for lost revenues. Sales consummated in 1994 will have a positive influence on 1995's revenues, and new business activity remains high. 51 REAL ESTATE INVESTMENT - - -------------------------------------------------------------------------------- RENTAL PROPERTY BY PROPERTY TYPE
October 31, 1994 Sq.ft.(000) RETAIL: 66% LEASED 262 INDUSTRIAL: 100% LEASED 224 OFFICE: 93% LEASED 184
Northeast Properties, Inc. owns and operates 670,000 square feet of income-producing real estate in Massachusetts, New Hampshire and New York State. Earnings were $29,000 in 1994, compared to a loss in 1993 of $293,000. Overall occupancy at 85 percent remained unchanged from the previous year . There are currently no new real estate investments planned. In 1995, management will concentrate its efforts on increasing occupancy in properties presently owned. PRECIOUS METAL MINING - - -------------------------------------------------------------------------------- Eaton Vance participates in the development of gold mining properties as a general and as a limited partner in two gold mining partnerships, VenturesTrident, L.P. and VenturesTrident II, L.P. Eaton Vance has a 28 percent interest in VenturesTrident, L.P. and a 19 percent interest in VenturesTrident II, L.P. In addition, Eaton Vance owns 615,000 shares of Dakota Mining, an important holding of both partnerships. VenturesTrident, L.P. completed the tenth year of its life in December 1994 and was extended for one year to allow for the orderly liquidation of its holdings. VenturesTrident II, L.P. completed its seventh year in December 1994. In January 1994, the partnership distributed 1,750,000 shares of Pegasus Gold Corporation having a value of $42.0 million. Distributions to date have been $48.0 million, or 61 percent of contributed capital. The earnings contribution of these gold mining partnerships to the Company was small in fiscal year 1994 and is not expected to be significant in 1995. 52 INTERNATIONAL FOCUS - - -------------------------------------------------------------------------------- Because of significant worldwide political change and the reduction or elimination of barriers to trade and capital flows, more business than ever is being conducted internationally. During the past several years, Eaton Vance has expanded its international presence in several areas: INTERNATIONAL EQUITY FUNDS [PHOTO] Eaton Vance has created a series of mutual funds managed by Lloyd George Management, an independent investment management company based in Hong Kong, to allow investors to participate in the expected above-average growth of emerging markets. These include the EVGreater China Growth Funds, EVGreater India Funds and EVEmerging Markets Funds. Robert Lloyd George, Chairman, Lloyd George Management. MEDALLION FUNDS [PHOTO] Created in November 1994, Eaton Vance Medallion Funds are available to investors outside the United States. Under the Hub and Spoke structure employed by Eaton Vance, each Medallion fund is a spoke of an existing Eaton Vance hub portfolio, including Greater India, Greater China Growth, Emerging Markets, U.S. Government Income and High Yield funds. To meet additional investment needs of offshore investors, a Prime Rate Reserves spoke is planned for early 1995. Whit Whitaker (left), President, and Don Webber, Senior Vice President, Eaton Vance Distributors, Inc. INTERNATIONAL INCOME FUNDS [PHOTO] First offered in November 1990, EVMarathon Short-Term Strategic Income Fund invests in a portfolio of short- and intermediate-term debt securities diversified among many countries. It offers investors the possibility of higher yields than those available from money market funds and certificates of deposit, but with less price volatility than long-term global bond funds.As of November 25, 1994, $223.1 million was invested in this Fund. From left: Eaton Vance Management's Susan Schiff, Vice President; Mark Venezia, Vice President and Manager, International Fixed Income; Mary Jo English, Trading Associate; and Maria Capece, Fixed-Income Analyst. 53 - - -------------------------------------------------------------------------------- FIDUCIARY AND RELATED BANKING SERVICES More than $5.4 billion of Investors Bank [PHOTO] & Trust Company's $72.4 billion in custodied assets are in international portfolios with investments in 58 countries around the world. During 1994, IB&T was rated the number one Global Full Service Custodian in the industry by Dalbar, Inc., an independent research and publishing firm serving the financial industry. IB&T opened offices in Toronto, Canada, in 1993, and Dublin, Ireland, in 1994, allowing the Bank to better serve the growing offshore mutual fund market. From left: Herb Schofield, Supervisor; Neal Nenadovic, Account Manager; and Cathy Ferro, Custody Accountant, of IB&T's Toronto, Canada, office. EQUITY INVESTMENTS Eaton Vance's stock analysts are [PHOTO] encouraged to examine investment possibilities around the globe. Approximately 10 percent of all assets in Eaton Vance's equity funds and investment counsel accounts are in non-U.S. based companies. Another way in which Eaton Vance's investors participate in the growth of the world economy is through the Company's investments in U.S. firms with a significant overseas presence. These practices expose funds and individual clients to growth opportunities in rapidly growing overseas markets. From left: Eaton Vance Management's Peter Kiely, Vice President and Director of Research; Duncan Richardson, Vice President; Cliff Krauss, Vice President; and Tom Faust, Vice President. INVESTMENT COUNSEL DIVISION Eaton Vance's Investment Counsel Division [PHOTO] acts as investment manager to individuals and trusts, employee benefit plans, other tax-exempt institutions and taxable institutions. During 1994, the Division began marketing the investment management services of Lloyd George Management to institutional investors seeking to invest in emerging markets in Asia. The primary clients for these investment services are expected to be employee benefit plans. Eaton Vance Management's Craig Leman (left), Vice President, of the Company's San Francisco office, and Laurence Reineman, Vice President and Director, Investment Counsel Division. 54 SUMMARY FINANCIAL AND STATISTICAL DATA - - --------------------------------------------------------------------------------
1994 1993 1992 1991 1990 - - ------------------------------------------------------------------------------------------------------------------------------------ INCOME STATEMENT DATA (in thousands, except per share data) INCOME: Investment adviser and administration fees $ 85,769 $ 75,193 $ 68,493 $ 60,899 $ 54,654 Distribution income 80,069 71,651 47,059 26,529 19,142 Bank fee income 42,501 32,471 29,037 25,055 15,175 Bank net interest income 4,887 4,587 3,660 3,732 2,737 Income from real estate activities 3,626 3,569 3,801 3,731 3,840 Other income 1,154 1,674 1,103 1,518 1,207 - - ----------------------------------------------------------------------------------------------------------------------------------- TOTAL INCOME 218,006 189,145 153,153 121,464 96,755 - - ----------------------------------------------------------------------------------------------------------------------------------- EXPENSES: Compensation of officers and employees 66,564 61,810 55,312 47,264 32,939 Amortization of deferred sales commissions 52,794 40,892 27,965 22,516 18,415 Other expenses 46,442 39,003 32,317 27,119 19,756 - - ----------------------------------------------------------------------------------------------------------------------------------- TOTAL EXPENSES 165,800 141,705 115,594 96,899 71,110 - - ----------------------------------------------------------------------------------------------------------------------------------- OPERATING INCOME 52,206 47,440 37,559 24,565 25,645 - - ----------------------------------------------------------------------------------------------------------------------------------- OTHER INCOME (EXPENSES): Interest income 757 602 697 808 698 Share of partnership income (losses) 115 3,883 (230) 454 (4,835) Interest expense (5,337) (4,914) (4,893) (4,748) (5,128) - - ----------------------------------------------------------------------------------------------------------------------------------- INCOME BEFORE INCOME TAXES 47,741 47,011 33,133 21,079 16,380 INCOME TAXES 19,255 19,670 13,826 8,361 8,706 - - ----------------------------------------------------------------------------------------------------------------------------------- NET INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING FOR INCOME TAXES 28,486 27,341 19,307 12,718 7,674 Cumulative effect of change in accounting for income taxes 1,300 -- -- -- -- - - ----------------------------------------------------------------------------------------------------------------------------------- NET INCOME $29,786 $27,341 $19,307 $12,718 $7,674 - - ----------------------------------------------------------------------------------------------------------------------------------- Earnings per share before cumulative effect of change in accounting for income taxes $3.00 $3.09 $2.49 $1.74 $1.02 Cumulative effect of change in accounting for income taxes per share 0.14 -- -- -- -- - - ----------------------------------------------------------------------------------------------------------------------------------- EARNINGS PER SHARE $3.14 $3.09 $2.49 $1.74 $1.02 - - ----------------------------------------------------------------------------------------------------------------------------------- EARNINGS PER SHARE EXCLUDING GOLD MINING INVESTMENTS $3.14 $2.83 $2.48 $1.58 $1.41 - - ----------------------------------------------------------------------------------------------------------------------------------- DIVIDENDS DECLARED, PER SHARE $0.60 $0.49 $0.36 $0.29 $0.24 - - ----------------------------------------------------------------------------------------------------------------------------------- AVERAGE COMMON SHARES OUTSTANDING 9,473 8,848 7,752 7,290 7,500 - - ----------------------------------------------------------------------------------------------------------------------------------- BALANCE SHEET DATA Total assets $455,506 $425,547 $318,199 $271,990 $223,256 Total liabilities $289,898 $280,247 $242,398 $214,109 $175,324 Shareholders' equity $165,608 $145,300 $75,801 $57,881 $ 47,932 - - ----------------------------------------------------------------------------------------------------------------------------------- OTHER DATA Operating margin 23.9% 25.1% 24.5% 20.2% 26.5% Revenue per employee 214 217 190 167 136 Return on assets 8.0% 8.7% 8.2% 7.1% 5.5% Return on equity 19.2% 24.7% 28.9% 24.0% 16.7% Long-term debt to debt and equity 26.7% 33.5% 50.8% 52.5% 51.4% Shareholders' equity per share $18.18 $15.87 $10.09 $7.81 $6.56 Eaton Vance Corp. employees 385 356 329 271 255 Investors Bank & Trust employees 632 517 475 455 458 Total employees 1,017 873 804 726 713 - - ----------------------------------------------------------------------------------------------------------------------------------- 55 MANAGEMENT'S DISCUSSION AND ANALYSIS - - -------------------------------------------------------------------------------- The Company's largest sources of revenues are investment adviser fees and distribution fees received from the Eaton Vance funds and separately managed accounts. Such 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. Bank fee income, also a significant source of revenue, is dependent upon assets custodied and administered by IB&T. The Company's expenses other than the amortization of deferred sales commissions include primarily employee compensation, occupancy costs, service fees and other marketing costs. RESULTS OF OPERATIONS YEAR ENDED OCTOBER 31, 1994 TO YEAR ENDED OCTOBER 31, 1993 Total revenues rose $28.9 million to $218.0 million from $189.1 million in 1993. This increase can be attributed primarily to increases in investment adviser fees and distribution income which increased $10.6 million and $8.4 million, respectively, in 1994. Both investment adviser fees and distribution income are based on the average net asset values of portfolios managed by the Company, which increased significantly to $15.5 billion for the year ended October 31, 1994, from $13.1 billion for the year ended October 31, 1993. Fund assets under management were increased by net sales of mutual funds of $2.0 billion in 1994 and reduced, primarily, by depreciation in the market value of managed assets of $1.8 billion. Separately managed accounts, in contrast, decreased to $1.6 billion in 1994 from $2.2 billion in 1993. This decrease was primarily due to the withdrawal of one large public retirement client. Gross sales of mutual funds of $3.4 billion for 1994 were down 21 percent from 1993 when the Company achieved record sales of $4.3 billion. Consistent with the experience of other mutual fund sponsors, 1994 redemptions rose 38 percent to $1.8 billion from 1993's redemptions of $1.3 billion. Bank fee income was also a significant contributor to overall revenue growth in 1994, increasing 31 percent to $42.5 million from $32.5 million a year earlier. Like investment adviser and distribution fees, bank fee income is based on assets custodied and administered by IB&T. The Company experienced significant growth in these assets in 1994. The Company was advised in November, however, that a large client intended to terminate its custodial relationship with IB&T, for reasons not related to performance, and withdraw its unit investment trust accounts which accounted for 16.3 percent of IB&T's bank fee income in 1994. Such termination is not anticipated to have a material adverse effect on IB&T's future revenues and income, as successful efforts are being made to replace the revenues attributable to this client. The two major components of total expenses are compensation of officers and employees and amortization of deferred sales commissions. In 1994, total operating expenses increased $24.1 million to $165.8 million. The increase in compensation expense resulted from the hiring of additional personnel at IB&T to service the additional assets under custody. Larger average dollar value of assets in spread commission funds increased the amortization of deferred sales commissions by $11.9 million. Other expenses rose a total of $7.4 million to $46.4 million in 1994 from $39.0 million in 1993. This increase was due primarily to an increase in IB&T's equipment leasing costs of $1.2 million, $1.4 million in development costs associated with two fund products that were not launched in 1994, and higher marketing and administrative costs incurred to increase the distribution of the Company's funds. 56 - - -------------------------------------------------------------------------------- The Company sponsored and is a limited and a general partner in two gold mining partnerships which invest in the equity and debt securities of developers of gold mines in North America and Australia. Portfolio valuations of these gold mining investment partnerships contributed net partnership losses of $0.3 million in 1994, in comparison with net partnership gains of $3.9 million in 1993. Net income of the Company amounted to $29.8 million in 1994 compared to $27.3 million in 1993. Earnings per share were $3.14 and $3.09, respectively. During 1994 the Company's total assets increased significantly due to the increase in deferred sales commissions to $256.3 million from $240.0 million in 1993 resulting from substantial sales of shares in the Company's spread- commission funds. Payment of these commissions was funded primarily by cash flows from operating activities. The difference between the book and tax accounting treatment for these commissions caused deferred income taxes to increase by $13.7 million. The increase in deferred income taxes was partially offset by the cumulative effect of the change in accounting for income taxes of $1.3 million resulting from the Company's implementation of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes," on November 1, 1993. YEAR ENDED OCTOBER 31, 1993 TO YEAR ENDED OCTOBER 31, 1992 Total revenues rose $36.0 million to $189.1 million from $153.1 million in 1992. This increase can be attributed primarily to increases in investment adviser fees and distribution income which increased $6.7 million and $24.6 million, respectively, in 1993. Investment adviser fees rose less than distribution income because fund sales were concentrated in spread commission municipal bond funds, which pay distribution plan fees, while redemptions were largely from the Eaton Vance Prime Rate Reserves Fund, which pays an adviser fee incorporating the equivalent of distribution payments. Both investment adviser fees and distribution income are based on the average net asset value of portfolios managed by the Company. Ending assets under management increased significantly in 1993 to $15.4 billion from $11.3 billion in 1992. Total assets under management were increased by net sales of mutual funds of $3.0 billion, market appreciation and growth of separately managed accounts. Gross sales of mutual funds rose 48 percent to $4.3 billion from $2.9 billion a year earlier. Redemptions of the Company's fund shares fell 13 percent to $1.3 billion from $1.5 billion a year earlier. The increase in distribution fee income in comparison with the prior year was restricted by the implementation on July 7, 1993 of an NASD rule limiting distribution plan payments to 75 basis points per year. At the time of the implementation, the rule affected approximately $6.8 billion in assets from which Eaton Vance was receiving distribution plan payments at an annual rate of 1 percent. Although the rule allows Eaton Vance to receive the same present value of distribution plan payments, it requires the payments to be spread over a longer time period. Bank fee income was also a significant contributor to overall revenue growth in 1993, increasing 12 percent to $32.5 million from $29.0 million a year earlier. Like investment adviser and distribution fees, bank fee income is based on assets custodied and administered by IB&T. The assets for which IB&T provides custody and related services increased 41 percent to $61.2 billion in 1993 from $43.3 billion in 1992. 57 - - -------------------------------------------------------------------------------- The two major components of total expenses are compensation of officers and employees and amortization of deferred sales commissions. In 1993, total operating expenses increased $26.1 million to $141.7 million. Higher salaries and benefits, marketing incentives and expenses associated with the higher level of fund sales caused compensation to increase. A larger average dollar value of assets in spread commission funds increased the amortization of deferred sales commissions by $12.9 million. Other expenses rose a total of $6.7 million to $39.0 million in 1993 from $32.3 million in 1992, due primarily to increases in marketing costs associated with the higher level of sales, expenses from the Bank's custody activities and expenses associated with the Company's gold mining activities. Portfolio valuations of the gold mining investment partnerships contributed net partnership gains of $3.9 million in 1993 in comparison with net partnership losses of $0.2 million in 1992. Net income of the Company amounted to $27.3 million in 1993 compared to $19.3 million in 1992. Earnings per share were $3.09 and $2.49, respectively. During 1993, the Company's total assets increased significantly due to the increase in deferred sales commissions to $240.0 million from $159.8 million in 1992 resulting from substantial sales of shares in the Company's spread-commission funds. Payment of these commissions was funded by cash flows from operating activities and borrowings. The difference between the book and tax accounting treatment for these commissions caused deferred income taxes to increase by $17.1 million. LIQUIDITY AND CAPITAL RESOURCES In 1994, retained earnings of $24.3 million and net proceeds of $2.4 million from the issuance of new stock to employees under stock purchase and stock option plans, less $6.4 million used to repurchase outstanding shares of the Company's stock, increased the Company's consolidated shareholders' equity from $145.3 million at the end of 1993 to $165.6 million on October 31, 1994. The Company's primary sources of cash flow from operating activities were net income of $29.8 million, amortization of deferred sales commissions of $52.8 million, capitalized sales charges received on early redemption of spread-commission funds of $24.8 million and deferred income taxes of $13.7 million. In 1994, the primary use of capital was for commission payments associated with sales of spread-commission mutual funds, which were financed primarily by cash flows from operating activities of $32.9 million. The Company anticipates that the primary use of cash will continue to be the payment of sales commissions on sales of the Company's spread-commission funds. The Company anticipates funding the payment of these commissions through cash flows generated from operating activities and, if necessary, through borrowings. On March 18, 1994, the Company privately placed, with three insurance companies, a $50.0 million 6.22 percent Senior Note due March, 2004. The proceeds were used to call the Company's outstanding $14.2 million of 10 percent Subordinated Debentures and to reduce the borrowings under a $75.0 million revolving line of credit with two unaffiliated banks. At year end, the Company had no borrowings under its $75.0 million bank credit facility. The Company expects a small continuing cash flow from its real estate activities. The Company has no present plans for significant investments in new real estate properties. 58 CONSOLIDATED BALANCE SHEETS - - -------------------------------------------------------------------------------- October 31, 1994 and 1993
ASSETS 1994 1993 - - ------------------------------------------------------------------------------------------------------- (all figures in thousands) CURRENT ASSETS: Cash and equivalents $ 24,681 $ 12,414 Receivable for investment company shares sold 1,073 3,007 Investment adviser fees and other receivables 2,632 2,923 Other current assets 1,233 1,390 - - ------------------------------------------------------------------------------------------------------- TOTAL CURRENT ASSETS 29,619 19,734 - - ------------------------------------------------------------------------------------------------------- INVESTORS BANK & TRUST COMPANY ASSETS: Cash and equivalents 9,344 16,241 Investment securities (market value $86,172 and $82,404, respectively) 88,278 80,206 Loans, less allowance for loan losses 13,570 10,221 Accrued interest and fees receivable 9,383 5,668 Equipment and leasehold improvements, net 3,251 3,010 Other assets 3,780 4,838 - - ------------------------------------------------------------------------------------------------------- TOTAL BANK ASSETS 127,606 120,184 - - ------------------------------------------------------------------------------------------------------- OTHER ASSETS: Investments: Real estate 22,173 22,448 Gold mining partnerships 3,072 6,924 Investment companies (market value $5,702 and $5,025, respectively) 4,088 3,377 Other investments 4,120 4,154 Notes receivable and receivables from affiliates 3,139 3,381 Deferred sales commissions 256,326 240,017 Equipment and leasehold improvements, net 3,477 3,329 Goodwill 1,999 1,886 - - ------------------------------------------------------------------------------------------------------- TOTAL OTHER ASSETS 298,281 285,629 - - ------------------------------------------------------------------------------------------------------- TOTAL ASSETS $455,506 $425,547 - - -------------------------------------------------------------------------------------------------------
59 CONSOLIDATED BALANCE SHEETS (CONTINUED) - - -------------------------------------------------------------------------------- October 31, 1994 and 1993
LIABILITIES & SHAREHOLDERS' EQUITY 1994 1993 - - ------------------------------------------------------------------------------------------------------------- (in thousands, except share figures) CURRENT LIABILITIES: Payable for investment company shares purchased $ 1,096 $ 3,073 Accrued compensation 8,817 8,626 Accounts payable and accrued expenses 4,539 4,046 Accrued income taxes 1,761 1,443 Dividend payable 1,461 1,285 Current portion of mortgage notes payable 6,449 324 Other current liabilities 688 279 - - ------------------------------------------------------------------------------------------------------------- TOTAL CURRENT LIABILITIES 24,811 19,076 - - ------------------------------------------------------------------------------------------------------------- INVESTORS BANK & TRUST COMPANY LIABILITIES: Demand and time deposits 106,909 104,851 Other 5,214 3,624 - - ------------------------------------------------------------------------------------------------------------- TOTAL BANK LIABILITIES 112,123 108,475 - - ------------------------------------------------------------------------------------------------------------- OTHER LIABILITIES: 6.22% Senior Note 50,000 -- Note payable to unaffiliated banks -- 42,300 Mortgage notes payable 10,311 16,759 Subordinated debentures -- 14,169 Minority interest in consolidated subsidiaries 3,113 2,340 - - ------------------------------------------------------------------------------------------------------------- TOTAL OTHER LIABILITIES 63,424 75,568 - - ------------------------------------------------------------------------------------------------------------- DEFERRED INCOME TAXES 89,540 77,128 - - ------------------------------------------------------------------------------------------------------------- Commitments -- -- - - ------------------------------------------------------------------------------------------------------------- SHAREHOLDERS' EQUITY: Common stock, par value $.0625 per share: Authorized, 80,000 Issued, 19,360 shares 1 1 Non-voting common stock, par value $.0625 per share: Authorized, 11,920,000 Issued, 9,090,394 and 9,134,218 shares, respectively 568 571 Additional paid-in capital 49,595 52,845 Notes receivable from stock option exercises (2,511) (1,804) Retained earnings 117,955 93,687 - - ------------------------------------------------------------------------------------------------------------- TOTAL SHAREHOLDERS' EQUITY 165,608 145,300 - - ------------------------------------------------------------------------------------------------------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $455,506 $425,547 - - -------------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements 60 CONSOLIDATED STATEMENTS OF INCOME - - -------------------------------------------------------------------------------- Years Ended October 31, 1994, 1993 and 1992
1994 1993 1992 - - ------------------------------------------------------------------------------------------------------------------------- (in thousands, except per share figures) INCOME: Investment adviser and administration fees $ 85,769 $ 75,193 $ 68,493 Distribution income 80,069 71,651 47,059 Bank fee income 42,501 32,471 29,037 Bank net interest income 4,887 4,587 3,660 Income from real estate activities 3,626 3,569 3,801 Other income 1,154 1,674 1,103 - - ------------------------------------------------------------------------------------------------------------------------- TOTAL INCOME 218,006 189,145 153,153 - - ------------------------------------------------------------------------------------------------------------------------- EXPENSES: Compensation of officers and employees 66,564 61,810 55,312 Amortization of deferred sales commissions 52,794 40,892 27,965 Other expenses 46,442 39,003 32,317 - - ------------------------------------------------------------------------------------------------------------------------- TOTAL EXPENSES 165,800 141,705 115,594 - - ------------------------------------------------------------------------------------------------------------------------- OPERATING INCOME 52,206 47,440 37,559 OTHER INCOME (EXPENSE): Interest income 757 602 697 Share of partnership income (losses) 115 3,883 (230) Interest expense (5,337) (4,914) (4,893) - - ------------------------------------------------------------------------------------------------------------------------- INCOME BEFORE INCOME TAXES 47,741 47,011 33,133 INCOME TAXES 19,255 19,670 13,826 - - ------------------------------------------------------------------------------------------------------------------------- NET INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING FOR INCOME TAXES 28,486 27,341 19,307 Cumulative effect of change in accounting for income taxes 1,300 -- -- - - ------------------------------------------------------------------------------------------------------------------------- NET INCOME $ 29,786 $ 27,341 $ 19,307 - - ------------------------------------------------------------------------------------------------------------------------- Earnings per share before cumulative effect of change in accounting for income taxes $3.00 $3.09 $2.49 Cumulative effect of change in accounting for income taxes per share 0.14 -- -- - - ------------------------------------------------------------------------------------------------------------------------- EARNINGS PER SHARE $3.14 $3.09 $2.49 - - ------------------------------------------------------------------------------------------------------------------------- DIVIDENDS DECLARED, PER SHARE $0.60 $0.49 $0.36 - - ------------------------------------------------------------------------------------------------------------------------- AVERAGE COMMON SHARES OUTSTANDING 9,473 8,848 7,752 - - -------------------------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements 61 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY - - -------------------------------------------------------------------------------- Years Ended October 31, 1994, 1993 and 1992
NON- NOTES VOTING ADDITIONAL RECEIVABLE TOTAL COMMON COMMON PAID-IN FROM STOCK RETAINED SHAREHOLDERS' SHARES STOCK STOCK CAPITAL OPTION EXERCISES EARNINGS EQUITY - - ---------------------------------------------------------------------------------------------------------------------------------- (all figures in thousands) BALANCE, OCTOBER 31, 1991 7,410 $1 $463 $ 5,084 $(1,723) $ 54,056 $ 57,881 ADD (DEDUCT): Net income -- -- -- -- -- 19,307 19,307 Dividends declared ($0.36 per share) -- -- -- -- -- (2,697) (2,697) Issuance of non-voting common stock - On exercise of stock options 39 -- 1 420 (202) -- 219 For employee stock purchase plan 48 -- 3 527 -- -- 530 For purchase of minority interest of Serio Exploration 19 -- 1 334 -- -- 335 Repurchase of non-voting common stock (2) -- -- (21) -- -- (21) Collection of notes receivable -- -- -- -- 247 -- 247 - - ---------------------------------------------------------------------------------------------------------------------------------- BALANCE, OCTOBER 31, 1992 7,514 $1 $468 $ 6,344 $(1,678) $ 70,666 $ 75,801 ADD (DEDUCT): Net income -- -- -- -- -- 27,341 27,341 Dividends declared ($0.49 per share) -- -- -- -- -- (4,320) (4,320) Issuance of non-voting common stock - On public stock offering 1,380 -- 86 43,810 -- -- 43,896 On exercise of stock options 216 -- 14 2,183 (648) -- 1,549 For employee stock purchase plan 40 -- 3 666 -- -- 669 For employee incentive plan 34 -- 2 768 -- -- 770 Repurchase of non-voting common stock (30) -- (2) (926) -- -- (928) Collection of notes receivable -- -- -- -- 522 -- 522 - - ---------------------------------------------------------------------------------------------------------------------------------- BALANCE, 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 - - ----------------------------------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements 62 CONSOLIDATED STATEMENTS OF CASH FLOWS - - -------------------------------------------------------------------------------- Years Ended October 31, 1994, 1993 and 1992
1994 1993 1992 - - --------------------------------------------------------------------------------------------------------------------------------- (all figures in thousands) CASH AND EQUIVALENTS (INCLUDING IB&T), BEGINNING OF YEAR $ 28,655 $ 9,535 $ 13,053 - - --------------------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income 29,786 27,341 19,307 Adjustments to reconcile net income to net cash provided by (used for) operating activities: Share of net (income) losses of partnerships (115) (3,883) 230 Deferred income taxes 13,712 17,105 15,633 Cumulative effect of change in accounting for income taxes (1,300) -- -- Amortization of deferred sales commissions 52,794 40,892 27,965 Amortization of premiums on investments and investment securities, net of accretion of discounts 1,300 1,469 183 Depreciation and other amortization 3,712 3,561 3,804 Payment of sales commissions (93,663) (139,339) (99,043) Capitalized sales charges received 24,838 17,681 23,650 Change in refundable income taxes -- 4,030 (605) Changes in other assets and liabilities 1,881 (843) 3,219 - - ------------------------------------------------------------------------------------------------------------------------------ NET CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES 32,945 (31,986) (5,657) - - --------------------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Distributions from (investment in) partnerships (252) 856 (97) Additions to real estate, equipment and leasehold improvements (3,338) (3,625) (3,302) Net increase in notes and receivables from affiliates (465) (512) (1,464) Net (increase) decrease in investment companies and other investments (371) (1,357) 234 Proceeds from sales and maturities of investment securities 19,165 8,081 25,024 Purchases of investment securities (25,636) (25,726) (38,367) Decrease in federal funds sold -- 16,000 16,000 Net increase in loans (3,349) (4,338) (756) - - --------------------------------------------------------------------------------------------------------------------------------- NET CASH USED FOR INVESTING ACTIVITIES (14,246) (10,621) (2,728) - - --------------------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from 6.22% Senior Note 50,000 -- -- Proceeds from note payable to unaffiliated banks 70,950 73,800 60,600 Payments on notes payable (113,573) (78,914) (46,172) Redemption of subordinated debentures (14,169) -- -- Issuance of non-voting common stock 3,169 47,532 1,286 Dividends paid (5,342) (3,864) (2,461) Repurchase of non-voting common stock (6,422) (928) (21) Changes in demand and time deposits 2,058 24,101 (8,365) - - --------------------------------------------------------------------------------------------------------------------------------- NET CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES (13,329) 61,727 4,867 - - --------------------------------------------------------------------------------------------------------------------------------- NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS 5,370 19,120 (3,518) - - --------------------------------------------------------------------------------------------------------------------------------- CASH AND EQUIVALENTS (INCLUDING IB&T), END OF YEAR $ 34,025 $ 28,655 $ 9,535 - - ---------------------------------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements 63 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - - -------------------------------------------------------------------------------- 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A. The consolidated financial statements include the accounts of Eaton Vance Corp. (the "Company") and all of its majority owned subsidiaries. All material intercompany accounts and transactions have been eliminated. B. Cash equivalents consist principally of short-term, highly liquid investments and are recorded at cost, which is equivalent to market value. Cash equivalents of Investors Bank & Trust Company ("IB&T") consist of cash due from banks. C. Investments are accounted for as follows: Investment securities held by IB&T are carried at cost, adjusted for amortization of bond premium and accretion of bond discount, and consist principally of U.S. Government obligations maturing in five years or less and mortgage-backed securities. At October 31, 1994 and 1993, IB&T's investment securities had gross unrealized gains of $0 and $2,246,000, and gross unrealized losses of $2,106,000 and $48,000, respectively. The carrying value of investment securities pledged to secure public funds on deposit and for other required purposes amounted to $88,000,000 and $80,000,000 at October 31, 1994 and 1993, respectively. Real estate properties are carried at the lower of cost or net realizable value, with depreciation provided using the straight-line method over the estimated useful lives of the assets. Investments in unconsolidated partnership interests are accounted for by the equity method of accounting. This method requires the Company to record its share of the unrealized gains and losses in the underlying marketable securities of its two gold-mining limited partnerships' portfolios. Investments in investment companies are carried at the lower of cost or market. At October 31, 1994 and 1993, the Company had gross unrealized gains of $1,689,000 and $1,659,000, and gross unrealized losses of $75,000 and $11,000, respectively. The Company, as a non-managing general partner of certain investment company partnerships, is required to maintain a minimum investment in such partnerships. At October 31, 1994, a minimum investment of $2,837,000 was required under the terms of the partnership agreements. Investments held in connection with the Company's activities as principal underwriter are recorded at market value and consist of Eaton Vance mutual funds. Other investments are carried at the lower of cost or management's estimate of net realizable value. The Company will be required to adopt Statement of Financial Accounting Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt and Equity Securities," in fiscal 1995. SFAS No. 115 requires that investments in debt securities classified as "held to maturity securities" are recorded at amortized cost, and investments in debt and equity securities classified as either "available for sale" or "trading" are recorded at fair value. Management does not believe the adoption of SFAS No. 115 will have a material impact on the consolidated financial statements. 64 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - - -------------------------------------------------------------------------------- D. Bank loan losses are provided for under the allowance method. Increases in the loan loss allowance account are charged to operating expenses based on a reasonable estimate of foreseeable losses. There have been no loan charge-offs or recoveries during the periods presented. E. Property, 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. F. 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 and is being amortized on the straight-line method over 36 to 40 years. G. 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. H. Sales commissions paid to brokers and dealers in connection with sales of shares of certain investment companies are charged to deferred sales commissions 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. I. The Company adopted Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes" effective November 1, 1993. The impact of the change is discussed in Note 11 to the consolidated financial statements. 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. J. 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. K. Certain prior year amounts have been reclassified to conform to the current year presentation. 65 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - - -------------------------------------------------------------------------------- 2. INVESTMENT IN GOLD MINING PARTNERSHIPS The Company has a 79% general partnership interest in Fulcrum Management Partners, L.P. (F.M.P.) and an 82% general partnership interest in Fulcrum Management Partners II, L.P. (F.M.P.II), both Delaware limited partnerships, of which a principal officer of the Company is the other general partner. F.M.P. and F.M.P.II are 20% general partners of VenturesTrident, L.P. (V.T.) and VenturesTrident II, L.P. (V.T.II), respectively, both Delaware limited partnerships formed to invest in equity securities of public and private gold-mining ventures. The Company also has a 12% limited partnership interest in V.T. and a 3% limited partnership interest in V.T.II. The balance sheets of V.T. and V.T.II at October 31, 1994 and 1993, follow:
1994 1993 ------------------------------------------------------------------------------------------------------------ V.T. V.T.II V.T. V.T.II ------------------------------------------------------------------------------------------------------------ (all figures in thousands) ASSETS: Cash and short-term investments $ 144 $ 471 $ 280 $ 818 Investments, at fair value 7,437 47,985 6,702 92,279 Other Assets 110 118 80 1,189 ------------------------------------------------------------------------------------------------------------ TOTAL $7,691 $48,574 $7,062 $94,286 ------------------------------------------------------------------------------------------------------------ LIABILITIES AND PARTNERS' CAPITAL: Liabilities $1,891 $ 1,749 $1,909 $ 1,941 Partners' capital 5,800 46,825 5,153 92,345 ------------------------------------------------------------------------------------------------------------ TOTAL $7,691 $48,574 $7,062 $94,286 ------------------------------------------------------------------------------------------------------------
For the years ended October 31, 1994, 1993 and 1992, the operating results of V.T. reflect net income (losses) of $647,000, ($4,122,000) and ($1,482,000), respectively, including realized and unrealized gains (losses) on investments of $733,000, ($3,837,000) and ($1,173,000), respectively. For the years ended October 31, 1994, 1993 and 1992, the operating results of V.T.II reflect net income (losses) of ($2,004,000), $29,206,000 and $1,717,000, respectively, including realized and unrealized gains (losses) on investments of ($648,000), $29,391,000 and $7,687,000, respectively. In January 1994, V.T.II distributed 1,750,000 shares of Pegasus Gold Corporation, with a value of $42 million, to its partners. The Company's share of this distribution was 159,000 shares with a value of $3.8 million. The Company's Consolidated Statement of Cash Flows for 1994 excludes the effect of this non-cash investing activity. At October 31, 1994, all but 14,000 of these shares were sold. In July 1994, V.T.II made a net cash distribution of $1,516,000 to its limited partners for payment of taxes. The Company received $75,000 for its limited partnership interest. For the years ended October 31, 1994, 1993 and 1992, the Company's share of the net income (losses) of V.T. and V.T.II, as accounted for under the equity method and allocated pursuant to the terms of the partnerships' agreements, was ($289,000), $3,894,000 and ($160,000), respectively. At October 31, 1994 and 1993, the Company's investments in V.T. and V.T.II approximated its share of the partners' capital of each partnership. 66 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - - -------------------------------------------------------------------------------- 3. CONSOLIDATING FINANCIAL STATEMENTS The components of the 1994 Eaton Vance Corp. consolidated balance sheet and statement of income by major business segment follow:
BALANCE SHEET PRECIOUS METAL OCT. 31, 1994, INVESTMENT REAL MINING & ELIMI- CONSOLIDATED ASSETS MANAGEMENT BANKING ESTATE OTHER NATIONS TOTAL - - ------------------------------------------------------------------------------------------------------------------------------ (all figures in thousands) CURRENT ASSETS: Cash and equivalents $ 25,685 $ -- $ 372 $ 394 $ (1,770) $ 24,681 Receivable for investment company shares sold 1,073 -- -- -- -- 1,073 Investment adviser fees and other receivables 2,244 -- 295 93 -- 2,632 Other current assets 513 -- 443 277 -- 1,233 - - ------------------------------------------------------------------------------------------------------------------------------ TOTAL CURRENT ASSETS 29,515 -- 1,110 764 (1,770) 29,619 - - ------------------------------------------------------------------------------------------------------------------------------ INVESTORS BANK & TRUST COMPANY ASSETS: Cash and equivalents -- 9,344 -- -- -- 9,344 Investment securities -- 88,278 -- -- -- 88,278 Loans, less allowance for loan losses -- 13,570 -- -- -- 13,570 Accrued interest and fees receivable -- 9,383 -- -- -- 9,383 Equipment and leasehold improvements, net -- 3,251 -- -- -- 3,251 Other assets -- 3,780 -- -- -- 3,780 - - ------------------------------------------------------------------------------------------------------------------------------ TOTAL BANK ASSETS -- 127,606 -- -- -- 127,606 - - ------------------------------------------------------------------------------------------------------------------------------ OTHER ASSETS: Investments: Real estate -- -- 22,173 -- -- 22,173 Gold mining partnerships -- -- -- 3,072 -- 3,072 Northeast Properties, Inc. 8,487 -- -- -- (8,487) -- Investors Bank & Trust Co. 10,600 -- -- -- (10,600) -- Marblehead Energy Corp. 175 -- -- -- (175) -- Energex Corp. 270 -- -- -- (270) -- Mining related subsidiaries 7,659 -- -- -- (7,659) -- Investment companies 4,088 -- -- -- -- 4,088 Other investments 1,800 -- -- 2,320 -- 4,120 Notes receivable and receivables from affiliates 100 -- 318 2,821 (100) 3,139 Deferred sales commissions 255,898 -- 428 -- -- 256,326 Equipment and leasehold improvements, net 3,404 -- 1 72 -- 3,477 Goodwill 1,877 -- 9 -- -- 1,886 Intercompany receivables (2,645) -- 2,808 (163) -- -- - - ------------------------------------------------------------------------------------------------------------------------------ TOTAL OTHER ASSETS 291,713 -- 25,737 8,122 (27,291) 298,281 - - ------------------------------------------------------------------------------------------------------------------------------ TOTAL ASSETS $321,228 $127,606 $26,847 $8,886 $(29,061) $455,506 - - ------------------------------------------------------------------------------------------------------------------------------
67 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - - -------------------------------------------------------------------------------- 3. CONSOLIDATING FINANCIAL STATEMENTS (CONTINUED)
BALANCE SHEET (continued) PRECIOUS METAL OCT. 31, 1994, LIABILITIES AND INVESTMENT REAL MINING & ELIMI- CONSOLIDATED SHAREHOLDERS' EQUITY MANAGEMENT BANKING ESTATE OTHER NATIONS TOTAL - - -------------------------------------------------------------------------------------------------------------------------------- (all figures in thousands) CURRENT LIABILITIES: Payable for investment company shares purchased $ 1,096 $ -- $ -- $ -- $ -- $ 1,096 Accrued compensation 8,817 -- -- -- -- 8,817 Accounts payable and accrued expenses 4,212 -- 276 51 -- 4,539 Accrued income taxes 1,805 -- (8) (36) -- 1,761 Dividend payable 1,461 -- -- -- -- 1,461 Current portion of mortgage notes payable -- -- 6,449 -- -- 6,449 Other current liabilities 688 -- -- -- -- 688 - - ------------------------------------------------------------------------------------------------------------------------------ TOTAL CURRENT LIABILITIES 18,079 -- 6,717 15 -- 24,811 - - ------------------------------------------------------------------------------------------------------------------------------ INVESTORS BANK & TRUST COMPANY LIABILITIES: Demand and time deposits -- 108,679 -- -- (1,770) 106,909 Other -- 5,214 -- -- -- 5,214 - - ------------------------------------------------------------------------------------------------------------------------------ TOTAL BANK LIABILITIES -- 113,893 -- -- (1,770) 112,123 - - ------------------------------------------------------------------------------------------------------------------------------ OTHER LIABILITIES: 6.22% Senior Note 50,000 -- -- -- -- 50,000 Note payable to affiliate -- -- -- 100 (100) -- Mortgage notes payable -- -- 10,311 -- -- 10,311 Minority interest in consolidated subsidiaries -- -- -- -- 3,113 3,113 - - ------------------------------------------------------------------------------------------------------------------------------ TOTAL OTHER LIABILITIES 50,000 -- 10,311 100 3,013 63,424 - - ------------------------------------------------------------------------------------------------------------------------------ DEFERRED INCOME TAXES 87,368 -- 1,332 840 -- 89,540 - - ------------------------------------------------------------------------------------------------------------------------------ SHAREHOLDERS' EQUITY 165,781 13,713 8,487 7,931 (30,304) 165,608 - - ------------------------------------------------------------------------------------------------------------------------------ TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $321,228 $127,606 $26,847 $8,886 $(29,061) $455,506 - - ------------------------------------------------------------------------------------------------------------------------------
68 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - - -------------------------------------------------------------------------------- 3. CONSOLIDATING FINANCIAL STATEMENTS (CONTINUED)
STATEMENT OF INCOME PRECIOUS METAL OCT. 31, 1994, INVESTMENT REAL MINING & ELIMI- CONSOLIDATED MANAGEMENT BANKING ESTATE OTHER NATIONS TOTAL - - ------------------------------------------------------------------------------------------------------------------------------ (all figures in thousands) INCOME: Investment adviser and administration fees $ 83,682 $ -- $ -- $2,087 $ -- $ 85,769 Distribution income 80,069 -- -- -- -- 80,069 Bank fee income -- 43,049 -- -- (548) 42,501 Bank net interest income -- 4,778 -- -- 109 4,887 Income from real estate activities -- -- 5,154 -- (1,528) 3,626 Other income 948 -- -- 206 -- 1,154 - - ------------------------------------------------------------------------------------------------------------------------------ TOTAL INCOME 164,699 47,827 5,154 2,293 (1,967) 218,006 - - ------------------------------------------------------------------------------------------------------------------------------ EXPENSES: Compensation of officers and employees 38,486 27,299 586 193 -- 66,564 Amortization of deferred sales commissions 52,794 -- -- -- -- 52,794 Other expenses 26,200 15,205 3,532 2,796 (1,291) 46,442 - - ------------------------------------------------------------------------------------------------------------------------------ TOTAL EXPENSES 117,480 42,504 4,118 2,989 (1,291) 165,800 - - ------------------------------------------------------------------------------------------------------------------------------ OPERATING INCOME (LOSS) 47,219 5,323 1,036 (696) (676) 52,206 OTHER INCOME (EXPENSE): Interest income 546 -- 56 264 (109) 757 Share of partnership income (losses) 97 -- 307 (289) -- 115 Interest expense (3,857) -- (1,480) -- (5,337) - - ------------------------------------------------------------------------------------------------------------------------------ INCOME (LOSS) BEFORE INCOME TAXES 44,005 5,323 (81) (721) (785) 47,741 INCOME TAXES 17,821 1,862 19 (447) -- 19,255 - - ------------------------------------------------------------------------------------------------------------------------------ NET INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING FOR INCOME TAXES 26,184 3,461 (100) (274) (785) 28,486 Cumulative effect of change in accounting for income taxes 1,374 -- 129 (203) -- 1,300 - - ------------------------------------------------------------------------------------------------------------------------------ NET INCOME (LOSS) $ 27,558 $ 3,461 $ 29 $ (477) $ (785) $ 29,786 - - ------------------------------------------------------------------------------------------------------------------------------
Additional segment information is presented in Note 12. 69 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - - -------------------------------------------------------------------------------- 4. REAL ESTATE INVESTMENTS Real estate investments held at October 31, 1994 and 1993, follow:
1994 1993 ---------------------------------------------------------------------------- (all figures in thousands) Buildings $27,347 $26,999 Land 2,465 2,478 ---------------------------------------------------------------------------- TOTAL 29,812 29,477 Less accumulated depreciation 7,510 6,594 ---------------------------------------------------------------------------- NET BOOK VALUE 22,302 22,883 Share of accumulated losses in excess of partnership interest (129) (435) ---------------------------------------------------------------------------- TOTAL $22,173 $22,448 ----------------------------------------------------------------------------
5. EQUIPMENT AND LEASEHOLD IMPROVEMENTS Equipment and leasehold improvements (including IB&T) at October 31, 1994 and 1993, follow:
1994 1993 ---------------------------------------------------------------------------- (all figures in thousands) AT COST: Equipment $13,036 $11,544 Leasehold improvements 815 530 ---------------------------------------------------------------------------- TOTAL 13,851 12,074 Less accumulated depreciation 7,123 5,735 ---------------------------------------------------------------------------- NET BOOK VALUE $ 6,728 $ 6,339 ----------------------------------------------------------------------------
6. OTHER LIABILITIES 6.22% SENIOR NOTE In March 1994, the Company privately placed, with three insurance companies, 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. NOTE PAYABLE TO UNAFFILIATED BANKS The Company has an unsecured revolving credit and term loan agreement with two unaffiliated participating banks under which the Company may borrow up to $75,000,000. Borrowings under the credit agreement are due in March 1997, and bear interest at a combination of the following rates: the banks' current money market rate (5.9 percent at October 31, 1994), or 1 percent per annum above the banks' Eurodollar rate (6.1 percent at October 31, 1994). In addition, a commitment fee of 0.375 percent per annum is payable on unborrowed amounts. There were no borrowings under this agreement at October 31, 1994. The loan agreement contains various covenants with respect to, among other things, levels of operating cash flow and net income, and allowable additional indebtedness and investments. 70 Notes to Consolidated Financial Statements - - -------------------------------------------------------------------------------- 6. OTHER LIABILITIES (CONTINUED) MORTGAGE NOTES PAYABLE The balance of mortgage notes payable on October 31, 1994 and 1993, follow:
MATURITY 1994 1993 ---------------------------------------------------------------------------------------------------------------------- INTEREST RATE (all figures in thousands) 10.18% 1995 $ 6,200 $ 6,281 10.75% 1996 2,270 2,290 9.00% 1997 4,008 4,051 Prime +1% (8.75% at October 31, 1994) 1997 1,437 1,477 60% of Prime (4.65% at October 31, 1994) 2015-2016 2,845 2,984 ---------------------------------------------------------------------------------------------------------------------- TOTAL $16,760 $17,083 ----------------------------------------------------------------------------------------------------------------------
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. Principal payments due on mortgage notes outstanding at October 31, 1994, for each of the next five years and in the aggregate thereafter follow:
YEAR ENDING OCTOBER 31 PAYMENTS DUE ----------------------------------------------------------- (in thousands) 1995 $ 6,449 1996 2,485 1997 5,402 1998 141 1999 141 Thereafter 2,142 ----------------------------------------------------------- TOTAL $16,760 -----------------------------------------------------------
SUBORDINATED DEBENTURES At October 31, 1993, the Company had outstanding $14,169,000 of 10 percent subordinated debentures. The debentures were subordinated to all senior debt of the Company and paid interest semi-annually. The Company redeemed the debentures on April 1, 1994. INTEREST PAID Interest paid by the Company for the years ended October 31, 1994, 1993 and 1992 by business segment follows:
1994 1993 1992 ------------------------------------------------------------------------------------------ (all figures in thousands) Banking $ 807 $ 669 $1,075 Real Estate 1,493 1,458 1,567 Other 4,158 3,558 3,691 ------------------------------------------------------------------------------------------ TOTAL $6,458 $5,685 $6,333 ------------------------------------------------------------------------------------------
71 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - - -------------------------------------------------------------------------------- 7. LEASE COMMITMENTS The Company leases certain equipment and facilities under noncancellable operating leases. Future minimum lease commitments are as follows:
Year ending October 31 Amount ------------------------------------------------------ (in thousands) 1995 $ 4,500 199 64,036 1997 3,363 1998 759 1999 715 Thereafter 1,422 ------------------------------------------------------ TOTAL $14,795 ------------------------------------------------------
Rent expense under these leases in 1994, 1993 and 1992 amounted to $4,116,000, $3,219,000 and $2,660,000, respectively. 8. FAIR VALUE OF FINANCIAL INSTRUMENTS The following disclosure of the estimated fair value of financial instruments is made in accordance with the requirements of Statement of Financial Accounting Standards No. 107, "Disclosures about Fair Value of Financial Instruments." The estimated fair value amounts have been determined by the Company using available market information and appropriate valuation methodologies. The methodologies require management to develop assumptions on such items as discount rates and future cash flows. Accordingly, such fair value estimates are not necessarily indicative of the amounts the Company would realize upon a current market exchange. The carrying amounts and estimated fair value at October 31, 1994 and 1993, follow:
1994 1993 - - --------------------------------------------------------------------------------------------------------- CARRYING ESTIMATED CARRYING ESTIMATED AMOUNT FAIR VALUE AMOUNT FAIR VALUE - - --------------------------------------------------------------------------------------------------------- ASSETS: (all figures in thousands) Cash and equivalents $ 34,025 $ 34,025 $ 28,655 $ 28,655 Investments - Investment securities 88,278 86,172 80,206 82,404 Investment companies 4,088 5,702 3,377 5,025 Other investments 1,607 1,607 1,618 1,618 Loans 13,570 13,570 10,221 10,221 Notes receivable and receivables from affiliates 5,650 5,650 5,185 5,282 LIABILITIES: Demand and time deposits $106,909 $106,909 $104,851 $104,851 Senior note 50,000 44,529 -- -- Note payable to unaffiliated banks -- -- 42,300 42,300 Mortgage notes payable 16,760 16,548 17,083 16,993 Subordinated debentures -- -- 14,169 14,299
72 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 8. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED) CASH AND EQUIVALENTS - The carrying amounts of cash and equivalents approximate their fair value. INVESTMENTS - The estimated fair value of investment securities, investment companies and common stock is based on quoted market prices. Management believes it is impracticable to disclose fair values of certain other investments (carrying amounts of $2,513,000 and $2,536,000 at October 31, 1994 and 1993, respectively) due to the difficulty of predicting future returns and the period in which those amounts will be received. LOANS - Variable interest rate loans are subject to periodic repricing and the carrying amount is a reasonable estimate of fair 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. Included in this category are "Notes receivable from stock option exercises" which are a component of shareholders' equity on the consolidated balance sheet. DEMAND AND TIME DEPOSITS - The carrying value of deposit accounts which are subject to periodic repricing is a reasonable estimate of fair value. 6.22% SENIOR NOTE - The estimated fair value of the Senior Note has been determined by discounting future cash flows using a market interest rate calculated in the same manner as the fixed rate of interest applicable to the note. NOTE PAYABLE TO UNAFFILIATED BANKS - The note payable to unaffiliated banks is subject to periodic repricing and the carrying amount approximates its market value. MORTGAGE NOTES PAYABLE - The estimated fair value for mortgage notes payable is based on discounted cash flow analyses using current market interest rates applicable to mortgaged properties. SUBORDINATED DEBENTURES - The estimated fair value of the subordinated debentures is based on the fair value of the debentures as calculated by an independent valuation source. 9. NON-VOTING COMMON STOCK OPTIONS Outstanding options to subscribe to shares of non-voting common stock are summarized as follows:
SHARES OPTION UNDER OPTION PRICE RANGE ------------------------------------------------------------------------------------- Balance, October 31, 1992 740,400 $ 3.95 - 17.00 Exercised (216,200) 3.95 - 15.75 Granted 202,084 27.25 - 33.50 Cancelled/Expired (7,600) 8.75 - 15.75 ------------------------------------------------------------------------------------- Balance, October 31, 1993 718,684 8.75 - 33.50 Exercised (141,181) 8.75 - 27.25 Granted 159,970 27.375 - 34.00 Cancelled/Expired (4,725) 27.25 - 34.00 ------------------------------------------------------------------------------------- BALANCE, OCTOBER 31, 1994 732,748 $ 8.75 - 34.00 -------------------------------------------------------------------------------------
At October 31, 1994, options for 414,605 shares were exercisable. Options for 318,143 additional shares will become exercisable over the next two years. In December 1994, the Company granted options for an additional 132,300 shares at a price of $27.75. These options will become exercisable over the next four years. 73 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - - -------------------------------------------------------------------------------- 10. EMPLOYEE BENEFIT PLANS EXECUTIVE LOAN PROGRAM The Company has established an Executive Loan Program under which a maximum of $6,100,000 is available for loans to certain key employees for purposes of financing or refinancing the exercise of stock options for shares of the Company's non-voting common stock, other purchases of the Company's non-voting stock, and any tax obligations arising from such transactions. Such loans are written for a seven-year period, at varying fixed interest rates (currently ranging from 5.3 percent to 9.5 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, 1994 and 1993, amounted to $2,511,000 and $1,804,000, respectively. PROFIT-SHARING RETIREMENT PLAN The Company has a discretionary profit-sharing retirement plan for the benefit of substantially all employees of its wholly owned subsidiaries whereby up to 15 percent of eligible compensation of participants may be contributed. The Company has contributed $2,709,000, $2,419,000 and $2,228,000, the maximum amounts permitted under the plan, for the years ended October 31, 1994, 1993 and 1992, respectively. STOCK PURCHASE PLAN A total of 312,000 shares of the Company's non-voting common stock was reserved for issuance under an Employee Stock Purchase Plan. The plan permits all 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 market value of the non-voting common stock at the beginning or at the end of each six-month offering period. Through October 31, 1994, 285,076 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 is 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, 1994, 57,022 shares have been issued pursuant to this plan. BANK PENSION PLAN IB&T has a trusteed, noncontributory defined benefit pension plan covering substantially all its employees. The benefits are based on years of service and the employee's compensation during employment. IB&T's funding policy is to contribute annually the maximum amount which can be deducted for Federal income tax purposes. Contributions are intended to provide not only for benefits attributed to service to date, but also for benefits expected to be earned in the future. 74 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - - -------------------------------------------------------------------------------- 10. EMPLOYEE BENEFIT PLANS (CONTINUED) The following table sets forth the plan's funded status and amounts recognized in IB&T's balance sheet at October 31, 1994 and 1993:
1994 1993 -------------------------------------------------------------------------------------------------------- (all figures in thousands) ACTUARIAL PRESENT VALUE OF BENEFIT OBLIGATIONS: Accumulated benefit obligation, including vested benefits of $3,440,000 for 1994 and $2,896,000 for 1993 $ 3,689 $ 3,153 -------------------------------------------------------------------------------------------------------- Projected benefit obligations for services rendered to date 5,717 5,352 Plan assets at fair value, primarily listed stocks and U.S. Government obligations 4,754 4,390 -------------------------------------------------------------------------------------------------------- Funded status (963) (962) Unrecognized net gain from past experience different from that assumed and effects of changes in assumptions (397) (120) Prior service cost not yet recognized in periodic pension cost 301 400 Unrecognized net asset (270) (501) -------------------------------------------------------------------------------------------------------- Accrued pension cost $(1,329) $(1,183) --------------------------------------------------------------------------------------------------------
Net pension costs for 1994, 1993 and 1992 include the following components:
1994 1993 1992 -------------------------------------------------------------------------------------------------------- (all figures in thousands) Service cost-benefits earned during the period $618 $497 $461 Interest cost on projected benefit obligations 425 388 349 Actual return on plan assets (420) (373) (300) Net amortization and deferral (5) 1 (32) -------------------------------------------------------------------------------------------------------- NET PERIODIC PENSION COST $618 $513 $478 --------------------------------------------------------------------------------------------------------
The actuarial assumptions used in the above calculations are a weighted average discount rate of 7.5 percent, a compensation rate of 5.0 percent, and an expected long-term rate of return on assets of 8.5 percent. 75 Notes to Consolidated Financial Statements - - -------------------------------------------------------------------------------- 11. INCOME TAXES Effective November 1, 1993, the Company adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes," (SFAS)No. 109. 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. Prior year financial statements have not been restated to apply the provisions of SFAS No. 109. Income taxes, as stated as a percentage of income before income taxes, are composed of the following:
1994 1993 1992 -------------------------------------------------------------------------------------------------------- Federal statutory tax rate 35.0% 34.8% 34.0% Increases (decreases) in taxes from: State income tax (net of effect of Federal tax) 4.9 6.6 6.3 Unrealized (gains) losses on mining investments (0.5) 0.4 1.0 Other 0.9 -- 0.4 -------------------------------------------------------------------------------------------------------- EFFECTIVE TAX RATE 40.3% 41.8% 41.7% -------------------------------------------------------------------------------------------------------- TAXES ON INCOME CONSISTED OF: Current: (all figures in thousands) Federal $ 2,429 $ 1,163 $(2,199) State 3,114 1,402 392 Deferred: Federal 13,121 13,783 12,860 State 591 3,322 2,773 -------------------------------------------------------------------------------------------------------- INCOME TAXES $19,255 $19,670 $13,826 --------------------------------------------------------------------------------------------------------
Income taxes paid (refunded) for the years ended October 31, 1994, 1993 and 1992 were $6,116,000, ($3,895,000) and ($1,085,000), respectively. In 1994, the Company utilized a net operating loss carryforward of approximately $29 million to offset current taxable income. The Company has a remaining net operating loss of approximately $25 million that can be carried forward to offset future taxable income through 2008. For financial statement purposes, deferred income tax credits have been reduced by the effect of the tax loss carryforward because such losses are expected to offset the reversal of timing differences during the permitted carryforward period. In years prior to and in 1994, the Company incurred alternative minimum tax of approximately $2.3 million. Such taxes incurred may be used as a credit carryover to offset future regular tax liabilities. Accordingly, at October 31, 1994, the deferred income tax liability account has been reduced by the cumulative alternative minimum taxes incurred of $2.3 million. 76 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - - -------------------------------------------------------------------------------- 11. INCOME TAXES (CONTINUED) Under SFAS No. 109 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 loss and tax credit carryforwards. The tax effects of significant items comprising the Company's net deferred tax liability as of October 31, 1994, are as follows:
(in thousands) DEFERRED TAX LIABILITIES: Deferred sales commissions $ 99,393 Differences between book and tax basis of property 1,645 Other 199 ------------------------------------------------------ Total 101,237 ------------------------------------------------------ DEFERRED TAX ASSETS: Operating loss carryforwards 8,932 Tax credit carryforwards 2,259 Other 506 ------------------------------------------------------ Total 11,697 ------------------------------------------------------ Valuation allowance -- ------------------------------------------------------ NET DEFERRED TAX LIABILITY $ 89,540 ------------------------------------------------------
12. SEGMENT INFORMATION A. The Company and its subsidiaries are engaged in the following business segments: 1. Investment management operations, including portfolio management of regulated investment companies and investment counseling clients through Eaton Vance Management and Boston Management and Research, and the sale of shares of investment companies through Eaton Vance Distributors, Inc. 2. Banking, through ownership of 77.3% of the capital stock of Investors Bank & Trust Company (IB&T). IB&T, a state-chartered bank, provides custodial, accounting, and pricing services for mutual funds, unit investment trusts and other pooled investment vehicles, including the Eaton Vance mutual funds. IB&T also provides custodial, trust, and banking services to individuals, investment advisers, private trustees, lawyers and accountants, financial planners, other banks and fiduciaries, and other institutions. 3. Real estate investment through wholly owned Northeast Properties, Inc. 4. Precious Metal Mining and Other includes precious metal mining venture investment and management through wholly owned Minven, Inc., EV Gold Inc., and Fulcrum Management, Inc., and oil and gas exploration and development through wholly owned Energex Corporation and Marblehead Energy Corporation. 77 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - - -------------------------------------------------------------------------------- 12. SEGMENT INFORMATION (CONTINUED) B. Financial data applicable to each business segment follow:
PRECIOUS METAL INVESTMENT REAL MINING & ELIMI- CONSOLIDATED MANAGEMENT BANKING ESTATE OTHER NATIONS TOTAL - - ------------------------------------------------------------------------------------------------------------------------------- (all figures in thousands) YEAR ENDED 10/31/94 Identifiable assets $321,228 $127,606 $26,847 $8,886 $(29,061) $455,506 Liabilities 155,447 113,893 18,360 955 1,243 289,898 Total income 164,699 47,827 5,154 2,293 (1,967) 218,006 Operating income (loss) 47,219 5,323 1,036 (696) (676) 52,206 Net income (loss) before cumulative effect of change in accounting for income taxes 26,184 3,461 (100) (274) (785) 28,486 Cumulative effect of change in accounting for income taxes 1,374 -- 129 (203) -- 1,300 Net income (loss) 27,558 3,461 29 (477) (785) 29,786 Capital expenditures 1,394 1,616 325 3 -- 3,338 Depreciation and amortization 54,046 2,676 1,068 16 -- 57,806 YEAR ENDED 10/31/93 Identifiable assets $294,750 $120,184 $26,892 $12,852 $(29,131) $425,547 Liabilities 149,452 109,872 18,435 1,545 943 280,247 Total income 145,564 37,509 5,080 2,954 (1,962) 189,145 Operating income (loss) 43,829 3,570 1,102 (619) (442) 47,440 Net income (loss) 23,546 2,359 (293) 2,264 (535) 27,341 Capital expenditure 1,221 1,877 524 3 -- 3,625 Depreciation and amortization 42,173 2,696 1,037 16 -- 45,922 YEAR ENDED 10/31/92 Identifiable assets $214,078 $103,184 $27,362 $10,605 $(37,030) $318,199 Liabilities 136,613 95,171 18,612 599 (8,597) 242,398 Total income 113,003 33,323 5,337 3,652 (2,162) 153,153 Operating income (loss) 33,238 2,734 1,403 535 (351) 37,559 Net income (loss) 18,263 1,571 (178) 2 (351) 19,307 Capital expenditures 1,439 1,188 804 51 -- 3,482 Depreciation and amortization 29,144 1,309 1,403 96 -- 31,952
78 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - - -------------------------------------------------------------------------------- 12. SEGMENT INFORMATION (CONTINUED) C. Major customers that provided over 10% of the total income of the Company are as follows:
1994 1993 1992 - - --------------------------------------------------------------------------------------------------------------------- EATON VANCE NATIONAL MUNICIPALS FUND (all dollar figures in thousands) Investment adviser fees, distribution plan payments, early withdrawal charges and custody fees $26,230 $24,726 $20,050 Percent of total income 12.0% 13.1% 13.1% EATON VANCE PRIME RATE RESERVES Investment adviser fees, administration fees, early withdrawal charges and custody fees $8,244 $11,942 $18,393 Percent of total income 3.8% 6.3% 12.0%
13. RELATED PARTY TRANSACTIONS Investment advisory and distribution income earned from investment companies sponsored by the Company were $163.8 million, $144.5 million and $112.6 million in 1994, 1993 and 1992, respectively. The Company provides management and administration services to VenturesTrident and VenturesTrident II for which it earned fees of $2.1 million, $2.4 million and $3.0 million, in 1994, 1993 and 1992, respectively. Amounts outstanding for these services were $2.8 million and $3.0 million at October 31, 1994 and 1993, respectively, and are included in "Notes receivable and receivables from affiliates." IB&T earned fees from investment companies sponsored by the Company for custodial, bookkeeping and pricing services of $3.6 million, $3.0 million and $2.8 million in 1994, 1993 and 1992, respectively. Investment companies sponsored by the Company had approximately $2.0 million and $0.3 million of cash on deposit at IB&T on October 31, 1994 and 1993, respectively. IB&T has made loans to certain shareholders, officers and employees of the Company totaling $1.6 million and $1.3 million, at October 31, 1994 and 1993, respectively. 14. SHAREHOLDERS' EQUITY On April 15, 1994, 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 at a cost to be determined at the time of purchase. Through October 31, 1994, 234,000 shares had been acquired under this plan. 15. REGULATORY REQUIREMENTS The broker/dealer subsidiary of the Company, Eaton Vance Distributors, Inc., is subject to the Securities and Exchange Commission uniform net capital rule (Rule 15c3 - 1) which requires the subsidiary to maintain a certain minimum level of net capital (as defined). For purposes of this rule the subsidiary had net capital of $16.5 million, which exceeded the net capital requirement of $0.1 million at October 31, 1994. The banking subsidiary, IB&T, is required to maintain certain average cash reserve balances with the Federal Reserve Bank. The average reserve balance requirement at October 31, 1994, was $3.3 million. IB&T is also required to maintain certain minimum capital ratios. Management believes that IB&T was in compliance with all such capital requirements at October 31, 1994. 79 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - - -------------------------------------------------------------------------------- 16. OFF-BALANCE SHEET FINANCIAL INSTRUMENTS At October 31, 1994, IB&T had off-balance sheet financial instruments consisting of secured open lines of credit and interest-rate floor contracts. The open lines of credit totaled $7.5 million, against which $3.1 million in loans were drawn. IB&T uses interest rate floor contracts as part of its overall interest rate risk management. The notional amount of the interest-rate floor contracts was $80.0 million. Management of IB&T does not anticipate significant credit loss from these instruments. 17. QUARTERLY RESULTS (UNAUDITED)
TOTAL NET EARNINGS INCOME INCOME PER SHARE - - -------------------------------------------------------------------------------------------------------------------------- (in thousands) QUARTER ENDED: January 31, 1993 $ 42,121 $ 4,924 $0.62 April 30, 1993 45,470 7,184 0.86 July 31, 1993 48,544 11,282 1.19 October 31, 1993 53,010 3,951 0.41 ------------------------------------------------------------------------------------------------- Year ended October 31, 1993 $189,145 $27,341 $3.09 ------------------------------------------------------------------------------------------------- QUARTER ENDED: January 31, 1994 $ 53,107 $ 7,706* $0.81* April 30, 1994 54,254 7,638 0.80 July 31, 1994 54,814 6,157 0.65 October 31, 1994 55,831 8,285 0.89 ------------------------------------------------------------------------------------------------- Year ended October 31, 1994 $218,006 $29,786 $3.14 -------------------------------------------------------------------------------------------------
*The quarter ended January 31, 1994, reflects the cumulative effect of the change in accounting for income taxes of $1.3 million, or $0.14 per share. Net income before the cumulative effect of the change in accounting for income taxes was $6,406,000 for the quarter ended January 31, 1994. Total income for the four quarters ended October 31, 1993, and for the two quarters ended April 30, 1994, have been reclassified to reflect the current financial statement presentation of recording trail commission payments to brokers net of the related fees received from the Eaton Vance mutual funds. The per share earnings for each quarter of 1993 and 1994 include credits (charges) of ($0.14), $0.16, $0.44, ($0.21) and ($0.04), $0.08, ($0.13), $0.09, respectively, representing the earnings per share effect from the Company's management of, and investment in, gold mining interests. 80 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, 1994 and 1993, and the related consolidated statements of income, shareholders' equity, and cash flows for each of the three years in the period ended October 31, 1994. 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, 1994 and 1993, and the results of their operations and their cash flows for each of the three years in the period ended October 31, 1994 in conformity with generally accepted accounting principles. As discussed in Notes 1 and 11 to the consolidated financial statements, effective November 1, 1993, the Company changed its method of accounting for income taxes to conform with Statement of Financial Accounting Standards No. 109. DELOITTE & TOUCHE LLP Boston, Massachusetts December 13, 1994 81 EATON VANCE CORP. DIRECTORS AND OFFICERS - - -------------------------------------------------------------------------------- [PHOTO] Eaton Vance Corp. Directors: seated - M. Dozier Gardner (left) and Landon T. Clay; standing (from left) - Benjamin A. Rowland, Jr., Ralph Z. Sorenson, James B. Hawkes, John G. L. Cabot and H. Day Brigham, Jr. Landon T. Clay Chairman of the Board of Directors M. Dozier Gardner President and Director James B. Hawkes Executive Vice President and Director H. Day Brigham, Jr. Vice President, Director and Chairman of the Management Committee John G. L. Cabot Director Benjamin A. Rowland, Jr. Vice President and Director Ralph Z. Sorenson Director 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 82 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 1994 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 The First National Bank of Boston 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 changes 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: THE FIRST NATIONAL BANK OF BOSTON SHAREHOLDER CORRESPONDENCE, MAIL STOP 45-02-09 POST OFFICE BOX 644 BOSTON, MA 02102-0644 (617) 575-3400 AUDITORS DELOITTE & TOUCHE LLP 125 SUMMER STREET BOSTON, MA 02110 (617) 261-8000 83 - - -------------------------------------------------------------------------------- EATON VANCE CORP. 24 FEDERAL STREET BOSTON, MA 02110 84 EX-21 4 EXHIBIT 21.1 List of Subsidiaries As of October 31, 1994* State or Jurisdiction Name Under Which First Tier Subsidiaries of of Incorporation or Subsidiary Does Eaton Vance Corp. Organization Business Eaton Vance Management Massachusetts Same Fulcrum Management, Inc. Massachusetts Same Investors Bank & Trust Company 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, 1994. -85- EX-23 5 EXHIBIT 23.1 INDEPENDENT AUDITOR'S CONSENT We consent to the incorporation by reference in Registration Statement No. 33-58496 of Eaton Vance Corp. (the company) on Form S-8 of our report dated December 13, 1994 appearing in the Annual Report on Form 10-K of the company for the year ended October 31, 1994. DELOITTE & TOUCHE LLP Boston, Massachusetts January 18, 1995 -86- EX-27 6
5 0000350797 EATON VANCE CORP. 1000 YEAR OCT-31-1994 OCT-31-1994 24681 0 3705 0 0 29619 3477 0 327900 24811 0 569 0 0 165039 327900 0 170618 0 0 123296 0 5337 42418 17393 25025 0 0 1300 26325 0 0
EX-27 7
9 0000350797 EATON VANCE CORP. 1000 YEAR OCT-31-1994 OCT-31-1994 9344 0 0 0 0 88278 0 13570 0 127606 106909 0 5214 0 0 0 0 15483 127606 42501 0 0 0 0 0 4887 0 0 42504 5323 5323 0 0 3461 0 0 0 0 0 0 0 0 0 0 0 0 0 0
EX-27 8
CT 0000350797 EATON VANCE CORP. 1000 YEAR OCT-31-1994 OCT-31-1994 455506 569 0 0 165039 455506 218006 19255 28486 0 0 1300 29786 3.14 3.14
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