-----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, KPOKLrKBnGawwsJbUqbA2Q2RN505rfEvyyPz2MRXZp5PNZd2pWU/2pviZYla1O2q j36Jq9qDd5HwujwfzyILQg== 0000950135-96-001595.txt : 19960402 0000950135-96-001595.hdr.sgml : 19960402 ACCESSION NUMBER: 0000950135-96-001595 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960401 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: PIONEER GROUP INC CENTRAL INDEX KEY: 0000733060 STANDARD INDUSTRIAL CLASSIFICATION: INVESTMENT ADVICE [6282] IRS NUMBER: 135657669 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-08841 FILM NUMBER: 96542773 BUSINESS ADDRESS: STREET 1: 60 STATE ST CITY: BOSTON STATE: MA ZIP: 02109-1820 BUSINESS PHONE: 8008211239 MAIL ADDRESS: STREET 1: 60 STATE STREET CITY: BOSTON STATE: MA ZIP: 02109-1820 10-K 1 THE PIONEER GROUP, INC. 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1995 Commission File No. 0-8841 THE PIONEER GROUP, INC. (Exact name of Registrant as specified in its charter) Delaware 13-5657669 (State of other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 60 State Street, Boston, Massachusetts 02109 (Address of principal executive offices) (Zip Code) Registrant's telephone no., including area code: (617) 742-7825 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $0.10 per share (Title of Class) 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. / / Based on the last sale price of the Registrant's Common Stock on the Nasdaq National Market $27.875 on March 25, 1996, the aggregate market value of the shares of voting stock held by non-affiliates of the Registrant on that date was $573,901,288. As of March 25, 1996, 24,947,173 shares of the Registrant's Common Stock, $0.10 par value, were outstanding. Documents Incorporated by Reference (1) Portions of the 1995 Annual Report to Stockholders are incorporated by reference into Parts I, II and IV (as indicated in such parts). (2) Certain information called for by Part III (as indicated therein) is incorporated from the Registrant's definitive proxy materials for use in connection with the 1996 Annual Meeting of Stockholders. 2 - -------------------------------------------------------------------------------- PART I - -------------------------------------------------------------------------------- ITEM 1. BUSINESS. OVERVIEW FINANCIAL SERVICES. The Pioneer Group, Inc., a corporation organized under the laws of the State of Delaware in 1956 (the "Company"), and its wholly owned subsidiaries, are engaged in four lines of financial services businesses in the United States: (i) investment manager to 29 open-end U.S. registered investment companies and one closed-end U.S. registered investment company (collectively, "mutual funds"), including eight mutual funds sold in connection with the Pioneer Variable Contracts Trust, which was introduced in 1995, and seven institutional accounts, (ii) distributor of shares of open-end mutual funds, (iii) venture capital investor and manager, and (iv) shareholder servicing agent for mutual funds. Through a recently created subsidiary, the Company also provides global real estate advisory services to institutions and corporations. The Company's international financial services businesses include investment operations in: (i) Warsaw, Poland, where the Company manages and distributes units of three mutual funds, owns 50% of a unitholder servicing agent and manages an institutional venture capital fund, (ii) Dublin, Ireland, where the Company distributes shares of, manages and services three offshore investment funds, sold primarily in Western Europe, and (iii) Moscow, Russia, where the Company provides financial services, including investment advisory, investment banking and brokerage services, and where the Company owns 51% of the First Voucher Fund, the largest Russian voucher investment fund. In addition, the Company has investment operations in the Czech Republic and has invested in investment management operations in India and Taiwan. NATURAL RESOURCE DEVELOPMENT. The Company's indirect wholly owned subsidiary, Pioneer Goldfields Limited ("Pioneer Goldfields"), conducts mining and exploration activities in the Republic of Ghana and exploration activities elsewhere in Africa. Pioneer Goldfields' principal asset is its ownership of 90% of the outstanding shares of Teberebie Goldfields Limited, which operates a gold mine in the western region of the Republic of Ghana. The Company also participates in several natural resource development ventures in Russia, including a project pursuing the development of timber production in the Russian Far East, in which the Company has a 71% direct interest and a 3% indirect interest. FINANCIAL SERVICES MANAGEMENT ACTIVITIES The Company's wholly owned subsidiary, Pioneering Management Corporation ("Pioneering Management"), serves as investment manager to 29 domestic open-end mutual funds, consisting of six 2 3 growth portfolios, five international growth portfolios, six growth and income portfolios, six income portfolios, two tax-free income portfolios, three money market portfolios and one balanced portfolio. These portfolios include the Pioneer Small Company Fund and eight portfolios of the Pioneer Variable Contracts Trust, each of which commenced operations in 1995. All of such open-end mutual funds (hereinafter referred to collectively as the "Funds") are registered under the Investment Company Act of 1940, as amended (the "1940 Act"). At March 1, 1996, the Funds had aggregate net assets with a market value of approximately $13.3 billion. In managing such assets, Pioneering Management employs 109 persons, including 14 fund managers and 35 investment analysts and support staff. Management Contracts with the Funds. Pioneering Management manages each Fund pursuant to management contracts. Each management contract is renewable annually by vote of either the Fund's Board (including a majority of members who are not "interested persons" as defined under the 1940 Act) or the Fund's shareholders. All management contracts terminate if assigned and may be terminated by either party without penalty on 60 days' written notice. The management contracts for the Funds (other than Funds which were established in 1995 or Funds which recently submitted their management contract to shareholders for approval) were all renewed for an additional year in 1995. Under these contracts, is authorized in its discretion to buy and sell securities for the accounts of the Funds, subject to certain limitations. In addition, the management contracts between the Funds and Pioneering Management define the ordinary operating expenses to be assumed by each. As compensation for its management services, Pioneering Management receives management fees from the Funds which range from 0.40% to 1.25% per year of average daily net assets depending on the Fund. One of the Funds has a management fee which is adjusted based upon the Fund's performance relative to the performance of an established index (a "performance fee"). Two additional Funds will implement performance fees in May 1996, assuming Fund shareholders approve the new fee arrangement. For 1993, 1994 and 1995, Pioneering Management received revenues from management fees from the Funds and Pioneer Interest Shares (see below) of approximately $36 million, $47 million and $54 million, respectively. On an interim basis, Pioneering Management has agreed not to impose a portion of its management fees and to make other arrangements, if necessary, to limit operating expenses of selected Funds. Pursuant to this policy, Pioneering Management limited management fees or otherwise incurred expenses of approximately $2.0 million, $2.1 million and $3.6 million pursuant to expense limitation agreements with selected Funds during 1993, 1994 and 1995, respectively. Revenues from Pioneer II, the largest Fund, were approximately $30 million, $31 million and $32 million in 1993, 1994 and 1995, respectively. Revenues from Pioneer Fund, the next largest Fund, were approximately $14 million, $15 million and $16 million in 1993, 1994 and 1995, respectively. 3 4 OTHER MANAGEMENT ACTIVITIES Pioneer Interest Shares. Pioneering Management also acts as investment manager to Pioneer Interest Shares, Inc., a closed-end mutual fund ("Pioneer Interest Shares"), the shares of which are listed on the New York Stock Exchange. At March 1, 1996, Pioneer Interest Shares had total net assets with a market value of approximately $100 million. Institutional Accounts. In addition, Pioneering Management acts as an investment manager to four private institutional accounts, acts as a subadvisor to two Luxembourg registered global funds marketed by an independent third party, and acts as a subadvisor to one of a series of portfolios utilized as funding vehicles for a variable life insurance fund (hereinafter referred to collectively as the "Institutional Accounts"). The Institutional Accounts had aggregate total net assets with a market value of approximately $691 million at March 1, 1996. Polish Funds. In 1992, subsidiaries of the Company organized and began distributing Pioneer First Polish Trust Fund (the "First Polish Fund"), the first mutual fund in Poland, and a related joint venture unitholder services business, Financial Services Limited. In 1995, two additional series of the First Polish Fund, Pioneer Aggressive Investment Trust Fund (the "Aggressive Investment Fund") and Pioneer Interest Bearing Securities Trust (the "Interest Bearing Fund"), began operations. Pioneer First Polish Trust Fund Joint Stock Company SA ("Pioneer First Polish") serves as an investment manager and distributor of shares of the First Polish Fund, Aggressive Investment Fund and Interest Bearing Fund (collectively, the "Polish Funds"). As compensation for its management services, Pioneer First Polish receives management fees of 2.00% per annum of average daily net assets, excluding any assets invested in the Company's Funds. At December 31, 1995, Pioneer First Polish employed 90 full-time persons, including management and support staff. Pioneer First Polish is a wholly owned subsidiary of Pioneer International Corporation ("Pioneer International"), which, in turn, is a wholly owned subsidiary of the Company. At March 1, 1996, the Polish Funds had net assets with a market value of approximately $314 million. Sales of units of the Polish Funds were $429 million, $734 million and $21 million in 1993, 1994 and 1995, respectively. Irish Offshore Funds. In 1995, subsidiaries of the Company organized three offshore funds incorporated under the laws of the Republic of Ireland, Pioneer Global Equity Fund Plc, Pioneer Global Bond Fund Plc and Pioneer DM Cashfonds Plc (collectively, the "Irish Funds"). Pioneer Management (Ireland) Limited ("Pioneer Ireland"), a wholly-owned subsidiary of the Company, serves as investment adviser, distributor and shareholder servicing agent of the Irish Funds. The Irish Funds are currently sold in Germany and Austria, but eventually will be sold in other foreign markets. Pioneering Management serves as a subadvisor for the Irish Funds. As compensation for its advisory services, Pioneer Ireland receives management fees from Pioneer Global Equity Fund Plc, Pioneer Global Bond Fund Plc and Pioneer DM Cashfonds Plc of 1.25%, 0.85% and 0.60% of average daily net assets, respectively. Pioneering Management receives a portion (not to exceed 75%) of the management fee paid to Pioneer Ireland. At March 1, 1996, the Irish Funds had aggregate net assets with a market value of approximately $10 million. 4 5 India Fund. In 1994, subsidiaries of the Company organized Pioneer India Fund (the "India Fund"). Pioneering Management serves as the investment manager of the India Fund, and for such services receives a fee equal to 1.25% per annum of the India Fund's average daily net assets. ITI Pioneer AMC Ltd. ("ITI Pioneer"), an Indian company of which Pioneering Management owns 45%, Investment Trust of India Limited, an Indian corporation, owns 49%, and the employees of ITI Pioneer own 6%, serves as subadvisor for the India Fund, for which it receives fees ranging from 0.10% to 0.60% of the India Fund's average gross assets invested in India's securities markets. At March 1, 1996, the India Fund had net assets with a market value of approximately $25 million. In addition to serving as subadvisor to the India Fund, ITI Pioneer also serves as investment adviser to four private sector mutual funds for Indian citizens. These funds had aggregate net assets with a market value of approximately $116 million at March 1, 1996. Additional Information. For more information on assets under management and sales of mutual fund shares for the five years ended December 31, 1995 and other industry segment information for the three years ended December 31, 1995, see "Assets Under Management," "Sales of Mutual Fund Shares" and Note 15 -- Financial Information by Business Segment included under Notes to Consolidated Financial Statements in the 1995 Annual Report to Stockholders (the "1995 Annual Report"), which information is incorporated herein by reference. On December 31, 1993, the Company acquired all of Mutual of Omaha Fund Management Company ("FMC"), the investment management subsidiary of Mutual of Omaha Insurance Company ("MOIC"). The purchase price for the shares of FMC and related consulting and non-competition agreements was $23.5 million. In addition, the Company may be required to pay to MOIC an additional amount of up to $3.0 million in 1996 in the event that certain asset targets are met. The Company does not believe, however, that the asset target levels will be reached and that, as a result, the Company will not be obligated to make any further payments to MOIC. DISTRIBUTION OF FUND SHARES The Company's indirect wholly-owned subsidiary, Pioneer Funds Distributor, Inc. ("Pioneer Distributor"), acts as principal underwriter and distributor of the shares of the Funds. In 1995, Pioneer Distributor sold shares of the Funds with an aggregate offering price of $1.6 billion, including Class A Shares (as defined below) with an aggregate offering price of $1.1 billion, Class B Shares (as defined below) with an aggregate offering price of $423 million and shares of Pioneer Variable Contracts Trust with an aggregate offering price of $28 million. In connection therewith, Pioneer Distributor received aggregate commissions of $58.7 million, of which $53.1 million was reallowed to approximately 1,600 independent broker-dealers throughout the United States and in several foreign countries. In 1994, Pioneer Distributor received aggregate commissions of $48.1 million, of which $42.5 million was reallowed to broker-dealers. In 1993, Pioneer Distributor received aggregate commissions of $38.4 million, of which $34.0 million was reallowed to broker-dealers. One broker-dealer was responsible for approximately 7% of sales in 1995 and 11% of sales in 1994. Underwriting Contracts. Pioneer Distributor provides its underwriting and distribution services pursuant to underwriting contracts, which are substantially identical, with each of the Funds. These one-year contracts are renewable annually by vote of the Fund's Board of Trustees (including a majority of those Trustees who are not "interested persons" as defined under the 1940 Act) or shareholders. Each contract terminates if 5 6 assigned and may be terminated by either party on 60 days' written notice without penalty. The underwriting contracts for each of the Funds (other than the Funds which were established in 1995) were all renewed for an additional year in 1995. Sales Charges. Generally, purchasers of shares of the Funds pay a sales charge which is the difference between the offering price of the shares and the net asset value of the shares, and which varies generally as a percentage of the offering price. These are referred to as front-end load shares ("Class A Shares"). Sales charges on Class A Shares range from zero to 5.75% depending on the Fund and the amount invested. The Company also offers a multi-class share structure for certain of the Funds (the "Multi-Class Funds") pursuant to which the Multi-Class Funds offer both the traditional front-end load shares, or Class A Shares, and two classes of back-end load shares ("Class B Shares" and "Class C Shares"). On Class B Shares, the investor does not pay any sales charge unless it redeems before the expiration of the minimum holding period, which ranges from three to six years. These early redemptions are subject to a contingent deferred sales charge (a "CDSC"), which ranges from 2.0% to 4.0%. An investment by any one account in Class B Shares is generally limited to $250,000. On Class C Shares, the investor does not pay any sales charge unless it redeems within one year of purchase. These early redemptions are subject to a CDSC of 1.0%. The Company began offering Class B Shares in April 1994 and Class C Shares in January 1996. With respect to sales of Class A Shares, Pioneer Distributor may, in its discretion, pay a commission to broker-dealers who initiate and are responsible for sales of $1 million but less than $50 million, ranging from 0.10% to 1.0%, depending on the Fund, and the amount of the sale. Certain purchases not subject to an initial sales charge may be subject to a CDSC ranging from 0.10% to 1.0%, depending on the Fund, in the event of certain redemption transactions within one year. With respect to sales of Class B Shares, Pioneer Distributor will pay commissions to broker-dealers related to sales and service of such shares ranging from 2% to 4% of the sales transaction amount (including a services fee of 0.25% for the first year). With respect to sales of Class C Shares, Pioneer Distributor will pay commissions to broker-dealers related to sales and service of such shares of 1% of the sales transaction amount (including a services fee of 0.25% for the first year). During 1994 and 1995, in connection with sales of Class B Shares, Pioneer Distributor paid commissions to broker-dealers of $4.7 million and $14.9 million, respectively. Most of the sales charge on Class A Shares is reallowed by Pioneer Distributor to broker-dealers through whom the shares are sold. This reallowance varies generally as a percentage of the offering price on sales under $1 million. Reallowances range from 1.0% to 5.0% depending on the Fund and the amount of the sale. Broker-dealer reallowances on new funds and during certain short-term promotions may be increased to 100% or more of the sales charge. 6 7 Distribution Plans. Each of the Funds has a distribution plan(s) pursuant to Rule 12b-1 under the 1940 Act which provides for certain payments to be made to Pioneer Distributor. In the case of Funds which offer a single class of shares or in the case of Multi-Class Funds with respect to Class A Shares, the distribution plans (the "Class A Plans") provide for payments by such funds of certain expenses up to 0.25% per annum of average daily net assets (0.15% for money market funds). In the case of Multi-Class Funds with respect to Class B and Class C Shares, the distribution plans (the "Class B Plans" and "Class C Plans," respectively) provide for payments by such funds of fees relating to (a) distribution services in an amount not to exceed 0.75% per annum of the average daily net assets of the Class B or Class C Shares, as the case may be, of the Multi-Class Fund, and (b) personal and account maintenance services in an amount not to exceed 0.25% of the average daily net assets of the Class B or Class C Shares, as the case may be, of the Multi-Class Fund. In 1995, the Boards of the Funds (other than the Funds which were established in 1995) renewed the Class A and Class B Plans. The Class C Plans were approved in November 1995. The distribution plans are subject to annual renewals which require the approval of the Funds' Board of Trustees, including a majority of Trustees who are not "interested persons" of the Funds. Domestic Sales of Shares of the Funds. Pioneer Distributor is a registered broker-dealer (see "Regulation" below), employing 101 full-time personnel, including 21 regional sales representatives who are responsible for territories comprising most of the United States and Puerto Rico and who work with broker-dealers to promote sales of the Funds' shares in their respective territories. Substantially all of the Funds' shares are sold to the public by securities sales persons registered with the National Association of Securities Dealers, Inc. (the "NASD") who act as representatives of broker-dealer firms, which are members of the NASD and which have signed sales agreements with Pioneer Distributor. Shares of the Funds may be sold in all states, by broker-dealers and registered representatives licensed in those states. International Sales of Shares of the Funds. Pioneer Distributor's wholly-owned subsidiary, Pioneer Fonds Marketing GmbH ("Pioneer Fonds Marketing"), a company registered under the laws of the Republic of Germany, performs marketing and sales activities with respect to sales of shares of certain of the Funds in Europe, primarily Germany, Austria and Switzerland. Pioneer Fonds Marketing currently has 14 employees. In 1995, approximately 13% of the total sales of the United States registered Funds' shares were sold outside of the United States. Additional Information. For more information on sales of mutual fund shares for the five years ended December 31, 1995, see "Sales of Mutual Fund Shares" in the 1995 Annual Report, which information is incorporated herein by reference. VENTURE CAPITAL Domestic Venture Capital Operations. In 1981, the Company organized a wholly-owned subsidiary, Pioneer Capital Corporation ("Pioneer Capital"), for the purpose of making venture capital investments and managing venture capital funds. In 1986, Pioneer Capital organized a wholly-owned subsidiary, Pioneer SBIC Corp. 7 8 ("PSBIC"), which is the general partner of Pioneer Ventures Limited Partnership ("PVLP"). PVLP is a Small Business Investment Company ("SBIC") licensed by the U.S. Small Business Administration (the "SBA"). PSBIC is the general partner of PVLP and has an 89.5% interest in PVLP. The limited partnership interests in PVLP represent a 10.5% interest in PVLP and are owned by the four officers of Pioneer Capital (the "Pioneer Capital Principals") who are responsible for the operations and overall success of PVLP. In 1995, Pioneer Capital formed Pioneer Ventures Limited Partnership II ("PVLP II"), a new SBIC. Pioneer Ventures Management L.P. ("PVM") serves as the general partner of PVLP II. PVM's general partner is Pioneer Management SBIC Corp., a corporation the shareholders of which are the Pioneer Capital Principals. PVM's limited partners are the Company and the Pioneer Capital Principals. The Company holds an 11.7% limited partnership interest in PVLP II and a 45% limited partnership interest in PVM, which owns 2.3% of PVLP II. At March 1, 1996, PVLP II had received funding commitments of $30.9 million from investors. At December 31, 1995, Pioneer Capital and PVLP held approximately $14.0 million of investments (at cost) in 20 privately-held companies and $2.5 million (at cost) in seven publicly-held companies. The value of these investments as of December 31, 1995 was $22.2 million. During 1995, Pioneer Capital and PVLP had net realized and unrealized gains of $5.1 million from their venture capital investment portfolio, at December 31, 1995, Pioneer Capital and PVLP had a total of $5.4 million in cash available for additional investments. Additional capital for investments is available to PVLP through the sale of SBA guaranteed debentures. Through December 31, 1995, PVLP had availed itself of a total of $4.95 million of SBA guaranteed debentures that mature at various times between 1998 and 2003 and bear interest rates between 6.12% and 9.8%. At December 31, 1995, PVLP II held approximately $6.3 million of investments (at cost) in eight privately-held companies. At December 31, 1995, PVLP II had a total of $2.1 million in cash available for additional investments. Pioneer Capital and its affiliates utilize a diversified approach to venture capital investing. Investments are in early-stage businesses seeking initial financing as well as more mature businesses in need of capital for expansion, acquisitions, management buyouts or recapitalizations. In general, Pioneer Capital, PVLP and PVLP II invest in New England-based companies in a variety of industries. At December 31, 1995, Pioneer Capital had eight employees. Venture capital investment portfolio valuations are reviewed quarterly by the Company's Board of Directors and the values of such investments are adjusted when circumstances require. As a general rule, an investment is adjusted up or down, as the case may be, to conform to the price paid by a sophisticated new third-party investor in any subsequent round of financing. An investment may also be written down if the venture company is substantially behind its business plan and may be written up if there 8 9 is some other compelling reason for doing so. For PVLP and PVLP II, securities which are publicly traded are valued on a valuation date at the average of the last sales or closing price on the valuation date and the preceding two days in the principal market in which such securities are traded, with an appropriate discount if such securities are restricted or thinly traded. For PCC, securities which are publicly traded are valued on the valuation date at the closing price on the principal market on which such securities are traded, with an appropriate discount if such securities are restricted or thinly traded. Polish Venture Capital Operations. In 1995, the Pioneer Poland Fund ("PPF") received commitments for investments of approximately $60 million from investors in Europe and the United States for venture capital investments in Poland. In December 1995, PPF closed its first investment of approximately $1.4 million. The Company's indirect wholly owned subsidiary, Pioneer Investment Poland Sp.z.o.o, manages PPF. SHAREHOLDER SERVICES Pioneering Services Corporation. At December 31, 1995, the Funds had approximately 982,000 active shareholder accounts, including approximately 345,000 IRAs and other tax-qualified retirement accounts. Mutual fund shareholder accounts and, in particular, qualified accounts, require an exceptional amount of shareholder communications and transfer agency services. In order to compete successfully with other mutual fund complexes, the Company's wholly-owned subsidiary, Pioneering Services Corporation ("Pioneering Services"), assumed transfer agent and shareholder services responsibilities for the Funds in 1985. As shareholder servicing agent for the Funds, Pioneering Services has entered into agreements with each Fund pursuant to which it received in 1995 an annual active account fee of $22.00 for equity fund accounts, $30.00 for fixed-income fund accounts and $28.00 for money-market fund accounts. Such agreements are subject to annual renewals which require the approval of the Funds' Boards, including a majority of members who are not "interested persons," and may be canceled by either party on 60 days' notice. For 1993, 1994 and 1995, Pioneering Services received revenues from service fees from the Funds and Pioneer Interest Shares of approximately $17 million, $20 million and $22 million, respectively. Trustee/Custodian. The Company acts as the trustee/custodian for accounts which are IRAs or other qualified retirement accounts and receives an annual fee of $10 for each such account, payable by shareholders with such accounts, up to maximum annual fees of $20 for shareholders with multiple accounts of one plan type. Shareholders also have the option of paying a one-time fee of $100 in lieu of the annual account fee. Financial Services Limited. In January 1992, the Company's subsidiary, Pioneer International, established Financial Services Limited ("FSL"), which is 50% owned by Pioneer International and 50% owned by Bank Polska Kasa Opieki, S.A. in Poland. FSL was established as the unitholder servicing agent for the First Polish Fund. Under the terms of the agreement between FSL and the Fund, FSL will receive annual fees equal to the Polish zloty ("PZL") equivalent of $12.00 per account. In 1995, such fees aggregated PZL 5.7 million (approximately $2.4 million). At December 31, 1995, FSL serviced approximately 146,000 unitholder accounts and employed 81 full-time persons. 9 10 COMPETITION Management and Distribution Services. The mutual fund industry is intensely competitive. Many organizations in this industry are attempting to sell and service the same clients and customers, not only with mutual fund investments but with other financial products. Some of the Company's competitors have more products and product lines and substantially greater assets under management and financial resources. The Company believes it is competitive in terms of price and performance with other firms providing similar advisory services to investment companies and to pension plans and endowment funds and with firms engaged in distributing investment company shares. The distribution of mutual fund shares has been significantly affected by (i) the growth of no-load funds, the shares of which are sold primarily through direct sales approaches without any sales charge, (ii) the evolution of service fees payable to broker-dealers that provide continuous services to their clients in connection with their investments in a mutual fund and (iii) the development and implementation of complex distribution systems employing multiple classes of shares and master-feeder fund structures. Typically, the underwriter or distributor that pays a service fee is reimbursed by the mutual fund under a plan of distribution pursuant to Rule 12b-1 under the 1940 Act ("Rule 12b-1 Plan"). All of the Funds distributed by Pioneer Distributor now pay such service fees to broker-dealers. See "Distribution of Fund Shares - Distribution Plans" above. For certain of the Funds (the "Multi-Class Funds"), the Company also offers a multi-class share structure. Under such structure, the Multi-Class Funds offer both the traditional front-end load shares, or Class A Shares, and two classes of back-end load shares, Class B and Class C Shares. On back-end load shares, Pioneer Distributor pays a commission on the sale (typically equal to 4% of the offering price for Class B Shares and 1% of the offering price on Class C Shares) but the investor does not pay any sales charge unless it redeems before the expiration of the minimum holding period, which ranges from three to six years in the case of Class B Shares and which is one year in the case of Class C Shares. Pioneer Distributor's cash flow may be adversely affected by vigorous sales of back-end load shares because its recovery of the cost of commissions paid up front to dealers is spread over a period of years. During this period, the Company bears the costs of financing and the risk of market decline. Pioneer Distributor is reimbursed for such commissions from payments by the Funds under Rule 12b-1 Plans (that are subject to annual renewals by the disinterested trustees of the Funds) and from back-end sales charges paid by redeeming investors before the expiration of the holding periods. Success in the investment advisory and mutual fund share distribution businesses is substantially dependent on the Funds' investment performance. Good performance stimulates sales of the Funds' shares and tends to keep redemptions low. Sales of Funds' shares generate higher management fees and distribution revenues (which are based on assets of the Funds). Good performance also attracts private institutional accounts to Pioneering Management. Conversely, relatively poor performance results in decreased 10 11 sales and increased redemptions of the Funds' shares and the loss of private accounts, with corresponding decreases in revenues to the Company. In 1995, the performance of the Funds managed by Pioneering Management was generally competitive with comparable mutual funds offered by others and with relevant indices and benchmarks approved by the Funds' Boards. Venture Capital. The venture capital industry both in the United States and abroad is extremely competitive. In the process of investing and attempting to raise funds from entities other than the Company, Pioneer Capital and the Company's foreign subsidiaries engaged in the venture capital industry must compete with a large number of venture capital firms, many of which have substantially larger staffs and more capital to invest. Shareholder Services. The shareholder services industry is extremely competitive. Pioneering Services believes that it is providing high quality shareholder services for the Funds and their shareholders at rates that are competitive in the industry. The Company believes that effective shareholder services are vital to success in this industry. While these services have historically been provided by banks and other institutions with greater resources than Pioneering Services, the Company believes that Pioneering Services generally outperforms such competitors because it is dedicated exclusively to the provision of such services to the Funds and their shareholders, rather than to a number of different customers. REGULATION Each of the Funds and Pioneer Interest Shares is registered under the 1940 Act and the Securities Act of 1933, as amended. As registered investment companies, the Funds and Interest Shares are subject to extensive regulation governing all aspects of their operations. In addition to being subject to the regulatory authority of the Securities and Exchange Commission (the "SEC"), the Funds and Pioneer Interest Shares are also subject to regulation by the securities regulators in all fifty states and in the foreign jurisdictions in which certain Funds are registered. Pioneer Distributor, as a registered broker-dealer under the Securities Exchange Act of 1934, as amended (the "1934 Act"), is required, among other things, to maintain certain records, file reports with the SEC, supervise employees and deal fairly with customers, all in accordance with the 1934 Act and the rules and regulations promulgated thereunder. Pioneer Distributor is also a member of the NASD, a securities industry self-regulatory body which is itself regulated by the SEC under the 1934 Act. As a member of the NASD, the Company is required to abide by the standards, including pricing practices, set forth in the Articles of Incorporation, the By-Laws and the Rules of Fair Practice of the NASD. Pioneering Management, as investment manager of the Funds and Pioneer Interest Shares and adviser to the Institutional Accounts, is registered pursuant to the Investment Advisers Act of 1940, as amended, and as such is subject to certain recordkeeping, compensation and supervisory rules and regulations. 11 12 Pioneering Services, as transfer agent for the Funds, is registered pursuant to the 1934 Act and as such is subject to recordkeeping requirements and certain other rules and regulations. The SEC has jurisdiction over registered investment companies, registered investment advisers, broker-dealers and transfer agents and, in the event of a violation of applicable rules or regulations, may take action which could have a serious effect on Pioneering Management's, Pioneer Distributors' or Pioneering Services' businesses. The violation of any of the applicable laws, rules or regulations to which Pioneer Distributor is subject could have an adverse effect upon the Company. Pioneer First Polish was established under, and is regulated by, the Public Trading in Securities and Trust Funds Act of March 22, 1991. Pioneer Global Bond Fund Plc and Pioneer Global Equity Fund Plc are each authorized by The Central Bank of Ireland under the European Communities (Undertakings for Collective Investment in Transferable Securities) Regulations, 1989 (S.I. No. 78 of 1989) of Ireland. Pioneer DM Cashfonds Plc is authorized by The Central Bank of Ireland as an investment company with "designated" status pursuant to Part XIII of the Companies Act, 1990. CONTRACTUAL RELATIONSHIPS The businesses of the Company, Pioneering Management, Pioneer Distributor, Pioneering Services, Pioneer First Polish, FSL and Pioneer Ireland are dependent upon their associations and contractual relationships with the funds with which they have contractual relationships. In the event any of the management contracts, underwriting contracts or service agreements were canceled or not renewed pursuant to the terms thereof, the Company may be substantially adversely affected. The Company, Pioneering Management, Pioneer Distributor, Pioneering Services, Pioneer First Polish, FSL and Pioneer Ireland consider their respective relationships with such funds to be good and they have no reason to believe that their respective management, underwriting and service contracts will not be negotiated on a reasonable basis in the future; however, there is no assurance that such funds will continue these relationships. RELATIONSHIP WITH THE INSTITUTIONAL ACCOUNTS Pioneering Management's agreements with the seven Institutional Accounts are all terminable on short notice. The trustees or corporate officials who control such accounts are usually free to change investment advisers without cumbersome legal procedures. In the past, private accounts have terminated their agreements with Pioneering Management for various reasons such as performance, business combinations which result in the merging of accounts advised by Pioneering Management into accounts managed by other investment advisers, or changes in the structure or funding of pension plans. 12 13 NEW BUSINESS DEVELOPMENT Russian Investment Operations. In April 1995, the Company acquired approximately 51% of the shares of First Voucher Fund (the "Voucher Fund"), the largest voucher investment fund established in Russia in connection with that country's privatization program. The shares were issued by the Voucher Fund to two newly-formed subsidiaries of Pioneer Omega, Inc. ("Pioneer Omega"), a Delaware corporation in which the Company owns 100% of the outstanding common stock. In addition to its ownership interest in the Voucher Fund, Pioneer Omega, acting through its subsidiary, Pioneer First Russia, Inc. ("Pioneer First Russia"), also holds a 100% interest in Management Company, Kompaniya po Upravleniu Investitsionnymi Fondomi (KUIF) ("KUIF"), Pioneer Securities and Pioneer Services and a majority interest in First Voucher Bank. KUIF currently serves as investment manager to the Voucher Fund and will serve as investment manager to the new unit investment funds described below. Pioneer Securities provides brokerage, corporate financing and financial advisory services to Russian and western corporations, including the Voucher Fund. In early 1996, Pioneer First Russia established Pioneer Services to serve as registrar and transfer agent for the Voucher Fund and the new unit investment funds. First Voucher Bank currently services corporate accounts and will be used in the future to enhance the distribution network of Pioneer First Russia's various financial services. KUIF has been selected by the Russian government's Commission on Securities and Capital Markets as one of three investment management companies to participate in the pilot unit investment fund project. As a result, Pioneer First Russia is developing new funds for Russian retail investors under the new unit investment fund regulations. These funds will be managed by KUIF and will be similar to the open-end mutual funds offered by the Company in Poland and the Czech Republic. Pioneer First Russia is also in the process of developing two new Russian investment funds to be sold to western institutional investors. Each fund will be advised by Pioneer First Russia and will seek capital appreciation through investment in Russian companies (listed companies in the case of one fund and private companies in the case of the other fund). KUIF will serve as investment manager to one of the funds while Pioneer Investments, a majority owned subsidiary of the Company, will serve as investment manager to the other fund. Pioneer Omega paid $2.0 million in cash and issued preferred shares (the "Omega shares") valued at $6 million as consideration for the acquisition of KUIF and related rights. The holder of the Omega shares has the right to cause the Company to purchase such shares (the "put option"), and the Company has a corresponding right to purchase such shares from the holder (the "call option"). The put and call options are each exercisable with respect to one-third of the Omega shares on the 13 14 first, second and third anniversaries of the closing of the transaction. The put and call option exercise price is $2 million per tranche, plus a 5% per annum premium on the option exercise price. The Company will pay a total of $6.6 million for the Omega shares over a three-year period as the put and/or call options are exercised. Taiwan and India. Pioneering Management is a minority participant (10% ownership) in a joint venture in Taiwan, which was organized to manage and distribute investments in Taiwanese investment companies. Pioneering Management is a participant (45%) in a joint venture in India, which was organized to provide financial services in the Indian market, including mutual fund management. See "Management Activities - Other Management Activities - India Fund." Czech Republic. In 1995, subsidiaries of the Company organized Pioneer Czech Investment Company, A.S. ("Pioneer Czech"). Pioneer Czech provides investment advice and other financial services, including shareholder services, to a new mutual fund that commenced operations in November 1995. Real Estate Advisory Services. In January 1996, the Company established Pioneer Real Estate Advisors, Inc. ("Pioneer Real Estate") to provide real estate advisory services to institutional investors and corporations in the United States, Poland, Russia and India. Pioneer Real Estate also provides advice regarding real estate investments to the Company's own subsidiaries. Pioneer Real Estate, though a wholly owned subsidiary, is also developing a Polish real property fund to be sold to Polish and western institutional investors. NATURAL RESOURCE DEVELOPMENT PIONEER GOLDFIELDS LIMITED The Company's indirect wholly owned subsidiary, Pioneer Goldfields, a corporation organized under the laws of Guernsey, Channel Islands, conducts mining and exploration activities in the Republic of Ghana and exploration activities elsewhere in Africa. Pioneer Goldfields' principal asset is its ownership of 90% of the outstanding shares of Teberebie Goldfields Limited ("TGL"), a corporation organized under the laws of the Republic of Ghana. TGL is engaged in the exploration, mining, and processing of gold ore on a mining concession located in the Western Region of the Republic of Ghana. The remaining 10% ownership interest in TGL is held by the Republic of Ghana. Organization and Mining Lease. In 1986, the Company and a joint venturer organized TGL for the purpose of evaluating the feasibility of mining gold on several tracts of land in the Teberebie concession area ("Teberebie") in the Republic of Ghana. In February 1988, TGL entered into a mining lease with the Republic of Ghana (the "Government") pursuant to which TGL received exclusive gold mining rights for a term of 30 years. Under this lease, the Government receives annual royalties of between 3.0% and 12.0% of TGL revenue, which rate will vary based on TGL's operating profit margin and its level of capital expenditures, and is assured a continuing 10% equity interest in TGL. In April 1989, the Company purchased the other non-governmental joint venturer's 14 15 interest for $3.7 million, primarily in cash. In 1992, TGL was granted a second 26-year mining lease over two contiguous areas to the north and west of the original lease area, the terms of which are substantially similar to the original lease. In 1995, the Company paid royalties to the Government in the amount of 3.0% of TGL revenue. Teberebie Mine Site. The Teberebie mine site consists of mining concessions covering an area of approximately 42 square kilometers. It is located in the Western Region of the Republic of Ghana and is approximately six kilometers south of the town of Tarkwa. The Teberebie mine is geographically approximately 200 kilometers west of, and 330 kilometers by road from, Accra, the capital of the Republic of Ghana. It is approximately 95 kilometers by road from Takoradi, which is one of Ghana's two major ports and the point of entry for most of the imported equipment used at the Teberebie mine. Geology. The basement rocks of Ghana are precambrian in age and form part of a regional structure known as the West African Shield. The rocks that constitute the West African Shield are both Sedimentary and igneous in origin. The rocks have been subjected to pressure and temperature alteration and deformation. Some of the altered rocks (metamorphic rocks) have a greenish coloration, and areas exhibiting these features are known as greenstone belts. There are a number of greenstone belts around the world. They attract the attention of commercial geologists because various minerals, particularly gold, are associated with them. In Ghana, the major gold producers operate along various prominent gold-bearing belts which extend for a distance of some 300 kilometers in a trend from northeast to southwest. These gold-bearing belts consist of both greenstone and sedimentary formations. TGL mines the sedimentary formations. Locally, the thick sedimentary sequence is called the Tarkwaian system and gold is found in the upper, coarser horizons. At Teberebie, gold occurs in a sedimentary sequence known as the Banket formation. This formation consists of a series of sedimentary strata with siltstones, mudstones and sandstones interspersed with some coarser pebble horizons. Where the well-rounded pebbles are particularly large, the horizon is known as a conglomerate. Gold is found in the matrix which binds these pebbles together. The Banket formation has broad similarities to the Witwatersrand reef conglomerate in South Africa. As such it is younger than the Birimian greenstone rocks that underlie it. The region has been subject to folding, faulting and shearing. Structurally, the Banket Formation consists of a gently folded syncline, trending from northeast to southwest. The western limb of the syncline extends over 6.5 kilometers on the property, with the eastern limb reaching the surface just beyond the eastern boundary of the mining concession. The western and eastern limbs outcrop on the surface about four kilometers apart. At the center of the syncline at Teberebie, the mineralized horizons are some 400 meters below surface. In the south, the western limb dips to the east at about 35 degrees. This dip flattens toward the north where it is approximately only ten degrees. 15 16 The deposit at the Teberebie mine is a paleoplacer where gold occurs in free-milling state with other heavy minerals in a matrix of a quartz pebble conglomerate. The gold particles are fine-grained, ranging from two to 280 microns, averaging approximately 100 microns in diameter. The origin of the gold has not been identified, although it may have been derived from the underlying Birimian basement rocks. Gold Reserves. The earliest known exploration on the Teberebie property was conducted in the early 1890's when several adits were driven into the ridge. Records indicate that approximately 15,000 tonnes of ore was extracted from adits and drifts prior to World War II. Four of these adits were cleared and systematically sampled. At the end of 1992, TGL had drilled a total of 18,545 meters in 296 holes on the property. Holes were drilled on 74 cross-sections perpendicular to the gold bearing ridge along a strike length of 6,050 meters, with three to five drill holes per section. Sections were 50 to 100 meters apart, and drill hole spacing on each section was 50 to 100 meters. In 1993, TGL drilled 16 in-fill ore holes advancing 930 meters on one ridge designed to move reserves from the possible to proven and probable categories. In 1994, TGL drilled 5,090 meters in 39 holes on the property. This drilling added 1.9 million ounces to the audited reserves. Contiguous with this, 2,551.5 meters of exploratory drilling in 11 holes was completed. In 1995, TGL drilled 3,420 meters in 18 holes on the property. This drilling added 2.4 million ounces to the audited reserves. In addition, TGL drilled a total of 2,568 meters in seven exploration drill holes and 765 meters in 12 site investigations and geotechnical holes. In August 1995, TGL received an independent certification of additional gold reserves at its mining concession in Ghana. Proven and probable reserves were established based on mapping, sampling, drilling, assaying and evaluation techniques typical of those that are generally employed in the mining industry. As of December 31, 1995, mineable in situ proven and probable reserves increased to approximately 9.1 million ounces, including previously proven and probable reserves of 6.7 million ounces. Proven and probable reserves comprise 8.1 million ounces of ore which will be processed through crushing and heap leaching operations and 1.0 million ounces which will be leached directly utilizing run-of-mine dump leaching techniques. The cost to date of proving up reserves at Teberebie has been approximately $0.36 per ounce. Mineable reserves at December 31, 1995, are summarized on the following table:
MINEABLE RESERVES -------------------------------------------------------------------- CRUSHED ORE RUN-OF-MINE ORE ----------- --------------- Grams Grams per per Tonnes Tonnes Ounces Tonnes Tonnes Ounces ------ ------ ------ ------ ------ ------ Total Proven 149,236,000 1.46 7,039,000 49,859,000 0.54 865,000 Total Probable 22,740,000 1.41 1,030,000 8,625,000 0.56 154,000 Total Reserves 171,976,000 1.46 8,069,000 58,484,000 0.54 1,019,000 TOTAL MINEABLE RESERVE OUNCES: 9,088,000 =========
16 17 The cut-off grades used to delineate the reserves were 0.765 grams per tonne for crushed ore and 0.25 grams per tonne for run-of-mine ore at a gold price of $385 per ounce. Based on the current technology at the mine, it is estimated that recoverable gold from these open-pit reserves will aggregate approximately 6.7 million ounces. TGL has increased its gold reserves each year since it began operations. On the basis of projected production rates and the existing proven and probable reserves, it is estimated that the Teberebie mine has a remaining life of approximately 18 years. Mining and Processing. The Teberebie mine is a conventional open pit, heap leach operation. Mining at Teberebie is a technically simple drill and blast, load and haul operation, carried out on three contiguous ridges along a strike length of some 6.5 kilometers. The ridges, running from north to south, are named Teberebie, Awunaben and Mantraim. The mine is currently a ridge-top surface mine operating from what will be two pits, the Teberebie/Awunaben pit and the Mantraim pit. Mining operations are carried on 24 hours per day in three eight-hour shifts, 358 days per year. TGL processes its ore using a conventional heap leach operation. Higher-grade ore is crushed in one of TGL's two ore-crushing plants, each of which has a capacity of approximately 3.5 million tonnes of ore per year. Cement is added to the crushed ore to bind the ore and to raise its alkalinity to a level conducive to cyanide leaching. Run-of-mine ore is not crushed or agglomerated with cement, but instead proceeds directly to later stages of processing. The agglomerate of ore and cement is then placed on a heap leach pad and the run-of-mine ore is placed on a dump leach pad. Both are then treated with a dilute cyanide solution which percolates through the material dissolving the gold. The dilute cyanide solution containing the dissolved gold drains into collection ponds. From there, the solution is pumped to an adjacent adsorption desorption refinery plant (the "ADR Plant") where it passes through a series of activated carbon adsorption columns. The gold contained in the solution is adsorbed onto the carbon and the solution is then recirculated to the barren solution pond where it is refortified with sodium cyanide. Gold is then chemically stripped from the carbon adsorption columns and recovered from the stripper solution by electrowinning onto stainless steel cathodes. The cathodes are removed approximately every two weeks at each ADR Plant, at which time the gold sludge is washed off and dried. The sludge is then mixed with flux and smelted to produce dore. Gold Production. TGL began shipping gold in October 1990. In the second quarter of 1991, the mine reached then commercially feasible production levels (about 1,000 ounces per week) and full production levels (about 2,000 ounces per week) during the fourth quarter of 1991. Management initiatives permitting the efficient utilization of production equipment and facilities enabled TGL to increase production to over 3,000 ounces per week in 1993. After TGL's expansion in 1994, which is further described below, production increased to approximately 4,500 ounces per week. TGL expects to produce approximately 255,000 ounces (almost 4,900 ounces per week) in 1996. 17 18 TGL shipped approximately 236,000 ounces of gold in 1995, contributing $90.2 million to the Company's revenues. In 1994 and 1993, TGL shipped approximately 176,000 and 165,000 ounces of gold, respectively. A three-year financial summary for the gold mining business segment is shown below:
1995 1994 1993 (IN MILLIONS) (IN MILLIONS) (IN MILLIONS) ------------- ------------- ------------- Revenues.................. $90.2 $67.6 $59.2 Net Income................ $14.0 $18.3 $10.4 Total Assets.............. $81.5 $75.7 $61.9
The average realized price of gold sold by TGL during 1995, 1994 and 1993 was $383, $383 and $359 per ounce, respectively, based on the market spot price of gold at the time of sale. Spot prices of gold fluctuate widely and are affected by a number of factors including supply and demand, inflation expectations, the strength of the U.S. dollar and interest rates. At present, TGL does not enter into forward gold sales or otherwise engage in gold price hedging. In the past, TGL had established a gold price-floor program, utilizing put options to secure a minimum selling price of $310 per ounce. These options expired on March 31, 1996 and TGL currently does not intend to renew these options unless the price of gold declines to below $375 per ounce. The Company may consider additional hedging strategies if and when it deems circumstances appropriate. TGL's cash cost per ounce and total cost per ounce for 1995, 1994 and 1993 are summarized on the following table:
1995 1994 1993 ---- ---- ---- Cash Cost Per Ounce.................... $198 $161 $131 Total Cost Per Ounce................... $277 $248 $229
The total cost per ounce includes $6 in each of 1995, 1994 and 1993 for amounts expended by the Company, principally for political risk insurance premiums. Development and Expansion. TGL has undertaken two major capital expenditure programs at the Teberebie mine to date, designated Phase I and Phase II. Phase I included the development of the mine site and the construction of the crushing and processing facility known as the East plant. Phase II, which was completed in 1994, included the construction of a crushing and processing facility that replicated the East plant and is known as the West plant. TGL is currently implementing a third capital expenditure program, designated Phase III, to take advantage of the additional potential of the Teberebie mine. Phase III will include a third heap leach operation and the construction of a near-pit gyratory crushing facility which will act as the primary crushing facility for the West plant and the new South plant. Phase III will also gradually 18 19 introduce a new and larger mining fleet, with the objective of mining at an annualized rate of approximately 60 million tonnes of material per year (including approximately 12 million tonnes of ore) and raising overall gold production to at least 400,000 ounces per year when Phase III becomes fully operational (expected in 1998). Realization of this objective is subject to the uncertainties inherent in any mining and processing operation. The initial work on Phase III has commenced. The major crushing equipment has been ordered and the initial mining equipment, consisting of four Caterpillar ("CAT") 785 trucks and a CAT 5230 hydraulic shovel, has been delivered to the site and is being assembled. In addition, in March 1996, TGL received from the Ghana Environmental Protection Agency the necessary environmental permit to proceed with the Phase III expansion. For a description of the financing facilities relating to the Phase III expansion, see "Management's Discussion and Analysis of Financial Condition and Results of Operations - Natural Resource Development Businesses - Gold Mining Business - Liquidity and Capital Resources" included in the 1995 Annual Report and which is incorporated herein by reference. Customers and Employees. During 1995, 100% of gold sales represented gold shipments from TGL in Ghana to two unaffiliated European refiners for refining and subsequent sale. Because of the worldwide demand for gold, the Company does not believe that the loss of such customers would have a material adverse effect on the Company or its subsidiaries. At March 1, 1996, TGL had 1,129 employees, of which 1,102 are Ghanaians. The terms of employment and compensation for junior TGL staff, known as monthly rated employees, are determined pursuant to a collective bargaining agreement between TGL and the Ghana Mineworkers Union. The terms of the collective agreement (other than pay levels) are negotiated every three years. Pay levels are negotiated annually. The current collective bargaining agreement expires in July 1998. TGL experienced a two-day work stoppage in 1994 in connection with union negotiations. The work stoppage had no material effect on TGL's operations and TGL continues to believe that its relations with its employees are excellent. There is, however, a shortage of available labor with the requisite skills and experience necessary to operate large scale mining equipment. TGL has experienced and continues to experience some difficulty in recruiting employees with the necessary skills. With the continued development of mines in Ghana, and in the vicinity of the Teberebie mine, in particular, the shortage will likely continue and perhaps become more acute. Regulation and Taxation. Mining activities in the Republic of Ghana are governed by PNDCL 153, the Minerals and Mining Law of 1986 (the "MML"). The Republic of Ghana does not currently have a developed system of environmental regulation that applies to TGL's operations. However, it has always been a strategic objective of the Company to minimize the effects of its subsidiaries' mining operations on the environment. TGL is currently preparing an overall environmental action plan, a decommissioning plan and a reagent spill management plan and has initiated site rehabilitation and revegetation studies. 19 20 In 1994, the Ghana Environmental Protection Agency was established to regulate environmental matters to ensure implementation of government policies concerning the environment. In May 1994, the Minister of the Environment, through the Minerals Commission, produced legislative proposals relating to the environmental regulation of mines and the Ghanaian Environmental Protection Agency produced draft guidelines in relation to air and water quality. The management of TGL regarded these guidelines as satisfactory and workable. These guidelines were followed by the publication for consultation of draft regulations that provoked considerable controversy among the mining community in Ghana and were subsequently withdrawn. To date, no new or replacement draft regulations have been published although the Government of Ghana has stated its intention to re-issue draft regulations within the next 12 months. If implemented in the form in which they were originally issued, certain provisions of the draft regulations would have significant adverse operational and financial consequences for TGL. A number of strong representations have been made by the Ghanaian mining industry to the government relating to the draft regulations and TGL does not believe that the draft regulations will be implemented in the form in which they were originally issued. In the first quarter of 1994, the Republic of Ghana enacted the Minerals and Mining (Amendment) Act of 1994 which reduced the income tax rate for mining companies from 45% to 35%. As a result, the Company's first quarter 1994 earnings were enhanced by 90% of a $4.4 million reduction (which amounted to $0.16 per share) in income taxes deferred since commencement of commercial operations in April 1991. TGL's effective tax rate (U.S. and Ghana combined) in 1995, 1994 and 1993 was 38%, 36% and 48%, respectively. Pursuant to the terms of the MML, income taxes may be deferred until recovery of capital investment. Accordingly, deferred taxes at December 31, 1995, 1994 and 1993, were $10.1 million, $15.9 million and $19.8 million, respectively. The reduction in deferred taxes during 1994 includes the $4.4 million reduction attributable to the foregoing decrease in the income tax rate for mining companies. Income tax payments to the Republic of Ghana during 1995 and 1994 were $14.1 million and $6.2 million respectively. Of such taxes paid in 1995, $5.5 million was attributable to the tax year ended December 31, 1994. Income taxes were deferred during all of 1993. Insurance. The Company maintains $64.8 million of "political risk" insurance principally from the Overseas Private Investment Corporation ("OPIC") covering 90% of its equity and loan guarantees. This insurance also covers 90% of the Company's proportionate share of TGL's cumulative retained earnings. In addition, the Company maintains standby coverage of $2.1 million, which can be activated semiannually, to cover increases in the Company's proportionate share of TGL's cumulative retained earnings. In addition to other commercial insurance coverage, TGL has secured business interruption coverage of up to $19.0 million for losses associated with machinery breakdown and property damage and to defray continuing infrastructure and interest costs. 20 21 Exploration Activities of Pioneer Goldfields. Since the end of 1993, in addition to continuing to develop the Teberebie mine, Pioneer Goldfields has increased its exploration activities in the Republic of Ghana and in other African countries. These activities are currently conducted by TGL in Ghana and by Pioneer Goldfields or its local subsidiary in Niger, Burkina Faso and Zimbabwe. In 1995, Pioneer Goldfields incurred exploration costs of approximately $1.2 million, approximately $770,000 of which related to TGL's exploration activities at the Teberebie mine site and elsewhere in Ghana. TIMBER VENTURES The Company holds a majority interest in three companies located in the Russian Far East (Forest Starma, Amgun-Forest and Udinskoye) which were established to develop timber production for markets in the Pacific Rim, principally Japan. The Company is in the process of consolidating its ownership of these three companies under its wholly owned subsidiary, Pioneer Forest, Inc. Forest Starma, in which the Company has a 71% direct interest and a 3% indirect interest, is pursuing the development of timber production under two long term leases comprising 88,800 hectares (approximately 219,500 acres) in the aggregate with annual cutting rights of 210,000 cubic meters awarded to the venture in the Khabarovsk Territory of Russia. In addition, Forest Starma is in the process of securing additional cutting rights of approximately 90,000 cubic meters per year. Forest Starma has developed a site, including a jetty, from which it exports timber. Timber harvesting commenced in the first quarter of 1995 and the first shipments of timber (acquired in the development phase) totalling approximately 30,000 cubic meters occurred in the third and fourth quarters of 1995. The related revenues were used to offset development costs. In November 1995, Amgun-Forest and Udinskoye each executed a long-term lease (50 years) relating to timber harvesting. The Amgun-Forest lease covers 264,700 hectares (approximately 654,000 acres) with annual cutting rights of 350,000 cubic meters while the Udinskoye lease covers 156,600 hectares (approximately 387,000 acres) with annual cutting rights of 200,000 cubic meters. In the aggregate, Forest Starma, Amgun-Forest and Udinskoye have long-term leases in place comprising 510,000 hectares (approximately 1,260,500 acres) with annual cutting rights of 760,000 cubic meters. Capital required by Forest Starma is now projected at approximately $36.4 million through the end of 1996, including $20.1 million in subordinated debt provided by the Company and $9.3 million financed pursuant to a conditional loan commitment already in place. This loan, which would initially be guaranteed by the Company, would cease to be guaranteed when the project meets certain production and cash flows tests. During 1996, the Company expects to provide additional bridge financing as Forest Starma applies for up to $7.0 million in third-party financing. Investment by the Company in Forest Starma aggregated $29.4 million (net of an assumed value added tax recovery on imports) at December 31, 1995, $9.3 million of which is considered bridge financing subject to repayment upon receipt of third-party loan proceeds. Forest Starma is expected to reach a production level of approximately 220,000 cubic meters per year by the end of 1996. 21 22 Work on the feasibility study for Amgun-Forest has commenced, and the feasibility study for Udinskoye will be carried out at a later date. The studies will form the basis for estimating capital requirements for these projects. Preliminary estimates for these two new projects are that, prior to securing third-party financing, the Company will provide funding of approximately $1.3 million in 1996. The Company has secured OPIC political risk insurance in amount of up to $47 million which would protect 90% of the Company's equity investment and loans and a proportionate share of cumulative retained earnings. TAS-YURJAH MINING COMPANY In 1994, the Company entered into a joint venture, Joint Stock Company Tas-Yurjah Mining Company ("Tas-Yurjah"), with a Russian company to explore potential gold mining properties in the Khabarovsk Territory of Russia. The Company currently owns 50% of Tas-Yurjah. In 1995, Tas-Yurjah secured a license to conduct exploration activities over a 240 square kilometer area (the "licensed area"). Tas-Yurjah expects to significantly expand the licensed area in the near future. During the second half of 1996, Tas-Yurjah plans to conduct drilling and geochemical and geological surveys to further examine anomalies located in the licensed area. At December 31, 1995, the Company had expended approximately $1.3 million for exploration work related to Tas-Yurjah and expects to expend a similar amount in 1996. METALS VENTURES Since 1991, a subsidiary of the Company, Pioneer Metals and Technology, Inc., has been involved in a development-stage business in Russia through its subsidiary, for the production and sale of powdered metals, permanent magnets and various trading endeavors. ITEM 2. DESCRIPTION OF PROPERTY. The Company and its subsidiaries conduct their principal operations from leased premises with approximately 111,000 square feet at 60 State Street, Boston, Massachusetts, under two leases. The first to expire of these leases (which covers substantially all of the space) expires in 2002, with two five-year renewal options. The rent expense for these premises was approximately $2.9 million in 1995. The Company believes that its facilities are adequate for its current needs and that additional space will be available as needed. Teberebie Goldfields Limited, conducts mining operations in Tarkwa, Ghana. The Republic of Ghana has granted TGL land concessions of approximately 42 square kilometers. The mining facilities included on the Teberebie mine site include approximately 48 housing and office buildings, two four-stage crushing plants, heap leaching facilities and ponds, two processing plants and refineries, a clinic, a laboratory, a warehouse and an eight-bay maintenance shop for heavy equipment. TGL believes that its facilities are generally in a state of good repair and adequate for its current needs and that additional facilities will be constructed as needed. See "Item 1 Business - Pioneer Goldfields Limited" for a description of TGL's Phase III expansion and the facilities being constructed in connection therewith. In December 1992, Pioneer First Polish purchased a 38-year capital lease, convertible to perpetual use, on a two-year-old, 373-square-meter office building in Wilanow, Warsaw. Pioneer First Polish is currently subleasing the property to an unaffiliated corporation for a three-year term that commenced on March 1, 1995. Through March 1996, Pioneer First Polish had leased approximately 1,200 square meters of office space in downtown Warsaw for fund management and distribution operations. FSL also leases approximately 1,400 square meters of office space and 502 square meters of storage space in Warsaw. The terms of the leases range from one to five years. 22 23 The Company's 74%-owned subsidiary, Forest Starma, is pursuing the development of timber production under two long term leases comprising 88,800 hectares (approximately 219,500 acres) in the aggregate with annual cutting rights of 210,000 cubic meters awarded to the venture in the Khabarovsk Territory of Russia. Amgun-Forest and Udinskoye, the Company's other majority-owned Russian timber ventures, each have a long-term lease (50 years) relating to timber harvesting. The Amgun-Forest lease covers 264,700 hectares (approximately 654,000 acres) with annual cutting rights of 350,000 cubic meters while the Udinskoye lease covers 156,600 hectares (approximately 387,000 acres) with annual cutting rights of 200,000 cubic meters. In the aggregate, Forest Starma, Amgun-Forest and Udinskoye have long-term leases in place comprising 510,000 hectares (approximately 1,260,500 acres) with annual cutting rights of 760,000 cubic meters. ITEM 3. LEGAL PROCEEDINGS. None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None. 23 24 EXECUTIVE OFFICERS OF THE REGISTRANT Set forth below are the names and ages of the executive officers of the Company, and a description of the positions and offices each holds with the Company and its significant subsidiaries.
Positions with the Company and its Name Age Significant Subsidiaries ---- --- ------------------------ John F. Cogan, Jr. 69 President, Chief Executive Officer and Chairman of the Board of the Company since 1962. Chairman of Pioneering Management since 1993 and President of Pioneering Management from 1962 to 1993. Director of Pioneering Management since 1962. Chairman and director of Pioneer Distributor. Chairman, President and trustee or director of each of the registered investment companies in the Pioneer Family of Mutual Funds. President and director of Pioneer International, Pioneer Omega and Pioneer First Russia. Director of Pioneering Services, Pioneer Capital and Pioneer Real Estate. Chairman and director of Pioneer Goldfields, TGL, Joint Stock Company Pioneer Metals International, Joint Stock Company Forest Starma ("Forest Starma") Joint Stock Company Pioneer Investments ("Pioneer Investments"), Joint Stock Company Amgun-Forest ("Amgun-Forest"), and Joint Stock Company Udinskoye. Member of Supervisory Board of Pioneer First Polish and Pioneer Czech. Chairman of the Supervisory Board of Pioneer Fonds Marketing. Director of Pioneer Ireland and each of the Irish Funds. Senior Partner of the Boston law firm, Hale and Dorr, counsel to the Company.
24 25 Robert L. Butler 55 Executive Vice President of the Company since 1985. Director of the Company since 1988. President and director of Pioneer Distributor since 1989. Director of Pioneering Management, Pioneering Services, Pioneer International and Pioneer Real Estate. Member of Supervisory Board of Pioneer First Polish and Pioneer Czech. Vice Chairman of Pioneer Fonds Marketing and Pioneer Czech. Director of Pioneer Ireland and each of the Irish Funds. Previously, Vice President of the NASD. David D. Tripple 52 Executive Vice President of the Company since 1986. President of Pioneering Management since 1993 and Chief Investment Officer and director of Pioneering Management since 1986. Executive Vice President of Pioneering Management from 1986 to 1993. Executive Vice President and trustee or director of each of the registered investment companies in the Pioneer Family of Mutual Funds. Director of Pioneer Distributor, Pioneer Capital, Pioneer International, Pioneer Investments, Pioneer Real Estate, Pioneer Omega, Pioneer First Russia, Pioneer Ireland and each of the Irish Funds. Member of Supervisory Board of Pioneer First Polish and Pioneer Czech. William H. Keough 58 Senior Vice President and Chief Financial Officer of the Company since 1986. Treasurer of the Company, Pioneer Distributor, Pioneering Management, Pioneering Services, Pioneer Capital, Pioneer International, Pioneer Real Estate, Pioneer Omega and Pioneer First Russia. Treasurer of each of the registered investment companies in the Pioneer Family of Mutual Funds. Timothy T. Frost 41 Vice President of the Company since 1995. Director and Vice President of Pioneer Omega and Pioneer First Russia. Senior Vice President of Pioneer International. Previously, Managing Director of Financial Services Volunteer Corps.
25 26 Lucien Girard III 62 Vice President of the Company. Managing Director and Chief Executive of Pioneer Goldfields and TGL. Director of Pioneer Metals and Technology, Inc. Stephen G. Kasnet 50 Vice President of the Company since 1995. President of Pioneer Real Estate since January 1996. Trustee of Pioneer Real Estate Shares and Vice President of Pioneer Variable Contracts Trust. Previously, Managing Director, First Winthrop Corporation and Winthrop Financial Associates. Chairman of the Board of Warren Bancorp and Warren Five Cents Savings Bank and Director of Bradley Real Estate, Inc. John F. Lawlor 62 Vice President of the Company and Pioneering Management. Director of Pioneer Goldfields, TGL, Forest Starma, Amgun-Forest, Joint Stock Company Pioneer Metals International, Pioneer Ireland and each of the Irish Funds. Director and Vice President of Pioneer Metals and Technology, Inc. Alicja K. Malecka 49 Vice President of the Company and Pioneer Real Estate. Senior Vice President of Pioneer International. President of Pioneer First Polish, the Polish Funds and Pioneer Investment Poland, Sp.zo.o. Member of the Supervisory Board of FSL. Frank M. Polestra 70 Vice President of the Company since 1975. President and Director of Pioneer Capital since 1981. President and Director of PSBIC. William H. Smith, Jr. 60 Vice President of the Company and President and Director of Pioneering Services since 1985. Vice President and Director of Pioneer International. Director of Pioneer Ireland and each of the Irish Funds. Member of the Supervisory Board of FSL. Previously, President of Securities Fund Services, Inc. between 1981 and 1985.
26 27 Joseph P. Barri 49 Secretary of the Company since 1978. Secretary of each of the registered investment companies in the Pioneer Family of Mutual Funds, Pioneering Management, Pioneer Capital, Pioneer Distributor, Pioneering Services, Pioneer Omega, Pioneer First Russia and Pioneer International. Senior Partner of the Boston law firm, Hale and Dorr, counsel to the Company. Robert P. Nault 32 General Counsel and Assistant Secretary of the Company since 1995. Assistant Secretary of each of the registered investment companies in the Pioneer Family of Mutual Funds, Pioneering Management, Pioneer Capital, Pioneer Distributor, Pioneering Services, Pioneer International and Pioneer Goldfields. Previously, Junior Partner of the Boston law firm, Hale and Dorr, counsel to the Company.
27 28 - -------------------------------------------------------------------------------- PART II - -------------------------------------------------------------------------------- ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. Incorporated by reference from the 1995 Annual Report under the captions "Information Relating to Shares," "Dividends on Common Stock" and "Price Range of Common Stock." ITEM 6. SELECTED FINANCIAL DATA. Incorporated by reference from the 1995 Annual Report under the caption "Five Year Summary of Selected Financial Data." ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Incorporated by reference from the 1995 Annual Report under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations." ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. Incorporated by reference from the 1995 Annual Report under the caption "Consolidated Financial Statements and Notes to Consolidated Financial Statements" and "Report of Independent Public Accountants." ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. Not applicable. 28 29 - -------------------------------------------------------------------------------- PART III - -------------------------------------------------------------------------------- ITEMS 10-13. The information required for Part III in this Annual Report on Form 10-K is incorporated by reference from the Company's definitive proxy statement for the Company's 1996 Annual Meeting of Stockholders. Such information will be contained in the sections of such proxy statement captioned "Security Ownership of Certain Beneficial Owners, Directors and Executive Officers," "Election of Directors," "Directors' Meetings and Fees," "Committee Meetings," "Executive Compensation," "Stock Option Grants and Exercises," "Certain Transactions" and "Compliance with Section 16 of the Securities Exchange Act of 1934." Information regarding executive officers of the Company is also furnished in Part I of this Annual Report on Form 10-K under the heading "Executive Officers of the Company." 29 30 - -------------------------------------------------------------------------------- PART IV - -------------------------------------------------------------------------------- ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. (a) The following documents are included as part of this Annual Report on Form 10-K. 1. Financial Statements: Report of Independent Public Accountants................... 25* Consolidated Statements of Income for the Three years Ended December 31, 1995................... 26* Consolidated Balance Sheets as of December 31, 1995 and 1994............................ 27* Consolidated Statements of Changes in Stockholders' Equity for the Three Years Ended December 31, 1995......................... 28* Consolidated Statements of Cash Flows for the Three Years Ended December 31, 1995........... 29* Notes to Consolidated Financial Statements................. 30*
-------------- * Refers to page number in 1995 Annual Report. Each such financial statement or report is hereby incorporated herein by reference to the 1995 Annual Report which is filed as an exhibit to this report. 2. Financial Statement Schedules: Schedule I: Condensed Financial Information All other schedules are omitted because they are not applicable or the required information is shown in the Consolidated Financial Statements or the Notes thereto. 3. Exhibits: The exhibits filed with or incorporated into this report are listed on the "Index to Exhibits" below. (b) Reports on Form 8-K: During the fiscal quarter ended December 31, 1995, the Company filed a Current Report on Form 8-K, dated October 16, 1995, reporting that it had commenced the sale, in a global public offering, of a minority interest in Pioneer Goldfields Limited. 30 31 SIGNATURES Pursuant to the requirements of Section 13 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 March 29, 1996. THE PIONEER GROUP, INC. By: /s/ John F. Cogan, Jr. --------------------------------- John F. Cogan, Jr., President Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated. /s/ John F. Cogan, Jr. March 29, 1996 - ----------------------------------- John F. Cogan, Jr., Principal Executive Officer and Director /s/ William H. Keough March 29, 1996 - ----------------------------------- William H. Keough, Principal Financial Officer and Principal Accounting Officer /s/ David D. Tripple March 29, 1996 - ----------------------------------- David D. Tripple, Director /s/ Robert L. Butler March 29, 1996 - ----------------------------------- Robert L. Butler, Director /s/ Philip L. Carret March 29, 1996 - ----------------------------------- Philip L. Carret, Director /s/ Maurice Engleman March 29, 1996 - ----------------------------------- Maurice Engleman, Director /s/ John H. Valentine March 29, 1996 - ----------------------------------- John H. Valentine, Director /s/ Jaskaran S. Teja March 29, 1996 - ----------------------------------- Jaskaran S. Teja, Director 31 32 Index to Exhibits
Exhibit Sequential Exhibit No. Page No. - ------- ------- ---------- Certificate of Incorporation, as amended(10) 3.1 N.A. By-Laws, as amended(2) 3.2 N.A. Form of Management Contracts with Pioneer Funds(1)(2) 10.1 N.A. Form of Investment Company Service Agreements with Pioneer Funds(2) 10.2 N.A. Retirement Benefit Plan and Trust(2)(9) 10.3 N.A. 1988 Stock Option Plan, as amended(6)(9) 10.4 N.A. Lease, dated as of July 3, 1991, between the Trustees of 60 State Street and the Company(6) 10.5 N.A. Form of Employment Agreements with Regional Vice Presidents(3)(9) 10.6 N.A. Finance Agreement between Teberebie Goldfields Limited and Overseas Private Investment Corporation ("OPIC")(4) 10.7 N.A. Revised Form of Underwriting Contract with Pioneer Funds(4) 10.8 N.A. 1990 Restricted Stock Plan(4)(9) 10.9 N.A. Form of Management Contract with Pioneer U.S. Government Trust(5) 10.10 N.A. Form of Management Contract with Pioneer Money Market Trust(5) 10.11 N.A.
32 33 Deed of Warranty, dated December 3, 1987, between the Government of the Republic of Ghana, Teberebie Goldfields Limited and The Pioneer Group, Inc.(5) 10.12 N.A. Lease, dated February 2, 1988, between the Government of the Republic of Ghana and Teberebie Goldfields Limited(5) 10.13 N.A. September 4, 1990, by and among Teberebie Goldfields Limited, the Republic of Ghana, Ghana Commercial Bank, Bank of Ghana, The Pioneer Group, Inc., OPIC and The Chase Manhattan Bank, N.A.(5) 10.14 N.A. First Amended Finance Agreement, dated May 25, 1989, as amended September 4, 1990, between Teberebie Goldfields Limited and OPIC(5) 10.15 N.A. Gold Refining and Purchasing Agreements Acknowledgment executed by Teberebie Goldfields Limited, the Republic of Ghana, Ghana Commercial Bank, Bank of Ghana, The Pioneer Group, Inc., Overseas Private Investment Corporation, and The Chase Manhattan Bank, N.A.(5) 10.16 N.A. Map of Mining Operations in Tarkwa, Ghana(5) 10.17 N.A. Collective Agreement between Teberebie Goldfields Limited and the Ghana Mine Workers Union of T.U.C.(7) 10.18 N.A. Agreement, dated March 1, 1992, between Teberebie Goldfields Limited and Johnson Matthey Chemicals(7) 10.19 N.A. Amendment, dated as of March 10, 1993, to Contract dated March 1, 1992, between Teberebie Goldfields Limited and Johnson Matthey Chemicals(7) 10.20 N.A. Amendment, dated as of March 9, 1994, to contract between Teberebie Goldfields Limited and Johnson Matthey Chemicals(8) 10.21 N.A.
33 34 Refining Agreement, dated as of August 23, 1993, between Teberebie Goldfields Limited and Metalor(8) 10.22 N.A. OPIC Contract of Insurance Against Inconvertibility, Expropriation and Political Violence between OPIC and Pioneer Goldfields Limited, dated August 12, 1993(8) 10.23 N.A. Master Gold Trading and Hedging Services Agreement, dated as of January 10, 1993 between Teberebie Goldfields Ltd. and Billiten Marketing and Trading B.V.(8) 10.24 N.A. Agreement, dated as of September 29, 1993, between the Chase Manhattan Bank, N.A. and Teberebie Goldfields Ltd.(8) 10.25 N.A. Letter Agreement, dated as of September 17, 1993, between OPIC and Teberebie Goldfields Ltd.(8) 10.26 N.A. Credit Agreement, dated as of June 1, 1993, between Teberebie Goldfields Limited and Skandinaviska Enskilda Banken(8) 10.27 N.A. Agreement, dated May 10, 1994, between Teberebie Goldfields Limited and Johnson Matthey PLC(10) 10.28 N.A. Contract, dated May 30, 1994, among Timber Harvesting Equipment Sales, Inc., Joint-Stock Company "Forest-Starma" and the Company(10) 10.29 N.A. Contract, dated August 4, 1994, among Morbark Northwest, Inc., Joint-Stock Company "Forest-Starma" and the Company(10) 10.30 N.A. Contract, dated May 25, 1994, among Caterpillar Overseas S.A., Joint-Stock Company "Forest Starma" and the Company(10) 10.31 N.A. OPIC Commitment to Guarantee Loans to Forest Starma, among OPIC, Forest Starma, Starma Holding Company and the Company(10) 10.32 N.A.
34 35 OPIC Contract of Insurance Against Business Income Loss between OPIC and the Company, effective September 30, 1992, as amended (No. D581)(10) 10.33 N.A. OPIC Contract of Insurance Against Business Income Loss between OPIC and the Company, effective September 30, 1992, as amended (No. D582)(10) 10.34 N.A. OPIC Contract of Insurance Against Inconvertibility, Expropriation and Political Violence between OPIC and the Company, effective September 30, 1992 as amended (No. D547)(10) 10.35 N.A. OPIC Contract of Insurance Against Inconvertibility, Expropriation and Political Violence between OPIC and the Company, effective September 30, 1992 (No. D545)(10) 10.36 N.A. Consulting Agreement, dated as of January 2, 1995, between the Company and Pioneer First Polish Trust Fund Joint Stock Company ("Pioneer Poland")(10) 10.37 N.A. Services Contract, dated January 1, 1994, between Pioneering Services Corporation and Financial Services Limited(10) 10.38 N.A. Agreement, dated June 25, 1992, between Pioneer Poland and Bank Polska Kasa Opieka S.A. ("Bank Pekao")(10) 10.39 N.A. Agreement, dated as of June 25, 1992, between Bank Pekao and Pioneer International Corporation(10) 10.40 N.A. Agreement, dated June 25, 1992, between Bank Pekao and Pioneer Poland(10) 10.41 N.A. Agreement, dated September 24, 1992, between Pioneer Poland and Financial Services Limited(10) 10.42 N.A.
35 36 Letter Agreement dated February 28, 1995 between the Company and The First National Bank of Boston (10) 10.43 N.A. Master Share Purchase Agreement dated as of April 7, 1995 by and among Pioneer Omega, Inc. and First Voucher Fund (11) 10.44 N.A. Agreement dated as of April 7, 1995 by and among Pioneer Omega, Inc. and DOM Investment Company(11) 10.45 N.A. Agreement dated as of April 7, 1995 by and among Pioneer Omega, Inc. and Moscow Intenational Business Centre Limited(11) 10.46 N.A. Stockholders Agreement dated as of April 11, 1995 by and among the Company and Moscow International Business Centre Limited(11) 10.47 N.A. Collective Agreement dated as of July 3, 1995 between Teberebie Goldfields Limited and the Ghana Mineworker' Union of T.U.C.(12) 10.48 N.A. Letter Agreement dated July 26, 1995 between the Company and The First National Bank of Boston (12) 10.49 N.A. Contract of Insurance Against Incontrovertibility, Expropriation and Political Violence dated September 29, 1995 between the Overseas Private Investment Corporation and the Company(13) 10.50 N.A. Commitment Letter dated September 29, 1995 between the Overseas Private Investment Corporation, the Company and Teberebie Goldfields Limited(13) 10.51 N.A.
36 37 Letter Agreement dated October 20, 1995 between the Company and The First National Bank of Boston (13) 10.52 N.A. Credit Facilities Commitment Letter Agreement dated as of February 29, 1996 between the Company and The First National Bank of Boston 10.53 1995 Restricted Stock Plan(9) 10.54 Credit Agreement between Teberebie Goldfields Limited and Skandinaviska Enskilda Banken AB dated as of March 11, 1996 10.55 Computation of Earnings Per Share 11 1995 Annual Report to Stockholders (which is not deemed "filed" except with respect to the portions specifically incorporated herein by reference) 13 Subsidiaries 21 Consent of Arthur Andersen LLP 23 Financial Data Schedule 27
- --------------- (1) Except Pioneer America Income Trust (f/k/a Pioneer U.S. Government Trust), the two series of Pioneer Money Market Trust, and Pioneer International Growth Fund. (2) Incorporated herein by reference to the exhibits to the Company's Annual Report on Form 10-K for the year ended December 31, 1986. (3) Incorporated herein by reference to the exhibits to the Company's Annual Report on Form 10-K for year ended December 31, 1988. (4) Incorporated herein by reference to the exhibits to the Company's Annual Report on Form 10-K for year ended December 31, 1989. (5) Incorporated herein by reference to the exhibits to the Company's Annual Report on Form 10-K for year ended December 31, 1990. (6) Incorporated herein by reference to the exhibits to the Company's Annual Report on Form 10-K for the year ended December 31, 1991. 37 38 (7) Incorporated herein by reference to the exhibits to the Company's Annual Report on Form 10-K for the year ended December 31, 1992. (8) Incorporated herein by reference to the exhibits to the Company's Annual Report on Form 10-K for the year ended December 31, 1993. (9) Management contract or compensatory plan or arrangement filed as an exhibit to this Form pursuant to Items 14(a) and 14(c) of Form 10-K. (10) Incorporated herein by reference to the exhibits to the Company's Annual Report on Form 10-K for year ended December 31, 1994. (11) Incorporated herein by reference to the exhibits to the Company's Quarterly Report on Form 10-Q for quarter ended March 31, 1995. (12) Incorporated herein by reference to the exhibits to the Company's Quarterly Report on Form 10-Q for quarter ended June 30, 1995. (13) Incorporated herein by reference to the exhibits to the Company's Quarterly Report on Form 10-Q for quarter ended September 30, 1995. 38 39 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Stockholders and Board of Directors of The Pioneer Group, Inc.: We have audited, in accordance with generally accepted auditing standards, the financial statements included in The Pioneer Group, Inc.'s annual report to stockholders incorporated by reference in this Form 10-K, and have issued our report thereon dated March 11, 1996. Our audit was made for the purpose of forming an opinion on those statements taken as a whole. The schedule listed in the index on page 30 is the responsibility of the Company's management and is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. ARTHUR ANDERSEN LLP Boston, Massachusetts, March 11, 1996 40 SCHEDULE 1 THE PIONEER GROUP, INC. Condensed Financial Information Year ended December 31, 1995, 1994 and 1993 (DOLLARS IN THOUSANDS)
Cash Dividends Paid Year Ended December 31, 1995 1994 1993 ---- ---- ---- Cash Dividend paid by Pioneer First Polish Trust Fund JSC, S.A. to Pioneer International Corporation $8,279 $1,945 $ 0 Cash Dividend paid by Pioneer Investments Corporation to The Pioneer Group, Inc. $ 214 $ 0 $2,110 Cash Dividend paid by Pioneer Goldfields Limited to The Pioneer Group, Inc. $2,869 $ 0 $ 0 Cash Dividend paid by Pioneer Ventures L.P. to Pioneer Capital Corporation $1,103 $ 0 $ 0 Cash Dividend paid by Teberebie Goldfields Limited to Pioneer Goldfields Limited $3,150 $ 0 $ 0
EX-10.53 2 CREDIT FACILITY COMMITMENT LETTER 1 Exhibit 10.53 [THE FIRST NATIONAL BANK OF BOSTON LETTERHEAD] The Pioneer Group, Inc. 60 State Street Boston, Massachusetts 02109 Credit Facilities Commitment Letter Ladies and Gentlemen: You have informed us that The Pioneer Group, Inc., a Delaware corporation (the "Company"), and certain of its subsidiaries (collectively with the Company, the "Borrowers") would like to have senior bank credit facilities of up to $115,000,000 (the "Credit Facilities") available in order to refinance indebtedness under existing credit facilities and to finance capital expenditures. working capital and other general business purposes. You have requested that The First National Bank of Boston (the "Bank") (a) act as agent for the Credit Facilities, (b) commit to provide the full $115,000,000 principal amount of the Credit Facilities and (c) agree to structure and syndicate the Credit Facilities. In connection with the foregoing, we are pleased to advise you of our commitment to provide the full $115,000,000 principal amount of the Credit Facilities upon the terms and subject to the conditions set forth or referred to in this commitment letter (the "Commitment Letter") and in the Summary of Proposed Terms and Conditions attached hereto as Exhibit A (the "Term Sheet"). Those matters which are not covered by or made clear in the Commitment Letter are subject to future mutual agreement of the parties. It is agreed that we (a) will act as the agent, the arranger and the syndication manager for the Credit Facilities and (b) will, in such capacities, perform the duties and exercise the "authority customarily associated with such roles. It is further agreed that no additional agents, co-agents, arrangers or syndication managers will be appointed, and no lender under the Credit Facilities will receive compensation other than as set forth herein and in the Term Sheet in order to obtain its commitment to participate in the Credit Facilities, unless you and we so agree. 2 The Pioneer Group, Inc. -2- February 22, 1996 We reserve the right, prior to or after the execution of definitive documentation for the Credit Facilities, to syndicate all or a portion of our commitment hereunder to one or more financial institutions reasonably satisfactory to each of you and us. Upon the acceptance by you of the commitment of any lender to provide a portion of the Credit Facilities, we shall be released from a portion of our commitment hereunder in an aggregate amount equal to the commitment of such lender. You agree actively to assist us in achieving a timely syndication that is satisfactory to us, such assistance to include, among other things, direct contact during the syndication between the senior officers, representatives and advisors of each of the Borrowers, on the one hand, and prospective lenders, on the other hand. We will manage all aspects of the syndication, including the selection of lenders, the determination of when we will approach potential lenders, any naming rights and the final allocations of the commitments among the lenders. To assist us in our syndication efforts, you agree (a) to provide all financial and other information in your possession with respect to the Borrowers and the transactions contemplated by this Commitment Letter and the Term Sheet. including but not limited to financial projections (the "Projections") relating to the foregoing, and (b) to assist, and to cause your affiliates and advisors to assist, us in the preparation of a confidential information memorandum and other marketing materials to be used in connection with the syndication. You agree that, prior to and during the syndication of the Credit Facilities, there shall be no offering, placement or arrangement of any competing issues of debt securities or commercial bank facilities of the Borrowers or any of their respective subsidiaries. You hereby represent and covenant that (a) all information (other than the Projections) concerning the Borrowers and the transactions contemplated by this Commitment Letter and the Term Sheet (the "Information") that has been or will be made available to us by you or any of your representatives in connection with the transactions contemplated by this Commitment Letter and the Term Sheet, when taken as a whole, is or will be complete and correct in all material respects and does not or will not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements contained therein not materially misleading in light of the circumstances under which such statements are made and (b) the Projections that have been or will be made available to us by you or any of your representatives in connection with the transactions contemplated by this Commitment Letter and the Term Sheet have been and will be prepared in good faith based upon assumptions believed by you to be reasonable. The representations and covenants set forth in this paragraph shall be superseded by the definitive documentation with respect to the Credit Facilities upon the execution and delivery thereof. As consideration for our commitment hereunder and our agreement to structure, arrange and syndicate the Credit Facilities and to provide advisory services in connection therewith, you agree to pay to us the fees as set forth in the Term Sheet and in the Fee Letter 3 The Pioneer Group, Inc. -3- February. 22, 1996 dated the date hereof and delivered herewith (the "Fee Letter"). Once paid, such fees shall not be refundable under any circumstances. The commitments of the Bank hereunder is conditioned upon the factors set forth in the Term Sheet, as well as the absence of (i) any material adverse change in the business, assets, financial condition, income or prospects of the Company, its core mutual fund business and Pioneer Goldfields Limited and related ownership entities since the date of the last audited financial statements previously furnished to the Bank, (ii) any material change in the ability of the Company and its subsidiaries to operate in accordance with the financial projections furnished to the Bank or to comply with the proposed financial covenants, (iii) any material misstatements in or omissions from the materials that have previously been furnished by the Company to the Bank for the Bank' s review and (iv) any material change in governmental regulation or policy affecting the Bank, the other lenders, the Company, its subsidiaries or the proposed Credit Facilities or material disruption or material adverse change in financial, banking or capital markets since the date hereof. In addition, the commitments of the Bank hereunder are subject to the negotiation, execution and delivery of definitive documentation with respect to the Credit Facilities satisfactory to the Bank and its counsel. Such documentation shall contain such indemmties, covenants, representations and warranties, events of default, conditions, definitions and other terms and conditions as shall be satisfactory to the Bank, the other lenders, the Borrowers and their respective counsel. If, in the course of documenting the transaction and the Bank's continued analysis of financial and other information relating to the Company and subsidiaries, the Bank discovers that any of the foregoing conditions will in its judgment not be met, the Bank reserves the right to terminate any commitment it may have hereunder respect to the proposed Credit Facilities. Whether or not the transactions contemplated hereby are consummated, you agree to indemnify and hold harmless the Bank and the other lenders under the Credit Facilities and our respective directors, officers, employees, affiliates, agents and controlling persons from and against any and all losses, claims, damages, liabilities and expenses, joint or several, to which any such person may become subject arising out of or in connection with this Commitment Letter, the Fee Letter, the Term Sheet, the Credit Facilities, the use of proceeds of the loans thereunder or any related transaction or any claim, litigation, investigation or proceeding relating to any of the foregoing, regardless of whether any of such indemnified parties is a party thereto, and to reimburse each of such indemnified parties upon demand for any legal or other expenses incurred in connection with investigating or defending any of the foregoing; provided, however, that the foregoing indemnity will not, as to any indemnified party, apply to losses, claims, damages, liabilities or related expenses to the extent they have resulted from the willful misconduct or gross negligence of the proposed indemnitee. No indemnified person shall be liable for any indirect or consequential damages in connection with its activities related to the Credit Facilities. 4 The Pioneer Group, Inc. -4- February 22, 1996 In addition, whether or not the transactions contemplated hereby are consummated, you agree to reimburse us from time to time on demand for out-of-pocket expenses (including, but not limited to, expenses of our due diligence investigation, syndication expenses. travel expenses and reasonable fees, disbursements and other charges of counsel), in each case incurred in connection with the Credit Facilities and the preparation of this Commitment Letter, the Fee Letter, the Term Sheet, the definitive documentation for the Credit Facilities and the negative pledge arrangements in connection therewith. This Commitment Letter and our commitment hereunder shall not be assignable by you without our prior written consent, and any purported assignment shall, without such consent, be void. This Commitment Letter may not be amended, and no provision hereof shall be waived or modified, except by an instrument in writing signed by the Bank and you. This Commitment Letter may be executed in any number of counterparts, which together shall constitute one agreement. Delivery of an executed signature page to this Commitment Letter by facsimile transmission shall be effective as delivery of a manually executed counterpart of this Commitment Letter. This Commitment Letter is intended to be solely for the benefit of the parties hereto and is not intended to confer any benefits upon, or create any rights in favor of, any person other than the parties hereto. This Commitment Letter shall be governed by and construed in accordance with the laws (other than the conflict of laws rules) of the Commonwealth of Massachusetts. This Commitment Letter and the Fee Letter set forth our proposal with respect to the Credit Facilities and shall be considered withdrawn if we have not received the enclosed copy of this Commitment Letter and Fee Letter signed by you by 5:00 p.m. on February 29, 1996, together with payment of the fee required upon delivery of this Commitment Letter. If for any reason the Borrowers, the proposed group of lenders and us have not been able to agree to definitive terms and conditions and enter into a definitive agreement with respect to the Credit Facilities prior to April 30, 1996, this proposal shall be considered terminated; provided, however, that, subject to the provisions of the immediately preceding paragraph, the compensation, indemnification and reimbursement provisions contained herein and in the Fee Letter shall remain in full force and effect notwithstanding the termination of this Commitment Letter or our commitment hereunder. The Bank is pleased to have been given the opportunity to assist you in connection with this financing. Very truly yours, THE FIRST NATIONAL BANK OF BOSTON By /s/ Stewart A Neff ---------------------------- Title: Managing Director 5 The Pioneer Group, Inc. -5- February 22, 1996 The foregoing is hereby agreed to and accepted: THE PIONEER GROUP, INC. By /s/ William M. Keough --------------------------------------------- Title: Chief Financial Officer and Treasurer Dated: February 29, 1996 6 EXHIBIT A THE PIONEER GROUP, INC. Summary of Proposed Terms and Conditions February 22, 1996 The proposed terms and conditions summarized herein are for discussion purposes only and do not constitute an offer, agreement or commitment to lend. The actual terms and conditions upon which Bank of Boston might extend credit are subject to satisfactory review and completion of documentation, satisfactory completion of due diligence and other such terms and conditions as may be determined by Bank of Boston and its counsel. Borrower: The Pioneer Group, Inc. and designated subsidiaries Agent: The First National Bank of Boston ("FNBB"). Lenders: FNBB and one or more other financial institutions reasonably acceptable to Borrower and Agent. Credit Facilities: $115,000,000, comprised of: A) $35,000,000 Revolver/Term Loan facility; B) $80,000,000 Revolving Credit facility. Closing: No later than April 30, 1996. A) $35,000.000 Revolver/Term Loan facility: Purpose: To finance B-share sales commission paid to brokers under the company' s deferred-load program. Final Maturity: Revolver will mature 364 days from Closing, subject to annual renewal by the Borrower and the Lenders, each at their sole discretion. In the event that the revolver is not renewed, at maturity, it will automatically convert to a five (5) year Term Loan. It is understood that the Lenders will renegotiate the amount and maturity of the Credit Facility annually. The Credit Facility would 7 convert to term only in the event that the Lenders have not agreed to extend the Revolver for financing new sales commissions. Availability/ Amortization: During the period in which the facility is a Revolver. subject to the Borrowing Base. the Borrower may borrow the amount of B-share broker commissions paid plus accrued interest on the B-share loan facility less the amount of B-share Distribution (12b-1) Fee and Redemption (CDSC) Fees collected each month. Prepayment is required equal to the excess of Distribution and Redemption (CDSC) Fee collections over commission payments for the period. Upon conversion of the facility to a Term Loan, the debt will amortize in equal quarterly principal payments over the five (5) year term period. Additional payments will be required in an amount equal to the excess, if any, of the cash collections of B-share Distribution Fees and Redemption (CDSC) Fees in any period over the scheduled amortization payment due in that period. Borrowing Base: Borrowings will not exceed the lesser of: A) $35,000,000 ("Revolver Commitment Amount"); B) Aggregate Unreimbursed Sales Commissions (defined as total B- share commission payments made to brokers plus accrued interest less total B-share Distribution Fees and Redemption (CDSC) Fees collected); or C) Total Estimated Collectible Amount (to be defined as all potential future collections of distribution fees and redemption fees over the remaining life of all B shares). This will be calculated utilizing a rolling six month average of net asset value, weighted accordingly based upon which funds hold the most B shares. Assumptions regarding redemptions, redemptions that are dividend reinvest shares, and withdrawals under systematic withdrawal plans will also be based upon the actual results experienced over the past rolling six month period. This calculation will be made every quarter. Interest Rate: Borrower's option of: a) Agent' s Alternate Base Rate; or b) Eurodollar Rate + 1.25 % p.a. -2- 8 Agent's Alternate Base Rate shall mean the greater of: (i) FNBB's Base Rate, and (ii) the Federal Funds Effective Rate + 0.50% p.a. Interest Payments and Calculations: Interest shall be calculated on the basis of a 360-day year. In the case of loans bearing interest at the Alternate Base Rate, interest shall be payable monthly in arrears. In the case of loans bearing interest at a Eurodollar rate, interest shall be payable at the end of the applicable interest period (for interest periods of one, two, or three months) or at three month intervals (for interest periods of six months). Interest Rate Protection: Borrower shall maintain interest rate protection agreements, in form and substance acceptable to the Agent, covering at least 60% of the Borrower's outstanding indebtedness under the $35,000.000 Revolver/Term Loan facility, calculated as of the Closing Date and as of each calendar year end thereafter. The minimum term of such interest rate protection agreements shall be five years. Commitment Fee: 0.375 % per annum on the unused portion of the Revolver Commitment Amount, payable quarterly in arrears. B) $80.000.000 Revolving Credit facility: Purpose: Refinancing existing indebtedness, and for working capital and general corporate purposes. Final Maturity: Payable in full five (5) years from Closing. Mandatory Prepayment: Revolving Credit facility will be required to be prepaid and will be subject to a permanent reduction in availability by an amount equal to 50% of the net proceeds from any equity offering of the Borrower's ownership in Pioneer Goldfields Limited and related ownership entities. Borrowing Options: Interest rates will be based on the Alternate Base Rate ("Base Rate Loans") or the Eurodollar Rate ("Eurodollar Rate Loans"), at the Borrower's option, plus the Applicable Margin. -3- 9 Agent's Alternate Base Rate shall mean the greater of: (i) FNBB's Base Rate, and (ii) the Federal Funds Effective Rate + 0.50% p.a. Applicable Margin: Beginning at Closing through the first anniversary of the Closing, the Applicable Margin for Base Rate Loans shall be 0.00% p.a. and the Applicable Margin for Eurodollar Loans shall be 1.25 % p.a. Thereafter, the Applicable Margin shall be tied to the Borrowers' financial performance. as detailed in the following pricing grid:
Applicable Margin ---------------------------- Recourse Debt/EBITDA Eurodollar + Base+ -------------------- ------------ ----- [greater than symbol] 2.50x 1.50% 0.00% 2.00x - 2.50x 1.25% 0.00% [less than symbol] 2.00x 0.75% 0.00%
For the purposes of measuring the above: - Recourse Debt shall include all indebtedness for which the Borrower is an obligor or a guarantor, excluding indebtedness related to B-share financing. - EBITDA shall include only the earnings before interest, taxes, depreciation, and amortization of the Borrower' s Core Mutual Fund business, excluding any B-share-related cash flows, and excluding dividends received from any other Borrower subsidiary. Interest Payments and Calculations: Interest shall be calculated on the basis of a 360 day-year. In the case of loans bearing interest at the Alternate Base Rate, interest shall be payable monthly in arrears. In the case of loans bearing interest at a Eurodollar rate, interest shall be payable at the end of the applicable interest period (for interest periods of one, two, or three months) or at three month intervals (for interest periods of six months). Commitment Fee: 0.375 % per annum on the unused portion of the Revolving Credit commitment amount, payable quarterly in arrears. A&B) Credit Facilities: -4- 10 Security: Unsecured. with a negative pledge on the stock of (i) all subsidiaries which comprise the Borrower's Core Mutual Fund business, and (ii) Pioneer Goldfields Limited and related ownership entities. Lenders will release the negative pledge on the stock of Pioneer Goldfields Limited and related ownership entities upon (i) repayment and cancellation in full of the $80,000,000 Revolving Credit facility., and (ii) a minimum prior twelve months Core Mutual Fund EBITDA of $30,000,000. Financial Covenants: Usual and customary for facilities of this type, including but not limited to: i) Maximum ratio of (a) Recourse Debt at all times to (b) Core Mutual Fund EBITDA, calculated on a trailing four quarter basis, of 3.00x; ii) Minimum ratio of (a) Core Mutual Fund EBITDA plus Redemption (CDSC) Fees to (b) Total Debt Service of 4.00x tested each quarter on a trailing four quarter basis; iii) Minimum Consolidated Tangible Net Worth at all times of $114,000,000, plus 50% of net income (but not net losses) for each quarter. Representations And Warranties: Usual and customary for facilities of this type, including but not limited to: i) corporate existence; ii) corporate and governmental approval; iii) environmental compliance; iv) no material adverse change; v) ERISA compliance; vi) no material litigation; vii) payment of taxes; and viii) full disclosure. Other Covenants: Usual and customary for transactions of this type, including but not limited to: i) consolidated and consolidating financial reporting; ii) delivery of annual projections; -5- 11 iii) maintenance of insurance (including OPIC insurance); iv) payment of taxes; v) maintenance of mutual fund management contracts; vi) maintenance of fee structure with respect to dealer commissions and redemption fees on at least as favorable terms; vii) maintenance of books and records; ix) limitations on: a) liens (no liens on the stock of (i) the subsidiaries which comprise the Borrower's Core Mutual Fund business, and (ii) Pioneer Goldfields Limited and related ownership entities), b) sale or disposition of assets (maintenance of controlling interest in Pioneer Goldfields Limited and related ownership entities, and maintenance of current ownership levels of all subsidiaries which comprise the Core Mutual Fund business), and c) mergers and acquisitions (relating to the Borrower and the Core Mutual Fund business); d) debt with respect to the Core Mutual Fund business. viii) standards for transactions with affiliates; and ix) compliance with applicable laws and regulations (ERISA, environmental, labor and similar laws). Conditions Precedent to Closing: Usual and customary for transactions of this type, including but not limited to: i) completion of due diligence in scope and determination satisfactory to the Agent and the Lenders in their sole discretion; ii) negotiation, execution and delivery of the Credit Agreement, Notes, negative pledges, and all related legal documentation satisfactory to the Lenders; iii) Agent is named as Loss Payee on any OPIC or other political risk insurance policies; iv) no material adverse change in the financial condition, business or prospects of the Borrower or its subsidiaries shall have occurred; and v) minimum assets under management of $11 billion. -6- 12 Event of Default: Usual and customary for transactions of this type, including but not limited to: i) nonpayment of principal or interest; ii) breach of any affirmative or negative covenants; iii) misrepresentation by the Borrower; iv) cross default provisions to other agreements or obligations; v) change of composition of senior management team or Board of Directors; vi) loss of mutual fund management contracts representing more than 15 % of assets under management; vii) failure to renew distribution plans on at least as favorable terms and fees; viii) failure to maintain controlling interest in Pioneer Goldfields Limited and related ownership entities; ix) material adverse change; and x) certain bankruptcy, insolvency, ERISA and judgment defaults, with appropriate limitations and time periods. Expenses: All fees and disbursements of legal counsel for the Agent incurred in the negotiation and preparation of all necessary documentation and all out-of-pocket expenses related to the Credit Facilities (including syndication expenses) shall be for the account of the Borrower whether or not the transactions referred to herein are ultimately consummated. Assignments/ Participations: Assignments of each Lender's commitment, fully or in part, are permitted with the prior consent of the Borrower, which consent will not be unreasonably withheld, provided that each such assignment will be in a minimum amount of $5,000,000. Participations in each Lender' s commitment may be sold in any amount, provided that the voting rights granted to any such participant will be limited to those requiring unanimous votes under the governing loan documentation. Syndication: Borrower will provide all information (including pro forma financial projections for the proposed Credit Facilities), in a form reasonably acceptable to the Agent, necessary for the preparation of an information memorandum describing the Borrower, the Credit Facilities and any related transactions. Such package will be distributed on a confidential basis to selected financial institutions. In -7- 13 addition, the management of the Borrower will, at the request of the Agent. hold themselves and their advisors available at reasonable times to meet with potential lenders and to answer questions during the syndication process. Increased Costs/ Change of Circumstances: The credit agreement will contain provisions protecting the Lenders in the event of unavailability of funding, illegality, capital adequacy requirements, increased costs, and funding losses. Voting Rights: Required Lenders for waivers and amendments shall mean Lenders holding at least 51% of the outstanding loans and unused commitments under the Credit Facilities: provided, however, that 100% of the Lenders are required to consent to increases of commitments, reductions in interest rates or fees, extensions of maturity, changes in the pricing structure of the Borrower's B-share program, or changes of the percentage required to approve such matters. Governing Law: The Commonwealth of Massachusetts. -8- 14 Exhibit 10.54 THE PIONEER GROUP, INC. 1995 RESTRICTED STOCK PLAN 1. PURPOSE. The purpose of the 1995 Restricted Stock Plan (the "Plan") is to secure for The Pioneer Group, Inc. (the "Company") and its shareholders the benefits arising from capital stock ownership by key employees of the Company who have contributed and are expected to contribute to the Company's future growth and success. Except where the context otherwise requires, the term "Company" shall include any subsidiaries of the Company. For purposes of the Plan, the term "subsidiary" means a corporation fifty percent (50%) or more of whose voting securities are directly or indirectly owned by the Company. 2. ADMINISTRATION AND AWARDS. (a) Administration. Awards (as defined below) granted pursuant to the Plan shall be authorized by action of the Board of Directors of the Company and shall meet the requirements of Section 5 of the Plan. The Plan shall be administered by the Board of Directors of the Company, whose construction and interpretation of the terms and provisions of the Plan shall be final and conclusive. The Board of Directors may in its sole discretion make awards for the purchase of shares of the Company's common stock, $.10 par value per share ("Common Stock"), pursuant to Section 5. The Board shall have authority, subject to the express provisions of the Plan, to construe the respective Awards, and the Plan, to prescribe, amend and rescind rules and regulations relating to the Plan, to determine the terms and provisions of the respective Awards, which need not be identical, and to make all other determinations in the judgment of the Board of Directors necessary or desirable for the administration of the Plan. The Board of Directors may correct any defect or supply any omission or reconcile any inconsistency in the Plan or in any Award in the manner and to the extent it shall deem expedient to carry the Plan into effect and it shall be the sole and final judge of such expediency. No director or person acting pursuant to authority delegated by the Board of Directors shall be liable for any action or determination made in good faith. The Board of Directors may, to the full extent permitted by or consistent with law or regulation (including without limitation Rule 16b-3 of the Securities Exchange Act of 1934 or any successor rule ("Rule 16b- 3")), delegate any or all of its powers under the Plan to a committee (the "Committee") appointed by the Board of Directors, and if the Committee is so appointed all references to the Board of Directors in the Plan shall mean and relate to such Committee. In addition, to the full extent permitted by or consistent with law or regulation (including without limitation Rule 16b-3), the Board of Directors or such Committee may delegate authority to the President of the Company to make Awards to employees of the Company who are not officers or directors of the Company. -1- 15 (b) Grant of Awards to Directors. The selection of a director as a participant and the size of an Award to such director shall be determined by the Board of Directors, of which a majority, as well as a majority of the directors acting in the matter, shall be "disinterested persons" (as hereinafter defined). For the purposes of the Plan, a director shall be deemed to be "disinterested" only if such person qualifies as a "disinterested person" within the meaning of Rule 16-3 as such term is interpreted from time to time. 3. ELIGIBILITY. Awards under the Plan may be made only to persons who are determined by the Board of Directors to be key employees of the Company. The term "employees" shall include officers and directors who are full-time employees of the Company as well as other full-time employees of the Company. 4. STOCK SUBJECT TO PLAN. Subject to adjustment as provided in Section 8 below, the maximum number of shares of Common Stock of the Company which may be issued and sold under the Plan is 600,000 shares, PROVIDED THAT the maximum number of shares that may be issued under the Plan to any person in any calendar year shall not exceed 50,000 shares. Such shares may be (i) authorized and unissued shares or (ii) issued and thereafter acquired by the Company or (iii) subject to the requirements of 16b-3, tendered back to the Company or withheld by the Company for tax withholding obligations pursuant to Section 12. Any shares of Common Stock subject to an Award which are not purchased by the recipient of the Award, or which are purchased by the recipient of the Award but later repurchased by the Company in accordance with the terms of the Award or the Plan, shall again be available for purposes of the Plan. 5. AWARDS. (a) Restricted Stock Award. A restricted stock award ("Award") shall consist of the sale and issuance by the Company of shares of Common Stock, and purchase by the recipient of such shares, subject to the terms, conditions and restrictions described in the document evidencing the Award and in this Plan. (b) Execution of Agreement. As a condition to an Award under the Plan, each recipient of an Award shall execute an agreement in such form, which may differ among recipients, as shall be specified by the Board of Directors at the time of such Award. (c) Price. The Board of Directors shall determine the price, if any, at which shares of Common Stock shall be awarded to recipients under the Plan, provided that such price shall in no event be less than the par value of the Common Stock. The purchase price may vary among the participants. The Board of -2- 16 Directors may, in its discretion, issue shares under the Plan at a purchase price below the then fair market value. If a purchase price is required to be paid, it shall be paid in cash or by check payable to the order of the Company at the time that the Award is accepted by the recipient. (d) Number of Shares. The Award shall specify the number of shares of Common Stock granted thereunder. (e) Ownership of Shares. Each recipient of an Award shall have, after delivery to him or her or to an escrow agent (the "Escrow Agent") on his or her behalf of a certificate or certificates for the number of shares of Common Stock awarded, absolute ownership of such shares including the right to vote them and to receive dividends on the shares, subject, however, to the risk of forfeiture and the terms, conditions and restrictions described in the Plan and in the instrument evidencing the grant of the Award. (f) Restrictions on Transfer. In addition to such other terms, conditions and restrictions upon Awards as shall be imposed by the Board of Directors, all shares issued pursuant to an Award shall be subject to the following restrictions: (1) All shares of Common Stock subject to an Award (including any shares issued pursuant to paragraph (g) of this Section 5) shall be subject to certain restrictions on disposition and obligations of resale to the Company as provided in subparagraph (2) below for the period specified in the document evidencing the Award, and shall not be sold, assigned, transferred, pledged, hypothecated or otherwise disposed of until such restrictions lapse. The period during which such restrictions are applicable is referred to as the "Restricted Period" (2) In the event that a recipient's employment with the Company is terminated within the Restricted Period, whether such termination is voluntary or involuntary, with or without cause, for any reason other than death, Disability or Retirement (except as provided in Section (f)(3) below) (as such terms are defined below) of the recipient, the Company shall have the right and option for a period of ninety (90) days following such termination of employment to elect to buy for cash that number of the shares of Common Stock purchased under the Award as to which the restrictions on transfer and the forfeiture provisions contained in the Award had not lapsed at the time of such termination, at a price equal to the price per share originally paid by the recipient. If such termination of employment occurs within the Restricted Period, and there are less than ninety (90) days remaining in the Restricted Period, the prohibition against any sale, assignment, transfer or other disposition of the recipient's Common Stock, provided in subparagraph (f)(1) of this Section 5, shall continue to apply until the expiration of the Company's 90-day option period set forth in this subparagraph (f)(2). -3- 17 (3) If such recipient's employment is terminated within the Restricted Period by reason of his or her death, Disability or Retirement (except as provided below), the Company's right to repurchase shares issued to such recipient under the Plan shall cease and terminate at the time of such death, Disability or Retirement; and such shares, from and after the date of such death, Disability or Retirement, shall no longer be restricted by the provisions of subparagraph (f)(1) of this Section 5 and may thereafter, subject to compliance with law, be sold, assigned, transferred or otherwise disposed of during the balance of the Restricted Period. For purposes of this Plan, "Disability" shall have the meaning set forth in Section 22(e)(3) of the Internal Revenue Code of 1986, as amended. "Retirement" shall mean termination of employment after reaching the age 65, provided that such termination shall not be for cause (as determined in good faith by the Board of Directors of the Company or the Committee). Notwithstanding the foregoing, a recipient who after Retirement or Disability, directly or indirectly, (a) competes with the business of the Company as an individual proprietor, officer, director, shareholder, partner, joint venturer, employee, investor, lender, or in any other capacity whatsoever (other than as the holder of not more than five percent (5%) of the total outstanding stock of a publicly held company); or (b) recruits or other solicits or induces employees of the Company to terminate their employment with, or otherwise cease their relationships with, the Company, or (c) contracts, services or approaches any customer or account which was a customer or account of the Company during the last year of the recipient's employment by the Company, shall be deemed to have terminated employment for purposes of this Plan otherwise than by means of Retirement or Disability, on the later of (i) the date of the recipient's Retirement or Disability or (ii) the date determined by the Company to have been the date such activity commenced. As used herein, "business of the Company" shall refer to its business as described in the most recent Annual Report of the Company on Form 10-K filed with the Securities and Exchange Commission prior to the commencement by the recipient of any activity referred to in the preceding sentence. If this provision against competition is found by any court to be unreasonable, because it is (or any party of it is) too broad, then such provision shall nevertheless remain effective, but shall be considered amended to such extent (such as time, area or line of business) as may be considered reasonable by such court, and as so amended then shall be enforced. (4) Notwithstanding subparagraphs (1), (2) and (3) above, the Board of Directors may, in its discretion, either at the time that an Award is made or at any time thereafter, waive its right to repurchase shares of Common Stock upon the occurrence of any of the events described in this Section 5(f) or remove or modify any part or all of the restrictions. In addition, the Board of Directors may, in its discretion, impose upon the recipient of an Award at the time of such Award, such other -4- 18 restrictions on any shares of Common Stock issued pursuant to such Award as the Board may deem advisable and in the best interests of the Company and its shareholders. (g) Additional Shares. Any shares received by a recipient of an Award as a stock dividend on, or as a result of stock splits, combinations, exchanges of shares, reorganizations, mergers, consolidations or otherwise With respect to, shares of Common Stock received pursuant to such Award shall have the same status and shall bear the same restrictions, all on a proportionate basis, as the shares initially purchased pursuant to such Award. (h) Transfers in Breach of Award; Repurchased Shares. If any transfer of shares purchased pursuant to an Award is made or attempted contrary to the terms of the Plan and of such Award, the Board of Directors shall have the right to purchase those shares for the account of the Company from the owner thereof or his transferee at any time before or after the transfer at the price paid for such shares by the person to whom they were awarded under the Plan. In addition to any other legal or equitable remedies which it may have, the Company may enforce its rights by specific performance to the extent permitted by law. The Company may refuse for any purpose to recognize as a shareholder of the Company any transferee who receives any shares contrary to the provisions of the Plan and the applicable Award, and the Company may retain and/or recover all dividends on such shares which were paid or payable subsequent to the date on which the prohibited transfer was made or attempted. Any shares which the Board of Directors elects to repurchase under the Plan for the account of the Company shall be tendered to the Company by the delivery of certificates therefor, duly endorsed in blank, at the Company's principal office on the date and at the time specified by the Board of Directors. Payment for repurchased shares shall be made by the Company at the time of delivery of the certificate(s) representing the repurchased shares. (i) Resale Restrictions. Certain officers of the Company, who may be deemed to be "affiliates", may resell shares of the Company's Common Stock purchased under the Plan only subject to certain restrictions imposed by the Securities Act of 1933 and Rule 144 promulgated thereunder. In addition, in order to obtain the benefits of Rule 16b-3, certain officers of the Company, who may be deemed to be "insiders" under Rule 16b-3 may not sell any shares of the Company's Common Stock for at least six months after the date an award is granted. Any officer purchasing shares under the Plan should consult with legal counsel prior to doing so. (j) Additional Award Provisions. The Board of Directors may, in its sole discretion, include additional provisions in any Award granted under the Plan. -5- 19 6. GENERAL RESTRICTIONS. (a) Investment Representations. The Company may require any person to whom an Award is made, as a condition of purchasing the shares subject to such Award or exercising such option, to give written assurances in substance and form satisfactory to the Company to the effect that such person is acquiring the Common Stock subject to the Award for his or her own account for investment and not with any present intention of selling or otherwise distributing the same, and to such other effects as the Company deems necessary or appropriate in order to comply with federal and applicable state securities laws. Certificates for shares of Common Stock delivered pursuant to Awards shall bear the following legend: "The shares of Common Stock represented by this certificate are subject to forfeiture, prohibition against transfer or assignment and certain other restrictions set forth in the 1995 Restricted Stock Plan of The Pioneer Group, Inc. and in the Restricted Stock Award dated as of granted by The Pioneer Group, Inc. to the owner of this certificate. A copy of the 1995 Restricted Stock Plan and the above-described Restricted Stock Award are available for inspection, without charge, at the offices of The Pioneer Group, Inc." (b) Compliance with Securities Laws. Each Award shall be subject to the requirement that if, at any time, counsel to the Company shall determine that the listing, registration or qualification of the shares subject to such Award upon any securities exchange or under any state or federal law, or the consent or approval of any governmental or regulatory body, is necessary as a condition of, or in connection with, the issuance or purchase of shares thereunder, such Award may not be exercised, in whole or in part, unless such listing, registration, qualification, consent or approval shall have been effected or obtained on conditions acceptable to the Board of Directors. Nothing herein shall be deemed to require the Company to apply for or to obtain such listing, registration or qualifications. 7. RIGHTS AS A SHAREHOLDER. The recipient of an Award shall have no rights as a shareholder with respect to any shares covered by the Award until the date of issue of a stock certificate to him or her for such shares. No adjustment shall be made for dividends or other rights for which the record date is prior to the date such stock certificate is issued. -6- 20 8. ADJUSTMENT PROVISIONS. (a) If the outstanding shares of Common Stock are increased, decreased or exchanged for a different number or kind of shares or other securities, or if additional shares or new or different shares or other securities are distributed with respect to such shares of Common Stock or other securities, through merger, consolidation, sale of all or substantially all of the assets of the Company, reorganization, recapitalization, reclassification, stock dividend, stock split, reverse stock split or other distribution with respect to such shares of Common Stock or other securities, or if the Company shall distribute any substantial amount of its assets with respect to such shares of Common Stock or other securities, an appropriate and proportionate adjustment may be made in the maximum number and kind of shares identified in Section 4 of the Plan. (b) Adjustments under this Section 8 will be made by the Board of Directors, whose determination as to what adjustments, if any, will be made and the extent thereof will be final, binding and conclusive. No fractional shares will be issued under the Plan on account of any such adjustments. 9. NO SPECIAL EMPLOYMENT RIGHTS. Nothing contained in the Plan or in any Award shall confer upon any recipient of an Award any right with respect to the continuation of his or her employment by the Company or interfere in any way with the right of the Company at any time to terminate such employment or to increase or decrease the compensation of the recipient. Whether an authorized leave of absence, or absence, or absence in military or government service shall constitute termination of employment shall be determined by the Company at the time of such absence. 10. OTHER EMPLOYEE BENEFITS. The value of an Award granted to an employee or the sale of shares received pursuant to an Award will not constitute compensation with respect to which any other employee benefits of such employee are determined, including, without limitation, benefits under any bonus, pension, profit-sharing, life insurance or salary continuation plan, except as otherwise specifically determined by the Board of Directors. 11. AMENDMENT OF THE PLAN. The Plan may at any time be terminated, modified or amended by the holders of a majority of the then outstanding voting shares of the Company. The Board of Directors may at any time, and from time to time, terminate, modify or amend the Plan in any respect, except that without the approval of the shareholders of the Company the Board of Directors may not make any amendment which would (i) cause the Plan to no longer comply with Rule 16b-3 or -7- 21 any successor to the foregoing or (ii) require shareholder approval under any applicable listing requirement. The termination or any modification or amendment of the Plan shall not, without the consent of a recipient of an Award, affect his or her rights under an Award previously made to him or her. With the consent of the recipient of the Award, the Board of Directors may amend outstanding Awards in a manner not inconsistent with the Plan. The Board of Directors shall have the right to amend or modify the terms and provisions of the Plan and of any outstanding Award to the extent necessary to ensure the qualification of the Plan under Rule 16b-3 or any successor rule. 12. WITHHOLDING. (a) The Company shall have the right to deduct from payments of any kind otherwise due to the participant any federal, state or local taxes of any kind required by law to be withheld with respect to any shares issued upon any Award under the Plan. Subject to the prior approval of the Company, which may be withheld by the Company in its sole discretion, the participant may elect to satisfy such obligations, in whole or in part, (i) by directing the Escrow Agent to forward to the Company a sufficient number of shares of Common Stock otherwise deliverable by the Escrow Agent to the participant pursuant to the grant of an Award or (ii) by delivering to the Company shares of Common Stock already owned by the participant. The shares so delivered by the Escrow Agent or the participant shall have a fair market value equal to such withholding obligation. The fair market value of the shares used to satisfy such withholding obligation shall be determined by the Company as of the date that the amount of tax to be withheld is to be determined. A participant who has made an election pursuant to this Section 12(a) may only satisfy his or her withholding obligation with shares of Common Stock which are not subject to any repurchase, forfeiture, unfulfilled vesting or other similar requirements. (b) Notwithstanding the foregoing, in the case of any persons who are required to file reports under Section 16(a) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), no election to use shares for the payment of withholding taxes shall be effective unless made in compliance with any applicable requirements of Rule 16b-3 or any successor rule under the Exchange Act. (c) If the recipient of an Award under the Plan elects, in accordance with Section 83(b) of the Internal Revenue Code of 1986, as amended (the "Code"), to recognize ordinary income in the year of acquisition of any shares awarded under the Plan, the Company will require at the time of such election an additional payment for withholding tax purposes based on the difference, if any, between the purchase price of such shares and the fair market value of such shares as of the date immediately preceding the date of the Award. -8- 22 13. EFFECTIVE DATE AND DURATION OF THE PLAN. (a) Effective Date. The Plan shall become effective when adopted by the Board of Directors and approved by the Company's shareholders. (b) Termination. Unless sooner terminated by the Board of Directors or shareholders of the Company, the Plan shall terminate upon the earlier of (i) the close of business on the day next preceding the tenth anniversary on the date of its adoption by the Board of Directors, or (ii) the date on which all shares available for issuance under the Plan shall have been issued pursuant to the final vesting of Awards granted under the Plan. If the date of termination is determined under (i) above, then Awards outstanding on such date shall continue to have force and effect in accordance with the provisions of the instruments evidencing such Awards. 14. CHANGE IN CONTROL. (a) Notwithstanding any provision to the contrary in this Plan, and except as provided in clause (b)(ii) below, if, following a Change in Control (as defined below) of the Company an employee is relocated more than 100 miles from Boston or is terminated for any reason, all of the Company's rights to repurchase outstanding shares issued to such employee in the Plan prior to the occurrence of such Change in Control shall cease and terminate as of the date such Change in Control occurs; and such shares, from and after such date, shall no longer be restricted by the provisions of Section 5 of the Plan. (b) (i) A "Change in Control" shall occur or be deemed to have occurred only if any of the following events occur: (x) any merger or consolidation with another corporation unless such merger or consolidation does not change in any material way the voting control of the Company; (y) any sale of all or substantially all of the assets and business of the Company; or (z) any acquisition of more than 25% of the outstanding voting securities of the Company (the "Shares") by any person, entity or "group" (as defined in Section 13(d)(3) of the Exchange Act), PROVIDED, HOWEVER, that this clause (i) of this Section 14(b) shall not apply to any acquisition of shares by John F. Cogan, Jr., who is currently the beneficial owner of approximately 15% of the Shares. (ii) The provisions of subsection (a) to this Section 14 shall not apply to any employee who is terminated following any Change in Control pursuant to clause (z) of Section 14(b)(i) if such employee has or is a member of the group which has acquired more than 25% of the Shares. -9- 23 15. PROVISIONS FOR FOREIGN PARTICIPANTS. The Board of Directors may, without amending the Plan, modify Awards granted to participants who are foreign nationals or employed outside the United States to recognize differences in tax, securities, currency laws, rules, regulations or customs of such foreign jurisdictions. Adopted by the Board of Directors on January 26, 1995 -10- EX-10.55 3 CREDIT AGREEMENT 1 Exhibit 10.55 CREDIT AGREEMENT between Teberebie Goldfields Limited and Skandinaviska Enskilda Banken AB (publ) 2 INDEX
Clause Page - ------ ---- 1. Definitions 1 2. Advances; loan account 3 3. Conditions precedent 4 4. Representations and warranties 5 5. Covenants 7 6. Repayment; prepayment 8 7. Interest 8 8. Payments 9 9. Fees, EKN-premium and other costs 10 10. Events of default 11 11. Waiver 13 12. Notices 13 13. Assignment 13 14. Governing law; jurisdiction 13 15. Miscellaneous 15 ADDENDUM 16 EXHIBIT Opinion of the Borrower's legal adviser 17
3 1 THIS CREDIT AGREEMENT (the "Agreement") is made BETWEEN (1) Teberebie Goldfields Limited, P.O. Box 6, Tarkwa, Republic of Ghana, (the "Borrower"), Satellite Telex No. 0581 4962000 GOLD and telefax No. 233-362 273); and (2) Skandinaviska Enskilda Banken AB (publ), Enskilda, S-205 20 Malmo, Sweden, (the "Lender"), (Telex No. 16400 essebm s and telefax No. +46 - 40 124785 to Export & Project Finance, Malmo and telex No. 11000 essebi s and telefax No. +46 - 8 6110384 to Foreign Credits Administration, Stockholm). WHEREAS the Borrower has concluded a contract No. TGL-X5-0002 dated 27 February, 1996 (the "Contract") with Svedala-Arbra AB, Svedala, Sweden (the "Exporter") concerning delivery from the Exporter to the Borrower of primary crashing section with stockpile, belt conveyors and screening units; WHEREAS the total mount of the Contract is SEK 135,000,000.-; WHEREAS the Lender is prepared to place at the disposal of the Borrower a credit facility in USD (as defined below) to finance 70% of the amount of the Contract; NOW IT IS HEREBY AGREED by and between the parties hereto as follows: 1. DEFINITIONS ----------- 1.01 In this Agreement "Advance" means the countervalue in USD of each principal amount disbursed hereunder (collectively the "Advances"). "Banking Day" means a day on which commercial banks are open for domestic and foreign exchange business in the place specified or, if no place is specified, in Stockholm and New York City. 4 2 "Commitment" means the obligation of the Lender to make disbursements to the Exporter hereunder up to the aggregate principal amount of SEK 94,500,000.-, subject to and in accordance with the terms hereof. "Commitment Period" means the period from the date of this Agreement up to and including August 31, 1996. "EKN" means Exportkreditnamnden, (the Swedish Export Credits Guarantee Board), Box 3064, S-103 61 Stockholm, Sweden. "Event of Default" means any of the events specified in Clause 10. "Exportkredit" means AB Svensk Exportkredit, Box 16368, S-103 27 Stockholm, Sweden. "External Indebtedness" means any present or future indebtedness denominated or payable or optionally payable in a currency other than the legal currency of the Republic of Ghana or which is owed to any person, firm, organization or company not resident in the Republic of Ghana. "Interest Payment Date" means the last day of an Interest Period. "Interest Period" means each period (commencing on the date of the making of an Advance and thereafter forthwith upon expiry of the preceding Interest Period) of six months for calculation of interest provided that (a) the first Interest Period of each Advance made after the first Advance shall be adjusted so as to be coterminous with the current Interest Period of the first Advance, unless such Advance is made less than 30 days prior to the end of the current Interest Period, in which case the Interest Period for such Advance shall be extended to end on the last day of the next following Interest Period; (b) if the last day of an Interest Period should not be a Banking Day such Interest Period shall end on the next following Banking Day unless such Banking Day falls in the next calendar month in which event the Interest Period shall end on the immediately preceding Banking Day; 5 3 (c) the Interest Period in which the first repayment date falls shall be shortened so as to end on such first repayment date. "Loan" means the aggregate principal amount from time to time outstanding hereunder. "Spread" means 0.5% per annum. "Swedish Kronor" or "SEK" means the lawful currency of Sweden. "US Dollars" or "USD" means the lawful currency of the United States of America. 2. DISBURSEMENTS; ADVANCES; LOAN ACCOUNT ------------------------------------- 2.01 Disbursements up to, but not exceeding, the Commitment shall be made, subject to the terms of this Agreement, during the Commitment Period on a Banking Day direct to the Exporter within fifteen Stockholm Banking Days after the Exporter's presentation to the Lender of the relevant documents as stipulated in the addendum to this Agreement. 2.02 Each Advance shall amount to the USD equivalent of the amount in SEK which is to be disbursed hereunder to the Exporter in accordance with the terms of payment in clause 2.01 above. Such USD equivalent shall be calculated at the buying rate for USD against SEK prevailing between banks in Stockholm at or about 11.00 a.m. on the second Stockholm Banking Day prior to the relative date of the Advance. 2.03 The Lender shall open and maintain a loan account in accordance with its usual practices in the name of the Borrower and shall debit to the loan account the amount of each Advance hereunder and interest and other charges accrued in respect thereof from time to time and shall credit to the loan account the amount of each payment by the Borrower of principal of and interest on the Loan and other charges in respect thereof. The loan account maintained by the Lender, shall, in the absence of manifest error, constitute conclusive evidence of the indebtedness of the Borrower to the Lender hereunder and of the amounts from time to time due from the Borrower under this Agreement. Updated and mended versions of the loan 6 4 account will be provided to the Borrower within a reasonable time after it is amended or updated. 3. CONDITIONS PRECEDENT -------------------- 3.01 The obligations of the Lender hereunder are subject to the condition that the Lender shall have received all of the following in the form and substance satisfactory to the Lender (a) a copy of a resolution of the Board of Directors of the Borrower, certified by an officer of the Borrower, approving this Agreement and authorizing appropriate signatories to execute this Agreement; (b) the names and authenticated specimen signatures of the officers of the Borrower referred to in sub-clause (a) above; (c) an opinion of the Borrower's legal adviser, approved by the Lender, and substantially in the form set out in the Exhibit; (d) a commitment from Exportkredit to refinance or (at the option of the Lender) to take an assignment of the Advances at a rate of interest and on conditions acceptable to the Lender; (e) a guarantee from EKN in favour of the Lender and, prior to the making of each Advance, evidence satisfactory to the Lender that such guarantee shall extend to the Advance to be made; (f) confirmation from the Exporter that the Contract is in full force and effect and that the Exporter has received the payments prescribed in the Contract not be be financed under this Agreement and complying with the requirements of EKN; and (g) all amounts due pursuant to Clause 9 below. 3.02 The obligations of the Lender hereunder with respect to the making of each Advance are subject to the further conditions precedent that at the time for the making of an Advance the matters represented by the Borrower set out in Clause 4.01 shall be true and accurate on and as of such times as if made at each such time and no Event of Default or event 7 5 which, with a giving of notice, lapse of time or other condition would be an Event of Default shall have occurred and be continuing or would result from such Advance. 4. REPRESENTATIONS AND WARRANTIES ------------------------------ 4.01 The Borrower represents and warrants to the Lender that: (a) the Borrower is duly organized and validly existing as a corporation under the laws of the Republic of Ghana and has all requisite corporate power and authority to own its properties and to carry on its business as it is now being conducted; (b) the Borrower has all requisite corporate power and authority to enter into and perform this Agreement and has taken all necessary action to authorize its borrowings under this Agreement and to authorize the execution, delivery and performance of this Agreement; (c) this Agreement constitutes and will constitute valid and legally binding obligations of the Borrower enforceable in accordance with its terms, subject as to enforcement of remedies to applicable bank- ruptcy, insolvency, reorganization and similar laws affecting the enforcement of the rights of contracting parties and subject to a court's discretionary authority with respect to the granting of a de- cree ordering specific performance or other equitable remedies, and would be so treated in the courts of the Republic of Ghana and this Agreement is in proper form for its enforcement in such courts; (d) the execution, delivery and performance of this Agreement do not violate any provision of any law, regulation, decree, order, or permit, the constitutional documents of the Borrower or any contractual or other provision now existing and binding on the Borrower or on any of its properties and, except as contemplated in or in connection with this Agreement, will not result in the creation or imposition of any charge or any other encumbrance whatsoever on any of its assets; 8 6 (e) the Borrower has duly obtained all approvals, consents and authorizations of, and has duly effected any declarations, filings or registrations with any governmental or other authority in the Republic of Ghana which are required or appropriate in connection with the execution, delivery and performance of this Agreement and such approvals, consents and authorizations are in full force and effect; (f) the latest accounts of the Borrower as at December 31, 1994, a copy of which has been sent to the Lender, were prepared in accordance with generally accepted and consistently applied accounting principles and practices in the Republic of Ghana and present fairly in all material respects the result of the operations of the Borrower for the year ended on the date to which such accounts were prepared and the financial position of the Borrower as at such date and there has been no material adverse change in the business, assets or condition of the Borrower since that date; (g) the obligations of the Borrower hereunder constitute and will except as otherwise provided by law, including, without limitation, laws relating to bankruptcy and fraudulent conveyances, constitute unconditional general obligations of the Borrower ranking at least pari passu with all other unsecured general obligations of the Borrower; (h) to the best knowledge and belief of the Borrower the Borrower is not in breach of or in default under any agreement to which it is a party or which is binding on it or any of its assets to an extent or in a manner which might have a material adverse effect on its business or financial condition; (i) to the best knowledge and belief of the Borrower no action or administrative proceeding of or before any court or agency which might have a material adverse effect on the business or financial condition of the Borrower has been started or threatened; and (j) the Borrower is subject to civil and commercial law with respect to its obligations under this Agreement, and the borrowings by the Borrower hereunder and the execution, delivery and performance 9 7 of this Agreement by the Borrower constitute private and commercial acts. Neither the Borrower nor any of its property enjoys any rights of immunity from the jurisdiction of any court or from any legal process (whether through service of notice, attachment prior to judgement, attachment in aid of execution, execution or otherwise) with respect to itself or its property or with respect to its obligations under this Agreement. 5. COVENANTS --------- 5.01 The Borrower hereby undertakes and agrees that during the term of this agreement and as long as any amount is outstanding hereunder the Borrower (a) will provide the Lender with a copy of its annual report and audited accounts as soon as available and in any event within 180 days of the end of each accounting year, together with such other information as the Lender may reasonably request from time to time; (b) will promptly obtain and maintain in effect from time to time such registrations, licenses, consents and approvals as may be required in respect of this Agreement under applicable laws or regulations to enable the Borrower to perform its obligations and/or to permit the Lender to enforce its rights hereunder and will promptly furnish the Lender with copies thereof upon request; (c) will not enter into any transaction of merger or consolidation or sell, transfer, lease or otherwise dispose of all or any substantial portion of its present or future assets or revenues as to adversely affect the Borrower's ability to perform its obligations under this Agreement; (d) will except as otherwise provided by law including, without limitation, laws relating to bankruptcy and fraudulent conveyances, ensure at all times that its obligations hereunder constitute unconditional general obligations of the Borrower ranking at least pail passu with all other unsecured obligations of the Borrower now or hereafter outstanding; 10 8 (e) will promptly notify the Lender in writing of any Event of Default or event which with the giving of notice, lapse of time or other condition would constitute an Event of Default forthwith upon the occurrence thereof; and (f) will, within 90 days after the execution of this Agreement, grant the Lender a first mortgage on any and all equipment to be supplied by the Exporter to the Borrower pursuant to the Contract. Any such mortgage to be provided pursuant to this clause (f) shall be substantially in the form used by the Borrower to grant mortgage to secured parties with respect to its other assets. 6. REPAYMENT; PREPAYMENT --------------------- 6.01 The Borrower shall repay the Loan in USD by ten (10) semi-annual consecutive instalments each in the amount corresponding to one tenth (1/10) of the Commitment. The first instalment shall fall due on the earlier of (i) the date falling six months after the commissioning of the equipment and (ii) July 31, 1997. 6.02 The Borrower may at any time prepay the Loan in whole or in part, provided the Borrower undertakes to pay any additional costs or any claims for penalty fees which Exportkredit might charge in accordance with the regulations prevailing from time to time of the Swedish export credit system. 6.03 Amounts prepaid shall not be available for reborrowing hereunder. 7. INTEREST -------- 7.01 The Borrower shall pay interest on the Loan for the whole period thereof at the fixed rate of 6.42% per annum (which is the rate fixed by Export-kredit plus the Spread). Interest on the Loan shall be paid in arrears on each Interest Payment Date. 7.02 In the event that the Borrower should fail to pay on the due date any principal or interest or any other amount due hereunder, the Borrower shall pay interest on such principal, interest and any such other amount from the due date up to and including the day when the amount is actually paid calculated at an annual rate as the higher of (i) 1% per annum above the inte- 11 9 rest rate at which Exportkredit fund themselves on the market and (ii) 1% per annum above the rate of interest established in Clause 7.01. Such interest shall be compounded semi-annually and payable on demand. 8. PAYMENTS -------- 8.01 All payments due to the Lender shall be made under telex advice by the Borrower in same day funds settled through the New York Clearing House Interbank Payments System or in such other US Dollars funds as may at the relevant time be customary for the settlement of international banking transactions of the type contemplated by this Agreement. Payments shall be made on the dates prescribed - not later than 10:00 a.m. New York City time - in New York City to the Lender's account No. 10.00015 with Skandinaviska Enskilda Banken AB, New York Branch, 245 Park Avenue, New York, N.Y. 10167 or to such other bank as shall be notified to the Borrower by the Lender. 8.02 All payments to be made by the Borrower hereunder shall be made without any set-off or counterclaim whatsoever. If at any time any law of the Republic of Ghana or of any other jurisdiction to which the Borrower may be subject or through or from which the Borrower may make payment hereunder requires the Borrower to make any deduction or withholding of whatsoever nature from any payment due under this Agreement or if any tax or duty of any kind is payable in the Republic of Ghana or in any other jurisdiction as aforesaid by the Lender in respect of sums paid by the Borrower under this Agreement, the sum due from the Borrower in respect of such payment shall be increased to the extent necessary to ensure that after the making of such deduction or withholding or after the discharge of the tax or duty payable by the Lender, the Lender receives a net sum equal to the sum which it would have received had no such deduction or withholding been made or had no such tax or duty been payable. The Borrower shall promptly deliver to the Lender any receipts, certificates or other proof evidencing the amounts, if any, paid in respect of any deduction or withholding as aforesaid and any certificates or other receipts in respect of the payment of any tax or duty. 8.03 The liability of the Borrower to discharge any amount due under this Agreement is unconditional and in no respect dependent on the fulfilment by the Exporter, or by any party cooperating with the Exporter in respect 12 10 of deliveries to the Borrower for the project herein referred to, of its obligations under the Contract, or any related contract, respectively, and will not be affected in any way by reason of any claim which the Borrower might have or might consider that it has against the Exporter or any such cooperating party, or by any other reason whatsoever. 8.04 All interest and other payments hereunder of an annual nature shall accrue from day to day and be calculated on the actual number of days elapsed and on the basis of a 360 day year. 8.05 All payments falling due on a non-Banking Day shall be made on the next following Banking Day unless such Banking Day falls in the next calendar month in which event such payment shall be made on the immediately preceding Banking Day and interest shall be calculated up to and including and be due for payment on the actual day of payment. 8.06 Any amount paid by the Borrower hereunder shall be applied by the Lender, at its discretion, towards amounts due and unpaid of whatever kind owed by the Borrower under this Agreement. 9. FEES, EKN-PREMIUM AND OTHER COSTS --------------------------------- 9.01 The Borrower shall pay to the Lender, for account Exportkredit, a commitment fee in SEK at the rate of 0.25% per annum on the daily unutilized portion of the Commitment. The fee shall be calculated from the date of signing of this Agreement and shall be paid in arrears on June 30 and December 30 each year and on the date of the last Advance. 9.02 The Borrower shall pay to the Lender a management fee in SEK at the rate of 0.35% flat calculated on the Commitment, the fee being payable on the date of the signing of this Agreement. 9.03 The Borrower shall pay to the Lender an administration fee in USD at the rate of 0.20% per annum calculated on the Loan and payable semi-annually on each Interest Payment Date. 9.04 The premium charged by EKN for the export credit guarantee shall be paid by the Borrower in USD on the date to be specified by the Lender. 13 11 9.05 The Borrower shall pay to the Lender on demand the Lender's reasonable costs and expenses, including reasonable legal fees, in connection with the enforcement of, or the preservation of any fight under, this Agreement. 9.06 The Borrower shall pay any stamp duty or similar taxes or charges in the Republic of Ghana to which this Agreement may be subject. 9.07 In case the Commitment is not, or not fully, utilized, the Borrower shall pay any costs which Exportkredit might charge in accordance with the regulations prevailing from time to time of the Swedish export credit system. 10. EVENTS OF DEFAULT ----------------- 10.01 The Lender may, by notice to the Borrower, (i) declare that the unutilized portion of the Commitment shall be cancelled forthwith and/or (ii) declare the Loan due and payable either immediately or on the expiration of such period as may be specified in such notice whereupon the same shall become due and payable together with all interest accrued thereon and all other amounts payable hereunder, if anyone of the following events ("An Event of Default") shall occur and be continuing at the expiration of either the 10-day period following notice thereof to the Borrower or the period specified below, if any, which ever is greater: (a) the Borrower fails to pay on the due date any principal of or inter- est on the Loan or any other amount due under this Agreement; or (b) any representation or warranty of the Borrower herein or in any certificate or other document furnished pursuant hereto proves to be or becomes at any time incorrect in any material respect; or (c) the Borrower defaults in the performance of any other provision of this Agreement and such default is, in the reasonable and good faith opinion of the Lender, incapable of remedy or, if capable of remedy, continues unremedied for 30 days after notice thereof has been given to the Borrower by the Lender; or (d) any present or future material indebtedness of the Borrower, other than under this Agreement, is not paid when due and payable or is 14 12 capable of being declared or has been declared prematurely due and payable or the security for any such indebtedness becomes enforceable, provided that any such default jeopardizes or may jeopardize the ability of the Borrower to perform or observe any of its obligations hereunder; or (e) the Borrower defaults in any guarantee obligation or the security for any such guarantee obligation becomes enforceable; or (f) any governmental licence, authorization, consent, approval or registration necessary to enable the Borrower to comply with its obligations hereunder and/or to permit the Lender to enforce its' rights hereunder is revoked, withdrawn, modified or withheld or shall otherwise fail to remain in full force and effect; or (g) the Borrower is adjudicated or found bankrupt or insolvent or enters into any composition or other arrangement with its creditors generally or stops payment of all or part of its indebtedness or admits in writing its inability to pay its debts as they fall due; or (h) the Borrower ceases, or threatens to cease, to carry on its business or disposes, or threatens to dispose, of a substantial part of its business, properties or assets or the same are seized or appropriated, provided that any such action jeopardizes or may jeopardize the ability of the Borrower to perform or observe any of its obligations hereunder; or (i) any other event occurs which in the reasonable and good faith opinion of the Lender jeopardizes or may jeopardize the ability of the Borrower to perform or observe any of its obligations hereunder. 10.02 The Borrower shall indemnify the Lender against any reasonable expenses which the Lender may sustain or incur as a consequence of any default by the Borrower in payment of any amount payable hereunder. 15 13 11. WAIVER ------ 11.01 No failure to exercise and no delay in exercising, on the part of the Lender, any right, power or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or privilege preclude any other or further exercise thereof, or the exercise of any other power or right. The rights and remedies herein provided are cumulative and not exclusive of any rights or remedies provided by law. 12. NOTICES ------- 12.01 All notices, requests and demands to or upon the parties hereto shall be given or made by telex, telefax or letter. All such notices, requests and demands to or upon the Borrower and/or the Lender shall be deemed to have been duly given or made when dispatched by a telex message addressed to the telex number set forth in the preamble above or as may subsequently be specified in a written notice to the Borrower and the Lender, respectively, and in the case of communication by telefax or letter, when received. 13. ASSIGNMENT ---------- 13.01 The Borrower may not assign or transfer its rights or obligations under this Agreement without the prior written consent of the Lender. 13.02 The Lender may at any time assign or transfer its rights or obligations under this Agreement to Exportkredit, EKN and/or the Exporter upon notification by telex to the Borrower. After such assignment or transfer to Exportkredit the Lender shall, unless otherwise notified to the Borrower, in all respects represent Exportkredit vis-a-vis the Borrower with respect to this Agreement. 13.03 The Lender may disclose to Exportkredit and/or EKN and/or the Exporter such information about the Borrower and this Agreement as the Lender shall consider appropriate. 14. GOVERNING LAW; JURISDICTION --------------------------- 14.01 This Agreement shall be governed by and construed in accordance with Swedish law. 16 14 14.02 The Borrower hereby irrevocably waives any immunity relating to either jurisdiction or execution on the grounds of sovereignty or otherwise to which it or its properly may be subject. 14.03 Any dispute which may arise between the Borrower and the Lender in connection with this Agreement shall in the first instance be settled by mutual discussions. Should an agreement not be reached within 30 days, the dispute shall be settled under the Rules of Conciliation and Arbitration of the International Chamber of Commerce by one or more arbitrators appointed in accordance with the said Rules. The place of arbitration shall be Zurich. The court of arbitration shall apply Swedish law. The decision of the arbitration is final and obligatory for the parties without right of a further appeal or contestation of its fulfillment. The enforcement of such decision may be made through any competent court. No divergence of opinion or dispute arising between the parties hereto can suspend the Borrower's undertaking to pay at their maturities and in the specified currency, all amounts due in connection with the present Agreement. Notwithstanding the foregoing the Lender reserves the right to commence proceedings in any competent court or appropriate authority in Sweden or in the Republic of Ghana or in any country having or claiming jurisdiction in respect of this Agreement, to recover any amount due hereunder from the Borrower in default hereunder with respect to such amount. The Lender may claim execution of any judgement or order in any court or appropriate authority within the Republic of Ghana or of any other country where the Borrower has any assets. The Borrower hereby agrees that any writ or notice of any legal process in connection with any action or proceeding brought in a Swedish court may be served on it by leaving a copy with the Consul General of the Republic of Ghana in Stockholm. 17 15 15. MISCELLANEOUS ------------- 15.01 Each document to be delivered pursuant to this Agreement shall be in the English language and all notices shall be in the English language. This Agreement has been executed in two copies, of which the Borrower and the Lender have taken one each. Tarkwa, 5 March, 1996 Teberebie Goldfields Limited By: /s/ Lucien Girard Malmo, 11 March, 1996 Skandinaviska Enskilda Banken AB (publ) By: /s/ 18 16 ADDENDUM Addendum to the Credit Agreement between Teberebie Goldfields Limited, Tarkwa (Republic of Ghana) and Skandinaviska Enskilda Banken AB (publ), Malmo (Sweden) dated 5/11 March, 1996 Documents to be presented by the Exporter to the Lender in order to receive disbursements according to Clause 2.01 of the Credit Agreement: 70 (seventy) percent of the total Contract amount to be paid pro rata against presentation of: Originals of each of the following documents with respect to the equipment sold pursuant to the Contract: - - Carrier's Receipt or Ocean Bill of Lading; - - Ghana Special Customs Invoice (Form C61); - - Vendor Commercial Invoice; - - Vendor Packing List; - - Clean Report of Findings from authorized inspection agency; - - Original Bank Guarantee (retention bond) each coveting pro rata 10% of the contract amount; and - - Confirmation Letter from the Exporter stating that the relevant retention bond has been duly executed in accordance with the conditions of the Contract. The documents shall appear on their face to be correct. It is understood that the Lender does not undertake to examine the documents according to the ICC uniform customs and practice for documentary credits and does not assume any responsibility for the validity and enforceability of the documents. Tarkwa, 5 March, 1996 Teberebie Goldfields Limited By: /s/ Lucien Girard Malmo, 11 March, 1996 Skandinaviska Enskilda Banken AB (publ) By: /s/ 19 17 EXHIBIT (Letterhead of the Borrower's legal adviser) Skandinaviska Enskilda Banken AB (publ) Enskilda S-205 20 MALMO Sweden (Place and date of issue) Dear Sirs, I have acted as counsel for Teberebie Goldfields Ltd., Tarkwa, Republic of Ghana (the "Borrower") in connection with the Credit Agreement (the "Agreement") concluded on , 1996, between the Borrower and Skandinaviska Enskilda Banken AB (publ) (the "Lender") under which the Lender has agreed to make available a credit facility to the Borrower of the countervalue in US Dollars of Swedish Kronor 94,500,000. I have examined and am familiar with: (a) the Agreement; (b) the laws and regulations governing the organization, powers and functions of the Borrower; (c) the special legislation, decrees, resolutions and other legal instruments authorizing the Borrower to execute and deliver the Agreement; (d) such other documents, corporate records, certificates and instruments as in my judgement are necessary or appropriate to enable me to render the opinion expressed herein. 20 18 I have assumed due compliance with all matters of Swedish law, by which law the Agreement is expressed to be governed. On the basis of the foregoing I am of the opinion that: 1. The Borrower is duly organized and validly existing as a corporation under the laws of the Republic of Ghana and has all requisite corporate power and authority to own its properties and to carry on its business as it is now being conducted. 2. The Borrower has all requisite corporate power and authority to enter into and perform the Agreement and has taken all necessary action to authorize its borrowings under the Agreement and to authorize the execution, delivery and performance of the Agreement. 3. The Agreement constitutes and will constitute valid and legally binding obligations of the Borrower enforceable in accordance with its terms, subject as to enforcement of remedies to applicable bankruptcy, insol- vency, reorganization and similar laws affecting the enforcement of the rights of contracting parties and subject to a court's discretionary authority with respect to the granting of a decree ordering specific performance or other equitable remedies, and would be so treated in the courts of the Republic of Ghana and the Agreement is in proper form for its enforcement in such courts. 4. The execution, delivery and performance of the Agreement do not violate any provision of any law, regulation, decree, order, or permit, the constitutional documents of the Borrower or any contractual or other provision now existing and binding on the Borrower or on any of its properties and, except as contemplated in or in connection with the Agreement, will not result in the creation or imposition of any charge or any other encumbrance whatsoever on any of its assets. 5. The Borrower has duly obtained all approvals, consents and authorizations of, and has duly effected any declarations, filings or registrations with any governmental or other authority in the Republic of Ghana which are required or appropriate in connection with the execution, delivery and performance of the Agreement and such approvals, consents and authorizations are in full force and effect. Except for registration of the Agreement 21 19 and the security document referred to in article 5.01 (f) of the Agreement with the Bank of Ghana and with the Registrar of Companies of the Republic of Ghana, it is not necessary or advisable to further file, register or record the Agreement or any other instrument relating thereto in any public office or elsewhere in the Republic of Ghana. 6. The obligations of the Borrower under the Agreement constitute and will, except as otherwise provided by law, including, without limitation, laws relating to bankruptcy and fraudulent conveyances, constitute unconditional general obligations of the Borrower ranking at least pad passu with all unsecured general obligations of the Borrower. 7. The Borrower is not in breach of or in default under any agreement to which it is a party or which is binding on it or any of its assets to an extent or in a manner which might have a material adverse effect on its business or financial condition. 8. No action or administrative proceeding of or before any court or agency which might have a material adverse effect on the business or financial condition of the Borrower has been started or threatened. 9. The Borrower is subject to civil and commercial law with respect to its obligations under the Agreement, and the borrowings by the Borrower thereunder and the execution, delivery and performance of the Agreement by the Borrower constitute private and commercial acts. Neither the Borrower nor any of its property enjoys any rights of immunity from the jurisdiction of any court or from any legal process (whether through service of notice, attachment prior to judgement, attachment in aid of execution, execution or otherwise) with respect to itself or its property or with respect to its obligations under the Agreement. 10. Mr. Lucien Girard, Managing Director of the Borrower, who has signed the Agreement, has sole the right, power and authority to execute and deliver the Agreement on behalf of the Borrower. 11. The engagement made by the Borrower in articles 8.02, 9.05 and 9.06 of the Agreement to fully compensate the Lender for any deductions or with- holdings in the Republic of Ghana and to pay any stamp duty or similar 22 20 taxes or charges in the Republic of Ghana to which the Agreement may be subject, is valid and binding on the Borrower. 12. Under the laws of the Republic of Ghana the choice of Swedish law to govern the Agreement is a valid choice of law and there is no requirement for such validity that the Agreement should be executed outside the Republic of Ghana. The submission by the Borrower to the jurisdiction of the Swedish courts is valid and binding upon the Borrower. Yours faithfully, EX-11 4 COMPUTATION OF EARNINGS PER SHARE 1 Exhibit 11 THE PIONEER GROUP, INC. Computation of Earnings Per Share (Dollars in Thousands Except Per Share Amounts)
Computation for Consolidated Statement of Income Year Ended December 31. ----------------------- 1995 1994 1993 ---- ---- ---- Net income (1) $ 22,811 $ 33,460 $ 18,130 Shares Weighted average number of common shares outstanding (2) 24,806,000 24,666,000 24,545,000 Dilutive effect of stock options and restricted stock proceeds as common stock equivalents computed under the treasury stock method using the average price during the period (2) 505,000 688,000 431,000 Weighted average number of shares outstanding as adjusted (1) (2) 25,311,000 25,354,000 24,976,000 Earnings per share (1) (2) $ 0.90 $ 1.32 $ 0.72 (1) These amounts agree with the related amounts in the Consolidated Statement of Income. (2) Adjusted for December 1, 1994 and September 1, 1993, 2-for-1 stock splits effected in the form of 100% stock dividends.
EX-13 5 1995 ANNUAL REPORT TO STOCKHOLDERS 1 Exhibit 13 The Pioneer Group, Inc. 1995 Annual Report 2 The Company will file an Annual Report on Form 10-K with the Securities and Exchange Commission for the year ended December 31, 1995. A copy of that Report will be available, free of charge to stockholders of the Company, upon request to William H. Keough, Senior Vice President and Chief Financial Officer, 60 State Street, Boston, MA 02109. The Company The Pioneer Group, Inc., and its subsidiaries (collectively, the "Company"), are engaged in financial services businesses in both the United States and in many foreign countries and in a number of natural resource development projects in locales as diverse as the Republic of Ghana and the Russian Far East. In the United States, the Company conducts four lines of financial services businesses: (i) investment manager to the U.S. registered investment companies comprising the Pioneer Family of Mutual Funds, and institutional accounts, (ii) distributor of shares of the Pioneer Family of Mutual Funds, (iii) venture capital investor and manager, and (iv) shareholder servicing agent for the Pioneer Family of Mutual Funds. The Company's international financial services businesses include investment operations in: (i) Warsaw, Poland, where the Company manages and distributes units of three mutual funds, owns 50% of a unitholder servicing agent and manages an institutional venture capital fund, (ii) Dublin, Ireland, where the Company distributes shares of, manages and services three offshore investment funds, sold primarily in Western Europe, and (iii) Moscow, Russia, where the Company provides financial services, including investment advisory, investment banking and brokerage services, and where the Company owns 51% of the First Voucher Fund, the largest Russian voucher investment fund. In addition, the Company has investment operations in the Czech Republic and has invested in investment management operations in India and Taiwan. The Company's subsidiary, Pioneer Goldfields Limited ("PGL"), conducts mining and exploration activities in the Republic of Ghana and exploration activities elsewhere in Africa. PGL's principal asset is its ownership of 90% of the outstanding shares of Teberebie Goldfields Limited, which operates a gold mine in the western region of the Republic of Ghana. The Company also participates in several natural resource development ventures in Russia, including a project pursuing the development of timber production in the Russian Far East, in which the Company has a 71% direct interest and a 3% indirect interest. Wholly and Majority-Owned Subsidiaries Pioneering Management Corporation, Pioneer Funds Distributor, Inc., Pioneering Services Corporation, Pioneer Capital Corporation, Pioneer SBIC Corp., Pioneer Associates, Inc., Pioneer Fonds Marketing GmbH, Pioneer International Corporation, Pioneer First Polish Trust Fund Joint Stock Company S.A., Pioneer Investment Poland Ltd., Pioneer Management (Ireland) Limited, Pioneer Omega, Inc., Pioneer First Russia, Inc., First Voucher Fund, First Voucher Bank, Pioneer Securities, Pioneer Services, Joint Stock Company Management Company (KUIF), Joint Stock Company Pioneer Investments, Pioneer Czech Investment Company, A.S., Pioneer Goldfields Holdings, Inc., Pioneer Goldfields Limited, Teberebie Goldfields Limited, Pioneer Forest, Inc., Joint Stock Company Forest Starma, Joint Stock Company Amgun Forest, Joint Stock Company Udinskoye, Joint Stock Company Pioneer Starma Equipment, Pioneer Metals and Technology, Inc., Joint Stock Company Pioneer Metals International, PioGlobal Corporation, Pioneer Real Estate Advisors, Inc., Pioneer Investments Corporation. Joint Ventures Financial Services Limited, ITI Pioneer AMC Ltd., Core Pacific Securities Investment Trust Co., Ltd., International Joint Stock Company Starma Holding, and Joint Stock Company Tas-Yurjah Mining Company. 3 [Photo--John F. Cogan, Jr. seated in chair] "It was a year of contrasts and, from a financial perspective, markedly different from 1994. Nevertheless, when all is distilled, Pioneer reached several major milestones and firmly set the underpinnings for potential profit growth." Fellow Stockholders: In 1995, Pioneer experienced more significant events, not all of them favorable, than we have witnessed in some time. It was a year of contrasts and, from a financial perspective, markedly different from 1994. Nevertheless, when all is distilled, Pioneer reached several major milestones and firmly set the underpinnings for potential profit growth. Financial Results In most respects, our biggest disappointments in 1995 came on the financial front. As we indicated in last year's report, in 1994 we experienced the great fortune of two extraordinary and significantly positive events. The combination of the two -- a favorable one-time, deferred income tax adjustment of 16 cents per share from our gold mining operations in Ghana and explosive earnings of 31 cents per share from our Polish operations -- swelled 1994 earnings to $1.32 per share. In 1995, we did not experience such unexpected blessings. The Polish stock market declined, negatively affecting assets under management and sales, and we experienced a 30 cents per share decrease in 1995 earnings from our Polish investment operations. Also, we took a 12 cents per share negative adjustment for expenses related to the postponed stock offering of Pioneer Goldfields Limited ("PGL"). The end result was that 1995 earnings were 90 cents per share. Importantly, absent these unusual events of 1994 and 1995, earnings would have held steady. There also were contrasts in other categories of operating earnings. On the plus side, worldwide venture capital operations contributed 6 cents per share to earnings in 1995, and our new investment operations in Russia provided a total of 6 cents per share. This compares well to 1994, when the worldwide venture capital operations lost 8 cents per share. Despite increased expenditures for investment management and other resources, earnings from our domestic mutual fund business were 35 cents per share, versus 36 cents in 1994. Ongoing gold-mining earnings were flat in 1995, once one subtracts the 1994 tax adjustment. Revenues for 1995 were $198.7 million, up 15.7% from 1994 revenues of $171.7 million. 4 Financial Services We witnessed a number of milestones in our investment businesses, especially our younger operations abroad. In 1995, we launched several new products, including: - - Our first offshore funds, based in Dublin and designed primarily for European markets. - - An institutional venture capital fund in Poland. - - Our third retail fund in Poland. - - A mutual fund operation in the Czech Republic. - - A fourth fund through our joint venture in India, which has become widely recognized as offering one of India's premier domestic fund families. The year also brought other new initiatives overseas, including: - - The acquisition of a 51% interest in the largest Russian voucher fund and 100% of the related management companies. - - Beginning work on two institutional direct investment funds in Russia and a Polish real property fund. On the domestic mutual fund front, we introduced: - - A new "small-cap" fund in November, our most successful new fund launch ever. - - Our first variable annuity product. Sales of U.S. funds during the year were a record $1.8 billion (including reinvested dividends), an increase of 17% over 1994. Redemptions were $1.1 billion, up 22%. Based on industry estimates available at this writing, it appears that overall industry sales were flat for 1995, so our sales growth was significant. Excluding foreign joint ventures and venture capital pools, assets under management at year-end 1995 were $13.7 billion, an increase of $2.6 billion over the prior year-end, despite a decrease in Polish fund assets of $0.3 billion. On the shareholder service side of the business, our Dublin administration and processing facility is running smoothly and is working to further integrate systems with our U.S. and German offices. In the U.S., image processing of documents is progressing and workflow is now freely transferable electronically between our Boston and Omaha facilities. We also successfully tested our disaster recovery sites with simulations held several times during the year. Natural Resources Teberebie Goldfields Limited ("TGL"), our 90%-owned gold mining subsidiary in Ghana, reached a number of significant milestones in 1995. TGL contributed more than half of our earnings for the third consecutive year. Other noteworthy events include: - - Gold shipments reached a record 235,500 ounces, an increase of 34% over 1994. - - Proven and probable reserves were estimated, based upon independent geological certification, at 9.1 million ounces, up 36% over the last estimate. - - A second mine expansion plan was approved, with the objective of raising overall gold production to at least 400,000 ounces in 1998. Even with these achievements, it was a difficult year for TGL in several respects. While the new West plant was constructed and put into production quite smoothly, and at lower-than-expected cost, the lag in output normally associated with a new heap leach operation was exacerbated by higher stripping ratios, and lower-than-anticipated ore grade. More recently, a spate of equipment downtime compounded these difficulties, as did the challenge of hiring and training 2 5 new operators and supervisors. At this writing, however, new 136-ton trucks and a 18-cubic meter hydraulic shovel are at the site, and good progress is being made in training operators on the new equipment. The effect of these difficulties was, of course, higher per-ounce production costs. Cash costs per ounce in 1995 increased to $198 (compared to $161 in 1994) and total costs increased to $277 (from $248). The average realized price of gold was stable at $383 per ounce. While not directly related to gold-mining operations, we were disappointed at the postponement of our planned offering of approximately 20% of our stock ownership of PGL, due to unfavorable conditions in the gold and stock markets. It remains to be seen whether we can move forward with such an offering in 1996. With respect to our timber harvesting joint ventures in Far Eastern Russia, there were several positive developments during the year. Forest Starma, in which the Company currently has a 71% direct interest (increased from 63%) and a 3% indirect interest, commenced shipping timber (acquired in the development phase) in the third quarter. Together with two other Russian timber ventures, we now have long-term leases on about 1.26 million acres, with annual aggregate cutting rights of 760,000 cubic meters. We continue working to improve productivity at the Siziman project of Forest Starma, and we are cautiously optimistic that we can develop these ventures effectively. Summary and Look Ahead Pioneer traveled a bumpy road in 1995, but we did make progress. We now have a high number of activities focused on relatively new and quite entrepreneurial ventures. There is, therefore, quite a bit of simultaneous "start-up" pain, but we believe the long-term benefits of our ventures will outweigh near-term stresses. Skeptics abounded when we launched our mutual fund business in Poland. We expected a lag (not the tremendous spurt we saw in 1994) and in some respects we still do. Similar skepticism existed about gold-mining when we began our venture in Ghana. However, we retain our underlying optimism about Poland and our position as the dominant financial services company. We also fully expect that TGL will continue to overcome its lag in production from the new processing plant. In the same vein, we expect to see improved, and in some cases significant, progress in our other new endeavors. After much effort, we believe the infrastructure of our domestic mutual fund business is much improved. We have taken steps to pare unprofitable funds, seek increases in management fees where appropriate and make the moves necessary to stimulate our growth. Even though more systems and human resources are still required, we think we are close to seeing the kinds of results for which we have been building. It cannot be expected that every one of our ventures will be a home run. We are confident, however, that the spikes of 1994 and the bumps of 1995 are but interim fluctuations in our pattern of long-time growth in earnings and value for stockholders. Respectfully submitted, /s/John F. Cogan, Jr. - --------------------- John F. Cogan, Jr President March 25, 1996 3 6 Pioneer: Building on Innovation in 1995 [Photo of World Globes] Boston, U.S. Pioneer Small Company Fund becomes most successful mutual fund launch in company history. [Photo] Dublin, Ireland Pioneer's first offshore funds launched -- Pioneer Global Equity Fund, Pioneer Global Bond Fund, and Pioneer DM Cashfonds. [Photo] 4 7 [Photo of World Globes] Prague, Czech Republic Pioneer Czech Investment Company Trust Fund launched, joining Pioneer First Polish Trust Fund as second Pioneer offer ing in former Eastern bloc countries. [Photo] Tarkwa, Ghana Annual production of Teberebie Goldfields Limited boosted by 34% to 235,500 ounces; proven and probable reserves increased by 36% to 9.1 million ounces. [Photo] Moscow, Russia Major presence in Russian financial services established, including majority ownership of largest voucher investment fund, with 2.1 million Russian shareowners. [Photo] Khabarovsk Territory, Russia First commercial shipment of timber begins; long-term timber leases increased by 1,437% to 1.26 million acres (510,100 hectares). [Photo] 5 8 Pioneer: 68 Years of Building on Innovation By definition, a pioneer is an innovator -- one who arrives first on a new frontier. Since 1928, when we started Pioneer Fund, The Pioneer Group, Inc., has opened up a number of frontiers in the investment world. But what makes Pioneer truly unique is the tradition we have established as both innovators and builders. As innovators, we identify, launch and nurture promising ventures around the globe. As builders, we manage money to grow the assets of our clients and shareowners. We use a patient, long-term perspective that is supported by in-depth fundamental research and by experience. Over nearly 70 years, these dual skills have helped us develop strength in several complementary areas: - - Financial Services - - Gold - - Timber - - Strategic Metals The Pioneer Group, Inc., has selectively pursued global opportunities in locales as diverse as India, Poland, Russia and the Czech Republic. In each case we have applied our particular experience and skills in search for better long-term returns for our clients and shareowners. Pioneer provides financial services worldwide through five principal channels: Products for Individual Investors [Photo] Pioneer is committed to helping individual investors build sensible, prudent portfolios to help achieve life's major financial goals. Today Pioneer offers a U.S.-based family of funds, and a family of offshore funds for global investors. These funds invest in carefully selected securities in developed and emerging markets. Our funds meet clearly defined needs with specific, disciplined strategies, and a long-term focus, utilizing independent, fundamental research. A global network of some 1,600 financial organizations, including broker/dealers, banks, and independent financial planners helps Pioneer distribute shares of our mutual funds to individuals around the world. And we provide transaction processing, fund pricing and record keeping for nearly 4 million clients in established markets such as the United States and Germany, and in emerging markets such as Poland, India and Russia. Institutional Investment Management Pioneer's depth of experience as money managers, along with our global perspective, serves the specific needs of institutional investors around the world. For more than 20 years, Pioneer has managed assets on behalf of an institutional clientele that includes corporate and public pension plans, 6 9 endowments, foundations, insurance companies and religious organizations. These investors value the strength of our research, and our fresh independent insights on uncovering value in the world's capital markets. The Pioneer investment philosophy and disciplined investment process help provide consistent, attractive returns through different market cycles. These qualities have made Pioneer particularly successful in difficult areas where experience, discipline, and access to information are crucial capabilities -- areas as diverse as small companies and emerging markets. Services offered to institutional investors range from fixed income portfolios to single-country and direct equity investments. Real Estate Advisory Services Pioneer's real estate division was established to advise institutional investors and corporations on real estate investments in the United States, Poland, India and Russia. We manage Pioneer Real Estate Shares, a United States mutual fund that invests in securities of real estate investment trusts (REITs), with Boston Financial Securities (BFS), a leading real estate company. Pioneer and BFS also manage the Real Estate Growth Portfolio of the Pioneer Vision variable annuity. Pioneer's corporate real estate advisory services benefit greatly from our worldwide presence and experience in both the financial and real estate markets. And our knowledge base is strengthened from the kind of insights that only come from maintaining a strong local presence in many regions. Direct Equity Investing As experienced money managers and entrepreneurs, Pioneer is adept at evaluating potential private equity investments. And for new ventures, we can provide the kind of guidance and support to management that can often make the difference between success and failure. In the United States, we focus on small- and mid-size ventures located in Pioneer's New England home region. Globally, Pioneer offers institutions access to private equity and real estate markets in Poland, Russia and India. [Photo] Pioneer's skill as institutional investment manager in each of these countries is tied closely to our role in managing ongoing financial service ventures in the same locations. In establishing each of these businesses, Pioneer has developed unique local depth of knowledge that benefits from contacts in government, industry and the investment community. Emerging Markets Financial Services Because Pioneer has been distributing its funds in Europe for almost three decades, we have long recognized the universal appeal of mutual funds. In recent years, global economic changes have laid the groundwork for an expansion in the need for financial services. These changes include the rapid growth of freedom in world capital markets and the increasing popularity of pension funds. Pioneer 7 10 began providing investment management to domestic retail mutual funds in Poland (1992), India (1993), and the Czech Republic (1995). Pioneer believes that the success we have achieved in our international financial ventures reflects, in large part, the skill demonstrated by local Pioneer professionals in adapting our mutual fund philosophy to their respective markets and cultures. Pioneer's experience as global money managers, and our wide network of contacts, have been instrumental in allowing us to uncover, evaluate and develop high-return natural resource projects. We add value by virtue of technological improvements, cost efficiencies, and the perspective of global management committed to long-term success. Pioneer currently has three natural resource ventures: Gold Over the years, Pioneer has analyzed and invested in a variety of global resource projects on behalf of our clients. That resource enabled us to undertake our first directly owned natural resource project in 1988, Teberebie Goldfields Limited in Tarkwa, Ghana. Based on internal assessments of country risk and the mineral potential in available leaseholds, Pioneer became the first major Western investor in Ghana in more than 20 years. With Pioneer managing the process from beginning to end, Teberebie has become a world class gold mine. One of the keys to development involved Pioneer's strength as an innovator. We advanced the heap leaching method of gold extraction by applying it to wet terrain -- a move that improved the economics of mining in the mineral-rich region, and helps keep costs among the lowest in the industry. [Photo] Since Teberebie began commercial production in 1991, output has grown steadily. In 1995, annual production grew by 34% to 235,000 ounces. In summer 1995, Pioneer decided to expand again, seeking to increase production to at least 400,000 ounces in 1998. Along with mine expansion, Pioneer has continued exploratory drilling. At year end 1995, Pioneer boosted proven and probable reserves by 36% to 9.1 million ounces. The financial success of Teberebie only represents part of the equation. Pioneer is equally proud of the commitment we have made to job training, health care, and high environmental standards. We believe that contributing to the welfare of the local community plays an integral role in the long-term success of our ventures. 8 11 As a result of our success in Ghana, we are examining a steady stream of projects in Africa through Pioneer Goldfields Limited, our mineral exploration and gold mining company (and 90% owner of Teberebie). Pioneer Goldfields focuses on projects with an attractive blend of manageable risk and high potential return. Timber Pioneer Forest, Inc., was established to hold majority interests in three companies in the Russian Far East's Khabarovsk Territory: Forest Starma, Amgun-Forest and Udinskoye, which were formed to develop timber production, primarily for export to Pacific Rim markets, principally Japan. The first development, Forest Starma's Siziman project, currently has leasehold rights to 82,000 acres (33,000 hectares), and has been awarded 210,000 cubic meters of annual production rights. As of the end of 1995, the three timber companies had long-term leases for about 1.26 million acres (510,100 hectares), with annual aggregate cutting rights of 760,000 cubic meters. The Siziman project, which has been recognized for its sound ecological design, involved construction by Pioneer of a logging camp, the related infrastructure required for modern timber harvesting, and a port for shipment. The first commercial shipments began in 1995. [Photo] Strategic Metals [Photo] Since 1991, Pioneer, through our affiliates, has been producing high technology metal alloys and powders, capitalizing on the strength of Russian material science. Pioneer collaborates with Russian metallurgical concerns, providing them with the marketing skills and financing necessary to compete in Western markets. Pioneer's diverse ventures share a common philosophy: all are undertaken with thorough appreciation and understanding of local markets, culture and custom. All represent a long-term commitment to the local economy. And, our knowledge is leveraged with the skills of expert local partners and staff, who share in the rewards and risks of the business. As a young organization in the late 1920's, Pioneer Fund dedicated itself to the principles of conservative money management -- principles that continue to guide us as we expand in new directions. Pioneer believes that building on innovation is the surest path to long-term growth. 9 12 Management's Discussion and Analysis of Financial Condition and Results of Operations Summary of Operations The Pioneer Group, Inc. (the "Company") reported earnings per share of 90 cents in 1995, 42 cents lower than 1994's record earnings of $1.32 per share, but 18 cents higher than 1993 earnings of 72 cents. Earnings in 1995 included a loss of 12 cents per share related to expenses the Company incurred in connection with its postponed effort to sell, in a public global offering, approximately 20% of its shares of Pioneer Goldfields Limited ("PGL"). Earnings per share have been adjusted for the 2-for-1 stock splits, effected by the payment of 100% stock dividends on December 9, 1994, and September 1, 1993, respectively. [Bar chart] 91--0.58 92--0.59 93--0.72 94--1.32 95--0.90 Earnings Per Share (Dollars) [End Bar Chart] The Company's worldwide financial services businesses earned 48 cents in 1995, 11 cents lower than in 1994, but 12 cents higher than in 1993. Earnings of 6 cents per share from the Company's Russian investment operations acquired in 1995 were more than offset by a 30 cent per share decrease in earnings from the Company's Polish investment operations, which earned 1 cent in 1995. Assets from the Company's Polish mutual funds decreased by 53% in 1995 to $275 million at December 31, 1995. Polish investment operations earned 3 cents per share in 1993. Earnings from the domestic mutual fund business have remained relatively stable over the last three years. Domestic mutual fund operations earned 35 cents per share in 1995, 36 cents in 1994 and 33 cents in 1993. The Company's worldwide venture capital operations, net of operating expenses, earned 6 cents per share in 1995 compared to a loss of 8 cents per share in 1994. Venture capital operations broke even in 1993. The Company's gold mining operations, which consist of its wholly owned subsidiary, PGL, and PGL's 90% owned subsidiary, Teberebie Goldfields Limited ("TGL"), earned 56 cents per share in 1995, 72 cents in 1994 and 42 cents in 1993. Earnings for 1994 included a favorable one time deferred income tax rate adjustment of 16 cents per share. Net of the deferred income tax adjustment, gold mining earnings in 1995 were unchanged from the 1994 level. The Company's Russian powdered metals operations lost 2 cents in 1995, earned 1 cent in 1994 and lost 6 cents per share in 1993. Financial Services Businesses 1995 Compared to 1994 Revenues. The Company's worldwide financial services businesses have three principal sources of revenues: fees derived from managing the 30 U.S. registered investment companies in the Pioneer Family of Mutual Funds and institutional accounts, fees from underwriting and distribution of mutual fund shares, and fees derived from acting as shareholder servicing agent. The Company earns similar revenues from its international investment operations in Poland, Russia, Ireland, the Czech Republic, and from its joint ventures in India and Taiwan. Revenues from the worldwide financial services businesses of $108.5 million in 1995 were $4.4 million higher than the 1994 level, as increased shareholder services fees and revenues from the Company's new Russian investment operations more than offset the significantly lower underwriting commissions resulting from significantly lower sales of the Company's Polish mutual funds in 1995. Management fees of $64.6 million in 1995 were $0.4 million, or 1%, higher than management fees in 1994. The $7.0 million increase in management fees earned from the U.S. registered mutual funds was more than offset by a $7.8 million decrease in management fees earned from the Company's Polish mutual funds. Record assets under management of $13.7 billion at December 31, 1995, increased 12 13 by $2.6 billion since the beginning of 1995. The increase was principally attributable to strong stock market performance. During 1995, the Company earned $1.2 million in management fees from its U.S. and Polish venture capital funds. Underwriting commissions and distribution fees of $8.5 million in 1995 were $4.3 million, or 33%, lower than underwriting commissions and distribution fees in 1994 as a result of significantly lower sales of the Company's Polish mutual funds. Sales of units of the Polish mutual funds were only $21 million while redemptions were $0.4 billion in 1995, compared to sales of $0.7 billion and redemptions of $0.6 billion in 1994. Record U.S. registered mutual fund sales of $1.8 billion in 1995 were 17% higher than sales during 1994, while redemptions of $1.1 billion increased by 22%. The Company had net sales of U.S. registered mutual funds of $0.7 billion in 1995, compared to $0.6 billion in 1994. Shareholder services fees of $22.5 million in 1995 increased by $2.6 million, or 13%, over 1994, as a result of an increase in the number of shareholder accounts from 929,000 on January 1, 1995 to 982,000 accounts at year end as well as a fee increase effective January 1, 1995. All other income of $12.9 million in 1995 increased by $5.6 million, or 77%, over 1994, principally from revenues related to interest and dividend income from the Company's new Russian investment management operations. Costs and Expenses. Costs and expenses of the worldwide financial services businesses increased by $17.1 million, or 22%, over 1994 to $94.0 million in 1995, of which $3.4 million was from the Company's new Russian investment operations accounted for on the consolidation method. Virtually all of the remaining increase of $13.7 million resulted from higher payroll costs in the investment management, marketing and shareholder servicing groups, higher costs related to additional office space, higher costs related to mutual fund distribution (including printing and mailing of sales literature, paying commissions earned by the sales force and mutual fund advertising and public relations) and higher expenses from the amortization of dealer advances. Other Income and Expense. The Company reported net venture capital investment portfolio gains (excluding operating expenses) of $5.1 million in 1995 compared to no portfolio gains or losses in 1994. All of the 1995 gains were generated from investments in the Company's U.S. venture capital portfolio. The Company's investments in its own mutual funds, principally during their start-up phase, contributed net gains of $0.8 million in 1995 compared to net losses of $1.0 million in 1994. The Company realized gains of $3.5 million in 1995 from investments held by the First Voucher Fund (the "Voucher Fund"), the Russian investment fund in which the Company owns a 51% interest. The Company incurred $4.9 million of costs in connection with its postponed public global offering of approximately 20% of the shares of PGL. Taxes. The Company's effective tax rate for the worldwide financial services businesses of 43% for 1995 was essentially unchanged from 1994. [Bar chart] 91--85,099 92--92,814 93--107,174 94--134,422 95--150,343 Stockholders' Equity (Thousands of Dollars) [End Bar Chart] 1994 Compared to 1993 Revenues. Revenues from the worldwide financial services businesses of $104.1 million in 1994 were $33.9 million, or 48%, higher than the 1993 level, almost exclusively from higher management fees and underwriting commissions. Management fees of $64.3 million in 1994 were 63% higher than in 1993. Nearly one half of the increase resulted from 13 14 Management's Discussion (Continued) higher average assets of U.S. registered mutual funds, including funds previously managed by Mutual of Omaha Fund Management Company ("FMC"). The Company acquired the management rights to such funds in December 1993. The remainder of the increase was attributable to assets of the Company's Polish mutual fund. Record year-end assets under management of $11.1 billion at December 31, 1994, reflected an increase of $0.3 billion over 1993. Assets under management at year end included approximately $600 million from the Company's Polish mutual fund. Underwriting commissions and distribution fees of $12.8 million in 1994 were 68% higher than in 1993. Worldwide sales of mutual funds (including reinvested dividends) were a record $2.2 billion in 1994, $0.7 billion higher than in 1993, almost evenly divided between the Company's U.S. registered mutual funds and the Polish mutual fund. Sales of U.S. registered mutual funds of $1.5 billion in 1994, which matched the Company's previous highest level (in 1986), were 39% higher than in 1993. Redemptions increased by 20% in 1994 over 1993. Polish mutual fund sales were $734 million in 1994 versus redemptions of $584 million. In 1993, Polish mutual fund sales were $429 million and redemptions were $34 million. Shareholder services fees of $19.8 million in 1994 increased by 16% over 1993. The Company was servicing nearly 929,000 shareholder accounts at December 31, 1994, 55,000 higher than at the end of 1993. Trustee fees and other income of $7.3 million increased by $1.2 million, or 19%, in 1994. Higher interest income accounted for approximately 75% of the increase while the remainder resulted principally from higher trustee fees. Costs and Expenses. Worldwide financial services businesses costs and expenses of $76.9 million in 1994 increased by $19.0 million, or 33%, over the 1993 level. Approximately one-third of the increase resulted from higher payroll costs, principally reflecting costs related to increased staffing in the investment management, marketing and shareholder servicing groups and higher bonus expenses related principally to investment management performance. Approximately one-fourth of the increase reflected higher mutual fund distribution and advertising costs. Nearly one-fifth of the increase resulted equally from a full year's amortization of goodwill in 1994 associated with the Company's acquisition of FMC versus only one month's amortization in 1993 and higher costs related to additional office space. Other Income and Expense. The Company reported no venture capital investment portfolio gains or losses (excluding operating expenses) in 1994 as contrasted with net gains of $2.0 million in 1993. The Company's results for 1994 reflected net losses of $0.9 million as contrasted with 1993 net gains of $1.5 million in market value from the Company's investments in its own mutual funds during their start-up phases. Taxes. The Company's effective tax rate for the worldwide financial services businesses decreased slightly from 43% in 1993 to 42% in 1994. Liquidity and Capital Resources IRS regulations require that, in order to serve as trustee, the Company must maintain a net worth of at least 2% of the assets of Individual Retirement Accounts and other qualified retirement plans accounts at year end. At December 31, 1995, the Company served as trustee for $4.4 billion of qualified plan assets, and the ratio of net worth to qualified assets was 3.4%. The Company's stockholders' equity of $150.3 million at December 31, 1995, would permit it to serve as trustee for up to $7.5 billion of qualified plan assets. The Company completed the acquisition of FMC on December 1, 1993. If certain asset targets are reached, the Company would be obligated to pay up to $3 million of additional consideration to FMC's former owner in 1996. 14 15 The Company does not believe, however, that the asset target levels will be reached and that, as a result, the Company will not be obligated to make any further payments to FMC's former owner. For certain of the Pioneer Family of Mutual Funds, the Company has introduced a multi-class share structure. Under the multi-class share structure, which was first introduced in April 1994, the participating, or "multi-class," funds offer both traditional front-end load shares (Class A shares) and back-end load shares (Class B and C shares). On back-end load shares, the investor does not pay any sales charge unless there is a redemption before the expiration of the minimum holding period which ranges from three to six years in the case of Class B shares and is one year in the case of Class C shares. The Company, however, pays "up-front" commissions to broker-dealers related to sales and service of the back-end load shares ranging from 2% to 4% of the sales transaction amount on Class B shares and of 1% on Class C shares. The multi-class funds pay the Company distribution fees of 0.75% and service fees of 0.25% per annum of their respective net assets invested in Class B and Class C shares, subject to annual renewal by the trustees of the funds. Class B shares were introduced in April 1994 and Class C shares were introduced in January 1996. Sales of back-end load shares were $426 million in 1995 and $136 million in 1994, and dealer advances totaled $14.9 million in 1995 and $4.7 million in 1994. Dealer advances, net of accumulated amortization, were $17.1 million at December 31, 1995. In 1996, the Company intends to finance this program, in part, through the financing facility described in the section entitled "General." In April 1995, the Company acquired approximately 51% of the shares of the Voucher Fund, the largest voucher investment fund established in Russia in connection with that country's privatization program. The shares were issued by the Voucher Fund to two newly-formed subsidiaries of Pioneer Omega, Inc. ("Pioneer Omega"), a Delaware corporation in which the Company owns 100% of the outstanding common stock. In addition to acquiring shares in the Voucher Fund, Pioneer Omega, acting through its subsidiary Pioneer First Russia, Inc., acquired a Russian company that holds rights to manage the Voucher Fund's investments. Pioneer Omega paid $2.0 million in cash and issued preferred shares (the "Omega shares") valued at $6 million as consideration for the acquisition of the management company and related rights. The holder of the Omega shares has the right to cause the Company to purchase such shares (the "put option"), and the Company has a corresponding right to purchase such shares from the holder (the "call option"). The put and call options are each exercisable with respect to one-third of the Omega shares on the first, second and third anniversaries of the closing of the transaction. The put and call option exercise price is $2 million per tranche, plus a 5% per annum premium on the option exercise price. The Company will pay a total of $6.6 million for the Omega shares over a three-year period as the put and/or call options are exercised. Recent Developments The Company announced in February 1996 that the Boards of the two largest U.S. registered mutual funds it manages have approved management fee increases. The proposed increases are subject to approval by the shareholders of the funds at meetings to be held in April 1996. If such shareholder approvals are not obtained, there would be no revenue impact. A third fund implemented a similar, though not identical, fee increase following shareholder approval in January 1996. If such proposed fee increases are approved, the Company expects that a significant amount of the increased fee revenues in 1996, estimated at $7.5 million on the basis of current assets under management, will be expended to meet increases in costs for its investment advisory personnel and purchases of computer systems to be employed in its investment management business. In addition, the Company will continue to invest in the growth of this increasingly competitive business, including product development and distribution initiatives and enhancements. The potential impact of these fee proposals on the Company's earnings is not possible to predict at this time. 15 16 Management's Discussion (Continued) Natural Resource Development Businesses [Bar chart] 91*--65,400 92 --126,200 93 --164,900 94 --176,400 95 --235,500 Gold Production (Ounces) *Commenced April 1 [End Bar Chart] Gold Mining Business The results of the gold mining business are substantially attributable to the operations of TGL, the principal operating subsidiary of the Company's wholly owned subsidiary, PGL. The Company's financial statements include an adjustment to TGL's earnings to give effect to the 10% minority interest in TGL held by the Government of Ghana. TGL earns all of its revenues in U.S. dollars and the majority of its transactions and costs are denominated in U.S. dollars or are based in U.S. dollars. Consequently, Ghanaian inflation has not had a material effect on TGL's operations. TGL has Ghanaian cedi denominated costs which consist primarily of cement, fuel, wages, power and local purchases. While Ghana has experienced significant inflation over the last three years, the cedi has been characterized by continuous devaluation against the dollar. 1995 Compared to 1994 In 1995, the gold mining business contributed $14.0 million, or 56 cents per share, to the Company's earnings compared to $18.3 million, or 72 cents per share, in 1994. Results in 1994 included a favorable adjustment to earnings of 16 cents per share as a result of a reduction in the applicable Ghanaian income tax rates for gold mines from 45% to 35% (the same rate for other Ghanaian industries), which reduced TGL's cumulative deferred income taxes accrued prior to January 1, 1994, by $4.4 million. Excluding this adjustment, 1995 earnings were essentially unchanged from 1994. Revenues increased by 34% to $90.2 million as gold shipments increased by 34% to 235,500 ounces. The average realized price of gold remained unchanged at $383 per ounce. The revenue increase was offset by higher production costs. The following table provides production numbers and compares TGL's cash costs and total costs per ounce for 1995 with the prior year.
======================================================================== Twelve months ended December 31, (Increase)/ 1995 1994 Decrease ---- ---- -------- Production (ounces) 235,500 176,400 (59,100) ======= ======= ======== Cash costs: Production costs $160 $119 $(41) Royalties 11 11 -0- General and administrative 27 31 4 ------- ------- -------- Cash costs per ounce 198 161 (37) ------- ------- -------- Non-cash costs: Depreciation and amortization 67 73 6 Other 3 2 (1) ------- ------- -------- Cost of production per ounce 268 236 (32) ------- ------- -------- Interest and other costs 9 12 3 ------- ------- -------- Total costs per ounce $277 $248 $(29) ======= ======= ======== ========================================================================
Production Costs. Production costs represent costs attributable to mining ore and waste and processing the ore through crushing and processing facilities. TGL's costs of production are affected by ore grade, gold recovery rates, the waste to ore, or "stripping" ratio, the age of equipment, the weather, availability of labor, haul distances, foreign exchange fluctuations and gold production lag from new operations. In 1995, production costs increased by $41 per ounce to $160 per ounce compared with 1994, principally because of an increase in the stripping ratio, from 1.81:1 to 2.75:1, and a decrease in the ore grade from 1.46 to 1.27 grams per tonne, which was greater than anticipated due to higher than expected mining dilution. In addition, the cost per ounce was adversely affected by the normal time lag in gold processing inherent in developing the new heap leach pads at the West Plant. 16 17 Royalties. Under the Ghanaian Minerals and Mining Law, royalties are levied at rates ranging from 3% to 12% of operating revenues as determined by reference to an operating ratio. Such operating ratio represents the percentage that the operating profits, after giving effect to capital allowances and interest expense (as permitted by TGL's Deed of Warranty), bears to gold sales. In 1994 and 1995, the royalty rate payable by TGL remained at 3% of operating revenues, the minimum permitted by law, principally because of a sustained level of capital expenditures, and associated capital allowances, since the inception of the project. General and Administrative Costs. General and administrative costs consist principally of administrative salaries and related benefits, travel expenses, insurance, utilities, legal costs, employee meals, rents and vehicle expenditures. These costs increased by 17%, primarily as a result of increases in salaries and benefits relating to the 1995 collective bargaining agreement, and in commercial insurance premiums, employee transportation costs, consulting expenses and bank charges. This increase in costs was more than offset by higher production levels, resulting in a net decrease in costs of $4 per ounce in 1995. Depreciation and Amortization. Depreciation and amortization is calculated using units-of-production and straight-line methods designed to fully depreciate property, plant and equipment over the lesser of their estimated useful lives or ten years. Development cost amortization decreased by $4 per ounce principally because development costs at the West Plant expansion were significantly lower than those at the original East Plant. Development costs at each of the East Plant and the West Plant are amortized over 950,000 ounces of production. As a result, since the West Plant was commissioned in the third quarter of 1994, the weighted average amortization per ounce decreased slightly. Other. Other costs represent a provision for future reclamation costs and costs related to exploration activities conducted by TGL at the Teberebie concessions and in other parts of Ghana. The increase of $1 per ounce in 1995 compared with 1994 was attributable to an increase in exploration core drilling. [Bar chart] 91--2.2 92--4.5 93--4.8 94--6.7 95--9.1 In-Situ Proven & Probable Reserves (Millions of Ounces) [End Bar Chart] Interest and Other Costs. The $3 per ounce decrease in interest expense and other costs in 1995 compared to 1994 was attributable principally to lower interest expense and gold price floor program premiums, offset partially by an increase in foreign exchange losses. Since the beginning of 1994, outstanding loan principal balances decreased by $8.9 million resulting in a $2 per ounce decrease in interest expense. In addition, put option premiums incurred to maintain a gold price floor program of $310 per ounce decreased by approximately $2 per ounce, principally because of higher prevailing market prices when such options were purchased. In 1995, TGL experienced an increase in foreign exchange losses of less than $1 per ounce compared with the prior year. Income Taxes. The statutory tax rate for mining companies in Ghana in 1995 and 1994 was 35%. The effective tax rates in 1995 and 1994 were essentially unchanged. 1994 Compared to 1993 In 1994, the gold mining business contributed $18.3 million, or 72 cents per share, to the Company's earnings. This included a favorable adjustment to earnings of 16 cents per share as a result of a reduction in the applicable Ghanaian income tax rates for gold mines from 45% to 35% (the same rate for other Ghanaian industries), which reduced TGL's cumulative deferred income taxes accrued prior to January 1, 1994, by $4.4 million. Excluding this adjustment, earnings increased by $3.5 million, or 14 cents per share, compared with 1993. 17 18 Management's Discussion (Continued) Revenues increased by 14% to $67.6 million, as both gold shipments and the average realized price of gold increased by 7% to 176,400 ounces and $383 per ounce, respectively, compared with 1993. The increase in revenues was largely offset by increases in cash costs per ounce. The following table provides production numbers and compares the cash and total cost per ounce for 1994 with the prior year:
======================================================================== Twelve months ended December 31, (Increase)/ 1994 1993 Decrease --------------------- ----------- Production (ounces) 176,400 164,900 (11,500) ======= ======= ======== Cash costs: Production costs $119 $92 $(27) Royalties 11 11 -0- General and administrative 31 28 (3) -------- ------- -------- Cash costs per ounce 161 131 (30) Non-cash: Depreciation and amortization 73 79 6 Other 2 2 -0- -------- ------- -------- Costs of production per ounce 236 212 (24) Interest and other costs 12 17 5 -------- ------- -------- Total costs per ounce $248 $229 $(19) ======== ======= ======== ========================================================================
Production Costs. The $27 per ounce increase in production costs during 1994 was attributable to higher stripping ratios, the mining of lower grade ore and start-up costs related to the West Plant mine expansion in 1994. The stripping ratio increased from 1.28:1 to 1.81:1, while the ore grade mined decreased from 1.73 to 1.46 grams per tonne compared with 1993. Royalties. In 1993 and 1994, the royalty rate payable by TGL represented approximately 3% of revenues, the minimum permitted by law, principally because of a sustained level of capital expenditures and associated capital allowances since the inception of the project. General and Administrative Costs. General and administrative costs increased by $3 per ounce compared with 1993 as an overall cost increase of $5 per ounce was offset, in part, by a reduction of $2 in the cost per ounce associated with higher production levels. TGL experienced increases in salaries and wages, commercial insurance premiums, customs duties and clearing costs, and employee meals expense. These increases were attributable to manpower and equipment additions associated with the West Plant mine expansion. Depreciation and Amortization. Depreciation and amortization expense decreased by $6 per ounce compared with 1993, principally because original mining equipment, which was depreciated rapidly over 400,000 ounces, was fully depreciated by the end of the second quarter of 1994. Interest and Other Costs. Interest and other costs decreased by $5 per ounce compared with 1993. Since the beginning of 1993, outstanding loan principal balances decreased by $15.3 million, resulting in a $3 per ounce decrease in interest expense. In addition, foreign exchange losses decreased by $2 per ounce as foreign currency exposure decreased and the devaluation of the cedi decreased from 56% in 1993 to 28% in 1994. Income Taxes. Under the laws of the Republic of Ghana, income taxes may be deferred until recovery of capital investment, so TGL had accrued deferred income taxes of $19.8 million for book purposes from the commencement of commercial operations in April 1991 through December 31, 1993. In the first quarter of 1994, the Republic of Ghana reduced the income tax rate for mining companies from 45% to 35%. As a result, 1994 earnings were enhanced by 16 cents per share, or 90% of a $4.4 million reduction in income taxes deferred through December 31, 1993. The 1994 effective tax rate was 36% as compared to 48% in 1993. Liquidity and Capital Resources Cash flow. PGL's cash balances decreased by $1.1 million to $2.4 million during 1995. Cash generated from operating 18 19 activities aggregated $21.9 million while capital expenditures and third-party loan principal payments were $16.6 million and $3.6 million, respectively. Major capital expenditures by TGL during 1995 included $6.5 million for leach pads and ponds, $2.9 million for mining equipment, $2.6 million for equipment related to the Phase III mine expansion (South Plant) and $1.5 million for stand-by power generators. TGL continued to generate sufficient operating cash flow to fund all of its scheduled third-party debt service payments and short-term cash commitments. Third-Party Debt. At the end of 1995, third-party debt aggregated $4.2 million, including $1.7 million which was guaranteed by the Company. Excluding Phase III expansion financing, scheduled third-party debt service for 1996 is expected to aggregate $2.2 million, all of which is expected to be funded by mining operations revenues. Risk Management. In the past, TGL purchased put options to secure a minimum selling price for its gold. All outstanding options expire on March 31, 1996, and TGL currently does not intend to renew these options unless the price of gold declines to below $375 per ounce. The Company maintains $64.8 million of "political risk" insurance principally from the Overseas Private Investment Corporation ("OPIC") covering 90% of its equity and loan guarantees. This insurance also covers 90% of the Company's proportionate share of TGL's cumulative retained earnings. In addition, the Company maintains standby coverage of $2.1 million, which can be activated semiannually, to cover increases in the Company's proportionate share of TGL's cumulative retained earnings. In addition to other commercial insurance policies, TGL has secured business interruption coverage of up to $19.0 million for losses associated with machinery breakdown and property damage and to defray continuing infrastructure and interest costs. Phase III Mine Expansion. In July 1995, the Board of Directors of TGL approved the Phase III expansion of the TGL mine. Phase III will include a third heap leach operation and the construction of a near-pit gyratory crushing facility which will act as the primary crushing facility for the West Plant and the new South Plant. Phase III will also gradually introduce a new and larger mining fleet, with the objective of mining at an annualized rate of approximately 60 million tonnes of material per year (including approximately 12 million tonnes of ore) and raising overall gold production to at least 400,000 ounces per year when Phase III is completed (expected in 1998). Realization of this objective is subject to the uncertainties inherent in any mining and processing operation. The initial work on the project has commenced. The major crushing equipment has been ordered, and the initial mining equipment, consisting of four Caterpillar ("CAT") 785 trucks and a CAT 5230 hydraulic shovel, has been delivered to the site and good progress is being made in training operators on the new equipment. Total capital investment planned for 1996 is approximately $68 million, including $46 million in expansion capital. Expansion capital represents approximately $32 million for the purchase of crushing and processing facilities and approximately $14 million for the purchase of mining equipment. Financing Facilities. In September 1995, OPIC executed a commitment letter (which expires May 1, 1996) with TGL and the Company pursuant to which OPIC agreed, subject to the fulfillment of certain conditions, to finance up to $54 million in connection with the Phase III expansion. As of March 11, 1996, TGL and the Company have not executed definitive loan agreements with respect to such OPIC guaranteed financing, and there can be no assurance that such OPIC guaranteed financing will become available or that it will be available on terms acceptable to TGL and the Company. In order to facilitate financing, TGL has obtained credit approval from Caterpillar Financial Services Corporation, a wholly owned subsidiary of Caterpillar Inc. (collectively, "Caterpillar"), pursuant to which Caterpillar has agreed, subject to the fulfillment of certain conditions, to provide a revolving credit facility of up to $21 million to finance the purchase of Caterpillar and other mining equipment. Such revolving facility would be subject to renewal in January 1997. In March 1996, TGL executed a commitment letter to 19 20 Management's Discussion (Continued) utilize $8.4 million of such facility. There can be no assurance that TGL will be able to obtain the Caterpillar credit facility on terms favorable to TGL or the Company. On March 6, 1996, TGL executed a loan agreement with Enskilda, a division of Skandinaviska Enskilda Banken, pursuant to which Enskilda has agreed to provide a direct loan of Swedish Krona 94.5 million (approximately $13.6 million) to finance the gyratory crusher and related equipment procured from Svedala Crushing and Screening AB. This loan is guaranteed by the Swedish Export Credits Board. As TGL obtains these alternative sources of financing, TGL intends to proportionately reduce the amount of its OPIC guaranteed financing. Reserves. The following table sets forth the in situ mineable proven and probable reserves of TGL as at December 31, 1995. The cut-off grades used to delineate the reserves are 0.765 grams per tonne for crushed ore and 0.25 grams per tonne for run-of-mine ore at a gold price of $385 per ounce.
================================================================================================================= Mineable Reserves ----------------- Crushed Ore Run-of-Mine Ore Grams Grams per per Tonnes Tonnes Ounces Tonnes Tonnes Ounces ------ ------ ------ ------ ------ ------ Total Proven 149,236,000 1.46 7,039,000 49,859,000 0.54 865,000 Total Probable 22,740,000 1.41 1,030,000 8,625,000 0.56 154,000 ----------- ---- --------- ---------- ---- --------- Total Reserves 171,976,000 1.46 8,069,000 58,484,000 0.54 1,019,000 =========== ==== ========= ========== ==== ========= Total Mineable Reserve Ounces: 9,088,000 ========= =================================================================================================================
Based on the current technology at the mine, it is estimated that recoverable gold from these open-pit reserves will aggregate approximately 6.7 million ounces. Recent Developments As with all heap leach operations, there is a time lag between when ore is placed on a heap, after mining and certain processing costs have been incurred, and when gold from that ore is recovered and revenue realized. Therefore, cash costs tend to rise during periods when significant heap leach pad development occurs, such as after an expansion or any large increase in ore production. During 1995, material continued to be added to new heaps which form part of the Phase II expansion. Mining and certain processing costs were incurred at this stage but, due to the time lag in leaching, recovery rates were well below their theoretical maximum. This effect, coupled with a higher stripping ratio and the mining of lower grade ore, resulted in a 23% increase in the cash costs per ounce. The Company believes that the average cash costs per ounce will be favorably affected by the economies of scale expected from the Phase III expansion. As explained above, however, there will be periods in the future when cash costs per ounce rise, primarily as a result of the production lag inherent in starting new heaps and lifts. Production in the first quarter of 1996 is expected to decrease below production in the fourth quarter of 1995. In the first half of 1996, production is targeted at approximately 120,000 ounces with second half production targeted at approximately 135,000 ounces as TGL begins to introduce new and larger capacity replacement mining equipment. TGL's original production target for 1996 was 270,000 ounces of gold, as announced by the Company in early February 1996. After further review of production figures from the late fourth quarter of 1995 and from January 1996, TGL's management recently revised its 1996 production target downward to 255,000 ounces. The lower figure reflects a reduction in anticipated output levels in the early part of 1996, resulting from events occurring in late 1995 and early 1996. These included (a) lower than anticipated equipment availability, which led to a smaller tonnage of ore being mined, crushed and placed on the leach pads, and (b) mining of a higher proportion of ore than previously estimated from the lower-grade southern part of the Teberebie pit. The reduced tonnages placed on the leach pads in late 1995 and the lower grade of ore being leached at present will result in lower gold output in the first quarter of 1996. While the Company believes that its current production target of 255,000 ounces for 1996 is achievable, realization of production targets is subject to the uncertainties inherent in any mining and processing operation. 20 21 Timber Business Liquidity and Capital Resources The Company's Russian timber venture, Forest Starma, in which the Company has a 71% direct interest (recently increased from 63%) and a 3% indirect interest is pursuing the development of timber production under two long-term leases comprising 88,800 hectares (approximately 219,500 acres) in the aggregate with annual cutting rights of 210,000 cubic meters awarded to the venture in the Khabarovsk Territory of Russia. Forest Starma is in the process of securing additional cutting rights of approximately 90,000 cubic meters per year. Forest Starma has developed a site, including a jetty, from which it exports timber for markets in the Pacific Rim, primarily Japan. Timber harvesting commenced in the first quarter of 1995 and the first shipments of timber (acquired in the development phase), totaling approximately 30,000 cubic meters, occurred in the third and fourth quarters of 1995. The related revenues were used to offset development costs. Capital required by this venture is now projected at approximately $36.4 million through the end of 1996 including $20.1 million in subordinated debt provided by the Company and $9.3 million financed pursuant to a conditional loan commitment already in place. The $9.3 million loan, which initially would be guaranteed by the Company, would cease to be guaranteed when the project meets certain production and cash flows tests. During 1996, the Company expects to provide additional bridge financing as Forest Starma applies for up to $7.0 million in third-party financing. Investments by the Company in Forest Starma aggregated $29.4 million (net of an assumed value added tax recovery on imports) at December 31, 1995, $9.3 million of which is considered bridge financing by the Company subject to repayment upon receipt of third party loan proceeds. Forest Starma is expected to reach a production level of approximately 220,000 cubic meters per year by the end of 1996. The Company has secured OPIC political risk insurance in amount of up to $47 million which would protect 90% of the Company's equity investment and loans and a proportionate share of cumulative retained earnings. [Bar chart] 91--0.2025 92--0.21 93--0.225 94--0.315 95--0.40 Cash Dividends Per Share (Dollars) [End Bar Chart] In November 1995, Amgun-Forest and Udinskoye each executed a long-term lease (50 years) relating to timber harvesting. The Amgun-Forest lease covers 264,700 hectares (approximately 654,000 acres) with annual cutting rights of 350,000 cubic meters while the Udinskoye lease covers 156,600 hectares (approximately 387,000 acres) with annual cutting rights of 200,000 cubic meters. Work on the feasibility study for Amgun-Forest has commenced, and the Udinskoye feasibility study will be carried out at a later date. The studies will form the basis for estimating capital requirements for these projects. Preliminary estimates for these two projects are that, prior to securing third-party financing, the Company will provide funding of approximately $1.3 million in 1996. General The Company's liquid assets consisting of cash and marketable securities (exclusive of gold mining operations) increased by $7 million in 1995 to $33 million due to the Company's various financing activities in 1995. On February 28, 1995, the Company entered into an agreement with a commercial bank providing for a $30 million unsecured line of credit. Advances under the line bear interest at the Company's option at (a) the higher of the bank's base lending rate or the federal funds rate plus 0.50%, 21 22 Management's Discussion (Continued) (b) the London Interbank Offered Rate ("LIBOR") plus 1.10%, or (c) at a money market rate set by the bank. The line, which expires on April 30, 1996, provides that the Company must pay additional interest to the bank at the rate of 0.25% per annum of the unused portion of the line. On May 22, 1995, the Company entered into a second agreement with the commercial bank providing for a $10 million unsecured line of credit with substantially the same terms as the first agreement including applicable interest rates and expiration date. This second line was subsequently increased to $15 million on October 20, 1995, to $30 million on December 20, 1995, and to $40 million on February 27, 1996. At March 11, 1996, the Company had $61.5 million outstanding under the lines. The Company entered into a commitment letter agreement on February 29, 1996, with the commercial bank for a new senior credit facility in the amount of $115 million. Such commitment is subject to the fulfillment of certain conditions and expires on April 30, 1996. Under the proposed new facility, the Company can borrow up to $35 million under a revolving credit agreement ("RCA") to finance dealer advances relating to sales of back-end load shares of the Company's domestic mutual funds. The RCA is subject to annual renewal by the Company and the commercial bank. In the event the RCA is not renewed, at maturity, it will automatically convert to a five-year term loan. Advances under the RCA bear interest, at the Company's option, at (a) the higher of the bank's base lending rate or the federal funds rate plus 0.50% or (b) LIBOR plus 1.25%. In addition, the Company can borrow up to $80 million for general corporate purposes and to refinance existing debt. This loan is payable in full in five years from the first drawdown. Advances under this loan bear interest, at the Company's option, at (a) the higher of the bank's base lending rate or the federal funds rate plus 0.50% or (b) LIBOR plus the applicable margin, tied to the Company's financial performance, of either 0.75%, 1.25% or 1.50%, as defined under the commitment letter. The senior credit facility provides that the Company must pay additional interest to the bank at the rate of 0.375% per annum of the unused portion of the facility and an annual arrangement fee of $35,000. The commitment fees are approximately $0.7 million. Future Operating Results Certain of the information contained in this Annual Report, including information with respect to the Company's plans and strategies for its worldwide financial services and natural resource development businesses, consists of forward-looking statements. For this purpose, any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, the words "believes," "anticipates," "plans," "expects" and similar expressions are intended to identify forward-looking statements. Important factors that could cause actual results to differ materially from those indicated by such forward-looking statements include, but are not limited to, the following. The Company derives a significant portion of its revenues from investment management fees, underwriting and distribution fees and shareholder services fees. Success in the investment management and mutual fund share distribution businesses is substantially dependent on investment performance. Good performance stimulates sales of shares and tends to keep redemptions low. Sales of shares generate higher management fees and distribution fees (which are based on assets of the funds). Good performance also attracts institutional accounts, Conversely, relatively poor performance results in decreased sales and increased redemptions and the loss of institutional accounts, with corresponding decreases in revenues to the Company. Investment performance may also be affected by economic or market conditions which are beyond the control of the Company. The mutual fund industry is intensely competitive. Many organizations in this industry are attempting to sell and service the same clients and customers, not only with mutual fund investments but with other financial services products. 22 23 Some of the Company's competitors have more products and product lines and substantially greater assets under management and financial resources. As described above, the Company also offers a multi-class share structure. Under such structure, the Company pays a commission on the sale but the investor does not pay any sales charge unless it redeems before the expiration of the minimum holding period, which ranges from three to six years in the case of Class B Shares and which is one year in the case of Class C Shares. The Company's cash flow and results of operations may be adversely affected by vigorous sales of back-end load shares because its recovery of the cost of commissions paid up front to dealers is spread over a period of years. During this period, the Company bears the costs of financing and the risk of market decline. The businesses of the Company and its financial services subsidiaries are dependent upon their associations with the Pioneer Family of Mutual Funds with which they have contractual relationships. In the event any of the management contracts, underwriting contracts or service agreements were canceled or not renewed pursuant to their terms, the Company may be substantially adversely affected. The Securities and Exchange Commission has jurisdiction over registered investment companies, registered investment advisers, broker-dealers and transfer agents and, in the event of a violation of applicable rules or regulations by the Company or its subsidiaries, may take action which could have a serious effect on the Company. Because a significant portion of the Company's revenues and net income are derived from the mining and sale of gold by TGL, the Company's earnings are directly related to the price of gold. Gold prices have historically fluctuated significantly and are affected by numerous factors, including expectations for inflation, the strength of the U.S. dollar, global and regional demand and political and economic conditions. If, as a result of a decline in gold prices, the Company's revenues from gold sales were to fall below cash costs of production, and to remain below its cash costs of production for any substantial period, the Company could determine that it is not economically feasible to TGL to continue commercial production. While an internationally recognized engineering firm audited and verified TGL's gold reserves in August 1995, and indicated that the reserves are estimated in accordance with good engineering practices using current cost estimates, reserve estimates are necessarily imprecise and depend to some extent on statistical inferences drawn from limited drilling which may, on occasion, prove unreliable. Reserve estimates are based upon a number of assumptions, including the price of gold, cut-off grades and operating costs. Increases in operating costs, reduced recovery rates or market price fluctuations of gold may render all or a portion of such reserves uneconomic to mine. TGL has recently discovered clay-filled fault zones below and parallel to the lowest ore zone at the Teberebie mine that create areas of slope instability within the pit. This instability may result in failures of sections of the footwall of the mine, especially during the rainy season. TGL has engaged a geo-technical consultant to conduct a study to identify the extent of, and address a solution to, this instability. It is possible that it may be necessary to mine in a manner which results in more footwall waste being removed than presently planned. This may result in an increase in the average stripping ratio. It is not yet possible to determine the impact, if any, of slope instability on operating costs. A significant increase in the average stripping ratio, however, would increase production costs. To attain projected levels of gold production, TGL must successfully complete its Phase III expansion, and the new crushing facility to be constructed in connection with Phase III, the South Plant, must become operational on time. The Company believes that the construction schedule for Phase III is feasible. There can, however, be no assurance 23 24 Management's Discussion (Continued) that Phase III will in fact be completed or become operational in accordance with TGL's current proposed construction schedule. As a result, future gold production achieved by the Teberebie mine may fail to meet the Company's current projections. TGL is dependent upon a number of key supplies for its mining operations, including electricity, explosives, diesel fuel, lubricants, tires and sodium cyanide. There can be no assurance that a disruption in the supplies to TGL of these key materials will not occur and adversely affect the Company's operations. The operations at TGL depend on the ability to recruit, train and retain employees with the requisite skills to operate large-scale mining equipment. Although TGL offers its employees an attractive compensation package, competition for skilled labor is strong among the various mines in Ghana. There can be no assurance that the Company's operations will not be adversely affected by a shortage of skilled laborers or by an increase in the time required to fully train new employees. The Company has incurred considerable expenses in connection with the Forest Starma timber project located in the Russian Far East. Although the Company has commenced harvesting and has made shipments, Forest Starma is still in the development stage. While the Company continues to believe that the project will achieve commercial feasibility, there can be no assurance that it will do so. The Company has a significant number of operations and investments located outside of the U.S., including the gold mining operation at TGL and the timber and investment operations in Russia. Foreign operations and investments may be adversely affected by exchange controls, currency fluctuations, taxation, political instability and laws or policies of the particular countries in which the Company may have operations. There is no assurance that permits, authorizations and agreements to implement plans at the Company's projects can be obtained under conditions or within time frames that make such plans economically feasible, that applicable laws or the governing political authorities will not change, or that such changes will not result in the Company's having to incur material additional expenditures. While the Company is currently applying for political risk insurance to cover its Russian investment operations, there can be no assurance that it will be able to obtain such coverage. The Company believes that it is in sound financial condition, that it has sufficient liquidity from operations and financing facilities to cover short-term commitments and contingencies and that it has adequate capital resources to provide for long-term commitments. 24 25 ASSETS UNDER MANAGEMENT AT DECEMBER 31: Dollars in Millions
1995 1994 1993 1992 1991 ------- ------- ------ ------ ------ U.S. Registered Mutual Funds $12,701 $ 9,925 $ 9,854 $7,330 $6,871 Non-U.S. Registered Mutual Funds 280 589 388 -- -- ------- ------- ------- ------ ------ Total Registered Mutual Funds 12,981 10,514 10,242 7,330 6,871 Closed-end and subadvised funds and private institutional accounts* 764 589 524 261 269 ------- ------- ------- ------ ------ Total $13,745 $11,103 $10,766 $7,591 $7,140 ======= ======= ======= ====== ====== * Excludes assets of funds managed by foreign joint ventures and venture capital pools.
SALES OF MUTUAL FUND SHARES: Dollars in Millions
Year Ended December 31, 1995 1994 1993 1992 1991 ------ ------ ------ ---- ----- U.S. Registered Mutual Funds: Sales* $1,752 $1,499 $1,076 $723 $ 624 Redemption of shares 1,050 860 714 784 939 ------ ------ ------ ---- ----- Net sales (redemptions) of shares $ 702 $ 639 $ 362 $(61) $(315) ====== ====== ====== ==== ===== Year Ended December 31, 1995 1994 1993 1992 1991 ------ ------ ------ ---- ----- Non-U.S. Registered Mutual Funds: Sales* $ 25 $734 $429 -- -- Redemption of shares 381 584 34 -- -- ------ ------ ------ -- ----- Net (redemptions) sales of shares $ (356) $150 $395 -- -- ====== ====== ====== ==== ===== * Includes reinvestment of dividends, but excludes money market funds and funds managed by foreign joint ventures.
10 26 QUARTERLY RESULTS Dollars in Thousands Except Per Share Amounts
Total Net Earnings Revenues and Sales Income Per Share((1)) ------------------ ------ -------------- 1995 by Quarter March 31 $ 45,679 $ 5,797 $0.23 June 30 46,553 7,329 0.29 September 30 51,240 6,273 0.25 December 31 55,245 3,412 0.13 ((2)) -------- ------- ----- $198,717 $22,811 $0.90 ======== ======= ===== 1994 by Quarter March 31 $ 42,558 $11,891 $0.47 ((3)) June 30 39,816 6,847 0.27 September 30 45,313 8,280 0.33 December 31 44,015 6,442 0.25 -------- ------- ----- $171,702 $33,460 $1.32 ======== ======= ===== FIVE YEAR SUMMARY OF SELECTED FINANCIAL DATA: Dollars in Thousands Except Per Share Amounts
Year Ended December 31, 1995 1994 1993 1992 1991 -------- --------- --------- --------- ----------- Results of Operations Revenues and sales $198,717 $171,702 $129,403 $101,802 $ 80,919 Costs and expenses 158,908 119,568 94,142 73,616 57,835 Unrealized and realized (gains) losses on venture capital and marketable securities investments, net (9,345) 946 (3,468) (2,657) (4,359) Interest expense 1,024 1,305 2,388 1,427 1,580 Minority interest 3,123 2,129 1,409 1,169 487 Public offering costs 4,863 -- -- -- -- Other, net 735 112 480 712 -- ---------- ---------- ---------- ---------- ---------- Income before provision for federal, state and foreign income taxes 39,409 47,642 34,452 27,535 25,376 Net provision for federal, state and foreign income taxes 16,598 14,182 16,322 12,937 10,938 ---------- ---------- ---------- ---------- ---------- Net income $ 22,811 $ 33,460 $ 18,130 $ 14,598 $ 14,438 ========== ========== ========== ========== ========== Earnings per share* $0.90 $1.32 $0.72 $0.59 $0.58 Cash dividends per share* $0.40 $0.315 $0.225 $0.21 $0.203 Weighted average common and common equivalent shares outstanding* 25,311,000 25,354,000 24,976,000 24,824,000 24,766,000 Long-term notes payable $11,048 $9,101 $13,306 $11,972 $17,070 Total assets $319,069 $202,085 $172,295 $134,705 $123,817 Stockholders' equity $150,343 $134,422 $107,174 $92,814 $85,099 Stockholders' equity per share* $6.05 $5.45 $4.36 $3.81 $3.46 Return on average stockholders' equity 16% 28% 18% 16% 18% Return on revenues 11% 19% 14% 14% 18% * Adjusted for December 1, 1994, and September 1, 1993, 2-for-1 stock splits effected in the form of 100% stock dividends.
11 27 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Stockholders and Board of Directors of The Pioneer Group, Inc.: We have audited the accompanying consolidated balance sheets of The Pioneer Group, Inc. (a Delaware corporation) and subsidiaries as of December 31, 1995 and 1994, and the related consolidated statements of income, changes in stockholders' equity and cash flows for each of the three years in the period ended December 31, 1995. 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. 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 The Pioneer Group, Inc. and subsidiaries as of December 31, 1995 and 1994, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Boston, Massachusetts, March 11, 1996 25 28 CONSOLIDATED STATEMENTS OF INCOME Dollars in Thousands Except Per Share Amounts
Year Ended December 31, 1995 1994 1993 --------- --------- ------------ Revenues and sales: Investment management fees $ 64,604 $ 64,251 $ 39,455 Underwriting commissions and distribution fees 8,515 12,768 7,609 Shareholder services fees 22,447 19,820 17,071 Trustee fees and other income 12,909 7,279 6,117 ---------- ---------- ------------ Revenues from financial services businesses 108,475 104,118 70,252 Gold sales 90,242 67,584 59,151 ---------- ---------- ------------ Total revenues and sales 198,717 171,702 129,403 ---------- ---------- ------------ Costs and expenses: Management, distribution, shareholder service and administrative expenses 94,003 76,885 57,874 Gold mining operating costs and expenses 64,905 42,683 36,268 ---------- ---------- ------------ Total costs and expenses 158,908 119,568 94,142 ---------- ---------- ------------ Other (income) expense: Unrealized and realized (gains) losses on venture capital and marketable securities investments, net (9,345) 946 (3,468) Interest expense 1,024 1,305 2,388 Minority interest 3,123 2,129 1,409 Public offering costs 4,863 -- -- Other, net 735 112 480 ---------- ---------- ------------ Total other (income) expense 400 4,492 809 ---------- ---------- ------------ Income before provision for federal, state and foreign income taxes 39,409 47,642 34,452 Provision for federal, state and foreign income taxes 16,598 18,613 16,322 Cumulative deferred foreign income tax adjustment -- (4,431) -- ---------- ---------- ------------ Net provision for federal, state and foreign income taxes 16,598 14,182 16,322 ---------- ---------- ------------ Net income $ 22,811 $ 33,460 $ 18,130 ========== ========== ============ Earnings per share $0.90 $1.32 $0.72 ========== ========== ============ Weighted average common and common equivalent shares outstanding 25,311,000 25,354,000 24,976,000 ========== ========== ============
The accompanying notes are an integral part of these consolidated financial statements. 26 29 CONSOLIDATED BALANCE SHEETS Dollars in Thousands Except Per Share Amount
December 31, 1995 1994 -------- --------- Assets Current assets: Cash and cash equivalents, at cost which approximates value $ 27,809 $ 23,118 Investment in marketable securities, at value 7,630 6,458 Receivables: From securities brokers and dealers for sales of mutual fund shares 12,385 7,406 For gold shipments 5,410 4,393 Other 14,085 10,167 Mining inventory 15,605 11,881 Other current assets 8,295 4,696 -------- -------- Total current assets 91,219 68,119 -------- -------- Noncurrent assets: Mining operations: Mining equipment and facilities (net of accumulated depreciation of $42,631 in 1995 and $29,793 in 1994) 46,980 44,337 Deferred mining development costs (net of accumulated amortization of $11,420 in 1995 and $9,022 in 1994) 9,622 11,061 Cost of acquisition in excess of net assets acquired (net of accumulated amortization of $6,501 in 1995 and $3,863 in 1994) 24,784 25,130 Long-term venture capital investments, at value (cost $38,802 in 1995 and $18,181 in 1994) 44,520 19,835 Long-term investments, at cost 16,934 -- Timber project in development: Timber equipment and facilities 8,130 4,485 Deferred timber development costs 21,140 7,664 Building in progress 12,239 -- Furniture, equipment and leasehold improvements (net of accumulated depreciation and amortization of $10,558 in 1995 and $9,724 in 1994) 13,766 9,837 Dealer advances (net of accumulated amortization of $2,563 in 1995 and $346 in 1994) 17,095 4,399 Other noncurrent assets 12,640 7,218 -------- -------- Total noncurrent assets 227,850 133,966 -------- -------- $319,069 $202,085 ======== ======== Liabilities and Stockholders' Equity Current liabilities: Payable to funds for shares sold $ 12,369 $ 7,075 Accrued expenses and accounts payable 27,242 13,675 Accrued employees' compensation 1,705 1,547 Accrued income taxes 1,169 748 Current portion of notes payable 56,053 13,597 -------- -------- Total current liabilities 98,538 36,642 -------- -------- Noncurrent liabilities: Notes payable, net of current portion 11,048 9,101 Deferred income taxes, net 14,503 16,907 -------- -------- Total noncurrent liabilities 25,551 26,008 -------- -------- Total liabilities 124,089 62,650 -------- -------- Minority Interest 44,637 5,013 -------- -------- Commitments and Contingencies (Note 10) Stockholders' Equity: Common stock, $0.10 par value; authorized 60,000,000 shares; issued 24,833,508 shares in 1995 and 24,697,960 shares in 1994 2,483 2,470 Paid-in capital 7,660 3,599 Retained earnings 143,603 130,715 Treasury stock at cost, 0 shares in 1995 and 28,772 shares in 1994 -- (167) -------- -------- 153,746 136,617 Less--Deferred cost of restricted common stock issued (3,403) (2,195) -------- -------- Total stockholders' equity 150,343 134,422 -------- -------- $319,069 $202,085 ======== ========
The accompanying notes are an integral part of these consolidated financial statements. 27 30 CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY Dollars in Thousands Except Per Share Amounts
Deferred Common Stock Cost Total ---------------------------- of Stock- Shares Paid-in Retained Treasury Restricted holders' Issued Amount Capital Earnings Stock Stock Equity ---------- ------ ------- -------- -------- -------- --------- Balance, December 31, 1992 6,174,490 $ 617 $ 3,515 $ 92,420 $(1,914) $(1,824) $ 92,814 ---------- ------ ------- -------- -------- ------- -------- Add (Deduct): Net income -- -- -- 18,130 -- -- 18,130 Dividends paid--$0.225 per share -- -- -- (5,524) -- -- (5,524) Stock split in the form of a 100% stock dividend 6,174,490 618 (618) -- -- -- -- Shares awarded under the 1990 restricted stock plan, 164,800 shares -- -- 332 -- 896 (1,223) 5 Amortization of deferred cost of restricted common stock issued -- -- -- -- -- 929 929 Additional tax benefits from stock plans -- -- 557 -- -- -- 557 Forfeitures of shares awarded under the 1981 and 1990 restricted stock plans (2,820 shares) -- -- -- -- (16) 16 -- Exercise of stock options awarded under the 1988 stock option plan (62,800 shares) -- -- (78) -- 341 -- 263 ---------- ------ ------- -------- -------- ------- -------- Balance, December 31, 1993 12,348,980 $1,235 $ 3,708 $105,026 $ (693) $(2,102) $107,174 ---------- ------ ------- -------- -------- ------- -------- Add (Deduct): Net income -- -- -- 33,460 -- -- 33,460 Dividends paid--$0.315 per share -- -- -- (7,771) -- -- (7,771) Stock split in the form of a 100% stock dividend 12,348,980 1,235 (1,235) -- -- -- -- Shares awarded under the 1990 restricted stock plan, (101,460 shares) -- -- 736 -- 551 (1,282) 5 Amortization of deferred cost of restricted common stock issued -- -- -- -- -- 991 991 Additional tax benefits from stock plans -- -- 429 -- -- -- 429 Forfeitures of shares awarded under the 1981 and 1990 restricted stock plans (34,720 shares) -- -- -- -- (198) 198 -- Exercise of stock options awarded under the 1988 stock option plan (32,000 shares) -- -- (39) -- 173 -- 134 ---------- ------ ------- -------- -------- ------- -------- Balance, December 31, 1994 24,697,960 $2,470 $ 3,599 $130,715 $ (167) $(2,195) $134,422 ---------- ------ ------- -------- -------- ------- -------- Add (Deduct): Net income -- -- -- 22,811 -- -- 22,811 Dividends paid--$0.40 per share -- -- -- (9,923) -- -- (9,923) Shares awarded under the 1990 and 1995 restricted stock plans, (127,337 shares) 94,003 9 2,468 -- 220 (2,609) 88 Shares purchased under the 1995 employee stock purchase plan (18,228 shares) 16,880 1 398 -- 17 -- 416 Amortization of deferred cost of restricted common stock issued -- -- -- -- -- 1,329 1,329 Additional tax benefits from stock plans -- -- 1,049 -- -- -- 1,049 Forfeitures of shares awarded under the 1990 restricted stock plan (6,245 shares) -- -- -- -- (72) 72 -- Exercise of stock options awarded under the 1988 stock option plan (25,000 shares) 24,665 3 146 -- 2 -- 151 ---------- ------ ------- -------- -------- ------- -------- Balance, December 31, 1995 24,833,508 $2,483 $ 7,660 $143,603 $ -- $(3,403) $150,343 ========== ====== ======= ======== ======== ======= ========
The accompanying notes are an integral part of these consolidated financial statements. 28 31 CONSOLIDATED STATEMENTS OF CASH FLOWS Dollars in Thousands
Year Ended December 31, 1995 1994 1993 -------- -------- -------- Cash flows from operating activities: Net income $ 22,811 $ 33,460 $ 18,130 -------- -------- -------- Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 23,667 17,689 14,904 Unrealized and realized (gains) losses on venture capital and marketable securities investments, net (9,345) 946 (3,468) (Equity in earnings of) provision on other investments (438) (1,010) 778 Restricted stock plan expense 1,329 991 929 (Prepaid) deferred income taxes (2,404) (1,256) 9,625 Minority interest 3,123 2,129 1,409 Changes in operating assets and liabilities: Receivable from securities brokers and dealers for sales of mutual fund shares (4,979) 800 (5,131) Receivables for gold shipments (1,017) (2,586) 772 Other receivables (2,547) 1 (6,599) Mining inventory (3,724) (6,665) (1,971) Other current assets (2,163) (1,800) 553 Other noncurrent assets (898) (143) (558) Payable to funds for shares sold 5,294 (794) 5,114 Accrued expenses and accounts payable 6,695 3,188 2,551 Accrued employees' compensation 158 (928) 586 Accrued income taxes 1,470 (1,038) 1,569 -------- -------- -------- Total adjustments 14,221 9,524 21,063 -------- -------- -------- Net cash provided by operating activities 37,032 42,984 39,193 -------- -------- -------- Cash flows from investing activities: Purchase of mining equipment and facilities (15,601) (16,147) (25,142) Deferred mining development costs (959) (2,274) (278) Additions to furniture, equipment and leasehold improvements (6,592) (6,195) (3,228) Building in progress (7,909) -- -- Investments in marketable securities (4,546) (14,370) (42,980) Proceeds from sale of marketable securities 4,124 22,720 37,892 Long-term venture capital investments (26,564) (4,134) (5,518) Proceeds from sale of long-term venture capital investments 6,985 3,569 2,356 Deferred timber development costs (13,476) (7,388) (276) Timber equipment and facilities (3,645) (4,485) -- Other investments (4,086) (3,130) (1,049) Cost of acquisition in excess of net assets acquired (96) (470) (24,777) Acquisition of Russian investment operations, net of cash acquired 4,180 -- -- Long-term investments (7,791) -- -- Proceeds from sale of long-term investments 8,935 -- -- -------- -------- -------- Net cash used in investing activities (67,041) (32,304) (63,000) -------- -------- -------- Cash flows from financing activities: Dividends paid (9,923) (7,771) (5,524) Distributions to minority interestholder of gold mining subsidiary (350) -- -- Distributions to limited partners of venture capital subsidiary (11) (62) (119) Employee stock purchase plan 416 -- -- Exercise of stock options 151 134 263 Restricted stock plan award 88 5 5 Dealer advances (14,913) (4,745) -- Borrowings 53,000 10,000 -- Amounts raised by venture capital investment partnerships 20,839 -- -- Issuance of notes payable -- -- 12,205 Repayments of notes payable (14,597) (6,592) (9,398) Reclassification of restricted cash -- 2,227 608 -------- -------- -------- Net cash provided by (used in) financing activities 34,700 (6,804) (1,960) -------- -------- -------- Net increase (decrease) in cash and cash equivalents 4,691 3,876 (25,767) Cash and cash equivalents at beginning of year 23,118 19,242 45,009 -------- -------- -------- Cash and cash equivalents at end of year $ 27,809 $ 23,118 $ 19,242 ======== ======== ========
The accompanying notes are an integral part of these consolidated financial statements. 29 32 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1995 Note 1--Nature of Operations and Organization The Pioneer Group, Inc., and its subsidiaries (collectively, the "Company"), are engaged in financial services businesses in the United States and several foreign countries and in a number of natural resource development projects, including a gold mining venture in the Republic of Ghana and three timber ventures in the Russian Far East. In the United States, the Company conducts four lines of financial services businesses: (i) Pioneering Management Corporation ("PMC") serves as investment manager to the 30 U.S. registered investment companies in the Pioneer Family of Mutual Funds and several institutional accounts, (ii) Pioneer Funds Distributor, Inc. ("PFD") serves as distributor of shares of the Pioneer Family of Mutual Funds, (iii) Pioneer Capital Corporation ("PCC"), and its subsidiaries, engage in venture capital investing and management activities, and (iv) Pioneering Services Corporation serves as shareholder servicing agent for the Pioneer Family of Mutual Funds. The Company's international financial services businesses include investment operations in: (i) Warsaw, Poland, where the Company manages and distributes units of three mutual funds, owns 50% of a unitholder servicing agent and manages an institutional venture capital fund, (ii) Dublin, Ireland, where the Company distributes shares of, manages and services three offshore investment funds, sold primarily in Western Europe, and (iii) Moscow, Russia, where the Company provides financial services, including investment advisory, investment banking and brokerage services, and where the Company owns 51% of the First Voucher Fund, the largest Russian voucher investment fund. In addition, the Company has investment operations in the Czech Republic and has invested in investment management operations in India and Taiwan. The Company's wholly owned subsidiary, Pioneer Goldfields Limited ("PGL"), conducts mining and exploration activities in the Republic of Ghana and exploration activities elsewhere in Africa. PGL's principal asset is its ownership of 90% of the outstanding shares of Teberebie Goldfields Limited ("TGL"), which operates a gold mine in the western region of the Republic of Ghana. The Republic of Ghana owns the remaining 10% of TGL. The Company also participates in several natural resource development ventures in Russia, including a project pursuing the development of timber production in the Russian Far East, in which the Company has a 71% direct interest and a 3% indirect interest. Note 2--Summary of Significant Accounting Policies Principles of Consolidation and Basis of Presentation The accompanying consolidated financial statements include the accounts of the Company, its wholly owned and majority-owned subsidiaries and certain partnerships that the Company controls. The Company has consolidated the Pioneer Ventures Limited Partnership II, Pioneer Poland U.S. L.P. and Pioneer Poland U.K. L.P. in which the Company's ownership interest is 12.7%, 8% and 9%, respectively. Control is defined by several factors, including, but not limited to, the fact that the Company is the general partner, the general partner has absolute and unilateral authority to make investment decisions, the limited partners may not remove the general partner and the general partner has absolute and unilateral authority to declare, or not declare, distributions of partnership income to the partners. All material intercompany balances and transactions have been eliminated in consolidation. The accompanying consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles. Consolidated financial statements prepared in accordance with U.S. generally accepted accounting principles require the use of management estimates. The most significant estimates with regard to these consolidated financial statements relates to venture capital investments, other investments and mining reclamation costs, as discussed herein. Certain reclassifications have been made to 1994 and 1993 amounts to conform with the 1995 presentation. Consolidated Statements of Cash Flows Cash and cash equivalents consist primarily of cash on deposit in banks and amounts invested in commercial paper, Pioneer money market mutual funds and U.S. Treasury bills with original maturities of three months or less. Income taxes paid were approximately $16,617,000, $16,440,000 and $5,106,000 in 1995, 1994 and 1993, respectively. In addition, $2,587,000, $1,329,000 and $2,306,000 of interest was paid in 1995, 1994 and 1993, respectively. The amount paid in 1995 includes approximately $1,800,000 of interest that was capitalized related to the development of the Company's building in progress and Russian timber operations. The Company purchased 51% of the First Voucher Fund and certain Russian investment operating entities for approximately $20 million. In conjunction with the acquisition, liabilities were assumed as follows:
Fair value of assets acquired $ 42,899 Cash paid (14,004) -------- Liabilities assumed $ 28,895 ========
Recognition of Revenues Investment management, shareholder services, trustee and other fees are recorded as income during the period in which services are performed. Agreements with certain of the Pioneer Family of Mutual Funds provide for fee reductions, which are based on the excess of annual expenses of each mutual fund over certain limits. Fee reductions are recorded on an accrual basis. Underwriting commissions earned from the distribution of the Pioneer Family of Mutual Fund shares and the systematic investment plan are recorded as income on the trade (execution) dates. Distribution fees are earned based on 0.75% of certain Pioneer Family of Mutual Fund net assets. The Company records sales of gold at sales value net of refining costs when gold is shipped to a refinery. The Company has purchased put options as "insurance" against significant declines in the market price of gold below $310 per ounce. The put options have been purchased in three- to nine-month incre- 30 33 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) ments from a bank, and the premium paid is amortized monthly. Unamortized premiums are included in other current assets in the accompanying consolidated balance sheets. The put options are in place for planned production in the amount of 23,000 ounces per month up to March 31, 1996. The put options only require an initial cash outlay (the premium amount), which amounted to approximately $150,000, $405,000 and $488,000 for the years ended December 31, 1995, 1994 and 1993, respectively. Put options represent a right and not an obligation. As such, the Company has neither ongoing exposure (other than credit exposure) nor upside potential with respect to the put options. Should the market price of gold decline below $310 per ounce, the Company would continue to ship gold to refineries and exercise the put options, receiving payment for the difference between the market price of gold and $310. These receipts would be included as gold sales in the accompanying consolidated statements of income. As of December 31, 1995, no put options have been exercised. It is the Company's intention not to renew the put options after March 31, 1996 unless the price of gold declines below $375 per ounce. Public Offering Costs Public offering costs consists of expenses incurred in connection with the Company's postponed global offering of 20% of the shares of its gold mining subsidiary PGL. The expenses relate primarily to marketing expenses and the fees of professional advisers. Building in Progress Building in progress represents the construction of the International Business Centre (IBC) in Russia. The IBC is an office building which will be leased upon completion and is wholly owned by the First Voucher Fund. The Company owns a 51% interest in the First Voucher Fund. At December 31, 1995, included in the building in progress balance is capitalized interest of approximately $0.5 million. Furniture, Equipment and Leasehold Improvements Depreciation and amortization are provided for financial reporting purposes on a straight-line basis over the following estimated useful lives: furniture and equipment, 3-5 years, and leasehold improvements, over the term of the lease. In the event of retirement or other disposition of furniture and equipment, the cost of the assets and the related accumulated depreciation and amortization amounts are removed from the accounts, and any resulting gains or losses are reflected in earnings. Mining Inventory Gold bullion inventory and gold-in-process contained in the processing plant are valued at the lower of cost or market. Material and supplies are valued at the lower of average cost or replacement cost. Mining Equipment and Facilities Processing plant and equipment is recorded at cost and is depreciated on a units-of-production basis, which anticipates recovery over ten years or less. Mining equipment (rolling stock) is recorded at cost and is depreciated on a units-of-production basis which anticipates recovery over five years or less. Buildings and housing units are recorded at cost and are depreciated on a straight-line basis over five years. Leach pads are recorded at cost and are depreciated on a units-of-production basis. All other equipment and facilities are recorded at cost and are depreciated over their estimated useful lives on a straight-line basis ranging from three to ten years. Depreciation begins at the time construction is completed and the assets are placed into service. Deferred Mining Development Costs Deferred mining development costs, which include the cost of site development, capitalized interest and infrastructure costs during the development and construction phases of the project, are recorded at cost and amortized on a units-of-production basis, which anticipates recovery over ten years or less. Costs incurred to develop economically viable ore bodies, to further define mineralization in existing ore bodies, or to secure rights to proven reserves are capitalized as development costs. Exploration costs associated with the initial identification of ore reserves are expensed. Property and lease acquisition costs incurred in the process of acquiring exploration mineral rights are expensed as incurred. Mining Reclamation Costs Estimated future reclamation costs are based principally on anticipated environmental and regulatory requirements and are accrued and charged to expense over the expected operating life of the mine on a units-of-production basis. The accrual is maintained on an undiscounted basis. Deferred Timber Development Costs Deferred timber development costs principally consist of construction and engineering expenditures incurred in developing the site, the jetty and roads, capitalized interest (approximately $1.4 million in 1995), legal and organizational costs. Timber Equipment and Facilities Timber equipment and facilities consist of logging machinery and building and housing units. Cost in Excess of Net Assets Acquired Cost in excess of net assets acquired is amortized on a straight- line basis over five to fifteen years. The Company assesses the future useful life of these assets whenever events or changes in circumstances indicate that the current useful life has diminished. The Company considers the future undiscounted cash flows of the acquired businesses in assessing the recoverability of this asset. In connection with the purchase of the Russian investment operations in 1995 (see Note 13), the Company allocated cost in excess of net assets acquired in the amount of $2,196,000. 31 34 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Cost in excess of net assets acquired, net, as reflected in the accompanying consolidated balance sheets, consists of the following:
December 31, 1995 1994 -------- ---------- (Dollars in thousands) Mutual of Omaha Fund Management Company $20,768 $22,789 Russian investment operations 2,050 -- Gold mining operations 1,966 2,341 -------- ------- $24,784 $25,130 ======== =======
Valuation of Long-Term Venture Capital Investments The Company's long-term venture capital investments consist of the following (in thousands): Domestic $30,564 Non-U.S. 13,956 ------- $44,520 =======
The Company's domestic venture capital investments are in companies that are primarily engaged in bringing new technology to market as well as more mature companies in need of capital for expansion, acquisitions, management buyouts or recapitalizations. The Company's investments are primarily in the form of unregistered common and preferred stock, warrants and promissory notes. Most securities are valued at fair value, as determined in good faith by management and approved by the Board of Directors, when market quotes are not available. Of the total domestic venture capital value at December 31, 1995, the value of securities for which market quotes are not available was $21,824,000. In addition, total domestic venture capital investments included cash that has been restricted for the future purchase of venture capital investments of $2,100,000. In addition, non-U.S. venture capital investments are the investments held by certain consolidated partnerships. These venture capital investments are in companies that are domiciled in Poland. Of the total non-U.S. venture capital value at December 31, 1995, the value of securities for which market quotes are not available was $656,000. In addition, total non-U.S. venture capital investments included cash that has been restricted for the future purchase of venture capital investments of $13,300,000. In determining fair value, investments are initially stated at cost until significant subsequent events require a change in valuation. The Company considers the financial condition and operating results of the investee, prices paid in subsequent private offerings of the same or similar securities, the amount that the Company can reasonably expect to realize upon the sale of these securities, and any other factors deemed relevant. Securities for which market quotations are available are valued at the closing price as of the valuation date with an appropriate discount, if restricted. Long-term Investments Long-term investments consists mainly of Russian investments of the First Voucher Fund. Given the fact that the markets in which these investments are made and traded are not of the breadth and scope of the U.S. or other mature markets, fair values are not readily determinable. Accordingly, the Company values these investments at cost with adjustments for impairment, if needed. Valuation of Financial Instruments The Company considers the liquid nature and readily available market quotations when estimating fair value of financial instruments. As stated in the accompanying consolidated balance sheets, carrying values of the Company's financial instruments approximate fair value. Earnings Per Share Earnings per share ("EPS") are based on the weighted average number of common and common equivalent shares outstanding. Fully diluted EPS were not materially different from primary EPS. Stockholders' Equity In 1994, the Company's Board of Directors approved a two-for-one stock split of the Company's common stock payable in the form of a 100% stock dividend for stockholders of record on December 1, 1994. A total of 12,348,980 shares of common stock were issued in connection with this split. The stated par value of each share was not changed from $0.10. A total of approximately $1,235,000 was reclassified from the Company's additional paid-in capital account to the Company's common stock account. In 1993, the Company's Board of Directors approved a two- for-one stock split of the Company's common stock payable in the form of a 100% stock dividend for stockholders of record on September 1, 1993. A total of 6,174,490 shares of common stock were issued in connection with the split. The stated par value of each share was not changed from $0.10. A total of approximately $618,000 was reclassified from the Company's additional paid-in capital account to the Company's common stock account. All share and per share amounts have been restated to retroactively reflect the stock splits. Foreign Currency Translation In accordance with Statement of Financial Accounting Standards ("SFAS") No. 52, "Foreign Currency Translation," the "functional currency" for translating the accounts of the Company's operations outside the U.S. is the U.S. dollar. This includes the Company owned operations in highly inflationary economies. As a result, all foreign currency gains and losses of these operations are included in the consolidated statements of income. The impact on the consolidated statements of income is immaterial. Recent Pronouncement In March 1995, the Financial Accounting Standards Board ("FASB") issued SFAS No. 121, "Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," which is to become effective for fiscal years beginning after December 15, 1995. SFAS No. 121 requires that long-lived assets and certain identifiable intangibles to be held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Statement also requires that certain long-lived assets and identifiable intangibles to be disposed of be reported at the lower of the carrying amount or 32 35 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) fair value less cost to sell. The Company anticipates that the application of the new Statement will not have a significant impact on the results of operations or financial condition upon adoption. Concentration of Risk The Company performs ongoing evaluations of its subsidiaries and investments and obtains political risk insurance which mitigates its exposure in foreign countries. Presently, the Company is in the process of applying for political risk coverage relating to the Company's Russian investment operations, which includes the First Voucher Fund. Note 3--Mining Inventory Mining inventories consist of the following:
December 31, 1995 1994 -------- ---------- (Dollars in Thousands) Gold-in-process $ 1,485 $ 1,125 Materials and supplies 14,120 10,756 ------- ------- $15,605 $11,881 ======= =======
Note 4--Mining Equipment and Facilities
December 31, 1995 1994 -------- --------- (Dollars in Thousands) Mobile mine equipment $ 31,482 $ 26,958 Crusher 18,460 17,710 Processing plant and laboratory 4,911 4,775 Leach pads and ponds 15,726 10,026 Building and civil works 10,595 7,681 Office furniture and equipment 1,731 1,532 Motor vehicles 1,756 1,466 Construction in progress 3,161 1,010 Other assets 1,789 2,972 -------- -------- Total cost 89,611 74,130 Accumulated depreciation (42,631) (29,793) -------- -------- $ 46,980 $ 44,337 ======== ========
Note 5--Income Taxes The Company adopted the accounting and disclosure rules specified by SFAS No. 109, "Accounting for Income Taxes," as of January 1, 1993. There was no impact to results of operations as a result of the adoption; therefore, the Company elected to adopt this statement without restatement to prior periods. The following is a summary of the components of income before provision for federal, state and foreign income taxes for financial reporting purposes:
1995 1994 1993 ------ ------ -------- (Dollars in Thousands) Domestic $10,957 $ 9,408 $10,426 Foreign 28,452 38,234 24,026 ------- ------- ------- $39,409 $47,642 $34,452 ======= ======= =======
The components of the provision for federal, state and foreign income taxes consist of:
1995 1994 1993 ------ ------ ------- (Dollars in Thousands) Current: Federal $ 260 $ 3,076 $ 3,135 State 68 1,246 1,171 Foreign 18,674 12,228 1,223 Deferred (Prepaid): Federal 4,072 93 533 State 1,438 46 165 Foreign (7,914) (2,507) 10,095 ------- ------- ------- $16,598 $14,182 $16,322 ======= ======= =======
Income taxes, as stated as a percentage of income before provision for federal, state and foreign income taxes, are comprised of the following:
1995 1994 1993 ---- ---- ---- Federal statutory tax rate 35.0% 34.0% 34.0% Increases (decreases) in tax rate resulting from: State income tax (net of effect on federal income tax) 2.5 2.0 2.6 Foreign income taxes 1.7 (8.0) 7.4 Minority interest tax effect 2.7 1.5 1.6 Unbenefited foreign losses 0.7 0.7 0.9 Other, net (0.5) (0.4) 0.9 ---- ---- ---- Effective tax rate 42.1% 29.8% 47.4% ==== ==== ====
In 1994, the Republic of Ghana reduced the income tax rate for mining companies from 45% to 35%. As a result, the Company's 1994 earnings were enhanced by 16 cents per share, on 90% of a $4.4 million reduction in income taxes deferred since the commencement of TGL's commercial operations in April, 1991 through December 31, 1993. The amount and components of the net deferred tax liability recognized in the accompanying consolidated balance sheets are as follows:
1995 1994 -------- ---------- (Dollars in Thousands) Deferred tax assets $ 4,284 $ 3,103 Deferred tax liabilities (17,292) (2,679) Deferred foreign tax liabilities (1,495) (17,331) -------- -------- $(14,503) $(16,907) ======== ========
The approximate income tax effect of each type of temporary difference is as follows: 33 36 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1995 1994 -------- -------- (Dollars in Thousands) Deferred taxes related to foreign mining operations $ (7,472) $(17,331) Deferred development costs 218 424 Foreign tax credit 491 837 Deferred rent 426 387 Restricted stock 658 474 Nondeductible reserves 264 277 Dealer advances (7,040) (1,771) Prepaid insurance (109) (158) Venture capital and other investments (2,336) (357) Other temporary differences, net 397 311 -------- -------- $(14,503) $(16,907) ======== ========
U.S. Federal income taxes have been provided on all foreign earnings except for the amount considered to be permanently invested outside the U.S. which approximates $26,773,000 at December 31, 1995. Note 6--Stock Plans The Company records stock compensation in accordance with APB 25. The Company has a Restricted Stock Plan ("the 1995 Plan") to provide incentives to certain employees who have contributed and are expected to contribute materially to the success of the Company and its subsidiaries. An aggregate total of 600,000 shares of the Company's stock may be awarded to participants under the 1995 Plan at a price to be determined by the Board of Directors, generally $0.10 per share. The 1995 Plan expires in 2000. The Company's 1990 Restricted Stock Plan (the "1990 Plan") expired in January 1995. The Company's 1981 Restricted Stock Plan (the "1981 Plan") expired in January 1990. The 1995 Plan, the 1990 Plan and the 1981 Plan are collectively referred to as the "Plans." The following tables summarize restricted stock plan activity for the Plans in 1995.
Unvested Shares ---------------------------------------------------- 1995 Plan 1990 Plan 1981 Plan Total ---------- --------- --------- --------- Balance at 12/31/94 -- 419,264 15,684 434,948 Awarded 3,937 123,400 -- 127,337 Vested (3,337) (134,450) (15,684) (153,471) Forfeited -- (6,245) -- (6,245) ------ -------- --------- --------- Balance at 12/31/95 600 401,969 -- 402,569 ====== ======== ========= =========
Vested Shares ---------------------------------------------------- 1995 Plan 1990 Plan 1981 Plan Total --------- --------- ---------- ---------- Balance at 12/31/94 -- 219,000 1,489,648 1,708,648 Vested 3,337 134,450 15,684 153,471 ----- ------- -------- ---------- Balance at 12/31/95 3,337 353,450 1,505,332 1,862,119 ===== ======= ========= ==========
The Company awarded 101,460 shares in 1994 and 164,800 shares in 1993 under the 1990 Plan. The participant's right to sell the awarded stock under the Plans is generally restricted as to 100% of the shares awarded during the first two years following the award, 60% during the third year and 20% less each year thereafter. The Company may repurchase unvested restricted shares at $0.10 per share upon termination of employment. Awards under the Plans are compensatory, and accordingly, the difference between the award price and the market value of the shares under the Plans at the award date, less the applicable tax benefit, is being amortized on a straight-line basis over a five-year period. The Company also maintains the 1988 Stock Option Plan ("the Option Plan"), pursuant to which options on the Company's stock may be granted to key employees of the Company. The Company has reserved an aggregate of 2,400,000 shares for issuance under the Option Plan. Both incentive stock options intended to qualify under Section 422A of the Internal Revenue Code of 1986 and non-statutory options not intended to qualify for incentive stock option treatment ("non-statutory options") may be granted under the Option Plan. The Option Plan is administered by the Board of Directors or a committee of disinterested directors designated by the Board ("the Committee"), and unless the Option Plan is terminated earlier, no option may be granted after August 1, 1998. The option price per share is determined by the Board of Directors or the Committee, but (i) in the case of incentive stock options, may not be less than 100% of the fair market value of such shares on the date of option grant, and (ii) in the case of non-statutory options, may not be less than 90% of the fair market value on the date of option grant. Options issuable under the Option Plan become exercisable as determined by the Board of Directors or the Committee not to exceed ten years from the date of grant. Options granted to date vest over five years at an annual rate of 20% on each anniversary date of the date of grant. The following table summarizes the Option Plan activity for the three years ended December 31, 1995:
Number of Exercise shares price per share --------- ---------------- Outstanding at December 31, 1992 1,570,800 $ 4.188-$ 7.063 Granted 139,000 $12.00 Terminated (12,000) $ 4.188 Exercised (62,800) $ 4.188 --------- --------------- Outstanding at December 31, 1993 1,635,000 $ 4.188-$12.00 --------- --------------- Granted 191,500 $ 15.875-$21.25 Exercised (32,000) $ 4.188 --------- --------------- Outstanding at December 31, 1994 1,794,500 $ 4.188-$21.25 --------- --------------- Granted 207,500 $ 26.50-$ 27.50 Exercised (25,000) $ 6.00-$ 6.125 --------- --------------- Outstanding at December 31, 1995 1,977,000 $ 4.188-$27.50 ========= ===============
At December 31, 1995, 1,272,900 shares were vested and unexercised under the Option Plan. On May 4, 1995, the Company adopted the 1995 Employee Stock Purchase Plan (the "1995 Purchase Plan"), which qualifies as an "Employee Stock Purchase Plan" within the meaning of Section 423 of the Internal Revenue Code of 1986. An aggregate total of 500,000 shares of common stock have been authorized for issuance under the 1995 Purchase Plan, to be implemented through one or more offerings, each approximately six months in length 34 37 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) beginning on the first business day of each January and July. The price at which shares may be purchased during each offering will be the lower of (i) 85% of the closing price of the common stock as reported on the NASDAQ National Market (the "closing price") on the date that the offering commences or (ii) 85% of the closing price of the common stock on the date the offering terminates. In 1995, the Company issued 18,228 shares under the 1995 Purchase Plan. Note 7--Net Capital As a broker-dealer, the Company is subject to the Securities and Exchange Commission's ("SEC") regulations and operating guidelines which, among other things, require the Company to maintain a specified amount of net capital, as defined, and a ratio of aggregate indebtedness to net capital, as defined, not exceeding 15 to 1. Net capital and the related ratio of aggregate indebtedness to net capital may fluctuate on a daily basis. The Company's net capital, as computed under Rule 15c3-1, was $3,155,294 at December 31, 1995 and $5,652,825 at December 31, 1994, which exceeded required net capital of $979,036 by $2,176,258 at December 31, 1995 and $611,817 by $5,041,008 at December 31, 1994. The ratio of aggregate indebtedness to net capital at December 31, 1995 was 4.65 to 1 and at December 31, 1994 was 1.62 to 1. The Company is exempt from the reserve requirements of Rule 15c3-3, since its broker-dealer transactions are limited to the purchase, sale and redemption of redeemable securities of registered investment companies. All customer funds are promptly transmitted and all securities received in connection with activities as a broker-dealer are promptly delivered. The Company does not otherwise hold funds or securities for, or owe money or securities to, customers. Note 8--Benefit Plans The Company and its subsidiaries have two defined contribution benefit plans for eligible employees: a retirement benefit plan and a savings and investment plan ("the Benefit Plans") qualified under Section 401 of the Internal Revenue Code. The Company makes contributions to a trustee, on behalf of eligible employees, to fund both the retirement benefit and the savings and investment plans. The Company's expenses under the Benefit Plans were $1,930,000 in 1995, $1,562,000 in 1994 and $1,566,000 in 1993. Both of the Company's qualified Benefit Plans described above cover all full-time employees who have met certain age and length-of-service requirements. Regarding the retirement benefit plan, the Company contributes an amount which would purchase a certain targeted monthly pension benefit at the participant's normal retirement date. In connection with the savings and investment plan, participants can voluntarily contribute up to 8% of their compensation to the plan, and the Company will match this contribution up to 2%. Note 9--Related Party Transactions Certain officers and/or directors of the Company and its subsidiaries are officers and/or trustees of the Pioneer Family of Mutual Funds and the Company's international mutual funds. Investment management fees earned from the mutual funds were approximately $60,832,000 in 1995, $62,206,000 in 1994 and $38,194,000 in 1993. Underwriting commissions and distribution fees earned from the sales of mutual fund shares were approximately $8,515,000 in 1995, $12,768,000 in 1994 and $7,609,000 in 1993. Shareholder services fees earned from the mutual funds were approximately $22,447,000 in 1995, $19,820,000 in 1994 and $17,071,000 in 1993. Within the Pioneer Family of Mutual Funds, total revenues from Pioneer II were approximately $32,244,000 in 1995, $31,237,000 in 1994 and $30,489,000 in 1993, and total revenues from Pioneer Fund were approximately $16,431,000 in 1995, $15,281,000 in 1994 and $14,434,000 in 1993. Certain partners of Hale and Dorr, the Company's legal counsel, are officers and/or directors of the Company and its subsidiaries. Amounts paid to Hale and Dorr consist of legal fees of approximately $1,587,000 in 1995, $1,461,000 in 1994 and $1,233,000 in 1993. Hale and Dorr is a partner in the law firm Brobeck Hale and Dorr International. The Company paid legal fees in the amount of approximately $1,355,000 in 1995 to Brobeck Hale and Dorr International. Legal fees for 1994 and 1993 paid to Hale and Dorr include immaterial legal fees paid to Brobeck Hale and Dorr International. At December 31, 1994, the Company had a receivable from an officer for $109,000. This receivable was fully paid in 1995. Note 10--Commitments U.S. rental expense for 1995, 1994 and 1993 amounted to approximately $3,007,000, $2,571,000 and $2,378,000, respectively. Future minimum payments under the leases amount to $3,138,000 in 1996, $3,212,000 in 1997, $3,303,000 in 1998, $3,425,000 in 1999, $3,280,000 in 2000 and $5,537,000 thereafter. These future minimum rental payments include estimated annual operating and tax expenses of approximately $1,416,000. Rental expense for the Polish Mutual Fund operations amounted to approximately $863,000, $562,000 and $201,000 in 1995, 1994 and 1993, respectively. The lease is open-ended and can be terminated by either the Company or the lessor upon 90 days notice. In February 1996, a dividend of $0.10 per share was declared (aggregating approximately $2,500,000) to each shareholder of record on March 1, 1996, paid on March 11, 1996. The Company is contingently liable to the Investment Company Institute Mutual Insurance Company for unanticipated expenses or losses in an amount not to exceed $500,000. Two thirds of this amount is secured by an irrevocable standby letter of credit with a bank. In September 1995, the Overseas Private Investment Corporation ("OPIC") executed a commitment letter with TGL and the Company pursuant to which OPIC agreed, subject to the fulfillment of certain conditions, to finance up to $54 million in connection with the Phase III expansion. Such commitment expires on May 1, 1996. As of March 11, 1996, TGL and the Company have not 35 38 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) executed definitive loan agreements with respect to such OPIC guaranteed financing and there can be no assurance that such OPIC guaranteed financing will become available, or that it will be available on terms acceptable to TGL and the Company. In order to facilitate financing, TGL has obtained credit approval from Caterpillar Financial Services Corporation, a wholly owned subsidiary of Caterpillar Inc. (collectively, "Caterpillar"), pursuant to which Caterpillar has agreed, subject to the fulfillment of certain conditions, to provide a revolving credit facility of up to $21 million to finance the purchase of Caterpillar and other mining equipment. Such revolving facility would be subject to renewal in January 1997. In March 1996, TGL executed a commitment letter to utilize $8.4 million of such facility. There can be no assurance that TGL will be able to obtain the Caterpillar credit facility on terms favorable to TGL or the Company. On March 6, 1996, TGL executed a loan agreement with Enskilda, a division of Skandinaviska Enskilda Banken, pursuant to which Enskilda has agreed to provide a direct loan of Swedish Krona 94.5 million (approximately $13.6 million) to finance the gyratory crusher and related equipment procured from Svedala Crushing and Screening AB. This loan is guaranteed by the Swedish Export Credits Board. As TGL obtains these alternative sources of financing, TGL intends to proportionately reduce the amount of its OPIC guaranteed financing. The Company is committed to additional capital contributions of $2.1 million to Pioneer Poland U.S. L.P. and $1.5 million to Pioneer Poland U.K. L.P. These contributions are payable in three annual installments commencing in 1996. At December 31, 1995, the Company was committed to additional capital contributions of $2.5 million to Pioneer Ventures Limited Partnership II, a U.S. venture capital fund. The Company acts as a passive, non-bank trustee for retirement plan accounts. IRS regulations and operating guidelines allow a passive, non-bank trustee to accept fiduciary accounts only if the trustee's net worth (determined as of the end of the most recent taxable year) exceeds the greater of (1) $100,000 or (2) two percent of the net assets of fiduciary accounts. At December 31, 1995, the Company's net worth of $150.3 million was 3.4% of the net assets of fiduciary accounts. Note 11--Notes Payable Notes payable of the Company consist of the following:
December 31, 1995 1994 -------- ---------- (Dollars in Thousands) Lines of Credit $52,000 $10,000 Small Business Administration ("SBA") financing, notes payable to a bank, interest payable semi-annually at rates ranging from 6.12% to 9.8%, principal due in 1998 through 2003 4,950 4,950 Note payable to a bank, guaranteed by the Swedish Export Credits Guarantee Board, principal payable in semi-annual installments of $812,000 through March 31, 1997, interest payable at 5.77%, secured by equipment 2,436 4,059 Notes payable to a bank, guaranteed by OPIC, interest payable quarterly at approximately 0.5% in excess of 91-day T-bill rate set in advance -- 1,544 Note payable to a bank, guaranteed by the Company, principal payable in semi- annual installments of $214,000 through November 30, 1999, no interest payable, secured by equipment 1,715 2,145 Preferred shares financing related to the Russian investment operations, principal payable in three annual installments of $2,000,000 through April 1998, interest payable at 5% 6,000 -- -------- ------- 67,101 22,698 Less: Current portion (56,053) (13,597) -------- ------- $ 11,048 $ 9,101 ======== =======
The Company received approval from a bank in September 1994 for a $10 million line of credit. The Company paid interest under such line at either Prime less 0.5% or LIBOR (30, 90 or 180 days) plus 1.25%. The weighted average interest rate on the line of credit outstanding was 7.6% in 1994. On February 28, 1995, the Company entered into an agreement with a commercial bank providing for a $30 million unsecured line of credit. Advances under the line bear interest, at the Company's option, at (a) the higher of the bank's base lending rate or the federal funds rate plus 0.50%, (b) LIBOR plus 1.10%, or (c) at a money market rate set by the bank. The line, which expires on April 30, 1996, provides that the Company must pay additional interest to the bank at the rate of 0.25% per annum of the unused portion of the line. On May 22, 1995, the Company entered into a second agreement with the commercial bank providing for an additional $10 million unsecured line of credit with substantially the same terms as the first agreement, including applicable interest rates and expiration date. This second line was subsequently increased to $15 million on October 20, 1995, to $30 million on December 20, 1995, and to $40 million on February 27, 1996. At March 11, 1996, the Company had $61.5 million outstanding under the lines. The weighted average interest rate on the lines of credit outstanding was 7.1% in 1995. The Company entered into a commitment letter agreement on February 29, 1996 with the commercial bank for a new senior credit facility in the amount of $115 million. Such commitment is subject to the fulfillment of certain conditions and expires on April 30, 1996. Under the proposed new facility, the Company can borrow up to $35 million under a revolving credit agreement ("RCA") to finance dealer advances relating to sales of back-end load shares of the Company's domestic mutual funds. See Note 14 below for further discussion on dealer advances. The RCA is subject to annual renewal by the Company and the commercial bank. In the event the RCA is not renewed, at maturity, it will automatically con- 36 39 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) vert to a five-year term loan. Advances under the RCA bear interest, at the Company's option, at (a) the higher of the bank's base lending rate or the federal funds rate plus 0.50% or (b) LIBOR plus 1.25%. In addition, the Company can borrow up to $80 million for general corporate purposes and to refinance existing debt. This loan is payable in full in five years from the first drawdown. Advances under this loan bear interest, at the Company's option, at (a) the higher of the bank's base lending rate or the federal funds rate plus 0.50% or (b) LIBOR plus the applicable margin, of either 0.75%, 1.25% or 1.50% as defined under the commitment letter. The senior credit facility provides that the Company must pay additional interest to the bank at the rate of 0.375% per annum of the unused portion of the facility and an annual arrangement fee of $35,000. The commitment fees are approximately $0.7 million. In 1994, TGL prepaid a note payable to a supplier and a note payable to a bank with a remaining principal balance of approximately $761,000. Maturities of notes payable at December 31, 1995 for each of the next five years and thereafter are as follows (dollars in thousands): 1996 $56,053 1997 3,241 1998 3,629 1999 428 2000 1,500 Thereafter 2,250 ------- $67,101 =======
Note 12--Major Customers During the year ended December 31, 1995, gold sales aggregated $90.2 million. During 1995, gold shipments from TGL in Ghana to two unaffiliated European refiners accounted for $51.0 million and $39.2 million, respectively, representing 100% of such total sales. During the year ended December 31, 1994, gold sales aggregated $67.6 million. During 1994, gold shipments from TGL in Ghana to two unaffiliated European refiners accounted for $43.6 million and $24.0 million, respectively, representing 100% of such total sales. During the year ended December 31, 1993, gold sales aggregated $59.2 million. During 1993, gold shipments from TGL in Ghana to two unaffiliated European refiners accounted for $52.4 million and $6.8 million, respectively, representing 100% of such total sales. Note 13--Acquisitions Russian Investment Operations On April 11, 1995, the Company completed its acquisition of the First Voucher Fund and related financial entities. The Company financed the acquisition through the use of its lines of credit in the amount of approximately $14 million and the issuance of preferred share financing in the amount of $6 million. Results of operations are included in the accompanying consolidated statements of income commencing April 11, 1995. This transaction was accounted for under the purchase method. Pro forma results of operations have not been presented since the amounts are not material to the consolidated financial statements. Mutual of Omaha Fund Management Company On December 1, 1993, the Company completed its acquisition of Mutual of Omaha Fund Management Company ("FMC"). The Company financed the acquisition through working capital. Results of operations are included in the accompanying consolidated statements of income commencing December 1, 1993. This transaction was accounted for under the purchase method. Pro forma unaudited results of operations assuming the acquisition had occurred on January 1, 1993 are as follows (dollars in thousands except per share amounts):
1993 --------- Revenues $144,935 Net income $ 19,306 Earnings per share $ 0.77
Note 14--Dealer Advances Certain of the Pioneer Family of Mutual Funds maintain a multi-class share structure, whereby the participating funds offer both the traditional front-end load shares and back-end load shares (B-shares). B-shares do not require the investor to pay any sales charge unless there is a redemption before the expiration of the minimum holding period which ranges from three to six years. However, the Company pays upfront sales commissions (dealer advances) to broker-dealers ranging from 2% to 4%. The participating Funds pay the Company distribution fees of 0.75% and service fees of 0.25%, per annum of their respective net assets, subject to annual renewal by the participating Fund's Board of Trustees. In addition, the Company is paid a contingent deferred sales charge (CDSC) on B-shares redeemed within the minimum holding period. The CDSC is paid based on declining rates ranging from 2% to 4%. The Company capitalizes and amortizes dealer advances for book purposes over periods which range from three to six years depending on the participating Fund. The Company deducts the dealer advances in full for tax purposes in the year such advances are paid. Distribution and service fees received by the Company from participating Funds are recorded in income as earned. CDSC received by the Company from redeeming shareholders reduce unamortized dealer advances directly. In 1995 and 1994, the Company paid dealer advances in the amount of $14.9 million and $4.7 million, respectively. The Company introduced C-shares for certain of the Pioneer Family of Mutual Funds in 1996. 37 40 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Note 15--Financial Information by Business Segment Total revenues and income (loss) before income taxes by business segment, excluding intersegment transactions, were as follows (dollars in thousands):
Mutual Fund Venture Investment Underwriting Capital Shareholder Management and Other Investments Services Gold Mining ----------- ------------- ------------ ----------- ------------ Year ended December 31, 1995: Revenues and sales $66,874 $ 17,261 $ 1,833 $22,507 $90,242 ======= ======== ======= ========= ========== Income (loss) before income taxes $42,333(1) $(24,683)(2) $ 3,014(3) $ 1,785 $22,558(4) ======= ======== ======= ========= ========== Depreciation and amortization $ 1,444 $ 5,917 $ 109 $ 1,782 $15,744 ======= ======== ======= ========= ========== Capital expenditures $ 8,259 $ 3,068 $ 63 $ 3,111 $15,601 ======= ======== ======= ========= ========== Identifiable assets at December 31, 1995 $73,103 $ 63,772 $56,430 $ 7,819 $81,512 ======= ======== ======= ========= ========== Year ended December 31, 1994: Revenues and sales $64,677 $ 18,983 $ 574 $19,884 $67,584 ======= ======== ======= ========= ========== Income (loss) before income taxes $44,465 $(19,363) $(2,362)(3) $ 3,601 $21,713(4) ======= ======== ======= ========= ========== Depreciation and amortization $ 870 $ 3,721 $ 86 $ 1,029 $12,961 ======= ======== ======= ========= ========== Capital expenditures $ 245 $ 3,095 $ 11 $ 2,575 $16,147 ======= ======== ======= ========= ========== Identifiable assets at December 31, 1994 $33,456 $ 36,164 $26,408 $ 5,656 $75,666 ======= ======== ======= ========= ========== Year ended December 31, 1993: Revenues and sales $40,259 $ 12,295 $ 546 $17,152 $59,151 ======= ======== ======= ========= ========== Income (loss) before income taxes $27,813 $(15,631) $ 509(3) $ 3,418 $20,184(4) ======= ======== ======= ========= ========== Depreciation and amortization $ 842 $ 1,069 $ 85 $ 775 $13,062 ======= ======== ======= ========= ========== Capital expenditures $ 947 $ 1,293 $ 29 $ 959 $25,142 ======= ======== ======= ========= ========== Identifiable assets at December 31, 1993 $42,359 $ 36,398 $25,755 $ 4,157 $61,893 ======= ======== ======= ========= ==========
Other Consolidated ------- ------------ Year ended December 31, 1995: Revenues and sales -- $198,717 ======= ======== Income (loss) before income taxes $(5,598)(5) $ 39,409 ======= ======== Depreciation and amortization -- $ 24,996 ======= ======== Capital expenditures $ 3,645 $ 33,747 ======= ======== Identifiable assets at December 31, 1995 $36,433 $319,069 ======= ======== Year ended December 31, 1994: Revenues and sales -- $171,702 ======= ======== Income (loss) before income taxes $ (412)(5) $ 47,642 ======= ======== Depreciation and amortization $ 13 $ 18,680 ======= ======== Capital expenditures $ 4,754 $ 26,827 ======= ======== Identifiable assets at December 31, 1994 $24,735 $202,085 ======= ======== Year ended December 31, 1993: Revenues and sales -- $129,403 ======= ======== Income (loss) before income taxes $(1,841)(5) $ 34,452 ======= ======== Depreciation and amortization -- $ 15,833 ======= ======== Capital expenditures -- $ 28,370 ======= ======== Identifiable assets at December 31, 1993 $ 1,733 $172,295 ======= ========
(1) Net of minority interest of approximately $1,291 for the year ended December 31, 1995. (2) Net of minority interest and interest expense related to third parties of approximately $158 and $344, respectively for the year ended December 31, 1995. (3) Net of minority interest and interest expense related to third parties of approximately ($133) and $402 for the year ended December 31, 1995, $9 and $457 for the year ended December 31, 1994 and $175 and $337 for the year ended December 31, 1993. (4) Net of minority interest, interest expense related to third parties, and interest expense related to the Company of approximately $1,807, $278 and $0, respectively, for the year ended December 31, 1995, $2,120, $548 and $0, respectively, for the year ended December 31, 1994 and $1,234, $690 and $289, respectively, for the year ended December 31, 1993. (5) Net of public offering costs of approximately $4,863 in 1995; net of interest expense related to third parties and expenses related to the Company of $300 and $977 for the year ended December 31, 1994 and $1,361 and $608 for the year ended December 31, 1993. These expenses, excluding the public offering costs, were related to the Company's Russian ventures. 38 41 INFORMATION RELATING TO SHARES The Company's common stock is quoted on the NASDAQ National Market under the symbol PIOG. At March 1, 1996, the Company had approximately 4,000 shareholders. The price range of the common stock and the dividends paid to shareholders during each quarter of the last two years were as follows: PRICE RANGE OF COMMON STOCK*
1995 1994 -------------------- --------------------- High Low High Low --------- ------- ------- --------- January--March $21-11/16 $18-1/4 $21-5/8 $12-11/16 April--June 28-3/4 20-7/8 21 18-1/8 July--September 29-1/4 26-7/8 24-1/2 18-1/4 October--December 29-3/8 23-1/4 25-3/8 21-1/4 * Prices reflect the closing price of the Company's common stock on the NASDAQ National Market.
DIVIDENDS ON COMMON STOCK
Per Share Record Date Payable Date Amount** - ----------------- ------------------ --------- March 1, 1994 March 10, 1994 $.06 June 1, 1994 June 10, 1994 .075 September 1, 1994 September 9, 1994 .08 December 12, 1994 December 19, 1994 .10 March 1, 1995 March 9, 1995 .10 June 1, 1995 June 9, 1995 .10 September 1, 1995 September 8, 1995 .10 December 1, 1995 December 8, 1995 .10 March 1, 1996 March 11, 1996 .10 ** Adjusted for December 1, 1994 2-for-1 stock split effected in the form of a 100% dividend.
39 42 THE PIONEER GROUP, INC. AND SUBSIDIARIES 60 State Street, Boston Massachusetts 02109
Directors and Executive Officers* Philip L. Carret, Trustee Emeritus of certain of the Pioneer Family of Mutual Funds; Founder Chairman Director of Carret & Company. John F. Cogan, Jr., Chairman of the Board, President and Trustee or Director of each of the Pioneer Chairman of Family of Mutual Funds; President and Director of Pioneer Omega, Inc., Pioneer First the Board, Russia, Inc., Pioneer International Corporation and Pioneer Metals and Technology, Director and Inc.; Director of Pioneer Capital Corporation, Pioneer Management (Ireland) Limited, President Joint-Stock Company Pioneer Investments and Pioneering Services Corporation; Chairman of the Board and Director of Pioneering Management Corporation, Pioneer Funds Distributor, Inc., Joint-Stock Company Pioneer Metals International, Joint-Stock Company Forest Starma, Teberebie Goldfields Limited and Pioneer Goldfields Limited; Chairman of the Supervisory Board of Pioneer Fonds Marketing GmbH; Member of the Supervisory Board of Pioneer First Polish Trust Fund Joint Stock Company S.A. and Pioneer Czech Investment Company, A.S.; and Partner, Hale and Dorr. Robert L. Butler, President and Director of Pioneer Funds Distributor, Inc.; Director of Pioneering Director and Management Corporation, Pioneering Services Corporation, Pioneer International Executive Corporation and Pioneer Management (Ireland) Limited; Vice Chairman of Supervisory Vice President Board of Pioneer Fonds Marketing GmbH; and Member of Supervisory Board of Pioneer First Polish Trust Fund Joint Stock Company S.A. and Pioneer Czech Investment Company, A.S. Maurice Engleman, President of E.T. Software, Professional Equity Corporation and Marketing Two, Inc.; and Director Principal, Engleman & Associates. Jaskaran S. Teja, Senior Vice President of Pioneer International Corporation; and Director of Joint-Stock Director Company Forest Starma and Pioneer Goldfields Limited. David D. Tripple, Executive Vice President and Trustee or Director of each of the Pioneer Family of Director and Mutual Funds; President and Director of Pioneering Management Corporation; Director Executive of Pioneer Capital Corporation, Pioneer International Corporation, Pioneer Management Vice President (Ireland) Limited, Joint-Stock Company Pioneer Investments and Pioneer Funds Distributor, Inc.; Member of Supervisory Board of Pioneer First Polish Trust Fund Joint Stock Company S.A. and Pioneer Czech Investment Company A.S.; Director and Vice President of Pioneer Omega, Inc.; and Director of Pioneer First Russia, Inc. John H. Valentine, Director of Pioneer Capital Corporation; Director of Entrepreneurial Management of Director Health Policy Institute; Director of Visualization Technology, Inc.; Trustee of Hurricane Island/Outward Bound School and Thompson Island Outward Bound Education Center; and Chairman of the Board of Boston University Medical Center Hospital. William H. Keough, Treasurer of each of the Pioneer Family of Mutual Funds; and Treasurer of Pioneering Senior Vice Management Corporation, Pioneering Services Corporation, Pioneer Capital Corporation, President, Pioneer Funds Distributor, Inc., Pioneer International Corporation, Pioneer Metals Chief Financial and Technology, Inc., and Pioneer Omega, Inc. Officer and Treasurer Timothy T. Frost, Director and Vice President of Pioneer Omega, Inc. and Pioneer First Russia, Inc.; and Vice President Senior Vice President of Pioneer International Corporation. Lucien Girard, III Managing Director and Chief Executive of Pioneer Goldfields Limited; Managing Vice President Director of Teberebie Goldfields Limited; and Director of Pioneer Metals and Technology, Inc. Stephen G. Kasnet, President of Pioneer Real Estate Advisors, Inc. Vice President John F. Lawlor, Vice President of Pioneering Management Corporation; and Director of Pioneer Goldfields Vice President Limited, Teberebie Goldfields Limited, Pioneer Management (Ireland) Limited, Joint-Stock Company Pioneer Metals International and Joint-Stock Company Forest Starma. Alicja K. Malecka, President of Pioneer First Polish Trust Fund Joint Stock Company S.A. and Pioneer Vice President Investment Poland Ltd.; Senior Vice President of Pioneer International Corporation; and Member of Supervisory Board of Pioneer Czech Investment Company, A.S. Frank M. Polestra, President and Director of Pioneer Capital Corporation and Pioneer SBIC Corp. Vice President William H. Smith, Jr., President and Director of Pioneering Services Corporation; Director and Vice Vice President President of Pioneer International Corporation; Director of Pioneer Management (Ireland) Limited; and Member of Supervisory Board of Pioneer Czech Investment Company, A.S. Joseph P. Barri, Secretary of each of the Pioneer Family of Mutual Funds and the Company's Secretary subsidiaries; and Partner, Hale and Dorr. Robert P. Nault, Assistant Secretary of each of the Pioneer Family of Mutual Funds and the Company's General Counsel and subsidiaries. Assistant Secretary Legal Counsel Transfer Agent Independent Public Accountants Hale and Dorr State Street Bank and Trust Company Arthur Andersen LLP Boston, Massachusetts Boston, Massachusetts Boston, Massachusetts
* As defined pursuant to Section 16 of the Securities Exchange Act of 1934. 40 43 [Pioneer Logo] The Pioneer Group, Inc. 60 State Street Boston, Massachusetts 02109 [Recycle Logo] Printed on Recycled Paper 0396-3215 Pioneer Funds Distributor, Inc. EX-21 6 SUBSIDIARIES 1 Exhibit 21 ---------- THE PIONEER GROUP, INC. DIRECT AND INDIRECT SUBSIDIARIES
Name Jurisdiction of Organization - ---- ---------------------------- Pioneering Management Corporation State of Delaware Pioneer Funds Distributor, Inc. Commonwealth of Massachusetts (1) Pioneering Services Corporation Commonwealth of Massachusetts Pioneer Capital Corporation Commonwealth of Massachusetts Pioneer Associates, Inc. Commonwealth of Massachusetts (2) Pioneer SBIC Corp. Commonwealth of Massachusetts (2) Pioneer Plans Corporation State of Delaware Pioneer Metals and Technology, Inc. State of Delaware Pioneer Investments Corporation Commonwealth of Massachusetts Pioneer Goldfields Limited Guernsey, Channel Islands (11) Glencar Explorations (U.K.) Limited United Kingdom (3) Teberebie Goldfields Limited Republic of Ghana (3) Pioneer International Corporation State of Delaware Pioneer Fund Management Company State of Nebraska Pioneer Fonds Marketing GmbH Germany (4) Pioneer First Polish Trust Fund Joint-Stock Company Poland (5) Joint-Stock Company Pioneer Metals International Russian Federation (6) Joint Stock Company Pioneer Investments Russian Federation (7) Pioneer Investment Poland, Ltd. Poland (5) Pioneer Ventures Limited Partnership Commonwealth of Massachusetts (8) Joint-Stock Company Forest-Starma Russian Federation (9) Pioneer Management (Ireland) Limited Ireland Pioneer Exploration Limited Delaware Pioneering Management (Jersey) Ltd. Channel Islands (5) Pioneer Poland U.S. (Jersey) Ltd. Channel Islands (5) Pioneer Poland U.K. Ltd. United Kingdom (5) Pioneer Czech Investment Co. a.s. Czech Republic (5) Pioneer Goldfields Trustees Limited Guernsey Channel Islands (3) Pioneer Real Estate Advisors, Inc. State of Delaware Pioneer Goldfields Holdings, Inc. State of Delaware Lobengula Exploration and Mining Company (Private Limited) Zimbabwe (3) Pioneer Omega, Inc. State of Delaware Pioneer First Russia, Inc. State of Delaware (10) Luscinia, Inc. State of Delaware (10) Theta Enterprises, Inc. State of Delaware (10) Pioneer Forest, Inc. State of Delaware PioGlobal Corporation State of Delaware First Voucher Fund Russian Federation (12) Pioneer Securities Russian Federation (13) Pioneer Services Russian Federation (13) Joint Stock Company Management Company (KUIF) Russian Federation (13) First Voucher Bank Russian Federation (14) Joint Stock Company Udinskoye Russian Federation Joint Stock Company Amgun-Forest Russian Federation
2 __________________ 1 Pioneer Funds Distributor, Inc. is a wholly-owned subsidiary of Pioneering Management Corporation. 2 Pioneer Associates, Inc. and Pioneer SBIC Corp. are wholly owned subsidiaries of Pioneer Capital Corporation. 3 Teberebie Goldfields Limited is a 90% owned subsidiary and Glencar Explorations (U.K.) Limited, Lobengala Exploration and Mining Company (Private Limited) and Pioneer Goldfields Trustees Limited are wholly owned subsidiaries of Pioneer Goldfields Limited. 4 Pioneer Fonds Marketing GmbH is a wholly owned subsidiary of Pioneer Funds Distributor, Inc. 5 Pioneer First Polish Trust Fund Joint Stock Company, Pioneer Investment Poland, Ltd., Pioneering Management (Jersey) Ltd., Pioneer Poland U.S. (Jersey) Ltd., Pioneer Poland U.K. Ltd. and Pioneer Czech Investment Co. a.s. are wholly owned subsidiaries of Pioneer International Corporation. 6 Joint-Stock Company Pioneer Metals International is a wholly owned subsidiary of Pioneer Metals and Technology, Inc. 7 Joint-Stock Company Pioneer Investments is a 55% owned subsidiary of The Pioneer Group, Inc. 8 Pioneer Ventures Limited Partnership is an 89.5% owned subsidiary of Pioneer SBIC Corp. 9 Joint-Stock Company Forest Starma is a 74% owned subsidiary of The Pioneer Group, Inc. (71% direct and 3% indirect). 10 Pioneer First Russia, Inc., Luscinia, Inc. and Theta Enterprises, Inc. are wholly owned subsidiaries of Pioneer Omega, Inc. 11 Pioneer Goldfields Limited is a wholly owned subsidiary of Pioneer Goldfields Holdings, Inc. 12 First Voucher Fund is a 20% owned subsidiary of Theta Enterprises, Inc. and a 31% owned subsidiary of Luscinia, Inc. 13 Pioneer Securities, Pioneer Services and Joint Stock Company Management Company (KUIF) are wholly owned subsidiaries of Pioneer First Russia, Inc. 14 First Voucher Bank is a 70% owned subsidiary of Joint Stock Company Management Company (KUIF) and a 20% owned subsidiary of First Voucher Fund. EX-23 7 CONSENT OF ARTHUR ANDERSEN LLP 1 Exhibit 23 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS ----------------------------------------- As independent public accountants, we hereby consent to the incorporation by reference in this Form 10-K of our report dated March 11, 1996 included in Registration Statement File Nos. 33-61932, 33-59185 and 33-59183. It should be noted that we have not audited any financial statements of the Company subsequent to December 31, 1995 or performed any audit procedures subsequent to the date of our report. ARTHUR ANDERSEN LLP Boston, Massachusetts March 29, 1996 EX-27 8 FINANCIAL DATA SCHEDULE
5 1,000 U.S. DOLLARS 12-MOS DEC-31-1995 JAN-01-1995 DEC-31-1995 1.00000 27,809 7,630 31,880 0 15,605 91,219 134,304 (53,189) 319,069 98,538 0 2,483 0 0 147,860 319,069 0 198,717 0 158,908 (624) 0 1,024 39,409 16,598 0 0 0 0 22,811 0.900 0.900
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