AFFILIATED MANAGERS GROUP INC - 10-K Annual Report

Back to GetFilings.com

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
--------------------------

FORM 10-K

(MARK ONE)

/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001
OR

/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM ________________ TO ________________

COMMISSION FILE NUMBER 001-13459
--------------------------

AFFILIATED MANAGERS GROUP, INC.

(Exact name of registrant as specified in its charter)

DELAWARE 04-3218510
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)

600 HALE STREET, PRIDES CROSSING, MASSACHUSETTS 01965
(Address of principal executive offices)

(617) 747-3300
(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class Name of each exchange on which registered
COMMON STOCK ($.01 PAR VALUE) NEW YORK STOCK EXCHANGE
INCOME PRIDES NEW YORK STOCK EXCHANGE

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
--------------------------

Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
form 10-K. / /

At March 22, 2002, the aggregate market value of the voting Common Stock
held by non-affiliates of the Registrant, based upon the closing price of $72.39
on that date on the New York Stock Exchange, was $1,580,169,314. Calculation of
holdings by non-affiliates is based upon the assumption, for these purposes
only, that executive officers, directors and persons holding 10% or more of the
Registrant's Common Stock are affiliates. There were 22,260,163 shares of the
Registrant's Common Stock outstanding on March 22, 2002.

DOCUMENTS INCORPORATED BY REFERENCE

The information called for by Part III of this report on Form 10-K is
incorporated by reference from certain portions of the Proxy Statement of the
Registrant to be filed pursuant to Regulation 14A and sent to stockholders in
connection with the Annual Meeting of Stockholders to be held on June 4, 2002.
Such Proxy Statement, except for the parts therein which have been specifically
incorporated herein by reference, shall not be deemed "filed" as part of this
report on Form 10-K.

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

FORM 10-K

TABLE OF CONTENTS

PART I....................................................................... 1

Item 1. Business.................................................... 1

Item 2. Properties.................................................. 16

Item 3. Legal Proceedings........................................... 16

Item 4. Submission of Matters to a Vote of Security Holders......... 16

PART II...................................................................... 17

Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters....................................... 17

Item 6. Selected Historical Financial Data.......................... 18

Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 19

Item 7A. Quantitative and Qualitative Disclosures About Market
Risk...................................................... 32

Item 8. Financial Statements and Supplementary Data................. 33

Item 9. Changes in and Disagreements With Accountants on Accounting
and Financial Disclosure.................................. 60

PART III..................................................................... 60

PART IV...................................................................... 60

Item 14. Exhibits, Financial Statement Schedule and Reports on
Form 8-K.................................................. 60

PART I

ITEM 1. BUSINESS

OVERVIEW

We are an asset management company with equity investments in a diverse
group of mid-sized investment management firms (our "Affiliates"). As of
December 31, 2001, our affiliated investment management firms managed
approximately $81.0 billion in assets across a broad range of investment styles
and in three principal distribution channels (High Net Worth, Mutual Fund and
Institutional). We pursue a growth strategy designed to generate shareholder
value through the internal growth of existing Affiliates, investments in
additional, mid-sized investment management firms, and strategic transactions
and relationships designed to enhance our Affiliates' businesses and growth
prospects.

In our investments in Affiliates, we typically hold a majority equity
interest in each firm, with the remaining equity interests retained by the
management of the Affiliate. Our investment approach addresses the succession
and ownership transition issues facing the founders and principal owners of many
mid-sized investment management firms by allowing them to preserve their firm's
entrepreneurial culture and independence and to continue to participate in their
firm's success. In particular, our structure:

- maintains and enhances Affiliate managers' equity incentives in their
firms;

- allows Affiliate managers to retain operational autonomy, thereby
preserving each Affiliate's distinct culture and investment focus; and

- provides Affiliates with the ability to realize the benefits of scale
economies in distribution, operations and technology.

Although we invest in firms that we anticipate will grow independently and
without our assistance, we are committed to helping Affiliates identify
opportunities for growth and leverage the benefits of economies of scale. While
preserving each Affiliate's unique culture and operating autonomy, we assist our
Affiliates by broadening distribution channels, by developing new products and
by offering strategic support and operational enhancements.

We believe that a substantial number of opportunities to make investments in
mid-sized investment management firms will continue to arise as their founders
approach retirement age and begin to plan for succession. Our management
identifies and develops relationships with promising potential firms based on a
thorough understanding of the universe of such firms derived from our
proprietary database that includes information from third party vendors, public
and industry sources and our own research. Within our target universe, we seek
the strongest and most stable firms with the best growth prospects, which are
typically characterized by a strong multi-generational management team and
culture of commitment to building a firm for its longer-term success, focused
investment discipline and long-term investment track record, and diverse
products and distribution channels.

INVESTMENT MANAGEMENT OPERATIONS

Our Affiliates provide investment management services in three principal
distribution channels: High Net Worth, Mutual Fund and Institutional. Through
these distribution channels, our affiliated investment management firms offer
more than 150 products across a broad range of investment styles and asset
classes. We believe that this diversification helps to mitigate our exposure to
the risks created by changing market environments.

1

A summary of selected financial data attributable to our operations follows:

HIGH NET WORTH DISTRIBUTION CHANNEL

Affiliate clients in the High Net Worth distribution channel include wealthy
individuals, family trusts and managed accounts at brokerage firms that are
attributable to individuals. Through our Affiliates, we provide customized
investment management services for high net worth individuals and families
through direct relationships, as well as through more than 90 managed account
("wrap") programs.

Our two largest Affiliates (based on pro forma 2001 EBITDA) in the High Net
Worth distribution channel are:

- Rorer Asset Management, LLC ("Rorer"), a Philadelphia-based investment
adviser that employs a disciplined relative value investment process in
managing equity portfolios; and

- Tweedy, Browne Company LLC ("Tweedy, Browne"), a New York-based investment
adviser that employs a value-oriented investment approach advocated by
Benjamin Graham to invest in global and domestic securities.

- ------------------------

(1) Balances as of December 31.

(2) Note 18 to our Consolidated Financial Statements describes the basis of
presentation of our distribution channel operating results.

(3) EBITDA represents earnings before interest expense, income taxes,
depreciation and amortization. We believe EBITDA may be useful to investors
as an indicator of our ability to service debt, make new investments and
meet working capital requirements. EBITDA is not a measure of financial
performance under generally accepted accounting principles and should not
be considered an alternative to net income as a measure of operating
performance or to cash flows from operating activities as a measure of
liquidity. EBITDA, as calculated by us, may not be consistent with
computations of EBITDA by other companies. For purposes of our distribution
channel operating results, holding company expenses have been allocated
based on the EBITDA Contribution (as defined on page 21) from each
distribution channel.

2

In addition, Welch & Forbes LLC, a Boston-based investment adviser described
in further detail below, and Gofen and Glossberg, L.L.C., a Chicago-based
investment counseling firm, focus on providing investment management services in
the High Net Worth distribution channel.

In March 2001, we purchased a minority interest in Dublin Fund Distributors,
N.V., the parent company of Edgehill Select Group, L.L.C. and Edgehill Select
Group, S.A.R.L. (collectively, "Dublin Fund Distributors"). Dublin Fund
Distributors, which is based in New York and Paris (and operates under the name
DFD Select Group), is the sponsor of an Irish-registered and listed umbrella
trust of hedge funds for which it selects independent sub-advisers. Dublin Fund
Distributors markets to institutions in the international marketplace, primarily
pension funds, banks, insurance companies and funds of funds. Our investment in
Dublin Fund Distributors provides our Affiliates an opportunity to expand their
international hedge fund clientele, or to access this segment of the High Net
Worth distribution channel for the first time. Dublin Fund Distributors
currently distributes investment products managed by Essex Investment Management
Company, LLC ("Essex") and Frontier Capital Management Company, LLC
("Frontier").

In November 2001, we completed our most recent investment in the High Net
Worth distribution channel by acquiring a 60% interest in Welch & Forbes, Inc.
and Welch & Forbes (a partnership) (collectively, "Welch & Forbes"). Welch &
Forbes' management retained the remaining equity. Established in 1838, Welch &
Forbes provides customized investment advisory and fiduciary services to a range
of clients including personal trusts, high net worth families and charitable
foundations. Client portfolios are tailored to meet each client's objectives,
and are invested in a range of quality growth equity securities, fixed income
securities and venture capital investments. Welch & Forbes also provides estate
and tax services for its clients.

In January 2002, we launched our first multi-Affiliate product that allows
sponsors to offer investors a series of portfolios, each managed by multiple
independent Affiliates that employ separate and distinct investment styles.
Together, the portfolios create a spectrum of asset, style and risk allocations
designed to meet the investment goals of a wide range of separate account
investors and provide investors an opportunity to access a diverse group of
independently managed products in a single account, at a reasonable asset level.
First Union Securities is the first financial services firm to enter into an
agreement with us to market the product through its nationwide network of more
than 8,000 registered representatives.

MUTUAL FUND DISTRIBUTION CHANNEL

Through our Affiliates, we provide advisory or sub-advisory services to 27
mutual funds. These funds are distributed to retail and institutional clients
directly and through intermediaries, including independent investment advisers,
retirement plan sponsors, broker-dealers, major fund marketplaces and bank trust
departments.

Our two largest Affiliates (based on pro forma 2001 EBITDA) in the Mutual
Fund distribution channel are:

- Tweedy, Browne, which advises two mutual funds: Tweedy, Browne Global
Value Fund and Tweedy, Browne American Value Fund; and

- Friess Associates, LLC ("Friess"), a growth equity investment manager
based in Delaware, Wyoming and Arizona, described in further detail below.

In addition, The Managers Funds LLC ("Managers"), a Norwalk,
Connecticut-based adviser to two families of no-load mutual funds, The Managers
Funds and Managers AMG Funds, and Skyline Asset Management, L.P. ("Skyline"), a
Chicago-based small-cap equity manager to the Skyline Special Equities
Portfolio, focus on providing investment management services in the Mutual Fund
distribution channel.

3

We acquired Managers in 1999 to expand our business in the Mutual Fund
distribution channel, and to support the growth and operations of our Affiliates
by providing them a cost-effective way to access the Mutual Fund distribution
channel. With Managers, we formed Managers AMG Funds, a no-load mutual fund
family distributed to retail and institutional clients directly by Managers and
through intermediaries. There are currently seven series in this family of
funds: Essex Aggressive Growth Fund, Frontier Growth Fund, Frontier Small
Company Value Fund, First Quadrant Tax-Managed Equity Fund, Rorer Large Cap
Fund, Rorer Mid Cap Fund and Systematic Value Fund.

In October 2001, we completed our most recent investment in the Mutual Fund
distribution channel by acquiring a 51% interest in Friess, with Friess
management retaining the remaining equity. Friess advises three growth equity
mutual funds: Brandywine Fund, Brandywine Advisers Fund and Brandywine Blue
Fund. Friess manages growth equity accounts with a discipline that focuses on
companies whose earnings are typically growing by at least 20% per year and
whose stocks sell at reasonable price-to-earnings ratios.

INSTITUTIONAL DISTRIBUTION CHANNEL

Through our Affiliates, we offer investment products across 16 different
investment styles in the Institutional distribution channel, including small,
small/mid, mid and large capitalization value and growth equity. Through this
distribution channel, we manage assets for foundations and endowments, defined
benefit and defined contribution plans for corporations and municipalities and
Taft-Hartley plans.

Our two largest Affiliates (based on pro forma 2001 EBITDA) in the
Institutional distribution channel are:

- Essex, a Boston-based investment adviser that specializes in growth equity
portfolios and employs fundamental research combined with active portfolio
management; and

- Frontier, a Boston-based firm that specializes in both growth and value
equity portfolios and employs a disciplined stock selection process driven
by intensive internal research.

In addition, Systematic Financial Management, L.P., a New Jersey-based
investment adviser that specializes in value equity portfolios, and Davis
Hamilton Jackson & Associates, L.P., a Houston-based investment adviser that
specializes in large and mid-cap growth equities and fixed income securities,
focus on providing investment management services in the Institutional
distribution channel.

In 2001, we worked closely with our Affiliates in evaluating their
institutional marketing and client service initiatives in an effort to ensure
that their products and services were successfully addressing the competitive
demands of the market place. Specifically, we provided our Affiliates with
resources to improve sales and marketing materials, to facilitate networking
opportunities with the pension consultant and plan sponsor communities and to
establish new distribution alternatives. This process gave our Affiliates the
opportunity to tailor an appropriate call program for their products in each
segment of the Institutional distribution channel.

In addition, we significantly enhanced the web-based Client Service Platform
through which Affiliates may service their clients, including clients in the
Institutional distribution channel. Platform features include secure access to
account and portfolio information and the ability for each Affiliate to
customize its client service internet presence. Affiliates are able to employ
leading-edge technology while saving money and time by customizing our offering
rather than developing their own web-based client communication platform.

4

OUR STRUCTURE AND RELATIONSHIP WITH AFFILIATES

While we structure our investments in various ways, our principal investment
structure involves the purchase of majority interests in our Affiliates. Each
Affiliate is organized as a separate and largely autonomous limited liability
company or limited partnership. Each Affiliate operating agreement is tailored
to meet the particular characteristics of the Affiliate. In each Affiliate's
organizational documents, we delegate to the Affiliate's management team the
power and authority to carry on the day-to-day operations and management of the
Affiliate. We generally retain the authority to prevent specified types of
actions that we believe could adversely affect cash distributions to us, as well
as the authority to cause certain types of actions to protect our interests.

Many of our Affiliates' organizational documents include revenue sharing
arrangements. Each such revenue sharing arrangement allocates a percentage of
revenue (typically 50-70%) for use by management of that Affiliate in paying
operating expenses of the Affiliate, including salaries and bonuses. We call
this the "Operating Allocation." We determine the percentage of revenue
designated as Operating Allocation for each Affiliate in consultation with
senior management of the Affiliate at the time of our investment based on the
Affiliate's historical and projected operating margins. The organizational
document of each such Affiliate allocates the remaining portion of the
Affiliate's revenue (typically 30-50%) to the owners of that Affiliate
(including us). We call this the "Owners' Allocation." Each Affiliate
distributes its Owners' Allocation to its managers and to us generally in
proportion to their and our respective ownership interests in that Affiliate.

Before reaching agreement on these allocations, we examine the revenue and
expense base of the firm. We only agree to a division of revenue if we believe
that the Operating Allocation will cover operating expenses of the Affiliate,
including a potential increase in expenses or decrease in revenue without a
corresponding decrease in operating expenses. While our management has
significant experience in the asset management industry, we cannot be certain
that we will successfully anticipate changes in the revenue and expense base of
any firm. Therefore, we cannot be certain that the agreed-upon Operating
Allocation will be large enough to pay for all of an Affiliate's operating
expenses, including salaries and bonuses of its principals and employees.

One of the purposes of our revenue sharing arrangements is to provide
ongoing incentives for Affiliate managers by allowing them:

- to participate in the growth of their firm's revenue, which may increase
their compensation from the Operating Allocation, and their distributions
from the Owners' Allocation; and

- to control operating expenses, thereby increasing the portion of the
Operating Allocation which is available for growth initiatives and
compensation.

An Affiliate's managers therefore have incentives to increase revenue
(thereby increasing the Operating Allocation and their share of the Owners'
Allocation) and to control expenses (thereby increasing the amount of Operating
Allocation available for their compensation).

The revenue sharing arrangements allow us to participate in the revenue
growth of each Affiliate because we receive a portion of the additional revenue
as our share of the Owners' Allocation. We participate in that growth to a
lesser extent than the Affiliate's managers, however, because we do not share in
the growth of the Operating Allocation or in any increases in profit margin.

In certain other cases (such as, for example, Managers), the Affiliate is
not subject to a revenue sharing arrangement, but instead operates on a
profit-based model. As a result, we participate fully in any increase or
decrease in the revenue or expenses of such firms.

Under the organizational documents of each Affiliate, the allocations and
distributions of cash to us generally have priority over the allocations and
distributions to the Affiliate's managers. This priority helps to protect us if
there are any expenses in excess of the Operating Allocation of an Affiliate.
Thus,

5

if an Affiliate's expenses exceed its Operating Allocation, the excess expenses
first reduce the portion of the Owners' Allocation allocated to the Affiliate's
managers until that portion is eliminated, and then reduce the portion allocated
to us. Any such reduction in our portion of the Owners' Allocation is required
to be paid back to us out of the portion of future Owners' Allocation allocated
to the Affiliate's managers. As noted above, since we own substantially all of
Managers, we participate fully in any increase or decrease in its revenue or
expenses.

OUR PURCHASE OF ADDITIONAL INTERESTS IN OUR EXISTING AFFILIATES

Under our transaction structure, the management team at each Affiliate
retains an ownership interest in that Affiliate. We consider this a key way that
we provide our Affiliates' managers with incentives to grow their firms as well
as align their interests with ours. In order to further increase these
incentives, we include in the organizational documents of each Affiliate (other
than Paradigm Asset Management Company, L.L.C., in which we own a minority
interest) "put" rights for its managers. The put rights require us, from time to
time and at the request of an Affiliate's manager, to buy portions of his or her
interests in the Affiliate. In this way, an Affiliate's managers can realize a
portion of the equity value that they have created in their firm. In addition,
organizational documents of some of our Affiliates provide us with "call" rights
that permit us to require an Affiliates' managers to sell us portions of their
interests in the Affiliate. Finally, the organizational documents of each
Affiliate include provisions obligating each manager to sell his or her
remaining interests to us at a point in the future, generally after the
termination of his or her employment. The purchase price for these transactions
is generally based on a multiple of the Affiliate's Owners' Allocation at the
time the right is exercised, which is intended to represent fair value. We pay
for these purchases in cash, shares of our Common Stock or other forms of
consideration. Underlying these provisions is our basic philosophy that the
managers of each Affiliate should maintain an ownership level in that Affiliate
within a range that offers them sufficient incentives to grow and improve their
business to create equity value for themselves.

The put rights are designed to permit an Affiliate's managers to sell
portions of their retained ownership to us. Instead of our purchase of a
manager's interest in the Affiliate occurring only in the event of the
termination of his or her employment, the put rights are designed to result in
our purchase of additional interests in our Affiliates at a more gradual rate.
We believe that our more gradual purchase of interests in Affiliates will
enhance our ability to keep our ownership of each Affiliate within a desired
range. We intend to continue providing equity participation opportunities in our
Affiliates to more junior members of their management as well as to new key
employees.

In most cases, the put rights do not become exercisable for a period of
several years from the date of our investment in an Affiliate. Once exercisable,
the put rights generally are limited in the aggregate to a percentage of a
manager's ownership interest. The most common formulation among the Affiliates
is that a manager's put rights:

- do not commence until five years after the date of our investment (or, if
later, the date he or she purchased his or her interest in the Affiliate);

- are limited, in the aggregate, to 50% of his or her interests in the
Affiliate; and

- are limited, in any 12-month period, to 10% of the greatest interest he or
she held in the Affiliate.

In addition, the organizational documents of the Affiliates often contain a
limitation on the maximum total amount that management of any Affiliate may
require us to purchase pursuant to their put rights in any 12-month period.

The call rights are designed to provide a procedure for us and the managers
of some of our Affiliates to facilitate a transition within the senior
management team after an agreed-upon period of

6

time. The call rights vary in each specific instance, but in all cases the
timing and procedure are agreed upon when we make our investment.

The organizational documents of the Affiliates generally provide that an
Affiliate's managers will realize the remaining equity value that they have
created following the termination of their employment with the Affiliate. In
general, upon a manager's retirement after an agreed-upon number of years, or
upon his or her earlier death, permanent incapacity or termination without cause
(but with our consent), he or she is required to sell to us (and we are required
to purchase) his or her remaining interests. If an Affiliate collects any
key-man life insurance or lump-sum disability insurance proceeds upon the death
or permanent incapacity of a manager, the Affiliate generally must use that
money to purchase his or her interests. A purchase by an Affiliate would have
the effect of ratably increasing our ownership percentage as well as that of
each of its remaining managers. By contrast, the purchase of interests by us
only increases our ownership percentage.

DIVERSIFICATION OF ASSETS UNDER MANAGEMENT AND EBITDA

The following table provides information regarding the composition of our
assets under management and EBITDA for the year ended December 31, 2001.

INDUSTRY

Although domestic equity markets have experienced continued volatility and
steep declines over the 21-month period ended December 31, 2001, the asset
management industry has experienced strong growth over the last five years.

We believe that the asset management industry will continue to grow, and
that such growth will be realized at different rates in the three principal
distribution channels for our Affiliates' products. For example, a recent study
predicts that the number of individuals with $500,000 to $5 million in
investable assets, which was estimated to be 6.4 million in 1999, will grow to
9.6 million by 2005. We

- ------------------------

(1) EBITDA as defined in Note (3) on page 2. EBITDA amounts are pro forma to
include our Friess and Welch & Forbes investments as if they occurred on
January 1, 2001. Our Friess investment closed on October 31, 2001, and our
Welch & Forbes investment closed on November 19, 2001.

7

believe that this projected trend will result in the continued growth of the
asset management industry within the High Net Worth distribution channel.
Further, we anticipate that the evolution of so-called "open architecture"
arrangements between asset managers and unaffiliated distribution organizations
will continue to have a positive impact on independent investment management
organizations.

In addition, demographic trends are expected to continue to have a favorable
impact on the growth in retirement assets. One financial services institution
predicts that private retirement assets will grow to $11.2 trillion by 2005,
compared to $7.0 trillion in 2000 and $4.0 trillion in 1995. While the
individual retirement account market (the assets of which are typically invested
in mutual funds) is anticipated to grow at the fastest rate, the defined
contribution market is expected to grow 11.8% over that period, and the defined
benefit market (which is a principal component of the Institutional channel) is
expected to grow 8.0%. As another example of the anticipated growth in the
Institutional channel, one study predicts that endowment and foundation assets
(which were approximately $800 billion in 2000) are expected to grow at an
annual rate of 8.0% through 2005.

INVESTMENT ADVISERS

Our principal targeted size range for prospective Affiliates is
$500 million to $15 billion of assets under management. Within this size range,
we have identified more than 1,300 investment management firms in the United
States, Canada and the United Kingdom. We believe that, in the coming years, a
substantial number of investment opportunities will arise as founders of such
firms approach retirement age and begin to plan for succession. We also
anticipate that there will be significant additional investment opportunities
among firms that are currently wholly owned by larger entities. We believe that
we are well positioned to take advantage of these investment opportunities
because we have a management team with substantial industry experience and
expertise in structuring and negotiating transactions, and an organized process
for identifying and contacting investment prospects.

COMPETITION

In each of the three principal distribution channels, our Affiliates compete
with a large number of domestic and foreign investment management firms,
including public companies, subsidiaries of commercial banks and insurance
companies. In comparison to any of our Affiliates, most of these firms have
greater resources and assets under management, and many offer a broader array of
investment products and services. Since certain Affiliates are active in the
same distribution channels, from time to time they may compete with each other
for clients. In addition, there are relatively few barriers to entry by new
investment management firms, especially in the Institutional distribution
channel. We believe that the most important factors affecting our Affiliates'
ability to compete for clients in the three principal distribution channels are:

- the products offered;

- the abilities, performance records and reputation of the Affiliates and
their management teams;

- the management fees charged;

- the level of client service offered; and

- the development of new investment strategies and the marketing of such
strategies.

The relative importance of each of these factors can vary depending on the
type of investment management service involved. Each Affiliate's ability to
retain and increase assets under management would be adversely affected if
client accounts underperform in comparison to relevant benchmarks, or if key
personnel leave the Affiliate. The ability of each Affiliate to compete with
other investment management firms also depends, in part, on the relative
attractiveness of its investment philosophies and methods under then-prevailing
market conditions.

8

A component of our growth strategy is the acquisition of equity interests in
mid-sized investment management firms. In seeking to make such acquisitions, we
compete with many acquirers of investment management firms, including other
investment management holding companies, insurance companies, broker-dealers,
banks and private equity firms. Many of these companies have longer operating
histories and greater resources than we do, which may make them more attractive
to the owners of firms in which we are considering an investment and may enable
them to offer greater consideration to such owners. We believe that important
factors affecting our ability to compete for future investments are:

- the degree to which target firms view our investment structure as
preferable, financially and operationally, to acquisition or investment
arrangements offered by other potential purchasers; and

- the reputation and performance of our existing and future Affiliates, by
which target firms may judge us and our future prospects.

GOVERNMENT REGULATION

Our Affiliates' businesses are highly regulated, primarily by U.S. federal
authorities and to a lesser extent by other authorities, including non-U.S.
authorities. The failure of our Affiliates to comply with laws or regulations
could result in fines, suspensions of individual employees or other sanctions,
including revocation of an Affiliate's registration as an investment adviser,
commodity trading advisor or broker/dealer. Each of our Affiliates is registered
as an investment adviser with the Securities and Exchange Commission under the
Investment Advisers Act of 1940, as amended (the "Investment Advisers Act"), and
is subject to the provisions of the Investment Advisers Act and related
regulations. The Investment Advisers Act requires registered investment advisers
to comply with numerous obligations, including record keeping requirements,
operational procedures and disclosure obligations. We do not directly engage in
the business of providing investment advice and therefore are not registered as
an investment adviser. Our Affiliates are also subject to regulation under the
securities and fiduciary laws of various states. Moreover, many of our
Affiliates act as advisers or sub-advisers to mutual funds, which are registered
as investment companies with the Securities and Exchange Commission pursuant to
the Investment Company Act of 1940, as amended (the "1940 Act"). As an adviser
or sub-adviser to a registered investment company, each of these Affiliates must
comply with the requirements of the 1940 Act and related regulations. In
addition, an adviser or sub-adviser to a registered investment company generally
has obligations with respect to the qualification of the registered investment
company under the Internal Revenue Code of 1986, as amended (the "Code").

Our Affiliates are also subject to the Employee Retirement Income Security
Act of 1974, as amended ("ERISA"), and related regulations, to the extent they
are "fiduciaries" under ERISA with respect to some of their clients. ERISA and
related provisions of the Code impose duties on persons who are fiduciaries
under ERISA, and prohibit certain transactions involving the assets of each
ERISA plan which is a client of an Affiliate, as well as some transactions by
the fiduciaries (and several other related parties) to such plans. Two of our
Affiliates, First Quadrant, L.P. and The Renaissance Group LLC, are also
registered with the Commodity Futures Trading Commission as commodity trading
advisors and are members of the National Futures Association. Finally, Tweedy,
Browne and a subsidiary of Managers are registered under the Securities Exchange
Act of 1934, as amended, as broker-dealers and, therefore, are subject to
extensive regulation relating to sales methods, trading practices, the use and
safekeeping of customers' funds and securities, capital structure, record
keeping and the conduct of directors, officers and employees.

Furthermore, the Investment Advisers Act and the 1940 Act provide that each
investment management contract under which our Affiliates manage assets for
other parties either terminates automatically if assigned, or states that it is
not assignable without consent. In general, the term

9

"assignment" includes not only direct assignments, but also indirect assignments
which may be deemed to occur upon the direct or indirect transfer of a
"controlling block" of our voting securities or the voting securities of one of
our Affiliates. The 1940 Act further provides that all investment contracts with
mutual fund clients may be terminated by such clients, without penalty, upon no
later than 60 days' notice.

Several of our affiliated investment management firms are also subject to
the laws of non-U.S. jurisdictions and non-U.S. regulatory agencies. For
example, First Quadrant Limited, located in London, is a member of the
Investment Management Regulatory Organization of the United Kingdom, and some of
our other affiliated investment management organizations are investment advisers
to funds which are organized under non-U.S. jurisdictions, including Luxembourg
(where the funds are regulated by the Institute Monetaire Luxembourgeois),
Bermuda (where the funds are regulated by the Bermuda Monetary Authority) and
Ireland (where the funds are regulated by the Central Bank of Ireland). In
addition, Dublin Fund Distributors distributes funds (some which are managed by
our Affiliates) in a variety of foreign jurisdictions. Dublin Fund Distributors
and any of our affiliated investment management firms that manage such funds are
therefore subject to the securities laws governing the investment management and
distribution of such funds in the applicable jurisdictions.

The foregoing laws and regulations generally grant supervisory agencies and
bodies broad administrative powers, including the power to limit or restrict any
of the Affiliates from conducting their business in the event that they fail to
comply with such laws and regulations. Possible sanctions that may be imposed in
the event of such noncompliance include the suspension of individual employees,
limitations on the Affiliate's business activities for specified periods of
time, revocation of the Affiliate's registration as an investment adviser,
commodity trading advisor and/or other registrations, and other censures and
fines. Changes in these laws or regulations could have a material adverse impact
on our profitability and mode of operations.

Our officers, directors and employees and the officers and employees of each
of the Affiliates may own securities that are also owned by one or more of the
Affiliates' clients. We and each Affiliate have internal policies with respect
to individual investments that require reports of certain securities
transactions and restrict certain transactions so as to minimize possible
conflicts of interest.

EMPLOYEES AND CORPORATE ORGANIZATION

As of December 31, 2001, we had 41 employees and our Affiliates employed
approximately 754 persons. Approximately 761 of these 795 employees were
full-time employees. Neither we nor any of our Affiliates is subject to any
collective bargaining agreements, and we believe that our labor relations are
good. We were formed in 1993 as a corporation under the laws of the State of
Delaware.

CORPORATE LIABILITY AND INSURANCE

Our Affiliates' operations entail the inherent risk of liability related to
litigation from clients and actions taken by regulatory agencies. In addition,
we face liability both directly as a control person of our Affiliates, and
indirectly as a general partner of certain of our Affiliates. To protect our
overall operations from such liability, we maintain errors and omissions and
general liability insurance in amounts which we and our Affiliates consider
appropriate. There can be no assurance, however, that a claim or claims will not
exceed the limits of available insurance coverage, that any insurer will remain
solvent and will meet its obligations to provide coverage, or that such coverage
will continue to be available with sufficient limits or at a reasonable cost. A
judgment against one of our Affiliates in excess of available coverage could
have a material adverse effect on us.

10

CAUTIONARY STATEMENTS

WE EXPECT THAT WE WILL NEED TO RAISE ADDITIONAL CAPITAL IN THE FUTURE, AND
THERE CAN BE NO ASSURANCE THAT EXISTING OR FUTURE RESOURCES FOR SUCH CAPITAL
WILL BE AVAILABLE TO US IN SUFFICIENT AMOUNTS OR ON ACCEPTABLE TERMS.

While we believe that our existing cash resources and cash flow from
operations will be sufficient to meet our working capital needs for normal
operations for the foreseeable future, our continuing acquisitions of interests
in new affiliated investment management firms will require additional capital.
We may also need to repurchase some or all of our outstanding zero coupon
convertible notes on various dates commencing May 7, 2002, and we have
obligations to purchase additional equity in existing Affiliates, which
obligations will be triggered from time to time. These obligations may require
more cash than is available from operations. Thus, we may need to raise capital
by making additional borrowings or by selling shares of our stock or other
equity or debt securities, or to otherwise refinance a portion of these
obligations. These financing activities could increase our interest expense,
decrease our net income and dilute the interests of our existing stockholders.
Moreover, there can be no assurance that we will be able to obtain such
financing on acceptable terms, if at all.

REVOLVING CREDIT FACILITY. We currently have a revolving credit facility
under which we had outstanding borrowings of $25 million as of December 31, 2001
and the ability to borrow up to an additional $305 million. Although we have the
option, with the consent of our lenders, to increase the facility by another
$70 million to a total of $400 million, the pending maturity of the facility
will likely limit our potential to exercise that option. We have used the credit
facility in the past, and we may do so again in the future, to fund investments
in new and existing Affiliates, and we also may use the credit facility for
working capital purposes or to refinance other indebtedness.

Our credit facility matures in December 2002. While we intend to obtain new
credit financing prior to that time, we may not be able to obtain this financing
on terms comparable to our current credit facility. Our failure to do so could
increase our interest expense, decrease our net income and adversely affect our
ability to fund new investments and otherwise use our credit facility as
described above.

We may borrow under our credit facility only if we continue to meet certain
financial tests, including interest and leverage ratios. In addition, our credit
facility contains provisions for the benefit of our lenders that restrict the
manner in which we can conduct our business, that may adversely affect our
ability to make investments in new and existing Affiliates and that may have an
adverse impact on the interests of our stockholders.

Because indebtedness under our credit facility bears interest at variable
rates, increases in interest rates may increase our interest expense, which
could adversely affect our cash flow, our ability to meet our debt service
obligations and our ability to fund future investments. Although we currently
are party to interest rate hedging contracts designed to offset a portion of our
exposure to interest rate fluctuations, we cannot be certain that this strategy
will be effective.

REPURCHASE OBLIGATIONS UNDER ZERO COUPON CONVERTIBLE SENIOR NOTES. In
May 2001, we issued $251 million of zero coupon convertible senior notes due
2021. On May 7 of 2002, 2004, 2006, 2011 and 2016, holders may require us to
purchase all or a portion of these notes at their accreted value. While we
cannot predict whether or when holders will choose to exercise their repurchase
rights, we believe that they would become more likely to do so in the event of a
decline in the price or volatility of our Common Stock, or an increase in
interest rates, or both. We may choose to pay the purchase price in cash or
(subject to certain conditions) in shares of our Common Stock, or in a
combination of both. We may wish to avoid paying the purchase price in Common
Stock if we believe that doing so would be unfavorable to existing shareholders.
We currently intend to repurchase the securities with cash. Therefore, if a
substantial portion of the notes were to be submitted for repurchase on one of
the

11

repurchase dates, we might need to use a substantial amount of our available
sources of liquidity for this purpose. This could have the effect of restricting
our ability to fund new acquisitions or to meet other future working capital
needs, as well as increasing our costs of borrowing. We may seek other means of
refinancing or restructuring our obligations under the notes, but this may
result in terms less favorable than those under the existing notes.

OBLIGATIONS TO PURCHASE ADDITIONAL EQUITY IN OUR AFFILIATES. Under our
agreements with our Affiliates, we typically are obligated to purchase
additional ownership interests in our Affiliates from their managers in certain
circumstances. The price for these purchases may, in certain cases, be
substantial and may result in us having more interest expense and less net
income. These purchases will also result in our ownership of larger portions of
our Affiliates, which may have an adverse effect on our cash flow and liquidity.
In addition, in connection with these purchases, we may face the financing risks
described above.

OUR GROWTH STRATEGY DEPENDS UPON CONTINUED GROWTH FROM OUR EXISTING
AFFILIATES AND UPON OUR MAKING NEW INVESTMENTS IN MID-SIZED INVESTMENT
MANAGEMENT FIRMS.

While historically our growth has come largely from making new investments,
in recent periods the performance of our existing Affiliates has become
increasingly important to our growth. There can be no assurance that our
Affiliates will maintain their respective levels of performance or that our
Affiliates will continue to contribute to our growth at their historical levels.
Also, our Affiliates may be unable to carry out their management succession
plans, which may adversely affect their operations and revenue streams.

In addition, our growth strategy depends upon our ability to make new
investments in mid-sized investment management firms on acceptable terms. The
success of our investment program, however, will depend upon our ability to find
suitable firms in which to invest and our ability to negotiate agreements with
such firms on acceptable terms. We cannot be certain that we will be successful
in finding or investing in such firms or that they will have favorable operating
results following our investment, which could have an adverse effect on our
business, financial condition and results of operations.

THE FAILURE TO RECEIVE REGULAR DISTRIBUTIONS FROM OUR AFFILIATES WOULD
ADVERSELY AFFECT US, AND OUR HOLDING COMPANY STRUCTURE RESULTS IN SUBSTANTIAL
STRUCTURAL SUBORDINATION AND MAY AFFECT OUR ABILITY TO MAKE PAYMENTS ON OUR
OBLIGATIONS.

Because we are a holding company, we receive substantially all of our cash
from distributions made to us by our Affiliates. Our Affiliates have generally
entered into agreements with us under which they have agreed to pay us a
specified percentage of their gross revenue. An Affiliate's payment of
distributions to us may be subject to claims by the Affiliate's creditors and to
limitations applicable to the Affiliate under federal and state laws, including
securities and bankruptcy laws. Additionally, we may defer the receipt of our
share of an Affiliate's revenue to permit the Affiliate to fund its operating
expenses, and an Affiliate may default on some or all of the distributions that
are payable to us. As a result, we cannot guarantee that we will always receive
these distributions from our Affiliates.

Our right to receive any assets of our Affiliates or subsidiaries upon their
liquidation or reorganization, and thus the right of the holders of securities
issued by us to participate in those assets, typically would be subordinated to
the claims of that entity's creditors. In addition, even if we were a creditor
of any of our Affiliates or subsidiaries, our rights as a creditor would be
subordinate to any security interest and indebtedness that is senior to us.

12

WE AND OUR AFFILIATES RELY ON CERTAIN KEY PERSONNEL AND CANNOT GUARANTEE
THEIR CONTINUED SERVICE.

We depend on the efforts of our executive officers and our other officers
and employees. Our executive officers, in particular, play an important role in
the growth of our existing Affiliates and in identifying potential investment
opportunities for us. Our officers do not have employment agreements with us,
although each of them has a significant equity interest in us, including stock
options subject to vesting provisions.

In addition, our Affiliates depend heavily on the services of key
principals, who in many cases have managed their firms for many years prior to
our investment. These principals often are primarily responsible for their
firm's investment decisions. Although we use a combination of economic
incentives, vesting provisions and, in some instances, non-solicitation
agreements and employment agreements in an effort to retain key management
personnel, there is no guarantee that these principals will remain with their
firms. Moreover, since certain Affiliates contribute significantly to our
revenue, the loss of key management personnel at these Affiliates could have a
disproportionate impact on our business.

The loss of key management personnel or an inability to attract, retain and
motivate sufficient numbers of qualified management personnel may adversely
affect our business and our Affiliates' businesses. The market for investment
managers is extremely competitive and is increasingly characterized by the
frequent movement of investment managers among different firms. In addition,
since individual investment managers at our Affiliates often maintain a strong,
personal relationship with their clients that is based on their clients' trust
in the manager, the departure of a manager could cause the Affiliate to lose
client accounts, which could have a material adverse effect on the results of
operations and financial condition of both the Affiliate and us.

WE HAVE SUBSTANTIAL INTANGIBLES ON OUR BALANCE SHEET, AND ANY RE-VALUATION OF
OUR INTANGIBLES COULD ADVERSELY AFFECT OUR RESULTS OF OPERATIONS AND
FINANCIAL POSITION.

At December 31, 2001, our total assets were $1.2 billion, of which
$975.0 million (or 81%) were intangible assets consisting of acquired client
relationships and goodwill. We cannot be certain that we will ever realize the
value of such intangible assets. We are amortizing, or writing off, acquired
client relationships on a straight-line basis over periods ranging from 7 to
28 years. Historically, we have also amortized goodwill on this basis over
periods ranging from 15 to 35 years, but have ceased to do so as a result of
recent accounting rule changes.

In July 2001, the Financial Accounting Standards Board issued Financial
Accounting Standard No. 142 ("FAS 142"), "Goodwill and Other Intangible Assets."
FAS 142 (which generally became effective January 1, 2002) requires that
goodwill and other intangible assets that have indefinite lives no longer be
amortized but instead be tested for impairment using a new fair value impairment
test. Since the fair value test is more rigorous than the undiscounted cash flow
methodology that many companies previously used, companies that have intangible
assets (including us) are now more likely to incur impairment charges.

CHANGING CONDITIONS IN THE FINANCIAL AND SECURITIES MARKETS DIRECTLY AFFECT
OUR PERFORMANCE.

Our Affiliates' investment management contracts typically provide for
payment based on the market value of assets under management, and payments are
therefore inherently dependent on the conditions in the financial and securities
markets. In addition, certain of our Affiliates' investment management contracts
include fees based on investment performance, which are directly dependent upon
investment results and thus often vary substantially from year to year.
Unfavorable market performance, fluctuations in the prices of specific
securities, asset withdrawals or other changes in the investment patterns of our
Affiliates' clients may reduce our Affiliates' assets under management, which

13

in turn may adversely affect the fees payable to our Affiliates and, ultimately,
our consolidated results of operations and financial condition.

OUR AFFILIATES' INVESTMENT MANAGEMENT CONTRACTS ARE SUBJECT TO TERMINATION
ON SHORT NOTICE.

Our Affiliates derive almost all of their revenue from their clients based
upon their investment management contracts with those clients. These contracts
are typically terminable by the client without penalty upon relatively short
notice (typically not longer than 60 days). We cannot be certain that our
Affiliates will be able to retain their existing clients or to attract new
clients. If our Affiliates' clients withdraw a substantial amount of funds, it
is likely to harm our results.

OUR AFFILIATES' AUTONOMY LIMITS OUR ABILITY TO ALTER THEIR MANAGEMENT
PRACTICES AND POLICIES, AND WE MAY BE HELD RESPONSIBLE FOR LIABILITIES
INCURRED BY THEM.

Although our agreements with our Affiliates typically give us the authority
to control and/or vote with respect to certain of their business activities, our
Affiliates manage their own day-to-day operations, including investment
management policies and fee levels, product development, client relationships,
compensation programs and compliance activities. As a result, we may not become
aware, for example, of an Affiliate's loss of a significant client or an
Affiliate's non-compliance with a regulatory requirement as quickly as if we
were involved in the day-to-day business of the Affiliate, and we may not become
aware of such event at all. As a consequence, our financial condition and
results of operations may be adversely affected by problems stemming from the
day-to-day operations of our Affiliates.

Some of our Affiliates are partnerships of which we are, or an entity
controlled by us is, the general partner. Consequently, to the extent that any
of these Affiliates incurs liabilities or expenses that exceed its ability to
pay for them, we may be directly or indirectly liable for their payment. In
addition, with respect to each of our Affiliates, we may be held liable in some
circumstances as a control person for the acts of the Affiliate or its
employees. While we and our Affiliates maintain errors and omissions and general
liability insurance in amounts believed to be adequate to cover certain
potential liabilities, we cannot be certain that we will not have claims that
exceed the limits of our available insurance coverage, that our insurers will
remain solvent and will meet their obligations to provide coverage or that
insurance coverage will continue to be available to us with sufficient limits
and at a reasonable cost. A judgment against any of our Affiliates or us in
excess of available insurance coverage could have a material adverse effect on
the Affiliate and us.

OUR INDUSTRY AND OUR AFFILIATES' INDUSTRIES ARE HIGHLY COMPETITIVE.

The market for acquisitions of interests in investment management firms is
highly competitive. Many other public and private financial services companies,
including commercial and investment banks, insurance companies and investment
management firms, have significantly greater resources than us, and invest in or
buy investment management firms. We cannot guarantee that we will be able to
compete effectively with such competitors, that new competitors will not enter
the market or that such competition will not make it more difficult or
impracticable for us to make new investments in investment management firms.

Our Affiliates compete with a broad range of investment managers, including
public and private investment advisers, firms associated with securities
broker-dealers, banks, insurance companies and other entities that serve our
three principal distribution channels. From time to time, our Affiliates may
also compete with each other for clients. Many of our Affiliates' competitors
have greater resources than our Affiliates and us. This competition may reduce
the fees that our Affiliates can obtain for their services. We believe that our
Affiliates' ability to compete effectively with other firms in our three
distribution channels depends upon our Affiliates' products, investment
performance and client-

14

servicing capabilities, and the marketing and distribution of their investment
products. There can be no assurance that our Affiliates will compare favorably
with their competitors in any or all of these categories.

OUR AFFILIATES' BUSINESSES ARE HIGHLY REGULATED.

Many aspects of our Affiliates' businesses are subject to extensive
regulation by various U.S. federal regulatory authorities, certain state
regulatory authorities and non-U.S. regulatory authorities. We cannot ensure
that our Affiliates will fulfill all applicable regulatory requirements. The
failure of any Affiliate to satisfy regulatory requirements could subject that
Affiliate to sanctions that might materially impact the Affiliate's business and
our business.

OUR AFFILIATED INVESTMENT MANAGEMENT FIRMS' INTERNATIONAL OPERATIONS ARE
SUBJECT TO FOREIGN RISKS, INCLUDING POLITICAL, REGULATORY, ECONOMIC AND
CURRENCY RISKS.

Some of our affiliated investment management firms operate or advise clients
outside of the United States, and one affiliated investment management firm,
Dublin Fund Distributors, is based outside the United States. Accordingly, we
and our affiliated investment management firms that have foreign operations are
subject to risks inherent in doing business internationally, which risks may
include changes in applicable laws and regulatory requirements, difficulties in
staffing and managing foreign operations, longer payment cycles, difficulties in
collecting investment advisory fees receivable, less stringent legal, regulatory
and accounting regimes, political instability, fluctuations in currency exchange
rates, expatriation controls, expropriation risks and potential adverse tax
consequences. These or other foreign risks may have an adverse effect both on
our affiliated investment management firms and on our consolidated business,
financial condition and results of operations.

THE PRICE OF OUR COMMON STOCK HISTORICALLY HAS BEEN VOLATILE, AND THE SALE OF
SUBSTANTIAL AMOUNTS OF OUR COMMON STOCK COULD ADVERSELY IMPACT THE PRICE OF
OUR COMMON STOCK.

The market price of our Common Stock historically has experienced and may
continue to experience high volatility, and the broader stock market has
experienced significant price and volume fluctuations in recent years. This
volatility has affected the market prices of securities issued by many companies
for reasons unrelated to their operating performance and may adversely affect
the price of our Common Stock. In addition, our announcements of our quarterly
operating results, changes in general conditions in the economy or the financial
markets and other developments affecting us, our Affiliates or our competitors
could cause the market price of our Common Stock to fluctuate substantially.

In addition, the sale of substantial amounts of our Common Stock could
adversely impact its price. We may issue additional shares of our Common Stock
in connection with our financing activities, as described previously.
Furthermore, we have registered for resale the 3,250,000 shares of our Common
Stock reserved for issuance under our stock option plan and intend to register
additional shares under the plan in the near future. As of December 31, 2001,
options to purchase 3,411,408 shares of our Common Stock were outstanding (of
which 1,475,870 were exercisable) and, upon exercise of these options, the
underlying shares will be eligible for sale in the public market. In the event
that a large number of shares of our Common Stock are sold in the public market,
the price of our Common Stock may fall.

OUR CHARTER AND BY-LAWS AND DELAWARE LAW MAY IMPEDE TRANSACTIONS FAVORABLE
TO OUR STOCKHOLDERS.

Several provisions of our amended and restated certificate of incorporation,
our amended and restated by-laws and Delaware law may, together or separately,
prevent a transaction that is beneficial to our stockholders from occurring.
These provisions may discourage potential purchasers from

15

presenting acquisition proposals, delay or prevent potential purchasers from
acquiring a controlling interest in us, block the removal of incumbent
directors, limit the price that potential purchasers might be willing to pay for
shares of our Common Stock and prohibit us from engaging in certain business
combinations with interested stockholders.

ITEM 2. PROPERTIES

Our executive offices are located at 600 Hale Street, Prides Crossing,
Massachusetts 01965. We have entered into an operating lease for these offices
that expires in December 2006. The lease includes renewal options that can be
exercised at the end of the lease term, and purchase options that can be
exercised prior to the expiration of the lease term. We believe that the
property is suitable for our use for the foreseeable future.

Each of our Affiliates leases office space in the city or cities in which it
conducts business.

ITEM 3. LEGAL PROCEEDINGS

From time to time, we and our Affiliates may be parties to various claims,
suits and complaints. Currently, there are no such claims, suits or complaints
that, in our opinion, would have a material adverse effect on our financial
position, liquidity or results of operations.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of stockholders during the fourth
quarter of the year covered by this Annual Report on Form 10-K.

16

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Our Common Stock is traded on the New York Stock Exchange (symbol: AMG). The
following table sets forth the high and low closing prices as reported on the
New York Stock Exchange composite tape since January 1, 2000.

The closing price for a share of our Common Stock on the New York Stock
Exchange on March 22, 2002 was $72.39.

As of December 31, 2001, there were 54 stockholders of record. As of
March 22, 2002, there were 46 stockholders of record.

We have not declared a dividend with respect to the periods presented. Since
we intend to retain earnings to finance investments in new Affiliates, repay
indebtedness, pay interest and income taxes, repurchase our Common Stock when
appropriate and develop our existing business, we do not anticipate paying cash
dividends on our Common Stock in the foreseeable future. Our credit facility
also prohibits us from making dividend payments to our stockholders.

17

ITEM 6. SELECTED HISTORICAL FINANCIAL DATA

Set forth below are selected financial data for the last five years. This
data should be read in conjunction with, and is qualified in its entirety by
reference to, the financial statements and accompanying notes included elsewhere
in this Form 10-K.

- ------------------------

(1) In connection with our initial public offering in November 1997, we raised
$189 million from the sale of 8.7 million shares of Common Stock and
8.0 million shares of preferred stock converted to shares of Common Stock.
In March 1999, we raised $102.3 million from our sale of an additional
4.0 million shares of Common Stock.

(2) As described in greater detail in Note (3) on page 2, EBITDA generally
represents earnings before interest expense, income taxes, depreciation and
amortization. EBITDA data for 1997 also excludes an extraordinary item
related to the replacement of our previous credit facilities with new
facilities.

(3) In this report, Cash Net Income generally represents net income plus
depreciation and amortization. Cash Net Income data for 1997 also includes
the extraordinary item described above in Note (2). We believe that Cash
Net Income is a measure that may be useful to investors as an indicator of
funds available to the Company, which may be used to make new investments,
repay debt obligations, repurchase shares of Common Stock or pay dividends
on Common Stock. Cash Net Income is not a measure of financial performance
under generally accepted accounting principles and should not be considered
an alternative to net income as a measure of operating performance or to
cash flows from operating activities as a measure of liquidity. Cash Net
Income, as calculated by us, may not be consistent with computations of
Cash Net Income by other companies. As discussed on page 21, beginning in
2002 our definition of Cash Net Income will be modified to "net income plus
depreciation, amortization and deferred taxes."

(4) Cash earnings per share represents Cash Net Income divided by average
shares outstanding.

(5) Intangible assets have increased with each new investment in an Affiliate
or in an affiliated investment management firm.

18

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

FORWARD-LOOKING STATEMENTS

WHEN USED IN THIS FORM 10-K AND IN OUR FUTURE FILINGS WITH THE SECURITIES
AND EXCHANGE COMMISSION, IN OUR PRESS RELEASES AND IN ORAL STATEMENTS MADE WITH
THE APPROVAL OF AN AUTHORIZED OFFICER, THE WORDS OR PHRASES "WILL LIKELY
RESULT," "ARE EXPECTED TO," "WILL CONTINUE," "IS ANTICIPATED," "BELIEVES,"
"ESTIMATE," "PROJECT" OR SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY
"FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995. SUCH STATEMENTS ARE SUBJECT TO CERTAIN RISKS AND
UNCERTAINTIES, INCLUDING THOSE DISCUSSED UNDER THE CAPTION "BUSINESS--CAUTIONARY
STATEMENTS" THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM HISTORICAL
EARNINGS AND THOSE PRESENTLY ANTICIPATED OR PROJECTED. WE WISH TO CAUTION
READERS NOT TO PLACE UNDUE RELIANCE ON ANY SUCH FORWARD-LOOKING STATEMENTS,
WHICH SPEAK ONLY AS OF THE DATE MADE. WE WISH TO ADVISE READERS THAT THE FACTORS
UNDER THE CAPTION "BUSINESS--CAUTIONARY STATEMENTS" COULD AFFECT OUR FINANCIAL
PERFORMANCE AND COULD CAUSE OUR ACTUAL RESULTS FOR FUTURE PERIODS TO DIFFER
MATERIALLY FROM ANY OPINIONS OR STATEMENTS EXPRESSED WITH RESPECT TO FUTURE
PERIODS IN ANY CURRENT STATEMENTS.

OVERVIEW

We are an asset management company with equity investments in a diverse
group of mid-sized investment management firms (our "Affiliates"). As of
December 31, 2001, our affiliated investment management firms managed
approximately $81.0 billion in assets across a broad range of investment styles
and in three principal distribution channels (High Net Worth, Mutual Fund and
Institutional). We pursue a growth strategy designed to generate shareholder
value through the internal growth of existing Affiliates, investments in
additional, mid-sized investment management firms, and strategic transactions
and relationships designed to enhance our Affiliates' businesses and growth
prospects.

In our investments in Affiliates, we typically hold a majority equity
interest in each firm, with the remaining equity interests retained by the
management of the Affiliate. Each Affiliate is organized as a separate and
largely autonomous limited liability company or limited partnership. Each
Affiliate operating agreement is tailored to meet the particular characteristics
of the Affiliate. Many of our Affiliates' organizational documents include
revenue sharing arrangements. Each such revenue sharing arrangement allocates a
percentage of revenue (typically 50-70%) for use by management of that Affiliate
in paying operating expenses of the Affiliate, including salaries and bonuses.
We call this the "Operating Allocation." We determine the percentage of revenue
designated as Operating Allocation for each Affiliate in consultation with
senior management of the Affiliate at the time of our investment based on the
Affiliate's historical and projected operating margins. The organizational
document of each such Affiliate allocates the remaining portion of the
Affiliate's revenue (typically 30-50%) to the owners of that Affiliate
(including us). We call this the "Owners' Allocation." Each Affiliate
distributes its Owners' Allocation to its managers and to us generally in
proportion to their and our respective ownership interests in that Affiliate.

One of the purposes of our revenue sharing arrangements is to provide
ongoing incentives for Affiliate managers by allowing them:

- to participate in the growth of their firm's revenue, which may increase
their compensation from the Operating Allocation, and their distributions
from the Owners' Allocation; and

- to control operating expenses, thereby increasing the portion of the
Operating Allocation which is available for growth initiatives and
compensation.

An Affiliate's managers therefore have incentives to increase revenue
(thereby increasing the Operating Allocation and their share of the Owners'
Allocation) and to control expenses (thereby increasing the amount of Operating
Allocation available for their compensation).

19

The revenue sharing arrangements allow us to participate in the revenue
growth of each Affiliate because we receive a portion of the additional revenue
as our share of the Owners' Allocation. We participate in that growth to a
lesser extent than the Affiliate's managers, however, because we do not share in
the growth of the Operating Allocation or in any increases in profit margin.

In certain other cases (such as, for example, The Managers Funds LLC
("Managers")), the Affiliate is not subject to a revenue sharing arrangement,
but instead operates on a profit-based model. As a result, we participate fully
in any increase or decrease in the revenue or expenses of such firms.

Net income on our income statement reflects the consolidation of
substantially all of the revenue of our Affiliates, reduced by:

- the operating expenses of our Affiliates (which generally are limited to
their Operating Allocations);

- our operating expenses (i.e., our holding company expenses, including
interest, amortization and income taxes); and

- the profits owned by our Affiliates' managers (representing their share of
the Owners' Allocation and referred to on our income statement as
"minority interest").

As discussed above, the operating expenses of an Affiliate as well as its
managers' minority interest generally increase (or decrease) as the Affiliate's
revenue increases (or decreases) because of the direct relationship established
in many of our agreements between the Affiliate's revenue and its Operating
Allocation and Owners' Allocation.

Our level of profitability will depend on a variety of factors, including:

- the level of Affiliate revenue, which is dependent on the ability of our
existing and future Affiliates to maintain or increase assets under
management by maintaining their existing investment advisory relationships
and fee structures, marketing their services successfully to new clients
and obtaining favorable investment results;

- a variety of factors affecting the securities markets generally, which
could potentially result in considerable increases or decreases in the
assets under management at our Affiliates;

- the receipt of Owners' Allocation, which depends on the ability of our
existing and future Affiliates to maintain certain levels of operating
profit margins;

- the availability and cost of the capital with which we finance our
existing and new investments;

- our success in making new investments and the terms upon which such
transactions are completed;

- the level of intangible assets and the associated amortization expense
resulting from our investments;

- the level of expenses incurred for holding company operations, including
compensation for our employees; and

- the level of taxation to which we are subject.

We generally derive our revenue from the provision of investment management
services for fees by our Affiliates. Investment management fees ("asset-based
fees") are usually determined as a percentage fee charged on periodic values of
a client's assets under management. Certain of the Affiliates bill advisory fees
for all or a portion of their clients based upon assets under management valued
at the beginning of a billing period ("in advance"). Other Affiliates bill
advisory fees for all or a portion of their clients based upon assets under
management valued at the end of the billing period ("in arrears"), while mutual
fund clients are billed based upon daily assets. Advisory fees billed in advance

20

will not reflect subsequent changes in the market value of assets under
management for that period. Conversely, advisory fees billed in arrears will
reflect changes in the market value of assets under management for that period.
In addition, fees paid on the basis of investment performance ("performance
fees") at certain Affiliates may affect the profitability of those Affiliates
and us. Performance fees are inherently dependent on investment results, and
therefore may vary substantially from year to year. For example, performance
fees were of an unusual magnitude in 1999, but were not as significant in 2000
or 2001, and may not recur even to the same magnitude as in 2000 or 2001 in
future years, if at all.

Our profit distributions generally take priority over the distributions to
other owners. If there are any expenses in excess of the Operating Allocation of
an Affiliate, the excess expenses first reduce the portion of the Owners'
Allocation allocated to the Affiliate's managers, until that portion is
eliminated, and then reduce the portion allocated to us. Any such reduction in
our portion of the Owners' Allocation is required to be paid back to us out of
future Owners' Allocation.

We believe it is significant to distinguish certain amortization and other
non-cash expenses from other operating expenses since these expenses do not
require the use of cash. We have provided additional supplemental information in
this report for "cash" related earnings as an addition to, but not as a
substitute for, measures of financial performance under generally accepted
accounting principles, and our calculations may not be consistent with those of
other companies. In this report, our additional measures of "cash" related
earnings are:

- Cash Net Income (net income plus depreciation and amortization), which we
believe is useful to investors as an indicator of funds available to us
which may be used to make new investments, repay debt obligations,
repurchase shares of our Common Stock or pay dividends on our Common Stock
(although we have no current plans to pay dividends);

- EBITDA (earnings before interest expense, income taxes, depreciation and
amortization), which we believe is useful to investors as an indicator of
our ability to service debt, make new investments and meet working capital
requirements; and

- EBITDA Contribution (EBITDA plus our holding company operating expenses),
which we believe is useful to investors as an indicator of funds available
from our Affiliates' operations to pay holding company operating expenses,
service debt, make new investments and meet working capital requirements.

Beginning in 2002, our measure of Cash Net Income will be modified in
response to the implementation of Financial Accounting Standard No. 142
("FAS 142"), "Goodwill and Other Intangible Assets." Prior to this change,
deferred tax expenses were accrued because intangible assets were amortized over
different periods for financial reporting and income tax purposes (since we
structure our investments as taxable transactions, and since our cash taxes are
reduced by amortization deductions over the periods prescribed by tax laws).
While FAS 142 eliminated the amortization of goodwill and certain other
intangible assets, it continues to require the accrual of deferred tax expenses
for these assets. Nevertheless, because under FAS 142 this deferred tax accrual
would reverse only in the event of a future sale or impairment of an Affiliate,
we believe deferred tax accruals should be added back in calculating Cash Net
Income to best approximate the actual funds available to us to make new
investments, repay debt obligations or repurchase shares of Common Stock.
Accordingly, in providing future supplemental information, we will define Cash
Net Income as "net income plus depreciation, amortization and deferred taxes."

RESULTS OF OPERATIONS

We conduct our business in three operating segments corresponding with the
three principal distribution channels in which our Affiliates provide investment
management services: High Net Worth,

21

Mutual Fund and Institutional. Clients in the High Net Worth distribution
channel include wealthy individuals and family trusts, with whom our Affiliates
have direct relationships or indirect relationships through managed account
("wrap") programs. In the Mutual Fund distribution channel, our Affiliates
provide advisory or sub-advisory services to mutual funds that are distributed
to retail and institutional clients directly and through intermediaries,
including independent investment advisers, retirement plan sponsors,
broker-dealers, major fund marketplaces and bank trust departments. In the
Institutional distribution channel, our Affiliates manage assets for foundations
and endowments, defined benefit and defined contribution plans for corporations
and municipalities and Taft-Hartley plans.

Our assets under management include assets which are directly managed and
those that underlie overlay strategies. Overlay assets (assets managed subject
to strategies which employ futures, options or other derivative securities)
generate fees which typically are substantially lower than the fees generated by
our Affiliates' other investment strategies. Therefore, changes in directly
managed assets have a greater impact on our revenue than changes in total assets
under management (a figure which includes overlay assets).

The following tables present a summary of our reported assets under
management by distribution channel and activity.

ASSETS UNDER MANAGEMENT--BY DISTRIBUTION CHANNEL

ASSETS UNDER MANAGEMENT--STATEMENT OF CHANGES

Our assets under management at the end of 2001 were $81.0 billion, 4.5%
higher than at the end of 2000. Excluding new investments (the most significant
of which in terms of impact on assets under management were closed in the final
months of 2001), assets directly managed by our Affiliates declined 10% in 2001,
a decline which was primarily attributable to declines in the value of assets
under management, which resulted principally from a broad decline in the equity
markets.

22

The following table presents selected financial data for each of our
operating segments.

REVENUE

Our revenue is generally determined by the following factors:

- the increase or decrease in assets under management (from new investments,
net client cash flows or changes in the value of assets that are
attributable to fluctuations in the equity markets);

- the portion of our directly managed and overlay assets, which realize
different fee rates;

- the portion of our assets across the three principal distribution channels
and our Affiliates, which realize different fee rates; and

- the recognition of any performance fees charged by certain Affiliates.

In addition, the billing patterns of our Affiliates will have an impact on
revenue in cases of rising or falling markets. As described previously, advisory
fees billed in advance will not reflect subsequent changes in the market value
of assets under management for that period, while advisory fees billed in
arrears will reflect changes in the market value of assets under management for
that period.

- ------------------------

(1) Average assets under management for the High Net Worth and Institutional
distribution channels represents an average of the assets under management
at the end of each calendar quarter. Average assets under management for
the Mutual Fund distribution channel represents an average of daily net
assets for the year.

(2) Net income by distribution channel reflects revenue for assets managed in
each distribution channel after our allocation of consolidated operating
expenses, including the growth in profit margins beyond our contractual
Owners' Allocation paid to Affiliate management partners as compensation
from the Operating Allocation. Note 18 to our Consolidated Financial
Statements describes the basis of presentation of our distribution channel
operating results.

23

Total revenue decreased 11% in 2001 from 2000, following a 12% decrease in
2000 from 1999. The decrease in revenue in 2001 resulted primarily from declines
in directly managed assets attributable to declines in the value of assets under
management, which resulted principally from a broad decline in the equity
markets. These declines were partially offset by revenue generated by positive
net client cash flows from directly managed assets and from investments in new
Affiliates. The decrease in revenue in 2000 was principally the result of an
unusual magnitude of performance fees realized in 1999, which accounted for 39%
of revenue in 1999 and which did not recur at this level in 2000. The decrease
in revenue in 2000 was partially offset by the growth in asset-based fees at our
existing Affiliates and from our investment in Frontier Capital Management
Company, LLC ("Frontier"), which closed in January 2000.

A discussion of the changes in our revenue by operating segments follows:

HIGH NET WORTH DISTRIBUTION CHANNEL

The decrease in revenue in 2001 from 2000 resulted from a decline in
performance fees and a shift in assets under management within this distribution
channel to client relationships that realize lower fee rates, and was partially
offset by the increase in average assets under management. The increase in
average assets under management of 16% from 2000 to 2001 was primarily
attributable to positive net client cash flows from directly managed assets and
our investment in Welch & Forbes LLC ("Welch & Forbes") in November 2001, and
was partially offset by a decline in the value of assets under management
attributable to equity market performance. The decrease in revenue in 2000
resulted principally from a decrease in performance fees, and was partially
offset by an increase in average assets under management. The increase in
average assets under management of 48% from 1999 to 2000 was primarily
attributable to positive net client cash flows from directly managed assets and
the increase in the value of assets under management attributable to equity
market performance.

MUTUAL FUND DISTRIBUTION CHANNEL

The increase in revenue in 2001 resulted principally from an increase in
average assets under management. The increase in average assets under management
of 17% from 2000 to 2001 was primarily attributable to positive net client cash
flows from directly managed assets and our investment in Friess Associates, LLC
("Friess") in October 2001, and was partially offset by a decline in the value
of assets under management attributable to equity market performance. The
increase in revenue in 2000 was principally the result of an increase in average
assets under management, which increased 32% from 1999 to 2000 as a result of
positive net client cash flows from directly managed assets, and the increase in
the value of assets under management attributable to equity market performance.

INSTITUTIONAL DISTRIBUTION CHANNEL

The decrease in revenue in 2001 resulted from the decrease in average assets
under management, and in particular from the decrease in our directly managed
assets. The decrease in average assets under management of 31% from 2000 to 2001
was primarily attributable to net client cash outflows from directly managed and
overlay assets, as well as a decline in the value of assets under management
attributable to equity market performance. The decrease in revenue in 2000
resulted principally from a significant decrease in performance fees, and was
partially offset by an increase in average assets under management. The increase
in average assets under management of 14% in 2000 from 1999 was primarily
attributable to our new investment in Frontier in January 2000.

24

OPERATING EXPENSES

The following table presents a summary of our consolidated operating
expenses (our holding company expenses and our Affiliates' Operating
Allocations).

Because substantially all of these expenses (excluding intangible
amortization) are incurred by our Affiliates and because Affiliate expenses are
generally limited to an Operating Allocation, our total operating expenses are
impacted by increases or decreases in an Affiliate's revenue which
correspondingly increase or decrease that Affiliate's Operating Allocation.
Total operating expenses (excluding intangible amortization) decreased 13% from
2000 to 2001, following a 9% decrease from 1999 to 2000, reflecting the general
relationship between revenue and the Operating Allocations for Affiliates with
revenue sharing arrangements.

Compensation and related expenses decreased 23% in 2001 and 20% in 2000,
primarily as a result of the relationship between revenue and operating expenses
described above. Selling, general and administrative expenses increased 8% from
2000 to 2001 and 28% from 1999 to 2000. The increase in 2001 was attributable to
increases in spending by our Affiliates from their Operating Allocations and an
increase in aggregate Affiliate expenses resulting from our investments in
Friess and Welch & Forbes. The increase in 2000 principally resulted from the
growth in mutual fund distribution expenses as a result of the acquisition of
Managers in 1999 and the subsequent growth in Managers' revenue and related
distribution expenses. The increases in amortization of intangible assets of 8%
and 19% in 2001 and 2000, respectively, resulted from our investments in new
Affiliates and our purchase of additional interests in existing Affiliates. The
increase in amortization expenses in 2001 is less than the increase in 2000
because of the timing of new investments and changes in accounting rules. The
Frontier investment was completed in January 2000, while the Friess and Welch &
Forbes investments were completed in October 2001 and November 2001,
respectively. In addition, in accordance with new accounting rules, we did not
amortize the goodwill acquired in our 2001 investments.

OTHER INCOME STATEMENT DATA

The following table summarizes other income statement data.

Minority interest decreased 6% from 2000 to 2001, following a 24% decrease
from 1999 to 2000. The decrease in 2001 resulted from the decline in revenue,
and was partially offset by the growth in revenue at Affiliates in which we own
relatively lower percentages of Owners' Allocation. The decrease in 2000 was
attributable to the significant level of performance fees earned in 1999 and
resultant higher levels of Owners' Allocation accruing to Affiliate managers
that did not recur to the same extent in 2000. In percentage terms, the decrease
in minority interest in 2000 was greater than the decrease in

25

revenue in 2000 because of the revenue growth at Managers, which has no related
minority interest expense since we own substantially all of the firm.

The 15% decrease in income taxes from 2000 to 2001 was attributable to the
decrease in income before taxes, and to a decrease in our effective tax rate
from 41% to 40%. Our effective tax rate, which decreased from 44% to 41% in
2000, continued to decrease in 2001 as a result of a reduction in state taxes
(which resulted from the addition of Affiliates in lower tax rate jurisdictions)
and our implementation of an incentive compensation plan, which limited
non-deductible expenses.

Interest expense decreased 7% in 2001 and increased 34% in 2000. The
decrease in interest expense in 2001 resulted from the restructuring of our
long-term debt to effect lower costs of borrowing and a decrease in the
effective interest rate of our senior revolving credit facility. In May 2001, we
completed the private placement of $251 million principal amount at maturity of
zero coupon senior convertible notes accreting at a rate of 0.50% per year, and
used $101 million of the net proceeds of approximately $221 million to repay
debt under our credit facility. The decrease in the effective interest rate of
our senior revolving credit facility was the result of a decrease in LIBOR
rates. The decrease in interest expense in 2001 was partially offset by
$3.2 million of amortization of debt issuance costs on the zero coupon notes and
expenses of $2.0 million related to our transition to the new derivative
accounting rules. In December 2001, we completed the sale of mandatory
convertible securities in which we realized net proceeds of approximately
$194 million. In January 2002, the sale of over-allotment units increased the
total net proceeds from this offering to $223 million. Interest expense in 2001
was not materially affected by this transaction because it occurred in the final
month of the year. The increase in interest expense in 2000 was the result of an
increase in the weighted average debt outstanding under our credit facility and
increases in LIBOR interest rates. The increase in weighted average debt
outstanding was attributable to our investment in Frontier and our repurchase of
shares of our Common Stock, and was partially offset by debt repayments from
cash flows from operations.

The increase in investment and other income from 2000 to 2001 was
attributable to the investment of proceeds realized from the sale of convertible
notes described above. The decrease in investment and other income from 1999 to
2000 was primarily related to the significant levels of income recognized from
Affiliates' interests in investment partnerships in 1999 that did not occur to
the same degree in 2000.

NET INCOME AND OTHER FINANCIAL DATA

The following table summarizes historical levels of net income and other
supplemental measures concerning cash related earnings presented as an addition
to, but not as a substitute for, net income.

The 12% and 21% decreases in net income in 2001 and 2000, respectively,
resulted principally from the changes in the EBITDA Contribution of our
Affiliates and, in 2000, from an increase in interest expense and amortization
expense (as discussed previously), which did not recur in 2001. The 2001 and
2000 decreases in EBITDA Contribution and EBITDA were principally attributable
to the factors that affected our revenue in these years, as discussed
previously.

Cash Net Income decreased 4% and 11% in 2001 and 2000, respectively,
primarily as a result of the previously described factors affecting net income,
excluding the changes in depreciation and amortization during these periods.

26

LIQUIDITY AND CAPITAL RESOURCES

The following table summarizes certain key financial data relating to our
liquidity and capital resources as of December 31 in the years indicated below:

We have met our cash requirements primarily through borrowings from our
banks, cash generated by operating activities and the issuance of equity and
convertible debt securities. Our principal uses of cash have been to make
investments, repay indebtedness, pay income taxes, repurchase shares, make
additional investments in existing Affiliates (including our purchase of
Affiliate managers' retained equity), support our and our Affiliates' operating
activities and for working capital purposes. We expect that our principal uses
of funds for the foreseeable future will be for additional investments,
distributions to Affiliate managers, payment of interest on outstanding debt,
payment of income taxes, capital expenditures, additional investments in
existing Affiliates (including our purchase of Affiliate managers' retained
equity) and for working capital purposes.

Under our senior revolving credit facility, we had outstanding borrowings of
$25 million and $305 million of additional capacity as of December 31, 2001.
While we have the option, with the consent of our lenders, to increase the
facility by another $70 million to a total of $400 million, the pending maturity
of our credit facility will likely limit our potential to exercise that option.
Our borrowings under the credit facility are collateralized by pledges of all of
our interests in our Affiliates (including all interests which are directly held
by us, as well as all interests which are indirectly held by us through
wholly-owned subsidiaries), which interests represent substantially all of our
assets. In addition, our credit facility contains provisions for the benefit of
our lenders that restrict the manner in which we can conduct our business, that
may adversely affect our ability to make investments in new and existing
Affiliates and that may have an adverse impact on the interests of our
stockholders. Our credit facility bears interest at either LIBOR plus a margin
or the Prime Rate plus a margin. In order to partially offset our exposure to
changing interest rates, we have entered into interest rate hedging contracts,
as discussed below in "Market Risk." The credit facility matures in
December 2002, and we intend to obtain new credit financing prior to that time.
However, we may not be able to obtain this financing on terms comparable to our
current credit facility. Our failure to do so could increase our interest
expense, decrease our net income and adversely affect our ability to fund new
investments and otherwise use our credit facility as described above.

Our obligations to purchase additional equity in our Affiliates extend over
the next 15 years. As of December 31, 2001, if all of these obligations became
due in their entirety, the aggregate amount of these obligations and other
obligations for contingent payments would have been approximately $678 million.
Assuming the closing of the additional purchases, we would own the prospective
Owners' Allocation of all additional equity so purchased, currently estimated to
represent approximately $86 million on an annualized basis. In order to provide
the funds necessary for us to meet such obligations and for us to continue to
acquire interests in investment management firms, it may be necessary for us to
incur, from time to time, additional debt and/or to issue equity or debt
securities,

27

depending on market and other conditions. For example, in 2001 we sold
$251 million principal amount at maturity of zero coupon convertible senior
notes and $230 million of mandatory convertible securities (including an
over-allotment exercised in January 2002). We may be required to repurchase some
or all of the zero coupon convertible senior notes on various dates commencing
May 7, 2002. These potential obligations, combined with our other cash needs,
may require more cash than is available from operations. Thus, we may need to
raise capital by making additional borrowings or by selling shares of our stock
or other equity or debt securities, or to otherwise refinance a portion of these
obligations. There can be no assurance that such additional financing or
refinancing will be available on terms acceptable to us, if at all. Please see
the discussion of our repurchase obligations under the zero coupon convertible
senior notes in "Financing Cash Flows" below.

Cash and cash equivalents aggregated $73.4 million at December 31, 2001, an
increase of $41.8 million from December 31, 2000. Excluding balances held by our
Affiliates, we had approximately $44.6 million in cash and cash equivalents at
December 31, 2001.

OPERATING CASH FLOWS

The decrease in net cash flow from operating activities from 2000 to 2001
and the increase from 1999 to 2000 resulted principally from operating cash
flows received in 2000 from performance fees earned in the fourth quarter of
1999, which did not occur to the same degree in either 1999 or 2001.

INVESTING CASH FLOWS

Year-to-year changes in net cash flow from investing activities result
primarily from our investments in new and existing Affiliates. Net cash flow
used to make investments was $336.0 million, $104.4 million, and
$103.5 million, for the years ended December 31, 2001, 2000 and 1999,
respectively. In October 2001, we completed our $241 million investment in
Friess, which we funded through borrowings under our senior credit facility and
working capital. In 2001, we also completed new investments in Welch & Forbes,
Bowling Portfolio Management, Dublin Fund Distributors and additional
investments in existing Affiliates. These investments were funded through
borrowings under our credit facility, working capital, notes issued to Affiliate
managers and issuances of our Common Stock.

FINANCING CASH FLOWS

The increase in net cash flow from financing activities from 2000 to 2001
was attributable to the sale of convertible debt securities, further described
below. The decrease in net cash flow from financing activities from 1999 to 2000
was attributable to our 1999 follow-on offering of shares of our Common Stock
and our repurchases of shares of our Common Stock in 2000 pursuant to our stock
repurchase program, further described below. The principal sources of cash from
financing activities over the last three years have been issuances of
convertible debt securities, borrowings under our senior credit facility and our
public offering of shares of Common Stock. Our uses of cash from financing
activities during this period were for the repayment of debt and for the
repurchase of shares of our Common Stock.

In May 2001, we completed the private placement of zero coupon senior
convertible notes in which we realized net proceeds of approximately
$221 million. Approximately $101 million of the net proceeds were used to repay
debt under our senior revolving credit facility, and the balance was used for
other general corporate purposes. In this private placement, we sold a total of
$251 million principal amount at maturity of zero coupon senior convertible
notes due 2021, with each $1,000 note issued at 90.50% of such principal amount
and accreting at a rate of 0.50% per annum. Each security is convertible into
11.62 shares of our Common Stock upon the occurrence of any of the following
events: (i) if for certain six-calendar month periods, the closing sale prices
of ou