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UNITED STATES
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, 1998
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
incorporation or organization) Identification No.)
24 Federal Street, Boston, Massachusetts 02110
- ---------------------------------------------- -----
(Address of principal executive offices) (Zip Code)
(617) 482-8260
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(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
Non-Voting Common Stock
($0.015625 par value) New York Stock Exchange
----------------------- -----------------------
Securities registered pursuant to Section 12(g) of the Act:
Non-Voting Common Stock par value $0.015625 per share
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Title of Class
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days. Yes [ x ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ x ]
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the close of the latest practicable date.
Class Outstanding at December 31, 1998
Non-Voting Common Stock,
$0.015625 par value 35,910,617
Common Stock, $0.015625 par value 77,440
Aggregate market value of Non-Voting Common Stock held by non-affiliates of the
Registrant, based on the closing price of $20.875 on December 31, 1998 on the
New York Stock Exchange was $576,310,341. Calculation of holdings by
non-affiliates is based upon the assumption, for these purposes only, that
executive officers, directors, and persons holding 5% or more of the
registrant's Non-Voting Common Stock are affiliates.
Portions of registrant's Annual Report to Stockholders for the fiscal year ended
October 31, 1998 (Exhibit 13.1 hereto) have been incorporated by reference into
the following Parts of this report: Part I, Part II and Part IV.
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PART I
ITEM 1. BUSINESS
The Company's principal business is creating, marketing and managing mutual
funds and providing investment 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, 1998, the Company managed $28.4
billion in portfolios with investment objectives ranging from high current
income to maximum capital gain.
GENERAL DEVELOPMENT OF BUSINESS
The Company's growth has resulted from its ability to develop, offer
successfully and manage effectively new funds and to increase the assets of
existing Eaton Vance Funds ("Funds"). The Company's strategy is to develop and
manage products with clearly understood and clearly presented investment
characteristics coupled with distribution arrangements that are attractive to
third-party distributors of the Funds.
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 "SEC") as an
investment adviser under the Investment Advisers Act of 1940, as amended (the
"Advisers Act"). Eaton Vance Distributors, Inc. ("EVD"), a wholly owned
broker/dealer registered under the Securities Exchange Act of 1934 (the
"Exchange Act"), markets and sells the Funds.
As of October 31, 1998, the Company provided investment advisory or
administration services to over 70 Funds and to over 800 separately managed
individual and institutional accounts. At that date, the Funds had aggregate net
assets of $25.9 billion and the Company's separately managed accounts had
aggregate net assets of $2.5 billion. The following table shows net assets in
the Funds and the separately managed accounts for the dates indicated:
FUND AND SEPARATELY MANAGED ACCOUNT ASSETS
AT OCTOBER 31,
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1998 1997 1996 1995 1994
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(in millions)
Funds:
Money Market $ 200 $ 200 $ 200 $ 200 $ 200
Equities 9,800 5,200 3,100 2,400 2,300
Bank Loans 6,200 3,900 2,800 1,400 600
Taxable Fixed Income 2,200 2,100 1,300 1,300 1,300
Non-Taxable Fixed Income 7,500 7,500 8,200 8,900 9,000
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Total 25,900 18,900 15,600 14,200 13,400
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Separately Managed Accounts 2,500 2,400 1,700 1,800 1,600
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Total $28,400 $21,300 $17,300 $16,000 $15,000
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ITEM 1. BUSINESS (CONTINUED)
On October 31, 1998, equity fund assets increased to 34 percent of total assets
under management from 24 percent on October 31, 1997, while taxable and
non-taxable fixed-income fund assets decreased to 34 percent of total assets
under management from 46 percent a year ago. Bank loan fund assets increased to
22 percent of total assets under management on October 31, 1998 from 18 percent
a year ago.
In 1995, the Company increased its ownership interest in Lloyd George Management
(BVI) Limited ("LGM"), an independent investment management company based in
Hong Kong. The two firms became affiliated in 1992 with the introduction of the
Eaton Vance Greater China Funds, which are advised by LGM from its headquarters
in Hong Kong. The investment management capabilities of LGM, with offices in
Hong Kong, London and Mumbai, India coupled with the introduction of the EV
Medallion family of offshore funds, allows Eaton Vance to both manage and
distribute mutual funds globally.
In 1996, the directors of the Medical Research Investment Fund, Inc., engaged
EVM as administrator and EVD as distributor. The fund changed its name to EV
Traditional Worldwide Health Sciences Fund and became a member of the Eaton
Vance Family of Funds. The Fund, which concentrates investments in equity
securities of domestic and foreign companies engaged in research and the health
care industry, is managed by OrbiMed Advisors Inc. ("OrbiMed") (formerly named
Mehta and Isaly Asset Management), the Fund's advisor since inception. In 1998,
the fund converted to a multiple class structure and changed its name to Eaton
Vance Worldwide Health Sciences Fund.
In 1997, the Company focused on developing products that are managed to maximize
after-tax returns and on broadening its existing tax-efficient equity product
line. In May and June of 1997, the Company introduced Belvedere Equity Fund LLC,
a private fund for investors seeking to diversify concentrated positions in
common stocks with substantial market appreciation. In September 1997, the
Company introduced Eaton Vance Tax-Managed Emerging Growth Fund, a companion
product to Eaton Vance Tax-Managed Growth Fund which was introduced in the
spring of 1996.
In 1998, the Company continued to focus on developing products that are managed
to maximize after-tax returns by broadening its existing tax-efficient equity
product line while maintaining a balanced asset mix with fixed income and bank
loan funds. Eaton Vance Tax-Managed International Growth Fund, a tax efficient
equity fund, was launched in April 1998. In a private placement in 1998, the
Company introduced Belair Capital Fund LLC, a fund for high net worth investors.
In October 1998, the Company closed a successful offering of Eaton Vance Senior
Income Trust, a New York Stock Exchange-listed, closed-end fund, investing
primarily in bank loans. This Fund was intended to provide investors with
liquidity through exchange listed trading and strong yields through the use of
leverage. Shortly after the close of the fiscal year the Company filed
registration statements with the SEC for nine new closed-end municipal bond
funds, with target offering dates in January 1999.
INVESTMENT MANAGEMENT AND ADMINISTRATIVE ACTIVITIES
Investment decisions for all but five of the over 70 Eaton Vance Funds are made
by portfolio managers employed by the Company and are made in accordance with
each Fund's investment objectives and policies. Investment decisions for four
international equity Funds are made by Lloyd George Management, an independent
investment management company based in Hong Kong in which the Company owns a
minority equity position. Investment decisions for the Eaton Vance Worldwide
Health Sciences Fund are made by OrbiMed Advisors, Inc., an independent
investment management company based in New York. The Company's portfolio
management staff 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 the aggregate of 10 basis points of
average net assets annually 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 by the Fund upon 30
to 60 days notice without penalty.
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ITEM 1. BUSINESS (CONTINUED)
Investment decisions for the separately managed accounts are made by investment
counselors employed by the Company. 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
20 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, 1998.
INVESTMENT ADVISORY AND
ADMINISTRATION FEES*
YEAR ENDED OCTOBER 31,
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1998 1997 1996 1995 1994
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(in thousands)
Investment Advisory
Fees - Funds $127,234 $ 95,531 $81,473 $69,094 $68,284
Separately Managed Accounts 11,295 9,503 8,865 8,712 9,807
Administration Fees - Funds 12,662 12,071 7,793 4,631 4,257
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Total $151,191 $117,105 $98,131 $82,437 $82,348
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* Excludes gold mining investment management fees and administration
fees received from funds other than Eaton Vance Funds. There were no
management and administration fees received from gold mining
investments in 1998.
INVESTMENT ADVISORY AGREEMENTS AND DISTRIBUTION PLANS
In 1993, the Company introduced the Master/Feeder structure for most of its
Funds. Master/Feeder is a two-tiered arrangement in which Funds (Feeder Funds)
with substantially identical investment objectives pool their assets by
investing in a common portfolio (Master Fund). Eaton Vance used Master/Feeder to
introduce four distinct mutual fund families, with each family having its own
prospectus, sales literature, product design and distribution structure (see
Marketing and Distribution of Fund Shares below). The structure was intended to
benefit fund shareholders through lower operating costs, while allowing the
Company to offer cost-effective distribution alternatives to the broker/dealers
and their clients. In 1997, the Company began to modify the Master/Feeder
structure to reduce the number of Feeder Funds by merging some Feeder Funds into
a single Fund with multiple classes. This modification has and will further
reduce operating costs by reducing prospectus and sales literature requirements,
while continuing to offer a variety of distribution alternatives to investors
while maintaining the ability to attract unaffiliated Feeder Funds.
<PAGE>
ITEM 1. BUSINESS (CONTINUED)
Each Eaton Vance Master Fund (excluding those managed by LGM or OrbiMed) has
entered into an investment advisory agreement with either EVM or BMR. Although
the specific terms of each such agreement vary, the basic terms of the
agreements are similar. Pursuant to the agreements, either EVM or BMR, as
applicable, provides overall management services to each of the Master Funds,
subject to the supervision of each Fund's Board of Trustees in accordance with
each Fund's fundamental investment objectives and policies. The investment
advisory agreements are approved by Fund shareholders and their continuance must
be approved annually by the trustees of the respective Funds, including a
majority of the independent trustees. Amendments to the investment advisory
agreements must be approved by Fund shareholders.
EVM also serves as administrator or manager under an Administration Service
Agreement or Management Contract (each an "Agreement") to most Funds (including
those managed by LGM and OrbiMed). Under such Agreements EVM is responsible for
managing the business affairs of these Funds, subject to the supervision of each
Fund's Board of Trustees. EVM's services include recordkeeping, preparing and
filing documents required to comply with federal and state securities laws,
supervising the activities of the Funds' custodian and transfer agent, providing
assistance in connection with the Funds' shareholder meetings, and other
administrative services, including furnishing office space and office
facilities, equipment and personnel which may be necessary for managing and
administering the business affairs of the Funds. EVM (or an affiliate) provides
investment management or advisory services to most of these Funds. For the
services provided under the Agreements, each Fund is required, in some cases, to
pay EVM a monthly fee calculated at an annual rate not to exceed 0.25% of
average daily net assets. Each Agreement remains in full force and effect
indefinitely, but only to the extent that the continuance of such Agreement is
specifically approved at least annually by the Fund's Board of Trustees.
In addition, certain Funds have adopted distribution plans which, subject to
applicable law, provide for the reimbursement to the Company for the payment of
applicable sales commissions to the retail distribution firms through the
payment of an ongoing distribution fee (i.e., a 12b-1 fee). These distribution
plans are implemented through a distribution agreement between EVD and the Fund.
Although the specific terms of each such agreement vary, the basic terms of the
agreements are similar. Pursuant to the agreements, EVD acts as underwriter for
the Fund and distributes shares of the Fund through unaffiliated dealers. Each
distribution plan and agreement is initially approved and its subsequent
continuance must be approved annually by the trustees of the respective Funds,
including a majority of the independent trustees.
Each Fund bears all expenses associated with its operation and the issuance and
redemption or repurchase of its securities, except for the compensation of
trustees and officers of the Fund who are employed by the Company. Under some
circumstances, particularly in connection with the introduction of new funds and
special promotions, EVM or BMR may waive a portion of its fee and pay for some
expenses of the Fund.
EVM has entered into an investment advisory agreement for each separately
managed account, which sets forth the account's investment objectives and fee
schedule. EVM invests the assets of the accounts in accordance with the stated
investment objectives. The Company's investment counselors may assist clients in
formulating investment strategies.
<PAGE>
ITEM 1. BUSINESS (CONTINUED)
MARKETING AND DISTRIBUTION OF FUND SHARES
The Company markets and distributes continuously-offered shares of Funds through
EVD. EVD sells Fund shares through a retail network of national and regional
dealers, including those affiliated with banks, insurance companies and
financial planners. Although the firms in the Company's retail distribution
network have each entered into selling agreements 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 1998, 1997 and 1996 calendar years, the five dealer firms
responsible for the largest volume of Fund sales accounted for approximately
35%, 36% and 37%, respectively, of the Company's Fund sales volume. EVD
currently maintains a sales force of more than 40 wholesalers and 35 sales
assistants. Wholesalers and their assistants work closely with the retail
distribution network to assist in selling shares of Funds.
While a substantial majority of sales are made through national and large
regional firms, in 1990 the Company embarked on a program to broaden its
channels of distribution by establishing the Independent Financial Institutions
sales force, a separate wholesaling force focusing on banks and financial
planners. In an additional distribution initiative in 1997, the Company began
offering its Funds to investors, without sales commissions or other transaction
fees, through fee-based registered investment advisors via various institutional
programs both domestically and internationally.
EVD currently sells its U.S. registered Funds under three separate commission
structures: 1) front-end load commission (Class A); 2) spread-load commission
(Class B) and 3) level-load commission (Class C). For Class A shares, the
shareholder pays the broker's commission and EVD receives an underwriting
commission of up to 75 basis points of the dollar value of the Fund or Class
shares sold. The Fund pays a service fee to authorized firms not to exceed 25
basis points of average net assets and may also pay a Rule 12b-1 fee not to
exceed 25 basis points of average daily net assets.
For Class B shares, EVD pays a commission to the dealer at the time of sale and
such payments are capitalized and amortized in the Company's financial
statements over a four to six year period. The shareholder pays a contingent
deferred 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 or Class
in accordance with a distribution plan adopted by the Fund pursuant to Rule
12b-1 under the Investment Company Act of 1940. Like the investment advisory
agreement, the distribution plan and related payments must be approved annually
by a vote of the trustees, including a majority of the independent trustees. The
SEC has taken the position that Rule 12b-1 would not permit a Fund to continue
making compensation payments to EVD after termination of the plan and that any
continuance of such payments may subject the Fund to legal action. These
distribution plans are terminable at any time without notice or penalty. In
addition, the Fund pays a service fee to authorized firms not to exceed 25 basis
points of average net assets.
For Class C shares, the shareholder pays no front-end commissions or contingent
deferred sales charges after the first year. EVD pays a commission and the first
year's service fees to the dealer at the time of sale. The Fund makes monthly
distribution plan payments to EVD similar to those for Class B shares, equal to
75 basis points of average net assets of the Class. The Fund pays service fees
to EVD in the first year and generally to authorized firms in subsequent years
at an annual rate not to exceed 25 basis points of average net assets. The
introduction of level-load shares is consistent with the efforts of many
broker/dealers to rely less on transaction fees and more on continuing fees for
servicing assets.
<PAGE>
ITEM 1. BUSINESS (CONTINUED)
In addition to its U.S. registered Funds, the Company also sponsors a family of
Cayman Island domiciled off-shore funds known as the EV Medallion family of
funds. The Medallion Funds are sold by certain dealer firms through EVD to
non-U.S. persons, with commission structures similar to those of the U.S.
registered Funds. The Company earns distribution, administration and advisory
fees directly or indirectly from the Medallion Funds.
Reference is made to Note 14 of the Notes to Consolidated Financial Statements
contained in the Eaton Vance Corp. Annual Report to Shareholders for the fiscal
year ended October 31, 1998 (which report is furnished as Exhibit 13.1 hereto)
for a description of the major customers that provided over 10% of the total
revenue of the Company.
SIGNIFICANT ACCOUNTING CHANGE
In September 1998, the Financial Accounting Standards Board (FASB) staff
addressed the accounting for offering costs incurred in connection with the
distribution of closed-end funds. The FASB staff concluded that such offering
costs, including sales commissions paid, are to be considered start-up costs.
Accordingly, sales commissions paid in connection with the distribution of
shares of the Company's closed-end funds subsequent to the effective date of the
FASB staff announcement (July 23, 1998) have been expensed as incurred in the
Company's consolidated statement of income for the fiscal year ended October 31,
1998. Closed-end fund sales commissions paid and capitalized prior to and
including the July 23, 1998 effective date of the FASB staff announcement will
be recorded as a cumulative effect of a change in accounting principle in the
first quarter of fiscal year 1999.
The change in accounting treatment has not had, nor will have, any effect on the
Company's cash flow or cash position.
FORWARD-LOOKING STATEMENTS
From time to time, information provided by the Company or information included
in its filings with the Commission (including this Form 10-K) may contain
statements, which are not historical facts, for this purpose referred to as
"forward-looking statements." The Company's actual future results may differ
significantly from those stated in any forward-looking statements. Important
factors that could cause actual results to differ materially from those
indicated by such forward-looking statements include, but are not limited to,
the factors discussed in "Competitive Conditions and Risk Factors" below.
COMPETITIVE CONDITIONS AND RISK FACTORS
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.
<PAGE>
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.
The Company derives almost all of its revenues from investment advisory and
administration fees and distribution income received from the Funds and
separately managed accounts. As a result, the Company is dependent upon the
contractual relationships its maintains with these Funds and separately managed
accounts. In the event that any of the management contracts, administration
contracts, underwriting contracts or service agreements is not renewed pursuant
to the terms of these contracts or agreements, the Company's financial results
may be adversely affected.
The major sources of revenue for the Company - i.e., investment advisory fees -
are calculated as a percentage of assets under management. A decline in
securities prices in general would reduce fee income. If, as a result of
inflation, expenses rise and assets under management decline, lower fee income
and higher expenses will reduce or eliminate profits. If expenses rise and
assets rise, bringing increased fees to offset the increased expenses, profits
may not be affected by inflation. There is no predictable relationship between
changes in financial assets under management and the rate of inflation.
REGULATION
EVM and BMR are each registered with the SEC 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, other than the Medallion
Funds, is registered with the SEC under the Investment Company Act of 1940.
Except for private Funds exempt from registration, each Fund is also required to
make notice filings with all states where it is offered for sale. Virtually all
aspects of the Company's investment management business are subject to various
federal and state laws and regulations. These laws and regulations are primarily
intended to benefit shareholders of the Funds and investment counseling clients
and generally grant supervisory agencies and bodies broad administrative powers,
including the power to limit or restrict the Company from carrying on its
investment management business in the event that it fails to comply with such
laws and regulations. In such event, the possible sanctions which may be imposed
include the suspension of individual employees, limitations on EVM or BMR
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 SEC, the National Association of Securities
Dealers and other federal and state agencies. EVD is subject to the SEC'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.
<PAGE>
ITEM 1. BUSINESS (CONTINUED)
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 by investment professionals
require prior clearance of most types of transactions and reporting of all
securities transactions, and restrict certain transactions to avoid the
possibility of conflicts of interest.
EMPLOYEES
On October 31, 1998, the Company and its wholly owned subsidiaries had 367
full-time employees. On October 31, 1997, the comparable figure was 359.
<PAGE>
ITEM 2. PROPERTIES
Northeast Properties, LLC, a wholly owned subsidiary of the Company, owns
various investment properties, including office buildings located at 24 Federal
Street and 79 Milk Street in Boston (the Company's principal offices). For
information with respect to the properties, reference is made to Schedule III
and Note 4 of the Notes to Consolidated Financial Statements contained in the
Eaton Vance Corp. 1998 Annual Report to Shareholders (Exhibit 13.1 hereto), both
of which are incorporated herein by reference.
In 1998, the Company committed to a plan to sell all of the remaining investment
properties owned by Eaton Vance Corp. and its subsidiaries. As noted in Schedule
III and Note 4 to Consolidated Financial Statements contained in the Eaton Vance
Corp. 1998 Annual Report to Shareholders, all of the properties identified for
sale were evaluated to ensure that the estimated net realizable values of the
properties exceed their respective carrying values. In conjunction with this
evaluation, the Company recognized a pre-tax impairment loss of $2.6 million in
1998 based on the estimated fair market value less cost to sell of the shopping
center and office building located in Troy, New York. The Company expects the
sales of all remaining properties to be completed in fiscal 1999. The estimated
fair value less cost to sell of the remaining properties equaled or exceeded
their respective carrying values at October 31, 1998.
In anticipation of the sale of the two office buildings in Boston that house the
Company's principal offices, the Company has entered into a ten-year lease
agreement for new principal office space in Boston. The Company expects to
occupy the newly leased space in the second half of fiscal 1999.
ITEM 3. LEGAL PROCEEDINGS
Neither the Company nor any of its subsidiaries is currently subject to any
material pending legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
A special meeting of holders of Voting Common Stock ("Stockholders") of Eaton
Vance Corp. was held at the principal office of the Company on October 15, 1998.
All of the outstanding Voting Common Stock, namely 77,440 shares, was
represented in person at the meeting. At the meeting the 1998 Executive Loan
Program, adopted by the Board of Directors on October 15, 1998, was approved by
the affirmative vote of all of the outstanding Voting Common Stock.
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANTS' COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Voting Common Stock, $0.015625 par value, is not traded and is
held by eight 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, $0.015625 par value, is traded on the New
York Stock Exchange under the symbol EV. The approximate number of holders of
record of the Company's Non-Voting Common Stock at October 31, 1998, was 951.
The additional information required to be disclosed in Item 5 is found on page 7
of the Company's 1998 Annual Report to Shareholders (furnished as Exhibit 13.1
hereto), under the caption "Price and Dividend Information" and is incorporated
herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
YEARS ENDED OCTOBER 31,
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(IN THOUSANDS, EXCEPT PER SHARE DATA) 1998 1997 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Total revenue $249,987 $200,910 $181,989 $167,917 $171,216
Income from continuing operations
before extraordinary item and
cumulative effect of change in
accounting for income taxes $ 30,523 $ 40,234 $ 35,834 $ 26,968 $ 25,810
Earnings per share from continuing
operations before extraordinary item and
cumulative effect of change in accounting
for income taxes:
Basic $ 0.84 $ 1.08 $ 0.95 $ 0.73 $ 0.70
Diluted $ 0.81 $ 1.04 $ 0.94 $ 0.73 $ 0.68
Dividends declared, per share $ 0.26 $ 0.21 $ 0.17 $ 0.16 $ 0.15
BALANCE SHEET DATA:
Total assets $380,260 $387,375 $360,552 $357,586 $455,506
Long-term debt $ 35,714 $ 50,964 $ 54,549 $ 56,102 $ 60,311
</TABLE>
Reference is made to the discussion of the significant accounting change on page
6 of Item 1 of this document.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
Management's Discussion and Analysis of financial condition and results of
operations appearing on pages 16 through 22 of the Company's 1998 Annual Report
to Shareholders, furnished as Exhibit 13.1 hereto, is incorporated herein by
reference.
<PAGE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Quantitative and Qualitative Disclosures about Market Risk appearing under the
caption of "Market Risk" within Management's Discussion and Analysis of
financial condition and results of operations appearing on page 19 of the
Company's 1998 Annual Report to Shareholders, furnished as Exhibit 13.1 hereto,
is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's consolidated financial statements and related notes thereto and
the independent auditors' report appearing on pages 23 through 41 of the
Company's 1998 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.
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth the name, age and positions of each of the
Company's directors and executive officers at December 31, 1998.
NAME AGE POSITION
- --------------------------------------------------------------------------------
James B. Hawkes 57 Chairman of the Board, President, Chief
Executive Officer
Benjamin A. Rowland, Jr. 63 Vice President and Director
John G. L. Cabot 64 Director
John M. Nelson 66 Director
Vincent M. O'Reilly 60 Director
Ralph Z. Sorenson 65 Director
Alan R. Dynner 58 Vice President and Chief Legal Officer
Thomas E. Faust, Jr. 40 Vice President and Director of Equity Research
and Management
Thomas Otis 67 Vice President and Secretary
Laurie G. Russell 32 Vice President and Chief Accounting Officer
William M. Steul 56 Vice President, Treasurer and Chief Financial
Officer
Peter D. Stokinger 34 Vice President and Internal Auditor
Wharton P. Whitaker 54 President, Eaton Vance Distributors, Inc.
Eaton Vance Corp. was founded as a holding company by Eaton & Howard, Vance
Sanders, Inc., in February 1981. Eaton & Howard, Vance Sanders, Inc. (renamed
Eaton Vance Management, Inc. in June, 1984 and reorganized as Eaton Vance
Management in October, 1990) was formed at the time of the acquisition of Eaton
& Howard, Incorporated by Vance, Sanders & Company, Inc. on May 1, 1979. In this
Item 10, the absence of a corporate name indicates that, depending on the dates
involved, the executive held the indicated titles in a firm in the chain of
Vance, Sanders & Company, Inc., Eaton & Howard, Vance Sanders Inc., or Eaton
Vance Corp. In general, the following officers hold their positions for a period
of one year or until their successors are duly chosen or elected.
Mr. Hawkes was elected Chairman of the Board in October, 1997 and President and
Chief Executive Officer in October, 1996. He was Executive Vice President of the
Company from January, 1990 to October, 1996 and a Vice President of the Company
from June, 1975 to January, 1990. He has been a Director since January, 1982.
Mr. Hawkes serves as Chairman of the Executive Committee and as a member of the
Management and Nominating Committees established by the Company's Board of
Directors. Mr. Hawkes is an officer, trustee or director of 75 registered
investment companies for which Eaton Vance Management or Boston Management and
Research acts as investment adviser. He is a Director of Eaton Vance
Distributors, Inc., a wholly owned subsidiary of Eaton Vance Management. He is
also the President and Manager of MinVen, LLC and Northeast Properties, LLC,
each a wholly owned subsidiary of Eaton Vance Management.
Mr. Rowland has been a Vice President of the Company since April, 1969 and a
Director since January, 1982. He serves as a member of the Management Committee
established by the Company's Board of Directors. Mr. Rowland is a Director and
Treasurer of Eaton Vance Distributors, Inc., a wholly owned subsidiary of Eaton
Vance Management. Mr. Rowland is also a Vice President and Manager of Northeast
Properties, LLC, a wholly owned subsidiary of Eaton Vance Management.
<PAGE>
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT (CONTINUED)
Mr. Cabot has served as a Director of the Company since March, 1989. He is
Chairman of the Audit and Nominating Committees and serves as a member of the
Compensation and Option Committees established by the Company's Board of
Directors. Mr. Cabot is also the Director of Cabot Corporation and Cabot Oil and
Gas Corporation.
Mr. Nelson has served as Director of the Company since January, 1998. He serves
as a member of the Compensation, Option and Nominating Committees established by
the Company's Board of Directors. Mr. Nelson is the Chairman of the Board of the
TJX Companies and is the Director of Brown & Sharpe Manufacturing Company,
Aquila Biopharmaceuticals, Inc., Commerce Holdings, Inc. and Stocker and Yale,
Inc.
Mr. O'Reilly has served as Director of the Company since April, 1998. He serves
as a member of the Audit Committee established by the Company's Board of
Directors. Mr. O'Reilly serves on the Boards of Directors of the Neiman Marcus
Group and Teradyne, Inc. He is Vice-Chairman of the Boards of the New England
Independent System Operator and the Dana-Farber Cancer Institute.
Mr. Sorenson has served as a Director of the Company since March, 1989. He is
Chairman of the Compensation Committee and serves as a member of the Audit,
Option and Nominating Committees established by the Company's Board of
Directors. Mr. Sorenson also serves as Director of Houghton Mifflin Company,
Polaroid Corporation, Trust Bank of Colorado, Exabyte Corp., Whole Foods Market,
Inc., Sweetwater Inc., Xenometrix and Audio Ventures, Inc.
Mr. Dynner has been a Vice President and Chief Legal Officer of the Company
since November, 1996. Prior to joining the Company, Mr. Dynner was a senior
partner with the law firm of Kirkpatrick & Lockhart LLP in its New York and
Washington, D.C. offices. From February, 1994 to September, 1995 he was
Executive Vice President of Newberger & Berman Management, Inc., a mutual fund
management company. Mr. Dynner is a member of the Management Committee
established by the Company's Board of Directors. He is an officer of all of the
registered investment companies for which Eaton Vance Management or Boston
Management and Research acts as investment adviser. He is also a Vice President,
Secretary and Manager of MinVen, LLC and Northeast Properties, LLC, each a
wholly owned subsidiary of Eaton Vance Management.
Mr. Faust has been a Vice President and Director of Equity Research and
Management of the Company since February, 1995. He has been Portfolio Manager
and Vice President of Investors Portfolio since July, 1993 and Portfolio Manager
and Vice President of Eaton Vance Growth Portfolio since April, 1996. Mr. Faust
joined Eaton Vance as a Research Associate in June, 1985. Mr. Faust serves as a
member of the Management Committee established by the Company's Board of
Directors.
Mr. Otis has been Secretary since October, 1969 and a Vice President of the
Company since April, 1973. He has been the Company's counsel since 1966.
Ms. Russell has been Chief Accounting Officer since October, 1997 and a Vice
President since June, 1994. She was Internal Auditor of the Company from June,
1994 to October, 1997. Prior to joining the Company, Ms. Russell was a Senior
Accountant with Deloitte & Touche LLP.
Mr. Steul has been a Vice President and Chief Financial Officer of the Company
since December, 1994. Prior to joining the Company, Mr. Steul was Vice
President, Finance and Chief Financial Officer of Digital Equipment Corporation.
Mr. Steul is a member of the Management Committee established by the Company's
Board of Directors. He is also the Treasurer and Manager of MinVen, LLC and
Northeast Properties, LLC, each a wholly owned subsidiary of Eaton Vance
Management.
<PAGE>
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT (CONTINUED)
Mr. Stokinger has been the Internal Auditor since October, 1997 and a Vice
President since January, 1996. He was the Company's Tax Accountant from
September, 1992 to October, 1997.
Mr. Whitaker has been President, Eaton Vance Distributors, Inc., since November,
1991. He was Executive Vice President and National Sales Director of Eaton Vance
Distributors, Inc., from June, 1987 to October, 1991. Mr. Whitaker is a member
of the Management Committee established by the Company's Board of Directors.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and Directors and persons who own more than ten percent of a registered
class of the Company's equity securities to file forms reporting their
affiliation with the Company and reports of ownership and changes in ownership
of the Company's equity securities with the Securities and Exchange Commission
and the New York Stock Exchange. These persons and entities are required by SEC
regulations to furnish the Company with copies of all Section 16(a) forms they
file. To the best of the Company's knowledge, all Section 16(a) filing
requirements applicable to the Company's officers and directors were complied
with for the 1998 fiscal year.
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
(A) SUMMARY COMPENSATION TABLE
The following table sets forth certain information concerning the compensation
for each of the last three fiscal years of the Chief Executive Officer of the
Company and the four other most highly compensated executive officers of the
Company (hereafter referred to in this document as the "named executive
officers").
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
------------
ANNUAL COMPENSATION AWARDS
-----------------------------------------------------
SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
YEAR SALARY BONUS (1) COMPENSATION(2) OPTIONS COMPENSATION(3)
- -------------------------------------------------------------------------------------------------------------------------
NAME AND PRINCIPAL POSITION ($) ($) ($) (#) ($)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
James B. Hawkes 1998 415,000 1,410,000 4,038 70,000 30,000
Chief Executive Officer
1997 400,000 755,000 1,350 400,000 30,000
1996 375,000 520,000 4,703 20,000 30,000
- -------------------------------------------------------------------------------------------------------------------------
Benjamin A. Rowland, Jr. 1998 266,000 325,000 - 15,000 30,000
Vice President
1997 260,000 275,000 - - 30,000
1996 250,000 429,380 - - 30,000
- -------------------------------------------------------------------------------------------------------------------------
Thomas E. Faust, Jr. 1998 300,000 1,250,000 56,709 39,600 30,000
Vice President
1997 250,000 1,060,000 6,968 60,000 30,000
1996 200,000 225,000 7,891 60,000 31,040
- -------------------------------------------------------------------------------------------------------------------------
William M. Steul 1998 266,000 300,000 4,865 15,000 30,000
Vice President
1997 260,000 240,000 4,509 24,000 30,000
1996 250,000 250,000 1,025 20,000 30,000
- -------------------------------------------------------------------------------------------------------------------------
Wharton P. Whitaker 1998 245,000 977,417 8,108 15,000 30,000
President, EVD
1997 235,000 588,814 1,252 24,000 30,000
1996 225,000 428,557 9,034 12,000 30,000
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION (CONTINUED)
(1) Bonuses include payments in lieu of option grants to Mr. Rowland of
$25,000 and $29,380 in 1997 and 1996, respectively.
(2) The amounts appearing under "Other Annual Compensation" represent the
10% discount on the purchase of the Company's stock under the
Company's Employee Stock Purchase Plan and Incentive Plan - Stock
Alternative.
(3) The amounts appearing under "All Other Compensation" represent
contributions by the Company to the Company's Profit Sharing,
Supplemental Profit Sharing and 401(k) Plans.
(B) OPTION GRANTS IN LAST FISCAL YEAR
The following table summarizes stock option grants during 1998 to the named
executive officers.
<TABLE>
<CAPTION>
PERCENTAGE POTENTIAL REALIZABLE
OF TOTAL VALUE AT ASSUMED
NUMBER OF OPTIONS ANNUAL RATES OF STOCK
SECURITIES GRANTED TO EXERCISE PRICE APPRECIATION
UNDERLYING EMPLOYEES IN PRICE EXPIRATION FOR OPTION TERM(1)
NAME OPTIONS GRANTED FISCAL YEAR ($/SHARE) DATE 5% ($) 10% ($)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
James B. Hawkes 64,400 10% 17.844 11/03/02 317,490 701,570
5,600 1% 19.628 11/03/02 30,368 67,105
Benjamin A. Rowland, Jr. 15,000 2% 19.628 11/03/02 81,343 179,746
Thomas E. Faust, Jr. 34,000 5% 17.844 11/03/02 167,619 370,394
5,600 1% 19.628 11/03/02 30,368 67,105
William M. Steul 15,000 2% 17.844 11/03/02 73,950 163,409
Wharton P. Whitaker 15,000 2% 17.844 11/03/02 73,950 163,409
(1) Amounts calculated using 5% and 10% assumed annual rates of stock price appreciation represent hypothetical gains
that could be achieved for the respective options if exercised at the end of the option term. Actual gains, if any,
on stock option exercises will depend on the future performance of the Company's stock and the dates on which the
options are exercised.
</TABLE>
<PAGE>
ITEM 11 - EXECUTIVE COMPENSATION (CONTINUED)
(C) AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The following table summarizes stock options exercised during 1998 and stock
options held as of October 31, 1998 by the named executive officers.
<TABLE>
<CAPTION>
NUMBER OF
SHARES SECURITIES UNDERLYING VALUE OF UNEXERCISED
ACQUIRED ON VALUE UNEXERCISED OPTIONS AT FISCAL IN-THE-MONEY OPTIONS AT FISCAL
EXERCISE REALIZED YEAR END YEAR END (1)
--------------------------------------------------------------------------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
NAME (#) ($) (#) (#) ($) ($)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
James B. Hawkes 181,234 2,257,314 126,664 383,336 1,582,630 4,062,652
Benjamin A. Rowland, Jr.
10,000 155,900 33,496 15,000 531,203 41,203
Thomas E. Faust 14,500 159,758 66,416 94,584 985,915 855,199
William M. Steul 16,180 186,674 128,460 27,000 2,011,525 211,218
Wharton P. Whitaker
18,720 274,365 12,000 32,280 143,250 292,067
(1) Based on the fair market value of the Company's common stock on October 31, 1998 ($22.375) as reported on the New
York Stock Exchange, less the option exercise price.
</TABLE>
(D) COMPENSATION OF DIRECTORS
Directors not otherwise employed by the Company receive a retainer of $5,000 per
quarter and $1,000 per meeting. During the fiscal year ended October 31, 1998,
John G.L. Cabot, and Ralph Z. Sorenson each received $32,000; in addition, each
was granted options for 1,392 shares. During the fiscal year ended October 31,
1998, John M. Nelson, and Vincent M. O'Reilly received $28,000 and $22,000
respectively; in addition, they were granted options for 3,328 and 2,594 shares,
respectively.
(E) COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Not applicable.
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(A) COMMON STOCK
All outstanding shares of the Company's Voting Common Stock, $0.015625 par
value, (which is the only class of the Company's stock having voting rights) are
deposited in a Voting Trust, of which the Voting Trustees were (as of December
31, 1998), James B. Hawkes (Chairman of the Board of Directors, President and
Chief Executive Officer of the Company), Benjamin A. Rowland, Jr. (a Vice
President and a Director of the Company), Thomas E. Faust, Jr., (a Vice
President of the Company), Wharton P. Whitaker (President of Eaton Vance
Distributors, Inc., a wholly owned subsidiary of Eaton Vance Management), Alan
R. Dynner (a Vice President of the Company), William M. Steul (a Vice President
of the Company), Thomas J. Fetter (a Vice President of Eaton Vance Management),
and Duncan W. Richardson (a Vice President of Eaton Vance Management ). The
Voting Trust expires October 30, 2000. The Voting Trustees have unrestricted
voting rights for the election of the Company's directors. At December 31, 1998,
the Company had outstanding 77,440 shares of Common Stock. Inasmuch as the eight
Voting Trustees of the Voting Trust have unrestricted voting rights with respect
to the 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 or the termination
of the Voting Trust or the addition of a Voting Trustee or of the removal of a
Voting Trustee by the other Voting Trustees or the renewal of the term of the
Voting Trust 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 are five or more Voting
Trustees; otherwise they shall act unanimously except as otherwise provided in
the Voting Trust Agreement. The address of the Voting Trustees is 24 Federal
Street, Boston, Massachusetts 02110.
The following table sets forth the beneficial owners at December 31, 1998, of
the Voting Trust Receipts issued under said Voting Trust Agreement, which
Receipts cover the aggregate of 77,440 shares of the Common Stock then
outstanding:
NUMBER OF SHARES
OF VOTING COMMON
STOCK COVERED BY
TITLE OF CLASS NAME RECEIPTS % OF CLASS
- --------------------------------------------------------------------------------
Voting Common Stock James B. Hawkes 18,560 24%
Voting Common Stock Thomas E. Faust, Jr. 13,173 17%
Voting Common Stock Benjamin A. Rowland, Jr. 11,680 15%
Voting Common Stock Alan R. Dynner 9,279 12%
Voting Common Stock William M. Steul 9,279 12%
Voting Common Stock Wharton P. Whitaker 9,279 12%
Voting Common Stock Thomas J. Fetter 3,095 4%
Voting Common Stock Duncan W. Richardson 3,095 4%
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(CONTINUED)
Messrs. Hawkes, and Rowland are officers and Directors of the Company and Voting
Trustees of the Voting Trust; Messrs. Dynner, Faust and Steul are all officers
of the Company and Voting Trustees of the Voting Trust. Mr. Whitaker is
President of Eaton Vance Distributors, Inc. and a Voting Trustee of the Voting
Trust. Messrs. Fetter and Richardson are officers of Eaton Vance Management 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 with the Company or a subsidiary of a holder of the
Voting Trust Receipts, the shares represented by such Voting Trust Receipts must
be offered to the Company at book value. Similar restrictions exist with respect
to the Voting Common Stock, all shares of which are deposited and held of record
in the Voting Trust.
(B) NON-VOTING COMMON STOCK
The Articles of Incorporation of the Company provide that its Non-Voting Common
Stock, $0.015625 par value, shall have no voting rights under any circumstances
whatsoever. As of December 31, 1998, the officers and Directors of the Company,
as a group, beneficially owned 3,160,400 shares of such Non-Voting Common Stock
or 8.6% of the 36,551,965 shares then outstanding. (Such figures include 641,348
shares subject to options exercisable within 60 days and are based solely upon
information furnished by the officers and Directors.)
The following table sets forth the beneficial ownership of the Company's
Non-Voting Common Stock by (i) each person known by the Company to own
beneficially more than 5% of the outstanding shares of Non-Voting Common Stock,
(ii) each Director of the Company, and (iii) each of the named executive
officers of the Company (as defined in Item 11, "Executive Compensation") as of
December 31, 1998 (such investment power being sole unless otherwise indicated):
AMOUNT OF PERCENTAGE
BENEFICIAL OF CLASS
TITLE OF CLASS BENEFICIAL OWNERS OWNERSHIP (a) (b)
- --------------------------------------------------------------------------------
Non-Voting Common Stock Landon T. Clay 5,783,884 (d)(h) 16.11
Non-Voting Common Stock James B. Hawkes 1,163,118 (c)(f) 3.19
Non-Voting Common Stock Benjamin A. Rowland,Jr. 800,512 (c)(e) 2.20
Non-Voting Common Stock Wharton P. Whitaker 319,540 (c) 0.88
Non-Voting Common Stock Thomas E. Faust, Jr. 301,593 (c) 0.83
Non-Voting Common Stock William M. Steul 201,178 (c) 0.55
Non-Voting Common Stock John G. L. Cabot 97,400 (c)(g) 0.27
Non-Voting Common Stock Ralph Z. Sorenson 38,300 (c) 0.11
Non-Voting Common Stock John M. Nelson 4,000 (c) 0.01
Non-Voting Common Stock Vincent M. O'Reilly 600 (c) 0.00
(a) Based solely upon information furnished by the individuals.
(b) Based on 35,910,617 outstanding shares plus options exercisable within 60
days of 247,200 for Mr. Hawkes, 29,764 for Mr. Rowland, 29,280 for Mr.
Whitaker, 84,700 for Mr. Faust, 124,284 for Mr. Steul, 8,544 for Mr. Cabot
and 8,544 for Mr. Sorenson.
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(CONTINUED)
(c) Includes shares subject to options exercisable within 60 days granted
to, but not exercised by, each named executive officer and director as
listed in Note (b) above.
(d) Includes 10,000 shares held by Mr. Clay's children.
(e) Includes 4,800 shares owned by Mr. Rowland's spouse as to which Mr.
Rowland disclaims beneficial ownership.
(f) Includes 46,580 shares owned by Mr. Hawkes' spouse and 29,152 shares
held by Mr. Hawkes' daughter.
(g) Includes 16,000 shares held in a family limited partnership.
(h) Includes 4,180 shares held in the trust of a profit sharing retirement
plan for employees of Flowers Antigua, of which the sole beneficiary is
the spouse of Mr. Clay. Also includes 25,420 shares held in trust of a
profit sharing retirement plan for employees of LTC Corp., wholly owned
by Mr. Clay.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Not applicable.
(B) CERTAIN BUSINESS RELATIONSHIPS
James B. Hawkes, a Director and chief executive officer of the Company, is an
officer and director, trustee or general partner of various investment companies
for which either Eaton Vance Management or Boston Management and Research serves
as investment adviser and for which Eaton Vance Distributors, Inc. acts as
principal underwriter; such investment companies make substantial payments to
these subsidiaries for advisory and management services or under their
distribution plans.
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS (CONTINUED)
(C) INDEBTEDNESS OF MANAGEMENT
In 1998, the Company increased to $10,000,000 the amount of money in the
Executive Loan Program, which is available for loans to certain key employees
for the purpose of financing the exercise of stock options for shares of the
Company's Non-Voting Common Stock. Such loans are written for a seven-year
period, at varying fixed interest rates, and notes evidencing them require
repayment in annual installments commencing with the third year in which the
loan is outstanding. Loans outstanding under this program amounted to $2,957,000
at October 31, 1998.
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, 1997, in an aggregate amount in excess of $60,000:
LARGEST AMOUNT
OF LOANS LOANS RATE OF INTEREST
OUTSTANDING SINCE OUTSTANDING AS CHARGED ON LOANS
11/1/97 OF 12/31/98 AS OF 12/31/98
- -------------------------------------------------------------------------------
James B. Hawkes $ 551,322 $ 551,322 4.83% - 7.61% (1)
Thomas E. Faust, Jr. 81,758 - n/a
Wharton P. Whitaker 224,796 - n/a
(1) 6.11% interest payable on $66,000 principal amount of loan, 5.31% interest
payable on $109,821 principal amount, 5.74% interest payable on $50,481
principal amount, 7.61% interest payable on $30,800 principal amount, 6.77%
interest payable on $100,000 principal amount and 4.83% interest payable on
$194,220 principal amount.
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(A) EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(1) The following consolidated financial statements of Eaton Vance Corp. and
report of independent accountants, included on pages 23 through 41 of
the Annual Report, are incorporated by reference as a part of this Form
10-K:
SEPARATE
DOCUMENT
EATON VANCE CORP. 1998 ANNUAL REPORT TO SHAREHOLDERS PAGE NUMBER
- -------------------------------------------------------------------------------
Consolidated Statements of Income for each of the three years
in the period ended October 31, 1998 23
Consolidated Balance Sheets as of October 31, 1998 and 1997 24-25
Consolidated Statements of Cash Flows for each of the three
years in the period ended October 31, 1998 26
Consolidated Statements of Shareholders' Equity for each of
the three years in the period ended October 31, 1998 27
Notes to Consolidated Financial Statements 28-40
Independent Auditors' Report 41
(2) The following financial statement schedules and independent accountants'
report are filed as part of this Form 10-K and are located on the
following pages:
DESCRIPTION PAGE NUMBER
- -------------------------------------------------------------------------------
Independent Auditors' Report on Financial Statement Schedules 23
Schedule II Valuation and Qualifying Accounts 24
Schedule III Real Estate and Accumulated Depreciation 25-26
All other schedules have been omitted because they are not required, are
not applicable or the information is otherwise shown in the consolidated
financial statements or notes thereto.
(3) The list of exhibits required by Item 601 of Regulation S-K is set forth
in the Exhibit Index on pages 28 through 31 and is incorporated herein
by reference.
(B) REPORTS ON FORM 8-K
The Company filed a Form 8-K with the SEC on October 20, 1998 regarding
the impact of Financial Accounting Standards Board staff announcement
(Topic No. D-76).
<PAGE>
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, 1998 and 1997, and for each of the three
years in the period ended October 31, 1998, and have issued our report thereon
dated November 24, 1998 (included elsewhere in this Registration Statement). Our
audits also included the consolidated financial statement schedules of Eaton
Vance Corp. and its subsidiaries, listed in Item 14 of the Registration
Statement. These consolidated financial statement schedules are the
responsibility of the Company's management. Our responsibility is to express an
opinion based on our audits. In our opinion, such consolidated financial
statement schedules, when considered in relation to the basic consolidated
financial statements taken as a whole, present fairly in all material respects
the information set forth therein.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
November 24, 1998
<PAGE>
EATON VANCE CORP.
VALUATION AND QUALIFYING ACCOUNTS
SCHEDULE II
YEARS ENDED OCTOBER 31, 1998, 1997 AND 1996
- -------------------------------------------------------------------------------
ADDITIONS
BALANCE AT CHARGED TO BALANCE
BEGINNING COSTS AND AT END OF
DESCRIPTION OF YEAR EXPENSES DEDUCTIONS YEAR
- -------------------------------------------------------------------------------
Valuation accounts deducted
from assets to which they
apply:
Allowance for doubtful
accounts on notes
receivable and
receivables from
affiliates:
Year ended October 31:
1998 - - - -
1997 $ 775,000 - $775,000 -
1996 $1,200,000 $300,000 $725,000 $ 775,000
<PAGE>
<TABLE>
EATON VANCE CORP.
REAL ESTATE AND ACCUMULATED DEPRECIATION SCHEDULE III
<CAPTION>
OCTOBER 31, 1998
- -------------------------------------------------------------------------------------------------------------------
COSTS
CAPITALIZED GROSS CARRYING AMOUNT
INITIAL COST SUBSEQUENT OCTOBER 31, 1998 (1) (2)
-------------------- TO -------------------------
ACQUISITION DATE OF DEPRE-
(IMPROVE- ACCUMULATED CONSTRUC- DATE CIABLE
DESCRIPTION ENCUMBRANCES LAND BUILDINGS MENTS) LAND BUILDINGS DEPRECIATION TION ACQUIRED LIFE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Shopping mall and
office building -
Troy, NY $2,283,144 $ 834,100 $ 4,033,921 $3,229,405 $ 834,100 $4,627,783 $1,866,968 1978 05/01/87 31.5yrs.
Warehouses -
Colonie, NY 2,064,143 137,966 1,596,385 611,947 137,966 2,208,332 766,813 1964 11/13/84 30yrs.
Springfield, MA - 145,833 1,967,684 193,338 145,833 2,161,022 855,716 1974 11/02/84 30yrs.
Office building -
Boston, MA - 280,800 4,009,836 2,281,561 280,800 6,291,397 2,797,124 1920 10/31/90 20yrs.
Boston, MA 5,823,969 1,164,113 4,651,554 559,796 1,164,113 5,211,350 225,834 1883 03/03/97 39yrs.
========================================================================================================
TOTAL $10,171,256 $2,562,812 $16,259,380 $6,876,047 $2,562,812 $20,499,884 $6,512,455
========================================================================================================
(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.
(2) All real estate is classified as available for sale at October 31, 1998.
</TABLE>
<PAGE>
EATON VANCE CORP.
REAL ESTATE AND ACCUMULATED DEPRECIATION (CONTINUED) SCHEDULE III
YEARS ENDED OCTOBER 31, 1998, 1997 AND 1996
- --------------------------------------------------------------------------------
1998 1997 1996
--------------------------- -------------
LAND AND BUILDINGS:
Gross carrying amount, beginning
of year $20,532,859 $26,353,167 $30,288,033
Additions during period:
Acquisition (1) - 5,855,284 -
Improvements 512,220 833,184 1,650,801
Deductions during period:
Cost of real estate sold - (78,203) -
Reclassification of assets
held for sale (2) (3) (21,045,079) (12,430,573) (5,585,667)
----------------------------------------
Gross carrying amount, end of year - $20,532,859 $26,353,167
========================================
Accumulated depreciation, beginning
of year $4,494,720 $7,534,281 $8,424,489
Additions during period:
Depreciation 395,484 852,435 918,105
Deductions during period:
Reclassification of assets
held for sale (2) (3) (4,890,204) (3,891,996) (1,808,313)
----------------------------------------
Accumulated depreciation, end of year - $4,494,720 $7,534,281
========================================
(1) In 1997, the Company acquired the remaining fifty percent interest in a
partnership which owns an office building in Boston, Massachusetts for $0.6
million in cash. The acquisition was accounted for using the purchase method
of accounting and, accordingly, the purchase price was allocated to the
assets acquired and the liabilities assumed based on their estimated fair
values at the date of acquisition.
(2) In the first quarter of 1998, the Company committed to a plan to sell an
office building and shopping center located in Troy, New York and recognized
a pre-tax impairment loss of $2.6 million based on the estimated net
realizable value of the property (estimated fair value less estimated
selling costs). In the fourth quarter of 1996, the Company committed to a
plan to sell an office building located in Boston, Massachusetts and
recognized a pre-tax impairment loss of $1.3 million based on the estimated
net realizable value of the property. Estimated fair value of the property
was calculated using market appraisals and other available valuation
techniques. At October 31, 1996, the property was classified as a current
asset held for sale for financial reporting purposes.
(3) In 1998, the Company committed to a plan to sell all of its remaining
properties. The Company had committed to a plan to sell two warehouse
buildings located in Springfield, Massachusetts and Colonie, New York and a
shopping center in Goffstown, New Hampshire in 1997.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, Eaton Vance Corp. has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
EATON VANCE CORP.
/s/ James B. Hawkes
James B. Hawkes
Chairman, Director and Principal
Executive Officer
January 28, 1999
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/ James B. Hawkes Chairman, Director and January 28, 1999
James B. Hawkes Principal Executive Officer
/s/ William M. Steul Chief Financial Officer January 28, 1999
William M. Steul
/s/ Laurie G. Russell Chief Accounting Officer January 28, 1999
Laurie G. Russell
/s/ Benjamin A. Rowland, Jr. Director January 28, 1999
Benjamin A. Rowland, Jr.
/s/ John G.L. Cabot Director January 28, 1999
John G.L. Cabot
/s/ John M. Nelson Director January 28, 1999
John M. Nelson
/s/ Vincent M. O'Reilly Director January 28, 1999
Vincent M. O'Reilly
/s/ Ralph Z. Sorenson Director January 28, 1999
Ralph Z. Sorenson
<PAGE>
EXHIBIT INDEX
Each Exhibit is listed in this index according to the number assigned to it in
the exhibit table set forth in Item 601 of Regulation S-K. The following
Exhibits are filed as a part of this Report or incorporated herein by reference
pursuant to Rule 12b-32 under the Securities Exchange Act of 1934:
EXHIBIT NO. DESCRIPTION
3.1 The Company's Amended Articles of Incorporation are filed as Exhibit
3.1 to the Company's registration statement on Form 8-B dated February
4, 1981, filed pursuant to Section 12(b) or (g) of the Securities
Exchange Act of 1934 (S.E.C. File No. 1-8100) and are incorporated
herein by reference.
3.2 The Company's By-Laws are filed as Exhibit 3.2 to the Company's
registration statement of Form 8-B dated February 4, 1981, filed
pursuant to Section 12(b) or (g) of the Securities Exchange Act of 1934
(S.E.C. File No. 1-8100) and are incorporated herein by reference.
3.3 Copy of the Company's Articles of Amendment effective at the close of
business on November 22, 1983, has been filed as Exhibit 3.3 to the
Annual Report on Form 10-K of the Company for the fiscal year ended
October 31, 1983, (S.E.C. File No. 1-8100) and is incorporated herein
by reference.
3.4 Copy of the Company's Articles of Amendment effective at the close of
business on February 25, 1986 has been filed as Exhibit 3.4 to the
Annual Report on Form 10-K of the Company for the fiscal year ended
October 31, 1986, (S.E.C. File No. 1-8100) and is incorporated herein
by reference.
3.5 Copy of the Company's Articles of Amendment effective at the close of
business on July 7, 1998 has been filed as Exhibit 3.1 to the Quarterly
Report on Form 10-Q for the fiscal quarter ended July 31, 1998, (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
$.015625 per share, and Non-Voting Common Stock, par value $.015625 per
share, are described in the Company's Amended Articles of Incorporation
(particularly Articles Sixth, Seventh and Ninth thereof) and the
Company's By-Laws (particularly Article II thereof). See Exhibits 3.1,
3.2, 3.3, 3.4 and 3.5 above as incorporated herein by reference.
9.1 Copy of the Voting Trust Agreement made as of October 30, 1997. has
been filed as Exhibit 9.1 to the Annual Report on Form 10-K of the
Company for the fiscal year ended October 31, 1997, (S.E.C. File No.
I-8100) and is incorporated herein by reference.
10.1 Description of Performance Bonus Arrangement for Members of Investment
Division of Eaton Vance Management has been filed as Exhibit 10.1 to
the Annual Report on Form 10-K of the Company for the fiscal year ended
October 31, 1995, (S.E.C. File No. 1-8100) and is incorporated herein
by reference.
<PAGE>
EXHIBIT NO. DESCRIPTION
10.2 Description of Incentive Bonus Arrangement for Marketing Personnel of
Eaton Vance Distributors, Inc. has been filed as Exhibit 10.2 to the
Annual Report on Form 10-K of the Company for the fiscal year ended
October 31, 1995, (S.E.C. File No. 1-8100) and is incorporated herein
by reference.
10.3 Copy of 1988 Profit Improvement Bonus Plan of Eaton Vance Management,
Inc. has been filed as Exhibit 10.9 of the Annual Report on Form 10-K
of the Company for the fiscal year ended October 31, 1987 (S.E.C. File
No 1-8100) and is incorporated herein by reference.
10.4 Description of 1990 Performance and Retention of Officers Pool (bonus
plan to reward key officers of Eaton Vance Management and Eaton Vance
Distributors, Inc.) of Eaton Vance Corp. has been filed as Exhibit 10.5
to the Annual Report on Form 10-K of the Company for the fiscal year
ended October 31, 1995, (S.E.C. File No. 1-8100) and is incorporated
herein by reference.
10.5 Copy of 1992 Stock Option Plan as adopted by the Eaton Vance Corp.
Board of Directors on April 8, 1992 has been filed as Exhibit 10. 12 to
the Annual Report on Form 10-K of the Company for the fiscal year ended
October 31, 1992 (S.E.C. File No. 1-8100), and is incorporated herein
by reference.
10.6 Copy of 1986 Employee Stock Purchase Plan as amended and restated by
the Eaton Vance Corp. Board of Directors on April 8, 1992 has been
filed as Exhibit 10.13 to the Annual Report on Form 10-K of the Company
for the fiscal year ended October 31, 1992 (S.E.C. File No. 1-81 00),
and is incorporated herein by reference.
10.7 Copy of 1992 Incentive Plan - Stock Alternative as adopted by the Eaton
Vance Corp. Board of Directors on July 17, 1992 has been filed as
Exhibit 10. 14 to the Annual Report on Form 10-K of the Company for the
fiscal year ended October 31, 1992 (S.E.C. File No. 1-8100), and is
incorporated herein by reference.
10.8 Copy of 1995 Stock Option Plan as adopted by the Eaton Vance Corp.
Board of Directors on October 12, 1995, has been filed as Exhibit 10.9
to the Annual Report on Form 10-K of the Company for the fiscal year
ended October 31, 1995, (S.E.C. File No. 1-8100) and is incorporated
herein by reference.
10.9 Copy of 1986 Employee Stock Purchase Plan as amended and restated by
the Eaton Vance Corp. Board of Directors on October 12, 1995, has been
filed as Exhibit 10.10 to the Annual Report on Form 10-K of the Company
for the fiscal year ended October 31, 1995, (S.E.C. File No. 1-8100)
and is incorporated herein by reference.
10.10 Copy of 1995 Executive Loan Program relating to financing or
refinancing the exercise of options by key directors, officers, and
employees adopted by the Company's Directors on October 12, 1995, has
been filed as Exhibit 10.2 to the Annual Report on Form 10-K of the
Company for the fiscal year ended October 31, 1995, (S.E.C. File No.
1-8100) and is incorporated herein by reference.
10.11 Copy of the Eaton Vance Corp. Supplemental Profit Sharing Plan adopted
by the Company's Directors on October 9, 1996, 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, 1996, (S.E.C. File No. 1-8100) and is
incorporated herein by reference.
<PAGE>
EXHIBIT NO. DESCRIPTION
10.12 Copy of 1992 Stock Option Plan - Restatement No. 1 as adopted by the
Eaton Vance Corp. Board of Directors on April 9, 1997, has been filed
as Exhibit 10.1 to the Quarterly Report on Form 10-Q for the fiscal
quarter ended April 30, 1997, (S.E.C. File No. 1-8100) and is
incorporated herein by reference.
10.13 Copy of 1995 Stock Option Plan - Restatement No. 1 as adopted by the
Eaton Vance Corp. Board of Directors on April 9, 1997, has been filed
as Exhibit 10.2 to the Quarterly Report on Form 10-Q for the fiscal
quarter ended April 30, 1997, (S.E.C. File No. 1-8100) and is
incorporated herein by reference.
10.14 Copy of 1992 Incentive Plan - Stock Alternative - Restatement No. 2 as
adopted by the Eaton Vance Corp. Board of Directors on April 9, 1997,
has been filed as Exhibit 10.3 to the Quarterly Report on Form 10-Q for
the fiscal quarter ended April 30, 1997, (S.E.C. File No. 1-8100) and
is incorporated herein by reference.
10.15 Copy of 1992 Stock Option Plan - Restatement No. 2 as adopted by the
Eaton Vance Corp. Board of Directors on October 30, 1997 has been filed
as Exhibit 10.15 to the Annual Report on Form 10-K of the Company for
the fiscal year ended October 31, 1997, (S.E.C. File No. 1-8100) and is
incorporated herein by reference.
10.16 Copy of 1995 Stock Option Plan - Restatement No. 2 as adopted by the
Eaton Vance Corp. Board of Directors on October 30, 1997 has been filed
as Exhibit 10.16 to the Annual Report on Form 10-K of the Company for
the fiscal year ended October 31, 1997, (S.E.C. File No. 1-8100) and is
incorporated herein by reference.
10.17 Copy of 1992 Incentive Plan - Stock Alternative - Restatement No. 3 as
adopted by the Eaton Vance Corp. Board of Directors on July 7, 1998,
has been filed as Exhibit 10.3 to the Quarterly Report on Form 10-Q for
the fiscal quarter ended July 31, 1998, (S.E.C. File No. 1-8100) and is
incorporated herein by reference.
10.18 Copy of 1986 Employee Stock Purchase Plan - Restatement No. 7 adopted
by the Eaton Vance Corp. Board of Directors on July 9, 1998, has been
filed as Exhibit 10.2 to the Quarterly Report on Form 10-Q of the
Company for the fiscal quarter ended July 31, 1998, (S.E.C. File No.
1-8100) and is incorporated herein by reference.
10.19 Copy of 1998 Stock Option Plan as adopted by the Eaton Vance Corp.
Board of Directors on July 9, 1998 has been filed as Exhibit 10.1 to
the Quarterly Report on Form 10-Q of the Company for the fiscal quarter
ended July 31, 1998 (S.E.C. File No. 1-8100), and is incorporated
herein by reference.
10.20 Copy of Eaton Vance Corp. Executive Performance-Based Compensation Plan
as adopted by the Eaton Vance Corp. Board of Directors on July 9, 1998
has been filed as Exhibit 10.4 to the Quarterly Report on Form 10-Q of
the Company for the fiscal quarter ended July 31, 1998 (S.E.C. File No.
1-8100), and is incorporated herein by reference.
10.21 Copy of 1998 Executive Loan Program relating to financing or
refinancing the exercise of options by key directors, officers, and
employees adopted by the Company's Directors on October 15, 1998 (filed
herewith).
<PAGE>
EXHIBIT NO. DESCRIPTION
13.1 Copy of the Company's Annual Report to Shareholders for the fiscal year
ended October 31, 1998 (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, 1998 (filed
herewith).
23.1 Independent Auditors' Consent (filed herewith).
27.1 Financial Data Schedule as of October 31, 1998 (filed herewith -
electronic filing only).
99.2 List of Eaton Vance Corp. Open Registration Statements (filed
herewith).
<PAGE>
EXHIBIT 10.21
1998 EXECUTIVE LOAN PROGRAM
(AS REVISED OCTOBER 15, 1998)
1. Purpose. The purpose of the Eaton Vance Corp. 1998 Executive Loan
Program (the "Program") is to benefit Eaton Vance Corp. and its present or
future subsidiaries (together, or separately, the "Company," as the context may
require) by enhancing the Company's ability to attract and retain those
directors, officers and other key employees of the Company who are in a position
to make substantial contributions to the ongoing success of the Company. The
Program is intended to complement the incentives now offered by the Company to
its executives which allow them to acquire shares of Eaton Vance Corp.
Non-Voting Common Stock ("Eaton Vance Stock"). To accomplish this purpose, the
Program provides loans to finance exercises of incentive stock options and
non-qualified stock options granted under various stock option plans maintained
by the Company, including those granted up to and through 1996, all as the
Compensation Committee of the Board of Directors of Eaton Vance Corp. (the
"Committee") determines.
2. Participation. Participation in the Program shall be limited to those
directors, officers and key employees of the Company who are determined by the
Committee as being eligible to so participate (the "Participants").
3. Administration. The Committee shall administer the Program and have
exclusive power to determine (a) which directors, officers and key employees
shall become Participants, (b) the time or times at which such offer shall be
made, and (c) the amount to be loaned to any Participant. The interpretation and
instruction by the Committee of any provision of the Program or of any agreement
or other matter related to the Program shall be final unless otherwise
determined by the Committee or the Board of Directors. The Committee may
delegate any of its powers and responsibilities under the Program to the
Treasurer of Eaton Vance Corp.
4. Amount Available for Loans. The aggregate amount of loans under the
Program and under the Company's 1997, 1995 and 1984 Executive Loan Programs,
which may be outstanding at any one time, shall not exceed $10,000,000. All
loans under the Program must be made on or before October 31, 2005.
5. Terms of Notes. Each loan made under the Program shall be evidenced by
a promissory note executed and delivered by the Participant to Eaton Vance
Management (the "Note"). Each Note shall be subject to the following terms and
conditions:
(a) The participant shall be personally liable on the Note.
(b) The maximum term to maturity of the Note shall be seven years;
provided, however, that the Note shall become immediately due and
payable as of the date a Participant ceases to be employed by the
Company for any reason other than age, disability or death.
(c) Each Note shall provide for the payment of interest at such annual
rate as may be set by the Committee, which rate shall not be less than
that necessary to avoid the loan being characterized as either (i)
carrying "unstated interest" within the meaning of ss.483 of the
Internal Revenue Code of 1986, as amended (the "Code") in the case of
loans the proceeds of which are used to acquire shares of Eaton Vance
Stock from the Company or (ii) a "below-market loan" within the
meaning of ss.7872 of the Code in all other cases.
<PAGE>
EXHIBIT 10.21 (CONTINUED)
(d) The Committee, in its discretion, may require that amounts payable
with respect to the Note be secured by collateral of such nature and
of such value as the Committee determines. Where the purpose of the
loan is to finance the purchase of Eaton Vance Stock, and where the
Note is secured, all or in part, by "margin securities" as defined in
Regulation G promulgated by the Board of Governors of the Federal
Reserve System, the Note shall contain such further terms and
conditions as are required by said Regulation G.
6. Effective Date. The effective date of the revised Program is October
15, 1998, the date on which it was approved by the Board.
<PAGE>
EXHIBIT 13.1
-----------------
EATON VANCE CORP.
[graphic omitted]
1998 Annual Report
-----------------
<PAGE>
Eaton Vance Corp.
- --------------------------------------------
Eaton Vance Corp. is the investment adviser and distributor of
over 70 mutual funds. The Company also manages investments for
approximately 800 individual and institutional clients.
Eaton Vance Corp. was formed by the 1979 merger of two
Boston-based investment firms: Eaton & Howard, founded in 1924,
and Vance, Sanders & Company, founded in 1934.
[graphic omitted] About the Cover
Pictured is the Goddess of Finance, one of two
raised figures that adorns the brass doors of
Eaton Vance's headquarters building in Boston.
<PAGE>
Financial Highlights
(in billions of dollars) 1998 1997
- -------------------------------------------------------------------------------
Assets Under Management $ 28.4 $ 21.3
Sales of Mutual Funds 8.4 4.2
(in millions of dollars)
- -------------------------------------------------------------------------------
Revenue $ 250.0 $ 200.9
Net Income 30.5 40.2
Shareholders' Equity 211.8 226.3
(in dollars)
- -------------------------------------------------------------------------------
PER COMMON SHARE
Net Income
Basic $ 0.84 $ 1.08
Diluted 0.81 1.04
Shareholders' Equity 5.94 6.12
Dividends 0.26 0.21
ASSETS UNDER MANAGEMENT
(in billions)
10-Year CAGR: 19%
FISCAL YEAR TOTAL
- ------------------------------------------
1998 28.4
1997 21.3
1996 17.3
1995 16.0
1994 15.0
1993 15.4
1992 11.3
1991 9.4
1990 7.3
1989 7.1
DIVIDENDS PER SHARE
10-year CAGR: 18%
FISCAL YEAR DIVIDENDS PER SHARE
- ---------------------------------------------------------
89 0.05
90 0.06
91 0.07
92 0.10
93 0.12
94 0.15
95 0.16
96 0.18
97 0.21
98 0.26
<PAGE>
To Shareholders
- -----------------------------------------------
[Photo of James B. Hawkes]
James B. Hawkes
In February, Eaton Vance was recognized in Barron's Annual Mutual Fund Survey as
the best performing fund family of 1997.
I am pleased to report that 1998 was a year of significant accomplishment and
progress. Asset growth was strong, with assets under management increasing by 33
percent to $28.4 billion. Eaton Vance gained significant market share. Based on
September 30, 1998 data from Strategic Insight, which ranks sponsors of mutual
funds by long-term assets under management, Eaton Vance rose in ranking among
over 600 domestic sponsors of mutual funds to number 28 at year-end from number
37 at the beginning of the year. Investment performance was outstanding. Our
portfolio managers and analysts are continuing to build a noteworthy record of
superior investment results for our equity and income investors. For example,
Eaton Vance was recognized in Barron's Annual Mutual Fund Survey as the best
performing fund family of 1997. Equity assets grew sharply. Aided by strong
sales of equity mutual funds and private placements, we dramatically increased
the proportion of equity assets under management. Eaton Vance ended the year
with strong momentum in sales of both equity and income funds and is
well-positioned for continued growth, whether retail demand for mutual funds
focuses on stocks, bonds, or floating-rate instruments.
[Photo of Barron's magazine]
EATON VANCE TAKES TOP HONORS IN OUR RANKING OF MUTUAL-FUND FAMILIES
Reprinted with permission: Barron's.
(c) Dow Jones and Company, Inc.
All rights reserved.
Growth in assets under management, superior investment results, and a greater
emphasis on equity assets directly contributed to the Company's growth in
earning power and dividends. On October 15, the Company raised its dividend 25
percent to an effective annual rate of $0.30 per share. Eaton Vance has
increased its dividend in each of the past 18 years, achieving an annual growth
rate of 22 percent. Eaton Vance's stock price increased by 24 percent in fiscal
1998. A two-for-one stock split was declared in July, the second two-for-one
split in two years.
<PAGE>
In fiscal 1998, Eaton Vance's stock price increased by 24 percent, and assets
under management grew 33 percent to $28.4 billion.
Growth Rate of Assets
Under Management
FISCAL YEAR ASSETS UNDER MANAGEMENT % GROWTH
- -----------------------------------------------------------
1995 16.0 7%
1996 17.4 8%
1997 21.3 23%
1998 28.4 33%
In September, the Financial Accounting Standards Board instituted a change in
generally accepted accounting principles for certain sales commissions paid by
fund sponsors. Before adjustment for this change, Eaton Vance earned a record
$48.3 million in fiscal 1998, with earnings per share increasing by 23 percent
to $1.28 on a basis equivalent to last year's $1.04. Paradoxically, the new FASB
accounting rule, which requires expensing sales commissions paid for the
Company's closed-end and privately placed funds as "start-up" costs, causes
reported earnings to be lower when sales of these profitable products are
stronger. However, the fundamental economics of our business are not changed by
the new accounting requirement; indeed, cash flow is unchanged. Because of this
accounting change, operating expenses for fiscal year 1998 include $30 million
of sales commissions paid since July 24, 1998 (when the change became effective)
that would have been capitalized and amortized over future periods under the old
accounting method. These sales commissions represent long-lived fund assets that
are expected to generate revenue and income for Eaton Vance for many years.
Because sales commissions have been expensed immediately, future earnings will
not be burdened by amortization charges.
The Company raised its dividend 25 percent to an effective annual rate of $0.30
per share on October 15. Eaton Vance has increased its dividend in each of the
past 18 years at an annual growth rate of 22 percent.
We believe the new accounting rule presents a confusing and distorted picture of
Eaton Vance's progress because sales commissions paid for closed-end funds,
including continuously offered closed-end funds with contingent deferred sales
charges, must now be expensed immediately as "start-up" costs, whereas sales
commissions paid for open-end funds with similar structure and overall fees are
capitalized. Yet, these two types of funds can have equivalent economic outcomes
(identical cash flows) for Eaton Vance. As a result, the lack of a consistent
accounting treatment for sales commissions paid for open-end and for closed-end
funds creates anomalies in reported results. During 1999, Eaton Vance will
attempt to restructure its continuously offered closed-end fund offerings so
that sales commissions are once again capitalized and the distortions in
reported results are avoided.
Gross sales of mutual funds doubled in fiscal 1998 to $8.4 billion, while net
sales at $5.6 billion were four times greater than last year's.
Domestic Equity Fund Assets
(in billions)
FISCAL YEAR TOTAL
- -------------------------------------------
1995 $1.6
1996 $3.0
1997 $5.2
1998 $9.7
Equity fund assets increased by 86 percent to $9.7 billion.
Mutual fund sales set records in 1998. Gross sales of mutual funds doubled in
fiscal 1998 to $8.4 billion-- an all-time high. Net sales of $5.6 billion were
four times greater than last year's. Equity fund assets increased by 86 percent
to $9.7 billion, and bank loan fund assets grew 58 percent to $6.2 billion.
Equity asset growth was led by strong sales of Eaton Vance Tax-Managed Growth
Fund and Belair Capital Fund LLC, a private fund for high net worth investors.
Belair raised $2.4 billion in assets in three closings during fiscal 1998. Bank
loan fund growth was fueled by strong sales of the Eaton Vance Prime Rate
Reserves and Classic Senior Floating-Rate Funds, and by the successful offering
of Eaton Vance Senior Income Trust, a New York Stock Exchange-listed, closed-end
fund, which raised $310 million during its initial public offering completed on
October 30.
Belair Capital Fund LLC, a private fund, raised $2.4 billion in three closings
during the year.
At the end of October 1998, M. Dozier Gardner retired as Vice Chairman after 30
years with Eaton Vance. Dozier served as president from 1979 to 1996 and as
chief executive officer from 1990 to November 1996. He made many contributions
to the growth and success of the Company during his 30 years of distinguished
service.
<PAGE>
Two new directors joined the Board in fiscal 1998. The Board is now composed of
a majority of unaffiliated, "independent" directors.
Two new directors joined the Board of Eaton Vance in fiscal 1998: John M. Nelson
and Vincent M. O'Reilly. Both bring a wealth of business experience to the
Board. With Dozier's retirement, the Board is now composed of four unaffiliated
"independent" directors and two inside employee directors.
Eaton Vance completed fiscal 1998 with substantial momentum in an industry where
prospects for continued growth remain bright.
Eaton Vance completed fiscal 1998 with substantial momentum in an industry where
prospects for continued growth remain bright. Our sales and mix of investment
assets are balanced between floating-rate, fixed-income and equity products. The
Company's ability to deliver competitive, innovative products offering superior
investment performance, and to expand its channels for distribution of those
products, remains strong and suggests continued growth in shareholder value.
Thanks to the Eaton Vance team for an extraordinarily successful 1998. We look
forward to new challenges and achievements in 1999.
/s/ James B. Hawkes
James B. Hawkes
Chairman of the Board
President and Chief Executive Officer
<PAGE>
Fiscal Year 1998 Highlights
- -----------------------------------------------
Gross Mutual Fund Sales
(in billions)
FISCAL YEAR SALES
- ------------------------------------
1995 1.6
1996 2.6
1997 4.2
1998 8.4
Equity Fund Sales
as Percent of Total Sales
EQUITY TOTAL
FISCAL YEAR SALES SALES %
- -------------------------------------------------
1995 0.1 1.6 6%
1996 0.5 2.6 17%
1997 1.9 4.2 45%
1998 4.2 8.4 50%
o Eaton Vance's stock appreciated 24 percent in fiscal 1998, from $18 1/16 at
October 31, 1997 to $22 3/8 at October 31, 1998.
o In February 1998, Barron's recognized the Eaton Vance fund family as the
number one performing fund family of 1997, based on an asset-weighted ranking
that included five major equity and fixed-income fund categories.
o On July 7, 1998, Eaton Vance declared a two-for-one stock split for
shareholders of record on July 31, 1998.
o Assets under management increased 33 percent to
$28.4 billion.
o Gross sales of mutual funds were a record high $8.4 billion, exceeding 1997
sales of $4.2 billion by 100 percent. Net sales were $5.6 billion, a four-fold
increase.
o Including private placements, equity funds represented 50 percent of total
fund sales in fiscal 1998, compared to 45 percent in 1997, and 17 percent in
1996.
o Equity fund assets under management grew to $9.7 billion at October 31, 1998,
an increase of 86 percent.
o Tax-Managed International Growth Fund was launched
in April, joining Tax-Managed Growth Fund and Tax-Managed Emerging Growth Fund
in our tax-efficient equity fund family.
o Belair Capital Fund LLC, a private fund for high net worth investors,
attracted $2.4 billion in assets.
o Eaton Vance Senior Income Trust, an exchange-listed, closed-end fund that
invests in floating-rate bank loans, commenced operations on October 31. When
fully invested, assets under management will exceed $500 million.
<PAGE>
Eaton Vance Corp. trades on the New York Stock Exchange under the symbol "EV."
Price and Dividend Information
High Low Dividend
Price Price Per Share
- ----------------------------------------------------------------------------
Quarter Ended January 31, 1997 $ 12.44 $ 10.44 $ 0.050
April 30, 1997 12.19 10.44 0.050
July 31, 1997 15.56 11.00 0.050
October 31, 1997 18.91 13.22 0.060
Quarter Ended January 31, 1998 $ 24.28 $ 17.44 $ 0.060
April 30, 1998 25.09 18.03 0.060
July 31, 1998 24.81 21.75 0.060
October 31, 1998 23.38 17.63 0.075
Quarterly High and Low Stock Prices
Adjusted for two-for-one stock splits
November 11, 1992, May 15, 1997 and August 14, 1998
YEAR QUARTER HIGH PRICE LOW PRICE
- -----------------------------------------------------------
1988 1 1.74 1.34
1988 2 2.44 1.97
1988 3 2.28 2.00
1988 4 2.15 1.94
1989 1 2.38 2.05
1989 2 2.88 2.38
1989 3 2.54 2.28
1989 4 2.90 2.28
1990 1 2.93 2.74
1990 2 2.90 2.28
1990 3 2.38 2.20
1990 4 2.28 1.58
1991 1 1.52 1.52
1991 2 2.80 1.89
1991 3 2.62 1.97
1991 4 3.01 2.38
1992 1 3.88 2.85
1992 2 3.96 3.31
1992 3 3.66 3.21
1992 4 4.92 3.42
1993 1 7.98 4.25
1993 2 7.77 6.01
1993 3 7.51 6.37
1993 4 8.55 7.10
1994 1 7.77 6.32
1994 2 7.77 6.06
1994 3 6.37 5.49
1994 4 7.10 5.28
1995 1 6.68 5.49
1995 2 6.79 5.85
1995 3 7.07 6.68
1995 4 8.13 6.48
1996 1 8.06 6.50
1996 2 8.69 7.63
1996 3 10.06 7.50
1996 4 11.16 9.13
1997 1 12.44 10.44
1997 2 12.19 10.44
1997 3 15.56 11.00
1997 4 18.91 13.22
1998 1 24.28 17.44
1998 2 25.09 18.03
1998 3 24.81 21.75
1998 4 23.38 17.63
<PAGE>
Equity fund sales represented 50 percent of total fund sales for the year.
Equity assets now represent 39 percent of total assets under management,
compared to 30 percent in 1997 and 24 percent in 1996.
Assets Under Management Increased 33 Percent in Fiscal 1998 to $28.4 Billion
Fiscal 1998 was a year of substantial growth in assets under management.
Importantly, the continued success of innovative equity investment products,
such as the Company's family of tax-managed growth funds, contributed to an
improved balance in assets under management, with equity assets representing 39
percent of assets, compared to 30 percent in 1997 and 24 percent in 1996.
1998 Asset Mix
$28.4 Billion
Oct-98
BANK LOANS 22%
EQUITY 39%
FIXED INCOME 39%
$28.4B
1996 Asset Mix
$17.3 Billion
Oct-96
BANK LOANS 16%
EQUITY 24%
FIXED INCOME 60%
$17.3B
A product line balanced between equity, fixed-income, and floating-rate funds
represents a particular Eaton Vance strength because a balanced product mix
positions the Company for continued progress in changing financial markets. For
example, in 1998 equity funds for both the industry and Eaton Vance experienced
strong sales until mid-July, when a market decline created uncertainty and
slowed equity fund sales. While sales of Eaton Vance's equity funds slowed along
with the industry's, there was a significant shift in our sales to floating-rate
bank-loan funds. Eaton Vance was therefore able to maintain its sales momentum
in very different market conditions.
Sales of Eaton Vance mutual funds, excluding money market funds and reinvested
dividends, were $8.4 billion, an increase of 100 percent from last year's $4.2
billion. Once again, equity fund sales were a major factor in the increase and
represented 50 percent of total fund sales for the year, in spite of the
weakness in the world's equity markets during our fourth quarter.
Belair Capital Fund LLC, a private fund for high net worth investors,
contributed to this success. The fund completed its offering period in June
1998, raising $2.4 billion in one of the most successful offerings of its kind
ever. Floating-rate bank loan funds were major contributors to income fund
sales.
Assets Under Management by Type
At Fiscal Year End (in billions)
<TABLE>
<CAPTION>
Assets Under
Non-Taxable Management
Fixed Taxable Fixed Equities Bank Loans Money Market Counsel Total
Fiscal Year 26% 6% 34% 22% 3% 9% 100%
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1998 7.5 2.2 9.7 6.2 0.2 2.5 28.4
1997 7.5 2.1 5.2 3.9 0.2 2.4 21.3
1996 8.2 1.3 3.1 2.8 0.2 1.7 17.3
1995 8.9 1.3 2.4 1.4 0.2 1.8 16.0
1994 9.0 1.3 2.3 0.6 0.2 1.6 15.0
1993 8.9 1.1 2.2 0.8 0.2 2.2 15.4
1992 4.6 1.5 1.6 1.1 0.4 2.1 11.3
1991 2.4 1.3 1.6 1.7 0.4 2.0 9.4
</TABLE>
Net of redemptions, fund sales were $5.6 billion for fiscal 1998, four times
greater than in 1997. This record level of net sales, together with market
appreciation, resulted in year-end mutual fund assets of $25.9 billion, 37
percent higher than the year before.
Eaton Vance Leads in Tax-Managed Equity Funds
Eaton Vance has taken a commanding lead in the market for tax-managed equity
funds. Building on the Company's more than 35 years of experience as a manager
of tax-managed exchange funds, Eaton Vance has established a family of equity
mutual funds designed and managed to provide taxable investors with superior
after-tax returns.
Because a significant portion of new mutual fund sales originates from
"qualified" retirement plans, such as IRAs and 401(k)s, which are not subject to
taxes until assets are withdrawn, the typical mutual fund has in its shareholder
base two categories of investors with conflicting goals. The qualified plan
investor, who is not subject to taxes on income or capital gains, cares only
about the fund's pre-tax return. The investor who is not investing through a
tax-qualified plan is very much concerned with taxes and cares about after-tax
return. Maximizing pre-tax and after-tax returns are conflicting objectives that
are difficult to reconcile within one fund. Eaton Vance has therefore created a
family of equity funds that are tax-managed specifically for those investors who
pay taxes. These tax-managed equity funds are marketed in conjunction with our
tax-free municipal bond funds as a family of "Mutual Funds for People Who Pay
Taxes."
Eaton Vance has taken a commanding lead in the market for tax-managed equity
funds and has established a family of funds designed and managed to provide
superior returns after income taxes.
<PAGE>
[graphic of advertisement]
- --------------------------------------------------------------------------
The Company's tax-managed equity funds are marketed in conjunction with its
family of tax-free municipal bonds funds under the theme, "Mutual Funds for
People Who Pay Taxes." Pictured above is an advertisement currently appearing in
various trade publications.
Eaton Vance manages more than $7 billion in three tax-efficient equity
portfolios that invest in large U.S. growth companies, small U.S. growth
companies, and international growth companies, respectively. For these funds,
Eaton Vance carefully selects and purchases stocks of superior growth companies
with the intention of holding these investments for long periods. This
investment approach has resulted in attractive returns before taxes, as well as
lower taxes and outstanding after-tax returns. Although some other equity mutual
funds prove to be tax efficient from time to time because of their rapid growth
or the style of a particular manager, there are few funds sponsored by other
firms that explicitly seek to maximize after-tax returns for tax-paying
investors.
Municipal Bond Fund Assets Provide Balance for Taxable Investors
Eaton Vance offers the industry's broadest selection of municipal bond funds,
with four national funds and 40 single-state funds investing in 30 individual
states. Currently managing $7.5 billion in municipal bond assets, Eaton Vance is
one of the leading participants in the municipals marketplace. Tax-free income
from municipal bond funds can provide taxable investors with a balanced,
lower-risk portfolio when used in conjunction with tax-managed equity funds.
Likewise, the Company's strength in municipal bond investing provides a
broad-based product line and bolsters mutual fund sales in periods when sales of
equity funds are less strong.
Floating-Rate Bank Loan Funds Prove to be Products for All Seasons
Eaton Vance has managed bank loan funds since 1989, providing investors with
superior yields, stable asset values, and regularly scheduled liquidity through
quarterly repurchase offers. Bank loan funds have become increasingly popular
among income investors seeking superior returns with minimal interest rate risk.
In fiscal 1998, these funds sold well while the equity market was rising
strongly, and sold even better between July and October, when investors held
back on new investments in the equity markets.
In October, Eaton Vance successfully launched Eaton Vance Senior Income Trust, a
closed-end bank loan fund listed on the New York Stock Exchange. This fund
provides investors daily liquidity through exchange-listed trading and superior
yields through prudent use of leverage. The positive response of the lead
underwriter and syndicate of selling broker-dealers was particularly gratifying
at a time of high uncertainty in the stock and bond markets. Sales of
continuously offered and exchange-listed bank loan funds in fiscal 1998 totaled
$2.9 billion.
In October, Eaton Vance successfully launched Eaton Vance Senior Income Trust,
a closed-end bank loan fund listed on the New York Stock Exchange. Sales of
continuously offered and exchange-listed bank loan funds totaled $2.9 billion in
fiscal 1998.
Diversified Mutual Fund Distribution Contributes to Asset Growth
Eaton Vance's success is based on its combined strengths as an asset manager and
fund distributor. Eaton Vance Distributors, Inc., the Company's mutual fund
sales arm, maintains active business relationships with more than one thousand
financial services firms that work directly with the investing public.
Specialized Eaton Vance sales teams call on national and regional
broker-dealers, banks and independent broker-dealers, and independent registered
investment advisors. Outside the United States, Eaton Vance Distributors has
achieved substantial marketing success, with salespeople now located in Europe,
Asia and Latin America.
Mutual Fund Sales by Distribution Channel
(Fiscal Year 1998)
Regional Broker Dealers 13%
National Broker Dealers 34%
Independent Financial Institutions and Banks 50%
International and Other 3%
<PAGE>
Eaton Vance's success is based on its combined strengths as an asset manager and
fund distributor. Eaton Vance Distributors maintains active business
relationships with more than 1,000 financial services firms that work directly
with the investing public. The Company's strategy is to work cooperatively with
third-party investment professionals to more fully satisfy the needs of the
Company's mutual fund shareholders.
The Company's diverse product line includes funds structured to meet the needs
and preferences of a broad variety of investors and their financial advisors.
These advisors add value for their clients by offering professional services
such as assessment of investment objectives and risk tolerance, allocation of
assets, and continual monitoring. Eaton Vance's strategy is to work
cooperatively with these third-party investment professionals to more fully
satisfy the needs of the Company's fund shareholders. The credibility of the
Company's investment managers and salespeople with the individual brokers,
investment advisors and bankers recommending mutual fund investments is a key
factor in the Company's continuing success.
Real Estate
Northeast Properties, LLC, the Company's real estate subsidiary, continues to
wind down its direct ownership of real estate as Eaton Vance focuses its
business on the management of investment securities. In 1998, Eaton Vance sold a
shopping plaza in Goffstown, New Hampshire, realizing a pre-tax gain of $1.8
million. Five remaining properties are offered for sale, including the Company's
corporate headquarters building at 24 Federal Street in Boston, which will be
vacated next spring when the Company moves to a newly renovated, and
substantially more efficient, leased facility at 255 State Street. The move to
255 State, which will be known as "The Eaton Vance Building," will consolidate
the Company's employees and operations from three separate buildings to one. In
addition to providing for future growth, the new corporate home will facilitate
close cooperation and interaction among our investment, operations and service
personnel.
Rental Property by Property Type
(October 31, 1998)
OFFICE 246,400 Sq. Ft.
RETAIL 34,566 Sq. Ft.
INDUSTRIAL 224,000 Sq. Ft.
<PAGE>
[Picture of building]
- -------------------------------------------------------------------------------
In the spring, the Company will move to a newly renovated and substantially more
efficient leased facility at 255 State Street, which will be identified as "The
Eaton Vance Building." The move will consolidate Eaton Vance employees and
operations from three separate buildings to one.
New Initiatives
Eaton Vance created and successfully offered an exchange-listed, closed-end bank
loan fund in October, ultimately creating a $500 million fund. Although this
decision hurt reported earnings in 1998 because of a new ruling by the Financial
Accounting Standards Board that requires immediately expensing commissions
associated with the offering of closed-end funds, the economic benefits to Eaton
Vance from managing these long-lived assets is significant. The Company plans to
continue offering closed-end funds when there are sound economic and business
reasons to do so. Shortly after the close of the fiscal year, registration
statements for nine new closed-end municipal bond funds were filed with the SEC,
with a target offering date of January 1999. Although the FASB has ruled that
sales commissions paid by Eaton Vance to attract closed-end fund assets must be
immediately expensed, Eaton Vance views these sales commissions as a high-return
capital investment which will generate revenue and income for years into the
future. While Management is exploring steps to reduce or eliminate the
volatility of reported earnings that may be caused by the new accounting
treatment, the Company will continue to conduct its business based on
Management's appraisal of the long-term economic benefits to shareholders from
adding assets under management.
<PAGE>
With a solid foundation based on a diversified product line and strong
distribution relationships, Eaton Vance is well positioned to participate in the
expected favorable, long-term growth of the asset management industry.
Outlook
Global stock and fixed-income markets experienced significant volatility in the
summer and fall of 1998. In spite of this volatility, the outlook for a well
balanced investment management business remains bright. Fund assets distributed
through third-party investment professionals historically have not experienced
excessive redemptions during periods of market volatility or economic
uncertainty. Furthermore, Eaton Vance manages a variety of investment
portfolios, providing investors with attractive long-term options in the equity,
fixed-income and floating-rate bank loan markets. Experience indicates that
demand for each of these product lines is likely to be highest at different
points in the economic cycle. With a solid foundation based on a diversified
product line and strong distribution relationships, Eaton Vance is well
positioned to participate in the expected favorable, long-term growth of the
asset management industry.
<PAGE>
<TABLE>
Five Year Financial Summary
- -----------------------------------------------------------------------------------------------------------------
<CAPTION>
Years Ended October 31,
(in thousands, except per share figures) 1998 1997 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Income Statement Data
Revenue:
Investment adviser and administration fees $ 152,481 $ 117,540 $ 100,450 $ 85,393 $ 85,769
Distribution income 91,347 77,276 76,182 77,978 80,069
Income from real estate activities 4,405 4,155 3,597 3,347 4,224
Other income 1,754 1,939 1,760 1,199 1,154
- -----------------------------------------------------------------------------------------------------------------
Total revenue 249,987 200,910 181,989 167,917 171,216
- -----------------------------------------------------------------------------------------------------------------
Expenses:
Compensation of officers and employees 58,343 48,155 41,420 38,947 39,265
Amortization of deferred sales commissions 64,570 54,464 52,585 50,186 52,794
Sales commission expense 29,965 -- -- -- --
Other expenses 48,457 34,386 28,963 31,350 31,291
- -----------------------------------------------------------------------------------------------------------------
Total expenses 201,335 137,005 122,968 120,483 123,350
- -----------------------------------------------------------------------------------------------------------------
Operating income 48,652 63,905 59,021 47,434 47,866
Other Income (Expense):
Interest income 5,609 3,571 3,735 2,641 963
Interest expense (3,818) (3,951) (3,742) (4,702) (5,337)
Gain (loss) on investments 2,126 3,561 546 (250) --
Equity in net income (loss) of affiliates 105 384 1,639 (1,382) (289)
Impairment loss on real estate (2,636) -- (1,277) -- --
- -----------------------------------------------------------------------------------------------------------------
Income from continuing operations before
income taxes, extraordinary item and cumulative
effect of change in accounting for income taxes 50,038 67,470 59,922 43,741 43,203
Income taxes 19,515 27,236 24,088 16,773 17,393
- -----------------------------------------------------------------------------------------------------------------
Income from continuing operations before
extraordinary item and cumulative effect of
change in accounting for income taxes 30,523 40,234 35,834 26,968 25,810
Income from discontinued operations,
net of income taxes -- -- -- 3,408 2,676
Extraordinary gain on early retirement
of debt, net of income taxes -- -- 1,590 -- --
Cumulative effect of change in accounting
for income taxes -- -- -- -- 1,300
- -----------------------------------------------------------------------------------------------------------------
Net income $ 30,523 $ 40,234 $ 37,424 $ 30,376 $ 29,786
=================================================================================================================
Earnings per share:
Basic $ 0.84 $ 1.08 $ 0.99 $ 0.82 $ 0.81
=================================================================================================================
Diluted $ 0.81 $ 1.04 $ 0.98 $ 0.82 $ 0.79
=================================================================================================================
Dividends declared, per share $ 0.26 $ 0.21 $ 0.17 $ 0.16 $ 0.15
=================================================================================================================
Weighted average shares outstanding $ 36,290 $ 37,318 $ 37,726 $ 36,846 $ 36,787
=================================================================================================================
Weighted average shares outstanding
assumig dilution 37,757 38,698 38,306 37,154 37,892
=================================================================================================================
Balance Sheet Data
Total assets $ 380,260 $ 387,375 $ 360,552 $ 357,586 $ 455,506
Long-term debt $ 35,714 $ 50,964 $ 54,549 $ 56,102 $ 60,311
Shareholders' equity $ 211,809 $ 226,280 $ 210,780 $ 194,520 $ 165,608
Shareholders' equity per share $ 5.94 $ 6.12 $ 5.62 $ 5.21 $ 4.54
</TABLE>
<PAGE>
Management's Discussion and Analysis
- -------------------------------------------------------------------------------
The Company's revenue is derived primarily from investment adviser,
administration and distribution fees received from Eaton Vance funds and adviser
fees received from separately managed accounts. Generally, these fees are based
on the net asset value of the investment portfolios managed by the Company and
fluctuate with changes in the total value of the assets under management. The
Company's major expenses are sales commissions related to the offering of new
closed-end funds, the amortization of deferred sales commissions and other
marketing costs, employee compensation, occupancy costs, and service fees.
Results of Operations Fiscal Year 1998
Compared to Fiscal Year 1997
Eaton Vance Corp. reported earnings of $30.5 million or $0.81 per diluted share
in 1998 compared to $40.2 million or $1.04 per diluted share in 1997. Fiscal
1998 earnings reflect a change in the accounting treatment of sales commissions
paid in connection with the distribution of the Company's closed-end funds. This
change in accounting treatment reduced net income by $17.8 million or $0.47 per
diluted share for both the fourth quarter and year ended October 31, 1998.
In September of 1998, the Financial Accounting Standards Board staff addressed
the accounting for offering costs incurred in connection with the distribution
of closed-end funds and concluded that these offering costs, including sales
commissions paid, should be expensed as incurred. For the period July 24, 1998
through October 31, 1998, (the period following the effective date of the FASB
staff announcement) these commissions totaled $30.0 million and have been
recorded in "Sales commission expense" in the Company's consolidated statement
of income for the fiscal year ended October 31, 1998. Closed-end fund sales
commissions paid and capitalized prior to and including the July 23, 1998
effective date of the FASB staff announcement will be recorded as a cumulative
effect of a change in accounting principle in the first quarter of fiscal year
1999. The Company estimates that the cumulative effect of adoption, net of tax,
will be $36.6 million. The change in accounting treatment has not had, nor will
have, any effect on the Company's cash flow or cash position.
The per share data for all periods presented reflect the two-for-one stock split
effective August 14, 1998.
Assets under management of $28.4 billion on October 31, 1998 were 33 percent
higher than the $21.3 billion reported a year earlier as a result of net sales
of new fund shares and appreciation of the market value of managed assets.
Mutual fund sales for the year ended October 31, 1998 of $8.4 billion were 100
percent higher than the $4.2 billion reported in fiscal 1997. This growth can be
primarily attributed to strong sales of the Eaton Vance Tax-Managed Growth Fund,
the Company's continuously-offered bank loan funds and a $1.8 billion private
placement of the Belair Capital Fund LLC. As a result of continued sales growth
and private placements, equity fund assets increased to 34 percent of total
assets under management on October 31, 1998 from 24 percent on October 31, 1997,
and bank loan fund assets increased to 22 percent of total assets under
management on October 31, 1998 from 18 percent on October 31, 1997. As a result
of the growth in equity and bank loan funds, taxable and non-taxable
fixed-income fund assets decreased to 34 percent of total assets under
management on October 31, 1998 from 46 percent a year ago.
The Company reported record revenue of $250.0 million in fiscal 1998 compared to
$200.9 million in 1997, an increase of 24 percent year over year. Investment
adviser and administration fees increased by 30 percent to $152.5 million in
1998 from $117.5 million in 1997 as a result of the growth in total assets under
management. Distribution fees increased by 18 percent to $91.3 million in 1998
from $77.3 million in 1997 primarily as a result of the increase in sales and
overall asset growth of the Company's domestic equity funds sold with a
contingent deferred sales charge in lieu of a front-end load
("spread-commission" funds).
Total operating expenses increased by $64.3 million to $201.3 million in fiscal
1998 from $137.0 million in fiscal 1997. The change in the accounting treatment
of closed-end fund offering costs resulted in $30.0 million in sales commission
expense in fiscal 1998, which represents 47 percent of the net increase in
operating expenses year over year. The increases in both compensation and other
expenses reflect the increase in marketing expenses and sales incentives
associated with higher mutual fund sales, the Belair Capital Fund LLC private
placement and the offering of Eaton Vance Senior Income Trust in October of
1998. Amortization expense increased by $10.1 million or 19 percent to $64.6
million in 1998 primarily due to the increase in gross sales of the Company's
spread-commission funds.
Interest income increased 56 percent to $5.6 million in 1998 from $3.6 million
in 1997, despite a decrease in cash, cash equivalents and short-term investments
year over year. The increase in interest income reflects a change in the
Company's short-term investment strategy and a shift from investments generating
capital gains to investments generating dividend and interest income. The
pre-tax impairment loss of $2.6 million in fiscal 1998 resulted from a decision
to sell an office building and shopping center located in Troy, New York that
had a carrying value in excess of its net realizable value. Net realized gains
include the sale of a shopping center in Goffstown, New Hampshire in 1998.
The decrease in the Company's effective tax rate to 39.0 percent in fiscal 1998
from 40.4 percent in fiscal 1997 reflects favorable state and local tax
developments.
Results of Operations Fiscal Year 1997
Compared to Fiscal Year 1996
Eaton Vance Corp. reported earnings of $40.2 million or $1.04 per diluted share
in 1997 compared to $37.4 million or $0.98 per diluted share reported in 1996.
Net income for the year ended October 31, 1996 included an extraordinary gain of
$1.6 million, or $0.04 per diluted share, related to the early retirement at a
discount of mortgage debt on an office building owned by the Company. The per
share data for all periods presented reflect the two-for-one stock splits
effective May 15, 1997 and August 14, 1998.
Assets under management of $21.3 billion on October 31, 1997 were 23 percent
higher than the $17.3 billion reported a year earlier as a result of net sales
of new fund shares and appreciation of the market value of managed assets.
Mutual fund sales for the year ended October 31, 1997 of $4.2 billion were 62
percent higher than the $2.6 billion reported in fiscal 1996. This growth can be
primarily attributed to strong sales of the Eaton Vance Tax-Managed Growth Fund,
the Eaton Vance Worldwide Health Sciences Fund and a $1.1 billion private
placement of the Belvedere Equity Fund LLC. As a result of continued sales
growth, equity fund assets increased to 24 percent of total assets under
management on October 31, 1997 from 18 percent on October 31, 1996, while
taxable and non-taxable fixed-income funds decreased to 46 percent of total
assets under management on October 31, 1997 from 55 percent a year earlier. Bank
loan funds increased to 18 percent of total assets under management on October
31, 1997 from 17 percent on October 31, 1996.
Revenue increased $18.9 million to $200.9 million in 1997 from $182.0 million in
1996. Investment adviser and administration fees increased by 18 percent to
$118.4 million in 1997 from $100.5 million in 1996, primarily as a result of the
growth in total assets under management and the change in the Company's product
mix. Distribution fees of $77.3 million in 1997 were comparable to the $76.2
million reported in 1996.
Operating expenses of $137.0 million were 11 percent greater than the $123.0
million recorded for 1996. The increases noted in both compensation and other
expenses were primarily the result of an increase in marketing expenses and
sales incentives associated with higher mutual fund sales and the Belvedere
Equity Fund LLC private placement. Amortization expense increased by $1.9
million or 4 percent to $54.5 million in 1997 primarily due to the increase in
gross sales of the Company's spread-commission funds.
The Company's gold mining partnership contributed income of $0.1 million in the
year ended October 31, 1997 compared to income of $1.2 million a year earlier.
The decrease in partnership income in 1997 resulted primarily from reductions in
the portfolio valuation of the partnership. The partnership was terminated
effective December 31, 1997.
Interest income decreased 3 percent to $3.6 million in 1997 from $3.7 million in
fiscal 1996, largely as a result of a decrease in average cash and cash
equivalent balances maintained throughout the year. Interest expense increased
$0.3 million to $4.0 million in 1997 as a result of the acquisition of an office
building in Boston, Massachusetts and the assumption of the related mortgage.
Realized gains on investments in 1997 can be attributed to the sale of
short-term investments and the sale of an office building in Boston,
Massachusetts.
The Company's 1997 effective tax rate of 40.4 percent was substantially the same
as the 1996 effective tax rate of 40.2 percent.
Liquidity and Capital Resources
Cash, cash equivalents and short-term investments aggregated $96.4 million at
October 31, 1998, a decrease of $44.1 million from October 31, 1997.
Operating activities generated cash of $9.9 million in fiscal 1998 compared to
$44.7 million in fiscal 1997. The decrease in cash flows from operating
activities can be attributed primarily to an increase in sales commissions paid
to brokers due to increased fund sales. Sales commissions paid to brokers of
$158.7 million in 1998 reflect the increase in spread-commission and bank loan
fund sales, the $1.8 billion private placement of the Belair Capital Fund LLC,
and the offering of Eaton Vance Senior Income Trust, a closed-end fund that
raised $310 million, in October of 1998.
Investing activities, consisting primarily of the purchase and sale of
short-term investments, increased cash and cash equivalents by $36.2 million in
fiscal 1998. In connection with its plan to withdraw from activities not related
to the management of financial assets, the Company sold a shopping center
located in Goffstown, New Hampshire in fiscal 1998. The Company anticipates that
the sales of all remaining real estate properties, including the Company's
principal offices in Boston, will be completed in fiscal 1999.
Financing activities for the Company reduced cash and cash equivalents by $53.6
million in fiscal 1998 and $25.6 million in fiscal 1997. Significant financing
activities during fiscal 1998 included the repurchase of 2.1 million shares of
the Company's non-voting common stock under its authorized repurchase program
and the repayment of $7.1 million on the Company's 6.22 percent senior note. The
Company's dividend was increased in the fourth quarter of 1998 to an effective
annual rate of $0.30 per share.
At October 31, 1998, the Company had no borrowings under its $50.0 million
senior unsecured revolving credit facility.
The Company anticipates that the payment of commissions to brokers in connection
with the sales of new and existing products will continue to be the Company's
primary use of cash. The Company further anticipates that cash flows from
operations and bank borrowings will be sufficient to meet the Company's
foreseeable cash requirements and provide the Company with the financial
resources to take advantage of strategic growth opportunities.
Market Risk
In the normal course of business, the financial position of the Company is
routinely subjected to a variety of risks, including market risk associated with
interest rate movements. The Company is exposed to changes in interest rates
primarily in its cash, investment and debt transactions. The Company does not
believe that the effect of reasonably possible near-term changes in interest
rates on the Company's financial position, results of operations or cash flow
would be material.
<PAGE>
Year 2000
Introduction
Many computer technologies in use worldwide today were designed and developed
using two digits, rather than four, to identify the year. As a result, such
systems may recognize the year 2000 as the year 1900, which could result in
processing inaccuracies and inoperability in the Year 2000.
The Company utilizes computer technologies throughout its business to
effectively carry out its day-to-day operations. Computer technologies utilized
by the Company include both information systems in the form of hardware and
software, as well as embedded technology in the Company's facilities and
equipment. Given its reliance on computer technologies, the Company has
established a firm-wide initiative managed by a Year 2000 steering committee to
ensure that these systems are capable of recognizing and processing date-
sensitive information properly after 1999. The steering committee reports
regularly to both senior management and the Audit Committee of the Board of
Directors on the status of the Company's Year 2000 initiative.
Year 2000 Initiative
The Company's Year 2000 initiative is pro-ceeding on schedule. As of October 31,
1998, the Company has completed an inventory of all information systems and
embedded technologies and assessed their significance in terms of the Company's
day-to-day operations. The Company outsources to key service providers most of
the mission-critical administrative functions relating to its funds, including
but not limited to its transfer agency and custodial functions. As a result, the
Company's preparations for Year 2000 are focused on the examination and testing
of the critical systems of these key service providers. The Company has
initiated formal communications with these key service providers to determine
the extent of the Company's vulnerability if these parties fail to properly
remediate their own Year 2000 issues. These parties have provided detailed
information to the Company regarding their Year 2000 plans and initiatives and
the Company anticipates that both client and industry testing of these critical
systems will be completed in the second quarter of fiscal 1999. The Company is
in the process of obtaining Year 2000 compliance status reports from all other
third-party software and hardware providers and anticipates that it will be able
to modify, replace or mitigate any non-mission critical systems by April 30,
1999. The evaluation and testing of the Company's technical infrastructure and
corporate facilities will continue into the third quarter of 1999 in conjunction
with the Company's move into its new principal offices in the spring of 1999.
The Company will also be participating in the Securities Industry Association's
industry-wide testing throughout 1999.
Costs
The Company currently anticipates that the costs associated with its Year 2000
initiative will consist largely of software upgrades and traveling expenses to
coordinate with key service partners and providers. The anticipated impact and
costs of the Company's Year 2000 initiative, as well as the date on which the
Company expects to complete the project, are based on management's best
estimates using information currently available and numerous assumptions about
future events. However, there can be no guarantee that these estimates will be
achieved and actual results could differ materially from those plans. Based on
its current estimates and information currently available, the Company does not
anticipate that the costs associated with this project will have a material
adverse effect on the Company's consolidated financial position, results of
operations or cash flows in future periods.
Risks
There are many risks associated with Year 2000 issues, including the risk that
the Company's computer systems and applications will not operate as intended and
that the systems and applications of key service providers and other third
parties will not be Year 2000 compliant. Likewise, there can be no assurance
that costs incurred will not exceed the Company's current cost estimate. Should
the Company's significant computer systems and applications or the systems of
its key service providers be unable to process date-sensitive information
accurately after 1999, the Company may be unable to conduct its normal business
operations. In addition, the Company may incur unanticipated expenses,
regulatory actions, and legal liabilities. The Company cannot determine which
risks, if any, are most reasonably likely to occur nor the effects of any
particular failure to be Year 2000 compliant.
Contingency Plans
The Company is in the process of developing formal Year 2000 contingency plans,
including the identification of alternative vendors intended to ensure that
third-party noncompliance will not materially affect the Company's operations.
Readers are cautioned that forward-looking statements contained above regarding
the Year 2000 issue should be read in conjunction with the Company's disclosures
under the heading "Certain Factors That May Affect Future Results" below.
Certain Factors That May Affect Future Results
From time to time, information provided by the Company or information included
in its filings with the Securities and Exchange Commission (including this
Annual Report) may contain statements that are not historical facts, for this
purpose referred to as "forward-looking statements." The Company's actual future
results may differ significantly from those stated in any forward-looking
statements. Important factors that could cause actual results to differ
materially from those indicated by such forward-looking statements include, but
are not limited to, the factors discussed below.
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 dealers firms, which generally offer competing internally and
externally managed investment products. Although the Company historically has
been successful in gaining access to these channels, there can be no assurance
that it will continue to do so. The inability to have such access could have a
material adverse effect on the Company's business.
There are few barriers to entry by new investment management firms. The
Company's funds compete against an ever increasing number of investment products
sold to the public by investment dealers, banks, insurance companies and others
that sell tax-free investments, taxable income funds, equity funds and other
investment products. Many institutions competing with the Company have greater
resources than the Company. The Company competes with other providers of
investment products on the basis of the range of products offered, the
investment performance of such products, quality of service, fees charged, the
level and type of sales representative compensation, the manner in which such
products are marketed and distributed and the services provided to investors.
The Company derives almost all of its revenues from investment adviser and
administration and distribution income received from the Eaton Vance funds and
separately managed accounts. As a result, the Company is dependent upon the
contractual relationships it maintains with these funds and separately managed
accounts. In the event that any of the management contracts, administration
contracts, underwriting contracts or service agreements is not renewed pursuant
to the terms of these contracts or agreements, the Company's financial results
may be adversely affected.
The major sources of revenue for the Company (i.e., investment adviser fees) are
calculated as a percentage of assets under management. A decline in securities
prices in general would reduce fee income. If, as a result of inflation,
expenses rise and assets under management decline, lower fee income and higher
expenses will reduce or eliminate profits. If expenses rise and assets rise,
bringing increased fees to offset the increased expenses, profits may not be
affected by inflation. There is no predictable relationship between changes in
financial assets under management and the rate of inflation.
<PAGE>
<TABLE>
Consolidated Statements of Income
- -----------------------------------------------------------------------------------------------------------
<CAPTION>
Years Ended
October 31,
(in thousands, except per share figures) 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUE:
Investment adviser and administration fees $ 152,481 $ 117,540 $ 100,450
Distribution income 91,347 77,276 76,182
Income from real estate activities 4,405 4,155 3,597
Other income 1,754 1,939 1,760
- -----------------------------------------------------------------------------------------------------------
Total revenue 249,987 200,910 181,989
- -----------------------------------------------------------------------------------------------------------
EXPENSES:
Compensation of officers and employees 58,343 48,155 41,420
Amortization of deferred sales commissions 64,570 54,464 52,585
Sales commission expense (Note 2) 29,965 -- --
Other expenses 48,457 34,386 28,963
- -----------------------------------------------------------------------------------------------------------
Total expenses 201,335 137,005 122,968
- -----------------------------------------------------------------------------------------------------------
Operating income 48,652 63,905 59,021
OTHER INCOME (EXPENSE):
Interest income 5,609 3,571 3,735
Interest expense (3,818) (3,951) (3,742)
Gain on investments 2,126 3,561 546
Equity in net income of affiliates 105 384 1,639
Impairment loss on real estate (2,636) -- (1,277)
- -----------------------------------------------------------------------------------------------------------
Income before income taxes and extraordinary item 50,038 67,470 59,922
Income taxes 19,515 27,236 24,088
- -----------------------------------------------------------------------------------------------------------
Income before extraordinary item 30,523 40,234 35,834
Extraordinary gain on early retirement of debt,
net of income taxes -- -- 1,590
- -----------------------------------------------------------------------------------------------------------
Net Income $ 30,523 $ 40,234 $ 37,424
===========================================================================================================
Earnings per share:
Basic, which was increased by $0.04 per share
in 1996 because of the extraordinary gain $ 0.84 $ 1.08 $ 0.99
===========================================================================================================
Diluted, which was increased by $0.04 per share
in 1996 because of the extraordinary gain $ 0.81 $ 1.04 $ 0.98
===========================================================================================================
</TABLE>
See notes to consolidated financial statements.
<PAGE>
Consolidated Balance Sheets
- -------------------------------
<TABLE>
<CAPTION>
October 31,
(in thousands) 1998 1997
- --------------------------------------------------------------------------------------
<S> <C> <C>
Assets
CURRENT ASSETS:
Cash and equivalents $ 54,386 $ 61,928
Short-term investments 42,049 78,592
Investment adviser fees and other receivables 5,331 7,204
Real estate assets held for sale 16,551 8,539
Other current assets 12,116 7,905
- --------------------------------------------------------------------------------------
Total current assets 130,433 164,168
- --------------------------------------------------------------------------------------
OTHER ASSETS:
Investments:
Real estate -- 16,038
Investment in affiliates 7,593 7,918
Investment companies 15,815 10,763
Other investments 2,242 5,160
Other receivables 5,844 5,850
Deferred sales commissions 213,819 172,485
Equipment and leasehold improvements,
net of accumulated depreciation and
amortization of $5,793 and $5,075, respectively 2,696 2,537
Goodwill and other intangibles, net of
accumulated amortization of $4,197 and $3,559, respectively 1,818 2,456
- --------------------------------------------------------------------------------------
Total other assets 249,827 223,207
- --------------------------------------------------------------------------------------
Total assets $380,260 $387,375
======================================================================================
</TABLE>
See notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
October 31,
(in thousands) 1998 1997
- --------------------------------------------------------------------------------------
<S> <C> <C>
Liabilities and Shareholders' Equity
Current Liabilities:
Accrued compensation $ 17,013 $ 12,252
Accounts payable and accrued expenses 9,882 9,182
Dividend payable 2,681 2,226
Current portion of long-term debt 17,314 9,458
Other current liabilities 2,067 6,850
- --------------------------------------------------------------------------------------
Total current liabilities 48,957 39,968
- --------------------------------------------------------------------------------------
Other Liabilities:
6.22% Senior Note 35,714 42,857
Mortgage notes payable -- 8,107
- --------------------------------------------------------------------------------------
Total other liabilities 35,714 50,964
- --------------------------------------------------------------------------------------
Deferred income taxes 83,780 70,163
- --------------------------------------------------------------------------------------
Commitments and contingencies -- --
Shareholders' Equity:
Common stock, par value $.015625 per share:
Authorized, 320,000 shares
Issued, 77,440 shares 1 1
Non-voting common stock, par value $.015625 per share:
Authorized, 47,680,000 shares
Issued, 35,588,373 and 36,937,668 shares, respectively 556 577
Additional paid-in capital -- 21,001
Unrealized gain on investments 1,120 2,445
Notes receivable from stock option exercises (2,957) (3,168)
Retained earnings 213,089 205,424
- --------------------------------------------------------------------------------------
Total shareholders' equity 211,809 226,280
- --------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $380,260 $387,375
======================================================================================
</TABLE>
See notes to consolidated financial statements.
<PAGE>
Consolidated Statements of Cash Flows
- -----------------------------------------------
<TABLE>
<CAPTION>
Years Ended
October 31,
(in thousands) 1998 1997 1996
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash and equivalents, beginning of year $ 61,928 $ 55,583 $ 67,650
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income 30,523 40,234 37,424
Adjustments to reconcile net income to net cash provided by operating
activities:
Extraordinary gain on early retirement of debt -- -- (1,590)
Equity in net income of affiliates (105) (384) (1,639)
Dividends received from affiliate 430 928 --
Impairment loss on real estate 2,636 -- 1,277
Deferred income taxes 14,972 (2,802) (12,239)
Amortization of deferred sales commissions 64,570 54,464 52,585
Depreciation and other amortization 2,174 2,600 2,420
Payment of sales commissions (128,707) (76,333) (55,784)
Capitalized sales charges received 22,583 29,658 32,580
Gain on investments (2,126) (3,561) (546)
Changes in other assets and liabilities 2,947 (91) (5,073)
- ----------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 9,897 44,713 49,415
- ----------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to real estate, equipment
and leasehold improvements (1,849) (2,201) (2,680)
Net decrease in notes and receivables from affiliates 892 694 563
Acquisition of management and distribution contracts -- -- (2,000)
Proceeds from sale of real estate 7,518 3,534 --
Proceeds from sale of investments 162,841 64,294 16,125
Purchase of investments (133,195) (79,084) (62,701)
- ----------------------------------------------------------------------------------------------------------------
Net cash provided by (used for) investing activities 36,207 (12,763) (50,693)
- ----------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from note payable 7,000 -- --
Payments on notes payable (14,394) (1,573) (1,486)
Proceeds from issuance of non-voting common stock 5,615 5,627 2,602
Dividends paid (8,760) (7,839) (6,415)
Repurchase of non-voting common stock (43,107) (21,820) (5,490)
- ----------------------------------------------------------------------------------------------------------------
Net cash used for financing activities (53,646) (25,605) (10,789)
- ----------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and equivalents (7,542) 6,345 (12,067)
- ----------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 3,871 $ 3,887 $ 3,748
================================================================================================================
Income taxes paid $ 7,521 $ 36,737 $ 38,723
================================================================================================================
</TABLE>
See notes to consolidated financial statements.
<PAGE>
Consolidated Statements of Shareholders' Equity
- ---------------------------------------------------------
<TABLE>
<CAPTION>
Notes
Receivable
Non-voting Additional Unrealized from Stock Total
Common Common Paid-In Gain (Loss) on Option Retained Shareholders'
(in thousands) Shares Stock Stock Capital Investments Exercises Earnings Equity
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, October 31, 1995 37,340 $ 1 $ 582 $ 53,753 $ 1,186 $(3,313) $142,311 $194,520
Add (Deduct):
Net income -- -- -- -- -- -- 37,424 37,424
Dividends declared ($0.17
per share) -- -- -- -- -- -- (6,706) (6,706)
Issuance of non-voting common stock:
On exercise of stock options 665 -- 10 1,623 -- (747) -- 886
Under employee stock
purchase plan 103 -- 2 646 -- -- -- 648
Under employee incentive plan 44 -- 1 320 -- -- -- 321
Repurchase of non-voting
common stock (616) -- (10) (5,480) -- -- -- (5,490)
Unrealized gain on investments -- -- -- -- 2,412 -- -- 2,412
Distribution of
Investors Financial Services
Corp. -- -- -- (14,074) -- -- -- (14,074)
Collection of notes receivable -- -- -- -- -- 839 -- 839
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, October 31, 1996 37,536 $ 1 $ 585 $ 36,788 $ 3,598 $(3,221) $173,029 $210,780
Add(Deduct):
Net income -- -- -- -- -- -- 40,234 40,234
Dividends declared ($0.21
per share)-- -- -- -- -- -- -- (7,839) (7,839)
Issuance of non-voting common stock:
On exercise of stock options 979 -- 15 4,702 -- (718) -- 3,999
Under employee stock purchase plan 72 -- 1 592 -- -- -- 593
Under employee incentive plan 34 -- 1 316 -- -- -- 317
Tax benefit of
stock option exercises -- -- -- 398 -- -- -- 398
Repurchase of non-voting
common stock (1,606) -- (25) (21,795) -- -- -- (21,820)
Unrealized loss on investments -- -- -- -- (1,153) -- -- (1,153)
Collection of notes receivable -- -- -- -- -- 771 -- 771
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, October 31, 1997 37,015 $ 1 $ 577 $ 21,001 $ 2,445 $(3,168) $205,424 $226,280
Add(Deduct):
Net income -- -- -- -- -- -- 30,523 30,523
Dividends declared ($0.26
per share) -- -- -- -- -- -- (9,215) (9,215)
Issuance of non-voting common stock:
On exercise of stock options 641 -- 10 2,838 -- (674) 1,204 3,378
Under employee stock purchase plan 62 -- 1 370 -- -- 393 764
Under employee incentive plan 47 -- 1 467 -- -- 331 799
Tax benefit of
stock option exercises -- -- -- 2,827 -- -- -- 2,827
Repurchase of non-voting
common stock (2,099) -- (33) (27,503) -- -- (15,571) (43,107)
Unrealized loss on investments -- -- -- -- (1,325) -- -- (1,325)
Collection of notes receivable -- -- -- -- -- 885 -- 885
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, October 31, 1998 35,666 $ 1 $ 556 $ -- $ 1,120 $(2,957) $213,089 $211,809
===================================================================================================================================
</TABLE>
See notes to consolidated financial statements.
<PAGE>
Notes to consolidated financial statements
1. Summary of Significant Accounting Policies
BUSINESS AND ORGANIZATION
Eaton Vance Corp. and subsidiaries (the "Company") provide investment advisory
and distribution services to mutual funds and investment management services to
private counsel clients. Company revenue is largely dependent on the total value
and composition of assets under management, which include domestic and
international equity, domestic and international debt, and bank loan portfolios.
Accordingly, fluctuations in financial markets and in the composition of assets
under management impact revenue and the results of operations.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Eaton Vance Corp.
and all of its wholly owned subsidiaries. The equity method of accounting is
used for investments in affiliates in which the Company's ownership ranges from
20 to 50 percent. All material intercompany accounts and transactions have been
eliminated.
CASH AND EQUIVALENTS
Cash equivalents consist principally of short-term, highly liquid investments
and are recorded at cost, which is equivalent to market value.
INVESTMENTS
Investments in short-term investments, investment companies and certain other
investments are classified as available-for-sale and are carried at their
estimated fair value. Net unrealized holding gains or losses on securities are
reported net of income taxes as a separate component of shareholders' equity.
Investments in investment companies held in connection with the Company's
activities as principal underwriter are recorded at market value. Other
investments are carried at the lower of cost or management's estimate of net
realizable value.
REAL ESTATE ASSETS HELD FOR SALE
Real estate assets held for sale are carried at the lower of cost or fair market
value, less cost to sell, and are not depreciated while they are held for sale.
EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Equipment and leasehold improvements are stated at cost, less accumulated
depreciation and amortization. Depreciation and amortization are provided
principally by the straight-line method over the estimated useful lives of the
related assets, or over the terms of the related leases, if shorter.
DEFERRED SALES COMMISSIONS
Sales commissions paid to brokers and dealers in connection with the sale of
shares of open-end investment companies are capitalized and amortized over
various periods, none of which exceeds six years. Distribution plan payments
received from investment companies are recorded in income as earned. Contingent
deferred sales charges received by the Company from redeeming shareholders of
open-end investment companies reduce unamortized deferred sales commissions
first, with any remaining amount recorded in income.
Sales commissions paid to brokers and dealers in connection with the sale of
shares of closed-end funds are expensed as incurred. Early withdrawal charges
received by the Company from redeeming shareholders of the Company's
continuously offered closed-end funds are recorded in income (see Note 2).
GOODWILL AND OTHER INTANGIBLES
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. Other intangibles represent the cost of
management contracts acquired. Amortization is provided on a straight-line basis
over the estimated useful lives of these assets, not exceeding 20 years.
REVENUE RECOGNITION
Investment advisory, administration and distribution fees are accrued as
earned. Sales of shares of investment companies in connection with the Company's
activities as principal underwriter are accounted for on a settlement date
basis, with the related commission income and expense recorded on a trade date
basis.
INCOME TAXES
Deferred income taxes reflect the expected future tax consequences of temporary
differences between the carrying amounts and tax bases of the Company's assets
and liabilities. Such taxes relate principally to sales commissions paid to
brokers and dealers, which are deducted currently for tax purposes.
EARNINGS PER SHARE
On November 1, 1997, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 128, "Earnings per Share," and restated all prior-period
earnings per share data. Basic earnings per share excludes the dilutive effect
of outstanding stock options and is computed by dividing net income by the
weighted average common shares outstanding of 36.3 million, 37.3 million, and
37.7 million in 1998, 1997 and 1996, respectively. Diluted earnings per share
reflects the potential dilution that could occur if all outstanding stock
options were exercised. It is computed by increasing the denominator of the
basic calculation by potentially dilutive common shares of 1.5 million, 1.4
million, and 0.6 million in 1998, 1997 and 1996, respectively.
The number of shares used for purposes of calculating earnings per share and all
other per share data has been adjusted for all periods presented to reflect a
two-for-one stock split effective August 14, 1998.
STOCK-BASED COMPENSATION
Effective November 1, 1996, the Company adopted SFAS No. 123, "Accounting for
Stock-Based Compensation." The Company has elected to continue to account for
stock-based compensation in accordance with Accounting Principles Board (APB)
Opinion No. 25, "Accounting for Stock Issued to Employees." Accordingly, pro
forma net income and earnings per share information has been presented in Note 7
as required under SFAS No. 123.
ACCOUNTING ESTIMATES
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results may differ from those estimates.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the current year
presentation.
2. Significant Accounting Changes
In September 1998, the Financial Accounting Standards Board (FASB) staff
addressed the accounting for offering costs incurred in connection with the
distribution of closed-end funds. The FASB staff concluded that such offering
costs, including sales commissions paid, are to be considered start-up costs in
accordance with American Institute of Certified Public Accountants Statement of
Position (SOP) 98-5, "Reporting on the Costs of Start-Up Activities."
Accordingly, sales commissions paid in connection with the distribution of
shares of the Company's closed-end funds subsequent to the effective date of the
FASB staff announcement (July 23, 1998) have been expensed as incurred. For the
period July 24, 1998 through October 31, 1998, these commissions totaled $30.0
million and have been recorded in "Sales commission expense" in the Company's
consolidated statement of income for the fiscal year ended October 31, 1998.
Closed-end fund sales commissions paid and capitalized prior to and including
the July 23, 1998 effective date of the FASB staff announcement will be expensed
as a cumulative effect of a change in accounting principle, as described in APB
Opinion No. 20, "Accounting Changes," upon adoption of SOP 98-5. The Company
will adopt the provisions of SOP 98-5 effective November 1, 1998 and estimates
that the cumulative effect of adoption in the first quarter of fiscal 1999, net
of tax, will be $36.6 million.
3. Investment in Affiliates
The Company has a 21 percent equity interest in Lloyd George Management (BVI)
Limited (LGM), an independent investment management company based in Hong Kong
that manages a series of emerging market mutual funds sponsored by the Company.
The Company's investment in LGM was $7.6 million and $7.8 million at October 31,
1998 and 1997, respectively. At October 31, 1998, the Company's investment
exceeded its share of the underlying net assets of LGM by $5.6 million. This
excess is being amortized over a 20-year period.
The Company received gold mining securities with a value of $1.0 million and
$1.7 million in 1997 and 1996, respectively, resulting from the distribution of
assets upon termination of two gold mining partnerships in which the Company had
general and limited partnership interests. The Company also received gold mining
securities with a value of $2.1 million and $1.8 million in 1997 and 1996,
respectively, in settlement of notes receivable for management services provided
to these partnerships.
4. Real Estate Assets
The carrying value of real estate assets at October 31, 1998 and 1997 follow:
(in thousands) 1998 1997
- -------------------------------------------------------------------------------
Shopping centers:
Troy, NY $ 2,179 $ 3,615
Goffstown, NH - 5,508
Warehouses:
Springfield, MA 1,451 1,451
Colonie, NY 1,579 1,579
Office buildings:
Boston, MA 6,151 5,926
Boston, MA 3,775 3,675
Troy, NY 1,416 2,823
- -------------------------------------------------------------------------------
Total $16,551 $24,577
===============================================================================
In 1998, the Company committed to a plan to sell a shopping center and an office
building located in Troy, New York and two office buildings located in Boston,
Massachusetts. The Company had committed to a plan to sell the two warehouses
located in Springfield, Massachusetts and Colonie, New York and a shopping
center in Goffstown, New Hampshire in 1997.
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of," requires that the carrying value of assets
held for sale be reported at the lower of carrying value or fair value less cost
to sell. In accordance with the provisions of SFAS No. 121, the Company
recognized a pre-tax impairment loss of $2.6 million in 1998 based on the
estimated fair values, less cost to sell, of the shopping center and office
building located in Troy, New York.
In 1998, the Company sold the shopping center located in Goffstown, New
Hampshire and recognized a pre-tax gain of $1.8 million based on a carrying
value of $5.5 million at the time of sale. The Company expects sales of all
remaining properties to be completed in fiscal 1999. The estimated fair values
less cost to sell of the remaining properties equaled or exceeded their
respective carrying values at October 31, 1998.
In 1996, the Company's real estate subsidiary retired at a discount a mortgage
with a remaining unpaid balance of $4.0 million and realized an extraordinary
gain on the retirement of $1.6 million, net of income taxes of $1.1 million.
Subsequent to the retirement, the Company committed to a plan to sell the
property and recognize a pretax impairment loss of $1.3 million based on its
estimated net realizable value. In 1997, the Company sold the property and
recognized a pretax gain of $1.0 million based on a carrying value of $2.5
million at the time of sale.
5. Long-term Debt
6.22% SENIOR NOTE
The Company has a 6.22% Senior Note due March 2004 with a remaining balance of
$42.9 million at October 31, 1998. Principal pay-ments on the note are due in
equal annual installments of approximately $7.1 million. The note may be prepaid
in part or in full at any time. Certain covenants in the Senior Note Purchase
Agreement require specific levels of cash flow and net income and others
restrict additional investment and indebtedness.
REVOLVING CREDIT FACILITY
The Company has a five-year senior unsecured revolving credit agreement with six
unaffiliated banks under which it may borrow up to $50 million. The terms of the
facility provide for various borrowing rate options and allow the Company to
increase the facility amount to a maximum of $75 million at any time during the
five-year period. The agreement contains financial covenants with respect to
borrowings, tangible net worth leverage and interest coverage and requires the
Company to pay an annual facility fee on the total commitment. The facility fee
is calculated on a pricing grid based on the Company's total debt to earnings
ratio. At October 31, 1998, the Company had no borrowings under this facility.
MORTGAGE NOTES PAYABLE
The balance of mortgage notes payable on October 31, 1998 and 1997 follow:
Interest
Maturity Rate 1998 1997
- -------------------------------------------------------------------------------
(in thousands)
1999 9.75% $ 5,824 $ 5,872
2002 7.11% 2,064 2,126
2015-2016 Various 2,283 2,424
- --------------------------------------------------------------------------------
Total $10,171 $10,422
================================================================================
These mortgage notes are secured by real property and require monthly or
quarterly payments of principal and interest with all unpaid principal due at
maturity. At October 31, 1998, non-recourse mortgages totaled approximately $9.0
million.
Principal payments due on mortgage notes outstanding at October 31, 1998 for
each of the next five years and in the aggregate thereafter follow:
Year Ending
October 31 Amount
- -------------------------------------------------------------------------------
(in thousands)
1999 $ 6,039
2000 221
2001 227
2002 233
2003 1,881
Thereafter 1,570
- -------------------------------------------------------------------------------
Total $10,171
===============================================================================
6. Lease Commitments
The Company leases certain real estate and equipment under noncancelable
operating leases. Rent expense under these leases in 1998, 1997 and 1996
amounted to $0.6 million, $0.6 million and $0.7 million, respectively.
Future minimum lease commitments are as follows:
Year Ending
October 31 Amount
- --------------------------------------------------------------------------------
(in thousands)
1999 $ 1,998
2000 3,547
2001 3,785
2002 4,012
2003 4,261
Thereafter 26,039
- --------------------------------------------------------------------------------
Total $43,642
================================================================================
As noted in Note 4, "Real Estate Assets Held for Sale," the Company has
committed to a plan to sell two office buildings located in Boston,
Massachusetts that house the Company's principal offices. In anticipation of
this sale, the Company has entered into an operating lease agreement for new
principal office space in Boston. Lease commitments for the second half of 1999
and thereafter reflect the Company's future commitments under this lease.
7. Stock Plans
The Company has elected to continue to account for stock-based compensation in
accordance with APB Opinion No. 25, "Accounting for Stock Issued to Employees,"
and has provided below the additional pro forma disclosures required by SFAS No.
123.
In accordance with APB Opinion No. 25, no compensation cost has been recognized
in the consolidated financial statements for the Company's stock option, stock
purchase and stock alternative plans. Had compensation cost for the Company's
stock-based compensation plans been determined consistent with the fair value
method as described in SFAS No. 123, the Company's net income and earnings per
share for the years ended October 31, 1998, 1997 and 1996 would have been
reduced to the following pro forma amounts:
1998 1997 1996
- --------------------------------------------------------------------------------
(net income figures in thousands)
Net income:
As reported $30,523 $40,234 $37,424
Pro forma $28,861 $39,044 $37,007
Earnings per share:
As reported:
Basic $ 0.84 $ 1.08 $ 0.99
Diluted $ 0.81 $ 1.04 $ 0.98
Pro forma:
Basic $ 0.80 $ 1.05 $ 0.98
Diluted $ 0.76 $ 1.01 $ 0.97
The fair value of each option grant included
in the pro forma net income shown above is estimated on the date of the grant
using the Black-Scholes option-pricing model with the following weighted average
assumptions used for grants in fiscal 1998, 1997 and 1996:
1998 1997 1996
- -------------------------------------------------------------------------------
Dividend yield 1.3% 1.8% 1.8%
Volatility 29% 30% 30%
Risk-free interest rate 4.2% 6.2% 5.6%
Expected life of options 5 years 5 years 5 years
For purposes of pro forma disclosure, the estimated fair value of each option
grant is amortized to expense over the option-vesting period. These pro forma
amounts may not be indicative of the future benefit, if any, to be received by
the option holder.
The pro forma information reflected above may not be representative of the
amounts to be expected in future years as the fair value method of accounting
described in SFAS No. 123 is not applicable to options granted in fiscal years
prior to 1996.
STOCK OPTION PLAN
The Company has a Stock Option Plan (the "1995 Plan") administered by the Option
Committee of the Board of Directors under which stock options may be granted to
key employees of the Company. No stock options may be granted under the plan
with an exercise price of less than the fair market value of the stock at the
time the stock option is granted. The options expire five years from the date of
grant and vest over a two-, three- or four-year period as stipulated in each
grant.
Stock option transactions under the 1995 Plan and predecessor plans are
summarized as follows:
<TABLE>
<CAPTION>
1998 1997 1996
- ----------------------------------------------------------------------------------------------------------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
(share figures in thousands)
Balance, beginning of period 2,642 $ 7.95 2,866 $ 5.86 2,679 $ 5.45
Granted 654 18.08 993 10.51 565 7.11
Exercised (641) 6.32 (979) 4.81 (665) 2.46
Forfeited/Expired (49) 14.12 (238) 6.64 (270) 6.19
Adjustment for spin-off - - - - 557 6.02
- ----------------------------------------------------------------------------------------------------------------------------
Balance, end of period 2,606 $10.78 2,642 $7.95 2,866 $ 5.86
============================================================================================================================
</TABLE>
Outstanding options to subscribe to shares of non-voting common stock issued
under the 1995 Plan and predecessor plans are summarized as follows:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
- ---------------------------------------------------------------------------------------------------------------------------
Weighted
Average Weighted Weighted
Remaining Average Exercisable Average
Outstanding Contractual Exercise as of Exercise
as of 10/31/98 Life Price 10/31/98 Price
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
(share figures in thousands)
$5.74 - $7.06 987 1.3 $ 6.53 960 $ 6.52
$7.77 40 2.1 7.77 26 7.77
$10.44 - $11.48 954 3.1 10.51 331 10.47
$17.84 - $19.63 608 3.9 17.95 - -
$23.12 17 4.4 23.12 - -
- ---------------------------------------------------------------------------------------------------------------------------
2,606 2.6 $ 10.78 1,317 $ 7.54
===========================================================================================================================
</TABLE>
In July 1998, the Company introduced the 1998 Stock Option Plan (the "1998
Plan"). Options granted under the 1998 Plan expire five to eight years from date
of grant and vest over a four-year period. In November 1998, the Company granted
options for an additional 674,000 shares under the 1998 Plan at prices ranging
from $22.94 to $25.23.
EMPLOYEE STOCK PURCHASE PLAN
A total of 2.2 million shares of the Company's non-voting common stock has been
reserved for issuance under an Employee Stock Purchase Plan. The plan permits
eligible full-time employees to direct up to 15 percent of their salaries to a
maximum of $12,500 toward the purchase of Eaton Vance Corp. non-voting common
stock at the lower of 90 percent of the market price of the non-voting common
stock at the beginning or at the end of each six-month offering period. Through
October 31, 1998, 1.5 million shares have been issued pursuant to this plan.
INCENTIVE PLAN-STOCK ALTERNATIVE
A total of 1.2 million shares of the Company's non-voting common stock has been
reserved for issuance under the Incentive Plan-Stock Alternative. The plan
permits employees and officers to direct up to half of their monthly and annual
incentive bonuses toward the purchase of non-voting common stock at 90 percent
of the average market price of the stock for the five days subsequent to the end
of the six-month offering period. Through October 31, 1998, 396,000 shares have
been issued pursuant to this plan.
EXECUTIVE LOAN PROGRAM
The Company has established an Executive Loan Program under which a maximum of
$10.0 million is available for loans to certain key employees for purposes of
financing the exercise of stock options for shares of the Company's non-voting
common stock. Such loans are written for a seven-year period, at varying fixed
interest rates (currently ranging from 5.3 percent to 8.1 percent), are payable
in annual installments commencing with the third year in which the loan is
outstanding, and are collateralized by the stock issued upon exercise of the
option. Loans outstanding under this program amounted to $3.0 million and $3.2
million at October 31, 1998 and 1997, respectively.
8. Employee Benefit Plans
PROFIT SHARING RETIREMENT PLAN
The Company has a discretionary profit sharing retirement plan for the benefit
of substantially all employees whereby up to 15 percent of eligible compensation
of participants may be contributed. The Company has contributed $2.9 million,
$2.9 million and $2.7 million, the maximum amounts permitted under the plan, for
the years ended October 31, 1998, 1997 and 1996, respectively.
SAVINGS PLAN AND TRUST
The Company has a Savings Plan and Trust that is qualified under Section 401 of
the Internal Revenue Code. All full-time employees who have met certain age and
length of service requirements are eligible to participate in the plan. This
savings plan allows participating employees to contribute up to eight percent of
their gross salary on a pretax basis to the plan. The Company then matches each
participant's contribution on a dollar-for-dollar basis up to a maximum of
$1,040. The Company's expense under the plan was $0.2 million, $0.3 million and
$0.3 million for the years ended October 31, 1998, 1997 and 1996, respectively.
SUPPLEMENTAL PROFIT SHARING PLAN
The Company has an unfunded, non-qualified Supplemental Profit Sharing Plan
whereby certain key employees of the Company may receive profit sharing
contributions in excess of the amounts allowed under the Profit Sharing
Retirement Plan. No employee may receive combined contributions in excess of
$30,000 to the Profit Sharing Plan and the Supplemental Profit Sharing Plan. The
Company's expense under the plan for each of the years ended October 31, 1998,
1997 and 1996 was $0.1 million.
9. Common Stock Repurchases
On April 9, 1998, the Company's Board of Directors authorized the purchase by
the Company of up to 2.0 million shares of the Company's non-voting common
stock. Through October 31, 1998, 0.9 million shares have been acquired under
this authorization. An additional 1.2 million shares were purchased in fiscal
1998 under a previous authorization.
10. Income Taxes
The provision for income taxes for the years ended October 31, 1998, 1997 and
1996 consists of the following:
(in thousands) 1998 1997 1996
- -----------------------------------------------------------------------------
Current:
Federal $ 4,097 $25,162 $30,450
State 446 4,876 5,877
Deferred:
Federal 12,910 (2,405) (10,261)
State 2,062 (397) (1,978)
- -----------------------------------------------------------------------------
Total $19,515 $27,236 $24,088
=============================================================================
Deferred income taxes reflect the expected future tax consequences of temporary
differences between the carrying amounts and tax bases of the Company's assets
and liabilities. The significant components of deferred income taxes are as
follows:
(in thousands) 1998 1997
- -----------------------------------------------------------------------------
DEFERRED TAX ASSETS:
Unrealized capital losses $ 1,059 $ 1,317
Reserve for
arbitration award - 1,255
Impairment loss on
real estate 1,005 -
Investments in affiliate
and limited partnership 513 528
Other 1,002 188
- -----------------------------------------------------------------------------
Total $ 3,579 $ 3,288
=============================================================================
DEFERRED TAX LIABILITIES:
Deferred sales
commissions $82,618 $66,779
Differences between
book and tax bases
of property 784 1,353
Unrealized net
holding gains
on investments 680 1,492
Other 1,188 1,255
- -----------------------------------------------------------------------------
Total $85,270 $70,789
=============================================================================
Net deferred tax liability $81,691 $67,591
=============================================================================
Deferred tax assets and liabilities are reflected on the Company's consolidated
balance sheets at October 31, 1998 and 1997 as follows:
(in thousands) 1998 1997
- -----------------------------------------------------------------------------
Net current
deferred tax asset $(2,089) $(2,572)
Net non-current
deferred tax liability 83,780 70,163
- -----------------------------------------------------------------------------
Net deferred tax liability $81,691 $67,591
=============================================================================
The following table reconciles the statutory federal income tax rate to the
Company's effective income tax rate:
1998 1997 1996
- --------------------------------------------------------------------------------
Federal statutory
tax rate 35.0% 35.0% 35.0%
Increases (decreases)
in taxes from:
State income tax
(net of effect of
federal tax) 3.2 4.3 4.2
Tax deductible
losses on mining
investments - - (1.7)
Other 0.8 1.1 2.7
- --------------------------------------------------------------------------------
Effective tax rate 39.0% 40.4% 40.2%
================================================================================
The Massachusetts Department of Revenue (MDOR) has examined the tax returns for
the Company and its subsidiaries for the fiscal years 1993 through 1995. In
connection with this examination, the MDOR has assessed additional taxes and
interest of $5.8 million. In the opinion of management, after consultation with
outside tax and legal counsel, there is significant merit to the positions
claimed on the tax returns as filed and the Company intends to contest
vigorously the assessment. However, Massachusetts General Laws require the
Company to pay the assessment in advance. At October 31, 1998 and 1997, the
payment has been recorded in "Other receivables" on the Company's consolidated
balance sheets.
11. FINANCIAL INSTRUMENTS
The estimated fair values of the Company's financial instruments have been
determined by the Company using available market information and appropriate
valuation methodologies. The fair value amounts discussed below are not
necessarily indicative of either the amounts the Company would realize upon
disposition of these instruments or the Company's intent or ability to dispose
of these assets.
CASH AND EQUIVALENTS, SHORT-TERM INVESTMENTS AND INVESTMENT IN INVESTMENT
COMPANIES
The estimated fair value of cash and equivalents, short-term investments and
investment in investment companies approximates their carrying value.
OTHER INVESTMENTS
Included in other investments are certain investments carried at cost, amounting
to $0.9 million at both October 31, 1998 and 1997. Management believes it is
impracticable to calculate the fair values of these investments due to the
difficulty of predicting future returns and the period in which these amounts
will be received. Accordingly, the Company values these investments at cost with
adjustments for impairment, if needed.
The estimated fair value of the remaining financial instruments in other
investments, amounting to $1.3 million and $4.3 million at October 31, 1998 and
1997, respectively, approximates their carrying value.
NOTES RECEIVABLE AND RECEIVABLES FROM AFFILIATES
The estimated fair value of notes receivable and receivables from affiliates
included in "Other receivables" on the Company's consolidated balance sheets
have been calculated by discounting expected future cash flows using
management's estimates of current market interest rates for such notes and
receivables. The estimated fair value of these notes and receivables
approximates their carrying value. Included in this category are "Notes
receivable from stock option exercises" which are a component of shareholders'
equity on the Company's consolidated balance sheets.
6.22% SENIOR NOTE
The estimated fair value of the Company's Senior Note at October 31, 1998 and
1997 is $43.4 million and $49.4 million, respectively, based on discounted
future cash flows using a market interest rate available for debt with similar
terms and remaining maturity.
MORTGAGE NOTES PAYABLE
The estimated fair value of the Company's mortgage notes payable at October 31,
1998 and 1997 is $10.2 million and $10.5 million, respectively, based on
discounted future cash flows using current market interest rates available for
mortgages with similar terms and remaining maturities.
UNREALIZED SECURITIES HOLDING GAINS
The Company has classified as available-for-sale securities having an aggregate
fair value of $59.2 million and $93.6 million at October 31, 1998 and 1997,
respectively. These securities are classified as "Short-term investments,"
"Investments in investment companies," and "Other investments" on the Company's
consolidated balance sheets. Gross unrealized gains of $4.7 million and $6.7
million and gross unrealized losses of $2.9 million and $2.8 million at October
31, 1998 and 1997, respectively, have been excluded from earnings and reported
as a separate component of shareholders' equity, net of deferred taxes.
12. Regulatory Requirements
Eaton Vance Distributors, Inc., a wholly owned subsidiary of the Company and
principal underwriter of the Eaton Vance Funds, is subject to the Securities and
Exchange Commission uniform net capital rule (Rule 15c3-1) which requires the
maintenance of minimum net capital. For purposes of this rule, the subsidiary
had net capital of $6.1 million, which exceeds its respective minimum net
capital requirement of $556,000 at October 31, 1998. The ratio of aggregate
indebtedness to net capital at October 31, 1998 was 1.37-to-1.
13. Accounting Developments
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income,"
which establishes the requirements for the reporting and presentation of
comprehensive income in an entity's annual and interim financial statements.
Comprehensive income includes such items as unrealized gains on securities
currently reported as a component of shareholders' equity. The Company intends
to adopt the provisions of SFAS No. 130 in fiscal 1999.
In June 1997, the FASB also issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information," which establishes disclosure
requirements relating to operating segments in annual and interim financial
statements. The Company has not yet determined the effect, if any, of this
announcement on the consolidated financial statements.
14. Related Party Transactions
Investment advisory and distribution income earned from investment companies
sponsored by the Company were $231.2 million, $183.7 million and $164.8 million
in 1998, 1997 and 1996, respectively.
The portfolios and related funds that provided over 10 percent of the total
revenue of the Company are as follows:
<TABLE>
<CAPTION>
(dollar figures in thousands) 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------
<S> <C>
SENIOR DEBT PORTFOLIO AND RELATED FUNDS:
Investment adviser and administration fees,
early withdrawal charges and service fees $57,410 $41,385 $26,901
Percent of revenue 23.0% 20.7% 14.8%
TAX MANAGED GROWTH PORTFOLIO AND RELATED FUNDS:
Investment adviser and administration fees, underwriting commissions,
distribution plan payments, contingent deferred sales
charges and service fees $46,462 $13,956 $ 5,794
Percent of revenue 18.6% 7.0% 3.2%
NATIONAL MUNICIPALS PORTFOLIO AND RELATED FUNDS:
Investment adviser and administration fees, underwriting commissions,
distribution plan payments, contingent deferred sales
charges and service fees $25,552 $25,121 $26,547
Percent of revenue 10.2% 12.5% 14.6%
</TABLE>
Investments in sponsored mutual funds which are classified as "Cash and
equivalents," "Short-term investments" and "Investment in investment companies"
in the accompanying consolidated financial statements, aggregate approximately
$82.0 million and $128.6 million at October 31, 1998 and 1997, respectively.
Dividend and interest income earned on these investments aggregated
approximately $5.6 million in 1998, $3.2 million in 1997 and $3.0 million in
1996. The Company recognized net gains of approximately $3.0 million, $2.7
million and $0.6 million in 1998, 1997 and 1996, respectively, resulting from
the disposition of sponsored mutual fund investments.
The Company earned fees of $0.4 million, $1.1 million in 1997 and 1996,
respectively, for providing management and administration services to affiliated
joint ventures.
At October 31, 1997, the Company had an outstanding payable to officers of the
Company in the amount of $4.5 million arising from the repurchase of non-voting
common stock which is included in "Other current liabilities" on the Company's
consolidated balance sheet.
15. Comparative Quarterly Financial Information (Unaudited)
<TABLE>
<CAPTION>
1998
- -------------------------------------------------------------------------------------------------------------------
First Second Third Fourth Full
(in thousands, except per share figures) Quarter Quarter Quarter Quarter Year
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total revenue $ 55,273 $59,993 $66,998 $67,723 $249,987
Net income (loss) $ 10,953 $11,386 $13,646 $(5,462) $ 30,523
Earnings (loss) per share:
Basic $ 0.29 $ 0.31 $ 0.38 $ (0.15) $ 0.84
Diluted $ 0.28 $ 0.30 $ 0.36 $ (0.15) $ 0.81
<CAPTION>
1997
- -------------------------------------------------------------------------------------------------------------------
First Second Third Fourth Full
(in thousands, except per share figures) Quarter Quarter Quarter Quarter Year
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total revenue $ 47,812 $47,737 $51,497 $53,864 $200,910
Net income $ 10,027 $ 9,463 $10,521 $10,223 $ 40,234
Earnings per share:
Basic $ 0.26 $ 0.25 $ 0.28 $ 0.28 $ 1.08
Diluted $ 0.25 $ 0.24 $ 0.27 $ 0.26 $ 1.04
</TABLE>
<PAGE>
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, 1998 and 1997, and the related
consolidated statements of income, shareholders' equity, and cash flows for each
of the three years in the period ended October 31, 1998. 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, 1998 and 1997, and the results of their
operations and their cash flows for each of the three years in the period ended
October 31, 1998 in conformity with generally accepted accounting principles.
As discussed in Note 2 to the Financial Statements, in 1998 the Company changed
its method of accounting for offering costs incurred in connection with the
distribution of closed-end funds.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
November 24, 1998
<PAGE>
Eaton Vance Corp. Directors and Officers
- ----------------------------------------------------------------------
Directors Officers
JOHN G.L. CABOT JAMES B. HAWKES
Chairman, President,
JAMES B. HAWKES and Chief Executive Officer
JOHN M. NELSON ALAN R. DYNNER
Vice President
VINCENT M. O'REILLY and Chief Legal Officer
BENJAMIN A. ROWLAND, JR. THOMAS OTIS
Vice President and Secretary
RALPH Z. SORENSON
BENJAMIN A. ROWLAND, JR.
Vice President
and Chief Administrative Officer
LAURIE G. RUSSELL
Vice President
and Chief Accounting Officer
WILLIAM M. STEUL
Vice President
and Chief Financial Officer
PETER D. STOKINGER
Vice President
and Internal Auditor
<PAGE>
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 1998
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
Equiserve, L.P. is the Transfer Agent and Registrar for the
Company's common stock and maintains shareholder accounting
records. The Transfer Agent should be contacted on questions
of change in address, name or ownership, lost certificates
and consolidation of accounts. When corresponding with the
Transfer Agent, shareholders should state the exact name(s)
in which the stock is registered and the certificate number,
as well as pertinent account information. Please contact:
Equiserve, L.P.
Shareholder Correspondence, Post Office Box 8040
Boston, MA 02266-8040
(781) 575-3400
(800) 733-5001
Auditors
Deloitte & Touche LLP
125 Summer Street
Boston, MA 02110
(617) 261-8000
Design: Robert Farrell Associates, Inc.
<PAGE>
EXHIBIT 21.1
LIST OF SUBSIDIARIES
AS OF OCTOBER 31, 1998*
NAME UNDER WHICH
SUBSIDIARY DOES
STATE OR JURISDICTION OF BUSINESS
INCORPORATION OR
ORGANIZATION
FIRST TIER SUBSIDIARY OF EATON
VANCE CORP.:
Eaton Vance Management Massachusetts Same
CERTAIN SUBSIDIARIES OF EATON
VANCE MANAGEMENT:
Eaton Vance Distributors, Inc. Massachusetts Same
Northeast Properties, LLC Massachusetts Same
Boston Management and Research Massachusetts Same
MinVen, LLC 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, 1998
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
Eaton Vance Corp.:
We consent to the incorporation by reference in the Registration Statements
listed at Exhibit 99.2 of Eaton Vance Corp. (the Company) on Forms S-8 and S-3
of our report dated November 24, 1998 appearing in the Annual Report on Form
10-K of the Company for the year ended October 31, 1998.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
January 28, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000350797
<NAME> EATON VANCE CORP.
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> OCT-31-1998
<CASH> 54386
<SECURITIES> 42049
<RECEIVABLES> 5331
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 130433
<PP&E> 2696
<DEPRECIATION> 0
<TOTAL-ASSETS> 380260
<CURRENT-LIABILITIES> 48957
<BONDS> 0
<COMMON> 557
0
0
<OTHER-SE> 211252
<TOTAL-LIABILITY-AND-EQUITY> 380260
<SALES> 0
<TOTAL-REVENUES> 249987
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 201335
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3818
<INCOME-PRETAX> 50038
<INCOME-TAX> 19515
<INCOME-CONTINUING> 30523
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 30523
<EPS-PRIMARY> 0.84
<EPS-DILUTED> 0.81
</TABLE>
<PAGE>
<TABLE>
EXHIBIT 99.2
EATON VANCE CORP.
OPEN REGISTRATION STATEMENTS
<CAPTION>
REGISTRATION STATEMENT FILING DATE CONSENT DATE FILING NUMBER
---------------------- ----------- ------------ -------------
<S> <C> <C> <C>
Form S-8 August 26, 1998 August 26, 1998 333-62259
Form S-8 September 3, 1998 September 3, 1998 333-62801
Form S-8 September 9, 1998 September 9, 1998 333-63077
Form S-8 December 19, 1997 December 18, 1997 333-42813
Form S-3 June 28, 1995 June 22, 1995 33-60649
Form S-8 June 27, 1995 June 22, 1995 33-60617
Form S-8 December 1, 1994 December 1, 1994 33-56701
Form S-8 June 8, 1994 June 8, 1994 33-54035
Form S-8 March 8, 1994 March 4, 1994 33-52559
Form S-8 April 23, 1992 April 21, 1992 33-47405
Form S-8 April 23, 1992 April 21, 1992 33-47403
Form S-8 April 23, 1992 April 21, 1992 33-47402
Form S-8 April 23, 1992 April 21, 1992 33-47401
Form S-3 February 13, 1992 February 11, 1992 33-45685
Form S-8 September 16, 1991 September 16, 1991 33-42667
Form S-8 October 11, 1989 October 5, 1989 33-31382
Form S-8 April 10, 1987 April 8, 1987 33-13217
</TABLE>
