FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended JUNE 30, 2000
------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
--------------------- ---------------------
Commission File No. 000-29961
--------------------------------------
ALLIANCE CAPITAL MANAGEMENT L.P.
--------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 13-4064930
-------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1345 AVENUE OF THE AMERICAS, NEW YORK, NY 10105
--------------------------------------------------------------------------------
(Address of principal executive offices)
(Zip Code)
(212) 969-1000
--------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
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
------ ------
205,573,518 Units of limited partnership interests in Alliance Capital
Management L.P. were outstanding as of June 30, 2000.
<PAGE>
ALLIANCE CAPITAL MANAGEMENT L.P.
Index to Form 10-g
Part I
FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS PAGE
Condensed Consolidated Statements of Financial Condition 1
Condensed Consolidated Statements of Income 2
Condensed Consolidated Statements of Changes in
Partners' Capital and Comprehensive Income 3
Condensed Consolidated Statements of Cash Flows 4
Notes to Condensed Consolidated Financial Statements 5-9
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 10-20
Part II
OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS 21
Item 2. CHANGES IN SECURITIES 21
Item 3. DEFAULTS UPON SENIOR SECURITIES 21
Item 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS 21
Item 5. OTHER INFORMATION 21
Item 6. EXHIBITS AND REPORTS ON FORM 8-K 21
<PAGE>
Part I
FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
ALLIANCE CAPITAL MANAGEMENT L.P.
Condensed Consolidated Statements of Financial Condition
(in thousands)
ASSETS 6/30/00 12/31/99
------------ ----------
(unaudited)
<S> <C> <C>
Cash and cash equivalents ................................................. $ 1,513,928 $ 80,185
Receivable from brokers and dealers for sale
of shares of Alliance mutual funds ..................................... 165,741 218,569
Fees receivable:
Alliance mutual funds .................................................. 127,886 189,866
Separately managed accounts:
Affiliated clients ................................................... 9,075 7,136
Third-party clients .................................................. 125,499 112,847
Investments, available-for-sale ........................................... 152,622 98,620
Furniture, equipment and leasehold improvements, net ...................... 145,454 140,045
Intangible assets, net .................................................... 97,619 98,068
Deferred sales commissions, net ........................................... 689,301 604,723
Other investments ......................................................... 60,562 57,786
Other assets .............................................................. 65,811 53,216
------------ ------------
Total assets .......................................................... $ 3,153,498 $ 1,661,061
============ ============
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Payable to Alliance mutual funds for share purchases .................. $ 186,824 $ 254,151
Accounts payable and accrued expenses ................................. 213,220 225,922
Accrued compensation and benefits ..................................... 334,058 235,120
Debt .................................................................. 268,416 390,079
Minority interests in consolidated subsidiaries ....................... 2,822 3,122
------------ -----------
Total liabilities ................................................... 1,005,340 1,108,394
Partners' capital ..................................................... 2,148,158 552,667
------------ -----------
Total liabilities and partners' capital ............................. $ 3,153,498 $ 1,661,061
============ ============
See accompanying notes to condensed consolidated financial statements.
1
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ALLIANCE CAPITAL MANAGEMENT L.P.*
Condensed Consolidated Statements of Income
(unaudited)
(in thousands, except per Unit amounts)
THREE MONTHS ENDED SIX MONTHS ENDED
--------------------- --------------------
Alliance Alliance Alliance Alliance
Capital Holding Capital Holding
6/30/00 6/30/99 6/30/00 6/30/99
-------- -------- -------- --------
Revenues:
<S> <C> <C> <C> <C>
Investment advisory and services fees:
Alliance mutual funds ........................................ $ 260,728 $ 185,928 $ 515,845 $ 380,827
Separately managed accounts:
Affiliated clients ........................................... 14,221 14,171 26,999 26,894
Third-party clients .......................................... 102,692 91,176 208,987 188,972
Distribution revenues .......................................... 155,438 105,218 302,678 198,830
Shareholder servicing fees ..................................... 21,622 15,500 40,980 28,797
Other revenues ................................................. 10,236 6,948 17,854 14,364
---------- ---------- ----------- ----------
564,937 418,941 1,113,343 838,684
---------- ---------- ----------- ----------
Expenses:
Employee compensation and benefits ............................. 131,444 102,693 260,089 220,972
Promotion and servicing:
Distribution plan payments to financial intermediaries:
Affiliated ................................................ 33,401 25,191 64,269 50,875
Third-party ............................................... 82,801 57,728 165,835 109,869
Amortization of deferred sales commissions .................. 53,184 40,017 103,886 74,698
Other ....................................................... 39,896 28,093 73,843 54,896
General and administrative .................................... 50,175 45,403 99,029 87,739
Interest ...................................................... 10,268 4,479 24,390 7,980
Amortization of intangible assets .............................. 981 964 1,956 1,927
Litigation adjustment, net ..................................... - - (23,853) -
---------- ---------- ----------- ---------
402,150 304,568 769,444 608,956
---------- ---------- ----------- ---------
Income before income taxes ....................................... 162,787 114,373 343,899 229,728
Income taxes .................................................. 8,952 17,159 18,914 34,460
---------- ---------- ----------- ---------
Net income ....................................................... $ 153,835 $ 97,214 $ 324,985 $ 195,268
========== ========== =========== =========
Net income per Unit:
Basic ......................................................... $ 0.87 $ 0.56 $ 1.86 $ 1.13
========== ========== =========== =========
Diluted........................................................ $ 0.83 $ 0.55 $ 1.78 $ 1.10
========== ========== =========== =========
* As discussed in Notes 1 and 2, the financial information above reflects the
operations of Alliance Capital Management Holding L.P. prior to the
Reorganization effective October 29, 1999 and of Alliance Capital Management
L.P. thereafter.
</TABLE>
See accompanying notes to condensed consolidated financial statements.
2
<PAGE>
<TABLE>
<CAPTION>
ALLIANCE CAPITAL MANAGEMENT L.P.*
Condensed Consolidated Statements of
Changes in Partners' Capital
and Comprehensive Income
(unaudited)
(in thousands)
THREE MONTHS ENDED SIX MONTHS ENDED
----------------------- -----------------------
Alliance Alliance Alliance Alliance
Capital Holding Capital Holding
6/30/00 6/30/99 6/30/00 6/30/99
---------- -------- -------- -------
<S> <C> <C> <C> <C>
Partners' capital - beginning of period ..................... $ 530,452 $ 458,949 $ 552,667 $ 430,273
Comprehensive income:
Net income ............................................ 153,835 97,214 324,985 195,268
Unrealized gain on investments, net ................... 140 327 227 1,151
Foreign currency translation adjustment, net .......... (536) - (607) 3
------------ ----------- ----------- -----------
Comprehensive income .................................. 153,439 97,541 324,605 196,422
------------ ----------- ----------- -----------
Capital contribution received from Alliance Capital
Management Corporation ................................. 90 90 180 1,066
Cash distributions to partners............................... (142,173) 93,316) (300,378) (167,364)
Purchase of Alliance Holding Units to fund
Alliance Partners Compensation Plan..................... - - (47,635) -
Amortization of deferred compensation expense................ 2,631 - 6,371 -
Proceeds from issuance of Alliance Capital Units
to ELAS and AXA Financial............................... 1,600,000 - 1,629,525 -
Purchase of Alliance Capital Units from Alliance Holding .... - - (28,042) -
Proceeds from options for Alliance Holding Units exercised .. 3,719 3,798 10,865 -
------------ ----------- ------------ -----------
Partners' capital - end of period ........................... $ 2,148,158 $ 467,062 $ 2,148,158 $ 467,062
============ =========== ============ ===========
</TABLE>
* As discussed in Notes 1 and 2, the financial information above reflects the
operations of Alliance Capital Management Holding L.P. prior to the
Reorganization effective October 29, 1999 and of Alliance Capital
Management L.P. thereafter.
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
<TABLE>
<CAPTION>
ALLIANCE CAPITAL MANAGEMENT L.P.*
Condensed Consolidated Statements of Cash Flows
(unaudited)
(in thousands)
SIX MONTHS ENDED
----------------------------
Alliance Alliance
Capital Holding
6/30/00 6/30/99
---------- ---------
Cash flows from operating activities:
<S> <C> <C>
Net income ......................................................................... $ 324,985 $ 195,268
Adjustments to reconcile net income to net cash provided
from operating activities:
Amortization and depreciation ................................................. 124,703 86,151
Other, net..................................................................... 20,895 9,339
Changes in assets and liabilities:
(Increase) decrease in receivable from brokers and dealers for sale
of shares of Alliance mutual funds 52,825 (23,790)
(Increase) decrease in fees receivable from Alliance mutual funds,
affiliated clients and third-party clients ................................ 46,996 (24,258)
(Increase) in deferred sales commissions .................................... (188,464) (213,425)
(Increase) in other investments ............................................. (2,800) (14,411)
(Increase) in other assets .................................................. (12,892) (5,915)
Increase (decrease) in payable to Alliance mutual funds for share purchases . (67,365) 39,481
(Decrease) in accounts payable and accrued expenses ......................... (12,156) (17,535)
Increase in accrued compensation and benefits, less
deferred compensation ..................................................... 95,833 95,607
----------- ---------
Net cash provided from operating activities ............................. 382,560 126,512
----------- ---------
Cash flows from investing activities:
Purchase of investments ............................................................ (688,379) (514,538)
Proceeds from sale of investments .................................................. 634,594 426,850
Additions to furniture, equipment and leasehold
improvements, net ................................................................ (23,747) (27,290)
Other .............................................................................. - (142)
----------- ---------
Net cash used in investing activities .................................. (77,532) (115,120)
----------- ---------
Cash flows from financing activities:
Proceeds from borrowings ........................................................... 4,224,887 905,231
Repayment of debt .................................................................. (4,359,979) (743,375)
Cash distributions to partners ..................................................... (300,378) (167,364)
Purchase of Alliance Holding Units to fund Alliance Partners
Compensation Plan ................................................................ (47,635) -
Proceeds from issuance of Alliance Capital Units to ELAS and AXA Financial ......... 1,629,525 -
Purchase of Alliance Capital Units from Alliance Holding ........................... (28,042) -
Capital contribution received from Alliance Capital Management
Corporation ...................................................................... 180 566
Proceeds from options for Alliance Holding Units exercised ......................... 10,865 6,665
------------ ---------
Net cash provided from financing activities ............................. 1,129,423 1,723
------------ ---------
Effect of exchange rate changes on cash and cash equivalents ......................... (708) -
------------ ---------
Net increase in cash and cash equivalents ............................................. 1,433,743 13,115
Cash and cash equivalents at beginning of period ...................................... 80,185 75,186
------------ ---------
Cash and cash equivalents at end of period ............................................ $ 1,513,928 $ 88,301
============ =========
* As discussed in Notes 1 and 2, the financial information above reflects the
operations of Alliance Capital Management Holding L.P. prior to the
Reorganization effective October 29, 1999 and of Alliance Capital
Management L.P. thereafter.
See accompanying notes to condensed consolidated financial statements.
</TABLE>
4
<PAGE>
ALLIANCE CAPITAL MANAGEMENT L.P.
Notes to Condensed Consolidated Financial Statements
June 30, 2000
(unaudited)
1. REORGANIZATION
Effective October 29, 1999, Alliance Capital Management Holding L.P.,
formerly known as Alliance Capital Management L.P. ("Alliance Holding"),
reorganized by transferring its business to Alliance Capital Management
L.P., a newly formed private partnership ("Alliance Capital" or the
"Operating Partnership"), in exchange for all of the Units of Alliance
Capital (the "Reorganization"). The Operating Partnership recorded the
transferred assets and assumption of liabilities at the amounts reflected
in Alliance Holding's books and records on the date of transfer. Since the
Reorganization, the Operating Partnership has conducted the diversified
investment management services business formerly conducted by Alliance
Holding, and Alliance Holding's business has consisted of holding Alliance
Capital Units and engaging in related activities. Alliance Capital
Management Corporation ("ACMC"), an indirect wholly-owned subsidiary of AXA
Financial, Inc. ("AXA Financial"), is the general partner of both Alliance
Holding and the Operating Partnership. Alliance Capital is a registered
investment adviser under the Investment Advisers Act of 1940. Alliance
Holding Units are publicly traded on the New York Stock Exchange while
Alliance Capital Units do not trade publicly and are subject to significant
restrictions on transfer.
As part of the Reorganization, Alliance Holding offered each Alliance
Holding Unitholder the opportunity to exchange Alliance Holding Units for
Alliance Capital Units on a one-for-one basis. In the exchange offer,
approximately 99.6 million Alliance Holding Units were exchanged for
Alliance Capital Units. This number includes the approximately 95.1 million
Alliance Holding Units exchanged by affiliates of AXA Financial.
At June 30, 2000, Alliance Holding owned approximately 72.6 million, or
35%, of the issued and outstanding Alliance Capital Units. ACMC owns
100,000 general partnership Units in Alliance Holding and a 1% general
partnership interest in the Operating Partnership. At June 30, 2000, AXA
Financial was the beneficial owner of approximately 2.1% of Alliance
Holding's outstanding Units and approximately 62.5% of the Operating
Partnership's outstanding Units which, including the general partnership
interests, equates to an economic interest of approximately 63.6% in the
Operating Partnership.
The Operating Partnership provides diversified investment management and
related services to a broad range of clients including unaffiliated
separately managed accounts, The Equitable Life Assurance Society of the
United States ("ELAS"), a wholly-owned subsidiary of AXA Financial, and its
insurance company subsidiary and to individual investors through mutual
funds and various other investment vehicles. Separately managed accounts
consist primarily of the active management of equity and fixed income
portfolios for institutional investors including corporate and public
employee pension funds, the general and separate accounts of ELAS and its
insurance company subsidiary, endowment funds, and the assets of other
domestic and foreign institutions. The Operating Partnership provides
investment management, distribution, and shareholder and administrative
services to its sponsored mutual funds and cash management products,
including money market funds and deposit accounts ("Alliance mutual
funds").
5
<PAGE>
2. BERNSTEIN ACQUISITION
Pursuant to an acquisition agreement dated as of June 20, 2000 among
Alliance Capital, Alliance Holding, Sanford C. Bernstein Inc. ("Bernstein")
and Bernstein Technologies Inc., a wholly owned subsidiary of Bernstein,
Alliance Capital has agreed to acquire the Bernstein business for $1.4754
billion in cash and 40.8 million Alliance Capital units subject to
adjustment in certain circumstances. On June 21, 2000 AXA Financial
purchased from Alliance Capital 32,619,775 newly issued Alliance Capital
units for $1.6 billion, and Alliance Capital will use the proceeds
primarily to finance the cash portion of the acquisition price.
The obligations of both Alliance Capital and Bernstein to close the
transactions contemplated by the acquisition agreement depend upon meeting
a number of conditions, including the approval of Alliance Holding
unitholders, Alliance Capital's reasonable satisfaction that Bernstein has
maintained at least 75% of its client revenue base as of May 31, 2000, and
receipt of regulatory approvals and consents from Bernstein's clients and
other third parties. The parties are working to close the acquisition by
the fourth quarter of 2000.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The unaudited interim condensed consolidated financial statements of the
Operating Partnership included herein have been prepared in accordance with
the instructions to Form 10-Q pursuant to the rules and regulations of the
Securities and Exchange Commission. In the opinion of management, all
adjustments, consisting only of normal recurring adjustments necessary for
a fair presentation of (a) the Operating Partnership's financial position
at June 30, 2000, (b) the Operating Partnership's and Alliance Holding's
results of operations for the three months and six months ended June 30,
2000 and 1999, respectively, and (c) the Operating Partnership's and
Alliance Holding's cash flows for the six months ended June 30, 2000 and
1999, respectively, have been made.
The consolidated financial statements' dollar and per Unit amounts and
disclosures reflect the operations of Alliance Holding prior to the
Reorganization effective October 29, 1999 and Alliance Capital thereafter.
The accounting policies summarized below are followed by the Operating
Partnership subsequent to the Reorganization and were followed by Alliance
Holding prior to the Reorganization. All information prior to the
Reorganization is that of Alliance Holding.
RECLASSIFICATIONS
Certain prior period amounts have been reclassified to conform with the
current period presentation.
4. DEFERRED SALES COMMISSIONS
Sales commissions paid to financial intermediaries in connection with the
sale of shares of open-end Alliance mutual funds sold without a front-end
sales charge are capitalized and amortized over periods not exceeding five
and one-half years, the period of time during which deferred sales
commissions are expected to be recovered from distribution plan payments
received from those funds and from contingent deferred sales charges
received from shareholders of those funds upon the redemption of their
shares. Contingent deferred sales charges reduce unamortized deferred sales
commissions when received.
6
<PAGE>
5. QUARTERLY FINANCIAL INFORMATION
The following table summarizes the actual and pro forma unaudited condensed
results of operations of the Operating Partnership for the three months and
six months ended June 30, 2000 and 1999, respectively, as if the
Reorganization (See Note 1) had occurred on January 1, 1999. The pro forma
financial information reflects the Operating Partnership as a private
partnership that is not subject to a federal tax of 3.5% on partnership
gross income from the active conduct of a trade or business.
The pro forma financial information does not necessarily reflect the
results of operations that would have been obtained had the Reorganization
occurred on January 1, 1999, nor is the pro forma financial information
necessarily indicative of the results of operations that may be achieved
for any future period. (In thousands, except per Unit amounts):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------------- ------------------------
Actual Pro Forma Actual Pro Forma
6/30/00 6/30/99 6/30/00 6/30/99
---------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues ................................................. $ 564,937 $ 418,941 $1,113,343 $ 838,684
Expenses ................................................. 402,150 304,568 769,444 608,956
--------- --------- ---------- ----------
Income before income taxes ............................... 162,787 114,373 343,899 229,728
Income taxes ............................................. 8,952 7,630 18,914 14,856
--------- --------- ---------- ----------
Net income ............................................... $ 153,835 $ 106,743 $ 324,985 $ 214,872
========= ========= ========== ==========
Basic net income per Alliance Capital Unit ............... $ 0.87 $ 0.62 $ 1.86 $ 1.25
====== ====== ====== ======
Diluted net income per Alliance Capital Unit ............. $ 0.83 $ 0.60 $ 1.78 $ 1.21
====== ====== ====== ======
</TABLE>
6. NET INCOME PER UNIT
Basic net income per Unit is derived by reducing net income for the 1%
General Partner interest and dividing the remaining 99% by the weighted
average number of Units outstanding. Diluted net income per Unit is derived
by reducing net income for the 1% General Partner interest and dividing the
remaining 99% by the total of the weighted average number of Units
outstanding and the dilutive Unit equivalents resulting from outstanding
employee options and restricted units. All information prior to the
Reorganization is that of Alliance Holding. (In thousands, except per Unit
amounts):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
---------------------- -----------------------
Alliance Alliance Alliance Alliance
Capital Holding Capital Holding
6/30/00 6/30/99 6/30/00 6/30/99
--------- --------- ---------- --------
<S> <C> <C> <C> <C>
Net income ............................................ $ 153,835 $ 97,214 $ 324,985 $ 195,268
========= ========= ========= =========
Weighted average Units outstanding-Basic .............. 175,133 171,043 173,246 170,804
Dilutive effect of employee options and
restricted units ..................................... 7,997 5,325 7,697 5,164
--------- --------- --------- ---------
Weighted average Units outstanding-Diluted ............ 183,130 176,368 180,943 175,968
========= ========= ========= =========
Basic net income per Unit ............................. $ 0.87 $ 0.56 $ 1.86 $ 1.13
====== ====== ====== ======
Diluted net income per Unit ........................... $ 0.83 $ 0.55 $ 1.78 $ 1.10
====== ====== ====== ======
</TABLE>
7
<PAGE>
7. COMMITMENTS AND CONTINGENCIES
On July 25, 1995, a Consolidated and Supplemental Class Action Complaint
(the "Original Complaint") was filed against Alliance North American
Government Income Trust, Inc. (the "Fund"), Alliance Holding and certain
other defendants affiliated with Alliance Holding alleging violations of
federal securities laws, fraud and breach of fiduciary duty in connection
with the Fund's investments in Mexican and Argentine securities.
On September 26, 1996, the United States District Court for the Southern
District of New York granted the defendants' motion to dismiss all counts
of the Original Complaint. On October 29, 1997, the United States Court of
Appeals for the Second Circuit affirmed that decision.
On October 29, 1996, plaintiffs filed a motion for leave to file an amended
complaint. The principal allegations of the proposed amended complaint are
that (i) the Fund failed to hedge against currency risk despite
representations that it would do so, (ii) the Fund did not properly
disclose that it planned to invest in mortgage-backed derivative
securities, and (iii) two advertisements used by the Fund misrepresented
the risks of investing in the Fund. On October 15, 1998, the United States
Court of Appeals for the Second Circuit issued an order granting
plaintiffs' motion to file an amended complaint alleging that the Fund
misrepresented its ability to hedge against currency risk and denying
plaintiffs' motion to file an amended complaint alleging that the Fund did
not properly disclose that it planned to invest in mortgage-backed
derivative securities and that certain advertisements used by the Fund
misrepresented the risks of investing in the Fund. On December 1, 1999, the
United States District Court for the Southern District of New York granted
the defendants' motion for summary judgment on all claims against all
defendants. On December 14 and 15, 1999, the plaintiffs filed motions for
reconsideration of the Court's ruling. These motions are currently pending
with the Court.
A Stipulation and Agreement of Settlement has been signed with the lawyers
for the plaintiffs settling this action. Under the Stipulation and
Agreement of Settlement Alliance Capital will permit Fund shareholders to
invest up to $250 million in Alliance mutual funds free of initial sales
charges. On August 3, 2000 the Court signed an order approving the
Stipulation and Agreement of Settlement. Shareholders of the Fund have
thirty days from the date the order becomes final to appeal the order.
Alliance Capital assumed all of Alliance Holding's liabilities in respect
of this litigation in connection with the Reorganization. As a result of
the settlement, Alliance Capital recorded a non-cash gain of $22.5 million
($23.9 million pre-tax) during the three months ended March 31, 2000. While
the ultimate outcome of this matter cannot be determined at this time,
management does not expect that it will have a material adverse effect on
Alliance Capital's or Alliance Holding's results of operations or financial
condition.
8. INCOME TAXES
The Operating Partnership is a private partnership for federal income tax
purposes and, accordingly, is not subject to federal or state corporate
income taxes. However, the Operating Partnership is subject to the New York
City unincorporated business tax. Domestic corporate subsidiaries of the
Operating Partnership, which are subject to federal, state and local income
taxes, are generally included in the filing of a consolidated federal
income tax return. Separate state and local income tax returns are filed
for domestic corporate subsidiaries. Foreign corporate subsidiaries are
generally subject to taxes in the foreign jurisdictions where they are
located.
9. SUPPLEMENTAL CASH FLOW INFORMATION
Cash payments for interest and income taxes were as follows (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------ ----------------------
Alliance Alliance Alliance Alliance
Capital Holding Capital Holding
6/30/00 6/30/99 6/30/00 6/30/99
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Interest ............................................. $ 5,309 $ 1,747 $ 12,375 $ 4,108
Income taxes ......................................... 7,976 56,875 21,419 64,274
</TABLE>
8
<PAGE>
10. ACCOUNTING PRONOUNCEMENT
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, ("SFAS 133")"ACCOUNTING FOR
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES". Under this Statement, an
entity is required to recognize derivative instruments as either assets or
liabilities in the statement of financial condition and measure those
instruments at fair value. In addition, any entity that elects to apply
hedge accounting is required to establish at the inception of the hedge the
method it will use for assessing effectiveness of the hedging derivative
and the measurement approach for determining the ineffective aspect of the
hedge. In June 1999, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 137 ("SFAS 137"), which
deferred the effective date of SFAS 133 to all fiscal quarters of all
fiscal years beginning after June 15, 2000. Management intends to adopt
this Statement on January 1, 2001 and does not believe that the adoption of
the Statement will have a material effect on the operating Partnership's
financial condition, results of operations, liquidity, or capital
resources.
11. CASH DISTRIBUTION
On July 26, 2000, the General Partner declared a distribution of
$146,224,000 or $0.82 per Alliance Capital Unit representing a distribution
from Available Cash Flow (as defined in the Alliance Capital Partnership
Agreement) of the Operating Partnership for the three months ended June 30,
2000. The distribution is payable on August 17, 2000 to holders of record
on August 7, 2000.
9
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
REORGANIZATION
Effective October 29, 1999, Alliance Capital Management Holding L.P., formerly
known as Alliance Capital Management L.P. ("Alliance Holding"), reorganized by
transferring its business to Alliance Capital Management L.P., a newly formed
private partnership ("Alliance Capital" or the "Operating Partnership"), in
exchange for all of the Units of Alliance Capital (the "Reorganization"). The
Operating Partnership recorded the transferred assets and assumption of
liabilities at the amounts reflected in Alliance Holding's books and records on
the date of transfer. Since the Reorganization, the Operating Partnership has
conducted the diversified investment management services business formerly
conducted by Alliance Holding, and Alliance Holding's business has consisted of
holding Alliance Capital Units and engaging in related activities. Alliance
Capital Management Corporation ("ACMC"), an indirect wholly-owned subsidiary of
AXA Financial, Inc. ("AXA Financial"), is the general partner of both Alliance
Holding and the Operating Partnership. Alliance Capital is a registered
investment adviser under the Investment Advisers Act of 1940. Alliance Holding
Units are publicly traded on the New York Stock Exchange while Alliance Capital
Units do not trade publicly and are subject to significant restrictions on
transfer.
As part of the Reorganization, Alliance Holding offered each Alliance Holding
Unitholder the opportunity to exchange Alliance Holding Units for Alliance
Capital Units on a one-for-one basis. In the exchange offer, approximately 99.6
million Alliance Holding Units were exchanged for Alliance Capital Units. This
number includes the approximately 95.1 million Alliance Holding Units exchanged
by affiliates of AXA Financial.
At June 30, 2000, Alliance Holding owned approximately 72.6 million, or 35%, of
the issued and outstanding Alliance Capital Units. ACMC owns 100,000 general
partnership Units in Alliance Holding and a 1% general partnership interest in
the Operating Partnership. At June 30, 2000, AXA Financial was the beneficial
owner of approximately 2.1% of Alliance Holding's outstanding Units and
approximately 62.5% of the Operating Partnership's outstanding Units which,
including the general partnership interests, equates to an economic interest of
approximately 63.6% in the Operating Partnership.
The Operating Partnership provides diversified investment management and related
services to a broad range of clients including unaffiliated separately managed
accounts, The Equitable Life Assurance Society of the United States ("ELAS"), a
wholly-owned subsidiary of AXA Financial, and its insurance company subsidiary
and to individual investors through mutual funds and various other investment
vehicles. Separately managed accounts consist primarily of the active management
of equity and fixed income portfolios for institutional investors, including
corporate and public employee pension funds, the general and separate accounts
of ELAS and its insurance company subsidiary, endowment funds, and the assets of
other domestic and foreign institutions. The Operating Partnership provides
investment management, distribution, and shareholder and administrative services
to its sponsored mutual funds and cash management products, including money
market funds and deposit accounts ("Alliance mutual funds").
10
<PAGE>
BERNSTEIN ACQUISITION
Pursuant to an acquisition agreement dated as of June 20, 2000 among Alliance
Capital, Alliance Holding, Sanford C. Bernstein Inc. ("Bernstein") and Bernstein
Technologies Inc., a wholly owned subsidiary of Bernstein, Alliance Capital has
agreed to acquire the Bernstein business for $1.4754 billion in cash and 40.8
million Alliance Capital units subject to adjustment in certain circumstances.
On June 21, 2000 AXA Financial purchased from Alliance Capital 32,619,775 newly
issued Alliance Capital units for $1.6 billion, and Alliance Capital will use
the proceeds primarily to finance the cash portion of the acquisition price.
The obligations of both Alliance Capital and Bernstein to close the transactions
contemplated by the acquisition agreement depend upon meeting a number of
conditions, including the approval of Alliance Holding unitholders, Alliance
Capital's reasonable satisfaction that Bernstein has maintained at least 75% of
its client revenue base as of May 31, 2000, and receipt of regulatory approvals
and consents from Bernstein's clients and other third parties. The parties are
working to close the acquisition by the fourth quarter of 2000.
GENERAL
The Partnership's revenues are largely dependent on the total value and
composition of assets under its management. Assets under management were $387.8
billion as of June 30, 2000, an increase of 20.8% from June 30, 1999 primarily
as a result of market appreciation and strong net sales of Alliance mutual
funds. Active equity and balanced account assets under management, which
comprise approximately 62% of total assets under management, grew 32.5%. Active
fixed income account assets under management, which comprise approximately 29%
of total assets under management, increased by 3.1%.
In the second quarter of 2000, sales of mutual funds and variable products,
excluding cash management products, were $19.4 billion, an increase of $5.6
billion, compared to sales of $13.8 billion in the second quarter of 1999. In
addition, redemptions increased $5.9 billion to $12.6 billion from $6.7 billion
during the same period. The increase in redemptions, partially offset by an
increase in sales, resulted in net mutual fund and variable products sales of
$6.9 billion, a decrease of 2.8% from $7.1 billion in the second quarter of
1999.
<TABLE>
<CAPTION>
ASSETS UNDER MANAGEMENT (1):
(Dollars in billions) 6/30/00 6/30/99 $ Change % Change
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Alliance mutual funds:
Mutual funds $ 109.8 $77.6 $32.2 41.5%
Variable products 44.4 36.0 8.4 23.3
Cash management products 30.7 27.3 3.4 12.5
--------------------------------------------------------------------------------
184.9 140.9 44.0 31.2
--------------------------------------------------------------------------------
Separately managed accounts:
Affiliated clients 28.9 29.7 (0.8) (2.7)
Third-party clients 174.0 150.4 23.6 15.7
--------------------------------------------------------------------------------
202.9 180.1 22.8 12.7
--------------------------------------------------------------------------------
Total $387.8 $321.0 $66.8 20.8%
--------------------------------------------------------------------------------
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
ASSETS UNDER MANAGEMENT BY INVESTMENT ORIENTATION (1):
(Dollars in billions) 6/30/00 6/30/99 $ Change % Change
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Active equity & balanced
Domestic $209.1 $161.5 $47.6 29.9%
Global & international 31.6 20.1 11.5 57.2
Active fixed income
Domestic 97.7 92.0 5.7 6.2
Global & international 13.2 15.6 (2.4) (15.4)
Index
Domestic 30.0 26.9 3.1 11.5
Global & international 6.2 4.9 1.3 26.5
---------------------------------------------------------------------------------
Total $387.8 $321.0 $66 8 20.8
--------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ASSETS UNDER MANAGEMENT (1):
THREE MONTHS ENDED SIX MONTHS ENDED
--------------------------------- ----------------------------------
(Dollars in billions) 6/30/00 6/30/99 % Change 6/30/00 6/30/99 % Change
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Alliance mutual funds $185.5 $131.5 41.1% $179.7 $126.7 41.8%
Separately managed accounts:
Affiliated clients 28.6 29.9 (4.3) 28.9 29.7 (2.7)
Third-party clients 172.7 145.5 18.7 169.5 143.7 18.0
-------------------------------------------------------------------------------------------------------------------
Total $386.8 $306.9 26.0% $378.1 $300.1 26.0%
-------------------------------------------------------------------------------------------------------------------
ANALYSIS OF ASSETS UNDER MANAGEMENT (1):
(Dollars in billions) 2000 1999
-------------------------------------------------------------------------------------------------------------------
Separately Separately
Managed Mutual Managed Mutual
Accounts Funds Total Accounts Funds Total
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, $198.9 $169.4 $368.3 $168.1 $118.6 $286.7
-------------------------------------------------------------------------------------------------------------------
New accounts/sales 6.3 40.7 47.0 6.8 25.5 29.1
Terminations/redemptions (3.0) (25.8) (28.8) (2.6) (12.1) (13.8)
Net cash management sales - (1.5) (1.5) - 0.8 0.8
Cash flow (2.9) (0.5) (3.4) (4.8) (0.6) (3.1)
Transfers - - - (0.5) 0.5 -
Market appreciation 3.6 2.6 6.2 13.1 8.2 21.3
-------------------------------------------------------------------------------------------------------------------
Net change 4.0 15.5 19.5 12.0 22.3 34.3
-------------------------------------------------------------------------------------------------------------------
Balance at June 30, $202.9 $184.9 $387.8 $180.1 $140.9 $321.0
-------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Excludes certain non-discretionary relationships and includes 100% of
assets under management by unconsolidated affiliates. Includes $2.5 billion
mutual fund assets and $0.9 billion separately managed account assets at
June 30, 2000 and $2.2 billion mutual fund assets and $0.5 billion
separately managed account assets at June 30, 1999. Certain amounts in the
1999 presentation have been reclassified to conform to the 2000
presentation.
Assets under management at June 30, 2000 were $387.8 billion, a decrease of $6.4
billion or 1.6% from March 31, 2000 and an increase of $19.5 billion or 5.3%
from December 31, 1999. The decrease from March 31, 2000 was primarily due to
market depreciation and net asset outflows from cash management services
products which offset net sales of mutual funds and variable products and net
asset inflows of separately managed accounts. The increase from December 31,
1999 was primarily due to net sales of mutual funds and variable products,
market appreciation and net asset inflows into separately managed accounts,
partially offset by net asset outflows from cash management services products.
Alliance mutual fund assets under management at June 30, 2000 were $184.9
billion, a decrease of $4.3 billion or 2.3% from March 31, 2000 and an increase
of $15.5 billion or 9.1% from December 31, 1999. The decrease for the second
quarter was due principally to net asset outflows from cash management services
products, primarily due to two significant account terminations totaling $3.7
billion, of $5.7 billion and market depreciation of $5.3 billion, partially
offset by net sales of mutual funds and variable products of $3.9 billion and
$3.0 billion, respectively. The increase for the six months ended June 30, 2000
12
<PAGE>
was due principally to net sales of mutual funds and variable products of $11.3
billion and $3.6 billion, respectively, and market appreciation of $2.6 billion,
partially offset by net asset outflows from cash management services products of
$1.5 billion.
Separately managed account assets under management at June 30, 2000 for
third-party clients and affiliated clients were $202.9 billion, a decrease of
$2.1 billion or 1.0% from March 31, 2000 and an increase of $4.0 billion or 2.0%
from December 31, 1999. The decrease for the second quarter was primarily due to
market depreciation of $5.3 billion and third-party client account terminations
of $2.0 billion, partially offset by net new third-party client accounts and
asset additions of $4.8 billion and asset additions to affiliated client
accounts of $0.4 billion. The increase for the six months ended June 30, 2000
was primarily due to market appreciation of $3.6 billion and new third-party
client accounts of $6.3 billion, partially offset by asset withdrawals from
affiliated client accounts, primarily the General Accounts of ELAS, of $1.1
billion and third-party client account terminations and net asset withdrawals of
$4.8 billion.
Assets under management at June 30, 1999 were $321.0 billion, an increase of
$19.7 billion or 6.5% from March 31, 1999 and an increase of $34.3 billion or
12.0% from December 31, 1998.
Alliance mutual fund assets under management at June 30, 1999 were $140.9
billion, an increase of $13.6 billion or 10.7% from March 31, 1999 and an
increase of $22.3 billion or 18.8% from December 31, 1998. The increase for the
second quarter 1999 was due principally to net sales of mutual funds and cash
management products of $6.6 billion and $0.7 billion, respectively, and market
appreciation of $5.6 billion. The increase for the six months ended June 30,
1999 was due principally to net sales of mutual funds and variable products of
$12.4 billion and $1.1 billion, respectively, and market appreciation of $8.2
billion.
Separately managed account assets under management at June 30, 1999 for
third-party clients and affiliated clients were $180.1 billion, an increase of
$6.0 billion or 3.4% from March 31, 1999 and an increase of $12.0 billion or
7.1% from December 31, 1998. The increase for the second quarter 1999 was
primarily due to market appreciation of $7.4 billion and new third-party client
accounts of $3.6 billion, reduced by net third-party client account terminations
and asset withdrawals of $3.9 billion, asset withdrawals from affiliated client
accounts of $0.3 billion and transfers from affiliated client accounts of $0.5
billion into mutual funds. The increase for the six months ended June 30, 1999
was primarily due to market appreciation of $13.1 billion, new third-party
client accounts of $6.8 billion and asset additions to affiliated client
accounts of $1.2 billion, partially offset by net third-party client account
terminations and asset withdrawals of $8.6 billion and transfers from affiliated
client accounts of $0.5 billion into mutual funds.
BASIS OF PRESENTATION
Actual results of operations of the Operating Partnership are presented for the
three months and six months ended June 30, 2000. The pro forma financial
information of the Operating Partnership for the three months and six months
ended June 30, 1999, assumes the Reorganization occurred on January 1, 1999, and
reflects the Operating Partnership as a private partnership that is not subject
to a federal tax of 3.58% on partnership gross income from the active conduct of
a trade or business. The pro forma financial information for the three months
and six months ended June 30, 1999, does not necessarily reflect the results of
operations that would have been obtained had the Reorganization occurred on
January 1, 1999, nor is the pro forma financial information necessarily
indicative of the results of operations that may be achieved for any future
period.
13
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED RESULTS OF OPERATIONS
THREE MONTHS ENDED SIX MONTHS ENDED
--------------------------------- --------------------------------
Actual Pro Forma Actual Pro Forma
(Dollars in millions) 6/30/00 6/30/99(1) % Change 6/30/00 6/30/99(1) % Change
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues $564.9 $418.9 34.9% $1,113.3 $838.7 32.7%
Expenses 402.1 304.5 32.1 769.4 609.0 26.3
------ ------ -------- ------
Income before income taxes 162.8 114.4 42.3 343.9 229.7 49.7
Income taxes 9.0 7.7 16.9 18.9 14.8 27.7
------ ------ -------- ------
Net income $153.8 $106.7 44.1 $ 325.0 $214.9 51.2
====== ====== ======== ======
Net income per Unit:
Basic $ 0.87 $ 0.62 40.3 $ 1.86 $ 1.25 48.8
====== ====== ======== ======
Diluted $ 0.83 $ 0.60 38.3 $ 1.78 $ 1.21 47.1
====== ====== ======== ======
Net income per Unit excluding impact
performance fees - diluted $ 0.80 $ 0.58 37.9 $ 1.72 $ 1.09 57.8
====== ====== ======== ======
Net income per Unit excluding impact of
of NAGIT litigation adjustment - diluted $ 0.83 $ 0.60 40.3% $ 1.65 $ 1.21 36.4%
====== ====== ======== ======
Pre-tax margin(2): 39.8% 36.5% - 39.5% 35.9% -
--------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Pro forma amounts assume the Alliance Holding Reorganization occurred on
January 1, 1999. The pro forma financial information reflects the Operating
Partnership as a private partnership that is not subject to a federal tax
of 3.5% on partnership gross income from the active conduct of a trade or
business.
(2) Calculated after netting distribution revenues against total expenses;
excludes the impact of NAGIT litigation adjustment.
Net income for the three months and six months ended June 30, 2000 increased
$47.1 million or 44.1% and $110.1 million or 51.2%, respectively, from pro forma
net income for the three months and six months ended June 30, 1999. The
increases were principally due to increases in investment advisory and services
fees resulting primarily from higher average assets under management for both
periods. The increase for the six months ended June 30, 2000 was also due to the
$22.5 million ($23.9 million pre-tax) impact of a non-cash gain related to the
settlement of litigation concerning the Alliance North American Government
Income Trust, Inc. ("NAGIT"). These increases were partially offset by higher
operating expenses, principally promotion and servicing and compensation and
benefits, and higher income taxes. Actual income taxes increased from pro forma
income taxes, which assume the Alliance Holding Reorganization occurred on
January 1, 1999, primarily as a result of higher pre-tax income.
BASIS OF PRESENTATION - ACTUAL RESULTS
The following is a discussion of the results of operations of the operating
Partnership for the three months and six months ended June 30, 2000 and of
Alliance Holding, prior to the Reorganization, for the three months and six
months ended June 30, 1999. The presentation is considered meaningful in
understanding the diversified investment management business operated by
Alliance Holding prior to the Reorganization and by the Operating Partnership
thereafter.
REVENUES
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
--------------------------------- ----------------------------------
Operating Alliance Operating Alliance
Partnership Holding Partnership Holding
(Dollars in millions) 6/30/00 6/30/99 % Change 6/30/00 6/30/99 % Change
---------------------------------------------------------------------------------------------------------------------
Investment advisory and services fees:
<S> <C> <C> <C> <C> <C> <C>
Alliance mutual funds $260.7 $185.9 40.2% $515.8 $380.8 35.5%
Separately managed accounts:
Affiliated clients 14.2 14.2 - 27.0 26.9 0.4
Third-party clients 102.7 91.2 12.6 209.0 189.0 10.6
Distribution revenues 155.5 105.2 47.8 302.7 198.8 52.3
Shareholder servicing fees 21.6 15.5 39.4 41.0 28.8 42.4
Other revenues 10.2 6.9 47.8 17.8 14.4 23.6
---------------------------------------------------------------------------------------------------------------------
Total $564.9 $418.9 34.9% $1,113.3 $838.7 32.7%
---------------------------------------------------------------------------------------------------------------------
</TABLE>
14
<PAGE>
INVESTMENT ADVISORY AND SERVICES FEES
Investment advisory and services fees are generally calculated as a small
percentage of the value of assets under management and vary with the type of
account managed. Fee income is therefore affected by changes in the amount of
assets under management, including market appreciation or depreciation, the
addition of new client accounts or client contributions of additional assets to
existing accounts, withdrawals of assets from and termination of client
accounts, purchases and redemptions of mutual fund shares, and shifts of assets
between accounts or products with different fee structures. Investment advisory
and services fees for the three months and six months ended June 30, 2000
increased $146.0 million or 34.9% and $274.6 million or 32.7% , respectively,
from the three months and six months ended June 30, 1999.
Certain investment advisory contracts provide for performance fee, in addition
to or in lieu of a base fee, that is calculated as a percentage of the related
investment results over a specified period of time. Performance fees are
recorded as revenue at the end of the measurement period and will generally be
higher in favorable markets and lower in unfavorable markets, which may increase
the volatility of the operating Partnership's revenues and earnings. Performance
fees earned on certain separately managed accounts and mutual funds aggregated
$8.0 million and $16.1 million for the three months and six months ended June
30, 2000. Performance fees for the three months ended June 30, 2000 were
unchanged compared to the second quarter of 1999. Performance fees for the six
months ended June 30, 2000 decreased $34.5 million or 68.1% from the six months
ended June 30, 1999 primarily as the result of a refinement, in the fourth
quarter of 1999, of the procedures for estimating such fees. Currently, a
substantial amount of the accounts that may earn performance fees have calendar
year measurement periods. As a result, for 1999 and subsequent years, the
majority of such fees, if any, will be recognized in the fourth quarter.
Investment advisory and services fees from Alliance mutual funds for the three
months ended June 30, 2000 increased $74.8 million or 40.2% from the three
months ended June 30, 1999 primarily as a result of a 41.1% increase in average
assets under management. Investment advisory and services fees from Alliance
mutual funds for the six months ended June 30, 2000 increased $135.0 million or
35.5% from the six months ended June 30, 1999 primarily as a result of a 41.8%
increase in average assets under management, partially offset by a $26.5 million
decrease in performance fees.
Investment advisory and services fees from affiliated clients, primarily the
General Accounts of ELAS, for the three months ended June 30, 2000 were
unchanged from the three months ended June 30, 1999 due primarily to higher
performance fees of $0.8 million, partially offset by lower average assets under
management, the General Accounts of ELAS, of 4.3%. For the six months ended June
30, 2000, investment advisory and services fees increased $0.1 million or 0.4%
from the six months ended June 30, 1999 due primarily to higher performance fees
of $1.2 million, partially offset by lower average assets under management of
2.7%.
Investment advisory and services fees from third party clients for the three
months and six months ended June 30, 2000 increased $11.5 million or 12.6% and
$20.0 million or 10.6%, respectively, from the three months and six months ended
June 30, 1999 primarily due to an increase in average assets under management of
18.7% and 18.0%, respectively, partially offset by lower performance fees of
$0.4 million and $9.0 million, respectively.
DISTRIBUTION REVENUES
The Operating Partnership's subsidiary, Alliance Fund Distributors, Inc.
("AFD"), acts as distributor of the Alliance mutual funds and receives
distribution plan fees from those funds in reimbursement of distribution
expenses it incurs. Distribution revenues for the three months and six months
ended June 30, 2000 increased 47.8% and 52.3%, respectively, from the three
months and six months ended June 30, 1999 principally due to higher average
equity mutual fund assets under management attributable to strong sales of
Back-End Load Shares under the Operating Partnership's mutual fund distribution
system (the "System") described under "Capital Resources and Liquidity", and
market appreciation.
15
<PAGE>
SHAREHOLDER SERVICING FEES
The Operating Partnership's subsidiaries, Alliance Fund Services, Inc. and ACM
Global Investor Services S.A., provide transfer agency services to the Alliance
mutual funds. Shareholder servicing fees for the three months and six months
ended June 30, 2000 increased 39.4% and 42.4%, respectively, from the three
months and six months ended June 30, 1999 as a result of increases in the number
of mutual fund shareholder accounts serviced. The number of shareholder accounts
serviced increased to approximately 6.1 million as of June 30, 2000 compared to
approximately 4.5 million as of June 30, 1999.
OTHER REVENUES
Other revenues consist principally of investment income and changes in value of
other investments. Administration and recordkeeping services provided to the
Alliance mutual funds and the General Accounts of ELAS and its insurance
subsidiary are also included in other revenues. Other revenues for the three
months and six months ended June 30, 2000 increased from the three and six
months ended June 30, 1999 principally as a result of higher interest and
dividend income.
EXPENSES
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------------------- --------------------------------
Operating Alliance Operating Alliance
Partnership Holding Partnership Holding
(Dollars in millions) 6/30/00 6/30/99 % Change 6/30/00 6/30/99 % Change
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Employee compensation and benefits $131.4 $102.7 27.9% $260.1 $221.0 17.7%
Promotion and servicing 209.2 151.0 38.5 407.8 290.4 40.4
General and administrative 50.2 45.4 10.6 99.0 87.7 12.9
Interest 10.3 4.5 128.9 24.4 8.0 205.0
Amortization of intangible assets 1.0 1.0 - 2.0 1.9 5.3
Litigation adjustment, net - - N/A (23.9) - N/A
------------------------------------------------------------------------------------------------------------------
Total $402.1 $304.6 32.0% $769.4 $609.0 26.3%
------------------------------------------------------------------------------------------------------------------
</TABLE>
EMPLOYEE COMPENSATION AND BENEFITS
Employee compensation and benefits include salaries, commissions, fringe
benefits and incentive compensation based on profitability. Provisions for
future payments to be made under certain deferred compensation arrangements are
also included in employee compensation and benefits expense.
Employee compensation and benefits for the three months and six months ended
June 30, 2000 increased 27.9% and 17.7%, respectively, from the three months and
six months ended June 30, 1999 primarily as a result of increased incentive and
base compensation and commissions. Compensation increased principally due to
higher pre-tax income, an increase in the number of employees, primarily in
mutual fund areas, combined with salary increases. The Operating Partnership had
2,475 employees at June 30, 2000 compared to 2,288 at June 30, 1999. Commissions
increased primarily due to higher mutual fund and institutional sales.
PROMOTION AND SERVICING
Promotion and servicing expenses include distribution plan payments to financial
intermediaries for distribution of sponsored mutual funds and cash management
services' products and amortization of deferred sales commissions paid to
financial intermediaries for the sale of Back-End Load Shares under the System.
See "Capital Resources and Liquidity". Also included in this expense category
are travel and entertainment, advertising, promotional materials, and investment
meetings and seminars for financial intermediaries that distribute the Operating
Partnership's mutual fund products.
Promotion and servicing expenses for the three months and six months ended June
30, 2000 increased 38.5% and 40.4%, respectively, from the three months and six
months ended June 30, 1999 primarily due to increased distribution plan payments
resulting from higher average domestic, offshore and cash management assets
under management. An increase for the three months and six months ended June 30,
16
<PAGE>
2000 of $13.2 million and $29.2 million, respectively, in amortization of
deferred sales commissions from the three months and six months ended June 30,
1999, resulting from higher sales of Back-End Load Shares, also contributed to
the increase in promotion and servicing expense. Other promotion and servicing
expenses increased primarily as a result of higher travel and entertainment
costs and higher promotional expenditures incurred in connection with mutual
fund sales initiatives.
GENERAL AND ADMINISTRATIVE
General and administrative expenses are costs related to operations, including
technology, professional fees, occupancy, communications, equipment and similar
expenses. General and administrative expenses for the three months and six
months ended June 30, 2000 increased 10.6% and 12.9%, respectively, for the
three and six months ended June 30, 1999 due principally to higher occupancy
related expenses partially offset by lower technology expenses.
INTEREST
Interest expense is incurred on borrowings and on deferred compensation owed to
employees. Interest expense for the three months and six months ended June 30,
2000 increased from the three months and six months ended June 30, 1999
primarily as a result of an increase in deferred compensation liabilities and
higher debt.
TAXES ON INCOME
The Operating Partnership, a private limited partnership, is not subject to
federal or state corporate income taxes. However, the Operating Partnership is
subject to the New York City unincorporated business tax. Domestic corporate
subsidiaries of the Operating Partnership are subject to federal, state and
local income taxes, and are generally included in the filing of a consolidated
federal income tax return. Separate state and local income tax returns are filed
for the domestic corporate subsidiaries. Foreign corporate subsidiaries are
generally subject to taxes in the foreign jurisdictions where they are located.
Income tax expense for the three months and six months ended June 30, 2000
decreased $8.2 million and $15.5 million, respectively, from the three months
and six months ended June 30, 1999 primarily as a result of a lower effective
tax rate. The Operating Partnership, a private partnership, is not subject to a
federal tax of 3.5% on partnership gross income from the active conduct of a
trade or business which results in a lower effective tax rate compared to
Alliance Holding, a public partnership, which is subject to the 3.5% federal
tax.
CAPITAL RESOURCES AND LIQUIDITY
Partners' capital of the operating Partnership was $2,148.2 million at June 30,
2000, an increase of $1,617.7 million or 304.9% from $530.5 million at March 31,
2000 and an increase of $1,595.5 million or 288.7% from $552.7 million at
December 31, 1999. On June 21, 2000 AXA Financial purchased from the Operating
Partnership 32,619,775 newly issued Operating Partnership Units for $1.6 billion
and the Operating Partnership will use the proceeds primarily to finance the
cash portion of the acquisition price of Bernstein.
Cash flow from operations and proceeds from borrowings have been the Operating
Partnership's, and prior to the Reorganization, Alliance Holding's principal
sources of working capital.
The Operating Partnership's cash and cash equivalents increased $1,433.7 million
for the six months ended June 30, 2000. Cash inflows included $382.6 million
from operations, AXA Financial's purchase from the Operating Partnership of
32,619,775 newly issued Operating Partnership Units for $1.6 billion and $10.9
million of proceeds from employee options exercised for Alliance Holding Units.
Cash outflows included $300.4 million in cash distributions, debt repayments,
net of borrowings, of $135.1 million, the purchase of Alliance Holding Units to
fund $47.6 million in awards under the Alliance Partners Compensation Plan, net
purchases of investments of $53.8 million and $23.7 million in capital
expenditures.
17
<PAGE>
The Operating Partnership's mutual fund distribution system includes a
multi-class share structure. The System permits the Operating Partnership's
open-end mutual funds to offer investors various options for the purchase of
mutual fund shares, including the purchase of Front-End Load Shares and Back-End
Load Shares. The Front-End Load Shares are subject to a conventional front-end
sales charge paid by investors to AFD at the time of sale. AFD in turn
compensates the financial intermediaries distributing the funds from the
front-end sales charge paid by investors. For Back-End Load Shares, investors do
not pay a front-end sales charge although, if there are redemptions before the
expiration of the minimum holding period (which ranges from one year to four
years), investors pay a contingent deferred sales charge ("CDSC") to AFD. While
AFD is obligated to compensate the financial intermediaries at the time of the
purchase of Back-End Load Shares, it receives higher ongoing distribution fees
from the funds. Payments made to financial intermediaries in connection with the
sale of Back-End Load Shares under the System, net of CDSC received, reduced
cash flow from operations by approximately $188.5 million for the six months
ended June 30, 2000. Management believes AFD will recover the payments made to
financial intermediaries for the sale of Back-End Load Shares from the higher
distribution fees and CDSC it receives over periods not exceeding 5 1/2 years.
During 1998, Alliance Holding increased its commercial paper program to $425
million and entered into a $425 million five-year revolving credit facility with
a group of commercial banks and a $425 million commercial paper program. Under
the credit facility, the interest rate, at the option of the borrower, is a
floating rate generally based upon a defined prime rate, a rate related to the
London Interbank Offered Rate (LIBOR) or the Federal Funds rate. A facility fee
is payable on the total facility. Borrowings under the credit facility and the
commercial paper program may not exceed $425 million in the aggregate. In
connection with the Reorganization, the Operating Partnership assumed Alliance
Holding's rights and obligations under the five-year revolving credit facility
and the commercial paper program. The revolving credit facility will be used to
provide back-up liquidity for the Operating Partnership's commercial paper
program, to fund commission payments to financial intermediaries for the sale of
Back-End Load Shares under the Operating Partnership's mutual fund distribution
system, and for general working capital purposes.
During July 1999, Alliance Holding entered into a $200 million three-year
revolving credit facility with a group of commercial banks. In connection with
the Reorganization, the Operating Partnership assumed Alliance Holding's rights
and obligations under the three-year revolving credit facility. The new
revolving credit facility, the terms of which are generally similar to the $425
million credit facility, will be used to fund commission payments to financial
intermediaries for the sale of Back-End Load Shares under the operating
Partnership's mutual fund distribution system and for general working capital
purposes.
The revolving credit facilities contain covenants which, among other things,
require the Operating Partnership to meet certain financial ratios.
In December 1999, the Operating Partnership established a $100 million
Extendible Commercial Notes ("ECN") Program as a supplement to its $425 million
commercial paper program. ECNs are short-term uncommitted debt instruments that
do not require back-up liquidity support.
At June 30, 2000, the Operating Partnership had $217.3 million of commercial
paper and ECNs outstanding, borrowings under the revolving credit facilities of
$48.0 million, and a $3.1 million note related to an acquisition in 1998. The
Operating Partnership used $121.7 million of the cash proceeds from AXA
Financial's purchase from the Operating Partnership of 32,619,775 newly issued
Operating Partnership Units for $1.6 billion to reduce its debt.
The Operating Partnership's substantial equity base and access to public and
private debt, at competitive terms, should provide adequate liquidity for its
general business needs. Management believes that cash flow from operations and
the issuance of debt and Alliance Capital or Alliance Holding Units will provide
the Operating Partnership with the financial resources to meet its capital
requirements for mutual fund sales and its other working capital requirements.
18
<PAGE>
COMMITMENTS AND CONTINGENCIES
The Operating Partnership's capital commitments, which consist primarily of
operating leases for office space, are generally funded from future operating
cash flows.
On July 25, 1995, a Consolidated and Supplemental Class Action Complaint (the
"Original Complaint") was filed against Alliance North American Government
Income Trust, Inc. (the "Fund"), Alliance Holding and certain other defendants
affiliated with Alliance Holding alleging violations of federal securities laws,
fraud and breach of fiduciary duty in connection with the Fund's investments in
Mexican and Argentine securities. On September 26, 1996, the United States
District Court for the Southern District of New York granted the defendants'
motion to dismiss all counts of the Original Complaint. On October 29, 1997, the
United States Court of Appeals for the Second Circuit affirmed that decision.
On October 29, 1996, plaintiffs filed a motion for leave to file an amended
complaint. The principal allegations of the proposed amended complaint are that
(i) the Fund failed to hedge against currency risk despite representations that
it would do so, (ii) the Fund did not properly disclose that it planned to
invest in mortgage-backed derivative securities, and (iii) two advertisements
used by the Fund misrepresented the risks of investing in the Fund. On October
15, 1998, the United States Court of Appeals for the Second Circuit issued an
order granting plaintiffs' motion to file an amended complaint alleging that the
Fund misrepresented its ability to hedge against currency risk and denying
plaintiffs' motion to file an amended complaint alleging that the Fund did not
properly disclose that it planned to invest in mortgage-backed derivative
securities and that certain advertisements used by the Fund misrepresented the
risks of investing in the Fund. On December 1, 1999, the United States District
Court for the Southern District of New York granted the defendants' motion for
summary judgment on all claims against all defendants. On December 14 and 15,
1999, the plaintiffs filed motions for reconsideration of the Court's ruling.
These motions are currently pending with the Court.
A Stipulation and Agreement of Settlement has been signed with the lawyers for
the plaintiffs settling this action. Under the Stipulation and Agreement of
Settlement Alliance Capital will permit Fund shareholders to invest up to $250
million in Alliance mutual funds free of initial sales charges. On August 3,
2000 the Court signed an order approving the Stipulation and Agreement of
Settlement. Shareholders of the Fund have thirty days from the date the order
becomes final to appeal the order.
Alliance Capital assumed all of Alliance Holding's liabilities in respect of
this litigation in connection with the Reorganization. As a result of the
settlement, Alliance Capital recorded a non-cash gain of $22.5 million ($23.9
million pre-tax) during the three months ended March 31, 2000. While the
ultimate outcome of this matter cannot be determined at this time, management
does not expect that it will have a material adverse effect on Alliance
Capital's or Alliance Holding's results of operations or financial condition.
CHANGES IN ACCOUNTING PRINCIPLES
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 ("SFAS 133"), "ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES". Under this Statement, an entity is required
to recognize derivative instruments as either assets or liabilities in the
statement of financial condition and measure those instruments at fair value. In
addition, any entity that elects to apply hedge accounting is required to
establish at the inception of the hedge the method it will use for assessing
effectiveness of the hedging derivative and the measurement approach for
determining the ineffective aspect of the hedge. In June 1999, the Financial
Accounting Standards Board issued Statement of Financial Accounting Standards
No. 137 ("SFAS 137"), which deferred the effective date of SFAS 133 to all
fiscal quarters of all fiscal years beginning after June 15, 2000. Management
intends to adopt this Statement on January 1, 2001 and does not believe that the
adoption of the Statement will have a material effect on the Operating
Partnership's financial condition, results of operations, liquidity, or capital
resources.
19
<PAGE>
CASH DISTRIBUTIONS
The Operating Partnership is required to distribute all of its Available Cash
Flow (as defined in the Alliance Capital Partnership Agreement) to the General
Partner and Alliance Capital Unitholders. Alliance Holding is also required to
distribute all of its Available Cash Flow (as defined in the Alliance Holding
Partnership Agreement). The Available Cash Flow of the Operating Partnership and
Alliance Holding for the three months and six months ended June 30, 2000 and
1999 were as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
----------------------- -------------------
Operating Alliance Operating Alliance
Partnership Holding Partnership Holding
6/30/00 6/30/99 6/30/00 6/30/99
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Available Cash Flow (in thousands) $146,224 $93,380 $288,397 $186,696
Distributions Per Unit $0.82 $0.54 $1.635 $1.08
-------------------------------------------------------------------------------------
</TABLE>
FORWARD-LOOKING STATEMENTS
Certain statements provided by Alliance Capital and Alliance Holding in this
report are "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Such forward-looking statements are
subject to risks, uncertainties and other factors which could cause actual
results to differ materially from future results expressed or implied by such
forward-looking statements. The most significant of such factors include, but
are not limited to, the following: the performance of financial markets, the
investment performance of sponsored investment products and separately managed
accounts, general economic conditions, future acquisitions, competitive
conditions and government regulations, including changes in tax rates. Alliance
Capital and Alliance Holding caution readers to carefully consider such factors.
Further, such forward-looking statements speak only as of the date on which such
statements are made; Alliance Capital and Alliance Holding undertake no
obligation to update any forward-looking statements to reflect events or
circumstances after the date of such statements.
20
<PAGE>
Part II
OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
On August 3, 2000 the Court signed an order approving the
Stipulation and Agreement of Settlement in the legal
proceeding reported in the Alliance Capital Management L.P.
("Alliance Capital") Annual Report on Form 10-K for the year
ended December 31, 1999. Shareholders of Alliance North
American Government Income Trust, Inc. have thirty days from
the date the order becomes final to appeal the order.
Item 2. CHANGES IN SECURITIES
None.
Item 3. DEFAULTS UPON SENIOR SECURITIES
None.
Item 4. SUBMISSION OF MATTERS TO A VOTE
OF SECURITY HOLDERS
None.
Item 5. OTHER INFORMATION
None.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
15 Independent Accountants' Review Report
27 Financial Data Schedule
(b) Reports on Form 8-K
Alliance Capital filed a report on Form 8-K dated June
20, 2000 announcing that it had entered into a
definitive agreement with Sanford C. Bernstein, Inc.
("SCB") pursuant to which Alliance Capital has agreed,
subject to certain terms and conditions, to acquire
substantially all of the assets and assume
substantially all of the liabilities of SCB and its
subsidiaries. Alliance Capital also agreed to issue on
June 20, 2000 approximately 32.6 million units of
limited partnership interest in Alliance Capital to AXA
Financial, Inc. for $1.6 billion.
21
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ALLIANCE CAPITAL MANAGEMENT L.P.
Dated: August 14, 2000 By: Alliance Capital Management
Corporation, its General Partner
By: /s/ Robert H. Joseph, Jr.
-------------------------
Robert H. Joseph, Jr.
Senior Vice President &
Chief Financial Officer
22
