EV Initiation

INITIATION | COMMENTJULY 24, 2012

Eaton Vance Corp. (NYSE: EV)

All Ingredients there, but Eaton Vance is Not QuiteThere Yet

Sector PerformAverage RiskPrice: 25.63

Shares O/S (MM): 115.5Dividend: 0.75

Price Target: 28.00Implied All-In Return: 12%Market Cap (MM): 2,960Yield: 2.9%

Priced at market close July 24, 2012 ET.

Investment Conclusion

Eaton Vance, one of the older asset managers in our coverage, has all thenecessary ingredients that should appeal to investors. It has a broad customerbase and a large product offering, ranging from tax-efficient equity funds toalternative asset classes. It is the third-largest domestic manager of closed-endfunds and is a company focused on exploiting opportunities through novelproduct designs.

Despite having all the right building blocks in place, we are initiating coveragewith a Sector Perform rating. Our call is that the shares are fully valued and tradeat a premium to its peers. We see a need for improvement on various frontsbefore we can become more constructive on the name:

Expect further outflows due to weak equity fund performance:

• With close to 60% of its assets under management in equities, Eaton Vance hasbuilt a reputation as an active manager. Yet recent results in equities have notbeen strong. Specifically, one- and three-year performances have lagged theirpeers on a risk-adjusted basis, contributing to outflows.

• Recent positive flows into fixed-income funds were not sufficient to offsetyear-to-date outflows from equity funds.

Lack of catalysts:

• We are unconvinced that potential catalysts for growth will materialize. Forinstance, one of the products identified by management as a growth opportunityfor 2012 were floating-rate bank loans. Sales this year have been weaker thatanticipated, with net inflows decreasing significantly from 2011 levels.

• The company's tax-managed funds could benefit as Bush-era tax cut extensionsshould come to an end this year. But we believe that the verdict is stilloutstanding on whether taxes will increase significantly next year given thestate of the economy.

• International strategies, an area of growth opportunity, are in their infancy.Eaton Vance is open to doing deals, but the firm is lagging its competitors,which have an established presence in international and global strategies.

We value Eaton Vance by applying a 10% premium to the peer P/E multiple of12.3x. We believe this is justified given the company's leadership position inniche sectors.

Priced as of prior trading day's market close, EST (unless otherwise noted).

125 WEEKS 12MAR10 - 23JUL12

22.00

24.00

26.00

28.00

30.00

32.00

34.00

36.00

M A M J J A S O N2010

D J F M A M J J A S O N2011

D J F M A M J J2012

HI-30APR10 36.08HI/LO DIFF -44.37%

CLOSE 26.04

LO-07OCT11 20.07

2000400060008000

1000012000

PEAK VOL. 14070.9VOLUME 873.5

70.00

80.00

90.00

100.00Rel. S&P 500 HI-30APR10 105.37

HI/LO DIFF -39.40%

CLOSE 68.42

LO-18MAY12 63.86

RBC Capital Markets, LLC

Bulent Ozcan, CFA (Associate Analyst)(212) 863-4818; [email protected]

Eric N. Berg, CPA, CFA (Analyst)(212) 618-7593; [email protected]

Kenneth S. Lee (Associate)(212) 905-5995; [email protected]

FY Oct 2011A 2012E 2013E 2014E

Adj EPS - FD 1.75 1.75 2.00 2.26

P/AEPS 14.6x 14.6x 12.8x 11.3x

Net Flows (B) 3.9 (2.5) 4.0 5.8

AUM (B) 188.2 198.4 218.4 241.9

Adj EPS - FD Q1 Q2 Q3 Q4

2011 0.30A 0.50A 0.55A 0.40A

2012 0.40A 0.44A 0.45E 0.46E

2013 0.46E 0.48E 0.52E 0.53E

2014 0.53E 0.55E 0.60E 0.59ENet Flows (B)

2011 1.8A 2.9A 1.9A (2.7)A

2012 (1.1)A 0.6A (2.2)E 0.3E

2013 1.0E 1.0E 1.0E 1.1E

2014 1.4E 1.4E 1.5E 1.5EAUM (B)

2011 191.7A 202.6A 199.0A 188.2A

2012 191.7A 197.5A 193.0E 198.4E

2013 203.2E 208.2E 213.2E 218.4E

2014 224.1E 229.9E 235.8E 241.9E

All values in USD unless otherwise noted.

For Required Conflicts Disclosures, see Page 33.

2

Investment Summary

We are initiating coverage of Eaton Vance with a Sector Perform, Average Risk rating, and a $28 price

target. We view the following favourably:

Eaton Vance has a broad product offering suited for various market cycles. It is a leader in tax-managed

funds, a top-three provider of closed-end funds, and is known for its value investing. It provides equity

strategies, income-investment strategies, and a range of alternative-investment strategies. These should

bode well for any business cycle.

Eaton Vance is an innovative company that has been among the early firms to introduce new products. It

was one of the first firms to offer 1940 Act funds, tax-managed strategies, and is currently waiting for

regulatory approval to introduce actively managed exchange-traded funds. If approved, this could be a

catalyst for growth.

With $23 billion in assets under management (AuM) (12% of total AuM), Eaton Vance is a leading

provider of closed-end funds. We view this as strength since assets tend to remain with the managers,

thus improving overall asset persistency.

Having 60% of AuM in equity funds, Eaton Vance could benefit from an improving equity market—if

we are wrong about our assumption that a sustainable recovery is still distant. If an equity market rally

were to happen, then market performance could offset outflows, thereby driving AuM and earnings

higher.

However, there are some challenges that the company faces, which lead us to believe that the shares are

fully priced at current levels:

Equities are still in outflow mode. With close to 60% of its assets under management in equities, Eaton

Vance is perceived by investors and clients to be an active manager. Recent results, however, have not

been strong. Specifically, the one-year and three-year performances have been lagging their peers on a

risk-adjusted basis. This, in our view, explains the outflows that the company has experienced over the

past three quarter, and we do not see this abiding unless performance improves.

Organic fixed-income growth rate lags the industry‘s experience. Certainly, positive flows into fixed-

income funds have more than offset outflows from equity funds in the most recent quarter. While this is

encouraging, Morningstar data show that the organic growth rate has not kept up with organic growth

rate for the industry.

Floating-rate bank loan sales are declining. One of the products identified by management as a growth

opportunity for 2012, sales net flows have come down dramatically from 2011 levels. Credit risk is

remains concern.

We believe, International offerings need to be expanded. International and global strategies, currently an

area of growth, are still in their infancy. While Eaton Vance announced a deal in June 2012 to acquire a

49% stake in Hexavest, which would expand its international and global fund offering, the firm is still

lagging its peers.

Writing off extension of tax cuts might be premature. While there is the belief that Bush-era tax cuts will

not be extended, potentially leading to large inflows into tax-managed funds as high net-worth clients

try to minimize the effect of higher taxes in 2013, we think that this is not a certainty. The economic

recovery is fragile, and progress is slow. Recent data out of Europe and Asia are not encouraging, and

the world appears to be looking for the US to lead it out of the recession. Thus, we think higher taxes are

not a certainty, and we are not yet convinced that Eaton Vance will see large inflows into its tax-

managed funds in 2013.

Our view on Eaton Vance could shift more positive should some of the macro economic headwinds subside

and equity fund performance starts to improve. For us, fund performance is the key driver of value creation

because this is one of the few variables that the company has control over.

Eaton Vance Corp.July 24, 2012

3

Company Overview

Eaton Vance was founded in 1924 and is headquartered in Boston, Massachusetts. The company provides

high net-worth individuals and institutions investment solutions 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 funds. It also serves clients who access investment management services

on a direct basis.

Exhibit 1: Eaton Vance Snapshot

Eaton Vance

Headquarters Boston, MA

Total AUM $197.2 bn

Major Brands Eaton Vance, Atlanta Capital, Parametric

% retail funds AUM rated 4-5

stars by Morningstar35%

SignatureInnovative manager known for its closed end and tax managed

funds

Source: Company reports, RBC Capital Markets

Valuation

The asset managers are currently trading at 12.3x calendar-year 2013 earnings. Over the past 10 years,

Eaton Vance has historically traded at a 10% premium to its peers. We believe that the premium is justified

given the company‘s leadership position in closed-end funds and tax-managed funds. We consider the

company to be one of the more innovative asset managers in our coverage. We arrive at our price target

using a price-to-earnings multiple of 13.5x, which represents a 10% premium to the company‘s peers and

our 2013 calendar year earnings estimate of $2.05 per share. Our price target is $28.

Exhibit 2: Eaton Vance’s Forward Looking P/E Relative to RBC Asset Managers Index

0.3x

0.5x

0.7x

0.9x

1.1x

1.3x

1.5x

1.7x

1.9x

Jan-0

7

Jul-

07

Jan-0

8

Jul-

08

Jan-0

9

Jul-

09

Jan-1

0

Jul-

10

Jan-1

1

Jul-

11

Jan-1

2

Jul-

12

Note: RBC Asset Managers Index includes BLK, EV, IVZ, LM, TROW, WDR, BEN, JNS, AB, ART, AMG, CNS, CLMS, GBL, PZN

Source: Bloomberg, RBC Capital Markets


4

Ownership

Exhibit 3: Top-10 Holders

Position Mkt Val

Ultimate Holder ('000) (MM) % OS

State Street Corp. 7,444 198 6.5

BlackRock, Inc. 6,521 174 5.7

Ameriprise Financial, Inc. 6,059 161 5.3

The Vanguard Group, Inc. 5,909 157 5.1

EARNEST Partners LLC 5,308 141 4.6

Wells Fargo & Co. 5,280 141 4.6

Fayez Sarofim & Co. 5,160 137 4.5

London Co. of Virginia 5,045 134 4.4

Prudential Financial, Inc. 4,193 112 3.6

Atlanta Life Financial Group 3,363 90 2.9

Source: FactSet

Exhibit 4: Ownership by Region

Position Mkt Val

Global Region ('000) (MM) % OS

North America 89,365 2,381 77.6

Europe 3,819 102 3.3

Asia 1,155 31 1.0

Pacific 26 1 0.0

Source: FactSet


5

Investment Thesis & Analysis

We consider Eaton Vance to be one of the more innovative asset managers in the industry. The company

has a broad investor base, ranging from institutional clients to retail clients. It offers an array of products

suited for various economic cycles; it is a leading provider of closed-end funds and has been one of the

earlier asset managers to offer tax-managed funds. We believe that all the ingredients to become a great

company are in place at Eaton Vance. Yet we initiate our coverage with a Sector Perform rating. In our

opinion, there are various areas of improvement that management needs to address before we become more

positive on the name. For the purpose of this initiation note, we focused on these areas of improvement

instead of weighing the positive versus the negatives. We believe that investors are familiar with the Eaton

Vance story, and as such, we wanted to focus on variables that we measure the company against.

Further Outflows Expected Unless Fund Performance Improves

Eaton Vance’s equity fund outflows have exceeded that of the industry due to weak fund performance. Using Morningstar, we have analysed performance tracking the top-10 mutual

funds. Our verdict: Performance has to improve in order to attract new funds.

While Eaton Vance offers a broad range of products, we and investors think of the company as an active

manager with a concentration in equity funds. Although it does not have the same degree of equity market

exposure as Waddell & Reed, close to 60% of Eaton Vance‘s AuM is allocated to equity strategies. The

company‘s large-cap value strategy, with about $20 billion in AuM, is the largest fund offering at Eaton

Vance, tracing its roots back to 1931. Thus, with equities the major revenue contributor, our main focus has

been on the performance and flows of equity funds. Our finding is that there is room for improvement.

Exhibit 5: Equity Funds Have Been Losing Assets Since 3Q11 ($ in million)

$436

$1,120

$420

($1,173)($1,080)($1,368)

($1,500)

($1,000)

($500)

$0

$500

$1,000

$1,500

1Q11 2Q11 3Q11 4Q11 1Q12 2Q12


Funds flow data show clearly that equities have been in a net redemption mode since August 2011. Our

analysis into the performance of the company‘s top-10 funds, which we will discuss in greater detail in the

section titled Performance leads us to the following conclusion:

Eaton Vance is going through a period of challenges, with its core business—active management of equity

funds—showing deterioration in performance over the past few years. We believe the performance of the

company‘s Large Cap Value fund needs to improve to attract inflows. This strategy reported about $3.2

billion of outflows during the last quarter alone, and outflows could be even higher in the July quarter. We

base this on our analysis of about $8.5 billion of the roughly $20 billion in this strategy that Morningstar

tracks.


6

Exhibit 6: Outflows of Large Cap Value Fund Continue

($2,000)

($1,500)

($1,000)

($500)

$0

$500

$1,000

$1,500

Jan-0

6

Jul-

06

Jan-0

7

Jul-

07

Jan-0

8

Jul-

08

Jan-0

9

Jul-

09

Jan-1

0

Jul-

10

Jan-1

1

Jul-

11

Jan-1

2

Source: Morningstar

While outflows improved dramatically in June over the $1.7 billion of outflows reported in May alone, we

have not seen any meaningful improvement in the performance based on the one-year Morningstar ranking.

Thus, we would expect further outflows and do not see an inflection point yet. With about 22% exposure to

financial services, the fund is levered to an improving economy and performance could suffer if even

tighter regulations for financial services companies are introduced. The bottom line is that we do not expect

an immediate improvement in performance.

Exhibit 7: One-Year Performance Ranking of Large Cap Value Fund

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Jul-03 Jul-04 Jul-05 Jul-06 Jul-07 Jul-08 Jul-09 Jul-10 Jul-11

Large Cap Value Top 50%

Source: Morningstar, RBC Capital Markets

Certainly, performance has been improving on a one-year measurement period. Yet, about half of its peers

still outperform the Large Cap Value fund on a risk-adjusted basis.

Good

Bad


7

Exhibit 8: Three-Year Performance Ranking of Large Cap Value Fund

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%




On a three-year basis, the fund has not been able to keep up with its peers. Again, performance is

improving. However, about 80% of its peers are outperforming the fund.

Exhibit 9: Five-Year Performance Ranking of Large Cap Value Fund

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%




As for the five-year performance, over 50% of its peers are outperforming the fund. Our concern is that as

the three-year performance rolls into the five-year period, the performance for this group will deteriorate as

well.

In order to get a broader understanding of performance at Eaton Vance, we decided to do the same analysis

for the company‘s top-10 equity and fixed-income funds. Our conclusion is that Eaton Vance is going

through a period of challenges. While fixed-income fund performance has improved, one could argue that

this is not the company‘s core business - it comprises just over 20% of total AuM. Equity funds, on the

other hand, make up over half the AuM and were strong performers historically. Over the past few years,

however, performance has been deteriorating. The performance of the company‘s Large Cap Value Fund,

which is one of the older funds in the nation dating back to 1931 and a major contributor to revenues, needs

to improve in order for us to become more positive on the name.

Good

Bad

Good

Bad


8

Using Morningstar Direct, we downloaded data for all funds offered and split the universe into two

categories: Equity funds and fixed-income funds. We then eliminated ETFs, indexed funds, alternative

funds, commodities funds, money market, and funds that invested in properties only. Our focus was on the

core equity and fixed-income products. We decided to eliminate funds from our analysis that are part of an

insurance product offering because the asset management company has little control over the ultimate cost

structure of the variable annuity or the variable life product that is offered.

We then weighted the ranking of the funds versus their peers using the individual rankings of the

underlying share classes offered within the top-10 funds by their net asset value. Essentially, we weighted

the rankings by the size of the share class within the subgroup of 10 funds. Exhibits 10 and 11 plot the

ranking for the one-, three-, and five-year periods. While investors in general, and consultants and advisors

in particular are focused on the three- and five-year performances, we deemed it necessary to look at the

one-year performance because it can serve as an indication of where the three- and five-year performances

will head.

Exhibit 10: One-Year Performance for the Top-10 Funds

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

May-03 May-04 May-05 May-06 May-07 May-08 May-09 May-10 May-11

Equities Fixed Income Top 50%


The key takeaway from our analysis of the one-year performance is two fold. First, fixed-income funds

have exhibited a high degree of volatility with years of good performance followed by years of not so great

performance. And, while equities were the strength of Eaton Vance for years, the company‘s well known

Large Cap Value Fund has not weathered the financial crisis so well. Management attributed the

underperformance to a quality bias, but one would have expected the fund to perform better than it did in

recent months.

Good

Bad


9

Exhibit 11: Three-Year Performance for the Top-10 Funds

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%




Ultimately, Eaton Vance‘s top-10 equity funds have underperformed more than 50% of its peers. And,

while mutual fund outflows did not occur until 2010, which were offset by separate account inflows, we

believe that the pressure on assets could intensify if Eaton Vance does not improve performance

meaningfully.

Exhibit 12: Five-Year Performance for the Top-10 Funds

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%




As for the five-year performance, we see decent results from fixed-income funds and deteriorating

performance out of equity funds. Improving performance is undoubtedly needed to make the offering more

appealing, especially to retail clients.

Good

Bad

Good

Bad


10

Furthermore, we analyzed the organic growth of the equity funds by comparing them to other US domiciled

funds. Our finding is that: Eaton Vance funds are experiencing redemption rates higher than the industry.

Exhibit 13: Equity Funds Organic Growth – Eaton Vance vs. Industry (US Domiciled Funds)

Source: Company reports, Morningstar, RBC Capital Markets

We believe that it will take some time for flows into equity funds to improve, as performance needs to

pickup.

As for the company‘s other fund offerings, we analyzed the percentage of funds with a four or five star

rating as assigned by Morningstar using a three-year measurement period. Data show that currently, only

35% of funds had four- or five-star ratings. As a comparison, over 50% of Eaton Vance funds had a four-

or five-star rating in 2007 and 2008.

Exhibit 14: Percentage of Retail Funds with Four- or Five-Star Morningstar Ratings

Note: Represents percentage of retail open-end fund AuM with ratings that are four or five stars. Morningstar ratings were determined for a three-year period. The sample set is composed of retail open-end funds excluding ETFs and index funds for which there are ratings.


0.4%

1.0%

0.3%

(1.0%)

(1.3%)

0.1% 0.2%

(1.1%) (1.1%) (0.9%)

(0.6%)

(1.0%)

(1.5%)

(1.0%)

(0.5%)

0.0%

0.5%

1.0%

1.5%

1Q11 2Q11 3Q11 4Q11 1Q12 2Q12

EV US Domiciled Equity Funds

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12


11

Eaton Vance’s Fixed-income Inflows Below Competitors

While higher fee equity outflows are being offset by lower fee fixed-income inflows, organic growth for

Eaton Vance’s fixed-income funds has been below the industry’s average.

According to Morningstar, while there was a positive flow into Eaton Vance‘s fixed-income funds, the

growth rate generated was below the industry-wide experience.

Exhibit 15: Fixed-income Funds Organic Growth – Eaton Vance vs. Industry (Taxable & Municipal Bonds)

(2.0%)

(1.5%)

0.4%

(0.3%)

0.4%

3.0%

(0.9%)

1.7% 1.7%

0.6%

2.5%

3.2%

(3.0%)

(2.0%)

(1.0%)

0.0%

1.0%

2.0%

3.0%

4.0%

1Q11 2Q11 3Q11 4Q11 1Q12 2Q12

EV Industry

Source: Company reports, Morningstar, RBC Capital Markets

Exhibit 15 demonstrates numerically why we do not think of Eaton Vance as a fixed-income manager.

Eaton Vance‘s fixed-income funds generated below industry-average organic growth in each of the six

quarters that we analyzed. While fixed-income funds represent less than 25% of total AuM and a growth

opportunity, we expect Eaton Vance to grow these assets only opportunistically versus making fixed-

income offerings a part of its core competencies.


12

Lack of Catalysts

We are unconvinced that Eaton Vance will be able to grow assets under management at a

rate higher than its competitors. We don’t see catalysts that could result in large inflows.

Floating-Rate Bank Loan Sales, a 2012 Catalyst for Growth, are Down

Given the current uncertainty in respect to the global economy, we believe that floating-rate bank loan fund

sales will remain below management’s 2011 expectation until the economy shows signs of recovery.

After generating over $9 billion in sales and over $4 billion in inflows in fiscal year 2011, sales of floating-

rate bank loans have declined in 2012. This is important since management had identified this offering as

an area of growth for 2012 during the company‘s fourth-quarter 2011 earnings call. The decline in floating-

rate bank loan sales was partly a function of the Fed announcing its intention of keeping interest rates low

and partly driven by investors becoming more hesitant to take on credit risk.

These funds typically invest in senior floating-rate loans with below investment-grade quality and use

leverage. Funds can also invest in secured and unsecured subordinated loans, second lien loans,

subordinated bridge loans, and other floating-rate debt securities.

With greater uncertainty about the direction of the economy and the ability of issuers of the securities to

pay interest and principal, demand for floating-rate bank loan funds has declined.

Exhibit 16: Floating-Rate Bank Loan Net Flows ($ in million)

($1,000)

($500)

$0

$500

$1,000

$1,500

$2,000

$2,500

1Q11 2Q11 3Q11 4Q11 1Q12 2Q12

Source: Company reports

Given the current uncertainty as to the recovery in the global economy, we believe that investors will be

hesitant to invest heavily in floating-rate bank loan funds. These funds invest in foreign instruments and are

exposed to credit ratings of foreign issuers. The exhibit below demonstrates why we do not expect large

inflows into floating-rate bank loan funds.


13

Exhibit 17: Performance of Eaton Vance’s Floating Rate Fund

0.8%5.1%

2.7% 3.6% 5.5%0.9%

(31.0%)

8.4%

1.4%

45.2%

(40%)

(30%)

(20%)

(10%)

0%

10%

20%

30%

40%

50%

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011


Recent performance has declined. More importantly, as Exhibit 17 clearly shows, performance of floating-

rate bank loan funds can deteriorate sharply during economic downturns as was the case in 2008. We

believe that sales will remain at levels seen over the past two quarters due to prevailing economic

conditions.

Expectations of Large Inflows into Tax Management Funds may not Materialize

We think steep increases in taxes in 2013 are unlikely given the state of the economy. We are doubtful that

Eaton Vance will experience strong flows into its tax-managed funds.

There have been a number of articles in the news suggesting that taxes will increase significantly in 2013.

There is a talk about a “fiscal cliff” that would result in $4 trillion in tax hikes as Democrats and

Republicans see little common ground to come to an agreement.

An increase in taxes is thought to benefit Eaton Vance, which has been carving out a niche by offering tax-

managed funds. These funds aim to maximize total returns on an after-tax basis. It began building its

offerings in 1996 with the introduction of the Eaton Vance Tax-Managed Growth Fund. Today, Eaton

Vance offers its tax efficient funds in various equity styles and market-caps. We, too, believe that tax-

managed funds could benefit from an increase in customer demand, yet we are not certain that there will be

a ‗fiscal cliff‘. Absent of an agreement, an increase in taxes could have serious consequences for the fragile

recovery. It could have global implications. We would assign a low probability to a scenario in which taxes

increase dramatically due to both parties not reaching some sort of agreement.

This view is supported by our visit to Washington DC in March 2012. We concluded that it was unlikely

that anything would happen between March and the election day in November. Congress post-election day

will effectively be a ‗lame duck‘. Our takeaway was that there will be an extension of the Bush-era tax cuts

for another year until the new Congress finds a permanent solution in 2013. We believe that one likely

scenario could be a short-term extension of all tax cuts.

PriceWaterhouseCoopers has provided an example of what the implications of not extending Bush-era tax

cuts could be. An analysis by PriceWaterhouseCoopers suggests that a hypothetical family with two

children and household income of $50,000 in 2013 would see their taxes increase to roughly $2,650 from

roughly $450. This could happen if the current tax rate, marriage penalty relief, and child credit expire at

the end of 2012. In our view, such a broad-based tax increase could affect the economic recovery

significantly by decreasing the amount of discretionary household income.


14

Another scenario could be a short-term extension for middle income and the wealthy. Reuters reports that

in a pre-election show vote, the Republican-controlled House of Representatives will pass a short-term

extension. The Senate, which is comprised of 51 Democrats, 47 Republicans, and two independents, has

then to vote on the extension.

What could help the Republican‘s cause is that 33 Senators are up for re-elections (10 Republicans, 21

Democrats, and two for independents). One possibility is that some Democrats up for re-election could vote

in favor of the bill. This could lead to a compromise where the extension will include families with house

hold income of up to $1,000,000.

Our bottom line is that we think a scenario in which steep tax increases leading to large inflows into tax-

managed funds is unlikely.

International Offerings Still in Infancy

Eaton Vance will not benefit to the same degree as competitors from the influx of assets into global and

international strategies, in our opinion.

Until the recently announced acquisition of Hexavest, Eaton Vance‘s clients had few options if they wanted

to gain international exposure. For instance, they could use Parametric‘s Structured Emerging Markets

funds (equities) or the Emerging Markets Local Income Fund (fixed income). The company had also little

presence in international markets. Still nascent, Parametric‘s tax-managed investing and portfolio overlay

capabilities, focused on the large superannuation fund market and private banks serving high net-worth

Australian investors, is the first significant business opportunity for Parametric‘s tax management

capability outside of the US.

Based on Morningstar data, which capture the company‘s mutual fund offerings, we estimate about 12% of

AuM seek to invest in global, international, or emerging markets. This is important because funds with an

international focus are getting the flows these days. Exhibit 18 shows flows into domestic and world equity

funds.

Exhibit 18: US Investors have Increased Exposure to World Markets since 2009 ($ in billion)

$(35)

$(30)

$(25)

$(20)

$(15)

$(10)

$(5)

$-

$5

$10

$15

$20

Jan-0

9

Apr-

09

Jul-

09

Oct

-09

Jan-1

0

Apr-

10

Jul-

10

Oct

-10

Jan-1

1

Apr-

11

Jul-

11

Oct

-11

Jan-1

2

Apr-

12

Domestic Equity Foreign Equity

Source: Investment Company Institute

While the acquisition of a 49% stake in Hexavest should help expand Eaton Vance‘s offering, we would

like to see a number of similar acquisitions. Eaton Vance management chose to do this deal because 60% of

the $9.9 billion in total assets under management at Hexavest are in global equities. International mandates

make up another 20%. Yet the deal was structured differently than previous deals, with Eaton Vance not

taking a controlling stake in the target. Were Eaton Vance to consolidate the target‘s assets, we estimate

that international funds would comprise just over 20% of total assets under management at Eaton Vance.


15

Until the company decides whether it wants to execute the option to purchase an additional 26% stake in

five years, Eaton Vance will look to grow its international exposure organically, which we think could be a

slow process. We expect global and international equities to remain a gap in Eaton Vance‘s investment

capabilities in the foreseeable future.

Under the deal agreement, Eaton Vance can add to its own asset base any cash that it raises for Hexavest‘s

funds. While we think that Eaton Vance is taking the right steps by expanding its international and global

investment capabilities, we would like to see more acquisitions to help the company capitalize on growth

opportunities that global and international funds offer.


16

Financial Analysis

Recent Results

After two quarters in which it suffered outflows, Eaton Vance returned to positive-flow status in its second

fiscal quarter—the three months ended April 30. Those positive flows totalled $567 million. What is

happening, in a nutshell, is that we believe disappointing investment performance in some of the

company‘s value products, especially in its flagship Eaton Vance Large-Cap Value Fund, continues to

generate outflows. But these outflows, in turn, are being more than offset by inflows into Eaton Vance‘s

income-oriented strategies as well as flows into Parametric, which is Eaton Vance‘s quantitative manager

that is based in Seattle.

Exhibit 19: Annualized Internal Growth Rate

11%

3%

12%

15%

8%

13%

10%

7%

4%

6%

4%

-6%

-2%

1%

-10%

-5%

0%

5%

10%

15%

20%

1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12


More specifically, the value group of products at Eaton Vance have seen its assets under management drop

to $20 billion in the current quarter from a peak of $33 billion. Outflows of $3.2 billion in the April quarter

accelerated from the $2.1 billion in net redemptions reported in the January quarter. More than $1 billion of

the $3.2 billion in quarterly outflows was suffered by the Large-Cap Value Fund, which, despite its quality

orientation, has not participated fully in the market rally since the financial crisis.

While performance of Large-Cap Value Fund has been on the upswing, with one-year numbers in the top

half of the fund‘s Lipper group, the fund‘s three-year performance continues to lag. We think that explains

why money continues to leave Large-Cap Value. Eaton Vance‘s management has said that it expects the

outflows to continue. With the three-year performance of the A and I class shares beating only 11% and

14% of its peers, respectively, we see asset flows in equities being negatively affected for the foreseeable

future. And despite one-year performance improving, data from Morningstar would suggest that the

flagship Large-Cap Value Fund is still being beaten by more than half of its peers.

Fortunately, we believe there appears to be enough inflows taking place elsewhere in Eaton Vance to offset

the softness in flows on the value side of the firm.

The Eaton Vance income disciplines, for example, generated $1.5 billion of in-flows in the April quarter.

This category would include Eaton Vance‘s municipal-bond funds, which are managed in Boston and by its

Acquired Tax Advantaged Bond Strategies (TABS) subsidiary in New York; Eaton Vance‘s high-yield

effort, managed out of the firm‘s Boston office; and Eaton Vance‘s floating-rate-bank loan products, also

managed out of Boston.

Other areas of strength in the quarter included Parametric, the company‘s Seattle-based manager that uses

an approach called ‗structured, active investing.‘ It is a model-driven approach that also has an important

element of fundamental analysis to it. Parametric‘s flagship offering is an emerging-markets product, which

is offered in both mutual funds and institutional separate accounts. In that discipline, Eaton Vance raised

$1.5 billion in the quarter.


17

Another discipline, which did well, was the tax-managed overlay at Parametric. This strategy involves

providing tax-related investing for aggregators such as SEI. That amounted to $500 million in the quarter.

All told, Parametric‘s flows were $2.9 billion to the positive, including $1.5 billion in emerging markets.

The institutional pipeline is looking good, as Eaton Vance told investors in its most recent earnings call. It

continues to see interest in structured emerging markets, bank loans, and in large-cap growth. It is also

seeing institutional interest in the Global Macro Total Return strategy being carried out by Parametric. It

recently launched a Global Macro Private Fund that is more like a hedge fund than a so called 1940 Act

fund in that the new fund uses leverage to achieve its investment objectives.

Eaton Vance is experiencing strength in its business of providing investment management to life insurance

companies as part of these carriers‘ variable annuity programs.

Exhibit 20: While Fixed-income Flows Recovered, Equity Asset Net Flows Have Been Soft ($ in million)

$436

$1,120

$420

($1,173)($1,368)

($1,080)($919)

($624)

$181

($130)

$174

$1,350

($2,000)

($1,500)

($1,000)

($500)

$0

$500

$1,000

$1,500

1Q11 2Q11 3Q11 4Q11 1Q12 2Q12

Equity Funds Fixed Income Funds


Financial Projections

We are expecting Eaton Vance to increase its total AuM at year end from $188.2 billion in 2011 to $198.4

billion in 2012, $218.4 billion in 2013, and $241.9 billion in 2014. This increase should be driven mainly

by market performance and inflows into fixed-income asset classes. We expect client interest in the fixed-

income asset class to continue, with AuM increasing from $43.7 billion in 2011 to $50.5 billion in 2012, to

$58.7 billion in 2013, and to $65.5 billion by 2014. We expect equity AuM to increase from $108.9 billion

in 2011 to $110.5 billion in 2012, to $118.7 billion in 2013, and to $131.0 billion in 2014. We expect

continued outflows out of equity funds of $6.7 billion in 2012 and $0.9 billion in 2013. We project positive

flows of $2.5 billion in 2014.


18

Exhibit 21: AuM Roll Forward

AuM Roll Forward

($ in billion) 2011A 2012E 2013E 2014E

Fiscal year ending Oct-11 Oct-12 Oct-13 Oct-14

Long-term assets

Beginning of period long-term assets $184.1 $187.5 $198.1 $218.1

Sales/inflows 54.9 48.3 52.3 55.3

Redemptions/outflows (51.0) (50.8) (48.2) (49.5)

Net sales (redemptions) $3.9 ($2.5) $4.0 $5.8

Assets acquired 0.4 - - -

Exchanges (0.2) (0.0) - -

Market value change (0.6) 13.1 16.0 17.7

End of period long-term assets $187.5 $198.1 $218.1 $241.5

Money market assets

Cash management fund assets - beginning of period 1.1 0.7 0.3 0.3

Market value change & other (0.5) (0.3) - -

Cash management fund assets - end of period $0.7 $0.3 $0.3 $0.3

End of period total AuM $188.2 $198.4 $218.4 $241.9

Source: RBC Capital Markets estimates

Despite our expectation for increased AuM in the next few years, we forecast net revenues to be largely

unchanged, going from $1.1 billon in 2011 to $1.1 billion in 2012 and 2013, and increasing in 2014 to $1.3

billion. We model flat net revenues mainly due to declining average investment advisory fees driven by a

change in AuM.

We model for equity funds to constitute 54% of total assets in 2014 versus 58% at the end of fiscal year

2011. We believe net operating margins will decline from the 38.8% seen in 2011 to 36.8% in 2012, 37.4%

in 2013, and 37.3% in 2014 as the mix of AuM shifts away from the higher-margin equity asset class. We

project 60 basis points margin expansion for 2013 as AuM are projected to increase with Eaton Vance

realizing economies of scale.

Consequently, we expect Eaton Vance to generate $396.3 million in pre-tax operating income in 2012,

$426.2 million in 2013, and $469.6 million in 2014 compared to operating income of $436.7 million in

2011.

Our diluted EPS estimates for 2012, 2013, and 2014 are $1.75, $2.00, and $2.26 per share, respectively.

This compares to diluted EPS of $1.75 in 2011. The improvement in EPS in 2012 and 2013 EPS is mainly

due to expectations for better market performance for equities and higher AuM.


19

Valuation

Exhibits 22–24 show how Eaton Vance has traded: On an absolute P/E basis, on a basis of Eaton Vance‘s

P/E relative to that of the S&P 500, and on a basis that looks at Eaton Vance‘s P/E relative to that of a

broad valuation index we constructed for asset managers in general.

On an absolute P/E basis, Eaton Vance‘s share has traded at a discount to historical levels over the past five

and a half years.

Exhibit 22: Eaton Vance’s Forward Looking P/E multiples

0x

5x

10x

15x

20x

25x

30x

35x

40x

Jan-0

7

Jul-

07

Jan-0

8

Jul-

08

Jan-0

9

Jul-

09

Jan-1

0

Jul-

10

Jan-1

1

Jul-

11

Jan-1

2

Jul-

12


On a relative basis, Eaton Vance has been trading at a premium to the S&P 500.

Exhibit 23: Eaton Vance’s Forward Looking P/E Relative to S&P 500 Index

0.5x

0.7x

0.9x

1.1x

1.3x

1.5x

1.7x

1.9x

2.1x

2.3x

Jan-0

7

Jul-

07

Jan-0

8

Jul-

08

Jan-0

9

Jul-

09

Jan-1

0

Jul-

10

Jan-1

1

Jul-

11

Jan-1

2

Jul-

12


Relative to its peers, Eaton Vance has been trading at a premium.


20

Exhibit 24: Eaton Vance’s Forward Looking P/E Relative to RBC Asset Managers Index

0.3x

0.5x

0.7x

0.9x

1.1x

1.3x

1.5x

1.7x

1.9x

Jan-0

7

Jul-

07

Jan-0

8

Jul-

08

Jan-0

9

Jul-

09

Jan-1

0

Jul-

10

Jan-1

1

Jul-

11

Jan-1

2

Jul-

12

Note: RBC Asset Managers Index includes BLK, EV, IVZ, LM, TROW, WDR, BEN, JNS, AB, ART, AMG, CNS, CLMS, GBL, PZN


The asset managers are currently trading at 12.3x calendar-year 2013 earnings. Over the past 10 years,

Eaton Vance has been trading at a 10% premium to peers. We believe that the premium is justified given

the company‘s leadership position in closed-end funds and tax-managed funds. We consider the company

to be one of the more innovative asset managers in our coverage. We arrive at our price target using a

price-to-earnings multiple of 13.5x, which represents a 10% premium to the company‘s peers and our 2013

calendar year earnings estimate of $2.05 per share. Our price target is $28.

Market Sensitivity Analysis

Our EPS sensitivity analysis to equity market movements starts with our published estimates as the base

case. Our base case assumes uniform market appreciation, with equity markets appreciating 2%

sequentially and fixed-income markets appreciating 1% sequentially, starting in the calendar fourth quarter

of 2012 or the December quarter. For simplification, we assume the alternative asset classes appreciate at

the same rate as the equity markets and thus assign an appreciation rate of 2% sequentially. We believe

these assumptions are in line with long-term historical average returns. For the bull case scenario, we

assume equity markets and alternative asset classes appreciate 4% sequentially, with fixed-income

appreciation unchanged from the base case scenario. For the bear case, we assume zero appreciation within

the equity markets and alternative asset classes. We apply these assumed appreciation rates uniformly

starting in the first quarter of 2013.

Exhibit 25: EPS Sensitivity to Equity Market Movements

Scenario 2013 P/E

2013

Peer P/E

(Discount)

/Premium 2013 EPS PT

Base Case 13.5x 12.3x 10% $2.05 $28

Bear Case 13.5x 12.3x 10% $1.96 $27

Bull Case 13.5x 12.3x 10% $2.14 $29

Source: RBC Capital Markets estimate


21

Exhibit 26: Valuation Matrix

Market Current 52-week Div. Enterprise YTD YTD

Company Ticker Cap ($m) Price High Low Yield Value ($m) 2012E 2013E 2012E 2013E 2011A 2012E 2013E EV/AuM P/AuM Price Perf. Total Return

Traditional Asset Managers

BlackRock BLK $24,213 $173.31 $209.37 $137.00 3.46% $33,397.86 $13.08 $14.59 13.2x 11.9x 9.2x 9.1x 8.2x 0.009x 0.007x (2.8%) (1.1%)

T.Rowe Price TROW 15,681 61.47 $66.00 $44.68 2.21% $15,111.57 3.27 3.76 18.8x 16.3x 11.6x 10.4x 9.2x 0.027x 0.028x 7.9% 9.1%

INVESCO IVZ 9,655 21.54 $26.94 $14.52 3.20% $10,680.89 1.82 2.10 11.9x 10.2x 9.2x 9.0x 8.0x 0.016x 0.014x 7.2% 8.6%

Legg Mason LM 3,616 25.61 $32.58 $22.36 1.72% $3,499.53 1.67 2.27 15.4x 11.3x 7.3x 6.7x 6.1x 0.005x 0.006x 6.5% 7.2%

Franklin Resources BEN 23,746 110.35 $135.21 $87.71 0.98% $19,075.69 8.92 9.74 12.4x 11.3x 6.7x 6.7x 6.2x 0.026x 0.033x 14.9% 15.4%

Waddell & Reed WDR 2,457 28.46 $38.73 $22.85 3.51% $2,023.61 2.21 2.44 12.9x 11.6x 6.5x 6.2x 5.6x 0.022x 0.026x 14.9% 16.8%

Janus Capital Group Inc. JNS 1,361 7.22 $9.70 $5.36 3.32% $1,401.99 0.57 0.68 12.7x 10.6x 4.0x 5.0x 4.6x 0.009x 0.008x 14.4% 16.1%

Eaton Vance Corp. EV 3,054 26.43 $29.64 $20.07 2.88% $3,642.09 1.83 2.04 14.4x 13.0x 8.0x 8.7x 8.3x 0.018x 0.015x 11.8% 13.4%

Federated Investors, Inc. FII 2,158 20.71 $23.89 $14.36 4.64% $2,115.35 1.64 1.76 12.6x 11.8x 7.7x 7.1x 6.7x 0.006x 0.006x 36.7% 40.0%

AllianceBernstein AB 1,260 11.98 $18.76 $11.55 8.68% $1,220.60 1.04 1.17 11.5x 10.3x 2.5x 2.6x 2.5x 0.003x 0.003x (8.4%) (5.9%)

Artio Global Investors ART 187 3.14 $11.22 $2.83 2.55% $164.13 0.16 0.04 19.8x n/m 1.2x 10.0x n/m 0.006x 0.007x (35.7%) (34.4%)

Affiliated Manager Group AMG 5,528 107.63 $115.66 $70.27 0.00% $7,276.03 7.28 8.58 14.8x 12.5x 14.9x 13.3x 11.3x 0.020x 0.015x 12.2% 12.2%

Cohen & Steers CNS 1,377 31.91 $40.93 $23.79 2.26% $1,242.58 1.63 1.93 19.5x 16.5x 15.3x 10.9x 9.5x 0.028x 0.031x 10.4% 11.7%

Calamos CLMS 221 10.85 $14.66 $9.40 3.50% $113.22 0.92 0.89 11.9x 12.3x 0.7x 0.9x 0.8x 0.003x 0.006x (13.3%) (11.9%)

GAMCO GBL 1,214 45.57 $52.98 $35.81 0.35% $1,169.06 3.13 3.30 14.6x 13.8x 9.2x 8.4x 7.8x 0.032x 0.033x 4.8% 5.6%

Pzena Investment Mgmt PZN 266 4.11 $7.39 $3.18 2.92% $268.93 0.33 0.39 12.3x 10.5x 6.2x 6.8x 6.5x 0.018x 0.018x (5.1%) (1.3%)

Mean 2.89% 14.3x 12.3x 7.5x 7.6x 6.7x 0.016x 0.016x 4.8% 6.3%

Median 2.90% 13.1x 11.8x 7.5x 7.8x 6.7x 0.017x 0.015x 7.6% 8.9%

Min 0.00% 11.5x 10.2x 0.7x 0.9x 0.8x 0.003x 0.003x (35.7%) (34.4%)

Max 8.68% 19.8x 16.5x 15.3x 13.3x 11.3x 0.032x 0.033x 36.7% 40.0%

Alternative Asset Managers

Och-Ziff OZM $2,920 $7.05 $13.23 $6.56 5.67% $2,493.47 $0.48 $1.15 6.2x 5.4x 8.9x 3.6x 3.3x 0.083x 0.097x (16.2%) (14.8%)

Apollo Global Manager APO 1,696 13.41 $17.94 $8.85 7.46% $7,415.10 (0.86) 2.22 6.0x 4.6x -24.3x 7.8x 6.1x 0.086x 0.020x 8.1% 14.9%

Blackstone BX 6,727 13.15 $17.78 $10.51 3.04% $23,469.76 (0.57) 1.47 9.0x 6.4x 46.7x 38.3x 28.3x 0.123x 0.035x (6.1%) (4.0%)

KKR KKR 3,253 14.00 $16.10 $8.95 4.29% $43,312.58 0.73 2.06 6.8x 6.4x 73.7x 156.8x 102.3x 0.695x 0.052x 9.1% 12.7%

Fortress Investment Group FIG 1,950 3.79 $4.79 $2.67 5.28% $2,518.22 0.46 0.41 9.2x 6.9x 11.0x 10.4x 7.6x 0.054x 0.042x 12.1% 15.3%

Mean 5.15% 7.4x 5.9x 23.2x 43.4x 29.5x 0.208x 0.049x 1.4% 4.8%

Median 5.28% 6.8x 6.4x 11.0x 10.4x 7.6x 0.086x 0.042x 8.1% 12.7%

Min 3.04% 6.0x 4.6x -24.3x 3.6x 3.3x 0.054x 0.020x (16.2%) (14.8%)

Max 7.46% 9.2x 6.9x 73.7x 156.8x 102.3x 0.695x 0.097x 12.1% 15.3%

S&P 500 SP50 $12,316,922 $1,362.66 $1,422.38 $1,074.77 2.21% $96.42 $104.26 14.1x 13.1x 8.4% 8.4%

S&P 500 / Asset Mgmt & Custody Banks SPT30 134,632 120 138.27 94.63 2.53% 9.84 10.32 12.7x 12.1x 5.3% 5.3%

S&P Comp. 1500 / Asset Mgmt & Custody Banks SPT29 154,759 131 149.00 102.23 2.59% 10.56 11.04 12.8x 12.3x 6.3% 6.3%

S&P Mid Cap 400 / Asset Mgmt & Custody Banks SPT31 16,977 225 245.14 168.41 2.50% 16.40 16.85 14.0x 13.6x 14.7% 14.7%

S&P 500 / Financials SP621 1,737,330 $193.42 215.37 151.85 2.07% 14.57 17.63 13.5x 11.2x 10.4% 10.4%

Current P/EConsensus CY EPS EV/EBITDA Consensus

Asset Management Research

Source: FactSet (Priced as of market close July 20, 2012 ET); RBC Capital Markets


22

Company Description

Founded in 1924 and headquartered in Boston, Massachusetts, Eaton Vance Corp. (NYSE:EV) is one of

the older asset management firms in the US. The company manages investment funds, provides investment

management, and counselling services. The company manages investments for retail, high net-worth

individuals and institutional clients.

Eaton Vance markets and distributes its products to retail clients through financial intermediaries in the

advice channel. Its distribution partners include independent financial advisors, brokers, dealers, banks, and

insurance companies. At the end of October 2011, the company had a dedicated sales team of 130 to

manage this channel for the US and the international markets. The company directly handles and services

its institutional and high net-worth clients, which include corporations, foundations, endowments, family

offices, and retirement plans for public and private employees.

Eaton Vance has specialized 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.

At the end of fiscal 2011, Eaton Vance managed 100 open-end funds and 37 closed-end funds. Most of

these funds are domiciled in the US; however, more recently, the company launched a number of Ireland

and Cayman Island-domiciled open-ended funds. As of October 31, 2011, managed assets in funds sold

outside the US totaled only US$3 billion or 2% of the total AuM.

The company‘s roots can be traced back to two Boston-based investment managers: Eaton & Howard,

formed in 1924, and Vance, Sanders & Company, organized in 1934. Eaton & Howard, Vance Sanders,

Inc. was formed upon the acquisition of Eaton & Howard Inc. by Vance, Sanders & Company Inc. on April

30, 1979. Eaton Vance Corp was eventually incorporated in its present structure in Maryland in 1990.

Eaton Vance‘s growth has been propelled by both organic and inorganic methods, and it has done a series

of acquisitions to expand management of investment portfolios. Through a number of acquisitions from

2004 to 2006 and the acquisition of management contracts from Pelican Investment Management, Eaton

Vance expanded its high net-worth client base. In October 2011, Eaton announced the formation of its

subsidiary, Navigate Fund LLC. The subsidiary focuses on commercialization of NAV-based trading of

ETFs and development of exchange-traded managed funds. Exchange-traded managed funds are Eaton

Vance‘s term for active ETFs, which is a hybrid approach. This structure has lower costs than traditional

mutual funds but is actively managed.

Eaton Vance acquired a number of patents in 2010 related to NAV-based pricing, a methodology that

would facilitate the introduction of non-transparent ETFs. Non-transparent ETFs are required to disclose

their holdings less frequently than plain vanilla ETFs in order to avoid ‗front running‘ by traders who

examine fund holdings with the goal of identifying when a manager is moving in or out of a position.

While the company has done a number of acquisitions, its biggest acquisition has been that of Atlanta

Capital Management and Fox Asset management in 2001.


23

Milestones:

The table below summarizes the company‘s history

1924 Eaton & Howard was established in Boston.

1934 Vance, Sanders & Company was established in Boston.

1979 Vance, Sanders & Co. acquired Eaton & Howard to form Eaton & Howard, Vance Sanders Inc.

1984 Eaton & Howard, Vance Sanders Inc. was renamed Eaton Vance Management Inc.

1990 Eaton Vance Corp. was incorporated in Maryland.

2001 Acquired Atlanta Capital Management and Fox Asset Management, investment management firms focusing, respectively, on growth and value equity investment styles.

2003 Acquired Parametric Portfolio Associates, a leader in structured portfolio management.

2004 Acquired management contracts of Deutsche Bank’s private investment counsel group in Boston.

2005 Acquired management contracts of Weston Asset Management.

2006 Acquired management contracts of Voyageur Asset Management.

2007 Parametric Portfolio Associates merged Parametric Risk Advisors with Managed Risk Advisors LLC. The merger extended Parametric Portfolio Associates’ structured portfolio management offerings to include investment programs utilizing equity, equity index options, and other derivatives.

2008 Acquired TABS. Focus is on investing in municipal bond and US government securities to achieve high after-tax returns for investors.

2010 Acquired assets of Managed ETFs LLC, an intellectual property company holding issued and pending patents relating to a method for trading ETFs based on a reference future NAV of the fund.

2011 Acquired management contracts from Pelican Investment Management.

2011 Formed a wholly owned subsidiary, Navigate Fund Solutions LLC, to commercialize NAV-based trading of ETFs and develop exchange-traded managed funds (ETMFs are actively managed exchange-traded funds utilizing NAV based-trading).


Organizational Structure

Eaton Vance Corp. operates through six affiliates and three consolidated subsidiaries. Eaton Vance refers to

funds as subsidiaries when its ownership of these funds is between 20–50%. All affiliates and subsidiaries

in which Eaton Vance‘s ownership exceeds 50% or where the company has control are fully consolidated

(see table below). All other affiliates and subsidiaries are accounted for under the equity method of

accounting.

Affiliates Consolidated Subsidiaries

Eaton Vance Management (EVM) Atlanta Capital Management Company, LLC

Boston Management and Research (BMR) Parametric Portfolio Associates

Eaton Vance Investment Counsel (EVIC) Parametric Risk Advisors LLC

Eaton Vance (Ireland) Limited (EVAI)

Eaton Vance Trust Company (EVTC)

Fox Asset Management LLC (Fox Asset Management)


In addition to the above mentioned entities, other subsidiaries are responsible for distribution of the

company‘s products. Namely, Eaton Vance Distributors Inc. (EVD) is a broker-dealer, which markets and

sells Eaton Vance funds and its retail managed accounts domestically. EVD sells fund shares through a

network of financial intermediaries such as national and regional broker-dealers, banks, registered

investment advisors, insurance companies, and financial planning firms.

Eaton Vance‘s financial services subsidiary, Eaton Vance Management (International) Limited (EVMI),

markets and sells the company products through certain dealer firms in the United Kingdom and also caters

to Europe and certain other international markets. Asia Pacific is served by Eaton Vance Management

International (Asia) Private Limited (EVS), which is Eaton Vance‘s wholly owned financial services

company, registered in Singapore.


24

Eaton Vance Management (EVM) and Boston Management and Research (BMR) are investment advisers

to all but one of the Eaton Vance-sponsored funds. Eaton Vance has contractual arrangements with third

parties to provide certain fund-related services, including sub-advisory and distribution-related services.

Eaton partners with five independent investment organizations with specialized expertise that advice or

sub-advice Eaton Vance-sponsored mutual funds. These affiliates are:

Armored Wolf: Headquartered in Orange County, California, the firm is an investment manager that

specializes in pursuing a global macro strategy based on real and emerging market assets. The fund

focuses on commodities, inflation linked bonds, liquid emerging market bonds, equities, and currencies.

Eagle Global Advisors: This employee-owned investment management company is located in Houston,

Texas and had US$3.2 billion AuM as of December 31, 2011. The focus is on international equities.

Lloyd George Management: The firm is a mid-size asset manager that, prior to being acquired by BMO

Financial Group in 2011, operated as an independent, majority, employee-owned company. The focus is

on Asia/ and Pacific equities.

OrbiMed Advisors: The firm is the world‘s largest investment manager dedicated to health care with AuM

of US$5 billion. OrbiMed has a team of 40 professionals who manage venture capital funds and public

equity investment funds. The focus is equities in the healthcare sector.

Richard Bernstein Advisors: Founded in 2009 and headquartered in New York, the firm is an

independent investment advisor focused on long-term investment strategies based on a top-down

macroeconomic approach and quantitatively driven portfolio construction. The fund invests equities,

commodities, and other assets across the globe.

Strategy

With 58 % of its assets invested in equities, Eaton Vance has always been perceived to be an active

manager. Its executive team says that active investment management is where Eaton Vance wants to be

situated. It says it has no interest in competing against the leaders in passive investing such as BlackRock

and Invesco.

Eaton Vance believes that the best way it can grow as a company is to be successful at developing new

franchises. It defines a new franchise as an investment capability in which it holds a leading position and in

which the assets under management are meaningful from Eaton Vance‘s perspective. Eaton Vance has

developed new franchises in multiple areas, including in its global macro absolute return product, its single-

state municipal bond franchise, its business in tax-managed funds, and its numerous funds offering

floating-rate income.

Eaton Vance management says that it also wants to be innovative, which would be a different idea from

being a franchise player. If being a franchise player means being a leader in a narrow line of business,

being innovative means being the first to market with a new product or concept, in our opinion.

Here, too, Eaton Vance has been successful.

It was one of the earlier funds-management organizations, for example, to offer exchange funds—funds

that in effect swap a customer‘s highly concentrated position in a single stock into a diversified position in

a mutual fund.

It has been innovative, in our view, in the area of closed-end funds, as evidenced by the fact that between

2002 and 2007, it raised close to $30 billion in closed-end funds. That happened because many of the ideas

that Eaton Vance was introducing with these closed-end funds were new ideas, including closed-end funds

focused on generating tax-efficient income.

Eaton Vance was one of the earlier organizations—not the first but certainly early—to offer tax-managed

equity funds to retail investors.

And funds investing in floating-rated bank loans, while not originally Eaton Vance‘s idea, have become

very important at Eaton Vance, representing 13% of AuM at April 30. These income-oriented vehicles have

been promoted heavily by Eaton Vance‘s marketing department.

Eaton Vance also has one of the stronger cultures in money management, having grown its business almost

entirely organically and operating its business from, relative to some peers, a small number of offices.


25

As part of this culture, for example, all Eaton Vance employees, including entry-level employees, get

restricted stock after a year. The company makes liberal use of stock and options to pay its employees.

Eaton Vance says it has not been caught up in regulatory inquires, was not involved in the mutual fund‘s

market-timing imbroglio, has had no issues around the backdating of or repricing of stock-option grants,

and describes itself as ‗very clean‘ from a regulatory standpoint. One long-time Eaton Vance executive told

us that, ―While we will from time to time lose money, we will not blow people up. We will not take

outsized risks with our clients‘ money.‖

We think it should come as no surprise, then, that employee turnover at Eaton Vance is extremely low.

Turnover among officers and other senior executives is at 5%. For the entire Eaton Vance organization,

turnover runs in the 8% area. And by its own acknowledgement, one of the reasons that Eaton Vance has

completed just a small number of acquisitions over the years is that it is reluctant to terminate employees.

We think that this probably has had the effect of creating a positive work environment, one in which it is

common to find people working in the Boston home office of Eaton Vance who have been with the

company for two decades or longer.

Revenue and Fee Structure

In fiscal 2011, Eaton Vance‘s total revenues increased by 12% year over year to reach US$1,260 million

from US$1,121 for the 12 months ended October 31, 2010. The increase was primarily driven by strong

growth in investment advisory and administration fees. Investment advisory and administrative fees

accounted for about 93% of the total revenue increase in fiscal 2011.

For the first quarter ended January 31, F2012, Eaton reported revenue of US$295.6 million, which was a

4% year-over-year decline attributable to a 1% decline in investment advisory and administration fees, an

18% decline in distribution and underwriter fees, and a 14% decline in service fee revenue.

The company earns fees and revenue based on the following services:

Investment advisory and administration fees

Services are rendered to Eaton Vance sponsored funds and separate accounts (high net-worth separate

accounts, institutional separate accounts, and retail managed accounts). These services are provided across

a wide range of investment mandates (equity, fixed and floating-rate income, and alternative mandates).

The fee is determined by contractual agreement and is calculated as a percentage of the market value of

assets under management. Investment advisory and administration services revenues stood at US$996.2

million in fiscal 2011 and US$239.5 million in the first quarter of F2012.

Distribution and underwriter services fees:

Services are rendered to Eaton Vance sponsored funds. The distribution plan payments are calculated as a

percentage of average AuM and fluctuate with the value of funds and also the mix of funds. EVD currently

sells Eaton Vance open-end mutual funds under five primary pricing structures: front-end load commission

(Class A), spread-load commission (Class B), level-load commission (Class C), institutional no-load (Class

I), and retirement plan no-load (Class R).

Underwriter commissions are earned on the sale of shares of the sponsored mutual fund, on which investors

pay a sales charge at the time of purchase.

Distribution and underwriter services revenues stood at US$103.0 million in F2011.


26

Exhibit 27: Revenue Breakdown

Oct 31, 2011

Distribution

and

Underwriter

Fees

8%

Investment

Adv. & Admin

Fees

80%

Service Fees

11%

Other

Revenue

1%

Jan31, 2012

Investment

Adv. & Admin

Fees

81%

Distribution

and

Underwriter

Fees

8%

Service Fees

11%

Other

Revenue

0%


Service fees

Services are rendered pursuant to distribution or service plans adopted by sponsored mutual funds. The fee

is calculated as a percent of average assets under management in specific share classes of the funds

(principally Classes A, B, C and R). This fee is paid to EVD as principal underwriter or placement agent to

the funds for service and/or the maintenance of shareholder accounts. Certain private funds also make

service fees payments to EVD. Service fees stood at US$144.5 million in F2011 and at US$32.3 million for

the quarter ended January 31, 2012.

Other revenue

Other revenue is made up primarily of miscellaneous dealer income, custody fees, shareholder service fees,

sublease income and investment income earned by consolidated funds. Other revenue stood at US$16.3

million in F2011 and at US$1.3 million for the first quarter of F2012.


27

Assets Under Management

As of January 31, 2012, Eaton Vance had total AuM of US$191.7 billion compared to US$188.2 billion as

of October 31, 2011, which is an increase of 2% from the fiscal fourth quarter.

Exhibit 28: Assets under Management ($ in billion)

56

75

94

109

129

162

123

155

185 188192

0

50

100

150

200

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Jan-12


Total assets under management remained flat at US$192 billion when compared to the same period in the

last fiscal year and improved marginally from US$188 million at the end of the fourth quarter of F2011.

Eaton Vance experienced a net outflow of US$1.1 billion from long-term funds and separate accounts in

the first quarter of F2012, which was less than the US$2.7 billion outflow in the previous quarter and of

US$1.8 billion in January 2011.

Exhibit 29: Assets under Management by Asset Class

108 115 123 117 109 111

46 4343 44

44 46

20 2224 26

24 2410

1112 12

11 10

0

50

100

150

200

250

Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12

$ billions

Equity Fixed income Floating-rate income

Alternative Cash management

185 192199

188 192203


AuM by Product Category

Funds include open-end funds, closed-end funds, and private funds; whereas, separate accounts include

high net-worth accounts, institutional accounts, and retail managed accounts.

Open-end funds held US$72.2 billion AuM (38% of AuM on January 31, 2012). Eaton Vance managed

100 open-end funds including 10 tax-managed equity funds, 30 non tax-managed equity funds, 32 state

and national municipal income funds, 14 taxable fixed-income and cash management funds, five

floating-rate bank loan funds, and nine alternative funds.


28

Closed-end funds held US$23.1 billion AuM. Eaton Vance managed 37 closed-end funds including 21

municipal bond funds, 11 domestic and global equity income funds, three bank loan funds, and two

multi-sector income funds.

Private funds held US$17.9 billion AuM. The private-fund category includes privately offered equity

funds designed to meet the diversification and tax-management needs of qualifying high net-worth

investors and equity, floating-rate bank loan and fixed-income funds offered to institutional investors.

Exhibit 30: Assets under Management by Product Category

(Jan 31, 2012)

Open-end

funds

38%

Closed-end

funds

12%

Private

funds

9%

Institutional

accounts

20%

High-net-

worth

accounts

7%

Retail

managed

accounts

14%


Separate Account assets:

Institutional accounts held US$38.7 billion (20% of AuM on January 31, 2012).

High net-worth accounts held US$13.3 billion AuM. Eaton Vance offers high net-worth clients and family

offices personalized investment counselling services through Eaton Vance Investment Counsel (EVIC) and

Parametric Portfolio Associates.

Retail managed accounts (RMA) held US$26.5 billion AuM. Eaton Vance has developed its RMA business

by capitalizing on the management capabilities of EVM, Atlanta Capital Management, Fox Asset

Management, Parametric Portfolio Associates, TABS, and certain strategic partners, and leveraging the

strengths of its retail marketing organization and relationships with major distributors.

AuM by Investment Mandate

Eaton Vance provides its services across a broad range of investment mandates including equity, fixed and

floating-rate income, and alternative using fund or separate account investment strategies.

Equity strategies encompass a diversity of investment objectives, risk profiles, income levels, and

geographic representation. AuM for the equity mandate was US$108.9 billion on October 31, 2011 and

US$110.8 billion at the end of January 2012.

Income-investment strategies cover a broad duration and credit-quality range, and encompass both taxable

and tax-free investments. Fixed-income mandates held US$45.5 billion AuM and floating-rate income

mandates held US$24.4 billion AuM at the end of the first quarter of F2012 in January.

Alternative-investment strategies include commodity-based investments and a spectrum of absolute-return

strategies. Alternative strategies exhibit a low correlation to stock and bond market performance.

Alternative mandates held US$10.5 billion AuM in the first quarter of F2012.


29

Exhibit 31: Assets under Management by Investment Mandate

Equity

58%

Fixed income

24%

Floating-

rate income

13%

Alternative

5%

Cash

management

0%


Exhibit 32: AuM Breakdown by Investor Type (FY 2011)

Institu-

tional

43%

Retail/

High-Net-

Worth

57%

Note: Within the Institutional category, we include assets managed in: Class I open-ended funds, private funds, and institutional separate accounts. Source: Company reports, RBC Capital Markets

Exhibit 33: AuM Breakdown by Client Domicile (FY 2011)

US

95%

Non-US

5%

Note: Approximate proportions; company does not provide exact figures. Source: RBC Capital Markets estimates


30

Management Team

The table below summarizes the management team‘s experience.

Name Title Background

Thomas E. Faust Chairman,

President &

CEO

Mr. Faust has served as Chairman of the Board and Chief Executive Officer since

November 1, 2007. Mr. Faust was elected President of the company in January

2006 and served as Chief Investment Officer from November 2001 until October

31, 2007. He was Executive Vice President of the company from January 2000

through January 2006 and a Vice President of the company from December 1987

to January 2000. He has been a director of the company since January 2002. Mr.

Faust serves as a member of the Executive and Management Committees

established by the company‘s Board of Directors.

Laurie G. Hylton Chief Financial

& Accounting

Officer

Ms. Hylton has been a Vice President of the company since June 1994 and Chief

Accounting Officer since October 1997. She was promoted to the role of Chief

Financial Officer in March 2012. She was the Internal Auditor of the company

from June 1994 to October 1997. Ms. Hylton was an auditor at Deloitte & Touche

before joining Eaton Vance.

Daniel C. Cataldo Treasurer Mr. Cataldo has served as Treasurer of Eaton Vance Corp. since March 2012.

Mr. Cataldo has served as Director of Financial Planning and Analysis at the

company since 2000. He was formerly head of Mutual Fund Operations, Internal

Auditor and Chief Accountant in a career with the company that began in 1984.

Jeffrey P. Beale Chief

Administrative

Officer

Mr. Beale has been a Vice President of the company since June 1998 and the

Chief Administrative Officer of the company since November 1999. Mr. Beale is

a member of the company‘s Management Committee.

Duncan W.

Richardson

Chief Equity

Investment

Officer

Mr. Duncan Richardson is Chief Investment Officer of Eaton Vance

Management. He is also chairman of the Equity Strategy Committee.

Mr. Richardson joined Eaton Vance in 1987 and was formerly associated with

Booz-Allen & Hamilton. He also served in the US Navy Submarine Service for

five years.

Scott P. Ruddick Head –

Institutional

Business

Development

Mr. Scott P. Ruddick is Head-Institutional Business Development at Eaton

Vance Corp. He is responsible for business development, consultant relations and

client services.

Mr. Ruddick was previously employed as a Managing Director-North American

Sales by Mellon Capital Management Corp. Mr. Ruddick joined Eaton Vance in

2010.



31

Investment Risks and Price Target Impediments

Decline in security markets could affect Eaton Vance’s earnings.

Growth of assets under management is driven by inflows and market performance. A decline in security

markets would result in lower AuM, potentially offsetting any new money into the various funds. The value

of investments could be driven by macro economic events over which the company has no control. A

reduction in asset levels could lead to lower earnings as management fees would be applied to lower assets

under management. Eaton Vance derives almost all revenues from investment advisory and administration

fees. Our price target would likely have to be revised downward if AuM were to decrease

A reduction in risk appetite could lead to lower earnings

A potential adverse effect of a decline in financial markets or further deterioration of the economy could be

an increase in risk aversion. A political, economic, or business crisis could lead to an increase in

redemptions and lower AuM as investors would convert their assets into cash. We do not model out a

scenario like this because it is difficult to determine extreme events. As such, we would have to revise our

earnings forecast and reduce our price target if such an event were to occur.

Weak fund performance could lead to outflows and lower earnings

Eaton Vance‘s ability to attract assets and grow earnings is dependent on the performance it generates. Poor

investment performance could increase redemptions and lower inflows of new money. This could

negatively affect our revenue and earnings forecast as higher investment advisory fees are earned with

equity products. Our price target would have to be revised downwardly if performance deteriorated further.

Regulatory changes could adversely affect Eaton Vance’s business.

Changes in regulations (legal, regulatory, accounting, tax, and compliance) can negatively affect

operations, revenues, and earnings by increasing expenses and/or reducing investor interest in investment

products. We would have to revise our forecasts based on the regulatory changes, which could negatively

affect our price target.

Changes in tax policy could affect earnings.

Eaton Vance is affected by changes in the US tax policy more than its competitors because its core offering

includes tax-managed funds. An increase in overall tax rates could have a positive effect on its municipal

income and tax-managed equity business. We would likely have to increase our earnings estimate if tax

rates should increase. This could have a positive effect on our price target.

Competition could pressure margins

The asset management business is very competitive. There is a trend toward lower fees in some segments

of the investment management business. New rules adopted by the SEC to improve mutual fund corporate

governance could put further downward pressure on fees. Margins could decline as a result. This could

negatively affect our price target.

Likewise, Eaton Vance competes with stock brokers, mutual funds, investment banking firms, insurance

companies, banks, and other financial institutions. These competitors could have larger resources than

Eaton Vance, broader product offerings, or provide services at lower rates. Consequently, the company

could lose clients to competitors. If AuM should decline, we would have to revise our earnings estimate

and our price target.


32

Source: Company filings; RBC Capital Market Estimates

($ in '000) 1QA 2QA 3QE 4QE 1QE 2QE 3QE 4QE 1QE 2QE 3QE 4QE 2011A 2012E 2013E 2014E

Fiscal year ending Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Oct-11 Oct-12 Oct-13 Oct-14

Investment advisory and administration fees $239,452 $248,888 $249,859 $245,544 $247,168 $255,987 $265,108 $271,591 $272,375 $282,519 $293,006 $300,582 $996,222 $983,743 $1,039,854 $1,148,482

Distribution and underwriting fees 22,515 22,551 23,026 23,081 23,234 24,063 24,920 25,530 25,603 26,557 27,543 28,255 102,979 91,173 97,746 107,957

Service fees 32,299 32,065 32,335 32,412 32,626 33,790 34,994 35,850 35,953 37,292 38,677 39,677 144,530 129,110 137,261 151,600

Other revenues 1,340 1,266 1,266 1,266 1,266 1,266 1,266 1,266 1,266 1,266 1,266 1,266 15,347 5,138 5,064 5,064

Total revenues $295,606 $304,770 $306,486 $302,303 $304,293 $315,106 $326,289 $334,236 $335,197 $347,634 $360,492 $369,780 $1,259,078 $1,209,165 $1,279,925 $1,413,103

Total net revenues $263,278 $271,810 $273,661 $269,400 $270,679 $280,804 $290,764 $297,843 $298,699 $309,776 $321,229 $329,502 $1,126,414 $1,078,149 $1,140,090 $1,259,206

Compensation of officers and employees $96,683 $97,566 $98,075 $90,691 $97,374 $97,683 $101,150 $101,942 $110,615 $111,243 $115,357 $119,069 $369,927 $383,015 $398,148 $456,284

Distribution expense 32,328 32,960 32,825 32,903 33,615 34,302 35,525 36,393 36,498 37,857 39,263 40,278 132,664 131,016 139,835 153,897

Service fee expense 28,673 28,088 28,415 28,483 30,154 31,230 32,343 33,134 33,230 34,467 35,747 36,671 124,517 113,659 126,862 140,115

Amortization of deferred sales commission 5,820 5,533 5,343 5,268 5,665 5,805 5,949 6,098 5,986 6,139 6,296 6,457 35,773 21,963 23,517 24,879

Fund expenses 6,651 6,590 6,859 6,875 6,921 7,168 7,423 7,605 7,626 7,911 8,204 8,416 25,295 26,975 29,116 32,157

Other expenses 32,631 35,222 34,360 33,994 32,632 35,223 34,361 33,995 32,633 35,224 34,362 33,996 134,198 136,207 136,211 136,215

Total expenses $202,786 $205,959 $205,877 $198,214 $206,361 $211,411 $216,751 $219,166 $226,589 $232,841 $239,229 $244,888 $822,374 $812,836 $853,689 $943,547

Operating income $92,820 $98,811 $100,609 $104,089 $97,933 $103,695 $109,538 $115,070 $108,609 $114,793 $121,262 $124,892 $436,704 $396,329 $426,235 $469,556

Interest and other income $1,737 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 3,905 $1,737 $0 $0

Net gains (losses) on investments and derivatives 6,430 - - - - - - - - - - - 5,057 6,430 - -

Net foreign currency gains 10 - - - - - - - - - - - (26) 10 - -

Gains (losses) and other investment income, net 8,177 $2,796 $4,477 $146 $4,314 $2,510 $4,611 ($810) $4,604 $2,524 $5,478 ($887) 8,936 15,596 10,626 11,719

Interest expense (8,413) (8,412) (8,412) (8,412) (8,412) (8,412) (8,412) (8,412) (8,412) (8,412) (8,412) (8,412) (33,652) (33,649) (33,648) (33,648)

Other income (expense) of conlidated CLO entity - - - - - - - - - - - - - - - -

Interest income 5,544 - - - - - - - - - - - - - - -

Net gains (losses) on bank loans, other investments and note obligations 4,736 - - - - - - - - - - - - - - -

Gains (losses) and other investment income, net 10,280 8,895 8,895 8,895 8,895 8,895 8,895 8,895 8,895 8,895 8,895 8,895 (17,037) 36,965 35,580 35,580

Interest expense (4,311) (4,134) (4,134) (4,134) (4,134) (4,134) (4,134) (4,134) (4,134) (4,134) (4,134) (4,134) (13,575) (16,713) (16,536) (16,536)

Income before taxes, equity in net income of affilates $98,553 $97,956 $101,435 $100,584 $98,596 $102,554 $110,499 $110,609 $109,561 $113,666 $123,090 $120,353 $381,376 $398,528 $422,257 $466,671

Income taxes ($35,187) ($35,164) ($37,531) ($37,216) ($36,480) ($37,945) ($40,884) ($40,925) ($40,538) ($42,056) ($45,543) ($44,531) (156,844) (145,098) (156,235) (172,668)

Equity in net income of affiliates, net of tax 1,504 (22) 14 1,460 2,880 2,504 2,314 2,860 2,926 2,550 2,360 2,906 3,042 2,956 10,558 10,742

Net income $64,870 $62,770 $63,918 $64,828 $64,995 $67,113 $71,928 $72,544 $71,949 $74,160 $79,906 $78,729 $227,574 $256,386 $276,580 $304,744

Net income attributable to non-controlling interest (17,599) (9,900) (9,900) (9,900) (9,900) (9,900) (9,900) (9,900) (9,900) (9,900) (9,900) (9,900) (12,672) (47,299) (39,600) (39,600)

Net income attributable to EV Corp Shareholders $47,271 $52,870 $54,018 $54,928 $55,095 $57,213 $62,028 $62,644 $62,049 $64,260 $70,006 $68,829 $214,902 $209,087 $236,980 $265,144

Sequential growth rate 1.0% 11.8% 2.2% 1.7% 0.3% 3.8% 8.4% 1.0% (0.9%) 3.6% 8.9% (1.7%) 23.3% (2.7%) 13.3% 11.9%

Less: Participating restricted shares $1,371 $2,000 $2,043 $2,078 $1,763 $1,831 $1,985 $2,005 $2,110 $2,185 $2,380 $2,340 $4,597 $7,492 $7,583 $9,015

Earnings per share - basic $0.41 $0.45 $0.46 $0.47 $0.48 $0.50 $0.54 $0.55 $0.54 $0.56 $0.62 $0.61 $1.82 $1.80 $2.07 $2.33

Earnings per share - diluted $0.40 $0.44 $0.45 $0.46 $0.46 $0.48 $0.52 $0.53 $0.53 $0.55 $0.60 $0.59 $1.75 $1.75 $2.00 $2.26

Annual growth rate 32.8% (12.3%) (18.6%) 15.5% 16.1% 10.0% 16.7% 15.9% 13.6% 13.3% 13.9% 10.9% 25.3% (0.4%) 14.7% 12.9%

Adj: Increases in redemption value of non-controlling interests $0.07 $0.01 $0.06 $0.06 $0.06 $0.06 $0.06 $0.06 $0.06 $0.06 $0.06 $0.06 $0.25 $0.20 $0.24 $0.25

Adjusted earnings per share - diluted $0.47 $0.45 $0.51 $0.52 $0.52 $0.54 $0.59 $0.59 $0.59 $0.61 $0.66 $0.65 $2.00 $1.95 $2.25 $2.51

Non-controlling interest value adjustment ($8,102) ($1,097) ($7,000) ($7,000) ($7,000) ($7,000) ($7,000) ($7,000) ($7,000) ($7,000) ($7,000) ($7,000) ($30,216) ($23,199) ($28,000) ($28,000)

Dividends per share $0.19 $0.19 $0.19 $0.21 $0.21 $0.21 $0.21 $0.23 $0.23 $0.23 $0.23 $0.25 $0.73 $0.78 $0.86 $0.94

Weighted average share count - basic 112,768 112,418 112,118 111,824 111,516 111,215 110,919 110,629 110,310 109,996 109,689 109,388 115,326 112,282 111,070 109,846

Incremental common shares 2,133 3,463 3,463 3,463 3,463 3,463 3,463 3,463 3,463 3,463 3,463 3,463 4,649 3,131 3,463 3,463

Weighted average share count - diluted 114,901 115,881 115,581 115,287 114,979 114,678 114,382 114,092 113,773 113,459 113,152 112,851 119,975 115,412 114,533 113,309

Share buybacks (shares in '000) 300 294 308 302 296 290 320 313 307 301 0 - - -

Share repurchase

Assumed share price $25.00 $25.50 $26.01 $26.53 $27.06 $27.60 $28.15 $28.72 $29.29 $29.88 0 $25.25 $26.80 $29.01

Quarterly increase in Federated's share price 0% 2% 2% 2% 2% 2% 2% 2% 2% 2% 0 2.0% 8.0% 8.0%

Funds allocated to repurchases ($ '000) $7,500 $7,500 $8,000 $8,000 $8,000 $8,000 $9,000 $9,000 $9,000 $9,000 $0 $15,000 $32,000 $36,000

Shares repurchased in the period ( in '000) 300 294 308 302 296 290 320 313 307 301 - 594 1,195 1,242

Assets under management

($ in million) 1QA 2QA 3QE 4QE 1QE 2QE 3QE 4QE 1QE 2QE 3QE 4QE 2011A 2012E 2013E 2014E

Equity fund assets $110,834 $114,903 $107,779 $110,473 $112,462 $114,486 $116,547 $118,645 $121,611 $124,651 $127,768 $130,962 $108,859 $110,473 $118,645 130,962

Fixed-income fund assets 45,514 46,891 48,673 50,522 52,442 54,435 56,504 58,651 60,293 61,981 63,717 65,501 43,708 50,522 58,651 65,501

Floating-rate income fund assets 24,376 24,847 25,543 26,258 26,993 27,749 28,526 29,325 30,146 30,990 31,858 32,750 24,322 26,258 29,325 32,750

Alternative fund assets 10,449 10,506 10,664 10,824 10,986 11,151 11,318 11,488 11,694 11,905 12,119 12,337 10,646 10,824 11,488 12,337

Long-term assets 191,173 197,147 192,658 198,077 202,883 207,821 212,895 218,108 223,744 229,527 235,461 241,549 187,535 198,077 218,108 241,549

Separate accounts assets n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a

Cash management fund assets n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a

Total AuM $191,173 $197,147 $192,658 $198,077 $202,883 $207,821 $212,895 $218,108 $223,744 $229,527 $235,461 $241,549 $187,535 $198,077 $218,108 $241,549

Average AuM 189,354 194,160 194,903 195,368 200,480 205,352 210,358 215,501 220,926 226,636 232,494 238,505 191,387 192,806 208,093 229,829

Net flows ($1,120) $567 ($2,237) $272 $953 $990 $1,029 $1,069 $1,389 $1,425 $1,462 $1,500 $3,888 ($2,518) $4,040 $5,777

Equity fund assets 58.0% 58.3% 55.9% 55.8% 55.4% 55.1% 54.7% 54.4% 54.4% 54.3% 54.3% 54.2% 58.0% 55.8% 54.4% 54.2%

Fixed-income fund assets 23.8% 23.8% 25.3% 25.5% 25.8% 26.2% 26.5% 26.9% 26.9% 27.0% 27.1% 27.1% 23.3% 25.5% 26.9% 27.1%

Floating-rate income fund assets 12.8% 12.6% 13.3% 13.3% 13.3% 13.4% 13.4% 13.4% 13.5% 13.5% 13.5% 13.6% 13.0% 13.3% 13.4% 13.6%

Alternative fund assets 5.5% 5.3% 5.5% 5.5% 5.4% 5.4% 5.3% 5.3% 5.2% 5.2% 5.1% 5.1% 5.7% 5.5% 5.3% 5.1%

Long-term assets 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%

Separate accounts assets n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a

Cash management fund assets n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a

Performance

Operating income margins - gross 31.4% 32.4% 32.8% 34.4% 32.2% 32.9% 33.6% 34.4% 32.4% 33.0% 33.6% 33.8% 34.7% 32.8% 33.3% 33.2%

Pre-tax margins - gross 33.3% 32.1% 33.1% 33.3% 32.4% 32.5% 33.9% 33.1% 32.7% 32.7% 34.1% 32.5% 30.3% 33.0% 33.0% 33.0%

After-tax margins - gross 21.9% 20.6% 20.9% 21.4% 21.4% 21.3% 22.0% 21.7% 21.5% 21.3% 22.2% 21.3% 18.1% 21.2% 21.6% 21.6%

Operating income margins - net 35.3% 36.4% 36.8% 38.6% 36.2% 36.9% 37.7% 38.6% 36.4% 37.1% 37.7% 37.9% 38.8% 36.8% 37.4% 37.3%

Pre-tax margins - net 37.4% 36.0% 37.1% 37.3% 36.4% 36.5% 38.0% 37.1% 36.7% 36.7% 38.3% 36.5% 33.9% 37.0% 37.0% 37.1%

After-tax margins - net 24.6% 23.1% 23.4% 24.1% 24.0% 23.9% 24.7% 24.4% 24.1% 23.9% 24.9% 23.9% 20.2% 23.8% 24.3% 24.2%

Compensation expense ratio 32.7% 32.0% 32.0% 30.0% 32.0% 31.0% 31.0% 30.5% 33.0% 32.0% 32.0% 32.2% 29.4% 31.7% 31.1% 32.3%

Non-compensation expense ratio 35.9% 35.6% 35.2% 35.6% 35.8% 36.1% 35.4% 35.1% 34.6% 35.0% 34.4% 34.0% 35.9% 35.5% 35.6% 34.5%

Expense ratio 68.6% 67.6% 67.2% 65.6% 67.8% 67.1% 66.4% 65.6% 67.6% 67.0% 66.4% 66.2% 65.3% 67.2% 66.7% 66.8%

Growth rate - year over year

Investment advisory and administration fees (1.4%) (1.1%) (4.7%) 2.4% 3.2% 2.9% 6.1% 10.6% 10.2% 10.4% 10.5% 10.7% 14.8% (1.3%) 5.7% 10.4%

Distribution and underwriting fees (17.6%) (13.7%) (12.9%) 0.0% 3.2% 6.7% 8.2% 10.6% 10.2% 10.4% 10.5% 10.7% (1.0%) (11.5%) 7.2% 10.4%

Service fees (13.5%) (12.1%) (13.6%) (2.6%) 1.0% 5.4% 8.2% 10.6% 10.2% 10.4% 10.5% 10.7% 3.4% (10.7%) 6.3% 10.4%

Other revenues 10.9% (89.0%) (8.1%) 4.5% (5.5%) 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 49.8% (66.5%) (1.4%) 0.0%

Total revenues (4.2%) (6.5%) (6.4%) 1.7% 2.9% 3.4% 6.5% 10.6% 10.2% 10.3% 10.5% 10.6% 12.3% (4.0%) 5.9% 10.4%

Total net revenues (4.6%) (7.0%) (6.8%) 1.8% 2.8% 3.3% 6.2% 10.6% 10.4% 10.3% 10.5% 10.6% 13.1% (4.3%) 5.7% 10.4%

Compensation of officers and employees (0.4%) 0.4% 3.6% 12.0% 0.7% 0.1% 3.1% 12.4% 13.6% 13.9% 14.0% 16.8% 6.0% 3.5% 4.0% 14.6%

Distribution expense (1.1%) (2.1%) (2.7%) 1.0% 4.0% 4.1% 8.2% 10.6% 8.6% 10.4% 10.5% 10.7% 5.2% (1.2%) 6.7% 10.1%

Service fee expense (8.5%) (8.7%) (11.8%) (5.6%) 5.2% 11.2% 13.8% 16.3% 10.2% 10.4% 10.5% 10.7% 6.5% (8.7%) 11.6% 10.4%

Amortization of deferred sales commission (43.8%) (42.6%) (37.2%) (27.6%) (2.7%) 4.9% 11.4% 15.8% 5.7% 5.8% 5.8% 5.9% 0.7% (38.6%) 7.1% 5.8%

Fund expenses 46.4% 31.4% (15.3%) (10.0%) 4.1% 8.8% 8.2% 10.6% 10.2% 10.4% 10.5% 10.7% 23.7% 6.6% 7.9% 10.4%

Other expenses (2.0%) 8.2% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 11.3% 1.5% 0.0% 0.0%

Total expenses (3.1%) (1.4%) (2.7%) 2.9% 1.8% 2.6% 5.3% 10.6% 9.8% 10.1% 10.4% 11.7% 7.0% (1.2%) 5.0% 10.5%

Operating income (3.1%) (1.4%) (2.7%) 2.9% 1.8% 2.6% 5.3% 10.6% 9.8% 10.1% 10.4% 11.7% 23.6% (9.2%) 7.5% 10.2%

Income before taxes, equity in net income of affilates 6.5% 4.3% (9.5%) 21.4% 0.0% 4.7% 8.9% 10.0% 11.1% 10.8% 11.4% 8.8% 23.3% (2.7%) 13.3% 11.9%

Net income 9.4% 16.7% (7.3%) 42.2% 0.2% 6.9% 12.5% 11.9% 10.7% 10.5% 11.1% 8.5% 13.1% 12.7% 7.9% 10.2%

Net income attributable to EV Corp Shareholders 25.9% (15.4%) (20.6%) 17.3% 16.6% 8.2% 14.8% 14.0% 12.6% 12.3% 12.9% 9.9% 23.3% (2.7%) 13.3% 11.9%

2013 2014

2012E 2013E 2014E

2012


33

Required Disclosures

Conflicts Disclosures

The analyst(s) responsible for preparing this research report received compensation that is based upon various factors, including totalrevenues of the member companies of RBC Capital Markets and its affiliates, a portion of which are or have been generated byinvestment banking activities of the member companies of RBC Capital Markets and its affiliates.

RBC Capital Markets, LLC makes a market in the securities of Eaton Vance Corp. and may act as principal with regard to sales orpurchases of this security.

A member company of RBC Capital Markets or one of its affiliates received compensation for products or services other thaninvestment banking services from Eaton Vance Corp. during the past 12 months. During this time, a member company of RBC CapitalMarkets or one of its affiliates provided non-securities services to Eaton Vance Corp..

RBC Capital Markets is currently providing Eaton Vance Corp. with non-securities services.

RBC Capital Markets has provided Eaton Vance Corp. with non-securities services in the past 12 months.

The author is employed by RBC Capital Markets, LLC, a securities broker-dealer with principal offices located in New York, USA.

Explanation of RBC Capital Markets Equity Rating System

An analyst's 'sector' is the universe of companies for which the analyst provides research coverage. Accordingly, the rating assigned toa particular stock represents solely the analyst's view of how that stock will perform over the next 12 months relative to the analyst'ssector average.RatingsTop Pick (TP): Represents analyst's best idea in the sector; expected to provide significant absolute total return over 12 months with afavorable risk-reward ratio.Outperform (O): Expected to materially outperform sector average over 12 months.Sector Perform (SP): Returns expected to be in line with sector average over 12 months.Underperform (U): Returns expected to be materially below sector average over 12 months.Risk Qualifiers (any of the following criteria may be present):Average Risk (Avg): Volatility and risk expected to be comparable to sector; average revenue and earnings predictability; nosignificant cash flow/financing concerns over coming 12-24 months; fairly liquid.Above Average Risk (AA): Volatility and risk expected to be above sector; below average revenue and earnings predictability; maynot be suitable for a significant class of individual equity investors; may have negative cash flow; low market cap or float.Speculative (Spec): Risk consistent with venture capital; low public float; potential balance sheet concerns; risk of being delisted.

Distribution of Ratings

For the purpose of ratings distributions, regulatory rules require member firms to assign ratings to one of three rating categories - Buy,Hold/Neutral, or Sell - regardless of a firm's own rating categories. Although RBC Capital Markets' ratings of Top Pick/Outperform,Sector Perform and Underperform most closely correspond to Buy, Hold/Neutral and Sell, respectively, the meanings are not the samebecause our ratings are determined on a relative basis (as described above).

Distribution of RatingsRBC Capital Markets, Equity Research

Investment BankingServ./Past 12 Mos.

Rating Count Percent Count Percent

BUY[TP/O] 775 52.36 224 28.90HOLD[SP] 638 43.11 152 23.82SELL[U] 67 4.53 2 2.99


34

Q2 Q3 Q1 Q2 Q3 Q1 Q2 Q3 Q1 Q2 Q315

20

25

30

35

40

2010 2011 2012

Rating and Price Target History for: Eaton Vance Corp. as of 07-23-2012 (in USD)

Legend:

TP: Top Pick; O: Outperform; SP: Sector Perform; U: Underperform; I: Initiation of Research Coverage; D: Discontinuation of Research Coverage; NR: Not Rated; NA: Not Available;

RL: Recommended List - RL: On: Refers to date a security was placed on a recommended list, while RL Off: Refers to date a security was removed from a recommended list.

Created by BlueMatrix

References to a Recommended List in the recommendation history chart may include one or more recommended lists or modelportfolios maintained by a business unit of the Wealth Management Division of RBC Capital Markets, LLC. These RecommendedLists include a former list called the Prime Opportunity List (RL 3), the Guided Portfolio: Prime Income (RL 6), the Guided Portfolio:Large Cap (RL 7), Guided Portfolio: Dividend Growth (RL 8), the Guided Portfolio: Midcap 111 (RL9), and the Guided Portfolio:ADR (RL 10). The abbreviation 'RL On' means the date a security was placed on a Recommended List. The abbreviation 'RL Off'means the date a security was removed from a Recommended List.

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35

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EV Initiation