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 MARCH 31, 2000
__________________________________
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________________ to _______________________
Commission File No. 000-29961
_____________________________________________________________
ALLIANCE CAPITAL MANAGEMENT L.P.
________________________________________________________________________________
(Exact name of registrant as specified in its charter)
DELAWARE 13-4064930
_______________________________ ____________________________________
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1345 AVENUE OF THE AMERICAS, NEW YORK, NY 10105
________________________________________________________________________________
(Address of principal executive offices)
(Zip Code)
(212) 969-1000
________________________________________________________________________________
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
_____ _____
172,483,676 Units of limited partnership interests in Alliance Capital
Management L.P. were outstanding as of March 31, 2000.
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 and Comprehensive Income 3
Condensed Consolidated Statements of Cash Flows 4
Notes to Condensed Consolidated Financial Statements 5-8
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 9-17
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 18
Item 6. EXHIBITS AND REPORTS ON FORM 8-K 18
Part I
FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
ALLIANCE CAPITAL MANAGEMENT L.P.*
Condensed Consolidated Statements of Financial Condition
(in thousands)
ASSETS 3/31/00 12/31/99
------ ------- --------
(unaudited)
Cash and cash equivalents ............................ $ 82,984 $ 80,185
Receivable from brokers and dealers for sale
of shares of Alliance mutual funds ................ 302,278 218,569
Fees receivable:
Alliance mutual funds ............................. 132,476 189,866
Separately managed accounts:
Affiliated clients .............................. 7,340 7,136
Third-party clients ............................. 116,345 112,847
Investments, available-for-sale ...................... 135,746 98,620
Furniture, equipment and leasehold improvements, net . 140,616 140,045
Intangible assets, net ............................... 98,600 98,068
Deferred sales commissions, net ...................... 671,143 604,723
Other investments .................................... 63,229 57,786
Other assets ......................................... 59,825 53,216
---------- ----------
Total assets ...................................... $1,809,982 $1,661,061
========== ==========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Payable to Alliance mutual funds for share purchases $ 361,479 $ 254,151
Accounts payable and accrued expenses ............... 212,928 225,922
Accrued compensation and benefits ................... 270,486 235,120
Debt ................................................ 432,616 390,079
Minority interests in consolidated subsidiaries ..... 2,021 3,122
---------- ----------
Total liabilities ................................. 1,279,530 1,108,394
Partners' capital ................................... 530,452 552,667
---------- ----------
Total liabilities and partners' capital ........... $1,809,982 $1,661,061
========== ==========
* As discussed in Notes 1 and 2, the financial information above reflects the
operations of Alliance Capital Management Holding L.P. prior to the
Reorganization effective October 29, 1999 and of Alliance Capital Management
L.P. thereafter.
See accompanying notes to condensed
consolidated financial statements.
1
ALLIANCE CAPITAL MANAGEMENT L.P. *
Condensed Consolidated Statements of Income
(unaudited)
(in thousands)
THREE MONTHS ENDED
--------------------
ALLIANCE ALLIANCE
CAPITAL HOLDING
3/31/00 3/31/99
-------- --------
Revenues:
Investment advisory and services fees:
Alliance mutual funds ................................. $ 255,117 $ 194,899
Separately managed accounts:
Affiliated clients .................................. 12,778 12,723
Third-party clients ................................. 106,295 97,796
Distribution revenues ................................... 147,240 93,612
Shareholder servicing fees .............................. 19,358 13,297
Other revenues .......................................... 7,618 7,416
--------- ---------
548,406 419,743
--------- ---------
Expenses:
Employee compensation and benefits ...................... 128,645 118,279
Promotion and servicing:
Distribution plan payments to financial intermediaries:
Affiliated .......................................... 30,868 25,684
Third-party ......................................... 83,034 52,141
Amortization of deferred sales commissions ............ 50,702 34,681
Other ................................................. 33,947 26,803
General and administrative .............................. 48,854 42,336
Interest ................................................ 14,122 3,501
Amortization of intangible assets ....................... 975 963
Litigation adjustment, net .............................. (23,853) --
--------- ---------
367,294 304,388
--------- ---------
Income before income taxes ................................. 181,112 115,355
Income taxes ............................................ 9,962 17,301
--------- ---------
Net income ................................................. $ 171,150 $ 98,054
========= =========
Net income per Unit:
Basic ................................................. $ 0.99 $ 0.57
Diluted ............................................... $ 0.95 $ 0.55
* As discussed in Notes 1 and 2, the financial information above reflects the
operations of Alliance Capital Management Holding L.P. prior to the
Reorganization effective October 29, 1999 and of Alliance Capital Management
L.P. thereafter.
See accompanying notes to condensed
consolidated financial statements.
2
ALLIANCE CAPITAL MANAGEMENT L.P. *
Condensed Consolidated Statements of
Changes in Partners' Capital
and Comprehensive Income
(unaudited)
(in thousands)
Three Months Ended
------------------
Alliance Alliance
Capital Holding
3/31/00 3/31/99
------- -------
Partners' capital - beginning of period ........................ $ 552,667 $ 430,273
Comprehensive income:
Net income .............................................. 171,150 98,054
Unrealized gain on investments, net ..................... 88 824
Foreign currency translation adjustment, net ............ (73) 3
--------- ---------
Comprehensive income .................................... 171,165 98,881
--------- ---------
Capital contribution received from Alliance Capital
Management Corporation .................................... 90 976
Cash distributions to partners .............................. (158,205) (74,048)
Purchase of Alliance Holding Units to fund
Alliance Partners Compensation Plan ....................... (47,635) --
Amortization of deferred compensation expense ............... 3,741 --
Proceeds from issuance of Alliance Capital Units to ELAS .... 29,525 --
Purchase of Alliance Capital Units from Alliance Holding .... (28,042) --
Proceeds from options for Alliance Holding Units exercised .. 7,146 2,867
--------- ---------
Partners' capital - end of period .............................. $ 530,452 $ 458,949
========= =========
* As discussed in Notes 1 and 2, the financial information above reflects the
operations of Alliance Capital Management Holding L.P. prior to the
Reorganization effective October 29, 1999 and of Alliance Capital Management
L.P. thereafter.
See accompanying notes to condensed
consolidated financial statements.
3
ALLIANCE CAPITAL MANAGEMENT L.P. *
Condensed Consolidated Statements of Cash Flows
(unaudited)
(in thousands)
THREE MONTHS ENDED
------------------
ALLIANCE ALLIANCE
CAPITAL HOLDING
3/31/00 3/31/99
------- -------
Cash flows from operating activities:
Net income ........................................................... $ 171,150 $ 98,054
Adjustments to reconcile net income to net cash provided
from operating activities:
Amortization and depreciation ...................................... 61,094 40,352
Other, net ......................................................... 9,977 4,114
Changes in assets and liabilities:
(Increase) in receivable from brokers and dealers for sale
of shares of Alliance mutual funds ............................. (83,696) (56,316)
(Increase) decrease in fees receivable from Alliance mutual funds,
affiliated clients and third-party clients ..................... 53,500 (18,252)
(Increase) in deferred sales commissions ......................... (117,122) (109,794)
(Increase) decrease in other investments ......................... (5,185) 2,117
(Increase) in other assets ....................................... (6,738) (12,565)
Increase in payable to Alliance mutual funds for share purchases . 107,287 102,202
Increase (decrease) in accounts payable and accrued expenses ..... (12,625) 25,826
Increase in accrued compensation and benefits, less
deferred compensation ......................................... 34,055 49,450
----------- ---------
Net cash provided from operating activities ................. 211,697 125,188
----------- ---------
Cash flows from investing activities:
Purchase of investments .............................................. (355,526) (243,731)
Proceeds from sale of investments .................................... 318,478 145,003
Additions to furniture, equipment and leasehold
improvements, net .................................................. (9,118) (15,594)
Other ................................................................ -- (142)
----------- ---------
Net cash used in investing activities ....................... (46,166) (114,464)
----------- ---------
Cash flows from financing activities:
Proceeds from borrowings ............................................. 2,273,002 397,967
Repayment of debt .................................................... (2,238,561) (297,375)
Cash distributions to partners ....................................... (158,205) (74,048)
Purchase of Alliance Holding Units to fund Alliance Partners
Compensation Plan .................................................. (47,635) --
Proceeds from issuance of Alliance Capital Units to ELAS ............. 29,525 --
Purchase of Alliance Capital Units from Alliance Holding ............. (28,042) --
Capital contribution received from Alliance Capital Management
Corporation ........................................................ 90 476
Proceeds from options for Alliance Holding Units exercised ........... 7,146 2,867
----------- ---------
Net cash used in financing activities ....................... (162,680) (29,887)
----------- ---------
Effect of exchange rate changes on cash and cash equivalents ............ (52) --
----------- ---------
Net increase in cash and cash equivalents ............................... 2,799 40,611
Cash and cash equivalents at beginning of period ........................ 80,185 75,186
----------- ---------
Cash and cash equivalents at end of period .............................. $ 82,984 $ 115,797
=========== =========
* As discussed in Notes 1 and 2, the financial information above reflects the
operations of Alliance Capital Management Holding L.P. prior to the
Reorganization effective October 29, 1999 and of Alliance Capital Management
L.P. thereafter.
See accompanying notes to condensed
consolidated financial statements.
4
ALLIANCE CAPITAL MANAGEMENT L.P.
Notes to Condensed Consolidated Financial Statements
March 31, 2000
(unaudited)
1. REORGANIZATION
Effective October 29, 1999, Alliance Capital Management Holding L.P., formerly
known as Alliance Capital Management L.P. ("Alliance Holding"), reorganized by
transferring its business to Alliance Capital Management L.P., a newly formed
private partnership ("Alliance Capital" or the "Operating Partnership"), in
exchange for all of the Units of Alliance Capital (the "Reorganization"). The
Operating Partnership recorded the transferred assets and assumption of
liabilities at the amounts reflected in Alliance Holding's books and records on
the date of transfer. Since the Reorganization, the Operating Partnership has
conducted the diversified investment management services business formerly
conducted by Alliance Holding, and Alliance Holding's business has consisted of
holding Alliance Capital Units and engaging in related activities. Alliance
Capital Management Corporation ("ACMC"), an indirect wholly-owned subsidiary of
AXA Financial, Inc. ("AXA Financial"), is the general partner of both Alliance
Holding and the Operating Partnership. Alliance Capital is a registered
investment adviser under the Investment Advisers Act of 1940. Alliance Holding
Units are publicly traded on the New York Stock Exchange while Alliance Capital
Units do not trade publicly and are subject to significant restrictions on
transfer.
As part of the Reorganization, Alliance Holding offered each Alliance Holding
Unitholder the opportunity to exchange Alliance Holding Units for Alliance
Capital Units on a one-for-one basis. In the exchange offer, approximately 99.6
million Alliance Holding Units were exchanged for Alliance Capital Units. This
number includes the approximately 95.1 million Alliance Holding Units exchanged
by affiliates of AXA Financial.
At March 31, 2000, Alliance Holding owned approximately 72.1 million, or 42%, of
the issued and outstanding Alliance Capital Units. ACMC owns 100,000 general
partnership Units in Alliance Holding and a 1% general partnership interest in
the Operating Partnership. At March 31, 2000, AXA Financial was the beneficial
owner of approximately 2% of Alliance Holding's outstanding Units and
approximately 56% of the Operating Partnership's outstanding Units which,
including the general partnership interests, equates to an economic interest of
approximately 57% in the Operating Partnership.
The Operating Partnership provides diversified investment management and related
services to a broad range of clients including unaffiliated separately managed
accounts, The Equitable Life Assurance Society of the United States ("ELAS"), a
wholly-owned subsidiary of AXA Financial, and its insurance company subsidiary
and to individual investors through mutual funds and various other investment
vehicles. Separately managed accounts consist primarily of the active management
of equity and fixed income portfolios for institutional investors, including
corporate and public employee pension funds, the general and separate accounts
of ELAS and its insurance company subsidiary, endowment funds, and the assets of
other domestic and foreign institutions. The Operating Partnership provides
investment management, distribution, and shareholder and administrative services
to its sponsored mutual funds and cash management products, including money
market funds and deposit accounts ("Alliance mutual funds").
5
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The unaudited interim condensed consolidated financial statements of the
Operating Partnership included herein have been prepared in accordance with the
instructions to Form 10-Q pursuant to the rules and regulations of the
Securities and Exchange Commission. In the opinion of management, all
adjustments, consisting only of normal recurring adjustments necessary for a
fair presentation of (a) the Operating Partnership's financial position at March
31, 2000, (b) the Operating Partnership's and Alliance Holding's results of
operations for the three months ended March 31, 2000 and 1999, respectively, and
(c) the Operating Partnership's and Alliance Holding's cash flows for the three
months ended March 31, 2000 and 1999, respectively, have been made.
The consolidated financial statements' dollar and per Unit amounts and
disclosures reflect the operations of Alliance Holding prior to the
Reorganization effective October 29, 1999 and Alliance Capital thereafter. The
accounting policies summarized below are followed by the Operating Partnership
subsequent to the Reorganization and were followed by Alliance Holding prior to
the Reorganization. All information prior to the Reorganization is that of
Alliance Holding.
RECLASSIFICATIONS
Certain prior period amounts have been reclassified to conform with the current
period presentation.
3. DEFERRED SALES COMMISSIONS
Sales commissions paid to financial intermediaries in connection with the sale
of shares of open-end Alliance mutual funds sold without a front-end sales
charge are capitalized and amortized over periods not exceeding five and
one-half years, the period of time during which deferred sales commissions are
expected to be recovered from distribution plan payments received from those
funds and from contingent deferred sales charges received from shareholders of
those funds upon the redemption of their shares. Contingent deferred sales
charges reduce unamortized deferred sales commissions when received.
4. QUARTERLY FINANCIAL INFORMATION
The following table summarizes the actual and pro forma unaudited condensed
results of operations of the Operating Partnership for the three months ended
March 31, 2000 and 1999, respectively, as if the Reorganization (See Note 1) had
occurred on January 1, 1999. The pro forma financial information reflects the
Operating Partnership as a private partnership that is not subject to a federal
tax of 3.5% on partnership gross income from the active conduct of a trade or
business.
The pro forma financial information does not necessarily reflect the results of
operations that would have been obtained had the Reorganization occurred on
January 1, 1999, nor is the pro forma financial information necessarily
indicative of the results of operations that may be achieved for any future
period. (In thousands):
Three Months Ended
------------------
Actual Pro Form
3/31/00 3/31/99
------- -------
Revenues $548,406 $419,743
Expenses 367,294 304,388
-------- --------
Income before income taxes 181,112 115,355
Income taxes 9,962 7,226
-------- --------
Net income $171,150 $108,129
======== ========
Basic net income per Alliance Capital Unit $0.99 $0.99
===== =====
Diluted net income per Alliance Capital Unit $0.95 $0.61
===== =====
5. NET INCOME PER UNIT
Basic net income per Unit is derived by reducing net income for the 1% General
Partner interest and dividing the remaining 99% by the weighted average number
of Units outstanding. Diluted net income per Unit is derived by reducing net
income for the 1% General Partner interest and dividing the remaining 99% by the
total of the weighted average number of Units outstanding and the dilutive Unit
equivalents resulting from outstanding employee options and restricted units.
The information prior to the Reorganization is that of Alliance Holding. (In
thousands, except per Unit amounts):
Three Months Ended
------------------
Alliance Alliance
Capital Holding
3/31/00 3/31/99
------- -------
Net income......................................................... $171,150 $ 98,054
Weighted average units outstanding - Basic......................... 171,469 170,561
Dilutive effect of employee options and restricted units........... 7,391 5,030
-------- --------
Weighted average units outstanding - Diluted....................... 178,860 175,591
======== ========
Basic net income per unit.......................................... $ 0.99 $ 0.57
======== ========
Diluted net income per unit........................................ $ 0.95 $ 0.55
======== ========
6. COMMITMENTS AND CONTINGENCIES
On July 25, 1995, a Consolidated and Supplemental Class Action Complaint (the
"Original Complaint") was filed against Alliance North American Government
Income Trust, Inc. (the "Fund"), Alliance Holding and certain other defendants
affiliated with Alliance Holding alleging violations of federal securities laws,
fraud and breach of fiduciary duty in connection with the Fund's investments in
Mexican and Argentine securities. On September 26, 1996, the United States
District Court for the Southern District of New York granted the defendants'
motion to dismiss all counts of the Original Complaint. On October 29, 1997, the
United States Court of Appeals for the Second Circuit affirmed that decision.
6
On October 29, 1996, plaintiffs filed a motion for leave to file an amended
complaint. The principal allegations of the proposed amended complaint are that
(i) the Fund failed to hedge against currency risk despite representations that
it would do so, (ii) the Fund did not properly disclose that it planned to
invest in mortgage-backed derivative securities, and (iii) two advertisements
used by the Fund misrepresented the risks of investing in the Fund. On October
15, 1998, the United States Court of Appeals for the Second Circuit issued an
order granting plaintiffs' motion to file an amended complaint alleging that the
Fund misrepresented its ability to hedge against currency risk and denying
plaintiffs' motion to file an amended complaint alleging that the Fund did not
properly disclose that it planned to invest in mortgage-backed derivative
securities and that certain advertisements used by the Fund misrepresented the
risks of investing in the Fund. On December 1, 1999, the United States District
Court for the Southern District of New York granted the defendants' motion for
summary judgment on all claims against all defendants. On December 14 and 15,
1999, the plaintiffs filed motions for reconsideration of the Court's ruling.
These motions are currently pending with the Court.
A Stipulation and Agreement of Settlement has been signed with the lawyers for
the plaintiffs settling this action. Under the Stipulation and Agreement of
Settlement Alliance Capital will permit Fund shareholders to invest up to $250
million in Alliance mutual funds free of initial sales charges. Like all class
action settlements, the Stipulation and Agreement of Settlement is subject to
court approval.
Alliance Capital assumed all of Alliance Holding's liabilities in respect of
this litigation in connection with the Reorganization. As a result of the
settlement, Alliance Capital recorded a non-cash gain of $22.5 million ($23.9
million pre-tax) for the three months ended March 31, 2000. While the ultimate
outcome of this matter cannot be determined at this time, management does not
expect that it will have a material adverse effect on Alliance Capital's or
Alliance Holding's results of operations or financial condition.
7. INCOME TAXES
The Operating Partnership is a private partnership for federal income tax
purposes and, accordingly, is not subject to federal or state corporate income
taxes. However, the Operating Partnership is subject to the New York City
unincorporated business tax. Domestic corporate subsidiaries of the Operating
Partnership, which are subject to federal, state and local income taxes, are
generally included in the filing of a consolidated federal income tax return.
Separate state and local income tax returns are filed for domestic corporate
subsidiaries. Foreign corporate subsidiaries are generally subject to taxes in
the foreign jurisdictions where they are located.
8. SUPPLEMENTAL CASH FLOW INFORMATION
Cash payments for interest and income taxes were as follows (in thousands):
THREE MONTHS ENDED
---------------------
ALLIANCE ALLIANCE
CAPITAL HOLDING
3/31/00 3/31/99
------- -------
Interest.................................. $ 7,066 $ 2,361
Income taxes.............................. 13,443 7,399
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. In June 1999, the Financial
Accounting Standards Board issued Statement of Financial Accounting Standards
No. 137 ("SFAS 137"), which deferred the effective date of SFAS 133 to all
fiscal quarters of all fiscal years beginning after June 15, 2000. Management
intends to adopt this Statement on January 1, 2001 and does not believe that the
adoption of the Statement will have a material effect on the Operating
Partnership's results of operations, liquidity, or capital resources.
7
10. CASH DISTRIBUTION
On April 27, 2000, the General Partner declared a distribution of $141,994,000
or $0.815 per Alliance Capital Unit representing a distribution from Available
Cash Flow (as defined in the Alliance Capital Partnership Agreement) of the
Operating Partnership for the three months ended March 31, 2000. The
distribution is payable on May 18, 2000 to holders of record on May 8, 2000.
8
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
REORGANIZATION
Effective October 29, 1999, Alliance Capital Management Holding L.P., formerly
known as Alliance Capital Management L.P. ("Alliance Holding"), reorganized by
transferring its business to Alliance Capital Management L.P., a newly formed
private partnership ("Alliance Capital" or the "Operating Partnership"), in
exchange for all of the Units of Alliance Capital (the "Reorganization"). The
Operating Partnership recorded the transferred assets and assumption of
liabilities at the amounts reflected in Alliance Holding's books and records on
the date of transfer. Since the Reorganization, the Operating Partnership has
conducted the diversified investment management services business formerly
conducted by Alliance Holding, and Alliance Holding's business has consisted of
holding Alliance Capital Units and engaging in related activities. Alliance
Capital Management Corporation ("ACMC"), an indirect wholly-owned subsidiary of
AXA Financial, Inc. ("AXA Financial"), is the general partner of both Alliance
Holding and the Operating Partnership. Alliance Capital is a registered
investment adviser under the Investment Advisers Act of 1940. Alliance Holding
Units are publicly traded on the New York Stock Exchange while Alliance Capital
Units do not trade publicly and are subject to significant restrictions on
transfer.
As part of the Reorganization, Alliance Holding offered each Alliance Holding
Unitholder the opportunity to exchange Alliance Holding Units for Alliance
Capital Units on a one-for-one basis. In the exchange offer, approximately 99.6
million Alliance Holding Units were exchanged for Alliance Capital Units. This
number includes the approximately 95.1 million Alliance Holding Units exchanged
by affiliates of AXA Financial.
At March 31, 2000, Alliance Holding owned approximately 72.1 million, or 42%, of
the issued and outstanding Alliance Capital Units. ACMC owns 100,000 general
partnership Units in Alliance Holding and a 1% general partnership interest in
the Operating Partnership. At March 31, 2000, AXA Financial was the beneficial
owner of approximately 2% of Alliance Holding's outstanding Units and
approximately 56% of the Operating Partnership's outstanding Units which,
including the general partnership interests, equates to an economic interest of
approximately 57% in the Operating Partnership.
The Operating Partnership provides diversified investment management and related
services to a broad range of clients including unaffiliated separately managed
accounts, The Equitable Life Assurance Society of the United States ("ELAS"), a
wholly-owned subsidiary of AXA Financial, and its insurance company subsidiary
and to individual investors through mutual funds and various other investment
vehicles. Separately managed accounts consist primarily of the active management
of equity and fixed income portfolios for institutional investors, including
corporate and public employee pension funds, the general and separate accounts
of ELAS and its insurance company subsidiary, endowment funds, and the assets of
other domestic and foreign institutions. The Operating Partnership provides
investment management, distribution, and shareholder and administrative services
to its sponsored mutual funds and cash management products, including money
market funds and deposit accounts ("Alliance mutual funds").
9
GENERAL
The Operating Partnership's revenues are largely dependent on the total value
and composition of assets under its management. Assets under management were
$394.2 billion at March 31, 2000, an increase of 30.8% from March 31, 1999
primarily as a result of market appreciation and strong net sales of Alliance
mutual funds. Active equity and balanced account assets under management, which
comprise approximately 61% of total assets under management, were 45% higher.
Active fixed income account assets under management, which comprise
approximately 29% of total assets under management, increased by 11%.
In the first quarter of 2000, sales of Alliance mutual fund shares, excluding
cash management products, were $21.2 billion compared to sales of $11.7 billion
in the first quarter of 1999. The increase in mutual fund sales, principally
equity funds sold to both U.S. and non-U.S. investors, partially offset by an
increase in mutual fund redemptions, resulted in net Alliance mutual fund sales
of $8.0 billion for the three months ended March 31, 2000, an increase of 25.0%
from $6.4 billion for the three months ended March 31, 1999.
ASSETS UNDER MANAGEMENT (1):
(Dollars in billions) 3/31/00 3/31/99 $ Change % Change
- --------------------------------------------------------------------------------------------------------------------------
Alliance mutual funds:
Mutual funds $109.7 $ 67.8 $41.9 61.8%
Variable products 43.1 32.9 10.2 31.0
Cash management products 36.4 26.6 9.8 36.8
- --------------------------------------------------------------------------------------------------------------------------
189.2 127.3 61.9 48.6
- --------------------------------------------------------------------------------------------------------------------------
Separately managed accounts:
Affiliated clients 28.5 30.2 (1.7) (5.6)
Third-party clients 176.5 143.9 32.6 22.7
- --------------------------------------------------------------------------------------------------------------------------
205.0 174.1 30.9 17.7
- --------------------------------------------------------------------------------------------------------------------------
Total $394.2 $301.4 $92.8 30.8%
- --------------------------------------------------------------------------------------------------------------------------
ASSETS UNDER MANAGEMENT BY INVESTMENT ORIENTATION (1):
(Dollars in billions) 3/31/00 3/31/99 $ Change % Change
- --------------------------------------------------------------------------------------------------------------------------
Active equity & balanced
Domestic $208.6 $154.0 $54.6 35.5%
Global & international 32.7 12.8 19.9 155.5
Active fixed income
Domestic 100.8 90.2 10.6 11.8
Global & international 15.2 14.2 1.0 7.0
Index
Domestic 30.6 25.8 4.8 18.6
Global & international 6.3 4.4 1.9 43.2
- --------------------------------------------------------------------------------------------------------------------------
Total $394.2 $301.4 $92.8 30.8%
- --------------------------------------------------------------------------------------------------------------------------
AVERAGE ASSETS UNDER MANAGEMENT (1):
THREE MONTHS ENDED
-----------------------------------------------
(Dollars in billions) 3/3100 3/31/99 % Change
- --------------------------------------------------------------------------------------------------------------------------
Alliance mutual funds $176.3 $121.7 44.9%
Separately managed accounts:
Affiliated clients 29.1 29.8 (2.3)
Third-party clients 168.2 142.7 17.9
- --------------------------------------------------------------------------------------------------------------------------
Total $373.6 $294.2 27.0%
- --------------------------------------------------------------------------------------------------------------------------
10
ANALYSIS OF ASSETS UNDER MANAGEMENT (1):
(Dollars in billions) 2000 1999
- --------------------------------------------------------------------------------------------------------------------------
Separately Alliance Separately Alliance
Managed Mutual Managed Mutual
Accounts Funds Total Accounts Funds Total
- --------------------------------------------------------------------------------------------------------------------------
Balance at January 1, $198.9 $169.4 $368.3 $168.1 $118.6 $286.7
- --------------------------------------------------------------------------------------------------------------------------
New accounts/sales 2.3 21.2 23.5 3.2 11.7 14.9
Terminations/redemptions (1.0) (13.2) (14.2) (2.3) (5.3) (7.6)
Net cash management sales - 4.2 4.2 - 0.1 0.1
Cash flow (4.0) (0.3) (4.3) (0.6) (0.3) (0.9)
Market appreciation 8.8 7.9 16.7 5.7 2.5 8.2
- --------------------------------------------------------------------------------------------------------------------------
Net change 6.1 19.8 25.9 6.0 8.7 14.7
- --------------------------------------------------------------------------------------------------------------------------
Balance at March 31, $205.0 $189.2 $394.2 $174.1 $127.3 $301.4
- --------------------------------------------------------------------------------------------------------------------------
(1) Excludes certain non-discretionary relationships and includes 100% of assets
under management of unconsolidated affiliates. Includes $2.8 billion mutual fund
assets and $0.6 billion separately managed account assets at March 31, 2000 and
$1.6 billion mutual fund assets and $0.4 billion separately managed account
assets at March 31, 1999. Certain amounts in the 1999 presentation have been
reclassified to conform to the 2000 presentation.
Assets under management at March 31, 2000 were $394.2 billion, an increase of
$25.9 billion or 7.0% from December 31, 1999. Alliance mutual fund assets under
management at March 31, 2000 were $189.2 billion, an increase of $19.8 billion
or 11.7% from December 31, 1999, due principally to market appreciation of $7.9
billion and net sales of mutual funds, variable products and cash management
products of $7.4 billion, $0.6 billion and $4.2 billion, respectively.
Separately managed account assets under management at March 31, 2000 for
third-party clients and affiliated clients were $205.0 billion, an increase of
$6.1 billion or 3.1% from December 31, 1999. This increase was due to market
appreciation of $8.8 billion and new third-party client accounts of $2.3
billion, offset by net asset withdrawals from affiliated client accounts of $1.6
billion and third-party client account terminations and net asset withdrawals of
$3.4 billion.
Assets under management at March 31, 1999 were $301.4 billion, an increase of
$14.7 billion or 5.1% from December 31, 1998. Alliance mutual fund assets under
management at March 31, 1999 were $127.3 billion, an increase of $8.7 billion or
7.3% from December 31, 1998, due principally to net sales of mutual funds and
variable products of $5.8 billion and $0.6 billion, respectively, and market
appreciation of $2.5 billion. Separately managed account assets under management
at March 31, 1999 for third party clients and affiliated clients were $174.1
billion, an increase of $6.0 billion or 3.6% from December 31, 1998. This
increase was primarily due to market appreciation of $5.7 billion, new
third-party client accounts of $3.2 billion and asset additions to affiliated
client accounts of $1.4 billion, offset by net third party client account
terminations and asset withdrawals of $4.3 billion.
BASIS OF PRESENTATION - PRO FORMA RESULTS
The pro forma financial information of the Operating Partnership for the three
months ended March 31, 1999 assumes the Reorganization occurred on January 1,
1999, and reflects the Operating Partnership as a private partnership that is
not subject to a federal tax of 3.5% on partnership gross income from the active
conduct of a trade or business. The pro forma financial information for the
three months ended March 31, 1999 does not necessarily reflect the results of
operations that would have been obtained had the Reorganization occurred on
January 1, 1999, nor is the pro forma financial information necessarily
indicative of the results of operations that may be achieved for any future
period. Actual results of operations of the Operating Partnership is presented
for the three months ended March 31, 2000.
11
CONSOLIDATED RESULTS OF OPERATIONS - PRO FORMA RESULTS
(Dollars in millions) Three Months Ended
-----------------------------------------------
Operating Alliance
Partnership Holding
- --------------------------------------------------------------------------------------------------------------------------
3/31/00 3/31/99(1) % Change
- --------------------------------------------------------------------------------------------------------------------------
Revenues $548.4 $419.7 30.7%
Expenses 367.3 304.4 20.7
------- ------
Income before income taxes 181.1 115.3 57.1
Income taxes 10.0 7.2 38.9
------- ------
Net income 171.1 108.1 58.3
======= ======
Impact of NAGIT litigation adjustment 22.5 -- N/A
------- -----
Net income excluding impact of NAGIT
litigation adjustment 148.6 108.1 37.5
======= ======
Impact of performance fees 5.7 16.9 (66.3)
------- ------
Net income excluding impact of NAGIT
litigation adjustment and performance fees $142.9 $91.2 56.7%
====== =====
Pre-tax margin(2): 39.2% 35.4%
- --------------------------------------------------------------------------------------------------------------------------
(1) Pro forma amounts assume the Alliance Holding Reorganization occurred on
January 1, 1999. The pro forma financial information reflects the Operating
Partnership as a private partnership that is not subject to a federal tax of
3.5% on partnership gross income from the active conduct of a trade or
business.
(2) Calculated after netting distribution revenues against total expenses;
excludes the impact of NAGIT litigation adjustment.
Net income for the three months ended March 31, 2000 increased $63.0 million or
58.3% to $171.1 million from pro forma net income of $108.1 million for the
three months ended March 31, 1999. The increase was principally due to an
increase in investment advisory and services fees resulting primarily from
higher average assets under management and the $22.5 million ($23.9 million
pre-tax) impact of a non-cash gain related to the settlement of litigation
concerning the Alliance North American Government Income Trust, Inc. ("NAGIT").
This increase was partially offset by lower performance fees, higher operating
expenses, principally promotion and servicing and compensation and benefits, and
higher income taxes.
BASIS OF PRESENTATION - ACTUAL RESULTS
The following is a discussion of the results of operations of the Operating
Partnership for the three months ended March 31, 2000 and of Alliance Holding,
prior to the Reorganization, for the three months ended March 31, 1999. The
presentation is considered meaningful in understanding the diversified
investment management business operated by Alliance Holding prior to the
Reorganization and by the Operating Partnership thereafter. All information
prior to the Reorganization is that of Alliance Holding.
REVENUES
Three Months Ended
------------------------------------------------
Operating Alliance
Partnership Holding
------------------------------------------------
(Dollars in millions) 3/31/00 3/31/99 % Change
- --------------------------------------------------------------------------------------------------------------------------
Investment advisory and services fees:
Alliance mutual funds $255.1 $194.9 30.9%
Separately managed accounts:
Affiliated clients 12.8 12.7 0.8
Third-party clients 106.3 97.8 8.7
Distribution revenues 147.2 93.6 57.3
Shareholder servicing fees 19.4 13.3 45.9
Other revenues 7.6 7.4 2.7
- --------------------------------------------------------------------------------------------------------------------------
Total $548.4 $419.7 30.7%
- --------------------------------------------------------------------------------------------------------------------------
12
INVESTMENT ADVISORY AND SERVICES FEES
Investment advisory and services fees are generally calculated as a small
percentage of the value of assets under management and vary with the type of
account managed. Fee income is therefore affected by changes in the amount of
assets under management, including market appreciation or depreciation, the
addition of new client accounts or client contributions of additional assets to
existing accounts, withdrawals of assets from and termination of client
accounts, purchases and redemptions of mutual fund shares, and shifts of assets
between accounts or products with different fee structures. Investment advisory
and services fees for the three months ended March 31, 2000 increased 22.5% from
the first quarter of 1999.
Certain investment advisory contracts provide for a performance fee, in addition
to or in lieu of a base fee, that is calculated as a percentage of the related
investment results over a specified period of time. Performance fees are
recorded as revenue at the end of the measurement period and will generally be
higher in favorable markets and lower in unfavorable markets, which may increase
the volatility of the Operating Partnership's revenues and earnings. Performance
fees earned on separately managed accounts and mutual funds aggregated $8.1
million for the three months ended March 31, 2000. Lower performance fees of
$33.7 million in the first quarter of 2000 were primarily the result of a
refinement, in the fourth quarter of 1999, of the procedures for estimating such
fees. Currently, a substantial amount of the accounts that may earn performance
fees have calendar year measurement periods. As a result, for 1999 and
subsequent years, the majority of such fees, if any, will be recognized in the
fourth quarter.
Investment advisory and services fees from Alliance mutual funds for the three
months ended March 31, 2000 increased $60.2 million or 30.9% from the first
quarter of 1999 primarily as a result of a 44.9% increase in average assets
under management, partially offset by a $26.2 million decrease in performance
fees.
Investment advisory and services fees from affiliated clients, primarily the
General Accounts of ELAS, for the three months ended March 31, 2000 increased
$0.1 million or 0.8% from the first quarter of 1999 due primarily to a $0.3
million increase in performance fees, partially offset by a 2.3% decrease in
average assets under management.
Investment advisory and services fees from third-party clients for the three
months ended March 31, 2000 increased $8.5 million or 8.7% from the first
quarter of 1999 principally due to an increase in average assets under
management of 17.9%, partially offset by a $8.6 million decrease in performance
fees.
DISTRIBUTION REVENUES
The Operating Partnership's subsidiary, Alliance Fund Distributors, Inc.
("AFD"), acts as distributor of the Alliance mutual funds and receives
distribution plan fees from those funds in reimbursement of distribution
expenses it incurs. Distribution revenues for the three months ended March 31,
2000 increased 57.3% from the first quarter of 1999 principally due to higher
average equity mutual fund assets under management attributable to strong sales
of Back-End Load Shares under the Operating Partnership's mutual fund
distribution system (the "System") described under "Capital Resources and
Liquidity", and market appreciation.
SHAREHOLDER SERVICING FEES
The Operating 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 for the three months ended March 31, 2000
increased 45.9% from the first quarter of 1999 as a result of increases in the
number of mutual fund shareholder accounts serviced. The number of shareholder
accounts serviced increased to approximately 5.8 million as of March 31, 2000
compared to approximately 4.0 million as of March 31, 1999.
EXPENSES
Three Months Ended
------------------------------------------------
Operating Alliance
Partnership Holding
------------------------------------------------
(Dollars in millions) 3/31/00 3/31/99 % Change
- --------------------------------------------------------------------------------------------------------------------------
Employee compensation and benefits $128.6 $118.3 8.7%
Promotion and servicing 198.6 139.3 42.6
General and administrative 48.9 42.3 15.6
Interest 14.1 3.5 302.9
Amortization of intangible assets 1.0 0.9 11.1
Litigation adjustment, net (23.9) - N/A
- --------------------------------------------------------------------------------------------------------------------------
Total $367.3 $304.3 20.7%
- --------------------------------------------------------------------------------------------------------------------------
13
EMPLOYEE COMPENSATION AND BENEFITS
Employee compensation and benefits include salaries, commissions, fringe
benefits and incentive compensation based on profitability. Provisions for
future payments to be made under certain deferred compensation arrangements are
also included in employee compensation and benefits expense.
Employee compensation and benefits for the three months ended March 31, 2000
increased 8.7% from the first quarter of 1999 primarily as a result of increased
base compensation and commissions. Base compensation increased principally due
to an increase in the number of employees, primarily working in mutual fund
areas combined with salary increases. The Operating Partnership had 2,438
employees at March 31, 2000 compared to 2,124 at March 31, 1999. 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 sponsored mutual funds and cash management
services' products and amortization of deferred sales commissions paid to
financial intermediaries for the sale of Back-End Load Shares under the System.
See "Capital Resources and Liquidity". Also included in this expense category
are travel and entertainment, advertising, promotional materials, and investment
meetings and seminars for financial intermediaries that distribute the Operating
Partnership's mutual fund products.
Promotion and servicing expenses for the three months ended March 31, 2000
increased 42.6% from the first quarter of 1999 primarily due to increased
distribution plan payments resulting from higher average domestic, offshore and
cash management assets under management. An increase of $16.0 million in
amortization of deferred sales commissions for the three months ended March 31,
2000 as compared to the first quarter of 1999, resulting from higher sales of
Back-End Load Shares, also contributed to the increase in promotion and
servicing expense. Other promotion and servicing expenses increased primarily as
a result of higher travel and entertainment costs and higher promotional
expenditures incurred in connection with mutual fund sales initiatives.
GENERAL AND ADMINISTRATIVE
General and administrative expenses are costs related to operations, including
technology, professional fees, occupancy, communications, equipment and similar
expenses. General and administrative expenses for the three months ended March
31, 2000 increased 15.6% from the first quarter of 1999 due principally to
higher occupancy related expenses partially offset by lower technology expenses.
INTEREST
Interest expense is incurred on borrowings and on deferred compensation owed to
employees. Interest expense for the three months ended March 31, 2000 increased
from the first quarter of 1999 primarily as a result of higher debt and an
increase in deferred compensation liabilities.
TAXES ON INCOME
The Operating Partnership, a private limited partnership, is not subject to
federal or state corporate income taxes. However, the Operating Partnership is
subject to the New York City unincorporated business tax. Domestic corporate
subsidiaries of the Operating Partnership are subject to federal, state and
local income taxes, and are generally included in the filing of a consolidated
federal income tax return. Separate state and local income tax returns are filed
for domestic corporate subsidiaries. Foreign corporate subsidiaries are
generally subject to taxes in the foreign jurisdictions where they are located.
Income tax expense of $10.0 million for the three months ended March 31, 2000
decreased $7.3 million from the first quarter of 1999 primarily as a result of a
lower effective tax rate offset partially by higher pre-tax income. The
Operating Partnership, a private partnership, is not subject to a federal tax of
3.5% on partnership gross income from the active conduct of a trade or business
which results in a lower effective tax rate compared to Alliance Holding, a
public partnership, which is subject to the 3.5% federal tax.
14
CAPITAL RESOURCES AND LIQUIDITY
Partners' capital of the Operating Partnership was $530.5 million at March 31,
2000, a decrease of $22.2 million or 4.0% from $552.7 at December 31, 1999. The
decrease is primarily due to cash distributions and unamortized deferred
compensation related to the Alliance Partners Compensation Plan partially offset
by net income.
Cash flow from operations and proceeds from borrowings have been the Operating
Partnership's and prior to the reorganization, Alliance Holding's principal
sources of working capital.
The Operating Partnership's cash and cash equivalents increased $2.8 million for
the three months ended March 31, 2000. Cash inflows for the first three months
included $211.7 million from operations, proceeds from borrowings net of debt
repayments of $34.4 million and $7.1 million of proceeds from employee options
exercised for Alliance Holding Units. Cash outflows included $158.2 million in
cash distributions, the purchase of Alliance Holding Units to fund $47.6 million
in awards under the Alliance Partners Compensation Plan, net purchases of
investments of $37.0 million and $9.1 million in capital expenditures.
The Operating Partnership's mutual fund distribution system (the "System")
includes a multi-class share structure. The System permits the Operating
Partnership's open-end mutual funds to offer investors various options for the
purchase of mutual fund shares, including the purchase of Front-End Load Shares
and Back-End Load Shares. The Front-End Load Shares are subject to a
conventional front-end sales charge paid by investors to AFD at the time of
sale. AFD in turn compensates the financial intermediaries distributing the
funds from the front-end sales charge paid by investors. For Back-End Load
Shares, investors do not pay a front-end sales charge although, if there are
redemptions before the expiration of the minimum holding period (which ranges
from one year to four years), investors pay a contingent deferred sales charge
("CDSC") to AFD. While AFD is obligated to compensate the financial
intermediaries at the time of the purchase of Back-End Load Shares, it receives
higher ongoing distribution fees from the funds. Payments made to financial
intermediaries in connection with the sale of Back-End Load Shares under the
System, net of CDSC received, reduced cash flow from operations by approximately
$117.1 million for the three months ended March 31, 2000. Management believes
AFD will recover the payments made to financial intermediaries for the sale of
Back-End Load Shares from the higher distribution fees and CDSC it receives over
periods not exceeding 5 1/2 years.
During 1998, Alliance Holding increased its commercial paper program to $425
million and entered into a $425 million five-year revolving credit facility with
a group of commercial banks and a $425 million commercial paper program. Under
the credit facility, the interest rate, at the option of the borrower, is a
floating rate generally based upon a defined prime rate, a rate related to the
London Interbank Offered Rate (LIBOR) or the Federal Funds rate. A facility fee
is payable on the total facility. Borrowings under the credit facility and the
commercial paper program may not exceed $425 million in the aggregate. In
connection with the Reorganization, the Operating Partnership assumed Alliance
Holding's rights and obligations under the five-year revolving credit facility
and the commercial paper program. The revolving credit facility will be used to
15
provide back-up liquidity for the Operating Partnership's commercial paper
program, to fund commission payments to financial intermediaries for the sale of
Back-End Load Shares under the Operating Partnership's mutual fund distribution
system, and for general working capital purposes.
During July 1999, Alliance Holding entered into a $200 million three-year
revolving credit facility with a group of commercial banks. In connection with
the Reorganization, the Operating Partnership assumed Alliance Holding's rights
and obligations under the three-year revolving credit facility. The new
revolving credit facility, the terms of which are generally similar to the $425
million credit facility, will be used to fund commission payments to financial
intermediaries for the sale of Back-End Load Shares under the Operating
Partnership's mutual fund distribution system and for general working capital
purposes.
The revolving credit facilities contain covenants which, among other things,
require the Operating Partnership to meet certain financial ratios.
In December 1999, the Operating Partnership established a $100 million
Extendible Commercial Notes ("ECN") Program as a supplement to its $425 million
commercial paper program. ECNs are short-term uncommitted debt instruments that
do not require back-up liquidity support.
At March 31, 2000, the Operating Partnership had $381.5 million of commercial
paper and ECNs outstanding, borrowings under the revolving credit facilities of
$48.0 million, and a $3.1 million note related an acquisition in 1998. The $42.5
million increase in debt from December 31, 1999 was primarily due to borrowings
to fund payments to financial intermediaries and for capital expenditures.
The Operating Partnership's substantial equity base and access to public and
private debt, at competitive terms, should provide adequate liquidity for its
general business needs. Management believes that cash flow from operations and
the issuance of debt and Alliance Capital or Alliance Holding Units will provide
the Operating Partnership with the financial resources to meet its capital
requirements for mutual fund sales and its other working capital requirements.
COMMITMENTS AND CONTINGENCIES
The Operating Partnership's capital commitments, which consist primarily of
operating leases for office space, are generally funded from future operating
cash flows.
On July 25, 1995, a Consolidated and Supplemental Class Action Complaint (the
"Original Complaint") was filed against Alliance North American Government
Income Trust, Inc. (the "Fund"), Alliance Holding and certain other defendants
affiliated with Alliance Holding alleging violations of federal securities laws,
fraud and breach of fiduciary duty in connection with the Fund's investments in
Mexican and Argentine securities. On September 26, 1996, the United States
District Court for the Southern District of New York granted the defendants'
motion to dismiss all counts of the Original Complaint. On October 29, 1997, the
United States Court of Appeals for the Second Circuit affirmed that decision.
On October 29, 1996, plaintiffs filed a motion for leave to file an amended
complaint. The principal allegations of the proposed amended complaint are that
(i) the Fund failed to hedge against currency risk despite representations that
it would do so, (ii) the Fund did not properly disclose that it planned to
invest in mortgage-backed derivative securities, and (iii) two advertisements
used by the Fund misrepresented the risks of investing in the Fund. On October
15, 1998, the United States Court of Appeals for the Second Circuit issued an
order granting plaintiffs' motion to file an amended complaint alleging that the
Fund misrepresented its ability to hedge against currency risk and denying
plaintiffs' motion to file an amended complaint alleging that the Fund did not
properly disclose that it planned to invest in mortgage-backed derivative
securities and that certain advertisements used by the Fund misrepresented the
risks of investing in the Fund. On December 1, 1999, the United States District
Court for the Southern District of New York granted the defendants' motion for
16
summary judgment on all claims against all defendants. On December 14 and 15,
1999, the plaintiffs filed motions for reconsideration of the Court's ruling.
These motions are currently pending with the Court.
A Stipulation and Agreement of Settlement has been signed with the lawyers for
the plaintiffs settling this action. Under the Stipulation and Agreement of
Settlement Alliance Capital will permit Fund shareholders to invest up to $250
million in Alliance mutual funds free of initial sales charges. Like all class
action settlements, the Stipulation and Agreement of Settlement is subject to
court approval.
Alliance Capital assumed all of Alliance Holding's liabilities in respect of
this litigation in connection with the Reorganization. As a result of the
settlement, Alliance Capital recorded a non-cash gain of $22.5 million ($23.9
million pre-tax) for the three months ended March 31, 2000. While the ultimate
outcome of this matter cannot be determined at this time, management does not
expect that it will have a material adverse effect on Alliance Capital's or
Alliance Holding's results of operations or financial condition.
CHANGES IN ACCOUNTING PRINCIPLES
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 ("SFAS 133"), "ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES". Under this Statement, an entity is required
to recognize derivative instruments as either assets or liabilities in the
statement of financial condition and measure those instruments at fair value. In
addition, any entity that elects to apply hedge accounting is required to
establish at the inception of the hedge the method it will use for assessing
effectiveness of the hedging derivative and the measurement approach for
determining the ineffective aspect of the hedge. In June 1999, the Financial
Accounting Standards Board issued Statement of Financial Accounting Standards
No. 137 ("SFAS 137"), which deferred the effective date of SFAS 133 to all
fiscal quarters of all fiscal years beginning after June 15, 2000. Management
intends to adopt this Statement on January 1, 2001 and does not believe that the
adoption of the Statement will have a material effect on the Operating
Partnership's financial condition, results of operations, liquidity, or capital
resources.
CASH DISTRIBUTIONS
The Operating Partnership is required to distribute all of its Available Cash
Flow (as defined in the Alliance Capital Partnership Agreement) to the General
Partner and Alliance Capital Unitholders. Alliance Holding is also required to
distribute all of its available cash flow (as defined in the Alliance Holding
Partnership Agreement). The Available Cash Flow of the Operating Partnership and
Alliance Holding for the three months ended March 31, 2000 and 1999,
respectively, was as follows:
Three Months Ended
----------------------------
Operating Alliance
Partnership Holding
------------------------------------
3/31/00 3/31/99
- --------------------------------------------------------------------------------------------------------------------------
Available Cash Flow (in thousands) $141,994 $93,316
Distributions per unit $ 0.815 $ 0.54
- --------------------------------------------------------------------------------------------------------------------------
FORWARD-LOOKING STATEMENTS
Certain statements provided by Alliance Capital and Alliance Holding in this
report are "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Such forward-looking statements are
subject to risks, uncertainties and other factors which could cause actual
results to differ materially from future results expressed or implied by such
forward-looking statements. The most significant of such factors include, but
are not limited to, the following: the performance of financial markets, the
investment performance of sponsored investment products and separately managed
accounts, general economic conditions, future acquisitions, competitive
conditions and government regulations, including changes in tax rates. Alliance
Capital and Alliance Holding caution readers to carefully consider such factors.
Further, such forward-looking statements speak only as of the date on which such
statements are made; Alliance Capital and Alliance Holding undertake no
obligation to update any forward-looking statements to reflect events or
circumstances after the date of such statements.
17
Part II
OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
A Stipulation and Agreement of Settlement has been signed with the
lawyers for plaintiffs in the legal proceeding reported in the
Alliance Capital Management L.P. ("Alliance Capital") Annual Report on
Form 10-K for the year ended December 31, 1999. Under the Stipulation
and Agreement of Settlement Alliance Capital will permit shareholders
of Alliance North American Government Income Trust, Inc. to invest up
to $250 million in mutual funds sponsored by Alliance Capital free of
sales charges. Like all class action settlements, the Stipulation and
Agreement of Settlement is subject to court approval.
Item 2. CHANGES IN SECURITIES
None.
Item 3. DEFAULTS UPON SENIOR SECURITIES
None.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
Item 5. OTHER INFORMATION
None.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None.
(b) Reports on Form 8-K
None.
18
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ALLIANCE CAPITAL MANAGEMENT L.P.
Dated: May 15, 2000 By: Alliance Capital Management
Corporation, its General Partner
By: /s/ ROBERT H. JOSEPH, JR.
____________________________________
Robert H. Joseph, Jr.
Senior Vice President &
Chief Financial Officer
19
