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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1997 OR
[_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________________ to ______________________
Commission File Number 1-9468
NEW ENGLAND INVESTMENT COMPANIES, L.P.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 13-3405992
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
399 BOYLSTON STREET, BOSTON, 02116
MASSACHUSETTS (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE
OFFICES)
Registrant's telephone number, including area code (617) 578-3500
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which
UNITS OF LIMITED PARTNER INTEREST registered
NEW YORK STOCK EXCHANGE
Securities registered pursuant to section 12(g) of the Act:
NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [_]
The aggregate market value of units of limited partner interest held by non-
affiliates of the registrant at February 13, 1998 (based on the closing price
at which the units were sold on the New York Stock Exchange) was approximately
$199 million.
The issuer is a limited partnership. There were 6,185,500 units of limited
partner interest and 110,000 units of general partner interest outstanding at
February 13, 1998.
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PART I
ITEM 1. BUSINESS.
BACKGROUND
New England Investment Companies, L.P. ("NEIC" or the "Partnership") is a
publicly-traded limited partnership. Its primary business is acting as the
advising general partner of NEIC Operating Partnership, L.P. (the "Operating
Partnership"). NEIC's main asset consists of units representing a general
partner's interest in the Operating Partnership. The Operating 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,
mutual funds and private clients. The business of the Operating Partnership is
conducted through affiliated investment management and distribution and
consulting firms, all but one of which are wholly owned by the Operating
Partnership.
The 1993 Combination. The business now conducted by the Operating
Partnership resulted from the combination (the "Combination"), on September
15, 1993, of the businesses of New England Investment Companies, Inc. ("Old
NEIC"), a wholly owned subsidiary of New England Mutual Life Insurance Company
("New England Mutual"), and Reich & Tang L.P. ("Reich & Tang"), a publicly-
traded investment manager listed on the New York Stock Exchange. The
Combination was accomplished by the contribution by New England Mutual of the
businesses and substantially all of the assets of Old NEIC to Reich & Tang in
exchange for partnership units. Reich & Tang had, prior to the Combination,
approximately 10 million units of partner interest outstanding, and issued 22
million units of partner interest to New England Mutual in the Combination. At
the time of the Combination, the Partnership adopted its current name.
Old NEIC traced its origins to: the acquisition by New England Mutual of
Loomis, Sayles & Company, a major investment management firm, in 1968; the
organization by New England Mutual of specialized investment management
subsidiaries from its internal resources during the 1980's; the creation of
start-up asset management firms by the attraction of outside managers during
the early 1990's; and the formation of various marketing and other support
organizations. Reich & Tang had been organized as a Delaware limited
partnership in 1987 to succeed to substantially all the business of Reich &
Tang, Inc. ("RTI"), which had originally been organized in 1970 as an
investment management firm.
At the time of the Combination, a new corporation named New England
Investment Companies, Inc. became the sole general partner of the Partnership
(the "General Partner"), succeeding Reich & Tang, Inc. In August 1996, New
England Mutual merged with Metropolitan Life Insurance Company ("MetLife"),
which succeeded to the interests of New England Mutual in the Partnership and
the General Partner. The General Partner is a wholly owned subsidiary of
MetLife.
Beginning in 1995, the Partnership has made several major acquisitions of
investment advisory businesses as described under "Business--Acquisition
Strategy" below.
The 1997 Restructuring. In December 1997, the General Partner implemented a
Restructuring of NEIC that involved a determination to elect to maintain
NEIC's partnership tax status under terms provided in the Taxpayer Relief Act
of 1997 and the formation of the Operating Partnership. See "Business--1997
Restructuring of the Partnership" for more information regarding the
Restructuring.
The General Partner of NEIC is also the managing general partner of the
Operating Partnership, and NEIC is the advising general partner of the
Operating Partnership. As of December 31, 1997, MetLife beneficially owned
(through the General Partner) all of the Partnership's 110,000 units of
general partner interest ("GP units"), 207,900 (3.4%) of the Partnership's
units of limited partner interest ("units") and 20,716,000 (46.6%) of the
Operating Partnership's units of partner interest ("Operating Partnership
units"). In the aggregate, MetLife owned general partner and limited partner
interests in NEIC and the Operating Partnership representing 47.3% of the
economic interests in the business of the Operating Partnership.
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GENERAL
As the primary source of income and cash flows of the Partnership consists
of equity in earnings of and distributions paid by the Operating Partnership,
the following discussion focuses primarily on the activities of the Operating
Partnership. The Partnership and the Operating Partnership are at times
referred to herein together as the "Partnerships."
The business of the Operating Partnership is conducted through eleven
investment management firms (the "Investment Management Firms") and four
principal distribution and consulting firms (the "Distribution and Consulting
Firms" and, together with the Investment Management Firms, the "Firms" or
"Subsidiaries"), all but one of which are wholly owned by the Operating
Partnership. The Operating Partnership's assets under management include
equity and domestic and international fixed income securities, money market
funds and real estate.
The Operating Partnership's strategy is to capitalize on growth
opportunities for investment management services in the institutional, mutual
fund and private client markets. The Operating Partnership operates through a
decentralized organization that enables its Firms to implement their own
distinct investment specialties and philosophies. The Operating Partnership
believes this approach fosters an entrepreneurial environment that encourages
the development of new, innovative investment management products and
services, while maintaining access to the significant resources of the larger
organization. The Operating Partnership supports the Firms' existing
businesses and new initiatives that demonstrate substantial potential for
growth in assets under management by allocating capital and other resources to
those businesses and initiatives. In addition, the Operating Partnership and
the Firms identify opportunities for joint marketing efforts, enhanced
distribution of investment products (such as mutual funds) and operational
efficiencies across the organization.
The Investment Management Firms are primarily responsible for developing and
implementing their own investment philosophy, business plans and management
fee schedules. Each Investment Management Firm manages its business
independently on a day-to-day basis and maintains an image and identity that
is separate from both the Operating Partnership and the other Investment
Management Firms.
The Operating Partnership makes available distribution, consulting and
administrative services that the Investment Management Firms draw upon as
needed. These services include assistance in marketing and product
development. The Operating Partnership also provides several of the Firms with
certain financial, management information, employee benefits and
administrative support services.
The Operating Partnership seeks to grow by expanding the Investment
Management Firms' capabilities; selectively pursuing the acquisition of
investment management firms; increasing and focusing its marketing efforts;
and selectively expanding its distribution channels.
ACQUISITION STRATEGY
The Operating Partnership seeks to increase cash flow and unitholder
distributions through internal growth and the acquisition of investment
management firms serving institutions, mutual funds and private clients. The
Operating Partnership generally seeks acquisitions that, either on a current
basis or over time, would be expected to increase cash flow available for
distribution to unitholders.
The Partnerships have identified several key aspects of the general
acquisition strategy. In accordance with this strategy, the Partnerships
expect to preserve the independent identity of acquired firms, which (as in
the case of the current Investment Management Firms) would operate with
substantial autonomy, retaining control of investment decisions, investment
philosophy and day-to-day operations. The Operating Partnership would
generally have minority representation on the board managing the acquired
firm, and the firm's executive personnel would be responsible for reviewing
their firm's results, plans and budgets. Key employees would generally be
expected to continue as active participants in the acquired business under
employment agreements executed at the time of acquisition.
Consideration for acquisitions is expected to include cash (including cash
from borrowings), Operating Partnership units, possibly NEIC units and future
contingent payments. Other employment incentives are
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frequently provided for. The Partnerships are prepared to consider various
types of financial arrangements with the owners of an acquired firm depending
on their circumstances, including tailored incentive plans. Substantially all
of these plans result in the management of the acquired company participating
in the ongoing success of the business they manage. Such plans may mirror or
present equity-like participation in the particular firm. Under the
Partnerships' strategy for possible acquisitions, key employees of acquired
firms may be compensated through firm profit-sharing plans and bonus
compensation plans. These plans can be structured so that the next
"generation" of management will have the opportunity to participate in the
growth of the firm, while the current principals retain a portion of their
cash flow interest directly in the firm. The Operating Partnership will
typically seek to obtain employment and non-competition agreements from key
managers.
The Operating Partnership may make support available to acquired firms in
appropriate situations, through capital advances (for internal growth, the
acquisition of compatible businesses or as seed capital for new product
launches) and through services, including mutual fund and institutional
marketing services.
The Partnership made its first major acquisition in September 1995, when it
acquired the business of Harris Associates L.P. ("Harris") with $7.1 billion
of assets under management at the time of acquisition. The Partnership
continued to implement its acquisition strategy in 1996. In May 1996, the
Partnership acquired the business of Vaughan, Nelson, Scarborough & McConnell
("VNSM"), an investment advisory firm located in Houston, Texas, with $1.6
billion of assets under management at the time of acquisition. In December
1996, the Partnership completed the acquisition of the business of Aldrich,
Eastman & Waltch, L.P., a Boston-based real estate investment advisory firm
having $4 billion of assets under management at the time of acquisition. The
operations of Aldrich, Eastman & Waltch were combined with those of NEIC's
real estate advisory subsidiary, Copley Real Estate Advisors, Inc. ("Copley"),
to form a firm that operates under the name "AEW Capital Management" ("AEW
Capital"). At year-end 1996, the Partnership acquired the business of Jurika &
Voyles, Inc., an Oakland, California-based investment management company with
approximately $5.6 billion in assets under management at the time of
acquisition.
In 1997, NEIC and the Operating Partnership completed the acquisitions of
the businesses of Snyder Capital Management ("Snyder Capital") and Daniel
Breen & Company ("Daniel Breen & Company"). Snyder Capital is a San Francisco-
based value manager that managed approximately $1.2 billion of assets at the
time of acquisition, primarily in small- to mid-capitalization companies. The
acquisition of Snyder Capital was completed in July 1997. The operations of
Daniel Breen & Company, with approximately $2.2 billion under management at
the time of acquisition, were consolidated with those of Vaughan, Nelson,
Scarborough & McConnell in December 1997, which was renamed Vaughan, Nelson,
Scarborough & McCullough. VNSM also acquired Breen Trust Company (subsequently
renamed VNSM Trust Company), which provides trust services in conjunction with
VNSM investment management services.
The market for investment management firms has continued to be active, with
many firms seeking to be acquired or forming strategic partnerships. At the
same time, the competition to acquire successful firms has increased
significantly. The success of the Partnerships' acquisition strategy will
depend on their ability to offer terms competitive in the marketplace. The
Partnerships continue to actively evaluate investment management firms for
potential acquisition as part of the growth strategy. However, there can be no
assurance that suitable acquisition candidates can be located or that
appropriate agreements with them can be reached or completed, or that any
acquired business will perform as expected following acquisition.
ASSETS UNDER MANAGEMENT
The following table summarizes the assets under management of the Firms at
December 31 as if all acquisitions had occurred on December 31, 1993:
<TABLE>
<CAPTION>
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
(IN BILLIONS)
<S> <C> <C> <C> <C> <C>
Institutional...................................... $49 $51 $63 $ 69 $ 80
Mutual Funds....................................... 15 16 20 25 33
Private Accounts and Other......................... 6 7 8 10 12
--- --- --- ---- ----
$70 $74 $91 $104 $125
=== === === ==== ====
</TABLE>
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INVESTMENT MANAGEMENT FIRMS
NEIC Operating Partnership, L.P. currently has eleven Investment Management
Firms, each of which follows an independent investment strategy and
philosophy. The following is a brief description of their respective
businesses.
Loomis, Sayles & Company, L.P. ("Loomis Sayles"). Loomis Sayles was
established in 1926 and was acquired by New England Mutual in 1968. At
December 31, 1997, Loomis Sayles managed approximately one-half of all assets
managed by the Investment Management Firms.
Loomis Sayles actively manages portfolios of publicly traded fixed-income
securities, equity securities and other financial instruments for a client
base consisting of institutional clients (with the largest client groups being
corporate, governmental and union pension funds), endowments and foundations,
and third-party corporate investment portfolios. Loomis Sayles also manages
assets for high net worth individuals and advises the Loomis Sayles Funds.
Loomis Sayles has offices in eleven cities nationwide providing investment
management services to clients. Each office maintains its own independent
investment strategies and styles tailored to its particular investment
expertise and client mix, subject to the requirement that portfolios generally
be constructed from securities which are followed by Loomis Sayles'
centralized research group. Loomis Sayles utilizes an internal national
marketing group to supplement and coordinate the marketing efforts of the
professionals in the various offices, to broaden the firm's geographic
representation, and to better focus on Loomis Sayles' relationships with major
investment management consultants.
Harris Associates L.P. ("Harris"). Founded in 1976, Harris is a Chicago-
based investment advisory firm with institutional, private client and multi-
manager product offerings. Harris also serves as the investment advisor for
The Oakmark Family of Funds. Prior to its acquisition on September 29, 1995,
Harris was a privately held partnership. Harris primarily manages equity
securities and generally follows a value approach to investing.
AEW Capital Management, L.P. ("AEW Capital"). In December 1996, the
Partnership completed the acquisition of Aldrich, Eastman & Waltch, L.P.
("Aldrich, Eastman"), a Boston-based real estate investment advisory firm.
These operations were combined with those of NEIC's real estate advisory
subsidiary, Copley Real Estate Advisors, Inc., to form a firm that operates
under the name "AEW Capital Management." With its combined knowledge of real
estate and capital markets, the firm emphasizes high-yield debt and equity
strategies, real estate securities and maximizing the investment performance
and liquidity of its clients' existing real estate portfolios.
Back Bay Advisors, L.P. ("Back Bay"). Established in 1986 as a spin-off from
New England Mutual, Back Bay manages mutual funds in two mutual fund groups
sponsored by affiliates, as well as institutional funds for the pension and
foundation marketplace and a portion of MetLife's general account ("General
Account"). Back Bay's principal investment specialty is fixed-income
management with an emphasis on yield curve management, low volatility, and
higher quality portfolios.
Jurika & Voyles, L.P. ("Jurika & Voyles"). Effective January 1, 1997, the
Partnership completed the acquisition of Jurika & Voyles, Inc., an Oakland,
California-based investment management firm founded in 1983. Jurika & Voyles
provides investment advisory services to institutions, individuals and mutual
funds utilizing a fundamental, research-driven investment approach which seeks
to invest at opportunistic prices in the stock of companies exhibiting growth
in cash flow.
Reich & Tang Funds ("R&T Funds"). Established in 1974, R&T Funds, a division
of Reich & Tang Asset Management L.P., manages mutual funds that are marketed
primarily through brokerage houses and regional commercial banks, many of
which offer the funds to customers as their own "private label" products. In
addition, it acts as administrator for mutual funds advised by others and for
the equity funds managed by Reich & Tang Capital Management.
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Reich & Tang Capital Management ("R&T Capital Management"). Established in
1970, R&T Capital Management, a division of Reich & Tang Asset Management
L.P., manages mutual funds, private investment partnerships and equity
securities for institutions and individuals. R&T Capital Management emphasizes
fundamental research and its philosophy is to seek investment opportunities in
companies with small to medium market capitalizations, strong management,
significant market share and relatively low risk.
Snyder Capital Management, L.P. ("Snyder Capital"). In July 1997, the
Partnership completed the acquisition of Snyder Capital, a San Francisco,
California-based investment advisory firm. Snyder Capital provides investment
advisory services primarily to institutions and high net worth individuals and
families, and specializes in investing in small- to mid-capitalization
equities.
Vaughan, Nelson, Scarborough & McCullough, L.P. ("VNSM"). In May 1996, the
Partnership acquired VNSM, a Houston, Texas-based investment advisory firm.
VNSM manages equity, fixed income and balanced portfolios for foundations,
endowments, institutions and high net worth individuals. The Operating
Partnership acquired and consolidated the operations of Daniel Breen & Company
into VNSM in December 1997. The acquisition expanded the professional
investment management personnel and the range of product offerings at VNSM,
including the provision of trust services through a subsidiary.
Westpeak Investment Advisors, L.P. ("Westpeak"). Established in 1991,
Westpeak provides customized equity management for institutional investors,
such as pension plans, foundations and endowments, and mutual funds, utilizing
an active, quantitative research capability. Investment management styles
include large and small capitalization equities, with optional value and
growth biases.
Capital Growth Management Limited Partnership ("CGM"). CGM provides
investment management services for mutual funds and for a limited number of
large institutions and individual clients. CGM follows primarily an
aggressive, growth-oriented strategy. CGM was established in 1990 through a
spin-off of its operations from Loomis Sayles. As of December 31, 1997, the
Operating Partnership held a 50% limited partnership interest in CGM. The
remaining interest is primarily held by its corporate general partner which is
owned by CGM's principals. The Operating Partnership regards its interest in
CGM as a passive investment and accounts for this interest using the equity
method. All assets under management of CGM are included in consolidated assets
under management.
DISTRIBUTION AND CONSULTING FIRMS
The Operating Partnership and its Distribution and Consulting Firms provide
the Investment Management Firms with a network of distribution, marketing and
administrative services. The compensation arrangements for the Distribution
and Consulting Firms generally are set out in written agreements, and provide
for compensation through commissions, trailing fees based on assets retained
under management, consulting fees, and fixed and transaction fees for
administrative and other services.
New England Funds, L.P. ("NEF"). NEF or a subsidiary serves as the
distributor, transfer agent and administrator of the twenty-three mutual funds
in the New England Funds Group. NEF is responsible for product development,
marketing, and shareholder services and relations for the New England Funds
Group, which had approximately 410,000 shareholder accounts at December 31,
1997.
NEF distributes mutual funds through the retail sales networks of regional
and national brokerage firms. The largest of its relationships is with New
England Securities Corporation ("NES"), a broker-dealer subsidiary of New
England Life Insurance Company ("New England Life"), which is a subsidiary of
MetLife.
New England Investment Associates, Inc. ("NEIA"). Established in 1989, NEIA
provides institutional marketing and consulting services to the Operating
Partnership and certain of the Investment Management Firms. NEIA also assists
the Operating Partnership in identifying and designing new product
opportunities which may be offered through existing subsidiaries, new ventures
or acquired companies.
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Graystone Partners L.P. ("Graystone"). Graystone serves as a consultant and
marketing agent with respect to asset allocation and management services
provided to individuals and families of substantial wealth.
Financial Advisor Services ("FAS") FAS is a division of the Operating
Partnership that assists in the marketing and distribution of mutual funds
advised by various of the Investment Management Firms through financial
planners and advisors.
PRIMARY MARKETS
The two primary markets for the investment management services offered by
the Investment Management Firms are the institutional and mutual fund markets.
Several of the Investment Management Firms also actively participate in the
market for individually managed private accounts for high net worth
individuals.
The Institutional Market. The institutional market for investment management
services includes corporate, government and union pension plans, endowments
and foundations and corporations purchasing investment management services for
their own account. All of the Operating Partnership's Investment Management
Firms serve the institutional market.
The Investment Management Firms market their services to the institutional
market through a number of channels. Several of the Investment Management
Firms employ full-time marketing or client relations specialists to serve the
institutional market while others receive marketing assistance from the
Operating Partnership and NEIA, one of the Distribution and Consulting Firms.
The Operating Partnership believes that significant cross-marketing
opportunities exist within each Investment Management Firm, particularly with
respect to the large client and consultant-driven markets. In addition to the
efforts of full-time marketing professionals, senior management personnel and
investment professionals at most of the Investment Management Firms actively
market their respective firm's services to institutional clients.
Mutual Funds. The Investment Management Firms advise or sub-advise a total
of ninety-nine mutual funds, the great majority of which are grouped into
seven fund "families" and are marketed through a variety of channels, as set
out below. In addition, the Operating Partnership provides marketing
assistance to its subsidiaries through initiatives it has undertaken in the
financial advisor, broker-dealer wrap and large plan 401(k) channels.
The Oakmark Family of Funds consist of five equity funds and one balanced
fund managed by Harris Associates L.P. and marketed on a no-load basis. At
December 31, 1997, the total assets of The Oakmark Family of Funds, all of
which are managed by Harris, were approximately $11 billion. The fund
family includes the $7.3 billion Oakmark Fund and the $1.2 billion Oakmark
International Fund.
The Reich & Tang Funds consist of one fixed income, two equity and fourteen
money market funds marketed on a no-load basis. The money market funds are
offered primarily on a "private label" basis through financial
intermediaries to their customers. At December 31, 1997, the total assets
in the Reich & Tang Funds were approximately $7 billion, all of which are
managed by Reich & Tang Asset Management, L.P.
The New England Funds Group consists of ten fixed income, nine equity, one
balanced and three money market funds marketed on a commission basis
through broker-dealers, including New England Securities, which serves as
broker-dealer for the insurance agent field force of New England Life. At
December 31, 1997, the total assets in the New England Funds that were
advised or sub-advised by various of the Investment Management Firms were
approximately $7 billion.
The New England Zenith Funds consist of 14 mutual funds sponsored by New
England Life that serve as the underlying investment vehicle for variable
annuity and variable life insurance products issued by New England Life and
MetLife and sold through insurance agent field forces of New England Life
and MetLife. Various of the Investment Management Firms advise or subadvise
nine of the funds in the New England Zenith Funds, with total assets of
$2.5 billion at December 31, 1997.
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The Loomis Sayles Funds consist of eight fixed income funds and nine equity
funds managed by Loomis Sayles that are marketed on a no-load basis
primarily through financial intermediaries to their customers. At
December 31, 1997, total assets were approximately $1.8 billion.
The Loomis Sayles Investment Trust offers six fixed income funds and one
equity fund managed by Loomis Sayles. Each fund is marketed on a no-load
basis to institutional investors. At December 31, 1997, total assets were
approximately $0.4 billion.
The Jurika & Voyles Funds consist of one balanced and two equity funds
managed by Jurika & Voyles that are marketed on a no-load basis primarily
through financial intermediaries to their customers. At December 31, 1997,
total assets were approximately $0.3 billion.
The CGM Funds consist of two fixed income funds, three equity funds and one
balanced fund marketed on a no-load basis. At December 31, 1997, total
assets in the CGM Funds, all of which are managed by CGM, were
approximately $2.5 billion.
In addition, the Investment Management Firms advise or sub-advise 11 funds
not included in the above groups with total assets of $0.9 billion at December
31, 1997.
INVESTMENT MANAGEMENT AGREEMENTS AND FEES
Services to Clients. The investment management accounts of the Investment
Management Firms generally are managed pursuant to written investment
management agreements with clients which, with limited exceptions, are
terminable at any time or upon relatively short notice (typically 30-60 days)
by either party.
Services generally are offered on a discretionary basis, where an Investment
Management Firm would make the investment decisions for the assets under
management, and in certain cases on an advisory basis, where the firm
recommends securities and investment policies and strategies to its clients.
The Investment Management Firms' contracts may not be assigned without the
consent of the client. Investment management agreements with mutual funds may
be terminated at any time by the fund upon 60 days' notice, and terminate
automatically in the event of their assignment. For purposes of all contracts
entered into by those Investment Management Firms which are investment
advisors registered with the Commission, "assignment" of investment management
contracts is defined to include certain changes in ownership of the Operating
Partnership (or its managing general partner) or the Investment Management
Firms themselves.
In providing investment management services, the Investment Management Firms
are principally compensated on the basis of fees calculated as a percentage of
assets under management. For most of the Investment Management Firms, the fee
schedules typically provide lower incremental fees above certain levels of
managed assets. In some instances, the amount of the fee depends upon
performance, usually by reference to a pre-established benchmark.
Management fees for mutual funds are calculated based upon the fund's
average daily net assets. Fees paid by a fund are negotiated between the
fund's advisor and the fund's board of trustees or directors, including a
majority of those who are disinterested. Subsequent changes in the fees must
generally be approved by the fund's shareholders. As a practical matter,
mutual fund fees are revised infrequently, and fee negotiations are influenced
by competitive forces in the mutual fund industry.
Services to MetLife General Account. As of December 31, 1997, certain of the
Investment Management Firms managed approximately $5.6 billion of MetLife's
General Account assets. These services were provided principally under
separate investment management agreements (the "Management Agreements") with
several of the Investment Management Firms and contain market-based fees that
vary depending upon the class of asset advised and investment objectives. The
Partnership received a total of $15.8 million in fees under these arrangements
in 1997.
Certain Investment Management Risk Considerations. Investment management
firms are from time to time subject to claims for client losses or other
amounts arising out of investment performance or other service that does not
meet clients' expectations, particularly with respect to use of more
innovative investment strategies.
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In addition, as a real estate investment manager, one of the Operating
Partnership's investment management firms, AEW Capital Management, L.P., is
subject to a number of special considerations. Real estate investment
portfolios are, by their terms, generally liquidated over an investment
period, creating a continual need to attract new assets in order to achieve
asset growth. In addition, real estate investment managers may be subject to
certain potential risks as a result of the structures used for client
investment that are not characteristic of the risks for other investment
managers, such as the possibility that such managers might be responsible for
tort and environmental claims and, in a limited number of cases, for property
debt.
COMPETITION
The investment management business is highly competitive. The Operating
Partnership and its Firms compete with a large number of investment management
firms, commercial banks, insurance companies and others, many of which are
larger and have access to greater resources. The Operating Partnership
believes that the most important factors affecting competition for clients
are: the abilities, performance records and reputations of investment
managers; the ability to hire and retain key investment managers; the
effectiveness of marketing programs; the development of new investment
strategies and information technologies; and competitiveness in fees and
investor service. The Operating Partnership's ability to increase assets under
management and to retain such assets could be adversely affected if client
accounts underperform the market or the Operating Partnership's competitors
and if key investment managers leave the Operating Partnership's investment
management firms. The Operating Partnership's competitive position also is
dependent, in part, on the relative attractiveness of the types of investment
products offered and investment philosophies, strategies and methods of the
Operating Partnership's various Investment Management Firms under prevailing
market conditions.
REGULATION
The business of the Operating Partnership and the Firms is subject to
extensive governmental regulation and supervision in much of its operations by
the SEC and other federal, state and foreign regulatory bodies. The Investment
Management Firms are subject to the Investment Advisers Act of 1940, and the
mutual funds that they advise, distribute or administer are subject to the
Investment Company Act of 1940. Various Operating Partnership entities are
also subject to: the net capital and other requirements of broker-dealer
registration under the Securities Exchange Act of 1934; commodity trading
advisor and commodity pool operator regulation by the Commodity Futures
Trading Commission; federal and state laws regulating securities and insurance
product offerings; and state laws and regulations regarding investment
advisors, broker-dealers and other financial intermediaries. In addition, the
Investment Management Firms are subject to the Employee Retirement Income
Security Act of 1974 ("ERISA"), insofar as they are "fiduciaries" under ERISA
with respect to their clients.
The laws and regulations relating to the business of the Operating
Partnership generally grant supervisory agencies and bodies broad
administrative powers, including the power to limit or restrict any of the
firms or individuals associated with such firms from conducting their business
in the event that they fail to comply with such laws and regulations. In
addition, changes in these laws or regulations could have a material adverse
impact on the profitability and mode of operations of the Operating
Partnership and the Firms.
EMPLOYEES
As of January 1, 1998, the Operating Partnership and its Firms employed
approximately 1,450 persons. The Operating Partnership believes that, overall,
its relations with its employees are good. Employees are compensated with a
combination of salary, discretionary or performance-based bonus, profit
sharing and fringe benefits. The Operating Partnership has sought to retain
its senior employees through compensation arrangements which it believes are
competitive in the industry.
The ability of the Operating Partnership's Firms to attract and retain
clients is dependent to a large extent on their ability to attract and retain
key employees, including skilled portfolio managers. Certain of these
employees are responsible for significant client relationships. Many key
employees are not under non-competition or other restrictions as to their
departure and may be able to attract clients away upon their departure. Loss
of key personnel could have a material adverse effect on the Operating
Partnership's, and consequently the Partnership's, results of operations.
9
<PAGE>
1997 RESTRUCTURING OF THE PARTNERSHIP
Although publicly held partnerships are generally taxed as corporations, the
Partnership believes it is eligible to be taxed as a partnership for federal
income tax purposes under a special provision grandfathering publicly traded
partnerships that were in existence in 1987. This grandfather provision was
not expected to apply to the Partnership's taxable years beginning on and
after January 1, 1998. The Taxpayer Relief Act of 1997, signed into law on
August 5, 1997, however, permits certain publicly traded partnerships to elect
to extend their grandfathered partnership tax status from year-to-year on an
indefinite basis upon payment of an annual 3.5% federal tax on gross income
and satisfaction of certain other conditions. On September 16, 1997, the Board
of Directors approved a plan of Restructuring (as defined below) under which
the Partnership will make such an election. Were the Partnership not to make
this election, fail to qualify to make this election, or decide in the future
not to pay the 3.5% gross income tax, it would become subject to the regular
federal corporate income tax, with a maximum rate of 35% of taxable income.
Pursuant to the plan of Restructuring approved by the Board of Directors, at
year-end 1997 the Partnership contributed all of the Partnership's business
and assets (consisting principally of the Firms owned by the Partnership),
subject to all of its liabilities, to the Operating Partnership. In
consideration of the asset contribution, the Partnership received a number of
partnership units of the Operating Partnership equal to the number of
outstanding units of the Partnership.
As contemplated by the NEIC partnership agreement, certain of the
Partnership's unitholders (whose ownership derived from Partnership units
received in exchange for contributions of appreciated investment management
businesses) were permitted to choose to become partners in the Operating
Partnership by exchanging Partnership units for an equal number of Operating
Partnership units. Such unitholders who did not transfer their ownership to
the Operating Partnership and the Partnership's other unitholders (primarily
persons who have acquired their Partnership units for cash in the public
market) remained partners in the Partnership. Holders of approximately 38
million units exchanged their Partnership units for Operating Partnership
units, representing approximately 86% of the economic interests in the
Operating Partnership. The remaining approximately 14% of the economic
interests in the Operating Partnership are held by the Partnership. The
transactions involving the creation of the Operating Partnership, the transfer
of the Partnership's assets and liabilities to the Operating Partnership and
the exchange of Partnership units for Operating Partnership units, together
with the Partnership's election to retain its tax status and pay the 3.5%
federal gross income tax, are referred to herein as the "Restructuring."
Under the Restructuring, the Partnership will remain publicly traded on the
New York Stock Exchange (under the symbol "NEW"), and will continue to file
public reports with the Securities and Exchange Commission. The Partnership's
business will be to serve as advising general partner of the Operating
Partnership. In this regard, the Partnership will receive proportionate
distributions from the Operating Partnership. The Partnership will pay the
3.5% federal tax on its gross income, including its proportionate share of the
Operating Partnership's gross income, in lieu of corporate income tax, so long
as the Partnership maintains the applicable election and satisfies certain
other conditions. The Partnership currently expects that it will distribute to
its unitholders substantially all of the distributions received from the
Operating Partnership after payment of the 3.5% federal gross income tax, any
state tax, and any other expenses of the Partnership.
The Partnership believes that the creation of a lower-tier partnership has
significant benefits. In particular, acquisition candidates of the Partnership
have expressed a desire for a structure of the type that would result from the
Restructuring, and NEIC therefore believes that the existence of a lower tier
would facilitate future acquisitions. Furthermore, the Partnership believes
that it is desirable to have key persons owning equity interests in a separate
legal structure with arrangements designed to encourage long-term
participation in the Partnership's operations.
As a result of the unit exchange described above, the Operating Partnership
has a limited number of partners, including the Partnership. The Operating
Partnership units will not be publicly traded, and there will be
10
<PAGE>
no market for such units. Subject to various limitations under federal tax law
and regulations and the terms of the partnership agreements of the Partnership
and the Operating Partnership and an agreement entered into by them at the
time of the Restructuring, Operating Partnership unitholders will from time to
time be permitted to sell their Operating Partnership units to the Partnership
for Partnership units or (at the Partnership's option) cash. Any such exchange
of units would be on a one-for-one basis, subject to adjustment in the event
of certain changes in the capitalization of the Partnership or the Operating
Partnership, including unit repurchases, or the retention of assets or
incurrence of liabilities by the Partnership in significant amounts. The
Operating Partnership is not expected to pay federal tax on its gross income.
New England Investment Companies, Inc. ("NEIC, Inc."), the general partner
of the Partnership, is also the managing general partner of the Operating
Partnership and the Partnership is the advising general partner of the
Operating Partnership. The Board of Directors of NEIC, Inc. was not changed in
connection with the Restructuring.
In accordance with generally accepted accounting principles, the Partnership
accounts for its investment in the Operating Partnership under the equity
method of accounting.
The following diagram illustrates the structure of the Partnership after the
Restructuring:
[AN ORGANIZATION CHART APPEARS HERE. THE ORGANIZATION CHART SHOWS THAT THE
PARTNERSHIP HAS AN OWNERSHIP INTEREST IN THE OPERATING PARTNERSHIP, WHICH IN
TURN OWNS INVESTMENT MANAGEMENT, DISTRIBUTION AND CONSULTING FIRMS. THE CHART
SHOWS THAT BOTH THE PARTNERSHIP AND THE OPERATING PARTNERSHIP HAVE LIMITED
PARTNERS. IT ALSO SHOWS THAT NEIC, INC., THE GENERAL PARTNER OF THE PARTNERSHIP,
IS THE MANAGING GENERAL PARTNER OF THE OPERATING PARTNERSHIP AND THAT THE
PARTNERSHIP IS THE ADVISING GENERAL PARTNER OF THE OPERATING PARTNERSHIP.]
The partnership agreements of NEIC and the Operating Partnership confer on
NEIC, Inc. broad authority to effect a restructuring of the Partnership and/or
the Operating Partnership in connection with, or in anticipation of, a change
in tax status (including a change in tax status resulting from a change in the
applicable tax rate), subject to a standard of good faith on the part of NEIC,
Inc. The Restructuring which occurred at year-end 1997 was undertaken pursuant
to such authority granted to NEIC, Inc. in the NEIC partnership agreement.
In determining the form of any future restructuring of the Partnerships,
NEIC, Inc. is obligated to seek to accomplish certain prioritized objectives
of MetLife, RTI and other non-Public Partners (as defined in the NEIC
partnership agreement) with respect to special considerations, including
avoidance of special and potentially significantly adverse tax treatment and
continued participation in a flow-through entity for this purpose. No
assurances can be given regarding the timing or form of any future
restructuring, which may be affected by changes in the tax laws (including the
applicable tax rate), as well as other factors beyond the control of the
Partnership, the Operating Partnership or NEIC, Inc. NEIC, Inc. expects that
any future restructuring would be intended to continue to provide holders of
publicly traded Partnership LP units with the ongoing benefit of public market
liquidity for their interests in the Operating Partnership's business. While
the NEIC partnership agreement provides that NEIC, Inc. may impose
restrictions on transfer as part of a restructuring (which may have the effect
of preserving the Partnerships' tax status as partnerships), NEIC, Inc. has no
reason to believe that trading restrictions will be necessary to accomplish
the restructuring objectives outlined in the NEIC partnership agreement,
absent legal or other developments.
11
<PAGE>
The partnership agreements of NEIC and the Operating Partnership relieve
NEIC, Inc. of all duties and liabilities to the Partnership, the Operating
Partnership and unitholders thereof for actions taken in good faith by NEIC,
Inc. in connection with a restructuring. NEIC, Inc., MetLife, RTI and other
non-Public Partners may each be deemed to have conflicts of interest with
respect to possible future restructurings insofar as they may be treated
differently than the holders of Partnership LP units, as noted above.
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Any statements in this report that are not historical facts are intended to
fall within the safe harbor for forward-looking statements provided by the
Private Securities Litigation Reform Act of 1995. Any forward-looking
statements should be considered in light of the risks and uncertainties
associated with the Partnership and the Operating Partnership and their
businesses, economic and market conditions prevailing from time to time, and
the application and interpretation of federal and state tax laws and
regulations, all of which are subject to material changes and which may cause
actual results to vary materially from what had been anticipated. Certain
factors that affect the Partnership and Operating Partnership have been
described in other portions of this report, particularly under Item 1,
"Business--Forward-Looking Statements" and include factors such as conditions
affecting fee revenues, reliance on key personnel, competition, regulatory and
legal matters, and tax considerations. Readers are encouraged to review these
factors carefully. The descriptions of the Restructuring (see Item 1,
"Business--1997 Restructuring of the Partnership") and the potential financial
consequences of the Restructuring (see Item 7, "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Capital Resources
and Liquidity") constitute forward-looking statements.
FORWARD-LOOKING STATEMENTS
From time to time, management of the Partnership or the Operating
Partnership may make written or oral statements that express views on the
future performance of NEIC and the Operating Partnership. As with any forward-
looking statement, these statements should be considered in light of certain
risks and uncertainties that may cause actual results to vary materially from
what had been anticipated. These important factors include the following:
Conditions Affecting Fee Revenues. The Operating Partnership's revenues,
cash flows and earnings may be adversely affected by shifts in client
preferences toward classes of assets that produce lower fees or by a
decline in assets under management resulting from changing economic
conditions or the performance of the capital markets generally. With
relatively minor exceptions, virtually all of the Operating Partnership's
revenues are derived from investment management agreements with clients
that are terminable at any time or upon 30 to 60 days' notice, as is the
case generally in the investment management industry. Any termination of
agreements representing a significant portion of assets under management
could have an adverse impact on the Operating Partnership's, and
consequently the Partnership's, results of operations.
Reliance on Key Personnel. The departure of key personnel, such as skilled
portfolio managers or employees responsible for significant client
relationships, could have a material adverse effect on the results of
operations of the Partnership and the Operating Partnership.
Competition. The Operating Partnership may experience losses in assets
under management due to the highly competitive nature of its business. The
performance of accounts managed by the Firms as compared to the performance
of competitors' accounts or the market generally, the abilities and
reputations of the Firms and the relative attractiveness of the types of
investment products, philosophies and strategies offered by the Firms
impact the Operating Partnership's ability to increase and retain assets
under management.
Regulatory and Legal Factors. The Operating Partnership's business may be
affected by developments or changes in the regulation of its Firms or its
Firms' clients, legal proceedings and claims arising in the conduct of the
investment business or other legal developments.
Tax Considerations. Tax benefits, if any, resulting from the classification
of the Partnership or the Operating Partnership as a partnership depend on
many circumstances that are beyond the Partnership's and
12
<PAGE>
the Operating Partnership's control. Changes in the law, any termination of
the tax status of the Partnership or the Operating Partnership (technical
or otherwise), certain transfers of units and certain changes in the market
price of Partnership units all are occurrences, among others, that may
affect the Partnership's results or taxable income reported to unitholders.
ITEM 2. PROPERTIES.
The Operating Partnership and the Firms collectively occupy approximately
500,000 square feet of leased space in a number of locations in major U.S.
cities including Boston, Massachusetts, New York, New York and Chicago,
Illinois.
ITEM 3. LEGAL PROCEEDINGS.
As previously disclosed, on June 7, 1996, the California Ironworkers Field
Pension Trust, and several related trusts (the "Trusts"), filed suit against
the Operating Partnership's subsidiary, Loomis, Sayles & Company, L.P.
("Loomis Sayles") in the U.S. District Court for the Central District of
California (Western Division) alleging violation of investment guidelines and
breach of fiduciary duty under ERISA with respect to the purchase of certain
securities for the account of the Trusts. On March 3, 1997, the Court granted
the motion of Loomis Sayles to dismiss certain of the causes of action of the
plaintiff and to strike the plaintiff's request for punitive damages. The suit
seeks money damages in excess of $20 million representing lost principal,
together with amounts representing loss of investment income. Loomis Sayles
believes that it has meritorious defenses and intends to vigorously contest
both allegations of liability and damages. Management believes that resolution
of this matter will not have a material adverse effect on the results of
operations or financial condition of the Operating Partnership or the
Partnership.
The Operating Partnership's Firms are from time to time involved in various
legal proceedings and claims arising in the conduct of their investment
businesses. These include potential claims against Loomis Sayles resulting
from client dissatisfaction with losses from an option overwrite program. No
litigation has been commenced in this regard. Management believes that these
claims and other claims and legal proceedings will not have a material adverse
effect on the results of operations or financial condition of the Operating
Partnership or the Partnership.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matter was submitted to a vote of unitholders during the fourth quarter
of 1997.
13
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
UNIT INFORMATION
The Partnership's units are listed on the New York Stock Exchange under the
symbol "NEW." High and low sales prices for the units together with
distributions declared for the years ended December 31 follow:
<TABLE>
<CAPTION>
DISTRIBUTIONS
DECLARED
---------------------
1997 HIGH LOW REGULAR SPECIAL TOTAL
---- ------- --------- ------- ------- -----
<S> <C> <C> <C> <C> <C>
First Quarter......................... $26 1/8 $22 5/8 $0.53 $0.05 $0.58
Second Quarter........................ 25 7/8 22 1/8 0.53 0.08 0.61
Third Quarter......................... 30 3/4 25 5/16 0.53 0.17 0.70
Fourth Quarter........................ 30 1/2 27 15/16 0.55 0.25 0.80
----- ----- -----
$2.14 $0.55 $2.69
===== ===== =====
<CAPTION>
DISTRIBUTIONS
DECLARED
---------------------
1996 HIGH LOW REGULAR SPECIAL TOTAL
---- ------- --------- ------- ------- -----
<S> <C> <C> <C> <C> <C>
First Quarter......................... $24 1/4 $21 $0.48 N/A $0.48
Second Quarter........................ 23 7/8 21 1/2 0.51 N/A 0.51
Third Quarter......................... 25 3/4 21 1/2 0.53 N/A 0.53
Fourth Quarter........................ 26 24 0.53 N/A 0.53
----- -----
$2.05 $2.05
===== =====
</TABLE>
On February 13, 1998, the closing price of the units on the New York Stock
Exchange was $33 7/8 per unit. As of such date, there were approximately 450
unitholders of record; management estimates that there are over 4,000
beneficial owners including those who hold their units in "street" name
through brokerage accounts or other nominees.
DISTRIBUTION POLICY
The Partnership. Beginning in 1998, the Partnership expects to distribute to
its unitholders substantially all of the distributions received from the
Operating Partnership after accruing the 3.5% federal gross income tax, any
state tax, and any other expenses of the Partnership.
The Operating Partnership. The Operating Partnership generally distributes
to its unitholders operating cash flow not required for normal business
operations and working capital needs, including support of its growth
strategy. Operating cash flow is defined as net income adjusted for
amortization of intangibles, restricted unit plan compensation and non-
recurring items.
The following calculation of operating cash flow per unit of the Partnership
prior to the Restructuring for the years ended December 31 should be read in
conjunction with the Consolidated Financial Statements of the Partnership, and
the Notes thereto, included in Item 8. See also Note 4 regarding the
determination of net income per unit.
<TABLE>
<CAPTION>
1995 1996 1997
------ ------ -----
<S> <C> <C> <C>
Net income per unit--diluted........................... $ 1.73 $ 1.85 $2.21
Add amortization of intangibles (1)................... 0.44 0.60 0.86
Less non-recurring item............................... (0.14) (0.12) --
------ ------ -----
Operating cash flow per unit--diluted.................. $ 2.03 $ 2.33 $3.07
====== ====== =====
Distributions declared per unit:
Regular............................................... $ 1.78 $ 2.05 $2.14
Special............................................... -- -- 0.55
------ ------ -----
Total................................................ $ 1.78 $ 2.05 $2.69
====== ====== =====
</TABLE>
- --------
(1) Amortization of intangibles is a non-cash expense and does not reduce
amounts available for distribution to unitholders.
14
<PAGE>
As a limited partnership, the Partnership has different operating
characteristics than those of a typical corporation. The Partnership's stated
distribution policy is to distribute currently to unitholders operating cash
flow not required for normal business operations and working capital needs,
including support of the Partnership's growth strategy. As a result, the
Partnership believes that its operating cash flow per unit is important to
help both existing and potential unitholders understand their potential return
on an investment in the Partnership. Operating cash flow per unit should not
be construed as an alternative to net income per unit or as an alternative to
cash flow from operating activities as reported in the Consolidated Statement
of Cash Flows included in Item 8. Operating cash flow, as calculated by the
Partnership, may not be consistent with comparable computations by other
companies.
The Board of Directors of the General Partner typically declares
distributions at its meeting during the last month of the quarter to which the
distribution relates, payable to unitholders of record on the last day of the
quarter.
15
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA.
Selected Financial Data
In connection with the Restructuring that was completed on December 31,
1997, New England Investment Companies, L.P. (the "Partnership") contributed
all of its operating assets and liabilities to NEIC Operating Partnership,
L.P. (the "Operating Partnership") in exchange for Operating Partnership
units. Holders of approximately 86% of the Partnership's LP units then
exchanged their units for LP units of the Operating Partnership. The
Partnership owns approximately 14% of the economic interests in the Operating
Partnership. See Item 1, "Business -- 1997 Restructuring of the Partnership."
Accordingly, the following selected financial data presents Statement of
Income data of the Partnership through December 31, 1997. At December 31,
1997, the balance sheet of the Partnership reflects its equity investment in
the Operating Partnership and the balance sheet of the Operating Partnership
represents the assets and liabilities of the Partnership prior to the
Restructuring (see Notes 1 and 2 of Notes to the Consolidated Financial
Statements).
The following selected financial data at or for the years ended December 31
should be read in conjunction with the Consolidated Financial Statements of
the Partnership and the Notes thereto, included in Item 8.
<TABLE>
<CAPTION>
NEIC
OPERATING
NEW ENGLAND INVESTMENT COMPANIES, L.P. PARTNERSHIP, L.P.
-------------------------------------------- -----------------
1993 1994 1995 1996 1997 1997
-------- -------- -------- -------- -------- -----------------
(IN THOUSANDS, EXCEPT PER UNIT DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA
Revenues................ $178,720 $234,034 $280,258 $392,651 $561,469 N/A
======== ======== ======== ======== ======== ========
Net income.............. $ 15,672 $ 28,925 $ 52,750 $ 70,224 $ 95,682 N/A
======== ======== ======== ======== ======== ========
PER UNIT DATA
Net income:
Basic.................. $ 0.43 $ 1.13 $ 1.76 $ 1.96 $ 2.22 N/A
======== ======== ======== ======== ======== ========
Diluted................ $ 0.43 $ 1.13 $ 1.73 $ 1.85 $ 2.21 N/A
======== ======== ======== ======== ======== ========
Distributions declared:
Regular................ $ 1.56 $ 1.68 $ 1.78 $ 2.05 $ 2.14 N/A
Special................ -- -- -- -- 0.55 N/A
-------- -------- -------- -------- -------- --------
Total................. $ 1.56 $ 1.68 $ 1.78 $ 2.05 $ 2.69 N/A
======== ======== ======== ======== ======== ========
WEIGHTED AVERAGE UNITS
OUTSTANDING--DILUTED... 31,994 31,992 33,824 42,076 43,881 N/A
======== ======== ======== ======== ======== ========
<CAPTION>
NEIC
OPERATING
NEW ENGLAND INVESTMENT COMPANIES, L.P. PARTNERSHIP, L.P.
-------------------------------------------- -----------------
1993 1994 1995 1996 1997 1997
-------- -------- -------- -------- -------- -----------------
(IN THOUSANDS, EXCEPT PER UNIT DATA)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Intangible assets....... $159,105 $149,123 $355,122 $527,765 N/A $660,394
======== ======== ======== ======== ======== ========
Total assets............ $295,355 $478,399 $520,873 $721,658 $ 76,028 $944,568
======== ======== ======== ======== ======== ========
Notes payable--
noncurrent............. $ -- $ -- $ 80,919 $118,334 N/A $271,667
======== ======== ======== ======== ======== ========
Deferred purchase
consideration.......... $ -- $ -- $ 41,000 $144,027 N/A $ --
======== ======== ======== ======== ======== ========
ASSETS UNDER MANAGEMENT
(IN BILLIONS).......... $ 55B $ 57B $ 77B $ 100B N/A $ 125B
======== ======== ======== ======== ======== ========
</TABLE>
16
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION.
Summary financial information of the Partnership for the years ended
December 31 follows:
<TABLE>
<CAPTION>
1995 1996 1997
------------ ------------ ------------
(IN THOUSANDS, EXCEPT PER UNIT DATA)
<S> <C> <C> <C>
Revenues............................ $ 280,258 $ 392,651 $ 561,469
Expenses............................ 227,508 322,427 465,787
------------ ------------ ------------
Net income.......................... $ 52,750 $ 70,224 $ 95,682
============ ============ ============
Net income per unit:
Basic............................. $ 1.76 $ 1.96 $ 2.22
============ ============ ============
Diluted........................... $ 1.73 $ 1.85 $ 2.21
============ ============ ============
Distributions declared per unit:
Regular........................... $ 1.78 $ 2.05 $ 2.14
Special........................... -- -- 0.55
------------ ------------ ------------
Total............................ $ 1.78 $ 2.05 $ 2.69
============ ============ ============
Operating cash flow (1)............. $ 68,682 $ 98,111 $ 134,680
============ ============ ============
Operating cash flow per unit--
diluted (1)........................ $ 2.03 $ 2.33 $ 3.07
============ ============ ============
Weighted average units outstanding--
diluted............................ 33,824 42,076 43,881
============ ============ ============
</TABLE>
- --------
(1) Operating cash flow is defined as net income adjusted for amortization of
intangibles, restricted unit plan compensation and non-recurring items.
Operating cash flow per unit should not be construed as an alternative to
net income per unit or as an alternative to cash flow from operating
activities as reported in the Consolidated Statement of Cash Flows
included in Item 8. Operating cash flow, as calculated by the Partnership,
may not be consistent with comparable computations by other companies.
Statement of Income for 1997 Compared to 1996
Net income of $95.7 million or $2.21 per unit (diluted) for 1997 increased
$25.5 million from $70.2 million or $1.85 per unit (diluted) for 1996. The
increase primarily reflects higher revenues due to increases in assets under
management from both internal growth and acquisitions.
Management and advisory fees of $510.2 million for 1997 increased $168.9
million (or 49%) from $341.3 million for 1996. The increase primarily reflects
increases in assets under management from both acquisitions and internal
growth. Additionally, the increase in equity assets under management, with
higher investment management fees compared to fixed income assets, contributed
to the growth in revenues. Acquisitions, completed in May and December of 1996
and January and July of 1997, represented $87 million of the total increase in
management and advisory fees. Excluding acquisitions, management and advisory
fees increased $82 million due to higher mutual fund revenues of $47 million
and higher institutional and private accounts revenues of $35 million.
Other revenues and interest income of $51.3 million for 1997 increased $5.0
million from $46.3 million for 1996. The increase results primarily from
equity in earnings of an affiliate.
A $5.0 million non-recurring gain on the partial sale of the Partnership's
interest in its affiliate, Capital Growth Management Limited Partnership
("CGM"), was realized during 1996, completing the agreement to reduce the
Partnership's ownership interest to 50%.
17
<PAGE>
Compensation and benefits of $276.4 million for 1997 increased $86.4 million
from 1996 and consisted of 48% base compensation and 52% variable
compensation. The increase in variable compensation of $52 million resulted
from subsidiary incentive payments based on profitability, investment
portfolio performance, new business sales, and participation in the
subsidiaries' growth in revenues and profits. Base compensation increased by
$34 million of which $24 million resulted from acquisitions.
Restricted unit plan compensation expense of $1.2 million for 1997 decreased
$6.4 million from 1996. Substantially all unvested units as of August 30, 1996
vested on that date in accordance with the terms of the plan.
Amortization of intangibles of $37.8 million for 1997 increased $12.5
million from 1996 due to acquisitions and a full year's amortization of the
deferred purchase payment made in connection with the 1995 acquisition of
Harris Associates L.P. ("Harris").
Occupancy, equipment and systems expense of $23.6 million for 1997 increased
$6.2 million from 1996 of which $3.5 million was due to acquisitions.
Interest expense of $19.6 million for 1997 increased $10.9 million from 1996
primarily reflecting the $160 million senior notes payable issued on April 1,
1997 and other short-term acquisition financing.
Other expense of $97.2 million for 1997 increased $31.8 million from 1996.
The increase results primarily from expanded business activities including the
distribution and servicing of assets and acquisitions.
Statement of Income for 1996 Compared to 1995
Net income of $70.2 million or $1.85 per unit (diluted) for 1996 increased
$17.4 million from $52.8 million or $1.73 per unit (diluted) for 1995. The
increase primarily reflected a significant increase in assets under management
in 1996. The acquisition of Harris was completed on September 29, 1995 and the
results of Harris have been included since that date.
Management and advisory fees of $341.3 million for 1996 increased $101.2
million (or 42%) from $240.1 million for 1995. Included in 1996 results were
Harris fees totaling $81.4 million compared to $16.3 million for the three
month period ended December 31, 1995. Excluding Harris, management and
advisory fees increased $36.1 million due to higher institutional and private
account revenues of $21.6 million and mutual fund revenues of $14.5 million.
Other revenues and interest income of $46.3 million for 1996 increased $10.9
million from $35.4 million for 1995. The increase resulted from Harris fees of
$7.2 million (including incentive performance fees) and increased interest
income of $2.9 million from higher average cash balances.
A $5.0 million non-recurring gain on the partial sale of the Partnership's
interest in CGM was realized in 1996 as compared to $4.7 million for 1995,
completing the agreement to reduce the Partnership's ownership interest to
50%.
Compensation and benefits of $190.0 million for 1996 increased $58.8 million
from 1995 and consisted of 52% base compensation and 48% variable
compensation. The increase in variable compensation of $36 million resulted
from subsidiary incentive payments based on profitability, investment
portfolio performance, new business sales, and participation in the
subsidiaries' growth in revenues and profits. Base compensation increased by
$23 million, of which $9 million resulted from Harris and $2.4 million
resulted from the acquisition of Aldrich, Eastman & Waltch, L.P.
Amortization of intangibles of $25.3 million for 1996 increased $10.5
million from 1995 due primarily to the acquisition of Harris.
18
<PAGE>
Occupancy, equipment and systems expense of $17.5 million for 1996 increased
$2.8 million from 1995 due to expanded business activities and the acquisition
of Harris.
Interest expense of $8.7 million for 1996 increased $3.4 million from 1995
reflecting interest on the $110 million of senior notes payable issued on
January 9, 1996 for the financing of acquisitions. Interest expense of $5.3
million for 1995 includes interest on securities sold under agreements to
repurchase.
Other expense of $65.4 million for 1996 increased $15.8 million from 1995.
The increase results from general and administrative expenses associated with
expanded business activities and the acquisition of Harris.
Capital Resources and Liquidity
Beginning in 1998, the Partnership expects to distribute to its unitholders
substantially all of the distributions received from the Operating Partnership
after accruing the 3.5% federal gross income tax, any state tax, and any other
expenses of the Partnership. The Operating Partnership generally distributes
to its unitholders operating cash flow not required for normal business
operations and working capital needs, including support of its growth
strategy. The Operating Partnership has the ability to make distributions in
excess of its net income due to its non-cash amortization expense.
Distributions to unitholders are typically declared during the last month of
calendar quarters. On December 18, 1997, prior to the Restructuring, the
Partnership declared a regular distribution of $0.55 per unit and a special
distribution of $0.25 per unit as compared to the $0.53 regular distribution
declared for the fourth quarter of 1996. Total distributions paid to
unitholders were $100.9 million in 1997 as compared to $75.1 million for 1996.
The Partnership transferred its cash balance of $92.0 million at December
31, 1997 to the Operating Partnership in conjunction with the Restructuring.
Prior to this transfer, cash and cash equivalents increased $42.1 million from
December 31, 1996. Proceeds from the issuance of $160 million senior notes due
April 1, 2007 and $15.5 million under the commercial bank line of credit were
reduced by the $79.6 million additional cash payment made in connection with
the Harris deferred purchase obligation in April 1997 and $58.6 million of
cash payments in connection with acquisitions. Additionally, approximately 6
million units were issued for acquisitions and settlement of the Harris
deferred purchase obligation in 1997.
The Operating Partnership has future contingent payment obligations
resulting from acquisitions of up to $61 million, depending upon the
attainment of certain revenue targets through 2000 (see Note 7 of Notes to
Consolidated Financial Statements included in Item 8). Such obligations are
not expected to have a material impact on the capital resources of the
Operating Partnership.
Notes payable totaling $44.8 million due in 1998 will be repaid with
available cash, lines of credit, long-term financing, or a combination
thereof. Senior notes of $110 million and $160 million due in January 2003 and
April 2007, respectively, are expected to be refinanced at maturity.
The Operating Partnership has $185 million of available lines of credit, of
which $15.5 million was outstanding at December 31, 1997 and was repaid in
January 1998.
On December 31, 1997, the Partnership completed its Restructuring and its
operations will be subject to a 3.5% federal gross income tax on its
proportionate share of the Operating Partnership's gross income beginning in
1998 (see Item 1, "Business--1997 Restructuring of the Partnership" and Note 1
of Notes to Consolidated Financial Statements included in Item 8). According
to an analysis of the results of operations for 1997, the 3.5% federal gross
income tax would have resulted in a tax of $0.49 per unit, which would have
reduced the $2.69 per unit distribution received by the Partnership, resulting
in a regular distribution to unitholders of $2.20 per unit.
19
<PAGE>
Assets Under Management
Assets under management at December 31 follows:
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Client Type (in billions):
Institutional............................................ $ 53 $ 66 $ 80
Mutual Funds............................................. 20 25 33
Private Accounts and Other............................... 4 9 12
---- ---- ----
$ 77 $100 $125
==== ==== ====
<CAPTION>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Asset Class (percentage):
Equity................................................... 41% 42% 47%
Fixed Income............................................. 46 43 41
Money Market............................................. 10 8 7
Real Estate.............................................. 3 7 5
---- ---- ----
100% 100% 100%
==== ==== ====
</TABLE>
Assets under management of $125 billion at December 31, 1997 increased $25
billion (or 25%) as compared to $100 billion at December 31, 1996. The
increase results primarily from growth in equity mutual funds, and fixed
income institutional accounts. The 1997 acquisitions of Snyder Capital
Management and Daniel Breen & Company contributed $3.4 billion to the total
1997 increase.
Year 2000 Compliance
The "Year 2000 Issue" refers to problems that may result from computer
programs being written using two digits rather than four to define the
applicable year. Any computer programs that have date-sensitive software may
recognize a date using "00" as the year 1900 rather than the year 2000. The
Year 2000 Issue could result in a system failure or miscalculations causing
disruptions of operations, including, among other things, a temporary
inability to process transactions, send invoices, or engage in similar normal
business activities. The Operating Partnership and its subsidiaries are in the
process of assessing the impact of the Year 2000 Issue on their operations to
ensure that necessary technology changes are identified, tested and
implemented. The subsidiaries rely heavily upon data processing services
provided by third party service providers, including securities custody,
transfer agency, trading and pricing services and on a daily basis, trade
through security exchanges which are highly automated. The subsidiaries also
have internally developed software programs and use third party software
programs. Action plans being developed by the subsidiaries include purchasing
or developing new software systems which are Year 2000 compatible, obtaining
certifications attesting to Year 2000 systems compliance from third party
vendors, and testing of systems. Progress on Year 2000 initiatives is being
monitored by the Operating Partnership's audit committee and the audit
committees of each subsidiary. Management believes the cost of implementing
these action plans will not materially adversely affect the operating results
or financial condition of the Partnership or the Operating Partnership.
20
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
NEW ENGLAND INVESTMENT COMPANIES, L.P.
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------------
1995 1996 1997
------------ ------------ ------------
(IN THOUSANDS, EXCEPT PER UNIT DATA)
<S> <C> <C> <C>
REVENUES
Management and advisory fees........... $ 240,123 $ 341,345 $ 510,179
Other revenues and interest income..... 35,423 46,318 51,290
Gain on partial sale of affiliate...... 4,712 4,988 --
------------ ------------ ------------
280,258 392,651 561,469
------------ ------------ ------------
EXPENSES
Compensation and benefits.............. 131,155 189,986 276,414
Restricted unit plan compensation...... 5,843 7,598 1,209
Amortization of intangibles............ 14,801 25,277 37,789
Depreciation and amortization.......... 4,600 5,131 6,740
Occupancy, equipment and systems....... 14,702 17,461 23,629
Interest expense....................... 5,301 8,728 19,608
Other.................................. 49,551 65,389 97,187
------------ ------------ ------------
225,953 319,570 462,576
------------ ------------ ------------
Income before income taxes............... 54,305 73,081 98,893
Income tax expense..................... 1,555 2,857 3,211
------------ ------------ ------------
Net income............................... $ 52,750 $ 70,224 $ 95,682
============ ============ ============
Net income per unit:
Basic.................................. $ 1.76 $ 1.96 $ 2.22
============ ============ ============
Diluted................................ $ 1.73 $ 1.85 $ 2.21
============ ============ ============
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
21
<PAGE>
NEW ENGLAND INVESTMENT COMPANIES, L.P.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
AT DECEMBER 31,
----------------
1996 1997
-------- -------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................... $ 49,914 $ --
Management and advisory fees receivable..................... 66,344 --
Distribution receivable from NEIC Operating Partnership,
L.P........................................................ -- 5,020
Other....................................................... 6,778 --
-------- -------
Total current assets...................................... 123,036 5,020
Investment in NEIC Operating Partnership, L.P. ............... -- 71,008
Intangible assets:
Investment advisory contracts............................... 408,404 --
Goodwill.................................................... 119,361 --
Fixed assets.................................................. 19,236 --
Other assets.................................................. 51,621 --
-------- -------
Total assets.............................................. $721,658 $76,028
======== =======
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable and accrued expenses....................... $ 36,984 $ --
Accrued compensation and benefits........................... 47,375 --
Distribution payable........................................ 20,084 5,020
Notes payable............................................... 1,667 --
-------- -------
Total current liabilities................................. 106,110 5,020
Deferred compensation, benefits and other..................... 24,923 --
Notes payable................................................. 118,334 --
Deferred purchase consideration............................... 144,027 --
-------- -------
Total liabilities......................................... 393,394 5,020
Contingent liabilities (Note 9)
Partners' capital............................................. 328,264 71,008
-------- -------
Total liabilities and partners' capital................... $721,658 $76,028
======== =======
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
22
<PAGE>
NEW ENGLAND INVESTMENT COMPANIES, L.P.
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------
1995 1996 1997
----------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.............................. $ 52,750 $ 70,224 $ 95,682
Adjustments to reconcile net income to
net cash provided by operating
activities:
Amortization of intangibles........... 14,801 25,277 37,789
Restricted unit plan compensation..... 5,843 7,598 1,209
Gain on partial sale of affiliate..... (4,712) (4,988) --
----------- ---------- ----------
Subtotal............................ 68,682 98,111 134,680
Depreciation and amortization......... 4,600 5,131 6,740
Equity in earnings of partnerships.... (9,543) (11,252) (13,043)
Cash distributions from partnerships.. 8,619 10,521 11,923
Increase in receivables and other as-
sets................................. (7,057) (7,665) (20,308)
Increase in accounts payable and other
liabilities.......................... 11,741 22,587 19,436
Other................................. (2,699) -- --
----------- ---------- ----------
Net cash provided by operating activi-
ties................................... 74,343 117,433 139,428
----------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ................... (5,840) (5,748) (12,839)
Acquisition payments, net of cash ac-
quired................................. (6,653) (61,018) (58,581)
(Increase) decrease in investment secu-
rities ................................ (6,234) 5,938 (19,487)
Proceeds from partial sale of affili-
ate.................................... 4,712 4,988 --
Proceeds from sale of securities........ 209,551 -- --
----------- ---------- ----------
Net cash provided by (used in) investing
activities............................. 195,536 (55,840) (90,907)
----------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable............. -- 110,000 175,500
Repayment of notes payable.............. -- (80,919) (1,717)
Payment of deferred purchase considera-
tion................................... -- -- (79,635)
Repayment of repurchase agreements...... (197,365) -- --
Distributions paid to unitholders....... (55,013) (75,145) (100,869)
Proceeds from exercise of stock op-
tions.................................. -- -- 272
----------- ---------- ----------
Net cash used in financing activities... (252,378) (46,064) (6,449)
----------- ---------- ----------
Net increase in cash and cash equivalents
before cash transferred to NEIC Operating
Partnership, L.P......................... 17,501 15,529 42,072
Cash transferred to NEIC Operating Part-
nership, L.P............................. -- -- (91,986)
----------- ---------- ----------
Net increase (decrease) in cash and cash
equivalents............................ 17,501 15,529 (49,914)
Cash and cash equivalents, beginning of
year..................................... 16,884 34,385 49,914
----------- ---------- ----------
Cash and cash equivalents, end of year.... $ 34,385 $ 49,914 $ --
=========== ========== ==========
Cash paid during the year for interest.... $ 5,241 $ 6,937 $ 16,240
Cash paid during the year for income tax-
es....................................... 2,150 2,873 3,971
SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANS-
ACTIONS:
Increase in intangible assets........... $ 217,063 $ 137,750 $ 112,936
Increase in notes payable............... 79,738 10,000 22,650
Increase (decrease) in deferred purchase
consideration.......................... 41,000 103,027 (64,489)
Increase in partners' capital........... 96,325 20,473 152,156
Transfer of partners' capital to NEIC
Operating Partnership, L.P............. -- -- 390,250
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
23
<PAGE>
NEW ENGLAND INVESTMENT COMPANIES, L.P.
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' CAPITAL
<TABLE>
<CAPTION>
TOTAL PUBLIC PRIVATE
PARTNERS' LIMITED LIMITED GENERAL
CAPITAL PARTNERS PARTNERS PARTNER
--------- -------- -------- -------
(IN THOUSANDS, EXCEPT PER UNIT
DATA)
<S> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1994 (3,095,000
Public units, 28,785,000 Private units
and 110,000 General Partner units)....... $210,716 $20,235 $189,755 $ 726
Net income.............................. 52,750 6,171 46,385 194
Distributions declared ($1.78 per
unit).................................. (59,527) (6,397) (52,935) (195)
Units issued............................ 96,325 -- 96,325 --
Units sold or transferred............... -- 2,345 (2,345) --
Units retired........................... (216) (26) (190) --
Restricted unit plan compensation....... 5,843 -- 5,843 --
Other................................... 91 10 81 --
Reduction in unrealized loss on
securities............................. 3,041 316 2,715 10
-------- ------- -------- -----
BALANCE AT DECEMBER 31, 1995 (3,397,000
Public units, 33,889,000 Private units
and 110,000 General Partner units)....... 309,023 22,654 285,634 735
Net income.............................. 70,224 7,511 62,486 227
Distributions declared ($2.05 per
unit).................................. (77,279) (7,503) (69,551) (225)
Units issued............................ 20,608 -- 20,608 --
Units sold or transferred............... -- 3,571 (3,571) --
Units retired........................... (1,910) (134) (1,776) --
Restricted unit plan compensation....... 7,598 -- 7,598 --
-------- ------- -------- -----
BALANCE AT DECEMBER 31, 1996 (3,819,000
Public units, 34,263,000 Private units
and 110,000 General Partner units)....... 328,264 26,099 301,428 737
Net income.............................. 95,682 10,008 85,427 247
Distributions declared ($2.69 per
unit).................................. (116,324) (12,610) (103,418) (296)
Units issued............................ 152,427 272 152,155 --
Units sold or transferred............... -- 47,672 (47,672) --
Restricted unit plan compensation....... 1,209 -- 1,209 --
Transfer of partners' capital to NEIC
Operating Partnership, L.P. ........... (390,250) (1,121) (389,129) --
-------- ------- -------- -----
BALANCE AT DECEMBER 31, 1997 (6,165,000
Limited Partner units and 110,000 General
Partner units)........................... $ 71,008 $70,320 $ -- $ 688
======== ======= ======== =====
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
24
<PAGE>
NEW ENGLAND INVESTMENT COMPANIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--ORGANIZATION
New England Investment Companies, L.P. ("NEIC" or the "Partnership") is a
publicly traded limited partnership listed on the New York Stock Exchange. At
December 31, 1997, the Partnership's sole business was to act as advising
general partner of NEIC Operating Partnership, L.P. (the "Operating
Partnership"). The Partnership's primary asset at December 31, 1997 was
6,275,000 units representing a general partner's interest in the Operating
Partnership.
Pursuant to its plan of Restructuring approved on September 16, 1997 (the
"Restructuring"), the Partnership has determined to elect to extend its
grandfathered partnership tax status for 1998 and following periods upon
payment of an annual 3.5% federal gross income tax. Also as part of the
Restructuring, at year-end 1997, the Partnership contributed all of its assets
and liabilities to the Operating Partnership in exchange for units
representing a general partner's interest in the Operating Partnership.
Following this transaction, certain limited partners of the Partnership
exchanged their partnership units for limited partner units of the Operating
Partnership.
Following the Restructuring, the Partnership will receive proportionate
distributions from the Operating Partnership and will pay the 3.5% federal
gross income tax on its proportionate share of the Operating Partnership's
gross income, in lieu of corporate income tax, as long as the Partnership
maintains the applicable election. Beginning in 1998, the Partnership expects
to distribute to its unitholders substantially all of the distributions
received from the Operating Partnership after accruing the 3.5% federal gross
income tax, any state tax, and any other expenses of the Partnership.
The Operating Partnership (which, pursuant to the Restructuring, has
succeeded to the business of the Partnership) is an investment manager that
offers a broad array of investment management products and styles across a
wide range of asset categories to institutions, mutual funds and private
accounts.
NOTE 2--INVESTMENT IN THE OPERATING PARTNERSHIP
Effective with the Restructuring on December 31, 1997, the Partnership
records its investment in the Operating Partnership in accordance with the
equity method of accounting and recorded its initial investment in the
Operating Partnership at book value. Revenue is recorded at its proportionate
share of the net income of the Operating Partnership with a corresponding
increase in its investment in the Operating Partnership. Distributions from
the Operating Partnership reduce the investment balance.
The consolidated balance sheet of the Operating Partnership at December 31,
1997 is presented below together with that of the Partnership at December 31,
1996 as the assets and liabilities of the Operating Partnership prior to the
Restructuring described in Note 1 were those of the Partnership.
25
<PAGE>
NEW ENGLAND INVESTMENT COMPANIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
NEW ENGLAND NEIC
INVESTMENT OPERATING
COMPANIES, L. P. PARTNERSHIP, L. P.
DECEMBER 31, 1996 DECEMBER 31, 1997
----------------- ------------------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents............... $ 49,914 $ 91,986
Management and advisory fees
receivable............................. 66,344 90,796
Other................................... 6,778 11,275
-------- --------
Total current assets.................. 123,036 194,057
Intangible assets:
Investment advisory contracts.......... 408,404 534,848
Goodwill............................... 119,361 125,546
Fixed assets............................ 19,236 26,434
Other assets............................ 51,621 63,683
-------- --------
Total assets.......................... $721,658 $944,568
======== ========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable and accrued expenses... $ 36,984 $ 59,139
Accrued compensation and benefits....... 47,375 50,637
Distribution payable.................... 20,084 35,539
Notes payable........................... 1,667 44,767
-------- --------
Total current liabilities............. 106,110 190,082
Deferred compensation, benefits and
other.................................... 24,923 21,561
Notes payable............................. 118,334 271,667
Deferred purchase consideration........... 144,027 --
-------- --------
Total liabilities..................... 393,394 483,310
Contingent liabilities (Note 9)
Partners' capital (38,192,000 units at
December 31, 1996
and 44,467,000 units at
December 31, 1997)............ 328,264 461,258
-------- --------
Total liabilities and partners'
capital.............................. $721,658 $944,568
======== ========
</TABLE>
The accompanying Notes to the Consolidated Financial Statements apply to the
Partnership and the Operating Partnership.
26
<PAGE>
NEW ENGLAND INVESTMENT COMPANIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 3--SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation. The consolidated financial statements of NEIC
include the accounts of its wholly-owned subsidiaries prior to the
Restructuring described in Note 1. The consolidated balance sheet of the
Operating Partnership includes the accounts of its wholly-owned subsidiaries.
All material intercompany accounts and transactions have been eliminated in
consolidation.
Cash Equivalents. Cash equivalents include financial instruments purchased
with an original maturity of three months or less.
Equity Method of Accounting. The Partnership records its investment in the
Operating Partnership under the equity method of accounting.
Intangible Assets. Intangible assets include both the portion of the
purchase price of acquisitions accounted for under the purchase method
allocated to investment advisory contracts and the portion in excess of the
fair value of net assets acquired which is recorded as goodwill. Investment
advisory contracts are amortized over periods ranging from 7 to 24 years.
Goodwill is amortized over 30 years. Intangible assets are presented net of
accumulated amortization of $54.3 million and $92.1 million at December 31,
1996 and 1997, respectively.
The carrying value and amortization period of intangible assets are
evaluated periodically to determine whether current events and circumstances
warrant adjustment. At December 31, 1997, there was no impairment of
intangible assets. If impairment of intangible assets had occurred, the
carrying value of the underlying assets or their estimated useful lives would
be reduced as warranted.
Depreciation and Amortization. Fixed assets are stated at cost and are
depreciated or amortized over 3 to 12 years using the straight-line method.
Leasehold improvements are amortized using the straight-line method over the
life of the respective lease.
Fair Value of Financial Instruments. The fair value of the Operating
Partnership's cash and cash equivalents at December 31, 1997 approximates the
carrying value due to the short-term nature of these investments. The
Operating Partnership's investment securities are recorded at fair value. The
fair value of the Operating Partnership's senior notes payable is discussed in
Note 8.
Net Capital Requirements. Certain subsidiaries are subject to broker dealer
net capital requirements. At December 31, 1997, each subsidiary was in
compliance with its actual capital requirement.
Escrow Balances. At December 31, 1997, the Operating Partnership held $14
million in escrow on behalf of clients. As the Operating Partnership does not
have an economic interest in these funds, they are excluded from the
Consolidated Balance Sheet.
Management and Advisory Fees. Management and advisory fees are recognized as
services are rendered and are based primarily as a percentage of assets under
management. Mutual fund sales commissions are recognized as income on the
trade date. Transaction based fees are recognized as income upon satisfaction
of contractual obligations. Fees collected in advance are deferred and
recognized as income when earned.
Use of Estimates. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of certain assets and
liabilities and disclosure of contingent liabilities reported in the
accompanying financial statements.
Reclassifications. Certain amounts in prior year financial statements have
been reclassified to conform with the 1997 presentation.
27
<PAGE>
NEW ENGLAND INVESTMENT COMPANIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 4--NET INCOME PER UNIT
Basic and diluted net income per unit and weighted average units outstanding
for the years ended December 31 follow:
<TABLE>
<CAPTION>
1995 1996 1997
------------ ------------ ------------
(IN THOUSANDS, EXCEPT PER UNIT DATA)
<S> <C> <C> <C>
Net income.......................... $ 52,750 $ 70,224 $95,682
Add restricted unit plan
compensation (1)................... 5,843 7,598 1,209
------------ ------------ ------------
Income available for allocation..... $ 58,593 $ 77,822 $96,891
============ ============ ============
Net income per unit:
Basic............................. $ 1.76 $ 1.96 $ 2.22
============ ============ ============
Diluted........................... $ 1.73 $ 1.85 $ 2.21
============ ============ ============
Weighted average units outstanding:
Actual............................ 33,339 37,692 43,732
Assumed outstanding for deferred
purchase consideration......... -- 1,941 --
------------ ------------ ------------
Basic............................. 33,339 39,633 43,732
Assumed exercise of options..... -- -- 149
Assumed outstanding for deferred
purchase consideration......... 485 2,443 --
------------ ------------ ------------
Diluted........................... 33,824 42,076 43,881
============ ============ ============
</TABLE>
--------
(1) Allocated exclusively to MetLife and Reich & Tang (see Note 10).
NOTE 5--INCOME TAXES
The Operating Partnership's corporate subsidiaries account for income taxes
using the liability method. No provision for federal income taxes is necessary
for the Operating Partnership and the majority of its subsidiaries because the
tax effect of its operations accrues to and is reportable by the respective
partners of the Partnership and Operating Partnership. The Operating
Partnership and some of its subsidiaries are subject to state and city taxes
in various jurisdictions.
Income tax expense includes $825,000, $1,278,000 and $1,316,000 of
partnership income tax expense, consisting primarily of state and local income
taxes, and $730,000, $1,579,000 and $1,895,000 of corporate subsidiary income
tax expense for the years ended December 31, 1995, 1996 and 1997,
respectively. The effective income tax rates of 3%, 4% and 3% for the years
ended December 31, 1995, 1996 and 1997, respectively, is low due substantially
to income not subject to income taxes. The net deferred tax asset of
$1,102,000 and $1,672,000 at December 31, 1996 and 1997, respectively, is
included in other assets.
NOTE 6--TAX CONSIDERATIONS FOR UNITHOLDERS (UNAUDITED)
Unitholders purchasing units in the open market after August 10, 1993 have
been allocated amortization over fifteen years of a substantial portion of the
purchase price of the units. The following example of this benefit assumes an
individual purchased units during December 1996 and held them through December
31, 1997. This unitholder would have a convention purchase price, as defined
in the partnership agreement of the Partnership, of $24.25 per unit of which
$21.45 is allocated to Internal Revenue Code Section 197 assets. The estimated
tax benefit of these amortization deductions for the year ended December 31,
1997 follows:
28
<PAGE>
NEW ENGLAND INVESTMENT COMPANIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
PER
UNIT
-----
<S> <C> <C>
Total distributions for calendar year 1997..................... $2.69
Allocation of estimated taxable income prior to tax amortiza-
tion of the purchase price.................................... $2.97
Less estimated tax amortization allocation of the purchase
price (1/15 of $21.45)........................................ (1.43)
-----
Net taxable income........................................... $1.54
=====
Estimated income tax (assumed 40% personal income tax rate).... (0.62)
-----
Total distributions declared for calendar year 1997, net of
income taxes................................................ $2.07
=====
</TABLE>
The estimated tax basis of unitholders having a convention purchase price of
$24.25 per unit at December 31, 1996 follows:
<TABLE>
<CAPTION>
PER
UNIT
--- ------
<S> <C> <C>
Tax basis at December 31, 1996 (assumed convention purchase
price).......................................................... $24.25
Add 1997 net taxable income (per above).......................... 1.54
Less 1997 total distributions declared........................... (2.69)
------
Tax basis at December 31, 1997................................. $23.10
--- ======
</TABLE>
Each year, a Schedule K-1 is sent to each unitholder identifying the
unitholder's amortization tax benefit. Under federal tax law, each unitholder
is required to pay tax on the unitholder's allocable share of the
Partnership's income regardless of the amount of distributions made by the
Partnership. As individual tax situations may vary, holders and prospective
purchasers of units are urged to consult their tax advisor.
NOTE 7--ACQUISITIONS
During 1997 and 1996, the Partnership or the Operating Partnership acquired
certain assets and assumed certain liabilities of four investment management
firms and one real estate advisory firm. Each acquisition was accounted for
under the purchase method of accounting and is included in the financial
statements as of the effective date of the transaction.
1997 Acquisitions
Effective January 1, 1997, the Partnership acquired Jurika & Voyles, Inc. On
July 9, 1997, the Partnership acquired Snyder Capital Management, Inc. The
Operating Partnership acquired Daniel Breen & Company on December 31, 1997,
and its operations were combined with those of Vaughan, Nelson, Scarborough &
McConnell to form Vaughan, Nelson, Scarborough & McCullough ("VNSM").
1996 Acquisitions
On December 10, 1996, the Partnership acquired Aldrich, Eastman & Waltch,
L.P., whose operations were combined with those of the Partnership's real
estate advisory subsidiary, Copley Real Estate Advisors, Inc., to form a new
firm named AEW Capital Management, L.P. Effective May 1, 1996, the Partnership
acquired Vaughan, Nelson, Scarborough & McConnell.
29
<PAGE>
NEW ENGLAND INVESTMENT COMPANIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Purchase Consideration
The total purchase price and allocations thereof for the 1997 and 1996
acquisitions, including direct acquisition costs, follow:
<TABLE>
<CAPTION>
1996 1997
----- ------
(IN
MILLIONS)
<S> <C> <C>
Cash............................................................ $62.4 $ 61.3
Subordinated notes payable...................................... 10.0 22.7
Partnership units (836,000 units for 1996 and 3,609,000 units
for 1997)...................................................... 19.7 87.2
----- ------
Total......................................................... $92.1 $171.2
===== ======
</TABLE>
<TABLE>
<CAPTION>
1996 1997
------------------- -------------------
AMORTIZATION AMORTIZATION
PERIOD AMOUNT PERIOD AMOUNT
------------ ------ ------------ ------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Contracts acquired.................... 15-22 years $90.9 7-23 years $157.2
Goodwill.............................. 30 years 4.0 30 years 8.1
Net tangible assets (liabilities)..... (2.8) 5.9
----- ------
Total............................................ $92.1 $171.2
===== ======
</TABLE>
Contingent Consideration
In addition to the purchase price at the time of acquisition, a combined
total of up to $61 million in cash and/or units may be paid to the sellers of
certain of the firms acquired over the three-year period following the
respective closing, depending upon attainment of certain post-closing revenue
levels. A significant portion of the contingent consideration, if paid, is
expected to be accounted for as additional purchase price. As of December 31,
1997, the Operating Partnership recorded as goodwill a $5.1 million additional
purchase payment expected to be paid in 1998.
Pro Forma Impact of 1996 and 1997 Acquisitions
The pro forma, unaudited financial data shown below gives effect to the
foregoing acquisitions as if they had occurred on January 1, 1996. Pro forma
adjustments include the amortization of the intangible assets, financing costs
and compensation expense. The pro forma financial data does not necessarily
reflect the results of operations that would have been obtained (excluding the
impact of any contingent consideration payments) had the foregoing
acquisitions occurred on the assumed date, nor is the financial data
necessarily indicative of the results of the combined entities that may be
achieved for any future period.
<TABLE>
<CAPTION>
1996 1997
---------- ----------
(IN THOUSANDS, EXCEPT
PER UNIT DATA)
<S> <C> <C>
Revenues.............................................. $ 479,477 $ 573,094
========== ==========
Net income............................................ $ 79,271 $ 96,424
========== ==========
Net income per unit:
Basic............................................... $ 2.00 $ 2.20
========== ==========
Diluted............................................. $ 1.89 $ 2.20
========== ==========
Weighted average units outstanding--diluted........... 45,881 44,432
========== ==========
</TABLE>
30
<PAGE>
NEW ENGLAND INVESTMENT COMPANIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Harris Associates
On September 29, 1995, the Partnership acquired certain assets and assumed
certain liabilities of Harris Associates L.P. ("Harris"), an investment
management company. On April 2, 1997, deferred purchase consideration of
$144.1 million recorded as goodwill on December 31, 1996, was settled by the
issuance of 2.6 million units valued at $64.5 million and $79.6 million in
cash.
NOTE 8--NOTES PAYABLE
On April 1, 1997, the private placement of $160 million of 7.15% senior
notes due April 2007 was completed. The senior notes have an effective
interest rate of 7.29%, including deferred debt issuance costs which are
amortized to interest expense over the term of the senior notes. On January 9,
1996, the private placement of $110 million of 6.54% senior notes due January
2003 was completed. These notes have an effective interest rate of 7.06%
including deferred debt issuance costs. Based on the borrowing rates currently
available to the Operating Partnership for notes with similar terms and
average maturities, the fair value of the senior notes is estimated to be $280
million at December 31, 1997.
On July 9, 1997, a short-term note of $22.7 million at 5.91% due January
1998 was issued in connection with an acquisition. In 1996, two promissory
notes were issued for $5.0 million each in connection with acquisitions, of
which $4.9 million and $3.3 million was outstanding at December 31, 1997. The
$4.9 million note at 6.00% matures January 2, 1998. The $3.3 million note at
6.54% matures in two equal installments in December 1998 and 1999,
respectively. Due to the unique nature of each of the notes issued in
connection with acquisitions, the assessment of current fair value is not
practicable.
At December 31, 1997, the Operating Partnership had a $165 million revolving
credit agreement, which expires October 2001. Additionally, there is a $20
million line of credit with a commercial bank at LIBOR plus 27 basis points,
of which $15.5 million was outstanding at December 31, 1997. The annual
commitment fee on unused credit lines is 12.5 basis points.
Covenants
Under the terms of the senior notes and credit agreements, certain covenants
are required to be met, including the maintenance of cash flow ratios,
distributions and partners' capital. At December 31, 1997 the Operating
Partnership was in compliance with these covenants.
NOTE 9--CONTINGENT LIABILITIES
On June 7, 1996, the California Ironworkers Field Pension Trust, and several
related trusts (the "Trusts"), filed suit against the Operating Partnership's
subsidiary, Loomis, Sayles & Company, L.P. ("Loomis Sayles") in the U.S.
District Court for the Central District of California (Western Division)
alleging violation of investment guidelines and breach of fiduciary duty under
ERISA with respect to the purchase of certain securities for the account of
the Trusts. On March 3, 1997, the Court granted the motion of Loomis Sayles to
dismiss certain of the causes of action of the plaintiff and to strike the
plaintiff's request for punitive damages. The suit seeks money damages in
excess of $20 million representing lost principal, together with amounts
representing loss of investment income. Loomis Sayles believes that it has
meritorious defenses and intends to vigorously contest both allegations of
liability and damages. Management believes that resolution of this matter will
not have a material adverse effect on the Partnership's or the Operating
Partnership's results of operations or financial condition.
The business units of the Operating Partnership are from time to time
subject to other legal proceedings and claims which arise in the ordinary
course of business. In the opinion of management, the amount of ultimate
liability with respect to currently pending actions, if any, will not
materially adversely affect the results of operations or financial condition
of the Partnership or the Operating Partnership.
31
<PAGE>
NEW ENGLAND INVESTMENT COMPANIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 10--INCENTIVE COMPENSATION
Incentive Compensation
The Operating Partnership and each of its principal subsidiaries have
incentive compensation plans which are generally dependent upon earnings, cash
flow, individual performance and profit margins. In certain business units,
the payments are deferred and dependent on continued employment. In addition,
special compensation programs for portfolio managers are based on the
performance of the funds managed. Incentive compensation plan expense was
$54,687,000, $90,777,000 and $142,838,000 for the years ended December 31,
1995, 1996 and 1997, respectively.
Restricted Unit Plan
Restricted unit plan awards are made from units contributed by MetLife and
Reich & Tang, Inc. This non-cash compensation expense is fully allocated to
MetLife and Reich & Tang, Inc. Awards under the plan provide for vesting of
units to participants over various vesting schedules. Units awarded under the
plan were 12,750, 31,000 and 51,200 for the years ended December 31, 1995,
1996 and 1997, respectively, at a weighted average per unit fair value at
grant date of $18.25, $23.34 and $26.04, respectively. Compensation expense is
recognized over the vesting period based on the market value of the units on
the date awarded and was $5,843,000, $7,598,000, and $1,209,000 for the years
ended December 31, 1995, 1996 and 1997, respectively. Substantially all
unvested units as of August 30, 1996 vested immediately on that date due to a
change in control of the Partnership. Distributions paid on unvested units are
included in compensation expense. At December 31, 1997, there were 224,100
units available for grant under the plan.
Equity Incentive Plans
Under the 1993 Equity Incentive Plan (the "1993 Plan"), a total of 1,774,000
units were initially made available for issuance. At December 31, 1997,
732,436 options were outstanding under the 1993 Plan. These options vest
ratably over three or five years, and expire in ten years from the date of
grant. On August 25, 1997, the unitholders approved 6,000,000 units for
issuance under the 1997 Equity Incentive Plan (the "1997 Plan"). In addition
to options to acquire units, any of the following incentives may be awarded to
participants under the 1997 Plan: unit appreciation rights; restricted units;
unrestricted units; awards entitling the recipient to delivery in the future
of units or other securities; securities which are convertible into or
exchangeable for units and cash bonuses. These awards may be conditioned in
whole or in part on the satisfaction of specified performance criteria. No
awards can be granted under the 1997 Plan after June 16, 2007 (although awards
granted prior to that day may continue thereafter). On September 9, 1997,
3,060,000 options were granted. Such options vest January 1, 2004, or
beginning January 1, 2000, depending upon the attainment of certain public
market prices for units of the Partnership, or ratably over a five year period
ending September 9, 2002 and expire in ten years from the date of grant. The
exercise price of options granted under the 1993 or 1997 Plans may not be less
than the fair market value of the underlying units on the date of grant.
Equity based compensation is accounted for under the intrinsic value method
and, as such, no compensation expense has been recognized in the financial
statements. If the fair value method had been used, the pro forma net income
would have been $52,732,000 (or $1.73 per unit-diluted), $70,129,000 (or $1.85
per unit-diluted) and $95,132,000 (or $2.20 per unit-diluted) for the years
ended December 31, 1995, 1996 and 1997, respectively. The fair value of
options awarded in 1995, 1996 and 1997 was determined based on the Black-
Scholes valuation model. The 1997 fair value data assumes a risk free interest
rate of 6.2%, a weighted average expected life of 6.7 years, a volatility of
20% and a distribution yield of 8%.
32
<PAGE>
NEW ENGLAND INVESTMENT COMPANIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
A summary of options outstanding under the 1993 and 1997 Equity Incentive
Plans at December 31, 1995, 1996 and 1997 follows:
<TABLE>
<CAPTION>
1995 1996 1997
---------------- ----------------- -------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
UNITS PRICE UNITS PRICE UNITS PRICE
------- -------- ------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of year................ 78,500 $18.83 278,500 $20.57 405,986 $21.36
Granted................ 200,000 21.25 139,820 22.63 3,477,783 26.56
Exercised.............. -- -- (8,334) 16.13 (14,167) 19.18
Forfeited.............. -- -- (4,000) 21.25 (77,166) 21.42
------- ------ ------- ------ --------- ------
Outstanding at end of
year................... 278,500 $20.57 405,986 $21.36 3,792,436 $26.14
======= ====== ======= ====== ========= ======
Options exercisable at
end of year............ 40,663 94,500 124,264
======= ======= =========
Weighted average fair
value of options
granted per unit during
the year............... $ 2.44 $ 2.28 $ 2.52
====== ====== ======
</TABLE>
A summary of options outstanding and exercisable at December 31, 1997
follows:
<TABLE>
<CAPTION>
OPTIONS
OPTIONS OUTSTANDING EXERCISABLE
---------------------------- ----------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
RANGE OF REMAINING AVERAGE AVERAGE
EXERCISE LIFE EXERCISE EXERCISE
PRICES UNITS IN YEARS PRICE UNITS PRICE
-------- --------- --------- -------- ------- --------
<S> <C> <C> <C> <C> <C>
$16.00-$20.00 12,500 7 $16.13 12,500 $16.13
$20.00-$26.00 694,936 9 23.27 111,764 21.52
$26.00-$29.00 3,085,000 10 26.83 -- --
--------- ------ ------- ------
$16.00-$29.00 3,792,436 10 $26.14 124,264 $20.98
========= ====== ======= ======
</TABLE>
NOTE 11--PENSION AND RETIREMENT PLANS
Defined Contribution Plans
Certain subsidiaries provide defined contribution plans. Defined
contribution plan expense was $3,185,000, $4,204,000 and $4,584,000 for the
years ended December 31, 1995, 1996 and 1997, respectively.
Post-Retirement Benefits
Post-retirement benefits expense includes contributory medical and dental
coverage and life insurance coverage. Post-retirement benefits expense was
$459,000, $450,000 and $406,000 for the years ended December 31, 1995, 1996
and 1997, respectively. Accrued post-retirement benefits expense was
$6,938,000 and $7,155,000 at December 31, 1996 and 1997, respectively. Costs
are funded as incurred.
Defined Benefit Plan--Loomis Sayles
Loomis Sayles sponsors a defined benefit funded pension plan covering
substantially all of its employees and a defined benefit unfunded (non-
qualified) supplemental pension plan for certain employees who meet service,
age, and base compensation requirements and who are elected into the plan.
33
<PAGE>
NEW ENGLAND INVESTMENT COMPANIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Net periodic pension income for these plans for the years ended December 31
follows:
<TABLE>
<CAPTION>
1995 1996 1997
------- ------- ------
(IN THOUSANDS)
<S> <C> <C> <C>
Actual return on plan assets..................... $12,127 $10,393 $9,127
Amortization of deferred gain ................... (6,977) (4,707) (2,897)
------- ------- ------
Expected return on plan assets................. 5,150 5,686 6,230
Service costs -- benefits earned................. (1,022) (1,279) (1,352)
Interest cost on projected benefit obligations... (2,745) (2,972) (3,177)
Amortization of unrecognized net surplus at
transition and plan amendments.................. 444 360 341
Amortization of excess cumulative difference..... (36) (351) (388)
------- ------- ------
Net periodic pension income.................... $ 1,791 $ 1,444 $1,654
======= ======= ======
Assumptions:
Discount rate.................................... 7.25% 7.25% 7.25%
Increase in compensation levels.................. 5.00% 5.00% 5.00%
Long-term return on plan assets.................. 10.50% 10.50% 10.50%
</TABLE>
The funded status for these plans at December 31 follows:
<TABLE>
<CAPTION>
1996 1997
---------------- ----------------
FUNDED SUPP. FUNDED SUPP.
PLAN PLAN PLAN PLAN
------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Actuarial present value of benefit ob-
ligation:
Vested benefits........................ $37,936 $ 2,586 $40,584 $ 2,335
Non-vested benefits.................... 1,224 -- 1,375 --
------- ------- ------- -------
Accumulated benefit obligation....... 39,160 2,586 41,959 2,335
Effect of anticipated future compensa-
tion levels........................... 3,462 -- 4,434 --
------- ------- ------- -------
Projected benefit obligation......... 42,622 2,586 46,393 2,335
Plan assets at fair value.............. 66,330 -- 73,307 --
------- ------- ------- -------
Plan assets in excess of (less than)
projected
benefit obligation.................. 23,708 (2,586) 26,914 (2,335)
Unrecognized net (gain) loss........... 1,302 (950) (2,958) 988
Unrecognized plan amendments........... 1,215 (103) 3,104 (1,581)
Unrecognized net overfunding at transi-
tion.................................. (5,330) -- (4,845) --
------- ------- ------- -------
Pension asset (liability)............. $20,895 $(3,639) $22,215 $(2,928)
======= ======= ======= =======
</TABLE>
Data as of January 1, 1996 and 1997 was used to determine the various
pension measurements, including plan assets and benefit obligations as of
December 31, 1996 and 1997, respectively. Plan assets are invested primarily
in Loomis Sayles mutual funds and affiliated investment funds.
34
<PAGE>
NEW ENGLAND INVESTMENT COMPANIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 12--INVESTMENT IN AFFILIATE
The Operating Partnership held a 50% limited partner interest in Capital
Growth Management Limited Partnership ("CGM") at December 31, 1996 and 1997,
respectively, accounted for using the equity method as the Operating
Partnership does not have the ability to control CGM. Equity in earnings of
CGM was $7,953,000, $8,660,000 and $11,517,000 for the years ended December
31, 1995, 1996 and 1997, respectively.
The summarized balance sheet and income statement of CGM at December 31
follows:
<TABLE>
<CAPTION>
1996 1997
------- -------
(IN THOUSANDS)
<S> <C> <C>
Assets:
Current assets............................................ $ 7,305 $ 8,721
Non-current assets........................................ 645 552
------- -------
$ 7,950 $ 9,273
======= =======
Liabilities and Partners' Capital:
Accrued expenses.......................................... $ 1,988 $ 2,426
Loan payable to NEIC Operating Partnership, L.P........... 1,084 558
Partners' capital......................................... 4,878 6,289
------- -------
$ 7,950 $ 9,273
======= =======
</TABLE>
<TABLE>
<CAPTION>
1995 1996 1997
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenues............................................ $32,885 $38,524 $51,097
Expenses:
Compensation and benefits......................... 12,171 13,260 17,474
Mutual fund expenses.............................. 4,426 6,010 8,968
Other............................................. 1,490 1,918 1,662
------- ------- -------
Net income.......................................... $14,798 $17,336 $22,993
======= ======= =======
</TABLE>
NOTE 13--FIXED ASSETS
<TABLE>
<CAPTION>
1996 1997
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Property, equipment and leasehold improvements........... $ 44,575 $ 57,176
Less accumulated depreciation and amortization........... (25,339) (30,742)
-------- --------
$ 19,236 $ 26,434
======== ========
</TABLE>
Rent expense was $8,470,000, $9,508,000 and $12,439,000 for the years ended
December 31, 1995, 1996 and 1997, respectively. Annual minimum lease
commitments under non-cancelable operating leases are $15,783,000 in 1998,
$15,975,000 in 1999, $14,008,000 in 2000, $10,219,000 in 2001, $9,730,000 in
2002 and $29,176,000 thereafter.
35
<PAGE>
NEW ENGLAND INVESTMENT COMPANIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 14--RELATED PARTY TRANSACTIONS
The general partner of the Partnership and the managing general partner of
the Operating Partnership is a wholly owned subsidiary of Metropolitan Life
Insurance Company which, at December 31, 1997, owned approximately 47% of the
partnership units of the Operating Partnership (including those owned
indirectly through ownership of Partnership units).
Investment management services are provided for MetLife by managing certain
of its general and separate account assets. Services are provided by several
of the Operating Partnership's investment management firms. Management and
advisory fees of $22,681,000, $21,680,000 and $23,151,000 were earned for the
years ended December 31, 1995, 1996 and 1997, respectively.
NOTE 15--SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
1997
---------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
--------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER UNIT DATA)
<S> <C> <C> <C> <C>
Revenues.............................. $ 126,797 $ 127,202 $ 146,862 $ 160,608
--------- --------- --------- ---------
Expenses
Compensation and benefits........... 64,999 62,190 69,672 79,553
Other expenses...................... 40,230 42,392 50,183 53,357
--------- --------- --------- ---------
105,229 104,582 119,855 132,910
--------- --------- --------- ---------
Income before income taxes............ 21,568 22,620 27,007 27,698
Income tax expense.................... 1,215 1,111 247 638
--------- --------- --------- ---------
Net income............................ $ 20,353 $ 21,509 $ 26,760 $ 27,060
========= ========= ========= =========
Net income per unit:
Basic............................... $ 0.48 $ 0.50 $ 0.61 $ 0.63
========= ========= ========= =========
Diluted............................. $ 0.48 $ 0.50 $ 0.61 $ 0.62
========= ========= ========= =========
Distributions declared per unit:
Regular............................. $ 0.53 $ 0.53 $ 0.53 $ 0.55
Special............................. 0.05 0.08 0.17 0.25
--------- --------- --------- ---------
Total.............................. $ 0.58 $ 0.61 $ 0.70 $ 0.80
========= ========= ========= =========
Operating cash flow (1)............... $ 29,754 $ 30,602 $ 36,667 $ 37,657
========= ========= ========= =========
Weighted average units outstanding--
diluted.............................. 43,087 43,088 44,479 44,867
========= ========= ========= =========
</TABLE>
36
<PAGE>
NEW ENGLAND INVESTMENT COMPANIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
1996
------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------------------------------------
(IN THOUSANDS, EXCEPT PER UNIT DATA)
<S> <C> <C> <C> <C>
Revenues
Management and advisory fees and
other................................. $ 89,325 $ 95,046 $ 95,015 $ 108,277
Gain on partial sale of affiliate...... 4,988 -- -- --
-------- -------- -------- ---------
94,313 95,046 95,015 108,277
-------- -------- -------- ---------
Expenses
Compensation and benefits.............. 43,436 44,903 46,123 55,524
Other expenses......................... 29,942 31,585 34,925 33,132
-------- -------- -------- ---------
73,378 76,488 81,048 88,656
-------- -------- -------- ---------
Income before income taxes............... 20,935 18,558 13,967 19,621
Income tax expense....................... 621 1,208 726 302
-------- -------- -------- ---------
Net income............................... $ 20,314 $ 17,350 $ 13,241 $ 19,319
======== ======== ======== =========
Net income per unit:
Basic.................................. $ 0.55 $ 0.48 $ 0.46 $ 0.49
======== ======== ======== =========
Diluted................................ $ 0.53 $ 0.45 $ 0.43 $ 0.44
======== ======== ======== =========
Distributions declared per unit--
regular................................. $ 0.48 $ 0.51 $ 0.53 $ 0.53
======== ======== ======== =========
Operating cash flow (1).................. $ 22,079 $ 24,699 $ 24,574 $ 26,759
======== ======== ======== =========
Weighted average units outstanding--
diluted................................. 40,385 41,712 42,376 43,827
======== ======== ======== =========
</TABLE>
- --------
(1) Operating cash flow is defined as net income adjusted for amortization of
intangibles, restricted unit plan compensation and non-recurring items.
Operating cash flow per unit should not be construed as an alternative to
net income per unit or as an alternative to cash flow from operating
activities as reported in the Consolidated Statement of Cash Flows.
Operating cash flow, as calculated by the Partnership, may not be
consistent with comparable computations by other companies.
37
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners of New England Investment Companies, L.P.
In our opinion, the consolidated financial statements listed in the index
appearing under Item 14 (a) (1) on page 51 of this Form 10-K present fairly,
in all material respects, the financial position of New England Investment
Companies, L.P. and its subsidiaries (the "Partnership") at December 31, 1997
and 1996, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 1997, in conformity with
generally accepted accounting principles. 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
conducted our audits of these statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit 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, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
Price Waterhouse LLP
Boston, Massachusetts
January 29, 1998
38
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
39
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Under the Partnership Agreement and Delaware law, the Partnership's
activities are managed by the General Partner. The General Partner also serves
as managing general partner of the Operating Partnership. The General Partner
has agreed that it will conduct no businesses other than managing the
Partnership and the Operating Partnership, except the management of its own
passive investments. The General Partner is a wholly owned subsidiary of
MetLife, which has the right to elect all directors of the General Partner,
subject to its obligation to elect one designee of RTI.
The following table sets forth the name, age and positions of each of the
General Partner's directors and executive officers at January 1, 1998. The
executive officers of the General Partner hold comparable posts with the
Partnership and the Operating Partnership, in which they act pursuant to
delegated authority from the General Partner.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Peter S. Voss................ 51 Chairman of the Board, Chief Executive Officer
and President; Chairman of Executive
Committee
William S. Antle III......... 53 Director; Chairman of Audit Committee
Robert J. Blanding........... 50 Director
Paul E. Gray................. 65 Director; member of Compensation Committee
Harry P. Kamen............... 64 Director
Charles M. Leighton.......... 62 Director; member of Audit Committee and
Chairman of Compensation Committee
Victor A. Morgenstern........ 55 Director
Catherine A. Rein............ 54 Director
Oscar L. Tang................ 59 Director; member of Compensation Committee
G. Neal Ryland............... 56 Executive Vice President and Chief Financial
Officer
Sherry A. Umberfield......... 43 Executive Vice President, Corporate
Development
Edward N. Wadsworth.......... 60 Executive Vice President, General Counsel and
Secretary
</TABLE>
For purposes of the following description, references to the General Partner
include all predecessor organizations.
The directors of the General Partner generally do not serve set terms, but
rather serve until their successors are duly elected and qualified. The board
of directors of the General Partner has established a program pursuant to
which two chief executive officers of operating subsidiaries of the
Partnership serve as directors of the General Partner generally for two-year
terms. These directors are elected by the directors of the General Partner
after recommendation of management. This arrangement may be changed by the
board of directors of the General Partner at any time. This program was
implemented effective January 1, 1996, with the election of Mr. Morgenstern
and Mr. Blanding.
Mr. Voss is Chairman of the Board of Directors and Chief Executive Officer
of the Partnership, the Operating Partnership and the General Partner. He was
Chief Executive Officer and Chairman of the Board of a predecessor
organization from 1992 until the combination with Reich & Tang in 1993. Mr.
Voss was Group Executive Vice President, Bank of America, responsible for its
global asset management and private banking business, from April 1992 to
October 1992. Mr. Voss was Executive Vice President of Security Pacific
National Bank and Chief Executive Officer of Security Pacific Hoare Govett
Companies, a wholly owned subsidiary of Security Pacific Corporation, from
April 1988 to April 1992. Mr. Voss serves as Chairman or a member of the Board
of Directors of each of the Partnership's corporate subsidiaries and the
general partners of the Operating Partnership's partnership subsidiaries, as
well as serving as Chairman of the Board of Trustees of all the mutual funds
in the New England Funds Group and serving as a trustee of Harris Associates
Investment Trust. Mr. Voss serves as a member of the Executive Committee of
the Board of Governors of the Investment Company Institute.
40
<PAGE>
Mr. Antle became a director of the General Partner in January 1996. He has
been Chairman and Chief Executive Officer of Oak Industries Inc., a
manufacturer of components for telecommunications companies, since December
1989. Mr. Antle is also a director of ESCO Electronics Corporation and GenRad,
Inc.
Mr. Blanding became director of the General Partner in January 1996. Since
April 1995, Mr. Blanding has served as President, Chief Executive Officer and
a director of Loomis Sayles. He was President, Chief Operating Officer and a
director of Loomis Sayles from August 1992 until April 1995, and an Executive
Vice President and director of Loomis Sayles from September 1991 to August
1992. References to Loomis Sayles include the general partner of Loomis Sayles
as well as a predecessor organization.
Dr. Gray became a director of the General Partner in March of 1996. He was
Chairman of the Corporation at the Massachusetts Institute of Technology from
1990 to 1997, and has been a member of the faculty since 1960. Dr. Gray also
serves as a director of The Boeing Company and Eastman Kodak Company.
Mr. Kamen was elected as a director of the General Partner in December of
1996. Mr. Kamen has been Chairman of the Board and Chief Executive Officer of
Metropolitan Life Insurance Company since April of 1993, and also held the
position of President from December 1995 to November 1997. Prior to such
times, he served in other senior positions at MetLife, becoming an Executive
Vice President in 1989 and Senior Executive Vice President in 1991. Mr. Kamen
also serves as a director of Bethlehem Steel Corporation, Pfizer, Inc. and
Banco Santandar, S.A.
Mr. Leighton became a director of a predecessor organization in May 1990 and
serves as director of the General Partner. Mr. Leighton was Chairman of the
Board and Chief Executive Officer of CML Group, Inc., a specialty consumer
products company, from 1969 to 1997, and remains a director. Mr. Leighton also
serves as a director of MetLife.
Mr. Morgenstern became a director of the General Partner in January 1996.
From January 1992 to July 1996, Mr. Morgenstern was President, Chief Executive
Officer and a director of Harris, and remains Chairman. Prior to such time, he
was a Vice President and director of Harris. Mr. Morgenstern also serves as
Chairman and a trustee of Harris Associates Investment Trust. References to
Harris include the general partner of Harris as well as a predecessor
organization.
Mrs. Rein was elected as a director of the General Partner in December of
1996. Mrs. Rein was Executive Vice President, Corporate Development of
Metropolitan Life Insurance Company from December of 1989 to January 1998;
since February 1998 she has been Senior Executive Vice President, Business
Services Group and Corporate Development. Mrs. Rein also serves as a director
of Bank of New York, Inc., Corning, Inc. and GPU, Inc.
Mr. Tang became a director of the General Partner in September 1993 at the
time of the acquisition of Reich & Tang. Mr. Tang, a founder of RTI and Reich
& Tang, has been an officer and director of RTI since its organization in
1970, and was Chairman of the Board of Directors and Chief Executive Officer
of RTI from 1981 until 1987 when he became President and Chief Executive
Officer. He served as a consultant to the Partnership until December 31, 1996.
He also serves as a director of IFR Systems, Inc.
Certain background information is provided below with respect to the
executive officers of the General Partner in addition to Mr. Voss. The
executive officers of the General Partner hold comparable posts with the
Partnership and the Operating Partnership, in which they act pursuant to
delegated authority from the General Partner.
Mr. Ryland is Executive Vice President and Chief Financial Officer of the
General Partner. He assumed comparable posts with a predecessor company in
July 1993. Mr. Ryland was Executive Vice President and Chief Financial Officer
of The Boston Company, a diversified financial services company, from March
1989 until July 1993.
Ms. Umberfield is Executive Vice President, Corporate Development of the
General Partner. She held a comparable position with a predecessor company
from December 1989 until September 1993. Ms. Umberfield was a Vice President
of New England Mutual from December 1988 to December 1992. She is a Chartered
Financial Analyst.
41
<PAGE>
Mr. Wadsworth is Executive Vice President, General Counsel and Secretary of
the General Partner. He held comparable posts with a predecessor company from
December 1989 to September 1993. Mr. Wadsworth was Senior Vice President and
Associate General Counsel of New England Mutual from 1981 until December 1992.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires the General
Partner's directors and executive officers, and persons who own more than 10%
of the units, to file with the SEC and the New York Stock Exchange initial
reports of ownership and reports of changes in ownership of units. To the
Partnership's knowledge, during the year ended December 31, 1997, all Section
16(a) filing requirements applicable to its executive officers, directors and
10% beneficial owners were complied with, except as described below. The
Partnership typically assists the directors and the executive officers of the
Partnership with their Section 16(a) filings, and had inadvertently failed to
note certain reporting required of Mr. Morgenstern, a director of the General
Partner. The filings that were not made on a timely basis were two reports
relating to Mr. Morgenstern's acquisition of LP units in the payment of the
deferred portion of the purchase price in the 1995 acquisition by the
Partnership of Harris Associates L.P., of which Mr. Morgenstern was a partner.
The treatment of Mr. Morgenstern's deferred payment right as a derivative
security in this context required earlier reporting, which was not timely
made.
ITEM 11. EXECUTIVE COMPENSATION.
The following table sets forth all plan and non-plan compensation paid
during the last three years to the chief executive officer and to all persons
who served as executive officers of the Partnership in 1997 (such persons
being hereinafter collectively referred to as the "Named Executive Officers"):
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
------------------------------ -------------------------
SECURITIES
NAME AND RESTRICTED UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS OTHER UNIT AWARDS($) OPTIONS(#) COMPENSATION(1)
- ------------------ ---- -------- ---------- ----- -------------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Peter S. Voss.......... 1997 $497,500 $2,000,000 -- -- 1,200,000 $54,957
Chairman and Chief 1996 467,500 1,357,125 -- -- -- 51,621
Executive Officer 1995 440,000 1,020,000 -- -- -- 48,946
G. Neal Ryland......... 1997 263,750 530,000 -- -- 600,000 30,579
Executive Vice 1996 248,750 288,750 -- -- -- 28,812
President and Chief 1995 235,000 235,000 -- -- -- 27,512
Financial Officer
Sherry A. Umberfield... 1997 228,750 332,074 -- -- 400,000 26,919
Executive Vice 1996 214,167 186,244 -- -- -- 25,217
President, Corporate 1995 205,000 140,000 -- -- -- 24,375
Development
Edward N. Wadsworth.... 1997 233,750 347,213 -- $536,250(2) -- 35,762
Executive Vice 1996 219,375 190,575 -- -- -- 33,572
President, General 1995 212,500 145,000 -- -- -- 36,209
Counsel and Secretary
</TABLE>
- --------
(1) With respect to 1997, consists of insurance payments for term life (in
each case less than $2,200) and contributions under defined contribution
plans as follows: $52,814 for the benefit of Mr. Voss; $29,439 for the
benefit of Mr. Ryland; $25,939 for the benefit of Ms. Umberfield; and
$34,759 for the benefit of Mr. Wadsworth.
(2) The restricted unit valuation set out in the table above was calculated
using $26 13/16 per unit, which was the closing sale price of a unit on
the NYSE on the date of grant, September 9, 1997. Calculated using the
December 31, 1997 closing sale price of a unit on the NYSE of $28 5/8 for
such units, all of which are unvested, the ownership and valuation of
unvested units by the Named Executive Officer was 20,000 units valued at
$572,500. These units are scheduled to vest one-half on each of September
9, 1998 and 1999. In connection with the 1997 Restructuring, these units
were converted into units of the Operating Partnership.
42
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information regarding grants of options to
purchase units made in 1997 to Named Executive Officers. No unit appreciation
rights were granted in 1997.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS GRANT DATE VALUE
---------------------------------------------------- ------------------
% OF TOTAL
OPTIONS GRANTED EXERCISE
OPTIONS TO EMPLOYEES PRICE EXPIRATION GRANT DATE PRESENT
NAME GRANTED(#)(1) IN FISCAL YEAR PER UNIT(2) DATE VALUE(3)
---- ------------- --------------- ----------- ---------- ------------------
<S> <C> <C> <C> <C> <C>
Peter S. Voss........... 1,200,000 34.50% $26.8125 9/9/2007 $1,780,951
G. Neal Ryland.......... 600,000 17.25% $26.8125 9/9/2007 $ 890,475
Sherry A. Umberfield.... 400,000 11.50% $26.8125 9/9/2007 $ 593,650
Edward N. Wadsworth..... -0- -- -- -- -0-
</TABLE>
- --------
(1) Each of the foregoing options becomes exercisable on the seventh
anniversary of its date of grant. However, 25% of each option will become
exercisable before that time if and when the closing price of the
Partnership's LP units on the New York Stock Exchange on 15 consecutive
trading days equals or exceeds $29.00; 50% will become exercisable if and
when such closing price equals or exceeds $32.00; 75% will become
exercisable if and when such closing price equals or exceeds $36.25; and
100% will become exercisable if and when such closing price equals or
exceeds $40.25. In no event, however, will any of the options become
exercisable before January 1, 2000 unless a Change of Control occurs or,
in the case of Mr. Voss' option, unless his employment is terminated
during the term of his employment agreement by the Operating Partnership
without "cause" or by Mr. Voss following a "constructive discharge event"
(as such terms are defined in the employment agreement), in any of which
events the options will become exercisable in full immediately.
If the options do not become fully exercisable before January 1, 2002, but
the Operating Partnership's operating cash flow per unit in the year 2001
equals $3.39, each of the executive officers named in the table who is then
in the full time employ of the Operating Partnership will be entitled to
receive an award of Partnership LP units having a market value (based on
the average closing price during the last 10 business days of 2001) equal
to the total distributions paid on the following numbers of the
Partnership's LP units during the five year period extending from the
second quarter of 1997 through the first quarter of 2002, inclusive: Mr.
Voss--100,000 units; Mr. Ryland--50,000 units and Ms. Umberfield--33,333
units. If such operating cash flow per unit equals or exceeds $4.75, such
award will be multiplied by four, and if such operating cash flow per unit
exceeds $3.39 but is less than $4.75, such award will be multiplied by a
factor in excess of one but less than four determined by straight line
interpolation. In no event, however, will the number of the Partnership's
LP units awarded to any of such executive officers pursuant to the
foregoing exceed one-third of the number of such officer's options listed
in the table above that do not become exercisable before January 1, 2002.
(2) The exercise price of all options granted was 100% of fair market value on
the date of grant.
(3) In accordance with rules of the Securities and Exchange Commission, the
Black-Scholes option pricing model was chosen to estimate the grant date
present value of the options set forth in this table. The Black-Scholes
Ratio of 7.48% was determined using the following assumptions: a
volatility of 16.6%, a distribution yield of 8%, a risk free interest rate
of 6.2%, a risk of forfeiture of 3% and a ten-year projected exercise
period. There is no assurance that the value realized by an executive, if
any, will be at or near the value estimated by the Black-Scholes model.
Future compensation resulting from option grants is based solely on the
performance of the market value of the Partnership's LP units.
43
<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND YEAR-END OPTION VALUES
The following table sets forth information regarding the exercise of options
to purchase units held by Named Executive Officers and the value of
unexercised options at December 31, 1997.
<TABLE>
<CAPTION>
NUMBER OF UNITS UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
AT DECEMBER 31, 1997 (#) AT DECEMBER 31, 1997 ($)
UNITS VALUE EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE(1)
ACQUIRED ON REALIZED ------------------------------ ---------------------------------
NAME EXERCISE (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ------------ -------- ------------ --------------- ------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Peter S. Voss........... -0- -0- -0- 1,200,000 -0- $2,175,000
G. Neal Ryland.......... -0- -0- -0- 600,000 -0- $1,087,500
Sherry A. Umberfield.... -0- -0- -0- 400,000 -0- $ 725,000
Edward N. Wadsworth..... -0- -0- -0- -0- -0- $ -0-
</TABLE>
- --------
(1) The value of unexercised options at December 31, 1997, is based on the
difference between the closing price of Partnership LP units on the New
York Stock Exchange on such date ($28.625) and the exercise price of the
options ($26.8125), multiplied by the number of unexercised options.
EMPLOYMENT AGREEMENTS
The Operating Partnership (as successor to the Partnership) and the General
Partner are party to an employment agreement ("the Employment Agreement")
dated as of August 16, 1995 (the "Effective Date") with Peter S. Voss
providing for the employment of Mr. Voss as Chairman of the Board, Chief
Executive Officer and President of the Operating Partnership and the General
Partner for an initial term of three years, which was automatically extended
for an additional two-year period. During the term of the Employment
Agreement, Mr. Voss will receive an annual salary established from time to
time by the Board of Directors of the General Partner. In addition, Mr. Voss
will be entitled to receive an annual bonus determined by the Board. In the
event that Mr. Voss is terminated by the Operating Partnership without Cause
or Mr. Voss elects to terminate his employment as a result of a Constructive
Discharge Event (as defined in the Employment Agreement), Mr. Voss shall be
entitled to lump sum payment equal to three times his Salary (as then in
effect) and three times his Bonus Amount (as defined in the Employment
Agreement). In addition, in the event of such a termination, Mr. Voss shall be
deemed to be fully vested in any restricted units or other equity incentives
held by him on the date of such termination.
In addition, the Operating Partnership and the General Partner are also
party to agreements dated as of August 16, 1995 (the "Named Executive
Agreements") with each of G. Neal Ryland, Sherry A. Umberfield and Edward N.
Wadsworth providing, in each case, that if the employment of such Named
Executive Officer is terminated by the Operating Partnership prior to the
third anniversary of the Effective Date of such Named Executive Agreements
other than for Cause or disability or if the Partnership constructively
Discharges such Named Executive Officer and if Peter S. Voss or his designee,
in his capacity as Administrator under the Named Executive Agreements,
determines that such termination of employment or Constructive Discharge was
not primarily related to such Named Executive Officer's performance or the
ordinary course of business, then such Named Executive Officer shall be
entitled to lump sum payments equal to one and one-half times his or her
salary and his or her bonus amount.
COMPENSATION OF DIRECTORS
Directors of the General Partner who are not employees of the Partnership,
the Operating Partnership, or the Operating Partnership's subsidiary firms
("Outside Directors") receive a retainer of $20,000 annually. In addition, the
General Partner pays each Outside Director fees of $2,000 per meeting of the
Board of Directors attended and $1,000 per meeting of a Board Committee
attended. Chairmen of Committees of the Board of Directors who are Outside
Directors are paid an additional annual retainer of $2,500. Directors may
defer payment of retainer and meeting fees under a directors deferred
compensation plan.
44
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee in 1997 were Charles M. Leighton,
Paul E. Gray and Oscar L. Tang. Mr. Leighton serves on the board of directors
of MetLife. See Item 13, "Certain Relationships and Related Transactions," for
a discussion of the relationship between the Operating Partnership, the
General Partner and MetLife.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
At December 31, 1997, there were 110,000 GP units of the Partnership
outstanding, owned by one holder of GP units (NEIC, Inc.), and 6,164,980 LP
units of the Partnership outstanding, owned by approximately 450 holders of
record of LP units. Also at December 31, 1997, there were 44,466,979 units of
the Operating Partnership outstanding, owned by two holders of Operating
Partnership GP units (NEIC, Inc. and the Partnership) and approximately 75
holders of record and beneficial owners of Operating Partnership LP units. The
Partnership held 6,274,980 Operating Partnership units at December 31, 1997.
The tables that follow set forth certain information regarding certain
holders of units of the Partnership and Operating Partnership.
PRINCIPAL HOLDERS OF PARTNERSHIP LP UNITS
The following table sets out information as of December 31, 1997, as to (i)
each person known by the Partnership to hold 5% or more of the outstanding
Partnership units (or who would own 5% or more of the outstanding Partnership
units assuming such person exchanged all Operating Partnership LP units for
Partnership LP units in "block transfers" as described below), (ii) each
director of NEIC, Inc., (iii) each officer of the General Partner who is a
"Named Executed Officer" in this annual report on Form 10-K, and (iv) all
directors and executive officers of NEIC, Inc. as a group. The table indicates
both (i) the number of Partnership units owned by each such person, and (ii)
for each such person who owns at least 2% of the total Operating Partnership
units outstanding (in general not including those Operating Partnership units
held by NEIC, Inc., the Partnership or their respective affiliates), and is
therefore able to exchange its Operating Partnership LP units for Partnership
LP units in "block transfers" under the regulations promulgated pursuant to
Internal Revenue Code Section 7704, the number of Partnership LP units that
such person would own assuming it exchanged all of its Operating Partnership
LP units for Partnership LP units. However, since Operating Partnership LP
units may only be exchanged for Partnership LP units with the consent of the
Managing General Partner, who will not consent to any transfer that creates a
risk that such transfers will not fit into the safe harbors described in the
Treasury Regulations under Internal Revenue Code Section 7704 or that the
Operating Partnership will be required to register any class of its securities
under the Exchange Act, the Partnership LP units to be received in such
exchange may not in fact be beneficially owned within the meaning of Rule 13d-
3 under the Securities Exchange Act of 1934. The total of the percentages in
the fifth column of the following table exceeds 100% because, as required by
Rule 13d-3 under the Securities Exchange Act of 1934, the percentage ownership
of each person reflected in such column assumes that (i) such person exchanged
all of his Operating Partnership LP units for Partnership LP units, and (ii)
no other person exchanged any Operating Partnership LP units for Partnership
LP units. The Partnership believes that, except as otherwise indicated in the
footnotes to this table, the persons named in this table have sole voting and
investment power with respect to all of the Partnership units indicated.
45
<PAGE>
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
BENEFICIAL OWNERSHIP OF
AMOUNT AND NATURE NEIC LP UNITS
OF BENEFICIAL (INCLUDING BLOCK
OWNERSHIP PERCENT TRANSFERS OF NEICOP LP PERCENT
BENEFICIAL OWNER OF NEIC LP UNITS OF CLASS UNITS OWNED) OF CLASS
---------------- ----------------- -------- ----------------------- --------
<S> <C> <C> <C> <C>
Metropolitan Life
Insurance Company...... 317,900(1)(2) 5.07% 21,033,900(1)(2) 77.93%
Reich & Tang, Inc....... 150,000(1)(3) 2.43% 6,195,900(1)(3) 50.74%
JV Investments, Inc..... 0 -- 677,500(4) 9.90%
Peter B. Foreman........ 0 -- 677,500(5) 9.90%
Myron R. Szold.......... 0 -- 677,500(6) 9.90%
Roger O. Brown.......... 20,000(7) ** 677,500(7) 9.90%
Snyder Holdings, Inc.... 731,906(8) 11.87% 731,906(8) 11.87%
Earl J. Rusnak, Jr...... 0 -- 677,500(9) 9.90%
Sherwin A. Zuckerman.... 0 -- 677,500(10) 9.90%
Robert H. Harper........ 0 -- 677,500(11) 9.90%
Robert J. Sanborn....... 0 -- 528,010(12) 7.89%
Oscar L. Tang+.......... 71,084(13) 1.15% 2,936,210(13) 24.05%
William S. Antle III+... 0(14) -- 0(14) --
Robert J. Blanding+..... 0 -- 0 --
Paul E. Gray+........... 500 ** 500 **
Harry P. Kamen+......... 3,000 ** 3,000 **
Charles M. Leighton+.... 2,862(14)(15) ** 2,862(14)(15) **
Victor A. Morgenstern+.. 0 -- 1,000,000(16) 13.96%
Catherine A. Rein+...... 750 ** 750 **
Peter S. Voss+*......... 300(17) ** 350,300(17) 5.39%
G. Neal Ryland*......... 1,700(18) ** 1,700(18) **
Sherry A. Umberfield*... 0 -- 0 --
Edward N. Wadsworth*.... 0 -- 0 --
All directors and Named
Executive Officers of
the General Partner as
a group (12 persons)... 80,196 1.30% 4,295,322 41.38%
</TABLE>
- --------
+Director
*Named Executive Officer
**Less than 1%
The footnotes to this table appear after the table entitled "Principal
Holders of Operating Partnership Units," below.
Of the approximately 6.2 million Partnership LP units outstanding on
December 31, 1997, 5.1 million were freely tradable without registration under
the Securities Act. The resale of the remaining 1.1 million Partnership LP
units was restricted under the Securities Act, subject to the ability of
certain holders of such Partnership units to effect certain resales under an
exemptive rule or pursuant to the exercise of registration rights and the
lapse of such restrictions over time.
46
<PAGE>
PRINCIPAL HOLDERS OF OPERATING PARTNERSHIP UNITS
As of December 31, 1997, there were 44,466,979 Operating Partnership units
outstanding, owned by two holders of Operating Partnership GP units (NEIC,
Inc. and the Partnership) and approximately 75 holders of record and
beneficial owners of Operating Partnership LP units. The following table sets
out information as of December 31, 1997, as to (i) each person known by
Operating Partnership to hold 5% or more of the outstanding Operating
Partnership units, (ii) each director of NEIC, Inc., (iii) each officer of the
General Partner who is a "Named Executed Officer" in this annual report on
Form 10-K, and (iv) all directors and executive officers of NEIC, Inc. as a
group. The number of Operating Partnership Units shown in the table represents
the sum of (1) the number of Operating Partnership units, if any, owned
indirectly through ownership of Partnership units (shown in the table of
"Principal Holders of Partnership LP Units," above) plus (2) the number of
Operating Partnership Units owned directly. The Operating Partnership believes
that, except as otherwise indicated in the footnotes to this table, the
persons named in this table have sole voting and investment power with respect
to all of the Operating Partnership units indicated.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
BENEFICIAL OWNER BENEFICIAL OWNERSHIP PERCENT OF CLASS
---------------- -------------------- ----------------
<S> <C> <C>
Metropolitan Life Insurance Company..... 21,033,900(1)(2) 47.30%
New England Investment Companies, L.P... 6,274,980 14.11%
Reich & Tang, Inc....................... 6,195,900(1)(3) 13.93%
JV Investments, Inc..................... 2,260,900(4) 5.08%
Oscar L. Tang+.......................... 2,936,210(13) 6.60%
William S. Antle III+................... 0(14) --
Robert J. Blanding+..................... 9,000 **
Paul E. Gray+........................... 500 **
Harry P. Kamen+......................... 3,000 **
Charles M. Leighton+.................... 2,862(14) **
Victor A. Morgenstern+.................. 1,000,000(16) 2.25%
Catherine A. Rein+...................... 750 **
Peter S. Voss+*......................... 350,300(17) **
G. Neal Ryland*......................... 31,044(18) **
Sherry A. Umberfield*................... 50,310 **
Edward N. Wadsworth*.................... 59,070(19) **
All directors and Named Executive
Officers of the General
Partner as a group (12 persons)........ 4,443,046 9.99%
</TABLE>
- --------
+Director
*Named Executive Officer
**Less than 1%
(1) Includes 133,800 Operating Partnership LP units and 90,300 Operating
Partnership LP units contributed to the Restricted Unit Plan (the "RUP")
of the Operating Partnership by MetLife and RTI, respectively, as to
which the contributing organizations retain certain income and
reversionary rights, and that have not been awarded. The ownership of
MetLife shown includes 110,000 LP units of the Partnership issuable upon
conversion of an equal number of units of general partner interest ("GP
units") owned by the Partnership's general partner, which represent all
GP units of the Partnership outstanding.
(2) The holder's address is One Madison Avenue, New York, NY 10010.
(3) 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. The holder's address is P.O. Box 36, Armonk, NY 10504.
(4) The number of Partnership LP units shown excludes 1,583,400 Partnership
LP units that may be acquired upon the permitted exercise of exchange
rights with respect to Operating Partnership LP units that may not be
exercised within 60 days. The holder's address is 1999 Harrison, Suite
700, Oakland, CA 94612-3517.
47
<PAGE>
(5) The number of Partnership LP units shown excludes 769,554 Partnership LP
units that may be acquired upon the permitted exercise of exchange rights
with respect to Operating Partnership units that may not be exercised
within 60 days. The number reflected in the tables represents Operating
Partnership LP units held by trusts for the benefit of Mr. Foreman and
family members, with respect to which Mr. Foreman has sole discretionary
authority as to voting and disposition. The holder's address is 225 W.
Washington St., Suite 1650, Chicago, IL 60611.
(6) The number of Partnership LP units shown excludes 257,052 Partnership LP
units that may be acquired upon the permitted exercise of exchange rights
with respect to Operating Partnership LP units that may not be exercised
within 60 days. The holder's address is c/o Talon Asset Management, Inc.,
One North Franklin, Suite 450, Chicago, IL 60606.
(7) The number of Partnership LP units shown excludes 237,971 Partnership LP
units that may be acquired upon the permitted exercise of exchange rights
with respect to Operating Partnership LP units that may not be exercised
within 60 days. The numbers reflected in the tables represent Partnership
LP Units and Operating Partnership LP Units held by trusts and
partnerships for the benefit of Mr. Brown and family members, with
respect to which Mr. Brown has sole discretionary authority as to voting
and disposition. The holder's address is 225 W. Washington St., Suite
1650, Chicago, IL 60611.
(8) Alan B. Snyder is the President and controlling shareholder of the
holder. The holder's address is 350 California Street, Suite 1460, San
Francisco, CA 94104.
(9) The number of Partnership LP units shown excludes 120,289 Partnership LP
units that may be acquired upon the permitted exercise of exchange rights
with respect to Operating Partnership LP units that may not be exercised
within 60 days. The holder's address is c/o Harris Associates, Two N.
LaSalle St., Suite 500, Chicago, IL 60602.
(10) The number of Partnership LP units shown excludes 38,822 Partnership LP
units that may be acquired upon the permitted exercise of exchange rights
with respect to Operating Partnership LP units that may not be exercised
within 60 days. The numbers reflected in the tables include 150,000
Operating Partnership LP units held a limited partnership of which Mr.
Zuckerman serves as general partner. The holder's address is c/o Harris
Associates, Two N. LaSalle St., Suite 1650, Chicago, IL 60602.
(11) The number of Partnership LP units shown excludes 14,892 Partnership LP
units that may be acquired upon the permitted exercise of exchange rights
with respect to Operating Partnership LP units that may not be exercised
within 60 days. The holder's address is c/o Harris Associates, Two N.
LaSalle St., Suite 500, Chicago, IL 60602.
(12) The holder's address is c/o Harris Associates, Two N. LaSalle St., Suite
500, Chicago, IL 60602.
(13) All Mr. Tang's units are beneficially owned indirectly through stock
ownership in RTI, and such units are included in the ownership attributed
to RTI set out in the above tables. Included are (i) 828 Partnership LP
units and 33,386 Operating Partnership 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) 20,181 Partnership LP units and 813,404 Operating
Partnership LP units indirectly held by trusts for Mr. Tang's children,
as to which Mr. Tang disclaims beneficial ownership. The holder's address
is P.O. Box 36, Armonk, NY 10504.
(14) Does not include accounts holding values equal to 918 Partnership LP
units and 12,266 Partnership 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.
(15) Includes 785 Partnership LP units owned by Mr. Leighton's spouse as to
which he disclaims beneficial ownership.
(16) Includes 250,000 Operating Partnership LP units held by a limited
partnership of which Mr. Morgenstern serves as general partner. The
holder's address is c/o Harris Associates, Two N. LaSalle St., Suite
500, Chicago, IL 60602.
(17) Includes 300 Partnership LP units held by a child of Mr. Voss, as to
which Mr. Voss disclaims beneficial ownership. The holder's address is
c/o NEIC Operating Partnership, 399 Boylston St., Boston, MA 02116.
(18) Includes 1,700 Partnership LP units held by Mr. Ryland's children, as to
which he disclaims beneficial ownership.
(19) Includes 20,000 Operating Partnership LP units granted under the RUP
which, assuming continuation of employment, will vest over the next two
years.
48
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
RELATIONSHIPS WITH METLIFE
As of January 1, 1998, MetLife owned approximately 47% of the Operating
Partnership units outstanding (including units held indirectly through
ownership of Partnership units), and three of its directors and/or officers
served as directors of the General Partner. In addition, the General Partner
is an indirect wholly owned subsidiary of MetLife. The Partnership, the
Operating Partnership and MetLife maintain several important business
relationships as summarized below.
Asset Management and Related Matters. As of December 31, 1997 certain of the
Investment Management Firms managed approximately $5.6 billion of MetLife's
General Account assets. These services were provided principally under
separate investment management agreements (the "Management Agreements") with
several of the Investment Management Firms and contain market-based fees that
vary depending upon the class of asset advised and investment objectives. The
Partnership received a total of $15.8 million in fees under these arrangements
in 1997.
In addition, as of December 31, 1997, certain Investment Management Firms
managed approximately $2.7 billion of assets held directly or indirectly in
segregated asset accounts of MetLife. For such services, the Firms received
directly from MetLife approximately $14.5 million in 1997. The Firms also
managed approximately $2.5 billion in mutual fund assets for the New England
Zenith Funds, which contain assets segregated to meet obligations under
variable life insurance and variable annuity products issued by MetLife and
New England Life, as well as investments backing certain other insurance
products issued by MetLife.
MetLife holds mortgage loans to several real estate projects owned by joint
ventures in which a fund sponsored by AEW Capital Management participates.
Also, MetLife serves as sole or joint guarantor of joint venture-related
indebtedness and is a coinvestor in investment funds sponsored by the
Investment Management Firms in certain instances.
Services and Office Space. MetLife provides various services to the
Partnership, the Operating Partnership and the Firms pursuant to a services
agreement. These services include certain data processing, internal audit and
various other administrative support services. All such services are provided
at competitive rates established from time to time by negotiation. In 1997,
the Partnership paid MetLife approximately $2.8 million for such services.
MetLife can discontinue providing, and the Partnerships and the Firms can
discontinue receiving, any or all of these services at any time on 60 days'
notice.
The Partnerships and certain of the Operating Partnership's subsidiaries
lease office space in a building owned by MetLife, for which, in 1997, MetLife
received $1.7 million. The rates are at current market rates.
Retail Mutual Fund Distribution. Certain mutual funds sponsored by the
Operating Partnership are sold in the retail market through broker-dealers
including NES, which is owned by New England Life and MetLife Securities,
which is owned by MetLife. NES's and MetLife's retail sales forces consist of
registered securities representatives who are part of their insurance field
forces. New England Funds paid $24.5 million to NES and $0.9 million to
MetLife Securities in 1997, including commissions on the sales of load mutual
funds, 12b-1 distribution fees, and servicing fees on no-load mutual funds.
Tax Indemnification. For periods prior to the combination with Reich & Tang,
Old NEIC and its subsidiaries filed consolidated returns for federal and
certain state income taxes together with certain companies which became
subsidiaries of MetLife at the time of the Merger of MetLife and New England
Mutual. In connection with the acquisition of Reich & Tang, all liabilities
for taxes owed by Old NEIC under these agreements were canceled and were not
transferred to the Partnership. MetLife, as successor to New England Mutual,
will indemnify and hold harmless the Partnerships for any additional federal
income taxes for Old NEIC imposed for periods prior to the acquisition of
Reich & Tang, offset by any tax benefit for periods prior to the combination
with of Reich & Tang.
49
<PAGE>
Purchase of Employee Benefits. Employees of the Partnerships and certain of
their subsidiaries participated in 1997 in certain employee benefits purchased
from MetLife, including dental, life and disability insurance. The Partnership
paid approximately $0.8 million for these benefits in 1997. In addition,
Loomis Sayles purchased cash value life insurance policies from MetLife to
satisfy Loomis Sayles' obligations under a death benefit plan for senior
executives. Premiums paid on these policies were $1.7 million in 1997. Loomis
Sayles has a $11.0 million revolving line of credit from MetLife secured with
an interest in these life insurance policies. The total principal and interest
outstanding under this agreement was $11.2 million at December 31, 1997.
Interest expense was $0.7 million during 1997.
MetLife is obligated to advance funds to an affiliate of AEW Capital to meet
such firm's contribution obligation, if it should arise, with respect to one
investment partnership where such affiliate has a less than 1% general
partnership interest. This obligation arose in 1992 incident to the
contribution by such affiliate of various real estate interests to a
subsidiary of New England Mutual in exchange for preferred stock.
The Partnerships and MetLife expect to maintain a number of these
relationships for the foreseeable future. Transactions between MetLife and the
Partnership entered into in the future, including changes to the investment
management fees the Operating Partnership charges MetLife and service fees
MetLife charges the Partnerships, will be determined by negotiation from time
to time. The Partnerships believe that the financial aspects of these
relationships are no less favorable to the Partnerships than those available
from unaffiliated third parties.
Incident to New England Mutual's merger into MetLife, New England Mutual's
ownership interests in NEIC and the General Partner were transferred to
MetLife, and MetLife succeeded to the various arrangements of New England
Mutual with the Partnership.
50
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) The following documents are filed as part of this report:
(1) Financial Statements
The consolidated financial statements of New England Investment Companies,
L.P. are included under Item 8 of this Form 10-K as follows:
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Consolidated Statement of Income for the three years ended December
31, 1997............................................................. 21
Consolidated Balance Sheet at December 31, 1996 and 1997.............. 22
Consolidated Statement of Cash Flows for the three years ended
December 31, 1997.................................................... 23
Consolidated Statement of Changes in Partners' Capital for the three
years ended December 31, 1997........................................ 24
Notes to Consolidated Financial Statements............................ 25
Report of Independent Accountants..................................... 38
</TABLE>
(2) Financial Statement Schedules
Schedules are omitted because they are not applicable or the required
information is shown on the notes thereto.
(3) Exhibits
The following exhibits required to be filed by Item 601 of Regulation S-K
are filed herewith or incorporated herein by reference, as indicated.
<TABLE>
<C> <S>
2.1 Partnership Admission Agreement dated October 14, 1996 (relating to the
acquisition of assets of Aldrich, Eastman & Waltch, L.P.)(3)
2.2 Form of Agreement Amending Partnership Admission Agreement dated December
10, 1996, amending the Partnership Admission Agreement dated October 14,
1996 (relating to the acquisition of assets of Aldrich, Eastman & Waltch,
L.P.)(4)
2.3 Partnership Admission Agreement dated September 23, 1996 (relating to the
acquisition of assets of Jurika & Voyles, Inc.)(5)
2.4 Amendment No. 1 dated as of January 1, 1997, to the Partnership Admission
Agreement dated September 23, 1996 (relating to the acquisition of
assets of Jurika & Voyles, Inc.)(6)
3.1 Articles of Organization of New England Investment Companies, Inc.(7)
3.2 By-Laws of New England Investment Companies, Inc.(7)
3.3 Certificate of Limited Partnership of New England Investment Companies,
L.P., together with all amendments thereto(7)
3.4 Second Amended and Restated Agreement of Limited Partnership of New
England Investment Companies, L.P.(11)
3.5 Amended and Restated Agreement of Limited Partnership of NEIC Operating
Partnership, L.P.(12)
Form of Certificate Evidencing Units Representing Limited Partner
4.1 Interests(11)
9. Voting Agreement by and among New England Investment Companies, Inc.,
Reich & Tang, Inc.
and New England Mutual Life Insurance Company(7)
10.1 1993 Equity Incentive Plan, as amended(14)
</TABLE>
51
<PAGE>
<TABLE>
<S> <C>
10.2 Restricted Unit Plan(7)
10.3 1997 Equity Incentive Plan, as amended(14)
10.4 Employment Agreement with Peter S. Voss(9)
10.5 Agreement with G. Neal Ryland(9)
10.6 Agreement with Sherry A. Umberfield(9)
10.7 Agreement with Edward N. Wadsworth(9)
10.8 Defined Contribution Retirement Plan of the Operating Partnership(8)
10.9 401(k) Savings Plan of the Operating Partnership(8)
10.10 Directors Deferred Compensation Plan(8)
10.11 Second Amended and Restated Limited Partnership Agreement of Capital Growth Management Limited
Partnership(7)
10.12 Registration Rights Agreement by and among Reich & Tang, Inc., New England Mutual Life Insurance
Company and New England Investment Companies, L.P.(7)
10.13 Registration Rights Agreement between the Partnership and Harris Associates L.P.(8)
10.14 Credit Agreement, dated as of October 28, 1996, among the Partnership, as Borrower, the banks named
therein as Banks, Citibank N.A. as Administrative Agent, and The First National Bank of Boston, as
Co-Agent(10)
10.15 Waiver and Amendment Agreement dated as of December 29, 1997, relating to Credit Agreement
dated as of October 28, 1996
10.16 Form of Note Purchase Agreement relating to 6.54% Notes due 2003(8)
10.17 Amendment and Assumption Agreement dated as of December 29, 1997, relating to Note Purchase
Agreements relating to 6.54% Notes due 2003.
10.18 Form of Note Purchase Agreement relating to 7.15% Senior Notes due 2007(13)
10.19 Amendment and Assumption Agreement dated as of December 29, 1997, relating to Note Purchase
Agreements relating to 7.15% Notes due 2007.
10.20 Intercompany Agreement dated as of December 29, 1997, between the Registrant and NEIC Operating
Partnership, L.P.(11)
21. Subsidiaries of the Registrant or NEIC Operating Partnership, L.P.
23. Consent of Price Waterhouse LLP
27.1 Financial Data Schedule
27.2 Restated Financial Data Schedule--December 31, 1996
27.3 Restated Financial Data Schedule--December 31, 1995
27.4 Restated Financial Data Schedule--September 30, 1995
27.5 Restated Financial Data Schedule--June 30, 1995
27.6 Restated Financial Data Schedule--March 31, 1995
</TABLE>
- --------
Notes
(1) Filed as an Exhibit to Registrant's Quarterly Report on Form 10-Q (File
No. 1-9468) for the quarter ended June 30, 1995.
(2) Filed as an Exhibit to Registrant's Current Report on Form 8-K (File No.
1-9468) dated September 29, 1995.
(3) Filed as an Exhibit to Registrant's Current Report on Form 8-K (File No.
1-9468) dated September 23, 1996.
(4) Filed as an Exhibit to Registrant's Current Report on Form 8-K (File No.
1-9468) dated January 3, 1997.
(5) Filed as an Exhibit to Registrant's Current Report on Form 8-K (File No.
1-9468) dated October 15, 1996.
(6) Filed as an Exhibit to Registrant's Current Report on Form 8-K (File No.
1-9468) dated December 10, 1996.
(7) Filed as an Exhibit to Registrant's Annual Report on Form 10-K (File No.
1-9468) for the year ended December 31, 1993.
(8) Filed as an Exhibit to Registrant's Annual Report on Form 10-K (File No.
1-9468) for the year ended December 31, 1995.
(9) Filed as an Exhibit to Registrant's Current Report on Form 8-K (File No.
1-9468) dated November 8, 1995.
52
<PAGE>
(10) Filed as an Exhibit to Registrant's Quarterly Report on Form 10-Q (File
No. 1-9468) for the quarter ended September 30, 1996.
(11) Filed as an Exhibit to the Registrant's Form 8-A/A dated December 29,
1997.
(12) Filed as an Exhibit to the Registrant's Current Report on Form 8-K (File
No. 1-9468) dated December 31, 1997.
(13) Filed as an Exhibit to the Registrant's Quarterly Report on Form 10-Q
(File No. 1-9468) for the quarter ended March 31, 1997.
(14) Filed as an Exhibit to the Registrant's Registration Statement on Form S-
3 (No. 333-43407).
(b)Form 8-K filings:
(i) The Registrant filed a Current Report on Form 8-K (File No. 1-9468)
dated December 31, 1997, reporting the restructuring of the
Registrant.
53
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED
ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
New England Investment Companies, L.P.
By New England Investment Companies,
Inc.,
its General Partner
/s/ G. Neal Ryland
Date: February 23, 1998By: _____________________________________________________
G. NEAL RYLAND, EXECUTIVE VICE
PRESIDENT AND CHIEF FINANCIAL
OFFICER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND
IN THE CAPACITIES INDICATED BELOW, ON FEBRUARY 23, 1998.
SIGNATURE TITLE
/s/ Peter S. Voss Chairman, Chief
- ------------------------------------ Executive Officer
PETER S. VOSS and President
/s/ G. Neal Ryland Executive Vice
- ------------------------------------ President and
G. NEAL RYLAND Chief Financial
Officer
/s/ Stephen D. Martino Senior Vice
- ------------------------------------ President and
STEPHEN D. MARTINO Controller
/s/ William S. Antle III Director
- ------------------------------------
WILLIAM S. ANTLE III
/s/ Robert J. Blanding Director
- ------------------------------------
ROBERT J. BLANDING
/s/ Paul E. Gray Director
- ------------------------------------
PAUL E. GRAY
/s/ Harry P. Kamen Director
- ------------------------------------
HARRY P. KAMEN
/s/ Charles M. Leighton Director
- ------------------------------------
CHARLES M. LEIGHTON
/s/ Victor A. Morgenstern Director
- ------------------------------------
VICTOR A. MORGENSTERN
/s/ Catherine A. Rein Director
- ------------------------------------
CATHERINE A. REIN
/s/ Oscar L. Tang Director
- ------------------------------------
OSCAR L. TANG
54
<PAGE>
EXHIBIT INDEX
-------------
Exhibit
Number Description of Exhibits
- ------- -----------------------
10.15 Waiver and Amendment Agreement dated as of December 29, 1997,
relating to Credit Agreement dated as of October 28, 1996.
10.17 Amendment and Assumption Agreement dated as of December 29, 1997,
relating to Note Purchase Agreements relating to 6.54% Notes due 2003.
10.19 Amendment and Assumption Agreement dated as of December 29, 1997,
relating to Note Purchase Agreements relating to 7.15% Notes due 2007.
21 Subsidiaries of the Registrant or NEIC Operating Partnership, L.P.
23 Consent of Price Waterhouse LLP
27.1 Financial Data Schedule
27.2 Restated Financial Data Schedule -- December 31, 1996
27.3 Restated Financial Data Schedule -- December 31, 1995
27.4 Restated Financial Data Schedule -- September 30, 1995
27.5 Restated Financial Data Schedule -- June 30, 1995
27.6 Restated Financial Data Schedule -- March 31, 1995
<PAGE>
Exhibit 10.15
[CONFORMED COPY]
WAIVER AND AMENDMENT dated as of December 29, 1997 among New England
Investment Companies, L.P., a Delaware limited partnership (the "Existing
--------
Borrower"), NEIC Operating Partnership, L.P., a Delaware limited partnership
- --------
(the "New Borrower" and, collectively with the Existing Borrower, the
------------
"Borrowers"), the banks listed on the signature pages hereof under the heading
---------
"Banks" (the "Banks") and Citibank, N.A., as administrative agent (the
-----
"Administrative Agent").
- ---------------------
The Existing Borrower, the Banks and the Administrative Agent are
party to a Credit Agreement dated as of October 28, 1996 (as amended,
supplemented and otherwise modified and in effect, the "Credit Agreement").
----------------
The Existing Borrower has requested that the Banks agree, and the
Banks party hereto are willing, to consent to the transfer by the Existing
Borrower of all of its assets and liabilities (including its liabilities under
the Credit Agreement) to the New Borrower.
Accordingly, in consideration of the premises and the mutual
agreements contained herein, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
Section 1. Definitions. Terms used but not defined herein shall have
-----------
the respective meanings ascribed to such terms in the Credit Agreement, as
amended hereby. In addition, "Restructuring" shall have the meaning given to
-------------
that term in Note 4 to the Existing Borrower's Quarterly Report on Form 10-Q,
filed with the Securities and Exchange Commission on September 30, 1997, and
"Amendment Date" shall mean the date on which all the conditions to
- ---------------
effectiveness set forth in Section 5 hereto shall have been satisfied.
Section 2. Waiver and Consent. Notwithstanding anything in the
------------------
Credit Agreement to the contrary, but subject to the terms hereof, the Banks
hereby consent to the Restructuring and release the Existing Borrower from all
obligations under the Credit Agreement.
Section 3. Amendments. Subject to the satisfaction of the conditions
----------
to effectiveness specified in Section 5 hereof,
<PAGE>
-2-
but with effect on and after the date hereof, the Credit Agreement shall be
amended as follows:
3.01. The first paragraph of the Credit Agreement is amended to read
in its entirety as follows:
"NEIC OPERATING PARTNERSHIP, L.P., a Delaware limited partnership (the
"Borrower"), the banks listed on the
---------
signature pages hereof under the heading "Banks" (the "Banks"), CITIBANK,
-----
N.A. ("Citibank"), as administrative agent for the Lenders hereunder (in
--------
such capacity, the "Administrative Agent") and THE FIRST NATIONAL BANK OF
--------------------
BOSTON, as co-agent for the Lenders (in such capacity, the "Co-Agent")."
--------
3.02. Section 1.01 of the Credit Agreement shall be amended by adding
the following new definitions (to the extent not already included in said
Section 1.01) and inserting the same in its appropriate alphabetic location and
amending the following definitions (to the extent already included in the said
Section 1.01) to read in their entirety as follows:
"Change of Control" means the occurrence of any one of the following:
-----------------
(a) Metropolitan Life Insurance Company of any successor thereto shall
cease to have beneficial ownership, directly or indirectly, through one or
more of its Subsidiaries, of at least a majority of the shares of all
classes of voting stock of the General Partner (or, if the Borrower is not
a limited partnership, of at least a majority of the voting interests of
all classes of voting stock of the Borrower); and
(b) Metropolitan Life Insurance Company or any successor thereto,
through one or more of its Subsidiaries, shall cease to own, directly or
indirectly, through a wholly-owned subsidiary, at least 20% of the economic
interests in the Borrower.
"General Partner" means NEIC, Inc. and such other Person or Persons as
---------------
may be a general partner of the Borrower
<PAGE>
-3-
from time to time (it being understood that, if there is more than one general
partner of the Company, the term "General Partner" is intended to apply only to
the managing general partner of the Borrower).
"NEIC" shall mean New England Investment Companies, L.P., a Delaware
----
limited partnership.
"Waiver and Amendment" shall mean the Waiver and Amendment dated as of
--------------------
December 29, 1997 among the Borrower, NEIC, the Banks party thereto and the
Administrative Agent.
3.03. The last sentence of Section 6.02(b) of the Credit Agreement is
amended to read in its entirety as follows:
"Notwithstanding the occurrence or continuance of a Default, the Borrower
may make distributions to any of its limited partners in amounts sufficient
to allow any such limited partner to pay all federal income taxes with
respect to the amount of income and gain of the Borrower allocated to such
limited partner, or in the case of NEIC, the Borrower may make
distributions to NEIC in amounts sufficient to allow (i) the limited
partners of NEIC to pay all federal income taxes with respect to the amount
of income and gain of NEIC attributable to its partnership interest in the
Borrower (assuming for these purposes that such limited partner is taxable
at the highest applicable rate of taxation), and (ii) NEIC to pay the tax
imposed under Section 7704(g) of the Code on electing partnerships, if NEIC
has made the election contemplated thereby."
3.04 Section 9.13 of the Credit Agreement is amended to read in its
entirety as follows:
"SECTION 9.13. Non-Recourse. Anything contained in this
------------
Agreement or in any Note to the contrary notwithstanding, no recourse shall
be held for the payment of the principal of or interest on any note, or for
any other payment under this Agreement or any Note, against any general
partner of the Borrower. It is understood that the foregoing shall not
prevent recourse to the Borrower or to any of the assets of the Borrower."
<PAGE>
-4-
Section 4. Representations and Warranties. Each of the Borrowers
------------------------------
represents and warrants to the Banks and the Administrative Agent that (a) this
Waiver and Amendment has been duly and validly executed and delivered by such
Borrower and constitutes such Borrower's legal, valid and binding obligation,
enforceable against such Borrower in accordance with its terms and (b) after
giving effect to this Waiver and Amendment and the Restructuring, (i) no Default
shall have occurred and be continuing and (ii) the representations and
warranties made by the Borrower in Section 5.01 of the Credit Agreement shall be
true and correct on and as of the date hereof with the same force and effect as
if made on and as of such date (or, if any such representation or warranty is
expressly stated to have been made as of a specific date, as of such specific
date). It shall be an Event of Default for all purposes of the Credit Agreement,
as amended hereby, if any representation, warranty or certification made by each
of the Borrowers in this Waiver and Amendment, or in any certificate or other
writing furnished to any Bank or the Administrative Agent pursuant to this
Waiver and Amendment, shall prove to have been false or misleading as of the
time made or furnished in any material respect.
Section 5. Conditions to Effectiveness. The waiver and consent
---------------------------
provided for in Section 2 hereof and the amendments to the Credit Agreement set
forth in Section 3 hereof shall become effective, as of the date hereof, upon
the satisfaction of each of the following conditions to effectiveness
(including, without limitation, that each document to be received by the
Administrative Agent shall be in the form and substance satisfactory to the
Administrative Agent):
5.01. Waiver and Amendment. The Administrative Agent shall have
--------------------
received this Waiver and Amendment, duly executed and delivered by the
Borrowers, each of the Banks and the Administrative Agent.
5.02. Assignment and Assumption Agreement. The Administrative Agent
-----------------------------------
shall have received an Assignment and Assumption Agreement, duly executed
and delivered by each of the Borrowers and substantially in the form of
Exhibit A hereto.
<PAGE>
-5-
5.03. Partnership Action. The Administrative Agent shall have
------------------
received certified copies of the partnership agreements of each of the
Borrowers and all partnership action taken by each of the Borrowers
authorizing the execution, delivery and performance of this Waiver and
Amendment.
5.04. Representations and Warranties. Each of the representations
------------------------------
and warranties made by each of the Borrowers in Section 4 hereof shall be
true and correct on and as of the date hereof with the same force and
effect as if made on and as of the Amendment Date, and the Administrative
Agent shall have received a certificate of a general partner of each of the
Borrowers to that effect, dated the date hereof, in substantially the form
of Exhibit B hereto.
5.05. Opinion of Counsel to the Borrower. The Administrative Agent
----------------------------------
shall have received an opinion of Ropes & Gray, counsel to each of the
Borrowers, in form and substance satisfactory to the Administrative Agent,
dated as of the date hereof.
5.06. Evidence of Restructuring. The Administrative Agent shall have
-------------------------
received evidence satisfactory to it that the Restructuring has occurred.
5.07. Other Documents. The Administrative Agent shall have received
---------------
such other documents as the Administrative Agent or any Bank or special New
York counsel to the Administrative Agent may reasonably request.
Section 6. Documents Otherwise Unchanged. Except as herein provided,
-----------------------------
the Credit Agreement shall remain unchanged and in full force and effect, and
each reference to the Credit Agreement and words of similar import in the Credit
Agreement, as amended hereby, shall be a reference to the Credit Agreement as
amended hereby and as the same may be further amended, supplemented and
otherwise modified and in effect from time to time.
<PAGE>
-6-
Section 7. Counterparts. This Waiver and Amendment may be executed
------------
in any number of counterparts, each of which shall be identical and all of
which, when taken together, shall constitute one and the same instrument, and
any of the parties hereto may execute this Waiver and Amendment by signing any
such counterpart.
Section 8. Expenses. Without limiting its obligations under Section
--------
9.04 of the Credit Agreement, the Borrower agrees to pay, on demand, all
reasonable out-of-pocket costs and expenses of the Administrative Agent and the
Banks (including the fees and disbursements of Milbank, Tweed, Hadley & McCloy,
special New York counsel to the Administrative Agent) incurred in connection
with he negotiation, preparation, execution and delivery of this Waiver and
Amendment.
Section 9. Binding Effect. This Waiver and Amendment shall be
--------------
binding upon and inure to the benefit of the parties hereto and their respective
successors and assigns.
Section 10. Governing Law. This Waiver and Amendment shall be
-------------
governed by, and construed in accordance with, the law of the State of New York.
<PAGE>
-7-
IN WITNESS WHEREOF, the parties hereto have caused this Waiver and
Amendment to be duly executed as of the day and year first above written.
NEW ENGLAND INVESTMENT
COMPANIES, L.P.
By NEW ENGLAND INVESTMENT
COMPANIES, INC., its general
partner
By /s/ Kevin Charleston
----------------------------
NEIC OPERATING PARTNERSHIP, L.P.
By NEW ENGLAND INVESTMENT
COMPANIES, INC., its managing
general partner
By /s/ Kevin Charleston
----------------------------
Administrative Agent
--------------------
CITIBANK, N.A.
By /s/ Dale Goncher
----------------------------
Title: Attorney-In-Fact
Banks
-----
CITIBANK, N.A.
By /s/ Dale Goncher
----------------------------
Title: Attorney-In-Fact
<PAGE>
-8-
BANKBOSTON, N.A.
By /s/ John A. Ketchum
----------------------------
Title: Group Executive
CREDIT LYONNAIS NEW YORK BRANCH
By /s/ Sebastian Rocco
----------------------------
Title: First Vice President
By____________________________
Title:
STATE STREET BANK AND TRUST COMPANY
By /s/ David Cox
----------------------------
Title: Vice President
BANQUE NATIONALE DE PARIS
By /s/ William Shaheen
----------------------------
Title: Vice President
By /s/ Laurent Vanderzyppe
----------------------------
Title: Assistant Vice President
<PAGE>
Exhibit 10.17
[CONFORMED COPY]
AMENDMENT AND ASSUMPTION AGREEMENT
AMENDMENT AND ASSUMPTION AGREEMENT dated as of December 29, 1997 among
New England Investment Companies, L.P. a Delaware limited partnership ("NEIC"),
----
NEIC Operating Partnership, L.P., a Delaware limited partnership ("NEICOP") and
------
the Noteholders referred to below. Capitalized terms used herein without
definition shall have the meanings assigned to such terms in the Note Purchase
Agreements referred to below.
W I T N E S S E T H:
WHEREAS, NEIC entered into several Note Purchase Agreements dated as
of December 28, 1995 with the institutions listed on Schedule I thereto (as in
effect on the date hereof, the "Note Purchase Agreements"), pursuant to which
------------------------
the Company issued its 6.54% Senior Notes due January 9, 2003 (the "Notes");
-----
WHEREAS, NEIC and NEICOP have entered into an Intercompany Agreement,
dated as of December 29, 1997 (the "Intercompany Agreement"), pursuant to which
----------------------
NEIC will transfer and assign all of its operating assets and all of its
liabilities to NEICOP in exchange for the issuance by NEICOP to NEIC of
additional units of general partnership interests of NEICOP;
WHEREAS, the Noteholders have agreed to such assumption on the terms
and conditions set forth below; and
WHEREAS, the Noteholders have agreed to the following amendments to
the Note Purchase Agreements.
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, NEIC, NEICOP and the Noteholders
hereby agree as follows:
Section 1. Definitions. Terms used but not defined herein shall have
-----------
the respective meanings ascribed to such terms in the Note Purchase Agreements,
as amended hereby. In addition, "Restructuring" shall have the meaning given to
-------------
that term in Note
<PAGE>
-2-
4 to NEIC's Quarterly Report on Form 10-Q, filed with the Securities and
Exchange Commission on September 30, 1997.
Section 2. Assumption. (a) NEICOP hereby irrevocably and
----------
unconditionally assumes the obligations for the due and punctual payment of the
principal of and premium, if any, and interest on the Notes and the performance
of each and every other covenant and obligation of the Company under the Note
Purchase Agreements and the Notes. From and after the date hereof, each
Noteholder agrees, for itself and its successors and assigns, that it shall look
solely to NEICOP and not to NEIC, for the payment and performance of the
obligations of the Company under the Note Purchase Agreements hereby assumed by
NEICOP.
(b) All references to the Company in the Note Purchase Agreements or
any Note or any document, instrument or agreement executed, or to be executed,
in connection therewith shall be deemed to be references to NEICOP, except for
references to the Company relating to its status prior to the assumption
provided for in the foregoing clause (a).
(c) All covenants and obligations of the Company under the Note
Purchase Agreements existing prior to the assumption provided for in the
foregoing clause (a) shall continue in full force and effect after giving effect
to such assumption.
Section 3. Amendments. Subject to the satisfaction of the conditions
----------
to effectiveness specified in Section 14 of this Amendment and Assumption
Agreement, but with effect on and after the date hereof, the Note Purchase
Agreements shall be amended as follows:
(a) Schedule B of the Note Purchase Agreements shall be amended by
adding the following new definition and inserting the same in its appropriate
alphabetical location :
"NEIC, L.P." means New England Investment Companies, L.P., a Delaware
limited partnership.
(b) The last sentence of Section 10.9 of the Note Purchase Agreements
is amended to read in its entirety as follows:
<PAGE>
-3-
"Notwithstanding the occurrence or continuance of a Default or Event of
Default, the Company may make distributions to any of its limited partners
in amounts sufficient to allow any such limited partner to pay all federal
income taxes with respect to the amount of income and gain of the Company
allocated to such limited partner, or in the case of NEIC, L.P., the
Company may make distributions to NEIC, L.P. in amounts sufficient to allow
(i) the limited partners of NEIC, L.P. to pay all federal income taxes with
respect to the amount of income and gain of NEIC, L.P. attributable to its
partnership interest in the Company (assuming for these purposes that such
limited partner is taxable at the highest applicable rate of taxation), and
(ii) NEIC, L.P. to pay the tax imposed under Section 7704(g) of the Code on
electing partnerships, if NEIC, L.P. has made the election contemplated
thereby."
(c) The last sentence of Section 5.17 of the Note Purchase Agreements
is amended to read in its entirety as follows:
"The Company is not required to register as an 'investment adviser'
(as defined in the Investment Advisers Act)."
(d) Section 22.7 of the Note Purchase Agreements is amended to read in
its entirety as follows:
"22.7. NON-RECOURSE.
Notwithstanding anything to the contrary in this Agreement or any
Note, no recourse shall be had against any general partner of the Company for
the payment of the principal of or interest or Make-Whole Amount on any Note, or
for any other payment under this Agreement or any Note. It is understood that
the foregoing shall not prevent recourse to the Company or to any of the assets
of the Company."
Section 4. Representations and Warranties. NEICOP represents and
------------------------------
warrants to each Noteholder as follows (and, to the extent any representation,
warranty or certification made by NEICOP in this Amendment ans Assumption
Agreement, or in any
<PAGE>
-4-
other certificate or other writing furnished to any Noteholder pursuant to this
Amendment and Assumption Agreement, shall prove to have been false or misleading
as of the time made or furnished in any material respect, it shall be an Event
of Default for purposes of the Note Purchase Agreements, as amended hereby):
(a) This Amendment and Assumption Agreement has been duly authorized
by all necessary partnership or corporate, at the case may be, action on the
part of NEICOP and its general partners, and this Amendment and Assumption
Agreement constitutes a legal, valid and binding obligation of NEICOP
enforceable against NEICOP in accordance with its terms, except as such
enforceability may be limited by (i) applicable bankruptcy, insolvency,
-
reorganization, moratorium or other similar laws affecting the enforcement of
creditors' rights generally and (ii) general principles of equity (regardless of
--
whether such enforceability is considered in a proceeding in equity or at law).
(b) The execution, delivery and performance by NEICOP of this
Amendment and Assumption Agreement will not (i) contravene, result in any breach
-
of, or constitute a default under, or result in the creation of any Lien in
respect of any property of NEICOP or any Subsidiary under, its partnership
agreement or any indenture, mortgage, deed of trust, loan, purchase or credit
agreement, lease, corporate or partnership charter or by-laws, or any other
Material agreement or instrument to which NEICOP or any Subsidiary is bound or
by which NEICOP or any Subsidiary or any of their respective properties may be
bound or affected, (ii) conflict with or result in a breach of any of the terms,
--
conditions or provisions of any order, judgment, decree, or ruling of any court,
arbitrator or Governmental Authority applicable to NEICOP or any Subsidiary or
(iii) violate any provision of any statute or other rule or regulation of any
---
Governmental Authority applicable to NEICOP or any Subsidiary.
(c) No consent, approval or authorization of, or registration, filing
or declaration with, any Governmental Authority is required in connection with
the execution, delivery or performance by NEICOP of this Amendment and
Assumption Agreement.
<PAGE>
-5-
(d) The execution and delivery of this Amendment and Assumption
Agreement hereunder will not involve any transaction that is subject to the
prohibitions of section 406 of ERISA or in connection with which a tax could be
imposed pursuant to section 4975(c)(1)(A)-(D) of the Code.
(e) Upon the effectiveness of this Amendment and Assumption
Agreement, each of the representations of the Company contained in Section 5 of
the Note Purchase Agreements (as modified by Section 3 of this Amendment and
Assumption Agreement) shall be true and correct, after giving effect to the
transactions contemplated hereby (including, without limitation, the
Restructuring), as if made as of the date hereof.
(f) No Default or Event of Default has occurred and is continuing,
and after giving effect to the transactions contemplated hereby no Default or
Event of Default shall have occurred and be continuing.
(g) Pursuant to the Restructuring, all of the assets and liabilities
of NEIC will be transferred to NEICOP. Immediately after giving effect to the
Restructuring, NEICOP will not have any material liabilities other than those
transferred to NEICOP by NEIC.
(h) After giving effect to the Restructuring, ownership of NEICOP
shall be substantially as set forth in Exhibit A hereto.
(i) The transactions contemplated hereby, including without
limitation the Restructuring and the assumption by NEICOP of the obligations of
NEIC under the Note Purchase Agreements and the Notes, have not and will not be
consummated with the intent to hinder, delay or defraud any entity to which
NEICOP or NEIC was or is to become indebted. In addition, both before and after
giving effect to such transactions, NEICOP (i) is not insolvent and will not be
rendered insolvent in connection therewith, (ii) does not have and will not be
left with unreasonably small capital with which to conduct its business
operations and (iii) has not and will not have incurred debts beyond its ability
to pay such debts as they mature.
<PAGE>
-6-
Section 5. Exchange of Notes; Notation. (a) NEICOP, at the request
---------------------------
of any Noteholder after the date hereof, shall exchange Notes held by such
Noteholder for notes of NEICOP substantially in the form of Exhibit 1 to the
Note Purchase Agreements (modified only to reflect the assumption and release
effected hereby).
(b) NEICOP authorizes each Noteholder prior to any such exchange to
make a notation on each Note held by such Noteholder substantially as follows:
"NEIC OPERATING PARTNERSHIP, L.P., A DELAWARE LIMITED PARTNERSHIP, HAS
ASSUMED THE DUE AND PUNCTUAL PAYMENT OF THE PRINCIPAL OF AND PREMIUM,
IF ANY, AND INTEREST ON THIS NOTE"
Section 6. Private Placement Number. If so requested by any
------------------------
Noteholder, NEICOP shall obtain from Standard & Poor's CUSIP Service Bureau a
new private placement number with respect to the Notes and shall pay the
expenses relating thereto.
Section 7. Further Assurances. At any time and from time to time,
------------------
upon any Noteholder's request, NEICOP will promptly execute and deliver any and
all further instruments and documents and will take such further action as such
Noteholder may reasonably deem necessary to effect the purposes of this
Amendment and Assumption Agreement.
Section 8. Expenses. Without limiting the generality of Section 15.1
--------
of the Note Purchase Agreements, NEICOP and NEIC jointly and severally agree to
pay all expenses incident to the transactions contemplated by this Amendment and
Assumption Agreement (including all document production costs and other
expenses, the fees and disbursements of special counsel to the Noteholders for
their services with relation to such transactions), and to reimburse the
Noteholders for any out-of-pocket expenses.
Section 9. Binding Effect. This Amendment and Assumption Agreement
--------------
shall be binding upon NEIC, NEICOP and the Noteholders, and shall inure to the
benefit of their respective successors and assigns.
<PAGE>
-7-
Section 10. Taxes. NEICOP agrees to indemnify and hold each
-----
Noteholder free and harmless from and against any Federal, state or local income
or franchise taxes or any interest, penalties, or additions to tax with respect
thereto, that are incurred by any Noteholder in whole or in part by reason of
the assumption of the Notes and Note Purchase Agreements by NEICOP under this
Amendment and Assumption Agreement or the receipt of any payment hereunder in
respect of such taxes or other amounts. Any amount that NEICOP is required to
pay pursuant to this Section 10, shall be payable promptly upon demand therefor
by the Noteholder to whom payment is to be made, which demand shall specify in
reasonable detail the manner in which the amount to be paid was computed and
which computation shall be binding absent manifest error. If a Noteholder shall
have received a payment pursuant to this Section (an "Assumption Tax Payment")
----------------------
and subsequent to the receipt of such Assumption Tax Payment, the Noteholder
determines in its sole discretion that it has received a refund, credit or other
reduction in liability for any tax (an "Offsetting Benefit"), which Offsetting
------------------
Benefit would not have been received but for the assumption of the Notes by
NEICOP pursuant to this Amendment and Assumption Agreement, such Noteholder
shall pay to NEICOP the amount of such Offsetting Benefit, provided that the
aggregate amounts to be paid by such Noteholder pursuant to this sentence shall
not exceed that amount of any Assumption Tax Payments previously received by
such Noteholder pursuant to this Section. Amounts that any Noteholder is
required to pay in respect of an Offsetting Benefit pursuant to this Section
shall be payable promptly following the Noteholder's determination that it has
received such Offseting Benefit. Nothing herein shall entitle NEIC, NEICOP or
any other person to examine any tax return of any Noteholder.
NEICOP will pay all stamp, documentary or similar taxes which may be
payable in respect of the execution and delivery of this Amendment and
Assumption Agreement or of the execution and delivery of any of the Notes as
contemplated by Section 4 hereof and will save the Noteholders harmless against
any loss or liability resulting from nonpayment or delay in payment of any such
tax.
<PAGE>
-8-
Section 11. Governing Law. This Amendment and Assumption Agreement
-------------
shall be governed by and construed in accordance with the laws of the State of
New York.
Section 12. Captions. The headings of the various sections hereof
--------
are for convenience of reference only and shall not affect the meaning or
construction of any provision hereof.
Section 13. Counterparts. This Amendment and Assumption Agreement
------------
may be executed in any number of counterparts and all such counterparts taken
together shall be deemed to constitute one and the same instrument.
Section 14. Conditions to Effectiveness. This Amendment and
---------------------------
Assumption Agreement shall become effective, as of the date hereof, upon the
satisfaction of each of the following conditions to effectiveness:
(a) This Amendment and Assumption Agreement shall have been duly
executed and delivered by NEIC, NEICOP and each of the Noteholders.
(b) Each of the Noteholders shall have received an opinion of
Milbank, Tweed, Hadley & McCloy, special New York counsel to the
Noteholders, dated the date hereof and substantially in the form of Exhibit
B hereto.
(c) Each of the Noteholders shall have received an opinion from
Edward N. Wadsworth, Esq., General Counsel for the General Partner, dated
the date hereof and substantially in the form of Exhibit C hereto.
(d) The Bill of Sale, Assignment and Assumption Agreement, dated as
of December 29, 1997, shall have been duly executed and delivered by NEIC
and NEICOP, evidencing consummation of the Restructuring.
Section 15. Documents Otherwise Unchanged. Except as herein
-----------------------------
provided, the Note Purchase Agreements shall remain unchanged and in full force
and effect.
<PAGE>
-9-
IN WITNESS WHEREOF, the undersigned has caused this Amendment and
Assumption Agreement to be duly executed and delivered by its duly authorized
officer on the date first above written.
NEW ENGLAND INVESTMENT
COMPANIES, L.P.
By NEW ENGLAND INVESTMENT
COMPANIES, INC., its
General Partner
By /s/ Kevin Charleston
--------------------------
Title: Assistant Treasurer
NEIC OPERATING PARTNERSHIP,
L.P.
By NEW ENGLAND INVESTMENT
COMPANIES, INC., its
Managing General Partner
By /s/ Kevin Charleston
--------------------------
Title: Assistant Treasurer
<PAGE>
-10-
Each of the following
Noteholders hereby consents
to the foregoing Amendment
and Assumption Agreement:
THE TRAVELERS INSURANCE COMPANY
By /s/ Craig H. Farnsworth
------------------------------
Title: Second Vice President
THE TRAVELERS INDEMNITY
COMPANY
By /s/ Craig H. Farnsworth
------------------------------
Title: Second Vice President
CIG & CO. as nominee for
CONNECTICUT GENERAL LIFE
INSURANCE COMPANY
By /s/ James R. Kuzemchak
------------------------------
Title: Partner
CIG & CO. as nominee for
LIFE INSURANCE COMPANY OF
NORTH AMERICA
By /s/ James R. Kuzemchak
------------------------------
Title: Partner
GREAT-WEST LIFE & ANNUITY
INSURANCE COMPANY
<PAGE>
-11-
By /s/ Ernie P. Friesen
------------------------------
Title: Assistant Vice President / Investments
By /s/ Wayne T. Hoffmann
------------------------------
Title: Vice President / Investments
<PAGE>
-12-
PACIFIC LIFE INSURANCE COMPANY
By /s/ Ronn Cornelius
------------------------------
Title: Assistant Vice President
By /s/ Peter S. Fiek
------------------------------
Title: Assistant Secretary
NORTHERN LIFE INSURANCE
COMPANY
By /s/ James V. Wittich
----------------------------
Title: Assistant Treasurer
RELIASTAR LIFE INSURANCE COMPANY,
fka Northwestern National Life
Insurance Company
By /s/ James V. Wittich
----------------------------
Title: Authorized Representative
RELIASTAR UNITED SERVICES LIFE
INSURANCE COMPANY, fka United
Services Life Insurance Company
By /s/ James V. Wittich
-----------------------------
Title: Assistant Treasurer
RELIASTAR BANKERS SECURITY LIFE
INSURANCE COMPANY, as successor
by merger to The North Atlantic
Life Insurance Company of America
By /s/ James V. Wittich
-----------------------------
Title: Vice President
<PAGE>
-13-
PARAGON LIFE INSURANCE
COMPANY
By: Conning Asset Management
Company
By /s/ Douglas R. Koester
----------------------------
Title: Senior Vice President
GENERAL AMERICAN LIFE
INSURANCE COMPANY
By: Conning Asset Management
Company
By /s/ Douglas R. Koester
----------------------------
Title: Senior Vice President
PROVIDENT MUTUAL LIFE
INSURANCE COMPANY
By /s/ James D. Kestner
------------------------------
Title: Vice President
PROVIDENT MUTUAL LIFE AND
ANNUITY COMPANY OF AMERICA
By /s/ James D. Kestner
-----------------------------
Title: Vice President
PROVIDENT MUTUAL LIFE
INSURANCE COMPANY --
COVENANT
<PAGE>
-14-
By /s/ James D. Kestner
------------------------------
Title: Vice President
AMERICAN FAMILY LIFE
INSURANCE COMPANY
By/s/ Phillip Hannifan
------------------------------
Title: Investment Director
FIRST SUNAMERICA LIFE
INSURANCE COMPANY
By /s/ Michael Thomas
------------------------------
Title: Authorized Agent
SUNAMERICA LIFE INSURANCE
COMPANY
By /s/ Michael Thomas
------------------------------
Title: Authorized Agent
<PAGE>
Exhibit 10.19
EXECUTION COPY
AMENDMENT AND ASSUMPTION AGREEMENT
AMENDMENT AND ASSUMPTION AGREEMENT dated as of December 29, 1997 among
New England Investment Companies, L.P. a Delaware limited partnership ("NEIC"),
----
NEIC Operating Partnership, L.P., a Delaware limited partnership ("NEICOP") and
------
the Noteholders referred to below. Capitalized terms used herein without
definition shall have the meanings assigned to such terms in the Note Purchase
Agreements referred to below.
W I T N E S S E T H:
WHEREAS, NEIC entered into several Note Purchase Agreements dated as
of March 25, 1997 with the institutions listed on Schedule I thereto (as in
effect on the date hereof, the "Note Purchase Agreements"), pursuant to which
------------------------
the Company issued its 7.15% Senior Notes due April 1, 2007 (the "Notes");
-----
WHEREAS, NEIC and NEICOP have entered into an Intercompany Agreement
dated as of December 29, 1997 (the "Intercompany Agreement"), pursuant to which
----------------------
NEIC will transfer and assign all of its operating assets and all of its
liabilities to NEICOP in exchange for the issuance by NEICOP to NEIC of
additional units of general partnership interests of NEICOP;
WHEREAS, the Noteholders have agreed to such assumption on the terms
and conditions set forth below; and
WHEREAS, the Noteholders have agreed to the following amendments to
the Note Purchase Agreements.
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, NEIC, NEICOP and the Noteholders
hereby agree as follows:
Section 1. Definitions. Terms used but not defined herein shall have
-----------
the respective meanings ascribed to such terms in the Note Purchase Agreements,
as amended hereby. In addition, "Restructuring" shall have the meaning given to
-------------
that term in Note
<PAGE>
-2-
4 to NEIC's Quarterly Report on Form 10-Q, filed with the Securities and
Exchange Commission on September 30, 1997.
Section 2. Assumption. (a) NEICOP hereby irrevocably and
----------
unconditionally assumes the obligations for the due and punctual payment of the
principal of and premium, if any, and interest on the Notes and the performance
of each and every other covenant and obligation of the Company under the Note
Purchase Agreements and the Notes. From and after the date hereof, each
Noteholder agrees, for itself and its successors and assigns, that it shall look
solely to NEICOP and not to NEIC, for the payment and performance of the
obligations of the Company under the Note Purchase Agreements hereby assumed by
NEICOP.
(b) All references to the Company in the Note Purchase Agreements or
any Note or any document, instrument or agreement executed, or to be executed,
in connection therewith shall be deemed to be references to NEICOP, except for
references to the Company relating to its status prior to the assumption
provided for in the foregoing clause (a).
(c) All covenants and obligations of the Company under the Note
Purchase Agreements existing prior to the assumption provided for in the
foregoing clause (a) shall continue in full force and effect after giving effect
to such assumption.
Section 3. Amendments. Subject to the satisfaction of the conditions
----------
to effectiveness specified in Section 14 of this Amendment and Assumption
Agreement, but with effect on and after the date hereof, the Note Purchase
Agreements shall be amended as follows:
(a) Schedule B of the Note Purchase Agreements shall be amended by
adding the following new definition and inserting the same in its appropriate
alphabetical location :
"NEIC, L.P." means New England Investment Companies, L.P., a Delaware
limited partnership.
(b) The last sentence of Section 10.9 of the Note Purchase Agreements
is amended to read in its entirety as follows:
<PAGE>
-3-
"Notwithstanding the occurrence or continuance of a Default or Event of
Default, the Company may make distributions to any of its limited partners
in amounts sufficient to allow any such limited partner to pay all federal
income taxes with respect to the amount of income and gain of the Company
allocated to such limited partner, or in the case of NEIC, L.P., the
Company may make distributions to NEIC, L.P. in amounts sufficient to allow
(i) the limited partners of NEIC, L.P. to pay all federal income taxes with
respect to the amount of income and gain of NEIC, L.P. attributable to its
partnership interest in the Company (assuming for these purposes that such
limited partner is taxable at the highest applicable rate of taxation), and
(ii) NEIC, L.P. to pay the tax imposed under Section 7704(g) of the Code on
electing partnerships, if NEIC, L.P. has made the election contemplated
thereby."
(c) The last sentence of Section 5.17 of the Note Purchase Agreements
is amended to read in its entirety as follows:
"The Company is not required to register as an 'investment adviser'
(as defined in the Investment Advisers Act)."
(d) Section 22.7 of the Note Purchase Agreements is amended to read in
its entirety as follows:
"22.7. NON-RECOURSE.
Notwithstanding anything to the contrary in this Agreement or any
Note, no recourse shall be had against any general partner of the Company for
the payment of the principal of or interest or Make-Whole Amount on any Note, or
for any other payment under this Agreement or any Note. It is understood that
the foregoing shall not prevent recourse to the Company or to any of the assets
of the Company."
Section 4. Representations and Warranties. NEICOP represents and
------------------------------
warrants to each Noteholder as follows (and, to the extent any representation,
warranty or certification made by NEICOP in this Amendment and Assumption
Agreement, or in any
<PAGE>
-4-
certificate or other writing furnished to any Noteholder pursuant to this
Amendment and Assumption Agreement, shall prove to have been false or misleading
as of the time made or furnished in any material respect, it shall be an Event
of Default for purposes of the Note Purchase Agreements, as amended hereby):
(a) This Amendment and Assumption Agreement has been duly authorized
by all necessary partnership or corporate, at the case may be, action on the
part of NEICOP and its general partners, and this Amendment and Assumption
Agreement constitutes a legal, valid and binding obligation of NEICOP
enforceable against NEICOP in accordance with its terms, except as such
enforceability may be limited by (i) applicable bankruptcy, insolvency,
-
reorganization, moratorium or other similar laws affecting the enforcement of
creditors' rights generally and (ii) general principles of equity (regardless of
--
whether such enforceability is considered in a proceeding in equity or at law).
(b) The execution, delivery and performance by NEICOP of this
Amendment and Assumption Agreement will not (i) contravene, result in any breach
-
of, or constitute a default under, or result in the creation of any Lien in
respect of any property of NEICOP or any Subsidiary under, its partnership
agreement or any indenture, mortgage, deed of trust, loan, purchase or credit
agreement, lease, corporate or partnership charter or by-laws, or any other
Material agreement or instrument to which NEICOP or any Subsidiary is bound or
by which NEICOP or any Subsidiary or any of their respective properties may be
bound or affected, (ii) conflict with or result in a breach of any of the terms,
--
conditions or provisions of any order, judgment, decree, or ruling of any court,
arbitrator or Governmental Authority applicable to NEICOP or any Subsidiary or
(iii) violate any provision of any statute or other rule or regulation of any
---
Governmental Authority applicable to NEICOP or any Subsidiary.
(c) No consent, approval or authorization of, or registration, filing
or declaration with, any Governmental Authority is required in connection with
the execution, delivery or performance by NEICOP of this Amendment and
Assumption Agreement.
<PAGE>
-5-
(d) The execution and delivery of this Amendment and Assumption
Agreement hereunder will not involve any transaction that is subject to the
prohibitions of section 406 of ERISA or in connection with which a tax could be
imposed pursuant to section 4975(c)(1)(A)-(D) of the Code.
(e) Upon the effectiveness of this Amendment and Assumption
Agreement, each of the representations of the Company contained in Section 5 of
the Note Purchase Agreements (as modified by Section 3 of this Amendment and
Assumption Agreement) shall be true and correct, after giving effect to the
transactions contemplated hereby (including, without limitation, the
Restructuring), as if made as of the date hereof.
(f) No Default or Event of Default has occurred and is continuing,
and after giving effect to the transactions contemplated hereby no Default or
Event of Default shall have occurred and be continuing.
(g) Pursuant to the Restructuring, all of the assets and liabilities
of NEIC will be transferred to NEICOP. Immediately after giving effect to the
Restructuring, NEICOP will not have any material liabilities other than those
transferred to NEICOP by NEIC.
(h) After giving effect to the Restructuring, ownership of NEICOP
shall be substantially as set forth in Exhibit A hereto.
(i) The transactions contemplated hereby, including without
limitation the Restructuring and the assumption by NEICOP of the obligations of
NEIC under the Note Purchase Agreements and the Notes, have not and will not be
consummated with the intent to hinder, delay or defraud any entity to which
NEICOP or NEIC was or is to become indebted. In addition, both before and after
giving effect to such transactions, NEICOP (i) is not insolvent and will not be
rendered insolvent in connection therewith, (ii) does not have and will not be
left with unreasonably small capital with which to conduct its business
operations and (iii) has not and will not have incurred debts beyond its ability
to pay such debts as they mature.
<PAGE>
-6-
Section 5. Exchange of Notes; Notation. (a) NEICOP, at the request
---------------------------
of any Noteholder after the date hereof, shall exchange Notes held by such
Noteholder for notes of NEICOP substantially in the form of Exhibit 1 to the
Note Purchase Agreements (modified only to reflect the assumption and release
effected hereby).
(b) NEICOP authorizes each Noteholder prior to any such exchange to
make a notation on each Note held by such Noteholder substantially as follows:
"NEIC OPERATING PARTNERSHIP, L.P., A DELAWARE LIMITED PARTNERSHIP, HAS
ASSUMED THE DUE AND PUNCTUAL PAYMENT OF THE PRINCIPAL OF AND PREMIUM,
IF ANY, AND INTEREST ON THIS NOTE"
Section 6. Private Placement Number. If so requested by any
------------------------
Noteholder, NEICOP shall obtain from Standard & Poor's CUSIP Service Bureau a
new private placement number with respect to the Notes and shall pay the
expenses relating thereto.
Section 7. Further Assurances. At any time and from time to time,
------------------
upon any Noteholder's request, NEICOP will promptly execute and deliver any and
all further instruments and documents and will take such further action as such
Noteholder may reasonably deem necessary to effect the purposes of this
Amendment and Assumption Agreement.
Section 8. Expenses. Without limiting the generality of Section 15.1
--------
of the Note Purchase Agreements, NEICOP and NEIC jointly and severally agree to
pay all expenses incident to the transactions contemplated by this Amendment and
Assumption Agreement (including all document production costs and other
expenses, the fees and disbursements of special counsel to the Noteholders for
their services with relation to such transactions), and to reimburse the
Noteholders for any out-of-pocket expenses.
Section 9. Binding Effect. This Amendment and Assumption Agreement
--------------
shall be binding upon NEIC, NEICOP and the Noteholders, and shall inure to the
benefit of their respective successors and assigns.
<PAGE>
-7-
Section 10. Taxes. NEICOP agrees to indemnify and hold each
-----
Noteholder free and harmless from and against any Federal, state or local income
or franchise taxes or any interest, penalties, or additions to tax with respect
thereto, that are incurred by any Noteholder in whole or in part by reason of
the assumption of the Notes and Note Purchase Agreements by NEICOP under this
Amendment and Assumption Agreement or the receipt of any payment hereunder in
respect of such taxes or other amounts. Any amount that NEICOP is required to
pay pursuant to this Section 10, shall be payable promptly upon demand therefor
by the Noteholder to whom payment is to be made, which demand shall specify in
reasonable detail the manner in which the amount to be paid was computed and
which computation shall be binding absent manifest error. If a Noteholder shall
have received a payment pursuant to this Section (an "Assumption Tax Payment")
----------------------
and subsequent to the receipt of such Assumption Tax Payment, the Noteholder
determines in its sole discretion that it has received a refund, credit or other
reduction in liability for any tax (an "Offsetting Benefit"), which Offsetting
------------------
Benefit would not have been received but for the assumption of the Notes by
NEICOP pursuant to this Amendment and Assumption Agreement, such Noteholder
shall pay to NEICOP the amount of such Offsetting Benefit, provided that the
aggregate amounts to be paid by such Noteholder pursuant to this sentence shall
not exceed the amount of any Assumption Tax Payments previously received by such
Noteholder pursuant to this Section. Amounts that any Noteholder is required to
pay in respect of an Offsetting Benefit pursuant to this Section shall be
payable promptly following the Noteholder's determination that it has received
such Offsetting Benefit. Nothing herein shall entitle NEIC, NEICOP or any other
person to examine any tax return of any Noteholder.
NEICOP will pay all stamp, documentary or similar taxes which may be
payable in respect of the execution and delivery of this Amendment and
Assumption Agreement or of the execution and delivery of any of the Notes as
contemplated by Section 5 hereof and will save the Noteholders harmless against
any loss or liability resulting from nonpayment or delay in payment of any such
tax.
<PAGE>
-8-
Section 11. Governing Law. This Amendment and Assumption Agreement
-------------
shall be governed by and construed in accordance with the laws of the State of
New York.
Section 12. Captions. The headings of the various sections hereof
--------
are for convenience of reference only and shall not affect the meaning or
construction of any provision hereof.
Section 13. Counterparts. This Amendment and Assumption Agreement
------------
may be executed in any number of counterparts and all such counterparts taken
together shall be deemed to constitute one and the same instrument.
Section 14. Conditions to Effectiveness. This Amendment and
---------------------------
Assumption Agreement shall become effective, as of the date hereof, upon the
satisfaction of each of the following conditions to effectiveness:
(a) This Amendment and Assumption Agreement shall have been duly
executed and delivered by NEIC, NEICOP and each of the Noteholders.
(b) Each of the Noteholders shall have received an opinion of
Milbank, Tweed, Hadley & McCloy, special New York counsel to the
Noteholders, dated the date hereof and substantially in the form of Exhibit
B hereto.
(c) Each of the Noteholders shall have received an opinion from
Edward N. Wadsworth, Esq., General Counsel for the General Partner, dated
the date hereof and substantially in the form of Exhibit C hereto.
(d) The Bill of Sale, Assignment and Assumption Agreement, dated as
of December 29, 1997, shall have been duly executed and delivered by NEIC
and NEICOP, evidencing consummation of the Restructuring.
Section 15. Documents Otherwise Unchanged. Except as herein
-----------------------------
provided, the Note Purchase Agreements shall remain unchanged and in full force
and effect.
<PAGE>
-9-
IN WITNESS WHEREOF, the undersigned has caused this Amendment and
Assumption Agreement to be duly executed and delivered by its duly authorized
officer on the date first above written.
NEW ENGLAND INVESTMENT
COMPANIES, L.P.
By NEW ENGLAND INVESTMENT
COMPANIES, INC., its
General Partner
By /s/ Kevin Charleston
--------------------------
Title: Assistant Treasurer
NEIC OPERATING PARTNERSHIP,
L.P.
By NEW ENGLAND INVESTMENT
COMPANIES, INC., its
Managing General Partner
By /s/ Kevin Charleston
---------------------------
Title: Assistant Treasurer
<PAGE>
-10-
Each of the following
Noteholders hereby consents
to the foregoing Amendment
and Assumption Agreement:
ALLSTATE LIFE INSURANCE
COMPANY
By /s/ Judith P. Greffin
----------------------------
Title:Authorized Signatory
THE FRANKLIN LIFE INSURANCE
COMPANY
By /s/ Daniel C. Leimbach
----------------------------
Title: Authorized Signatory
AMERICAN GENERAL LIFE
INSURANCE COMPANY
By /s/
----------------------------
Title:
CIG & CO. as nominee for
CONNECTICUT GENERAL LIFE
INSURANCE COMPANY
By /s/ James R. Kuzemchak
--------------------------
Title: Partner
<PAGE>
-11-
CIG & CO. as nominee for
CENTURY INDEMNITY COMPANY
By /s/ James R. Kuzemchak
-----------------------
Title: Partner
<PAGE>
-12-
CIG & CO. as nominee for
LIFE INSURANCE COMPANY OF
NORTH AMERICA
By /s/ James R. Kuzemchak
----------------------
Title: Partner
UNITED OF OMAHA LIFE INSURANCE
COMPANY
By /s/ Curtis R. Caldwell
----------------------
Title: First Vice President
STATE OF WISCONSIN INVESTMENT
BOARD
By /s/ Eve A. Hennessee
--------------------------
Title: Assistant Portfolio Manager
PACIFIC LIFE INSURANCE
COMPANY
By /s/ Ronn Cornelius
---------------------------
Title: Assistant Vice President
By /s/ Peter S. Fiek
---------------------------
Title: Assistant Secretary
ALEXANDER HAMILTON LIFE
INSURANCE COMPANY OF AMERICA
By /s/ John C. Ingram
----------------------------
Title: Senior Vice President
<PAGE>
-13-
MUTUAL OF OMAHA INSURANCE
COMPANY
By /s/ Curtis R. Caldwell
----------------------------
Title: First Vice President
FIRST ALEXANDER HAMILTON LIFE
INSURANCE COMPANY
By /s/ Robert A. Reed
----------------------------
Title: Vice President & Secretary
THE LINCOLN NATIONAL LIFE
INSURANCE COMPANY
By Lincoln Investment Management,
Inc., Its Attorney-In-Fact
By /s/ Brenda L. Buuck
----------------------------
Title: Second Vice President
ALLIED LIFE INSURANCE COMPANY
By Lincoln Investment Management,
Inc., Its Attorney-In-Fact
By /s/ Brenda L. Buuck
----------------------------
Title: Second Vice President
<PAGE>
-14-
FIRST PENN-PACIFIC LIFE
INSURANCE COMPANY
By Lincoln Investment Management,
Inc., Its Attorney-In-Fact
By /s/ Brenda L. Buuck
----------------------------
Title: Second Vice President
<PAGE>
-15-
LINCOLN NATIONAL REASSURANCE
COMPANY
By Lincoln Investment Management,
Inc., Its Attorney-In-Fact
By /s/ Brenda L. Buuck
----------------------------
Title: Second Vice President
TEACHERS INSURANCE AND ANNUITY
ASSOCIATION OF AMERICA
By /s/ Loren S. Archibald
----------------------------
Title: Managing Director-Private Placements
THE CANADA LIFE ASSURANCE
COMPANY
By /s/
----------------------------
Title: Vice President
THE CANADA LIFE ASSURANCE
COMPANY (A & H)
By /s/
----------------------------
Title: Vice President
THE CANADA LIFE INSURANCE
COMPANY OF NEW YORK
By /s/
----------------------------
Title: Vice President
<PAGE>
-16-
NORTHERN LIFE INSURANCE
COMPANY
By /s/ James V. Wittich
----------------------------
Title: Assistant Treasurer
NATIONAL LIFE INSURANCE
COMPANY
By /s/ R. Scott Higgins
----------------------------
Title: Vice President / National Life Investment Co., Inc.
LIFE INSURANCE COMPANY OF THE
SOUTHWEST
By /s/ R. Scott Higgins
----------------------------
Title: Vice President / National Life Investment Co., Inc.
FIRST CITICORP LIFE INSURANCE
COMPANY
By /s/ Chip Clark
---------------------------
Title: Vice President / Gen Re - New England Asset Management
as investment advisor to First Citicorp Life
Insurance Company
BANKERS LIFE INSURANCE COMPANY
OF NEW YORK
By /s/ Gene E. Trueblood
---------------------------
Title: Agent
<PAGE>
-17-
COLOGNE LIFE REINSURANCE
COMPANY
By /s/ Chip Clark
---------------------------
Title: Vice President / Gen Re - New England Asset Mangement
as investment advisor to Cologne Life Reinsurance
Company
RELIASTAR LIFE INSURANCE COMPANY OF NEW YORK
successor by merger to LINCOLN SECURITY
LIFE INSURANCE COMPANY
By /s/ James V. Wittich
----------------------------
Title: Vice President, Investments
AMERICAN FAMILY LIFE
INSURANCE COMPANY
By /s/ Phillip Hannifan
----------------------------
Title: Investment Director
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF NEIC OPERATING PARTNERSHIP, L.P.
<TABLE>
<CAPTION>
STATE OF
INCORPORATION
OR
SUBSIDIARY ORGANIZATION
- ---------- -------------
<S> <C>
AEW Capital Management, Inc. Massachusetts
AEW Capital Management, L.P. Delaware
AEW Securities Limited Partnership Massachusetts
AEW Hotel Investment Corporation Massachusetts
AEW II Corporation Massachusetts
AEW Investment Group, Inc. Massachusetts
(includes approximately 23 real estate investment subsidiaries,
all of which operate in the United States)
Back Bay Advisors, Inc. Massachusetts
Back Bay Advisors, L.P. Delaware
Graystone Partners, Inc. Massachusetts
Graystone Partners, L.P. Delaware
Harris Associates, Inc. Delaware
Harris Associates L.P. Delaware
Harris Partners L.L.C. Delaware
Harris Partners, Inc. Delaware
Harris Associates Securities L.P. Delaware
Jurika & Voyles, Inc. Delaware
Jurika & Voyles, L.P. Delaware
Loomis, Sayles & Company, Inc. Massachusetts
Loomis, Sayles & Company, L.P. Delaware
Loomis, Sayles Distributors, L.P. Delaware
Loomis, Sayles Distributors, Inc. Massachusetts
MC Management, Inc. Massachusetts
MC Management, L.P. Delaware
NEF Corporation Massachusetts
New England Funds, L.P. Delaware
New England Funds Management, L.P. Delaware
New England Funds Services Corporation Delaware
New England Investment Associates, Inc. Delaware
NEIC Holdings, Inc. Massachusetts
Reich & Tang Distributors, Inc. Delaware
Reich & Tang Services, Inc. Delaware
Reich & Tang Asset Management, Inc. Massachusetts
Reich & Tang Asset Management, L.P. Delaware
Snyder Capital Management, Inc. Delaware
Snyder Capital Management, L.P. Delaware
Vaughan, Nelson, Scarborough & McCullough, Inc. Delaware
Vaughan, Nelson, Scarborough & McCullough, L.P. Delaware
VNSM Trust Company Texas
Westpeak Investment Advisors, Inc. Massachusetts
Westpeak Investment Advisors, L.P. Delaware
</TABLE>
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectuses
constituting part of the Registration Statements on Form S-3 (No. 333-43407,
No. 333-18911 and No. 33-77904) and in the Prospectus constituting part of the
Registration Statement on Form S-4 (No. 333-43397) of New England Investment
Companies, L.P. of our report dated January 29, 1998 appearing on page 38 of
this Form 10-K.
Price Waterhouse LLP
Boston, Massachusetts
February 23, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM DECEMBER 31,
1997, FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 5,020
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 5,020
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 76,028
<CURRENT-LIABILITIES> 5,020
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 71,008
<TOTAL-LIABILITY-AND-EQUITY> 76,028
<SALES> 0
<TOTAL-REVENUES> 561,469
<CGS> 0
<TOTAL-COSTS> 442,968
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 19,608
<INCOME-PRETAX> 98,893
<INCOME-TAX> 3,211
<INCOME-CONTINUING> 95,682
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 95,682
<EPS-PRIMARY> 2.22
<EPS-DILUTED> 2.21
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM DECEMBER 31,
1996 FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 49,914
<SECURITIES> 0
<RECEIVABLES> 66,430
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 123,036
<PP&E> 19,236
<DEPRECIATION> 0
<TOTAL-ASSETS> 721,658
<CURRENT-LIABILITIES> 106,110
<BONDS> 118,334
0
0
<COMMON> 0
<OTHER-SE> 328,264
<TOTAL-LIABILITY-AND-EQUITY> 721,658
<SALES> 0
<TOTAL-REVENUES> 392,651
<CGS> 0
<TOTAL-COSTS> 310,842
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,728
<INCOME-PRETAX> 73,081
<INCOME-TAX> 2,857
<INCOME-CONTINUING> 70,224
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 70,224
<EPS-PRIMARY> 1.96
<EPS-DILUTED> 1.85
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM DECEMBER 31,
1995 FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 34,385
<SECURITIES> 0
<RECEIVABLES> 54,403
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 100,485
<PP&E> 17,167
<DEPRECIATION> 0
<TOTAL-ASSETS> 520,873
<CURRENT-LIABILITIES> 72,265
<BONDS> 80,919
0
0
<COMMON> 0
<OTHER-SE> 309,023
<TOTAL-LIABILITY-AND-EQUITY> 520,873
<SALES> 0
<TOTAL-REVENUES> 280,258
<CGS> 0
<TOTAL-COSTS> 220,652
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,301
<INCOME-PRETAX> 54,305
<INCOME-TAX> 1,555
<INCOME-CONTINUING> 52,750
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 52,750
<EPS-PRIMARY> 1.76
<EPS-DILUTED> 1.73
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SEPTEMBER
30, 1996 FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 84,528
<SECURITIES> 0
<RECEIVABLES> 59,674
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 156,494
<PP&E> 18,173
<DEPRECIATION> 0
<TOTAL-ASSETS> 584,584
<CURRENT-LIABILITIES> 88,819
<BONDS> 115,000
0
0
<COMMON> 0
<OTHER-SE> 318,982
<TOTAL-LIABILITY-AND-EQUITY> 584,584
<SALES> 0
<TOTAL-REVENUES> 284,374
<CGS> 0
<TOTAL-COSTS> 224,426
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,488
<INCOME-PRETAX> 53,460
<INCOME-TAX> 2,555
<INCOME-CONTINUING> 50,905
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 50,905
<EPS-PRIMARY> 1.48
<EPS-DILUTED> 1.41
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM JUNE 30,
1996 FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 69,527
<SECURITIES> 0
<RECEIVABLES> 59,393
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 114,687
<PP&E> 17,310
<DEPRECIATION> 0
<TOTAL-ASSETS> 576,614
<CURRENT-LIABILITIES> 79,817
<BONDS> 115,000
0
0
<COMMON> 0
<OTHER-SE> 321,085
<TOTAL-LIABILITY-AND-EQUITY> 576,614
<SALES> 0
<TOTAL-REVENUES> 189,359
<CGS> 0
<TOTAL-COSTS> 145,617
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,249
<INCOME-PRETAX> 39,493
<INCOME-TAX> 1,829
<INCOME-CONTINUING> 37,664
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 37,664
<EPS-PRIMARY> 1.02
<EPS-DILUTED> 0.98
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM MARCH 31,
1996 FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 59,022
<SECURITIES> 0
<RECEIVABLES> 62,303
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 133,158
<PP&E> 17,338
<DEPRECIATION> 0
<TOTAL-ASSETS> 549,322
<CURRENT-LIABILITIES> 66,371
<BONDS> 110,000
0
0
<COMMON> 0
<OTHER-SE> 312,735
<TOTAL-LIABILITY-AND-EQUITY> 549,322
<SALES> 0
<TOTAL-REVENUES> 94,313
<CGS> 0
<TOTAL-COSTS> 71,285
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,093
<INCOME-PRETAX> 20,935
<INCOME-TAX> 621
<INCOME-CONTINUING> 20,314
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 20,314
<EPS-PRIMARY> 0.55
<EPS-DILUTED> 0.53
</TABLE>
