<PAGE>
SCHEDULE 14C INFORMATION
INFORMATION STATEMENT PURSUANT TO SECTION 14(C) OF THE SECURITIES EXCHANGE ACT
OF 1934
(AMENDMENT NO. 1)
Check the appropriate box:
[_]Preliminary Information Statement [_]Confidential, for Use of the
[X]Definitive Information Statement Commission Only (as permitted by
Rule 14c-5(d)(2))
NEW ENGLAND INVESTMENT COMPANIES, L.P.
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Payment of Filing Fee (Check the appropriate box):
[_]No fee required
[X]Fee computed on table below per Exchange Act Rules 14c-5(g) and 0-11.
(1) Title of each class of securities to which transaction applies:
Units of Limited Partnership Interest (LP Units)
(2) Aggregate number of securities to which transaction applies: N/A
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
N/A
(4) Proposed maximum aggregate value of transaction: $144,000,000
(estimated)
(5) Total fee paid: $28,800.00 ($5,400 herewith; $23,400 paid with
preliminary filing)
[X]Fee paid previously with preliminary materials (see above).
[_]Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid: ________________________________________________
(2) Form, Schedule or Registration Statement No.: __________________________
(3) Filing Party: __________________________________________________________
(4) Date Filed: ____________________________________________________________
<PAGE>
New England Investment Companies, L.P.
399 Boylston Street
Boston, Massachusetts 02110
To the Limited Partners:
In September of 1995, New England Investment Companies, L.P. ("NEIC")
acquired the business of Harris Associates L.P. for (i) an initial payment
made at the September closing, and (ii) a deferred purchase price payment
obligation becoming due in April of 1997, all as more fully described in the
accompanying Information Statement. In order to comply with rules of the New
York Stock Exchange, the approval of Unitholders of record as of December 11,
1996 who hold a majority of limited partnership interests in NEIC ("LP Units")
of the issuance of additional LP Units in April of 1997 will be obtained. This
will be accomplished by obtaining the written consent of certain holders
constituting such majority, as authorized by Section 16.4 of NEIC's Agreement
of Limited Partnership. This issuance of LP Units has also been approved by
the Board of Directors of New England Investment Companies, Inc., NEIC's
general partner.
YOUR CONSENT IS NOT BEING REQUESTED AND THE ACCOMPANYING DOCUMENT IS BEING
PROVIDED SOLELY FOR YOUR INFORMATION, PURSUANT TO THE SECURITIES EXCHANGE ACT
OF 1934. NO ACTION IS REQUIRED ON YOUR PART.
Edward N. Wadsworth
Secretary of New England Investment
Companies, Inc., General Partner
<PAGE>
NEW ENGLAND INVESTMENT COMPANIES, L.P.
INFORMATION STATEMENT
----------------
On September 29, 1995, New England Investment Companies, L.P. ("NEIC" or the
"Partnership") acquired substantially all of the assets and business and
assumed certain liabilities of Harris Associates L.P., in exchange for $79.7
million in promissory notes (that were repaid in January 1996) and 5,366,898
units of limited partnership interest ("LP Units") of the Partnership. The
acquisition is referred to herein as the "Transaction." References in this
Information Statement to "Harris" or the "Company" refer to Harris Associates
L.P. (now renamed "Old HALP, L.P." ("Old HALP")) prior to the closing of the
Transaction and to Harris Associates L.P., a wholly owned subsidiary of NEIC,
following the closing, unless the context otherwise requires. References to
"HAI" refer to Harris Associates, Inc. (now renamed "Old HAI, Inc." ("Old
HAI")), the general partner of Harris Associates L.P. prior to the closing of
the Transaction and to Harris Associates, Inc., a wholly owned subsidiary of
NEIC, the general partner of Harris Associates L.P., following the closing,
unless the context otherwise requires.
This Information Statement is being furnished to Unitholders of the
Partnership in connection with the taking of action by written consent of the
holders of a majority of the Partnership's outstanding Units to approve the
issuance (the "Issuance") by the Partnership to Old HALP in April 1997 of a
number of LP Units based upon the performance of the business of Harris during
1995 or 1996 (the Issuance, together with any cash paid in connection with the
repurchase of any such LP Units, is referred to collectively as the
"Contingent Payment"). The Contingent Payment is to be made pursuant to the
Partnership Admission Agreement dated as of June 22, 1995, as amended (the
"Agreement") by and among the Partnership, Harris and Harris Associates, Inc.
These LP Units will carry with them a right to require the Partnership to
repurchase them during a limited period following their issuance.
As of December 11, 1996, 54.6% or 20,790,000 and 16.8% or 6,394,100 of the
Partnership's issued and outstanding LP Units were held of record by
Metropolitan Life Insurance Company ("Metropolitan Life") and Reich & Tang,
Inc. ("RTI"), respectively. See "Voting Securities and Principal Holders." The
voting power represented by these LP Units is sufficient to ensure approval of
the Issuance. Metropolitan Life and RTI have each indicated that they will
consent to the issuance of LP Units as required by the Agreement. Other than
the written consent of Metropolitan Life and RTI, no further action by
Unitholders of the Partnership is necessary to approve or consummate the
Issuance and, accordingly, no such approval is being sought. The Partnership
will not hold a meeting of the Unitholders of the Partnership in connection
with the Issuance, which is expected to be consummated on April 2, 1997.
HOLDERS OF LP UNITS WILL HAVE NO APPRAISAL RIGHTS UNDER DELAWARE LAW IN
CONNECTION WITH, OR AS A RESULT OF, THE MATTERS DESCRIBED IN THIS INFORMATION
STATEMENT.
This Information Statement is being mailed on or about January 31, 1997, to
Unitholders of the Partnership of record on December 11, 1996 (the "Record
Date").
The principal executive offices of the Partnership are located at 399
Boylston Street, Boston, Massachusetts 02116, telephone (617) 578-3500.
----------------
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE
REQUESTED NOT TO SEND US A PROXY
----------------
THE DATE OF THIS INFORMATION STATEMENT IS JANUARY 20, 1997.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
AVAILABLE INFORMATION..................................................... 3
SELECTED PRO FORMA COMBINED FINANCIAL INFORMATION OF THE PARTNERSHIP AND
HARRIS................................................................... 4
SELECTED CONSOLIDATED HISTORICAL FINANCIAL INFORMATION OF HARRIS.......... 5
SELECTED HISTORICAL QUARTERLY FINANCIAL INFORMATION OF THE PARTNERSHIP.... 6
INTRODUCTION.............................................................. 7
Overview................................................................ 7
Description of the Agreement............................................ 7
Reasons for the Transaction............................................. 10
Effect of the Transaction on the Rights of Existing Unitholders......... 11
Accounting Treatment.................................................... 11
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS................................. 11
STATE AND LOCAL TAX CONSIDERATIONS........................................ 13
INFORMATION CONCERNING THE PARTNERSHIP.................................... 13
INFORMATION CONCERNING HARRIS............................................. 14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS............................................................... 14
VOTING SECURITIES AND PRINCIPAL HOLDERS................................... 17
VOTE REQUIRED FOR APPROVAL................................................ 18
APPRAISAL RIGHTS.......................................................... 18
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE........................... 18
INDEX TO UNAUDITED PRO FORMA CONDENSED FINANCIAL STATEMENTS OF NEW ENGLAND
INVESTMENT COMPANIES, L.P. .............................................. F-1
INDEX TO FINANCIAL STATEMENTS OF HARRIS ASSOCIATES L.P. .................. F-1
</TABLE>
<PAGE>
AVAILABLE INFORMATION
The Partnership is subject to the information requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by the Partnership with the Commission
in accordance with the Exchange Act can be inspected and copied at the Public
Reference Section of the Commission, 450 Fifth Street, N.W., Washington, D.C.
20549, and at the following regional offices of the Commission: Seven World
Trade Center, 13th Floor, New York, New York 10048 and 500 West Madison
Street, Suite 400, Chicago, Illinois 60661. Copies of such material can be
obtained from the Public Reference Section of the Commission, 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates. In addition, LP
Units are listed on the New York Stock Exchange (the "NYSE") and similar
information concerning the Partnership can be inspected and copied at the
NYSE, 20 Broad Street, New York, New York 10005.
This information statement incorporates documents by reference that are not
presented herein or delivered herewith. See "INCORPORATION OF CERTAIN
DOCUMENTS BY REFERENCE."
3
<PAGE>
SELECTED PRO FORMA COMBINED FINANCIAL INFORMATION
OF THE PARTNERSHIP AND HARRIS
The selected pro forma financial information for the nine months ended
September 30, 1995, and 1996, presented below reflects the pro forma effect of
the Transaction and the payment of the estimated amount of the Contingent
Payment as if they occurred on January 1, 1995. The selected pro forma
financial information as of September 30, 1996, presented below reflects the
pro forma effect of the payment of the estimated amount of the Contingent
Payment as if it occurred on September 30, 1996. The pro forma financial
information presented below is derived from the pro forma condensed combined
statement of income of the Partnership, the pro forma balance sheet of the
Partnership, and the unaudited historical consolidated financial statements of
Harris, each of which is included in this Information Statement, and from the
unaudited historical consolidated financial statements of the Partnership
incorporated herein by reference. This pro forma financial information
combines, on a pro forma basis, the results of operations of Harris and the
Partnership for the period from January 1, 1995, through September 30, 1995,
and reflects the pro forma effect of the estimated amount of the Contingent
Payment for the period from January 1, 1995, through September 30, 1996.
The pro forma condensed combined statement of income data for the nine
months ended September 30, 1995, and 1996, and the pro forma condensed balance
sheet data as of September 30, 1996, do not purport to represent what the
Partnership's results of operations or financial position would have been if
the Transaction and the Contingent Payment had actually occurred on January 1,
1995, nor is the information intended to be a projection of results for any
future period. The balance sheet information as of September 30, 1995, and the
financial information as of and for the nine months ended September 30, 1996,
is derived from the unaudited historical consolidated financial statements of
the Partnership incorporated herein by reference. In the opinion of
management, all adjustments, consisting only of normal recurring accruals,
have been made to present fairly the selected pro forma combined financial
information of the Partnership and Harris presented below.
<TABLE>
<CAPTION>
AT OR FOR THE NINE MONTHS ENDED
SEPTEMBER 30,
-------------------------------------------------
1995 1996 1996
---- ---- ----
(IN THOUSANDS, EXCEPT PER UNIT DATA)
(PRO FORMA)(1) (PRO FORMA)(1) (ACTUAL)(2)
<S> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenues............... $240,109 $ 284,374 $284,374
Expenses............... 200,687(3)(6) 237,432(4)(6) 230,914
-------- ----------- --------
Income before income
taxes................. 39,422 46,942 53,460
Provision for income
taxes................. 1,035 2,555 2,555
-------- ----------- --------
Net income............. $ 38,387 $ 44,387 $ 50,905
======== =========== ========
Net income per unit.... $ 1.12 $ 1.35 $ 1.42
======== =========== ========
Distributions declared
per unit (actual)..... $ 1.30 $ 1.52 $ 1.52
======== =========== ========
Weighted average units
outstanding........... 38,309 38,539 41,010
======== =========== ========
BALANCE SHEET DATA: (ACTUAL) (PRO FORMA) (ACTUAL)
Total assets........... $516,207 $ 660,584 $584,584
Notes payable.......... 79,738 208,600(6) 115,000
Deferred purchase
consideration(5)...... 35,000 -- 41,000
Total liabilities...... 205,443 318,202 265,602
Partners' capital...... 310,764 342,382 318,982
</TABLE>
- --------
(1) The pro forma statement of income data for the nine months ended September
30, 1995 and September 30, 1996 assumes the Contingent Payment will be
$117.0 million (based on Harris qualifying revenues as of September 30,
1996) and will be settled 20% (or $23.4 million) in 913,171 newly issued
LP Units (based on a unit price of $25.63) and 80% (or $93.6 million) in
cash. Management believes that the actual amount of the Contingent Payment
will be approximately $144 million based on 1996 results.
(2) The actual statement of income data for the nine months ended September
30, 1996 includes the amortization expense of a portion of the estimated
Contingent Payment of $117.0 million and assumes the Contingent Payment
will be made entirely in units.
(3) The pro forma amortization expense adjustment for the nine months ended
September 30, 1995 is $10,075,000, of which $6,085,000 relates to
intangible assets capitalized concurrent with the Transaction and
$3,990,000 relates to the Contingent Payment.
(4) The pro forma amortization expense adjustment for the nine months ended
September 30, 1996, is $1,225,000, which represents the additional
amortization expense that would be required on the Contingent Payment in
addition to the $2,765,000 which is recorded in the actual statement of
income.
(5) In accordance with generally accepted accounting principles, the actual
balance sheet data at September 30, 1996, and September 30, 1995, includes
an estimated Contingent Payment of $41 million and $35 million,
respectively, recorded as deferred purchase consideration.
(6) The cash portion of the Contingent Payment will be financed initially
under a revolving credit agreement with an estimated effective interest
rate of 7.54%.
4
<PAGE>
SELECTED CONSOLIDATED HISTORICAL FINANCIAL INFORMATION OF HARRIS
The selected consolidated financial data at or for the years ended December
31, 1992, 1993 and 1994 is derived from the audited historical consolidated
financial statements of Harris appearing elsewhere in this Information
Statement, and should be read in conjunction therewith. The selected financial
data as of and for the year ended December 31, 1991, has been derived from
unaudited consolidated financial statements of Harris not included herein. The
selected financial data at or for the nine months ended September 29, 1995
(date of acquisition), is derived from the unaudited historical consolidated
financial statements of Harris included elsewhere in this Information
Statement, and should be read in conjunction therewith. Harris holds certain
investments in limited partnerships ("Limited Partnerships"), the results of
which have been consolidated with the results of Harris for the periods ended
December 31, 1991, through December 31, 1994, due to Harris' effective control
over the general partners of the Limited Partnerships. Concurrent with the
Transaction, the Limited Partnership agreements were amended so that Harris no
longer has effective control of the general partners of the Limited
Partnerships. Because of this change, the Partnership now accounts for Harris'
investment in the Limited Partnerships under the equity method of accounting.
As a result of this change the selected consolidated historical financial data
of Harris are presented below both as consolidated and using the equity method
of accounting. The equity method of accounting reflects the Partnership's
accounting for the Limited Partnerships after September 29, 1995.
<TABLE>
<CAPTION>
AT OR FOR THE AT OR FOR THE
YEAR ENDED DECEMBER 31, NINE MONTHS ENDED
----------------------- SEPTEMBER 29,
1991 1992 1993 1994 1995
---- ---- ---- ---- -----------------
(IN THOUSANDS)
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BASIS
STATEMENT OF INCOME DATA
Revenues.............. $ 63,770 $ 77,843 $140,670 $ 44,376
Expenses.............. 22,042 20,407 19,700 21,599
-------- -------- -------- --------
Income before income
taxes and minority
interests............ 41,728 57,436 120,970 22,777
Provision for income
taxes................ (52) (94) (191) (164)
Minority interest in
limited partnerships'
(gain) loss.......... (22,770) (36,494) (86,057) 20,393
-------- -------- -------- --------
Net income............ $ 18,906 $ 20,848 $ 34,722 $ 43,006
======== ======== ======== ========
BALANCE SHEET DATA
Total assets.......... $677,099 $460,058 $663,197 $599,464
Total liabilities..... 470,922 172,866 197,879 283,016
Minority interest in
limited
partnerships......... 192,722 273,324 437,021 292,937
Partners' capital..... 13,455 13,868 28,297 23,511
EQUITY METHOD
STATEMENT OF INCOME DATA
Revenues.............. $ 31,492 $ 34,492 $ 49,587 $ 58,991 $47,475
Expenses.............. 12,575 13,581 14,762 15,824 12,767
-------- -------- -------- -------- -------
Income before income
taxes................ 18,917 20,911 34,825 43,167 34,708
Provision for income
taxes................ (11) (63) (103) (161) (60)
-------- -------- -------- -------- -------
Net income............ $ 18,906 $ 20,848 $ 34,722 $ 43,006 $34,648
======== ======== ======== ======== =======
BALANCE SHEET DATA
Total assets.......... $ 42,098 $ 22,951 $ 29,790 $ 24,761 $18,481
Total liabilities..... 28,643 9,083 1,493 1,250 5,857
Partners' capital..... 13,455 13,868 28,297 23,511 12,624
ASSETS UNDER MANAGEMENT
(in billions).......... $ 3.5 $ 2.4 $ 5.1 $ 5.7 $ 7.0
</TABLE>
5
<PAGE>
SELECTED HISTORICAL QUARTERLY FINANCIAL INFORMATION OF THE PARTNERSHIP
The following tables set forth, for the periods indicated, certain selected
historical financial information for the Partnership and should be read in
conjunction with the Partnership's Annual Report on Form 10-K for the year
ended December 31, 1995 and its Quarterly Reports on Form 10-Q for the
quarters ended March 31, 1996, June 30, 1996 and September 30, 1996, each of
which is incorporated herein by reference.
<TABLE>
<CAPTION>
1996
--------------------------------------
FIRST SECOND THIRD
QUARTER QUARTER QUARTER
------- ------- -------
(IN THOUSANDS, EXCEPT PER UNIT DATA)
<S> <C> <C> <C>
REVENUES:
Management and advisory fees and
other................................. $ 89,325 $ 95,046 $ 95,015
Gain on partial sale of affiliate...... 4,988 -- --
------------ ------------ ------------
94,313 95,046 95,015
------------ ------------ ------------
EXPENSES:
Compensation and benefits.............. 43,436 44,903 46,123
Other expenses......................... 29,942 31,585 34,925
------------ ------------ ------------
73,378 76,488 81,048
------------ ------------ ------------
Income before income taxes............. 20,935 18,558 13,967
Income tax expense..................... 621 1,208 726
------------ ------------ ------------
Net income............................. $ 20,314 $ 17,350 $ 13,241
============ ============ ============
Net income per unit.................... $ 0.53 $ 0.47 $ 0.43
============ ============ ============
Distributions declared per unit........ $ 0.48 $ 0.51 $ 0.53
============ ============ ============
Operating cash flow(1)................. $ 22,079 $ 24,699 $ 24,574
============ ============ ============
Weighted average units outstanding..... 40,385 40,521 42,125
============ ============ ============
<CAPTION>
1995
--------------------------------------
FIRST SECOND THIRD
QUARTER QUARTER QUARTER
------- ------- -------
(IN THOUSANDS, EXCEPT PER UNIT DATA)
<S> <C> <C> <C>
REVENUES:
Management and advisory fees and
other................................. $ 61,097 $ 64,751 $ 63,798
Gain on partial sale of affiliate...... 4,712 -- --
------------ ------------ ------------
65,809 64,751 63,798
------------ ------------ ------------
EXPENSES:
Compensation and benefits.............. 28,348 30,003 30,103
Other expenses......................... 21,729 23,146 20,823
------------ ------------ ------------
50,077 53,149 50,926
------------ ------------ ------------
Income before income taxes............. 15,732 11,602 12,872
Income tax expense..................... 400 225 350
------------ ------------ ------------
Net income............................. $ 15,332 $ 11,377 $ 12,522
============ ============ ============
Net income per unit.................... $ 0.53 $ 0.40 $ 0.43
============ ============ ============
Distributions declared per unit........ $ 0.42 $ 0.44 $ 0.44
============ ============ ============
Operating cash flow(1)................. $ 14,887 $ 15,532 $ 16,803
============ ============ ============
Weighted average units outstanding..... 31,990 31,990 32,134
============ ============ ============
</TABLE>
- --------
(1) Operating cash flow represents net income adjusted for restricted unit
plan compensation, amortization of intangibles, and non-recurring items.
Operating cash flow should not be construed as an alternative to net
income or cash flow from operating activities.
6
<PAGE>
INTRODUCTION
OVERVIEW
The Partnership
NEIC, a Delaware limited partnership, is a major investment manager that
offers a broad array of investment management products and styles across a
wide range of asset categories to institutions and individuals. The
Partnership currently operates through thirteen investment management,
distribution and other support firms. Its assets under management include
domestic and international fixed income and equity securities, money market
instruments, and real estate. As of September 30, 1996, the Partnership's
assets under management were approximately $85.0 billion, approximately $56.8
billion of which was attributable to institutional clients.
Harris
Founded in 1976, Harris is a Chicago-based investment advisory firm with
$9.6 billion in assets under management at September 30, 1996. It has
developed institutional, private client and multi-manager product offerings,
totaling $4.2 billion in assets under management at September 30, 1996. Harris
also serves as the investment advisor for the $5.4 billion Oakmark Fund Group.
Prior to its acquisition by NEIC, Harris was a privately held partnership.
Harris was acquired by NEIC on September 29, 1995.
The Transaction
On June 22, 1995, the Partnership, Harris and HAI entered into the
Agreement, pursuant to which Harris agreed to contribute to NEIC substantially
all of its assets, subject to certain liabilities, in exchange for payment by
NEIC of (i) $175 million (the "Initial Purchase Price") to Old HALP at the
closing of the Transaction (the "Closing") in a combination of cash and newly
issued LP Units as described below and (ii) additional payment to Old HALP in
April 1997 (the "Contingent Payment" and, together with the "Initial Purchase
Price, the "Purchase Price"), also in cash and LP Units, as a purchase price
adjustment based upon the performance of the business of Harris in fiscal 1995
and in 1996. See "Description of the Agreement--Consideration." Under the
Agreement, the proportion of cash and LP Units for the Initial Purchase Price
and for the Contingent Payment are both determined based upon elections to be
made by the individual partners of Old HALP. The LP Unit valuation for the
Contingent Payment will be the average market value of the LP Units for the
first 20 trading days of 1997. In payment of the Initial Purchase Price, NEIC
ultimately issued a total of 5,366,988 LP Units and paid $79.7 million in
promissory notes (which were repaid in January 1996).
The contribution of Harris's business to NEIC and from NEIC to a newly
formed subsidiary occurred pursuant to the Agreement as follows: (i) Harris
contributed to NEIC substantially all of its assets, including its limited
partnership interest in Harris Associates Securities, L.P. ("HASLP"), its
broker-dealer subsidiary, subject to certain liabilities; (ii) NEIC
contributed those assets and liabilities to a wholly owned limited partnership
subsidiary which was renamed Harris Associates L.P. ("New HALP"); (iii) Old
HALP withdrew as the limited partner of HASLP and New HALP was admitted as the
limited partner of HASLP; (iv) HAI withdrew as the general partner of HASLP
and a wholly owned corporate subsidiary which was renamed Harris Associates,
Inc. was admitted as the general partner of HASLP; (v) Old HALP withdrew as
the general partner of each of its multi-manager investment partnerships (the
"Investment Partnerships") and Harris Partners L.L.C., a Delaware limited
liability company and wholly owned subsidiary of New Harris ("HP LLC"), was
admitted as general partner of each of the Investment Partnerships.
DESCRIPTION OF THE AGREEMENT
The following is a summary of certain material terms of the Agreement. This
summary is qualified in its entirety by reference to the text of the
Agreement, a copy of which was filed with the Commission as an exhibit to
NEIC's Current Report on Form 8-K dated September 29, 1995, and is
incorporated herein by reference.
7
<PAGE>
Assets and Liabilities Contributed
The assets contributed by Harris to the Partnership under the Agreement were
substantially all the assets of Harris immediately prior to the Closing,
subject to certain cash adjustments to ensure that the total amount of cash,
cash equivalents and accounts receivable ("Cash Equivalents") transferred
provided sufficient Cash Equivalents for the near term operations of and
payment of distributions by Harris to meet all applicable regulatory capital
requirements. The cash adjustment provisions permitted Harris to exclude from
the assets contributed any Cash Equivalents except as described in the
preceding sentence.
The liabilities assumed by the Partnership from Harris were those
liabilities reflected on Harris's most recent audited balance sheet and
certain other specified liabilities, but did not include Excluded Liabilities.
Excluded Liabilities include amounts owed by Harris to its affiliates, tax
liabilities, liabilities relating to former partners of Harris, and
obligations of Harris to pay investment banking fees or expenses to its
financial adviser in connection with the Transaction or the Agreement.
Consideration
The Agreement provided for payment at the Closing of the Initial Purchase
Price of $175 million, payable initially in 9,859,154 LP Units valued at an
Exchange Price determined by formula to be $17.75 per LP Unit. On the Closing
date and during the 16 days immediately following the Closing date, each of
Old HALP and its partners had the opportunity to elect to sell back to the
Partnership some or all of the LP Units issued to Old HALP at the Closing at a
repurchase price determined by formula. The Partnership repurchased 4,492,256
LP Units for a total of $79.7 million.
In addition to the Initial Purchase Price paid at the Closing, on April 2,
1997 (the "Contingent Payment Date"), the Partnership will pay to Old HALP the
Contingent Payment based on the performance of the business of Harris during
1995 and 1996. The Contingent Payment, like the Initial Purchase Price, will
be paid in LP Units, with Old HALP and any of its partners to whom such LP
Units are distributed having the right to require the Partnership to
repurchase some or all of such Units during the 16 days following the
Contingent Payment Date (the "Exchange Period"). For purposes of determining
the number of LP Units to be issued on the Contingent Payment Date, LP Units
shall be valued at the average of the closing prices of the LP Units during
the first 20 trading days of 1997 (the "Exchange Price"). The Repurchase Price
is set as follows: (i) for those LP Units that NEIC repurchases on, or on the
two days immediately following, the Contingent Payment Date, the Repurchase
Price shall be the Exchange Price and (ii) for those LP Units that NEIC
repurchases starting on the third day following the Contingent Payment Date,
the Repurchase Price shall be the lower of (x) the Exchange Price and (y) the
closing price of LP Units on the NYSE on the last trading day preceding the
day of repurchase. Old HALP and its partners are obligated to indicate to the
Partnership prior to the Contingent Payment the number of LP Units that Old
HALP or such partner, as the case may be, expects to tender for repurchase.
Old HALP or any of its Partners may elect during the Exchange Period to have
more LP Units repurchased than originally indicated, but, in such a case, the
Partnership will then have forty-five days following the Contingent Payment
Date to pay the Repurchase Price for the excess LP Units.
The Contingent Payment will settle the determination of the final value of
the acquired business of Harris for purposes of the Transaction. Under the
Agreement, the Contingent Payment could not be less than $41 million, an
amount determined based on the Pro Forma Qualifying Revenue (as defined in the
Agreement) of Harris for 1995. Based on such revenue of Harris through
September 30, 1996, the Contingent Payment would be approximately $117
million. This increase in the estimated amount of the Contingent Payment is
due to substantially increased revenues at Harris. Management and advisory fee
revenues, which constitute the largest portion of Pro Forma Qualifying
Revenues under the Agreement, grew 40%, from $42.6 million (at Old HALP) for
the nine months ended September 29, 1995, to $59.7 million (at Harris) for the
nine months ended September 30, 1996. The increase in revenues was due
primarily to increased assets under management, which grew 37%, from $7.0
billion (at Old HALP) on September 29, 1995, to $9.6 billion (at Harris) on
September 30, 1996. The actual amount of the Contingent Payment will be based
on the audited financial statements of Harris for 1996. The Partnership
anticipates that the actual amount of the Contingent Payment will be
approximately $144 million.
8
<PAGE>
Representations and Warranties
The Agreement contains representations and warranties by each party of a
type which are customary in connection with transactions such as those
contemplated by the Agreement. The representations and warranties survive the
Closing until the completion of the repurchases of LP Units following the 1996
Payment Date.
Certain Covenants
The parties to the Agreement have made certain covenants regarding post-
Closing matters. These covenants include the agreement by NEIC to operate the
business formerly operated by Harris as a direct or indirect subsidiary of the
Partnership, to be headquartered in the Chicago Metropolitan Area and to be
known under Harris's name during at least five years after the Closing Date.
The Agreement states the intention of the parties that following the Closing
Date, the Board of Directors of the general partner of Harris will consist of
seven members, five of whom, including the chairman, will initially be
selected by Harris and the remaining two of whom will be representatives of
NEIC. Peter S. Voss and G. Neal Ryland currently so serve. In addition, NEIC
has agreed that, prior to five years after the Closing, it will not, other
than in the ordinary course of business, without the consent of those
directors of the general partner of Harris selected by Old HALP, sell any
assets of the Partnership existing immediately prior to the Closing and
contributed to Harris by Old HALP unless such sale is effected as part of a
sale of all or substantially all the assets of the Partnership or as part of
the liquidation and dissolution of the Partnership.
Bonus Compensation Plan and Options
Pursuant to the Agreement, the Partnership has caused Harris to adopt a
bonus compensation plan for the benefit of the active employees of Harris.
Under the plan, employees designated by the Board of Directors of the general
partner of Harris will receive a bonus each year based on operating revenues
of Harris. The aggregate bonuses paid under the plan for fiscal years 1995 and
1996 will be 10% of Harris revenues for such years. In subsequent years, the
bonuses will be subject to certain hurdles but will not, for any year, be less
than 10% of revenues for the prior fiscal year.
In addition certain employees of Harris received 200,000 options at the
Closing under the Partnership's 1993 Equity Incentive Plan, with additional
options granted at the end of 1995 and 1996 (and, in the discretion of NEIC'
Board of Directors, subsequent years) pursuant to a formula based on the
performance of Harris for such years.
Registration Rights Agreement
On the Closing date, the Partnership and Old HALP entered into a
registration rights agreement (the "Registration Rights Agreement") relating
to the rights of Old HALP and its partners who receive LP Units upon
distribution to cause the Partnership to register with the Securities and
Exchange Commission all or a part of their LP Units for sale to the public.
The Registration Rights Agreement provides to holders under the agreement
"piggyback" registration rights in connection with primary offerings by the
Partnership or registrations effected by the Partnership at the request of a
Unitholder other than a holder under the Registration Rights Agreement. Rights
to demand registrations on Form S-3 are also provided for requests by holders
representing LP Units having an aggregate net offering price of at least $5
million. All registration rights are subject to scaling back if required by
the underwriters of an underwritten offering. In addition, registration rights
of holders under the Registration Rights Agreement are subject to certain pre-
existing preferential rights in favor of RTI and Metropolitan Life, as
successor to New England Mutual Life Insurance Company. Once these preferences
have expired, participation in registered offerings is determined by a ratio
based on proportionate ownership of LP Units. The Registration Rights
Agreement also contains provisions relating to the selection of underwriters
and to the relative rights of holders of rights thereunder and other parties
who may be granted registration rights at a later date. The Registration
Rights Agreement is an exhibit to the Agreement.
9
<PAGE>
Certain Tax Matters
The Agreement provides, among other things, (i) that each party thereto will
report the Transaction for tax purposes in a manner consistent with its form,
and (ii) that NEIC may allocate to the assets acquired from Harris any
increase in adjusted tax basis that arises from the repurchase of LP Units by
NEIC from Old HALP or any of its partners in connection with the Transaction.
The Agreement also provides that NEIC and Harris will cooperate to minimize
the amount of taxes for which Harris is directly or indirectly liable and
provides, in the event that Harris becomes taxable as a corporation, for a
reduction in the percentage of the gross revenues of Harris that will be
distributed to NEIC, as the limited partner of Harris, and to the general
partner of Harris (which is an indirectly held subsidiary of NEIC), as well as
for a reduction in the amount available to operate the business of Harris.
Indemnification and Insurance
The Agreement provides that Old HALP will indemnify the Partnership and its
directors, partners, officers and controlling persons against any and all
expenses, losses, claims, damage and liabilities imposed upon or reasonably
incurred by any of them in connection with any claim or action in which any
one of them may be involved by reason of (i) any untrue statement or alleged
untrue statement of a material fact relating to Harris or any of its
subsidiaries contained in this Information Statement or in related materials
or arising out of the omission or alleged omission to state in this
Information Statement or such materials a material fact relating to Harris or
any of its subsidiaries required to be stated herein or necessary to make the
statements relating to them not misleading (ii) the Excluded Liabilities or
(iii) any breach of any representation or warranty made by Old HALP under the
Agreement or any exhibit or schedule thereto.
Conversely, the Agreement provides that the Partnership will indemnify Old
HALP and its directors, partners and controlling persons against any and all
expenses, losses, claims, damages and liabilities imposed upon or reasonably
incurred by any of them in connection with any claim or action in which any
one of them may be involved by reason (i) of any untrue statement or alleged
untrue statement of a material fact relating to the Partnership contained in
this Information Statement or related materials of a material fact relating to
the Partnership required to be stated herein or necessary to make the
statements relating to them not misleading or (ii) any breach of any
representation or warranty made by the Partnership under the Agreement or any
exhibit or schedule thereto.
Neither Old HALP's nor the Partnership's liability for indemnification
claims (other than with respect to those described in clause (i) of each of
the two immediately preceding paragraphs) may exceed the amount of the 1996
Payment, as adjusted upon the receipt of Harris's audited financials for 1996.
Neither party will be liable for indemnification obligations with respect to
claims arising from any breach of representation or warranty until the
aggregate cumulative amount of such obligations of such party exceeds $1
million, whereupon such party will be liable for the full amount of such
obligations. The Partnership may set off claims for indemnification against
the 1996 Payment and any payment made in adjustment of the 1996 Payment upon
written notice to Old HALP of the nature and basis of such claims.
Old HALP has agreed to use its best efforts to maintain, at its expense, for
a period of two years following the Closing, its existing directors' and
officers' liability insurance and its errors and omissions insurance to cover
claims made with respect to actions or omissions at or prior to the Closing
Date.
REASONS FOR THE TRANSACTION
The acquisition of investment management firms serving institutional and
individual clients is a key strategy of the Partnership in seeking to increase
cash flow and Unitholder distributions. The acquisition of Harris conformed to
the Partnership's general acquisition strategy as an acquisition that is
expected to be accretive, meaning that the Partnership expects that the
acquisition will increase the per LP Unit cash flow available for distribution
to Unitholders. The Transaction also fits the Partnership's strategies of
increasing diversification
10
<PAGE>
across types of assets under management and of preserving the independent
identity of acquired firms, which (as in the case of its current subsidiary
investment management firms) are expected to operate with substantial
autonomy, retaining control of investment decisions, investment philosophy and
day-to-day operations.
EFFECT OF THE TRANSACTION ON THE RIGHTS OF EXISTING UNITHOLDERS
See "Certain Federal Income Tax Considerations."
ACCOUNTING TREATMENT
The Transaction has been accounted for, and has been reflected in the
unaudited pro forma and actual financial statements included herein, and other
financial statements incorporated herein by reference, using the purchase
method of accounting.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
INTRODUCTION
This section is a summary of certain federal income tax consequences to the
Partnership and the Unitholders resulting from the Transaction and the
Contingent Payment and is based upon the Internal Revenue Code of 1986, as
amended (the "Code"), judicial decisions, Treasury Regulations ("Regulations")
and administrative rulings of the Internal Revenue Service (the "IRS"). This
section is based on current authorities, and there can be no assurance that
future legislative or administrative changes or court decisions will not
significantly modify the law regarding the matters described herein.
Additionally, there is uncertainty regarding how some of the rules set forth
in the Code and Regulations are to be applied in the context of the
Transaction and the Contingent Payment. The discussion does not cover all
aspects of federal taxation that may be relevant to, or the actual tax effect
that any of the matters described herein will have on, particular Unitholders,
and does not address all aspects of state, local, or foreign income or other
tax laws.
ACCORDINGLY, THE FOREGOING DISCUSSION IS FOR GENERAL INFORMATION ONLY AND IS
INTENDED TO BE ONLY A SUMMARY OF THE PRINCIPAL TAX CONSEQUENCES OF THE
TRANSACTION AND THE CONTINGENT PAYMENT. UNITHOLDERS SHOULD CONSULT THEIR OWN
TAX ADVISORS CONCERNING THE FEDERAL, STATE, LOCAL AND OTHER TAX CONSEQUENCES
TO THEM OF THE TRANSACTION AND THE CONTINGENT PAYMENT.
TAX CLASSIFICATION OF THE PARTNERSHIP
As a result of amendments to the Code made in 1987, publicly traded
partnerships are in general taxed as corporations. Because the Partnership was
publicly traded prior to the effective date of such amendments, the
Partnership qualifies for transition relief that is scheduled to expire at the
end of 1997. This transition relief permits the Partnership to continue to
enjoy partnership status until its first taxable year beginning in 1998, so
long as the Partnership does not add a substantial new line of business (or
otherwise ceases to be taxed as a partnership without regard to the publicly
traded partnership rules) before then. Thereafter, the Partnership will cease
to be treated as a partnership for federal income tax purposes unless it
ceases to be publicly traded. Under applicable Treasury Regulations, the
contribution of assets to the Partnership by Harris in exchange for LP Units
and the continuation of the investment advisory business of Harris by the
Partnership and its subsidiaries does not cause the Partnership to be treated
as having added a substantial new line of business and therefore does not
cause the Partnership to cease to qualify for the transition relief.
Accordingly, the Partnership should continue to be treated as a partnership
for federal income tax purposes following the Transaction and the Contingent
Payment unless and until that status changes pursuant to the rules described
above or until the Partnership voluntarily undergoes a Restructuring (as
defined in the Partnership's agreement of limited partnership) in anticipation
of or in connection with such a status change.
THE REMAINING PORTION OF THIS SECTION DESCRIBES CERTAIN FEDERAL INCOME TAX
CONSEQUENCES TO THE PARTNERSHIP AND ITS PARTNERS FOLLOWING THE TRANSACTION AND
THE CONTINGENT PAYMENT ON THE ASSUMPTION
11
<PAGE>
THAT THE PARTNERSHIP WILL REMAIN CLASSIFIED AS A PARTNERSHIP FOR FEDERAL
INCOME TAX PURPOSES. IF THE PARTNERSHIP DOES NOT SO CONTINUE TO BE CLASSIFIED
AS A PARTNERSHIP FOR FEDERAL INCOME TAX PURPOSES, MOST, IF NOT ALL, OF THE
DISCUSSION BELOW WOULD BE INAPPLICABLE TO THE UNITHOLDERS.
TAXATION OF THE PARTNERSHIP AND PARTNERS
Flow-Through of Partnership Income. Following each of the Transaction and
the Contingent Payment, the Partnership will continue to pay no federal income
tax. Instead, Unitholders will be required to report on their federal income
tax returns their allocable share of income, gains, losses, deductions and
credits of the Partnership. The receipt of a cash distribution from the
Partnership by a Unitholder will in general not result in taxable income,
unless the amount of the distribution exceeds the Unitholder's basis in his or
her LP Unit.
Issuance of Additional Units. Neither the Partnership nor the existing
Unitholders recognize gain or loss for federal income tax purposes in
connection with the Transaction or the Contingent Payment. The issuance of
additional LP Units as part of the Contingent Payment, however, increases the
outstanding number of LP Units, thereby reducing each Unitholder's
proportionate share of income, gain, loss, deduction, credit and distributions
of the Partnership.
Adjusted Basis of the Partnership in the Harris Assets. To the extent that
the Harris partners receive LP Units in exchange for assets contributed to the
Partnership and such LP Units are not repurchased by the Partnership, the
Partnership will have a "carryover" basis in the Harris assets, equal to the
basis those assets had in the hands of Old HALP. To the extent Harris partners
receive cash or notes, the Partnership will acquire additional basis in its
assets in an amount determined with reference to the amount of cash paid.
Because of the way in which the Transaction and the Contingent Payment are
structured, the additional basis in Partnership assets is less than the amount
of cash paid by the Partnership to the Harris partners.
Adjusted Tax Basis of LP Units. In general, a purchaser of LP Units takes a
tax basis in the LP Units equal to the amount paid for them, increased by the
Unitholder's allocable share of income and gain and decreased by (i) the
Unitholder's allocable share of loss, deduction (including amortization
deductions) or credit and (ii) the amount of distributions received with
respect to such LP Unit. Under applicable Treasury Regulations, each
Unitholder's adjusted tax basis of LP Units is increased by the Unitholder's
proportionate share of the nonrecourse debt incurred by the Partnership in
connection with the Transaction or the Contingent Payment. A Unitholder's
proportionate share of such nonrecourse debt is, however, included in the
amount realized when the LP Unit is sold.
Allocation of Taxable Income and Loss with Respect to the Harris
Business. Except as noted below, in general, items of taxable income and loss
attributable to the Harris business are allocated to Unitholders in proportion
to the number of LP Units held.
. Special Allocations in Respect of Certain Contributed Property. To the
extent the former Harris partners receive LP Units as consideration for
the contribution to the Partnership of the Harris assets, Code Section
704(c) requires that allocations of taxable income should be made
specially to the Harris partners so as to take account of the unrealized
pre-contribution taxable gain or loss in the property, i.e. the variation
between the contributor's adjusted tax basis in the property and the
property's fair market value at the time of contribution, adjusted in
certain circumstances for certain depreciation and amortization from the
date of contribution. Literal application of the rules of Code Section
704(c) and certain other sections of the Code (including Section 197,
described below) could result in differences in the tax attributes of LP
Units originally issued to The New England Mutual Life Insurance Company
("TNE"), the predecessor to Metropolitan Life, to RTI and to Old HALP and
the Harris partners that would not be fully offset by allocations
attributable to the Partnership's special tax election under Code Section
754, thereby producing different tax results to Unitholders depending
upon the identity of the transferor from whom the Unitholder obtained LP
Units. The Partnership intends to adopt certain conventions to ameliorate
this result. See "-- Conventions," below.
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<PAGE>
. Amortization; Section 197. The Partnership believes that, under Code
Section 197 and as a result of the special tax election which the
Partnership has made under Code Section 754, Unitholders purchasing LP
Units in the open market after August 10, 1993 (and in certain cases
Unitholders purchasing in the open market after January 1, 1993) were
through the date of the transfer by TNE of its investment in the
Partnership to Metropolitan Life allocated current amortization based on
the portion of the Unitholder's purchase price of the LP Units that was
allocated to certain intangible assets. To the extent that the assets
acquired from Harris are amortizable intangibles, the Partnership
believes that a Unitholder who purchased LP Units after the Transaction
should generally also, under the principles of these Code provisions,
have a special "amortizable" basis adjustment with respect to the Harris
intangible assets which should give rise to amortization deductions that
may be claimed by the Unitholder. The amortization is computed by
treating such assets as having a fifteen-year life, and a substantial
portion of such a Unitholder's purchase price is allocated to the
Partnership's intangible assets including, with respect to Unitholders
who purchased after the Transaction, the Harris intangible assets.
. Conventions. In order to promote uniformity among the LP Units while
making the allocations required by Code Section 704(c), the Partnership
intends to use certain accounting methods employed by other publicly
traded partnerships. In addition, although the transfer to Metropolitan
Life resulted in a technical termination of the Partnership for federal
income tax purposes, the Partnership expects to make certain tax
elections and adopt certain tax convention designed to provide
Unitholders who purchased after August 10, 1993 (and in certain cases
Unitholders purchasing in the open market after January 1, 1993) with
all or a substantial portion of the benefits of tax amortization that
they would have enjoyed if the termination had not occurred. The tax
accounting methodology that will be utilized by the Partnership
following the technical termination also involves the addition of
conventions designed to facilitate the public trading of units. The
Partnership believes that the relevant tax accounting methodologies and
conventions are generally responsive to the federal income tax rules
pertaining to partnerships, although such methodologies and conventions
involve matters of interpretation in areas of legal uncertainty and are
not necessarily fully consistent with technical aspects of certain
rules. If these special tax accounting methodologies were successfully
challenged by the IRS, Unitholders could receive smaller amortization
deductions than they currently receive, and issues could be raised as to
the fungibility of LP Units, which could affect the market value and/or
marketability of LP Units during the period in which the Partnership
remains a partnership for federal income tax purposes.
. Recapture. Amortization deductions will decrease a Unitholder's tax
basis, and will likely be recaptured as ordinary income upon disposition
of the LP Units. Under certain provisions of the Code relating to
recapture income, a Unitholder must notify the Partnership of its
disposition of LP Units.
STATE AND LOCAL TAX CONSIDERATIONS
The state and local income tax considerations to the Partnership and its
Unitholders depend in part on the tax laws of those jurisdictions in which the
Partnership is deemed to be doing business and in part on the tax laws of
those jurisdictions in which Unitholders themselves are resident or doing
business. The Partnership is doing business in a number of jurisdictions.
INFORMATION CONCERNING THE PARTNERSHIP
Information concerning the Partnership's business and financial condition is
incorporated herein by reference to certain annual, quarterly and current
reports filed by the Partnership with the Commission. See "INCORPORATION OF
CERTAIN DOCUMENTS BY REFERENCE."
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<PAGE>
INFORMATION CONCERNING HARRIS
Founded in 1976, Harris is a Chicago-based investment advisory firm with
$9.6 billion in assets under management at September 30, 1996. It has
developed institutional, private client and multi-manager product offerings,
totaling $4.2 billion in assets under management at September 30, 1996. Harris
also serves as the investment advisor for the $5.4 billion Oakmark Fund Group.
Prior to its acquisition on September 29, 1995, Harris was a privately held
partnership. Harris has been a value manager since its inception. Its
investment philosophy is to invest in companies at a substantial discount to
their true business value thereby minimizing downside risk and maximizing
long-term appreciation potential. This bottom-up investment process relies
primarily on internal fundamental research, including quantitative analysis,
management contacts and company visits.
Harris's principal executive offices are located at Two North LaSalle
Street, Suite 500, Chicago, Illinois 60602-3790, telephone (312) 621-0600.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following is management's discussion and analysis of financial condition
and results of operations for Harris for the nine months ended September 29,
1995, the nine months ended September 30, 1994, and the years ended December
31, 1994, 1993 and 1992. Financial statements for the respective periods
appear elsewhere in this Information Statement.
STATEMENT OF INCOME FOR THE NINE MONTHS ENDED SEPTEMBER 29, 1995 COMPARED TO
THE NINE MONTHS ENDED SEPTEMBER 30, 1994
Net income of $34.6 million for the nine months ended September 29, 1995
increased $2.7 million as compared to the net income of $31.9 million for the
nine months ended September 30, 1994.
Fees for account supervision and investment advisory services of $42.6
million for the nine months ended September 29, 1995 increased $5.0 million as
compared to $37.6 million from the same period last year. This increase was
due to strong performance and new subscriptions in the mutual funds, and asset
growth in the advisory accounts and limited partnerships.
Employee and partner compensation and benefits of $8.0 million for the nine
months ended September 29, 1995 increased $1.9 million from $6.1 million for
the same period last year, mainly as a result of increased variable
compensation tied to higher revenues.
Communication expense of $0.9 million for the nine months ended September
29, 1995 increased $0.4 million from $0.5 million for the same period last
year.
Other expense of $2.8 million for the nine months ended September 29, 1995
decrease $0.4 million from $3.2 million for the same period in 1994. The
decrease was due to lower general and administrative expenses.
STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER 31, 1994 COMPARED TO THE YEAR
ENDED DECEMBER 31, 1993
Net income of $43.0 million for the year ended December 31, 1994 increased
$8.3 million as compared to net income of $34.7 million for the year ended
December 31, 1993.
Fees for account supervision and investment advisory services of $47.2
million for the year ended December 31, 1994 increased $18.8 million as
compared to $28.4 million from the same period last year. The increase was
primarily due to new subscriptions in the mutual funds and asset growth in the
investment advisory accounts.
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<PAGE>
Net realized and unrealized gains (losses) on securities owned and sold, not
yet purchased decreased from gains of $38.6 million in 1993 to a loss of
($1.0) million in 1994. The decrease was due to the performance of the
underlying investments of the limited partnerships in 1994.
Equity in earnings (loss) of limited partnerships decreased from earnings of
$60.5 million in 1993 to a loss of $17.1 million in 1994. The 1994 loss is
substantially offset by limited partners' interest in (gain) loss of
consolidated partnerships which decreased from a gain of ($86.1) million in
1993 to a loss of $20.4 million in 1994. The decrease was primarily due to the
performance of the underlying investments of the limited partnerships.
Interest and dividend income of $8.3 million for the year ended December 31,
1994 increased $2.3 million from $6.0 million from the same period last year.
The increase was due to the changing asset mix of the underlying investments
of the limited partnerships.
Employee and partner compensation and benefits of $9.4 million for the year
ended December 31, 1994, was substantially unchanged from $9.3 million from
the same period in 1993.
Interest expense of $3.0 million for the year ended December 31, 1994
increased $1.4 million from the same period in 1993. The increase was due to
higher interest rates and higher borrowings at the limited partnerships.
External investment advisory fees of $1.3 million for the year ended
December 31, 1994 decreased from $2.0 million from the same period last year.
The decrease was due to decreased assets in managed accounts and performance
at the limited partnerships.
Other expense of $4.4 million for the year ended December 31, 1994 increased
$0.9 million from $3.5 million from the same period in 1993. The increase was
due to higher general and administrative expenses.
STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER 31, 1993 COMPARED TO THE YEAR
ENDED DECEMBER 31, 1992
Net income of $34.7 million for the year ended December 31, 1993 increased
$13.9 million as compared to net income of $20.8 million for the year ended
December 31, 1992.
Fees for account supervision and investment advisory services of $28.4
million for the year ended December 31, 1993 increased $11.0 million as
compared to $17.4 million from the same period in 1992. The increase was
primarily due to strong performance and new subscriptions in the mutual funds.
Net realized and unrealized gains on securities owned and sold, not yet
purchased increased from $19.8 million in 1992 to $38.6 million in 1993. The
increase was due to the performance of the underlying investments of the
limited partnerships.
Equity in earnings of limited partnerships increased from $26.0 million in
1992 to $60.5 million in 1993. The 1993 increase was substantially offset by
the limited partners' interest in the gain of consolidated partnerships which
increased from $36.5 million in 1992 to $86.1 million in 1993. The increase
was primarily due to performance and new subscriptions of the limited
partnerships.
Interest and dividends of $6.0 million for 1993 decreased $2.1 million from
$8.1 million from the same period in 1992. The decrease was due to the
changing asset mix of the underlying investments of the limited partnerships.
Employee and partner compensation and benefits of $9.3 million for the year
ended December 31, 1993 increased $1.5 million from $7.8 million from the same
period in 1992.
Interest expense of $1.6 million for the year ended December 31, 1993
decreased $1.3 million from the same period in 1992. The decrease was due to
lower interest rates and lower borrowings of the limited partnerships.
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<PAGE>
External investment advisory fees of $2.0 million for the year ended
December 31, 1993 increased from $0.3 million from the same period in 1992.
The increase was due to increased assets in managed accounts and fees tied to
performance of the limited partnerships.
Other expense of $3.5 million for the year ended December 31, 1993 increased
$1.4 million from $2.1 million from the same period in 1992. The increase was
due to higher general and administrative expenses.
CAPITAL RESOURCES AND LIQUIDITY
Cash and cash equivalents at September 29, 1995 of $13.4 million decreased
$3.4 million as compared to December 31, 1994 (based on the equity method of
accounting for Harris' investment in the Limited Partnerships). Capital
withdrawals by Harris' partners of $45.5 million for the nine months ended
September 29, 1995 exceeded net cash provided by operating activities of $43.0
million and net cash used in investing activities of $0.9 million.
Net cash provided by operating activities of $43.0 million for the nine
months ended September 29, 1995 increased $8.6 million as compared to $34.4
million for the nine months ended September 30, 1994. The increase was mainly
the result of the increase in net income of $2.7 million for the nine months
ended September 29, 1995, combined with increases in payables and decreases in
receivables.
Effective with the sale of Harris to NEIC on September 29, 1995 monthly
distributions are made to NEIC by Harris based on a percentage of total
revenues earned for the prior month in accordance with the partnership
agreement.
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VOTING SECURITIES AND PRINCIPAL HOLDERS
The following table sets out information as of December 11, 1996 as to (i)
each person known by the Partnership to hold 5% or more of the Partnership's
outstanding LP Units, (ii) each director of the Partnership's general partner,
(iii) each officer of the Partnership's general partner who was a "named
executive officer" in the Partnership's most recent annual report on Form 10-K
and (iv) all directors and executive officers of the Partnership's general
partner as a group. Except as otherwise indicated in the footnotes to this
table, the Partnership believes that the persons named in this table have sole
voting and investment power with respect to all of the LP Units indicated.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT OF
BENEFICIAL OWNER BENEFICIAL OWNERSHIP CLASS
---------------- -------------------- ----------
<S> <C> <C>
Metropolitan Life Insurance Company........... 20,790,000(1) 54.6%
One Madison Avenue
New York, New York 10010
Reich & Tang, Inc. ........................... 6,394,100(1) 16.8%
125 Cove Neck Road
Oyster Bay, New York 10020
Oscar L. Tang+................................ 3,030,136(2) 8.0%
600 Park Avenue
New York, New York 11771
William S. Antle III+......................... 0(3) 0
Robert J. Blanding+........................... 9,000 **
Paul E. Gray+................................. 500 **
Harry P. Kamen(+)............................. 0 0
Charles M. Leighton+.......................... 2,506(3) **
Victor A. Morgenstern+........................ 700,000(4) 1.8%
Catherine A. Rein+............................ 0 0
Peter S. Voss+*............................... 350,300(5) **
G. Neal Ryland*............................... 31,044(5) **
Sherry A. Umberfield*......................... 59,380 **
Edward N. Wadsworth*.......................... 56,760 **
All directors and executive officers of the
General Partner as a group (12 persons)...... 4,239,626 11.1%
</TABLE>
- -------
+ Director.
* Named Executive Officer.
** Less than 1%.
(1) Does not include 194,800 LP Units and 101,500 LP Units contributed to the
Partnership's Restricted Unit Plan (the "RUP") by Metropolitan Life and
Reich & Tang, Inc. ("RTI"), respectively, as to which the contributing
organizations retain certain income or reversionary rights. The ownership
of Metropolitan Life shown excludes 110,000 units of general partnership
interest ("GP Units") owned by the Partnership's general partner, which
represent all GP Units outstanding. All stockholders of RTI are parties to
a stockholders' agreement relating to the maintenance of such
corporation's status as an "S" corporation under the Internal Revenue Code
and which creates numerous reciprocal and other rights relating to the
disposition of stock in RTI by the stockholders.
(2) All Mr. Tang's LP Units are beneficially owned indirectly through stock
ownership in RTI, and such LP Units are included in the ownership
attributed to RTI set out immediately above. Included are (i) 35,309 LP
Units indirectly held by a trust for the lifetime benefit of Mr. Tang of
which Mr. Tang is one of two trustees, and (ii) 860,250 LP Units
indirectly held by trusts for Mr. Tang's children, as to which Mr. Tang
disclaims beneficial ownership. Mr. Tang is a director of the general
partner of the Partnership and serves as a consultant to the Partnership.
(3) Does not include accounts holding values equal to 347 LP Units and 8,758
LP Units for Messrs. Antle and Leighton, respectively, under a plan
whereby directors of the General Partner can defer some or all of their
Board retainer and meeting fees.
(4) Includes 180,000 LP Units held by a limited partnership of which Mr.
Morgenstern serves as general partner.
(5) Mr. Voss' and Mr. Ryland's totals include 300 and 1,000 LP Units,
respectively, which are owned by their children, as to which they disclaim
beneficial ownership.
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VOTE REQUIRED FOR APPROVAL
While not required by the Delaware Revised Uniform Limited Partnership Act
or by the Partnership's Agreement of Limited Partnership, the Partnership is
obtaining the written consent of the holders of a majority of the LP Units
outstanding to the Transaction in order to comply with certain rules of the
New York Stock Exchange relating to issuance of voting securities by listed
companies. However, because RTI and Metropolitan Life, who together represent
over 70% of the outstanding LP Units, have already indicated that they intend
to consent to the Transaction, no other Unitholder consents are being
solicited and no meeting of Unitholders is being held.
APPRAISAL RIGHTS
No Unitholders are entitled to appraisal rights in connection with the
Transaction.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All documents filed by the Partnership pursuant to Sections 13(a), 13(c), 14
or 15(d) of the Exchange Act after the date of this Information Statement and
before the Issuance shall be deemed incorporated herein by reference, and such
documents shall be deemed to be a part hereof from the date of filing of such
documents. Any statement contained herein or in a document incorporated or
deemed to be incorporated by reference herein shall be deemed to be modified
or superseded for purposes of this Information Statement to the extent that a
statement contained herein or in any other subsequently filed document which
also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of
this Information Statement.
The Partnership will provide without charge to each person to whom this
Information Statement is delivered, on the written or oral request of any such
person, a copy of any or all of the above documents incorporated herein by
reference (other than exhibits to such documents, unless such exhibits are
specifically incorporated by reference into the documents that are
incorporated into this Information Statement). Requests should be directed to
New England Investment Companies, L.P., 399 Boylston Street, Boston,
Massachusetts 02116, Attention: Edward N. Wadsworth, Secretary (617-578-3500).
The Partnership will provide such documents by first class mail, or other
equally prompt means, within one business day of receipt of any such request.
The following documents filed by the Partnership with the Commission are
incorporated herein by reference:
1. Annual Report on Form 10-K for the fiscal year ended December 31,
1995.
2. Quarterly Reports on Form 10-Q for the quarters ended March 31, 1996,
June 30, 1996, and September 30, 1996.
3. Current Reports on Form 8-K dated September 29, 1995, September 23,
1996, October 15, 1996, December 10, 1996, and January 3, 1997.
4. Exhibit (Partnership Admission Agreement) to Quarterly Report on Form
10-Q for the quarter ended June 30, 1995.
18
<PAGE>
INDEX TO UNAUDITED PRO FORMA CONDENSED FINANCIAL STATEMENTS
OF NEW ENGLAND INVESTMENT COMPANIES, L.P.
<TABLE>
<CAPTION>
PAGES
-----
<S> <C>
Unaudited Pro Forma Condensed Balance Sheet as of September 30, 1996.... F-2
Unaudited Pro Forma Condensed Statement of Income for the Nine Months
Ended September 30, 1996............................................... F-3
Unaudited Pro Forma Condensed Combined Statement of Income for the Nine
Months Ended September 30, 1995........................................ F-4
Unaudited Pro Forma Condensed Combined Statement of Income for the Year
Ended
December 31, 1995...................................................... F-5
Pro Forma Adjustments................................................... F-6
</TABLE>
INDEX TO FINANCIAL STATEMENTS OF HARRIS ASSOCIATES L.P.
<TABLE>
<CAPTION>
PAGES
-----
<S> <C>
Unaudited Consolidated Statements of Financial Condition as of September
29, 1995 and September 30, 1994......................................... F-7
Unaudited Consolidated Statements of Income for the Nine Months Ended
September 29, 1995 and September 30, 1994............................... F-8
Unaudited Consolidated Statements of Cash Flows for the Nine Months Ended
September 29, 1995 and September 30, 1994............................... F-9
Unaudited Consolidated Statements of Partners' Capital for the Nine
Months Ended September 29, 1995 and September 30, 1994.................. F-10
Notes to Unaudited Consolidated Financial Statements..................... F-11
Report of Independent Accountants........................................ F-12
Consolidated Statements of Financial Condition as of December 31, 1994,
1993 and 1992........................................................... F-13
Consolidated Statements of Income for the Years Ended December 31, 1994,
1993 and 1992........................................................... F-14
Consolidated Statements of Partners' Capital for the Years Ended December
31, 1994, 1993 and 1992................................................. F-15
Consolidated Statements of Cash Flows for the Years Ended December 31,
1994, 1993 and 1992..................................................... F-16
Notes to Consolidated Financial Statements............................... F-17
</TABLE>
F-1
<PAGE>
NEW ENGLAND INVESTMENT COMPANIES, L.P.
UNAUDITED PRO FORMA CONDENSED BALANCE SHEET
SEPTEMBER 30, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
NEIC ADJUSTMENTS NEIC
---- ----------- ---------
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents.................... $ 84,528 $ 84,528
Accounts receivable.......................... 59,674 59,674
Other........................................ 12,292 12,292
-------- --------
Total current assets....................... 156,494 156,494
Intangible assets.............................. 357,833 $ 76,000 (4) 433,833
Fixed assets................................... 18,173 18,173
Other assets................................... 52,084 52,084
-------- -------- --------
Total assets............................... $584,584 $ 76,000 $660,584
======== ======== ========
LIABILITIES AND PARTNERS' CAPITAL
Current Liabilities:
Accounts payable and other liabilities....... $ 30,027 $ 30,027
Accrued compensation and benefits............ 38,757 38,757
Distributions payable........................ 20,035 20,035
-------- --------
Total current liabilities.................. 88,819 88,819
Deferred compensation, benefits and other...... 20,783 20,783
Notes payable.................................. 115,000 $ 93,600 (4) 208,600
Deferred purchase consideration................ 41,000 (41,000)(4) --
-------- -------- --------
265,602 52,600 318,202
Partners' capital.............................. 318,982 23,400 (4) 342,382
-------- -------- --------
Total liabilities and partners' capital.... $584,584 $ 76,000 $660,584
======== ======== ========
</TABLE>
See Pro Forma Adjustments appearing on page F-6 of this Information Statement.
F-2
<PAGE>
NEW ENGLAND INVESTMENT COMPANIES, L.P.
UNAUDITED PRO FORMA CONDENSED STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
(IN THOUSANDS, EXCEPT PER UNIT DATA)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
NEIC ADJUSTMENTS NEIC
---- ----------- ---------
<S> <C> <C> <C>
Revenues:
Management and advisory fees................. $248,000 $248,000
Other revenues............................... 31,386 31,386
Gain on partial sale of affiliate............ 4,988 4,988
-------- --------
284,374 284,374
-------- --------
Expenses:
Compensation and Benefits.................... 134,462 134,462
Restricted unit plan compensation............ 7,514 7,514
Amortization of intangibles.................. 17,921 $ 1,225 (3) 19,146
Interest expense............................. 6,488 5,293 (4) 11,781
Other........................................ 64,529 64,529
-------- ------- --------
230,914 6,518 237,432
-------- ------- --------
Income before taxes............................ 53,460 (6,518) 46,942
Provision for income taxes..................... 2,555 2,555
-------- ------- --------
Net income..................................... $ 50,905 $(6,518) $ 44,387
======== ======= ========
Net income per unit............................ $ 1.42 $ 1.35
======== ========
Weighted average units outstanding............. 41,010 (2,471)(4) 38,539
======== ======= ========
</TABLE>
See Pro Forma Adjustments appearing on page F-6 of this Information Statement.
F-3
<PAGE>
NEW ENGLAND INVESTMENT COMPANIES, L.P.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995
(IN THOUSANDS, EXCEPT PER UNIT DATA)
<TABLE>
<CAPTION>
HARRIS STATEMENT OF INCOME
-------------------------- OTHER
PRO FORMA ADJUSTED PRO FORMA PRO FORMA
NEIC HARRIS ADJUSTMENTS HARRIS SUBTOTAL ADJUSTMENTS COMBINED
---- ------ ------------ -------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Management and advisory
fees.................. $162,682 $42,615 $42,615 $205,297 $205,297
Other revenues......... 26,964 4,860 $(1,724)(1) 3,136 30,100 30,100
Gain on partial sale of
affiliate............. 4,712 4,712 4,712
-------- ------- ------- ------- -------- --------
194,358 47,475 (1,724) 45,751 240,109 240,109
-------- ------- ------- ------- -------- --------
Expenses:
Compensation and
benefits.............. 88,454 7,951 7,951 96,405 $ 14,166 (2) 110,571
Restricted unit........ 4,391 4,391 4,391
Amortization of
intangibles........... 8,312 8,312 10,075 (3) 18,387
Interest expense....... 3,950 3,950 9,527 (4) 13,477
Other.................. 49,045 4,816 4,816 53,861 53,861
-------- ------- ------- ------- -------- -------- --------
154,152 12,767 12,767 166,919 33,768 200,687
-------- ------- ------- ------- -------- -------- --------
Income before taxes..... 40,206 34,708 (1,724) 32,984 73,190 (33,768) 39,422
Provision for income
taxes.................. 975 60 60 1,035 1,035
-------- ------- ------- ------- -------- -------- --------
Net income.............. $ 39,231 $34,648 $(1,724) $32,924 $ 72,155 $(33,768) $ 38,387
======== ======= ======= ======= ======== ======== ========
Net income per unit..... $ 1.36 $ 1.12
======== ========
Weighted average units
outstanding............ 32,038 6,271 (4) 38,309
======== ======== ========
</TABLE>
See Pro Forma Adjustments appearing on page F-6 of this Information Statement.
F-4
<PAGE>
NEW ENGLAND INVESTMENT COMPANIES, L.P.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT PER UNIT DATA)
<TABLE>
<CAPTION>
HARRIS STATEMENT OF INCOME
-------------------------- OTHER
PRO FORMA ADJUSTED PRO FORMA PRO FORMA
NEIC HARRIS ADJUSTMENTS(1) HARRIS SUBTOTAL ADJUSTMENTS COMBINED
---- ------ -------------- -------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Management and advisory
fees.................. $240,123 $42,615 $42,615 $282,738 $282,738
Other revenues......... 35,423 4,860 $(1,724) 3,136 38,559 38,559
Gain on partial sale of
affiliate............. 4,712 4,712 4,712
-------- ------- ------- ------- -------- --------
280,258 47,475 (1,724) 45,751 326,009 326,009
-------- ------- ------- ------- -------- --------
Expenses:
Compensation and
benefits.............. 131,155 7,951 7,951 139,106 $ 14,166 (2) 153,272
Restricted unit........ 5,843 5,843 5,843
Amortization of
intangibles........... 14,801 14,801 9,777 (3) 24,578
Interest expense....... 5,301 5,301 11,521 (4) 16,822
Other.................. 68,853 4,816 4,816 73,669 73,669
-------- ------- ------- ------- -------- -------- --------
225,953 12,767 12,767 238,720 35,464 274,184
-------- ------- ------- ------- -------- -------- --------
Income before taxes..... 54,305 34,708 (1,724) 32,984 87,289 (35,464) 51,825
Provision for income
taxes.................. 1,555 60 60 1,615 1,615
-------- ------- ------- ------- -------- -------- --------
Net income.............. $ 52,750 $34,648 $(1,724) $32,924 $ 85,674 $(35,464) $ 50,210
======== ======= ======= ======= ======== ======== ========
Net income per unit..... $ 1.73 $ 1.46
======== ========
Weighted average units
outstanding............ 33,824 4,485 (4) 38,309
======== ======== ========
</TABLE>
See Pro Forma Adjustments appearing on page F-6 of this Information Statement.
F-5
<PAGE>
NEW ENGLAND INVESTMENT COMPANIES, L.P.
PRO FORMA ADJUSTMENTS
(1) Other revenues have been adjusted to exclude certain nonrecurring
revenues of Harris that are excluded pursuant to the Agreement.
(2) Compensation expense has been adjusted based on the terms of the
partnership agreement.
(3) Intangible assets of approximately $295.0 million arising from the
acquisition of Harris represents the excess of the purchase price over the net
tangible assets acquired. Intangible assets include the Initial Purchase Price
of Harris of $175.0 million, the estimated Contingent Payment of $117.0
million, $4.9 million of acquisition related costs, less the net tangible
assets acquired of $1.5 million. The estimated Contingent Payment of $117.0
million is based upon the performance of Harris' business through September
30, 1996. The pro forma intangible asset amortization expense adjustment of
$1,225,000 for the nine months ended September 30, 1996, consists of pro forma
amortization expense of $3,990,000 on the estimated Contingent Payment (as of
September 30, 1996) of $117.0 million less historical amortization expense of
$2,765,000 recognized on the estimated Contingent Payment as of September 30,
1996. Pro forma combined intangible asset amortization expense related to
intangible assets capitalized concurrent with the Initial Purchase Price is
$8,113,000 and $6,085,000 for the year ended December 31, 1995 and the nine
months ended September 30, 1995, respectively. Pro forma combined intangible
asset amortization expense related to intangible assets related to the
Contingent Payment is $5,320,000 and $3,990,000 for the year ended December
31, 1995 and the nine months ended September 30, 1995, respectively. The
intangible assets are being amortized over periods ranging from 9 to 30 years
on a straight line basis.
(4) The Initial Purchase Price of $175.0 million was paid in part with
5,366,898 newly issued units totaling $95,262,000. The balance of $79,738,000
was settled in cash, which was financed by a privately placed seven-year
financing with an effective interest rate of 7.057%. In accordance with
generally accepted accounting principles, the Partnership recorded an
estimated minimum Contingent Payment of $41.0 million at December 31, 1995.
The pro forma adjustment at September 30, 1996 of $76.0 million represents the
incremental increase between the estimated Contingent Payment of $117.0
million as of September 30, 1996, and the recorded estimated minimum
Contingent Payment of $41.0 million that was recorded in accordance with
generally accepted accounting principles as of December 31, 1995. The
Contingent Payment will be settled in either LP Units, cash or a combination
thereof based on selection by the seller's partners. In accordance with
generally accepted accounting principles, in the Partnership's actual
financial statements the Contingent Payment is assumed to be made entirely
through the issuance of additional LP Units because the ultimate form of
payment is at the election of the seller's partners. Accordingly, the
historical weighted average units outstanding for the nine months ended
September 30, 1996, includes the impact of the Contingent Payment being made
entirely in units. The pro forma combined statements of income assume that 20%
(or $23.4 million) will be settled in 913,171 newly issued units (based on an
estimated per unit price of $25.63) and that 80% (or $93.6 million) will be
settled in cash. The cash portion of the Contingent Payment is expected to be
financed by borrowings under a credit agreement with an estimated effective
interest rate of 7.54%.
F-6
<PAGE>
HARRIS ASSOCIATES L.P. AND SUBSIDIARY
(A DELAWARE LIMITED PARTNERSHIP)
UNAUDITED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
AS OF SEPTEMBER 29, 1995 AND SEPTEMBER 30, 1994
<TABLE>
<CAPTION>
SEPTEMBER 29, SEPTEMBER 30,
1995 1994
------------- -------------
<S> <C> <C>
ASSETS
Cash and cash equivalents.......................... $13,359,091 $ 8,145,198
Receivables:
Investment advisory fees......................... 1,012,385 3,370,132
Broker and dealer................................ 217,964 1,106,147
Other............................................ 582,413 204,910
Investments in limited partnerships................ 1,485,743 1,379,777
Furniture, equipment and leasehold improvements, at
cost,
net of accumulated depreciation................... 1,046,428 468,113
Other assets....................................... 777,274 210,157
----------- -----------
Total assets....................................... $18,481,298 $14,884,434
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accounts payable and accrued expenses............ $ 3,740,791 $ 1,033,346
Other payables................................... 1,400,000 0
Unearned advisory fees........................... 445,291 414,078
Deferred rent payable............................ 270,714 153,573
----------- -----------
Total liabilities.................................. 5,856,796 1,600,997
Partners' capital.................................. 12,624,502 13,283,437
----------- -----------
Total liabilities and partners' capital............ $18,481,298 $14,884,434
=========== ===========
</TABLE>
See accompanying Notes to Unaudited Consolidated Financial Statements.
F-7
<PAGE>
HARRIS ASSOCIATES L.P. AND SUBSIDIARY
(A DELAWARE LIMITED PARTNERSHIP)
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 29, 1995 AND SEPTEMBER 30, 1994
<TABLE>
<CAPTION>
SEPTEMBER 29, SEPTEMBER 30,
1995 1994
------------- -------------
<S> <C> <C>
REVENUES
Fees for account supervision and investment
advisory services............................... $42,614,962 $37,574,259
Commissions...................................... 2,255,899 2,306,515
Interest and dividends........................... 398,471 221,620
Equity in earning of limited partnerships........ 73,055 715,540
Other............................................ 2,133,166 1,915,191
----------- -----------
Total revenues..................................... 47,475,553 42,733,125
----------- -----------
EXPENSES
Employee and partner compensation and benefits... 7,951,126 6,094,086
Clearing fees.................................... 483,066 558,111
Communications................................... 851,792 451,505
Occupancy and equipment rental................... 671,458 465,503
Other............................................ 2,810,308 3,179,754
----------- -----------
Total expenses..................................... 12,767,750 10,748,959
----------- -----------
Income from operations............................. 34,707,803 31,984,166
Provision for state income taxes................... 59,500 123,470
----------- -----------
Net income......................................... $34,648,303 $31,860,696
=========== ===========
</TABLE>
See accompanying Notes to Unaudited Consolidated Financial Statements.
F-8
<PAGE>
HARRIS ASSOCIATES L.P. AND SUBSIDIARY
(A DELAWARE LIMITED PARTNERSHIP)
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 29, 1995 AND SEPTEMBER 30, 1994
<TABLE>
<CAPTION>
SEPTEMBER 29, SEPTEMBER 30,
1995 1994
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income....................................... $ 34,648,303 $ 31,860,696
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization.................. 237,392 167,411
Equity in earnings of partnerships............. (73,055) (715,540)
Decrease in investment advisory fees
receivable.................................... 2,091,908 1,565,566
Decrease (increase) in due from brokers and
dealers....................................... 1,485,470 (561,508)
Decrease in other receivables.................. 546,805 1,995,315
Increase in other assets....................... (559,988) (23,130)
Increase (decrease) in accounts payable and
accrued expenses.............................. 3,163,931 (762,791)
Increase in other payables..................... 1,400,000 --
Increase in unearned advisory fees............. 20,248 36,482
Increase in deferred rent payable.............. 23,093 834,438
------------ ------------
Net cash provided by operating activities.......... 42,984,107 34,396,939
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to furniture, equipment and leasehold
improvements.................................... (837,361) (146,458)
Increase in investments in limited partnerships,
net............................................. (32,454) (290,830)
Withdrawals of equity in and repayments of
advances to partnerships........................ -- 11,715,840
------------ ------------
Net cash provided by (used in) investing
activities........................................ (869,815) 11,278,552
------------ ------------
CASH FLOWS FOR FINANCING ACTIVITIES:
Capital contributions............................ -- 429,011
Capital withdrawals.............................. (45,534,812) (47,303,358)
------------ ------------
Net cash used in financing activities.............. (45,534,812) (46,874,347)
------------ ------------
Decrease in cash and cash equivalents.............. (3,420,520) (1,198,856)
Cash and cash equivalents, beginning of period..... 16,779,611 9,344,054
------------ ------------
Cash and cash equivalents, end of period........... $ 13,359,091 $ 8,145,198
============ ============
</TABLE>
See accompanying Notes to Unaudited Consolidated Financial Statements.
F-9
<PAGE>
HARRIS ASSOCIATES L.P. AND SUBSIDIARY
(A DELAWARE LIMITED PARTNERSHIP)
UNAUDITED CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL
FOR THE NINE MONTHS ENDED SEPTEMBER 29, 1995 AND SEPTEMBER 30, 1994
<TABLE>
<CAPTION>
SEPTEMBER 29, SEPTEMBER 30,
1995 1994
------------- -------------
<S> <C> <C>
Balance, beginning of period...................... $ 23,511,011 $ 28,297,088
Contributions................................... -- 429,011
Withdrawals..................................... (45,534,812) (47,303,358)
Net income...................................... 34,648,303 31,860,696
------------ ------------
Balance, end of period............................ $ 12,624,502 $ 13,283,437
============ ============
</TABLE>
See accompanying Notes to Unaudited Consolidated Financial Statements.
F-10
<PAGE>
HARRIS ASSOCIATES L.P. AND SUBSIDIARY
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements of Harris Associates L.P. (Harris)
include the following limited partnerships in which Harris was the general
partner which are accounted for using the equity basis of accounting: Aurora
Limited Partnership, Perseus Partners Limited Partnership, Pleiades Partners
L.P., Stellar Partners L.P. and SPA Partners L.P. (the "Limited Partnerships).
The partnership agreements were amended in July 1995 to allow Harris to be
replaced as general partner, at which point the equity method of accounting
was adopted. Prior to the amendment of these partnership agreements, Harris
consolidated the results of the Limited Partnerships with its financial
results. In the opinion of management, all adjustments, consisting only of
normal recurring accruals, have been made to present fairly the financial
statements of Harris as of and for the nine months ended September 29, 1995
and September 30, 1994.
2. TRANSACTION WITH NEW ENGLAND INVESTMENT COMPANIES, L.P.
On June 22, 1995, New England Investment Companies, L.P. ("NEIC") agreed to
acquire certain of the assets and assume certain of the liabilities of Harris
in exchange for limited partnership units of NEIC. The Transaction closed on
September 29, 1995. The information shown in the foregoing financial
statements reflects transactions that occured prior to the closing of the
Transaction.
F-11
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of Harris Associates L.P.:
We have audited the accompanying consolidated statement of financial
condition of HARRIS ASSOCIATES L.P. (a Delaware limited partnership) AND
SUBSIDIARIES as of December 31, 1994, 1993 and 1992, and the related
consolidated statements of income, partners' capital and cash flows for each
of the years then ended. These financial statements are the responsibility of
the Partnership's management. Our responsibility is to express an opinion on
these financial statements based on our audits. We did not audit the financial
statements of Hesperus Partners, Ltd. ("Hesperus"), Aurora Limited Partnership
("Aurora"), Perseus Partners Limited Partnership ("Perseus"), Pleiades
Partners L.P. ("Pleiades"), (all Illinois limited partnerships), and Stellar
Partners L.P. ("Stellar") (a Delaware limited partnership). The investments in
these partnerships represent 6%, 43% and 42% of partners' capital and the
equity in earnings represent 2%, 31% and 48% of net income in 1994, 1993 and
1992, respectively. The financial statements of Hesperus, Aurora, Perseus,
Pleiades and Stellar were audited by other auditors, whose reports have been
furnished to us, and our opinion, insofar as it relates to the amounts
included for such partnerships, is based solely on the reports of the other
auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, based on our audits and the reports of other auditors, the
financial statements referred to above present fairly, in all material
respects, the financial position of Harris Associates, L.P. and Subsidiaries
as of December 31, 1994, 1993 and 1992 and the results of their operations and
their cash flows for each of the years then ended, in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Chicago, Illinois,
February 10, 1995
(except June 9, 1995, as to the financial statements audited by others see
Note 2, and June 22, 1995, as to subsequent events, see Note 15)
F-12
<PAGE>
HARRIS ASSOCIATES L.P. AND SUBSIDIARIES
(A DELAWARE LIMITED PARTNERSHIP)
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
AS OF DECEMBER 31, 1994, 1993 AND 1992
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
ASSETS
CASH AND CASH EQUIVALENTS.............. $ 27,378,010 $ 73,859,198 $ 36,989,652
RECEIVABLES:
Investment advisory fees............. 2,808,034 4,583,820 956,907
Brokers and dealers (Note 3)......... 22,331,652 25,767,979 125,420,712
Other................................ 2,198,297 3,327,022 1,589,894
SECURITIES OWNED (cost of $141,911,574,
$128,187,343 and $62,586,273 in 1994,
1993 and 1992, respectively):
Corporate bonds and notes............ 76,975,833 61,222,522 11,403,034
Preferred stocks..................... 12,094,742 20,033,638 9,743,875
Common stocks........................ 27,411,424 94,464,728 60,101,563
Warrants and options................. 16,210,610 8,189,266 6,639,829
Other................................ 413,078 352,870 1,460,856
------------ ------------ ------------
133,105,687 184,263,024 89,349,157
INVESTMENTS IN AND ADVANCES TO LIMITED
PARTNERSHIPS (Note 4)................. 405,491,227 364,747,219 202,729,126
DESIGNATED INVESTMENTS (Note 5)........ 5,461,198 5,949,080 2,370,432
FURNITURE, EQUIPMENT AND LEASEHOLD
IMPROVEMENTS, at cost, net of
accumulated depreciation of
$1,712,518, $1,475,481 and
$1,275,720............................ 446,460 489,066 416,186
OTHER ASSETS........................... 243,740 211,014 235,953
------------ ------------ ------------
Total assets....................... $599,464,305 $663,197,422 $460,058,019
============ ============ ============
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Loans payable (Note 6)............... $ 24,340,300 $ 10,000,000 $ 11,791,000
Payable to brokers and dealers (Note
3).................................. 4,314,671 9,695,428 2,144,932
Securities sold, not yet purchased
(proceeds of $119,350,901,
$73,518,320 and $120,475,471 in
1994, 1993 and 1992, respectively)
Corporate bonds and notes.......... 373,208 234,769 8,360
Preferred stocks................... 44,909,705 809,758 --
Common stocks...................... 68,101,180 79,226,121 119,133,661
Warrants and options............... 208,348 1,483,311 1,389,649
------------ ------------ ------------
113,592,441 81,753,959 120,531,670
Accounts payable and accrued
expenses............................ 2,184,730 4,367,174 1,090,255
Unearned advisory fees............... 425,043 377,596 264,628
Consolidated Partnerships
Limited partners' contributions
received in advance................ 17,915,213 65,854,030 27,417,300
Limited partners' withdrawals
payable............................ 120,243,332 25,830,666 9,626,091
------------ ------------ ------------
Total liabilities.................. 283,015,730 197,878,853 172,865,876
LIMITED PARTNERS' INTERESTS IN
CONSOLIDATED PARTNERSHIPS............. 292,937,564 437,021,481 273,324,512
PARTNERS' CAPITAL (Notes 8 and 14)..... 23,511,011 28,297,088 13,867,631
------------ ------------ ------------
Total liabilities and partners'
capital........................... $599,464,305 $663,197,422 $460,058,019
============ ============ ============
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
F-13
<PAGE>
HARRIS ASSOCIATES L.P. AND SUBSIDIARIES
(A DELAWARE LIMITED PARTNERSHIP)
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
REVENUES:
Fees for account supervision and
investment advisory services (Note
10)............................... $ 47,243,782 $ 28,414,146 $ 17,359,315
Commissions (Note 10).............. 3,047,876 4,566,821 3,670,993
Interest........................... 6,915,137 2,899,872 6,154,208
Dividends.......................... 1,341,710 3,110,670 1,969,153
Net realized and unrealized gains
(losses) on securities owned and
sold, not yet purchased........... (957,516) 38,568,354 19,812,274
Equity in earnings (loss) of
limited partnerships
(Note 4).......................... (17,065,405) 60,470,405 26,038,715
Other (Note 10).................... 3,850,791 2,639,301 2,837,887
------------ ------------ ------------
Total revenues................... 44,376,375 140,669,569 77,842,545
------------ ------------ ------------
EXPENSES:
Employee and partner compensation
and benefits
(Note 11)......................... 9,447,833 9,291,564 7,809,208
Clearing fees...................... 744,394 716,358 875,098
Interest........................... 2,988,627 1,574,323 2,834,610
Dividends on short stock........... 855,380 1,054,613 5,203,319
External investment advisory fees.. 1,305,243 2,031,737 295,956
Communications..................... 592,053 408,658 142,958
Occupancy and equipment rental..... 1,471,294 1,315,002 1,204,878
Other.............................. 4,358,980 3,498,571 2,134,661
------------ ------------ ------------
Total expenses................... 21,763,804 19,890,826 20,500,688
------------ ------------ ------------
Income before limited partners'
interest in Consolidated
Partnerships...................... 22,612,571 120,778,743 57,341,857
LIMITED PARTNERS' INTEREST IN (GAIN)
LOSS OF CONSOLIDATED PARTNERSHIPS... 20,393,158 (86,056,438) (36,493,838)
------------ ------------ ------------
Net income....................... $ 43,005,729 $ 34,722,305 $ 20,848,019
============ ============ ============
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
F-14
<PAGE>
HARRIS ASSOCIATES L.P. AND SUBSIDIARIES
(A DELAWARE LIMITED PARTNERSHIP)
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
BALANCE, beginning of year............ $ 28,297,088 $ 13,867,631 $ 13,454,540
Contributions....................... 429,011 354,236 184,451
Withdrawals......................... (48,220,817) (20,647,084) (20,619,379)
Net income.......................... 43,005,729 34,722,305 20,848,019
------------ ------------ ------------
BALANCE, end of year.................. $ 23,511,011 $ 28,297,088 $ 13,867,631
============ ============ ============
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
F-15
<PAGE>
HARRIS ASSOCIATES L.P. AND SUBSIDIARIES
(A DELAWARE LIMITED PARTNERSHIP)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income....................... $ 43,005,729 $ 34,722,305 $ 20,848,019
Adjustments to reconcile net
income to net cash provided by
(used in) operating activities
Depreciation and amortization.. 250,722 214,765 179,543
Equity in (earnings) loss of
partnerships.................. 17,065,405 (60,470,405) (26,038,715)
Limited partners interest in
gain (loss) of Consolidated
Partnerships.................. (20,393,158) 86,056,438 36,493,838
Decrease in receivables........ 6,340,838 94,288,692 253,743,119
(Increase) decrease in
marketable securities......... 51,157,337 (94,913,867) (8,276,034)
(Increase) decrease in
designated investments........ 487,882 (3,578,648) (835,767)
Increase in investments in and
advances to limited
partnerships, net............. (57,809,413) (101,547,688) (4,489,354)
(Increase) decrease in other
assets........................ (46,412) 14,484 (6,620)
Increase (decrease) in accounts
payable and accrued expense... (2,182,444) 3,276,919 (70,532)
Increase (decrease) in payable
for securities sold not yet
purchased..................... 31,838,482 (38,777,711) (253,765,049)
Increase (decrease) in unearned
advisory fees................. 47,447 112,968 (18,815)
Increase (decrease) in payable
to brokers and dealers........ (5,380,757) 7,550,496 2,144,932
------------- ------------- -------------
Net cash provided by (used
in) operating activities.... 64,381,658 (73,051,252) 19,908,565
------------- ------------- -------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Additions to furniture, equipment
and leasehold improvements ..... (194,430) (277,190) (141,594)
------------- ------------- -------------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from loans.............. 95,935,311 113,022,370 130,356,902
Repayments of loans.............. (81,595,011) (114,813,370) (181,254,583)
Consolidated Partnerships
Increase (decrease) in limited
partners' interests........... (123,690,759) 77,640,531 44,108,531
Increase (decrease) in limited
partners' contributions
received in advance........... (47,938,817) 38,436,730 24,978,204
Increase (decrease) in limited
partners' withdrawals
payable....................... 94,412,666 16,204,575 (20,427,081)
Capital contributions............ 429,011 354,236 184,451
Capital withdrawals.............. (48,220,817) (20,647,084) (20,619,379)
------------- ------------- -------------
Net cash (used in) provided
by financing activities..... (110,668,416) 110,197,988 (22,672,955)
------------- ------------- -------------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS.................. (46,481,188) 36,869,546 (2,905,984)
CASH AND CASH EQUIVALENTS, begin-
ning of year...................... 73,859,198 36,989,652 39,895,636
------------- ------------- -------------
CASH AND CASH EQUIVALENTS, end of
year.............................. $ 27,378,010 $ 73,859,198 $ 36,989,652
============= ============= =============
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
F-16
<PAGE>
HARRIS ASSOCIATES L.P. AND SUBSIDIARIES
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1993 AND 1992
1. SIGNIFICANT ACCOUNTING POLICIES:
The consolidated financial statements include the accounts of Harris
Associates L.P. ("HALP") and Harris Associates Securities L.P. ("HASLP"), of
which HALP is a 99% limited partner. The consolidated financial statements
also include the following entities of which HALP owned the majority voting
interest or over which it exercised significant control: Venus Partners
("Venus"), Hesperus Partners, Ltd. ("Hesperus"), Aurora Limited Partnership
("Aurora"), Perseus Partners Limited Partnership ("Perseus"), Pleiades
Partners L.P. ("Pleiades") and Stellar Partners L.P. ("Stellar"), hereinafter
referred to as the "Consolidated Partnerships". Statement of Financial
Accounting Standards ("SFAS") No. 94, "Consolidation of all Majority-Owned
Subsidiaries," requires that such entities be consolidated (see Note 2). All
intercompany accounts and transactions have been eliminated in consolidation.
HALP and consolidated subsidiaries are hereinafter referred to as "the
Partnership."
Securities owned and securities sold, not yet purchased are valued as
follows: securities that are traded on a national securities exchange or
securities listed on the NASDAQ National Market System are valued at the last
sales price on the exchange or market where primarily traded or listed, or if
no last sale, the mean between the "bid" and "ask" prices.
Marketable securities sold, not yet purchased, represent obligations of the
Partnership to deliver a specified security at a future date which will
necessitate purchasing the security at then-prevailing prices.
Investments in limited partnerships are valued at the Investment
Partnership's proportionate interest in the fair value of the underlying net
assets of such limited partnerships determined from their audited financial
statements. The resulting gains and losses are reflected in the accompanying
statements of income.
Securities transactions are accounted for on the trade date (date the order
to buy or sell is executed). Dividend income and expense is recorded on the
ex-dividend date and interest income is recorded on the accrual basis.
Realized gains and losses from securities transactions are reported on the
first-in, first-out basis.
Assets and liabilities denominated in foreign currencies are translated at
the closing rate of exchange at the end of the period. Transactions during the
period, including purchases and sales of securities, are translated at the
rate of exchange prevailing on the date of the transactions. Forward foreign
currency contracts and foreign currencies are valued at the forward and
current exchange rates, respectively, prevailing on the day of valuation. All
highly liquid investments with a maturity of three months or less at the date
of purchase are considered to be cash equivalents.
Limited partners' contributions received in advance represent amounts
contributed by limited partners in the Consolidated Partnerships prior to
December 31, which are to become effective as of January 1 of the following
year. As of January 1 of the following year, these amounts are classified as
limited partners' interests in Consolidated Partnerships. Limited partners'
withdrawals payable represent limited partners' withdrawals from the
Consolidated Partnerships as of December 31 for those who have given notice
prior to December 31, that they are withdrawing amounts as of year-end.
Depreciation is computed under accelerated methods over estimated useful
lives of 5 to 10 years. Amortization of leasehold improvements is computed
over the lesser of their economic useful lives or the remaining term of the
lease.
F-17
<PAGE>
HARRIS ASSOCIATES L.P. AND SUBSIDIARIES
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1994, 1993 AND 1992
No provision is made for federal income tax purposes since the Partnership's
income is includable in the income tax returns of the individual partners. The
Partnership is subject to an Illinois replacement tax equal to 1 1/2% of net
income, as defined.
2. CONSOLIDATED PARTNERSHIPS:
HALP was the general partner in Venus, a limited partnership which engaged
in "reverse conversion" transactions through early 1993. HALP was the general
partner in Hesperus, a private investment partnership, through December 31,
1993. Also, HALP is currently the general partner in Aurora, Perseus, Pleiades
and Stellar, limited partnerships which trade securities and invest in other
partnerships which trade various financial instruments. Stellar commenced
operations in 1994.
HALP's percentage of capital was approximately 99% of Venus, 3% of Hesperus
and 1% of the other partnerships. HALP received a pro rata allocation of
income or loss in addition to other priority allocations. In certain
instances, the net income of the individual Consolidated Partnerships had to
exceed specified amounts before HALP received such a priority allocation.
The combined condensed financial information of Venus, Hesperus, Aurora,
Perseus, Pleiades and Stellar for each of the three years ended December 31,
1994, 1993 and 1992, are as follows (in thousands of dollars):
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Assets--
Cash and cash equivalents....................... $ 10,914 $ 64,515 $ 36,573
Receivables..................................... 21,697 26,350 125,755
Securities owned................................ 132,790 184,264 89,349
Investments in and advances to limited
partnerships................................... 405,491 364,747 202,729
Designated investments and other assets......... 5,488 5,973 2,405
-------- -------- --------
Total assets.................................. $576,380 $645,849 $456,811
======== ======== ========
Liabilities--
Loans payable................................... $ 24,340 $ 10,000 $ 3,601
Securities sold, not yet purchased.............. 113,592 81,754 120,532
Other liabilities............................... 5,971 13,299 2,899
Limited partners' contributions received in
advance and withdrawals payable................ 138,159 91,685 37,043
-------- -------- --------
Total liabilities............................. 282,062 196,738 164,075
Partners' capital................................. 294,318 449,111 292,736
-------- -------- --------
Total liabilities and partners' capital....... $576,380 $645,849 $456,811
======== ======== ========
Revenues, including change in unrealized
appreciation (depreciation) of securities........ $(10,159) $105,343 $ 53,944
Expenses, including advisory and administrative
fees to HALP..................................... 9,517 8,732 11,640
-------- -------- --------
Net income (loss)............................. $(19,676) $ 96,611 $ 42,304
======== ======== ========
Carrying value of investments of HALP at December
31............................................... $ 1,380 $ 12,089 $ 19,412
HALP's share of net income exclusive of advisory
and administrative fees paid to HALP............. 716 10,555 6,957
Advisory and administrative (management) fees paid
to HALP.......................................... 3,739 3,690 3,487
======== ======== ========
</TABLE>
F-18
<PAGE>
HARRIS ASSOCIATES L.P. AND SUBSIDIARIES
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1994, 1993 AND 1992
3. DUE TO/FROM BROKERS AND DEALERS:
The Partnership conducts its clearing and depository operations for its
trading activities through various brokers pursuant to customary agreements.
Due to/from brokers and dealers includes cash balances with the Partnership's
clearing brokers, net amounts receivable and payable for securities
transactions that have not settled and collateral for a specified percentage
of the value of all marketable securities sold, not yet purchased.
4. INVESTMENTS IN LIMITED PARTNERSHIPS:
The Investment Partnerships have investments in limited partnerships which
engage in various trading strategies. Underlying investments of the limited
partnerships are valued at current market and can include purchases and short
sales of government or government agency securities, corporate stocks and
bonds, commodity futures and forward contracts, options, repurchase and
reverse repurchase agreements, rate caps and rate swaps, commercial paper and
other securities. At December 31, 1994, the Investment Partnerships in the
aggregate had investments in approximately 60 limited partnerships; the
largest investment in any one limited partnership being approximately
$25,000,000.
5. DESIGNATED INVESTMENTS:
One of the Investment Partnerships has invested in certain limited
partnerships, which have allocated, among the partners of such limited
partnerships, a fixed percentage ownership interest in any appreciation or
depreciation and realized gains or losses on disposition of certain
investments, hereinafter referred to as "Designated Investments." Designated
Investments are valued at fair value as determined by the general partners of
such limited partnerships.
Capital consisting of each partner's share of the cost and net unrealized
appreciation or depreciation resulting from designated investments is
segregated within partners' capital of such partnership. The cost of such
investments, as well as related unrealized gains or losses, is not available
for distribution until the investment is sold or otherwise disposed of by the
limited partnership.
6. LINE-OF-CREDIT ARRANGEMENTS:
Certain of the Consolidated Partnerships maintain separate lines of credit
agreements with banks aggregating $59,200,000 at December 31, 1994. Interest
is payable at the prime or corporate base rate, as determined by the bank. The
total borrowings are limited as defined in the agreements, including, among
other things, the borrowings are limited to 33% of the net assets of such
Investment Partnerships. During 1992, HALP had a $20,000,000 line of credit,
the sole purpose of which was to invest in and make advances to Venus. Any
loans thereunder were collateralized by HALP's general partnership interest in
Venus and the guarantee of certain partners of HALP with interest at
approximately 1.5 times the federal funds rate.
The average borrowings on the credit arrangements described above and the
average rate of interest for 1994, 1993 and 1992 were $37,441,000, $23,919,000
and $32,104,000 and 5.6%, 4.6% and 5.1%, respectively.
Interest expense incurred on such lines of credit was $2,157,128, $1,159,932
and $2,069,456 for the years ended December 31, 1994, 1993 and 1992,
respectively.
F-19
<PAGE>
HARRIS ASSOCIATES L.P. AND SUBSIDIARIES
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1994, 1993 AND 1992
7. COMMITMENTS AND CONTINGENCIES:
HALP had a lease for office facilities through 1998 which it renegotiated in
1994. At December 31, 1994, HALP's lease for office facilities requires
minimum annual rental payments, excluding escalations and increases in
operating expenses and taxes, as follows:
<TABLE>
<S> <C>
Year ending December 31--
1995........................................................ $ 460,299
1996........................................................ 517,199
1997........................................................ 526,237
1998........................................................ 535,275
1999........................................................ 544,313
2000 to 2004................................................ 2,511,067
----------
Total..................................................... $5,094,390
==========
</TABLE>
Under the terms of the lease agreements, rental payments for certain periods
were waived. HALP computed an average monthly rental for the entire term of
the lease and charged this amount to rental expense each month. Rental expense
for 1994, 1993 and 1992 was $449,886, $409,174 and $456,998, respectively. The
difference between the average monthly rental and the actual rental payment is
accounted for as deferred rent payable. This difference will be offset in
future years when the actual rental payments exceed the calculated average
monthly rental.
HASLP is an introducing broker and clears all transactions with and for
customers on a fully disclosed basis with another broker-dealer. HASLP
promptly transmits all customer funds and securities to such clearing broker-
dealer. In connection with this arrangement, HASLP is contingently liable for
the payment of securities purchased and the delivery of securities sold by
customers.
8. NET CAPITAL REQUIREMENTS:
As a registered broker-dealer and member of the National Association of
Securities Dealers, Inc., HASLP is subject to the Uniform Net Capital Rule
15c3-1 of the Securities and Exchange Commission ("SEC"). This rule requires
that net capital, as defined, shall be at least the greater of $100,000 or 6
2/3% of aggregate indebtedness, as defined. Net capital and aggregate
indebtedness change from day to day, but at December 31, 1994, HASLP had
required capital of $100,000 and excess net capital of $158,645. The ratio of
aggregate indebtedness to net capital was .59 to 1. HASLP was in compliance
with the net capital rule at December 31, 1993 and 1992. Under the agreement
with its clearing broker, HASLP is to maintain minimum net capital of
$250,000.
9. EXEMPTION FROM SEC RULE 15C3-3:
HASLP is exempt from the provisions of SEC Rule 15c3-3 because it clears all
customer trades with another broker-dealer on a fully disclosed basis.
10. RELATED PARTIES:
Harris Associates, Inc. ("HAI") is the general partner of HALP and HASLP.
F-20
<PAGE>
HARRIS ASSOCIATES L.P. AND SUBSIDIARIES
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1994, 1993 AND 1992
HALP provides investment advisory and administrative services to Harris
Associates Investment Trust ("HAIT"), a series of mutual funds that utilize
the Oakmark name. Certain of HAIT's officers and trustees are also partners
and employees of HALP. During 1994, 1993 and 1992, HALP received $28,048,203,
$11,289,461 and $613,801, respectively, in fees from HAIT. HASLP received
$272,804, $287,438 and $191,464 in commissions from HAIT during 1994, 1993 and
1992, respectively.
Pursuant to an agreement dated June 30, 1992, certain partners of HALP
withdrew from HALP. In connection with such withdrawal, those partners were
relieved of certain obligations imposed under HALP's Partnership Agreement. As
consideration for being relieved of those obligations, the withdrawing
partners surrendered their partnership units and agreed to pay HALP
approximately $2,500,000 on June 30, 1992, plus additional amounts to be paid
through June 30, 1995. Concurrent with the withdrawal of those partners from
HALP, the investment advisory agreements with The Acorn Fund, Inc. ("Acorn")
and certain other persons were terminated and Acorn and those other persons
entered into new investment advisory agreements with an entity formed by the
withdrawn partners. HALP received $3,384,837, $1,892,432 and $2,739,600 in
1994, 1993 and 1992, respectively, under this agreement. HALP received
$3,377,531 in fees for investment advisory services in the first half of 1992.
11. EMPLOYEE BENEFIT PLAN:
HALP has a profit-sharing plan covering partners and employees.
Contributions to the plan are at the discretion of HALP. HALP funds all
contributions on a current basis. The amounts charged to expense for 1994,
1993 and 1992 were $934,899, $1,035,512 and $879,219, respectively.
12. FORWARD FOREIGN CURRENCY AND FUTURES COMMODITY CONTRACTS:
Certain of the Investment Partnerships, through an advisory account, enter
into forward foreign currency contracts to hedge the currency risks associated
with the purchase of foreign securities. The Investment Partnerships entered
into forward foreign currency contracts to deliver 26,377,000, 11,073,000 and
1,341,000 Canadian dollars in exchange for $19,196,371, $8,419,186 and
$1,056,332 at December 31, 1994, 1993 and 1992, respectively. The unrealized
gain of $391,555, $55,474 and $6,456 at December 31, 1994, 1993 and 1992,
respectively, is reflected in the accompanying statements of income. The
Investment Partnerships bear the risk of changes in foreign exchange rates and
the risk that the counterparty fails to perform under terms of the contract.
At December 31, 1993 and 1992, Hesperus had sold S&P 500 futures contracts
short with a contractual amount of $24,500,000 and $19,700,000, respectively.
Such contracts were recorded on the trade date and marked to market with the
gain/loss reflected in net realized and unrealized gains (losses) on
securities owned.
13. ADDITIONAL CASH FLOW INFORMATION:
Illinois replacement tax paid was $80,195, $69,780 and $62,781 during 1994,
1993 and 1992, respectively. Interest expense paid was $2,530,716, $1,354,658
and $2,692,935 during 1994, 1993 and 1992, respectively.
14. SUBSEQUENT PARTNERS' CAPITAL WITHDRAWALS:
During the period January 1, 1995, to February 10, 1995, the partners
withdrew capital of $20,404,531.
F-21
<PAGE>
HARRIS ASSOCIATES L.P. AND SUBSIDIARIES
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED)
DECEMBER 31, 1994, 1993 AND 1992
15. SUBSEQUENT EVENTS:
On June 22, 1995, New England Investment Companies, L.P. ("NEIC") agreed
with HALP and HAI to acquire certain of the assets and assume certain of the
liabilities of HALP, including its interest in HASLP, in exchange for limited
partnership units of NEIC. It is anticipated that, prior to the closing of the
agreed-upon transaction, the partners of HALP would make substantial capital
withdrawals, leaving HALP with minimal assets.
F-22
