-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JlHdPNvk8jDIt2InL0fJJuU1tqZ+IbOlqGwytY6r27uBdf6xmRoSk89s/JcAdGwy 2Z+cVoOV+3uxQspe+7Wufw== 0000950156-98-000112.txt : 19980129 0000950156-98-000112.hdr.sgml : 19980129 ACCESSION NUMBER: 0000950156-98-000112 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19971031 FILED AS OF DATE: 19980128 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: EATON VANCE CORP CENTRAL INDEX KEY: 0000350797 STANDARD INDUSTRIAL CLASSIFICATION: INVESTMENT ADVICE [6282] IRS NUMBER: 042718215 STATE OF INCORPORATION: MD FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-08100 FILM NUMBER: 98514963 BUSINESS ADDRESS: STREET 1: 24 FEDERAL ST CITY: BOSTON STATE: MA ZIP: 02110 BUSINESS PHONE: 6174828260 MAIL ADDRESS: STREET 1: 24 FEDERAL STREET STREET 2: 11TH FLOOR CITY: BOSTON STATE: MA ZIP: 02110 10-K 1 EATON VANCE CORP. FORM 10-K =============================================================================== 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, 1997 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 incorporation or organization) (I.R.S. Employer Identification No.) 24 Federal Street, Boston, Massachusetts 02110 (Address of principal executive offices) (Zip Code) (617) 482-8260 -------------- (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered Non-Voting Common Stock ($0.03125 par value) New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: Non-Voting Common Stock par value $0.03125 per share Title of Class Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes [x] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [x] Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the close of the latest practicable date. Class Outstanding at December 31, 1997 Non-Voting Common Stock, $0.03125 par value 18,545,360 Common Stock, $0.03125 par value 38,720 Aggregate market value of Non-Voting Common Stock held by non-affiliates of the Registrant, based on the closing price of $37.75 on December 31, 1997 on the New York Stock Exchange was $493,605,259. 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, 1997, (Exhibit 13.1 hereto) have been incorporated by reference into the following Parts of this report: Part I, Part II and Part IV. =============================================================================== PART I ITEM 1. BUSINESS The Company's principal business is creating, marketing and managing mutual funds and providing management and counseling services to institutions and individuals. The Company has been in the investment management business for over seventy years, tracing its history to two Boston-based investment managers: Eaton & Howard, formed in 1924, and Vance, Sanders & Company, organized in 1934. As of October 31, 1997, the Company managed $21.3 billion in portfolios with investment objectives ranging from high current income to maximum capital gain. INVESTMENT MANAGEMENT AND ADMINISTRATIVE 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. As of October 31, 1997, the Company provided investment advisory or administration services to over 70 Funds ("Funds") and to over 800 separately managed individual and institutional accounts. At that date, the Funds had aggregate net assets of $18.9 billion and the Company's separately managed accounts had aggregate net assets of $2.4 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, ------------------------------------------------ 1997 1996 1995 1994 1993 ------------------------------------------------ Funds: (in millions) Money Market $ 200 $ 200 $ 200 $ 200 $ 200 Equities 5,200 3,100 2,400 2,300 2,200 Bank Loans 3,900 2,800 1,400 600 800 Taxable Fixed Income 2,100 1,300 1,300 1,300 1,100 Non-Taxable Fixed Income 7,500 8,200 8,900 9,000 8,900 ------------------------------------------------- Total 18,900 15,600 14,200 13,400 13,200 ------------------------------------------------- Separately Managed Accounts 2,400 1,700 1,800 1,600 2,200 ------------------------------------------------- Total $21,300 $17,300 $16,000 $15,000 $15,400 ================================================= On October 31, 1997, equity fund assets increased to 24 percent of total assets under management from 18 percent on October 31, 1996, while taxable and non-taxable fixed-income funds decreased to 45 percent of total assets under management from 55 percent a year ago. Floating-rate bank loan funds increased to 18 percent of total assets under management on October 31, 1997 from 16 percent a year ago. ITEM 1. BUSINESS (CONTINUED) Investment decisions for all but four of the over 70 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 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. (formerly named Mehta and Isaly Asset Management, 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 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 by the Fund upon 30 to 60 days notice without penalty. 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 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, 1997. INVESTMENT ADVISORY AND ADMINISTRATION FEES* YEAR ENDED OCTOBER 31, ---------------------------------------------------- 1997 1996 1995 1994 1993 ---------------------------------------------------- (in thousands) Investment Advisory Fees - Funds $ 95,531 $ 81,473 $ 69,094 $ 68,284 $ 59,322 Separately Managed Accounts 9,503 8,865 8,712 9,807 8,949 Administration Fees - Funds 12,071 7,793 4,631 4,257 3,295 ==================================================== Total $ 117,105 $ 98,131 $ 82,437 $ 82,348 $ 71,551 ==================================================== * Excludes gold mining investment management fees and administration fees received from funds other than Eaton Vance Funds. 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 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 Master/Feeder structure. 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 (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 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. It is anticipated that this modification will further reduce operating costs in the future by reducing existing prospectus and sales literature requirements, while continuing to offer a variety of distribution alternatives to investors and maintaining the ability to attract unaffiliated Feeder Funds. 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, 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 1996, the directors of the Medical Research Investment Fund, Inc., approved the conversion of the Fund to the Master/Feeder 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, is managed by OrbiMed Advisors Inc. ("OrbiMed") (formerly named Mehta and Isaly Asset Management), the Fund's advisor since inception. 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 of 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. A tax-managed international fund is planned for 1998. INVESTMENT ADVISORY AGREEMENTS AND DISTRIBUTION PLANS Each Eaton Vance Master Fund (excluding those managed by LGM and 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. ITEM 1. BUSINESS (CONTINUED) EVM also serves as administrator or manager under an Administration Agreement or Management Contract (each an "Agreement") to most Funds (including those managed by LGM and OrbiMed). 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) provides investment management or advisory services to most of 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. In addition, certain of the Feeder 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. 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 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 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 shares of the Feeder 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 1997, 1996 and 1995 calendar years, the five dealer firms responsible for the largest volume of Fund sales accounted for approximately 36%, 37% and 42%, 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 shares of Eaton Vance Funds. ITEM 1. BUSINESS (CONTINUED) 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 (Traditional or Class A); 2) spread-load commission (Marathon or Class B); and 3) level-load commission (Classic or Class C). For Traditional or 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 Marathon or 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. 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. For Classic or 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 Marathon or Class B shares, equal to 75 basis points of average net assets of the Fund or Class. Service fees are paid by the Fund 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. 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. ITEM 1. BUSINESS (CONTINUED) 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, 1997 (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. 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, 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. 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. ITEM 1. BUSINESS (CONTINUED) TECHNOLOGY In 1996, management initiated a program to prepare the Company's computer systems and applications for the year 2000 and is currently in the process of modifying or replacing all non-compliant systems. Although the Company expects to incur additional internal staff costs as well as other expenses necessary to prepare its systems for the year 2000, it anticipates that the majority of these costs will likely represent the redeployment of existing information technology resources and will not represent significant incremental costs to the Company. The Company is also monitoring the progress its major service providers are making to prepare their systems for operations for the year 2000. The Company does not anticipate that it or its major service providers will be unable to meet year 2000 operation commitments. REGULATION EVM and BMR are each registered with the Commission under the Advisers Act. The Advisers Act imposes numerous obligations on registered investment advisers, including fiduciary duties, recordkeeping requirements, operational requirements and disclosure obligations. Each Eaton Vance Fund is registered with the Commission under the Investment Company Act 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'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, 1997, the Company and its wholly-owned subsidiaries had 359 full-time employees. On October 31, 1996, the comparable figure was 362. ITEM 2. PROPERTIES Northeast Properties, Inc., a wholly-owned subsidiary of the Company, owns various investment properties, including office buildings located at 24 Federal Street (in which the Company is the primary tenant) and 79 Milk Street in Boston. 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. 1997 Annual Report to Shareholders (Exhibit 13.1 hereto), which are incorporated herein by reference. In 1997, the Company committed to a plan to sell the majority of investment properties not occupied by Eaton Vance Corp. and its subsidiaries. As noted in Schedule III and Notes 4 and 5 of the Notes to Consolidated Financial Statements contained in the Eaton Vance Corp. 1997 Annual Report to Shareholders, three of these properties were identified in 1997 for sale and evaluated to ensure that the estimated net realizable values of the properties exceeded their respective carrying values at October 31, 1997. In conjunction with this continuing commitment, the Board of Directors of Northeast Properties, Inc. voted in January 1998 to authorize management to obtain an independent appraisal of the value of a fourth property in Troy, New York in order to determine whether it will be feasible for the Company to offer such property for sale. If the property is offered for sale, it is unclear what impact the potential sale will have on the financial statements of the Company. 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. 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 24, 1997. All of the outstanding Voting Common Stock, namely 38,720 shares, was represented in person at the meeting. The following matters received the affirmative vote of all of the outstanding Voting Common stock: 1) The acts of the Board of Directors since the special meeting in lieu of the annual meeting of Stockholders held on January 8, 1997 were ratified. 2) Landon T. Clay was removed as a Director of the Company. 3) The written consents of the Company, each dated October 14, 1997, as sole shareholder of Eaton Vance, Inc., of EV Gold, Inc., of Fulcrum Management, Inc., and of MinVen, Inc. were ratified. 4) The actions of the Company relating to the purchase of the shares of Voting Common Stock from Landon T. Clay, the purchase of such shares, and all other actions of the Corporation in connection therewith were ratified. 5) The Amendment to the Voting Trust Agreement dated October 22, 1997 was ratified. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS (CONTINUED) A special meeting in lieu of the annual meeting of Stockholders of Eaton Vance Corp. was held at the principal office of the Company on January 14, 1998. All of the outstanding Voting Common Stock, namely 38,720 shares, was represented in person at the meeting. The following matters received the affirmative vote of all of the outstanding Voting Common Stock: 1) The Annual Report to Shareholders of the Company for the fiscal year ended October 31, 1997 was received and approved. 2) The following individuals were elected as Directors for the ensuing corporate year to hold office until the next annual meeting and until their successors are elected and qualify: John G. L. Cabot M. Dozier Gardner James B. Hawkes John M. Nelson Benjamin A. Rowland, Jr. Ralph Z. Sorenson 3) The firm of Deloitte & Touche LLP was selected as the auditors to audit the books of the Company for its fiscal year ended October 31, 1998. 4) The 1995 Stock Option Plan, Restatement No. 2, adopted by the Board of Directors on October 8 , 1997, providing for a one-time option for each new independent Director and an increase in the annual option award for each independent Director, was approved. PART II ITEM 5. MARKET FOR REGISTRANTS' COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's Voting Common Stock, $0.03125 par value, is not traded and is held by seven 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, $0.03125 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, 1997, was 949. The additional information required to be disclosed in Item 5 is found on page 5 of the Company's 1997 Annual Report to Shareholders (furnished as Exhibit 13.1 hereto), under the caption "Eaton Vance Corp.," and is incorporated herein by reference. ITEM 6. SELECTED FINANCIAL DATA Selected financial data appearing under the caption "Five Year Summary" on page 13 of the Company's 1997 Annual Report to Shareholders, furnished as Exhibit 13.1 hereto, is incorporated herein by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS Management's discussion and analysis of financial condition and results of operations appearing on pages 12 through 16 of the Company's 1997 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 19 through 37 of the Company's 1997 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. 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, 1997. NAME AGE POSITION - ------------------------------------------------------------------------------ James B. Hawkes 56 Chairman of the Board, President, Chief Executive Officer M. Dozier Gardner 64 Vice Chairman of the Board of Directors Benjamin A. Rowland, Jr. 62 Vice President and Director John G. L. Cabot 63 Director Ralph Z. Sorenson 64 Director Alan R. Dynner 57 Vice President and Chief Legal Officer Thomas E. Faust, Jr. 39 Vice President and Director of Equity Research and Management Thomas Otis 66 Vice President and Secretary Laurie G. Russell 31 Vice President and Chief Accounting Officer William M. Steul 55 Vice President, Treasurer and Chief Financial Officer Peter D. Stokinger 33 Vice President and Internal Auditor Wharton P. Whitaker 53 President, Eaton Vance Distributors, Inc. 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 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 Compensation, Management and Nominating Committees established by the Company's Board of Directors. Mr. Hawkes is an officer, trustee or director of 74 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 a Director of Fulcrum Management, Inc., MinVen, Inc., and EV Gold, Inc., each a wholly-owned subsidiary of Eaton Vance Corp. 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 Executive Committees established by the Company's Board of Directors. Mr. Gardner is an officer or trustee of 13 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. 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 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 and Nominating Committees 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, Option and Nominating Committees established by the Company's Board of Directors. 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 advisor. 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. Mr. Steul is also a Director of Eaton Vance Distributors, Inc. and Northeast Properties, Inc. 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. NEW POLICIES AFFECTING DIRECTORS AND OFFICERS After completing a review of the Company's corporate governance policies, the Board of Directors voted in October 1997 to adopt new guidelines. These include policies requiring each senior officer to retire as an employee and Director at age 65 and each independent Director to retire at the annual meeting of stockholders nearest his or her 72nd birthday. In addition, the Board determined as a matter of policy that independent Directors should constitute a majority of the Board as soon as practicable. Toward this goal, Mr. John M. Nelson was elected an independent director in January 1998. 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 1997 fiscal year. ITEM 11. EXECUTIVE COMPENSATION (A) SUMMARY COMPENSATION TABLE The following table sets forth certain information concerning the compensation for each of the last three fiscal years of the Chief Executive Officer of the Company and the four other most highly compensated executive officers of the Company (hereafter referred to in this document as the "named executive officers").
LONG TERM COMPENSATION ------------ ANNUAL COMPENSATION AWARDS ------------------------------------------------------------------------------ OTHER SECURITIES ALL ANNUAL UNDERLYING OTHER YEAR SALARY BONUS(1) COMPENSATION(2) OPTIONS COMPENSATION(3) ------------------------------------------------------------------------------- NAME AND PRINCIPAL POSITION ($) ($) ($) (#) ($) - --------------------------------------------------------------------------------------------------------------- James B. Hawkes 1997 400,000 755,000 1,350 200,000 30,000 Chief Executive Officer 1996 375,000 520,000 4,703 10,000 30,000 1995 350,000 391,460 4,488 - 23,783 - --------------------------------------------------------------------------------------------------------------- M. Dozier Gardner 1997 350,000 292,591 2,475 - 30,000 Vice Chairman of the Board 1996 360,577 444,891 9,034 - 30,000 1995 385,000 333,014 8,618 - 23,783 - --------------------------------------------------------------------------------------------------------------- Benjamin A. Rowland, Jr. 1997 260,000 275,000 - - 30,000 Vice President 1996 250,000 429,380 - - 30,000 1995 225,000 181,460 - 5,000 23,255 - --------------------------------------------------------------------------------------------------------------- Thomas E. Faust, Jr. 1997 250,000 1,060,000 6,968 30,000 31,160 Vice President 1996 200,000 225,000 7,891 30,000 31,040 1995 175,000 150,000 8,935 16,000 23,540 - --------------------------------------------------------------------------------------------------------------- Wharton P. Whitaker 1997 235,000 588,814 1,252 12,000 30,000 President, EVD 1996 225,000 428,557 9,034 6,000 30,000 1995 220,000 277,409 8,618 - 23,871 - ---------------------------------------------------------------------------------------------------------------
ITEM 11. EXECUTIVE COMPENSATION (CONTINUED) (1) Bonuses include payments in lieu of option grants to Mr. Gardner $40,000 and $44,070 in 1997 and 1996, respectively. Mr. Rowland also received bonuses in lieu of option grants of $25,000 and $29,380 in 1997 and 1996, respectively. (2) The amounts appearing under "Other Annual Compensation" represent the 10% discount on the purchase of the Company's stock under the Company's Employee Stock Purchase Plan and Incentive Plan - Stock Alternative. (3) The amounts appearing under "All Other Compensation" represent contributions by the Company to the Company's Profit Sharing, Supplemental Profit Sharing and 401(k) Plans. (B) OPTION GRANTS IN LAST FISCAL YEAR The following table summarizes stock option grants during 1997 to the named executive officers.
POTENTIAL REALIZABLE VALUE PERCENTAGE AT ASSUMED ANNUAL NUMBER OF OF TOTAL RATES OF STOCK SECURITIES OPTIONS PRICE UNDERLYING GRANTED TO EXERCISE APPRECIATION FOR OPTIONS EMPLOYEES IN PRICE EXPIRATION OPTION TERM(1) NAME GRANTED FISCAL YEAR ($/SHARE) DATE 5%($) 10% ($) - ------------------------------------------------------------------------------------------------------------------ James B. Hawkes 10,136 2% 22.962 12/20/01 64,303 142,092 189,864 38% 20.875 12/20/01 1,095,017 2,419,702 M. Dozier Gardner None (Cash - - - - - bonus in lieu of options) Benjamin A. Rowland, Jr. None (Cash - - - - - bonus in lieu of options) Thomas E. Faust, Jr. 30,000 6% 20.875 12/20/01 173,021 382,332 Wharton P. Whitaker 12,000 2% 28.875 12/20/01 69,209 152,933 (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 1997 and stock options held as of October 31, 1997 by the named executive officers.
NUMBER OF VALUE OF SHARES SECURITIES UNDERLYING UNEXERCISED ACQUIRED ON VALUE UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS EXERCISE REALIZED AT FISCAL YEAR END AT FISCAL YEAR END(1) --------------------------------------------------------------------------------------- EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE NAME (#) ($) (#) (#) ($) ($) - --------------------------------------------------------------------------------------------------------------------- James B. Hawkes 187,275 3,892,744 97,283 213,334 2,388,824 3,303,354 M. Dozier Gardner 48,328 1,243,142 - - - - Benjamin A. Rowland, Jr. 28,998 568,463 21,748 - 497,025 - Thomas E. Faust, Jr. - - 25,880 41,870 609,555 718,641 Wharton P. Whitaker 60,410 1,290,531 2,280 21,720 50,160 396,840 (1) Based on the fair market value of the Company's common stock on October 31, 1997 ($36.125) 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, 1997, John G.L. Cabot and Ralph Z. Sorenson each received $23,000; in addition, each was granted options for 1,198 shares. (E) COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION James B. Hawkes, Chairman of the Board, is a member of the Compensation Committee of the Board of Directors of the Company. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT (A) COMMON STOCK All outstanding shares of the Company's Voting Common Stock, $0.03125 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 October 30, 1997), James B. Hawkes (Chairman of the Board of Directors, President and Chief Executive Officer of the Company), M. Dozier Gardner (Vice Chairman of the Board of Directors 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), and William M. Steul (a Vice President of the Company). The Voting Trust (a copy of which is filed herewith as Exhibit 9.1) expires October 30, 2000. The Voting Trustees have unrestricted voting rights for the election of the Company's directors. At December 31, 1997, the Company had outstanding 38,720 shares of Common Stock. Inasmuch as the seven 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 four 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, 1997, of the Voting Trust Receipts issued under said Voting Trust Agreement, which Receipts cover the aggregate of 38,720 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 9,280 24% Voting Common Stock M. Dozier Gardner 9,280 24% Voting Common Stock Benjamin A. Rowland, Jr. 5,840 15% Voting Common Stock Thomas E. Faust, Jr., Jr. 5,040 13% Voting Common Stock Wharton P. Whitaker 3,094 8% Voting Common Stock Alan R. Dynner 3,093 8% Voting Common Stock William M. Steul 3,093 8% ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT (CONTINUED) Messrs. Hawkes, Gardner, and Rowland are all officers and Directors of the Company and Voting Trustees of the Voting Trust; Messrs. Faust, Dynner 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. 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, $0.03125 par value, shall have no voting rights under any circumstances whatsoever. As of December 31, 1997, the officers and Directors of the Company, as a group, beneficially owned 2,025,672 shares of such Non-Voting Common Stock or 10.49% of the 19,319,097 shares then outstanding. (Such figures include 773,737 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, 1997 (such investment power being sole unless otherwise indicated): AMOUNT OF PERCENTAGE TITLE OF CLASS BENEFICIAL OWNERS BENEFICIAL OF CLASS OWNERSHIP (A) (B) - ------------------------------------------------------------------------------- Non-Voting Common Stock Landon T. Clay 3,580,207(d)(g) 19.31 Non-Voting Common Stock M. Dozier Gardner 651,164(c)(f) 3.51 Non-Voting Common Stock James B. Hawkes 508,430(c)(d)(f) 2.73 Non-Voting Common Stock Benjamin A. Rowland,Jr. 396,708(c)(e) 2.14 Non-Voting Common Stock Wharton P. Whitaker 150,431(c) 0.81 Non-Voting Common Stock Thomas E. Faust, Jr. 118,422(c) 0.64 Non-Voting Common Stock John G. L. Cabot 46,078(c)(h) 0.25 Non-Voting Common Stock Ralph Z. Sorenson 18,284(c) 0.10 (a) Based solely upon information furnished by the individuals. (b) Based on 18,545,360 outstanding shares plus options exercisable within 60 days of 63,332 for Mr. Hawkes, 15,360 for Mr. Whitaker, 33,208 for Mr. Faust, 3,406 for Mr. Cabot and 3,406 for Mr. Sorenson. 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 14,076 shares held by Mr. Hawkes' daughter and 5,000 shares held by Mr. Clay's children. (e) Includes 2,400 shares owned by Mr. Rowland's spouse as to which Mr. Rowland disclaims beneficial ownership. (f) Includes 23,290 shares owned by Mr. Hawkes' spouse, and 75,218 shares owned by Mr. Gardner's spouse. (g) Includes 2,090 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 12,710 shares held in trust of Profit Sharing Retirement Plan for employees of LTC Corp., wholly owned by Mr. Clay. (h) Includes 8,000 shares held in a Family Limited Partnership and 2,000 shares held in a Grantor Retained Annuity Trust. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 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 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 MinVen, Inc. is one of the general partners. MinVen owns a 82.13% interest in Fulcrum Partners II. The Company, by reason of MinVen's 82.13% interest in Fulcrum Partners II, indirectly owns an additional 16.43% interest in VenturesTrident II. Two directors of the Company, M. Dozier Gardner and Benjamin A. Rowland, Jr., have limited partnership interests in VenturesTrident II; each invested $50,000 and owns a .05% interest in VenturesTrident II. Messrs. Gardner and Rowland, 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. Fulcrum Partners II terminated the VenturesTrident II effective December 31, 1997. Fulcrum Partners II acts as liquidator to wind up the affairs of the Partnership in an orderly manner. Substantially all of the Partnership's assets were distributed to the limited partners prior to October 31, 1997. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS (CONTINUED) (B) CERTAIN BUSINESS RELATIONSHIPS M. Dozier Gardner and James B. Hawkes, each a Director and executive officer of the Company, are officers and directors, trustees or general partners of various investment companies for which either Eaton Vance Management or Boston Management and Research serves as investment adviser and for which EVD acts as principal underwriter; such investment companies make substantial payments to these subsidiaries for advisory and management services or 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 $3,168,000 at October 31, 1997. 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, 1996, in an aggregate amount in excess of $60,000: LARGEST AMOUNT LOANS OF LOANS OUTSTANDING OUTSTANDING AS OF RATE OF INTEREST CHARGED SINCE 11/1/96 12/31/97 ON LOANS AS OF 12/31/97 - ------------------------------------------------------------------------------- M. Dozier Gardner $ 656,184 $ 620,329 6.22%- 8.06% (1) James B. Hawkes 527,461 484,466 5.31%- 8.06% (2) Wharton P. Whitaker 224,796 224,796 6.69% (3) Thomas E. Faust, Jr. 81,758 81,758 6.56% (4) (1) 8.06% interest payable on $65,973 principal amount of loan, 6.22% interest payable on $77,000 principal amount, 7.55% interest payable on $124,740 principal amount, 6.36% interest payable on $250,244 principal amount, and 7.07% interest payable on $102,372 principal amount. (2) 8.06% interest payable on $59,976 principal amount, 6.11% interest payable on $88,000 principal amount, 5.31% interest payable on $2,599 principal amount, 5.31% interest payable on $138,600 principal amount, 5.74% interest payable on $56,791 principal amount and 7.61% interest payable on $38,500, and 6.77% interest payable on $100,000 principal amount. (3) 6.69% interest payable on $224,796 principal amount. (4) 6.56% interest payable on $81,758 principal amount of loan. PART IV ITEM 14. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (1) The following consolidated financial statements of Eaton Vance Corp. and report of independent accountants, included on pages 19 through 37 of the Annual Report, are incorporated by reference as a part of this Form 10-K: SEPARATE EATON VANCE CORP. 1997 ANNUAL REPORT TO DOCUMENT SHAREHOLDERS PAGE NUMBER - ------------------------------------------------------------------------------- Consolidated Statements of Income for each of the three years in the period ended October 31, 1997 19 Consolidated Balance Sheets as of October 31, 1997 and 1996 20-21 Consolidated Statements of Cash Flows for each of the three years in the period ended October 31, 1997 ` 22 Consolidated Statements of Shareholders' Equity for each of the three years in the period ended October 31, 1997 23 Notes to Consolidated Financial Statements 24-36 Independent Auditors' Report 37 (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 NUMBER PAGE ----------------------------------------------------------------------------- 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, 1997 and 1996, and for each of the three years in the period ended October 31, 1997, and have issued our report thereon dated November 25, 1997; such consolidated financial statements and report are included in your 1997 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 25, 1997 EATON VANCE CORP. VALUATION AND QUALIFYING ACCOUNTS SCHEDULE II
YEARS ENDED OCTOBER 31, 1997, 1996 AND 1995 - --------------------------------------------------------------------------------------------------------------- ADDITIONS BALANCE AT CHARGED TO BEGINNING COSTS AND BALANCE AT DESCRIPTION OF YEAR EXPENSES DEDUCTIONS END OF YEAR - --------------------------------------------------------------------------------------------------------------- Valuation accounts deducted from assets to which they apply: Allowance for doubtful accounts on notes receivable and receivables from affiliates: Year ended October 31: 1997 $ 775,000 - $775,000 - 1996 $1,200,000 $300,000 $725,000 $ 775,000 1995 $ 800,000 $400,000 - $1,200,000
EATON VANCE CORP. REAL ESTATE AND ACCUMULATED DEPRECIATION SCHEDULE III
OCTOBER 31, 1997 - ------------------------------------------------------------------------------------------------------------------------------------ COSTS CAPITALIZED GROSS CARRYING AMOUNT INITIAL COST SUBSEQUENT OCTOBER 31, 1997 (1) --------------------- TO -------------------- ACQUISITION DATE OF DEPRE- (IMPROVE- ACCUMULATED CONSTRUC- DATE CIABLE DESCRIPTION ENCUMBRANCES LAND BUILDINGS MENTS) LAND BUILDINGS DEPRECIATION TION ACQUIRED LIFE - ------------------------------------------------------------------------------------------------------------------------------------ Shopping mall and office building - Troy, NY $2,424,185 $ 834,100 $4,033,921 $3,387,803 $ 834,100 $7,421,724 $1,818,550 1978 05/01/87 31.5yrs. Office building - Boston, MA - 280,800 4,009,836 2,017,501 280,800 6,027,337 2,595,443 1920 10/31/90 20 yrs. Boston, MA 5,872,149 1,164,113 4,651,554 153,231 1,164,113 4,804,785 80,727 1883 03/03/97 39 yrs. ---------------------------------------------------------------------------------------- TOTAL $8,296,334 $2,279,013 $12,695,311 $5,558,535 $2,279,013 $18,253,846 $4,494,720 ======================================================================================== (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 YEARS ENDED OCTOBER 31, 1997, 1996 AND 1995 - ------------------------------------------------------------------------------- 1997 1996 1995 ------------------------------------- LAND AND BUILDINGS: Gross carrying amount, beginning of year $26,353,167 $30,288,033 $29,812,704 Additions during period: Acquisition (1) 5,855,284 - - Improvements 833,184 1,650,801 475,329 Deductions during period: Cost of real estate sold (78,203) - - Reclassification of assets held for sale (2) (3) (12,430,573) (5,585,667) - ------------------------------------------- Gross carrying amount, end of year $20,532,859 $26,353,167 $30,288,033 =========================================== Accumulated depreciation, beginning of year $ 7,534,281 $8,424,489 $ 7,510,277 Additions during period: Depreciation 852,435 914,212 918,105 Deductions during period: Reclassification of assets held for sale (2) (3) (3,891,996) (1,808,313) - ------------------------------------------- Accumulated depreciation, end of year $ 4,494,720 7,534,281 $ 8,424,489 =========================================== (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 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 classified as a current asset held for sale for financial reporting purposes. (3) In 1997, the Company committed to a plan to sell two industrial warehouse buildings located in Springfield, Massachusetts and Colonie, New York and a shopping center in Goffstown, New Hampshire. At October 31, 1997, the properties were classified as current assets 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 Chairman, Director and Principal Executive Officer January 28, 1998 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, 1998 James B. Hawkes Principal Executive Officer /s/ M. Dozier Gardner Vice Chairman and Director January 28, 1998 M. Dozier Gardner /s/ William M. Steul Chief Financial Officer January 28, 1998 William M. Steul /s/ Laurie G. Russell Chief Accounting Officer January 28, 1998 Laurie G. Russell /s/ Benjamin A. Rowland, Jr. Director January 28, 1998 Benjamin A. Rowland, Jr. /s/ John G.L. Cabot Director January 28, 1998 John G.L. Cabot /s/ Ralph Z. Sorenson Director January 28, 1998 Ralph Z. Sorenson 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 $.03125 per share, and Non-Voting Common Stock, par value $.03125 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 October 30, 1997 (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 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. 1-8100), 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. EXHIBIT INDEX (CONTINUED) EXHIBIT NO. DESCRIPTION 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. 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 (filed herewith). 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 (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, 1997 (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, 1997 (filed herewith). 23.1 Independent Auditors' Consent (filed herewith). EXHIBIT INDEX (CONTINUED) EXHIBIT NO. DESCRIPTION 27.1 Financial Data Schedule as of October 31, 1997 (filed herewith - electronic filing only). 99.2 List of Eaton Vance Corp. Open Registration Statements (filed herewith). EX-9.1 2 COPY OF VOTING TRUST AGREEMENT DTD 10/30/97 EXHIBIT 9.1 VOTING TRUST AGREEMENT THIS VOTING TRUST AGREEMENT is made as of October 30, 1997, by and between (1) Alan R. Dynner, Thomas E. Faust, Jr., M. Dozier Gardner, James B. Hawkes, Benjamin A. Rowland, Jr., William M. Steul, and Wharton P. Whitaker (collectively, the "Voting Trustees"); (2) the undersigned holders (collectively, the "Stockholders") of all of the issued and outstanding 38,720 shares of voting Common Stock, par value $.03125 per share, of Eaton Vance Corp., a Maryland corporation (the "Stock"); and (3) Eaton Vance Corp. (the "Company"). WITNESSETH THAT: WHEREAS, the Company has authorized 160,000 shares of the Stock, of which 38,720 shares were issued and outstanding and held subject to the voting trust created by the Voting Trust Agreement made as of December 31, 1996 (the "1996 Agreement"); WHEREAS, the voting trust created by the 1996 Agreement has been terminated, the Stock has been distributed to the former holders of the voting trust receipts issued under the 1996 Agreement, and such holders are among the Stockholders by virtue of such distribution; and WHEREAS, the Stockholders wish to create and constitute a new voting trust and to deposit their Stock with the Voting Trustees to be held subject to this Agreement, in order to ensure the successful prosecution and development of the Company's business by providing a consistent policy of management through vesting in the Voting Trustees the power and authority conferred upon them hereby; NOW THEREFORE, in consideration of the premises and of the deposit of the Stock by the Stockholders hereunder, the parties agree as follows: 1. Each Stockholder hereby directs that the shares of his Stock set against his name be deposited with the Voting Trustees and registered on the books of the Company in the name of the Voting Trustees, and acknowledges that his Stock shall be held by the Voting Trustees hereunder, collectively, and not individually, subject to this Agreement. The Company consents to this Agreement and the voting trust created hereby (the "Voting Trust"). The Company does not ordinarily issue certificates for shares of Stock, and has caused all shares of Stock deposited hereunder to be registered on its books in the names of the Voting Trustees collectively, and not individually. Any holder of shares of Stock may, with the consent of the Voting Trustees, deposit his or her Stock hereunder and receive Voting Trust Receipts with respect thereto, and become a Stockholder party to this Agreement subject to all of the provisions hereof, by executing Schedule A of this Agreement. No Stockholder party hereto may withdraw his or her Stock deposited under this Agreement, unless (a) the Voting Trustees consent to such withdrawal, or (b) such Stock is repurchased by the Company, or (c) the Voting Trust is terminated as provided herein. EXHIBIT 9.1 (CONTINUED) 2. Any Stockholder party hereto whose Stock is deposited hereunder may, with the consent of the Voting Trustees and the consent required by Section 3(5), become a Voting Trustee party to this Agreement, subject to all of the provisions hereof, by executing Schedule B of this Agreement. A Voting Trustee may be removed, with or without cause, by the vote of a majority of the other Voting Trustees, with the consent required by Section 3(5). If a Voting Trustee for any reason, including by the sale of his or her Stock to the Company and the transfer, as provided herein, of all of his or her Voting Trust Receipts to another person or persons, no longer holds any Stock or any Voting Trust Receipts, he or she shall automatically cease being a Voting Trustee. 3. Except as otherwise provided herein, all actions and decisions by the Voting Trustees for all purposes, including voting the Stock deposited hereunder, shall be by a vote of at least a majority of the Voting Trustees; provided, that if there are fewer than three Voting Trustees, such vote must be unanimous for the Voting Trustees to act; provided, further, that any action by the Voting Trustees to approve (1) the sale, mortgage or pledge of all or substantially all of the assets of the Company, or (2) a change in the capital structure or the powers of the Company, or (3) a merger, consolidation, reorganization, or dissolution of the Company, or (4) an amendment to, or the termination of the Voting Trust under, this Agreement, or (5) the addition of a Voting Trustee, or the removal of a Voting Trustee by the other Voting Trustees, or (6) the renewal of the term of the Voting Trust, shall require the written consent of the holders of outstanding Voting Trust Receipts representing at least a majority of the shares of Stock subject to the Voting Trust. All votes of the Voting Trustees shall be either (a) taken at a meeting of the Voting Trustees called by any Voting Trustee with at least 24 hours notice to all other Voting Trustees (or upon waiver of notice), or (b) recorded without a meeting on one or more written proxies signed by each Voting Trustee showing his or her vote on each matter. 4. The Voting Trustees shall issue Voting Trust Receipts in the form attached hereto as Exhibit A for all shares of Stock deposited hereunder. Voting Trust Receipts shall entitle the holders to receive the equivalent of all cash dividends that may be paid to the Voting Trustees with respect to the deposited Stock represented thereby. The Voting Trustees may provide for direct payment of such cash dividends to the holders of Voting Trust Receipts by a dividend order to the Company. In case of any stock dividend upon the deposited Stock, the Voting Trustees shall hold the Stock so issued as such dividend as additional Stock deposited hereunder by the Stockholder entitled thereto, and issue and deliver to the appropriate record holders of the Voting Trust Receipts additional Voting Trust Receipts representing such additional Stock. If the capital stock of the Company shall be increased and the Voting Trustees, as holders of the deposited Stock shall be entitled to subscribe for additional shares, they shall notify the holders of record of the outstanding Voting Trust Receipts, and provide appropriate forms for subscription or assignment of corresponding rights in this Voting Trust, and fix a time for payment to the Voting Trustees of the amount required to take up subscription rights and enable them to purchase on behalf of the voting trust the new Stock to which they may be entitled. Upon receipt of said sums, the Voting Trustees shall subscribe for the new shares and hold them as part of the Stock deposited under this Agreement and shall issue and deliver to the subscribing holders of Voting Trust Receipts additional Voting Trust Receipts representing such additional Stock so purchased. In case the holder of any Voting Trust Receipts shall fail to furnish the money for subscription for such new Stock, the Voting Trustees shall be under no obligation to subscribe, but they may sell such rights, and shall account to the holders of the Voting Trust Receipts entitled thereto for the proceeds of any rights sold, but they shall be under no duty to sell such rights, and shall not be liable for failure to make such sale. EXHIBIT 9.1 (CONTINUED) 5. Voting Trust Receipts shall be transferable with the consent in writing of the Voting Trustees on surrender of the Voting Trust Receipt duly endorsed for transfer, or accompanied by a transfer in writing signed by the record holder thereof. The Voting Trustees shall record such transfers upon books kept by them for that purpose. All Voting Trust Receipts shall be held subject to the conditions and restrictions set forth below, the provisions of which shall at all times apply equally both to an original holder and to each and every subsequent holder thereof; and each holder of any Voting Trust Receipt, by acceptance thereof, agrees with the Company and each other such holder to the following conditions and restrictions: (i) No transfer of any kind of the Voting Trust Receipts shall be made at any time unless the Voting Trustees have consented thereto. (ii) In the event of death of a holder of the Voting Trust Receipts or in the event such a holder who is an employee of the Company or of a subsidiary of the Company ceases for any reason to be such an employee, the Stock represented by such Voting Trust Receipts may be purchased by the Company at book value, as provided in the Company's Articles of Incorporation, as amended (the "Articles"). If at any time a Stockholder shall be obligated to offer his shares of Stock to the Company for purchase by the Company at book value, as provided in Article SEVENTH of the Articles, and if the Company, whether or not such Stockholder offers such Stock to the Company, indicates its intent to so purchase such Stock and tenders payment therefor to such Stockholder, then, if such Stock has been deposited under this Agreement, (a) the Company may treat such Stock as having been purchased by the Company and may cause such Stock to be registered on its books as authorized but unissued shares of Stock of the Company, and (b) such Stockholder shall immediately deliver the Voting Trustee Receipts representing such Stock to the Company, and if such Voting Trust Receipts are not returned to the Company by such Stockholder within one day after such tender of payment, they shall be null and void. 6. Title to the Stock deposited hereunder shall be vested in and held of record in the names of the Voting Trustees, collectively and not individually. Stock deposited shall be pooled and shall not be sold or disposed of during the term of this Voting Trust, except that (a) the Voting Trustees may facilitate the sale of Stock to the Company, as provided in the Articles, and (b) the Voting Trustees may sell all, but not less than all, of the deposited Stock, at a price approved in writing by all the holders of all outstanding Voting Trust Receipts. In case of sale under clause (b), the proceeds (less any brokerage fees, transfer taxes and other expenses of sale and any legal or other expenses and liabilities incurred by the Voting Trustees) shall be divided, as soon as conveniently practicable, among the holders of Voting Trust Receipts according to their holdings. 7. The Voting Trust shall terminate on the date three years from the date hereof, and may be renewed by the Voting Trustees, with the consent required by Section 3(6), for an additional three year term. The Voting Trust may be terminated at any time by the Voting Trustees, with the consent required by Section 3(4). At the termination of this Voting Trust, the deposited Stock, if not previously sold by the Voting Trustees under powers hereby vested in them, shall be distributed among the holders of the outstanding Voting Trust Receipts according to their respective interests by the Company recording on its books the name of each holder as the stockholder of record of the number of shares of Stock to which he or she is entitled. EXHIBIT 9.1 (CONTINUED) 8. The Voting Trustees shall have power to prescribe the method of deposit of shares of Stock, the issue of Voting Trust Receipts, the division of proceeds of sale of the deposited Stock among the holders of the Voting Trust Receipts, the redemption of the deposited Stock, if not sold, and all other matters concerning the operation and management of this Voting Trust. They shall have power to appoint and remove at their discretion depositories to hold any certificates which the Company may issue for the deposited Stock, and agents to act under them in administering the Voting Trust, and proxies to vote the deposited Stock. Any Voting Trustee may acquire, hold and sell for himself or in any fiduciary capacity Voting Trust Receipts issued under the Agreement, and may be an officer, director, and/or stockholder of the Company, and may vote as a stockholder for his own election to office, and may accept employment from the Company, and have any dealings with the Company as freely as if he or she were not a Voting Trustee. No purchaser from the Voting Trustees shall be liable for their disposal of the purchase money. Any statement signed by the Voting Trustees concerning this Voting Trust or any act done by them as Voting Trustees, shall be conclusive evidence that the statement is true and the act is within their powers. Any certificate or other document signed by at least three of the Voting Trustees (or two, if there are only three Voting Trustees) and filed with the duplicate original of this Agreement at the office of the Company, shall be sufficient evidence, for all purposes, of the facts certified therein. 9. No Voting Trustee shall be liable for the acts or defaults of any other Voting Trustee, or of any depository, agent or attorney employed by the Voting Trustees, or for any error of judgment or mistake of law or fact, or for anything except his or her own willful misconduct or gross negligence. The Voting Trustees shall serve without remuneration. They shall be entitled to indemnity out of the trust property against any loss or liability incurred in the performance of their duties. The Company hereby indemnifies and holds harmless each of the Voting Trustees for and against all claims, loss, expenses (including legal fees and expenses), and liabilities of any kind arising out of or in connection with sewing as a Voting Trustee hereunder and not adjudicated as due to his or her own willful misconduct or gross negligence. 10. This Agreement may be amended from time to time by action of the Voting Trustees, with the consent required Section 3(4), and such amendment shall become binding upon all the holders of Voting Trust Receipts. This Agreement and any amendment hereof may be executed in several counterparts, which shall in each case be treated as a single instrument for all purposes. A duplicate original of this Agreement and of each amendment shall be kept at the office of the Company in Boston, Massachusetts, where it may be inspected by any of the Stockholders during ordinary business hours. 11. This Agreement shall be governed by the internal laws of the State of Maryland. This Agreement shall be binding upon the parties hereto, the holders of the Voting Trust Receipts issued hereunder, their respective executors, administrators, and successors and assigns, and the Voting Trustees and their successors in office. EXHIBIT 9.1 (CONTINUED) IN WITNESS WHEREOF, the Voting Trustees, the Company and the Stockholders have hereunto set their hands, all as of the day and year first shown above written: STOCKHOLDERS AND NUMBER OF SHARES THE COMPANY VOTING TRUSTEES OF STOCK DEPOSITED EATON VANCE CORP. By 3,093 ----------------------- --------------------------- James B. Hawkes Alan R. Dynner its President 5,040 --------------------------- Thomas E. Faust, Jr. 9,280 --------------------------- M. Dozier Gardner 9,280 --------------------------- James B. Hawkes 5,840 --------------------------- Benjamin A. Rowland, Jr. 3,093 --------------------------- William M. Steul 3,094 --------------------------- Wharton P. Whitaker EXHIBIT 9.1 (CONTINUED) SCHEDULE A The undersigned, _________________________________, is the owner of ____________shares of voting Common Stock, par value $.03125 per share, of Eaton Vance Corp., and hereby deposits with the Voting Trustees all such shares, which shall be registered on the books of the Company in the name of the Voting Trustees and shall be held by the Voting Trustees, and the undersigned has received Voting Trust Receipts with respect to such shares. By executing this Schedule A to the Voting Trust Agreement made as of October 30, 1997, the undersigned, with the consent of the Voting Trustees, becomes a Stockholder party to said Agreement, subject to all of the provisions thereof. Dated: ---------------------- ------------------------------- Certified as Consented to by Stockholder at least a majority of the Voting Trustees: - ---------------------------- ---------------------------- Voting Trustee Voting Trustee - ----------------------------- Voting Trustee EXHIBIT 9.1 (CONTINUED) SCHEDULE B The undersigned, _________________________________, is the owner of ____________shares of voting Common Stock, par value $.03125 per share, of Eaton Vance Corp., which are deposited with the Voting Trustees and registered on the books of the Company in the name of the Voting Trustees and held by the Voting Trustees, and the undersigned has received Voting Trust Receipts with respect to such shares. By executing this Schedule B to the Voting Trust Agreement made as of October 30, 1997, the undersigned, with the consent of the Voting Trustees, becomes a Voting Trustee party to said Agreement, subject to all of the provisions thereof. Dated:______________________ ------------------------------- Certified as Consented to by at least Stockholder a majority of the Voting Trustees and by the holders of outstanding Voting Trust Receipts representing at least a majority of the shares of Stock subject to the Voting Trust Agreement. - ---------------------------- --------------------------------- Voting Trustee Voting Trustee - ----------------------------- Voting Trustee EXHIBIT 9.1 (CONTINUED) EXHIBIT A EATON VANCE CORP. VOTING TRUST RECEIPT FOR VOTING COMMON STOCK NO.___________ __________ SHARES This certifies that will be entitled to receive from the Voting Trustees under a Voting Trust Agreement made as of October 30, 1997, as heretofore and hereafter amended, and lodged in the office of the Company at Boston, Massachusetts, or their successors or assigns, a certificate or certificates issued by Eaton Vance Corp., a Maryland corporation, for shares of its common stock, par value $.03125 per share, or, if the Company does not then issue certificates for its shares of common stock, will be entitled to have such shares registered in his or her name on the books of the Company; and that pending the sale or distribution of the stock held by the Voting Trustees under said Agreement, the registered holder hereof from time to time, as cash dividends and distributions of assets are paid by the Company, will be entitled to receive in respect of this Receipt the equivalent of said dividends or distributions upon the number of shares represented by this Voting Trust Receipt. This Receipt is issued under and subject to the provisions (including but not limited to Section 5 which is set forth on the reverse side hereof) of said Agreement as heretofore and hereafter amended to which the holder hereof by accepting this Receipt assents and agrees to be bound. No voting right attaches to this Receipt or passes to the holder thereof under any agreement expressed or implied, and no stock certificate will be due or deliverable hereunder, except according to the provisions of said Agreement. This Receipt is transferable on the books of the Voting Trustees by the registered holder in person or by attorney on surrender of this Receipt only with the written consent of the Voting Trustees as certified to on the reverse side hereof and upon compliance with the provisions of Section 5 of said Agreement. Until so transferred the Voting Trustees may treat the registered holder as owner of this Receipt for all purposes. IN WITNESS WHEREOF, the undersigned Voting Trustees hereunto subscribe their names this day of , 19 , and certify that the issuance of this Voting Trust Receipt has been duly authorized by the Voting Trustees. - --------------------------- -------------------------- VOTING TRUSTEE VOTING TRUSTEE ------------------------------ VOTING TRUSTEE EXHIBIT 9.1 (CONTINUED) For Value Received, the undersigned,____________________________________________ hereby sells, assigns and transfers the interest represented by the within Receipt and all right, title and interest of the undersigned in, or in respect of, the stock represented thereby, under and subject to the terms of the Agreement within mentioned, and do hereby irrevocably constitute and appoint ___________________________________________________ as my attorney-in-fact to make such transfer upon the books of the Voting Trustees, with full power of substitution in the premises. Dated: , 19 ----------------------------------- Witness: (The signature to this assignment must correspond exactly with the name ------------------ as written on the face of the Receipt.) We hereby certify that the Voting Trustees have consented to the sale, assignment and transfer of the interest represented by the within Receipt. Date: , 19 ----------------- ------------------------------ VOTING TRUSTEE - ------------------------------ VOTING TRUSTEE ------------------------------ VOTING TRUSTEE EXHIBIT 9.1 (CONTINUED) Section 5 of the Voting Trust Agreement made as of October 30, 1997, states as follows: 5. Voting Trust Receipts shall be transferable with the consent in writing of the Voting Trustees on surrender of the Voting Trust Receipt duly endorsed for transfer, or accompanied by a transfer in writing signed by the record holder thereof. The Voting Trustees shall record such transfers upon books kept by them for that purpose. All Voting Trust Receipts shall be held subject to the conditions and restrictions set forth below, the provisions of which shall at all times apply equally both to an original holder and to each and every subsequent holder thereof; and each holder of any Voting Trust Receipt, by acceptance thereof, agrees with the Company and each other such holder to the following conditions and restrictions: (i) No transfer of any kind of the Voting Trust Receipts shall be made at any time unless the Voting Trustees have consented thereto. (ii) In the event of death of a holder of the Voting Trust Receipts or in the event such a holder who is an employee of the Company or of a subsidiary of the Company ceases for any reason to be such an employee, the Stock represented by such Voting Trust Receipts may be purchased by the Company at book value, as provided in the Company's Articles of Incorporation, as amended (the "Articles"). If at any time a Stockholder shall be obligated to offer his shares of Stock to the Company for purchase by the Company at book value, as provided in Article SEVENTH of the Articles, and if the Company, whether or not such Stockholder offers such Stock to the Company, indicates its intent to so purchase such Stock and tenders payment therefor to such Stockholder, then, if such Stock has been deposited under this Agreement, (a) the Company may treat such Stock as having been purchased by the Company and may cause such Stock to be registered on its books as authorized but unissued shares of Stock of the Company, and (b) such Stockholder shall immediately deliver the Voting Trustee Receipts representing such Stock to the Company, and if such Voting Trust Receipts are not returned to the Company by such Stockholder within one day after such tender of payment, they shall be null and void. EXHIBIT 9.1 (CONTINUED) EATON VANCE CORP. VOTING TRUST RECEIPT FOR VOTING COMMON STOCK NO.___________ __________ SHARES This certifies that will be entitled to receive from the Voting Trustees under a Voting Trust Agreement made as of October 30, 1997, as heretofore and hereafter amended, and lodged in the office of the Company at Boston, Massachusetts, or their successors or assigns, a certificate or certificates issued by Eaton Vance Corp., a Maryland corporation, for shares of its common stock, par value $.03125 per share, or, if the Company does not then issue certificates for its shares of common stock, will be entitled to have such shares registered in his or her name on the books of the Company; and that pending the sale or distribution of the stock held by the Voting Trustees under said Agreement, the registered holder hereof from time to time, as cash dividends and distributions of assets are paid by the Company, will be entitled to receive in respect of this Receipt the equivalent of said dividends or distributions upon the number of shares represented by this Voting Trust Receipt. This Receipt is issued under and subject to the provisions (including but not limited to Section 5 which is set forth on the reverse side hereof) of said Agreement as heretofore and hereafter amended to which the holder hereof by accepting this Receipt assents and agrees to be bound. No voting right attaches to this Receipt or passes to the holder thereof under any agreement expressed or implied, and no stock certificate will be due or deliverable hereunder, except according to the provisions of said Agreement. This Receipt is transferable on the books of the Voting Trustees by the registered holder in person or by attorney on surrender of this Receipt only with the written consent of the Voting Trustees as certified to on the reverse side hereof and upon compliance with the provisions of Section 5 of said Agreement. Until so transferred the Voting Trustees may treat the registered holder as owner of this Receipt for all purposes. IN WITNESS WHEREOF, the undersigned Voting Trustees hereunto subscribe their names this day of , 19 , and certify that the issuance of this Voting Trust Receipt has been duly authorized by the Voting Trustees. - --------------------- -------------------------- VOTING TRUSTEE VOTING TRUSTEE ------------------------------ VOTING TRUSTEE EXHIBIT 9.1 (CONTINUED) For Value Received, the undersigned,___________________________________________ hereby sells, assigns and transfers the interest represented by the within Receipt and all right, title and interest of the undersigned in, or in respect of, the stock represented thereby, under and subject to the terms of the Agreement within mentioned, and do hereby irrevocably constitute and appoint ___________________________________________________ as my attorney-in-fact to make such transfer upon the books of the Voting Trustees, with full power of substitution in the premises. Dated: , 19 ----------------------------- Witness: (The signature to this assignment must correspond exactly with the name as written on the face of the Receipt.) We hereby certify that the Voting Trustees have consented to the sale, assignment and transfer of the interest represented by the within Receipt. Date: , 19 ----------------- ------------------------------ VOTING TRUSTEE - ------------------------------ VOTING TRUSTEE ------------------------------ VOTING TRUSTEE EXHIBIT 9.1 (CONTINUED) Section 5 of the Voting Trust Agreement made as of October 30, 1997, states as follows: 5. Voting Trust Receipts shall be transferable with the consent in writing of the Voting Trustees on surrender of the Voting Trust Receipt duly endorsed for transfer, or accompanied by a transfer in writing signed by the record holder thereof. The Voting Trustees shall record such transfers upon books kept by them for that purpose. All Voting Trust Receipts shall be held subject to the conditions and restrictions set forth below, the provisions of which shall at all times apply equally both to an original holder and to each and every subsequent holder thereof; and each holder of any Voting Trust Receipt, by acceptance thereof, agrees with the Company and each other such holder to the following conditions and restrictions: (i) No transfer of any kind of the Voting Trust Receipts shall be made at any time unless the Voting Trustees have consented thereto. (ii) In the event of death of a holder of the Voting Trust Receipts or in the event such a holder who is an employee of the Company or of a subsidiary of the Company ceases for any reason to be such an employee, the Stock represented by such Voting Trust Receipts may be purchased by the Company at book value, as provided in the Company's Articles of Incorporation, as amended (the "Articles"). If at any time a Stockholder shall be obligated to offer his shares of Stock to the Company for purchase by the Company at book value, as provided in Article SEVENTH of the Articles, and if the Company, whether or not such Stockholder offers such Stock to the Company, indicates its intent to so purchase such Stock and tenders payment therefor to such Stockholder, then, if such Stock has been deposited under this Agreement, (a) the Company may treat such Stock as having been purchased by the Company and may cause such Stock to be registered on its books as authorized but unissued shares of Stock of the Company, and (b) such Stockholder shall immediately deliver the Voting Trustee Receipts representing such Stock to the Company, and if such Voting Trust Receipts are not returned to the Company by such Stockholder within one day after such tender of payment, they shall be null and void. EX-10.15 3 1992 STOCK OPTION PLAN EXHIBIT 10.15 EATON VANCE CORP. 10/30/97 1992 STOCK OPTION PLAN - RESTATEMENT NO. 2 1. Definitions. As used in this Eaton Vance Corp. 1992 Stock Option Plan - Restatement No. 2, the following terms shall have the following meaning: Board means the Company's Board of Directors. Code means the Internal Revenue Code of 1986, as amended. Committee means a committee comprised of one or more directors of the Company, appointed by the Board of Directors of the Company, responsible for the administration of the Plan, as provided in Section 5. Company means Eaton Vance Corp., a Maryland corporation. Director Option means a nonstatutory stock option granted to a director pursuant to Section 8. Grant Date means the date on which an Option is granted. Incentive Option means an Option that satisfies the requirements of Section 422 of the Code. Market Value means the closing price on the New York Stock Exchange for the Shares for any date. Nonstatutory Option means an Option other than an Incentive Option granted to an employee. Option means an option to purchase Shares granted under the Plan. Option Agreement means an agreement between the Company and an Optionee, setting forth the terms and conditions of an Option. Option Price means the price to be paid by an Optionee upon exercise of an Option. Optionee means a person eligible to receive an Option to whom an Option shall have been granted under the Plan. Plan means this 1992 Stock Option Plan. Shares means shares of Non-Voting Common Stock of the Company. Subsidiary means a subsidiary of the Company, as defined in Section 424(f) of the Code. EXHIBIT 10.15 (CONTINUED) 2. Purpose. The purpose of the Plan is to advance the interests of the Company by strengthening the ability of the Company and its Subsidiaries to attract, retain and motivate directors and key employees by providing them with an opportunity to purchase non-voting common stock of the Company and thus participate in its ownership, including the opportunity to share in any appreciation in the value of that stock. It is intended that some of the Options to be granted will be Incentive Options and others will not be. It is further intended that this Plan will satisfy all of the conditions of Rule 16b-3 under the Securities Exchange Act of 1934, as amended. 3. Effective Date. The original Plan became effective on April 8, 1992, the date it was adopted by the Board, and was approved by the stockholders of the Company on May 15, 1992. This Restatement No. 1 was approved by the Board and such stockholders on April 9, 1997. 4. Stock Subject to the Plan. The Shares with respect to which Options may be granted under this Plan shall not exceed 300,000 Shares. Any Shares subject to an Option which for any reason expires or is terminated unexercised as to such Shares may again be the subject of an Option. In addition, any Shares purchased by an Optionee upon exercise of an Option which are subsequently repurchased by the Company pursuant to the terms of that Option may again be made the subject of an Option. The Shares delivered upon exercise of Options may be either authorized but unissued Shares or issued Shares reacquired by the Company. 5. Administration. The Board shall appoint a Committee consisting exclusively of at least two directors who are not employees of the Company or any of its Subsidiaries and who have not, within twelve months preceding any action by the Committee, received any option (other than a Director Option) granted by the Company or any Subsidiary. The Plan shall be administered by the Committee. Subject to the provisions of the Plan, the Committee shall have full power to construe and interpret the Plan and to establish, amend and rescind rules and regulations for its administration. Any decision made with respect thereto shall be final and binding on the Company, the Optionees and all other persons. 6. Duration of the Plan. This Plan shall terminate ten years from the original effective date hereof, unless terminated earlier pursuant to Section 14, and no Options may be granted thereafter. 7. Options for Employees. (a) Eligible Employees. Options may be granted to key employees of the Company or of any of its Subsidiaries selected by the Committee. (b) Restrictions on Incentive Options. Incentive Options shall be subject to the following restrictions: (i) Limitation on Number of Shares. To the extent that the aggregate Market Value on the Grant Date of the Shares with respect to which an Option that would otherwise constitute an Incentive Option (when aggregated, if appropriate, with incentive stock options granted before the Option under this Plan or any other plan maintained by the Company or any Subsidiary of the Company) is exercisable for the first time by the Optionee during any calendar year exceeds $100,000, the Option shall be treated as a Nonstatutory Option. EXHIBIT 10.15 (CONTINUED) (ii) 10% Stockholder. If any Optionee to whom an Incentive Option is granted is on the Grant Date the owner of stock (as determined under Section 424(d) of the Code) possessing more than 10% of the total combined voting power of all classes of stock of the Company or any of its Subsidiaries, then the following special provisions shall be applicable to that Incentive Option: (A) The Option Price per Share shall not be less than 110% of the Market Value on the Grant Date; and (B) The Incentive Option shall expire not more than five years after the Grant Date. (c) Price. Subject to the conditions on certain Incentive Options in Section 7(b), the Option Price per Share payable upon the exercise of each Incentive Option shall be not less than 100% of the Market Value on the Grant Date. The Option Price per Share of stock payable upon exercise of each Nonstatutory Option shall be determined by the Committee, provided that the Option Price shall not be less than 50% of the Market Value on the Grant Date. (d) Number of Shares. Each Option Agreement shall specify the number of Shares to which it pertains. (e) Exercise of Options. Subject to the conditions on Incentive Options in Section 7(b), each Option shall be exercisable for the full amount or for any part thereof and at such intervals or in such installments as the Committee may determine at the time it grants the Option; provided, however, that no Option shall be exercisable with respect to any Shares later than ten years after the Grant Date. 8. Options for Directors. On the third Friday of December in each year, each director who is not an employee of the Company and its Subsidiaries shall receive a Director Option to purchase the number of Shares calculated by dividing $25,000 by the Market Value of the Shares on the Grant Date. In the event that on the third Friday of any December, there is not a sufficient number of Shares available to implement fully the preceding sentence, then each such director shall receive a pro rata portion of the Director Option contemplated by the preceding sentence. The Option Price for each Director Option shall be the Market Value on the Grant Date or, in the event there is no Market Value available on the Grant Date, on the date next following the Grant Date for which a Market Value is available. Each Director Option shall become exercisable in four equal installments upon each of the first four anniversaries of the Grant Date. No Director Option shall be exercisable later than ten years after the Grant Date. 9. Terms and Condition Applicable to All Options. (a) Non-Transferability. No Option shall be transferable by the Optionee otherwise than by will or the laws of descent and distribution, and each Option shall be exercisable during the Optionee's lifetime only by him or her. EXHIBIT 10.15 (CONTINUED) (b) Notice of Exercise and Payment. An Option shall be exercisable only by delivery of a written notice to the Company's Treasurer or any other officer of the Company designated by the Committee to accept such notices on its behalf, specifying the number of Shares for which it is exercised. If the Shares are not at that time effectively registered under the Securities Act of 1933, as amended, the Optionee shall include with such notice a letter, in form and substance satisfactory to the Company, confirming that the Shares are being purchased for the Optionee's own account for investment and not with a view to distribution. Payment shall be made in full at the time the Option is exercised. Payment shall be made by (i) cash or check, (ii) delivery and assignment to the Company of already-owned Shares having a Market Value as of the date of exercise equal to the exercise price, (iii) if approved by the Committee, delivery of the Optionee's promissory note for the exercise price, or (iv) any combination of (i), (ii) or (iii) above. (c) Rights as Shareholder. No Optionee shall have any rights as a shareholder or any claim to dividends paid with respect to any Shares to which the Option relates until the date such Shares are issued to him or her. 10. Termination of Options. Each Option shall terminate and may no longer be exercised if the Optionee ceases to perform services for the Company or a Subsidiary, in accordance with the following provisions: (i) if the Optionee's services shall have been terminated by resignation or other voluntary action, or if such services shall have been terminated involuntarily for cause, all of the Optionee's Options shall terminate and may no longer be exercised; (ii) if the Optionee's services shall have been terminated for any reason other than cause, resignation or other voluntary action before his or her eligibility to retire, and before his or her disability or death, he or she may at any time within a period of fifteen (15) months after such termination of service exercise his or her Options to the extent that the Options were exercisable on the date of termination of service; (iii) if the Optionee's service shall have been terminated because of disability within the meaning of Section 22(e)(3) of the Code, he or she may at any time within a period of fifteen (15) months after such termination of service exercise his or her Options to the extent that such Options were exercisable on the date of termination of service; and (iv) if the Optionee dies at a time when he or she might have exercised an Option, then his or her estate, personal representative or beneficiary to whom it has been transferred pursuant to Section 9(a) hereof may at any time within a period of fifteen (15) months after the Optionee's death exercise the Option to the extent the Optionee might have exercised it at the time of death; provided, however, that the Committee may, at its sole discretion, provide specifically in an Option Agreement for such other period of time during which an Optionee may exercise an Option after termination of the Optionee's services as the Committee may approve, subject to the overriding limitation that no Option may be exercised to any extent by anyone after the date of expiration of the Option. EXHIBIT 10.15 (CONTINUED) 11. Withholding Taxes; Delivery of Shares. The Company's obligation to deliver Shares upon exercise of an Option shall be subject to the Optionee's satisfaction of all applicable federal, state and local income and employment tax withholding obligations. The Optionee may satisfy the obligations by electing (a) to make a cash payment to the Company, or (b) to have the Company withhold Shares with a value equal to the amount required to be withheld, or (c) to deliver to the Company already-owned Shares with a value equal to the amount required to be withheld. The value of Shares to be withheld or delivered shall be based on the Market Value on the date the amount of tax to be withheld is to be determined. The Optionee's election to have Shares withheld for this purpose will be subject to the following restrictions: (1) the election must be made prior to the date the amount of tax is to be determined, (2) the election must be irrevocable, and (3) the election will be subject to the disapproval of the Committee. 12. Stock Dividends; Stock Splits: Stock Combinations; Recapitalizations. Appropriate adjustment shall be made in the maximum number of Shares subject to the Plan or subject to Options to any one person to give effect to any stock dividends, stock splits, stock combinations, recapitalizations and other similar changes in the capital structure of the Company. Appropriate adjustment shall be made in the number, kind, and price of Shares covered by any outstanding Option hereunder to give effect to any stock dividends, stock splits, stock combinations, recapitalizations and other similar changes in the capital structure of the Company after the date the Option is granted. 13. Merger; Sale of Assets; Dissolution. In the event of a change of the Company's Non-Voting Common Stock resulting from a merger or similar reorganization as to which the Company is the surviving corporation, the number and kind of shares which thereafter may be optioned and sold under the Plan and the number and kind of shares then subject to Options granted hereunder and the price per share thereof shall be appropriately adjusted in such manner as the Board may deem equitable to prevent substantial dilution or enlargement of the rights available or granted hereunder. If the Board, in its discretion, determines that the Company will undergo a merger or similar reorganization which it will not survive or a sale of all or substantially all it assets, the Board may accelerate, in whole or in part, the vesting and/or exercisability of any outstanding Option granted under this Plan. Except as otherwise determined by the Board, a merger or a similar reorganization which the Company does not survive, or a sale of all or substantially all of the assets of the Company, shall cause every Option outstanding hereunder to terminate, to the extent not then exercised, unless any surviving entity agrees to assume the obligations thereof. 14. Termination or Amendment of Plan. The Board may at any time terminate the Plan or make such changes in or additions to the Plan as it deems advisable without further action on the part of the shareholders of the Company, provided: (a) that no such termination or amendment shall adversely affect or impair any then outstanding Option without the consent of the Optionee holding that Option; and (b) that any such amendment which: (i) increases the maximum number of Shares subject to this Plan, (ii) changes the class of persons eligible to participate in this Plan, or (iii) materially increases the benefits accruing to participants under this Plan EXHIBIT 10.15 (CONTINUED) shall be subject to approval by the shareholders of the Company within one year from the effective date of such amendment and shall be null and void if such approval is not obtained. 15. Change of Control - Automatic Vesting of Options. Notwithstanding anything to the contrary herein, the Board or the Committee shall include in the Option Agreement for each unvested Option granted under this Plan the following provision (which shall be added by amendment to each existing Option Agreement for an unvested Option granted prior to April 9, 1997, and such amendment may incorporate said provision by reference to this Section 15), and such inclusion may be effected by incorporating said provision by reference to this Section 15: This Option shall be immediately exercisable and the Optionee shall become eligible to purchase any and all shares covered by each Option at any time or from time to time after the occurrence of a Change of Control of the Company. A "Change of Control" shall mean: (a) The acquisition, other than from the Company, by any individual, entity or group (within the meaning of Section 13(d) (3) or 14(d) (2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 25% or more of either (i) the then outstanding non-voting common stock of the Company (the "Non-Voting Stock") or (ii) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the "Company Voting Securities"); provided, that any acquisition by (x) the Company or any of its subsidiaries, or any employee benefit plan (or related trust) sponsored or maintained by the Company or any of its subsidiaries or (y) any Person that is eligible, pursuant to Rule 13d-1(b) under the Exchange Act, to file a statement on Schedule 13G with respect to its beneficial ownership of Company Voting Securities, whether or not such Person shall have filed a statement on Schedule 13G, unless such Person shall have filed a statement on Schedule 13D with respect to beneficial ownership of 25% or more of the Company Voting Securities, shall not constitute a Change of Control; and provided, further, that the provisions of this subsection (a) shall apply whether or not the Company Voting Securities or the Non-Voting Stock is registered or required to be registered under the Exchange Act; or (b) Individuals who, as of the date hereof, constitute the Company's Board of Directors (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board, provided, that any individual becoming a director of the Company ("Director") subsequent to the date of the Option whose election or nomination for election by the Company's shareholders, was approved by at least a majority of the Directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office is in connection with an actual or threatened election contest relating to the election of the Directors of the Company (as such terms are used in Rule 14a-11 of the Regulation 14A promulgated under the Exchange Act); or EXHIBIT 10.15 (CONTINUED) (c) Approval by the shareholders of the Company of a reorganization, merger or consolidation (a "Business Combination"), in each case with respect to which all or substantially all of the individuals and entities who were the respective beneficial owners of the Non-Voting Stock and of the Company Voting Securities immediately prior to such Business Combination will not, following such Business Combination, beneficially own, directly or indirectly, more than 60% of, respectively, the then outstanding non-voting stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors of the corporation or other entity resulting from the Business Combination in substantially the same proportion as their ownership immediately prior to such Business Combination of the Non-Voting Stock and Company Voting Securities, as the case may be; or (d) Approval by the shareholders of the Company of (i) a complete liquidation or dissolution of the Company, or (ii) a sale or other disposition of all or substantially all of the assets of the Company, or (iii) a sale or disposition of Eaton Vance Management (or any successor thereto) or of all or substantially all of the assets of Eaton Vance Management (or any successor thereto), or (iv) an assignment by any direct or indirect investment adviser subsidiary of the Company of investment advisory agreements pertaining to more than 50% of the aggregate assets under management of all such subsidiaries of the Company, in the case of (ii), (iii) or (iv) other than to a corporation or other entity with respect to which, following such sale or disposition or assignment, more than 60% of, respectively, the outstanding non-voting stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors is then owned beneficially, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners of the Non-Voting Stock and Company Voting Securities immediately prior to such sale, disposition or assignment in substantially the same proportion as their ownership of the Non-Voting Stock and Company Voting Securities, as the case may be, immediately prior to such sale, disposition or assignment. Notwithstanding the foregoing, the following events shall not cause, or be deemed to cause, and shall not constitute, or be deemed to constitute, a Change of Control: (1) The acquisition, holding or disposition of Company Voting Securities deposited under the Voting Trust Agreement dated as of December 31, 1996 or of the voting trust receipts issued therefor, or any change in the persons who are voting trustees thereunder, or the acquisition, holding or disposition of Company Voting Securities deposited under any subsequent replacement voting trust agreement or of the voting trust receipts issued therefor, or any change in the persons who are voting trustees under any such subsequent replacement voting trust agreement; provided, that any such acquisition, disposition or change shall have resulted solely by reason of the death, incapacity, retirement, resignation, election or replacement of one or more voting trustees. (2) Any termination or expiration of a voting trust agreement under which Company Voting Securities have been deposited or the withdrawal therefrom of any Company Voting Securities deposited thereunder, if all Company Voting Securities and/or the voting trust receipts issued therefor continue to be held thereafter by the same persons in the same amounts, or if contemporaneously there shall be a Business Combination or change in the capitalization of the Company as described in clause (3) below. EXHIBIT 10.15 (CONTINUED) (3) A Business Combination or change in the capitalization of the Company pursuant to which the holders of the Non-Voting Stock of the Company become holders of voting securities of the Company or of the corporation or other entity resulting from such Business Combination, in substantially the same proportion as their ownership of Non-Voting Stock immediately prior to such Business Combination or change in capitalization. 16. No additional Options shall be granted under this Plan on or after April 9, 1997. EX-10.16 4 1995 STOCK OPTION PLAN EXHIBIT 10.16 EATON VANCE CORP. 10/30/97 1995 STOCK OPTION PLAN - RESTATEMENT NO. 2 1. Definitions. As used in this Eaton Vance Corp. 1995 Stock Option Plan - Restatement No. 2, the following terms shall have the following meaning: Board means the Company's Board of Directors. Code means the Internal Revenue Code of 1986, as amended. Committee means a committee comprised of one or more directors of the Company, appointed by the Board of Directors of the Company, responsible for the administration of the Plan, as provided in Section 5. Company means Eaton Vance Corp., a Maryland corporation. Director Option means a nonqualified stock option granted to a director pursuant to Section 8. Grant Date means the date on which an Option is granted. Incentive Option means an Option that satisfies the requirements of Section 422 of the Code. Market Value means the closing price on the New York Stock Exchange for the Shares for any date. Nonqualified Option means an Option other than an Incentive Option granted to an employee. Option means an option to purchase Shares granted under the Plan. Option Agreement means an agreement between the Company and an Optionee, setting forth the terms and conditions of an Option. Option Price means the price to be paid by an Optionee upon exercise of an Option. Optionee means a person eligible to receive an Option to whom an Option shall have been granted under the Plan. Plan means this 1995 Stock Option Plan. Shares means shares of Non-Voting Common Stock of the Company. Subsidiary means a subsidiary of the Company, as defined in Section 424(f) of the Code. EXHIBIT 10.16 (CONTINUED) 2. Purpose. The purpose of the Plan is to advance the interests of the Company by strengthening the ability of the Company and its Subsidiaries to attract, retain and motivate directors and key employees by providing them with an opportunity to purchase non-voting common stock of the Company and thus participate in its ownership, including the opportunity to share in any appreciation in the value of that stock. It is intended that some of the Options to be granted will be Incentive Options and others will not be. 3. Effective Date. The Plan originally became effective on October 12, 1995, the date it was adopted by the Board, and was approved by the stockholders of the Company on April 10, 1996. This Restatement No. 1 was approved by the Board and such stockholders on April 9, 1997. 4. Stock Subject to the Plan. The Shares with respect to which Options may be granted under this Plan shall not exceed 600,000 Shares (which number shall on May 15, 1997 be increased to 1,200,000 Shares to reflect the two-for-one stock split effective on that date). Any Shares subject to an Option which for any reason expires or is terminated unexercised as to such Shares may again be the subject of an Option. In addition, any Shares purchased by an Optionee upon exercise of an Option which are subsequently repurchased by the Company pursuant to the terms of that Option may again be made the subject of an Option. The Shares delivered upon exercise of Options may be either authorized but unissued Shares or issued Shares reacquired by the Company. 5. Administration. The Board shall appoint a Committee consisting exclusively of two or more directors who are "outside directors" within the meaning of Section 162(m) of the Code and the regulations thereunder and "non-employee directors" within the meaning of Rule 16b-3(b)(3) under the Securities Exchange Act of 1934. Each Option granted to a "covered employee" within the meaning of Section 162(m) of the Code and the regulations thereunder shall be granted by the Committee. The Plan shall be administered by the Committee. Subject to the provisions of the Plan, the Committee shall have full power to construe and interpret the Plan and to establish, amend and rescind rules and regulations for its administration. Any decision made with respect thereto shall be final and binding on the Company, the Optionees and all other persons. 6. Duration of the Plan. This Plan shall terminate ten years from the original effective date hereof, unless terminated earlier pursuant to Section 14, and no Options may be granted thereafter. 7. Options for Employees. (a) Eligible Employees. Options may be granted to key employees of the Company or of any of its Subsidiaries selected by the Committee. (b) Restrictions on Incentive Options. Incentive Options shall be subject to the following restrictions: (i) Limitation on Number of Shares. To the extent that the aggregate Market Value on the Grant Date of the Shares with respect to which an Option that would otherwise constitute an Incentive Option (when aggregated, if appropriate, with incentive stock options granted before the Option under this Plan or any other plan maintained by the Company or any Subsidiary of the Company) is exercisable for the first time by the Optionee during any calendar year exceeds $100,000, the Option shall be treated as a Nonqualified Option. EXHIBIT 10.16 (CONTINUED) (ii) 10% Stockholder. If any Optionee to whom an Incentive Option is granted is on the Grant Date the owner of stock (as determined under Section 424(d) of the Code) possessing more than 10% of the total combined voting power of all classes of stock of the Company or any of its Subsidiaries, then the following special provisions shall be applicable to that Incentive Option: (A) The Option Price per Share shall not be less than 110% of the Market Value on the Grant Date; and (B) The Incentive Option shall expire not more than five years after the Grant Date. (c) Price. Subject to the conditions on certain Incentive Options in Section 7(b), the Option Price per Share payable upon the exercise of each Incentive Option shall be not less than 100% of the Market Value on the Grant Date. The Option Price per Share of stock payable upon exercise of each Nonstatutory Option shall be determined by the Committee, provided that the Option Price shall not be less than 50% of the Market Value on the Grant Date. (d) Number of Shares. Each Option Agreement shall specify the number of Shares to which it pertains. No Optionee may receive, during any three year period, Options to purchase more than 300,000 Shares (which number shall on May 15, 1997 be increased to 600,000 Shares to reflect the two-for-one stock split effective on that date). (e) Exercise of Options. Subject to the conditions on Incentive Options in Section 7(b), each Option shall be exercisable for the full amount or for any part thereof and at such intervals or in such installments as the Committee may determine at the time it grants the Option; provided, however, that no Option shall be exercisable with respect to any Shares later than ten years after the Grant Date. 8. Options for Directors. Upon first election to the Board of Directors of the Company of a person who was not, within twelve months preceding election, either an officer of employee of the Company or any Subsidiary, such person shall be granted a Director Option to purchase the number of Shares calculated by dividing $60,000 by the Market Value of the Shares on the Grant Date. On the third Friday of December in each year, each director who is not an employee of the Company and its Subsidiaries shall receive a Director Option to purchase the number of Shares calculated by dividing $25,000 (which number shall, on the first day after October 30, 1997 on which a Director Option is granted pursuant to the preceding sentence, be increased to $60,000) by the Market Value of the Shares on the Grant Date. In the event that on any Grant Date there is not a sufficient number of Shares available to implement fully the preceding sentences, then each such director shall receive a pro rata portion of the Director Option contemplated by the preceding sentences. The Option Price for each Director Option shall be the Market Value on the Grant Date or, in the event there is no Market Value available on the Grant Date, on the date next following the Grant Date for which a Market Value is available. Each Director Option shall become exercisable in four equal installments upon each of the first four anniversaries of the Grant Date. No Director Option shall be exercisable later than ten years after the Grant Date. EXHIBIT 10.16 (CONTINUED) 9. Terms and Condition Applicable to All Options. (a) Non-Transferability. No Option shall be transferable by the Optionee otherwise than by will or the laws of descent and distribution, and each Option shall be exercisable during the Optionee's lifetime only by him or her. (b) Notice of Exercise and Payment. An Option shall be exercisable only by delivery of a written notice to the Company's Treasurer or any other officer of the Company designated by the Committee to accept such notices on its behalf, specifying the number of Shares for which it is exercised. If the Shares are not at that time effectively registered under the Securities Act of 1933, as amended, the Optionee shall include with such notice a letter, in form and substance satisfactory to the Company, confirming that the Shares are being purchased for the Optionee's own account for investment and not with a view to distribution. Payment shall be made in full at the time the Option is exercised. Payment shall be made by (i) cash or check, (ii) delivery and assignment to the Company of already-owned Shares having a Market Value as of the date of exercise equal to the exercise price, (iii) if approved by the Committee, delivery of the Optionee's promissory note for the exercise price, or (iv) any combination of (i), (ii) or (iii) above. (c) Rights as Shareholder. No Optionee shall have any rights as a shareholder or any claim to dividends paid with respect to any Shares to which the Option relates until the date such Shares are issued to him or her. 10. Termination of Options. Each Option shall terminate and may no longer be exercised if the Optionee ceases to perform services for the Company or a Subsidiary, in accordance with the following provisions: (i) if the Optionee's services shall have been terminated by resignation or other voluntary action, or if such services shall have been terminated involuntarily for cause, all of the Optionee's Options shall terminate and may no longer be exercised; (ii) if the Optionee's services shall have been terminated for any reason other than cause, resignation or other voluntary action before his or her eligibility to retire, and before his or her disability or death, he or she may at any time within a period of fifteen (15) months after such termination of service exercise his or her Options to the extent that the Options were exercisable on the date of termination of service; (iii) if the Optionee's service shall have been terminated because of disability within the meaning of Section 22(e)(3) of the Code, he or she may at any time within a period of fifteen (15) months after such termination of service exercise his or her Options to the extent that such Options were exercisable on the date of termination of service; and EXHIBIT 10.16 (CONTINUED) (iv) if the Optionee dies at a time when he or she might have exercised an Option, then his or her estate, personal representative or beneficiary to whom it has been transferred pursuant to Section 9(a) hereof may at any time within a period of fifteen (15) months after the Optionee's death exercise the Option to the extent the Optionee might have exercised it at the time of death; provided, however, that the Committee may, at its sole discretion, provide specifically in an Option Agreement for such other period of time during which an Optionee may exercise an Option after termination of the Optionee's services as the Committee may approve, subject to the overriding limitation that no Option may be exercised to any extent by anyone after the date of expiration of the Option. 11. Withholding Taxes; Delivery of Shares. The Company's obligation to deliver Shares upon exercise of an Option shall be subject to the Optionee's satisfaction of all applicable federal, state and local income and employment tax withholding obligations. The Optionee may satisfy the obligations by electing (a) to make a cash payment to the Company, or (b) to have the Company withhold Shares with a value equal to the amount required to be withheld, or (c) to deliver to the Company already-owned Shares with a value equal to the amount required to be withheld. The value of Shares to be withheld or delivered shall be based on the Market Value on the date the amount of tax to be withheld is to be determined. The Optionee's election to have Shares withheld for this purpose will be subject to the following restrictions: (1) the election must be made prior to the date the amount of tax is to be determined, (2) the election must be irrevocable, and (3) the election will be subject to the disapproval of the Committee. 12. Stock Dividends; Stock Splits: Stock Combinations; Recapitalizations. Appropriate adjustment shall be made in the maximum number of Shares subject to the Plan or subject to Options to any one person to give effect to any stock dividends, stock splits, stock combinations, recapitalizations and other similar changes in the capital structure of the Company. Appropriate adjustment shall be made in the number, kind, and price of Shares covered by any outstanding Option hereunder to give effect to any stock dividends, stock splits, stock combinations, recapitalizations and other similar changes in the capital structure of the Company after the date the Option is granted. 13. Merger; Sale of Assets; Dissolution. In the event of a change of the Company's Non-Voting Common Stock resulting from a merger or similar reorganization as to which the Company is the surviving corporation, the number and kind of shares which thereafter may be optioned and sold under the Plan and the number and kind of shares then subject to Options granted hereunder and the price per share thereof shall be appropriately adjusted in such manner as the Board may deem equitable to prevent substantial dilution or enlargement of the rights available or granted hereunder. If the Board, in its discretion, determines that the Company will undergo a merger or similar reorganization which it will not survive or a sale of all or substantially all it assets, the Board may accelerate, in whole or in part, the vesting and/or exercisability of any outstanding Option granted under this Plan. Except as otherwise determined by the Board, a merger or a similar reorganization which the Company does not survive, or a sale of all or substantially all of the assets of the Company, shall cause every Option outstanding hereunder to terminate, to the extent not then exercised, unless any surviving entity agrees to assume the obligations thereof. EXHIBIT 10.16 (CONTINUED) 14. Termination or Amendment of Plan. The Board may at any time terminate the Plan or make such changes in or additions to the Plan as it deems advisable without further action on the part of the shareholders of the Company, provided: (a) that no such termination or amendment shall adversely affect or impair any then outstanding Option without the consent of the Optionee holding that Option; and (b) that any such amendment which: (i) increases the maximum number of Shares subject to this Plan, (ii) changes the class of persons eligible to participate in this Plan, or (iii) materially increases the benefits accruing to participants under this Plan shall be subject to approval by the shareholders of the Company within one year from the effective date of such amendment and shall be null and void if such approval is not obtained. 15. Change of Control - Automatic Vesting of Options. Notwithstanding anything to the contrary herein, the Board or the Committee shall include in the Option Agreement for each unvested Option granted under this Plan the following provision (which shall be added by amendment to each existing Option Agreement for an unvested Option granted prior to April 9, 1997, and such amendment may incorporate said provision by reference to this Section 15), and such inclusion may be effected by incorporating said provision by reference to this Section 15: This Option shall be immediately exercisable and the Optionee shall become eligible to purchase any and all shares covered by each Option at any time or from time to time after the occurrence of a Change of Control of the Company. A "Change of Control" shall mean: (a) The acquisition, other than from the Company, by any individual, entity or group (within the meaning of Section 13(d) (3) or 14(d) (2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 25% or more of either (i) the then outstanding non-voting common stock of the Company (the "Non-Voting Stock") or (ii) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the "Company Voting Securities"); provided, that any acquisition by (x) the Company or any of its subsidiaries, or any employee benefit plan (or related trust) sponsored or maintained by the Company or any of its subsidiaries or (y) any Person that is eligible, pursuant to Rule 13d-1(b) under the Exchange Act, to file a statement on Schedule 13G with respect to its beneficial ownership of Company Voting Securities, whether or not such Person shall have filed a statement on Schedule 13G, unless such Person shall have filed a statement on Schedule 13D with respect to beneficial ownership of 25% or more of the Company Voting Securities, shall not constitute a Change of Control; and provided, further, that the provisions of this subsection (a) shall apply whether or not the Company Voting Securities or the Non-Voting Stock is registered or required to be registered under the Exchange Act; or EXHIBIT 10.16 (CONTINUED) (b) Individuals who, as of the date hereof, constitute the Company's Board of Directors (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board, provided, that any individual becoming a director of the Company ("Director") subsequent to the date of the Option whose election or nomination for election by the Company's shareholders, was approved by at least a majority of the Directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office is in connection with an actual or threatened election contest relating to the election of the Directors of the Company (as such terms are used in Rule 14a-11 of the Regulation 14A promulgated under the Exchange Act); or (c) Approval by the shareholders of the Company of a reorganization, merger or consolidation (a "Business Combination"), in each case with respect to which all or substantially all of the individuals and entities who were the respective beneficial owners of the Non-Voting Stock and of the Company Voting Securities immediately prior to such Business Combination will not, following such Business Combination, beneficially own, directly or indirectly, more than 60% of, respectively, the then outstanding non-voting stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors of the corporation or other entity resulting from the Business Combination in substantially the same proportion as their ownership immediately prior to such Business Combination of the Non-Voting Stock and Company Voting Securities, as the case may be; or (d) Approval by the shareholders of the Company of (i) a complete liquidation or dissolution of the Company, or (ii) a sale or other disposition of all or substantially all of the assets of the Company, or (iii) a sale or disposition of Eaton Vance Management (or any successor thereto) or of all or substantially all of the assets of Eaton Vance Management (or any successor thereto), or (iv) an assignment by any direct or indirect investment adviser subsidiary of the Company of investment advisory agreements pertaining to more than 50% of the aggregate assets under management of all such subsidiaries of the Company, in the case of (ii), (iii) or (iv) other than to a corporation or other entity with respect to which, following such sale or disposition or assignment, more than 60% of, respectively, the outstanding non-voting stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors is then owned beneficially, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners of the Non-Voting Stock and Company Voting Securities immediately prior to such sale, disposition or assignment in substantially the same proportion as their ownership of the Non-Voting Stock and Company Voting Securities, as the case may be, immediately prior to such sale, disposition or assignment. Notwithstanding the foregoing, the following events shall not cause, or be deemed to cause, and shall not constitute, or be deemed to constitute, a Change of Control: EXHIBIT 10.16 (CONTINUED) (1) The acquisition, holding or disposition of Company Voting Securities deposited under the Voting Trust Agreement dated as of December 31, 1996 or of the voting trust receipts issued therefor, or any change in the persons who are voting trustees thereunder, or the acquisition, holding or disposition of Company Voting Securities deposited under any subsequent replacement voting trust agreement or of the voting trust receipts issued therefor, or any change in the persons who are voting trustees under any such subsequent replacement voting trust agreement; provided, that any such acquisition, disposition or change shall have resulted solely by reason of the death, incapacity, retirement, resignation, election or replacement of one or more voting trustees. (2) Any termination or expiration of a voting trust agreement under which Company Voting Securities have been deposited or the withdrawal therefrom of any Company Voting Securities deposited thereunder, if all Company Voting Securities and/or the voting trust receipts issued therefor continue to be held thereafter by the same persons in the same amounts, or if contemporaneously there shall be a Business Combination or change in the capitalization of the Company as described in clause (3) below. (3) A Business Combination or change in the capitalization of the Company pursuant to which the holders of the Non-Voting Stock of the Company become holders of voting securities of the Company or of the corporation or other entity resulting from such Business Combination, in substantially the same proportion as their ownership of Non-Voting Stock immediately prior to such Business Combination or change in capitalization. EXHIBIT 10.16 (CONTINUED) EATON VANCE CORP AMENDMENT TO INCENTIVE STOCK OPTION AGREEMENT UNDER 1995 STOCK OPTION PLAN - RESTATEMENT NO. 1 The Incentive Option Agreement effective ___________, 1996, between Eaton Vance Corp. (the "Company") and the undersigned Optionee granting an incentive stock option to purchase Non-Voting Common Stock of the Company is hereby amended to add thereto the provision for automatic vesting after a Change of Control of the Company, as set forth in Section 15 of the Company's 1995 Stock Option Plan - Restatement No. 1, which provision is incorporated herein by reference thereto as if fully stated herein. IN WITNESS WHEREOF, the Company and the Optionee have caused this Amendment to be duly executed as of April 9, 1997. EATON VANCE CORP By: - ---------------------------- ----------------------------- Optionee Vice President and Treasurer EXHIBIT 10.16 (CONTINUED) EATON VANCE CORP AMENDMENT TO NONQUALIFIED STOCK OPTION AGREEMENT UNDER 1995 STOCK OPTION PLAN - RESTATEMENT NO. 1 The Nonqualified Option Agreement effective ___________, 1996, between Eaton Vance Corp. (the "Company") and the undersigned Optionee granting a nonqualified stock option to purchase Non-Voting Common Stock of the Company is hereby amended to add thereto the provision for automatic vesting after a Change of Control of the Company, as set forth in Section 15 of the Company's 1995 Stock Option Plan - Restatement No. 1, which provision is incorporated herein by reference thereto as if fully stated herein. IN WITNESS WHEREOF, the Company and the Optionee have caused this Amendment to be duly executed as of April 9, 1997. EATON VANCE CORP By: - ---------------------------- ----------------------------- Optionee Vice President and Treasurer EXHIBIT 10.16 (CONTINUED) EATON VANCE CORP AMENDMENT TO DIRECTOR STOCK OPTION AGREEMENT UNDER 1995 STOCK OPTION PLAN - RESTATEMENT NO. 1 The Director Option Agreement effective ___________, 1996, between Eaton Vance Corp. (the "Company") and the undersigned Optionee granting a director stock option to purchase Non-Voting Common Stock of the Company is hereby amended to add thereto the provision for automatic vesting after a Change of Control of the Company, as set forth in Section 15 of the Company's 1995 Stock Option Plan - Restatement No. 1, which provision is incorporated herein by reference thereto as if fully stated herein. IN WITNESS WHEREOF, the Company and the Optionee have caused this Amendment to be duly executed as of April 9, 1997. EATON VANCE CORP By: - ---------------------------- ----------------------------- Optionee Vice President and Treasurer EX-11.1 5 STATEMENT OF COMPUTATION OF SHARES EXHIBIT 11.1 Computation of average number of shares outstanding in accordance with Securities and Exchange Commission Act of 1934, Release No. 9083 OCTOBER 31, ----------------------------------------------- 1997 1996 1995 ----------------------------------------------- PRIMARY: Weighted average number of voting and non-voting common shares outstanding 18,659,050 18,863,046 18,422,866 Assumed exercise of certain non-voting stock options based on average market value and shares reserved for issuance under employee stock purchase 689,826 290,406 154,208 plan =============================================== Weighted average number of shares used in primary per share computations 19,348,876 19,153,452 18,577,074 =============================================== FULLY DILUTED: Weighted average number of voting and non-voting common shares outstanding 18,659,050 18,863,046 18,422,866 Assumed exercise of certain non-voting stock options based on higher of average or closing market value and shares reserved for issuance 938,456 740,920 645,548 under employee stock purchase plan =============================================== Weighted average number of shares used in fully diluted per share computations 19,597,506 19,603,966 19,068,414 =============================================== EX-13.1 6 COMPANY'S ANNUAL REPORT EXHIBIT 13.1 ------------------------ EATON VANCE CORP. [Graphic Omitted] 1997 Annual Report ------------------------ 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. Financial Highlights (in billions of dollars) 1997 1996 - -------------------------------------------------------------------------------- Assets Under Management $ 21.3 $ 17.3 Sales of Mutual Funds 4.2 2.6 (in millions of dollars) - -------------------------------------------------------------------------------- Revenue $200.9 $ 182.0 Net Income 40.2 37.4 Shareholders' Equity 226.3 210.8 (in dollars) - -------------------------------------------------------------------------------- Per Common Share Net Income $ 2.08 $ 1.95 Shareholders' Equity 12.23 11.23 Dividends 0.42 0.35 EARNINGS PER SHARE 10-Year Growth Rate: 12% FISCAL YEAR EARNINGS PER SHARE - ---------------------------------------- 1988 $0.68 1989 $0.50 1990 $0.51 1991 $0.87 1992 $1.25 1993 $1.55 1994 $1.57 1995 $1.63 1996 $1.95 1997 $2.08 Dividends Per Share 10-Year Growth Rate: 19% FISCAL YEAR DIVIDENDS PER SHARE - ----------------------------------- 1988 $0.10 1989 $0.11 1990 $0.12 1991 $0.15 1992 $0.20 1993 $0.25 1994 $0.30 1995 $0.32 1996 $0.35 1997 $0.42 To Shareholders - ------------------------------------------------ [Photo of James B. Hawkes] James B. Hawkes Excluding an extraordinary item and gold operations, earnings per share grew 15 percent in 1997. Eaton Vance Corp. has increased its dividend in each of the past 17 years at an annual growth rate of 18 percent. Growth of Assets Under Management FISCAL YEAR PERCENT OF ASSET GROWTH - -------------------------------------------- 1995 6.7 1996 8.1 1997 23.0 Eaton Vance Corp. earned a record $40.2 million in fiscal 1997, with earnings per share increasing to $2.08 from $1.95 last year. Excluding an extraordinary item last year and the impact of gold operations, earnings per share were 15 percent greater than in 1996. Assets under management grew 23 percent to $21.3 billion at year end. On October 9, the Company raised its dividend 20 percent to an effective annual rate of $0.48 per share. Eaton Vance Corp. has increased its dividend in each of the past 17 years at an annual growth rate of 18 percent. Gross sales of mutual funds rose 62 percent during fiscal 1997 to $4.2 billion, while net sales advanced 180 percent to $1.4 billion. Equity fund assets increased by 73 percent in fiscal 1997 to $5.2 billion and now represent 24 percent of total assets under management. This growth was led by strong sales of Eaton Vance Tax-Managed Growth Fund, Eaton Vance Worldwide Health Sciences Fund and Belvedere Equity Fund LLC private placement. Income fund assets grew also, with the Company's floating-rate bank loan funds increasing 37 percent to $3.9 billion, and its other taxable fixed-income funds growing 50 percent to $2.1 billion. While municipal bond fund assets declined for Eaton Vance and the industry, the Company's High Yield Municipals Fund rose 69 percent to $261 million. Significant new account development, strong fixed-income performance and the rising financial markets resulted in a 33 percent increase in investment counsel assets under management to $2.4 billion at year end. Eaton Vance achieved two important goals in 1997. Assets under management grew at a substantially faster rate than in recent years, and equity fund sales contributed a significantly higher proportion of total fund sales. Progress in both areas is displayed in the accompanying charts. Double-digit growth in managed assets provides a foundation for achieving management's long-term goals for growth in earnings and dividends, while increased participation in the market for equity funds demonstrates Eaton Vance's intention and capacity to grow in all segments of the fund industry. During the summer, Eaton Vance introduced "Mutual Funds for People Who Pay Taxes," a marketing/positioning strategy which conceptually bundles the Company's tax-managed equity funds with its family of national and state-specific municipal bond funds, the most extensive in the industry. In September, the Company's tax-efficient equity product line was broadened with the introduction of the Eaton Vance Tax-Managed Emerging Growth Fund. Response to "Mutual Funds for People Who Pay Taxes" has been encouraging, with increasing sales of tax-managed equity funds and clear signs of growing interest by broker/dealers, brokers and financial planners in investing to maximize after-tax return. A tax-managed international fund is planned for 1998. Gross sales of mutual funds rose 62 percent during fiscal 1997 to $4.2 billion, while net sales advanced 180 percent to $1.4 billion. Belvedere Equity Fund LLC, a private fund, raised $1.1 billion in two closings in May and June. Equity Fund Sales As a Percent of Total Sales FISCAL YEAR PERCENT OF TOTAL SALES* - ---------------------------------------------- 1995 6% 1996 12% 1997 - 1st Quarter 22% 1997 - 2nd Quarter 25% 1997 - 3rd Quarter 34% 1997 - 4th Quarter 38% * Excludes Broadmoor and Belvedere Private Placements Belvedere Equity Fund LLC, a private fund for investors seeking to diversify concentrated positions in common stocks with substantial market appreciation, raised $1.1 billion in two closings in May and June. New equity-based private funds are expected to be offered in 1998. Eaton Vance continues to withdraw from businesses unrelated to the management of assets for mutual funds, institutions and individuals. The holdings of VenturesTrident II, L.P., the second of two gold partnerships offered by the Company in the 1980s, have been distributed to the limited partners and the partnership was terminated December 31, 1997, on schedule. The Company's future earnings will not be subject to the price volatility inherent in commodity investing. Also, it is anticipated that most real estate holdings of Northeast Properties, Inc. will be sold in 1998. After completing a review of Eaton Vance's corporate governance policies during 1997, the Board of Directors voted to implement new guidelines. These include a retirement policy for senior executives and Directors, a requirement of significant stock ownership on the part of senior executives and Board members, and a reconstitution of the Board so that a majority will be independent or "outside" Directors. In October, 1997, I replaced Landon T. Clay as Chairman of the Board. Landon, who joined Eaton Vance in 1968, had served as its Chairman since 1971. Many of the Company's accomplishments over more than 25 years were the result of investment principles and management policies he established. Eaton Vance is a financially strong growth company in an exciting growth industry. The Company has significant competitive strengths in its people, products and productive relationships with broker/dealers, brokers and financial planners globally. Substantial momentum in the growth of assets under management and equity funds was achieved in 1997. Assuming favorable market trends, Eaton Vance is well positioned for continued growth in shareholder value. /s/ James B. Hawkes James B. Hawkes Chairman of the Board President and Chief Executive Officer Fiscal Year 1997 Highlights - -------------------------------------------------------------------------------- o Eaton Vance's stock appreciated 65 percent in fiscal 1997, from $21 7/8 at October 31, 1996 to $36 1/8 at October 31, 1997. o On April 9, 1997, Eaton Vance declared a two-for-one stock split for shareholders of record on May 15, 1997. o Assets under management increased 23 percent to $21.3 billion. o Gross sales of mutual funds were $4.2 billion, exceeding 1996 sales of $2.6 billion by 62 percent. o Including private placements, equity funds represented 45 percent of total fund sales in fiscal 1997 compared to 17 percent in 1996. o Investors and investment advisers responded enthusiastically to the Company's "Mutual Funds for People Who Pay Taxes" program. o Assets under management in tax-managed equity portfolios grew by $1.9 billion, from $0.9 billion at fiscal year-end 1996 to $2.8 billion at October 31, 1997, an increase of over 200 percent. o Belvedere Equity Fund LLC, a private fund for investors seeking to diversify concentrated positions of highly appreciated common stocks, attracted more than $1 billion in assets. o New institutional investment counsel clients contributed to a 33 percent increase in managed assets to $2.4 billion. Shareholders' Equity Per Share 10-Year Growth Rate: 18% FISCAL YEAR SHAREHOLDERS' EQUITY PER SHARE - ------------------------------------------------------ 1988 $2.46 1989 $2.84 1990 $3.22 1991 $3.91 1992 $5.04 1993 $7.94 1994 $9.09 1995 $10.42 1996 $11.23 1997 $12.23 Assets Under Management (in billions) 10 - year growth rate: 16% Fiscal Year End Assets Under Management - ----------------------------------------------- 1988 $ 4.9 1989 $ 7.1 1990 $ 7.3 1991 $ 9.6 1992 $11.3 1993 $15 1994 $15 1995 $16 1996 $17.3 1997 $21.3 Eaton Vance Corp. trades on the New York Stock Exchange under the symbol "EV." Price and Dividend Information Low High Dividend Price Price Per Share - -------------------------------------------------------------------------------- Quarter Ended January 31, 1996 $13 $16 1/8 $0.09 April 30, 1996 15 1/4 17 3/8 0.09 July 31, 1996 15 20 1/8 0.09 October 31, 1996 18 1/4 22 5/16 0.10 Quarter Ended January 31, 1997 $20 7/8 $24 7/8 $0.10 April 30, 1997 20 7/8 24 3/8 0.10 July 31, 1997 22 31 1/8 0.10 October 31, 1997 26 7/16 37 13/16 0.12 Quarterly High and Low Stock Prices Adjusted for two-for-one stock splits November 11, 1992 and May 15, 1997 Fiscal Year and Quarter High Low - ------------------------------------------------- 1988 - 1st Quarter $3.47 $2.688 1988 - 2nd Quarter $4.88 $3.938 1988 - 3rd Quarter $4.56 $3.984 1988 - 4th Quarter $4.297 $3.891 - ------------------------------------------------- 1989 - 1st Quarter $4.766 $4.094 1989 - 2nd Quarter $5.75 $4.766 1989 - 3rd Quarter $5.078 $4.563 1989 - 4th Quarter $5.797 $4.563 - ------------------------------------------------- 1990 - 1st Quarter $5.859 $5.484 1990 - 2nd Quarter $5.797 $4.563 1990 - 3rd Quarter $4.766 $4.406 1990 - 4th Quarter $4.563 $3.156 - ------------------------------------------------- 1991 - 1st Quarter $3.047 $3.031 1991 - 2nd Quarter $5.593 $3.781 1991 - 3rd Quarter $5.234 $3.938 1991 - 4th Quarter $6.016 $4.766 - ------------------------------------------------- 1992 - 1st Quarter $7.766 $5.703 1992 - 2nd Quarter $7.922 $6.625 1992 - 3rd Quarter $7.313 $6.422 1992 - 4th Quarter $9.844 $6.844 - ------------------------------------------------- 1993 - 1st Quarter $15.953 $8.50 1993 - 2nd Quarter $15.547 $12.016 1993 - 3rd Quarter $15.031 $12.75 1993 - 4th Quarter $17.094 $14.203 - ------------------------------------------------- 1994 - 1st Quarter $15.547 $12.641 1994 - 2nd Quarter $15.547 $12.125 1994 - 3rd Quarter $12.75 $10.984 1994 - 4th Quarter $14.203 $10.563 - ------------------------------------------------- 1995 - 1st Quarter $13.359 $10.984 1995 - 2nd Quarter $13.578 $11.703 1995 - 3rd Quarter $14.141 $13.359 1995 - 4th Quarter $16.266 $12.953 - ------------------------------------------------- 1996 - 1st Quarter $16.125 $13.00 1996 - 2nd Quarter $17.375 $15.25 1996 - 3rd Quarter $20.125 $15.00 1996 - 4th Quarter $22.313 $18.25 - ------------------------------------------------- 1997 - 1st Quarter $24.875 $20.875 1997 - 2nd Quarter $24.375 $20.875 1997 - 3rd Quarter $31.125 $22.00 1997 - 4th Quarter $37.813 $26.438 - ------------------------------------------------- Investment Management - -------------------------------------------------------------------------------- Equity fund sales represented 45 percent of total fund sales for the year. Equity fund assets now represent 24 percent of total assets under management. EQUITY FUND SALES AS A PERCENT OF TOTAL SALES** EQUITY FUND SALES FISCAL YEAR AS A PERCENT OF TOTAL SALES - -------------------------------------------------- 1995 6% 1996 17% 1997 45% ** INCLUDES BROADMOOR (1996) AND BELVEDERE (1997) Mutual Fund Assets Increased 22 Percent in Fiscal 1997 to $18.9 Billion. Gross sales of Eaton Vance mutual funds, excluding money market funds and reinvested dividends, were $4.2 billion in fiscal 1997, an increase of 62 percent from last year's $2.6 billion. Equity fund sales, especially of the Firm's tax-managed growth funds and Belvedere Equity Fund private placement, were a major factor in the increase and represented 45 percent of total fund sales for the year. Equity fund assets grew by 73 percent in fiscal 1997 to $5.2 billion and now represent 24 percent of total assets under management compared to 18 percent in 1996. Among fixed-income funds, the Company's floating-rate bank debt funds and its corporate and municipal high-yield bond funds were significant contributors to sales. Net of redemptions, fund sales were $1.4 billion for fiscal 1997. This, coupled with market appreciation, helped lift mutual fund assets to $18.9 billion, 22 percent higher than a year ago. Tax-Efficient Equity Funds Find Growing Demand Recognizing that most investors must achieve investment goals with after-tax dollars, Eaton Vance has focused on developing products that are managed to deliver attractive after-tax returns. In March of 1996, the Company introduced Eaton Vance Tax-Managed Growth Fund, which seeks to maximize after-tax returns by carefully selecting a portfolio of high-quality growth stocks with the intention of holding those stocks for several years. This low-turnover strategy helps the fund keep realized capital gains to a minimum. And, because growth stocks typically have low dividends, the fund produces little, if any, current taxable income. During fiscal 1997, Eaton Vance Tax-Managed Growth Fund achieved a total return of 31.9 percent, while producing no taxable capital gain distributions. Sales of the fund through investment professionals gained momentum throughout the year. Media attention has heightened awareness nationwide of the impact of taxes on mutual fund returns and contributed to the strong sales of Eaton Vance Tax-Managed Growth Fund. [Photos of Client Brochures] The fund's outstanding investment performance contributed to sales, as did an effective marketing effort by Eaton Vance Distributors, Inc. External events also played a role. During the summer of 1997, the nation's attention was focused on Washington and the much-debated capital gains tax cut then under consideration. With the U.S. stock market experiencing yet another year of strong returns, financial publications discussed the sizable capital gain distributions that many mutual funds would be paying in the fourth quarter of the year and the damaging effect of related taxes on investment returns. Many prominent financial journalists highlighted the fact that most mutual funds are managed without regard to the tax obligations they produce for their shareholders, noting that mutual funds' published returns are often significantly different from the returns investors ultimately realize after all taxes are paid. This media attention has heightened awareness nationwide of the impact of taxes on mutual fund returns and contributed to the strong sales of Eaton Vance Tax-Managed Growth Fund. [Graphic of Billboard] - -------------------------------------------------------------------------------- During the last week of September, Eaton Vance sponsored this 18 by 60 foot billboard in Orlando, Florida. Strategically placed along the highway between the airport and the Orange County Convention Center, the advertisement was highly successful in capturing the attention of hundreds of financial planners attending the IAFP's (International Association For Financial Planning) Annual Meeting, the organization's most important event. Mutual Funds for People Who Pay Taxes is an important strategy in Eaton Vance's marketing of mutual funds in the U.S. Building on this healthy response, the Company launched a companion product in September, 1997: Eaton Vance Tax-Managed Emerging Growth Fund. This fund also seeks to maximize after-tax returns but invests in smaller companies. The fund's goal is to identify and invest in smaller companies while they are in their fastest growth phase, known as the emerging-growth phase, and potentially on their way to becoming the blue-chip companies of tomorrow. To further broaden the tax-managed product line, introduction of a tax-managed international equity fund is planned for 1998. Assets Under Management by Type (in billions) At Fiscal Year End
Fiscal Year End Non-Taxable Fixed Income Taxable Fixed Income Bank Loans Money Market Counsel Assets Equities - ----------------------------------------------------------------------------------------------------------------------------------- 1990 $1.5 $0.6 $1.9 $0.7 $1.3 $1.3 1991 $2.6 $1.3 $1.7 $0.4 $2 $1.6 1992 $4.6 $1.6 $1.1 $0.4 $2.1 $1.6 1993 $8.9 $1.1 $0.8 $0.2 $2.2 $2.2 1994 $9.0 $1.3 $0.6 $0.2 $1.6 $2.3 1995 $8.9 $1.3 $1.4 $0.2 $1.8 $2.4 1996 $8.2 $1.3 $2.8 $0.2 $1.7 $3.1 1997 $7.5 $2.1 $3.9 $0.2 $2.4 $5.2
Total assets under management in Eaton Vance tax-managed equity portfolios grew by $1.9 billion, nearly tripling from $935 million at October 31, 1996 to $2.8 billion at October 31, 1997. With two tax-managed equity funds and the broadest offering of national and state-specific municipal bond funds in the industry, Eaton Vance launched a new marketing initiative in September called "Mutual Funds for People Who Pay Taxes." Eaton Vance believes that the public's awareness of mutual fund taxation will continue to grow and that the Company is an early participant in what will become a major sector in the mutual fund industry. Eaton Vance's "Mutual Funds for People Who Pay Taxes" program and the marketing effort planned for the coming year are designed to ensure that Eaton Vance captures a significant share of the assets that will flow into tax-efficient mutual funds. As an indication of success so far, total assets under management in Eaton Vance tax-managed equity portfolios grew by $1.9 billion in 1997, nearly tripling from $935 million at the beginning of the year to $2.8 billion at year end. The Belvedere Equity Fund LLC, a private fund for tax-conscious, high net-worth investors, contributed to this success. The fund completed its offering period in June of 1997. This was the second consecutive year that Eaton Vance successfully offered a private fund that allows qualifying investors to contribute large holdings of highly appreciated common stock and gain professional management and portfolio diversification. Both funds have participated in the stock market's strong performance. Additional private funds are planned for 1998. Assets under Management by Distribution Method (October 31, 1997) Level Load 11% Spread Commission 53% No Commission 3% Investment Counsel 11% Exchange 11% Front End 11% Assets in the Company's floating-rate secured bank loan funds grew by 37 percent in fiscal 1997 to $3.9 billion. Balanced Asset Base and Diversified Investment Capabilities Provide Strength Equity fund assets now represent 24 percent of total assets under management. This asset growth is in part a response to innovative product development and marketing. It is also acknowledgment by investment professionals of Eaton Vance's capabilities as a manager of equity assets. Equities are but one of several asset pools that have proven to be a strength for the Company in attracting investors to Eaton Vance funds and investment counsel services. Eaton Vance, for example, is a leading participant in the senior secured bank loan market and in the municipal bond market. Assets in the Company's floating-rate secured bank loan funds grew by 37 percent in fiscal 1997 to $3.9 billion. Furthermore, Eaton Vance has the resources required in other bond markets and in the global equity market to operate efficiently and to provide superior returns to its mutual fund investors. Investment Counsel The Firm's investment counsel division provides custom investment services to more than 800 institutional and individual clients. Investment counsel assets grew 33 percent during fiscal 1997 to $2.4 billion. The strong investment performance of Eaton Vance's fixed-income asset management was a major contributor to this growth, leading to the addition of several large new clients. Assets Under Management by Asset Class (October 31, 1997) Money Market 1% Non-Taxable Fixed Income 36% Equities 24% Floating Rate Bank Loans 18% Counsel 11% Taxable Fixed Income 10% In fiscal 1997, Northeast Properties, Inc. sold a 43,000 square foot office building in Boston at a pre-tax gain of $1.0 million. Real Estate At fiscal year end, Northeast Properties, Inc. owned 662,000 square feet of income-producing real estate in Massachusetts, New Hampshire and New York. The markets in which Northeast Properties operates generally strengthened in 1997, and rental income and cash flow improved versus the prior year. Capitalizing on this stronger market, Northeast Properties sold a 43,000 square foot office building in Boston at a pre-tax gain of $1.0 million. During 1997, Northeast Properties increased its ownership from 50 to 100 percent of a 55,000 square foot office building adjacent to Eaton Vance's home office and partially occupied by Eaton Vance personnel. This investment will enhance the value of the Company's headquarters facilities and provide for future expansion. Rental Property by Property Type (October 31, 1997) Industrial 224,000 Sq. Ft. Retail 191,600 Sq. Ft. Office 246,400 Sq. Ft. Consistent with a plan to withdraw from activities not related to the management of financial assets, Eaton Vance expects in fiscal 1998 to sell most of Northeast Properties' holdings which are not occupied by Eaton Vance. Precious Metal Mining Gold operations contributed gains of $0.03 per share in 1997 and $0.08 per share in 1996 to Eaton Vance Corp.'s earnings per share. Consistent with the plan to withdraw from businesses unrelated to the management of financial assets, VenturesTrident II, L.P., was terminated as scheduled at the end of calendar 1997, and substantially all of the partnership's investments were distributed to its partners. In the future, Eaton Vance's earnings will not be subject to the price volatility inherent in commodity investing. New Initiatives As the only floating-rate senior bank loan funds to feature mandatory offers to repurchase shares, the Eaton Vance bank loan funds have a meaningful competitive advantage in the marketplace. Eaton Vance is well positioned to expand its services in both domestic and foreign markets. The Company's sales and marketing efforts address the large population of investors who seek investment advice from financial professionals. Analysts of the mutual fund industry indicate that approximately 70 percent of mutual fund purchases are made through professional intermediaries. New avenues of distribution to reach this market are an important corporate focus. In 1997, for example, Eaton Vance began offering its mutual funds to investors, without sales commissions or other transaction fees, through fee-based Registered Investment Advisors (RIAs) via various institutional programs as Charles Schwab & Co., Jack White & Co., Trust Company of America, Fidelity Investment Advisor Group, DATAlynx and Waterhouse Securities. During 1998, the Company will actively develop this promising distribution channel in the U.S. as well as abroad through Charles Schwab International. Eaton Vance monitors the industry to ensure that the professionals who distribute its products are fairly compensated for their services. To that end, Eaton Vance adjusted the commission structure of its funds during 1997, putting commissions on par with the Company's significant competitors. During fiscal 1997, Eaton Vance received clearance from the Securities and Exchange Commission to make certain improvements in the structure of its floating-rate bank loan funds. These funds enjoyed continued popularity with investors who want relative stability of principal and yields substantially higher than money market interest rates. Because these funds invest in bank loans instead of fixed-income securities, they are offered to the public as closed-end funds, with quarterly liquidity provided by the funds' offer to repurchase at net asset value shares tendered by fund shareholders. During every quarter since their inception, these funds have accepted shares tendered by those shareholders seeking liquidity. However, the process involved in doing so was costly and was subject to the discretion of the funds' trustees. In order to provide shareholders with an even greater assurance of quarterly liquidity and, at the same time, to reduce fund expenses, Eaton Vance has simplified this process and now provides mandatory offers to repurchase shares. As the only floating-rate bank loan funds offering this feature, the Eaton Vance funds further enhanced their record for reliability and customer service and have a meaningful competitive advantage in the marketplace. Outlook The outlook for providing investment management services and distributing investment products continues to be favorable, both in the United States and abroad. The demographics of the baby boom generation in the U.S. and similar populations in Europe and Asia suggest that more and more people will be focusing on accumulating assets for important long-term financial goals, such as a secure retirement or funding their children's education. Mutual funds have proved to be the investment of choice to meet these objectives. At the same time, the emergence of market-oriented economies in Latin America, Eastern Europe and Asia suggests growing opportunities for investment and for expanding the asset management industry worldwide. Eaton Vance has the investment expertise, products and distribution strengths to capitalize on these expanding asset management opportunities. [Photo of Client Brochures] Five-Year Financial Summary - -------------------------------------------------------------------------------------------------------------------
Years Ended October 31, (in thousands, except per share figures) 1997 1996 1995 1994 1993 - --------------------------------------------------------------------------------------------------------------------------- Income Statement Data Revenue: Investment adviser and administration fees $118,434 $100,450 $ 85,393 $ 85,769 $ 75,193 Distribution income 76,382 76,182 77,978 80,069 71,651 Income from real estate activities 4,155 3,597 3,347 4,224 3,758 Other income 1,939 1,760 1,199 1,154 1,674 - --------------------------------------------------------------------------------------------------------------------------- Total revenue 200,910 181,989 167,917 171,216 152,276 - --------------------------------------------------------------------------------------------------------------------------- Expenses: Compensation of officers and employees 48,155 41,420 38,947 39,265 39,668 Amortization of deferred sales commissions 54,464 52,585 50,186 52,794 40,892 Other expenses 34,386 28,963 31,350 31,291 27,576 - --------------------------------------------------------------------------------------------------------------------------- Total expenses 137,005 122,968 120,483 123,350 108,136 - --------------------------------------------------------------------------------------------------------------------------- Operating income 63,905 59,021 47,434 47,866 44,140 - --------------------------------------------------------------------------------------------------------------------------- Other Income (Expense): Interest income 3,571 3,735 2,641 963 856 Interest expense (3,951) (3,742) (4,702) (5,337) (4,914) Gain (loss) on sale of investments 3,561 546 (250) -- -- Equity in net income (loss) of affiliates 384 1,639 (1,382) (289) 3,894 Impairment loss on real estate -- (1,277) -- -- -- - --------------------------------------------------------------------------------------------------------------------------- Income from continuing operations before income taxes, extraordinary item and cumulative effect of change in accounting for income taxes 67,470 59,922 43,741 43,203 43,976 Income taxes 27,236 24,088 16,773 17,393 18,459 - --------------------------------------------------------------------------------------------------------------------------- Income from continuing operations before extraordinary item and cumulative effect of change in accounting for income taxes 40,234 35,834 26,968 25,810 25,517 Income from discontinued operations, net of income taxes -- -- 3,408 2,676 1,824 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 $ 40,234 $ 37,424 $ 30,376 $ 29,786 $ 27,341 =========================================================================================================================== Earnings per share from continuing operations before extraordinary item and cumulative effect of change in accounting for income taxes $ 2.08 $ 1.87 $ 1.45 $ 1.36 $ 1.44 Earnings per share from discontinued operations, net of income taxes -- -- 0.18 0.14 0.11 Extraordinary gain on early retirement of debt, net of income taxes, per share -- 0.08 -- -- -- Cumulative effect of change in accounting for income taxes, per share -- -- -- 0.07 -- - --------------------------------------------------------------------------------------------------------------------------- Earnings per share $ 2.08 $ 1.95 $ 1.63 $ 1.57 $ 1.55 =========================================================================================================================== Dividends declared, per share $ 0.42 $ 0.35 $ 0.32 $ 0.30 $ 0.25 =========================================================================================================================== Average common and common equivalent shares outstanding 19,349 19,153 18,577 18,946 17,696 =========================================================================================================================== Balance Sheet Data: Total assets $387,375 $360,552 $357,586 $455,506 $425,547 Long-term debt $ 50,964 $ 54,549 $ 56,102 $ 60,311 $ 73,228 Shareholders' equity $226,280 $210,780 $194,520 $165,608 $145,300 Shareholders' equity per share $ 12.23 $ 11.23 $ 10.42 $ 9.09 $ 7.94
Management's Discussion and Analysis - -------------------------------------------------------------------------------- The Company's primary sources of revenue are investment adviser and administration fees 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 the amortization of deferred sales commissions and other marketing costs, employee compensation, occupancy costs, and service fees. Results of Operations Fiscal Year 1997 Compared to Fiscal Year 1996 Eaton Vance Corp. reported record earnings of $40.2 million or $2.08 per share in 1997 compared to $37.4 million or $1.95 per share reported in 1996. Net income for the year ended October 31, 1996 included an extraordinary gain of $1.6 million, or $0.08 per 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 split declared on April 9, 1997 for shareholders of record on May 15, 1997. 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 mutual fund assets under management on October 31, 1997 from 55 percent a year ago. Floating-rate 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 $76.4 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, VenturesTrident II, L.P., 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. VenturesTrident II, L.P. 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. The Company has adopted Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation," which was effective for fiscal years beginning after December 15, 1995. In accordance with SFAS No. 123, the Company has provided disclosures in Note 7 to the consolidated financial statements presenting pro forma net income and earnings per share amounts as if employee stock options had been expensed over the appropriate vesting periods based on their fair value on the grant date, determined using the Black-Scholes option pricing model. In February 1997, the Financial Accounting Standards Board issued SFAS No. 128, "Earnings per Share." SFAS No. 128 establishes standards for computing and presenting earnings per share and will require the Company to change its presentation of earnings per share from primary earnings per share to basic and diluted earnings per share for its fiscal year ending October 31, 1998. In the first quarter of 1998, all prior period earnings per share data will be restated. Neither basic nor diluted earnings per share as calculated in accordance with SFAS No. 128 would be materially different from earnings per share as presented in these financial statements. Results of Operations Fiscal Year 1996 Compared to Fiscal Year 1995 Eaton Vance Corp. reported earnings of $37.4 million or $1.95 per share in 1996, significantly higher than the $30.4 million or $1.63 per share reported in 1995. Net income for the year ended October 31, 1996 included an extraordinary gain of $1.6 million, or $0.08 per share, related to the early retirement at a discount of mortgage debt on an office building owned by the Company. In the fourth quarter of 1996, management committed to a plan to sell this property and recognized a pre-tax impairment loss of $1.3 million based on the estimated net realizable value of the property. Net income for the year ended October 31, 1995 included income from discontinued operations of $3.4 million or $0.18 per share. Assets under management of $17.3 billion on October 31, 1996 were 8 percent higher than the $16.0 billion reported a year earlier. Mutual fund sales for the year ended October 31, 1996 of $2.6 billion were 63 percent higher than the $1.6 billion reported for 1995. Mutual fund redemptions were $2.1 billion in both 1996 and 1995. Investment adviser and administration fees increased by 18 percent to $100.5 million in 1996 from $85.4 million in 1995. The increase can be attributed to the increase in total assets under management as well as to the growth in 1996 in the Company's Senior Debt Portfolio and equity portfolios which have higher management and administration fee rates than the Company's other portfolios. Assets under management in the Senior Debt Portfolio increased to $2.8 billion on October 31, 1996 from $1.4 billion on October 31, 1995. Distribution fees decreased by $1.8 million or 2 percent to $76.2 million for 1996 from $78.0 million in 1995. The decrease in distribution fees can be attributed to a decrease in average assets under management in the Company's spread-commission funds. Operating expenses of $123.0 million were 2 percent greater than the $120.5 million recorded a year earlier. Compensation expense increased by $2.5 million to $41.4 million in 1996, primarily as a result of an increase in sales incentives associated with the increase in mutual fund sales. Amortization expense increased by $2.4 million in 1996 or 5 percent to $52.6 million primarily as a result of the increase in gross sales of Eaton Vance Prime Rate Reserves, a spread-commission fund which invests in the Company's Senior Debt Portfolio. The increases noted in compensation and amortization expense were offset by a decrease in other expenses compared to 1995. Other expenses in 1995 included a one-time charge of $2.2 million resulting from a National Association of Securities Dealers (NASD) arbitration panel award. The Company's gold mining partnerships contributed income of $1.2 million in the year ended October 31, 1996 compared to a loss of $1.4 million a year earlier. The loss in 1995 resulted primarily from reductions in the portfolio valuations of the partnerships. Interest income increased 42 percent to $3.7 million in 1996 from $2.6 million in 1995, largely as a result of a 47 percent increase in cash, cash equivalents and short-term investments. Interest expense decreased $1.0 million to $3.7 million in 1996 as a result of the retirement of mortgage debt in both the second quarter of 1996 and the fourth quarter of 1995. Due to the absence of gold mining losses which reduced taxes in 1995, the Company's effective tax rate rose to 40.2 percent in 1996 from 38.4 percent in 1995. Liquidity and Capital Resources Cash, cash equivalents and short-term investments aggregated $140.5 million at October 31, 1997, an increase of $24.1 million from October 31, 1996. Operating activities generated cash of $44.7 million in fiscal 1997 compared to $49.4 million in fiscal 1996. The decrease can be attributed primarily to an increase in commissions paid to brokers in connection with the sale of the Company's spread-commission funds and the payment of $5.8 million associated with an assessment made by the Massachusetts Department of Revenue ("MDOR"). The assessment was made in conjunction with the MDOR's examination of the Company's state tax returns for fiscal years 1993 through 1995. The Company, on the basis of the opinion of legal counsel, has filed for an abatement and intends to vigorously contest the assessment. Massachusetts General Laws, however, require payment of the amount assessed prior to the resolution of the issues and the Company has made such payment as required. The payment of additional taxes and interest has therefore been recorded in "Other receivables" on the Company's consolidated balance sheet. Investing activities, consisting primarily of the purchase and sale of short-term investments, reduced cash and cash equivalents by $12.8 million and $50.7 million, respectively, in fiscal 1997 and 1996. In fiscal 1997, additions to real estate, equipment and leasehold improvements included the purchase of the remaining 50 percent interest in an office building in Boston, Massachusetts adjacent to the Company's home office. Financing activities for the Company reduced cash and cash equivalents by $25.6 million in fiscal 1997 and $10.8 million in fiscal 1996. Significant financing activities during fiscal 1997 included the repurchase of 803,000 shares of the Company's non-voting common stock. The Company's dividend was increased in the fourth quarter of 1997 to an effective annual rate of $0.48 per share. At October 31, 1997, the Company had no borrowings under its $50.0 million senior unsecured revolving credit facility. The Company anticipates that cash flows from operations and available debt will be sufficient to meet the Company's foreseeable cash requirements and provide the Company with the financial resources to take advantage of strategic growth opportunities. Certain Factors That May Affect Future Results From time to time, information provided by the Company or information included in its filings with the Securities and Exchange Commission (including this Annual Report) may contain statements which are not historical facts, for this purpose referred to as "forward-looking statements." The Company's actual future results may differ significantly from those stated in any forward-looking statements. Important factors that could cause actual results to differ materially from those indicated by such forward-looking statements include, but are not limited to, the factors discussed below. 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 has historically been successful in gaining access to these channels, there can be no assurance that it will continue to do so. The inability to have such access could have a material adverse effect on the Company's business. There are few barriers to entry by new investment management firms. The Company's funds compete against an ever increasing number of investment products sold to the public by investment dealers, banks, insurance companies and others that sell tax-free investments, taxable income funds, equity funds and other investment products. Many institutions competing with the Company have greater resources than the Company. The Company competes with other providers of investment products on the basis of the range of products offered, the investment performance of such products, quality of service, fees charged, the level and type of sales representative compensation, the manner in which such products are marketed and distributed and the services provided to investors. The Company derives almost all of its revenues from investment adviser and administration fees and distribution income received from the Eaton Vance funds and separately managed accounts. As a result, the Company is dependent upon the contractual relationships it maintains with these funds and separately managed accounts. In the event that any of the management contracts, administration contracts, underwriting contracts or service agreements 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. Consolidated Statements of Income - -------------------------------------------------------------------------------- Years Ended October 31, (in thousands, except per share figures) 1997 1996 1995 - -------------------------------------------------------------------------------- REVENUE: Investment adviser and administration fees $118,434 $100,450 $ 85,393 Distribution income 76,382 76,182 77,978 Income from real estate activities 4,155 3,597 3,347 Other income 1,939 1,760 1,199 - -------------------------------------------------------------------------------- Total revenue 200,910 181,989 167,917 - -------------------------------------------------------------------------------- EXPENSES: Compensation of officers and employees 48,155 41,420 38,947 Amortization of deferred sales commissions 54,464 52,585 50,186 Other expenses 34,386 28,963 31,350 - -------------------------------------------------------------------------------- Total expenses 137,005 122,968 120,483 - -------------------------------------------------------------------------------- Operating income 63,905 59,021 47,434 OTHER INCOME (EXPENSE): Interest income 3,571 3,735 2,641 Interest expense (3,951) (3,742) (4,702) Gain (loss) on sale of investments 3,561 546 (250) Equity in net income (loss) of affiliates 384 1,639 (1,382) Impairment loss on real estate -- (1,277) -- - -------------------------------------------------------------------------------- Income from continuing operations before income taxes and extraordinary item 67,470 59,922 43,741 Income taxes 27,236 24,088 16,773 - -------------------------------------------------------------------------------- Income from continuing operations before extraordinary item 40,234 35,834 26,968 Income from discontinued operations, net of income taxes -- -- 3,408 Extraordinary gain on early retirement of debt, net of income taxes -- 1,590 -- - -------------------------------------------------------------------------------- Net income $ 40,234 $ 37,424 $ 30,376 ================================================================================ Earnings per share from continuing operations before extraordinary item $ 2.08 $ 1.87 $ 1.45 Earnings per share from discontinued operations, net of income taxes -- -- 0.18 Extraordinary gain on early retirement of debt, net of income taxes, per share -- 0.08 -- - -------------------------------------------------------------------------------- Earnings per share $ 2.08 $ 1.95 $ 1.63 ================================================================================ Dividends declared, per share $ 0.42 $ 0.35 $ 0.32 ================================================================================ Average common and common equivalent shares outstanding 19,349 19,153 18,577 ================================================================================ See notes to consolidated financial statements. Consolidated Balance Sheets - ----------------------------------------- Years Ended October 31, (in thousands) 1997 1996 - -------------------------------------------------------------------------------- Assets CURRENT ASSETS: Cash and equivalents $ 61,928 $ 55,583 Short-term investments 78,592 60,792 Investment adviser fees and other receivables 7,204 7,650 Assets held for sale 8,539 2,500 Other current assets 7,905 3,837 - -------------------------------------------------------------------------------- Total current assets 164,168 130,362 - -------------------------------------------------------------------------------- OTHER ASSETS: Investments: Real estate 16,038 18,541 Investment in affiliates 7,918 9,565 Investment companies 10,763 8,965 Other investments 5,160 5,763 Other receivables 5,850 1,241 Deferred sales commissions 172,485 180,283 Equipment and leasehold improvements, net of accumulated depreciation and amortization of $5,075 and $4,543, respectively 2,537 2,828 Goodwill and other intangibles, net of accumulated amortization of $3,559 and $2,924, respectively 2,456 3,004 - -------------------------------------------------------------------------------- Total other assets 223,207 230,190 - -------------------------------------------------------------------------------- Total assets $387,375 $360,552 ================================================================================ See notes to consolidated financial statements. Years Ended October 31, (in thousands, except share figures) 1997 1996 - -------------------------------------------------------------------------------- Liabilities and Shareholders' Equity CURRENT LIABILITIES: Accrued compensation $ 12,252 $ 10,981 Accounts payable and accrued expenses 9,515 8,129 Dividend payable 2,226 1,881 Current portion of long-term debt 9,458 1,545 Other current liabilities 6,517 1,835 - -------------------------------------------------------------------------------- Total current liabilities 39,968 24,371 - -------------------------------------------------------------------------------- OTHER LIABILITIES: 6.22% Senior Note 42,857 50,000 Mortgage notes payable 8,107 4,549 - -------------------------------------------------------------------------------- Total other liabilities 50,964 54,549 - -------------------------------------------------------------------------------- Deferred income taxes 70,163 70,852 - -------------------------------------------------------------------------------- Commitments and contingencies -- -- SHAREHOLDERS' EQUITY: Common stock, par value $.03125 per share: Authorized, 160,000 shares Issued, 38,720 shares 1 1 Non-voting common stock, par value $.03125 per share: Authorized, 23,840,000 shares Issued, 18,468,834 and 18,729,576 shares, respectively 577 585 Additional paid-in capital 21,001 36,788 Unrealized gain on investments 2,445 3,598 Notes receivable from stock option exercises (3,168) (3,221) Retained earnings 205,424 173,029 - -------------------------------------------------------------------------------- Total shareholders' equity 226,280 210,780 - -------------------------------------------------------------------------------- Total shareholders' equity $387,375 $360,552 ================================================================================ See notes to consolidated financial statements. Consolidated Statements of Cash Flows - -------------------------------------------------------------------------------- Years Ended October 31, (in thousands) 1997 1996 1995 - -------------------------------------------------------------------------------- Cash and equivalents (including IB&T for 1995), beginning of year $55,583 $67,650 $34,025 CASH FLOWS FROM OPERATING ACTIVITIES: Net income, excluding discontinued operations 40,234 37,424 26,968 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) loss of affiliates (384) (1,639) 1,382 Dividends received from affiliate 928 -- -- Impairment loss on real estate -- 1,277 -- Deferred income taxes (2,802) (12,239) (8,440) Amortization of deferred sales commissions 54,464 52,585 50,186 Depreciation and other amortization 2,600 2,420 2,377 Payment of sales commissions (76,333) (55,784) (39,843) Capitalized sales charges received 29,658 32,580 36,218 Gain on sale of investments (3,561) (546) 250 Changes in other assets and liabilities (91) (5,073) 3,061 Cash used for discontinued operations -- -- (8,574) - -------------------------------------------------------------------------------- Net cash provided by operating activities 44,713 49,415 63,585 - -------------------------------------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Additions to real estate, equipment and leasehold improvements (2,201) (2,680) (1,172) Investment in partnership -- -- (88) Net (increase) decrease in notes and receivables from affiliates 694 563 (1,121) Investment in affiliate -- -- (4,812) Net increase in investment companies and other investments (205) (2,762) (945) Acquisition of management and distribution contracts -- (2,000) -- Proceeds from sale of real estate 3,534 -- -- Proceeds from sale of investments 64,294 16,125 64 Purchase of short-term investments (78,879) (59,939) (11,000) - -------------------------------------------------------------------------------- Net cash used for investing activities (12,763) (50,693) (19,074) - -------------------------------------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Payments on notes payable (1,573) (1,486) (6,469) Proceeds from the issuance of non-voting common stock 5,627 2,602 3,351 Dividends paid (7,839) (6,415) (5,891) Repurchase of non-voting common stock (21,820) (5,490) (1,877) - -------------------------------------------------------------------------------- Net cash used for financing activities (25,605) (10,789) (10,886) - -------------------------------------------------------------------------------- Net increase (decrease) in cash and equivalents 6,345 (12,067) 33,625 - -------------------------------------------------------------------------------- Cash and equivalents, end of year $61,928 $55,583 $67,650 ================================================================================ SUPPLEMENTAL CASH FLOW INFORMATION: Interest paid $ 3,887 $ 3,748 $ 4,708 ================================================================================ Income taxes paid $36,737 $38,723 $27,662 ================================================================================ See notes to consolidated financial statements. Consolidated Statements of Shareholders' Equity - ------------------------------------------------------------------------------------------------------------------------------------
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 - ------------------------------------------------------------------------------------------------------------------------------------ Balance, October 31, 1994 18,220 $1 $568 $ 49,595 $ -- $(2,511) $117,955 $165,608 Add (Deduct): Net income -- -- -- -- -- -- 30,376 30,376 Dividends declared ($0.32 per share) -- -- -- -- -- -- (6,020) (6,020) Issuance of non-voting common stock: On exercise of stock options 348 -- 11 2,371 -- (1,258) -- 1,124 Under employee stock purchase plan 50 -- 1 674 -- -- -- 675 Under employee incentive plan 22 -- 1 293 -- -- -- 294 For investment in affiliate 166 -- 5 2,693 -- -- -- 2,698 Repurchase of non-voting common stock (136) -- (4) (1,873) -- -- -- (1,877) Unrealized gain on investments -- -- -- -- 1,186 -- -- 1,186 Collection of notes receivable -- -- -- -- -- 456 -- 456 - ------------------------------------------------------------------------------------------------------------------------------------ Balance, October 31, 1995 18,670 $1 $582 $ 53,753 $ 1,186 $(3,313) $142,311 $194,520 Add (Deduct): Net income -- -- -- -- -- -- 37,424 37,424 Dividends declared ($0.35 per share) -- -- -- -- -- -- (6,706) (6,706) Issuance of non-voting common stock: On exercise of stock options 332 -- 10 1,623 -- (747) -- 886 Under employee stock purchase plan 52 -- 2 646 -- -- -- 648 Under employee incentive plan 22 -- 1 320 -- -- -- 321 Repurchase of non-voting common stock (308) -- (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 18,768 $1 $585 $ 36,788 $ 3,598 $(3,221) $173,029 $210,780 Add (Deduct): Net income -- -- -- -- -- -- 40,234 40,234 Dividends declared ($0.42 per share) -- -- -- -- -- -- (7,839) (7,839) Issuance of non-voting common stock: On exercise of stock options 489 -- 15 4,702 -- (718) -- 3,999 Under employee stock purchase plan 36 -- 1 592 -- -- -- 593 Under employee incentive plan 17 -- 1 316 -- -- -- 317 Tax benefit of exercise of stock options -- -- -- 398 -- -- -- 398 Repurchase of non-voting common stock (803) -- (25) (21,795) -- -- -- (21,820) Unrealized loss on investments -- -- -- -- (1,153) -- -- (1,153) Collection of notes receivable -- -- -- -- -- 771 -- 771 - ------------------------------------------------------------------------------------------------------------------------------------ BALANCE, OCTOBER 31, 1997 18,507 $1 $ 577 $ 21,001 $ 2,445 $(3,168) $205,424 $226,280 ==================================================================================================================================== See notes to consolidated financial statements.
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 equity, 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 on securities are reported net of income taxes as a separate component of shareholders' equity. The Company, as a non-managing general partner of an investment company partnership, is required to maintain a minimum investment in such partnership. At October 31, 1997, the Company's investment exceeded the minimum $0.9 million required under the terms of the partnership agreement. Investments in investment companies held in connection with the Company's activities as principal underwriter are recorded at market value. Other investments are carried at the lower of cost or management's estimate of net realizable value. REAL ESTATE Real estate properties are carried at the lower of cost or fair value, with depreciation provided using the straight-line method over the estimated useful lives of the assets. Assets held for sale are carried at the lower of cost or fair market value less cost to sell. EQUIPMENT AND LEASEHOLD IMPROVEMENTS Equipment and leasehold improvements are stated at cost, less accumulated depreciation and amortization. Depreciation and amortization are provided principally by the straight-line method over the estimated useful lives of the related assets, or over the terms of the related leases, if shorter. DEFERRED SALES COMMISSIONS Sales commissions paid to brokers and dealers in connection with sales of shares of certain investment companies are capitalized and amortized over various periods, none of which exceeds six years. Distribution plan payments received by the Company from investment companies are recorded in income as earned. Contingent deferred sales charges received by the Company from redeeming shareholders reduce unamortized deferred sales commissions first, with any remaining amount recorded in income. 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 expenses 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 Earnings per share are based upon the weighted average number of common, non-voting common and non-voting common equivalent shares outstanding. Earnings per common and common equivalent share assuming full dilution have not been presented because the dilutive effect is immaterial. 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 May 15, 1997. In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings per Share." SFAS No. 128 establishes standards for computing and presenting earnings per share and will require a dual presentation of basic and diluted earnings per share on the face of the consolidated statement of income for all periods presented beginning with the Company's fiscal quarter ending January 31, 1998. Neither basic nor diluted earnings per share as calculated in accordance with SFAS No. 128 would be materially different from earnings per share as presented in these consolidated financial statements. STOCK-BASED COMPENSATION Effective November 1, 1996, the Company adopted Statement of Financial Accounting Standards 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 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. Investment in Affiliates The Company maintained a 21 percent and 23 percent equity interest in Lloyd George Management (BVI) Limited (LGM) at October 31, 1997 and 1996, respectively. LGM is 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 $7.8 million and $8.4 million at October 31, 1997 and 1996, respectively. At October 31, 1997, the Company's investment exceeded its share of the underlying net assets of LGM by $6.0 million. This excess is being amortized over a 20-year period. The Company also maintains an 82 percent general partnership interest in Fulcrum Management Partners II, L.P. (FMPII), a Delaware limited partnership. FMPII is a 20 percent general partner of VenturesTrident II, L.P. (VTII), a Delaware limited partnership formed to invest in equity securities of public and private gold mining ventures. In addition to its general partnership interest in FMPII, the Company maintains a direct 3 percent limited partnership interest in VTII. VTII has completed its tenth and final year and was terminated effective December 31, 1997. In fiscal 1997, the Company received gold mining securities with a value of $1.0 million in a distribution of VTII's assets and additional gold mining securities with a value of $2.1 million in settlement of notes receivable for management services provided to the partnership. The Company received gold mining securities with a value of $1.4 million in a distribution from VTII in fiscal 1996. In fiscal 1996, the Company received gold mining securities with a value of approximately $0.3 million resulting from the termination of another gold mining partnership (VenturesTrident, L.P.) (VT) and the subsequent distribution of the partnership's assets. The Company received additional gold mining securities with a value of $1.8 million in settlement of notes receivable for management services provided to VT. The Company's investment in these gold mining partnerships was $137,000 and $1.2 million at October 31, 1997 and 1996, respectively. 3. Discontinued Operations On November 10, 1995, the Company completed the spin-off of its banking operations in a tax-free distribution to its shareholders of shares of Investors Financial Services Corp. (IFSC), a newly created holding company for Investors Bank & Trust Company. Under the plan of distribution, the Company transferred to IFSC approximately $14.1 million of net banking assets, including $10.1 million of cash. Each shareholder of the Company received 2.799 shares of Common Stock of IFSC and .538 shares of Class A Stock of IFSC for each 10 shares of Eaton Vance Corp. stock held at the close of business on October 30, 1995, which was the record date of the distribution. The accompanying consolidated statements of income and cash flows for fiscal 1995 reflect the banking business as a discontinued operation. Revenue and income taxes applicable to discontinued operations were $57.4 million and $2.8 million, respectively, in 1995. The contribution to fiscal 1996 net income from IFSC was not material to the consolidated financial statements. 4. Real Estate Investments Real estate investments held at October 31, 1997 and 1996 follow: (in thousands) 1997 1996 - ---------------------------------------------------------------------- Buildings $18,254 $24,632 Land 2,279 1,721 - ---------------------------------------------------------------------- Total 20,533 26,353 Less accumulated depreciation 4,495 7,534 - ---------------------------------------------------------------------- Net book value 16,038 18,819 Share of accumulated losses in excess of partnership interest -- (278) - ---------------------------------------------------------------------- Total $16,038 $18,541 ====================================================================== 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 previously under mortgage and recognized a pre-tax impairment loss of $1.3 million based on its estimated net realizable value. In 1997, the Company sold the property and recognized a pre-tax gain of $1.0 million based on a carrying value of $2.5 million at the time of sale. In 1997, the Company's real estate subsidiary acquired the remaining 50 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 on the date of acquisition. The cost in excess of net assets acquired of $88,000 is being amortized on a straight-line basis over a 20-year period. The operating results of the acquired partnership interest have been included in the consolidated financial statements since the date of acquisition. The acquisition did not have a material pro forma impact on operations. In 1997, the Company committed to a plan to sell two industrial warehouse buildings located in Springfield, Massachusetts and Colonie, New York and a shopping center in Goffstown, New Hampshire. The estimated net realizable values of the buildings exceeded their respective carrying values of $1.4 million, $1.6 million and $5.5 million at October 31, 1997. The Company expects sales of the properties to be completed in fiscal 1998. 5. Long-Term Debt 6.22% SENIOR NOTE The Company has a $50 million 6.22% Senior Note due March 2004. Principal payments on the note are due in equal annual installments of approximately $7.1 million, beginning March 1998. The note may be prepaid in part or in 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, 1997, the Company had no borrowings under this facility. MORTGAGE NOTES PAYABLE The balance of mortgage notes payable on October 31, 1997 and 1996 follow: Interest Maturity Rate 1997 1996 - ---------------------------------------------------------------------- (in thousands) 2002 7.97% $ 2,126 $2,180 1999 9.75% 5,872 -- - -- Floating -- 1,349 2015-2016 Various 2,424 2,565 - ---------------------------------------------------------------------- Total $10,422 6,094 ====================================================================== 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, 1997, non-recourse mortgages totaled approximately $9.2 million. Principal payments due on mortgage notes outstanding at October 31, 1997 for each of the next five years and in the aggregate thereafter follow: Year Ending October 31 Amount - ---------------------------------------------------------------------- (in thousands) 1998 $ 2,315 1999 5,965 2000 142 2001 143 2002 143 Thereafter 1,714 - ---------------------------------------------------------------------- Total $10,422 ====================================================================== 6. Lease Commitments The Company leases certain real estate and equipment under noncancelable operating leases. Rent expense under these leases in 1997, 1996 and 1995 amounted to $0.6 million, $0.7 million and $0.7 million, respectively. Future minimum lease commitments are as follows: Year Ending October 31 Amount - ---------------------------------------------------------------------- (in thousands) 1998 $ 544 1999 574 2000 574 2001 562 2002 314 Thereafter -- - ---------------------------------------------------------------------- Total $2,568 ====================================================================== 7. Stock Plans Effective November 1, 1996, the Company adopted Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation." As a result, 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," and has provided below the additional pro forma disclosures required by SFAS No. 123. The adoption of this standard has not had an impact on the Company's financial position or results of operations. In accordance with APB 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, 1997 and 1996 would have been reduced to the following pro forma amounts: (net income figures in thousands) 1997 1996 - ---------------------------------------------------------------------- Net income: As reported $40,234 $37,424 Pro forma $39,044 $37,007 Earnings per share: As reported $ 2.08 $ 1.95 Pro forma $ 2.02 $ 1.93 The fair value of each option grant included in the pro forma net income shown above is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions used for grants in fiscal 1997 and 1996: dividend yield of 1.8 percent; expected volatility of 30 percent; risk-free interest rate of 6.2 percent and 5.6 percent, respectively; and expected option lives of five 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 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 current plan and predecessor plans are summarized as follows: 1997 1996 1995 - -------------------------------------------------------------------------------- Weighted Weighted Weighted Average Average Average Exercise Exercise Exercise Shares Price Shares Price Shares Price - -------------------------------------------------------------------------------- Balance, beginning of period 1,433,294 $11.73 1,339,442 $10.90 1,465,496 $10.02 Granted 496,396 21.02 282,540 14.22 266,600 12.67 Exercised (489,619) 9.63 (332,720) 4.92 (348,654) 6.62 Forfeited/Expired (118,826) 13.29 (134,784) 12.39 (44,000) 12.47 Adjustment for spin-off -- -- 278,816 12.04 -- -- - -------------------------------------------------------------------------------- Balance, end of period 1,321,245 $12.60 1,433,294 $11.73 1,339,442 $10.90 ================================================================================ Outstanding options to subscribe to shares of non-voting common stock issued under the current plan and predecessor plans are summarized as follows: Options Outstanding Options Exercisable - -------------------------------------------------------------------------------- Weighted Average Weighted Weighted Outstanding Remaining Average Exercisable Average Range of as of Contractual Exercise as of Exercise Exercise Prices 10/31/97 Life Price 10/31/97 Price - -------------------------------------------------------------------------------- $11.28-$11.48 347,283 1.3 $11.40 336,291 $11.39 $12.41-$15.54 481,066 2.3 13.91 331,190 13.83 $20.87-$22.96 492,896 4.1 21.02 -- -- - -------------------------------------------------------------------------------- 1,321,245 2.7 $15.90 667,481 $12.60 ================================================================================ In November 1997, the Company granted options for an additional 315,000 shares at prices ranging from $35.69 to $39.26. EMPLOYEE STOCK PURCHASE PLAN A total of 824,000 shares of the Company's non-voting common stock has been reserved for issuance under an Employee Stock Purchase Plan. The plan permits eligible full-time employees to direct up to 15 percent of their salaries 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, 1997, 707,000 shares have been issued pursuant to this plan. INCENTIVE PLAN--STOCK ALTERNATIVE A total of 600,000 shares of the Company's non-voting common stock has been reserved for issuance under the Incentive Plan--Stock Alternative. The plan permits employees and officers to direct up to half of their monthly and annual incentive bonuses toward the purchase of non-voting common stock at 90 percent of the average market price of the stock for the five days subsequent to the end of the six-month offering period. Through October 31, 1997, 174,000 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 8.3 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 $3.2 million at both October 31, 1997 and 1996. 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, $2.7 million and $2.8 million, the maximum amounts permitted under the plan, for the years ended October 31, 1997, 1996 and 1995, respectively. SAVINGS PLAN AND TRUST The Company has a Savings Plan and Trust which is qualified under Section 401 of the Internal Revenue Code. All full-time employees who have met certain age and length of service requirements are eligible to participate in the plan. This savings plan allows participating employees to contribute up to eight percent of their gross salary on a pretax basis to the plan. The Company then matches each participant's contribution on a dollar-for-dollar basis up to a maximum of $1,040. The Company's expenses under the plan were $0.3 million for each of the years ended October 31, 1997, 1996 and 1995. 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 Retirement Plan and the Supplemental Profit Sharing Plan. The Company's expense under the plan for each of the years ended October 31, 1997 and 1996 was $0.1 million. 9. Common Stock Repurchases On April 9, 1997, the Company's Board of Directors authorized the purchase by the Company of up to 1,000,000 shares of the Company's non-voting common stock. Through October 31, 1997, 368,000 shares have been acquired under this authorization. An additional 435,000 shares were acquired in fiscal 1997 under a previous repurchase authorization. 10. Income Taxes The provision for income taxes for the years ended October 31, 1997, 1996 and 1995 consists of the following: (in thousands) 1997 1996 1995 - ---------------------------------------------------------------------- Current: Federal $25,162 $30,450 $19,505 State 4,876 5,877 5,708 Deferred: Federal (2,405) (10,261) (5,459) State (397) (1,978) (2,981) - ---------------------------------------------------------------------- Income taxes $27,236 $24,088 $16,773 ====================================================================== 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) 1997 1996 - ---------------------------------------------------------------------- DEFERRED TAX ASSETS: Capital loss carryback $ 1,317 $ 1,317 Reserve for arbitration award 1,255 1,077 Impairment loss on real estate -- 522 Investments in affiliate and limited partnership 528 414 Other 188 538 - ---------------------------------------------------------------------- Total $ 3,288 $ 3,868 ====================================================================== DEFERRED TAX LIABILITIES: Deferred sales commissions $(66,779) $(69,809) Differences between book and tax bases of property (1,353) (1,744) Unrealized net holding gains on investments (1,492) (1,951) Other (1,255) (1,216) - ---------------------------------------------------------------------- Total $(70,879) $(74,720) ====================================================================== NET DEFERRED TAX LIABILITY $(67,591) $(70,852) ====================================================================== Deferred tax assets and liabilities are reflected on the Company's consolidated balance sheets at October 31, 1997 and 1996 as follows: (in thousands) 1997 1996 - ---------------------------------------------------------------------- Current deferred tax assets $ 2,572 $ -- Non-current deferred tax liabilities (70,163) (70,852) - ---------------------------------------------------------------------- Net deferred tax liability $(67,591) $(70,852) ====================================================================== The following table reconciles the statutory federal income tax rate to the Company's effective income tax rate: 1997 1996 1995 - ---------------------------------------------------------------------- Federal statutory tax rate 35.0% 35.0% 35.0% Increases (decreases) in taxes from: State income tax (net of effect of federal tax) 4.3 4.2 3.9 Tax deductible losses on mining investments -- (1.7) (5.4) Other 1.1 2.7 4.8 - ---------------------------------------------------------------------- Effective tax rate 40.4% 40.2% 38.3% ====================================================================== 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, 1997, the payment has been recorded in "Other receivables" on the Company's consolidated balance sheet. 11. Financial Instruments The estimated fair value of the Company's financial instruments has 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 and $1.1 million at October 31, 1997 and 1996, respectively. Management believes it is impracticable to calculate the fair values of these investments due to the difficulty of predicting future returns and the period in which these amounts will be received. Accordingly, the Company values these investments at cost with adjustments for impairment, if needed. The estimated fair value of the remaining financial instruments in other investments, amounting to $4.3 million and $4.7 million at October 31, 1997 and 1996, 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 sheet has 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 shareholder's equity on the consolidated balance sheet. 6.22% SENIOR NOTE The estimated fair value of the Company's $50 million Senior Note at October 31, 1997 and 1996 is $49.4 million and $48.4 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, 1997 and 1996 is $10.5 million and $5.9 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 $93.6 million and $74.4 million at October 31, 1997 and 1996, respectively. These securities are classified as "Short-term investments," "Investments in investment companies," and "Other investments" on the Company's consolidated balance sheet. Gross unrealized gains of $6.7 million and $5.6 million and gross unrealized losses of $2.8 million and $44,000 at October 31, 1997 and 1996, respectively, have been excluded from earnings and reported as a separate component of shareholders' equity, net of deferred taxes. 12. Related Party Transactions Investment advisory and distribution income earned from investment companies sponsored by the Company were $183.7 million, $164.8 million and $151.7 million in 1997, 1996 and 1995, respectively. The portfolios and related funds that provided over 10 percent of the total revenue of the Company are as follows: (dollar figures in thousands) 1997 1996 1995 - -------------------------------------------------------------------------------- SENIOR DEBT PORTFOLIO AND RELATED FUNDS: Investment adviser and administration fees and early withdrawal charges $40,637 $26,526 $10,327 Percent of revenue 20.2% 14.6% 6.2% NATIONAL MUNICIPALS PORTFOLIO AND RELATED FUNDS: Investment adviser fees, distribution plan payments and contingent deferred sales charges $25,117 $26,547 $26,892 Percent of revenue 12.5% 14.6% 16.0% 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 $128.6 million and $104.2 million at October 31, 1997 and 1996, respectively. Dividend and interest income earned on these investments aggregated approximately $3.2 million in 1997, $3.0 million in 1996 and $1.7 million in 1995. The Company recognized net gains of approximately $2.7 million and $0.6 million in 1997 and 1996, respectively, resulting from the disposition of sponsored mutual fund investments. The Company earned fees of $0.4 million, $1.1 million and $1.7 million in 1997, 1996 and 1995, respectively, for providing management and administration services to VT and VTII. At October 31, 1996, the Company had a note receivable due from VTII in the amount of $1.2 million which is included in "Other receivables" on the Company's consolidated balance sheet. 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. 13. 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 $28.0 million which exceeds its respective minimum net capital requirement of $373,000 at October 31, 1997. The ratio of aggregate indebtedness to net capital at October 31, 1997 was 0.20-to-1. 14. Comparative Quarterly Financial Information (Unaudited)
1997 - ---------------------------------------------------------------------------------------------- First Second Third Fourth Full (in thousands, except per share figures) Quarter Quarter Quarter Quarter Year - ---------------------------------------------------------------------------------------------- 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 $ 0.51 $ 0.49 $ 0.55 $ 0.53 $ 2.08 1996 - ---------------------------------------------------------------------------------------------- First Second Third Fourth Full (in thousands, except per share figures) Quarter Quarter Quarter Quarter Year - ---------------------------------------------------------------------------------------------- Total revenue $44,633 $45,665 $45,368 $46,323 $181,989 Income from: Continuing operations $ 9,798 $ 8,811 $ 9,495 $ 7,730 $ 35,834 Extraordinary item -- 1,590 -- -- 1,590 - ---------------------------------------------------------------------------------------------- Net Income $ 9,798 $10,401 $ 9,495 $ 7,730 $ 37,424 ============================================================================================== Earnings per share from: Continuing operations $ 0.52 $ 0.47 $ 0.49 $ 0.39 $ 1.87 Extraordinary item -- 0.08 -- -- 0.08 - ---------------------------------------------------------------------------------------------- Earnings per share $ 0.52 $ 0.55 $ 0.49 $ 0.39 $ 1.95 ==============================================================================================
Independent Auditors' Report - -------------------------------------------------------------------------------- To the Board of Directors and Shareholders of Eaton Vance Corp.: We have audited the accompanying consolidated balance sheets of Eaton Vance Corp. and its subsidiaries as of October 31, 1997 and 1996, and the related consolidated statements of income, shareholders' equity, and cash flows for each of the three years in the period ended October 31, 1997. 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, 1997 and 1996, and the results of their operations and their cash flows for each of the three years in the period ended October 31, 1997 in conformity with generally accepted accounting principles. DELOITTE & TOUCHE LLP Boston, Massachusetts November 25, 1997 Eaton Vance Corp. Directors and Officers - -------------------------------------------------------------------------------- JAMES B. HAWKES BENJAMIN A. ROWLAND, JR. Chairman, President, Vice President and Director Chief Executive Officer and Director LAURIE G. RUSSELL Vice President JOHN G.L. CABOT and Chief Accounting Officer Director RALPH Z. SORENSON ALAN R. DYNNER Director Vice President and Chief Legal Officer WILLIAM M. STEUL Vice President M. DOZIER GARDNER and Chief Financial Officer Vice Chairman and Director PETER D. STOKINGER THOMAS OTIS Vice President Vice President and Secretary and Internal Auditor Investor Information - -------------------------------------------------------------------------------- Eaton Vance Corp. and Form 10--K Eaton Vance Corp. has filed an Annual Report on Form 10--K with the Securities and Exchange Commission for the 1997 fiscal year. For a copy of that Report, which is available free of charge to shareholders of Eaton Vance Corp. upon request, or other information regarding the Company, please contact: William M. Steul, Chief Financial Officer Eaton Vance Corp. 24 Federal Street Boston, MA 02110 (617) 482-8260 Transfer Agent and Registrar BostonEquiserve is the Transfer Agent and Registrar for the Company's common stock and maintains shareholder accounting records. The Transfer Agent should be contacted on questions of change in address, name or ownership, lost certificates and consolidation of accounts. When corresponding with the Transfer Agent, shareholders should state the exact name(s) in which the stock is registered and the certificate number, as well as pertinent account information. Contact: BankBoston, N.A. c/o Boston EquiServe, L.P. Investor Relations Department Post Office Box 8040 Mail Stop 45-02-64 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. EATON VANCE CORP. 24 Federal Street Boston, MA 02110 EX-21.1 7 LIST OF COMPANY'S SUBSIDIARIES EXHIBIT 21.1 LIST OF SUBSIDIARIES AS OF OCTOBER 31, 1997* STATE OR JURISDICTION OF NAME UNDER WHICH INCORPORATION OR SUBSIDIARY DOES ORGANIZATION BUSINESS -------------------------------------------- FIRST TIER SUBSIDIARIES OF EATON VANCE CORP.: Eaton Vance Management Massachusetts Same Fulcrum Management, Inc. Massachusetts Same EV Gold, Inc. Massachusetts Same MinVen, Inc. Massachusetts Same CERTAIN SUBSIDIARIES OF EATON VANCE MANAGEMENT: Eaton Vance Distributors, Inc. Massachusetts Same Northeast Properties, Inc. Massachusetts Same Boston Management and Research Massachusetts Same * The names of certain subsidiaries have been omitted in this list inasmuch as the unnamed subsidiaries, considered in the aggregate as a single subsidiary, would not constitute a significant subsidiary as of the Company's fiscal year ended October 31, 1997. EX-23.1 8 INDEPENDENT AUDITORS' CONSENT EXHIBIT 23.1 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in the Registration Statements listed at Exhibit 99.2 of Eaton Vance Corp. (the Company) on Forms S-8 and S-3 of our report dated November 25, 1997 appearing in the Annual Report on Form 10-K of the Company for the year ended October 31, 1997. DELOITTE & TOUCHE LLP Boston, Massachusetts January 28, 1998 EX-27 9 FINANCIAL DATA SCHEDULE
5 0000350797 EATON VANCE CORP. 1000 YEAR OCT-31-1997 OCT-31-1997 61928 78592 7204 0 0 164168 2537 0 387375 39968 0 578 0 0 225702 387375 0 200910 0 0 137005 0 3951 67470 27236 40234 0 0 0 40234 2.08 2.08
EX-99.2 10 LIST OF EV CORP. OPEN REGISTRATION STATEMENTS EXHIBIT 99.2 EATON VANCE CORP. OPEN REGISTRATION STATEMENTS REGISTRATION STATEMENT FILING DATE CONSENT DATE FILING NUMBER 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 -----END PRIVACY-ENHANCED MESSAGE-----