FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
-------------------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________________ to ___________________
Commission File No. 1-9818
ALLIANCE CAPITAL MANAGEMENT HOLDING L.P.
(Formerly Alliance Capital Management L.P.)
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 13-3434400
- -------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1345 Avenue of the Americas, New York, NY 10105
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(Address of principal executive offices) (Zip Code)
(212) 969-1000
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
The number of Units representing assignments of beneficial ownership of Limited
Partnership Interests outstanding as of September 30, 1999 was 171,265,623
Units.
<PAGE>
ALLIANCE CAPITAL MANAGEMENT HOLDING L.P.
(Formerly Alliance Capital Management L.P.)
Index to Form 10-Q
Part I
FINANCIAL INFORMATION
---------------------
Item 1. Financial Statements Page
Condensed Consolidated Statements of Financial Condition 1
Condensed Consolidated Statements of Income 2
Condensed Consolidated Statements of Changes in
Partners' Capital 3
Condensed Consolidated Statements of Cash Flows 4
Notes to Condensed Consolidated Financial Statements 5-7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8-17
Part II
OTHER INFORMATION
-----------------
Item 1. Legal Proceedings 18
Item 2. Changes in Securities 18
Item 3. Defaults Upon Senior Securities 18
Item 4. Submission of Matters to a Vote of
Security Holders 18
Item 5. Other Information 19
Item 6. Exhibits and Reports on Form 8-K 19-20
<PAGE>
Part I
FINANCIAL INFORMATION
Item 1. Financial Statements
ALLIANCE CAPITAL MANAGEMENT HOLDING L.P.
(Formerly Alliance Capital Management L.P.)
Condensed Consolidated Statements of Financial Condition
(in thousands)
<TABLE>
ASSETS 9/30/99 12/31/98
------ ------- --------
(unaudited)
<S> <C> <C>
Cash and cash equivalents................................... $ 86,138 $ 75,186
Receivable from brokers and dealers for sale
of shares of Alliance mutual funds....................... 159,131 159,095
Fees receivable:
Alliance mutual funds.................................... 98,195 80,167
Separately managed accounts:
Affiliated clients..................................... 6,680 6,682
Third party clients.................................... 89,022 86,166
Investments, available-for-sale............................. 249,952 94,743
Furniture, equipment and leasehold improvements, net........ 129,707 96,401
Intangible assets, net...................................... 99,029 102,001
Deferred sales commissions, net............................. 560,116 375,293
Other assets................................................ 77,024 56,858
----------- -----------
Total assets............................................. $ 1,554,994 $ 1,132,592
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
---------------------------------
Liabilities:
Payable to Alliance mutual funds for share purchases..... $ 211,361 $ 199,316
Accounts payable and accrued expenses.................... 202,264 202,980
Accrued compensation and benefits........................ 259,519 106,929
Debt..................................................... 401,963 190,210
Minority interests in consolidated subsidiaries ......... 3,033 2,884
----------- ----------
Total liabilities...................................... 1,078,140 702,319
Partners' capital........................................ 476,854 430,273
----------- -----------
Total liabilities and partners' capital................ $1,554,994 $1,132,592
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
1
<PAGE>
ALLIANCE CAPITAL MANAGEMENT HOLDING L.P.
(Formerly Alliance Capital Management L.P.)
Condensed Consolidated Statements of Income
(unaudited)
(in thousands, except per Unit amounts)
<TABLE>
Three Months Ended Nine Months Ended
--------------------- --------------------
9/30/99 9/30/98 9/30/99 9/30/98
------- ------- ------- -------
Revenues:
<S> <C> <C> <C> <C>
Investment advisory and services fees:
Alliance mutual funds....................................... $207,329 $148,108 $588,156 $435,813
Separately managed accounts:
Affiliated clients........................................ 12,222 13,258 39,116 43,444
Third party clients....................................... 87,414 69,392 276,386 224,761
Distribution revenues......................................... 115,483 79,698 314,313 221,987
Shareholder servicing fees.................................... 16,272 11,677 45,069 31,258
Other revenues ............................................... 6,442 4,730 20,806 17,737
-------- -------- ---------- --------
445,162 326,863 1,283,846 975,000
-------- -------- ---------- --------
Expenses:
Employee compensation and benefits............................ 113,521 81,835 334,493 251,865
Promotion and servicing:
Distribution plan payments to financial intermediaries:
Affiliated................................................ 26,983 22,008 77,858 58,734
Third party............................................... 56,604 47,161 166,473 133,289
Amortization of deferred sales commissions.................. 42,990 29,296 117,688 77,792
Other....................................................... 30,164 22,418 85,060 67,287
General and administrative.................................... 47,825 37,707 135,564 121,104
Interest...................................................... 6,519 1,698 14,499 5,852
Amortization of intangible assets............................. 963 1,115 2,890 3,035
-------- --------- --------- --------
325,569 243,238 934,525 718,958
-------- --------- --------- --------
Income before income taxes....................................... 119,593 83,625 349,321 256,042
Income taxes.................................................. 17,939 13,377 52,399 40,969
-------- --------- --------- ---------
Net income....................................................... $101,654 $ 70,248 $ 296,922 $ 215,073
======== ========= ========= =========
Net income per Unit:
Basic....................................................... $ 0.59 $ 0.41 $ 1.72 $ 1.25
======== ========= ========= =========
Diluted..................................................... $ 0.57 $ 0.40 $ 1.67 $ 1.22
======== ========= ========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
2
<PAGE>
ALLIANCE CAPITAL MANAGEMENT HOLDING L.P.
(Formerly Alliance Capital Management L.P.)
Condensed Consolidated Statements of
Changes in Partners' Capital
and Comprehensive Income
(unaudited)
(in thousands)
<TABLE>
Three Months Ended Nine Months Ended
--------------------- --------------------
9/30/99 9/30/98 9/30/99 9/30/98
------- ------- ------- -------
<S> <C> <C> <C> <C>
Partners' capital - beginning of period.................... $467,062 $416,908 $430,273 $398,051
Comprehensive income:
Net income.......................................... 101,654 70,248 296,922 215,073
Unrealized gain (loss) on investments, net.......... (781) (1,129) 370 (244)
Foreign currency translation adjustment, net........ 1,032 (54) 1,035 (54)
-------- -------- --------- --------
Comprehensive income................................ 101,905 69,065 298,327 214,775
Capital contribution received from Alliance Capital
Management Corporation................................ 90 860 1,156 2,579
Cash distributions to partners.......................... (93,381) (72,201) (260,745) (207,373)
Proceeds from Unit options exercised.................... 1,178 654 7,843 7,254
-------- -------- --------- --------
Partners' capital - end of period.......................... $476,854 $415,286 $476,854 $415,286
======== ======== ======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
ALLIANCE CAPITAL MANAGEMENT HOLDING L.P.
(Formerly Alliance Capital Management L.P.)
Condensed Consolidated Statements of Cash Flows
(unaudited)
(in thousands)
<TABLE>
Nine Months Ended
-----------------------
9/30/99 9/30/98
------- -------
<S> <C> <C>
Cash flows from operating activities:
Net income............................................................ $ 296,922 $ 215,073
Adjustments to reconcile net income to net cash provided
from operating activities:
Amortization and depreciation....................................... 135,392 92,875
Other, net.......................................................... 16,247 10,781
Changes in assets and liabilities:
(Increase) in receivable from brokers and dealers for sale
of shares of Alliance mutual funds.............................. (36) (22,037)
(Increase) in fees receivable from Alliance mutual funds,
affiliated clients and third party clients...................... (20,426) (12,143)
(Increase) in deferred sales commissions.......................... (302,511) (180,450)
(Increase) in other assets........................................ (23,529) (22,724)
Increase in payable to Alliance mutual funds for share
purchases....................................................... 12,045 37,850
Increase (decrease) in accounts payable and accrued expenses...... (2,141) 56,477
Increase in accrued compensation and benefits, less
deferred compensation.......................................... 149,052 114,321
---------- --------
Net cash provided from operating activities.................. 261,015 290,023
--------- --------
Cash flows from investing activities:
Purchase of investments............................................... (877,790) (309,460)
Proceeds from sale of investments..................................... 723,130 293,161
Additions to furniture, equipment and leasehold
improvements, net................................................... (47,585) (23,683)
Other ................................................................ (142) -
---------- --------
Net cash used in investing activities........................ (202,387) (39,982)
---------- --------
Cash flows from financing activities:
Proceeds from borrowings............................................. 1,766,728 683,790
Repayment of debt..................................................... (1,562,375) (572,375)
Distributions to partners............................................. (260,744) (207,373)
Capital contribution received from Alliance Capital Management
Corporation......................................................... 656 329
Unit options exercised................................................ 7,842 7,254
---------- --------
Net cash used in financing activities........................ (47,893) (88,375)
---------- --------
Effect of exchange rate changes on cash and cash equivalents ............ 217 (54)
---------- --------
Net increase in cash and cash equivalents................................ 10,952 161,612
Cash and cash equivalents at beginning of period......................... 75,186 63,761
---------- --------
Cash and cash equivalents at end of period............................... $ 86,138 $ 225,373
========== =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
ALLIANCE CAPITAL MANAGEMENT HOLDING L.P.
(Formerly Alliance Capital Management L.P.)
Notes to Condensed Consolidated Financial Statements
September 30, 1999
(unaudited)
1. Reorganization
At a special meeting of unitholders held on September 22, 1999, the
unitholders of Alliance Capital Management Holding L.P., formerly Alliance
Capital Management L.P., ("Alliance Holding" or the "Partnership"),
approved both the transfer of Alliance Holding's business to Alliance
Capital Management L.P., formerly Alliance Capital Management L.P. II
("Alliance Capital"), a newly-formed private limited partnership, in
exchange for all units of Alliance Capital (the "Reorganization") and the
amendment and restatement of Alliance Holding's partnership agreement. In
connection with the Reorganization, Alliance Holding offered to its
unitholders the opportunity to exchange Alliance Holding units for Alliance
Capital units on a one-for-one basis (the "Exchange Offer").
Effective at the close of business on October 29, 1999, Alliance Holding
transferred its business to Alliance Capital pursuant to the Reorganization
and its principal asset will be its interest in Alliance Capital and it
will function solely as a holding entity through which public Unitholders
will continue to own an indirect interest in Alliance Capital's business.
2. Basis of Presentation
The unaudited interim condensed consolidated financial statements of the
Partnership included herein have been prepared in accordance with the
instructions to Form 10-Q pursuant to the rules and regulations of the
Securities and Exchange Commission. In the opinion of management, all
adjustments, consisting only of normal recurring adjustments necessary for
a fair presentation of (a) financial position at September 30, 1999, (b)
results of operations for the three months and nine months ended September
30, 1999 and 1998 and (c) cash flows for the nine months ended September
30, 1999 and 1998, have been made.
3. Reclassification
Certain prior period amounts have been reclassified to conform with the
current period presentation.
4. Deferred Sales Commissions
Sales commissions paid to financial intermediaries in connection with the
sale of shares of open-end mutual funds managed by the Partnership sold
without a front-end sales charge are capitalized and amortized over periods
not exceeding five and one-half years, the period 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.
5. Commitments and Contingencies
On July 25, 1995, a Consolidated and Supplemental Class Action Complaint
("Original 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
5
<PAGE>
securities. On September 26, 1996, the United States District Court for the
Southern District of New York granted the defendants' motion to dismiss all
counts of the Original Complaint. On October 29, 1997, the United States
Court of Appeals for the Second Circuit affirmed that decision.
On October 29, 1996, plaintiffs filed a motion for leave to file an amended
complaint. The principal allegations of the proposed amended complaint are
that (i) the Fund failed to hedge against currency risk despite
representations that it would do so, (ii) the Fund did not properly
disclose that it planned to invest in mortgage-backed derivative
securities, and (iii) two advertisements used by the Fund misrepresented
the risks of investing in the Fund. On October 15, 1998, the United States
Court of Appeals for the Second Circuit issued an order granting
plaintiffs' motion to file an amended complaint alleging that the Fund
misrepresented its ability to hedge against currency risk and denying
plaintiffs' motion to file an amended complaint alleging that the Fund did
not properly disclose that it planned to invest in mortgaged-backed
derivative securities and that certain advertisements used by the Fund
misrepresented the risks of investing in the Fund.
The Partnership believes that the allegations in the proposed amended
complaint are without merit and intends to vigorously defend against this
action. 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.
In connection with the Reorganization and Exchange Offer, on September 29,
1999, a purported class action complaint was filed in the Court of Chancery
of the State of Delaware in and for New Castle County against Alliance
Holding, Alliance Capital, Alliance Capital Management Corporation and
certain other defendants affiliated with the Partnership which sought,
among other things, to enjoin the consummation of the reorganization and
exchange offer and alleged, among other things, the amended and restated
Alliance Holding partnership agreement adversely effected the Partnership
Unitholders.
On October 29, 1999, the parties to the litigation brought against Alliance
Holding, Alliance Capital, Alliance Capital Management Corporation and
certain other defendants affiliated with the Partnership entered into a
memorandum of understanding setting forth the parties' agreement in
principle to the terms of a proposed settlement of that action.
Management of the Partnership does not believe that the resolution of this
matter will have a material adverse effect on the Partnership's results of
operations or financial condition.
6. Income Taxes
The Partnership is a publicly traded partnership for federal income tax
purposes and, accordingly, is not subject to federal or state corporate
income taxes. However, the Partnership is subject to the New York City
unincorporated business tax and a 3.5% federal tax on 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.
7. Net Income Per Unit
Basic net income per Unit is derived by reducing net income for each period
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 during each period. Diluted net income per Unit is derived by
reducing net income for each period by 1% for the general partnership
interest held by the General Partner and dividing the remaining 99% by the
total of the weighted average number of Units outstanding during each
period and the dilutive Unit equivalents resulting from outstanding
employee Unit options.
6
<PAGE>
<TABLE>
Three Months Ended Nine Months Ended
----------------------- -------------------
9/30/99 9/30/98 9/30/99 9/30/98
------- ------- ------- -------
(in thousands, except per Unit amounts)
<S> <C> <C> <C> <C>
Net income....................................... $101,654 $ 70,248 $296,922 $215,073
======== ======== ======== ========
Weighted average Units outstanding-
Basic net income per Unit...................... 171,228 170,204 170,947 169,810
Dilutive effect of employee Unit options......... 5,242 5,025 5,194 5,239
-------- -------- -------- --------
Weighted average Units outstanding-
Diluted net income per Unit.................... 176,470 175,229 176,141 175,049
======== ======== ======== ========
Basic net income per Unit........................ $ 0.59 $ 0.41 $ 1.72 $ 1.25
======= ======= ======= =======
Diluted net income per Unit...................... $ 0.57 $ 0.40 $ 1.67 $ 1.22
======= ======= ======= =======
</TABLE>
8. Supplemental Cash Flow Information
Cash payments for interest and income taxes were as follows (in thousands):
Three Months Ended Nine Months Ended
------------------ -------------------
9/30/99 9/30/98 9/30/99 9/30/98
------- ------- ------- -------
Interest.................. $ 3,655 $ 782 $ 7,763 $ 3,325
Income taxes.............. 16,030 4,188 80,304 14,368
9. Accounting Pronouncement
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, ("SFAS 133")"Accounting for
Derivative Instruments and Hedging Activities". Under this Statement, an
entity is required to recognize derivative instruments as either assets or
liabilities in the statement of financial condition and measure those
instruments at fair value. In addition, any entity that elects to apply
hedge accounting is required to establish at the inception of the hedge the
method it will use for assessing effectiveness of the hedging derivative
and the measurement approach for determining the ineffective aspect of the
hedge. Management of the Partnership intends to adopt this Statement on
January 1, 2001 and does not believe that the adoption of the Statement
will have a material effect on its results of operations, liquidity, or
capital resources.
10. Cash Distribution
On October 14, 1999, the General Partner declared a distribution of
$96,878,000 or $0.56 per Unit representing the Available Cash Flow (as
defined in the Partnership Agreement) of the Partnership for the three
months ended September 30, 1999. The distribution is payable on November
15, 1999 to holders of record on October 28, 1999.
7
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Reorganization
At a special meeting of unitholders held on September 22, 1999, the unitholders
of Alliance Capital Management Holding L.P., formerly Alliance Capital
Management L.P., ("Alliance Holding" or the "Partnership"), approved both the
transfer of Alliance Holding's business to Alliance Capital Management L.P.,
formerly Alliance Capital Management L.P. II ("Alliance Capital"), a
newly-formed private limited partnership, in exchange for all units of Alliance
Capital (the "Reorganization") and the amendment and restatement of Alliance
Holding's partnership agreement. In connection with the Reorganization, Alliance
Holding offered to its unitholders the opportunity to exchange Alliance Holding
units for Alliance Capital units on a one-for-one basis (the "Exchange Offer").
Effective at the close of business on October 29, 1999, Alliance Holding
transferred its business to Alliance Capital pursuant to the Reorganization and
its principal asset will be its interest in Alliance Capital and it will
function solely as a holding entity through which public Unitholders will
continue to own an indirect interest in Alliance Capital's business.
General
Through October 29, 1999, the Partnership offered and since that date Alliance
Capital has offered a broad range of investment management products and services
to meet the varied needs and objectives of individual and institutional
investors. The Partnership derived 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 AXA Financial, Inc.
("AXA Financial") 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, cash management products, principally money
market funds, and certain structured products and hedge funds.
The Partnership's revenues are largely dependent on the total value and
composition of assets under its management. Assets under management were $317.3
billion as of September 30, 1999, an increase of 31.2% from September 30, 1998
primarily as a result of market appreciation, good investment performance, and
strong net sales of Alliance mutual funds. Active equity and balanced account
assets under management, which comprise approximately 55% of total assets under
management, were 46% higher. Active fixed income account assets under
management, which comprise approximately 35% of total assets under management,
increased by 14%.
In the third quarter of 1999, sales of Alliance mutual fund shares, excluding
cash management products, were $12.3 billion compared to sales of $8.0 billion
and $13.8 billion in the third quarter of 1998 and the second quarter of 1999,
respectively. The increase in mutual fund sales over the 1998 third quarter,
principally domestic U.S. equity mutual funds, was offset partially by an
increase in mutual fund redemptions, and resulted in net mutual fund sales of
$5.5 billion for the third quarter 1999, an increase of 44.7% from $3.8 billion
for the third quarter 1998.
8
<PAGE>
Assets Under Management (1):
(Dollars in billions) 9/30/99 9/30/98 $ Change % Change
- ------------------------------------------------------------------------------
Alliance mutual funds:
Mutual funds $ 79.6 $ 51.2 $28.4 55.5%
Variable products 34.5 25.0 9.5 38.8
Cash management products 29.0 23.3 5.7 24.5
- ------------------------------------------------------------------------------
143.1 99.5 43.6 43.8
- ------------------------------------------------------------------------------
Separately managed accounts:
Affiliated clients 29.5 29.1 0.4 1.4
Third party clients 144.7 113.3 31.4 27.7
- ------------------------------------------------------------------------------
174.2 142.4 31.8 22.3
- ------------------------------------------------------------------------------
Total $317.3 $241.9 $75.4 31.2%
- ------------------------------------------------------------------------------
Assets under management at September 30, 1999 were $317.3 billion, an increase
of $75.4 billion or 31.2% from September 30, 1998. The Partnership's mutual fund
assets under management at September 30, 1999 were $143.1 billion, an increase
of $43.6 billion or 43.8% from September 30, 1998, due principally to net sales
of mutual funds and variable products of $22.0 billion and market appreciation
of $16.8 billion. Separately managed account assets under management at
September 30, 1999 for third party clients and affiliated clients were $174.2
billion, an increase of $31.8 billion or 22.3% from September 30, 1998. The
increase was primarily due to market appreciation of $31.4 billion. Assets under
management decreased $3.7 billion or 1.2% from $321.0 billion at June 30, 1999,
primarily due to market depreciation offset partially by net sales of Alliance
mutual funds and net inflows from separately managed accounts.
Assets Under Management (1):
(Dollars in billions) 9/30/99 9/30/98 $ Change % Change
- ------------------------------------------------------------------------------
Active equity & balanced
Domestic $155.3 $110.6 $44.7 40.4%
Global & international 20.8 10.2 10.6 103.9
Active fixed income
Domestic 94.7 85.9 8.8 10.2
Global & international 15.8 11.4 4.4 38.6
Index
Domestic 25.7 20.5 5.2 25.4
Global & international 5.0 3.3 1.7 51.5
- ------------------------------------------------------------------------------
Total $317.3 $241.9 $75.4 31.2%
- ------------------------------------------------------------------------------
<TABLE>
Average Assets Under Management (1):
Three months ended Nine months ended
---------------------------- ----------------------------
(Dollars in billions) 9/30/99 9/30/98 % Change 9/30/99 9/30/98 % Change
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Alliance mutual funds $ 140.0 $ 102.7 36.3% $ 130.8 $ 97.5 34.2%
Separately managed accounts:
Affiliated clients 30.0 29.1 3.1 29.8 29.2 2.1
Third party clients 147.1 118.5 24.1 144.4 116.7 23.7
- --------------------------------------------------------------------------------------------------
Total $317.1 $250.3 26.7% $ 305.0 $243.4 25.3%
- --------------------------------------------------------------------------------------------------
</TABLE>
9
<PAGE>
<TABLE>
Changes in Assets Under Management(1):
(Dollars in billions) 1999 1998
- ---------------------------------------------------------------------------------------------------------------
Separately Alliance Separately Alliance
Managed Mutual Managed Mutual
Accounts Funds Total Accounts Funds Total
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, $168.1 $118.6 $286.7 $133.7 $85.0 $218.7
- ---------------------------------------------------------------------------------------------------------------
New business/sales 6.1 37.8 43.9 6.0 26.8 32.8
Terminations/redemptions (3.0) (18.8) (21.8) (3.2) (11.5) (14.7)
Net cash management sales - 2.5 2.5 - 2.6 2.6
Cash flow (3.1) (0.8) (3.9) 0.9 (0.8) 0.1
Transfers (0.5) 0.5 - - - -
Appreciation (depreciation) 6.6 3.3 9.9 5.0 (2.6) 2.4
- ---------------------------------------------------------------------------------------------------------------
Net change 6.1 24.5 30.6 8.7 14.5 23.2
- ---------------------------------------------------------------------------------------------------------------
Balance at September 30, $174.2 $143.1 $317.3 $142.4 $99.5 $241.9
- ---------------------------------------------------------------------------------------------------------------
(1) Includes 100% of assets under management by unconsolidated joint venture
subsidiaries and affiliates. Includes $2.0 billion mutual fund assets and $0.5
billion separately managed account assets at September 30, 1999 and $0.9 billion
mutual fund assets and $0.4 billion separately managed account assets at
September 30, 1998.
</TABLE>
Assets under management at September 30, 1999 were $317.3 billion, a decrease of
$3.7 billion or 1.2% from June 30, 1999 and an increase of $30.6 billion or
10.7% from December 31, 1998. Alliance mutual fund assets under management at
September 30, 1999 were $143.1 billion, an increase of $2.2 billion or 1.6% from
June 30, 1999 and an increase of $24.5 billion or 20.7% from December 31, 1998.
The increase from June 30, 1999 was principally due to net sales of mutual funds
and cash management products of $5.5 billion and $1.7 billion, respectively,
reduced by market depreciation of $4.8 billion. The increase from December 31,
1998 was due principally to net sales of mutual funds and variable products of
$17.4 billion and $1.6 billion, respectively, and market appreciation of $3.3
billion.
Separately managed account assets under management at September 30, 1999 for
third party clients and affiliated clients were $174.2 billion, an decrease of
$5.9 billion or 3.3% from June 30, 1999 and an increase of $6.1 billion or 3.6%
from December 31, 1998. The decrease from June 30, 1999 was primarily due to
market depreciation of $6.6 billion, net asset outflows from affiliated client
accounts of $0.1 billion, and third party client account terminations and net
asset withdrawals of $1.7 billion. This decrease was partially offset by new
third party client account assets of approximately $2.4 billion. The increase
from December 31, 1998 was primarily due to market appreciation of $6.6 billion
and new client accounts of $6.1 billion, net asset additions to affiliated
client accounts of $1.1 billion offset by net third party client account
terminations and net asset withdrawals of $7.2 billion and transfers out of
affiliated client accounts of $0.5 billion into mutual funds.
<TABLE>
Consolidated Results of Operations
Three months ended Nine months ended
(Dollars & Units in millions, ------------------------------ -----------------------------
except per Unit amounts) 9/30/99 9/30/98 % Change 9/30/99 9/30/98 % Change
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net income $101.7 $70.2 44.9% $296.9 $ 215.1 38.0%
Net income per Unit(1):
Basic $0.59 $0.41 43.9 $1.72 $1.25 37.6
Diluted $0.57 $0.40 42.5 $1.67 $1.22 36.9
Weighted average number of Units outstanding:
Basic 171.2 170.2 0.6 170.9 169.8 0.6
Diluted 176.5 175.2 0.7 176.1 175.0 0.6
Pre-tax margin(2): 36.3% 33.8% - 36.0% 34.0% -
- ---------------------------------------------------------------------------------------------------------------
(1) Unit and per Unit amounts for all periods prior to the two-for-one Unit
split in 1998 have been restated.
(2) Calculated after netting distribution revenues against total expenses.
</TABLE>
10
<PAGE>
Net income for the three months ended September 30, 1999 increased $31.5 million
or 44.9% to $101.7 million from $70.2 million for the three months ended
September 30, 1998. The increase was principally due to an increase in
investment advisory and services fees resulting primarily from higher average
assets under management.
<TABLE>
Revenues
Three months ended Nine months ended
------------------------------ -------------------------------
(Dollars in millions) 9/30/99 9/30/98 % Change 9/30/99 9/30/98 % Change
- ---------------------------------------------------------------------------------------------------------------
Investment advisory and services fees:
<S> <C> <C> <C> <C> <C> <C>
Alliance mutual funds $207.3 $148.1 40.0% $ 588.2 $435.8 35.0%
Separately managed accounts:
Affiliated clients 12.2 13.2 (7.6) 39.1 43.4 (9.9)
Third party clients 87.4 69.4 25.9 276.3 224.8 22.9
Distribution revenues 115.5 79.7 44.9 314.3 222.0 41.6
Shareholder servicing fees 16.3 11.7 39.3 45.1 31.3 44.1
Other revenues 6.5 4.7 38.3 20.8 17.7 17.5
- ---------------------------------------------------------------------------------------------------------------
Total $445.2 $326.8 36.2% $1,283.8 $975.0 31.7%
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
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 the amount of assets under
management, including market appreciation or depreciation, the addition of new
client accounts or client contributions of additional assets to existing
accounts, withdrawals of assets from and termination of client accounts,
purchases and redemptions of mutual fund shares, and shifts of assets between
accounts or products with different fee structures.
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, or calculated as a percentage of investment
returns of a portfolio. Accordingly, these fees may increase the volatility of
the Partnership's revenues and earnings and are more likely to be higher in
favorable markets and lower in unfavorable markets. Performance fees increased
to $59.8 million for the nine months ended September 30, 1999 from $44.6 million
for the nine months ended September 30, 1998. Performance fees were $9.2 million
for the three months ended September 30, 1999 compared to $1.6 million for the
three months ended September 30, 1998.
Investment advisory and services fees from Alliance mutual funds increased by
$59.2 million or 40.0% for the three months ended September 30, 1999, primarily
as a result of a 36.3% increase in average assets under management and a $4.9
million increase in performance fees from certain hedge funds. Investment
advisory and services fees from Alliance mutual funds increased by $152.4
million or 35.0% for the nine months ended September 30, 1999, primarily as a
result of a 34.2% increase in average assets under management and a $14.2
million increase in performance fees from certain hedge funds.
Investment advisory and services fees from affiliated clients, primarily the
General Accounts of ELAS, decreased by $1.0 million or 7.6% and $4.3 million or
9.9% for the three months and nine months ended September 30, 1999,
respectively, due to lower performance fees and a decrease in base investment
advisory and services fees.
Investment advisory and services fees from third party clients increased by
$18.0 million or 25.9% and $51.5 million or 22.9% for the three and nine months
ended September 30, 1999 principally due to an increase in average assets under
management of 24.1% and 23.7%, respectively. The increase in third party client
assets under management was primarily a result of market appreciation.
DISTRIBUTION REVENUES
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
11
<PAGE>
it incurs. Distribution revenues increased 44.9% for the three months and 41.6%
for the nine months ended September 30, 1999 principally due to higher average
mutual fund assets under management resulting from strong sales of Back-End Load
Shares under the Partnership's mutual fund distribution system (the "System")
described under "Capital Resources and Liquidity" and market appreciation.
SHAREHOLDER SERVICING FEES
The Partnership's subsidiaries, Alliance Fund Services, Inc. and ACM Fund
Services S.A., provide transfer agency services to the Alliance mutual funds.
Shareholder servicing fees increased 39.3% for the three months and 44.1% for
the nine months ended September 30, 1999, as a result of increases in the number
of mutual fund shareholder accounts serviced and increases in fee rates. The
number of shareholder accounts serviced increased to approximately 4.8 million
as of September 30, 1999 compared to 3.5 million as of September 30, 1998.
OTHER REVENUES
Other revenues consist principally of administration and recordkeeping services
provided to the Alliance mutual funds and the General Accounts of ELAS and its
insurance subsidiary. Investment income and changes in value of other
investments are also included in other revenues. Other revenues increased for
the three and nine months ended September 30, 1999, principally as a result of
increased market values of the Partnership's hedge fund investments and dividend
income.
<TABLE>
EXPENSES
Three months ended Nine months ended
------------------------------- -------------------------------
(Dollars in millions) 9/30/99 9/30/98 % Change 9/30/99 9/30/98 % Change
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Employee compensation and benefits $113.5 $ 81.8 38.8% $334.5 $251.9 32.8%
Promotion and servicing 156.8 120.9 29.7 447.1 337.1 32.6
General and administrative 47.8 37.7 26.8 135.5 121.1 11.9
Interest 6.5 1.7 282.4 14.5 5.9 145.8
Amortization of intangible assets 1.0 1.1 (9.1) 2.9 3.0 (3.3)
- -------------------------------------------------------------------------------------------------------------
Total $325.6 $243.2 33.9% $934.5 $719.0 30.0%
- -------------------------------------------------------------------------------------------------------------
</TABLE>
EMPLOYEE COMPENSATION AND BENEFITS
Employee compensation and benefits include salaries, commissions, fringe
benefits and incentive compensation based on profitability. Provisions for
future payments to be made under certain deferred compensation arrangements are
also included in employee compensation and benefits expense.
Employee compensation and benefits increased 38.8% for the three months and
32.8% for the nine months ended September 30, 1999 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 working in the Partnership's mutual
fund and technology areas combined with salary increases. The Partnership had
2,299 employees at September 30, 1999 compared to 1,917 at September 30, 1998.
Commissions increased primarily due to higher mutual fund sales.
PROMOTION AND SERVICING
Promotion and servicing expenses 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 for the sale of Back-End Load
Shares under the System. See "Capital Resources and Liquidity". Also included in
this expense category are travel and entertainment, advertising, promotional
materials, and investment meetings and seminars for financial intermediaries
that distribute the Partnership's mutual fund products.
Promotion and servicing expenses increased 29.7% for the three months and 32.6%
for the nine months ended September 30, 1999 primarily due to increased
distribution plan payments resulting from higher average domestic, non U.S. and
cash management mutual fund assets under management. An increase in amortization
of deferred sales commissions as a result of higher sales of Back-End Load
Shares (see "Capital Resources and Liquidity") also contributed to the increase
in promotion and servicing expense. Other
12
<PAGE>
promotion and servicing expenses increased primarily as a result of higher
travel and entertainment costs and higher promotional expenditures incurred in
connection with mutual fund sales initiatives.
GENERAL AND ADMINISTRATIVE
General and administrative expenses include technology, professional fees,
occupancy, communications, equipment and similar expenses. General and
administrative expenses increased 26.8% and 11.9% for the three and nine months
ended September 30, 1999 due principally to higher expenses incurred in
connection with the Year 2000 project and other technology initiatives and
increased occupancy costs. A $10.0 million provision was recorded in March 1998
for the future acquisition of the minority interest in Cursitor Alliance. See
"Capital Resources and Liquidity".
INTEREST
Interest expense is incurred on the Partnership's borrowings and on deferred
compensation owed to employees. Interest expense increased primarily as a result
of higher debt and an increase in deferred compensation liabilities. See
"Capital Resources and Liquidity".
TAXES ON INCOME
The Partnership is a publicly traded partnership for federal income tax purposes
and, accordingly, is not subject to federal or state corporate income taxes.
However, the Partnership is subject to the New York City unincorporated business
tax and a 3.5% federal tax on 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. Income tax expense increased primarily as
a result of higher pre-tax income.
CAPITAL RESOURCES AND LIQUIDITY
Partners' capital was $476.9 million at September 30, 1999, an increase of $46.6
million or 10.8% from $430.3 at December 31, 1998 and an increase of $9.8
million or 2.1% from $467.1 at June 30,1999.
Cash flow from operations and proceeds from borrowings have been the
Partnership's principal sources of working capital. The Partnership's cash and
cash equivalents increased by $11.0 million for the nine months ended September
30, 1999. Cash inflows for the first nine months included $261.0 million from
operations, proceeds from borrowings net of debt repayments of $204.4 million
and $7.8 million of proceeds from exercises of Unit options. Cash outflows
included $260.7 million in distributions to Unitholders, $47.6 million in
capital expenditures and net purchases of investments of $154.7 million.
Under certain circumstances through February 28, 2006, the Partnership has an
option to purchase the minority interest in Cursitor Alliance LLC ("Cursitor
Alliance "), a subsidiary of the Partnership formed in connection with an
acquisition in 1996, and the holders of the minority interest have an option to
sell the minority interest to the Partnership for cash, Units, or a combination
thereof with a value 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
during a twelve-month period ending on the February 28th preceding the date
either option is exercised. Due to the substantial decline in Cursitor Alliance
revenues through March 1998, management of the Partnership estimated that the
Buyout Price for the minority interest will be $10.0 million, which will be
substantially higher than its estimated fair value. Accordingly, the Partnership
recorded a $10.0 million provision for the Buyout Price in the first quarter of
1998.
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
13
<PAGE>
although, if there are redemptions before the expiration of the minimum holding
period (which ranges from one year to four years), investors pay a contingent
deferred sales charge ("CDSC") to AFD. While AFD is obligated to compensate the
financial intermediaries at the time of the purchase of Back-End Load Shares, it
receives higher ongoing distribution fees from the funds. Payments made to
financial intermediaries in connection with the sale of Back-End Load Shares
under the System, net of CDSC received, reduced cash flow from operations by
approximately $302.5 million and $180.5 million for the nine months ended
September 30, 1999 and September 30, 1998, 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.
During July 1999, the Partnership entered into a new $200 million three year
revolving credit facility with a group of commercial banks that increased the
Partnership's borrowing capacity under all facilities to $625 million. The new
revolving credit facility, the terms of which are generally similar to the
previously existing $425 million credit facility, will be used 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. Both facilities contain covenants which require the
Partnership to, among other things, meet certain financial ratios.
The Partnership has a $425 million revolving credit facility with a group of
commercial banks and a $425 million commercial paper program. Borrowings under
this facility and the Partnership's commercial paper program may not exceed $425
million in the aggregate. The $425 million revolving credit facility is used to
provide backup liquidity for commercial paper issued under the Partnership's
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. As of
September 30, 1999, the Partnership had $398.6 million principal amount of
commercial paper outstanding, an increase of $218.6 million from December 31,
1998, to fund commission payments to financial intermediaries and for capital
expenditures. There are no borrowings outstanding under either of the
Partnership's revolving credit facilities.
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, capital expenditures and its other working capital
requirements.
Year 2000
Many computer systems and applications that process transactions use 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
may be processed as year "1900", which could result in processing inaccuracies
and inoperability at or after the Year 2000. The Partnership utilizes a number
of 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.
The Year 2000 issue is a high priority for the Partnership. During 1997, the
Partnership began a formal Year 2000 initiative, which established a structured
and coordinated process to deal with the Year 2000 issue. As part of its
initiative, the Partnership established a Year 2000 project office to manage the
Year 2000 initiative focusing on both information technology and non-information
technology systems. The Year 2000 project office meets periodically with the
Audit Committee of the Board of Directors and executive management to review the
status of the Year 2000 efforts. The Partnership has also retained the services
of a number of consulting firms which have expertise in advising and assisting
with regard to Year 2000 issues.
14
<PAGE>
By June 30, 1998, the Partnership had completed its inventory and assessment of
its domestic and international computer systems and applications, identified
mission critical systems (those systems where loss of their function would
result in an immediate stoppage or significant impairment to core business
units) and nonmission critical systems and determined which of these systems is
not Year 2000 compliant. All third-party suppliers of mission critical computer
systems and applications and nonmission critical systems were contacted to
verify whether their systems and applications will be Year 2000 compliant and
their responses have been evaluated. All of those contacted have responded and
have informed the Partnership that their systems and applications are or will be
Year 2000 compliant. All mission critical and nonmission critical systems
supplied by third parties have been tested. The Partnership expects all testing
will be completed before the end of 1999.
The Partnership has remediated, replaced or retired all of its noncompliant
mission critical systems and nonmission critical systems and applications.
After each system has been remediated, it is tested with 19XX dates to determine
if it still performs its intended business function correctly. Next, each system
undergoes a simulation test using dates occurring after December 31, 1999.
Inclusive of the replacement and retirement of some of its systems, the
Partnership has completed these testing phases for all mission critical systems
and nonmission critical systems. Integrated systems tests were conducted to
verify that the systems would continue to work together. Full integration
testing of all mission critical and nonmission critical systems is complete.
Testing of interfaces with third-party suppliers has been completed.
The Partnership has completed an inventory of its facilities and related
technology applications and has substantially completed and tested these
systems. The Partnership anticipates these systems will be fully operable in the
Year 2000.
The Partnership has deferred certain other planned information technology
projects until after the Year 2000 initiative is completed. Such delay is not
expected to have a material adverse effect on the Partnership's financial
condition or results of operations.
The Partnership, with the assistance of a consulting firm, has developed Year
2000 specific contingency plans with emphasis on mission critical functions.
These plans seek to provide alternative methods of processing in the event of a
failure.
The current cost estimate of the Year 2000 initiative is approximately $45
million. These costs consist principally of modification and testing and costs
to develop formal Year 2000 specific contingency plans. These costs, which will
generally be expensed as incurred, will be funded from the Partnership's
operations and the issuance of debt. Through September 30, 1999, the Partnership
had incurred approximately $41.0 million of costs related to the Year 2000
initiative. At this time, management of the Partnership believes that the costs
associated with resolving the Year 2000 issue will not have a material adverse
effect on the Partnership's results of operations, liquidity or capital
resources.
There are many risks associated with Year 2000 issues, including the risk that
the Partnership's computer systems and applications will not operate as intended
and that the systems and applications of third parties will not be Year 2000
compliant. Likewise, there can be no assurance the compliance schedules outlined
above will be met or that actual costs incurred will not exceed the current cost
estimate. 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 Partnership may be unable to
conduct its normal business operations and to provide its clients with the
services they require. In addition, the Partnership may incur unanticipated
expenses, regulatory actions, and legal liabilities. The Partnership cannot
determine which risks, if any, are most reasonably likely to occur or the
effects of any particular failure to be Year 2000 compliant.
15
<PAGE>
Readers are cautioned that forward-looking statements contained in "Year 2000"
should be read in conjunction with the disclosure set forth under
"Forward-Looking Statements". To the fullest extent permitted by law, the
foregoing Year 2000 discussion is a "Year 2000 Readiness Disclosure" within the
meaning of The Year 2000 Information and Readiness Disclosure Act, 15 U.S.C.
Sec. 1 (1998).
16
<PAGE>
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
("Original 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. On September 26, 1996, the United States
District Court for the Southern District of New York granted the defendants'
motion to dismiss all counts of the Original Complaint. On October 29, 1997, the
United States Court of Appeals for the Second Circuit affirmed that decision.
On October 29, 1996, plaintiffs filed a motion for leave to file an amended
complaint. The principal allegations of the proposed amended complaint are that
(i) the Fund failed to hedge against currency risk despite representations that
it would do so, (ii) the Fund did not properly disclose that it planned to
invest in mortgage-backed derivative securities, and (iii) two advertisements
used by the Fund misrepresented the risks of investing in the Fund. On October
15, 1998, the United States Court of Appeals for the Second Circuit issued an
order granting plaintiffs' motion to file an amended complaint alleging that the
Fund misrepresented its ability to hedge against currency risk and denying
plaintiffs' motion to file an amended complaint alleging that the Fund did not
properly disclose that it planned to invest in mortgaged-backed derivative
securities and that certain advertisements used by the Fund misrepresented the
risks of investing in the Fund.
The Partnership believes that the allegations in the proposed amended complaint
are without merit and intends to vigorously defend against this action. 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.
In connection with the Partnership's reorganization, on September 29, 1999, a
purported class action complaint was filed in the Court of Chancery of the State
of Delaware in and for New Castle County against Alliance Holding, Alliance
Capital, Alliance Capital Management Corporation and certain other defendants
affiliated with the Partnership which sought, among other things, to enjoin the
consummation of the reorganization and exchange offer and alleged, among other
things, the amended and restated Alliance Holding partnership agreement
adversely effected the Partnership Unitholders.
On October 29, 1999, the parties to the litigation brought against Alliance
Holding, Alliance Capital, Alliance Capital Management Corporation and certain
other defendants affiliated with the Partnership entered into a memorandum of
understanding setting forth the parties' agreement in principle to the terms of
a proposed settlement of that action.
Management of the Partnership does not believe that the resolution of this
matter will have a material adverse effect on the Partnership's results of
operations or financial condition.
On August 26, 1999, Metropolitan Life Insurance Company ("MetLife") and
GenAmerica Corporation ("GenAmerica"), parent company of General American,
announced a definitive agreement pursuant to which MetLife assumed all of
General American's liabilities under its funding agreements. As a result, the
letters of credit issued in favor of four Money Market Funds sponsored by the
Partnership, to support their $1.00 net asset value in the event the funding
agreements were not paid, have been terminated. The resolution of this matter
did not have a material adverse effect on the Partnership's results of
operations or financial condition.
17
<PAGE>
CHANGES IN ACCOUNTING PRINCIPLES
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 133, ("SFAS 133") "Accounting for Derivative
Instruments and Hedging Activities". Under this Statement, an entity is required
to recognize derivative instruments as either assets or liabilities in the
statement of financial position and measure those instruments at fair value. In
addition, any entity that elects to apply hedge accounting is required to
establish at the inception of the hedge, the method it will use for assessing
effectiveness of the hedging derivative and the measurement approach for
determining the ineffective aspect of the hedge. Management of the Partnership
intends to adopt this Statement on January 1, 2001 and does not believe that the
adoption of the Statement will have a material effect on its results of
operations, liquidity, or capital resources.
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.
The Partnership's Available Cash Flow and Distributions per Unit for the three
and nine months ended September 30, 1999 and 1998 were as follows:
<TABLE>
Three months ended Nine months ended
------------------ --------------------
9/30/99 9/30/98 9/30/99 9/30/98
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Available Cash Flow (in thousands) $96,878 $67,072 $283,574 $204,366
Distributions Per Unit $ 0.56 $ 0.39 $ 1.64 $ 1.19
- -------------------------------------------------------------------------------------------
</TABLE>
FORWARD-LOOKING STATEMENTS
Certain statements provided by the Partnership in this report are
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Such forward-looking statements are subject to
risks, uncertainties and other factors which could cause actual results to
differ materially from future results expressed or implied by such
forward-looking statements. The most significant of such factors include, but
are not limited to, the following: the performance of financial markets, the
investment performance of the Partnership's sponsored investment products and
separately managed accounts, general economic conditions, future acquisitions,
competitive conditions, government regulations, including changes in tax rates,
and the risks associated with Year 2000 issues. The Year 2000 issues include
uncertainties regarding among other things, the inability to locate, correct and
successfully test all relevant computer code, the continued availability of
certain resources including personnel and timely and accurate responses and
corrections by third parties. These uncertainties may result in unanticipated
costs associated with Year 2000 issues and failure to meet schedules for Year
2000 compliance. 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.
18
<PAGE>
Part II
OTHER INFORMATION
-----------------
Item 1. Legal Proceedings
There have been no material developments in the legal proceeding
reported in the Alliance Capital Management Holding L.P.
("Partnership") Form 10-K for the year ended December 31, 1998.
In connection with the Partnership's reorganization, on September
29, 1999, a purported class action complaint was filed in the Court
of Chancery of the State of Delaware in and for New Castle County
against the Partnership, Alliance Capital Management L.P. (formerly
Alliance Capital Management L.P. II) ("Alliance Capital"), Alliance
Capital Management Corporation and certain other defendants
affiliated with the Partnership which sought, among other things, to
enjoin the consummation of the reorganization and exchange offer and
alleged, among other things, the amended and restated partnership
agreement of the Partnership adversely effected the Partnership
Unitholders. On October 29, 1999, the parties to the litigation
entered into a memorandum of understanding setting forth the
parties' agreement in principle to the terms of a proposed
settlement of that action. Management of the Partnership does not
believe that the resolution of this matter will have a material
adverse effect on the Partnership's results of operations or
financial condition.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
During the third quarter of 1999, a Special Meeting of Limited
Partners and Unitholders of the Partnership was held on September
22, 1999 at 1345 Avenue of the Americas, New York, New York. The
Special Meeting was held to consider a proposed reorganization of
the Partnership with separate votes on (i) the transfer by the
Partnership of its business to Alliance Capital pursuant to an
agreement and plan of reorganization ("Proposal 1"), and (ii) the
amendment of the Partnership's partnership agreement to facilitate
and implement the reorganization, to maintain the existing rights
and benefits of the Partnership's Unitholders following the
reorganization and to modify or eliminate provisions that are
inoperative or are no longer relevant or that require technical
revisions ("Proposal 2").
19
<PAGE>
Proposal 1 and Proposal 2 were approved at the Special Meeting.
42,069,423 affirmative votes were cast in favor of Proposal 1 by
"unaffiliated" Unitholders, 4,453,787 votes were cast against
Proposal 1 by "unaffiliated" Unitholders and 587,084 Units held by
"unaffiliated" Unitholders represented at the Special Meeting
abstained from voting in respect of Proposal 1. For purposes of the
Special Meeting, "unaffiliated" unitholders included all holders
other than (1) directors, officers and employees of the Partnership
or its general partner and the following members of their families
who share the same household with such persons: children,
stepchildren, grandchildren, parents, stepparents, grandparents,
spouses, siblings, mothers-in-law, fathers-in-law, sons-in-law,
daughters-in-law, brothers-in-law, sisters-in-law, including
adoptive relationships; and (2) the Partnership's general partner
and entities affiliated with it (including The Equitable Life
Assurance Society of the United States). 141,810,806 affirmative
votes were cast in favor of Proposal 2, 4,204,472 votes were cast
against Proposal 2 and 560,310 Units represented at the Special
Meeting abstained from voting in respect of Proposal 2.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
1. Agreement and Plan of Reorganization dated August 20, 1999
among Alliance Capital Management Holding L.P. (formerly
Alliance Capital Management L.P.), Alliance Capital
Management L.P. (formerly Alliance Capital Management L.P.
II), Alliance Capital Management Corporation and The
Equitable Life Assurance Society of the United States.
2. Amended and Restated Agreement of Limited Partnership dated
October 29, 1999 of Alliance Capital Management Holding
L.P. (formerly Alliance Capital Management L.P).
3. Amended and Restated Agreement of Limited Partnership dated
October 29, 1999 of Alliance Capital Management L.P.
(formerly Alliance Capital Management L.P. II).
4. Exchange Agreement dated April 8, 1999 among Alliance
Capital Management Holding L.P. (formerly Alliance Capital
Management L.P.), Alliance Capital Management L.P.
(formerly Alliance Capital Management L.P. II) and The
Equitable Life Assurance Society of the United States
(incorporated by reference to Exhibit 10.1 to the
Registration Statement on Form S-4 (File No. 333-84477)
filed on August 3, 1999).
5. Indemnification and Reimbursement Agreement dated April 8,
1999 among Alliance Capital Management Holding L.P.
(formerly Alliance Capital Management L.P.), Alliance
Capital Management L.P. (formerly Alliance Capital
Management L.P. II) and The Equitable Life Assurance
Society of the United States (incorporated by reference to
Exhibit 10.2 to the Registration Statement on Form S-4
(File No. 333-84477) filed on August 3, 1999).
6. Amended and Restated Investment Advisory and Management
Agreement dated October 29, 1999 among Alliance Capital
Management Holding L.P. (formerly Alliance Capital
Management L.P.), Alliance Corporate Finance Group
Incorporated and The Equitable Life Assurance Society of
the United States.
20
<PAGE>
7. Amended and Restated Accounting, Valuation, Reporting and
Treasury Services Agreement dated October 29, 1999 between
Alliance Capital Management Holding L.P. (formerly Alliance
Capital Management L.P.) and The Equitable Life Assurance
Society of the United States.
8. Global Assignment and Assumption Agreement dated October
29, 1999 between Alliance Capital Management Holding L.P.
(formerly Alliance Capital Management L.P.) and Alliance
Capital Management L.P. (formerly Alliance Capital
Management L.P. II).
9. Pass-Through Agreement dated October 29, 1999 between
Alliance Capital Management Holding L.P. (formerly
Alliance Capital Management L.P.) and Alliance Capital
Management L.P. (formerly Alliance Capital Management
L.P. II).
(b) Reports on Form 8-K
The Partnership filed a report on Form 8-K dated September
30, 1999 reporting unaudited pro forma condensed financial
statements for the six months ended June 30, 1999 and 1998
for the Partnership and Alliance Capital Management L.P.
(formerly Alliance Capital Management L.P. II).
21
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ALLIANCE CAPITAL MANAGEMENT HOLDING L.P.
Dated: November 15, 1999 By: Alliance Capital Management
Corporation, its General Partner
By: /s/ Robert H. Joseph, Jr.
-------------------------------------
Robert H. Joseph, Jr.
Senior Vice President &
Chief Financial Officer
22
