# EATON VANCE DISTRIBUTORS, INC. X-17A-5 (2020-12-23) — Broker-dealer annual report - Company: EATON VANCE DISTRIBUTORS, INC. - Form: X-17A-5 - Filed: 2020-12-23 - Period: 2020-10-31 - Accession: 0000935544-20-000014 - CIK: 935544 - File #: 8-47939 - Material weakness: No - Auditor: Deloitte & Touche LLP - Auditor location: Boston, MA - Contact: Eric Senay - Phone: 617-672-6744 - Website: deloitte.com - Signed by: Eric Senay (Chief Financial Officer) Original filing: https://www.sec.gov/Archives/edgar/data/935544/000093554420000014/EVD_AnnualReport2020.pdf --- {0}------------------------------------------------ # **Eaton Vance Distributors, Inc. (SEC I.D. NO. 8-47939)** Financial Statements and Supplemental Schedules as of and for the year ended October 31, 2020 and Independent Auditors' Report Filed Pursuant to Rulei17a-5(e)(3) as a PUBLIC DOCUMENT {1}------------------------------------------------ **UNITEDSTATES SECURITIESANDEXCHANGECOMMISSION Washington, D.C. 20549** OMB APPROVAL OMB Number: 3235-0123 Expires: 0DUPCFS Estimated average burden **8-** SEC FILE NUMBER 047939 # hours per response.. . . . . 12.00 **ANNUAL AUDITED REPORT FORM X-17A-5 PART III** **FACING PAGE** **Information Required of Brokers and Dealers Pursuant to Section 17 of the Securities Exchange Act of 1934 and Rule 17a-5 Thereunder** | REPORT FOR THE PERIOD BEGINNING______________________________ | 11/01/19 | | 10/31/20
AND ENDING______________________________ | |--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------|---------|------------------------------------------------------| | | MM/DD/YY | | MM/DD/YY | | A. | REGISTRANT IDENTIFICATION | | | | Eaton
NAME OF BROKER-DEALER: | Vance
Distributors, | Inc. | OFFICIAL USE ONLY | | ADDRESS OF PRINCIPAL PLACE OF BUSINESS: (Do not use P.O. Box No.) | | | FIRM I.D. NO. | | Two
International
Place
___________________________________________________________________________________________________________________ | | | | | | (No. and Street) | | | | Boston
___________________________________________________________________________________________ | MA | | 02110
__________________________ | | (City) | (State) | | (Zip Code) | | NAME AND TELEPHONE NUMBER OF PERSON TO CONTACT IN REGARD TO THIS REPORT
_____________________________________________________________________________________________________________________
Eric Senay, Chief Financial Officer (617 672-6744) | | | | | | | | (Area Code – Telephone Number) | | B. | ACCOUNTANT IDENTIFICATION | | | | INDEPENDENT PUBLIC ACCOUNTANT whose opinion is contained in this Report* | | | | | Deloitte
&
Touche
LLP
_____________________________________________________________________________________________________________________ | | | | | | (Name – if individual, state last, first, middle name) | | | | 200
Berkeley
Street
_____________________________________________________________________________________________________________________ | Boston | MA | 02116 | | (Address) | (City) | (State) | (Zip Code) | | CHECK ONE: | | | | | ✔
Certified Public Accountant | | | | | Public Accountant | | | | | | Accountant not resident in United States or any of its possessions. | | | | | FOR OFFICIAL USE ONLY | | | | | | | | | | | | | | | | | | *\*Claims for exemption from the requirement that the annual report be covered by the opinion of an independent public accountant must be supported by a statement of facts and circumstances relied on as the basis for the exemption. See Section 240.17a-5(e)(2)* **Potential persons who are to respond to the collection of information contained in this form are not required to respond** SEC 1410 () **unless the form displays a currently valid OMB control number.** {2}------------------------------------------------ | Eric Senay | the best of the best of the swear (or affirm) that, to the best of | |------------------------------------------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------| | Eaton Vance Distributors, Inc. | my knowledge and belief the accompanying financial statement and supporting schedules pertaining to the firm of | | of October 31, | 20 20 , are true and correct. I further swear (or affirm) that | | | neither the company nor any partner, principal officer or director has any proprietary interest in any account | | classified solely as that of a customer, except as follows: | | | | | | | | | | | | | | | | | | | | | | Signature | | | Chief Financial Officer | | | Title | | | lerin forexcher | | Notary Public | My Comm Exp. January 21, 200 | | This report ** contains (check all applicable boxes): | | | (a) Facing Page. | | | (b) Statement of Financial Condition. | (c) Statement of Income (Loss) or, if there is other comprehensive income in the period(s) presented, a Statement | | | of Comprehensive Income (as defined in §210.1-02 of Regulation S-X). | | (d) Statement of Changes in Financial Condition. | V (e) Statement of Changes in Stockholders' Equity or Partners' or Sole Proprietors' Capital. | | (f) Statement of Changes in Liabilities Subordinated to Claims of Creditors. | | | (g) Computation of Net Capital. | | | | (h) Computation for Determination of Reserve Requirements Pursuant to Rule 15c3-3.
1 (i) Information Relating to the Possession or Control Requirements Under Rule 15c3-3. | | | (i) A Reconciliation, including appropriate explanation of Net Capital Under Rule 15c3-1 and the | | | Computation for Determination of the Reserve Requirements Under Exhibit A of Rule 15c3-3. | | consolidation. | (k) A Reconciliation between the audited Statements of Financial Condition with respect to methods of | | (1) An Oath or Affirmation. | | | (m) A copy of the SIPC Supplemental Report. | | | | (n) A report describing any material inadequacies found to have existed since the date of the previous audit | | | ** For conditions of confidential treatment of certain portions of this filing, see section 240.17a-5(e)(3). | | | | {3}------------------------------------------------ **Deloitte & Touche LLP** 200 Berkeley Street Boston, MA 20116 USA Tel:+1 617 437 2000 www.deloitte.com ### **REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM** To the stockholder and the Board of Directors of Eaton Vance Distributors, Inc. # **Opinion on the Financial Statements** We have audited the accompanying statement of financial condition of Eaton Vance Distributors, Inc. (a wholly owned subsidiary of Eaton Vance Corp.) (the "Company") as of October 31, 2020, and the related statements of income, changes in stockholder's equity, and cash flows for the year then ended, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of October 31, 2020, and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. # **Basis for Opinion** These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion. ## **Emphasis of a Matter** As discussed in Note 1 to the financial statements, the financial statements include significant transactions with Eaton Vance Corp. subsidiaries and are not necessarily indicative of the conditions that would have existed had the Company been operated as an unaffiliated company. #### **Report on Supplemental Schedules** The supplemental schedules g, h and i listed in the accompanying table of contents have been subjected to audit procedures performed in conjunction with the audit of the Company's financial statements. The supplemental schedules are the responsibility of the Company's management. Our audit procedures included determining whether the supplemental schedules reconcile to the financial statements or the underlying accounting and other records, as applicable, and performing procedures to test the completeness and accuracy of the information presented in the supplemental schedules. In forming our {4}------------------------------------------------ opinion on the supplemental schedules, we evaluated whether the supplemental schedules, including their form and content, are presented in compliance with Rule 17aͲ5 under the Securities Exchange Act of 1934. In our opinion, such schedules are fairly stated, in all material respects, in relation to the financial statements as a whole. December 22, 2020 We have served as the Company`s auditor since 1994. {5}------------------------------------------------ # **Statement of Financial Condition As of October 31, 2020** #### **Assets** | Cash and cash equivalents
Investments held at fair value
Deposits with clearing organizations
Accounts receivable from sales of investment company shares
Accounts receivable from affiliates
Distribution fees, service fees and other receivables
Deferred income taxes | \$
138,996,129
51,601,294
243,287
128,208
28,033,702
16,994,062
4,595,826 | |---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------------------------------------------------------------------------------------------| | Prepaid expenses and other assets
Total assets | \$
2,517,799
243,110,307 | | Liabilities and Stockholder's Equity | | | Liabilities: | | | Accrued compensation | \$
28,923,646 | | Accounts payable and accrued liabilities | 26,988,286 | | Accounts payable for investment company shares sold | 265,448 | | Total liabilities | 56,177,380 | | Commitments and contingencies (Note 9) | | | Stockholder's Equity: | | | Common stock, \$1 par value; 200,000 shares authorized; | | | 20,000 shares issued and outstanding | 20,000 | | Additional paid-in capital | 150,421,239 | | Retained earnings | 36,491,688 | | Total stockholder's equity | 186,932,927 | | Total liabilities and stockholder's equity | \$
243,110,307 | {6}------------------------------------------------ # **Statement of Income** **For the Year Ended October 31, 2020** | Revenue: | | |-----------------------------------|-------------------| | Service agreement income | \$
192,289,257 | | Service fees | 131,737,231 | | Distribution and underwriter fees | 30,451,829 | | Interest and other revenue | 44,963,180 | | Total revenue | 399,441,497 | | Expenses: | | | Distribution expense | 121,298,908 | | Compensation and related costs | 135,470,394 | | Service fee expense | 115,154,724 | | Other expenses | 18,891,819 | | Total expenses | 390,815,845 | | Income before income taxes | 8,625,652 | | Provision for income taxes: | | | Current | 165,526 | | Deferred | (2,637,183) | | Total provision for income taxes | (2,471,657) | | Net income | \$
6,153,995 | | | | {7}------------------------------------------------ **Statement of Changes in Stockholder's Equity For the Year Ended October 31, 2020** | | Shares | Co | mon
Stock
m | Additional
Paid-in
Capital | Retained
Earnings | Stockholder's
Equity
Total | |-------------------------------|--------|----|-------------------|----------------------------------|----------------------|----------------------------------| | mber 1, 2019
Balance, Nove | 20,000 | \$ | 20,000 | \$
79,591,578 | \$
30,337,693 | \$
109,949,271 | | me
Net inco | - | | - | - | 6,153,995 | 6,153,995 | | Capital distributions | - | | - | (725,000,000) | - | (725,000,000) | | Capital contributions | - | | - | 762,000,000 | - | 762,000,000 | | mpensation
Stock-based co | - | | - | 33,829,661 | - | 33,829,661 | | Balance, October 31, 2020 | 20,000 | \$ | 20,000 | \$
150,421,239 | \$
36,491,688 | \$
186,932,927 | {8}------------------------------------------------ # **Statement of Cash Flows For the Year Ended October 31, 2020** | Cash Flows From Operating Activities: | | |-----------------------------------------------------------------------------------|-------------------| | Net income | \$
6,153,995 | | Adjustments to reconcile net income to net cash provided by operating activities: | | | Stock-based compensation | 33,829,661 | | Deferred income taxes | 2,418,953 | | Changes in operating assets and liabilities: | | | Investments held at fair value | 27,908,659 | | Deposits with clearing organizations | (24,016) | | Accounts receivable from sales of investment company shares | 90,762 | | Accounts receivable from affiliates | (25,539,906) | | Distribution fees, service fees and other receivables | (670,860) | | Prepaid expenses and other assets | 766,823 | | Accrued compensation | 3,270,126 | | Accounts payable and accrued liabilities | (549,127) | | Accounts payable to affiliates | (7,934,620) | | Accounts payable for investment company shares sold | (70,428) | | Other liabilities | (3,931,277) | | Net cash provided by operating activities | 35,718,745 | | Cash Flows From Financing Activities: | | | Capital distributions | (725,000,000) | | Capital contributions | 762,000,000 | | Net cash provided by financing activities | 37,000,000 | | Net increase in cash and cash equivalents | 72,718,745 | | Cash and cash equivalents, beginning of year | 66,277,384 | | Cash and cash equivalents, end of year | \$
138,996,129 | | Supplemental Cash Flow Information: | | | Cash paid for income taxes, net of refunds | \$
88,548 | {9}------------------------------------------------ # **Notes to Financial Statements As of and for the Year Ended October 31, 2020** #### **1. Summary of Significant Accounting Policies** #### *Business and organization* Eaton Vance Distributors, Inc. (the Company) is the principal underwriter for the regulated investment companies offered by Eaton Vance and certain of its affiliates and also acts as placement agent for Eaton Vance-sponsored unregistered equity funds (collectively hereafter referred to as the Eaton Vance mutual funds). The Company also acts as distributor for Eaton Vance-sponsored separately managed accounts sold through financial intermediaries. The Company is a wholly-owned subsidiary of Eaton Vance Corp. (EVC). Certain officers and/or directors of the Company are also officers and/or directors of EVC. Revenue and certain expenses are dependent on the total value and composition of the managed assets of EVC and its affiliates. Accordingly, fluctuations in financial markets and in the composition of those assets under management impact revenue and the results of operations. The ongoing COVID-19 pandemic has caused significant disruption in global financial markets and adversely affected our business. While financial markets have since substantially recovered, the COVID-19 pandemic continues to significantly affect the manner in which we operate our business. Over 95 percent of EVC employees are currently working remotely, with only a small number in the office each business day. Employees have adapted well to the remote work environment, and we have not experienced any significant disruptions during the pandemic period due to operational issues, loss of communication capabilities, technology failure or cyber attacks. While the Company is continuously monitoring and evaluating the impact of COVID-19 on our business, the extent to which COVID-19 affects our business, results of operations and financial condition will depend on future developments that are highly uncertain. On October 8, 2020, EVC and Morgan Stanley announced that they have entered into a definitive agreement for Morgan Stanley to acquire EVC and EVC's direct and indirect wholly-owned subsidiaries. After the close of the transaction, the Company plans to continue to operate as a broker dealer. The proposed transaction is subject to customary closing conditions and is expected to close in the second quarter of fiscal 2021. These Financial Statements were prepared from the separate records maintained by the Company, which include significant transactions with affiliates, and are not necessarily indicative of the conditions that would have existed had the Company been operated as an unaffiliated business. # *Basis of presentation* The preparation of the Company's Financial Statements in conformity with accounting principles generally accepted in the United States of America (U.S. GAAP) requires management to make judgments, estimates and assumptions that affect the amounts reported in the Financial Statements and related notes to the Financial Statements. However, due to the inherent uncertainties in making estimates, actual results could differ from those estimates. {10}------------------------------------------------ #### *Cash and cash equivalents* Cash and cash equivalents consists principally of cash held in banks as well as cash equivalents that may consist of short-term, highly liquid investments in commercial paper and U.S. government securities that are readily convertible to cash. Cash equivalents have remaining maturities of less than three months, as determined upon purchase by the Company, and are stated at amortized cost, which approximates fair value due to the short-term maturities of these investments. Cash deposits maintained at a financial institution may exceed the federally insured limit. #### *Investments* Investments consist of short-term debt securities comprised of certificates of deposit, commercial paper and U.S. government securities with remaining maturities of three months to 12 months upon purchase by the Company. Investments are measured at fair value with net realized and unrealized holding gains or losses, and interest income reflected as a component of interest and other revenue on the Company's Statement of Income. The specific identified cost method is used to determine the realized gains or losses on all investments sold. #### *Fair value measurements* The accounting standards for fair value measurement provide a framework for measuring fair value and require disclosures of how fair value is determined. Fair value is defined as the price that would be received for an asset or the exit price that would be paid to transfer a liability in the principal or most advantageous market in an orderly transaction between market participants on the measurement date. The accounting standards establish a fair value measurement hierarchy, which requires an entity to maximize the use of observable inputs where available. This fair value measurement hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. EVC utilizes third-party pricing services to value its investments in debt obligations, as further discussed below. Valuations provided by the pricing services are subject to exception reporting that identifies securities with significant movements in valuation, as well as investments with no movements in valuation. These exceptions are reviewed by EVC on a daily basis. EVC compares the price of trades executed by EVC to the valuations provided by the third-party pricing services to identify and research significant variances. EVC periodically compares the pricing service valuations to valuations provided by a secondary independent source when available. EVC's Valuation Committee reviews the general assumptions underlying the methodologies used by the pricing services to value various asset classes at least annually. Throughout the year, members of EVC's Valuation Committee or its designees meet with pricing service providers to discuss any significant changes to the service providers' valuation methodologies or operational processes. Assets and liabilities measured and reported at fair value are classified and disclosed in one of the following categories based on the nature of the inputs that are significant to the fair value measurements in their entirety. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value measurement hierarchy. In such cases, an investment's classification within the fair value measurement hierarchy is based on the lowest level of input that is significant to the fair value measurement. Level 1 Unadjusted quoted market prices in active markets for identical assets or liabilities at the reporting date. {11}------------------------------------------------ - Level 2 Observable inputs other than Level 1 unadjusted quoted market prices, such as quoted market prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities that are not active, and inputs other than quoted prices that are observable or corroborated by observable market data. - Level 3 Unobservable inputs that are supported by little or no market activity. #### *Income taxes* The Company is included in the consolidated federal tax return and state tax returns of EVC and affiliates. Income taxes are allocated to members of the EVC group as if each were a separate taxpayer. Federal tax payments made by Eaton Vance Management, a wholly-owned subsidiary of EVC, for the Company's federal tax liability are settled through accounts payable to affiliates. The Company computes its current and deferred tax provision in a manner that is representative of how the Company would have computed its provision had it not been included in the consolidated federal tax return of EVC. Deferred income taxes reflect the expected future tax consequences of temporary differences between the carrying amounts and tax bases of the Company's assets and liabilities measured using rates expected to be in effect when such differences reverse. To the extent that deferred tax assets are considered more likely than not to be unrealizable, valuation allowances are provided. In the ordinary course of business, many transactions occur for which the ultimate tax outcome is uncertain. Accounting standards governing the accounting for uncertainty in income taxes for a tax position taken or expected to be taken in a tax return require that the tax effects of a position be recognized only if it is more likely than not to be sustained based solely on its technical merits as of the reporting date. The more-likelythan-not threshold must be met in each reporting period to support continued recognition of the benefit. The difference between the tax benefit recognized in the financial statements for a tax position and the tax benefit claimed in the income tax return is referred to as an unrecognized tax benefit. Unrecognized tax benefits, as well as the related interest and penalties, are adjusted regularly to reflect changing facts and circumstances. The Company classifies any interest or penalties incurred as a component of income tax expense. Any adjustments to deferred tax assets and liabilities attributable to changes in tax laws or rates are recorded as an expense or benefit in the period that the new legislation is enacted. ## *Revenue recognition* The Company earns revenue primarily by providing distribution and underwriter services, and/or shareholder services with respect to the Eaton Vance mutual funds and distribution services to affiliates in relation to separately managed accounts. Revenue is recognized for each distinct performance obligation identified in contracts with customers when the performance obligation has been satisfied by providing services to the customer either over time or at a point in time (which is when the customer obtains control of the service). Revenue recognized is the amount of variable or fixed consideration allocated to the satisfied performance obligation that the Company expects to be entitled to for providing such services to the customer (transaction price). Variable consideration is included in the transaction price only when it is probable that a significant reversal of such revenue will not occur or when the uncertainty associated with the variable consideration (constraint) is subsequently resolved. The majority of the fees earned by providing distribution and shareholder services represent variable consideration, as the revenue is largely dependent on either the value and composition of the associated assets under management of EVC and its affiliates, or with respect to service agreement income described further below, the amount of the Company's periodic operating {12}------------------------------------------------ revenues and expenses. The value of assets under management-fluctuates with changes in the prices of securities held. The timing of when the Company bills its customers and related payment terms vary in accordance with the agreed-upon contractual terms. Certain of the Company's customers are billed after the service is performed, which results in the recording of accounts receivable and accrued revenue. ### *Distribution and underwriter fees* The Company is entitled to receive distribution fees and underwriter commissions in exchange for distribution services provided to certain classes of shares of the Eaton Vance mutual funds. Distribution services consist of distinct sales and marketing activities that are earned upon the sale of fund shares. Distribution fees for all share classes subject to these fees are calculated as a percentage of average daily net assets, and are typically paid monthly from the assets of the fund. Underwriting commissions for all share classes subject to these fees are calculated as a percentage of the amount invested and are deducted from the amount invested by the purchasing fund shareholder. These commissions represent fixed consideration and are recognized as revenue (and related accounts receivable from sales of investment company shares) on a trade-date basis when the fund shares are sold to the shareholder. Underwriter commissions are waived or reduced on purchases of shares that exceed specified minimum amounts. # *Service agreement income* The Company is entitled to receive service agreement income in exchange for distribution services provided to Eaton Vance Management. Service agreement income is calculated and paid monthly based on the amount of the Company's operating revenues and expenses determined in accordance with U.S. GAAP. Additional disclosure regarding the service agreement with Eaton Vance Management is included in Note 10. # *Service fees* The Company is entitled to receive service fees in exchange for shareholder services provided to the Eaton Vance mutual funds. Shareholder services consist of shareholder transaction processing and/or shareholder account maintenance services provided on a daily basis. Service fees are calculated as a percentage of average daily net assets under management, are earned daily upon completion of shareholder services and are typically paid monthly from the assets of the fund. # *Principal versus agent* The Company has contractual arrangements with third parties involved in providing various services to Eaton Vance mutual funds customers, including distribution and shareholder services. Distribution expense primarily includes sales charges (front-end load commissions) paid to selling broker-dealers recorded as an expense (and related accounts payable for investment company shares sold) on a trade-date basis, the portion of the distribution fees reallowed to financial intermediaries that provide distribution services, and payments made to financial intermediaries that provide marketing support, transaction processing and/or administrative services to the Eaton Vance mutual funds and, in some cases, include some or all of our funds in preferred or specialized selling programs. Payments are typically based on fund net assets, sales, transactions processed and/or accounts attributable to that financial intermediary. Financial intermediaries also may receive payments from the Company in connection with educational or due diligence meetings that include information concerning the funds. Service fee expense includes the portion of the service fees reallowed to financial intermediaries that provide shareholder services. {13}------------------------------------------------ In instances where the Company has discretion to hire third-party service providers, the Company is generally deemed to control the services before transferring them to the fund, and accordingly presents associated revenues gross of the related third-party costs. Alternatively, where the Company does not control the service, revenue is recorded net of payments to third-party service providers. The Company controls the right to distribution and shareholder services performed by third-party financial intermediaries; therefore, distribution and underwriter fees and service fees are recorded on a gross basis. Fees paid to third parties for distribution and shareholder services are recognized as an expense when incurred and are included in distribution expense and service fee expense, respectively, in the Company's Statement of Income. # *Advertising and promotion* Discretionary advertising and promotional costs are expensed as incurred and are included in distribution expense in the Company's Statement of Income. Advertising costs incurred were not material to the Company's Financial Statements in the fiscal year ended October 31, 2020. # *Stock-based compensation* The Company accounts for stock-based compensation expense, related to equity awards granted to employees of the Company under EVC's stock-based compensation plans, at fair value. Under the fair value method, stock-based compensation expense for equity awards, which reflects the fair value of stock-based awards measured at grant date, is recognized on a straight-line basis over the relevant service period (generally three years for restricted stock units and five years for all other awards) and is adjusted each period for forfeitures as they occur. The tax effect of the difference, if any, between the cumulative compensation expense recognized for a stockbased award for financial reporting purposes and the deduction for such award for tax purposes is recognized as income tax expense (for tax deficiencies) or benefit (for excess tax benefits) in the Company's Statement of Income in the period in which the tax deduction arises (generally in the period of vesting or settlement of a stock-based award, as applicable) and are reflected as an operating activity on the Company's Statement of Cash Flows. ## *Loss contingencies* The Company continuously reviews any investor, employee or vendor complaints and pending or threatened litigation. The Company evaluates the likelihood that a loss contingency exists under the criteria of applicable accounting standards through consultation with legal counsel and records a loss contingency, inclusive of legal costs, if the contingency is probable and reasonably estimable at the date of the financial statements. There are no losses of this nature that are currently deemed probable and reasonably estimable, and, thus, none have been recorded in the accompanying Financial Statements. #### **2. New Accounting Standards Not Yet Adopted** # *Credit losses* In June 2016, the Financial Accounting Standards Board (FASB) issued new guidance for the accounting for credit losses, which changes the impairment model for most financial assets. The new guidance adds an impairment model to U.S. GAAP that is based on current expected credit losses rather than incurred losses {14}------------------------------------------------ that applies to financial assets measured at amortized cost (e.g., trade receivables). The new guidance also made limited amendments to the impairment model for available-for-sale debt securities, including but not limited to eliminating the concept of other-than-temporary impairment from that model and requiring the use of an allowance approach. The new guidance is effective for EVC, and will therefore be applied by the Company, for the fiscal year that began on November 1, 2020 and requires a modified retrospective approach to adoption. The Company does not expect the adoption of this guidance to have a material impact on its Financial Statements and related disclosures. ## *Disclosure requirements for fair value measurement* In August 2018, the FASB issued guidance that makes changes to the disclosure requirements for fair value measurements. In fiscal 2019, the Company early adopted certain portions of this guidance related to the removal of certain fair value disclosure requirements. The remaining portions of this guidance that were not early adopted will be effective for the Company's fiscal year that begins on November 1, 2020. Notably, this guidance removes the disclosure requirements for the valuation processes for Level 3 fair value measurements. This guidance also adds new disclosure requirements for the range and weighted average of significant unobservable inputs used to develop fair value measurements categorized within Level 3 of the fair value hierarchy. The Company does not expect the adoption of the remaining portions of this guidance to have a material impact on the disclosures to its Financial Statements. # **3. Investments** # *Investments held at fair value* The following is a summary of investments at October 31, 2020: | Investments held at fair value: | | |--------------------------------------|------------------| | Short-term debt securities | \$
51,601,294 | | Total investments held at fair value | \$
51,601,294 | The Company recognized gains (losses) related to investments held at fair value within interest and other revenue, on the Company's Statement of Income during the year ended October 31, 2020 as follows: | Realized losses on securities sold | \$
(101,654) | |-----------------------------------------------------|-----------------| | Unrealized losses on investments held at fair value | (629) | | Net losses on investments held at fair value | \$
(102,283) | #### *Deposits with clearing organizations* Deposits with clearing organizations of \$243,287 at October 31, 2020 includes the Company's equity investment in private non-traded common stock issued by The Depository Trust & Clearing Corporation held at cost. At October 31, 2020, there were no indicators of impairments related to this investment. {15}------------------------------------------------ # **4. Fair Value of Assets Measured at Fair Value on a Recurring Basis** The following table summarizes the financial assets measured at fair value on a recurring basis and their assigned levels within the valuation hierarchy at October 31, 2020: | | Level 1 | Level 2 | Level 3 | Total | |---------------------------------|---------------|-------------|---------|-------------------| | Financial assets: | | | | | | Cash equivalents | \$
-
\$ | 67,496,894 | \$
- | \$
67,496,894 | | Investments held at fair value: | | | | | | Short-term debt securities | - | 51,601,294 | - | 51,601,294 | | Total financial assets | \$
-
\$ | 119,098,188 | \$
- | \$
119,098,188 | A description of the valuation techniques and the inputs used in recurring fair value measurements is included immediately below. There have been no changes in the Company's valuation techniques in the current reporting period. # *Cash equivalents* Cash equivalents include positions in holdings of Treasury and government agency securities and commercial paper with remaining maturities of less than three months, as determined at purchase. Holdings of Treasury and government agency securities are valued based upon quoted market prices for similar assets in active markets, quoted prices for identical or similar assets that are not active, and inputs other than quoted prices that are observable or corroborated by observable market data. The carrying amounts of commercial paper are measured at amortized cost, which approximates fair value due to the short time between the purchase and expected maturity of these investments. Depending on the categorization of the significant inputs, these assets are generally categorized in their entirety as Level 1 or 2 within the fair value measurement hierarchy. #### *Investments held at fair value – short-term debt* Short-term debt securities consist of certificates of deposit, commercial paper and fixed income securities with remaining maturities of three months to 12 months upon purchase by the Company. Short-term debt securities held are generally valued on the basis of valuations provided by third-party pricing services, as derived from such services' pricing models. Inputs to the models may include, but are not limited to, reported trades, executable bid and ask prices, broker-dealer quotations, prices or yields of securities with similar characteristics, benchmark curves or information pertaining to the issuer, as well as industry and economic events. The pricing services may use a matrix approach, which considers information regarding securities with similar characteristics to determine the valuation for a security. These assets are generally categorized as Level 2 within the fair value measurement hierarchy. {16}------------------------------------------------ ## **5. Revenue** The following table disaggregates total revenue by source for the year ended October 31, 2020: | Service agreement income | \$
192,289,257 | |-----------------------------------------|-------------------| | Service fees | 131,737,231 | | Distribution and underwriter fees: | | | Distribution fees | 10,963,027 | | Underwriter commissions | 19,488,802 | | Total distribution and underwriter fees | 30,451,829 | | Interest and other revenue: | | | Other revenue | 44,153,846 | | Gains and other investment income, net | 809,334 | | Total interest and other revenue | 44,963,180 | | Total revenue | \$
399,441,497 | #### **6. Stock-Based Compensation Plans** Compensation expense recognized by the Company related to EVC's stock-based compensation plans for the year ended October 31, 2020 was as follows: | Omnibus Incentive Plans: | | |----------------------------------------|------------------| | Restricted shares | \$
32,000,963 | | Stock options | 1,375,806 | | Employee Stock Purchase Plans | 108,149 | | Employee Stock Purchase Incentive Plan | 344,743 | | Total stock-based compensation expense | \$
33,829,661 | The total income tax benefit recognized for stock-based compensation arrangements was \$8.4 million for the year ended October 31, 2020. #### *Omnibus Incentive Plans* The EVC 2013 Omnibus Incentive Plan, as amended and restated (2013 Plan), which is administered by the Compensation Committee of the Board of EVC, allows for awards of options to acquire shares of EVC's Non-Voting Common Stock, restricted shares of EVC's Non-Voting Common Stock (restricted stock awards) and restricted stock units. The 2013 Plan contains change in control provisions that may accelerate the vesting of awards. A total of 34.5 million shares of EVC Non-Voting Common Stock have been reserved for issuance under the 2013 Plan. Through October 31, 2020, 11.1 million shares of restricted stock and options to purchase 17.9 million shares have been issued pursuant to the 2013 Plan. # *Restricted stock units* Pursuant to the terms of the Agreement and Plan of Merger with Morgan Stanley (Merger Agreement), any stock-based awards granted by EVC subsequent to obtaining the consent of the Voting Trust to approve and adopt the Merger Agreement on October 7, 2020 through the closing date of the merger will be granted in the form of restricted stock units. Each restricted stock unit granted under the 2013 Plan represents the forfeitable right to receive one share of EVC's Non-Voting Common Stock upon vesting. Restricted stock units {17}------------------------------------------------ are accounted for as equity awards and vest over three years pursuant to a graded vesting schedule. Holders of restricted stock units have forfeitable rights to dividend equivalents equal to the dividends declared on EVC's Non-Voting Common Stock during the vesting period through the closing date of the merger. Dividend equivalents are reinvested in the form of additional restricted stock units that are credited to the corresponding restricted stock unit award when EVC pays dividends (including the special cash dividend described further below) on its Non-Voting Common Stock, and vest at the same time as the corresponding restricted stock unit award. The fair value of each restricted stock unit is indexed to the unadjusted observable closing market price of EVC's Non-Voting Common Stock. As of October 31, 2020, no restricted stock units have been awarded under the 2013 Plan. # *Subsequent event* In November 2020, EVC granted a total of 104,834 restricted stock units to Company employees under the 2013 Plan at a grant date fair value of \$60.43 per unit. The terms of the Merger Agreement with Morgan Stanley contemplate the payment of a special cash dividend of \$4.25 per share on EVC's Common Stock. EVC declared the special cash dividend on November 23, 2020 to shareholders of record on December 4, 2020. The dividend was paid on December 18, 2020. On that date, 6,820 of additional restricted stock units were credited to the corresponding restricted stock unit awards at a fair value of \$65.29 per unit. # *Restricted stock awards* Restricted stock awards of EVC Non-Voting Common Stock granted under the 2013 Plan are accounted for as equity awards and vest over five years pursuant to a graduated vesting schedule. Holders of restricted stock have forfeitable rights to dividends equal to the dividends declared on EVC's Non-Voting Common Stock during the vesting period. These dividends are not paid in cash to holders of restricted stock until the awards vest. A summary of the restricted share activity for the Company's employees for the year ended October 31, 2020 is as follows: | | | Weighted
Average
Grant Date | |----------------------------------|-----------|-----------------------------------| | (share amounts in thousands) | Shares | Fair Value | | Unvested, beginning of period(1) | 793
\$ | 41.80 | | Granted | 244 | 47.63 | | Vested | (1,026) | 43.17 | | Forfeited | (11) | 43.45 | | Unvested, end of period | -
\$ | - | *(1) Restricted shares outstanding at the beginning of the period have been adjusted to reflect employee transfers between the Company and other wholly-owned subsidiaries of EVC during the fiscal year.* Pursuant to the terms of the change in control provisions for restricted stock awards under the 2013 Plan, upon obtaining the consent of the Voting Trust to approve and adopt the Merger Agreement on October 7, 2020, the outstanding and unvested restricted stock awards held by employees were immediately vested in full. As a result, the Company recognized the remaining grant-date fair-value attributable to these awards of \$22,759,585 as compensation expense on that date. The total fair value of restricted stock vested during the year ended October 31, 2020 was \$44,275,853. {18}------------------------------------------------ #### *Subsequent event* The terms of the Merger Agreement with Morgan Stanley contemplate the payment of a special cash dividend of \$4.25 per share on EVC's Common Stock. EVC declared the special cash dividend on November 23, 2020 to shareholders of record on December 4, 2020. The dividend was paid on December 18, 2020. In addition to receiving the special dividend payment on shares of EVC's Common Stock held on the record date, current and former employees also received a cash payment equivalent to the special dividend amount on restricted shares that were sold to the Company upon vesting of their restricted stock awards to meet payroll tax withholding obligations. Payments in lieu of the special dividend on restricted shares sold to meet payroll tax withholding obligations totaling \$1,084,511 will be recorded as compensation expense in fiscal 2021. # *Stock options* Options to purchase EVC Non-Voting Common Stock granted under the 2013 Plan and predecessor plans are accounted for as equity awards. Stock options expire ten years from the date of grant and vest over five years pursuant to a graduated vesting schedule and may not be granted with an exercise price that is less than the fair market value of the stock as of the close of business on the date of grant. The fair value of each stock option award is estimated on the date of grant using the Black-Scholes option valuation model. The Black-Scholes option valuation model incorporates assumptions as to dividend yield, expected volatility, an appropriate risk-free interest rate and the expected life of the option. Many of these assumptions require management's judgment. The dividend yield assumption represents EVC's expected dividend yield based on its historical dividend payouts and the stock price at the date of grant. EVC's expected volatility assumption is based upon the historical price fluctuations of EVC's Non-Voting Common Stock. EVC uses historical data to estimate the expected life of options granted. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve at the time of grant. The weighted-average fair value per share of stock options granted during the year ended October 31, 2020 using the Black-Scholes option valuation model was as follows: | Weighted-average grant date fair value of options granted | \$7.48 | |-----------------------------------------------------------|--------------| | Assumptions: | | | Dividend yield | 3.1% to 3.3% | | Volatility | 23% | | Risk-free interest rate | 1.5% to 1.6% | | Expected life of options | 7.2 years | {19}------------------------------------------------ A summary of stock option activity for the Company's employees for the year ended October 31, 2020 is as follows: | | | Weighted
Average | Weighted
Average
Remaining
Contractual
Term | Aggregate
Intrinsic | |--------------------------------------------------|--------|---------------------|---------------------------------------------------------|------------------------| | (share and intrinsic value figures in thousands) | Shares | Exercise Price | (in years) | Value | | Options outstanding, beginning of period(1) | 1,321 | \$
36.94 | | | | Granted | 184 | 46.74 | | | | Exercised | (286) | 33.05 | | | | Forfeited/expired | (2) | 30.71 | | | | Options outstanding, end of period | 1,217 | \$
39.35 | 5.6 | \$
24,881 | | Options exercisable, end of period | 623 | \$
36.01 | 3.9 | \$
14,804 | | Vested or expected to vest at October 31, 2020 | 1,217 | \$
39.35 | 5.6 | \$
24,881 | *(1) Options outstanding at the beginning of the period have been adjusted to reflect employee transfers between the Company and other wholly-owned subsidiaries of EVC during the fiscal year.* Options exercised represent newly issued shares of EVC Non-Voting Common Stock. The total intrinsic value of options exercised during the year ended October 31, 2020 was \$6,049,517. The total fair value of options that vested during the year ended October 31, 2020 was \$1,765,172. As of October 31, 2020, there was \$2,673,115 of compensation cost related to unvested stock options granted under the 2013 Plan and predecessor plans not yet recognized. That cost is expected to be recognized over a weighted-average period of 2.4 years. Pursuant to the terms of the Merger Agreement with Morgan Stanley, upon the completion of the proposed acquisition of EVC by Morgan Stanley, each then outstanding and unexercised stock option, whether vested or unvested, will be deemed to have been vested in full, and cancelled and converted into the right to receive a cash payment at closing. ### *Subsequent event* The terms of the Merger Agreement with Morgan Stanley contemplate the payment of an amount of cash equivalent to the special cash dividend noted above to each holder of an outstanding and unexercised stock option as of the record date of December 4, 2020. The payment was calculated as the product of \$4.25 times the number of shares of EVC's Non-Voting Common Stock underlying any unexercised option awards on the record date. Payments to current and former employees in lieu of the special divided on outstanding stock options that are unvested will be recorded as compensation expense totaling \$1,950,389 in fiscal 2021. #### *Employee Stock Purchase Plans* The EVC 2013 Employee Stock Purchase Plan (Qualified ESPP) and the EVC 2013 Nonqualified Employee Stock Purchase Plan (Nonqualified ESPP) (together, Employee Stock Purchase Plans), which are administered by the Compensation Committee of the Board of EVC, permit eligible employees of the Company to direct up to a maximum of \$12,500 per six-month offering period toward the purchase of EVC Non-Voting Common Stock at the lower of 90 percent of the market price of EVC's Non-Voting Common Stock at the beginning or at the end of each offering period. The Qualified ESPP qualifies under Section 423 of the U.S. Internal Revenue Code of {20}------------------------------------------------ 1986, as amended. A total of 0.5 million and 0.1 million shares of EVC's Non-Voting Common Stock have been reserved for issuance under the Qualified ESPP and Nonqualified ESPP, respectively. Through October 31, 2020, 0.6 million shares have been issued pursuant to the Employee Stock Purchase Plans. # *Subsequent event* Pursuant to the terms of the Merger Agreement with Morgan Stanley, the six-month offering period that concluded in November 2020 will be the final offering period of the Employee Stock Purchase Plans. # *Employee Stock Purchase Incentive Plan* The EVC 2013 Incentive Compensation Nonqualified Employee Stock Purchase Plan (Employee Stock Purchase Incentive Plan), which is administered by the Compensation Committee of the Board, permits employees to direct up to half of their incentive bonuses and commissions toward the purchase of the Company's Non-Voting Common Stock at the lower of 90 percent of the market price of the Non-Voting Common Stock at the beginning or at the end of each quarterly offering period. A total of 0.9 million shares of the Company's Non-Voting Common Stock have been reserved for issuance under the Employee Stock Purchase Incentive Plan. Through October 31, 2020, 0.8 million shares have been issued pursuant to the Employee Stock Purchase Incentive Plan. # *Subsequent event* Pursuant to the terms of the Merger Agreement with Morgan Stanley, the quarterly offering period that concluded in November 2020 will be the final offering period of the Employee Stock Purchase Incentive Plan. # **7. Employee Benefit Plans** # *Profit Sharing and Savings Plan* EVC has a Profit Sharing and Savings Plan for the benefit of substantially all employees, including employees of the Company. The Profit Sharing and Savings Plan is a defined contribution profit sharing plan with a 401(k) deferral component. All full-time employees who have met certain age and length of service requirements are eligible to participate in the plan. The plan allows participating employees to make elective deferrals of compensation up to the plan's annual limits. EVC then matches each participant's contribution on a dollar-fordollar basis to a maximum of \$2,000 per annum. In addition, EVC may, at its discretion, contribute up to 15 percent of eligible employee compensation to the plan, to a maximum of \$42,000 per employee for the year ended October 31, 2020. The Company's expense under the plan was \$4,996,376 for the year ended October 31, 2020. {21}------------------------------------------------ #### **8. Income Taxes** The following table reconciles the U.S. statutory federal income tax rate to the Company's effective tax rate for the year ended October 31, 2020: | Statutory U.S. federal income tax rate | 21.0 % | | |-------------------------------------------------------------|--------|--| | State income tax, net of federal income tax benefits | 8.0 | | | Non-deductible meals and entertainment expense | 2.8 | | | Non-deductible executive compensation | 9.4 | | | Stock-based compensation | (2.4) | | | Net excess tax benefits from stock-based compensation plans | (9.8) | | | Other items | (0.3) | | | Effective income tax rate | 28.7 % | | Deferred income taxes reflect the expected future tax consequences of temporary differences between the carrying amounts and tax basis of the Company's assets and liabilities. The significant components of deferred income taxes at October 31, 2020 were as follows: | Deferred tax assets: | | |-------------------------------------------------------|-----------------| | Compensation and benefit expense | \$
3,323,795 | | Stock-based compensation | 1,322,995 | | Federal benefit of unrecognized state tax benefits | 1,425 | | Other | 10,315 | | Total deferred tax asset | 4,658,530 | | Deferred tax liabilities: | | | Differences between book and tax bases of investments | (62,704) | | Total deferred tax liability | (62,704) | | Net deferred tax asset | \$
4,595,826 | Current unrecognized tax benefits of \$6,000, excluding interest and penalties, are presented as a component of taxes payable. Accrued interest and penalties, which are included as a component of taxes payable, totaled \$1,385 at October 31, 2020. The total amount of unrecognized tax benefits as of October 31, 2020, that, if recognized, would impact the effective tax rate, is \$6,000. The Company is generally no longer subject to income tax examinations by federal, state or local tax authorities for fiscal years prior to fiscal 2017. #### **9. Commitments and Contingencies** In the normal course of business, the Company enters into agreements that include indemnities in favor of third parties, such as engagement letters with advisors and consultants, information technology agreements, distribution agreements and service agreements. Certain agreements do not contain any limits on the Company's liability and, therefore, it is not possible to estimate the Company's potential liability under these indemnities. In certain cases, the Company has recourse against third parties with respect to these indemnities. {22}------------------------------------------------ The Company is subject to various legal proceedings. In the opinion of management, after discussions with legal counsel, the ultimate resolution of these matters will not have a material effect on the financial condition, results of operations or cash flows of the Company. EVC could be subject to litigation related to any failure to complete the merger or related to any legal proceeding commenced against EVC or Morgan Stanley to perform their respective obligations under the Merger Agreement. If the merger is not completed, these risks may materialize and may adversely affect EVC's businesses, financial condition, financial results, ratings, stock prices and/or bond prices. # *Payments to Holders of Stock Options upon Completion of the Merger* Pursuant to the terms of the Merger Agreement with Morgan Stanley, upon the completion of the proposed acquisition of EVC by Morgan Stanley, each then outstanding and unexercised EVC stock option, whether vested or unvested, will be deemed to have been vested in full and cancelled and converted into the right to receive a cash payment. The amount of the cash payment will be equal to the excess of the per share cash consideration payable by Morgan Stanley to acquire EVC's Non-Voting Common Stock as of the closing date over the stock option exercise price (in-the-money amount of the option), plus, for holders of options who continue to provide services to the Company upon completion of the proposed acquisition, the amount by which, if any, the Black-Scholes option value of the option as calculated in the manner prescribed in the Merger Agreement exceeds the in-the-money amount of the option. Holders of vested stock options may continue to exercise their options prior to the closing date. EVC's obligation to make the aforementioned cash payments to holders of outstanding options is contingent on the close of the transaction. Although the amount of these cash payments may be significant, an estimate of such payments cannot be made since the payment amounts are dependent on both the number of options outstanding at the closing date and various market-based variables that cannot be measured until the closing date, including the price of Morgan Stanley Common Stock. ## **10. Related Party Transactions** #### *Eaton Vance Management* The Company has an agreement with Eaton Vance Management, a wholly owned subsidiary of EVC, whereby the Company has agreed to sell its right to receive revenue under distribution arrangements with certain Eaton Vance mutual funds in exchange for Eaton Vance Management's agreement to assume the costs incurred by the Company in connection with the distribution of these funds. The revenues earned by Eaton Vance Management and the costs incurred by Eaton Vance Management under this agreement do not have any impact on the Company's Financial Statements. For the year ended October 31, 2020, the amounts recognized by Eaton Vance Management under this agreement were as follows: | Revenue earned by Eaton Vance Management:
Distribution fees received from investment companies | \$
46,608,060 | |---------------------------------------------------------------------------------------------------|------------------| | Costs incurred by Eaton Vance Management: | | | Amortization of deferred sales commissions | \$
24,985,702 | | Deferred sales commissions | \$
60,655,313 | In addition, the Company has a service agreement with Eaton Vance Management whereby Eaton Vance Management compensates the Company for distributing shares of investment companies for which Eaton Vance Management, or one of its wholly owned subsidiaries, Boston Management and Research or Calvert Research and Management, is the investment adviser. For its services, the Company is compensated in an {23}------------------------------------------------ amount equal to 102 percent of all of the Company's operating expenses, less 100 percent of the Company's operating revenue on a monthly basis. Operating revenue and operating expenses are determined in accordance with U.S. GAAP. For the year ended October 31, 2020, the Company earned \$192,289,257 under this agreement, which is recorded as service agreement income in the accompanying Statement of Income. The Company also has an agreement with Eaton Vance Management whereby certain compensation, employee benefits, information technology, professional services, facilities and other miscellaneous expenses are paid by Eaton Vance Management and allocated to the Company. The Company was allocated \$13,324,637 of such costs for the year ended October 31, 2020 recorded within compensation and related costs and other expenses in the accompanying Statement of Income. The Company had a net receivable due from Eaton Vance Management of \$10,948,718 as of October 31, 2020, which is included in accounts receivable from affiliates on the accompanying Statement of Financial Condition. The Company has a net receivable from EVC of \$12,709,168 at October 31, 2020, primarily due to the sale of restricted stock shares to meet payroll tax withholding obligations on behalf of employees in connection with the accelerated vesting of restricted stock awards pursuant to the terms of the Merger Agreement. Eaton Vance Management also pays federal and state income taxes on the Company's behalf (see Note 1). # *Other Subsidiaries of EVC* The Company has agreements with Atlanta Capital Management Company, LLC, a majority-owned subsidiary and Parametric Portfolio Associates LLC, a wholly-owned subsidiary, each a subsidiary of Eaton Vance Acquisitions, whereby the Company provides certain distribution services to, and obtains reimbursement from, these entities for actual or approximate costs. The Company earned \$44,153,846 under these agreements, which is recorded as interest and other revenue in the accompanying Statement of Income. These transactions resulted in a net receivable from affiliates of \$4,366,511 at October 31, 2020. In the ordinary course of business, the Company has transactions with other subsidiaries of EVC. These transactions resulted in a net receivable from affiliates of \$9,305 at October 31, 2020. # *Sponsored funds* Certain subsidiaries of EVC are investment advisers to, and have administrative agreements with, the Eaton Vance mutual funds for which certain employees of those entities are officers and/or directors. Substantially all of the services to these funds for which the Company or its affiliates earns a fee, including management fees (for investment advisory and administrative services), distribution fees and service fees, are provided under contracts that set forth the services to be provided and the fees to be charged. These contracts are subject to annual review and approval by each of the funds' boards of directors or trustees. Revenue for the services provided or related to these sponsored funds for the year ended October 31, 2020 totaled \$162,189,059. Included in distribution fees, service fees and other receivables and accounts receivables from sales of investment company shares at October 31, 2020 are receivables due from sponsored funds of \$16,988,845 and \$128,208, respectively. #### **11. Regulatory Requirements** The Company is subject to the U.S. Securities and Exchange Commission (SEC) Uniform Net Capital Rule (Rule 15c3-1), which requires the maintenance of minimum net capital. For purposes of this rule, the Company had {24}------------------------------------------------ net capital of \$147,933,422 at October 31, 2020, which exceeded its minimum net capital requirement of \$3,745,159. The Company's ratio of aggregate indebtedness to net capital at October 31, 2020 was 0.38-to-1. # **12. Capital Contributions and Distributions** The Company received incremental capital of \$762,000,000 from EVC in March 2020 and April 2020 as a precautionary response to significant market disruptions that have taken place during the COVID-19 global pandemic to ensure that the Company had ample excess liquidity to perform its principal underwriter function. In certain scenarios as the principal underwriter to the Eaton Vance mutual funds, the Company uses cash on hand to settle shareholder redemptions while awaiting payment by the mutual funds. Management believed it was prudent to ensure the Company had excess liquidity to perform its principal underwriter function under those scenarios and therefore initiated preventative measures to add incremental capital to the Company. The Company did not use any of this excess liquidity to perform its principal underwriter function and a majority of the capital was withdrawn by EVC during the months of April 2020 and June 2020. Total capital distributed back to EVC from the Company amounted to \$725,000,000. #### *Subsequent event* In December 2020, the Company distributed an additional \$70,000,000 back to EVC for general corporate purposes. The capital distribution will not impair the Company's ability to meet its current or anticipated net capital requirements. # **13. Exemption from Rule 15c3-3** The Company does not carry customer accounts or otherwise hold customer funds. The firm is exempt from the provisions of Rule 15c3-3 under the Securities Exchange Act of 1934 as the firm's activities are limited to those set forth in the conditions for exemption appearing in paragraph (k)(2)(i) of Rule 15c3-3 and otherwise limits its business activities to (1) effecting securities transactions via subscriptions on a subscription way basis where the funds are payable to the issuer or its agent and not to the Company, and (2) participating in distributions of securities. # **14. Major Sources of Revenue** The Company derives its revenue primarily from distribution and underwriting fees and service fees earned pursuant to underwriting and distribution agreements with the Eaton Vance mutual funds. There were no portfolios or related funds that provided over 10 percent of total revenue of the Company for the year ended October 31, 2020. ## **15. Subsequent Events** The Company evaluated subsequent events and transactions occurring after October 31, 2020. The Company is not aware of any subsequent events that would require recognition or disclosure in the Financial Statements other than what was already identified within the footnotes. \*\*\*\*\* {25}------------------------------------------------ # **Computation of Net Capital Pursuant to Rule 15c3-1 As of October 31, 2020** | Capital - stockholder's equity | \$
186,932,927 | |-------------------------------------------------------|-------------------| | Deductions: | | | Non-allowable assets: | | | Deposits with clearing organizations | 243,287 | | Accounts receivable from affiliates | 28,033,702 | | Distribution fees, service fees and other receivables | 3,464,170 | | Prepaid expenses and other assets | 2,517,799 | | Deferred tax assets | 4,658,530 | | Total deductions | 38,917,488 | | | | | Net capital before haircut on securities | 148,015,439 | | Haircuts on securities | 82,017 | | | | | Net capital | \$
147,933,422 | | | | | Aggregate indebtedness: | | | Total liabilities | \$
56,177,380 | | Total aggregate indebtedness | \$
56,177,380 | | | | | Minimum net capital requirement of broker or dealer | | | (6-2/3% of aggregate indebtedness) | \$
3,745,159 | | | | | Excess net capital | \$
144,188,263 | | | | | Ratio of aggregate indebtedness to net capital | 0.38 | | | | Note: No material differences exist between the above net capital computation and the Company's unaudited Form X-17A-5 Part IIA filed on November 23, 2020. {26}------------------------------------------------ # **Computation for Determination of Reserve Requirements for Brokers and Dealers Pursuant to Rule 15c3-3 Under the Securities Exchange Act of 1934 As of October 31, 2020** The Company does not carry customer accounts or otherwise hold customer funds. The firm is exempt from the provisions of Rule 15c3-3 under the Securities Exchange Act of 1934 as the firm's activities are limited to those set forth in the conditions for exemption appearing in paragraph (k)(2)(i) of Rule 15c3-3 and otherwise limits its business activities to (1) effecting securities transactions via subscriptions on a subscription way basis where the funds are payable to the issuer or its agent and not to the Company, and (2) participating in distributions of securities. {27}------------------------------------------------ # **Information Relating to the Possession or Control Requirements Under Rule 15c3-3 Under the Securities Exchange Act of 1934 As of October 31, 2020** The Company does not carry customer accounts or otherwise hold customer funds. The firm is exempt from the provisions of Rule 15c3-3 under the Securities Exchange Act of 1934 as the firm's activities are limited to those set forth in the conditions for exemption appearing in paragraph (k)(2)(i) of Rule 15c3-3 and otherwise limits its business activities to (1) effecting securities transactions via subscriptions on a subscription way basis where the funds are payable to the issuer or its agent and not to the Company, and (2) participating in distributions of securities. {28}------------------------------------------------ {29}------------------------------------------------ **Deloitte & Touche LLP** 200 Berkeley Street Boston, MA 20116 USA Tel:+1 617 437 2000 www.deloitte.com # **REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM** To the stockholder and the Board of Directors of Eaton Vance Distributors, Inc. We have reviewed management's statements, included in the accompanying Exemption Report, in which (1) Eaton Vance Distributors, Inc. (the "Company") identified the following provisions of 17 C.F.R. § 240.15c3Ͳ3(k) under which the Company claimed an exemption from 17 C.F.R. § 240.15c3Ͳ3: paragraph (k)(2)(i) (the "exemption provisions") and (2) the Company stated that the Company met the identified exemption provisions throughout the most recent fiscal year ended October 31, 2020 without exception. The Company's management is responsible for compliance with the exemption provisions and its statements. We have also reviewed management's statements, included in the accompanying Exemption Report, in which the Company stated that it is also filing the Exemption Report because the Company's other business activities met the requirements specified inFootnote 74 of the SEC Release No. 34Ͳ70073 adopting amendments to 17 C.F.R. § 240.17aͲ5 ("Footnote 74") throughout the most recent fiscal year ended October 31, 2020, except as described in its Exemption Report. The Company's management is responsible for compliance with the provisions of Footnote 74 and its statements. Our review was conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States) and, accordingly, included inquiries and other required procedures to obtain evidence about the Company's compliance with the exemption provisions and management's other statements within the Exemption Report. A review is substantially less in scope than an examination, the objective of which is the expression of an opinion on management's statements. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to management's statements referred to above for them to be fairly stated, in all material respects, based on the provisions set forth in paragraph (k)(2)(i) of Rule 15c3Ͳ3 under the Securities Exchange Act of 1934 and Footnote 74. December 22, 2020 Source: SEC EDGAR via Adviser Search (https://search.stillhousedata.com). Agents: see https://search.stillhousedata.com/llms.txt.