SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
October 20, 1998
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(Date of Report)
EATON VANCE CORP.
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(Exact name of registrant as specified in its charter)
Maryland 1-8100 04-2718215
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(State or other (Commission File (IRS Employer Identification No.)
jurisdiction of Number)
incorporation)
24 Federal Street, Boston, Massachusetts 02110
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(Address of principal executive offices) (Zip Code)
(617) 482-8260
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Registrant's telephone number, including area code
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INFORMATION INCLUDED IN THE REPORT
Item 5. Other Events
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Registrant's financial statements will be affected by the
October 8, 1998 Financial Accounting Standards Board staff announcement (Topic
No. D-76), a copy of which is filed herewith as Exhibit 99.1 and incorporated
herein by reference.
The effect of the accounting change required by this
announcement is described in registrant's news release of October 13, 1998, a
copy of which is filed herewith as Exhibit 99.2 and incorporated herein by
reference.
Item 7. Financial Statements and Exhibits
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(c) The exhibits are furnished in accordance with the
provisions of Item 601 of Regulation S-K and are set forth in the Exhibit Index
and are incorporated herein by reference.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
EATON VANCE CORP.
(Registrant)
Date: October 20, 1998 /s/ William M. Steul
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William M. Steul, Chief Financial Officer
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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 part of this report:
Exhibit No. Description
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99.1. Copy of Financial Accounting Standards Board staff
announcement (Topic No. D-76) dated October 8, 1998.
99.2. Copy of registrant's news release dated October 13,
1998.
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EXHIBIT 99.1
FINANCIAL ACCOUNTING STANDARDS BOARD
401 Merritt 7, P.O. Box 5116
Norwalk, Connecticut 06856-5116
Telephone: 203-847-0700 Fax: 203-849-9714
Internet address: [email protected] or [email protected]
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October 8, 1998
Topic No. D-76
Topic: Accounting by Advisors for Offering Costs Paid on Behalf of Funds, When
the Advisor Does Not Receive both 12b-1 Fees and Contingent Deferred Sales
Charges
Dates Discussed: July 23, 1998; September 23-24, 1998
The FASB staff has been asked to address how an advisor should account for
offering costs paid to distribute shares of a fund when that advisor does not
receive both distribution fees, pursuant to a plan under Rule 12b-1 of the
Investment Company Act of 1940 (12b-1 fees), and contingent deferred sales
charges (CDSC fees). An example is when an advisor pays the initial costs of
offering shares of a closed-end fund. Closed-end funds are investment companies
that issue a fixed number of shares (that generally trade on an open market) in
order to raise capital, similar to the way in which an entity sells stock in an
initial public offering. It is the FASB staff's understanding that, typically,
the advisor of a closed-end fund manages the fund's investments in exchange for
an advisory (or management) fee paid pursuant to a contract that is required to
be renewed annually. Historically, costs of offering the shares of the fund have
been incurred by the fund's initial shareholders at the commencement of the
fund's operations, thereby immediately reducing the net asset value of the fund.
Recently, some advisors of closed-end funds have chosen to bear the offering
costs on behalf of the fund. The advisor is not, however, reimbursed through
both 12b-1 fees and CDSC fees.
The staff observes that EITF Issue No. 85-24, "Distribution Fees by Distributors
of Mutual Funds That Do Not Have a Front-End Sales Charge," provides the
accounting by fund advisors who are reimbursed, for offering costs paid, through
both 12b-1 fees and CDSC fees. Accordingly, the accounting by those advisors for
fees and offering costs are outside the scope of this announcement.
The staff believes that the benefits expected from the expenditures paid by an
advisor in connection with the distribution of shares of a fund (when the
advisor does not receive both 12b-1 fees and CDSC fees) do not meet the
definition of an asset of the advisor as provided in FASB Concepts Statement No.
6, Elements of Financial Statements. Accordingly, the staff has concluded that
offering costs paid by the investment advisor should be expensed as incurred. In
addition, the staff believes that initial offering costs paid by such an
investment advisor are start-up costs of the advisor, which should be accounted
for (effective for fiscal years beginning after December 15, 1998) in accordance
with AICPA Statement of Position 98-5, Reporting on the Costs of Start-Up
Activities.
As stated at the July 23, 1998 EITF meeting, this announcement is applicable to
all offering costs paid by fund advisors subsequent to July 23, 1998. That is,
subsequent to July 23, 1998, all offering costs paid by advisors of funds (when
the advisor does not receive both 12b-1 fees and CDSC fees) should be expensed
as incurred. In addition, the staff observes that any costs capitalized prior to
July 24, 1998 should continue to be amortized until SOP 98-5 is adopted, at
which time any unamortized balance would be written off and reported as a
cumulative effect of a change in accounting principle, as described in APB
Opinion No. 20, Accounting Changes.
EXHIBIT 99.2
NEWS RELEASE
EATON VANCE CORP.
24 Federal Street, Boston, MA 02110
(617) 482-8260
CONTACT: William M. Steul
October 13, 1998
FOR IMMEDIATE RELEASE
EATON VANCE CORP. EXPLAINS EFFECTS OF CHANGE IN ACCOUNTING
FOR CERTAIN SALES COMMISSIONS
Eaton Vance Corp.'s financial statements will be affected by an October 8,1998
Financial Accounting Standards Board (FASB) staff announcement that changes the
long-standing treatment of sales commissions incurred by an investment adviser
for the distribution of shares of certain types of funds. Under the new
requirement, sales commissions paid by the adviser with respect to funds that do
not have both Rule 12b-1 distribution fees and contingent deferred sales charges
must now be treated as start-up costs and expensed as incurred. Previously, such
commissions were capitalized on the balance sheet of the adviser and amortized
over future years. Eaton Vance's financial statements will be affected by this
accounting change because the Company sponsors several types of funds
(representing about one-third of fund assets under management) that are covered
by the announcement. These covered funds include certain continuously offered
closed-end funds which invest in corporate loans, some privately offered funds,
and a new exchange-traded closed-end fund scheduled to close in late October,
1998.
Commissions for covered funds that Eaton Vance paid and capitalized before July
24, 1998 will be reflected as a "cumulative effect of a change in accounting
principle" in the Company's financial statements for its first quarter, fiscal
year 1999 (commencing November 1, 1998). This "below-the-line" one-time
adjustment to net income, expected to be in the range of $36 million to $38
million, will extinguish deferred commissions that would otherwise have been
amortized in future years.
The FASB staff announcement also requires that after July 23, 1998, sales
commissions for covered funds must be expensed as incurred, rather than
capitalized and amortized over future years. Because Eaton Vance is sponsoring
and paying sales commissions for a new closed-end fund that is scheduled to
close in October, 1998, an expense equal to those sales commissions will be
reflected in the fourth quarter of the current fiscal year ending October 31,
1998. The precise effect of this expense on Eaton Vance's financial statements
for fiscal year 1998 cannot be determined until the offering is completed at the
end of the fourth quarter. Paradoxically, as a result of the new accounting
requirement, the more successful this offering is, the more commissions will be
paid and expensed in fiscal year 1998, thereby reducing reported earnings for
that year. However, since all sales commissions related to the new fund will be
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expensed in fiscal year 1998, earnings derived from this fund in fiscal year
1999 (which begins November 1, 1998) and thereafter will be higher than they
would have been if the commissions had been capitalized and amortized in those
years.
As a result of the FASB staff announcement, different types of funds which can
have equivalent economic outcomes (identical cash flows) for Eaton Vance will
have different accounting treatments for fund sales commissions. For example,
sales commissions for closed-end funds, including continuously offered
closed-end funds with contingent deferred sales charges, will be expensed
immediately, while sales commissions for open-end funds will be capitalized and
amortized. Under the new required accounting treatment, Eaton Vance's reported
earnings may be reduced in a quarter when the Company pays and immediately
expenses commissions for covered funds. However, the earnings derived from these
funds are expected to be higher in subsequent periods, because the continuous
fee income from such funds will not be reduced by amortized commission payments.
The Company is exploring ways to minimize the effect on future reported earnings
that may result from the FASB staff announcement.
Eaton Vance Corp., a Boston-based investment management firm, is traded on the
New York Stock Exchange under the symbol EV.
This news release contains statements which are not historical facts, referred
to as "forward-looking statements." The Company's actual future results may
differ significantly from those stated in any forward-looking statements,
depending upon factors such as the volume of sales and repurchases of fund
shares, and the continuation of fund investment advisory, administration,
distribution and service contracts.
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