<PAGE>
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, 1995
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.)
800 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)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No _____
---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [_]
State the aggregate market value of the voting stock* held by non-
affiliates of the registrant. As of March 18, 1996, the value was approximately
$297,254,213.
DOCUMENTS INCORPORATED BY REFERENCE
NONE
___________
* The securities held by non-affiliates are not voting stock but are 13,588,764
publicly held Class A Units of limited partner interest.
<PAGE>
PART I
ITEM 1. BUSINESS
PIMCO Advisors L.P. (the "Partnership" or "PIMCO Advisors") is one of the
nation's largest publicly traded investment management firms with, at December
31, 1995, approximately $95 billion of assets under management. The Partnership
offers a broad range of investment management services and styles to
institutional and retail investors, combining the fixed income-oriented
institutional investment management operations of Pacific Investment Management
Company, the equity-oriented investment management operations of Columbus Circle
Investors and four smaller affiliated domestic and international equity
investment management firms and mutual fund operations. The Partnership provides
investment management services primarily to (i) large institutional clients
through separate accounts, (ii) smaller institutional clients and financial
intermediaries through the PIMCO Funds and (iii) retail investors through the
PIMCO Advisors Funds, which are sold principally through broker-dealers.
The Partnership's strategy is to pursue growth by marketing the investment
management expertise, performance record and reputation of its six institutional
investment management firms (the "Investment Management Firms"). 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 six Investment Management Firms are structured as separate and largely
autonomous subsidiaries. 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 significantly to Class B LP Units, distributions on which until
December 31, 1997 are subordinated to the annual $1.88 per Unit priority
distribution on the Class A LP Units as described below.
1994 CONSOLIDATION
PIMCO Advisors business results from the November 1994 consolidation (the
"Consolidation") of the investment advisory businesses of certain wholly-owned
subsidiaries of Pacific Financial Asset Management Corporation ("PFAMCo"), i.e.,
PIMCO, Cadence, Parametric, NFJ and Blairlogie, with the investment advisory and
mutual fund distribution businesses, including CCI, which were formerly
conducted under the name of Thomson Advisory Group L.P. and its affiliate
Thomson Investors Services Inc. (now named PIMCO Advisors Distribution Company).
PFAMCo also contributed its own administrative and distribution operations to
PIMCO Advisors as part of the Consolidation. As part of the Consolidation, PIMCO
Partners, G.P. ("PPGP") replaced Thomson Advisory Group Inc. ("TAG Inc.") as the
general partner of the Partnership.
THE RESTRUCTURING
General. Under current law, PIMCO Advisors 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 PIMCO Advisors
adds a substantial new line of business or otherwise fails to satisfy certain
requirements) unless PIMCO Advisors limited partner interests cease to be
publicly traded prior to such time. As a corporation, PIMCO Advisors 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 holders of PIMCO Advisors partner interests who are affiliates
of PIMCO Advisors (the "Nonpublic Unitholders"), the PIMCO Advisors Amended and
Restated Partnership Agreement (the "Partnership Agreement") confers on PPGP,
the general partner of PIMCO Advisors, broad authority to effect one or more
restructurings (collectively, the "Restructuring") of PIMCO Advisors in
connection with, or in anticipation of, such a change in tax status. Under the
Partnership Agreement, PPGP may choose the timing and form of the Restructuring
in its sole discretion.
It is currently anticipated that on or prior to December 31, 1997, PPGP,
TAG Inc. and the Partnership will engage in transactions resulting in the
holders of PIMCO Advisors limited partner interests who are not Nonpublic
Unitholders, the holders of TAG Inc.'s securities and certain other PIMCO
Advisors Unitholders all indirectly owning equity interests in PIMCO Advisors
through the publicly traded securities of an entity taxed as a corporation,
which will directly or beneficially own one Unit of partner interest of PIMCO
Advisors for each share of its common stock outstanding. After the
Restructuring, it is expected that the successor will be the sole publicly
traded entity through which equity interests in PIMCO Advisors will be owned.
See "Restructuring" in Item 13 hereof.
<PAGE>
GENERAL
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)
-------------------------------------
AT DECEMBER 31,
---------------
------------------------------------------------------
1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Pacific Investment Management $ 76,371 $ 56,883 $ 53,001 $ 41,249 $ 36,169
Columbus Circle Investors 12,670 10,304 9,848 8,070 6,435
Cadence Capital Management 2,393 1,762 1,647 940 658
Parametric Portfolio Associates 1,569 1,546 1,385 932 655
NFJ Investment Group 1,455 1,072 966 534 344
Blairlogie Capital Management 645 479 97 - -
Other /1/ 79 129 1,194 2,630 3,180
-------- -------- -------- -------- --------
Total $ 95,182 $ 72,175 $ 68,138 $ 54,355 $ 47,441
======== ======== ======== ======== ========
</TABLE>
___________
1 Includes assets under management not advised or subadvised by the Investment
Management Firms. For years ended December 31, 1991, 1992 and 1993, includes
assets invested in the Cash Accumulation Trust, a money market fund, which is
currently subadvised by Columbus Circle Investors.
The table below sets forth the assets under management of PIMCO Advisors
and the six Investment Management Firms by investment type, at December 31,
1995:
<TABLE>
<CAPTION>
ASSETS UNDER MANAGEMENT
(in millions)
-------------------------
<S> <C>
Institutional Separate Accounts
Fixed Income $ 50,264
Equity 16,248
Institutional Mutual Funds /1/
Fixed Income 16,732
Equity 3,768
Retail Mutual Funds
Fixed Income 2,043
Equity 5,486
Retail Money Market 641
---------
Total $ 95,182
=========
</TABLE>
___________
1 Includes assets managed under pooling arrangements.
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PIMCO Advisors markets its investment management services to institutional
and mutual fund clients through client service representatives at each of the
Investment Management Firms and through distributors including PIMCO Advisors
Distribution Company ("PADCo"), a wholly-owned broker-dealer which distributes
and markets shares of the retail mutual funds of PIMCO Advisors.
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)
------------------------------
YEAR ENDED DECEMBER 31,
-----------------------
-----------------------------------------------------------
1995 1994 1993 1992 1991
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Pacific Investment Management $ 180,937 $ 141,218 $ 144,487 $ 106,279 $ 84,063
Columbus Circle Investors 53,078 44,363 39,460 32,151 25,203
Cadence Capital Management 14,555 12,120 9,504 6,103 4,108
Parametric Portfolio Associates 3,753 4,451 4,505 2,932 2,205
NFJ Investment Group 5,916 4,967 3,795 2,007 1,359
Blairlogie Capital Management 2,916 420 23 - -
Other /1/ 20,455 23,936 20,592 22,805 21,898
--------- --------- --------- --------- ---------
Total $ 281,610 $ 231,475 $ 222,366 $ 172,277 $ 138,836
========= ========= ========= ========= =========
</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.
A principal component of the Partnership's marketing strategy is the
historical performance of the Investment Management Firms' relative to selected
benchmarks over long periods of time. For example, PIMCO stresses its record in
equaling or exceeding client-selected performance benchmarks over long periods
through a measured risk taking approach that emphasizes preservation of capital.
Over the last 10 years, PIMCO's Total Return composite, representing
approximately 55% of PIMCO's total assets under management at December 31, 1995,
outperformed the Lehman Brothers Aggregate Bond Index by approximately 126 basis
points (10.89% compared to 9.63%) annually on a compound basis after adjusting
for the advisory fees paid to PIMCO.
PRIMARY MARKETS AND STRATEGY FOR GROWTH
The two primary markets for the investment management services offered by
the Investment Management Firms are the institutional market and the retail
mutual fund market. Several of the Investment Management Firms also manage
private accounts for high net worth individuals.
INSTITUTIONS. The institutional market for investment management services
includes corporate, government and multi-employer pension plans, charitable
endowments and foundations, and corporations purchasing investment management
services for their own account. Each of the Investment Management Firms serves
the institutional market and conducts its own institutional marketing
activities. In general, the Investment Management Firms' marketing approach
targets Fortune 1,000 companies and other large institutional investors. 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 otherwise seeking to diversify and expand their businesses by
investment strategy, method of delivery and markets.
RETAIL MUTUAL FUNDS. Like the institutional market for investment
management services, the mutual fund market has expanded rapidly in recent
years.
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The mutual fund industry is highly competitive and is characterized by a
high degree of fragmentation and a large and rapidly increasing number of
product offerings. Marketing strategies, product development, business
development, sales expertise and servicing are increasingly important. The
traditional channel for the distribution of mutual funds (other than money
market funds) is through brokerage firms that are not affiliated with the funds'
sponsor organization and that are compensated primarily through front-end sales
loads deducted from the purchaser's investment at the time of the sale.
Increasingly other distribution arrangements and channels have become important.
These include "no-load" or "low-load" funds, sold primarily through direct
marketing efforts or captive sales forces affiliated with the sponsor
organization; "private label" and "proprietary" funds managed by and offered
primarily through, or to customers of, a financial organization such as a
brokerage firm, insurance company or bank; and "back-end load" or "level load"
funds offered through brokerage and other third-party channels, but with
compensation to the selling brokers being funded through commission advances
from the funds' sponsor which are recovered through ongoing charges against fund
assets assessed under Rule 12b-1 under the Investment Company Act, as amended
(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 16 predominantly equity-based retail mutual funds. 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 has developed new funds to fill gaps in its
product line in terms of investment objectives and styles. Since November 1994,
PIMCO Advisors Funds has added funds as follows: (i) a total return fixed income
fund managed by PIMCO; (ii) an innovation/technology equity fund managed by CCI;
(iii) a value equity fund managed by NFJ; (iv) a global fixed income fund
managed by PIMCO; and (v) a "growth at a reasonable price" equity fund managed
by Cadence. In addition, the Partnership introduced a new class of "back-end
load" shares for all of its retail mutual funds, thereby allowing it to
distribute such funds on a "front-end load," "level load" and "back-end load"
basis.
INVESTMENT MANAGEMENT FIRMS
PACIFIC INVESTMENT MANAGEMENT COMPANY (PIMCO)
General. Pacific Investment Management Company had aggregate assets under
management at December 31, 1995 and December 31, 1994 of $76.4 billion and $56.9
billion, respectively, of which 89.9% and 91.7%, respectively, consisted of
fixed income accounts and 10.1% and 8.3%, 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
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 in 1995 indicated
that 25% 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 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, within client and
mutual fund guidelines, PIMCO uses a broad array of fixed income investments,
including 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, occasionally, 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 instruments, various risk controls at the portfolio and individual
instrument levels in an effort to evaluate and monitor interest rate, liquidity
and credit quality risk.
As part of its active management style, PIMCO uses 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.
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<PAGE>
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. PIMCO's strategy also involves focusing on
financial service aggregators of retail assets such as unaffiliated sponsors of
mutual funds and other registered investment advisors (including fee-based
financial planners) who recommend the use of "no-load" mutual funds such as the
PIMCO Funds to their clients. In addition, PIMCO seeks to increase both
institutional and retail assets under management from non-U.S. investors.
INVESTMENT PRODUCTS. PIMCO offers a range of investment services for both
fixed income and equity assets:
FIXED INCOME PORTFOLIOS. PIMCO offers a variety of strategies for
clients with fixed income portfolios designed to reflect each 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 $45 billion of PIMCO's total assets under management
at December 31, 1995.
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 ("GIC") alternative products which are designed to mimic GICs) or
sector emphases (e.g., international, high-yield, or mortgages).
EQUITY RELATED PORTFOLIOS. PIMCO also manages equity strategies:
StocksPLUS(R), a growth style portfolio and VersaSTYLE(R). 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 analytics as is used by PIMCO in its fixed income portfolios. VersaSTYLE(R)
is a new product employing a proprietary technique of quantitative analysis to
rotate among various equity investment styles (e.g., value vs. growth).
INTERNATIONAL AND OTHER PORTFOLIOS. PIMCO, as investment advisor to a
series of offshore funds and individual clients, provides fixed income
investment advice to non-U.S. investors. Assets under management for these
offshore funds totaled $130 million and $133 million at December 31, 1995 and
December 31, 1994, respectively. PIMCO also serves as subadvisor for a series of
term trusts investing in mortgage related securities that are marketed to
Japanese investors. These trusts had assets of $2.1 billion and $2.3 billion at
December 31, 1995 and December 31, 1994, 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, 1995 and December 31, 1994 were $3.1 billion and $1.2 billion,
respectively.
Set forth below is a table showing PIMCO's assets under management and
the number of portfolios at the dates indicated:
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<PAGE>
<TABLE>
<CAPTION>
ASSETS UNDER MANAGEMENT /(1)/
-----------------------------
($ in millions)
---------------
AT DECEMBER 31,
-------------------------------------------------------------------------------
1995 1994 1993
---------------------- ------------------------- -------------------------
No. Amount No. Amount No. Amount
------- ------------ ---------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Fixed Income Portfolios:
Total Return Portfolios 162 $ 45,075 153 $ 34,681 146 $ 32,773
Low Duration Portfolios 30 5,365 25 4,253 21 3,774
Other Duration Specific or
Sector Specific Portfolios:
Duration
Specific 10 7,719 11 3,506 12 3,852
GIC Alternatives 13 1,968 12 1,634 7 791
Mortgages 19 4,514 25 4,649 24 5,001
Global/Non-U.S. 9 1,670 8 1,680 7 1,794
Other 14 2,359 10 1,750 6 664
----- ---------- --------- ---------- --------- ----------
Total 257 68,670 244 52,153 223 48,649
----- ---------- --------- ---------- --------- ----------
Equity Related Portfolios:
StocksPLUS (R) 20 7,591 17 4,636 14 4,238
Other 4 110 4 94 3 114
----- ---------- --------- ---------- --------- ----------
Total 24 7,701 21 4,730 17 4,352
----- ---------- --------- ---------- --------- ----------
TOTAL ASSETS UNDER
MANAGEMENT 281 $ 76,371 265 $ 56,883 240 $ 53,001
===== ========== ========= ========== ========= ==========
</TABLE>
(1) Includes the managed assets of 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 $7.6 billion of assets under management at December 31, 1995,
generally is subject to a performance-based fee schedule in which
underperformance 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 make PIMCO's revenues volatile, but also provide an opportunity
to earn higher fees than could be obtained under fee arrangements based solely
on a percentage of assets under management.
Employees. PIMCO's 11 Managing Directors have an average of 17 years of
industry experience. Of the 11 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 eight have been with PIMCO for an average of
nine years. At December 31, 1995, the firm-wide staff of 266 included 48
investment professionals, of whom 17 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 (23 professionals) are primarily responsible for client
relationship management and/or marketing.
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. As of
December 31, 1995, assets under management by CCI, exclusive of the
approximately $4.3 billion of assets of the PIMCO Advisors Funds and the Cash
Accumulation Trust under CCI management, were approximately $8.4 billion for
163 clients.
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<PAGE>
CCI's principal equity product consists of its "core" portfolios, which
accounted for approximately $8.0 billion (or 63%) of its assets under management
at December 31, 1995. 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 $2.4 billion (or 19%)
of its assets under management at December 31, 1995; "mid cap" portfolios
aggregating approximately $1.3 billion (or 10%) of its assets under management
at December 31, 1995; and "equity income" portfolios aggregating approximately
$204 million (or 2%) of its assets under management at December 31, 1995. CCI
also manages several 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.
Five of the equity portfolios within the PIMCO Advisors Funds (plus the Tax
Exempt Fund and the Money Market Fund) and two portfolios within the PIMCO Funds
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). In 1995, CCI formed Columbus
Circle Trust Company, a limited purpose Connecticut trust company, which will
enable CCI to provide trust and investment advisory services to smaller
accounts.
Employees. Two of CCI's six Managing Directors, Irwin F. Smith and Donald
A. Chiboucas, have been with CCI since its founding in 1975. Mr. Smith also
served as Chairman and Chief Executive Officer of the Partnership from
March 1993 until the Consolidation. At December 31, 1995, CCI had 81
employees, of whom 34 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, 1995, Cadence had $2.4 billion of assets under management, managed
separate account portfolios for 53 clients and subadvised four portfolios within
the PIMCO Funds and one within the PIMCO Advisors Funds.
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, and William Bannick, who joined Cadence in 1992. Mr. Breed
is the Chief Executive 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
23 employees at December 31, 1995, including six portfolio managers in addition
to Mr. Breed.
OTHER INVESTMENT MANAGEMENT FIRMS
Parametric Portfolio Associates (Parametric). 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
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<PAGE>
500, the Russell 1000, EAFE or other customized indices. 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
quantitative analysis of the historical return pattern of the selected benchmark
and of securities within that benchmark. At December 31, 1995, Parametric had
assets under management of $1.6 billion, managed separate accounts for 18
clients and served as subadvisor for two portfolios within the PIMCO Funds
and two unaffiliated families of funds.
NFJ Investment Group (NFJ). 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. NFJ has developed a structured process with a systematic
buy/sell discipline based on fundamental research and computer modeling. 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. At December 31, 1995, NFJ had assets under
management of $1.5 billion, managed separate account portfolios for 27 clients
and also served as manager for three portfolios within the PIMCO Funds, one
within the PIMCO Advisors Funds and four unaffiliated families of funds.
Blairlogie Capital Management (Blairlogie). 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 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's future business
strategy may also include the development of investment management relationships
in the United Kingdom and other parts of Europe. At December 31, 1995,
Blairlogie had assets under management of $645 million in the managed separate
account portfolios for six clients and served as manager for two portfolios
within PIMCO Funds and one portfolio within the PIMCO Advisors Funds.
PARTNERSHIP MUTUAL FUNDS
PIMCO Advisors, together with the Investment Management Firms, offers
and manages mutual funds for both institutional and retail investors.
INSTITUTIONAL MUTUAL FUNDS
PIMCO Funds. The PIMCO Funds consist of two series of no-load, open-end
mutual funds which together offer 30 separate investment portfolios. The PIMCO
Funds are designed primarily to provide institutional and 401(k) defined
contribution investors and high net worth individuals with access to the fixed
income and equity investment advisory services of the Investment Management
Firms. Shares of these Funds are offered in both an institutional class and
an administrative class. The PIMCO Funds are primarily marketed by employees
of the Investment Management Firms. At December 31, 1995, the PIMCO Funds
collectively had approximately $15.5 billion of assets under management
(excluding separate account assets invested in the PIMCO Funds portfolios).
RETAIL MUTUAL FUNDS
PIMCO Advisors Funds. The PIMCO Advisors Funds are a family of 16 retail
mutual funds sold to retail investors principally through broker-dealers. The
Partnership determines the investment policy and manages and supervises the
administrative affairs of each portfolio. An Investment Management Firm acts as
subadvisor and manages the day-to-day investments for each of these funds,
except for the Precious Metals Fund, which is subadvised by an independent
firm. At December 31, 1995, the PIMCO Advisors Funds had approximately $4.8
billion of assets under management.
Marketing and Distribution. PADCo, a wholly-owned subsidiary of the
Partnership, is the distributor for the PIMCO Funds and the PIMCO Advisors
Funds. The Partnership uses PADCo to distribute the PIMCO Advisors Funds
through a
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large, diversified network of unaffiliated retail broker-dealers, including many
leading full-service broker-dealers. Since October 1990, PADCo 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 PADCo's wholesalers to have access to
the branch offices and sales representatives of the retail broker-dealers.
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
numerous 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 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.
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
personal investment by employees. Each firm requires reports of securities
transactions and restricts certain transactions so as to minimize possible
conflicts of interest.
PADCo 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 PADCo's parent to
make withdrawals of capital and receive dividends. 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. Some of the financial services companies
with which the firms compete have greater resources, 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
success are the abilities, performance records and reputations of its
investment managers, the range of products offered and the development
of new investment and marketing strategies. The relative importance of these
factors varies depending on the type of investment management service
involved. Client service is also an important competitive factor. The
Partnership's ability to increase and
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<PAGE>
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.
POSSIBLE CONSTRAINTS ON GROWTH AND OPERATIONS
Cash that is used to pay distributions on the Partnership's Class A LP
Units, PIMCO Advisors Units of general partner interest ("GP Units") and
Class B LP Units will not be available for other Partnership uses, including
investments in new business opportunities. Distributions on Class B LP Units
are currently subordinated to the first-priority distributions on Class A
LP and GP Units. The Partnership Agreement requires that 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 LP 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 LP 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 LP 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 LP 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.
As a result of these priority distributions on Class A LP Units, and
because 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 LP Units, there is a risk that the
Partnership may distribute cash that could otherwise be reinvested in the
Partnership's business. Also, until December 31, 1997, 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 interests of the Partnership through the issuance of
additional Class A LP Units because such an acquisition could result in a
diminution in distributions paid to the holders of the Class B LP Units.
DERIVATIVES
The use of derivatives by investors has received national attention in
recent years because of losses suffered on investments in derivatives. While
other Investment Management Firms have used derivatives PIMCO has used
derivatives since 1980 in various ways, principally 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, occasionally, structured notes and swaps.
RELIANCE ON KEY PERSONNEL AND PROFIT-SHARING PAYMENTS
The ability of the Partnership and the Investment Management 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 depends, to a significant 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
significantly reduce the amount of the Investment Management Firms' profits that
is distributed to the Partnership and becomes available for distribution to
Unitholders. There can be no assurance that key personnel will be retained.
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. For example, investments or strategies which have higher a degree of
risk and uncertainty command a higher percentage fee.
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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 5.9% and 3.4% of the Partnership's revenues for the year ended
December 31, 1995 and the year ended December 31, 1994, 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 make
revenues more volatile, but also provide an opportunity to earn higher fees than
could be obtained under fee arrangements based solely on a percentage of assets
under management. PIMCO's StocksPLUS(R) product, which accounted for $6.5
billion of assets under management at December 31, 1995, 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 StocksPLUS(R) accounts, several large fixed income
accounts aggregating approximately $10.2 billion at December 31, 1995, 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. For
example, PIMCO's failure to exceed certain benchmarks during 1994 resulted in
performance-based fees of $9.2 million, compared to $18.6 million for 1995.
ITEM 2. PROPERTIES
The Partnership's principal offices are currently located at 800 Newport
Center Drive, Newport Beach, California where it occupies approximately 10,460
square feet of space under a lease expiring in 2002 and at 2187 Atlantic Street
where it and PADCo occupy approximately 17,200 square feet of space under a sub-
lease expiring in 2002. PIMCO's principal offices are currently located at 840
Newport Center Drive and 5 Civic Plaza, Newport Beach, California, where it
occupies approximately 75,000 square feet of space under leases expiring in
1998. CCI's principal office is currently located at 1 Station Place, Stamford,
Connecticut, where it occupies approximately 12,600 square feet of space under a
lease expiring in 1999. Each location is a modern office building and the
demised space is adequate for current operations, but more space may be
necessary should the businesses expand.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Partnership Agreement provides for the issuance of three types of
Units: Class A LP Units, Class B LP Units, and GP Units. Class A LP Units have a
priority right to distributions over Class B LP Units, as described below.
Except for their subordinated right to distributions and their potential to be
further subordinated to other Units issued by PIMCO Advisors, the Class B
LP Units are identical to the Class A LP Units, including with respect to voting
rights (although the Class B LP Units vote as a class with respect to proposed
amendments to Partnership Agreement that affect only Class B LP Units). GP Units
have distribution rights identical to the Class A LP Units, but are held by the
General Partner who has unlimited liability for the obligations of the
Partnership and has the right to manage and control the Partnership. Holders
of the Class A LP Units and Class B LP Units do not have the right to vote
with respect to Partnership management and control.
The Class A LP Units are listed on the New York Stock Exchange (the "NYSE")
under the symbol "PA." The following table sets forth, for the periods
indicated, the high and low trading prices for each Class A LP Unit (or the
predecessor limited partner Unit prior to the Consolidation) as reported on the
NYSE and the total cash distributions paid per Class A LP Unit and GP Unit, as
adjusted for the October 9, 1994 distribution of 1.06 Units per Unit.
<TABLE>
<CAPTION>
Total
Cash
High Low Distributions
---- --- -------------
<S> <C> <C> <C>
1993
First Quarter $12-5/8 $ 8-1/2 $ 0.44
Second Quarter 11-5/8 9-7/8 0.17
Third Quarter 15-3/8 11-1/4 0.22
Fourth Quarter 16-7/8 13-1/2 0.36
-------------
Total $ 1.19
=============
1994
First Quarter $20-1/8 $14-1/2 $ 0.51
Second Quarter 20-1/8 17 0.29
Third Quarter 20-7/8 17-3/4 0.34
Fourth Quarter 17-3/4 16-1/4 0.38
-------------
Total $ 1.52
=============
1995
First Quarter $18-1/4 $16-7/8 $ 0.24
Second Quarter 20-5/8 17-3/8 0.47
Third Quarter 21-1/4 19 0.47
Fourth Quarter 21-1/4 19-5/8 0.47
-------------
Total $ 1.65
=============
</TABLE>
On March 18, 1996, the closing price of the Partnership's Class A LP Units
as reported on the NYSE was $21.875 per unit. On March 18, 1996, there were
approximately 670 holders of record of the Partnership's Class A LP 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; (ii) certain non-cash charges resulting from the
amortization of
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goodwill and certain other intangible assets and non-cash compensation expenses
related to options and restricted Units and (iii) losses of any subsidiary which
is not a flow-through entity for tax purposes. Since the Consolidation, the
amounts withheld for capital expenditures, reserves or otherwise have not been
significant and the Partnership has distributed cash to Unitholders in an amount
which represented substantially all of the Partnership's Operating Profit
Available for Distribution.
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 LP Unit distribution were less than the Class A LP Unit
distribution, upon termination of the subordination feature of the Class B LP
Units, distributions to holders of Class A LP 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 LP 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.
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ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA OF PIMCO ADVISORS
The following table sets forth summary financial data of PIMCO Advisors for
each of the five years ended December 31, 1995. PIMCO Advisors and subsidiaries
was formed on November 15, 1994, when PFAMCo merged certain of its investment
management businesses and substantially all of its assets (the "PFAMCo Group")
into Thomson Advisory Group L.P. ("TAG") (the "Consolidation"). 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 PIMCO Advisors, in its partnership form, for the period since the
Consolidation. This information should be read in conjunction with the financial
statements and the related notes thereto included elsewhere in this Annual
Report on Form 10-K and "Management's Discussion and Analysis of Financial
Condition and Results of Operations of PIMCO Advisors."
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------------------------------------------------------
1995 1994 1993 1992 1991
------------ ------------ ------------ ------------ ------------
(AMOUNTS IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues $ 323,014 $ 180,263 $ 165,856 $ 120,155 $ 94,481
Operating expenses 215,271 145,220 131,447 93,011 72,644
Amortization of intangibles, options
and restricted Units 42,723 6,202 - - -
------------ ------------ ------------ ------------ ------------
Operating income 65,020 28,841 34,409 27,144 21,837
Other income, net 3,964 1,083 864 1,115 1,088
------------ ------------ ------------ ------------ ------------
Income before income tax expense 68,984 29,924 35,273 28,259 22,925
Income tax expense 517 10,669 15,556 11,405 9,330
------------ ------------ ------------ ------------ ------------
Net income $ 68,467 $ 19,255 $ 19,717 $ 16,854 $ 13,595
============ ============ ============ ============ ============
Net income allocated to:
GP Units and Class A LP Units $ 46,655 $ 4,976
Class B LP Units 21,812 1,128
Pre-Consolidation - 13,151
------------ ------------
Total $ 68,467 $ 19,255
============ ============
Net income per unit (1):
GP Units and Class A LP Units $ 1.16 $ 0.12
------------ ------------
Class B LP Units $ 0.59 $ 0.03
------------ ------------
Weighted average number of units outstanding
(Post -Consolidation):
Units outstanding:
General Partner 800 800
Class A 40,108 40,018
Class B 32,961 32,961
------------ ------------
Total 73,869 73,779
Weighted average effect of unit options 1,684 984
------------ ------------
Total 75,553 74,763
============ ============
Dividends/Distributions $ 89,613 $ 24,384 $ 22,158 $ 12,950 $ 8,900
FINANCIAL CONDITION AT END OF PERIOD:
Total assets (2) $ 369,592 $ 379,708 $ 70,388 $ 43,189 $ 38,466
Total liabilities 38,035 34,179 44,567 17,686 16,857
Total Stockholder's Equity 25,821 25,503 21,609
Total Partners' Capital 331,557 345,529
OTHER STATISTICS:
Assets under management (in millions) $ 95,182 $ 72,175 $ 58,182 $ 43,737 $ 37,921
Operating Profit Available for Distribution (1) $ 111,205 $ 12,306
Cash flows provided by operating activities $ 86,921 $ 25,852 $ 23,620 $ 9,309 $ 16,317
Cash flows provided by (used in) investing
activities (17,771) 22,401 (436) (1,149) 2,195
Cash flows used in financing activities (89,238) (2,549) (14,900) (15,800) (11,700)
</TABLE>
___________
(1) Computed on earnings following the Consolidation. Operating Profit
Available for Distribution is defined by the Partnership Agreement as the
sum of net income plus non-cash charges from the amortization of intangible
assets, non-cash compensation expenses arising from option and restricted
unit plans, and losses of any subsidiary which is not a flow-through entity
for tax purposes.
(2) Upon completion of the Consolidation, approximately $284.9 million of
intangible assets were created. See Note 3 in the Notes to the Consolidated
Financial Statements.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS OF PIMCO ADVISORS
GENERAL
PIMCO Advisors L.P. ("PIMCO Advisors") and subsidiaries was formed on
November 15, 1994 ("Date of Consolidation"), when Pacific Financial Asset
Management Corporation ("PFAMCo") merged PFAMCo Group into Thomson Advisory
Group L.P. ("TAG"). PFAMCo Group comprised the operations of 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 PIMCO Advisors were then
contributed to newly-formed subsidiaries of PIMCO Advisors. These businesses, as
well as TAG's former division of Columbus Circle Investors ("CCI"), are as
follows:
. Pacific Investment Management Company ("Pacific Investment Management"),
and its wholly-owned subsidiary, StocksPLUS Management, Inc.
("StocksPLUS"), managing primarily fixed income, with approximately $76.4
billion in assets under management;
. CCI, managing primarily equities, with approximately $12.7 billion in
assets under management;
. Cadence Capital Management ("Cadence"), managing equities, with
approximately $2.4 billion in assets under management;
. Parametric Portfolio Associates ("Parametric"), managing equities, with
approximately $1.6 billion in assets under management;
. NFJ Investment Group ("NFJ"), managing equities, with approximately $1.5
billion in assets under management; and,
. Blairlogie Capital Management ("Blairlogie"), managing equities, with
approximately $645 million in assets under management.
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 styles.
In addition to the investment management subsidiaries, PIMCO Advisors
sponsors two mutual fund families: PIMCO Funds (funds for institutional and
401(k)/defined contribution investors) and PIMCO Advisors Funds (retail funds
and the Cash Accumulation Trust).
Under generally accepted accounting principles, the Consolidation has been
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 PIMCO Advisors, 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 TAG's results of operations
in the pro forma results from the beginning of 1993 (rather than 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.
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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,
-------------------------------------------------------------
1995 1994 1993
------------- -------------- --------------
(ACTUAL) (PRO FORMA) (PRO FORMA)
(AMOUNTS IN MILLIONS, EXCEPT PER UNIT AMOUNTS)
<S> <C> <C> <C>
REVENUES:
Investment Advisory $ 281.6 $ 231.5 $ 222.4
PADCO 41.4 37.6 33.1
------------ ------------ -------------
323.0 269.1 255.5
------------ ------------ -------------
EXPENSES:
Compensation and Benefits 149.1 119.7 114.3
Commissions 28.7 23.1 20.2
Marketing and Promotional 9.1 11.4 8.3
Occupancy and Equipment 8.7 6.7 5.4
General and Administrative 11.4 7.4 5.4
Insurance 2.8 1.8 1.5
Professional Fees 3.2 3.4 2.6
Amortization of intangibles,
options and restricted Units 42.7 40.7 40.7
Other (income) expense (net) (1.2) 0.2 (0.4)
------------ ------------ -------------
254.5 214.4 198.0
------------ ------------ -------------
Net Income $ 68.5 $ 54.7 $ 57.5
============ ============ =============
Net Income per General Partner
and Class A Limited Partner Unit $ 1.16 $1.08 $1.10
============ ============ ==============
Net Income per Class B Limited Partner Unit $ 0.59 $ 0.28 $0.34
============ ============ ==============
REVENUES BY OPERATING ENTITY WERE AS FOLLOWS:
Pacific Investment Management $ 180.9 $ 142.9 $ 146.8
CCI 53.0 45.1 39.5
Cadence 14.6 12.1 9.5
Parametric 3.8 4.5 4.5
NFJ 5.9 5.0 3.8
PADCO 41.4 37.6 33.1
Other (1) 23.4 21.9 18.3
------------ ------------ -------------
$ 323.0 $ 269.1 $ 255.5
============ ============ =============
</TABLE>
Consolidated PIMCO Advisors
(1) Includes PA's Institutional Services (formerly PFAMCo) and Mutual Funds
divisions and Blairlogie.
The pro forma information for 1994 and 1993, given above is not intended to
reflect the results that actually would have been obtained if the operations
were consolidated during the periods presented.
Page 16
<PAGE>
RESULTS OF OPERATIONS - GENERAL COMMENTARY
PIMCO Advisors 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 is dependent
upon market conditions, client decisions to add or withdraw assets from PIMCO
Advisors management, and PIMCO Advisors ability to attract new clients, among
other factors. In addition, PIMCO Advisors has certain accounts which are
subject to performance based fee schedules wherein performance relative to the
S&P 500 Index or other benchmarks over a particular time period can result in
additional fees. These fees accrue on a quarterly or annual basis, depending
upon the specific investment advisory contract. Quarterly fees generally are
calculated based upon a rolling twelve-month performance result. Annual fees are
predominantly weighted towards fourth quarter billings. As a result, there is a
seasonality to the recognition of such 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.
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 PIMCO
Advisors' 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 20 years.
Net income per unit is computed under the two-class method which allocates
net income to Class A LP Units and Class B LP Units in proportion to the
Operating Profit Available for Distribution for each class. Operating Profit
Available for Distribution is defined by PIMCO Advisors partnership agreement
and is computed as the sum of net income plus non-cash charges from the
amortization of intangible assets, non-cash compensation expenses arising from
option and restricted unit plans, and losses of any subsidiary which is not a
flow-through entity for tax purposes. Class A LP Units and GP Units are entitled
to a priority distribution of $1.88 per unit per year until December 31, 1997.
Because of this, the amount of Operating Profit Available for Distribution
allocated to such units is currently greater than the amount allocated to Class
B LP Units. As a result, the net income allocated per Class A LP Unit and GP
Unit is currently greater than the net income allocated per Class B LP 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 LP
Units.
Actual unit distributions in 1995 were $1.649 for the GP Units and Class A
LP Units and were $0.673 cents for the Class B LP Units. These amounts reflect
Operating Profit Available for Distribution for the 46 day period from the date
of Consolidation through December 31, 1994, and Operating Profit Available for
Distribution for the first three quarters of 1995, as such distributions are
made in arrears.
RESULTS OF OPERATIONS - PRO FORMA FINANCIAL INFORMATION
Year Ended December 31, 1995 Actual Compared to Year Ended December 31, 1994 Pro
Forma
PIMCO Advisors consolidated actual 1995 revenues, including those of its
wholly-owned distributor, PADCO, were $323.0 million, compared to pro forma
revenues of $269.1 million in 1994. Advisory revenues in this comparison
increased $50.1 million to $281.6 million in 1995. PADCO's revenues increased
$3.8 million to $41.4 million in 1995. Revenue increases resulted from the
commitment of new assets by institutional clients and increases in the market
value of existing assets under management. These increases were further enhanced
by an increase in performance based fees, which amounted to $19.1 million in
1995 as compared to $9.2 million in 1994. The increase in performance based fees
occurred principally in a product line that seeks to outperform the S&P 500
Index.
Compensation and benefit expenses in 1995 of $149.1 million were $29.4
million higher than 1994, reflecting additional staffing at virtually all
subsidiaries, and increased profit sharing at the investment management firms
due to improved profitability. The total number of employees increased 12.5%
from 463 as of December 31, 1994 to 521 as of December 31, 1995.
Commission expenses increased by $5.6 million or 24.2% in 1995 as compared
with 1994 pro forma. Commission expenses are incurred by PADCO and are paid
primarily to broker-dealers and their sales people for the sale of PIMCO
Advisors retail-oriented
Page 17
<PAGE>
mutual funds. These include "up-front" commissions paid at the time of sale of
the mutual funds, "trail" commissions for the maintenance of assets in the
mutual funds and service fee commissions paid for services provided to mutual
fund shareholders. The level of commission expense will vary according to the
level of assets in the mutual funds (on which trail and service fee commissions
are determined) and on the level of sales of mutual funds (on which up-front
commissions are determined). Trail and service fee commissions are generally
paid quarterly beginning one year after sale of the mutual funds. Therefore, at
any given time, trail and service fee commissions will be paid on only the
mutual fund assets that qualify for such payments. In 1995, trail and service
fee commissions increased to $24.2 million, an increase of $7.9 million or
48.5%, compared to 1994. This increase is related to an increase in the
underlying qualifying assets. Up-front commissions decreased from $6.8 million
in 1994 to $4.5 million in 1995, a decrease of $2.3 million or 33.8%. This is a
result of decreases in total sales volume and the mix of share classes sold.
Marketing and promotional costs declined $2.3 million or 20.2% in 1995
compared to 1994. This decrease occurred at most entities, but primarily at
PADCO and Pacific Investment Management. At PADCO, reduced mutual fund share
sales correlate to the reduction. At Pacific Investment Management, reduced
promotional costs comprise the majority of the reduction.
Occupancy and equipment costs increased $2.0 million or 29.9% in 1995
compared to 1994. The increase correlates strongly to new equipment and
facilities for increased staff, primarily at Pacific Investment Management.
General and administrative costs increased $4.0 million or 54.1% in 1995
compared to 1994. Pacific Investment Management converted its institutional fund
family to a fixed fee basis in October 1995 resulting in increases to this cost
category for expenses previously borne directly by the funds. There is a
corresponding increase in revenues related to this conversion. These incremental
costs account for approximately $2.6 million of the increase. The remaining
increase was incurred at all entities and relates to higher levels of staffing
and activity.
Insurance costs increased $1.0 million or 55.6% in 1995 compared to 1994.
This increase relates principally to PIMCO Advisors increased cost of coverage
for general partner liability. Increases due to increased assets under
management, and related activities also occurred at the Investment Management
Firms.
Professional fees declined $0.2 million or 5.9% in 1995 compared to 1994.
This decline resulted primarily from increased reliance on internal staffing.
Other (income) expense, net, include such items as consulting costs,
reimbursement agreements and income taxes, offset by other income, and reflect a
net decrease of $1.4 million in 1995 compared to 1994. This decrease is
comprised principally of increased investment income and higher levels of
reimbursement under an agreement with Pacific Mutual that became effective in
November 1994.
Amortization of intangibles, options and restricted units increased $2.0
million principally due to the accelerated vesting of outstanding options and
Restricted Units for certain employees terminating during 1995.
Year Ended December 31, 1994 Pro Forma Compared to Year Ended December 31, 1993
Pro Forma
PIMCO Advisors 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 compared
to 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.
Compensation and benefits expenses in 1994 of $119.7 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
management firms.
Commission expenses increased $2.9 million to $23.1 million in 1994. In
1994, trail and service fee commissions increased $7.2 million to $16.3 million
as a result of an increase in the amount of qualifying assets. Up-front
commissions decreased $4.3 million to $6.8 million in 1994 as a result of lower
current levels of retail mutual fund sales.
All other expenses, net, increased $8.1 million to $30.9 million in 1994.
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. This
was further impacted by a $2.0 million expense reimbursement related to the
Page 18
<PAGE>
operations of PIMCO Advisors Institutional Services division, which is the
maximum amount that can be received under a reimbursement agreement and is
reflected in 1993 as a pro forma item. In actuality, this reimbursement
agreement became effective on the Date of Consolidation and reimbursement was
realized subsequent to the that date.
RESULTS OF OPERATIONS - HISTORICAL FINANCIAL INFORMATION
General Commentary
The historical financial statements reflect the results of PFAMCo Group
during 1993. The results for 1994 include PFAMCo Group, in its corporate form
for the period January 1, 1994 to November 15, 1994 and PIMCO Advisors' post-
Consolidation combined results in its partnership form from November 16, 1994 to
December 31, 1994, and for 1995. 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 1995, 1994 and 1993 are due to the reorganization of PFAMCo Group into
partnership form, the inclusion of TAG's operations in PFAMCo Group's operations
from November 16, 1994, to December 31, 1994, and in 1995, and from transactions
and restructuring that occurred in the Consolidation. The 1994 and 1995 results
also include certain non-cash expenses related to the amortization of intangible
assets created by the Consolidation and from expenses related to option and
restricted unit plans.
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
PIMCO Advisors 1995 revenues, including PADCO, were $323.0 million,
compared to $180.3 million in 1994, up $142.7 million. The increase in revenue
results primarily from the inclusion of TAG in the results of PIMCO Advisors
operations since the Consolidation, and to a lesser extent, from increased
assets under management at the investment management firms.
Compensation and benefits, which includes salaries, employee benefits and
incentive compensation, is the largest expense category. The increase in 1995 of
$32.0 million, to $149.2 million, reflects increased staff levels, higher profit
sharing and the inclusion of TAG in the full year of 1995, compared with only 46
days in 1994.
In addition to the effect of including TAG's operations for a full year in
1995, as compared to only 46 days in 1994, other expense categories reflect the
following fluctuations:
a) Restricted units and option plans, which came into existence at
the Consolidation, include approximately $2.0 million of
amortization related to the accelerated vesting of outstanding
options and restricted units for certain employees terminating
during 1995.
b) Trail and service fee commissions increased approximately $7.0
million as a result of an increase in the underlying qualifying
assets.
Year Ended December 31, 1994 Compared to Year Ended December 31, 1993
PIMCO Advisors 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 TAG in the results of PIMCO Advisors operations
since the Consolidation.
Compensation and benefits, which primarily include salaries, employee
benefits and incentive compensation, is PIMCO Advisors 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 firms. 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 expenses result 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 amortized over the 5-year
period. There were no similar commission or restricted Unit and option plan
expenses in the 1993 results of operations.
General and administrative expenses are primarily comprised of telephone
and printing expenses, the cost of supplies, books and periodicals, and
electronic research fees.
Page 19
<PAGE>
Marketing and promotional expenses include marketing fees and sales
promotion, sales literature, travel, entertainment and public relations costs.
The increase in such expenses 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 expenses increased over 1993 due to facility
expansion primarily at Pacific Investment Management, and includes $0.9 million
of TAG's costs.
Professional fees include the costs of outside legal, accounting, audit and
consultant services. 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, PIMCO Advisors was
organized as a partnership whose income is generally not subject to tax at the
partnership entity level. PIMCO Advisors does, however, have two corporate
subsidiaries that may be subject to federal and state income taxes.
CAPITAL RESOURCES AND LIQUIDITY
PIMCO Advisors and its predecessor entities' combined business have not
historically been capital intensive. Prior to the Consolidation, working capital
requirements have been satisfied out of operating cash flow or short-term
borrowings. PIMCO Advisors will make quarterly profit sharing payments to key
employees and distributions to its Unitholders. PIMCO Advisors may need to
finance profit sharing payments using short-term borrowings.
PIMCO Advisors had approximately $46.5 million of cash and cash equivalents
and short-term investments at December 31, 1995 compared to approximately $55.7
million at December 31, 1994. The decrease was due primarily to the funding of
"B" share commissions to brokers. "B" Shares involve the payment of commissions
to the selling broker by the distributor at the time of sale of mutual fund
shares. Through deferred sales charges to the investor, or 12-b1 plans with the
mutual fund, these "front-end" commissions are recouped by the distributor
over a period of years. PIMCO Advisors excess liquidity, after distributions
to its unitholders, 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. PIMCO Advisors 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 alternate financing source. However, PIMCO Advisors has made no
formal decision as to the source or necessity of such financing.
PIMCO Advisors currently has no long-term debt. PIMCO Advisors is currently
engaged in discussions with banks with respect to a $25 million four-year
revolving line of credit for working capital purposes. PIMCO Advisors currently
believes that cash on hand and internally generated cash provides it adequate
liquidity both in the near and long term.
ECONOMIC FACTORS
The general economy including interest rates, inflation and client
responses to economic factors will affect, to some degree, the operations of
PIMCO Advisors. As a significant portion of assets under management are fixed
income funds, fluctuations in interest rates could have a material impact on the
operations of PIMCO Advisors. PIMCO Advisors advisory business is generally not
capital intensive and therefore any effect of inflation, other than on interest
rates, is not expected to have a significant impact on its operations or
financial condition. Client responses to the economy, including decisions as to
the amount of assets deposited may also impact the operations of PIMCO Advisors.
These fluctuations may or may not be recoverable in the pricing of services
offered by PIMCO Advisors.
Page 20
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
Index to Financial Statements:
<TABLE>
<CAPTION>
Page (s)
--------
<S> <C>
PIMCO Advisors L.P.
Independent Auditors' Report 22
Consolidated Statements of Financial Condition -
as of December 31, 1995 and 1994 23-24
Consolidated Statements of Operations -
for each of the years in the three years ended
December 31, 1995 25
Consolidated Statements of Changes in Owners' Equity -
for each of the years in the three years ended
December 31, 1995 26-27
Consolidated Statements of Cash Flows -
for each of the years in the three years ended
December 31, 1995 28-30
Notes to Consolidated Financial Statements 31-40
</TABLE>
Page 21
<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,
1995 and 1994, and the related consolidated statements of operations, changes in
owners' equity and cash flows for each of the three years ended December 31,
1995. 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,
1995 and 1994, and the results of its operations and its cash flows for each of
the three years ended December 31, 1995, in conformity with generally accepted
accounting principles.
DELOITTE & TOUCHE LLP
Costa Mesa, California
February 2, 1996
Page 22
<PAGE>
PIMCO ADVISORS L. P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
DECEMBER 31,
1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 34,915,170 $ 55,003,751
Investment advisory fees receivable:
Private accounts 45,344,158 19,815,133
Proprietary Funds 8,413,302 6,454,589
Distribution and servicing fees receivable 3,594,534 2,864,886
Notes receivable 1,230,168 1,002,132
Receivable from PIMCO Advisors Funds 337,744 1,203,358
Short term investments 11,531,226 663,347
Other current assets 2,282,895 2,412,884
------------- -------------
Total current assets 107,649,197 89,420,080
Investment in StocksPLUS, L.P. 3,384,237 2,094,029
Fixed assets - Net of accumulated
depreciation and amortization
of $4,415,199 and $1,449,603 10,743,184 7,898,697
Intangible assets - Net of accumulated
amortization of $40,510,128
and $4,500,996 243,831,819 279,840,951
Other noncurrent assets 3,983,358 454,390
------------- -------------
TOTAL ASSETS $ 369,591,795 $ 379,708,147
============= =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements. (CONTINUED)
Page 23
<PAGE>
PIMCO ADVISORS L. P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31,
1995 1994
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
LIABILITIES
Current liabilities:
Accounts payable and accrued expenses $ 8,132,005 $ 7,190,703
Commissions payable 6,450,407 4,736,207
Payable to affiliates - 5,841,256
Accrued compensation 21,246,685 13,387,340
Other current liabilities 1,457,800 1,779,444
------------- -------------
Total current liabilities 37,286,897 32,934,950
Long term compensation - 766,155
Other non current liabilitites 748,265 478,268
-------------- -------------
Total liabilities 38,035,162 34,179,373
-------------- -------------
PARTNERS' CAPITAL
General Partner (800,000 units issued and outstanding) 3,456,973 3,863,283
Class A Limited Partners (40,121,155 and 40,018,155
units issued and outstanding at December 31, 1995
and 1994, respectively) 228,465,440 248,374,088
Class B limited Partners (32,960,826 units issued and
outstanding) 114,806,204 115,177,051
Unamortized compensation (15,171,984) (21,885,648)
-------------- -------------
Total Partners ' Capital 331,556,633 345,528,774
-------------- -------------
TOTAL LIABILITIES AND PARTNERS' CAPITAL $ 369,591,795 $ 379,708,147
============== =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
Page 24
<PAGE>
PIMCO ADVISORS L. P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES:
Investment advisory fees:
Private accounts $ 210,788,518 $ 128,069,527 $ 119,089,826
Proprietary Funds 72,687,409 47,666,728 46,766,660
Distribution and servicing fees 38,240,015 4,288,702 -
Other 1,297,933 238,208 -
--------------- --------------- --------------
Total revenues 323,013,875 180,263,165 165,856,486
--------------- --------------- --------------
- ------------------------------------------------------------------------------------------------------------------------
EXPENSES:
Compensation and Benefits 149,163,906 117,197,986 115,048,366
Commissions 28,743,396 2,877,497 -
Restricted Unit and Option Plans 6,713,664 1,162,143 -
Marketing and promotional 9,066,414 6,594,546 4,465,048
Occupancy and equipment 8,662,499 4,342,777 3,029,686
General and Administrative 11,433,726 5,842,962 3,524,943
Insurance 2,799,795 1,118,651 664,899
Professional fees 3,164,410 3,899,758 2,245,446
Amortization of intangible assets 36,009,132 5,039,680 -
Other 2,236,996 3,345,535 2,468,280
--------------- --------------- --------------
Total expenses 257,993,938 151,421,535 131,446,668
--------------- --------------- --------------
OPERATING INCOME 65,019,937 28,841,630 34,409,818
Equity in income of StocksPLUS, L.P. 225,670 10,722 768,327
Other income, net 3,738,980 1,072,221 95,421
--------------- --------------- --------------
Income before income tax expense 68,984,587 29,924,573 35,273,566
Income tax expense 517,133 10,669,295 15,556,248
--------------- --------------- --------------
NET INCOME $ 68,467,454 $ 19,255,278 $ 19,717,318
=============== =============== ==============
- ------------------------------------------------------------------------------------------------------------------------
NET INCOME ALLOCATED TO:
General Partner $ 912,891 $ 97,522
Class A Limited Partner units 45,742,774 4,878,336
Class B Limited Partner units 21,811,789 1,128,234
Pre-Consolidation 13,151,186
--------------- ---------------
Total $ 68,467,454 $ 19,255,278
=============== ===============
NET INCOME PER UNIT (POST-CONSOLIDATION):
Net income per General Partner and
Class A Limited Partner units $ 1.16 $ 0.12
--------------- ---------------
Net income per Class B Limited Partner unit $ 0.59 $ 0.03
=============== ===============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
Page 25
<PAGE>
PIMCO ADVISORS L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN OWNERS' EQUITY
<TABLE>
<CAPTION>
FOREIGN
COMMON STOCK PAID-IN RETAINED CURRENCY GENERAL PARTNER
SHARES AMOUNT CAPITAL EARNINGS TRANSLATION UNITS AMOUNT
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCES, JANUARY 1, 1993 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 $ 97,522
PFAMCo Group
capital contributions 7,775,000
Dividends (9,200,000)
Translation adjustment (50,427)
Deemed dividend, net (6,559,420) (8,625,011)
Conversion to partnership (1,000) (1,000) (12,058,726) (10,304,176) 51,239 800,000 318,182
TAG contributed capital
Goodwill from acquisition 3,447,579
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 - - - - - 800,000 3,863,283
Net income 912,890
Distributions (1,319,200)
Exercise of unit options
Balance of proceeds-Primary
offering
Vesting of options
and restricted units
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCES, DECEMBER 31, 1995 - $ - $ - $ - $ - 800,000 $ 3,456,973
=========== ========== =============== ================ ============ ============ ============
</TABLE>
(Continued)
<PAGE>
PIMCO ADVISORS L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN OWNERS' EQUITY, CONTINUED
<TABLE>
<CAPTION>
CLASS A LIMITED PARTNERS CLASS B LIMITED PARTNERS UNAMORTIZED TOTAL
UNITS AMOUNT UNITS AMOUNT COMPENSATION OWNER'S EQUITY
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCES, JANUARY 1, 1993 - - - - - $ 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 $ 4,878,336 $ 1,128,234 19,255,278
PFAMCo Group
capital contributions 7,775,000
Dividends (9,200,000)
Translation adjustment (50,427)
Deemed dividend, net (15,184,431)
Conversion to partnership 23,775,000 13,088,231 24,575,000 8,906,250 -
TAG contributed capital 14,918,155 9,644,238 8,260,826 1,990,739 11,634,977
Goodwill from acquisition 167,285,821 101,459,864 272,193,264
Proceeds from Primary Offering 1,200,000 19,972,951 19,972,951
Amended Option Plan -
grants (total award) 31,135,761 $ (18,987,077) 12,148,684
Restricted Unit Plan
grants (total award) 125,000 2,368,750 125,000 1,691,964 (4,060,714) -
Vesting of options
and restricted units 1,162,143 1,162,143
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCES, DECEMBER 31, 1994 40,018,155 248,374,088 32,960,826 115,177,051 (21,885,648) 345,528,774
Net income 45,742,775 21,811,789 68,467,454
Distributions (66,110,962) (22,182,636) (89,612,798)
Exercise of unit options 103,000 374,920 374,920
Balance of proceeds-Primary offering 84,619 84,619
Vesting of options
and restricted units 6,713,664 6,713,664
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCES, DECEMBER 31, 1995 40,121,155 $ 228,465,440 32,960,826 $ 114,806,204 $ (15,171,984) $ 331,556,633
============ ============== =========== ============= ================ ==============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
Page 27
<PAGE>
PIMCO ADVISORS L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
1995 1994 1993
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 68,467,454 $ 19,255,278 $ 19,717,318
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 38,972,101 6,339,107 1,015,505
Deferred income taxes 270,000 804,116 (2,618,074)
Amortization of compensation plan 663,697 789,504
Restricted Unit and Option Plans 6,713,664 1,162,143 -
Unrealized gain on investments (198,396) (135,376) -
Equity in income of StocksPLUS, L. (225,670) (10,722) (768,327)
Change in operating assets and liabilities:
Change in fees receivable (28,217,386) 7,919,554 (8,665,092)
Change in receivable from -
PIMCO Advisors Funds 865,614 (618,123)
Change in other assets (3,398,979) (10,838,869) (1,289,466)
Change in accounts payable
and accrued expenses 941,302 (660,816) 745,956
Change in commissions payable 1,714,200 2,413,750
Change in accrued compensation 7,859,345 8,423,141 8,578,026
Change in other liabilities (1,003,184) (649,686)
Change in payable to affiliates (5,841,256) (6,877,311) 7,082,815
Other 1,811 (1,337,755) (968,414)
------------- -------------- --------------
Net cash flow provided by operating 86,920,620 25,852,128 23,619,751
------------- ------------- --------------
</TABLE>
(Continued)
Page 28
<PAGE>
PIMCO ADVISORS L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
1995 1994 1993
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of investments $ (11,334,021) $ (52,601,192) $ (61,435,120)
Proceeds from sales of investments - 62,247,248 58,696,333
Return of investment in StocksPLUS, L.P. - - 6,500,000
Investment in StocksPLUS, L.P. (400,000) - (2,589,000)
Cash of acquired entities - 14,698,855 -
Proceeds from sale of fixed assets 309,575 - 26,500
Purchase of fixed assets (5,982,054) (1,826,800) (2,177,741)
Notes receivable (advances) payments (364,823) (117,232) 543,484
------------- ------------- -------------
Net cash (used in) provided by
investing activities (17,771,323) 22,400,879 (435,544)
------------- ------------- -------------
- -------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from primary offering - 19,972,951 -
Cash distributions (89,612,798) - -
Unit options exercised 374,920 - -
Dividends - (22,521,573) (14,900,000)
------------- ------------- -------------
Net cash used in financing activities (89,237,878) (2,548,622) (14,900,000)
------------- ------------- -------------
Net (decrease) increase
in cash and cash equivalents (20,088,581) 45,704,385 8,284,207
Cash and cash equivalents, beginning of year 55,003,751 9,299,366 1,015,159
------------- ------------- -------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 34,915,170 $ 55,003,751 $ 9,299,366
============= ============= =============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
Page 29
<PAGE>
PIMCO ADVISORS L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
1995 1994 1993
- ------------------------------------------------------------------------------------------
<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
=========== ============ ============
- ------------------------------------------------------------------------------------------
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 $ 405,542 $ 15,004,148 $ 18,612,861
=========== ============ ============
Interest paid $ 18,750 $ 209,171 $ 161,623
=========== ============ ============
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 the consolidated financial
statements.
Page 30
<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 its
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;
. 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); and
. COLUMBUS CIRCLE TRUST COMPANY ("CCTC"), a non bank trust company and wholly
owned subsidiary of Columbus Circle Investors, established in November 1995,
which commenced business in January 1996.
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 two open-end investment
management companies. One series includes 18 predominantly fixed income funds.
The other series includes 12 predominantly equity funds. The retail mutual funds
managed consist of 16 funds included within two open-end investment management
companies, the PIMCO Advisors Funds ("PAF"), formerly the Thomson Funds, and the
Cash Accumulation Trust ("CAT").
Page 31
<PAGE>
The accompanying consolidated 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 CASH EQUIVALENTS - PA invests certain cash balances in money market
funds. At December 31, 1995, this investment was approximately $20,844,000,
of which approximately $5,738,000 is invested in the National Money Market
Fund of CAT, approximately $4,284,000 is invested in the PIMCO Advisors Money
Market Fund and approximately $10,822,000 is invested in non affiliate money
market funds. At December 31, 1994, this category of investment was
approximately $41,000,000, of which approximately $32,000,000 was invested in
the National Money Market Fund of CAT. 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.
E. SHORT-TERM INVESTMENTS - The short term investments, as of December 31, 1995,
are primarily invested in the PIMCO Funds with a short-term duration
objective. The investments are carried at market value in accordance with
SFAS No. 115. Cost approximated fair value as of December 31, 1995 and 1994.
The investments, as of December 31, 1994, represent primarily investments in
PAF and CAT.
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 Partner units followed by a second
priority distribution to Class B Limited Partner units. During the year ended
December 31, 1995 and 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 Partner units under the treasury stock
method. The weighted average number of units used to compute earnings per
unit was as follows:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
General Partner and Class A Limited Partner Units 42,127,833 41,802,420
Class B Limited Partner Units 33,425,537 32,960,826
</TABLE>
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.
Page 32
<PAGE>
j. USE OF ESTIMATES IN THE PREPARATION OF CONSOLIDATED FINANCIAL STATEMENTS -
The consolidated financial statements have been prepared in accordance with
generally accepted accounting principles which require management to make
estimates and assumptions that affect the reported amounts and disclosures
in the financial statements. Actual results could differ from those
estimates.
3. INTANGIBLE ASSETS
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
represented 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 years
ended December 31, 1995 and 1994, approximately $36,000,000 and $5,000,000 of
amortization have been charged to expense, respectively.
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 and for
the year ended December 31, 1995 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 Partner Unit Option Plan;
d) The contribution of PADCO to PA in exchange for Class A Limited Partner
Units; and
e) 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,
1995 1994 1993
(Amounts in thousands, except per unit amounts)
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES
Investment advisory $ 281,610 $ 231,475 $ 222,366
PADCO 41,404 37,629 33,130
---------- ---------- ----------
323,014 269,104 255,496
- -------------------------------------------------==========----==========---==========-------
EXPENSES
Investment advisory 171,272 137,246 124,758
PADCO 40,552 36,435 32,487
Amortization of intangibles,
options and restricted units 42,723 40,713 40,713
---------- ---------- ----------
254,547 214,394 197,958
---------- ---------- ----------
Net income $ 68,467 $ 54,710 $ 57,538
========== ========== ==========
Net income per General Partner
and Class A Limited Partner Unit $1.16 $1.08 $1.10
===== ===== =====
Net income per Class B Limited Partner Unit $0.59 $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.
Page 33
<PAGE>
5. NOTES RECEIVABLE
Pacific Investment Management and PA have granted loans to certain
employees as part of programs designed to ensure the long-term retention of
those employees. These loans are primarily non-interest bearing and are
generally due within one year of issuance.
6. FIXED ASSETS
The major classifications of fixed assets are as follows:
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
1995 1994
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Office equipment, furniture and fixtures $ 9,548,212 $ 6,213,334
Automobiles 836,152 859,158
Leasehold improvements 4,774,019 2,275,808
Total fixed assets ------------ ------------
Less accumulated depreciation and amortization 15,158,383 9,348,300
Fixed assets, net 4,415,199 1,449,603
------------ ------------
$ 10,743,184 $ 7,898,697
============ ============
</TABLE>
Fixed assets of certain of the subsidiaries were revalued at their estimated
fair market value in connection with the Consolidation.
7. INCOME TAXES
Subsequent to the Consolidation, only certain subsidiaries are subject to
income taxes directly. PADCO and StocksPLUS are subject to Federal and state
income tax and file separate tax returns and account for income taxes under
Statement of Financial Accounting Standards No. 109. The total income tax
provision for the above subsidiaries for the year ended December 31, 1995 is as
follows:
<TABLE>
<S> <C>
Current expense:
State $ 105,724
Federal 159,440
Deferred expense:
State 68,378
Federal 183,591
-----------
$ 517,133
===========
</TABLE>
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.
Page 34
<PAGE>
The provision for taxes prior to the Consolidation was as follows:
<TABLE>
<CAPTION>
PERIOD ENDED YEAR ENDED
NOVEMBER 15, DECEMBER 31,
1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C>
Current expense:
State $ 2,140,509 $ 3,752,595
Federal 7,705,429 14,421,727
Deferred expense (benefit):
State 156,960 (391,741)
Federal 647,147 (2,226,333)
------------ -------------
$ 10,650,045 $ 15,556,248
============ =============
</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
NOVEMBER 15, DECEMBER 31,
1994 1993
- --------------------------------------------------------------------------------------
<S> <C> <C>
Statutory Federal income tax rate
applied to income before Federal income taxes 35.0% 35.0%
State taxes, net of Federal benefit 6.1 6.0
Foreign operations 3.1 1.9
Other 0.5 1.2
----------- ----------
Effective income tax rate 44.7% 44.1%
=========== ==========
</TABLE>
After the Consolidation, PA incurred a tax liability of $19,250 in 1994
principally related to the activities of a corporate subsidiary.
8. RELATED-PARTY TRANSACTIONS
As of December 31, 1994, the payable to affiliates included cash
received by PA and several of the subsidiaries for advisory fees which pre-dated
the Consolidation. This amount was payable to affiliates of Pacific Mutual and
was paid in 1995.
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 and $2,272,000 for the period ended November 15, 1994
and the year ended December 31, 1993, 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 $94,487,000 for the year ended December
31, 1995 and was approximately $10,091,000 for the period from the
Consolidation through December 31, 1994. 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 and $86,286,000 are included in
compensation and benefits in the accompanying Consolidated Statements of
Operations for the period ended November 15, 1994 and the year ended
December 31, 1993, respectively.
Page 35
<PAGE>
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 1995, PA and
certain of its subsidiaries, matched and contributed an amount equal to the
first five or six percent of annual compensation, subject to Internal
Revenue Service limits, contributed by the employees. In addition, PA and
certain of its subsidiaries, may elect to make a discretionary contribution
to all participants. The amount expensed by PA and its subsidiaries related
to this plan during the year ended December 31, 1995 and 1994 was
approximately $1,851,000 and $50,000, respectively.
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.
Pacific Investment Management has several defined contribution employee
benefit plans covering substantially all of its employees and made
contributions to the plans ranging form five percent to eleven percent of
covered individuals' base compensation. The aggregate expense recorded is
approximately $950,000 and none in 1995 and 1994, respectively.
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 Partner Units and
125,000 Class B Limited Partner Units have been awarded under the plan. The
units generally vest over a five-year period, however, accelerated vesting
occurred in 1995 upon the departure of a key employee. There are no
additional units available for grants under the plan. The expense under
this plan was approximately $2,010,000 and $101,000 during 1995 and 1994,
respectively.
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.
Page 36
<PAGE>
<TABLE>
<CAPTION>
OPTION PRICE
UNITS RANGER PER UNIT
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Outstanding, January 1, 1994 - -
Class A Limited Partner units
Granted 2,442,130 $2.425- $4.85
Class B Limited Partner units
Granted 5,297,000 $13.53
------------
Outstanding, December 31, 1994 7,739,130 $2.425- $13.53
------------
Class A Limited Partner units
Exercised (103,000) $2.425- $4.85
Class B Limited Partner units
Granted 109,000 $12.70- $14.68
Cancelled (174,200) $13.53
------------
Outstanding, December 31, 1995 7,570,930 $2.425- $14.68
============
Exercisable:
Class A Limited Partner units 686,666 $2.425
Class B Limited Partner units -
------------
Exercisable, December 31, 1995 686,666
============
</TABLE>
There are 368,200 Class B Limited Partner unit options available for future
grants, at December 31, 1995. The expense under the option plans was
approximately $4,704,000 and $1,061,000 during 1995 and 1994, respectively.
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation," which requires adoption of the disclosure provisions no later
than fiscal years beginning after December 15, 1995 and adoption of the
recognition and measurement provisions for nonemployee transactions no later
than December 15, 1995. The new standard defines a fair value method of
accounting for stock options and other equity instruments. Under the fair value
method, compensation cost is measured at the grant date based on the fair value
of the award and is recognized over the service period, which is usually the
vesting period.
Pursuant to the new standard, companies are encouraged, but are not required, to
adopt the fair value method of accounting for employee stock-based transactions.
Companies are also permitted to continue to account for such transactions under
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees", but would be required to disclose in a note to the financial
statements pro forma net income and, if presented, earnings per share as if the
company had applied the new method of accounting.
The accounting requirements of the new method are effective for all employee
awards granted after the beginning of the fiscal year of adoption. PA has not
yet determined if it will elect to change to the fair value method, nor has it
determined the effect the new standard will have on net income and earnings per
unit should it elect to make such a change. Adoption of the new standard will
have no effect on PA's cash flows.
F. OTHER BENEFIT PLANS - Certain of PFAMCo Group's eligible employees were
included in a Pacific Mutual sponsored defined benefit pension plan, and
health care 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.
Page 37
<PAGE>
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>
1996 $3,498,602
1997 3,500,329
1998 2,453,428
1999 1,656,532
2000 704,827
Thereafter 824,269
---------------
Total $12,637,987
===============
</TABLE>
Rent expense in connection with these agreements was approximately $3,641,000,
$2,379,000 and $1,476,000 for the years ended December 31, 1995, 1994, and 1993,
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, 1995, PADCO
had net capital of $1,049,818, which was $515,116 in excess of its required net
capital of $534,702. PADCO's net capital ratio was 7.64 to 1. At December 31,
1994, PADCO had $1,156,876 in excess of its required net capital of $579,935.
PADCO's net capital ratio was 5.01 to 1 at that time.
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
fair 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 exceed the S & P 500 Index.
StocksPLUS has mitigated the effects of its pro rata investment in
StocksPLUS, L.P.'s investments through the use of short futures positions. Gains
and losses related to these positions are settled daily. Included in "Short term
investments" in the accompanying Consolidated Statements of Financial Condition
are securities which are used as necessary for deposits made in connection with
the futures positions and are recorded at fair value. The notional amounts of
the contracts do not necessarily represent future cash requirements, as the
contracts are intended to be closed prior to their expiration. As of December
31, 1995 and 1994, the notional amounts of futures contracts approximated
$3,401,000 and $2,076,000, respectively.
Condensed financial information for StocksPLUS, L.P. is as follows:
Page 38
<PAGE>
<TABLE>
<CAPTION>
As of December 31,
1995 1994
SUMMARY OF FINANCIAL CONDITION
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Investments - at fair value $ 1,893,770,000 $ 1,122,510,000
Other assets 18,685,000 10,576,000
---------------- ----------------
Total assets $ 1,912,455,000 $ 1,133,086,000
- ----------------------------------------------------------------------------================---------================
LIABILITIES AND PARTNERS' CAPITAL
Liabilities $ 219,072,000 $ 68,867,000
StocksPLUS' Partner Capital 3,384,000 2,094,000
Limited Partners' Capital 1,689,999,000 1,062,125,000
---------------- ----------------
Total liabilites and partners' capital $ 1,912,455,000 $ 1,133,086,000
================ ================
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
1995 1994 1993
SUMMARY OF OPERATIONS
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net trading gains (losses) on futures $ 326,096,000 $ (30,291,000) $ 43,074,000
Net gain (loss) in fair value of securit 31,266,000 (21,278,000) (1,401,000)
Interest income 92,260,000 58,383,000 43,320,000
Fees and commissions (3,822,000) (878,000) (3,299,000)
-------------- ---------------- ----------------
Net income $ 445,800,000 $ 5,936,000 $ 81,694,000
============== ================ ================
</TABLE>
14. CONSOLIDATED QUARTERLY RESULTS
OF OPERATIONS (UNAUDITED)
The quarterly results for the periods indicated were as follows:
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS THREE MONTHS THREE MONTHS
ENDED ENDED ENDED ENDED
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1995 1995 1995 1995
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $ 71,118,000 $ 75,465,000 $ 83,203,000 $ 93,228,000
Expenses 57,934,000 61,158,000 65,799,000 69,139,000
-------------- -------------- -------------- --------------
Income before taxes 13,184,000 14,307,000 17,404,000 24,089,000
Income tax expense 44,000 198,000 263,000 12,000
-------------- -------------- -------------- --------------
Net income $ 13,140,000 $ 14,109,000 $ 17,141,000 $ 24,077,000
============== ============== ============== ==============
Net income per General
Partner and Class A Limited
Partner Unit $0.26 $0.26 $0.29 $0.35
============== ============== ============== ==============
Net income per Class B
Limited Partner Unit $0.07 $0.10 $0.14 $0.28
============== ============== ============== ==============
Market price per Class A
Limited Partner Unit
Low $ 16 7/8 $ 17 3/8 $ 19 $ 19 5/8
High $ 18 1/4 $ 20 5/8 $ 21 1/4 $ 12 1/4
</TABLE>
Page 39
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS THREE MONTHS THREE MONTHS
ENDED ENDED ENDED 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
-------------- -------------- -------------- --------------
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
Partner Unit* $ 0.12
============
Net income per Class B
Limited Partner Unit* $ 0.03
============
Market price per Class A
Limited Partner Unit*
Low $ 16 1/4
High $ 17 3/4
</TABLE>
*Information is for the period following the Consolidation
Page 40
<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 replaced 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 did not contain an adverse opinion or a
disclaimer of opinion, and were not qualified or modified as to uncertainty,
audit scope or accounting principles.
Page 41
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
GENERAL
The Partnership carries on its combined businesses (i) directly through the
Partnership with respect to the Partnership's administrative, accounting and
legal functions and its mutual fund business and (ii) through six largely
autonomous Investment Management Firms which carry on the respective businesses
of PIMCO, CCI, Cadence, Parametric, NFJ and Blairlogie.
PARTNERSHIP
The Partnership is managed by its General Partner, PPGP.
The General Partner has delegated the management and control of the
Partnership to two management boards, the Operating Board and the Equity Board.
Under the terms of the delegation, governance matters for most day-to-day
decisions are allocated to the Operating Board, which has, in turn, delegated
the authority to manage day-to-day operations and policies of the Partnership to
an 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.
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 48 Chief Executive Officer and Managing Director of Cadence
Donald A. Chiboucas 51 President and Managing Director of CCI
William D. Cvengros (1) 47 Chief Executive Officer and President of the Partnership
William H. Gross 51 Managing Director of PIMCO
Brent R. Harris 36 Managing Director of PIMCO
Amy M. Hogan 33 Managing Director of CCI
Dean S. Meiling 47 Managing Director of PIMCO
James F. Muzzy 56 Managing Director of PIMCO
William F. Podlich, III 51 Managing Director of PIMCO
William C. Powers 38 Managing Director of PIMCO
Irwin F. Smith (1) 56 Chief Executive Officer and Managing Director of CCI
William S. Thompson, Jr. (Chair) (1) 50 Chief Executive Officer and Managing Director of PIMCO
</TABLE>
__________
(1) Member of Operating Committee
Page 42
<PAGE>
Until the earlier of December 31, 1997 or the Restructuring, the Operating
Board will 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 the 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 in excess of consumer price index adjustments, and
the adoption of any policy or any action by one Investment Management Firm that
materially burdens another.
The members of the Equity Board are as set forth below:
<TABLE>
<CAPTION>
Name Age Positions
---- --- ---------
<S> <C> <C>
Walter E. Auch, Sr. 74 Independent Member
William D. Cvengros 47 Chief Executive Officer and President of the Partnership
Walter B. Gerken (Chair) 73 Former Chairman and Former Director of Pacific Mutual
William H. Gross 51 Managing Director of PIMCO
Donald R. Kurtz 65 Independent Member
James F. McIntosh 55 Independent Member
Donald K. Miller 64 Chairman of Greylock Financial Inc.
William F. Podlich, III 51 Managing Director of PIMCO
Glenn S. Schafer 46 President and Director of Pacific Mutual
Irwin F. Smith 56 Chief Executive Officer and Managing Director of CCI
Thomas C. Sutton 53 Chairman and Chief Executive Officer of Pacific Mutual
William S. Thompson, Jr. 50 Chief Executive Officer and Managing Director of PIMCO
</TABLE>
Page 43
<PAGE>
Until the earlier of December 31, 1997 or the Restructuring, the members of
the Equity Board will be composed of eight members who are not employed by PIMCO
Advisors (including five members designated by certain Unitholders), the Chief
Executive Officer of PIMCO Advisors, the Chairperson of the Operating Board and
two representatives of PIMCO. 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 Robert A. Prindiville, Executive Vice President; Kenneth M. Poovey,
General Counsel; John O. Leasure, Senior Vice President; Robert M. Fitzgerald,
Chief Financial Officer, Senior Vice President and Principal Accounting Officer;
Richard M. Weil, Senior Vice President-Legal; Newton B. Schott, Jr., Senior
Vice President-Legal; and James G. Ward, Vice President & Director of Human
Resources.
In addition, the Partnership has an Audit Committee, a Compensation
Committee, a Constructive Termination Committee and a Unit Incentive Committee
of the Equity Board, each comprised 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 has served on the Equity Board as an
independent member and as a member of the Audit Committee, Compensation
Committee, Unit Incentive Committee and the Constructive Termination
Committee since the Consolidation in November 1994. He currently is a
management consultant. Mr. Auch was a Director of TAG Inc. from October
1990 until November 1994. He was previously the Chairman and Chief
Executive Officer of the Chicago Board Options Exchange from 1979 to 1986.
He is also a director of 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.
David B. Breed. Mr. Breed has served as Chief Executive Officer and a
Managing Director of Cadence since the Consolidation in November 1994. From
February 1988 to July 1993, he was a Managing Director and Director of
Cadence Capital Management Corporation and he was Chief Executive Officer
and Chief Investment Officer thereof until November 1994.
Donald A. Chiboucas. Mr. Chiboucas has served as a member of the Operating
Board of the Partnership and the President and a Managing Director of CCI
since the Consolidation in November 1994. 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.
William D. Cvengros. Mr. Cvengros has served as Chief Executive Officer and
President of the Partnership, a member of its Equity and Operating Boards
and Chairman of its Operating Committee since the Consolidation in November
1994. In February 1986, Mr. Cvengros became both Chairman of the Board and
Directo of Pacific Investment Management Company (the predecessor to the
PIMCO Subpartnership). He was associated with Pacific Mutual from July 1972
when he joined Pacific Mutual as an investment analyst 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
Mutual Distributors, Inc., Mutual Service Corporation, PFAMCo, PFAMCo UK
Limited, Blairlogie, Parametric, NFJ, Cadence and PMRealty Advisors, Inc.
He is currently a director of Furon Corporation.
Robert M. Fitzgerald. Mr. Fitzgerald is Senior Vice President-Finance,
Chief Financial Officer, 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 LLP. He
is a Certified Public Accountant.
Walter B. Gerken. Mr. Gerken has served as the Chairman of the Equity Board
since the Consolidation in November 1994. Mr. Gerken is also on the Board
of Commercial Mortgage Securities Trust, Inc. and was formerly on the Board
of Pacific Investment Management Company. Mr. Gerken is the former Chairman
of the Board and CEO of Pacific Mutual.
Page 44
<PAGE>
William H. Gross. Mr. Gross is a Managing Director of the PIMCO
Subpartnership and a member of the Equity and Operating Boards. Mr. Gross
joined Pacific Investment Management Company (the predecessor to the PIMCO
Subpartnership) 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 is a Managing Director of the PIMCO
Subpartnership and has served on the Operating Board since the
Consolidation in November 1994. Mr. Harris was a Managing Director of
Pacific Investment Management Company (the predecessor to the PIMCO
Subpartnership) until November 1994. He joined Pacific Investment
Management Company 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.
Amy M. Hogan. Ms. Hogan has served as a member of the Operating Board since
March 1996 and as a Managing Director of CCI since the Consolidation in
November 1994. Prior thereto, Ms. Hogan was a Senior Vice President and
Portfolio Manager for Columbus Circle Investors division of the
Partnership (the predecessor of CCI). She had been employed by the
Partnership in similar capacities since 1986.
Donald R. Kurtz. Mr. Kurtz has served on the Equity Board as an independent
member and as a member of the Audit Committee, Compensation Committee, Unit
Incentive Committee and the Constructive Termination Committee of the
Partnership since the Consolidation in November 1994. Mr. Kurtz was a
Director of TAG Inc. from May 1992 until November 1994. From December 1994
until October 1995, he was acting Managing Director of Domestic Equity
Investments at General Motors Investment Management Corp. Prior thereto, he
served as Vice President or Director, Internal Asset Management at General
Motors Investment Management Corp. from January 1990 and at General Motors
Corp. from February 1987 until December 1989.
John O. Leasure. Mr. Leasure has served as a Senior Vice President of the
Partnership and President and a Director of PADCo since the Consolidation
in November 1994. 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 a Senior Executive Officer and a Director of PADCo
from May 1990 until November 1994.
James F. McIntosh. Mr. McIntosh has served on the Equity Board as an
independent member and as a member of the Audit Committee, Compensation
Committee, Unit Incentive Committee and Constructive Termination Committee
of the Partnership since the Consolidation in November 1994. Prior to
that time, he served as a director of PIMCO Inc. (the predecessor to the
PIMCO Subpartnership), a position he held since June 1983. He is
currently the Executive Director of Allen, Matkins, Leck, Gamble & Mallory
LLP, a law firm, which position he has held from October 1994. From
January 1981 to October 1994, he was Executive Director of Paul, Hastings,
Janofsky & Walker, a law firm.
Dean S. Meiling. Mr. Meiling is a Managing Director of the PIMCO
Subpartnership and has served as a member of the Operating Board since the
Consolidation in November 1994. Mr. Meiling was a Managing Director of
Pacific Investment Management Company (the predecessor to the PIMCO
Subpartnership) until November 1994. Mr. Meiling joined Pacific Investment
Management Company in October 1977 and became a Senior Vice President in
February 1982, a Principal in February 1984, and a Managing Director in
May 1987.
Donald K. Miller. Mr. Miller has served as a member of the Equity Board
since the Consolidation in November 1994. Prior thereto, 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. 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 a Director of
Layne, Inc., Huffy Corporation and RPM, Inc. He was a trustee of the
PIMCO Advisors Funds and Cash Accumulation Trust from October 1990 until
November 1994.
James F. Muzzy. Mr. Muzzy is a Managing Director of the PIMCO
Subpartnership and has served as a member of the Operating Board since the
Consolidation in November 1994. Mr. Muzzy was a Managing Director of
Pacific Investment Management Company (the predecessor to the PIMCO
Subpartnership) until November 1994. Mr. Muzzy joined Pacific Investment
Management Company 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).
Page 45
<PAGE>
William F. Podlich, III. Mr. Podlich is a Managing Director of the PIMCO
Subpartnership and has served as a member of the Equity and Operating
Boards since the Consolidation in November 1994. Mr. Podlich joined Pacific
Investment Management Company (the predecessor to the PIMCO Subpartnership)
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.
William C. Powers. Mr. Powers is a Managing Director of the PIMCO
Subpartnership and has served as a member of the Operating Board since the
Consolidation in November 1994. Mr. Powers was a Managing Director of
Pacific Investment Management Company (the predecessor to the PIMCO
Subpartnership) until November 1994. Mr. Powers joined Pacific Investment
Management Company 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 has served as an Executive Vice
President of the Partnership since the Consolidation in November 1994. 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.
Glenn S. Schafer. Mr. Schafer has served as a member of the Equity Board
since the Consolidation in November 1994. He currently serves as the
President of Pacific Mutual. Mr. Schafer was the Executive Vice President
and Chief Financial Officer of Pacific Mutual from April 1991 until January
1995. He is a Director and Chairman of Mutual Service Corporation and a
director of Pacific Mutual Distributors, Inc. and United Planners' Group,
Inc.
Newton B. Schott, Jr. Mr. Schott has served as Senior Vice President-Legal
and Secretary of the Partnership since the Consolidation in November 1994.
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 Executive Vice President, Secretary, General Counsel
and a Director of Thomson McKinnon Inc. from December 1984 until August
1992.
Irwin F. Smith. Mr. Smith has served 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 the CCI
Subpartnership since the Consolidation in November 1994. Prior thereto, 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 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.
Thomas C. Sutton. Mr. Sutton has served as a member of the Equity Board
since the Consolidation in November 1994. 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 has been associated with Pacific
Mutual since June 1965 and became its President in September 1987. Mr.
Sutton is also a Director of Pacific Mutual Distributors, Inc., Mutual
Service Corporation and PMRealty Advisors, Inc.
William S. Thompson, Jr. Mr. Thompson is a Managing Director and the CEO of
the PIMCO Subpartnership and has served as Chairman of the Operating Board
and as a member of the Equity Board and the Operating Committee since the
Consolidation in November 1994. Prior thereto, Mr. Thompson was a Managing
Director and the Chief Executive Officer of Pacific Investment Management
Company (the predecessor to the PIMCO Subpartnership). Mr. Thompson joined
Pacific Investment Management Company 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 and he is currently a
director of Spieker Properties, a public company.
James G. Ward. Mr. Ward has served as Vice President and Director of Human
Resources of the Partnership since April 1995. Prior to that time, he
served as Vice President and Director of Human Resources for the PIMCO
Subpartnership, a position he held beginning October 1994. From November
1987 through October 1994, he served as Vice President and Area Manager,
Human Resources for Salomon Brothers Inc.
Richard M. Weil. Mr. Weil is Senior Vice President-Legal, which position he
assumed in March of 1996. Mr. Weil was a Vice President in the Global Asset
Management Group of Bankers Trust Company from December 1994 through
February 1996 and was with the law firm of Simpson, Thatcher & Bartlett
from September 1989 through November 1994.
Page 46
<PAGE>
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, 1995
and 1994, 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, except that
Donald R. Kurtz filed a Form 5 in February 1996 reporting a transaction done in
February 1995.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth the cash compensation paid or allocated with
respect to the three years ended December 31, 1995 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 or members of the Operating Committee (the "Named Executive Officers"):
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
--------------------------
Annual Compensation Long term compensation awards
------------------- -----------------------------
Securities All
Restricted Unit Underlying Other
Name and Principal Year Salary (2) Bonus Other Awards Options/SARs Compensation (3)
Underlying Position (1) ($) ($) ($) ($) ($) (#) ($)
----------------------- ---- ---------- -------- ------- --------------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
William D. Cvengros 1995 $500,000 $800,00 - - - $4,620
Chief Executive Officer 1994 63,847 62,500 $3,248,571 400,000 1,915
and President 1993 - - - - -
William S. Thompson, Jr. 1995 $191,304 $4,752,463 $28,696 (6) - - $27,620
Member of Operating 1994 24,853 387,349 3,512 (6) - 230,000 390
Committee 1993 - - - - -
Irwin F. Smith 1995 $350,000 $4,424,609 - - - $19,399
Member of Operating 1994 350,000 3,815,922 - - - 19,393
Committee 1993 308,333 4,235,342 $775,000 (4) - 1,030,000 20,843
Robert A. Prindiville 1995 $400,000 $400,000 - - - $33,402
Executive Vice President 1994 400,000 510,000 - - - 33,402
1993 400,000 540,000 - - - 30,108
John O. Leasure 1995 $275,000 $425,000 - - - $37,107
Senior Vice President 1994 275,000 525,000 - - 80,000 17,082
1993 275,000 580,00O - - 185,400 21,413
</TABLE>
(1) Amounts shown for Messrs. Prindiville and Leasure include amounts paid by
PADCo. Amounts shown for Messrs. Thompson and Smith include amounts paid by
PIMCO and CCI, respectively.
(2) Except for Messrs. Thompson and Cvengros, salary and bonus includes amounts
deferred in the Partnership's 401(k) Savings and Investment Plan of $9,240
for 1995, $9,240 for 1994 and $8,994 for 1993. For Mr. Thompson, salary and
bonus includes amounts deferred in PIMCO's 401(k) Savings and Investment
Plan of $7,500 for 1995 and amounts deferred in PIMCO's Employee Retirement
Plan of $17,000 for 1995. For Mr. Cvengros, salary and bonus includes
amounts deferred in the Partnership's 401(k) Savings and Investment Plan of
$4,620 for 1995 and $0 for 1994.
(3) For Messrs. Smith, Prindiville and Leasure, 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 discretionary and
matching contributions to the Partnership's 401(k) Savings and Investment
Plan. In addition, for Mr. Leasure, the amount includes relocation
reimbursements. For Mr. Cvengros, the amount includes matching and
discretionary contributions to the Partnership's 401(k) Savings and
Investment Plan. For Mr. Thompson, amounts shown includes a $7,500 matching
contribution to the PIMCO 401(k) Savings and Investment Plan and a $17,000
matching contribution by PIMCO to its Employee Retirement Plan and premiums
on term life insurance ($1,000,000).
(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 LP Units and 100,000 Class B LP
Units in connection with the Consolidation. The Units vest over a five-year
period, pay distributions quarterly and had an aggregate value of
$3,788,437 at December 31, 1995.
(6) Amounts shown are the amounts of the PIMCO Flexible Perquisite Program for
certain generally business related expenses.
Compensation to key employees who are not executive officers may exceed the
compensation paid to executive officers in any given year.
Page 47
<PAGE>
The following table provides information on option exercises in 1995 by the
Named Executive Officers, and the value of unexercised options held by each
Named Executive Officer at December 31, 1995:
AGGREGATED OPTION/SAR EXERCISE IN LAST
FISCAL YEAR AND FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
Number of Securities
Shares Acquired Underlying Unexercised In-The- Money Options/
Name on Exercise (#) Value Realized Options/SARs at FY-End (#) SARs at FY-End ($)
($) Exercisable (E) / Unexercisable (U) Exercisable (E) / Unexercisable(U)
- ----------------------- --------------- ----------- ------------------------------- ------------------------------
<S> <C> <C> <C> <C>
William D. Cvengros - - 400,000 (U) (1) $ 1,391,747
William S. Thompson, Jr. - - 230,000 (U) (1) $ 800,255
Irwin F. Smith - - 686,666 (E) (2) $12,668,988
343,334 (U) (2) 6,334,512
Robert A. Prindiville - - - -
John O. Leasure - - 185,400 (U) (2) $ 3,195,369
80,000 (U) (1) 278,349
</TABLE>
_____________
(1) Options under the 1994 Class B LP Unit Option Plan.
(2) Options (Class I and Class II) under the 1993 Class A LP Unit Option Plan.
The following table provides information on adjustments or amendments to the
exercise price of options held by the Named Executive Officers during the last
ten completed fiscal years:
TEN-YEAR OPTION/SAR REPRICING
<TABLE>
<CAPTION>
Length of
Original
Number of Securities Market Price Option term
Underlying of Stock at Exercise Price Remaining at
Options/SARs Time of at Time of New Date of
Name Repriced or Repricing or Repricing or Exercise Repricing or
Date Amended (#) Amendment (#) Amendment ($) (1) Price ($) (2) Amendment
- ------------------- ----- ------------- ----------- --------------------- --------------- ------------
<S> <C> <C> <C> <C> <C> <C>
William D. Cvengros - - - - - -
William S. Thompson, - - - - - -
Jr.
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
</TABLE>
_____________
(1) Adjusted for the distribution of 1.06 Units per Unit effective October 9,
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.
Page 48
<PAGE>
COMPENSATION OF DIRECTORS
The Partnership pays members of the Equity Board who are not
employees of the Partnership, an Investment Management Firm or Pacific Mutual
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. Members who are employees of the Partnership or any
Investment Management Firm are not entitled to any additional compensation
from 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 the General Partner
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 and a member of the Operating and Equity Boards, is party to a four-
year employment agreement with the Partnership commencing January 1, 1995 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 LP Units under the 1994 Unit Option Plan. In 1994, Mr.
Cvengros was also granted 100,000 restricted Class A LP Units and 100,000
restricted Class B LP Units which are forfeitable to PPGP upon certain events of
termination. 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 awarded. 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 is
entitled to the same payments described in the prior sentence except that the
amount of the severance payment is fixed at $500,000. In the event of any such
terminations, all his options and restricted Units which have not vested shall
automatically vest.
William S. Thompson, Jr., the Chairperson of the Operating Board
and a member of the Operating Committee and Equity Board, as well as a
Managing Director and the Chief Executive Officer of PIMCO, is a party to an
employment agreement with PIMCO under which he receives an annual base
salary of $191,304, subject to yearly increases based on inflation. In
addition, Mr. Thompson is eligible to participate in the profit sharing plan
adopted by PIMCO. The Partnership also granted Mr. Thompson options to
purchase up to 230,000 Class B LP Units under the 1994 Unit Option Plan.
Irwin F. Smith, a member of the Operating Board, Operating Committee
and Equity Board, as well as Chief Executive Officer of CCI, is party to an
employment agreement with CCI through December 31, 1998, under which he receives
an annual base salary of $350,000, which will increase to $400,000 on January 1,
1997. Mr. Smith is also eligible to participate in the profit sharing plan
adopted by CCI. 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 in
connection with the Consolidation.
John O. Leasure, a Senior Vice President of the Partnership and
President and a Director of PADCo, is party to an employment agreement with the
Partnership through December 31, 1996 under which he receives 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). Mr.
Leasure was granted 80,000 options under PIMCO Advisors' 1994 Class B LP Unit
Option Plan and 185,400 options under PIMCO Advisors 1993 Class A LP Unit Option
Plan. In connection with the Consolidation, the options granted to
Page 49
<PAGE>
Mr. Leasure under the 1993 Class A LP Unit Option Plan were reclassified as
options on Class A LP Units, and 92,700 of these options were repriced. In the
event of an Involuntary Termination (as defined) 100% of his options under the
1993 Class A LP Unit Option Plan (described below) and at least 60% of his
options under the 1994 Class B LP Unit Option Plan (described below) will vest.
Kenneth M. Poovey, General Counsel of the Partnership, acts in such
capacity in return for a monthly payment of $40,000 (plus travel and other
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.
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 Supervisory Board of the
Partnership. As of December 31, 1995, there were outstanding options to purchase
an aggregate of 5,231,800 Class B LP Units, most of which were issued to
officers of the Partnership, Managing Directors of the Investment Management
Firms and certain other employees at an exercise price equal to 71.4% of the
average trading price of the Partnership's Class A LP Units for the 20 trading
day period prior to the closing of the Consolidation. These options generally
vest in five equal annual installments beginning December 31, 1994 and generally
are not exercisable until January 1, 1998. At December 31, 1995, options to
purchase an additional 368,200 Class B LP Units were available for issuance
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 of the Partnership and two of the Investment
Management Firms have the right to recommend to the Unit Incentive Committee the
persons to whom an aggregate of 118,200 of such 368,200 remaining options shall
be granted.
In addition, at December 31, 1995, 2,339,130 options were outstanding
under the Partnership's 1993 Class A LP Unit Option Plan for the purchase of
Class A LP Units at prices ranging from $2.425 to $4.855 per Class A LP Unit. It
is not expected that any further options will be granted under the 1993 Class
A LP Unit Option Plan.
Page 50
<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 LP Units and Class B LP Units
as of December 31, 1995 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 Chief Executive Officer 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 800 Newport Center Drive,
Newport Beach, California.
<TABLE>
<CAPTION>
GP Units Class A LP Units Class B LP Units
(1) (1) (1)
- ----------------------------------------------------------------------------------------------------------------
FIVE PERCENT HOLDERS (OTHER THAN THOSE LISTED
UNDER OPERATING AND EQUITY BOARD MEMBERS
BELOW)
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PIMCO Partners, G.P. (2) 800,000/ 23,654,713/ 30,135,826/
100% 57.8% 91.4%
- ----------------------------------------------------------------------------------------------------------------
Pacific Mutual Life Insurance Company (3) 800,000 27,089,911/ 32,835,826/
100% 66.2% 99.6%
- ----------------------------------------------------------------------------------------------------------------
Pacific Financial Asset Management Corporation (3) 800,000 27,089,911/ 32,835,826/
100% 66.2% 99.6%
- ----------------------------------------------------------------------------------------------------------------
Pacific Investment Management Company (3) 800,000 24,019,747/ 30,335,826/
100% 58.7% 92.0%
- ----------------------------------------------------------------------------------------------------------------
PIMCO Partners, LLC (4) ("PIMCO LLC") 800,000 23,797,193/ 30,135,826
100% 58.2% 91.4%
- ----------------------------------------------------------------------------------------------------------------
Thomson Advisory Group Inc. 0 6,119,391/ 8,260,826/
15.0% 25.1%
- ----------------------------------------------------------------------------------------------------------------
David H. Edington (7) 800,000 23,797,193/ 30,135,826/
100% 58.2% 91.4%
- ----------------------------------------------------------------------------------------------------------------
John L. Hague (7) 800,000 23,797,193/ 30,135,826/
100% 58.2% 91.4%
- ----------------------------------------------------------------------------------------------------------------
Frank B. Rabinovitch (7) 800,000 23,797,193/ 30,135,826/
100% 58.2% 91.4%
- ----------------------------------------------------------------------------------------------------------------
OPERATING AND EQUITY BOARD MEMBERS
- ----------------------------------------------------------------------------------------------------------------
Walter E. Auch, Sr. 0 0 0
- ----------------------------------------------------------------------------------------------------------------
David B. Breed 0 265,000 285,000
* *
- ----------------------------------------------------------------------------------------------------------------
Donald A. Chiboucas (5) 0 366,475/ 826,082/
* 2.5%
- ----------------------------------------------------------------------------------------------------------------
William D. Cvengros 0 100,000/ 100,000/
* *
- ----------------------------------------------------------------------------------------------------------------
Walter B. Gerken 0 0 0
- ----------------------------------------------------------------------------------------------------------------
William H. Gross (6) (7) 800,000 23,867,193/ 30,135,826/
100% 58.2% 91.4%
- ----------------------------------------------------------------------------------------------------------------
Brent R. Harris (7) 800,000 23,797,193/ 30,135,826/
100% 58.3% 91.4%
- ----------------------------------------------------------------------------------------------------------------
Amy M. Hogan 0 0 0
- ----------------------------------------------------------------------------------------------------------------
Donald R. Kurtz 0 2,000/ 0
*
- ----------------------------------------------------------------------------------------------------------------
James F. McIntosh 0 1,000/ 0
*
- ----------------------------------------------------------------------------------------------------------------
Dean S. Meiling (7) 800,000 23,797,193/ 30,135,826/
100% 58.2% 91.4%
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
Page 51
<PAGE>
<TABLE>
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------
Donald K. Miller (5) 0 32,287/ 82,608/
* *
- ----------------------------------------------------------------------------------------------------------------
James F. Muzzy (7) 800,000 23,797,193/ 30,135,826/
100% 58.2% 91.4%
- ----------------------------------------------------------------------------------------------------------------
William F. Podlich, III (7) 800,000 23,797,193/ 30,135,826/
100% 58.2% 91.4%
- ----------------------------------------------------------------------------------------------------------------
William C. Powers (7) 800,000 23,797,193/ 30,135,826/
100% 58.2% 91.4%
- ----------------------------------------------------------------------------------------------------------------
Glenn S. Schafer 0 0 0
- ----------------------------------------------------------------------------------------------------------------
Irwin F. Smith (5) (8) 0 1,032,593/ 826,082/
2.5% 2.5%
- ----------------------------------------------------------------------------------------------------------------
Thomas C. Sutton 0 0 0
- ----------------------------------------------------------------------------------------------------------------
William S. Thompson, Jr. (7) (9) 800,000 23,800,193/ 30,135,826/
100% 58.2% 91.4%
- ----------------------------------------------------------------------------------------------------------------
EXECUTIVE OFFICERS NOT INCLUDED ABOVE
- ----------------------------------------------------------------------------------------------------------------
John O. Leasure 0 0 0
- ----------------------------------------------------------------------------------------------------------------
Robert A. Prindiville (5) 0 49,646/ 413,042/
* 1.3%
- ----------------------------------------------------------------------------------------------------------------
All directors and executive officers as a group 800,000/ 24,924,859/ 30,520,826/
(25 persons) 100% 59.9% 92.6%
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
_________
* Less than 1%
(1) Each of the persons and entities listed disclaims beneficial ownership of
any Units except to the extent that it has a pecuniary interest in such
items.
(2) Includes (i) 16,735,322 Class A Units and 21,875,000 Class B 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 and 8,260,826 Class B Units held of record by TAG Inc.,
all of the common stock (which is non-voting) is owned by PIMCO GP.
(3) Includes (i) the 800,000 GP Units, 24,019,747 Class A Units and 30,135,826
Class B Units beneficially owned by PFAMCo which may be deemed to be
beneficially owned by PIMCO Inc. because PIMCO Inc. is a wholly owned
subsidiary of PFAMCo; (ii) 728,475 Class A Units held of record by PFAMCo,
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) 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.
(4) 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.
(5) 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.
(6) Includes 70,000 shares held in trusts of which the individual is
trustee and as to which he has sole voting and disposition power.
(7) 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.
Page 52
<PAGE>
(8) Includes 686,666 Class A Units which may be acquired upon exercise of
options within 60 days.
(9) Includes 3,000 shares held in trusts of which the individual is trustee
and as to which he has sole voting and disposition power.
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,
PPGP, 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 will depend on the facts and
circumstances existing at the time a Restructuring is implemented, TAG Inc.
currently anticipates that on or prior to December 31, 1997: (i) all holders of
publicly traded Class A LP Units who are not Nonpublic Unitholders (the "Public
Unitholders") and certain other PIMCO Advisors Unitholders will contribute their
Units to a corporation in exchange for an equal number of shares of common stock
of the corporation; (ii) TAG Inc. will combine with the corporation, with
holders of TAG Inc.'s equity securities receiving one share of the successor's
common stock for each share of Common Stock or preferred stock held by them;
and (iii) the successor (the "Restructuring Corporation") will become a general
partner of PIMCO Advisors and all limited partner Units held by the successor
will become GP Units.
As a result of these transactions, the Public Unitholders, the
holders of TAG Inc.'s equity securities and certain other PIMCO Advisors
Unitholders will indirectly own equity interests in PIMCO Advisors through
the publicly traded common stock of the Restructuring Corporation, which will
directly or beneficially own one PIMCO Advisors GP Unit for each share of its
common stock outstanding. After the Restructuring, it is expected that
the Restructuring Corporation will be the sole publicly traded entity through
which equity interests in PIMCO Advisors will be owned.
PIMCO Advisors does not expect to change its distribution policy
following the Restructuring, and it is anticipated that the Restructuring
Corporation generally will distribute all cash received by it from PIMCO
Advisors other than cash needed for payment of taxes and operational expenses.
Because of federal, state, and other taxes on the Restructuring Corporation's
income, cash available for dividends to the holders of the Restructuring
Corporation's publicly traded securities will be substantially less than the
cash distributed to the Restructuring Corporation by PIMCO Advisors. Assuming
that the Restructuring is carried out in the manner anticipated, under current
law the amount of such taxes imposed on the Restructuring Corporation will be
reduced by the Restructuring Corporation's carrying over the balance of the
amortizable Section 197 Intangibles associated with the publicly traded
Class A LP Units immediately prior to the Restructuring and claiming
amortization deductions with respect to such amount.
Restructuring Authority. Because of possible changes in applicable
laws or regulations and other factors, it cannot now be established with
certainty what actions PPGP will take in connection with the Restructuring, if
any. Section XVIII of the Partnership Agreement confers on PPGP 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
PPGP to effect any Restructuring and gives PPGP authority to choose the timing
(subject to certain limitations) of a Restructuring.
Limited Duty to Unitholders Related to Restructuring. In order to
assure that it is clear that PPGP 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 partners, 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.
Page 53
<PAGE>
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. Through December 31, 1995, PFAMCo
had paid the Partnership $1,164,689 pursuant to this arrangement.
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 Partnership. 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 a 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 PPGP's ownership of Units, PPGP 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 LP
Units.
In the event of withdrawal or removal of a general partner, such
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
LP Units.
TAG Inc., certain affiliates of PPGP and Pacific Mutual and certain
individuals have registration rights as to Units that they own or have the right
to acquire.
Page 54
<PAGE>
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.
Page 55
<PAGE>
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 21 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.2/
-
3.2 Amended and Restated Agreement of General Partnership of PIMCO
Partners, G.P. ("PIMCO GP").1/
-
4.1 Amended and Restated Agreement of Limited Partnership of
Registrant dated October 31, 1994.1/
-
4.1(a) First Amendment to Amended and Restated Agreement of Limited
Partnership of Registrant. 3/
-
4.2 Specimen Class A LP Unit Certificate.4/
-
4.3 Specimen Class B LP Unit Certificate.4/
-
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.4/
-
10.2 Smith Employment Agreement.4/
-
10.3 Chiboucas Employment Agreement.4/
-
10.4 Form of Manager Employer Agreement.4/
-
10.5 Profit Sharing Plan for Pacific Investment Management Company.2/
-
10.6 Profit Sharing Plan for Columbus Circle Investors.4/
-
10.7 Form of Profit Sharing Plan for Investment Management Firms.4/
-
10.8 PFAMCo Loss Reimbursement Agreement.4/
-
10.9 Blairlogie Loss Reimbursement and Recapture Agreement.4/
-
10.10(a) Thomson Advisory Group L.P. 1993 Unit Option Plan (as amended
through April 20, 1993).5/
-
10.10(b) Amendment to the Thomson Advisory Group L.P. 1993 Unit Option
Plan.
10.11 Award of Options dated March 10, 1993 to Irwin F. Smith.6/
-
<PAGE>
10.12 Smith Option Amendment Agreement.4/
-
10.13 Form of Class I Option Amendment Agreement.4/
-
10.14 Form of Class II Option Amendment Agreement.4/
-
10.15 Form of PIMCO Advisors L.P. 1994 Class B LP Unit Option Plan.7/
-
10.16 Form of Option Agreement for Item 10.15.7/
-
10.17 PIMCO Advisors L.P. Restricted Unit Plan.4/
-
10.18 (a) Thomson Advisory Group 401(k) Savings and Investment
Plan.8/
-
(b) First Amendment to the Thomson Advisory Group 401(k)
Savings and Investment Plan.9/
-
(c) Thomson Advisory Group 401(k) Savings and Investment Plan
Volume Submitter Amendment.9/
-
(d) Consolidation Transaction Amendment.2/
-
(e) Third Amendment to the Thomson Advisory Group 401(k)
Savings and Investment Plan.2/
-
(f) Fourth Amendment to the PIMCO Advisors 401(k) Savings and
Investment Plan.2/
-
10.19 Form of Indemnification Agreement executed by certain officers
of the Registrant and certain directors of Thomson McKinnon
Asset Management Inc. 10/
--
10.20 Form of Indemnification Agreement executed by certain directors
and/or officers of TAG Inc.11/
--
10.21 Form of Amendment No. 1 to Indemnification Agreement (Exhibit
10.20 hereto).12/
--
10.22 Employment Agreement between PIMCO Advisors L.P. and John O.
Leasure.2/
-
23.1 Consent of Deloitte & Touche LLP.
27 Financial Data Schedule.
__________
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 Registrant's Report on Form 10-K for the year ended
- -
December 31, 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, 1995 and incorporated herein by reference.
4/ Filed as an Exhibit to the Registrant's Report on Form 8-K dated July 11,
- -
1994 and incorporated herein by reference.
5/ Filed as an Exhibit to Registrant's Report on Form 10-Q for the quarter
- -
ended March 31, 1993 and incorporated herein by reference.
6/ Filed as an Exhibit to Registrant's Report on Form 10-K for the year ended
- -
December 31, 1992 and incorporated herein by reference.
7/ Filed as an Exhibit to Registrant's Registration Statement on Form S-4
- -
(File No. 33-84914) and incorporated herein by reference.
8/ Filed as an Exhibit to Registrant's Report on Form 10-K for the year ended
- -
December 31, 1991 and incorporated herein by reference.
9/ Filed as an Exhibit to Registrant's Report on Form 10-K for the year ended
- -
December 31, 1993 and incorporated herein by reference.
10/ Filed as an Exhibit to Registrant's Report on Form 10-Q for the quarter
- --
ended June 30, 1990 and incorporated herein by reference.
11/ Filed as an Exhibit to Registrant's Report on Form 10-Q for the quarter
- --
ended September 30, 1990 and incorporated herein by reference.
12/ 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 1995.
Page 57
<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,
Chief Executive Officer and President
Date: March 28, 1996
Page 58
<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>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ William D. Cvengros Chief Executive Officer and President of Registrant March 28, 1996
- -----------------------
William D. Cvengros Member of Equity Board and Operating Board
/s/ Irwin F. Smith Member of Equity Board and Operating Board March 28, 1996
- ------------------
Irwin F. Smith
/s/ William S. Thompson, Jr. Member of Equity Board and Operating Board March 28, 1996
- ---------------------------
William S. Thompson, Jr.
/s/ Walter E. Auch, Sr. Member of Equity Board March 28, 1996
- -----------------------
Walter E. Auch, Sr.
/s/ David B. Breed Member of Operating Board March 28, 1996
- ------------------
David B. Breed
/s/ Donald A. Chiboucas Member of Operating Board March 28, 1996
- -----------------------
Donald A. Chiboucas
/s/ Walter B. Gerken Member of Equity Board March 28, 1996
- --------------------
Walter B. Gerken
/s/ William H. Gross Member of Equity Board and Operating Board March 28, 1996
- --------------------
William H. Gross
/s/ Brent R. Harris Member of Operating Board March 28, 1996
- -------------------
Brent R. Harris
/s/ Donald R. Kurtz Member of Equity Board March 28, 1996
- -------------------
Donald R. Kurtz
/s/ James F. McIntosh Member of Equity Board March 28, 1996
- ---------------------
James F. McIntosh
/s/ Dean S. Meiling Member of Operating Board March 28, 1996
- -------------------
Dean S. Meiling
/s/ Donald K. Miller Member of Equity Board March 28, 1996
- --------------------
Donald K. Miller
/s/ James F. Muzzy Member of Operating Board March 28, 1996
- ------------------
James F. Muzzy
/s/ Amy M. Hogan Member of Operating Board March 28, 1996
- ----------------
Amy M. Hogan
/s/ William F. Podlich, III Member of Equity Board and Operating Board March 28, 1996
- ---------------------------
William F. Podlich, III
/s/ William C. Powers Member of Operating Board March 28, 1996
- ---------------------
William C. Powers
/s/ Glenn S. Schafer Member of Equity Board March 28, 1996
- --------------------
Glenn S. Schafer
/s/ Thomas C. Sutton Member of Equity Board March 28, 1996
- --------------------
Thomas C. Sutton
/s/ Robert M. Fitzgerald Senior Vice President-Finance, March 28, 1996
- ------------------------ Chief Financial Officer, Controller and
Robert M. Fitzgerald Principal Accounting Officer
</TABLE>
Page 59
<PAGE>
<TABLE>
<CAPTION>
PIMCO ADVISORS L.P.
FORM 10-K
EXHIBIT INDEX
1995
NUMBER EXHIBIT PAGE
- ------ ------- ----
<C> <S>
10.10(b) Amendment to the Thomson Advisory Group L.P. 1993 Unit Option Plan 61
23.1 Consent of Deloitte & Touche LLP 62
27 Financial Data Schedule 63
</TABLE>
Page 60
<PAGE>
EXHIBIT 10.10(b)
-----------------
AMENDMENT TO THE
THOMSON ADVISORY GROUP L.P.
1993 UNIT OPTION PLAN
___________________________
WHEREAS, PIMCO Advisors L.P. (formerly called Thomson Advisory Group L.P.)
sponsors the Thomson Advisory Group L.P. 1993 Unit Option Plan (the "Plan"); and
WHEREAS, Section 10 of the Plan provides that the Board of Directors of
the general partner of PIMCO Advisors L.P. may amend the Plan; and
WHEREAS, the Operating Board and the Equity Board of PIMCO Advisors L.P.
have delegated to the Unit Incentive Committee of the Equity Board of PIMCO
Advisors L.P. the administration of the incentive plans of PIMCO Advisors L.P.;
and
WHEREAS, the PIMCO Advisors L.P. desires to amend the Plan in various ways;
Now, therefore, be it resolved by the Equity Board of PIMCO Advisors L.P.
that effective as of November 16, 1994, the Plan be and it hereby is amended as
follows:
1. The name of the Plan shall be changed to PIMCO Advisors L.P. 1993
Class A LP Unit Option Plan wherever it appears.
2. The term "Units" as defined in the Plan shall refer to Class A Units
of limited partner interest in PIMCO Advisors L.P.
3. The term "Committee" as defined in the Plan shall refer to the Unit
Incentive Committee of the Equity Board of PIMCO Advisors L.P.
4. The term "Board" as defined in the Plan shall refer to the Equity
Board of PIMCO Advisors L.P.
and further resolved that, for any options outstanding on the date hereof
for which the optionee does not execute an amending agreement in the form
previously approved, it is hereby determined, pursuant to Section 8 of the Plan,
that such options shall be exercisable for Class A Units of Limited Partner
Interest in PIMCO Advisors L.P.
Page 61
<PAGE>
EXHIBIT 23.1
-------------
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement No.33-
71016 on Form S-8 of our report dated February 2, 1996, appearing in this Annual
Report on Form 10-K of PIMCO Advisors L.P. and subsidiaries for the year ended
December 31, 1995.
DELOITTE & TOUCHE LLP
Costa Mesa, California
March 27, 1996
Page 62
<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-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 34,915
<SECURITIES> 11,531
<RECEIVABLES> 58,920
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 107,649
<PP&E> 10,743<F1>
<DEPRECIATION> 4,415
<TOTAL-ASSETS> 369,592
<CURRENT-LIABILITIES> 37,287
<BONDS> 0
<COMMON> 346,729<F2>
0
0
<OTHER-SE> (15,172)<F3>
<TOTAL-LIABILITY-AND-EQUITY> 362,592
<SALES> 0<F4>
<TOTAL-REVENUES> 323,014<F5>
<CGS> 0<F4>
<TOTAL-COSTS> 221,985<F6>
<OTHER-EXPENSES> 36,009<F7>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 68,984
<INCOME-TAX> 517
<INCOME-CONTINUING> 68,467
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 68,467
<EPS-PRIMARY> 1.16<F8>
<EPS-DILUTED> .59<F9>
<FN>
<F1> Net of accumulated depreciation and amortization.
<F2> Entity is a partnership. Amount shown represents Partners' Capital.
<F3> Amount shown comprises Unamortized Compensation.
<F4> The partnership is in the service business and has no sales or cost of goods
sold of tangible products.
<F5> Amount shown comprises revenues from services.
<F6> Amount shown is comprises costs of services.
<F7> Amount shown is from amortization of intangible assets.
<F8> Amount shown is for the Partnership's General Partner and Class A Limited
Partner Units.
<F9> Amount is for the Partnership's Class Limited Partner Units.
</FN>
</TABLE>
