UNITED STATES SECURITIES AND EXCHANGE ... - Eaton Vance
UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
FORM 10-K
(Mark One) Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended October 31, 2013
or Transition Report Pursuant to Section 13 or 15(d) of the Securities and Exchange Act of 1934 For the transition period from _____________ to ____________
Commission File Number 1-8100
EATON VANCE CORP.
(Exact name of registrant as specified in its charter)
Maryland
04-2718215
(State of incorporation)
(I.R.S. Employer Identification No.)
Two International Place, 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: Non-Voting Common Stock ($0.00390625 par value per share) (Title of each class)
Securities registered pursuant to Section 12(g) of the Act: None.
New York Stock Exchange (Name of each exchange on
which registered)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes No
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 (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No
Indicate by check whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes 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.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filer
(Do not check if smaller reporting company) Smaller reporting company
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No
Aggregate market value of Non-Voting Common Stock held by non-affiliates of the Registrant, based on the closing price of $39.88 on April 30, 2013 on the New York Stock Exchange was $4,659,905,087. Calculation of holdings by non-affiliates is based upon the assumption, for these purposes only, that executive officers, directors, and persons holding 5 percent or more of the registrant's Non-Voting Common Stock are affiliates.
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 October 31, 2013
Non-Voting Common Stock, $0.00390625 par value
121,232,506
Voting Common Stock, $0.00390625 par value
399,240
Required Information
Part I Item 1. Item 1A. Item 1B. Item 2. Item 3. Item 4.
Part II Item 5.
Item 6. Item 7.
Item 7A.
Item 8. Item 9.
Item 9A. Item 9B.
Part III Item 10. Item 11. Item 12.
Item 13.
Item 14.
Part IV Item 15.
Signatures
Eaton Vance Corp. Form 10-K
For the Fiscal Year Ended October 31, 2013 Index
Page Number Reference
Business .....................................................................................
3
Risk Factors ...............................................................................
17
Unresolved Staff Comments ......................................................
22
Properties ...................................................................................
22
Legal Proceedings......................................................................
22
Mine Safety Disclosures ............................................................
22
Market for Registrant's Common Equity, Related
Stockholder Matters and Issuer Purchases of Equity
Securities ..................................................................................
23
Selected Financial Data .............................................................
26
Management's Discussion and Analysis of Financial
Condition and Results of Operations .......................................
28
Quantitative and Qualitative Disclosures About
Market Risk .............................................................................
63
Financial Statements and Supplementary Data..........................
66
Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure ...................................... 131
Controls and Procedures ............................................................ 131
Other Information ...................................................................... 131
Directors, Executive Officers and Corporate Governance......... 133 Executive Compensation ........................................................... 139 Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters ....................... 165 Certain Relationships and Related Transactions and Director
Independence ........................................................................... 170 Principal Accountant Fees and Services .................................... 171
Exhibits and Financial Statement Schedules ............................. 172 ................................................................................................... 173
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PART I
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K includes statements that are "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including statements regarding our expectations, intentions or strategies regarding the future. All statements, other than statements of historical facts, included in this Form 10-K regarding our financial position, business strategy and other plans and objectives for future operations are forward-looking statements. The terms " may," "will," "could," "anticipate," "plan," "continue," "project," "intend," "estimate," "believe," "expect" and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain such words. Although we believe that the assumptions and expectations reflected in such forward-looking statements are reasonable, we can give no assurance that they will prove to have been correct or that we will take any actions that may now be planned. Certain important factors that could cause actual results to differ materially from our expectations are disclosed in Item 1A, "Risk Factors." All subsequent written or oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by such factors. We disclaim any intention or obligation to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.
Item 1. Business
General
Our principal business is managing investment funds and providing investment management and advisory services to institutions and high-net-worth individuals. 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.
Through our subsidiaries Eaton Vance Management ("EVM") and Atlanta Capital Management LLC, ("Atlanta Capital") and other affiliates we manage active equity, income and alternative strategies across a range of investment styles and asset classes, including U.S. and global equities, floating-rate bank loans, municipal bonds, global income, high-yield and investment grade bonds. Through our subsidiary Parametric Portfolio Associates LLC ("Parametric") we manage a range of engineered alpha strategies, including systematic equity, systematic alternatives and managed options strategies, and provide portfolio implementation services, including tax-managed core and specialty index strategies, futures- and options-based portfolio overlay, and centralized portfolio management of multi-manager portfolios. We also oversee the management of investment funds subadvised by third-party managers, including global, regional and sector equity, commodity and asset allocation strategies. Our breadth of investment capabilities supports a wide range of products and services offered to fund shareholders, retail managed account investors, institutional investors and high-net-worth clients. As of October 31, 2013, we had $280.7 billion in assets under management.
Our principal retail marketing strategy is to distribute funds and separately managed accounts through financial intermediaries in the advisory channel. We have a broad reach in this marketplace, with distribution partners including national and regional broker-dealers, independent broker-dealers, independent 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.
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We also commit significant resources to serving institutional and high-net-worth clients who access investment management services on a direct basis and through investment consultants. Through our wholly owned affiliates and consolidated subsidiaries we manage investments for a broad range of clients in the institutional and highnet-worth global marketplace, including corporations, sovereign wealth funds, endowments, foundations, family offices and public and private employee retirement plans.
Company History and Development
We have been in the investment management business for eighty-nine years, tracing our history to two Bostonbased investment managers: Eaton & Howard, formed in 1924, and Vance, Sanders & Company, organized in 1934. Eaton & Howard, Vance Sanders, Inc. (renamed Eaton Vance Management, Inc. in June 1984 and reorganized as Eaton Vance Management in October 1990) was formed upon the acquisition of Eaton & Howard, Incorporated by Vance, Sanders & Company, Inc. on April 30, 1979. Following the 1979 merger of these predecessor organizations to form Eaton Vance, our managed assets consisted primarily of open-end mutual funds marketed to U.S. retail investors under the Eaton Vance brand and investment counsel services offered directly to high-net-worth and institutional investors. In recent years we have expanded our product and distribution focus to include closed-end, private and offshore funds, as well as retail managed accounts and a broad array of products and services for U.S. and international institutional and high-net-worth investors.
We have augmented our investment capabilities and expanded our business through a series of acquisitions, including the purchase of controlling interests in Atlanta Capital and Fox Asset Management LLC ("Fox Asset Management") in fiscal 2001, Parametric in fiscal 2003, Parametric Risk Advisors LLC ("Parametric Risk Advisors") in fiscal 2007, the Tax Advantaged Bond Strategies ("TABS") business of M.D. Sass Investors Services in fiscal 2009, The Clifton Group Investment Management Company ("Clifton") in fiscal 2013 and a 49 percent equity interest in Hexavest Inc. ("Hexavest") in fiscal 2012.
Investment Managers and Distributors
We conduct our investment management business through direct and indirect wholly owned subsidiaries EVM, Boston Management and Research ("BMR"), Eaton Vance Investment Counsel ("EVIC"), Eaton Vance (Ireland) Limited ("EVAI"), Eaton Vance Trust Company ("EVTC"), and Fox Asset Management, and three other consolidated subsidiaries, Atlanta Capital, Parametric and Parametric Risk Advisors, each with a range of investment capabilities and one or more distinctive investment styles. EVM, BMR, EVIC, Fox Asset Management, Atlanta Capital, Parametric and Parametric Risk Advisors are all registered with the Securities and Exchange Commission ("SEC") as investment advisers under the Investment Advisers Act of 1940 (the "Advisers Act"). EVAI, registered under the Central Bank of Ireland, provides management services to the Eaton Vance International (Ireland) Funds. EVTC, a trust company, is exempt from registration under 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 and retail managed accounts. Eaton Vance Management (International) Limited ("EVMI"), a wholly owned financial services company registered under the Financial Services and Market Act in the United Kingdom, markets and sells our investment products in Europe and certain other international markets. Eaton Vance Management International (Asia) Private Limited, ("EVMIA"), a wholly owned financial services company registered under the Singapore Companies Act by the Accounting and Corporate Regulatory Authority in Singapore, markets and sells our products in Asia Pacific. Eaton Vance Australia Pty. Ltd., a wholly owned company, registered as an Australian propriety company with the Australian Securities and Investment Commission, markets our investment services to investors in Australia.
We are headquartered in Boston, Massachusetts and also maintain offices in Atlanta, Georgia; Minneapolis, Minnesota; New York, New York; Seattle, Washington; Shrewsbury, New Jersey; Westport, Connecticut; London,
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England; Singapore; and Sydney, Australia. Our sales representatives operate throughout the United States and in Europe, Asia Pacific and Latin America. We are represented in the Middle East through an agreement with a thirdparty distributor.
Recent Developments
Our growth strategy focuses on developing and sustaining market-leading areas of investment expertise and expanding our product distribution reach into new channels and geographic markets. Efforts to develop leading investment franchises may include strategic acquisitions. In fiscal 2012, we purchased a 49 percent interest in Hexavest, a Montreal-based investment advisor, to expand our global and emerging market equity capabilities. In conjunction with our investment, we assumed primary responsibility for Hexavest's new business development outside of Canada and have the option to acquire an additional 26 percent interest in Hexavest in fiscal 2017. Hexavest's assets under management have grown from $11.0 billion at deal inception in August 2012 to $16.9 billion on October 31, 2013.
In December 2012, Parametric acquired Clifton. Based in Minneapolis, Clifton specializes in providing futuresand options-based overlay services and custom risk management solutions to institutional investors. Clifton's overlay services enable clients to add, remove or hedge market exposures in a transparent and efficient manner without disrupting underlying holdings. Through this acquisition, we gained a market-leading position in futures- and options-based portfolio implementation services and positioned Parametric to assume direct responsibility for its distribution and client service in the U.S. institutional market. Operating as a division of Parametric, Clifton's assets under management have grown from $34.8 billion on December 31, 2012 to $45.6 billion on October 31, 2013.
In fiscal 2013, we introduced twelve new funds to take advantage of our expanding investment capabilities and to support future business growth. We believe Eaton Vance Bond Fund, launched in January, and the companion multi-sector income strategy for institutional clients have a particular opportunity to develop into a significant new investment franchise for our Company.
We continued to advance development of exchange-traded managed funds ("ETMFs") in fiscal 2013. ETMFs are a proposed new type of open-end investment fund that seek to provide the performance and tax advantages of exchange-traded funds to investors in active fund strategies, while maintaining the confidentiality of current portfolio trading information. We acquired the intellectual property supporting development of ETMFs in November 2010 and formed a subsidiary, Navigate Fund Solutions LLC ("Navigate"), to commercialize ETMFs in September 2011.
The Company filed initial and amended applications with the SEC in fiscal 2013, seeking exemptive relief to permit the offering of ETMFs. If approved, Navigate intends to pursue a two-part commercialization strategy: first, launching a family of Eaton Vance-sponsored ETMFs that mirror certain of our existing mutual funds, and second, licensing the associated intellectual property and providing related services to other fund groups. The launch of ETMFs is conditional upon regulatory approval, the likelihood and timing of which cannot be predicted. Commercial success also requires completion of enabling implementation technology and acceptance by market participants, which cannot be assured.
Investment Management Capabilities
We provide investment advisory services to retail clients through funds and retail managed accounts and to institutional and high-net-worth investors through private funds and separate accounts across a broad range of equity, fixed and floating-rate income, alternative and implementation services investment mandates. The following table sets forth consolidated assets under management by investment mandate for the dates indicated:
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