SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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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, 1999 [ ] 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 INVESTMENT PARTNERS, LTD.
(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
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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
Convertible Subordinated Debentures New York Stock Exchange
(Stated value $25.00 per debenture)
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 15, 2000, computed by reference to the last reported
price at which the stock was sold on such date, was $123,694,553.
The number of shares outstanding of the registrant's common stock, par value
$.01 per share, as of March 15, 2000 was 44,227,583.
Portions of the following documents Part of this Form 10-K into which the
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are incorporated by reference into document is incorporated by reference:
- ----------------------------------- --------------------------------------
this Form 10-K:
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Phoenix Investment Partners, Ltd.
2000 Proxy Statement Part III
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PHOENIX INVESTMENT PARTNERS, LTD.
ANNUAL REPORT FOR 1999 ON FORM 10-K
TABLE OF CONTENTS
PART I Page
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Item 1. Business....................................................... 1
Executive Officers of the Company.............................. 19
Item 2. Properties..................................................... 21
Item 3. Legal Proceedings.............................................. 21
Item 4. Submission of Matters to a Vote of Security Holders............ 21
PART II
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters................................... 22
Item 6. Selected Financial Data....................................... 22
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations..................................... 23
Item 8. Financial Statements and Supplementary Data................... 32
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure...................................... 61
PART III
Item 10. Directors and Executive Officers of the Registrant............ 61
Item 11. Executive Compensation........................................ 61
Item 12. Security Ownership of Certain Beneficial Owners and Management 61
Item 13. Certain Relationships and Related Transactions................ 61
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K.................................................. 62
Signatures............................................................ 65
<PAGE>
PART I
Item 1. Business.
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Phoenix Investment Partners, Ltd. (the Company) and its operating subsidiaries,
Phoenix Investment Counsel, Inc. (PIC), Duff & Phelps Investment Management Co.
(DPIM), Phoenix Equity Planning Corporation (PEPCO), Roger Engemann and
Associates, Inc. (REA), the wholly-owned subsidiary of the Company's
wholly-owned subsidiary Pasadena Capital Corporation (PCC), Seneca Capital
Management LLC (Seneca) and the Zweig Fund Group (Zweig), provide a variety of
investment management services to a broad base of institutional and individual
clients. Unless the context otherwise requires, all references in this report to
the Company refer to Phoenix Investment Partners, Ltd. and its subsidiaries.
History of the Business
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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. 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 1995, pursuant to
an Agreement and Plan of Merger among Duff & Phelps Corporation, PM Holdings,
Inc. (Holdings), a wholly-owned subsidiary of Phoenix Home Life Mutual Insurance
Company (PHL), and Phoenix Securities Group, Inc. (PSG), a wholly-owned
subsidiary of Holdings, PSG was merged with and into Duff & Phelps Corporation
(the Merger). At the time of the Merger, Holdings became 60% owner of the
outstanding common stock of the Company and Duff & Phelps Corporation was
renamed Phoenix Duff & Phelps Corporation (PDP). In 1996, in order to focus on
merging and growing the retail and institutional investment management business,
the Company exited the fee based investment research, investment banking and
financial advisory businesses.
The continued growth of the Company's retail and institutional lines of business
was based upon the development of its investment management business model,
which contemplated both internal and external expansion. The model offers both
the retail and institutional lines of business access to the investment skills
of a variety of talented money managers through a consolidated distribution and
administrative platform, essentially a "multi-manager/single platform" model. In
1998, in order to emphasize the importance of the model, PDP was renamed Phoenix
Investment Partners, Ltd. The following acquisitions were important components
in developing the model:
- On July 17, 1997, the Company acquired a 74.9% interest in Seneca, which is a
registered investment advisor providing services primarily to institutional
investors.
- On September 3, 1997, the Company acquired PCC, whose wholly-owned subsidiary
REA is a registered investment advisor providing investment management
services primarily to individual investors and Securities and Exchange
Commission (SEC) registered investment companies.
- On March 1, 1999, the Company acquired the retail mutual fund and closed-end
fund businesses of Zweig. Zweig manages eight retail mutual funds and two
closed-end funds, as well as certain institutional accounts. Zweig consists
of Zweig/Glaser Advisers LLC (ZGA) and its wholly-owned subsidiary Euclid
Advisors LLC (Euclid), registered investment advisors (collectively Zweig
Advisors), and PXP Securities Corp. (PSC) (formerly known as Zweig Securities
Corp.), a registered broker-dealer.
General
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The Company operates in two lines of business: retail and institutional
investment management. The retail line of business provides investment
management services on a discretionary basis (including administrative
services), with products consisting of open-end mutual funds and managed
accounts. Managed accounts include broker-dealer sponsored and distributed wrap
fee programs and individually managed account investment services (private
client), both of which are offered to high net-worth individuals. The
institutional line of business provides discretionary and non-discretionary
investment management services primarily to corporate entities, closed-end
funds, structured finance products (i.e.: debt and equity securities backed by
an actively managed portfolio of equity or fixed income securities), and
multi-employer retirement funds, as well as endowment, insurance and other
special purpose funds.
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The following table summarizes revenues, income before income taxes, and assets
under management by line of business for the years ended, December 31, 1999 and
1998, respectively (See Note 5, "Segment Information," to the Company's
Consolidated Financial Statements, incorporated herein by reference):
Income Before Assets Under
Revenues Income Taxes Management
1999 1998 1999 1998 1999 1998
---- ---- ---- ---- ---- ----
(in thousands) (in thousands) (in millions)
Retail $180,043 $140,383 $32,643 $20,157 $28,443 $21,729
Institutional 104,485 79,064 14,938 15,024 36,158 31,758
All other * 2,100 2,100 (1,528) 19,794
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Total $286,628 $221,547 $46,053 $54,975 $64,601 $53,487
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* - "All other" represents corporate office revenue and expenses which are not
directly attributable to either line of business.
The Company, through its subsidiaries PIC, DPIM, REA, Seneca, and Zweig
Advisors, managed 951 institutional accounts (including PHL's General Account, 5
closed-end funds, and 4 structured finance products), 55 open-end mutual funds,
and 26,750 individually managed accounts at December 31, 1999.
The following tables set forth the combined assets under management and
management fees for PIC, DPIM, REA, Seneca, and Zweig Advisors at, and for the
year ended, December 31, 1999:
Assets Under Management
(in millions)
Source:
Retail Products:
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Open-end Mutual Funds $ 18,073
Managed Accounts (a) 10,370
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28,443
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Institutional Products:
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Institutional Accounts (b) 21,227
Closed-end Funds 4,596
PHL General Account 9,059
Structured Finance Products (c) 1,276
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36,158
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Total $ 64,601
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Assets Classification:
Equity $ 30,055
Balanced 13,192
Fixed Income 20,696
Money Market 658
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Total $ 64,601
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Advisor:
PIC $ 25,657
DPIM 15,604
REA 10,866
Seneca 9,216
Zweig 3,258
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Total $ 64,601
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Management Fees
(in thousands)
Source:
Retail Products:
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Open-end Mutual Funds $ 92,320
Managed Accounts (a) 53,653
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145,973
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Institutional Products:
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Institutional Accounts (b) 61,146
Closed-end Funds 27,631
PHL General Account 10,539
Structured Finance Products (c) 3,714
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103,030
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Total $ 249,003
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(a) Managed Accounts represent broker-dealer sponsored and distributed wrap fee
programs and individually managed account investment services, both of which
are offered to high net-worth individuals.
(b) Institutional Accounts include 100% of the assets managed by Seneca.
(c) Structured Finance Products consist of debt and equity securities backed by
an actively managed portfolio of equity or fixed income securities.
Investment Management
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General
The Company's operating subsidiaries providing investment management services
are PIC, DPIM, REA, Seneca, and Zweig Advisors, each of which is an investment
advisor registered under the Investment Advisors Act of 1940, as amended (the
Advisors Act).
PIC
PIC's original business dates back to the 1930's and was acquired by PHL in 1975
from an unrelated third party. PIC provides investment management services for
mutual funds, institutional investors, and structured finance products. PIC also
manages the investment assets (other than investments in real estate and
mortgages) of the PHL General Account and substantially all of the Variable
Products Separate Accounts of PHL, which is one of the largest mutual life
insurance companies in the United States.
Investment management and advisory services are provided by PIC for
institutional and mutual fund clients, and structured finance products with
respect to publicly-traded equity, convertible and fixed income securities, as
well as privately-placed fixed income securities. As of December 31, 1999, PIC
had approximately $11.6 billion institutional and $14.0 billion mutual fund
assets under management (certain mutual funds, with $6.6 billion and $1.4
billion of assets under management, are subadvised by REA and Seneca,
respectively). As of December 31, 1999, PIC's 48 employees included 15 portfolio
managers, who have an average of 13 years of investment management experience,
and 11 research analysts. PIC maintains offices in Hartford, Connecticut;
Sarasota, Florida; and Scotts Valley, California. For the year ended December
31, 1999, PIC had total revenues of $88.9 million.
DPIM
DPIM was established in 1979 with the acquisition of Boyd, Watterson & Co., a
Cleveland-based investment manager founded in 1928. DPIM provides investment
management services to a variety of institutions and individuals. As of December
31, 1999, DPIM had approximately $15.6 billion in assets under management,
consisting of equity, fixed income, and real estate securities. DPIM's clients
include a number of investment companies, including three closed-end investment
companies, Duff & Phelps Utilities Income Inc. (the Utilities Income Fund), Duff
& Phelps Utilities Tax-Free Income Inc. (the Utilities Tax-Free Fund), and Duff
& Phelps Utility and Corporate Bond Trust Inc. (the Utility and Corporate Bond
Trust) (collectively the Duff & Phelps Funds). DPIM's clients also include
corporate, public, and multi-employer retirement funds and endowment, insurance
and other special purpose funds. As of December 31, 1999, DPIM's 65 employees
included 8 portfolio managers, who have an average of over 12 years of
investment management experience, and 11 research analysts. DPIM maintains
offices in Chicago, Illinois and Cleveland, Ohio. For the year ended December
31, 1999, DPIM had total revenues of $48.0 million.
3
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REA
REA, located in Pasadena, California, was founded by Roger Engemann in 1969. REA
specializes in growth-style equity investing. As of December 31, 1999, REA had
$17.5 billion of assets under management in over 20,000 individually managed
accounts and 10 mutual funds (5 mutual funds, with $6.6 billion of assets under
management, are managed under subadvisory agreements with PIC). The majority of
assets under management are invested in large-cap growth equities, however, REA
also manages small-cap, global growth, balanced and value portfolios. As of
December 31, 1999, REA's 86 employees included 3 portfolio managers, who have an
average of 33 years of investment management experience, and 6 research
analysts. For the year ended December 31, 1999, REA had total revenues of $59.7
million.
Seneca
Seneca, based in San Francisco, California, was established in July 1996. Seneca
provides investment management services to foundations, endowments,
corporations, public funds and private clients, and also provides subadvisory
services to certain open-end mutual funds advised by PIC. As of December 31,
1999, Seneca had approximately $10.6 billion in assets under management,
consisting of equity and fixed income products, including 10 mutual funds, with
$1.4 billion of assets, which are managed under subadvisory agreements with PIC,
and 2 structured finance products. As of December 31, 1999, Seneca's 63
employees included 7 portfolio managers, who have an average of over 12 years of
investment management experience, and 9 research analysts. For the year ended
December 31, 1999, Seneca had total revenues of $36.7 million.
Zweig Advisors
ZGA, based in New York, was formed in 1989. ZGA provides investment management
and advisory services to Phoenix-Zweig Trust (PZT), a portfolio of 7 mutual
funds, 2 closed-end funds, and sub-advised institutional accounts. It also
provides administrative services to 2 closed-end investment companies: The Zweig
Fund, Inc. and The Zweig Total Return Fund, Inc. (collectively the Zweig Closed
- -end Funds).
Euclid, a wholly-owned subsidiary of ZGA, was originally formed in 1996. In May
1998, Euclid became the investment advisor to the Euclid Market Neutral Fund
(EMNF), a portfolio of Phoenix-Euclid Funds investing primarily in equity
securities. Euclid is registered under the Advisors Act.
As of December 31, 1999, Zweig Advisors had approximately $1.8 billion
institutional and $1.5 billion mutual fund assets under management, consisting
of equity and fixed income products. As of December 31, 1999, Zweig Advisors' 44
employees included 3 portfolio managers, who have an average of 10 years of
investment management experience, and 5 research analysts. For the ten months
ended December 31, 1999, Zweig Advisors had total revenues of $26.9 million.
Investment Philosophy
PIC
PIC applies a "sector rotation" approach to fixed-income management and utilizes
a wide variety of market sectors to enhance performance. These sectors may
include investment-grade and below investment-grade securities. Undervalued
sectors will be significantly overweighted relative to the market, while
overvalued sectors will be de-emphasized. PIC utilizes significant expertise in
non-traditional fixed-income sectors where values have not been realized in the
marketplace and attempts to minimize overall interest rate risk by constraining
portfolio durations.
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DPIM
DPIM's fixed income approach is described as a "core" approach with an emphasis
on fundamental research and the avoidance of credit risk. This investment
approach begins with an intensive analysis of economic fundamentals and a
forecast of interest rate trends with the objective of enhancing portfolio
returns. DPIM places a significant emphasis on "sector" values, believing
certain market sectors and industry groups offer more attractive returns than
others. Credit research skills are utilized in the security selection process,
which emphasizes investment grade bonds.
DPIM'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, 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.
REA
REA's investment approach is predicated on the belief that high quality
companies possessing strong brand identities and consistent, superior earnings
growth rates ultimately deliver superior long-term risk-adjusted returns. In
addition to these characteristics, REA looks for companies with quality
management focused on shareholder value and with financial strength and a
favorable long-term outlook. REA believes that such companies are best
discovered through a fundamental, bottom-up approach and that client portfolios
should normally remain fully invested. Investment research emphasizes meetings
with the management teams of portfolio companies. Portfolio managers and
analysts also attend management conferences and presentations, place research
oriented calls to management, participate in conference calls with management
and review written company reports.
Seneca
Seneca actively manages domestic equity, fixed income and balanced products
using a disciplined, bottom-up investment process executed by a team of
investment professionals.
The "Value Driven Fixed Income" approach is bottom-up, research-driven, and
opportunistic, intended to identify fundamental value and to capitalize on
volatility and market inefficiencies. Extensive fundamental research is the
standard. Value is added through sector selection, issue selection (based on
credit research and structure analysis), and trading opportunities. Duration is
targeted and managed around a narrow band.
The equity approach is bottom-up, with an emphasis on fundamental earnings
acceleration, earnings quality and sustainability, and valuation. In addition to
standard financial analysis and careful review of Wall Street research, analysts
meet directly and frequently with portfolio candidates. Analysts ask specific
and targeted questions to calibrate earnings trends. Seneca offers a mid to
large cap growth equity product called "Growth with Controlled Risk," which
blends two distinct universes of stocks: "Forecast Appreciation" and "Proven
Appreciation." Forecast Appreciation focuses on stocks for which Seneca
forecasts major earnings acceleration. Proven Appreciation focuses on
well-established large capitalization stocks that have continually paid
dividends for the last 20 years. The combination of stocks from each universe
produces a portfolio that grows at a rate consistent with a growth style, but is
cushioned against downside risk in turbulent markets. The second equity product
that Seneca offers is called "Earnings Driven Growth." This equity discipline
exploits the correlation between earnings acceleration and price appreciation.
The equity strategy screens for growth across all market capitalizations. The
focus is on stocks for which earnings growth rates are projected at
substantially higher levels than the market, and for which major earnings
accelerations are forecasted.
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Zweig Advisors
ZGA's investment approach utilizes a risk-averse philosophy by reducing market
exposure as risk rises. This approach makes it possible to achieve superior
long-term returns over complete market cycles, by controlling investors' losses
during declining markets. As risk rises, market exposure is reduced. As risk
declines, market exposure is gradually increased. The ability to react to
changing market conditions is achieved by maintaining an appropriate mix of
stocks and cash within ZGA's mutual funds. The stocks-cash mix is determined by
a team of analysts using key fundamental and technical indicators that are
constantly monitored and refined.
Euclid's investment approach seeks capital appreciation with minimal exposure to
general market risk. Euclid attains this market neutrality by constructing a
portfolio of long and short positions in equity securities.
Investment Management Agreements and Fees
Overview
The strategy of the Company is to increase assets under management by offering
institutional and individual clients a broad array of investment products and
services while at the same time moderating growth to ensure that clients receive
the highest quality of service. The Company believes 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.
PIC, DPIM, REA, Seneca, and Zweig Advisors, as investment advisors and/or
subadvisors to investment companies, are subject to the Investment Company Act
of 1940, as amended (the 1940 Act). Under the 1940 Act, advisory and subadvisory
agreements with open-end and closed-end investment companies 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 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. The Company's advisory agreements with non-investment
company clients are generally terminable without penalty upon notice by the
client.
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 changed infrequently and competitive forces in the mutual fund industry
influence these negotiations for fee changes.
The Company has a diversified customer base. Other than the following, no
account or fund represented more than 2% of the Company's total revenues during
1999: PHL General Account and PHL sponsored variable products, Duff & Phelps
Utilities Income Fund, Phoenix Series Balanced Fund, Phoenix Series Growth Fund,
and Phoenix-Oakhurst Income and Growth Fund. In addition, assets of $5.6 billion
were managed within the Merrill Lynch "Consults" wrap fee program.
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PIC
PIC has entered into investment management agreements with each of its
institutional and mutual fund clients, including agreements with PHL with
respect to its general account and variable products. Pursuant to these
agreements, PIC has 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 PHL General Account, subject to
oversight by the PHL Board of Directors and the Investment Committee thereof.
PIC has entered into subadvisory investment management agreements with REA and
Seneca with respect to certain funds managed by PIC. Pursuant to the terms of
the agreements, PIC is responsible for managing the fund's investment program
and the general operations of the funds, while REA and Seneca are responsible
for the day-to-day management of the funds' portfolios. In managing the fund's
assets, REA and Seneca ensure they conform with the investment policies as
described in each respective fund's prospectus.
In addition, PIC has entered into a subadvisory agreement with Aberdeen Fund
Managers (Aberdeen), an affiliate of PHL. Aberdeen is subadvisor to the non-U.S.
portion of PIC's international and worldwide mutual fund assets, totaling $729
million, which are not included in total assets under management reported by the
Company at December 31, 1999. In addition, $46 million of the U.S. portion of
certain other assets managed by Aberdeen are subadvised by PIC and have been
included in assets under management reported by the Company at December 31,
1999.
For open-end mutual funds, PIC earns management fees based on the average daily
net asset values of each fund. The agreements prescribe, for most funds, a
tiered-fee structure whereby the fee percentage is decreased as the fund grows
through net asset thresholds. For the investment management services provided to
the mutual funds, PIC receives fees ranging generally from .40% to .90% per
annum of each fund's average daily net asset value. These management fees are
payable monthly.
For institutional clients, PIC is compensated under investment management
contracts 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 fee
percentage is also dependent upon the difficulty in managing the investments;
generally, investments in equity securities command a higher fee percentage than
fixed income securities, as do investments in foreign securities, which require
more extensive management time. Fees for the management of institutional
accounts are based on the asset value of the investment portfolios under
management and are typically payable monthly or quarterly. For its investment
management services, PIC receives management fees from discretionary advisory
accounts ranging from .125% to .85% per annum of the accounts' average net asset
values.
Pursuant to an investment management agreement with PHL effective as of January
1, 1995, PIC provides non-real estate investment management services to the PHL
General Account, which, as of December 31, 1999, had approximately $9.1 billion
in assets managed by PIC. PIC receives a management fee of .10% and .12% per
annum based on net asset values for publicly traded bonds and privately placed
bonds, respectively, which represent approximately 89% of the assets managed. A
fee ranging from .05% to .45% per annum is earned based on net assets invested
in preferred stocks, including government securities; cash and cash equivalents;
common stock; venture capital, oil and gas, and leveraged lease products. The
management fee is payable monthly based on the average monthly net asset value
of the PHL General Account. For the year ended December 31, 1999, management
fees paid to PIC with respect to PHL's General Account totaled $10.5 million.
The Company believes that the management fees payable to PIC by PHL under the
general account agreement are no less favorable to PIC than the management fees
that would be obtained from unaffiliated persons based on the size of this
account and the types of investments in which the assets of such account are
invested.
DPIM
DPIM offers fixed income and equity investment management services on both a
discretionary basis, where DPIM makes the investment decisions with respect to
the assets under management; and a non-discretionary basis, where DPIM
recommends investment policies and strategies to clients who maintain their own
investment staffs that make the investment decisions. Assets pertaining to
non-discretionary investment management services are not included in the
Company's assets under management.
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DPIM has entered into investment management agreements with each of its
institutional, open-end mutual fund, managed account, and closed-end fund
clients. Under the open-end mutual fund agreements, DPIM earns management fees
based on the average daily net asset value of each fund. The agreements
prescribe, for each fund, a tiered-fee structure whereby the fee percentage is
decreased as the fund grows through net asset thresholds. For the investment
management services provided to the mutual funds, DPIM receives fees ranging
generally from .35% to .75% per annum of each fund's average daily net asset
value. These management fees are payable monthly. Fees for the management of
institutional advisory accounts are based on the asset value of the investment
portfolios under management, while fees for non-discretionary advisory accounts
are fixed rate fees. Fees for the management of the Duff & Phelps Funds are
based on assets managed, calculated based on average weekly assets. In addition,
$771 million of the U.S. portion of certain other assets managed by Aberdeen are
subadvised by DPIM (of which $452 million are retail assets and $319 million are
institutional assets), pursuant to the same subadvisory agreement in place
between PIC and Aberdeen, and have been included in assets under management
reported by the Company at December 31, 1999.
DPIM has managed account contracts with both large and small broker-dealer wrap
fee programs. With a few minor exceptions, fees for the management of managed
account assets are payable quarterly in advance. As of December 31, 1999, DPIM
participated in managed account programs which provided annual investment
management fees ranging from .35% to .65% of assets under management. The range
reflects, among other factors, the difference in the level of client service and
reporting for which DPIM is responsible under the different programs. These
investment management agreements are terminable by either party upon relatively
short notice.
REA
REA has entered into investment management agreements with its clients, each of
which provides for REA to earn management fees based on the assets managed.
REA has managed account contracts with both large and small broker-dealer wrap
fee programs. With a few minor exceptions, fees for the management of managed
account assets are payable quarterly in advance. As of December 31, 1999, REA
participated in managed account programs which provided annual investment
management fees ranging from .50% to 1.00% of assets under management. The range
reflects, among other factors, the difference in the level of client service and
reporting for which REA is responsible under the different programs. These
investment management agreements are terminable by either party upon relatively
short notice.
REA has an investment management agreement with each of its private clients. In
each case, fees are payable quarterly in advance. As of December 31, 1999, REA
investment management fee rates for private clients ranged from .92% to 2.00% of
assets under management. The fee rate is negotiated separately with each client
and reflects, among other factors, the size of the account, the length of the
relationship and the investment style selected. These investment management
agreements are terminable by either party at any time.
REA has an investment management agreement with the Phoenix-Engemann Funds, an
open-end management investment company whose shares are offered in 5 funds.
Under the agreement, REA earns management fees based on the average daily net
asset values of each fund. The agreement prescribes for each fund a tiered-fee
structure whereby the fee percentage is decreased as the fund grows through net
asset thresholds. Fees reflect the complexity of and effort required by the
investment methodology underlying each fund's management. As of December 31,
1999, the investment management agreement with the Phoenix-Engemann Funds
prescribed annual fee rates ranging from .60% to 1.10% of average daily net
assets. Fees are payable on REA's request and, since each fund's inception, have
been settled monthly in arrears. The investment management agreement is
terminable by either party upon 60 days notice.
REA has entered into subadvisory agreements with PIC, whereby REA manages the
assets of 5 of PIC's mutual funds with assets totaling $6.6 billion.
8
<PAGE>
Seneca
Seneca has investment management agreements with each of its institutional
accounts. Pursuant to these agreements, Seneca has been granted discretionary
authority to make investment decisions within certain general portfolio
guidelines. These investment contracts are generally cancelable upon 30 days
notice by either party.
Seneca charges quarterly management fees, generally payable in advance, based
upon the market value of the investments. The standard fee schedule for the
Growth with Controlled Risk institutional accounts is 1.00% on the first $5
million, .80% on the next $10 million, and .50% on amounts over $15 million of
assets managed. The standard fee schedule for the Earnings Driven Growth
institutional accounts is 1.00% on the first $10 million, .80% on the next $25
million, and .70% on amounts over $35 million of assets managed. The standard
fee schedule for the Value Driven Fixed Income institutional accounts is .50% on
the first $30 million and .35% on amounts over $30 million of assets managed.
Seneca has managed account contracts primarily with large broker-dealer wrap fee
programs. With a few minor exceptions, fees for the management of managed
account assets are payable quarterly in advance. As of December 31, 1999, Seneca
participated in managed account programs which provided annual investment
management fees ranging from .35% to .65% of assets under management. The range
reflects, among other factors, the difference in the level of client service and
reporting for which Seneca is responsible under the different programs. These
investment management agreements are terminable by either party upon relatively
short notice.
Seneca has entered into subadvisory agreements with PIC, whereby Seneca manages
the assets of 10 of PIC's mutual funds with assets totaling $1.4 billion.
Zweig Advisors
Zweig Advisors have investment management agreements with each of its mutual
fund and closed-end fund clients. In addition, Zweig Advisors has entered into
sub-advisory management agreements with certain unrelated investment advisors
for which it has agreed to manage all or a part of a mutual fund portfolio.
Pursuant to these agreements, Zweig Advisors has been granted discretionary
authority to make investment decisions with respect to assets under management
within certain general investment guidelines.
ZGA has an investment management agreement with PZT. Under the agreement, ZGA
earns management fees based on the average daily net asset values of each fund.
The agreement prescribes a flat-fee structure for each fund. Fees reflect the
complexity of and effort required by the investment methodology underlying each
fund's management. As of December 31, 1999, the investment management agreement
with the PZT funds prescribed annual fee rates ranging from .50% to 1.00% of
average daily net assets. Fees are payable on ZGA's request and, since each
fund's inception, have been settled monthly in arrears. The investment
management agreement is terminable by either party upon 60 days notice. Fees for
the management of the Zweig Closed-end Funds are based on assets managed,
calculated based on average daily net assets.
Euclid has an investment management agreement with EMNF. Under the agreement,
Euclid earns management fees based on the average daily net asset values of EMNF
mutual funds. Fees reflect the complexity of and effort required by the
investment methodology underlying each fund's management. As of December 31,
1999, the investment management agreement with EMNF prescribed annual fee rates
of 1.50% of average daily net assets. Fees are payable on Euclid's request and,
since each fund's inception, have been settled monthly in arrears. The
investment management agreement is terminable by either party upon 60 days
notice.
Retail Product Line
- -------------------
Mutual Funds
PIC, DPIM, REA, Seneca, and Zweig Advisors are investment advisors, and/or
subadvisors, to 55 open-end mutual fund portfolios, which had aggregate assets
under management of approximately $18.1 billion as of December 31, 1999. Mutual
funds managed by PIC, DPIM, REA, Seneca, and Zweig Advisors are available to
retail investors.
9
<PAGE>
PIC, DPIM, REA, and Zweig Advisors manage mutual fund portfolios as follows:
Assets Under
Management
Number of as of
Advisor Funds December 31, 1999
- ------- --------- -----------------
(in thousands)
PIC 38 $14,532,913
DPIM 4 250,117
REA 5 1,754,571
Zweig Advisors 8 1,536,044
----- -----------
Total 55 $18,073,645
===== ===========
In addition, REA subadvises 5 mutual funds and Seneca subadvises 10 mutual
funds, all of which are advised by PIC.
The following table provides, with respect to each mutual fund, information
concerning its year of establishment, fee schedule, assets under management,
advisor, and, if applicable, sub-advisor:
Assets Under
Management
Year as of Advisor/
Fund Established Fee* December 31, 1999 Sub-Advisor
- ---- ----------- ------ ----------------- -----------
(in thousands)
Phoenix Series Fund:
- --------------------
Phoenix-Oakhurst Balanced Fund 1970 .55%(a) $ 1,638,353 PIC
Phoenix-Engemann Capital
Growth Fund 1969 .70%(a) 3,330,269 PIC/REA
Phoenix-Engemann Aggressive
Growth Fund 1968 .70%(a) 578,890 PIC/REA
Phoenix-Goodwin High
Yield Fund 1980 .65%(a) 486,327 PIC
Phoenix-Goodwin Money Market
Fund 1980 .40%(b) 258,568 PIC
Phoenix-Duff & Phelps Core
Bond Fund 1987 .45%(a) 149,061 DPIM
-----------
$ 6,441,468
-----------
Phoenix Multi-Portfolio Fund:
- -----------------------------
Phoenix-Goodwin Tax-Exempt
Bond Fund 1988 .45%(a) $ 90,973 PIC
Phoenix-Goodwin Emerging
Markets Bond Fund 1995 .75%(a) 121,539 PIC
Phoenix-Seneca Mid Cap Fund 1989 .75%(a) 412,340 PIC/Seneca
Phoenix-Duff & Phelps Real
Estate Securities Fund 1995 .75%(a) 30,541 DPIM
Phoenix-Aberdeen International
Fund 1989 .75%(a) 196,383 PIC **
----------
$ 851,776
-----------
Phoenix Strategic Equity Series Fund:
- -------------------------------------
Phoenix-Engemann Small
Cap Fund 1995 .75%(a) $ 358,225 PIC/REA
Phoenix-Seneca Equity
Opportunities Fund 1944 .70%(a) 250,912 PIC/Seneca
Phoenix-Seneca Strategic
Theme Fund 1995 .75%(a) 267,392 PIC/Seneca
-----------
$ 876,529
-----------
Phoenix Investment Trust 97:
- ----------------------------
Phoenix-Hollister Small Cap
Value Fund 1997 .90%(a) $ 67,660 PIC
Phoenix-Hollister Value
Equity Fund 1997 .75%(a) 68,498 PIC
-----------
$ 136,158
-----------
10
<PAGE>
Assets Under
Management
Year as of Advisor/
Fund (continued) Established Fee* December 31, 1999 Sub-Advisor
- ---------------- ----------- ----- ----------------- -----------
(in thousands)
Other Phoenix Funds:
- --------------------
Phoenix-Oakhurst Strategic
Allocation Fund, Inc. 1982 .65%(a) $ 319,334 PIC
Phoenix-Oakhurst Income
and Growth Fund 1940 .70%(a) 779,792 PIC
Phoenix-Aberdeen Worldwide
Opportunities Fund 1960 .75%(a) 233,631 PIC **
Phoenix-Goodwin Multi-Sector
Short Term Bond Fund 1992 .55%(a) 42,517 PIC
Phoenix-Goodwin Multi-Sector
Fixed Income Fund, Inc. 1989 .55%(a) 221,674 PIC
Phoenix-Goodwin California
Tax Exempt Bonds, Inc. 1983 .45%(a) 81,597 PIC
-----------
$ 1,678,545
-----------
Phoenix Equity Series Fund:
- ---------------------------
Phoenix-Oakhurst Growth
& Income Fund 1997 .75%(a) $ 466,142 PIC
Phoenix-Duff & Phelps
Core Equity Fund 1997 .75%(a) 43,157 DPIM
-----------
$ 509,299
-----------
Phoenix Duff & Phelps
Institutional Mutual Funds:
- ----------------------------
Growth Stock Portfolio 1996 .60%(e) $ 63,281 PIC/Seneca
Managed Bond Portfolio 1996 .45%(e) 112,161 PIC
-----------
$ 175,442
-----------
Phoenix Edge Series Fund:
- -------------------------
Phoenix-Goodwin Multi-Sector
Fixed-Income Series 1986 .50%(c) $ 172,004 PIC
Phoenix-Goodwin Money
Market Series 1986 .40%(d) 232,612 PIC
Phoenix-Engemann Capital
Growth Series 1986 .70%(c) 2,269,974 PIC/REA
Phoenix-Oakhurst Strategic
Allocation Series 1986 .60%(c) 476,930 PIC
Phoenix-Oakhurst Balanced
Series 1992 .55%(c) 294,063 PIC
Phoenix-Seneca Strategic
Theme Series 1996 .75%(c) 177,053 PIC/Seneca
Phoenix-Engemann Nifty
Fifty Series 1998 .90%(c) 65,463 PIC/REA
Phoenix-Oakhurst Growth and
Income Series 1998 .70%(c) 102,769 PIC
Phoenix-Seneca Mid-Cap
Growth Series 1998 .80% 21,701 PIC/Seneca
Phoenix-Hollister Value
Equity Series 1998 .70%(c) 17,363 PIC
Phoenix Duff & Phelps Real
Estate Securities Series 1995 .75% 27,358 DPIM
Phoenix-Aberdeen
International Series 1990 .75%(c) 299,401 PIC **
-----------
$ 4,156,691
-----------
Phoenix-Seneca Funds:
- ---------------------
Bond Fund 1998 .50% $ 41,661 PIC/Seneca
Growth Fund 1998 .70% 95,118 PIC/Seneca
Real Estate Securities Fund 1998 .85% 16,390 PIC/Seneca
Mid-Cap "EDGE" Fund 1998 .80% 34,998 PIC/Seneca
-----------
$ 188,167
-----------
11
<PAGE>
Assets Under
Management
Year as of Advisor/
Fund (continued) Established Fee* December 31, 1999 Sub-Advisor
- ---------------- ----------- ----- ----------------- -----------
(in thousands)
Phoenix-Engemann Funds:
- -----------------------
Focus Growth Fund 1986 .90%(f) $ 784,432 REA
Balanced Return Fund 1987 .80%(f) 171,559 REA
Nifty Fifty Fund 1990 .90%(f) 530,590 REA
Small & Mid-Cap Growth Fund 1994 1.00%(f) 243,728 REA
Value 25 Fund 1996 .90%(f) 24,262 REA
-----------
$ 1,754,571
-----------
Phoenix-Zweig Trust:
- --------------------
Appreciation Fund 1991 1.00% $ 237,093 ZGA
Foreign Equity Fund 1997 1.00% 8,258 ZGA
Government Cash Fund 1994 .50% 166,869 ZGA
Government Fund 1985 .60% 34,027 ZGA
Growth & Income Fund 1996 .75% 20,370 ZGA
Managed Assets 1993 1.00% 525,322 ZGA
Strategy Fund 1989 .75% 458,233 ZGA
-----------
$ 1,450,172
-----------
Phoenix-Euclid:
- ---------------
Market Neutral Fund: 1998 1.50% $ 85,872 Euclid
-----------
Sub-total $18,304,690
Subadvisory relationship with
Aberdeen, net effect ** (231,045)
------------
Total $18,073,645
===========
* - Fee rate for the Phoenix Series Fund, Phoenix Multi-Portfolio Fund,
Strategic Equity Series Fund, Other Phoenix Funds, Phoenix Investment Trust 97,
Phoenix Equity Series Fund, and Phoenix Duff & Phelps Institutional Mutual Funds
represents annual basis points earned on the first billion of average assets
managed. Fee rate for The Phoenix Edge Series Fund represents annual basis
points earned on the first $250 million of average assets managed. The fee rate
for the Phoenix-Engemann Funds represents annual basis points earned on the
first $50 million of average assets managed. The Phoenix-Seneca Funds,
Phoenix-Zweig Trust, Phoenix-Euclid Market Neutral Fund, and the Phoenix-Seneca
Mid-Cap Growth Series and Phoenix Duff & Phelps Real Estate Securities Series of
the Phoenix Edge Series Funds, have fixed rates.
(a) - remaining fee schedules range from: .40% to .85% for the next billion, and
.35% to .80% in excess of two billion of assets managed.
(b) - remaining fee schedule is: .35% for the next billion, and .30% in excess
of two billion of assets managed.
(c) - remaining fee schedules range from: .45% to .85% for the next $250
million, and .40% to .80% in excess of $500 million of assets managed.
(d) - remaining fee schedule is: .35% for the next $250 million, and .30% in
excess of $500 million of assets managed.
(e) - remaining fee schedules range from: .40% to .55% in excess of one billion
of assets managed.
(f) - remaining fee schedules range from: .70% to 1.0% for the next $450
million, and .60% to .90% in excess of $500 million of assets managed.
** - Aberdeen is subadvisor to the non-U.S. portion of PIC's international and
worldwide mutual fund assets, totaling $729 million, which are not included
in total assets under management reported by the Company at December 31,
1999. In addition, $452 million and $46 million of the U.S. portion of
certain other assets managed by Aberdeen are subadvised by DPIM and PIC,
respectively, and have been included in assets under management reported by
the Company at December 31, 1999.
12
<PAGE>
All of the above 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. PIC, DPIM, REA, Seneca, and Zweig Advisors' mutual funds are
distributed through the non-proprietary wholesale distribution channel. Each
fund, other than the Phoenix Duff & Phelps Institutional Mutual Funds, Phoenix
Edge Series Fund, and Phoenix-Zweig Trust, offers investors two pricing
structures, Class A and Class B shares, and certain funds also offer Class C
shares, representing traditional front-end load, back-end load, and level-load,
respectively. 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 after
purchase. The Class C 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 year. The Phoenix Duff & Phelps
Institutional Mutual Funds are offered as Class X and Class Y shares, which are
similar to Class A and Class B shares, respectively. The Phoenix-Seneca Funds
also offer Class X shares. The Phoenix Edge Series Fund has only one class of
shares, which are similar to Class A shares, but without a front-end sales
charge. Phoenix-Zweig Trust offers two additional classes of mutual fund shares,
Class I and Class M, which require a higher initial minimum investment. 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. Net advisory
fees realized from these mutual funds totaled $92.3 million for the year ended
December 31, 1999.
Managed Accounts
At December 31, 1999, REA, DPIM, Seneca, and PIC provided investment management
services through participation in various broker-dealer wrap fee programs.
Managed account programs offer broker-dealer clients discretionary portfolio
management services provided by unaffiliated investment managers selected by the
broker. Wrap fee program contracts are structured in one of two ways. In the
majority of cases and for all of the larger programs, REA, DPIM, Seneca, and PIC
have one investment management agreement with the sponsor which covers all
accounts managed in that particular program. For a number of the smaller
programs, there is a separate investment management agreement with each client.
In addition, REA provides investment advisory services to "high net-worth"
private clients, outside of a broker-dealer wrap fee program.
REA, DPIM, Seneca, and PIC manage the assets of individually managed accounts as
follows:
Assets Under
Management
Number of as of
Source Fee * Accounts December 31, 1999
- ------ --- --------- -----------------
(in thousands)
Broker-dealer Wrap Fee Programs .53% 25,386 $ 8,509,607
Private Client 1.09% 1,364 1,859,900
--------- -----------
Total 26,750 $10,369,507
========= ===========
* - Fee represents weighted average annual basis points charged.
Assets of $5.6 billion were managed within the Merrill Lynch "Consults" wrap fee
program.
13
<PAGE>
Institutional Product Line
- --------------------------
Institutional Accounts
PIC, DPIM, Seneca, and Zweig Advisors have 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, public and multi-employer retirement funds, and other special
purpose funds, each of which has between $.1 million and $2.1 billion (except
for $9.1 billion for PHL's General Account) in assets managed. Additionally, as
of December 31, 1999, DPIM provided non-discretionary investment advisory
services to institutional accounts with total assets of $1.0 billion.
PIC, DPIM, Seneca, and Zweig Advisors manage institutional accounts, including
PHL's General Account, as follows:
Assets Under
Management
Number of as of
Advisor Accounts December 31, 1999
- ------- --------- -----------------
(in thousands)
PIC 28 $10,949,494
DPIM 323 10,791,008
Seneca 587 8,271,060
Zweig Advisors 4 274,243
----- -----------
Total 942 $30,285,805
===== ===========
Structured Finance Products
PIC and Seneca manage three structured finance products. In addition, PIC acts
as a subadvisor to a structured finance product not sponsored by the Company.
These products are collateralized debt and bond obligations with portfolios of
public high yield bonds, bank loans, and synthetic securities.
PIC and Seneca manage the assets of structured finance products as follows:
Assets Under
Management
Year as of
Product Established Fee December 31, 1999 Advisor
- ------- ----------- ----- ----------------- -------
(in thousands)
Gibraltar Limited 1998 .375%(a) $ 365,913 Seneca
Seneca CBO II, L.P. 1999 .50%(a) 292,458 Seneca
Phoenix CDO, Limited 1999 .50%(b) 229,131 PIC
Other 1998 .20%(c) 388,889 PIC (Subadvisor)
----------
Total $1,276,391
==========
(a) - Represents the base fee. Contingent fees are .125%, .125%, and .375% for
Gibraltar Limited and Seneca CBO II L.P., respectively.
(b) - Represents the combined base fee of .125% and the subordinated fee
of .375%.
(c) - Represents the fee rate for the first $200 million. The remaining fee
schedule is: .125% for the next $1.6 billion, .11% for the next $1.2
billion, .10% for the next $1.5 billion, and .09% in excess of $4.5
billion of assets managed.
14
<PAGE>
Closed-End Funds
DPIM and Zweig Advisors manage the assets of the following closed-end funds
(each of which is traded on the New York Stock Exchange):
Assets Under
Management
Year as of
Fund Established Fee * December 31, 1999 Advisor
- ---- ----------- ----- ----------------- -------
(in thousands)
Utilities Income Fund 1987 .60% $2,506,525 DPIM
Utilities Tax-Free Fund 1991 .50% 183,798 DPIM
Utility and Corporate
Bond Trust 1993 .50% 457,547 DPIM
The Zweig Fund, Inc. 1986 .85% 733,524 ZGA
The Zweig Total Return
Fund, Inc. 1988 .70% 714,637 ZGA
----------
Total $4,596,031
==========
* - Fee for the Duff & Phelps Funds represents an annual rate based on average
weekly net assets of the respective fund. The rate for the Utilities Income
Fund is for the first $1.5 billion of average weekly net assets. A rate of
.50% is earned on average weekly net assets in excess of $1.5 billion. Fees
for the Zweig Closed-end Funds represent an annual rate based on average
daily net assets of the respective fund.
Client Development
- ------------------
The ability of PIC, DPIM, REA, Seneca, and Zweig Advisors to attract and retain
clients is largely dependent on the portfolio managers and other key employees
of these companies. Each company, 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 attracting 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, PHL has directly or indirectly provided seed funding for
some of the new investment products managed by PIC. PHL may not continue to
provide such funding. If such funding is not provided by PHL, it will likely be
funded by the Company.
15
<PAGE>
Distribution
- ------------
Marketing, Distribution, and Support Services
Retail Product Marketing and Distribution
PEPCO, a broker-dealer registered under the Securities Exchange Act of 1934, as
amended (the Exchange Act), serves as principal underwriter and national
wholesale distributor of the mutual funds and managed accounts managed by PIC,
DPIM, REA, Seneca, and Zweig Advisors, as well as the variable contracts issued
by PHL (or an insurance company subsidiary). PEPCO also provides a wide range of
investment management support services, including accounting, pricing, record
keeping and transfer agency services. Net revenues relating to these support
services paid to PEPCO (including net sales loads, net distribution fees,
administrative fees, financial agent fees, and shareholder service agent fees)
totaled $31.7 million for the year ended December 31, 1999. 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 2.00% to
5.75% on sales of less than $1 million. Individual sales of $1 million or more
are made without commission. Commissions on sales of variable contracts issued
by PHL and its subsidiaries 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 financial institutions and WS Griffith & Co., Inc.
(Griffith). A substantial portion of PEPCO's distribution commissions are paid
to these entities.
Griffith is a registered broker-dealer subsidiary of PHL engaged in the retail
distribution of mutual funds and variable product contracts. Griffith is
currently the largest distributor of the Company's investment products,
accounting for approximately 4% and 88% of mutual fund and variable product
sales, respectively, for the year ended December 31, 1999. Through Griffith,
PEPCO obtains the services of approximately 1,080 PHL insurance agents and
brokers who are registered representatives of Griffith.
Sales and marketing personnel of PEPCO direct substantial efforts towards
establishing and maintaining relationships with unaffiliated national and
regional broker-dealers and financial institutions. PEPCO also markets advisory
services of PIC, DPIM, REA, and Seneca to sponsors of managed account programs.
Due to the highly competitive nature of the investment management business, the
ability of PIC, DPIM, REA, Seneca, and Zweig Advisors to compete for mutual fund
and investment advisory customers is becoming increasingly dependent on
developing and maintaining an effective distribution channel through such
entities.
Institutional Product Marketing and Distribution
At December 31, 1999, PIC, DPIM, Seneca, and Zweig Advisors had 942
institutional investment clients, with most of their business coming by
referral. PIC, DPIM, Seneca, and Zweig Advisors also solicit new accounts by
establishing relationships with firms whose role is advising clients in the
selection of investment management firms. This strategy has the benefit of
magnifying DPIM's, PIC's, Seneca's, and Zweig Advisors' marketing effort because
a successful relationship with a consultant tends to create multiple
solicitation opportunities.
Institutional marketing efforts 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 DPIM, PIC, and Seneca establish and maintain
relationships with these consultants and provide information and materials to
these consultants in order to enable them to evaluate PIC, DPIM and Seneca.
16
<PAGE>
Support Services
PEPCO provides various support services for the mutual funds whose assets are
managed by PIC, DPIM, REA, Seneca, and Zweig Advisors. Under financial agent
agreements, it performs accounting, administrative, pricing and record retention
services for these funds and receives monthly fees in order to recover the costs
incurred in performing such services. In the first quarter of 1998, PEPCO began
out-sourcing substantially all of its mutual fund accounting function to an
unrelated third party service provider. PEPCO continues to serve as the funds'
transfer agent, for which it receives an annual fixed fee of $13.50 to $17.95
for each shareholder account, except for the daily dividend funds, for which it
receives $19.25 to $22.25 per shareholder account, subject to a certain minimum
fee (plus out-of-pocket expenses).
PSC, a broker-dealer registered under the Exchange Act, engages in trading
activities for certain affiliated mutual funds, whereby it buys and sells equity
securities on behalf of the funds. PSC is the introducing broker in a
relationship with an unaffiliated firm, which acts as the clearing broker.
Brokerage commissions received from the funds are comparable to those charged by
other unaffiliated broker-dealers.
Investment in Beutel, Goodman & Company Ltd.
- --------------------------------------------
Beutel, Goodman & Company Ltd. (BG) is a Canadian corporation engaged in the
investment management business with its main office in Toronto, Ontario. In
November 1993, the Company and affiliates of the Company purchased 40% of the
outstanding voting capital stock of BG, as well as $23.3 million of 8.5%
Redeemable Unsecured Debentures of BG. These debentures were retired during
1996. In April 1994, the Company purchased additional shares of BG's common
stock, which increased the Company's ownership in BG to 49%.
On December 3, 1998, the Company sold its 49% investment in the outstanding
common stock of BG to an unrelated third party for $47 million. The Company
received $37 million in cash at closing and a $10 million three-year
interest-bearing note, which was subsequently paid on October 1, 1999. An
additional $3 million may be paid to the Company if specified earnings
thresholds are met during the two year period ending December 31, 2000. Proceeds
from the sale of BG were used to pay down debt.
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 with the acquisitions of REA, Seneca, and Zweig, 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.
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 relative to 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.
17
<PAGE>
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 PHL's agent field force who are registered representatives
of Griffith. Shareholder account service is also important to retaining mutual
fund customers.
Regulation
- ----------
The Company and its subsidiaries are subject to extensive governmental
regulation and supervision. PIC, DPIM, REA, Seneca, and Zweig Advisors are
registered with the Securities and Exchange Commission (the SEC) under the
Advisors Act and, as necessary, 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
Advisors Act and applicable state securities laws are maintained independently
by PIC, DPIM, REA, Seneca, and Zweig Advisors. In addition, each of the mutual
funds managed by PIC, DPIM, REA, Seneca, and Zweig Advisors are registered with
the SEC under the 1940 Act and each is therefore subject to the 1940 Act insofar
as it relates to investment advisors for registered investment companies.
PEPCO and PSC are registered as broker-dealers under the Exchange Act and state
securities laws and are 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, 1999,
PEPCO had net capital of $6.8 million, compared to required net capital of $.9
million, and a ratio of aggregate indebtedness to net capital of 1.89:1 and PSC
had net capital of $.7 million, compared to required net capital of $.1 million,
and a ratio of aggregate indebtedness to net capital of 1.12:1. As registered
broker-dealers, PEPCO and PSC are members of the National Association of
Securities Dealers, Inc. (NASD). The SEC and NASD require that, in addition to
the minimum net capital requirements, PEPCO and PSC 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 PSC and review
periodic reports with respect to their operations and financial conditions.
PIC, DPIM, REA, Seneca, and Zweig Advisors are also subject to the Employee
Retirement Income Security Act of 1974 (ERISA), insofar as they are
"fiduciaries" under ERISA with respect to employee benefit plan clients subject
to ERISA.
Because PHL 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 the Variable Products Separate Accounts of PHL, the individual or group
insurance or annuity or similar insurance contract issued by PHL 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.
18
<PAGE>
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, 1999, the Company and its subsidiaries employed approximately
665 persons. The Company considers its employee relations to be satisfactory.
Executive Officers of the Company
- ---------------------------------
The executive officers of the Company are as follows:
Name Age Position
- ---- --- --------
Philip R. McLoughlin 53 Chairman of the Board, Chief Executive Officer
and Director
Michael E. Haylon 42 President of PIC, Executive Vice President
and Director
John F. Sharry 48 President, Retail Division
William R. Moyer 55 Executive Vice President and Chief Financial
Officer
Michael A. Kearney 40 Senior Vice President
Thomas N. Steenburg 51 Chairman of the Board and Chief Executive
Officer of DPIM, Senior Vice President
Elizabeth R. Rudden 45 Vice President
Nancy J. Engberg 43 Vice President and Counsel
The executive officers of the Company are elected annually and serve at the
discretion of the Board of Directors of the Company.
Mr. McLoughlin has been Chairman of the Board of the Company since May 1997 and
Chief Executive Officer of the Company since November 1, 1995. Mr. McLoughlin
has also been a Director of PHL since February 1994 and has been employed by PHL
as Executive Vice President - Investments since December 1988. In addition, Mr.
McLoughlin serves as Chairman and President of PEPCO and Chairman of PIC. He
also is a member of the Board of Directors of PIC, PEPCO, DPIM, PCC, 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 Institutional Mutual Funds,
and Phoenix-Aberdeen Series Fund. He is a Director of PM Holdings, Inc., Phoenix
Charter Oak Trust Company, Aberdeen Asset Management plc, The World Trust, a
Luxembourg closed-end fund, The Emerging World Trust Fund, a Luxembourg
closed-end fund, and PXRE Corporation, a publicly-traded corporation, and its
wholly-owned subsidiary, PXRE Reinsurance Company.
19
<PAGE>
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 PHL. Mr. Haylon is also
President of PIC, Executive Vice President of DPIM and Executive Vice President
of the Phoenix Funds, Phoenix Duff & Phelps Institutional Mutual Funds and
Phoenix-Aberdeen Series Fund. 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 PHL. 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 and PEPCO.
Mr. Sharry has been President of the Retail Division of the Company since
January 1, 1999. From January 1, 1998 to December 31, 1998, Mr. Sharry was
Executive Vice President of the Company. From November 1995 to December 31,
1997, Mr. Sharry was Senior Vice President of the Retail Line of Business. Mr.
Sharry serves as Executive Vice President of PEPCO, the Phoenix Funds, Phoenix
Duff & Phelps Institutional Mutual Funds and Phoenix-Aberdeen Series Fund. From
1994 to 1995, Mr. Sharry was a Managing Director and Director of Retail
Marketing at Putnam Investments. Mr. Sharry was a Director and National Sales
Manager of Putnam's Broker/Dealer Division from 1992 to 1994. Mr. Sharry was
also a member of Putnam's Executive Committee. From 1988 to 1992, Mr. Sharry was
First Vice President, National Sales Manager, Insurance/Annuity Division at Dean
Witter Reynolds, Inc. Mr. Sharry was also Vice President, Regional Insurance
Coordinator from 1985 to 1988 and Regional Marketing Director from 1983 to 1985
at Security First/Holden Group. Mr. Sharry is a member of the Investment Company
Institute's Marketing Policy Committee, the Forum for Investor Advice board of
directors and the Executive Committee of the DALBAR Excellence and Trust
program.
Mr. Moyer has been Executive Vice President and Chief Financial Officer of the
Company since August 1, 1999. Prior to that date, Mr. Moyer was 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 PHL. In addition, Mr. Moyer serves as Senior Vice
President, Chief Financial Officer and Treasurer of PIC and PEPCO and Chief
Financial Officer of PSC. Mr. Moyer serves as Treasurer of DPIM. Mr. Moyer is
also a Vice President of the Phoenix Funds, Phoenix Duff & Phelps Institutional
Mutual Funds and Phoenix-Aberdeen Series Fund. Mr. Moyer serves as a member on
the Boards of Directors of PIC, PEPCO, and PCC.
Mr. Kearney joined the Company on October 4, 1999 as Senior Vice President,
Information Technology. From June 1995 to October 3, 1999, Mr. Kearney was Vice
President, Information Systems of PHL. Mr. Kearney began his career at PHL in
1985 as a systems analyst.
Mr. Steenburg has been Senior Vice President of the Company since January 1,
1999. From November 1, 1995 to December 31, 1998, Mr. Steenburg was Vice
President and Counsel of the Company. In addition, Mr. Steenburg is Chairman and
Chief Executive Officer of DPIM. From October 1991 through October 31, 1995, Mr.
Steenburg served as Counsel with PHL. Mr. Steenburg serves as a member on the
Board of Directors of PCC.
Ms. Rudden has been with the Company since November 1981 and currently holds the
position of Vice President, Human Resources. From May 22, 1995 to December 31,
1995, she was Vice President, Mutual Fund Customer Service with PEPCO. From
October 1982 through May 21, 1995, Ms. Rudden held various positions relating to
mutual fund and variable annuity customer service and operations.
Ms. Engberg joined the Company on April 15, 1999 as Vice President and Counsel.
From June 1997 to April 14, 1999, Ms. Engberg served as Second Vice President
and Corporate Counsel for PHL. Ms. Engberg began her career with PHL in December
1994. Ms. Engberg currently serves as Secretary or Assistant Secretary to most
of the open and closed-end investment companies advised by the Company's
subsidiaries.
20
<PAGE>
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; Cleveland, Ohio; Pasadena, San Francisco and Scotts
Valley, California; Sarasota, Florida; and New York, New York, in which
locations it leases a total of approximately 264,000 square feet of office
space.
Item 3. Legal Proceedings.
- ------- ------------------
On June 6, 1997, Gigatek Memory Systems, Inc. (Gigatek) sued Duff & Phelps
Capital Markets Co. (Capital Markets), and three former employees of Capital
Markets in Los Angeles Superior Court. On May 26, 1998, Capital Markets motion
for summary judgment against Gigatek was granted by the court. On November 13,
1998, Gigatek filed for bankruptcy. Gigatek appealed the judgment on May 27,
1999.
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 Corporation and Duff & Phelps
Financial Consulting Co. (now known, respectively, as Phoenix Investment
Partners, Ltd. and DPCM Holdings, Inc.) (both hereinafter referred to as DP).
The complaint alleged that all defendants breached fiduciary duties to the
plaintiffs in connection with the sale of certain assets to WFI at a price of
approximately $2.55 million that were later sold by WFI to a third party at a
price of approximately $60 million. The complaint specifically alleged that DP,
which had valued WFI's assets at $2.55 million, grossly undervalued the WFI
assets causing the plaintiffs to suffer substantial losses. On October 16, 1995,
a corporation that is a member of ASD filed a similar class action suit with
substantially similar allegations. On October 17, 1995, another corporation that
is a member of ASD filed yet another similar class action on behalf of ASD
members with substantially the same allegations. The various suits sought
compensatory damages, attorney's fees, costs, and punitive damages in
unspecified amounts. On January 6, 1996, the three groups filed a single,
consolidated complaint (the Consolidated Complaint).
On March 7, 1996, 90 other individual and corporate plaintiffs filed an action
in Los Angeles Superior Court against DP and others. The complaint is not a
class action but is similar in other respects to the Consolidated Complaint.
This action has now been consolidated with the class action.
On May 10, 1996, the Court heard defendants' demurrers to the Consolidated
Complaint and sustained them in part. On July 3, 1996, a Second Amended
Complaint was filed, alleging that DP was professionally negligent, breached its
fiduciary duty, aided and abetted other defendants in breaching their fiduciary
duties, and breached its engagement agreement with ASD. Additional demurrers
were filed, and some were granted and others denied. The final claims against DP
are breach of contract (class claim), negligence (class claim), breach of
fiduciary duty (derivative claim) and aiding and abetting breach of fiduciary
duty (derivative claim).
On November 23, 1998, DP filed an amended Complaint for Contractual Indemnity
and Declaratory Relief against ASD based on an indemnification provision in DP's
Retainer Agreement with ASD. ASD filed a motion for summary judgment or summary
adjudication, which the court granted on July 21, 1999, as to the indemnity
claim. The ASD director defendants and ASD's attorney have settled the claims
against them for $2.1 million and $775,000, respectively. The trial for the
consolidated case of March 6, 2000 has been deferred. It is expected to be
scheduled to commence later this year.
In March 2000, the Company was notified of a demand for arbitration with regard
to a former employee, who held the position of President of the Company as well
as Chief Executive Officer of DPIM, alleging wrongful termination, defamation,
and other claims. Management believes that the termination was for cause and
intends to vigorously defend against all claims in the case.
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.
21
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders.
- ------- ----------------------------------------------------
No items submitted.
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 "PXP." 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:
Dividends
Quarter Ended High Low Declared
------------- ---- --- --------
1999
March 31 $ 9.19 $7.00 $.06
June 30 $10.13 $8.38 $.06
September 30 $ 9.25 $8.19 $.06
December 31 $ 9.00 $7.50 $.06
1998
March 31 $ 9.38 $7.38 $.06
June 30 $ 9.88 $8.19 $.06
September 30 $ 9.44 $6.63 $.06
December 31 $ 8.75 $6.69 $.06
As of March 15, 2000, the closing price of the Company's common stock on the New
York Stock Exchange was $7 3/16 per share and the approximate number of
stockholders was 4,400 based upon the most recent shareholders of record,
including individual participants in security positions.
Item 6. Selected Financial Data.
- ------- ------------------------
(in thousands, except per share data)
Year Ended December 31* 1999 1998 1997 1996 1995
Operating revenues $286,628 $221,547 $164,600 $152,504 $112,206
Net income 26,711 34,640 24,147 26,719 15,690
Basic earnings per share 0.61 0.76 0.44 0.50 0.51
Diluted earnings per share 0.55 0.68 0.44 0.50 0.40
Total assets 681,686 563,718 604,949 365,684 356,619
Long-term obligations 239,513 146,561 194,299 21,884 33,858
Convertible subordinated
debentures 76,364 76,364
Convertible exchangeable
preferred stock 78,827 78,504 78,029
Cash dividends declared
per common share 0.24 0.24 0.24 0.21 0.05
* 1999 includes the Zweig Fund Group from March 1, 1999 to December 31, 1999.
1997 includes Seneca Capital Management from July 17, 1997 to December 31,
1997 and Pasadena Capital Corporation from September 3, 1997 to December 31,
1997. 1995 reflects the results of Phoenix Securities Group, Inc. from
January 1, 1995 to October 31, 1995 and the combined results of Phoenix
Investment Partners, Ltd. for the period from November 1, 1995 to December
31, 1995.
22
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
- ------- -----------------------------------------------------------------------
of Operations.
--------------
General
- -------
Phoenix Investment Partners, Ltd. (the Company) offers a wide range of
investment management services to meet the needs of individual and institutional
investors. The Company earns substantially all of its revenues from fees for
providing investment advisory and distribution services to the Phoenix mutual
funds, institutional clients, high net worth individuals, the Phoenix closed-end
funds and the general account of Phoenix Home Life Mutual Insurance Company
(PHL), the Company's majority shareholder. The Phoenix funds consist of open-end
mutual funds and variable annuity subaccounts managed by the Company's eight
investment management partners.
The Company was formed on November 1, 1995 when Phoenix Securities Group, Inc.,
the money management subsidiary of PM Holdings, Inc. (PM Holdings), merged into
Duff & Phelps Corporation. PM Holdings is a wholly-owned subsidiary of PHL. Upon
consummation of the merger, PM Holdings owned approximately 60% of the
outstanding common stock of the Company. During 1997, the Company acquired
Pasadena Capital Corporation (Pasadena), the holding company for Roger Engemann
& Associates, Inc. (REA), a registered investment advisor, and a majority
interest in Seneca Capital Management LLC (Seneca). In March 1999, the Company
acquired the retail mutual fund and closed-end fund businesses comprising the
New York based Zweig Fund Group (Zweig). Details of the merger and these
acquisitions are discussed in Note 3 of the Company's 1999 Consolidated
Financial Statements.
The 1999 net income of $26.7 million represents the Company's operations
inclusive of the operations of Zweig from its acquisition date. As a result of
the required accounting presentation and the inherent difficulties of analyzing
and comparing the historical financial statements to the prior years' results,
management has also included 1999 and 1998 financial information on a pro forma
basis as if the acquisition of Zweig had occurred on January 1, 1998. The
following is a comparison of the historical financial statements and a
discussion of the pro forma financial information, which is found in Note 4 of
the Company's 1999 Consolidated Financial Statements. The principal operating
entities referred to in this discussion are described in Note 1 of the Company's
1999 Consolidated Financial Statements.
In January 2000, the Company received an expression of interest for the purchase
of the Cleveland-based business of DPIM. In March 2000, a preliminary agreement
as to the terms of the sale was reached. The purchase price will be based upon
revenue run rates at a yet to be determined future date. While the transaction
is likely to result in a future loss, an estimate cannot be made at this time.
Assets Under Management
- -----------------------
The following table presents actual year-end assets under management at December
31, 1999, 1998 and 1997. The revenues of the Company are substantially earned
based upon assets under management and, accordingly, these trends are important
for understanding the business.
1999 1998 1997
(in millions)
Retail Products:
- ----------------
Open-end Mutual Funds $ 18,073 $ 14,407 $ 13,001
Managed Accounts * 10,370 7,322 5,559
-------- -------- --------
28,443 21,729 18,560
-------- -------- --------
Institutional Products:
- -----------------------
Closed-end Funds 4,596 3,505 3,336
Institutional Accounts ** 21,227 19,212 16,155
PHL General Account 9,059 8,785 8,351
Structured Finance
Products *** 1,276 256
-------- -------- --------
36,158 31,758 27,842
-------- -------- --------
Total $ 64,601 $ 53,487 $ 46,402
======== ======== ========
* Managed Accounts represent broker-dealer sponsored and distributed wrap fee
programs and individually managed account investment services, both of which
are offered to high net-worth individuals.
** Institutional Accounts include 100% of the assets managed by Seneca.
*** Structured Finance Products consist of debt and equity securities backed by
an actively managed portfolio of equity or fixed income securities.
23
<PAGE>
At December 31, 1999 the Company had $64.6 billion in assets under management,
an increase of $11.1 billion (21%) from $53.5 billion at December 31, 1998,
which in turn represented an increase of $7.1 billion (15%) from $46.4 billion
at December 31, 1997. Of the 1999 increase, $3.3 billion was the result of the
Zweig acquisition. Positive investment performance increased assets under
management by $7.1 billion and $6.5 billion during 1999 and 1998, respectively.
Sales of open-end mutual funds (including institutional mutual funds and PHL
sponsored variable products) and managed accounts were $3.8 billion and $2.6
billion in 1999 and 1998, respectively, but were offset by redemptions of $4.3
billion, of which $.8 billion was related to the Zweig acquisition, and $3.3
billion, respectively. Sales of institutional accounts in 1999 and 1998 were
$5.8 billion and $4.9 billion, respectively, but were offset by lost accounts
and withdrawals from existing accounts totaling $5.0 billion and $4.0 billion,
respectively.
Historical Financial Statements
- -------------------------------
General
The historical financial statements reflect the consolidated results of the
Company for the period from January 1, 1997 to December 31, 1999. Each year's
results include a substantial non-cash amortization expense resulting from
merger and acquisition related goodwill and other intangible assets.
Statement of Income for 1999 Compared to 1998
Revenues for 1999 of $286.6 million, which includes $28.4 million for Zweig,
increased $65.1 million (29%) from $221.5 million in 1998. Excluding the effects
of Zweig, the Company's revenues for 1999 increased $36.6 million (16%) compared
to 1998. Revenues for the retail and institutional lines of business, including
Zweig, increased $39.7 million and $25.4 million, respectively.
Investment management fees of $249.0 million for 1999 (representing 87% of
revenues) increased $55.9 million (29%) from $193.1 million in 1998. Excluding
the effects of Zweig, which contributed $24.3 million to this increase,
investment management fees for 1999 increased $31.6 million (16%) compared to
1998. Excluding Zweig, management fees earned from the retail line of business,
including managed accounts and open-end mutual funds, increased $18.9 million of
which $19.0 million is due to a $3.2 billion increase in average assets under
management, primarily the result of strong investment performance. A decrease in
the fee rate for certain managed account programs decreased retail management
fees by $1.9 million. This decrease was offset, in part, by increases in the
average fee earned on other retail products. Reimbursement of funds subject to
an expense cap decreased $1.1 million, increasing revenue. Excluding Zweig,
management fees earned from the institutional line of business, including
closed-end funds, PHL's General Account, and institutional advisory accounts,
increased $12.6 million primarily due to a $3.0 billion increase in average
assets under management. Institutional advisory accounts average assets managed
increased $1.6 billion, contributing $7.3 million to the increase in management
fees. Structured finance products (i.e.: debt and equity securities which are
backed by an actively managed portfolio of equity or fixed income securities)
offered by PXP in 1999 contributed $2.3 million to the increase in management
fees and increased assets under management by $.9 billion. A $.5 billion
increase in average assets managed for PHL's General Account increased
management fees by $1.1 million. The remaining increase of $1.9 million is
primarily due to an increase in the average fee earned. The overall increase in
average assets managed in both the retail and institutional lines of business is
due to investment performance and the previously mentioned new structured
finance products.
24
<PAGE>
Mutual funds - ancillary fees, a component of the retail line of business, of
$33.2 million in 1999 increased $7.4 million (29%) from $25.7 million in 1998.
Excluding the effect of Zweig, which contributed $2.4 million to this increase,
mutual funds - ancillary fees for 1999 increased $5.1 million (20%) compared to
1998. Administrative fees and net distributor fees increased $1.5 million and
$1.2 million, respectively, as a result of an increase in average assets
managed, principally the Phoenix-Engemann Funds. Shareholder service agent fees,
which are directly related to the number of mutual fund shareholder accounts,
increased $.9 million due to an approved change in the fee structure, which took
effect in April 1999. Fund accounting fees earned on open-end mutual funds and
PHL sponsored variable products increased $1.7 million primarily as a result of
an increase in average assets managed and an approved change in the fee
structure. This change was implemented in order to reimburse Phoenix Equity
Planning Corporation (PEPCO) for operating costs related to the out-sourcing of
substantially all of the Company's fund accounting operations in the first
quarter of 1998. Fees received for servicing PHL sponsored variable products
decreased $.2 million primarily as a result of a change in the service and
distribution agreement relating to those products.
Other income and fees of $4.5 million for 1999 increased $1.8 million (66%) from
$2.7 million in 1998, primarily due to Zweig.
Operating expenses of $217.5 million for 1999 increased $44.7 million (26%) from
$172.9 million in 1998, of which $21.1 million and $20.6 million related to the
retail and institutional lines of business, respectively. Excluding the effects
of Zweig, operating expenses increased $18.8 million (11%) in 1999 over 1998, of
which $3.9 million and $12.0 million related to the retail and institutional
lines of business, respectively.
Employment expenses of $114.0 million for 1999 increased $23.6 million (26%)
from $90.4 million in 1998. Excluding the effects of Zweig, which contributed
$9.4 million to this increase, employment expenses for 1999 increased $14.3
million compared to 1998. Severance costs of $1.2 million resulting from the
closing of the equity management department in Hartford in April 1999 were
offset by $1.9 million of subsequent savings. Additional severance costs of $1.2
million were the result of staff reductions involving the institutional line of
business in August 1999 and were offset by $1.6 million of subsequent savings.
An increase in incentive compensation of $11.4 million resulted from improved
gross sales in both the retail and institutional lines of business, and improved
performance by certain portfolio managers and research analysts. Improved
results by certain subsidiaries, on which compensation is calculated,
contributed $8.6 million of this increase. A decrease of $.6 million resulted
from the out-sourcing of substantially all of PXP's fund accounting operations
in the first quarter of 1998. Annual salary adjustments increased compensation
by $2.0 million, partially offset by a reduction in staff levels in 1999
particularly in the investment portfolio and sales areas. An increase in profit
sharing expense increased employment expense by $1.4 million. Amortization of
unearned compensation, related to the issuance of restricted stock grants,
increased employment expense by $1.1 million.
Other operating expenses of $67.7 million for 1999 increased $12.4 million (22%)
from $55.4 million in 1998. Excluding the effects of Zweig, which contributed
$7.8 million to this increase, other operating expenses for 1999 increased $4.5
million compared to 1998. Payments to a third party administrator, relating to
the out-sourcing of substantially all of the Company's fund accounting
operations in the first quarter of 1998, increased other operating expenses in
the retail line of business by $2.2 million. Commissions and finder's fees
increased by $.7 million due to increased mutual fund sales. The Company's use
of outside consultants in 1999, primarily for information technology purposes,
increased other operating expenses by $.6 million. Additional sales meetings in
1999 increased other operating expenses by $.5 million. Computer services
decreased by $1.2 million, due to lesser reliance on PHL for system support
offset, in part, by a $.7 million increase resulting from charges for other
computer enhancements. In addition, the first half of 1998 included $.4 million
of nonrecurring charges related to the out-sourcing of substantially all of the
Company's fund accounting operations. Various other less significant
year-over-year changes netted to an increase of $1.4 million.
Depreciation and amortization of leasehold improvements of $3.9 million for 1999
increased $.2 million (6%) from $3.7 million in 1998. Excluding the effects of
Zweig, which contributed $.5 million to this increase, depreciation and
amortization of leasehold improvements for 1999 decreased by $.3 million
compared to 1998. Certain assets had become fully depreciated in 1998, reducing
depreciation expense in the current year.
25
<PAGE>
Amortization of goodwill and intangibles of $30.3 million for 1999 increased
$8.2 million (37%) from $22.1 million in 1998 as a result of the amortization of
goodwill and intangible assets identified in the purchase price allocation of
Zweig. This increase was attributable equally to the retail and institutional
lines of business.
Amortization of deferred commissions, a component of the retail line of
business, of $1.6 million for 1999 increased $.2 million (14%) from $1.4 million
in 1998 due to increased redemptions of Phoenix-Engemann Class B mutual fund
shares, for which a deferred commissions asset was established prior to February
1, 1998 and continues to be amortized.
Operating income of $69.1 million for 1999 increased $20.4 million (42%) from
$48.7 million in 1998 as a result of the changes discussed above.
Equity in earnings of unconsolidated affiliates of $.9 million for 1999
decreased $2.6 million (74%) from $3.5 million in 1998. In the fourth quarter of
1998, the Company sold its investment in Beutel, Goodman & Company Ltd. (BG).
The Company's share of BG's income in 1998 was $3.0 million. In addition, the
sale of the Company's investment in Financial Alliance Investors I, L.P. (FA) in
1997, resulted in additional equity earnings of $.4 million in 1998 due to the
release of money which had been held in escrow. The Company's share of income
from its joint ventures in Inverness/Phoenix Capital LLC (IPC) and
Inverness/Phoenix Partners LP increased $.8 million in 1999, of which $.3
million is the result of IPC's recognition of a fee from a significant second
quarter transaction.
Nonrecurring item of $5.9 million, a component of the retail line of business,
in 1999 resulted from the decision to reimburse two investment portfolios which
inadvertently sustained losses during the third quarter. A claim has been filed
on behalf of the insured parties.
Gain on sale of $16.6 million in 1998 is the result of the December 3, 1998 sale
of the Company's 49% interest in BG to an unrelated third party. The sale of BG
resulted in cash proceeds of $37.0 million and a $10.0 million note, which was
repaid in 1999.
Other income - net of $1.5 million in 1999 increased $.5 million from $1.0
million in 1998. An increase of $.1 million is the result of a loss recorded in
1998 related to the Company's investment in Greystone Capital Management
(Greystone). An increase in unrealized gains on mutual fund investments
increased other income by $.2 million. Other individually insignificant items
increased other income by $.2 million.
Interest expense - net of $15.8 million in 1999, which includes interest income
of $.1 million for Zweig, increased $3.3 million (26%) from $12.6 million in
1998. An increase of $6.7 million is due to additional interest charges
resulting from financing the Zweig acquisition. A decrease of $3.3 million is
due to a lower average principal balance in 1999 on the credit facility utilized
to finance the Pasadena and Seneca acquisitions. The exchange of the Company's
preferred stock for convertible debentures in the second quarter of 1998
resulted in $1.2 million of additional interest expense, while eliminating the
Company's preferred stock dividend. Interest on a note receivable related to the
sale of BG resulted in income of $.7 million. Other interest and dividend income
increased $.5 million.
Income to minority interest, a component of the institutional line of business,
of $3.7 million and $2.2 million in 1999 and 1998, respectively, represents the
minority shareholders' interest in the equity earnings of Seneca, which is fully
consolidated in the Company's financial statements.
Net income for 1999 of $26.7 million decreased $7.9 million (23%) from $34.6
million in 1998, resulting from the changes discussed above. The effective tax
rate of 42% in 1999 increased from 37% in 1998, primarily as a result of 1998
events including the sale of BG and amended prior year state tax returns.
26
<PAGE>
Statement of Income for 1998 Compared to 1997
Revenues for 1998 of $221.5 million increased $56.9 million (35%) from $164.6
million in 1997, of which $38.2 million and $18.7 million of this increase
related to the retail and institutional lines of business, respectively. The
inclusion of REA and Seneca for a full year in 1998 compared to a partial year
in 1997 contributed $53.6 million to this increase. Excluding the effects of
Pasadena and Seneca, the Company's revenues for 1998 increased $3.3 million (2%)
compared to 1997.
Investment management fees of $193.1 million for 1998 (representing 87% of
revenues) increased $54.7 million (39%) from $138.5 million in 1997. Excluding
the effects of REA and Seneca, which contributed $48.3 million to this increase,
investment management fees for 1998 increased $6.4 million (5%) compared to
1997. Excluding REA, management fees for the retail line of business, including
managed accounts and open-end mutual funds, increased $2.5 million of which $2.2
million is due to an $800 million increase in average assets under management.
The increase in average assets managed is due to strong investment performance
by investment managers of several of the mutual funds both in absolute terms and
relative to the strong performance of the market in general. This performance
more than offset a net outflow of assets under management. Reimbursement of
funds subject to an expense cap increased $1.2 million, decreasing revenue,
primarily due to the start-up of several new funds in late 1997 for which the
advisors, subsidiaries of the Company, agreed to waive or reimburse expenses to
the extent they exceeded limits detailed in the funds' prospectuses. Excluding
Seneca, management fees earned by the institutional line of business, including
closed-end funds, PHL's General Account, and institutional accounts, increased
$3.9 million primarily due to a $1.8 billion increase in average assets under
management offset, in part, by a change in the fee structure on PHL's General
Account. The increase in average assets managed is principally due to asset
additions in December 1997 from PHL. The closed-end funds contributed $2.5
million to the increase in management fees, of which $.7 million is due to a
change in the investment advisory agreements and $1.8 million is due to a $300
million increase in average assets managed, the result of positive performance.
Mutual funds - ancillary fees, a component of the retail line of business, of
$25.7 million in 1998 increased $3.2 million (14%) from $22.5 million in 1997.
Excluding the effect of REA, which contributed $5.0 million to this increase,
mutual funds - ancillary fees for 1998 decreased $1.9 million (8%) compared to
1997. The full-year effect of the sale of the deferred commissions asset in June
1997 resulted in a $2.2 million decrease in net distributor fees. Shareholder
service agent fees, which are directly related to the number of mutual fund
shareholder accounts, decreased $.8 million due to a decline in these accounts.
Fund accounting fees increased $1.3 million, of which $.6 million is due to an
increase in average assets managed and $.7 million is the result of a change in
the fee structure for the open-end mutual funds. This change was implemented in
order to reimburse PEPCO for operating costs related to the out-sourcing of
substantially all of the Company's fund accounting operations in the first
quarter of 1998.
Other income and fees, a component of the retail line of business, of $2.7
million for 1998 decreased $.9 million (26%) from $3.6 million in 1997.
Excluding the effect of REA, which increased other income and fees by $.3
million, other income and fees for 1998 decreased $1.2 million (33%) compared to
1997. This decrease is primarily the result of the sale of the Company's then
existing deferred commissions asset in June 1997, for which the Company had
previously earned a fee if shares were redeemed within five years of purchase.
Operating expenses of $172.9 million for 1998 increased $39.2 million (29%) from
$133.6 million in 1997, of which $28.3 million and $10.9 million related to the
retail and institutional lines of business, respectively. The inclusion of REA
and Seneca for a full year in 1998 compared to a partial year in 1997
contributed $34.0 million to this increase. Excluding the effects of REA and
Seneca, operating expenses increased $5.2 million (4%) in 1998 over 1997, of
which $5.6 million and $(.4) million related to the retail and institutional
lines of business, respectively.
27
<PAGE>
Employment expenses of $90.4 million for 1998 increased $17.7 million (24%) from
$72.7 million in 1997. Excluding the effects of REA and Seneca, which
contributed $17.9 million to this increase, employment expenses for 1998
decreased $.2 million compared to 1997. Employment expenses for the retail line
of business, excluding REA, decreased $1.6 million. Annual salary adjustments
and increased incentive compensation payments, resulting from improved
performance by several portfolio managers and research analysts, were more than
offset by reductions in staff levels particularly in the investment portfolio
and sales management areas, as well as in fund accounting due to its
out-sourcing. The institutional line of business, excluding Seneca, experienced
a $1.4 million increase in employment expenses. Annual salary adjustments were
partially offset by $.9 million of non-recurring charges resulting from a senior
executive exercising certain rights under his employment agreement in 1997. The
Company's profit sharing plan paid out $.4 million more in 1998 than in 1997
increasing employment expenses for both the retail and institutional lines of
business.
Other operating expenses of $55.4 million for 1998 increased $14.3 million (35%)
from $41.0 million in 1997. Excluding the effects of REA and Seneca, which
contributed $6.3 million to this increase, other operating expenses for 1998
increased $8.4 million compared to 1997, and was primarily attributable to the
retail line of business. Payments to a third party administrator of $5.3 million
represented the 1998 cost of out-sourcing substantially all of the Company's
fund accounting operations in the first quarter of 1998. Additional
administrative costs incurred on behalf of the Phoenix-Engemann and
Phoenix-Seneca Funds (Funds), which were recovered by administrative fees earned
on the Funds, increased expenses by $2.6 million. The Company's increased
reliance on outside consultants in 1998, primarily for information technology
purposes, increased other operating expenses by $1.5 million. Non-recurring
costs in 1997 of $1.8 million included $1.2 million for printing and other
charges incurred to promote the newly acquired Funds and other new open-end
mutual funds, and $.6 million relating to the sublease of certain office space.
The Company's decision in late 1997 to out-source substantially all of its fund
accounting operations effective in the first quarter of 1998 created
non-recurring charges of $.4 million and $.7 million in 1998 and 1997,
respectively. Various other less significant year-over-year changes netted to an
increase of $.8 million.
Depreciation and amortization of leasehold improvements of $3.7 million for 1998
increased $.7 million (24%) from $3.0 million in 1997. Excluding the effects of
REA and Seneca, which contributed $.5 million to this increase, depreciation and
amortization of leasehold improvements for 1998 increased $.2 million compared
to 1997 as a result of capital asset purchases.
Amortization of goodwill and intangibles of $22.1 million for 1998 increased
$8.1 million (58%) from $14.0 million in 1997. Amortization expense related to
the retail line of business increased $7.2 million as a result of the
amortization of goodwill and intangible assets related to the Pasadena
acquisition. Amortization expense related to the institutional line of business
increased $.9 million as a result of the amortization of goodwill and intangible
assets related to the Seneca acquisition.
Amortization of deferred commissions, a component of the retail line of
business, of $1.4 million for 1998, which relates entirely to the
Phoenix-Engemann B shares, decreased $1.6 million (54%) from $3.0 million in
1997. A decrease of $2.8 million is the result of the sale of the Company's then
existing deferred commissions asset in June 1997. An increase of $1.2 million is
from the deferred commissions asset relating to REA prior to February 1, 1998,
which continues to be amortized.
Operating income of $48.7 million for 1998 increased $17.7 million (57%) from
$31.0 million in 1997 as a result of the changes discussed above.
Equity in earnings of unconsolidated affiliates of $3.5 million for 1998
decreased $2.9 million (46%) from $6.4 million in 1997. In 1997, the Company's
investment in FA resulted in equity earnings of $4.5 million, upon completion of
the leveraged transaction for which it was created. A portion of the money to be
received from FA was held in escrow but was released in 1998 resulting in
additional equity earnings of $.4 million. The Company recognized losses in 1997
related to its share of equity earnings from Windy City CBO Partners, L.P. and
Greystone of $1.5 million and $.6 million, respectively. Equity income from the
Company's investment in BG decreased $.5 million due to the sale of BG in the
fourth quarter of 1998. In addition, the Company's share of income from its
joint venture in IPC decreased $.4 million in 1998.
28
<PAGE>
Gain on sale of $16.6 million in 1998 is the result of the December 3, 1998 sale
of the Company's 49% interest in BG to an unrelated third party. The sale of BG
resulted in cash proceeds of $37.0 million and a note receivable of $10.0
million. Gain on sale of $6.9 million in 1997 is the result of the sale of the
Company's deferred commissions asset, excluding REA's, in June 1997.
Other income - net of $1.0 million in 1998, which includes $.6 million from
Seneca, increased $1.1 million from a net expense of $33 thousand in 1997. A
decrease of $.2 million is the result of a decrease in unrealized gains on
mutual fund investments. Numerous individually insignificant items increased
other income by $.7 million.
Interest expense - net of $12.6 million in 1998 increased $9.3 million from $3.3
million in 1997. Interest charges resulting from financing the Pasadena
acquisition resulted in $5.6 million of additional interest expense in 1998 in
the retail line of business. Interest charges resulting from financing the
Seneca acquisition resulted in $.8 million of additional interest expense in
1998 in the institutional line of business. During 1997, a previous credit
facility and a bridge loan were paid in full, decreasing interest expense by
$1.0 million. The exchange of the Company's preferred stock for convertible
debentures in the second quarter of 1998 resulted in $3.4 million of additional
interest expense, while eliminating the Company's preferred stock dividend.
Other interest and dividend income decreased $.6 million.
Income to minority interest, a component of the institutional line of business,
of $2.2 million and $.7 million in 1998 and 1997, respectively, represents the
minority shareholders' interest in the equity earnings of Seneca, which is fully
consolidated in the Company's financial statements.
Net income for 1998 of $34.6 million reflects an increase of $10.5 million (43%)
from the $24.1 million in 1997, resulting from the increased income and expenses
discussed above. The effective tax rate decreased to 37% in 1998 from 40% in
1997 as a result of the BG sale, amended prior year state tax returns, and the
utilization of foreign tax credits.
Pro Forma Financial Information (See Note 4 to the Consolidated Financial
- -------------------------------------------------------------------------
Statements)
- -----------
Statement of Income - Pro Forma for 1999 Compared to 1998
Except for the items noted below, the pro forma variances for 1999 compared to
1998 are substantially the same as historical.
Investment management fees - pro forma of $254.5 million for 1999 increased
$25.4 million (11%) from $229.1 million in 1998. In addition to the historical
variances noted above, Zweig investment management fees decreased $6.1 million
due to a $.8 billion decrease in average assets under management resulting from
the net effect of performance and asset outflows.
Net income - pro forma of $26.7 million for 1999 decreased by $8.6 million (24%)
as compared to $35.3 million in 1998, resulting from the effects of the changes
discussed above. The effective tax rate increased to 42% in 1999 compared to 38%
in 1998, primarily as a result of the 1998 events including the sale of BG and
amended prior year state tax returns.
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.
The Company's current assets are primarily liquid in nature and are not
significantly affected by inflation. The effects of inflation may result in
increased employee compensation, occupancy costs, and promotional costs. An
increase in interest rates or a substantial decline in the value of fixed income
or equity securities, which causes a significant decline in the net asset value
of the funds managed by the Company, would adversely affect the Company's
financial condition and results of operations.
29
<PAGE>
The Company's current capital structure, as of March 15, 2000, includes 44.2
million shares of common stock outstanding and $76.4 million of 6% Convertible
Subordinated Debentures with a principal value of $25.00 per debenture. The
current quarterly dividend rate on common stock is $.08 per share, which
increased from $.06 per share paid quarterly in 1999. If the dividend rate
remains constant for 2000, the total dividend on common stock will be
approximately $14.2 million based upon shares outstanding at March 15, 2000. The
total 2000 interest expense on the debentures based upon debentures outstanding
at March 15, 2000, would be $4.6 million.
The Company has two five-year credit facilities, totaling $375 million, with no
required principal repayments prior to maturity ($200 million matures in August
2002 and $175 million matures in March 2004). The outstanding obligations under
the credit facilities at December 31, 1999 and 1998 were $235 million and $140
million, respectively. A blended interest rate of approximately 6% was in effect
on these borrowings as of December 31, 1999. The credit agreements contain
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,
1999 and 1998, the Company was in compliance with all covenants contained in the
credit agreements. The Company believes that funds from operations and amounts
available under the credit facilities will provide adequate liquidity for the
foreseeable future.
Beginning in 2000 through 2002, the Company is obligated to pay Pasadena an
additional purchase price, based upon growth in Pasadena management fee revenues
since its acquisition in 1997, up to a maximum of $66 million. These payments
will be funded by operating cashflows and through use of the credit facilities.
The Company has commitments, expiring June 1, 2000, with unrelated third parties
whereby the third parties fund commissions paid by the Company upon the sale of
Class B share mutual funds. Management expects to enter into similar financing
effective after June 1, 2000. However, if the Company is not successful in
securing refinancing, then the Company will be required to fund these
commissions using operating cashflows.
PEPCO and PXP Securities Corp. (PSC), wholly-owned subsidiaries of the Company,
are subject to the net capital requirements imposed on registered broker-dealers
by the Securities Exchange Act of 1934 (Act). At December 31, 1999, PEPCO and
PSC had net capital (as defined in the Act) of approximately $6.8 million and
$.7 million, respectively, which exceeded their regulatory minimums by $6.0
million and $.6 million, respectively. PEPCO and PSC operate pursuant to Rule
15c3-1 paragraph (a) of the Act and, accordingly, are required to maintain a
ratio of aggregate indebtedness (as defined in the Act) to net capital, which
may not exceed 15 to 1. The ratios for PEPCO and PSC at December 31, 1999 were
1.89 to 1 and 1.12 to 1, respectively.
Management considers the liquidity of the Company to be adequate to meet present
and anticipated needs.
Market Risk
- -----------
The Company is exposed to the impact of interest rate changes and changes in the
market value of its investments and assets managed. The Company does not have
any derivative investments and has no exposure to foreign currency fluctuations.
The Company's exposure to changes in interest rates is primarily limited to
borrowings under two five-year credit agreements with a consortium of banks,
which have an interest rate that varies, at the Company's option, one, two,
three or six months after the borrowing date of the loan. The Company may select
from the Certificate of Deposit, Eurodollar, or the banks' base lending rate.
The average interest rate on the credit agreements in 1999 and 1998 was
approximately 6%. Changes in interest rates may also affect market prices of
assets managed by the Company. Decreases in market price may reduce the revenues
of the Company. In addition, the Company has subordinated debentures bearing
interest at 6%. At December 31, 1999, the Company estimated that the fair value
of the subordinated debentures approximated market value.
The Company also invests excess cash in marketable securities, which consist of
mutual fund investments, of which the Company is the advisor, and U.S.
Government obligations. The fair value of these investments approximated market
value at December 31, 1999.
30
<PAGE>
The Company's revenues are largely driven by the market value of its assets
under management and is therefore exposed to fluctuations in market prices.
Management fees earned on managed accounts and certain institutional accounts
(approximately 35% of total assets under management), for any given quarter, are
based on the market value of the portfolio on the last day of the preceding
quarter. Any significant increase or decline in the market value of assets
managed occurring on the last day of a quarter would result in a corresponding
increase or decline in revenues for the following three months.
Impact of the Year 2000 Issue
- -----------------------------
The Year 2000 Issue was the result of computer programs being written using two
digits rather than four to define the applicable year. Any of a company's
computer programs that have date-sensitive software might have recognized a date
using "00" as the year 1900 rather than the year 2000. Company assessments
during the past two years determined that it was necessary for the Company to
modify or replace portions of its software so that its computer systems would
properly utilize dates beyond December 31, 1999. The Company completed all
software modifications and conversions on a timely basis. The failure of
computer programs to recognize the year 2000 could have had a negative impact
on, but not limited to, the handling of securities trades, the pricing of
securities, and the servicing of client accounts. If such modifications and
conversions had not been made, or were not completed on a timely basis, the Year
2000 Issue could have had a material impact on the operations of the Company. As
such, the Company created a Year 2000 Project Office to address the Year 2000
Issue, which continues to monitor the ongoing effects of the Year 2000 Issue.
The Company initiated formal communications with all of its software vendors,
service providers and information providers to determine the extent to which the
Company was vulnerable to those third parties' failure to remediate their own
Year 2000 Issue. The third party companies on which the Company relies were able
to remediate their own Year 2000 Issue, thus the Company's operations and
financial results were not adversely affected. The Company's total Year 2000
project cost includes the costs and time associated with the impact of a third
party's Year 2000 Issue.
The Company utilized internal resources to reprogram, or replace, and test the
software for Year 2000 modifications. Certain systems were already in the
process of being converted due to previous Company initiatives. The total cost
of the Year 2000 project, including residual work performed in 2000, was $5.6
million and was funded through operating cash flows, which were expensed as
incurred. The total cost to the Company to become Year 2000 compliant did not
have a material impact on the Company's results of operations.
Cautionary Statement under Section 21E of the Securities Exchange Act of 1934
- -----------------------------------------------------------------------------
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.
31
<PAGE>
Item 8. Financial Statements and Supplementary Data.
- ------- --------------------------------------------
TABLE OF CONTENTS PAGE
----
Report of Independent Accountants.................................. 33
Consolidated Financial Statements:
Consolidated Statements of Financial Condition..................... 34
December 31, 1999 and 1998
Consolidated Statements of Income.................................. 35
Years Ended December 31, 1999, 1998 and 1997
Consolidated Statements of Changes in Stockholders' Equity......... 36
Years Ended December 31, 1999, 1998 and 1997
Consolidated Statements of Cash Flows.............................. 37
Years Ended December 31, 1999, 1998 and 1997
Notes to Consolidated Financial Statements.........................38-60
32
<PAGE>
Report of Independent Accountants
To the Board of Directors and Stockholders of
Phoenix Investment Partners, Ltd.
In our opinion, the consolidated financial statements listed in the accompanying
index present fairly, in all material respects, the financial position of
Phoenix Investment Partners, Ltd. and its subsidiaries (collectively, the
Company) at December 31, 1999 and 1998, and the results of their operations and
their cash flows for each of the three years in the period ended December 31,
1999 in conformity with accounting principles generally accepted in the United
States. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with auditing standards generally accepted in the United States,
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
- ------------------------------
Hartford, Connecticut
February 9, 2000
33
<PAGE>
PHOENIX INVESTMENT PARTNERS, LTD.
Consolidated Statements of Financial Condition
- --------------------------------------------------------------------------------
December 31,
1999 1998
Assets (in thousands)
Current Assets
Cash and cash equivalents $ 42,203 $ 29,298
Marketable securities, at market 7,941 16,275
Accounts receivable 10,103 9,493
Receivables from related parties 35,555 25,522
Prepaid expenses and other assets 3,487 2,951
-------- --------
Total current assets 99,289 83,539
Deferred commissions 1,219 2,798
Furniture, equipment, and leasehold improvements, net 12,475 8,589
Intangible assets, net 202,862 146,402
Goodwill, net 353,672 300,255
Long-term investments and other assets 12,169 22,135
-------- --------
Total assets $681,686 $563,718
======== ========
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable $ 3,002 $ 2,122
Accrued compensation and benefits 25,086 18,660
Other accrued liabilities 10,975 7,943
Income taxes payable 6,924 10,934
Payables to related parties 4,749 3,032
Broker-dealer payable 13,197 9,568
Current portion of long-term debt 964 964
-------- --------
Total current liabilities 64,897 53,223
Deferred taxes, net 45,656 53,446
Long-term debt, net of current portion 754 1,718
Convertible subordinated debentures 76,364 76,364
Credit facilities 235,000 140,000
Lease obligations and other long-term liabilities 3,759 4,843
-------- --------
Total liabilities 426,430 329,594
-------- --------
Contingent Liabilities (Note 11)
Minority Interest 4,255 2,531
-------- --------
Stockholders' Equity
Common stock, $.01 par value, 100,000,000 shares
authorized, 45,760,201 and 45,172,258 shares issued,
and 43,760,201 and 43,710,458 shares outstanding 458 451
Additional paid-in capital 200,410 195,224
Retained earnings 60,737 44,482
Accumulated other comprehensive income 5,143 3,571
Unearned compensation on restricted stock (1,029) (1,529)
Treasury stock, at cost, 2,000,000 and 1,461,800 shares (14,718) (10,606)
-------- --------
Total stockholders' equity 251,001 231,593
-------- --------
Total liabilities and stockholders' equity $681,686 $563,718
======== ========
The accompanying notes are an integral part of these statements.
34
<PAGE>
PHOENIX INVESTMENT PARTNERS, LTD.
Consolidated Statements of Income
- --------------------------------------------------------------------------------
Year Ended December 31,
1999 1998 1997
(in thousands, except per share data)
Revenues
Investment management fees $249,003 $193,130 $138,458
Mutual funds - ancillary fees 33,167 25,739 22,523
Other income and fees 4,458 2,678 3,619
-------- -------- --------
Total revenues 286,628 221,547 164,600
-------- -------- --------
Operating Expenses
Employment expenses 114,035 90,407 72,703
Other operating expenses 67,738 55,355 41,031
Depreciation and amortization of
leasehold improvements 3,898 3,663 2,953
Amortization of goodwill and
intangible assets 30,288 22,057 13,950
Amortization of deferred commissions 1,580 1,380 3,001
-------- -------- --------
Total operating expenses 217,539 172,862 133,638
-------- -------- --------
Operating Income 69,089 48,685 30,962
-------- -------- --------
Equity in Earnings of
Unconsolidated Affiliates 899 3,452 6,387
-------- -------- --------
Nonrecurring Item (5,900)
-------- -------- --------
Gain on Sale 16,561 6,907
-------- -------- --------
Other Income (Expense) - Net 1,492 1,034 (33)
-------- -------- --------
Interest (Expense) Income - Net
Interest expense (19,076) (14,548) (5,638)
Interest income 3,251 1,989 2,374
-------- -------- --------
Total interest expense - net (15,825) (12,559) (3,264)
-------- -------- --------
Income to Minority Interest (3,702) (2,198) (714)
-------- -------- -------
Income Before Income Taxes 46,053 54,975 40,245
Provision for income taxes 19,342 20,335 16,098
-------- -------- --------
Net Income 26,711 34,640 24,147
Series A preferred stock dividends 1,223 4,754
-------- -------- --------
Income available to common stockholders $ 26,711 $ 33,417 $ 19,393
======== ======== ========
Weighted average shares outstanding
Basic 43,797 44,076 44,080
Diluted 53,800 54,297 54,435
Earnings per share
Basic $ .61 $ .76 $ .44
Diluted $ .55 $ .68 $ .44
The accompanying notes are an integral part of these statements.
35
<PAGE>
PHOENIX INVESTMENT PARTNERS, LTD.
Consolidated Statements of Changes in Stockholders' Equity
For the Years Ended December 31, 1999, 1998 and 1997
- --------------------------------------------------------------------------------
(in thousands)
Common Unearned
Stock and Accumulated Compensation
Additional Other Comp- on
Paid-In Retained rehensive Restricted Treasury
Capital Earnings Income Stock Stock Total
---------- -------- ----------- ---------- -------- --------
Balances at
December 31, 1996 $185,855 $ 12,812 $ 4,602 $203,269
-------- -------- --------- --------
Net income 24,147 24,147
Other comprehensive
income:
Net unrealized
appreciation
on securities
available-for-sale 6,913 6,913
Foreign currency
translation adjustment (841) (841)
---------
Total comprehensive
income 30,219
Stock transactions 3,155 3,155
Treasury stock
purchases $(2,609) (2,609)
Dividends (15,335) (15,335)
-------- -------- --------- ------- --------
Balances at
December 31, 1997 189,010 21,624 10,674 (2,609) 218,699
-------- -------- --------- ------- --------
Net income 34,640 34,640
Other comprehensive
income:
Net unrealized
depreciation
on securities
available-for-sale (8,274) (8,274)
Foreign currency
translation adjustment 1,171 1,171
--------
Total comprehensive
income 27,537
Stock transactions 4,622 4,622
Treasury stock
purchases (7,997) (7,997)
Dividends (11,782) (11,782)
Issuance of
restricted stock 2,043 $ (2,043)
Amortization of
unearned compensation 514 514
-------- -------- --------- -------- ------- --------
Balances at
December 31, 1998 195,675 44,482 3,571 (1,529) (10,606) 231,593
-------- -------- --------- -------- ------- --------
Net income 26,711 26,711
Other comprehensive
income:
Net unrealized
appreciation
on securities
available-for-sale 1,572 1,572
--------
Total comprehensive
income 28,283
Stock transactions 4,038 4,038
Treasury stock
purchases (4,112) (4,112)
Dividends (10,456) (10,456)
Issuance of
restricted stock 1,155 (1,155)
Amortization of
unearned compensation 1,655 1,655
-------- -------- --------- -------- -------- --------
Balances at
December 31, 1999 $200,868 $ 60,737 $ 5,143 $ (1,029) $(14,718) $251,001
======== ======== ========= ======== ======== ========
Common stock issued and outstanding: 1999 1998 1997
(in thousands)
Balances at January 1, 43,710 43,950 44,037
Stock transactions 588 877 258
Treasury stock purchases (538) (1,117) (345)
-------- -------- --------
Balances at December 31, 43,760 43,710 43,950
======== ======== ========
The accompanying notes are an integral part of these statements.
36
<PAGE>
PHOENIX INVESTMENT PARTNERS, LTD.
Consolidated Statements of Cash Flows
- --------------------------------------------------------------------------------
Year Ended December 31,
1999 1998 1997
(in thousands)
Cash Flows from Operating Activities:
Net income $ 26,711 $ 34,640 $ 24,147
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization of
leasehold improvements 3,898 3,663 2,953
Amortization of goodwill and
intangible assets 30,288 22,057 13,950
Amortization of deferred commissions 1,580 1,380 3,001
Income to minority interest 3,702 2,198 714
Compensation recognized under employee
benefit plans 1,655 514
Gain on sale of Beutel, Goodman
& Company Ltd. (16,561)
Gain on sale of deferred commissions asset (6,907)
Equity in earnings of unconsolidated
affiliates, net of dividends (675) 2,203 3,457
Payments of deferred commissions (180) (5,006)
Deferred taxes (7,546) (7,805) (9,892)
Changes in operating assets and liabilities:
Accounts receivable (87) (516) 1,912
Receivables from related parties (10,033) (2,962) (2,859)
Other assets 426 744 232
Payables to related parties 2,946 (103) (742)
Accounts payable and accrued
liabilities 7,133 3,596 (3,931)
Income taxes payable (3,631) 10,377 3,609
Other liabilities (850) (803) 1,059
-------- -------- --------
Net cash provided by operating activities 55,517 52,442 25,697
-------- -------- --------
Cash Flows from Investing Activities:
Purchase of subsidiaries (141,252) (6,647) (243,532)
Cash acquired from purchase
of subsidiaries 2,701 42,379
Proceeds from sale of Beutel, Goodman
& Company Ltd. 10,000 37,000
Proceeds from sale of deferred
commissions asset 26,015
Purchase of marketable securities (4,289) (7,663)
Sale of marketable securities 11,475
Purchase of long-term investments (598) (2,346) (2,823)
Proceeds from long-term investment activity 490 11,245
Capital expenditures (5,436) (2,182) (2,296)
-------- -------- --------
Net cash (used in) provided by
investing activities (122,620) 21,536 (176,675)
-------- -------- --------
Cash Flows from Financing Activities:
Borrowings on credit facility and
from related party 140,000 220,000
Repayment of debt (45,964) (47,243) (53,182)
Dividends paid (10,456) (12,060) (15,330)
Stock repurchases (4,113) (7,997) (2,609)
Proceeds from stock issuance 2,693 1,391 1,689
Distribution to minority interest (1,979) (643)
Other financing activities (173) (184)
-------- -------- --------
Net cash provided by (used in)
financing activities 80,008 (66,552) 150,384
-------- -------- --------
Net increase (decrease) in cash and
cash equivalents 12,905 7,426 (594)
Cash and cash equivalents, beginning of year 29,298 21,872 22,466
-------- -------- --------
Cash and Cash Equivalents, End of Year $ 42,203 $ 29,298 $ 21,872
======== ======== ========
Supplemental Cash Flow Information:
Interest paid $ 18,473 $ 14,561 $ 4,613
Income taxes paid $ 30,577 $ 17,551 $ 11,371
The accompanying notes are an integral part of these statements.
37
<PAGE>
PHOENIX INVESTMENT PARTNERS, LTD.
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
1. Organization and Business
Phoenix Investment Partners, Ltd. (PXP) 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, a wholly-owned subsidiary of Phoenix Home Life
Mutual Insurance Company (Phoenix Home Life), owns approximately 60% of the
outstanding PXP common stock and approximately 46% of the outstanding PXP
convertible subordinated debentures (see Note 12).
PXP 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. PXP's businesses include investment advisory and
broker-dealer operations. PXP manages its operations as two separate lines
of business, that of retail and institutional investment management. The
retail investment management line of business provides investment management
services to individuals on a discretionary basis (including administrative
services) with products consisting of open-end mutual funds and managed
accounts. Managed accounts include broker-dealer sponsored and distributed
wrap fee programs and individually managed account investment services, both
of which are offered to high net-worth individuals. The institutional
investment management line of business provides discretionary and
non-discretionary investment management services primarily to corporate
entities, closed-end funds, structured finance products, and multi-employer
retirement funds, as well as endowment, insurance, and other special purpose
funds. The principal operating subsidiaries of PXP 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 providing investment management
services primarily under agreements with affiliated registered investment
companies, structured finance products, and other institutional advisors
and investors.
- Duff & Phelps Investment Management Co. (DPIM) is a registered investment
advisor providing investment management services to a variety of
institutions and individuals, including affiliated registered investment
companies, corporate, public and multi-employer retirement funds,
endowment, insurance and other special purpose funds, and high yield bond
portfolios.
- Roger Engemann & Associates, Inc. (REA), a wholly-owned subsidiary of
Pasadena Capital Corporation (PCC), which in turn is a wholly-owned
subsidiary of PXP, is a registered investment advisor. REA provides
investment management services primarily to individual investors and
affiliated registered investment companies. PCC and REA were acquired on
September 3, 1997 (see Note 3). These consolidated financial statements
include operations and cash flows for REA and PCC from the date of
acquisition.
- Seneca Capital Management LLC (Seneca), a majority-owned subsidiary of
PXP, is a registered investment advisor. Seneca provides investment
management services primarily to institutional accounts, structured
finance products, and affiliated registered investment companies. A
majority interest in Seneca was acquired on July 17, 1997 (see Note 3).
These consolidated financial statements include operations and cash flows
for Seneca from the date of acquisition.
38
<PAGE>
- The Zweig Fund Group (Zweig), whose operating companies consist of
Zweig/Glaser Advisers LLC (ZGA), its wholly-owned subsidiary Euclid
Advisors LLC (Euclid), and PXP Securities Corp. (PSC) (previously known
as Zweig Securities Corp.), was acquired on March 1, 1999 (see Note 3).
ZGA and Euclid are registered investment advisors providing investment
management services primarily under agreements with affiliated registered
investment companies and other institutional advisors and investors. PSC
is a registered broker-dealer. These consolidated financial statements
include operations and cash flows for Zweig from the date of acquisition.
2. Summary of Significant Accounting Policies
Significant accounting policies, which have been consistently applied, are
as follows:
Basis of Presentation
---------------------
PXP's consolidated financial statements have been prepared in conformity
with accounting principles generally accepted in the United States. The
consolidated financial statements include the accounts of PXP and its
subsidiaries. All material intercompany accounts and transactions have been
eliminated. Certain reclassifications have been made to prior years' amounts
to conform to the current year presentation. The preparation of financial
statements in conformity with generally accepted accounting principles
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 goodwill and
intangible assets, are discussed in these notes to the consolidated
financial statements.
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
---------------------
Marketable securities consist of mutual fund investments, U.S. Government
obligations and other publicly traded securities which are being carried at
market value in accordance with Statement of Financial Accounting Standards
(SFAS) No. 115, "Accounting for Certain Investments in Debt and Equity
Securities." The mutual fund investments are classified as assets held for
trading purposes. Any unrealized appreciation or depreciation on these
assets is included in other income. U.S. Government securities and other
publicly traded securities currently held by PXP are considered to be
available-for-sale, with any unrealized appreciation or depreciation, net of
income taxes, reported as a component of accumulated other comprehensive
income in stockholders' equity. Market values are determined based on
publicly quoted market prices.
Deferred Commissions
--------------------
Deferred commissions are commissions paid to broker-dealers on sales of
Class B mutual fund shares (B shares). These commissions are recorded as
deferred costs and are recovered by on-going monthly distribution fees
received from mutual funds or upon redemption of the B shares by
shareholders within five to six years of purchase. Deferred costs on
outstanding shares are amortized on a straight-line basis, generally over
five to six years or until the B shares are redeemed. Deferred commissions
consist of commissions paid on sales of B shares of the Phoenix-Engemann
Funds that were sold prior to February 1, 1998. (See Note 15)
39
<PAGE>
Furniture, Equipment and Leasehold Improvements
-----------------------------------------------
Furniture, equipment and leasehold improvements are recorded at cost.
Depreciation is computed using the straight-line method over the estimated
useful lives of 5 to 10 years for furniture and office equipment, and 3
years for computer equipment. 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
-----------------
The propriety of the carrying value of long-lived assets is periodically
reevaluated in accordance with SFAS No. 121, "Accounting for the Impairment
of Long-lived Assets and for Long-lived Assets to be Disposed Of," 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. Analyses are performed at least
annually, or more frequently if warranted by events or circumstances
affecting PXP's business.
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, administrative fees, shareholder 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.
Pursuant to the terms of its distribution plans with affiliated mutual
funds, PXP received a combined $38.8 million, $27.3 million and $23.2
million in 1999, 1998 and 1997, respectively, from affiliated mutual funds
for providing distribution and other services. Of these amounts, $31.7
million, $22.9 million and $20.2 million in 1999, 1998 and 1997,
respectively, was paid in the form of trailing commissions, for services
rendered, to unaffiliated broker-dealers, and to WS Griffith & Co., Inc.
(Griffith), a registered broker-dealer which is a wholly-owned subsidiary of
PM Holdings. The balances of $7.1 million, $4.4 million and $3.0 million in
1999, 1998 and 1997, respectively, were retained as reimbursement for
distribution services provided by PXP and are included in revenues, net of
payments to third party distributors, as a part of mutual funds - ancillary
fees.
Contingent deferred sales charge (CDSC) revenue is recognized when deferred
commissions are collected on redemptions of B shares made within five to six
years of their purchase and on C shares made within one year of purchase.
CDSC redemption income earned in 1999, 1998 and 1997 was $.7 million, $.5
million and $1.3 million, respectively, and is included in other income and
fees. Since the sale of PEPCO's deferred commissions asset in June 1997, PXP
only recognizes CDSC revenue related to redemptions of C shares of the
Phoenix mutual funds, and B shares of the Phoenix-Engemann Funds that were
sold prior to February 1, 1998.
Income Taxes
------------
PXP accounts for income taxes under the provisions of SFAS No. 109,
"Accounting for Income Taxes," which requires an asset and liability
approach for financial reporting of income taxes. PXP and its eligible
subsidiaries file consolidated federal and state income tax returns. Certain
subsidiaries, which are consolidated for financial reporting purposes, are
not eligible to be included in the consolidated federal income tax return.
40
<PAGE>
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 PXP's earnings and projected future taxable income, that it is
more likely than not that the deferred tax assets at December 31, 1999, with
the exception of the foreign tax credit, will be realized. A valuation
allowance of $6.9 million and $6.8 million was provided at December 31, 1999
and 1998, respectively, related to the foreign tax credit carryforward.
Foreign Currency Translation
----------------------------
PXP had an equity investment in the stock of Beutel, Goodman & Company Ltd.
(BG), which was sold in 1998. The investment in BG had 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 income taxes,
were deferred and accumulated in stockholders' equity until the investment
was sold. (See Note 15)
Earnings Per Share
------------------
Earnings per share (EPS) is calculated in accordance with SFAS No. 128,
"Earnings per Share." Basic EPS is computed by dividing income available to
common stockholders by the weighted average number of common shares
outstanding for the period. The computation of diluted EPS is similar to
basic EPS, except that the denominator is increased to include the number of
additional common shares that would have been outstanding if the potentially
dilutive common shares had been issued, and the numerator is increased for
any related net income effect. Potentially dilutive shares, for the purpose
of calculating diluted EPS, are based on outstanding stock options and
convertible securities. Basic and diluted EPS have been disclosed in the
income statement. A reconciliation between the numerator and denominator of
the basic EPS computation to the numerator and denominator of the diluted
EPS computation is presented in Note 16.
Employee Benefits
-----------------
PXP and its subsidiaries are members of the multi-employer group medical,
group life, pension and 401K savings plans sponsored and administered by
Phoenix Home Life. Certain current and former employees of PXP are covered
under these plans. The qualified pension and 401K savings plans comply with
the requirements established by the Employee Retirement Income Security Act
of 1974 (ERISA). An excess benefits plan provides the portion of pension
obligations which is in excess of amounts permitted by ERISA. PXP is charged
annually by Phoenix Home Life for its costs under the plans and for PXP's
matching portion of the 401K savings plan. These costs were $4.1 million for
1999, and $4.0 million for 1998 and 1997.
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 has been omitted, as the information is not
separately available for PXP's participation in the plans.
On November 1, 1999, PXP implemented an Employee Stock Purchase Plan (ESPP).
The ESPP allows eligible employees to purchase PXP's common stock at a
discount in accordance with plan provisions.
Certain employees of PXP are eligible to participate in PXP sponsored profit
sharing and restricted stock plans. Annual contributions from company
profits, as determined by PXP's Board of Directors, may be made to the
profit sharing plan to the extent that deductible contributions are
permitted by the Internal Revenue Code. If the contributions exceed those
limits, the excess will be paid to the participants as restricted PXP stock.
The restricted stock plan is not part of the profit sharing plan, but is in
addition to it. PXP expensed $2.4 million, $1.0 million and $.6 million in
1999, 1998 and 1997, respectively, under the profit sharing plan. The
compensation expense related to the issuance of restricted stock is
disclosed as unearned compensation in a separate component of stockholders'
equity and is amortized to expense over the restricted period.
41
<PAGE>
Stock-Based Compensation
------------------------
SFAS No. 123, "Accounting for Stock-Based Compensation," encourages, but
does not require, companies to record compensation cost for stock-based
employee compensation plans at fair value. PXP has chosen to continue to
account for stock-based compensation using the intrinsic method prescribed
in Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock
Issued to Employees," and related interpretations. Accordingly, compensation
cost for stock options and restricted stock under existing plans is measured
as the excess, if any, of the quoted market price of PXP's stock at the date
of the grant over the amount an employee must pay to acquire the stock. (See
Note 19)
3. Acquisitions, Merger, and Goodwill and Intangible Assets
Zweig Fund Group Acquisition
----------------------------
On March 1, 1999, PXP acquired the retail mutual fund and closed-end fund
businesses of Zweig for consideration of approximately $135 million. The
agreement provides for an additional payout of up to $29 million over the
next three years, dependent upon revenue growth of the purchased business.
Zweig, which is based in New York, managed assets of $3.3 billion at
December 31, 1999.
The purchase price for Zweig represents the consideration paid and the
direct costs incurred by PXP related to the purchase. The excess of purchase
price over the fair value of acquired net tangible assets of Zweig totaled
$136.1 million. Of this excess purchase price, $77.2 million has been
allocated to intangible assets, primarily associated with investment
management contracts, which are being amortized over their estimated useful
lives using the straight-line method. The average estimated useful life of
the intangible assets is approximately 12 years. The remaining excess
purchase price of $58.9 million has been classified as goodwill and is being
amortized over 40 years using the straight-line method. Related amortization
of goodwill and intangible assets of $8.1 million for the ten months since
the date of acquisition has been expensed in 1999.
The following table summarizes the calculation and allocation of Zweig's
purchase price (in thousands):
Purchase price:
Consideration paid $ 135,000
Transaction costs 2,391
---------
Total purchase price $ 137,391
=========
Purchase price allocation:
Fair value of acquired net assets $ 1,261
Identified intangibles 77,210
Goodwill 58,920
---------
Total purchase price allocation $ 137,391
=========
Pasadena Capital Corporation and Seneca Capital Management Acquisitions
-----------------------------------------------------------------------
On September 3, 1997, PXP acquired PCC, the holding company of REA, for
$214.0 million. The merger agreement provides for an "earn-out," based on
growth in management fee revenues, to be paid out on the third, fourth and
fifth anniversaries of the transaction and could be a total of $50 million,
if paid in 2000, or up to a maximum of $66 million, if paid thereafter.
Phoenix Home Life has guaranteed these payments up to 50% of the
consolidated net income of PCC during the respective periods. REA, which
operates in Pasadena, California, managed assets of $10.9 billion at
December 31, 1999, primarily managed accounts but also including the
Phoenix-Engemann Funds, a family of five equity mutual funds with $1.8
billion in assets under management.
42
<PAGE>
On July 17, 1997, PXP acquired a 74.9% majority interest in Seneca, a San
Francisco-based investment advisor. The remaining interests in Seneca
continue to be held by its management. During the period from three to five
years after the acquisition date, either PXP or Seneca's management may
exercise their respective rights to buy or sell the remaining interest in
Seneca. The initial purchase price paid by PXP was $37.5 million, including
$28.0 million in cash and $9.5 million in short-term notes. In accordance
with the purchase agreement, additional consideration of $3.9 million, based
upon the retention of certain revenue earning accounts, was paid to the
minority shareholders during the first quarter of 1999 and was recorded as
goodwill. On July 27, 1998, PXP purchased a 74.9% interest in GMG/Seneca
Capital Management L.P. for $.7 million. The additional purchase price has
been allocated to the intangible value of Seneca's investment contracts.
Seneca managed assets of $9.2 billion, primarily institutional accounts, at
December 31, 1999.
The purchase price for PCC and Seneca represents the consideration paid and
the direct costs incurred by PXP to purchase PCC and a majority interest in
Seneca. The excess of the purchase price over the fair value of acquired net
tangible assets of PCC and Seneca totaled $217.4 million. Of this excess
purchase price, $111.0 million has been classified as identifiable
intangible assets, primarily associated with investment management
contracts, which are being amortized over their estimated average useful
life of 13 years using the straight-line method. Fair value adjustments to
assets and liabilities totaled $(39.9) million. The remaining excess
purchase price of $146.4 million has been classified as goodwill and is
being amortized over 40 years using the straight-line method. Related
amortization of goodwill and intangible assets of $12.5 million, $12.4
million and $4.3 million has been expensed in 1999, 1998 and 1997,
respectively.
The following table summarizes the calculation and allocation of PCC and
Seneca's purchase price (in thousands):
Purchase price: PCC Seneca Total
Consideration paid $211,565 $ 40,814 $252,379
Transaction costs 2,442 1,298 3,740
-------- -------- --------
Total purchase price $214,007 $ 42,112 $256,119
======== ======== ========
Purchase price allocation:
Fair value of acquired net assets $ 37,932 $ 782 $ 38,714
Identified intangibles 97,404 13,567 110,971
Deferred taxes (39,936) -- (39,936)
Goodwill 118,607 27,763 146,370
-------- -------- --------
Total purchase price allocation $214,007 $ 42,112 $256,119
======== ======== ========
PSG and D&P Merger
------------------
The merger of PSG and D&P was accounted for as an acquisition of D&P by PSG
using the purchase accounting method (a "reverse acquisition"). The excess
of the purchase price over acquired net tangible assets and liabilities of
D&P as of November 1, 1995 totaled $162.2 million. Of the 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 original average expected life of 14 years using the
straight-line method. The remaining fair value adjustments to assets and
liabilities totaled $(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 goodwill
and intangible assets of $7.8 million was expensed in each of 1999, 1998 and
1997.
43
<PAGE>
Goodwill and Intangible Assets
------------------------------
Goodwill and intangible assets at December 31, were as follows:
1999 1998
Goodwill: (in thousands)
Excess purchase price over net tangible
assets and identifiable intangibles of
subsidiaries acquired $ 384,576 $ 321,795
Accumulated amortization (30,904) (21,540)
--------- ---------
Goodwill, net $ 353,672 $ 300,255
========= =========
Intangible assets:
Investment contracts $ 244,397 $ 168,523
Covenant not to compete 5,000 5,000
Employee base 3,924 2,588
Other intangibles 509 335
Accumulated amortization (50,968) (30,044)
--------- ---------
Intangible assets, net $ 202,862 $ 146,402
========= =========
These consolidated financial statements include amortization expense related
to goodwill and intangible assets of $30.3 million, $22.1 million and $13.9
million for the years ended December 31, 1999, 1998 and 1997, respectively.
4. Pro Forma Results (Unaudited)
The following unaudited pro forma financial information for the years ended
December 31, 1999 and 1998 was derived from the historical financial
statements of PXP and Zweig, and gives effect to the acquisition of Zweig
and certain transactions effected by Zweig in connection with the
acquisition. The pro forma financial information for these periods has been
prepared assuming this acquisition was effected on January 1, 1998.
Year Ended December 31,
1999 1998
(in thousands, except
per share data)
Revenues $293,311 $265,615
-------- --------
Employment expenses 116,499 100,934
Other operating expenses 74,681 75,010
Amortization of goodwill and
intangible assets 31,737 31,737
-------- --------
Operating income 70,394 57,934
Other (expense) income - net (3,509) 21,109
Interest expense - net (17,109) (20,104)
Minority interest (3,702) (2,198)
-------- --------
Income before income taxes 46,074 56,741
Provision for income taxes 19,352 21,450
-------- --------
Net income $ 26,722 $ 35,291
======== ========
Earnings per share
Basic $ .61 $ .77
Diluted $ .55 $ .69
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.
44
<PAGE>
5. Segment Information
PXP has determined that its reportable segments are those based on the
method used for internal reporting, which disaggregates the business by
customer category. PXP's reportable segments are its retail and
institutional investment management lines of business. The retail line
primarily serves the individual investor by acting as advisor to and, in
certain instances, distributor for open-end mutual funds and managed
accounts. The institutional line provides management services primarily to
corporate entities, closed-end funds, structured finance products, and
multi-employer retirement funds, as well as endowment, insurance, and other
special purpose funds.
The following tables summarize pertinent financial information relative to
PXP's operations for 1999, 1998 and 1997.
Year Ended December 31, 1999 Institu- All
Retail tional Other Total
-------- -------- --------- --------
(in thousands)
Revenues $180,043 $104,485 $ 2,100 $286,628
-------- -------- ------- --------
Employment and
other operating expenses 113,609 66,825 2,919 183,353
Depreciation and leasehold
amortization 2,523 1,290 85 3,898
Amortization of goodwill
and intangible assets 16,682 13,606 30,288
-------- -------- ------- --------
Operating income (loss) 47,229 22,764 (904) 69,089
Other (expense) income - net (5,585) 733 1,343 (3,509)
Interest income 633 319 2,299 3,251
Interest expense (9,634) (5,176) (4,266) (19,076)
Minority interest (3,702) (3,702)
-------- -------- ------- --------
Income (loss) before income taxes $ 32,643 $ 14,938 $(1,528) $ 46,053
======== ======== ======= ========
(in millions)
Assets under management $ 28,443 $ 36,158 $ -- $ 64,601
======== ======== ======= ========
Year Ended December 31, 1998 Institu- All
Retail tional Other Total
-------- -------- ------- --------
(in thousands)
Revenues $140,383 $ 79,064 $ 2,100 $221,547
-------- -------- ------- --------
Employment and
other operating expenses 96,498 49,744 900 147,142
Depreciation and leasehold
amortization 2,589 1,074 3,663
Amortization of goodwill
and intangible assets 12,624 9,433 22,057
-------- -------- ------- --------
Operating income 28,672 18,813 1,200 48,685
Other income - net 189 663 20,195 21,047
Interest income 673 200 1,116 1,989
Interest expense (9,377) (1,554) (3,617) (14,548)
Minority interest (2,198) (2,198)
-------- -------- ------- --------
Income before income taxes $ 20,157 $ 15,924 $18,894 $ 54,975
======== ======== ======= ========
(in millions)
Assets under management $ 21,729 $ 31,758 $ -- $ 53,487
======== ======== ======= ========
45
<PAGE>
Year Ended December 31, 1997 Institu- All
Retail tional Other Total
-------- -------- ------- --------
(in thousands)
Revenues $102,129 $ 60,371 $ 2,100 $164,600
-------- -------- ------- --------
Employment and
other operating expenses 75,702 40,133 900 116,735
Depreciation and leasehold
amortization 2,249 704 2,953
Amortization of goodwill
and intangible assets 5,426 8,524 13,950
-------- -------- ------- --------
Operating income 18,752 11,010 1,200 30,962
Other income - net 6,935 36 6,290 13,261
Interest income 466 55 1,853 2,374
Interest expense (3,802) (1,006) (830) (5,638)
Minority interest (714) (714)
-------- -------- ------- --------
Income before income taxes $ 22,351 $ 9,381 $ 8,513 $ 40,245
======== ======== ======= ========
(in millions)
Assets under management $ 18,560 $ 27,842 $ -- $ 46,402
======== ======== ======= ========
The "All Other" column represents corporate office revenue and expenses
which are not attributed directly to either line of business.
The accounting policies of the segments are the same as those described in
the "Summary of Significant Accounting Policies" (see Note 2). There are no
intersegment revenues. Balance sheet asset information by line of business
is not reported as the information is not produced internally.
6. Marketable Securities
PXP's marketable securities consist of both trading securities and
securities available-for-sale. Equity securities available-for-sale have
been classified as short-term, since it is PXP's intent to maintain a liquid
portfolio to take advantage of investment opportunities. Debt securities
available-for-sale in 1998 had contractual maturity dates of less than one
year. The composition of PXP's marketable securities at December 31, was as
follows:
1999
Unrealized
Cost Gain (Loss) Market
(in thousands)
Trading:
Phoenix-Goodwin Multi-Sector
Fixed Income Fund, Inc. $ 1,108 $ (222) $ 886
Other affiliated mutual funds 3,802 299 4,101
------- ------- -------
Total trading 4,910 77 4,987
Available-for-sale:
Equity securities -- 2,954 2,954
------- ------- -------
Total marketable securities $ 4,910 $ 3,031 $ 7,941
======= ======= =======
Equity securities at December 31, 1999 were obtained through a leveraged
buy-out, initiated by a joint venture in which PXP participates, and,
accordingly, have no cost assigned to them. (See Note 23)
46
<PAGE>
1998
Unrealized
Cost Gain (Loss) Market
(in thousands)
Trading:
Phoenix-Goodwin Multi-Sector
Fixed Income Fund, Inc. $ 1,585 $ (328) $ 1,257
Other affiliated mutual funds 3,100 264 3,364
------- ------- -------
Total trading 4,685 (64) 4,621
Available-for-sale:
U.S. Government obligations 11,654 -- 11,654
------- ------- -------
Total marketable securities $16,339 $ (64) $16,275
======= ======= =======
7. Furniture, Equipment, and Leasehold Improvements
Furniture, equipment, and leasehold improvements at December 31, were
comprised of the following:
1999 1998
(in thousands)
Computer equipment $ 11,871 $ 9,886
Leasehold improvements 7,896 4,817
Furniture and office equipment 6,416 3,885
-------- -------
26,183 18,588
Accumulated depreciation and amortization (13,708) (9,999)
-------- -------
Furniture, equipment and leasehold
improvements, net $ 12,475 $ 8,589
======== =======
8. Long-term Investments and Other Assets
Long-term investments are accounted for using the equity method. In
accordance with SFAS No. 115, PXP 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 income taxes, as a component of accumulated other
comprehensive income in stockholders' equity. PXP's share of the earnings of
unconsolidated investments is included in equity in earnings of
unconsolidated affiliates in the Consolidated Statements of Income
(Statements of Income).
Inverness/Phoenix and Related Partnerships
------------------------------------------
At December 31, 1999 and 1998, PXP had a 25% interest in Inverness/Phoenix
Capital LLC (IPC). IPC is a joint venture with Inverness Management LLC, an
unrelated third party. IPC acts as a general partner to several partnerships
which invest in private equity transactions (primarily management led
buy-outs), expansion financing, and recapitalizations involving management
participation. At December 31, 1999 and 1998, PXP's combined investment in
IPC and its related partnerships was $1.2 million and $.1 million,
respectively.
On January 17, 1996, IPC completed a management led buy-out of
National-Oilwell, Inc. (NOI) from Armco and USX. On October 28, 1996, NOI
successfully completed an initial offering of four million shares of common
stock which are traded on the New York Stock Exchange (NYSE: NOI). At
December 31, 1999 and 1998, PXP, through its investments in two limited
partnerships of which IPC is the general partner, had a beneficial ownership
interest in approximately 368,000 shares and 541,000 shares, respectively,
of the common stock of NOI. In January 1999, PXP received a liquidating
distribution from one of the limited partnerships of approximately 188,000
shares of NOI, which are included in marketable securities (see Note 23). At
December 31, 1999 and 1998, PXP's combined investment in the limited
partnerships was $5.8 million and $6.1 million, respectively.
47
<PAGE>
At December 31, 1999 and 1998, PXP had a 6.7% interest in Brown's Dock LLC
(BD). BD is an investment partnership established by IPC for the purpose of
investing in the convertible preferred stock of Penncorp Financial Group,
Inc. Phoenix Home Life and Inverness Management Fund I, LLC (an unrelated
third party) hold the remaining interest in BD. At December 31, 1999 and
1998, PXP's investment in BD was $.2 million and $.7 million, respectively.
On November 25, 1996, IPC entered into an agreement to participate in a
management led buy-out of Financial Alliance Processing Services, Inc.
(Financial Alliance). On December 27, 1996, PXP invested $2.0 million in
Financial Alliance Investors I, L.P. (FA Investors), which was created to
purchase an equity interest in Financial Alliance. On October 24, 1997, FA
Investors sold its interest in Financial Alliance. PXP, based on its equity
interest in FA Investors, recognized income of $.5 million, including
interest, and $4.5 million in 1998 and 1997, respectively.
Windy City CBO
--------------
PXP had an $8.8 million investment in Windy City CBO Partners, L.P. (WCCBO)
at December 31, 1996 and was both a general and a limited partner. The
partnership was established for the purpose of issuing $184.3 million of
Collateralized Bond Obligations (CBOs). In March 1997, WCCBO was liquidated
in accordance with contractual arrangements and PXP has no remaining
investment. PXP's proportionate share of WCCBO's earnings in 1997 was $(1.5)
million.
Other Investments
-----------------
At December 31, 1999 and 1998, PXP held other investments totaling $2.0
million and $1.7 million, respectively.
Other Assets
------------
At December 31, 1999 and 1998, PXP had a $1.0 million note receivable, due
in June 2001, resulting from the divestiture of Duff & Phelps Capital
Markets (DPCM). Interest on this note is received monthly. In addition, at
December 31, 1999 and 1998, PXP had $1.5 million and $2.5 million,
respectively, of prepaid compensation expense related to the acquisition of
PCC and REA. Other long-term assets totaled $.5 million and $.1 million at
December 31,1999 and 1998, respectively. At December 31, 1998, PXP had a
three year $10.0 million 10% note receivable resulting from the sale of BG
(see Note 15), which was repaid in 1999.
9. Income Taxes
The components of the provision for income taxes for the years ended
December 31, were as follows:
1999 1998 1997
(in thousands)
Current
Federal $22,529 $26,789 $21,727
State 4,526 2,150 2,239
------- ------- -------
Total current tax expense 27,055 28,939 23,966
------- ------- -------
Deferred
Federal (6,183) (7,074) (7,075)
State (1,530) (1,530) (793)
------- ------- -------
Total deferred tax benefit (7,713) (8,604) (7,868)
------- ------- -------
Total provision for income taxes $19,342 $20,335 $16,098
======= ======= =======
Income tax expense for 1999 and 1998 was calculated on pre-tax income of
$46.1 million and $55.0 million, which included $.7 million and $4.1
million, respectively, of foreign source income.
48
<PAGE>
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:
1999 1998
(in thousands)
Deferred tax assets:
Foreign tax credit $ 6,919 $ 6,765
Purchase accounting adjustments 1,409 1,034
Other investments 727 393
Other 4,975 3,375
------- -------
Gross deferred tax assets 14,030 11,567
Valuation allowance (6,919) (6,765)
------- -------
Gross deferred tax assets after valuation allowance 7,111 4,802
------- -------
Deferred tax liabilities:
Purchase accounting adjustments 46,984 50,577
Other investments 3,846 3,605
Note receivable from sale of BG 2,744
Other 1,937 1,322
------- -------
Gross deferred tax liabilities 52,767 58,248
------- -------
Deferred tax liability, net $45,656 $53,446
======= =======
The following presents a reconciliation of the provision for income taxes
computed at the federal statutory rate to the provision for income taxes
recognized in the Statements of Income for the years ended December 31,:
1999 1998 1997
($ in thousands)
Tax at statutory rate $16,119 35% $19,241 35% $14,086 35%
State taxes, net of
federal benefit 1,961 4 1,140 2 1,159 3
Goodwill 2,611 6 2,621 5 1,895 5
Adjustments to tax accruals (1,484) (3) (1,446) (3) (753) (2)
Other, net 135 -- (1,221) (2) (289) (1)
------- --- ------- --- ------- ---
Provision for income taxes $19,342 42% $20,335 37% $16,098 40%
======= === ======= === ======= ===
10. Long-term and Short-term Debt
On March 17, 1999, PXP entered into a five-year, $175 million Credit
Agreement with a consortium of banks. At December 31, 1999, PXP had
outstanding borrowings of $35 million under this facility. In addition, PXP
had outstanding borrowings of $200 million and $140 million at December 31,
1999 and 1998, respectively, under a separate $200 million Credit Agreement.
Interest rates on both credit facilities are variable. PXP may select from
the Certificate of Deposit, Eurodollar, or the banks' base lending rate.
Interest periods end, at PXP's option, one, two, three or six months after
the borrowing date of the loan. For the years ended December 31, 1999 and
1998, the average blended interest rate was approximately 6%. The Credit
Agreements require no principal repayments prior to maturity. PXP's majority
stockholder, Phoenix Home Life, has guaranteed the obligations, for which it
is paid a .10% guarantee fee on the outstanding balance.
49
<PAGE>
The Credit Agreements contain financial and operating covenants including,
among other provisions, requirements that PXP maintain certain financial
ratios and satisfy certain financial tests, including restrictions on the
ability to incur indebtedness and limitations on PXP's capital expenditures.
On March 17, 1999, PXP and the banks amended the financial covenant section
of its existing $200 million Credit Agreement to be consistent with the
terms of the new $175 million Credit Agreement. As of December 31, 1999 and
1998, PXP was in compliance with these covenants.
REA had a contract payable of $.6 million and $.9 million at December 31,
1999 and 1998, respectively, resulting from a prior acquisition. In
addition, PCC had a note payable of $1.1 million and $1.8 million at
December 31, 1999 and 1998, respectively, to a former PCC shareholder.
Interest expense relative to the credit agreements and short-term notes,
including commitment and guarantee fees, was $14.3 million, $10.9 million
and $5.6 million in 1999, 1998 and 1997, respectively.
11. Contingent Liabilities
As a condition of the purchase and sale agreement between PXP and PCC, PXP
is obligated to pay PCC an additional purchase price based upon growth in
PCC's management fee revenues. This additional purchase price may be paid on
the third, fourth, and fifth anniversaries of the acquisition and could be a
total of $50 million, if paid in 2000, or up to a maximum of $66 million, if
paid thereafter.
In October 1995, PXP, in one case, and its subsidiary DPCM were named
defendants in three related class action suits concerning a fairness opinion
issued by DPCM. The three cases were previously consolidated. There is
another separate case involving the same set of facts that has been brought
by other members of Associated Surplus Dealers (ASD), a corporation
organized to promote the surplus merchandise industry. The latter case has
now been consolidated with the other cases. 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, and costs of suit and punitive damages, all in unspecified
amounts. DPCM denies that its actions were inappropriate and intends to
vigorously defend the actions.
12. Convertible Subordinated Debentures, Mandatorily Redeemable Equity
Securities and Other Capital Transactions
On April 3, 1998, PXP exercised its right to exchange the 3.2 million
outstanding shares of Series A Convertible Exchangeable Preferred Stock
(Series A Preferred Stock) for 6% Convertible Subordinated Debentures
(Debentures) due 2015. Each share of outstanding Series A Preferred Stock,
including unpaid and accrued dividends, was exchanged for a Debenture with a
$25.00 face value. Each Debenture can be converted into 3.11 shares of PXP
common stock at any time. The Debentures may be redeemed by PXP beginning
five years from the date of the Merger. After such time, at PXP's option,
the Debentures may be redeemed in whole or in part from time to time for
cash in the principal amount, plus any accrued interest. Interest on the
Debentures for the period from December 10, 1999 through March 9, 2000 will
be payable on March 10, 2000 to registered holders as of February 20, 2000.
On February 16, 2000, PXP declared a common share quarterly dividend of
$0.08 per share, which is an increase from $0.06 per share previously paid
quarterly during 1999. PXP intends to continue to pay quarterly cash
dividends, however, future payment of cash dividends by PXP will depend upon
the financial condition, capital requirements and earnings of PXP.
On November 7, 1996, PXP's Board of Directors voted to authorize a stock
repurchase plan for up to two million shares of outstanding common stock.
Repurchases were made from time to time in the open market or through
privately negotiated transactions at market prices. The stock repurchase
program was completed in 1999 at a total cost of $14.7 million.
50
<PAGE>
13. Net Capital Requirement
PEPCO and PSC are subject to broker-dealer net capital requirements. At
December 31, 1999, net capital of $.9 million and $.1 million was required
for PEPCO and PSC, respectively, compared to actual net capital of $6.8
million and $.7 million, respectively.
14. Other Operating Expenses
Other operating expenses for the years ended December 31, were comprised of
the following:
1999 1998 1997
(in thousands)
Outside services $ 8,943 $ 7,841 $ 5,876
Rent and other occupancy 7,820 6,952 6,502
Fund accounting 7,737 5,328
Travel, training, and entertainment 6,971 6,468 5,654
Computer services 4,349 4,726 3,472
Sales and marketing 4,136 3,222 3,082
Telephone and postage 3,737 3,515 3,191
Printing 2,895 2,062 2,799
Professional fees 2,790 2,117 1,914
Mutual fund administrative expenses 2,116 2,329
Zweig consulting fee 2,085
Commissions and finder's fees 1,912 1,153 1,183
Equipment rental and maintenance 1,674 1,571 1,344
Other expenses 10,573 8,071 6,014
------- -------- -------
Total $67,738 $ 55,355 $41,031
======= ======== =======
15. Nonrecurring Item and Gain on Sale
Nonrecurring Item
-----------------
A nonrecurring item of $5.9 million resulted from PXP's decision to
reimburse two mutual fund investment portfolios which had inadvertently
sustained losses during the third quarter of 1999. A claim has been filed on
behalf of the insured parties.
Sale of Beutel Goodman
----------------------
On December 3, 1998, PXP sold its investment in the outstanding common stock
of BG to an unrelated third party for $47 million. PXP received $37 million
in cash at closing and a $10 million three-year interest-bearing note, which
was repaid in 1999. An additional $3 million may be paid to PXP if specified
earnings thresholds are met in the two calendar years following the sale.
At the time of the sale, the book value of PXP's investment in BG was $26.2
million. In addition, there was a cumulative translation adjustment of $2.5
million included as a component of accumulated other comprehensive income in
stockholders' equity, net of $1.7 million of deferred taxes. As a result of
the sale, PXP recognized a gain on the sale of $20.8 million and a foreign
exchange loss of $4.2 million, the net of which is included in gain on sale
in the Statements of Income.
Sale of Deferred Commissions Asset
----------------------------------
On June 1, 1997, PXP sold its title to and interest in the balance of its
then existing deferred commissions asset to an unrelated third party. PXP
recognized a gain of $6.9 million based on cash proceeds of $26.0 million
and a book value of $19.1 million at the time of the sale. As part of the
transaction, the third party is entitled to receive the distributor fees and
contingent deferred sales charges related to PXP's outstanding B share
mutual funds, excluding those from sales of Phoenix-Engemann Funds prior to
February 1, 1998. PXP, through PEPCO, began distributing the
Phoenix-Engemann Funds in September 1997, upon the acquisition of PCC by
PXP. Effective February 1998, sales of Phoenix-Engemann B share mutual funds
became part of PXP's agreement with the third party.
51
<PAGE>
PXP has a three year commitment, expiring June 1, 2000, from the third party
to fund all commissions paid by PXP upon the sale of B share mutual funds,
excluding those of the Phoenix-Zweig funds. In a separate agreement,
expiring May 31, 2000, another unrelated third party has committed to fund
all commissions paid by PXP upon the sale of Phoenix-Zweig B shares.
16. Earnings Per Share
The following tables reconcile PXP's basic earnings per share to diluted
earnings per share:
For the Year Ended December 31, 1999
--------------------------------------
(in thousands) Per Share
Income Shares Amount
-------- ------ ---------
Basic EPS
Income available to common
stockholders $ 26,711 43,797 $ .61
======
Effect of dilutive securities
Stock options 503
6% convertible debentures 2,703 9,500
-------- ------
Diluted EPS
Income available to common
stockholders and assumed
conversions $ 29,414 53,800 $ .55
======== ====== ======
For the Year Ended December 31, 1998
--------------------------------------
(in thousands) Per Share
Income Shares Amount
-------- ------ ---------
Net Income $ 34,640
Less: preferred stock
dividends 1,223
--------
Basic EPS
Income available to common
stockholders 33,417 44,076 $ .76
======
Effect of dilutive securities
Stock options 721
6% convertible debentures 2,015 9,500
Convertible preferred stock 1,223
-------- ------
Diluted EPS
Income available to common
stockholders and assumed
conversions $ 36,655 54,297 $ .68
======== ====== ======
52
<PAGE>
For the Year Ended December 31, 1997
--------------------------------------
(in thousands) Per Share
Income Shares Amount
-------- ------ ---------
Net Income $ 24,147
Less: preferred stock
dividends 4,754
--------
Basic EPS
Income available to common
stockholders 19,393 44,080 $ .44
======
Effect of dilutive securities
Stock options 464
Convertible preferred stock 4,754 9,891
-------- ------
Diluted EPS
Income available to common
stockholders and assumed
conversions $ 24,147 54,435 $ .44
======== ====== ======
17. Comprehensive Income
The components of other comprehensive income, and related tax effects, were
as follows:
Tax
(Expense)
Before-Tax Benefit Net-of-Tax
---------- --------- ----------
(in thousands)
Year Ended December 31, 1999
Unrealized gains on securities
available-for-sale:
Unrealized holding gains arising
during period $ 2,664 $ (1,092) $ 1,572
-------- -------- -------
Other comprehensive income $ 2,664 $ (1,092) $ 1,572
======== ======== ========
Year Ended December 31, 1998
Unrealized losses on securities
available-for-sale:
Unrealized holding losses arising
during period $(14,024) $ 5,750 $ (8,274)
-------- -------- --------
Foreign currency translation adjustment:
Foreign currency translation adjustment
arising during period (2,195) 900 (1,295)
Plus: reclassification adjustment
for currency translation losses
realized in net income 4,180 (1,714) 2,466
-------- -------- --------
Net foreign currency translation
adjustment 1,985 (814) 1,171
-------- -------- --------
Other comprehensive loss $(12,039) $ 4,936 $ (7,103)
======== ======== ========
53
<PAGE>
Tax
(Expense)
Before-Tax Benefit Net-of-Tax
---------- --------- ----------
(in thousands)
Year Ended December 31, 1997
Unrealized gains on securities
available-for-sale:
Unrealized holding gains arising
during period $ 11,290 $ (4,629) $ 6,661
Plus: reclassification adjustment for
losses realized in net income 427 (175) 252
-------- -------- --------
Net unrealized gains 11,717 (4,804) 6,913
Foreign currency translation adjustment (1,425) 584 (841)
-------- -------- --------
Other comprehensive income $ 10,292 $ (4,220) $ 6,072
======== ======== ========
Accumulated other comprehensive income was comprised of unrealized gains on
securities available-for-sale of $5.1 million and $3.6 million at December
31, 1999 and 1998, respectively.
18. Other Related Party Transactions
Revenues
--------
PXP's subsidiaries manage assets and provide other investment advisory
services to Phoenix Home Life and subsidiaries (e.g., general account and
variable separate account products) and investment products (e.g.,
affiliated mutual funds). The revenues earned managing related party assets
for the years ended December 31, were as follows:
1999 1998 1997
(in thousands)
Management fees:
Affiliated mutual funds $111,348 $ 82,702 $ 74,341
Phoenix Home Life General Account 10,539 9,485 8,526
Phoenix Home Life variable product
separate accounts, net of reimbursement 7,290 6,291 5,194
Other 7,526 3,236 1,194
-------- -------- --------
Total management fees 136,703 101,714 89,255
-------- -------- --------
Mutual funds - ancillary fees:
Fund accounting 8,683 6,870 5,524
Distributor, net 7,068 4,419 5,716
Administrative 7,053 5,525 1,708
Transfer agent 6,341 5,136 5,523
Other 777
-------- -------- --------
Total mutual funds - ancillary fees 29,922 21,950 18,471
-------- -------- --------
Other income and fees 1,505 -- --
-------- -------- --------
Total $168,130 $123,664 $107,726
======== ======== ========
54
<PAGE>
PXP received management fees averaging approximately .12% of the net asset
value of the Phoenix Home Life General Account assets under management in
1999, .11% in 1998 and .12% in 1997. PXP's transactions with affiliates
comprised approximately 59%, 56% and 64% of revenues, of which 6%, 7% and 8%
of total revenues related to Phoenix Home Life, for the years ended December
31, 1999, 1998 and 1997, respectively. PXP 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:
1999 1998
(in thousands)
Investment management fees $ 19,791 $ 13,316
Mutual funds - ancillary fees 6,739 5,031
Concessions 5,786 4,538
Other receivables 3,239 2,637
-------- --------
$ 35,555 $ 25,522
======== ========
Operating Expenses
------------------
Phoenix Home Life provides certain administrative services at the request of
PXP including payroll processing, purchasing, facility management and other
administrative support to PXP and its subsidiaries. Additionally, certain of
PXP's active and retired employees participate in the Phoenix Home Life
multi-employer retirement and benefit plans (see Note 2). The expenses
recorded by PXP for significant services provided by Phoenix Home Life for
the years ended December 31, were as follows:
1999 1998 1997
(in thousands)
Rent $ 3,190 $ 3,238 $ 3,094
Computer services 2,266 2,762 2,637
Administrative fees 1,593 1,650 1,732
Employee related charges:
Healthcare and life insurance benefits 1,475 1,703 1,814
Pension and savings plans 1,527 1,666 1,552
Other 1,085 1,127 1,096
Equipment rental and maintenance 998 1,008 954
Legal services 49 55 111
-------- -------- --------
Total $ 12,183 $ 13,209 $ 12,990
======== ======== ========
PXP 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. PXP reimburses Phoenix Home Life for
employee related charges based on actual costs paid by Phoenix Home Life.
PXP believes that these charges are competitive with alternative third party
sources for each service received.
Payables to Related Parties
---------------------------
Payables to related parties for operating expenses as of December 31, 1999
and 1998 were $4.7 million and $3.0 million, respectively.
Included in broker-dealer payable are commissions, including those payable
under 12b-1 distribution plans discussed in Note 2, of $3.9 million and $3.1
million in 1999 and 1998, respectively, payable to Griffith.
55
<PAGE>
19. Stock Purchase and Award Plans
Employee Stock Purchase Plan
----------------------------
On November 1, 1999, PXP implemented an Employee Stock Purchase Plan (ESPP)
previously approved by PXP's Board of Directors. The ESPP allows eligible
employees to purchase PXP's common stock at the lower of 85% of the market
price of the stock at the beginning or end of each offering period, and
provides for PXP to withhold up to 15% of a participant's earnings for such
purchase. PXP's only expense relating to this plan is for its
administration. The maximum number of shares of PXP's common stock that are
available under the ESPP is 615,000. The first offering period ends April
28, 2000. As such, no shares of common stock were purchased under the ESPP
in 1999. Beginning in 2000, additional consecutive six month offering
periods will be implemented, for a period not to exceed 10 years, commencing
on the first trading day on or after May 1 and November 1 of each year.
Restricted Stock
----------------
Restricted shares of PXP's common stock are issued to certain officers under
the provisions of an approved restricted stock plan. Restricted stock is
issued at the market value of a share of PXP's common stock on the date of
the grant. If a participant's employment terminates due to retirement, death
or disability, the restrictions expire and the shares become fully vested.
If a participant terminates employment for any other reason, the non-vested
shares of restricted stock are forfeited. The restricted stock vests in even
annual installments over a three-year period from the date of the grant.
Dividends declared are paid in cash as the restrictions lapse. Restricted
shares were first granted during 1998. At December 31, 1999 and 1998,
291,237 and 243,130 shares of restricted stock have been included in common
stock shares outstanding, respectively. The market value of the restricted
stock at the time of the grant is recorded as unearned compensation in a
separate component of stockholders' equity and is amortized to expense over
the restricted period. During 1999 and 1998, $1.7 million and $.5 million
was charged to compensation expense relating to the plan.
Restricted Stock Grants Common Average
----------------------- Shares Market Value
Balance, December 31, 1997 -- $ --
Awarded 246,640 $ 8.40
Earned -- $ --
Forfeited (3,510) $ 8.40
--------
Balance, December 31, 1998 243,130 $ 8.40
Awarded 195,067 $ 7.74
Earned (105,623) $ 8.18
Forfeited (41,337) $ 8.08
--------
Balance, December 31, 1999 291,237 $ 8.08
========
Stock Option Plans
------------------
PXP has reserved a total of 14.7 million shares of company common stock to
be granted under 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).
The Compensation Committee of the Board of Directors administers the 1992
Plan, designates which employees and outside directors participate in it and
determines 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 PXP 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
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 a three-year period from the date of grant.
56
<PAGE>
Outstanding Options Weighted Weighted
------------------- Average Series A Average
Common Exercise Preferred Exercise
Shares Price Shares Price
Balance, December 31, 1996 3,937,506 $6.93 109,048 $28.05
Granted 2,735,329 $7.91
Exercised (257,845) $5.54 (12,345) $21.02
Canceled (73,334) $6.93
Forfeited (234,997) $7.56 (3,450) $41.55
--------- -------
Balance, December 31, 1997 6,106,659 $7.40 93,253 $28.49
Granted 1,851,808 $8.25
Exercised (222,846) $5.84
Canceled (10,491) $6.49 (93,253) $28.49
Forfeited (325,166) $7.47
---------
Balance, December 31, 1998 7,399,964 $7.66 -- $ --
Granted 1,344,727 $7.75
Exercised (453,263) $5.94
Canceled (9,999) $7.71
Forfeited (353,554) $8.20
--------- -------
Balance, December 31, 1999 7,927,875 $7.75 -- $ --
========= =======
Exercisable Options Weighted Weighted
------------------- Average Series A Average
Common Exercise Preferred Exercise
Shares Price Shares Price
Balance, December 31, 1996 1,356,474 $6.95 105,283 $28.18
Became exercisable 1,012,047 $6.88 3,765 $28.75
Exercised (257,845) $5.54 (12,345) $21.02
Canceled (33,334) $6.98
Forfeited (39,500) $10.12 (3,450) $41.55
--------- -------
Balance, December 31, 1997 2,037,842 $7.04 93,253 $28.49
Became exercisable 2,050,494 $7.39
Exercised (222,846) $5.84
Canceled (10,491) $6.49 (93,253) $28.49
Forfeited (325,166) $7.47
---------
Balance, December 31, 1998 3,529,833 $7.27 -- $ --
Became exercisable 1,962,396 $7.78
Exercised (453,263) $5.94
Canceled (9,999) $7.71
Forfeited (159,674) $8.14
---------
Balance, December 31, 1999 4,869,293 $7.57 -- $ --
========= =======
At December 31, 1999, 6.5 million shares of PXP common stock were available
for future grants.
57
<PAGE>
Pro Forma Information
---------------------
PXP 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, and compensation for restricted stock
grants has been recorded in accordance with APB Opinion No. 25, "Accounting
for Stock Issued to Employees." Had compensation cost for the PXP stock
option and restricted stock plans been determined based on the fair value at
the grant date for awards in 1999, 1998 and 1997 consistent with the
provisions of SFAS No. 123, PXP's net income and earnings per share would
have been reduced to the pro forma amounts indicated below:
1999 1998 1997
Net income - as reported (in thousands) $ 26,711 $ 34,640 $ 24,417
Net income - pro forma (in thousands) $ 24,698 $ 33,041 $ 23,360
Basic earnings per share - as reported $ .61 $ .76 $ .44
Basic earnings per share - pro forma $ .56 $ .72 $ .42
Diluted earnings per share - as reported $ .55 $ .68 $ .44
Diluted earnings per share - pro forma $ .51 $ .65 $ .43
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 1999: dividend yield of 2.62%, expected
volatility of 25.2%, risk free interest rate of 5.6% and expected lives of
six years.
As of December 31, 1999 options to purchase 11,620, and 7,916,255 shares of
common stock were outstanding at weighted average exercise prices per share
of approximately $6.77, and $7.75, respectively, under the Employee Option
Plan and 1992 Plan, respectively. During 1999, the remaining outstanding
options under the Performance Plan were exercised.
20. Commitments and Lease Contingencies
PXP incurred rental expenses on operating leases of $6.5 million, $5.8
million and $5.2 million, and received income from subleases of $.9 million,
$.9 million and $.8 million in 1999, 1998 and 1997, respectively. PXP is
committed to the following future net minimum rental payments under
non-cancelable operating leases:
Income Net
Lease From Lease
Payments Subleases Payments
(in thousands)
2000 $ 6,294 $ 635 $ 5,659
2001 4,307 416 3,891
2002 4,017 285 3,732
2003 3,094 285 2,809
2004 2,550 285 2,265
2005 and thereafter 10,750 1,141 9,609
-------- -------- --------
$ 31,012 $ 3,047 $ 27,965
======== ======== ========
58
<PAGE>
21. Fair Value of Financial Instruments
The estimated fair values of PXP's financial instruments approximated their
carrying values at December 31, 1999 and 1998.
The following methods and assumptions were used in estimating the fair value
of financial instruments:
- Cash and cash equivalents: The carrying amount approximates fair value
because of the short maturity of these instruments.
- Marketable securities: The carrying amount equals market value.
- Deferred commissions: The carrying amount is based on estimates from
third parties.
- Long-term investments and other assets: The fair value is based on
estimates made using appropriate valuation techniques.
- Long-term debt: The fair value is estimated based on the current rates
that would be offered to PXP on similar floating rate debt.
- Convertible Subordinated Debentures: The fair value is based on market
quotes.
- Accounts Receivable, Accounts Payable, and Accrued Liabilities: The
carrying amounts are reasonable estimates of fair value because of
the short nature of the transactions.
22. Consolidated Quarterly Results of Operations (Unaudited)
A summary of the unaudited quarterly results of operations for the years
ended December 31, 1999 and 1998 is as follows:
(in thousands, except per share data)
First Second Third Fourth
1999 Quarter Quarter Quarter Quarter
Revenues $ 64,256 $ 74,332 $ 74,560 $ 79,122
Expenses 53,473 61,172 68,072 63,500
-------- -------- -------- --------
Income before income taxes 10,783 13,160 6,488 15,622
Provision for income taxes 4,745 5,780 2,712 6,105
-------- -------- -------- --------
Net income $ 6,038 $ 7,380 $ 3,776 $ 9,517
======== ======== ======== ========
Earnings per share
Basic $ .14 $ .17 $ .09 $ .22
Diluted $ .13 $ .15 $ .08 $ .19
Dividends per common share
declared during the quarter $ .06 $ .06 $ .06 $ .06
Market price per share
Common
Low $ 7.00 $ 8.38 $ 8.19 $ 7.50
High $ 9.19 $ 10.13 $ 9.25 $ 9.00
59
<PAGE>
(in thousands, except per share data)
First Second Third Fourth
1998 Quarter Quarter Quarter Quarter
Revenues $ 54,296 $ 57,663 $ 58,050 $ 74,574
Expenses 44,620 48,491 47,787 48,710
-------- -------- -------- --------
Income before income taxes 9,676 9,172 10,263 25,864
Provision for income taxes 4,251 4,041 4,517 7,526
-------- -------- -------- --------
Net income $ 5,425 $ 5,131 $ 5,746 $ 18,338
======== ======== ======== ========
Earnings per share
Basic $ .10 $ .12 $ .13 $ .42
Diluted $ .10 $ .11 $ .12 $ .35
Dividends per common share
declared during the quarter $ .06 $ .06 $ .06 $ .06
Dividends per preferred share
declared during the quarter $ .375 $ .098 $ -- $ --
Market price per share
Common
Low $ 7.38 $ 8.19 $ 6.63 $ 6.69
High $ 9.38 $ 9.88 $ 9.44 $ 8.75
23. Subsequent Events
On March 3, 2000, PXP sold 188,000 shares of NOI common stock, included in
marketable securities, for $25 1/2 per share.
In March 2000, PXP was notified of a demand for arbitration with regard to a
former employee, who held the position of President of PXP as well as Chief
Executive Officer of DPIM, alleging wrongful termination, defamation, and
other claims. Management believes that the termination was for cause and
intends to vigorously defend against all claims in the case.
60
<PAGE>
Phoenix Investment Partners, Ltd.
Item 9. Changes in and Disagreements with Accountants on Accounting and
- ------- ---------------------------------------------------------------
Financial Disclosure.
---------------------
None.
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 2000 annual meeting of
the shareholders (the 2000 Proxy Statement), and such information
shall be deemed to be incorporated herein by reference to that portion
of the 2000 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 Company'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 2000 Proxy Statement, and such
information shall be deemed to be incorporated herein by reference to
that portion of the 2000 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 Company'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 Common Stock" in the 2000 Proxy Statement, and
such information shall be deemed to be incorporated herein by
reference to that portion of the 2000 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 Company'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 - Certain Transactions" in the 2000 Proxy
Statement, and such information shall be deemed to be incorporated
herein by reference to that portion of the 2000 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 Company's
most recently completed fiscal year. Also see Note 18 to the
consolidated financial statements on page 54 of this Form 10-K.
61
<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. Exhibits
2(d) Agreement and Plan of Merger between Phoenix Duff & Phelps
Corporation, Phoenix Apollo Corp. and Pasadena Capital Corporation
dated as of June 9, 1997 (incorporated herein by reference to
Exhibit 2(d) to the Registrant's current report on Form 8-K dated
July 1, 1997)
2(e) Agreement and Plan of Merger between Phoenix Duff & Phelps
Corporation and the persons signatory thereto (Stellar Capital
management, Inc., JB Capital Management, Inc. and SZRL Investments)
dated as of June 18, 1997 (incorporated herein by reference to
Exhibit 2(e) to the Registrant's current report on Form 8-K dated
July 1, 1997)
2(f) Acquisition Agreement by and among Phoenix Investment Partners,
Ltd., and Zweig/Glaser Advisers, Euclid Advisors LLC, Zweig
Advisors Inc., Zweig Total Return Advisors, Inc., Zweig Securities
Corp. and named equityholders dated as of December 15, 1998
(incorporated herein by reference to Exhibit 2(f) to the
Registrant's current report on Form 8-K dated March 15, 1999)
2(g) Amendment No. 1 to the Acquisition Agreement by and among Phoenix
Investment Partners, Ltd., and Zweig/Glaser Advisers, Euclid
Advisors LLC, Zweig Advisors Inc., Zweig Total Return Advisors,
Inc., Zweig Securities Corp. and named equityholders dated as of
March 1, 1999 (incorporated herein by reference to Exhibit 2(g) to
the Registrant's current report on Form 8-K dated March 15, 1999)
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)
3(c) Certificate for Renewal and Revival of Certificate of Incorporation
3(d) Certificate of Resignation of Registered Agent
3(e) Certificate of Amendment to the Certificate of Incorporation of
Phoenix Duff & Phelps Corporation
4(a) Form of Common Stock certificate(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
Investment Partners, Ltd.)
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 was exchanged (incorporated herein by reference to Exhibit
4(s) 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(i) Service Agreement among Duff & Phelps Investment Management Co.,
Duff & Phelps Utilities Income Inc., Duff & Phelps Investment
Research Co. and Duff & Phelps Inc.(1)
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(m) Nonqualified Deferred Compensation Plans - Joinder Agreement
(incorporated herein by reference to Exhibit 10(m) to the
Registrant's Annual Report on Form 10-K for 1996) (2)
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)
62
<PAGE>
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(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 8-K dated November 15,
1995)(2)
10(jj) Change of Control agreement dated June 10, 1996 between the
Registrant and Mr. McLoughlin (incorporated herein by reference to
Exhibit 10(jj) to the Registrant's Annual Report on Form 10-K for
1996)(2)
10(ll) Change of Control agreement dated June 10, 1996 between the
Registrant and Mr. Haylon (incorporated herein by reference to
Exhibit 10(ll) to the Registrant's Annual Report on Form 10-K for
1996)(2)
10(nn) Second Amended and Restated Operating Agreement between Seneca
Capital Management LLC and the Registrant (incorporated herein by
reference to Exhibit 1(a) to the Registrant's Report on Form 10-Q
dated June 30, 1997)
10(oo) Form of Put/Call Agreement (incorporated herein by reference to
Exhibit 1(a) to the Registrant's Report on Form 10-Q dated June 30,
1997)
10(pp) Employment Agreement dated as of December 15, 1998 by and between
Zweig/Glaser Advisers and Eugene J. Glaser (incorporated herein by
reference to Exhibit 10(pp) to the Registrant's current report on
Form 8-K dated March 15, 1999)
10(qq) Employment Agreement dated as of December 15, 1998 by and between
Zweig/Glaser Advisers and Barry Mandinach (incorporated herein by
reference to Exhibit 10(qq) to the Registrant's current report on
Form 8-K dated March 15, 1999)
10(rr) Employment Agreement dated as of December 15, 1998 by and between
Zweig/Glaser Advisers and Jeff Lazar (incorporated herein by
reference to Exhibit 10(rr) to the Registrant's current report on
Form 8-K dated March 15, 1999)
10(ss) Letter of Amendment to Employment Agreement dated as of January 20,
1999 by and between Zweig/Glaser Advisers and Jeffrey Lazar
(incorporated herein by reference to Exhibit 10(ss) to the
Registrant's current report on Form 8-K dated March 15, 1999)
10(tt) Employment Agreement dated as of December 15, 1998 by and between
Zweig/Glaser Advisers and Carlton B. Neel (incorporated herein by
reference to Exhibit 10(tt) to the Registrant's current report on
Form 8-K dated March 15, 1999)
10(uu) Letter of Amendment to Employment Agreement dated as of January 20,
1999 by and between Zweig/Glaser Advisers and Carlton B. Neel
(incorporated herein by reference to Exhibit 10(uu) to the
Registrant's current report on Form 8-K dated March 15, 1999)
63
<PAGE>
10(vv) Employment Agreement dated as of December 15, 1998 by and between
Zweig/Glaser Advisers and Jeffrey T. Cerutti (incorporated herein
by reference to Exhibit 10(vv) to the Registrant's current report
on Form 8-K dated March 15, 1999)
10(ww) Employment Agreement dated as of December 15, 1998 by and between
Zweig/Glaser Advisers and David Katzen (incorporated herein by
reference to Exhibit 10(ww) to the Registrant's current report on
Form 8-K dated March 15, 1999)
10(xx) Noncompetition/Nonsolicitation Agreement dated as of March 1,
1999 by and among the Registrant, Zweig/Glaser Advisers, Zweig
Total Return Advisors, Inc., Zweig Advisors Inc. and Eugene J.
Glaser (incorporated herein by reference to Exhibit 10(xx) to the
Registrant's current report on Form 8-K dated March 15, 1999)
10(yy) Noncompetition/Nonsolicitation Agreement dated as of March 1, 1999
by and among the Registrant, Zweig/Glaser Advisers, Zweig Total
Return Advisors, Inc., Zweig Advisors Inc. and Martin E. Zweig
(incorporated herein by reference to Exhibit 10(yy) to the
Registrant's current report on Form 8-K dated March 15, 1999)
10(zz) Administrative Services Agreement dated as of March 1, 1999 by and
between Zweig/Glaser Advisers LLC, and ZA Management Services, Inc.
(incorporated herein by reference to Exhibit 10(zz) to the
Registrant's current report on Form 8-K dated March 15, 1999)
10(aaa)Servicing Agreement dated as of March 1, 1999 by and among
Zweig/Glaser Advisers, Zweig Total Return Advisors, Inc., Zweig
Advisors, Inc., and Zweig Consulting LLC (incorporated herein by
reference to Exhibit 10(aaa) to the Registrant's current report on
Form 8-K dated March 15, 1999)
21 Subsidiaries of the Registrant
23(a) Consent of PricewaterhouseCoopers LLP
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.
64
<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 20th day of
March, 2000.
PHOENIX INVESTMENT PARTNERS, LTD.
By:/s/ Philip R. McLoughlin
- -----------------------------------------------------------
Philip R. McLoughlin
Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below on the 20th day of March, 2000 by the following persons on
behalf of the Registrant in the capacities indicated.
SIGNATURE
---------
TITLE
-----
/s/ Philip R. McLoughlin
- -----------------------------------------------------------
Chairman of the Board, Chief Executive Officer and Director
Philip R. McLoughlin
/s/ William R. Moyer
- -----------------------------------------------------------
Executive Vice President and Chief Financial Officer
William R. Moyer
/s/ Clyde E. Bartter
- -----------------------------------------------------------
Director
Clyde E. Bartter
/s/ Michael E. Haylon
- -----------------------------------------------------------
Director
Michael E. Haylon
/s/ Robert W. Fiondella
- -----------------------------------------------------------
Director
Robert W. Fiondella
/s/ Marilyn E. LaMarche
- -----------------------------------------------------------
Director
Marilyn E. LaMarche
65
<PAGE>
/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
- -----------------------------------------------------------
Director
Calvin J. Pedersen
66
<PAGE>
Exhibit 3(c)
CERTIFICATE OF RESIGNATION OF REGISTERED AGENTS
Pursuant to Section 136 of the General Corporation Law of Delaware, THE
CORPORATION TRUST COMPANY hereby resigns as Registered Agent of the corporation
listed on the attached Exhibit A.
Written notice of resignation was given to the corporation on September 11,
1998 by mail or delivery to the corporation at its last known address as shown
on our records, said date being at least 30 days prior to the filing of this
Certificate of Resignation.
DATED: OCTOBER 21, 1998
THE CORPORATION TRUST COMPANY
BY: William J. Reif
------------------------
William J. Reif
Assistant Vice President
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 10:00 AM 10/21/1998
981407265 - 2286246
67
<PAGE>
Exhibit 3(d)
CERTIFICATE
FOR RENEWAL AND REVIVAL OF CERTIFICATE OF INCORPORATION
Phoenix Investment Partners, Ltd., a corporation organized under the laws of
Delaware, the Certificate of Incorporation of which was filed in the office of
the Secretary of State on the 4th day of October, 1988 and thereafter forfeited
pursuant to section 138(c) of the General Corporation Law of Delaware, now
desiring to procure a revival of its Certificate of Incorporation, hereby
certifies as follows:
1. The name of the corporation is Phoenix Investment Partners, Ltd.
2. Its registered office in the State of Delaware is located at Corporation
Trust Center, 1209 Orange Street, City of Wilmington, County of New Castle and
the name of its registered agent at such address is The Corporation Trust
Company.
3. The date when revival of the Certificate of Incorporation of this
corporation is to commence is the 19th day of November 1998, the same being
prior to the date of the forfeiture of the Certificate of Incorporation. Revival
of the Certificate of Incorporation is to be perpetual.
4. This corporation was duly organized under the laws of Delaware and
carried on the business authorized by its Certificate of Incorporation until the
20th day of November, 1998, at which time its Certificate of Incorporation
became forfeited pursuant to section 138(c) of the General Corporation Law of
Delaware and this Certificate for Renewal and Revival is filed by authority of
the duly elected directors of the corporation in accordance with the laws of
Delaware.
IN WITNESS WHEREOF, said Phoenix Investment Partners, Ltd. in compliance
with Section 312 of Title 8 of the Delaware Code has caused this Certificate to
be signed by Thomas N. Steenburg, its last and acting Secretary, this 30th day
of November, 1998.
Phoenix Investment Partners, Ltd.
By /s/ Thomas N. Steenburg
-----------------------
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 02:00 PM 11/30/1998
981456886 - 2174528
(DEL. - 799 - 5/3/90)
68
<PAGE>
Exhibit 3(e)
CERTIFICATE OF AMENDMENT
TO THE
CERTIFICATE OF INCORPORATION
OF
PHOENIX DUFF & PHELPS CORPORATION
Phoenix Duff & Phelps Corporation, a corporation organized and existing
under and by virtue of the General Corporation Law of the State of Delaware (the
"Corporation"), DOES HEREBY CERTIFY:
FIRST: That the Board of Directors of the Corporation at a meeting duly
called and held on February 5, 1998 adopted a resolution setting forth a
proposed amendment of the Restated Certificate of Incorporation of the
Corporation, declaring said amendment to be advisable and directing that said
amendment be submitted to the stockholders of the Corporation for their approval
at the 1998 annual meeting of stockholders. The effect of said amendment would
be to cause Article First of the Certificate of Incorporation of the Corporation
to be amended to read in its entirety as follows:
"First: The name of the corporation is Phoenix Investment Partners, Ltd.
-----
(herinafter the "Corporation")."
SECOND: That thereafter the 1998 annual meeting of stockholders of the
Corporation was duly called and held on May 7, 1998 upon notice in accordance
with Section 222 of the General Corporation Law of the State of Delaware at
which meeting the necessary number of shares as required by statute were voted
in favor of the amendment.
THIRD: That said amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
FOURTH: That said amendment shall become effective at 12:01 a.m. Eastern
Time on May 11, 1998.
IN WITNESS WHEREOF, the Corporation has caused the Certificate of Amendment
to be executed by its duly authorized officer, as of the 7th day of May, 1998.
ATTEST: PHOENIX DUFF & PHELPS CORPORATION
By: /s/ Thomas N. Steenburg By: /s/ Philip R. McLoughlin
------------------------ -------------------------
Thomas N. Steenburg Philip R. McLoughlin
Vice President & Counsel Chief Executive Officer
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 04:00 PM 05/07/1998
981176332 - 2174528
69
<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.
State or Other
Jurisdiction of
Name Incorporation
- ---- ---------------
Phoenix Investment Partners, Ltd. Delaware
Duff & Phelps Investment Management Co. Illinois
DPIM, Inc. Illinois
Phoenix Duff & Phelps Investment Advisors Illinois
DPCM Holdings, Co. Illinois
DP Holdings Ltd. New Brunswick, Canada
Phoenix Equity Planning Corporation Connecticut
Phoenix Investment Counsel, Inc. Massachusetts
National Securities & Research Corporation New York
Pasadena Capital Corporation California
Roger Engemann & Associates, Inc. California
Seneca Capital Management LLC - (74.9%) California
Zweig/Glaser Advisers LLC New York
Euclid Advisors LLC New York
PXP Securities Corp. New York
70
<PAGE>
Exhibit 23(a)
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,
No. 333-19073 and No. 333-65495) of Phoenix Investment Partners, Ltd. of our
report dated February 9, 2000 relating to the financial statements and financial
statement schedules, which appear in this Form 10-K.
/s/ PricewaterhouseCoopers LLP
- ------------------------------
PricewaterhouseCoopers LLP
Hartford, Connecticut
March 20, 2000
71
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