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| EV > SEC Filings for EV > Form 10-K on 21-Dec-2012 | All Recent SEC Filings |
21-Dec-2012
Annual Report
General
Our principal business is managing investment funds and providing investment management and advisory services to high-net-worth individuals and institutions. Our core strategy is to develop and sustain management expertise across a range of investment disciplines and to offer leading investment products and services through multiple distribution channels. In executing this strategy, we have developed broadly diversified investment management capabilities and a powerful marketing, distribution and customer service organization. Although we manage and distribute a wide range of investment products and services, we operate in one business segment, namely as an investment adviser to funds and separate accounts.
We are a market leader in a number of investment areas, including tax-managed equity, value equity, equity income, structured emerging market equity, floating-rate bank loan, municipal bond, investment grade, global and high-yield bond investing. Our breadth of investment management capabilities supports a wide range of products and services offered to fund shareholders, retail managed account investors, institutional investors and high-net-worth clients. Our equity strategies encompass a diversity of investment objectives, risk profiles, income levels and geographic representation. Our income investment strategies cover a broad duration and credit quality range and encompass both taxable and tax-free investments. We also offer a range of alternative investment strategies, including commodity-based investments and a spectrum of absolute return strategies. As of October 31, 2012, we had $199.5 billion in assets under management.
Our principal retail marketing strategy is to distribute funds and separately managed accounts through financial intermediaries in the advice channel. We have a broad reach in this marketplace, with distribution partners including national and regional broker-dealers, independent broker-dealers, independent financial advisory firms, banks and insurance companies. We support these distribution partners with a team of approximately 135 sales professionals covering U.S. and international markets.
We also commit significant resources to serving institutional and high-net-worth clients who access investment management services on a direct basis. Through our wholly owned affiliates and consolidated subsidiaries we manage investments for a broad range of clients in the institutional and high-net-worth marketplace, including corporations, endowments, foundations, family offices and public and private employee retirement plans.
Our revenue is derived primarily from investment advisory, administrative, distribution and service fees received from Eaton Vance funds and investment advisory fees received from separate accounts. Our fees are based primarily on the value of the investment portfolios we manage and fluctuate with changes in the total value and mix of assets under management. Such fees are recognized over the period that we manage these assets. Our major expenses are employee compensation, distribution-related expenses, facilities expense and information technology expense.
Our discussion and analysis of our financial condition and results of operations is based upon our Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP"). The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses and related disclosures of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related to goodwill and intangible assets, income taxes, investments and stock-based compensation. We base our estimates on historical experience and on various assumptions that we believe to be reasonable under current circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily available from other sources. Actual results may differ from these estimates.
Market Developments
Prevailing market conditions affect our managed asset levels, operating results and the recoverability of our investments. Fiscal 2012 was a period of generally favorable market action, as reflected by the 13 percent increase in the S&P 500 Index.
Managed Asset Levels
Average assets under management of $192.9 billion in fiscal 2012 were substantially unchanged from $192.4 billion in fiscal 2011. While net outflows from funds and separate accounts with Eaton Vance Large-Cap Value mandates offset net inflows into other long-term strategies in fiscal 2012, we ended the year with positive net inflows. We continue to see modestly lower total effective fee rates due to a decline in distribution and service-fee related revenue, reflecting lower managed assets in fund share classes that are subject to those fees. Consistent with industry trends, our fund business continues to evolve from Class B and Class C shares, with distribution and service fees generally totaling 100 basis points on average daily assets, to Class I shares, with no distribution or service fees, and Class A shares, with distribution and service fees generally totaling 25 basis points of average daily assets. Although this share class trend has an adverse effect on our total effective fee rate, the net income impact is smaller due to offsetting declines in distribution, service and deferred sales commission amortization expense.
As a matter of course, investors in our sponsored open-end funds and separate accounts have the ability to redeem their shares or investments at any time, without prior notice, and there are no material restrictions that would prevent such investors from doing so.
Operating Results
In fiscal 2012, our revenue decreased 3 percent from fiscal 2011, reflecting substantially unchanged average assets under management and a modest decline in our total effective fee rate. Our operating expenses decreased 1 percent in fiscal 2012, partly reflecting decreases in expenses tied to asset levels that decrease as assets under management decrease, such as certain distribution and service fees, and decreases in our sales-related expenses, which vary with the level of sales and the acquisition costs of new assets.
Assets under Management
Assets under management of $199.5 billion on October 31, 2012 were 6 percent higher than the $188.2 billion reported a year earlier. Assets under management on October 31, 2012 included $113.3 billion in long-term funds, $43.3 billion in institutional separate accounts, $15.0 billion in high-net-worth separate accounts, $27.7 billion in retail managed accounts and $0.2 billion in cash management fund assets. Long-term fund net outflows of $3.8 billion during the twelve-month period ended October 31, 2012 reflect gross inflows of $27.1 billion offset by outflows of $30.9 billion. Long-term fund net outflows include net reductions in fund leverage of $0.9 billion. Institutional separate account net inflows were $2.0 billion, high-net-worth separate account net inflows were $1.3 billion and retail managed account net inflows were $0.7 billion during the twelve-month period ended October 31, 2012. Market price appreciation increased managed assets by $11.6 billion during the twelve-month period ended October 31, 2012, while a decrease in cash management assets reduced assets under management by $0.5 billion.
We report managed assets and flow data by investment mandate. The "Alternative" category includes a range of absolute return strategies, as well as commodity- and currency-linked investments. Assets under management for which we estimate fair value are not material relative to the total value of the assets we manage.
Ending Assets under Management by Investment Mandate(1)
October 31, 2012 2011
% of % of % of vs. vs.
(in millions) 2012 Total 2011 Total 2010 Total 2011 2010
Equity (2) $ 111,096 56 % $ 108,859 58 % $ 107,500 58 % 2 % 1 %
Fixed income 49,003 25 % 43,708 23 % 46,119 25 % 12 % -5 %
Floating-rate income 26,388 13 % 24,322 13 % 20,003 11 % 8 % 22 %
Alternative 12,852 6 % 10,646 6 % 10,482 6 % 21 % 2 %
Cash management 169 0 % 669 0 % 1,139 0 % -75 % -41 %
Total $ 199,508 100 % $ 188,204 100 % $ 185,243 100 % 6 % 2 %
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(1)Consolidated Eaton Vance Corp. See table on page 30 for managed assets and flows of 49 percent-owned Hexavest Inc.
(2)Includes balanced accounts holding income securities.
Equity assets under management included $51.4 billion, $48.1 billion and $56.5 billion of equity assets managed for after-tax returns on October 31, 2012, 2011 and 2010, respectively. Fixed income assets included $29.5 billion, $25.6 billion and $28.8 billion of tax-exempt municipal bond assets on October 31, 2012, 2011 and 2010, respectively.
Net inflows totaled $0.2 billion in fiscal 2012 compared to $3.9 billion in fiscal 2011 and $16.3 billion in fiscal 2010. Long-term fund net outflows of $3.8 billion in fiscal 2012 reflect gross inflows of $27.1 billion and outflows of $30.9 billion. Long-term fund net inflows of $0.5 billion in fiscal 2011 reflect gross inflows of $33.0 billion and outflows of $32.5 billion. Long-term fund net inflows of $11.4 billion in fiscal 2010 reflect gross inflows of $34.1 billion and outflows of $22.7 billion. Fund outflows reflect a reduction in fund leverage of $0.9 billion, $0.9 billion and $0.4 billion in fiscal 2012, 2011 and 2010, respectively.
Separate account net inflows totaled $4.0 billion, $3.3 billion and $4.9 billion in fiscal 2012, 2011 and 2010, respectively. Institutional separate account net inflows totaled $2.0 billion, $2.5 billion and $4.1 billion in fiscal 2012, 2011 and 2010, respectively, reflecting gross inflows of $12.5 billion, $12.3 billion and $9.3 billion in fiscal 2012, 2011 and 2010, respectively, net of withdrawals of $10.5 billion, $9.8 billion and $5.2 billion, respectively. High-net-worth account net inflows totaled $1.3 billion, $0.4 billion and $0.7 billion in fiscal 2012, 2011 and 2010, respectively, reflecting gross inflows of $3.6 billion, $2.8 billion and $2.7 billion in fiscal 2012, 2011 and 2010, respectively, net of withdrawals of $2.3 billion, $2.4 billion and $2.0 billion, respectively. Retail managed account net inflows totaled $0.7 billion, $0.4 billion and $0.2 billion in fiscal 2012, 2011 and 2010, respectively, reflecting gross inflows of $6.9 billion, $6.7 billion and $6.7 billion, respectively, net of withdrawals of $6.2 billion, $6.3 billion and $6.5 billion, respectively.
The following tables summarize our assets under management and asset flows by investment mandate and investment vehicle for the fiscal years ended October 31, 2012, 2011 and 2010:
Net Flows by Investment Mandate(1)
2012 2011
Years Ended October 31, vs. vs.
(in millions) 2012 2011 2010 2011 2010
Equity assets -
beginning(2) $ 108,859 $ 107,500 $ 94,716 1 % 13 %
Sales and other inflows 23,679 29,973 24,434 -21 % 23 %
Redemptions/outflows (30,456 ) (29,168 ) (23,821 ) 4 % 22 %
Net flows (6,777 ) 805 613 NM (3) 31 %
Assets acquired - 352 - NM NM
Exchanges 24 35 378 -31 % -91 %
Market value change 8,990 167 11,793 NM -99 %
Equity assets - ending $ 111,096 $ 108,859 $ 107,500 2 % 1 %
Fixed income assets -
beginning 43,708 46,119 41,060 -5 % 12 %
Sales and other inflows 12,278 10,336 11,441 19 % -10 %
Redemptions/outflows (9,455 ) (11,827 ) (8,410 ) -20 % 41 %
Net flows 2,823 (1,491 ) 3,031 NM NM
Exchanges 84 (180 ) 178 NM NM
Market value change 2,388 (740 ) 1,850 NM NM
Fixed income assets -
ending $ 49,003 $ 43,708 $ 46,119 12 % -5 %
Floating-rate income assets
- beginning 24,322 20,003 15,355 22 % 30 %
Sales and other inflows 7,401 9,331 7,693 -21 % 21 %
Redemptions/outflows (5,662 ) (5,220 ) (2,976 ) 8 % 75 %
Net flows 1,739 4,111 4,717 -58 % -13 %
Exchanges 45 53 (733 ) -15 % NM
Market value change 282 155 664 82 % -77 %
Floating-rate income assets
- ending $ 26,388 $ 24,322 $ 20,003 8 % 22 %
Alternative assets -
beginning 10,646 10,482 2,351 2 % 346 %
Sales and other inflows 6,725 5,250 9,238 28 % -43 %
Redemptions/outflows (4,336 ) (4,784 ) (1,253 ) -9 % 282 %
Net flows 2,389 466 7,985 413 % -94 %
Exchanges (104 ) (79 ) 103 32 % NM
Market value change (79 ) (223 ) 43 -65 % NM
Alternative assets - ending $ 12,852 $ 10,646 $ 10,482 21 % 2 %
Long-term assets -
beginning 187,535 184,104 153,482 2 % 20 %
Sales and other inflows 50,083 54,890 52,806 -9 % 4 %
Redemptions/outflows (49,909 ) (50,999 ) (36,460 ) -2 % 40 %
Net flows 174 3,891 16,346 -96 % -76 %
Assets acquired - 352 - NM NM
Exchanges 49 (171 ) (74 ) NM 131 %
Market value change 11,581 (641 ) 14,350 NM NM
Total long-term assets -
ending $ 199,339 $ 187,535 $ 184,104 6 % 2 %
Cash management fund assets
- ending 169 669 1,139 -75 % -41 %
Total assets under
management - ending $ 199,508 $ 188,204 $ 185,243 6 % 2 %
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(1) Consolidated Eaton Vance Corp. See table on page 30 for managed assets and flows of 49 percent-owned Hexavest Inc.
(2) Includes balanced accounts holding income securities.
(3) Not meaningful ("NM")
Net Flows by Investment Vehicle(1)
2012 2011
Years Ended October 31, vs. vs.
(in millions) 2012 2011 2010 2011 2010
Long-term fund assets -
beginning $ 111,705 $ 113,978 $ 96,204 -2 % 18 %
Sales and other inflows 27,080 33,035 34,123 -18 % -3 %
Redemptions/outflows (30,895 ) (32,486 ) (22,681 ) -5 % 43 %
Net flows (3,815 ) 549 11,442 NM -95 %
Exchanges (13 ) (175 ) (74 ) -93 % 136 %
Market value change 5,372 (2,647 ) 6,406 NM NM
Long-term fund assets -
ending $ 113,249 $ 111,705 $ 113,978 1 % -2 %
Institutional separate
account assets - beginning 38,003 34,593 26,723 10 % 29 %
Sales and other inflows 12,496 12,350 9,285 1 % 33 %
Redemptions/outflows (10,514 ) (9,832 ) (5,226 ) 7 % 88 %
Net flows 1,982 2,518 4,059 -21 % -38 %
Exchanges 38 (18 ) 164 NM NM
Market value change 3,315 910 3,647 264 % -75 %
Institutional separate
account assets - ending $ 43,338 $ 38,003 $ 34,593 14 % 10 %
High-net-worth separate
account assets - beginning 13,256 11,883 10,137 12 % 17 %
Sales and other inflows 3,609 2,848 2,715 27 % 5 %
Redemptions/outflows (2,283 ) (2,419 ) (2,041 ) -6 % 19 %
Net flows 1,326 429 674 209 % -36 %
Assets acquired - 352 - NM NM
Exchanges (990 ) (8 ) (164 ) NM -95 %
Market value change 1,444 600 1,236 141 % -51 %
High-net-worth separate
account assets - ending $ 15,036 $ 13,256 $ 11,883 13 % 12 %
Retail managed account
assets - beginning 24,571 23,650 20,418 4 % 16 %
Sales and other inflows 6,898 6,657 6,683 4 % 0 %
Redemptions/outflows (6,217 ) (6,262 ) (6,512 ) -1 % -4 %
Net flows 681 395 171 72 % 131 %
Exchanges 1,014 30 - NM NM
Market value change 1,450 496 3,061 192 % -84 %
Retail managed account
assets - ending $ 27,716 $ 24,571 $ 23,650 13 % 4 %
Total long-term assets -
beginning 187,535 184,104 153,482 2 % 20 %
Sales and other inflows 50,083 54,890 52,806 -9 % 4 %
Redemptions/outflows (49,909 ) (50,999 ) (36,460 ) -2 % 40 %
Net flows 174 3,891 16,346 -96 % -76 %
Assets acquired - 352 - NM NM
Exchanges 49 (171 ) (74 ) NM 131 %
Market value change 11,581 (641 ) 14,350 NM NM
Total long-term assets -
ending $ 199,339 $ 187,535 $ 184,104 6 % 2 %
Cash management fund assets
- ending 169 669 1,139 -75 % -41 %
Total assets under
management - ending $ 199,508 $ 188,204 $ 185,243 6 % 2 %
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(1) Consolidated Eaton Vance Corp. See page 30 for managed assets and flows of 49 percent-owned Hexavest Inc.
On August 6, 2012, the Company completed the purchase of a 49 percent interest in Hexavest Inc. ("Hexavest"), a Montreal-based investment advisor that provides discretionary management of equity and tactical asset allocation strategies using a predominantly top-down investment style. As of October 31, 2012, Hexavest Inc. managed $12.1 billion of client assets, an increase of 11 percent from the $11.0 billion of managed assets on August 6, 2012. In conjunction with the purchase, we assumed primary responsibility for Hexavest's new business development outside of Canada.
The following table summarizes assets under management and asset flow information for Hexavest from August 6, 2012 through October 31, 2012:
Hexavest(1) Assets under Management and Net Flows
From August 6, 2012 through October 31, 2012
Eaton Vance-Distributed
Eaton Vance-
Hexavest Eaton Vance- Distributed
Directly Sponsored Separate
(in millions) Total Distributed(2) Funds(3) Accounts(4) Total
Managed assets - beginning of period $ 10,956 $ 10,956 $ - $ - $ -
Sales and other inflows 1,083 1,047 36 - 36
Redemptions/outflows (318 ) (318 ) - - -
Net flows 765 729 36 - 36
Market value change 389 388 1 - 1
Managed assets - end of period $ 12,110 $ 12,073 $ 37 $ - $ 37
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(1) On August 6, 2012, Eaton Vance acquired a 49% equity interest in Hexavest Inc., a Montreal-based investment advisor, and entered into a distribution agreement with Hexavest covering all markets outside Canada.
(2) Managed assets and flows of pre-transaction Hexavest clients and post-transaction Hexavest clients in Canada. Eaton Vance receives no management or distribution revenue on these assets, which are not included in the Eaton Vance consolidated results.
(3) Managed assets and flows of Eaton Vance-sponsored pooled investment vehicles for which Hexavest is advisor or sub-advisor. Eaton Vance receives management and/or distribution revenue on these assets, which are included in the Eaton Vance consolidated results.
(4) Managed assets and flows of Eaton Vance-distributed separate accounts managed by Hexavest. Eaton Vance generally receives distribution revenue, but not management revenue, on these assets, which are not included in the Eaton Vance consolidated results.
Ending Assets under Management by Asset Class(1)
October 31, 2012 2011
% of % of % of vs. vs.
(in millions) 2012 Total 2011 Total 2010 Total 2011 2010
Open-end funds:
Class A $ 30,426 15 % $ 33,414 18 % $ 37,820 21 % -9 % -12 %
Class B 959 1 % 1,294 1 % 1,861 1 % -26 % -30 %
Class C 9,662 5 % 9,693 5 % 10,444 6 % 0 % -7 %
Class I 30,288 15 % 26,830 14 % 22,426 12 % 13 % 20 %
Class R 312 0 % 372 0 % 400 0 % -16 % -7 %
Other(2) 542 0 % 618 1 % 616 0 % -12 % 0 %
Total open-end
funds 72,189 36 % 72,221 39 % 73,567 40 % 0 % -2 %
Private funds(3) 18,012 9 % 17,404 9 % 17,518 9 % 3 % -1 %
Closed-end funds 23,217 12 % 22,749 12 % 24,032 13 % 2 % -5 %
Total fund
assets 113,418 57 % 112,374 60 % 115,117 62 % 1 % -2 %
Institutional
account assets 43,338 22 % 38,003 20 % 34,593 19 % 14 % 10 %
High-net-worth
account assets 15,036 7 % 13,256 7 % 11,883 6 % 13 % 12 %
Retail managed
account assets 27,716 14 % 24,571 13 % 23,650 13 % 13 % 4 %
Total separate
account assets 86,090 43 % 75,830 40 % 70,126 38 % 14 % 8 %
Total $ 199,508 100 % $ 188,204 100 % $ 185,243 100 % 6 % 2 %
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(1) Consolidated Eaton Vance Corp. See Table on page 30 for managed assets and flows of 49 percent-owned Hexavest Inc.
(2) Includes other classes of Eaton Vance open-end funds.
(3) Includes privately offered equity, fixed income and floating-rate income funds and CLO entities.
We currently sell our sponsored open-end mutual funds under four primary pricing structures: front-end load commission ("Class A"); level-load commission ("Class C"); institutional no-load ("Class I"); and retirement plan no-load ("Class R"). We waive the front-end sales load on Class A shares under certain circumstances. In such cases, the shares are sold at net asset value. In the first quarter of fiscal 2012, we stopped offering spread-load commission ("Class B") shares to new investors.
Fund assets represented 57 percent of total assets under management on October 31, 2012, down from 60 percent and 62 percent on October 31, 2011 and 2010, respectively, while separate account assets, which include institutional, high-net-worth and retail managed account assets, increased to 43 percent of total assets under management on October 31, 2012, from 40 percent and 38 percent on October 31, 2011 and 2010, respectively. Fund assets under management increased $1.0 billion, or 1 percent, to $113.4 billion on October 31, 2012, reflecting market appreciation of $5.4 billion partly offset by net outflows of $3.8 billion and a decrease in cash management assets of $0.5 billion. Separate account assets under management increased $10.3 billion, or 14 percent, to $86.1 billion on October 31, 2012, reflecting 5 percent organic growth and market appreciation of $6.2 billion.
Average assets under management presented in the following table represent a monthly average by asset class. This table is intended to provide information . . .
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