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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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, 1999
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 No. 1-9597
PIMCO ADVISORS HOLDINGS L.P.
(Exact name of registrant as specified in its charter)
Delaware 13-3412614
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
800 Newport Center Drive, Newport Beach, California 92660
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (949) 219-2200
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class Which registered
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Units of Limited Partner Interest New York Stock Exchange
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Securities registered pursuant to Section 12(g) of the Act:
None
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(Title of Class)
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(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [_]
Page 1 of 98 pages
Exhibit Index is on Page 95
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the units of limited partner interest held by
non-affiliates of the registrant as of March 15, 2000 was $1,921,949,362, based
on the closing price of the units on the New York Stock Exchange on such date.
DOCUMENTS INCORPORATED BY REFERENCE
None.
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FORWARD LOOKING STATEMENTS
Except for the historical information and discussions contained herein,
statements contained in this Form 10-K may constitute "forward looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. These statements involve a number of risks, uncertainties and other
factors that could cause actual results to differ materially, including the
performance of financial markets, the pending acquisition by Allianz AG, the
investment performance of PIMCO Advisors L.P.'s sponsored investment products
and separately managed accounts, general economic conditions, competitive
conditions and government regulations, including changes in tax laws. PIMCO
Advisors Holdings L.P. cautions readers to carefully consider such factors.
Further, such forward-looking statements speak only as of the date on which such
statements are made; PIMCO Holdings undertakes no obligation to update any
forward-looking statements to reflect events or circumstances after the date of
such statements.
PART I
Item 1. Business
Overview
PIMCO Advisors Holdings L.P. ("PIMCO Holdings") is a Delaware limited
partnership which as its sole business holds in excess of 50 million general
partnership units of PIMCO Advisors L.P. ("PIMCO Advisors"), representing a 44%
equity interest in PIMCO Advisors. PIMCO Partners, G.P. ("PGP") is the sole
general partner of PIMCO Holdings and is the controlling general partner of
PIMCO Advisors.
PIMCO Holdings and PIMCO Advisors entered into an Implementation and Merger
Agreement dated October 31, 1999 ("Implementation Agreement"), as amended March
3, 2000, with Allianz of America, Inc., Pacific Asset Management LLC, PIMCO
Partners, LLC, PIMCO Holding LLC, PIMCO Partners, G.P., and other parties to the
Implementation Agreement which provides for the acquisition of PIMCO Holdings by
Allianz of America through a merger of an indirect subsidiary of Allianz of
America into PIMCO Holdings. In the merger, all of the outstanding units of
limited and general partner interest in PIMCO Holdings will be converted into
the right to receive cash in an amount equal to $38.75 per unit, without
interest and subject to potential downward adjustment. As a result of the
merger, PIMCO Holdings will become an indirect wholly-owned subsidiary of
Allianz of America.
Following the merger, subsidiaries of Allianz of America will, in a series
of transactions, acquire substantially all of the remaining interests in PIMCO
Advisors at the same per unit purchase price PIMCO Holdings unitholders are
receiving, other than those beneficially owned by Pacific Asset Management LLC
which will retain an interest in PIMCO Advisors. As a result of the
transactions, Allianz of America will control PIMCO Advisors, having acquired
approximately 70% of the outstanding partnership interests of PIMCO Advisors.
The merger will become effective at the time and date specified in the
certificate of merger to be filed with the Secretary of State of the State of
Delaware pursuant to the Delaware Revised Uniform Limited Partnership Act. We
expect such filing and effective time to occur as soon as practicable after the
special meeting, subject to adoption and approval of the Implementation
Agreement, the merger and the other transactions contemplated by the merger
agreement at the special meeting and the satisfaction or waiver of the other
conditions to completing the transactions provided in the merger agreement.
The general partner has scheduled a special meeting of the unitholders to
be held on April 28, 2000, to approve and adopt the Implementation Agreement,
the merger and the other transactions contemplated by the Implementation
Agreement. Definitive Proxy materials were filed with the Securities and
Exchange Commission on March 3, 2000. Detailed information concerning the
Implementation Agreement and the transactions contemplated thereby is contained
in the Definitive Proxy Materials. The affirmative vote of the holders of a
majority of the Partnership units outstanding on the record date (February 29,
2000) is required to adopt and approve the Implementation Agreement, the merger
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of the indirect subsidiary of Allianz of America into PIMCO Holdings and the
other transactions contemplated by the Implementation Agreement. The transaction
is expected to close in the second quarter of 2000.
Unitholders may obtain copies of the Definitive Proxy materials by
requesting them in writing or by telephone from PIMCO Advisors Holdings L.P.,
800 Newport Center Drive, Newport Beach, California 92660, Attention: Investor
Relations, Telephone (877)407-7699.
PIMCO Advisors is one of the largest investment management companies in the
United States with approximately $260.6 billion under management at December 31,
1999. PIMCO Advisors' business provides high quality fixed income and equity
investment management to institutional and retail clients. Its investment
advisor subsidiaries, led by Pacific Investment Management Company and
Oppenheimer Capital, are widely recognized for consistently posting attractive
performance and high quality service to more than 1,600 institutional clients
worldwide, including more than one-third of the nation's largest 100
corporations. In addition, PIMCO Advisors manages a family of 54 stock and bond
mutual funds. PIMCO Advisors' business focuses on:
Fixed Income. PIMCO Advisors provides fixed income investment management
to institutional and retail clients including foreign and domestic corporate and
public clients. Fixed income management is led by Pacific Investment Management
Company, which offers impressive long-term performance records across a diverse
range of product offerings such as total return, and other duration or sector
specific strategies.
Equity. PIMCO Advisors provides equity investment management to
institutional and retail clients offering the investment management expertise of
five equity management groups, including the highly regarded Oppenheimer Capital
and PIMCO Equity Advisors. PIMCO Advisors offers investors an enhanced index
based strategy and a variety of management styles, including value, growth,
modified growth, quantitative and international.
Institutional clients invest through separate accounts and pooled vehicles
such as the institutional share classes of the PIMCO Funds, PIMCO Advisors'
family of 54 proprietary mutual funds. PIMCO Advisors offers its investment
management services to institutional clients through client service
representatives at each of its investment managers.
Retail Distribution. PIMCO Advisors offers the investment expertise of its
investment managers to retail investors through the retail share classes of the
PIMCO Funds. They are distributed primarily through broker-dealers including
PIMCO Funds Distributors LLC ("PFD"), a wholly-owned broker-dealer which
distributes and markets shares of the retail mutual funds of PIMCO Advisors. In
addition, PIMCO Advisors offers retail investors wrap fee accounts, variable
annuity products, 401(k) programs and various investment products through
sponsored trust companies. PIMCO Advisors' investment management groups,
including Pacific Investment Management Company and Oppenheimer Capital also
provide investment management for a number of third-party sponsored retail
products.
PIMCO Advisors' strategy is to increase the amount and diversification of
its assets under management through (i) growth in the institutional market by
providing high levels of client service and entering new markets in the United
States and overseas, (ii) growth in the retail market by building brand
awareness and direct marketing of the PIMCO Funds through its broker-dealer
network and by penetrating additional distribution channels and (iii) new
product offerings to institutions and retail investors.
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The revenues of PIMCO Advisors consist principally of management fees based
on the value of assets under management and, in some cases, the performance of
the advisor. The following table sets forth the growth and composition of PIMCO
Advisors' assets under management over the last three years (as adjusted to
include the assets under management of Oppenheimer Capital):
<TABLE>
<CAPTION>
As of December 31,
(in billions)
1999 1998 1997 1996
Compound Annual Growth Rate
<S> <C> <C> <C> <C> <C>
SOURCE
Institutional Separate Accounts
Fixed Income........................ $118.7 $106.6 $ 83.0 $ 63.4 23.25%
Equity.............................. 44.3 50.8 51.1 44.1 0.15%
Retail Products and Mutual Funds....... 97.6 86.8 65.4 50.7 24.40%
------ ------ ------ ------
TOTAL............................... $260.6 $244.2 $199.5 $158.2 18.10%
====== ====== ====== ======
ASSET MIX
Fixed Income........................... $170.9 $148.9 $112.3 $ 86.3 25.58%
Equity................................. 86.3 92.0 84.4 69.0 7.74%
Money Market........................... 3.4 3.3 2.8 2.9 5.45%
------ ------ ------ ------
TOTAL............................... $260.6 $244.2 $199.5 $158.2 18.10%
====== ====== ====== ======
</TABLE>
Investment Products
PIMCO Advisors provides fixed income investment management to large and
medium-sized foreign and domestic corporate and public clients, offering
impressive long-term performance records across a diverse range of product
offerings such as total return, low duration and other duration or sector
specific strategies. PIMCO Advisors also provides equity investment management
to institutional and retail clients, offering investors a variety of management
styles, including value, growth, balanced and quantitative management styles, as
well as an enhanced index-based equity strategy.
Fixed Income Management
Primarily through Pacific Investment Management Company, PIMCO Advisors
offers a variety of strategies for clients with fixed income portfolios,
designed to reflect each particular client's investment objective. PIMCO
Advisors believes that its strength in the management of fixed income assets is
derived from Pacific Investment Management's investment philosophy, which
stresses a long-term or secular focus, active management, with measured risk
taking, and the application of strong analytical capabilities across all fixed
income market sectors. Under this philosophy, longer term macro-economic trends
are key inputs to portfolio strategy, and moderate portfolio duration ranges are
favored to reduce volatility relative to client-specified benchmarks. Pacific
Investment Management's investment strategy begins with an intensive review of
long-term and cyclical trends to anticipate interest rates, volatility, yield
curve shape and credit trends. These forecasts become the basis for the major
portfolio strategies. Pacific Investment Management then uses a quantitative
valuation framework to select specific portfolio investments. Fixed income
products include:
Total Return Portfolios. Total return portfolios are structured with the
objective of realizing maximum total return, consistent with the preservation of
capital and prudent investment management across the spectrum of fixed income
securities. This strategy generally results in a portfolio duration of three to
six years. Portfolios utilizing this strategy represented approximately $104.3
billion of Pacific Investment Management's total assets under management at
December 31, 1999.
Low Duration Portfolios. Pacific Investment Management Company has
actively managed low duration accounts (overall portfolio duration one to three
years) since 1979. The objectives in the low duration portfolios are to preserve
principal through investment in low-volatility instruments, while seeking to
achieve superior risk adjusted returns.
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Other Duration Specific or Sector Specific Portfolios. Pacific Investment
Management Company also offers clients active management of portfolios based
upon specific duration targets (e.g., long duration portfolios or synthetic
guaranteed investment contracts) and sector emphases (e.g., international, high-
yield, or mortgages).
International and Other Portfolios. Pacific Investment Management Company,
as investment advisor to a series of offshore funds and separate accounts,
provides fixed income investment advice to non-U.S. investors. Assets under
management for these offshore funds totaled $13.9 billion at December 31, 1999.
Pacific Investment Management Company also serves as subadvisor for a series of
term trusts investing in mortgage related securities that are marketed to
Japanese investors. These trusts had assets of $1.3 billion at December 31,
1999. Pacific Investment Management Company also serves as subadvisor for
twenty four families of U.S. mutual funds sponsored by other mutual fund
complexes. Total assets under management for these nonaffiliated funds at
December 31, 1999 was $11.6 billion.
Equity Management
PIMCO Advisors offers clients a wide array of equity investment strategies
and products. PIMCO Advisors' investment professionals offer Value, Growth,
Modified Growth, Quantitative and International management styles, as well as an
enhanced index based strategy.
Value. PIMCO Advisors offers equity clients the highly respected
investment management professionals of Oppenheimer Capital, which seeks to
adhere to a disciplined, value-oriented investment philosophy, by identifying
company-specific, rather than industry-specific opportunities. By investing in
quality securities that are temporarily out of favor or have been overlooked,
Oppenheimer Capital seeks to preserve capital in falling markets, reduce
volatility compared to the overall market and produce superior returns. In
addition, PIMCO Advisors' NFJ Investment Group follows a disciplined value
oriented approach, specializing in investing in a combination of low P/E stocks
with high dividends selected through a proprietary screening model. At December
31, 1999, $54.3 billion (or 20.8%) of PIMCO Advisors' assets under management
were advised by value oriented investment managers. Value oriented investment
products include large-cap, mid-cap and small-cap portfolios and non-U.S. and
global value portfolios.
Growth. PIMCO Equity Advisors, a division of PIMCO Advisors, specializes
in fundamental research that identifies common characteristics of growing
businesses. PIMCO Equity Advisors provides investment management and advisory
services primarily to equity-oriented mutual funds and other institutional
clients. The primary investment style is quality growth within various market
capitalization ranges-small-cap, mid-cap and large-cap. PIMCO Equity Advisors
seeks to identify quality growth companies using proprietary research and the
execution of a disciplined investment process.
Modified Growth. PIMCO Advisors' Cadence Capital Management offers a
"growth at a reasonable price" equity investment philosophy. This investment
management group's philosophy is to participate in the long-term growth of the
equity markets by constructing fully invested portfolios of stocks selling at
reasonable valuations in relation to the fundamental prospects of the underlying
companies. The group uses a disciplined, "bottom-up" investment process which
utilizes quantitative screening for favorable fundamental and valuation
attributes, followed by "hands-on" qualitative research to confirm the apparent
business trends. These investment managers structure their portfolios to be
broadly based, typically including 80 to 100 issues. This investment strategy
involves the application of a proprietary investment management process to
different universes of equity securities which are usually differentiated by
market capitalization into four categories: large-cap, mid-cap, small-cap and
micro-cap.
Quantitative. PIMCO Advisors offers active and indexed strategies which
are based upon quantitative techniques in portfolio construction and management,
and are structured to meet client specific risk and return objectives. Active
portfolios seek superior returns relative to an assigned benchmark within a risk
controlled framework, while indexed portfolios are constructed to closely track
an appropriate index. In addition, the investment managers manage tax efficient
separate account strategies for taxable investors. The active portfolios are
designed to maintain economic sector allocations similar to the benchmark.
Security selection is based on a
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ranking system which evaluates each stock's exposure to valuation, earnings and
momentum factors. Portfolios are optimized to achieve a diversified group of
securities which have exposure to factors associated with superior return and
risk characteristics.
StocksPLUS(R). In addition to its fixed income products, Pacific
Investment Management Company also manages an enhanced index based strategy,
StocksPLUS, which accounted for $20.4 billion of assets under management at
December 31, 1999. StocksPLUS represents a proprietary technique developed by
Pacific Investment Management Company that combines the active management of
stock index futures (to provide a proxy for equity market returns) with active
management of a short-term fixed income portfolio using much of the same
analytics as is used by Pacific Investment Management Company fixed income
portfolios.
International. PIMCO Advisors' investment management groups, offer
international equity investment products that combine country selection
strategies with the systematic application of investment processes. These
include the application of fundamental valuation criteria to country allocations
and then to stock selection in order to enhance client returns over time. The
international assignments include allocations to developed countries and
emerging markets.
Markets and Distribution Channels
Institutional Investors
The Institutional Market. The institutional market for investment
management services includes corporate, government and multi-employer pension
plans, charitable endowments and foundations, and corporations purchasing
investment management services for their own account. The industry consists of
two primary institutional markets. The defined benefit pension plan market,
historically the largest component and primary market for investment managers,
is large, fragmented, performance sensitive and generally sophisticated. The
other principal component is the defined contribution plan market, consisting of
plans such as 401(k) plans which, while historically a smaller market, has grown
in the last decade to almost equal the defined benefit market in size.
Client Relations, Distribution and Marketing. Each of PIMCO Advisors'
investment management groups serves the institutional market and conducts
institutional marketing activities directly. In general, each investment
management group conducts its own marketing, which generally targets Fortune
1,000 companies and other large institutional investors. The investment managers
seek to develop client relationships through investment management performance
and focused, responsive client service. Business and marketing strategies also
involve increasing assets under management for non-U.S. clients, expanding the
array of fixed income and equity products offered to clients, seeking to expand
market share with medium and smaller institutional investors by offering pooled
investment vehicles such as the PIMCO Funds, advisory pooled investment products
sponsored by non-affiliates and otherwise seeking to diversify and expand their
businesses by investment strategy, method of delivery and markets.
A principal component of PIMCO Advisors' marketing strategy is the
historical performance of its investment managers relative to benchmarks over
longer periods of time. Each manager's performance will vary versus its
benchmarks over time, and further, will be subject to market trends, favoring
and disfavoring its investment style. PIMCO Advisors' emphasizes high quality
client relations and marketing in order to reduce the impact of this volatility.
Retail Investors
The Retail Market. Like the institutional market for investment management
services, the retail market has expanded rapidly in recent years. The retail
market is served in large part through mutual funds, although other significant
channels include wrap fee accounts and variable annuities. The mutual fund
industry is highly competitive and is characterized by a high degree of
fragmentation and a large and rapidly increasing number of product offerings.
Marketing strategies, product development, business development, sales expertise
and servicing are increasingly important. The traditional channel for the
distribution of mutual funds (other than money market
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funds) is through brokerage firms that are not affiliated with the funds'
sponsor organization and that are compensated primarily through front-end sales
loads deducted from the purchaser's investment at the time of the sale.
Increasingly other distribution arrangements and channels have become important.
These include "no-load" or "low-load" funds sold primarily through direct
marketing efforts or captive sales forces affiliated with the sponsor
organization; "private label" and "proprietary" funds managed by and offered
primarily through, or to customers of, a financial organization such as a
brokerage firm, insurance company or bank; and "back-end load" or "level load"
funds offered through brokerage and other third-party channels, but with
compensation to the selling brokers being funded through commission advances
from the funds' sponsor which are recovered through ongoing charges against fund
assets assessed under Rule 12b-1 under the Investment Company Act of 1940, as
amended, contingent deferred sales charges assessed against shareholders at the
time they redeem their investments, or a combination of such sources.
The PIMCO Funds. PIMCO Advisors and its investment management
professionals sponsor and manage the PIMCO Funds, a family of 54 mutual funds
for both institutional and retail investors which is comprised of 27 funds
advised by Pacific Investment Management Company, and 27 funds advised by PIMCO
Advisors,18 of which are subadvised by PIMCO Advisors' other investment managers
and two independent subadvisors. PIMCO Funds are offered in up to six different
share classes: institutional and administrative share classes for institutional
investors and, for retail investors, Class A shares (which are "front end"
load), Class B shares (which are "back-end load"), Class C shares (which are
"level load") and Class D shares which are offered only through financial
service firms. The PIMCO Funds now feature a "unified fee" structure which has
specified advisory and administrative fees per fund. As a result, PIMCO Advisors
and Pacific Investment Management Company (and not the PIMCO Funds) bear the
risk of increases in service costs (including third-party service providers such
as transfer agents) and will directly benefit from decreases in those costs.
At December 31, 1999, PIMCO Funds had $58.6 billion under management, of
which $16.4 billion was represented by retail share classes. At February 29,
2000, nineteen of the PIMCO Funds had share classes with Morningstar ratings of
4 stars or above. Set forth below is information regarding these funds:
<TABLE>
<CAPTION>
Assets Under
Management
at 2/29/00 Morningstar
PIMCO Fund Management Style (in millions) Ranking
- ---------- ---------------- ------------- -----------
<S> <C> <C> <C>
Innovation................. Technology Stock $ 5,655 *****
Low Duration............... Fixed Income 4,016 *****
High Yield................. Fixed Income--High Yield 3,452 *****
Short Term................. Fixed Income 687 *****
Foreign Bond............... Fixed Income--International 546 *****
Low Duration II............ Fixed Income 453 *****
Low Duration III........... Fixed Income 32 *****
Total Return............... Fixed Income--Total Return 30,283 ****
Growth..................... Growth 3,042 ****
Target..................... Growth 2,393 ****
StocksPLUS................. Enhanced Equity 1,430 ****
Total Return II............ Fixed Income--Total Return 1,220 ****
Mid Cap Growth............. Growth 1,125 ****
Capital Appreciation....... Growth 898 ****
Moderate Duration.......... Fixed Income 362 ****
Real Return................ Fixed Income 230 ****
Total Return III........... Fixed Income--Total Return 622 ****
Mid Cap Equity............. Growth 4 ****
Core Equity................ Growth 2 ****
</TABLE>
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The above chart is based on February 29, 2000 Morningstar ratings for the
highest rated class of the identified fund. Other share classes of the same fund
will have the same or lower Morningstar ratings. Morningstar ratings are
calculated from the fund's 3, 5 and 10 year average annual returns (if
applicable) in excess of the 90 day Treasury bill returns with appropriate fee
adjustments and a risk factor that reflects fund performance below 90 day
Treasury bill returns. Morningstar ratings reflect historical risk-adjusted
performance and are subject to monthly changes. Therefore, past ratings are not
a guarantee of future results. 10% of the funds in an investment class receive 5
star ratings, the next 22.5% earn 4 stars, the next 35% earn 3 stars, the next
22.5% earn 2 stars and the bottom 10% earn 1 star. Morningstar ratings are based
on a fund's oldest class of shares.
PFD, a wholly-owned subsidiary of PIMCO Advisors, is the distributor for
the PIMCO Funds. PIMCO Advisors uses PFD to distribute the retail share classes
of PIMCO Funds through a large, diversified network of unaffiliated retail
broker-dealers, including many leading full-service broker-dealers. PFD has
selling agreements with over 1,000 broker-dealers and banks. The sales and
marketing personnel develop and support sales and marketing strategies between
PIMCO Advisors and individual retail broker-dealers. Additionally, the
relationships fostered by this group allow PFD's wholesalers to have access to
the branch offices and sales representatives of the retail broker-dealers.
Other Aggregators and Intermediaries. PIMCO Advisors' strategy also
involves focusing on financial service aggregators of retail assets such as
unaffiliated sponsors of mutual funds and other registered investment advisors
(including fee based financial planners) who recommend the use of "no load"
mutual funds such as the institutional and administrative fee only classes of
PIMCO Funds to their clients, and consultant alliances. Many of these financial
intermediaries that sell PIMCO Funds also offer funds not managed by PIMCO
Advisors and frequently offer funds managed by their own affiliates.
In addition to the 54 PIMCO Funds, PIMCO Advisors' investment managers
subadvise third party sponsored mutual funds. In particular, Opcap Advisors, a
subsidiary of Oppenheimer Capital, serves as subadvisor for six funds in the
Quest For Value Series of OppenheimerFunds (an unaffiliated fund) having $8.8
billion under management at December 31, 1999.
Wrap Fee Accounts. Oppenheimer Capital is actively involved in managing
wrap fee accounts, or broker sponsored asset management programs. Wrap fee
accounts have grown rapidly since their introduction, reaching nearly $6.9
billion under management at December 31, 1999. Oppenheimer Capital's success is
attributable in large part to its strong long term track record which brokers
promote in marketing.
Through wrap fee programs, brokers offer their clients discretionary
portfolio management services. The services are provided through independent
investment managers selected by the broker and the client from the broker's
approved list of managers. The broker's client investment objectives are
analyzed and an investment manager is chosen whose investment philosophy appears
to be compatible with the client's goals. The client enters into an investment
advisory agreement with the broker which has a separate master agreement with
Oppenheimer Capital. The client pays a single, all inclusive fee which covers
investment advisory services rendered, as well as custodial, execution and other
client related services performed by the broker, exclusive of exchange fees and
transfer taxes mandated by law. The broker pays Oppenheimer Capital a fee
monthly or quarterly, from the all inclusive fee collected from the client.
Oppenheimer Capital serves as wrap account manager for nineteen programs
totaling $6.9 billion under management, with approximately 68% of those assets
originated through the Salomon Smith Barney brokerage network.
Variable Annuities. Oppenheimer Capital has developed a program managing
funds which support the variable annuity products of a number of insurance
companies. Since introduction, this program has grown to nearly $2.8 billion in
assets under management at December 31, 1999.
Asset growth is being driven by a combination of market appreciation,
investment performance and the development of relationships with additional
insurance companies. Subsidiaries of PIMCO Advisors manage portfolios for the
variable annuity accounts of Pacific Life Insurance Company and other insurance
companies.
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Growth Strategy
PIMCO Advisors' strategy is to increase the amount and diversification of
its assets under management through (i) growth in the institutional market by
providing high levels of client service and entering new markets in the United
States and overseas, (ii) growth in the retail market by building brand
awareness and direct marketing of the PIMCO Funds through its broker-dealer
network and through penetrating additional distribution channels and (iii) new
product offerings to institutions and retail investors and (iv) leveraging
additional distribution and other resources of Allianz AG and its affiliates
following the closing of the pending acquisition by Allianz AG. PIMCO Advisors'
growth initiatives include:
Continued Institutional Growth. PIMCO Advisors works to build on the
strength of its institutional client base by providing high levels of client
service, penetration of new markets and new product offerings. In particular,
PIMCO Advisors is seeking to increase assets managed for overseas institutional
investors, and has offices in London, Tokyo, Singapore and Sydney. In addition,
PIMCO Advisors formed a Dublin trust as an additional vehicle for pooled
investment by foreign institutions and high net worth individuals.
Retail Base Expansion. PIMCO Advisors has commenced a significant
initiative to build its retail distribution through investing in its broker-
dealer network, increasing its participation in mutual fund "supermarkets",
expanding its presence in the 401(k) market by increasing the number of plan
sponsors offering PIMCO Advisors' investment products and building brand
awareness both at the broker-dealer level and the retail investor level through
increased marketing and public relations initiatives. In addition, PIMCO
Advisors seeks growth through building on its success in wrap fee accounts,
variable annuity programs and sponsored trust companies offering retail
investment products.
New Product Offerings. PIMCO Advisors pursues growth in both the
institutional and retail markets through offering new products. By assessing
current product offerings, working with clients and monitoring market trends,
PIMCO Advisors identifies areas for new product placement. Leveraging off the
depth and expertise of its investment professionals, PIMCO Advisors has recently
developed several new funds to enhance its product line and expects to continue
to supplement its fund offerings.
Global Expansion. PIMCO Advisors will seek to expand its business by
leveraging the distribution and other resources of Allianz AG and its affiliates
following the closing of the pending acquisition by Allianz AG.
PIMCO Advisors pursues these strategies both through internal investment
and through targeting existing investment managers and selectively acquiring or
hiring those that have demonstrated strong investment performance or provide
complementary products and investment philosophies to PIMCO Advisors' existing
investment management groups.
Competition
The investment management business is highly competitive. PIMCO Advisors
competes with a large number of other domestic and foreign investment management
firms, commercial banks, insurance companies, broker-dealers and other financial
services providers. Some of these financial services companies have greater
resources, assets under management and administration than PIMCO Advisors and
offer a broader array of investment products and services.
PIMCO Advisors believes that the most important factors affecting its
success are the abilities, performance records and reputations of its investment
managers, and the development of new investment and marketing strategies. The
relative importance of these factors varies depending on the type of investment
management service involved. Client service is also an important competitive
factor. PIMCO Advisors' ability to increase and retain client assets could be
adversely affected if client accounts underperform the market over time or if
key investment managers leave the firms. The ability of PIMCO Advisors to
compete with other investment management firms is also dependent, in part, on
the relative attractiveness of their investment philosophies and methods under
prevailing
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market conditions. There are relatively few barriers to entry by new investment
management firms in the institutional managed accounts business, which increases
competitive pressure.
A large number of mutual funds are sold to the public by investment
management firms, broker-dealers, insurance companies and banks in competition
with mutual funds sponsored by PIMCO Advisors. Many competitors apply
substantial resources to advertising and marketing their mutual funds which may
adversely affect the ability of PIMCO Advisors sponsored funds to attract new
retail clients and to retain retail assets under management.
Regulation
PIMCO Advisors, Pacific Investment Management Company, Oppenheimer Capital
and its other investment management subsidiaries are investment advisers
registered under the Investment Advisers Act of 1940. Each of the PIMCO Funds is
registered with the Securities and Exchange Commission ("SEC") under the
Investment Company Act of 1940. PFD and OCC Distributors are registered with the
SEC as broker-dealers. All aspects of PIMCO Advisors' business are subject to
various federal and state laws and regulations and to the laws of foreign
countries in which PIMCO Advisors' affiliates conduct business.
Fee Revenues
General Characteristics
Investment management agreements between PIMCO Advisors' investment
management groups and their clients typically provide for fees based on a
percentage of the assets under management, generally determined at least
quarterly and valued at current market levels. The percentage of the fee
applicable to a particular classification of assets under management is a
function of several factors. For example, investments or strategies which have a
higher degree of risk and uncertainty command a higher percentage fee.
Therefore, significant fluctuations in securities prices or in the investment
patterns of clients that result in shifts in assets under management can have a
material effect on PIMCO Advisors' consolidated revenues and profitability. Such
fluctuations in asset valuations and client investment patterns may be affected
by overall economic conditions and other factors influencing the capital markets
and the net sales of mutual fund shares generally, including interest rate
fluctuations. Virtually all of PIMCO Advisors' revenues are derived from
investment management agreements with clients that are terminable at any time or
upon 30 to 60 days' notice, as is the case generally in the investment
management industry. In general these investment management agreements may not
be assigned without the consent of the client.
In connection with the transactions with Allianz, PIMCO Advisors has agreed
to notify, and to cause each of its subsidiaries that is a registered investment
adviser to notify, their respective clients of the transactions contemplated by
the merger agreement and to use its reasonable best efforts to obtain, prior to
the closing, the consent of those clients to the assignment of its advisory
agreement. The registered investment company clients, have each scheduled
meetings of the shareholders to approve the assignment of the related advisory
agreement which will occur in connection with the transactions with Allianz of
America. Any termination of agreements representing a significant portion of
assets under management could have an adverse impact on PIMCO Advisors' results
of operations.
The investment management business is highly competitive and fees vary
among investment managers. Some of PIMCO Advisors' investment management groups'
fees are higher than those of many investment managers relative to the average
size of accounts under management. Each investment manager's ability to maintain
its fee structure in the competitive environment is dependent to a large extent
on the ability of its investment managers to provide clients with service and
investment returns that will cause clients to be willing to pay those fees.
There can be no assurance that PIMCO Advisors' investment management groups will
be able to retain their clients or sustain their fee structures in the future.
11
<PAGE>
Performance Based Fees
Approximately 1.8%, 4.1% and 4.5% of PIMCO Advisors' revenues (as adjusted
to combine with the revenues of Oppenheimer Capital in 1997) for the years ended
December 31, 1999, 1998 and 1997, respectively, were derived from performance
based fees. Most of these revenues are attributable to Pacific Investment
Management's operations. To earn a performance based fee with respect to an
account, the relevant investment manager must generally outperform a specific
benchmark over a particular period. Performance based fee arrangements make
revenues more volatile, but also provide an opportunity to earn higher fees than
could be obtained under fee arrangements based solely on a percentage of assets
under management. Pacific Investment Management's StocksPLUS product, which
accounted for approximately $20 billion of assets under management at December
31, 1999, is generally subject to a performance based arrangement in which under
performance relative to the S&P 500 over a particular time period results in no
fees being paid by clients, while superior performance results in incentive fees
that are generally not subject to a cap. In addition to the StocksPLUS accounts,
several fixed income accounts aggregating approximately $16.5 billion at
December 31, 1999, also have performance based fee arrangements. Pacific
Investment Management's performance based fee arrangements, including the
StocksPLUS fee arrangement, can materially affect Pacific Investment
Management's revenues, and thus those of PIMCO Advisors, from period to period.
Employees
As of December 31, 1999, PIMCO Advisors and its subsidiaries employed 1,130
employees.
Item 2. Properties
The principal offices of PIMCO Holdings and PIMCO Advisors are located at
(i) 800 Newport Center Drive, Newport Beach, California where they occupy
approximately 16,000 square feet of space under a lease expiring in 2005, and
(ii) 2187 Atlantic Street, Stamford, Connecticut where PIMCO Advisors and PFD
occupy approximately 17,200 square feet of space under a sublease expiring in
2002.
Pacific Investment Management's principal offices are located at 800 and
840 Newport Center Drive, and 1200 and 1400 Newport Center Drive, Newport Beach,
California where it occupies approximately 95,000 square feet of space under
leases expiring 2005.
Oppenheimer Capital's principal offices are located at the 46th through the
50th floors of 1345 Avenue of the Americas, New York, New York, where it
occupies approximately 180,000 square feet. This office space houses the
operations of Oppenheimer Capital and PIMCO Equity Advisors. The lease for this
facility expires in 2016.
Subsidiaries of PIMCO Advisors also lease space in Boston, Chicago, Dallas,
London, New York City, Seattle, Singapore, Sydney, Tampa and Tokyo. Each
location is a modern office building and the space is adequate for PIMCO
Holdings', PIMCO Advisors' and its subsidiaries current operations.
Item 3. Legal Proceedings
Following the announcement of the execution of the Implementation and
Merger Agreement with Allianz of America, Inc. several purported class action
complaints were filed in the Court of Chancery for the County of New Castle,
against William D. Cvengros, Kenneth M. Poovey, Robert M. Fitzgerald, PIMCO
Partners, G.P., PIMCO Advisors Holdings L.P., Pacific Mutual Holding Company and
Allianz AG (collectively the "Defendants") including Doris Tarnoff v. Defendants
(Delaware Court of Chancery, New Castle County Civil Action No. 17511NC), Aaron
- ------------------------------------------------------------------------
Rosenberg v. Defendants (Delaware Court of Chancery, New Castle County Civil
----------------------------------------------------
Action No. 17512NC), Myron Ruderman v. Defendants (Delaware Court of Chancery,
- ------------------- ----------------------------
New Castle County Civil Action No. 17513NC), Craig Benson v. Defendants
- -------------------------------------------
(Delaware Court of Chancery, New Castle County Civil Action No. 17514NC), and
- ------------------------------------------------------------------------
John Sage v. Defendants (Delaware Court of Chancery, New Castle County Civil
----------------------------------------------------
Action No. 17515NC). In addition a purported class action was filed in the
- -------------------
Superior Court of Orange County California,
12
<PAGE>
Harriet Rand v. PIMCO Advisors Holdings L.P., William D. Cvengros, Kenneth M.
Poovey, Robert M. Fitzgerald, PIMCO Partners, G.P., Pacific Mutual Holding
Company and Allianz AG (Orange County Superior Court, Case No. 816621 November
-------------------------------------------------------
3, 1999).
- ---------
The complaints allege, among other things, various breaches of fiduciary
duty, conflicts of interest and unfair dealing in connection with the
Implementation and Merger Agreement with Allianz of America, Inc. and the
transactions contemplated thereby. The complaints seek compensatory and/or
rescissionary money damages or, alternatively, injunctive relief or rescission
of the transaction.
PIMCO Holdings has agreed to settle the class actions. The settlement does
not involve any change in the $38.75 price per unit which is payable in
connection with the transaction, however it does amend certain terms of the
transaction including the amount of any potential reduction to that per unit
price. The settlement is contingent upon, among other things, court approval.
Parties to those actions have entered into a Memorandum of Understanding which
provides certification of a settlement class and the terms of a settlement of
the Delaware action. The proposed settlement provides that the terms of the
Allianz transaction will be revised such that the purchase price payable to the
public unitholders will be reduced by 1.8% instead of 2% for each 1% that PIMCO
Advisors' revenue base declines, for reasons other than market movements, to
less than 85% of its September 30, 1999 level, subject to a maximum reduction of
18% (instead of the original 20%) or a minimum purchase price of $31.78 per unit
(instead of the original $31.00 per unit). The proposed settlement provides that
PIMCO Holdings will publicly report, prior to closing, its current revenue base
in relation to its September 30, 1999 revenue base. The proposed settlement also
reduces the "break-up" fee to be paid by PIMCO Holdings and certain other
affiliated parties in the event of certain terminations of the Merger Agreement
from $180 million to $120 million. In addition, the proposed settlement provides
that the proxy statement will contain certain additional disclosure. Allianz has
agreed to bear the cost of counsel fees and expenses of the settlement class as
may be awarded by the court in an amount not to exceed $1,500,000 contingent on
the closing of the transactions contemplated by the Merger Agreement.
Item 4. Submission of Matters to a Vote of Security Holders
None.
13
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
Until December 31, 1997, PIMCO Holdings units (formerly Oppenheimer
Capital, L.P. units) were traded on the New York Stock Exchange ("NYSE") under
the symbol "OCC" and the PIMCO Advisors Class A limited partner units were
traded on the NYSE under the symbol "PA." Commencing January 1, 1998, following
the combination of the public ownership of PIMCO Holdings and PIMCO Advisors,
the PIMCO Advisors Class A units are no longer publicly traded and PIMCO
Holdings units are traded on the NYSE under the symbol "PA."
The following table sets forth the high and low sales prices for
Partnership units for the periods indicated, as reported on the New York Stock
Exchange, and the quarterly cash distributions per unit declared, for the
periods indicated. On July 6, 1999, the day before the press first reported
discussions between the Partnership and Allianz AG, the units of limited
partnership interest in the Partnership, closed at $29.56. On October 4, 1999,
the date prior to the announcement of those discussions by the Partnership, the
units of limited partnership interest closed at $30.50. On October 29, 1999, the
last trading day prior to the execution of the merger agreement, the units of
limited partnership interest closed at $34.69 per unit.
<TABLE>
<CAPTION>
Price Range of units(2)
PIMCO HOLDINGS UNITS ----------------------- Distributions
(formerly Oppenheimer Capital, L.P. units High Low Paid(1)
prior to January 1, 1998) --------- ----------- -------------
<S> <C> <C> <C>
Fiscal 1997 (ended April 30, 1997(1))
First Quarter........................................ $17.875 $15.750 $.389
Second Quarter....................................... 20.750 16.625 .449
Third Quarter........................................ 22.375 19.375 .569
Fourth Quarter....................................... 22.375 19.250 .689
Fiscal 1997 (partial year ended December 31, 1997(1))
First Quarter........................................ $25.875 $21.500 $.569
Second Quarter....................................... 34.625 26.750 .569
Third Quarter........................................ 32.563 28.188 .904
Fiscal 1998 (ended December 31, 1998)
First Quarter........................................ $35.938 $29.375 $.580
Second Quarter....................................... 34.500 29.750 .530
Third Quarter........................................ 35.375 25.438 .530
Fourth Quarter....................................... 32.875 24.250 .550
Fiscal 1999
First Quarter........................................ $32.563 $27.625 $.570
Second Quarter....................................... 31.500 26.500 .580
Third Quarter........................................ 38.000 29.125 .580
Fourth Quarter....................................... 37.750 30.000 .600
</TABLE>
____________________
(1) On December 1, 1997, PIMCO Holdings changed its fiscal year end to December
31. The information displayed in the chart through December 31, 1997 is
based on a fiscal year end of April 30. Information after December 31, 1997
is based on a fiscal year end of December 31.
(2) PIMCO Holdings' unit prices and distributions prior to December 1, 1997
have been restated to reflect the 1.67-for-one unit split effective as of
that date.
On March 15, 2000, the closing price of PIMCO Holdings' units was $38.375
per unit and there were approximately 1,504 holders of record of Partnership
units. There is no known restriction on PIMCO Holdings' ability to make
distributions to its unitholders other than the availability of sufficient funds
and the terms of the PIMCO Holdings partnership agreement.
14
<PAGE>
Distribution Policy
PIMCO Holdings' policy is to distribute substantially all of its net cash
flow on an annual basis subject to establishment of appropriate reserves.
Distributions are declared and paid to unitholders of record on March 31, June
30, September 30 and December 31 of each year within thirty days following the
end of each calendar quarter. Because PIMCO Holdings' sole business is to hold
an investment as a general partner of PIMCO Advisors, the cash flow of PIMCO
Holdings consists of distributions from PIMCO Advisors. The Amended and Restated
Agreement of Limited Partnership of PIMCO Advisors Holdings L.P., as amended
(the "PIMCO Holdings Partnership Agreement") requires the general partner of
PIMCO Holdings to declare quarterly distributions to the record holders of PIMCO
Holdings units (the "Unitholders") in an amount equal to the cash distributions
from PIMCO Advisors, less expenses and reserves. Because PIMCO Advisors
currently pays all expenses of PIMCO Holdings other than taxes, PIMCO Holdings'
per unit distributions generally equal the PIMCO Advisors distributions less
applicable taxes.
PIMCO Advisors distributes on an annual basis cash in an amount equal to
Operating Profit Available for Distribution (as defined in the Amended and
Restated Agreement of Limited Partnership of PIMCO Advisors L.P. (the "PIMCO
Advisors Partnership Agreement")) less any amount deemed appropriate for capital
expenditures, future payments of indebtedness, as reserves or otherwise in the
business of PIMCO Advisors. The Management Board of PIMCO Advisors declares
distributions on a quarterly basis.
Actual distribution levels will depend on the financial performance of
PIMCO Advisors, and there can be no assurance that the recent distribution rates
will continue to be achieved. Distributions made by PIMCO Holdings will depend
on the profitability of the investment management business of PIMCO Advisors,
which is affected in part by overall economic conditions and other factors
affecting capital markets generally, which are beyond the control of PIMCO
Holdings and PIMCO Advisors. In addition, the general partners of PIMCO Advisors
may, in determining the amount of distributions, deduct any amount from
Operating Profit Available for Distribution the general partners deem may be
required for capital expenditures, reserves or otherwise in the business of
PIMCO Advisors. To the extent PIMCO Advisors or PIMCO Holdings retains profits
in any year, unitholders may have taxable income from PIMCO Holdings that
exceeds their cash distributions.
Item 6. Selected Consolidated Financial Data
The following tables set forth summary financial data of PIMCO Holdings
(retroactively restated to reflect a 1.67 for 1 unit split effective December 1,
1997) for the years ended December 31, 1999 and 1998, for the eight-months ended
December 31, 1997 and for each of the three years ended April 30, 1997. The
table also sets forth summary financial data for Oppenheimer Capital for the
eight-months ended December 31, 1997, and for each of the three years ended
April 30, 1997 and selected consolidated financial data of PIMCO Advisors for
each of the five years ended December 31, 1999. In the fourth quarter of 1997,
PIMCO Advisors acquired Oppenheimer Capital, and PIMCO Holdings investment in
Oppenheimer Capital was exchanged for an interest in PIMCO Advisors.
Accordingly, PIMCO Advisors data includes the performance of Oppenheimer Capital
from November 4, 1997, and PIMCO Holdings data consists of the performance of
PIMCO Advisors from December 1, 1997. In addition, PIMCO Advisors and its
subsidiaries were formed on November 15, 1994, when Pacific Asset Management LLC
merged certain of its investment management businesses and substantially all of
its assets (the "PFAMCo Group") into Thomson Advisory Group L.P. ("TAG LP") (the
"Consolidation"). Under generally accepted accounting principles, the
Consolidation was accounted for as an acquisition of TAG LP by PFAMCo Group.
Therefore, the historical financial statements of PIMCO Advisors include the
operations of PFAMCo Group, in its corporate form, prior to the Consolidation
and the combined results of PIMCO Advisors in its partnership form, for the
period since the Consolidation. This information should be read in conjunction
with the financial statements of PIMCO Advisors Holdings L.P., the consolidated
financial statements of PIMCO Advisors L.P. and the consolidated financial
statements of Oppenheimer Capital, and the related notes thereto included
elsewhere in this report on Form 10-K and "Management's Discussion and Analysis
of Financial Condition and Results of Operations of PIMCO Advisors Holdings
L.P."
15
<PAGE>
<TABLE>
<CAPTION>
PIMCO Advisors Holdings L.P.
----------------------------
For the Year For the Year For the
Ended Ended Eight-months For The Years Ended April 30,
December 31, December 31, Ended December 31, ----------------------------------------
1999 1998 1997 1997 1996 1995
---------------- ----------------- ------------------ ------------- ------------- --------
<S> <C> <C> <C> <C> <C> <C>
(Amounts in thousands, except per unit amounts)
Statements of Operations Data:
Revenues....................... $ 90,066 $ 90,682 $ 45,737(3) $ 56,046(1) $ 61,316(1) $34,282
Expenses....................... 15,775 14,537 1,605 2,720 2,720 3,461
-------- -------- ---------- --------- --------- -------
Net income..................... 74,291 $ 76,145 $ 44,132(3) $ 53,326(1) $ 58,596(1) $30,821
======== ======== ========== ========= ========= =======
Diluted Net Income per unit.... $ 1.43 $ 1.52 $ 1.68 $ 2.04 $ 2.27 $ 1.21
======== ======== ========== ========= ========= =======
Distributions declared
per unit...................... $ 2.36 $ 2.18 $ 2.05(4) $ 2.10(2) $ 1.90(2) $ 1.30
======== ======== ========== ========= ========= =======
Weighted average number of
units outstanding............. 49,193 47,257 25,768 25,663 25,457 25,277
Financial Condition at
End of Period:
Total assets................... $488,701 $503,996 $ 438,964 $ 116,149 $ 110,099 $96,633
Total liabilities.............. 32,563 42,377 30,627 17,858 12,713 10,321
-------- -------- ---------- --------- --------- -------
Partners' capital.............. $456,138 $461,619 $ 408,337 $ 98,291 $ 97,386 $86,312
======== ======== ========== ========= ========= =======
- ------------------
</TABLE>
(1) Includes revenues and a non-recurring gain of $1.8 million, or $.07 per
unit in fiscal 1998 and $17.7 million, or $.69 per unit in fiscal 1997.
(2) Includes a special distribution related to the non-recurring gain of $.06
per unit in fiscal 1998 and $.33 per unit in fiscal 1997.
(3) Includes revenues and a non-recurring gain of $2.8 million, or $.11 per
unit.
(4) Includes a special distribution related to the non-recurring gain of $.07
per unit.
<TABLE>
<CAPTION>
PIMCO Advisors L.P.
For the Years Ended December 31,
---------------------------------------------------------------
1999 1998 1997 1996 1995
----------- ----------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C>
Statements of Operations Data:
Total revenues................................................... $ 960,618 $ 852,432 $ 516,669 $392,024 $323,014
Operating expenses............................................... 686,660 571,458 347,453 261,978 215,271
Amortization of intangibles, options and restricted units........ 89,033 80,805 51,676 41,171 42,723
---------- ---------- ---------- -------- --------
Operating income................................................. $ 184,925 $ 200,169 $ 117,540 $ 88,875 $ 65,020
========== ========== ========== ======== ========
Net Income....................................................... $ 205,700 $ 208,376 $ 118,330 $ 91,128 $ 68,467
========== ========== ========== ======== ========
Diluted Net Income Per Unit (1):
General Partner and Class A Limited Partner units................ $ 1.75 $ 1.83 $ 1.45 $ 1.29 $ 1.16
========== ========== ========== ======== ========
Distributions Declared (2):...................................... $ 304,651 $ 271,345 $ 208,713 $131,604 $ 89,613
========== ========== ========== ======== ========
Financial Condition at End of Period:
Total assets (3)................................................. $1,523,473 $1,412,038 $1,334,884 $358,500 $369,592
Total liabilities................................................ 477,132 352,951 280,819 62,257 38,035
---------- ---------- ---------- -------- --------
Partners' capital................................................ $1,046,341 $1,059,087 $1,054,065 $296,243 $331,557
========== ========== ========== ======== ========
Other Statistics:
Assets under management (in billions)............................ $ 260.6 $ 244.2 $ 199.5 $ 110.0 $ 95.2
Operating Profit Available for Distribution (1).................. $ 294,218 $ 289,191 $ 173,166 $132,314 $111,205
- ------------------
</TABLE>
(1) Computed on earnings following the Consolidation. Operating Profit
Available for Distribution is defined by the PIMCO Advisors Partnership
Agreement as the sum of net income plus non-cash charges from the
amortization of intangible assets, non-cash compensation expenses arising
from option and restricted unit plans, and losses of any subsidiary which
is not a flow- through entity for tax purposes.
(2) PIMCO Advisors accelerated its distribution declaration record date by
one-month effective December 31, 1998, thus 1998 reflects five quarterly
declarations.
(3) Upon completion of the acquisition of Oppenheimer Capital, approximately
$897.5 million of intangible assets were recorded. See Note 3 in the Notes
to the Consolidated Financial Statements of PIMCO Advisors L.P. and
Subsidiaries.
16
<PAGE>
<TABLE>
<CAPTION>
For the
Eight-months Ended For The Years Ended April 30
December 31, ------------------------------------
1997 1997 1996 1995
------------------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
(Amounts in thousands)
Statements of Operations Data:
Revenues................................................. $148,937 $181,974 $ 158,215 $129,912
Expenses................................................. 83,951 103,064 95,551 83,066
-------- -------- ---------- --------
Operating income......................................... 64,986 78,910 62,664 46,846
Gain on Quest sale....................................... 4,374(1) 2,806(2) 27,725(2) --
-------- -------- ---------- --------
Income before income tax expense and minority interest $ 69,360 $ 81,716 $ 90,389 $ 46,846
======== ======== ========== ========
Financial Condition at End of Period:
Total assets............................................. $ 86,236 $ 93,019 $ 76,338 $ 56,129
Total liabilities........................................ 38,654 53,044 41,462 41,582
Minority interest........................................ 213 277 174 87
-------- -------- ---------- --------
Partners' capital........................................ $ 47,369 $ 39,698 $ 34,702 $ 14,460
======== ======== ========== ========
Other Statistics:
Assets under management (in billions).................... $ 61.4 $ 51.2 $ 40.6 $ 31.8
- ------------------
</TABLE>
(1) Reflects the gain realized on the sale of the investment advisory and other
contracts and business relationship of the Quest Dual Purpose Fund to
OppenheimerFunds, Inc. in July 1997.
(2) Reflects the gain realized on the sale of the investment advisory and other
contracts and business relationship for the twelve Quest for Value mutual
funds to OppenheimerFunds, Inc. in November 1995.
17
<PAGE>
Item 7. Management's Discussion and Analysis Of Financial Condition And Results
of Operations of PIMCO Advisors Holdings L.P.
General
PIMCO Advisors Holdings L.P. ("PIMCO Holdings") (formerly Oppenheimer
Capital, L.P.) is a publicly traded Delaware limited partnership owned .01% by
its general partner, PIMCO Partners, G.P. and 99.99% by its public limited
partners ("Unitholders"). Until November 30, 1997, PIMCO Holdings' primary
sources of income were its proportionate (67%) share of the net income of
Oppenheimer Capital, an equity oriented investment management firm, and interest
income from a 10%, $32.2 million note receivable (the "Equities Note") from an
affiliate. As a result of the acquisition of Oppenheimer Capital by PIMCO
Advisors L.P. ("PIMCO Advisors") described below, commencing December 1, 1997,
PIMCO Holdings primary source of income has been its proportionate share of the
net income of PIMCO Advisors. As of December 31, 1999, PIMCO Holdings held
approximately 49.7 million general partner units of PIMCO Advisors, representing
a 44% general partner interest in PIMCO Advisors. PIMCO Partners, G.P. and other
private holders hold the remaining interest in PIMCO Advisors. PIMCO Partners,
G.P. is the sole general partner of PIMCO Holdings.
PIMCO Advisors is one of the largest investment management firms in the
United States with approximately $260.6 billion under management at December 31,
1999. PIMCO Advisors provides high quality fixed income and equity investment
management to institutional and retail clients, offering the investment
management expertise, performance record and reputations of its institutional
investment managers, which include the fixed income oriented Pacific Investment
Management Company and the equity oriented Oppenheimer Capital.
The financial condition and results of operations of PIMCO Advisors are
discussed below under "PIMCO ADVISORS L.P."
Proposed Acquisition of a Controlling Interest in PIMCO Advisors
On October 31, 1999 PIMCO Advisors announced that it had reached a
definitive agreement with Allianz AG. (Allianz), a large German insurance and
asset management company, whereby Allianz would acquire all of the outstanding
equity interests of PIMCO Advisors, except those controlled by Pacific Life
Insurance Company (PAC Life). This acquisition would include the approximate 44%
stake held by held by PIMCO Holdings, as well as the approximate 26% stake held
by management, insiders and other private parties.
The acquisition is expected to close in the second quarter of 2000. PIMCO
Advisors, and thus PIMCO Holdings because of its 44% ownership interest in PIMCO
Advisors, expects to incur substantial costs in obtaining client, regulatory and
unitholder approvals of this transaction. While all of the costs of obtaining
unitholder approval are to be borne equally by PAC Life and Allianz, PIMCO
Advisors will be responsible for 100% of its professional advisory fees and 50%
of the costs of soliciting approvals of its mutual fund clients. The portion of
all such costs to be borne by PIMCO Advisors is expected to approximate $15 to
$20 million, or $0.14 to $0.18 per unit, of which approximately $5.5 million, or
$0.04 per unit, had been incurred and recognized as of December 31, 1999. The
remainder of any actual costs will be recognized as incurred in the first
and second quarters of 2000 and will adversely impact the distribution payable
to unitholders of record for those quarters. These costs are the responsibility
of, and will be incurred by, PIMCO Advisors, whether or not the transaction is
actually consummated. If the transaction is consummated as and when planned,
unitholders will receive $38.75 in cash for each unit owned (such price subject
to downward adjustment upon certain occurrences), and will be entitled to
receive the 1st quarter distribution declared in March of 2000 and a special
distribution in respect of the period from April 1st through the closing.
Combination of Oppenheimer Capital and PIMCO Advisors
On November 4, 1997, PIMCO Advisors acquired Oppenheimer Group, Inc.
("Opgroup"), whose subsidiary Oppenheimer Financial Corp. ("Opfin") owned the
32.4% managing general partner interest in Oppenheimer Capital and the one
percent general partner interest in PIMCO Holdings. In the transaction, Opgroup
became a subsidiary of PIMCO Advisors, and the Opgroup stockholders received 2.1
million PIMCO Advisors Class A units
18
<PAGE>
and rights to exchange up to $230 million of outstanding term notes of Opgroup
for an additional 6.9 million PIMCO Advisors Class A units at $33 1/3 per unit.
In connection with the transaction, PIMCO Advisors split the one percent general
partner interest in PIMCO Holdings into a .01% general partner interest and a
.99% limited partner interest, and sold the general partner interest to its
general partner.
On November 30, 1997, Oppenheimer Capital merged with a subsidiary of PIMCO
Advisors, with Oppenheimer Capital surviving (the "OpCap Merger"). In the OpCap
Merger, PIMCO Advisors acquired from PIMCO Holdings its 67.6% general partner
interest in Oppenheimer Capital in exchange for 26.1 million PIMCO Advisors
Class A units, an approximate 24% general partner interest in PIMCO Advisors. As
a result, Oppenheimer Capital became a wholly-owned subsidiary of PIMCO
Advisors, and the limited partner units of PIMCO Holdings came to represent an
indirect investment in the business of PIMCO Advisors. On December 1, 1997,
PIMCO Holdings effected a 1.67 for 1 split of the PIMCO Holdings units, so that
each PIMCO Holdings unit outstanding after the split represented an economic
interest in one PIMCO Advisors unit.
On December 31, 1997, PIMCO Advisors caused its 19.5 million publicly held
units to be contributed to PIMCO Holdings in exchange for an equal number of
PIMCO Holdings units. As a result, PIMCO Advisors ceased to be publicly traded,
and PIMCO Holdings' general partner interest in PIMCO Advisors increased to
approximately 43%.
Prior to the OpCap Merger, PIMCO Holdings reported its results of
operations and its financial position based on an April 30 fiscal year end. Upon
completion of the OpCap Merger, PIMCO Holdings changed its fiscal year to a
calendar year to correspond with that of PIMCO Advisors. Accordingly, the period
ending December 31, 1997 is a "stub" reporting period, eight-months in total,
consisting of two three-month periods and one two-month period.
Pro Forma Financial Information
Because of the different ownership interests during the historical
reporting periods and the different elapsed times of the historical reporting
periods, management has included below certain pro forma financial information
as if the above discussed Oppenheimer Capital related transactions had been
completed as of January 1, 1996. Pro forma results eliminate the significant
comparative differences in the historical results of operations arising
primarily from the inclusion of 67% of Oppenheimer Capital's stand alone results
prior to November 30, 1997 as compared with 24% of the consolidated results of
PIMCO Advisors for December of 1997 and 43-44% of such activities after December
31, 1997, and from certain events effected in the transactions principally
related to the creation and amortization of intangible assets.
The following table summarizes the audited 1999 and 1998 condensed actual
results of PIMCO Holdings and PIMCO Advisors since completion of the above
discussed acquisition transactions and the unaudited 1997 condensed pro forma
results of operations of PIMCO Holdings and PIMCO Advisors as if the above
discussed acquisition transactions had been completed on January 1, 1996.
19
<PAGE>
<TABLE>
<CAPTION>
PIMCO Advisors Holdings L.P.
For the Years Ended
December 31,
-----------------------------------------------------
1999 1998 1997
-------------- ---------------- -----------------
(Actual) (Actual) (Pro forma)
(in millions)
<S> <C> <C> <C>
REVENUES
Equity in earnings of
PIMCO Advisors $90.1 $90.7 $66.0
----- ----- -----
NET INCOME $74.3 $76.1 $66.0
===== ===== =====
Basic Net Income per Unit $1.51 $1.61 $1.44
===== ===== =====
Diluted Net Income per Unit $1.43 $1.52 $1.39
===== ===== =====
<CAPTION>
PIMCO Advisors L.P.
For the Years Ended
December 31,
-----------------------------------------------------
1999 1998 1997
-------------- ----------------- ----------------
(Actual) (Actual) (Pro forma)
(in millions)
<S> <C> <C> <C>
REVENUES $960.6 $852.4 $704.8
------ ------ ------
EXPENSES
Compensation and related 393.1 359.6 295.9
Other operating expenses 272.8 203.6 148.4
Amortization of intangibles and restricted units 89.0 80.8 103.2
------ ------ ------
Total 754.9 644.0 547.5
------ ------ ------
NET INCOME $205.7 $208.4 $157.3
====== ====== ======
Basic Net Income per Unit $ 1.83 $ 1.92 $ 1.44
====== ====== ======
Diluted Net Income per Unit $ 1.75 $ 1.83 $ 1.39
====== ====== ======
Assets Under Management: (in billions)
Beginning of period $244.2 $199.5 $158.2
End of period $260.6 $244.2 $199.5
</TABLE>
The foregoing pro forma operating results give effect to:
(i) Conversion of PIMCO Holdings to a calendar year reporting basis;
(ii) The issuance of 2.1 million PIMCO Advisors Class A units in connection
with the acquisition of the privately held 33% interest in Oppenheimer
Capital which occurred on November 4, 1997 ("Opgroup Transaction");
(iii) The assumed exchange of $230 million of previously existing
exchangeable debt for an additional 6.9 million PIMCO Advisors Class A
units, of which $149.5 million had been exchanged as of December 31, 1999;
20
<PAGE>
(iv) The contribution of the 67% interest in Oppenheimer Capital by PIMCO
Holdings for 26.1 million PIMCO Advisors Class A units which occurred on
November 30, 1997 in the OpCap Merger;
(v) The addition of approximately $897.5 million of intangible assets at
PIMCO Advisors which arose on November 4, 1997 as a result of the OpCap
Merger and which will be amortized over 20 years;
(vi) The issuance of approximately 2.2 million restricted unit rights
resulting in a deferred compensation charge of $67.8 million to be
amortized over a 5 year period that occurred on November 4, 1997;
(vii) The elimination of the priority distribution structure related to
pre-December 31, 1997 rights of PIMCO Advisors Class A units; and
(viii) The repayment of the Equities Note in November, 1997 and the
resulting elimination of interest income and related expense.
This pro forma information is not intended to reflect the results that
actually would have been obtained if the operations were consolidated during the
periods presented, nor is it an indication of future results.
PIMCO ADVISORS HOLDINGS L.P.
Comparative Results of Operations
Year ended December 31, 1999 actual results compared to year ended December 31,
1998 actual results
PIMCO Holdings realized $90.1 million as its proportionate share of
earnings of PIMCO Advisors (approximately 44%) as compared with $90.7 million in
1998. This was the result of owning a marginally larger average percentage in
the decreased net income of PIMCO Advisors. This decrease in net income arose in
spite of a $108.2 million, or 12.7%, increase in revenues influenced
predominantly by a 6.7% increase in managed assets as of the end of the
respective periods. This increase was completely offset by increases in
operating costs, including a non-recurring charge of $19.4 million in the first
quarter of 1999 which related to the consolidation of Oppenheimer Capital's
operations into a single new facility and for severance costs primarily related
to changes in its senior management. This non-recurring charge was reflected as
$0.5 million in compensation and benefits; $10.5 million in amortization of
restricted unit and option plans; $5.4 million in occupancy and equipment; and
$3.0 million in general and administrative expenses.
There were two smaller non-recurring items during the year as well
including $3.9 million of gain in the second quarter related to the sale of
Blairlogie Capital Management (Blairlogie) and a $5.5 million charge in the
fourth quarter related to transaction costs incurred in connection with the
pending acquisition by Allianz AG.
The increase in PIMCO Advisors' managed assets aggregated $16.4 billion in
1999 which was comprised of $13.7 billion of net cash inflows (exclusive of $5.2
billion of assets sold with Columbus Circle Investors (CCI) and (Blairlogie) and
$7.9 billion of net market appreciation. There can be no assurances that future
cash flows or market activity will occur at the rates experienced in recent
years.
The operating expenses of PIMCO Advisors in 1999 include compensation and
related costs, which increased $33.5 million or 9.3% in comparison to the prior
year; other operating expenses, which increased $69.2 million or 34.0% in
comparison to the prior year and amortization of intangibles and restricted
units and options, which increased $8.2 million or 10.1% in comparison to the
prior year. Compensation and related costs are heavily influenced by increased
revenues because a substantial portion of such costs reflect participation by
key employees in the profitability of the investment advisor subsidiaries. Other
operating costs include occupancy and other costs and tend to normally grow at a
slower rate than revenues, however, as discussed below under "PIMCO Advisors
L.P.", the non-recurring charge, as well as the expansion of marketing programs
and increased sales activity at PIMCO Funds Distributors LLC ("PFD") increased
this cost category by nearly $36.2 million in 1999, while increases in occupancy
and other costs accounted for the balance.
21
<PAGE>
The amortization of intangibles and restricted units and options in 1997
includes a charge of approximately $25.8 million related to the complete
amortization as of December 31, 1997 of the intangible value (approximately
$80.7 million) of PIMCO Advisors' master limited partnership ("MLP") structure,
originally scheduled to expire on December 31, 1997. The increase in 1999 of
$8.2 million is predominantly caused by an acceleration of $10.5 million of
deferred compensation costs in connection with the non-recurring charge
discussed above, partially offset by the complete amortization in 1998 of
deferred compensation awards given in 1994.
Under the change in the tax laws enacted in August of 1997, PIMCO Holdings
has elected to continue to be treated as a publicly traded partnership, subject
to a 3.5% federal tax on allocable gross income from active businesses, however,
there will be no specific intangible amortization related to this structure in
the future. Based upon current operating margins, it is expected that the
federal tax will normally amount to an approximate 15% to 17% reduction in
otherwise reportable net income and an 11% to 12% reduction in cash flow
otherwise available for distribution. Because the tax is a function of allocable
operating revenue, these effective rates were higher in 1999 when PIMCO Advisors
recognized the non-recurring charges discussed above. This tax amounted to
approximately $16.0 million in 1999 and $14.7 million in 1998 at PIMCO Holdings.
Net income of PIMCO Holdings for 1999 amounted to $74.3 million, or $1.43
diluted earnings per unit, based upon an average of 49.2 million units
outstanding for 1999 and $76.1 million, or $1.52 diluted earnings per unit,
based upon an average of 47.3 million units outstanding in 1998.
Year ended December 31, 1998 actual results compared to year ended December 31,
1997 pro forma results:
PIMCO Holdings realized $90.7 million as its proportionate share of
earnings of PIMCO Advisors (approximately 44%) as compared with $66.0 million
pro forma in 1997, an increase of $24.7 million or 37.4%. This increase was
principally the result of a comparable increase in the net income of PIMCO
Advisors, resulting from a $147.6 million, or 20.9%, pro forma increase in
revenues influenced predominantly by a 22.4% increase in managed assets as of
the end of the respective periods.
The increase in PIMCO Advisors' managed assets aggregated $44.7 billion in
1998, which was comprised of $21.0 billion of net cash inflows and $23.7 billion
of net market appreciation. There can be no assurances that future cash flows or
market activity will occur at the rates experienced in recent years.
The operating expenses of PIMCO Advisors in 1998 include compensation and
related costs, which increased a pro forma $63.7 million or 21.5% in comparison
to the prior year; other operating expenses, which increased a pro forma $55.2
million or 37.2% in comparison to the prior year and amortization of intangibles
and restricted units and options, which decreased a pro forma $22.4 million or
21.7% in comparison to the prior year. Compensation and related costs are
heavily influenced by increased revenues because a substantial portion of such
costs reflect participation by key employees in the profitability of the
investment advisor subsidiaries. Other operating costs include occupancy and
other costs and tend to grow at a slower rate than revenues, however, as
discussed below under "PIMCO Advisors L.P.", the expansion of marketing programs
and increased sales activity at PIMCO Funds Distributors LLC ("PFD") increased
this cost category by nearly $25 million in 1998, while increases in occupancy
and other costs accounted for the balance.
Taxes
PIMCO Holdings is not subject to federal, state, or local income taxes,
which are the obligations of the individual partners. However, beginning in
calendar year 1998, PIMCO Holdings elected to be subject to a 3.5% federal tax
on its share of PIMCO Advisors gross income from the active conduct of a trade
or business in order to retain its partnership status. The imposition of these
taxes will reduce both net income and cash available for distribution to
partners from levels that would otherwise be available. Similar taxes may be
imposed by states in which PIMCO Holdings is subject to such taxes. As of
December 31, 1999, PIMCO Holdings anticipates an effective tax on gross income,
including current state imposed taxes, to approximate 3.8%.
22
<PAGE>
Liquidity and Capital Resources
PIMCO Holdings is dependent upon the operating cash flow of PIMCO Advisors
(Oppenheimer Capital before November 30, 1997) for its liquidity and capital
resources. The liquidity and capital resources of PIMCO Advisors is discussed
separately below.
For the year ending December 31, 1999, PIMCO Holdings declared total
distributions to holders of PIMCO Holdings units of $2.36 per unit. For the year
ended December 31, 1998, PIMCO Holdings declared total distributions to holders
of PIMCO Holdings units of $2.18 per unit. PIMCO Holdings' policy is to
distribute substantially all of its net cash flow on an annual basis after
establishment of appropriate reserves. Distributions are declared to unitholders
of record on March 31, June 30, September 30 and December 31 of each year and
paid within thirty days following the end of each calendar quarter. Because
PIMCO Holdings' sole business is to hold an investment as a general partner of
PIMCO Advisors, the operating cash flow of PIMCO Holdings consists of
distributions from PIMCO Advisors. Because PIMCO Advisors currently pays all
expenses of PIMCO Holdings other than taxes, PIMCO Holdings' per-unit
distributions generally equal the PIMCO Advisors distributions, less applicable
taxes (see PIMCO Advisors L.P. "Liquidity and Capital Resources" and
"Distributions").
Distribution levels will depend on the financial performance of PIMCO
Advisors. There can be no assurance that current distribution rates will be
maintained. Distributions made by PIMCO Holdings will depend on the
profitability of the investment management business of PIMCO Advisors, which is
affected in part by overall economic conditions and other factors affecting
capital markets generally, which are beyond the control of PIMCO Holdings and
PIMCO Advisors.
PIMCO ADVISORS L.P.
Revenues and Assets Under Management
PIMCO Advisors derives substantially all its revenues and net income from
advisory fees for investment management services provided through its investment
management subsidiaries to its institutional and individual clients, and
advisory, distribution and servicing fees for services provided to the PIMCO
Funds.
Generally, such fees are determined based upon a percentage of client
assets under management and are billed quarterly to institutional clients,
either in advance or arrears, depending on the agreement with the client and
monthly in arrears to the PIMCO Funds. Revenues are determined in large part
based upon the level of assets under management, which itself is dependent upon
factors including market conditions, client decisions to add or withdraw assets
from PIMCO Advisors' management, and PIMCO Advisors' ability to attract new
clients. In addition, PIMCO Advisors has certain accounts which are subject to
performance based fee schedules wherein performance relative to the S&P 500
Index or other benchmarks over a particular time period can result in additional
fees. Such performance based fees can have a significant effect on revenues, and
provide an opportunity to earn higher fees (as well as lower) than could be
obtained under fee arrangements based solely on a percentage of assets under
management. While no assurances can be given that PIMCO Advisors will continue
to earn any performance fees, such fees have aggregated $16.9 million, $34.7
million and $31.6 million, or 1.8%, 4.1% and 4.5% of total revenues in 1999,
1998 and 1997 (pro forma in 1997) respectively.
23
<PAGE>
The following table sets forth the actual composition of PIMCO Advisors'
assets under management as of December 31, 1999, 1998 and 1997:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Assets under management by source:
Institutional separate accounts
Fixed income $118,657 $106,633 $ 82,981
Equity 44,351 50,753 51,139
Retail products and mutual funds 97,546 86,780 65,425
-------- -------- --------
Total $260,554 $244,166 $199,545
======== ======== ========
Assets under management by type:
Fixed income $170,923 $148,853 $112,318
Equity 86,259 92,040 84,405
Money market 3,372 3,273 2,822
-------- -------- --------
Total $260,554 $244,166 $199,545
======== ======== ========
</TABLE>
In 1999 managed assets increased by $16.4 billion. The increase resulted
from net cash inflows from new and existing clients of $13.7 billion and net
market appreciation of $7.9 billion offset by $5.2 billion of assets sold in the
CCI and Blairlogie dispositions. In 1998 managed assets increased by $44.7
billion, resulting from net cash inflows of $21.0 billion and net market
appreciation of $23.7 billion. In 1997, on a pro forma basis assuming the
acquisition of Oppenheimer Capital as of January 1, 1996, net cash inflows were
$16.1 billion. Net market appreciation contributed $25.1 billion, under the same
pro forma assumptions. There can be no assurances that future cash flows or
market activity will occur at the rates experienced in recent years.
PIMCO Advisors' principal business units include Pacific Investment
Management Company, a fixed income manager, Oppenheimer Capital, a value based
equity manager and PIMCO Funds Distributors LLC ("PFD"), the broker dealer
distributing the PIMCO Funds. Effective January 1, 1999, PIMCO Equity Advisors,
a division focused principally on equity management for mutual funds, was
established. Revenues are generally dependent upon the average levels of assets
managed, and to a lesser extent, the levels of net assets gathered in the case
of PFD. Accordingly, revenue impacts from growth, or declines, in managed assets
are more noticeable in periods subsequent to the change than in the period of
change itself.
As discussed above, PIMCO Advisors completed the acquisition of Oppenheimer
Capital and its subsidiaries in a two step transaction, wherein an approximate
one-third interest was acquired November 4, 1997 and the remaining interest was
acquired November 30, 1997. Because control of Oppenheimer Capital was achieved
in the first step, the results of Oppenheimer Capital have been consolidated
with those of PIMCO Advisors since November 4, 1997.
PIMCO Advisors has structured its proprietary mutual fund operations into
the "PIMCO Funds" family of mutual funds. PIMCO Funds are offered in up to six
different share classes: Institutional and administrative share classes
primarily for institutional investors and, for retail investors, front end load,
back-end load and level load share classes. The PIMCO Funds have a "unified fee"
structure which has specified advisory and administrative fees per fund. As a
result, PIMCO Advisors and Pacific Investment Management Company (and not the
PIMCO Funds) bear the risk of increases in service costs (including those of
third-party service providers such as transfer agents) and will directly benefit
from any decreases in those costs.
24
<PAGE>
Intangible Assets
PIMCO Advisors and its subsidiaries were formed on November 15, 1994, when
Pacific Asset Management LLC (formerly Pacific Financial Asset Management
Company) merged certain of its investment management businesses and
substantially all of its assets (the "PFAMCo Group") into Thomson Advisory Group
L.P. ("TAG LP") (the "Consolidation"). As described above, PIMCO Advisors
acquired Oppenheimer Capital in the fourth quarter of 1997.
Intangible assets of approximately $284.9 million created by the
Consolidation represent the excess of the purchase price over the fair value of
net tangible assets of TAG L.P. deemed acquired by PFAMCo Group. Approximately
$80.7 million of the intangible assets represents the value assigned to PIMCO
Advisors' MLP structure. Under previous tax law, an MLP was exempt from federal
and most state and local income taxes through December 31, 1997. As discussed
elsewhere, the tax status for publicly traded partnerships has been extended.
However, the value attributed to the MLP structure has been amortized through
the period ended December 31, 1997. In connection with the acquisition of
Oppenheimer Capital in the fourth quarter of 1997 approximately $897.5 million
of intangible assets was recorded, representing the excess of the purchase price
over the fair value of the net tangible assets acquired. The remainder of all
intangibles is being amortized over the estimated useful life of 20 years.
Distributions
PIMCO Advisors distributes on an annual basis cash in an amount equal to
Operating Profit Available for Distribution (as defined in the Amended and
Restated Agreement of Limited Partnership of PIMCO Advisors L.P. (the "PIMCO
Advisors Partnership Agreement")) less any amount deemed required for capital
expenditures, future payments of indebtedness, as reserves or otherwise in the
business of PIMCO Advisors. Operating Profit Available for Distribution is
defined by PIMCO Advisors Partnership Agreement and is computed as the sum of
net income plus non-cash charges from the amortization of intangible assets,
non-cash compensation expenses arising from option and restricted unit plans,
and losses of any subsidiary which is not a flow-through entity for tax
purposes. In general, the PIMCO Advisors Management Board evaluates distribution
levels quarterly.
During 1999 PIMCO Advisors declared distributions to holders of PIMCO
Advisors units of $2.71 per unit consisting of quarterly declaration of $0.67,
$0.67, $0.69 and $0.68 for the first, second, third and fourth quarters,
respectively. The fourth quarter declaration was paid on January 31, 2000.
During 1998 PIMCO Advisors declared distributions to holders of PIMCO Advisors
units of $2.49 per unit, consisting of quarterly declarations of $0.60, $0.60,
$0.63 and $0.66 for the first, second, third and fourth quarters, respectively.
The fourth quarter declaration was paid on January 29, 1999. PIMCO Holdings also
declared distributions to holders of PIMCO Holdings units of $2.36 per unit in
1999 and $2.18 per unit in 1998, consisting of quarterly declarations of $0.58,
$0.58, $0.60 and $0.60 in 1999 and $0.53, $0.53, $0.55 and $0.57 in 1998 for the
first, second, third and fourth quarters, respectively. The respective fourth
quarter distributions were paid on January 31, 2000 and January 29, 1999. The
difference between the distribution levels of PIMCO Advisors and PIMCO Holdings
arises from the tax on publicly traded partnerships that became effective in
1998.
Actual distribution levels will depend on the financial performance of
PIMCO Advisors, and there can be no assurance that recent distribution rates
will continue to be achieved. Distributions made by PIMCO Holdings will depend
on the profitability of the investment business of PIMCO Advisors, which is
affected in part by overall economic conditions and other factors affecting
capital markets generally, which are beyond the control of PIMCO Holdings and
PIMCO Advisors. In addition, the general partners of PIMCO Advisors may, in
determining the amount of distributions, deduct any amount from Operating Profit
Available for Distribution the general partners deem may be required for capital
expenditures, reserves or otherwise in the business of PIMCO Advisors. To the
extent PIMCO Advisors or PIMCO Holdings retains profits in any year, unitholders
may have taxable income from PIMCO Holdings that exceeds their cash
distributions.
25
<PAGE>
Prior to 1998, net income per unit had been computed under the two-class
method which allocated net income to Class A and Class B units in proportion to
the Operating Profit Available for Distribution for each class. PIMCO Advisors
Class A units were entitled to a priority distribution of $1.88 per unit per
year until December 31, 1997. Because of this, the amount of Operating Profit
Available for Distribution allocated to such units has been greater during some
periods than the amount allocated to PIMCO Advisors Class B units. As a result,
prior to 1997 the net income allocated per Class A unit was greater than the net
income allocated per Class B unit. In addition, because of the priority
distribution, the initial dilution to net income per unit from the assumed
exercise of unit options was applied entirely to PIMCO Advisors Class B units.
However, growth in both net income and Operating Profit Available for
Distribution in 1997 beyond the priority levels resulted in the allocations of
income and distributions per unit to be equal across all classes in 1997.
Distributions are declared and paid to unitholders of record as of the
quarter end (including for PIMCO Holdings) within thirty days following the end
of each calendar quarter. The Class A unit distribution preference ended with
the payment of the distribution for the fourth quarter of 1997, and on March 1,
1998, all PIMCO Advisors Class B units were converted into Class A units.
Comparative Results of Operations
Year ended December 31, 1999 actual results compared to year ended December 31,
1998 actual results
PIMCO Advisors' consolidated 1999 revenues, including those of its wholly-
owned distributor, PFD, were $960.6 million, compared to revenues of $852.4
million in 1998. Advisory revenues increased $74.4 million to $844.5 million in
1999. Distribution and servicing revenues increased $33.8 million to $116.1
million in 1999. For most operating entities revenue increases resulted from the
commitment of new assets primarily by institutional clients and increases in the
market value of existing assets under management. These increases were partially
offset by a decrease in performance based fees. Performance based fees were
$16.9 million in 1999 as compared to $34.7 million in 1998. The decrease in
performance based fees occurred principally in equity index portfolio products
seeking to outperform the S&P 500 Index.
While the consolidated assets under management of PIMCO Advisors increased
by $16.4 billion, this increase was mitigated by the sales of our CCI and
Blairlogie units which managed an aggregate $5.2 billion at the times of
respective dispositions in the second quarter of 1999. Oppenheimer Capital
continued its 1998 trend, experiencing net outflows of managed assets amounting
to approximately $11.7 billion for the year, and saw its revenues decline $27.7
million, or 11.1%, because of lower average managed assets in 1999 as compared
to 1998. With the establishment of PIMCO Equity Advisors (PEA) in the first
quarter of 1999, and the transfer of the management of five PIMCO Funds
portfolios from CCI to PEA prior to the sale of CCI, PIMCO Advisors on a
consolidated basis realized $45.4 million in revenues from its combined
ownership of CCI and PEA during the year, as compared with $48.2 million of
revenues for CCI alone in 1998.
Compensation and benefit expenses in 1999 of $393.1 million were $33.5
million higher than the 1998 charges of $359.6 million, reflecting additional
staffing at virtually all subsidiaries, and increased profit sharing at the
investment management subsidiaries due to generally improved profitability. The
total number of employees increased from 1,084 as of December 31, 1998 to 1,130
as of December 31, 1999.
Commission expenses increased by $17.4 million or 22.3% to $95.2 million
in 1999 as compared with $77.8 million in 1998. Commission expenses are
primarily incurred by PFD and are paid primarily to broker-dealers and their
sales people for the sale of PIMCO Advisors retail-oriented mutual funds. These
include "up-front" commissions paid at the time of sale of the mutual funds,
"trail" commissions paid for the maintenance of assets in the mutual funds and
service fee commissions paid for services provided to mutual fund shareholders.
The level of commission expense will vary according to the level of assets in
the mutual funds (on which trail and service fee commissions are determined) and
on the level of sales of mutual funds (on which up-front commissions are
determined). Trail and service fee commissions are generally paid quarterly
beginning one year after sale of the mutual funds. Therefore, at any given time,
trail and service fee commissions will be paid on only the mutual fund assets
that qualify for such payments. In 1999, trail and service fee commissions
increased to $61.9 million, an
26
<PAGE>
increase of $10.3 million or 20.0%, compared to 1998 amounts. This increase is
related to an increase in the underlying qualifying assets. Up-front commissions
increased from $26.2 million in 1998 to $33.3 million in 1999, an increase of
$7.1 million or 27.1%. This is a result of increases in total sales volume and
the mix of share classes sold.
Restricted unit and option plan costs increased $8.2 million, or 31.9% to
$34.0 million as compared with $25.8 million in 1998. This includes
approximately $10.5 million of accelerated charges related to the non-recurring
charge taken in the first quarter of 1999. This cost is predominantly due to the
award of restricted units in the Oppenheimer Capital acquisition of 1997 that
will result in an annual charge of approximately $16 - $17 million in this cost
category over the five year vesting period. The 2000 charge is expected to
aggregate approximately $22-$24 million.
Marketing and promotional costs increased $8.9 million or 30.9% to $37.6
million in 1999 as compared with $28.7 million in 1998. Increases commensurate
with increased activities occurred at most entities. In addition, the retail
fund complex adopted a unified administrative fee structure in 1997 which
results in costs previously borne directly by the funds being borne by the
advisor with a concurrent revenue received by the advisor. The majority of those
newly borne costs are reflected in the marketing and promotional and general and
administrative cost categories. Accordingly, these cost categories are
significantly affected by the increases in sales and asset levels in our fund
complex.
Occupancy and equipment costs increased $17.1 million or 72.5% to $40.6
million in 1999 as compared with $23.5 million in 1998. The non-recurring charge
in the first quarter includes approximately $5.4 million related to this
category. The remaining increase relates to increased depreciation of equipment
and inflationary facilities cost increases at all entities, as well as expansion
costs associated with headcount increases, and the higher cost of space for
Oppenheimer Capital and PIMCO Equity Advisors in New York City.
General and administrative costs increased $18.9 million or 43.3% to $62.6
million in 1999 as compared with $43.7 million in 1998. As noted above, the
retail fund complex adopted a fixed administrative fee basis in 1997 resulting
in increases to this cost category for expenses previously borne directly by the
funds. Additionally, the non-recurring charge in the first quarter of 1999
included $3.0 million in this cost category.
Other expense includes such items as interest expense, consulting costs,
reimbursement agreements, taxes and other, and reflects a net increase of $5.0
million in 1999 to $24.3 million in 1999 as compared with $19.3 million in 1998.
Net increases in interest expense of approximately $1.4 million, increases in
Allianz transaction related expense of $5.5 million, increases in consulting and
technology costs of $8.4 million, offset by increases in investment earnings and
non-recurring gains of approximately $12.9 million, as well as generally
expanded activities at all of the operating subsidiaries, account for this net
increase.
Amortization of intangibles remained stable at $55.0 million in 1999 and
1998.
Year ended December 31, 1998 actual results compared to year ended December 31,
1997 pro forma results
PIMCO Advisors' consolidated 1998 revenues, including those of its wholly-
owned distributor, PFD, were $852.4 million, compared to pro forma revenues of
$704.8 million in 1997. Advisory revenues in this comparison increased $128.5
million to $770.1 million in 1998. Distribution and servicing revenues increased
$19.1 million to $82.3 million in 1998. For most operating entities revenue
increases in 1998 resulted from the commitment of new assets primarily by
institutional clients and increases in the market value of existing assets under
management. These increases were further enhanced by an increase in performance
based fees. Performance based fees were $34.7 million in 1998 as compared to
$31.6 million in 1997. The increase in performance based fees occurred
principally in equity index portfolio products seeking to outperform the S&P 500
Index.
While the consolidated assets under management of PIMCO Advisors increased
by $44.6 billion in 1998, CCI continued to experience net outflows of managed
assets, aggregating $1.8 billion in 1998, resulting in a decrease in
27
<PAGE>
its revenues of $9.4 million or 16.3%. Oppenheimer Capital, while experiencing
net outflows of managed assets of approximately $4.9 billion, saw its revenues
increase $17.7 million, or 7.6%, because of higher average managed assets in
1998 as compared to 1997.
Compensation and benefit expenses in 1998 of $359.6 million were $63.7
million higher than pro forma 1997 expenses of $295.9 million, reflecting
additional staffing at virtually all subsidiaries, and increased profit sharing
at the investment management subsidiaries due to improved profitability. The
total number of employees increased from 980 as of December 31, 1997 to 1,084 as
of December 31, 1998.
Commission expenses increased by $17.5 million or 29.1% in 1998 to $77.8
million as compared with pro forma 1997 amounts of $60.3 million. Commission
expenses are primarily incurred by PFD and are paid primarily to broker-dealers
and their sales people for the sale of PIMCO Advisors retail-oriented mutual
funds. These include "up-front" commissions paid at the time of sale of the
mutual funds, "trail" commissions paid for the maintenance of assets in the
mutual funds and service fee commissions paid for services provided to mutual
fund shareholders. The level of commission expense will vary according to the
level of assets in the mutual funds (on which trail and service fee commissions
are determined) and on the level of sales of mutual funds (on which up-front
commissions are determined). Trail and service fee commissions are generally
paid quarterly beginning one year after sale of the mutual funds. Therefore, at
any given time, trail and service fee commissions will be paid on only the
mutual fund assets that qualify for such payments. In 1998, trail and service
fee commissions increased to $51.6 million, an increase of $10.2 million or
24.9%, compared to 1997 pro forma amounts. This increase is related to an
increase in the underlying qualifying assets. Up-front commissions increased
from $19.0 million on a pro forma basis in 1997 to $26.2 million in 1998, an
increase of $7.2 million or 37.9%. This is a result of increases in total sales
volume and the mix of share classes sold.
Restricted unit and option plan costs increased $3.4 million, or 15.2% to
$25.8 million from 1997 pro forma amounts of $22.4 million.
Marketing and promotional costs increased $8.6 million or 42.8% to $28.9
million in 1998 compared to pro forma amounts of $20.1 million in 1997. These
increases were commensurate with increased activities which occurred at most
entities. In addition, the retail fund complex adopted a unified administrative
fee structure in 1997 which resulted in costs previously borne directly by the
funds being borne by the advisor with a concurrent revenue received by the
advisor.
Occupancy and equipment costs increased $5.9 million or 33.5% to $23.5
million in 1998 compared to pro forma amounts of $17.6 million in 1997. The
increase relates to increased depreciation of equipment and inflationary
facilities cost increases at all entities, as well as expansion costs associated
with headcount increases.
General and administrative costs increased $11.2 million or 34.7% to $43.6
million in 1998 compared to pro forma amounts of $32.4 million in 1997. As noted
above, the retail fund complex adopted a fixed administrative fee basis in 1997
resulting in increases to this cost category for expenses previously borne
directly by the funds.
Other expense includes such items as interest expense, consulting costs,
reimbursement agreements, taxes and other, and reflects a net increase of $13.1
million in 1998 compared to pro forma amounts of $6.2 million in 1997. Interest
expense on debt assumed in the Oppenheimer Capital acquisition of approximately
$5.0 million, net increases in other interest expense of approximately $2.2
million, declines in investment earnings and non-recurring gains of
approximately $3.0 million, as well as generally expanded activities at all of
the operating subsidiaries, account for this increase.
Amortization of intangibles decreased $25.7 million when compared to the
pro forma levels of $80.8 in 1997. The completed amortization of the originally
established intangible asset allocable to the MLP status of PIMCO Advisors
caused this decline.
28
<PAGE>
Year ended December 31, 1998 actual results compared to year ended December 31,
1997 actual results
The 1998 results of operations reflect the consolidation of Oppenheimer
Capital for the entire year, while the 1997 actual results reflect Oppenheimer
Capital for only the two months after the acquisition occurring on November 4,
1997. In addition to the growth in most of the operating revenues and expenses
discussed above in the comparison of the pro forma 1997 results to those of
1998, the inclusion of Oppenheimer Capital in the consolidated financial results
for an additional 10 months in 1998 accounts for the significant increases in
most line items. In particular, revenues, compensation, restricted unit and
option costs and amortization of intangibles all increased in 1998 as a result
of the Oppenheimer acquisition.
Liquidity and Capital Resources
PIMCO Advisors business has not historically been capital intensive,
although increasing sales of PIMCO Funds Class B shares require PIMCO Advisors
to finance increasing amounts of the brokerage commissions associated with these
shares which commissions are repaid through future 12b-1 fees. In general,
working capital requirements have been satisfied out of operating cash flow or
short- term borrowings. PIMCO Advisors often finances quarterly profit sharing
payments to employees using short-term borrowings and may finance "B" share
commissions with short or long term borrowings.
PIMCO Advisors had approximately $199.0 million of cash and cash
equivalents and short-term investments at December 31, 1999 compared to
approximately $116.1 million at December 31, 1998. The increases were due to the
timing of payment of certain liabilities offset by the funding of "B" Share
commissions to brokers. "B" Shares involve the payment of commissions to the
selling broker by the distributor at the time of sale of mutual fund shares.
Through deferred sales charges to the investor, or 12b-1 plans with the mutual
fund, these "front end" commissions are recouped by the distributor over a
period of years. PIMCO Advisors' excess liquidity, after distributions to its
unitholders, is used for general corporate purposes including profit sharing
payments and brokers' commissions on sales of mutual fund shares distributed
without a front end sales load. To the extent that the level of such commissions
may increase due to the introduction of new products and mutual fund pricing
structures, an alternate financing source may be needed. However, PIMCO Advisors
has made no decision as to the source or necessity of such financing.
PIMCO Advisors distributes substantially all of its Operating Profit
Available for Distribution, after appropriate reserves, to its partners.
Distributions have been paid quarterly, in arrears, on the units outstanding to
unitholders of record on the last day of the quarter. Distribution declarations
in 1999 were $2.71 for each Class A limited and general partner unit, reflecting
distributions of Operating Profit Available for Distribution for the four
quarters of 1999. Distribution declarations in 1998 were $2.49 for the PIMCO
Advisors Class A limited and general partner units representing distributions of
Operating Profit Available for Distribution for the four quarters of 1998.
PIMCO Advisors assumed $230.0 million of 6% exchangeable debt in connection
with the Oppenheimer Capital acquisition in November 1997. Through December of
1999, $149.5 million of that debt has been exchanged for Class A units at a rate
of $33 1/3 per unit. The remaining $80.5 million of such debt is expected (but
is not required) to be exchanged for units on the same terms upon the expiration
of certain tax contingencies over the next six to seven years.
On May 12, 1998, PIMCO Advisors secured a syndicated $500 million credit
facility to provide liquidity for working capital, including financing "B" share
commissions and strategic opportunities. This credit facility consists of (i) a
Long-Term Credit Facility, providing for a $250 million five-year revolving
credit facility and (ii) a Short-Term Credit Facility, providing for a $250
million 364 day revolving credit facility. The Short-Term Credit Facility was
renewed for an additional 364 days on May 11, 1999. As of December 31, 1999,
$140.0 million was outstanding under the Long-Term Credit Facility.
29
<PAGE>
General Economic and Other Factors
The general economy including interest rates, inflation and client
responses to economic factors will affect, to some degree, the operations of
PIMCO Advisors. As a significant portion of assets under management are fixed
income funds, fluctuations in interest rates could have a material impact on the
operations of PIMCO Advisors. PIMCO Advisors' advisory business is generally not
capital intensive and therefore any effect of inflation, other than on interest
rates, is not expected to have a significant impact on its operations or
financial condition. Client responses to the economy, including decisions as to
the amount of assets deposited may also impact the operations of PIMCO Advisors.
Any resulting revenue fluctuations may or may not be recoverable in the pricing
of services offered by PIMCO Advisors.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
None.
30
<PAGE>
Item 8. Financial Statements and Supplemental Data
Index to Financial Statements:
<TABLE>
<CAPTION>
Page(s)
------
<S> <C>
PIMCO Advisors Holdings L.P.
Report of Independent Accountants...................................................................... 32
Statements of Financial Condition as of December 31, 1999 and December 31, 1998........................ 33
Statements of Operations for the years ended December 31, 1999 and 1998, for the eight-months ended
December 31, 1997 and for the year ended April 30, 1997.............................................. 34
Statements of Changes in Partners' Capital for the years ended December 31, 1999 and 1998, for the
eight-months ended December 31, 1997 and for the year ended April 30, 1997............................ 35
Statements of Cash Flows for the years ended December 31, 1999 and 1998, for the eight-months ended
December 31, 1997 and for the year ended April 30, 1997.............................................. 36
Notes to Financial Statements.......................................................................... 37
PIMCO Advisors L.P.
Report of Independent Accountants...................................................................... 44
Consolidated Statements of Financial Condition as of December 31, 1999 and 1998........................ 45
Consolidated Statements of Operations for the years ended December 31, 1999, 1998 and 1997............. 46
Consolidated Statements of Changes in Partners' Capital for the years ended December 31, 1999,
1998 and 1997........................................................................................ 47
Consolidated Statements of Cash Flows for the years ended December 31, 1999, 1998 and 1997............ 50
Notes to Consolidated Financial Statements............................................................. 51
Oppenheimer Capital
Report of Independent Accountants...................................................................... 64
Consolidated Statements of Financial Condition as of December 31, 1997 and April 30, 1997.............. 65
Consolidated Statements of Operations for the eight-months ended December 31, 1997 and for the year
ended April 30, 1997................................................................................. 66
Consolidated Statements of Changes of Partners' Capital for the eight-months ended December 31, 1997
and for the year ended April 30, 1997................................................................ 67
Consolidated Statements of Cash Flows for the eight-months ended December 31, 1997 and for the year
ended April 30, 1997................................................................................. 68
Notes to Consolidated Financial Statements............................................................. 69
</TABLE>
31
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Management Board and Partners of
PIMCO Advisors Holdings L.P.
In our opinion, the accompanying statements of financial condition and the
related statements of operations, of changes in partners' capital and of cash
flows present fairly, in all material respects, the financial position of PIMCO
Advisors Holdings L.P., (the "Partnership") at December 31, 1999 and 1998, and
the results of its operations and its cash flows for the years ended December
31, 1999 and 1998, the eight-month period ended December 31, 1997 and for the
year ended April 30, 1997, in conformity with accounting principles generally
accepted in the United States These financial statements are the responsibility
of the Partnership's management; our responsibility is to express an opinion on
these financial statements based on our audits. We conducted our audits of these
statements in accordance with auditing standards generally accepted in the
United States, which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
/s/ PRICEWATERHOUSECOOPERS LLP
Los Angeles, California
January 31, 2000
32
<PAGE>
PIMCO ADVISORS HOLDINGS L.P.
STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
December 31,
1999 1998
-------------- -----------
<S> <C> <C>
(Dollars in thousands)
ASSETS
Current assets:
Cash and cash equivalents................................................. $ 469 $ 10,580
Distribution receivable................................................... 33,814 31,993
Other current assets...................................................... 9 40
-------- --------
Total current assets................................................... 34,292 42,613
Investment in operating partnership......................................... 454,256 461,230
Other non current assets.................................................... 153 153
-------- --------
Total assets................................................................ $488,701 $503,996
======== ========
LIABILITIES
Distribution payable........................................................ $ 29,836 $ 27,631
Other current liabilities................................................... 2,727 14,746
-------- --------
Total liabilities........................................................... 32,563 42,377
-------- --------
PARTNERS' CAPITAL
General Partner............................................................. 62 63
Limited Partners (49,721,375 and 48,469,822 units issued and outstanding)... 456,076 461,556
-------- --------
Total partners' capital..................................................... 456,138 461,619
-------- --------
Total liabilities and partners' capital..................................... $488,701 $503,996
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
33
<PAGE>
PIMCO ADVISORS HOLDINGS L.P.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For The For The For The Eight For The
Year Ended Year Ended months Ended Year Ended
December 31, December 31, December 31, April 30,
1999 1998 1997 1997
------------ ------------ ------------- ----------
(Dollars in thousands, except per unit amounts)
<S> <C> <C> <C> <C>
Revenues:
Equity in earnings of operating partnerships:
Operating earnings..................................... $90,066 $90,682 $41,036 $51,022
Gain on Quest sales.................................... - - 2,809 1,800
------- ------- ------- -------
Total equity in earnings of operating partnerships..... 90,066 90,682 43,845 52,822
Interest.................................................. - - 1,892 3,224
------- ------- ------- -------
Total revenues...................................... 90,066 90,682 45,737 56,046
------- ------- ------- -------
Expenses:
Amortization of intangible assets......................... - - 1,517 2,588
Other..................................................... 15,775 14,537 88 132
------- ------- ------- -------
Total expenses...................................... 15,775 14,537 1,605 2,720
------- ------- ------- -------
Net income.................................................. $74,291 $76,145 $44,132 $53,326
======= ======= ======= =======
Basic net income per unit................................... $ 1.51 $ 1.61 $ 1.70 $ 2.06
======= ======= ======= =======
Diluted net income per unit................................. $ 1.43 $ 1.52 $ 1.68 $ 2.04
======= ======= ======= =======
Distributions declared per unit............................. $ 2.36 $ 2.18 $ 2.05 $ 2.10
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
34
<PAGE>
PIMCO ADVISORS HOLDINGS L.P.
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
<TABLE>
<CAPTION>
Total
------------
General Limited Partners Partners'
---------- -------------------------- ------------
Partner Units Amounts Capital
---------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
(Dollars in thousands)
Balances at May 1, 1996............................................ $ 987 25,475,967 $ 96,399 $ 97,386
Net income....................................................... 533 52,793 53,326
Distributions declared........................................... (543) (53,790) (54,333)
Amortization of restricted unit compensation expense............. 15 1,476 1,491
Capital contributions............................................ 4 197,922 417 421
----- ---------- --------- ---------
Balances at April 30, 1997......................................... 996 25,673,889 97,295 98,291
Net income....................................................... 355 43,777 44,132
Distributions declared........................................... (413) (68,481) (68,894)
Amortization of restricted unit compensation expense............. 22 2,236 2,258
Revaluation of Partners' Capital upon receipt of interests in
PIMCO Advisors L.P............................................. 14 139,391 139,405
Reduction of general partner's interest from 1% to .01%.......... (942) 257,774 942 --
Capital contributions............................................ 9 118,529 891 900
Contribution of investment in PIMCO Advisors L.P. by
public holders................................................. -- 19,481,394 192,245 192,245
----- ---------- --------- ---------
Balances at December 31, 1997...................................... 41 45,531,586 408,296 408,337
Net income....................................................... 8 76,137 76,145
Distributions declared........................................... (11) (103,407) (103,418)
Issuance of Units for additional interest in PIMCO Advisors L.P.. 9 2,938,236 80,530 80,539
Capital contributions............................................ 16 -- -- 16
----- ---------- --------- ---------
Balances at December 31, 1998...................................... 63 48,469,822 461,556 461,619
Net income....................................................... 7 74,284 74,291
Distributions declared........................................... (12) (116,453) (116,465)
Issuance of Units for additional interest in PIMCO Advisors L.P.. 4 1,251,553 36,689 36,693
----- ---------- --------- ---------
Balances at December 31, 1999...................................... $ 62 49,721,375 $ 456,076 $ 456,138
===== ========== ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
35
<PAGE>
PIMCO ADVISORS HOLDINGS L.P.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For The
For The For The Eight-months For The
Year Ended Year Ended Ended Year Ended
December 31, December 31, December 31, December 31,
1999 1998 1997 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
(Dollars in thousands)
Cash flows from operating activities:
Net income.................................................. $ 74,291 $ 76,145 $ 44,132 $ 53,326
Adjustments to reconcile net income to net cash provided
by operating activities:
Distributions received greater than (less than) the
equity in earnings of operating partnerships........... 41,845 10,580 9,997 (6,662)
Amortization of intangibles............................... -- -- 1,517 2,588
Change in operating assets and liabilities:
Change in other assets................................. 31 - 541 (8)
Change in other liabilities............................ (12,019) (769) 15,515 --
--------- -------- -------- --------
Net cash provided by operating activities................... 104,148 85,956 71,702 49,244
--------- -------- -------- --------
Cash flows from investing activities:
Investment in operating partnerships........................ (1,225) (136) (33,217) (530)
--------- -------- -------- --------
Net cash used in investing activities....................... (1,225) (136) (33,217) (530)
--------- -------- -------- --------
Cash flows from financing activities:
Cash distributions paid..................................... (114,259) (90,898) (56,207) (49,188)
Note receivable payment..................................... -- -- 32,193 --
Capital contribution from General Partner................... -- 16 60 --
Issuance of limited partnership units on exercise of
options.................................................... 1,225 120 900 530
--------- -------- -------- --------
Net cash used in financing activities....................... (113,034) (90,762) (23,054) (48,658)
--------- -------- -------- --------
Net (decrease) increase in cash and cash equivalents........ (10,111) (4,942) 15,431 56
Cash and cash equivalents, beginning of period.............. 10,580 15,522 91 35
--------- -------- -------- --------
Cash and cash equivalents, end of period.................... $ 469 $ 10,580 $ 15,522 $ 91
========= ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
36
<PAGE>
PIMCO ADVISORS HOLDINGS L.P.
NOTES TO FINANCIAL STATEMENTS
1. Organization and Business
PIMCO Advisors Holdings L.P ("PIMCO Holdings") (formerly Oppenheimer
Capital, L.P) is a publicly traded limited partnership owned .01% by its general
partner, PIMCO Partners, G.P. and 99.99% by its public limited partners
("Unitholders"). PIMCO Holdings' sole business is its ownership of an
approximate 44% interest (approximately 49.7 million GP Units) in PIMCO Advisors
L.P. ("PIMCO Advisors"), a registered investment advisor. PIMCO Partners, GP
and other private holders hold the remaining interest in PIMCO Advisors. The
financial statements of PIMCO Holdings should be read in conjunction with the
consolidated financial statements of PIMCO Advisors.
On November 4, 1997, PIMCO Advisors acquired Oppenheimer Group, Inc.
("Opgroup"), whose subsidiary Oppenheimer Financial Corp. ("Opfin") owned
the 32.4% managing general partner interest in Oppenheimer Capital and the one
percent general partner interest in PIMCO Holdings. In the transaction, Opgroup
became a subsidiary of PIMCO Advisors, and the Opgroup stockholders received 2.1
million PIMCO Advisors Class A units and rights to exchange up to $230 million
of outstanding term notes of Opgroup for an additional 6.9 million PIMCO
Advisors Class A units at $33 1/3 per unit. In connection with the transaction,
PIMCO Advisors split the one percent general partner interest in PIMCO Holdings
into a .01% general partner interest and a .99% limited partner interest, and
sold the general partner interest to its general partner for $80,000, its
approximate book value. The purchase method of accounting was used by PIMCO
Advisors to record the acquisition of Opgroup.
On November 30, 1997, Oppenheimer Capital merged with a subsidiary of PIMCO
Advisors, with Oppenheimer Capital surviving (the "OpCap Merger"). In the
OpCap Merger, PIMCO Advisors acquired from PIMCO Holdings its 67.6% general
partner interest in Oppenheimer Capital in exchange for 26.1 million PIMCO
Advisors Class A units, an approximate 24% general partner interest in PIMCO
Advisors. As a result, Oppenheimer Capital became a wholly owned subsidiary of
PIMCO Advisors and the limited partner units of PIMCO Holdings came to represent
an indirect investment in the business of PIMCO Advisors. On December 1, 1997,
PIMCO Holdings effected a 1.67 for 1 split of the PIMCO Holdings units, so that
each PIMCO Holdings unit outstanding after the split represented an economic
interest in one PIMCO Advisors unit. The transaction was accounted for at book
value of PIMCO Advisors, as a transaction between related parties.
On December 31, 1997, PIMCO Advisors caused its 19.5 million publicly held
units to be contributed to PIMCO Holdings in exchange for an equal number of
PIMCO Holdings units. As a result, PIMCO Advisors ceased to be publicly traded,
and PIMCO Holdings general partner interest in PIMCO Advisors increased to
approximately 43%. Concurrently, PIMCO Holdings New York Stock Exchange trading
symbol was changed from "OCC" to "PA".
Prior to November 4, 1997, PIMCO Holdings was a publicly traded limited
partnership owned 1% by its general partner, Opfin and 99% by its public limited
partners. PIMCO Holdings sole business was its ownership of a 67.6% interest in
Oppenheimer Capital, a registered investment adviser. Opfin held the remaining
32.4% interest in Oppenheimer Capital.
On October 31, 1999, PIMCO Holdings, PIMCO Advisors and Allianz AG announced a
definitive agreement for Allianz AG to acquire majority ownership of PIMCO
Advisors including the interest held by PIMCO Holdings. Unitholders would
receive $38.75 per unit in cash, subject to adjustment under certain
circumstances. The transaction is subject to a number of approvals including a
vote of the unitholders of PIMCO Holdings.
37
<PAGE>
2. Significant Accounting Policies
a. Financial Statement Presentation--Effective December 1, 1997, PIMCO
Holdings effected a 1.67 for 1 unit split of PIMCO Holdings units. For
purposes of these financial statements, all units authorized and
outstanding, and per unit amounts have been restated to reflect the split
of the PIMCO Holdings units.
b. Change of Fiscal Year--Prior to the OpCap Merger, PIMCO Holdings reported
its results of operations and its financial position based on an April 30
fiscal year end. Upon completion of the OpCap Merger, PIMCO Holdings
changed its fiscal year to a calendar year to correspond with that of PIMCO
Advisors. Accordingly, the period ending December 31, 1997 is a "stub"
reporting period, eight-months in total, consisting of two three-month
periods and one two-month period.
c. Cash and Cash Equivalents--PIMCO Holdings invests certain cash balances in
money market funds. At December 31, 1999 and 1998, this investment is
approximately $0.5 million and $10.6 million and is invested in non-
affiliate money market funds. Management considers investments in money
market funds to be cash equivalents for purposes of the Statements of Cash
Flows. These investments are carried at cost, which approximates market.
d. Investment in Partnerships--PIMCO Holdings accounts for its investment in
PIMCO Advisors (and Oppenheimer Capital prior to November 30, 1997) in
accordance with the equity method of accounting. PIMCO Holdings records as
income its proportionate share of the net income of its investee
partnerships and credits distributions from such partnerships to its
investment in partnerships. At December 31, 1999 and 1998, PIMCO Holdings
had a distribution receivable of $33.8 million and $32.0 million,
respectively, from PIMCO Advisors. PIMCO Holdings' operating expenses
except for taxes are paid by PIMCO Advisors.
e. Unit Exchanges--PIMCO Holdings intends to periodically offer holders of
PIMCO Advisors units the opportunity to exchange those units for PIMCO
Holdings units on a one for one basis. Units issued in such exchanges are
recorded at the book value of the underlying PIMCO Advisors units received.
f. Income Taxes--PIMCO Holdings, as a partnership, generally is not subject to
federal or state income taxes. All partners of PIMCO Holdings are
responsible for taxes, if any, on their proportionate share of PIMCO
Holdings taxable income. However, effective January 1, 1998, PIMCO Holdings
became subject to a 3.5% federal tax on its gross income from active
businesses and became subject to a similar tax in certain states. PIMCO
Holdings recorded tax expenses of $16.0 and $14.8 million for the years
ended December 31, 1999 and 1998, respectively, related to this tax. PIMCO
Holdings is also subject to an unincorporated business tax in a certain
jurisdiction in which it operates.
g. Net Income per Unit--Basic net income per unit is computed based on the
weighted average number of units outstanding. Diluted net income per unit
is computed based on the weighted average number of units outstanding,
assuming the exercise of dilutive unit options. Proceeds from the exercise
of such unit options are assumed to be used to repurchase outstanding
limited partner units under the treasury stock method. Net income per unit
is computed as follows:
38
<PAGE>
<TABLE>
<CAPTION>
For The Year For The Year For The Eight For The
Ended Ended Months Ended Year Ended
December 31, December 31, December 31, April 30,
1999 1998 1997 1997
---------------- --------------- ---------------- -----------
<S> <C> <C> <C> <C>
(Dollars in thousands, except per unit amounts)
Basic net income per unit:
Net income........................................ $74,291 $76,145 $44,132 $53,326
Less net income applicable to General Partner..... 7 8 355 533
------- ------- ------- -------
Net income available to Limited Partners.......... $74,284 $76,137 $43,777 $52,793
======= ======= ======= =======
Weighted average units outstanding................ 49,188 47,257 25,768 25,663
------- ------- ------- -------
Basic per unit amount............................. $ 1.51 $ 1.61 $ 1.70 $ 2.06
======= ======= ======= =======
Diluted net income per unit:
Net income........................................ $74,291 $76,145 $44,132 $53,326
Effect on the recognized equity in earnings of
the operating partnership resulting from the
dilution of earnings per unit at the operating
partnership...................................... (3,630) (4,357) - -
------- ------- ------- -------
Net income after effect of dilution............... 70,661 71,788 44,132 53,326
------- ------- ------- -------
Less net income applicable to General Partner..... 7 8 355 533
------- ------- ------- -------
Net income available to Limited Partners.......... $70,654 $71,780 $43,777 $52,793
======= ======= ======= =======
Weighted average units outstanding................ 49,188 47,257 25,768 25,663
Effect of dilutive options........................ - - 249 178
------- ------- ------- -------
Total average units outstanding................... 49,188 47,257 26,017 25,841
======= ======= ======= =======
Diluted per unit amount........................... $ 1.43 $ 1.52 $ 1.68 $ 2.04
======= ======= ======= =======
</TABLE>
h. Other--Certain items have been reclassified to conform with the current
year presentation.
i. Use of Estimates in the Preparation of Financial Statements--The financial
statements have been prepared in accordance with generally accepted
accounting principles which require management to make estimates and
assumptions that affect the reported amounts and disclosures in the
financial statements. Actual results could differ from those estimates.
3. Intangible Assets
The excess of the initial contributions of capital to Oppenheimer Capital over
the fair value of the net assets acquired had been amortized on a straight line
basis over a period of 25 years at an annual rate of approximately $2.6 million.
Following the OpCap Merger, this intangible was eliminated in establishing the
investment in PIMCO Advisors.
39
<PAGE>
4. Supplementary Financial Data
The following table summarizes the audited condensed results of operations of
PIMCO Holdings for the calendar years ended December 31, 1999 and 1998 and the
unaudited condensed pro forma results of operations of PIMCO Holdings for the
calendar year ended December 31, 1997 as if the above Oppenheimer Capital
related acquisition transactions had been completed on January 1, 1996. The pro
forma operating results give effect to:
(i) Conversion of PIMCO Holdings to a calendar year reporting basis;
(ii) The issuance of 2.1 million restricted PIMCO Advisors Class A units in
connection with the acquisition of the privately held 33% interest in
Oppenheimer Capital which occurred on November 4, 1997 (Opgroup
Transaction);
(iii) The assumed exchange of $230 million of previously existing
exchangeable debt for an additional 6.9 million PIMCO Advisors Class A
units, of which $149.5 million had been exchanged as of December 31,
1999;
(iv) The contribution of the 67% interest in Oppenheimer Capital by PIMCO
Holdings for 26.1 million PIMCO Advisors Class A units which occurred
on November 30, 1997 in the OpCap Merger;
(v) The addition of approximately $897.5 million of intangible assets at
PIMCO Advisors which arose on November 4, 1997 as a result of the
Opgroup Transaction which will be amortized over 20 years;
(vi) The issuance of approximately 2.2 million restricted unit rights
resulting in a deferred compensation charge of $67.8 million to be
amortized over a 5 year period that occurred on November 4, 1997;
(vii) The elimination of the priority distribution structure related to pre
December 31, 1997 rights of PIMCO Advisors Class A units; and
(viii) The repayment of the Equities Note in November 1997 and the resulting
elimination of interest income and related expense.
<TABLE>
<CAPTION>
For The Years Ended December 31,
1999 1998 1997
-------------- -------------- -----------------
(Actual) (Actual) (Pro forma)
<S> <C> <C> <C>
(Dollars in thousands, except per unit amounts)
Revenues
Equity in earnings of operating partnerships..... $90,066 $90,682 $65,963
------- ------- -------
Net income.................................... $74,291 $76,145 $65,963
======= ======= =======
Basic net income per unit........................ $ 1.51 $ 1.61 $ 1.44
======= ======= =======
Diluted net income per unit...................... $ 1.43 $ 1.52 $ 1.39
======= ======= =======
</TABLE>
The pro forma information above is not intended to reflect the results that
actually would have been obtained if the operations were consolidated during the
periods presented, nor is it an indication of future results.
40
<PAGE>
5. Benefit Plans
PIMCO Advisors and PIMCO Holdings jointly adopted the 1998 Unit Incentive Plan
(the "1998 Plan") effective January 1, 1998. The 1998 Plan was adopted to
replace the 1997 Unit Incentive Plan (the "1997 Plan") which in turn, replaced
the previous unit based incentive plans sponsored by PIMCO Advisors and
Oppenheimer Capital. Upon the adoption of the 1998 Plan, each option outstanding
under the 1997 Plan, the 1993 Unit Option Plan of PIMCO Advisors L.P., the 1996
Unit Incentive Plan of PIMCO Advisors L.P., the Oppenheimer Capital Amended and
Restated Restricted Option Plan, and the Oppenheimer Capital Amended and
Restated Restricted Unit Plan was replaced by an option or award under 1998
Plan. Each such award covered the same number of limited partnership units and
had the same term and vesting schedule as the award which it replaced. The 1998
Plan is intended to further the financial success of PIMCO Holdings and PIMCO
Advisors through obtaining and retaining the services of members of their
respective management boards, key employees and consultants who will contribute
to their growth, development and financial success, by offering such members,
key employees and consultants the opportunity to own, or have the right to share
in the appreciation of, PIMCO Holdings units, and, if they are "qualified
persons" within the meaning of 1998 Plan, PIMCO Advisors units. The 1998 Plan
is currently administered by the Management Board of PIMCO Holdings and the Unit
Incentive Committee of the Management Board of PIMCO Advisors. Pursuant to an
arrangement between PIMCO Advisors and PIMCO Holdings, PIMCO Advisors will issue
to PIMCO Holdings a number of PIMCO Advisors units equal to the number of PIMCO
Holdings units issued under the 1998 Plan.
Concurrent with the effective date of the 1997 Plan, awards for an aggregate
of 12,525,069 Partnership Units (including 3,203,850 restricted unit rights)
granted under plans sponsored by PIMCO Advisors and Oppenheimer Capital were
assumed under the 1997 Plan.
Prior to effectiveness of the 1997 Plan, PIMCO Holdings and Oppenheimer
Capital maintained the OpCap Option Plan and the OpCap Rights Plan for the
benefit of certain key employees. Pursuant to these plans, an eligible employee
was granted the right to receive a number of units of PIMCO Holdings at no cost
to the employee ("Rights"), in the case of the OpCap Rights Plan, and/or the
right to purchase a number of units at the fair market value of such units on
the date of grant ("Options"), in the case of the OpCap Option Plan. The right
to receive or purchase units vests 33 1/3 % per year at the end of each of the
third, fourth and fifth years from the date of grant. PIMCO Holdings transferred
to Oppenheimer Capital the proceeds from the exercise of Options in exchange for
an increase in its general partner interest in Oppenheimer Capital. Opfin and
the limited partners of PIMCO Holdings incurred dilution, in accordance with
their respective percentage interest in Oppenheimer Capital, upon the vesting of
Rights and the exercise of Options.
No compensation cost is recognized in the statements of income by Oppenheimer
Capital for the Options granted under the OpCap Option Plan because the exercise
price of the Options approximates the market price of the units on the date of
the grant. For the same reason no compensation cost is recognized in the
statements of operations of PIMCO Advisors for its fixed unit option plans. Had
compensation cost been recognized based on the fair value of the awards at the
date of grant, PIMCO Holdings net income would have been reported as the pro
forma amounts indicated below:
41
<PAGE>
<TABLE>
<CAPTION>
For The
For The Year For The Year For The Eight Year
Ended Ended Months Ended Ended
December 31, December 31, December 31, April 30,
1999 1998 1997 1997
--------------- --------------- --------------- ---------
<S> <C> <C> <C> <C>
(Dollars in thousands, except per unit amounts)
Net income
As reported............... $74,291 $76,145 $44,132 $53,326
Pro forma................. $71,094 $74,716 $44,060 $53,214
Basic net income per unit
As reported............... $ 1.51 $ 1.61 $ 1.70 $ 2.06
Pro forma................. $ 1.45 $ 1.58 $ 1.70 $ 2.05
</TABLE>
For the purpose of the above disclosure, the fair value of each award granted
is estimated on the date of grant using the Black-Scholes option pricing model
with the following weighted average assumptions used for the grants in the years
ended December 31, 1999 and 1998 and the eight-months ended December 31, 1997,
respectively distribution yield of 7.5%, 6.9% and 7.3% expected volatility of
27%, 22% and 21% and risk free interest rate of 5.26%, 5.51% and 6.52% and
expected lives of 5 years, 5 years and 5 years.
6. Gain on Quest Sale
Included in "Equity in earnings of operating partnerships" for the fiscal
years ended April 30, 1997 is a gain resulting from Oppenheimer Capital's sale
of the investment advisory and other contracts and business relationships for
its twelve Quest for Value mutual funds to OppenheimerFunds, Inc. ("OFI"),
which is unrelated to Oppenheimer Capital. For the year ended April 30, 1997,
PIMCO Holdings recognized a gain of $1.8 million, or $.07 per unit.
The Quest for Value Dual Purpose Fund was sold to OFI in July 1997, and PIMCO
Holdings recognized a gain on the sale of $2.8 million, or $.11 per unit in the
period ended December 31, 1997.
7. Legal Proceedings
Following the announcement of the execution of the Implementation and Merger
Agreement with Allianz of America, Inc. several purported class action
complaints were filed in the Court of Chancery for the County of New Castle,
against certain officers of PIMCO Holdings, PIMCO Partners, G.P., PIMCO Advisors
Holdings L.P., Pacific Mutual Holding Company and Allianz AG. The complaints
allege, among other things, various breaches of fiduciary duty, conflicts of
interest and unfair dealing in connection with the Implementation and Merger
Agreement with Allianz of America, Inc. and the transactions contemplated
thereby. The complaints seek compensatory and/or rescissionary money damages
or, alternatively, injunctive relief or rescission of the transaction.
PIMCO Advisors and its subsidiaries are subject to various pending and
threatened legal actions which arise in the normal course of business. In the
opinion of management, the disposition of claims currently pending and
threatened will not have a material adverse effect on PIMCO Advisors and its
subsidiaries' financial position or results of operations.
42
<PAGE>
8. Selected Quarterly Financial Data (Unaudited)
The quarterly results for the periods indicated were as follows:
<TABLE>
<CAPTION>
For The Year Ended December 31, 1999
-------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
<S> <C> <C> <C> <C>
(Dollars in thousands, except per unit amounts)
Revenues........................... $14,357 $27,106 $25,971 $22,632
======= ======= ======= =======
Net income......................... $10,695 $23,078 $21,933 $18,585
======= ======= ======= =======
Basic net income per unit.......... $ 0.22 $ 0.47 $ 0.44 $ 0.37
======= ======= ======= =======
Diluted net income per unit........ $ 0.21 $ 0.45 $ 0.42 $ 0.35
======= ======= ======= =======
Distribution declared per unit..... $ 0.58 $ 0.58 $ 0.60 $ 0.60
======= ======= ======= =======
Trading market price per unit
Low............................. $28.188 $26.875 $29.375 $30.000
High............................ $31.438 $30.000 $37.438 $38.000
<CAPTION>
For The Year Ended December 31, 1998
-------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
<S> <C> <C> <C> <C>
(Dollars in thousands, except per unit amounts)
Revenues........................... $20,037 $23,634 $22,670 $24,341
======= ======= ======= =======
Net income......................... $16,525 $19,374 $19,820 $20,426
======= ======= ======= =======
Basic net income per unit.......... $ 0.36 $ 0.42 $ 0.41 $ 0.42
======= ======= ======= =======
Diluted net income per unit........ $ 0.34 $ 0.39 $ 0.39 $ 0.40
======= ======= ======= =======
Distribution declared per unit..... $ 0.53 $ 0.53 $ 0.55 $ 0.57
======= ======= ======= =======
Trading market price per unit
Low............................. $29.375 $29.750 $25.437 $24.250
High............................ $35.937 $34.500 $35.375 $32.875
</TABLE>
43
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Management Board and Partners of PIMCO Advisors L.P.
In our opinion, the accompanying consolidated statements of financial
condition and the related consolidated statements of operations, of changes in
partners' capital and of cash flows present fairly, in all material respects,
the financial position of PIMCO Advisors L.P. and Subsidiaries (the
"Partnership") at December 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1999, in conformity with accounting principles generally accepted
in the United States. These financial statements are the responsibility of the
Partnership's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with auditing standards generally accepted in the
United States, which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
/s/ PRICEWATERHOUSECOOPERS LLP
Los Angeles, California
January 31, 2000
44
<PAGE>
PIMCO ADVISORS L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
December 31,
1999 1998
-------------- -------------
<S> <C> <C>
(Dollars in thousands)
ASSETS
Current assets:
Cash and cash equivalents.......................................................... $ 79,533 $ 46,134
Investment advisory fees receivable:
Private accounts................................................................ 149,484 146,159
Proprietary Funds............................................................... 20,464 17,484
Distribution and servicing fees receivable......................................... 10,835 7,579
Notes receivable................................................................... 988 998
Receivable from affiliates......................................................... 655 546
Short term investments............................................................. 119,490 69,923
Other current assets............................................................... 27,634 36,529
---------- ----------
Total current assets......................................................... 409,083 325,352
Investment in partnerships........................................................... 4,051 4,764
Fixed assets--Net of accumulated depreciation and amortization of $25,635 and $16,874 50,436 22,717
Intangible assets--Net of accumulated amortization of $231,123 and $176,071.......... 950,765 1,005,817
Other non current assets............................................................. 109,138 53,388
---------- ----------
Total assets......................................................................... $1,523,473 $1,412,038
========== ==========
LIABILITIES
Current liabilities:
Accounts payable and accrued expenses.............................................. $ 45,135 $ 27,960
Commissions payable................................................................ 15,673 3,863
Accrued compensation............................................................... 76,656 68,476
Distribution payable............................................................... 78,131 73,455
Short term borrowings.............................................................. 140,000 65,000
Other current liabilities.......................................................... 30,008 33,421
---------- ----------
Total current liabilities....................................................... 385,603 272,175
Long term notes...................................................................... 80,467 80,467
Other non current liabilities........................................................ 11,062 309
---------- ----------
Total liabilities.................................................................... 477,132 352,951
---------- ----------
PARTNERS' CAPITAL
General Partners (50,526,473 and 49,269,821 units issued and outstanding)............ 760,384 801,304
Class A Limited Partners (63,939,876 and 62,026,351 units issued and outstanding).... 351,825 336,438
Class D Limited Partners--Net of capital loans (600 units issued and outstanding
at December 31, 1999 and none at December 31, 1998)................................ 472 -
Unamortized compensation............................................................. (66,548) (78,655)
Cumulative translation adjustment.................................................... 208 -
---------- ----------
Total partners' capital.............................................................. 1,046,341 1,059,087
---------- ----------
Total liabilities and partners' capital.............................................. $1,523,473 $1,412,038
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
45
<PAGE>
PIMCO ADVISORS L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For The Years Ended December 31,
1999 1998 1997
------------- -------------- -------------
<S> <C> <C> <C>
(Dollars in thousands, except per unit
amounts)
Revenues
Investment advisory fees:
Private accounts..................................................... $545,043 $551,404 $291,890
Proprietary Funds.................................................... 299,464 218,756 165,829
Distribution and servicing fees......................................... 105,195 76,916 56,769
Other................................................................... 10,916 5,356 2,181
-------- -------- --------
Total revenues.................................................... 960,618 852,432 516,669
-------- -------- --------
Expenses
Compensation and benefits............................................... 393,065 359,583 225,831
Commissions............................................................. 95,168 77,842 46,739
Restricted Unit and Option Plans........................................ 33,981 25,753 8,188
Marketing and promotional............................................... 37,546 28,682 16,592
Occupancy and equipment................................................. 40,627 23,554 11,800
General and administrative.............................................. 62,567 43,669 27,406
Insurance............................................................... 2,659 2,946 2,576
Professional fees....................................................... 9,967 7,668 6,426
Amortization of intangible assets....................................... 55,052 55,052 43,488
Other................................................................... 45,061 27,514 10,083
-------- -------- --------
Total expenses.................................................... 775,693 652,263 399,129
-------- -------- --------
Operating income.......................................................... 184,925 200,169 117,540
Equity in income/(loss) of partnerships................................. 180 106 (361)
Other income, net....................................................... 21,579 8,673 2,853
-------- -------- --------
Income before income tax expense........................................ 206,684 208,948 120,032
Income tax expense...................................................... 984 572 1,702
-------- -------- --------
Net income................................................................ 205,700 208,376 118,330
-------- -------- --------
Other comprehensive income
Foreign currency translation adjustments................................ (208) - -
-------- -------- --------
Total other comprehensive income.................................. (208) - -
-------- -------- --------
Comprehensive income...................................................... $205,492 $208,376 $118,330
======== ======== ========
Net income per unit:
Basic net income:
General Partner and Class A Limited Partner unit..................... $ 1.83 $ 1.92 $ 1.54
======== ======== ========
Diluted net income:
General Partner and Class A Limited Partner unit..................... $ 1.75 $ 1.83 $ 1.45
======== ======== ========
Class B Limited Partner unit......................................... - - $ 1.45
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
46
<PAGE>
PIMCO ADVISORS L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
(Dollars in thousands)
<TABLE>
<CAPTION>
General Partners Class A Limited Partners
---------------------------- --------------------------------
Units Amounts Units Amounts
------------ ------------- --------------- --------------
<S> <C> <C> <C> <C>
Balances, January 1, 1997.................................. 800,000 $ 2,987 40,146,155 $ 205,422
Net income............................................... 5,115 62,038
Distributions............................................ (17,166) (106,967)
Exercise of unit options................................. 15,030 208 10,689 326
Issuance for acquisition................................. 26,037,766 629,436 2,119,608 63,661
Restricted Unit Plan grants.............................. 67,844
Issuance of restricted units in lieu of cash for
director fees...........................................
Issuance of units........................................ 1,994 59
Exchange of notes........................................ 4,406,142 146,871
Vesting of options and restricted units..................
Exchange of PIMCO Advisors L.P. public units for
PIMCO Advisors Holdings L.P. units..................... 19,481,394 192,245 (19,481,394) (192,245)
---------- --------- ----------- ---------
Balances, December 31, 1997................................ 46,336,184 812,884 27,201,200 246,950
Net income............................................... 92,225 116,151
Distributions............................................ (120,138) (151,207)
Exercise of unit options................................. 1,516,942 607 332,634 4,001
Restricted Unit Plan grants.............................. 1,435,798 32,977
Issuance of restricted units in lieu of cash for
director fees........................................... 2,544 74
Issuance of units........................................ 1,397,970 34,895
Exchange of notes........................................ 79,850 2,661
Exchange of Class B Limited Partners Units for
Class A Limited Partners Units......................... 32,993,050 65,662
Exchange of Limited Partners Units for
General Partners Units................................. 1,336,845 13,065 (1,336,845) (13,065)
Vesting of options and restricted units..................
---------- --------- ----------- ---------
Balances, December 31, 1998................................ 49,269,821 801,304 62,026,351 336,438
Net income............................................... 91,981 113,335
Distributions............................................ (135,899) (168,227)
Exercise of unit options................................. 1,066,326 1,225 402,577 2,056
Restricted Unit Plan grants.............................. 42,623 21,874
Issuance of restricted units in lieu of cash for
director fees........................................... 2,840 80
Issuance of units........................................ 1,655,811 48,042
Payment on capital loans.................................
Exchange of Limited Partners Units for
General Partners Units................................. 190,326 1,773 (190,326) (1,773)
Vesting of options and restricted units..................
Cumulative translation adjustment...................... - - - -
---------- --------- ----------- ---------
Balances, December 31, 1999................................ 50,526,473 $ 760,384 63,939,876 $ 351,825
========== ========= =========== =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
47
<PAGE>
PIMCO ADVISORS L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL--(Continued)
(Dollars in thousands)
<TABLE>
<CAPTION>
Class B Limited Partners Class D Limited Partners
-------------------------------- -------------------------------
Units Amounts Units Amounts
---------------- ------------- --------------- -------------
<S> <C> <C> <C> <C>
Balances, January 1, 1997............................... 32,960,826 $ 98,369 - $ -
Net income............................................ 51,177
Distributions......................................... (84,580)
Exercise of unit options..............................
Issuance for acquisition..............................
Restricted Unit Plan grants........................... 25,000 545
Issuance of restricted units in lieu of cash for
director fees........................................ 7,224 151
Issuance of units.....................................
Exchange of notes.....................................
Vesting of options and restricted units...............
Exchange of PIMCO Advisors L.P. public
Units for PIMCO Advisors Holdings L.P. units........
--------------- ------------ --------------- ------------
Balances, December 31, 1997............................. 32,993,050 65,662 - -
Net income............................................
Distributions.........................................
Exercise of unit options..............................
Restricted Unit Plan grants...........................
Issuance of restricted units in lieu of cash for
director fees........................................
Issuance of units.....................................
Exchange of notes.....................................
Exchange of Class B Limited Partners Units for
Class A Limited Partners Units...................... (32,993,050) (65,662)
Exchange of Limited Partners Units for
General Partners Units..............................
Vesting of options and restricted units............... - - - -
--------------- ------------ --------------- ------------
Balances, December 31, 1998............................. - - - -
Net income............................................ 384
Distributions......................................... (525)
Exercise of unit options..............................
Restricted Unit Plan grants...........................
Issuance of restricted units in lieu of cash for
director fees........................................
Issuance of units..................................... 600 3,066
Payment on capital loans..............................
Exchange of Limited Partners Units for
General Partners Units..............................
Vesting of options and restricted units...............
Cumulative translation adjustment..................... - - - -
--------------- ------------ --------------- ------------
Balances, December 31, 1999............................. - - 600 $2,925
=============== ============ =============== ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
48
<PAGE>
PIMCO ADVISORS L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL--(Continued)
(Dollars in thousands)
<TABLE>
<CAPTION>
Cumulative Total
Capital Unamortized ------------ -------------
------------------ ------------------ Translation Partners'
Loans Compensation ------------ -------------
------------------ ------------------ Adjustment Capital
------------ -------------
<S> <C> <C> <C> <C>
Balances, January 1, 1997............................. $ - $(10,535) $ - $ 296,243
Net income.......................................... 118,330
Distributions....................................... (208,713)
Exercise of unit options............................ 534
Issuance for acquisition............................ 693,097
Restricted Unit Plan grants......................... (68,389) --
Issuance of restricted units in lieu of cash for 151
director fees.....................................
Issuance of units................................... 59
Exchange of notes................................... 146,871
Vesting of options and restricted units............. 7,493 7,493
Exchange of PIMCO Advisors L.P. public
units for PIMCO Advisors Holdings L.P. units...... --
----------------- -------- ------------ ----------
Balances, December 31, 1997........................... - (71,431) - 1,054,065
Net income.......................................... 208,376
Distributions....................................... (271,345)
Exercise of unit options............................ 4,608
Restricted Unit Plan grants......................... (32,977) --
Issuance of restricted units in lieu of cash for
director fees..................................... 74
Issuance of units................................... 34,895
Exchange of notes................................... 2,661
Exchange of Class B Limited Partners Units for
Class A Limited Partners Units.................... --
Exchange of Limited Partners Units for
General Partners Units............................ --
Vesting of options and restricted units............. - 25,753 - 25,753
----------------- -------- ------------ ----------
Balances, December 31, 1998........................... - (78,655) - 1,059,087
Net income.......................................... 205,700
Distributions....................................... (304,651)
Exercise of unit options............................ 3,281
Restricted Unit Plan grants......................... (21,874) --
Issuance of restricted units in lieu of cash for
director fees..................................... 80
Issuance of units................................... (3,066) 48,042
Payment on capital loans............................ 613 613
Exchange of Limited Partners Units for
General Partners Units............................
Vesting of options and restricted units............. 33,981 33,981
Cumulative translation adjustment................... - - 208 208
----------------- -------- ------------ ----------
Balances, December 31, 1999........................... $(2,453) $(66,548) $208 $1,046,341
================= ======== ============ ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
49
<PAGE>
PIMCO ADVISORS L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For The Years Ended December 31,
------------------------------------
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
(Dollars in thousands)
Cash flows from operating activities:
Net income.......................................................................... $ 205,700 $ 208,376 $ 118,330
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization..................................................... 86,742 71,026 51,262
Issuance of restricted units in lieu of directors fees............................ 80 74 151
Restricted Unit and Option Plans.................................................. 33,981 25,753 8,188
Equity in loss (income) of unconsolidated partnerships............................ (180) (106) 361
Unrealized gain on investments.................................................... (4,289) (42) (1,171)
Gain on sale of investments....................................................... (4,292) (303) --
Change in operating assets and liabilities, excluding net effects of
Acquired entities:
Change in fees receivable........................................................ (9,561) (23,014) (21,123)
Change in other assets........................................................... (62,535) (61,532) (25,953)
Change in accounts payable and accrued expenses.................................. 17,175 12,021 6,332
Change in other liabilities...................................................... 32,006 27,773 38,556
Other............................................................................ -- 7 (34)
--------- --------- ---------
Net cash provided by operating activities........................................... 294,827 260,033 174,899
--------- --------- ---------
Cash flows from investing activities:
Purchases of investments............................................................ (118,212) (68,516) (46,122)
Proceeds from sales of investments.................................................. 77,710 31,791 47,186
Return of investment in partnerships................................................ 1,036 600 --
Investment in partnerships.......................................................... (627) (164) (2,815)
Proceeds from sale of fixed assets.................................................. 77 33 3
Purchase of fixed assets............................................................ (41,577) (13,790) (4,856)
Notes receivable advances........................................................... (2,120) (1,312) (699)
Cash of acquired entities........................................................... -- -- 36,300
--------- --------- ---------
Net cash provided by (used in) investing activities................................. (83,713) (51,358) 28,997
--------- --------- ---------
Cash flows from financing activities:
Short term borrowings............................................................... 75,000 35,000 30,000
Long term debt paid off............................................................. -- -- (32,193)
Unit options exercised.............................................................. 3,281 4,608 --
Issuance of Limited Partnership Units to Deferred Compensation Plan................. 48,655 34,879 --
Capital contribution from General Partner........................................... -- 16 --
Cash distributions declared......................................................... (304,651) (271,345) (208,713)
--------- --------- ---------
Net cash used in financing activities............................................... (177,715) (196,842) (210,906)
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents................................ 33,399 11,833 (7,010)
Cash and cash equivalents, beginning of year........................................ 46,134 34,301 41,311
--------- --------- ---------
Cash and cash equivalents, end of year.............................................. $ 79,533 $ 46,134 $ 34,301
========= ========= =========
Supplemental disclosures:
Income taxes paid................................................................. $ 529 $ 8,676 $ 316
========= ========= =========
Interest paid..................................................................... $ 9,844 $ 8,510 $ 1,102
========= ========= =========
Fair value of non-cash assets acquired............................................ $ 982,459
=========
Liabilities assumed............................................................... $ 330,889
=========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
50
<PAGE>
PIMCO ADVISORS L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and Business
PIMCO Advisors L.P. ("PIMCO Advisors") is an investment management firm
providing fixed income and equity investment management to institutional and
retail clients, offering the investment management expertise, performance record
and reputations of its institutional investment managers, which include the
fixed income oriented Pacific Investment Management Company ("Pacific
Investment Management") and the equity oriented Oppenheimer Capital. PIMCO
Advisors operates in one industry segment--investment management services.
PIMCO Advisors offers its investment management services to institutional
clients through client service representatives of its investment management
groups. Institutional clients invest through separate accounts and pooled
vehicles such as the institutional share classes of the PIMCO Funds, PIMCO
Advisors' family of 54 proprietary mutual funds. PIMCO Advisors offers the
investment expertise of its institutional investment managers to retail
investors through the retail share classes of the PIMCO Funds, which are
distributed primarily through broker dealers including PIMCO Funds Distributors
LLC (formerly known as PIMCO Funds Distribution Company), a wholly-owned broker-
dealer.
PIMCO Advisors and its subsidiaries were formed on November 15, 1994, when
Pacific Asset Management LLC (a subsidiary of Pacific Life Insurance Company)
merged certain of its investment management businesses and substantially all of
its assets (the "PFAMCo Group") into Thomson Advisory Group L.P. ("TAG LP")
(the "Consolidation").
On November 4, 1997, PIMCO Advisors acquired Oppenheimer Group, Inc.
("Opgroup"), whose subsidiary Oppenheimer Financial Corp. ("Opfin") owned the
32.4% managing general partner interest in Oppenheimer Capital and the one
percent general partner interest in PIMCO Advisors Holdings L.P. (formerly
Oppenheimer Capital, L.P.) ("PIMCO Holdings"). In the transaction, Opgroup
became a subsidiary of PIMCO Advisors, and the Opgroup stockholders received 2.1
million PIMCO Advisors Class A units and rights to exchange up to $230 million
of outstanding term notes of Opgroup for an additional 6.9 million PIMCO
Advisors Class A units at $33 1/3 per unit. In connection with the transaction,
PIMCO Advisors split the one percent general partner interest in PIMCO Holdings
into a .01% general partner interest and a .99% limited partner interest, and
sold the general partner interest to its general partner for $80,000, its
approximate book value. As explained further in Note 3, the purchase method of
accounting was used by PIMCO Advisors to record the acquisition of Opgroup.
On November 30, 1997, Oppenheimer Capital merged with a subsidiary of PIMCO
Advisors, with Oppenheimer Capital surviving (the "OpCap Merger"). In the
OpCap Merger, PIMCO Advisors acquired from PIMCO Holdings its 67.6% general
partner interest in Oppenheimer Capital in exchange for 26.1 million PIMCO
Advisors Class A units, an approximate 24% general partner interest in PIMCO
Advisors. As a result, Oppenheimer Capital became a wholly owned subsidiary of
PIMCO Advisors and the limited partner units of PIMCO Holdings came to represent
an indirect investment in the business of PIMCO Advisors. As a result, the
consolidated statement of operations includes the operations of Oppenheimer
Capital since November 4, 1997, also reflecting a minority interest expense of
$2.4 million for the month of November, included in other income, net. The
transaction was accounted for at book value of PIMCO Advisors, as a transaction
between related parties.
On December 31, 1997, PIMCO Advisors caused its 19.5 million publicly held
units to be contributed to PIMCO Holdings in exchange for an equal number of
PIMCO Holdings units. As a result, PIMCO Advisors ceased to be publicly traded,
and PIMCO Holdings general partner interest in PIMCO Advisors increased to
approximately 43%. Concurrently, PIMCO Holdings New York Stock Exchange trading
symbol was changed from "OCC" to "PA".
51
<PAGE>
The accompanying consolidated financial statements include the accounts of
PIMCO Advisors and its subsidiaries. The investment advisor subsidiaries
included in these consolidated financial statements are as follows:
. Pacific Investment Management Company manages a variety of predominantly
fixed income portfolios primarily for institutions and mutual funds;
. Oppenheimer Capital is a value oriented manager of equity securities
primarily for institutions, retail products and mutual funds;
. Cadence Capital Management ("Cadence") specializes in disciplined,
growth oriented management of equity securities primarily for
institutions and mutual funds;
. Parametric Portfolio Associates ("Parametric") specializes in highly
quantitative management of domestic and international equity portfolios
primarily for institutions and mutual funds;
. NFJ Investment Group ("NFJ") is a value oriented manager of equity
securities primarily for institutions and mutual funds.
The investment advisor subsidiaries are supported by certain additional
subsidiaries including:
. Value Advisors LLC ("Value"), a registered investment adviser and
wholly owned subsidiary of PIMCO Advisors, acting principally as the
administrator of eight closed end funds;
. PIMCO Funds Distributors LLC ("PFD") serves as the distributor of
institutional and retail mutual funds for which PIMCO Advisors and the
investment advisor subsidiaries provide investment management and
administrative services;
. StocksPLUS Management, Inc. ("StocksPLUS"), a wholly-owned subsidiary
of Pacific Investment Management, owns approximately 0.125 percent
interest in, and is the general partner of StocksPLUS, L.P. (Note 12);
. Circle Trust Company ("CTC"), formerly Columbus Circle Trust Company,
a non bank trust company and wholly owned subsidiary of CCI, established
in November 1995, which commenced business in January 1996;
. Opcap Advisors, a value oriented manager and 99% owned subsidiary of
Oppenheimer Capital, with 1% owned by Value;
. OCC Distributors ("Distributors"), a registered broker/dealer and 99%
owned subsidiary of Oppenheimer Capital, with 1% owned by Value;
. 225 Liberty Street Advisers L. P. ("225") a registered investment
adviser and 99% owned subsidiary of Oppenheimer Capital, with 1% owned
by Value;
. PIMCO Trust Company ("Trust Co."), formerly Oppenheimer Capital Trust
Company, a non bank trust company and wholly owned subsidiary of PIMCO
Advisors LP;
. PIMCO Europe Limited. ("PIMCO Europe"), formerly, PIMCO Global Advisors
(Europe) Ltd, a registered investment adviser in the United Kingdom and
wholly owned subsidiary of PIMCO Global Advisors LLC, a wholly owned
subsidiary of PIMCO Advisors;
. PIMCO Japan Limited. ("PIMCO Japan"), formerly PIMCO Global Advisors
(Japan), a registered investment adviser in Japan and wholly owned
subsidiary of PIMCO Advisors;
52
<PAGE>
. PIMCO Australia PTY Limited ("PIMCO Australia"), formerly PIMCO Global
Advisors (Australia), a registered investment adviser in Australia and
wholly owned subsidiary of PIMCO Global Advisors LLC.
. PIMCO Asia Pte Ltd ("PIMCO Asia"), a registered investment adviser in
Singapore and wholly owned subsidiary of PIMCO Global Advisors LLC.
. PIMCO Global Advisors (Resources) Limited ("PIMCO Asia"), a Cayman
Island exempted company and wholly owned subsidiary of PIMCO Global
Advisors LLC.
PIMCO Advisors L.P., Pacific Investment Management, Oppenheimer Capital,
Cadence, Parametric, NFJ, Value, OpCap Advisors and 225 are registered
investment advisors. PFD and Distributors are registered broker/dealers with the
Securities and Exchange Commission and members of the National Association of
Securities Dealers, Inc.
On April 30, 1999, PIMCO Advisors L.P. completed the sale of Blairlogie
Capital Management to a subsidiary of Alleghany Asset Management pursuant to the
Purchase and Sale Agreement, dated as of October 24, 1998, as amended.
Blairlogie Capital Management is an Edinburgh, Scotland based former investment
management subsidiary of PIMCO Advisors.
On June 30, 1999, PIMCO Advisors L.P. completed its withdrawal as a partner
of Columbus Circle Investors, resulting in ownership residing with a management
group pursuant to an Admission Agreement. The Admission Agreement and the
General Partnership Agreement of Columbus Circle Investors provide for payments
to PIMCO Advisors L.P. Columbus Circle Investors is a Stamford, Connecticut
based former investment management subsidiary of PIMCO Advisors.
After the close of business December 31, 1999, PIMCO Advisors completed the
sale of Circle Trust Company to Orbitex Acquisition Holdings Corp ("Orbitex")
pursuant to the Stock Purchase Agreement, dated as of March 5, 1999, as amended.
2. Significant Accounting Policies
a. Cash and Cash Equivalents--PIMCO Advisors invests certain cash balances
in money market funds. At December 31, 1999, this investment is
approximately $58.9 million, of which approximately $53.5 million is
invested in invested in non-affiliate money market funds. At December
31, 1998, this investment is approximately $43.9 million, of which
approximately $37.3 million is invested in invested in non-affiliate
money market funds. Management considers investments in money market
funds to be cash equivalents for purposes of the Consolidated
Statements of Cash Flows. These investments are carried at cost, which
approximates market.
b. Investment Advisory Fees--PIMCO Advisors records investment advisory
fees on an accrual basis. Investment advisory fees receivable for
private and separate accounts consist primarily of accounts billed on a
quarterly basis. Private accounts may also generate a fee based on
investment performance, which is recorded as income when earned and not
subject to forfeiture. Investment advisory fees for the Proprietary
Funds are received monthly.
c. Short-Term Investments--The short term investments, as of December 31,
1999 and 1998, are primarily invested in the PIMCO Funds with a short-
term duration objective. The investments are carried at market value.
d. Depreciation and Amortization--Office equipment, furniture and fixtures
are depreciated on a straight line basis over their estimated useful
lives, generally five years. Automobiles are depreciated on a straight
line basis over their estimated lives, generally three years. Leasehold
improvements are amortized on a straight line basis over the remaining
terms of the related leases or the useful lives of such improvements,
whichever is shorter.
53
<PAGE>
e. Other Assets--PFD offers for sale a "B" class of mutual fund shares.
Under this share structure PFD advances commissions to independent
brokers and is entitled to recoup its marketing costs through an
ongoing fee stream from the respective funds or through contingent
deferred sales charges collected from the share purchaser. Such fees
are capitalized as deferred sales charges and amortized on a straight
line basis as commission expense over a period of 60 months. Deferred
unamortized marketing costs of approximately $74.8 million and $51.0
million are included in other non current assets at December 31, 1999
and 1998, respectively.
f. Income Taxes--PIMCO Advisors and its subsidiaries are predominantly
partnerships and, as a result, are generally not subject to federal or
state income taxes. All partners of PIMCO Advisors are responsible for
taxes, if any, on their proportionate share of PIMCO Advisors' taxable
income. PIMCO Advisors is subject to an unincorporated business tax in
a certain jurisdiction in which it operates. Certain corporate
subsidiaries are subject to federal and state income taxes and file
separate tax returns. The provision for income taxes is determined
using the liability method which gives recognition to deferred tax
assets and liabilities based on the expected future tax consequences of
events that have been recognized in the financial statements or tax
returns.
g. Foreign Currency Translation--The assets and liabilities of Blairlogie,
PIMCO Asia, PIMCO Australia, PIMCO Europe and PIMCO Japan have been
translated into U.S. dollars at the current rate of exchange existing
at year end. Revenues and expenses were translated at the average of
the monthly exchange rates then in effect. The effects of translating
the results of operations of subsidiaries with a functional currency
other than the U.S. Dollar are included in Partners' Capital.
h. Net Income Allocation--Net income is allocated in accordance with the
Amended and Restated Agreement of Limited Partnership of PIMCO
Advisors. Net income is generally allocated among unit holders in the
same proportions as cash distributions. Class D units issued to
certain executives during 1999 have a distribution preference
corresponding to the results of operations of the PIMCO Equity Advisors
division. Prior to 1998, PIMCO Advisors cash distribution policy
provided for a first priority distribution to General Partner and Class
A Limited Partner units ($1.88 per year through December 31, 1997)
followed by a second priority distribution to Class B Limited Partner
units. For the year ended December 31, 1997, the distribution was equal
for all classes of units. The Class A unit distribution preference
ended with the payment of the distribution for the fourth quarter of
1997, and on March 1, 1998, all PIMCO Advisors Class B units converted
into Class A units.
i. Net Income Per Unit--Basic net income per unit is computed based on the
weighted average number of units outstanding. Diluted net income per
unit assumes the exercise of dilutive unit options. Proceeds from the
exercise of such unit options are assumed to be used to repurchase
outstanding limited partner units under the treasury stock method. The
weighted average number of units used to compute basic and diluted net
income per unit was as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Basic
General Partner and Class A Limited Partner Units.. 112,116,471 108,582,920 43,773,904
Diluted
General Partner and Class A Limited Partner Units.. 117,121,459 113,918,207 45,701,026
Class B Limited Partner Units...................... -- -- 35,662,779
</TABLE>
54
<PAGE>
j. Other--Certain items have been reclassified to conform with the current
year presentation. All significant intercompany items have been
eliminated in the accompanying consolidated financial statements.
k. Comprehensive Income--During 1999, PIMCO Advisors adopted SFAS No. 130,
Reporting Comprehensive Income, which requires that PIMCO Advisors
present comprehensive income, a measure that reflects all non-owner
changes in equity, in addition to net income. Comprehensive income has
been reflected in the accompanying Consolidated Statements of
Operations and Changes in Partners' Capital. The adoption of SFAS No.
130 did not have a significant impact on the financial position or the
results of operations of PIMCO Advisors.
l. Use of Estimates in the Preparation of Financial Statements--The
financial statements have been prepared in accordance with generally
accepted accounting principles which require management to make
estimates and assumptions that affect the reported amounts and
disclosures in the financial statements. Actual results could differ
from those estimates.
3. Intangible Assets
The acquisition of Opgroup in November 1997 was recorded under the purchase
accounting method. Intangible assets of approximately $897.5 million represented
the excess of the purchase price over the fair value of the net tangible assets
of Oppenheimer Capital acquired. This amount is amortized on a straight line
basis over 20 years. For accounting purposes, a transaction in 1994 was treated
as a purchase and recapitalization of TAG LP by PFAMCo Group, or a "reverse
acquisition." Intangible assets of approximately $284.9 million represented the
excess of the purchase price over the fair value of the net tangible assets of
TAG LP deemed acquired in the transaction. A portion of these intangible assets
represented the value assigned to PIMCO Advisors Master Limited Partnership
("MLP") structure. Under prior Internal Revenue Code guidelines, an MLP was
exempt from federal and most state and local income taxes through December 31,
1997. The value attributed to the MLP structure has been amortized over the
period ending December 31, 1997. The remainder is amortized on a straight line
basis over its estimated life of 20 years.
4. Supplementary Financial Data
The following table summarizes the actual condensed 1999 and 1998 results
of operations of PIMCO Advisors and the unaudited condensed pro forma 1997
results of operations of PIMCO Advisors as if the above acquisition transactions
had been completed on January 1, 1996. The pro forma operating results give
effect to:
(i) Conversion of Oppenheimer Capital to a calendar year reporting basis;
(ii) The issuance of 2.1 million restricted PIMCO Advisors Class A units
in connection with the acquisition of the privately held 33% interest
in Oppenheimer Capital which occurred on November 4, 1997 ("Opgroup
Transaction");
(iii) The assumed exchange of $230 million of previously existing
exchangeable debt for an additional 6.9 million PIMCO Advisors Class
A units, of which $149.5 million had been exchanged as of December
31, 1999;
(iv) The contribution of the 67% interest in Oppenheimer Capital by PIMCO
Holdings for 26.1 million PIMCO Advisors Class A units which occurred
on November 30, 1997 in the OpCap Merger;
(v) The addition of approximately $897.5 million of intangible assets at
PIMCO Advisors which arose on November 4, 1997 as result of the
Opgroup Transaction which will be amortized over 20 years;
55
<PAGE>
(vi) The issuance of approximately 2.2 million restricted unit rights
resulting in a deferred compensation charge of $67.8 million to be
amortized over a 5 year period that occurred on November 4, 1997; and
(vii) The elimination of the priority distribution structure related to
pre December 31, 1997 rights of PIMCO Advisors Class A units.
<TABLE>
<CAPTION>
For the Years Ended December 31,
----------------------------------------------------
1999 1998 1997
-------------- --------------- -----------------
(Actual) (Actual) (Pro Forma)
<S> <C> <C> <C>
(Dollars in thousands,
except per unit amounts)
Revenues
Investment advisory............... $844,507 $770,160 $641,662
Distribution and servicing........ 116,111 82,272 63,184
-------- -------- --------
960,618 852,432 704,846
-------- -------- --------
Expenses
Compensation and related expense.. 393,065 359,583 295,886
Other operating expense, net...... 272,820 203,668 148,443
Amortization of intangibles,
options and restricted units..... 89,033 80,805 103,157
-------- -------- --------
754,918 644,056 547,486
-------- -------- --------
Net income........................ $205,700 $208,376 $157,360
======== ======== ========
Basic net income per unit......... $ 1.83 $ 1.92 $ 1.44
======== ======== ========
Diluted net income per unit....... $ 1.75 $ 1.83 $ 1.39
======== ======== ========
</TABLE>
The pro forma information above is not intended to reflect the results that
actually would have been obtained if the operations were consolidated during the
periods presented, nor is it an indication of future results.
5. Notes Receivable
PIMCO Advisors and certain subsidiaries have granted loans to certain
employees as part of programs designed to ensure the long term retention of
those employees. These loans are primarily non interest bearing and are
generally due within one year of issuance.
6. Fixed Assets
The major classifications of fixed assets are as follows:
<TABLE>
<CAPTION>
As of December 31,
----------------------------
1999 1998
----------- --------------
(Dollars in Thousands)
<S> <C> <C>
Office equipment, furniture and
fixtures............................... $59,051 $30,486
Leasehold improvements.................. 15,948 9,083
Premises................................ 1,050 -
Automobiles............................. 22 22
------- -------
Total fixed assets...................... 76,071 39,591
Less accumulated depreciation and
amortization........................... 25,635 16,874
------- -------
Fixed assets, net....................... $50,436 $22,717
======= =======
</TABLE>
56
<PAGE>
7. Income Taxes
Only certain subsidiaries are subject to income taxes directly and they
file separate tax returns. The total income tax provision for the affected
subsidiaries is as follows:
<TABLE>
<CAPTION>
For the Years Ended
-----------------------------------------
December 31,
-----------------------------------------
1999 1998 1997
---------------- ---------- ---------
<S> <C> <C> <C>
(Dollars in thousands)
Current expense:
State................. $ 368 $ 163 $ 105
Federal............... 690 427 156
Deferred (benefit)
expense:
State................. (21) (31) 293
Federal............... (53) 13 1,148
----- ----- ------
$ 984 $ 572 $1,702
===== ===== ======
</TABLE>
8. Benefit Plans
a. Profit Sharing and Incentive Programs--PIMCO Advisors and its
subsidiaries have several profit sharing and incentive programs that
compensate participants on the basis of profitability and discretionary
bonuses. Compensation under these programs was approximately $251.5
million, $239.8 million, and $152.9 million for the years ended December
31, 1999, 1998 and 1997, respectively.
b. Executive Deferred Compensation Plan--PIMCO Advisors and its
subsidiaries have a nonqualified deferred compensation plan pursuant to
which a portion of the compensation otherwise payable to certain
eligible employees will be mandatorily deferred, and pursuant to which
such eligible employees may elect to defer additional amounts of
compensation. The plan is unfunded and is maintained primarily for the
purpose of providing deferred compensation for a select group of
management or highly compensated employees, within the meaning of
Sections 201(2), 301(a)(3) and 401(a)(1) of the Employee Retirement
Income Security Act of 1974, as amended. Amounts deferred under the plan
are used to acquire units of PIMCO Advisors and are held in a trust for
the employees. As of December 31, 1999 and 1998, the balance related to
PIMCO Advisors and its subsidiaries in the trust at fair value was
approximately $157.5 million and $68.0 million, respectively.
c. Savings and Investment Plans--PIMCO Advisors and its subsidiaries have
several defined contribution employee benefit plans covering
substantially all employees. PIMCO Advisors and Pacific Investment
Management are the sponsors of certain defined contribution employee
savings and investment plans. The plans qualify under Section 401(k) of
the Internal Revenue Code and allow eligible employees of PIMCO Advisors
and certain of its subsidiaries, to contribute up to ten percent of
their annual compensation as defined, and subject to a maximum dollar
amount determined from time to time under the provisions of the Internal
Revenue Code. Employees are generally eligible following the later of
attainment of age 21 or the completion of one year of credited service.
For 1999, 1998 and 1997, PIMCO Advisors and certain of its subsidiaries
matched and contributed an amount up to the first six percent of annual
compensation, subject to Internal Revenue Code limits, contributed by
the employees. In addition, PIMCO Advisors and certain of its
subsidiaries, may elect to make a discretionary contribution to all
participants. The amount expensed by PIMCO Advisors and its subsidiaries
related to these plans during the year ended December 31, 1999, 1998 and
1997 was approximately $4.8 million, $4.3 million and $2.2 million,
respectively.
Pacific Investment Management has several defined contribution
employee benefit plans covering substantially all of its employees and
made contributions to the plans ranging from five percent to eleven
percent of covered individuals' base compensation. The aggregate expense
recorded is approximately $2.1 million, $1.3 million and $1.1 million in
1999, 1998 and 1997, respectively.
57
<PAGE>
d. Unit Based Incentive Plans--PIMCO Advisors and PIMCO Holdings jointly
adopted the 1998 Unit Incentive Plan (the "1998 Plan") effective
January 1, 1998. The 1998 Plan was adopted to replace the 1997 Unit
Incentive Plan (the "1997 Plan") which in turn, replaced the previous
unit based incentive plans sponsored by PIMCO Advisors and Oppenheimer
Capital. Upon the adoption of the 1998 Plan, each option outstanding
under the 1997 Plan, 1993 Unit Option Plan of PIMCO Advisors L.P., the
1996 Unit Incentive Plan of PIMCO Advisors L.P., the Oppenheimer Capital
Amended and Restated Restricted Option Plan, and the Oppenheimer Capital
Amended and Restated Restricted Unit Plan was replaced by an option or
award under 1998 Plan. Each such award covered the same number of
limited partnership units and had the same term and vesting schedule as
the award which it replaced. The 1998 Plan is intended to further the
financial success of PIMCO Holdings and PIMCO Advisors through obtaining
and retaining the services of members of their respective management
boards, key employees and consultants who will contribute to their
growth, development and financial success, by offering such members, key
employees and consultants the opportunity to own, or have the right to
share in the appreciation of, PIMCO Holdings units, and, if they are
"qualified persons" within the meaning of the 1998 Plan, PIMCO
Advisors units. The 1998 Plan is currently administered by the
Management Board of PIMCO Holdings and the Unit Incentive Committee of
the Management Board of PIMCO Advisors. Pursuant to an arrangement
between PIMCO Advisors and PIMCO Holdings, PIMCO Advisors will issue to
PIMCO Holdings a number of PIMCO Advisors units equal to the number of
PIMCO Holdings units issued under the 1998 Plan.
Concurrent with the effective date of the 1997 Plan, awards for an
aggregate of 12,525,069 Partnership Units (including 3,203,850
restricted unit rights) granted under plans sponsored by PIMCO Advisors
and Oppenheimer Capital were assumed under the 1997 Plan.
Prior to effectiveness of the 1997 Plan, PIMCO Holdings and Oppenheimer
Capital maintained the OpCap Option Plan and the OpCap Rights Plan for
the benefit of certain key employees. Pursuant to these plans, an
eligible employee was granted the right to receive a number of units of
PIMCO Holdings at no cost to the employee ("Rights"), in the case of
the OpCap Rights Plan, and/or the right to purchase a number of units at
the fair market value of such units on the date of grant ("Options"),
in the case of the OpCap Option Plan. The right to receive or purchase
units vests 33 1/3 % per year at the end of each of the third, fourth
and fifth years from the date of grant. PIMCO Holdings transferred to
Oppenheimer Capital the proceeds from the exercise of Options in
exchange for an increase in its general partner interest in Oppenheimer
Capital. Opfin and the limited partners of PIMCO Holdings incurred
dilution, in accordance with their respective percentage interest in
Oppenheimer Capital, upon the vesting of Rights and the exercise of
Options.
Prior to the adoption of the 1998 Plan, PIMCO Advisors maintained a
restricted unit plan and two unit options plans for the benefit of
certain key employees. A total of 150,000 Class A limited partner units
and 150,000 Class B limited partner units have been awarded under the
plan. In addition, under the OpCap Rights Plan, approximately 2,177,000
Class A limited partner deferred units were awarded. Under these plans,
units generally vest over a five-year period. The expense under these
plans was approximately $34.0 million, $21.3 million and $3.8 million
during 1999, 1998 and 1997, respectively.
58
<PAGE>
In addition, PIMCO Advisors maintained two unit option plans, which
are described below. No compensation cost is recognized for these fixed
unit option plans where the option price approximated the market price
on the date of grant. Had compensation cost for PIMCO Advisors two unit
option plans been determined based on the fair value at the grant dates,
PIMCO Advisors net income and earnings per unit would have been reported
as the pro forma amounts indicated below:
<TABLE>
<CAPTION>
For the Years Ended
------------------------------------
December 31,
------------------------------------
1999 1998 1997
----------- --------- ----------
<S> <C> <C> <C>
(Dollars in millions, except per
unit amounts)
Net income
As reported........................... $205.7 $208.4 $118.3
Pro forma............................. $198.3 $205.1 $116.5
Diluted net income per unit
Diluted net income per General Partner
and Class A Limited Partner unit
As reported........................... $ 1.75 $ 1.83 $ 1.45
Pro forma............................. $ 1.69 $ 1.80 $ 1.43
</TABLE>
For the above disclosure purposes, the fair value of each option
granted is estimated on the date of grant using the Black-Scholes option
pricing model with the following weighted average assumptions used for
grants in 1999, 1998 and 1997, respectively: dividend yield of 7.5%,
6.9% and 7.3%; expected volatility of 27%, 22% and 21%; risk free
interest of 5.26%, 5.51% and 6.52%; and expected lives of 5, 5 and 5
years, respectively.
The unit option plans are administered by the Unit Incentive
Committee of the Management Board of PIMCO Advisors, which determines
the key employees and the terms of the options to be granted. Under the
1998 and 1997 Plans, PIMCO Advisors could grant options on the Class A
units to its employees for up to a total that the Unit Incentive
Committee of the Management Board of PIMCO Advisors deems appropriate.
The expense under the option plans was approximately $4.4 million and
$4.4 million during 1998 and 1997, respectively. There was no cost for
this program in 1999. Under the 1996 Plan, the exercise price for each
option reported herein has not been less than the average trading price
of PIMCO Advisors units for the 20 trading day period prior to the grant
date and each option's maximum term is 10 years. There was no material
difference between the option price and the market price on the grant
date. The outstanding options vest over a period of not more than five
years and vested options are generally exercisable after January 1,
1998. As noted above, effective January 1, 1998, all such awards, and
those under the OpCap Option Plan and OpCap Rights Plan, were assumed
under the 1998 Plan. In 1998, all Class B unit options were converted to
Class A unit options. Following is a summary of the status of the awards
under the unit option plans:
59
<PAGE>
<TABLE>
<CAPTION>
Units Range Per Unit
------------- ----------------------
<S> <C> <C>
Outstanding, January 1,1997.......... 7,768,730 $ 2.425 --$18.810
----------
Options on Limited Partner units
Granted........................... 794,600 $21.400 --$26.770
Exercised......................... (30,000) $ 13.530
Cancelled......................... (212,720) $ 2.425 --$22.870
Assumed options...................... 1,000,609 $12.350 --$21.630
----------
Outstanding, December 31,1997........ 9,321,219 $ 2.425 --$26.770
----------
Options on Limited Partner units
Granted........................... 1,612,827 $26.875 --$34.875
Exercised......................... (2,412,702) $ 2.425 --$22.870
Cancelled......................... (153,870) $ 2.425 --$34.625
----------
Outstanding, December 31,1998........ 8,367,474 $ 2.425 --$34.875
----------
Options on Limited Partner units
Granted........................... 1,717,700 $26.875 --$34.625
Exercised......................... (1,373,503) $ 2.425 --$34.625
Cancelled......................... (253,193) $12.430 --$34.625
----------
Outstanding, December 31,1999........ 8,458,478 $ 2.425 --$34.875
==========
Exercisable, December 31, 1999:
Options on Limited Partner units.. 5,514,936 $ 2.425 --$34.875
==========
</TABLE>
9. Long Term Notes
In connection with the OpCap Merger, as discussed in Note 1, PIMCO Advisors
acquired Opgroup, the issuer of $230 million principal amount of notes. The
notes are exchangeable for Class A limited partner units at $33 1/3 per unit.
The notes bear interest at 6% per annum with a maturity date of December 1,
2037. As of December 31, 1999, approximately $149.5 million had been exchanged
for approximately 4.5 million Class A limited partner units. At December 31,
1999 and 1998, the outstanding balance on the notes was $80.5 and $80.5 million,
respectively. Interest expense related to these notes was approximately $4.9 and
$5.0 million in 1999 and 1998, respectively.
10. Contingencies
PIMCO Advisors and its subsidiaries are subject to various pending and
threatened legal actions which arise in the normal course of business. In the
opinion of management, the disposition of claims currently pending and
threatened will not have a material adverse effect on PIMCO Advisors and its
subsidiaries' financial position or results of operations.
11. Commitments
a. Lease Agreements--PIMCO Advisors and its subsidiaries lease office space
and certain office equipment under noncancelable leases with terms in
excess of one year. Future minimum payments are as follows:
<TABLE>
<CAPTION>
Year Ending December 31,
------------------------
(Dollars in thousands)
<S> <C>
2000...................... $ 16,580
2001...................... 16,496
2002...................... 16,136
2003...................... 15,629
2004...................... 15,476
Thereafter................ 111,546
--------
Total.................. $191,863
========
</TABLE>
60
<PAGE>
Rent expense in connection with these agreements was approximately $19.0
million, $10.5 million and $4.6 million for the years ended December 31,
1999, 1998 and 1997, respectively.
b. Letter of Credit--PIMCO Advisors is contingently liable for a letter of
credit in the amount of approximately $247,000 related to PIMCO Advisors
membership in an insurance program.
c. Revolving Line of Credit--PIMCO Advisors has a $500 million, 5 year
revolving credit facility, originated in May of 1998. The facility
permits short term borrowings at a floating rate of interest. The terms
of the agreement include an interest coverage ratio, a consolidated
funded debt ratio and a minimum operating cash flow ratio. At December
31, 1999 and 1998, the balance outstanding was $140.0 and $65.0 million,
respectively and PIMCO Advisors was in compliance with the required
ratios.
11. Net Capital
PFD and OCC Distributors are subject to the Uniform Net Capital Rule (Rule
15c3-1) under the Securities and Exchange Act of 1934, which requires the
maintenance of minimum net capital and requires that the ratio of aggregate
indebtedness to net capital, both as defined, shall not exceed 15 to 1. At
December 31, 1999, PFD had net capital of $7.0 million, which was $5.2 million
in excess of its required net capital of $1.8 million. PFD's net capital ratio
was 3.82 to 1 at December 31, 1999. At December 31, 1998, PFD had net capital of
$2.0 million, which was $1.3 million in excess of its required net capital of
$.7 million. PFD's net capital ratio was 4.82 to 1 at December 31, 1998. At
December 31, 1999, OCC Distributors had net capital of $4.1 million, which was
$4.1 million in excess of its required net capital of $48,000. OCC Distributors'
net capital ratio was .18 to 1 at December 31, 1999. At December 31, 1998, OCC
Distributors had net capital of $2.4 million, which was $2.3 million in excess
of its required net capital of $0.1 million. OCC Distributors' net capital ratio
was .24 to 1 at December 31, 1998.
12. Investment in Partnerships
Included in investment in partnerships is an investment by StocksPLUS in
StocksPLUS, L.P. StocksPLUS accounts for its investment in StocksPLUS, L.P.
under the equity method because StocksPLUS is the general partner in, and
exercises significant influence over the operating and financial policies of
StocksPLUS, L.P. (Note 1). The underlying investments of StocksPLUS, L. P. are
carried at fair value. StocksPLUS, L. P. has made its investments with the
intent to have its performance exceed that of the S & P 500 Index.
StocksPLUS has mitigated the effects of its pro rata investment in
StocksPLUS, L.P.'s investments through the use of short futures positions. Gains
and losses related to these positions are settled daily. Included in ''Short
term investments'' in the accompanying Consolidated Statements of Financial
Condition are securities which are used as necessary for deposits made in
connection with the futures positions and are recorded at fair value. The
notional amounts of the contracts do not necessarily represent future cash
requirements, as the contracts are intended to be closed prior to their
expiration. As of December 31, 1999 and 1998, the notional amounts of futures
contracts approximated $3.7 million and $3.1 million, respectively.
61
<PAGE>
Condensed financial information for StocksPLUS, L.P. is as follows:
Summary of Financial Condition
<TABLE>
<CAPTION>
As of December 31,
---------------------------
1999 1998
------------ ------------
<S> <C> <C>
(Dollars in thousands)
Assets
Investments at fair value....................... $7,028,530 $5,569,953
Other assets.................................... 84,817 62,082
---------- ----------
Total assets................................. $7,113,347 $5,632,035
========== ==========
Liabilities and partners' capital
Liabilities..................................... $ 249,522 $ 359,688
StocksPLUS' Partner Capital..................... 3,732 3,770
Limited Partners' Capital....................... 6,860,093 5,268,577
---------- ----------
Total liabilities and partners' capital...... $7,113,347 $5,632,035
========== ==========
Summary of Operations
<CAPTION>
For The Years Ended December 31,
----------------------------------------------
1999 1998 1997
-------------- ------------- -------------
<S> <C> <C> <C>
(Dollars in thousands)
Net trading gains on futures.................. $ 760,470 $ 875,775 $575,696
Net gain/ (loss) in fair value of securities 1,086 (10,584) 13,140
Interest income............................... 383,945 266,098 164,175
Fees and commissions.......................... (4,115) (10,741) (6,119)
---------- ---------- --------
Net income................................. $1,141,386 $1,120,548 $746,892
========== ========== ========
</TABLE>
62
<PAGE>
13. Consolidated Quarterly Results of Operations (unaudited)
The quarterly results for the periods indicated were as follows:
<TABLE>
<CAPTION>
Three Three Three Three
Months Months Months Months
Ended Ended Ended Ended
March 31, June 30, September 30, December 31,
1999 1999 1999 1999
--------------------------------------------------------------
(Dollars in thousands, except per unit amounts)
<S> <C> <C> <C> <C>
Revenues................................................. $228,557 $244,711 $242,927 $244,423
Expenses................................................. 195,461 182,388 183,496 192,589
-------- -------- -------- --------
Income before taxes...................................... 33,096 62,323 59,431 51,834
Income tax expense....................................... 271 425 115 173
-------- -------- -------- --------
Net income............................................... $ 32,825 $ 61,898 $ 59,316 $ 51,661
======== ======== ======== ========
Diluted net income per General Partner and Class A
$ 0.28 $ 0.54 $ 0.50 $ 0.43
Limited Partner unit.................................... ======== ======== ======== ========
<CAPTION>
Three Three Three Three
Months Months Months Months
Ended Ended Ended Ended
March 31, June 30, September 30, December 31,
1998 1998 1998 1998
-----------------------------------------------------------
(Dollars in thousands, except per unit amounts)
<S> <C> <C> <C> <C>
Revenues................................................. $193,857 $216,612 $213,937 $228,026
Expenses................................................. 146,906 161,290 162,544 172,744
-------- -------- -------- --------
Income before taxes...................................... 46,951 55,322 51,393 55,282
Income tax expense....................................... 169 202 141 60
-------- -------- -------- --------
Net income............................................... $ 46,782 $ 55,120 $ 51,252 $ 55,222
======== ======== ======== ========
Diluted net income per General Partner and Class A
$ 0.42 $ 0.48 $ 0.45 $ 0.48
Limited Partner unit.................................... ======== ======== ======== ========
</TABLE>
63
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To The General Partners of
Oppenheimer Capital
In our opinion, the accompanying consolidated statements of financial
condition and the related consolidated statements of operations, of changes in
partners' capital and of cash flows present fairly, in all material respects,
the financial position of Oppenheimer Capital and its subsidiaries (the
"Partnership") at December 31, 1997 and April 30, 1997, and the results of
their operations and their cash flows for the eight-month period ended December
31, 1997 and for the year ended April 30, 1997, in conformity with generally
accepted accounting principles. These consolidated financial statements are the
responsibility of the Partnership's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
/s/ PRICEWATERHOUSECOOPERS LLP
New York, New York
January 30, 1998
64
<PAGE>
OPPENHEIMER CAPITAL AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
December 31, April 30,
1997 1997
------------ ---------------
<S> <C> <C>
(Dollars in thousands)
ASSETS
Current assets:
Cash and short term investments............................................ $19,644 $27,123
Investment management fees receivable...................................... 55,616 52,357
Investments in affiliated mutual funds and other sponsored investment
products................................................................. 3,304 4,347
------- -------
Total current assets.................................................... 78,564 83,827
Furniture, equipment and leasehold improvements at cost less accumulated
depreciation and amortization of $3,288 and $2,812.......................... 3,885 3,795
Intangible assets, less accumulated amortization of $1,030 and $565.......... 1,170 1,511
Other non current assets..................................................... 2,617 3,886
------- -------
Total assets................................................................. $86,236 $93,019
======= =======
LIABILITIES, MINORITY INTEREST AND
PARTNERS' CAPITAL
Accrued employee compensation and benefits................................... $17,820 $13,914
Accrued expenses and other liabilities....................................... 11,556 8,880
Note payable................................................................. -- 400
Deferred investment management fees.......................................... 9,278 4,532
Distribution payable to partners............................................. -- 25,318
------- -------
Total liabilities............................................................ 38,654 53,044
------- -------
Minority interest............................................................ 213 277
Partners' Capital............................................................ 47,369 39,698
------- -------
Total liabilities, minority interest and partners' capital................... $86,236 $93,019
======= =======
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
65
<PAGE>
OPPENHEIMER CAPITAL AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For The
Eight-months For The
Ended Year Ended
December 31, April 30,
1997 1997
----------------- -----------------
<S> <C> <C>
(Dollars in thousands)
Revenues
Investment management fees............................... $144,790 $175,814
Net distribution assistance and commission income........ 2,992 4,910
Interest and dividends................................... 1,155 1,250
-------- --------
Total revenues........................................ 148,937 181,974
-------- --------
Expenses
Compensation and benefits................................ 66,312 77,664
Occupancy................................................ 4,713 6,572
General and administrative............................... 8,753 12,494
Promotional.............................................. 4,173 6,334
-------- --------
Total expenses........................................ 83,951 103,064
-------- --------
Operating income........................................... 64,986 78,910
Gain on Quest sales...................................... 4,374 2,806
-------- --------
Income before income tax expense and minority interest..... 69,360 81,716
Income tax expense....................................... 2,985 3,198
-------- --------
Income before minority interest............................ 66,375 78,518
Minority interest........................................ (251) (254)
-------- --------
Net income................................................. $ 66,124 $ 78,264
======== ========
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
66
<PAGE>
OPPENHEIMER CAPITAL AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
(Dollars in thousands)
<TABLE>
<S> <C>
Balance at May 1, 1996.............................................. $ 34,702
Net income........................................................ 78,264
Amortization of restricted unit compensation expense.............. 2,209
Distributions declared to partners:
Oppenheimer Financial Corp..................................... (24,707)
Oppenheimer Capital, L.P....................................... (51,300)
Contributions by Oppenheimer Capital, L.P......................... 530
--------
Balance at April 30, 1997........................................... 39,698
Net income........................................................ 66,124
Amortization of restricted unit compensation expense.............. 2,677
Distributions declared to partners:
Oppenheimer Financial Corp..................................... (17,624)
Oppenheimer Capital, L.P....................................... (36,752)
Value Advisors LLC............................................. (7,447)
PIMCO Advisors L.P............................................. (58)
Contributions by Oppenheimer Capital, L.P......................... 751
--------
Balance at December 31, 1997........................................ $ 47,369
========
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
67
<PAGE>
OPPENHEIMER CAPITAL AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For The Eight For The Year
Months Ended Ended
December 31, 1997 April 30, 1997
----------------- ---------------
(Dollars in thousands)
Cash flows from operating activities:
<S> <C> <C>
Net income...................................................... $ 66,124 $ 78,264
Adjustments to reconcile net income to net cash provided by
operating activities:
Amortization of restricted unit compensation.................. 3,808 2,209
Depreciation and amortization................................. 623 1,019
Minority interest, net of distributions....................... (64) 103
Change in operating assets and liabilities:
Change in investment management fees receivable.............. (3,259) (9,341)
Change in other assets....................................... 731 (182)
Change in accrued employee compensation and benefits......... 3,906 1,041
Change in accrued expenses and other liabilities............. 2,676 1,712
Change in deferred investment management fees................ 4,746 1,662
-------- --------
Net cash provided by operating activities....................... 79,291 76,487
-------- --------
Cash flows from investing activities:
Purchases of fixed assets....................................... (566) (1,111)
Intangible assets resulting from acquisitions................... (500) --
Proceeds from sales of mutual funds shares and other
Investments.................................................... 1,485 3,132
Purchases of mutual funds shares and other investments.......... (340) (2,819)
-------- --------
Net cash provided by (used in) investing activities............. 79 (798)
-------- --------
Cash flows from financing activities:
Payment of note payable......................................... (400) (400)
Distributions to partners:
Oppenheimer Financial Corp.................................... (25,853) (22,280)
Oppenheimer Capital, L.P...................................... (53,842) (46,160)
Value Advisors LLC............................................ (7,447) --
PIMCO Advisors L.P............................................ (58) --
Contributions by Oppenheimer Capital, L.P....................... 751 530
-------- --------
Net cash used in financing activities........................... (86,849) (68,310)
-------- --------
Net increase (decrease) in cash and short term investments...... (7,479) 7,379
Cash and short term investments at beginning of period.......... 27,123 19,744
-------- --------
Cash and short term investments at end of period................ $ 19,644 $ 27,123
======== ========
Supplemental disclosures
Interest paid................................................. $ 45 $ 112
======== ========
New York City unincorporated business tax paid................ $ 1,730 $ 3,376
======== ========
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
68
<PAGE>
OPPENHEIMER CAPITAL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
a. Organization and Consolidation--Oppenheimer Capital is a general
partnership wholly owned by PIMCO Advisors L.P. ("PIMCO Advisors")
directly and indirectly through PIMCO Advisors' wholly owned subsidiary
Value Advisors LLC. Oppenheimer Capital is a registered investment
adviser and is part of an affiliated group of companies operating in the
financial services industry.
The consolidated financial statements include the accounts of Oppenheimer
Capital and its subsidiaries, Opcap Advisors, OCC Distributors
("Distributors"), 225 Liberty Street Advisers, L.P. (formerly AMA
Investment Advisers, L.P.) (collectively, the "Subpartnerships"),
Oppenheimer Capital Limited and Oppenheimer Capital Trust Company. All
material intercompany balances and transactions have been eliminated in
consolidation.
b. Cash and Short Term Investments--Short term investments are recorded at
cost, which approximates market value, and include holdings in money
market mutual funds and highly liquid investments with maturities of
three-months or less.
c. Furniture, Equipment and Leasehold Improvements--Furniture and equipment
are depreciated on a straight line basis over five to seven year periods.
Amortization of leasehold improvements is on a straight line basis over
the lesser of their economic useful life or the term of the lease.
d. Investment Management Fees--Investment management fees are based on
written contracts and are generally computed on the net assets of the
managed accounts and recognized in the period earned.
e. Statements of Cash Flows--For purposes of reporting cash flows, cash and
short term investments include highly liquid investments with maturities
of three-months or less.
f. Intangible Assets--Impairment of intangible assets is measured on the
basis of anticipated undiscounted cash flows. At December 31, 1997 and
April 30, 1997, Oppenheimer Capital determined that there was no
impairment of intangible assets.
g. Use of Estimates--The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting periods. Actual results could differ from
those estimates.
2. Sale of Opfin Interest
On November 4, 1997, PIMCO Advisors acquired Oppenheimer Group, Inc.
("Opgroup"), whose subsidiary Oppenheimer Financial Corp. ("Opfin") owned
the 32.4% managing general partner interest in Oppenheimer Capital and the one
percent general partner interest in PIMCO Holdings L.P. ("PIMCO Holdings")
(formerly, Oppenheimer Capital, L.P.). In the transaction, Opgroup became a
subsidiary of PIMCO Advisors, and the Opgroup stockholders received 2.1 million
PIMCO Advisors Class A units and rights to exchange up to $230 million of
outstanding term notes of Opgroup for an additional 6.9 million PIMCO Advisors
Class A units at $33 1/3 per unit. In connection with the transaction, PIMCO
Advisors split the one percent general partner interest in PIMCO Holdings into a
.01% general partner interest and a .99% limited partner interest, and sold the
general partner interest to its general partner for $80,000, its approximate
book value. The purchase method of accounting was used by PIMCO Advisors to
record the acquisition of Opgroup.
69
<PAGE>
OPPENHEIMER CAPITAL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
On November 30, 1997, Oppenheimer Capital merged with a subsidiary of PIMCO
Advisors, with Oppenheimer Capital surviving (the "OpCap Merger"). In the
OpCap Merger, PIMCO Advisors acquired from PIMCO Holdings its 67.6% general
partner interest in Oppenheimer Capital in exchange for 26.1 million PIMCO
Advisors Class A units, an approximate 24% general partner interest in PIMCO
Advisors. As a result, Oppenheimer Capital became a wholly owned subsidiary of
PIMCO Advisors and the limited partner units of PIMCO Holdings came to represent
an indirect investment in the business of PIMCO Advisors. The transaction was
accounted for at book value of PIMCO Advisors, as a transaction between related
parties.
On December 31, 1997, PIMCO Advisors caused its 19.5 million publicly held
units to be contributed to PIMCO Holdings in exchange for an equal number of
PIMCO Holdings units. As a result, PIMCO Advisors ceased to be publicly traded,
and PIMCO Holdings general partner interest in PIMCO Advisors increased to
approximately 43%. Concurrently, PIMCO Holdings New York Stock Exchange trading
symbol was changed from "OCC" to "PA".
3. Long Term Lease Commitments
Oppenheimer Capital occupies office premises at various locations,
including the Oppenheimer Tower under an agreement to sublease with CIBC
Oppenheimer Corp., ("Opco"), a broker-dealer which was affiliated with
Oppenheimer Capital until November 4, 1997. Oppenheimer Capital's lease
commitments for office space under operating leases having noncancelable lease
terms in excess of one year provide for the following minimum annual rentals:
<TABLE>
<CAPTION>
Year Ending
December 31,
--------------------
(Dollars in
thousands)
<S> <C>
1998.................................. $ 4,140
1999.................................. 4,140
2000.................................. 4,140
2001.................................. 3,387
2002.................................. 3,554
Thereafter............................ 7,130
-------
Total................................. $26,491
=======
</TABLE>
The agreements expire at various dates through the calendar year ending
December 31, 2005 and contain provisions for additional charges (e.g., ground
rent, real estate taxes and operating expenses). Office rent expense for the
eight-month period ended December 31, 1997 was $3,785,000, and for the year
ended April 30, 1997 was $5,046,000.
4. Compensation Plans
Oppenheimer Capital has established a Restricted Unit Plan and a Restricted
Option Plan (the "OpCap Plans") for the benefit of certain key employees.
Pursuant to the OpCap Plans, an eligible employee is granted the right to
receive a number of units of PIMCO Holdings or, in certain cases after December
31, 1997, PIMCO Advisors, at no cost to the employee ("Rights"), in the case
of the Restricted Unit Plan, and/or the right to purchase a number of units at
the fair market value of such units on the date of grant ("Options"), in the
case of the Restricted Option Plan. Obligations under the OpCap Plans have been
assumed by PIMCO Advisors and PIMCO Holdings effective January 1, 1998. The
right to receive or purchase units vests 33 1/3% per year at the end of each of
the third, fourth and fifth years from the date of grant. A total of 6,304,250
restricted units and/or restricted options have been authorized under the OpCap
Plans. The following table shows the Rights granted and the Options granted with
exercise prices of $12.35 to $21.63 (all reflective of a 1.67 for 1 split
effective December 1, 1997) at December 31,
70
<PAGE>
1997. As a result of the grant of Rights, Oppenheimer Capital recorded deferred
restricted unit compensation expense in partners' capital of $8,574,000 for the
eight-month period ended December 31, 1997 and $5,977,000 for the fiscal year
ended April 30, 1997, which amounts are amortized over a five year period. In
addition, approximately $67.8 million was recorded as deferred compensation
expense in partners' capital of PIMCO Advisors for special grants made in
November of 1997 associated with the completion of sale of the Opfin interest.
Amortization of $2,677,000 for the eight-month period ended December 31, 1997
and $2,209,000 for the fiscal year ended April 30, 1997 has been recorded. This
amortization results in a charge to compensation and benefits and a
corresponding credit to partners' capital.
<TABLE>
<CAPTION>
Rights Options
outstanding Outstanding Price per option
-------------- --------------- ---------------------
<S> <C> <C> <C>
Balances at May 1, 1996........................................ 542,344 625,360 $10.853--$16.841
Rights granted............................................... 346,553
Rights cancelled............................................. (23,562)
Units issued with respect to Rights.......................... (160,071)
Options granted.............................................. 281,395 $17.590--$20.210
Options exercised............................................ (37,851) $10.853--$17.590
Options canceled............................................. (40,080) $12.425--$17.590
--------- ---------
Balances at April 30, 1997..................................... 705,264 828,824 $10.853--$20.210
Rights granted............................................... 2,553,453
Rights cancelled............................................. (5,979)
Units issued with respect to Rights.......................... (48,888)
Options granted.............................................. 283,900 $21.632
Options exercised............................................ (92,075) $10.853--$14.970
Options canceled............................................. (20,040) $12.425--$17.590
--------- ---------
Balances at December 31, 1997.................................. 3,203,850 1,000,609 $12.350--$21.632
========= =========
</TABLE>
71
<PAGE>
OPPENHEIMER CAPITAL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
No compensation cost is recognized in the consolidated statements of
operations for Options granted under the OpCap Plans because the exercise price
of the Options approximates the market price of the units on the date of grant.
Had compensation cost for the Options been recognized based on the fair value of
the Options at the date of the grant, Oppenheimer Capital's net income would
have been reported as the pro forma amounts indicated below:
<TABLE>
<CAPTION>
For The For The Year
Eight-months Ended
Ended April 30,
December 31, 1997 1997
------------------ -------------
<S> <C> <C>
(Dollars in thousands)
Net income
As reported............................................................ $66,124 $78,264
Pro forma.............................................................. $66,017 $78,098
</TABLE>
For the purpose of the above disclosure, the fair value of each Option granted
is estimated on the date of grant using the Black-Scholes option pricing model
with the following weighted average assumptions used for grants for the eight-
month period ended December 31, 1997 and for the fiscal years ended April 30,
1997, respectively: distribution yield of 5.8% and 7.3% expected volatility of
19% and 21%, risk free interest rate of 6.62% and 6.36% and expected life of 6
years.
5. Transactions With Affiliated Companies
a. Cash and Short Term Investments--Oppenheimer Capital invests excess funds
in OCC Cash Reserves Primary Portfolio, a money market fund managed by
OpCap Advisors. Included in cash and short term investments at December
31, 1997 and April 30, 1997 was $2,685,000 and $1,567,000 respectively,
invested in this fund. Also included in cash and short term investments
at April 30, 1997 was $35,000 on deposit with Opco.
b. Investments in Affiliated Mutual Funds and Other Sponsored Investment
Products--Investments in affiliated mutual funds and other sponsored
investment products are carried at market value.
c. Distribution Assistance Fees and Expenses--Oppenheimer Capital receives
distribution assistance fees from various mutual funds and has entered
into agreements with various broker-dealers including Opco to obtain
sales related services in rendering distribution assistance. Payments to
Opco for the Quest for Value equity and fixed income mutual funds for the
year ended April 30, 1996 were recorded as distribution assistance
expenses and for financial statement purposes were netted against
distribution assistance fees (see note 7). Payments to Opco for OCC Cash
Reserves are netted against investment management fees. During the eight-
month period ended December 31, 1997, such payments to Opco totaled
$4,602,000, and totaled $8,902,000 for the year ended April 30, 1997.
d. Affiliated Mutual Funds and Commingled Products--Investment Management
Fees--Oppenheimer Capital provides investment management services to
affiliated mutual funds and other commingled products. For the eight-
month period ended December 31, 1997 the amount earned for these services
totaled $9,797,000, and for the year ended April 30, 1997 the amount was
$15,382,000.
72
<PAGE>
OPPENHEIMER CAPITAL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
6. Income Taxes
Although Oppenheimer Capital is not otherwise subject to federal, state, or
local income taxes, it was subject to New York City unincorporated business tax
of $2,906,000 for the eight-month period ended December 31, 1997, and $3,143,000
for the year ended April 30, 1997.
A domestic corporate subsidiary of Oppenheimer Capital is subject to federal,
state and local income taxes. A foreign corporate subsidiary is subject to taxes
in the foreign jurisdiction in which it is located.
7. Gain on Quest Sale
On November 22, 1995, Oppenheimer Capital sold the investment advisory and
other contracts and business relationships for its twelve Quest for Value mutual
funds to OppenheimerFunds, Inc. (``OFI''), which is unrelated to Oppenheimer
Capital. In fiscal 1997, Oppenheimer Capital received a payment of $3.8 million
related to the sale, and recognized a pre tax gain of $2.8 million.
8. Gain On Dual Purpose Sale
On July 18, 1997, Oppenheimer Capital completed the sale of the investment
advisory and other contracts and business relationships of the Quest for Value
Dual Purpose Fund to OFI. Oppenheimer Capital received a payment of $7.0 million
and recorded a pre tax gain of $4.4 million.
9. Sale of AMA License
On May 12, 1997, Oppenheimer Capital sold its exclusive license to market
financial products to members of the American Medical Association for $1
million. The proceeds received from this transaction were used to purchase the
remaining 19.9% interest of AMA Advisers, L.P. not owned by Oppenheimer Capital
and Opfin, and to repay the balance of the original acquisition debt incurred to
purchase AMA Advisers, L.P. AMA Advisers, L.P. has been renamed 225 Liberty
Street Advisers, L.P.
73
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
Management of PIMCO Holdings
The PIMCO Holdings Partnership Agreement provides that PIMCO Holdings is
managed by its general partner, PIMCO Partners, G.P. (``PGP''). PGP has
delegated the day to day management of PIMCO Holdings to a Management Board
which has appointed executive officers of PIMCO Holdings. The Management Board
members and executive officers of PIMCO Holdings are comprised of the following
persons, who also serve as executive officers of PIMCO Advisors:
<TABLE>
<CAPTION>
Name Age Positions
- ------------------------------------------ ----------- --------------------------------------------------
<S> <C> <C>
William D. Cvengros..................... 51 Management Board Member and Chief Executive
Officer
Kenneth M. Poovey....................... 68 Management Board Member and Chief Operating
Officer
Richard M. Weil......................... 36 Managing Director, General Counsel and Secretary
Robert M. Fitzgerald.................... 48 Management Board Member, Executive Vice President
and Chief Financial Officer
Stephen J. Treadway..................... 52 Executive Vice President
James G. Ward........................... 45 Executive Vice President and Director of Human
Resources
</TABLE>
Biographical information with respect to the above listed individuals is set
forth below. Because the sole business of PIMCO Holdings is that of owning PIMCO
Advisors units, information relating to the management of PIMCO Advisors is set
forth below.
Management of PIMCO Advisors
PIMCO Advisors is managed by its general partners, PGP and PIMCO Holdings. PGP
has direct control of PIMCO Holdings, and therefore controls PIMCO Advisors.
While the general partners must pursuant to the PIMCO Advisors Partnership
Agreement retain and exercise certain powers, generally relating to
extraordinary transactions or events, the general partners have delegated all
other management and control of PIMCO Advisors to a 16 member management board
(the ``PIMCO Advisors Management Board''), comprised of the Chief Executive
Officer of PIMCO Advisors, representatives of the general partners,
representatives of the investment management divisions and subsidiaries, and
three ``disinterested'' members not otherwise affiliated with PIMCO Advisors or
the general partners. The PIMCO Advisors Management Board generally acts by
majority vote, however, certain significant actions require a three-quarters
majority vote. The delegation to the PIMCO Advisors Management Board may be
revoked by the general partners at any time.
The PIMCO Advisors Management Board has, in turn, constituted a five member
Executive Committee and delegated to it much of the functions of the PIMCO
Advisors Management Board. In addition, PIMCO Advisors has an Audit Committee, a
Compensation Committee, a Nominating Committee and a Unit Incentive Committee,
each comprised of members of the PIMCO Advisors Management Board. The Audit
Committee reports to the Management Board with respect to matters relating to
the independent auditors, and reviews various matters relating to the auditing
policies and procedures. The Audit Committee held four meetings in 1999. The
Compensation Committee is responsible for compensation and compensation related
matters including but not limited to responsibility and authority for
determining bonuses and salaries for certain employees. The Compensation
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<PAGE>
Committee held one meeting in 1999. The Unit Incentive Committee is responsible
for granting options and awarding deferred units under the 1999 Unit Incentive
Plan and administering the 1999 Unit Incentive Plan and the Deferred
Compensation Plan. The Unit Incentive Committee held five meetings in 1999.
The members of the PIMCO Advisors Management Board, the Executive Committee,
Audit Committee, Compensation Committee, Unit Incentive Committee and the
executive officers of PIMCO Advisors are as set forth below. The terms of all
PIMCO Advisors Management Board and committee members expire on April 30, 2000.
PIMCO Advisors Management Board members are appointed to one-year terms.
<TABLE>
<CAPTION>
Name Age Positions
---- ----- ---------
<S> <S> <C>
Walter E. Auch, Sr................ 78 Board Member, Audit Committee and Unit Incentive Committee
Member
William R. Benz................... 40 Board Member
David B. Breed.................... 52 Board Member
Kenneth W. Corba.................. 47 Board Member
William D. Cvengros............... 51 Board Member, Chief Executive Officer, Executive Committee
Member
Walter B. Gerken.................. 77 Board Member and Chairman
Colin Glinsman.................... 42 Board Member
William H. Gross.................. 55 Board Member, Compensation Committee Member
Brent R. Harris................... 40 Board Member, Executive Committee and Nominating Committee
Member
Donald R. Kurtz................... 69 Board Member, Audit Committee and Unit Incentive Committee
Member
James F. McIntosh................. 58 Board Member, Audit Committee, Compensation Committee and Unit
Incentive Committee Member
William C. Powers................. 42 Board Member
Glenn S. Schafer.................. 50 Board Member, Executive Committee Member
Thomas C. Sutton.................. 56 Board Member, Compensation Committee Member
William S. Thompson, Jr........... 54 Board Member, Executive Committee Member, Compensation
Committee Member
Kenneth M. Poovey................. 68 Chief Operating Officer, Executive Committee Member
Richard M. Weil................... 36 Managing Director, General Counsel and Secretary
Robert M. Fitzgerald.............. 48 Executive Vice President and Chief Financial Officer
Stephen J. Treadway............... 52 Executive Vice President
James G. Ward..................... 45 Executive Vice President and Director of Human Resources
</TABLE>
Set forth below is certain biographical information with respect to the
persons who are the members of the PIMCO Advisors Management Board or who serve
as executive officers of PIMCO Advisors or PIMCO Holdings:
Walter E. Auch, Sr. Mr. Auch has served as a member of the PIMCO Advisors
Management Board as an independent member and as a member of the Audit Committee
and Unit Incentive Committee since November 1994. He currently is a management
consultant. Mr. Auch was a Director of Thomson Advisory Group, Inc. (``TAG''),
now Pacific Financial Products, Inc. the former general partner of PIMCO
Advisors from October 1990 until November 1994. He was previously the Chairman
and Chief Executive Officer of the Chicago Board Options Exchange from 1979 to
1986. He is also a Director of Fort Dearborn Fund, Smith Barney Citicorp
Advisors Fund, Smith Barney Citicorp TRAK Fund, Banyan Strategic Land Trust,
Nicholas/Applegate Funds, Brinson Fund, Brinson Relationship Fund, Advisors
Series Trust, Legend Properties Inc. and The Semele Group.
William R. Benz. Mr. Benz has served as a member of the PIMCO Advisors
Management Board since April 1999. Mr. Benz is a Managing Director, account
manager, and senior member of PIMCO's investment strategy group. In addition to
his institutional client servicing responsibilities, he oversees PIMCO's
firmwide client servicing efforts. Mr. Benz joined PIMCO 14 years ago, having
been previously associated with Bank of America.
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<PAGE>
David B. Breed. Mr. Breed has served as a member of PIMCO Advisors
Management Board since the Consolidation of Pacific Financial Asset Management
Corporation and Thomson Advisory Group LP ("TAG LP") in November 1994 (the
``Consolidation''). Mr. Breed is a founder of Cadence Capital Management where
he is a Managing Director and serves as CEO and CIO. From February 1988 to July
1993, he was a Managing Director and Director of Cadence Capital Management
Corporation, and he was Chief Executive Officer and Chief Investment Officer
thereof until November 1994.
Kenneth W. Corba Mr. Corba has served as a member of the PIMCO Advisors
Management Board since 1999. Mr. Corba has been a Managing Director of the
PIMCO Equity Advisors Division since January of 1999. He was a portfolio
manager at Eagle Asset Management from March 1995 to December 1998. From June
1984 to February 1995 Mr. Corba was a portfolio manager at Stein Roe & Farnham.
William D. Cvengros. Mr. Cvengros serves as Chief Executive Officer and a
member of the Management Board of PIMCO Holdings and PIMCO Advisors and is
currently a member of the Executive Committee of the PIMCO Advisors Management
Board. Mr. Cvengros is the Principal Executive Officer of PIMCO Holdings. He
has served in his positions with PIMCO Advisors since the Consolidation in
November 1994, and in his positions with PIMCO Holdings since November 1997. He
was associated with Pacific Life Insurance Company from 1972 to November 1994,
most recently as Vice Chairman and Chief Investment Officer. He is a Director of
Furon Company and Remedy Temp.
Robert M. Fitzgerald. Mr. Fitzgerald serves as Executive Vice President and
Chief Financial Officer of PIMCO Holdings and PIMCO Advisors, and as a member of
the Management Board of PIMCO Holdings. Mr. Fitzgerald is the Principal
Financial and Accounting Officer of PIMCO Holdings. He has served in his
positions with PIMCO Advisors and PIMCO Holdings since January 2000. From
February 1995 to January 2000 he was Senior Vice President and Chief Financial
Officer of PIMCO Advisors and from November 1997 to January 2000 . he was Senior
Vice President and Chief Financial Officer of PIMCO Holdings. From April 1994
through January 1995, he served as a consultant to various companies, including
Pacific Investment Management Company.
Walter B. Gerken. Mr. Gerken has served as Chairman of the PIMCO Advisors
Management Board since the Consolidation in November 1994. Mr. Gerken is the
former Chairman of the Board and CEO of Pacific Life Insurance Company. Mr.
Gerken is a Senior Advisor of the Boston Consulting Group, Inc. and serves on
the Board of Directors of the W.M. Keck Foundation.
Colin Glinsman. Mr. Glinsman has served as a member of the PIMCO Advisors
Management Board since 1999. He has been continuously employed by Oppenheimer
Capital for the last ten years, and has been the Chief Investment Officer of
Oppenheimer Capital for the past year. Prior to serving as Chief Investment
Officer, Mr. Glinsman was a member of the investment committee of Oppenheimer
Capital (since 1996), a portfolio manager (since 1992) and an analyst (since
1989).
William H. Gross. Mr. Gross has served as a member of the PIMCO Advisors
Management Board since the Consolidation in November 1994 and is currently a
member of the Compensation Committee of the PIMCO Advisors Management Board. Mr.
Gross joined Pacific Investment Management Company in June 1971, and has served
there as a Managing Director since February 1982.
Brent R. Harris. Mr. Harris has served as a member of the PIMCO Advisors
Management Board since the Consolidation in November 1994 and is currently a
member of the Executive Committee and the Nominating Committee of the PIMCO
Advisors Management Board. Mr. Harris joined Pacific Investment Management
Company in June 1985, and has served there as a Managing Director since April
1993. Mr. Harris is Chairman and Director of the PIMCO Commercial Mortgage
Securities Trust, Inc.
Donald R. Kurtz. Mr. Kurtz has served on the PIMCO Advisors Management Board
as an independent member and as a member of the Audit Committee, Nominating
Committee and Unit Incentive Committee of PIMCO Advisors since the Consolidation
in November 1994. Mr. Kurtz was a Director of Thomson Advisory
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<PAGE>
Group, Inc. from May 1992 until November 1994. From December 1994 until October
1995, he was acting Managing Director of Domestic Equity Investments at General
Motors Investment Management Corp. Prior thereto, he served as Vice President or
Director, Internal Asset Management at General Motors Investment Management
Corp. from January 1990.
James F. McIntosh. Mr. McIntosh has served as a member of the PIMCO Advisors
Management Board as an independent member and as a member of the Audit
Committee, Compensation Committee and Unit Incentive Committee since the
Consolidation in November 1994. He is currently the Executive Director of Allen,
Matkins, Leck, Gamble & Mallory LLP, a law firm, which position he has held from
October 1994. From January 1981 to October 1994, he was Executive Director of
Paul, Hastings, Janofsky & Walker LLP, a law firm.
William C. Powers. Mr. Powers has served as a member of the PIMCO Advisors
Management Board since April 1999. Mr. Powers is a Managing Director and a
senior member of PIMCO's portfolio management and investment strategy groups.
He is also one of five generalists in PIMCO's portfolio management group, and
co-heads PIMCO's mortgage team. Mr. Powers joined PIMCO 10 years ago, having
been previously associated with Salomon Brothers, and with Bear Stearns as
Senior Managing Director specializing in mortgage-backed securities.
Kenneth M. Poovey. Mr. Poovey serves as Chief Operating Officer of PIMCO
Holdings and PIMCO Advisors, as Chief Executive Officer of Oppenheimer Capital
and as a member of the Management Board of PIMCO Holdings. Mr. Poovey has served
as Chief Operating Officer of PIMCO Holdings and PIMCO Advisors since January
1999 and served as General Counsel to PIMCO Holdings from November 1997 to
January 1999 and as General Counsel of PIMCO Advisors from November 1994 to
January 1999. Mr. Poovey has been Chief Executive Officer of Oppenheimer
Capital since January 2000. Mr. Poovey was a partner with the law firm of
Latham & Watkins from 1980 to March 1997.
Glenn S. Schafer. Mr. Schafer has served as a member of the PIMCO Advisors
Management Board since the Consolidation in November 1994 and is currently a
member of the Executive Committee of the PIMCO Advisors Management Board. He
currently serves as a Director and the President of Pacific Life Insurance
Company. Mr. Schafer was the Executive Vice President and Chief Financial
Officer of Pacific Life Insurance Company from April 1991 until January 1995.
Thomas C. Sutton. Mr. Sutton has served as a member of the PIMCO Advisors
Management Board since the Consolidation in November 1994 and is currently a
member of the Compensation Committee and Nominating Committee of the PIMCO
Advisors Management Board. Mr. Sutton has been the Chairman and Chief Executive
Officer of Pacific Life Insurance Company since January 1990. Mr. Sutton is also
a Director of Edison International, Newhall Land and Farming Company and The
Irvine Company.
William S. Thompson, Jr. Mr. Thompson has served as a member of the PIMCO
Advisors Management Board since the Consolidation in November 1994 and is
currently a member of the Compensation Committee, Nominating Committee and
Chairman of the Executive Committee of the PIMCO Advisors Management Board. Mr.
Thompson joined Pacific Investment Management Company in April 1993, where he
has served as a Managing Director and Chief Executive Officer since that time.
Mr. Thompson is Director of Spieker Properties, a real estate investment trust.
Stephen J. Treadway. Mr. Treadway has served as an Executive Vice President
of PIMCO Advisors, Chairman and President of PIMCO Funds Distributors LLC since
joining PIMCO Advisors in May 1996. Prior thereto, he was associated with Smith
Barney, Inc. for eighteen years and served in various senior positions,
including Executive Vice President.
James G. Ward. Mr. Ward is Executive Vice President and Director of Human
Resources of PIMCO Holdings and PIMCO Advisors. Mr. Ward has served in his
positions at PIMCO Holdings and PIMCO Advisors since January 2000. From April
1995 to January 2000 he was Senior Vice President Human Resources of PIMCO
Advisors and from November 1997 to January 2000 he was Senior Vice President
Human Resources of PIMCO Holdings. Prior to that time, he served as Vice
President and Director of Human Resources for Pacific Investment
77
<PAGE>
Management Company, a position he held beginning October 1994. From November
1987 through October 1994, he served as Vice President and Director of Human
Resources for Salomon Brothers Inc.
Richard M. Weil. Mr. Weil is Managing Director, Director of Corporate
Services, General Counsel and Secretary of PIMCO Holdings and PIMCO Advisors. He
has served in these positions with PIMCO Holdings and PIMCO Advisors since
January 2000. Mr. Weil has served as an officer of PIMCO Advisors since joining
PIMCO Advisors in March 1996, and as an officer of PIMCO Holdings since November
1997. Mr. Weil has served as General Counsel of PIMCO Advisors and PIMCO
Holdings since January 1999. Mr. Weil was a Vice President in the Global Asset
Management Group of Bankers Trust Company from December 1994 through February
1996 and was associated with the law firm of Simpson, Thatcher & Bartlett from
September 1989 through November 1994.
Item II. Executive Compensation
Prior to November 1997, PIMCO Holdings did not have any employees. During such
time, the officers of Oppenheimer Capital performed the management functions on
behalf of PIMCO Holdings. The current executive officers of PIMCO Holdings are
also executive officers of PIMCO Advisors. The compensation of the executive
officers is allocated between PIMCO Advisors and PIMCO Holdings based on the
amount of services provided to each entity. The following table sets forth the
cash compensation paid or allocated with respect to the three years ended
December 31, 1999 for services rendered to PIMCO Advisors in all capacities by
the Chief Executive Officer of PIMCO Holdings and each of the five most highly
compensated executive officers of PIMCO Holdings or PIMCO Advisors (the ``Named
Executive Officers'):
<TABLE>
<CAPTION>
Long-term
Compensation Awards
--------------------
Annual Compensation Restricted Securities All
------------------- Other Annual Unit Underlying Other
Name and Principal Salary Bonus Compensation Awards Options/UAR Compensation
Underlying Position(1) Year ($) ($) ($) ($) (#) ($)
- ------------------- ---- --------- ---------- ---------- ------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
William D. Cvengros.............. 1999 $500,000 $1,300,000 $9,600(3) -0- 50,000 $ 10,000(4)
Chief Executive Officer 1998 500,000 1,110,000 9,600(3) -0- -0- $ 3,204(4)
1997 500,000 1,200,000 9,500(3) -0- -0- 3,324(4)
Kenneth M. Poovey................ 1999 $325,000 -- $9,600(3) -0- -0- $3,010,000(4)
Chief Operating Officer 1998 325,000(5) -- -- $778,250(6) -0- 1,876,566(4)
1997 225,000(5) -- -- 756,250(6) 50,000 1,101,202(4)
Richard M. Weil.................. 1999 $250,000 $ 470,000 $9,600(3) 968,750(6) 21,000 $ 140,000(4)
Managing Director, Director 1998 250,000 250,000 -- -0- 22,500 201,566(4)
of Corporate Services and 1997 234,500 200,000 -0- 10,000 226,602(4)
General Counsel (2)
Robert M. Fitzgerald............. 1999 $250,000 $ 225,000 $9,600(3) $775,000(6) 21,000 $ 285,000(4)
Executive Vice President and 1998 250,000 295,000 9,600(3) -0- 26,000 156,566(4)
Chief Financial Officer (2) 1997 234,500 339,000 -- -0- 10,000 187,102(4)
Stephen J. Treadway.............. 1999 $337,500 $1,150,000 $9,600(3) -0- 45,000 $ 610,000(4)
Executive Vice President 1998 325,000 850,000 9,600(3) $778,250(6) -0- 328,204(4)
1997 309,000(5) 500,000 -0- -0- -0- 303,324(4)
</TABLE>
(1) During fiscal year 1997, George A. Long served as the Chairman and Chief
Executive and Investment Officer of Oppenheimer Capital. In such
capacities, Mr. Long performed management functions on behalf of PIMCO
Holdings. Mr. Long's salary for his services in such capacities in the
fiscal years ended April 30, 1997 was $350,000 and his bonus compensation
during such period was $3,573,000.
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<PAGE>
(2) In the year ending December 31, 1998 Mr. Weil served as Senior Vice
President and General Counsel. In the year ending December 31, 1998 Mr.
Fitzgerald served as Senior Vice President and Chief Financial Officer.
(3) Company match to contributions made to the PIMCO Advisors L.P. 401(k)
Savings and Investment Plan.
(4) Includes amounts deferred under the PIMCO Advisors L.P. 401(k) Savings and
Investment Plan and the PIMCO Advisors L.P. and PIMCO Advisors Holdings
L.P. Executive Deferred Compensation Plan.
(5) In the year ended December 31, 1998, Mr. Poovey was awarded 25,000 PIMCO
Advisors restricted units. These units vest over a three year period, pay
distributions quarterly and had an aggregate value of $778,250 at December
31, 1998. In the year ended December 31, 1997, Mr. Poovey was awarded
25,000 PIMCO Advisors restricted units. These units vest over a three-year
period, pay distributions quarterly and had an aggregate value of $756,250
at December 31, 1997. In the year ended December 31, 1998, Mr. Treadway
was awarded 25,000 PIMCO Advisors restricted units. These units vest over
a three year period, pay distributions quarterly and had an aggregate value
of $778,250 at December 31, 1998. In the year ended December 31, 1997,
Mr. Treadway was awarded 25,000 PIMCO Advisors units. These units vest over
a five year period, pay distributions quarterly and had an aggregate value
of $562,500 at December 31, 1997.
(6) Includes amounts deferred under PIMCO Holdings' Executive Deferred
Compensation Plan.
Compensation to key employees who are not executive officers may exceed the
compensation paid to executive officers in any given year.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires executive
officers and directors of PIMCO Holdings, officers or employees of the general
partner of PIMCO Holdings who perform policy making functions for PIMCO
Holdings, and persons who own more than ten percent of the units of PIMCO
Holdings to file with the SEC and the NYSE initial reports of ownership and
reports of changes in ownership of units of PIMCO Holdings. To the best of
PIMCO Holdings knowledge, during the year ended December 31, 1999 all Section
16(a) filing requirements applicable to its executive officers, directors and
ten percent beneficial owners were complied with.
79
<PAGE>
Option Grants in Fiscal Year 1999
- ---------------------------------
The following table provides information concerning individual grants of
options and deferred units to the Named Executive Officers in the year ended
December 31, 1999.
<TABLE>
<CAPTION>
Potential Realizable
Value
At Assumed Annual Rates
Of Unit Price
Appreciation
Individual Grants For Option Term
---------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Deferred Units Percent Of
and Options Total Options Exercise Per Expiration
Granted (#) Granted in 1999 Unit Price Date 5% 10%
Name ---------------- --------------- ------------ ---------- --------- ----------
----
William D. Cvengros................ 50,000 * $29.125 2/25/2009 $ 915,750 $2,310,750
Kenneth M. Poovey.................. -- -- -- -- --
Richard M. Weil.................... 46,000(1) * $29.125 2/25/2009 $ 842,490 $2,135,090
Robert M. Fitzgerald............... 41,000(2) * $29.125 2/25/2009 $ 750,915 $1,903,015
Stephen J. Treadway................ 45,000 * $29.125 2/25/2009 $ 824,175 $2,088,675
</TABLE>
- ---------
* Less than 1 %
(1) Includes 25,000 Restricted Deferred Units that vest over a five year period
beginning December 31, 1999.
(2) Includes 20,000 Restricted Deferred Units that vest over a five year period
beginning December 31, 1999.
Aggregated Option/UAR Exercises in Last Fiscal Year and Fiscal Year-End
Option/UAR Values
The following table provides information on option exercises in 1999 by the
Named Executive Officers, and the value of unexercised options held by each
Named Executive Officer at December 31, 1999.
<TABLE>
<CAPTION>
Number of Units
Underlying Unexercised In-The-Money
Units Options/UARs Options/UARs
Acquired Value at-FY-End(#) At FY-End($)
Name On Exercise Realized Exercisable(E)/ Exercisable(E)/
---- (#) ($) Unexercisable(U) Unexercisable(U)
------------ --------- ------------------------- ------------------
<S> <C> <C> <C> <C>
William D. Cvengros............................. -0- -0- 210,000(E) $4,197,125 (E)
40,000(U) 342,500 (U)
Kenneth M. Poovey............................... 10,000 $61,900 10,000(E) $158,775 (E)
20,000(U) $317,550 (U)
Richard M. Weil................................. -0- -0- 36,800(E) $511,295 (E)
38,700(U) $334,169 (U)
Robert M. Fitzgerald............................ -0- -0- 32,600(E) $431,540 (E)
36,400(U) $250,895 (U)
Stephen J. Treadway............................. -0- -0- 49,000(E) $865,763 (E)
56,000(U) $758,600 (U)
</TABLE>
Compensation of Management Board Members
PIMCO Advisors pays members of the PIMCO Advisors Management Board who are not
employees of PIMCO Holdings, PIMCO Advisors, one of the investment management
group subsidiaries or Pacific Life Insurance Company a $20,000 annual retainer
plus $750 per in person meeting ($250 per conference call meeting) of the PIMCO
Advisors Management Board attended and for each meeting of a committee of the
PIMCO Advisors Management Board. Members who are employees of PIMCO Holdings,
PIMCO Advisors, one of its investment management group subsidiaries or Pacific
Life Insurance Company are not entitled to any additional compensation
80
<PAGE>
for their services as PIMCO Advisors Management Board members. Pursuant to the
terms of the 1999 Unit Incentive Plan of PIMCO Advisors Holdings L.P. and PIMCO
Advisors L.P. (the "1999 Plan"), the non employee members of the Management
Board may elect to receive restricted PIMCO Holdings units or PIMCO Advisor
Units in lieu of such retainer, with such restricted units valued at 91% of fair
market value on the date of issuance. Each of the members of the Management
Board of PIMCO Holdings is an executive officer of PIMCO Holdings and PIMCO
Advisors and, as such, does not receive any compensation as a member of the
Management Board of PIMCO Holdings.
Compensation of General Partner
The general partners of PIMCO Holdings and PIMCO Advisors receive no
compensation from PIMCO Holdings or PIMCO Advisors for services rendered to
PIMCO Holdings or PIMCO Advisors as a general partner. Rather, the general
partners' interests in profits and losses of PIMCO Holdings and PIMCO Advisors
are based on their interest in PIMCO Holdings and PIMCO Advisors, respectively.
Upon liquidation, the liquidating distributions to the general partners will be
based on the number of PIMCO Holdings units and PIMCO Advisors units each holds.
Each general partner is reimbursed for all direct expenses paid by it on behalf
of PIMCO Advisors, for all expenses incurred by it in connection with the
business and affairs of PIMCO Advisors and, in the case of PIMCO Holdings as the
public general partner for all expenses (other than taxes).
Compensation Pursuant to Contract
None.
Compensation Committee Interlocks and Insider Participation in Compensation
Decisions
Compensation awards for executive officers of PIMCO Holdings are determined by
the PIMCO Advisors Compensation Committee. The members of the Compensation
Committee are Messrs. Gross, McIntosh, Sutton and Thompson. Equity based awards
for the executive officers of PIMCO Holdings are determined by the PIMCO
Advisors Unit Incentive Committee and the Management Board at PIMCO Holdings.
The members of the Unit Incentive Committee are Messrs. Auch, Kurtz, and
McIntosh, each of whom were appointed to the Unit Incentive Committee of PIMCO
Advisors in November 1997. None of the members of the Compensation Committee or
the Unit Incentive Committee have served as an officer or otherwise been engaged
as an employee of PIMCO Holdings.
Employee Benefit Plans.
1998 Unit Incentive Plan. The 1998 Unit Incentive Plan of PIMCO Advisors
Holdings L.P. and PIMCO Advisors L.P. (the "1998 Plan") provides for the grant
of options and the award of deferred and restricted units to any key employee or
consultant of PIMCO Advisors or any of its present or future subsidiaries.
Generally the 1998 Plan provides for awards of limited partner units of PIMCO
Holdings, although participants who are eligible to be partners of PIMCO
Advisors may elect to receive units of PIMCO Advisors upon exercise of options.
The 1998 Plan is administered by the Unit Incentive Committee of the Management
Board of PIMCO Advisors and the Management Board of PIMCO Holdings. The
Committee is authorized to select the individuals to whom awards are to be
granted and to determine the number of units to be subject to grants and awards
and the terms and conditions of the grants and awards, upon the recommendation
of Management consistent with the 1998 Plan.
The 1998 Plan provides for awards of options, deferred units and restricted
units. Option awards generally entitle the participant to acquire a stated
number of limited partnership units at one or more dates in the future, upon
satisfaction of vesting and other requirements, for a stated consideration or
"exercise price" per unit. Deferred unit awards generally entitle the
participant to be issued a stated number of limited partnership units at one or
more dates in the future, upon satisfaction of vesting and other requirements,
and additional limited partnership units based on distributions paid by PIMCO
Advisors during the period prior to vesting. Restricted unit awards provide for
a stated number of limited partnership units to be issued and held in escrow
until the fulfillment of vesting requirements. Regular distributions paid in
respect of the limited partnership units held in the escrow are distributed to
the participant. The 1998 Plan provides that Non-Employee Board Members may
elect to receive all or a portion
81
<PAGE>
of their annual retainer fee in the form of limited partnership units. Limited
partnership units issued in respect of a retainer fee are issued on the date
that the retainer fee would otherwise have been paid, and are valued at 91% of
the fair market value of the limited partnership units on the date of issuance.
The total number of limited partnership units subject to the 1998 Plan is the
sum of (i) the number of units underlying awards assumed under the previous unit
based incentive plans and, (ii) two percent of the outstanding PIMCO Advisors
general partner and limited partner units on January 1 of each year beginning
January 1, 1998, on a cumulative basis. Each year on January 1, the number of
limited partnership units subject to the 1998 Plan will increase by a number of
units equal to two percent of the PIMCO Advisors units outstanding on that date.
On December 31, 1998, 11,484,346 units were authorized for issuance under the
1998 Plan. On January 1, 1999 the number of units authorized for issuance under
the 1998 increased 2,225,923 to 13,710,268.
Executive Deferred Compensation Plan. The Executive Deferred Compensation
Plan of PIMCO Advisors Holdings L.P. and PIMCO Advisors L.P. (the "Deferred
Compensation Plan") is an unfunded nonqualified deferred compensation plan
pursuant to which a portion of compensation otherwise payable to certain
eligible employees will be subject to mandatory deferral, and pursuant to which
eligible employees may elect to defer additional amounts of compensation. The
Deferred Compensation Plan was adopted by each of PIMCO Holdings and PIMCO
Advisors effective January 1, 1998, as an amendment and restatement of a similar
plan of PIMCO Advisors adopted effective December 1, 1996. An employee's
eligibility to participate in the Deferred Compensation Plan is determined based
on that employee's estimated compensation for the plan year in question.
Employees with estimated compensation in excess of $250,000 (as adjusted for
inflation) for a plan year are eligible to participate in the Deferred
Compensation Plan. Estimated compensation is based on the sum of the employee's
annual base salary rate determined as of the first day of the plan year (or the
first day of employment, if employment begins during a plan year) and his
estimated bonus compensation, generally determined based on bonus compensation
for services rendered during the most recent plan year. Participation in the
Deferred Compensation Plan consists of a mandatory component and a voluntary
component, determined based on the level of an eligible employee's equity
holdings in PIMCO Advisors and PIMCO Holdings. Participation is mandatory for
an eligible employee whose equity holdings are less than his estimated
compensation for that plan year, unless the employee's estimated compensation is
greater than $1 million, in which case participation is mandatory unless the
employee's equity holdings are greater than twice his estimated compensation for
that plan year. Eligible employees who are not required to participate may
voluntarily elect to defer a portion of their compensation pursuant to the
Deferred Compensation Plan.
Employees for whom participation is mandatory are subject to deferrals of cash
compensation according to the following schedule: (i) 10% of cash compensation
in excess of $250,000 up to $500,0000; (ii) 30% of cash compensation in excess
of $500,000 up to $1,000,000; and (iii) 30% of all cash compensation in excess
of $1,000,000. Participating employers may upon adopting the plan or in the
third quarter of any plan year specify percentages and amounts in excess of
those set forth above to be effective for the following plan year; provided,
that the percentage of compensation in excess of $1,000,000 required to be
deferred may not exceed 50%, and the aggregate amount of compensation required
to be deferred may not exceed 40% of the participant's total compensation. An
eligible employee who receives an award of restricted units may elect to defer
the receipt of the restricted units upon their vesting, whether or not the
employee is otherwise a participant during that plan year. The issuer of the
restricted units to be deferred shall issue and deliver such units to the
trustee of the Deferred Compensation Plan, which shall allocate such units to
the participant's unit award deferral subaccount for the plan year in which the
participant received the award, as provided below. Each month, the trustee of
the Deferred Compensation Plan will sell for cash any assets other than limited
partner units in PIMCO Advisors credited to the deferral accounts and use the
proceeds to acquire limited partner units in PIMCO Advisors from PIMCO Advisors.
The purchase price of the limited partner units in PIMCO Advisors is (i) 85% of
fair market value for cash attributable to deferral subaccounts of current
employees which are "discount subaccounts" and contribution subaccounts of
current employees and (ii) 100% of fair market value for cash attributable other
deferral subaccounts and contribution subaccounts. The Deferred Compensation
Plan is administered by the Unit Incentive Committee of the PIMCO Advisors
Management Board.
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<PAGE>
Item 12. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth as of December 31, 1999 information regarding
beneficial ownership of Partnership units and PIMCO Advisors units by each
person who, to the Partnership's knowledge, is the beneficial owner of more than
5% of Partnership units or PIMCO Advisors units and the Named Executive
Officers. Except as indicated, the address of each person or entity listed below
is 800 Newport Center Drive, Suite 100, Newport Beach, California 92660.
<TABLE>
<CAPTION>
Percentage
Partnership of PIMCO Percentage of
Units Partnership Advisors Units Partnership
Beneficially Units Beneficially Units
Owned(1)(2) Outstanding Owned(1)(3) Outstanding(4)
------------ ------------ -------------- --------------
<S> <C> <C> <C> <C>
Five Percent Holders
PIMCO Partners, G.P. (5) .............................. 0 -- 39,415,420 34.56
Pacific Life Insurance Company ("Pacific Life")(6) .... 0 -- 56,071,170 49.07
Pacific Asset Management LLC ("PAM") (6) .............. 0 -- 56,071,170 49.07
PIMCO Holding LLC (7) ................................. 0 -- 39,415,420 34.50
PIMCO Partners, LLC (8) ............................... 0 -- 39,557,900 34.62
Pacific Financial Products, Inc. (formerly Thomson
Advisory Group, Inc. ) ("PFP") ....................... 0 -- 14,380,217 12.59
William R. Benz, II (9) ............................... 106,000 * 39,557,900 34.62
R. Wesley Burns (9) ................................... 25,000 * 39,557,900 34.62
Christopher P. Dialynas (9) ........................... 17,300 * 39,557,900 34.62
William H. Gross (9)(10) .............................. 675,356 1.36 39,557,900 34.62
John L. Hague (9) ..................................... 230,000 * 39,557,900 34.62
Brent R. Harris (9) ................................... 230,000 * 39,557,900 34.62
Margaret E. Isberg (9) ................................ 101,600 * 39,557,900 34.56
Dean S. Meiling (9) ................................... 130,000 * 39,657,900 34.71
James F. Muzzy (9) .................................... 230,000 * 39,557,900 34.62
William F. Podlich, III (9) ........................... 16,000 * 39,621,900 34.68
William C. Powers (9) ................................. 134,810 * 39,557,900 34.62
Ernest L. Schmider (9) ................................ 66,404 * 0 *
Lee R. Thomas (9) ..................................... 66,565 * 39,557,900 34.62
William S. Thompson, Jr. (9) .......................... 230,000 * 39,557,900 34.62
Benjamin L. Trosky (9) ................................ 84,255 * 39,557,900 34.62
Named Executive Officers Not Included Above
William D. Cvengros ................................... 215,000 * 360,000 *
Robert M. Fitzgerald .................................. 41,664 * 0 *
Kenneth M. Poovey ..................................... 10,000 * 133,459 *
Stephen J. Treadway ................................... 66,797 * 5,000 *
James G. Ward ......................................... 14,689 * 0 *
Richard M. Weil ....................................... 37,300 * 0 *
All directors and executive officers as a group
(6 persons) .......................................... 451,854 * 498,459 *
</TABLE>
_________
* Less than 1%
(1) Each of the persons and entities listed disclaims beneficial ownership of
any units except to the extent that it has a pecuniary interest in such
units.
(2) Includes options exercisable within sixty days of December 31, 1999.
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<PAGE>
(3) Does not include units underlying options which may be exercised for either
units of limited partner interest in PIMCO Advisors or Partnership units
exercisable within sixty days of December 31, 1999, which are reflected in
the column titled "Partnership Units Beneficially Owned."
(4) Assumes exchange of all units of limited partner interest in PIMCO Advisors
for Partnership units.
(5) Includes 39,410,321 PIMCO Advisors Units held of record by Partners GP and
5,099 units of general partner interest in the Partnership.
(6) Includes 39,415,420 PIMCO Advisors units held of record by Partners GP,
which maybe deemed to be beneficially owned by Pacific Life and PAM,
because PHLLC is a general partner of Partners GP and is a wholly-owned
subsidiary of PAM which is wholly-owned subsidiary of Pacific Life. Also
includes an aggregate of 16,655,750 PIMCO Advisors units issued as follows:
Pacific Financial Products, Inc. (formerly Thomson Advisory Group Inc.)
(14,380,217 units), CCM LLC (508,258 units), NFJ LLC (306,204 units),
Cadence Partners L.P. (637,000 units), Parametric Partners L.P. (393,860
units), NFJ Partners L.P. (430,211 units) which may be deemed beneficially
owned by PAM because Pacific Financial Products, CCM LLC, NFJ LLC and PPA
LLC are wholly-owned subsidiaries of PAM and CCM LLC, NFJ LLC and PPA LLC
are the general partners of Cadence Partners L.P., NFJ Partners L.P. and
Parametric Partners L.P., respectively. As general partners they have
shared investment and disposition powers with respect to the units held by
Cadence Partners L.P., NFJ Partners L.P. and Parametric Partners L.P.
(7) Includes 39,415,420 PIMCO Advisors units held of record by Partners GP,
which may be deemed to be owned by PHLLC because PHLLC is a general partner
of Partners GP.
(8) Includes (i) 142,480 PIMCO Advisors units held of record by Partners LLC
and (ii) 39,415,420 PIMCO Advisors units held of record by Partners GP and
which may be deemed to be beneficially owned by Partners LLC, which is a
general partner of Partners GP.
(9) Includes the following which may be deemed to be beneficially owned by the
individual as a member of Partners LLC: (i) 142,480 PIMCO Advisors units
held of record by Partners LLC, and (ii) 39,415,420 PIMCO Advisors units
held of record by Partners GP, and which may be deemed to be beneficially
owned by Partners LLC as a general partner of Partners GP.
(10) Includes units held by members of Mr. Gross' family and a family trust
which Mr. Gross is a trustee, as to which he may be deemed to be the
beneficial owner.
Item 13. Certain Relationships and Related Transactions
Relationship Between PIMCO Holdings and PIMCO Advisors
Operating Agreement
PIMCO Holdings and PIMCO Advisors are party to an Operating Agreement (the
"Operating Agreement") which, together with the PIMCO Advisors Partnership
Agreement, governs the ongoing relationship of PIMCO Holdings and PIMCO
Advisors. Pursuant to the Operating Agreement, PIMCO Holdings has agreed to take
actions from time to time so as to ensure that the number of its outstanding
units is at all times equal to the number of PIMCO Advisors units held by PIMCO
Holdings and its subsidiaries which are allocable to the limited partner
interests in PIMCO Holdings. The Operating Agreement provides that upon any
issuance of PIMCO Holdings units, PIMCO Holdings shall contribute the
consideration, if any, received by PIMCO Holdings for such PIMCO Holdings units
to PIMCO Advisors in exchange for PIMCO Advisors units equal in number to the
number of such PIMCO Holdings units.
The Operating Agreement provides that PIMCO Holdings shall take such actions
to insure that the number of outstanding PIMCO Holdings units is at all times
equal to the number of PIMCO Advisors units held by PIMCO Holdings. Under the
Operating Agreement upon the issuance of PIMCO Holdings units, PIMCO Holdings is
required to contribute the consideration received by PIMCO Holdings to PIMCO
Advisors in exchange for PIMCO Advisors units in an equal number to the number
of PIMCO Holdings units issued. The Operating Agreement provides that PIMCO
Holdings assumes and agrees to perform the obligations of PIMCO Advisors under:
(i) the PIMCO Advisors unit based incentive plans; (ii) the Exchange Rights
issued by PIMCO Advisors in the Opgroup Transaction; and (iii) the 1994
Registration Rights Agreement and the 1997 Registration Rights Agreement (each
as described under "Registration Rights Agreements").
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<PAGE>
The Operating Agreement provides that PIMCO Holdings may not, without the
consent of PIMCO Advisors, (a) carry on any business except in connection with
or incidental to (i) the performance of its duties as a general partner under
the PIMCO Advisors Partnership Agreement, (ii) the direct or indirect
acquisition, ownership or disposition of PIMCO Advisors units, and (iii) its
governance and existence; (b) merge or consolidate with or into any other
person, or sell or otherwise dispose of all or substantially all of its assets,
or effect a recapitalization with respect to PIMCO Holdings units, or issue or
agree to issue any equity securities other than PIMCO Holdings units; or (c)
create, incur, issue, assume, guarantee or otherwise become directly or
indirectly liable, contingently or otherwise, with respect to any indebtedness.
Finally, in the Operating Agreement PIMCO Holdings agrees to exchange PIMCO
Holdings units for PIMCO Advisors units as described below.
Exchange Opportunities for PIMCO Advisors Unitholders
PIMCO Holdings has at such times as may be permitted under the PIMCO Advisors
Partnership Agreement, to offer holders of PIMCO Advisors units the opportunity
to exchange those units for PIMCO Holdings units on a one for one basis. During
a "Semiannual Exchange Period", subject to certain conditions, PIMCO Holdings
may make registered exchange offers for PIMCO Advisors units, pursuant to which
the holders of PIMCO Advisors units may exchange their units for PIMCO Holdings
units. The first Semiannual Exchange Period of a year, if any, begins following
the issuance of the year end financial statements but no earlier than March 15
and ends no later than July 31 of such year, and the second Semiannual Exchange
Period, if any, begins following the issuance of the financial statements for
the first six months of such year but no earlier than August 15 and ends no
later than December 31 of such year. A Semiannual Exchange Period lasts twenty
business days or a greater number of days if required by the Exchange Act. The
PIMCO Advisors Partnership Agreement provides that, except for certain transfers
of PIMCO Advisors units that are specified as being exempt, no PIMCO Advisors
units may be transferred except during two "Semiannual Transfer Periods" each
year. During the Semiannual Transfer Periods, subject to certain notice
provisions, PIMCO Advisors units may be transferred to other persons qualified
under the PIMCO Advisors Partnership Agreement to hold PIMCO Advisors units. A
Semiannual Transfer Period is the last five of the ten business days immediately
following the end of the Semiannual Exchange Period.
Since the announcement of the Allianz transaction, PIMCO Holdings has not
effected a Semiannual Exchange offer. It is not anticipated that Semiannual
Exchange offers will be conducted prior to the anticipated closing of the
Allianz transaction. During the year ended December 31, 1999, there was one
Semiannual Exchange Offer during which an aggregate of 185,227 PIMCO Holdings
units were exchanged for PIMCO Advisors units.
Expense Reimbursement
In accordance with the PIMCO Advisors Partnership Agreement, PIMCO Advisors
pays all of the expenses (other than taxes) of PIMCO Holdings. See "Executive
Compensation Compensation of General Partner."
PGP Indebtedness
The operations of PIMCO Advisors may be affected by the terms of the $130
million of indebtedness owed by PGP. Although this indebtedness does not
constitute an obligation of PIMCO Advisors or any of its subsidiaries, and the
documents governing the indebtedness are not binding on PIMCO Advisors or any of
its subsidiaries, the terms of the indebtedness require PGP to cause PIMCO
Advisors to observe certain operating restrictions. The operating restrictions,
which remain in effect until the debt matures in 2001 if the debt is not
prepaid, include, among other things, cash flow and interest coverage
requirements and restrictions on incurrence of indebtedness and liens,
investments, asset sales, mergers and consolidations, affiliate transactions,
issuance of additional PIMCO Advisors units and amendment of the PIMCO Advisors
Partnership Agreement. The indebtedness is non-recourse to PGP and is secured
by, among other things, a pledge of certain PIMCO Advisors units owned by PGP.
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Withdrawal and Removal of a General Partner of PIMCO Holdings or PIMCO Advisors
The PIMCO Holdings Partnership Agreement provides that, except under certain
limited exceptions, the general partner of PIMCO Holdings may withdraw as
general partner of PIMCO Holdings only if (i) such withdrawal is approved by
holders of a majority of PIMCO Holdings units and the general partner makes a
Partnership Assignment Determination, and (ii) counsel renders a Partnership
Limited Liability Determination and a Partnership Tax Determination (each as
defined in the PIMCO Holdings Partnership Agreement). The general partner may be
removed by a vote of holders of PIMCO Holdings units holding 80% or more of all
outstanding PIMCO Holdings units if a successor general partner is appointed,
counsel makes a Partnership Limited Liability Determination and a Partnership
Tax Determination, the general partner makes a Partnership Assignment
Determination and such removal is approved by the successor general partner.
Also, interests in the general partner may be sold or transferred without any
prior approval or consent of the holders of PIMCO Holdings units.
The PIMCO Advisors Partnership Agreement provides that any general partner may
withdraw as a general partner of PIMCO Advisors only if (a) the general partner
transfers all of its PIMCO Advisors GP Units to an affiliate of such general
partner, and the affiliate is admitted as a general partner of PIMCO Advisors in
accordance with the PIMCO Advisors Partnership Agreement or (b) such withdrawal
is approved by holders of a majority of the units of limited partner interest
(other than those held by the general partners and their affiliates) and if
counsel renders an opinion that the limited partners do not lose their limited
liability pursuant to Delaware law or the PIMCO Advisors Partnership Agreement
(a "PIMCO Advisors Limited Liability Determination"), and provides certain
other opinions relating to the status of PIMCO Advisors as a partnership for
federal income tax purposes (a "PIMCO Advisors Tax Determination") and the
continuation of PIMCO Advisors advisory agreements (a "PIMCO Advisors
Assignment Determination"). The general partners may be removed by a vote of
unitholders holding 80% or more of all outstanding units if PIMCO Advisors
receives a PIMCO Advisors Limited Liability Determination, a PIMCO Advisors Tax
Determination and a PIMCO Advisors Assignment Determination with respect to such
removal and (ii) if such general partner is the sole general partner, a person
qualified to be general partner, which has agreed in writing to carry on the
business of PIMCO Advisors, is approved by the partners of PIMCO Advisors as the
successor general partner. However, by virtue of PGP's and PIMCO Holdings'
ownership of units, either of the general partners can veto any such removal.
Also, interests in a general partner may be sold or transferred without any
prior approval or consent of the holders of PIMCO Advisors limited partnership
units.
In the event of withdrawal or removal of a general partner of PIMCO Advisors,
the departing general partner will become a limited partner and its PIMCO
Advisors GP Units will be converted into PIMCO Advisors limited partnership
units. At the time of such conversion, the departing general partner must pay to
PIMCO Advisors any negative balance in its capital account. If PIMCO Advisors is
indebted to the departing general partner at the time of its withdrawal or
removal, PIMCO Advisors will repay the general partner, within 60 days, the
amount of such indebtedness, subject to reduction for damages incurred if the
general partner withdraws in violation of the PIMCO Advisors Partnership
Agreement. All outstanding obligations incurred by the departing general partner
as general partner of PIMCO Advisors will be assumed by the successor to the
general partner, or if there is no successor, by the remaining general partners.
Indemnification
The PIMCO Holdings Partnership Agreement requires PIMCO Holdings to indemnify
the general partner, its affiliates and all of its officers, directors,
partners, employees and agents (collectively, the "Indemnitees") against any
and all proceedings in which the Indemnitees may be involved, or threatened to
be involved, as a party or otherwise by reason of their management of the
affairs of PIMCO Holdings or which relates to or arises out of PIMCO Holdings or
related entities. The PIMCO Holdings Partnership Agreement provides that such
Indemnitees are not entitled to indemnification with respect to any claim, issue
or matter in which they have been adjudged liable for actual fraud, willful
misconduct or gross negligence, unless and only to the extent that the court in
which such action was brought, or another court of competent jurisdiction,
determines upon application that, despite the adjudication of liability, but in
view of all the circumstances of the case, the Indemnitee is fairly and
reasonably entitled to indemnification for such liabilities and expenses as the
court may deem proper.
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<PAGE>
The PIMCO Holdings Partnership Agreement also provides that the general
partner will not be liable to PIMCO Holdings or the holders of PIMCO Holdings
units for errors in judgment or for breach of fiduciary duty (including breach
of any duty of care or any duty of loyalty) unless the general partner's action
or failure to act involved an act or omission that constitutes actual fraud,
gross negligence or willful or wanton misconduct.
The PIMCO Advisors Partnership Agreement provides that PIMCO Advisors will
indemnify (i) any general partner, (ii) any former general partner, (iii) any
person which is or was an affiliate of any general partner or any former general
partner, (iv) any person which is or was an Associate (as defined in the PIMCO
Advisors Partnership Agreement) of any general partner, former general partner,
affiliate of a general partner or former general partner, or PIMCO Advisors or
its subsidiaries and (v) any person which is or was serving at the request of
PIMCO Advisors or any of its subsidiaries, any general partner or any former
general partner as an Associate of another person.
The PIMCO Advisors Partnership Agreement also provides that neither a general
partner nor any indemnitee will be liable to PIMCO Advisors or the unitholders
for errors in judgment or for breach of fiduciary duty (including breach of any
duty of care or any duty of loyalty) unless it is proved by clear and convincing
evidence that the general partner's action or failure to act involved an act or
omission undertaken with deliberate intent to cause injury to PIMCO Advisors or
was undertaken with reckless disregard for the best interests of PIMCO Advisors.
Contribution Agreement
In connection with the acquisition of the investment advisory assets of
Opgroup, Opfin, Opgroup, PIMCO Advisors and Value Advisors LLC entered into a
contribution agreement (the "Contribution Agreement") pursuant to which
Opgroup, then a subsidiary of PIMCO Advisors, caused its subsidiary Opfin to
contribute (i) the ownership of Value Advisors LLC and the one percent general
partner interest in PIMCO Holdings to PIMCO Advisors, and then (ii) Opfin's
32.4% managing general partner interest in Oppenheimer Capital and the one
percent general partner interests in three subsidiaries of Oppenheimer Capital
to Value Advisors LLC (then a subsidiary of PIMCO Advisors). In exchange for
these contributions, Opfin received 6.0 million PIMCO Advisors Class C units of
limited partner interest. Each PIMCO Advisors Class C unit of limited partner
interest is entitled to the same proportionate share of profits, losses and
distributions as a PIMCO Advisors Class A unit of limited partner interest, but
with a minimum priority distribution of $2.75 per year and a maximum
distribution of $3.00 per year, or $0.75 per quarter subject to a catch up on an
annual basis.
Under the terms of the Contribution Agreement, if PIMCO Advisors or its direct
or indirect subsidiaries (other than Opgroup or Opfin) incurs a loss relating to
or arising from Opfin's investment advisory businesses or which is otherwise
attributable to the Opgroup merger agreement, and, as a result of such loss,
Opgroup receives an indemnification payment in excess of any loss incurred by
Opgroup or Opfin attributable to the same loss event (the excess portion
thereof, an "Excess Indemnification Payment"), then (i) if the indemnification
payment is in the form of a reduction of the face amount of the Indemnity
Certificate, Opfin shall return to PIMCO Advisors a number of PIMCO Advisors
units equal to the quotient of (x) 6,000,000 multiplied by the principal amount
of the reduction constituting such Excess Indemnification Payment divided by (y)
$265 million, or (ii) if the Excess Indemnification Payment is in cash, Opgroup
shall distribute the cash to PIMCO Advisors.
In addition, PIMCO Advisors agreed that if Opgroup or Opfin incurs a loss for
which Opgroup does not receive an indemnification payment in cash, PIMCO
Advisors will loan to Opgroup an amount equal to the loss. PIMCO Advisors
further agreed to loan Opgroup an amount sufficient to pay the remaining
principal and interest payments on the Opfin Debt. Accordingly, following the
closing of the Opgroup Transaction, PIMCO Advisors loaned $35 million to
Opgroup, which used a portion of the proceeds of this loan to retire the
indebtedness owed by Opfin to PIMCO Holdings.
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Registration Rights Agreements
PIMCO Advisors is a party to (i) that certain Registration Rights Agreement
dated November 4, 1997 between PIMCO Advisors and former Opgroup stockholders
(the "1997 Registration Rights Agreement"), and (ii) that certain Registration
Rights Agreement dated as of November 15, 1994 between PIMCO Advisors and
certain of its unitholders (the "1994 Registration Rights Agreement").
Following the Restructuring, PIMCO Advisors was no longer obligated to effect
registrations under these agreements. However, pursuant to the Operating
Agreement, PIMCO Holdings has agreed to perform the obligations of PIMCO
Advisors under the 1997 Registration Rights Agreement and the 1994 Registration
Rights Agreement, and PIMCO Holdings intends to provide registration rights with
respect to PIMCO Holdings units comparable to those described below.
The holders of registration rights under the 1997 Registration Rights
Agreement were granted (i) the right to initiate up to two registrations of
their registerable securities (subject to customary limitations, a minimum sale
requirement and priority rights of holders of registration rights under the 1994
Registration Rights Agreement) and (ii) certain piggyback registration rights in
respect of registrations initiated by the partnership or by other holders of
registration rights granted pursuant to a separate agreement, subject to
approval of the managing underwriter. In the case of a registration initiated by
the partnership, participation in such registration by the holders of
registration rights under the 1997 Registration Rights Agreement and other
registration rights agreements could not be reduced to less than 40%. The
holders of registration rights under the 1994 Registration Rights Agreement were
granted (i) the right to initiate up to five demand registrations on Form S-1
and an unlimited number of demand registrations on Form S-3 (subject to
customary limitations and a minimum sale requirement) and (ii) piggy-back
registration rights in respect of primary offerings by the partnership similar
to those held by the holders under the 1997 Registration Rights Agreement. The
holders under the 1994 Registration Rights Agreement generally have priority
over the holders under the 1997 Registration Rights Agreement with respect to
management of the registration process and inclusion of shares in registrations
initiated by holders of registration rights.
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PART IV
ITEM 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) (1) Financial Statements.
Financial Statements of the registrant are listed in "Index to Financial
Statements" on page 31 and are filed as part of this Report.
(2) Financial Statement Schedules.
There are no Financial Statement Schedules of the registrant filed as part of
this Report.
(3) Exhibits.
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<S> <C>
2.1 Implementation and Merger Agreement dated as of October 31, 1999 by and among Allianz of America
Inc., Pacific Asset Management LLC, PIMCO Advisors L.P., PIMCO Advisors Holdings L.P., PIMCO
Partners G.P., PIMCO Partners LLC, PIMCO Holding LLC and certain other affiliated parties.
(Incorporated by reference to Registrant's Current Report on Form 8-K as filed with the Commission
on November 1, 1999)
2.2 List of Omitted Schedules and Other Attachments to Implementation and Merger Agreement dated as of
October 31, 1999, which was filed as Exhibit 2.1 to the Current Report on Form 8-K of PIMCO
Advisors Holdings L.P., filed on November 1, 1999. (Incorporated by reference to Exhibit 2.2 in
Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1999)
3.1 Amended and Restated Agreement of Limited Partnership of PIMCO Advisors Holdings L.P. dated
June 30, 1998 (Incorporated by reference to PIMCO Advisors Holdings L.P.'s Proxy Statement filed
May 19, 1998)
3.1.2 Assignment of General Partner Interest and Amendment to Amended and Restated Agreement of
Limited Partnership of PIMCO Advisors Holdings L.P. dated November 4, 1997 (Incorporated by
reference to Exhibit 3.1.2 of PIMCO Advisors Holdings L.P.'s Registration Statement No. 333-39585
on Form S-1)
3.1.3 Assignment of General Partner Interest and Amendment to Amended and Restated Agreement of
Limited Partnership of PIMCO Advisors Holdings L.P. dated November 4, 1997 (Incorporated by
reference to Exhibit 3.1.3 of PIMCO Advisors Holdings L.P.'s Registration Statement No. 333-39585
on Form S-1)
4.1 Form Certificate of Limited Partnership Units (Incorporated by reference to Exhibit 4.1 of
Registrant's Annual Report on Form 10-K for the year ended December 31, 1997)
10.1 Acquisition Agreement dated August 17, 1995 among Oppenheimer Capital, Quest for Value Advisors,
Quest for Value Distributors and Oppenheimer Management Corporation (Incorporated by reference to
Exhibit 10.1 of the PIMCO Advisors Holdings L.P.'s Form 10-Q for the fiscal quarter ended October
31, 1995)
</TABLE>
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<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<S> <C>
10.2 Form of Indemnification Agreement executed by certain officers of the Registrant and certain
directors of Thomson McKinnon Asset Management Inc. (Incorporated by reference to Exhibit 10.21
of Thomas McKinnon Asset Management L.P.'s Report No. 33-17227 on Form 10-Q for the fiscal
quarter ended June 30, 1990)
10.3 Form of Indemnification Agreement executed by certain directors of Thomson Advisory Group, Inc.
(Incorporated by reference to Exhibit 10.22 of Thomson Advisory Group L.P.'s Report No. 33-17227
on Form 10-Q for the quarter ended September 30, 1990)
10.3.1 Form of Amendment No. 1 to Indemnification Agreement (Incorporated by reference to Exhibit 10.46
of Thomson Advisory Group L.P.'s Report No. 33-17227 on Form 10-Q for the fiscal quarter ended
March 31, 1991)
10.4 Registration Rights Agreement dated as of November 15, 1994, among the Funds, PFAMCo Partners
and Individuals (as such terms are defined therein) (Incorporated by reference to PIMCO Partners
G.P.'s Schedule 13D filed November 25, 1994)
10.5 Amended and Restated Operating Agreement between PIMCO Advisors L.P. and PIMCO Advisors
Holdings L.P. dated January 1, 1998 (Incorporated by reference to Exhibit 10.6 of Registrant's
Annual Report on Form 10-K for the year ended December 31, 1997)
10.7 Agreement and Plan of Merger dated November 4, 1997 (Opgroup Transaction) (Incorporated by
reference to Exhibit 10.1 of PIMCO Advisors L.P.'s Report on Form 8-K/A dated November 4,
1997)
10.8 Put Right dated November 4, 1997 (Incorporated by reference to Exhibit 10.2 of PIMCO Advisors
L.P.'s Report on Form 8-K/A dated November 4, 1997)
10.9 Exchange Right dated November 4, 1997 (Incorporated by reference to Exhibit 10.3 of PIMCO
Advisors L.P.'s Report on Form 8-K/A dated November 4, 1997)
10.10 Note Agreement dated November 4, 1997 (Incorporated by reference to Exhibit 10.4 of PIMCO
Advisors L.P.'s Report on Form 8-K/A dated November 4, 1997)
10.11 Contribution Agreement dated November 4, 1997 (Incorporated by reference to Exhibit 10.5 of
PIMCO Advisors L.P.'s Report on Form 8-K/A dated November 4, 1997)
10.12 Certificate of Long Term Indemnity Indebtedness dated November 4, 1997 (Incorporated by
reference to Exhibit 10.6 of PIMCO Advisors L.P.'s Report on Form 8-K/A dated November 4,
1997)
10.13 Amended and Restated Release and Indemnity Agreement dated November 4, 1997 (Incorporated by
reference to Exhibit 10.65 of PIMCO Advisors Holdings L.P.'s Registration Statement No. 333-
39585 on Form S-1)
10.14 Amended and Restated Tax Indemnity Agreement dated November 4, 1997 (Incorporated by
reference to Exhibit 10.66 of PIMCO Advisors Holdings L.P.'s Registration Statement No. 333-
39585 on Form S-1)
</TABLE>
90
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<S> <C>
10.15 Registration Rights Agreement dated November 4, 1997 (Incorporated by reference to Exhibit 10.7 of
PIMCO Advisors L.P.'s Report on Form 8-K/A dated November 4, 1997)
10.16 Agreement and Plan of Merger dated November 4, 1997 (Oppenheimer Capital Merger)
(Incorporated by reference to Exhibit 10.68 of PIMCO Advisors Holdings L.P.'s Registration
Statement No. 333-39585 on Form S-1)
10.17 First Amendment to Agreement and Plan of Merger dated as of November 4, 1997 (Oppenheimer
Capital Merger) (Incorporated by reference to Exhibit 10.69 of PIMCO Advisors Holdings L.P.'s
Registration Statement No. 333-39585 on Form S-1)
10.18 Amended and Restated Unit Purchase Agreement dated November 4, 1997 (Incorporated by
Reference to Exhibit 10.70 of PIMCO Advisors Holdings L.P.'s Registration Statement No. 333-
39585 on Form S-1)
10.19 Restructuring Contribution and Issuance Agreement dated December 31, 1997 (Incorporated by
reference to Exhibit 10.20 of Registrant's Annual Report on Form 10-K for the year ended December
31, 1997)
10.20 Written Action dated November 4, 1997 (Delegation to the Management Board of PIMCO Advisors
Holdings L.P.) (Incorporated by reference to Exhibit 10.21 of Registrant's Annual Report on Form
10-K for the year ended December 31, 1997)
10.21 Written Action dated November 28, 1997 (Delegation to the Management Board of PIMCO
Advisors L.P.) (Incorporated by reference to Exhibit 10.22 of Registrant's Annual Report on Form
10-K for the year ended December 31, 1997)
10.22 1997 Unit Incentive Plan of PIMCO Advisors Holdings L.P. and PIMCO Advisors L.P.
(Incorporated by reference to Exhibit 10.1 of PIMCO Advisors Holdings L.P.'s Registration
Statement No. 333-43201 on Form S-8)
10.23 Profit Sharing Plan for Pacific Investment Management Company (Incorporated by reference to
Exhibit 10.5 of PIMCO Advisor's Report on Form 10-K for the fiscal year ended December 31,
1994)
10.24 Profit Sharing Plan for Columbus Circle Investors (Incorporated by reference from Thomson
Advisory Group L.P.'s Report on Form 8-K dated July 11, 1994)
10.25 PIMCO Advisors L.P. 401(k) Savings and Investment Plan (Incorporated by reference to
Exhibit 10.10 of Thomson Advisory Group L.P.'s Report on Form 10-K for the fiscal year ended
December 31, 1991)
10.25.1 First Amendment to the PIMCO Advisors L.P. 401(k) Savings and Investment Plan (Incorporated
by reference to Exhibit 10.10(b) of Thomson Advisory Group L.P.'s Report on Form 10-K for the
fiscal year ended December 31, 1993)
10.25.2 PIMCO Advisors L.P. 401(k) Savings and Investment Plan Submitter Amendment (Incorporated by
reference to Exhibit 10.10(c) of Thomson Advisory Group L.P.'s Report on Form 10-K for the
fiscal year ended December 31, 1993)
</TABLE>
91
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<S> <C>
10.25.3 Third Amendment to the PIMCO Advisors L.P. 401(k) Savings and Investment Plan (Incorporated
by reference to Exhibit 10.18(E) of PIMCO Advisors L.P.'s Report on Form 10-K for the fiscal year
ended December 31, 1994)
10.25.4 Fourth Amendment to the PIMCO Advisors L.P. 401(k) Savings and Investment Plan (Incorporated
by reference to Exhibit 10.18(F) of PIMCO Advisor L.P.'s Report on Form 10-K for the fiscal year
ended December 31, 1994)
10.26 Employment Agreement: David B. Breed (Incorporated by reference to Exhibit 10.25 of PIMCO
Advisors L.P.'s Report on Form 10-K for the fiscal year ended December 31, 1996)
10.29 Employment Agreement: William H. Gross (Incorporated by reference to Exhibit 10.26 of PIMCO
Advisors L.P.'s Report on Form 10-K for the fiscal year ended December 31, 1996)
10.30 Employment Agreement: Brent R. Harris (Incorporated by reference to Exhibit 10.28 of PIMCO
Advisors L.P.'s Report on Form 10-K for the fiscal year ended December 31, 1996)
10.31 Employment Agreement: William F. Podlich, III (Incorporated by reference to Exhibit 10.31 of
PIMCO Advisors L.P.'s Report on Form 10-K for the fiscal year ended December 31, 1996)
10.32 Employment Agreement: William S. Thompson, Jr. (Incorporated by reference to Exhibit 10.32 of
PIMCO Advisors L.P.'s Report on Form 10-K for the fiscal year ended December 31, 1996)
10.33 Employment Agreement: Benjamin L. Trosky (Incorporated by reference to Exhibit 10.33 of
PIMCO Advisors L.P.'s Report on Form 10-K for the fiscal year ended December 31, 1996)
10.34 Form of Manager Employer Agreement (Incorporated by reference from Thomson Advisory Group
L.P.'s Report on Form 8-K dated July 11, 1994)
10.35 Office Lease dated as of February 19, 1998 by and between California State Teachers Retirement
System and Pacific Investment Management Company (Incorporated by reference to Exhibit 10.43 of
Registrant's Annual Report on Form 10-K for the year ended December 31, 1997)
10.36 Lease with respect to the premises at Oppenheimer Tower (Incorporated by reference to Registrant's
Registration Statement on Form S-3, Registration No. 33-39354)
10.37 Lease with respect to premises at 33 Maiden Lane, New York (Incorporated by reference from
exhibit 10.9 on Form 10-K of Oppenheimer Capital, L.P. for its fiscal year ended April 30, 1994)
10.38 Lease with respect to premises at World Financial Center, Tower B, New York (Incorporated by
reference in the Annual Report on Form 10-K of Oppenheimer Capital, L.P. for its fiscal year ended
April 30, 1993)
10.39 1998 Unit Incentive Plan of PIMCO Advisors Holdings L.P. and PIMCO Advisors L.P. (Incorporated by
reference to Exhibit 10.1 of Registrant's Quarterly Report on Form 10-Q for the quarter ended March
31, 1998)
10.40 Executive Deferred Compensation Plan of PIMCO Advisors Holdings L.P. and PIMCO Advisors L.P.
(Incorporated by reference to Exhibit 10.2 of Registrant's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1998)
</TABLE>
92
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<S> <C>
10.41 Long-Term Credit Agreement dated as of May 12, 1998 among PIMCO Advisors L.P., NationsBank, N.A.,
Deutsche Bank, N.A., New York Branch, Union Bank of California, N.A., CitiBank, N.A. and the
financial institutions whose names are set forth on the signature pages thereto (Incorporated by
reference to Exhibit 10.1 of Registrant's Current Report on Form 8-K dated May 12, 1998 as filed
with the Commission on May 20, 1998)
10.42 Short-Term Credit Agreement dated as of May 12, 1998 among PIMCO Advisors L.P., NationsBank, N.A.,
Deutsche Bank, N.A., New York Branch, Union Bank of California, N.A., CitiBank, N.A. and the
financial institutions whose names are set forth on the signature pages thereto (Incorporated by
reference to Exhibit 10.2 of Registrant's Current Report on Form 8-K dated May 12, 1998 as filed
with the Commission on May 20, 1998)
10.43 Office Space Lease between The Irvine Company and Pacific Investment Management Company (Incorporated by reference to
the exhibit of the same number in Registrants Annual Report on Form 10-K for the year ended December 31, 1998)
10.44 Assignment and Assumption of Lease dated as of February 24, 1999 by and between UBS AG and PIMCO Advisors L.P.
(Incorporated by reference to the exhibit of the same number in Registrants Annual Report on Form 10-K for the year
ended December 31, 1998)
10.45 Agreement of Lease between Fisher-Sixth Avenue Company and Hawaiian-Sixth Avenue Corp. and Union Bank of Switzerland,
New York Branch (Incorporated by reference to the exhibit of the same number in Registrants Annual Report on Form 10-K
for the year ended December 31, 1998)
10.46 Amended and Restated Agreement of Limited Partnership of PIMCO Advisors L.P. dated as of June 30,
1999 (Incorporated by reference to Exhibit 3.1 in Registrant's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1999)
21 Subsidiaries of Registrant
23.1 Consent of PricewaterhouseCoopers LLP
27 Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K.
Current Report on Form 8-K as filed with the Securities and Exchange
Commission on November 1, 1999 reporting PIMCO Holdings entering into the
Implementation and Merger Agreement will Allianz AG.
93
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
PIMCO ADVISORS HOLDINGS L.P.
By: /s/ William D. Cvengros
---------------------------------
William D. Cvengros
Chief Executive Officer
Date: March 26, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ William D. Cvengros Board Member, March 26, 2000
- ------------------------------------- Chief Executive Officer
William D. Cvengros (Principal Executive Officer)
/s/ Robert M. Fitzgerald Board Member, Executive Vice President, March 26, 2000
- ------------------------------------- Chief Financial Officer
Robert M. Fitzgerald (Principal Financial
and Accounting Officer)
/s/ Kenneth M. Poovey Board Member, March 26, 2000
- ------------------------------------- Chief Operating Officer
Kenneth M. Poovey
</TABLE>
94
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Sequentially
Numbered
Exhibit Description Page
- ------- ----------- ------------
<S> <C> <C>
21 Subsidiaries of Registrant 96
23.1 Consent of PricewaterhouseCoopers LLP 97
27 Financial Data Schedule 98
</TABLE>
95
<PAGE>
Exhibit 21
Subsidiaries of Registrant
PIMCO Advisors L.P., a Delaware limited partnership
Cadence Capital Management, a Delaware general partnership
Cadence Capital Management Inc., a Delaware corporation
225 Liberty Street Advisers, L.P., a Delaware limited partnership
NFJ Investment Group, a Delaware general partnership
NFJ Management Inc., a Delaware corporation
Oppenheimer Capital, a Delaware general partnership
Oppenheimer Group Inc., a Delaware corporation
Opcap Advisors, a Delaware general partnership
OCC Distributors, a New York company
Pacific Investment Management Company, a Delaware general partnership
PIMCO Management Inc., a Delaware corporation
Parametric Portfolio Associates, a Delaware general partnership
Parametric Management Inc., a Delaware corporation
PIMCO Funds Distributors LLC, a Delaware limited liability company
PIMCO Funds Advertising Agency Co., a Delaware corporation
PIMCO Global Advisors LLC, a Delaware limited liability company
PIMCO Australia Pty Ltd., a Australian Proprietary company
PIMCO Europe Limited, a British company
PIMCO Global Advisors (Ireland), Ltd., an Irish company
PIMCO Japan Limited, a British Virgin Islands company
PIMCO Global Advisors (Resources) Limited, a Cayman Islands Exempted company
PIMCO Asia Pte Ltd., a Singapore limited company
StocksPLUS, L.P., a Delaware limited partnership
StocksPLUS Management Inc., a Delaware corporation
StocksPLUS Sub-Fund B, LLC, a California limited liability company
Value Advisors LLC, a Delaware limited liability company
<PAGE>
EXHIBIT 23.1
Consent of PricewaterhouseCoopers LLP
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Registration Statement on Form S-3 (No. 333-47417) of
our reports dated January 31, 2000, as identified on the index to financial
statements included as Item 8 of PIMCO Advisors Holdings L.P.'s 1999 Annual
Report on Form 10-K (Form 10-K) which appear in this Form 10-K. We also consent
to the reference to us under the heading "Experts" in such Prospectus.
We also consent to the incorporation by reference to those reports in the
Registration Statement on Form S-4 (No. 333-53055.) We also consent to the
reference to us under the heading "Experts" in such Prospectus.
We also consent to the incorporation by reference to those reports in the
Registration Statement on Form S-8 (No. 333-43201).
/s/ PRICEWATERHOUSECOOPERS LLP
PricewaterhouseCoopers LLP
Los Angeles, California
March 29, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM PIMCO
ADVISORS HOLDINGS L.P. FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 469
<SECURITIES> 0
<RECEIVABLES> 33,814
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 34,292
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 488,701
<CURRENT-LIABILITIES> 32,563
<BONDS> 0
456,138<F1>
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 488,701
<SALES> 0<F2>
<TOTAL-REVENUES> 90,066
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 15,775
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 74,291
<INCOME-TAX> 0
<INCOME-CONTINUING> 74,291
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 74,291
<EPS-BASIC> 1.51
<EPS-DILUTED> 1.43
<FN>
<F1> ENTITY IS A PARTNERSHIP. AMOUNT SHOWN REPRESENTS PARTNERS' CAPITAL.
<F2> THE PARTNERSHIP IS IN THE SERVICE BUSINESS AND HAS NO SALES OR COST OF GOOD
SOLD ON TANGIBLE PRODUCTS.
</FN>
</TABLE>
