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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 1-9818
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ALLIANCE CAPITAL
MANAGEMENT L.P.
(Exact name of Registrant as specified in its charter)
-----------------------
Delaware 13-3434400
(State or other jurisdiction (I.R.S. Employer
of incorporation organization) Identification No.)
1345 Avenue of the Americas
New York, N.Y. 10105
Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 969-1000
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of Class which registered
-------------- ----------------
Units representing assignments of New York Stock Exchange
beneficial ownership of limited
partnership interests
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
The aggregate market value of the Units representing assignments of
beneficial ownership of limited partnership interests held by non-affiliates of
the registrant as of March 1, 1998 (based on the closing price on the New York
Stock Exchange on February 27, 1998) was approximately $1,695,760,178.
The number of Units representing assignments of beneficial ownership of
limited partnership interests outstanding as of March 1, 1998 was 84,085,003
Units.
DOCUMENTS INCORPORATED BY REFERENCE
Certain pages of the Alliance Capital Management L.P. 1997 Annual Report to
Unitholders are incorporated by reference in Part II of this Form 10-K.
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GLOSSARY OF CERTAIN DEFINED TERMS
"Partnership" refers to Alliance Capital Management L.P., a Delaware
limited partnership, and its subsidiaries and, where appropriate, to its
predecessor ACMC and its subsidiaries.
"ACMC" refers to ACMC, Inc., a wholly-owned subsidiary of Equitable.
"Alliance" refers to Alliance Capital Management Corporation, a
wholly-owned subsidiary of Equitable, and, where appropriate, to ACMC, its
predecessor.
"AXA" refers to AXA-UAP, a company organized under the laws of France.
"ECI" refers to The Equitable Companies Incorporated.
"ECMC" refers to Equitable Capital Management Corporation, a wholly-owned
subsidiary of Equitable.
"Equitable" refers to The Equitable Life Assurance Society of the United
States, a wholly-owned subsidiary of ECI, and its subsidiaries other than the
Partnership and its subsidiaries.
"General Partner" refers to Alliance in its capacity as general partner of
the Partnership, and, where appropriate, to ACMC, its predecessor, in its
capacity as general partner of the Partnership.
"Units" refer to units representing assignments of beneficial ownership of
limited partnership interests in the Partnership.
PART I
ITEM 1. BUSINESS
GENERAL
The Partnership was formed in 1987 to succeed to the business of ACMC which
began providing investment management services in 1971. On April 21, 1988 the
business and substantially all of the operating assets of ACMC were conveyed to
the Partnership in exchange for a 1% general partnership interest in the
Partnership and approximately 55% of the outstanding Units. In December 1991
ACMC transferred its 1% general partnership interest in the Partnership to
Alliance.
On February 19, 1998 the Partnership declared a two for one Unit split
payable to Unitholders of record on March 11, 1998. No adjustments have been
made to the number of Units outstanding or per Unit amounts except in Item 5,
Item 6, Item 7 and Item 8.
As of March 1, 1998 ECI and Equitable were the beneficial owners of
48,089,183 Units or approximately 56.8% of the issued and outstanding Units
including 551,395 Units issuable upon conversion of the Class A Limited
Partnership Interest issued to ECMC in 1993 when the business and substantially
all of the assets of ECMC were transferred to the Partnership. The Class A
Limited Partnership Interest may be convertible into additional Units valued at
up to $14.5 million under a formula based on contingent incentive fees received
by the Partnership prior to April 1, 1998.
As of March 1, 1998 AXA and its subsidiaries owned approximately 59% of the
issued and outstanding shares of the common stock of ECI. ECI is a public
company with shares traded on the New York Stock Exchange, Inc. ("NYSE"). ECI
owns all of the shares of Equitable. For insurance regulatory purposes all
shares of common stock of ECI beneficially owned by AXA have been deposited into
a voting trust (the "Voting Trust"). AXA remains the beneficial owner of all
capital stock deposited in the Voting Trust, but during the term of the Voting
Trust the trustees thereunder (the "Voting Trustees") exercise
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all voting rights with respect to such capital stock. See "Item 12. Security
Ownership of Certain Beneficial Owners and Management".
AXA, a French company, is the holding company for an international group of
insurance and related financial services companies. AXA's insurance operations
include activities in life insurance, property and casualty insurance and
reinsurance. The insurance operations are diverse geographically with
activities, principally in Western Europe, North America, and the Asia/Pacific
area. AXA is also engaged in asset management, investment banking, securities
trading, brokerage, real estate and other financial services activities
principally in the United States, as well as in Western Europe and the
Asia/Pacific area.
Based on information provided by AXA, on March 1, 1998, approximately 21.4%
of the issued ordinary shares (representing 30.2% of the voting power) of AXA
were controlled directly and indirectly by Finaxa, a French holding company. As
of March 1, 1998, 62.0% of the shares (representing 74.0% of the voting power)
of Finaxa were owned by four French mutual insurance companies (the "Mutuelles
AXA") (one of which, AXA Assurances I.A.R.D. Mutuelle, owned 35.5% of the
shares, representing 42.2% of the voting power), and 23.1% of the shares of
Finaxa (representing 14.4% of the voting power) were owned by Banque Paribas, a
French bank ("Paribas"). Including the ordinary shares owned by Finaxa, on
March 1, 1998, the Mutuelles AXA directly or indirectly controlled approximately
24.7% of the issued ordinary shares (representing 34.8% of the voting power) of
AXA. Acting as a group, the Mutuelles AXA control AXA and Finaxa.
The Partnership, one of the nation's largest investment advisers, provides
diversified investment management services to institutional clients and high
net-worth individuals and, through various investment vehicles, to individual
investors.
The Partnership's separately managed accounts consist primarily of the
active management of equity and fixed income accounts for institutions and high
net-worth individuals. The Partnership's institutional clients include
corporate and public employee pension funds, the general and separate accounts
of Equitable and its insurance company subsidiaries, endowments, foundations,
and other domestic and foreign institutions. The Partnership's mutual funds
management services, which developed as a diversification of its institutional
investment management business, consist of the management, distribution and
servicing of mutual funds and cash management products, including money market
funds and deposit accounts.
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The following tables provide a summary of assets under management and
associated revenues of the Partnership:
ASSETS UNDER MANAGEMENT
(in millions)
<TABLE>
<CAPTION>
December 31,
--------------------------------------------------------------------
1993 1994 1995 1996 1997
<S> <C> <C> <C> <C> <C>
Separately Managed
Accounts (1)(4) . . . . . . . . . $ 76,615 $ 81,030 $ 97,275 $119,507 $133,706
Mutual Funds Management (4):
Alliance Mutual Funds . . . . . . 22,045 20,736 23,462 28,302 41,868
The Hudson River Trust. . . . . . 7,171 8,360 11,964 16,392 22,338
Cash Management Services (2). . . 8,148 9,153 13,820 18,591 20,742
-------- -------- -------- -------- --------
Total . . . . . . . . . . . . . . . $113,979 $119,279 $146,521 $182,792 $218,654
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
</TABLE>
REVENUES
(in thousands)
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------------------------------------
1993 1994 1995 1996 1997
<S> <C> <C> <C> <C> <C>
Separately Managed
Accounts (1). . . . . . . . . . . $191,108 $212,500 $232,132 $280,909 $322,850
Mutual Funds Management :
Alliance Mutual Funds . . . . . . 221,005 291,975 278,328 330,356 440,389
The Hudson River Trust (3). . . . 18,090 22,045 29,119 42,380 59,936
Cash Management Services (2). . . 64,464 69,514 91,135 127,265 146,152
Other . . . . . . . . . . . . . . . 4,850 4,918 8,541 7,607 6,009
-------- -------- -------- -------- --------
Total . . . . . . . . . . . . . . . $499,517 $600,952 $639,255 $788,517 $975,336
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
</TABLE>
(1) Includes the general and separate accounts of Equitable and its insurance
company subsidiaries.
(2) Includes money market deposit accounts brokered by the Partnership for
which no investment management services are performed.
(3) Net of certain fees paid to Equitable for services rendered by Equitable in
marketing the variable annuity insurance and variable life products for
which The Hudson River Trust is the funding vehicle.
(4) Assets under management include 100% of the amounts under management by
unconsolidated joint venture subsidiaries.
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SEPARATELY MANAGED ACCOUNTS
As of December 31, 1995, 1996 and 1997 separately managed accounts for
institutional and high net-worth individuals (other than investment companies
and deposit accounts) represented approximately 66%, 65% and 61%, respectively,
of total assets under management by the Partnership. The fees earned from the
management of these accounts represented approximately 36%, 36% and 33% of the
Partnership's revenues for 1995, 1996 and 1997, respectively.
SEPARATELY MANAGED ACCOUNTS ASSETS UNDER MANAGEMENT
(in millions)
<TABLE>
<CAPTION>
December 31,
--------------------------------------------------------------------
1993 1994 1995 1996 1997
<S> <C> <C> <C> <C> <C>
Equity & Balanced:
Domestic. . . . . . . . . . $ 29,382 $ 30,063 $ 42,332 $ 50,835 $ 60,826
International & Global. . . 2,913 3,828 3,854 3,533 5,270
Fixed Income:
Domestic. . . . . . . . . . 28,596 31,470 32,553 36,042 39,079
International & Global. . . 2,252 2,602 1,891 1,546 1,833
Passive:
Domestic. . . . . . . . . . 11,240 9,645 12,787 15,478 19,860
International & Global. . . 1,760 3,028 3,484 3,411 2,866
Asset Allocation:
Domestic. . . . . . . . . . 472 394 374 457 433
International & Global. . . -- -- -- 8,205 3,336
Joint Ventures (1). . . . . . -- -- -- -- 203
-------- -------- -------- -------- --------
Total . . . . . . . . . . . . $ 76,615 $ 81,030 $ 97,275 $119,507 $133,706
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
</TABLE>
(1) Assets reflect 100% of the assets under management by unconsolidated joint
venture subsidiaries.
REVENUES FROM SEPARATELY MANAGED ACCOUNTS MANAGEMENT
(in thousands)
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------------------------------------
1993 1994 1995 1996 1997
<S> <C> <C> <C> <C> <C>
Investment Services:
Equity & Balanced:
Domestic. . . . . . . . . . $ 95,245 $107,581 $131,792 $156,690 $182,787
International & Global. . . 7,166 10,867 10,373 9,848 14,471
Fixed Income:
Domestic. . . . . . . . . . 66,131 70,217 67,102 65,449 80,600
International & Global. . . 4,895 5,180 3,784 3,901 5,372
Passive:
Domestic. . . . . . . . . . 6,220 6,016 5,919 8,015 9,187
International & Global. . . 2,790 4,052 3,870 3,612 3,034
Asset Allocation:
Domestic. . . . . . . . . . 1,274 1,064 1,010 821 1,413
International & Global. . . -- -- -- 24,096 17,356
-------- -------- -------- -------- --------
183,721 204,977 223,850 272,432 314,220
Service and Other Fees. . . . 7,387 7,523 8,282 8,477 8,630
-------- -------- -------- -------- --------
Total . . . . . . . . . . . . $191,108 $212,500 $232,132 $280,909 $322,850
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
</TABLE>
4
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INVESTMENT MANAGEMENT SERVICES
The Partnership's separately managed accounts consist primarily of the
active management of equity accounts, balanced (equity and fixed income)
accounts and fixed income accounts for institutions and high net-worth
individuals. The Partnership also provides active management for international
(non-U.S.) and global (including U.S.) equity, balanced and fixed income
portfolios, asset allocation portfolios, venture capital portfolios, investment
partnership portfolios known as hedge funds and portfolios that invest in real
estate investment trusts. The Partnership provides "passive" management
services for equity, fixed income and international accounts. As of December
31, 1997 the Partnership's accounts were managed by 103 portfolio managers with
an average of 18 years of experience in the industry and 12 years of experience
with the Partnership.
EQUITY AND BALANCED ACCOUNTS. The Partnership's equity and balanced
accounts contributed approximately 22%, 21% and 20% of the Partnership's total
revenues for 1995, 1996 and 1997, respectively. Assets under management
relating to active equity and balanced accounts grew from approximately $29.4
billion as of December 31, 1992 to approximately $66.1 billion as of December
31, 1997.
The Partnership has had a distinct and consistent style of equity
investing. The Partnership does not emphasize market timing as an investment
tool but instead emphasizes long-term trends and objectives, generally remaining
fully invested. The Partnership's equity strategy is to invest in the
securities of companies experiencing growing earnings momentum which are known
as growth stocks. The result of these investment characteristics is that the
Partnership's client portfolios tend to have, as compared to the average of
companies comprising the Standard & Poor's Index of 500 Stocks ("S&P 500"), a
greater market price volatility, a lower average yield and a higher average
price-earnings ratio.
The Partnership's principal method of securities evaluation is through
fundamental analysis undertaken by its internal staff of full-time research
analysts, supplemented by research undertaken by the Partnership's portfolio
managers. The Partnership holds frequent investment strategy meetings in which
senior management, portfolio managers and research analysts discuss investment
strategy. The Partnership's portfolio managers construct and maintain
portfolios that adhere to each client's guidelines and conform to the
Partnership's current investment strategy.
The Partnership's balanced accounts consist of an equity component and a
fixed income component. Typically, from 50% to 75% of a balanced account is
managed in the same manner as a separate equity account, while the remaining
fixed income component is oriented toward capital preservation and income
generation.
FIXED INCOME ACCOUNTS. The Partnership's fixed income accounts contributed
approximately 11%, 9% and 9% of the Partnership's total revenues for 1995, 1996
and 1997, respectively. Assets under management relating to active fixed income
accounts increased from approximately $28.8 billion as of December 31, 1992 to
approximately $41.0 billion as of December 31, 1997.
The Partnership's fixed income management services include conventional
actively managed bond portfolios in which portfolio maturity structures, market
sector concentrations and other characteristics are actively shifted in
anticipation of market changes. Fixed income management services also include
managing portfolios investing in foreign government securities and other foreign
debt securities. Sector concentrations and other portfolio characteristics are
heavily committed to areas that the Partnership's portfolio managers believe
have the best investment values. The Partnership also manages portfolios that
are limited to specialized areas of the fixed income markets, such as
mortgage-backed securities and high-yield bonds.
PRIVATE INVESTING SERVICES. In 1996 the Partnership acquired a 40%
interest in Albion Alliance LLC ("Albion Alliance") which is its primary vehicle
for providing global investing services in respect of private and illiquid
securities to institutions and high net-worth individuals.
Alliance Corporate Finance Group Incorporated ("ACFG"), a wholly-owned
subsidiary of the Partnership, was formed in 1993 when the business of ECMC was
acquired to manage investments in private mezzanine financings and private
investment limited partnerships. Private mezzanine financings are investments
in the subordinated debt and/or preferred stock
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portions of leveraged transactions (such as leveraged buy-outs and leveraged
recapitalizations). Such investments are usually coupled with a contingent
interest component or investment in an equity participation, which provide the
potential for capital appreciation. Since Albion Alliance is now the
Partnership's primary vehicle for providing these types of services it is not
expected that ACFG will manage any new private investments other than for
Equitable and its subsidiaries.
ACFG manages two private mezzanine investment funds designed for
institutional investors, with an aggregate of approximately $224 million under
management as of December 31, 1997. As of that date Equitable and its insurance
company subsidiaries had investments of approximately $39 million in these
funds.
ACFG also manages two limited partnerships regulated as business
development companies under the Investment Company Act of 1940 ("Investment
Company Act") which invest primarily in private mezzanine financings. As of
December 31, 1997 these funds had net assets of approximately $42 million.
The Partnership manages 17 structured products with an aggregate of $5.1
billion in assets as of December 31, 1997. Structured products consist of
securities, typically multiple classes of senior and subordinated debt
obligations together with an equity component, issued by a special purpose
company. An actively or passively managed portfolio of equity or fixed income
securities or other financial products generally backs such securities. A
majority of the Partnership's structured product assets are based on a short
duration fixed income strategy, including the five "Pegasus" transactions which,
as of December 31, 1997, had an aggregate of $3.2 billion in assets. The
Partnership also manages two collateralized bond obligation funds whose pools of
collateral debt securities consist primarily of privately-placed, fixed rate
corporate debt securities acquired from Equitable and its affiliates. As of
December 31, 1997 these funds had approximately $209 million under management.
As of that date ECI and its insurance company subsidiaries had investments of
approximately $181 million in these funds.
HEDGE FUNDS. As of December 31, 1997, the Partnership managed hedge funds
and separately managed hedge accounts which had approximately $1.1 billion in
assets under management in four distinct strategies. The Partnership's hedge
funds are privately placed domestic and offshore investment vehicles. The
portfolios of the hedge funds consist of various types of securities, including
equities, domestic and foreign government and other debt securities, convertible
securities, warrants, options and futures. The hedge funds take short
positions, including the purchase of put options on securities, market indices
or futures. The hedge funds employ the use of leverage through securities
exposure and borrowings.
PASSIVE MANAGEMENT. The Partnership's strategy in passive portfolio
management is to provide customized portfolios to meet specialized client needs,
such as a portfolio designed to replicate a particular index. The Partnership
offers domestic and international indexation strategies, such as portfolios
designed to match the performance characteristics of the S&P 500 and the Morgan
Stanley Capital International Indices and enhanced indexation strategies
designed to add incremental returns to a benchmark. The Partnership also offers
a variety of structured fixed income portfolio applications, including
immunization (designed to produce a compound rate of return over a specified
time, irrespective of interest rate movements), dedication (designed to produce
specific cash flows at specific times to fund known liabilities) and indexation
(designed to replicate the return of a specified market index or benchmark). A
subsidiary of the Partnership is the manager of two passive U.K. unit trusts
which invest in small capitalization common stocks on a global basis. As of
December 31, 1997 the Partnership managed approximately $22.7 billion in passive
portfolios.
GLOBAL ASSET ALLOCATION. On February 29, 1996 the Partnership acquired
substantially all of the assets and assumed substantially all of the liabilities
of Cursitor Holdings L.P. and acquired all of the outstanding shares of Cursitor
Holdings Limited (collectively, "Cursitor"). Cursitor's investment style is
global asset allocation: investing client funds in stocks or bonds of the
world's principal capital markets. A new subsidiary of the Partnership,
Cursitor Alliance LLC ("Cursitor Alliance") was formed for purposes of the
acquisition. Cursitor Alliance and its subsidiaries provide global asset
allocation services to U.S. and non-U.S. institutions. Cursitor Alliance's
investment performance results in 1996 and 1997 were poor and Cursitor Alliance
has experienced significant account terminations as a consequence thereof. See
"Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations".
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CLIENTS
The approximately 1,653 separately managed accounts for institutions and
high net-worth individuals (other than investment companies) for which the
Partnership acts as investment manager include corporate employee benefit plans,
public employee retirement systems, the general and separate accounts of
Equitable and its insurance company subsidiaries, endowments, foundations,
foreign governments, multi-employer pension plans and financial and other
institutions.
The general and separate accounts of Equitable and its insurance company
subsidiaries, which were transferred to the Partnership in 1993 in connection
with the acquisition of the business and substantially all of the assets of
ECMC, are the Partnership's largest institutional clients. As of December 31,
1997 these accounts, excluding investments made by these accounts in The Hudson
River Trust (See "Individual Investor Services - The Hudson River Trust"),
represented approximately 14% of total assets under management by the
Partnership and approximately 7% of the Partnership's total revenues for 1997.
As of December 31, 1997 corporate employee benefit plan accounts
represented approximately 12% of total assets under management by the
Partnership. Assets under management for other tax-exempt accounts, including
public employee benefit funds organized by government agencies and
municipalities, endowments, foundations and multi-employer employee benefit
plans, represented approximately 33% of total assets under management as of
December 31, 1997.
The following table lists the Partnership's twelve largest institutional
clients, ranked in order of size of total assets under management as of December
31, 1997. Since the Partnership's fee schedules vary based on the type of
account, the table does not reflect the ten largest revenue generating clients.
Client or Sponsoring Employer Type of Account
- ----------------------------- ---------------
Equitable and its insurance
company subsidiaries . . . . . . . . . . Equity, Fixed Income, Passive
North Carolina Retirement System. . . . . . . Passive Equity, U.S. Equity,
Global Equity
A Foreign Government Central Bank . . . . . . Equity, Global Equity,
Fixed Income, Global
Fixed Income
State Board of Administration of Florida . . Equity, Fixed Income
New York State Common Retirement System . . . Equity
BellSouth Corporation . . . . . . . . . . . . Passive Equity
National Mutual Funds Management . . . . . . Global Equity, Global Fixed
Income
New York State Teacher's Retirement System. . Passive Equity, Equity
Wyoming Retirement System . . . . . . . . . . Equity
Frank Russell Trust . . . . . . . . . . . . . U.S. Equity
These institutional clients accounted for approximately 27% of the
Partnership's total assets under management at December 31, 1997 and
approximately 10% of the Partnership's total revenues for the year ended
December 31, 1997 (37% and 16%, respectively, if the investments by the separate
accounts of Equitable in The Hudson River Trust were included). No single
institutional client other than Equitable and its insurance company subsidiaries
accounted for more than approximately 1% of the Partnership's total revenues for
the year ended December 31, 1997. The general and separate accounts of
Equitable and its insurance company subsidiaries accounted for approximately 14%
of the Partnership's total assets under management at December 31, 1997 and
approximately 7% of the Partnership's total revenues for the year ended December
31, 1997 (24% and 13%, respectively, if the investments by the separate accounts
of Equitable in The Hudson River Trust were included).
Since its inception, the Partnership has experienced periods when it gained
significant numbers of new accounts or amounts of assets under management and
periods when it lost significant accounts or assets under management. These
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fluctuations result from, among other things, the relative attractiveness of the
Partnership's investment style or level of performance under prevailing market
conditions, changes in the investment patterns of clients that result in a shift
in assets under management and other circumstances such as changes in the
management or control of a client.
INVESTMENT MANAGEMENT AGREEMENTS AND FEES
The Partnership's separately managed accounts are managed pursuant to a
written investment management agreement between the client and the Partnership,
which usually is terminable at any time or upon relatively short notice by
either party. In general, the Partnership's contracts may not be assigned
without the consent of the client.
In providing investment management services to institutional clients, the
Partnership is principally compensated on the basis of fees calculated as a
percentage of assets under management. Fees are generally billed quarterly and
are calculated on the value of an account at the beginning or end of a quarter
or on the average of such values during the quarter. As a result, fluctuations
in the amount or value of assets under management are reflected in revenues from
management fees within two calendar quarters.
Management fees paid on equity and balanced accounts are generally charged
in accordance with a fee schedule that ranges from 0.75% (for the first $10
million in assets) to 0.25% (for assets over $60 million) per annum of assets
under management. Fees for the management of fixed income portfolios generally
are charged in accordance with lower fee schedules, while fees for passive
equity portfolios typically are even lower. Fees for the management of hedge
funds are higher than the fees charged for equity and balanced accounts and also
provide for the payment of performance fees or carried interests to the
Partnership. With respect to approximately 5% of assets under management, the
Partnership charges performance-based fees, which consist of a relatively low
base fee plus an additional fee if investment performance for the account
exceeds certain benchmarks. No assurance can be given that such fee
arrangements will not become more common in the investment management industry.
Utilization of such fee arrangements by the Partnership on a broader basis could
create greater fluctuations in the Partnership's revenues.
ACFG's fees for corporate finance activities generally involve the payment
of a base management fee ranging from 0.10% to 1.00% of assets under management
per annum. In some cases ACFG receives performance fees generally equivalent to
20% of gains in excess of a specified hurdle rate.
In connection with the investment advisory services provided to the general
and separate accounts of Equitable and its insurance company subsidiaries the
Partnership provides ancillary accounting, valuation, reporting, treasury and
other services. Equitable and its insurance company subsidiaries compensate the
Partnership for such services. See "Item 13. Certain Relationships and Related
Transactions".
MARKETING
The Partnership's institutional products are marketed by marketing
specialists who solicit business for the entire range of the Partnership's
institutional account management services. Marketing specialists are dedicated
to corporate and insurance plans as well as public retirement systems,
multi-employer pension plans and the hedge fund marketplace. The Partnership's
institutional marketing structure supports its commitment to provide
comprehensive and timely client service. A client service representative is
assigned to each institutional account. This individual is available to meet
with the client as often as necessary and attends client meetings with the
portfolio manager.
MUTUAL FUNDS MANAGEMENT
The Partnership (i) manages and sponsors a broad range of open-end and
closed-end mutual funds other than The Hudson River Trust and markets wrap fee
accounts ("Alliance Mutual Funds"), (ii) manages The Hudson River Trust which is
one of the funding vehicles for variable annuity insurance and variable life
insurance products offered by Equitable and its insurance company subsidiaries,
and (iii) provides cash management services (money market funds and federally
insured deposit accounts) that are marketed to individual investors through
broker-dealers, banks, insurance companies and other financial intermediaries.
The net assets comprising the Alliance Mutual Funds, The Hudson River Trust and
money market funds and deposit accounts on December 31, 1997 amounted to
approximately $84.9 billion. The assets of the Alliance
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Mutual Funds, The Hudson River Trust and the money market funds are managed by
the same investment professionals who manage the Partnership's accounts of
institutional and high net-worth individuals.
REVENUES FROM MUTUAL FUNDS MANAGEMENT
(in thousands)
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------------------------------------
1993 1994 1995 1996 1997
<S> <C> <C> <C> <C> <C>
Alliance Mutual Funds:
Investment Services . . . . . . . . . . $109,692 $147,496 $147,407 $175,465 $242,834
Distribution Plan Fees. . . . . . . . . 89,253 117,509 105,405 126,930 164,880
Services and Other Fees . . . . . . . . 16,901 23,491 23,779 25,607 29,605
Underwriting Commissions. . . . . . . . 5,159 3,479 1,737 2,354 3,070
-------- -------- -------- -------- --------
221,005 291,975 278,328 330,356 440,389
-------- -------- -------- -------- --------
The Hudson River Trust:
Investment Services (1) . . . . . . . . 17,148 21,655 28,680 41,696 59,155
Distribution Plan Fees. . . . . . . . . - - - - - - - - 54
Services and Other Fees . . . . . . . . 942 390 366 500 641
Underwriting Commissions. . . . . . . . - - - - 73 184 86
-------- -------- -------- -------- --------
18,090 22,045 29,119 42,380 59,936
-------- -------- -------- -------- --------
Cash Management Services:
Investment Services (2) . . . . . . . . 40,202 42,018 56,642 74,441 82,770
Distribution Plan Fees. . . . . . . . . 16,007 18,104 23,328 39,481 48,758
Services and Other Fees . . . . . . . . 7,890 9,383 11,165 13,343 14,624
Underwriting Commissions. . . . . . . . 365 9 - - - - - -
-------- -------- -------- -------- --------
64,464 69,514 91,135 127,265 146,152
-------- -------- -------- -------- --------
Total . . . . . . . . . . . . . . . . . $303,559 $383,534 $398,582 $500,001 $646,477
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
</TABLE>
(1) Net of certain fees paid to Equitable for services rendered by Equitable in
marketing the variable annuity insurance and variable life products for
which The Hudson River Trust is the funding vehicle.
(2) Includes fees received by the Partnership in connection with its
distribution of money market deposit accounts for which no investment
management services are provided.
9
<PAGE>
ALLIANCE MUTUAL FUNDS
The Partnership has been managing mutual funds since 1971. Since then, the
Partnership has sponsored open-end load mutual funds, closed-end mutual funds
and offshore funds. On December 31, 1997 net assets in the Alliance Mutual
Funds totaled approximately $41.9 billion.
<TABLE>
<CAPTION>
Net Assets as
of December
31, 1997
-------------
Type of Alliance Mutual Funds (in millions)
-----------------------------
<S> <C>
Domestic Open-End Funds:
Equity and Balanced. . . . . . . . . . .$ 14,980.7
Taxable Fixed Income . . . . . . . . . . 6,241.4
Tax Exempt Fixed Income. . . . . . . . . 2,467.0
Offshore Funds (Open and Closed-End). . . . . 8,936.5
Domestic Closed-End Funds . . . . . . . . . . 4,211.8
Wrap Fee Programs . . . . . . . . . . . . . . 2,848.1
Variable Product Series Funds . . . . . . . . 1,492.1
Joint Ventures (1). . . . . . . . . . . . . . 690.2
----------
Total . . . . . . . . . . . . . . . . . . . .$ 41,867.8
----------
----------
</TABLE>
(1) Assets reflect 100% of assets under management by unconsolidated joint
venture subsidiaries.
THE HUDSON RIVER TRUST
The Hudson River Trust is one of the funding vehicles for the variable
annuity and variable life insurance products offered by Equitable and its
insurance company subsidiaries. On December 31, 1997 the net assets of the
portfolios of The Hudson River Trust were as follows:
<TABLE>
<CAPTION>
Net Assets as
of December
31, 1997
-------------
(in millions)
<S> <C>
Common Stock Portfolio. . . . . . . . . . . . $ 9,560.0
Aggressive Stock Portfolio. . . . . . . . . . 4,663.8
Balanced Portfolio. . . . . . . . . . . . . . 1,724.1
Growth Investors Portfolio. . . . . . . . . . 1,666.1
Global Portfolio. . . . . . . . . . . . . . . 1,225.4
Equity Index Fund . . . . . . . . . . . . . . 943.6
Growth & Income Portfolio . . . . . . . . . . 587.7
Money Market Portfolio. . . . . . . . . . . . 573.6
High Yield Portfolio. . . . . . . . . . . . . 421.8
Conservative Investors Portfolio. . . . . . . 313.6
Quality Bond Portfolio. . . . . . . . . . . . 203.2
International Portfolio . . . . . . . . . . . 193.9
Small Cap Growth Portfolio. . . . . . . . . . 141.0
Intermediate Government Portfolio . . . . . . 120.1
----------
Total . . . . . . . . . . . . . . . . . . . . $ 22,337.9
----------
----------
</TABLE>
10
<PAGE>
DISTRIBUTION. The Alliance Mutual Funds are distributed to individual
investors through broker-dealers, insurance sales representatives, banks,
registered investment advisers, financial planners and other financial
intermediaries. Alliance Fund Distributors, Inc. ("AFD"), a registered
broker-dealer and a wholly-owned subsidiary of the Partnership, serves as the
principal underwriter and distributor of the Alliance Mutual Funds registered
under the Investment Company Act as "open-end" investment companies ("U.S.
Funds") and serves as a placing or distribution agent for most of the
Alliance Mutual Funds which are not registered under the Investment Company
Act and which are not publicly offered to United States persons ("Offshore
Funds"). There are 76 sales representatives who devote their time exclusively
to promoting the sale of shares of Alliance Mutual Funds by financial
intermediaries.
The Partnership maintains a mutual fund distribution system (the "System")
which permits open-end Alliance Mutual Funds to offer investors the option of
purchasing shares (a) subject to a conventional front-end sales charge
("Front-End Load Shares") and (b) without a front-end sales charge but subject
to a contingent deferred sales charge payable by shareholders ("CDSC") and
higher distribution plan fees and transfer agent costs payable by the Alliance
Mutual Funds ("Back-End Load Shares"). If a shareholder purchases Front-End
Load Shares, AFD compensates the financial intermediary distributing the
Alliance Mutual Fund from the front-end sales charge paid by the shareholder at
the time of each sale. If a shareholder purchases Back-End Load Shares, AFD
does not collect a front-end sales charge even though AFD is obligated to
compensate the financial intermediary at the time of each sale. Payments made to
financial intermediaries during 1997 in connection with the sale of Back-End
Load Shares under the System, net of CDSC received, totaled approximately $150.3
million. Management of the Partnership believes AFD will recover the payments
made to financial intermediaries from the higher distribution fees and CDSC it
receives in respect of the Back-End Load Shares over periods not exceeding 5 1/2
years.
The rules of the National Association of Securities Dealers, Inc.
effectively limit the aggregate of all front-end, deferred and asset-based sales
charges paid to AFD with respect to any class of its shares by each open-end
U.S. Fund to 6.25% of cumulative gross sales of shares of that class, plus
interest at the prime rate plus 1% per annum.
The open-end U.S. Funds and Offshore Funds have entered into agreements
with AFD under which AFD is paid a distribution services fee. The Partnership
uses borrowings and its own resources to finance distribution of open-end
Alliance Mutual Fund shares.
The selling and distribution agreements between AFD and the financial
intermediaries that distribute Alliance Mutual Funds are terminable by either
party upon notice (generally of not more than sixty days) and do not obligate
the financial intermediary to sell any specific amount of fund shares. A small
amount of mutual fund sales is made directly by AFD, in which case AFD retains
the entire sales charge.
During 1997 the ten financial intermediaries responsible for the largest
volume of sales of Alliance Mutual Funds were responsible for 67% of the total
sales of Alliance Mutual Funds. Equico Securities, Inc. ("Equico"), a
wholly-owned subsidiary of Equitable that utilizes members of Equitable's
insurance agency sales force as its registered representatives, has entered into
a selected dealer agreement with AFD and since 1986 has been responsible for a
significant portion of total open-end U.S. Fund sales (8% in 1997). Equico is
under no obligation to sell a specific amount of fund shares and also sells
shares of mutual funds sponsored by organizations unaffiliated with Equitable.
Subsidiaries of Merrill Lynch & Co., Inc. (collectively "Merrill Lynch")
were responsible for approximately 19%, 17% and 25% of Alliance Mutual Fund
sales in 1995, 1996 and 1997, respectively. Smith Barney Inc. ("Smith Barney")
was responsible for approximately 8% of Alliance Mutual Fund sales in 1995, 1996
and 1997. Neither Merrill Lynch nor Smith Barney is under any obligation to
sell a specific amount of Alliance Mutual Fund shares and each also sells shares
of mutual funds that it sponsors and which are sponsored by unaffiliated
organizations.
No dealer or agent other than Equico, Merrill Lynch and Smith Barney has in
any year since 1990 accounted for more than 10% of the sales of open-end
Alliance Mutual Funds.
Many of the financial intermediaries that sell shares of Alliance Mutual
Funds also offer shares of funds not managed by the Partnership and frequently
offer shares of funds managed by their own affiliates.
11
<PAGE>
Based on market data reported by the Investment Company Institute (January
1997), the Partnership's market share in the U.S. mutual fund industry is 1.10%
of total industry assets and the Partnership accounted for 0.84% of total
open-end and closed-end fund sales-force derived industry sales in the U.S.
during 1997. While the performance of the Alliance Mutual Funds is a factor in
the sale of their shares, there are other factors contributing to success in the
mutual fund management business that are not as important in the institutional
account management business. These factors include the level and quality of
shareholder services (see "Shareholder and Administration Services" below) and
the amounts and types of distribution assistance and administrative services
payments. The Partnership believes that its compensation programs with
financial intermediaries are competitive with others in the industry.
Under current interpretations of the Glass-Steagall Act and other laws and
regulations governing depository institutions, banks and certain of their
affiliates generally are permitted to act as agent for their customers in
connection with the purchase of mutual fund shares and to receive as
compensation a portion of the sales charges paid with respect to such purchases.
During 1997 banks and their affiliates accounted for approximately 5% of the
sales of shares of open-end Alliance Mutual Funds.
INVESTMENT MANAGEMENT AGREEMENTS AND FEES. Investment management fees from
the Alliance Mutual Funds and The Hudson River Trust vary between .20% and 1.80%
per annum of average net assets. As certain of the U.S. Funds have grown, fee
schedules have been revised to provide lower incremental fees above certain
levels. Fees paid by the U.S. Funds and The Hudson River Trust are fixed
annually by negotiation between the Partnership and the board of directors or
trustees of each U.S. Fund and The Hudson River Trust, including a majority of
the disinterested directors or trustees. Changes in fees must be approved by
the shareholders of each U.S. Fund and The Hudson River Trust. In general, the
investment management agreements with the U.S. Funds and The Hudson River Trust
provide for termination at any time upon 60 days' notice.
Under each investment management agreement with a U.S. Fund, the
Partnership provides the U.S. Fund with investment management services, office
space and order placement facilities and pays all compensation of directors or
trustees and officers of the U.S. Fund who are affiliated persons of the
Partnership. Each U.S. Fund pays all of its other expenses. If the expenses of
a U.S. Fund exceed an expense limit established under the securities laws of any
state in which shares of that U.S. Fund are qualified for sale or as prescribed
in the U.S. Fund's investment management agreement, the Partnership absorbs such
excess through a reduction in the investment management fee. Currently, the
Partnership believes that California and South Dakota are the only states to
impose such a limit. The expense ratios for the U.S. Funds during their most
recent fiscal year ranged from .92% to 4.27%. In connection with newly
organized U.S. Funds, the Partnership may also agree to reduce its fee or bear
certain expenses to limit a fund's expenses during an initial period of
operations.
12
<PAGE>
CASH MANAGEMENT SERVICES
The Partnership provides cash management services to individual investors
through a product line comprising nineteen money market fund portfolios and
three types of brokered money market deposit accounts. Net assets in these
products as of December 31, 1997 totaled approximately $20.7 billion.
<TABLE>
<CAPTION>
Net Assets as
of December
31, 1997
-------------
(in millions)
<S> <C>
Money Market Funds:
Alliance Capital Reserves (two portfolios) . . . . $ 7,548.0
Alliance Government Reserves (two portfolios). . . 4,964.2
Alliance Money Market Fund (three portfolios). . . 3,424.5
Alliance Municipal Trust (eight portfolios). . . . 2,548.9
ACM Institutional Reserves (four portfolios) . . . 1,989.2
Money Market Deposit Accounts (three products). . . . . 240.3
Joint Ventures (1). . . . . . . . . . . . . . . . . . . 26.9
----------
Total . . . . . . . . . . . . . . . . . . . . . . . . .$ 20,742.0
----------
----------
</TABLE>
(1) Assets reflect 100% of assets under management by unconsolidated joint
venture subsidiaries.
The Partnership also offers a managed assets program, which provides
customers of participating financial intermediaries with a Visa card, access to
automated teller machines and check writing privileges. The program is linked
to the customer's chosen Alliance money market fund. The program serves to
enhance relationships with financial intermediaries and to attract and retain
investments in the Alliance money market funds, as well as to generate fee
income.
Under its investment management agreement with each money market fund, the
Partnership is paid an investment management fee equal to 0.50% per annum of the
fund's average net assets except for ACM Institutional Reserves which pays a fee
between 0.20% and 0.45% of its average net assets. In the case of Alliance
Capital Reserves and Alliance Government Reserves, the fee is payable at lesser
rates with respect to average net assets in excess of $1.25 billion. For
distribution and account maintenance services rendered in connection with the
sale of money market deposit accounts, the Partnership receives fees from the
participating banks that are based on outstanding account balances. Because the
money market deposit account programs involve no investment management functions
to be performed by the Partnership, the Partnership's costs of maintaining the
account programs are less, on a relative basis, than its costs of managing the
money market funds.
On December 31, 1997 more than 99% of the assets invested in the
Partnership's cash management programs were attributable to regional
broker-dealers and other financial intermediaries, with the remainder coming
directly from the public. On December 31, 1997 more than 500 financial
intermediaries offered the Partnership's cash management services. The
Partnership's money market fund market share (not including deposit products),
as computed based on market data reported by the Investment Company Institute
(December 1997), has increased from 1.17% of total money market fund industry
assets at the end of 1992 to 1.95% at December 31, 1997.
The Partnership makes payments to financial intermediaries for distribution
assistance and shareholder servicing and administration. The Partnership's
money market funds pay fees to the Partnership at annual rates of up to 0.25% of
average daily net assets pursuant to "Rule 12b-1" distribution plans except for
Alliance Money Market Fund which pays a fee of up to 0.45% of its average daily
net assets. Such payments are supplemented by the Partnership in making
payments to financial intermediaries under the distribution assistance and
shareholder servicing and administration program. During 1997 such supplemental
payments totaled $49.0 million ($44.4 million in 1996). There are 7 employees
of the Partnership who devote their time exclusively to marketing the
Partnership's cash management services.
13
<PAGE>
A principal risk to the Partnership's cash management services business is
the acquisition of its participating financial intermediaries by companies that
are competitors or that plan to enter the cash management services business. As
of December 31, 1997 the five largest participating financial intermediaries
were responsible for assets aggregating approximately $17.2 billion, or 83% of
the cash management services total.
Many of the financial intermediaries whose customers utilize the
Partnership's cash management services are broker-dealers whose customer
accounts are carried, and whose securities transactions are cleared and settled,
by the Pershing Division ("Pershing") of Donaldson, Lufkin & Jenrette Securities
Corporation ("DLJ Securities Corporation"), a subsidiary of ECI. Pursuant to an
agreement between Pershing and the Partnership, Pershing recommends that certain
of its correspondent firms use of the Partnership's money market funds and other
cash management products. As of December 31, 1997 DLJ Securities Corporation
and these Pershing correspondents were responsible for approximately $11.4
billion or 55% of the Partnership's total cash management assets. Pershing may
terminate its agreement with the Partnership on 180 days' notice. If the
agreement were terminated, Pershing would be under no obligation to recommend or
in any way assist in the sale of the Partnership's cash management products and
would be free to recommend or assist in the sale of competitive products.
The Partnership's money market funds are investment companies registered
under the Investment Company Act and are managed under the supervision of boards
of directors or trustees, which include disinterested directors or trustees who
must approve investment management agreements and certain other matters. The
investment management agreements between the money market funds and the
Partnership provide for an expense limitation of 1% per annum or less of average
daily net assets. See "Alliance Mutual Funds - Investment Management Agreements
and Fees".
SHAREHOLDER AND ADMINISTRATION SERVICES
Alliance Fund Services, Inc. ("AFS"), a wholly-owned subsidiary of the
Partnership, provides registrar, dividend disbursing and transfer agency related
services for each U.S. Fund and provides servicing for each U.S. Fund's
shareholder accounts. As of December 31, 1997 AFS employed 276 people. AFS
operates out of offices in Secaucus, New Jersey. Under each servicing agreement
AFS receives a monthly fee. Each servicing agreement must be approved annually
by the relevant U.S. Fund's board of directors or trustees, including a majority
of the disinterested directors or trustees, and may be terminated by either
party without penalty upon 60 days' notice.
Most U.S. Funds and closed-end funds for which the Partnership acts as
investment manager utilize Partnership personnel to perform legal, clerical and
accounting services not required to be provided by the Partnership. Payments by
a U.S. Fund for these services must be specifically approved in advance by the
U.S. Fund's board of directors or trustees. Currently, the Partnership and AFS
are accruing revenues for providing clerical and accounting services to the U.S.
Funds and these closed-end funds at the rate of approximately $8.6 million per
year.
ACM Fund Services S.A. ("ACMFS"), a wholly-owned subsidiary of the
Partnership, is the registrar and transfer agent of substantially all of the
Offshore Funds. As of December 31, 1997 ACMFS employed 10 people. ACMFS
operates out of offices in Luxembourg and receives a monthly fee for its
registrar and transfer agency services. Each agreement between ACMFS and an
Offshore Fund may be terminated by either party upon 60 days' notice.
The Partnership expects to continue to devote substantial resources to
shareholder servicing because of its importance in competing for assets invested
in mutual funds and cash management services.
YEAR 2000
Many computer systems and applications process transactions using two digit
date fields for the year of a transaction, rather than the full four digits. If
these systems are not modified and replaced, transactions occurring after 1999
would be processed as year "00", which could result in processing inaccuracies
and inoperability by or at the Year 2000. The Partnership utilizes a number of
significant computer systems and applications that it either has developed
internally or licensed from third-party suppliers. In addition, the Partnership
is dependent on third-party suppliers for certain systems applications and for
the electronic receipt of information critical to its business. Should the
Partnership's significant computer systems and applications or the systems of
its important third-party suppliers be unable to process date sensitive
information
14
<PAGE>
accurately after 1999, the ability of the Partnership to conduct its operations
and to provide its separate account clients and the Alliance Mutual Funds with
the required services could be significantly impaired.
The Partnership began to address the Year 2000 issue several years ago in
connection with the replacement or upgrade of certain computer systems and
applications. During 1997, the Partnership began a formal Year 2000 initiative,
which established a structured and coordinated process to deal with the Year
2000 issue. The Partnership is currently assessing the impact of the Year 2000
issue on its domestic and international computer systems and applications. At
this time, management of the Partnership expects that the required modifications
for the majority of its significant systems and applications will be completed
and tested by the end of 1998. Full integration testing of these systems and
testing of interfaces with third-party suppliers will continue through 1999.
The current estimate of the total cost of this initiative ranges from $35
million to $40 million. These costs consist principally of modification costs
which will be expensed as incurred. At this time, management of the Partnership
believes that the costs associated with resolving this issue will not have a
material adverse effect on the Partnership's results of operations, liquidity or
capital resources.
COMPETITION
The financial services industry is highly competitive and new entrants are
continually attracted to it. No one or small number of competitors is dominant
in the industry. The Partnership is subject to substantial competition in all
aspects of its business. Pension fund, institutional and corporate assets are
managed by investment management firms, broker-dealers, banks and insurance
companies. Many of these financial institutions have substantially greater
resources than the Partnership. The Partnership competes with other providers of
institutional investment products and services primarily on the basis of the
range of investment products offered, the investment performance of such
products and the services provided to clients. Based on an annual survey
conducted by PENSIONS & INVESTMENTS, as of December 31, 1996 the Partnership was
ranked 9th out of 250 managers based on tax-exempt assets under management, 5th
out of the 25 largest managers of international index assets, 7th out of the 25
largest managers of domestic equity index funds and 14th out of the 25 largest
domestic bond index managers.
Many of the firms competing with the Partnership for institutional clients
also offer mutual fund shares and cash management services to individual
investors. Competitiveness in this area is chiefly a function of the range of
mutual funds and cash management services offered, investment performance,
quality in servicing customer accounts and the capacity to provide financial
incentives to financial intermediaries through distribution assistance and
administrative services payments funded by "Rule 12b-1" distribution plans and
the investment adviser's own resources.
CUSTODY AND BROKERAGE
Neither the Partnership nor its subsidiaries maintains custody of client
funds or securities, which is maintained by client-designated banks, trust
companies, brokerage firms or other custodians. Custody of the assets of
Alliance Mutual Funds, The Hudson River Trust and money market funds is
maintained by custodian banks and central securities depositories.
The Partnership generally has the discretion to select the brokers or
dealers to be utilized to execute transactions for client accounts.
Broker-dealers affiliated with ECI and Equitable effect transactions for client
accounts only if the use of the broker-dealers has been specifically authorized
or directed by the client.
REGULATION
The Partnership, Albion Alliance, ACFG and Alliance are investment advisers
registered under the Investment Advisers Act of 1940. Each U.S. Fund is
registered with the Securities and Exchange Commission ("SEC") under the
Investment Company Act and the shares of most U.S. Funds are qualified for sale
in all states in the United States and the District of Columbia, except for U.S.
Funds offered only to residents of a particular state. AFS is registered with
the SEC as a transfer agent and AFD is registered with the SEC as a
broker-dealer. AFD is subject to minimum net capital requirements ($3.8 million
at December 31, 1997) imposed by the SEC on registered broker-dealers and had
aggregate regulatory net capital of $10.6 million at December 31, 1997.
15
<PAGE>
The relationships of Equitable and its insurance company subsidiaries with
the Partnership are subject to applicable provisions of the New York Insurance
Law and regulations. Certain of the investment advisory agreements and
ancillary administrative service agreements between Equitable and its insurance
company subsidiaries and the Partnership are subject to disapproval by the New
York Superintendent of Insurance within a prescribed notice period. Under the
New York Insurance Law and regulations, the terms of these agreements are to be
fair and equitable, charges or fees for services performed are to be reasonable,
and certain other standards must be met. Fees must be determined either with
reference to fees charged to other clients for similar services or, in certain
cases, which include the ancillary service agreements, based on cost
reimbursement.
The Partnership's assets under management and revenues derived from the
general accounts of Equitable and its insurance company subsidiaries are
directly affected by the investment policies for the general accounts. Among
the numerous factors influencing general account investment policies are
regulatory factors, such as (i) laws and regulations that require
diversification of the investment portfolios and limit the amount of investments
in certain investment categories such as below investment grade fixed
maturities, equity real estate and equity interests, (ii) statutory investment
valuation reserves, and (iii) risk-based capital guidelines for life insurance
companies approved by the National Association of Insurance Commissioners.
These policies have recently resulted in the shifting of general account assets
managed by the Partnership into categories with lower management fees.
All aspects of the Partnership's business are subject to various federal
and state laws and regulations and to the laws in the foreign countries in which
the Partnership's subsidiaries conduct business. These laws and regulations are
primarily intended to benefit clients and Alliance Mutual Fund shareholders and
generally grant supervisory agencies broad administrative powers, including the
power to limit or restrict the carrying on of business for failure to comply
with such laws and regulations. In such event, the possible sanctions which may
be imposed include the suspension of individual employees, limitations on
engaging in business for specific periods, the revocation of the registration as
an investment adviser, censures and fines.
EMPLOYEES
As of December 31, 1997 the Partnership and its subsidiaries employed 1,670
employees, including 197 investment professionals, of whom 97 are portfolio
managers, 89 are research analysts and 11 are order placement specialists. The
average period of employment of these professionals with the Partnership is
approximately 9 years and their average investment experience is approximately
15 years. The Partnership considers its employee relations to be good.
SERVICE MARKS
The Partnership has registered a number of service marks with the U.S.
Patent and Trademark Office, including an "A" design logo and the combination of
such logo and the words "Alliance" and "Alliance Capital". Each of these
service marks was registered in 1986.
ITEM 2. PROPERTIES
The Partnership's principal executive offices at 1345 Avenue of the
Americas, New York, New York are occupied pursuant to a lease which extends
until 2016. The Partnership currently occupies approximately 290,000 square
feet at this location. The Partnership also occupies approximately 79,700
square feet at 135 West 50th Street, New York, New York under leases expiring in
1998 and 1999. The Partnership also occupies approximately 16,800 square feet
at 709 Westchester Avenue, White Plains, New York under leases expiring in 1999
and 2000, respectively. The Partnership and its subsidiaries, AFD and AFS,
occupy approximately 125,000 square feet of space in Secaucus, New Jersey
pursuant to a lease which extends until 2016.
The Partnership also leases space in San Francisco, California; Chicago,
Illinois; Greenwich, Connecticut; Minneapolis, Minnesota; and Beechwood, Ohio,
and its subsidiaries lease space in Boston, Massachusetts; London, England;
Paris, France; Tokyo, Japan; Sydney, Australia; Toronto, Canada; Luxembourg,
Singapore, Bahrain, Mumbai, India; New
16
<PAGE>
Delhi, India; Johannesburg, South Africa and Istanbul, Turkey. Joint venture
subsidiaries of the Partnership have offices in Vienna, Austria; Sao Paolo,
Brazil; Hong Kong, Chennai, India; Seoul, Korea; Warsaw, Poland and Moscow,
Russia.
ITEM 3. LEGAL PROCEEDINGS
On July 25, 1995, a Consolidated and Supplemental Class Action Complaint
("Complaint") was filed against the Alliance North American Government Income
Trust, Inc. (the "Fund"), the Partnership and certain other defendants
affiliated with the Partnership alleging violations of federal securities laws,
fraud and breach of fiduciary duty in connection with the Funds' investments in
Mexican and Argentine securities. The Complaint, which sought certification of
a plaintiff class of persons who purchased or owned class A, B or C shares of
the Fund from March 27, 1992 through December 23, 1994 sought an unspecified
amount of damages, costs, attorneys' fees and punitive damages. The principal
allegations are that the Fund purchased debt securities issued by the Mexican
and Argentine governments in amounts that were not permitted by the Funds'
investment objective, and that there was no shareholder vote to change the
investment objective to permit purchases in such amounts. The Complaint further
alleged that the decline in the value of the Mexican and Argentine securities
held by the Fund caused the Fund's net asset value to decline to the detriment
of the Fund's shareholders.
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
Complaint ("First Decision"). On October 11, 1996, plaintiffs filed a motion
for reconsideration of the First Decision. On November 25, 1996, the District
Court denied plaintiffs' motion for reconsideration of the First Decision. On
October 29, 1997, the United States Court of Appeals for the Second Circuit
issued an order granting defendants' motion to strike and dismissing plaintiffs'
appeal of the First 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 the risks of investing in foreign
securities 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 July 15, 1997, the District Court denied
plaintiffs' motion for leave to file an amended complaint and ordered that the
case be dismissed ("Second Decision"). The plaintiffs have appealed the Second
Decision to the United States Court of Appeals for the Second Circuit.
The Partnership believes that the allegations in the Complaint and the
amended complaint are without merit and intends to vigorously defend against
these claims. While the ultimate outcome of this matter cannot be determined at
this time, management of the Partnership does not expect that it will have a
material adverse effect on the Partnership's results of operations or financial
condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of 1997, a Special Meeting of Limited Partners
and Unitholders of the Partnership was held on December 16, 1997 at 1345 Avenue
of the Americas, New York, New York. The Special Meeting was held to consider
(i) a proposal to approve and adopt the Alliance Capital Management L.P. 1997
Long Term Incentive Plan ("Proposal 1") and (ii) to amend the Alliance Capital
Management L.P. Century Club Plan to increase by 400,000 the number of Units
with respect to which awards may be granted under, and to modify the amendment
procedure of the Century Club Plan ("Proposal 2").
Proposal 1 and Proposal 2 were approved at the Special Meeting. 54,849,186
affirmative votes were cast in favor of Proposal 1, 525,861 votes were cast
against Proposal 1 and 91,386 Units represented at the Special Meeting
abstained from voting in respect of Proposal 1. 54,915,963 affirmative votes
were cast in favor of Proposal 2, 426,654 votes were cast against Proposal 2 and
123,816 Units represented at the Special Meeting abstained from voting in
respect of Proposal 2.
17
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET FOR THE UNITS
The Units are traded on the New York Stock Exchange ("NYSE"). The high and
low sales prices on the NYSE during each quarter of the Partnership's two most
recent fiscal years were as follows:
<TABLE>
<CAPTION>
1997 High Low
---- ---- ---
<S> <C> <C>
First Quarter 15 1/8 12
Second Quarter 14 15/16 12
Third Quarter 18 13/16 14 1/2
Fourth Quarter 19 15/16 15 13/32
1996 High Low
---- ---- ---
First Quarter 12 7/8 10 11/16
Second Quarter 12 11/16 11 1/2
Third Quarter 13 1/16 11 7/16
Fourth Quarter 14 5/8 12 1/2
</TABLE>
On February 19, 1998, the Partnership declared a two for one Unit split
payable to Unitholders of record on March 11, 1998. The high and low sales
prices above have been adjusted to reflect the Unit split.
On March 1, 1998 the closing price of the Units on the NYSE was $50.125 per
Unit without adjustment for the Unit split. As of March 1, 1998 there were
approximately 1,642 Unitholders of record.
18
<PAGE>
CASH DISTRIBUTIONS
The Partnership distributes on a quarterly basis all of its Available Cash
Flow (as defined in the Partnership Agreement). During its two most recent
fiscal years the Partnership made the following distributions of Available Cash
Flow:
<TABLE>
<CAPTION>
Quarter During 1997 With
Respect to Which a Cash
Distribution Was Paid from Amount of Cash
Available Cash Flow for Distribution Per
that Quarter Unit Payment Date
-------------------------- ---------------- ------------
<S> <C> <C>
First Quarter $0.30 May 20, 1997
Second Quarter 0.32 August 21, 1997
Third Quarter 0.37 November 28, 1997
Fourth Quarter 0.41 February 24, 1998
-----
$1.40
-----
-----
Quarter During 1996 With
Respect to Which a Cash
Distribution Was Paid from Amount of Cash
Available Cash Flow for Distribution Per
that Quarter Unit Payment Date
-------------------------- ---------------- ------------
First Quarter $0.260 May 28, 1996
Second Quarter 0.265 August 22, 1996
Third Quarter 0.275 November 18, 1996
Fourth Quarter 0.295 March 4, 1997
------
$1.095
------
------
</TABLE>
On February 19, 1998 the Partnership declared a two for one Unit split
payable to Unitholders of record on March 11, 1998. The cash distributions per
Unit amounts above have been adjusted to reflect the Unit split.
ITEM 6. SELECTED FINANCIAL DATA
The Selected Consolidated Financial Data which appears on page 40 of the
Alliance Capital Management L.P. 1997 Annual Report to Unitholders is
incorporated by reference in this Annual Report on Form 10-K.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results of
Operations which appears on pages 42 through 51 of the Alliance Capital
Management L.P. 1997 Annual Report to Unitholders is incorporated by reference
in this Annual Report on Form 10-K.
19
<PAGE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
In January 1997, the SEC released amended Rule 4-08 of Regulation S-X
(General Notes to the Financial Statements), as part of Release No. 33-7386,
requiring additional disclosure with respect to accounting policies followed in
connection with the accounting for derivative financial instruments and
derivative commodity instruments. This disclosure is required for all periods
ending after June 15, 1997, unless a registrant's most recent Form 10-K is in
compliance. The Release also added Item 305 to Regulation S-K to require
quantitative and qualitative disclosures outside the financial statements about
market risk inherent in derivative and other financial instruments. The
requirements of Item 305 become effective for non-bank registrants with market
capitalization in excess of $2.5 billion at January 28, 1997, for filings that
include annual financial statements for periods ending after June 15, 1997. For
registrants with market capitalization under $2.5 billion, the requirements of
Item 305 become effective for filings that include annual financial statements
for periods ending after June 15, 1998. The Partnership believes it is
currently in compliance with amended Rule 4-08 of Regulation S-X. The
Partnership's market capitalization was less than $2.5 billion on January 28,
1997. The requirements of Item 305 will commence with the Partnership's Annual
Report on Form 10-K for the period ended December 31, 1998, at which time the
additional requirements of Item 305 will be addressed.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements of Alliance Capital Management L.P.
and subsidiaries and the report thereon by KPMG Peat Marwick LLP which appear on
pages 52 through 69 of the Alliance Capital Management L.P. 1997 Annual Report
to Unitholders are incorporated by reference in this Annual Report on Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
GENERAL PARTNER
The Partnership's activities are managed and controlled by Alliance as
General Partner and Unitholders do not have any rights to manage or control the
Partnership. The General Partner has agreed that it will conduct no active
business other than managing the Partnership, although it may make certain
investments for its own account.
The General Partner does not receive any compensation from the Partnership
for services rendered to the Partnership as General Partner. The General
Partner holds a 1% general partnership interest in the Partnership. As of March
1, 1997 Equitable, ACMC and ECMC, affiliates of the General Partner, held
48,089,183 Units (including 551,395 Units issuable upon conversion of the Class
A Limited Partnership Interest).
The General Partner is reimbursed by the Partnership for all expenses
incurred by it in carrying out its activities as General Partner, including
compensation paid by the General Partner to its directors and officers (to the
extent such persons are not compensated directly as employees of the
Partnership) and the cost of directors and officers liability insurance obtained
by the General Partner. The General Partner was not reimbursed for any such
expenses in 1997 except for directors' fees and directors and officers liability
insurance.
20
<PAGE>
DIRECTORS AND EXECUTIVE OFFICERS OF THE GENERAL PARTNER
The directors and executive officers of the General Partner are as follows:
Name Age Position
---- --- --------
Dave H. Williams 65 Chairman of the Board, Chief
Executive Officer and Director
Luis Javier Bastida 52 Director
Claude Bebear 62 Director
Donald H. Brydon 52 Director
Bruce W. Calvert 51 Director, Vice Chairman and
Chief Investment Officer
John D. Carifa 53 Director, President and Chief
Operating Officer
Henri de Castries 43 Director
Kevin C. Dolan 44 Director
Denis Duverne 45 Director
Alfred Harrison 60 Director and Vice Chairman
Jean-Pierre Hellebuyck 50 Director
Benjamin D. Holloway 73 Director
Joseph J. Melone 66 Director
Edward D. Miller 57 Director
Peter D. Noris 42 Director
Frank Savage 59 Director
Stanley B. Tulin 48 Director
Reba W. Williams 61 Director
Robert B. Zoellick 44 Director
David R. Brewer, Jr. 52 Senior Vice President and
General Counsel
Robert H. Joseph, Jr. 50 Senior Vice President and
Chief Financial Officer
Mr. Williams joined Alliance in 1977 and has been the Chairman of the Board
and Chief Executive Officer since that time. He was elected a Director of
Equitable on March 21, 1991 and was elected to the ECI Board of Directors in May
of 1992. He is also a Senior Executive Vice President of AXA. AXA, ECI and
Equitable are parents of the Partnership. Mr. Williams is the husband of Mrs.
Reba W. Williams, a Director of Alliance.
Mr. Bastida was elected a Director of Alliance in February 1995. He is
Chief Financial Officer and a member of the Executive Committee of Banco Bilbao
Vizcaya, S.A., ("BBV"). Mr. Bastida has been with BBV since 1976. Previous to
that date he worked for General Electric. He is Chairman of Finanzia, the
Specialized Finance subsidiary of BBV and a Director of Privanza, the Private
Bank of the same group.
Mr. Bebear was elected a Director of Alliance in February 1996. In January
1997, Mr. Bebear was appointed Chairman of the Executive Board of AXA. Prior
thereto, he was Chairman and Chief Executive Officer of AXA since February, 1989
and Chief Executive Officer of the AXA Group since 1974. Mr. Bebear serves as
Chairman or Director of numerous subsidiaries and affiliated companies of the
AXA Group. He is also a Director of Saint-Gobain, Schneider S.A., and serves as
a member of the Supervisory Board of Compagnie Financiare de Paribas. Mr.
Bebear has been a Director of ECI since May 1992 and a Director of Equitable
since July 1991. He was elected Chairman of ECI on February 14, 1996 and will
retire from that position on April 1, 1998. AXA, ECI and Equitable are parents
of the Partnership
21
<PAGE>
Mr. Brydon was elected a Director of Alliance in May 1997. He is Chairman
and Chief Executive Officer of AXA Investment Managers S.A. Mr. Brydon was
formerly Barclays Group's Deputy Chief Executive of BZW, the investment banking
division of Barclays Plc., and was a member of the Executive Committee of
Barclays. Before joining BZW, Mr. Brydon was the Chief Executive and Chairman
of Barclays de Zoete Wedd Investment Management Ltd. (BZWIM) and had served in
various executive capacities within the Barclays organization including Barclays
Investment Management Ltd. and Barclays Bank. Mr. Brydon serves as director of
Allied Domecq Plc., Nycomed Auersham Plc., Edinburgh UK Index Trust Plc. and
Edinburgh Inca Trust. He also serves as a member of the Executive Committee of
the UK's Institutional Fund Managers Association and is a Member of the Board of
the London Stock Exchange. In addition, Mr. Brydon serves as Advisor of British
Aerospace Pension Fund Investment Management Ltd. and as Regulatory Officer of
IMRO. AXA Investment Managers S.A. is a subsidiary of AXA, a parent of the
Partnership.
Mr. Calvert joined Alliance in 1973 as an equity portfolio manager and was
elected Vice Chairman and Chief Investment Officer on May 3, 1993. From 1986 to
1993 he was an Executive Vice President and from 1981 to 1986 he was a Senior
Vice President. He was elected a Director of Alliance in 1992.
Mr. Carifa joined Alliance in 1971 and was elected President and Chief
Operating Officer on May 3, 1993. He was the Chief Financial Officer from 1973
until 1994. He was an Executive Vice President from 1986 to 1993 and he was a
Senior Vice President from 1980 to 1986. He was elected a Director of Alliance
in 1992.
Mr. de Castries was elected a Director of Alliance in October 1993. He
has been Senior Executive Vice President Financial Services and Life
Insurance Activities of AXA since 1996. Prior thereto he was Executive Vice
President Financial Services and Life Insurance Activities of AXA from 1993
to 1996, General Secretary of AXA from 1991 to 1993 and Central Director of
Finances from 1989 to 1991. Mr. de Castries is also a Director or Officer of
various subsidiaries and affiliates of the AXA Group and a Director of ECI,
Equitable and Donaldson Lufkin & Jenrette, Inc. ("DLJ"). Mr. de Castries was
elected Vice Chairman of ECI on February 14, 1996 and was elected Chairman of
ECI, effective April 1, 1998. AXA, ECI and Equitable are parents of the
Partnership. DLJ is a subsidiary of ECI.
Mr. Dolan was elected a Director of Alliance in May 1995. He is Chief
Executive Officer of AXA Investment Managers Paris, a subsidiary of AXA. Mr.
Dolan has been with AXA since 1993. From 1983 to 1993 Mr. Dolan was Deputy
General Manager of BFCE. AXA is a parent of the Partnership.
Mr. Duverne was elected a Director of Alliance in February 1996. He has
been Senior Vice President - International Life of AXA since 1995. Prior to
that Mr. Duverne was a member of the Executive Committee in charge of Operations
of Banque Colbert from 1992 to 1995. Mr. Duverne was Secretary General of
Compagnie Financiare IBI from 1991 to 1992. Mr. Duverne worked for the French
Ministry of Finance serving as Deputy Assistant Secretary for Tax Policy from
1988 to 1991 and director of the Corporate Taxes Department from 1986 to 1988.
He is also a Director of various subsidiaries of the AXA Group. Mr. Duverne is
also a Director of DLJ and Equitable. AXA and Equitable are parents of the
Partnership. DLJ and Equitable are subsidiaries of ECI.
Mr. Harrison joined Alliance in 1978 and was elected Vice Chairman on May
3, 1993. Mr. Harrison is in charge of the Partnership's Minneapolis office and
is a senior portfolio manager. He was an Executive Vice President from 1986 to
1993 and a Senior Vice President from 1978 to 1986. He was elected a Director of
Alliance in 1992.
Mr. Hellebuyck was elected a Director of Alliance in October 1992. He is
the Vice Chairman of AXA Investment Managers S.A. Mr. Hellebuyck is also a
Director of various subsidiaries of AXA and Societe Des Bourses Francaises. AXA
is a parent of the Partnership.
Mr. Holloway was elected a Director of Alliance in November 1987. He is a
consultant to The Continental Companies. From September 1988 until his
retirement in March 1990, Mr. Holloway was a Vice Chairman of Equitable. He
served as an Executive Vice President of Equitable from 1979 until 1988. Prior
to his retirement he served as a Director and Officer of various Equitable
subsidiaries and Mr. Holloway was also a Director of DLJ until March 1990. Mr.
Holloway was a Director of Rockefeller Center Properties, Inc. and is a Director
Emeritus of The Duke University Management Corporation,
22
<PAGE>
Chairman of The Touro National Heritage Trust, a Regent of the Cathedral of St.
John the Divine and a Trustee of Duke University (Emeritus) and the American
Academy in Rome (Emeritus).
Mr. Melone was elected a Director of Alliance in January 1991. Mr. Melone
was elected Chief Executive Officer of ECI on February 14, 1996. He is a
Director and President of ECI, has been Chairman of Equitable since February
1994 and is Senior Executive Vice President of AXA. Mr. Melone will retire from
those positions on April 1, 1998. He was President and Chief Executive Officer
of Equitable from November 1990 until February 1994. Mr. Melone was formerly
Chief Operating Officer of ECI and Chief Executive Officer of Equitable. From
1984 to 1990, he was President of The Prudential Insurance Company of America.
He is also a Director of DLJ, AT&T Capital Corporation and Foster Wheeler
Corporation. AXA, ECI and Equitable are parents of the Partnership.
Mr. Miller was elected a Director of Alliance in November 1997. He is
President and Chief Executive Officer of ECI since August 1997. He was
President of Equitable from August 1997 to January 1998 and has been Chairman of
Equitable since January 1998 and Chief Executive Officer since August 1997. He
is also a Senior Executive Vice President of AXA. From 1995 to 1997, he was
Senior Vice Chairman of Chase Manhattan Corporation. Prior thereto, he was
President of Chemical Bank (which merged with Chase in 1996) from 1994 to 1995
and Vice Chairman from 1991 to 1994. He is also a Director of KeySpan Energy
Corporation, formed as a result of the merger of Long Island Lighting Company
and Brooklyn Union Gas Co. AXA, ECI and Equitable are parents of the
Partnership.
Mr. Noris was elected a Director of Alliance in July 1995. Since 1995 Mr.
Noris has been Executive Vice President and Chief Investment Officer of ECI.
Since 1995 Mr. Noris has been the Executive Vice President and Chief Investment
Officer of Equitable. Prior to that he was Vice President - Investment Strategy
for Salomon Brothers from 1992 to 1995. From 1984 to 1992 Mr. Noris was a
Principal in the Fixed Income and Equity Divisions of Morgan Stanley Group Inc.
ECI and Equitable are parents of the Partnership.
Mr. Savage was elected a Director of Alliance in May 1993. He has been
Chairman of Alliance Capital Management International, a division of the
Partnership, since May 1994. Mr. Savage is a Director of ACFG, a subsidiary of
the Partnership, and was Chairman of ACFG from July 1993 to August 1996. Prior
to this, he was with ECMC, serving as Vice Chairman from June 1986 to April
1992, and Chairman from April 1992 to July 1993. In addition, Mr. Savage is a
Director of Lockheed Martin Corporation, ARCO Chemical Company and Qualcomm Inc.
Mr. Tulin was elected a Director of Alliance in July 1997. He is an
Executive Vice President and Chief Financial Officer of ECI and Vice Chairman
and Chief Financial Officer of Equitable. Mr. Tulin was elected a Director of
DLJ in June 1997. Mr. Tulin was formerly Coopers & Lybrand's Co-Chairman of the
Insurance Industry Practice. Before joining Coopers & Lybrand, Mr. Tulin was
with Milliman and Robertson and from 1983 to 1988, he served as the consulting
actuary to the Rehabilitators of the Baldwin United Corporation Life Company
subsidiaries in rehabilitation. Mr. Tulin is a fellow of the Society of
Actuaries, a member and Treasurer of the American Academy of Actuaries and a
frequent speaker at actuarial and insurance industry conferences. He is a
member of the Board of Directors for the Jewish Theological Seminary, as well as
a member of his local school board. ECI and Equitable are parents of the
Partnership and DLJ is a subsidiary of ECI.
Mrs. Williams was elected a Director of Alliance in October 1993. She is
currently the Director of Special Projects of the Partnership. She serves on
the Boards of Directors of the India Liberalisation Fund, The Spain Fund, The
Austria Fund, The Southern Africa Fund and The Turkish Growth Fund. Mrs.
Williams, who has worked at McKinsey and Company, Inc. and as a securities
analyst at Mitchell, Hutchins, Inc., has a Masters in Business Administration
and a Ph.D. in Art History. Mrs. Williams is the wife of Mr. Dave H. Williams,
Chairman of the Board, Chief Executive Officer and a Director of Alliance.
Mr. Zoellick was elected a Director of Alliance in February 1997. He is
currently the John M. Olin Professor in National Security Affairs at the U.S.
Naval Academy. From 1993 through 1997, Mr. Zoellick was an Executive Vice
President at Fannie Mae, the largest investor in home mortgages in the U.S.
Before joining Fannie Mae, he was Deputy Chief of Staff of the White House and
Assistant to the President from 1992 to 1993. From 1989 to 1992, Mr. Zoellick
was the Counselor of the State Department and later also Under Secretary of
State for Economics. He served as the President's personal representative for
the 1991 and 1992 G-7 Economic Summits. From 1985 to 1988, Mr. Zoellick served
at the Department of Treasury in a number of posts, including Counselor to
Secretary James A. Baker III. He serves on the boards of Jones Intercable and
Said
23
<PAGE>
Holdings. Mr. Zoellick also serves on the boards of several non-profit entities
including the Council on Foreign Relations, the German Marshall Fund, the
Eurasia Foundation, the European Institute, the American Council on Germany, the
National Bureau of Asian Research and the Overseas Development Council.
Mr. Brewer joined Alliance in 1987 and has been Senior Vice President and
General Counsel since 1991. From 1987 until 1990 Mr. Brewer was Vice President
and Assistant General Counsel of Alliance.
Mr. Joseph joined Alliance in 1984 and has been Senior Vice President and
Chief Financial Officer since December 1994. He was Senior Vice President and
Controller from 1989 until January 1994 and Senior Vice President-Finance from
January 1994 until December 1994. From 1986 until 1989 Mr. Joseph was Vice
President and Controller of Alliance and from 1984 to 1986 Mr. Joseph was a Vice
President and the Controller of AFS, a subsidiary of the Partnership.
Certain executive officers of Alliance are also directors or trustees and
officers of various Alliance Mutual Funds and The Hudson River Trust and are
directors and officers of certain of the Partnership's subsidiaries.
All directors of the General Partner hold office until the next annual
meeting of the stockholder of the General Partner and until their successors are
elected and qualified. All officers of the General Partner serve at the
discretion of the General Partner's Board of Directors.
The General Partner has an Audit Committee composed of its independent
directors Mr. Holloway and Mr. Zoellick. The Audit Committee reports to the
Board of Directors with respect to the selection and terms of engagement of the
Partnership's independent auditors and reviews various matters relating to the
Partnership's accounting and auditing policies and procedures. The Audit
Committee held four meetings in 1997.
The General Partner has a Board Compensation Committee composed of Messrs.
Williams, Holloway and Melone. The Board Compensation Committee is responsible
for compensation and compensation related matters, including, but not limited
to, responsibility and authority for determining bonuses, contributions and
awards under most employee incentive plans or arrangements, amending or
terminating such plans or arrangements or any welfare benefit plan or
arrangement or adopting any new incentive, fringe benefit or welfare benefit
plan or arrangement. The Option Committee, consisting of Mr. Holloway and Mr.
Zoellick, is responsible for granting options under the Partnership's Unit
Option Plan and 1993 Unit Option Plan. The 1997 Option Committee, consisting of
Messrs. Williams, Holloway, Miller and Zoellick, is responsible for granting
options under the Partnership's 1997 Long Term Incentive Plan. The Unit Option
and Unit Bonus Committee, consisting of Messrs. Holloway and Melone, is
responsible for granting awards under the Partnership's Unit Bonus Plan. The
Board Compensation Committee, Option Committee, Unit Option and Unit Bonus
Committee and 1997 Option Committee consult with a Management Compensation
Committee consisting of Messrs. Williams, Calvert, Carifa and Harrison with
respect to matters within their authority. The Century Club Plan Committee,
consisting of Messrs. Carifa and Michael J. Laughlin, Executive Vice President
of the General Partner and Chairman of the Board of AFD, is responsible for
granting awards under the Partnership's Century Club Plan.
The General Partner pays directors who are not employees of the
Partnership, Equitable or any affiliate of Equitable an annual retainer of
$18,000 plus $1,000 per meeting attended of the Board of Directors and $500 per
meeting of a committee of the Board of Directors not held in conjunction with a
Board of Directors meeting. The Partnership reimburses Messrs. Bastida,
Bebear, Brydon, de Castries, Dolan, Duverne, Hellebuyck, Holloway and Zoellick
for certain expenses incurred in attending Board of Directors' meetings. Other
directors are not entitled to any additional compensation from the General
Partner for their services as directors. The Board of Directors meets
quarterly.
SECTION 16 (a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the General
Partner's directors and executive officers, and persons who own more than 10%
of the Units, to file with the SEC and NYSE initial reports of ownership and
reports of changes in ownership of Units. To the best of the
Partnership's knowledge, during the year ended December 31, 1997 all Section
16(a) filing requirements applicable to its executive officers, directors and
10% beneficial owners were complied with except that during 1997 statements of
changes in beneficial ownership on Form 4 were not filed on a timely basis on
behalf of Messrs. Dave H. Williams, Bruce W. Calvert, Frank Savage and Robert B.
Zoellick.
24
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
The following Summary Compensation Table sets forth all plan and non-plan
compensation awarded to, earned by or paid to the Chairman of the Board and each
of the four most highly compensated executive officers of the General Partner at
the end of 1997 ("Named Executive Officers"):
<TABLE>
<CAPTION>
Long Term Compensation
-----------------------------------
Annual Compensation Awards Payouts
-----------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Other Restricted
Name Annual Stock LTIP All other
And Compen- Award(s) Options/ Payouts Compen-
Principal sation sation
Position Year Salary ($) Bonus ($) ($) (1) ($) (#Units) ($) (1) ($) (2)
- -------- ---- ---------- --------- ------- --- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Dave H. Williams 1997 $ 274,976 $ 3,000,000 $ -------- $ 0 0 $ 0 $ 835,027
Chairman & Chief 1996 263,443 4,000,000 -------- 0 0 0 267,568
Executive Officer 1995 225,000 1,000,000 62,595 0 0 0 213,689
John D. Carifa 1997 250,000 4,000,000 -------- 0 0 0 686,979
President & Chief 1996 238,461 3,000,000 54,752 0 0 0 426,398
Operating Officer 1995 200,000 1,000,000 74,822 0 175,000 0 135,191
Bruce Calvert 1997 250,000 4,000,000 -------- 0 0 0 687,532
Vice Chairman & 1996 238,461 3,000,000 -------- 0 0 0 425,101
Chief Investment Officer 1995 200,000 1,000,000 -------- 0 150,000 0 138,048
Robert H. Joseph, Jr. 1997 160,000 494,000 -------- 0 10,000 0 110,335
Senior Vice President & 1996 157,692 385,000 -------- 0 10,000 0 61,434
Chief Financial Officer 1995 150,000 312,500 -------- 0 30,000 0 24,066
David R. Brewer, Jr. 1997 157,692 495,500 104,646 0 10,000 0 110,037
Senior Vice President 1996 146,538 395,750 -------- 0 10,000 0 62,108
& General Counsel 1995 132,692 272,250 136,788 0 20,000 0 22,496
</TABLE>
25
<PAGE>
(1) Perquisites and personal benefits are not included in column (e) if
the aggregate amount did not exceed the lesser of either $50,000 or 10% of the
total annual salary and bonus reported in columns (c) and (d).
Column (e) for 1997 includes for Mr. Brewer, among other perquisites and
personal benefits, $98,000 representing the dollar value of the difference
between the exercise price and the fair market value of Units acquired as a
result of the exercise of options granted under the Partnership's Unit Option
Plan.
Column (e) for 1996 includes for Mr. Carifa, among other perquisites and
personal benefits, $26,775 representing interest rate subsidies equal to 3% per
annum of the outstanding balances of personal loans obtained by Mr. Carifa from
commercial banks the proceeds of which were used to pay withholding tax
liabilities related to the vesting of Units acquired in 1988 and $7,500, for
personal tax services.
Column (e) for 1995 includes for (i) Mr. Carifa, among other perquisites
and personal benefits, $22,319 representing interest rate subsidies equal to 3%
per annum of the outstanding balances of personal loans obtained by Mr. Carifa
from commercial banks the proceeds of which were used to pay withholding tax
liabilities related to the vesting of Units acquired in 1988, (ii) Messrs.
Williams and Carifa, among other perquisites and personal benefits, $50,100 and
$33,400, respectively, for personal tax services, and (iii) Mr. Brewer, among
other perquisites and personal benefits, $129,562 representing the dollar value
of the difference between the exercise price and the fair market value of Units
acquired as a result of the exercise of options granted under the Partnership's
Unit Option Plan.
(2) Column (i) includes award amounts vested and earnings credited in 1996
and 1997 in respect of the Alliance Partners Compensation Plan. Column (i) does
not include any amounts in respect of awards made in 1997 in respect of the
Alliance Partners Compensation Plan since none of these awards have vested and
no earnings have been credited in respect of these awards. (See "Employee
Benefit Plans - Alliance Partners Compensation Plan").
Column (i) includes the following amounts for 1997 (See "Employee Benefit
Plans - Partners Plan, Capital Accumulation Plan, Profit Sharing Plan and
Alliance Partners Compensation Plan"):
<TABLE>
<CAPTION>
Vesting of Awards Vesting of Awards
Earnings Accrued and Accrued Earnings and Accrued Earnings Profit Sharing Term Life
On Partners Plan Under Capital Under Alliance Partners Plan Insurance
Balances Accumulation Plan Compensation Plan Contribution Premiums Total
-------- ----------------- ----------------- ------------ -------- -----
<S> <C> <C> <C> <C> <C> <C>
Dave H. Williams $14,483 $524,287 $242,666 $23,000 $30,591 $835,027
John D. Carifa 5,663 28,145 623,259 23,000 6,912 686,979
Bruce W. Calvert 4,996 29,365 623,259 23,000 6,912 687,532
Robert H. Joseph, Jr. 0 0 83,015 23,000 4,320 110,335
David R. Brewer, Jr. 0 0 83,015 22,769 4,253 110,037
</TABLE>
OPTION GRANTS IN 1997
The table below shows information regarding grants of options made to
the Named Executive Officers under the Partnership's Unit Option Plan, 1993 Unit
Option Plan and 1997 Long Term Incentive Plan during 1997. The amounts shown
for each of the Named Executive Officers as potential realizable values are
based on assumed annualized rates of appreciation of five percent and ten
percent over the full ten-year term of the options, which would result in Unit
prices of approximately $64.90 and $103.11, respectively. The amounts shown as
potential realizable values for all Unitholders represent the corresponding
increases in the market value of 83,936,643 outstanding Units held by all
Unitholders as of December 31, 1997, which would total approximately $2.1
billion and $5.4 billion, respectively. No gain to the optionees is possible
without an increase in Unit price which will benefit all Unitholders
proportionately. These potential realizable values are based solely on assumed
rates of appreciation required by applicable SEC regulations. Actual gains, if
any, on option exercises and
26
<PAGE>
Unitholdings are dependent on the future performance of the Partnership's Units.
There can be no assurance that the potential realizable values shown in this
table will be achieved.
<TABLE>
<CAPTION>
Option Grants In 1997
Individual Grants (1) Potential Realizable Value at Assumed
Annual Rates of Unit Price
Appreciation for Option Term
------------------------------------------------------------- ----------------------------
% of total
Number of Options
Securities Granted to
Underlying Employees in Exercise
Options Granted Fiscal Year Price Expiration 5% 10%
Name (#) (2) ($/Unit) Date ($) ($)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Dave H. Williams 0 N/A N/A N/A N/A N/A
John D. Carifa 0 N/A N/A N/A N/A N/A
Bruce W. Calvert 0 N/A N/A N/A N/A N/A
Robert H. Joseph, Jr. 10,000 N/A 36.9375 12/16/07 232,000 589,000
David R. Brewer, Jr. 10,000 N/A 36.9375 12/16/07 232,000 589,000
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Options on Units are awarded at the fair market value of Units at the date
of award and become exercisable in 20% increments commencing one year from
such date if the optionee has not died or terminated employment. Such
options lapse at the earliest of ten years after award, three months after
the optionee's normal termination of employment or disability, six months
after the optionee's death, or at the time of the optionee's termination of
employment otherwise than normally.
(2) 1,002,500 Units were subject to outstanding option grants.
27
<PAGE>
AGGREGATED OPTION EXERCISES IN 1997 AND 1997 YEAR-END OPTION VALUES
The following table summarizes for each of the Named Executive Officers the
number of options exercised during 1997, the aggregate dollar value realized
upon exercise, the total number of Units subject to unexercised options held at
December 31, 1997, and the aggregate dollar value of in-the-money, unexercised
options held at December 31, 1997. Value realized upon exercise is the
difference between the fair market value of the underlying Units on the exercise
date and the exercise price of the option. Value of unexercised, in-the-money
options at fiscal year-end is the difference between its exercise price and the
fair market value of the underlying Units on December 31, 1997, which was
$39.8125 per Unit. These values, have not been, and may never be, realized.
The underlying options have not been, and may never be, exercised; and actual
gains, if any, on exercise will depend on the value of the Partnership's Units
on the date of exercise. There can be no assurance that these values will be
realized.
<TABLE>
<CAPTION>
Aggregated Option Exercises In 1997
And December 31, 1997 Option Values
-----------------------------------
Number of Units Value of Unexercised
Underlying Unexpired In-the-Money Options
Options Value Options at December 31, 1997 at December 31, 1997 ($) (1)
Exercise Realized ------------------------------------------------------------
Name (# Units) ($) Exercisable Unexercisable Exercisable Unexercisable
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Dave H. Williams 0 N/A 0 0 0 0
John D. Carifa 0 N/A 190,000 185,000 3,839,375 3,765,313
Bruce W. Calvert 0 N/A 180,000 170,000 3,635,000 3,458,750
Robert H. Joseph, Jr. 0 N/A 51,000 44,000 1,192,438 656,375
David R. Brewer, Jr. 4,000 122,250 74,000 34,000 1,991,000 454,000
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) In-the-Money Options are those where the fair market value of the
underlying Units exceeds the exercise price of the option. The Named
Executive Officers hold no other options in respect of the Units.
COMPENSATION AGREEMENTS WITH CERTAIN EXECUTIVE OFFICERS
In connection with Equitable's 1985 acquisition of DLJ, the former parent
of ACMC, ACMC entered into employment agreements with Messrs. Williams, Carifa
and Calvert. Each agreement provided for deferred compensation payable in
stated monthly amounts for ten years commencing at age 65, or earlier in a
reduced amount in the event of disability or death, if the individual involved
so elects. The right to receive such deferred compensation is vested. Assuming
payments commence at age 65, the annual amount of deferred compensation payable
for ten years to Messrs. Williams, Carifa and Calvert is $378,900, $522,036, and
$434,612, respectively. While the Partnership assumed responsibility for
payment of these deferred compensation obligations, ACMC and Alliance are
required, subject to certain limitations, to make capital contributions to the
Partnership in an amount equal to the payments, and ACMC is also obligated to
the employees for the payments. ACMC's obligations to make capital
contributions to the Partnership are guaranteed, subject to certain limitations,
by Equitable Investment Corporation ("EIC"), a wholly-owned subsidiary of
Equitable, the parent of Alliance.
28
<PAGE>
EMPLOYEE BENEFIT PLANS
UNIT OPTION PLAN. Pursuant to the Partnership's Unit Option Plan key
employees of the Partnership and its subsidiaries, other than Messrs. Williams,
Harrison, Carifa and Calvert, may be granted options to purchase up to 4,923,076
Units. Options may be granted only to employees who the Option Committee of the
General Partner, consisting of Mr. Holloway and Mr. Zoellick which administers
the Plan, after obtaining recommendations from the Management Compensation
Committee, determines materially contribute, or are expected to materially
contribute, to the growth and profitability of the Partnership's business. The
number of options to be granted to any employee is to be determined in the
discretion of the Board Compensation Committee. Options may be granted with
terms of up to ten years, and an employee's right to exercise each option will
vest at a rate no faster than 20% per year commencing on the first anniversary
of the date of grant. Each option will have an exercise price no less than the
fair market value of the Units subject to option at the time the option is
granted, payable in cash. Generally, options may only be exercisable while the
optionee is employed by the Partnership. Options may not be granted under the
Unit Option Plan after ten years from its adoption. See "Option Grants in 1997
and "Aggregated Option Exercises in 1997 and 1997 Year-End Option Values."
1993 UNIT OPTION PLAN. Pursuant to the Partnership's 1993 Unit Option Plan
key employees of the Partnership and its subsidiaries may be granted options to
purchase Units. The aggregate number of Units that may be the subject of
options granted or awarded under the 1993 Unit Option Plan, the Unit Bonus Plan
and the Century Club Plan may not exceed 3,200,000 Units ("Overall Limitation").
In addition the maximum aggregate number of Units that may be the subject of
options granted or awarded under the 1993 Unit Option Plan, the Unit Bonus Plan
and the Century Club Plan in any of the years ended July 22, 1994, 1995, 1996
and 1997 may not exceed 800,000 Units ("Annual Limitation"). The maximum number
of Units that may otherwise be the subject of options granted under the 1993
Unit Option Plan will be increased by the number of Units tendered to the
Partnership by employees in payment of either the exercise price or withholding
tax liabilities. Options may be granted only to employees who the Option
Committee of the General Partner, which administers the Plan, after obtaining
recommendations from the Management Compensation Committee, determines
materially contribute, or are expected to materially contribute, to the growth
and profitability of the Partnership's business. Options may be granted with
terms of up to ten years, and an employee's right to exercise each option will
vest at a rate no faster than 20% per year commencing on the first anniversary
of the date of grant. Each option will have an exercise price no less than the
fair market value of the Units subject to the option at the time the option is
granted, payable in cash. Generally, options may only be exercisable while the
optionee is employed by the Partnership or one of its subsidiaries. Options may
not be granted under the 1993 Unit Option Plan after ten years from its
adoption. See "Option Grants in 1997" and "Aggregated Option Exercises in 1997
and 1997 Year-End Option Values."
1997 LONG TERM INCENTIVE PLAN. Pursuant to the 1997 Long Term Incentive
Plan key employees of the Partnership and its subsidiaries and Directors of the
General Partner may be granted options to purchase Units, restricted Units,
phantom restricted Units, performance awards denominated in Units and other Unit
based awards. The maximum number of Units with respect to which awards may be
granted under the 1997 Long Term Incentive Plan may not exceed 8,000,000. To
date, the Board of Directors has only authorized the granting of Unit options.
Options may be granted for terms of up to ten years and a grantee's right to
exercise each option will vest at a rate no faster than 20% each year commencing
on the first anniversary of the date of grant. Each option will have an
exercise price no less than the fair market value of the Units subject to the
option at the time the option is granted. The Board of Directors has authorized
the 1997 Option Committee, consisting of Messrs. Williams, Holloway, Miller and
Zoellick, to administer the 1997 Long Term Incentive Plan in respect of options.
"See Option Grants in 1997" and "Aggregated Option Exercises in 1997 and 1997
Year End Option Values".
PROFIT SHARING PLAN. The Partnership maintains a qualified defined
contribution profit sharing plan covering most employees of the Partnership who
have attained age 21 and completed one year of service. Annual contributions
are determined by the Board of Directors in its sole discretion and are
allocated among participants who are employed by a participating employer on the
last business day of the calendar year involved by crediting each participant
with the same proportion of the contribution as the participant's base
compensation bears to the total base compensation of all participants. The plan
provides for a 401(k) salary reduction election under which the Partnership may
match a participant's election to reduce up to 5% of base salary. A
participant's interest in the plan is 100% vested after the participant has
completed three years of service although account balances deriving from salary
reductions are 100% vested at all times. The Partnership's contributions under
the plan for a given year may not exceed 15% of the aggregate compensation paid
to all participants for that year. Contributions to a participant's plan
account (including contributions made by a participant) for a particular year
29
<PAGE>
may not exceed 25% of the participant's compensation for that year or $30,000,
whichever is less. The amount of the benefits ultimately distributed to an
employee is dependent on the investment performance of the employee's account
under the plan. Distribution of vested account balances under the plan is made
upon termination of employment either in a lump sum or in installments for a
specific period of years. If a participant dies prior to termination of his
employment, the entire value of his account is paid to the participant's
beneficiary. For 1997 vested contributions to the plan for the accounts of
Messrs. Williams, Carifa, Calvert, Joseph and Brewer were $23,000, $23,000,
$23,000, $23,000 and $22,769, respectively. These amounts are included in
column (i) of the Summary Compensation Table.
RETIREMENT PLAN. The Partnership maintains a qualified, non-contributory,
defined benefit retirement plan covering most employees of the Partnership who
have completed one year of service and attained age 21. Employer contributions
are determined by application of actuarial methods and assumptions to reflect
the cost of benefits under the plan. Each participant's benefits are determined
under a formula which takes into account years of credited service, the
participant's average compensation over prescribed periods and Social Security
covered compensation. The maximum annual benefit payable under the plan may not
exceed the lesser of $100,000 or 100% of a participant's average aggregate
compensation for the three consecutive years in which he received the highest
aggregate compensation from the Partnership or such lower limit as may be
imposed by the Internal Revenue Code on certain participants by reason of their
coverage under another qualified plan maintained by the Partnership. A
participant is fully vested after the completion of five years of service. The
plan generally provides for payments to or on behalf of each vested employee
upon such employee's retirement at the normal retirement age provided under the
plan or later, although provision is made for payment of early retirement
benefits on an actuarially reduced basis. Normal retirement age under the plan
is 65. Death benefits are payable to the surviving spouse of an employee who
dies with a vested benefit under the plan.
The table below sets forth with respect to the retirement plan the
estimated annual straight life annuity benefits payable upon retirement at
normal retirement age for employees with the remuneration and years of service
indicated.
<TABLE>
<CAPTION>
Estimated Annual Benefits
-------------------------------------------------------------------------------------------------
Average Final Years of Service at Retirement
-------------------------------------------------------------------------------------------------
Compensation 15 20 25 30 35 40 45
<S> <C> <C> <C> <C> <C> <C> <C>
$100,000 $19,465 $25,953 $32,442 $38,930 $45,418 $50,418 $55,418
150,000 30,715 40,953 51,192 61,430 71,668 79,168 86,668
200,000 41,965 55,953 69,942 83,930 97,918 100,000 100,000
250,000 53,215 70,953 88,692 100,000 100,000 100,000 100,000
300,000 64,465 85,953 100,000 100,000 100,000 100,000 100,000
</TABLE>
Assuming they are employed by the Partnership until age 65, the credited
years of service under the plan for Messrs. Williams, Carifa, Calvert, Joseph
and Brewer would be 20, 40, 38, 28 and 22, respectively. Compensation on which
plan benefits are based includes only base compensation and not bonuses,
incentive compensation, profit-sharing plan contributions or deferred
compensation. The compensation for calculation of plan benefits for each of
these five individuals for 1997 is $160,000, $160,000, $160,000, $160,000 and
$150,000, respectively.
UNIT BONUS PLAN. Pursuant to the Partnership's Unit Bonus Plan the Unit
Option and Unit Bonus Committee may award Units to key employees of the
Partnership and its subsidiaries. The aggregate number of Units that may be the
subject of awards or grants under the Unit Bonus Plan, the 1993 Unit Option Plan
and the Century Club Plan may not exceed the Overall Limitation and the maximum
aggregate number of Units that may be the subject of awards or grants under the
Unit Bonus Plan, the 1993 Unit Option Plan and the Century Club Plan in any of
the years ended July 22, 1994, 1995, 1996 and 1997 may not exceed the Annual
Limitation. The number of Units that may otherwise be awarded under the Unit
Bonus Plan will increase by the number of Units tendered to the Partnership in
payment of withholding tax liabilities in respect of Unit Bonus Plan awards.
Units awarded under the Unit Bonus Plan may be vested or unvested (i.e., subject
to forfeiture) at the time of award. Unvested Units will vest or become
nonforfeitable in accordance with the conditions specified by the Board
Compensation Committee at the time of award.
30
<PAGE>
CENTURY CLUB PLAN. Pursuant to the Partnership's Century Club Plan up to
600,000 Units may be awarded to employees of AFD or another subsidiary of the
Partnership who attain certain sales targets or sales criteria determined by the
Century Club Committee. The maximum aggregate number of Units that may be
awarded under the Century Club Plan, the 1993 Unit Option Plan and the Unit
Bonus Plan may not exceed the Overall Limitation and the maximum aggregate
number of Units that may be awarded under the Century Club Plan, the 1993 Unit
Option Plan and the Unit Bonus Plan in any of the years ended July 22, 1994,
1995, 1996 and 1997 may not exceed that Annual Limitation. Units awarded under
the Century Club Plan may be vested or unvested (i.e., subject to the
forfeiture) at the time of award. Unvested Units will vest or become
nonforfeitable in accordance with the conditions specified by the Century Club
Committee at the time of award.
None of the Named Executive Officers is eligible to receive an award under
the Century Club Plan.
ALLIANCE PARTNERS COMPENSATION PLAN. During 1995 the Partnership
established a nonqualified, unfunded deferred compensation program known as the
Alliance Partners Compensation Plan ("Partners Compensation Plan") under which
certain eligible employees are granted awards by the Management Compensation
Committee. The awards consist of cash amounts which are generally credited with
earnings based on the Partnership's earnings growth rate. The Partners
Compensation Plan is administered by the Management Compensation Committee which
determines the recipients of awards and the amount of awards. The Board of
Directors of the General Partner may terminate the Partners Compensation Plan at
any time without cause in which case the Partnership's liability would be
limited to the payment of vested awards. All awards granted in 1995 vest over
three years and all awards granted in 1996 and subsequent years vest over eight
years to the extent the grantee remains employed by the Partnership during such
three or eight year period. Payment of vested benefits generally will be made
in cash over a five year period commencing at retirement. The amount awarded in
1997 under the Partners Compensation Plan was $21,725,000 and for 1998 the
Partnership may award 5% of operating revenues less operating expenses under the
Partners Compensation Plan. Messrs. Carifa, Calvert, Joseph and Brewer were
granted awards of $1,500,000, $1,500,000, $325,000 and $325,000, respectively,
under the Partners Compensation Plan for 1997. These amounts are not included
in column (i) of the Summary Compensation Table since none of these awards have
vested and no earnings have been credited in respect of the awards.
PARTNERS PLAN. Since 1983 a nonqualified, unfunded deferred compensation
program known as the Partners Plan has been maintained under which certain key
employees received incentive awards pursuant to a formula set each year by the
Management Compensation Committee. No awards have been or will be made under
the Partners Plan for any year after 1987. All awards are fully vested. Unless
accelerated, award account balances generally are distributed upon resignation,
retirement, disability or death. The Board of Directors of the General Partner
has the right to accelerate vesting and make distributions of up to 90% of a
participant's account balance if the key employee agrees to extend the term of
his employment for a period of at least one year. Until distributed, the awards
are credited with interest based on prevailing market rates plus, for the years
prior to 1989, a premium if the Partnership's earnings growth rate exceeded
certain levels. Interest credited during 1997 for the accounts of Messrs.
Williams, Carifa and Calvert was $14,483, $5,663 and $4,996, respectively.
These amounts are included in column (i) of the Summary Compensation Table. No
amounts were distributed under the Partners Plan for any of the Named Executive
Officers in 1997.
CAPITAL ACCUMULATION PLAN. Since 1985 a nonqualified, unfunded deferred
compensation program known as the Capital Accumulation Plan has been maintained
to provide retirement benefits for key employees and their beneficiaries which
supplement their benefits under the Retirement Plan described above. Under this
plan, at the end of 1985, 1986 and 1987, awards were made for each participant,
selected on the basis of performance by the Management Compensation Committee,
equal to a percentage of the participant's base salary and the participant's
discretionary bonus for the year. The amount awarded was credited to the
participant's account on the Partnership's books to which interest is thereafter
credited, until distributed or forfeited, based on prevailing market rates. A
participant's account balance vests based on the participant's years in the plan
with no vesting for zero to four years of participation, 30% vesting after five
to seven years with gradually increased vesting thereafter ranging to 87% after
35 years of participation and 100% vesting at age 65 or death. Upon termination
of employment other than by reason of permanent disability or death, the
participant's vested account balance is to be paid out in ten equal annual
installments. In the event of permanent disability, the participant is to
receive the higher of the vested balance at the time of disability or 50% of the
total balance at the time of disability, in either case payable in ten equal
annual installments. In the event of death, the participant's beneficiary is to
receive the higher of (i) the participant's account balance paid in ten equal
annual installments together with interest or (ii) annually 50% of the
participant's total cash
31
<PAGE>
compensation for the year prior to the year of the participant's death payable
until the participant would have attained age 65, but in no event for less than
ten years.
While the Partnership is responsible for the payment of all obligations
under the plan, ACMC and Alliance are required, subject to certain limitations,
to make capital contributions to the Partnership in an amount equal to the
payments. ACMC's obligations are guaranteed, subject to certain limitations, by
EIC. No additional awards will be made under this plan, but employees will
continue to vest in their existing account balances and to be credited with
interest at prevailing market rates on balances. A participant's total cash
compensation for 1987 increased by 5% per year, compounded annually, will be
considered his total cash compensation for purposes of determining the amount of
any death benefits payable in respect of the participant. The Board of
Directors of the General Partner intends to cancel this plan if tax legislation
is enacted which adversely affects certain benefits derived by ACMC from
insurance on the lives of certain of the Partnership's employees purchased in
connection with the plan. If the plan is cancelled, the Board of Directors of
the General Partner may, at its option, either pay each participant his then
vested account balance or continue to maintain the account balances for vesting
and distribution as described above as if the plan had not terminated, provided
that in such event no death benefit based on a participant's total cash
compensation will be paid. The plan account balances which became vested during
1997 for the accounts of Messrs. Williams, Carifa and Calvert were $524,287,
$28,145 and $29,365, respectively. These amounts are included in column (i) of
the Summary Compensation Table.
DEFERRAL PLAN. Under this plan, certain employees of the Partnership may
elect to defer for at least one year the receipt of base or bonus compensation
otherwise payable in a given year to January 31 of the year selected. Interest
is credited at prevailing market rates on the amounts deferred under this plan
until paid. In certain cases, 10% of a deferred amount is subject to forfeiture
if the employee's employment terminates prior to the January 31 payment date for
any reason other than death or disability. There was no compensation deferred
from 1997 to a subsequent year for the Named Executive Officers. During 1997
there were no payments of previously deferred compensation to or interest
credited on amounts deferred by any of the Named Executive Officers.
DLJ PLANS. Prior to Equitable's 1985 acquisition of DLJ, certain employees
of the Partnership participated in various DLJ employee benefit plans and
arrangements. Since the acquisition, no employer contributions or awards have
been made, nor in the future are any employer contributions or awards to be
made, under these plans or arrangements for any employee of the Partnership. No
deferral of compensation earned by any such employee for services rendered since
the acquisition has been permitted under any such plan or arrangement. The
Partnership has no liability for and will not bear the cost of any benefits
under these plans and arrangements.
In 1983 DLJ adopted an Executive Supplemental Retirement Program under
which certain employees of the Partnership deferred a portion of their 1983
compensation in return for which DLJ agreed to pay each of them a specified
annual retirement benefit for 15 years beginning at age 65. Benefits are based
upon the participant's age and the amount deferred and are calculated to yield
an approximate 12.5% annual compound return. In the event of the participant's
disability or death, an equal or lesser amount is to be paid to the participant
or his beneficiary. After age 55, participants the sum of whose age and years
of service equals 80 may elect to have their benefits begin in an actuarially
reduced amount before age 65. DLJ has funded its obligation under the Program
through the purchase of life insurance policies.
The following table shows as to the Named Executive Officers who are
participants in the Plan the estimated annual retirement benefit payable at age
65. Each of these individuals is fully vested in the applicable benefit.
<TABLE>
<CAPTION>
Estimated Annual
Name Retirement Benefit
---- ------------------
<S> <C>
Dave H. Williams $ 41,825
John D. Carifa 114,597
Bruce W. Calvert 145,036
</TABLE>
32
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
PRINCIPAL SECURITY HOLDERS
The Partnership has no information that any person beneficially owns more
than 5% of the outstanding Units except (i) Equitable, ACMC and ECMC,
wholly-owned subsidiaries of ECI, and (ii) as reported on Amendment No. 5 to
Schedule 13D dated September 4, 1997, filed with the SEC by AXA and certain of
its affiliates pursuant to the Securities Exchange Act of 1934. The following
table and notes have been prepared in reliance upon such filing for the nature
of ownership and an explanation of overlapping ownership.
<TABLE>
<CAPTION>
Amount and Nature of
Beneficial
Name and Address of Ownership Reported on Percent
Beneficial Owner Schedule of Class
---------------- -------- --------
<S> <C> <C>
AXA (1)(2)(3) 48,111,283 (4) 57.2%
9 place Vendome,
75001 Paris,
France
ECI (3)
1290 Avenue of the Americas,
New York, NY 10019 48,111,283 (4) 57.2%
</TABLE>
(1) At March 1, 1998, AXA and certain of its subsidiaries beneficially owned
approximately 59.0% of ECI's outstanding common stock. At that date, based
on information provided by AXA, approximately (i) 21.4% of the issued
ordinary shares (representing 30.2% of the voting power) of AXA were
controlled directly and indirectly by Finaxa, a French holding company, and
(ii) 62.0% of the shares (representing 74.0% of the voting power) of Finaxa
were owned by four French mutual insurance companies (the "Mutuelles AXA").
For insurance regulatory purposes the shares of capital stock of ECI
beneficially owned by AXA and its subsidiaries have been deposited into a
voting trust which has an initial term of 10 years ("Voting Trust")
commencing May 12, 1992. The trustees of the Voting Trust (the "Voting
Trustees") are Claude Bebear, Patrice Garnier and Henri de
Clermont-Tonnerre. The Voting Trustees have agreed to exercise their
voting rights to protect the legitimate economic interests of AXA, but with
a view to ensuring that certain minority shareholders of AXA do not
exercise control over ECI or certain of its insurance subsidiaries.
(2) The Voting Trustees may be deemed to be beneficial owners of all Units
beneficially owned by AXA and its subsidiaries. In addition, the Mutuelles
AXA, as a group, and Finaxa may be deemed to be beneficial owners of all
Units beneficially owned by AXA and its subsidiaries. By virtue of the
provisions of the Voting Trust Agreement, AXA may be deemed to have shared
voting power with respect to the Units. AXA and its subsidiaries have the
power to dispose or direct the disposition of all shares of the capital
stock of ECI deposited in the Voting Trust. By reason of their
relationship with AXA, the Mutuelles AXA, as a group, and Finaxa may be
deemed to share the power to vote or to direct the vote to dispose or to
direct the disposition of all the Units beneficially owned by AXA and its
subsidiaries. The address of each of AXA and the Voting Trustees is 9
place Vendome, 75001 Paris, France. The address of Finaxa is 23 avenue
Matignon, 75008 Paris, France. The addresses of the Mutuelles AXA are as
follows: The address of each of AXA Assurances Vie Mutuelle and AXA
Assurances I.A.R.D. Mutuelle is 21 rue de Chateaudun, 75009 Paris, France;
the address of Alpha Assurances Vie Mutuelle is Tour Franklin, 100/101
Terrasse Boildieu, Cedex 11, 92042 Paris Las Defense, France; and the
address of AXA Courtage Assurance Mutuelle is 26 rue Louis-le Grand, 75002
Paris, France. The address of Banque Paribas (which, at March 1, 1998,
owned approximately 23.1% of the shares representing 14.4% of the voting
power of Finaxa) is 3 rue d'Antin, Paris, France.
33
<PAGE>
(3) By reason of their relationship, AXA, the Voting Trustees, ECI, Equitable,
Equitable Holding Corporation, Equitable Investment Corporation ("EIC"),
ACMC, ECMC, the Mutuelles AXA and FINAXA may be deemed to share the power
to vote or to direct the vote or to dispose or direct the disposition of
all or a portion of the 48,111,283 Units.
(4) Includes 551,395 Units which are issuable upon conversion of the Class A
Limited Partnership Interest held by ECMC.
MANAGEMENT
The following table sets forth, as of March 1, 1998, the beneficial ownership of
Units by each director and each Named Executive Officer of the General Partner
and by all directors and executive officers of the General Partner as a group:
<TABLE>
<CAPTION>
Name of Number of Units and Nature Percent of
Beneficial Owner of Beneficial Ownership Class
- ---------------- ----------------------- -----
<S> <C> <C>
Dave H. Williams (1)(2) 944,456 1.1%
Luis Javier Bastida 0 *
Claude Bebear (1) 0 *
Donald H. Brydon (1) 0 *
Bruce W. Calvert (1) (3) 749,000 *
John D. Carifa(1) (4) 1,027,568 1.2%
Henri de Castries (1) 0 *
Kevin C. Dolan (1) 0 *
Denis Duverne (1) 0 *
Alfred Harrison 365,410 *
Jean-Pierre Hellebuyck (1) 0 *
Benjamin D. Holloway 5,800 *
Joseph J. Melone (1) 5,000 *
Edward D. Miller (1) 0 *
Peter D. Noris 1,000 *
Frank Savage 50,500 *
Stanley B. Tulin (1) 0 *
Reba W. Williams (1)(5) 944,456 *
Robert B. Zoellick 300 *
David R. Brewer, Jr. (1)(6) 121,154 *
Robert H. Joseph, Jr. (1) (7) 65,000 *
All Directors and executive officer 3,335,188 3.9%
of the General Partner as a Group (21 persons)(8)
</TABLE>
* Number of Units listed represents less than 1% of the Units outstanding.
(1) Excludes Units beneficially owned by AXA and ECI. Messrs. Williams,
Bebear, Brydon, de Castries, Dolan, Duverne, Hellebuyck, Melone, Miller,
Noris and Tulin are directors and/or officers of AXA, ECI and/or Equitable.
Messrs. Calvert, Carifa, Harrison, Savage, Brewer, Joseph and Mrs. Reba W.
Williams are directors and/or officers of ACMC.
(2) Includes 80,000 Units owned by Mrs. Reba W. Williams.
(3) Includes 205,000 Units which may be acquired within 60 days under the
Partnership's 1993 Unit Option Plan.
(4) Includes 220,000 Units which may be acquired within 60 days under the
Partnership's 1993 Unit Option Plan.
(5) Includes 864,456 Units owned by Mr. Dave H. Williams.
34
<PAGE>
(6) Includes 76,000 Units which may be acquired within 60 days under the
Partnership's Unit Option Plan and 1993 Unit Option Plan.
(7) Includes 55,000 Units which may be acquired within 60 days under the
Partnership's Unit Option Plan and 1993 Unit Option Plan.
(8) Includes 556,000 Units which may be acquired within 60 days under the
Partnership's Unit Option Plan and 1993 Unit Option Plan.
The following tables set forth, as of March 1, 1998, the beneficial
ownership of the common stock of ECI, AXA and Finaxa by each director and each
Named Executive Officer of the General Partner and by all directors and
executive officers of the General Partner as a group:
ECI COMMON STOCK
<TABLE>
<CAPTION>
Name of Number of Shares and Nature Percent of
Beneficial Owner of Beneficial Ownership Class
- ---------------- -------------------- -----
<S> <C> <C>
Dave H. Williams (1)(2) 80,000 *
Luis Javier Bastida 0 *
Claude Bebear (2) 0 *
Donald H. Brydon (2) 0 *
Bruce W. Calvert (3) 40,000 *
John D. Carifa (4) 40,000 *
Henri de Castries (2) 0 *
Kevin C. Dolan (2) 0 *
Denis Duverne (2) 2,000 *
Alfred Harrison 0 *
Jean-Pierre Hellebuyck (2) 0 *
Benjamin D. Holloway 108 *
Joseph J. Melone (2)(5) 342,156 *
Edward D. Miller 0 *
Peter D. Noris (6) 60,000 *
Frank Savage 136 *
Stanley B. Tulin 44,121 *
Reba W. Williams (1) 80,000 *
Robert B. Zoellick 0 *
David R. Brewer, Jr. 0 *
Robert H. Joseph, Jr. 0 *
All Directors and executive officers 608,521 *
of the General Partner as a Group (21 Persons)(7)
</TABLE>
* Number of shares listed represents less than one percent (1%) of the number
of shares of Common Stock outstanding.
(1) Represents 80,000 shares subject to options held by Mr. Williams, which
options Mr. Williams has the right to exercise within 60 days.
(2) Excludes shares beneficially owned by AXA. Messrs. Williams, Bebear,
Brydon, de Castries, Dolan, Duverne, Hellebuyck, Melone and Miller are
officers of AXA.
(3) Represents 40,000 shares subject to options held by Mr. Calvert, which
options Mr. Calvert has the right to exercise within 60 days.
(4) Represents 40,000 shares subject to options held by Mr. Carifa, which
options Mr. Carifa has the right to exercise within 60 days.
(5) Includes 340,000 shares subject to options held by Mr. Melone, which
options Mr. Melone has the right to exercise within 60 days.
35
<PAGE>
(6) Represents 60,000 shares subject to options held by Mr. Noris, which
options Mr. Noris has the right to exercise within 60 days.
(7) Represents 560,000 shares subject to options, which options my be exercised
within 60 days.
AXA COMMON STOCK
<TABLE>
<CAPTION>
Name of Number of Shares and Nature Percent of
Beneficial Owner of Beneficial Ownership Class
- ---------------- ----------------------- -----
<S> <C> <C>
Dave H. Williams 0 *
Luis Javier Bastida 0 *
Claude Bebear (1) 498,961 *
Donald H. Brydon 0 *
Bruce W. Calvert 0 *
John D. Carifa 500 *
Henri de Castries (2) 46,063 *
Kevin C. Dolan (3) 13,520 *
Denis Duverne (4) 1,042 *
Alfred Harrison 0 *
Jean-Pierre Hellebuyck (5) 33,207 *
Benjamin D. Holloway 0 *
Joseph J. Melone 1,000 *
Edward D. Miller 0 *
Peter D. Noris 250 *
Frank Savage 0 *
Stanley B. Tulin 0 *
Reba W. Williams 0 *
Robert B. Zoellick 0 *
David R. Brewer, Jr. 0 *
Robert H. Joseph, Jr. 0 *
All Directors and executive officers 594,543 *
of the General Partner as a Group (21 persons)(6)
</TABLE>
* Number of shares listed represents less than one percent (1%) of the
outstanding AXA common stock. Each AXA American Depositary Share is
equivalent to one-half of a share of AXA Common Stock. Holdings of AXA
American Depositary Shares are expressed as their equivalent in AXA common
stock.
(1) Includes 23 shares owned by Mr. Bebear's wife, and 285,568 shares subject
to options held by Mr. Bebear, which options Mr. Bebear has the right to
exercise within 60 days.
(2) Includes 45,063 shares subject to options held by Mr. de Castries, which
options Mr. de Castries has the right to exercise within 60 days.
(3) Includes 13,520 shares subject to options held by Mr. Dolan, which options
Mr. Dolan has the right to exercise within 60 days.
(4) Includes 1,000 shares held jointly with Mr. Duverne's wife and 42 shares
owned by Mr. Duverne's children.
(5) Includes 27,038 shares subject to options held by Mr. Hellebuyck, which
options Mr. Hellebuyck has the right to exercise within 60 days and 375
shares into which certain notes held by Mr. Hellebuyck are convertible
presently or within 60 days.
(6) Includes 371,564 shares subject to options, which options may be exercised
within 60 days.
36
<PAGE>
FINAXA COMMON STOCK
<TABLE>
<CAPTION>
Name of Number of Shares and Nature Percent of
Beneficial Owner of Beneficial Ownership Class
- ---------------- ----------------------- -----
<S> <C> <C>
Dave H. Williams 0 *
Luis Javier Bastida 0 *
Claude Bebear (1) 636,065 *
Donald H. Brydon 0 *
Bruce W. Calvert 0 *
John D. Carifa 0 *
Henri de Castries (2) 97,500 *
Kevin C. Dolan 0 *
Denis Duverne 0 *
Alfred Harrison 0 *
Jean-Pierre Hellebuyck 0 *
Benjamin D. Holloway 0 *
Joseph J. Melone 0 *
Edward D. Miller 0 *
Peter D. Noris 0 *
Frank Savage 0 *
Stanley B. Tulin 0 *
Reba W. Williams 0 *
Robert B. Zoellick 0 *
David R. Brewer, Jr. 0 *
Robert H. Joseph, Jr. 0 *
All Directors and executive officers 733,565 *
of the General Partner as a Group (21 persons)(3)
</TABLE>
* Number of shares listed represents less than one percent (1%) of the
outstanding Finaxa common stock.
(1) Includes 434,445 shares owned by Clauvalor, a French company controlled by
Mr. Bebear, and 201,612 shares subject to options held by Mr. Bebear, which
options Mr. Bebear has the right to exercise within 60 days.
(2) Represents 97,500 shares subject to options held by Mr. de Castries, which
options Mr. de Castries has the right to exercise within 60 days.
(3) Includes 299,112 shares subject to options, which options may be exercised
within 60 days.
37
<PAGE>
The General Partner makes all decisions relating to the management of the
Partnership. The General Partner has agreed that it will conduct no business
other than managing the Partnership, although it may make certain investments
for its own account. Conflicts of interest, however, could arise between the
General Partner and the Unitholders.
Section 17-403(b) of the Delaware Revised Uniform Limited Partnership Act
(the "Delaware Act") states that, except as provided in the Delaware Act or the
partnership agreement, a general partner of a limited partnership has the same
liabilities to the partnership and to the limited partners as a general partner
in a partnership without limited partners. While, under Delaware law, a general
partner of a limited partnership is liable as a fiduciary to the other partners,
the Agreement of Limited Partnership of Alliance Capital Management L.P. (As
Amended and Restated) ("Partnership Agreement") sets forth a more limited
standard of liability for the General Partner. The Partnership Agreement
provides that the General Partner is not liable for monetary damages to the
Partnership for errors in judgment or for breach of fiduciary duty (including
breach of any duty of care or loyalty), unless it is established 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, with
reckless disregard for the best interests of the Partnership or with actual bad
faith on the part of the General Partner, or constituted actual fraud. Whenever
the Partnership Agreement provides that the General Partner is permitted or
required to make a decision (i) in its "discretion," the General Partner is
entitled to consider only such interests and factors as it desires and has no
duty or obligation to consider any interest of or other factors affecting the
Partnership or any Unitholder or (ii) in its "good faith" or under another
express standard, the General Partner will act under that express standard and
will not be subject to any other or different standard imposed by the
Partnership Agreement or applicable law.
In addition, the Partnership Agreement grants broad rights of
indemnification to the General Partner and its directors and affiliates and
authorizes the Partnership to enter into indemnification agreements with the
directors, officers, partners, employees and agents of the Partnership and its
affiliates. The Partnership has granted broad rights of indemnification to
officers of the General Partner and employees of the Partnership. In addition,
the Partnership assumed indemnification obligations previously extended by
Alliance to its directors, officers and employees. The foregoing
indemnification provisions are not exclusive, and the Partnership is authorized
to enter into additional indemnification arrangements. The Partnership has
obtained directors and officers liability insurance.
The Partnership Agreement also allows transactions between the Partnership
and the General Partner or its affiliates if the transactions are on terms
determined by the General Partner to be comparable to (or more favorable to the
Partnership than) those that would prevail with any unaffiliated party. The
Partnership Agreement provides that those transactions are deemed to meet that
standard if such transactions are approved by a majority of those directors of
the General Partner who are not directors, officers or employees of any
affiliate of the General Partner (other than the Partnership and its
subsidiaries) or, if in the reasonable and good faith judgment of the General
Partner, the transactions are on terms substantially comparable to (or more
favorable to the Partnership than) those that would prevail in a transaction
with an unaffiliated party.
The Partnership Agreement expressly permits all affiliates of the General
Partner (including Equitable and its other subsidiaries) to compete, directly or
indirectly, with the Partnership, to engage in any business or other activity
and to exploit any opportunity, including those that may be available to the
Partnership. AXA, Equitable and certain of their subsidiaries currently compete
with the Partnership. See "Item 13." Certain Relationships and Related
Transactions-Competition." The Partnership Agreement further provides that,
except to the extent that a decision or action by the General Partner is taken
with the specific intent of providing a benefit to an affiliate of the General
Partner to the detriment of the Partnership, there is no liability or obligation
with respect to, and no challenge of, decisions or actions of the General
Partner that would otherwise be subject to claims or other challenges as
improperly benefiting affiliates of the General Partner to the detriment of the
Partnership or otherwise involving any conflict of interest or breach of a duty
of loyalty or similar fiduciary obligation.
The fiduciary obligations of general partners is a developing area of the
law and it is not clear to what extent the foregoing provisions of the
Partnership Agreement are enforceable under Delaware or federal law.
38
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
COMPETITION
AXA, Equitable and certain of their direct and indirect subsidiaries
provide financial services, some of which are competitive with those offered by
the Partnership. The Partnership Agreement specifically allows Equitable and
its subsidiaries (other than the General Partner) to compete with the
Partnership and to exploit opportunities that may be available to the
Partnership. AXA, Equitable and certain of their subsidiaries have
substantially greater financial resources than the Partnership or the General
Partner.
FINANCIAL SERVICES
The Partnership Agreement permits Equitable and its affiliates to provide
services to the Partnership on terms comparable to (or more favorable to the
Partnership than) those that would prevail in a transaction with an unaffiliated
third party. The Partnership believes that its arrangements with Equitable and
its affiliates are at least as favorable to the Partnership as could be obtained
from an unaffiliated third party, based on its knowledge of and inquiry with
respect to comparable arrangements with or between unaffiliated third parties.
The Partnership acts as the investment manager for the general and separate
accounts of Equitable and its insurance company subsidiaries pursuant to
investment advisory agreements. During 1997 the Partnership received
approximately $71.0 million in fees pursuant to these agreements. In connection
with the services provided under these agreements the Partnership provides
ancillary accounting, valuation, reporting, treasury and other services under
service agreements. During 1997 the Partnership received approximately $8.4
million in fees pursuant to these agreements. Equitable provides certain legal
and other services to the Partnership relating to certain insurance and other
regulatory aspects of the general and separate accounts of Equitable and its
insurance company subsidiaries. During 1997 the Partnership paid approximately
$1.1 million to Equitable for these services.
During 1997 the Partnership paid Equitable approximately $24.8 million for
certain services provided with respect to the marketing of the variable annuity
insurance and variable life insurance products for which The Hudson River Trust
is the funding vehicle.
Equitable has issued to ACMC life insurance policies on certain employees
of the Partnership, the costs of which are to be borne by ACMC without
reimbursement by the Partnership. During 1997 ACMC paid approximately $5.7
million in insurance premiums on these policies.
The Partnership and its employees are covered under various insurance
policies maintained by Equitable and its other subsidiaries. The amount of
premiums for these group policies paid by the Partnership to Equitable was
approximately $566,000 for 1997.
The Partnership provides investment management services to certain employee
benefit plans of Equitable and DLJ. Advisory fees from these accounts totaled
approximately $5.2 million for 1997 including $2.1 million from the separate
accounts of Equitable.
In April 1996 the Partnership acquired the United States investing
activities and business of National Mutual Funds Management ("NMFM"), a
subsidiary of AXA for $4.6 million cash. In connection therewith the
Partnership entered into investment management agreements with National Mutual
Holdings Limited, the parent of NMFM and a subsidiary of AXA, and various of its
subsidiaries (collectively, the "NMH Group"). The NMH Group paid $3.1 million
in advisory fees to the Partnership in 1997.
39
<PAGE>
Equico was the Partnership's third largest distributor of U.S. Funds in
1997 for which it received sales concessions from the Partnership on sales of
$569 million. In 1997 Equico also distributed certain of the Partnership's cash
management products. Equico received distribution payments totaling $7.0
million in 1997 for these services.
DLJ Securities Corporation and Pershing distribute certain Alliance Mutual
Funds and cash management products and receive sales concessions and
distribution payments. In addition, the Partnership and Pershing have an
agreement pursuant to which Pershing recommends to certain of its correspondent
firms the use of the Partnership's cash management products for which Pershing
is allocated a portion of the revenues derived by the Partnership from sales
through the Pershing correspondents. Amounts paid by the Partnership to DLJ
Securities Corporation, Pershing and Wood Struthers & Winthrop Management Corp.,
a subsidiary of DLJ, in connection with the above distribution services were
$49.0 million in 1997. DLJ and its subsidiaries also provide the Partnership
with brokerage and various other services, including clearing, investment
banking, research, data processing and administrative services. Brokerage, the
expense of which is borne by the Partnership's clients, aggregated approximately
$109,000 for 1997. During 1997 the Partnership paid $600,000 to DLJ and its
subsidiaries for all other services.
During 1997 the Partnership reimbursed Equitable in the amount of $3.5
million for rent and the use of certain services and facilities.
The Partnership and its subsidiaries provide investment management services
to AXA Reinsurance Company, a subsidiary of AXA, and its affiliates, pursuant
to discretionary investment advisory agreements. AXA Reinsurance Company and
its affiliates paid the Partnership approximately $817,000 during 1997 for such
services. In 1997, the Partnership also provided investment management services
to Abeille Reassurances, a subsidiary of AXA, for which it did not receive any
fees.
OTHER TRANSACTIONS
During 1997 the Partnership paid certain legal and other expenses incurred
by Equitable and its insurance company subsidiaries relating to the general and
separate accounts of Equitable and such subsidiaries for which it has been or
will be fully reimbursed by Equitable. The largest amount of such indebtedness
outstanding during 1997 was approximately $167,000 which represents the amount
outstanding on March 31, 1997.
During 1997 a subsidiary of the Partnership and DLJ Merchant Banking II,
Inc. ("DLJMB"), a subsidiary of DLJ, jointly sought opportunities for private
equity investments in India. The Partnership's subsidiary incurred expenditures
on behalf of the proposed joint venture. DLJMB agreed to reimburse the
Partnership's subsidiary for 50% of such expenditures. The Partnership's
subsidiary had not been fully reimbursed for such expenditures on December 31,
1997. The largest amount of indebtedness due to the Partnership in respect of
such venture was approximately $287,000 which represents the amount outstanding
on December 31, 1997.
Equitable and its affiliates are not obligated to provide funds to the
Partnership, except for ACMC's and the General Partner's obligation to fund
certain of the Partnership's deferred compensation and employee benefit plan
obligations referred to under "Compensation Agreements with Named Executive
Officers" and "Capital Accumulation Plan". The Partnership Agreement permits
Equitable and its affiliates to lend funds to the Partnership at the lender's
cost of funds.
Mrs. Reba W. Williams, the wife of Dave H. Williams, was employed by the
Partnership during 1997 and received compensation in the amount of $100,000.
Certain of the hedge funds managed by the Partnership pay a portion of the
carried interests or performance fees to certain portfolio managers, research
analysts and other investment professionals who are associated with the
management of the hedge funds. The Partnership provides investment management
services to the hedge funds and is entitled to receive between 75% and 100% of
the aggregate carried interests or performance fees paid by such funds. The
Partnership received approximately $7.1 million from the hedge funds in 1997
primarily in respect of the performance of the hedge funds in 1996. Mr. Alfred
Harrison, a Director and Vice Chairman of the General Partner, received $445,583
in 1997 in respect of his association with the hedge funds.
40
<PAGE>
ACMC and the General Partner are obligated, subject to certain limitations,
to make capital contributions to the Partnership in an amount equal to the
payments the Partnership is required to make as deferred compensation under the
employment agreements entered into in connection with Equitable's 1985
acquisition of DLJ, as well as obligations of the Partnership to various
employees and their beneficiaries under the Partnership's Capital Accumulation
Plan. In 1997 ACMC made capital contributions to the Partnership in the amount
of $761,000 in respect of these obligations. ACMC's obligations to make these
contributions are guaranteed by EIC subject to certain limitations. All tax
deductions with respect to these obligations, to the extent funded by ACMC,
Alliance or EIC, will be allocated to ACMC or Alliance.
(4) ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following is a list of the documents filed as a part of this
Annual Report on Form 10-K:
<TABLE>
<CAPTION>
Reference Pages
Financial Statements in Annual Report
<S> <C>
Consolidated Statements of Financial
Condition, December 31, 1997 and 1996 52
Consolidated Statements of Income,
Years ended December 31, 1997, 1996 and 1995 53
Consolidated Statements of Changes in
Partners' Capital, Years ended
December 31 1997, 1996 and 1995 54
Consolidated Statements of Cash Flows,
Years ended December 31, 1997, 1996, and 1995 55
Notes to Consolidated Financial Statements 56 - 68
Independent Auditors' Report 69
</TABLE>
Schedules are omitted because they are not applicable, or the required
information is set forth in the financial statements or notes thereto.
(b) REPORTS ON FORM 8-K.
A report on Form 8-K dated December 30, 1997 was filed during the last
quarter of 1997 reporting that the Partnership intends to make an election under
Section 754 of the Internal Revenue Code of 1986, as amended, to adjust the tax
basis of its assets in connection with sales and exchanges of Units in the
secondary market that occur on or after January 1, 1998.
41
<PAGE>
(c) EXHIBITS.
The following exhibits required to be filed by Item 601 of Regulation S-K
are filed herewith or, in the case of Exhibit 13.9, incorporated by reference
herein:
Exhibit Description
- ------- -----------
10.97 Unit Option Plan Agreement dated December 16, 1997 with Robert H.
Joseph, Jr.
10.98 Unit Option Plan Agreement dated December 16, 1997 with David R.
Brewer, Jr.
10.99 Amendment to the Transaction Agreement dated as of December 28,
1995 among the Partnership, The Shareholders of Record of
Cursitor Holdings Limited, Cursitor Holdings, L.P. ("CHLP") and
the Persons listed on Schedule 1.2 to the Transaction Agreement
10.100 Amendment Number One to the Amended and Restated Limited
Liability Company Agreement of Cursitor Alliance LLC dated as of
February 29, 1996 among the Partnership, Alliance Capital
Management Corporation of Delaware and CHLP
10.101 Amended and Restated Commercial Paper Dealer Agreement dated as
of December 19, 1997 among the Partnership, Goldman, Sachs & Co.
and NationsBanc Montgomery Securities, Inc.
13.9 Alliance Capital Management L.P. 1997 Annual Report to
Unitholders
22.9 Subsidiaries of the Registrant
24.8 Consent of KPMG Peat Marwick LLP
25.81 Power of Attorney by Claude Bebear
25.82 Power of Attorney by Luis Javier Bastida
25.83 Power of Attorney by Donald H. Brydon
25.84 Power of Attorney by Henri de Castries
25.85 Power of Attorney by Kevin C. Dolan
25.86 Power of Attorney by Jean-Pierre Hellebuyck
25.87 Power of Attorney by Benjamin D. Holloway
25.88 Power of Attorney by Denis Duverne
25.89 Power of Attorney by Joseph J. Melone
25.90 Power of Attorney by Edward D. Miller
25.91 Power of Attorney by Peter D. Noris
25.92 Power of Attorney by Stanley B. Tulin
25.93 Power of Attorney by Robert B. Zoellick
25.94 Power of Attorney by Alfred Harrison
27.02 Financial Data Schedule
42
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
By: Alliance Capital Management
Corporation, General Partner
Date: March 30, 1998 By: /s/Dave H. Williams
------------------------------
Dave H. Williams
Chairman
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.
Date: March 30, 1998 /s/John D. Carifa
------------------------------
John D. Carifa
President and Chief Operating Officer
Date: March 30, 1998 /s/Robert H. Joseph, Jr.
------------------------------
Robert H. Joseph, Jr.
Senior Vice President and Chief
Financial Officer
43
<PAGE>
Directors
/s/Dave H. Williams *
- ---------------------------- ------------- -------------
Dave H. Williams Jean-Pierre Hellebuyck
Chairman and Director Director
* *
- ------------- -------------- ------------- -------------
Luis Javier Bastida Benjamin D. Holloway
Director Director
* *
- ------------- -------------- ------------- -------------
Claude Bebear Joseph J. Melone
Director Director
* *
- ------------- -------------- ------------- -------------
Donald H. Brydon Edward D. Miller
Director Director
/s/Bruce W. Calvert *
- ---------------------------- ------------- -------------
Bruce W. Calvert Peter D. Noris
Director Director
/s/John D. Carifa /s/Frank Savage
- ---------------------------- ---------------------------
John D. Carifa Frank Savage
Director Director
*
- ------------- -------------- ---------------------------
Henri de Castries Stanley B. Tulin
Director Director
* /s/Reba W. Williams
- ------------ -------------- ---------------------------
Kevin C. Dolan Reba W. Williams
Director Director
* *
- ------------- -------------- ------------- -------------
Denis Duverne Robert B. Zoellick
Director Director
* *BY/s/David R. Brewer, Jr.
- ------------- -------------- ---------------------------
Alfred Harrison David R. Brewer, Jr.
Director (Attorney-in-Fact)
44
<PAGE>
ALLIANCE CAPITAL MANAGEMENT L.P.
UNIT OPTION PLAN AGREEMENT
AGREEMENT, dated December 16, 1997 between Alliance Capital Management L.P.
(the "Partnership") and Robert H. Joseph, Jr. (the "Employee"), an employee of
the Partnership or a subsidiary of the Partnership.
The Option Committee (the "Administrator") of the Board of Directors of
Alliance Capital Management Corporation, the general partner of the Partnership
(the "Board"), pursuant to the Alliance Capital Management L.P. Unit Option
Plan, a copy of which has been delivered to the Employee (the "Plan"), granted
to the Employee an option to purchase units representing assignments of
beneficial ownership of limited partnership interests in the Partnership (the
"Units") as hereinafter set forth, and authorized the execution and delivery of
this Agreement.
In accordance with that grant, and as a condition thereto, the Partnership
and the Employee agree as follows:
1. GRANT OF OPTION. Subject to and under the terms and conditions set
forth in this Agreement and the Plan, the Employee is the owner of an option
(the "Option") to purchase from the Partnership the number of Units set forth in
Section 1 of Exhibit A attached hereto at the per Unit price set forth in
Section 2 of Exhibit A.
2. TERM AND EXERCISE SCHEDULE. This Option shall not be exercisable to
any extent prior to December 16, 1998 or after December 16, 2007 (the
"Expiration Date"). Subject to the terms and conditions of this Agreement and
the Plan, the Employee shall be entitled to exercise the Option prior to the
Expiration Date and to purchase Units hereunder in accordance with the schedule
set forth in Section 3 of Exhibit A.
The right to exercise this Option shall be cumulative so that to the extent
this Option is not exercised when it becomes initially exercisable with respect
to any Units, it shall be exercisable with respect to such Units at any time
thereafter until the Expiration Date and any Units subject to this Option which
have not then been purchased may not, thereafter, be purchased hereunder. A
Unit shall be considered to have been purchased on or before the Expiration Date
if the Partnership has been given notice of the purchase pursuant to Sections 3
and 13, and the Partnership has actually received payment for the Unit on or
before the Expiration Date.
<PAGE>
-2-
3. NOTICE OF EXERCISE, PAYMENT AND CERTIFICATE. Exercise of this Option,
in whole or in part, shall be by delivery of a written notice to the Partnership
pursuant to Section 13 which specifies the number of Units being purchased and
is accompanied by payment therefor in cash. Promptly after receipt of such
notice and purchase price, the Partnership shall deliver to the person
exercising the Option a certificate for the number of Units purchased. Units to
be issued upon the exercise of this Option may be either authorized and unissued
Units or Units which have been reacquired by the Partnership.
4. TERMINATION OF EMPLOYMENT. This Option may be exercised only while
the Employee is a full-time employee of the Partnership, except as follows:
(a) DISABILITY. If the Employee's employment with the Partnership
terminates because of Disability, the Employee (or his personal
representative) shall have the right to exercise this Option, to the extent
that the Employee was entitled to do so on the date of termination of his
employment, for a period which ends not later than the earlier of (i) three
months after such termination, and (ii) the Expiration Date. "Disability"
shall mean a determination by the Administrator that the Employee is
physically or mentally incapacitated and has been unable for a period of
six consecutive months to perform the duties for which he was responsible
immediately before the onset of his incapacity. In order to assist the
Administrator in making a determination as to the Disability of the
Employee for purposes of this paragraph (a), the Employee shall, as
reasonably requested by the Administrator, (A) make himself available for
medical examinations by one or more physicians chosen by the Administrator
and approved by the Employee, whose approval shall not unreasonably be
withheld, and (B) grant the Administrator and any such physicians access to
all relevant medical information concerning him, arrange to furnish copies
of medical records to them, and use his best efforts to cause his own
physicians to be available to discuss his health with them.
(b) DEATH. If the Employee dies (i) while in the employ of the
Partnership, or (ii) within one month after termination of his employment
with the Partnership because of Disability (as determined in accordance
with paragraph (a) above), or (iii) within one month after the Partnership
terminates his employment for any reason other than for Cause (as
determined in accordance with paragraph (c) below), this Option may be
exercised, to the extent that the Employee was entitled to do so on the
date of his death, by the person or persons to whom the Option shall have
been transferred by will or by the laws of descent and distribution, for a
period which ends not later than the earlier of (A) six months from the
date of the Employee's death, and (B) the Expiration Date.
<PAGE>
-3-
(c) OTHER TERMINATION. If the Partnership terminates the Employee's
employment for any reason other than death, Disability or for Cause, the
Employee shall have the right to exercise this Option, to the extent that
he was entitled to do so on the date of the termination of his employment,
for a period which ends not later than the earlier of (i) three months
after such termination, and (ii) the Expiration Date. "Cause" shall mean
(A) the Employee's continuing willful failure to perform his duties as an
employee (other than as a result of his total or partial incapacity due to
physical or mental illness), (B) gross negligence or malfeasance in the
performance of the Employee's duties, (C) a finding by a court or other
governmental body with proper jurisdiction that an act or acts by the
Employee constitutes (1) a felony under the laws of the United States or
any state thereof (or, if the Employee's place of employment is outside of
the United States, a serious crime under the laws of the foreign
jurisdiction where he is employed, which crime if committed in the United
States would be a felony under the laws of the United States or the laws of
New York), or (2) a violation of federal or state securities law (or, if
the Employee's place of employment is outside of the United States, of
federal, state or foreign securities law) by reason of which finding of
violation described in this clause (2) the Board determines in good faith
that the continued employment of the Employee by the Partnership would be
seriously detrimental to the Partnership and its business, (D) in the
absence of such a finding by a court or other governmental body with proper
jurisdiction, such a determination in good faith by the Board by reason of
such act or acts constituting such a felony, serious crime or violation, or
(E) any breach by the Employee of any obligation of confidentiality or
non-competition to the Partnership.
For purposes of this Agreement, employment by a subsidiary of the
Partnership shall be deemed to be employment by the Partnership. A "subsidiary"
of the Partnership shall be any corporation or other entity of which the
Partnership and/or its subsidiaries (a) have sufficient voting power (not
depending on the happening of a contingency) to elect at least a majority of its
board of directors, or (b) otherwise have the power to direct or cause the
direction of its management and policies.
5. NON-TRANSFERABILITY. This Option is not transferable other than by
will or the laws of descent and distribution and, except as otherwise provided
in Section 4, during the lifetime of the Employee this Option is exercisable
only by the Employee.
<PAGE>
-4-
6. NO RIGHT TO CONTINUED EMPLOYMENT. This Option shall not confer upon
the Employee any right to continue in the employ of the Partnership or interfere
in any way with the right of the Partnership to terminate the employment of the
Employee at any time for any reason.
7. PAYMENT OF WITHHOLDING TAX. (a) In the event that the Partnership
determines that any federal, state or local tax or any other charge is required
by law to be withheld with respect to the exercise of this Option, the Employee
shall promptly pay to the Partnership or a subsidiary specified by the
Partnership, on at least seven business days' notice from the Partnership, an
amount equal to such withholding tax or charge or (b) if the Employee does not
promptly so pay the entire amount of such withholding tax or charge in
accordance with such notice, or make arrangements satisfactory to the
Partnership regarding payment thereof, the Partnership or any subsidiary of the
Partnership may withhold the remaining amount thereof from any amount due the
Employee from the Partnership or the subsidiary.
8. DILUTION AND OTHER ADJUSTMENTS. The existence of this Option shall
not impair the right of the Partnership or its partners to, among other things,
conduct, make or effect any change in the Partnership's business, any issuance
of debt obligations or other securities by the Partnership, any grant of options
with respect to an interest in the Partnership or any adjustment,
recapitalization or other change in the partnership interests of the Partnership
(including, without limitation, any distribution, subdivision, or combination of
limited partnership interests), or any incorporation of the Partnership. In the
event of such a change in the partnership interests of the Partnership, the
Board shall make such adjustments to this or Option, including the purchase
price specified in Section 1, as it deems appropriate and equitable. In the
event of incorporation of the Partnership, the Board shall make such
arrangements as it deems appropriate and equitable with respect to this Option
for the Employee to purchase stock in the resulting corporation in place of the
Units subject to this Option. Any such adjustment or arrangement may provide
for the elimination of any fractional Unit or shares of stock which might
otherwise become subject to this Option. Any decision by the Board under this
Section shall be final and binding upon the Employee.
9. RIGHTS AS AN OWNER OF A UNIT. The Employee (or a transferee of this
Option pursuant to Section 4) shall have no rights as an owner of a Unit with
respect to any Unit covered by this Option until he becomes the holder of record
of such Unit, which shall be deemed to occur at the time that notice of purchase
is given and payment in full is received by the Partnership under Section 3 and
13. By such actions, the Employee (or such transferee) shall be deemed to have
consented to, and agreed to
<PAGE>
-5-
be bound by, all other terms, conditions, rights and obligations set forth in
the then current Agreement of Limited Partnership (As Amended and Restated) of
the Partnership. Except as provided in Section 8, no adjustment shall be made
with respect to any Unit for any distribution for which the record date is prior
to the date on which the Employee becomes the holder of record of the Unit,
regardless of whether the distribution is ordinary or extraordinary, in cash,
securities or other property, or of any other rights.
10. ADMINISTRATOR. If at any time there shall be no Option Committee of
the Board, the Board shall be the Administrator.
11. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of New York.
12. INTERPRETATION. The Employee accepts this Option subject to all the
terms and provisions of the Plan, which shall control in the event of any
conflict between any provision of the Plan and this Agreement, and accepts as
binding, conclusive and final all decisions or interpretations of the Board or
the Administrator upon any questions arising under the Plan and/or this
Agreement.
13. NOTICES. Any notice under this Agreement shall be in writing and
shall be deemed to have been duly given when delivered personally or when
deposited in the United States mail, registered, postage prepaid, and addressed,
in the case of the Partnership, to the Secretary of Alliance Capital Management
Corporation at 1345 Avenue of the Americas, New York, New York 10105, or if the
Partnership should move its principal office, to such principal office, and, in
the case of the Employee, to his last permanent address as shown on the
Partnership's records, subject to the right of either party to designate some
other address at any time hereafter in a notice satisfying the requirements of
this Section.
<PAGE>
-6-
14. SECTIONS AND HEADINGS. All section references in this Agreement are
to sections hereof for convenience of reference only and are not to affect the
meaning of any provision of this Agreement.
ALLIANCE CAPITAL MANAGEMENT L.P.
By Alliance Capital Management Corporation,
General Partner
By /s/ John D. Carifa
-----------------------------
John D. Carifa
President
/s/ Robert H. Joseph, Jr.
-----------------------------
Robert H. Joseph, Jr.
6580G
<PAGE>
EXHIBIT A TO UNIT OPTION PLAN AGREEMENT DATED DECEMBER 16, 1997
BETWEEN ALLIANCE CAPITAL MANAGEMENT L.P. AND ROBERT H. JOSEPH, JR.
1. The number of Units that the Employee is entitled to purchase pursuant
to the Option granted under this Agreement is 10,000.
2. The per Unit price to purchase Units pursuant to the Option granted
under this Agreement is $36.9375 per Unit.
3. Percentage of Units With Respect to
Which the Option First Becomes
Exercisable on the Date Indicated
---------------------------------
1. December 16, 1998 20%
2. December 16, 1999 20%
3. December 16, 2000 20%
4. December 16, 2001 20%
5. December 16, 2002 20%
6580G (Options)
<PAGE>
ALLIANCE CAPITAL MANAGEMENT L.P.
UNIT OPTION PLAN AGREEMENT
AGREEMENT, dated December 16, 1997 between Alliance Capital Management L.P.
(the "Partnership") and David R. Brewer, Jr. (the "Employee"), an employee of
the Partnership or a subsidiary of the Partnership.
The Option Committee (the "Administrator") of the Board of Directors of
Alliance Capital Management Corporation, the general partner of the Partnership
(the "Board"), pursuant to the Alliance Capital Management L.P. Unit Option
Plan, a copy of which has been delivered to the Employee (the "Plan"), granted
to the Employee an option to purchase units representing assignments of
beneficial ownership of limited partnership interests in the Partnership (the
"Units") as hereinafter set forth, and authorized the execution and delivery of
this Agreement.
In accordance with that grant, and as a condition thereto, the Partnership
and the Employee agree as follows:
1. GRANT OF OPTION. Subject to and under the terms and conditions set
forth in this Agreement and the Plan, the Employee is the owner of an option
(the "Option") to purchase from the Partnership the number of Units set forth in
Section 1 of Exhibit A attached hereto at the per Unit price set forth in
Section 2 of Exhibit A.
2. TERM AND EXERCISE SCHEDULE. This Option shall not be exercisable to
any extent prior to December 16, 1998 or after December 16, 2007 (the
"Expiration Date"). Subject to the terms and conditions of this Agreement and
the Plan, the Employee shall be entitled to exercise the Option prior to the
Expiration Date and to purchase Units hereunder in accordance with the schedule
set forth in Section 3 of Exhibit A.
The right to exercise this Option shall be cumulative so that to the extent
this Option is not exercised when it becomes initially exercisable with respect
to any Units, it shall be exercisable with respect to such Units at any time
thereafter until the Expiration Date and any Units subject to this Option which
have not then been purchased may not, thereafter, be purchased hereunder. A
Unit shall be considered to have been purchased on or before the Expiration Date
if the Partnership has been given notice of the purchase pursuant to Sections 3
and 13, and the Partnership has actually received payment for the Unit on or
before the Expiration Date.
<PAGE>
-2-
3. NOTICE OF EXERCISE, PAYMENT AND CERTIFICATE. Exercise of this Option,
in whole or in part, shall be by delivery of a written notice to the Partnership
pursuant to Section 13 which specifies the number of Units being purchased and
is accompanied by payment therefor in cash. Promptly after receipt of such
notice and purchase price, the Partnership shall deliver to the person
exercising the Option a certificate for the number of Units purchased. Units to
be issued upon the exercise of this Option may be either authorized and unissued
Units or Units which have been reacquired by the Partnership.
4. TERMINATION OF EMPLOYMENT. This Option may be exercised only while
the Employee is a full-time employee of the Partnership, except as follows:
(a) DISABILITY. If the Employee's employment with the Partnership
terminates because of Disability, the Employee (or his personal
representative) shall have the right to exercise this Option, to the extent
that the Employee was entitled to do so on the date of termination of his
employment, for a period which ends not later than the earlier of (i) three
months after such termination, and (ii) the Expiration Date. "Disability"
shall mean a determination by the Administrator that the Employee is
physically or mentally incapacitated and has been unable for a period of
six consecutive months to perform the duties for which he was responsible
immediately before the onset of his incapacity. In order to assist the
Administrator in making a determination as to the Disability of the
Employee for purposes of this paragraph (a), the Employee shall, as
reasonably requested by the Administrator, (A) make himself available for
medical examinations by one or more physicians chosen by the Administrator
and approved by the Employee, whose approval shall not unreasonably be
withheld, and (B) grant the Administrator and any such physicians access to
all relevant medical information concerning him, arrange to furnish copies
of medical records to them, and use his best efforts to cause his own
physicians to be available to discuss his health with them.
(b) DEATH. If the Employee dies (i) while in the employ of the
Partnership, or (ii) within one month after termination of his employment
with the Partnership because of Disability (as determined in accordance
with paragraph (a) above), or (iii) within one month after the Partnership
terminates his employment for any reason other than for Cause (as
determined in accordance with paragraph (c) below), this Option may be
exercised, to the extent that the Employee was entitled to do so on the
date of his death, by the person or persons to whom the Option shall have
been transferred by will or by the laws of descent and distribution, for a
period which ends not later than the earlier of (A) six months from the
date of the Employee's death, and (B) the Expiration Date.
<PAGE>
-3-
(c) OTHER TERMINATION. If the Partnership terminates the Employee's
employment for any reason other than death, Disability or for Cause, the
Employee shall have the right to exercise this Option, to the extent that
he was entitled to do so on the date of the termination of his employment,
for a period which ends not later than the earlier of (i) three months
after such termination, and (ii) the Expiration Date. "Cause" shall mean
(A) the Employee's continuing willful failure to perform his duties as an
employee (other than as a result of his total or partial incapacity due to
physical or mental illness), (B) gross negligence or malfeasance in the
performance of the Employee's duties, (C) a finding by a court or other
governmental body with proper jurisdiction that an act or acts by the
Employee constitutes (1) a felony under the laws of the United States or
any state thereof (or, if the Employee's place of employment is outside of
the United States, a serious crime under the laws of the foreign
jurisdiction where he is employed, which crime if committed in the United
States would be a felony under the laws of the United States or the laws of
New York), or (2) a violation of federal or state securities law (or, if
the Employee's place of employment is outside of the United States, of
federal, state or foreign securities law) by reason of which finding of
violation described in this clause (2) the Board determines in good faith
that the continued employment of the Employee by the Partnership would be
seriously detrimental to the Partnership and its business, (D) in the
absence of such a finding by a court or other governmental body with proper
jurisdiction, such a determination in good faith by the Board by reason of
such act or acts constituting such a felony, serious crime or violation, or
(E) any breach by the Employee of any obligation of confidentiality or
non-competition to the Partnership.
For purposes of this Agreement, employment by a subsidiary of the
Partnership shall be deemed to be employment by the Partnership. A "subsidiary"
of the Partnership shall be any corporation or other entity of which the
Partnership and/or its subsidiaries (a) have sufficient voting power (not
depending on the happening of a contingency) to elect at least a majority of its
board of directors, or (b) otherwise have the power to direct or cause the
direction of its management and policies.
5. NON-TRANSFERABILITY. This Option is not transferable other than by
will or the laws of descent and distribution and, except as otherwise provided
in Section 4, during the lifetime of the Employee this Option is exercisable
only by the Employee.
<PAGE>
-4-
6. NO RIGHT TO CONTINUED EMPLOYMENT. This Option shall not confer upon
the Employee any right to continue in the employ of the Partnership or interfere
in any way with the right of the Partnership to terminate the employment of the
Employee at any time for any reason.
7. PAYMENT OF WITHHOLDING TAX. (a) In the event that the Partnership
determines that any federal, state or local tax or any other charge is required
by law to be withheld with respect to the exercise of this Option, the Employee
shall promptly pay to the Partnership or a subsidiary specified by the
Partnership, on at least seven business days' notice from the Partnership, an
amount equal to such withholding tax or charge or (b) if the Employee does not
promptly so pay the entire amount of such withholding tax or charge in
accordance with such notice, or make arrangements satisfactory to the
Partnership regarding payment thereof, the Partnership or any subsidiary of the
Partnership may withhold the remaining amount thereof from any amount due the
Employee from the Partnership or the subsidiary.
8. DILUTION AND OTHER ADJUSTMENTS. The existence of this Option shall
not impair the right of the Partnership or its partners to, among other things,
conduct, make or effect any change in the Partnership's business, any issuance
of debt obligations or other securities by the Partnership, any grant of options
with respect to an interest in the Partnership or any adjustment,
recapitalization or other change in the partnership interests of the Partnership
(including, without limitation, any distribution, subdivision, or combination of
limited partnership interests), or any incorporation of the Partnership. In the
event of such a change in the partnership interests of the Partnership, the
Board shall make such adjustments to this or Option, including the purchase
price specified in Section 1, as it deems appropriate and equitable. In the
event of incorporation of the Partnership, the Board shall make such
arrangements as it deems appropriate and equitable with respect to this Option
for the Employee to purchase stock in the resulting corporation in place of the
Units subject to this Option. Any such adjustment or arrangement may provide
for the elimination of any fractional Unit or shares of stock which might
otherwise become subject to this Option. Any decision by the Board under this
Section shall be final and binding upon the Employee.
9. RIGHTS AS AN OWNER OF A UNIT. The Employee (or a transferee of this
Option pursuant to Section 4) shall have no rights as an owner of a Unit with
respect to any Unit covered by this Option until he becomes the holder of record
of such Unit, which shall be deemed to occur at the time that notice of purchase
is given and payment in full is received by the Partnership under Section 3 and
13. By such actions, the Employee (or such transferee) shall be deemed to have
consented to, and agreed to
<PAGE>
-5-
be bound by, all other terms, conditions, rights and obligations set forth in
the then current Agreement of Limited Partnership (As Amended and Restated) of
the Partnership. Except as provided in Section 8, no adjustment shall be made
with respect to any Unit for any distribution for which the record date is prior
to the date on which the Employee becomes the holder of record of the Unit,
regardless of whether the distribution is ordinary or extraordinary, in cash,
securities or other property, or of any other rights.
10. ADMINISTRATOR. If at any time there shall be no Option Committee of
the Board, the Board shall be the Administrator.
11. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of New York.
12. INTERPRETATION. The Employee accepts this Option subject to all the
terms and provisions of the Plan, which shall control in the event of any
conflict between any provision of the Plan and this Agreement, and accepts as
binding, conclusive and final all decisions or interpretations of the Board or
the Administrator upon any questions arising under the Plan and/or this
Agreement.
13. NOTICES. Any notice under this Agreement shall be in writing and
shall be deemed to have been duly given when delivered personally or when
deposited in the United States mail, registered, postage prepaid, and addressed,
in the case of the Partnership, to the Secretary of Alliance Capital Management
Corporation at 1345 Avenue of the Americas, New York, New York 10105, or if the
Partnership should move its principal office, to such principal office, and, in
the case of the Employee, to his last permanent address as shown on the
Partnership's records, subject to the right of either party to designate some
other address at any time hereafter in a notice satisfying the requirements of
this Section.
<PAGE>
-6-
14. SECTIONS AND HEADINGS. All section references in this Agreement are
to sections hereof for convenience of reference only and are not to affect the
meaning of any provision of this Agreement.
ALLIANCE CAPITAL MANAGEMENT L.P.
By Alliance Capital Management
Corporation, General Partner
By /s/ John D. Carifa
-------------------------------
John D. Carifa
President
/s/ David R. Brewer, Jr.
-------------------------------
David R. Brewer, Jr.
6580G
<PAGE>
EXHIBIT A TO UNIT OPTION PLAN AGREEMENT DATED DECEMBER 16, 1997
BETWEEN ALLIANCE CAPITAL MANAGEMENT L.P. AND DAVID R. BREWER, JR.
1. The number of Units that the Employee is entitled to purchase pursuant
to the Option granted under this Agreement is 10,000.
2. The per Unit price to purchase Units pursuant to the Option granted
under this Agreement is $36.9375 per Unit.
3. Percentage of Units With Respect to
Which the Option First Becomes
Exercisable on the Date Indicated
---------------------------------
1. December 16, 1998 20%
2. December 16, 1999 20%
3. December 16, 2000 20%
4. December 16, 2001 20%
5. December 16, 2002 20%
6580G (Options)
<PAGE>
AMENDMENT TO THE TRANSACTION AGREEMENT
This Amendment to the Transaction Agreement (this "Amendment") is made
effective as of January 1, 1997, by and among (1) Alliance Capital Management
L.P. ("Alliance," referred to in the Agreement as "Buyer"), (2) the Shareholders
of Record of Cursitor Holdings Limited ("the Shareholders"), (3) Cursitor
Holdings, L.P. ("Cursitor") and (4) certain additional parties ("Additional
Parties"), and is made with reference to that certain Agreement dated as of
February 28, 1996 (the "Agreement") by and among Alliance, the Shareholders,
Cursitor and Additional Parties.
RECITALS
WHEREAS, the parties hereto have previously entered into the Agreement,
which among other things provides for certain benefits, including incentive
compensation, to be provided to employees of Cursitor Alliance LLC, a Delaware
limited liability company ("Cursitor Alliance," referred to in the Agreement as
"Newco"); and
WHEREAS, it has been agreed among the parties to make certain modifications
to the terms under which incentive and deferred compensation will be awarded and
paid to employees of Cursitor Alliance;
NOW, THEREFORE, in consideration of the premises and the agreements,
provisions and covenants herein contained, the parties hereto agree as follows:
SECTION 1. INCENTIVE COMPENSATION POOLS. Section 9.2 of the Agreement is
hereby amended and restated in its entirety as follows:
"9.2 INCENTIVE COMPENSATION POOL. (a) During the period commencing
on the Closing Date and ending on the fifth anniversary thereof, Buyer shall
establish and maintain an incentive compensation pool (the "Cursitor Alliance
Pool") for the benefit of the employees of Newco and its Subsidiaries which,
except as otherwise provided herein, shall be calculated in the same manner used
to fund the same benefit and compensation plans and have the same rules for
eligibility as the incentive compensation pools maintained by Buyer for its
other operating subsidiaries and divisions, and shall be paid by or charged to
Cursitor Alliance. For purposes of calculating the Cursitor Alliance Pool the
administrative and technology expenses of Buyer allocable to the former business
of the Companies and their Subsidiaries will be phased in and allocated to the
Cursitor Alliance Pool over four years with 25% of the amount allocated during
the first
<PAGE>
12-month period following the Closing, 50% of the amount allocated during the
second 12-month period following the Closing, 75% of the amount allocated during
the third 12-month period following the Closing and 100% of the amount allocated
during the fourth twelve-month period following the Closing.
(b) For each year during the period commencing with calendar 1997 and
ending with calendar 2000, Buyer shall award from the Cursitor Alliance Pool
annual cash bonuses with aggregate value of at least $500,000 to employees in
each of the following two groups: (i) employees providing services in respect of
the former business of Draycott ("Draycott Employees"); and (ii) the group
consisting of professional employees of Newco, other than Draycott Employees and
Messrs. Eaton, Auboyneau, Gave and Ricciardi. Each such aggregate amount of
awards shall be allocated among the employees in the relevant group by the
Chairman of Newco, subject to the approval of Buyer's Management Compensation
Committee. None of Messrs. Eaton, Auboyneau, Gave and Ricciardi shall receive
annual cash bonuses with respect to the period commencing with calendar 1997 and
ending with calendar 2000.
(c) Buyer shall adopt two deferred compensation plans in the forms
attached as Exhibits 5 and 6 for the benefit of, respectively, Draycott
Employees and the group consisting of Messrs. Eaton, Auboyneau, Gave and
Ricciardi. Awards granted under such plans shall be treated as awarded from,
and shall count against, the Cursitor Alliance Pool described in Section 9.2(a).
Such awards shall not, however, count against the required minimum annual cash
bonuses described in Section 9.2(b)."
SECTION 2. PARTICIPATION IN OPTION PLAN. Section 9.3 of the Agreement is
hereby amended to delete the last two sentences thereof.
2
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed by their respective authorized officers on April 28, 1997,
effective as of the day and year first above written.
ALLIANCE CAPITAL
MANAGEMENT L.P.
By Alliance Capital Management
Corporation, as General
Partner
By: /s/ David R. Brewer, Jr.
---------------------------------
Title: Senior Vice President,
General Counsel & Secretary
CURSITOR HOLDINGS, L.P.
By HMESLP, Inc. as General Partner
By: /s/ Hugh M. Eaton, III
---------------------------------
Title: President
MANAGEMENT HOLDINGS LLC
Successor in interest to Cursitor
Holdings, L.P.
By: /s/ Hugh M. Eaton, III
---------------------------------
Title: Chairman
/s/ Eric Auboyneau
-------------------------------------
ERIC AUBOYNEAU
/s/ Hugh M. Eaton III
-------------------------------------
HUGH M. EATON III
3
<PAGE>
/s/ Charles J.H. Gave
-------------------------------------
CHARLES J.H. GAVE
/s/ Ian Lloyd
-------------------------------------
IAN LLOYD
/s/ Richard I. Morris, Jr.
-------------------------------------
RICHARD I. MORRIS, JR.
/s/ Viplava Patel
-------------------------------------
VIPLAVA PATEL
/s/ John S. Ricciardi
-------------------------------------
JOHN S. RICCIARDI
/s/ J. Christian Sorensen
-------------------------------------
J. CHRISTIAN SORENSEN
4
<PAGE>
AMENDMENT NUMBER ONE TO THE CURSITOR
ALLIANCE LLC AGREEMENT
This Amendment (this "Amendment") is made as of April 28, 1997, by and
among (1) Alliance Capital Management L.P. ("Alliance"), (2) Alliance Capital
Management Corporation of Delaware ("Alliance Delaware"), (3) Cursitor Holdings,
L.P. ("Holdings L.P."), and (4) Cursitor Alliance LLC (the "Company"), and is
made with reference to the Amended and Restated Limited Liability Company
Agreement of Cursitor Alliance LLC dated as of February 29, 1996 (the
"Agreement") by and among Alliance, Alliance Delaware and Holdings L.P.
RECITALS
WHEREAS, the parties have agreed to transfer the International Shares from
the Company to Alliance Delaware in redemption of Alliance Delaware's interest
in the Company whereupon Alliance Delaware shall cease to be a Member and its
capital account and Percentage Interest shall be reduced to zero;
WHEREAS, pursuant to the Third Services Agreement dated as of January 1,
1997 between Alliance and the Company (the "Third Services Agreement"), Alliance
and the Company have agreed to terminate the First Services Agreement and the
Second Services Agreement and in lieu thereof Alliance will be the exclusive
provider to the Company and its subsidiaries of all of their requirements for
back-office and support services, including without limitation, accounting, tax,
trading, legal, compliance, treasury, office administration, systems, data
processing, human resources and facilities services;
WHEREAS, pursuant to the Termination and Consulting Agreement dated the
date hereof, Richard I. Morris, Jr. has voluntarily resigned as President and
Chief Executive Officer of the Company and in lieu thereof has agreed to serve
as a consultant to the Company and to provide the Company and Alliance with the
services described in that Agreement;
WHEREAS, pursuant to various Amendments to Employment Agreements executed
on the date hereof, the Company and each other Principal have agreed to amend
the related Employment Agreements;
WHEREAS, pursuant to the Cursitor Alliance Principals' and Draycott
Compensation Plans and Amendment No. 1 to the Transaction Agreement dated the
date hereof, the Company has created new incentive compensation and deferred
compensation arrangements for certain employees of the Company;
<PAGE>
WHEREAS, the Members have agreed to restructure the put/call options in the
Agreement and to make certain other changes to the provisions of the Agreement
as more fully described herein; and
WHEREAS, the Members desire to amend the Agreement in the manner set forth
below;
NOW, THEREFORE, in consideration of the foregoing and the agreements
herein contained, the parties hereto agree as follows:
SECTION 1. DEFINED TERMS. (a) All capitalized terms used herein,
unless otherwise defined herein, shall have the meanings given them in the
Agreement, and each reference in the Agreement to "this Agreement", "hereof",
"herein", "hereunder" or "hereby" and each other similar reference shall be
deemed to refer to the Agreement as amended hereby. All references to the
Agreement in any other agreement between or among any of the parties hereto
relating to the transactions contemplated by the Agreement shall be deemed to
refer to the Agreement as amended hereby.
(b) Section 1.01(c) is hereby amended by adding the following terms and
their corresponding section references: "Aggregate Residual Reference
Percentage, section 9.03(a)"; "Cursitor Alliance Revenues, section 9.03(a)";
"Base Price, section 9.03(a)"; "Section 9.01(c) Buyout Price, section 9.03(b)";
and "Section 9.01(c) Put, section 9.01(c)"; and by deleting the following terms
and their corresponding section references: "First Offer Business, section
6.13"; "Section 9.01(c)(i) Buyout Price, section 9.03(b)"; "Section 9.01(c)(i)
Put, section 9.01(c)"; "Section 9.01(c)(ii) Buyout Price, section 9.03(b)"; and
"Section 9.01(c)(ii) Put, section 9.01(c)".
SECTION 2. REDEMPTION OF ALLIANCE DELAWARE. (a) Subject to
satisfaction or waiver of the conditions set forth in subsection (b), as soon as
is practicable after such conditions are satisfied, the Company agrees to (i)
transfer to Alliance Delaware, free and clear of all Liens, all of its right,
title and interest in, to and under the International Shares and (ii) pay to
Alliance Delaware (or in the case of any deficit, Alliance Delaware agrees to
pay to the Company), in cash, the excess (or deficit, if applicable) of Alliance
Delaware's Capital Account (after giving effect to all allocations and
distributions through December 31, 1996) over the initial balance thereof as
adjusted pursuant to the Transaction Agreement. The date on which such transfer
occurs shall be referred to as the "Redemption Date." Alliance agrees to offer
employment on the Redemption Date to all employees of the Company and its
subsidiaries (other than those employees whose employment
2
<PAGE>
is terminated by the Company or who voluntarily terminate employment between the
date hereof and the Redemption Date) except those employees listed on Schedule
2A hereto.
(b) The obligation of the parties to consummate the transactions
contemplated by subsection (a) is subject to the parties having made all
requisite notifications and filings and received all consents, authorizations or
approvals (or the expiration of applicable waiting periods) from the applicable
governmental body, agency or official, in each case in form and substance
reasonably satisfactory to the parties, and no such notification, filing,
consent, authorization or approval shall have been revoked including, without
limitation, (i) notification and clearance by IMRO of the changes of control in
Cursitor Alliance Management Limited (formerly known as Alliance Capital
Limited) and Dimensional Asset Management Limited contemplated by this Agreement
in accordance with Chapter IV of the IMRO Rules and Part VII of the Investment
Services Regulations 1995, if applicable; (ii) any necessary filings with The
Monetary Authority of Singapore; and (iii) any necessary filings with the
Ministry of Finance of Japan.
(c) Upon consummation of the transactions contemplated by subsection (a),
Alliance Delaware shall cease to be a member of the Company (without prejudice
to any vested rights as of such date) and its Capital Account shall be reduced
to zero. Thereafter, the definitions of "Member" and "Alliance Members" shall
not include Alliance Delaware. Notwithstanding the foregoing, the Company shall
not be dissolved by reason of the foregoing and the Other Members agree that the
business of the Company shall continue in accordance with the terms of the
Agreement as amended hereby.
SECTION 3. UNANIMOUS VOTE. The Agreement is hereby amended by deleting
Section 6.04 in its entirety.
SECTION 4. OFFICERS. Section 6.10(a) of the Agreement is hereby
amended and restated in its entirety as follows:
"6.10. OFFICERS. (a) The officers of the Company (the "OFFICERS") shall
be selected by the Members and shall consist of a Chairman, a Vice Chairman, a
Chief Executive Officer and such other officers, if any, as are contemplated
herein or as the Members may determine are necessary or appropriate. Subject to
Section 6.01 and subject to the matters which are to be the exclusive
responsibility of Alliance under the Third Services Agreement, the day-to-day
conduct, ordinary-course decisions and operations of the business of the Company
and its subsidiaries shall generally be managed by the Officers, and the
Chairman shall have such powers as are usually exercised by comparably
designated officers of a Delaware corporation, including power and authority
with respect to such matters as the development,
3
<PAGE>
maintenance and change of investment management policies and fee structures, the
hiring, promotion, firing and compensation (excluding incentive compensation) of
staff, management and executive personnel, new product development, sales and
marketing policies and implementation and decisions to accept, reject, amend,
maintain or terminate client relationships; PROVIDED that, (i) decisions not in
the ordinary course, including without limitation matters involving incentive
compensation, non-cash benefit programs and budgets shall require the approval
of the Members; (ii) the powers and authorities listed above shall be exercised
by the Chairman and other Officers within the constraints of the then applicable
Annual Operating Plan approved by the Members; (iii) the Chairman and the other
Officers shall execute their duties and responsibilities with due regard for the
fact that the Company is a subsidiary of Alliance and accordingly all of the
Officers and employees of the Company are to report, directly or indirectly, to
senior management of Alliance and are to operate as part of the Alliance group;
and (iv) the Chairman shall report to the Chief Executive Officer of Alliance.
The Officers may be appointed and removed by a majority vote of the Members
with or without cause and the duties and responsibilities of the Officers as set
forth in this Section may be changed from time to time by the Members."
SECTION 5. RIGHT OF FIRST OFFER. The Agreement is hereby amended by
deleting Section 6.13 in its entirety.
SECTION 6. PUT/CALL OPTIONS. Section 9.01(c) of the Agreement is
hereby amended and restated in its entirety as follows:
"(c) In the event that at any time commencing with the Closing Date and
prior to the fifth anniversary of the Closing Date (i) the employment by the
Company of Mr. Hugh M. Eaton III is terminated by the Company without Cause (as
such term is defined in Mr. Eaton's Employment Agreement), as a result of action
by Alliance without the written consent of Holdings L.P., and (ii) any Principal
other than Mr. Eaton elects to terminate his employment pursuant to Section
5(e)(c) of the applicable Employment Agreement, then Holdings L.P. may cause
Alliance to purchase, and Alliance agrees to purchase (the "SECTION 9.01(c)
PUT", and together with the Section 9.01(b) Put, the "PUTS"), that percentage of
Holdings L.P.'s Interest which is set forth in Schedule 9.01(c) next to the name
of such Principal (with respect to each such Principal, the "REFERENCE
PERCENTAGE") whose employment by the Company is terminated as described above,
and Holdings L.P. shall provide written notice to the other Members to the
effect that it is electing to exercise its Section 9.01(c) Put within 30 days of
the occurrence of such event.
4
<PAGE>
SECTION 7. BUYOUT DATE. Section 9.02 of the Agreement is hereby amended
and restated in its entirety as follows:
"9.02. Buyout Date. The Section 9.01(b) Put, or the Section 9.01(b) Call,
as the case may be, shall close, subject to any applicable waiting period in
respect of any applicable regulatory requirements, on the first business day
which is at least 30 days after the receipt by Alliance, in the case of the Put,
or Holdings L.P., in the case of the Call, of the calculation by Holdings L.P.
or Alliance, as the case may be, of the Buyout Price or such earlier closing
date as is agreed to in writing by Alliance and Holdings L.P. unless the
non-exercising Member shall deliver a notice of dispute pursuant to Section 9.06
hereof in which case the Section 9.01(b) Put or the Section 9.01(b) Call shall
close on the first business day which is at least 30 days after final resolution
of such dispute by the Accounting Referee. Subject to any applicable waiting
period in respect of any applicable regulatory requirements, the Section 9.01(c)
Put and the Section 9.01(d) Call shall close on such date as is agreed to in
writing by Alliance and Holdings L.P. but in no event later than 60 days after
the receipt by Holdings L.P. (in the case of a Call) or Alliance (in the case of
a Put) of written notice of such election. The date of Closing of the Puts or
the Calls is referred to herein as the "BUYOUT DATE". Each Member shall
cooperate in good faith with respect to any applicable regulatory requirements
and shall use its best efforts to make all applicable regulatory filings within
30 days after receipt of written notice of such election.
SECTION 8. BUYOUT PRICE. Section 9.03 of the Agreement is hereby
amended and restated in its entirety as follows:
"9.03 BUYOUT PRICE. (a) The purchase price for the Section 9.01(b)
Put and the Section 9.01(b) Call (the "SECTION 9.01(b) BUYOUT PRICE") shall be
determined in accordance with the following formula:
Section 9.01(b) = Base Price x Aggregate Residual Reference Percentage
Buyout Price
"Base Price" shall equal the figure in Schedule 9.03 corresponding to the
Cursitor Alliance Revenues. "Cursitor Alliance Revenues" shall mean the sum of
(i) the aggregate revenues (excluding performance fees) of the Company with
respect to calendar year 2000 from the provision of investment advisory services
to clients of the Company (other than those clients that as of the Buyout Date
have terminated their investment advisory relationship with the Company or that
have notified the Company (orally or in writing) of their intention to terminate
that relationship) determined on an accrual basis in accordance with generally
accepted accounting principles consistent with past practices (but excluding any
such accrued revenues which are not paid prior to the date notice of exercise of
the
5
<PAGE>
Section 9.01(b) Put or Section 9.01(b) Call is given as provided in Section
9.01(b)); and (ii) the aggregate performance fees with respect to the four
calendar years 1997, 1998, 1999 and 2000 divided by four, calculated on a cash
basis but otherwise in accordance with generally accepted accounting principles
consistent with past practices; PROVIDED that, Cursitor Alliance Revenues shall
not include fees or subadvisory fees (or any portion thereof) which ultimately
inure to the benefit of Trust Company of the West or any other third party.
"Aggregate Residual Reference Percentage" shall mean the difference between
100% and the sum of the Reference Percentages under all prior Section 9.01(c)
Puts, if any.
(b) The purchase price for a Section 9.01(c) Put (the "SECTION
9.01(c) BUYOUT PRICE") shall be determined in accordance with the following
formula:
n
Section 9.01(c) = $37,000,000 DIVIDED BY (1.10) x Reference Percentage
Buyout Price
Where "n" = the number of twelve-month periods (including any fraction
thereof) from the date on which the applicable Put is exercised to the fifth
anniversary of the Closing Date.
(c) The purchase price for the Section 9.01(d) Call (the "SECTION
9.01(d) BUYOUT PRICE" and together with the Section 9.01(b) Buyout Price and the
Section 9.01(c) Buyout Price, the "BUYOUT PRICE") shall be determined in
accordance with the following formula:
Section 9.01(d) = $37,000,000 x Aggregate Residual Reference Percentage
n
DIVIDED BY (1.10)
Buyout Price
Where "n" = the number of twelve-month periods (including any fraction
thereof) from the date on which the Section 9.01(d) Call is exercised to the
fifth anniversary of the Closing Date."
6
<PAGE>
SECTION 9. SCHEDULE 2.10. Effective as of January 1, 1997, Schedule
2.01 of the Agreement is hereby amended and restated in its entirety as follows:
Schedule 2.01
MEMBERS
<TABLE>
<CAPTION>
Percentage
Name and Address Interest
- ---------------- ----------
<S> <C>
Alliance Capital Management L.P. 93.00
1345 Avenue of the Americas
New York, New York 10105
Telephone: 212-969-1000
Cursitor Holdings, L.P. 7.00
38 Newbury Street
Boston, Massachusetts
02116-3210 ------
TOTAL 100%
</TABLE>
SECTION 10. SCHEDULE 6.10. Schedule 6.10 of the Agreement is hereby
amended and restated in its entirety as follows:
Schedule 6.10
Initial Officers Position
---------------- --------
Hugh M. Eaton III Chairman and Chief
Executive Officer
SECTION 11. SCHEDULE 9.01(c). Schedule 9.01(c) of the Agreement is
hereby amended and restated in its entirety as follows:
<TABLE>
<CAPTION>
Reference
Principal Percentage
--------- ----------
<S> <C>
Eaton 27.597
Gave 24.242
Ricciardi 24.243
Auboyneau 23.918
</TABLE>
7
<PAGE>
SECTION 12. SCHEDULE 9.03. Schedule 9.03 of the Agreement is hereby
amended and restated in its entirety as follows:
Schedule 9.03
BUY-OUT PRICE
<TABLE>
<CAPTION>
Cursitor Alliance Revenues Base Price
-------------------------- ----------
<S> <C>
$ 0 - $ 34,190,774 $ 10,000,000
34,190,775 - 35,123,199 11,000,000
35,123,200 - 36,072,424 12,000,000
36,072,425 - 37,038,599 13,000,000
37,038,600 - 38,021,874 14,000,000
38,021,875 - 39,022,399 15,000,000
39,022,400 - 40,040,324 16,000,000
40,040,325 - 41,075,799 17,000,000
41,075,800 - 42,128,994 18,000,000
42,128,995 - 43,199,999 19,000,000
43,200,000 - 44,289,024 20,000,000
44,289,025 - 45,396,199 21,000,000
45,396,200 - 46,521,674 22,000,000
46,521,675 - 47,665,599 23,000,000
47,665,600 - 48,828,124 24,000,000
48,828,125 - 50,009,399 25,000,000
50,009,400 - 51,209,574 26,000,000
51,209,575 - 52,428,799 27,000,000
52,428,800 - 53,667,224 28,000,000
53,667,225 - 54,924,999 29,000,000
54,925,000 - 56,202,274 30,000,000
56,202,275 - 57,499,199 31,000,000
57,499,200 - 58,815,924 32,000,000
58,815,925 - 60,152,599 33,000,000
60,152,600 - 61,509,374 34,000,000
61,509,375 - 62,886,399 35,000,000
62,886,400 - 64,283,824 36,000,000
64,283,825 - or greater 37,000,000
</TABLE>
SECTION 13. GOVERNING LAW. This Amendment shall be construed in
accordance with and governed by the law of the State of Delaware without giving
effect to the principles of conflicts of laws thereof.
8
<PAGE>
SECTION 14. COUNTERPARTS; EFFECTIVENESS. This Amendment may be signed in
any number of counterparts, each of which shall be deemed an original. This
Amendment shall become effective when each party shall have received a
counterpart thereof signed by each of the other parties.
SECTION 15. SURVIVAL OF AGREEMENT. Except as amended hereby, the terms of
the Agreement shall remain in full force and effect and the business of the
Company shall be continued.
9
<PAGE>
IN WITNESS WHEREOF, the parties to this Amendment have caused this
Amendment to be duly executed and delivered by their duly authorized officers or
representatives as of the day and year first written above.
ALLIANCE CAPITAL MANAGEMENT L.P.
By: Alliance Capital Management Corporation,
its General Partner
By: /s/ David R. Brewer, Jr.
-----------------------------------------
Name: David R. Brewer, Jr.
Title: Senior Vice President, General
Counsel & Secretary
ALLIANCE CAPITAL MANAGEMENT
CORPORATION OF DELAWARE
By: /s/ Robert H. Joseph, Jr.
-----------------------------------------
Name: Robert H. Joseph, Jr.
Title: Director
CURSITOR HOLDINGS, L.P.
By: HMESLP, Inc. as
General Partner
By: /s/ Hugh M. Eaton, III
-----------------------------------------
Name: Hugh M. Eaton, III
Title: President
MANAGEMENT HOLDINGS LLC
Successor in interest to Cursitor
Holdings, L.P.
By: /s/ Hugh M. Eaton, III
-----------------------------------------
Manager: Hugh M. Eaton, III
CURSITOR ALLIANCE LLC
By: /s/ Richard I. Morris, Jr.
-----------------------------------------
Name: Richard I. Morris, Jr.
10
<PAGE>
Schedule 2A
ALLIANCE CAPITAL MANAGEMENT L.P.
CURSITOR EMPLOYEES
Nicholas P. Carn
Charles Gave
John S. Ricciardi
Francois Brunault
David Cooke
Linda Fonseca
Susi Kennedy
Paritosh Patel
Onder Tanik
Louise Vandyck
Alison Whittock
Eric Auboyneau
Francoise Le Garreres
Francine Loustalan
Claude Lureau
Eric Pages
Marc De Scitivaux
Marc Barbara
Anne E. Bullinger
J. Christian Sorensen
Barbara A. Brown
Hugh M. Eaton
<PAGE>
[LOGO]
[LETTERHEAD]
December 9, 1997
First Trust of New York, National Association
100 Wall Street, Suite 2000
New York, NY 10005
Re: Increase in Size of the Commercial Paper Program of
Alliance Capital Management L.P. (the "Partnership")
----------------------------------------------------
Ladies and Gentlemen:
Pursuant to Section 4(e) of the Issuing and Paying Agency Agreement, dated
March 21, 1996 (the "Agreement"), entered into between you and the Partnership,
we hereby notify you that, effective November 20, 1997, the Partnership has
authorized an increase in the aggregate principal amount of Commercial Paper
Notes that may be outstanding at any time from $100,000,000 to $250,000,000.
All terms used and not otherwise defined between herein shall have the
meanings specified in the Agreement.
Alliance Capital Management L.P.
By: Alliance Capital Management
Corporation, its General Partner
By: /s/ Robert Joseph, Jr.
-------------------------
Name: Robert Joseph, Jr.
-------------------
Title: CFO
------------------
Agreed to and accepted
this 16 day of December, 1997
First Trust of New York, National Association
as Issuing and Paying Agent
By: /s/ Kenneth M. Racioppo
--------------------------------
Name: Kenneth M. Racioppo
--------------------------
Title: Assistant Vice President
-------------------------
<PAGE>
AMENDED AND RESTATED
COMMERCIAL PAPER DEALER AGREEMENT
This Commercial Paper Dealer Agreement, dated December 23, 1994, amended as of
March 21, 1996 and amended and restated as of December 19, 1997, confirms the
agreement among Goldman, Sachs & Co. ("Goldman"), formerly Goldman Sachs Money
Markets, L.P., NationsBanc Montgomery Securities, Inc. ("NMSI") and Alliance
Capital Management L.P. (the "Partnership") whereby each of Goldman and NMSI,
severally and not jointly, will act as a dealer with respect to the promissory
notes to be issued by the Partnership, which will be issued either in physical
bearer form or book-entry form. Each of Goldman and NMSI is also sometimes
referred to herein as a "Dealer" and collectively as the "Dealers." Notes in
book-entry form will be represented by master notes registered in the name of a
nominee of The Depository Trust Company ("DTC") and recorded in the book-entry
system maintained by DTC. The promissory notes shall (a) be issued in
denominations of not less than $100,000; (b) have maturities not exceeding 270
days from the date of issue; and (c) not contain any condition of redemption or
right to prepay. Such notes, including the master notes, shall hereinafter be
referred to as "Commercial Paper" or "Notes."
1. (a) The Partnership represents and warrants to the Dealers that: (i)
the Partnership has been duly organized and is validly existing as a limited
partnership in good standing under the laws of the State of Delaware; (ii) this
Agreement and the issuing and paying agency agreement dated March 21, 1996 with
First Trust of New York, National Association, as successor to BankAmerica
National Trust Company (the "Issuing and Paying Agent", which term shall include
any successor issuing and paying agent to First Trust of New York, National
Association, under such agreement), a copy of which has been provided to each of
the Dealers (as such agreement may be amended or supplemented from time to time,
the "Issuing Agreement"), have been duly authorized, executed and delivered by
the Partnership and each constitutes the valid and legally binding obligation of
the Partnership enforceable in accordance with its respective terms subject to
any applicable law relating to or affecting indemnification for liability under
the securities laws, and except to the extent such enforceability may be limited
by bankruptcy, insolvency or other similar laws affecting creditors' rights
generally and the applicability of equitable principles thereto whether in a
proceeding of law or in equity; (iii) the Notes have been duly authorized and,
when issued and duly delivered in accordance with the Issuing Agreement, will
constitute the valid and legally binding obligations of the Partnership,
enforceable in accordance with their terms, except to the extent such
enforceability may be limited by bankruptcy, insolvency or other similar laws
affecting creditors' rights generally and the applicability of equitable
principles thereto whether in a proceeding of law or in equity; (iv) the
information memorandum approved by the Partnership for distribution pursuant to
Section 7 hereof (the "Information Memorandum") and the Partnership's Annual
Report on Form 10-K for the fiscal year ended December 31, 1996 and other
documents subsequently filed by the Partnership with the Securities and Exchange
Commission pursuant to Section 13 of the Securities Exchange Act of 1934, as
amended (the "Exchange Act") (together, the "Offering Materials"), taken as a
whole, except insofar as any information therein relates to Goldman or NMSI (or
their respective affiliates) in its capacity as dealer hereunder, do not include
any untrue statement of a material fact or omit to state a material fact
necessary in order to make
<PAGE>
the statements made therein, in the light of the circumstances under which they
were made, not misleading; (v) the offer and sale of the Notes in the manner
contemplated by this Agreement will be exempt from the registration requirements
of the Securities Act of 1933, as amended (the "Act"), pursuant to Section
3(a)(3) thereof; and (vi) the Partnership is not an "investment company" or a
company "controlled" by an "investment company", within the meaning of the
Investment Company Act of 1940, as amended.
(b) Each sale of a Note by the Partnership under this Agreement shall
constitute an affirmation that the foregoing representations and warranties
remain true and correct at the time of sale, and will remain true and correct at
the time of delivery, of such Note.
2. Each of the Dealers may, from time to time, but shall not be obligated
to, purchase Commercial Paper from the Partnership.
3. Prior to the initial issuance of Commercial Paper, the Partnership
shall have delivered to each of the Dealers an incumbency certificate
identifying persons authorized to sign Commercial Paper on the Partnership's
behalf and containing the true signatures of each of such persons.
4. Prior to the initial issuance of Commercial Paper, the Partnership
shall have supplied each of the Dealers with an opinion or opinions of counsel
addressing the matters set forth in paragraph 1(a)(i)-(iii), (v) and (vi) above
and such other matters as the Dealers shall reasonably request, such opinion or
opinions to be in form and substance satisfactory to the Dealers.
5. All transactions in Commercial Paper between each of the Dealers and
the Partnership shall be in accordance with the custom and practice in the
commercial paper market. In accordance with such custom and practice, the
purchase of Commercial Paper by the applicable Dealer shall be negotiated
verbally between the applicable Dealer's personnel and the authorized
representative of the Partnership. Such negotiation shall determine the
principal amount of Commercial Paper to be sold, the discount rate or interest
rate applicable thereto, and the maturity thereof. The applicable Dealer's fee
for such sales shall be included in the discount rate with respect to Commercial
Paper issued at a discount, or stated separately as a fee, in the case of
Commercial Paper bearing interest. The applicable Dealer shall confirm each
transaction made with the Partnership in writing in such Dealer's customary
form. Delivery and payment of Commercial Paper shall be effected in accordance
with the Issuing Agreement.
6. The applicable Dealer shall pay for the Notes purchased by such Dealer
in immediately available funds on the business day such Notes, executed in a
manner satisfactory to such Dealer, are delivered to such Dealer in the case of
physical bearer Notes, or in the case of book-entry Notes, on the business day
such Notes are credited to such Dealer's Participant Account at DTC. Payment
shall be made in any manner permitted in the Issuing Agreement. The amount
payable by the applicable Dealer to the Partnership shall be (i) in the case of
discount Notes, the face value thereof less the original issue discount and less
the compensation
2
<PAGE>
payable to such Dealer and (ii) in the case of interest to follow Notes, the
face value thereof less the compensation payable to such Dealer.
7. From and after the date of this Agreement, the Partnership will supply
to each of the Dealers on a continuing basis three copies of all annual and
quarterly and other reports filed by the Partnership pursuant to Section 13 of
the Exchange Act, and reports mailed by the Partnership to its public
unitholders, plus such other information as the Dealers may reasonably request.
The Partnership understands, however, that the Dealers shall distribute or
otherwise use any informational documents concerning the Partnership, including
the Information Memorandum, only with the prior review and approval of the
Partnership. The Partnership further undertakes to supply copies of such
reports when requested by any Commercial Paper customer of the Dealers, as set
forth in the Information Memorandum. The Partnership further agrees to notify
the Dealers promptly upon the occurrence of any event or other development, the
result of which causes the informational documents and the Partnership's annual
or quarterly and other reports filed pursuant to Section 13 of the Exchange Act,
taken as a whole, to include an untrue statement of a material fact or omit to
state a material fact necessary in order to make the statements contained
therein, in light of the circumstances under which they were made, not
misleading.
8. (a) The Partnership agrees to indemnify and hold harmless each Dealer
and each person, if any, who controls such Dealer within the meaning of either
Section 15 of the Act or Section 20 of the Exchange Act (collectively, the
"Indemnitee"), against any and all losses, claims, damages, liabilities or
expenses, joint or several, to which any Indemnitee may become subject, under
the Act, the Exchange Act, or otherwise, insofar as such losses, claims damages,
liabilities or expenses (or actions in respect thereof) arise out of or are
based upon any untrue statement or alleged untrue statement of material fact
contained in the Offering Materials, taken as a whole, or the omission or
alleged omission to state therein a material fact necessary to make the
statements therein, in light of the circumstances in which they are made, not
misleading, or any breach of its agreements contained in this Agreement, and the
Partnership further agrees to reimburse each Indemnitee for any legal or other
expenses reasonably incurred by it in connection with investigating or defending
any such loss, claim, damage, liability, expense or action; provided, however,
that the Partnership will not be liable in any such case to the extent that any
such loss, claim damage, liability or expense arises out of or is based upon
such untrue statement or omission contained in the Offering Materials which
relates to the Dealers (or their respective affiliates) in their capacity as
dealer hereunder.
(b) In order to provide for just and equitable contribution in
circumstances in which the indemnification provided for in paragraph 8(a) is for
any reason held unavailable (otherwise than in accordance with the provision
stated therein), the Partnership shall contribute to the aggregate costs of
satisfying any loss, damage, liability or expense sought to be charged against
or incurred by any Indemnitee in such proportion as is appropriate to reflect
the relative benefits received by the Partnership on the one hand and the
Dealers on the other from the offering of the Notes. For purposes of this
paragraph 8(b), the "relative benefits" received by the Partnership shall be
equal to the aggregate net proceeds received by the Partnership from
3
<PAGE>
Notes sold pursuant to this Agreement and the "relative benefits" received by
each Dealer shall be equal to the aggregate commissions and fees earned by such
Dealer hereunder.
9. This Agreement may be terminated by the Partnership or either Dealer,
with respect to such Dealer, upon thirty days' notice to the Dealers or the
Partnership, as the case may be. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York.
If the foregoing accurately reflects our agreement, please sign the
enclosed copy in the space provided below and return it to the undersigned.
The parties hereto have caused the execution of this Agreement on the date
first provided above.
Alliance Capital Management L.P.
By: Alliance Capital Management
Corporation, its General Partner
By:
-----------------------------------
Title:
Goldman, Sachs & Co.
By:
-----------------------------------
Authorized Signatory
NationsBanc Montgomery Securities, Inc.
By:
-----------------------------------
Title:
4
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
(in thousands, unless otherwise indicated) ALLIANCE CAPITAL MANAGEMENT L.P.(1)
- ---------------------------------------------------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31,
- ---------------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues:
Investment advisory and services fees:
Alliance mutual funds $384,759 $291,601 $232,730 $211,169 $167,043
Separately managed accounts:
Affiliated clients 52,930 44,901 43,978 41,805 37,212
Third party clients 261,290 227,530 179,872 163,171 146,509
Distribution plan fees from Alliance mutual funds 213,692 166,411 128,733 135,613 105,260
Shareholder servicing and administration fees 53,500 47,806 43,591 40,787 33,119
Other revenues 9,165 10,268 10,351 8,407 10,374
- ---------------------------------------------------------------------------------------------------------------------------
975,336 788,517 639,255 600,952 499,517
- ---------------------------------------------------------------------------------------------------------------------------
Expenses:
Employee compensation and benefits 264,251 214,880 172,301 173,777 149,341
Promotion and servicing:
Distribution plan payments to financial intermediaries:
Affiliated 56,118 30,533 23,710 20,442 13,722
Third party clients 121,791 115,112 86,743 83,357 64,581
Amortization of deferred sales commissions 73,841 53,144 50,501 51,547 36,237
Other 60,416 48,868 40,161 43,270 31,051
General and administrative 120,283 100,854 88,889 70,731 66,023
Interest 2,968 1,923 1,192 7,572 10,619
Amortization of intangible assets 7,006 15,613 8,747 8,450 6,975
Reduction in recorded value of intangible assets 120,900 -- -- -- --
Nonrecurring transaction expenses -- -- -- -- 40,842
- ---------------------------------------------------------------------------------------------------------------------------
827,574 580,927 472,244 459,146 419,391
- ---------------------------------------------------------------------------------------------------------------------------
Income before income taxes and cumulative effect of
accounting change 147,762 207,590 167,011 141,806 80,126
Income taxes 18,806 14,244 11,624 8,317 11,466
- ---------------------------------------------------------------------------------------------------------------------------
Income before cumulative effect of accounting change 128,956 193,346 155,387 133,489 68,660
Cumulative effect of change in accounting for income taxes -- -- -- -- 900
- ---------------------------------------------------------------------------------------------------------------------------
Net income $128,956 $193,346 $155,387 $133,489 $69,560
- ---------------------------------------------------------------------------------------------------------------------------
NET INCOME PER UNIT:(4)
Basic net income per Unit(5) $0.76 $1.15 $0.95 $0.86 $0.49
Diluted net income per Unit(5) $0.74 $1.13 $0.94 $0.85 $0.48
Before reduction in value of intangible assets and
nonrecurring transaction expenses:
Net income $249,856 $193,346 $155,387 $133,489 $107,698
Diluted net income per Unit(5) $1.44 $1.13 $0.94 $0.85 $0.74
CASH DISTRIBUTIONS PER UNIT(2)(4) $1.40 $1.095 $0.91 $0.82 $0.75
BALANCE SHEET DATA AT PERIOD END:
Total assets $784,460 $725,897 $575,058 $518,369 $561,287
Debt and long-term obligations(3) $130,429 $ 52,629 $ 30,839 $ 29,021 $134,022
Partners' capital $398,051 $476,020 $406,709 $381,329 $214,045
ASSETS UNDER MANAGEMENT AT
PERIOD END (IN MILLIONS)(6) $218,654 $182,792 $146,521 $119,279 $113,979
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The transfer of the business of Equitable Capital Management Corporation
("ECMC") to the Partnership was completed on July 22, 1993 and was
accounted for in a manner similar to the pooling of interests method.
Accordingly, all financial data for the periods presented, except as noted,
have been restated to include the results of operations of ECMC.
(2) The Partnership is required to distribute all of its Available Cash Flow,
as defined in the Partnership Agreement, to the General Partner and
Unitholders. Cash distributions per Unit do not include Available Cash Flow
resulting from the operations of ECMC prior to July 22, 1993, the date the
transfer was completed.
(3) Includes accrued expenses under employee benefit plans due after one year
and debt.
(4) Unit and per Unit amounts for all periods presented reflect a two-for-one
Unit split with a record date of March 11, 1998.
(5) Earnings per Unit amounts prior to 1997 have been restated as required to
comply with Statement of Financial Accounting Standards No.128, Earnings
per Share.
(6) Assets under management exclude certain non-discretionary advisory
relationships and include 100% of the assets managed by unconsolidated
joint venture subsidiaries.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
Alliance Capital Management L.P. (the "Partnership") offers a broad range of
investment management products and services to meet the varied needs and
objectives of individual and institutional investors. The Partnership derives
substantially all of its revenues and net income from fees received for
providing: (a) investment advisory, distribution and related services to the
Alliance mutual funds, (b) investment advisory services to affiliated clients
including The Equitable Life Assurance Society of the United States ("ELAS"), a
wholly-owned subsidiary of The Equitable Companies Incorporated ("Equitable"),
and certain other Equitable affiliates and (c) investment advisory services to
separately managed accounts for unaffiliated institutional investors and high
net-worth individuals ("third party clients"). The Alliance mutual funds consist
primarily of a broad range of open-end load and closed-end mutual funds ("mutual
funds"), variable life insurance and annuity products, including The Hudson
River Trust ("HRT"), and cash management products, principally money market
funds.
The Partnership's revenues are largely dependent on the total value and
composition of assets under its management. Assets under management grew 19.6%
to $218.7 billion as of December 31, 1997 primarily as a result of market
appreciation, good investment performance, and strong net sales of Alliance
mutual funds. The substantial increase in U.S. equity markets during 1997
contributed to growth of 29% in active equity and balanced account assets under
management, which comprise 47% of total assets under management. Active fixed
income account assets under management, which comprise 38% of total assets under
management, increased by 16%.
In 1997, sales of Alliance mutual fund shares grew to $22.5 billion
compared to sales of $14.5 billion in 1996. The increase in Alliance mutual fund
sales, principally fixed income funds sold to non-U.S. investors and equity
mutual funds sold domestically, combined with a modest increase in mutual fund
redemptions, resulted in net Alliance mutual fund sales of $13.9 billion, an
increase of 61% from $8.7 billion in 1996. The growth in the Partnership's
offshore mutual fund sales of $5.6 billion was principally due to the
introduction of several new fixed income products. These products include
several funds sponsored by the Partnership's Japanese investment trust
management subsidiary and several structured products. Structured products are
securities - senior debt, subordinated debt and equity - backed by an actively
managed portfolio of equity or fixed income securities.
ASSETS UNDER MANAGEMENT(1):
<TABLE>
<CAPTION>
(Dollars in billions) 12/31/97 12/31/96 % CHANGE 12/31/96 12/31/95 % CHANGE
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Alliance mutual funds:
Mutual funds $ 40.4 $ 27.6 46.4% $ 27.6 $ 23.1 19.5%
Cash management products 20.8 18.6 11.8 18.6 13.8 34.8
Variable products 23.8 17.1 39.2 17.1 12.3 39.0
- -----------------------------------------------------------------------------------------------------------------------------
85.0 63.3 34.3 63.3 49.2 28.7
- -----------------------------------------------------------------------------------------------------------------------------
Separately managed accounts:
Active equity & balanced 66.3 54.4 21.9 54.4 46.4 17.2
Active fixed 40.9 37.6 8.8 37.6 34.1 10.3
Index 22.7 18.9 20.1 18.9 16.3 16.0
Asset allocation 3.8 8.6 (55.8) 8.6 .5 1,620.0
- -----------------------------------------------------------------------------------------------------------------------------
133.7 119.5 11.9 119.5 97.3 22.8
- -----------------------------------------------------------------------------------------------------------------------------
Total $218.7 $182.8 19.6% $182.8 $146.5 24.8%
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes 100% of the mutual fund and separately managed account assets
under management of unconsolidated joint venture subsidiaries of $0.7
billion and $0.2 billion, respectively, at December 31, 1997.
<PAGE>
AVERAGE ASSETS UNDER MANAGEMENT(1):
<TABLE>
<CAPTION>
(Dollars in billions) 1997 1996 % CHANGE 1996 1995 % CHANGE
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Alliance mutual funds $ 72.9 $ 56.2 29.7% $ 56.2 $ 43.5 29.2%
Separately managed accounts:
Affiliated clients 28.1 24.8 13.3 24.8 21.8 13.8
Third party clients 99.4 86.3 15.2 86.3 67.4 28.0
- -----------------------------------------------------------------------------------------------------------------------------
Total $200.4 $167.3 19.8% $167.3 $132.7 26.1%
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes mutual fund and separately managed account assets under management
of unconsolidated subsidiaries.
Assets under management at December 31, 1997 were $218.7 billion, an increase of
$35.9 billion or 19.6% from December 31, 1996. Alliance mutual fund assets under
management at December 31, 1997 were $85.0 billion, an increase of $21.7 billion
or 34.3% from December 31, 1996, due principally to market appreciation of $8.1
billion and net sales of mutual funds, variable products and cash management
products of $8.7 billion, $3.0 billion and $2.2 billion, respectively.
Separately managed account assets under management at December 31, 1997 were
$133.7 billion, an increase of $14.2 billion or 11.9% from December 31, 1996.
This increase was primarily due to market appreciation of $22.1 billion and net
asset additions to affiliated client accounts of $1.7 billion, offset partially
by net third party client account terminations and asset withdrawals of $9.8
billion, primarily from Cursitor global asset allocation accounts and from
active equity and balanced accounts.
Cursitor Alliance LLC, a subsidiary of the Partnership formed in
connection with the acquisition of Cursitor, provides global asset allocation
services to U.S. and non-U.S. institutional investors. Due to poor relative
investment performance, Cursitor Alliance LLC continues to experience
significant client account terminations and asset withdrawals. Cursitor Alliance
LLC's assets under management aggregated $3.5 billion at December 31, 1997, a
decrease of $4.9 billion from $8.4 billion at December 31, 1996. See "Capital
Resources and Liquidity" for a more detailed discussion.
Assets under management at December 31, 1996 were $182.8 billion, an
increase of $36.3 billion or 24.8% from December 31, 1995. Alliance mutual fund
assets under management at December 31, 1996 were $63.3 billion, an increase of
$14.1 billion or 28.7% from December 31, 1995, due principally to market
appreciation of $6.0 billion and net sales of cash management products, variable
products and mutual funds of $4.8 billion, $2.2 billion, and $1.7 billion,
respectively. Separately managed account assets under management at December 31,
1996 were $119.5 billion, an increase of $22.2 billion or 22.8% from December
31, 1995. This increase was primarily due to market appreciation, principally in
active equity and balanced accounts of $11.6 billion, assets under management of
acquired businesses which added $11.1 billion, and net asset additions to
affiliated client accounts of $1.6 billion, offset partially by net third party
client account terminations and asset withdrawals of $2.1 billion.
<PAGE>
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
(Dollars & Units in millions,
except per Unit amounts) 1997 1996 % CHANGE 1996 1995 % CHANGE
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net income $129.0 $193.3 (33.3)% $193.3 $155.4 24.4%
Net income per Unit(1):
Basic $ 0.76 $ 1.15 (33.9) $ 1.15 $ 0.95 21.1
Diluted $ 0.74 $ 1.13 (34.5) $ 1.13 $ 0.94 20.2
Net income before reduction in value of
intangible assets $249.9 $193.3 29.3 $193.3 $155.4 24.4
Net income per Unit before reduction in
value of intangible assets - Diluted(1) $ 1.44 $ 1.13 27.4 $ 1.13 $ 0.94 20.2
Weighted average number of Units outstanding(1):
Basic 168.4 166.4 1.2 166.4 161.5 3.0
Diluted 171.9 169.0 1.7 169.0 163.1 3.6
Operating margin(2) 27.5% 26.3% 26.3% 26.1%
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Unit and per Unit amounts have been restated to reflect the two-for-one
Unit split announced on February 19, 1998. The record date for the Unit
split is March 11, 1998.
(2) Excludes the reduction in recorded value of Cursitor intangible assets.
Net income for 1997 was $129.0 million, a decrease of 33.3% from net income of
$193.3 for 1996. Net income for 1997 was reduced by a $120.9 million noncash
charge, or $0.70 diluted net income per Unit, resulting from the write-down of
certain intangible assets. During the second quarter of 1997, management of the
Partnership determined that intangible assets associated with the Cursitor
acquisition, principally costs assigned to investment contracts and goodwill,
were impaired and reduced the unamortized recorded value of the intangible
assets associated with the Cursitor acquisition by $120.9 million to estimated
fair value of $20.4 million. See "Capital Resources and Liquidity" for a more
detailed discussion of the acquisition. Excluding that charge, net income
increased 29.3% due principally to a 23.9% increase in investment advisory and
services fees resulting from higher average assets under management.
Net income for 1996 was $193.3 million, an increase of 24.4% from net
income of $155.4 million for 1995, primarily the result of a 23.5% increase in
investment advisory and services fees resulting from higher average assets under
management.
REVENUES
<TABLE>
<CAPTION>
(Dollars in millions) 1997 1996 % CHANGE 1996 1995 % CHANGE
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Investment advisory and services fees:
Alliance mutual funds $384.8 $291.6 32.0% $291.6 $232.7 25.3%
Separately managed accounts:
Affiliated clients 52.9 44.9 17.8 44.9 44.0 2.0
Third party clients 261.3 227.5 14.9 227.5 179.9 26.5
Distribution plan fees from
Alliance mutual funds 213.7 166.4 28.4 166.4 128.7 29.3
Shareholder servicing and
administration fees 53.5 47.8 11.9 47.8 43.6 9.6
Other revenues 9.1 10.3 (11.7) 10.3 10.4 (1.0)
- ------------------------------------------------------------------------------------------------------------------------------
Total $975.3 $788.5 23.7% $788.5 $639.3 23.3%
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
INVESTMENT ADVISORY AND SERVICES FEES
Investment advisory and services fees, the largest component of the
Partnership's revenues, 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 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. The Partnership's investment advisory and services
fees increased 23.9% and 23.5% in 1997 and 1996, respectively.
Certain investment advisory agreements provide for performance fees in
addition to a base fee. Performance fees are earned when investment performance
exceeds a contractually agreed upon benchmark and, accordingly, may increase the
volatility of the Partnership's revenues and earnings. Performance fees earned
on separately managed accounts and mutual funds aggregated $35.0 million, $18.4
million, and $18.1 million in 1997, 1996 and 1995, respectively.
Investment advisory and services fees from Alliance mutual funds
increased by $93.2 million or 32.0% for 1997, primarily as a result of a 29.7%
increase in average assets under management. Investment advisory and services
fees from Alliance mutual funds increased by $58.9 million or 25.3% from 1995 to
1996 primarily as a result of a 29.2% increase in average assets under
management.
Investment advisory and services fees from affiliated clients,
primarily the General Accounts of ELAS, increased by $8.0 million or 17.8% for
1997, due to a 13.3% increase in average assets under management from 1996 and
an increase in performance fees of $2.8 million. Investment advisory and
services fees from affiliated clients increased 2.0% for 1996 due principally to
higher average assets under management offset partially by lower performance
fees in 1996 compared to 1995.
Excluding acquisitions, investment advisory and services fees from new
separately managed third party client accounts and asset contributions to
existing client accounts during the three year period were less than fees lost
due to account terminations and asset withdrawals. However, the increase in fees
resulting from significant market appreciation more than offset fees lost as a
result of account terminations and asset withdrawals. Investment advisory and
services fees from third party clients increased for both 1997 and 1996 due to
an increase in average assets under management of 15.2% and 28.0%, respectively.
The increase in third party account average assets under management for 1997 was
primarily a result of market appreciation offset partially by net third party
client outflows, primarily Cursitor global asset allocation accounts and active
equity and balanced accounts. An increase in performance fees of $11.8 million
for 1997 also contributed to the increase in fees. The increase in third party
average assets under management for 1996 was primarily the result of market
appreciation and the Cursitor acquisition.
DISTRIBUTION PLAN FEES
The 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 plan fees increased 28.4% and 29.3% in 1997 and 1996, respectively,
principally due to higher average equity mutual fund assets under management
attributable to strong sales of Back-End Load Shares under the Partnership's
mutual fund distribution system (the "System") described under "Capital
Resources and Liquidity", and higher average cash management assets under
management.
<PAGE>
SHAREHOLDER SERVICING AND ADMINISTRATION FEES
The Partnership's subsidiaries, Alliance Fund Services, Inc. and ACM Fund
Services S.A., provide administrative and transfer agency services to the
Alliance mutual funds and Alliance money market funds. In connection with the
investment advisory services it provides to the General Accounts of ELAS and its
insurance subsidiary, the Partnership provides ancillary regulatory accounting
and reporting services for which it receives administration fees. Shareholder
servicing and administration fees increased 11.9% and 9.6% in 1997 and 1996,
respectively, the result of increases in the number of mutual fund shareholder
accounts serviced. The number of shareholder accounts serviced increased to
approximately 3.2 million as of December 31, 1997 from 2.8 million and 2.4
million as of December 31, 1996 and 1995, respectively.
OTHER REVENUES
Other revenues consist primarily of interest, dividends and commissions on the
sale of Front-End Load Shares under the System. Other revenues decreased for
1997, principally as a result of a decrease in interest earned on short-term
investments due to lower average balances.
EXPENSES
<TABLE>
<CAPTION>
(Dollars in millions) 1997 1996 % CHANGE 1996 1995 % CHANGE
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Employee compensation and benefits $264.3 $214.9 23.0% $214.9 $172.3 24.7%
Promotion and servicing 312.1 247.6 26.1 247.6 201.1 23.1
General and administrative 120.3 100.9 19.2 100.9 88.9 13.5
Interest 3.0 1.9 57.9 1.9 1.2 58.3
Amortization of intangible assets 7.0 15.6 (55.1) 15.6 8.7 79.3
Reduction in recorded value of intangible
assets 120.9 -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------
Total $827.6 $580.9 42.5% $580.9 $472.2 23.0%
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
EMPLOYEE COMPENSATION AND BENEFITS
Employee compensation and benefits, which represent approximately 37.0% of total
expenses (excluding the reduction in recorded value of intangible assets),
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 increased 23.0% and 24.7% in 1997
and 1996, respectively, primarily as a result of higher incentive compensation
due to increased operating earnings and increased base compensation and
commissions. Base compensation increased principally due to an increase in the
number of employees resulting from the expansion of the Partnership's mutual
fund operations, and increases to its administration and technology support
operations. The Partnership had 1,670 employees at December 31, 1997 compared to
1,495 and 1,365 at December 31, 1996 and 1995, respectively. Commissions
increased primarily due to higher mutual fund sales and higher commissions paid
on separate account assets under management.
<PAGE>
PROMOTION AND SERVICING
Promotion and servicing expenses, which represent approximately 44% of total
expenses (excluding the reduction in recorded value of intangible assets),
include distribution plan payments to financial intermediaries for distribution
of the Partnership's sponsored mutual funds and cash management services'
products and amortization of deferred sales commissions paid to financial
intermediaries under the System. Also included in this expense category are
travel and entertainment, advertising, promotional materials, and investment
meetings and seminars for financial intermediaries that distribute the
Partnership's mutual fund products. Promotion and servicing expenses increased
26.1% and 23.1% in 1997 and 1996, respectively, primarily due to increased
distribution plan payments resulting from higher average cash management,
domestic equity and offshore mutual fund assets under management. An increase in
amortization of deferred sales commissions of $20.7 million for 1997 as a result
of higher sales of Back-End Load Shares, also contributed to the increase in
promotion and servicing expense. Other promotional expenses increased for 1997
and 1996 primarily as a result of higher travel and entertainment costs and
increased mutual fund advertising.
GENERAL AND ADMINISTRATIVE
General and administrative expenses, which represent approximately 17% of total
expenses (excluding the reduction in recorded value of intangible assets), are
costs related to the operation of the business, including professional fees,
occupancy, communications, equipment and similar expenses. General and
administrative expenses increased 19.2% and 13.5% in 1997 and 1996,
respectively, due principally to higher systems consulting expenses in
connection with the enhancement of the Partnership's technology-related data
processing and communication capabilities.
INTEREST
Interest expense is incurred on the Partnership's borrowings and on deferred
compensation owed to employees. Interest expense increased for 1997 primarily as
a result of an increase in interest on deferred compensation. Interest expense
increased for 1996 resulting from interest incurred on the Notes issued during
1996 in connection with the Cursitor acquisition. See "Capital Resources and
Liquidity" for a more detailed discussion of the acquisition.
AMORTIZATION OF INTANGIBLE ASSETS
Amortization of intangible assets is primarily attributable to the intangible
assets recorded in connection with the acquisitions of ACMC, Inc., the
predecessor of the Partnership, by ELAS during 1985, Shields Asset Management,
Incorporated ("Shields") and its wholly-owned subsidiary, Regent Investor
Services Incorporated ("Regent") in March 1994 and Cursitor in February 1996.
Amortization of intangibles decreased in 1997 principally due to a decrease in
amortization of costs assigned to investment contracts of ACMC, Inc., which were
fully amortized as of December 31, 1996. Amortization of intangibles increased
in 1996 primarily due to the amortization of costs assigned to Cursitor
investment contracts and goodwill incurred in connection with the Cursitor
acquisition. See "Capital Resources and Liquidity" for a more detailed
discussion of the acquisition.
<PAGE>
REDUCTION IN RECORDED VALUE OF INTANGIBLE ASSETS
The Partnership recorded a noncash charge of $120.9 million during the second
quarter of 1997 to reduce the unamortized recorded value of the Cursitor
intangible assets to estimated fair value. This noncash charge reflected the
Partnership's view that the decline in Cursitor's assets under management and
its reduced profitability no longer supported the unamortized cost of its
investment.
TAXES ON INCOME
The Partnership is a publicly traded partnership for Federal tax purposes and,
accordingly, for the years ended December 31, 1997, 1996, and 1995 was not
subject to Federal, and state corporate income taxes, but is subject to the New
York City unincorporated business tax, which is currently imposed at a rate of
4%. Domestic subsidiaries of the Partnership are subject to Federal, state and
local income taxes. Subsidiaries organized and operating outside the United
States are generally subject to taxes in the foreign jurisdictions where they
are located. The 1997 and 1996 provisions for income taxes increased primarily
as a result of the increase in taxable income of the Partnership and certain of
its corporate subsidiaries.
Under prior tax law, the exemption from Federal income taxes for
certain publicly traded partnerships, including the Partnership, would have
expired on December 31, 1997. However, The Taxpayer Relief Act of 1997, signed
into law on August 5, 1997, includes the option for certain publicly traded
partnerships, including the Partnership, to maintain partnership tax status
after 1997 and pay a tax, beginning in 1998, of 3.5% of partnership gross income
from the active conduct of a trade or business. The Partnership has elected to
remain a publicly traded partnership and estimates that the new tax will reduce
net income and cash distributions in future years by approximately 10% from what
they would have been under the former tax structure.
CAPITAL RESOURCES AND LIQUIDITY
Partners' capital was $398.1 million at December 31, 1997, a decrease of $77.9
million or 16.4% from $476.0 million at December 31, 1996. The decrease was
principally due to the noncash charge of $120.9 million to reduce the value of
intangible assets associated with the acquisition of Cursitor to estimated fair
value.
Cash flow from operations and proceeds from borrowings have been the
Partnership's principal sources of working capital. During 1997, the
Partnership's cash and cash equivalents increased by $6.3 million. Cash inflows
included $195.6 million from operations, proceeds from borrowings net of debt
repayments of $66.4 million and $9.5 million of proceeds from exercises of Unit
options. Cash outflows included $218.6 million in distributions to Unitholders,
$35.3 million in capital expenditures and net purchases of investments of $10.6
million.
The Partnership acquired substantially all of the assets and
liabilities of Cursitor Holdings, L.P. ("CHLP") and all of the outstanding
shares of Cursitor Holdings Limited, currently Cursitor Alliance Holdings
Limited, (collectively, "Cursitor") on February 29, 1996 for approximately
$159.0 million. The purchase price consisted of cash payments aggregating $94.3
million, 3,528,230 Units with an aggregate value of $43.2 million at the time of
issuance, and notes in the aggregate principal amount of $21.5 million
("Notes"). The Notes with an aggregate outstanding principal amount of $16.1
million at December 31, 1997, bear interest at 6% per annum and are payable
ratably over the next three years. Acquisition costs of $4.0 million were also
incurred. Under certain circumstances, through February 28, 2006, the
Partnership has an option to purchase CHLP's minority interest in Cursitor
Alliance LLC, a subsidiary formed at the time of the acquisition of Cursitor,
and CHLP has an option to sell its minority interest in Cursitor Alliance LLC to
the
<PAGE>
Partnership for cash, Units, or a combination thereof of not less than $10.0
million or more than $37.0 million ("Buyout Price"). The Buyout Price will be
determined based on the amount of global asset allocation investment advisory
revenues earned by Cursitor Alliance LLC. If either option is exercised, the
payment of the Buyout Price will be accounted for as an increase in the Cursitor
purchase price.
The Partnership's mutual fund distribution system (the "System")
includes a multi-class share structure. The System permits the 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 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 $150.3 million and $78.7 million during 1997
and 1996, respectively. Management of the Partnership 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.
The Partnership requires financial resources to fund commissions paid
to financial intermediaries for the sale of Back-End Load Shares under the
System, to fund capital expenditures and for general working capital purposes.
The Partnership has $250 million in the aggregate available for borrowings
through its $250 million revolving credit facility and/or its $250 million
commercial paper program. The revolving credit facility established in 1996
provides backup liquidity for commercial paper issued under the Partnership's
commercial paper program and can be used as a direct source of borrowing. As of
December 31, 1997, the Partnership had $72 million commercial paper outstanding
and there were no borrowings outstanding under the Partnership's revolving
credit facility.
Many computer systems and applications process transactions using two
digit date fields for the year of a transaction, rather than the full four
digits. If these systems are not modified and replaced, transactions occurring
after 1999 would be processed as year "00", which could result in processing
inaccuracies and inoperability by or at the Year 2000. The Partnership utilizes
a number of significant computer systems and applications that it either has
developed internally or licensed from third-party suppliers. In addition, the
Partnership is dependent on third-party suppliers for certain systems
applications and for the electronic receipt of information critical to its
business. Should the Partnership's significant computer systems and applications
or the systems of its important third-party suppliers be unable to process date
sensitive information accurately after 1999, the ability of the Partnership to
conduct its operations and to provide its separate account clients and the
Alliance mutual funds with the required services could be significantly
impaired.
The Partnership began to address the Year 2000 issue several years ago
in connection with the replacement or upgrade of certain computer systems and
applications. During 1997, the Partnership began a formal Year 2000 initiative,
which established a structured and coordinated process to deal with the Year
2000 issue. The Partnership is currently assessing the impact of the Year 2000
issue on its domestic and international computer systems and applications. At
this time, management of the Partnership expects that the required modifications
for the majority of its significant systems and applications will be completed
and tested by the end of 1998. Full integration testing of these systems and
testing of interfaces with third-party suppliers will continue through 1999. The
current estimate of the total cost of this initiative
<PAGE>
ranges from $35 million to $40 million. These costs consist principally of
modification costs which will be expensed as incurred. At this time, management
of the Partnership believes that the costs associated with resolving this issue
will not have a material adverse effect on the Partnership's results of
operations, liquidity or capital resources.
The Partnership's substantial equity base and access to public and
private debt, at competitive interest rates and other terms, should provide
adequate liquidity for its general business needs. Management of the Partnership
believes that cash flow from operations and the issuance of debt and Units will
provide the Partnership with the financial resources to meet its capital
requirements for mutual fund sales and its other working capital requirements.
COMMITMENTS AND CONTINGENCIES
The 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 ("Complaint") was filed against the Alliance North American Government
Income Trust, Inc. (the "Fund"), the Partnership and certain other defendants
affiliated with the Partnership alleging violations of federal securities laws,
fraud and breach of fiduciary duty in connection with the Fund's investments in
Mexican and Argentine securities. The Complaint, which sought certification of a
plaintiff class of persons who purchased or owned Class A, B or C shares of the
Fund from March 27, 1992 through December 23, 1994, sought an unspecified amount
of damages, costs, attorneys' fees and punitive damages. The principal
allegations were that the Fund purchased debt securities issued by the Mexican
and Argentine governments in amounts that were not permitted by the Fund's
investment objective, and that there was no shareholder vote to change the
investment objective to permit purchases in such amounts. The Complaint further
alleged that the decline in the value of the Mexican and Argentine securities
held by the Fund caused the Fund's net asset value to decline to the detriment
of the Fund's shareholders.
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 Complaint ("First Decision"). On October 11, 1996, plaintiffs
filed a motion for reconsideration of the First Decision. On November 25, 1996,
the District Court denied plaintiffs' motion for reconsideration of the First
Decision. On October 29, 1997, the United States Court of Appeals for the Second
Circuit issued an order granting defendants' motion to strike and dismissing
plaintiffs' appeal of the First 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 misrepresented its ability to hedge against the risks of
investing in foreign securities, (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 July 15, 1997, the District Court denied plaintiffs' motion for leave
to file an amended complaint and ordered that the case be dismissed ("Second
Decision"). The plaintiffs have appealed the Second Decision to the United
States Court of Appeals for the Second Circuit.
While the ultimate outcome of this matter cannot be determined at this
time, management of the Partnership does not expect that it will have a material
adverse effect on the Partnership's results of operations or financial
condition.
CHANGES IN ACCOUNTING PRINCIPLES
The Partnership adopted Statement of Financial Accounting Standards No. 128
("SFAS 128") "EARNINGS PER SHARE" on December 31, 1997, and accordingly changed
its presentation of net income per Unit to basic net income per Unit and diluted
net income per Unit. All prior period net income per Unit data was restated.
<PAGE>
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 130 ("SFAS 130") "REPORTING
COMPREHENSIVE INCOME". SFAS 130 establishes the disclosure requirements for
reporting comprehensive income in an entity's annual and interim financial
statements. Comprehensive income includes such items as foreign currency
translation adjustments and unrealized gains on securities currently reported as
components of partners' capital. SFAS 130 will require the Partnership to
classify items of other comprehensive income by their nature in a financial
statement and display the accumulated balance of other comprehensive income
separately in the partners' capital section of the statement of financial
position. SFAS 130 is effective for fiscal years beginning after December 15,
1997. The Partnership will adopt the provisions of SFAS 130 in its 1998
financial statements.
In June 1997, the FASB issued Statement of Financial Accounting
Standards No. 131 ("SFAS 131") "DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND
RELATED INFORMATION". SFAS 131 establishes standards for the way a public
enterprise reports information about operating segments in its annual and
interim financial statements. It also establishes standards for related
disclosures about products and services, geographic areas and major customers.
Generally, financial information will be required to be reported on the basis
used by management for evaluating segment performance and for deciding how to
allocate resources to segments. SFAS 131 is effective for fiscal years beginning
after December 15, 1997 and need not be applied to interim reporting in the
initial year of adoption. The Partnership intends to adopt the provisions of
SFAS 131 in its 1998 financial statements, however, management of the
Partnership has not yet determined what information, if any, will be reported.
CASH DISTRIBUTIONS
The Partnership is required to distribute all of its Available Cash Flow, as
defined in the Partnership Agreement, to the General Partner and Unitholders
(including the holder of the Class A Limited Partnership Interest based on Units
issuable upon conversion of the Class A Limited Partnership Interest). The
Partnership's Available Cash Flow and Distributions per Unit for the years ended
December 31, 1997, 1996 and 1995 were as follows (adjusted for the two-for-one
Unit split):
AVAILABLE CASH FLOW:
<TABLE>
<CAPTION>
1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Available Cash Flow (in thousands) $238,571 $184,546 $148,937
Distributions per Unit $1.40 $1.095 $0.91
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
FORWARD-LOOKING STATEMENTS
Certain statements provided by the Partnership in this Management's Discussion
and Analysis of Financial Condition and Results of Operations 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 the Partnership's sponsored investment products and
separately managed accounts, general economic conditions, future acquisitions,
competitive conditions and government regulations, including changes in tax
rates. The Partnership cautions readers to carefully consider such factors.
Further, such forward-looking statements speak only as of the date on which such
statements are made; the Partnership undertakes no obligation to update any
forward-looking statements to reflect events or circumstances after the date of
such statements.
<PAGE>
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
December 31, (in thousands)
1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 63,761 $ 57,441
Fees receivable:
Alliance mutual funds 57,487 46,483
Separately managed accounts:
Affiliated clients 8,357 4,479
Third party clients 73,870 58,339
Receivable from brokers and dealers for sale of shares
of Alliance mutual funds 68,701 30,976
Investments, available-for-sale 47,097 35,966
Furniture, equipment and leasehold improvements, net 80,477 57,210
Intangible assets, net 97,398 234,404
Deferred sales commissions, net 251,632 175,172
Other assets 35,680 25,427
- ---------------------------------------------------------------------------------------------------------------------------
Total assets $784,460 $725,897
- ---------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accounts payable and accrued expenses $128,878 $103,427
Payable to Alliance mutual funds for share purchases 96,995 55,468
Accrued expenses under employee benefit plans 65,889 51,633
Debt 90,416 24,658
Minority interests in consolidated subsidiaries 4,231 14,691
- ---------------------------------------------------------------------------------------------------------------------------
Total liabilities 386,409 249,877
- ---------------------------------------------------------------------------------------------------------------------------
Commitments and contingencies
Partners' Capital:
General Partner 4,299 5,101
Limited partners; 168,976,076 and 167,565,096 Units issued and outstanding,
including Class A Limited Partnership Interest, respectively 425,623 505,029
- ---------------------------------------------------------------------------------------------------------------------------
429,922 510,130
Less: Capital contributions receivable from General Partner 29,123 27,904
Deferred compensation expense 3,500 6,500
Unrealized gain on investments (752) (294)
- ---------------------------------------------------------------------------------------------------------------------------
Total partners' capital 398,051 476,020
- ---------------------------------------------------------------------------------------------------------------------------
Total liabilities and partners' capital $784,460 $725,897
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
Unit and per Unit amounts have been restated to reflect the two-for-one Unit
split, as described in Note 18. See accompanying notes to consolidated financial
statements.
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
For the Years Ended December 31,
(in thousands, except per Unit amounts) 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES:
Investment advisory and services fees:
Alliance mutual funds $384,759 $291,601 $232,730
Separately managed accounts:
Affiliated clients 52,930 44,901 43,978
Third party clients 261,290 227,530 179,872
Distribution plan fees from Alliance mutual funds 213,692 166,411 128,733
Shareholder servicing and administration fees 53,500 47,806 43,591
Other revenues 9,165 10,268 10,351
- ---------------------------------------------------------------------------------------------------------------------------
975,336 788,517 639,255
- ---------------------------------------------------------------------------------------------------------------------------
EXPENSES:
Employee compensation and benefits 264,251 214,880 172,301
Promotion and servicing:
Distribution plan payments to financial intermediaries:
Affiliated 56,118 30,533 23,710
Third party 121,791 115,112 86,743
Amortization of deferred sales commissions 73,841 53,144 50,501
Other 60,416 48,868 40,161
General and administrative 120,283 100,854 88,889
Interest 2,968 1,923 1,192
Amortization of intangible assets 7,006 15,613 8,747
Reduction in recorded value of intangible assets 120,900 - -
- ---------------------------------------------------------------------------------------------------------------------------
827,574 580,927 472,244
- ---------------------------------------------------------------------------------------------------------------------------
Income before income taxes 147,762 207,590 167,011
Income taxes 18,806 14,244 11,624
- ---------------------------------------------------------------------------------------------------------------------------
Net income $128,956 $193,346 $155,387
- ---------------------------------------------------------------------------------------------------------------------------
Net income per Unit:
Basic $ 0.76 $ 1.15 $ 0.95
Diluted $ 0.74 $ 1.13 $ 0.94
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
Unit and per Unit amounts have been restated to reflect the two-for-one Unit
split, as described in Note 18. See accompanying notes to consolidated financial
statements.
<PAGE>
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
<TABLE>
<CAPTION>
GENERAL LIMITED CAPITAL DEFERRED UNREALIZED TOTAL
For the Years Ended December 31, PARTNER'S PARTNERS' CONTRIBUTIONS COMPENSATION GAIN (LOSS) ON PARTNERS'
(in thousands) CAPITAL CAPITAL RECEIVABLE EXPENSE INVESTMENTS CAPITAL
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1994 $4,176 $413,454 $(23,172) $(12,500) $ (629) $381,329
Net income 1,554 153,833 155,387
Cash distributions to
partners ($0.865 per Unit) (1,413) (139,906) (141,319)
Amortization of deferred
compensation expense 3,000 3,000
Capital contributions from
General Partner 781 781
Compensation plan accrual 30 2,975 (3,005) -
Issuance of Units to employees 19 1,901 1,920
Proceeds from Unit options exercised 56 5,500 5,556
Unrealized gain on investments 534 534
Foreign currency translation adjustment (5) (474) (479)
- ---------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1995 4,417 437,283 (25,396) (9,500) (95) 406,709
- ---------------------------------------------------------------------------------------------------------------------------
Net income 1,933 191,413 193,346
Cash distributions to
partners ($1.05 per Unit) (1,755) (173,779) (175,534)
Amortization of deferred
compensation expense 3,000 3,000
Capital contributions from
General Partner 774 774
Compensation plan accrual 33 3,249 (3,282) -
Issuance of Units for acquisition 427 42,279 42,706
Proceeds from Unit options exercised 54 5,367 5,421
Unrealized gain on investments 389 389
Foreign currency translation adjustment (8) (783) (791)
- ---------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1996 5,101 505,029 (27,904) (6,500) 294 476,020
- ---------------------------------------------------------------------------------------------------------------------------
Net income 1,290 127,666 128,956
Cash distributions to
partners ($1.285 per Unit) (2,186) (216,418) (218,604)
Amortization of deferred
compensation expense 3,000 3,000
Capital contributions from
General Partner 761 761
Compensation plan accrual 20 1,960 (1,980) -
Proceeds from Unit options exercised 95 9,434 9,529
Unrealized gain on investments 458 458
Foreign currency translation adjustment (21) (2,048) (2,069)
- ---------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1997 $4,299 $425,623 $(29,123) $(3,500) $ 752 $398,051
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
Unit and per Unit amounts have been restated to reflect the two-for-one Unit
split, as described in Note 18. See accompanying notes to consolidated financial
statements.
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Years Ended December 31,
(in thousands) 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $128,956 $193,346 $155,387
Adjustments to reconcile net income to net cash provided
from operating activities:
Amortization and depreciation 92,773 76,893 67,350
Reduction in recorded value of intangible assets 120,900 - -
Other, net 6,570 8,395 5,918
Changes in assets and liabilities:
(Increase) in fees receivable from Alliance mutual funds (11,029) (9,119) (5,457)
(Increase) decrease in fees receivable from affiliated clients (3,878) (2,473) 12,232
(Increase) in fees receivable from third party clients (15,708) (190) (7,549)
(Increase) in receivable from brokers and
dealers for sale of shares of Alliance mutual funds (37,725) (4,325) (8,667)
(Increase) in deferred sales commissions (150,301) (78,733) (41,740)
(Increase) decrease in other assets (11,328) 3,262 (6,273)
Increase in accounts payable and accrued expenses 23,916 23,535 16,469
Increase in payable to Alliance mutual funds
for share purchases 41,481 10,251 12,710
Increase in accrued expenses under employee benefit plans,
less deferred compensation 11,010 3,388 207
- ---------------------------------------------------------------------------------------------------------------------------
Net cash provided from operating activities 195,637 224,230 200,587
- ---------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of investments (516,720) (132,008) (94,547)
Proceeds from sale of investments 506,116 131,585 109,138
Purchase of businesses - (99,427) -
Additions to furniture, equipment and leasehold improvements (35,341) (21,157) (7,644)
- ---------------------------------------------------------------------------------------------------------------------------
Net cash provided from (used in) investing activities (45,945) (121,007) 6,947
- ---------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of debt 126,863 - 106
Repayment of debt (60,451) (65) (178)
Cash distributions to partners (218,604) (175,534) (141,319)
Capital contributions from General Partner 761 774 781
Proceeds from Unit options exercised 9,529 5,421 5,556
- ---------------------------------------------------------------------------------------------------------------------------
Net cash used in financing activities (141,902) (169,404) (135,054)
- ---------------------------------------------------------------------------------------------------------------------------
EFFECT OF EXCHANGE RATE CHANGES ON
CASH AND CASH EQUIVALENTS (1,470) (634) (423)
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 6,320 (66,815) 72,057
Cash and cash equivalents at beginning of the year 57,441 124,256 52,199
- ---------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of the year $ 63,761 $ 57,441 $124,256
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
Unit and per Unit amounts have been restated to reflect the two-for-one Unit
split, as described in Note 18. See accompanying notes to consolidated financial
statements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION
Alliance Capital Management L.P. (the "Partnership") and its consolidated
subsidiaries provide diversified investment management services to unaffiliated
separately managed accounts, to The Equitable Life Assurance Society of the
United States ("ELAS"), a wholly-owned subsidiary of The Equitable Companies
Incorporated ("Equitable"), and certain of their subsidiaries and affiliates
and, through mutual funds and various other investment vehicles, to individual
investors. Separately managed accounts consist primarily of the active
management of equity and fixed income portfolios for institutional investors.
Separately managed accounts include corporate and public employee pension funds,
the general and separate accounts of ELAS and its insurance company subsidiary,
endowment funds, and other domestic and foreign institutions. Mutual funds
management consists of the management, distribution and servicing of the
Partnership's sponsored mutual funds and cash management products, including
money market funds and deposit accounts ("Alliance mutual funds").
The Partnership is a registered investment adviser under the Investment
Advisers Act of 1940. Alliance Capital Management Corporation ("Alliance"), an
indirect wholly-owned subsidiary of Equitable, owns a 1% general partnership
interest in the Partnership. At December 31, 1997, Equitable was the beneficial
owner of approximately 56.9% of units representing assignments of beneficial
ownership of limited partnership interests ("Units").
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The Partnership's consolidated financial statements have been prepared in
accordance with generally accepted accounting principles. The preparation of the
financial statements in conformity with generally accepted accounting principles
requires management of the Partnership to make certain estimates and assumptions
that affect the reported amounts of assets and liabilities, disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting periods.
Actual results could differ from those estimates.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the Partnership and its
majority-owned subsidiaries. The equity method of accounting is used for
unconsolidated subsidiaries in which the Partnership's ownership interests range
from 20 to 50 percent and the Partnership exercises significant influence over
operating and financial policies. All significant intercompany transactions and
balances among the consolidated entities have been eliminated.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash on hand, demand deposits and highly
liquid investments with maturities of three months or less. Due to the
short-term nature of these investments, the recorded value approximates fair
value.
INVESTMENTS
The Partnership's investments, principally investments in Alliance mutual funds,
are classified as available-for-sale securities. These investments are stated at
fair value with unrealized gains and losses reported as a separate component of
partners' capital. Realized gains and losses on the sale of investments are
included in income currently and are determined using the
specific-identification method.
FURNITURE, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Furniture, equipment and leasehold improvements are stated at cost, less
accumulated depreciation and amortization. Depreciation is recognized on a
straight-line basis over the estimated useful lives of eight years for furniture
and three to six years for equipment. Leasehold improvements are amortized on a
straight-line basis over the lesser of their estimated useful lives or the terms
of the related leases.
<PAGE>
INTANGIBLE ASSETS
Intangible assets consist principally of goodwill resulting from acquisitions
and costs assigned to contracts of businesses acquired. Goodwill is being
amortized on a straight-line basis over estimated useful lives ranging from
twelve to forty years. Costs assigned to investment contracts of businesses
acquired are being amortized on a straight-line basis over estimated useful
lives ranging from twelve to twenty years. The Partnership evaluates impairment
of its intangible assets by comparing the undiscounted cash flows expected to be
realized from those intangible assets to their recorded values, pursuant to
Statement of Financial Accounting Standards No. 121 ("SFAS 121") "ACCOUNTING FOR
THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED
OF". If the expected future cash flows are less than the carrying value of
intangible assets, the Partnership recognizes an impairment loss for the
difference between the carrying amount and the estimated fair value of those
intangible assets.
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 periods of time estimated by management of the Partnership
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.
REVENUE RECOGNITION AND MUTUAL FUND UNDERWRITING ACTIVITIES
Investment advisory and services fees are recorded as revenue as the related
services are performed. Purchases and sales of shares of Alliance mutual funds
in connection with the underwriting activities of the Partnership's
subsidiaries, including related commission income, are recorded on trade date.
Receivables from brokers and dealers for sale of shares of Alliance mutual funds
are generally realized within three business days from trade date, in
conjunction with the settlement of the related payables to Alliance mutual funds
for share purchases.
UNIT OPTION PLANS
Prior to January 1, 1996, the Partnership accounted for its Unit option plans in
accordance with Accounting Principles Board Opinion ("APB 25"), ACCOUNTING FOR
STOCK ISSUED TO EMPLOYEES. Under APB 25, compensation expense is recorded on the
date of grant only if the market price of the underlying Units exceeds the
exercise price. On January 1, 1996, the Partnership adopted Statement of
Financial Accounting Standards No. 123 ("SFAS 123"), ACCOUNTING FOR STOCK-BASED
COMPENSATION, which permits entities to recognize the fair value of all
stock-based awards on the date of grant as expense over the vesting period or,
alternatively, to continue to apply the provisions of APB 25 and provide pro
forma net income and pro forma earnings per Unit disclosures for employee stock
option grants made in 1995 and future years as if the fair-value-based method
defined in SFAS 123 had been applied. The Partnership has elected to continue to
apply the provisions of APB 25 and to provide the pro forma disclosure
provisions of SFAS 123.
ADVERTISING
Advertising costs are expensed as incurred and are included in other promotion
and servicing expenses.
FOREIGN CURRENCY TRANSLATION
Assets and liabilities of foreign subsidiaries are translated into United States
dollars at exchange rates in effect at the balance sheet dates, and related
revenues and expenses are translated into United States dollars at average
exchange rates in effect during each period. Net foreign currency gains and
losses resulting from the translation of assets and liabilities of foreign
operations into United States dollars are accumulated in partners' capital. Net
foreign currency gains and losses for the three-year period ended December 31,
1997 were not material.
<PAGE>
NET INCOME PER UNIT
In 1997, the Financial Accounting Standards Board issued Statement No. 128
("SFAS 128"), EARNINGS PER SHARE. SFAS 128 replaced the calculation of primary
and fully diluted net income per Unit with basic and diluted net income per
Unit. Prior period net income per Unit amounts have been restated to conform to
the SFAS 128 requirements. Unit and per Unit amounts have also been restated to
reflect the two-for-one Unit split announced on February 19, 1998, as described
in Note 18. The record date for the Unit split is March 11, 1998.
CASH DISTRIBUTIONS TO PARTNERS
The Partnership is required to distribute all of its Available Cash Flow, as
defined in its Partnership Agreement, to the General Partner and Unitholders.
RECLASSIFICATIONS
Certain amounts in the 1996 and 1995 financial statements have been reclassified
to conform with the 1997 presentation.
3. ACQUISITION
On February 29, 1996, the Partnership acquired substantially all of the assets
and liabilities of Cursitor Holdings, L.P. ("CHLP") and all of the outstanding
shares of Cursitor Holdings Limited, currently Cursitor Alliance Holdings
Limited, (collectively, "Cursitor") for approximately $159.0 million. The
purchase price consisted of 3,528,230 Units with an aggregate value of $43.2
million at the time of issuance, $94.3 million in cash, and notes in the
aggregate principal amount of $21.5 million ("Notes"). Acquisition costs of $4.0
million were also incurred.
The acquisition of Cursitor resulted in the formation of a new
subsidiary of the Partnership, Cursitor Alliance LLC, in which CHLP owns a 7%
minority equity interest. Under certain circumstances, through February 28,
2006, the Partnership has an option to purchase CHLP's minority interest in
Cursitor Alliance LLC, and CHLP has an option to sell its minority interest in
Cursitor Alliance LLC to the Partnership for cash, Units, or a combination
thereof of not less than $10.0 million or more than $37.0 million ("Buyout
Price"). The Buyout Price will be determined based on the amount of global asset
allocation investment advisory revenues earned by Cursitor Alliance LLC during
the twelve month period ending on the February 28th preceding the date either
option is exercised. If either option is exercised, the payment of the Buyout
Price will be accounted for as an increase in the Cursitor purchase price.
The acquisition was accounted for under the purchase method with the
results of Cursitor included in the Partnership's consolidated financial
statements from the acquisition date. The excess of the purchase price,
including acquisition costs and minority interest over the fair value of
Cursitor's net assets acquired, resulted in the recognition of intangible assets
consisting of goodwill and costs assigned to Cursitor's investment contracts of
approximately $38.3 million and $122.8 million, respectively.
During the second quarter of 1997, management of the Partnership
determined that the value of the assets of Cursitor was impaired and reduced the
unamortized recorded value of the goodwill and cost assigned to investment
contracts by $35.7 million and $94.3 million, respectively, to their estimated
fair value. This noncash charge reflected management's view that the decline in
Cursitor's assets under management and its reduced profitability no longer
supported the unamortized cost of its investment.
<PAGE>
4. CLASS A LIMITED PARTNERSHIP INTEREST
In connection with the purchase in July 1993 of the business of Equitable
Capital Management Corporation ("ECMC"), a wholly-owned subsidiary of ELAS, the
Partnership created a Class A Limited Partnership Interest convertible initially
into 200,000 Units. During 1997, the amount of Units issuable upon conversion of
the Class A Limited Partnership Interest was increased by 209,912 Units to
1,102,790 Units. Units issuable upon conversion of the Class A Limited
Partnership Interest may be increased by up to $14.5 million in additional Units
to reflect the receipt by the Partnership of certain performance fees through
March 1998.
5. NET INCOME PER UNIT
Basic net income per Unit is derived by reducing net income for each year
by 1% for the general partnership interest held by the General Partner and
dividing the remaining 99% by the weighted average number of Units outstanding
and Units issuable upon conversion of the Class A Limited Partnership Interest.
Diluted net income per Unit is derived by reducing net income for each year by
1% for the general partnership interest held by the General Partner and dividing
the remaining 99% by the weighted average number of Units outstanding, Unit
equivalents and Units issuable upon conversion of the Class A Limited
Partnership Interest.
<TABLE>
<CAPTION>
(in thousands, except per Unit amounts) 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income $128,956 $193,346 $155,387
Weighted average Units outstanding - Basic net income per Unit 168,448 166,382 161,538
Dilutive effect of employee Unit options 3,428 2,586 1,578
- ---------------------------------------------------------------------------------------------------------------------------
Weighted average Units outstanding - Diluted net income per Unit 171,876 168,968 163,116
- ---------------------------------------------------------------------------------------------------------------------------
Basic net income per Unit $ 0.76 $ 1.15 $ 0.95
Diluted net income per Unit $ 0.74 $ 1.13 $ 0.94
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
6. INVESTMENTS
At December 31, 1997 and 1996, the Partnership's investments consisted solely of
investments in Alliance mutual funds classified as available-for-sale
securities. The amortized cost, gross unrealized gains and losses and fair value
of investments were as follows (in thousands):
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
December 31, 1997 $46,345 $914 $(162) $47,097
December 31, 1996 $35,672 $395 $(101) $35,966
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
Proceeds from sales of investments were approximately $506,116,000, $131,585,000
and $109,138,000 in 1997, 1996 and 1995, respectively. Gross investment gains of
$94,000, $124,000 and $125,000 and gross investment losses of $25,000, $345,000
and $332,000 were realized from the sales for the years ended December 31, 1997,
1996 and 1995, respectively.
<PAGE>
7. FURNITURE, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Furniture, equipment and leasehold improvements are comprised of the following
(in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Furniture and equipment $ 75,170 $51,071
Leasehold improvements 56,330 46,954
- ---------------------------------------------------------------------------------------------------------------------------
131,500 98,025
Less: Accumulated depreciation and amortization 51,023 40,815
- ---------------------------------------------------------------------------------------------------------------------------
Furniture, equipment and leasehold improvements, net $ 80,477 $57,210
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
8. INTANGIBLE ASSETS
The following is a summary of intangible assets at December 31, 1997 and 1996
(in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Goodwill, net of accumulated amortization of $14,611 in 1997
and $11,221 in 1996, respectively $77,582 $116,721
Cost assigned to investment contracts of businesses acquired, net of
accumulated amortization of $87,332 in 1997 and $83,717 in 1996, respectively 19,816 117,683
- ---------------------------------------------------------------------------------------------------------------------------
$97,398 $234,404
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
9. DEBT
During 1996, the Partnership entered into a $250 million five-year revolving
credit facility with a group of banks. Under the facility, the interest rate, at
the option of the Partnership, 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. The
revolving credit facility will be used to provide back-up liquidity for the
Partnership's $250 million commercial paper program, to fund commission payments
to financial intermediaries for the sale of back-end load shares under the
Partnership's mutual fund distribution system, and for general working capital
purposes. At December 31, 1997, the Partnership had $72 million principal amount
of commercial paper outstanding at an effective interest rate of 6.2% and there
were no borrowings outstanding under the Partnership's revolving credit
facility. The recorded amount of the outstanding commercial paper approximates
fair value.
The revolving credit facility contains covenants which require the
Partnership to, among other things, meet certain financial ratios. The
Partnership was in compliance with the covenants at December 31, 1997.
Debt includes Notes issued to CHLP in the aggregate principal amounts
of $16,125,000 and $21,500,000 at December 31, 1997 and 1996, respectively. The
Notes bear interest at 6% per annum and are payable ratably over the next three
years. Debt also includes promissory notes with aggregate outstanding principal
amounts of $2,390,000 and $3,076,000 at December 31, 1997 and 1996,
respectively, issued to certain investment partnerships for which a subsidiary
of the Partnership serves as general partner. The principal amounts of these
notes are reduced proportionately as partners receive return of capital
distributions from the investment partnerships. The recorded amounts of these
notes approximate their fair value.
<PAGE>
10. COMMITMENTS AND CONTINGENCIES
The Partnership and its subsidiaries lease office space, furniture and office
equipment under various operating leases. The minimum commitments under the
leases, net of sublease commitments, at December 31, 1997 aggregated
$345,355,000 and are payable as follows: $16,886,000, $18,600,000, $18,783,000,
$18,608,000 and $18,169,000 for the years 1998 through 2002, respectively, and a
total of $254,309,000 for the remaining years through 2016. Office leases
contain escalation clauses that provide for the pass through of increases in
operating expenses and real estate taxes. Rent expense for the years ended
December 31, 1997, 1996 and 1995 was $21,262,000, $24,760,000 and $22,125,000,
respectively.
On July 25, 1995, a Consolidated and Supplemental Class Action
Complaint ("Complaint") was filed against Alliance North American Government
Income Trust, Inc. (the "Fund"), the Partnership and certain other defendants
affiliated with the Partnership alleging violations of federal securities laws,
fraud and breach of fiduciary duty in connection with the Fund's investments in
Mexican and Argentine securities. The Complaint, which sought certification of a
plaintiff class of persons who purchased or owned Class A, B or C shares of the
Fund from March 27, 1992 through December 23, 1994, sought an unspecified amount
of damages, costs, attorneys' fees and punitive damages. The principal
allegations were that the Fund purchased debt securities issued by the Mexican
and Argentine governments in amounts that were not permitted by the Fund's
investment objective, and that there was no shareholder vote to change the
investment objective to permit purchases in such amounts. The Complaint further
alleged that the decline in the value of the Mexican and Argentine securities
held by the Fund caused the Fund's net asset value to decline to the detriment
of the Fund's shareholders.
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 Complaint ("First Decision"). On October 11, 1996, plaintiffs
filed a motion for reconsideration of the First Decision. On November 25, 1996,
the District Court denied plaintiffs' motion for reconsideration of the First
Decision. On October 29, 1997, the United States Court of Appeals for the Second
Circuit issued an order granting defendants' motion to strike and dismissing
plaintiffs' appeal of the First 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 misrepresented its ability to hedge against the risks of
investing in foreign securities, (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 July 15, 1997, the District Court denied plaintiffs' motion for leave
to file an amended complaint and ordered that the case be dismissed ("Second
Decision"). The plaintiffs have appealed the Second Decision to the United
States Court of Appeals for the Second Circuit.
While the ultimate outcome of this matter cannot be determined at this
time, management of the Partnership does not expect that it will have a material
adverse effect on the Partnership's results of operations or financial
condition.
11. NET CAPITAL
Alliance Fund Distributors, Inc. ("AFD"), a wholly-owned subsidiary of the
Partnership, serves as distributor and/or underwriter for certain Alliance
mutual funds. AFD is registered as a broker-dealer under the Securities Exchange
Act of 1934 and is subject to the minimum net capital requirements imposed by
the Securities and Exchange Commission. AFD's net capital at December 31, 1997
was $10,552,000, which was $6,796,000 in excess of its required net capital of
$3,756,000.
12. EMPLOYEE BENEFIT PLANS
The Partnership and its subsidiaries maintain a number of qualified and
nonqualified employee benefit and incentive compensation plans. Except as
indicated, the aggregate amount available for annual employee bonuses and
contributions to the various employee benefit plans discussed below is based on
a percentage of the consolidated operating profits of the Partnership and its
subsidiaries.
<PAGE>
The Partnership maintains a qualified profit sharing plan covering
substantially all U.S. and certain foreign employees. The amount of the annual
contribution to the plan is determined by a committee of the Board of Directors
of the General Partner. Contributions are limited to the maximum amount
deductible for Federal income tax purposes, generally 15% of the total annual
compensation of eligible participants. Aggregate contributions for 1997, 1996
and 1995 were $8,744,000, $8,310,000 and $7,750,000, respectively.
The Partnership maintains a qualified noncontributory defined benefit
retirement plan in the U.S. covering substantially all U.S. employees and
certain foreign employees. Benefits are based on years of credited service,
average final base salary and primary Social Security benefits. The
Partnership's funding policy is to contribute annually an amount not to exceed
the maximum amount that can be deducted for Federal income tax purposes. Plan
assets are comprised principally of corporate equity securities, U.S. Treasury
securities and shares of Alliance mutual funds.
The following table presents the retirement plan's funded status and
amounts recognized in the Partnership's consolidated statements of financial
condition (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation $(14,944) $(11,644)
- ---------------------------------------------------------------------------------------------------------------------------
Nonvested benefit obligation $ (867) $ (559)
- ---------------------------------------------------------------------------------------------------------------------------
Projected benefit obligation for service rendered to date $(26,169) $(19,332)
Plan assets at fair value 24,300 20,035
- ---------------------------------------------------------------------------------------------------------------------------
Projected benefit obligation (in excess of) less than plan assets (1,869) 703
Unrecognized net (gain) from past experience different
from that assumed and effects of changes in assumptions (2,254) (3,094)
Prior service cost not yet recognized in net periodic pension cost (1,535) (1,648)
Unrecognized net plan assets at January 1, 1987 being recognized over 26.3 years (2,192) (2,335)
- ---------------------------------------------------------------------------------------------------------------------------
Accrued pension expense included in accrued expenses under employee benefit plans $ (7,850) $ (6,374)
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
Net expense under the retirement plan for the years ended December 31,
1997, 1996 and 1995 was comprised of (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost $ 2,143 $ 2,317 $ 1,621
Interest cost on projected benefit obligations 1,600 1,405 1,116
Actual return on plan assets (4,596) (2,057) (4,510)
Net amortization and deferral 2,329 (41) 2,850
- ---------------------------------------------------------------------------------------------------------------------------
Net pension charge $ 1,476 $ 1,624 $ 1,077
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
Actuarial computations at December 31, 1997, 1996 and 1995 were made
utilizing the following assumptions:
<TABLE>
<CAPTION>
1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Discount rate on benefit obligations 7.50% 8.00% 7.50%
Expected long-term rate of return on plan assets 10.00% 10.00% 10.00%
Annual salary increases 5.50% 5.50% 5.50%
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Variances between actuarial assumptions and actual experience are
amortized over the estimated average remaining service lives of employees in the
retirement plan.
The Partnership maintains a nonqualified unfunded deferred compensation
plan known as the Capital Accumulation Plan and assumed obligations under
contractual unfunded deferred compensation arrangements covering certain
executives which are not funded from the incentive compensation pool.
The Capital Accumulation Plan was frozen on December 31, 1987 and no
additional awards have been made. The Board of Directors of the General Partner
may terminate the Capital Accumulation Plan at any time without cause, in which
case the Partnership's liability would be limited to benefits that have vested.
Benefits due eligible executives under the contractual unfunded deferred
compensation arrangements vested on or before December 31, 1987. Payment of
vested benefits under both the Capital Accumulation Plan and the contractual
unfunded deferred compensation arrangements will generally be made over a
ten-year period commencing at retirement age. ACMC, Inc., a subsidiary of
Equitable, is obligated to make capital contributions to the Partnership in
amounts equal to benefits paid under the Capital Accumulation Plan and the
contractual unfunded deferred compensation arrangements. Amounts included in
employee compensation and benefits expense for the Capital Accumulation Plan and
the contractual unfunded deferred compensation arrangements for the years ended
December 31, 1997, 1996 and 1995 were $1,980,000, $3,282,000 and $3,005,000,
respectively.
During 1995, the Partnership established an unfunded deferred
compensation plan known as the Alliance Partners Compensation Plan (the "Plan")
under which certain awards may be granted to eligible executives. A committee
comprised of certain executive officers of the General Partner administers the
Plan and determines the aggregate amount and recipients of awards. Awards made
in 1995 vest ratably over three years. Awards made after 1995 vest ratably over
eight years. Until distributed, the awards are generally credited with earnings
based on the Partnership's earnings growth rate. Payment of vested benefits will
generally be made over a five-year period commencing at retirement although,
under certain circumstances, full or partial lump sum payments may be made upon
termination of employment. The Plan may be terminated at any time without cause,
in which case the Partnership's liability would be limited to vested benefits.
The Partnership made awards in 1997, 1996 and 1995 aggregating $21,725,000,
$12,350,000 and $7,925,000, respectively. The amounts charged to expense for the
Plan for the years ended December 31, 1997, 1996 and 1995 were $9,822,000,
$2,816,000 and $0, respectively.
During 1994, certain key employees of Shields Asset Management,
Incorporated and its wholly-owned subsidiary, Regent Investor Services
Incorporated entered into employment agreements with the Partnership and were
issued 1,290,320 new Units with an aggregate fair market value of approximately
$15,000,000, which is being amortized as employee compensation expense ratably
over five years. Aggregate amortization of $3,000,000 was recorded for each year
ended December 31, 1997, 1996 and 1995.
13. EMPLOYEE UNIT AWARD AND OPTION PLANS
During 1988, a Unit Option Plan ("Unit Option Plan") was established under which
options to purchase up to 9,846,152 Units may be granted to certain key
employees. A committee of the Board of Directors of the General Partner
administers the plan and determines the grantees and the number of options to be
granted. Options may be granted for terms of up to ten years and each option
must have an exercise price of not less than the fair market value of the Units
on the date of grant. Options are exercisable at a rate of 20% of the Units
subject to options on each of the first five anniversary dates of the date of
grant.
<PAGE>
During 1993, the 1993 Unit Option Plan, the Unit Bonus Plan and the
Century Club Plan (together the "1993 Plans") were established by the
Partnership. Committees of the Board of Directors of the General Partner
administer the 1993 Plans and determine the recipients of grants and awards.
Under the 1993 Unit Option Plan, options to purchase Units may be granted to key
employees for terms of up to ten years. Each option must have an exercise price
of not less than the fair market value of the Units on the date of grant.
Options are exercisable at a rate of 20% of the Units subject to options on each
of the first five anniversary dates of the date of grant. Under the Unit Bonus
Plan, Units may be awarded to key employees in lieu of all or a portion of the
cash bonuses they would otherwise receive under the Partnership's incentive
compensation program. Under the Century Club Plan, employees whose primary
responsibilities are to assist in the distribution of Alliance mutual funds are
eligible to receive an award of Units. The aggregate number of Units that can be
the subject of options granted or that can be awarded under the 1993 Plans may
not exceed 6,400,000 Units. As of December 31, 1997, 5,703,200 Units were
subject to options granted and 276,954 Units were subject to awards made under
the 1993 Plans.
During 1997, the 1997 Long Term Incentive Plan (the "1997 Plan") was
established by the Partnership. Committees of the Board of Directors of the
General Partner administer the 1997 Plan and determine the recipients of Unit
awards, including options, restricted Units and phantom restricted Units,
performance awards, other Unit based awards, or any combination thereof. Awards
under the 1997 Plan may be granted to key employees for terms established at the
time of grant by the Committees. The aggregate number of Units that can be the
subject of options granted or that can be awarded under the 1997 Plan may not
exceed 16,000,000 Units.
During 1997, 1996, and 1995, the Committees authorized the grant of
options to employees of the Partnership to purchase 2,125,000, 1,450,000 and
3,611,000 of the Partnership's Units, respectively, under the Unit Option Plan,
the 1993 Plans and the 1997 Plan. The per Unit weighted-average fair value of
options granted during 1997, 1996 and 1995 was $2.18, $1.35 and $1.12,
respectively, on the date of grant using the Black-Scholes option pricing model
with the following weighted-average assumptions: risk-free interest rates of
5.7%, 5.8% and 6.0% for 1997, 1996 and 1995, respectively, expected dividend
yield of 8.0% for each year, and a volatility factor of the expected market
price of the Partnership's Units of 26% for 1997 and 23% for 1996 and 1995.
The Partnership applies APB Opinion No. 25 in accounting for its option
plans and, accordingly, no compensation cost has been recognized for its Unit
options in the consolidated financial statements. Had the Partnership determined
compensation cost based on the fair value at the grant date for its Unit options
under SFAS No. 123, the Partnership's net income and net income per Unit would
have been reduced to the pro forma amounts indicated below (in thousands, except
per Unit amounts):
<TABLE>
<CAPTION>
1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Pro forma net income $127,367 $191,895 $154,688
Pro forma basic net income per Unit $ 0.75 $ 1.14 $ 0.95
Pro forma diluted net income per Unit $ 0.73 $ 1.12 $ 0.94
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
Pro forma net income reflects only options granted in 1997, 1996 and
1995. Therefore, the full impact of calculating compensation cost for Unit
options under SFAS 123 is not reflected in the pro forma net income amounts
presented above because compensation cost is reflected over the options' vesting
period of five years and compensation cost for options granted prior to January
1, 1995 is not considered.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected Unit price
volatility. Because the Partnership's employee Unit options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing model does not necessarily provide a reliable
single measure of the fair value of its Unit options.
<PAGE>
The following table summarizes the activity in options under the Unit Option
Plan, 1993 Plans and the 1997 Plan:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
EXERCISE PRICE
UNITS PER UNIT
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Outstanding at January 1, 1995 7,624,800 $ 7.73
Granted 3,611,000 $10.27
Exercised (992,200) $ 5.60
Forfeited (587,400) $ 8.32
- ---------------------------------------------------------------------------------------------------------------------------
Outstanding at December 31, 1995 9,656,200 $ 8.86
Granted 1,450,000 $12.56
Exercised (794,600) $ 6.82
Forfeited (243,400) $ 9.66
- ---------------------------------------------------------------------------------------------------------------------------
Outstanding at December 31, 1996 10,068,200 $ 9.54
Granted 2,125,000 $18.28
Exercised (1,183,800) $ 8.06
Forfeited (371,800) $10.64
- --------------------------------------------------------------------------------------------------------------------------
Outstanding at December 31, 1997 10,637,600 $11.41
- --------------------------------------------------------------------------------------------------------------------------
Exercisable at December 31, 1997 4,620,480
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
Exercise prices for options outstanding as of December 31, 1997 ranged
from $3.031 to $18.781. The weighted-average remaining contractual life of those
options is 7.2 years.
The following table summarizes information concerning currently
outstanding and exercisable options:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- ---------------------------------------------------------------------------------------------------------------------------
WEIGHTED
NUMBER AVERAGE WEIGHTED NUMBER WEIGHTED
RANGE OF OUTSTANDING REMAINING AVERAGE EXERCISABLE AVERAGE
EXERCISE AS OF CONTRACTUAL EXERCISE AS OF EXERCISE
PRICES 12/31/97 LIFE PRICE 12/31/97 PRICE
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 3.031 - $ 8.875 2,115,200 4.0 $ 6.60 2,043,200 $ 6.52
9.688 - 9.875 1,602,400 7.3 9.70 551,200 9.70
9.938 - 10.688 2,155,200 6.3 10.07 1,285,280 10.10
11.125 - 13.75 2,719,800 8.5 11.91 740,800 11.65
18.469 - 18.781 2,045,000 10.0 18.48 - -
- ---------------------------------------------------------------------------------------------------------------------------
$ 3.031 - $18.781 10,637,600 7.2 $11.41 4,620,480 $ 8.72
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
14. INCOME TAXES
The Partnership is a publicly traded partnership for Federal income tax purposes
and, accordingly, for the years ended December 31, 1997, 1996 and 1995 was not
currently subject to Federal and state corporate income taxes but is subject to
the New York City unincorporated business tax ("UBT"). Effective for years
beginning after December 31, 1997, a Partnership will be subject to pay a tax of
3.5% of partnership gross income from the active conduct of a trade or business.
Domestic corporate subsidiaries of the Partnership, which are subject to
Federal, state and local income taxes, file a consolidated Federal income tax
return and separate state and local income tax returns. Foreign corporate
subsidiaries are generally subject to taxes in the foreign jurisdictions where
they are located.
<PAGE>
The provision for income taxes consists of the following (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Partnership unincorporated business taxes $11,186 $ 8,182 $ 5,644
Corporate subsidiaries:
Federal 4,800 3,800 3,900
State, local and foreign 2,820 2,262 2,080
- ---------------------------------------------------------------------------------------------------------------------------
$18,806 $14,244 $11,624
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
The principal reasons for the difference between the Partnership's
effective tax rate and the UBT statutory tax rate of 4% are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
UBT statutory rate $ 5,910 4.0% $ 8,304 4.0% $ 6,681 4.0%
Corporate subsidiaries' Federal, state, local
and foreign income taxes 7,206 4.9% 6,062 2.9% 5,980 3.6%
Reduction in recorded value of intangible assets 4,705 3.2% - - - -
Miscellaneous 985 0.6% (122) - (1,037) (0.6%)
- ----------------------------------------------------------------------------------------------------------------------------
$18,806 12.7% $14,244 6.9% $11,624 7.0%
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
Under Statement of Financial Accounting Standards No. 109 ("SFAS 109"),
"ACCOUNTING FOR INCOME TAXES," deferred income taxes reflect the net tax effect
of temporary differences between the carrying amounts of assets and liabilities
for financial reporting purposes and the amounts used for income tax purposes.
The tax effect of significant items comprising the Partnership's net deferred
tax assets are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax asset:
Differences between book and tax treatment
of deferred compensation plans $2,614 $1,897
Other, primarily accruals deductible when paid 1,480 1,131
- ---------------------------------------------------------------------------------------------------------------------------
4,094 3,028
Deferred tax liability:
Differences between book and tax basis of furniture, equipment
and leasehold improvements and intangibles 402 589
- ---------------------------------------------------------------------------------------------------------------------------
Net deferred tax asset 3,692 2,439
Valuation allowance 2,792 1,539
- ---------------------------------------------------------------------------------------------------------------------------
Deferred tax asset, net of valuation allowance $ 900 $ 900
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
The net change in the valuation allowance for the year ended December
31, 1997 was $1,253,000. The valuation allowance primarily relates to
uncertainties on the deductibility for UBT purposes of certain compensation
related items. The deferred tax asset is included in other assets.
15. RELATED PARTY TRANSACTIONS
The Partnership and its consolidated subsidiaries provide investment management,
distribution, shareholder servicing, accounting and legal services to the
Alliance mutual funds. Substantially all of these services are provided under
contracts that set forth the services to be provided and the fees to be charged.
The contracts are subject to annual review and approval by each of the Alliance
mutual funds' boards of directors or trustees and, in certain circumstances, by
the Alliance mutual funds' shareholders.
<PAGE>
Revenues for services provided to the Alliance mutual funds are as follows (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Investment advisory and services fees $384,759 $291,601 $232,730
Distribution plan fees 213,692 166,411 128,733
Shareholder servicing and administration fees 44,871 39,451 35,310
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
The Partnership provides investment management and administration
services to Equitable and certain of its subsidiaries other than the Partnership
("Equitable Subsidiaries") and certain of their affiliates. In addition, certain
Equitable Subsidiaries distribute Alliance mutual funds and cash management
products for which they receive commissions and distribution payments. Sales of
Alliance mutual funds through the Equitable Subsidiaries aggregated
$594,116,000, $697,144,000 and $346,717,000 for the years ended December 31,
1997, 1996 and 1995, respectively. The Partnership and its employees are covered
by various insurance policies maintained by Equitable Subsidiaries. In addition,
the Partnership pays fees for other services provided by Equitable Subsidiaries.
Aggregate amounts included in the consolidated financial statements for
transactions with the Equitable Subsidiaries and certain of their affiliates are
as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues:
Investment advisory and services fees $52,930 $44,901 $43,978
Shareholder servicing and administration fees 7,739 7,548 7,322
- ---------------------------------------------------------------------------------------------------------------------------
Expenses:
Distribution payments to financial intermediaries 56,118 30,533 23,710
General and administrative 5,819 5,865 5,428
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
16. SUPPLEMENTAL CASH FLOW INFORMATION
Cash payments for interest and income taxes were as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest $ 1,803 $ 506 $ 812
Income taxes 15,724 14,797 11,125
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
17. ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards No. 130 ("SFAS 130"), "REPORTING COMPREHENSIVE
INCOME". SFAS 130 establishes the disclosure requirements for reporting
comprehensive income in an entity's annual and interim financial statements.
Comprehensive income includes such items as foreign currency translation
adjustments and unrealized gains on securities currently reported as components
of partners' capital. SFAS 130 will require the Partnership to classify items of
other comprehensive income by their nature in a financial statement and display
the accumulated balance of other comprehensive income separately in the
partners' capital section of the statement of financial condition. SFAS 130 is
effective for fiscal years beginning after December 15, 1997. The Partnership
will adopt the provisions of SFAS 130 in its 1998 financial statements.
<PAGE>
In June 1997, the FASB issued Statement of Financial Accounting
Standards No. 131 ("SFAS 131"), "DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND
RELATED INFORMATION". SFAS 131 establishes standards for the way a public
enterprise reports information about operating segments in its annual and
interim financial statements. It also establishes standards for related
disclosures about products and services, geographic areas and major customers.
Generally, financial information will be required to be reported on the basis
used by management for evaluating segment performance and for deciding how to
allocate resources to segments. SFAS 131 is effective for fiscal years beginning
after December 15, 1997 and need not be applied to interim reporting in the
initial year of adoption. The Partnership intends to adopt the provisions of
SFAS 131 in its 1998 consolidated financial statements, however, management of
the Partnership has not yet determined what information, if any, will be
reported.
18. SUBSEQUENT EVENTS
On February 19, 1998, the Board of Directors of the General Partner authorized a
two-for-one Unit split to holders of record on March 11, 1998. Unit and per Unit
amounts in the financial statements have been restated to reflect the Unit
split.
On February 5, 1998, the Finance Committee of the Board of Directors of
the General Partner declared a cash distribution of $69,980,000 or $0.41 per
Unit representing the Available Cash Flow (as defined in the Partnership
Agreement) of the Partnership for the period October 1 through December 31,
1997. The distribution is payable on February 24, 1998 to holders of record on
February 17, 1998.
19. QUARTERLY FINANCIAL DATA (UNAUDITED)
(in thousands, except per Unit data)
<TABLE>
<CAPTION>
QUARTER ENDED 1997
- ---------------------------------------------------------------------------------------------------------------------------
DECEMBER SEPTEMBER JUNE MARCH
31 30 30 31
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $279,901 $250,848 $225,336 $219,251
Net income (loss) 73,520 66,209 (64,122) 53,349
Basic net income (loss) per Unit(1) .43 .39 (.38) .31
Diluted net income (loss) per Unit(1) .42 .38 (.38) .31
Cash distributions per Unit(1)(2) .41 .37 .32 .30
Unit prices(1):
High 19 29/32 18 3/4 14 23/32 14 15/16
Low 16 3/8 14 3/4 12 3/16 12 5/16
- ---------------------------------------------------------------------------------------------------------------------------
QUARTER ENDED 1996
- ---------------------------------------------------------------------------------------------------------------------------
DECEMBER SEPTEMBER JUNE MARCH
31 30 30 31
- ---------------------------------------------------------------------------------------------------------------------------
Revenues $212,754 $197,998 $196,149 $181,616
Net income 52,292 48,957 47,030 45,067
Basic net income per Unit(1) .31 .29 .28 .27
Diluted net income per Unit(1) .30 .29 .27 .27
Cash distributions per Unit(1)(2) .295 .275 .265 .26
Unit prices(1):
High 14 7/16 13 12 9/16 12 3/4
Low 12 9/16 11 9/16 11 11/16 10 7/8
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Unit and per Unit amounts have been restated to reflect the two-for-one
Unit split, as described in Note 18.
(2) Declared and paid during the following quarter.
<PAGE>
INDEPENDENT AUDITORS' REPORT
THE GENERAL PARTNER AND UNITHOLDERS
ALLIANCE CAPITAL MANAGEMENT L.P.
We have audited the accompanying consolidated statements of financial
condition of Alliance Capital Management L.P. and subsidiaries as of December
31, 1997 and 1996, and the related consolidated statements of income, changes in
partners' capital, and cash flows for each of the years in the three-year period
ended December 31, 1997. These consolidated financial statements are the
responsibility of the management of Alliance Capital Management Corporation,
General Partner. Our responsibility is to express an opinion on these
consolidated 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, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Alliance
Capital Management L.P. and subsidiaries as of December 31, 1997 and 1996 and
the results of their operations and their cash flows for each of the years in
the three-year period ended December 31, 1997 in conformity with generally
accepted accounting principles.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
New York, New York
February 5, 1998, except
for Note 18 which is as of
February 19, 1998
<PAGE>
SUBSIDIARIES OF THE REGISTRANT
Alliance Capital Management
Corporation of Delaware
(Delaware)
ACM Software Services Ltd.
(Delaware)
Alliance Capital Asset Management
(India) Private Ltd.
(India)
Alliance Capital Management
Australia Limited
(Australia)
Alliance Capital Management
(Asia) Ltd.
(Delaware)
Alliance Capital (Mauritius)
Private Limited
(Mauritius)
Alliance Corporate Finance
Group Incorporated
(Delaware)
Alliance Capital Management
(Brasil) Ltda.
(Brazil)
Alliance Capital Management
(India) Ltd.
(Delaware)
<PAGE>
-2-
Alliance Capital Management
Canada, Inc.
(Canada)
Alliance Capital Management
(Turkey) Ltd.
(Delaware)
Alliance Capital (Luxembourg) S.A.
(Luxembourg)
Alliance Eastern Europe Inc.
(Delaware)
Alliance Capital Global
Derivatives Corporation
(Delaware)
Alliance Barra Research
Institute, Inc.
(Delaware)
Alliance Fund Distributors, Inc.
(Delaware)
Alliance Fund Services, Inc.
(Delaware)
Alliance Capital Oceanic Corporation
(Delaware)
Alliance Capital Management
(Japan) Inc.
(Delaware)
ACM Fund Services, S.A.
(Luxembourg)
ACM Fund Services (Espana) S.L.
(Madrid)
ACSYS Software India Private Limited
(India)
<PAGE>
-3-
Alliance Capital Limited
(UK)
Alliance Capital Services Limited
(UK)
Cursitor Alliance LLC
(Delaware)
Cursitor Cecogest SA
(France)
Cursitor Courtage SARL
(France)
Cursitor-Eaton Asset
Management Company
(New York)
Cursitor Gestion SA
(France)
Cursitor Alliance Holdings Limited
(UK)
Cursitor Management Co. SA
(Luxembourg)
Cursitor Management Ltd.
(UK)
Dimensional Trust Management Limited
(UK)
Draycott Partners, Ltd.
(Massachusetts)
<PAGE>
-4-
Meiji-Alliance Capital Corporation
(Delaware)
Cursitor Alliance Services Limited
(UK)
East Fund Managementberatung GmbH
(Austria)
ACM CIIC Investment Management Limited
(Cayman Islands)
Alliance Capital Management (Singapore) Ltd.
(Singapore)
Alliance Capital Investment Trust Management
Limited K.K.
(Japan)
Alliance Odyssey Capital Management (Proprietary) Limited
(South Africa)
<PAGE>
[LETTERHEAD]
The Board of Directors
Alliance Capital Management Corporation:
We consent to the use of our report dated February 5, 1998, except for Note
18 which is as of February 19, 1998, relating to the consolidated statements
of financial condition of Alliance Capital Management L.P. and subsidiaries as
of December 31, 1997 and 1996, and the related consolidated statements of
income, changes in partners' capital, and cash flows for each of the years in
the three-year period ended December 31, 1997 incorporated herein by
reference in the annual report on Form 10-K of Alliance Capital Management
L.P.
/s/ KPMG Peat Marwick LLP
New York, New York
March 27, 1998
<PAGE>
POWER-OF-ATTORNEY
KNOWN TO ALL MEN BY THESE PRESENTS, that the person whose signature appears
below hereby revokes all prior powers granted by the undersigned to the extent
inconsistent herewith and constitutes and appoints Dave H. Williams, John D.
Carifa and David R. Brewer, Jr., and each of them, to act severally as
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for the undersigned in any and all capacities, for the sole
purpose of signing the Alliance Capital Management L.P. Annual Report on Form
10-K for the fiscal year ended December 31, 1997 and filing the same, with
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
said attorneys-in-fact, or their substitute or substitutes, may do or cause to
be done by virtue hereof.
Date: March 2, 1998
/s/ Claude Bebear
-----------------------------------
Claude Bebear
5710e
<PAGE>
POWER-OF-ATTORNEY
KNOWN TO ALL MEN BY THESE PRESENTS, that the person whose signature appears
below hereby revokes all prior powers granted by the undersigned to the extent
inconsistent herewith and constitutes and appoints Dave H. Williams, John D.
Carifa and David R. Brewer, Jr., and each of them, to act severally as
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for the undersigned in any and all capacities, for the sole
purpose of signing the Alliance Capital Management L.P. Annual Report on Form
10-K for the fiscal year ended December 31, 1997 and filing the same, with
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
said attorneys-in-fact, or their substitute or substitutes, may do or cause to
be done by virtue hereof.
Date: March 2, 1998
/s/ Luis J. Bastida
-----------------------------------
Luis J. Bastida
5710e
<PAGE>
POWER-OF-ATTORNEY
KNOWN TO ALL MEN BY THESE PRESENTS, that the person whose signature appears
below hereby revokes all prior powers granted by the undersigned to the extent
inconsistent herewith and constitutes and appoints Dave H. Williams, John D.
Carifa and David R. Brewer, Jr., and each of them, to act severally as
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for the undersigned in any and all capacities, for the sole
purpose of signing the Alliance Capital Management L.P. Annual Report on Form
10-K for the fiscal year ended December 31, 1997 and filing the same, with
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
said attorneys-in-fact, or their substitute or substitutes, may do or cause to
be done by virtue hereof.
Date: March 2, 1998
/s/ Donald H. Brydon
-----------------------------------
Donald H. Brydon
5710e
<PAGE>
POWER-OF-ATTORNEY
KNOWN TO ALL MEN BY THESE PRESENTS, that the person whose signature appears
below hereby revokes all prior powers granted by the undersigned to the extent
inconsistent herewith and constitutes and appoints Dave H. Williams, John D.
Carifa and David R. Brewer, Jr., and each of them, to act severally as
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for the undersigned in any and all capacities, for the sole
purpose of signing the Alliance Capital Management L.P. Annual Report on Form
10-K for the fiscal year ended December 31, 1997 and filing the same, with
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
said attorneys-in-fact, or their substitute or substitutes, may do or cause to
be done by virtue hereof.
Date: March 2, 1998
/s/ Henri de Castries
-----------------------------------
Henri de Castries
5710e
<PAGE>
POWER-OF-ATTORNEY
KNOWN TO ALL MEN BY THESE PRESENTS, that the person whose signature appears
below hereby revokes all prior powers granted by the undersigned to the extent
inconsistent herewith and constitutes and appoints Dave H. Williams, John D.
Carifa and David R. Brewer, Jr., and each of them, to act severally as
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for the undersigned in any and all capacities, for the sole
purpose of signing the Alliance Capital Management L.P. Annual Report on Form
10-K for the fiscal year ended December 31, 1997 and filing the same, with
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
said attorneys-in-fact, or their substitute or substitutes, may do or cause to
be done by virtue hereof.
Date: March 2, 1998
/s/ Kevin C. Dolan
-----------------------------------
Kevin C. Dolan
5710e
<PAGE>
POWER-OF-ATTORNEY
KNOWN TO ALL MEN BY THESE PRESENTS, that the person whose signature appears
below hereby revokes all prior powers granted by the undersigned to the extent
inconsistent herewith and constitutes and appoints Dave H. Williams, John D.
Carifa and David R. Brewer, Jr., and each of them, to act severally as
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for the undersigned in any and all capacities, for the sole
purpose of signing the Alliance Capital Management L.P. Annual Report on Form
10-K for the fiscal year ended December 31, 1997 and filing the same, with
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
said attorneys-in-fact, or their substitute or substitutes, may do or cause to
be done by virtue hereof.
Date: March 2, 1998
/s/ Jean-Pierre Hellebuyck
-----------------------------------
Jean-Pierre Hellebuyck
5710e
<PAGE>
POWER-OF-ATTORNEY
KNOWN TO ALL MEN BY THESE PRESENTS, that the person whose signature appears
below hereby revokes all prior powers granted by the undersigned to the extent
inconsistent herewith and constitutes and appoints Dave H. Williams, John D.
Carifa and David R. Brewer, Jr., and each of them, to act severally as
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for the undersigned in any and all capacities, for the sole
purpose of signing the Alliance Capital Management L.P. Annual Report on Form
10-K for the fiscal year ended December 31, 1997 and filing the same, with
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
said attorneys-in-fact, or their substitute or substitutes, may do or cause to
be done by virtue hereof.
Date: March 2, 1998
/s/ Benjamin D. Holloway
-----------------------------------
Benjamin D. Holloway
5710e
<PAGE>
POWER-OF-ATTORNEY
KNOWN TO ALL MEN BY THESE PRESENTS, that the person whose signature appears
below hereby revokes all prior powers granted by the undersigned to the extent
inconsistent herewith and constitutes and appoints Dave H. Williams, John D.
Carifa and David R. Brewer, Jr., and each of them, to act severally as
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for the undersigned in any and all capacities, for the sole
purpose of signing the Alliance Capital Management L.P. Annual Report on Form
10-K for the fiscal year ended December 31, 1997 and filing the same, with
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
said attorneys-in-fact, or their substitute or substitutes, may do or cause to
be done by virtue hereof.
Date: March 2, 1998
/s/ Denis Duverne
---------------------------------
Denis Duverne
5710e
<PAGE>
POWER-OF-ATTORNEY
KNOWN TO ALL MEN BY THESE PRESENTS, that the person whose signature appears
below hereby revokes all prior powers granted by the undersigned to the extent
inconsistent herewith and constitutes and appoints Dave H. Williams, John D.
Carifa and David R. Brewer, Jr., and each of them, to act severally as
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for the undersigned in any and all capacities, for the sole
purpose of signing the Alliance Capital Management L.P. Annual Report on Form
10-K for the fiscal year ended December 31, 1997 and filing the same, with
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
said attorneys-in-fact, or their substitute or substitutes, may do or cause to
be done by virtue hereof.
Date: March 2, 1998
/s/ Joseph J. Melone
---------------------------------
Joseph J. Melone
5710e
<PAGE>
POWER-OF-ATTORNEY
KNOWN TO ALL MEN BY THESE PRESENTS, that the person whose signature appears
below hereby revokes all prior powers granted by the undersigned to the extent
inconsistent herewith and constitutes and appoints Dave H. Williams, John D.
Carifa and David R. Brewer, Jr., and each of them, to act severally as
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for the undersigned in any and all capacities, for the sole
purpose of signing the Alliance Capital Management L.P. Annual Report on Form
10-K for the fiscal year ended December 31, 1997 and filing the same, with
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
said attorneys-in-fact, or their substitute or substitutes, may do or cause to
be done by virtue hereof.
Date: March 2, 1998
/s/ Edward D. Miller
---------------------------------
Edward D. Miller
5710e
<PAGE>
POWER-OF-ATTORNEY
KNOWN TO ALL MEN BY THESE PRESENTS, that the person whose signature appears
below hereby revokes all prior powers granted by the undersigned to the extent
inconsistent herewith and constitutes and appoints Dave H. Williams, John D.
Carifa and David R. Brewer, Jr., and each of them, to act severally as
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for the undersigned in any and all capacities, for the sole
purpose of signing the Alliance Capital Management L.P. Annual Report on Form
10-K for the fiscal year ended December 31, 1997 and filing the same, with
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
said attorneys-in-fact, or their substitute or substitutes, may do or cause to
be done by virtue hereof.
Date: March 2, 1998
/s/ Peter D. Noris
---------------------------------
Peter D. Noris
5710e
<PAGE>
POWER-OF-ATTORNEY
KNOWN TO ALL MEN BY THESE PRESENTS, that the person whose signature appears
below hereby revokes all prior powers granted by the undersigned to the extent
inconsistent herewith and constitutes and appoints Dave H. Williams, John D.
Carifa and David R. Brewer, Jr., and each of them, to act severally as
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for the undersigned in any and all capacities, for the sole
purpose of signing the Alliance Capital Management L.P. Annual Report on Form
10-K for the fiscal year ended December 31, 1997 and filing the same, with
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
said attorneys-in-fact, or their substitute or substitutes, may do or cause to
be done by virtue hereof.
Date: March 2, 1998
/s/ Stanley B. Tulin
---------------------------------
Stanley B. Tulin
5710e
<PAGE>
POWER-OF-ATTORNEY
KNOWN TO ALL MEN BY THESE PRESENTS, that the person whose signature appears
below hereby revokes all prior powers granted by the undersigned to the extent
inconsistent herewith and constitutes and appoints Dave H. Williams, John D.
Carifa and David R. Brewer, Jr., and each of them, to act severally as
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for the undersigned in any and all capacities, for the sole
purpose of signing the Alliance Capital Management L.P. Annual Report on Form
10-K for the fiscal year ended December 31, 1997 and filing the same, with
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
said attorneys-in-fact, or their substitute or substitutes, may do or cause to
be done by virtue hereof.
Date: March 2, 1998
/s/ Robert B. Zoellick
---------------------------------
Robert B. Zoellick
5710e
<PAGE>
POWER-OF-ATTORNEY
KNOWN TO ALL MEN BY THESE PRESENTS, that the person whose signature appears
below hereby revokes all prior powers granted by the undersigned to the extent
inconsistent herewith and constitutes and appoints Dave H. Williams, John D.
Carifa and David R. Brewer, Jr., and each of them, to act severally as
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for the undersigned in any and all capacities, for the sole
purpose of signing the Alliance Capital Management L.P. Annual Report on Form
10-K for the fiscal year ended December 31, 1997 and filing the same, with
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
said attorneys-in-fact, or their substitute or substitutes, may do or cause to
be done by virtue hereof.
Date: March 2, 1998
/s/ Alfred Harrison
---------------------------------
Alfred Harrison
5710e
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> YEAR YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1996 DEC-31-1995
<PERIOD-START> JAN-01-1997 JAN-01-1996 JAN-01-1995
<PERIOD-END> DEC-31-1997 DEC-31-1996 DEC-31-1995
<CASH> 63,761 0 0
<SECURITIES> 47,097 0 0
<RECEIVABLES> 208,415 0 0
<ALLOWANCES> 0 0 0
<INVENTORY> 0 0 0
<CURRENT-ASSETS> 319,217 0 0
<PP&E> 80,477 57,210 43,946
<DEPRECIATION> 0 0 0
<TOTAL-ASSETS> 784,460 0 0
<CURRENT-LIABILITIES> 295,993 0 0
<BONDS> 13,140 0 0
0 0 0
0 0 0
<COMMON> 0 0 0
<OTHER-SE> 398,051 0 0
<TOTAL-LIABILITY-AND-EQUITY> 784,460 0 0
<SALES> 975,336 0 0
<TOTAL-REVENUES> 975,336 0 0
<CGS> 0 0 0
<TOTAL-COSTS> 817,600 0 0
<OTHER-EXPENSES> 7,006 0 0
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 2,968 0 0
<INCOME-PRETAX> 147,762 0 0
<INCOME-TAX> 18,806 0 0
<INCOME-CONTINUING> 128,956 0 0
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 128,958 0 0
<EPS-PRIMARY> .76 1.15 .95
<EPS-DILUTED> .74 1.13<F1> .94<F1>
<FN>
<F1>Earnings per Unit amounts prior to 1997 have been restated as required to
comply with Statement of Financial Accounting Standards No. 128, Earnings per
Share. Unit and per Unit amounts for all periods presented reflect a
two-for-one Unit split with a record date of March 11, 1998.
</FN>
</TABLE>
