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EXHIBIT 99
PIONEER PENSION FUND COMPANY
FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1999 AND FOR THE PERIOD FROM
OCTOBER 29,1998 (DATE OF INCEPTION) TO DECEMBER 31, 1998
TOGETHER WITH AUDITORS' REPORT
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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of Pioneer Pension Fund Company:
We have audited the accompanying balance sheets of Pioneer Pension Fund Company,
as of December 31, 1999 and 1998 and the related statements of operations, cash
flows and stockholders' equity for the year ended December 31, 1999 and for the
period from October 29, 1998 (Date of Inception) to December 31, 1998. 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 in accordance with generally accepted auditing standards
in the United States. Those standards 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. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Pioneer Pension Fund Company as
of December 31, 1999 and 1998 and the results of its operations and its cash
flows for the year ended December 31, 1999 and for the period from October 29,
1998 (Date of Inception) to December 31, 1998 in conformity with accounting
principles generally accepted in the United States.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
February 4, 2000
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PIONEER PENSION FUND COMPANY
BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
1999 1998
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 11,507,135 $ 9,634,342
Restricted cash 90,423 --
Accounts receivable 148,136 --
Prepaid expenses 86,059 6,360
------------ -----------
Total current assets 11,831,753 9,640,702
------------ -----------
NONCURRENT ASSETS:
Deferred sales commissions, net 3,370,256 --
Fixed assets (net of accumulated depreciation and amortization of $361,073 in
1999 and $44,367 in 1998) 515,691 117,548
------------ -----------
Total noncurrent assets
3,885,947 117,548
------------ -----------
Total assets $ 15,717,700 $ 9,758,250
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
CURRENT LIABILITIES:
Accounts payable $ 142,774 $ 52,655
Commissions 398,303 --
Accrued expenses 485,782 64,194
Due to affiliates 467,878 103,129
------------ -----------
Total current liabilities 1,494,737 219,978
------------ -----------
COMMITMENTS AND CONTINGENCIES (NOTE 9)
STOCKHOLDERS' EQUITY:
Common stock - at par value, authorized; issued and outstanding 485,714 shares
in 1999 and 340,000 shares in 1998 13,598,327 9,880,849
Paid-in capital 16,282,522 --
Cumulative translation adjustment (1,936,483) (178,547)
Retained deficit (13,721,403) (164,030)
------------ -----------
Total stockholders' equity 14,222,963 9,538,272
------------ -----------
Total liabilities and stockholders' equity $ 15,717,700 $ 9,758,250
============ ===========
The accompanying notes are an integral part of these financial statements.
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PIONEER PENSION FUND COMPANY
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999 AND FOR THE PERIOD FROM
OCTOBER 29, 1998 (DATE OF INCEPTION) TO DECEMBER 31,1998
1999 1998
REVENUES:
Underwriting and distribution fees $ 293,981 $ --
Management fees 5,717 --
Interest income 914,100 92,883
Other income 367,110 --
------------ -----------
Total revenues
1,580,908 92,883
------------ -----------
EXPENSES:
Distribution 1,455,514 31,165
Compensation and benefits 3,989,778 92,420
General and administrative 2,135,306 159,494
Amortization of deferred sales commissions 979,885 --
Shareholder services fees 358,438 --
Advertising and promotion 6,426,176 7,919
------------ -----------
Total expenses 15,345,097 290,998
------------ -----------
OTHER INCOME (EXPENSE):
Foreign exchange transaction gain 483,277 35,628
Other (276,461) (1,543)
------------ -----------
Total other income (expense) 206,816 34,085
NET LOSS BEFORE INCOME TAXES (13,557,373) (164,030)
PROVISION (BENEFIT) FOR INCOME TAXES -- --
------------ -----------
NET LOSS $(13,557,373) $ (164,030)
============ ===========
The accompanying notes are an integral part of these financial statements.
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PIONEER PENSION FUND COMPANY
STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1999 AND FOR THE PERIOD
FROM OCTOBER 29, 1998 TO DECEMBER 31, 1998
1999 1998
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(13,557,373) $ (164,030)
Depreciation and amortization 316,706 44,367
Loss on disposal of fixed assets 43,650 --
Changes in operating assets and liabilities-
Prepaid expenses (79,699) (6,360)
Accounts receivable (148,136) --
Deferred sales commissions, net (3,755,150) --
Accounts payable 90,119 52,655
Commissions 398,303 --
Accrued expenses 421,588 64,194
Due to affiliates 364,749 103,129
------------ -----------
Net cash (used in) provided by operating activities (15,905,243) 93,955
------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to furniture, equipment and leasehold improvements (867,834) (161,915)
Proceeds from sale of fixed assets 50,442 --
------------ -----------
Net cash used in investing activities (817,392) (161,915)
------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of stock 20,000,000 9,880,849
Restricted cash (90,423) --
------------ -----------
Net cash provided by financing activities 19,909,577 9,880,849
------------ -----------
EFFECT OF FOREIGN CURRENCY EXCHANGE RATES ON CASH AND CASH EQUIVALENTS
(1,314,149) (178,547)
NET INCREASE IN CASH AND CASH EQUIVALENTS 1,872,793 9,634,342
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 9,634,342 --
------------ -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 11,507,135 $ 9,634,342
============ ===========
The accompanying notes are an integral part of these financial statements.
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PIONEER PENSION FUND COMPANY
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1999 AND FOR THE PERIOD FROM
OCTOBER 29, 1998 (DATE OF INCEPTION) TO DECEMBER 31, 1999
Common Stock
--------------------------
Cumulative
Paid-in- translation Retained Comprehensive
Shares Amount capital adjustment Deficit Total loss
------------ ----------- ----------- ----------- ------------ ------------ -------------
BALANCE AT OCTOBER 29,
1998 (DATE OF INCEPTION) $ $ $ $ $ $
Common stock issued 340,000 9,880,849 -- -- -- 9,880,849 --
Net loss for the year -- -- -- -- (164,030) (164,030) (164,030)
Cumulative translation adjustment -- -- -- (178,547) -- (178,547) (178,547)
Comprehensive loss -- -- -- -- -- -- $ (342,577)
------------ ----------- ----------- ----------- ------------ ------------ ============
BALANCE AT DECEMBER 31, 1998 340,000 9,880,849 -- (178,547) (164,030) 9,538,272
------------ ----------- ----------- ----------- ------------ ------------
Common stock issued 145,714 3,717,478 16,282,522 -- -- 20,000,000 --
Net loss for the year -- -- -- -- (13,557,373) (13,557,373) (13,557,373)
Cumulative translation adjustment -- -- -- (1,757,936) -- (1,757,936) (1,757,936)
Comprehensive loss -- -- -- -- -- -- $(15,315,309)
------------ ----------- ----------- ----------- ------------ ------------ ============
BALANCE AT DECEMBER 31, 1999 485,714 $13,598,327 $16,282,522 $(1,936,483) $(13,721,403) $ 14,222,963
============ =========== =========== =========== ============ ============
The accompanying notes are an integral part of these financial statements.
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PIONEER PENSION FUND COMPANY
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
(1) NATURE OF OPERATIONS AND ORGANIZATION
Pioneer Pension Fund Company (the Company) was established on October
29,1998 as a wholly-owned subsidiary of The Pioneer Group, Inc. (PGI). On
April 8, 1999, additional Common Stock was issued to a third party for
$20,000,000, diluting PGI's ownership of the Company to 70%.
The Company manages the Pioneer Pension Fund (the Fund). The Fund
receives pension contributions from Polish citizens as a result of the
Polish government's pension reform program. Eligible Polish citizens were
required to select a private pension fund before the end of 1999. Those
between 18 and 30 years old were required to select a pension fund or be
assigned one via a government allocation process. Polish citizens between
31 and 50 years old could also select a private pension fund or remain
under the current pension system. The government allocation for those
under 30 who did not select a particular pension fund will be based on
the total number of participants signed up by each of the funds. This
allocation is expected in the first half of 2000.
An estimated 9,500,000 participants were signed up by 21 pension
companies in 1999. The Polish government pension office responsible for
registering participants and transferring monthly contributions into the
respective pension funds is backlogged an estimated three to four months
as of December 31, 1999. The Fund has received at least one monthly
contribution on 34% of its 110,000 accounts. The Fund has an estimated
110,000 accounts at December 31, 1999, which include approximately 20,000
accounts that are in the process of being transferred in from other
pension funds and an estimated 6,200 resignations. Transfers between
funds are processed and verified through the Polish government pension
office.
Beginning in 2000, new accounts will be solicited from those who turn 18
years old and from those transferring from other pension funds.
As manager of the Fund, the Company incurs all distribution costs and
advertising expenses associated with the acquisition of customer
accounts.
(2) BASIS OF PRESENTATION
The financial statements have been prepared in accordance with United
States generally accepted accounting principles (GAAP) and are presented
in U.S. dollars (USD).
Polish accounting records are maintained according to the statutory
accounting rules of the Polish Federation. The accompanying financial
statements are based on the Company's accounting records, appropriately
adjusted and reclassified for fair presentation in accordance with GAAP.
The functional currency of the Company is the Polish zloty (PLN). For the
purposes of presentation in USD, assets and liabilities are translated at
current exchange rates as of the end of the accounting period, and
related revenues and expenses are translated at average exchange rates in
effect during
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PIONEER PENSION FUND COMPANY
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
(Continued)
the period. Net exchange gains and losses resulting from translation are
excluded from income and are recorded as a cumulative translation
adjustment in the accompanying balance sheets.
(3) PRINCIPAL ACCOUNTING POLICIES
(a) Fixed Assets
Fixed assets are recorded at historical cost less accumulated
depreciation or amortization. Depreciation and amortization is
provided to write off the cost of the assets on a straight-line
basis over the estimated useful economic life of the asset. The
economic lives are as follows:
YEARS
Leasehold improvements 10
Fixtures and furniture 5
Computer equipment 3
Vehicles 5
(b) Deferred Sales Commissions
Distribution costs paid in connection with the acquisition of
customer accounts are capitalized and amortized over periods not
exceeding two years-the contractual period of benefit. The
capitalized amount includes all sales compensation, related
payroll taxes, incentives and account fees paid to sales agents
and external distributors based on the number of accounts signed
up. Amortization begins either when the first contribution is
received into the fund or two months after the account is signed
up, whichever occurs first. Underwriting and distribution fees are
received at the rate of 8.8% of each contribution.
A deferred sales charge is assessed to accounts that transfer from
the Company prior to the completion of the minimum investment
period of two years. The deferred sales charge is sufficient to
recover the unamortized deferred sales commissions during the
contractual period of benefit. A valuation allowance of $631,000
has been established related to estimated nonperforming accounts.
(c) Recognition of Revenues
Investment management fees, investment income and distribution
fees are all recognized as earned. Underwriting commissions are
recorded upon receipt of the contribution into the fund.
(d) Advertising and Promotion
Costs of advertising and promotion are expensed as the advertising
appears in the media.
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PIONEER PENSION FUND COMPANY
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
(Continued)
(e) Cash Flows
Cash and cash equivalents consist primarily of cash on deposit in
banks and amounts invested in commercial paper and Polish treasury
bills with original maturities of three months or less. Amounts
invested in Polish treasury bills approximate $1,953,000 and
$1,900,000 at December 31, 1998 and 1999, respectively. At
December 31, 1999, approximately $5,400,000 was invested in a
repurchase agreement, which matured on January 13, 2000.
Restricted cash is comprised of a single office lease deposit.
(f) Use of Estimates
The preparation of financial statements in conformity with GAAP
requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from
those estimates.
(4) COMPREHENSIVE LOSS
The Company adopted Statement of Financial Standards (SFAS) No. 130,
Reporting Comprehensive Income in the fourth quarter of 1998. SFAS No.
130 establishes standards for the reporting of comprehensive income and
its components. Comprehensive income, as defined, includes all changes in
equity during a period from nonowner sources. The Company's foreign
currency translation adjustments, which are excluded from net loss, are
included in comprehensive loss.
(5) TAXATION
The Company provides for income taxes using the liability method. Under
the liability method, deferred tax assets and liabilities are computed
based on the difference between the financial statement and income tax
bases of assets and liabilities using the enacted tax rates. The Company
has not recorded an income tax benefit on the losses reported, as it is
not likely that these benefits will be realized.
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PIONEER PENSION FUND COMPANY
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
(Continued)
A reconciliation of the income taxes at the U.S. federal statutory rate
to the provision for income taxes is as follows:
1999 1998
Benefit at U.S. federal statutory tax rate $ 4,745,081 $ 57,411
Effect of foreign tax rates that are
less than U.S. rates (135,574) (1,611)
Net operating losses for which no benefit
is recognized (4,266,000) (55,800)
Other (343,507) --
----------- ---------
Provision(benefit) for income taxes $ -- $ --
=========== =========
The Company's net operating loss carryforward for Polish tax purposes is
approximately 67,000,000 PLN, or approximately $16,176,000. The statutory
period for net operating loss carryforwards is five years. The maximum
amount of the loss carryforward that can be used each year is limited to
one half of the loss incurred in 1999.
The following is a summary of the Company's deferred tax assets and
liabilities at December 31:
1999 1998
Net operating loss carryforward $ 5,499,800 $ 55,800
Deferred sales commissions (1,178,000) --
----------- --------
4,321,800 55,800
Valuation allowance (4,321,800) (55,800)
----------- --------
$ -- $ --
=========== ========
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PIONEER PENSION FUND COMPANY
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
(Continued)
(6) FIXED ASSETS
Fixed assets consist of the following at December 31:
1999 1998
Leasehold improvements $ 36,158 $ 4,650
Fixtures and furniture 316,692 86,979
Software 20,614 -
Computer equipment 237,897 31,437
Vehicles 265,403 38,849
--------- --------
876,764 161,915
Accumulated depreciation (361,073) (44,367)
--------- --------
Fixed assets $ 515,691 $117,548
========= ========
(7) STOCKHOLDERS' EQUITY
The authorized capital of the Company at December 31, 1999 consisted of
485,714 of common stock, 100 PLN par value ($28) per share. All
authorized shares of common stock were issued and outstanding at December
31, 1999.
(8) RELATED PARTIES
PGI and its affiliates provide certain services to the Company. Those
services include general advisory services, distribution, shareholder
account servicing and customer support. Additionally, certain
administrative services are provided to the Company by PGI including
assistance with development of certain computer applications and
information systems, certain tax filings, as well as the preparation of
certain financial information. All of these services have been priced and
conducted on an arms length basis. The cost of services provided by PGI
and affiliates in 1999 and 1998 is $1,515,910 and $ -, respectively.
(9) FINANCIAL COMMITMENTS AND CONTINGENCIES
(a) Guarantees and Letters of Credit
There are no guarantees or letters of credit outstanding at
December 31, 1999.
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PIONEER PENSION FUND COMPANY
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
(Continued)
(b) Lease Obligations
The Company has an open-ended office lease with a three month
notice period. There are no other lease obligations at December
31, 1999.