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Eaton Vance Corporation (



F1 2012 Earnings Call

February 22, 2012 11:00 am ET


Daniel C. Cataldo – Vice President and Treasurer

Thomas E. Faust, Jr. – Chairman, Chief Executive Officer and President

Robert J. Whelan – Vice President, Treasurer, and Chief Financial Officer


Kenneth B. Worthington – JPMorgan Chase & Co

Roger Freeman – Barclays Capital

James Howley – Sandler O'Neill & Partners, L.P.

Daniel Fannon – Jefferies & Company, Inc.

Craig Siegenthaler – Credit Suisse

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Cynthia Mayer – Bank of America/Merrill Lynch

William R. Katz – Citigroup Inc.



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Greetings, and welcome to the Eaton Vance First Quarter Fiscal Year 2012 Earnings Release Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions) As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Mr. Dan Cataldo. Thank you Mr. Cataldo, you may begin.

Daniel C. Cataldo

Thanks [Ruth]. Welcome to the Eaton Vance first quarter fiscal 2012 earnings call and webcast. Here this morning are Tom Faust, Chairman and CEO; Bob Whelan, our CFO; and Laurie Hylton, our Chief Accounting Officer. Tom and Bob will comment on the quarter and then we will take your questions.

The full earnings release and the charts we will refer to during the call are available at our website, under the heading Press Releases. Today's presentation contains forward-looking statements about our business and financial results. The actual results may differ materially from those projected due to risks and uncertainties in our operations and business, including but not limited to those discussed in our SEC filings. These filings including our 2011 Annual Report and Form 10-K are available on our website or on request to the company at no charge.

And now I'd now like to turn it over to Tom.

Thomas E. Faust, Jr.

Good morning and thank you for joining us. Our first fiscal quarter began much to like fiscal 2011 ended, the significant market volatility contributing to investor uncertainty, and net client withdrawals. For the first quarter as a whole we saw net outflows of $1.1 billion, our second consecutive quarter of negative net flows after 22 consecutive quarters of positive organic growth.

But since the time of the calendar year the market environment and our flow results have improved markedly. On the back of strong equity returns, we had $800 million of net inflows in the month of January and closed the fiscal quarter with $191.7 billion in managed assets, up 2% from the beginning of the quarter and unchanged from a year ago.

Although we are still early in our second fiscal quarter and things can change based on flows in the quarter to-date in visible pipeline through the end of January we now expect to return to positive internal growth in the current quarter. The favorable performance of the equity markets so far in February also positions us well for the second quarter asset growth.

We had a solid first quarter from an earnings perspective with $0.47 in adjusted earnings per diluted share. This compares to adjusted diluted EPS of $0.47 in the fourth quarter of 2011 and $0.45 in the year ago quarter.

As a reminder our adjusted earnings differ from GAAP earnings by excluding changes in the redemption value of non-controlling interest and our majority on subsidiary that we're required to reflect in our GAAP earnings. Bob will discuss our financial results in more detail in a moment.

As I comment on the first quarter, please refer the slides on our website for additional color. As I mentioned, we had $1.1 billion in net outflows for the quarter, an improvement from the $2.7 billion in net outflows in the fourth quarter, but still not where we want to be.

Net outflows from our large cap value franchise, which totaled $2.1 billion in the quarter continue to be the primary drag on our organic growth. With $23 billion in the strategy and one-year and three-year performance that [lagged] its peer group, we expect to see continued outflows until relative returns that are to improve. Doing everything we can improve the performance of EVMs large cap equity strategies and large value in particular remains a major priority for us.

As we evaluate our business prospect going forward, we think about opportunities to grow in the changing lights. (Inaudible) today is simply filling MorningStar’s style boxes. Increasingly financial advisers and their clients are focusing their efforts on meeting identified needs which sometimes called need-based or outcome oriented investing.

The primary focus on investor's investment program may for example be to generate income to pay for retirement or family members’ education. Total investing outside of corporate retirement plans may also have a particular need for after-tax income. Income investors may also seek opportunities to earn current yield without taking undue interest rate risk.

Absolute return investors may take investments that don't depend on the stock and bond markets to drive returns and which can lower the volatility of the overall portfolio. And investors looking for higher returns and increased diversification may seem to add exposure to the faster growing emerging economies around the world.

I'm pleased to observe that Eaton Vance has strong performing market-leading strategies to meet each of these growing demands and they're integral to our future.

Let me give you some examples. In municipal bond industry flow has steadily increased in the recent months as the default concerns of late 2010 have subsided an appetite for cash free income has risen. This is an area where we are very well positioned. As of the end of January our flagship national municipal income fund Class I is in the top desk all of its peer group for total return performance over 1 billion in

10 years and remains among the highest yielding investment grade Mini bond funds in the industry for the current distribution rate of just over 5%.

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