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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________
FORM 10-K
[x] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934 For the fiscal year ended December 31, 1996
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ___________ to ___________
Commission file number 1-10994
PHOENIX DUFF & PHELPS CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 95-4191764
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
56 Prospect Street 06115
Hartford, Connecticut (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (860) 403-5000
___________
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
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Common Stock, par value $.01 per share New York Stock Exchange
Series A Convertible Exchangeable Preferred New York Stock Exchange
Stock (Stated value $25.00 per share)
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No ___.
---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. X
-
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of March 19, 1997, computed by reference to the last reported
price at which the stock was sold on such date, was $140,201,644
The number of shares outstanding of the registrant's common stock, par value
$.01 per share, as of March 19, 1997 was 44,056,016.
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Portions of the following documents are incorporated by Part of this Form 10-K into which the document is incorporated
- - -------------------------------------------------------- --------------------------------------------------------------
reference into this Form 10-K: by reference:
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Phoenix Duff & Phelps Corporation
1997 Proxy Statement Part III
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PHOENIX DUFF & PHELPS CORPORATION
ANNUAL REPORT FOR 1996 ON FORM 10-K
TABLE OF CONTENTS
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PART I PAGE
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Item 1. Business............................................. 1
Executive Officers of the Company............................... 16
Item 2. Properties........................................... 18
Item 3. Legal Proceedings.................................... 18
Item 4. Submission of Matters to a Vote of Security Holders.. 19
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters................................. 20
Item 6. Selected Financial Data.............................. 20
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations................. 21
Item 8. Financial Statements and Supplementary Data.......... 27
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure................. 54
PART III
Item 10. Directors and Executive Officers of the Registrant... 54
Item 11. Executive Compensation............................... 54
Item 12. Security Ownership of Certain Beneficial Owners and
Management.......................................... 54
Item 13. Certain Relationships and Related Transactions....... 54
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K......................................... 55
Signatures...................................................... 58
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PART I
ITEM 1. BUSINESS.
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GENERAL
Phoenix Duff & Phelps Corporation (the "Company") and its operating
subsidiaries, Duff & Phelps Investment Management Co. ("D&P Investment
Management"), Phoenix Investment Counsel, Inc. ("PIC"), National Securities &
Research Corporation ("NS&RC") and Phoenix Equity Planning Corporation
("PEPCO"), provide a variety of financial services to a broad base of
institutional, corporate and individual clients. Unless the context otherwise
requires, all references in this report to the "Company" refer to Phoenix Duff &
Phelps Corporation and its subsidiaries.
The Company's original business, which dates back to 1932, was to provide
clients with investment research on public utility companies. The Company grew
by expanding its products and services in areas in which management believed its
core investment research business provided a competitive advantage. For
example, the Company's utility research was expanded over time to include
leading industrial and financial companies. As its capabilities in investment
research grew, the Company built upon its reputation to establish a range of
complementary financial services. The Company entered the institutional
investment management business in 1979, and investment management grew to become
the Company's primary business.
In order to expand the Company's investment management business, on
November 1, 1995, pursuant to an Agreement and Plan of Merger dated as of June
14, 1995 (the "Merger Agreement") among Duff & Phelps Corporation, PM Holdings,
Inc. ("Holdings") and Phoenix Securities Group, Inc., a wholly-owned subsidiary
of Holdings ("PSG"), PSG was merged with and into Duff & Phelps Corporation (the
"Merger"). Pursuant to the Merger, Duff & Phelps Corporation was renamed
Phoenix Duff & Phelps Corporation. Holdings is a wholly-owned subsidiary of
Phoenix Home Life Mutual Insurance Company ("Phoenix Home Life"). PSG, through
its subsidiaries, conducted Phoenix Home Life's investment management operations
other than real estate and mortgages. As a result of the Merger, PSG's
subsidiaries, PIC, PEPCO and NS&RC, are now direct or indirect wholly-owned
subsidiaries of the Company.
Pursuant to the Merger Agreement, on November 1, 1995, the capital stock of
PSG was converted into 26.4 million shares of the Company's common stock and the
approximately 17.0 million shares of the Company's common stock then issued
remain outstanding. Accordingly, Holdings owns approximately 60% of the
outstanding common stock of the Company.
In connection with the Merger, a special cash dividend of $1.75 per share
and a stock dividend of one-tenth of a share of the Company's Series A
Convertible Exchangeable Preferred Stock ("Series A Preferred Stock") with
respect to each share of the Company's common stock were paid on November 8,
1995 by the Company to its stockholders of record on October 31, 1995, the day
preceding the consummation of the Merger. Additionally, pursuant to the Merger
Agreement, Holdings contributed $30.7 million in cash to the capital of PSG
immediately prior to the Merger, and immediately following the Merger, Holdings
exchanged $35.0 million of debt owed to it by PSG for 1.4 million shares of
Series A Preferred Stock.
The Merger has provided the Company access to the broader retail client
base of PIC and NS&RC and to new distribution channels for its products through
PEPCO and Phoenix Home Life's agent field force, while introducing PIC to the
institutional clients of the Company. The Merger has also allowed the Company
to add the Phoenix family of mutual funds to its current product line, thereby
broadening its line of products.
The Company believes that the Merger will enable it to sponsor new mutual
funds, further broadening its product line and improving its ability to increase
assets under management. Furthermore, the Company believes the Merger has
provided the Company's stockholders the opportunity for continued equity
participation on financially attractive terms in a larger, more diversified
combined enterprise.
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In order to better focus on merging and growing the retail and
institutional investment management business, the Company announced on May 14,
1996, that it was exiting the fee based investment research, investment banking
and financial advisory businesses. This action was completed on July 1, 1996.
Although by reason of the Merger, Duff & Phelps Corporation acquired PSG,
for accounting purposes under generally accepted accounting principles, PSG was
deemed to be the surviving entity. Accordingly, PSG's financial statements are
deemed to be the financial statements of the surviving entity and the Merger was
accounted for as an acquisition of Duff & Phelps Corporation by PSG using the
purchase method of accounting. As a result, the results of operations for the
year ended December 31, 1995 of the Company reflect PSG's results of operations
for the entire year combined with Duff & Phelps Corporation's results of
operations from November 1, 1995 through December 31, 1995. Results of
operations for prior years reflect PSG's results.
INVESTMENT MANAGEMENT
Three of the Company's operating subsidiaries provide investment management
services: D&P Investment Management, PIC and NS&RC.
D&P INVESTMENT MANAGEMENT
GENERAL. D&P Investment Management was established by the Company in 1979
with the acquisition of Boyd, Watterson & Co., a Cleveland-based investment
manager founded in 1928. It provides investment management services to a
variety of institutions and individuals. Clients include a number of investment
companies, including Duff & Phelps Utilities Income Inc., a closed-end
investment company which commenced operations in 1987 (the "Utilities Income
Fund"), Duff & Phelps Utilities Tax-Free Income Inc., a closed-end investment
company established in 1991 (the "Utilities Tax-Free Fund") and Duff & Phelps
Utility and Corporate Bond Trust Inc., a closed-end investment company
established in January 1993 (the "Utility and Corporate Bond Trust")
(collectively the "Duff & Phelps Funds"). D&P Investment Management's clients
also include corporate, public and multi-employer retirement funds and
endowment, insurance and other special purpose funds. Additionally, D&P
Investment Management managed the high yield bond portfolios of D&P CBO
Partners, L.P. and Windy City CBO Partners, L.P., two partnerships which issued
collateralized bond obligations. Subsidiaries of the Company have invested as
general and limited partners of these partnerships. D&P Investment Management
offers fixed income and equity investment management services on both a
discretionary basis, where D&P Investment Management makes the investment
decisions with respect to the assets under management; and an advisory basis,
where D&P Investment Management recommends investment policies and strategies to
clients that maintain their own investment staffs that make the investment
decision. As of December 31, 1996, D&P Investment Management's 96 employees
included 15 portfolio managers, who have an average of 21 years of investment
management experience. D&P Investment Management maintains offices in
Cleveland, Ohio and Chicago, Illinois.
INVESTMENT STRATEGY. D&P Investment Management believes that its
experience in investment management and research are valuable assets in its
investment decision-making process.
D&P Investment Management's fixed income investment philosophy concentrates
on identification of fundamental value and avoidance of credit risk. The fixed
income investment approach begins with the examination of economic fundamentals
that lead to a forecast of interest rate trends with the primary objective of
enhancing the total portfolio return. Trading is employed primarily to
capitalize on changing interest rate trends and to control market risk. D&P
Investment Management emphasizes "sector" values, believing that specific
industries or groups offer more attractive returns than others in varying
economic environments. Fixed income investments are geared towards
intermediate-term securities which, it is believed, offer more consistent
performance and a higher likelihood of preserving capital.
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D&P Investment Management's equity investment philosophy is founded on the
view that equity investments should be made in securities that provide higher
total returns coupled with lower risk relative to broad stock market indices.
Capital appreciation and relatively high dividend income are key factors in
meeting these goals. In addition, equity portfolios are geared towards equities
with relatively low price-to-earnings ratios and higher than average returns on
equity. The equity strategy emphasizes a long-term investment horizon which
usually results in low portfolio turnover and thus lower transaction costs. The
portfolio managers invest in equities of medium to large companies to provide a
relatively high level of liquidity.
ASSETS UNDER MANAGEMENT. As of December 31, 1996, D&P Investment
Management had approximately $13.6 billion in total assets under management on a
discretionary basis. Such discretionary assets consisted of approximately $2.2
billion in equity accounts, $8.4 billion in fixed income accounts and $3.0
billion in the Duff & Phelps Funds. Additionally, D&P Investment Management had
approximately $28.0 billion in total assets under management on an advisory
basis at December 31, 1996.
At December 31, 1996, D&P Investment Management provided discretionary and
advisory investment management services to approximately 309 institutional
accounts of varying size, including corporate, public and multi-employer
retirement funds and endowment, insurance and other special purpose funds, as
well as 134 individual and small institutional accounts. D&P Investment
Management also acts as investment advisor to investment companies. Under the
Investment Company Act of 1940, as amended (the "1940 Act"), advisory and
subadvisory agreements with investment companies, including the Duff & Phelps
Funds, may be continued in effect for a period of more than two years from the
date of their execution only so long as such continuance is specifically
approved at least annually by a majority of the disinterested directors of such
investment company and by either the board of directors or the stockholders of
the investment company. In addition, the 1940 Act requires such agreements to
be terminable without penalty to the investment company by its directors or
stockholders upon 60 days' notice to the advisor and further requires such
agreements to automatically terminate in the event of their assignment or a
change in control of the advisor. D&P Investment Management's advisory
agreements with non-investment company clients are generally terminable without
penalty upon notice by the client to D&P Investment Management.
REVENUES. D&P Investment Management's revenues for 1996 were $41.0
million. Fees for the management of discretionary accounts are based on the
asset value of the investment portfolios under management, while fees for
advisory accounts are fixed rate fees. Pursuant to an investment advisory
agreement between D&P Investment Management and the Utilities Income Fund, D&P
Investment Management receives a quarterly fee at an annual rate of 0.60% of the
first $1.5 billion of the average weekly net assets of the Utilities Income Fund
and 0.50% of the average weekly net assets in excess of $1.5 billion. Fees from
the Utilities Income Fund totaled $12.3 million for 1996 (representing 30% of
D&P Investment Management's total revenues for 1996). Pursuant to an investment
advisory agreement between D&P Investment Management and the Utilities Tax-Free
Fund, D&P Investment Management receives a monthly fee at an annual rate of
0.50% of the average weekly net assets of the Utilities Tax-Free Fund. Fees
from the Utilities Tax-Free Fund totaled $1.0 million for 1996. Pursuant to an
investment advisory agreement between D&P Investment Management and the Utility
and Corporate Bond Trust, D&P Investment Management received a monthly fee at an
annual rate of 0.50% of the average weekly net assets of the Utility and
Corporate Bond Trust. Fees from the Utility and Corporate Bond Trust totaled
$1.8 million for 1996. Pursuant to an investment advisory agreement between D&P
Investment Management and the Enhanced Reserves Fund, D&P Investment Management
receives a monthly fee at an annual rate of 0.15% of the average daily net
assets of the Enhanced Reserves Fund. Effective July 19, 1996 the assets of the
Enhanced Reserves Fund were transferred to the Enhanced Reserves Portfolio of
Phoenix Duff & Phelps Institutional Mutual Funds. D&P Investment Management
continues to provide management services to the Enhanced Reserves Portfolio
after the transfer. Fees from the Enhanced Reserves Fund totaled $146 thousand
for 1996. Other than the Utilities Income Fund and the Utility and Corporate
Bond Trust, no single account represented more than 2% of D&P Investment
Management's total revenues during 1996.
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MARKETING. At December 31, 1996, D&P Investment Management had 292
discretionary institutional investment clients, with most of its business coming
by referral. D&P Investment Management also solicits new accounts by relying on
its portfolio managers to establish relationships with pension fund consulting
firms whose role is advising clients in the selection of investment management
firms. This strategy has the benefit of magnifying D&P Investment Management's
marketing effort because a successful relationship with a given consultant tends
to create multiple solicitation opportunities.
DUFF & PHELPS UTILITIES INCOME INC. Included in the assets managed by D&P
Investment Management, on a discretionary basis, are those of the Utilities
Income Fund, a New York Stock Exchange-traded, closed-end diversified management
investment company. The primary investment objectives of the Utilities Income
Fund, which invests in a diversified portfolio of equity and fixed-income
securities of publicly traded utilities, are current income and long-term growth
of income with capital appreciation as a secondary objective. At December 31,
1996, the Utilities Income Fund had a total net asset value of approximately
$2.3 billion.
DUFF & PHELPS UTILITIES TAX-FREE INCOME INC. D&P Investment Management
manages, on a discretionary basis, the assets of the Utilities Tax-Free Fund, a
New York Stock Exchange-traded, closed-end diversified management investment
company. The primary investment objective of the Utilities Tax-Free Fund, which
invests primarily in a diversified portfolio of investment grade tax-exempt
obligations issued by or on behalf of utilities, is current income exempt from
regular federal income tax consistent with the preservation of capital. At
December 31, 1996, the Utilities Tax-Free Fund had a total net asset value of
approximately $199 million.
DUFF & PHELPS UTILITY AND CORPORATE BOND TRUST INC. D&P Investment
Management manages, on a discretionary basis, the assets of the Utility and
Corporate Bond Trust, a New York Stock Exchange-traded, closed-end diversified
management investment company. The primary investment objective of the Utility
and Corporate Bond Trust, which invests primarily in a diversified portfolio of
investment grade debt securities and preferred stocks issued by or on behalf of
utilities and other corporate entities, mortgage-backed securities and other
asset-backed securities, is high current income consistent with investing in
securities of investment grade quality. At December 31, 1996, the Utility and
Corporate Bond Trust had a total net asset value of approximately $491 million.
DUFF & PHELPS ENHANCED RESERVES FUND. D&P Investment Management manages,
on a discretionary basis, the assets of the Enhanced Reserves Fund, an open-end
diversified management investment company. The primary investment objective of
the Enhanced Reserves Fund, which invests primarily in a diversified portfolio
of U.S. government securities and high grade corporate debt obligations, is high
current income consistent with the preservation of capital. Effective July 19,
1996 the assets of the Enhanced Reserves Fund were transferred to the Enhanced
Reserves Portfolio of Phoenix Duff & Phelps Institutional Mutual Funds. D&P
Investment Management continues to manage this portfolio. At December 31, 1996
the Enhanced Reserves Portfolio had a total net asset value of approximately
$124 million.
CBO FUNDS. D&P Investment Management managed diversified portfolios of
high yield bonds which secured collateralized bond obligations ("CBOs") issued
by two limited partnerships, each of which is described in more detail below.
The CBOs were issued in separate classes having different interest rates and
different priority rights to payment. Principal and interest payments on the
high yield bonds in the collateral portfolios were used to service principal and
interest payments on the CBOs. The CBOs were payable solely out of the proceeds
of the collateral which secured them and thus were nonrecourse.
D&P Investment Management, pursuant to separate management agreements,
managed the collateral portfolios of the two CBO limited partnerships.
Additionally, as owners with other investors of general partnership and limited
partnership interests in the partnerships, subsidiaries of the Company were
entitled to a portion of any assets remaining after the CBOs were retired. The
risk to the Company as a result of such general partnership investments was
limited due to the nonrecourse nature of the CBOs, subject to the qualification
described below, and the facts that the limited partnerships were not engaged in
any businesses or transactions other than the specific CBO transactions for
which they were organized and that the Company's subsidiaries which were the
general partners were in no other businesses and had no assets other than their
interests in the limited partnerships. Neither of the CBO limited partnerships
nor their general or limited partners were liable for any deficiency if the
proceeds of the collateral were not sufficient to pay the CBOs; however, the CBO
holders did not waive any right to bring an action against the limited
partnerships or their partners arising out of negligence, willful misconduct,
fraud or failure to comply with the terms of the CBOs or the indenture pursuant
to which the CBOs were issued.
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In 1989, a wholly-owned subsidiary of the Company, CBO Investments Co., and
other investors organized the first of the above-mentioned limited partnerships,
D&P CBO Partners, L.P. (the "D&P Partnership"), which together with its wholly-
owned corporation, D&P CBO Corp., issued $301 million in aggregate principal
amount of CBOs. CBO Investments Co. contributed $250,000 to become a general
partner and $650,000 to become a limited partner of the D&P Partnership. In
1996, D&P CBO was liquidated in accordance with contractual arrangements and the
Company has no remaining investment.
In 1990, another wholly-owned subsidiary of the Company, Windy City
Investments Co., and other investors organized a second limited partnership,
Windy City CBO Partners, L.P. (the "Windy City Partnership"), which together
with its wholly-owned corporation, Windy City CBO Corp., issued $184.3 million
in aggregate principal amount of CBOs. Windy City Investments Co. contributed
$350,000 to become a general partner and $500,000 to become a limited partner of
the Windy City Partnership. As a result of income earned by the Windy City
Partnership, the Company's investment in that partnership had a book value of
$8.8 million at December 31, 1996. In 1997, Windy City CBO was liquidated in
accordance with contractual arrangements and the Company has no remaining
investment.
The CBOs issued by the D&P Partnership and its subsidiary in the 1989
transaction were issued in three classes as follows: $240 million in principal
amount of Class A Bonds, $45 million in principal amount of Class B Bonds and
$16 million in principal amount of Class C Bonds. On October 3, 1991, the
trustee (the "Trustee") under the indenture pursuant to which the 1989 CBOs were
issued (the "Indenture") notified the CBO holders that D&P Investment Management
as manager of the portfolio had failed to comply with a provision of the
Indenture by holding certain defaulted bonds in the portfolio beyond one year
after they became defaulted bonds without delivering certain required evidence
from the rating agency that had rated the Class A Bonds and that such failure
constituted an event of default under the Indenture. D&P Investment Management
informed the CBO holders that the rating agency declined to provide the required
evidence, that it did not believe that it was in the best interest of the CBO
holders to dispose of the defaulted bonds after one year before their issuers
are restructured or reorganized, and proposed that the event of default be
waived and that the Indenture be amended. Upon the occurrence of an event of
default, the Trustee or the holders of not less than 25% in outstanding amount
of Class A Bonds may declare the principal amount of all of the CBOs, together
with interest accrued thereon, to be immediately due and payable. The Class A
Bonds were redeemed in full on the October 15, 1996 Payment Date. With the
redemptions, the Class B Bonds became the Controlling Class. On November 18,
1996, holders of in excess of 25% of the Aggregated Outstanding Amount of the
Controlling Class declared the principal of all the Bonds to be immediately due
and payable per Section 5.02 of the Indenture. Under Section 5.04 (a)(ii) of
the Indenture, holders of 100% of the Controlling Class consented to the
provision which allowed the Trustee to direct the sale of the remaining
Collateral Debt Securities and the liquidation of the CBO. The liquidation
process proceeded in November and December of 1996 and subsequent distributions
were made to the Class B Bondholders in the amount of $48.0 million in December.
An additional payment of $4.9 million was made in January 1997. An additional
and final payment of less than $60,000 will be made to the Class B Bondholders
in 1997. None of the principal and the accrued interest due on the Class C
Bonds will be paid.
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PIC, NS&RC AND PEPCO
GENERAL. PIC and NS&RC, each of which is an investment advisor registered
under the Investment Advisors Act of 1940, as amended (the "Advisers Act"),
provide investment management services for mutual funds and, in the case of
PIC, for institutional investors. PIC also manages the investment assets (other
than investments in real estate and mortgages) of the General Account and
Variable Products Separate Accounts of Phoenix Home Life, which is the
fourteenth largest mutual life insurance company in the United States. PEPCO, a
broker-dealer registered under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), serves as principal underwriter and national distributor
of the Phoenix mutual funds and variable insurance and annuity contracts, and
provides a wide range of investment management support services, including
accounting, pricing, record keeping and transfer agency services. PIC, NS&RC
and PEPCO were acquired by the Company pursuant to the Merger on November 1,
1995 in order to expand the Company's investment management business.
Investment management and advisory services are provided by PIC and NS&RC
for their institutional and mutual fund clients with respect to publicly-traded
equity, convertible and fixed income securities and, in the case of PIC,
privately-placed fixed income securities. As of December 31, 1996, PIC and NS&RC
had approximately $18.2 billion and $1.7 billion, respectively, in assets under
management. For the year ended December 31, 1996, PIC had total revenues of
$66.5 million and net income of $23.1 million and NS&RC had total revenues of
$13.0 million and net income of $7.0 million.
The following tables set forth the combined assets under management and
management fees for PIC and NS&RC for the year ended December 31, 1996:
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ASSETS UNDER MANAGEMENT
(In millions)
SOURCE:
Retail Products(a) $11,408
Institutional Products(b) 1,586
Phoenix Home Life General Account 6,857
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Total $19,851
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ASSETS CLASSIFICATION:
Equity Accounts $ 7,276
Balanced Accounts 3,870
Fixed Income Accounts 8,104
Money Market Accounts 601
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Total $19,851
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MANAGEMENT FEES
(In thousands)
SOURCE:
Retail Products(a) $62,364
Institutional Products(b) 6,602
Phoenix Home Life General Account 8,156
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Total $77,122
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(a) Retail products consist of mutual funds for which PIC and NS&RC are the
investment advisors, including The Phoenix Edge Series Fund in which
Phoenix Home Life Variable Separate Accounts are invested.
(b) Institutional products consist of PIC's investment advisory accounts
(including mutual fund portfolios managed by PIC under sub-advisory
agreements).
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The strategy of PIC and NS&RC is to increase assets under management by
offering institutional and mutual fund clients a broad array of investment
products and services while at the same time moderating growth to insure that
clients receive the highest quality of service. PIC and NS&RC believe that the
number of managed investment accounts has a greater impact on the quality of
investment advisory services than the amount of assets under management because
of the time needed to service each account's particular investment requirements.
Portfolio managers devote substantially all of their time to investment
management. General informational services for clients, such as investment
performance and account information, are assigned to other personnel dedicated
exclusively to client relations. In addition, portfolio managers typically
manage accounts of clients with similar investment objectives, thereby enabling
clients to benefit from the expertise of their portfolio managers in achieving
their investment objectives.
Portfolio managers actively manage client portfolios and exercise
investment discretion within general investment guidelines provided by their
clients. Client policies regarding the use of investment techniques and
strategies such as derivative securities and leverage are followed. While a
large portion of assets under management are currently invested in equity and
fixed income securities of domestic issuers, PIC and NS&RC also invest actively
in equity and fixed income securities of foreign issuers.
INVESTMENT PHILOSOPHY. PIC's and NS&RC's approach to investing in equity
securities is based on the belief that stocks of companies with superior growth,
purchased at reasonable valuations, will produce superior investment results
over time. PIC and NS&RC seek to outperform the Standard & Poor's 500 stock
index over full market cycles by selecting securities of issuers whose future
earnings are expected to increase faster than the market. PIC's and NS&RC's
strategy emphasizes that early identification and timely investment of the
market's driving themes are the key elements to multi-year outperformance. It
considers the top-down market perspective and bottom-up issuer analysis as
equally critical to the decision making process and regards an effective sell
discipline as important as stock selection in achieving long-term investment
objectives.
PIC's and NS&RC's investment strategy with respect to fixed income
securities reflects the belief that no one can consistently predict the
direction and magnitude of interest rate movements. PIC's and NS&RC's fixed
income strategy combines active sector rotation and controlled credit risk with
the goal of achieving superior investment returns. PIC and NS&RC utilize a
broad range of taxable and tax-exempt sectors, maintain a high average quality
profile, and seek to minimize interest rate risk by constraining overall
portfolio duration. PIC and NS&RC have a long-term investment horizon;
projections of deriving expected growth rates for specific investment
opportunities look ahead five to ten years. A strong sell discipline dictates
that a security should be sold if current fundamentals warrant.
As of December 31, 1996, PIC employed 23 portfolio managers and 11 research
analysts. The portfolio managers and research analysts meet regularly to
develop a consensus regarding the impact of macroeconomic conditions on the
market and to establish current and long-term investment strategies. Focusing on
sectors and industries for which growth is anticipated, PIC's portfolio managers
formulate a "buy" list of recommended securities through evaluation of
investment research provided by PIC's research analysts, who both perform their
own research and review and analyze research generated by national and regional
brokerage firms and other entities which produce investment research. PIC also
formulates its investment decisions through direct contact with the managements
of various issuers. The "buy" list is then utilized by the portfolio managers
who select securities from this list for their assigned portfolios as
appropriate in light of their clients' general investment guidelines.
PIC's investment professionals carefully scrutinize each others' suggested
investments in order to determine whether such investments should be placed on
the "buy" list. PIC believes that the collective process of formulating
investment strategies and recommending securities enhances the dissemination of
successful investment ideas and promotes the prompt sale of underperforming
securities.
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CLIENTS AND CLIENT DEVELOPMENT. PIC has a broad institutional client base
consisting primarily of medium-sized pension and profit sharing plans of
corporations, governmental entities and unions, as well as endowments and
foundations, each of which has between $6 million and $305 million in assets
managed by PIC. As of December 31, 1996, assets under management by PIC with
respect to its 32 institutional advisory accounts (other than mutual funds for
which PIC is the investment advisor and Phoenix Home Life's General Account and
Separate Accounts) was approximately $1.6 billion, or 8.0% of the total assets
under management by PIC and NS&RC as of that date.
As of December 31, 1996, PIC managed approximately $6.9 billion of the
approximately $10.6 billion in assets held in Phoenix Home Life's General
Account. The balance of the General Account assets consisted primarily of
investments in real estate and mortgages and insurance policy loans. PIC also
manages assets held in certain of the Separate Accounts of Phoenix Home Life.
Separate Accounts are separate investment accounts of an insurance company, the
assets of which are by law segregated from the insurance company's general
account assets. By purchasing an investment contract or policy, such as a group
annuity contract, from Phoenix Home Life, an institutional investor can place
its assets, together with the assets of other investors, in one or more Separate
Accounts ("Pooled Separate Accounts"). On March 1, 1996, certain of the Pooled
Separate Accounts were reorganized into new mutual funds managed by PIC, the
Phoenix Duff & Phelps Institutional Mutual Funds. Most of the investors in the
Pooled Separate Accounts elected to invest their account assets in the new
mutual funds and those investors that did not so elect received cash in an
amount equal to the value of their account. As of December 31, 1996, Phoenix
Duff & Phelps Institutional Mutual Funds had $383 million of assets under
management. Similarly, Phoenix Home Life and one of its insurance company
subsidiaries have each created Separate Accounts to hold assets backing their
respective obligations under variable insurance and annuity contracts ("Variable
Separate Accounts"), which assets are invested in mutual funds managed primarily
by PIC. Virtually all of the assets held in Variable Separate Accounts are
currently invested in The Phoenix Edge Series Fund, described below, which had
approximately $2.3 billion in aggregate net assets as of December 31, 1996.
PIC and NS&RC are investment advisors to 34 mutual fund portfolios which
had aggregate assets under management of approximately $11.4 billion as of
December 31, 1996. These mutual funds (the "Phoenix Funds") are available to
both institutional and retail investors and are summarized as follows:
PHOENIX SERIES FUND includes seven funds managed by PIC. These funds had
approximately $5.7 billion in aggregate assets under management as of
December 31, 1996;
PHOENIX MULTI-PORTFOLIO FUND includes six funds managed by PIC. These
funds had approximately $766 million in aggregate assets under management
as of December 31, 1996;
PHOENIX STRATEGIC EQUITY FUND includes three funds, for which PIC is the
advisor to two funds and NS&RC is the advisor to one fund. These funds had
approximately $604 million in aggregate assets under management as of
December 31, 1996;
OTHER PHOENIX FUNDS include six funds, for which PIC is the advisor to one
fund and NS&RC is the advisor to five funds. These funds had approximately
$1.8 billion in aggregate assets under management as of December 31, 1996;
THE PHOENIX EDGE SERIES FUND includes seven funds managed by PIC with
approximately $2.3 billion in aggregate assets under management as of
December 31, 1996. These funds are not offered directly to the public but
serve as the investment vehicles for assets invested in variable insurance
and annuity contracts of Phoenix Home Life (or an insurance company
subsidiary); and
THE PHOENIX DUFF & PHELPS INSTITUTIONAL MUTUAL FUNDS include five funds
managed by PIC with approximately $259 million in aggregate assets under
management as of December 31, 1996. (In addition, the funds include $124
million managed by D&P Investment Management).
The Class A shares issued to the public by the Phoenix Funds are all
subject to conventional front-end sales charges, except for a money-market fund
which is sold on a no-load basis. The Class B shares issued by these mutual
funds are subject to contingent deferred sales charges which are typically paid
by the holder upon redemption of such shares during the first five years.
8
<PAGE>
PIC also serves as investment advisor to three investment funds of a non-
U.S. investment company qualifying under the laws of Luxembourg as a societe
d'investissement a capital variable ("SICAV"), the shares of which are
distributed overseas to foreign investors by non-U.S. subsidiaries of Phoenix
Home Life. The SICAV had approximately $37.6 million in aggregate assets under
management as of December 31, 1996. PIC also provides sub-investment advisory
services under contracts with investment advisors to manage seven mutual fund
portfolios which are included among its 32 institutional accounts. As of
December 31, 1996, PIC managed approximately $318 million in aggregate assets
under management under these sub-advisory agreements.
Other than Phoenix Home Life and Phoenix Home Life sponsored products, no
single account represented more than 2% of PIC's or NS&RC's total revenues
during 1996.
The ability of PIC and NS&RC to attract and retain clients is largely
dependent on the portfolio managers and other key employees of PIC. PIC
therefore maintains a variety of competitive compensation programs designed to
reward both short-term and long-term profitability, investment performance and
new business. In an effort to maximize time devoted by portfolio managers to
investment management, client relations and shareholder service departments
attend to the informational needs of clients.
Product innovation is also central to the development of new clients and
the retention of existing clients. New investment management products typically
require "seed" funding to assist in attracting accounts and developing an
initial performance record. Traditionally, Phoenix Home Life has directly or
indirectly provided seed funding for new investment funds managed by PIC.
Following the Merger, Phoenix Home Life may not continue to provide such
funding, although no decision in this regard has been made. If such funding is
not provided by Phoenix Home Life, it will likely be internally generated or
financed by the Company.
INVESTMENT MANAGEMENT AGREEMENTS AND FEES. PIC and NS&RC have entered into
investment management agreements with each of their institutional and mutual
fund clients, including agreements with Phoenix Home Life with respect to its
General Account. In addition, PIC has entered into sub-investment management
agreements with each of the investment advisors for which it has agreed to
manage all or a part of a mutual fund portfolio.
Pursuant to these agreements, PIC and NS&RC have been granted discretionary
authority to make investment decisions with respect to assets under management
within certain general investment guidelines and, in the case of the Phoenix
Home Life General Account, subject to oversight by the Phoenix Home Life Board
of Directors and the Investment Committee thereof.
Investment management agreements are terminable by either party upon
relatively short notice: 60 days in the case of agreements with mutual funds and
typically 30 to 60 days in the case of agreements with institutional clients.
Agreements generally may not be assigned without the consent of the client and
terminate automatically in the event of their assignment. "Assignment" in these
agreements typically has the meaning given under the 1940 Act, which definition
would include certain changes in the ownership of the Company or its investment
advisory subsidiaries.
PIC and NS&RC are compensated under investment management agreements on the
basis of fees calculated as a percentage of assets under management. The
percentage of the fee generally declines as the amount of assets under
management increases above certain thresholds. In addition, the percentage of
the fee is also dependent upon the difficulty of management of the investments;
generally, investments in equity securities command a higher percentage fee than
fixed income securities, as do investments, such as investments in foreign
securities, which require more extensive management time. Assets managed by PIC
and NS&RC are valued at their net asset values, which is the standard measure
adopted by the industry for valuing securities. Management fees for
institutional clients are typically payable monthly or quarterly. For their
investment management services, PIC and NS&RC receive management fees from each
mutual fund ranging from 0.40% to 0.75% per annum of the fund's average daily
net asset value.
9
<PAGE>
Management fees are negotiated by PIC and NS&RC and their clients.
Management fees paid by a mutual fund must initially be negotiated with the
Fund's board of directors and must be annually approved by a majority of the
board's disinterested directors. Increases in the fees must thereafter be
approved by the fund's shareholders. Since shareholder approval must be
obtained in order to implement fee increases, management fees paid by mutual
funds tend to be increased infrequently and the negotiations for fee changes are
influenced by competitive forces in the mutual fund industry.
Pursuant to an investment management agreement with Phoenix Home Life
effective as of January 1, 1995, PIC provides non-real estate investment
management services to the Phoenix Home Life General Account, which as of
December 31, 1996 had approximately $6.9 billion in assets managed by PIC. PIC
receives a management fee based on net asset values as follows: 0.10% per annum
of net assets invested in preferred stocks, publicly traded bonds, including
government securities, and cash and cash equivalents; 0.15% per annum of net
assets invested in privately placed bonds; 0.40% per annum of net assets
invested in common stock; and 0.45% per annum of net assets invested in venture
capital, oil and gas and leveraged lease products. The management fee is
payable monthly based on the average net asset value of the General Account.
For the year ended December 31, 1996, management fees paid to PIC with respect
to the General Account totaled $8.2 million.
Until March 1, 1996, PIC also managed the assets in five Phoenix Home Life
Pooled Separate Accounts, which on that date were reorganized into a new
institutional mutual fund series managed by PIC, the Phoenix Duff & Phelps
Institutional Mutual Funds. For the investment management services provided to
the new institutional mutual fund series PIC received investment management fees
ranging from 0.25% to 0.60% per annum of each account's average net asset
value. These management fees were payable quarterly based on the daily net
asset values during the calendar quarter. For the year ended December 31, 1996,
management fees paid to PIC with respect to these funds totaled $2.1 million.
Management of the Company believes that the management fees payable to PIC
under the General Account and Pooled Separate Account investment management
agreements were no less favorable to PIC than the management fees that would be
obtained from unaffiliated persons based on the size of these accounts and the
types of investments in which the assets of such accounts are invested. Any
changes in management fees to be paid to PIC under these agreements will be
negotiated by PIC and Phoenix Home Life, with such changes being subject to the
approval of a majority of the disinterested directors of the Company who are
neither employees nor directors of Phoenix Home Life or its subsidiaries. The
Company expects that any compensation under these agreements will be at
competitive rates which are no less favorable to PIC than the management fees
that would be obtained from unaffiliated persons based on the size of these
accounts and the types of investments in which the assets of such accounts are
invested.
MUTUAL FUNDS. Mutual funds managed by PIC and NS&RC are available for both
institutional and retail investors. These funds had assets under management as
of December 31, 1996 of approximately $11.4 billion. The following table
provides, with respect to each mutual fund managed by PIC and NS&RC, information
concerning its year of establishment, assets under management and investment
advisor:
10
<PAGE>
<TABLE>
<CAPTION>
($ IN THOUSANDS)
ASSETS UNDER
MANAGEMENT
FUND YEAR AS OF
- - ----- ESTABLISHED DECEMBER 31, 1996 ADVISOR
----------- ----------------- -------
<S> <C> <C> <C>
PHOENIX SERIES FUND:
Balanced Fund 1970 $ 1,857,266 PIC
Convertible Fund 1970 214,178 PIC
Growth Fund 1969 2,422,583 PIC
High Yield Fund 1980 553,427 PIC
Money Market Fund 1980 187,658 PIC
Aggressive Growth Fund 1968 245,506 PIC
U.S. Government Securities Fund 1987 208,066 PIC
-----------
$ 5,688,684
===========
PHOENIX MULTI-PORTFOLIO FUND:
Tax-Exempt Bond Portfolio 1988 $ 138,364 PIC
Mid Cap Portfolio 1989 445,907 PIC
Emerging Markets Bond Portfolio 1995 40,255 PIC
International Portfolio 1989 134,726 PIC
Endowment Equity Portfolio 1993 465 PIC
Diversified Income Portfolio 1993 5,967 PIC
-----------
$ 765,684
===========
PHOENIX STRATEGIC EQUITY SERIES FUND:
Equity Opportunities Fund 1944 $ 203,279 NS&RC
Small Cap Fund 1995 282,932 PIC
Strategic Theme Fund 1995 117,932 PIC
-----------
$ 604,143
===========
OTHER PHOENIX FUNDS:
Strategic Allocation Fund 1982 $ 319,242 PIC
Phoenix Multi Sector Short Term Bond
Fund 1992 24,076 NS&RC
Worldwide Opportunities Fund 1960 149,627 NS&RC
Income and Growth Fund 1940 851,968 NS&RC
Multi-Sector Fixed Income Fund 1989 323,806 NS&RC
California Tax-Exempt Fund 1983 118,520 NS&RC
-----------
$ 1,787,239
===========
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
($ IN THOUSANDS)
ASSETS UNDER
MANAGEMENT
YEAR AS OF
FUND ESTABLISHED DECEMBER 31, 1996 ADVISOR
- - ---- ----------- ----------------- -------
<S> <C> <C> <C>
THE PHOENIX EDGE SERIES FUND:
Multi-sector Fixed-income Fund 1986 $ 145,044 PIC
Money Market Fund 1986 131,361 PIC
Growth Fund 1986 1,235,395 PIC
Total Return Fund 1986 374,244 PIC
Balanced Fund 1992 204,285 PIC
International Fund 1990 172,667 PIC
Strategic Theme Fund 1996 25,972 PIC
-----------
$ 2,288,968
===========
PHOENIX DUFF & PHELPS
INSTITUTIONAL MUTUAL FUNDS:
Balanced Fund 1996 $ 49,157 PIC
Growth Fund 1996 105,717 PIC
U.S. Government Bond Fund 1996 8,312 PIC
Managed Bond Fund 1996 78,493 PIC
Money Market Fund 1996 17,312 PIC
-----------
$ 258,991
===========
Total $11,393,709
===========
</TABLE>
12
<PAGE>
All of these mutual funds are "open-end" funds, which continuously offer to
sell and redeem their shares at prices based on the net asset value of the
fund's portfolio. Shares of open-end mutual funds are generally redeemable at
any time and are generally not traded in the secondary market. As a result, the
Company's revenues from such mutual funds vary due to redemptions and purchases
of shares, in addition to fluctuations in the value of the securities in their
portfolios. Advisory fees paid by these mutual funds to PIC and NS&RC totaled
$62.4 million for the year ended December 31, 1996. Net revenues relating to
other fees paid by these funds to PEPCO (including net sales loads, net
distribution fees, administrative fees and shareholder services fees) totaled
$19.5 million for the year ended December 31, 1996.
These mutual funds are sold through PEPCO, which acts as the principal
underwriter and national wholesale distributor of (i) the shares of Phoenix
Funds and (ii) the variable insurance and annuity contracts whose assets are
invested in the Phoenix Edge Series Fund. PEPCO distributes these mutual fund
shares and variable insurance policies and annuity contracts through
unaffiliated national and regional broker-dealers and financial institutions and
registered representatives of WS Griffith & Co., Inc. ("Griffith"), a registered
broker-dealer subsidiary of Phoenix Home Life engaged in the retail distribution
of Phoenix Funds and variable contracts. PEPCO also engages in telemarketing of
these mutual funds and variable contracts to existing and potential clients. In
addition, mutual funds are marketed to existing and potential institutional
clients through registered representatives of PEPCO.
MARKETING, DISTRIBUTION AND SUPPORT SERVICES. Institutional marketing
services are directed toward investment management consultants who are retained
by institutional investors to assist in competitive reviews of potential
investment managers. These consultants recommend investment managers to their
institutional clients based on their review of investment managers' performance
histories and investment management styles. Sales and marketing personnel at
PEPCO establish and maintain relationships with these consultants and provide
information and materials to these consultants in order to enable them to
evaluate PIC.
PEPCO, which is a broker-dealer registered under the Exchange Act, serves
as the principal underwriter and national wholesale distributor of the mutual
funds managed by PIC and NS&RC, as well as the variable contracts issued by
Phoenix Home Life (or an insurance company subsidiary) which are invested in The
Phoenix Edge Series Fund. PEPCO has been granted exclusive distribution rights
pursuant to distribution agreements with each of the Phoenix mutual funds and
receives commissions for shares distributed, depending on the size of the
particular sale, ranging from 2.0% to 4.75% of the per share offering price on
sales of less than $1 million. Individual sales of $1 million or more are made
without commission. Commissions on sales of variable contracts which are
invested in The Phoenix Edge Series Fund range from 3.0% to 6.0% of the purchase
or premium payments made under such contracts. Mutual fund shares and variable
products are distributed by PEPCO under sales agreements with unaffiliated
national and regional broker-dealers and Griffith. A substantial portion of
PEPCO's distribution commissions are paid by it to these entities.
Griffith is currently the largest distributor of Phoenix Home Life
investment products. Mutual fund sales by PEPCO, other than with respect to
money market funds, totaled $1.1 billion in 1996, of which Griffith accounted
for 12%. Sales by PEPCO of variable products totaled $460 million in 1996, of
which Griffith accounted for 77%. Through Griffith, PEPCO obtains the services
of more than 1,250 Phoenix Home Life insurance agents and brokers who are
registered representatives of Griffith.
Sales and marketing personnel of PEPCO also direct substantial efforts
towards establishing and maintaining relationships with unaffiliated national
and regional broker-dealers and financial institutions. Due to the highly
competitive nature of the investment management business, the ability of PIC and
NS&RC to compete for mutual fund customers is becoming increasingly dependent on
developing and maintaining an effective distribution channel through such
entities.
13
<PAGE>
PEPCO also provides various support services for the mutual funds whose
assets are managed by PIC and NS&RC. Under financial agent agreements, it
performs accounting, administrative, pricing and record retention services for
these funds and receives fees generally at the annual rate of $300 for each $1
million of average daily net assets. In addition, it also serves as the funds'
transfer agent, for which it receives an annual fixed fee of $14.95 for each
shareholder account, except for the daily dividend fund, for which it receives
$19.25 per shareholder account, subject to certain minimum plus out-of-pocket
expenses.
INVESTMENT IN BEUTEL, GOODMAN & COMPANY LTD. On November 15, 1993, the
Company and affiliates of the Company (i) purchased 43,333 Class 3 Common Shares
of Beutel, Goodman & Company Ltd. ("BG"), representing 40% of the outstanding
voting capital stock of BG, for a purchase price of $7.8 million paid in cash,
and (ii) purchased $23.3 million of 8.5% Redeemable Unsecured Debentures of BG
payable periodically from the net earnings of BG and maturing as to any unpaid
principal on November 14, 2003. At December 31, 1995, the Company held
approximately $9.5 million of the 8.5% BG debentures. These debentures were
retired during 1996. On April 1, 1994, the Company purchased an additional
19,118 Class 3 Common Shares of BG for a purchase price of $7.2 million. As a
result of the purchase of the 19,118 shares, the Company owns 49% of the
outstanding voting capital stock of BG. BG is a Canadian corporation engaged in
the investment management business and has its main office in Toronto, Ontario.
As of December 31, 1996, it managed approximately $9.6 billion of assets for
corporate and public pension funds, charitable organizations and individuals.
All of the outstanding BG capital stock not owned by the Company is owned by
management employees of BG. All of the shareholders of BG have entered into an
agreement providing among other things that the management group and the Company
shall each be entitled to specified representation on the BG board of directors,
that the management group shall have authority over the day-to-day operations of
BG and that net earnings of BG shall be used for specified purposes in
accordance with specified priorities, including payment of the Debentures
described above.
COMPETITION. The Investment management business is highly competitive.
Thousands of investment management firms offer their services to potential
clients. In addition, various services and investments offered by insurance
companies, banks and securities dealers compete with the services offered by the
Company. Some of these firms are larger and have access to greater resources
than thE Company. Although the Company's range of product offerings has
increased significantly recently with the acquisition of PIC and NS&RC, many of
the Company's competitors offer a broader range of advisory services than those
of the Company. In addition, the investment advisory industry is characterized
by relatively low cost of entry and new investment management firms are
frequently created.
Management of the Company believes that the most important factors
affecting competition for investment management clients are the performance
records and reputations of investment managers and their investment
professionals, marketing and access to distribution channels, product
innovation, customer service and management fees. The Company's ability to
increase and retain clients' assets could be materially adversely affected if
client accounts underperform the market or if key portfolio managers terminate
their employment with the Company. In the past, the Company has not experienced
a high turnover rate among its portfolio managers. The ability of the Company
to compete with other investment management firms also is dependent, in part, on
the relative attractiveness of its investment philosophy and methods under
prevailing market conditions.
A large number of mutual funds are sold to the public by investment
management firms, broker-dealers, insurance companies and banks in competition
with mutual funds sponsored and managed by the Company's investment management
subsidiaries. Many of the Company's competitors apply substantial resources to
advertising and marketing their mutual funds, which may adversely affect the
ability of funds managed by the Company to attract new clients and to retain
assets under management. Load mutual funds have for some time faced significant
competition from no-load funds, resulting in the reduction of sales fees and
leading to consideration of alternative load structures. The ability to attract
and retain assets in these funds, most of which have sales fees, is dependent to
a significant degree on the ability to maintain relationships with both
unaffiliated brokers and financial institutions and participating insurance
agents and brokers in Phoenix Home Life's agent field force who are registered
representatives of Griffith. Shareholder account service is also important to
retaining mutual fund customers.
14
<PAGE>
INVESTMENT RESEARCH
The Company, directly or through subsidiaries, provided investment research
to outside clients such as banks, insurance companies, investment advisors,
brokers and investment banking firms, beginning in 1932. Investment research was
provided by the Company's subsidiary Duff & Phelps Investment Research Co.
("Investment Research") until October 1994, when Investment Research was
dissolved into the Company.
The Company also provided financial advisory and investment banking
services to individuals, corporations, and financial institutions through its
wholly owned subsidiary Duff & Phelps Financial Consulting Co., later known as
Duff & Phelps Capital Markets ("Capital Markets"). Capital Markets formed Duff
& Phelps Securities Co., its wholly owned subsidiary, which was a registered
broker-dealer offering institutional brokerage services.
The Company announced on May 14, 1996, that it was exiting the subscription
investment research, investment banking, and financial advisory businesses.
Subsequently it sold the assets of Capital Markets (including Duff & Phelps
Securities Co.) to several former executives of Capital Markets, and it sold the
assets of its high yield research business to other former executives of the
investment research division.
Subsequent to the sale of assets, Capital Markets was renamed DPCM
Holdings, Inc. ("DPCM"). DPCM has a joint venture affiliate located in
Greenwich, Connecticut through which it invests in private equity transactions,
expansion financings and recapitalizations involving management participation.
REGULATION
The Company and its subsidiaries are subject to extensive governmental
regulation and supervision. The Company, D&P Investment Management, PIC and
NS&RC are registered with the Securities and Exchange Commission (the "SEC")
under the Advisers Act and are registered under applicable state investment
advisory laws. Registrations, reporting, maintenance of books and records,
custodial arrangements and other compliance procedures required pursuant to the
Advisers Act and applicable state securities laws are maintained independently
by the Company, D&P Investment Management, PIC and NS&RC, with advice and
assistance from PEPCO. In addition, each of the mutual funds managed by D&P
Investment Management, PIC and NS&RC is registered with the SEC under the 1940
Act. D&P Investment Management, PIC and NS&RC are, therefore, subject to the
1940 Act insofar as it relates to investment advisors for registered investment
companies.
PEPCO is registered as a broker-dealer under the Exchange Act and state
securities laws and is therefore subject to minimum net capital requirements
imposed on broker-dealers by the SEC. The SEC rules require an aggregate
indebtedness to net capital ratio of no more than 15:1. As of December 31,
1996, PEPCO had net capital of $4.0 million and a ratio of aggregate
indebtedness to net capital of 3.10:1. In addition, as a registered broker-
dealer, PEPCO is also a member of the National Association of Securities
Dealers, Inc. ("NASD"). The SEC and NASD require that, in addition to the
minimum net capital requirements, PEPCO comply with a variety of operational
standards, including proper record keeping and the licensing of its
representatives. The SEC and NASD periodically examine PEPCO and review
periodic reports with respect to its operations and financial condition.
D&P Investment Management and PIC are also subject to ERISA, insofar as
they are "fiduciaries" under ERISA with respect to employee benefit plan clients
subject to ERISA.
15
<PAGE>
Because Phoenix Home Life owns a majority equity interest in the Company,
New York law relating to the subsidiaries of life insurance companies may apply
to the business activities conducted by the Company, including the requirement
that transactions with affiliates be fair, equitable and reasonable. However, no
prior insurance regulatory approval is or will be required with respect to the
investment management activities of subsidiaries of the Company or the
distribution by such entities of investment products. In the case of
investments in Separate Accounts, the individual or group insurance or annuity
or similar insurance contract issued by Phoenix Home Life or an insurance
company subsidiary is subject to prior review and approval by insurance
regulators in each jurisdiction where the product is to be sold.
The laws and regulations described above generally grant supervisory
agencies broad administrative powers, including the power to limit or restrict
a firm from conducting its business in the event that it fails to comply with
relevant laws and regulations. Possible sanctions that may be imposed in the
event of noncompliance include the suspension of individual employees,
limitations on the firm's business for specified periods of time, revocation of
the firm's registration as an investment advisor or broker-dealer, censures and
fines. Changes in these laws or regulations could have a material adverse
impact on the profitability and mode of operations of the Company.
The officers, directors and employees of the Company may from time to time
own securities which are also owned by one or more of the clients of the
Company. The Company has internal policies with respect to personal investing
which require reporting of securities transactions and restrict certain
transactions so as to reduce the possibility of conflict of interest.
EMPLOYEES
As of December 31, 1996, the Company and its subsidiaries employed
approximately 544 persons. The Company considers its employee relations to be
satisfactory.
EXECUTIVE OFFICERS OF THE COMPANY
The executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- - ---- --- --------
<S> <C> <C>
Francis E. Jeffries 66 Chairman of the Board and Director
Philip R. McLoughlin 50 Vice Chairman of the Board, Chief Executive Officer
and Director
Calvin J. Pedersen 55 President and Director
Wayne C. Stevens 50 President of D&P Investment Management and Executive
Vice President and Director
Michael E. Haylon 39 President of PIC and Executive Vice President and
Director
David R. Pepin 54 Executive Vice President and, since January 1, 1997, Director
William R. Moyer 52 Senior Vice President and Chief Financial Officer
</TABLE>
The executive officers of the Company are elected annually and serve at the
discretion of the Board of Directors of the Company.
16
<PAGE>
Mr. Jeffries has been Chairman of the Board of the Company since July 1993
and a Director of the Company since 1989. On May 13, 1997, Mr. Jeffries will
retire as Chairman of the Board and a Director. From 1992 to November 1,
1995, Mr. Jeffries also served as Chief Executive Officer of the Company. From
1989 to July 1993, Mr. Jeffries also served as President of the Company. Until
its dissolution in 1992, Mr. Jeffries was also Chief Executive Officer of Duff &
Phelps Inc. ("DPI"), the former parent of D&P Investment Management and Capital
Markets, from 1987 and President of DPI from 1984. Mr. Jeffries joined the
Company in 1966. Mr. Jeffries is also a member of the Board of Directors of
Duff & Phelps Utilities Income Inc., Duff & Phelps Utilities Tax-Free Income
Inc., Duff & Phelps Utility and Corporate Bond Trust Inc. and The Empire
District Electric Company and serves as a Director or Trustee of all of the
Phoenix mutual funds managed by PIC and NS&RC.
Mr. McLoughlin has been Vice Chairman of the Board, Chief Executive Officer
and a Director of the Company since November 1, 1995. Mr. McLoughlin has also
been a Director of Phoenix Home Life since February 1994 and has been employed
by Phoenix Home Life as Executive Vice President -Investments since December
1988. In addition, Mr. McLoughlin serves as President of PEPCO, Chairman of PIC
and Chairman and Chief Executive Officer of NS&RC. He also is a member of the
Board of Directors of these corporations, Duff & Phelps Utilities Tax-Free
Income Inc. and Duff & Phelps Utility and Corporate Bond Trust Inc. Mr.
McLoughlin also serves as President and as a Director or Trustee of the Phoenix
Funds, Phoenix Duff & Phelps Instutional Mutual Funds and Phoenix Aberdeen
Series Fund (collectively, the "Phoenix Mutual Funds"). He is a Director of PM
Holdings, Inc., Phoenix Charter Oak Trust Company, The World Trust, a Luxembourg
closed-end fund, and of PXRE Corporation ("PXRE"), a publicly-traded
corporation, and of its wholly-owned subsidiary, PXRE Reinsurance Company ("PXRE
Reinsurance").
Mr. Pedersen has been President of the Company since July 1993 and a
Director of the Company since January 1992. From January 1992 to July 1993, Mr.
Pedersen served as an Executive Vice President of the Company. Mr. Pedersen was
also an Executive Vice President of DPI from 1988 until its dissolution. From
1986 to 1988, he served as Senior Vice President - Marketing and Sales of DPI.
Mr. Pedersen joined the Company in 1986 from First Chicago Investment Advisors,
an investment management company, where he was a Managing Director and head of
the Account Management and Administration Division. Mr. Pedersen is also
President and Chief Executive Officer of Duff & Phelps Utilities Income., Duff &
Phelps Utilities Tax-Free Income Inc. and Duff & Phelps Utility and corporate
Bond Trust Inc. and serves as a Director or Trustee of the Phoenix mutual funds.
Mr. Stevens has been an Executive Vice President and a Director of the
Company since January 1992. Mr. Stevens has also been President of D&P
Investment Management since July 1993. In March 1997, Mr. Stevens notified the
Company that he would be resigning effective April 11, 1997. From 1987 to July
1993, Mr. Stevens served as President of Investment Research, a former
subsidiary of the Company. Mr. Stevens was also an Executive Vice President of
DPI from 1984 until its dissolution. He served as manager of the
Industrial/Financial Research Division of DPI from 1980 to 1984. Mr. Stevens
joined the Company in 1979.
Mr. Haylon has been an Executive Vice President and a Director of the
Company since November 1, 1995. From February 1993 to November 1, 1995, Mr.
Haylon was Senior Vice President - Securities Investments of Phoenix Home Life.
Mr. Haylon is also President of PIC, Executive Vice President of NS&RC and
Executive Vice President of all of the Phoenix mutual funds. From June 1991
through January 1993, Mr. Haylon was Vice President, Public Fixed Income and
from June 1990 through May 1991, he was Vice President, Public Bond Investments
of Phoenix Home Life. Mr. Haylon was Vice President of Aetna Capital Management
from August 1986 until June 1990 and a Managing Director of Aetna Bond Investors
from February 1989 until June 1990. Mr. Haylon also serves as a member of the
Boards of Directors of PIC, PEPCO and NS&RC.
Mr. Pepin has been an Executive Vice President of the Company since
February 8, 1996 and a Director of the Company since January 1, 1997. From
August 1994 to December 1995, Mr. Pepin was Vice President of Trust Development
for Phoenix Home Life. He is currently a Director and chairman of the audit
committee of Phoenix Charter Oak Trust Company. Prior to joining Phoenix Home
Life, Mr. Pepin was a Vice President of the Digital Equipment Corporation.
17
<PAGE>
Mr. Moyer has been Senior Vice President and Chief Financial Officer of the
Company since November 1, 1995. From November 1990 to November 1, 1995, Mr.
Moyer was Vice President -Investment Products Finance of Phoenix Home Life.
Prior to joining Phoenix Home Life in November 1990, Mr. Moyer was a Senior
Manager at Price Waterhouse LLP where he was employed for over seven years. In
addition, Mr. Moyer serves as Senior Vice President - Finance and Treasurer of
PIC, PEPCO and NS&RC. Mr. Moyer is also a Vice President of several of the
Phoenix mutual funds.
ITEM 2. PROPERTIES.
- - ------- -----------
The Company, which is headquartered in Hartford, conducts its operations
through offices located in Hartford and Enfield, Connecticut; Chicago, Illinois;
Greenfield, Massachusetts and Cleveland, Ohio, in which locations it leases a
total of approximately 193,000 square feet of office space.
ITEM 3. LEGAL PROCEEDINGS.
- - ------- ------------------
In August 1995, a legal action was filed by Peter Crane and Lisa Crane, Co-
Executors of the Estate of Sally Crane, Deceased, Plaintiffs, against Capital
Markets in the Circuit Court of Cook County, Illinois, County Department, Law
Division, Case No. 95L11856. Plaintiffs allege that Capital Markets was
retained to value for federal estate tax purposes certain corporate stock owned
by the estate. It is alleged that Capital Markets negligently valued the stock
at an amount higher than its true value and then refused to withdraw the
valuation when requested. It is further alleged that these actions caused the
estate to have to pay a higher federal and state estate tax than was necessary.
Capital Markets contends that the valuation was properly made based on
information made available to and supplied to Capital Markets. The complaint
demands compensatory damages in excess of $1,000,000, punitive damages and
costs. The case is now scheduled to be presented to a mediator to explore
settlement possibilities.
On October 10, 1995, three individuals who are members of Associated
Surplus Dealers ("ASD"), a non-profit mutual benefit corporation organized to
promote the surplus merchandise industry, filed an action on behalf of
themselves and as a class action on behalf of other members of ASD in the
Superior Court of the State of California for the County of Los Angeles, Case
No. BC 136761, against the directors of ASD, a corporation named Walter
Fletcher, Inc. ("WFI") allegedly controlled by one of the director defendants
who was also the Executive Director of ASD, an attorney for ASD, and Duff &
Phelps Company and Duff & Phelps Financial Consulting Co. (now named Duff &
Phelps Capital Markets Co.) (both Duff & Phelps corporations hereinafter
referred to as "DP"). The complaint alleges (i) that since 1980 WFI had an
exclusive license to operate ASD trade shows, (ii) that in 1994 the directors
authorized the sale of the assets of ASD (almost all of which related to its
trade shows) to WFI for $2,556,000 and the subsequent dissolution of ASD with
distribution of the proceeds of sale to ASD's members, (iii) that each member of
the ASD board of directors received a ten-year consulting contract with WFI
providing for aggregate payments of $250,000 each over that period and (iv) that
shortly after the sale the ASD assets purchased by WFI were resold by WFI for
approximately $60,000,000. It is further alleged that DP was retained by ASD to
value the ASD assets and provide a fairness opinion in connection with the
transaction and valued said assets at $2,556,000. The plaintiffs contend that
all defendants breached their fiduciary duties and were negligent in connection
with the sale of ASD's assets to WFI and that specifically DP grossly
undervalued said assets, all of which caused ASD to receive less than the true
value of its assets. The plaintiffs seek, among other things, compensatory
damages, attorneys' fees, costs of suit and punitive damages, all in unspecified
amounts.
On October 16, 1995, a corporation which is a member of ASD filed an action
on behalf of itself and as a class action on behalf of other members of ASD in
the Superior Court of the State of California for the County of Los Angeles,
Case No. BC 137212, against the directors of ASD, WFI and Duff & Phelps
Financial Consulting Co. (now named Duff & Phelps Capital Markets Co.). The
allegations in the complaint are similar to those set forth in the above
described complaint. The plaintiff contends that all defendants breached their
fiduciary duties to the ASD members and that Capital Markets was also negligent
and breached its contract with ASD, all of which caused ASD to receive less than
the true value of its assets. The plaintiff seeks, among other things,
compensatory damages, attorneys fees, costs of suit and punitive damages, all in
unspecified amounts.
18
<PAGE>
On October 17, 1995, another corporation which is a member of ASD filed an
action on behalf of itself and as a class action on behalf of other members of
ASD in the Superior Court of the State of California for the County of Los
Angeles, Case No. BC 137280, against the directors of ASD, WFI and Capital
Markets. The allegations in the complaint are similar to those set forth in the
above described complaint. The plaintiff contends that all defendants breached
their fiduciary duties to the ASD members and that Capital Markets was also
negligent and breached its contract with ASD, all of which caused ASD to receive
less than the true value of its assets. The plaintiff seeks, among other
things, compensatory damages, attorneys fees, costs of suit and punitive
damages, all in unspecified amounts.
On March 11, 1996, 90 individual plaintiffs which are members of ASD filed
an action in the Superior Court of the State of California for the County of Los
Angeles against the directors of ASD, WFI and Capital Markets. The allegations
in the complaint are similar to those set forth in the above described
complaint. The plaintiffs contend that all defendants breached their fiduciary
duties to the ASD members and that Capital Markets was also negligent and
breached its contract with ASD, all of which caused ASD to receive less than the
true value of its assets. The plaintiffs seek, among other things, compensatory
damages, attorneys fees, costs of suit and punitive damages, all in unspecified
amounts.
The above-described legal actions involve the same claim on behalf of the
members of ASD arising from the same circumstances and the legal actions filed
on October 10, 1995, October 16, 1995 and October 17, 1995 have been
consolidated into one action.
Management of the Company, at this time, does not expect the above
litigation to have a material adverse effect on the Company's financial position
or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
- - ------- ----------------------------------------------------
No items submitted.
19
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
- - ------- ----------------------------------------------------------------------
The Company's common stock is listed and traded principally on the New York
Stock Exchange under the symbol "DUF". Information concerning the range of high
and low sales prices for the Company's common stock, and the dividends
declared, for each quarterly period within the past two fiscal years is set
forth below.
<TABLE>
<CAPTION>
DIVIDENDS
QUARTER ENDED HIGH LOW DECLARED
------------- ---- --- ---------
1996
<S> <C> <C> <C>
March 31 $7.00 $5.63 $.05
June 30 $7.88 $5.88 $.05
September 30 $7.25 $6.00 $.05
December 31 $7.38 $6.00 $.06
1995
March 31*
June 30*
September 30*
December 31 $8.28 $6.00 $.05
</TABLE>
*Stock information for the quarters prior to the November 1, 1995 merger has not
been presented as it is not reflective of the results of the Company.
As of March 19, 1997, the closing price of the Company's common stock on
the New York Stock Exchange was $8.125 per share.
ITEM 6. SELECTED FINANCIAL DATA.
- - ------- ------------------------
<TABLE>
<CAPTION>
(in thousands, except per share data)
YEAR ENDED DECEMBER 31* 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Operating revenues $ 152,504 $ 112,206 $ 104,429 $ 99,872 $ 67,385
Net income 26,719 15,690 17,020 23,043 10,569
Primary earnings per share** 0.50 0.50
Total assets 365,684 356,619 97,201 103,118 16,616
Long-term obligations 21,884 33,858 3,517 3,930
Convertible exchangeable
preferred stock 78,504 78,029
Cash dividends declared per
common share** 0.21 0.05
</TABLE>
*-1996 reflects the results of the Phoenix Duff & Phelps Corporation, while 1995
reflects the results of Phoenix Securities Group, Inc. from January 1, 1995 to
October 31, 1995 and the combined results of Phoenix Duff & Phelps Corporation
for the period from November 1, 1995 to December 31, 1995; 1992 -1994 reflects
the results of Phoenix Securities Group, Inc. only.
**-Primary earnings per share and cash dividends declared per common share prior
to 1995 are not meaningful because of the recapitalization in connection with
the Merger. The 1995 primary earnings per share reflect ten months of Phoenix
Securities Group, Inc. and two months of the combined company.
20
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
- - ------- ---------------------------------------------------------------
RESULTS OF OPERATIONS.
----------------------
GENERAL
- - -------
Phoenix Duff & Phelps Corporation (the Company) was formed on November 1, 1995
when Phoenix Securities Group, Inc. (PSG), the money management subsidiary of PM
Holdings, Inc. (PM Holdings), merged into Duff & Phelps Corporation (D&P). PM
Holdings is a wholly-owned subsidiary of Phoenix Home Life Mutual Insurance
Company (PHL). Upon consummation of the merger, PM Holdings owned approximately
60% of the outstanding common stock of the Company. Under generally accepted
accounting principles, the transaction was accounted for as a reverse merger
with the purchase accounting method applied to the former D&P assets and
liabilities. The historical financial statements include the operations and
balances of PSG for the periods prior to the merger and the combined operations
since November 1, 1995.
The 1996 net income of $26.7 million represents the Company's operations, while
the 1995 net income of $15.7 million represents ten months of PSG operations and
two months, i.e., November and December, of the Company's operations. As a
result of the required accounting presentation and the inherent difficulties of
analyzing and comparing the historical financial statements to the 1996 results,
management has also included financial information on a pro forma basis as if
the transaction occurred on December 31, 1993. The following discussion begins
with a comparison of the historical financial statements and follows with a
discussion of the pro forma financial information which is found in Note 4 - Pro
Forma Results (Unaudited) of the Company's 1996 Consolidated Financial
Statements. The principal operating entities referred to in this discussion are
described in Note 1 of the Consolidated Financial Statements.
HISTORICAL FINANCIAL STATEMENTS
- - -------------------------------
GENERAL
The historical financial statements reflect the results of operations of PSG for
all of 1994 and from January 1, 1995 to October 31, 1995 and combined results of
the Company for the period from November 1, 1995 to December 31, 1996. This
accounting treatment is required under generally accepted accounting principles.
The 1996 and, to a lesser extent, 1995 results include a substantial noncash
amortization expense resulting from merger related goodwill and other intangible
assets.
STATEMENT OF INCOME FOR 1996 COMPARED TO 1995
Revenues for 1996 of $152.5 million increased $40.3 million (36%) from $112.2
million in 1995, reflecting the inclusion of $51.3 million of D&P's revenues,
including Duff & Phelps Capital Markets Co. through June 30, in 1996 compared to
$10.3 million for the two months included in 1995. Excluding the effect of D&P,
the Company's revenues for 1996 decreased $738,000 compared to 1995. Management
fees decreased $1.5 million as a result of a $3.9 million decrease in fees from
the loss of certain institutional accounts offset, in part, by an increase of
$1.2 million in management fees earned on mutual funds and a $2.4 million
increase in fees earned managing PHL's general account and PHL sponsored
variable products. The remaining decrease is primarily the result of an increase
in funds under reimbursement due to the conversion of certain separate accounts
to mutual funds for which Phoenix Investment Counsel, Inc. (PIC) voluntarily
agreed to reimburse or waive expenses to the extent they exceeded limits
detailed in the funds' prospectuses. The reimbursements increased $891,000 in
1996 as compared to 1995. Redemption income decreased by $1.8 million as a
result of a decline in B share redemptions, for which the Company earns a fee if
shares are redeemed within five years of purchase, while underwriting and
distributor fees increased by $2.5 million.
21
<PAGE>
Operating expenses for 1996 of $113.2 million increased $29.2 million (35%) from
$84.0 million in 1995, reflecting the inclusion of $35.6 million of D&P
operating expenses, including Duff & Phelps Capital Markets Co. through June 30,
in 1996 compared to $9.6 million for the two months included in 1995. Excluding
the effect of D&P, expenses increased $3.2 million in 1996 over 1995. Employment
expenses increased $5.3 million due to the inclusion of a $2.0 million cost
associated with data processing activities (included in other operating expenses
in 1995), an expansion of the sales force, an increase in sales-based and
performance-based incentive compensation and annual salary adjustments.
Amortization of goodwill and intangible assets, a non-cash expense, increased
$6.4 million in 1996 as a result of the merger. Depreciation, also a non-cash
expense, increased $737,000. These increases were offset, in part, by reductions
in other operating expenses ($7.8 million) primarily relating to cost savings
achieved by the merger, and reduced amortization of deferred commissions ($1.4
million).
Operating income increased $11.1 million (39%) to $39.3 million for 1996
compared to $28.2 million for 1995 as a result of the changes discussed above.
Other income - net of $5.2 million for 1996 increased $4.3 million as compared
to 1995 due to an increase in equity income from Beutel, Goodman & Company Ltd.
(BG), Windy City CBO Partners LP. (WCCBO) and Nuveen/Duff & Phelps Investment
Advisors of $1.8 million, $1.1 million and $529,000, respectively. In addition,
the Company's share of the Duff & Phelps/Inverness LLC joint venture income was
$1.5 million in 1996 as a result of the joint venture's recognition of a fee
from a significant first quarter transaction. A $675,000 loss was recognized in
1996 representing the Company's share of losses attributable to its investment
in Greystone Financial Group (Greystone), which was in a start-up phase.
Net income for 1996 of $26.7 million reflects an increase of $11.0 million (70%)
over the $15.7 million in 1995, resulting from the effects of the increased
income and expenses discussed above. In addition, interest expense decreased
$622,000 in 1996 reflecting the difference in interest charged on PSG's note
payable, which was converted to preferred stock at the time of the merger, and
two months on the revolving credit facility in 1995, and that charged in 1996 on
the revolving credit facility. The effective tax rate decreased from 44.7% in
1995 to 40.5% in 1996 primarily as a result of a change in Connecticut tax law,
enacted in May of 1996 and retroactive to January 1, 1996, which modified the
method of apportioning income for investment advisors.
STATEMENT OF INCOME FOR 1995 COMPARED TO 1994
1995 revenues of $112.2 million increased $7.8 million from 1994 reflecting the
inclusion of $10.3 million of D&P's revenues for November and December 1995, and
a decrease in PSG's revenues of $2.5 million resulting from lower average mutual
fund assets under management on which fees are generated and lower mutual fund
related revenues such as underwriting fees, fund accounting fees and shareholder
service agent fees. No D&P revenues are included in 1994.
All expense categories are greater in 1995 than 1994 because each category
(except amortization of deferred commissions) includes two months of D&P 1995
operating expenses, which, in the aggregate, excluding taxes, were $9.6 million.
No D&P expenses are included in 1994.
Amortization of intangible assets arising from the merger resulted in additional
amortization expense of $1.1 million in 1995. Amortization is a non-cash expense
and is based upon an average useful life of 28 years. The effective federal and
state tax rate increased from 42.4% in 1994 to 44.7% in 1995 resulting primarily
from changes in expense sharing arrangements among certain subsidiaries and, to
a lesser degree, from merger related goodwill.
22
<PAGE>
PRO FORMA FINANCIAL INFORMATION (SEE NOTE 4 OF THE CONSOLIDATED FINANCIAL
- - -------------------------------------------------------------------------
STATEMENTS)
- - -----------
ASSETS UNDER MANAGEMENT
The following table presents year-end assets under management as if the merger
occurred on December 31, 1993. The revenues of the Company are substantially
earned based upon assets under management and, accordingly, these trends are
important for understanding the business.
<TABLE>
<CAPTION>
(IN MILLIONS)
BY SOURCE: 1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Open-end Mutual Funds $11,532 $11,141 $ 9,897
Closed-end Mutual Funds 2,984 3,056 2,627
Institutional 12,276 14,626 16,721
PHL General Account 6,857 6,223 5,541
-------- -------- -------
$33,649 $35,046 $34,786
======== ======== =======
</TABLE>
At December 31, 1996, the Company had $33.6 billion in assets under management,
a decrease of $1.4 billion from $35.0 billion at December 31, 1995. Sales and
reinvestments of open-end mutual funds were $1.6 billion in 1996 but were offset
by redemptions of $2.5 billion. New institutional accounts increased assets
under management by $1.1 billion but were offset by lost accounts totaling $3.5
billion. The remaining change in assets under management was the result of
positive performance.
Assets under management of $35.0 billion at December 31, 1995 increased from
$34.8 billion at December 31, 1994 resulting from improved performance of the
affiliated mutual funds compared with prior years. Sales and reinvestments of
open-end mutual funds were $1.0 billion in 1995 but were offset by redemptions
of $1.9 billion. Institutional account assets under management, including sub-
advisory relationships with other mutual fund sponsors, decreased from 1994 to
1995 principally as a result of AAL Capital Management Corporation finalizing
the previously announced plan to internalize its portfolio management function
for the AAL Mutual Funds. This decision resulted in a decrease in assets under
management of $2.2 billion.
STATEMENT OF INCOME FOR 1996 COMPARED TO 1995 - PRO FORMA
Investment management fees of $118.2 million in 1996 were down $5.3 million (4%)
as compared to the pro forma results of $123.5 million for 1995, primarily due
to reduced fees of $7.3 million related to the loss of certain institutional
accounts, the most significant being the AAL account which generated $3.4
million in fees in 1995. In addition, funds under reimbursement increased as a
result of the conversion of certain separate accounts to mutual funds for which
PIC voluntarily agreed to reimburse or waive expenses to the extent they
exceeded limits detailed in the funds' prospectuses. The reimbursements
increased by $891,000 in 1996 as compared to 1995. The institutional account
losses were offset, in part, by an increase of $3.5 million in fees earned on
mutual funds and for managing PHL's general account and PHL sponsored variable
products.
Financial consulting fees of $5.1 million earned by Duff & Phelps Capital
Markets Co. in 1996 decreased $5.1 million (50%) compared to the $10.2 million
earned in 1995 as the operations of Duff & Phelps Capital Markets Co. were
divested on July 1, 1996.
Investment research revenues of $2.6 million decreased $3.6 million (58%) in
1996 as compared to $6.2 million in 1995 primarily as a result of the May 1996
closure of the fee-based investment research and securities businesses.
Underwriting fees of $2.1 million in 1996 were up $764,000 (55%) from $1.4
million in 1995 due to increased sales of retail mutual funds and securities
underwriting.
23
<PAGE>
Mutual funds - ancillary fees of $19.9 million increased $2.2 million (12%) in
1996, compared to 1995 primarily due to an increase of $1.8 million in net
distributor fees resulting from increased sales of B share mutual funds for
which distributor fees are not paid in the first year.
Other income and fees of $4.6 million in 1996 were down $1.8 million (28%) from
$6.4 million in 1995 primarily as a result of a $1.8 million reduction in
redemption income due to a decline in B share redemptions.
Employment expenses of $58.8 million in 1996 were down $3.2 million (5%)
compared to 1995. This decrease was a result of a reduction of $8.4 million in
employment expenses related to Duff & Phelps Capital Markets Co. which, as
previously mentioned, was divested on July 1, 1996, in part offset by the
inclusion of $2.0 million in payroll costs associated with data processing
activities. These activities were previously performed by PHL personnel and
charged to the Company as an administrative cost and included in other operating
expenses. In 1996, the data processing activities were performed by Company
personnel and, therefore, included in employment expenses. In addition, sales-
based and performance-based incentive compensation increased approximately $2.0
million resulting from increased sales of mutual funds and the expansion of the
sales force. Annual salary adjustments for the Company's employees accounted for
$1.1 million of the 1996 increase in employment expenses.
Other operating expenses decreased $12.7 million (26%) from $49.2 million in
1995 to $36.5 million in 1996. This expense reduction was primarily due to the
previously discussed divestiture of Duff & Phelps Capital Markets Co. and a
decrease in administrative costs related to data processing of approximately
$2.0 million. Other operating expenses in 1995 included $1.5 million associated
with an uncompleted merger.
Depreciation, a non-cash expense, increased by $388,000 from $1.8 million in
1995 to $2.2 million in 1996 primarily due to the Company's January 1, 1996
purchase of certain assets from PHL.
Amortization of deferred commissions of $6.1 million in 1996 was down $1.4
million from 1995 primarily as a result of the previously discussed reduction in
B share redemptions.
Other income - net of $5.2 million for 1996 increased $5.7 million as compared
to 1995 due primarily to an increase in equity income from WCCBO of $3.2
million. In addition, the Company's share of the Duff & Phelps/Inverness LLC
joint venture income was $1.5 million in 1996, as a result of the joint
venture's recognition of a fee from a significant first quarter transaction,
compared to a loss of $1.8 million in 1995. A $675,000 loss was recognized in
1996 representing the Company's share of losses attributable to an investment in
Greystone Financial Group, which was in a start-up phase.
The provision for income taxes of $18.2 million for 1996 increased $884,000 over
1995. The effective tax rate decreased from 49.1% in 1995 to 40.5% in 1996. This
decrease in the effective rate was attributable to changes in the expense
sharing arrangements among certain subsidiaries and a change in Connecticut tax
law, enacted in May of 1996 and retroactive to January 1, 1996, which modified
the method of apportioning income for investment advisors.
STATEMENT OF INCOME FOR 1995 COMPARED TO 1994 - PRO FORMA
Revenues for 1995 of $165.3 million were down by $5.1 million or 3% from 1994.
The decrease in total revenues was principally due to lower investment
management fees earned on institutional accounts of $3.3 million and on mutual
funds of $1.8 million. Institutional assets under management, excluding the PHL
general account, declined by $2.1 billion from 1994 to 1995. Mutual fund average
assets under manage ment were approximately $11.6 billion in 1995 compared to
$11.9 billion in 1994. Assets of the PHL general account increased from $5.5
billion at December 31, 1994 to $6.2 billion at December 31, 1995. Mutual fund
underwriting fees declined by $900,000 to $1.4 million in 1995 from $2.3 million
in 1994 due to lower total sales and lower sales of funds having a sales charge
as a percentage of total sales. Mutual funds - ancillary fees, including fund
accounting fees and shareholder service agent fees, also declined due to reduced
levels of both mutual fund average assets under management and the number of
shareholder accounts. These decreases in revenues were partially offset by
increases in financial consulting fees earned by Duff & Phelps Capital Markets
Co. to $10.2 million in 1995 from $9.3 million in 1994 as well as increases in B
share redemption income.
24
<PAGE>
Employment expenses, including salaries, bonuses, commissions, payroll taxes and
employee benefits increased to $62.0 million in 1995 from $52.8 million in 1994.
The increase of $9.2 million reflects merger related expenses and continued
business development. Business development expense increases include the opening
of new offices in Atlanta and New York for Duff & Phelps Capital Markets Co.,
increases in staff levels due to Duff & Phelps Securities Co. business
expansion, and increases in staff levels at Duff & Phelps Investment Management
Co. and Phoenix Investment Counsel, Inc. In 1995, merger related and guaranteed
bonuses totalled $4.2 million, guaranteed commissions $600,000 and severance
$600,000.
Amortization of intangibles of $9.6 million for 1995 and $10.9 million for 1994
is a non-cash expense and does not affect cash available for dividend payments
or other operating needs.
Other operating expenses increased to $58.4 million in 1995 from $52.1 million
in 1994. The increase of $6.3 million was primarily attributable to merger
related transaction costs of $3.9 million incurred by the former D&P (including
legal, accounting and investment banking fees) and increased developmental
expenditures including rent, travel and communications incurred for Duff &
Phelps Capital Markets Co. and Duff & Phelps Securities Co.
Operating income declined to $35.3 million in 1995 from $54.6 million in 1994
principally due to the $5.1 million decrease in revenues combined with increased
employment and other operating expenses of $15.5 million, as discussed above.
Other income - net decreased by $3.5 million from $3.0 million in 1994 to
($509,000) in 1995 principally due to $2.4 million of realized losses of the
WCCBO recognized by the Company. Additionally, losses of $1.8 million
were recorded relating to Duff & Phelps/Inverness LLC, a joint venture
arrangement between The Inverness Group Incorporated and Duff & Phelps Capital
Markets Co. (These losses were recovered in 1996.) These losses were partially
offset by increases in income relating to the investment in BG resulting from
higher total income for BG, as well as an increased total ownership percentage
of 49% for twelve months of 1995 compared to nine months in 1994.
Interest expense decreased to $2.4 million in 1995 from $3.3 million in 1994 due
to the reduction of the outstanding balance under a credit agreement with a
consortium of banks from $35.5 million at December 31, 1994 to $23.5 million at
December 31, 1995 and a conversion of PSG debt owed to PM Holdings to preferred
stock at November 1, 1995. The total outstanding debt owed to PM Holdings at
October 31, 1995 was $35.0 million.
Interest income increased primarily due to increases in investable excess cash
balances offset in part by the reduction in the investment in BG debentures.
The provision for income taxes of $17.3 million in 1995 declined by $6.8 million
or 28% from 1994 due to lower pretax earnings partially offset by an increased
effective state tax rate resulting from changes in expense sharing agreements
among certain subsidiaries.
LIQUIDITY AND CAPITAL RESOURCES
- - -------------------------------
The Company's business is not considered to be capital intensive. Working
capital requirements for the Company have historically been provided by
operating cash flow. It is expected that such cash flows will continue to serve
as the principal source of working capital for the Company for the near future.
If future sales of mutual funds with a contingent deferred sales charge require
payment of commissions which exceed internally generated cash, financing may be
necessary.
25
<PAGE>
The Company's current capital structure includes 3.2 million shares of Series A
Preferred Stock with a stated value of $25.00 per share and 44.0 million shares
of common stock. Dividends on the preferred stock would total $4.7 million per
annum based on preferred shares outstanding at December 31, 1996. The current
dividend rate on common stock is $.06 per share per quarter. If the dividend
rate remains constant for 1997, the total dividend on common stock would be
approximately $10.6 million based upon shares outstanding at December 31, 1996.
The Company has a bank credit agreement in place providing for a $27.0 million,
three year revolving credit facility. The outstanding obligation under the
Credit Agreement at December 31, 1996, was $16.5 million. Interest rates on such
borrowings averaged 6.5% in 1996. In the event adequate financing is not
available under this agreement, management believes that additional financing
can be secured. The Credit Agreement contains financial and operating covenants
including, among other provisions, requirements that the Company maintain
certain financial ratios and satisfy certain financial tests, restrictions on
the ability to incur indebtedness, and limitations on the amount of the
Company's capital expenditures. At December 31, 1996, the Company was in
compliance with all covenants contained in the Credit Agreement. The Company
believes that funds from operations and amounts available under the Credit
Agreement will provide adequate liquidity for the foreseeable future.
Phoenix Equity Planning Corporation (PEPCO), a wholly-owned subsidiary of the
Company, is subject to the net capital requirements imposed on registered
broker-dealers by the Securities Exchange Act of 1934 (Act). At December 31,
1996, PEPCO had net capital (as defined in the Act) of approximately $4.0
million, which exceeded the regulatory minimum by $3.1 million. PEPCO operates
pursuant to Rule 15c3-1 paragraph (a) of the Act and, accordingly, is required
to maintain a ratio of aggregate indebtedness (as defined in the Act) to net
capital which may not exceed 15 to 1. This ratio at December 31, 1996 was 3.1
to 1.
Management considers the liquidity of the Company to be adequate to meet present
and anticipated needs.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
- - --------------------------------------------------------------------------------
This annual report contains forward looking statements that involve risks and
uncertainties, including but not limited to the following: The Company's
performance is highly dependent on the amount of assets under management, which
may decrease for a variety of reasons including changes in interest rates and
adverse economic conditions; the Company's performance is very sensitive to
changes in interest rates, which may increase from current levels; the Company's
performance is affected by the demand for and the market acceptance of the
Company's products and services; the Company's business is extremely competitive
with several competitors being substantially larger than the Company; and the
Company's performance may be impacted by changes in the performance of financial
markets and general economic conditions. Accordingly, actual results may differ
materially from those set forth in the forward looking statements. Attention is
also directed to other risk factors set forth in documents filed by the Company
with the Securities and Exchange Commission.
26
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
- - ------- --------------------------------------------
<TABLE>
<CAPTION>
TABLE OF CONTENTS PAGE
----
<S> <C>
Report of Independent Accountants.............................. 28
Consolidated Financial Statements:
Consolidated Statements of Financial Condition................. 29
December 31, 1996 and 1995
Consolidated Statements of Income.............................. 30
Years Ended December 31, 1996, 1995 and 1994
Consolidated Statements of Changes in Stockholders' Equity..... 31
Years Ended December 31, 1996, 1995 and 1994
Consolidated Statements of Cash Flows.......................... 32
Years Ended December 31, 1996, 1995 and 1994
Notes to Consolidated Financial Statements..................... 33-53
</TABLE>
27
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Phoenix Duff & Phelps Corporation
In our opinion, based upon our audits and the report of other auditors, the
consolidated financial statements listed in the accompanying index present
fairly, in all material respects, the financial position of Phoenix Duff &
Phelps Corporation; its predecessor company, Phoenix Securities Group, Inc., and
their subsidiaries (collectively, the "Company") at December 31, 1996 and 1995,
and the results of their operations and their cash flows for each of the three
years in the period ended December 31, 1996, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We did not audit the
financial statements of Beutel, Goodman & Company Ltd. (Beutel Goodman), an
investment which is reflected in the accompanying financial statements using the
equity method of accounting. The investment in Beutel Goodman represents 9% and
11% of total assets at December 31, 1996 and 1995, respectively, and the equity
in its net income represents 13% and 3% of net income for the years then ended.
Those statements were audited by other auditors whose report thereon has been
furnished to us, and our opinion expressed herein, insofar as it relates to the
amounts included for Beutel Goodman, is based solely on the report of the other
auditors. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audits to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits and the report of other auditors provide a reasonable
basis for the opinion expressed above.
/s/ Price Waterhouse LLP
- - ---------------------------------
Hartford, Connecticut
February 5, 1997
28
<PAGE>
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1995
ASSETS (IN THOUSANDS)
<S> <C> <C>
Current Assets
Cash and cash equivalents $ 22,466 $ 16,306
Marketable securities, at market 4,070 3,473
Accounts receivable 5,967 12,156
Receivables from related parties 19,701 19,868
Prepaid expenses and other assets 4,287 1,816
-------- --------
Total current assets 56,491 53,619
Deferred commissions 17,749 13,139
Furniture, equipment and leasehold improvements, net 8,377 8,262
Intangible assets, net 55,094 67,089
Goodwill, net 171,660 163,480
Investment in Beutel, Goodman & Company Ltd. 31,746 39,730
Long-term investments and other assets 24,567 11,300
-------- --------
Total assets $365,684 $356,619
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued liabilities $ 13,306 $ 12,317
Payables to related parties 3,874 11,833
Broker-dealer payable 8,487 8,520
Current portion of long-term debt 2,500
-------- --------
Total current liabilities 28,167 32,670
Deferred taxes, net 33,860 30,572
Long-term debt, net of current portion 14,000 23,500
Lease obligations and other long-term liabilities 7,884 10,358
-------- --------
Total liabilities 83,911 97,100
-------- --------
Contingent Liabilities (Note 17)
Series A Convertible Exchangeable Preferred Stock, 10,000,000 shares
authorized and 3,157,254 and 3,120,534 shares outstanding,
including $273,223 and $280,849 of accrued undeclared cumulative
dividends 78,504 78,029
-------- --------
STOCKHOLDERS' EQUITY
Common stock, $.01 par value, 100,000,000 shares authorized,
44,037,416 and 43,563,521 shares issued and outstanding 440 436
Additional paid-in capital 185,415 181,700
Retained earnings 12,812
Net unrealized gain (loss) on securities available for sale 4,932 (192)
Foreign currency translation (330) (454)
-------- --------
Total stockholders' equity 203,269 181,490
-------- --------
Total liabilities and stockholders' equity $365,684 $356,619
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
29
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1996 1995 1994
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
REVENUES
Investment management fees $118,160 $ 85,746 $ 80,471
Mutual funds - ancillary fees 19,914 17,722 19,022
Financial consulting fees 5,050 1,753
Underwriting fees 2,116 1,241 2,269
Investment research 2,649 984
Other income and fees 4,615 4,760 2,667
-------- -------- --------
Total revenues 152,504 112,206 104,429
-------- -------- --------
OPERATING EXPENSES
Employment expenses 58,805 35,406 28,198
Other operating expenses 36,523 37,109 34,778
Depreciation and amortization of leasehold
improvements 2,212 928 582
Amortization of goodwill and intangible assets 9,623 3,166 1,866
Amortization of deferred commissions 6,052 7,436 7,190
-------- -------- --------
Total operating expenses 113,215 84,045 72,614
-------- -------- --------
OPERATING INCOME 39,289 28,161 31,815
-------- -------- --------
OTHER INCOME - NET 5,213 961 82
-------- -------- --------
INTEREST (INCOME) EXPENSE - NET
Interest expense 1,640 2,262 2,420
Interest income (2,044) (1,512) (80)
-------- -------- --------
Total interest (income) expense - net (404) 750 2,340
-------- -------- --------
INCOME BEFORE INCOME TAXES 44,906 28,372 29,557
Provision for income taxes 18,187 12,682 12,537
-------- -------- --------
NET INCOME 26,719 15,690 17,020
Series A preferred stock dividends 4,713 759
-------- -------- --------
Income available to common stockholders $ 22,006 $ 14,931 $ 17,020
======== ======== ========
Weighted average shares outstanding
Primary 44,215 29,759
Fully diluted 54,093 39,543
Earnings per share
Primary $ .50 $ .50
Fully diluted $ .49 $ .40
</TABLE>
The accompanying notes are an integral part of these statements.
30
<PAGE>
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(IN THOUSANDS)
ADDITIONAL NET UNREALIZED FOREIGN
COMMON PAID-IN RETAINED GAIN (LOSS) CURRENCY
STOCK CAPITAL EARNINGS ON SECURITIES TRANSLATION TOTAL
<S> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1993 $ 1 $ 9,291 $ 10,726 $ 20,018
--------- --------- -------- ---------
Net income 17,020 17,020
Deemed dividend (3,134) (3,134)
--------- --------- -------- ---------
Balances at December 31, 1994 1 9,291 24,612 33,904
--------- --------- -------- ---------
Capital contributions 35,578 35,578
Conversion of PSG shares 263 (263)
D&P shares outstanding 171 185,500 185,671
Stock transactions 1 146 147
Net income 15,690 15,690
Dividends (48,552) (40,302) (88,854)
Net unrealized depreciation on
securities available for sale $ (192) (192)
Foreign currency translation
adjustment $ (454) (454)
--------- --------- -------- --------- --------- ---------
Balances at December 31, 1995 436 181,700 0 (192) (454) 181,490
--------- --------- -------- --------- --------- ---------
Stock transactions 4 3,715 3,719
Net income 26,719 26,719
Dividends (13,907) (13,907)
Net unrealized appreciation on
securities available for sale 5,124 5,124
Foreign currency translation
adjustment 124 124
--------- --------- -------- --------- --------- ---------
Balances at December 31, 1996 $ 440 $ 185,415 $ 12,812 $ 4,932 $ (330) $ 203,269
========= ========= ======== ========= ========= =========
</TABLE>
Common stock issued and outstanding:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1996 1995 1994
<S> <C> <C> <C>
Balances at January 1, 43,563 1 1
D&P shares outstanding 17,073
Conversion of PSG shares 26,399
Stock transactions 474 90
------- ------- -------
Balances at December 31, 44,037 43,563 1
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
31
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1996 1995 1994
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 26,719 $ 15,690 $ 17,020
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization of leasehold
improvements 2,212 928 582
Amortization of goodwill and intangible assets 9,623 3,166 1,866
Amortization of deferred commissions 6,052 7,436 7,190
Equity in earnings of unconsolidated affiliates,
net of dividends (2,992) (1,121)
Payments of deferred commissions (10,663) (5,097) (5,840)
Deferred taxes 5,012 627 862
(Increase) decrease in assets:
Accounts receivable, net 4,649 668 5,368
Receivables from related parties 167 (6,081) (2,141)
Prepaid expenses and other assets (2,723) 373 35
Increase (decrease) in liabilities:
Payables to related parties (7,959) 5,452 5,621
Accounts payable and accrued liabilities (1,529) (1,151) (15,305)
Broker-dealer payable (34) 716 1,105
Lease obligations and other long-term liabilities (966) (382) (413)
Unrealized depreciation (appreciation)
on mutual fund investments 29 (23) 433
-------- -------- --------
Net cash provided by operating activities 27,597 21,201 16,383
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of subsidiaries (5,892) (1,158)
Proceeds from sale of assets 664
Cash acquired from purchase of subsidiaries 2,417
Purchase/sale of investments (1,127) (250) (592)
Long-term investments (2,642) 1,081
Proceeds from redemption of debentures 9,214 2,491
Capital expenditures (3,004) (1,332) (667)
-------- -------- --------
Net cash (used in) provided by investing activities (2,787) 3,249 (1,259)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment under note payable agreement (4,517) (11,673)
Repayment of long-term debt (7,000) (1,000)
Dividends paid (13,907) (45,891)
Capital contribution 31,700
Deemed dividend (3,134)
Proceeds from stock issuance 2,257 213
Other financing activities ( 82)
-------- -------- --------
Net cash used in financing activities (18,650) (19,577) (14,807)
-------- -------- --------
Net increase in cash and cash equivalents 6,160 4,873 317
Cash and cash equivalents, beginning of year 16,306 11,433 11,116
-------- -------- --------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 22,466 $ 16,306 $ 11,433
======== ======== ========
Supplemental cash flow information:
Interest paid $ 1,538 $ 2,222 $ 2,420
Income taxes:
Paid $ 17,444 $ 14,737 $ 6,069
Deemed paid to parent $ 2,164
Supplemental disclosure of non-cash financing activities:
Dividend of preferred stock $(42,963)
Deemed dividend $ (3,134)
Capital contribution $ 3,878
</TABLE>
The accompanying notes are an integral part of these statements.
32
<PAGE>
PHOENIX DUFF & PHELPS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - --------------------------------------------------------------------------------
1. ORGANIZATION AND BUSINESS
Phoenix Duff & Phelps Corporation (PDP) was formed on November 1, 1995 when
Phoenix Securities Group, Inc. (PSG), a money management subsidiary of PM
Holdings, Inc. (PM Holdings), merged into Duff & Phelps Corporation (D&P)
(the Merger). PM Holdings is a wholly-owned subsidiary of Phoenix Home Life
Mutual Insurance Company (Phoenix Home Life). PM Holdings owns
approximately 60% of the outstanding PDP common stock and approximately 44%
of the outstanding PDP preferred stock (see Note 11).
PDP and its subsidiaries provide a variety of investment management and
related services to a broad base of institutional, corporate and individual
clients throughout the U.S. PDP's businesses include investment advisory,
broker-dealer operations and, through June 30, 1996, fee based investment
research operations and financial consulting services. PDP operates in one
industry segment, that of investment management services. The principal
subsidiaries included in these consolidated financial statements are as
follows:
Phoenix Equity Planning Corporation (PEPCO), a registered broker-dealer,
serves principally as distributor, underwriter and financial agent for
products registered with the Securities and Exchange Commission (SEC).
Phoenix Investment Counsel, Inc. (PIC), a wholly-owned subsidiary of
PEPCO, is a registered investment advisor.
National Securities & Research Corporation (NS&RC), a registered
investment advisor. NS&RC was acquired from a third party on May 13,
1993.
Duff & Phelps Investment Management Co. (DPIM), a registered investment
advisor, provides investment management services to a variety of
institutions and individuals, including SEC registered investment
companies, corporate, public and multi-employer retirement funds,
endowment, insurance and other special purpose funds and high yield bond
portfolios. These consolidated financial statements include operations
and cash flows for DPIM from the date of the Merger.
Duff & Phelps Capital Markets Co. (DPCM) provided a wide range of
investment banking and financial advisory services. Duff & Phelps
Securities Co. (DPS), a wholly-owned subsidiary of DPCM, was a
registered broker-dealer. On May 14, 1996, PDP announced that it was
exiting the fee based investment research, investment banking and
financial advisory businesses acquired in the Merger. Substantially all
of the fee based investment research activities were immediately closed
and, on July 1, 1996, PDP completed the sale of certain assets of the
financial advisory and investment banking businesses to several former
executives. These consolidated financial statements include operations
and cash flows for DPCM and DPS from the date of the Merger until the
closure of these operations.
The accompanying consolidated financial statements for the period prior to
the Merger include only the accounts of PSG and its wholly-owned
subsidiaries.
33
<PAGE>
PHOENIX DUFF & PHELPS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - --------------------------------------------------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Significant accounting policies, which have been consistently applied, are
as follows:
BASIS OF PRESENTATION
---------------------
PDP's consolidated financial statements have been prepared in conformity
with generally accepted accounting principles (GAAP). The consolidated
financial statements include the accounts of PDP and its subsidiaries. All
material intercompany accounts and transactions have been eliminated.
Certain reclassifications have been made to prior years' amounts to conform
with the current year presentation. The preparation of financial statements
in conformity with GAAP requires the use of estimates. Accordingly, certain
amounts in the consolidated financial statements contain estimates made by
management. Actual results could differ from these estimates. Significant
estimates, specifically those used to determine the carrying value of
intangible assets and goodwill, are discussed in these notes to the
consolidated financial statements.
During 1993, PSG, then known as PHL Mutual Funds Holdings, Inc., was
formed. The accompanying consolidated financial statements prior to the
Merger date have been prepared after giving retroactive effect to
reorganizations of PSG and its business operations which occurred on
January 1, 1995. The deemed capital contributions and deemed dividends
reflected in the consolidated financial statements arise as a result of the
retroactive effects.
CASH AND CASH EQUIVALENTS
-------------------------
Cash equivalents are highly liquid investments with original maturities of
three months or less at the time of purchase.
MARKETABLE SECURITIES
---------------------
Mutual fund investments are carried at market value in accordance with
Statement of Financial Accounting Standard (SFAS) No. 115, "Accounting for
Certain Investments in Debt and Equity Securities." Market value is
determined based on publicly quoted market prices. Unrealized appreciation
or depreciation on investments is included in other income.
DEFERRED COMMISSIONS
--------------------
Deferred commissions are commissions paid by PEPCO to broker-dealers on
sales of mutual fund shares referred to as "B shares". These commissions
are recorded as deferred costs and are recovered by ongoing monthly
distribution fees received from mutual funds or upon redemption of the B
shares by shareholders within five years of purchase. Deferred costs on
outstanding shares are amortized on a straight-line basis generally over a
five year period or until the B shares are redeemed.
34
<PAGE>
PHOENIX DUFF & PHELPS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - --------------------------------------------------------------------------------
FURNITURE, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
-----------------------------------------------
Furniture, equipment and leasehold improvements are recorded at cost.
Depreciation of furniture and equipment is computed on a straight-line
method based upon estimated useful lives of up to ten years. Leasehold
improvements are amortized over the lives of the related leases. Major
renewals or betterments are capitalized and recurring repairs and
maintenance are charged to operations.
INTANGIBLE ASSETS AND GOODWILL
------------------------------
Intangible assets are amortized on a straight-line basis over the estimated
remaining lives of such assets. Goodwill represents the excess of the
purchase price of acquisitions and mergers over the identified net assets.
Goodwill is being amortized on a straight-line basis over 40 years.
LONG-LIVED ASSETS
-----------------
PDP adopted SFAS No. 121, "Accounting for the Impairment of Long-lived
Assets and for Long-lived Assets to be Disposed Of," on January 1, 1996.
There was no material impact from the adoption of SFAS No. 121. The
propriety of the carrying value of the long-lived assets is periodically
reevaluated by comparing estimates of future undiscounted cash flows to the
carrying value of assets. Assets are considered impaired if the carrying
value exceeds the expected future undiscounted cash flows. Such analyses
are performed at least annually or more frequently if warranted by events
or circumstances affecting PDP's business. At this time, no significant
impairment of the remaining long-lived assets has occurred and no reduction
of the estimated useful lives is warranted.
REVENUE RECOGNITION
-------------------
Investment management fees and mutual funds - ancillary fees are recorded
as income during the period in which services are performed. Investment
management fees are generally computed and earned based upon a percentage
of assets under management. Mutual funds - ancillary fees consist of dealer
concessions, distribution fees, service agent fees and accounting fees.
Dealer concessions and underwriting fees earned (net of related expenses)
from the distribution and sale of affiliated mutual fund shares and other
securities are recorded on a trade date basis.
Financial consulting and investment research fees were recognized in
accordance with customer contracts in which fees were generally based on
completed transactions, professional time incurred or research
subscriptions.
Pursuant to the terms of its distribution plans with affiliated mutual
funds, PDP received a combined $28.0 million, $26.0 million and $27.0
million in 1996, 1995 and 1994, respectively, from affiliated mutual funds
for providing distribution and other services. Of this amount, $19.5
million, $19.3 million and $20.0 million in 1996, 1995 and 1994,
respectively, was paid to outside broker-dealers and to WS Griffith & Co.,
Inc., a registered broker-dealer which is a wholly-owned subsidiary of PM
Holdings, for services rendered in the form of trailing commissions. The
balances of $8.5 million, $6.7 million and $7.0 million in 1996, 1995 and
1994, respectively, were retained as reimbursement for distribution
services provided by PDP and are included in revenues as a part of mutual
funds - ancillary fees.
35
<PAGE>
PHOENIX DUFF & PHELPS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - --------------------------------------------------------------------------------
Contingent deferred sales charge (CDSC) revenue is recognized when deferred
commissions are collected on redemptions of B shares made within five years
of their original purchase. CDSC redemption income earned in 1996, 1995 and
1994 was $2.4 million, $4.2 million and $2.6 million, respectively, and is
included in other income and fees.
INCOME TAXES
------------
PDP accounts for income taxes under the provisions of SFAS No. 109,
"Accounting for Income Taxes." SFAS No. 109 requires an asset and liability
approach for financial reporting of income taxes.
Deferred income taxes are generally recognized when assets and liabilities
have different values for financial statement and tax reporting purposes.
SFAS No. 109 allows recognition of deferred tax assets that are more likely
than not to be realized in future years. It is management's assessment,
based upon PDP's earnings and projected future taxable income, that it is
more likely than not that the deferred tax assets at December 31, 1996,
with the exception of the foreign tax credit, will be realized. At December
31, 1996 and 1995 the Company had a valuation allowance of $1.1 million
primarily related to the foreign tax credit.
PDP and its subsidiaries file consolidated federal and state income tax
returns. Prior to the Merger, PSG was included in the consolidated federal
and state tax returns of Phoenix Home Life. In connection with the Merger,
the tax allocation agreement with Phoenix Home Life was terminated. A new
tax allocation agreement between PDP and its subsidiaries was entered into
effective November 1, 1995.
INVESTMENT IN BEUTEL, GOODMAN & COMPANY LTD.
--------------------------------------------
The equity method is used to account for PDP's investment in the stock of
Beutel, Goodman & Company Ltd. (BG). The difference between the value
assigned to the investment in BG at the merger date and PDP's equity in
BG's historical cost basis net assets is being amortized on a straight-line
basis over 28 years.
FOREIGN CURRENCY TRANSLATION
----------------------------
The investment in BG has been translated into U.S. dollars at the rate of
exchange existing at year-end. The gains and losses resulting from foreign
currency translation, net of taxes, are deferred and accumulated in
stockholders' equity until the investment is sold or liquidated.
EARNINGS PER SHARE
------------------
Earnings per share have been computed using the weighted average number of
shares of common stock and common stock equivalents outstanding during each
period. Common stock equivalents are based on outstanding stock options
under the non-qualified stock option plans. The weighted average number of
common stock and common stock equivalent shares was 44.2 million and 29.8
million for the years ended December 31, 1996 and 1995, respectively.
36
<PAGE>
PHOENIX DUFF & PHELPS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - --------------------------------------------------------------------------------
EMPLOYEE BENEFITS
-----------------
PDP and its subsidiaries are members of the multi-employer pension and
savings plans sponsored and administered by Phoenix Home Life. The
qualified plans comply with the requirements established by the Employee
Retirement Income Security Act of 1974 (ERISA) and an excess benefits plan
provides the portion of pension obligations which is in excess of amounts
permitted by ERISA. Certain current and former employees of PDP are covered
under the plans. PDP is charged annually by Phoenix Home Life for its costs
under the plans. These costs were $3.3 million, $4.9 million and $6.3
million for 1996, 1995 and 1994, respectively.
Applicable information regarding the actuarial present value of vested and
non-vested accumulated plan benefits and the net assets of the plan
available for benefits is omitted as the information is not separately
calculated for PDP's participation in the plans.
3. MERGER AND GOODWILL AND INTANGIBLE ASSETS
PSG AND D&P MERGER
------------------
PDP was formed on November 1, 1995 by the merger of the businesses of PSG
and D&P, a publicly traded investment management company listed on the New
York Stock Exchange. The Merger was accomplished by the contribution by PM
Holdings of the businesses and substantially all of the assets of PSG to
D&P in exchange for an approximately 60% equity interest in the combined
entity.
The Merger was accounted for as an acquisition of D&P by PSG using the
purchase accounting method (a "reverse acquisition"). Therefore, the
consolidated financial statements presented herein reflect the operations
of PSG prior to the Merger and combined operations from the date of Merger.
The purchase price of D&P was established as the fair value of D&P based on
the trading price of D&P common stock immediately preceding the Merger plus
direct costs of the acquisition, including $3.9 million paid by PM
Holdings. The excess of the purchase price over acquired net tangible
assets and liabilities of D&P as of November 1, 1995 totalled $162.2
million. (The historical cost basis of acquired net assets of $77.7 million
included $48.8 million of intangible assets. The historical cost basis of
operations divested of $9.0 million included $8.6 million of intangible
assets.) Of this excess purchase price, $57.9 million has been classified
as identifiable intangible assets, primarily associated with investment
management contracts, which are being amortized over their expected lives
using the straight-line method. The remaining fair value adjustments to
assets and liabilities comprised ($29.0) million. The remaining excess
purchase price of $133.3 million has been classified as goodwill and is
being amortized over 40 years using the straight-line method. Related
amortization of $3.2 million and $1.1 million was charged to expense in
1996 and 1995, respectively.
As was contemplated at the time of the Merger, on May 14, 1996, PDP
announced that it was exiting the fee based investment research and
financial consulting businesses. Substantially all of the fee based
investment research activities were immediately closed and, on July 1,
1996, PDP completed the sale of certain assets of the financial consulting
and underwriting businesses to several former executives. The financial
effects of these divestitures were treated as adjustments to the initial
allocation of the purchase price relating to the Merger and financial
statement amounts, both actual and pro forma, have not been restated.
37
<PAGE>
PHOENIX DUFF & PHELPS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - --------------------------------------------------------------------------------
The following table summarizes the purchase price allocation (in thousands,
except share price):
<TABLE>
<S> <C>
Shares outstanding at October 31, 1995 17,073
Closing price per share $ 10.875
---------
$ 185,669
Transaction costs 5,035
---------
Fair value of D&P $ 190,704
=========
Purchase price allocation:
Historical cost basis of acquired net assets $ 77,722
Historical cost basis of operations divested (8,985)
Identified intangibles 57,920
Other net tangible assets and liabilities 3,290
Exit costs of operations divested (5,828)
Deferred taxes and valuation allowance (19,472)
D&P option liability (7,050)
Goodwill 93,107
---------
$ 190,704
=========
</TABLE>
GOODWILL AND INTANGIBLE ASSETS
------------------------------
Goodwill and intangible assets at December 31, were as follows:
<TABLE>
<CAPTION>
1996 1995
(IN THOUSANDS)
<S>
GOODWILL: <C> <C>
Excess purchase price over net tangible
assets and identifiable intangibles of
subsidiaries acquired $ 179,407 $ 167,014
Accumulated amortization (7,747) (3,534)
--------- ---------
Goodwill, net $ 171,660 $ 163,480
========= =========
INTANGIBLE ASSETS:
Investment contracts $ 56,700 $ 60,700
Employee base 1,220 1,300
Covenant not to compete 5,000 5,000
Other intangibles 2,766
Accumulated amortization (7,826) (2,677)
-------- --------
Intangible assets, net $ 55,094 $ 67,089
======== ========
</TABLE>
These consolidated financial statements include amortization expense
related to goodwill and intangible assets of $9.6 million, $3.2 million and
$1.9 million for the years ended December 31, 1996, 1995 and 1994,
respectively.
38
<PAGE>
PHOENIX DUFF & PHELPS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - --------------------------------------------------------------------------------
4. PRO FORMA RESULTS (UNAUDITED)
The following unaudited pro forma financial information for the years ended
December 31, 1995 and 1994 was derived from the historical financial
statements of PSG and D&P, and gives effect to the Merger of PSG and D&P
and certain transactions effected by PSG and D&P in connection with the
Merger. The pro forma financial information for these periods has been
prepared assuming these transactions and arrangements were effected on
January 1, 1994, except for the period from November 1, 1995 through
December 31, 1995 which reflects the actual combined results.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1995 1994
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C>
Revenues $ 165,339 $ 170,404
--------- ---------
Employment expenses 61,962 52,794
Other operating expenses 58,437 52,113
Amortization of goodwill and intangibles 9,623 10,908
--------- ---------
Operating income 35,317 54,589
Other income - net (509) 3,024
Interest (income) expense - net (462) 1,239
--------- ---------
Income before income taxes 35,270 56,374
Provision for income taxes 17,303 24,057
--------- ---------
Net income $ 17,967 $ 32,317
========= =========
Earnings per common and common
equivalent share
Primary $ .30 $ .63
Assuming full dilution $ .60
</TABLE>
The pro forma information is not necessarily indicative of the results that
would have been obtained had the transactions and arrangements taken effect
on the assumed dates, nor is the information intended to be a projection
for any future period.
5. INVESTMENTS
Investments in marketable securities at December 31, were as follows:
<TABLE>
<CAPTION>
1996
MARKET COST
(IN THOUSANDS)
<S> <C> <C>
Phoenix Multi-Portfolio Fund $ 1,981 $ 1,926
Other affiliated mutual funds 2,089 2,030
-------- --------
$ 4,070 $ 3,956
======== ========
</TABLE>
39
<PAGE>
PHOENIX DUFF & PHELPS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1995
MARKET COST
(IN THOUSANDS)
<S> <C> <C>
Phoenix Multi-Portfolio Fund $ 1,926 $ 1,796
Other affiliated mutual funds 1,547 1,458
------- -------
$ 3,473 $ 3,254
======= =======
</TABLE>
6. INVESTMENT IN BEUTEL, GOODMAN & COMPANY LTD.
At December 31, 1996, PDP had a 49% investment in the outstanding common
stock of BG. BG is a Canadian-based investment counseling firm with
approximately $9.6 billion (U.S.) in assets under management at December
31, 1996. At December 31, 1995, PDP also held approximately $9.5 million of
8.5% BG debentures due 2003. These debentures were retired during 1996. The
purchase price allocation, described in Note 3, resulted in $42.3 million
of the aggregate purchase price being allocated to the investment in BG.
The difference between the value assigned to the investment in BG and PDP's
equity in BG's historical cost value is being amortized over 28 years. The
equity method is used to account for the stock investment.
PDP's consolidated statements of financial condition and consolidated
statements of income for the years ended December 31 contain the following
components related to the BG investment:
<TABLE>
<CAPTION>
1996 1995
(IN THOUSANDS)
<S> <C> <C>
STATEMENTS OF FINANCIAL CONDITION:
Acquisition costs of investment in BG's
common stock and debentures $ 30,045 $ 39,848
Equity in BG net income 4,021 484
Dividends received (285)
Amortization of BG acquisition costs over
proportional net equity in BG's assets (1,476) (148)
Deferred taxes on translation adjustments (229)
Currency translation adjustments (330) (454)
-------- --------
Total BG investment $ 31,746 $ 39,730
======== ========
STATEMENTS OF INCOME:
Equity in BG net income, net of amortization $ 2,199 $ 336
Interest income - BG debentures 441 191
-------- --------
Total BG income $ 2,640 $ 527
======== ========
</TABLE>
The consolidated statements of financial condition contain foreign currency
translation adjustments related to the investment in BG as a component of
stockholders' equity. These adjustments, resulting from the translation of
foreign currency, are deferred and accumulated in stockholders' equity, net
of taxes, until the investment in BG is sold or substantially liquidated.
40
<PAGE>
PHOENIX DUFF & PHELPS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - --------------------------------------------------------------------------------
The following table reflects summarized BG financial information for 1996
and 1995. The asset and liability figures are based on the Canadian dollar
exchange rate at December 31, 1996 and 1995. The revenue and income amounts
are reflected at the average exchange rates for the years.
<TABLE>
<CAPTION>
1996 1995
BEUTEL, GOODMAN & COMPANY LTD. (IN THOUSANDS)
<S> <C> <C>
Current assets $10,193 $ 9,117
Noncurrent assets 1,324 2,842
Current liabilities 4,690 2,398
Noncurrent liabilities 178 9,407
Shareholders' equity 6,649 154
Total revenues 30,228 26,515
Net income 6,944 6,908
Dividends 274 273
</TABLE>
7. LONG-TERM INVESTMENTS AND OTHER ASSETS
Long-term investments are accounted for using the equity method. In
accordance with SFAS No. 115, PDP has adjusted its investments for its
proportionate share of the investees' unrealized gains and losses on
securities available for sale and has included the unrealized gains and
losses, net of taxes, in a separate component of stockholders' equity.
PDP's share of the earnings of unconsolidated investments is included in
other income.
WINDY CITY CBO AND D&P CBO
--------------------------
PDP had an $8.8 million and a $7.4 million investment in Windy City CBO
Partners, L.P. (WCCBO) at December 31, 1996 and 1995, respectively, and is
both a general and a limited partner. The partnership was established for
the purpose of issuing $184.3 million of Collateralized Bond Obligations
(CBOs). The CBOs are non-recourse obligations which are secured by a
portfolio of high-yield bonds. In 1995, PDP had an investment in D&P CBO
Partners, L.P. (D&P CBO). In 1996, D&P CBO was liquidated in accordance
with contractual arrangements and PDP has no remaining investment.
Principal and interest on the underlying high-yield portfolios are used to
meet CBO debt service obligations. The general and limited partners are
entitled to the residual after all CBOs have been repaid and the related
interest obligations have been satisfied. The risk to the partners is
limited to their initial investment which for PDP was $350,000 as a general
partner and $500,000 as a limited partner in WCCBO. PDP's proportionate
share of WCCBO's earnings for the twelve and two months ended December 31,
1996 and 1995 was $1.6 million and $512,000, respectively.
In addition, DPIM receives fees for managing the portfolios of high-yield
bonds held by the partnerships. These management fees were $431,000 and
$140,000 for the twelve and two months ended December 31, 1996 and 1995,
respectively. The following table sets forth certain summarized 1996 and
1995 financial information for WCCBO.
41
<PAGE>
PHOENIX DUFF & PHELPS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995
(IN THOUSANDS)
<S> <C> <C>
Current assets $ 17,098 $ 49,641
Noncurrent assets 50,184 171,412
Current liabilities 599 2,768
Noncurrent liabilities 28,667 183,342
Partners' capital 38,016 34,943
Investment income 11,328 23,591
Net investment income 668 1,152
Net realized gain (loss) on sale
of collateral debt securities 3,972 (6,203)
Earnings (losses) allocable to partners 4,640 (5,051)
</TABLE>
DUFF & PHELPS/INVERNESS AND RELATED PARTNERSHIPS
------------------------------------------------
At December 31, 1996, PDP had a 50% interest in Duff & Phelps/Inverness LLC
(DPI), a joint venture with Inverness Group Incorporated. DPI invests in
private equity transactions (primarily management led buy-outs), expansion
financing and recapitalizations involving management participation.
On January 17, 1996, DPI completed a management-led buyout of National-
Oilwell, Inc. from Armco and USX. On October 28, 1996, National-Oilwell,
Inc. successfully completed an initial offering of 4 million shares which
are traded on the New York Stock Exchange (NYSE: NOI). At December 31,
1996, PDP, through its investments in two limited partnerships, DPI
Partners I and DPI Partners II, had a beneficial ownership interest in
approximately 286,000 shares of the common stock of National-Oilwell, Inc.
At December 31, 1996, PDP's investment in DPI Partners I and DPI Partners
II was $5.9 million and $2.9 million, respectively.
On November 25, 1996, DPI entered into an agreement to participate in a
management led buy-out of Financial Alliance Processing Services, Inc.
(Financial Alliance). Financial Alliance is a credit and debit card
processing service company. On December 27, 1996, PDP invested
approximately $2.0 million in FA Investors I, L.P. which was created to
purchase Financial Alliance.
GREYSTONE FINANCIAL GROUP
-------------------------
At December 31, 1996, PDP had a 30% equity interest in the common stock of
Greystone Financial Group (GFG) with a cost basis of $7,500 and a $742,500
investment in the 8% Non-Cumulative Preferred Stock of GFG's wholly-owned
subsidiary, Greystone Asset Management, Inc. (GAM). GFG and GAM were in a
start-up phase for 1996 and incurred losses. As a result of recognizing its
proportionate share of losses, PDP's remaining investment in GFG and GAM
was $75,000 at December 31, 1996. At December 31, 1995, PDP had invested
$250,000 in GFG and GAM.
42
<PAGE>
PHOENIX DUFF & PHELPS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - --------------------------------------------------------------------------------
NUVEEN/DUFF & PHELPS INVESTMENT ADVISORS
----------------------------------------
PDP had a $379,000 and a $162,000 investment in Nuveen/Duff & Phelps
Investment Advisors at December 31, 1996 and 1995, respectively,
representing a 50% interest in the joint venture. As discussed in Note 21,
on January 2, 1997, PDP purchased the remaining 50% interest for $2.2
million. PDP's proportionate share of Nuveen/Duff & Phelps Investment
Advisors's earnings was $654,000 and $125,000 in 1996 and 1995,
respectively.
OTHER ASSETS
------------
At December 31, 1996 and 1995, PDP had a $3.5 million promissory note
receivable. In addition, at December 31, 1996, PDP had a $1.0 million note
receivable resulting from the divestiture of DPCM.
8. FURNITURE, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Furniture, equipment and leasehold improvements at December 31, were
comprised of the following:
<TABLE>
<CAPTION>
1996 1995
(IN THOUSANDS)
<S> <C> <C>
Computer equipment $ 7,388 $ 5,826
Leasehold improvements 2,926 2,948
Furniture and equipment 2,501 2,562
------- -------
12,815 11,336
Accumulated depreciation and amortization (4,438) (3,074)
------- -------
Furniture, equipment and leasehold
improvements, net $ 8,377 $ 8,262
======= =======
</TABLE>
9. INCOME TAXES
The components of income tax expense for the years ended December 31, were
as follows:
<TABLE>
<CAPTION>
1996 1995 1994
(IN THOUSANDS)
<S> <C> <C> <C>
CURRENT
Federal $11,964 $ 7,899 $ 9,403
State 2,040 4,438 2,272
------- ------- -------
Total current taxes 14,004 12,337 11,675
------- ------- -------
DEFERRED
Federal 4,549 78 862
State (366) 267
------- ------- -------
Total deferred taxes 4,183 345 862
------- ------- -------
Total income tax expense $18,187 $12,682 $12,537
======= ======= =======
</TABLE>
43
<PAGE>
PHOENIX DUFF & PHELPS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - --------------------------------------------------------------------------------
Income tax expense for 1996 was calculated on pre-tax income of $44.9
million, which includes $3.5 million of foreign source income comprised of
PDP's income from its investment in BG. Income tax expense includes $72,000
of taxes on foreign source income.
Deferred taxes resulted from temporary differences between the amounts
reported in the consolidated financial statements and the tax bases of
assets and liabilities. The tax effects of temporary differences at
December 31, were as follows:
<TABLE>
<CAPTION>
1996 1995
(IN THOUSANDS)
<S> <C> <C>
DEFERRED TAX ASSETS:
Purchase adjustments $ 1,744
Investment in BG 1,668
Other investments 1,196 $ 176
Foreign tax credit 1,109 1,109
Option liability 606 2,312
Legal expenses 603
Excess of capital losses over gains 528
Vacation accrual 455
Allowance for doubtful accounts 32 2,031
Other 2,576 1,101
------- -------
Gross deferred tax assets 10,517 6,729
Valuation allowance (1,120) (1,057)
------- -------
Gross deferred tax assets after valuation allowance 9,397 5,672
------- -------
DEFERRED TAX LIABILITIES:
Purchase adjustments 21,076 23,369
Investment in BG 7,931 5,946
Deferred commissions 6,571 4,893
Other investments 5,103
Unbilled revenue 1,015 1,437
Fixed assets 567 523
Other 994 76
------- -------
Gross deferred tax liabilities 43,257 36,244
------- -------
Deferred tax liability, net $33,860 $30,572
======= =======
</TABLE>
The following presents a reconciliation of income tax expense computed
at the federal statutory rate to the income tax expense recognized in
the consolidated financial statements for the years ended December 31,:
<TABLE>
<CAPTION>
1996 1995 1994
(IN THOUSANDS)
<S> <C> <C> <C>
Tax at statutory rate $15,717 $ 9,930 $10,345
State taxes, net of federal benefit 1,082 3,058 1,477
Goodwill 1,495 420
Tax exempt interest and dividends received
deduction (84) (59) (67)
Other, net (23) (667) 782
------- ------- -------
Income tax expense $18,187 $12,682 $12,537
======= ======= =======
</TABLE>
44
<PAGE>
PHOENIX DUFF & PHELPS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - --------------------------------------------------------------------------------
10. LONG-TERM DEBT
At December 31, 1996, PDP had outstanding borrowings of $16.5 million under
a $27 million Credit Agreement with a consortium of banks. Interest rates
on such borrowings averaged 6.49%. Interest expense, inclusive of
commitment fees, was $1.5 million and $288,000 in 1996 and 1995,
respectively. Required payments under this agreement are $2.5 million in
1997 with the balance due prior to December 31, 1998.
The Credit Agreement contains financial and operating covenants including,
among other provisions, requirements that PDP maintain certain financial
ratios and satisfy certain financial tests, including restrictions on the
ability to incur indebtedness and limitations on PDP's capital
expenditures.
11. MANDATORILY REDEEMABLE SECURITIES AND OTHER CAPITAL TRANSACTIONS
In accordance with the terms of the Merger Agreement, on November 1, 1995,
the outstanding $35 million of the note payable to PM Holdings (including
accrued interest) was converted into Series A Convertible Exchangeable
Preferred Stock (the Series A Preferred Stock) based on the stated value of
$25.00 per share. In accordance with the Merger Agreement, a stock dividend
of one share of Series A Preferred Stock for each ten shares of D&P common
stock was also recorded. The holders of the Series A Preferred Stock are
entitled to receive an annual cash dividend of $1.50 per share payable
quarterly when, as and if declared. Dividends are cumulative from the date
of original issuance and unpaid, undeclared dividends are added to the
liquidation preference and the mandatory redemption price of the Series A
Preferred Stock. The Series A Preferred Stock is mandatorily redeemable,
not prior to November 30, 2000, at $25.00 per share, plus accumulated but
unpaid dividends, if not previously converted, redeemed or exchanged.
Each share of Series A Preferred Stock can be converted into 3.11 shares of
common stock at any time. Each share of Series A Preferred Stock is
exchangeable in whole, but not in part, for 6% Convertible Subordinated
Debentures due 2015 (the "Subordinated Debentures") of PDP at the option of
PDP on any date that is on or after the two year anniversary of the Merger.
Holders of outstanding Series A Preferred Stock will be entitled to receive
the $25.00 principal amount of the Subordinated Debentures in exchange for
each share of Series A Preferred Stock, including unpaid and accrued
dividends.
Upon completion of the Merger, 17.1 million shares of D&P common stock
became 17.1 million shares of PDP common stock. In addition, the one
thousand shares of PSG $1.00 par common stock were converted into 26.4
million shares of PDP common stock.
On November 7, 1996, PDP declared its common share quarterly dividend in
the amount of $0.06 per share and a preferred share dividend of $0.375 per
share. PDP intends to continue to pay quarterly cash dividends. However,
future payment of cash dividends by PDP will depend upon the financial
condition, capital requirements and earnings of PDP.
On November 7, 1996, the Board voted to authorize a stock repurchase plan.
The repurchase plan for up to 2 million shares of outstanding common stock
was effective immediately. Repurchases will be made from time to time in
the open market or through privately negotiated transactions at market
prices. No stock repurchase was made during 1996.
45
<PAGE>
PHOENIX DUFF & PHELPS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - --------------------------------------------------------------------------------
12. OTHER OPERATING EXPENSES
Other operating expenses for the years ended December 31, were comprised of
the following:
<TABLE>
<CAPTION>
1996 1995 1994
(IN THOUSANDS)
<S> <C> <C> <C>
Rent $ 4,584 $ 3,435 $ 2,030
Travel, training and entertainment 4,574 2,138 1,682
Outside services 4,226 2,998 2,640
Computer services 3,206 6,549 5,467
Telephone and postage 2,878 2,225 1,938
Printing 2,658 2,715 2,564
Administrative and staffing 2,346 7,113 5,905
Sales and marketing 1,614 1,204 592
Equipment rental and maintenance 1,255 1,812 1,179
Finders fees 993 697 994
Professional fees 948 1,371 3,057
Outside temporaries 468 1,051 1,384
Other expenses 6,773 3,801 5,346
------- ------- -------
Total $36,523 $37,109 $34,778
======= ======= =======
</TABLE>
13. COMMITMENTS AND LEASE CONTINGENCIES
PDP and its subsidiaries incurred rental expenses on operating leases of
$4.6 million in 1996, $3.4 million in 1995 and $2.0 million in 1994, net of
income from subleases of $841,000 in 1996, $542,000 in 1995 and $337,000 in
1994. PDP and its subsidiaries are committed to the following future net
minimum rental payments under non-cancelable operating leases (in
thousands):
<TABLE>
<CAPTION>
INCOME NET
LEASE FROM LEASE
PAYMENTS SUBLEASES PAYMENTS
<S> <C> <C> <C>
1997 $ 5,869 $ 862 $ 5,007
1998 5,019 885 4,134
1999 5,086 895 4,191
2000 3,773 815 2,958
2001 2,318 468 1,850
2002 and thereafter 11,800 11,800
-------- --------- --------
$ 33,865 $ 3,925 $ 29,940
======== ========= ========
</TABLE>
46
<PAGE>
PHOENIX DUFF & PHELPS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - --------------------------------------------------------------------------------
14. OTHER RELATED PARTY TRANSACTIONS
REVENUES
--------
PDP's subsidiaries manage assets and provide other investment advisory
services to Phoenix Home Life and subsidiaries (e.g., general account,
separate accounts, variable products ) and investment products (e.g.,
affiliated mutual funds). In 1996, the Phoenix Home Life pooled separate
accounts were converted to institutional mutual funds. The revenues earned
managing these assets for the years ended December 31, were as follows:
<TABLE>
<CAPTION>
1996 1995 1994
(IN THOUSANDS)
<S> <C> <C> <C>
MANAGEMENT FEES:
Affiliated mutual funds $71,192 $55,647 $56,551
Phoenix Home Life general account 8,156 7,201 6,519
Phoenix Home Life variable
product separate accounts 6,270 4,835 3,576
Phoenix Home Life pooled separate accounts 561 3,569 3,455
Other 862 789 827
------- ------- -------
Total management fees 87,041 72,041 70,928
------- ------- -------
MUTUAL FUNDS - ANCILLARY FEES:
Transfer agent 5,889 5,984 5,986
Fund accounting 2,800 2,629 3,733
------- ------- -------
Total mutual funds - ancillary fees 8,689 8,613 9,719
------- ------- -------
$95,730 $80,654 $80,647
======= ======= =======
</TABLE>
For all years presented, PDP received management fees averaging
approximately .12% of the net asset value of the Phoenix Home Life general
account assets under management. PDP's transactions with related parties
comprised approximately 63%, 72% and 77% of revenues for the years ended
December 31, 1996, 1995 and 1994, respectively. PDP believes that its
transactions with these related parties were competitive with alternative
third party sources for each service provided.
RECEIVABLES FROM RELATED PARTIES
--------------------------------
Receivables from affiliates as of December 31, were as follows:
<TABLE>
<CAPTION>
1996 1995
(IN THOUSANDS)
<S> <C> <C>
Management fees $10,449 $11,816
Mutual funds - ancillary fees 3,716 3,552
Concessions 3,976 3,661
Other 1,560 839
------- -------
$19,701 $19,868
======= =======
</TABLE>
47
<PAGE>
PHOENIX DUFF & PHELPS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - --------------------------------------------------------------------------------
OPERATING EXPENSES
------------------
Phoenix Home Life provides administrative services at the request of PDP
including disbursement, tax, facility management and other administrative
support to PDP and its subsidiaries. Additionally, certain of PDP's active
and retired employees participate in the Phoenix Home Life multi-employer
retirement and benefit plans (Note 2). The expenses recorded by PDP for
significant services provided by Phoenix Home Life for the years ended
December 31, were as follows:
<TABLE>
<CAPTION>
1996 1995 1994
(IN THOUSANDS)
<S> <C> <C> <C>
Rent $ 3,041 $ 2,062 $ 2,030
Administrative fees 2,482 6,940 4,285
Computer services 2,283 5,530 5,467
Equipment, rental and maintenance 990 1,009 1,369
Employee related charges:
Healthcare and life insurance benefits 1,027 1,793 1,188
Pension and savings plans 1,051 1,254 1,159
Other 1,233 1,866 3,947
Legal services 183 637 1,019
------- ------- -------
Total $12,290 $21,091 $20,464
======= ======= =======
</TABLE>
PDP pays these charges based on contractual agreements. Computer services
are based upon actual or specified usage. Other charges are based on hourly
rates, square footage or head count. PDP reimburses Phoenix Home Life for
employee related charges based on actual costs paid by Phoenix Home Life.
Management believes that these charges are reasonable.
PAYABLES TO RELATED PARTIES
---------------------------
Payables to related parties as of December 31, were as follows:
<TABLE>
<CAPTION>
1996 1995
(IN THOUSANDS)
<S> <C> <C>
Operating expenses $ 3,874 $10,386
Income taxes 1,447
------- -------
$ 3,874 $11,833
======= =======
</TABLE>
Included in broker-dealer payables are commissions, including those payable
under 12b-1 distribution plans discussed in Note 2, of $3.0 million and
$2.9 million in 1996 and 1995, respectively, payable to WS Griffith & Co.,
Inc., a registered broker-dealer which is a wholly-owned subsidiary of PM
Holdings.
48
<PAGE>
PHOENIX DUFF & PHELPS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - --------------------------------------------------------------------------------
NOTE PAYABLE TO PARENT
----------------------
PSG obtained a loan from PM Holdings for which interest was paid at a rate
equal to the 30 day commercial paper rate placed directly by General
Electric Capital Corp. plus .5% per annum. Interest expense on the loan
totalled $2.0 million and $2.4 million for 1995 and 1994, respectively.
Principal repayments of $4.5 million and $11.7 million were made by PDP in
1995 and 1994, respectively. During 1995, the note payable was converted
into Series A Preferred Stock as discussed in Note 11.
15. NON-QUALIFIED STOCK OPTION PLANS
Officers and key employees of D&P were eligible to participate in three
stock option plans, the 1989 Employee Stock Option Plan (Employee Option
Plan), the 1989 Employee Performance Stock Option Plan (Performance Plan)
and the 1992 Long-Term Stock Incentive Plan (1992 Plan). Under the plans,
participants were granted non-qualified options to purchase shares of
common stock of D&P at an option price equal to the fair value of a share
of common stock on the date of grant. The options under the 1989 plans are
fully vested.
Effective with the Merger, existing options under the 1992 Plan vested and
became exercisable for all participants, except for certain senior officers
whose options will vest and become exercisable in accordance with the
plan's original vesting schedule. Each vested option converted into an
option (converted option) to purchase one share of common stock and one-
tenth of a share of Series A Preferred Stock for each share of common stock
for which the option was exercisable immediately prior to the Merger, at an
aggregate option price that was $1.75 less than the previous option price
per share.
PDP adopted the 1992 Plan, as amended, concurrent with the Merger. The 1992
Plan is administered by the Stock Option Committee of the Board of
Directors, which designates which employees and outside directors
participate in the plan and the terms of the options to be granted. Under
the 1992 Plan, participants are granted non-qualified options to purchase
shares of common stock of PDP at an option price equal to not less than 85%
of the fair market value of the common stock at the time the option is
granted. The maximum number of shares of common stock for which options may
be granted is 6.4 million. The options held by a participant terminate no
later than 10 years from the date of grant. Options granted under the 1992
Plan vest, on average, in even annual installments over three years.
PDP has adopted the disclosure-only provisions of SFAS No. 123, "Accounting
for Stock Based Compensation". Accordingly, no compensation cost has been
recognized for the stock option plans. Had compensation cost for the PDP
stock option plans been determined based on the fair value at the grant
date for awards in 1996 and 1995 consistent with the provisions of SFAS No.
123, PDP's net income and earnings per share would have been reduced to the
pro forma amounts indicated below:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Net income - as reported (in thousands) $ 26,719 $ 15,690
Net income - pro forma (in thousands) $ 26,363 $ 15,673
Primary earnings per share - as reported $ .50 $ .50
Primary earnings per share - pro forma $ .49 $ .50
Fully diluted earnings per share - as reported $ .49 $ .40
Fully diluted earnings per share - pro forma $ .49 $ .40
</TABLE>
49
<PAGE>
PHOENIX DUFF & PHELPS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - --------------------------------------------------------------------------------
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted-average
assumptions used for grants in 1996 and 1995: dividend yield of 2.79%,
expected volatility of 30%, risk free interest rate of approximately 6.0%
and expected lives of between three and ten years.
As of December 31, 1996, options to purchase 84,520, 42,120 and 3,810,866
shares of common stock had been granted and are outstanding at weighted
average exercise prices per share of approximately $1.00, $.28 and $7.13,
respectively, under the Employee Option Plan, Performance Plan and 1992
Plan, respectively.
OUTSTANDING OPTIONS
-------------------
<TABLE>
<CAPTION>
SERIES A
COMMON WEIGHTED AVG. PREFERRED WEIGHTED AVG.
SHARES EXERCISE PRICE SHARES EXERCISE PRICE
<S> <C> <C> <C> <C>
Balance, November 1, 1995 2,144,384 $6.29
Granted 1,566,250 $6.64 214,439 $24.65
Exercised (90,349) $1.66 (13,276) $ 5.07
--------- --------
Balance, December 31, 1995 3,620,285 $6.56 201,163 $25.95
Granted 1,518,366 $7.10
Exercised (473,895) $3.78 (36,715) $13.11
Canceled (531,834) $7.73 (52,234) $30.38
Forfeited (195,416) $6.95 (3,166) $29.10
--------- --------
Balance, December 31, 1996 3,937,506 $6.93 109,048 $28.05
========= ========
EXERCISABLE OPTIONS
-------------------
<CAPTION>
SERIES A
COMMON WEIGHTED AVG. PREFERRED WEIGHTED AVG.
SHARES EXERCISE PRICE SHARES EXERCISE PRICE
<S> <C> <C> <C> <C>
Balance, November 1, 1995 884,991
Became exercisable 1,109,411 200,261
Exercised (90,349) $1.66 (13,276) $ 5.07
--------- --------
Balance, December 31, 1995 1,904,053 $6.47 186,985 $25.82
Became exercisable 653,566 $6.67 10,413 $28.75
Exercised (473,895) $3.78 (36,715) $13.11
Canceled (531,834) $7.73 (52,234) $30.38
Forfeited (195,416) $6.95 (3,166) $29.10
--------- --------
Balance, December 31, 1996 1,356,474 $6.95 105,283 $28.18
========= ========
</TABLE>
At December 31, 1996, 2.2 million shares of PDP common stock were available
for future stock option grants.
50
<PAGE>
PHOENIX DUFF & PHELPS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - --------------------------------------------------------------------------------
16. CONSOLIDATED QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
A summary of the unaudited quarterly results of operations for the two
years ended December 31, 1996 and 1995 is as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT PER
SHARE AMOUNTS) FIRST SECOND THIRD FOURTH
1996 QUARTER QUARTER QUARTER QUARTER
<S> <C> <C> <C> <C>
Revenues $44,461 $40,345 $37,315 $37,640
Expenses 31,126 30,523 25,929 27,277
------- ------- ------- -------
Income before taxes 13,335 9,822 11,386 10,363
Provision for income taxes 6,222 3,230 5,056 3,679
------- ------- ------- -------
Net income $ 7,113 $ 6,592 $ 6,330 $ 6,684
======= ======= ======= =======
Earnings per share
Primary $ .14 $ .12 $ .12 $ .12
Fully diluted $ .13 $ .12 $ .12
Dividends per common share declared
during the quarter $ .05 $ .05 $ .05 $ .06
Dividends per preferred share declared
during the quarter $ .375 $ .375 $ .375 $ .375
Market price per share
Common
Low $ 5.63 $ 5.88 $ 6.00 $ 6.00
High $ 7.00 $ 7.88 $ 7.25 $ 7.38
Preferred
Low $ 23.88 $ 23.88 $ 23.25 $ 23.00
High $ 26.25 $ 27.13 $ 25.63 $ 25.25
<CAPTION>
FIRST SECOND THIRD FOURTH
1995 QUARTER QUARTER QUARTER QUARTER
<S> <C> <C> <C> <C>
Revenues $24,389 $25,406 $26,837 $38,047
Expenses 17,908 18,734 20,054 29,611
------- ------- ------- -------
Income before taxes 6,481 6,672 6,783 8,436
Provision for income taxes 3,002 3,091 2,373 4,216
------- ------- ------- -------
Net income $ 3,479 $ 3,581 $ 4,410 $ 4,220
======= ======= ======= =======
Earnings per share
Primary $ 0.09
Fully diluted $ 0.09
Dividends per common share declared
during the quarter $ 0.05
Dividends per preferred share declared
during the quarter $ 0.14
Market price per share
Common
Low $ 6.00
High $ 8.28
Preferred
Low $ 24.50
High $ 25.63
</TABLE>
51
<PAGE>
PHOENIX DUFF & PHELPS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - --------------------------------------------------------------------------------
17. CONTINGENT LIABILITIES
In October 1995, PDP, in one case, and its subsidiary DPCM were named
defendants in three related class action suits related to a fairness
opinion issued by DPCM. The plaintiffs are members of Associated Surplus
Dealers (ASD), a corporation organized to promote the surplus merchandise
industry. The actions also name as defendants the directors of ASD and a
corporation (WFI) controlled by one of the defendants. The complaints
allege that shortly after the sale of the assets of ASD to WFI for $2.6
million, the ASD assets were resold by WFI for $60 million. The plaintiffs
contend that DPCM and certain directors breached their fiduciary duties and
were negligent, causing ASD to receive less in sales proceeds than
anticipated. The plaintiffs seek compensatory damages, attorneys' fees,
costs of suit and punitive damages, all in unspecified amounts. DPCM denies
that its actions were inappropriate and intends to vigorously defend the
actions.
Management, at this time, does not expect the above litigation to have a
material adverse effect on PDP's financial position or results of
operations.
18. OFF-BALANCE SHEET RISK
In the normal course of business, PDP enters into affiliated mutual fund
sales transactions as principal. If the payment for the securities subject
to such transactions is not received from the customer, PDP may be subject
to risk of loss if the market value of the security has decreased since the
date of the transaction. To the extent payment is not received within three
business days for the mutual fund shares purchased, such shares are
redeemed, thereby limiting any potential loss to the decrease of the net
asset value of such fund shares over that three business day time period.
Losses incurred during the three year period ended December 31, 1996 were
insignificant.
19. FAIR VALUE OF FINANCIAL INSTRUMENTS
CASH AND CASH EQUIVALENTS
-------------------------
The carrying amount of cash equivalents approximates fair value because of
the short maturity of these instruments.
MARKETABLE SECURITIES
---------------------
The carrying amount equals market value.
DEBENTURES OF BEUTEL, GOODMAN & COMPANY LTD. AND LONG-TERM INVESTMENTS AND
--------------------------------------------------------------------------
OTHER ASSETS
------------
The investment in BG debentures and the majority of the long-term
investments and other assets were recorded at fair market value at November
1, 1995 in conjunction with the Merger. (The BG debentures were retired
during 1996.) The fair value of these assets at December 31, 1996 was based
on estimates made using appropriate valuation techniques.
LONG-TERM DEBT
--------------
The fair value is estimated based upon the current rates that would be
offered to PDP on similar debt.
SERIES A PREFERRED STOCK
------------------------
The fair value of Series A Preferred Stock is based on the quoted market
price per share at December 31, 1996.
52
<PAGE>
The estimated fair values of PDP's financial instruments at December 31, were
as follows:
PHOENIX DUFF & PHELPS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Cash and cash equivalents $22,466 $22,466 $16,306 $16,306
Accounts receivable 25,668 25,668 32,024 32,024
Marketable securities 4,070 4,070 3,473 3,473
Debentures of Beutel, Goodman & Company Ltd. 9,534 9,534
Long-term investments and other assets 4,500 4,500 3,500 3,500
Accounts payable and accrued liabilities 13,306 13,306 12,317 12,317
Long-term debt 16,500 16,500 23,500 23,500
Series A Preferred Stock 78,504 78,931 78,029 78,794
</TABLE>
The carrying amounts for accounts receivable, accounts payable and accrued
liabilities are reasonable estimates of fair value because of the short
nature of the transactions.
20. NET CAPITAL REQUIREMENT
PEPCO is subject to broker-dealer net capital requirements and at December
31, 1996 net capital of $820,000 was required compared to actual net
capital of $4.0 million.
21. SUBSEQUENT EVENT
On January 2, 1997, DPIM completed the purchase of Nuveen Institutional
Advisory Corp.'s (Nuveen's) 50% interest in Nuveen/Duff & Phelps Investment
Advisors, a general partnership. The partnership originally was established
as a joint venture between Nuveen and DPIM in May 1990 for the purpose of
providing investment advisory services to nuclear decommissioning funds.
The partnership, now 100% owned by PDP, has been renamed Phoenix Duff &
Phelps Investment Advisors and will continue to provide these same
services.
53
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
- - ------- ---------------------------------------------------------------
FINANCIAL DISCLOSURE.
---------------------
The disclosure called for by this item was previously reported in the
Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1995.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
- - -------- ---------------------------------------------------
The information required by this item, to the extent not included
under the caption "Executive Officers of the Company" in Part I of
this report will appear under the caption "Election of Directors" in
the Company's definitive proxy statement for the 1997 annual meeting
of the shareholders (the "1997 Proxy Statement"), and such information
shall be deemed to be incorporated herein by reference to that portion
of the 1997 Proxy Statement, to be filed with the Securities and
Exchange Commission pursuant to Regulation 14A not later than 120 days
after the end of the Corporation's most recently completed fiscal
year.
ITEM 11. EXECUTIVE COMPENSATION.
- - -------- -----------------------
The information required by this item will appear under the caption
"Executive Compensation" in the 1997 Proxy Statement, and such
information shall be deemed to be incorporated herein by reference to
that portion of the 1997 Proxy Statement, to be filed with the
Securities and Exchange Commission pursuant to Regulation 14A not
later than 120 days after the end of the Corporation's most recently
completed fiscal year.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
- - -------- ---------------------------------------------------------------
The information required by this item will appear under the caption
"Principal Holders of Securities" in the 1997 Proxy Statement, and
such information shall be deemed to be incorporated herein by
reference to that portion of the 1997 Proxy Statement, to be filed
with the Securities and Exchange Commission pursuant to Regulation 14A
not later than 120 days after the end of the Corporation's most
recently completed fiscal year.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
- - -------- -----------------------------------------------
The information required by this item will appear under the caption
"Executive Compensation and Certain Transactions" in the 1997 Proxy
Statement, and such information shall be deemed to be incorporated
herein by reference to that portion of the 1997 Proxy Statement, to be
filed with the Securities and Exchange Commission pursuant to
Regulation 14A not later than 120 days after the end of the
Corporation's most recently completed fiscal year. Also see Note 14 to
the consolidated financial statements on page 47 of this report.
54
<PAGE>
PART IV
ITEM 14 EXHIBITS, FINANCIAL STATEMENT, SCHEDULES, AND REPORTS ON FORM 8-K.
- - -------------------------------------------------------------------------
(a) The following documents are filed as a part of this report:
1. Financial Statements
See index to Financial Statements in item 8.
2. Financial Statement Schedule.
Beutel, Goodman & Company Ltd. Auditors' Report.
3. EXHIBITS
2(c) Agreement and Plan of Merger among PM Holdings, Inc., Phoenix Securities
Group, Inc. and Duff & Phelps Corporation dated as of June 14, 1995
(incorporated herein by reference to Exhibit 2 to the Registrant's
current report on Form 8-K dated June 23, 1995)
3(a) Restated Certificate of Incorporation of the Registrant, as amended
(incorporated herein by reference to Exhibit 3(a) to the Registrant's
Current Report on Form 8-K dated November 15, 1995)
3(b) By-Laws of the Registrant, as amended (incorporated herein by reference
to Exhibit 3(b) to the Registrant's Current Report on Form 8-K dated
November 15, 1995)
4(a) Form of Common Stock certificate(1)
4(j) Indenture dated as of October 1, 1989 among D&P CBO Partners, L.P., D&P
CBO Corp. and Bankers Trust Company, as trustee(1)
4(k) First Supplement to D&P CBO Partners, L.P. Indenture dated as of November
21, 1990(1)
4(l) Second Supplement to D&P CBO Partners, L.P. Indenture dated as of
November 21, 1990(1)
4(m) Indenture dated as of November 1, 1990 among Windy City CBO Partners,
L.P., Windy City CBO Corp. and Bankers Trust Company, as trustee(1)
4(n) Amended and Restated Credit Agreement dated as of October 31, 1995 among
the Registrant and various financial institutions and Bank of America
Illinois (incorporated herein by reference to Exhibit 4(n) to the
Registrant's 1995 Annual Report on Form 10-K of Phoenix Duff & Phelps
Corporation)
4(r) Certificate of Designation, Voting Powers, Preferences and Rights of
Series A Convertible Exchangeable Preferred Stock (incorporated herein by
reference to Exhibit 3(a) to the Registrant's Current Report on Form 8-K
dated November 15, 1995)
4(s) Form of Indenture between Phoenix Duff & Phelps Corporation and a Trustee
with respect to the 6% Convertible Subordinated Debentures due 2015 into
which the Series A Convertible Exchangeable Preferred Stock will be
exchangeable (incorporated herein by reference to Exhibit 4(s) to the
Registrant's registration statement on Form S-4 (Registration No. 33-
97292))
4(t) Form of Series A Convertible Exchangeable Preferred Stock certificate
(incorporated herein by reference to Exhibit 4(t) to the Registrant's
registration statement on Form S-4 (Registration No. 33-97292))
10(a) The Registrant's 1989 Employee Stock Option Plan (incorporated herein by
reference to Exhibit 10.3 to the 1989 Annual Report on Form 10-K of Duff
& Phelps Inc.)(2)
10(b) The Registrant's 1989 Employee Performance Stock Option Plan
(incorporated herein by reference to Exhibit 10.4 to the 1989 Annual
Report on Form 10-K of Duff & Phelps Inc.)(2)
10(c) Amendment to the Registrant's 1989 Employee Performance Stock Option
Plan(1)(2)
10(d) Duff & Phelps Incentive Compensation Plan(1)(2)
10(e) The Registrant's Savings Plan(1)
10(f) The Registrant's 1992 Long-Term Stock Incentive Plan, as amended(2)
(incorporated herein by reference to Exhibit 10(f) to the Registrant's
1995 Annual Report on Form 10-K of Phoenix Duff & Phelps Corporation)
10(h) Investment Advisory Agreement between Duff & Phelps Investment Management
Co. and Duff & Phelps Utilities Income Inc.(1)
10(i) Service Agreement among Duff & Phelps Investment Management Co., Duff &
Phelps Utilities Income Inc., Duff & Phelps Investment Research Co. and
Duff & Phelps Inc.(1)
55
<PAGE>
10(j) Mid-Continental Plaza Lease between Tishman Speyer Properties and Duff &
Phelps Inc.(1)
10(k) Form of Indemnification Agreement between the Registrant and its
directors and certain officers(1)(2)
10(l) Amendment One to the Duff & Phelps Employees Savings Plan(1)
10(m) Nonqualified Deferred Compensation Plans-Joinder Agreements (2)
10(n) Trust Agreement Establishing a Trust for the Duff & Phelps Employees
Savings Plan(1)
10(s) Subscription and Loan Agreement dated November 15, 1993 between Beutel,
Goodman & Company Ltd. and the Registrant (incorporated herein by
reference to Exhibit 2(a) to the Registrant's Current Report on Form 8-K
dated November 29, 1993)
10(t) Debenture Purchase Agreement dated November 15, 1993 between Crownx Inc.
And DP Holdings Ltd. (incorporated herein by reference to Exhibit 2(b) to
the Registrant's Current Report on Form 8-K dated November 29, 1993)
10(u) Shareholders Agreement dated November 15, 1993 by and among the
Shareholders of Beutel, Goodman & Company Ltd. (incorporated herein by
reference to Exhibit 10(u) to the Registrant's Annual Report on Form 10-K
for 1993)
10(w) Tax Sharing and Indemnification Agreement between the Registrant and Duff
& Phelps Credit Rating Co. ("Credit Rating") (incorporated herein by
reference to Exhibit 10.2 to Credit Rating's Annual Report on Form 10-K
for 1994)
10(x) Distribution and Indemnity Agreement between the Registrant and Credit
Rating (incorporated herein by reference to Exhibit 10.3 to Credit
Rating's Annual Report on Form 10-K for 1994)
10(y) Services Agreement among the Registrant, Credit Rating and Duff & Phelps
Investment Management Co. (incorporated herein by reference to Exhibit
10.4 to Credit Rating's Annual Report on Form 10-K for 1994)
10(z) Name Use Agreement between the Registrant and Credit Rating (incorporated
herein by reference to Exhibit 10.5 to Credit Rating's Annual Report on
form 10-K for 1994)
10(aa) Sublease Agreement relating to Chicago, Illinois Office Space between the
Registrant and Credit Rating (incorporated herein by reference to Exhibit
10.6 to Credit Rating's Annual Report on Form 10-K for 1994)
10(bb) License Agreement dated November 1, 1995 between the Registrant and
Phoenix Home Life Mutual Insurance Company (incorporated herein by
reference to Exhibit 10(a) to the Registrant's Current Report on Form 8-K
dated November 15, 1995)
10(cc) Registration Rights Agreement dated November 1, 1995 between the
Registrant and PM Holdings, Inc. (incorporated herein by reference to
Exhibit 10(b) to the Registrant's Current Report on Form 8-K dated
November 15, 1995)
10(dd) Administrative Agreement between Phoenix Home Life Mutual Insurance
Company and certain subsidiaries (incorporated herein by reference to
Exhibit 10(dd) to the Registrant's registration statement on Form S-4
(Registration No. 33-97292))
10(ee) Computer Services Agreement between the Registrant and Phoenix Home Life
Mutual Insurance Company (Incorporated herein by reference to Exhibit
10(ee) to the Registrant's registration statement on Form S-4
(Registration No. 33-97292))
10(ff) Investment Management Agreement Between Phoenix Investment Counsel, Inc.
and Phoenix Home Life Mutual Insurance Company (incorporated Herein By
reference to Exhibit 10(ff) to the Registrant's registration statement on
Form S-4 (Registration No. 33-97292))
10(gg) Leases between Phoenix Securities Group, Inc. and Phoenix Home Life
Mutual Insurance Company (incorporated herein by reference to Exhibits
10(gg), (hh) and (ii) to the Registrant's registration statement on Form
S-4 (Registration No. 33-97292))
10(hh) Employment Agreement dated November 1, 1995 between the Registrant and
Mr. Jeffries (incorporated herein by reference to Exhibit 10(c) to the
Registrant's Current Report on Form 8-K dated November 15, 1995)(2)
10(ii) Employment Agreement dated November 1, 1995 between the Registrant and
Mr. Pedersen (incorporated herein by reference to Exhibit 10(d) to the
Registrant's Current Report on Form
56
<PAGE>
8-K dated November 15, 1995)(2)
10(jj) Change of Control Agreement dated June 10, 1996 between the Registrant
and Mr. Mcloughlin (2)
10(kk) Employment Agreement dated November 1, 1995 between the Registrant and
Mr. Stevens (incorporated herein by reference to Exhibit 10(f) to the
Registrant's Current Report on Form 8-K dated November 15, 1995)(2)
10(ll) Change of Control Agreement dated June 10, 1996 between the Registrant
and Mr. Haylon (2)
10(mm) Change of Control Agreement dated June 10, 1996 between the Registrant
and Mr. Pepin (2)
21 Subsidiaries of the Registrant
23(a) Consent of Price Waterhouse LLP
23(b) Consent of Richter, Usher & Vineberg
27 Financial Data Schedule
____________
(1) Incorporated herein by reference to the corresponding exhibit to the
Registrant's registration statement on Form S-1 (Registration No. 33-
45140).
(2) Denotes Management Contract or Compensatory Plan or Arrangement required
to be filed as an exhibit to this report pursuant to item 601 of
Regulation S-K.
(B) Reports on Form 8-K.
None.
57
<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 on the 27th day of
March, 1997.
PHOENIX DUFF & PHELPS CORPORATION
By /S/ Francis E. Jeffries
----------------------------
Francis E. Jeffries
Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below on the 27th day of March, 1997 by the following persons on
behalf of the registrant in the capacities indicated.
SIGNATURE
---------
TITLE
-----
/S/ Francis E. Jeffries
- - -------------------------------------------------------
Chairman of the Board and Director
Francis E. Jeffries
/S/ Philip R. Mcloughlin
- - -------------------------------------------------------
Vice Chairman, Chief Executive Officer and Director
Philip R. Mcloughlin
/S/ Calvin J. Pedersen
- - -------------------------------------------------------
President and Director
Calvin J. Pedersen
/S/ William R. Moyer
- - -------------------------------------------------------
Senior Vice President and Chief Financial Officer
William R. Moyer
/S/ David R. Pepin
- - -------------------------------------------------------
Executive Vice President and Director
David Pepin
/S/ Wayne C. Stevens
- - -------------------------------------------------------
Director
Wayne C. Stevens
/S/ Michael E. Haylon
- - -------------------------------------------------------
Director
Michael E. Haylon
/S/ Robert W. Fiondella
- - -------------------------------------------------------
58
<PAGE>
Director
Robert W. Fiondella
/S/ Richard H. Booth
- - -------------------------------------------------------
Director
Richard H. Booth
/S/ Edward P. Lyons
- - -------------------------------------------------------
Director
Edward P. Lyons
/S/ Marilyn E. Lamarche
- - -------------------------------------------------------
Director
Marilyn E. Lamarche
/S/ James M. Oates
- - -------------------------------------------------------
Director
James M. Oates
/S/ Ferdinand Verdonck
- - -------------------------------------------------------
Director
Ferdinand Verdonck
/S/ Glen D. Churchill
- - -------------------------------------------------------
Director
Glen D. Churchill
/S/ Donna F. Tuttle
- - -------------------------------------------------------
Director
Donna F. Tuttle
/S/ David A. Williams
- - -------------------------------------------------------
Director
David A. Williams
/S/ John T. Anderson
- - -------------------------------------------------------
Director
John T. Anderson
59
<PAGE>
[LETTERHEAD OF RICHTER, USHER & VINEBERG]
AUDITORS' REPORT
To the Shareholders of
BEUTEL, GOODMAN & COMPANY LTD. -
BEUTEL, GOODMAN & COMPAGNIE LTEE
We have audited the consolidated balance sheets of Beutel, Goodman & Company
Ltd. - Beutel, Goodman & Compagnie Ltee as at December 31, 1996 and 1995 and the
consolidated statements of earnings, deficit and changes in financial position
for each of the years then ended. These financial statements (not presented
herein) are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with Canadian generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
In our opinion, the consolidated financial statements (not presented herein)
present fairly, in all material respects, the financial position of the Company
as at December 31, 1996 and 1995 and the results of its operations and the
changes in its financial position for each of the years then ended in accordance
with Canadian generally accepted accounting principles.
/s/ Richter, Usher & Vineberg
- - -----------------------------
CHARTERED ACCOUNTANTS
Montreal, Quebec
January 31, 1997
60
<PAGE>
EXHIBIT 10(M)
- - -------------
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NONQUALIFIED DEFERRED COMPENSATION PLANS
PHOENIX DUFF & PHELPS CORPORATION JOINDER AGREEMENT
THIS JOINDER AGREEMENT by and between the Benefit Plans Committee (the
"Named Fiduciary") of Phoenix Home Life Mutual Insurance Company (the "Company")
and Phoenix Duff & Phelps Corporation ("PDP" or the "Participating Employer")
amends and restates, effective January 1, 1997, the Joinder Agreements dated as
of November 1, 1995 by and between the Named Fiduciary and each of Phoenix
Equity Planning Corporation and Phoenix Investment Counsel, Inc. with respect to
the Phoenix Home Life Mutual Insurance Company Nonqualified Deferred
Compensation Plans.
WHEREAS, Phoenix Equity Planning Corporation and Phoenix Investment
Counsel, Inc. participated in the Company's Nonqualified Supplemental Executive
Retirement Plan, Excess Benefit Plan, Excess Investment Plan and Deferred
Compensation Agreements (collectively, the "Plans") as members of the Company's
controlled group of corporations, as defined in Section 414(b) of the Code until
November 1, 1995, at which time Phoenix Securities Group, Inc., the parent
corporation of Phoenix Equity Planning Corporation and Phoenix Investment
Counsel, Inc., merged into Duff & Phelps Corporation to form PDP, which is not a
member of the Phoenix Home Life Mutual Insurance Company controlled group of
corporations; and
WHEREAS, by resolution of the Named Fiduciary for the Plans and the
Directors of Phoenix Equity Planning Corporation and Phoenix Investment Counsel,
Inc., Phoenix Equity Planning Corporation and Phoenix Investment Counsel, Inc.
continued to participate in the Plans on and after November 1, 1995 as
Participating Employers pursuant to Joinder Agreements executed by each of
Phoenix Equity Planning Corporation and Phoenix Investment Counsel, Inc., but
benefits provided under the Plans to the employees of each of the Participating
Employers in the Plans were paid from the general assets of the respective
Participating Employers; and
WHEREAS, PDP maintained the Phoenix Duff & Phelps Corporation Employees
Savings Plan, a profit sharing plan including a qualified cash or deferred
arrangement under Section 401(k) of the Code, for the benefit of its employees
other than the employees of Phoenix Equity Planning Corporation and Phoenix
Investment Counsel, Inc.; and
WHEREAS, the Named Fiduciary for the Phoenix Home Life Mutual
Insurance Company Savings and Investment Plan, a profit sharing plan including a
qualified cash or deferred arrangement under Section 401(k) of the Code, and the
Directors of PDP approved the merger of the Phoenix Duff & Phelps Corporation
Employees Savings Plan into the Phoenix Home Life Mutual Insurance Company
Savings and Investment Plan on December 31, 1996 and the execution of a Joinder
Agreement pursuant to which PDP will participate
<PAGE>
in the Savings and Investment Plan on a multiple employer basis effective
December 31, 1996; and
WHEREAS, PDP desires to cover all of its eligible Employees under the
Excess Investment Plan effective January 1, 1997 and further desires to continue
to cover on and after January 1, 1997 the eligible Employees of Phoenix Equity
Planning Corporation and Phoenix Investment Counsel, Inc. under the Supplemental
Executive Retirement Plan, the Excess Benefit Plan and the Deferred Compensation
Agreements on the terms provided herein and the Named Fiduciary for the Plans
has approved such coverage and the execution of such a Joinder Agreement;
NOW, THEREFORE, effective January 1, 1997, in consideration of the mutual
promises hereinafter set forth, PDP and the Named Fiduciary agree as follows:
1. ADOPTION OF PLANS
With the consent of the Named Fiduciary, PDP hereby adopts the Plans and
all of the provisions thereof and participates therein as a Participating
Employer effective January 1, 1997; provided, however, that only Employees of
Phoenix Equity Planning Corporation and Phoenix Investment Counsel, Inc. shall
participate in the Supplemental Executive Retirement Plan, the Excess Benefit
Plan and the Deferred Compensation Agreements.
2. REQUIREMENTS OF PARTICIPATING EMPLOYER
(a) Benefits payable under the Plans to Employees of the Participating
Employer are paid from the Participating Employer's general assets. The
Participating Employer agrees to pay and assumes all liability with respect to
all benefits payable under the Plans to Employees of the Participating Employer,
their spouses and other dependents and beneficiaries in accordance with the
terms of the Plans; provided, however, that the Company and not the
Participating Employer shall pay and assume liability for benefits payable under
the Plans to Employees of Phoenix Equity Planning Corporation and Phoenix
Investment Counsel, Inc. with respect to service completed before January 1,
1996.
(b) The Plan Administrator shall keep separate books and records
concerning the contributions and benefits payable under the Plans with respect
to the Participating Employer and the Employees of the Participating Employer.
(c) The Participating Employer shall pay to the Company its
proportionate share of any administrative expenses of the Plans which are to be
paid by the Employer.
2
<PAGE>
3. DESIGNATION OF AGENT
The Participating Employer hereby irrevocably designates the Named Fiduciary
and the Plan Administrator as its agents to exercise on its behalf all of the
power and authority conferred by the Plans upon each of them.
4. PLAN AMENDMENT
(a) Subject to the provisions of paragraph (b) hereof, the Participating
Employer hereby delegates to the Named Fiduciary the right at any time to amend
the Plans in accordance with the terms of the Plans, provided that any such
amendment could not affect the Participating Employer's share of the cost of the
Plans. If an amendment could affect the Participating Employer's share of the
cost of the Plans, then such amendment shall not be effective with respect to
the Participating Employer until approved by the Participating Employer. Any
such amendment shall be adopted by the Participating Employer's Benefit Plans
Committee unless such amendment could significantly affect the Participating
Employer's share of the cost of the Plan, as determined by the Participating
Employer's Benefit Plans Committee, in which case such amendment shall be
adopted by the Participating Employer's Board of Directors in accordance with
the Participating Employer's Articles of Incorporation, Bylaws and applicable
law and shall become effective as provided therein upon its execution.
(b) No amendment to any of the Plans shall be effective with respect to
the Participating Employer until 45 days after a copy of the amendment shall
have been delivered to the Participating Employer, unless the Participating
Employer shall have waived its right to receive such advance copy of the
amendment.
5. WITHDRAWAL OF THE PARTICIPATING EMPLOYER
The Participating Employer may terminate its participation in one or more
of the Plans by giving the Named Fiduciary prior written notice specifying a
termination date which shall be the last day of a month at least 30 days
subsequent to the date such notice is delivered to the Named Fiduciary, unless
the Named Fiduciary shall have waived its right to such notice. The Named
Fiduciary may terminate the Participating Employer's participation in one or
more of the Plans as of any termination date by giving the Participating
Employer prior written notice specifying a termination date which shall be the
last day of a month at least 30 days subsequent to the date such notice is
delivered to the Participating Employer, unless the Participating Employer shall
have waived its right to such notice.
6. ADMINISTRATOR'S AUTHORITY
The Plan Administrator shall have all of the duties and
responsibilities authorized by the Plans and shall have the authority to make
any and all rules, regulations and decisions
3
<PAGE>
necessary or appropriate to effectuate the terms of the Plans, which shall be
binding upon the Participating Employer and all Participants.
4
<PAGE>
7. DEFINITIONS
Capitalized terms not defined in this Joinder Agreement shall have the
meanings set forth in the Plans, the terms of which are incorporated herein by
this reference.
IN WITNESS WHEREOF, the parties have duly executed this Joinder
Agreement this 13 th day of December, 1996.
Phoenix Home Life Mutual Insurance Company
Benefit Plans Committee
By: /s/ Carl T. Chadburn
--------------------
Carl T. Chadburn, Secretary
Phoenix Duff & Phelps Corporation
By: /s/ Philip R. McLoughlin
------------------------
its Vice Chairman, Chief Executive Officer
and Director
5
<PAGE>
EXHIBIT 10(JJ)
- - --------------
SPECIAL SEVERANCE PAY PLAN
Phoenix Duff & Phelps Corporation (the "Company") considers it essential to
the best interests of its shareholders to foster the continuous employment of
key management personnel. The Board of Directors of the Company has determined
that appropriate steps should be taken to reinforce and encourage the continued
attention and dedication of Philip R. McLoughlin (the "Executive") to his
assigned duties without distraction in the event that Phoenix Home Life Mutual
Insurance Company's and its subsidiary's ownership interest in the Company falls
below 50% ("Change of Control Event") or in the face of a merger, acquisition,
consolidation or other organizational change or event ("Business Event"), as
determined from time to time by the Executive Committee of the Company's Board
of Directors. As a result, the Board of Directors has approved this Special
Severance Pay Plan.
In order to encourage the Executive to remain in the employ of the Company
and in furtherance of the purposes set forth above, the Company agrees that the
Executive shall receive certain severance benefits set forth in this Plan in the
event his employment with the Company is terminated subject to the conditions
contained herein.
1. TERM OF AGREEMENT. This Plan shall be effective on May 13, 1996 (the
-----------------
"Effective Date") and shall terminate on the later of the second
anniversary of the Effective Date or the second anniversary of the
effective date of a Change of Control or Business Event ("Change of Control
or Business Event Date") unless the term thereof is extended by the
Company. Notice of any extension shall be by written notice to the
Executive by the Company. Termination of the Plan shall not affect any
benefits in pay status on the termination date or affect rights to any
benefits which have accrued prior to the termination date but have not been
paid as of such date. For purposes of this Plan, benefits shall be deemed
to have accrued upon the occurrence of a Change of Control or Business
Event and upon receipt of a Notice of Termination as provided in Section
2(f) hereof.
2. TERMINATION OF EMPLOYMENT.
-------------------------
(a) While this Plan remains in effect and upon occurrence of a Change of
Control or Business Event, the Executive shall be entitled to
severance benefits as hereinafter described if his employment is
terminated for other than "Cause" or if he terminates his employment
for "Good Reason" as defined in Subsection (d) of this Section.
(b) NON-SEVERANCE EVENTS. Except as otherwise provided herein, in no event
shall severance payments set forth in Section 3(b) hereof be payable
if the Executive's employment with the Company is terminated: (i)
because of his death, disability or retirement; (ii) by the Company
for Cause; or (iii) by the Executive for other than Good Reason.
However, the Executive may be entitled to standard benefits then in
existence with respect to disability benefits (as defined in the
Company's Long-Term Disability Plan or any successor plan thereto) or
retirement or other benefits (as defined in the Company's qualified
and non-qualified retirement or savings plans, or any successor plans
thereto) otherwise provided by the Company.
(c) CAUSE. Termination by the Company of the Executive's employment for
"Cause" shall mean, on or following a Change of Control or Business
Event Date, termination upon:
(i) the continued failure by the Executive to substantially perform
his duties with the Company after a written demand for
substantial performance is delivered to him by the Company,
which demand specifically identifies the manner in which the
Company believes he has not substantially performed his
duties/1/; or
______________________
/1/ In no event shall this Subsection apply to any such failure resulting
from the Executive's incapacity due to physical or mental illness or any such
actual or anticipated failure after the issuance of a
<PAGE>
(ii) the willful engaging by the Executive in conduct which is
demonstrably and materially injurious to the Company, monetarily
or otherwise. For purposes of this Subsection, no act, or
failure to act, on his part shall be deemed "willful" unless
done, or omitted to be done, by him without reasonable belief
that his action or omission was in the best interest of the
Company.
(d) GOOD REASON. On or following a Change of Control or Business Event
Date, the Executive shall also be entitled to terminate his employment
for Good Reason. For purposes of this Plan, "Good Reason" shall mean,
without the Executive's express written consent, the occurrence of any
of the following circumstances:
(i) the reduction of the Executive's generic title regardless of the
functional responsibilities assigned to him; or
(ii) a reduction in the Executive's annual base salary.
(e) NOTICE OF TERMINATION. Any purported termination of the Executive's
employment by the Company or by him shall be communicated by written
Notice of Termination to the other party hereto in accordance with
Section 6 hereof. For purposes of this Plan, a "Notice of Termination"
shall mean a notice which shall indicate the specific termination
provision in this Plan relied upon and shall set forth in reasonable
detail the facts and circumstances claimed to provide a basis for
termination of the Executive's employment under the provision so
indicated. In addition, Notice of Termination given by the Executive
for Good Reason must be received by the Company within one year from
the occurrence of an event described in Subsection (d) of this
Section, but in no case later than the termination date of this Plan.
(f) DATE OF TERMINATION, ETC. "Date of Termination" shall mean the date
specified in the Notice of Termination which in no event shall be more
than sixty (60) days from the date such Notice of Termination is
given. In the event a dispute should arise concerning the legitimacy
of the Executive's termination of employment in the case of
termination without Cause by the Company or termination for Good
Reason by the Executive, the Date of Termination shall be the date on
which the dispute is finally determined, either by mutual written
agreement of the parties or by a resolution pursuant to the mediation
and arbitration requirements as provided in Section 11 hereof;
provided that within fifteen (15) days after any Notice of Termination
is given the party receiving such Notice of Termination notifies the
other party that a dispute exists concerning the termination; and
provided further that the Date of Termination shall be extended by a
notice of dispute only if such notice is given in good faith and the
party giving such notice pursues the resolution of such dispute with
reasonable diligence.
Notwithstanding the pendency of any such dispute, the Company will continue
to pay the Executive his full compensation in effect when the notice giving
rise to the dispute was given (including, but not limited to, base salary)
and continue him as a participant in all compensation, benefit and
insurance plans in which he was participating when the notice giving rise
to the dispute was given, until the dispute is finally resolved in
accordance with this Subsection. Amounts paid under this Subsection are in
addition to all other amounts due under this Plan and shall not be offset
against or reduce any other amounts due under this Plan.
3. SEVERANCE PAYMENTS. Upon occurrence of a Change of Control or Business
------------------
Event and, if the Executive's employment with the Company is involuntarily
terminated by the Company for other than Cause or if his employment with
the Company is terminated by him for Good Reason, then he shall be entitled
to the benefits provided below.
(a) SALARY AND COMPENSATION. The Company shall pay the Executive's full
annualized
_________________
Notice of Termination by the Executive for Good Reason.
<PAGE>
base salary through the Date of Termination at the rate in effect at
the time the Notice of Termination is given, plus all other amounts to
which he is entitled under any compensation plan of the Company at the
time such payments are due, except as otherwise provided below.
(b) SEVERANCE BENEFITS. In lieu of any further compensation payments to
the Executive for periods subsequent to the Date of Termination and,
in lieu of any benefits provided under any other severance plan
maintained by the Company in which he participates on the Date of
Termination and, subject to limitations on the amount of payments
hereunder as set forth in Section 4 hereof (which limitations shall
apply to all payments hereunder whether or not such payments
constitute "parachute payments" within the meaning of Section 280G of
the Internal Revenue Code of 1986, as amended ("Section 280G to the
Code"), the Company shall pay as severance pay and provide as
severance benefits to the Executive:
(i) a lump sum severance payment equal to three (3) times the sum
of: (a) the Executive's annualized base salary at the rate in
effect at the time Notice of Termination is given; and (b) the
average of his last three (3) years bonus or short-term
incentive compensation payments;
(ii) one-third of all unvested stock options and stock appreciation
rights under the 1992 Long-Term Stock Incentive Plan held by the
Executive on the Date of Termination shall vest and become
immediately exercisable, one-third will vest and become
exercisable on the first anniversary of the Date of Termination
and one-third will vest and become exercisable on the second
anniversary of the Date of Termination;
(iii) the Executive shall also receive an amount equal to three (3)
times the Company's matching contribution made for the calendar
year immediately preceding the calendar year of his Date of
Termination under all qualified and non-qualified savings and
investment plans of the Company in which he is eligible to
participate as of the Date of Termination. Such amount shall be
paid to him on a non-qualified basis in one lump sum at the same
time as other severance benefits are paid under this Plan; and
(iv) in addition, the Company will allow the Executive to continue
his participation in any life, accident and health insurance
benefit program to the extent he participates and/or contributes
to at the Date of Termination, as such benefits and/or
contribution levels may be, from time to time, changed or
amended. However, notwithstanding the above, beginning on the
Executive's Date of Termination, any contributions he makes
towards welfare benefits which are pursuant to a cafeteria plan
shall be made on an after-tax basis. In addition, his
participation in the Company's sickness and salary continuance
program and long-term disability plan shall be discontinued as
of his Date of Termination. Any welfare benefits payable to him
under this Subsection 3(b)(iv) shall be provided to him for a
period of time which shall end on the earlier of the third
anniversary of the Date of Termination or the date on which he
receives comparable benefits from new employment during the
three (3) year period following his Date of Termination, and any
such benefits actually received by him shall be reported to the
Company.
4. BENEFIT LIMITATIONS AND TIMING.
------------------------------
(a) GOLDEN PARACHUTE LIMITATION. In the event that any payment or benefit
received or to be received by the Executive, including, but not
limited to, payments pursuant to this Plan (collectively, the "Total
Payments") should be determined by the Company to be an "excess
parachute payment" within the meaning of Section 280G to the Code, and
thereby would not be deductible (in whole or part) by the Company, the
payments
<PAGE>
hereunder which are regarded as "parachute payments" within the
meaning of Section 280G to the Code shall be reduced until no portion
of the Total Payments is not deductible, or such payments are reduced
to zero. For purposes of this limitation:
(i) the payments hereunder shall be reduced only to the extent
necessary so that the Total Payments in their entirety
constitute reasonable compensation for services actually
rendered within the meaning of Section 280G(4) of the Code or
are otherwise not subject to disallowance as deductions; and
(ii) in the event the Company determines that Total Payments would
constitute an "excess parachute payment" thereby necessitating
that payments be reduced in part, the Executive may consult with
the Company in determining the priority in which any benefit
payment shall be reduced. Any such joint determination must be
made no later than seven (7) days prior to the next regular
full-pay cycle, otherwise the Company's decision of which
benefits shall be reduced or eliminated shall be final.
(b) As provided in Section 3 above, any payments hereunder which are
determined by the Company not to be "parachute payments" as described
above, shall nonetheless be reduced as necessary to limit such
payments to the amount which would be payable hereunder determined as
if the limitations of Section 280G of the Code were applicable.
(c) TIMING OF PAYMENTS. The benefits payable hereunder shall be made as
soon as is reasonably practicable after the Company's determination of
the benefit payments and any limitation on such payments set forth in
Section 4(a) above, but in no event later than the thirtieth day after
the Date of Termination. In addition, if it is subsequently determined
pursuant to a final determination of a court or a final Internal
Revenue Service proceeding that, notwithstanding the good faith of the
Company in applying the terms of this Plan, any part of the Total
Payments paid to the Executive constitutes an "excess parachute
payment" for purposes of Section 280G of the Code, then the amount
equal to the excess shall constitute a loan from the Company to the
Executive payable within six months of demand by the Company (together
with interest at the rate provided in Section 1274(b)(2)(B) of the
Code).
(d) CONDITIONS FOR RECEIPT OF BENEFITS; COMPANY RIGHTS OF ACTION AFTER
PAYMENT. The payment of any benefit under this Plan is conditioned
upon the Executive's complying with all of the following:
(i) refraining from directly or indirectly interfering in any manner
with the operations, management or administration of any Company
office or agency and refraining from making any disparaging
remarks concerning the Company, its representatives, agents and
employees;
(ii) refraining from encouraging, soliciting or suggesting to any and
all employees, agents, representatives and/or clients of the
Company that they terminate or alter their current relationship
with the Company; and
(iii) returning all Company property provided or developed during the
course of employment, including, but not limited to, files,
records, identification card, credit cards, Company manuals,
etc.
If the Company determines in good faith that the conditions for
payment as outlined above have not been met, the Executive's rights to
any benefits or payments under this Plan shall be terminated and the
Company shall have no further obligations or liabilities to the
Executive as set forth in this Plan unless the condition or conditions
resulting in such termination of rights to benefits have been
rectified or corrected to the Company's satisfaction. In addition, if
within three (3) years from the date of payment of any benefit under
this Plan, the Company determines in good faith that the Executive has
failed to
<PAGE>
comply with the conditions set forth in this Subsection either prior
to or after payment of any benefit, then the Company shall have the
right to make a claim and demand upon the Executive for return of any
benefits paid unless the condition or conditions resulting in the
Company's demand or claim have been rectified or corrected to the
Company's satisfaction.
(e) INDEBTEDNESS. The amount of any indebtedness or other obligation which
the Executive has to the Company at the time of his termination of
employment shall be offset against any benefits payable under this
Plan.
(f) MITIGATION The Executive shall not be required to mitigate the amount
of any payment provided for herein by seeking other employment or
otherwise, nor shall the amount of any payment or benefit provided for
herein be reduced by any compensation earned by the Executive as the
result of employment by another employer or by amounts received as
retirement benefits.
5. SUCCESSORS; BINDING AGREEMENT.
-----------------------------
(a) This Plan shall be binding on the successors and assigns of the
Company and the Company shall require any successor by reason of
merger or similar to expressly assume and agree to perform this Plan
in the same manner and to the same extent that the Company would be
required to perform if no such succession had taken place.
(b) This Plan shall inure to the benefit of and be enforceable by the
Executive's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and
legatees. If the Executive should die while any amount would still be
payable hereunder if he had continued to live, all such amounts,
unless otherwise provided herein, shall be paid in accordance with the
terms of this Plan to his devisee, legatee or other designee or, if
there is no such designee, to his estate.
6. NOTICE. For the purpose of this Plan, notices and all communications
------
provided for in the Plan shall be in writing and shall be deemed to have
been duly given when delivered or mailed by United States registered mail,
return receipt requested, postage prepaid, addressed to the Executive and
the Company at Phoenix Duff & Phelps Corporation, P. O. Box 150480, 56
Prospect Street, Hartford CT 06115-0480.
7. CONFIDENTIALITY. The Executive shall not disclose to any person, firm or
---------------
corporation, the terms of this Plan and any proprietary information
concerning the business or affairs of the Company, or its subsidiary or
parent corporations, if applicable, which may have been acquired in the
course of his employment with the Company. In the event the Executive
fails to maintain the confidentiality provisions of the preceding sentence,
the Company shall have no further obligation to provide the severance
benefits set forth in Section 3 hereof.
8. MISCELLANEOUS. No provision of this Plan may be modified, waived or
-------------
discharged unless such waiver, modification or discharge is agreed to in
writing and signed by the Executive and such officer as may be specifically
designated by the Company. No waiver by either party hereto at any time of
any breach by the other party hereto of, or in compliance with, any
condition or provision of this Plan to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions
at the same or at any prior or subsequent time. No agreements or
representations, oral or otherwise, express or implied, with respect to the
subject matter hereof have been made by either party which are not
expressly set forth in this Plan. The validity, interpretation,
construction and performance of this Plan shall be governed by the laws of
the State of Connecticut to the extent not pre-empted by federal laws. Any
payments provided for hereunder shall be paid net of any applicable tax
withholding required under federal, state or local law. The obligations of
the Company under Section 3 and 4 shall survive the expiration of the term
of this Plan.
<PAGE>
9. VALIDITY. The invalidity or unenforceability of any provision of this Plan
--------
shall not effect the validity or enforceability of any other provision of
this Plan, which shall remain in full force and effect.
10. ENTIRE AGREEMENT; OTHER CLAIMS. This Plan supersedes all prior agreements,
------------------------------
promises, covenants, arrangements, communications, representations or
warranties, whether oral or written, by any officer, employee or
representative of any party hereto with respect to the matters contained
herein. Specifically, by not by way of limitation, in the event benefits
under this Plan become payable as a result of the Executive's termination
as set forth in Section 2 hereof, this Plan sets forth all payments and
benefits the Executive shall be entitled to receive as a result of such
termination and payments hereunder shall be in full accord and satisfaction
of any and all claims or disputes which may arise from the Executive's
employment relationship with the Company.
11. MEDIATION AND ARBITRATION. The Executive and the Company shall be
-------------------------
obligated to use best efforts to cause any disputes or disagreements
arising under or relating to the subject matter of this Plan (including any
claims based on contract, tort and statute) to be considered, negotiated in
good faith and resolved as soon as possible. In the event any such dispute
cannot be resolved to the satisfaction of either the Executive or the
Company within thirty (30) days after it has arisen, the Executive and the
Company shall submit the dispute to formal mediation using the commercial
mediation rules of the American Arbitration Association or such other rules
as mutually agreed to before resorting to any other dispute resolution
procedure. All verbal and written settlement offers or proposals presented
by the parties in connection with the negotiation and mediation of a
dispute hereunder shall be deemed prepared and communicated in furtherance,
and in the context, of dispute settlement; shall be exempt from discovery
and production; and shall not be admissible in evidence as an admission of
any purpose whatsoever in any subsequent legal proceedings or arbitration
arising out of or in any manner concerning the dispute.
In the event any dispute submitted to mediation hereunder is not resolved,
such dispute shall be settled exclusively in arbitration. Such arbitration
shall be conducted in the State of Connecticut and shall be governed by the
rules of the American Arbitration Association then in effect. Judgment upon
any award rendered by the arbitrator may be entered by any state or federal
court having jurisdiction thereof.
12. AMENDMENTS. This Plan may be amended from time to time upon mutual
----------
agreement of the Executive and the Company.
Executed this 10th day of June, 1996.
PHOENIX DUFF & PHELPS CORPORATION
By: /s/ Philip R. McLoughlin
------------------------------------
Its: Vice Chairman and Chief Executive Officer
------------------------------------------
<PAGE>
EXHIBIT 10(LL)
- - --------------
June 10, 1996
Mr. Michael E. Haylon
Phoenix Duff & Phelps Corporation
56 Prospect Street
Hartford, CT 06115
Dear Mr. Haylon:
Phoenix Duff & Phelps Corporation (the "Company") considers it essential to the
best interests of its shareholders to foster the continuous employment of key
management personnel. The Board of Directors of the Company has determined that
appropriate steps should be taken to reinforce and encourage the continued
attention and dedication of members of the Company's management, including
yourself, to their assigned duties without distraction in the event that Phoenix
Home Life Mutual Insurance Company's and its subsidiary's ownership interest in
the Company falls below 50% ("Change of Control Event') or in the face of a
merger, acquisition, consolidation or other organizational change or event
("Business Event"), as determined from time to time by the Executive Committee
of the Company's Board of Directors. As a result, the Board has approved this
special severance pay plan, the terms of which are set forth in this Agreement
(the "Agreement").
In order to encourage you to remain in the employ of the Company and in
furtherance of the purposes set forth above, the Company agrees that you shall
receive certain severance benefits set forth in this Agreement in the event your
employment with the Company is terminated subject to the conditions contained
herein.
1. TERM OF AGREEMENT
This Agreement shall be effective on May 13, 1996 ("Effective Date") and
shall terminate on the later of the second anniversary of the Effective
Date or the second anniversary of the effective date of a Change of Control
or Business Event ("Change of Control or Business Event Date") unless the
term thereof is extended by the Company. Notice of any extension shall be
by written notice to you by the Company. Termination of the Agreement shall
not affect any benefits in pay status on the termination date or affect
rights to any benefits which have accrued prior to the termination date but
have not been paid as of such date. For purposes of this Agreement,
benefits shall be deemed to have accrued upon the occurrence of a Change of
Control or Business Event and upon receipt of a Notice of Termination as
provided in Section 2(vi) hereof.
2. TERMINATION OF EMPLOYMENT
(i) While this Agreement remains in effect and upon occurrence of a Change
of Control or Business Event, you shall be entitled to severance
benefit as hereinafter described if your employment is terminated for
other than "Cause" or if you terminate your employment for "Good
Reason" as defined in Subsection (iv) of this Section.
(ii) NON-SEVERANCE EVENTS. Except as otherwise provided herein, in no event
--------------------
shall severance payments set forth in Section 3(ii) hereof be payable
if your employment with the Company is terminated (a) because of your
death, disability or retirement, (b) by the Company for Cause, or (c)
by you other than for Good Reason. However, you may be entitled to
standard benefits then in existence with respect to disability
benefits (as defined in the Company's Long-Term Disability Plan or any
successor plan thereto) or retirement or other benefits (as defined in
the Company's qualified or nonqualified retirement or savings plans,
or any successor plans thereto) otherwise provided by the Company.
<PAGE>
(iii) CAUSE. Termination by the Company of your employment for "Cause"
-----
shall mean, on or following a Change of Control or Business Event
Date, termination upon:
(a) the continued failure by you to substantially perform your duties
with the Company after a written demand for substantial
performance is delivered to you by the Company, which demand
specifically identifies the manner in which the Company believes
that you have not substantially performed your duties/2/, or
(b) the willful engaging by you in conduct which is demonstrably and
materially injurious to the Company, monetarily or otherwise.
For purposes of this Subsection, (iii), no act, or failure to
act, on your part shall be deemed "willful" unless done, or
omitted to be done, by you without reasonable belief that your
action or omission was in the best interest of the Company.
(iv) GOOD REASON. On or following a Change of Control or Business Event
------------
Date, you shall also be entitled to terminate your employment for Good
Reason. For purposes of this Agreement, "Good Reason" shall mean,
without your express written consent, the occurrence of any of the
following circumstances;
(a) the reduction of your generic corporate title (e.g., President or
Executive Vice President) regardless of the functional
responsibilities assigned to you; or
(b) a reduction in your annual base salary except for across-the-
board salary reductions similarly affecting all executives of the
same pay grade.
(v) NOTICE OF TERMINATION. Any purported termination of your employment
---------------------
by the Company or by you shall be communicated by written Notice of
Termination to the other party hereto in accordance with Section 6
hereof. For purposes of this Agreement, a "Notice of Termination"
shall mean a notice which shall indicate the specific termination
provision in this Agreement relied upon and shall set forth in
reasonable detail the facts and circumstances claimed to provide a
basis for termination of your employment under the provision so
indicated. In addition, Notice of Termination given by you for Good
Reason must be received by the Company within one year from the
occurrence of an event described in Subsection (iv) of this Section,
but in no case later than the termination of this Agreement.
(vi) DATE OF TERMINATION, ETC. "Date of Termination" shall mean the date
-------------------------
specified in the Notice of Termination which in no event shall be more
than sixty (60) days from the date such Notice of Termination is
given. In the event a dispute should arise concerning the legitimacy
of your termination of employment in the case of termination without
Cause by the Company or termination for Good Reason by you, the Date
of Termination shall be the date on which the dispute is finally
determined, either by mutual written agreement of the parties or by a
resolution pursuant to the mediation and arbitration requirements as
provided in Section 12 hereof; provided that within fifteen (15) days
after any Notice of Termination is given the party receiving such
Notice of Termination notifies the other party that a dispute exists
concerning the termination; and provided further that the Date of
Termination shall be extended by a notice of dispute only if such
notice is given in good faith and the party giving such notice pursues
the resolution of such dispute with reasonable diligence.
Notwithstanding the pendency of any such dispute, the Company will continue
to pay you your full compensation in effect when the notice giving rise to
the dispute was given (including, but not
____________________
/2/ In no event shall this Subsection apply to any such failure resulting
from your incapacity due to physical or mental illness or any such actual or
anticipated failure after the issuance of a Notice of Termination by you for
Good Reason.
<PAGE>
limited to, base salary) and continue you as a participant in all
compensation, benefit and insurance plans in which you were participating
when the notice giving rise to the dispute was given, until the dispute is
finally resolved in accordance with this Subsection. Amounts paid under
this Subsection are in addition to all other amounts due under this
Agreement and shall not be offset against or reduce any other amounts due
under this Agreement.
3. SEVERANCE PAYMENTS
Upon occurrence of a Change of Control or Business Event and, if your
employment with the Company is involuntarily terminated by the Company
other than for Cause or, if your employment with the Company is terminated
by you for Good Reason, then you shall be entitled to the benefits provided
below:
(i) SALARY AND COMPENSATION. The Company shall pay you your full
-----------------------
annualized base salary through the Date of Termination at the rate in
effect at the time Notice of Termination is given, plus all other
amounts to which you are entitled under any compensation plan of the
Company at the time such payments are due, except as otherwise
provided below.
(ii) SEVERANCE BENEFITS. In lieu of any further compensation payments to
------------------
you for periods subsequent to the Date of Termination and, in lieu of
any benefits provided under any other severance plan maintained by the
Company in which you participate on the Date of Termination and,
subject to limitations on the amount of payments hereunder as set
forth in Section 4 hereof (which limitations shall apply to all
payments hereunder whether or not such payments constitute "parachute
payments" within the meaning of Section 280G of the Internal Revenue
Code of 1986, as amended (Section 280G to the Code), the Company shall
pay as severance pay and provide as severance benefits to you:
(a) a lump sum severance payment equal to two (2) times the sum of
(i) your annualized base salary at the rate in effect at the time
Notice of Termination is given, and (ii) the average of your last
three (3) years of bonus or short-term incentive compensation
payments;
(b) one-third of all unvested stock options and stock appreciation
rights under the 1992 Long-Term Stock Incentive Plan held by you
on the Date of Termination shall vest and become immediately
exercisable, one-third will vest and become exercisable on the
first anniversary of the Date of Termination and one-third will
vest and become exercisable on the second anniversary of the Date
of Termination;
(c) you shall also receive an amount equal to two (2) times the
Company's matching contribution made for the calendar year
immediately preceding the calendar year of your Date of
Termination under all qualified and non-qualified savings and
investment plans of the Company in which you are eligible to
participate as of the Date of Termination. Such amount shall be
paid to you on a non-qualified basis in one lump sum at the same
time as other severance benefits are paid under this Agreement;
and
(d) In addition, the Company will allow you to continue your
participation in any life, accident and health insurance benefit
program to the extent you participate and/or contribute to at the
Date of Termination, as such benefits and/or contribution levels
may be, from time to time, changed or amended. However,
notwithstanding the above, beginning on your Date of Termination,
any contributions you make towards welfare benefits which are
pursuant to a cafeteria plan shall be made on an after-tax basis.
In addition, your participation in the Company's sickness and
salary continuance program and long-term disability plan shall be
discontinued as of your Date of Termination. Any welfare benefits
payable to you under this Subsection 3(ii)(d) shall be provided
to you for
<PAGE>
a period of time which shall end on the earlier of the second
anniversary of the Date of Termination or the date on which you
receive comparable benefits from new employment during the two
(2) year period following your Date of Termination, and any such
benefits actually received by you shall be reported to the
Company.
4. BENEFIT LIMITATIONS AND TIMING
(i) GOLDEN PARACHUTE LIMITATION. In the event that any payment or
---------------------------
benefit received or to be received by you including, but not limited
to, payments pursuant to this Agreement (collectively, the "Total
Payments") should be determined by the Company to be an "excess
parachute payment" within the meaning of Section 280G of the Code, and
thereby would not be deductible (in whole or part) by the Company, the
payments hereunder which are regarded as "parachute payments" within
the meaning of Section 280G of the Code shall be reduced until no
portion of the Total Payments is not deductible, or such payments are
reduced to zero. For purposes of this limitation
(a) the payments hereunder shall be reduced only to the extent
necessary so that the Total Payments in their entirety constitute
reasonable compensation for services actually rendered within the
meaning of Section 280G(b)(4) of the Code or are otherwise not
subject to disallowance as deductions, and
(b) in the event the Company determines that Total Payments would
constitute an "excess parachute payment" thereby necessitating
that payments be reduced in part, you may consult with the
Company in determining the priority in which any benefit payment
shall be reduced. Any such joint determination must be made no
later than seven (7) days prior to the next regular full-pay
cycle, otherwise the Company's decision of which benefits shall
be reduced or eliminated shall be final.
(ii) As provided in Section 3 above, any payments hereunder which are
determined by the Company not to be "parachute payments" as described
above, shall nonetheless be reduced as necessary to limit such
payments to the amount which would be payable hereunder determined as
if the limitations of Section 280G of the Code were applicable.
(iii) TIMING OF PAYMENTS. The benefits payable hereunder shall be made as
------------------
soon as reasonably practicable after the Company's determination of
the benefit payments and any limitation on such payments set forth in
Subsection 4(I) above, but in no even later than the thirtieth day
after the Date of Termination. In addition, if it is subsequently
determined pursuant to a final determination of a court or a final
Internal Revenue Service proceeding that, notwithstanding the good
faith of the Company in applying the terms of this Agreement, any part
of the Total Payments paid to you constitutes an "excess parachute
payment" for purposes of Section 280G of the Code, then the amount
equal to the excess shall constitute a loan from the Company to you
payable within six months of demand by the Company (together with
interest at the rate provided in Section 1274(b)(2)(B) of the Code).
(iv) CONDITIONS FOR RECEIPT OF BENEFITS - COMPANY RIGHTS OF ACTION AFTER
-------------------------------------------------------------------
PAYMENT. The payment of any benefit under this Agreement is
-------
conditioned upon you complying with all of the following:
(a) Refraining from directly or indirectly interfering in any manner
with the operations, management or administration of any Company
office or agency and refraining from making any disparaging
remarks concerning the Company, its representatives, agents and
employees.
<PAGE>
(b) Refraining from encouraging, soliciting or suggesting to any and
all employees, agents, representatives and/or clients of the
Company that they terminate or alter their current relationship
with the Company.
(c) Returning all Company property provided or developed during the course
of employment, including, but not limited to, files, records,
identification card, credit cards, Company manuals, etc.
If the Company determines in good faith that the conditions for
payment as outlined above have not been met by you, your rights to any
benefits or payments under this Agreement shall be terminated and the
Company shall have no further obligations or liabilities to you as set
forth in this Agreement unless the condition or conditions resulting
in such termination of rights to benefits have been rectified or
corrected to the Company's satisfaction. In addition, if within three
years from the date of payment of any benefit under this Agreement,
the Company determines in good faith that you have failed to comply
with the conditions set forth in this Subsection either prior to or
after payment of any benefit, then the Company shall have the right to
make a claim and demand upon you for return of any benefits paid
unless the condition or conditions resulting in the Company's demand
or claim have been rectified or corrected to the Company's
satisfaction.
(v) INDEBTEDNESS. The amount of any indebtedness or other obligation
------------
which you have to the Company at the time of your termination of
employment shall be offset against any benefits payable under this
Agreement.
(vi) MITIGATION. You shall not be required to mitigate the amount of any
----------
payment provided for herein by seeking other employment or otherwise,
nor shall the amount of any payment or benefit provided for herein be
reduced by any compensation earned by you as the result of employment
by another employer or by amounts received as retirement benefits.
5. SUCCESSORS, BINDING AGREEMENT
(i) This Agreement shall be binding on the successors and assigns of the
Company and the Company shall require any successor by reason of
merger or similar event to expressly assume and agree to perform this
Agreement in the same manner and to the same extent that the Company
would be required to perform if no such succession had taken place.
(ii) This Agreement shall inure to the benefit of and be enforceable by
your personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If you should
die while any amount would still be payable to you hereunder if you
had continued to live, all such amounts, unless otherwise provided
herein, shall be paid in accordance with the terms of this Agreement
to your devisee, legatee or other designee or, if there is no such
designee, to your estate.
6. NOTICE
For the purpose of this Agreement, notices and all other communications
provided for in the Agreement shall be in writing and shall be deemed to
have been duly given when delivered or mailed by United States registered
mail, return receipt requested, postage prepaid, addressed to the
respective addresses set forth on the first page of this Agreement,
provided that all notices to the Company shall be directed to the attention
of such person or persons as specified to you by the Company.
7. CONFIDENTIALITY
You agree that you shall not disclose to any person, firm or corporation,
the terms of this Agreement and any proprietary information concerning the
business or affairs of the Company, or
<PAGE>
its subsidiary or parent corporations if applicable, which may have been
acquired in the course of your employment with the Company. In the event
you fail to maintain the confidentiality provisions of the preceding
sentence, the Company shall have no further obligation to provide the
severance benefits set forth in Section 3 hereof.
8. MISCELLANEOUS
No provision of this Agreement may be modified, waived or discharged unless
such waiver, modification or discharge is agreed to in writing and signed
by you and such officer as may be specifically designated by the Company.
No waiver by either party hereto at any time of any breach by the other
party hereto of, or compliance with, any condition or provision of this
Agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at any prior
or subsequent time. No agreements or representations, oral or otherwise,
express or implied, with respect to the subject matter hereof have been
made by either party which are not expressly set forth in this Agreement.
The validity, interpretation, construction and performance of this
Agreement shall be governed by the laws of the State of Connecticut to the
extent not pre-empted by federal laws. Any payments provided for hereunder
shall be paid net of any applicable tax withholding required under federal,
state or local law. The obligations of the Company under Sections 3 and 4
shall survive the expiration of the term of this Agreement.
9. VALIDITY
The invalidity or unenforceability of any provision of this Agreement shall
not affect the validity or enforceability of any other provision of this
Agreement, which shall remain in full force and effect.
10. COUNTERPARTS
This Agreement may be executed in several counterparts, each of which shall
be deemed to be an original but all of which together will constitute one
and the same instrument.
11. ENTIRE AGREEMENT/OTHER CLAIMS
This Agreement sets forth the entire agreement of the parties hereto with
respect to the subject matter contained herein and supersedes all prior
agreements, promises, covenants, arrangements, communications,
representations or warranties, whether oral or written, by any officer,
employee or representative of any party hereto. Specifically, but not by
way of limitation, in the event benefits under this Agreement become
payable as a result of your termination as set forth in Section 2 hereof,
this Agreement sets forth all payments and benefits you shall be entitled
to receive as a result of such termination and payments hereunder shall be
in full accord and satisfaction of any and all claims or disputes which may
arise from your employment relationship with the Company.
12. MEDIATION AND ARBITRATION
The parties understand and agree that the implementation of this Agreement
will be enhanced by the timely and open resolution of any disputes relating
to this Agreement. Accordingly, each party hereto agrees to use best
efforts to cause any disputes or disagreements arising under or relating to
the subject matter of this Agreement (including any claims based on
contract, tort and statute) to be considered, negotiated in good faith and
resolved as soon as possible. In the event any such dispute cannot be
resolved to the satisfaction of either party hereto within 30 days after it
has arisen, the parties agree to submit the dispute to formal mediation
using the commercial mediation rules of the American Arbitration
Association or such other rules as mutually agreed to before resorting to
any other dispute resolution procedure. All verbal and written settlement
offers or proposals presented by the parties in connection with the
negotiation and mediation of a dispute hereunder shall be deemed prepared
and communicated in furtherance, and in the context, of dispute settlement;
shall be exempt from discovery and production; and shall not be
<PAGE>
admissible in evidence as an admission of any purpose whatsoever in any
subsequent legal proceedings or arbitration arising out of or in any manner
concerning the dispute.
In the event any dispute submitted to mediation hereunder is not resolved,
the parties agree that such dispute shall be settled exclusively in
arbitration. Such arbitration shall be conducted in the State of
Connecticut and shall be governed by the rules of the American Arbitration
Association then in effect. Judgment upon any award rendered by the
arbitrator may be entered by any state or federal court having jurisdiction
thereof.
13. AMENDMENTS
This Agreement may be amended from time to time upon mutual agreement of
you and the Company.
If this letter sets forth our agreement on the subject matter hereof, kindly
sign and return to the Company duplicate originals of this letter which will
then constitute our agreement on this subject.
Sincerely,
/s/ Philip R. McLoughlin
- - ------------------------
Agreed to this 10th day June, 1996.
/s/ Michael E. Haylon
- - ----------------------
MICHAEL E. HAYLON
<PAGE>
EXHIBIT 10 (MM)
- - ---------------
June 10, 1996
Mr. David R. Pepin
Phoenix Duff & Phelps Corporation
56 Prospect Street
Hartford, CT 06115
Dear Mr. Pepin:
Phoenix Duff & Phelps Corporation (the "Company") considers it essential to the
best interests of its shareholders to foster the continuous employment of key
management personnel. The Board of Directors of the Company has determined that
appropriate steps should be taken to reinforce and encourage the continued
attention and dedication of members of the Company's management, including
yourself, to their assigned duties without distraction in the event that Phoenix
Home Life Mutual Insurance Company's and its subsidiary's ownership interest in
the Company falls below 50% ("Change of Control Event') or in the face of a
merger, acquisition, consolidation or other organizational change or event
("Business Event"), as determined from time to time by the Executive Committee
of the Company's Board of Directors. As a result, the Board has approved this
special severance pay plan, the terms of which are set forth in this Agreement
(the "Agreement").
In order to encourage you to remain in the employ of the Company and in
furtherance of the purposes set forth above, the Company agrees that you shall
receive certain severance benefits set forth in this Agreement in the event your
employment with the Company is terminated subject to the conditions contained
herein.
1. TERM OF AGREEMENT
This Agreement shall be effective on May 13, 1996 ("Effective Date") and
shall terminate on the later of the second anniversary of the Effective
Date or the second anniversary of the effective date of a Change of Control
or Business Event ("Change of Control or Business Event Date") unless the
term thereof is extended by the Company. Notice of any extension shall be
by written notice to you by the Company. Termination of the Agreement shall
not affect any benefits in pay status on the termination date or affect
rights to any benefits which have accrued prior to the termination date but
have not been paid as of such date. For purposes of this Agreement,
benefits shall be deemed to have accrued upon the occurrence of a Change of
Control or Business Event and upon receipt of a Notice of Termination as
provided in Section 2(vi) hereof.
2. TERMINATION OF EMPLOYMENT
(i) While this Agreement remains in effect and upon occurrence of a Change
of Control or Business Event, you shall be entitled to severance
benefit as hereinafter described if your employment is terminated for
other than "Cause" or if you terminate your employment for "Good
Reason" as defined in Subsection (iv) of this Section.
(ii) NON-SEVERANCE EVENTS. Except as otherwise provided herein, in no event
--------------------
shall severance payments set forth in Section 3(ii) hereof be payable
if your employment with the Company is terminated (a) because of your
death, disability or retirement, (b) by the Company for Cause, or (c)
by you other than for Good Reason. However, you may be entitled to
standard benefits then in existence with respect to disability
benefits (as defined in the Company's Long-Term Disability Plan or any
successor plan thereto) or retirement or other benefits (as defined in
the Company's qualified or nonqualified retirement or savings plans,
or any successor plans thereto) otherwise provided by the Company.
<PAGE>
(iii) CAUSE. Termination by the Company of your employment for "Cause" shall
-----
mean, on or following a Change of Control or Business Event Date,
termination upon:
(a) the continued failure by you to substantially perform your duties
with the Company after a written demand for substantial
performance is delivered to you by the Company, which demand
specifically identifies the manner in which the Company believes
that you have not substantially performed your duties/3/, or
(b) the willful engaging by you in conduct which is demonstrably and
materially injurious to the Company, monetarily or otherwise.
For purposes of this Subsection, (iii), no act, or failure to
act, on your part shall be deemed "willful" unless done, or
omitted to be done, by you without reasonable belief that your
action or omission was in the best interest of the Company.
(iv) GOOD REASON. On or following a Change of Control or Business Event
------------
Date, you shall also be entitled to terminate your employment for Good
Reason. For purposes of this Agreement, "Good Reason" shall mean,
without your express written consent, the occurrence of any of the
following circumstances;
(a) the reduction of your generic corporate title (e.g., President or
Executive Vice President) regardless of the functional
responsibilities assigned to you; or
(b) a reduction in your annual base salary except for across-the-
board salary reductions similarly affecting all executives of the
same pay grade.
(v) NOTICE OF TERMINATION. Any purported termination of your employment
---------------------
by the Company or by you shall be communicated by written Notice of
Termination to the other party hereto in accordance with Section 6
hereof. For purposes of this Agreement, a "Notice of Termination"
shall mean a notice which shall indicate the specific termination
provision in this Agreement relied upon and shall set forth in
reasonable detail the facts and circumstances claimed to provide a
basis for termination of your employment under the provision so
indicated. In addition, Notice of Termination given by you for Good
Reason must be received by the Company within one year from the
occurrence of an event described in Subsection (iv) of this Section,
but in no case later than the termination of this Agreement.
(vi) DATE OF TERMINATION, ETC. "Date of Termination" shall mean the date
-------------------------
specified in the Notice of Termination which in no event shall be more
than sixty (60) days from the date such Notice of Termination is
given. In the event a dispute should arise concerning the legitimacy
of your termination of employment in the case of termination without
Cause by the Company or termination for Good Reason by you, the Date
of Termination shall be the date on which the dispute is finally
determined, either by mutual written agreement of the parties or by a
resolution pursuant to the mediation and arbitration requirements as
provided in Section 12 hereof; provided that within fifteen (15) days
after any Notice of Termination is given the party receiving such
Notice of Termination notifies the other party that a dispute exists
concerning the termination; and provided further that the Date of
Termination shall be extended by a notice of dispute only if such
notice is given in good faith and the party giving such notice pursues
the resolution of such dispute with reasonable diligence.
_________________________
/3/ In no event shall this Subsection apply to any such failure resulting
from your incapacity due to physical or mental illness or any such actual or
anticipated failure after the issuance of a Notice of Termination by you for
Good Reason.
<PAGE>
the pendency of any such dispute, the Company will continue to pay you your full
compensation in effect when the notice giving rise to the dispute was given
(including, but not limited to, base salary) and continue you as a participant
in all compensation, benefit and insurance plans in which you were participating
when the notice giving rise to the dispute was given, until the dispute is
finally resolved in accordance with this Subsection. Amounts paid under this
Subsection are in addition to all other amounts due under this Agreement and
shall not be offset against or reduce any other amounts due under this
Agreement.
3. SEVERANCE PAYMENTS
Upon occurrence of a Change of Control or Business Event and, if your
employment with the Company is involuntarily terminated by the Company
other than for Cause or, if your employment with the Company is terminated
by you for Good Reason, then you shall be entitled to the benefits provided
below:
(i) SALARY AND COMPENSATION. The Company shall pay you your full
-----------------------
annualized base salary through the Date of Termination at the rate in
effect at the time Notice of Termination is given, plus all other
amounts to which you are entitled under any compensation plan of the
Company at the time such payments are due, except as otherwise
provided below.
(ii) SEVERANCE BENEFITS. In lieu of any further compensation payments to
------------------
you for periods subsequent to the Date of Termination and, in lieu of
any benefits provided under any other severance plan maintained by the
Company in which you participate on the Date of Termination and,
subject to limitations on the amount of payments hereunder as set
forth in Section 4 hereof (which limitations shall apply to all
payments hereunder whether or not such payments constitute "parachute
payments" within the meaning of Section 280G of the Internal Revenue
Code of 1986, as amended (Section 280G to the Code), the Company shall
pay as severance pay and provide as severance benefits to you:
(a) a lump sum severance payment equal to two (2) times the sum of
(i) your annualized base salary at the rate in effect at the time
Notice of Termination is given, and (ii) the average of your last
three (3) years of bonus or short-term incentive compensation
payments;
(b) one-third of all unvested stock options and stock appreciation
rights under the 1992 Long-Term Stock Incentive Plan held by you
on the Date of Termination shall vest and become immediately
exercisable, one-third will vest and become exercisable on the
first anniversary of the Date of Termination and one-third will
vest and become exercisable on the second anniversary of the Date
of Termination;
(c) you shall also receive an amount equal to two (2) times the
Company's matching contribution made for the calendar year
immediately preceding the calendar year of your Date of
Termination under all qualified and non-qualified savings and
investment plans of the Company in which you are eligible to
participate as of the Date of Termination. Such amount shall be
paid to you on a non-qualified basis in one lump sum at the same
time as other severance benefits are paid under this Agreement;
and
(d) In addition, the Company will allow you to continue your
participation in any life, accident and health insurance benefit
program to the extent you participate and/or contribute to at the
Date of Termination, as such benefits and/or contribution levels
may be, from time to time, changed or amended. However,
notwithstanding the above, beginning on your Date of Termination,
any
<PAGE>
contributions you make towards welfare benefits which are
pursuant to a cafeteria plan shall be made on an after-tax basis.
In addition, your participation in the Company's sickness and
salary continuance program and long-term disability plan shall be
discontinued as of your Date of Termination. Any welfare benefits
payable to you under this Subsection 3(ii)(d) shall be provided
to you for a period of time which shall end on the earlier of the
second anniversary of the Date of Termination or the date on
which you receive comparable benefits from new employment during
the two (2) year period following your Date of Termination, and
any such benefits actually received by you shall be reported to
the Company.
4. BENEFIT LIMITATIONS AND TIMING
(i) GOLDEN PARACHUTE LIMITATION. In the event that any payment or benefit
---------------------------
received or to be received by you including, but not limited to,
payments pursuant to this Agreement (collectively, the "Total
Payments") should be determined by the Company to be an "excess
parachute payment" within the meaning of Section 280G of the Code, and
thereby would not be deductible (in whole or part) by the Company, the
payments hereunder which are regarded as "parachute payments" within
the meaning of Section 280G of the Code shall be reduced until no
portion of the Total Payments is not deductible, or such payments are
reduced to zero. For purposes of this limitation
(a) the payments hereunder shall be reduced only to the extent
necessary so that the Total Payments in their entirety constitute
reasonable compensation for services actually rendered within the
meaning of Section 280G(b)(4) of the Code or are otherwise not
subject to disallowance as deductions, and
(b) in the event the Company determines that Total Payments would
constitute an "excess parachute payment" thereby necessitating
that payments be reduced in part, you may consult with the
Company in determining the priority in which any benefit payment
shall be reduced. Any such joint determination must be made no
later than seven (7) days prior to the next regular full-pay
cycle, otherwise the Company's decision of which benefits shall
be reduced or eliminated shall be final.
(ii) As provided in Section 3 above, any payments hereunder which are
determined by the Company not to be "parachute payments" as described
above, shall nonetheless be reduced as necessary to limit such
payments to the amount which would be payable hereunder determined as
if the limitations of Section 280G of the Code were applicable.
(iii) TIMING OF PAYMENTS. The benefits payable hereunder shall be made as
------------------
soon as reasonably practicable after the Company's determination of
the benefit payments and any limitation on such payments set forth in
Subsection 4(I) above, but in no even later than the thirtieth day
after the Date of Termination. In addition, if it is subsequently
determined pursuant to a final determination of a court or a final
Internal Revenue Service proceeding that, notwithstanding the good
faith of the Company in applying the terms of this Agreement, any part
of the Total Payments paid to you constitutes an "excess parachute
payment" for purposes of Section 280G of the Code, then the amount
equal to the excess shall constitute a loan from the Company to you
payable within six months of demand by the Company (together with
interest at the rate provided in Section 1274(b)(2)(B) of the Code).
<PAGE>
(iv) CONDITIONS FOR RECEIPT OF BENEFITS - COMPANY RIGHTS OF ACTION AFTER
-------------------------------------------------------------------
PAYMENT. The payment of any benefit under this Agreement is
-------
conditioned upon you complying with all of the following:
(a) Refraining from directly or indirectly interfering in any manner
with the operations, management or administration of any Company
office or agency and refraining from making any disparaging
remarks concerning the Company, its representatives, agents and
employees.
(b) Refraining from encouraging, soliciting or suggesting to any and
all employees, agents, representatives and/or clients of the
Company that they terminate or alter their current relationship
with the Company.
(c) Returning all Company property provided or developed during the
course of employment, including, but not limited to, files,
records, identification card, credit cards, Company manuals, etc.
If the Company determines in good faith that the conditions for
payment as outlined above have not been met by you, your rights to any
benefits or payments under this Agreement shall be terminated and the
Company shall have no further obligations or liabilities to you as set
forth in this Agreement unless the condition or conditions resulting
in such termination of rights to benefits have been rectified or
corrected to the Company's satisfaction. In addition, if within three
years from the date of payment of any benefit under this Agreement,
the Company determines in good faith that you have failed to comply
with the conditions set forth in this Subsection either prior to or
after payment of any benefit, then the Company shall have the right to
make a claim and demand upon you for return of any benefits paid
unless the condition or conditions resulting in the Company's demand
or claim have been rectified or corrected to the Company's
satisfaction.
(v) INDEBTEDNESS. The amount of any indebtedness or other obligation
------------
which you have to the Company at the time of your termination of
employment shall be offset against any benefits payable under this
Agreement.
(vi) MITIGATION. You shall not be required to mitigate the amount of any
----------
payment provided for herein by seeking other employment or otherwise,
nor shall the amount of any payment or benefit provided for herein be
reduced by any compensation earned by you as the result of employment
by another employer or by amounts received as retirement benefits.
5. SUCCESSORS, BINDING AGREEMENT
(i) This Agreement shall be binding on the successors and assigns of the
Company and the Company shall require any successor by reason of
merger or similar event to expressly assume and agree to perform this
Agreement in the same manner and to the same extent that the Company
would be required to perform if no such succession had taken place.
(ii) This Agreement shall inure to the benefit of and be enforceable by
your personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If you should
die while any amount would still be payable to you hereunder if you
had continued to live, all such amounts, unless otherwise provided
herein, shall be paid in accordance with the terms of this Agreement
to your devisee, legatee or other designee or, if there is no such
designee, to your estate.
<PAGE>
6. NOTICE
For the purpose of this Agreement, notices and all other communications
provided for in the Agreement shall be in writing and shall be deemed to
have been duly given when delivered or mailed by United States registered
mail, return receipt requested, postage prepaid, addressed to the
respective addresses set forth on the first page of this Agreement,
provided that all notices to the Company shall be directed to the attention
of such person or persons as specified to you by the Company.
7. CONFIDENTIALITY
You agree that you shall not disclose to any person, firm or corporation,
the terms of this Agreement and any proprietary information concerning the
business or affairs of the Company, or its subsidiary or parent
corporations if applicable, which may have been acquired in the course of
your employment with the Company. In the event you fail to maintain the
confidentiality provisions of the preceding sentence, the Company shall
have no further obligation to provide the severance benefits set forth in
Section 3 hereof.
8. MISCELLANEOUS
No provision of this Agreement may be modified, waived or discharged unless
such waiver, modification or discharge is agreed to in writing and signed
by you and such officer as may be specifically designated by the Company.
No waiver by either party hereto at any time of any breach by the other
party hereto of, or compliance with, any condition or provision of this
Agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at any prior
or subsequent time. No agreements or representations, oral or otherwise,
express or implied, with respect to the subject matter hereof have been
made by either party which are not expressly set forth in this Agreement.
The validity, interpretation, construction and performance of this
Agreement shall be governed by the laws of the State of Connecticut to the
extent not pre-empted by federal laws. Any payments provided for hereunder
shall be paid net of any applicable tax withholding required under federal,
state or local law. The obligations of the Company under Sections 3 and 4
shall survive the expiration of the term of this Agreement.
9. VALIDITY
The invalidity or unenforceability of any provision of this Agreement shall
not affect the validity or enforceability of any other provision of this
Agreement, which shall remain in full force and effect.
10. COUNTERPARTS
This Agreement may be executed in several counterparts, each of which shall
be deemed to be an original but all of which together will constitute one
and the same instrument.
11. ENTIRE AGREEMENT/OTHER CLAIMS
This Agreement sets forth the entire agreement of the parties hereto with
respect to the subject matter contained herein and supersedes all prior
agreements, promises, covenants, arrangements, communications,
representations or warranties, whether oral or written, by any officer,
employee or representative of any party hereto. Specifically, but not by
way of limitation, in the event benefits under this Agreement become
payable as a result of your termination as set forth in Section 2 hereof,
this Agreement sets forth all payments and benefits you shall be entitled
to receive as a result of such termination and payments hereunder shall be
in full accord and satisfaction of any and all claims or disputes which may
arise from your employment relationship with the Company.
<PAGE>
12. MEDIATION AND ARBITRATION
The parties understand and agree that the implementation of this Agreement
will be enhanced by the timely and open resolution of any disputes relating
to this Agreement. Accordingly, each party hereto agrees to use best
efforts to cause any disputes or disagreements arising under or relating to
the subject matter of this Agreement (including any claims based on
contract, tort and statute) to be considered, negotiated in good faith and
resolved as soon as possible. In the event any such dispute cannot be
resolved to the satisfaction of either party hereto within 30 days after it
has arisen, the parties agree to submit the dispute to formal mediation
using the commercial mediation rules of the American Arbitration
Association or such other rules as mutually agreed to before resorting to
any other dispute resolution procedure. All verbal and written settlement
offers or proposals presented by the parties in connection with the
negotiation and mediation of a dispute hereunder shall be deemed prepared
and communicated in furtherance, and in the context, of dispute settlement;
shall be exempt from discovery and production; and shall not be admissible
in evidence as an admission of any purpose whatsoever in any subsequent
legal proceedings or arbitration arising out of or in any manner concerning
the dispute.
In the event any dispute submitted to mediation hereunder is not resolved,
the parties agree that such dispute shall be settled exclusively in
arbitration. Such arbitration shall be conducted in the State of
Connecticut and shall be governed by the rules of the American Arbitration
Association then in effect. Judgment upon any award rendered by the
arbitrator may be entered by any state or federal court having jurisdiction
thereof.
13. AMENDMENTS
This Agreement may be amended from time to time upon mutual agreement of
you and the Company.
If this letter sets forth our agreement on the subject matter hereof, kindly
sign and return to the Company duplicate originals of this letter which will
then constitute our agreement on this subject.
Sincerely,
Philip R. McLoughlin
Agreed to this 10th day June, 1996.
/s/ David R. Pepin
- - -------------------
DAVID R. PEPIN
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF THE COMPANY
In the following list of subsidiaries of the company, those companies which
are indented represent subsidiaries of the corporation under which they are
indented. Except as otherwise indicated, 100% of the voting stock of each of
the subsidiaries listed below is owned of record or beneficially by its
indicated parent.
<TABLE>
<CAPTION>
STATE OR OTHER
JURISDICTION OF
NAME INCORPORATION
- - ---- -------------
<S> <C>
PHOENIX DUFF & PHELPS CORPORATION Delaware
Duff & Phelps Investment Management Co. Illinois
DPIM, Inc. Illinois
DPCM Holdings, Co. Illinois
DP Holdings Ltd. New Brunswick
Beutel, Goodman & Company Ltd. -49% Canada
Windy City Investments Co. Delaware
CBO Investments Co. Delaware
Phoenix Equity Planning Corporation Connecticut
Phoenix Investment Counsel, Inc. Massachusetts
National Securities & Research Corporation New York
</TABLE>
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Forms S-8 (No. 33-48338, No. 33-46359, No. 33-99412, No. 33-99414,
and No. 333-19073) of our report dated February 5, 1997 appearing on page 28 of
Phoenix Duff & Phelps Corporation's Annual Report on Form 10-K for the year
ended December 31, 1996.
/s/ Price Waterhouse LLP
- - ------------------------
Hartford, Connecticut
March 27, 1997
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the use of our reports dated January 31, 1997 and January 31, 1996
relating to the financial statements of Beutel, Goodman & Company Ltd. contained
in the annual report on Form 10-K of Phoenix Duff & Phelps Corporation by
reference of such reports in the previously filed registration statements of
Phoenix Duff & Phelps on Form S-8 numbers 33-48338, 33-46359, 33-99412, 33-99414
and 333-19073.
/S/ RICHTER, USHER & VINEBERG
- - -----------------------------
GENERAL PARTNERSHIP
CHARTERED ACCOUNTANTS
<TABLE> <S> <C>
<PAGE>
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<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
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<PP&E> 12,815
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78,504
0
<COMMON> 440
<OTHER-SE> 202,829
<TOTAL-LIABILITY-AND-EQUITY> 365,684
<SALES> 0
<TOTAL-REVENUES> 152,504
<CGS> 0
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<OTHER-EXPENSES> (5,213)
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<EPS-PRIMARY> $ 0.50
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