=============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report: May 14, 1999
Date of Earliest Event Reported: March 1, 1999
Commission file number 1-10994
PHOENIX INVESTMENT PARTNERS, LTD.
(Exact name of registrant as specified in its charter)
DELAWARE 95-4191764
(State of Incorporation) (I.R.S. Employer Identification No.)
56 Prospect St., Hartford,
Connecticut 06115-0480 (860) 403-7667
(Address of principal executive offices) (Registrant's telephone number)
=============================================================================
Item 2. Acquisition or Disposition of Assets
On March 1, 1999, pursuant to an Acquisition Agreement dated December 15, 1998
("Acquisition Agreement"), Phoenix Investment Partners, Ltd. ("Phoenix
Investment Partners") acquired 100% of Zweig/Glaser Advisers (ZGA), Euclid
Advisors LLC (a wholly-owned subsidiary of ZGA), Zweig Advisors Inc., Zweig
Total Return Advisors, Inc. and Zweig Securities Corp. (collectively, the "Zweig
Fund Group"). Pursuant to the Acquisition Agreement, Phoenix Investment Partners
paid a total preliminary purchase price of approximately $135 million, subject
to later adjustment (no later than 95 days after the closing) based on the rate
of annualized management fee revenues at the time of closing. The agreement
further provides for an "earn out," based on growth in management fee revenues
over the next three years, of up to an additional $29 million to be paid out on
the first, second and third anniversaries of the transaction. The Zweig Fund
Group, which operates in New York, manages approximately $4 billion in assets,
primarily open-end mutual funds and closed-end funds.
Pursuant to the Acquisition Agreement, Zweig Securities Corp. was purchased
directly by Phoenix Investment Partners and the remaining Zweig Fund Group
companies were purchased by Zweig/Glaser Advisers LLC, a newly formed
wholly-owned subsidiary of Phoenix Investment Partners.
Phoenix Investment Partners and the Zweig Fund Group entered into long-term
employment agreements with principals of ZGA and noncompete agreements with
Martin E. Zweig and Eugene J. Glaser. These agreements were filed as exhibits to
a Form 8-K filed by Phoenix Investment Partners on March 15, 1999.
Item 5. Other Events
Financing
Phoenix Investment Partners financed the acquisitions of the Zweig Fund Group
through borrowings under an existing $200 million bank credit facility and a new
$175 million bank credit facility. Borrowings under these facilities are
unsecured, mature five years after their inception date and bear interest at
variable rates. The credit agreements have been filed as exhibits to a Form 10-Q
for the periods ended March 31, 1998 and March 31, 1999, respectively, filed by
Phoenix Investment Partners.
2
Item 7. Financial Statements and Other Exhibits.
(a) Financial Statements of Businesses Acquired.
Audited Combined Financial Statements of the Zweig Fund Advisors for 1998:
Report of Independent Accountants
Combined Statement of Financial Condition - December 31, 1998
Combined Statement of Income - For the Year Ended December 31, 1998
Combined Statement of Capital - For the Year Ended December 31, 1998
Combined Statement of Cash Flows - For the Year Ended December 31, 1998
Notes to Combined Financial Statements
(b) Pro Forma Financial Information.
Unaudited Pro Forma Combined Financial Statements of Phoenix
Investment Partners, Ltd. and the Zweig Fund Group:
Unaudited Pro Forma Combined Statement of Financial Condition -
December 31, 1998
Unaudited Pro Forma Combined Statement of Income and
Comprehensive Income - For the Year Ended December 31, 1998
Notes to Unaudited Pro Forma Combined Financial Statements
(c) Exhibits.
23(a) Consent of PricewaterhouseCoopers LLP
3
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Phoenix Investment Partners, Ltd.
May 14, 1999 /s/ William R. Moyer
-----------------------------
William R. Moyer, Chief Financial Officer
4
PHOENIX INVESTMENT PARTNERS, LTD. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
Page
Audited Combined Financial Statements of the Zweig Fund Advisors:
Report of Independent Accountants .............................. 8
Combined Statement of Financial Condition - December 31, 1998 .. 9
Combined Statement of Income - For the Year Ended
December 31, 1998......................................... 10
Combined Statement of Capital - For the Year Ended
December 31, 1998......................................... 11
Combined Statement of Cash Flows - For the Year Ended
December 31, 1998......................................... 12
Notes to Combined Financial Statements.......................... 13
Unaudited Pro Forma Combined Financial Statements of Phoenix Investment
Partners, Ltd. and the Zweig Fund Group:
Unaudited Pro Forma Combined Statement of Financial Condition -
December 31, 1998........................................ 23
Unaudited Pro Forma Combined Statement of Income and Comprehensive
Income - For the Year Ended December 31, 1998............ 25
Notes to Unaudited Pro Forma Combined Financial Statements...... 27
5
ZWEIG FUND ADVISORS
1998 Combined Financial Statements
6
ZWEIG FUND ADVISORS
1998 COMBINED FINANCIAL STATEMENTS
INDEX
Page
Report of Independent Accountants 1
Combined Statement of Financial Condition 2
Combined Statement of Income 3
Combined Statement of Capital 4
Combined Statement of Cash Flows 5
Notes to Combined Financial Statements 6
7
REPORT OF INDEPENDENT ACCOUNTANTS
To the Management of
Zweig Fund Advisors:
In our opinion, the accompanying combined statement of financial condition and
the related combined statements of income, of capital and of cash flows present
fairly, in all material respects, the financial position of Zweig Fund Advisors
(the "Companies") as of December 31, 1998, and the results of their operations
and their cash flows for the year then ended, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Companies' management; our responsibility is to express an
opinion on these financial statements based on our audit. We conducted our audit
of these statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
New York, New York
February 15, 1999, except for
Note 10, as to which the
date is March 1, 1999
1
8
ZWEIG FUND ADVISORS
COMBINED STATEMENT OF FINANCIAL CONDITION
December 31, 1998
(in thousands)
Assets:
Current:
Cash and cash equivalents $ 7,163
Due from affiliates 2,337
Other receivables 208
Prepaid expenses 940
Deferred sales commissions 654
- ----------------------------------------------------------------------------
Total current assets 11,302
Investments 104
Fixed assets, net 2,409
Intangibles 88
Security deposits 296
Other 1,612
- -----------------------------------------------------------------------------
Total assets $ 15,811
=============================================================================
Liabilities:
Current:
Distribution fees $ 2,922
Accounts payable and accrued expenses 2,599
Due to affiliates 199
Revolving credit agreement debt 2,302
- -----------------------------------------------------------------------------
Total liabilities 8,022
Commitments and contingencies (Note 7)
Capital 7,789
- -----------------------------------------------------------------------------
Total liabilities and capital $ 15,811
=============================================================================
The accompanying notes are an integral part of these combined financial
statements.
2
9
ZWEIG FUND ADVISORS
COMBINED STATEMENT OF INCOME
For the year ended December 31, 1998
(in thousands)
Revenues:
Investment advisory fees $ 36,465
Distribution fees and CDSCs 16,296
Administration and service fees 2,006
Commissions and underwriting fees 1,273
Dividends and other 2,481
- ----------------------------------------------------------------------------
Total revenues 58,521
- ----------------------------------------------------------------------------
Expenses:
Employee compensation and related costs 22,501
Distribution and clearance 13,799
Marketing and advertising 2,649
Service fees 1,717
Office 1,626
Amortization of deferred sales commissions 1,381
Rent and related 1,379
Depreciation and amortization 1,169
Professional fees 881
Local taxes 772
Expense and other reimbursements to affiliated funds 511
Insurance 347
Interest and other financing costs 54
Other 458
- ----------------------------------------------------------------------------
Total expenses
49,244
- ----------------------------------------------------------------------------
Net income $ 9,277
============================================================================
The accompanying notes are an integral part of these combined financial
statements.
3
10
ZWEIG FUND ADVISORS
COMBINED STATEMENT OF CAPITAL
For the year ended December 31, 1998
(in thousands)
Additional
Partners' Common Paid-in Retained
Capital Stock Capital Earnings Total
-------- --------- -------- --------- --------
Balance, beginning of year $ 2,578 $ 1,530 $ 100 $ 5,804 $ 10,012
Net income 54 -- -- 9,223 9,277
Unrealized loss on
investments (2) -- -- -- (2)
Dividends and
distributions -- -- -- (11,498) (11,498)
- --------------------------------------------------------------------------------
Balance, end of year $ 2,630 $ 1,530 $ 100 $ 3,529 $ 7,789
================================================================================
The accompanying notes are an integral part of these combined financial
statements.
4
11
ZWEIG FUND ADVISORS
COMBINED STATEMENT OF CASH FLOWS
For the year ended December 31, 1998
(in thousands)
Cash flows provided from (used in) operating activities:
Net income $ 9,277
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 1,169
Amortization of deferred sales commissions 1,381
Net gain on distribution of securities (62)
Loss on abandonment of fixed assets 21
Addition to deferred sales commissions (1,508)
(Increases) decreases in assets:
Due from affiliates 201
Other receivables 59
Prepaid expenses (116)
Security deposits 143
Other assets (918)
Increases (decreases) in liabilities:
Distribution fees (494)
Accounts payable and accrued expenses 358
Due to affiliates (61)
- ----------------------------------------------------------------------------
Net cash provided by operating activities 9,450
- ----------------------------------------------------------------------------
Cash flows (used in) investing activities:
Additions to investments (274)
Additions to fixed assets (562)
- ----------------------------------------------------------------------------
Net cash (used in) investing activities (836)
- ----------------------------------------------------------------------------
Cash flows provided by (used in) financing activities:
Repayment of notes payable (2,004)
Proceeds from revolving credit agreement 2,504
Repayment of revolving credit agreement (571)
Class B deferred commissions (4,398)
Proceeds from sales of Class B deferred commissions 4,407
Dividends and distributions to shareholders (10,507)
- ----------------------------------------------------------------------------
Net cash (used in) financing activities (10,569)
- ----------------------------------------------------------------------------
Net (decrease) in cash (1,955)
Cash and cash equivalents, beginning of year 9,118
- ----------------------------------------------------------------------------
Cash and cash equivalents, end of year $ 7,163
============================================================================
The accompanying notes are an integral part of these combined financial
statements.
5
12
ZWEIG FUND ADVISORS
Notes to Combined Financial Statements
1. Organization
Zweig Fund Advisors (the "Companies") consist of four investment advisors
and a broker-dealer. The entities constituting the Companies are under
common control.
Zweig Advisors Inc. ("Zweig Advisors"), a Delaware corporation that
was formed and commenced operations in 1986, is registered as an
investment adviser under the Investment Advisers Act of 1940 (the
"Advisers Act"). Zweig Advisors provides investment management and
advisory services to The Zweig Fund, Inc. ("ZF") and sub-advised
funds.
Zweig Total Return Advisors, Inc. ("ZTR Advisors"), a Delaware
corporation that was formed and commenced operations in 1988, is
registered as an investment adviser under the Advisers Act. ZTR
Advisors provides investment management and advisory services to The
Zweig Total Return Fund, Inc. ("ZTR").
Zweig/Glaser Advisers ("Zweig/Glaser"), a New York general partnership
formed in 1989 and registered as an investment adviser under the Advisers
Act, provides investment management and advisory services to Zweig Series
Trust ("ZST") and sub-advised funds. It also provides administrative
services to ZF, ZTR and certain of the sub-advised funds.
Euclid Advisors LLC ("Euclid"), a New York Limited Liability Company
wholly-owned by Zweig/Glaser, was formed to purchase the fixed assets and
business of an affiliated investment advisor in April 1997. Prior to May 1,
1998, Euclid managed private accounts for individual investors and
institutions. Euclid Market Neutral Fund, a portfolio of Euclid Mutual
Funds ("EMF"), commenced operations effective May 1, 1998. Euclid is the
investment advisor of the new fund and is also registered under the
Investment Advisers Act of 1940.
ZST and EMF are open-end investment companies that offer various classes of
shares. ZF and ZTR are closed-end investment companies listed on the New
York Stock Exchange. Each of the funds managed and the sub-advised products
are collectively referred to as the "Funds".
Zweig Securities Corp. ("Securities Corp."), a New York corporation,
is the principal distributor of ZST and EMF. In addition, Securities
Corp provides trading and marketing services for affiliates.
Securities Corp. is a registered broker-dealer that clears
transactions through another broker-dealer on a fully disclosed
basis. Accordingly, the company is exempt from the provisions of
Securities and Exchange Commission ("SEC") Rule 15c3-3.
6
13
ZWEIG FUND ADVISORS
Notes to Combined Financial Statements, Continued
Services are provided to the Funds pursuant to contracts that set forth the
services to be provided and the fees to be charged and are subject to
annual review and approval by each Fund's board of directors or trustees.
Revenues are largely dependent on the total value, composition and
associated fee structure of assets under management. Accordingly,
fluctuations in financial markets, composition of assets and account
activity impact revenues.
Investment advisory fees from Zweig Strategy Fund (a series of ZST) and
from ZF, represent the percentages of total combined revenues set forth
below. No other portfolio's investment advisory fee revenue represents 10%
or more of total combined revenues.
Zweig Strategy Fund 14.7%
The Zweig Fund, Inc. 10.1%
--------------------------------------------------------------------------
2. Significant Accounting Policies
Basis of Presentation and Combination
The combined financial statements have been prepared in accordance with
generally accepted accounting principles. All material inter-company
transactions and balances among the combined entities have been eliminated.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenue and expenses
during the reporting period. Actual results could differ from those
estimates.
Cash and Cash Equivalents
Investments in money market funds are classified as cash equivalents.
Deferred Sales Commissions
Sales commissions paid to broker/dealers in connection with the sale of
Class B shares of ZST and EMF are capitalized. Pursuant to contracts
entered into by Zweig/Glaser and Securities Corp., unaffiliated third
parties purchase or have purchased Securities Corp.'s right to receive
future distribution payments from ZST and EMF and Contingent Deferred Sales
Charges ("CDSCs") from redeeming Class B shareholders.
Sales commissions paid to broker/dealers in connection with the sale of
Class C shares of ZST and EMF are capitalized and amortized over a period
of one year which approximates the period during which such sales
commissions are, subject to the terms of ZST's and EMF's Rule 12b-1
distribution plan, expected to be recovered from distribution payments from
ZST and EMF. CDSCs from redeeming Class C shareholders reduce unamortized
deferred sales commissions as received (see Note 3).
7
14
ZWEIG FUND ADVISORS
Notes to Combined Financial Statements, Continued
Fixed Assets
Equipment and furniture are being depreciated on a straight-line basis over
their estimated useful lives. Leasehold improvements are being amortized on
a straight-line basis over the term of the lease which approximates their
estimated useful lives.
Intangibles
Certain intangible assets, primarily investment advisory contracts, client
files and goodwill, were contributed to Zweig/Glaser and are being
amortized on a straight-line basis over 120 months.
Income Taxes
No provision for federal income taxes is necessary since each company is
treated as a pass-through entity for federal (and most state) income taxes.
The Companies are subject to certain state and local taxes.
Revenue Recognition
Fee revenue, dividends and interest are recorded on an accrual basis.
Commission income and related expenses are recorded on a trade date basis.
Advertising and Promotion
Costs of advertising are expensed as it appears in the media. Promotional
materials are expensed based on the earlier of actual usage or the expected
useful life.
Fair Value of Financial Instruments
The fair value of financial instruments approximates book value.
3. Related-Party Transactions
Revenues for services provided to the Funds and other affiliates are as
follows (in thousands):
Investment advisory fees $ 33,083
Distribution fees and CDSCs 16,296
Administration and service fees 1,842
Commissions and underwriting fees 1,273
--------------------------------------------------------------------------
8
15
ZWEIG FUND ADVISORS
Notes to Combined Financial Statements, Continued
Securities Corp. earned fees for distribution and underwriting services
for ZST and EMF. Securities Corp. also earned brokerage commissions
from affiliates.
The Companies from time to time may voluntarily undertake to limit certain
expenses of the Funds. In addition, the Companies may advance payments for
certain expenses on behalf of the Funds, for which they are subsequently
reimbursed. Such amounts (in thousands) are summarized below:
Expense and other reimbursements to Funds $ 511
Expenses advanced on behalf of Funds 53
--------------------------------------------------------------------------
Included in cash and cash equivalents at December 31, 1998 is $6,910,000
invested in Zweig Government Cash Fund ("ZCF"), a money market portfolio of
ZST.
Due from affiliates (primarily from the Funds) consist of (in thousands):
Distribution fees $ 1,121
Advisory fees 952
Other 264
--------------------------------------------------------------------------
Total $ 2,337
==========================================================================
Investments consist of (in thousands):
Euclid Mutual Fund $ 98
Zweig Series Trust 6
--------------------------------------------------------------------------
Total carrying value, at market $ 104
==========================================================================
9
16
ZWEIG FUND ADVISORS
Notes to Combined Financial Statements, Continued
The Companies maintain informal agreements with an affiliate providing for
the allocation of certain costs to the Companies. The allocations consist
of (in thousands):
Employee compensation and related costs $ 2,673
Office 1,150
Rent and related costs 1,078
Capital expenditures 426
Marketing and advertising 284
Professional fees 210
Insurance 157
Other 191
--------------------------------------------------------------------------
Total $ 6,169
==========================================================================
Zweig/Glaser paid $2,019,000 for principal and interest on short-term
borrowings primarily from it's controlling individuals.
Certain owners, officers and/or directors of the Companies are also owners,
officers, and/or directors of other affiliates.
Notes 5, 6 and 7 discuss additional related party transactions.
4. Fixed Assets
Major classifications of fixed assets consist of (in thousands):
Equipment $ 2,578
Leasehold improvements 1,928
Furniture and fixtures 919
------------------------------------------------------------------------
5,425
Less accumulated depreciation and amortization (3,016)
--------------------------------------------------------------------------
Total $ 2,409
==========================================================================
10
17
ZWEIG FUND ADVISORS
Notes to Combined Financial Statements, Continued
5. Employee Benefit Plans
The Companies participate in a defined contribution pension plan covering
substantially all employees. The Companies are required by the plan to make
annual contributions of 10% of a qualified employee's eligible
compensation. The Companies also participate in a noncontributory profit
sharing plan covering substantially all employees, which provides for
annual contributions as determined at the discretion of the Companies.
The total pension and profit sharing expense for the year was $725,000.
Substantially all of the plans' assets are invested in ZST.
6. Debt
Pursuant to a revolving credit agreement with a bank (the "Facility"),
Zweig/Glaser may borrow up to $6 million ($3.5 million of which may be used
for working capital purposes, repayable at the option of Zweig/Glaser no
later than 120 days after the date of borrowing) to bridge the commission
obligation with the distribution fees and CDSCs of the Class C shares of
ZST and EMF. The Facility expires December 10, 2000. Each loan under the
Facility bears interest (7.75% as of year-end) at the option of
Zweig/Glaser at the "Prime" commercial lending rate of the bank or the
"LIBOR" rate for the corresponding term of such loan plus 2%. The Facility
also provides for a commitment fee of 0.375% per annum on the average daily
unused amount of the commitment, payable to the bank quarterly. The
commitment fee and accrued interest are payable quarterly, and each loan is
generally repayable within one year. In addition, CDSC collections are
applied to reduce principal. The Facility is collateralized by revenues
assigned to Zweig/Glaser from an affiliate and Zweig/Glaser's investment
advisory fees from Class A and C shares of ZST and EMF. At year-end,
Zweig/Glaser had outstanding borrowings under this facility of $2,300,000.
Under the terms of the Facility, Zweig/Glaser has agreed to maintain at all
times (i) capital of at least $500,000 and (ii) the sum of capital of
Zweig/Glaser and Securities Corp. of at least $2,000,000. Zweig/Glaser also
agreed to maintain equity assets managed or administered of at least $1.5
billion and a ratio of (i) management fees during the 12 month period
immediately preceding or ending at such time to (ii) the outstanding loans
at such time of at least 2:1. The Facility also restricts certain changes
of control.
11
18
ZWEIG FUND ADVISORS
Notes to Combined Financial Statements, Continued
7. Commitments and Contingencies
Securities Corp. has guaranteed certain employees minimum compensation
in excess of base salaries, subject to continued employment,
aggregating $1,517,000 for the calendar year 1999.
Under the provisions of the respective stockholder's agreements, Zweig
Advisors and ZTR Advisors are obligated to purchase the shares of a
stockholder, upon his or her death, at a specified price.
Effective May 12, 1995, Zweig Advisors entered into a lease for office
space directly with the landlord, which replaced a prior informal agreement
with a co-tenant. The lease provided the Company with additional office
space beginning February 1, 1996, which the Company then subleased to the
existing tenant, at cost, through December 10, 1996.
Zweig Advisors, in turn, has informal agreements with affiliates to share
in annual lease obligations of $1,718,000, $1,718,000, $1,798,000,
$1,823,000, and $1,216,000 for the years ending December 31, 1999 through
2003. Included in due to affiliates are security deposits received from
affiliates of $266,000.
Zweig/Glaser also leases office space under a lease agreement expiring June
30, 2000. Minimum annual lease payments under this agreement are $332,000
for the year ending December 31, 1999 and $166,000 for the period ending
June 30, 2000. This office space is subleased to another party through the
end of Zweig/Glaser's lease term. The proceeds from this sublease, less
associated costs, is less than Zweig/Glaser's obligation for the lease.
Zweig/Glaser recognized a loss in 1996 relating to this transaction.
In prior years, Zweig/Glaser settled with New York City for unincorporated
business taxes relating to the tax years through 1996. Zweig/Glaser paid or
accrued taxes for the years 1997 and 1998 under the same terms as the
settlement reached for prior years.
In order to facilitate the payment of the initial sales commissions to
broker/dealers in connection with the sale of Class B Shares of ZST and
EMF, Securities Corp. entered into a purchase and sale agreement to sell
its right to receive future distribution fees and CDSCs related to such
Class B Shares. Zweig/Glaser entered into a simultaneous agreement with the
purchaser obligating it for certain costs and undertakings. The
undertakings include guaranteeing Securities Corp's performance,
maintaining minimum partners' capital less intangibles of $2,000,000, and
restricting certain changes of control.
12
19
ZWEIG FUND ADVISORS
Notes to Combined Financial Statements, Continued
In December 1998, a complaint was filed by Solv-Ex Corporation ("Solv-Ex")
in the Second Judicial District Court of Bernalillo County, New Mexico
against Zweig Advisors Inc. ("Zweig Advisors") and Martin E. Zweig
(collectively, the "Zweig Defendants") and other entities (none of whom are
affiliated with Martin Zweig or Zweig Advisers) in connection with, among
other things, the trading of shares in Solv-Ex. Zweig Advisors believes
that it was improperly named as a defendant because neither Zweig Advisors
nor any of the accounts managed by Zweig Advisors ever had a position in
Solv-Ex, although certain affiliates of the Zweig Defendants did trade in
Solv-Ex stock for non-investment company accounts during the period of time
referred to in the complaint. Management is unable to predict the outcome
of this matter or whether the resolution could have a material impact on
the financial statements.
8. Supplemental Cash Flow Information
Cash payments for income taxes and interest were as follows (in thousands):
State and local taxes paid during the year $ 914
Interest paid during the year $ 32
==========================================================================
Noncash investing and financing activities as follows (in thousands):
Distribution of 56,475 shares of the Zweig Fund,
Inc. to shareholders $ 685
Distribution of 34,523 shares of the Zweig Total
Return Fund, Inc. to shareholders $ 306
==========================================================================
9. Capital Requirements
Securities Corp. is subject to the SEC's Uniform Net Capital Rule 15c3-1,
which requires the maintenance of minimum net capital, as defined, and that
the ratio of aggregate indebtedness, as defined, to net capital not exceed
15 to 1. At December 31, 1998, Securities Corp.'s net capital of $688,480
was $401,295 in excess of the minimum statutory requirement, and its ratio
of aggregate indebtedness to net capital was 6.26 to 1.
13
20
ZWEIG FUND ADVISORS
Notes to Combined Financial Statements, Continued
10. Acquisition of the Companies
Phoenix Investment Partners, Ltd., a Delaware corporation ("Phoenix"),
entered into an agreement dated as of December 15, 1998 (the "Acquisition
Agreement") with Zweig/Glaser, Euclid, Zweig Advisors, ZTR Advisors and
Securities Corp. (collectively, the "Zweig Group") and the equityholders of
the Zweig Group. Pursuant to the Acquisition Agreement, the Zweig Group has
been acquired by Phoenix (the "Acquisition") as of March 1, 1999.
Upon consummation of the Acquisition, a subsidiary of Phoenix will become
the principal distributor of the ZST and EMF. No other substantial change
to the Companies' operation is anticipated at this time.
Pursuant to the Acquisition Agreement, the equityholders of the Zweig Group
have agreed to indemnify Phoenix for all damages in connection with the
Solv-Ex complaint discussed in Note 7.
14
21
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS OF
PHOENIX INVESTMENT PARTNERS, LTD. AND
THE ZWEIG FUND GROUP
The following unaudited pro forma combined information as of and for the year
ended December 31, 1998, is based on the historical financial statements of
Zweig/Glaser Advisers (ZGA), Euclid Advisors LLC (a wholly-owned subsidiary of
ZGA), Zweig Advisors Inc., Zweig Total Return Advisors, Inc. and Zweig
Securities Corp. (collectively, the "Zweig Fund Group"), included elsewhere in
this Form 8-K/A (under the name of "Zweig Fund Advisors"), and the historical
financial statements of Phoenix Investment Partners, Ltd. ("Phoenix Investment
Partners") included in its Annual Report on Form 10-K for the year ended
December 31, 1998. Certain reclassifications have been made to Zweig Fund
Group's financial statements to conform them with Phoenix Investment Partners'
presentation. The pro forma financial information gives effect to the
transactions consummated by the Acquisition Agreement with the Zweig Fund Group.
The pro forma statement of income and comprehensive income and statement of
financial condition were prepared assuming the transactions consummated by the
Acquisition Agreement were effected as of January 1, 1998 and December 31, 1998,
respectively. The purchase price allocation given effect to in the pro forma
financial statements is preliminary, as additional information is necessary
to complete the purchase price allocation. The unaudited pro forma information
should be read in conjunction with the related notes thereto and the historical
financial statements of Phoenix Investment Partners and the Zweig Fund Group.
The pro forma information does not purport to be indicative of the results of
operations that would have occurred had the transactions been consummated on the
assumed dates, nor is the information intended to be a projection for any future
period.
22
PHOENIX INVESTMENT PARTNERS, LTD.
UNAUDITED PRO FORMA COMBINED STATEMENT OF FINANCIAL CONDITION
As of December 31, 1998
(in thousands)
Pro Forma
---------- ----------- -----------------------
Phoenix Zweig
Investment Fund
Partners Group Adjustments Combined
---------- ----------- ----------- ----------
Assets
Current Assets
Cash and Cash Equivalents $ 29,298 $ 7,163 $ (5,604) a,e, $ 30,857
f
Marketable Securities,
at Market 16,275 - - 16,275
Accounts Receivable 9,493 1,393 - 10,886
Receivables From
Related Parties 25,522 1,739 - 27,261
Prepaid Expenses and
Other Assets 2,951 856 - 3,807
---------- ----------- ---------- ---------
Total Current
Assets 83,539 11,151 (5,604) 89,086
---------- ----------- ---------- --------
Deferred Commissions 2,798 594 (445) b,i 2,947
Furniture, Equipment and
Leasehold Improvements,Net 8,589 2,409 - 10,998
Intangible Assets, Net 146,402 - 78,063 a 224,465
Goodwill, Net 300,255 88 56,815 a,b 357,158
Long-term Investments
and Other Assets 22,135 2,101 (1,309) f 22,927
---------- ----------- ---------- ---------
Total Assets $ 563,718 $ 16,343 $127,520 $707,581
========== =========== ========== =========
Liabilities and Stockholders' Equity
Current Liabilities
Accounts Payable and
Accrued Liabilities $ 39,659 $ 2,542 $ 520 g 42,721
Payables to Related Parties 3,032 469 - 3,501
Broker-Dealer Payable 9,568 2,922 - 12,490
Current Portion of
Long-term Debt 964 - - 964
---------- ----------- ---------- ---------
Total Current Liabilities 53,223 5,933 520 59,676
---------- ----------- ---------- ---------
Deferred Taxes, Net 53,446 - (213) g 53,233
Long-term Debt , Net
of Current Portion 1,718 2,301 - 4,019
Convertible Subordinated
Debentures 76,364 - - 76,364
Credit Facilities 140,000 - 135,000 e 275,000
Lease Obligations and Other
Long-term Liabilities 4,843 322 - 5,165
---------- ----------- ---------- ---------
Total Liabilities
329,594 8,556 135,307 473,457
---------- ----------- ---------- ---------
Minority Interest
2,531 - - 2,531
Stockholder's Equity 231,593 7,787 (7,787) a,b, 231,593
f,g,i
---------- ----------- ---------- ---------
Total Liabilities and
Stockholders' Equity $ 563,718 $ 16,343 $ 127,520 $ 707,581
========== =========== ========== =========
The accompanying notes are an integral part of the unaudited pro forma
combined financial statements.
23
PHOENIX INVESTMENT PARTNERS, LTD.
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
SUMMARY OF PRO FORMA ADJUSTMENTS - STATEMENT OF FINANCIAL CONDITION
Balance Sheet Item Note Adjustment December 31, 1998
(in thousands)
Cash and cash e Financing proceeds from
equivalents credit facilities $ 135,000
a Payment of purchase price (137,325)
f Working capital adjustment (3,279)
----------
(5,604)
----------
Deferred commissions b,i Adjustment to Zweig Fund
Group assets (445)
----------
Intangible assets, net a Intangible assets 78,063
----------
Goodwill, net a Excess purchase price 56,903
b Adjustment to Zweig Fund
Group assets (88)
----------
56,815
----------
Long-term investments and
other assets f Working capital adjustment (1,309)
----------
Effect on Total Assets $ 127,520
==========
Accounts payable and
accrued liabilities g Involuntary severance costs $ 520
----------
Deferred taxes, net g Deferred taxes on involuntary
severance costs (213)
----------
Credit facilities e Obligations under credit
facilities 135,000
----------
Effect on Total Liabilities 135,307
----------
Stockholders' equity a Intangible assets 78,063
a Excess purchase price 56,903
a Payment of purchase price (137,325)
b,i Adjustment to Zweig Fund
Group assets (533)
g Involuntary severance costs (307)
f Working capital adjustment (4,588)
----------
Effect on Stockholders' Equity (7,787)
----------
Effect on Total Liabilities and
Stockholders' Equity $ 127,520
==========
24
PHOENIX INVESTMENT PARTNERS, LTD.
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME AND COMPREHENSIVE INCOME
For the Twelve Months Ended December 31, 1998
(in thousands, except per share amounts)
Pro Forma
---------- ---------- ---------------------
Phoenix Zweig
Investment Fund Adjustments Combined
Partners Group
---------- ---------- ---------------------
Revenues
Investment Management Fees $ 193,130 $ 35,954 $ - $ 229,084
Mutual Funds-Ancillary Fees 25,739 4,210 - 29,949
Other income and Fees 2,678 3,904 - 6,582
---------- ---------- -------- ----------
Total Revenues 221,547 44,068 - 265,615
---------- ---------- -------- ----------
Operating Expenses
Employment Expenses 90,407 22,514 (11,987) g,h 100,934
Other Operating Expenses 55,355 9,706 3,868 h,i 68,929
Depreciation and Amortization 3,663 1,038 - 4,701
Amortization of
Goodwill & Intangibles 22,057 132 9,548 b,c 31,737
Amortization of
Deferred Commissions 1,380 1,381 (1,381) b,i 1,380
---------- ---------- -------- ---------
Total Operating Expenses 172,862 34,771 48 207,681
---------- ---------- -------- ---------
Operating Income 48,685 9,297 (48) 57,934
---------- ---------- -------- ---------
Other Income - Net 21,047 62 - 21,109
---------- ---------- -------- ---------
Interest Expense (Income)- Net
Interest Expense 14,548 54 8,100 e 22,702
Interest Income (1,989) (609) - (2,598)
---------- ---------- -------- ---------
Total Interest Expense - Net 12,559 (555) 8,100 20,104
---------- ---------- -------- ---------
Minority Interest (2,198) - - (2,198)
Income Before Income Taxes 54,975 9,914 (8,148) 56,741
Provision for Income Taxes 20,335 637 478 d,j 21,450
---------- ---------- -------- ---------
Net Income 34,640 9,277 (8,626) 35,291
Other Comprehense Income, Net of Tax
Foreign Currency
Translation Adjustment 1,171 - - 1,171
Unrealized Losses on Securities
Available-for-sale (8,274) - - (8,274)
---------- ---------- -------- ---------
Total Other Comprehensive Loss (7,103) - - (7,103)
---------- ---------- -------- ---------
Comprehensive Income $ 27,537 $ 9,277 $(8,626) $ 28,188
========== ========== ======== =========
Net Income $ 34,640 $ 9,277 $(8,626) $ 35,291
Series A Preferred
Stock Dividends 1,223 - - 1,223
---------- ---------- -------- ---------
Income from Continuing
Operation Available
to Common Stockholders $ 33,417 $ 9,277 $(8,626) $ 34,068
========== ========== ======== =========
Earnings per Common and Common Equivalent Share:
Basic $ 0.76 k $ 0.77
Diluted $ 0.68 k $ 0.69
Weighted Average Number of
Shares Outstanding:
Basic 44,076 44,076
Diluted 54,297 54,297
The accompanying notes are an integral part of the unaudited pro forma
combined financial statements.
25
PHOENIX INVESTMENT PARTNERS, LTD.
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
SUMMARY OF PRO FORMA ADJUSTMENTS - STATEMENT OF INCOME
Income Statement Year Ended
Item Note Adjustment December 31, 1998
(in thousands)
Employment expenses g Compensation adjustment $ (9,500)
h Operating agreements adjustment (2,487)
--------
(11,987)
--------
Other operating
expenses h Operating agreements adjustment 2,487
i Expense deferred commissions 1,381
--------
3,868
--------
Amortization of c Amortization of excess purchase price 1,422
goodwill and b Eliminate Zweig Fund Group
intangible assets goodwill amortization (132)
c Amortization of intangible assets 8,258
---------
9,548
--------
Amortization of deferred
commissions i Expense deferred commissions (1,381)
--------
Interest expense e Interest expense on credit facilities 8,100
Provision for
income taxes d,j Tax effect of pro forma adjustments 478
--------
Effect on Income $ (8,626)
========
26
PHOENIX INVESTMENT PARTNERS, LTD.
NOTES TO THE UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
The pro forma financial statements include the historical results of Phoenix
Investment Partners and the Zweig Fund Group. The following pro forma
adjustments, which are necessary to reflect the acquisition of the Zweig Fund
Group, are included:
(a) The acquisition of the Zweig Fund Group has been accounted for
as a business combination using the purchase method. The
purchase price for this acquisition is the sum of the
consideration paid and the transaction costs incurred by
Phoenix Investment Partners. Under the purchase method of
accounting for business combinations, the purchase price is
allocated to the assets and liabilities based on their relative
fair values with the excess of the acquisition cost over the
fair value of the net assets recorded as excess of cost over
book value acquired. Preliminary analyses have been performed
in order to identify intangible assets and to allocate purchase
price to identifiable assets with the excess of purchase price
over net tangible and intangible assets recorded as goodwill.
The following table summarizes the preliminary calculation and
allocation of the Zweig Fund Group's purchase price (in thousands):
Purchase Price:
Consideration paid or payable $ 135,000
Transaction costs 2,325
---------
Total Purchase Price $ 137,325
=========
Purchase Price Allocation:
Fair value of acquired net assets $ 2,359
Identified intangibles 78,063
Goodwill 56,903
---------
Total Allocation of Purchase Price $ 137,325
=========
(b) Pro forma adjustments have been included to reflect the fair value
adjustments made to the historical cost basis of certain Zweig Fund
Group assets.
(c) Intangible assets identified (primarily investment management
contracts) in the amount of $78.1 million have an average estimated
useful life of 12 years. Pro forma adjustments have been made to
amortize (1) identified intangible assets over their estimated
useful lives, and (2) goodwill of $56.9 million over 40 years.
Identified intangibles and goodwill have been created for book
purposes. The basis in these assets have been stepped up to fair
value for tax purposes.
(d) Prior to the acquisition, ZGA operated as a partnership, with the
resulting income taxes accruing to the individual partners and,
therefore, not reflected in the financial statements. As a result
of the acquisition, income tax expense is recognized by the
consolidated entity. A pro forma adjustment has been included to
reflect the appropriate income tax expense.
(e) The acquisition of the Zweig Fund Group was financed through
borrowings under an existing $200 million bank credit facility
and a new $175 million bank credit facility. Borrowings under
these facilities are unsecured, mature five years after their
inception dates and bear interest at variable rates. A pro
forma adjustment has been included to reflect the interest
expense at the 1998 rate of 6.0%. A .125% change in the
interest rate would increase or decrease interest expense by
approximately $169,000.
27
NOTES TO THE UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS,
Continued
(f) The Acquisition Agreement required the Zweig Fund Group to have a
specified amount of working capital at the date of acquisition. A
pro forma adjustment has been made to reflect the adjustments to
achieve the specified amount of working capital.
(g) At the date of the acquisition, Phoenix Investment Partners had
a plan in place to eliminate certain positions held by Zweig Fund
Group employees. In addition, prior to the acquisition, the
Zweig Fund Group distributed a substantial portion of its
earnings as compensation. Effective with the acquisition, such
additional compensation is no longer paid. Pro forma
adjustments have been included to reflect the liability
established for certain involuntary severance costs, net of tax,
and the reduction in annual compensation costs.
(h) Phoenix Investment Partners, the Zweig Fund Group and former
affiliates and principals of the Zweig Fund Group entered into
certain administrative, consulting and service agreements
whereby the former affiliates and principals of the Zweig Fund
Group will perform certain administrative, consulting, and
other services previously performed by Zweig Fund Group
employees. A pro forma adjustment has been included to reflect
the effect of the reduced employment expense and the expense
associated with the contracted services.
(i) Zweig Fund Group previously recorded an asset for deferred
commissions related to its mutual fund C shares, which are
recovered over a one-year period. Phoenix Investment Partners
expenses such commissions as paid. A pro forma adjustment has been
included to reflect the reversal of the deferred commissions asset
and related amortization, and to record the related expense
associated with the payment of the commissions.
(j) The pro forma adjustments have been tax effected at estimated rates
from 41% to 43%.
(k) Phoenix Investment Partners' historical earnings per share was
computed using weighted average shares of Phoenix Investment
Partners common stock and common stock equivalents. Common stock
equivalents are based on outstanding stock options under
nonqualified stock option plans.
28
EXHIBIT INDEX
Exhibit Number Description Page
23(a) Consent of PricewaterhouseCoopers LLP 30
29
23(a)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (File 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 15, 1999, except for Note 10 as to which
the date is March 1, 1999, relating to the combined financial statements of
Zweig Fund Advisors, which appears in the Current Report on Form 8K/A of
Phoenix Investment Partners, Ltd. dated May 14, 1999.
/s/ PricewaterhouseCoopers LLP
------------------------------
PricewaterhouseCoopers LLP
New York, New York
May 14, 1999
30