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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Mark One:
[X] Annual Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934 [Fee Required]
For the Fiscal Year ended December 31, 1994
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934 [No Fee Required]
For the Transition Period from to
Commission file No. 1-09772
PIMCO ADVISORS L.P.
(Exact name of registrant as specified in its charter)
Delaware 06-1349805
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
840 Newport Center Drive, Newport Beach, CA 92660
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 714-717-7022
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Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class which registered
Class A 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)
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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 .
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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]
State the aggregate market value of the voting stock* held by non-
affiliates of the registrant. As of March 23, 1995, the value was approximately
$234,478,500.
DOCUMENTS INCORPORATED BY REFERENCE
NONE
________________
* The securities held by non-affiliates are not voting stock but are 13,398,764
publicly held Class A Units of limited partner interest.
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PART I
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ITEM 1. BUSINESS
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PIMCO Advisors L.P. (the "Partnership" or "PA"), formerly known as
Thomson Advisory Group L.P., is one of the nation's largest publicly traded
investment management firms, with as of December 31, 1994, approximately $72.2
billion of assets under management. The Partnership offers a broad range of
investment management services and styles to institutional and retail investors,
combining the substantial fixed income-oriented institutional investment
management operations of Pacific Investment Management Company and four smaller
affiliated domestic and international equity investment management firms with
the equity-oriented investment management and retail mutual fund operations of
Thomson Advisory Group L.P., including the operations of its former Columbus
Circle Investors division. The Partnership provides investment management
services (i) to large institutional clients through separate accounts, (ii) to
medium and smaller-sized institutional clients through the PIMCO Advisors
Institutional Funds (formerly known as the PFAMCo Funds) and the PIMCO Funds and
(iii) to retail investors through the PIMCO Advisors Funds (formerly known as
the Thomson Fund Group), which are sold principally through the broker-dealer
community.
The Partnership's strategy is to pursue growth by capitalizing on the
investment management expertise, performance record and reputation of its six
institutional investment management firms (the "Investment Management Firms")
by (i) continuing to provide quality investment performance and service to
institutional clients through separate account and pooled fund management of
assets, (ii) offering an expanded family of retail mutual funds utilizing the
proprietary portfolio management techniques developed for the Partnership's
institutional clients by the Investment Management Firms and (iii) marketing its
family of institutional mutual funds to the defined contribution pension market,
principally 401(k) plans. The Investment Management Firms are five Delaware
partnerships: Pacific Investment Management Company ("PIMCO"), Columbus Circle
Investors ("CCI"), Cadence Capital Management ("Cadence"), NFJ Investment Group
("NFJ") and Parametric Portfolio Associates ("Parametric"); and one United
Kingdom limited partnership, Blairlogie Capital Management ("Blairlogie").
The Partnership's six Investment Management Firms are structured as
separate and largely autonomous subpartnerships. The Partnership believes this
decentralized structure enables the Investment Management Firms to implement
their own distinct investment strategies and philosophies, providing financial
and other incentives for the managers of each of the firms to render superior
performance and client service. The Managing Directors of the Investment
Management Firms have a significant profits interest in their respective
Investment Management Firms, as well as substantial economic interests in the
Partnership. These economic interests relate primarily to Class B Units,
distributions on which currently are subordinated to the annual $1.88 per Unit
priority distribution on the Class A Units as described below.
RECENT EVENTS
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The scope of the Partnership's business and the ownership of the
Partnership changed significantly in 1994 as a result of the consolidation (the
"Consolidation") of the business of Thomson Advisory Group L.P. with certain of
the investment advisory businesses of Pacific Financial Asset Management
Corporation ("PFAMCo"), an indirect subsidiary of Pacific Mutual Life Insurance
Company ("Pacific Mutual"), in November 1994 and a concurrent public offering
(the "Offering").
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Prior to the Consolidation, the Partnership conducted its investment
advisory business under the name of Thomson Advisory Group L.P. and its
affiliate, Thomson Investor Services Inc., now named PIMCO Advisors Distribution
Company ("PADCo" or the "Distributor"), served as the distributor for the
Partnership's mutual funds. On November 15, 1994, these businesses were combined
with the investment management and related businesses of PFAMCo. Subsequent to
the Consolidation, PIMCO Partners, G.P., a newly-organized California general
partnership ("PIMCO GP"), was admitted as the general partner of the Partnership
and the prior general partner, Thomson Advisory Group Inc. ("TAG Inc.")
withdrew. PIMCO GP has two general partners: (i) PIMCO Partners, LLC
("PPLLC"), a newly-formed California limited liability company, all of the
interests of which are held directly by the Managing Directors of PIMCO and (ii)
Pacific Investment Management Company, a California corporation ("PIMCO Inc."),
an indirect wholly owned subsidiary of Pacific Mutual. In connection with the
Consolidation:
. the Partnership declared a 106% Unit distribution effective October 9, 1994,
payable to holders of its then outstanding limited and general partner
Units;
. the Partnership adopted the Amended and Restated Partnership Agreement (the
"Partnership Agreement") providing, among other things, for (i) the
establishment of two classes of limited partner interest, Class A Units and
Class B Units, (ii) the reclassification of 8,798,764 outstanding limited
partner units held by public Unitholders as Class A Units, (iii) the
conversion of the 412,000 General Partner Units ("GP Units") and 11,389,180
LP Units held by TAG Inc. prior to the Consolidation into 800,000 GP Units,
5,100,590 Class A Units and 8,260,826 Class B Units, (iv) a new management
structure vesting Partnership management authority in the Operating Board,
its Operating Committee and the Equity Board and (v) the grant of
discretionary powers to the general partner to restructure (the
"Restructuring") the Partnership in anticipation of taxation of the
Partnership as a corporation, expected to occur no later than January 1,
1998;
. PIMCO Inc. (through PIMCO GP) transferred the PIMCO investment advisory
business to the Partnership, and PIMCO Inc. and PPLLC contributed cash in
the amount necessary for such assets to meet a minimum net worth
requirement, in exchange for the issuance to PIMCO GP and its partners,
PIMCO Inc. and PPLLC, of an aggregate of 21,875,000 Class A Units and
21,875,000 Class B Units.
. PFAMCo contributed its businesses and the businesses of Cadence, Parametric,
NFJ and Blairlogie to the Partnership in exchange for the issuance to
PFAMCo, certain of its subsidiaries and certain newly formed limited
partnerships owned by those subsidiaries and the Managing Directors of
Cadence, NFJ and Parametric of an aggregate of 2,700,000 Class A Units and
2,700,000 Class B Units;
. 5,297,000 options to purchase Class B Units were issued pursuant to the 1994
Option Plan as hereinafter described, and amendments were made to existing
options for 2,442,130 Class A Units granted under the Partnership's 1993
Option Plan;
. PIMCO GP borrowed approximately $130 million, approximately $119.3 million
of which was loaned and contributed by PIMCO GP to TAG Inc., primarily to
finance TAG Inc.'s purchase of approximately 61% of its outstanding common
stock for approximately $116.3 million, and approximately $8.7 million of
which was used by PIMCO GP to purchase approximately 5% of TAG Inc.'s
outstanding common stock;
. TAG Inc. transferred the ownership of PADCo to the Partnership in exchange
for 218,801 Class A Units of limited partner interest; and
. concurrently with such stock purchases, the remaining 34% of the outstanding
common stock of TAG Inc. was exchanged by its holders for an aggregate of
2,028,386 shares of non-voting Series A Preferred Stock of TAG Inc. and
2,839,742 shares of Series B Preferred Stock of TAG Inc. Until the earlier
of December 31, 1997 or a Restructuring, the holders of the Series B
Preferred Stock are entitled to one vote per share and vote as a single
class with the holders of the outstanding shares of common stock of TAG Inc.
(approximately 2,145 shares) on all matters, including the election of
directors, except amendments to the charter which would adversely affect the
Series B Preferred Stock. As a result of the voting rights of the Series B
Preferred Stock, PIMCO GP will not have control over TAG Inc. until the
earlier of December 31, 1997 or a Restructuring, when the Series B Preferred
Stock will become non-voting (except under limited circumstances).
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Subsequent to the Consolidation, when PIMCO GP was admitted as general
partner of the Partnership and TAG Inc. withdrew as general partner, the 800,000
of the Class A Units held by PIMCO GP were reclassified as GP Units and the
800,000 GP Units held by TAG Inc. were reclassified as Class A Units.
In the Offering in November 1994, the Partnership sold 1,200,000 Class
A Units and certain selling Unitholders sold an aggregate of 3,400,000 Class A
Units. At the closing of the Offering, the holders of approximately 1.17 million
shares of Series A Preferred Stock of TAG Inc. exchanged those shares with PIMCO
Inc. pursuant to a contractual exchange arrangement for approximately 1.09
million Class A Units, which were included among the Class A Units sold by
selling Unitholders in the Offering.
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GENERAL
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The table below sets forth the assets under management of the Partnership
and its six Investment Management Firms at the dates indicated:
<TABLE>
<CAPTION>
ASSETS UNDER MANAGEMENT (IN MILLIONS)
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AT DECEMBER 31,
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1994 1993 1992 1991 1990
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<S> <C> <C> <C> <C> <C>
Pacific Investment Management
Company........................ $56,883 $53,001 $41,249 $36,169 $28,899
Columbus Circle Investors........ 10,304/2/ 9,848 8,070 6,435 3,795
Cadence Capital Management....... 1,762 1,647 940 658 302
Parametric Portfolio Associates.. 1,546 1,385 932 655 524
NFJ Investment Group............. 1,072 966 534 344 228
Blairlogie Capital Management.... 479 97 -- -- --
Other/1/ 129 1,194/2/ 2,630/2/ 3,180/2/ 3,134/2/
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Total....................... $72,175 $68,138 $54,355 $47,441 $36,882
======= ======= ======= ======= =======
</TABLE>
1 Includes assets under management not advised or subadvised by the Investment
Management Firms.
2 Includes assets invested in Cash Accumulation Trust (a money market fund)
under a contractual relationship which expired September 30, 1994. In
November 1994, Columbus Circle Investors was appointed as the subadvisor for
Cash Accumulation Trust.
The revenues of the Partnership and its six Investment Management Firms
consist principally of management fees based on the value of assets under
management and in some cases the performance of the advisor. The table below
sets forth management fees for the Partnership and its six Investment Management
Firms for the periods indicated:
<TABLE>
<CAPTION>
MANAGEMENT FEES (IN THOUSANDS)
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YEAR ENDED DECEMBER 31,
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1994 1993 1992 1991 1990
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<S> <C> <C> <C> <C> <C>
Pacific Investment Management Company $141,218 $144,487 $106,279 $ 84,063 $ 65,513
Columbus Circle Investors 44,363 39,460 32,151 25,203 16,841
Cadence Capital Management 12,120 9,504 6,103 4,108 1,691
Parametric Portfolio Associates 4,451 4,505 2,932 2,205 1,926
NFJ Investment Group 4,967 3,795 2,007 1,359 1,163
Blairlogie Capital Management 420 23 -- -- --
Other, net/1/ 23,936 20,592 22,805 21,898 20,810
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Total $231,475 $222,366 $172,277 $138,836 $107,944
======== ======== ======== ======== ========
</TABLE>
1 Includes revenues not directly allocable to the investment management
services of the Investment Management Firms, the management fees of the Cash
Accumulation Trust and intercompany eliminations.
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GRAPHICS APPENDIX LIST
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PAGE WHERE DESCRIPTION OF GRAPHIC OR CROSS-REFERENCE
GRAPHIC
APPEARS
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7 On this page is a chart which illustrates the structure of the
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Partnership and its Investment Management Firms and mutual
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funds. In the center of the chart is a box for PIMCO Advisors
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L.P. (formerly Thomson Advisory Group L.P.) Connected to the top
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of such box are three additional boxes representing the owners
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of PIMCO Advisors L.P.: the public, PIMCO G.P. (the general
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partner) and the non-public partners. To the left of the PIMCO
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Advisors L.P. box attached by a broken line is a box for PIMCO
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Advisors Institutional Funds (formerly PFAMCo Funds)-
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institutional funds managed by the firms listed below. To the
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right of the PIMCO Advisors L.P. box, attached by a broken line,
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is a box for PIMCO Advisors Funds (formerly Thomson Funds),
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retail funds managed by the firms listed below. Connected to the
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bottom of the PIMCO Advisors L.P. box are seven additional
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boxes; one each for PIMCO Advisors Distribution Company
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(formerly Thomson Investor Services Inc.), mutual fund
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distributor for Funds; Pacific Investment Management Company,
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Newport Beach, CA-primarily Fixed Income; Columbus Circle
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Investors, Stamford, CT, Equity - momentum surprise; Parametric
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Portfolio Associates; Seattle, Washington, Equity -
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Quantitative; Cadence Capital Management, Boston, MA, Equity -
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Growth; NFJ Investment Group, Dallas, TX, Equity - Value; and
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Blairlogie Capital Management, Edinburgh, Scotland, Equity -
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International. Finally, connected by a broken line to the bottom
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of the Pacific Investment Management Company box is a box for
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PIMCO Funds, fixed income institutional funds managed by Pacific
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Investment Management Company.
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GRAPHIC REQUIREMENTS FOR EDGAR FILINGS
If a submission contains graphic material that cannot be reproduced
electronically, the filer must provide a complete fair and accurate description
of the omitted graphic in Appendix List at the end of the document. If a
description of the graphic appears in the text surrounding it, the filer need
only cross-reference the graphic in the Appendix List. It is necessary to
describe corporate logos, differences in pagination, color, or type size and
style.
RR DONNELLEY DISCLAIMER
Because our clients receive comments back from the SEC about graphic material
contained in their documents. RR Donnelley cannot write the descriptions of
omitted graphic materials at the risk of being held liable.
7
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A principal component of the Partnership's marketing strategy is the
historical performance of its investment management activities relative to
selected benchmarks over long periods of time. For example, PIMCO stresses its
record in equaling or exceeding client-selected performance benchmarks over a
long period through a measured risk taking approach that emphasizes preservation
of capital. Over the last 10 years, PIMCO's Total Return composite (of full
discretion accounts), representing approximately 56% of PIMCO's total assets
under management at December 31, 1994, outperformed the Lehman Brothers
Aggregate Bond Index by approximately 120 basis points (11.2% compared to 10.0%)
annually on a compound basis after adjusting for the fees paid to PIMCO.
Similarly, CCI uses in its marketing the record of the PIMCO Advisors Growth
Fund, which has been the twentieth ranked growth stock mutual fund within a
universe of 132 such funds over the last ten years by Lipper Analytical
Services, Inc., and the PIMCO Advisors Opportunity Fund, which has been the
first ranked growth fund within a universe of 46 such funds over the last ten
years by the same source.
PRIMARY MARKETS AND STRATEGY FOR GROWTH
The two primary markets for the investment management services offered
by the Partnership's Investment Management Firms are the institutional market
and the retail mutual fund market. Several of the Investment Management Firms
also accept individually managed private accounts over a certain threshold size
for high net worth individuals.
INSTITUTIONS. The institutional market for investment management
services includes corporate, government and labor union pension plans,
charitable endowments and foundations, and corporations purchasing investment
management services for their own account. Each of the Investment Management
Firms serves the institutional market and conducts its own institutional
marketing activities through client service representatives as well as through
direct marketing contact by investment principals. In general, the Investment
Management Firms' marketing approach targets Fortune 1,000 companies and other
large institutional investors primarily through independent consultants who
analyze the performance of investment advisors. The Investment Management Firms
seek to develop client relationships through investment management performance
and focused and responsive client service. Their business 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 and the PIMCO Advisors Institutional
Funds, and otherwise seeking to diversify and expand their businesses by asset
class, method of delivery and markets.
The Partnership's business strategy divides the institutional market
into two primary segments: defined benefit pension plan accounts and defined
contribution pension plan accounts.
Defined Benefit. The defined benefit market is composed primarily of
corporate, government and labor union pension plans. The defined benefit market
has grown substantially in recent years.
The Partnership serves the defined benefit market primarily through
separate accounts and its institutional mutual funds. The PIMCO Funds and the
PIMCO Advisors Institutional Funds provide medium and smaller sized
institutional investors in this market access to the Investment Management
Firms' expertise.
Defined Contribution. The defined contribution market has also grown
rapidly in recent years, primarily as a result of 401(k) plans. According to
Bernstein Research's The Future of Money Management in America 1994 Edition,
defined contribution plans now constitute a larger market than defined benefit
plans in terms of the number of plan participants, with approximately 12 million
people becoming defined contribution plan participants since 1983.
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The Partnership believes that the combination of Investment Management
Firms resulting from the Consolidation provides a potentially significant source
of growth for the Partnership in providing services to the defined contribution
plan market. The Partnership offers the PIMCO Advisors Institutional Funds,
which allow 401(k) plan sponsors and institutional investors to choose from a
broad array of equity and fixed income investment funds managed by one or more
of the Partnership's six Investment Management Firms. In addition, the
Partnership plans to "bundle" its investment services with a full range of
plan administrative and supplementary services offered by third parties,
including record keeping capabilities and relationships with custodians, thereby
offering plan sponsors a fully integrated product.
Other. The Partnership also serves other institutional investors,
consisting primarily of endowments and foundations.
RETAIL MUTUAL FUNDS. Like the institutional market for investment
management services, the mutual fund market has expanded rapidly in recent
years.
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. The mutual fund industry has become a consumer product
business where 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 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. More recently,
a number of 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, contingent
deferred sales charges assessed against shareholders at the time they redeem
their investments, or a combination of such sources.
The Partnership's retail strategy centers on the PIMCO Advisors Funds,
a family of 13 predominantly equity-based retail mutual funds. The addition of
PIMCO and four other Investment Management Firms in the Consolidation is
expected to enable the Partnership to develop new products to offer to the
retail investor. In particular, the Partnership's new fixed income expertise
provides the opportunity to expand the breadth of its mutual funds beyond their
recent historical emphasis on equities. In addition, the Partnership sells the
PIMCO Funds through aggregators such as Charles S. Schwab and Jack White to
retail clients.
The Partnership's strategy is to build a "brand name" awareness of the
fund group both at the broker-dealer level and the retail investor level,
creating a valuable, long-term franchise. Leveraging off the depth and expertise
of the six Investment Management Firms, the Partnership is currently developing
new funds to fill gaps in its product line in terms of investment objectives and
styles. After the Consolidation, PIMCO Advisors Funds commenced offering two
new funds: (i) total return fixed income managed by PIMCO and (ii)
innovation/technology equity managed by CCI. Possible new PIMCO Advisors Fund
offerings also under consideration include funds based on (i) value equity
managed by NFJ, (ii) global fixed income managed by PIMCO, (iii) emerging
markets equity managed by Blairlogie and (iv) "growth at a reasonable price"
(GARP) equity managed by Cadence. In addition, through its increased
capabilities, the Partnership also intends to upgrade its 401(k) products for
smaller plans, offer a family of variable annuity products, and ultimately
develop a series of "lifestyle portfolios" that would invest in a combination
of existing PIMCO Advisors Funds.
The Partnership currently distributes its retail mutual funds on a
"front-end" and "level load" basis. The Partnership is considering the
introduction of "back-end load" shares for the PIMCO Advisors Funds and is
contemplating a variety of financing opportunities in connection therewith.
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INVESTMENT MANAGEMENT FIRMS
PACIFIC INVESTMENT MANAGEMENT COMPANY (PIMCO)
General. Pacific Investment Management Company had aggregate assets
under management at December 31, 1994 and December 31, 1993 of $56.9 billion and
$53.0 billion, respectively, of which 91.7% and 91.8%, respectively, consisted
of fixed income accounts and 8.3% and 8.2%, respectively, consisted of equity-
related accounts. PIMCO's clients principally include large and medium-sized
corporate pension and profit sharing plans, public pension plans, multi-employer
(Taft-Hartley) pension plans and foundations and endowment funds. Its client
list includes many of the nation's largest pension funds, foundations and
endowments and other institutional investors; in this regard, an independent
survey recently indicated that 28% of the nation's 200 largest pension funds are
PIMCO clients.
Investment Strategy. PIMCO believes that its strength in the
management of fixed income assets is derived from its investment philosophy,
which stresses active management, measured risk-taking and the application of
strong analytical capabilities across all fixed income market sectors. Under
PIMCO's investment philosophy, longer term macro-economic trends (rather than
short-term market movements) determine portfolio strategy and moderate portfolio
duration ranges are favored to reduce volatility in return relative to client-
specified benchmarks. PIMCO's investment strategy process begins with a "top-
down" approach utilizing 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. PIMCO then
uses a "bottom up" process to select specific portfolio investments.
In managing fixed income investment advisory accounts, PIMCO uses
investment grade and below-investment grade securities, as well as derivatives
(which use dates back to 1980) in seeking to manage portfolio risk and exploit
market inefficiencies. PIMCO's use of derivatives has generally been confined to
futures, options and mainstream mortgage derivatives (such as collateralized
mortgage obligations, or CMOs); however, PIMCO at times has also held positions
in client portfolios in interest-only and principal-only strips (IOs and POs)
and, in special situations, structured notes and swaps. Although certain of
these derivative securities can have higher degrees of interest rate risk,
illiquidity and counterparty credit risk, PIMCO approaches derivatives much as
it does other complex fixed income instruments-as potential investments to be
analyzed, monitored and used when appropriate to enhance a portfolio's return or
manage its risk. PIMCO has developed and employs, in the case of derivatives as
well as other securities, various risk controls at the portfolio and individual
security levels in an effort to evaluate and monitor interest rate, liquidity
and credit quality risk. PIMCO believes its use of derivatives has contributed
positively to portfolio returns and PIMCO has not suffered any material claims
or made any material payments to clients related to its use of derivatives.
PIMCO relies on internally developed, proprietary computer software
programs in managing its clients' assets rather than using analytical models
purchased from outside sources. PIMCO believes that its proprietary computer
technology provides it with an important competitive advantage.
PIMCO has sought to expand its client base beyond the traditional
defined benefit pension market, and has increased its presence in the defined
contribution pension market with $3.3 billion of such assets under management at
December 31, 1994. PIMCO's strategy also involves focusing on "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 PIMCO Funds to their clients. In
addition, PIMCO seeks to increase both institutional and retail assets under
management for non-U.S. investors, for which it does not currently have a well-
established presence.
Investment Products. PIMCO offers a range of investment services for
both fixed income and equity assets.
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Fixed Income Portfolios. PIMCO offers a variety of strategies for
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clients with fixed income portfolios, with the adoption of a particular strategy
reflecting the particular client's investment objective.
. Total Return Portfolios--PIMCO structures total return portfolios
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. The total return strategy is PIMCO's flagship
investment management service; portfolios utilizing this strategy
represented approximately 60% of PIMCO's total assets under
management at December 31, 1994.
. Low Duration Portfolios--PIMCO has actively managed low duration
accounts 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.
. Other Duration Specific or Sector Specific Portfolios-PIMCO also
offers clients active management of portfolios based upon
specific duration targets (e.g., long duration portfolios or
Guaranteed Investment Contract alternative products which are
designed to mimic Guaranteed Investment Contracts) or sector
emphases (e.g., international, high-yield, or mortgages).
Equity Portfolios. PIMCO offers two equity strategies, StocksPLUS(R)
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and a growth style portfolio. StocksPLUS(R) represents a proprietary technique
developed by PIMCO 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 technology as is used
by PIMCO in its fixed income portfolios. PIMCO's growth style equity strategy
utilizes quantitative and fundamental equity analysis to identify stocks that it
believes to have above-average market appreciation potential over a full market
cycle.
PIMCO Funds. Founded in 1987, the PIMCO Funds, a series of no-load
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mutual funds (with a minimum investment of $1 million), enable medium and
smaller U.S. institutional investors and high net worth individuals who do not
satisfy PIMCO's minimum investment requirement for separate account management
services ($75 million at December 31, 1994) to obtain PIMCO's investment
management services on a commingled basis. The PIMCO Funds are also sold to
retail clients through "aggregators." The PIMCO Funds include 12 separate funded
portfolios, principally in the fixed income area. PIMCO's investment strategies
in managing these portfolios in large measure reflect the investment strategies
used by PIMCO for its separately managed accounts. At December 31, 1994, the
PIMCO Funds had $9.9 billion of assets under management (excluding separate
account assets invested in PIMCO Funds portfolios), with $6.7 billion invested
in total return portfolios, $2.4 billion in low duration portfolios, $365
million in foreign portfolios and $528 million in other strategies.
International and Other Portfolios. PIMCO, as investment advisor to a
----------------------------------
series of offshore funds, provides fixed income investment advice to non-U.S.
investors. Assets under management for these funds totaled $132.6 million and
$145.7 million at December 31, 1994 and December 31, 1993, respectively. PIMCO
also serves as subadvisor for a series of trusts investing in mortgage related
securities that are marketed to Japanese investors. These trusts had assets of
$2.3 billion and $2.1 billion at December 31, 1994 and December 31, 1993,
respectively. PIMCO also serves as subadvisor for nine families of U.S. mutual
funds sponsored by other mutual fund complexes. Total assets under management
for these nonaffiliated funds at December 31, 1994 and December 31, 1993 were
$1.2 billion and $967 million, respectively.
11
<PAGE>
Set forth below is a table showing PIMCO's assets under management and
number of portfolios by investment strategy at the dates indicated:
<TABLE>
<CAPTION>
ASSETS UNDER MANAGEMENT /(1)/
($ IN MILLIONS)
AT DECEMBER 31,
--------------------------------------------------------------
1994 1993 1992
---- ---- ----
NO. AMOUNT NO. AMOUNT NO. AMOUNT
--- ------- --- ------- --- ------
<S> <C> <C> <C> <C> <C> <C>
Fixed Income Portfolios:
Total Return Portfolios 153 $ 34,681 146 $ 32,773 136 $ 28,320
Low Duration Portfolios 25 4,253 21 3,774 17 2,519
Other Duration Specific or
Sector Specific Portfolios:
Duration/Sector Specific 11 3,506 12 3,852 13 3,409
GIC Alternatives 12 1,634 7 791 1 153
Mortgage 25 4,649 24 5,001 11 3,479
Global/Non-U.S. 8 1,680 7 1,794 4 251
Other 10 1,750 6 664 3 368
--- ------- --- ------- --- -------
Total 244 52,153 223 48,649 185 38,499
--- ------- --- ------- --- -------
Equity/Balanced Portfolios:
StocksPLUS (R) 17 4,636 14 4,238 10 2,619
Growth Stock/Balanced 4 94 3 114 4 131
--- ------- --- ------- --- -------
Total 21 4,730 17 4,352 14 2,750
--- ------- --- ------- --- -------
TOTAL ASSETS UNDER
MANAGEMENT 265 56,883 240 $ 53,001 199 $ 41,249
=== ======= === ======== === ========
</TABLE>
(1) Includes the managed assets of the PIMCO Funds.
Performance Based Fees. PIMCO's fee schedules are typically computed as
a percentage of assets under management. PIMCO's StocksPLUS(R) product, which
accounted for $4.6 billion of assets under management at December 31, 1994,
generally is subject to a performance-based fee schedule in which under-
performance relative to the S&P 500 index over a particular time period results
in no fees being paid by clients and superior performance results in incentive
fees that are not subject to a cap. The StocksPLUS(R) fee arrangement can
materially affect PIMCO's total revenues from period to period.
In addition to the StocksPLUS(R) accounts, several large fixed income
accounts also have performance-based fee arrangements. For these accounts, PIMCO
must outperform a specified fixed income benchmark over a particular time period
in order to receive a performance-based fee, but generally is entitled to a base
fee determined with reference to the value of assets under management. Such
arrangements can significantly affect PIMCO's revenues, 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.
Employees. PIMCO's ten Managing Directors have an average of 19 years
of industry experience. Of the ten Managing Directors, three (William H. Gross,
William F. Podlich, III and James F. Muzzy) have been associated with PIMCO
since its founding and the other seven have been with PIMCO for an average of
nine years. At December 31, 1994, the firm-wide staff of 232 included 35
investment professionals, of whom 12 are Chartered Financial Analysts. PIMCO's
portfolio managers, including the fixed income staff (14 professionals) and
equity staff (three professionals), are responsible for research and trading.
Account managers (18 professionals) are primarily responsible for client
relationship management and/or marketing.
12
<PAGE>
COLUMBUS CIRCLE INVESTORS (CCI)
General. CCI, based in Stamford, Connecticut and established in 1975,
manages discretionary accounts for entities such as corporate, government and
union pension and profit sharing plans, foundations and educational
institutions, as well as accounts for "high net worth" individuals. In addition,
CCI has a private collective investment program for accredited investors. The
assets under management and revenues of CCI have increased significantly in
recent years. As of December 31, 1994, assets under management by CCI, exclusive
of the approximately $3.5 billion of assets of the PIMCO Advisors Funds and the
Cash Accumulation Trust under CCI management, were approximately $6.8 billion
for 158 clients.
CCI's principal equity product consists of its "core" portfolios, which
accounted for approximately $6.8 billion (or 66%) of its assets under management
at December 31, 1994. CCI uses its "positive momentum & positive surprise" style
for these portfolios, which principally consist of "large cap" U.S. equity
securities. CCI also applies its "positive momentum & positive surprise" style
to manage "small cap" portfolios aggregating approximately $1.4 billion (or 14%)
of its assets under management at December 31, 1994; "mid cap" portfolios
aggregating approximately $853 million (or 8%) of its assets under management at
December 31, 1994; and "equity income" portfolios aggregating approximately $185
million (or 2%) of its assets under management at December 31, 1994. CCI also
manages relatively small fixed income, balanced and specialized equity
portfolios.
Investment Strategy. CCI's investment strategy has remained
essentially unchanged since 1975. CCI's investment philosophy is based on the
premise that companies producing results which exceed the expectations of
investors and Wall Street equity research analysts will have rising stock
prices, while companies with disappointing results will experience stock price
decline. CCI's investment discipline focuses on the potential for "positive
momentum & positive surprise." CCI monitors numerous factors, including
political and economic developments, secular trends and industry and group
dynamics, in addition to company-specific events, to determine which companies
are best-positioned to achieve revenue and earnings acceleration. In addition to
meeting the criteria for potential "positive momentum & positive surprise,"
thorough fundamental analysis is completed prior to making an investment
decision. Depending upon market conditions, CCI seeks to enhance investment
performance by writing "covered" call and stock index options on securities held
in equity accounts.
The equity funds of the PIMCO Advisors Funds (plus the Tax Exempt Fund
and the Money Market Fund) currently are managed by the same individuals who
manage CCI's individual and institutional private accounts. Accordingly, the CCI
investment philosophy and techniques described above are also applied to such
equity and fixed income funds. CCI's policy is to accept only new accounts of
$10 million or more (except in its accredited investors program).
Employees. Two of CCI's five Managing Directors, Irwin F. Smith and
Donald A. Chiboucas, have been with CCI since its founding in 1975. Mr. Smith
also served as Chairman of the Partnership from March 1993 until the
Consolidation. At December 31, 1994, CCI had 66 employees, of whom 25 were
investment professionals.
CADENCE CAPITAL MANAGEMENT (CADENCE)
General. Cadence, based in Boston, Massachusetts and established in
1988, specializes in disciplined, growth-oriented management of equity
securities. At December 31, 1994, Cadence had $1.8 billion of assets under
management, managed separate account portfolios for 53 clients and subadvised
four portfolios within the PIMCO Advisors Institutional Funds.
13
<PAGE>
Investment Strategy. Cadence is a "growth at a reasonable price"
equity manager. Cadence'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. Cadence 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. Cadence structures its portfolios to be broadly based,
typically including 80 to 100 issues.
Cadence's 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 (the top 1,000 market cap issues), mid cap (market cap of over $500 million
excluding the largest 200 issues), small cap ($50 million to $500 million) and
micro cap (up to $100 million). Through this strategy, Cadence is able to
differentiate its investment products while remaining focused on a single
investment style.
Employees. The Managing Directors of Cadence include David B. Breed, a
founder of the firm who serves on the Operating Board of the Partnership, and
William Bannick, who joined Cadence in 1992. Mr. Breed is the Chief Executive
Officer and Chief Investment Officer of Cadence and is responsible for the
original development and ongoing maintenance of the investment process. Mr.
Bannick is responsible for investment management and client service. Cadence had
a total of 21 employees at December 31, 1994, including five portfolio managers
in addition to Messrs. Breed and Bannick.
PARAMETRIC PORTFOLIO ASSOCIATES (PARAMETRIC)
General. Parametric, based in Seattle, Washington and established in
1987, specializes in the use of highly quantitative techniques to manage U.S.
and international equity portfolios for large U.S. corporate and public pension
plans. Parametric's objective is to provide superior returns relative to a
specified benchmark such as the S&P 500, the Russell 1000, EAFE or other
customized indices. For pension plans, Parametric's strategy is to target those
larger plans having passive index programs. In the mutual fund area,
Parametric's strategy involves customizing its investment management product to
a specified benchmark of the fund. Parametric focuses its institutional
marketing efforts on pension consultants for large pension funds, which tend to
be current users of index products. Parametric also seeks to develop client
relationships with family trusts. At December 31, 1994, Parametric had assets
under management of $1.5 billion, managed separate accounts for 18 clients and
served as subadvisor for three PIMCO Advisors Institutional Funds and two
unaffiliated families of funds.
Investment Strategy. Parametric structures its clients' portfolios to
meet specific risk return objectives. Parametric believes that portfolios which
track generally accepted performance benchmarks, such as the S&P 500, are not
the most efficient portfolios because the benchmark simply represents the
aggregate of current investor holdings. Parametric seeks to improve portfolio
efficiency by changing the relative weightings of securities in its clients'
portfolios relative to the selected benchmark, using rigorous and highly
quantitative analysis of the historical return pattern of the selected benchmark
and of securities within that benchmark.
Parametric uses a proprietary computer model to analyze the return
pattern of the thousands of portfolios that can be constructed from securities
in a given benchmark. In structuring its clients' portfolios, Parametric seeks
to meet all of the following criteria simultaneously: higher returns than the
benchmark in both favorable and unfavorable markets; total volatility no greater
than that of the selected benchmark; and limited underperformance both in
magnitude and in the number of underperforming periods. Parametric's typical
U.S. benchmark-managed portfolios contain 200 to 225 stocks, while its
international portfolios average 200 to 250 stocks.
Employees. At December 31, 1994, Parametric's staff included Mark
England-Markun and William Cornelius as Managing Directors and 12 other
employees.
14
<PAGE>
NFJ INVESTMENT GROUP (NFJ)
General. NFJ, based in Dallas, Texas and established in 1989, is a
disciplined, value-oriented manager of equity securities. NFJ's specialty is
investing in a combination of low P/E stocks with high dividends selected
through a proprietary screening model. NFJ's business strategy involves
targeting the U.S. pension and mutual fund markets with specific attention to
the pension consultants which dominate the pension market. NFJ believes that its
value niche and conservative investment style is attractive to prospective
clients because it naturally complements the styles of other growth or core
equity managers. At December 31, 1994, NFJ had assets under management of $1.1
billion, managed separate account portfolios for 27 clients and also served as
manager for three PIMCO Advisors Institutional Funds and four unaffiliated
families of funds.
Investment Strategy. NFJ's investment philosophy is based on research
showing that portfolios with a combination of low P/E stocks and high dividends
consistently outperform market indices. The low P/E bias is based on the belief
that "out of favor" stocks are not normally subjected to significant negative
earnings surprises because their low P/E ratios already incorporate the market's
negative expectations. The high dividend component offers an "income cushion"
to protect returns when market conditions are unfavorable. Another important
concept is NFJ's belief that diversification across industries is an important
criterion for adding value. To avoid portfolios heavily concentrated in
particular industries, NFJ has divided its 2,000-stock universe into numerous
industry groups and selects its 50-stock portfolios from that universe.
NFJ has developed a structured process with a systematic buy/sell
discipline based on fundamental research and computer modeling. NFJ analyzes all
buy candidates to verify the low multiple of all stocks, based on trailing
operating earnings, positive forward earnings, and acceptable relative price
momentum.
Employees. At December 31, 1994, NFJ had a staff of 11, including
Managing Directors Christopher Najork, Ben Fischer and John Johnson. Prior to
joining NFJ in January 1989, these three individuals worked as a group for over
15 years at NCNB Texas (successor organization to First Republic Bank), and as a
group they have over 75 years of investment experience.
BLAIRLOGIE CAPITAL MANAGEMENT (BLAIRLOGIE)
General. Blairlogie, based in Edinburgh, Scotland and founded in late
1992, specializes in international equity investments. Blairlogie provides an
international investment product that combines the country selection strategies
with the systematic application of an investment process more typically used by
U.S. investment firms. Blairlogie focuses its marketing efforts in the U.S. and
seeks to capitalize on increased demand for international investment products by
U.S. pension funds and retail-oriented U.S. mutual funds. Blairlogie's future
business strategy may also include the development of investment management
relationships in the United Kingdom and other parts of Europe.
Blairlogie is a newly organized firm and has operated at a loss since
its inception. PFAMCo accordingly has agreed to reimburse Blairlogie for future
operating losses, if any, through 1996, subject to 50% recoupment out of
operating profits. At December 31, 1994, Blairlogie had approximately $500
million of assets under management including PIMCO Advisors International Fund,
which had assets of approximately $280 million as of December 31, 1994.
Investment Strategy. Blairlogie's investment strategy involves the
application of fundamental valuation criteria to country allocations and then to
stock selection in order to enhance client returns over time, while seeking a
relatively low level of overall portfolio risk. Blairlogie applies this strategy
to all countries and stocks, regardless of whether they are developed or
emerging or are large or small capitalization stocks. Blairlogie's investment
process is a disciplined screening process that is based on active management at
both the country selection and stock selection levels. Country allocation is
generally the major single influence in Blairlogie's risk/reward decision, both
in its global and emerging market models.
15
<PAGE>
Employees. At December 31, 1994, Blairlogie had a staff of 18,
including Managing Directors and firm founders Gavin R. Dobson, James G.S. Smith
and Robert Stephens, with 17, 13 and 21 years of investment experience,
respectively.
PARTNERSHIP MUTUAL FUNDS
In addition to the PIMCO Funds, which are offered and managed by PIMCO,
the Partnership offers and manages two families of mutual funds, the PIMCO
Advisors Funds for retail investors and the PIMCO Advisors Institutional Funds
for institutional investors. The Partnership provides investment management and
advisory services to these funds under investment advisory agreements with each
of the funds.
Retail Mutual Funds. The PIMCO Advisors Funds are a family of 13
retail mutual funds (two of which commenced operations in December 1994) sold to
retail investors principally through the broker-dealer community. The
Partnership determines the investment policy and manages and supervises the
administrative affairs of each fund. An Investment Management Firm acts as
subadvisor and manages the day-to-day investments of these funds, except for the
Precious Metals Fund. In the case of the Precious Metals Fund, an independent
party acts as subadvisor. The following table presents the net assets of the
retail funds at the dates indicated (excluding the Money Market Fund):
<TABLE>
<CAPTION>
PIMCO ADVISORS FUNDS (IN MILLIONS)
---------------------------------------------------
DECEMBER 31,
FUND ---------------------------------------------------
----
1994 1993 1992 1991 1990
----- ----- ----- ------ ------
<S> <C> <C> <C> <C> <C>
Equity:
Growth Fund (large-cap) $1,160 $1,166 $1,023 $ 701 $ 343
Opportunity Fund (small-cap)(1) 647 724 414 84 39
Target Fund (mid-cap) 669 449 12 - -
Innovation Fund 12 - - - -
International Fund 279 235 34 32 36
Equity Income Fund 181 133 54 23 23
Precious Metals Fund 63 47 7 9 9
------ ------ ------ ------ ------
Subtotal 3,011 2,754 1,544 849 450
------ ------ ------ ------ ------
Fixed Income
U.S. Government Fund 325 519 548 432 444
High Income Fund 152 247 240 261 329
Total Return Income Fund 11 - - - -
Short-Intermediate Fund 82 126 148 64 -
Tax Exempt Fund 61 88 58 47 49
------ ------ ------ ------ ------
Subtotal 631 980 994 804 822
------ ------ ------ ------ ------
Total $3,642 $3,734 $2,538 $1,653 $1,272
====== ====== ====== ====== ======
</TABLE>
______
(1) Currently closed to new investors.
16
<PAGE>
Marketing and Distribution. Marketing and distribution activities of
certain of PIMCO Advisors Funds is conducted by the Distributor, a
wholly owned subsidiary of the Partnership. The Partnership uses the Distributor
to distribute the PIMCO Advisors Funds through a large, diversified network of
unaffiliated retail broker-dealers, including most leading full-service broker-
dealers. Since October 1990, the Distributor has entered into selling agreements
with over 700 broker-dealers and banks. The sales and marketing personnel
develop and support sales and marketing strategies between the Partnership and
the different retail broker-dealers. Additionally, the relationships fostered by
this group allow the Distributor's wholesalers to have access to the branch
offices and sales representatives of the retail broker-dealers.
As a captive sales, marketing and distribution company of the
Partnership, the Distributor has in the past operated on essentially a break-
even basis or at a loss. Revenues consist of payments made to it by the mutual
funds as distribution, administrative and servicing fees pursuant to plans
adopted under Rule 12b-1 under the Investment Company Act, contingent deferred
sales charges ("CDSCs") or "back-end loads," reimbursement of distribution
expenses and net commissions on the sale of front-end load funds. The mutual
fund distribution contracts and Rule 12b-1 plans must be renewed annually by the
trustees of the mutual funds, including a majority of the trustees considered
"disinterested." The Distributor incurs expenses in marketing and promoting the
PIMCO Advisors Funds, with the largest expense being the commissions which are
paid to broker-dealers and their salesmen for the sale of the PIMCO Advisors
Funds.
Institutional Mutual Funds. The PIMCO Advisors Institutional Funds are
a series of 18 institutional mutual funds, each with its own investment
objective and policies. The Partnership provides the administrative, advisory
and certain marketing services to these funds and the Investment Management
Firms act as subadvisor and manage the day-to-day investments of 16 of these
funds. The PIMCO Advisors Institutional Funds are designed primarily to provide
pension and profit sharing plans, employee benefit trusts, foundations and
endowment funds, corporations, other institutions and high net worth individuals
with access to the professional investment management services of the Investment
Management Firms. Each is an "open-end" fund which continuously offers to sell
and redeem its shares at prices based on the net asset value of the fund's
portfolios. Shares of these Funds are offered in both an institutional class and
an administrative class. At December 31, 1994, the PIMCO Advisors Institutional
Funds collectively had approximately 465 shareholders and $1.2 billion of assets
under management.
17
<PAGE>
The following table sets forth the assets under management of the
institutional mutual funds:
<TABLE>
<CAPTION>
PIMCO ADVISORS INSTITUTIONAL FUNDS (IN MILLIONS)
------------------------------------------------
December 31,
------------------------------------------------
FUND 1994 1993 1992 1991
----------- ----------- --------- ---------
<S> <C> <C> <C> <C>
PIMCO Managed Bond and Income Fund $368.9 $374.1 $293.6 $251.1
Balanced Fund 130.3 131.2 106.1 --
Cadence Capital Appreciation Fund 166.2 125.4 40.2 46.7
Cadence Mid Cap Growth Fund 115.4 74.3 40.7 3.0
NFJ Equity Income Fund 86.5 75.3 33.7 17.7
Parametric Enhanced Equity Fund 66.1 60.6 38.8 8.1
Cadence Small Cap Growth Fund 48.4 44.2 38.3 34.3
Blairlogie Emerging Markets Fund 73.3 20.4 -- --
NFJ Small Cap Value Fund 33.5 39.1 19.6 5.6
Utility Stock Fund 21.7 -- -- --
Cadence Micro Cap Growth Fund 36.5 12.5 -- --
NFJ Diversified Low P/E Fund 12.7 20.5 19.6 21.0
Blairlogie International Active Fund 21.9 8.4 -- --
Parametric International Equity Fund 5.9 64.2 48.9 53.8
Money Market Fund 17.1 7.3 7.7 7.3
CCI Core Equity Fund 2.0 -- -- --
CCI Mid-Cap Equity Fund 2.0 -- -- --
CCI Small Cap Equity Fund -- -- -- --
--------- --------- ------- -------
Total $1,208.4 $1,057.5 $687.2 $448.6
========= ========= ======= =======
</TABLE>
REGULATION
Virtually all aspects of the investment management business of the
Partnership are subject to various federal and state laws and regulations. The
Partnership and its Investment Management Firms are registered with the
Securities and Exchange Commission (the "Commission") under the Investment
Advisers Act of 1940, as amended (the "Advisers Act"), and are registered under
applicable state securities laws. The Advisers Act imposes numerous obligations
on registered investment advisors including fiduciary, recordkeeping,
operational and disclosure obligations. Blairlogie is also a member of the
Investment Management Regulatory Organization in the United Kingdom. PIMCO and
Parametric are registered with the Commodity Futures Trading Commission as
Commodity Trading Advisors and are members of the National Futures Association.
PIMCO and its subsidiary are also registered as Commodity Pool Operators. The
funds are registered with the Commission under the Investment Company Act of
1940, as amended, shares of these funds are registered with the Commission under
the Securities Act of 1933, as amended, and the shares of each such fund are
qualified for sale (or are exempt) under applicable state securities laws in all
states in the United States and the District of Columbia in which shares are
sold.
The Partnership and its Investment Management Firms are subject to the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and to
regulations promulgated thereunder, insofar as they are "fiduciaries" under
ERISA with respect to many of their clients.
The foregoing laws and regulations generally grant supervisory agencies
and bodies broad administrative powers, including the power to limit or restrict
any of the Investment Management Firms from conducting their business in the
event that they fail to comply with such laws and regulations. Possible
sanctions that may be imposed in the event of such noncompliance include the
suspension of individual employees, limitations on the Investment Management
Firm's business activities for specified periods of time, revocation of the
Investment Management Firm's registration as an investment advisor, and other
censures and fines. Changes in these laws or regulations could have a material
adverse impact on the profitability and mode of operations of the Partnership
and its Investment Management Firms.
18
<PAGE>
The officers, directors and employees of the Partnership and its
Investment Management Firms may from time to time own securities which are also
owned by one or more of their clients. Each firm has internal policies with
respect to individual investments and requires reports of securities
transactions and restricts certain transactions so as to minimize possible
conflicts of interest.
The Distributor is registered as a broker-dealer under the Securities
Exchange Act of 1934, as amended, and is subject to regulation by the
Commission, the National Association of Securities Dealers, Inc. and other
federal and state agencies. As a registered broker-dealer, it is subject to the
Commission's net capital rule and certain state securities laws designed to
enforce minimum standards regarding the general financial condition and
liquidity of a broker-dealer. Under certain circumstances, these rules limit the
ability of the Distributor's parent to make withdrawals of capital and receive
dividends from such broker-dealer. The securities industry is one of the most
highly regulated in the United States, and failure to comply with related laws
and regulations can result in the revocation of broker-dealer licenses, the
imposition of censures or fines and the suspension or expulsion from the
securities business of a firm, its officers or employees.
COMPETITION
The investment management business is highly competitive. The
Partnership and its Investment Management Firms compete with a large number of
other domestic and foreign investment management firms, commercial banks,
insurance companies, broker-dealers and others, although as a practical matter
the Investment Management Firms typically compete with other firms offering
comparable investment services and having comparable performance records. Some
of the financial services companies with which the firms compete have greater
resources and assets under management and administration than the Partnership
and the Investment Management Firms and offer a broader array of investment
products and services.
The Partnership believes that the most important factors affecting its
competition for clients are the range of products offered, the abilities,
performance records and reputations of its investment managers, management fees
and the development of new investment strategies and marketing, although the
importance of these factors can vary depending on the type of investment
management service involved. Client service is also an important competitive
factor. The Partnership's ability to increase and retain client assets could be
adversely affected if client accounts underperform the market or if key
investment managers leave the firms. The ability of the Partnership and the
Investment Management Firms to compete with other investment management firms is
also dependent, in part, on the relative attractiveness of their investment
philosophies and methods under prevailing market conditions. There are
relatively few barriers to entry by new investment management firms in the
institutional managed accounts business, which increases competitive pressure.
Selection of advisors by institutional investors often is subject to a
competitive review process relying heavily upon historical performance. As a
result, new firms such as Blairlogie typically require a three to five year
start-up period during which they experience losses and require subsidies.
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 the Partnership. Many competitors apply
substantial resources to advertising and marketing their mutual funds which may
adversely affect the ability of Partnership-sponsored funds to attract new
clients and to retain assets under management. The ability to attract and retain
mutual fund assets in the load mutual funds which the Partnership offers is
dependent to a significant degree on the ability to attract, retain and motivate
retail brokerage salespersons.
19
<PAGE>
POSSIBLE CONSTRAINTS ON GROWTH AND OPERATIONS
Distributions. Cash that is used to pay distributions on the
Partnership's Class A Units, GP Units and Class B Units will not be available
for other Partnership uses, including investments in new business opportunities.
Because distributions on Class B Units are currently subordinated to the
first-priority distributions on Class A and GP Units and since members of the
Partnership's Operating and Equity Boards (which determine the amounts to be
distributed to Unitholders) have an economic interest in a substantial number of
Class B Units, there is a risk that the Partnership may distribute cash that
could otherwise be used for other Partnership purposes. Also, there is a risk
that the Operating and Equity Boards could cause the Partnership in certain
circumstances to defer or forego the possibility of making an acquisition of a
business venture in the best interest of the Partnership which could be made
through the issuance of additional Class A Units because such an acquisition
could result in a diminution in distributions paid to the holders of the Class B
Units.
Effect of Covenants and Restrictions in Certain Debt Obligation of
General Partner. The operations of the Partnership and the Investment
Management Firms may be affected by the terms of a note agreement PIMCO GP
entered into concurrently with the closing of the Consolidation, pursuant to
which PIMCO GP issued notes in the principal amount of $130 million. Although
this indebtedness will not constitute an obligation of the Partnership or any of
the Investment Management Firms and the documents governing the indebtedness
will not be binding on the Partnership or any of the Investment Management
Firms, it is anticipated that the businesses of the Partnership and the
Investment Management Firms will be conducted in compliance with the operating
restrictions in the documents governing the indebtedness in order to avoid a
default thereunder, even though contrary courses of action may be in the best
interests of the Partnership or the Investment Management Firms. The operating
restrictions under the note agreement, among other things, include restrictions
on incurrence of indebtedness and liens, investments, asset sales, mergers and
consolidations, affiliate transactions, issuance of additional Units and
amendment of the Partnership Agreement. In addition, the note agreement
includes cash flow and interest coverage requirements; these financial covenants
could have the effect of inhibiting the Partnership's use of cash for any
purpose other than for distributions. The operating restrictions in the note
agreement will remain in effect until the debt matures in 2001 unless prepaid.
The note agreement indebtedness will be non-recourse to PIMCO GP and will be
secured by, among other things, a pledge of certain Units owned by PIMCO GP and
indirectly by a pledge of certain of the Units held by TAG Inc. In the event of
a default under this indebtedness, the lenders could foreclose upon and cause a
sale of the pledged Units, which would reduce the economic interests in the
Partnership of the General Partner and its beneficial owners, including Managing
Directors of PIMCO, and which could adversely affect the market price of the
Units.
19a
<PAGE>
DERIVATIVES
The use of derivatives by investment managers has recently received
national attention because of losses suffered on investments in derivatives. As
a result of such losses, some of those investment managers have been sued for
using or inadequately disclosing their use of derivatives or have made payments
to clients to compensate for losses. As part of its investment philosophy,
PIMCO has used deriviatives since 1980 in various ways in seeking to manage
portfolio risk and exploit market inefficiencies. Its use of derivatives has
generally been confined to futures, options and mainstream mortgage derivatives
(such as collateralized mortgage obligations); however, PIMCO has at times also
held positions in client portfolios in interest-only and principal-only strips
(IOs and POs) and, in a few special situations, structured notes and swaps.
Although certain of these derivative securities can have relatively higher
degrees of interest rate risk, illiquidity and counterparty credit risk, PIMCO
approaches derivatives much as it does other complex fixed income instruments --
as potential investments to be analyzed, monitored and used, when appropriate,
to enhance a portfolio's return or manage its risk. PIMCO has developed and
employs, in the case of derivatives as well as other securities, various risk
controls at the portfolio and individual security levels in an effort to
evaluate and monitor interest rate, liquidity and credit quality risk. PIMCO
believes its use of derivatives has contributed positively to portfolio returns
and PIMCO has not suffered any material claims or made any material payments to
clients related to its use of derivatives.
RELIANCE ON KEY PERSONNEL AND PROFIT-SHARING PAYMENTS
The ability of the Partnership and the Investment Managment Firms to
attract and retain clients is dependent to a large extent on their ability to
attract and retain key employees, including skilled portfolio managers. Certain
of these employees are responsible for significant client relationships. In
particular, the Partnership will depend to a signficant extent on the services
of William H. Gross of PIMCO, Irwin F. Smith and Donald A. Chiboucas of CCI, and
David B. Breed of Cadence. Mr. Gross is one of the best known fixed income
portfolio managers in the United States, and the loss of his services could have
a material adverse effect on the Partnership. In order to help retain these and
other key personnel, each of the six Investment Management Firms has a policy of
reserving a substantial percentage of its adjusted net book income for
profit-sharing payments (45% in the case of PIMCO and CCI and in the case of the
other Investment Management Firms, 15% of the first $3 million of such income,
25% of the next $2 million of such income, 40% of the next $5 million of such
income and 45% of such income in excess of $10 million). These profit-sharing
payments will signficantly reduce the amount of the Investment Management Firms'
profits that will be distributed to the Partnership and become available for
distribution to Unitholders. There can be no assurance that key personnel will
be retained.
19b
<PAGE>
FACTORS AFFECTING FEE REVENUES
General Considerations. Investment management agreements between
investment management firms and their clients typically provide for fees based
on a percentage of the assets under management, 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, including that investments which have 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 the
Partnership's 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 the Partnership's 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.
Any termination of agreements representing a significant portion of assets under
management could have an adverse impact on the Partnership's results of
operations.
The investment management business is highly competitive and fees vary
among investment managers. Some of the Investment Management Firms' fees are
higher than those of many investment managers relative to the average size of
accounts under management. Each Investment Management Firm'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 the Investment Management Firms will be able to
retain their clients or sustain their fee structures in the future.
Reliance on Performance-Based Fees. On a pro forma combined basis,
approximately 3.4% and 10.5% of the Partnership's revenues for the year ended
December 31, 1994 and the year ended December 31, 1993, respectively, were
derived from performance-based fees. Most of these revenues are attributable to
PIMCO's operations. To earn a performance-based fee with respect to an account,
the relevant Investment Management Firm must generally outperform a specific
benchmark over a particular period. Performance-based fee arrangements can have
a significant effect on revenues, 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. PIMCO's StocksPLUS (R) product, which accounted for
$4.6 billion of assets under management at December 31, 1994, is subject to a
performance-based fee schedule 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 not subject to a
cap. In addition to the Stocks PLUS (R) accounts, several large fixed income
accounts also have performance-based fee arrangements. PIMCO's performance-based
fee arrangements, including the StocksPLUS (R) fee arrangement, can materially
affect PIMCO's revenues, and thus those of the Partnership, from period to
period.
19c
<PAGE>
FEDERAL INCOME TAX CONSIDERATIONS; ANTICIPATED FUTURE RESTRUCTURING
Partnership Tax Considerations. In general, under the Internal Revenue
Code of 1986, as amended (the "Code"), entities classified as partnerships are
not subject to federal income tax. Instead, all holders of partnership interests
are taxable on their allocable share of a partnership's income or gain for tax
purposes, whether or not such income or gain is distributed. The Partnership
has been advised that the Partnership should be classified as a partnership for
federal income tax purposes and the Investment Management Firms should not be
treated as associations taxable as corporations for federal income tax purposes.
Loss of Partnership Tax Status. Under current law, the Partnership
will cease being classified as a partnership for federal income tax purposes,
and will be treated as a corporation, immediately after December 31, 1997 (or
sooner if the Partnership adds a substantial new line of business or otherwise
fails to satisfy certain requirements) unless the Partnership's limited partner
interests cease to be publicly traded prior to such time. As a corporation, the
Partnership would be subject to tax on its income and its shareholders would be
subject to tax on dividends.
Anticipated Future Restructuring of the Partnership. In an effort to
preserve partnership tax treatment after December 31, 1997 for nonpublic
Unitholders, the Partnership Agreement confers on the General Partner broad
authority to effect a Restructuring of the Partnership in connection with, or in
anticipation of, such a change in tax status. While the precise form of a
Restructuring cannot now be determined and will depend upon the facts and
circumstances existing at the time a Restructuring is implemented, it is
generally expected that, following a Restructuring, public Unitholders will hold
their equity participation in the business of the Partnership through publicly
traded stock issued by an entity treated as a corporation for federal income tax
purposes, allowing the nonpublic Unitholders to continue to hold their equity
participation in the Partnership directly or through some other entity treated
as a partnership for federal income tax purposes. The Partnership does not
currently expect to change its distribution policy following a Restructuring,
and it is anticipated that the corporate entity generally would distribute all
cash received by it from the Partnership other than cash needed for payment of
taxes and operational expenses. Because of federal, state and other income taxes
on such entity's income, cash available for dividends to the holders of the
corporate entity's publicly traded securities would be substantially less than
the cash distributed to the corporate entity by the Partnership.
The Partnership Agreement limits the liability of the General Partner
with respect to a restructuring as described in Item 13 of this Report.
Internal Revenue Code Section 754 Election
------------------------------------------
The Partnership has made the election to adjust the basis of
Partnership property as provided in Internal Revenue Code Section 754. The
effect of this election, in conjunction with Internal Revenue Code Section 197,
is generally to allow partners acquiring Units after April 30, 1992 to amortize
and receive deductions for the amortization of the portion (if any) of their
purchase price allocable to goodwill or intangibles. Amortization must occur
over a fifteen year period, on a straight-line basis. Deductions for
amortization reduce a partner's basis in his interest and must be recaptured as
ordinary income upon the disposition of that interest.
20
<PAGE>
With respect to options granted under the Unit Option Plans described
in Item 11 below, the Partnership has been advised that: (i) upon the exercise
of an option, the option holder will recognize ordinary compensation income for
federal income tax purposes equal to the excess of the fair market value of the
option Unit acquired over the exercise price of the option; and (ii) the
Partnership will have an ordinary compensation deduction for federal income tax
purposes equal to the amount of compensation income described in (i) and this
deduction should be allocated among the units of partner interest in the
Partnership outstanding immediately prior to exercise and should not be shared
by the option Units.
The compensation deduction would be allocated among units of partner
interest in the Partnership for tax purposes only if it were incurred in a
taxable year of the Partnership beginning before January 1, 1998 (or any later
year in which the Partnership has retained its status as a partnership as a
result of a Restructuring or otherwise). Under current law, for taxable years of
the Partnership beginning after December 31, 1997, the Partnership will be
treated as a corporation for federal income tax purposes unless a Restructuring
is effected to prevent that outcome.
ITEM 2. PROPERTIES
-------------------
The Partnership's principal offices are currently located at 840
Newport Center Drive, Newport Beach, CA where it occupies approximately 4,200
square feet of space under a sub-lease with PIMCO expiring on December 31, 1996
and at 2187 Atlantic Street where it and PADCo occupy approximately 17,200
square feet of space under a sub-lease expiring on July 31, 2002. Each location
is a modern office building and the demised space is adequate for the
Partnership's current operations, but more space may be necessary should the
Partnership's business expand.
ITEM 3. LEGAL PROCEEDINGS
--------------------------
None.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
----------------------------------------------------------
On October 31, 1994, the holders of Units of limited partner interest
consented to the following actions:
(i) the Agreement and Plan of Consolidation for PIMCO Advisors
L.P. was approved -- For 4,695,320; Against 70,329;
Abstaining 110,436;
(ii) the PIMCO Advisors L.P. 1994 Class B Unit Option Plan was
approved -- For 16,035,641; Against 114, 824; Abstaining
111,709; and
(iii) the amendments to the existing option agreements under the
Partnership's 1993 Unit Option Plan were approved -- For
16,036,053; Against 115,236; Abstaining 111,709.
21
<PAGE>
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
------------------------------------------------------------------------------
Prior to the Consolidation, the Partnership's limited partner units
were listed on the New York Stock Exchange (the "NYSE") under the symbol "TAG"
and after the Consolidation, the Class A Units have been listed on the NYSE
under the symbol "PA." The following table sets forth, for the periods
indicated, the high and low closing prices for each limited partner unit or
Class A Unit, as the case may be, as reported on the NYSE and the total cash
distributions paid per limited partner Unit or Class A Unit, as the case may be,
and GP Unit, as adjusted for the distribution of 1.06 Units per Unit effective
October 9, 1994.
<TABLE>
<CAPTION>
TOTAL
-----
CASH
----
HIGH LOW DISTRIBUTIONS
------ ----- -------------
<S> <C> <C> <C>
1992
First Quarter............. $ 9-1/2 $ 8 $ .42
Second Quarter............ 8-1/2 6-1/4 .16
Third Quarter............. 8-3/8 7-1/4 .35
Fourth Quarter............ 9 7-5/8 .15
---------
Total................ $ 1.08
=========
1993
First Quarter............. 12-5/8 8-1/2 $ .44
Second Quarter............ 11-5/8 9-7/8 .17
Third Quarter............. 15-3/8 11-1/4 .22
Fourth Quarter............ 16-7/8 13-1/2 .36
---------
Total................ $ 1.19
=========
1994
First Quarter............. 20-1/8 14-1/2 $ .51
Second Quarter............ 20-1/8 17 .29
Third Quarter............. 20-7/8 17-3/4 .34
Fourth Quarter............ 22 16-1/4 .38
---------
Total................ $ 1.52
=========
</TABLE>
On March 23, 1995, the closing price of the Partnership's Class A Units
as reported on the NYSE was $17.50 per unit. On March 15, 1995, there were
approximately 721 holders of record of the Partnership's Class A Units.
The Partnership Agreement provides that the General Partner shall cause
the Partnership to distribute to Unitholders on a quarterly basis cash in an
amount equal to Operating Profit Available for Distribution less any amount the
General Partner deems may be required for capital expenditures, reserves or
otherwise in the business of the Partnership. The Partnership Agreement defines
Operating Profit Available for Distribution as the sum of (i) the net income of
the Partnership for such quarter determined in accordance with generally
accepted accounting principles and (ii) certain non-cash charges resulting from
the amortization of goodwill and certain other intangible assets and non-cash
compensation expenses related to options and restricted Units. The General
Partner believes that the amounts withheld for capital expenditures, reserves or
otherwise will not be substantial and intends to cause the Partnership to
distribute cash to Unitholders in an amount which represents substantially all
of the Partnership's Operating Profit Available for Distribution.
22
<PAGE>
For each quarter commencing with the quarter ended December 31, 1994
and ending with the quarter ending December 31, 1997 (the "Interim Period"),
distributions will be made first to holders of Class A Units and GP Units until
such holders have received $0.47 per Unit per calendar quarter (aggregating to
$1.88 per Unit per year) since the date of the Consolidation, second to holders
of Class B Units until such holders have received $0.47 per Unit per calendar
quarter on a cumulative basis within a calendar year but not carried over from
year to year and third to all holders of Units pro rata. Distributions with
respect to Class A and GP Units will be made within 45 days of the end of each
calendar quarter in the Interim Period and thereafter within 60 days after the
end of the calendar quarter, and with respect to Class B Units will be made
within 60 days of the end of the calendar quarter, in all cases to holders of
record on the 30th day after the end of the quarter.
After December 31, 1997, or earlier upon the occurrence of an Adverse
Tax Event, as defined in the Partnership Agreement, the priority distributions
will cease, distributions thereafter will be made on a pro rata basis among all
Units then outstanding and any remaining cumulative shortfalls in the quarterly
priority amounts will not be carried over. If, immediately prior to that time,
the Class B Unit distribution were less than the Class A Unit distribution, upon
termination of the subordination feature of the Class B Units, distributions to
holders of Class A Units would decrease. Although not currently anticipated, a
change in current law or the addition of a substantial new line of business may
result in the occurrence of an Adverse Tax Event. If a Restructuring occurs
prior to December 31, 1997, the General Partner will make (i) a final quarterly
distribution for the quarter preceding the Restructuring in the priorities
stated above and (ii) a cash distribution in an amount which the General
Partner, in its good faith discretion, determines will not be required for
expenses, for capital expenditures, as reserves or otherwise in the business of
ongoing restructured entity in the priorities stated above. If an Adverse Tax
Event has not occurred prior to the Restructuring, the first-priority
distributions to the holders of Class A Units and GP Units will continue until
the earlier of December 31, 1997 or the occurrence of an Adverse Tax Event.
No assurances can be given as to the Partnership's future earnings
levels. Distributions made by the Partnership will depend on the Partnership's
profitability and the profitability of the Investment Management Firms, which in
turn, will be affected in part by overall economic conditions and other factors
affecting capital markets generally, which are beyond the Partnership's control.
In addition, the General Partner may, in determining the amount of
distributions, deduct from Operating Profit Available for Distribution any
amount the General Partner deems may be required for capital expenditures,
reserves or otherwise in the business of the Partnership. To the extent the
Partnership retains profits in any year, Unitholders may have taxable income
from the Partnership that exceeds their cash distributions.
23
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
---------------------------------
<TABLE>
<CAPTION>
(Amounts in thousands, except where noted and per unit data)
For the year ended December 31,
1994 1993 1992 1991 1990
---------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Statements of Operations Data:
Total revenues $180,263 $165,856 $120,155 $94,481 $72,650
Other operating expenses 145,220 131,447 93,011 72,644 53,851
Amortization of intangibles, options
and restricted units 6,202
---------------------------------------------------------
Net operating income 28,841 34,409 27,144 21,837 18,799
Other income, net 1,083 864 1,115 1,088 1,414
---------------------------------------------------------
Net income before income tax expense 29,924 35,273 28,259 22,925 20,213
Income tax expense 10,669 15,556 11,405 9,330 8,063
---------------------------------------------------------
Net income $19,255 $19,717 $16,854 $13,595 $12,150
=========================================================
Net income allocated to:
General Partner and Class A Limited Partnership units $4,976
Class B Limited Partnership units 1,128
Pre-Consolidation 13,151
-------------
$19,255
=============
Net income per unit (1):
General Partner and Class A Limited Partnership units $0.12
Class B Limited Partnership units $0.03
Weighted average number of units outstanding (Post-Consolidation):
Units outstanding:
General Partner 800
Class A Limited Partnership 40,018
Class B Limited Partnership 32,961
-------------
Total 73,779
Weighted average effect of unit options 984
--------------
Total 74,763
==============
Dividends $24,384 $22,158 $12,950 $8,900 $7,050
Financial Condition at End of Period:
Total assets (2) $379,708 $70,388 $43,189 $38,466 $28,929
Long-term compensation 766 9,445 10,863 2,765 303
Total liabilities 34,179 44,567 17,686 16,857 12,016
Total Stockholder's Equity 25,821 25,503 21,609 16,913
Total Partners' Capital 345,529
Other Statistics:
Assets under management (in millions) $72,175 $57,182 $43,737 $37,921 $30,123
Operating Profit Available for Distribution(1) $12,306
Cash flows provided by operating activities $25,852 $23,620 $9,309 $16,317 $9,086
Cash flows provided by (used in) investing activities 22,401 (436) (1,149) 2,195 3,647
Cash flows used in financing activities (2,549) (14,900) (15,800) (11,700) (8,268)
</TABLE>
__________
(1) Net income per unit and Operating Profit Available for Distribution are
computed on earnings following the Consolidation.
(2) Upon completion of the Consolidation of PFAMCo Group and Thomson Advisory
Group L.P., approximately $284.9 million of intangible assets were created.
See Note 3 in the Notes to the Consolidated Financial Statements.
Note: The information above should be read in connection with Management's
Discussion and Analysis of Financial Condition and Results of Operations
and the Consolidated Financial Statements and related notes appearing
elsewhere in this document.
24
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
================================================================================
OF OPERATIONS
=============
GENERAL
PIMCO Advisors L.P. and subsidiaries ("PA") was formed on November 15, 1994
("Date of Consolidation"), when Pacific Financial Asset Management Group
("PFAMCo Group") merged (the "Consolidation") certain of its investment
management businesses and substantially all of its assets into Thomson Advisory
Group L.P. ("TAG"). The PFAMCo Group comprised the operations of Pacific
Financial Asset Management Corporation ("PFAMCo"), an indirect wholly-owned
subsidiary of Pacific Mutual Life Insurance Company ("Pacific Mutual"), and
certain of its wholly-owned investment management subsidiaries. The businesses
of PFAMCo Group contributed to PA were then contributed to the following newly
formed subsidiaries:
. Pacific Investment Management Company ("Pacific Investment
Management") and its wholly-owned subsidiary, StocksPLUS Management,
Inc. ("StocksPLUS"), managing primarily Fixed Income, with
approximately $56.9 billion in assets under management;
. Cadence Capital Management ("Cadence") managing Equities, with
approximately $1.8 billion in assets under management;
. Parametric Portfolio Associates ("Parametric"), managing Equities,
with approximately $1.5 billion in assets under management;
. NFJ Investment Group ("NFJ"), managing Equities, with approximately
$1.1 billion in assets under management;
. Blairlogie Capital Management ("Blairlogie"), managing Equities,
with approximately $500 million in assets under management.
As a result of the Consolidation, the PFAMCo Group businesses described above
and Columbus Circle Investors ("CCI"), formerly a division of TAG, managing
primarily Equities, with approximately $10.3 billion in assets under management,
were organized and now conduct their businesses as separate, autonomous
subsidiaries of PA. The subsidiaries are each a registered investment advisor
and collectively they provide a broad array of investment management and
advisory services for clients using distinctive investment management styles.
In addition to the investment management subsidiaries, PA sponsors three mutual
fund families: PIMCO Funds (12 funds for institutions); PIMCO Advisors Funds (13
retail funds and Cash Accumulation Trust); and PIMCO Advisors Institutional
Funds (18 funds for institutional and 401(k)/defined contribution investors).
Under generally accepted accounting principles, the Consolidation is accounted
for as an acquisition of TAG by PFAMCo Group, even though the legal form was the
reverse. Therefore, the historical financial statements include the operations
of PFAMCo Group, in its corporate form, prior to the Consolidation and the
combined results of PA, in its partnership form, for the period since the
Consolidation.
Due to the different bases of presentation and resulting difficulties in
analyzing comparative historical financial information as a result of the
required accounting presentation, management has included below certain pro
forma financial information as if the Consolidation occurred at the beginning of
1993. Pro forma results eliminate the significant comparative differences in
the historical results of operations arising primarily from different taxation
of corporations and partnerships, from the inclusion of the former TAG's results
of operations in the pro forma results from the beginning of 1993 (as opposed to
only from the date of Consolidation reflected in the historical financial
statements), and from certain transactions and restructuring effected by the
Consolidation, principally related to the creation and amortization of
intangibles and revised profit sharing arrangements.
25
<PAGE>
PRO FORMA FINANCIAL INFORMATION
The following table summarizes the unaudited condensed pro forma results of
operations as if the Consolidation discussed above had occurred on January 1,
1993. The pro forma operating results give effect to:
(i) The Consolidation of PFAMCo Group and TAG;
(ii) The amendment of existing options under TAG's 1993 Unit Option Plan;
(iii)The adoption of the Class B Limited Partnership Unit Option Plan;
(iv) The contribution of PIMCO Advisors Distribution Company ("PADCO") to PA
in exchange for Class A Limited Partnership Units; and
(v) Certain transactions effected by PFAMCo Group and TAG in connection with
the consolidation, primarily related to intangible amortization and
profit sharing .
<TABLE>
<CAPTION>
Year Ended December 31, Increase %
1994 1993 (Decrease) Change
-----------------------------------------------------
(Amounts in millions, except per unit amounts)
<S> <C> <C> <C> <C>
Revenues:
Investment Advisory $231.5 $222.4 $ 9.1 4.1%
PADCO 37.6 33.1 4.5 13.6
-------------------------------------------------
269.1 255.5 13.6 5.3
-------------------------------------------------
Expenses:
Compensation and Benefits 119.0 113.6 5.4 4.8
Commissions 23.1 20.2 2.9 14.3
Other Expenses 33.4 27.3 6.1 22.3
Amortization of intangibles
options and restricted units 40.7 40.7 - -
Other income (1.8) (3.8) 2.0 52.6
-------------------------------------------------
214.4 198.0 16.4 8.3
-------------------------------------------------
Net Income $ 54.7 $ 57.5 ($ 2.8) (4.9)%
=================================================
Net Income per General Partner
and Class A Limited Partnership Unit $ 1.08 $ 1.10
------------------
Net Income per Class B Limited Partnership Unit $ 0.28 $ 0.34
------------------
</TABLE>
The pro forma information given above is not intended to reflect the results
that actually would have been obtained if the operations were consolidated
during the periods presented.
PRO FORMA FINANCIAL INFORMATION
RESULTS OF OPERATIONS FOR 1994 COMPARED TO 1993
PA derives substantially all its revenues and net income from advisory fees
for investment management services provided to its institutional and individual
clients and advisory, distribution and servicing fees for services provided to
its proprietary families of mutual funds ("Proprietary 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 Proprietary Funds. Revenues, therefore, are determined in large part
based upon the level of assets under management which are dependent upon market
conditions, client decisions to add or withdraw assets from PA's management and
from PA's ability to attract new clients, among other factors. In addition, PA
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, 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.
26
<PAGE>
PA's consolidated pro forma 1994 revenues, including those of its wholly-
owned distributor PADCO, were $269.1 million compared to $255.5 million in 1993,
up $13.6 million. Advisory revenues were $231.5 million in 1994 compared to
$222.4 million in 1993, up $9.1 million. PADCO's revenues were $37.6 million in
1994 compared to $33.1 million in 1993, up $4.5 million. Revenue increases
resulted from the commitment of new assets by institutional clients and to a
lesser extent from favorable investment performance and increases in mutual fund
assets under management. These increases were partially offset by a decline in
performance based fees which were 3.4% of revenues in 1994, versus 10.5% of
revenues in 1993. The decline in performance based fees occurred primarily from
under performance in a product line that seeks to outperform the S&P 500 Index.
Pro forma revenues by operating entity were as follows:
<TABLE>
<CAPTION>
(Amounts in millions)
---------------------------------------------------------
Increase %
1994 1993 (Decrease) Change
---------------------------------------------------------
<S> <C> <C> <C> <C>
Pacific Investment Management $142.9 $146.8 ($3.9) (2.7%)
CCI 45.1 39.5 5.6 14.2
Cadence 12.1 9.5 2.6 27.4
Parametric 4.5 4.5 - -
NFJ 5.0 3.8 1.2 31.6
PADCO 37.6 33.1 4.5 13.6
Other/(1)/ 21.9 18.3 3.6 19.7
---------------------------------------------------------
Consolidated PA $269.1 $255.5 $13.6 5.3%
=========================================================
</TABLE>
/(1)/ Includes PA's Institutional Services (formerly PFAMCo) and Mutual Funds
divisions and Blairlogie.
Compensation and benefits expenses in 1994 of $119.0 million were $5.4
million higher than 1993 reflecting additional staffing, primarily in Pacific
Investment Management's client support and administration areas, offset by lower
profit sharing expenses which are based on profits of each of the investment
advisor subsidiaries.
Commission expenses increased by $2.9 million to $23.1 million in 1994.
Commission expenses are incurred by PADCO and are paid primarily to broker-
dealers and their sales people for the sale of PA's retail oriented mutual
funds. Commissions include amounts paid at the time of sale of the mutual funds
("up-front" commissions) and "trail" commissions for the maintenance of assets
in the mutual funds and servicing fees 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 sales of mutual funds (on which up-front commissions are paid at
the time of sale). 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 1994, trail and service fee
commissions increased to $16.3 million from $9.1 million in 1993 as a result of
an increase in the amount of qualifying assets. Up-front commissions decreased
by $4.3 million to $6.8 million in 1994 as a result of lower current levels of
retail mutual fund sales.
Other expenses increased $6.1 million to $33.4 million. This resulted from
increases in occupancy costs, commensurate with increases in personnel described
above, marketing and promotional expenses for the Proprietary Funds and the
increased use of outside professional services.
Other income includes interest and dividend income and pro forma expense
reimbursements under agreements with Pacific Mutual. Other income in 1993
included approximately $2.0 million of expense reimbursement related to the
operations of PA's Institutional Services division which is the maximum amount
that can be received under the agreement. In actuality, this reimbursement
agreement became effective on the date of Consolidation and reimbursement will
be realized subsequent to the date of Consolidation.
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 deemed acquired by PFAMCo Group. Approximately $80.7
million of the intangible assets represents the value assigned to PA's Master
Limited Partnership ("MLP") structure. Under current tax law, an MLP is exempt
from Federal and most state and local income taxes through December 31, 1997.
The value attributed to the MLP structure is being amortized through the period
ended December 31, 1997. The remainder is being amortized over its estimated
life of twenty years.
27
<PAGE>
Net income per unit is computed under the two-class method which allocates
net income to Class A and Class B Limited Partnership units in proportion to the
Operating Profit Available for Distribution for each class. Operating Profit
Available for Distribution is defined by PA's partnership agreement and is
computed as the sum of net income plus non-cash charges from the amortization of
intangible assets and non-cash compensation expenses arising from option and
restricted unit plans. Since Class A Limited Partnership and General Partner
units are entitled to a priority distribution, the amount of Operating Profit
Available for Distribution allocated to such units is greater than the amount
for Class B Limited Partnership units. As a result, the net income per Class A
Limited Partnership and General Partner unit is greater than the net income per
Class B Limited Partnership unit. Due to the priority distribution, any dilution
to net income per unit from the assumed exercise of unit options is currently
applied entirely to Class B Limited Partnership units.
The General Partner and Class A Limited Partnership units are entitled to a
priority distribution of $1.88 per unit per year. Actual unit distributions in
February 1995 were 23.9 cents for the General Partner and Class A Limited
Partnership units and in March 1995 were 7.7 cents for the Class B Limited
Partnership units. These amounts reflect Operating Profit Available for
Distribution for the 46 day period from the date of Consolidation through
December 31, 1994.
HISTORICAL FINANCIAL STATEMENTS
The historical financial statements reflect the results of PFAMCo Group
during 1992 and 1993. The results for 1994 include PFAMCo Group, in its
corporate form for the period January 1, 1994 to November 15, 1994 and PA's
post-Consolidation combined results in its partnership form from November 16,
1994 to December 31, 1994. This accounting treatment, known as "reverse
acquisition" accounting, is required under generally accepted accounting
principles.
Therefore, many of the comparative differences in the results of operations
between 1994 and 1993 are due to the reorganization of PFAMCo Group into
partnership form, the inclusion of the former TAG operations in combination with
PFAMCo Group's operations from November 16, 1994 to December 31, 1994, and from
transactions and restructuring which occurred in the Consolidation. The 1994
results also include certain first-time non-cash expenses related to the
amortization of intangible assets created by the Consolidation and from expenses
related to option and restricted unit plans.
RESULTS OF OPERATIONS FOR 1994 COMPARED TO 1993
PA's 1994 revenues, including PADCO, were $180.3 million compared to $165.9
million in 1993, up $14.4 million. The increase in revenues results primarily
from the inclusion of the former TAG in the results of PA's operations since the
Consolidation.
Compensation and benefits which primarily includes salaries, employee
benefits and incentive compensation is PA's largest expense category. Incentive
compensation consists of profit-sharing and other incentive awards which are
primarily formula driven and based upon profitability of the investment
management subsidiaries. Incentive compensation also includes discretionary
bonus amounts. Prior to the Consolidation, profit-sharing awards ranged from 40%
to 80% of the profits, as defined, of the operating subsidiaries of PFAMCo
Group. Awards range from 15% to 45% of such profits after the Consolidation.
Commission expenses include the up-front, trail and service fee commissions
from PADCO's operations. Restricted Unit and Option Plan expense results from
grants to key employees of restricted units and options to purchase units at
substantially reduced prices. Such plans have 5-year vesting provisions and
other restrictions and the associated expense is being amortized over the 5-year
period. There were no similar items in the 1993 results of operations for
commissions and Restricted Unit and Option Plan expenses.
General and administrative expenses are primarily comprised of supplies,
telephone, printing, books and periodicals, and electronic research fees.
Marketing and promotional includes sales literature, marketing fees, sales
promotion, travel and entertainment, and public relations costs. The increase in
1994 over 1993 results from the inclusion of $1.4 million of TAG's costs,
primarily related to PADCO, since the Consolidation and from promotional
spending for the marketing of the PIMCO Funds.
Occupancy and equipment includes $0.9 million of TAG's costs and increased
over 1993 due to facility expansion primarily at Pacific Investment Management.
28
<PAGE>
Professional fees include costs of outside services for legal, accounting,
audit and consultants. The expense for 1994 includes approximately $0.4 million
from TAG's operations. The increase in total professional fees over 1993 is
largely due to professional services rendered in connection with the
Consolidation.
Equity in income of partnerships represents earnings from Pacific Investment
Management's investment in a limited partnership, StocksPLUS, L.P., a pooled
investment vehicle whose investment objective is to create returns for clients
above the S & P 500 index. The amount earned by Pacific Investment Management
will vary from year-to-year and will depend on the relative investment
performance of StocksPLUS, L.P.
Income tax expense represents the current and deferred provision for Federal
and state income taxes. Following the Consolidation, PA is organized as a
partnership whose income is generally not subject to tax at the partnership
entity level. PA does, however, have two corporate subsidiaries that may be
subject to Federal and state income taxes.
RESULTS OF OPERATIONS FOR 1993 COMPARED TO 1992
No revenue or expense of the former TAG operations are included in this
comparison.
Revenues for the year ended December 31, 1993 increased 38% as compared to
the year ended December 31, 1992, primarily from assets under management
increasing 30.8%. Performance based fees increased from $14 million for the year
ended December 31, 1992 to $26.8 million for the year ended December 31, 1993.
This increase in performance based fee revenue is directly related to the
performance of these accounts exceeding their benchmarks in 1993 as compared to
1992 as well as an increase in the number of performance based accounts.
Operating expenses increased 41.3% for the year ended December 31, 1993 as
compared to the year ended December 31, 1992, primarily from increased employee
compensation and benefits resulting from certain profit sharing programs tied to
profitability and the addition of staff to support an increased client base and
assets under management. Employees increased to 276 at December 31, 1993 from
204 at December 31, 1992. Overall, expenses increased to 79.3% of revenues in
1993 as compared to 77.4% of revenues for the year ended December 31, 1992.
Income before income tax expense increased 24.8% for the year ended December
31, 1993 as compared to the year ended December 31, 1992 primarily as a result
of the factors noted above. The effective tax rate for the year ended 1993 was
slightly higher than the expected rate due to the foreign operations of
Blairlogie not being included as part of the tax provision calculation.
CAPITAL RESOURCES AND LIQUIDITY
PA's and its predecessor entities' combined business has not historically
been capital intensive. Prior to the Consolidation, working capital requirements
have been satisfied out of operating cash flow or short-term borrowings. PA will
make quarterly profit-sharing payments and distributions to its unitholders. PA
may need to finance profit sharing payments using short-term borrowings.
PA had approximately $55.0 million of cash and cash equivalents at December
31, 1994 compared to approximately $9.3 million at December 31, 1993. The
increase in cash was due primarily to the receipt of approximately $20 million
of net proceeds raised in a public offering of primary units shortly after the
Consolidation and approximately $14.6 million derived from the consolidation of
the former TAG businesses acquired. PA's liquidity will be 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. PA
believes that the level of such commissions may increase in the future due to
the introduction of new products and mutual fund pricing structures which may
require an internal financing source; however, PA has made no formal decision as
to the source or necessity of such financing.
PA currently has no long-term debt. The Partnership does expect to obtain a $25
million four-year revolving line of credit for working capital purposes.
29
<PAGE>
ECONOMIC FACTORS
The general economy including interest rates, inflation and client responses
to economic factors will affect, to some degree, the operations of PA. 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
PA. PA's 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 PA. These fluctuations may or may not be recoverable in
the pricing of services offered by PA.
30
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
--------------------------------------------------------------------------------
Index to Financial Statements:
Page(s)
-------
PIMCO Advisors L.P.
Independent Auditors' Report 33
Consolidated Statements of Financial Condition -
as of December 31, 1994 and 1993 34
Consolidated Statements of Operations -
for each of the years in the three
years ended December 31, 1994 35
Consolidated Statements of Changes in Owners' Equity -
for each of the years in the three
years ended December 31, 1994 36-37
Consolidated Statements of Cash Flows -
for each of the years in the three
years ended December 31, 1994 38-39
Notes to Consolidated Financial Statements 40-50
31
<PAGE>
PIMCO ADVISORS L.P.
AND SUBSIDIARIES
Consolidated Statements of Financial Condition as of
December 31, 1994 and 1993 and Consolidated Statements
of Operations, Changes in Owners' Equity and
Cash Flows for Each of the Three Years Ended December 31, 1994
and Independent Auditors' Report
32
<PAGE>
INDEPENDENT AUDITORS' REPORT
----------------------------
PIMCO Advisors L.P. and Subsidiaries:
We have audited the accompanying consolidated statements of financial condition
of PIMCO Advisors L.P. and subsidiaries (the "Partnership") as of December 31,
1994 and 1993, and the related consolidated statements of operations, changes in
owners' equity, and cash flows for each of the three years ended December 31,
1994. 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 in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial condition of the Partnership as of December 31,
1994 and 1993, and the results of its operations and its cash flows for each of
the three years ended December 31, 1994, in conformity with generally accepted
accounting principles.
DELOITTE & TOUCHE LLP
New York, New York
February 17, 1995
33
<PAGE>
<TABLE>
<CAPTION>
PIMCO ADVISORS L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
--------------------------------------------------------------------------------------------------
December 31,
ASSETS 1994 1993
-------------------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $55,003,751 $ 9,299,366
Investment advisory fees receivable:
Private accounts 19,815,133 32,359,374
Proprietary Funds 6,454,589 5,561,569
Distribution and servicing fees receivable 2,864,886
Notes receivable 1,002,132 884,900
Receivable from PIMCO Advisors Funds 1,203,358
Investments in Proprietary Funds 663,347 9,739,603
Other assets - current 2,412,884 2,556,978
---------------------------
Total current assets 89,420,080 60,401,790
INVESTMENT IN STOCKSPLUS, L.P. 2,094,029 2,083,306
FIXED ASSETS - Net of accumulated depreciation and amortization
of $1,449,603 and $2,979,464 7,898,697 4,804,995
INTANGIBLE ASSETS - Net of accumulated amortization of $5,039,680 279,840,951
OTHER ASSETS - NON CURRENT 454,390 3,097,770
---------------------------
TOTAL ASSETS $379,708,147 $70,387,861
===========================
LIABILITIES AND OWNERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 7,190,703 $ 1,052,883
Commissions payable 4,736,207
Payable to affiliates 5,841,256 17,140,813
Accrued compensation 13,387,340 16,927,412
Other liabilities - current 1,779,444
---------------------------
Total current liabilities 32,934,950 35,121,108
LONG-TERM COMPENSATION 766,155 9,445,418
OTHER LIABILITIES - NON CURRENT 478,268
---------------------------
Total liabilities 34,179,373 44,566,526
---------------------------
OWNERS' EQUITY
PARTNERS' CAPITAL:
General Partner 3,863,283
Class A Limited Partners 248,374,088
Class B Limited Partners 115,177,051
Unamortized compensation (21,885,648)
---------------------------
Total Partners' Capital 345,528,774
---------------------------
STOCKHOLDER'S EQUITY:
Common stock - $1 par value; 25,000 shares authorized; 1,000
shares issued and outstanding 1,000
Paid-in capital 10,843,146
Retained earnings 14,978,001
Cumulative foreign currency translation adjustment (812)
---------------------------
Total Stockholders' Equity 25,821,335
---------------------------
TOTAL LIABILITIES AND OWNERS' EQUITY $379,708,147 $70,387,861
===========================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
34
<PAGE>
<TABLE>
PIMCO ADVISORS L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
-----------------------------------------------------------------------------------------------------------------------------
<CAPTION>
For the Years Ended December 31,
1994 1993 1992
------------------------------------------------
<S> <C> <C> <C>
REVENUES:
Investment advisory fees:
Private accounts $128,069,527 $119,089,826 $ 95,450,737
Proprietary Funds 47,666,728 46,766,660 24,704,544
Distribution and servicing fees 4,288,702
Other 238,208
-------------------------------------------------
Total revenues 180,263,165 165,856,486 120,155,281
-------------------------------------------------
EXPENSES:
Compensation and benefits 117,197,986 115,048,366 81,302,967
Commissions 2,877,497
Restricted Unit and 1,162,143
Option Plans
Marketing and promotional 6,594,546 4,465,048 3,001,952
Occupancy and equipment 4,342,777 3,029,686 2,472,455
General and 5,842,962 3,524,943 3,195,811
administrative
Insurance 1,118,651 664,899 603,870
Professional fees 3,899,758 2,245,446 1,588,309
Amortization of 5,039,680
intangible assets
Other 3,345,535 2,468,280 845,696
-------------------------------------------------
Total expenses 151,421,535 131,446,668 93,011,060
-------------------------------------------------
NET OPERATING INCOME 28,841,630 34,409,818 27,144,221
EQUITY IN INCOME OF STOCKSPLUS, L.P. 10,722 768,327 432,011
OTHER INCOME, NET 1,072,221 95,421 682,699
-------------------------------------------------
INCOME BEFORE INCOME TAX EXPENSE 29,924,573 35,273,566 28,258,931
INCOME TAX EXPENSE 10,669,295 15,556,248 11,405,159
-------------------------------------------------
NET INCOME $ 19,255,278 $ 19,717,318 $ 16,853,772
=================================================
Net income allocated to:
General Partner $ 97,522
Class A Limited Partnership Units 4,878,336
Class B Limited Partnership Units 1,128,234
Pre-Consolidation 13,151,186
------------
Total $ 19,255,278
============
Net income per Unit (Post-Consolidation):
Net income per General Partner and
Class A Limited Partnership Unit $ 0.12
============
Net income per Class B Limited Partnership Unit $ 0.03
============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
35
<PAGE>
PIMCO ADVISORS L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN OWNERS' EQUITY
================================================================================
<TABLE>
<CAPTION>
Foreign
Common Stock Paid-in Retained Currency
------------
Shares Amount Capital Earnings Translation
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCES, JANUARY 1, 1992 1,000 $1,000 $ 8,093,146 $ 13,514,923 $0
Net Income 16,853,772
Dividends (12,950,000)
Translation adjustment (9,564)
-------------------------------------------------------------------------------------------
BALANCES, DECEMBER 31, 1992 1,000 1,000 8,093,146 17,418,695 (9,564)
Net Income 19,717,318
Capital contribution 2,750,000
Dividends (22,158,012)
Translation adjustment 8,752
-------------------------------------------------------------------------------------------
BALANCES, DECEMBER 31, 1993 1,000 1,000 10,843,146 14,978,001 (812)
Net Income 13,151,186
PFAMCo Group capital
contributions 7,775,000
Dividends (9,200,000)
Translation adjustment (50,427)
Deemed dividends, net (6,559,420) (8,625,011)
Conversion to partnership (1,000) (1,000) (12,058,726) (10,304,176) 51,239
TAG contributed capital
Goodwill from acquisition
Proceeds from Primary
Offering
Amended Option Plan grants
(total award)
Restricted Unit Plan
grants (total award)
Vesting of options and
restricted units
-------------------------------------------------------------------------------------------
BALANCES, DECEMBER 31, 1994 0 $0 $0 $0 $0
===========================================================================================
</TABLE>
Continued
36
<PAGE>
PIMCO ADVISORS L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN OWNERS' EQUITY, CONTINUED
<TABLE>
<CAPTION>
General Partner Class A Limited Partners Class B Limited Partners Unamortized Total
--------------- ------------------------ ------------------------
Units Amount Units Amount Units Amount Compensation Owners' Equity
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCES JANUARY 1, 1992 $21,609,069
Net income 16,853,772
Dividends (12,950,000)
Translation adjustment (9,564)
--------------------------------------------------------------------------------------------------------
BALANCES, DECEMBER 31, 1992 25,503,277
Net income 19,717,318
Capital contribution 2,750,000
Dividends (22,158,012)
Translation adjustment 8,752
--------------------------------------------------------------------------------------------------------
BALANCES, DECEMBER 31, 1993 25,821,335
Net income $97,522 $ 4,878,336 $ 1,128,234 19,255,278
PFAMCo Group capital 7,775,000
contributions
Dividends (9,200,000)
Translation adjustment (50,427)
Deemed dividend, net (15,184,431)
Conversion to partnership 800,000 318,182 23,775,000 13,088,231 24,575,000 8,906,250 0
TAG contributed capital 14,918,155 9,644,238 8,260,826 1,990,739 11,634,977
Goodwill from acquisition 3,447,579 167,285,821 101,459,864 272,193,264
Proceeds from Primary 1,200,000 19,972,951 19,972,951
Offering
Amended Option Plan grants 31,135,761 ($18,987,077) 12,148,684
(total award)
Restricted Unit Plan 125,000 2,368,750 125,000 1,691,964 (4,060,714) 0
grants (total award)
Vesting of options and 1,162,143 1,162,143
restricted units
--------------------------------------------------------------------------------------------------------
BALANCES, DECEMBER 31, 1994 800,000 $3,863,283 40,018,155 $248,374,088 32,960,826 $115,177,051 ($21,885,648) $345,528,774
========================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
37
<PAGE>
<TABLE>
PIMCO ADVISORS L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
For the Years Ended December 31,
1994 1993 1992
----------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $19,255,278 $19,717,318 $16,853,772
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 6,339,107 1,015,505 795,286
Deferred income taxes 804,116 (2,618,074) 77,434
Amortization of compensation plan 663,697 789,504 235,119
Restricted Unit and Option Plans 1,162,143
Unrealized gain on investments (135,376)
Equity in income of StocksPLUS, L.P. (10,722) (768,327) (432,011)
Change in operating assets and liabilities:
Change in fees receivable 7,919,554 (8,665,092) (3,217,979)
Change in receivable from PIMCO Advisors Funds (618,123)
Change in other assets (10,838,869) (1,289,466) (457,897)
Change in accounts payable and accrued expenses (660,816) 745,956 250,713
Change in commissions payable 2,413,750
Change in accrued compensation 8,423,141 8,578,026 6,066,547
Change in other liabilities (649,686)
Change in payable to affiliates (6,877,311) 7,082,815 (8,823,227)
Other (1,337,755) (968,414) (2,038,398)
----------------------------------------------
Net cash flow provided by operating activities 25,852,128 23,619,751 9,309,359
----------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments in Proprietary Funds (52,601,192) (61,435,120) (36,602,692)
Proceeds from sales of investments in Proprietary Funds 62,247,248 58,696,333 38,382,765
Return of investment in StocksPLUS, L.P. 6,500,000
Investment in StocksPLUS, L.P. (2,589,000) (1,700,000)
Cash of acquired entities 14,698,855
Proceeds from sale of fixed assets 26,500 22,485
Purchase of fixed assets (1,826,800) (2,177,741) (643,870)
Notes receivable payments (advances) (117,232) 543,484 (608,167)
----------------------------------------------
Net cash provided by (used in) investing activities 22,400,879 (435,544) (1,149,479)
----------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of note payable (3,000,000)
Proceeds from primary offering 19,972,951
Dividends (22,521,573) (14,900,000) (12,800,000)
----------------------------------------------
Net cash used in financing activities (2,548,622) (14,900,000) (15,800,000)
----------------------------------------------
NET INCREASE(DECREASE) IN CASH AND
CASH EQUIVALENTS 45,704,385 8,284,207 (7,640,120)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 9,299,366 1,015,159 8,655,279
----------------------------------------------
CASH AND CASH EQUIVALENTS, END OF YEAR $55,003,751 $ 9,299,366 $ 1,015,159
==============================================
</TABLE>
Continued
38
<PAGE>
<TABLE>
<CAPTION>
PIMCO ADVISORS L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
------------------------------------------------------------------------------------------------------------------------------------
For the Years Ended December 31,
1994 1993 1992
----------------------------------------------
<S> <C> <C> <C>
SUPPLEMENTAL SCHEDULE OF NON-CASH OPERATING
ACTIVITIES:
Increase in other assets and other liabilities relating to
subsidiaries' long-term incentive plan $ 1,117,433 $ 1,645,833
==============================================
SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING
ACTIVITIES:
Reduction of payable to affiliates by capital contribution $ 7,775,000 $ 2,750,000
==============================================
Deemed dividend $ 1,862,858
==============================================
SUPPLEMENTAL DISCLOSURES:
Income taxes paid $15,004,148 $18,612,861 $ 9,369,929
==============================================
Interest paid $ 209,171 $ 161,623 $ 15,833
==============================================
Fair value of non-cash assets acquired $27,995,376
==============================================
Liabilities assumed $24,642,727
==============================================
Non-cash assets excluded from the Consolidation $46,431,262
==============================================
Liabilities transferred excluded from the Consolidation $31,748,537
==============================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
39
<PAGE>
PIMCO ADVISORS L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
1. ORGANIZATION AND BUSINESS
PIMCO Advisors L.P. ("PA") is a registered investment advisor that provides
a broad array of investment management and advisory services to
institutional and retail mutual funds and to separate accounts of
institutional clients.
PA was formed on November 15, 1994, when Pacific Financial Asset Management
Group ("PFAMCo Group") merged (the "Consolidation") certain of its
investment management businesses and substantially all of its assets into
Thomson Advisory Group L.P. ("TAG"). The PFAMCo Group comprised Pacific
Financial Asset Management Corporation ("PFAMCo"), a wholly-owned
subsidiary of Pacific Mutual Life Insurance Company ("Pacific Mutual"), and
certain of PFAMCo's wholly-owned investment management subsidiaries. The
businesses of PFAMCo Group contributed to PA were then contributed to newly
formed subsidiaries of PA.
For the period after the Consolidation, the accompanying consolidated
financial statements include the accounts of PA and its subsidiaries. The
investment advisor subsidiaries included in these consolidated financial
statements are as follows:
. Pacific Investment Management Company ("Pacific Investment
Management") manages a variety of predominantly fixed income
portfolios primarily for institutions and mutual funds;
. Columbus Circle Investors ("CCI") manages primarily equity
securities using a positive momentum/positive surprise approach,
principally for institutions 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; and
. Blairlogie Capital Management ("Blairlogie") specializes in
international equity securities from its office in Edinburgh,
Scotland primarily for institutions and mutual funds.
The investment advisor subsidiaries are supported by additional
incorporated subsidiaries:
. PIMCO Advisors Distribution Company ("PADCO") serves as the
distributor of institutional and retail mutual funds (the
"Proprietary Funds") for which PA and the investment advisor
subsidiaries provide investment management and administrative
services; and
. StocksPLUS Management, Inc. ("StocksPLUS"), a wholly-owned
subsidiary of Pacific Investment Management, owns approximately 0.2
percent interest in, and is the general partner of StocksPLUS, L.P.
(Note 13).
40
<PAGE>
PIMCO ADVISORS L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
Pacific Investment Management, CCI, Cadence, Parametric, NFJ and Blairlogie
are registered investment advisors. PADCO is a registered broker/dealer
with the Securities and Exchange Commission and a member of the National
Association of Securities Dealers, Inc.
Institutional mutual funds managed consist of the PIMCO Funds (the "PIMCO
Funds") and the PIMCO Advisors Institutional Funds, formerly the PFAMCo
Funds, both of which are open-end investment management companies. The
PIMCO Funds include 12 predominantly fixed income funds. The PIMCO
Advisors Institutional Funds are a series of 18 equity and fixed income
funds. The retail mutual funds managed consist of 14 funds included within
two open-end investment management companies, the PIMCO Advisors Funds
("PAF"), formerly the Thomson Funds, and the Cash Accumulation Trust
("CAT").
The accompanying financial statements for the period prior to the
Consolidation include the accounts of PFAMCo and its wholly-owned
subsidiaries, reflected on a combined basis.
2. SIGNIFICANT ACCOUNTING POLICIES
a. Cash and Short-Term Investments - PA invests certain cash balances in
money market funds. At December 31, 1994, this investment was
approximately $41,000,000, of which approximately $32,000,000 is
invested in the National Money Market Fund of CAT. At December 31,
1993, approximately $2,514,000 was invested in 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 - PA 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. 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.
d. Income Taxes - Subsequent to the Consolidation, PA and its
subsidiaries are predominantly partnerships and, as a result, are
generally not subject to Federal or state income taxes. PA is subject
to an unincorporated business tax in a certain jurisdiction in which
it operates. All partners of PA are responsible for taxes, if any, on
their proportionate share of PA's taxable income.
PADCO and StocksPLUS are subject to Federal and state income taxes and
file separate tax returns and account for income taxes under Statement
of Financial Accounting Standards No. 109.
41
<PAGE>
PIMCO ADVISORS L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
e. Investments - The investments in Proprietary Funds as of December 31,
1994 represent primarily investments in PAF and CAT. The investments
are carried at market value in accordance with SFAS No. 115. The
investments in Proprietary Funds as of December 31, 1993 are primarily
invested in the PIMCO Funds with a short-term duration objective and
are carried primarily at the lower of cost or market value. Cost
approximated market value as of December 31, 1993.
f. Foreign Currency Translation - The assets and liabilities of
Blairlogie, PFAMCo UK Limited and Blairlogie's predecessor Company
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.
g. Net Income Allocation - Net income is allocated in accordance with the
Amended and Restated Agreement of Limited Partnership of PA. Net
income is allocated among unit holders in the same proportions as cash
distributions. PA's cash distribution policy provides for a first
priority distribution to General Partner and Class A Limited
Partnership units followed by a second priority distribution to Class
B Limited Partnership units. During the period from the Consolidation
through December 31, 1994, the second priority distribution was less
than the first priority distribution.
h. Earnings per Unit - Earnings per unit are 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 Partnership
units under the treasury stock method.
The weighted average number of units used to compute earnings per unit
was as follows:
General Partner and Class A Limited Partnership Units 41,802,420
Class B Limited Partnership Units 32,960,826
i. 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.
3. INTANGIBLE ASSETS
For accounting purposes, the Consolidation between PFAMCo Group and TAG is
treated as a purchase and recapitalization of TAG by PFAMCo Group, or a
"reverse acquisition." Intangible assets of approximately $284.9 million
represent the excess of the purchase price over the fair value of the net
tangible assets of TAG deemed acquired in the Consolidation. A portion of
the intangible assets represents the value assigned to PA's Master Limited
Partnership ("MLP") structure. Under current Internal Revenue Code
guidelines, an MLP is exempt from Federal and most state and local income
taxes through December 31, 1997. The value attributed to the MLP structure
will be amortized over the period ending December 31, 1997. The remainder
will be amortized on a straight-line basis over its estimated life of
twenty years. During the year ended December 31, 1994, approximately
$5.0 million of amortization has been charged to expense.
42
<PAGE>
PIMCO ADVISORS L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
4. PRO FORMA RESULTS (UNAUDITED)
The following represents the unaudited pro forma results of operations as
if the Consolidation discussed in Note 1 had occurred on January 1, 1993,
except for the period from November 15, 1994 through December 31, 1994
which reflects actual results. The pro forma operating results give effect
to:
(a) The Consolidation of PFAMCo Group and TAG;
(b) The amendment of existing options under TAG's 1993 Unit Option
Plan;
(c) The adoption of the Class B Limited Partnership Unit Option Plan;
(d) The contribution of PADCO to PA in exchange for Class A Limited
Partnership Units; and
(e) Certain transactions effected by PFAMCo Group and TAG in
connection with the Consolidation, primarily related to the
intangible amortization and profit sharing.
<TABLE>
<CAPTION>
Year Ended December 31,
1994 1993
-------------------------------------
(Amounts in thousands, except per unit amounts)
<S> <C> <C>
Revenues:
Investment advisory $231,475 $222,366
PADCO 37,629 33,130
---------------------
269,104 255,496
---------------------
Expenses:
Investment advisory 137,246 124,758
PADCO 36,435 32,487
Amortization of intangibles,
options and restricted units 40,713 40,713
---------------------
214,394 197,958
---------------------
Net income $ 54,710 $ 57,538
=====================
Net income per General Partner
and Class A Limited Partnership Unit $ 1.08 $ 1.10
=====================
Net income per Class B Limited Partnership Unit $ 0.28 $ 0.34
=====================
</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.
43
<PAGE>
PIMCO ADVISORS L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
5. NOTES RECEIVABLE
Pacific Investment Management has 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,
1994 1993
----------------------
<S> <C> <C>
Office equipment, furniture and fixtures $6,213,334 $5,995,811
Automobiles 859,158 1,125,686
Leasehold improvements 2,275,808 662,962
----------------------
Total fixed assets 9,348,300 7,784,459
Less accumulated depreciation and amortization 1,449,603 2,979,464
----------------------
Fixed assets, net $7,898,697 $4,804,995
======================
</TABLE>
Fixed assets of certain of the subsidiaries were revalued at their
estimated fair market values in connection with the Consolidation.
7. INCOME TAXES
Prior to the Consolidation, PFAMCo's operations and those of its domestic
subsidiaries were included in the combined domestic Federal income tax
returns of Pacific Mutual. PFAMCo's operations and its domestic
subsidiaries were included in the combined California franchise tax return
of Pacific Financial Holding Company ("PFHC"), the parent of PFAMCo.
Certain subsidiaries filed separate state income or franchise tax returns.
PFAMCo and its domestic subsidiaries were allocated an expense or a benefit
based principally on the effect of including their operations in the
combined provision as if the companies filed a separate return in
accordance with a tax sharing agreement between PFAMCo and PFHC.
Included on the accompanying Consolidated Statements of Financial Condition
as "other assets" are deferred tax assets (liabilities) as of December 31,
1993 related to the following components:
<TABLE>
<S> <C>
State taxes $1,077,050
Deferred compensation 2,224,655
Depreciation (239,049)
----------
Net deferred tax asset 3,062,656
Less current portion 1,468,791
----------
Long-term portion $1,593,865
==========
</TABLE>
44
<PAGE>
PIMCO ADVISORS L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
The provision for income taxes prior to the Consolidation was as follows:
<TABLE>
<CAPTION>
Period Ended Year Ended Year Ended
November 15, December 31, December 31,
1994 1993 1992
-----------------------------------------
<S> <C> <C> <C>
Current expense:
State $ 2,140,509 $ 3,752,595 $ 2,096,046
Federal 7,705,429 14,421,727 9,231,679
Deferred expense (benefit):
State 156,960 (391,741)
Federal 647,147 (2,226,333) 77,434
----------------------------------------
$10,650,045 $15,556,248 $11,405,159
========================================
</TABLE>
Reconciliations of the statutory federal income tax rates to the effective
income tax rates prior to the Consolidation are as follows:
<TABLE>
<CAPTION>
Period Ended Year Ended Year Ended
November 15, December 31, December 31,
1994 1993 1992
------------------------------------------
<S> <C> <C> <C>
Statutory federal income tax rate applied to
income before federal income taxes 35.0% 35.0% 34.0%
State taxes, net of federal benefit 6.1 6.0 5.9
Foreign operations 3.1 1.9 0.3
Other 0.5 1.2 0.2
------------------------------------------
Effective income tax rate 44.7% 44.1% 40.4%
==========================================
</TABLE>
After the Consolidation, PA incurred a tax liability of $19,250 principally
related to the activities of a corporate subsidiary.
8. RELATED-PARTY TRANSACTIONS
As of December 31, 1994, the payable to affiliates includes cash received
by PA and several of the subsidiaries for advisory fees which pre-dated the
Consolidation. This amount is payable to affiliates of Pacific Mutual.
Prior to the Consolidation, PFAMCo and a subsidiary had credit agreements
with PFHC, which provided for borrowings up to $40,000,000. The
outstanding balance incurred a rate of interest as defined in the
agreement. As of December 31, 1993, the applicable interest rate averaged
3.5% on outstanding borrowings of $18,000,000 which were included in
payable to affiliates in the accompanying Consolidated Statements of
Financial Condition.
45
<PAGE>
PIMCO ADVISORS L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
Pacific Mutual provided certain support services to PFAMCo Group prior to
the Consolidation. Services for certain of PFAMCo Group's employees
include participation in a pension plan maintained by Pacific Mutual (Note
9f). Charges for support services, including pension plan participation,
amounted to approximately $2,335,000, $2,272,000 and $2,158,000 for the
period ended November 15, 1994 and the years ended December 31, 1993 and
1992, respectively.
Dividends declared of $7,258,012 for the year ended December 31, 1993 were
satisfied through a reduction in intercompany accounts.
9. BENEFIT PLANS
a. Profit Sharing and Incentive Programs - PA 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 $10,091,000 for
the period from the Consolidation through December 31, 1994.
Prior to the Consolidation, PFAMCo Group had nonqualified profit
sharing plans (the "Profit Sharing Plans") covering certain key
employees and other employees. The Profit Sharing Plans provided for
awards based on the profitability of the respective subsidiary. Such
profitability was primarily based on income before income taxes and
before profit sharing. The awards ranged from 40% to 80% of such
amounts depending on the level of profitability. Profit sharing awards
were fully vested at the date of the Consolidation. Profit sharing
expense relating to the Profit Sharing Plans of approximately
$68,387,000, $86,286,000 and $60,711,900 are included in compensation
and benefits in the accompanying Consolidated Statements of Operations
for the period ended November 15, 1994 and the years ended December
31, 1993 and 1992, respectively.
b. Long-Term Compensation - Long-term compensation includes amounts
payable to certain officers of a subsidiary in connection with the
discretionary bonuses discussed above. The amounts payable will be
paid on specified dates and are subject to cancellation upon the
occurrence of certain events.
In addition, certain key employees of the PFAMCo subsidiaries
participated in Long-Term Incentive Plans that provided compensation
under the Profit Sharing Plans for a specified period of time
subsequent to their termination of employment. These plans were
terminated as of the Consolidation.
c. Savings and Investment Plans - PA and its subsidiaries have several
defined contribution employee benefit plans covering substantially all
employees. PA 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 PA 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 by the Internal Revenue Service. Employees are generally
eligible following the later of attainment of age 21 or the completion
of one year of credited service. For 1994, PA and certain of its
subsidiaries, matched and contributed an amount equal to one half of
the first six percent of annual compensation, subject to Internal
Revenue Service limits, contributed by the employees. In addition, PA
and certain of its subsidiaries, elected to make a discretionary
contribution to all participants. Contributions fully vest to
employees after five years of credited service. For 1994, the amount
contributed by PA and certain of its subsidiaries was approximately
$50,000.
46
<PAGE>
PIMCO ADVISORS L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
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.
d. Restricted Unit Plan - PA adopted a restricted unit plan for the
benefit of certain key employees. A total of 125,000 Class A Limited
Partnership Units and 125,000 Class B Limited Partnership Units have
been awarded under the plan. The units vest over a five- year period.
There are no additional units available for grants under the plan. The
expense under this plan was approximately $101,000 during 1994.
e. Unit Option Plans - PA has two unit option plans which grant options
to key employees of PA and its subsidiaries. The unit option plans are
administered by the Unit Incentive Committee of the Equity Board of
PA, which determines the key employees and the terms of the options to
be granted. The outstanding options vest over a period of not more
than five years and are generally exercisable after January 1, 1998.
A Summary of Unit Option activity is as follows:
<TABLE>
<CAPTION>
Option Price
Units Range per Unit
--------- --------------
<S> <C> <C>
Outstanding, January 1, 1994 - -
Granted:
Class A Limited Partnership Units 2,442,130 $2.425 - $4.85
Class B Limited Partnership Units 5,297,000 $13.53
Canceled - -
Exercised - -
---------
Outstanding, December 31, 1994 7,739,130 $2.425 - $13.53
=========
Exercisable:
Class A Limited Partnership Units 572,222 $2.425
Class B Limited Partnership Units - -
---------
Exercisable, December 31, 1994 572,222 $2.425
=========
</TABLE>
At December 31, 1994, 303,000 Class B Limited Partnership unit options
were available for future grants. The expense under the option plans was
approximately $1,061,000 during 1994.
47
<PAGE>
PIMCO ADVISORS L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
f. Other Benefit Plans - Certain of PFAMCo Group's eligible employees
were included in a Pacific Mutual sponsored defined benefit pension
plan, and healthcare and life insurance plans that provide post-
retirement benefits. PFAMCo Group was charged an immaterial amount by
Pacific Mutual for these plans prior to the Consolidation. Upon
completion of the Consolidation, PA will not bear any expense
associated with these plans.
10. COMMITMENTS
a. Lease Agreements - PA 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 Ended
December 31,
------------
<S> <C>
1995 $ 3,020,795
1996 2,968,545
1997 2,849,157
1998 1,759,144
1999 1,194,939
Thereafter 1,251,911
-----------
Total $13,044,491
===========
</TABLE>
Rent expense in connection with these agreements was approximately
$2,379,000, $1,476,000 and $1,261,000 for the years ended December 31,
1994, 1993, and 1992, respectively.
b. Letter of Credit - PA is contingently liable for a letter of credit in
the amount of $738,548 related to PA's membership in a captive
insurance program.
11. SEGMENT INFORMATION
PA operates in one industry segment, that of investment management
services.
12. NET CAPITAL
PADCO is 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,
1994, PADCO had net capital of $1,736,811, which was $1,156,876 in excess
of its required net capital of $579,935. PADCO's net capital ratio was
5.01 to 1.
48
<PAGE>
PIMCO ADVISORS L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
13. INVESTMENT 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 market value. The effect of such accounting does not have a
material effect on PA's consolidated financial statements. StocksPLUS,
L.P. has made its investments with the intent to have its performance
equivalent to 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
"other assets - current" 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 market
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, 1994 and 1993, the notional
amounts of futures contracts approximated $2,076,000 and $5,370,000,
respectively.
Condensed financial information for StocksPLUS, L.P. is as follows:
<TABLE>
<CAPTION>
As of December 31,
Summary of Financial Condition: 1994 1993
------------------------------- ----------------------------
<S> <C> <C>
Assets:
Investments - at market value $1,122,510,000 $931,764,000
Other assets 10,576,000 16,362,000
-------------- ------------
Total assets $1,133,086,000 $948,126,000
============== ============
Liabilities and Partners' Capital:
Liabilities $ 68,867,000 $ 50,463,000
StocksPLUS' Partner Capital 2,094,000 2,083,000
Limited Partners' Capital 1,062,125,000 895,580,000
-------------- ------------
Total liabilities and partners' capital $1,133,086,000 $948,126,000
============== ============
<CAPTION>
For the Year Ended December 31,
Summary of Operations: 1994 1993 1992
---------------------- ---------------------------------------------
<S> <C>
Net trading gains (losses) on futures ($30,291,000) $ 43,074,000 $ 19,931,000
Net loss in market value of securities (21,278,000) (1,401,000) (1,724,000)
Interest income 58,383,000 43,320,000 27,079,000
Fees and commissions (878,000) (3,299,000) (2,261,000)
---------------------------------------------
Net income $ 5,936,000 $ 81,694,000 $ 43,025,000
=============================================
</TABLE>
49
<PAGE>
PIMCO ADVISORS L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
14. CONSOLIDATED QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The quarterly results for the periods indicated were as follows:
<TABLE>
<CAPTION>
Three Months Ended
-----------------------------------------------------
March 31, June 30, September 30, December 31,
1994 1994 1994 1994
-----------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $43,502,000 $40,522,000 $40,556,000 $55,683,000
Expenses 34,624,000 33,697,000 33,639,000 48,379,000
----------------------------------------------------
Net income before taxes 8,878,000 6,825,000 6,917,000 7,304,000
Income tax expense 3,894,000 2,969,000 2,938,000 868,000
----------------------------------------------------
Net income $ 4,984,000 $ 3,856,000 $ 3,979,000 $ 6,436,000
====================================================
Net income per General Partner
and Class A Limited Partnership Unit* $ 0.12
===========
Net income per Class B Limited Partnership Unit* $ 0.03
===========
Market price per Class A Limited Partnership Unit*:
Low $ 16 1/4
High $ 17 3/4
</TABLE>
* Information is for the period following the Consolidation.
<TABLE>
<CAPTION>
Three Months Ended
-------------------------------------------------------
March 31, June 30, September 30, December 31,
1993 1993 1993 1993
-------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $34,180,000 $38,952,000 $44,849,000 $47,875,000
Expenses 26,067,000 30,590,000 34,789,000 39,137,000
-------------------------------------------------------
Net income before taxes 8,113,000 8,362,000 10,060,000 8,738,000
Income tax expense 3,393,000 3,758,000 4,234,000 4,171,000
-------------------------------------------------------
Net income $ 4,720,000 $ 4,604,000 $ 5,826,000 $ 4,567,000
=======================================================
</TABLE>
50
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
-------------------------------------------------------------------------
FINANCIAL DISCLOSURE
--------------------
On December 15, 1994, the Operating Committee of the Operating Board of
the Partnership, with the consent of the Audit Committee of the Equity Board of
the Partnership, appointed the firm of Deloitte & Touche LLP as the
Partnership's auditor, to replace the firm of Coopers & Lybrand L.L.P., which
served in that position until it was dismissed in connection with the
appointment of Deloitte & Touche LLP.
The change in auditors was made by the Partnership as a result of the
Consolidation, which occurred November 15, 1994. As reported above, in the
Consolidation, the businesses of the Partnership were consolidated with the
principal businesses of PFAMCo and certain of its subsidiaries. The firm of
Deloitte & Touche LLP had served as auditors of the PFAMCo businesses, which
after the Consolidation comprised the majority of the Partnership's operations.
Accordingly, the Partnership believed it to be appropriate that Deloitte &
Touche LLP serve as auditor for the Partnership.
The change in auditors did not arise from any disagreement during the
Partnership's two most recent fiscal years and the subsequent interim period up
to December 15, 1994 with Coopers & Lybrand L.L.P. on any matters of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure which, if not resolved to the satisfaction of Coopers & Lybrand
L.L.P., would have caused it to make reference to the subject matter of the
disagreement in any of its reports. The financial statements prepared by Coopers
& Lybrand L.L.P. for 1992 and 1993 have not contained an adverse opinion or a
disclaimer of opinion, and were not qualified or modified as to uncertainty,
audit scope or accounting principles.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
-------------------------------------------------------------
MANAGEMENT
GENERAL
The Partnership carries on its combined businesses (i) directly through
the Partnership with respect to the Partnership's administrative, accounting and
legal functions, its retail mutual fund business and certain mutual fund
businesses and distribution activities of the PIMCO Advisors Institutional Funds
and (ii) through six largely autonomous Investment Management Firms which carry
on the respective businesses of PIMCO, CCI, Cadence, Parametric, NFJ and
Blairlogie.
PARTNERSHIP
Pursuant to the terms of the Partnership Agreement, the General Partner
has delegated substantially all of the management and control of the Partnership
to two management boards, the Operating Board and the Equity Board. For
Partnership governance purposes, the Operating Board and the Equity Board are
intended to function comparably to a board of directors of the Partnership.
Under the terms of the Partnership Agreement, governance matters are allocated
generally to the Operating Board, which has, in turn, delegated the authority to
manage day-to-day operations and policies of the Partnership to the Operating
Committee. Accordingly, the members of the Operating Committee, together with
certain other officers of the Partnership, fulfill the functions of executive
officers of the Partnership.
51
<PAGE>
The members of the Operating Board and the Operating Committee are as
set forth below:
<TABLE>
<CAPTION>
Name Age Positions
---- --- ---------
<S> <C> <C>
David B. Breed 47 Chief Executive Officer, and Managing
Director of Cadence
Donald A. Chiboucas 50 President and Managing Director of CCI
William D. Cvengros(1) 46 President and Chief Executive Officer of the Partnership
William H. Gross 50 Managing Director of PIMCO
Brent R. Harris 35 Managing Director of PIMCO
Dean S. Meiling 46 Managing Director of PIMCO
James F. Muzzy 55 Managing Director of PIMCO
Daniel S. Pickett 31 Managing Director of CCI
William F. Podlich, III 50 Managing Director of PIMCO
William C. Powers 37 Managing Director of PIMCO
Irwin F. Smith(1) 55 Chief Executive Officer and Managing Director of CCI
William S. Thompson, Jr.(Chair)(1) 49 Chief Executive Officer and Managing Director of PIMCO
</TABLE>
_____________
(1) Member of Operating Committee.
Until the earlier of December 31, 1997 or a Restructuring, the
Operating Board is required to be composed of the Chief Executive Officer of
PIMCO, six other persons designated by the Managing Directors of PIMCO, three
persons designated by the Managing Directors of CCI, one person selected by the
vote of the Managing Directors of Cadence, NFJ, Parametric and Blairlogie
weighted by the contribution of Cadence, NFJ, Parametric and Blairlogie to the
income of the Partnership, and the Chief Executive Officer of the Partnership,
who serves ex officio. Thereafter, the Operating Board will consist of at least
11 members designated by the Investment Management Firms in accordance with
their relative contributions to the income of the Partnership and may include
additional members.
The Operating Committee, which is appointed by the Operating Board, is
required to be composed of no fewer than three members, including the Chief
Executive Officer of the Partnership and one member who is a Managing Director
of an Investment Management Firm other than PIMCO. The management board of an
Investment Management Firm may appeal any decision made by the Operating
Committee which may have a material adverse effect on such Investment Management
Firm to the full Operating Board which, after any such appeal, will have the
sole power and authority (subject to the referral to the Equity Board in certain
circumstances) with respect to the resolution of such matter.
The authority of the Operating Board and the Operating Committee to
take certain specified actions is subject to the approval of an Equity Board.
The Equity Board has jurisdiction over any decision of the Operating Board with
which three members of the Operating Board disagree and which is expected to
have a material adverse effect on an Investment Management Firm. In addition,
the Equity Board's approval is required for certain material transactions,
including amendment of the Partnership Agreement or the partnership agreement of
an Investment Management Firm, incurring large amounts of debt or making
significant investments, making certain material changes in the business of the
Partnership or of an Investment Management Firm or material acquisitions or
dispositions by the Partnership or an Investment Management Firm, the
authorization of additional Units, the selection of the Chief Executive Officer
of the Partnership, the removal of any Managing Director of an Investment
Management Firm (to the extent such approval is required by the Investment
Management Firm), declaring distributions on Units, material transactions with
affiliates, any increase in the compensation of a Managing Director of an
Investment Management Firm, and the adoption of any policy or any action by one
Investment Management Firm that materially burdens another.
52
<PAGE>
The members of the Equity Board are as set forth below:
<TABLE>
<CAPTION>
Name Age Positions
---- --- ---------
<S> <C> <C>
Walter E. Auch, Sr. 73 Independent Member
William D. Cvengros 46 President and Chief Executive Officer of the Partnership
Walter B. Gerken (Chair) 72 Chairman of the Executive Committee and Director of Pacific
Mutual
William H. Gross 50 Managing Director of PIMCO
Donald R. Kurtz 64 Independent Member
James F. McIntosh 54 Independent Member
Donald K. Miller 63 Chairman of Greylock Financial Inc.
William F. Podlich, III 50 Managing Director of PIMCO
Glenn S. Schafer 45 President and Director of Pacific Mutual and Chief Financial
Officer of PFAMCo
Irwin F. Smith 55 Chief Executive Officer and Managing Director of CCI
Thomas C. Sutton 52 Chairman and Chief Executive Officer of Pacific Mutual
William S. Thompson, Jr. 49 Chief Executive Officer and Managing Director of PIMCO;
Chairman of Operating Board
</TABLE>
Until the earlier of December 31, 1997 or a Restructuring, the Equity
Board is required to be composed of twelve members: the Chairperson of the
Operating Board, the Chief Executive Officer of the Partnership, three persons
designated by PFAMCo, two persons designated by PPLLC, two persons designated by
the Series B Preferred stockholders of TAG Inc. and three independent members
designated by the other nine members of the Equity Board. Thereafter, the then
serving Equity Board will appoint an Equity Board consisting of 13 members who
shall consist of the Chairperson of the Operating Board, the Chief Executive
Officer of the Partnership and 11 other members, including at least three
independent directors, allocated in a manner reasonably determined by the Equity
Board to represent most effectively the interests of the direct or indirect
beneficial owners of Units, including the public Unitholders.
Other individuals who serve as executive officers of the Partnership
include Steven T. Bailey, Executive Vice President and Chief Financial Officer;
Robert A. Prindiville, Executive Vice President; John O. Leasure, Senior Vice
President; Newton B. Schott, Jr., Senior Vice President; Robert M. Fitzgerald,
Vice President and Principal Accounting Officer; Kenneth M. Poovey, General
Counsel; and Brian J. Girvan, Senior Vice President.
In addition, the Partnership has an Audit Committee, a Compensation
Committee and a Unit Incentive Committee of the Equity Board, each composed of
the three independent Members of the Equity Board.
Set forth below is certain background information with respect to the
persons who are the members of the Operating and Equity Boards or certain
executive officers of the Partnership:
Walter E. Auch, Sr. Mr. Auch serves on the Equity Board as an
independent Member and as a member of the Constructive Termination
Committee. He currently is a management consultant. Mr. Auch was a
Director of TAG Inc. from October 1990 until November 1994. He was a
director of Thomson McKinnon Asset Management Inc. ("TMAMI"), a former
general partner of the Partnership, from October 1987 until October
1990. 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 Geotek Industries, Inc., Fort Dearborn Fund, Shearson VIP Fund,
Shearson Advisors Fund, Shearson TRAK Fund, Banyan Strategic Land
Trust, Banyan Strategic Land Fund II, Banyan Mortgage Investment Fund,
Express American Holding Corporation and Nicholas/Applegate Funds.
53
<PAGE>
Steven T. Bailey. Mr. Bailey serves as an Executive Vice President and
Chief Financial Officer of the Partnership. Mr. Bailey was the Managing
Director of PFAMCo from 1989 until November 1994. Mr. Bailey was also a
director of certain of the predecessors to the Investment Management
Firms.
David B. Breed. Mr. Breed is Chief Executive Officer, Chief Investment
Officer and a Managing Director of Cadence. From February 1985 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.
Donald A. Chiboucas. Mr. Chiboucas is a member of the Operating Board
of the Partnership and the President and a Managing Director of CCI.
Mr. Chiboucas was Senior Executive Vice President of TAG Inc. and the
Partnership, a member of the Partnership's Executive Operating
Committee and President of the CCI division from October 1990 until
November 1994. He was a Senior Vice President of the Partnership from
November 1987 until October 1990.
William D. Cvengros. Mr. Cvengros is President and CEO of the
Partnership, a member of its Equity and Operating Boards and
Chairperson of its Operating Committee. In February 1986, Mr. Cvengros
became both Chairman of the Board and Director of PIMCO Inc. He was
associated with Pacific Mutual from July 1972 until November 1994. He
was promoted to Executive Vice President, Investment Operations of
Pacific Mutual in April 1986, and became a Director in January 1988.
Mr. Cvengros became Vice Chairman and Chief Investment Officer of
Pacific Mutual in January 1990. Mr. Cvengros also served as a director
of Pacific Equities Network, Mutual Services Corporation, PFAMCo,
PFAMCo UK Limited, Blairlogie, Parametric, NFJ, Cadence and PM Realty
Advisors, Inc.
Robert M. Fitzgerald. Mr. Fitzgerald is Vice President and Principal
Accounting Officer of the Partnership. He joined the Partnership in
February 1995. From April 1994 through January 1995, he served as a
consultant to various companies, including PIMCO. From October 1991
until April 1994, he served in various senior executive positions,
including President, at Mechanics National Bank. Prior to October 1991,
he was a partner with Price Waterhouse. He is a Certified Public
Accountant.
Walter B. Gerken. Mr. Gerken is the Chairperson of the Equity Board.
Mr. Gerken has served as Chairman of the Executive Committee of Pacific
Mutual since September 1987 and as one of its directors since 1970. Mr.
Gerken is the former Chairman of the Board and CEO of Pacific Mutual.
Brian J. Girvan. Mr. Girvan is a Senior Vice President and was Chief
Financial Officer and Treasurer of the Partnership until March 1, 1995.
It is anticipated that he will resign his position in the third quarter
of 1995. Mr. Girvan was Senior Vice President, Chief Financial Officer
and Treasurer of TAG Inc. from October 1990 until November 1994. He
currently is a Senior Vice President and the Chief Financial Officer
and Treasurer and a Director of PADCo. He is a Certified Public
Accountant.
William H. Gross. Mr. Gross is a member of the Equity and Operating
Boards. Mr. Gross is a Managing Director of PIMCO. Mr. Gross joined
PIMCO Inc. in June 1971 and became a Managing Director in February
1982. He serves as a director and vice president of StocksPLUS(R) and
as a Senior Vice President of PIMCO Funds.
Brent R. Harris. Mr. Harris serves on the Operating Board and as a
Managing Director of PIMCO. Mr. Harris was a Managing Director of PIMCO
Inc. until November 1994. He joined PIMCO Inc. as an Account Manager in
June 1985, and became a Vice President in February 1987, a Senior Vice
President in February 1990, a Principal in April 1991 and a Managing
Director in April 1993. Mr. Harris serves on the boards of PIMCO
Commercial Mortgage Securities Trust, Inc. and StocksPLUS(R). He also
serves as a trustee and chairman of the PIMCO Funds and the PIMCO
Commercial Mortgage Securities Trust, Inc.
Donald R. Kurtz. Mr. Kurtz serves on the Equity Board as an independent
Member and as a member of the Constructive Termination Committee of the
Partnership. Mr. Kurtz was a Director of TAG Inc. from May 1992 until
November 1994. Since December 1994, he has been 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 and at General Motors Corp. from
February 1987 until December 1989.
54
<PAGE>
John O. Leasure. Mr. Leasure is a Senior Vice President of the
Partnership and President and a Director of PADCo. Mr. Leasure was an
Executive Vice President of the Partnership from November 1987 until
November 1994 and was a member of the Partnership's Executive Operating
Committee from October 1990 until November 1994. He was an Executive
Vice President and Chief Operating Officer of PADCo from May 1990 to
October 1990. He was a Director of TMAMI and Chief Operating Officer of
the Partnership from November 1987 until October 1990. He was a Senior
Vice President and a Director of Thomson McKinnon Securities Inc.
("TMSI") from July 1987 until January 1990. In 1990, TMSI filed for
protection under Chapter 11 of the Bankruptcy Act.
James F. McIntosh. Mr. McIntosh serves on the Equity Board as an
independent Director. He is currently the Executive Director of Allen,
Matkins, Leck, Gamble & Mallory, 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, a law firm.
Dean S. Meiling. Mr. Meiling serves as a member of the Operating Board
and as a Managing Director of PIMCO. Mr. Meiling was a Managing
Director of PIMCO Inc. until November 1994. Mr. Meiling joined PIMCO
Inc. in October 1977 and became a Senior Vice President in February
1982, a Principal in February 1984, and a Managing Director in May
1987. Mr. Meiling serves as a director and Vice President of
StocksPLUS(R).
Donald K. Miller. Mr. Miller serves as a member of the Equity Board,
as an Assistant to the Chief Executive Officer of the Partnership and
is President, Chief Executive Officer and the sole director of TAG Inc.
Mr. Miller was Vice Chairman of the Partnership, Vice Chairman and a
Director of TAG Inc. and a member of the Partnership's Executive
Operating Committee until November 1994. From October 1990 until March
1993, he was Chairman, Chief Executive Officer and a Director of TAG
Inc. and the Chairman and Chief Executive Officer of the Partnership
and Chairman of its Executive Operating Committee. He was a Director of
PADCo from May 1992 until November 1994. Mr. Miller is the Chairman of
Greylock Financial Inc. and currently serves as Chairman of Christensen
Boyles Corporation and as a Director of Huffy Corporation and RPM, Inc.
James F. Muzzy. Mr. Muzzy serves as a member of the Operating Board
and as a Managing Director of PIMCO. Mr. Muzzy was a Managing Director
of PIMCO Inc. until November 1994. Mr. Muzzy joined PIMCO Inc. in
September 1971 and became a Director in February 1978 and a Managing
Director in February 1982. Mr. Muzzy serves as a director of
StocksPLUS(R).
Daniel S. Pickett. Mr. Pickett serves as a member of the Operating
Board and as a Managing Director of CCI. Mr. Pickett was a Senior Vice
President and Director of Research for Columbus Circle Investors
division of the Partnership until November 1994. He had been employed
by the Partnership in similar capacities since 1988.
William F. Podlich, III. Mr. Podlich serves as a member of the Equity
and Operating Boards and as a Managing Director of PIMCO. Mr. Podlich
was a Managing Director of PIMCO Inc. until November 1994. Mr. Podlich
joined PIMCO Inc. as a Director in August 1969 and became a Managing
Director in February 1982. Mr. Podlich serves as a director of
StocksPLUS(R).
Kenneth M. Poovey. Mr. Poovey is General Counsel of the Partnership,
which position he has held since November 1994. He is currently a
partner with the law firm of Latham & Watkins with which he has been
affiliated since 1980.
55
<PAGE>
William C. Powers. Mr. Powers serves as a member of the Operating
Board and as a Managing Director of PIMCO. Mr. Powers was a Managing
Director of PIMCO Inc. until November 1994 Mr. Powers joined PIMCO Inc.
as a Vice President in January 1991 and became an Executive Vice
President in April 1991 and a Managing Director in April 1993. Mr.
Powers was a Senior Managing Director with Bear, Stearns & Company, an
investment banking firm, from February 1988 to December 1990.
Robert A. Prindiville. Mr. Prindiville is an Executive Vice President
of the Partnership. Mr. Prindiville was President and a Director of TAG
Inc. from October 1990 until November 1994. He was President of the
Partnership until November 1994. He serves as President and a Trustee
of Cash Accumulation Trust and of PIMCO Advisors Funds. He is Chairman
and a Director of PADCo and has been a senior officer thereof since May
1990. Until October 31, 1990, he was a Director of TMAMI, which
position he had held since January 1985. He was an Executive Vice
President and a Director of TMSI from June 1987 to January 1990. He was
a Director of Thomson McKinnon Inc. ("TMI") from December 1984 until
January 1990. In 1990, each of TMI and TMSI filed for protection under
Chapter 11 of the Bankruptcy Act.
Glenn S. Schafer. Mr. Schafer serves as a member of the Equity Board.
Mr. Schafer was the Executive Vice President and Chief Financial
Officer of Pacific Mutual from April 1988 until he became President
thereof in January 1995. Mr. Schafer also serves as a director and
President of PFAMCo and as the CFO for StocksPLUS(R). He is a director
and Chairman of United Planners Group, Inc.
Newton B. Schott, Jr. Mr. Schott serves as Senior Vice President-Legal
and Secretary of the Partnership. Mr. Schott was an Executive Vice
President, Secretary and General Counsel of TAG Inc. from October 1990
to November 1994 and of the Partnership from September 1989 to November
1994. He currently is a Senior Vice President, Secretary and a Director
of PADCo and has held senior positions with PADCo since May 1990. He
was a Director of TMAMI from January 1985 until October 1990. He was
Executive Vice President, Secretary, General Counsel and a Director of
TMI from December 1984 until August 1992, Senior Executive Vice
President, Secretary and Special Counsel of TMSI from December 1984
until January 1990, and a Director of TMSI from November 1980 to
January 1990.
Irwin F. Smith. Mr. Smith serves as a member of the Operating and
Equity Boards and the Operating Committee of the Partnership and the
Chairman, Chief Executive Officer and Chief Investment Officer of CCI.
Mr. Smith was Chairman and Chief Executive Officer of the Partnership,
Chairman of its Executive Operating Committee, Chairman, Chief
Executive Officer and Chief Investment Officer of the CCI division, and
Chairman, Chief Executive Officer and a Director of TAG Inc. from March
1993 until November 1994. From October 1990 until March 1993, he was
Vice Chairman and a Director of TAG Inc. and Vice Chairman of the
Partnership and a member of its Executive Operating Committee. He was a
Senior Vice President of the Partnership from November 1987 until
October 1990.
Thomas C. Sutton. Mr. Sutton serves as a member of the Equity Board.
Mr. Sutton has been the Chairman and Chief Executive Officer of Pacific
Mutual since January 1990 and a Director of Pacific Mutual since 1987.
He also serves as a director of PIMCO Inc. and PFAMCo. He has been
associated with Pacific Mutual since June 1965 and became its President
in September 1987. Mr. Sutton is also a director of Pacific Equities
Network, Mutual Service Corporation, Pacific Financial Holding Company
and PM Realty Advisors, Inc.
William S. Thompson, Jr. Mr. Thompson serves as Chairperson of the
Operating Board, as a member of the Equity Board and the Operating
Committee, and as Chief Executive Officer and a Managing Director of
PIMCO. Mr. Thompson was a Managing Director and the Chief Executive
Officer of PIMCO Inc. until November 1994. Mr. Thompson joined PIMCO
Inc. in April 1993. From February 1975 until April 1993, he was with
Salomon Brothers Inc., an investment banking firm serving as a Managing
Director starting in 1981.
Mr. Miller was a trustee of the PIMCO Advisors Funds and Cash
Accumulation Trust from October 1990 until November 1994. Messrs.
Leasure and Schott were trustees of such Funds prior to October 1990.
Messrs. Prindiville and Schott were directors of TMI and Messrs.
Prindiville, Leasure and Schott were directors of TMSI; in 1990 each
of TMI and TMSI filed a petition in bankruptcy.
To the Partnership's knowledge, based solely on a review of the copies
of reports furnished to the Partnership and written representations
that no other reports were required, during the two fiscal years ended
December 31, 1994 and 1993, there has been compliance with all filing
requirements under Section 16(a) of the Securities Exchange Act of
1934, as amended, applicable to its officers, directors and greater
than ten-percent beneficial owners.
56
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
----------------------------------
Executive Cash Compensation
---------------------------
The following table sets forth the cash compensation paid or allocated
with respect to the three years ended December 31, 1994 for services rendered to
the Partnership (and its affiliates) in all capacities to the Chief Executive
Officer and each of the Partnership's four most highly compensated executive
officers:
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
--------------------------
Annual Compensation Long-Term Compensation Awards
------------------- -----------------------------
Securities All
Restricted Underlying Other
Name and Principal Salary(2) Bonus Other Unit Awards Options/SARs Compensation(3)
Position Year ($) ($) ($) ($) ($) ($)
------------------ ---- -------- ----- ---------- ----------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
William D. Cvengros 1994 $ 63,847 $ 62,500 - $3,248,571(5) 400,000 $ 1,915
CEO, November 16, 1994 1993 - - - - - -
to present 1992 - - - - - -
Irwin F. Smith 1994 $350,000 $3,815,922 - (4) - - $19,395
CEO, January 1, 1994 1993 308,333 4,235,342 $775,000(4) - 1,030,000(6) 20,843
to November 15, 1994 1992 300,000 3,597,098 - - - 17,840
Robert A. Prindiville 1994 $400,000 $ 510,000 - - - $33,402
Executive Vice President(1) 1993 400,000 540,000 - - - 30,108
1992 400,000 500,000 - - - 27,763
John O. Leasure 1994 $275,000 $ 525,000 - - 80,000 $17,082
Senior Vice President(1) 1993 275,000 580,000 - - 185,400(6) 21,413
1992 260,000 450,000 - - - 16,180
Newton B. Schott, Jr. 1994 $260,000 $ 310,000 - - 20,000 $15,456
Senior Vice President, 1993 260,000 210,000 - - 82,400(6) 19,734
Legal 1992 260,000 165,000 - - - 16,890
Brian J. Girvan 1994 $194,375 $ 370,000 - - 60,000 $13,100
Senior Vice President, 1993 172,500 260,000 - - 103,000(6) 17,260
CFO and Treasurer 1992 160,000 200,000 - - - 13,091
Donald A. Chiboucas 1994 $325,000 $4,912,523 - - - $16,695
Executive Vice President, 1993 283,333 5,025,342 - - - 20,786
until November 15, 1994 1992 275,000 3,597,098 - - - 15,676
Louis P. Celentano 1994 $175,000 $ 488,000 - - 50,000 $18,407
Senior Vice President, 1993 165,000 365,000 - - 103,000(6) 23,338
until November 15, 1994 1992 150,000 250,000 - - - 22,269
</TABLE>
----------
(1) Amounts shown include amounts paid by PADCo.
(2) Except for Mr. Cvengros, salary includes amounts deferred in the
Partnership's 401(k) Savings and Investment Plan of $9,240 for 1994, $8,994
for 1993 and $8,728 for 1992.
(3) Except for Mr. Cvengros, amounts shown are premiums on term life insurance
($750,000 face amount) and long-term disability purchased for person
indicated and the amount of the Partnership's and/or PADCo's discretionary
and matching contributions to the Partnership's 401(k) Savings and
Investment Plan. Mr. Cvengros' amount includes discretionary 401(k)
contribution only.
(4) Amount shown is the amount credited to Mr. Smith's Deferred Compensation
Account pursuant to a plan which was cancelled in connection with the
Consolidation. Mr. Smith relinquished his rights to $2,259,000 of deferred
compensation which he would otherwise have been able to use to fund
exercises of options.
(5) Mr. Cvengros was awarded 100,000 Class A Limited Partnership Units and
100,000 Class B Limited Partnership Units in connection with the
Consolidation. The units vest over a five-year period, pay distributions
quarterly and had an aggregate value of $2,871,000 at December 31, 1994.
(6) Options for the persons indicated were granted in 1993 and were amended in
connection with the Consolidation to options on Class A Limited Partnership
Units. In addition, Mr. Smith's options and 50% of the options granted to
Messrs. Leasure, Schott, Girvan and Celentano were amended to reflect a
fixed exercise price of $2.425 per unit. Except for Mr. Smith and Mr.
Girvan, the options vest in the following percentages on December 31 of the
years 1993 through 1998: 10%, 15%, 15%, 20%, 20% and 20%.
Mr. Smith's options were 50% vested on the date of the Consolidation and
the remainder vests in equal semi-annual installments through December 31,
1998, subject to certain conditions relating to the terms of his
employment. Mr. Girvan's options vest according to his Severance Agreement
as more fully described elsewhere in this document.
All amounts have been restated to reflect the Partnership's 106% unit
distribution in 1994.
Compensation to key employees who are not executive officers may exceed the
compensation paid to executive officers in any given year.
57
<PAGE>
<TABLE>
<CAPTION>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
Individual Grants
---------------------------------------------------------------------------------------------
Number % of Total
of Securities Options/SARs Fair Market
Underlying Granted to Exercise or Value of Units Grant Date
Options/SARs Employees in Base Price on Date Expiration Present Value
Name Granted (1) Fiscal Year Per Unit of Grant (2) Date ($) (3)
---- ------------- ------------ ----------- -------------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
William D. Cvengros 400,000 7.48% $13.53 $13.53 11-15-04 $916,000
Irwin F. Smith - - - - - -
Robert A. Prindiville - - - - - -
John O. Leasure 80,000 1.50 13.53 13.53 11-15-04 183,200
Newton B. Schott, Jr. 20,000 0.37 13.53 13.53 11-15-04 45,800
Brian J. Girvan 60,000 1.12 13.53 13.53 11-15-04 137,400
Donald A. Chiboucas - - - - - -
Louis P. Celentano 50,000 0.93 13.53 13.53 11-15-04 114,500
</TABLE>
----------
(1) These options vest 20% per year on each December 31 through 1998.
(2) Based on the twenty day average closing prices of LP Units on the New York
Stock Exchange and discounted by 28.6% due to the subordinated
distribution rights and limited liquidity of Class B Units.
(3) Option values reflect Black-Scholes model output for options. The
assumptions used in the model were expected volatility of 30% (based upon
daily LP Unit price data for the twelve months ended November 15, 1994),
risk-free rate of return of between 7.38% and 7.54%, the fixed exercise
price and exercise date no later than the end of the vesting schedule.
58
<PAGE>
<TABLE>
<CAPTION>
AGGREGATED OPTION/SAR EXERCISE IN LAST
FISCAL YEAR AND FISCAL YEAR-END OPTION/SAR VALUES
Number of Securities
Underlying Unexercised In-The-Money Options/
Shares Acquired Value Options/SARs at FY-End (#) SARs at FY-End ($)
Name on Exercise (#) Realized ($) Exercisable (E)/Unexercisable (U) Exercisable (E)/Unexercisable (U)
---- ----------------- ------------ --------------------------------- ---------------------------------
<S> <C> <C> <C> <C>
William D. Cvengros - - 400,000 (U) (1) *
Irwin F. Smith - - 572,222 (E) (2) $8,197,080
457,778 (U) (2) 6,557,670
Robert A. Prindiville - - - -
John O. Leasure - - 185,400 (U) (2) 2,430,594
80,000 (U) (1) *
Newton B. Schott, Jr. - - 82,400 (U) (2) 1,080,264
20,000 (U) (1) *
Brian J. Girvan - - 103,000 (U) (2) 1,350,330
60,000 (U) (1) *
Donald A. Chiboucas - - - -
Louis P. Celentano - - 103,000 (U) (2) 1,350,330
50,000 (U) (1) *
</TABLE>
----------
* Class B Unit options had no In-The-Money value as of December 31, 1994.
(1) Options under the 1994 Unit Option Plan.
(2) Options (Class I and Class II) under the 1993 Unit Option Plan.
59
<PAGE>
<TABLE>
<CAPTION>
TEN-YEAR OPTION/SAR REPRICINGS
Length of
Number Original
of Securities Market Price Option Term
Underlying of Stock at Exercise Price Remaining at
Options/SARs Time of at Time of New Date of
Repriced or Repricing or Repricing or Exercise Repricing or
Name Date Amended (#) Amendment ($) Amendment ($) (1) Price ($) (2) Amendment
---- --------- ------------- ------------ ------------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
William D. Cvengros - - - - - -
Irwin F. Smith 11-15-94 1,030,000 $18.125 $9.64 $2.425 5.625 years
Robert A. Prindiville - - - - - -
John O. Leasure 11-15-94 92,700 18.125 7.94 2.425 8.417 years
Newton B. Schott, Jr. 11-15-94 41,200 18.125 7.94 2.425 8.417 years
Brian J. Girvan 11-15-94 51,500 18.125 7.94 2.425 8.417 years
Donald A. Chiboucas - - - - - -
Louis P. Celentano 11-15-94 51,500 18.125 7.94 2.425 8.417 years
</TABLE>
----------
(1) Adjusted for the distribution of 1.06 Units per Unit effective October 1,
1994.
(2) All such repricings were approved by Unitholder vote in connection with
the Consolidation. All such options were formerly declining exercise price
options and were amended to fixed exercise price options in the repricing.
60
<PAGE>
COMPENSATION OF DIRECTORS
-------------------------
The Partnership will pay members of the Equity Board (who are not
employees of the Partnership or of an Investment Management Firm) a $20,000
annual retainer plus $750 per in-person meeting ($250 per conference call
meeting) of the Equity Board attended and for each meeting of a committee of the
Equity Board; the Partnership also paid $7,932 for 1994 for medical benefits for
Mr. and Mrs. Auch. Members who are employees of the Partnership or any
Investment Management Firm are not entitled to any additional compensation from
or the Partnership for their services as Board members.
COMPENSATION OF GENERAL PARTNER
-------------------------------
The General Partner does not receive any compensation from the
Partnership for services rendered to the Partnership as General Partner. Rather,
the General Partner's interest in profits and losses of the Partnership is based
on the number of Units it holds. Upon liquidation, the liquidating distributions
to the General Partner will be based on the number of Units it holds.
The Partnership pays for substantially all expenses incurred by PIMCO
GP in performing its activities as general partner , including the cost of
directors' and officers' liability insurance.
COMPENSATION PURSUANT TO CONTRACT
---------------------------------
William D. Cvengros, Chief Executive Officer and President of the
Partnership, has entered into a four-year Employment Agreement with the
Partnership under which he will receive an annual base salary of $500,000 and a
guaranteed annual bonus of $500,000. Mr. Cvengros is also eligible to receive a
discretionary bonus in the target range of $200,000 to $500,000 (which amount
may be increased or decreased at the recommendation of the Operating Board and
upon the approval of the Equity Board). The Partnership granted Mr. Cvengros
options to purchase up to 400,000 Class B Units under the 1994 Unit Option Plan,
described below. Mr. Cvengros has also been granted Units under the Restricted
Unit Plan described below. Mr. Cvengros' contract provides certain benefits in
connection with certain terminations by the Partnership. If his contract is
terminated on December 31, 1996, he receives $500,000, plus all accrued but
unpaid salary and guaranteed bonus plus any discretionary bonus which may be
declared. If his contract is terminated without cause prior to December 31,
1996, he receives accrued but unpaid salary and guaranteed bonus plus pro-rata
guaranteed bonus to date of termination plus any discretionary bonus that may be
declared plus a severance payment of the greater of (i) $500,000 or (ii) a
continuation until December 31, 1996 of his salary and guaranteed bonus. If his
contract is terminated without cause between December 31, 1996 and December 31,
1998, he shall be entitled to the same payments described in the prior sentence
except that the amount of the severance payment shall be fixed at $500,000. In
the event of any such terminations, all his options and Restricted Units which
have not vested shall automatically vest.
Irwin F. Smith, a member of the Operating Committee, Operating Board
and Equity Board, as well as Chief Executive Officer of CCI, entered into an
Employment Agreement with CCI through December 31, 1998, under which he will
receive an annual base salary of $350,000, which will increase to $400,000 on
January 1, 1997. During the term of his Employment Agreement, Mr. Smith will be
prohibited from diverting or taking away funds with respect to which CCI is
performing investment management services or from competing with the investment
management services offered by the Partnership or any of the Investment
Management Firms. Upon a voluntary termination or a termination for cause, until
January 1, 1999, Mr. Smith will not engage in certain prohibited competition
activities and until December 31, 2000, Mr. Smith will also be prohibited from
soliciting clients or soliciting or working with professional employees of CCI.
Mr. Smith's existing option agreement was amended in certain respects. Mr. Smith
is also eligible to participate in the profit sharing plan adopted by CCI.
61
<PAGE>
William S. Thompson, Jr., a member of the Operating Committee,
Operating Board and Equity Board, entered into an Employment Agreement with
PIMCO under which he will receive an annual base salary (including taxable
fringe benefits) of $236,000. In addition, Mr. Thompson will be eligible to
participate in the profit sharing plan adopted by PIMCO. Mr. Thompson's
Employment Agreement provides that, during his term of employment with PIMCO, he
will be prohibited from diverting or taking away funds with respect to which
PIMCO is performing investment management services and from competing with the
investment management services offered by the Partnership or any of the
Investment Management Firms. The Partnership also granted Mr. Thompson options
to purchase up to 230,000 Class B Units under the 1994 Unit Option Plan.
John O. Leasure, a Senior Vice President of the Partnership and
President and a Director of PADCO, entered into an Employment Agreement with the
Partnership through December 31, 1996 under which he will receive an annual base
salary of $275,000 and an annual bonus of at least 50% of such amount (with such
bonus expected to be within the range of 50% to 150% of such salary). In the
event of an Involuntary Termination (as defined) 100% of his options under the
1993 Unit Option Plan (described below) and at least 60% of his options under
the 1994 Unit Option Plan (described below) will vest.
Kenneth M. Poovey, General Counsel of the Partnership, will act in such
capacity in return for a monthly payment of $25,000 (plus travel expenses) to
his law firm, Latham & Watkins. This arrangement will be reviewed quarterly and
adjusted if appropriate. In addition, his firm will also bill the Partnership
for the fees and expenses of other professionals employed by such firm who
render services to the Partnership at the firm's usual rates.
Brian J. Girvan, a Senior Vice President of the Partnership, has
entered into a Severance Agreement with the Partnership which provides that,
until his termination date (currently anticipated to be August 31, 1995), he
will be paid a salary at his 1995 rate and a bonus (pro-rata based upon his 1994
regular bonus) payable in July and the remainder at termination. He will also be
paid a retention bonus pro rata for time worked in 1995 based upon his 1995 base
salary, a transition bonus in the range of $50,000 to $100,000 and a severance
payment equal to four weeks salary for each year worked starting in 1983. With
respect to his options under the 1993 Unit Option Plan, the Class II options
with an exercise price of $4.855 vested and are exercisable as of January 20,
1995 and the Class I options with an exercise price of $2.425 vest and become
exercisable on June 30, 1995. With respect to his options under the 1994 Unit
Option Plan, 50% of his options vest on his termination date.
62
<PAGE>
RESTRICTED UNIT GRANTS TO MANAGEMENT
------------------------------------
The Partnership has a Restricted Unit Plan for the benefit of certain
key employees of the Partnership pursuant to which 100,000 Class A Units and
100,000 Class B Units were awarded to William D. Cvengros and 25,000 Class A
Units and 25,000 Class B Units were awarded to Steven T. Bailey. No additional
Units are available for award under the Restricted Unit Plan. Such Class A Units
or Class B Units are forfeited to the General Partner in the event of certain
terminations of employment with the Partnership prior to vesting; this
arrangement was agreed upon because Class A Units and Class B Units that
otherwise would have been issued to the General Partner in the Consolidation
were allocated to the Restricted Unit Plan.
OPTION PLANS
------------
The Partnership adopted the 1994 Class B LP Unit Option Plan (the
"Option Plan") to provide incentives and rewards to certain key employees of the
Partnership and/or the Investment Management Firms. The Option Plan is
administered by the Unit Incentive Committee of the Equity Board of the
Partnership. Currently there are outstanding options to purchase an aggregate of
5,223,000 Class B Units most of which were issued at an exercise price equal to
71.4% of the average trading price of the Partnership's limited partner units
for the 20 trading day period prior to the closing of the Consolidation to
officers of the Partnership, Managing Directors of the Investment Management
Firms and certain other employees. These options generally will vest in five
equal annual installments beginning December 31, 1994 and generally are not
exercisable until January 1, 1998. Options to purchase an additional 377,000
Class B Units are available under the Option Plan at exercise prices to be
determined by the Unit Incentive Committee, which consists of members of the
Equity Board who are not eligible to receive grants of options under the Option
Plan. As part of the Consolidation, the Chief Executive Officer and two of the
Investment Management Firms have the right to recommend to the Unit Incentive
Committee the persons to whom an aggregate of 127,000 of such 377,000 remaining
options shall be granted.
In addition, 2,442,130 options are outstanding under the Partnership's
1993 Unit Option Plan for the purchase of Class A Units at prices ranging from
$2.425 to $4.855 per Class A Unit. It is not expected that any further options
will be granted under the 1993 Unit Option Plan.
63
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
-------------------------------------------------------------------------
The following table sets forth information regarding beneficial
ownership of the Partnership's GP Units, Class A Units and Class B Units after
giving effect to the Consolidation and the Offering by each person who, to the
Partnership's knowledge, is the beneficial owner of more than 5% of a class of
Units and of all Units as a single class, each person who may be deemed to be a
director of the Partnership, the CEO of the Partnership and the Partnership's
four most highly compensated executive officers and all officers and persons who
may be deemed to be directors of the Partnership as a group. Except as
indicated, the address of each person or entity listed below is 840 Newport
Center Drive, Newport Beach, California.
<TABLE>
<CAPTION>
==================================================================================================
GP Units Class A Units Class B Units
(1) (1) (1)
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FIVE PERCENT HOLDERS (OTHER THAN THOSE
LISTED UNDER OPERATING AND EQUITY
BOARD MEMBERS BELOW)
--------------------------------------------------------------------------------------------------
PIMCO Partners, G.P.(2) 800,000/ 23,654,713/ 30,135,826/
100% 59.1% 91.4%
--------------------------------------------------------------------------------------------------
Pacific Mutual Life Insurance Company 800,000/ 27,294,391/ 32,835,826/
(3) 100% 68.2% 99.6%
--------------------------------------------------------------------------------------------------
Pacific Financial Holding Company(4) 800,000/ 27,294,391/ 32,835,826/
("PFHC") 100% 68.2% 99.6%
--------------------------------------------------------------------------------------------------
Pacific Financial Asset Management 800,000/ 26,361,436/ 32,835,826/
Corporation(5) 100% 65.9% 99.6%
--------------------------------------------------------------------------------------------------
Pacific Investment Management Company 800,000/ 23,819,747/ 30,135,826/
(6) 100% 59.5% 91.4%
--------------------------------------------------------------------------------------------------
PIMCO Partners, LLC(7) 800,000/ 23,797,193/ 30,135,826/
("PIMCO LLC") 100% 59.5% 91.4%
--------------------------------------------------------------------------------------------------
Thomson Advisory Group Inc. 0 6,119,391/ 8,260,826/
15.3% 25.1%
--------------------------------------------------------------------------------------------------
David H. Edington(14) 800,000/ 23,797,193/ 30,135,826/
100% 59.5% 91.4%
--------------------------------------------------------------------------------------------------
John L. Hague(14) 800,000/ 23,797,193/ 30,135,826/
100% 59.5% 91.4%
--------------------------------------------------------------------------------------------------
Frank B. Rabinovitch(14) 800,000/ 23,797,193/ 30,135,826/
100% 59.5% 91.4%
--------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------
OPERATING AND EQUITY BOARD MEMBERS
--------------------------------------------------------------------------------------------------
Walter E. Auch, Sr.(8) 0 0 0
--------------------------------------------------------------------------------------------------
David B. Breed(9) 0 0 0
--------------------------------------------------------------------------------------------------
</TABLE>
64
<PAGE>
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Donald A. Chiboucas(9)(10) 0 366,475/ 826,082/
* 2.5%
--------------------------------------------------------------------------------------------------
William D. Cvengros(8)(9)(11)(18) 0 100,000/ 100,000/
* *
--------------------------------------------------------------------------------------------------
Walter B. Gerken(12) 0 0 0
--------------------------------------------------------------------------------------------------
William H. Gross(8)(9)(13) 800,000/ 23,867,193/ 30,135,826/
100% 59.6% 91.4%
--------------------------------------------------------------------------------------------------
Brent R. Harris(9)(14) 800,000/ 23,797,193/ 30,135,826/
100% 59.5% 91.4%
--------------------------------------------------------------------------------------------------
Donald R. Kurtz(8) 0 2,000/ 0
*
--------------------------------------------------------------------------------------------------
James F. McIntosh(8) 0 1,000/ 0
*
--------------------------------------------------------------------------------------------------
Dean S. Meiling(9)(14) 800,000/ 23,797,193/ 30,135,826/
100% 59.5% 91.4%
--------------------------------------------------------------------------------------------------
Donald K. Miller(8)(10) 0 32,287/ 82,608/
* *
--------------------------------------------------------------------------------------------------
James F. Muzzy(9)(14) 800,000/ 23,797,193/ 30,135,826/
100% 59.5% 91.4%
--------------------------------------------------------------------------------------------------
Daniel S. Pickett(9) 0 0 0
--------------------------------------------------------------------------------------------------
William F. Podlich, III(8)(9)(14) 800,000/ 23,797,193/ 30,135,826/
100% 59.5% 91.4%
--------------------------------------------------------------------------------------------------
William C. Powers(9)(14) 800,000/ 23,797,193/ 30,135,826/
100% 59.5% 91.4%
--------------------------------------------------------------------------------------------------
Glenn S. Schafer(8) 0 0 0
--------------------------------------------------------------------------------------------------
Irwin F. Smith(8)(9)(10)(15) 0 926,191/ 826,082/
2.3% 2.5%
--------------------------------------------------------------------------------------------------
Thomas C. Sutton(8) 0 0 0
--------------------------------------------------------------------------------------------------
William S. Thompson, Jr.(8)(9)(16) 800,000/ 23,800,193/ 30,135,826/
100% 59.5% 91.4%
--------------------------------------------------------------------------------------------------
</TABLE>
65
<PAGE>
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
EXECUTIVE OFFICERS NOT INCLUDED ABOVE
--------------------------------------------------------------------------------------------------
Steven T. Bailey(18) 0 25,000/ 25,000/
* *
--------------------------------------------------------------------------------------------------
John O. Leasure 0 0 0
--------------------------------------------------------------------------------------------------
Robert A. Prindiville(10)(17) 0 49,646/ 413,042
* 1.3%
--------------------------------------------------------------------------------------------------
Brian J. Girvan(19) 0 51,500/ 0
*
--------------------------------------------------------------------------------------------------
Newton B. Schott, Jr. 0 0 0
--------------------------------------------------------------------------------------------------
All directors and officers as a group 800,000/ 25,424,292/ 32,408,640/
(24 persons) 100% 63.5% 98.3%
--------------------------------------------------------------------------------------------------
</TABLE>
66
<PAGE>
____________
* 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
items.
(2) Includes (i) 16,735,322 Class A Units held of record by PIMCO GP; (ii)
800,000 Class A Units which may be acquired by PIMCO GP pursuant to the
Partnership Agreement upon conversion of the 800,000 GP Units of the
Partnership held by PIMCO GP should PIMCO GP cease to be the general
partner of the Partnership; and (iii) 6,119,391 Class A Units held of
record by TAG Inc., all of the common stock of which (0 of the
voting securities) is owned by PIMCO GP. Excludes 1,252,000 Class A Units
originally issued to PIMCO GP in connection with the Consolidation which
were distributed to PIMCO Inc. in accordance with its capital account.
Includes (i) 21,875,000 Class B Units held of record by PIMCO GP and (ii)
8,260,826 Class B Units held of record by TAG Inc.
(3) Includes 800,000 GP Units, 27,294,391 Class A Units and 32,835,826 Class B
Units beneficially owned by PFHC which may be deemed to be beneficially
owned by Pacific Mutual because PFHC is a wholly owned subsidiary of
Pacific Mutual. Address: 700 Newport Center Drive, Newport Beach, CA
92660.
(4) Includes (i) the 800,000 GP Units, 26,503,916 Class A Units and 32,835,826
Class B Units beneficially owned by PFAMCo which may be deemed to be
beneficially owned by PFHC because PFAMCo is a wholly owned subsidiary of
PFHC; and (ii) 790,475 Class A Units held of record by PFHC over which PFHC
holds sole voting and disposition power. Address: 700 Newport Center
Drive, Newport Beach, CA 92660.
(5) Includes (i) the 800,000 GP Units, 28,819,747 Class A Units and 30,135,826
Class B Units beneficially owned by PFAMCO Inc. which may be deemed to be
beneficially owned by PIMCO Inc. because PIMCO Inc. is a wholly owned
subsidiary of PFAMCo; (ii) 200,000 Class A Units held of record by PFAMCo
and issued to PFAMCo in exchange for the contribution to the Partnership of
the operating business of PFAMCo and the capital stock of Blairlogie Ltd.,
over which PFAMCo holds sole voting and disposition power; and (iii) an
aggregate of 2,341,689 Class A Units issued as follows: Cadence Inc.
(32,652 Class A Units), Cadence LP (1,275,000 Class A Units), NFJ Inc.
(18,404 Class A Units), NFJ LP (506,211 Class A Units), Parametric Inc.
(18,562 Class A Units), and Parametric LP (490,860 Class A Units) in
exchange for the contribution to the Partnership of the operating business
of Cadence Inc., NFJ Inc., and Parametric Inc. as part of the Consolidation
which may be deemed beneficially owned by PFAMCo because Cadence Inc., NFJ
Inc., and Parametric Inc., are wholly owned subsidiaries of PFAMCo and
Cadence Inc., NFJ Inc., Parametric Inc., in turn are the general partners
of Cadence LP, NFJ LP, and Parametric LP, respectively. Also includes
2,700,000 Class B Units owned by the foregoing. As general partners,
Cadence Inc., NFJ Inc., and Parametric Inc., have shared investment and
disposition powers with respect to Units held by Cadence LP, NFJ LP, and
Parametric LP, respectively. Address: 700 Newport Center Drive, Newport
Beach, CA 92660.
(6) Includes (i) 800,000 GP Units, 23,654,713 Class A Units beneficially owned
by PIMCO GP; and (ii) 165,034 Class A Units of the 1,252,000 Class A Units
distributed by PIMCO GP to PIMCO Inc. and not exchanged with certain
selling Unitholders in the Offering for Series A Preferred Stock of TAG
Inc., over which PIMCO Inc., holds sole voting and disposition power.
PIMCO Inc. is a general partner of PIMCO GP and shares investment and
voting power over the Class A Units owned directly by PIMCO GP with PIMCO
Partners, LLC ("PIMCO LLC"), PIMCO GP's managing general partner, and as a
result may be deemed to own beneficially the Class A Units owned directly
by PIMCO GP. In connection with the Offering, PIMCO Inc. exchanged
1,086,966 Class A Units for 1,168,780 shares of Series A Preferred Stock of
TAG Inc., thereby acquiring an indirect beneficial ownership interest in
1,168,787 Class A Units held by TAG Inc. and attributable to such Series A
Preferred Stock. Such 1,168,787 Class A Units are included in the
6,119,391 Class A Units deemed beneficially owned by PIMCO GP. Class A
Units
67
<PAGE>
(originally issued to PIMCO GP, distributed to PIMCO Inc., and exchanged by
PIMCO Inc. in accordance with an exchange agreement for Series A
Preferred Stock of TAG Inc.) were issued in connection with the
Consolidation to certain selling Unitholders in the Offering, and
subsequently sold by such selling Unitholders in the Offering. Also
excludes 2,313,034 Class A Units originally issued to PIMCO GP and in
connection with the Consolidation and sold in the Offering. Includes
30,135,826 Class B Units beneficially owned by PIMCO GP. Address: 700
Newport Center Drive, Newport Beach, CA 92660.
(7) Includes (i) 142,480 Class A Units held of record by PIMCO LLC; and (ii)
800,000 GP Units, 23,654,713 Class A Units and 30,135,826 Class B Units
which may be considered to be beneficially owned by PIMCO GP, and which may
be deemed to be beneficially owned by PIMCO LLC, which is a general partner
of PIMCO GP.
(8) Member of Equity Board.
(9) Member of Operating Board.
(10) Includes Class A Units which may be acquired upon exchange of Series A
Preferred Stock of TAG Inc. based on a variable conversion rate (initially
.93 Class A Units per share of Series A Preferred Stock during 1994).
Includes Class B Units that may be acquired in limited circumstances upon
exchange of Series B Preferred Stock of TAG Inc. on a one-for-one basis.
The individual disclaims beneficial ownership of any Class B Units.
(11) Mr. Cvengros is Chief Executive Officer of the Partnership, a member of the
Equity Board and the Operating Board and the Chairperson of the Operating
Committee.
(12) Mr. Gerken is the Chairperson of the Equity Board.
(13) Includes (i) 70,000 shares held in trusts of which the individual is
trustee and as to which he has sole voting and disposition power, (ii)
142,480 Class A Units held of record by PIMCO LLC, which may be deemed to
be beneficially owned by the individual, who is a member of PIMCO LLC; and
(iii) 800,000 GP Units, 23,654,713 Class A Units and 30,135,826 Class B
Units which may be considered to be beneficially owned by PIMCO GP, of
which PIMCO LLC is a general partner.
(14) Includes (i) 142,480 Class A Units held of record by PIMCO LLC, which may
be deemed to be beneficially owned by the individual, who is a member of
PIMCO LLC; and (ii) 800,000 GP Units, 23,654,713 Class A Units and
30,135,826 Class B Units which may be considered to be beneficially owned
by PIMCO GP, of which PIMCO LLC is a general partner.
(15) Includes 572,222 Class A Units which may be acquired upon exercise of
options within 60 days. Mr. Smith is a member of the Operating Committee.
(16) Includes (i) 3,000 shares held in trusts of which the individual is trustee
and as to which he has sole voting and disposition power, (ii) 142,480
Class A Units held of record by PIMCO LLC, which may be deemed to be
beneficially owned by the individual, who is a member of PIMCO LLC; and
(iii) 800,000 GP Units, 23,654,713 Class A Units and 30,135,826 Class B
Units which may be considered to be beneficially owned by PIMCO GP, of
which PIMCO LLC is a general partner. Mr. Thompson is the Chairperson of
the Operating Board and a member of the Equity Board and the Operating
Committee.
(17) Mr. Prindiville is an Executive Vice President of the Partnership.
(18) Represents aggregate Units issued pursuant to the Partnership's Restricted
Unit Plan. These Units vest in 5 equal annual installments on December 31,
1994, 1995, 1996, 1997 and 1998. The officer is entitled to distributions
and voting rights with respect to such Units prior to vesting. Such Units
could be forfeited to the General Partner of the Partnership in the event
of certain terminations of employment with the Partnership prior to
vesting.
(19) Includes 51,500 Class A Units which may be acquired upon exercise of
options.
68
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
--------------------------------------------------------
ANTICIPATED FUTURE RESTRUCTURING OF THE PARTNERSHIP
General. Under current law, the Partnership will cease being
classified as a partnership for federal income tax purposes, and will be treated
as a corporation, immediately after December 31, 1997 (or sooner if the
Partnership adds a substantial new line of business or otherwise fails to
satisfy certain requirements) unless the Partnership's limited partner interests
cease to be publicly traded prior to such time. As a corporation, the
Partnership would be subject to tax on its income and its shareholders would be
subject to tax on distributions. In an effort to preserve partnership tax
treatment after December 31, 1997 for the nonpublic Unitholders, the Partnership
Agreement confers on the General Partner broad authority to effect one or more
Restructurings of the Partnership in connection with, or in anticipation of,
such a change in tax status.
While the precise form of a Restructuring cannot now be determined and
will depend on the facts and circumstances existing at the time a Restructuring
is implemented, it is generally expected that, following a Restructuring, public
Unitholders will hold their equity participation in the business of the
Partnership through publicly traded stock issued by an entity treated as a
corporation for federal income tax purposes, allowing the nonpublic Unitholders
to continue to hold their equity participation in the Partnership directly or
through some other entity treated as a partnership for federal income tax
purposes. The Partnership does not currently expect to change its distribution
policy following a Restructuring, and it is anticipated that the corporate
entity generally would distribute all cash received by it from the Partnership
other than cash needed for payment of taxes and operational expenses. Because of
federal, state, and other taxes on such entity's income, cash available for
dividends to the holders of the corporate entity's publicly traded securities
would be substantially less than the cash distributed to the corporate entity by
the Partnership. If the Restructuring were carried out in the manner currently
anticipated, under current law the amount of such taxes imposed on such entity
would be reduced by the entity's carrying over the balance of the amortizable
Section 197 Intangibles associated with the publicly traded Class A Units
immediately prior to the Restructuring and claiming amortization deductions with
respect to such amount. No assurance can be given, however, that the
Restructuring will take a form that will allow this result.
While the Partnership Agreement provides that the General Partner may
impose restrictions on the transfer of Units as part of a Restructuring (which
could have the effect of preserving the Partnership's status as a partnership),
the General Partner currently believes that trading restrictions will not be
necessary to accomplish the Restructuring absent legal or other developments. It
is anticipated that the holders of interests in a partnership entity will have
the right from time to time to exchange the partnership interests for equity
interests in the corporate entity in order to achieve liquidity.
The Restructuring in the form currently anticipated could result in the
publicly traded corporation being classified as an "investment company" under
the Investment Company Act. If the corporation is so classified, the corporation
would be required to comply with the terms of the Investment Company Act which,
among other things, could entail additional expenditures and restrictions on
transactions with affiliates. In order to avoid such status, the General Partner
could cause the corporation to become a general partner of the Partnership, in
which case the corporation would be jointly and severally liable with the
General Partner for obligations of the Partnership.
The federal income tax consequences of a Restructuring will depend upon
the final form of the Restructuring and therefore it is not possible to predict
the tax consequences of a Restructuring. However, assuming the public
Unitholders hold their interest in an entity treated as a corporation for
federal income tax purposes, whether as a result of a Restructuring or by
operation of law on January 1, 1998, it is generally expected that the exchange
or conversion pursuant to which public Unitholders become treated as
shareholders in a corporation for federal income tax purposes will be treated as
a tax-free transaction under Code Section 351, provided that certain
requirements, some of which are beyond the control of the Partnership and the
General Partner, are satisfied. In general if the transaction qualifies under
Code Section 351, (i) the holding periods for the shares received by the public
Unitholders will include the holding periods for their Class A Units, (ii) the
public Unitholders will have an
69
<PAGE>
initial tax basis in their shares equal to their adjusted tax basis in their
Class A Units immediately prior to the exchange or conversion (reduced by their
share, if any, of Partnership liabilities immediately prior to such exchange or
conversion) and (iii) gain (or loss) on disposition of shares of any such
corporate entity will be capital gain or loss (long-term or short-term as the
case may be).
Restructuring Authority. Because of possible changes in tax law or
regulations and other factors, it cannot now be predicted with certainty what
actions the General Partner may take in connection with a Restructuring, if any.
Section XVIII of the Partnership Agreement confers on the General Partner broad
power and authority to take all such actions it may deem necessary or
appropriate in connection with, in anticipation of or to effect a Restructuring,
without consent of or other action on the part of any other Unitholder and
whether or not such actions or omissions may treat public Unitholders
differently than nonpublic Unitholders and result in different and more
favorable treatment of the nonpublic Unitholders. The Partnership Agreement
imposes no obligations on the General Partner to effect any Restructuring and
gives the General Partner authority to choose the timing (subject to certain
limitations) of a Restructuring. The Partnership Agreement provides no appraisal
or similar rights to any Unitholder with respect to any Restructuring, nor does
it require that the General Partner obtain an opinion as to the fairness of any
Restructuring to the public Unitholders. The General Partner has advised the
Partnership that it does not currently contemplate that any such opinion will be
delivered to Unitholders at the time of a Restructuring.
The Partnership Agreement provides that, in effecting a Restructuring,
the General Partner may not subject any holder of a Unit to liability to
Partnership creditors without such holder's consent.
Limited Duty to Unitholders Related to Restructuring. In order to
assure that it is clear that the General Partner may effect the anticipated
Restructuring in a form which will preserve partnership taxation for the
nonpublic Unitholders even though the public Unitholders will be subject to
corporate level tax, the Partnership Agreement releases the General Partner and
its directors, officers, employees and affiliates from any liability based upon
actions taken or omitted to be taken by the General Partner with respect to any
Restructuring, to the extent that such actions or omissions may treat public
Unitholders differently and less favorably than nonpublic Unitholders. Section
6.13(a) provides that the General Partner shall not be liable for errors in
judgment or for breach of fiduciary duty 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 the
Partnership or was undertaken with reckless disregard for the best interests of
the Partnership.
The Partnership is organized under the Delaware Revised Uniform Limited
Partnership Act (the "Delaware Act"). Section 17-1101(d) of the Delaware Act
expressly provides that, to the extent that at law or in equity, a partner has
duties (including fiduciary duties) and liabilities relating thereto to a
limited partnership or to another partner, the partner's duties and liabilities
may be expanded or restricted by provisions in the partnership agreement.
General partners of a Delaware limited partnership have been held in court cases
to owe duties of ordinary care and of utmost good faith, fairness and loyalty to
the partnership and to the other partners. The effect of Section 6.13 is to
substitute the requirement that the General Partner act in good faith for the
more comprehensive duties and liabilities that the General Partner would
otherwise owe to the Partnership and to any other partner with respect to any
Restructuring.
LOSS REIMBURSEMENT AGREEMENTS
As part of the Consolidation, PFAMCo transferred to the Partnership
certain assets and liabilities of PFAMCo (excluding the businesses of the
Investment Management Firms) (the "PFAMCo Operation"). Until December 31, 1996,
PFAMCo has agreed to reimburse the Partnership for losses up to an aggregate of
$2 million incurred by the PFAMCo Operation.
In addition, from the date of the Consolidation until the end of 1996,
if the Subpartnership conducting the business of Blairlogie (the "Blairlogie
Subpartnership") incurs net losses as a result of ordinary business operations,
PFAMCo has agreed to pay the amount of such net losses to the Blairlogie
Subpartnership. If the Blairlogie Subpartnership subsequently earns net profits
as a result of ordinary business operations, 50% of these profits will be paid
to PFAMCo until the amount of any loss reimbursement, plus accured interest, has
been repaid. The Partnership has retained the right to dispose of or liquidate
the Blairlogie Subpartnership without recourse for such advances by PFAMCo after
December 31, 1996.
INDEBTEDNESS OF MANAGEMENT
Brent R. Harris and William C. Powers, each a Managing Director of PIMCO
and Member of the Operating Board, are indebted to PIMCO for short-term,
interest-bearing loans amounting to $88,650 and $91,550, respectively.
OTHER CONFLICTS
Withdrawal and Removal of General Partner. The general partner has
agreed that it may withdraw as general partner of the Partnership only if such
withdrawal is approved by holders of a majority of the LP Units (other than the
general partner and its Affiliates) and if counsel renders an opinion that the
limited partners do not lose their limited liability pursuant to Delaware law or
the Partnership Agreement (a "Limited Liability Determination"), and provides
certain other opinions relating to the status of the Partnership as a
partnership for federal income tax purposes (a "Tax Determination") and the
continuation of the Partnership's advisory agreements (an "Assignment
Determination"). The general partner may be removed by a vote of Unitholders
holding 80% or more of all outstanding Units if a successor general partner is
appointed, counsel makes a Limited Liability Determination, a Tax Determination
and an Assignment Determination and such removal is approved by the successor
general partner. However, by virtue of PIMCO GP's ownership of Units, PIMCO GP
can veto any such removal. Also, interests in the general partner may be sold or
transferred without any prior approval or consent of the holders of Class A
Units.
70
<PAGE>
In the event of withdrawal or removal of the general partner, the
general partner will have the option to require a successor general partner (if
any) to acquire all of the general partner's GP units for a cash payment equal
to their fair value as of the effective date of the general partner's departure.
Such value will be determined by agreement between the general partner and the
successor general partner or, if no agreement is reached, by an independent
investment banking firm or other independent expert selected by the general
partner and the successor general partner (or if no expert can be agreed upon,
by the expert chosen by agreement of each of the experts selected by each such
general partner). If the option is not exercised by the general partner, the GP
Units of the general partner will be converted into an equal number of Class A
Units.
The general partner, TAG Inc., certain affiliates of PIMCO GP and
Pacific Mutual and certain individuals have registration rights as to Units
that they own or have the right to acquire.
Indemnification. The Partnership Agreement provides that the
Partnership will indemnify the general partner or any general partner which has
withdrawn or been removed (a "Departing Partner"), any Person (as defined) who
is or was an Affiliate of the general partner or any Departing Partner each
shareholder of the general partner or of the parent company of the general
partner, shareholder or the general partner or of any departing
general partner and any member of the Equity Board, Operating Board or Operating
Committee, any officer of the Partnership or any of its Investment Management
Firms or divisions. The Partnership may also enter into indemnification
agreements with certain other Persons.
The Partnership Agreement also provides that neither general partner
nor any indemnitee will be liable to the Partnership 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 the Partnership or
was undertaken with reckless disregard for the best interests of the
Partnership.
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:
---------
2.1 Amended and Restated Agreement and Plan of
Consolidation of PIMCO Advisors L.P. dated effective
as of July 11, 1994./1//
-
3.1 Amended and Restated Certificate of Limited
Partnership of Registrant.
3.2 Amended and Restated Agreement of General Partnership
of PIMCO Partners, G.P. ("PIMCO GP")./1//
-
71
<PAGE>
4.1 Amended and Restated Agreement of Limited Partnership
of Registrant dated October 31, 1994./1//
-
4.2 Specimen Class A LP Unit Certificate./2//
4.3 Specimen Class B LP Unit Certificate./2//
4.4 9.01% Secured Nonrecourse Note Agreement, dated as of
November 14, 1994, by and between PIMCO GP and
Thomson Advisory Group Inc. ("TAG Inc.")./1//
-
4.5 PIMCO Pledge and Security Agreement, dated as of
November 14, 1994, by and between PIMCO GP and
Citibank, N.A./1//
-
4.6 TAG Pledge and Security Agreement, dated as of
November 14, 1994, by and among TAG Inc., PIMCO GP
and Citibank, N.A./1//
-
4.7 Collateral Agency Agreement, dated as of November 14,
1994, by and among Purchasers identified therein,
PIMCO GP and Citibank, N.A./1//
-
4.8 Registration Rights Agreement, dated as of November
15, 1994, by and among the Funds, PFAMCo Parties and
Individuals, as such terms are defined therein./1//
-
4.9 Exchange Agreement, dated November 14, 1994, by and
among PIMCO GP, TAG Inc. and the Registrant./1//
-
4.10 Custodial Account Agreement, dated as of November 15,
1994, by and among PIMCO GP and Citibank, N.A./1//
-
4.11 Form of 9.01% Secured Nonrecourse Note due December
15, 2001./1//
-
4.12 Form of Intercompany Note Secured Nonrecourse Demand
Note./1//
-
4.13 PFAMCo Stock Exchange Agreement dated November 15,
1994./1//
-
4.14 Amended and Restated Certificate of Incorporation of
TAG Inc./1//
-
10.1 Cvengros Employment Agreement./2//
10.2 Smith Employment Agreement./2//
10.3 Chiboucas Employment Agreement./2//
10.4 Form of Manager Employer Agreement./2//
10.5 Profit Sharing Plan for Pacific Investment Management
Company.
10.6 Profit Sharing Plan for Columbus Circle
Investors./2//
10.7 Form of Profit Sharing Plan for Investment Management
Firms./2//
10.8 PFAMCo Loss Reimbursement Agreement./2//
10.9 Blairlogie Loss Reimbursement and Recapture
Agreement./2//
72
<PAGE>
10.10 Thomson Advisory Group L.P. 1993 Unit Option Plan (as
amended through April 20, 1993)./3//
10.11 Award of Options dated March 10, 1993 to Irwin F.
Smith./4//
-
10.12 Smith Option Amendment Agreement./2//
10.13 Form of Class I Option Amendment Agreement./2//
10.14 Form of Class II Option Amendment Agreement./2//
10.15 Form of PIMCO Advisors L.P. 1994 Class B LP Unit
Option Plan./5//
-
10.16 Form of Option Agreement for Item 10.15. /5//
-
10.17 PIMCO Advisors L.P. Restricted Unit Plan./2//
10.18 (a) Thomson Advisory Group 401(k) Savings and
Investment Plan./6//
-
(b) First Amendment to the Thomson Advisory Group
401(k) Savings and Investment Plan./7//
-
(c) Thomson Advisory Group 401(k) Savings and
Investment Plan Volume Submitter Amendment./7//
-
(d) Consolidation Transaction Amendment.
(e) Third Amendment to the Thomson Advisory Group
401(k) Savings and Investment Plan.
(f) Fourth Amendment to the PIMCO Advisors 401(k)
Savings and Investment Plan.
10.19 TAG Fund/Administrative Incentive Bonus Plan./8//
-
10.20 Form of Indemnification Agreement executed by certain
officers of the Registrant and certain directors of
Thomson McKinnon Asset Management Inc./9//
-
10.21 Form of Indemnification Agreement executed by certain
directors and/or officers of TAG Inc./10//
--
10.22 Form of Amendment No. 1 to Indemnification Agreement
(Exhibit 10.20 hereto)./11//
--
10.23 Employment Agreement between PIMCO Advisors L.P. and
John O. Leasure.
10.24 Severance Agreement with Brian J. Girvan.
23.1 Consent of Deloitte & Touche LLP.
73
<PAGE>
__________
1/ Filed as an Exhibit to Schedule 13D of PIMCO Partners, G.P. filed November
-
25, 1994 and incorporated herein by reference.
2/ Filed as an Exhibit to the Registrant's Report on Form 8-K dated July 11,
-
1994 and incorporated herein by reference.
3/ Filed as an Exhibit to Registrant's Report on Form 10-Q for the quarter
-
ended March 31, 1993 and incorporated herein by reference.
4/ Filed as an Exhibit to Registrant's Report on Form 10-K for the year ended
-
December 31, 1992 and incorporated herein by reference.
5/ Filed as an Exhibit to Registrant's Registration Statement on Form S-4 (File
-
No. 33-84914) and incorporated herein by reference.
6/ Filed as an Exhibit to Registrant's Report on Form 10-K for the year ended
-
December 31, 1991 and incorporated herein by reference.
7/ Filed as an Exhibit to Registrant's Report on Form 10-K for the year ended
-
December 31, 1993 and incorporated herein by reference.
8/ Filed as an Exhibit to Registrant's Report on Form 10-K for the year ended
-
December 31, 1990 and incorporated herein by reference.
9/ Filed as an Exhibit to Registrant's Report on Form 10-Q for the quarter
-
ended June 30, 1990 and incorporated herein by reference.
10/ Filed as an Exhibit to Registrant's Report on Form 10-Q for the quarter
--
ended September 30, 1990 and incorporated herein by reference.
11/ Filed as an Exhibit to Registrant's Report on Form 10-Q for the quarter
--
ended March 31, 1991 and incorporated herein by reference.
(b) Reports on Form 8-K. The Registrant filed the following
--------------------
reports on Form 8-K during the fourth quarter of 1994:
(i) a report dated November 15, 1994 indicating that the
Consolidation had been consummated; describing the funding
source for the TAG Inc. recapitalization; and providing
information concerning the beneficial ownership of the
Partnership's securities after the Consolidation and the
Offering; and
(ii) a report dated December 15, 1994 indicating that Deloitte &
Touche LLP had been appointed as the Partnership's auditors
to replace Coopers & Lybrand L.L.P.
74
<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 L.P.
By: /S/ William D. Cvengros
----------------------------------
William D. Cvengros, President and
Chief Executive Officer
Date: March 29, 1995
75
<PAGE>
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 Chief Executive Officer of Registrant, March 29, 1995
------------------------------- Member of Equity Board and
William D. Cvengros Operating Board
/S/ Irwin F. Smith Member of Equity Board and March 29, 1995
------------------------------- Operating Board
Irwin F. Smith
/S/ William S. Thompson, Jr. Member of Equity Board and March 29, 1995
------------------------------- Operating Board
William S. Thompson, Jr.
/S/ Walter E. Auch, Sr. Member of Equity Board March 29, 1995
-------------------------------
Walter E. Auch, Sr.
/S/ David B. Breed Member of Operating Board March 29, 1995
-------------------------------
David B. Breed
/S/ Donald A. Chiboucas Member of Operating Board March 29, 1995
-------------------------------
Donald A. Chiboucas
/S/ Walter Gerken Member of Equity Board March 29, 1995
-------------------------------
Walter Gerken
/S/ William H. Gross Member of Equity Board and March 29, 1995
------------------------------- Operating Board
William H. Gross
/S/ Brent R. Harris Member of Operating Board March 29, 1995
-------------------------------
Brent R. Harris
/S/ Donald R. Kurtz Member of Equity Board March 29, 1995
-------------------------------
Donald R. Kurtz
</TABLE>
76
<PAGE>
<TABLE>
<S> <C> <C>
/S/ James F. McIntosh Member of Equity Board March 29, 1995
-------------------------------
James F. McIntosh
/S/ Dean S. Meiling Member of Operating Board March 29, 1995
-------------------------------
Dean S. Meiling
/S/ Donald K. Miller Member of Equity Board March 29, 1995
-------------------------------
Donald K. Miller
/S/ James F. Muzzy Member of Operating Board March 29, 1995
-------------------------------
James F. Muzzy
/S/ Daniel S. Pickett Member of Operating Board March 29, 1995
-------------------------------
Daniel S. Pickett
/S/ William F. Podlich, III Member of Equity Board and March 29, 1995
------------------------------- Operating Board
William F. Podlich, III
/S/ William C. Powers Member of Operating Board March 29, 1995
-------------------------------
William C. Powers
/S/ Glenn S. Schafer Member of Equity Board March 29, 1995
-------------------------------
Glenn S. Schafer
/S/ Thomas C. Sutton Member of Equity Board March 29, 1995
-------------------------------
Thomas C. Sutton
/S/ Steven T. Bailey Chief Financial Officer March 29, 1995
-------------------------------
Steven T. Bailey
/S/ Robert M. Fitzgerald Principal Accounting Officer March 29, 1995
-------------------------------
Robert M. Fitzgerald
</TABLE>
77
<PAGE>
THOMSON ADVISORY GROUP L.P.
FORM 10-K
EXHIBIT INDEX
1994
<TABLE>
<CAPTION>
Number Exhibit Page
------ ------- ---
<C> <S> <C>
3.1 Amended and Restated Certificate of Limited Partnership
of Registrant.
10.5 Profit Sharing Plan for Pacific Investment Management
Company.
10.18(d) Consolidation Transaction Amendment.
10.18(e) Third Amendment to the Thomson Advisory Group 401(k)
Savings and Investment Plan.
10.18(f) Fourth Amendment to the PIMCO Advisors 401(k) Savings
and Investment Plan.
10.23 Employment Agreement between PIMCO Advisors L.P. and
John O. Leasure.
10.24 Severance Agreement with Brian J. Girvan.
23.1 Consent of Deloitte & Touche LLP
27 Financial Data Schedule
</TABLE>
78
<PAGE>
EXHIBIT 3.1
AMENDED AND RESTATED CERTIFICATE OF LIMITED PARTNERSHIP
OF
PIMCO ADVISORS L.P.
This Amended and Restated Certificate of Limited Partnership of PIMCO
Advisors L.P. (the "Partnership"), dated as of November 16, 1994, has been duly
executed and is being filed by the undersigned in accordance with the provisions
of 6 Del. C. Section 17-210, to amend and restate the original Certificate of
-------
Limited Partnership of the Partnership, which was filed on September 3, 1987
with the Secretary of State of the State of Delaware, as heretofore amended
(the "Certificate"), to form a limited partnership under the Delaware Revised
Uniform Limited Partnership Act (6 Del C. Section 17-101, et seq.).
------
The Certificate is hereby amended to reflect the admission of PIMCO
Partners, G.P. as the new general partner of the Partnership and the withdrawal
of Thomson Advisory Group Inc. as the general partner of the Partnership and is
restated in its entirety to read as follows:
1. Name, The name of the limited partnership formed and continued
----
hereby is PIMCO Advisors L.P.
2. Registered Office. The address of the registered office of the
-----------------
Partnership in the State of Delaware is c/o The Corporation Trust Company,
Corporation Trust Center, 1209 Orange Street, Wilmington, New Castle County,
Delaware 19801.
3. Registered Agent. The name and address of the registered agent for
----------------
service of process on the Partnership in the State of Delaware is The
Corporation Trust Company, Corporation Trust Center, 1209 Orange Street,
Wilmington, New Castle County, Delaware 19801.
<PAGE>
4. General Partner. The name and business address of the general
---------------
partner of the Partnership is PIMCO Partners, G.P., 840 Newport Center Drive,
Suite 360, Newport Beach, California 92660.
5. Effective Date. This Amended and Restated Certificate of Limited
--------------
Partnership shall become effective at 4:00 p.m., Eastern Standard Time, on the
16th day of November, 1994,
IN WITNESS WHEREOF, each of the undersigned withdrawing general partner
and new general partner has caused this Amended and Restated Certificate of
Limited Partnership to be executed by its duly authorized officer as of the day
and year first aforesaid.
2
<PAGE>
THOMSON ADVISORY GROUP INC.,
a Delaware corporation,
as withdrawing General Partner
By: /s/ Robert A. Prindiville
--------------------------
NAME: Robert A. Prindiville
Title: President
PIMCO PARTNERS, G.P.,
a California general partnership
By: Pacific Investment Management
Company, a California corporation,
General Partner
By: /s/ Khanh T. Tran
---------------------------
Name: Khanh T. Tran
Title: Treasurer
By: PIMCO PARTNERS, LLC,
a California limited liability company
General Partner
By: /s/ William S. Thompson
---------------------------
Name: William S. Thompson
Title: Member
3
<PAGE>
EXHIBIT 10.5
1994 PACIFIC INVESTMENT MANAGEMENT COMPANY
NON-QUALIFIED PROFIT SHARING PLAN
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
-----------------
Page
----
<S> <C>
ARTICLE I - INTRODUCTION........................................ 1
1.01 Name and Purpose........................................... 1
1.02 Eligibility................................................ 1
1.03 Effective Date and Term.................................... 1
ARTICLE II - DEFINITIONS........................................ 1
Affiliate....................................................... 1
Capital Transaction Gain or Loss................................ 2
Compensation.................................................... 2
Effective Date.................................................. 2
For Cause....................................................... 3
Investment Management Services.................................. 3
Majority Board Vote............................................. 3
Management Board................................................ 3
Managing Director............................................... 3
Managing Partner................................................ 3
Operating Profit Available for Distribution..................... 4
Participant..................................................... 4
Participating Employee.......................................... 5
Participation Percentage........................................ 5
Partnership..................................................... 5
Partnership Agreement........................................... 5
Permanent Incapacity............................................ 5
PIMCO Advisors L.P.............................................. 5
Plan............................................................ 5
Profit Participation Pool....................................... 5
Profit Sharing Bonus............................................ 5
Prohibited Competition Activity................................. 5
Prohibited Investment Management Services....................... 6
Super-Majority Board Vote....................................... 6
Supervisory Partner............................................. 6
Termination..................................................... 6
Termination Year................................................ 6
ARTICLE III - PROFIT SHARING BONUS.............................. 7
3.01 Profit Participation Pool.................................. 7
3.02 Profit Sharing Bonuses..................................... 8
3.03 Payment of Profit Sharing Bonuses.......................... 9
ARTICLE IV - TERMINATION OF EMPLOYMENT.......................... 11
4.01 Terminations Other Than For Cause.......................... 11
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
4.02 Terminations For Cause..................................... 12
ARTICLE V - MISCELLANEOUS PROVISIONS............................ 12
5.01 Designation of Beneficiary................................. 12
5.02 Payments to Incapacitated Participant...................... 13
5.03 Prohibition Against Assignment............................. 14
5.04 Amendment of the Plan...................................... 14
5.05 Right to Terminate Participant's Employment................ 14
5.06 Effect of Plan Termination................................. 14
5.07 Notices.................................................... 15
5.08 Governing Law and Interpretation........................... 16
5.09 Partial Years.............................................. 16
5.10 Invalid Provisions......................................... 16
5.11 Counterparts............................................... 16
</TABLE>
ii
<PAGE>
1994 PACIFIC INVESTMENT MANAGEMENT COMPANY
NON-QUALIFIED PROFIT SHARING PLAN
ARTICLE I
INTRODUCTION
------------
1.01 Name and Purpose. This Plan is hereby established by Pacific
----------------
Investment Management Company, a Delaware general partnership (the
"Partnership"), and shall be known as the 1994 Pacific Investment Management
Company Non-Qualified Profit Sharing Plan (the "Plan"). The purpose of this Plan
is to promote the growth and general prosperity of the Partnership by permitting
the Partnership to attract and retain the best available personnel for positions
of substantial responsibility and to provide certain key personnel with an
additional incentive to contribute to the success of the Partnership. This Plan
will achieve these objectives by enabling such key personnel to share in the
profits of the Partnership on the terms and conditions set forth herein.
1.02 Eligibility. All Managing Directors of the Partnership shall be
-----------
eligible to participate in the Plan. In addition, as provided in Section 3.02(b)
the Management Board by Majority Board Vote may select one or more other
employees of the Partnership to participate in the Plan as Participating
Employees. Notwithstanding the foregoing, any Managing Director or Participating
Employee who incurs a Termination during any calendar year shall be allowed to
participate in, and receive benefits under, this Plan only as specifically
provided in Article IV.
1.03 Effective Date and Term. This Plan is hereby adopted by the
-----------------------
Partnership effective as of November 16, 1994 (the "Effective Date") and shall
continue in effect until terminated by the Partnership.
ARTICLE II
DEFINITIONS
-----------
The following definitions shall be applicable to the terms set forth
below as used in this Plan:
"Affiliate" shall mean, with respect to any person or entity (herein the
---------
"first party"), any other person or entity that directly or indirectly controls,
or is controlled by, or is under common control with, such first party. The term
"control" as used herein (including the terms "controlled by" and "under common
control with") means the possession, directly or indirectly, of the power to (a)
vote 50% or more of the outstanding voting securities of such person or entity
or (b) otherwise direct the management policies of such person or entity by
contract or otherwise.
"Capital Transaction Gain or Loss" shall mean the net taxable gain or
--------------------------------
loss derived by the Partnership by reason of any extraordinary transaction, such
as a sale or other disposition of all or any portion of the assets of the
Partnership, which is not within the ordinary course of the Partnership's
business activities.
<PAGE>
"Compensation" shall mean with respect to each officer or employee of
------------
the Partnership and/or of the Managing Partner, the full salary and wages paid
to such officer or employee by the Partnership and/or by the Managing Partner,
as the case may be, with respect to a Covered Calendar Year (as defined in
Section 3.01), whether paid in cash or other property, including, without
limitation, any commissions, bonuses, severance pay, perquisite allowances
(including, without limitation, automobile allowances or reimbursement of
automobile expenses) under any perquisite plan of the Partnership and/or of the
Managing Partner, and/or any amounts paid by the Partnership and/or by the
Managing Partner for fringe benefits, such as health and welfare,
hospitalization and group life insurance benefits or paid in lieu of such
benefits, such as cash-out of credits generated under a plan qualified under
Section 125 of the Internal Revenue Code of 1986, as amended. Notwithstanding
the foregoing, Compensation shall not include (a) any amounts payable to an
officer or employee of the Partnership and/or the of Managing Partner as a
Profit Sharing Bonus pursuant to Article III, (b) any reasonable relocation
allowance or reimbursement of relocation expenses or (c) any amount paid or
deemed paid as a result of the grant, amendment, vesting or exercise of any
option or other right to purchase or receive units or other equity interests in
the Partnership or the Supervisory Partner. The Compensation of each officer or
employee of the Partnership and/or of the Managing Partner shall be determined
on an accrual basis with respect to each Covered Calendar Year, such that
Compensation earned with respect to services performed during a Covered
Calendar Year but paid subsequent to such Covered Calendar Year shall be
included in the Compensation of such officer or employee for the Covered
Calendar Year during which such services were performed rather than for the
year in which such amount is paid.
"Effective Date" shall mean the Effective Date of this Plan as
--------------
determined pursuant to Section 1.03.
"For Cause" shall mean any of the following which shall result in the
---------
termination of a Participant's employment:
(a) The Participant has engaged in actions which both constitute
a Termination Offense and are of a nature which if publicly known would
materially and adversely affect the Partnership's business. For such
purposes, the term "Termination Offense" shall mean any felony criminal
offense which involves a violation of federal or state securities laws or
regulations, embezzlement, fraud, wrongful taking or misappropriation of
property, theft, or any other crime involving dishonesty.
(b) The Participant has persistently and willfully neglected his
or her duties as an employee of the Partnership after the Partnership has
given the Participant written notice specifying such conduct by the
Participant and giving the Participant a reasonable period of time (not
less than 45 days) to conform his or her conduct to such duties.
(c) The Participant has engaged in Prohibited Competition
Activity.
"Investment Management Services" shall mean any services which
------------------------------
involve (a) the management, for a fee or other remuneration, of an investment
account or fund (or portions thereof or a group of investment accounts or
funds), or (b) the giving of advice, for a fee or other remuneration, with
respect to the investment of specific assets or funds (or any specific group of
assets or funds). Notwithstanding the foregoing, it is intended
2
<PAGE>
that Investment Management Services shall not include the giving of general
investment advice that is not related to an identifiable investment account or
fund (or group of investment accounts or funds) for which the advisor receives
no remuneration.
"Majority Board Vote" shall have the meaning ascribed to such term in
-------------------
the Partnership Agreement.
"Management Board" shall mean the management board of the Partnership
----------------
as it may from time to time be constituted under the Partnership Agreement.
Notwithstanding any provision of this Plan to the contrary, the Management
Board may delegate its duties hereunder in accordance with the Partnership
Agreement.
"Managing Director" shall mean a person who, at the time of reference,
-----------------
is actively employed by the Partnership in the capacity, and holds the title,
of Managing Director.
"Managing Partner" shall mean PIMCO Management Inc., a Delaware
----------------
corporation, or any additional or successor managing partner of the Partnership
as of the effective date that such party shall become the managing partner of
the Partnership.
"Operating Profit Available for Distribution" of the Partnership shall
-------------------------------------------
mean, for any period, the net income of the Partnership as determined for
financial accounting purposes under generally accepted accounting principles;
provided, that the Operating Profit Available for Distribution for any period
as so determined shall be adjusted in accordance with the following special
rules and/or clarifications:
(a) Operating Profit Available for Distribution shall not
reflect any deductions for Profit Sharing Bonuses under this Plan.
(b) Operating Profit Available for Distribution shall be
increased by the amount (if any) by which the Profit Participation Pool is
reduced pursuant to Section 3.01(b) hereof.
(c) Operating Profit Available for Distribution shall be
determined without regard to any Capital Transaction Gain or Loss.
(d) Operating Profit Available for Distribution shall be
determined without regard to accrued revenues from performance fees unless
such fees are not subject to forfeiture.
(e) To the extent not otherwise deducted from Operating Profit
Available for Distribution, an amount equal to the sum of (i) the Value of
all services performed for or on behalf of the Partnership by or at the
direction of the Supervisory Partner, which services were reasonably
required for the operation of the Partnership or its business or the
operation of any Partnership Subsidiary or its business (as opposed to
services performed generally for or on behalf of the Supervisory Partner
itself and/or all partnerships of which the Supervisory Partner is a
general partner and which do not specifically relate to the operational
requirements of the Partnership or its business or of any Partnership
Subsidiary or its business), and (ii) the Value of all services which the
Partnership requested that the Supervisory Partner perform shall be
deducted from Operating Profit Available for Distribution. For purposes of
this subsection (e), the "Value" of the foregoing services shall be
3
<PAGE>
determined pursuant to transfer pricing consistent with an arms-length
transaction with an independent contractor. Except as provided in this
subsection (e), Operating Profit Available for Distribution shall be
determined without regard to any charges for allocable overhead of any
partner of the Partnership.
(f) Operating Profit Available for Distribution shall be
determined without regard to any income or deductions attributable to
the grant, amendment, vesting or exercise of any option or other right
to purchase or receive units or other equity interests in the
Partnership or the Supervisory Partner.
(g) Operating Profit Available for Distribution shall be
determined without regard to any amortization of goodwill and other
intangible assets.
"Participant" shall mean any Managing Director or Participating Employee
-----------
who, at the time of reference, holds the status of Managing Director or
Participating Employee and is eligible to participate in the Plan pursuant to
Section 1.02; provided, however, that any Participant who incurs a Termination
shall cease to be a Participant as of the first day after the effective date of
such Termination.
"Participating Employee" shall mean any officer or employee of the
----------------------
Partnership, other than a Managing Director, who is selected to participate in
the Plan pursuant to Section 3.02(b) and who at the time of reference is
actively employed by the Partnership.
"Participation Percentage" shall mean, with respect to each
------------------------
Participant, the percentage sharing interest in the Profit Participation Pool as
established and allocated to such Participant in accordance with the provisions
of Section 3.02(b).
"Partnership" shall mean Pacific Investment Management Company, a
-----------
Delaware general partnership.
"Partnership Agreement" shall mean that certain Amended and Restated
---------------------
General Partnership Agreement of Pacific Investment Management Company
effective as of November 15, 1994, as the same may be amended, supplemented, or
restated from time to time.
"Permanent Incapacity" shall mean the inability of a Participant, by
--------------------
reason of injury, illness or other similar cause, to perform for a period of
180 days, a major part of his or her duties and responsibilities in connection
with the conduct of the business and affairs of the Partnership and its
Affiliates.
"PIMCO Advisors L.P." shall mean PIMCO Advisors L.P., a Delaware
-------------------
limited partnership.
"Plan" shall mean this 1994 Pacific Investment Management Company
----
Non-Qualified Profit Sharing Plan made effective as of the Effective Date hereof
and as it may be amended from time to time.
"Profit Participation Pool" shall mean, with respect to each Covered
-------------------------
Calendar Year (as defined in Section 3.01), the Profit Participation Pool to
which allocations are made in accordance with the provisions of Section 3.01.
4
<PAGE>
"Profit Sharing Bonus" shall mean a profit sharing bonus to be
--------------------
determined and paid to a Participant pursuant to the provisions of Article III
of this Plan.
"Prohibited Competition Activity" shall mean any of the following
-------------------------------
activities:
(a) Directly or indirectly, for or on behalf of any person,
firm, corporation or other entity other than the Partnership or any
Partnership Subsidiary (as such term is defined in the Partnership
Agreement), (i) diverting or taking away any Partnership Managed Funds (as
such term is defined in the Partnership Agreement), or (ii) soliciting any
person or entity for the purpose of diverting or taking away any such
Partnership Managed Funds.
(b) Directly or indirectly, for or on behalf of any person,
firm, corporation or other entity other than the Partnership or any
Partnership Subsidiary, performing any Prohibited Investment Management
Services.
For purposes of this definition of Prohibited Competition Activity, the
Participant shall be deemed to be indirectly engaged in any activity described
in clause (a) or (b) above if such activity is carried out or effected by or
through another party that is acting at the direction of, or in conjunction
with, the Participant.
"Prohibited Investment Management Services" shall mean any Investment
-----------------------------------------
Management Services which compete with the Investment Management Services
provided by the Partnership, PIMCO Advisors L.P. or any Affiliates thereof.
"Super-Majority Board Vote" shall have the meaning ascribed to such term
-------------------------
in the Partnership Agreement.
"Supervisory Partner" shall mean PIMCO Advisors L.P., or any additional
-------------------
or successor supervisory partner of the Partnership as of the effective date
that such party shall become a supervisory partner of the Partnership.
"Termination" shall mean, with respect to any Participant, the
-----------
termination of such Participant's employment with the Partnership for any reason
whatsoever.
"Termination Year" shall mean, with respect to any Participant, the
----------------
calendar year in which such Participant's Termination becomes effective.
In addition to the foregoing, other capitalized terms used in the Plan
shall have the meaning assigned thereto in the text of this Plan.
ARTICLE III
PROFIT SHARING BONUS
--------------------
3.01 Profit Participation Pools. With respect to each calendar year (or
--------------------------
portion thereof) as to which this Plan is in effect (a "Covered Calendar Year"),
a portion of the Operating Profit Available for Distribution of the Partnership
for such Covered Calendar Year (the "Annual Net Profit") shall be allocated to
the Profit Participation Pool in accordance with the following rules:
5
<PAGE>
(a) Of the amount of Annual Net Profit exceeding zero, 45% shall be
allocated to the Profit Participation Pool.
(b) In the event that in any Covered Calendar Year any one or more
officers or employees of the Partnership and/or of the Managing Partner has
Excess Compensation, the amount of Annual Net Profit allocated to the Profit
Participation Pool with respect to such year pursuant to the rules set forth in
subsection (a) above shall be reduced (but not below zero) by an amount equal to
the Aggregate Excess Compensation with respect to such year. For purposes of
this subsection (b), the terms set forth below shall have the following
meanings:
(i) "Excess Compensation" shall mean, with respect to each
officer or employee of the Partnership and/or of the Managing Partner, the
amount (if any) by which the Compensation of such officer or employee with
respect to a Covered Calendar Year exceeds the Basic Compensation Amount
applicable to such Covered Calendar Year.
(ii) "Aggregate Excess Compensation" shall mean, with respect to
any Covered Calendar Year, the aggregate of the Excess Compensation of all
employees of the Partnership and of the Managing Partner.
(iii) "Basic Compensation Amount" shall mean $400,000; provided,
however, that the Basic Compensation Amount shall be adjusted with respect
to each Covered Calendar Year beginning after 1994 to reflect the increase,
if any, in the cost of living by adding to the Basic Compensation Amount
initially specified hereinabove an amount obtained by multiplying such
Basic Compensation Amount by the Inflation Factor applicable to the Covered
Calendar Year for which the adjustment is to be calculated.
(iv) "Inflation Factor" shall mean, with respect to any Covered
Calendar Year after 1994, the percentage by which the level of the Consumer
Price Index for All Urban Consumers, as reported by the Bureau of Labor
Statistics of the United States Department of Labor for the month of
November of the year immediately prior to the Covered Calendar Year for
which the adjustment is to be calculated, has increased over its level for
the month of November 1993. If the above described Consumer Price Index
shall no longer be published, another index generally recognized as
authoritative and furnishing the most closely similar price information
available shall be substituted.
3.02 Profit Sharing Bonuses. Subject to the provisions of Article IV
----------------------
hereof, each Participant shall be entitled to receive, with respect to each
Covered Calendar Year, a bonus (a "Profit Sharing Bonus") based on the total
amount of Annual Net Profit allocated for such year to the Profit Participation
Pool pursuant to Section 3.01 hereof. Each Participant's Profit Sharing Bonus
under this Section 3.02 shall be calculated as provided in this Section 3.02 and
paid as provided in Section 3.03 hereof.
(a) For any Covered Calendar Year, the amount of a Participant's
Profit Sharing Bonus shall be calculated by: (i) determining the total
amount of Annual Net Profit allocated to the Profit Participation Pool for
such year pursuant to Section 3.01; (ii) allocating a ratable share of the
amount determined in clause (i)
6
<PAGE>
hereof to each month of the Covered Calendar Year; (iii) multiplying the
amount allocated to each month in the Covered Calendar Year by the
Participant's Participation Percentage in effect for such month; and (iv)
determining the sum of the monthly products calculated as provided in
clause (iii), with such sum being the Participant's Profit Sharing Bonus.
(b) As of the Effective Date, each Managing Director who is
employed by the Partnership (as set forth on Schedule I hereto) is
participating in the Plan. As of the Effective Date, no Participating
Employee is participating in the Plan. After the Effective Date, the
Compensation Committee (as such term is defined in the Partnership
Agreement) may from time to time, subject to the provisions of Section
7.4(b) and (c) of the Partnership Agreement, (i) designate one or more
employees of the Partnership (other than Managing Directors) as
Participating Employees, (ii) allocate a Participation Percentage to a new
Managing Director or Participating Employee or (iii) change the
Participation Percentages of any one or more Managing Directors or
Participating Employees. Any such designation of an officer or employee as
a Participating Employee, allocation of a Participation Percentage to a new
Managing Director or Participating Employee or change in the Participation
Percentage of a Managing Director or Participating Employee shall be
effective as of the first day of any calendar month; provided, however,
that no reduction in a Managing Director's or Participating Employee's
Participation Percentage which is authorized hereunder shall become
effective retroactively to a month prior to the month in which action
required hereunder to approve such reduction is taken by the Compensation
Committee. Notwithstanding anything to the contrary in this Plan, the
Compensation Committee may elect, at any time, to reduce the Participation
Percentages of all the Managing Directors and Participating Employees for
each month in the last calendar quarter of a calendar year to zero (0). If
the Compensation Committee makes such an election, then at any time during
any such calendar quarter, the Compensation Committee shall establish a
Participating Percentage for each Managing Director and Participating
Employee for each month during such calendar quarter and such Participation
Percentages shall be effective notwithstanding the fact that they apply
retroactively on a month or months prior to the month in which such action
is taken. The foregoing election shall be deemed to have been made for the
remainder of the calendar year 1994 and the Compensation Committee shall
establish a Participation Percentage for each Managing Director and
Participating Employee for each month in the remainder calendar year 1994.
Notwithstanding anything to the contrary in this Plan, the sum of all
Participation Percentages of all Managing Directors and Participating
Employees in effect for any month shall not exceed 100%.
3.03 Payment of Profit Sharing Bonuses. Any Profit Sharing Bonus payable
---------------------------------
to a Participant with respect to a Covered Calendar Year (the "Determination
Year") pursuant to Section 3.02 shall be paid in four installments as provided
below:
(a) The first installment (the "First Quarter Installment") of any
such Profit Sharing Bonus shall be equal to the amount calculated by (i)
determining the amount of the Partnership's Operating~Profit Available for
Distribution for the first three months of the Determination Year; (ii)
multiplying the amount of Operating Profit Available for Distribution
determined under clause (i) by 4.0 (with such product being referred to in
this Section 3.03(a) as the "First Quarter Annualized Net Profit"); (iii)
determining the amount of the First Quarter Annualized Net Profit that
would be allocated to the Profit Participation Pool for the
7
<PAGE>
Determination Year (A) assuming that the First Quarter Annualized Net
Profit were the Annual Net Profit for such Determination Year and (B)
taking into account any adjustments, deferrals and/or reallocations of
Annual Net Profit applicable to such Determination Year with respect to
the Profit Participation Pool (including, without limitation, a reasonable
estimate of any adjustments pursuant to Section 3.01(b)); (iv) dividing the
amount determined in clause (iii) by four; and (v) multiplying the quotient
determined under clause (iv) by the Participant's First Quarter Average
Participation Percentage (as defined below), with the resulting product
being the amount of the First Quarter Installment of such Profit Sharing
Bonus. Any First Quarter Installment of any Profit Sharing Bonus shall be
paid on June 30 of the applicable Determination Year. For purposes of this
Section 3.03(a), "First Quarter Average Participation Percentage" shall
mean, with respect to each Participant, the percentage determined by
dividing the sum of the Participation Percentages of such Participant for
each of the first three months of the Determination Year by three.
(b) The second installment (the "Second Quarter Installment") of
any such Profit Sharing Bonus shall be equal to the amount calculated by
(i) determining the amount of the Partnership's Operating Profit Available
for Distribution for the first six months of the Determination Year; (ii)
multiplying the amount of Operating Profit Available for Distribution
determined under clause (i) by 2.0 (with such product being referred to in
this Section 3.03(b) as the "Second Quarter Annualized Net Profit"); (iii)
determining the amount of the Second Quarter Annualized Net Profit that
would be allocated to the Profit Participation Pool for the Determination
Year (A) assuming that the Second Quarter Annualized Net Profit were the
Annual Net Profit for such Determination Year and (B) taking into account
any adjustments, deferrals and/or reallocations of Annual Net Profit
applicable to such Determination Year with respect to the Profit
Participation Pool (including, without limitation, a reasonable estimate of
any adjustments pursuant to Section 3.01(b)); (iv) dividing the amount
determined in clause (iii) by two; (v) multiplying the quotient determined
under clause (iv) by the Participant's Second Quarter Average Participation
Percentage (as defined below); and (vi) reducing the product determined
under clause (v) by the amount of any First Quarter Installment paid to
such Participant with respect to such Determination Year, with the
remaining amount being the amount of the Second Quarter Installment of such
Profit Sharing Bonus. Any Second Quarter Installment of any Profit Sharing
Bonus shall be paid on September 30 of the applicable Determination Year.
For purposes of this Section 3.03(b), "Second Quarter Average Participation
Percentage" shall mean, with respect to each Participant, the percentage
determined by dividing the sum of the Participation Percentages of such
Participant for each of the first six months of the Determination Year by
six.
(c) The third installment (the "Third Quarter Installment") of any
such Profit Sharing Bonus shall be equal to the amount calculated by (i)
determining the amount of the Partnership's Operating Profit Available for
Distribution for the first nine months of the Determination Year; (ii)
multiplying the amount of Operating Profit Available for Distribution
determined under clause (i) by 1.333 (with such product being referred to
in this Section 3.03(c) as the "Third Quarter Annualized Net Profit");
(iii) determining the amount of the Third Quarter Annualized Net Profit
that would be allocated to the Profit Participation Pool for the
Determination Year (A) assuming that the Third Quarter Annualized Net
Profit were the Annual Net Profit for such Determination Year and (B)
taking into account any adjustments, deferrals and/or reallocations of
Annual Net Profit applicable to such Determination
8
<PAGE>
Year with respect to the Profit Participation Pool (including, without
limitation, a reasonable estimate of any adjustments pursuant to Section
3.01(b)); (iv) dividing the amount determined in clause (iii) by 1.33; (v)
multiplying the quotient determined under clause (iv) by the Participant's
Third Quarter Average Participation Percentage (as defined below); and (vi)
reducing the product determined under clause (v) by the sum of the amounts
of the First Quarter Installment and Second Quarter Installment paid to
such Participant with respect to such Determination Year, with the
remaining amount being the amount of the Third Quarter Installment of such
Profit Sharing Bonus. Any Third Quarter Installment of any Profit Sharing
Bonus shall be paid on December 31 of the applicable Determination Year.
For purposes of this Section 3.03(c), "Third Quarter Average Participation
Percentage" shall mean, with respect to each Participant, the percentage
determined by dividing the sum of the Participation Percentages of such
Participant for each of the first nine months of the Determination Year by
nine.
(d) The fourth installment (the "Fourth Quarter Installment") of
any such Profit Sharing Bonus shall be equal to the excess of the Profit
Sharing Bonus payable to a Participant with respect to a Determination Year
over the sum of the amounts of the First, Second and Third Quarter
Installments. The Fourth Quarter Installment shall be paid on or before
March 15 of the year immediately following the applicable Determination
Year. Notwithstanding the foregoing, the Supervisory Partner, in its
discretion, may cause the Partnership to make a reasonable estimate of the
Fourth Quarter Installment (the "Estimated Fourth Quarter Installment") and
pay such amount on or before December 31 of the applicable Determination
Year. If the Partnership makes payment of an Estimated Fourth Quarter
Installment, then on or before March 15 of the year immediately following
the applicable Determination Year a "Settlement Payment" shall be made with
respect to each Fourth Quarter Installment, with the amount of such
Settlement Payment, if any, equal to the difference between the Fourth
Quarter Installment and the Estimated Fourth Quarter Installment. If the
Fourth Quarter Installment exceeds the Estimated Fourth Quarter
Installment, then the amount of the Settlement Payment shall be paid by the
Partnership to the Participant; if the Estimated Fourth Quarter Installment
exceeds the Fourth Quarter Installment, the Settlement Payment shall be
paid by the Participant to the Partnership.
(e) Subject to the provisions of Article IV hereof, each
installment of a Participant's Profit Sharing Bonus for any year, as
calculated in accordance with this Section 3.03, shall become fully vested
and nonforfeitable as of the date provided for the payment of such
installment in accordance with the foregoing provisions of this Section
3.03.
ARTICLE IV
TERMINATION OF EMPLOYMENT
-------------------------
4.01 Terminations Other Than For Cause. In the event of the termination
---------------------------------
of a Participant's employment with the Partnership other than For Cause, such
Participant (a "Terminated Participant") shall be subject to the following
provisions:
(a) For the Termination Year, such Terminated Participant shall
be entitled to receive a Profit Sharing Bonus, with the amount of such
bonus being the amount of the Profit Sharing Bonus to which such Terminated
Participant would
9
<PAGE>
otherwise have been entitled for such year under Article III hereof had
such Terminated Participant not incurred a Termination (determined,
however, by taking into account any reductions in the Terminated
Participant's Participation Percentage following or as a result of such
Termination). Such Terminated Participant shall not be entitled to any
Profit Sharing Bonuses with respect to any year following the Participant's
Termination Year.
(b) Any Profit Sharing Bonus payable to any Terminated
Participant for such Terminated Participant's Termination Year pursuant to
subsection (a) above shall be paid pursuant to Section 3.03 in the same
manner and at the same time as if said Terminated Participant had not
incurred a Termination.
4.02 Terminations For Cause. A Participant who incurs a Termination
----------------------
which is a Termination by the Partnership For Cause shall not be entitled to be
paid any portion of any Profit Sharing Bonus for the Termination Year that has
not been paid to the Participant prior to the date of the Participant's
Termination and shall not be entitled to any Profit Sharing Bonuses with respect
to any year following the Participant's Termination Year.
ARTICLE V
MISCELLANEOUS PROVISIONS
------------------------
5.01 Designation of Beneficiary. Each Participant shall have the
--------------------------
right to designate a beneficiary or beneficiaries to receive, in the event of
the Participant's death, any unpaid Profit Sharing Bonuses to which such
Participant is entitled under the terms of this Plan; provided, however, a
beneficiary shall be entitled to receive payment of any such Profit Sharing
Bonuses only if and to the extent that such bonuses would have been paid,
pursuant to the terms of this Plan, to the deceased Participant had he lived to
the applicable payment date(s). Such designation is to be made in writing and
delivered to the Partnership. A Participant shall have the right to change or
revoke any such designation by filing a new written designation or written
notice of revocation with the Partnership in accordance with the notice
procedures of Section 5.07, and no notice to any beneficiary nor consent by any
beneficiary shall be required to effect any such change or revocation. If a
deceased Participant shall have failed to designate a beneficiary, or if the
Partnership shall be unable to locate a designated beneficiary after reasonable
efforts have been made, or if for any reason such designation shall be legally
ineffective, or if such beneficiary shall have predeceased the Participant, any
payment required to be made under the provisions of this Plan shall be made to
the person or persons included in the highest priority category among the
following, in order of priority:
(a) The Participant's surviving spouse;
(b) The Participant's surviving children, including adopted
children, in equal shares;
(c) The Participant's surviving parents in equal shares; or
(d) The Participant's estate, provided, however, that if the
Partnership cannot locate a qualified representative of the deceased
Participant's estate, or if administration of such estate is not otherwise
required, the Partnership in its discretion may make the distribution under
this subsection (d) to the deceased
10
<PAGE>
Participant's heirs at law, other than those specified in subsections (a)-
(c), determined in accordance with the law of the Participant's state of
residence in effect as of the date of the Participant's death.
The determination by the Partnership as to which persons, if any,
qualify within the foregoing categories shall be final and conclusive upon all
persons.
5.02 Payments to Incapacitated Participant. In the event a
-------------------------------------
Participant (or designated beneficiary) is under mental or physical incapacity
at the time of any payment made pursuant to this Plan, or in the event a
designated beneficiary is a minor at such time, such payment may be made to the
guardian or other legally appointed personal representative having authority
over and responsibility for the person or estate of such Participant (or
beneficiary), as the case may be, and for purposes of such payment references in
this Plan to the Participant shall mean and refer to said guardian or other
personal representative. In the absence of any legally appointed personal
representative of the person or estate of the Participant (or beneficiary), such
payment may be made to any person or institution who has apparent responsibility
for the person and/or estate of the Participant (or beneficiary) as determined
by the Partnership. Any payment made in accordance with the provisions of this
Section 5.02 to a person or institution other than the Participant (or
beneficiary) shall be deemed for all purposes of this Plan as the equivalent of
a payment to such Participant (or beneficiary) and the Partnership shall have no
further obligation or responsibility with respect to such payment.
5.03 Prohibition Against Assignment. Except as otherwise expressly
------------------------------
provided for herein, the rights, interests and benefits under this Plan may not
be assigned, transferred, pledged or hypothecated in any way by any Participant
or any beneficiary, executor, administrator, heir, distributee or other person
claiming under such Participant and shall not be subject to execution,
attachment or similar process. Any attempted assignment, transfer, pledge or
hypothecation or other disposition of such rights, interests or benefits
contrary to the foregoing provisions or the levy of any attachment or similar
process thereupon shall be null and void and without effect. The Partnership
shall have and possess all title to and beneficial interest in any and all funds
or reserves maintained or held by the Partnership on account of its obligation
to pay the profit sharing bonuses and other payments as required under this
Plan, whether or not earmarked by the Partnership as a fund or reserve for such
purpose; any such funds or reserve shall be subject to the claims of the
creditors of the Partnership, and the provisions of this Plan are not intended
to create, and shall not be interpreted as creating, any right to or beneficial
interest in any such funds or reserve on the part of any Participant.
5.04 Amendment of the Plan. The Partnership may amend this Plan from
---------------------
time to time in such respects as the Partnership may deem advisable; provided,
however, that in the case of any Participant who, as of the date of any
amendment of the Plan, is entitled to the payment of one or more Profit Sharing
Bonus(es), such amendment may not without the written consent of such
Participant, reduce or defer the payment of such Profit Sharing Bonus(es); and
further provided that any amendment, supplement or restatement of this Plan will
be effective only if approved by a Super-Majority Board Vote.
5.05 Right to Terminate Participant's Employment. Neither the
-------------------------------------------
Partnership's establishment of this Plan nor the provisions contained in this
Plan shall be deemed to give any Participant any right to continued employment
with the Partnership; the Partnership expressly retains and reserves its right
to terminate the employment of any Participant at any time (subject only to the
terms of any applicable employment agreement
11
<PAGE>
and/or the Partnership Agreement). In the event of any such termination, the
terminated Participant's rights under this Plan shall be only those as are
expressly provided herein.
5.06 Effect of Plan Termination. The Partnership may terminate the
---------------------------
Plan at any time; provided, however, that any such termination shall be
effective only if approved by a Super-Majority Board Vote. In the event the Plan
is terminated, each Participant who has not yet incurred a Termination shall be
entitled to receive a Profit Sharing Bonus calculated in the manner described in
Article III hereof based on the months up to and including the month in which
such Plan termination occurs; provided, however, no benefits under the Plan
shall accrue after the month in which the Plan termination date occurs. All
Profit Sharing Bonuses which have accrued up to and including the month in which
the Plan terminates shall, subject to Article IV, continue to be paid in
accordance with the applicable provisions of Article III, provided, however, in
the case of a Profit Sharing Bonus (or installment thereof) which is payable
under Article III on or before March 15 of the succeeding year, such a bonus
shall instead be payable on or before the date which is 2-1/2 months following
the last day of the calendar quarter in which the Plan is terminated.
5.07 Notices. All notices, requests, or other communications
-------
(hereinafter collectively referred to as "Notices") required or permitted to be
given hereunder or which are given with respect to this Plan shall be in writing
(including telecopy) and, unless otherwise expressly provided herein, shall be
delivered (a) by hand during normal business hours, (b) by Federal Express,
United Parcel Service or other reputable overnight commercial delivery service
(collectively "overnight courier"), (c) by registered or certified mail (return
receipt requested) or (d) by telecopy, addressed as follows:
To the Partnership at: Pacific Investment Management
Company
840 Newport Center Drive, Suite 360
Newport Beach, California 92660
Attn: Chief Executive Officer
To the Participant at: The Participant's most recent
address appearing at such time
in the Partnership's employee
records.
Any such notice shall be effective for purposes of determining
compliance with the time requirements herein (unless otherwise specifically
provided herein) (a) at the time of personal delivery, if delivered by hand, (b)
at the time accepted for overnight delivery by the overnight courier, if
delivered by overnight courier, (c) at the time of deposit in the United States
mail, postage fully prepaid, if delivered by registered or certified mail, or
(d) at the time of confirmation of receipt, if delivered by telecopy.
Any Participant changing his or her address for purposes of notices
hereunder shall give written notice of such change to the Partnership in
accordance with this Section 5.07.
If the Partnership shall at any time change its address for purposes
of notices hereunder, it shall give written notice thereof to all Participants
under the Plan at such time, with such notice to be given in accordance with
this Section 5.07.
12
<PAGE>
5.08 Governing Law and Interpretation. This Plan and the rights of
--------------------------------
the parties hereunder shall be interpreted in accordance with the laws of the
State of California, and all rights and remedies shall be governed by such laws
without regard to principles of conflict of laws. Article and Section headings
are for convenient reference only and shall not be deemed to be part of the
substance of this instrument or in any way to enlarge or limit the contents of
any article or section.
5.09 Partial Years. Notwithstanding any other provision set forth
--------------
herein, in the event of any partial year under this Plan (including calendar
year 1994), appropriate adjustments shall be made, including, without
limitation, adjustments to the amount of Annual Net Profit allocated to the
Profit Participation Pool (and the adjustment thereto) pursuant to Section 3.01,
adjustments to the amount of each Participant's Profit Sharing Bonus determined
under Section 3.02, and adjustments to any installment paid under Section 3.03.
5.10 Invalid Provisions. In the event that any provision of this
------------------
Plan is found to be invalid or otherwise unenforceable by a court or other
tribunal of competent jurisdiction, such invalidity or unenforceability shall
not be construed as rendering any other provision contained herein invalid or
unenforceable, and all such other provisions shall be given full force and
effect to the same extent as though the invalid and unenforceable provision was
not contained herein.
5.11 Counterparts. This Plan may be executed in any number of
-------------
identical counterparts, each of which shall be deemed a complete original in
itself and may be introduced in evidence or used for any other purpose without
the production of any other counterparts.
13
<PAGE>
IN WITNESS WHEREOF, the Partnership has caused this Plan to be
executed effective as provided in Section 1.03 hereinabove.
PACIFIC INVESTMENT MANAGEMENT COMPANY,
a Delaware general partnership
SUPERVTSORY PARTNER:
-------------------
PIMCO ADVISORS L.P.,
a Delaware limited partnership
By: THOMSON ADVISORY GROUP INC.,
a Delaware corporation,
General Partner
By: /s/ Robert A. Prindiville
-----------------------------
Its: President
----------------------------
MANAGING PARTNER:
-----------------
PIMCO MANAGEMENT INC.,
a Delaware Corporation
By: /s/ Robert A. Prindiville
-----------------------------
Its: President
----------------------------
<PAGE>
SCHEDULE I
INITIAL PARTICIPATION PERCENTAGES
Managing Director Participation Percentage
------------------------------------- -----------------------------------
William H. Gross ____ %
Dean S. Meiling ____ %
James F. Muzzy ____ %
William F. Podlich, III ____ %
Frank B. Rabinovitch ____ %
Brent R. Harris ____ %
John L. Hague ____ %
William S. Thompson ____ %
William C. Powers ____ %
David H. Edington ____ %
<PAGE>
EXHIBIT 10.18(D)
CONSOLIDATION TRANSACTION AMENDMENT
TO THE
THOMSON ADVISORY GROUP
401(k) SAVINGS AND INVESTMENT PLAN
================================================================================
WHEREAS, Thomson Advisory Group L.P. (the "Partnership") has changed its
name to PIMCO Advisors L.P. and has consolidated its business with certain
investment advisory businesses of Pacific Financial Asset Management
Corporation; and
WHEREAS, it is expected that there may be a reduction in staff as a
result of such consolidation;
Now, Therefore, Be It Resolved that the Thomson Advisory Group 401(k)
Savings and Investment Plan (the "Plan") be amended to provide that the interest
in such Plan of any employee of the Partnership's administrative and mutual fund
division at November 16, 1994 whose employment terminated within twelve months
of November 16, 1994 by reason of an Involuntary Termination (as defined in
Exhibit A hereto), death or disability, shall be fully vested for all purposes
of such Plan.
NBS/lk
Attach
2/6/95
<PAGE>
EXHIBIT A
For purposes hereof, "Involuntary Termination" shall mean the
termination of the relevant employee's employment by his or her employer or a
Constructive Termination, as defined below (but excluding a termination of the
relevant employee's employment For Cause, as defined below).
For purposes hereof, "Constructive Termination" shall mean the
voluntary termination by the relevant employee of his or her employment within
three months after (i) his or her employer (A) reduces the relevant employee's
base salary below the level in effect at July 11, 1994, or (B) reduces the
relevant employee's aggregate compensation level (i.e., base salary and bonuses)
more than 20% below the annualized aggregate compensation of the relevant
employee for the first six-months of calendar year 1994 (the "1994 Annualized
Compensation"), unless the Constructive Termination Committee of the Partnership
determines in good faith that a reduction in the relevant employee's aggregate
compensation to a level more than 20% below the relevant employee's 1994
Annualized Compensation is warranted by reason of a decline in business or other
relevant business factors, (ii) there is a material diminution or adverse
modification in the relevant employee's title, employment status, overall
position or general working environment (including, without limitation,
secretarial and staff support) or the imposition of substantial new job
requirements on the relevant employee, or (iii) the relevant employee's
principal job location is transferred to a site more than 50 miles from the
relevant employee's principal job location on July 11, 1994, unless the relevant
employee waives such Constructive Termination event in writing, and thereafter
continues to perform duties under circumstances not otherwise constituting a
Constructive Termination event. The determination of whether a Constructive
Termination has occurred shall be made in good faith consistent with the
foregoing by the Constructive Termination Committee of the Partnership. Any such
determination by the Constructive Termination Committee shall be final and
binding on all interested persons and their successors and assigns.
For purposes hereof, "For Cause" shall mean the termination of the
relevant employee's employment by reason of any of the following:
(i) The relevant employee having engaged in actions which
both constitute a Termination Offense and are of a nature which
if publicly known would materially and adversely affect the
business of his or her employer. For such purposes, the term
"Termination Offense" shall mean any felony criminal offense
which involves a violation of federal or state securities laws
or regulations, embezzlement, fraud, wrongful taking or
misappropriation of property, theft, or any other crime
involving dishonesty.
(ii) The relevant employee having persistently and willfully
neglected his duties as an employee after his or her employer
has given the relevant employee written notice specifying such
conduct by the relevant employee and giving the relevant
employee a reasonable period of time (not less than 30 days) to
conform his conduct to such duties.
<PAGE>
(iii) The relevant employee having engaged in Prohibited Competition
Activity, as defined below.
For purposes hereof, "Prohibited Competition Activity" shall mean any
of the following activities:
(i) Directly or indirectly, for or on behalf of any person, firm,
corporation or other entity other than the Partnership or any
Partnership Subsidiary, as defined below, (A) diverting or
taking away any Partnership Managed Funds, as defined below, or
(B) soliciting any person or entity for the purpose of
diverting or taking away any such Partnership Managed Funds.
(ii) Directly or indirectly, for or on behalf of any person, firm,
corporation or other entity other than the Partnership or any
Partnership Subsidiary, performing any Prohibited Investment
Management Services, as defined below.
For purposes of this definition of Prohibited Competition Activity,
the relevant employee shall be deemed to be indirectly engaged in any activity
described in clause (i) or (ii) above if such activity is carried out or
effected by or through another party that is acting at the direction of, or in
conjunction with, the relevant employee.
For purposes hereof, "Partnership Subsidiary" shall mean any
corporation, partnership, joint venture or other business organization in which
the Partnership owns stock, partnership interests or other equity securities and
which is controlled by the Partnership or through which the Partnership conducts
any or all of its activities. For such purposes "control" means the possession,
direct or indirect, of the power to (i) vote 50% or more of the outstanding
voting securities of such person or entity, or (ii) otherwise direct the
management policies of such person or entity, by contract or otherwise.
For purposes hereof, "Partnership Managed Funds" shall mean, as of any
date of reference, those funds or investments with respect to which the
Partnership is performing any Investment Management Services.
For purposes hereof, "Prohibited Investment Management Services"
shall mean any Investment Management Services which compete with the Investment
Management Services provided by the Partnership.
For purposes hereof, "Investment Management Services" shall mean any
services which involve (i) the management, for a fee or other remuneration, of
an investment account or fund (or portions thereof or a group of investment
accounts or funds), or (ii) the giving of advice, for a fee or other
remuneration, with respect to the investment of specific assets or funds (or
any specific group of assets or funds). Notwithstanding the foregoing, it is
intended that Investment Management Services shall not include the giving of
general investment advice that is not related to an identifiable investment
account or fund (or group of investment accounts or funds) for which the
advisor receives no remuneration.
2
<PAGE>
EXHIBIT 10.18(E)
THIRD AMENDMENT TO
THE THOMSON ADVISORY GROUP 401(k)
SAVINGS AND INVESTMENT PLAN
WHEREAS, Thomson Advisory Group L.P. (TAG) sponsors the Thomson Advisory
Group 401(k) Savings and Investment Plan (the Plan); and
WHEREAS, TAG will change its name to PIMCO Advisors L.P. on November 15,
1994 (the Closing Date); and
WHEREAS, the Board is desirous of amending the Plan to reflect impending
changes in the Plan; and
WHEREAS, certain equity subsidiaries and subpartnerships of PIMCO
Advisors L.P. will also adopt the Plan for the benefit of their employees; and
WHEREAS, it is intended that the Plan participants who are employees of
adopting employers on or after the closing date will receive credit for
eligibility and vesting service with respect to certain employment with their
predecessor employers; and
WHEREAS, it is intended that the investment funds offered to
participants will be changed; and
WHEREAS, it is intended that other changes will be made to the Plan as
set forth in this amendment;
NOW, THEREFORE, BE IT RESOLVED by the Board that the Plan be and it
hereby is amended effective as of November 15, 1994, except as otherwise
indicated, in the following respects, to wit:
-1-
<PAGE>
1. The name of the Plan shall be changed to PIMCO Advisors 401(k) Savings and
Investment Plan wherever it appears.
2. Section 1.06 of Article 1 of the Plan shall be amended by deletion of the
phrase "The Board of Directors of Thomson Advisory Group Inc. and the
substitution of the phrase "The Equity Board of PIMCO Advisors L.P." in its
place therein.
3. Section 1.07 of Article 1 of the Plan shall be amended by replacing the word
"Company" where it appears in that Section with "The Unit Incentive
Committee of PIMCO Advisors L.P.".
4. Section 1.08(b) of Article 1 of the Plan shall be amended in its entirety so
that it reads as follows:
"(b) Columbus Circle Investors, Parametric Portfolio Associates, NFJ
Investment Group, Cadence Capital Management, Blairlogie Capital
Management (US office), PIMCO Advisors Distribution Company (formerly
named Thomson Investor Services Inc.; and any other business entity
which duly adopts the Plan with the approval of the Board of
Directors."
5. The second sentence of Section 1.26(a) of Article 1 of the Plan shall be
amended in its entirety so that it reads as follows:
"For purposes of eligibility and vesting, employees of Thomson
Advisory Group L.P., Thomson Investor Services Inc., Pacific Financial
Asset Management Corporation, Pacific Mutual Life Insurance Company or
Pacific Investment Management Company or any of their subsidiaries
(hereinafter referred to as Predecessor Employers) on November 15,
1994 who are or become Eligible
-2-
<PAGE>
Employees on or after November 15, 1994 shall receive Service for
eligibility with respect to this period of employment with a
Predecessor Employer for the period beginning on the later of the
date such Eligible Employee was employed by a Predecessor Employer or
January 1, 1989."
6. Article 1 of the Plan shall be amended by adding the following sections:
"1.31 Cadence Capital Management
--------------------------
A Delaware general partnership formed by Thomson Advisory Group L.P.
and one of its subsidiaries.
1.32 Columbus Circle Investors
-------------------------
A Delaware general partnership formed by Thomson Advisory Group L.P.
and one of its subsidiaries.
1.33 NFJ Investment Group
--------------------
A Delaware general partnership formed by Thomson Advisory Group L.P.
and one of its subsidiaries.
1.34 Parametric Portfolio Associates
-------------------------------
A Delaware general partnership formed by Thomson Advisory Group L.P.
and one of its subsidiaries.
1.35 Blairlogie Capital Management (US Office)
-----------------------------------------
The United States office of Blairlogie Capital Management a United
Kingdom limited partnership.
-3-
<PAGE>
1.36 Thomson Advisory Group L.P.
---------------------------
A Delaware limited partnership which is the sponsor of the Plan and
the name of which will be changed to PIMCO Advisors L.P.
1.37 Thomson Advisory Group Inc.
----------------------------
A Delaware corporation which was the general partner of Thomson
Advisory Group L.P. until the closing of the consolidation of the
business of Thomson Advisory Group L.P. and certain of the investment
advisory businesses of Pacific Financial Asset Management
Corporation.
1.38 Thomson Investor Services Inc.
------------------------------
A Delaware corporation and an affiliate of Thomson Advisory Group
L.P. and the name of which will be changed to PIMCO Advisors
Distribution Company.
1.39 Pacific Financial Asset Management Corporation
----------------------------------------------
A California corporation which is consolidating certain of its
businesses with Thomson Advisory Group L.P.
1.40 Pacific Mutual Life Insurance Company
-------------------------------------
A California insurance company which is the indirect parent of
Pacific Financial Asset Management Corporation.
1.41 Pacific Investment Management Company
-------------------------------------
A California corporation and an indirect subsidiary of Pacific Mutual
Life Insurance Company."
7. Section 2.01(a) of Article 2 of the Plan shall be restated in its
entirety to read as follows:
-4-
<PAGE>
"(a) Each Eligible Employee on November 15, 1994 who was a Participant of
the Plan on November 14, 1994 shall continue as a Participant."
8. Section 2.01(b) of Article 2 of the Plan shall be amended by the addition
of the phrase "November 15, 1994 or" before the word "January" where it
appears in that subsection.
9. Section 3.01 of Article 3 of the Plan shall be amended by deletion of
"1%" and the substitution of "2%" in its place therein.
10. Effective January 1, 1995 Section 3.03(a) of Article 3 of the Plan shall be
amended in its entirety to read as follows:
"(a) Matching Contributions - Effective January 1, 1995, the Matching
----------------------
Contribution will be 100% of the Participant's Elective Deferral
Contributions each payroll period which do not exceed 6% of the
Participant's Compensation for each payroll period. Only Elective
Deferral Contributions which are not required to be restricted under
Sections 3.02, 4.01 or 4.02 shall be matched. No Matching Contribution
will be provided in excess of the limitations under Subsections
4.02(b) and (c)."
11. Section 3.03(d) of Article 3 of the Plan shall be amended by deletion of
the phrase "$200,000 limit (as indexed) imposed by Code Section 401(a)(17)"
and the substitution of the phrase "$150,000 as adjusted in accordance with
Section 401(a)(17)(B) of the Code" in its place therein.
12. A new sentence shall be added at the end of Section 3.03(d) which shall
read as follows:
"For purposes of satisfying the 1,000 hour requirement for the Plan
Year ending December 31, 1994, hours of employment with Thomson
Advisory Group L.P.,
-5-
<PAGE>
Thomson Investor Services Inc., Pacific Financial Asset Management
Corporation, Pacific Mutual Life Insurance Company or Pacific
Investment Management Company or any of their subsidiaries earned for
the period beginning January 1, 1994 and ending November 15, 1994
shall be counted."
13. Section 5.02(a) of Article 5 of the Plan shall be amended by the deletion
of "10%" and the substitution of " 1% " in its place therein.
14. Section 5.02(c) of Article 5 of the Plan shall be amended by deletion of
"10%" and the substitution of " 1% " in its place therein.
15. Section 5.03 of the Plan is hereby amended in its entirety to read as
follows:
"5.03 Investment Funds
----------------
The Trust Fund shall be divided into such investment funds as
designated by the Committee from time to time and approved by the Trustee for
the investment of all Accounts, which shall be administered as a unit. Such
investment funds may include mutual funds for which the Company of any of its
affiliates acts as the investment advisor."
-6-
<PAGE>
EXHIBIT 10.18(F)
FOURTH AMENDMENT TO
THE PIMCO ADVISORS 401(k) SAVINGS AND INVESTMENT PLAN
-----------------------------------------------------
WHEREAS, PIMCO Advisors L.P. sponsors the PIMCO Advisors 401(k) Savings
and Investment Plan (the Plan); and
WHEREAS, Article 9 of the Plan provides the Board of Directors of PIMCO
Advisors L.P. with the authority to amend the Plan at any time; and
WHEREAS, the Board is desirous of amending the Plan to provide for the
participation of self employed individuals in the Plan;
NOW THEREFORE, the Plan is amended in the following respects, to wit:
1. Section 1.09 of the Plan shall be amended by the addition of the following
sentence at the end thereof:
"Compensation for any Self Employed Individual shall be equal to his
Earned Income."
2. Article I of the Plan shall be amended by the addition of a new Section 1.42
to read as follows:
"1.42 Earned Income means with respect to a Self Employed Individual the net
earnings from self employment in the trade or business with respect to which
the Plan is established, for which personal services are a material income
producing factor."
3. Article I of the Plan shall be further amended by the addition of a new
Section 1.43 to read as follows:
"1.43 Self Employed Individual means an individual (i) who has Earned Income
for the taxable year from the trade or business for which the Plan is
established or who would have had Earned Income but for the fact that the
trade or business had no net profits for
<PAGE>
the taxable year and (ii) who owns in the aggregate at least 50,000 units of
Class A and/or Class B limited partner interest in Pimco Advisors L.P. A
Self Employed Individual shall be treated as an Employee."
4. Section 4.02(e) shall be amended by the addition of a new paragraph (ix)
which shall read as follows:
"(ix) Matching Contributions made on behalf of Self Employed Individuals
shall be treated as Elective Deferral Contributions for all purposes under
the Plan."
<PAGE>
EXHIBIT 10.23
EMPLOYMENT AGREEMENT
between
PIMCO ADVISERS L.P.
and
John O. Leasure
<PAGE>
EMPLOYMENT AGREEMENT
--------------------
This Employment Agreement (the "Agreement") is entered into as of
________ __, 1994, and by between PIMCO ADVISERS L.P. (formerly Thomson Advisory
Group L.P., a Delaware limited partnership ("Employer"), and John O. Leasure
("Employee").
R E C I T A L S
---------------
WHEREAS, Thomson Advisory Group L.P., a Delaware limited partnership
("TAG LP"), Thomson Advisory Group Inc,. a Delaware corporation ("TAG Inc."),
stockholders of TAG Inc., PIMCO Partners, G.P., a California general partnership
("PIMCO GP"), Pacific Financial Asset Management Company, a California
corporation ("PFAMCO"), certain subsidiaries of PFAMCO and certain individuals
associated with the respective businesses of TAG LP, Pacific Investment
Management Company, a California corporation ("PIMCO Inc.") and PFAMCO are
parties to that certain Agreement and Plan of Consolidation for PIMCO Advisors
L.P. effective as of October 31, 1994 (the "Consolidation Agreement"), providing
for the consolidation of the investment management and advisory business of TAG
LP with the investment management and advisory business of PFAMCO and PIMCO Inc.
in the manner described therein (the "Consolidation").
WHEREAS, Employer has acquired its business in connection with and
pursuant to the Consolidation.
WHEREAS,Employer has proposed to appoint Employee its Senior Vice
President.
WHEREAS, Employer and Employee desire to assure that Employee will
perform services for Employer for a period of time from and after the
Consolidation, subject to the consummation thereof, with such employment to be
governed by the terms and provisions of this Agreement commencing as of the
effective date of this Agreement as specified in Section 9 hereof (the
---------
"Effective Date").
A G R E E M E N T
-----------------
NOW, THEREFORE, in consideration of the foregoing, the mutual covenants
and conditions contained herein, and other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties agree as
follows:
1. Definitions.
-----------
The following definitions shall be applicable to the terms set forth
below as used in this Agreement:
1
<PAGE>
"Affiliate" - means, with respect to any person or entity (herein the
---------
the "first party"), any other person or entity that directly or indirectly
controls, or is controlled by, or is under common control with, such first
party. The term "control" as used herein (including the terms "controlled by"
and "under common control with") means the possession, directly or indirectly,
of the power to (a) vote 50% or more of the outstanding voting securities of
such person or entity, or (b) otherwise direct the management policies of such
person or entity, by contract or otherwise.
"Constructive Termination" - shall have the meaning provided for it in
------------------------
Employer's Amended Unit Option Plan as effective on the date of the
Consolidation.
"Employer Managed Funds" - means as of any date of reference, those
----------------------
funds or investments with respect to which the Employer or any Affiliate is
performing any investment management services.
"Equity Board" - means the Equity Board of PIMCO Advisors L.P. as it may
------------
from time to time be constituted under the PIMCO Advisors Partnership Agreement.
"For Cause" - shall mean for (i) acts of fraud or dishonesty against the
---------
Employer or any of its Affiliates or affecting adversely any of their properties
or businesses; (ii) commission of any act which, in the reasonable opinion of
the Employer's outside legal counsel, will lead to the suspension or barring of
the Employee, by any regulatory body having jurisdiction over an area of
activity which constitutes a significant portion of the Employee's activities,
from the performance of his duties to the Employer or any of its Affiliates;
(iii) permanent suspension of the Employee, by any regulatory body having
jurisdiction over an area of activity which constitutes a significant portion of
the Employee's activities, from the performance of his duties to the Employer or
any of its Affiliates as a result of acts taken by Employee; and (iv) the
Employee's having been convicted of, or having engaged in any criminal activity
which, in the reasonable opinion of the Employer, adversely affects the
reputation of the Employer or any of its Affiliates or the Employee's ability to
perform the services required under this Agreement.
"Involuntary Termination" - means any termination of Employee's
-----------------------
employment which is not a Voluntary Termination or a termination of Employee's
employment by Employer For Cause, and includes any Constructive Termination
prior to January 1, 1999 and any termination as a result of a Notice of
Non-Extension given by the Employer pursuant to Section 8(c), but does not
include any Constructive Termination after December 31, 1998 or any termination
by death or incapacity pursuant to Section 5(a).
"Operating Board" - means the Operating Board of PIMCO Advisors L.P as
---------------
it may from time to time be constituted under the PIMCO Advisors Partnership
Agreement.
"Prohibited Competition Activity" - means any of the following
-------------------------------
activities:
(a) Directly or indirectly, for or on behalf of any person,
firm, corporation or other entity other than the Employer or any Employer
Affiliate, (i) diverting or taking
2
<PAGE>
away any Employer Managed Funds, or (ii) soliciting any person or entity for the
purpose of diverting or taking away any such Employer Managed Funds.
(b) Directly or indirectly, for or on behalf of any person,
firm, corporation or other entity other than the Employer or any Employer
Affiliate, performing any Prohibited Distribution Services.
For purposes of this definition of Prohibited
Competition Activity, the Employee shall be deemed to be indirectly engaged in
any activity described in clause (a) or (b) above if such activity is carried
out or effected by or through another party that is acting at the direction of,
or in conjunction with, the Employee.
"Prohibited Distribution Services" - means any services on behalf of or
----------------------------------
in support of the principal underwriter of shares of one or more entities
registered under the Investment Company Act of 1940 (or any successor
statute); provided, however, that this shall not include services
performed for or in support of a registered broker/dealer distributing
shares of such an entity where there is (i) no investment adviser, (ii)
the adviser is unaffiliated with the broker/dealer, or (iii) the
broker/dealer is distributing such shares directly to its own brokerage
customers, and the broker/dealer is engaged in the distribution of
securities generally.
"Voluntary Termination" - means a termination of employment by reason of
----------------------
Employee's voluntary resignation or any voluntary termination of employment by
Employee and includes any termination as a result of a Notice of Non-Extension
given by the Employee pursuant to Section 8(c), but does not include any action
by Employee as a result of a Constructive Termination prior to January 1, 1999.
2. Employment of Employee.
-----------------------
Subject to the terms and provisions of this Agreement, Employer agrees
to employ Employee as Senior Vice President of PIMCO ADVISORS L.P. and as
President of PADCO (PIMCO Advisors Distribution Company) and Employee agrees to
be employed as a Senior Vice President of PIMCO ADVISORS L.P. and as President
of PADCO, with such employment to commence effective as of the Effective Date.
Employee agrees to serve Employer faithfully and to the best of his ability
in such capacity, or in such other capacity as Employee and Employer shall agree
upon from time to time. Employee shall devote such time and attention to the
business of Employer during the term of this Agreement as Employer in its
discretion shall deem appropriate and commensurate with Employee's duties and
responsibilities with Employer and which is reasonable and proper under general
rules of business conduct. Employee shall not, during the term of this
Agreement, directly or indirectly render any services of a business,
commercial or professional nature to any other person or organization, whether
for compensation or otherwise, to an extent that such services interfere with or
detract from the quality of Employee's performance of his duties and obligations
on behalf of Employer.
3
<PAGE>
3. Compensation.
-------------
(a) As compensation for Employee's performance of his services
under this Agreement, Employer shall pay Employee an annual base salary of not
less than Two Hundred Seventy-Five Thousand Dollars ($275,000) ("Base Salary").
Such compensation shall be prorated for a partial year based on the period
worked for Employer during such year, and shall be payable in accordance with
Employer's customary employee payroll practices, including but not limited to
all customary withholding practices.
(b) As additional compensation ("Bonus Compensation") for
Employee's performance of services under this Agreement, Employee shall be
entitled an annual bonus which shall not be less than 50% of Employee's Base
Salary ("Minimum Bonus Compensation") and is expected to be within a range of
50% to 150% subject to increase above such amount in the event of extraordinary
performance.
4. Benefit Arrangements.
---------------------
(a) Employee shall be entitled to participate in all health,
welfare, insurance, pension and other similar employee benefit plans and
programs of Employer which are open to participation by employees holding
employment positions comparable to Employee's position; provided, however, that
such participation by Employee shall in all cases be subject to the terms and
provisions of such employee plan or program and also to applicable federal,
state or other governmental laws and regulations.
(b) Employer shall promptly reimburse Employee for all
reasonable business expenses incurred by Employee (in connection with the
business of Employer and its affiliates) during the term of this Agreement in
accordance with practices as in effect from time to time.
(c) During the term of this Agreement, Employee shall receive
paid vacations in accordance with Employer's practices as in effect from time to
time.
(d) Except as provided in Section 4(a), compliance with the
------------
foregoing subsections shall in no way create or be deemed to create any
obligation, express or implied, on the part of Employer or any affiliate of
Employer with respect to the continuation of any benefit or other plan or
arrangement maintained at or prior to the date hereof or the creation and
maintenance of any particular benefit or other plan or arrangement at any time
after the date hereof.
5. Termination of Employment Prior to Stated Termination Date.
The parties hereby expressly agree that Employee's employment by
Employer may terminate or be terminated by either party at any time prior to the
Scheduled Termination Date (as such term is defined in Section 8(c)) as provided
below. Except as otherwise expressly set forth herein, Employee shall not be
entitled to any severance pay, relocation
4
<PAGE>
benefits or other severance benefits upon termination of his employment with
Employer. Upon any termination prior to the Scheduled Termination Date the
rights of the parties shall be as follows:
(a) Death and Permanent Incapacity. Upon the death of Employee
------------------------------
or the permanent incapacity of Employee continuing for a period of more than 180
days, Employee's employment by Employer hereunder shall terminate. Upon any such
termination, all rights and obligations of the parties hereunder shall
terminate, other than: (i) any obligation of Employer with respect to earned but
unpaid Base Salary pursuant to Section 3(a) hereof, (ii) any Bonus Compensation
------------
owed to Employee pursuant to Section 3(b) hereof, and (iii) any reimbursement
------------
amounts owed to Employee and any other amounts owed to Employee under any
benefit plan (including amounts under any disability plan). Employer shall pay
Employee his Base Salary and Minimum Bonus Compensation pursuant to Section 3
---------
hereof and shall provide Employee with all his benefits as set forth in
Section 4 hereof for a period of one year from the date of termination of
---------
Employee's employment pursuant to this Section 5(a). As used herein, the term
------------
permanent incapacity means the inability of Employee, by reason of injury,
illness or other similar cause to perform a major part of his or her duties and
responsibilities in connection with the conduct of the business and affairs of
Employer and its Affiliates.
(b) Voluntary Termination and Termination "For Cause." In the
------------------------------------------------
event of (i) a termination of Employee's employment by reason of a Voluntary
Termination or (ii) in the event of Employee's termination by Employer For
Cause, then (A) all obligations of Employer under any Section of this Agreement
shall terminate as of the date of such termination, and (B) all obligations of
Employee under Sections 6 and 7 hereof shall continue unaffected by the
----------------
termination of Employee's employment in accordance with the terms thereof.
(c) Involuntary Termination and Default by Employer. In the
-----------------------------------------------
event of the Involuntary Termination of Employee's employment by Employer, then
(i) Employer shall continue to pay Employee his Base Salary and Minimum Bonus
Compensation for the longer of one year from such termination date or through
the then Scheduled Termination Date and during such period shall continue in
effect Employee's participation in such benefit plans as were in effect at the
time of such termination unless and until the same are replaced on substantially
equivalent or superior terms, (ii) all obligations of Employee under this
Agreement other than Section 6(a) and Section 7 shall terminate; provided,
----------- ---------
however, that in the event that Employee engages in any Prohibited Distribution
Services or engages in any of the activities prohibited by Section 6(c) hereof,
-------
then Employer's obligations under clause (i) above shall terminate, and (iii)
all of the Employee's Class I and II options to purchase Class A Units and no
less than sixty percent (60%) of the Employee's options to purchase Class B
Units under the Employee's Unit Option Plan granted prior to the effective date
of this Agreement shall be fully vested. After any material default by Employer
in the performance of any of its obligations hereunder (including any action
which would constitute a Constructive Termination), Employee shall have the
right to terminate his or her employment hereunder for a period of
5
<PAGE>
two months thereafter, and such a termination shall be deemed an Involuntary
Termination by Employer. Notwithstanding the foregoing, Employer shall not be
deemed to have committed a material default hereunder unless and until
(x) Employee gives written notice to Employer of Employee's belief that Employer
has committed such a default, and (y) Employer fails, within 30 days after the
effective date of such notice (determined as provided in Section 9 hereof), to
---------
cure such default. Payment of the amount specified in this Section 5(c) is
------------
agreed by the parties hereto to be in full satisfaction and compromise of any
claims arising out of any termination of Employee's employment pursuant to this
Section 5(c).
------------
6. Confidential Information: Prohibited Competition.
------------------------------------------------
(a) Employee agrees and acknowledges that any and all presently
existing mutual fund distribution business of Employer and its Affiliates and
all business developed by Employer and its Affiliates or any other employee of
Employer and its Affiliates, or carried on by Employee for Employer and all
trade names, service marks and logos under which Employer and its affiliates do
business, are and shall be the exclusive property of Employer or such Affiliate,
as applicable, for its or their sole use. Employee acknowledges that, in the
course of performing services hereunder and otherwise, including for Employer's
predecessor, Employee has had and will from time to time have access to
confidential records, data, client and contract lists, trade secrets, formulae,
computer programs and software, manuals and documentation, algorithms, and
similar and other confidential information owned or used in the course of
business by Employer or its Affiliates. Employee agrees always to keep secret
and not ever (during the terms of this Agreement or thereafter) publish,
divulge, furnish, use or make accessible to anyone (otherwise than in the
regular business of Employer or any Affiliate thereof or otherwise at the
Employer's request and with the consent of the Operating Board) any knowledge or
information of a confidential or proprietary nature with respect to any trade
secrets, proprietary plans, clients, client requirements, service providers,
business operations or techniques of Employer or any Affiliate thereof. Upon
termination of Employee's services to Employer for any reason, all data,
memoranda, client lists, notes, programs and other papers, items and tangible
media, and reproductions thereof relating to the foregoing matters in Employee's
possession or control, shall be returned to Employer and remain in its
possession (except where the return of such items shall be unreasonable or
impractical in relation to the importance or confidentiality of such items).
(b) By execution of this Agreement, Employee hereby covenants
that during the term of his employment with Employer, and for one year
thereafter, he will not engage directly or indirectly in any Prohibited
Competition Activity.
(c) Upon any termination of Employee's employment, until the
later of (i) the then Scheduled Termination Date or (ii) one year after the
effective date of such termination, Employee will not, without the consent of
the Operating Board, directly or indirectly, whether as owner, part-owner,
shareholder, partner, director, officer, trustee, employee, agent or consultant,
or in any other capacity, on behalf of himself or any firm, corporation or other
business organization other than Employer:
6
<PAGE>
(A) provide Prohibited Distribution Services;
(B) directly or indirectly, for or on behalf of any
person, firm, corporation or other entity (i) divert or take away any Employer
Managed Funds or (ii) solicit any person or entity for the purpose of diverting
or taking away any such Employer Managed Funds; or
(C) solicit or induce any professional employee or
former professional employee of Employer to terminate his or her employment or
work in any enterprise involving Prohibited Distribution Services with any
professional employee or former professional employee of Employer who was
employed by Employer at any time during the six months immediately preceding the
termination of Employee's employment.
Notwithstanding the provisions of this Section 6(c), Employee may make passive
------------
investments in a competitive enterprise the shares of which are publicly traded
provided his holding therein, together with any holdings of his Affiliates, do
not exceed 1% of the outstanding shares or comparable interests in such entity.
(d) As of the date of this Agreement, Employee is not performing
any consulting or other duties for, and is not a party to any similar agreement
with, any business or venture competing with the Employer or any of its
affiliates.
(e) If Employer gives a Notice of Non-Extension pursuant to
Section 8(c) hereof, Employer will continue to pay Employee his or her Base
-----------
Salary and Minimum Bonus Compensation and will continue his or her benefits
pursuant to Section 4 hereof, until the earlier of one year from the then
--------
Scheduled Termination Date (as such term is defined in Section 8 hereof) or the
---------
date on which Employee engages in any activity prohibited by subsections (b) or
(c) above.
7. Notices.
--------
All notices, requests or other communications (hereinafter collectively
referred to as "Notices") required or permitted to be given hereunder or which
are given with respect to this Agreement shall be in writing (including
telecopy) and, unless otherwise expressly provided herein, shall be delivered
(a) by hand during normal business hours, (b) by Federal Express, United Parcel
Service or other reputable overnight commercial delivery service (collectively
"overnight courier"),(c) by registered or certified mail (return receipt
requested)or (d) by telecopy, addressed as follows:
To Employer at: PIMCO Advisers Group, L.P.
2187 Atlantic Street
Stamford, Connecticut 06902
To Employee at: John O.Leasure
7
<PAGE>
[address]
Any such notice shall be effective for purposes of determining
compliance with the time requirements herein (unless otherwise specifically
provided herein) (a) at the time of personal delivery, if delivered by hand, (b)
at the time accepted for overnight delivery by the overnight courier, if
delivered by overnight courier, (c) at the time of deposit in the United States
mail, postage fully prepaid, if delivered by registered or certified mail, or
(d) at the time of confirmation of receipt, if delivered by telecopy. Either
party may change its address for purposes of Notices hereunder pursuant to a
Notice, given as provided herein, advising the other party of such change.
8. Effective Date/Term of Agreement.
(a) Employee and Employer agree that the employment relationship
between Employee and Employer shall be governed in all respects by the terms and
provisions of this Agreement effective as of the date of the Closing of the
transactions contemplated by the Consolidation Agreement. If for any reason such
Closing shall not occur and Employer does not acquire the assets related to the
PIMCO Investment Management Business as contemplated in the Consolidation
Agreement, this Agreement and all of its terms and conditions shall be null and
void and of no effect whatsoever.
(b) The term of this Agreement shall end on the earlier of the
following dates (the "Contract Termination Date"):
(i) The Scheduled Termination Date as defined in
Section 8(c) hereof; or
------------
(ii) The effective date of Employee's termination of
employment with Employer as provided in Section 5 hereof, if earlier.
---------
(c) As used in this Agreement, the initial "Scheduled
Termination Date" shall be December 31, 1996; provided, however, that the
Scheduled Termination Date automatically shall be changed on the Initial
Scheduled Terminate Date (thus extending the term of this Agreement) to a date
which is exactly two years after the Scheduled Termination Date then in effect
(and after such a change, such date thereafter be the then "Scheduled
Termination Date") unless at least one of the parties gives notice (the
"Notice of Non-Extension") to the other party that the Scheduled Termination
Date shall not be so postponed; and provided further, that the Scheduled
Termination Date automatically shall be postponed pursuant to the preceding
clause for successive two year periods until a Notice of Non-Extension is given
by at least one of the parties. Any Notice of Non-Extension must be given in
writing at least six months prior to the Scheduled Termination Date to which the
Notice of Non-Extension applies. Upon any such non-renewal, the parties shall be
subject to Section 6 to the extent provided therein.
---------
8
<PAGE>
(d) Notwithstanding that this Agreement shall terminate on the
Contract Termination Date, such termination shall not have the effect of
terminating those obligations of any Party which, pursuant to the terms of this
Agreement, are contemplated as remaining in-effect to a date, or throughout a
period which ends, after the Contract Termination Date.
9. Governing Law.
--------------
This Agreement shall be governed by, interpreted under, and construed
and enforced in accordance with the laws of the State of Connecticut applicable
to Agreements made and to be performed only within the State of Connecticut
without regard to its conflict of laws.
10. Entire Agreement.
----------------
The terms of this Agreement are intended by the parties as a final
expression of their agreement with respect to such terms as are included in this
Agreement and may not be contradicted by evidence of any prior or
contemporaneous agreement. The parties further intend that this Agreement
constitutes the complete and exclusive statement of its terms and that no
extrinsic evidence whatsoever may be introduced into any judicial proceeding, if
any, involving this Agreement, except for written modification's as provided
under Section 11 of this Agreement. Except as set forth herein, the parties
----------
agree that there are no collateral agreements of any kind concerning Employee's
employment with Employer. This Agreement supersedes all prior understandings
and agreements between the parties relating to the subject matter hereof.
11. Modifications and Amendments.
-----------------------------
This Agreement may not be modified, amended, changed or supplemented,
nor may any obligations hereunder be waived, except by written instrument signed
by both parties.
12. Successors and Assigns.
----------------------
This Agreement and the provisions hereof shall be binding upon each of
the parties, their successors, and assigns.
13. Assignment.
----------
This Agreement and the rights, duties and obligations hereunder may not
be assigned (which term shall mean only the actual assignment of this Agreement
by either party without the prior written consent of the other party.
14. Third Party Rights.
-------------------
The parties do not intend to confer any benefit hereunder on any person,
firm or corporation other than the parties hereto.
9
<PAGE>
15. Non-Waiver of Rights
--------------------
The failure or delay of either party in the exercise of any right given
to such party hereunder shall not constitute a waiver of rights unless the time
specified herein for exercise of such rights has expired,nor shall any single or
partial exercise of any right preclude other or further exercise thereof or of
any other right.
16. Specified Performance; Severability.
------------------------------------
It is specifically understood and agreed that any breach of the
provisions of this Agreement will result in irreparable injury, that the remedy
at law alone will be an inadequate remedy for such breach and that, in addition
to any other remedy they may have, the parties hereto shall be entitled to
enforce the specific performance of this Agreement by and to seek both temporary
and permanent injunctive relief without the necessity of proving actual damages.
In case any of the provisions contained in this Agreement shall for any reason
be held or be invalid, illegal or unenforceable in any respect, any such
invalidity, illegality or unenforceability shall not affect any other provision
of this Agreement, but this Agreement shall be construed as if such invalid,
illegal or unenforceable provision had been limited or modified (consistent with
its general intent) to the extent necessary to make it valid, legal and
enforceable, or if it shall not be possible to so limit or modify such invalid,
illegal or unenforceable provision or part of a provision, this Agreement shall
be construed as if such invalid, illegal or unenforceable provision or part of a
provision had never been contained in this Agreement.
17. Pronouns and Plurals.
---------------------
Whenever the context may require, any pronoun used in this Agreement
shall include the corresponding masculine, feminine or neuter forms, and the
singular form of nouns, pronouns and verbs shall include the plural and vice
versa.
18. Counterparts.
-------------
This Agreement may be executed in two counterparts, each of which shall
be deemed an original, but both of which together shall constitute one and the
same agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective as provided hereinabove.
"EMPLOYER"
/s/ William Cvengros
-------------------------------
Chief Executive Officer
10
<PAGE>
"EMPLOYEE"
/s/ John O. Leasure
-----------------------------
-----------------------------
11
<PAGE>
EXHIBIT 10.24
P I M C O 840 Newport Center Drive
Newport Beach, CA 92660
Tel: 714 717-7022
January 20, 1995
Mr. Brian J. Girvan
PIMCO Advisors L.P.
2187 Atlantic Street
Stamford, CT 06902
Dear Brian:
I would like to summarize our agreement with regard to your termination as Chief
Financial Officer of PIMCO Advisors L.P.
Attached to this letter is a Memorandum dated October 31, 1994 entitled
"Closing Compensation Proposals." Our understanding is that your termination
will be governed by the Memorandum except as follows:
1. In addition to the bonuses provided by paragraphs 2 and 3 of the
Memorandum, you will be entitled to a transition bonus in the range of $50,000
to $100,000, based upon my determination of your contribution to a smooth and
timely transition of financial operations from Stamford to Newport Beach.
2. You will be given six months' notice of termination, no later than June
30, 1995.
3. You will be paid a retention bonus as provided in the Memorandum.
4. Your severance will be equal to four weeks per year starting in 1983.
5. With regard to your Class I and Class II options, the Class II options
will vest and be exercisable upon the signing of this letter and the Class I
options will vest and be exercisable on June 30, 1995.
6. With regard to your options on B Units, 50% of the options will vest
upon your termination.
We will expect you to execute a release of any obligations of PIMCO Advisors
L.P. to you arising in connection with your employment, except the obligations
set forth in the Memorandum, as modified by this letter.
<PAGE>
Mr. Brian J. Girvan
January 20, 1995
Page Two
If this letter correctly sets forth our agreement, please sign in the space
provided below.
Sincerely,
/s/ William D. Cvengros
William D. Cvengros
Accepted and agreed to:
/s/ Brian J. Girvan
Brian J. Girvan
<PAGE>
MEMORANDUM
Closing Compensation Proposals
For those individuals whose jobs are eliminated through the consolidation, and
who agree to stay on for a period of up to one year, or until PIMCO Advisors
informs them that their services are no longer needed, the following will apply:
1. Salary in 1995 will be set according to company policy with
------
normal increase in line with other employees.
2. 1995 bonus based on 1994 rate in dollars as a minimum (not
----------
including closing bonus if any).
Six months minimum guaranteed, however, any bonus payment
assumes continued full time effort with job performance
consistent with past periods.
Pro rata for period beyond six months.
Initial payment in July 1995, subsequent payment, if any, at
termination.
3. Retention Bonus* equals 1995 base salary, pro-rata.
---------------
Six months minimum guaranteed, however, any bonus payment
assumes continued full time effort with job performance
consistent with past periods.
Three months notice for termination.
To be paid on termination.
4. Severance
---------
A. Officers - four (4) weeks per year starting in 1984 or
at time of hire.
B. Non-officers
1 year 1 week.
2-5 years 2 weeks/year of service.
5+ years 3 weeks/year of service.
5. COBRA - paid for 6 months after termination date, or whenever
-----
employee obtains new employment.
6. Options*
-------
A. Vesting - all shares.
B. (1) If a position with annual compensation in same range
as current package is offered and not accepted, no
acceleration of option exercise privileges.
(2) If no position offered all Class I and Class II
options held may be exercised after termination.
*Officers can choose between (3) (Retention Bonus) or (6) (Exercising Options).
Non-officers get retention bonus.
These arrangements apply only to those individuals who are terminated and leave
the employment in the consolidation of TAG L.P. with PIMCO Advisors L.P. They
do not set policy for PIMCO Advisors L.P. beyond the consolidation.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in Registration Statement No.
33-71016 on Form S-8 of our report dated February 17, 1995, appearing in this
Annual Report on Form 10-K of PIMCO Advisors L.P. (formerly Thomson Advisory
Group L.P.) for the year ended December 31, 1994.
DELOITTE & TOUCHE LLP
New York, New York
March 30, 1995
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM PIMCO
ADVISORS L.P. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<CASH> 55,004
<SECURITIES> 663
<RECEIVABLES> 31,340
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 89,420
<PP&E> 7,899<F1>
<DEPRECIATION> 1,450
<TOTAL-ASSETS> 379,708
<CURRENT-LIABILITIES> 34,179
<BONDS> 0
<COMMON> 367,415<F2>
0
0
<OTHER-SE> (21,886)<F3>
<TOTAL-LIABILITY-AND-EQUITY> 379,708
<SALES> 0<F4>
<TOTAL-REVENUES> 180,263<F5>
<CGS> 0<F4>
<TOTAL-COSTS> 146,382<F6>
<OTHER-EXPENSES> 5,040<F7>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 29,924
<INCOME-TAX> 10,669
<INCOME-CONTINUING> 19,255
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 19,255<F8>
<EPS-PRIMARY> .12<F9>
<EPS-DILUTED> .03<F10>
<FN>
<F1>Net of accumulated depreciation and amortization.
<F2>Company is a partnership. Amount shown comprises Partners' capital.
<F3>Amount shown comprises Unamortized Compensation.
<F4>Company is in the service business and has no sales or cost of sales of
tangible products.
<F5>Amount shown comprises revenues from services.
<F6>Amount shown comprises costs of services.
<F7>Amount shown is from amortization of intangible assets.
<F8>Amount includes $13,151 of net income prior to a Consolidation which
occurred in Novmeber 15, 1994. Prior to the Consolidation, the Company operated
in corporate form.
<F9>Amount is for earnings Post-Consolidation for the Company's General Partner
and Class A Limited Partnership limits.
<F10>Amount is for earnings Post-Consolidation on the Company's Class B Limited
Partnership Units.
</FN>
</TABLE>
