-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, C5HjvOdlmj/YCXcseJkMyZAl1YN4ebid9Y40Zb1pfNzmZAjCatxNvg+gCNWASw/7 jKSjmBIj2kHBR7YWnbyGWQ== 0000883237-00-000006.txt : 20000327 0000883237-00-000006.hdr.sgml : 20000327 ACCESSION NUMBER: 0000883237-00-000006 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000324 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PHOENIX INVESTMENT PARTNERS LTD/CT CENTRAL INDEX KEY: 0000883237 STANDARD INDUSTRIAL CLASSIFICATION: INVESTMENT ADVICE [6282] IRS NUMBER: 954191764 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-10994 FILM NUMBER: 578566 BUSINESS ADDRESS: STREET 1: 56 PROSPECT ST CITY: HARTFORD STATE: CT ZIP: 06115-0480 BUSINESS PHONE: 8604035000 MAIL ADDRESS: STREET 1: 56 PROSPECT STREET CITY: HARTFORD STATE: CO ZIP: 06115 FORMER COMPANY: FORMER CONFORMED NAME: PHOENIX DUFF & PHELPS CORP DATE OF NAME CHANGE: 19951117 FORMER COMPANY: FORMER CONFORMED NAME: DUFF & PHELPS CORP DATE OF NAME CHANGE: 19930328 10-K 1 ANNUAL REPORT ON FORM 10-K AS OF DECEMBER 31, 1999 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ----------- FORM 10-K [x] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended December 31, 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 ----------- Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered ------------------- ----------------------------------------- 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 - ----------------------------------- ------------------------------------- are incorporated by reference into document is incorporated by reference: - ----------------------------------- -------------------------------------- this Form 10-K: - --------------- Phoenix Investment Partners, Ltd. 2000 Proxy Statement Part III PHOENIX INVESTMENT PARTNERS, LTD. ANNUAL REPORT FOR 1999 ON FORM 10-K TABLE OF CONTENTS PART I Page ---- 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 PART I Item 1. Business. - ------- --------- 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 - ----------------------- 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 - ------- 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. 1 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 -------- -------- ------- ------- ------- ------- Total $286,628 $221,547 $46,053 $54,975 $64,601 $53,487 ======== ======== ======= ======= ======= ======= * - "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: ---------------- Open-end Mutual Funds $ 18,073 Managed Accounts (a) 10,370 --------- 28,443 --------- Institutional Products: ----------------------- Institutional Accounts (b) 21,227 Closed-end Funds 4,596 PHL General Account 9,059 Structured Finance Products (c) 1,276 --------- 36,158 --------- Total $ 64,601 ========= Assets Classification: Equity $ 30,055 Balanced 13,192 Fixed Income 20,696 Money Market 658 --------- Total $ 64,601 ========= Advisor: PIC $ 25,657 DPIM 15,604 REA 10,866 Seneca 9,216 Zweig 3,258 --------- Total $ 64,601 ========= 2 Management Fees (in thousands) Source: Retail Products: ---------------- Open-end Mutual Funds $ 92,320 Managed Accounts (a) 53,653 --------- 145,973 --------- Institutional Products: ----------------------- Institutional Accounts (b) 61,146 Closed-end Funds 27,631 PHL General Account 10,539 Structured Finance Products (c) 3,714 --------- 103,030 --------- Total $ 249,003 ========= (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 - --------------------- 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 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. 4 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. 5 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. 6 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. 7 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 - 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 (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 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 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 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 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 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 /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 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 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 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 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 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 EX-27 2 FDS --
5 1,000 12-Mos Dec-31-1999 Dec-31-1999 42,203 7,941 45,658 0 0 99,289 26,183 13,708 681,686 64,897 76,364 0 0 458 250,543 681,686 0 289,019 0 0 227,141 0 15,825 46,053 19,342 26,711 0 0 0 26,711 .61 .55
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