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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(MARK ONE)
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/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
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FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
OR
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/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
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FOR THE TRANSITION PERIOD FROM ______________ TO ______________
COMMISSION FILE NUMBER 1-9468
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NVEST, L.P.
(Exact name of registrant as specified in its charter)
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DELAWARE 13-3405992
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
399 BOYLSTON STREET, 02116
BOSTON, MASSACHUSETTS (Zip Code)
(Address of principal executive
offices)
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(617) 578-3500
Registrant's telephone number, including area code
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class Name of each exchange on which registered
UNITS OF LIMITED PARTNER INTEREST NEW YORK STOCK EXCHANGE
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Securities registered pursuant to section 12(g) of the Act:
NONE
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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. /X/
The aggregate market value of units of limited partner interest held by
non-affiliates of the registrant at February 1, 2000 (based on the closing price
at which the units were sold on the New York Stock Exchange) was approximately
$85.2 million.
The issuer is a limited partnership. There were 6,190,882 units of limited
partner interest and 110,000 units of general partner interest outstanding at
February 1, 2000.
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PART I
ITEM 1. BUSINESS.
BACKGROUND
Nvest, L.P. ("Nvest") is a publicly-traded limited partnership. Its primary
business currently is acting as the advising general partner of Nvest Companies,
L.P. (the "Operating Partnership"). Nvest'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.
Nvest, the Operating Partnership and most of its affiliated firms are
organized as partnerships for tax purposes. The partnership tax status differs
from that of a corporation, where the corporation is taxed on the basis of its
net taxable income and its stockholders are taxed only on the cash dividends, if
any, they receive from the corporation. Entities organized as partnerships for
tax purposes are not generally taxed at the federal level on their net income.
Instead, the holders of the partnership interests are taxed on their
proportionate share of the taxable income of the partnership. Since holders of
partnership interests are taxed only on the taxable income from the partnership
and not on the amount of cash they receive as distributions, the partnership tax
status allows the partnership to distribute a portion of the cash flow it earns
to its holders on a pre-tax basis. Cash distributions may be more or less than
the amount of taxable income.
At the end of 1997, consistent with legislation passed that year, Nvest
elected to remain a publicly traded partnership for tax purposes by paying a
3.5% federal tax on gross income and to restructure its operations to create the
Operating Partnership. For further information on this restructuring, please
refer to the section entitled "1997 Restructuring of the Partnership," below.
Nvest derives its earnings and cash flow that it may distribute to
unitholders from its partnership interests in the Operating Partnership and the
business the Operating Partnership conducts through the affiliated investment
management and distribution and consulting firms. The Operating Partnership's
revenues derive primarily from management and advisory fees earned from services
provided by the investment management firms. The Operating Partnership generally
distributes to its unitholders, including Nvest, operating cash flow not
required for normal business operations and working capital needs, including
support of its growth strategy and the repurchase of units. Nvest expects to
distribute to its unitholders substantially all of the distributions received
from the Operating Partnership, after paying the 3.5% federal gross income tax,
any state tax, and any other miscellaneous expenses.
The following paragraphs describe aspects of the organizational history of
Nvest and 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, Nvest adopted the name "New England Investment Companies, L.P."
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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. (the "General Partner"), became the sole general
partner of Nvest, 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.
THE 1997 RESTRUCTURING. In December 1997, the General Partner implemented a
Restructuring of Nvest that involved a determination to elect to maintain
Nvest'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 1998 NAME CHANGES. Effective March 31, 1998, Nvest changed its name
from "New England Investment Companies, L.P." to "Nvest, L.P." At the same time,
the name of the General Partner was changed to "Nvest Corporation" and the
Operating Partnership was renamed "Nvest Companies, L.P."
The General Partner of Nvest is also the managing general partner of the
Operating Partnership, and Nvest is the advising general partner of the
Operating Partnership. For an illustration of this organizational structure,
please refer to the diagram under "Business--1997 Restructuring of the
Partnership" below. As of February 1, 2000, MetLife beneficially owned (through
the General Partner) all of Nvest's 110,000 units of general partner interest
("GP units"), 347,900 of Nvest's units of limited partner interest ("units") and
20,994,076 of the Operating Partnership's units of partner interest ("Operating
Partnership units"). In the aggregate, MetLife owned general partner and limited
partner interests in Nvest and the Operating Partnership representing
approximately 48% of the economic interests in the business of the Operating
Partnership.
GENERAL
Nvest's primary source of income and cash flow available for distribution
consists of equity in earnings of and distributions paid by the Operating
Partnership. The following discussion therefore focuses primarily on the
activities of the Operating Partnership. Nvest and the Operating Partnership are
at times referred to herein together as the "Partnerships."
The business of the Operating Partnership is conducted through twelve
investment management firms (the "Investment Management Firms") and six
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
securities, 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
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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.
GROWTH STRATEGY
The Operating Partnership seeks to grow by helping the Investment Management
Firms expand their capabilities; by selectively expanding distribution channels
for its investment products; by increasing and focusing its marketing efforts;
and by selectively pursuing the acquisition of investment management firms.
During 1999, the Operating Partnership focused its efforts principally on
increasing the distribution of investment products to international clients,
expanding investment product offerings to include additional growth style
managers, and increasing the distribution of investment products into the
domestic defined contribution and mutual fund "wrap" markets.
INTERNATIONAL VENTURES. One of Nvest's primary goals in 1999 was to
increase the amount of assets managed for foreign clients. Overall, Nvest was
able to more than double the amount of foreign-sourced assets under management
in 1999, to almost $8 billion by year-end. The majority of these new assets,
$3.5 billion, originated from clients located in the Pacific Rim. The new assets
resulted from joint ventures and distribution relationships entered into both by
Nvest, on behalf of its affiliated management firms, and directly by the
affiliated investment advisors, as well as through the establishment of local
affiliated entities by Nvest's affiliated investment advisors.
In June 1999, the Operating Partnership inaugurated a joint venture with
Asahi Life Asset Management Company, an affiliate of Asahi Mutual Life Insurance
Company of Tokyo, Japan. The joint venture, named Asahi-Nvest Investment
Advisory Co., Ltd., facilitates the provision of investment advisory and
investment management services to Japanese institutions and individuals by
various of Nvest's affiliated Investment Management Firms. During the second
half of 1999, approximately $2.2 billion in assets were sourced in this fashion
for Nvest Firms.
Loomis, Sayles & Company ("Loomis Sayles") in turn obtained over $600
million of new assets under management through its relationship with Kokusai
Securities, an established Japanese brokerage firm that has an individual client
base with an interest in fixed income products. Additional sales efforts by
Loomis Sayles in Japan resulted in an additional $100 million of assets.
Westpeak Investment Advisors established an office in Australia that manages
both U.S. and Australian investment portfolios. Assets gathered through this
office totaled over $300 million in 1999.
Nvest has also begun to broaden its distribution capability into Europe as
well. AEW Capital Management, the Operating Partnership's real estate management
firm, formed a joint venture with the London-based DTZ Group of real estate
companies, which has a presence in 30 countries. The joint venture, Curzon
Global Partners, will provide AEW with access to investment opportunities for
its clients in North America, Europe and the Middle East.
INVESTMENTS IN GROWTH STYLE MANAGERS. The Operating Partnership and the
Investment Management Firms added to the breadth of available investment product
offerings by adding growth style investment
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managers in 1999. In July 1999, the Operating Partnership acquired Kobrick
Funds, a Boston-based growth equity investment manager with $200 million in
assets under management at the time of the acquisition. Kobrick Funds advises
three equity growth mutual funds. In addition, the Kobrick group assumed
management of one of the four segments of the New England Star Advisors Fund
that was formerly advised by an unaffiliated third party. After the acquisition
of the investment adviser in July, the trustees of the mutual funds approved the
restructuring of the share classes, enabling them to be distributed under the
Kobrick Funds name through the Nvest Funds family (formerly known as "New
England Funds") and other centralized marketing groups of Nvest. At December 31,
1999, Kobrick Funds managed over $900 million in assets.
In addition to the efforts of the holding company, Loomis Sayles added an
international growth style group to its team of investment management teams in
July of 1999, which resulted in a sharp improvement in performance. This
addition complemented the strong existing growth style investment management
teams at Loomis Sayles.
NEW DISTRIBUTION CHANNELS. Over the past few years, the Operating
Partnership has established a number of initiatives designed to increase the
ability of its affiliated Investment Management Firms to access distribution
channels. In 1997, the Operating Partnership established a new division called
NVEST ADVISOR SERVICES to assist in the marketing and distribution of mutual
funds advised by various of the Investment Management Firms through financial
planners and advisors. In 1998, NVEST RETIREMENT SERVICES was established to
assist in the marketing and distribution of mutual funds, variable annuities and
collective investment trust products advised or subadvised by various of the
Investment Management Firms to retirement plan sponsors, large 401(k) plan
providers, multi-manager alliance platforms and consultants. Most recently,
NVEST MANAGED ACCOUNT SERVICES was established in early 2000 to market mutual
funds to "wrap" programs offered by broker-dealers. The distribution initiatives
complement NVEST ASSOCIATES, which has for many years assisted the affiliated
Investment Management Firms market their investment products to institutional
clients.
In 1999, the distribution initiatives of the Operating Partnership began to
yield significant results. NVEST ASSOCIATES contributed significantly to
establishing the joint venture with Asahi Life Asset Management Company
described above. NVEST RETIREMENT SERVICES was able to generate increased
interest in investment products of Nvest affiliates in the collective trust
market and with multi-manager 401(k) plans, and has now placed mutual funds
advised or subadvised by Nvest firms on 28 of the most important defined
contribution platforms in the market.
ACQUISITION STRATEGY The Operating Partnership also seeks to grow through
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. The Partnerships may also use different structures in
negotiating acquisitions.
Consideration for acquisitions is expected to include cash (including cash
from borrowings), Operating Partnership units, possibly Nvest units and future
contingent payments. Other employment incentives are provided for frequently.
The Partnerships are prepared to consider various types of financial
arrangements with the owners of an acquired firm depending on the circumstances,
including tailored incentive
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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 include profit-participation or 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.
Nvest made its first major acquisition in September 1995, when it acquired
the business of Harris Associates L.P. ("Harris"), an investment advisory firm
located in Chicago, Illinois. Nvest continued to implement its acquisition
strategy in 1996. In May 1996, Nvest acquired the business of Vaughan, Nelson,
Scarborough & McConnell ("VNSM"), an investment advisory firm located in
Houston, Texas. In December 1996, Nvest completed the acquisition of the
business of Aldrich, Eastman & Waltch, L.P., a Boston-based real estate
investment advisory firm. The operations of Aldrich, Eastman & Waltch were
combined with those of Nvest'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, Nvest acquired the
business of Jurika & Voyles, Inc., an Oakland, California-based investment
management company.
In July 1997, Nvest and the Operating Partnership completed the acquisition
of the business of Snyder Capital Management ("Snyder Capital"), a San
Francisco-based value equity manager. At year end 1997, the Operating
Partnership completed the acquisition of Daniel Breen & Company ("Daniel
Breen"). The operations of Daniel Breen were consolidated with those of Vaughan,
Nelson, Scarborough & McConnell, 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. During 1998, the Operating Partnership
completed the acquisition of the business of H.A. Schupf & Co., Inc., a New
York-based investment management firm, and combined its operations with those of
Reich & Tang Capital Management. H.A. Schupf & Co. uses a growth investment
style to manage assets, primarily for high net worth clients.
The Operating Partnership continued to consider additional acquisitions and
strategic alliances in 1999. During July 1999, the Operating Partnership
acquired Kobrick Funds, a Boston-based growth equity investment manager with
$200 million in assets under management at the time of the acquisition. Kobrick
Funds advises three equity growth mutual funds. In addition, the Kobrick group
assumed management of one of the four segments of the New England Star Advisors
Fund that was formerly advised by an unaffiliated third party. After the
acquisition of the investment adviser in July, the trustees of the mutual funds
approved the restructuring of the share classes, enabling them to be distributed
under the Kobrick Funds name through the Nvest Funds family (formerly known as
"New England Funds") and other centralized marketing groups of Nvest. At
December 31, 1999, Kobrick Funds managed over $900 million in assets.
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.
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INVESTMENT MANAGEMENT FIRMS
The Operating Partnership currently has twelve 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, 1999, 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 ten cities nationwide providing investment
management services to clients. The investment professionals in each office work
with others in the Loomis Sayles organization to develop investment strategies
and styles tailored to the particular investment expertise of their group and
client mix, subject to the requirement that portfolios generally be constructed
from securities which are followed by Loomis Sayles' centralized research group
and that they specifically be constructed to meet client objectives and
requirements. 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, Nvest
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 the Operating Partnership's real estate advisory
subsidiary, Copley Real Estate Advisors, Inc., to form a firm that operates
under the name "AEW Capital Management." Utilizing the firm's combination of
real estate, research and capital markets expertise, AEW focuses on high-yield
equity and debt strategies, real estate securities and directly held interests
in property.
BACK BAY ADVISORS, L.P. ("BACK BAY"). Established in 1986 as a spin-off
from New England Mutual, Back Bay manages affiliate sponsored mutual funds in
two mutual fund groups, as well as institutional funds for the pension and
foundation marketplace. Back Bay's principal investment specialty is fixed-
income management with an emphasis on security selection, sector selection and
yield curve management.
JURIKA & VOYLES, L.P. ("JURIKA & VOYLES"). Effective January 1, 1997, Nvest
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.
KOBRICK FUNDS LLC ("KOBRICK FUNDS"). The Operating Partnership acquired
Kobrick Funds in July 1999. Kobrick Funds is a Boston-based growth equity
investment manager. It advises three equity
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mutual funds and also recently assumed management of one of the four segments of
the Nvest Star Advisors Fund that was formerly managed by an unaffiliated third
party.
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. Reich & Tang Funds
specializes in providing cash management account services to shareholders of
proprietary and administered money market funds. Such services include draft
checking, debit cards and electronic banking.
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. The Operating Partnership acquired and
consolidated the operations of H.A. Schupf & Co. into R&T Capital Management
effective October 1, 1998.
SNYDER CAPITAL MANAGEMENT, L.P. ("SNYDER CAPITAL"). In July 1997, Nvest
completed the acquisition of Snyder Capital, a San Francisco-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,
Nvest acquired VNSM, a Houston-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, VNSM Trust Company.
WESTPEAK INVESTMENT ADVISORS, L.P. ("WESTPEAK"). Established in 1991,
Westpeak provides customized risk-adjusted 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, 1999, 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 of
accounting. The Operating Partnership includes all of the assets under
management of CGM in its 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, consulting 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.
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NVEST FUNDS DISTRIBUTOR, L.P. ("NVEST FUNDS"). Established in 1993, and
previously called "New England Funds, L.P." Nvest Funds serves as a distributor
of mutual funds for the Nvest Funds Group and the Nvest Kobrick Funds. Effective
February 1, 2000, Nvest Funds adopted its current name in order to better
identify with the Nvest family of firms. Nvest Funds is responsible for all
sales related activities of the Nvest Funds Group. Nvest Funds distributes
mutual funds through 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 Financial"), which is a subsidiary of MetLife. In
addition, Nvest Funds also has a significant relationship with MetLife
Securities, Inc., a broker-dealer subsidiary of MetLife.
NVEST ASSOCIATES, INC. ("NVEST ASSOCIATES"). Established in 1989, Nvest
Associates provides institutional marketing and consulting services to the
Operating Partnership and certain of the Investment Management Firms. Nvest
Associates also assists the Operating Partnership in identifying and designing
new product opportunities which may be offered through existing subsidiaries,
new ventures or acquired companies.
NVEST ADVISOR SERVICES ("NAS"). Established in 1997, NAS 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.
NVEST MANAGED ACCOUNT SERVICES ("NMAS"). Established in early 2000, NMAS is
a division of the Operating Partnership that assists in the marketing and
distribution of mutual funds, variable annuities and collective investment trust
products advised or subadvised by various of the Investment Management Firms
through "wrap" programs offered by broker-dealers.
NVEST RETIREMENT SERVICES ("NRS"). Established in 1998, NRS is a division
of the Operating Partnership that assists in the marketing and distribution of
mutual funds, variable annuities and collective investment trust products
advised or subadvised by various of the Investment Management Firms to
retirement plan sponsors, large 401(k) plan providers, multi-manager alliance
platforms and consultants.
NVEST SERVICES COMPANY, INC. ("NSC"). Established in 1998, NSC serves as
the transfer agent for four of the Operating Partnership's mutual fund families,
including the Nvest Funds Group and the Oakmark Family of Funds. NSC also
provides legal, compliance, human resources and training services to Nvest Funds
and assists in the areas of product development, vendor negotiations and
purchasing. NSC offers its services to the Operating Partnership's other
affiliates and fund families, and provides legal and compliance services to NAS
and NRS.
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.
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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 Nvest Associates, 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 112 mutual funds, the great majority of which are grouped into eight fund
"families". These funds 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 mutual funds managed by Harris
Associates L.P. and marketed on a no-load basis. At December 31, 1999,
the total assets of The Oakmark Family of Funds, all of which are managed
by Harris, were approximately $6.3 billion. The fund family includes the
$3.4 billion Oakmark Fund and the $1.6 billion Oakmark Select Fund.
THE REICH & TANG FUNDS consist primarily of 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, 1999, the total assets in the Reich & Tang
Funds were approximately $10.1 billion, all of which are managed by
Reich & Tang Asset Management, L.P.
THE NVEST FUNDS GROUP consists of mutual 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 Financial, and MetLife Securities, Inc., which serves as
broker-dealer for MetLife's agent field force. At December 31, 1999, the
total assets in the Nvest Funds that were advised or sub-advised by
various Investment Management Firms were approximately $8.2 billion.
THE NVEST KOBRICK FUNDS consist of mutual funds that are marketed
principally through the Nvest Funds Group. At December 31, 1999, total
assets were approximately $0.4 billion.
THE LOOMIS SAYLES FUNDS consist of mutual funds managed by Loomis Sayles
that are marketed in the United States on a no-load basis primarily
through financial intermediaries to their customers. Loomis Sayles Funds
also has a fixed income fund that has a sales charge and is marketed
solely to Japanese investors. At December 31, 1999, total assets were
approximately $2.8 billion.
THE LOOMIS SAYLES INVESTMENT TRUST offers funds managed by Loomis Sayles
and marketed on a no-load basis to institutional investors. At
December 31, 1999, total assets were approximately $0.7 billion.
THE JURIKA & VOYLES FUNDS consist of mutual funds managed by Jurika &
Voyles that are marketed on a no-load basis primarily through financial
intermediaries to their customers. At December 31, 1999, total assets
were approximately $106 million.
THE CGM FUNDS consist of mutual funds marketed on a no-load basis. At
December 31, 1999, total assets in the CGM Funds, all of which are
managed by CGM, were approximately $2.0 billion.
A number of the Investment Management Firms advise or subadvise mutual funds
in the NEW ENGLAND ZENITH FUNDS, which consist of mutual funds sponsored by New
England Financial. These mutual funds
10
<PAGE>
serve as the underlying investment vehicle for variable annuity and variable
life insurance products issued by New England Financial and MetLife, and are
sold through insurance agent field forces of New England Financial and MetLife.
At December 31, 1999, the total assets in the New England Zenith Funds advised
or subadvised by Investment Management Firms were approximately $4.1 billion.
In addition, the Investment Management Firms advised or sub-advised other
mutual funds not included in the above groups with total assets of approximately
$1.2 billion at December 31, 1999.
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
Securities and Exchange Commission (the "SEC"), "assignment" of investment
management contracts includes certain changes in ownership of the Operating
Partnership (or its managing general partner), MetLife or the Investment
Management Firms themselves.
The Investment Management Firms' revenues derive primarily from management
and advisory fees calculated as a percentage of assets under management. For
institutional and private clients, fees are generally billed quarterly and are
calculated as a percentage of actual assets under management at the beginning or
end of the calendar quarter. For most of the Investment Management Firms, the
fee schedules typically provide lower incremental fees above certain levels of
managed assets. For mutual fund clients, fees are billed monthly and are
calculated as a percentage of 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. Changes in assets under management, which can result from changes in
market values of securities, net client inflows or outflows, and acquisitions,
have a major impact on revenues earned by the Investment Management Firms.
Additional management and advisory fee revenues can also be earned as a result
of performance fees and transaction fees. Such fees are generally earned at the
end of the performance contract period if investment returns have exceeded an
established benchmark, or upon completion of specific transactions, sometimes
resulting in periodic fluctuations in the recognition of such revenues.
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 services that do not meet
clients' expectations, particularly with respect to use of more innovative
investment strategies.
In addition, as a real estate investment manager, one of the Operating
Partnership's investment management firms, AEW Capital, is subject to a number
of special considerations with respect to a component of its business. 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
11
<PAGE>
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.
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, investment styles 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, 2000, the Operating Partnership and its Firms employed
approximately 1,585 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
12
<PAGE>
their departure. Loss of key personnel could have a material adverse effect on
the Operating Partnership's, and consequently Nvest's, results of operations.
1997 RESTRUCTURING OF THE PARTNERSHIP
Although publicly held partnerships are generally taxed as corporations,
Nvest believes it is eligible to be treated as a partnership for federal income
tax purposes under a special provision grandfathering publicly traded
partnerships that were in existence in 1987. The Taxpayer Relief Act of 1997,
signed into law on August 5, 1997, permits certain publicly traded partnerships
to elect to extend their grandfathered partnership tax status from year-to-year
on an indefinite basis, which requires payment of an annual 3.5% federal tax on
gross income and satisfaction of certain other conditions. In 1997, the Board of
Directors approved a plan of Restructuring (as defined below) under which Nvest
has made such an election. Were Nvest 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, and to state corporate income taxes.
Pursuant to the plan of Restructuring approved by the Board of Directors, at
year-end 1997, Nvest contributed all of its business and assets (consisting
principally of the Firms owned by Nvest), subject to all of its liabilities, to
the Operating Partnership. In consideration of the asset contribution, Nvest
received a number of partnership units of the Operating Partnership equal to the
number of outstanding units of Nvest.
As contemplated by the partnership agreement, certain of Nvest's unitholders
(whose ownership derived from Nvest units received in exchange for contributions
of appreciated investment management businesses) were permitted to choose to
become partners in the Operating Partnership by exchanging Nvest units for an
equal number of Operating Partnership units. Such unitholders who did not
transfer their ownership to the Operating Partnership and Nvest's other
unitholders (primarily persons who have acquired their Partnership units for
cash in the public market) remained partners in Nvest. The transactions
involving the creation of the Operating Partnership, the transfer of Nvest's
assets and liabilities to the Operating Partnership and the exchange of Nvest
units for Operating Partnership units, together with Nvest's election to retain
its tax status and pay the 3.5% federal gross income tax, are referred to herein
as the "Restructuring."
After the Restructuring, Nvest has remained publicly traded on the New York
Stock Exchange (under the symbol "NEW"), and continues to file public reports
with the SEC. Nvest's business currently is to engage in the investment advisory
business by acting as the advising general partner of the Operating Partnership.
In this regard, Nvest receives proportionate distributions from the Operating
Partnership. Nvest 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 Nvest maintains the applicable election and
satisfies certain other conditions.
Nvest 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
miscellaneous expenses.
As a result of the unit exchange described above, the Operating Partnership
has a limited number of partners, including Nvest. See Item 12, "Security
Ownership of Certain Beneficial Owners and Management--Principal Holders of
Operating Partnership Units." The Operating Partnership units are not publicly
traded, and there is no market for such units. Subject to various limitations
under federal tax law and regulations and the terms of the partnership
agreements of Nvest 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
Nvest for Nvest units or (at Nvest'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 Nvest or the Operating Partnership, including
unit
13
<PAGE>
repurchases under certain circumstances, or the retention of assets or
incurrence of liabilities by Nvest in significant amounts. The Operating
Partnership is not expected to pay federal tax on its gross income.
The general partner of Nvest is also the managing general partner of the
Operating Partnership. Nvest is the advising general partner of the Operating
Partnership. The Board of Directors of the General Partner was not changed in
connection with the Restructuring.
In accordance with generally accepted accounting principles, Nvest accounts
for its investment in the Operating Partnership under the equity method of
accounting.
The following diagram illustrates the structure of Nvest after the
Restructuring:
[AN ORGANIZATION CHART APPEARS HERE. THE ORGANIZATION CHART SHOWS
THAT NVEST IS THE PUBLIC COMPANY AND HAS AN OWNERSHIP INTEREST IN
THE OPERATING PARTNERSHIP, WHICH IN TURN OWNS INVESTMENT
MANAGEMENT, DISTRIBUTION AND CONSULTING FIRMS. THE CHART SHOWS
THAT BOTH NVEST AND THE OPERATING PARTNERSHIP HAVE LIMITED
PARTNERS. IT ALSO SHOWS THAT NVEST CORPORATION, THE GENERAL
PARTNER OF NVEST, IS THE MANAGING GENERAL PARTNER OF THE OPERATING
PARTNERSHIP AND THAT NVEST IS THE ADVISING GENERAL PARTNER OF THE
OPERATING PARTNERSHIP.]
The partnership agreements of Nvest and the Operating Partnership confer on
the General Partner broad authority to effect a further restructuring of Nvest
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
the General Partner. The Restructuring which occurred at year-end 1997 was
undertaken pursuant to such authority granted to the General Partner in the
Nvest partnership agreement.
In determining the form of any future restructuring of the Partnerships, the
General Partner is obligated to seek to accomplish certain prioritized
objectives of MetLife, RTI and other non-Public Partners (as defined in the
Nvest 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 Nvest, the Operating Partnership or
the General Partner. The General Partner expects that any future restructuring
would be intended to continue to provide holders of publicly traded Nvest LP
units with the ongoing benefit of public market liquidity for their interests in
the Operating Partnership's business.
While the Nvest partnership agreement provides that Nvest may impose
restrictions on transfer as part of a restructuring (which may have the effect
of preserving the Partnerships' tax status as partnerships), the General Partner
has no reason to believe that trading restrictions will be necessary to
accomplish the restructuring objectives outlined in the Nvest partnership
agreement, absent legal or other developments.
The partnership agreements of Nvest and the Operating Partnership relieve
the General Partner of all duties and liabilities to Nvest, the Operating
Partnership and unitholders thereof for actions taken in good faith by the
General Partner in connection with a restructuring. The General Partner,
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 Nvest LP units, as noted above.
14
<PAGE>
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. These statements may be
identified by such forward-looking terminology as "expect," "look," "believe,"
"anticipate," "may," "will" or similar statements or variations of such terms.
Any forward-looking statements should be considered in light of the risks and
uncertainties associated with Nvest 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
Nvest and the Operating Partnership have been described in other portions of
this report, particularly in the following section, entitled,
"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.
FORWARD-LOOKING STATEMENTS
From time to time, management of Nvest or the Operating Partnership may make
written or oral statements that express views on the future performance of Nvest
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 Nvest'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 Nvest 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 Nvest or the Operating Partnership as a partnership
depend on many circumstances that are beyond Nvest's and the Operating
Partnership's control. Changes in the law, any termination of the tax
status of Nvest or the Operating Partnership (technical or otherwise),
certain transfers of units and certain changes
15
<PAGE>
in the market price of Nvest units all are occurrences, among others,
that may affect Nvest's results or taxable income reported to
unitholders.
ITEM 2. PROPERTIES.
The Operating Partnership and the Firms collectively occupy approximately
625,000 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. The suit seeks money damages in excess of
$20 million representing lost principal, together with amounts representing loss
of investment income. 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. Following trial, on March 26,
1999, the Court entered a decision for Loomis Sayles on all remaining counts of
the complaint, except for a limited claim as to which the court found for one of
the Trusts. Thereafter, on July 9, 1999, the Court entered judgment for that
Trust in the amount of $1.1 million. In early August, 1999, the Trusts filed
notices of their appeals and Loomis Sayles filed notice of a cross-appeal. The
case remains in the early stages of the appeals. Management believes that the
final outcome of this matter will not have a material adverse effect on the
results of operations or financial condition of the Operating Partnership or
Nvest.
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. Management believes that any such claims and legal proceedings will
not have a material adverse effect on the results of operations or financial
condition of the Operating Partnership or Nvest.
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 1999.
16
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
UNIT INFORMATION
Nvest'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
------------------------------
1999 HIGH LOW REGULAR SPECIAL TOTAL
- ---- ----------- ---------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
First Quarter.......................... $27 9/16 $22 7/8 $0.63 -- $0.63
Second Quarter......................... 25 5/16 22 1/4 0.63 -- 0.63
Third Quarter.......................... 25 5/8 21 0.63 -- 0.63
Fourth Quarter......................... 21 3/4 15 7/8 0.46 0.17 0.63
----- ----- -----
$2.35 $0.17 $2.52
===== ===== =====
</TABLE>
<TABLE>
<CAPTION>
DISTRIBUTIONS DECLARED
------------------------------
1998 HIGH LOW REGULAR SPECIAL TOTAL
- ---- ------------- ------------ -------- -------- --------
<S> <C> <C> <C> <C> <C>
First Quarter......................... $36 13/16 $28 $0.60 -- $0.60
Second Quarter........................ 35 5/16 31 5/8 0.63 -- 0.63
Third Quarter......................... 32 1/2 21 1/16 0.63 -- 0.63
Fourth Quarter........................ 29 1/4 24 3/16 0.63 -- 0.63
----- -----
$2.49 $2.49
===== =====
</TABLE>
On February 1, 2000, the closing price of the units on the New York Stock
Exchange was $18 3/4 per unit. As of such date, there were approximately 400
unitholders of record of Nvest. Management estimates that there are over 5,000
beneficial owners, including those who hold their units in "street" name through
brokerage accounts or other nominees.
During 1999, the Operating Partnership issued 25,000 units as incentive
awards to executives under the Restricted Unit Plan. In each case, the units
were issued to the executives in transactions that were exempt from registration
pursuant to Section 4(2) under the Securities Act of 1933, as amended (the
"Securities Act") and/or the rules contained in Regulation D thereunder. The
dates of issuance and the number of units issued were as follows: February 18,
1999--15,000 units; and September 16, 1999--10,000 units.
DISTRIBUTION POLICY
NVEST. Nvest 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 miscellaneous
expenses. For the year ended December 31, 1999, such expenses reduced the $3.08
per unit of total distributions received by Nvest by approximately $0.56 per
unit, resulting in distributions payable to unitholders of $2.52 per unit. Total
distributions declared of $2.52 per unit included $2.35 of regular distributions
and $0.17 of special distributions.
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. On December 16, 1999, the Board of Directors declared a distribution of
$0.63 per unit at Nvest, payable on February 15, 2000 to unitholders of record
as of December 31, 1999. This distribution included a $0.46 regular distribution
and a $0.17 special distribution.
Changes in operating cash flow of the Operating Partnership directly impact
the amount of distributions that Nvest may pay. For further discussion of the
Operating Partnership's distribution policy, see below.
17
<PAGE>
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
and the repurchase of units. Operating cash flow is defined as net income plus
non-cash charges for amortization of intangibles and restricted unit plan
compensation. In 1999, operating cash flow per unit was $3.32 and the Operating
Partnership declared distributions of $3.08 per unit, including $0.17 in special
distributions.
The Operating Partnership adopted a program of regular and special
distributions during the fourth quarter of 1999, declaring a regular
distribution of $0.60 per unit and a special distribution of $0.17 per unit,
compared to a $0.77 per unit regular distribution for the prior quarter.
Historically, the Operating Partnership has maintained the level of distribution
at a relatively high regular rate. The new program establishes a regular
distribution at a lower level, to be supplemented by periodic special
distributions or increases in the regular distribution rate, depending on
operating results. This change allows more flexibility in addressing any
variability in the business resulting from transaction and performance fees, as
well as shifts in profitability relating to factors such as fee rates and asset
mix. Going forward, total regular and special distributions per unit are
expected to range from 80% to 90% of operating cash flow per unit. For 1999,
regular distributions declared per unit of $2.91 represented approximately 88%
of operating cash flow per unit while total distributions declared of $3.08 per
unit represented approximately 93% of operating cash flow.
As a limited partnership, the Operating Partnership has different operating
characteristics than those of a typical corporation. The Operating Partnership's
stated distribution policy is to distribute currently to unitholders (which
includes Nvest) operating cash flow not required for normal business operations
and working capital needs, including support of the Operating Partnership's
growth strategy and the repurchase of units. As a result, Nvest believes that
operating cash flow per unit is important to help both existing and potential
unitholders of Nvest understand their potential return on an investment in
Nvest. 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 Operating Partnership, may not be
consistent with comparable computations by other companies.
18
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA.
In connection with the Restructuring that was completed on December 31,
1997, Nvest, L.P. ("Nvest") contributed all of its operating assets and
liabilities to Nvest Companies, L.P. (the "Operating Partnership") in exchange
for Operating Partnership units. See Item 1, "Business--1997 Restructuring of
Nvest, L.P."
At December 31, 1999, Nvest owned approximately 14% of the units of the
Operating Partnership. Selected financial data is presented below for Nvest,
L.P. through December 31, 1999 and for Nvest Companies, L.P. starting with its
formation on December 31, 1997. As of December 31, 1997, the results of Nvest
reflect its equity investment in the Operating Partnership and the results of
the Operating Partnership represent the results of Nvest prior to the
Restructuring.
The following selected financial data at or for the years ended December 31
should be read in conjunction with the Financial Statements included in Item 8.
<TABLE>
<CAPTION>
THE OPERATING PARTNERSHIP
------------------------------------------------------
NVEST, L.P. NVEST COMPANIES, L.P. NVEST, L.P.
------------------------------ --------------------- -------------------
1995 1996 1997 1998 1999 1998 1999
-------- -------- -------- --------- --------- -------- --------
(IN THOUSANDS, EXCEPT PER UNIT DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA
Revenues................ $280,258 $392,651 $561,469 $669,532 $655,130 $16,672 $15,398
====================================================== ===================
Net income.............. $ 52,750 $ 70,224 $ 95,682 $110,782 $104,132 $13,052 $11,948
====================================================== ===================
PER UNIT DATA
Net income:
Basic................. $ 1.76 $ 1.96 $ 2.22 N/A N/A $ 2.02 $ 1.88
====================================================== ===================
Diluted............... $ 1.73 $ 1.85 $ 2.21 N/A N/A $ 2.00 $ 1.88
====================================================== ===================
Distributions declared:
Regular............... $ 1.78 $ 2.05 $ 2.14 $ 3.05 $ 2.91 $ 2.49 $ 2.35
Special............... -- -- 0.55 -- 0.17 -- 0.17
------------------------------------------------------ -------------------
Total............. $ 1.78 $ 2.05 $ 2.69 $ 3.05 $ 3.08 $ 2.49 $ 2.52
====================================================== ===================
WEIGHTED AVERAGE UNITS
OUTSTANDING-DILUTED... 33,824 42,076 43,881 45,074 44,555 6,963 6,392
====================================================== ===================
</TABLE>
<TABLE>
<CAPTION>
THE OPERATING PARTNERSHIP
----------------------------------------------------
NVEST, L.P. NVEST COMPANIES, L.P. NVEST, L.P.
------------------- ------------------------------ ------------------------------
1995 1996 1997 1998 1999 1997 1998 1999
-------- -------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Intangible assets........ $355,122 $527,765 $660,394 $636,583 $598,096 $ -- $ -- $ --
======== ======== ======== ======== ======== ======= ======= =======
Total assets............. $520,873 $721,658 $944,568 $899,382 $855,973 $76,028 $79,620 $66,053
======== ======== ======== ======== ======== ======= ======= =======
Notes
payable-noncurrent..... $ 80,919 $118,334 $271,667 $270,000 $270,000 $ -- $ -- $ --
======== ======== ======== ======== ======== ======= ======= =======
ASSETS UNDER MANAGEMENT
(IN BILLIONS).......... $ 77B $ 100B $ 125B $ 135B $ 133B $ -- $ -- $ --
======== ======== ======== ======== ======== ======= ======= =======
</TABLE>
19
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
GENERAL
At year-end 1997, Nvest, L.P. ("Nvest") completed a restructuring (the
"Restructuring") that included the transfer of its business, assets and
liabilities to a newly formed operating partnership, Nvest Companies, L.P. ("the
Operating Partnership"). As a result of the Restructuring, Nvest's primary asset
consists of its economic interest in the Operating Partnership. Nvest records
its investment in the Operating Partnership under the equity method of
accounting based on its proportionate share of net income of the Operating
Partnership. At December 31, 1999, Nvest owned approximately 6.3 million units,
or approximately 14% of the economic interests in the Operating Partnership. As
part of the Restructuring, Nvest elected to retain its partnership tax status in
return for paying an annual 3.5% federal gross income tax on its proportionate
share of the gross income of the Operating Partnership. For further information
regarding the Restructuring, please refer to the discussion under Item 1,
"Business--1997 Restructuring of the Partnership."
As a result of the Restructuring, Management's Discussion and Analysis
includes two sections. In the first section, the results of Nvest for the year
ended December 31, 1999 are compared to the results for the year ended
December 31, 1998. A discussion of the results of Nvest for the year ended
December 31, 1998 compared to the year ended December 31, 1997 is not considered
meaningful due to the accounting changes brought on by the change in structure
(equity method of accounting as compared to consolidated operating results) and
therefore has not been included. In the second section, the results of the
Operating Partnership for the year ended December 31, 1999 are compared to the
results of the Operating Partnership for 1998. The results of the Operating
Partnership for the year ended December 31, 1998 are compared to the results of
Nvest for the year ended December 31, 1997, because the operations of the
Operating Partnership prior to the Restructuring were those of Nvest.
20
<PAGE>
NVEST, L.P.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
-------------------------
1998 1999
--------- ---------
(IN THOUSANDS, EXCEPT PER
UNIT DATA)
<S> <C> <C>
THE OPERATING PARTNERSHIP
Net income................................................ $110,782 $104,132
Add back restricted unit plan compensation *.............. 3,898 3,277
-------- --------
Net income available...................................... $114,680 $107,409
======== ========
NVEST, L.P.
Percentage ownership of the Operating Partnership on a
weighted average basis--basic........................... 14.487% 14.293%
======== ========
Equity in earnings of the Operating Partnership........... $ 16,617 $ 15,353
Gross income tax and other expenses, net.................. 3,565 3,405
-------- --------
Net income................................................ $ 13,052 $ 11,948
======== ========
Net income per unit--diluted **........................... $ 2.00 $ 1.88
======== ========
Distributions declared per unit
Regular................................................. $ 2.49 $ 2.35
Special................................................. -- 0.17
-------- --------
$ 2.49 $ 2.52
======== ========
Weighted average units outstanding--diluted................. 6,963 6,392
======== ========
</TABLE>
- ------------------------
* Restricted unit plan compensation is fully allocated to certain limited
partners of the Operating Partnership, and is added back to net income to
determine net income available for allocation.
** Net income per unit--diluted is calculated based on Nvest's percentage
ownership of the Operating Partnership on a diluted basis, which was 15.448%
and 14.346% for the years ended December 31, 1998 and 1999, respectively.
See Note 5 of the Notes to Consolidated Financial Statements of Nvest, L.P.
for the calculation of net income per unit.
GENERAL
Nvest derives its net income and cash available for distribution from its
ownership of units in the Operating Partnership. At December 31, 1999, Nvest
owned approximately 6.3 million units of the Operating Partnership, representing
an approximate 14% interest. Each quarter, Nvest distributes to its unitholders
substantially all of the distributions received from the Operating Partnership
after accruing its federal and state tax obligations and miscellaneous operating
expenses. Nvest's major expense is the 3.5% federal gross income tax that is
payable on Nvest's proportionate share of the Operating Partnership's gross
income.
DISTRIBUTIONS TO UNITHOLDERS
In 1999, Nvest received distributions from the Operating Partnership
totaling $3.08 per unit, including $0.17 in special distributions. Nvest in turn
declared distributions of $2.52 per unit, with the $0.56 per unit difference
consisting primarily of the tax obligations discussed above. The Operating
Partnership has significant non-cash expenses which allow both it and,
therefore, Nvest to maintain a distribution level in excess of net income.
Changes in operating cash flow of the Operating Partnership directly impact the
amount of distributions that Nvest may pay. For a discussion of the Operating
Partnership's distribution policy, see "Distribution Policy," below.
21
<PAGE>
STATEMENT OF INCOME FOR 1999 COMPARED TO 1998
Nvest's net income of $1.88 per unit (diluted) for 1999 was down $0.12 from
net income per unit (diluted) of $2.00 for 1998. The results reflect lower net
income at the Operating Partnership.
Equity in earnings of the Operating Partnership of $15.4 million for 1999
was down $1.2 million from $16.6 million for 1998. Nvest receives a pro rata
share of the Operating Partnership's net income available for allocation based
on its equity interest in the Operating Partnership. The decrease was due almost
entirely to lower net income at the Operating Partnership. Nvest's ownership of
the Operating Partnership on a weighted average basis (basic) declined from
14.487% for 1998 to 14.293% for 1999 due to the effect of a unit repurchase
program. For further information, please see Management's Discussion and
Analysis of the Operating Partnership's results, below.
Gross income tax and other expenses consist primarily of a 3.5% federal tax
on Nvest's proportionate share of the gross income of the Operating Partnership.
Weighted average units outstanding (diluted) declined from 7.0 million for
1998 to 6.4 million for 1999. The decrease resulted primarily from lower
dilution from fewer incremental units assumed outstanding for the exercise of
unit options. This decline resulted in Nvest's share of the Operating
Partnership's earnings declining on a weighted average diluted basis from
15.448% for 1998 to 14.346% for 1999.
CAPITAL RESOURCES AND LIQUIDITY
Nvest distributes to its unitholders substantially all of the distributions
received from the Operating Partnership, after accruing its tax obligations and
miscellaneous operating expenses. These distribution payments to unitholders
have occurred essentially concurrent with the distributions received by Nvest
from the Operating Partnership. Distributions paid during 1998 of $17.1 million
exceeded the distributions paid during 1999 of $16.1 million, primarily because
the 1998 payments included a distribution declared during the fourth quarter of
1997, when Nvest was not subject to the 3.5% federal gross income tax.
The timing of the distributions received from the Operating Partnership and
the gross income tax payments made has resulted in fluctuations in cash and cash
equivalents in 1999 as compared to 1998. The 1998 gross income tax was not
payable until March 15, 1999. As a result, the cash set aside from the quarterly
distributions to fund the gross income tax accumulated with interest, totaling
$2.8 million at December 31, 1998. Beginning in 1999, the gross income tax was
required to be paid in quarterly installments. To the extent there are temporary
cash shortfalls due to the timing of tax payments and the receipt of quarterly
distributions from the Operating Partnership, short-term loans are extended to
Nvest by the Operating Partnership. At December 31, 1999, Nvest had a
$0.6 million short-term note payable to the Operating Partnership.
22
<PAGE>
THE OPERATING PARTNERSHIP
The following is an analysis of the financial condition and results of
operations of the Operating Partnership for the year ended December 31, 1999
compared to the years ended December 31, 1997 and 1998. The operations of the
Operating Partnership prior to the Restructuring were conducted by Nvest, L.P.,
and subsequent to the Restructuring, have been conducted by Nvest Companies,
L.P.
<TABLE>
<CAPTION>
NVEST, L.P. NVEST COMPANIES, L.P.
------------ -----------------------
1997 1998 1999
------------ ---------- ----------
(IN THOUSANDS, EXCEPT PER UNIT DATA)
<S> <C> <C> <C>
Revenues...................................... $561,469 $669,532 $655,130
-------- -------- --------
Expenses:
Restricted unit plan compensation........... 1,209 3,898 3,277
Amortization of intangibles................. 37,789 39,528 40,452
Other expenses.............................. 426,789 515,324 507,269
-------- -------- --------
465,787 558,750 550,998
-------- -------- --------
Net income.................................... $ 95,682 $110,782 $104,132
======== ======== ========
Operating cash flow (1)....................... $134,680 $154,208 $147,861
======== ======== ========
Operating cash flow per unit--diluted (1)..... $ 3.07 $ 3.42 $ 3.32
======== ======== ========
Distributions declared per unit:
Regular..................................... $ 2.14 $ 3.05 $ 2.91
Special..................................... 0.55 -- 0.17
-------- -------- --------
Total................................... $ 2.69 $ 3.05 $ 3.08
======== ======== ========
Weighted average units outstanding--diluted... 43,881 45,074 44,555
======== ======== ========
</TABLE>
- ------------------------
Note:
(1) Operating cash flow, as defined by Nvest, is equal to net income plus
non-cash charges for amortization of intangibles and restricted unit plan
compensation. Operating cash flow per unit should not be construed as an
alternative to net income per unit of Nvest, L.P. or as an alternative to
cash flow from operating activities as reported in the Consolidated
Statement of Cash Flows. Operating cash flow, as calculated above, may not
be consistent with comparable computations by other companies.
GENERAL
The Operating Partnership is an investment management firm with
approximately $133 billion in assets under management at December 31, 1999. It
operates through twelve investment management firms and six distribution and
consulting firms to provide a wide array of investment styles and products to
institutional, mutual fund and private client markets. The Operating
Partnership's assets under management include equity and fixed income
securities, money market funds and real estate.
The Operating Partnership seeks to grow by expanding the investment
management firms' capabilities, expanding marketing efforts and distribution
channels, and selectively pursuing the acquisition of investment management
firms. The Operating Partnership supports its 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 investment
management firms identify opportunities for joint marketing efforts, enhanced
distribution of investment products (such as mutual funds) and operational
efficiencies across the organization.
23
<PAGE>
Several new ventures were initiated by the Operating Partnership during
1999. The first was a joint venture with Asahi Life Asset Management Company, an
affiliate of Asahi Mutual Life Insurance Company of Japan. The joint venture
facilitates the provision of investment advisory and investment management
services to Japanese institutions and individuals by various of the investment
management firms. During the second half of 1999, approximately $2.2 billion in
assets were sourced in this fashion for Nvest Firms. Additionally, over
$600 million in assets were received from Japanese investors as a result of
subadvisory relationships between Loomis, Sayles & Company and Japanese firms
that market investment products to individual investors. In total, the Operating
Partnership and its affiliates commenced management of almost $3.5 billion of
assets from clients in the Pacific Rim during 1999.
A second venture was the acquisition in July 1999 of Kobrick Funds, a growth
equity investment manager. Kobrick Funds advises three equity mutual funds with
over $400 million in assets under management at December 31, 1999, more than
double the level of assets under management in these funds at the time of
acquisition in July 1999. These funds have had strong records since their
inception in 1998. During the third quarter of 1999, the fund trustees approved
the restructuring of the funds' share classes, enabling them to be distributed
under the Kobrick name through the Nvest Funds family and other centralized
marketing groups of the Operating Partnership. In addition, Kobrick Funds
assumed management of one of four segments of the Nvest Star Advisors Fund that
was formerly advised by an unaffiliated third party. Since its acquisition,
assets under management by Kobrick Funds from all sources have increased from
$200 million to over $900 million.
Additionally, Nvest Services Company reached an agreement to operate as the
transfer agent for the Operating Partnership's largest mutual fund complex, The
Oakmark Family of Funds, including the new Oakmark Global Fund. Nvest Services
Company now acts as the transfer agent for four of the Operating Partnership's
mutual fund families.
REVENUES
The Operating Partnership's revenues derive primarily from management and
advisory fees earned from services provided by the investment management firms.
For institutional and private clients, fees are generally billed quarterly and
are calculated as a percentage of actual assets under management at the
beginning or end of the calendar quarter. For mutual fund clients, fees are
billed monthly and are calculated as a percentage of the fund's average daily
net assets. Changes in assets under management, which can result from changes in
market values of securities, net client inflows or outflows, and acquisitions,
have a major impact on revenues earned by the Operating Partnership. The
Operating Partnership can also earn additional management and advisory fee
revenues as a result of performance fees and transaction fees. Such fees are
generally earned at the end of the performance contract period or upon
completion of specific transactions, sometimes resulting in periodic
fluctuations in the recognition of such revenues.
In addition to management and advisory fees, the Operating Partnership earns
other revenues related to services provided to mutual funds and other clients,
distribution fees and sales fees.
INTANGIBLE ASSETS AND AMORTIZATION OF INTANGIBLES
Intangible assets of $598 million represent the excess of the purchase price
of acquisitions over the fair value of the net tangible assets acquired.
Intangible assets, including investment advisory contracts and goodwill, are
amortized over periods ranging from 7 to 30 years. The Operating Partnership
periodically evaluates the estimated remaining lives and the carrying value of
intangible assets to determine whether events and circumstances warrant
adjustment. Projected undiscounted future cash flows of each acquisition are
compared to the recorded values of the related intangible assets, factoring in
known or expected trends, future prospects and other relevant information. If
the projected future cash flows are less than the carrying value of the
intangible assets, the Operating Partnership would recognize an impairment loss
for
24
<PAGE>
the difference between the carrying amount and the estimated fair value of the
intangible assets. At December 31, 1999, there was no impairment of intangible
assets.
Cost assigned to contracts and goodwill acquired is amortized as an
operating expense. It does not, however, require the use of cash and, therefore,
it is added back to net income along with restricted unit plan compensation to
arrive at operating cash flow available for distribution.
DISTRIBUTION POLICY
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 and the repurchase of units. Operating
cash flow is defined as net income plus non-cash charges for amortization of
intangibles and restricted unit plan compensation. During 1999, the Operating
Partnership declared distributions of $3.08 per unit, including $0.17 in special
distributions, compared to $3.05 per unit declared during 1998.
The Operating Partnership adopted a program of regular and special
distributions during the fourth quarter of 1999, declaring a regular
distribution of $0.60 per unit and a special distribution of $0.17 per unit,
compared to a $0.77 per unit regular distribution for the prior quarter.
Historically, the Operating Partnership has maintained the level of distribution
at a relatively high regular rate. The new program establishes a regular
distribution at a lower level, to be supplemented by periodic special
distributions or increases in the regular distribution rate, depending on
operating results. This change allows more flexibility in addressing any
variability in the business resulting from transaction and performance fees, as
well as shifts in profitability relating to factors such as fee rates and asset
mix. Going forward, total regular and special distributions per unit are
expected to range from 80% to 90% of operating cash flow per unit. Regular
distributions declared per unit of $2.91 represented approximately 88% of
operating cash flow per unit for 1999, while total distributions declared of
$3.08 per unit represented approximately 93% of operating cash flow.
ASSETS UNDER MANAGEMENT
Assets under management at December 31 follow:
<TABLE>
<CAPTION>
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
CLIENT TYPE (IN BILLIONS):
Separate Accounts:
Third Party Institutional........................... $ 74 $ 83 $ 85
Private Account..................................... 12 12 11
MetLife General Account............................. 6 4 1
---- ---- ----
92 99 97
---- ---- ----
Mutual Funds:
Equity.............................................. 20 21 19
Fixed Income/Money Market........................... 13 15 17
---- ---- ----
33 36 36
---- ---- ----
$125 $135 $133
==== ==== ====
ASSET CLASS (IN BILLIONS):
Equity................................................ $ 60 $ 61 $ 59
Fixed Income.......................................... 51 58 57
Money Market.......................................... 8 10 11
Real Estate........................................... 6 6 6
---- ---- ----
$125 $135 $133
==== ==== ====
</TABLE>
25
<PAGE>
Assets under management were $133 billion as of December 31, 1999. This
compares to $135 billion at December 31, 1998 and $127 billion at September 30,
1999. Although net new business was slightly positive in the fourth quarter, the
Operating Partnership experienced net outflows of approximately $8 billion for
the year. For separate accounts, outflows in value style equity products and
MetLife general account assets were partially offset by assets gathered from
foreign clients and institutional fixed income accounts. Mutual funds had
approximately $2 billion in net client outflows during 1999. The Oakmark Family
of Funds had $4 billion of net outflows for the year. This was partially offset
by net inflows in money market funds and a mutual fund distributed in Japan.
STATEMENT OF INCOME FOR 1999 COMPARED TO 1998
Net income of $104.1 million for 1999 decreased $6.7 million from
$110.8 million for 1998, primarily as a result of lower management and advisory
fee revenues, partially offset by expense reductions in variable compensation
and other expenses.
Management and advisory fees of $595.3 million for 1999 decreased
$20.1 million from $615.4 million for 1998. Mutual fund revenues for 1999
decreased $15 million compared to 1998. A steep decline in assets under
management in the value style equity mutual fund products, particularly the
Oakmark Fund, resulted in the lower mutual fund revenues for the year. Changes
in assets under management at the Oakmark Fund have a disproportionate impact on
revenues due to the higher fees commanded by this retail equity product.
Partially offsetting declining revenues in the value style equity mutual fund
products were gains in lower fee money market products. Institutional and
private account revenues (excluding general account revenues) for 1999 increased
$2 million compared to 1998. Growth in revenues from risk-adjusted equity
products, fixed income products, and small cap value products was partially
offset by a decline in revenues in mid to large cap value style products and
real estate transaction fees. General account revenues of $6 million for 1999
declined $7 million from 1998, primarily due to MetLife's restructuring of its
general account portfolio in anticipation of its demutualization. MetLife
reassigned $3 billion of these general account assets in-house by the third
quarter of 1999. Overall, performance fees contributed approximately two percent
of total management and advisory fees for 1998 and 1999, with most of the fees
occurring in the fourth quarter of each year.
Other revenues and interest income of $59.9 million for 1999 increased
$5.8 million from $54.1 million for 1998, and included a $2.6 million net gain
on the sale of a small affiliate. The balance of the increase resulted from
client servicing fees, primarily transfer agency fees, which are largely offset
by an increase in servicing expenses.
Compensation and benefits of $325.6 million for 1999 were down $5.3 million
from $330.9 million for the 1998. Base compensation increased $10.8 million as a
result of annual salary increases and increased staffing. Variable compensation,
which results from subsidiary incentive payments based on profitability,
investment portfolio performance, new business sales, and participation in the
subsidiaries' growth in revenues and profits, declined $16.1 million. Variable
compensation as a percentage of total compensation declined from 53% for 1998 to
49% for 1999. The variable compensation plans reward the subsidiaries for growth
in their business, but also require them to share in the impact of declines. In
this way, the variable compensation plans act to reduce fluctuations in the
Operating Partnership's profitability.
Depreciation and amortization of $10.2 million for 1999 increased
$2.1 million from $8.1 million for 1998. The increase results from increased
capital expenditures to upgrade systems, as well as costs related to office
expansion and relocation.
Occupancy, equipment and systems expense of $36.0 million for 1999 increased
$4.0 million from $32.0 million for 1998 due to lease renewals at higher rates
and costs associated with expanded business activities.
26
<PAGE>
Other expense of $109.6 million for 1999 decreased $7.8 million from
$117.4 million for 1998. Increases in third party distribution expenses were
more than offset by decreases in discretionary expenses for marketing and
advertising and other subsidiary expenses.
STATEMENT OF INCOME FOR 1998 COMPARED TO 1997
Net income of $110.8 million for 1998 increased $15.1 million from
$95.7 million for 1997. The increase resulted from higher average assets under
management and the resulting increase in revenues, somewhat tempered by
increased investment in distribution and marketing initiatives.
Management and advisory fees of $615.4 million for 1998 increased
$99.8 million (or 19%) from total revenues of $515.6 million in 1997. The
revenue increase was especially concentrated in the first half of 1998,
coinciding with the Operating Partnership's higher average assets under
management at that time as compared to 1997. Institutional and private account
revenues (excluding acquisitions) increased $45 million in 1998 as compared to
1997, with growth particularly strong in the fixed income and risk adjusted
equity products. Mutual fund revenues increased $41 million in 1998 as compared
to 1997. This growth was generated primarily by asset increases in equity funds
during the first half of 1998. For the full year, equity funds had net client
outflows of $1.2 billion, which was more than offset by $1.8 billion of inflows
to money market funds and variable annuity products. Acquisitions completed in
the second half of 1997 contributed an incremental $14 million to institutional
and private account revenues in 1998.
Other revenues and interest income of $54.1 million for 1998 increased
$8.2 million from $45.9 million for 1997. The increase resulted primarily from
client servicing fees, including trading commissions and transfer agency fees.
Compensation and benefits of $330.9 million for 1998 increased
$54.5 million from 1997 and consisted of 47% base compensation and 53% of
variable compensation. The increase in variable compensation of $33 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
$22 million as a result of annual salary increases, increased staffing, and, to
a much lesser extent, $2 million of incremental expense from acquisitions
completed in the second half of 1997.
Restricted unit plan compensation of $3.9 million for 1998 increased
$2.7 million from 1997 due to grants issued in the first quarter of 1998.
Occupancy, equipment and systems expense of $32.0 million for 1998 increased
$8.4 million from the 1997 due to lease renewals, higher costs associated with
expanded business activities and system initiatives.
Interest expense of $21.5 million for 1998 increased $1.9 million from 1997,
primarily reflecting a full year's interest on the $160 million of senior notes
payable issued on April 1, 1997.
Other expense of $117.5 million for 1998 increased $19.0 million from 1997
due primarily to higher general and administrative expenses associated with
expanded business activities, including distribution and marketing initiatives.
Income tax expense of $5.3 million for 1998 increased $3.4 million from
1997. The increase results from higher profits at the corporate subsidiaries in
1998.
CAPITAL RESOURCES AND LIQUIDITY
Operating cash flow not required for normal business operations and working
capital needs, including support of the Operating Partnership's growth strategy
and the repurchase of units, is generally distributed to unitholders each
quarter. Distributions to unitholders are typically declared during the last
month of calendar quarters. The Operating Partnership has the ability to make
distributions in excess of net income due to its non-cash amortization expense.
On December 16, 1999, the Operating Partnership declared a
27
<PAGE>
distribution of $0.77 per unit, including a $0.17 special distribution. The
Board of Directors set the regular distribution at $0.60 per unit, to be
adjusted periodically or supplemented by special distributions, depending upon
operating results. Going forward, total regular and special distributions per
unit are expected to range from 80% to 90% of operating cash flow per unit.
Regular distributions declared per unit of $2.91 represented approximately 88 %
of operating cash flow per unit for 1999, while total distributions declared of
$3.08 per unit represented approximately 93% of operating cash flow.
The Operating Partnership's working capital (defined as current assets less
current liabilities) declined from $14 million in 1998 to a negative $7 million
in 1999. Although cash flow from operating activities exceeded distributions by
$13 million, this was more than offset by long-term investments and cash used to
repurchase units under a unit repurchase plan. Investments included seed money
contributed to new investment products, capital expenditures for systems
upgrades and leasehold improvements, and contingent payments on previous
acquisitions. As of December 31, 1999, the Operating Partnership had used only
$2.6 million of its uncommitted $10 million credit facility, with $175 million
available on its committed credit facilities. The firm's key leverage ratio of
long-term debt to EBIDTA (defined as earnings before interest, depreciation,
taxes and amortization) was well within investment grade guidelines at
December 31, 1999.
Senior notes of $110 million and $160 million due in January 2003 and
April 2007, respectively, are expected to be refinanced at maturity. The
interest rates of 6.54% and 7.15% on the $110 million and $160 million notes,
respectively, are fixed rates.
As of December 31, 1999, the Operating Partnership estimates that
$49 million in cash and/or LP units may be paid to the sellers of certain firms
acquired. Such amounts would be paid over a seven-year period following the
respective closing dates through December 31, 2006, depending upon the
attainment of certain post-closing revenue and profit levels. Up to $10 million
of this amount may be paid as early as the third quarter of 2000. Substantially
all of the contingent consideration, if paid, is expected to be accounted for as
additional purchase price.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Neither Nvest nor the Operating Partnership were party to derivative
financial instruments or derivative commodity instruments at or during the year
ended December 31, 1999. The Operating Partnership's only significant financial
instruments (as defined by Financial Accounting Standards Board Statement
No. 107) are its fixed rate senior notes of $110 million and $160 million which
are discussed above and in Note 6 of the Operating Partnership's December 31,
1999 Consolidated Financial Statements included herein.
28
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
FINANCIAL STATEMENTS OF NVEST, L.P. ("NVEST")
Balance Sheet as of December 31, 1998 and 1999............ 30
Consolidated Statement of Income for the three years ended
December 31,
1997, 1998 and 1999..................................... 31
Consolidated Statement of Cash Flows for the three years
ended December 31,
1997, 1998 and 1999..................................... 32
Consolidated Statement of Changes in Partners' Capital for
the three years ended December 31, 1997, 1998 and
1999.................................................... 33
Notes to Consolidated Financial Statements................ 34
Report of Independent Accountants......................... 40
FINANCIAL STATEMENTS OF THE OPERATING PARTNERSHIP
(NVEST, L.P. IN 1997 AND NVEST COMPANIES, L.P. IN 1998 AND
1999)
Consolidated Balance Sheet as of December 31, 1998 and
1999.................................................... 41
Consolidated Statement of Income for the three years ended
December 31,
1997, 1998 and 1999..................................... 42
Consolidated Statement of Cash Flows for the three years
ended December 31,
1997, 1998 and 1999..................................... 43
Consolidated Statement of Changes in Partners' Capital for
the three years ended December 31, 1997, 1998 and
1999.................................................... 44
Notes to Consolidated Financial Statements................ 45
Report of Independent Accountants......................... 55
</TABLE>
29
<PAGE>
NVEST, L.P.
BALANCE SHEET
<TABLE>
<CAPTION>
AT DECEMBER 31,
-------------------
1998 1999
-------- --------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 2,772 $ 3
Distribution receivable from the Operating Partnership.... 5,017 4,835
------- -------
Total current assets.................................... 7,789 4,838
Investment in the Operating Partnership (Note 6)............ 71,831 61,215
------- -------
Total assets............................................ $79,620 $66,053
======= =======
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Distribution payable...................................... $ 4,105 $ 3,956
Gross income tax payable and accrued expenses............. 3,622 678
------- -------
Total current liabilities............................... 7,727 4,634
Contingent liabilities (Note 9)
Partners' capital (6,516,248 units at December 31, 1998
and 6,276,782 units at December 31, 1999)................. 71,893 61,419
------- -------
Total liabilities and partners' capital................. $79,620 $66,053
======= =======
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
30
<PAGE>
NVEST, L.P.
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
------------------------------------
1997 1998 1999
---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER UNIT DATA)
<S> <C> <C> <C>
REVENUES
Equity in earnings of the Operating Partnership........... $ -- $16,617 $15,353
Management and advisory fees.............................. 515,617 -- --
Other revenues and interest income........................ 45,852 55 45
-------- ------- -------
561,469 16,672 15,398
-------- ------- -------
EXPENSES
Compensation and benefits................................. 276,414 -- --
Restricted unit plan compensation......................... 1,209 -- --
Amortization of intangibles............................... 37,789 -- --
Depreciation and amortization............................. 6,740 -- --
Occupancy, equipment and systems.......................... 23,629 -- --
Interest expense.......................................... 19,608 -- --
Other, including gross income tax......................... 98,487 3,620 3,450
-------- ------- -------
463,876 3,620 3,450
-------- ------- -------
Income before income taxes.................................. 97,593 13,052 11,948
Income tax expense........................................ 1,911 -- --
-------- ------- -------
Net income.................................................. $ 95,682 $13,052 $11,948
======== ======= =======
Net income per unit (Note 5):
Basic..................................................... $ 2.22 $ 2.02 $ 1.88
======== ======= =======
Diluted................................................... $ 2.21 $ 2.00 $ 1.88
======== ======= =======
Weighted average units outstanding--diluted (Note 5)........ 43,881 6,963 6,392
======== ======= =======
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
31
<PAGE>
NVEST, L.P.
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------
1997 1998 1999
---------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 95,682 $ 13,052 $ 11,948
Adjustments to reconcile net income to net cash provided
by operating activities:
Amortization of intangibles............................. 37,789 -- --
Restricted unit plan compensation....................... 1,209 -- --
--------- -------- --------
Subtotal.............................................. 134,680 13,052 11,948
Equity in earnings of partnerships...................... (13,043) (16,617) (15,353)
Distributions received from partnerships................ 11,923 19,765 19,688
Depreciation and amortization........................... 6,740 -- --
Increase in receivables and other assets................ (20,308) -- --
Increase (decrease) in gross income tax payable and
accrued expenses...................................... 19,436 3,622 (2,944)
--------- -------- --------
Net cash provided by operating activities................. 139,428 19,822 13,339
--------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of units of the Operating Partnership--exercised
options and other....................................... (2,870) --
Proceeds from sale of units of the Operating Partnership
(Note 4)................................................ -- 2,205 7,470
Capital expenditures...................................... (12,839) -- --
Increase in investment securities......................... (19,487) -- --
Acquisition payments, net of cash acquired................ (58,581) -- --
--------- -------- --------
Net cash provided by (used in) investing activities....... (90,907) (665) 7,470
--------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions paid to unitholders......................... (100,869) (17,050) (16,108)
Proceeds from issuance of units--exercised options and
other................................................... 272 2,870 --
Payment for retirement of units (Note 4).................. -- (2,205) (7,470)
Proceeds from notes payable............................... 175,500 -- --
Repayment of notes payable................................ (1,717) -- --
Payment of deferred purchase consideration................ (79,635) -- --
--------- -------- --------
Net cash used in financing activities..................... (6,449) (16,385) (23,578)
--------- -------- --------
Net increase (decrease) in cash and cash equivalents before
cash transferred to the Operating Partnership............. 42,072 2,772 (2,769)
Cash transferred to the Operating Partnership............... (91,986) -- --
--------- -------- --------
Net increase (decrease) in cash and cash equivalents...... (49,914) 2,772 (2,769)
Cash and cash equivalents, beginning of period.............. 49,914 -- 2,772
--------- -------- --------
Cash and cash equivalents, end of period.................... $ -- $ 2,772 $ 3
========= ======== ========
Cash paid during the period for interest.................... $ 16,240 $ -- $ 21
========= ======== ========
Cash paid during the period for income taxes................ $ 3,971 $ -- $ 6,516
========= ======== ========
Supplemental disclosure of non-cash transactions:
Increase in intangible assets............................. $ 112,936 $ -- $ --
Increase in notes payable................................. 22,650 -- --
Decrease in deferred purchase consideration............... (64,489) -- --
Increase in partners' capital............................. 152,156 -- --
Transfer of partners' capital (to) from Nvest Companies,
L.P. ................................................... (390,250) 3,303 1,005
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
32
<PAGE>
NVEST, L.P.
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' CAPITAL
<TABLE>
<CAPTION>
TOTAL
PARTNERS' LIMITED GENERAL
CAPITAL PARTNERS PARTNER
--------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Balance at December 31, 1996 (38,081,731 Limited Partner
units and 110,000 General Partner units).................. $ 328,264 $ 327,527 $ 737
Net income.............................................. 95,682 95,435 247
Distributions declared.................................. (116,324) (116,028) (296)
Units issued............................................ 152,427 152,427 --
Restricted unit plan compensation....................... 1,209 1,209 --
Transfer of partners' capital to the Operating
Partnership........................................... (390,250) (390,250) --
--------- --------- -----
Balance at December 31, 1997 (6,164,980 Limited Partner
units and 110,000 General Partner units).................. 71,008 70,320 688
Net income.............................................. 13,052 12,846 206
Distributions declared.................................. (16,135) (15,861) (274)
Units issued--exercised options and other............... 2,870 2,870 --
Units retired........................................... (2,205) (2,205) --
Transfer of partners' capital from the Operating
Partnership........................................... 3,303 3,303 --
--------- --------- -----
Balance at December 31, 1998 (6,406,248 Limited Partner
units and 110,000 General Partner units).................. 71,893 71,273 620
Net income.............................................. 11,948 11,742 206
Distributions declared.................................. (15,957) (15,680) (277)
Units issued--exercised options and other............... -- -- --
Units retired........................................... (7,470) (7,470) --
Transfer of partners' capital from the Operating
Partnership........................................... 1,005 1,005 --
--------- --------- -----
Balance at December 31, 1999 (6,166,782 Limited Partner
units and 110,000 General Partner units).................. $ 61,419 $ 60,870 $ 549
========= ========= =====
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
33
<PAGE>
NVEST, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--ORGANIZATION
Nvest, L.P. ("Nvest"), formerly named New England Investment Companies,
L.P., is a publicly traded limited partnership listed on the New York Stock
Exchange. Effective with a restructuring completed on December 31, 1997 (the
"Restructuring"), Nvest's business currently is to engage in the investment
advisory business by acting as advising general partner of Nvest Companies, L.P.
("the Operating Partnership"). The Operating Partnership operates through
investment management firms that offer a broad array of investment management
products and styles across a wide range of asset categories to institutions,
mutual funds and private clients. Nvest's primary asset at December 31, 1999 was
6,276,782 units of the Operating Partnership, representing a general partner's
interest in the Operating Partnership. Nvest's financial statements should be
read in conjunction with the Consolidated Financial Statements of the Operating
Partnership.
Pursuant to the Restructuring, Nvest elected to extend its grandfathered
partnership tax status for 1998 and following periods, which requires it to pay
an annual 3.5% federal gross income tax. At year-end 1997, Nvest 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 Nvest exchanged their
partnership units for limited partner units of the Operating Partnership.
As a result of the Restructuring, Nvest receives distributions from the
Operating Partnership and pays a 3.5% federal gross income tax on its
proportionate share of the gross income of the Operating Partnership. If Nvest
fails to qualify for or revokes such election, or decides in the future not to
pay the 3.5% federal gross income tax, it would become subject to the regular
federal corporate income tax. Nvest 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
miscellaneous expenses.
NOTE 2--SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION. The 1997 financial statements of Nvest include
the accounts of its wholly-owned subsidiaries prior to the Restructuring (see
Note 1). All material intercompany accounts and transactions have been
eliminated in consolidation.
CASH EQUIVALENTS AND NOTES PAYABLE. Under a demand note agreement, Nvest
deposits excess funds with the Operating Partnership, or receives short-term
loans from the Operating Partnership when there are temporary cash shortfalls.
Interest in both cases is at money market rates. At December 31, 1998, the note
balance receivable at Nvest was $2,770,000 and was included in cash and cash
equivalents as it was callable on demand. At December 31, 1999, the note balance
payable by Nvest to the Operating Partnership was $576,000, and was included in
gross income tax payable and accrued expenses.
EQUITY METHOD OF ACCOUNTING. Subsequent to the Restructuring, Nvest has
recorded its investment in the Operating Partnership using the equity method of
accounting. Revenue is recorded based on Nvest's proportionate share of net
income of the Operating Partnership, after adjusting for restricted unit plan
compensation (which is fully allocated to certain limited partners of the
Operating Partnership), with a corresponding increase in its investment in the
Operating Partnership. Distributions from the Operating Partnership reduce
Nvest's investment in the Operating Partnership.
34
<PAGE>
NVEST, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2--SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
GROSS INCOME TAX. Effective January 1, 1998, a 3.5% federal gross income
tax has been incurred on the Partnership's proportionate share of the gross
income of the Operating Partnership and any of its subsidiary partnerships.
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.
SEGMENT DATA. Effective January 1, 1998, Nvest adopted Financial Accounting
Standards Board Statement No. 131, "Disclosures about Segments of an Enterprise
and Related Information" (FAS 131). Based on criteria established in FAS 131,
management has determined that Nvest has one operating segment which is
domiciled in the United States of America that offers a broad array of
investment management products and styles to institutions, mutual funds, and
private clients.
NOTE 3--EXCHANGE OF OPERATING PARTNERSHIP UNITS FOR NVEST UNITS
Each quarter, Nvest provides holders of Operating Partnership units a
limited opportunity to exchange their units for Nvest units, subject to
applicable requirements intended to ensure that the Operating Partnership
remains a private partnership. For the years ended December 31, 1998 and 1999,
respectively, 228,723 and 70,207 Operating Partnership units were exchanged for
an equal number of Nvest units and Nvest received 228,723 and 70,207 units of
the Operating Partnership. On January 3, 2000, 47,500 Operating Partnership
units were exchanged for an equal number of Nvest units and Nvest received
47,500 units of the Operating Partnership.
In addition, consistent with federal tax law, the partnership agreement of
the Operating Partnership generally permits holders of units to exchange a
"block" of units at any time. A "block" for this purpose is at least equal to
two percent of the outstanding units of the Operating Partnership, reduced by
the units held by certain parties that are deemed to be affiliated with the
Operating Partnership, including units held by Nvest. A "block" for this purpose
is currently approximately 340,000 units.
NOTE 4--UNIT REPURCHASE PLAN
On September 16, 1999, the Board of Directors of the general partner of
Nvest and the Operating Partnership extended a plan to repurchase up to one
million limited partnership units of the partnerships through September 30,
2000. The repurchase plan, which was initiated on September 15, 1998, authorizes
the purchase of units in either the open market or privately negotiated
transactions. In the case of purchases of Nvest units, the Operating Partnership
has made and is expected to continue to make a corresponding purchase at the
same cost of Operating Partnership units from Nvest. For the years ended
December 31, 1998 and 1999, respectively, 80,062 and 309,673 units were
repurchased at a cost of $2,205,000 and $7,470,000.
35
<PAGE>
NVEST, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5--NET INCOME PER UNIT
The calculation of basic and diluted net income per unit and weighted
average units outstanding at December 31 follows:
<TABLE>
<CAPTION>
1997 1998 1999
-------- -------- --------
(IN THOUSANDS,
EXCEPT PER UNIT DATA)
<S> <C> <C> <C>
Net income....................................... $95,682 $13,052 $11,948
Add restricted unit plan compensation.......... 1,209 -- --
------- ------- -------
Net income--for basic calculation................ 96,891 13,052 11,948
Additional equity in earnings of the Operating
Partnership, net of gross income tax and
other expenses, related to incremental units
assumed outstanding *........................ -- 860 46
------- ------- -------
Net income--for diluted calculation.............. $96,891 $13,912 $11,994
======= ======= =======
Weighted average units outstanding:
Basic.......................................... 43,732 6,456 6,364
Incremental units assumed outstanding
from exercise of unit options *............ 149 507 28
------- ------- -------
Diluted........................................ 43,881 6,963 6,392
======= ======= =======
Net income per unit:
Basic.......................................... $ 2.22 $ 2.02 $ 1.88
======= ======= =======
Diluted........................................ $ 2.21 $ 2.00 $ 1.88
======= ======= =======
</TABLE>
- ------------------------
* When an option for a unit of Nvest is exercised, the Operating Partnership
issues a unit to Nvest. This increases Nvest's relative ownership in the
Operating Partnership. Dilution due to option exercises occurs at the
Operating Partnership and affects Nvest proportionately.
NOTE 6--INVESTMENT IN THE OPERATING PARTNERSHIP
Investment activity in the Operating Partnership for the years ended
December 31 follows (in thousands):
<TABLE>
<CAPTION>
1998 1999
-------- --------
<S> <C> <C>
Investment in the Operating Partnership, beginning of
year.................................................... $71,008 $71,831
Investment from exercise of options and other unit
issuances............................................. 2,870 --
Investment from unit exchanges (Note 3)................. 3,303 1,005
Sale of units of the Operating Partnership (Note 4)..... (2,205) (7,470)
Equity in earnings of the Operating Partnership......... 16,617 15,353
Distributions declared by the Operating Partnership..... (19,762) (19,504)
------- -------
Investment in the Operating Partnership, end of year...... $71,831 $61,215
======= =======
</TABLE>
36
<PAGE>
NVEST, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7--TAX CONSIDERATION FOR PUBLIC UNITHOLDERS (UNAUDITED)
Purchasers of Nvest units after August 10, 1993, are allowed an amortization
deduction that reduces the amount of income on which they pay taxes. This
deduction permits such unitholders to amortize a substantial portion of the
price paid for Nvest units over 15 years and significantly reduces the current
effective tax rate on distributions paid by Nvest to unitholders. Due to this
amortization benefit, the cash distributions that Nvest pays to unitholders are
likely to continue to exceed the amount of taxable income on which unitholders
must pay taxes. Amortization deductions decrease the tax basis of units held and
will likely be recaptured as ordinary income if and when the units are sold.
A hypothetical example of the amount of the amortization tax benefit for
1999 follows. For 1999, Nvest estimates that taxable income to the public
unitholder before the amortization deduction was approximately $2.86 per unit.
The amount of the amortization deduction varies depending on the purchase price
and other factors. However, using a purchase price in December 1998 of $26.75
per unit (of which approximately $22.95 would represent amortizable assets), the
amortization deduction would reduce net taxable income by $1.53 per unit,
resulting in a deferral of nearly 53% of estimated taxable income until the
units are sold. The relative value of this tax benefit will vary depending on a
number of factors, including the unit purchase price and the amount of taxable
income allocable to unitholders. For the year ended December 31, 1999, Nvest
declared distributions of $2.52 per unit. Under this illustration, the effective
tax rate to the unitholder on the distributions for 1999 would be approximately
21%. Based on the assumptions above, the calculation of the lower effective tax
rate for the year ended December 31, 1999 is shown in tabular form as follows:
<TABLE>
<CAPTION>
PER
UNIT
--------
<S> <C> <C>
Distributions declared for calendar year 1999............... $ 2.52
Allocation of estimated taxable income prior to tax
amortization of the purchase price........................ $ 2.86
Less estimated tax amortization allocation of the purchase
price
( 1/15 OF $22.95)......................................... (1.53)
------
Net taxable income...................................... $ 1.33
Estimated income tax (ASSUMED 40% PERSONAL INCOME TAX
RATE)..................................................... (0.53)
------
Total distributions declared for calendar year 1999, net of
personal income taxes..................................... $ 1.99
======
Estimated current income tax as percent of distributions
declared.................................................. 21%
======
</TABLE>
1999 distributions declared of $2.52 exceed taxable income of $1.33 by
$1.19. The $1.19 differential is not subject to tax in 1999 but decreases a
unitholder's tax basis by a like amount.
37
<PAGE>
NVEST, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7--TAX CONSIDERATION FOR PUBLIC UNITHOLDERS (UNAUDITED) (CONTINUED)
The estimated tax basis of unitholders purchasing units in December 1998
follows:
<TABLE>
<CAPTION>
PER
UNIT
--------
<S> <C>
Tax basis at December 31, 1998 (ASSUMED PURCHASE PRICE)..... $26.75
Add 1999 net taxable income (PER ABOVE)..................... 1.33
Less non-deductible expenses, principally the gross income
tax....................................................... (0.55)
Less 1999 total distributions declared...................... (2.52)
------
Tax basis at December 31, 1999.......................... $25.01
======
</TABLE>
The foregoing examples are based solely on estimates of taxable income for
1999. Each year, a schedule K-1 is sent to each unitholder identifying the
holder's amortization tax benefit, if applicable. Under Federal law, unitholders
are required to pay tax on their allocable share of Nvest's taxable income
regardless of the amount of distributions paid. As individual tax situations may
vary, prospective purchasers of units are urged to consult with their tax
advisors. The statements herein may constitute forward-looking statements within
the meaning of the federal securities laws. The accuracy of these forward-
looking statements depends in large part on the interpretation and application
of tax laws and regulations, which are subject to change, and estimates made by
Nvest based on such interpretations.
NOTE 8--GROSS INCOME TAX EXPENSE
As described in Note 1--Organization, Nvest elected to extend its
grandfathered partnership tax status for 1998 and following periods upon payment
of a 3.5% federal gross income tax on its proportionate share of the Operating
Partnership's gross income. The 1998 gross income tax was payable on or before
March 15, 1999. Effective for tax years ended after 1998, the gross income tax
is required to be paid in quarterly installments.
NOTE 9--CONTINGENT LIABILITIES
The business units of the Operating Partnership are from time to time
subject to legal proceedings and claims that arise in the course of their
businesses. In the opinion of management, the amount of any ultimate liability
with respect to currently pending actions will not have a material adverse
effect on the results of operations or financial condition of Nvest.
NOTE 10--EQUITY INCENTIVE PLANS
As discussed in Note 8 of the Operating Partnership's consolidated financial
statements, the Operating Partnership has two equity incentive plans. Under
these plans, options on Nvest L.P. units are granted to employees of the
Operating Partnership. Upon exercise of the options, the Operating Partnership
purchases Nvest, L.P. units at the current market price and Nvest, L.P., in
turn, purchases a corresponding amount of units from the Operating Partnership.
At December 31, 1999, 6,774,714 options were outstanding, of which 521,048 were
exercisable. No options were exercised during the year ended December 31, 1999.
Equity based compensation is accounted for under the intrinsic value method and,
as such, no compensation expense has been recognized in the financial statements
of the Operating Partnership. If the fair value method had been used, the pro
forma net income of Nvest would have been $12,767,000 (or $1.95 per
unit--diluted) and $11,537,000 (or $1.81 per unit--diluted) for the years ended
December 31, 1998 and 1999, respectively.
38
<PAGE>
NVEST, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 11--SELECTED QUARTERLY AND FULL YEAR FINANCIAL DATA (QUARTERLY RESULTS ARE
UNAUDITED)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH FULL
1999 QUARTER QUARTER QUARTER QUARTER YEAR
- ---- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER UNIT DATA)
<S> <C> <C> <C> <C> <C>
Revenues
Equity in earnings of the Operating
Partnership.................................... $3,967 $3,750 $4,038 $3,598 $15,353
Interest income.................................. 39 6 -- -- 45
------ ------ ------ ------ -------
4,006 3,756 4,038 3,598 15,398
Gross income tax and other expenses................ 920 833 877 820 3,450
------ ------ ------ ------ -------
Net income......................................... $3,086 $2,923 $3,161 $2,778 $11,948
====== ====== ====== ====== =======
Net income per unit:
Basic............................................ $ 0.48 $ 0.46 $ 0.50 $ 0.44 $ 1.88
====== ====== ====== ====== =======
Diluted.......................................... $ 0.48 $ 0.46 $ 0.50 $ 0.44 $ 1.88
====== ====== ====== ====== =======
Distributions declared per unit:
Regular.......................................... $ 0.63 $ 0.63 $ 0.63 $ 0.46 $ 2.35
Special.......................................... -- -- -- 0.17 0.17
------ ------ ------ ------ -------
Total........................................ $ 0.63 $ 0.63 $ 0.63 $ 0.63 $ 2.52
====== ====== ====== ====== =======
Weighted average units outstanding--diluted........ 6,484 6,401 6,375 6,307 6,392
====== ====== ====== ====== =======
</TABLE>
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH FULL
1998 QUARTER QUARTER QUARTER QUARTER YEAR
- ---- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER UNIT DATA)
<S> <C> <C> <C> <C> <C>
Revenues
Equity in earnings of the Operating
Partnership.................................... $3,964 $4,214 $4,240 $4,199 $16,617
Interest income.................................. -- 5 20 30 55
------ ------ ------ ------ -------
3,964 4,219 4,260 4,229 16,672
Gross income tax and other expenses................ 881 874 950 915 3,620
------ ------ ------ ------ -------
Net income......................................... $3,083 $3,345 $3,310 $3,314 $13,052
====== ====== ====== ====== =======
Net income per unit:
Basic............................................ $ 0.49 $ 0.52 $ 0.51 $ 0.51 $ 2.02
====== ====== ====== ====== =======
Diluted.......................................... $ 0.48 $ 0.51 $ 0.50 $ 0.51 $ 2.00
====== ====== ====== ====== =======
Distributions declared per unit.................... $ 0.60 $ 0.63 $ 0.63 $ 0.63 $ 2.49
====== ====== ====== ====== =======
Weighted average units outstanding--diluted........ 7,017 7,242 6,873 6,720 6,963
====== ====== ====== ====== =======
</TABLE>
39
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners of Nvest, L.P.
In our opinion, the consolidated financial statements of Nvest, L.P.
("Nvest") listed in the accompanying index on page 29 of this Form 10-K present
fairly, in all material respects, the financial position of Nvest and its
subsidiaries at December 31, 1998 and 1999, and the results of their operations
and their cash flows for each of the three years in the period ended
December 31, 1999, in conformity with accounting principles generally accepted
in the United States. These financial statements are the responsibility of
Nvest'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 auditing standards generally accepted in the
United States 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.
PricewaterhouseCoopers LLP
Boston, Massachusetts
January 28, 2000
40
<PAGE>
THE OPERATING PARTNERSHIP
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
AT DECEMBER 31,
-------------------
1998 1999
-------- --------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 52,135 $ 23,154
Management and advisory fees receivable................... 98,914 104,059
Investment securities..................................... 18,715 11,038
Other..................................................... 7,057 12,702
-------- --------
Total current assets.................................... 176,821 150,953
Intangible assets:
Investment advisory contracts............................. 505,292 469,365
Goodwill.................................................. 131,291 128,731
Fixed assets................................................ 34,708 44,140
Other assets................................................ 51,270 62,784
-------- --------
Total assets............................................ $899,382 $855,973
======== ========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable and accrued expenses..................... $124,317 $121,529
Distribution payable...................................... 34,439 34,230
Notes payable............................................. 4,437 2,600
-------- --------
Total current liabilities............................... 163,193 158,359
Deferred compensation, benefits and other................... 19,307 17,945
Notes payable............................................... 270,000 270,000
-------- --------
Total liabilities....................................... 452,500 446,304
Contingent liabilities (Note 7)
Partners' capital (44,725,799 units at December 31, 1998
and 44,412,586 units at December 31, 1999)................ 446,882 409,669
-------- --------
Total liabilities and partners' capital................. $899,382 $855,973
======== ========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
41
<PAGE>
THE OPERATING PARTNERSHIP *
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------
NVEST, L.P. NVEST COMPANIES, L.P.
----------- ---------------------
1997 1998 1999
----------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
REVENUES
Management and advisory fees.............................. $515,617 $615,422 $595,257
Other revenues and interest income........................ 45,852 54,110 59,873
-------- -------- --------
561,469 669,532 655,130
-------- -------- --------
EXPENSES
Compensation and benefits................................. 276,414 330,923 325,626
Restricted unit plan compensation......................... 1,209 3,898 3,277
Amortization of intangibles............................... 37,789 39,528 40,452
Depreciation and amortization............................. 6,740 8,127 10,252
Occupancy, equipment and systems.......................... 23,629 32,023 35,998
Interest expense.......................................... 19,608 21,516 21,113
Other..................................................... 98,487 117,472 109,646
-------- -------- --------
463,876 553,487 546,364
-------- -------- --------
Income before income taxes.................................. 97,593 116,045 108,766
Income tax expense........................................ 1,911 5,263 4,634
-------- -------- --------
Net income.................................................. $ 95,682 $110,782 $104,132
======== ======== ========
</TABLE>
- ------------------------
* As discussed in Note 1, the financial information above reflects the
operations of Nvest, L.P. prior to the Restructuring completed on
December 31, 1997 and Nvest Companies, L.P. thereafter.
See Accompanying Notes to Consolidated Financial Statements.
42
<PAGE>
THE OPERATING PARTNERSHIP *
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------
NVEST, L.P. NVEST COMPANIES, L.P.
----------- ---------------------
1997 1998 1999
----------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 95,682 $ 110,782 $ 104,132
Adjustments to reconcile net income to net cash provided
by operating activities:
Amortization of intangibles............................. 37,789 39,528 40,452
Restricted unit plan compensation....................... 1,209 3,898 3,277
--------- --------- ---------
Subtotal.............................................. 134,680 154,208 147,861
Depreciation and amortization........................... 6,740 8,127 10,252
Equity in earnings of partnerships...................... (13,043) (13,684) (12,207)
Distributions received from partnerships................ 11,923 14,588 12,131
Increase in receivables and other assets................ (20,308) (14,248) (6,870)
Increase (decrease) in accounts payable and other
liabilities........................................... 19,436 15,487 (463)
--------- --------- ---------
Net cash provided by operating activities................. 139,428 164,478 150,704
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures...................................... (12,839) (16,401) (19,683)
(Increase) decrease in investment securities/other
investments............................................. (19,487) 3,199 (7,789)
Acquisition payments, net of cash acquired................ (58,581) (11,667) (5,652)
--------- --------- ---------
Net cash used in investing activities..................... (90,907) (24,869) (33,124)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions paid to unitholders......................... (100,869) (137,047) (137,254)
Proceeds from issuance of units--exercised options........ 272 1,789 --
Payment for retirement of units........................... -- (2,205) (7,470)
Proceeds from notes payable............................... 175,500 2,770 2,600
Repayment of notes payable................................ (1,717) (44,767) (4,437)
Payment of deferred purchase consideration................ (79,635) -- --
--------- --------- ---------
Net cash used in financing activities..................... (6,449) (179,460) (146,561)
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents...... 42,072 (39,851) (28,981)
Cash and cash equivalents, beginning of period.............. 49,914 91,986 52,135
--------- --------- ---------
Cash and cash equivalents, end of period.................... $ 91,986 $ 52,135 $ 23,154
========= ========= =========
Cash paid during the period for interest.................... $ 16,240 $ 20,761 $ 20,389
========= ========= =========
Cash paid during the period for income taxes................ $ 3,971 $ 2,055 $ 6,769
========= ========= =========
Supplemental disclosure of non-cash transactions:
Increase in intangible assets............................. $ 112,936 $ 11,344 $ 1,876
Increase in notes payable................................. 22,650 -- --
Decrease in deferred purchase consideration............... (64,489) -- --
Increase in partners' capital............................. 152,156 7,250 --
Transfer of partners' capital to Nvest Companies, L.P..... 390,250 -- --
</TABLE>
- --------------------------
* As discussed in Note 1, the financial information above reflects the
operations of Nvest, L.P. prior to the Restructuring completed on
December 31, 1997 and Nvest Companies, L.P. thereafter.
See Accompanying Notes to Consolidated Financial Statements.
43
<PAGE>
THE OPERATING PARTNERSHIP *
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' CAPITAL
<TABLE>
<CAPTION>
TOTAL
PARTNERS' LIMITED GENERAL
CAPITAL PARTNERS PARTNERS
--------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Balance at December 31, 1996 (38,081,731 Limited Partner
units and 110,000 General Partner units).................. $328,264 $327,527 $ 737
Net income.............................................. 95,682 95,435 247
Distributions declared.................................. (116,324) (116,028) (296)
Units issued............................................ 152,427 152,427 --
Restricted unit plan compensation....................... 1,209 1,209 --
Restructuring of Nvest, L.P. (Note 1)................... -- (70,320) 70,320
-------- -------- -------
Balance at December 31, 1997 (38,191,999 Limited Partner
units and 6,274,980 General Partner units)................ 461,258 390,250 71,008
Net income.............................................. 110,782 94,165 16,617
Distributions declared.................................. (135,947) (116,185) (19,762)
Units issued--exercised options and other............... 2,096 57 2,039
Units issued--acquisitions.............................. 7,000 7,000 --
Units retired........................................... (2,205) -- (2,205)
Restricted unit plan compensation....................... 3,898 3,898 --
Unit exchanges.......................................... -- (3,303) 3,303
-------- -------- -------
Balance at December 31, 1998 (38,209,551 Limited Partner
units and 6,516,248 General Partner units)................ 446,882 375,882 71,000
Net income.............................................. 104,132 88,779 15,353
Distributions declared.................................. (137,046) (117,542) (19,504)
Other................................................... (106) (106) --
Units retired........................................... (7,470) -- (7,470)
Restricted unit plan compensation....................... 3,277 3,277 --
Unit exchanges.......................................... -- (1,005) 1,005
-------- -------- -------
Balance at December 31, 1999 (38,135,804 Limited Partner
units and 6,276,782 General Partner units)................ $409,669 $349,285 $60,384
======== ======== =======
</TABLE>
- ------------------------
* As discussed in Note 1, the financial information above reflects the
operations of Nvest, L.P. prior to the Restructuring completed on
December 31, 1997 and Nvest Companies, L.P. thereafter.
See Accompanying Notes to Consolidated Financial Statements.
44
<PAGE>
THE OPERATING PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--ORGANIZATION
Nvest Companies, L.P. ("the Operating Partnership") operates through
investment management firms that offer 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 was
conducted by Nvest, L.P. ("Nvest") prior to the Restructuring completed on
December 31, 1997, as described more fully in Note 1 of the financial statements
of Nvest.
NOTE 2--SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION. The consolidated financial statements of the
Operating Partnership include 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.
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 on a straight-line basis over periods ranging from 7 to 24 years.
Goodwill is amortized on a straight-line basis over periods ranging from 15 to
30 years. The estimated remaining lives of the intangible assets are
periodically reevaluated. If experience after the acquisition indicates that the
estimated remaining lives should be shortened, the cost assigned to the
intangible assets is amortized prospectively over the shorter life commencing at
the time the new estimate is determined. Intangible assets are presented net of
accumulated amortization of $130.8 million and $171.1 million at December 31,
1998 and 1999, respectively.
The Operating Partnership evaluates its intangible assets periodically to
determine whether events and circumstances warrant adjustment to their carrying
value. Projected undiscounted future cash flows of each acquisition are compared
to the recorded values of the related intangible assets, factoring in known or
expected trends, future prospects and other relevant information. If the
projected future cash flows are less than the carrying value of the intangible
assets, the Operating Partnership would recognize an impairment loss for the
difference between the carrying amount and the estimated fair value of the
intangible assets. At December 31, 1999, there was no impairment of intangible
assets.
DEPRECIATION AND AMORTIZATION. Fixed assets are stated at cost and are
depreciated or amortized over 3 to 10 years using straight-line and accelerated
methods. Leasehold improvements are amortized using the straight-line method
over the shorter of the life of the respective lease or the life of the
improvement.
FAIR VALUE OF FINANCIAL INSTRUMENTS. The fair value of the Operating
Partnership's cash and cash equivalents at December 31, 1999 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 6.
NET CAPITAL REQUIREMENTS. Certain subsidiaries are subject to broker dealer
net capital requirements. At December 31, 1999, each subsidiary was in
compliance with its respective capital requirement.
45
<PAGE>
THE OPERATING PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2--SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ESCROW BALANCES. At December 31, 1999, the Operating Partnership held
$8 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 and performance 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.
SEGMENT DATA. Effective January 1, 1998, the Operating Partnership adopted
Financial Accounting Standards Board Statement No. 131, "Disclosures about
Segments of an Enterprise and Related Information" (FAS 131). Based on criteria
established in FAS 131, management has determined that the Operating
Partnership's business units aggregate to one operating segment which is
domiciled in the United States of America that offers a broad array of
investment management products and styles to institutions, mutual funds, and
private clients.
RECLASSIFICATIONS. Certain amounts in prior year financial statements have
been reclassified to conform with the 1999 presentation.
NOTE 3--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 Operating Partnership. The Operating Partnership and some of its
subsidiaries are subject to state and city taxes in various jurisdictions.
Income tax expense includes $1,316,000, $1,738,000 and $2,008,000 of
partnership income tax expense, consisting primarily of state and local income
taxes, and $595,000, $3,525,000 and $2,626,000 of corporate subsidiary income
tax expense for the years ended December 31, 1997, 1998 and 1999, respectively.
The effective income tax rates of 2%, 5% and 4% for the years ended
December 31, 1997, 1998 and 1999, respectively, are low primarily due to income
not subject to income taxes. The net deferred tax asset of $1,132,000 and
$658,000 at December 31, 1998 and 1999, respectively, is included in other
assets.
NOTE 4--UNIT REPURCHASE PLAN
On September 16, 1999, the Board of Directors of the general partner of
Nvest and the Operating Partnership extended a plan to repurchase up to one
million limited partnership units of the partnerships through September 30,
2000. The repurchase plan, which was initiated on September 15, 1998, authorizes
the purchase of units in either the open market or privately negotiated
transactions. In the case of purchases of Nvest units, the Operating Partnership
has made and is expected to continue to make a corresponding purchase at the
same cost of Operating Partnership units from Nvest. For the years ended
46
<PAGE>
THE OPERATING PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4--UNIT REPURCHASE PLAN (CONTINUED)
December 31, 1998 and 1999 respectively, 80,062 and 309,673 units were
repurchased at a cost of $2,205,000 and $7,470,000.
NOTE 5--ACQUISITIONS
The Operating Partnership acquired certain assets and assumed certain
liabilities of five investment management firms during 1997, 1998 and 1999. 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. In addition to the initial purchase price, some acquisition
agreements include contingent payment arrangements, which have been factored
into the purchase consideration tables shown below in the year that the
contingency is met.
1999 ACQUISITION
Kobrick Funds was acquired effective July 7, 1999. Included in the 1999
purchase consideration information below are 1999 payments and accruals, and
contingent payments earned in 1999 on previous acquisitions.
1998 ACQUISITION
H.A Schupf & Co., Inc, was acquired effective October 1, 1998, and its
operations were combined with those of Reich & Tang Capital Management. Included
in the 1998 purchase consideration information below are 1998 payments and
contingent payments earned in 1998 on previous acquisitions.
1997 ACQUISITIONS
Jurika & Voyles, Inc. was acquired effective January 1, 1997. Snyder Capital
Management, Inc. was acquired July 9, 1997. Daniel Breen & Company was acquired
on December 31, 1997, and its operations were combined with those of Vaughan,
Nelson, Scarborough & McConnell to form Vaughan, Nelson, Scarborough &
McCullough ("VNSM"). Included in the 1997 purchase consideration information
below are 1997 payments and contingent payments earned in 1997 on previous
acquisitions.
47
<PAGE>
THE OPERATING PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5--ACQUISITIONS (CONTINUED)
PURCHASE CONSIDERATION
Purchase consideration information for 1997, 1998 and 1999 acquisitions
follows. The amounts include contingent payments earned on previous
acquisitions, as well as direct acquisition costs.
<TABLE>
<CAPTION>
1997 1998 1999
-------- -------- --------
(IN MILLIONS)
<S> <C> <C> <C>
Cash................................................... $ 61.3 $ 6.0 $ --
Notes payable and accrued contingent payments.......... 27.8 2.7 2.0
Partnership units (3,609,000 and 249,000 for 1997 and
1998, respectively).................................. 87.2 7.0 --
------ ----- ----
Total................................................ $176.3 $15.7 $2.0
====== ===== ====
</TABLE>
<TABLE>
<CAPTION>
1997 1998 1999
----------------------------- ------------------------------ -----------------------
AMORTIZATION AMORTIZATION AMORTIZATION
PERIOD AMOUNT PERIOD AMOUNT PERIOD AMOUNT
------------------ -------- ------------------- -------- ------------ --------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Contracts acquired...... 7-23 years $157.2 8 years $ 7.2 $ --
Goodwill................ 30 years 13.2 15-30 years 8.4 15 years 2.0
Net tangible assets..... 5.9 0.1 --
------ ----- ----
Total................. $176.3 $15.7 $2.0
====== ===== ====
</TABLE>
CONTINGENT CONSIDERATION
As of December 31, 1999, a combined total of up to $49 million in cash
and/or units may be paid to the sellers of certain of the firms acquired over a
seven-year period following the respective closing dates through December 31,
2006, depending upon attainment of certain post-closing profit and revenue
levels. Substantially all of the contingent consideration, if paid, is expected
to be accounted for as additional purchase price.
NOTE 6--NOTES PAYABLE
On April 1, 1997, the Operating Partnership completed a private placement of
$160 million of 7.15% senior notes due April 2007. 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 Operating Partnership completed a private placement of
$110 million of 6.54% senior notes due January 2003. 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 $254 million at December 31, 1999.
At December 31, 1999, 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 27.5 basis
points. The annual commitment fee on unused credit lines is 12.5 basis points. A
balance of $2.6 million was outstanding under these agreements at December 31,
1999.
48
<PAGE>
THE OPERATING PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6--NOTES PAYABLE (CONTINUED)
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, 1999 the Operating
Partnership was in compliance with these covenants.
NOTE 7--CONTINGENT LIABILITIES
The business units of the Operating Partnership are from time to time
subject to legal proceedings and claims that arise in the course of their
businesses. In the opinion of management, the amount of any ultimate liability
with respect to currently pending actions will not have a material adverse
effect on the results of operations or financial condition of the Operating
Partnership.
NOTE 8--INCENTIVE COMPENSATION
INCENTIVE COMPENSATION
The Operating Partnership and each of its principal subsidiaries have
incentive compensation plans that award payments to certain current and former
employees which are generally dependent upon current earnings, cash flow, and
profit margins. In addition, special compensation programs for portfolio
managers are based on the performance of the funds managed. Incentive
compensation plan expense was $142,838,000, $175,510,000 and $159,452,000 for
the years ended December 31, 1997, 1998 and 1999, 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 51,200, 166,000 and 25,000 for the years ended December 31, 1997, 1998
and 1999, respectively, at a weighted average per unit fair value at grant date
of $26.04, $35.46 and $23.65, respectively. Compensation expense is recognized
over the vesting period based on the market value of the units on the date
awarded and was $1,209,000, $3,898,000 and $3,277,000 for the years ended
December 31, 1997, 1998 and 1999, respectively. Distributions paid on unvested
units are included in compensation expense. At December 31, 1999, 43,600 units
remained 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, 1999,
1,615,952 options were outstanding under the 1993 Plan. These options vest
ratably over three, four 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"). At December 31, 1999,
5,158,762 options were outstanding under 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
49
<PAGE>
THE OPERATING PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8--INCENTIVE COMPENSATION (CONTINUED)
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). Options granted in 1997 under the 1997 plan 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. Options granted in 1999 under the 1997 plan vest ratably over three,
four or five years 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 for these awards. If the fair value method had been used, the pro
forma net income would have been $95,132,000, $108,810,000 and $101,255,000 for
the years ended December 31, 1997, 1998 and 1999, respectively. The fair value
of each option granted is estimated on the date of grant using the Black-Scholes
option-pricing model with the following weighted average assumptions.
<TABLE>
<CAPTION>
1997 1998 1999
--------- --------- ---------
<S> <C> <C> <C>
Risk-free interest rate................................ 6.20% 4.66% 5.94%
Weighted average expected life......................... 6.7 years 5.0 years 5.0 years
Volatility............................................. 20.0% 21.0% 23.5%
Distribution yield..................................... 8% 8% 9%
</TABLE>
A summary of options outstanding under the 1993 and 1997 Equity Incentive
Plans at December 31, 1997, 1998 and 1999 follows:
<TABLE>
<CAPTION>
1997 1998 1999
-------------------- -------------------- --------------------
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................. 405,986 $21.36 3,792,436 $26.14 4,571,722 $27.25
Granted........................................ 3,477,783 26.56 889,853 31.37 2,264,102 23.61
Exercised...................................... (14,167) 19.18 (83,967) 21.30 -- --
Forfeited...................................... (77,166) 21.42 (26,600) 25.80 (61,110) 30.79
--------- ------ --------- ------ --------- ------
Outstanding at end of year....................... 3,792,436 $26.14 4,571,722 $27.25 6,774,714 $26.00
========= ====== ========= ====== ========= ======
Options exercisable at end of year............... 124,264 196,820 521,048
========= ========= =========
Weighted average fair value of options granted
per unit during the year....................... $ 2.52 $ 2.63 $ 2.29
====== ====== ======
</TABLE>
A summary of options outstanding and exercisable at December 31, 1999
follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
-------------------------------- OPTIONS EXERCISABLE
WEIGHTED -------------------
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
LIFE EXERCISE EXERCISE
RANGE OF EXERCISE PRICES UNITS IN YEARS PRICE UNITS PRICE
- ------------------------ --------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
$18.00-$26.00....................... 2,975,361 9 $23.59 355,439 $23.08
$26.00-$29.00....................... 3,223,000 8 26.88 34,337 27.75
$29.00-$37.00....................... 576,353 8 33.53 131,272 33.75
--------- ------ ------- ------
$18.00-$37.00....................... 6,774,714 8 $26.00 521,048 $26.08
========= ====== ======= ======
</TABLE>
50
<PAGE>
THE OPERATING PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9--PENSION AND RETIREMENT PLANS
DEFINED CONTRIBUTION PLANS
Certain subsidiaries provide defined contribution plans. Defined
contribution plan expense was $6,656,000, $7,520,000 and $8,288,000 for the
years ended December 31, 1997, 1998 and 1999, respectively.
POST-RETIREMENT BENEFITS
Post-retirement benefits expense includes contributory medical and dental
coverage and life insurance coverage. Post-retirement benefits expense was
$406,000, $469,000 and $680,000 for the years ended December 31, 1997, 1998 and
1999, respectively. Accrued post-retirement benefits expense was $7,558,000 and
$7,922,000 at December 31, 1998 and 1999, respectively.
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. The following tables provide a reconciliation of the changes in the plans'
benefit obligations and the fair value of the assets of the funded plan over the
two-year period ending December 31, 1999, and a statement of the funded status
as of December 31 for both years:
<TABLE>
<CAPTION>
1998 1999
-------- --------
(IN THOUSANDS)
<S> <C> <C>
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year................ $48,728 $ 58,925
Service cost........................................... 1,849 2,580
Interest cost.......................................... 3,429 3,728
Actuarial gain (loss).................................. 7,460 (9,435)
Benefits paid.......................................... (2,541) (2,991)
------- --------
Benefit obligation at end of year...................... 58,925 52,807
------- --------
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year......... 73,307 80,460
Actual return on plan assets........................... 9,318 26,682
Employer contribution.................................. 376 398
Benefits paid.......................................... (2,541) (2,991)
------- --------
Fair value of plan assets at end of year............... 80,460 104,549
------- --------
FUNDED STATUS
Funded status at December 31........................... 21,535 51,742
Unrecognized net (gain) loss........................... 2,897 (26,314)
Unrecognized plan amendments........................... 1,276 1,029
Unrecognized net overfunding at transition............. (4,361) (3,877)
------- --------
Prepaid pension asset, net............................. $21,347 $ 22,580
======= ========
</TABLE>
51
<PAGE>
THE OPERATING PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9--PENSION AND RETIREMENT PLANS (CONTINUED)
The net prepaid pension asset shown in the funded status table above
includes an accrued pension liability for the unfunded plan of $2,066,000 and
$1,530,000 at December 31, 1998 and 1999, respectively, and a prepaid pension
benefit for the funded plan of $23,413,000 and $24,110,000 at December 31, 1998
and 1999, respectively. There are no plan assets in the unfunded plan due to the
nature of the plan. Plan assets are invested primarily in Loomis Sayles mutual
funds and affiliated investment funds.
<TABLE>
<CAPTION>
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
WEIGHTED AVERAGE ASSUMPTIONS
Discount rate.................................. 7.25% 6.50% 7.75%
Rate of compensation increase.................. 5.00% 5.00% 5.00%
Expected return on plan assets................. 10.50% 10.50% 10.50%
</TABLE>
<TABLE>
<CAPTION>
1997 1998 1999
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
COMPONENTS OF NET PERIODIC BENEFIT COST
Expected return on plan assets.................. $ 6,230 $ 6,876 $ 7,581
Service cost.................................... (1,352) (1,849) (2,580)
Interest cost................................... (3,177) (3,429) (3,728)
Amortization of unrecognized net surplus at
transition and plan amendments................ 341 238 96
Amortization of excess cumulative difference.... (388) (151) (124)
------- ------- -------
Net periodic pension income..................... $ 1,654 $ 1,685 $ 1,245
======= ======= =======
</TABLE>
NOTE 10--RELATED PARTY TRANSACTIONS
The general partner of Nvest and the managing general partner of the
Operating Partnership is a wholly owned subsidiary of Metropolitan Life
Insurance Company which, at December 31, 1999, owned approximately 48% of the
partnership units of the Operating Partnership (including those owned indirectly
through ownership of Nvest units).
The Operating Partnership and its investment management firms provide
MetLife with investment management advisory services for its separate account
and general account portfolios. Management and advisory fees earned by the
Operating Partnership on this business for the years ended December 31 follow:
<TABLE>
<CAPTION>
1997 1998 1999
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Separate Account................................. $16,802 $19,270 $16,177
General Account.................................. 16,051 12,891 5,572
------- ------- -------
Total.......................................... $32,853 $32,161 $21,749
======= ======= =======
</TABLE>
52
<PAGE>
THE OPERATING PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 11--INVESTMENT IN AFFILIATE
The Operating Partnership held a 50% limited partner interest in Capital
Growth Management Limited Partnership ("CGM") at December 31, 1998 and 1999,
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 $11,517,000, $12,330,000 and $12,120,000 for the years ended December 31,
1997, 1998 and 1999, respectively.
The summarized balance sheet and income statement of CGM at December 31,
follows:
<TABLE>
<CAPTION>
1998 1999
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Assets:
Current assets............................................ $8,837 $9,078
Non-current assets........................................ 447 464
------ ------
$9,284 $9,542
====== ======
Liabilities and Partners' Capital:
Accrued expenses.......................................... $2,782 $3,209
Loan payable to the Operating Partnership................. 405 257
Partners' capital......................................... 6,097 6,076
------ ------
$9,284 $9,542
====== ======
</TABLE>
<TABLE>
<CAPTION>
1997 1998 1999
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenues......................................... $51,097 $54,775 $53,865
Expenses:
Compensation and benefits...................... 17,474 18,704 19,021
Mutual fund expenses........................... 8,968 9,644 8,870
Other.......................................... 1,662 1,778 1,735
------- ------- -------
Net income....................................... $22,993 $24,649 $24,239
======= ======= =======
</TABLE>
NOTE 12--FIXED ASSETS
<TABLE>
<CAPTION>
1998 1999
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Property, equipment and leasehold improvements.......... $ 69,886 $ 86,450
Less accumulated depreciation and amortization.......... (35,178) (42,310)
-------- --------
$ 34,708 $ 44,140
======== ========
</TABLE>
Rent expense was $13,221,000, $17,096,000 and $20,500,000 for the years
ended December 31, 1997, 1998 and 1999, respectively. Annual minimum lease
commitments under non-cancelable operating leases are $20,082,000 in 2000,
$19,540,000 in 2001, $19,209,000 in 2002, $19,193,000 in 2003, $16,045,000 in
2004 and $52,127,000 thereafter.
53
<PAGE>
THE OPERATING PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 13--SELECTED QUARTERLY AND FULL YEAR FINANCIAL DATA (QUARTERLY RESULTS ARE
UNAUDITED)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH FULL
1999 QUARTER QUARTER QUARTER QUARTER YEAR
- ---- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER UNIT DATA)
<S> <C> <C> <C> <C> <C>
Revenues.................................. $162,704 $159,757 $164,570 $168,099 $655,130
-------- -------- -------- -------- --------
Expenses
Compensation and benefits............... 82,834 78,333 82,608 81,851 325,626
Other expenses.......................... 52,003 54,835 53,572 60,328 220,738
-------- -------- -------- -------- --------
134,837 133,168 136,180 142,179 546,364
-------- -------- -------- -------- --------
Income before income taxes................ 27,867 26,589 28,390 25,920 108,766
Income tax expense........................ 1,289 1,263 969 1,113 4,634
-------- -------- -------- -------- --------
Net income................................ $ 26,578 $ 25,326 $ 27,421 $ 24,807 $104,132
======== ======== ======== ======== ========
Operating cash flow (1)................... $ 37,621 $ 36,334 $ 38,456 $ 35,450 $147,861
======== ======== ======== ======== ========
Distributions declared per unit:
Regular................................. $ 0.77 $ 0.77 $ 0.77 $ 0.60 $ 2.91
Special................................. -- -- -- 0.17 0.17
-------- -------- -------- -------- --------
$ 0.77 $ 0.77 $ 0.77 $ 0.77 $ 3.08
======== ======== ======== ======== ========
Weighted average units
outstanding--diluted.................... 44,669 44,576 44,534 44,443 44,555
======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH FULL
1998 QUARTER QUARTER QUARTER QUARTER YEAR
- ---- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER UNIT DATA)
<S> <C> <C> <C> <C> <C>
Revenues.................................. $163,454 $172,266 $164,246 $169,566 $669,532
-------- -------- -------- -------- --------
Expenses
Compensation and benefits............... 81,254 86,315 81,466 81,888 330,923
Other expenses.......................... 54,129 55,896 53,810 58,729 222,564
-------- -------- -------- -------- --------
135,383 142,211 135,276 140,617 553,487
-------- -------- -------- -------- --------
Income before income taxes................ 28,071 30,055 28,970 28,949 116,045
Income tax expense........................ 1,024 1,940 1,100 1,199 5,263
-------- -------- -------- -------- --------
Net income................................ $ 27,047 $ 28,115 $ 27,870 $ 27,750 $110,782
======== ======== ======== ======== ========
Operating cash flow (1)................... $ 37,852 $ 38,971 $ 38,688 $ 38,697 $154,208
======== ======== ======== ======== ========
Distributions declared per unit........... $ 0.74 $ 0.77 $ 0.77 $ 0.77 $ 3.05
======== ======== ======== ======== ========
Weighted average units
outstanding--diluted.................... 45,209 45,307 44,851 44,929 45,074
======== ======== ======== ======== ========
</TABLE>
- ------------------------
(1) Operating cash flow, as defined by Nvest, is equal to net income plus
non-cash charges for amortization of intangibles and restricted unit plan
compensation. Operating cash flow should not be construed as an alternative
to net income or as an alternative to cash flow from operating activities as
reported in the Consolidated Statement of Cash Flows.
54
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners of Nvest Companies, L.P.
In our opinion, the consolidated financial statements of Nvest Companies,
L.P. listed in the accompanying index on page 29 of this Form 10-K present
fairly, in all material respects, the financial position of Nvest Companies,
L.P. and its subsidiaries (the "Operating Partnership") at December 31, 1998 and
1999, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 1999, in conformity with accounting
principles generally accepted in the United States. These financial statements
are the responsibility of the Operating 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
auditing standards generally accepted in the United States 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.
PricewaterhouseCoopers LLP
Boston, Massachusetts
January 28, 2000
55
<PAGE>
PART III
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Under the Nvest partnership agreement and Delaware law, Nvest'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 Nvest 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, 2000. The
executive officers of the General Partner hold comparable posts with Nvest 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.......... 53 Chairman of the Board, Chief Executive Officer
and President; Chairman of Executive Committee
William S. Antle III... 55 Director; Chairman of Audit Committee
Robert J. Blanding..... 52 Director
Paul E. Gray........... 67 Director; member of Compensation Committee
Jeffrey J. Hodgman..... 56 Director
Harry P. Kamen......... 66 Director
Charles M. Leighton.... 64 Director; member of Audit Committee and
Chairman of Compensation Committee
Victor A. 57 Director
Morgenstern..........
Oscar L. Tang.......... 61 Director; member of Compensation Committee
G. Neal Ryland......... 58 Executive Vice President and Chief Financial
Officer
Sherry A. Umberfield... 45 Executive Vice President, Corporate
Development
Edward N. Wadsworth.... 62 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 Operating Partnership
serve as directors of the General Partner, generally for two-year terms that may
be extended. 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.
Mr. Voss is Chairman of the Board of Directors and Chief Executive Officer
of Nvest, 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
56
<PAGE>
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 Nvest'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 Nvest Funds Group and serving as a trustee of Harris
Associates Investment Trust. Mr. Voss serves as a member of the Board of
Governors of the Investment Company Institute, a trade association for the
mutual fund industry. He also serves as a member of the Listed Company Advisory
Committee of the New York Stock Exchange.
Mr. Antle became a director of the General Partner in January 1996. He was
Chairman of Oak Industries Inc., a manufacturer of components for
telecommunications companies, from May 1996 until January 2000 and served as its
President and Chief Executive Officer since December 1989. Mr. Antle is also a
director of ESCO Electronics Corporation, GenRad, Inc. and John H. Harland
Company.
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. Hodgman was elected a director of the General Partner in
September 1998. Mr. Hodgman has been the Executive Vice President in charge of
General Account Portfolio Management and Corporate Equity Investments at
Metropolitan Life Insurance Company since 1994. Prior to such time, he served in
other senior positions at MetLife, becoming a Senior Vice President in 1986.
Mr. Kamen was elected as a director of the General Partner in December of
1996. Mr. Kamen was Chairman of the Board and Chief Executive Officer of
Metropolitan Life Insurance Company from April of 1993 through June 1998, 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 remains a director of MetLife and a consultant to the company. He also
serves as a director of Banco Santander Central Hispano SA, Bethlehem Steel
Corporation, the National Association of Securities Dealers and Pfizer, Inc.
Mr. Leighton became a director of a predecessor organization in May 1990 and
serves as director of the General Partner. Mr. Leighton has served as a director
of MetLife since 1996 and was a director of New England Mutual from 1980 to
1996. Mr. Leighton was Chairman of the Board and Chief Executive Officer of CML
Group, Inc., a specialty consumer products company, from 1969 to March 1998. CML
Group, Inc. filed a voluntary petition under Chapter 11 of the United States
Bankruptcy Code in December 1998.
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. Mr. Morgenstern is also a director of BioSante Pharmaceuticals,
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
57
<PAGE>
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 Nvest 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 Vice President of New
England Mutual from December 1988 to December 1992. She is a Chartered Financial
Analyst.
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 Nvest's knowledge,
during the year ended December 31, 1999, all Section 16(a) filing requirements
applicable to its executive officers, directors and 10% beneficial owners were
complied with.
58
<PAGE>
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 Nvest in 1999 (such persons being
hereinafter collectively referred to as the "Named Executive Officers"):
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
------------------------------------------- ---------------------------------------------------
SECURITIES
UNDERLYING
RESTRICTED OPTIONS ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OTHER UNIT AWARD(S) (NUMBER OF UNITS) COMPENSATION(1)
- --------------------------- -------- -------- ---------- -------- ------------- ----------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Peter S. Voss............ 1999 $557,500 $1,618,400 -- -- -- $59,960
Chairman and Chief 1998 527,500 1,828,500 -- -- -- 58,010
Executive Officer 1997 497,500 2,000,000 -- -- 1,200,000 54,957
G. Neal Ryland........... 1999 296,583 430,610 -- -- -- 33,238
Executive Vice President 1998 279,667 484,725 -- -- -- 32,155
and Chief Financial 1997 263,750 530,000 -- -- 600,000 30,579
Officer
Sherry A. Umberfield..... 1999 253,958 300,198 -- -- -- 28,865
Executive Vice President, 1998 241,458 305,550 -- -- -- 28,175
Corporate Development 1997 228,750 332,074 -- -- 400,000 26,919
Edward N. Wadsworth...... 1999 258,958 279,565 -- -- -- 37,699
Executive Vice President, 1998 246,458 311,850 -- -- -- 37,018
General Counsel and 1997 233,750 347,213 -- $536,250(2) -- 35,762
Secretary
</TABLE>
- ------------------------
(1) With respect to 1999, consists of insurance payments for term life (in each
case less than $1,500) and contributions under defined contribution plans as
follows: $58,520 for the benefit of Mr. Voss; $32,429 for the benefit of
Mr. Ryland; $28,166 for the benefit of Ms. Umberfield; and $36,986 for the
benefit of Mr. Wadsworth.
(2) The restricted unit valuation set out in the table above was calculated
using $26 13/16 per unit, which was the closing sale price of a unit on the
NYSE on the date of grant, September 9, 1997. In connection with the 1997
Restructuring, these units were converted into units of the Operating
Partnership.
OPTION GRANTS IN LAST FISCAL YEAR
No grants of options to purchase unit or units appreciation rights were made
in 1999 to Named Executive Officers.
59
<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND YEAR-END OPTION VALUES
The following table sets forth information regarding the exercise of options
to purchase units held by Named Executive Officers and the value of unexercised
options at December 31, 1999.
<TABLE>
<CAPTION>
NUMBER OF UNITS
UNDERLYING VALUE OF UNEXERCISED
UNITS UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
ACQUIRED ON VALUE AT DECEMBER 31, 1999 (#) AT DECEMBER 31, 1999 ($)
NAME EXERCISE(#) REALIZED ($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE(1)
- ---- ----------- ------------ ------------------------- ----------------------------
<S> <C> <C> <C> <C> <C> <C>
Peter S. Voss................ -0- -0- 600,000 600,000 -0- -0-
G. Neal Ryland............... -0- -0- 300,000 300,000 -0- -0-
Sherry A. Umberfield......... -0- -0- 200,000 200,000 -0- -0-
Edward N. Wadsworth.......... -0- -0- -0- -0- -0- -0-
</TABLE>
- ------------------------
(1) None of the options granted to the Named Executive Officers was in the money
at December 31, 1999.
EMPLOYMENT AGREEMENTS
The Operating Partnership (as successor to Nvest) 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.
COMPENSATION OF DIRECTORS
Directors of the General Partner who are not employees of Nvest, 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.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee in 1999 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.
60
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
At February 1, 2000, there were 110,000 GP units of Nvest outstanding, owned
by one holder of GP units (Nvest Corporation, the General Partner), and
6,190,882 LP units of Nvest outstanding, owned by over 5,000 beneficial owners
(including those who hold in "street" name through brokerage accounts) and 400
holders of record of LP units. Also at February 1, 2000, there were 44,389,186
units of the Operating Partnership outstanding, owned by two holders of
Operating Partnership GP units (the General Partner and Nvest) and approximately
125 holders of record and beneficial owners of Operating Partnership LP units.
Nvest held 6,300,882 Operating Partnership units at February 1, 2000.
The tables that follow set forth certain information regarding certain
holders of units of Nvest and the Operating Partnership.
PRINCIPAL HOLDERS OF NVEST LP UNITS
The following table sets out information as of February 1, 2000, as to
(i) each person known by Nvest 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 the
General Partner, (iii) each officer of the General Partner who is a "Named
Executive Officer" in this annual report on Form 10-K, and (iv) all directors
and Named Executive Officers of the General Partner as a group. The table
indicates both (i) the number of Nvest LP 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 the General Partner, Nvest or their respective
affiliates), and is therefore able to exchange its Operating Partnership LP
units for Nvest LP units in "block transfers" under the regulations promulgated
pursuant to Internal Revenue Code Section 7704, the number of Nvest LP units
that such person would own assuming it exchanged all of its Operating
Partnership LP units for Nvest LP units. However, since Operating Partnership LP
units may only be exchanged for Partnership LP units with the consent of the
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, Nvest 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 Nvest LP units, and (ii) no other person
exchanged any Operating Partnership LP units for Nvest LP units. Nvest 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
Nvest LP units indicated.
61
<PAGE>
<TABLE>
<CAPTION>
AMOUNT AND NATURE
OF BENEFICIAL
OWNERSHIP OF
NVEST LP UNITS
AMOUNT AND NATURE (INCLUDING BLOCK
OF BENEFICIAL TRANSFERS OF OPERATING
OWNERSHIP OF PERCENT PARTNERSHIP LP PERCENT
BENEFICIAL OWNER NVEST LP UNITS OF CLASS UNITS OWNED) OF CLASS
- ---------------- ----------------- -------- ---------------------- --------
<S> <C> <C> <C> <C>
Metropolitan Life Insurance
Company...................... 457,900(1) 7.27% 21,452,076(1) 78.58%
Reich & Tang, Inc.............. 110,300(2) 1.78% 5,990,900(2) 49.44%
JV Investments, Inc............ 0(3) -- 680,241(3) 9.90%
Peter B. Foreman............... 0(4) -- 680,241(4) 9.90%
Myron R. Szold................. 0(5) -- 680,241(5) 9.90%
Roger O. Brown................. 38,027(6) ** 680,241(6) 9.90%
Earl J. Rusnak, Jr............. 750(7) ** 680,241(7) 9.90%
Sherwin A. Zuckerman........... 0(8) -- 566,710(8) 8.39%
Robert H. Harper............... 0(9) -- 680,241(9) 9.90%
Robert J. Sanborn.............. 0(10) -- 528,010(10) 7.86%
Oscar L. Tang+................. 52,271(11) ** 2,839,061(11) 31.62%
William S. Antle III+.......... 2,050(12) ** 2,050(12) **
Robert J. Blanding+............ 25,000(13) ** 25,000(13) **
Paul E. Gray+.................. 500 ** 500 **
Jeffrey J. Hodgman+............ 1,000 ** 1,000 **
Harry P. Kamen+................ 5,000 ** 5,000 **
Charles M. Leighton+........... 23,567(12)(14) ** 23,567(12)(14) **
Victor A. Morgenstern+......... 26,500(15) ** 801,182(15) 11.50%
Peter S. Voss+*................ 600,000(16) 8.84% 950,000(16) 13.30%
G. Neal Ryland*................ 301,700(17) 4.87% 301,700(17) 4.63%
Sherry A. Umberfield*.......... 200,000(18) 3.23% 200,000(18) 3.11%
Edward N. Wadsworth*........... 4,000(19) ** 4,000(19) **
All directors and Named
Executive Officers of the
General Partner as a group
(12 persons)................. 1,241,588 17.70% 5,153,060 47.16%
</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.
Substantially all of the Nvest LP units outstanding may be traded in the
public market without the need to register such units for sale under the
Securities Act of 1933. In addition, most of the approximately 38 million
Operating Partnership units outstanding may, subject to certain significant
limitations, be sold to Nvest for Nvest LP units or (at Nvest's option) cash.
The limitations on the ability of a holder of Operating Partnership units to
sell such units (for cash or Nvest LP units) include the requirement that no
transfer may be made without the consent of the General Partner, which will not
consent to any transfer that creates a risk that such transfer will not fit into
certain safe harbors provided under the Internal Revenue
62
<PAGE>
Code. For further information on the ability of holders of Operating Partnership
units to exchange such units for Nvest LP units, please see the discussion above
before the table entitled "Principal Holders of Nvest LP Units" and also the
discussion in Item 1, "Business--1997 Restructuring of the Partnership." If
holders of Operating Partnership units elect and are permitted to sell such
units to Nvest in exchange for Nvest LP units, they generally would either
receive Nvest LP units that would be freely tradable in the public market
without registration or would have the right to exercise registration rights
that would require Nvest to register such units for resale. In addition, Nvest
maintains a registration statement that permits the public sale of Nvest LP
units that may be issued on the exercise of options that have been granted under
the equity incentive plans maintained by Nvest and the Operating Partnership.
PRINCIPAL HOLDERS OF OPERATING PARTNERSHIP UNITS
As of February 1, 2000, there were 44,389,186 Operating Partnership units
outstanding, owned by two holders of Operating Partnership GP units (the General
Partner and Nvest) and approximately 125 holders of record and beneficial owners
of Operating Partnership LP units. The following table sets out information as
of February 1, 2000, as to (i) each person known by the Operating Partnership to
hold 5% or more of the outstanding Operating Partnership units, (ii) each
director of the General Partner, (iii) each officer of the General Partner who
is a "Named Executive Officer" in this annual report on Form 10-K, and (iv) all
directors and Named Executive Officers of the General Partner 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 Nvest units (shown in the table of "Principal Holders of Nvest 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 PERCENT OF
BENEFICIAL OWNER BENEFICIAL OWNERSHIP CLASS
- ---------------- -------------------- ----------
<S> <C> <C>
Metropolitan Life Insurance Company................. 21,452,076(1) 48.33%
Nvest, L.P.......................................... 6,300,882 14.19%
Reich & Tang, Inc................................... 5,990,900(2) 13.50%
JV Investments, Inc................................. 2,260,900(3) 5.09%
Oscar L. Tang+...................................... 2,839,061(11) 6.40%
William S. Antle III+............................... 2,050(12) **
Robert J. Blanding+................................. 45,000(13) **
Paul E. Gray+....................................... 500 **
Jeffrey J. Hodgman+................................. 1,000 **
Harry P. Kamen+..................................... 5,000 **
Charles M. Leighton+................................ 23,567(12)(14) **
Victor A. Morgenstern+.............................. 801,182(15) 1.80%
Peter S. Voss+*..................................... 950,000(16) 2.11%
G. Neal Ryland*..................................... 331,044(17) **
Sherry A. Umberfield*............................... 250,310(18) **
Edward N. Wadsworth*................................ 53,225(19) **
All directors and Named Executive Officers of the
General Partner as a group (12 persons)........... 5,153,060 11.73%
</TABLE>
- ------------------------
+ Director
* Named Executive Officer
** Less than 1%
63
<PAGE>
(1) The ownership of MetLife shown includes 110,000 LP units of Nvest issuable
upon conversion of an equal number of units of general partner interest ("GP
units") owned by Nvest's general partner, which represent all GP units of
Nvest outstanding. Such 110,000 units are also included in the number of
units of the Operating Partnership held by Nvest. The amount shown does not
include Operating Partnership LP units contributed to the Restricted Unit
Plan (the "RUP") of the Operating Partnership by MetLife as to which it
retains certain income and reversionary rights: there were 4,300 of such
units that have not been awarded as of the date of the information in the
table. The holder's address is One Madison Avenue, New York, NY 10010.
(2) The amount shown does not include Operating Partnership LP units contributed
to the RUP by RTI as to which it retains certain income and reversionary
rights: there were 45,300 of such units that have not been awarded as of the
date of the information in the table. 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.
(3)The number of Nvest LP units shown excludes 1,580,659 Nvest 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.
(4) The number of Nvest LP units shown excludes 766,813 Nvest 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.
(5) The number of Nvest LP units shown excludes 254,311 Nvest 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. All
of such units are held by a trust for the benefit of Mr. Szold and family
members, with respect to which Mr. Szold has sole discretionary authority as
to voting and disposition. The holder's address is c/o Talon Asset
Management, Inc., One North Franklin, Suite 450, Chicago, IL 60606.
(6) The number of Nvest LP units shown excludes 170,786 Nvest 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
number reflected in the tables represents Nvest 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.
(7) The number of Nvest LP units shown excludes 116,798 Nvest 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
Operating Partnership LP units are owned by a trust of which Mr. Rusnak is
the trustee and with respect to which has sole discretionary authority as to
voting and disposition. The holder's address is c/o Harris Associates, Two
N. LaSalle St., Suite 500, Chicago, IL 60602.
(8) The number reflected in the table includes 104,936 Operating Partnership LP
units held by 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.
(9) The number of Nvest LP units shown excludes 12,151 Nvest LP units that may
be acquired upon the permitted exercise of exchange rights with respect to
Operating Partnership LP units that may not be
64
<PAGE>
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 reflected in the table includes 300,000 Operating Partnership LP
units held by a limited partnership of which Mr. Sanborn serves as general
partner. The holder's address is c/o Harris Associates, Two N. LaSalle St.,
Suite 500, Chicago, IL 60602.
(11) 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) 609 Nvest LP units and
32,473 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) 14,840 Nvest LP units and 791,165 Operating Partnership LP units
indirectly held by trusts for Mr. Tang's children, as to which Mr. Tang
disclaims beneficial ownership, and (iii) 11,628 Nvest LP units and 619,943
Operating Partnership LP units indirectly held by a trust for the benefit of
Mr. Tang's descendants, as to which Mr. Tang disclaims beneficial ownership.
The holder's address is P.O. Box 36, Armonk, NY 10504.
(12) Includes or represents accounts holding values equal to 2,050 Nvest LP
units and 18,305 Nvest 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.
(13) Includes 3,125 Nvest LP units that may be acquired upon the exercise of
options that are exercisable within 60 days. Also includes 11,000 Operating
Partnership LP units granted under the RUP which, assuming continuation of
employment, will vest over the next year.
(14) Includes 785 Nvest LP units owned by Mr. Leighton's spouse as to which he
disclaims beneficial ownership.
(15) Includes 204,936 Operating Partnership LP units held by a limited
partnership of which Mr. Morgenstern serves as general partner. Includes
1,500 Nvest LP units held by a trust of which Mr. Morgenstern's spouse is
the trustee, as to which he disclaims beneficial ownership. The holder's
address is c/o Harris Associates, Two N. LaSalle St., Suite 500, Chicago, IL
60602.
(16) Includes 600,000 Nvest LP units that may be acquired upon the exercise of
options within 60 days. The holder's address is c/o Nvest Companies, L.P.,
399 Boylston St., Boston, MA 02116.
(17) Includes 300,000 Nvest LP units that may be acquired upon the exercise of
options within 60 days. Also includes 1,700 Nvest LP units and 1,800
Operating Partnership LP units held by Mr. Ryland's children, as to which he
disclaims beneficial ownership.
(18) Includes 200,000 Nvest LP units that may be acquired upon the exercise of
options within 60 days.
(19) Includes 800 Operating Partnership LP units held by Mr. Wadsworth's
children, as to which he disclaims beneficial ownership.
65
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
RELATIONSHIPS WITH METLIFE
At December 31, 1999, MetLife owned approximately 48% of the Operating
Partnership units outstanding (including units held indirectly through ownership
of Nvest 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. Nvest, the Operating Partnership and MetLife
maintain several important business relationships as summarized below.
ASSET MANAGEMENT AND RELATED MATTERS. The Operating Partnership, through
its Investment Management Firms, provided asset management services during 1999
for MetLife's separate account, retail and general account products.
MetLife separate accounts are assets held directly or indirectly in
segregated asset accounts of MetLife for the benefit of third party clients. At
December 31, 1999, the Operating Partnership managed approximately $3.9 billion
of MetLife separate account assets and received approximately $16.2 million in
revenue for such services during 1999.
The Operating Partnership also managed approximately $4.4 billion in MetLife
retail products at December 31, 1999, and received approximately $9.6 million in
revenue for such services during 1999. Approximately $4.1 billion of the retail
assets managed at December 31, 1999 were mutual fund assets for the New England
Zenith Funds. The Zenith Funds 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.
The Operating Partnership received approximately $5.6 million in revenue
during 1999 for managing MetLife general account assets. During 1999, MetLife
restructured its general account portfolio and reassigned approximately
$3 billion of these general account assets in-house in anticipation of its
demutualization. At December 31, 1999, the Operating Partnership managed
approximately $0.7 billion of MetLife general account assets.
MetLife holds mortgage loans to several real estate projects owned by joint
ventures in which a fund sponsored by AEW Capital 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. MetLife provides various services to Nvest, the Operating
Partnership and the Firms pursuant to a services agreement. These services
include certain data processing, telecommunications, internal audit and various
other administrative support services. All such services are provided at
competitive rates established from time to time by negotiation. In 1999, the
Operating Partnership paid MetLife approximately $2.9 million for such services.
MetLife can discontinue providing, and the Operating Partnership and the Firms
can discontinue receiving, any or all of these services at any time on 60 days'
notice.
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 Financial, 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. Nvest Funds paid $23.2 million to NES and $1.9 million to MetLife
Securities in 1999, 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
66
<PAGE>
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 Nvest. 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 Reich &
Tang.
PURCHASE OF EMPLOYEE BENEFITS. Employees of the Operating Partnership and
certain subsidiaries participated in 1999 in certain employee benefits purchased
from MetLife, including dental, life and disability insurance. The Operating
Partnership paid approximately $0.9 million for these benefits in 1999. 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 $1.9 million in 1999.
Loomis Sayles has a $15.0 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 $12.9 million at December 31,
1999. Interest expense was $0.8 million during 1999.
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 Operating Partnership and MetLife expect to maintain a number of these
relationships for the foreseeable future. Transactions between MetLife and the
Operating Partnership entered into in the future, including changes to the
investment management fees the Operating Partnership charges MetLife and service
fees MetLife charges the Operating Partnership, will be determined by
negotiation from time to time. The Operating Partnership believes that the
financial aspects of these relationships are no less favorable to the Operating
Partnership than those available from unaffiliated third parties.
Incident to New England Mutual's merger into MetLife, New England Mutual's
ownership interests in Nvest and the General Partner were transferred to
MetLife, and MetLife succeeded to the various arrangements of New England Mutual
with Nvest and the Operating Partnership.
67
<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
Financial statements of the registrant are listed in the "Index to the
Financial Statements" on page 29 and are filed as part of this report.
(2) FINANCIAL STATEMENT SCHEDULES
There are no Financial Statement schedules of the registrant required to
be filed as part of this report.
(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.)(1)
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.)(2)
2.3 Partnership Admission Agreement dated September 23, 1996
(relating to the acquisition of assets of Jurika & Voyles,
Inc.)(3)
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.)(4)
3.1 Articles of Organization of New England Investment
Companies, Inc.(5)
3.1(a) Amended and Restated Articles of Organization of New England
Investment Companies, Inc., reflecting change of name to
Nvest Corporation(14)
3.2 By-Laws of New England Investment Companies, Inc.(5)
3.2(a) Amendment to Certificate of Limited Partnership of New
England Investment Companies, L.P., reflecting change of
name to Nvest, L.P(14)
3.3 Certificate of Limited Partnership of New England Investment
Companies, L.P., together with all amendments thereto(5)
3.3(a) Amendment to Second Amended and Restated Agreement of
Limited Partnership of New England Investment Companies,
L.P., reflecting change of name to Nvest, L.P. (14)
3.4 Second Amended and Restated Agreement of Limited Partnership
of New England Investment Companies, L.P.(9)
3.4(a) Amendment to Certificate of Limited Partnership of NEIC
Operating Partnership, L.P., reflecting change of name to
Nvest Companies, L.P.(14)
3.5 Amended and Restated Agreement of Limited Partnership of
NEIC Operating Partnership, L.P.(10)
3.5(a) Amendment to Amended and Restated Agreement of Limited
Partnership of NEIC Operating Partnership, L.P., reflecting
change of name to Nvest Companies, L.P.(14)
</TABLE>
68
<PAGE>
<TABLE>
<C> <S>
4.1 Form of Certificate Evidencing Units Representing Limited
Partner Interests(9)
9. Voting Agreement by and among New England Investment
Companies, Inc., Reich & Tang, Inc. and New England Mutual
Life Insurance Company(5)
10.1 1993 Equity Incentive Plan, as amended(12)
10.2 Restricted Unit Plan(5)
10.3 1997 Equity Incentive Plan, as amended(12)
10.4 Employment Agreement with Peter S. Voss(7)
10.5 Defined Contribution Retirement Plan of the Operating
Partnership(6)
10.6 401(k) Savings Plan of the Operating Partnership(6)
10.7 Directors Deferred Compensation Plan(6)
10.8 Second Amended and Restated Limited Partnership Agreement of
Capital Growth Management Limited Partnership(5)
10.9 Registration Rights Agreement by and among Reich & Tang,
Inc., New England Mutual Life Insurance Company and New
England Investment Companies, L.P.(5)
10.10 Registration Rights Agreement between Nvest and Harris
Associates L.P.(6)
10.11 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(8)
10.12 Waiver and Amendment Agreement dated as of December 29,
1997, relating to Credit Agreement dated as of October 28,
1996(13)
10.13 Form of Note Purchase Agreement relating to 6.54% Notes due
2003(6)
10.14 Amendment and Assumption Agreement dated as of December 29,
1997, relating to Note Purchase Agreements relating to 6.54%
Notes due 2003(13)
10.15 Form of Note Purchase Agreement relating to 7.15% Senior
Notes due 2007(11)
10.16 Amendment and Assumption Agreement dated as of December 29,
1997, relating to Note Purchase Agreements relating to 7.15%
Notes due 2007(13)
10.17 Intercompany Agreement dated as of December 29, 1997,
between the Registrant and the Operating Partnership(9)
21. Subsidiaries of the Registrant or the Operating Partnership
23. Consent of PricewaterhouseCoopers LLP
27.1 Financial Data Schedule
</TABLE>
- ------------------------
NOTES
<TABLE>
<C> <S>
(1) Filed as an Exhibit to Registrant's Current Report on
Form 8-K (File No. 1-9468) dated September 23, 1996.
(2) Filed as an Exhibit to Registrant's Current Report on
Form 8-K (File No. 1-9468) dated January 3, 1997.
</TABLE>
69
<PAGE>
<TABLE>
<C> <S>
(3) Filed as an Exhibit to Registrant's Current Report on
Form 8-K (File No. 1-9468) dated October 15, 1996.
(4) Filed as an Exhibit to Registrant's Current Report on
Form 8-K (File No. 1-9468) dated December 10, 1996.
(5) Filed as an Exhibit to Registrant's Annual Report on
Form 10-K (File No. 1-9468) for the year ended December 31,
1993.
(6) Filed as an Exhibit to Registrant's Annual Report on
Form 10-K (File No. 1-9468) for the year ended December 31,
1995.
(7) Filed as an Exhibit to Registrant's Current Report on
Form 8-K (File No. 1-9468) dated November 8, 1995.
(8) Filed as an Exhibit to Registrant's Quarterly Report on
Form 10-Q (File No. 1-9468) for the quarter ended
September 30, 1996.
(9) Filed as an Exhibit to the Registrant's Form 8-A/A dated
December 29, 1997.
(10) Filed as an Exhibit to the Registrant's Current Report on
Form 8-K (File No. 1-9468) dated December 31, 1997.
(11) 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.
(12) Filed as an Exhibit to the Registrant's Registration
Statement on Form S-3 (No. 333-43407).
(13) Filed as an Exhibit to the Registrant's Annual Report on
Form 10-K (File No. 1-9468) for the year ended December 31,
1997.
(14) Filed as an Exhibit to the Registrant's Quarterly Report on
Form 10-Q (File No. 1-9468) for the quarter ended March 31,
1998.
</TABLE>
(b) Form 8-K filings: None in the quarter ended December 31, 1999.
70
<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.
<TABLE>
<S> <C> <C>
NVEST, L.P.
By: Nvest Corporation,
its General Partner
Date: March 28, 2000 By: /s/ G. NEAL RYLAND
-----------------------------------------
G. Neal Ryland
EXECUTIVE VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
</TABLE>
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 March 28, 2000.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
/s/ PETER S. VOSS
------------------------------------------- Chairman, Chief Executive Officer and
Peter S. Voss President
/s/ G. NEAL RYLAND
------------------------------------------- Executive Vice President and Chief Financial
G. Neal Ryland Officer
/s/ KEVIN P. CHARLESTON
------------------------------------------- Senior Vice President, Financial Operations
Kevin P. Charleston (Principal Accounting Officer)
/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/ JEFFREY J. HODGMAN
------------------------------------------- Director
Jeffrey J. Hodgman
/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/ OSCAR L. TANG
------------------------------------------- Director
Oscar L. Tang
</TABLE>
71
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF NVEST COMPANIES, L.P.
State or Jurisdiction
of Incorporation
Subsidiary or Organization
- ---------- ---------------
AEW Advisors, Inc. Massachusetts
AEW Capital Management, Inc. Massachusetts
AEW Capital Management, L.P. Delaware
AEW Curzon Limited United Kingdom
AEW Hotel Investment Corporation Massachusetts
AEW Investment Group, Inc. Massachusetts
(includes approximately 23 real estate investment
subsidiaries, all of which operate in the United States)
AEW Management and Advisors, L.P. Delaware
AEW Partners III, Inc. Delaware
AEWPN, LLC Delaware
AEW TSF, Inc. Delaware
AEW Real Estate Advisors, Inc. Massachusetts
AEW Real Estate Advisors, Limited Partnership Massachusetts
AEW Securities Limited Partnership Massachusetts
AEW II Corporation Massachusetts
Asahi-Nvest Investment Advisory Co., Ltd. Japan
Back Bay Advisors, Inc. Massachusetts
Back Bay Advisors, 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
Kobrick Funds LLC Delaware
Loomis, Sayles & Company, Inc. Massachusetts
Loomis, Sayles & Company, L.P. Delaware
Loomis, Sayles Distributors, L.P. Delaware
Loomis, Sayles Distributors, Inc. Massachusetts
Loomis Sayles (Euro) Limited United Kingdom
Loomis Sayles (Australia) Holdings LLC Australia
Loomis Sayles (Australia) Pty Limited Australia
Nvest Distribution Corporation (1) Massachusetts
Nvest Funds Distributor, L.P. (2) Delaware
Nvest Funds Management, L.P. (3) Delaware
Nvest Services Company, Inc. (4) Delaware
Nvest Associates, Inc. Delaware
Nvest Holdings, Inc. Massachusetts
<PAGE>
Nvest Partnerships, L.L.C. Delaware
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
Westpeak Investment Advisors Australia Limited Pty Australia
(1) Formerly known as NEF Corporation.
(2) Formerly known as New England Funds, L.P.
(3) Formerly known as New England Funds Management, L.P.
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
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 Nvest, L.P. of our reports
dated January 28, 2000 appearing on pages 40 and 55 of this Form 10-K.
Boston, Massachusetts
March 28, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE DECEMBER
31, 1999 FORM 10-K OF NVEST, L.P.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 3
<SECURITIES> 0
<RECEIVABLES> 4,835
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 4,838
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 66,053
<CURRENT-LIABILITIES> 4,634
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 61,419
<TOTAL-LIABILITY-AND-EQUITY> 66,053
<SALES> 0
<TOTAL-REVENUES> 15,398
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3,450
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 11,948
<INCOME-TAX> 0
<INCOME-CONTINUING> 11,948
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,948
<EPS-BASIC> 1.88
<EPS-DILUTED> 1.88
</TABLE>
