Operator: Greetings, and welcome to the Eaton Vance Second Quarter Fiscal Year 2013 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. As a reminder, this conference is being recorded.
It is now my pleasure to introduce your host, Mr. Dan Cataldo, Treasurer for Eaton Vance Corp. Thank you sir. You may begin.
Daniel C. Cataldo - Treasurer: Thanks. Welcome to our 2013 fiscal second quarter earnings call and webcast. Here this morning are Tom Faust, Chairman and CEO of Eaton Vance; and Laurie Hylton, our CFO. We will first comment on the quarter and then we will take your questions.
The full earnings release and charts we will refer to during the call are available on our website, eatonvance.com 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 business, including but not limited to those discussed in our SEC filings. These filings including our 2012 Annual Report and Form 10-K are available on our website or on request at no charge.
I'll now turn it over to, Tom.
Thomas E. Faust, Jr. - Chairman, CEO, and President: Good morning. I'm happy to report that the strong business trends we saw in the first fiscal quarter continued throughout the second quarter and in fact still continues today. We generated $6.6 billion of net inflows in the three months ended April 30, which equates to an 11% organic growth rate.
When combined with the $5.4 billion of net inflows in the first quarter, we've seen $12 billion in net inflows for the first half of our fiscal year and annualized internal growth rate of 12%.
While the net inflows in the first fiscal quarter (indiscernible) significant part by our lower fee implementation services businesses, this quarter's organic growth was driven by strong flows into higher fee floating rate income and alternative mandates.
We finished the quarter with $260.3 billion in managed assets up 5% from the beginning of the quarter and up 32% from a year ago. Excluding the $34.8 billion in managed assets acquired in the December 2012 acquisition of the Clifton Group, our assets under management have grown 14% over the past year.
As a reminder we did not include in our reported flow in AUM numbers the directly managed assets of our 49% owned affiliate Hexavest, Inc. Since our Hexavest transaction closed last August their managed assets have grown from $11 billion to $15.3 billion for the first six months of the fiscal year Hexavest has raised net flows of $1.5 billion.
For our second fiscal quarter, we are reporting adjusted earnings per diluted share of $0.52 up $0.07 or 16% from the year ago quarter and up $0.02 or 4% from last quarter. Laurie and Dan will discuss the financials in more detail after I conclude my comments.
With $24.7 billion in gross inflows, this was by wide margin our best quarter ever from a sales perspective. As many of you are aware, we've seen extraordinary demand of late for our floating rate income strategies, which were our single bestselling category in the quarter. The $6.1 billion of floating-rate gross inflows in the second quarter were up 87% from the preceding quarter and 267% from the year ago quarter. However, floating-rate income was not our only area of sales strength. The $2.8 billion of sales and other inflows into alternative strategies were up 53% from the prior quarter and up 147% from last year's second quarter.
Within our alternative lineup, we saw strong growth in global macro and currency strategies, and also our commodity funds there and nearly $300 million in sales in the quarter. The highlight of our fixed income business in the quarter was the successful offering of Eaton Vance Municipal Income Term Trust, a $205 million closed-end fund IPO that priced at the end of March. Upon the issuance of the fund's overallotment option and taking into account anticipated leverage, the fund should reach about $350 million in managed assets.
Equity inflows in the quarter were up 17% from the first quarter and were led by Parametric's systematic emerging market strategies, Atlanta Capital SMID-Cap and Parametric managed options. Eaton Vance Large-Cap Value also remained one of our bestselling equity strategies.
Our implementation services business saw both record gross inflows and overall net outflows in the second quarter. The net outflows from implementation services were concentrated in Clifton's overlay service, which enables clients, particularly large institutional investors, to efficiently add and subtract market exposures using futures contracts and related instruments. It is important to understand that the net outflows from overlay we saw in the quarter reflect rebalancing rather than loss of client assets.
In the second quarter, Clifton as a whole increased the total number of its client relationships from 189 to 196, a gain of 4%. Clifton continues to perform ahead of business plan in terms of both revenue and operating income. From a net flows perspective, our floating rate income and alternatives categories led the way in the second quarter. Especially worth highlighting is the $4.9 billion of net inflows into floating-rate mandates which accounted for 74% of our consolidated net inflows in the quarter.
Feeding on demand for income strategies with limited exposure to interest rate risk, the bank loan asset category has seen significant buyer interest across both retail and institutional markets. Few players are better positioned to meet that demand than Eaton Vance. We've been a leader in managing bank loan portfolios since 1989 and offer a broad array of bank loan related strategies. In the alternative category, net flows are spread across global macro asset return, currency and commodity mandates. The rising star within this group is our Diversified Currency Income Fund which is grown to just over $750 million today from just $90 million at the beginning of the fiscal year.
This fund is managed by our global income team which is increasingly being recognized in the market place as a leader in managing non-dollar asset return income and currency strategies. Among equities, net flow leaders in the second quarter were Parametric Emerging Markets, Parametric Managed Options and Atlanta Capital SMID-Cap. Net outflows from Eaton Vance management Large-Cap Value franchise were $590 million down from $770 million in the first quarter and $2.7 billion in the fourth quarter of last year. This franchise has $13.7 billion in total managed assets at April 30, 2013. After outperforming peer funds in 2012, performance of this conservatively managed strategy has (indiscernible) group averages in this year's sharp equity rally.
Despite strong stock market performance, retail investors continue to be serious about investing in U.S. equities as evidenced by the industry flows data reported by the Investment Company Institute. Going back to the beginning of our fiscal year at the beginning of November, the ICI reports that total equity fund flows have been a positive $21 billion. Over that period domestic equity funds were a net outflows to the tune of $29 billion, while world equity funds have had seen net inflows of $50 billion. This trend of investors favoring non-U.S. equities plays to our strength in managing global and international equities.
We're well-established as a leader in emerging market equities with over $18 billion in Parametric's systematic alpha and emerging market strategy. In global equities Hexavest is well-respected among institutional investors and the newly launched EV Hexavest Global Equity Fund is off to a strong start.
Parametric's rules based International Equity Fund, which uses a similar approach to their emerging market strategy, just had its three-year anniversary. Since inception, this fund has performed quite well versus its benchmark in the Morningstar and Lipper category averages. Investors who are familiar with the Parametric approach and who have experienced success on the emerging market strategy could offer significant cross-sell opportunity.
Another fund to keep an eye on is the Eaton Vance Richard Bernstein Equity Strategy Fund, a $360 million go anywhere global equity fund with a strong track record dating from the fund's inception in October 2010. As that fund hit the three-year anniversary this fall, it could gain traction quickly.
Portfolio manager Richard Bernstein is widely respected across the brokerage community for his investment acumen and advisors could be poised to jump into the fund as his top reputation is validated by a three year track record of live results.
Also in equities it's worth commenting that interest in tax efficient strategies is starting to build as markets work their way higher and tax paying investors in the U.S. adjust to the reality of significantly higher investment tax rates.
Although retail investors may be slower to react we are seeing signs that family office and high net-worth investors are starting to redirect allocations towards a more tax efficient equity strategies.
Pretty much our tax managed core equity saw over $400 million of net inflows in the second quarter. Looking ahead it's hard to know what investor trends we'll see in the second half of our fiscal year, we are optimistic that we are well positioned for a variety of outcomes. Our institutional pipeline is strong with pending awards in floating rate income, Global Macro, Parametric Emerging Markets. Hexavest Global Equity, and implementation services. We were informed the last week that we have won a multi-million dollar fixed income separate account mandate to be managed by Kathleen Gaffney. We expect to be in the market in June with a floating rate income closed-end fund.
All told we are encouraged by our new business prospects and look forward to reporting continued progress over the balance of 2013.
Finally I want to comment on our exchange traded mandate bond initiative. As many of you are aware at the end of March we filed an application with the U.S. Securities and Exchange Commission seeking exemptive relief for a new type of actively managed funds that combines features of ETF and mutual funds.
For over a decade sponsors of actively managed funds have been search for a way to provide the cost and tax efficiencies and shareholder protections of the ETF structure to investors in actively managed fund while preserving the confidentiality of fund portfolio trading information. Although regulatory approval and market acceptance certainly cannot be assured, we believe our ETMF may very well provide a solution the market has been looking for. As a reminder, ETMFs are based on patented intellectual property we acquired in 2010. Our commercialization strategy is the launch of family of Eaton Vance sponsored EMTF that mirror many of our most successful mutual funds and offer the enabling technology for license by other fund families to allow them to offer replicating ETMF versions of their most successful mutual funds.
As we await SEC action on our Exemptive Application, we continue to work with our business partners at NASDAQ and BNY Mellon to prepare for implementation. Over the coming weeks, you can expect us to become more active reaching out the potential licensees. Although it's a long road and there's much work to be done, I continue to view ETMFs as having the potential to transform the delivery of active fund strategies in the U.S. If that happens, the financial implications for Eaton Vance will be profound.
That concludes my comments. I'd now like to turn the call over to Laurie.
Laurie G. Hylton - CFO: Thank you, Tom, and good morning. Tom mentioned we're reporting adjusted earnings for diluted share of $0.53 for the second quarter, compared to $0.50 in the first quarter fiscal 2013 and $0.45 in the second quarter of last year. Adjusted earnings differ from GAAP earnings and that we back out closed-end fund structuring fees, the impact of special dividends and changes in the estimated redemption value of non-controlling interest in our affiliate that are redeemable other than fair value.
As you've seen in Attachment 2 to our press release, these adjustments totaled $0.02 in the second quarter fiscal 2013, $0.12 last quarter and $0.01 in the second quarter fiscal 2012. Ending assets increased by $12.5 billion or 5% from the end of last quarter to $260.3 billion on April 30, reflecting net inflows of $6.6 billion and market appreciation of $5.9 billion in the quarter.
Average assets under management increased by $37.3 billion or 17% reflecting three full months of Clifton Group ownership in the second quarter compared to only one full month in the first. The Clifton acquisition, as we anticipated and reported on during the first quarter call, reduced our average effective fee rates in the second quarter. Our overall effective fee rate decreased to 52 basis points in the second quarter from 59 basis points in the first quarter. And our effective investment advisory and administrative fee rate decreased to 44 basis points in the second quarter from 49 basis points in the first.
Sequential fee rate comparisons were also adversely affected by the fact that they were three fewer days in the second quarter compared to the first. We feel this drag on both revenue and effective fee rate in the second every year as more than half our invested advisory and administrative fee revenue and all of our distribution and service fee revenue was calculated on the basis of the number of calendar days in the month per quarter.
Looking forward, we see our effective investment advisory and administrative fee rate settling in somewhere around 45 basis points for the remainder of the fiscal year. We anticipated that our effective advisory and administrative fee rate for equity strategies will settle in at approximately 65 basis points, fixed income is approximately 45 basis points, floating rate income is at approximately 55 basis points, alternative somewhere between 60 and 62 basis points and our newly defined implementation services is around 11 basis points.
As we noted on last quarter's call, these effective advisory and administrative fee rate by investment mandate can certainly change over time and maybe impacted on a quarterly basis as performance fees and changes in product mix within these defined investment mandate. There were no material performance fees recognized in second quarter.
We continue to see the primary driver of our overall effective fee rate as the mix of asset by distribution channel and mandate type. In the second quarter, net inflows were primarily through the retail channel and were concentrated in floating-rate and alternative mandate. If that trend continues into the third quarter, our overall effective advisory and administrative fee rate may trend up slightly as a result, reflecting the higher than average effective fee rate associated with these parts of our business.
Shifting from revenue to expense, operating expenses increased 3% sequentially, largely reflecting increases in compensation, fund, and distribution expenses associated with the increases in average assets under management and strong gross inflows. Approximately, $3.4 million of the overall increase in operating expenses can be directly attributed to the initial public offering of the new closed-end fund Eaton Vance Municipal Income Trust in the second quarter.
Compensation expense is up 1% sequentially, primarily reflecting increases in sales-based incentives, which impact our overall margin; and operating income-based incentives, which for the most part do not. So as long-term sales and other inflows, much of which drive sales-based incentives, rose 27% in second quarter compared to the first, reflecting strong retail sales as well as the closed-end fund initial public offering. As we've discussed in previous quarters, strong sales have an adverse effect on operating margin in the near-term, but we view this as a quality problem that we hope will continue. Pre-bonus adjusted operating income, which drives our operating income-based bonuses, was up 6% sequentially on a 4% increase in revenue, reflecting strong cost control in a period of solid growth.
Distribution expense is up 4% sequentially, primarily reflecting $2.7 million of closed-end fund structuring fees associated with the closed-end funds initial public offering in the second quarter, offset by modest decreases in promotion and certain third-party intermediary distribution expenses. Quarterly service fee expense increased 3% sequentially, consistent with the increase in average assets under management subject to those fees. Amortization of deferred sales commissions was essentially flat in the second quarter compared to the first. Service fees and amortization expense should continue falling as a percent of revenue, reflecting the trends in our business growth away from fund share classes to which these expenses apply.
Quarterly fund expenses increased 9% sequentially, primarily reflecting increases in sub-advisory fees and other non-advisory expenses borne by the company on certain institutional co-mingled funds for which we are paid an all-in management fee.
Fund expenses in the second quarter also included $287,000 of costs associated with the launch of the closed end fund. Other expenses were up 5% sequentially, primarily reflecting increases in information technology consulting and licensing costs associated with IT projects underway in the second quarter.
Our operating margin was 33% in the second quarter up from the 32% reported in both the first quarter fiscal 2013 and the second quarter fiscal 2012.
We're pleased to report higher margins in quarter in which revenue was hurt by the usual second quarter date count phenomenon and the expenses were elevated by the strong sales results and closed-end fund offering expenses.
Based on preliminary forecasting we currently anticipate that margins will continue in a similar veins through the remainder of fiscal 2013.
Equity net income of affiliates increased $3.4 million in the second quarter from $3.2 million in the first quarter fiscal 2013. Primarily reflecting an increase in the company's proportionate net interest in the earnings and deposit funds accounted for under the equity method. Equity and net income of affiliates in the second quarter included a $2.1 million contribution from Hexavest which represents our 49% share of Hexavest earnings compared to over $2 million contribution last quarter.
Hexavest contribution is reported net of tax and the amortization intangibles. Non-operating income for the second quarter reflects net investment gains and other investment income of $5 million compared to $5.2 million in the first quarter of fiscal 2013.
As seen in attachment 3 to our press release, $3 million and $1.1 million of net investment income was allocated from non-controlling interest holders in our consolidated funds in the second quarter and first quarter respectively.
Non-operating income also includes income associated with the Company's consolidated CLO entity, the majority of which is attributed to other beneficial interest holders in the structure. In the third-party beneficial interests, the consolidated CLO entity contributed approximately $1.4 million to earnings in the second quarter fiscal 2013, which compares to $900,000 earnings contribution in the first quarter of fiscal 2013. The residual contribution to earnings can be calculated by subtracting the non-controlling interest attributed to other CLO beneficial interest holders provided in Attachment 3 from the total non-operating income contribution during the period.
As seen in the Attachment 3 to our press release, the non-controlling interest value adjustment in the second quarter fiscal 2013 related primarily to an increase in the estimated redemption value of the non-controlling interest in Parametric Risk Advisors. The first quarter adjustment related primarily to a similar adjustment for Parametric Portfolio Associates.
As we noted on our previous call, in December we repurchased the remaining non-controlling interest in PPA that were redeemable at other than fair value. As a result, there will be no future first quarter non-controlling interest value adjustments associated with PPA. We will adjust the estimated redemption of the remaining non-controlling interest in Atlantic Capital if necessary, in our fourth fiscal quarter.
Our effective tax rate was 36.1% in the second quarter fiscal 2013, down from the 37.9% reported in the first quarter. Excluding the effect of the consolidated CLO entity earnings and losses, which are substantially allocated to other beneficial interest holders and therefore not subject to tax and the calculation of our provision, our effective tax rate for the second and first quarters of fiscal 2013 was 36.1% and 36.6% respectively. We currently anticipate that our effective tax rate adjusted for CLO earnings and losses will be between 36.5% and 37% for the remainder of fiscal 2013.
At this point, I'd like to turn the call over Dan to provide some commentary on our balance sheet and liquidity.
Daniel C. Cataldo - Treasurer: Thanks Laurie. We finished the quarter with $320 million of cash and equivalents, up over $100 million from January 31. Our second fiscal quarter was relatively quiet from a capital management perspective, when compared to the first quarter. I do recall in the first quarter, we used $144 million in cash to fund $1 per share special dividend and the accelerated payment of the $0.20 per share regular first quarter dividend. $67 million to fund the cash portion of the Clifton Group acquisition and another $43 million to exercise the final call related to 2003 acquisition of Parametric.
We repurchased approximately $10 million of stock in the second quarter, a bit lower than we had anticipated back at the beginning of the quarter, but we do expect to be actively buying through the remainder of the fiscal year.
Our seed capital portfolio was approximately $285 million at April 30. During the quarter we seeded a new institutional emerging market global debt fund managed by our Global Income Group and we were able to redeem our seed investment in two products, the Richard Bernstein All Asset Strategy Fund and the Canadian floating rate fund which (indiscernible) AGF Investments as both of these products reached critical mass.
Over the next six months, we would expect our seeding activity to be a moderate use of cash as there are number of potential new products in the pipeline. Weighted average diluted share count for the second quarter increased 3.5% to 123.3 million shares. This was largely anticipated, as we knew, we would feel the pull effect of the significant option exercise activity that occurred in the first fiscal quarter.
We expect the diluted share count to be up again next quarter, but to a lesser degree as the second quarter option exercise activity was quite a bit lower than the first quarter. While we don't currency anticipate any significant acquisitions, our investment related demands on our cash, our strong cash flow, a $300 million untapped credit facility, and access to capital markets based on our A minus and A3 investment grade credit rating give us ample financial flexibility to continue to take advantage of opportunities as they arise.
This concludes our prepared comments. Operator, we're now ready to take questions.
Operator: Ken Worthington, JPMorgan.
Ken Worthington - JPMorgan Chase: First, I wanted to dig into the gross redemptions and implementation services. You mentioned the rebalancing out of Clifton. Can you explain that further? What's going on with the rebalancing away, how does it happen in an overlay strategy? And then maybe as a follow-up to that, can you talk about the cyclical nature of overlay implementation services? How market and economic sensitive is this business and are there better or worse conditions for the sales and the attractiveness of the strategies?
Thomas E. Faust, Jr. - Chairman, CEO, and President: It's Tom. I think I'd first tell you that we're learning these things kind of at the same time you are. This is a new business for us acquired at the end of December. So we are only getting, now starting to get a feel for how the dynamics in this business work, recall we had fairly significant net inflows, in January we've held our first quarter results and we had net outflows in this quarter which impacted us. As I said in my prepared remarks, this did not reflect clients firing them or moving out of the strategy in a total sense. But this is, we are – that’s fairly volatile business in terms of reported flows. Through some degree, we think there is a tendency that as markets move up, there is a little bit of a counter cyclicality to the flows that for example if you are using overlay to get equities through a certain target level, it may well be that you are doing mass overlay as the markets moved up. I can't say that's true in all cases or even fairly most cases. But we do think there is some connection between what the market does and how clients respond by rebalancing. We think we are getting it right as to how you think about market action versus flows, so it's less straight forward than it is for many things, remember these are overlays where it doesn’t take $1 to produce, $1 and to produce $1 of flow or of the $1 out, because there is built in leverage in the derivatives. It takes much less than a $1 of actual cash movement on the part of a client to produce $1 of inflow or outflow. So probably not a very helpful answer, but we are learning. We look at the business primarily on the same basis that the management of Clifton does, which is what is it producing in terms of revenues and profits. And I think it was – it's probably worth noting that when Clifton was a private company, or part of a private company, they didn't really think in terms of flows. They thought in terms of revenues and profits, because the volatility of the market can cause the value of managed assets to go up in the same way that would apply to the rest of our business, but also can have impacts on flows, because clients are really taking advantage of the flexibility and the low cost of moving positions using futures to make this a more volatile part of their asset mix just in terms of flows than we would normally be expecting in our business. So, unfortunately we view going forward as the Clifton overlay business is likely to produce the (indiscernible) in terms of our flow numbers that we're all going to have to get used to. These are relatively low fee assets. I think we've said in total our implementation services is about a 11 basis points, but we're also looking at are there ways we can enhance our flow reporting going forward to maybe isolate that effect from what we think that was more traditional longer term flow drivers.
Operator: Michael Kim, Sandler O’Neill.
Michael Kim - Sandler O'Neill: I guess in terms of kind of the institutional cash management business, I know it's still early days, but can you just give us and update on where you stand today? And then assuming the SEC, goes ahead and implements kind of floating NAVs for prime money market funds, how quickly do you see that business ramping up? And then any color on sort of the underlying economics of that business would be helpful?
Thomas E. Faust, Jr. - Chairman, CEO, and President: This maybe a background for those, that, aren't as close to this. We did hire a team of five people and organized what we call Eaton Vance Institutional Cash Management Services. What was the timing of that? January, February…
Daniel C. Cataldo - Treasurer: I think February 1.
Thomas E. Faust, Jr. - Chairman, CEO, and President: February 1, thank you. So those guys have been here for three and half months. They started in earnest contacting potential clients probably in April, so we're about six weeks into that. There is – I wish I could tell you there is great success to report from that. I don't think that would be reasonable expectation. So, we did not have meaningful success in terms of gaining actual client mandate that has been awarded and funded. So, it's a little early. We're certainly not in a position to declare victory. I see a weekly report from them as to their activity and their assessment of their Canada business between cool, warm and hot and we don't know quite how they are interpreting the word hot, but there are some that show up as hot on there every week. So, we're working to build a business. The impact of the floating NAV that seems to be more likely coming at least for institutional funds, we think could be a catalyst for business growth there, but it's really too early to say that we've had success building business. So that group, I should point out, is not always focused on building new institutional business. We have $2 billion or so of cash sweep assets and a small government money market fund that we offer to third parties. We have cash that underlies securities lending. So, those guys are involved in that as well, so we've got things for them to do, while we're looking to build the institutional business. Also, one of the members of that team is essentially a risk manager, and we have ability to apply his skills not only in the very short-term and the cash end of our fixed income group but also more broadly across fixed income. So it's still early. Maybe next quarter we can report that there's some of those (hot leads) have been converted into clients, but can't say that as yet.
Operator: Jeff Hopson, Stifel Nicolaus.
Jeff Hopson - Stifel Nicolaus: So some questions on floating rate. Curious about what you would see as your capacity, and then any comments on kind of the supply/demand in that market. It looks like you had about $1 billion of institutional wins in floating rates. Is that about right and how do you think you're doing I guess on the institutional side in the market versus others in terms of raising new assets? And then finally, if I could, I guess the last couple of years floating rate with decent money coming in and then later move out, anything different about this cycle that you would say is different or more sustainable I guess?
Thomas E. Faust, Jr. - Chairman, CEO, and President: Few question in there if I missed something, just remind as I get towards the end of this. So bank loan assets and capacity obviously something that’s important to us is that one of our flagship businesses, its accounting for roughly two quarters of our flow in this quarter. We have if you, account not only our dedicated bank loan mandates but also we have some bank loans and some multi-strategy accounts. We managed just about $35 billion in bank loans. I think $35.5 billion was the number I gave a couple of weeks ago, which is slightly higher than the reported number and again that reflects bank loans that are in multi-income, multi-strategy, income strategies that would (indiscernible) on to prices. That compares to a market size, our guys say that today the syndicated that the bank loan market in the U.S. and Europe totals about a little over $700 billion in terms of current amounts outstanding. So we represent about 5% of the addressable market. We don’t own every loan. In fact there is a percentage of the credits that we don’t participate in, but in terms of the addressable market we're about 5%. We think we are if not the largest player certainly one of the handful of two or three largest. How we think about capacity is mostly in terms of – based on liquidity in the marketplace that we have the ability currently to put money to work, as money comes in and also to meet redemptions during periods when we're in net outflows. The report from our trading desk continues to be that we're quite comfortable with how we're doing in terms of putting the money to work. We took in a lot, we took roughly $5 billion of net bank loan asset, so we've been busy buyers of bank loans over the last three months, but even during that period there's quite strong inflows, we feel like we've been able to keep up with buying demands. In terms of the overall dynamics of the bank loan market, just a couple of thoughts there. A fairly large percentage of the underlying loans in this market, both U.S. and Europe, relate to some kind of leverage buyout or leverage corporate transaction, often it's a public company that gets taken private. So, activity in the marketplace, if there are more buyouts, more private equity firms that go into the market and finance their activities with bank loans, which is typically what they do. To the extent that there are more buyout activity taking advantage of very low financing rates available today, that tends to create new supply, which creates new ability for us and other bank loan managers to invest inflows comfortably. On the demand side, this is a pretty dynamic market. Bank loans have very little call protection, so there is possibility that if you own a loan that after a relatively short period that loan could effectively be repriced to a lower spread and during periods of strong demand and strong price performance, you see that and we've been seeing that in our portfolio and so we've seen spread come down, not substantially, but still significant wider than where low points in previous cycles. But at some point, the demand starts to be self-correcting. So, I guess what I was saying in our history, and we've been doing this since 1989. We've never had a point where we've had to close and not take new money either retail or institutional. There have certainly been times in our history when we were thinking about that in the same way that we're thinking about that now, but historically there has tended to be a correction meaning either that low rates and attractive spreads stimulate activity, so that there is a growth in supply of loans or on the other stock that you see is drying up of demand as either due to credit issues or just simply spreads getting squeezed to a level that they are not attractive, that you could see a drying up of on the demand side. Today things seem to be in pretty good balance. The loan prices have recovered sharply and are now essentially at par. A year ago they might have been in the mid-90s, so we've seen our recovery in prices to roughly par. When we have seen a shock in – sudden changes in investor demand, the most recent of these would have been in the summer of 2011, and you might recall what was happening during that period, which was that there was a concern about the economy slipping into recession, there was concern at Washington about lower debt rating for the U.S. government and debt ceiling issues, and all that led to in, I think, it was August of 2011 a period when bank loan prices fell several percent in a pretty short period of weeks, and we saw some outflows during that period. We don't see that on the horizon. Certainly the credit characteristics of the loans that we own continue to be very good, but we know that this is an asset class that – these are below investment grade credits and there is certainly the likelihood over that some point in the credit cycle that you will see a spike up in spreads reflecting in lower prices as people start getting concerns about credit losses and then at some point either those credit losses get realized or not. We don't see that on the horizon. We don't think buyers (indiscernible) either, and that's showing up in our strong flows. So I guess I would say that we do have capacity limits out there somewhere. We don't think we're particularly close to those at roughly 5% of the addressable markets. It's one of those things that when we talk to the investment team they can provide the kind of number that you're looking for as to what is our capacity. It tends to be a number that is reflective of market conditions and our ability to put money to work. I can't say that, although we can't say what that number is and nobody really knows what it is. When we hit that number, whatever it is, we will close this strategy to no investors, we'll do what's right for investors if we find that we can't get the money invested or that we're base a choice between buying loans that we don’t like or turning away cash. We are going to turn away cash if not in and out. But it could be out there, we are getting $5 billion a quarter that’s the pace that there aren't too many quarters than that, that we can continue to do that unless market conditions change meaning that there is growth in the market, we are in a better place today, supply demand in the market, there was you probably know this Jeff there is a, historically a major player in the bank loan market has been collateralized loan obligation into these CLOs as they are called. They have largely gone out of the market CLOs have started to remerge recently though that has been at a pretty muted pace. So there is certainly more, there is a larger share of the market that’s available for investors like us which makes us think that perhaps where we can go in terms of share of the market is higher than might have been the case in previous bank loan cycles. So, we're mindful of the fact that this is a big business for us, it's driving our flows. Currently our capacity is not unlimited, but we don't see it a change on the immediate horizon, but on the other hand $5 billion a quarter is a very rapid growth rate and I would say we don't expect that growth rate to continue for foreseeable quarters. We don't model that Eaton Vance is going to grow $5 billion in bank loans every quarter. We think there will be strong positive flows in the third quarter from what we see today, but we think as flowing is inevitable and if it doesn't we go around the capacity at some point, but it won't be likely over the next couple of quarters, because I don't see that level of growth likely to be sustained and I also don't think that even if it were we hit the magic number whatever that might be prior to the end of this fiscal year.
Jeff Hopson - Stifel Nicolaus: I know you said a lot, but on the institutional side, it looks like retail you are doing great in terms of market share I guess. On the institutional side how would you say you are doing? And I suspect there's a little different dynamic in terms of the institutional maybe being, I guess, more attractive that those assets might stay a little bit longer potentially, is that true and would you be buying different type of paper on the institutional side?
Thomas E. Faust, Jr. - Chairman, CEO, and President: We buy roughly the same kind of paper that the (indiscernible) very similarly. Our largest institutional bank loan fund had posted $700 million of net inflows in the quarter. Some of the delta between what you are, I think, that you said U.S. a $1 billion, but that delta may well be offshore bank on funds and we have some of those and they may also be (conservative).
Daniel C. Cataldo - Treasurer: I think there - you are right Jeff. If you look at what net flows in our retail products were for the second quarter, they were roughly $3.9 billion, so out of the total $4.9 billion, that remaining $1 billion was in institutional comingled product, sub-advisory separate account product in two separate account bank loan product. And the demand has been steady across all of those different channels.
Thomas E. Faust, Jr. - Chairman, CEO, and President: I would say, and I think (indiscernible), maybe a point you are making that, we want to be diversified in our bank loan client base. How different investors respond in different marketing conditions will vary and we want to have a stable base of business. We think that's both in our interest and in the interest of our investors generally. Historically U.S. retail has been somewhat more volatile than institutional, so we like the stickiness of the institutional assets. We also, and I mentioned this on a few pickup on this, that we are planning to offer a bank loan closed-end fund in the month of June and those obviously are sticky assets as well. So, we want to be diversified. We want to have fund; retail fund and institutional clients. We do have quite a few clients outside the United States now and they think about this differently than people based here. So, diversified business, run the business from a long-term perspective as we've always done since 1989 doing what's right for the investor and when that means closing the strategy, we'll close the strategy.
Operator: Marc Irizarry, Goldman Sachs.
Marc Irizarry - Goldman Sachs: Can you talk a little bit about the environment for closed-end funds for you guys really mentioned the floating-rate income product. Are we sort of in the throes of just what you see is a better environment for closed-end funds?
Thomas E. Faust, Jr. - Chairman, CEO, and President: So we – perspective on this. We were the largest seller of closed-end funds every year from 2003 to 2007. So five years in a row we – this was a big part of our story. Since then we've raised the total of three closed-end funds all of them roughly $200 million in size, so they made a de minimis contribution to our growth over the last five years. We're trying to address this has been disappointing. Most of that has been due to market factors during most of the last five years they really haven't been loss of successful closed-end funds, there have been notable successes particularly over the last 12 months. Categories of the closed-end funds that have been successful, there have been a number of MLP funds that have done well. We don't participate in that. We don't have an investment capability in (FTs). There have been some multi-sector income funds that have done well. There have been a couple of muni funds that were successful in raising loss of assets. Success in closed-end funds from our experience requires both luck and skill. The luck is really in terms of hitting a particular strategy at a time when there is strong investor demand for that, particular strategy and also where the (indiscernible) to allow a particular fund to have wide distribution among the leading distributors of closed-end fund. Unfortunately, the last year, we have not been able to have the (indiscernible) lined up. So, we continue to work at it. We have a number of closed-end funds that have been filed. We have a multi-sector income fund we filed. We have some offshore funds that we have filed using currency related strategies. As I mentioned, we do have this bank loan fund that we've (teed) up for in June. There is a bit of a logjam in the closed-end market today. Most of the major players have report having significant interest in loans fund managers and getting into this business and they would say significant commitments to particular sponsors and particular funds, meaning that the kind of broad syndicate that helps make a deal really successful, it's harder to build now than it might have been even just a few months ago. So, we like closed-end funds. We like the stability of the assets, certainly the ability on a short-term basis really with considerable focus to using our distribution teams to drive asset growth in a particular strategy, we like that. We don't really know how big this June offering is going to be, bank loans are certainly very attractive. But even though the selling period is still just not very many days away, we still literally don't even know who is going to be selling the fund. So it's – the market is a little chaotic at the moment in terms of building syndicate and figuring out who is going to participate and what other sponsors deal. So that leads to unusual uncertainty about the success of individual funds.
Marc Irizarry - Goldman Sachs: Then just getting back to the equity business for a second. You mentioned large cap values performance in 2013, is there any – I look in terms of mandates on the institutional side for large cap value that could come out just in the pipeline so to speak or anything on the gross sales side that's notable in equities? I know you did mention investors as skittish on flows. I'm just curious how the equity business is building?
Thomas E. Faust, Jr. - Chairman, CEO, and President: So, large cap value, I mentioned it's about $13.7 billion in assets. Performance for the year to-date has been, I guess you could say ho hum at least relative to the asset class through the end of April I'm just looking at our large cap value mutual fund, iShares. The average in the category is up 13.1% we're up 12.0%. So first four months were 115 basis points below the peer group average. That in isolation wouldn’t be particularly surprising or troubling. We have a conservatively run strategy when the market is running, like it's run in the first four months of this year. We have rarely been able to keep up with category averages. The problem of course is that we are now four plus years into a pretty good market run and during that period we've lagged peer groups and lagged the benchmark. And clients that have a long experience with it than it'd been with us through up and down cycle to the market I think have a better appreciation for our styles, than newer clients who may have bought us at the wrong time and seen us underperform throughout their ownership history. I guess if there is good news its most of those clients we think are flushed out at this point recall that our peak assets in the strategy were over $33 billion. So we've seen we saw quite a bit of net outflows in the second half of fiscal 2011 throughout most of fiscal 2012. So the newer clients the more performance sensitive clients we think most of them have moved out of the strategy those that take a longer term perspective many of those are still with us. We are not aware of, there is no visible pipeline of clients that put us in a good enough node is that they are going to pull funding normally that’s not the way that we all work. Generally you don't get a month or two or six months of notice that's someone's going to terminate you. So we're not aware of that, but we're also mindful of the possibility of the performance versus peer group – the peers and benchmarks have not met expectations for the last really four years since the market downturn. So, we continue to take steps to strengthen our equity group and feel like we've made real headway there. Notably we've both expanded and we feel like upgrade in the quality of our equity research team here in Boston. So we think we're doing the right things to address the issues that we can address. There were other issues that affect performance, namely (sell) factors that are very hard to change, because you go out and represent yourself in the marketplace (having followed) a particular investment style and having a particular characteristics. When that style and when those characteristics don't fit with how the market is moving, it's usually a mistake to change your style and change your characteristics and we've resisted doing so. So, it still is an uphill battle for us to try and grow our Boston-based equity business in the current environment, given the near-term performance record of our major strategy. Fortunately we are pretty diversified in our equity capabilities with Atlanta Capital with Parametric and Hexavest as well as several outside sub-advisors that are managing Eaton Vance products. You highlighted some of these that are performing well and are growing. Currently, the Atlanta Capital core team, which runs the Eaton Vance SMID-Cap Fund. They have a new what they call select equity strategy that has really outstanding, now I think, it's six year track record that we're trying to build a business around Hexavest, great long term numbers despite a relatively bearish stance have performed quite commendably in the year-to-date. The long-term success of the Parametric Emerging Market Strategy both is attracting investors to that strategy itself and also creates opportunity as we apply some more principles to other asset classes to grow in other things and it's highlighted in the context we recently hit a three year track record on your Parametric International Fund. So, the story at Eaton Vance equities, is, I would say mixed. The story across the Company more broadly has a lot of very favorable things going on and a lot of good stories.
Operator: Cynthia Mayer, Bank of America Merrill Lynch.
Cynthia Mayer - Bank of America Merrill Lynch: I just have some modeling questions. Sorry, if you covered these already, but I'm wondering in terms of the increase in the share count, what was the ending share count? And you mentioned you planned to get more active on buybacks. I know you don't have a policy of buying back all of the dilution, but given the jump in the share count, what's your outlook for the buybacks?
Laurie G. Hylton - CFO: I'm just trying to actually grab the ending share count number. But in terms of our philosophy going forward on our buyback, we don't target offsetting dilution in terms of our buyback, so over the course of the year. We look at number of things. We look at macroeconomic factors, how the stock is performing, and then obviously we do look at what we are issuing, but it's a combination of things. So I can't say that we're necessarily targeting a number. We hope to be a little bit more active this quarter than we were, but again I think that Dan talked about the share activity for the quarter. We were into the tune of about – we bought back about 9 million over the course of the quarter. I don't have a target for next quarter, so I can't give you anything definitive there. In terms of our pending shares, we closed out the quarter – Dan, correct me if I'm wrong here – 121 million.
Daniel C. Cataldo - Treasurer: 121.4 million.
Laurie G. Hylton - CFO: 121.4 million. The dilutive was about 123.3 million. We obviously have a lot of option activity in the first quarter that we had talked about both on the previous call and on this call. I would think that that's going down a little bit. So we wouldn't necessarily see the same level of new issuance associated with stock option exercises, but again I can't give specific guidance about our intent to repurchase shares in the third.
Operator: Thank you. There are no further questions at this time. I'd like to turn the floor back over to you for any closing comments you may have.
Thomas E. Faust, Jr. - Chairman, CEO, and President: Great. Well, thank you for joining us this morning, and we look forward to reporting back to you in mid-August. We hope you enjoy your summer. Thank you.
Operator: Ladies and gentlemen, this does conclude today's conference. You may disconnect your lines at this time, and we thank you all for your participation. Good day.