Item 1. Business
The Company's principal business is creating, marketing and managing mutual funds and providing management and counseling services to institutions and individuals. The Company has been in the investment management business for over seventy years, tracing its history to two Boston-based investment managers: Eaton & Howard, formed in 1924, and Vance, Sanders & Company, organized in 1934. As of October 31, 1996, the Company managed $17.3 billion in portfolios with investment objectives ranging from high current income to maximum capital gain.
Investment Management Activities
The Company conducts its investment management and counseling business through two wholly-owned subsidiaries, Eaton Vance Management ("EVM") and Boston Management and Research ("BMR"), each of which is a Massachusetts business trust registered with the Securities and Exchange Commission ("the Commission") as an investment adviser under the Investment Advisers Act of 1940, as amended (the "Advisers Act"). Eaton Vance Distributors, Inc. ("EVD"), a wholly owned broker/dealer registered under the Securities Exchange Act of 1934 (the "Exchange Act"), markets and sells the Eaton Vance Funds. Effective November 1, 1996, all of the business operations, employees, registered representative licenses, distribution agreements, and other assets and liabilities of Eaton Vance Distributors, Inc., were transferred to EV Distributors, Inc., also a wholly-owned subsidiary of the Company. EV Distributors, Inc. changed its name to Eaton Vance Distributors, Inc., effective November 1, 1996.
As of October 31, 1996, the Company provided investment advisory and administration services to over 160 Funds ("Funds") and to over 800 separately managed individual and institutional accounts. At that date, the Funds had aggregate net assets of $15.6 billion and the Company's separately managed accounts had aggregate net assets of $1.7 billion. The following table shows net assets in the Funds and the separately managed accounts for the dates indicated:
Fund and Separately Managed Account Assets At October 31, --------------------------------------------- 1996 1995 1994 1993 1992 --------------------------------------------- Funds: (in millions) Money Market $ 200 $ 200 $ 200 $ 200 $ 400 Equities 3,100 2,400 2,300 2,200 1,600 Bank Loans 2,800 1,400 600 800 1,100 Taxable Fixed Income 1,300 1,300 1,300 1,100 1,500 Non-Taxable Fixed Income 8,200 8,900 9,000 8,900 4,600 ----------------------------------------------- Total 15,600 14,200 13,400 13,200 9,200 ----------------------------------------------- Separately Managed Accounts 1,700 1,800 1,600 2,200 2,100 ----------------------------------------------- Total $17,300 $16,000 $15,000 $15,400 $11,300 ===============================================
Item 1. Business (continued)
Investment decisions for all but eleven of the over 160 Funds are made by portfolio managers employed by the Company and are made in accordance with each Fund's investment objectives and policies. Investment decisions for ten of the Company's international equity funds are made by Lloyd George Management, an independent investment management company based in Hong Kong. Investment decisions for the Eaton Vance Worldwide Health Sciences Fund are made by Mehta and Isaly Asset Management, Inc., an independent investment management company based in New York. The Company's portfolio management staff consists of 39 portfolio managers and analysts who have, on average, more than 20 years of experience in the securities industry. The Company's investment advisory agreements with each of the Funds provide for fees ranging from 45 to 95 basis points of average net assets annually for management services provided. The investment advisory agreements must be approved annually by the trustees of the respective Funds, including a majority of the independent trustees, i.e., those unaffiliated with the management company. Amendments to the investment advisory agreements must be approved by Fund shareholders. These agreements are generally terminable upon 30 to 60 days notice without penalty.
Investment decisions for the separately managed accounts are made by twenty investment counselors employed by the Company. The investment counselors are assisted by an additional eleven financial analysts and managers with part-time counseling responsibilities. The Company's investment counselors use the same sources of information as Fund portfolio managers but tailor investment decisions to the needs of individual clients. The Company's investment advisory fee agreements for the separately managed accounts provide for fees ranging from 30 to 80 basis points of average net assets on an annual basis. These agreements are generally terminable upon 30 to 60 days notice without penalty.
The following table shows investment advisory and administration fees received for the past five years ended October 31, 1996:
* Excludes gold mining investment management fees and administration fees received from funds other than Eaton Vance Funds.
The Company's growth has resulted from its ability to develop, offer successfully and manage effectively new funds and to increase the assets of existing Funds. The Company's strategy is to develop and manage products with clearly understood and clearly presented investment characteristics coupled with distribution arrangements that are attractive to third-party distributors of the Funds.
Item 1. Business (continued)
In 1993, the Company introduced the Hub and Spoke structure. Hub and Spoke is a two-tiered arrangement in which mutual funds (Spokes) with substantially identical investment objectives pool their assets by investing in a common portfolio (Hub). Eaton Vance used Hub and Spoke to introduce four distinct mutual fund families (Traditional, Marathon, Classic and Medallion), with each family having its own prospectus, sales literature, product design and distribution structure (see Marketing and Distribution of Fund Shares below). The structure is intended to benefit fund shareholders through lower operating costs, while allowing the Company to offer cost-effective distribution alternatives to the broker/dealers and their clients. The Company has converted most of its Funds to the Hub and Spoke structure.
In 1995, the Company increased its ownership interest in Lloyd George Management (BVI) Limited (LGM), an independent investment management company based in Hong Kong. The two firms became affiliated in 1992 with the introduction of the Eaton Vance Greater China Funds, which are advised by Lloyd George Management from its headquarters in Hong Kong. The investment management capabilities of LGM, with offices in Hong Kong, London and Bombay, coupled with the introduction of the EV Medallion family of offshore funds, allows Eaton Vance both to manage and to distribute mutual funds globally.
In July, 1996, the directors of the Medical Research Investment Fund, Inc., approved the conversion of the Fund to the Hub and Spoke structure and engaged EVM as administrator and EVD as distributor. As part of the conversion, the fund changed its name to EV Traditional Worldwide Health Sciences Fund and became a member of the Eaton Vance Family of Funds. The Fund, which concentrates investments in equity securities of domestic and foreign companies engaged in research and the health care industry, has been managed since inception by Mehta and Isaly Asset Management, Inc. ("Mehta and Isaly"), an independent New York-based management company. Mehta and Isaly continues to act as adviser to the Fund under Eaton Vance's sponsorship.
Investment Advisory Agreements and Distribution Plans
Each Eaton Vance Fund (excluding those managed by LGM and Mehta and Isaly) has entered into an investment advisory agreement with either EVM or BMR. Although the specific terms of each such agreement vary, the basic terms of the agreements are similar. Pursuant to the agreements, either EVM or BMR, as applicable, provides overall management services to each of the Funds, subject to the supervision of each Fund's Board of Trustees in accordance with each Fund's fundamental investment objectives and policies. The investment advisory agreements are approved by Fund shareholders and their continuance must be approved annually by the trustees of the respective Funds, including a majority of the Independent Trustees. Amendments to the investment advisory agreements must be approved by Fund shareholders.
EVM also serves as administrator or manager under an Administration Agreement or Management Contract (each an "Agreement") to certain Funds (including those managed by LGM). Under such Agreement(s) EVM is responsible for managing the business affairs of these Funds, subject to the supervision of each Fund's Board of Trustees. EVM's services include recordkeeping, preparing and filing documents required to comply with federal and state securities laws, supervising the activities of the Funds' custodian and transfer agent, providing assistance in connection with the Funds' shareholders meetings and other administrative services, including furnishing office space and office facilities, equipment and personnel which may be necessary for managing and administering the business affairs of the Funds. EVM (or an affiliate) may or may not provide investment management or advisory services to these Funds. For the services provided under the Agreement(s), each Fund is required, in some cases, to pay EVM a monthly fee calculated at an annual rate not to exceed 0.25% of average daily net assets. Each Agreement remains in full force and effect indefinitely, but only to the extent that the continuance of such Agreement is specifically approved at least annually by the Fund's Board of Trustees.
Item 1. Business (continued)
In addition, certain of the Funds have adopted distribution plans which, subject to applicable law, provide for the reimbursement to the Company for the payment of applicable sales commissions to the retail distribution firms through the payment of an ongoing distribution fee (i.e., a 12b-1 fee). These distribution plans are implemented through a distribution agreement between EVD and the Fund. Although the specific terms of each such agreement may vary, the basic terms of the agreements are similar. Pursuant to the agreements, EVD acts as underwriter for the Fund and distributes shares of the Fund through unaffiliated dealers. Pursuant to the terms of the distribution plans and agreements and the Investment Company Act, each distribution plan and agreement is initially approved and its subsequent continuance must be approved annually by the trustees of the respective Funds, including a majority of the Independent Trustees.
Each Fund bears all expenses associated with its operation and the issuance and redemption or repurchase of its securities, except for the compensation of directors and officers of the fund who are employed by the Company. Under some circumstances, particularly in connection with new fund introductions and special promotions, EVM or BMR may waive a portion of its fee and pay for some expenses of the Fund.
EVM has entered into investment advisory agreements which set forth investment objectives and fee schedules with respect to each separately managed account. Pursuant to the agreements, EVM invests the assets of the accounts in accordance with the stated investment objectives. The Company's investment counselors may assist clients in formulating investment strategy.
Marketing and Distribution of Fund Shares
The Company markets and distributes the Funds through EVD. EVD sells the Funds through a retail network of national and regional dealers, including those affiliated with banks, insurance companies and financial planners. Although the firms in the Company's retail distribution network have entered into a selling agreement with the Company, such agreements (which generally are terminable by either party) do not legally obligate the firms to sell any specific amount of the Company's investment products. For the 1996, 1995 and 1994 calendar years, the five dealer firms responsible for the largest volume of fund sales accounted for approximately 37%, 42% and 56%, respectively, of the Company's fund sales volume. EVD currently maintains a sales force of more than 30 wholesalers and 30 sales assistants. Wholesalers and their assistants work closely with the retail distribution network to assist in selling Eaton Vance Funds.
While a substantial majority of sales are made through national and large regional firms, in 1990 the Company embarked on a program to broaden its channels of distribution by establishing the Independent Financial Institutions sales force, a separate wholesaling force focusing on banks and financial planners.
EVD currently sells its U.S. registered Funds under three separate commission structures: 1) front-end load commission (Traditional); 2) spread-load commission (Marathon); and 3) level-load commission (Classic).
In the front-end load commission structure (Traditional), the shareholder pays the broker's commission and EVD receives an underwriting commission of up to 75 basis points of the dollar value of the Fund shares sold. The Fund pays a service fee to authorized firms not to exceed 25 basis points of average net assets.
In the spread-load commission structure (Marathon), EVD pays a commission to the dealer at the time of sale and such payments are capitalized and amortized in the Company's financial statements over a four to six year period. The shareholder pays a contingent sales charge to EVD in the event shares are redeemed within a four, five or six year period from the date of purchase. EVD uses its own funds (which may be borrowed) to pay such commissions. EVD recovers the dealer commissions paid on behalf of the shareholder through distribution plan payments limited to an annual rate of 75 basis points of the average net assets of the Fund in accordance with a
Item 1. Business (continued)
distribution plan adopted by the Fund pursuant to Rule 12b-1 under the Investment Company Act. Like the investment advisory agreement, the distribution plan and related payments must be approved annually by a vote of the trustees, including a majority of the independent trustees. The Commission has taken the position that Rule 12b-1 would not permit a Fund to continue making compensation payments to EVD after termination of the plan and that any continuance of such payments may subject the Fund to legal action. These distribution plans are terminable at any time without notice or penalty. In addition, the Fund pays a service fee to authorized firms not to exceed 25 basis points of average net assets.
In the level-load commission structure (Classic), the shareholder pays no front-end commissions or contingent deferred sales charges after the first year. EVD pays a commission and the first year's service fees to the dealer at the time of sale. The Fund makes monthly distribution plan payments to EVD similar to the spread-load Funds, equal to 75 basis points of average net assets of the Fund. Service fees are paid by the Fund to EVD in the first year and to authorized firms in subsequent years, at an annual rate not to exceed 25 basis points of average net assets. The introduction of level-load shares is consistent with the efforts of many broker/dealers to rely less on transaction fees and more on continuing fees for servicing assets.
In addition to its U.S. registered Funds, the Company also sponsors a family of Cayman Island domiciled off-shore funds known as the EV Medallion family of funds. The Medallion funds are sold by certain dealer firms through EVD to non-U.S. persons with commission structures similar to U.S. registered funds. The Company earns distribution, administration and advisory fees directly or indirectly from the Medallion Funds.
Reference is made to Note 12 of the Notes to Consolidated Financial Statements contained in the Eaton Vance Corp. Annual Report to Shareholders for the fiscal year ended October 31, 1996 (which report is furnished as Exhibit 13.1 hereto) for a description of the major customers that provided over 10% of the total revenue of the Company.
Competitive Conditions
The Company is subject to substantial competition in all aspects of its business. The Company's ability to market investment products is highly dependent on access to the retail distribution systems of national and regional securities dealer firms, banks and independent financial planners which generally offer competing internally and externally managed investment products. Although the Company has historically been successful in gaining access to these channels, there can be no assurance that it will continue to do so. The inability to have such access could have a material adverse effect on the Company's business.
There are few barriers to entry by new investment management firms. The Company's funds compete against an ever increasing number of investment products sold to the public by investment dealers, banks, insurance companies and others that sell tax-free investments, taxable income funds, equity funds and other investment products. Many institutions competing with the Company have greater resources than the Company. The Company competes with other providers of investment products on the basis of the range of products offered, the investment performance of such products, quality of service, fees charged, the level and type of sales representative compensation, the manner in which such products are marketed and distributed and the services provided to investors.
Regulation
EVM and BMR are each registered with the Commission under the Advisers Act. The Advisers Act imposes numerous obligations on registered investment advisers including fiduciary duties, recordkeeping requirements, operational requirements and disclosure obligations. Each Eaton Vance Fund is registered with the Commission
Item 1. Business (continued)
under the Investment Company Act of 1940. Each Fund is also required to make notice filings with all states where it is offered for sale. Virtually all aspects of the Company's investment management business are subject to various federal and state laws and regulations. These laws and regulations are primarily intended to benefit shareholders of the Funds and investment counseling clients and generally grant supervisory agencies and bodies broad administrative powers, including the power to limit or restrict the Company from carrying on its investment management business in the event that it fails to comply with such laws and regulations. In such event, the possible sanctions which may be imposed include the suspension of individual employees, limitations on EVM's or BMR's engaging in the investment management business for specified periods of time, the revocation of EVM's or BMR's registration as an investment adviser and other censures or fines.
EVD is registered as a broker/dealer under the Securities Exchange Act of 1934 and is subject to regulation by the Commission, the National Association of Securities Dealers (NASD) and other federal and state agencies. EVD is subject to the Commission's net capital rule designed to enforce minimum standards regarding the general financial condition and liquidity of a broker/dealer. Under certain circumstances, this rule limits the ability of the Company to make withdrawals of capital and receive dividends from EVD. EVD's regulatory net capital has consistently exceeded such minimum net capital requirements. The securities industry is one of the most highly regulated in the United States, and failure to comply with related laws and regulations can result in the revocation of broker/dealer licenses, the imposition of censures or fines and the suspension or expulsion from the securities business of a firm, its officers or employees.
The Company's officers, directors and employees may from time to time own securities which are held by one or more of the Funds. The Company's internal policies with respect to individual investments require prior clearance of most types of transactions and reporting of all securities transactions, and restrict certain transactions so as to avoid the possibility of conflicts of interest.
Employees
On October 31, 1996, the Company and its wholly-owned subsidiaries had 362 full-time employees. On October 31, 1995, the comparable figure was 361.
Item 2.
Item 2. Properties
(a) Northeast Properties, Inc., a wholly-owned subsidiary of the Company, owns various investment properties including an office building located at 24 Federal Street in Boston in which the Company is the primary tenant. For information with respect to the properties, reference is made to Schedule III and Notes 4 and 5 of the Notes to Consolidated Financial Statements contained in the Eaton Vance Corp. 1996 Annual Report to Shareholders (Exhibit 13.1 hereto), which are incorporated herein by reference.
(b) The Company presently owns 100% of the capital stock of Energex Energy Corporation, which owns interests in certain oil and gas properties.
Item 3.
Item 3. Legal Proceedings
Certain of the Company's subsidiaries are subject to legal proceedings arising in the ordinary course of business. On the basis of information presently available and advice received from counsel, it is the opinion of management that the disposition or ultimate determination of such legal proceedings will not have a material adverse effect on the financial position of the Company.
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
PART II
Item 5.
Item 5. Market for Registrants' Common Equity and Related Stockholder Matters
The Company's Voting Common Stock, $0.0625 par value, is not traded and is held by five Voting Trustees pursuant to the Voting Trust described in paragraph (A) of Item 12 hereof, which paragraph (A) is incorporated herein by reference.
The Company's Non-Voting Common Stock, $0.0625 par value, is traded on the Boston Stock Exchange and the New York Stock Exchange under the symbol EV. The approximate number of holders of record of the Company's Non-Voting Common Stock at October 31, 1996, was 985. The additional information required to be disclosed in Item 5 is found on page 4 of the Company's 1996 Annual Report to Shareholders (furnished as Exhibit 13.1 hereto), under the caption "Eaton Vance Corp.", and is incorporated herein by reference.
Item 6.
Item 6. Selected Financial Data
Selected financial data appearing under the caption "Five Year Summary" on page 11 of the Company's 1996 Annual Report to Shareholders, furnished as Exhibit 13.1 hereto, is incorporated herein by reference.
Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Management's discussion and analysis of financial condition and results of operations appearing on pages 12 through 16 of the Company's 1996 Annual Report to Shareholders, furnished as Exhibit 13.1 hereto, is incorporated herein by reference.
Item 8.
Item 8. Financial Statements and Supplementary Data
The Company's consolidated financial statements and related notes thereto and the independent auditors' report appearing on pages 17 through 32 of the Company's 1996 Annual Report to Shareholders, furnished as Exhibit 13.1 hereto, are incorporated herein by reference.
Item 9.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Not applicable.
PART III
Item 10.
Item 10. Directors and Executive Officers of the Registrant
The following table sets forth the name, age and positions of each of the Company's directors and executive officers at December 31, 1996.
Name Age Position - -------------------------------------------------------------------------------- Landon T. Clay 70 Chairman of the Board of Directors M. Dozier Gardner 63 Vice Chairman of the Board of Directors James B. Hawkes 55 President, Chief Executive Officer and Director Benjamin A. Rowland, Jr. 61 Vice President and Director John G. L. Cabot 62 Director Ralph Z. Sorenson 63 Director Alan R. Dynner 56 Vice President and Chief Legal Officer Thomas Otis 65 Vice President and Secretary Laurie G. Russell 30 Vice President and Internal Auditor John P. Rynne 54 Vice President and Corporate Controller William M. Steul 54 Vice President and Chief Financial Officer
Eaton Vance Corp. was formed as a holding company by its subsidiary, Eaton & Howard, Vance Sanders, Inc., in February, 1981. Eaton & Howard, Vance Sanders, Inc. (renamed Eaton Vance Management, Inc. in June, 1984 and reorganized as Eaton Vance Management in October, 1990) was formed at the time of the acquisition of Eaton & Howard, Incorporated by Vance, Sanders & Company, Inc. on May 1, 1979. In this paragraph, the absence of a corporate name indicates that, depending on the dates involved, the executive held the indicated titles in a firm in the chain of Vance, Sanders & Company, Inc., Eaton & Howard, Vance Sanders Inc., or Eaton Vance Corp. In general, the following officers hold their positions for a period of one year or until their successors are duly chosen or elected.
Mr. Clay has been Chairman of the Board since 1971. He was Chief Executive Officer of the Company from October, 1971 until October, 1990 and a Vice President of the Company from November, 1968 until October, 1971. Mr. Clay serves as a member of the Management Committee established by the Company's Board of Directors. Mr. Clay is an officer, trustee, director or general partner of three registered investment companies of which Eaton Vance Management or Boston Management and Research acts as investment adviser. He is Vice President and Director of Fulcrum Management, Inc., and MinVen, Inc., both wholly-owned subsidiaries of Eaton Vance Corp. Mr. Clay is a Director of ADE Corp. (a manufacturer of non-contact measuring devices).
Mr. Gardner was elected Vice Chairman of the Board of Directors in October, 1996. He was Chief Executive Officer of the Company from October, 1990 to October, 1996 and President of the Company from October 1979 to October, 1996. He has been a Director since July, 1970. Mr. Gardner serves as a member of the Management and Compensation Committees established by the Company's Board of Directors. Mr. Gardner is an officer or trustee of 16 registered investment companies for which Eaton Vance Management or Boston Management and Research acts as investment adviser.
Item 10. Directors and Executive Officers of the Registrant (continued)
Mr. Hawkes was elected President and Chief Executive Officer in October, 1996. He was Executive Vice President of the Company from January, 1990 to October, 1996 and a Vice President of the Company from June, 1975 to January, 1990. He has been a Director since January, 1982. Mr. Hawkes serves as a member of the Management Committee established by the Company's Board of Directors. Mr. Hawkes is an officer, trustee or director of 73 registered investment companies for which Eaton Vance Management or Boston Management and Research acts as investment adviser. He is also a Director of Eaton Vance Distributors, Inc., a wholly-owned subsidiary of Eaton Vance Management.
Mr. Rowland has been a Vice President of the Company since April, 1969 and a Director since January, 1982. He serves as a member of the Management Committee established by the Company's Board of Directors. Mr. Rowland is a Director of Energex Energy Corporation, a wholly-owned subsidiary of Eaton Vance Corp., Northeast Properties, Inc., a wholly-owned subsidiary of Eaton Vance Management, and Eaton Vance Distributors, Inc.
Mr. Cabot has served as a Director of the Company since March, 1989. He is Chairman of the Audit Committee and serves as a member of the Compensation and Option Committees established by the Company's Board of Directors.
Mr. Sorenson has served as a Director of the Company since March, 1989. He is Chairman of the Compensation Committee and serves as a member of the Audit and Option Committees established by the Company's Board of Directors.
Mr. Dynner joined the Company as Vice President and Chief Legal Officer of the Company in November, 1996. Prior to joining the Company, Mr. Dynner was a senior partner with the law firm of Kirkpatrick & Lockhart LLP in its New York and Washington, D.C. offices. From February, 1994 to September, 1995 he was Executive Vice President of Newberger & Berman Management, Inc., a mutual fund management company. Mr. Dynner is a member of the Management Committee established by the Company's Board of Directors.
Mr. Otis has been Secretary since October, 1969 and a Vice President of the Company since April, 1973. He has been the Company's counsel since 1966.
Ms. Russell has been a Vice President and Internal Auditor of the Company since June, 1994. Prior to joining the Company, Ms. Russell was a Senior Accountant with Deloitte & Touche LLP.
Mr. Rynne has been a Vice President and Corporate Controller of the Company since January, 1984.
Mr. Steul has been a Vice President and Chief Financial Officer of the Company since December, 1994. Prior to joining the Company, Mr. Steul was Vice President, Finance and Chief Financial Officer of Digital Equipment Corporation. Mr. Steul is a member of the Management Committee established by the Company's Board of Directors. Mr. Steul is also a Director of Eaton Vance Distributors, Inc. and Northeast Properties, Inc.
Item 10. Directors and Executive Officers of the Registrant (continued)
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's officers and directors and persons who own more than ten percent of a registered class of the Company's equity securities to file forms reporting their affiliation with the Company and reports of ownership and changes in ownership of the Company's equity securities with the Securities and Exchange Commission and the New York Stock Exchange. These persons and entities are required by SEC regulations to furnish the Company with copies of all Section 16(a) forms they file. To the best of the Company's knowledge, all Section 16(a) filing requirements applicable to the Company's officers and directors were complied with for the 1996 fiscal year.
Item 11.
Item 11. Executive Compensation
(A) Summary Compensation Table
The following table sets forth certain information concerning the compensation for each of the last three fiscal years of the Chief Executive Officer of the Company and the four other most highly compensated executive officers of the Company (hereafter referred to in this document as the "named executive officers").
Item 11. Executive Compensation (continued)
(1) Bonuses include payments in lieu of option grants to Mr. Clay of $29,380, $35,520 and $43,520 in 1996, 1995 and 1994, respectively. Mr. Gardner and Mr. Rowland also received bonuses in lieu of option grants in 1996 totaling $44,070 and $29,380, respectively.
(2) The amounts appearing under "Other Annual Compensation" represent the 10% discount on the purchase of the Company's stock under the Company's Employee Stock Purchase Plan and Incentive Plan - Stock Alternative.
(3) The amounts appearing under "All Other Compensation" represent contributions by the Company to the Company's Profit Sharing, Supplemental Profit Sharing and 401(k) Plans.
(B) Option Grants in Last Fiscal Year
The following table summarizes stock option grants during 1996 to the named executive officers.
(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.
Item 11. Executive Compensation (continued)
(C) Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values
The following table summarizes stock options exercised during 1996 and stock options held as of October 31, 1996 by the named executive officers.
(1) Based on the fair market value of the Company's common stock on October 31, 1996 ($43.75) as reported on the New York Stock Exchange, less the option exercise price.
(D) Compensation of Directors
Directors not otherwise employed by the Company receive a retainer of $4,000 per quarter and $750 per meeting. During the fiscal year ended October 31, 1996, John G.L. Cabot and Ralph Z. Sorenson each received $25,000; in addition, each was granted options for 885 shares.
(E) Compensation Committee Interlocks and Insider Participation
M. Dozier Gardner, Vice Chairman of the Board, is a member of the Compensation Committee of the Board of Directors of the Company.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management
(A) Common Stock
All outstanding shares of the Company's Common Stock, $0.0625 par value, (which is the only class of the Company's stock having voting rights) are deposited in a Voting Trust, of which the Voting Trustees were (as of December 31, 1996), Landon T. Clay (Chairman of the Board of Directors of the Company), M. Dozier Gardner (Vice Chairman of the Board of Directors of the Company), James B. Hawkes (President, Chief Executive Officer and a Director of the Company), Benjamin A. Rowland, Jr. (a Vice President and a Director of the Company) and Thomas E. Faust, Jr. (a Vice President of the Company). The Voting Trust (a copy of which is incorporated by reference as Exhibit 9.1 hereto) expires December 31, 1997. The Voting Trustees have unrestricted voting rights for the election of the Company's directors. At December 31, 1996, the Company had outstanding 19,360 shares of Common Stock. Inasmuch as the five Voting Trustees of said Voting Trust have unrestricted voting rights with respect to said Common Stock (except that the Voting Trust Agreement provides that the Voting Trustees shall not vote such Stock in favor of the sale, mortgage or pledge of all or substantially all of the Company's assets or for any change in the capital structure or powers of the Company or in connection with a merger, consolidation, reorganization or dissolution of the Company without the written consent of the holders of Voting Trust Receipts representing at least a majority of such Stock subject at the time to the Voting Trust Agreement), they may be deemed to be the beneficial owners of all of the Company's outstanding Common Stock by virtue of Rule 13d-3(a)(1) under the Securities Exchange Act of 1934. The Voting Trust Agreement provides that the Voting Trustees shall act by a majority if there be three or more Voting Trustees; otherwise they shall act unanimously except as otherwise provided in the Voting Trust Agreement. The address of said Voting Trustees is 24 Federal Street, Boston, Massachusetts 02110.
The following table sets forth the beneficial owners at December 31, 1996, of the Voting Trust Receipts issued under said Voting Trust Agreement, which Receipts cover the aggregate of 19,360 shares of the Common Stock then outstanding:
Number of Shares of Voting Common Stock Covered by % of Title of Class Name Receipts Class - -------------------------------------------------------------------------------- Voting Common Stock Landon T. Clay 4,640 24% Voting Common Stock M. Dozier Gardner 4,640 24% Voting Common Stock James B. Hawkes 4,640 24% Voting Common Stock Benjamin A. Rowland, Jr. 2,920 15% Voting Common Stock Thomas E. Faust, Jr. 2,520 13%
Messrs. Clay, Gardner, Hawkes and Rowland are all officers and Directors of the Company and Voting Trustees of the Voting Trust; Mr. Faust is an officer of the Company and Voting Trustee of the Voting Trust. No transfer of any kind of the Voting Trust Receipts issued under the Voting Trust may be made at any time unless they have first been offered to the Company at book value. In the event of the death or termination of employment by the Company of a holder of the Voting Trust Receipts, they must be offered to the Company at book value. Similar restrictions exist with respect to the Common Stock, all shares of which are deposited and held of record in the Voting Trust.
Item 12. Security Ownership of Certain Beneficial Owners and Management (continued)
(B) Non-Voting Common Stock
The Articles of Incorporation of Eaton Vance Corp. ("EVC") provide that EVC's Non-Voting Common Stock, $0.0625 par value, shall have no voting rights under any circumstances whatsoever. As of December 31, 1996, the officers and directors of EVC, as a group, beneficially owned 2,845,391 shares of such Non-Voting Common Stock or 29.56% of the 9,626,710 shares then outstanding. (Such figures include 195,151 shares subject to options exercisable within 60 days and is based solely upon information furnished by the officers and directors.)
The following table sets forth the beneficial ownership of the Company's Non-Voting Common Stock by (i) each person known by the Company to own beneficially more than 5% of the outstanding shares of Non-Voting Common Stock, (ii) each director of the Company, and (iii) each of the named executive officers of the Company (as defined in Item 11, "Executive Compensation") as of December 31, 1996 (such investment power being sole unless otherwise indicated):
(a) Based solely upon information furnished by the officers and directors.
(b) Based on 9,431,559 outstanding shares plus options exercisable within 60 days of 24,164 for Mr. Gardner, 106,032 for Mr. Hawkes, 16,915 for Mr. Rowland, 19,263 for Mr. Whitaker, 2,538 for Mr. Cabot and 2,538 for Mr. Sorenson.
(c) Includes shares subject to options exercisable within 60 days granted to, but not exercised by, each named executive officer and director as listed in Note (b) above.
(d) Includes 6,599 shares held by Mr. Hawkes' daughter and 2,500 shares held by Mr. Clay's children.
(e) Includes 1,200 shares owned by Mr. Rowland's spouse as to which Mr. Rowland disclaims beneficial ownership.
(f) Includes 37,609 shares owned by Mr. Gardner's spouse, and 11,645 shares owned by Mr. Hawkes' spouse.
Item 12. Security Ownership of Certain Beneficial Owners and Management (continued)
(g) Includes 1,045 shares held in the trust of Profit Sharing Retirement Plan for employees of Flowers Antigua, of which the sole beneficiary is the spouse of Mr. Clay. Also includes 6,355 shares held in trust of Profit Sharing Retirement Plan for employees of LTC Corp., wholly owned by Mr. Clay.
(h) Includes 4,000 shares held in a Family Limited Partnership and 2,000 shares held in a Grantor Retained Annuity Trust.
Item 13.
Item 13. Certain Relationships and Related Transactions
(A) Transactions with Management and Others
On November 4, 1987, the Company became a limited partner in VenturesTrident II, L.P. ("VenturesTrident II"), a Delaware Limited Partnership formed to invest in equity securities of public and private mining ventures, principally in precious metals. As a limited partner, the Company has invested $3,000,000 in cash in VenturesTrident II. The investment by the Company was made entirely from internally generated funds. The Company, through its ownership of such limited partnership interest, currently owns a 3.042% interest in VenturesTrident II.
In addition to the above, MinVen, Inc. ("MinVen"), a wholly-owned subsidiary of the Company, has acquired a general partnership interest in the general partner of VenturesTrident II. This acquisition required MinVen to pay $748,235 to such general partner.
The general partner of VenturesTrident II is Fulcrum Management Partners II, L.P. ("Fulcrum Partners II"), a Delaware Limited Partnership of which Landon T. Clay (the Company's Chairman of the Board and principal stockholder) and MinVen, Inc. are the general partners. MinVen owns a 82.13% interest in Fulcrum Partners II, and Mr. Clay owns a 3.87% interest therein. The Company, by reason of MinVen's 82.13% interest in Fulcrum Partners II, indirectly owns an additional 16.43% interest in VenturesTrident II. VenturesTrident II has entered into a service agreement with Fulcrum Management, Inc. ("Fulcrum Management"), a wholly-owned subsidiary of the Company, whereby Fulcrum Management will provide management and administration services to VenturesTrident II for a quarterly fee equal to .675% of VenturesTrident II's aggregate committed capital.
Mr. Clay and entities controlled by Mr. Clay, other than the Company, acquired limited partnership interests in VenturesTrident II for cash investments aggregating $2,650,000. Mr. Clay and such entities, solely through their ownership of such limited partnership interests, in the aggregate currently own a 2.69% interest in VenturesTrident II; Mr. Clay, by reason of his 3.87% interest in Fulcrum Partners II, indirectly owns an additional .77% interest in VenturesTrident II. Investors Bank & Trust Company, as custodian for the benefit of Thomas M. Clay and Richard T. Clay (both of whom are minor children of Landon T. Clay), acquired limited partnership interests in VenturesTrident II for investments of $100,000 for each such child; each such child currently owns a .10% interest in VenturesTrident II. Certain institutions and other investors have also acquired limited partnership interests in VenturesTrident II.
Two other directors of the Company, M. Dozier Gardner and Benjamin A. Rowland, Jr., have acquired limited partnership interests in VenturesTrident II; each of such investments amounts to $50,000, and each such director currently owns a .05% interest in VenturesTrident II. Mr. Clay and the other directors of the Company, by reason of their positions with and ownership of stock of the Company, have an indirect interest in the aggregate 19.47% interest in VenturesTrident II directly and indirectly owned by the Company.
Item 13. Certain Relationships and Related Transactions (continued)
All net operating income and losses and all net realized capital gains and losses of VenturesTrident II with respect to each of its fiscal years will generally be allocated 80% to the limited partners (which include the Company, Mr. Clay, Mr. Clay's minor children and the other two directors of the Company who own limited partnership interests) of VenturesTrident II and 20% to Fulcrum Partners II (of which Mr. Clay owns a 3.87% interest and the Company owns through MinVen a 82.13% interest). Mr. Clay is an officer and director of both MinVen and Fulcrum Management.
(B) Certain Business Relationships
Landon T. Clay, M. Dozier Gardner and James B. Hawkes, each of whom is a director and executive officer of the Company, are officers and directors, trustees or general partners of various investment companies for which the Company's wholly-owned subsidiary, Eaton Vance Management or Boston Management and Research, serves as investment adviser and for which Eaton Vance Distributors, Inc. (a wholly-owned subsidiary of Eaton Vance Management) acts as principal underwriter; such investment companies make substantial payments to Eaton Vance Management or Boston Management and Research for advisory and management services and substantial payments to Eaton Vance Distributors, Inc. under their distribution plans.
(C) Indebtedness of Management
In 1995, the Company increased to $10,000,000 the amount of money in the Executive Loan Program which is available for loans to certain key employees for the purpose of financing the exercise of stock options for shares of the Company's Non-Voting Common Stock. Such loans are written for a seven-year period, at varying fixed interest rates, and notes evidencing them require repayment in annual installments commencing with the third year in which the loan is outstanding. Loans outstanding under this program amounted to $3,221,000 at October 31, 1996.
The following table sets forth the executive officers and Directors of the Company who were indebted to the Company under the foregoing loan programs at any time since November 1, 1995, in an aggregate amount in excess of $60,000:
Largest Amount of Loans Rate of Interest Loans Outstanding Outstanding as Charged on Loans as Since 11/1/95 of 12/31/96 of 12/31/96 - -------------------------------------------------------------------------------- Landon T. Clay $154,805 $ 76,969 8.06% (1) M. Dozier Gardner 678,180 656,185 6.22%- 8.06% (2) James B. Hawkes 590,982 527,462 5.31%- 8.06% (3) H. Day Brigham, Jr. 332,300 315,100 5.31%- 8.06% (4) Wharton P. Whitaker 221,070 157,501 6.77% (5) John P. Rynne 114,745 113,245 5.74%-8.28% (6)
(1) 8.06% interest payable on $76,969 principal amount of loan.
Item 13. Certain Relationships and Related Transactions (continued)
(2) 6.22% interest payable on $88,000 principal amount of loan, 7.55% interest payable on $138,600 principal amount, 8.06% interest payable on $76,969 principal amount, 6.36% interest payable on $250,244 principal amount, and 7.07% interest payable on $102,372 principal amount.
(3) 5.31% interest payable on $156,888 principal amount, 5.74% interest payable on $63,102 principal amount, 6.11% interest payable on $99,000 principal amount, 7.61% interest payable on $38,500 principal amount, 8.06% interest payable on $69,972 principal amount and 6.77% interest payable on $100,000 principal amount.
(4) 5.31% interest payable on $177,100 principal amount of loan, 6.11% interest payable on $79,200 principal amount, and 8.06% interest payable on $58,800 principal amount.
(5) 6.77% interest payable on $157,501 principal amount.
(6) 5.74% interest payable on $13,500 principal amount of loan, 7.32% interest payable on $42,000 principal amount of loan, 8.28% interest payable on $26,250 principal amount of loan, and 7.12% interest payable on $31,495 principal amount of loan.
PART IV
Item 14.
Item 14. Exhibits and Financial Statement Schedules
(1) The following consolidated financial statements of Eaton Vance Corp. and report of independent accountants, included on pages 17 through 32 of the Annual Report, are incorporated by reference as a part of this Form 10-K:
Separate Document Eaton Vance Corp. 1996 Annual Report to Shareholders Page Number - -------------------------------------------------------------------------------- Consolidated Statements of Income for each of the three years in the period ended October 31, 1996 17
Consolidated Balance Sheets as of October 31, 1996 and 1995 18-19
Consolidated Statements of Cash Flows for each of the three years in the period ended October 31, 1996 20
Consolidated Statements of Shareholders' Equity for each of the three years in the period ended October 31, 1996 21-22
Notes to Consolidated Financial Statements 23-31
Independent Auditors' Report 32
(2) The following financial statement schedules and independent accountants' report are filed as part of this Form 10-K and are located on the following pages:
Description Page Number - --------------------------------------------------------------------------------
Independent Auditors' Report on Financial Statement Schedules 21
Schedule II Valuation and Qualifying Accounts 22
Schedule III Real Estate and Accumulated Depreciation 23-24
All other schedules have been omitted because they are not required, are not applicable or the information is otherwise shown in the consolidated financial statements or notes thereto.
(3) The list of exhibits required by Item 601 of Regulation S-K is set forth in the Exhibit Index and is incorporated herein by reference.
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of Eaton Vance Corp.:
We have audited the consolidated financial statements of Eaton Vance Corp. and its subsidiaries as of October 31, 1996 and 1995, and for each of the three years in the period ended October 31, 1996, and have issued our report thereon dated November 26, 1996; such consolidated financial statements and report are included in your 1996 Annual Report to Shareholders and are incorporated herein by reference. Our audits also included the consolidated financial statement schedules of Eaton Vance Corp. and its subsidiaries, listed in Item 14. These consolidated financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, such consolidated financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly in all material respects the information set forth therein.
DELOITTE & TOUCHE LLP
Boston, Massachusetts November 26, 1996
Eaton Vance Corp. Valuation and Qualifying Accounts Schedule II
Eaton Vance Corp. Real Estate and Accumulated Depreciation Schedule III
(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.
Eaton Vance Corp. Real Estate and Accumulated Depreciation (Continued) Schedule III
(1) In the fourth quarter of 1996, the Company committed to a plan to sell an office building located in Boston, Massachusetts and recognized a pre-tax impairment loss of $1.3 million based on the estimated net realizable value of the property (estimated fair value less estimated selling costs). Estimated fair value of the property was calculated using market appraisals and other available valuation techniques. At October 31, 1996, the property was reclassified as a current asset held for sale for financial reporting purposes.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Eaton Vance Corp. has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
EATON VANCE CORP.
/s/ James B. Hawkes --------------------------- James B. Hawkes President, Director and Principal Executive Officer
January 8, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of Eaton Vance Corp. and in the capacities and on the dates indicated:
EXHIBIT INDEX
Each Exhibit is listed in this index according to the number assigned to it in the exhibit table set forth in Item 601 of Regulation S-K. The following Exhibits are filed as a part of this Report or incorporated herein by reference pursuant to Rule 12b-32 under the Securities Exchange Act of 1934:
Exhibit No. Description
3.1 The Company's Amended Articles of Incorporation are filed as Exhibit 3.1 to the Company's registration statement on Form 8-B dated February 4, 1981, filed pursuant to Section 12(b) or (g) of the Securities Exchange Act of 1934 (S.E.C. File No. 1-8100) and are incorporated herein by reference.
3.2 The Company's By-Laws are filed as Exhibit 3.2 to the Company's registration statement of Form 8-B dated February 4, 1981, filed pursuant to Section 12(b) or (g) of the Securities Exchange Act of 1934 (S.E.C. File No. 1-8100) and are incorporated herein by reference.
3.3 Copy of the Company's Articles of Amendment effective at the close of business on November 22, 1983, has been filed as Exhibit 3.3 to the Annual Report on Form 10-K of the Company for the fiscal year ended October 31, 1983, (S.E.C. File No. 1-8100) and is incorporated herein by reference.
3.4 Copy of the Company's Articles of Amendment effective at the close of business on February 25, 1986 has been filed as Exhibit 3.4 to the Annual Report on Form 10-K of the Company for the fiscal year ended October 31, 1986, (S.E.C. File No. 1-8100) and is incorporated herein by reference.
4.1 The rights of the holders of the Company's Common Stock, par value $.0625 per share, and Non-Voting Common Stock, par value $.0625 per share, are described in the Company's Amended Articles of Incorporation (particularly Articles Sixth, Seventh and Ninth thereof) and the Company's By-Laws (particularly Article II thereof). See Exhibits 3.1, 3.2, 3.3 and 3.4 above as incorporated herein by reference.
9.1 Copy of the Voting Trust Agreement made as of December 31, 1996 is filed herewith.
10.1 Description of Performance Bonus Arrangement for Members of Investment Division of Eaton Vance Management has been filed as Exhibit 10.1 to the Annual Report on Form 10-K of the Company for the fiscal year ended October 31, 1995, (S.E.C. File No. 1-8100) and is incorporated herein by reference.
10.2 Description of Incentive Bonus Arrangement for Marketing Personnel of Eaton Vance Distributors, Inc. has been filed as Exhibit 10.2 to the Annual Report on Form 10-K of the Company for the fiscal year ended October 31, 1995, (S.E.C. File No. 1-8100) and is incorporated herein by reference.
EXHIBIT INDEX (continued)
Exhibit No. Description
10.3 Copy of 1984 Executive Loan Program relating to financing or refinancing the exercise of options, the purchase of stock, the tax obligations associated with such exercise or purchase and similar undertakings by key directors, officers, and employees adopted by the Company's Directors on October 19, 1984, has been filed as Exhibit 10.8 to the Annual Report on Form 10-K of the Company for the fiscal year ended October 31, 1984, (S.E.C. File No. 1-8100) and is incorporated herein by reference.
10.4 Copy of 1988 Profit Improvement Bonus Plan of Eaton Vance Management, Inc. has been filed as Exhibit 10.9 of the Annual Report on Form 10-K of the Company for the fiscal year ended October 31, 1987 (S.E.C. File No 1-8100) and is incorporated herein by reference.
10.5 Description of 1990 Performance and Retention of Officers Pool (bonus plan to reward key officers of Eaton Vance Management and Eaton Vance Distributors, Inc.) of Eaton Vance Corp. has been filed as Exhibit 10.5 to the Annual Report on Form 10-K of the Company for the fiscal year ended October 31, 1995, (S.E.C. File No. 1-8100) and is incorporated herein by reference.
10.6 Copy of 1992 Stock Option Plan as adopted by the Eaton Vance Corp. Board of Directors on April 8, 1992 has been filed as Exhibit 10.12 to the Annual Report on Form 10-K of the Company for the fiscal year ended October 31, 1992 (S.E.C. File No. 1-8100), and is incorporated herein by reference.
10.7 Copy of 1986 Employee Stock Purchase Plan as amended and restated by the Eaton Vance Corp. Board of Directors on April 8, 1992 has been filed as Exhibit 10.13 to the Annual Report on Form 10-K of the Company for the fiscal year ended October 31, 1992 (S.E.C. File No. 1-8100), and is incorporated herein by reference.
10.8 Copy of 1992 Incentive Plan - Stock Alternative as adopted by the Eaton Vance Corp. Board of Directors on July 17, 1992 has been filed as Exhibit 10.14 to the Annual Report on Form 10-K of the Company for the fiscal year ended October 31, 1992 (S.E.C. File No. 1-8100), and is incorporated herein by reference.
10.9 Copy of 1995 Stock Option Plan as adopted by the Eaton Vance Corp. Board of Directors on October 12, 1995, has been filed as Exhibit 10.9 to the Annual Report on Form 10-K of the Company for the fiscal year ended October 31, 1995, (S.E.C. File No. 1-8100) and is incorporated herein by reference.
10.10 Copy of 1986 Employee Stock Purchase Plan as amended and restated by the Eaton Vance Corp. Board of Directors on October 12, 1995, has been filed as Exhibit 10.10 to the Annual Report on Form 10-K of the Company for the fiscal year ended October 31, 1995, (S.E.C. File No. 1-8100) and is incorporated herein by reference.
EXHIBIT INDEX (continued)
Exhibit No. Description
10.11 Copy of 1995 Executive Loan Program relating to financing or refinancing the exercise of options by key directors, officers, and employees adopted by the Company's Directors on October 12, 1995, has been filed as Exhibit 10.2 to the Annual Report on Form 10-K of the Company for the fiscal year ended October 31, 1995, (S.E.C. File No. 1-8100) and is incorporated herein by reference.
10.12 Copy of the Eaton Vance Corp. Supplemental Profit Sharing Plan adopted by the Company's Directors on October 9, 1996, is filed herewith.
11.1 Statement of Computation of average number of Shares outstanding (filed herewith).
13.1 Copy of the Company's Annual Report to Shareholders for the fiscal year ended October 31, 1996 (furnished herewith - such Annual Report, except for those portions thereof which are expressly incorporated by reference in this report on Form 10-K, is furnished solely for the information of the Securities and Exchange Commission and is not to be deemed "filed" as a part of this report on Form 10-K).
21.1 List of the Company's Subsidiaries as of October 31, 1996 (filed herewith).
23.1 Independent Auditors' Consent (filed herewith).
27.1 Financial Data Schedule as of October 31, 1996 (filed herewith - electronic filing only).
99.2 List of Eaton Vance Corp. Open Registration Statements (filed herewith).