SELECTED CONSOLIDATED FINANCIAL DATA
(In thousands, unless otherwise indicated)
Alliance Capital Management L.P.(1)
- --------------------------------------------------------------------------------------------------------------------
Years Ended December 31,
1996 1995 1994 1993 1992
- --------------------------------------------------------------------------------------------------------------------
INCOME STATEMENT DATA:
Revenues:
Investment advisory and services fees:
Alliance mutual funds $291,601 $232,730 $211,169 $167,043 $149,957
Separately managed accounts:
Affiliated clients 44,901 43,978 41,805 37,212 33,180
Third party clients 227,530 179,872 163,171 146,509 138,709
Distribution plan fees from Alliance mutual funds 166,411 128,733 135,613 105,260 92,985
Shareholder servicing and administration fees 47,434 43,383 40,593 32,932 28,099
Other revenues 10,640 10,559 8,601 10,561 10,341
- --------------------------------------------------------------------------------------------------------------------
788,517 639,255 600,952 499,517 453,271
- --------------------------------------------------------------------------------------------------------------------
Expenses:
Employee compensation and benefits 214,743 172,202 173,649 149,295 154,800
Promotion and servicing:
Distribution plan payments to financial intermediaries:
Affiliated 30,533 23,710 20,442 13,722 10,755
Third party 115,362 87,044 84,054 65,445 55,526
Amortization of deferred sales commissions 53,144 50,501 51,547 36,237 32,495
Other 48,755 39,959 42,701 30,233 28,064
General and administrative 100,854 88,889 70,731 66,023 80,087
Amortization of intangible assets 15,613 8,747 8,450 6,975 6,993
Interest 1,923 1,192 7,572 10,619 9,871
Nonrecurring transaction expenses -- -- -- 40,842 --
- --------------------------------------------------------------------------------------------------------------------
580,927 472,244 459,146 419,391 378,591
- --------------------------------------------------------------------------------------------------------------------
Income before income taxes (benefit) and cumulative
effect of accounting change 207,590 167,011 141,806 80,126 74,680
Income taxes (benefit) 14,244 11,624 8,317 11,466 (100)
- --------------------------------------------------------------------------------------------------------------------
Income before cumulative effect of accounting change 193,346 155,387 133,489 68,660 74,780
Cumulative effect of change in accounting for income taxes -- -- -- 900 --
- --------------------------------------------------------------------------------------------------------------------
Net income $193,346 $155,387 $133,489 $ 69,560 $ 74,780
- --------------------------------------------------------------------------------------------------------------------
Net income per Unit (4) $2.27 $1.89 $1.70 $0.96 $1.05
Cash distributions per Unit(2)(4) $2.19 $1.82 $1.64 $1.50 $1.285
Weighted average Units outstanding(4) 84,484 81,558 77,941 72,085 70,244
- --------------------------------------------------------------------------------------------------------------------
BALANCE SHEET DATA AT PERIOD END:
Total assets $725,897 $575,058 $518,369 $561,287 $415,851
Debt and long-term obligations(3) 52,629 30,839 29,021 134,022 165,334
Partners' capital 476,020 406,709 381,329 214,045 160,626
- --------------------------------------------------------------------------------------------------------------------
ASSETS UNDER MANAGEMENT AT PERIOD END
(in millions)(5) $182,792 $146,521 $119,279 $113,979 $ 97,521
====================================================================================================================
(1) The transfer of the business of Equitable Capital Management Corporation
("ECMC") to the Partnership was completed on July 22, 1993 and was
accounted for in a manner similar to the pooling of interests method.
Accordingly, all financial data for the periods presented, except as noted,
have been restated to include the results of operations of ECMC.
(2) The Partnership is required to distribute all of its Available Cash Flow,
as defined in the Partnership Agreement, to the General Partner and
Unitholders. Cash distributions per Unit amounts above do not include
Available Cash Flow resulting from the operations of ECMC prior to July 22,
1993, the date the transfer was completed.
(3) Includes accrued expenses under employee benefit plans due after one year
and debt.
(4) Unit and per Unit amounts for all periods presented reflect a two-for-one
Unit split effective February 22, 1993.
(5) Assets under management exclude certain non-discretionary advisory
relationships.
page 43
MANAGEMENT'S DISCUSSION and
ANALYSIS of FINANCIAL CONDITION
and RESULTS of OPERATIONS
GENERAL
Alliance Capital Management L.P. (the "Partnership") derives substantially all
of its revenues and net income (a) from fees for investment advisory,
distribution and related services provided to the Alliance mutual funds, and (b)
from fees for investment advisory services provided to affiliated clients
including The Equitable Life Assurance Society of the United States ("ELAS"), a
wholly-owned subsidiary of The Equitable Companies Incorporated ("Equitable"),
and certain other ELAS affiliates and to unaffiliated separately managed
accounts for institutional investors and high net-worth individuals ("third
party clients"). The Alliance mutual funds consist of a broad range of open-end
load and closed-end mutual funds ("mutual funds"), variable products including
The Hudson River Trust ("HRT") and cash management products, including money
market funds and deposit accounts. The Partnership offers a broad range of
investment management products and services to meet the varied needs and
objectives of individual and institutional investors.
The Partnership's investment advisory and services fees, the largest
component of the Partnership's revenues, are generally calculated as a small
percentage of the value of assets under management and vary with the type of
account managed. Fee income is therefore affected by changes in assets under
management, including market appreciation or depreciation, the addition of new
client accounts or client contributions of additional assets to existing
accounts, withdrawals of assets from and termination of client accounts,
purchases and redemptions of mutual fund shares, and shifts of assets between
accounts or products with different fee structures. Investment advisory
agreements for certain accounts provide for performance fees in addition to a
base fee. Performance fees are earned when investment performance exceeds a
contractually agreed upon benchmark and, accordingly, may increase the
volatility of the Partnership's revenues and earnings.
The most significant developments during 1996 were the substantial increase
in U.S. equity markets and a significant increase in mutual fund sales. Assets
under management grew to $182.8 billion at December 31, 1996, an increase of
$36.3 billion or 24.8% from December 31, 1995, primarily as a result of market
appreciation, businesses acquired and net Alliance mutual fund sales. Alliance
mutual fund sales for 1996 were approximately $14.5 billion compared to sales of
$11.4 billion in 1995. The increase in Alliance mutual fund sales, principally
equity mutual funds and variable products, combined with a decline in mutual
fund redemptions during 1996, resulted in net Alliance mutual fund sales of $8.7
billion compared to $5.5 billion in 1995.
On February 29, 1996, the Partnership acquired substantially all of the
assets and liabilities of Cursitor Holdings, L.P. ("CHLP") and all of the
outstanding shares of Cursitor Holdings Limited, currently Cursitor Alliance
Holdings Limited, (collectively, "Cursitor") for approximately $159.0 million.
The purchase price consisted of 1,764,115 Units with an aggregate value of $43.2
million at the time of issuance, $94.3 million in cash, and notes in the
aggregate principal amount of $21.5 million. The acquisition was accounted for
under the purchase method with the results of Cursitor included in the
Partnership's consolidated financial statements from the acquisition date.
Cursitor specializes in providing global asset allocation services to U.S. and
non-U.S. institutional investors. Cursitor investment results were poor in 1995
and 1996. Significant account terminations have occurred and assets under
management in Cursitor portfolios as of February 28, 1997 were less than $7
billion.
page 44
- --------------------------------------------------------------------------------
Management's Discussion and Analysis of
Financial Condition and Results of Operations
- --------------------------------------------------------------------------------
RESULTS OF OPERATIONS
(Dollars & Units in millions,
except per Unit amounts) 1996 1995 % Change 1995 1994 % Change
- ----------------------------------------------------------------------------------------------------------------------
Net income $193.3 $155.4 24.4% $155.4 $133.5 16.4%
Net income per Unit $2.27 $1.89 20.1 $1.89 $1.70 11.2
Weighted average number of Units
and Unit equivalents outstanding 84.5 81.6 3.6 81.6 77.9 4.7
Operating margin 26.3% 26.1% 26.1% 23.6%
======================================================================================================================
Net income for 1996 increased by 24.4% from 1995 primarily due to a 23.5%
increase in investment advisory and services fees resulting from higher average
assets under management. Net income for 1995 increased by 16.4% from 1994
primarily due to a 9.7% increase in investment advisory and services fees
combined with a modest 2.9% increase in expenses.
ASSETS UNDER MANAGEMENT ($ billions) 12/31/96 12/31/95 % Change 12/31/95 12/31/94 % Change
- ----------------------------------------------------------------------------------------------------------------------
Alliance mutual funds:
Mutual funds $ 27.6 $ 23.1 19.5% $ 23.1 $ 20.6 12.1%
Cash management products 18.6 13.8 34.8 13.8 9.1 51.6
Variable products 17.1 12.3 39.0 12.3 8.5 44.7
- ----------------------------------------------------------------------------------------------------------------------
63.3 49.2 28.7 49.2 38.2 28.8
- ----------------------------------------------------------------------------------------------------------------------
Separately managed accounts:
Active equity & balanced 54.4 46.4 17.2 46.4 33.6 38.1
Active fixed 37.6 34.1 10.3 34.1 34.3 (0.6)
Index 18.9 16.3 16.0 16.3 12.7 28.3
Asset Allocation* 8.6 .5 1,620.0 .5 .5 --
- ----------------------------------------------------------------------------------------------------------------------
119.5 97.3 22.8 97.3 81.1 20.0
- ----------------------------------------------------------------------------------------------------------------------
Total $182.8 $146.5 24.8% $146.5 $119.3 22.8%
======================================================================================================================
*Significant increase as a result of the Cursitor acquisition.
page 45
AVERAGE ASSETS UNDER MANAGEMENT ($ billions) 1996 1995 % Change 1995 1994 % Change
- ----------------------------------------------------------------------------------------------------------------------
Alliance mutual funds $ 56.3 $ 43.0 30.9% $ 43.0 $ 39.8 8.0%
Separately managed accounts:
Affiliated clients 24.9 21.8 14.2 21.8 20.7 5.3
Third party clients 86.1 67.6 27.4 67.6 60.0 12.7
- ----------------------------------------------------------------------------------------------------------------------
Total $167.3 $132.4 26.4% $132.4 $120.5 9.9%
======================================================================================================================
Assets under management at December 31, 1996 were $182.8 billion, an increase of
$36.3 billion or 24.8% from December 31, 1995. Mutual fund assets under
management at December 31, 1996 were $63.3 billion, an increase of $14.1 billion
or 28.7% from December 31, 1995, due principally to market appreciation of $6.0
billion and net sales of cash management products, variable products and mutual
funds of $4.8 billion, $2.2 billion, and $0.8 billion, respectively. Separately
managed account assets under management at December 31, 1996 were $119.5
billion, an increase of $22.2 billion or 22.8% from December 31, 1995. This
increase was primarily due to market appreciation of $11.6 billion, principally
in active equity and balanced accounts, acquired businesses which added $11.1
billion in assets under management, and net asset additions to affiliated client
accounts of $1.6 billion, offset partially by net third party client account
asset withdrawals of $2.1 billion.
Assets under management at December 31, 1995 were $146.5 billion, an
increase of $27.2 billion or 22.8% from December 31, 1994. Mutual fund assets
under management at December 31, 1995 were $49.2 billion, an increase of $11.0
billion or 28.8% from December 31, 1994, due principally to market appreciation
of $6.4 billion and net sales of cash management and variable products of $4.7
billion and $1.3 billion, respectively. These increases were partially offset by
net mutual fund redemptions and unreinvested dividends experienced by the
Partnership's fixed income mutual funds of $1.4 billion. Separately managed
account assets under management at December 31, 1995 were $97.3 billion, an
increase of $16.2 billion or 20.0% from December 31, 1994. This increase was
primarily due to market appreciation of $16.2 billion, principally from active
equity and balanced accounts, and net asset additions to affiliated client
accounts of $1.9 billion, offset partially by net third party client account
asset withdrawals of $1.9 billion.
page 46
- --------------------------------------------------------------------------------
Management's Discussion and Analysis of
Financial Condition and Results of Operations
- --------------------------------------------------------------------------------
REVENUES
($ millions) 1996 1995 % Change 1995 1994 % Change
- ----------------------------------------------------------------------------------------------------------------------
Investment advisory and services fees:
Alliance mutual funds $291.6 $232.7 25.3% $232.7 $211.2 10.2%
Separately managed accounts:
Affiliated clients 44.9 44.0 2.0 44.0 41.8 5.3
Third party clients 227.5 179.9 26.5 179.9 163.2 10.2
Distribution plan fees from
Alliance mutual funds 166.4 128.7 29.3 128.7 135.6 (5.1)
Shareholder servicing and
administration fees 47.4 43.4 9.2 43.4 40.6 6.9
Other revenues 10.7 10.6 0.9 10.6 8.6 23.3
- ----------------------------------------------------------------------------------------------------------------------
Total Revenues $788.5 $639.3 23.3% $639.3 $601.0 6.4%
======================================================================================================================
Investment advisory and services fees were $564.0 million in 1996, an increase
of $107.4 million or 23.5% over 1995. Investment advisory and services fees were
$456.6 million in 1995, an increase of $40.4 million or 9.7% over 1994.
Performance fees earned on affiliated and third party client accounts aggregated
$18.4 million, $18.1 million, and $18.0 million in 1996, 1995 and 1994,
respectively.
Investment advisory and services fees from Alliance mutual funds increased
by $58.9 million or 25.3% for 1996, primarily as a result of a 30.9% increase in
average assets under management. Investment advisory and services fees from
Alliance mutual funds increased by $21.5 million or 10.2% from 1994 to 1995
primarily as a result of an 8% increase in average assets under management.
Investment advisory and services fees from affiliated clients, primarily
the ELAS General Accounts, increased for 1996 due principally to higher average
assets under management, offset partially by lower performance fees in 1996
compared to 1995. Affiliated advisory fees increased in 1995 due principally to
an increase in performance fees.
Excluding acquisitions, investment advisory and services fees from new
third party client accounts and asset contributions to existing client accounts
during the three year period were less than fees lost due to account
terminations and asset withdrawals. However, the increase in fees resulting from
significant market appreciation more than offset fees lost as a result of
terminations and withdrawals. Investment advisory and services fees from third
party clients increased for both 1996 and 1995 due to an increase in average
assets under management of 27.4% and 12.7%, respectively. The increases in third
party assets under management resulted primarily from market appreciation and in
1996 from the Cursitor acquisition.
The Partnership's subsidiary, Alliance Fund Distributors, Inc. ("AFD"),
acts as distributor of its sponsored mutual funds and receives distribution plan
fees from those funds in reimbursement of distribution expenses it incurs.
Distribution plan fees increased in 1996 due to substantially higher average
cash management and equity mutual fund assets under management attributable to
strong sales of Class B Shares under its mutual fund distribution system (the
"System") (See "Capital Resources and Liquidity"). Distribution plan fees
decreased for 1995 primarily as a result of lower average fixed income load
mutual fund assets attributable to Class B and Class C Shares. This decrease was
principally due to net redemptions of fixed income mutual fund shares during the
latter part of 1994 and early 1995.
page 47
The Partnership's subsidiary, Alliance Fund Services, Inc. ("AFS"),
provides administrative and transfer agency services to its sponsored mutual
funds and money market funds. In connection with the investment advisory
services it provides to the General Accounts of ELAS and its insurance
subsidiaries, the Partnership provides ancillary regulatory accounting and
reporting services. Increases in shareholder servicing and administration fees
were principally due to increases in the number of mutual fund shareholder
accounts serviced by AFS. The number of shareholder accounts serviced increased
to approximately 2.8 million as of December 31, 1996 from 2.4 million and 2.2
million as of December 31, 1995 and 1994, respectively.
Other revenues consist primarily of interest, dividends and commissions on
the sale of Class A Shares under the System. Other revenues increased for 1995,
principally due to the increase in interest earned on short-term investments
from higher average balances.
EXPENSES
($ millions) 1996 1995 % Change 1995 1994 % Change
- ----------------------------------------------------------------------------------------------------------------------
Employee compensation and benefits $214.7 $172.2 24.7% $172.2 $173.6 (0.8%)
Promotion and servicing 247.8 201.2 23.2 201.2 198.7 1.3
General and administrative 100.9 88.9 13.5 88.9 70.7 25.7
Interest 1.9 1.2 58.3 1.2 7.6 (84.2)
Amortization of intangible assets 15.6 8.7 79.3 8.7 8.5 2.4
- ----------------------------------------------------------------------------------------------------------------------
Total Expenses $580.9 $472.2 23.0% $472.2 $459.1 2.9%
======================================================================================================================
Employee compensation and benefits, which represent approximately 37.0% of total
expenses, include salaries, commissions, fringe benefits and incentive
compensation based on profitability. Provisions for future payments to be made
under certain deferred compensation arrangements and for noncash compensation
expense resulting from the vesting of Units issued or sold to key employees at a
discount from fair market value are also included in employee compensation and
benefits expense.
Employee compensation and benefits increased for 1996 primarily as a result
of higher incentive compensation due to increased operating earnings and an
increase in head count resulting from acquisitions, the expansion of the
Partnership's mutual fund operations, and additional investment professionals.
Employee compensation and benefits decreased for 1995 primarily as a result of a
reduction in the number of full-time employees. This decrease was partially
offset by related severance costs and salary increases. The Partnership had
1,495 employees at December 31, 1996 compared to 1,365 and 1,494 at December 31,
1995 and 1994, respectively.
page 48
- --------------------------------------------------------------------------------
Management's Discussion and Analysis of
Financial Condition and Results of Operations
- --------------------------------------------------------------------------------
Promotion and servicing expenses, which represent approximately 43% of
total expenses, include payments made to financial intermediaries for
distribution of the Partnership's sponsored mutual funds and cash management
services' products and amortization of deferred sales commissions paid to
financial intermediaries under the System. Also included in this expense
category are travel and entertainment, advertising, promotional materials, and
investment meetings and seminars for financial intermediaries that distribute
the Partnership's mutual fund products. Promotion and servicing expenses for
1996 and 1995 increased primarily due to increased distribution plan payments
resulting from higher average cash management and equity mutual fund assets
under management. Other promotional expenses increased for 1996 primarily as a
result of higher promotional and servicing costs for cash management products
and increased mutual fund advertising.
General and administrative expenses, which represent approximately 19% of
total expenses, are costs related to the operation of the business, including
professional fees, occupancy, communications, equipment and similar expenses.
General and administrative expenses increased for 1996 and 1995 due principally
to higher systems consulting expenses incurred in connection with technology
initiatives, higher occupancy costs resulting from the Partnership's expansion
at its New York headquarters and higher legal fees attributable to pending
litigation.
Interest expense is incurred on the Partnership's borrowings and on
deferred compensation owed to employees. Interest expense increased for 1996
resulting from interest incurred on the $21.5 million notes issued in connection
with the Cursitor acquisition. Interest expense decreased for 1995 due to lower
average borrowings resulting from the repayment of the Partnership's senior
notes during August 1994.
Amortization of intangible assets is primarily attributable to the
acquisition of ACMC, Inc., the predecessor of the Partnership, by ELAS during
1985, the acquisition of Shields Asset Management, Incorporated ("Shields") and
its wholly-owned subsidiary, Regent Investor Services Incorporated ("Regent") in
March 1994 and the Cursitor acquisition in February 1996. Amortization of
intangibles increased in 1996 primarily due to the amortization of costs
assigned to Cursitor contracts and goodwill incurred in connection with the
Cursitor acquisition.
The Partnership generally is not subject to Federal, state and local income
taxes, with the exception of the New York City unincorporated business tax,
which is currently imposed at a rate of 4%. Domestic subsidiaries of the
Partnership are subject to Federal, state and local income taxes. Subsidiaries
organized and operating outside the United States are generally subject to taxes
in the foreign jurisdictions where they are located. The 1996 and 1995 provision
for income taxes increased primarily as a result of the increase in taxable
income of the Partnership and certain of its corporate subsidiaries.
The tax exemption for certain publicly traded limited partnerships,
including the Partnership, will expire on December 31, 1997. As a consequence,
if the Partnership retains its current structure, it will be taxed as a
corporation as of January 1, 1998. In response to this pending loss of its
partnership tax status, management of the Partnership is presently reviewing
alternatives and the Partnership expects to announce its plans during the second
quarter of 1997.
page 49
CAPITAL RESOURCES AND LIQUIDITY
Partners' capital was $476.0 million at December 31, 1996, an increase of $69.3
million or 17.0% from $406.7 million at December 31, 1995. Partners' capital at
December 31, 1995 increased $25.4 million or 6.7% from $381.3 million at
December 31, 1994.
Cash flow from operations and proceeds from the sale of Units have been the
Partnership's principal sources of working capital. During 1996, the
Partnership's cash and cash equivalents decreased by $66.8 million. Cash
outflows included $99.4 million for acquisitions, $175.5 million in
distributions to Unitholders and $21.2 million in capital expenditures. Cash
inflows included $224.2 million from operations and $5.4 million of proceeds
from exercises of Unit options.
The Partnership acquired Cursitor on February 29, 1996 for approximately
$159.0 million. The purchase price consisted of cash payments aggregating $94.3
million, 1,764,115 Units with an aggregate value of $43.2 million at the time of
issuance, and notes in the aggregate principal amount of $21.5 million
("Notes"). The Notes bear interest at 6% per annum and are payable ratably over
the next four years. Acquisition costs of $4.0 million were also incurred. Under
certain circumstances, through February 28, 2006, the Partnership has an option
to purchase CHLP's minority interest in Cursitor Alliance LLC ("Cursitor
Alliance"), a newly formed subsidiary, and CHLP has an option to sell its
minority interest to the Partnership for a price ("Buyout Price") in cash,
Units, or a combination thereof of not less than $7.0 million or more than $52.0
million. The Buyout Price is based on the pre-tax operating earnings of Cursitor
Alliance during the prior twelve month period. If either option is exercised,
the payment of the Buyout Price will be accounted for as an increase in the
Cursitor purchase price.
The Partnership's mutual fund distribution system (the "System") includes
four distribution options. The System permits the Partnership's open-end mutual
funds to offer investors the option of purchasing shares (a) subject to a
conventional front-end sales charge ("Class A Shares"), (b) without a front-end
sales charge but subject to a contingent deferred sales charge payable by
shareholders ("CDSC") and higher distribution fees payable by the funds ("Class
B Shares"), (c) without a front-end sales charge and, if the shares are held for
at least one year, CDSC combined with higher distribution fees payable by the
funds ("Class C Shares") or (d) without a front-end sales charge, CDSC or
ongoing distribution fees payable by the funds ("Advisor Class Shares"). If a
shareholder purchases Class A Shares, AFD compensates the financial intermediary
distributing the fund from the front-end sales charge paid by the shareholder at
the time of each sale. If a shareholder purchases Class B or Class C Shares, AFD
does not collect a front-end sales charge even though it is obligated to
compensate the financial intermediary at the time of sale. Payments made to
financial intermediaries in connection with the sale of Class B and Class C
Shares under the System, net of CDSC received, totaled approximately $78.7
million and $41.7 million during 1996 and 1995, respectively. Management of the
Partnership believes AFD will recover the payments made to financial
intermediaries from the higher distribution fees and CDSC it receives under the
Class B and Class C Shares over periods not exceeding 5 1/2 years and one year,
respectively. If a shareholder purchases Advisor Class Shares, AFD does not
collect a front-end sales charge or CDSC and does not compensate the financial
intermediary.
page 50
- --------------------------------------------------------------------------------
Management's Discussion and Analysis of
Financial Condition and Results of Operations
- --------------------------------------------------------------------------------
During 1996, the Partnership entered into a new $250 million five-year
revolving credit facility with a group of banks which replaced its $100 million
revolving credit facility and its $100 million commercial paper back-up
revolving credit facility. The new revolving credit facility will be used to
provide backup liquidity for the commercial paper program and is available to
fund commission payments to financial intermediaries for the sale of Class B and
Class C Shares under the System, for acquisitions and for general working
capital purposes.
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 take advantage of strategic
growth opportunities, to finance capital requirements for mutual fund sales and
to meet the Partnership's other capital requirements.
COMMITMENTS AND CONTINGENCIES
The Partnership's capital commitments, which consist primarily of operating
leases for office space, furniture and equipment, are generally funded from
future operating cash flows.
On July 25, 1995, a Consolidated and Supplemental Class Action Complaint
("Complaint") was filed against Alliance North American Government Income Trust,
Inc. (the "Fund"), the Partnership and certain other defendants affiliated with
the Partnership alleging violations of federal securities laws, fraud and breach
of fiduciary duty in connection with the Fund's investments in Mexican and
Argentine securities. The Complaint which sought certification of a plaintiff
class of persons who purchased or owned Class A, B or C Shares of the Fund from
March 27, 1992 through December 23, 1994 seeks an unspecified amount of damages,
costs, attorneys' fees and punitive damages. The principal allegations of the
Complaint are that the Fund purchased debt securities issued by the Mexican and
Argentine governments in amounts that were not permitted by the Fund's
investment objective, and that there was no shareholder vote to change the
investment objective to permit purchases in such amounts. The Complaint further
alleges that the decline in the value of the Mexican and Argentine securities
held by the Fund caused the Fund's net asset value to decline to the detriment
of the Fund's shareholders.
On September 26, 1996, the United States District Court for the Southern
District of New York granted the defendants' motion to dismiss all counts of the
Complaint. On October 11, 1996, plaintiffs filed a motion for reconsideration of
the Court's decision granting defendants' motion to dismiss the Complaint. On
November 25, 1996, the Court denied plaintiffs' motion for reconsideration. On
October 29, 1996, plaintiffs filed a motion for leave to file an amended
complaint, which is still pending. The principal allegations of the proposed
amended complaint are that the Fund did not properly disclose that it planned to
invest in mortgage-backed derivative securities and that two advertisements used
by the Fund misrepresented the risks of investing in the Fund. Plaintiffs also
reiterated allegations in the Complaint that the Fund failed to hedge against
the risks of investing in foreign securities despite representations that it
would do so. 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.
page 51
CHANGES IN ACCOUNTING PRINCIPLES
The Partnership adopted Statement of Financial Accounting Standards No. 123
(SFAS 123) "Accounting for Stock-Based Compensation" on January 1, 1996. The
Partnership currently applies the intrinsic value based method of accounting
prescribed by Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees," in accounting for its Unit option grants. Accordingly, the
Partnership has not recognized any related compensation expense.
The Partnership adopted Statement of Financial Accounting Standards No. 115
(SFAS 115) "Accounting for Certain Investments in Debt and Equity Securities"
and Statement of Financial Accounting Standards No. 121 (SFAS 121) "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of" on December 31, 1994 and 1995, respectively. The adoption of SFAS 115 and
SFAS 121 did not have a material impact on the consolidated financial
statements.
CASH DISTRIBUTIONS
The Partnership is required to distribute all of its Available Cash Flow, as
defined in the Partnership Agreement, to the General Partner and Unitholders
(including the holder of the Class A Limited Partnership Interest based on Units
issuable upon conversion of the Class A Limited Partnership Interest). The
Partnership's Available Cash Flow and Distributions per Unit for the years ended
December 31, 1996, 1995 and 1994 were as follows:
AVAILABLE CASH FLOW 1996 1995 1994
- --------------------------------------------------------------------------------
Available Cash Flow (in thousands): $184,464 $148,937 $127,710
Distributions per Unit $2.19 $1.82 $1.64
================================================================================
page 52
CONSOLIDATED STATEMENTS of
FINANCIAL CONDITION
December 31 (in thousands)
1996 1995
- ------------------------------------------------------------------------------------------------------------
ASSETS:
Cash and cash equivalents $ 57,441 $ 124,256
Fees receivable:
Alliance mutual funds 46,483 36,840
Separately managed accounts:
Affiliated clients 4,479 2,006
Third party clients 58,339 46,766
Receivable from brokers and dealers for sale of shares of Alliance mutual funds 30,976 26,651
Investments, available-for-sale 35,966 35,375
Furniture, equipment and leasehold improvements, net 57,483 44,208
Goodwill, net 116,721 77,659
Contracts of businesses acquired, net 117,683 6,550
Deferred sales commissions, net 175,172 149,583
Other assets 25,154 25,164
- ------------------------------------------------------------------------------------------------------------
Total assets $ 725,897 $ 575,058
============================================================================================================
LIABILITIES AND PARTNERS' CAPITAL:
Liabilities:
Accounts payable and accrued expenses $ 103,427 $ 74,054
Payable to Alliance mutual funds for share purchases 55,468 45,217
Accrued expenses under employee benefit plans 51,633 44,086
Debt 24,658 3,462
Minority interests in consolidated subsidiaries 14,691 1,530
- ------------------------------------------------------------------------------------------------------------
Total liabilities 249,877 168,349
- ------------------------------------------------------------------------------------------------------------
Commitments and contingencies
Partners' Capital:
General Partner 5,101 4,417
Limited partners; 83,782,548 and 81,159,751 Units issued and outstanding,
including Class A Limited Partnership Interest, respectively 505,029 437,283
- ------------------------------------------------------------------------------------------------------------
510,130 441,700
- ------------------------------------------------------------------------------------------------------------
Less: Capital contributions receivable from General Partner 27,904 25,396
Deferred compensation expense 6,500 9,500
Unrealized (gain) loss on investments (294) 95
- ------------------------------------------------------------------------------------------------------------
Total partners' capital 476,020 406,709
- ------------------------------------------------------------------------------------------------------------
Total liabilities and partners' capital $ 725,897 $ 575,058
============================================================================================================
See accompanying notes to consolidated financial statements.
page 53
CONSOLIDATED STATEMENTS of INCOME
For the Years Ended December 31 (in thousands, except per Unit amounts)
1996 1995 1994
- ---------------------------------------------------------------------------------------------------
REVENUES:
Investment advisory and services fees:
Alliance mutual funds $291,601 $232,730 $211,169
Separately managed accounts:
Affiliated clients 44,901 43,978 41,805
Third party clients 227,530 179,872 163,171
Distribution plan fees from Alliance mutual funds 166,411 128,733 135,613
Shareholder servicing and administration fees 47,434 43,383 40,593
Other revenues 10,640 10,559 8,601
- ---------------------------------------------------------------------------------------------------
788,517 639,255 600,952
- ---------------------------------------------------------------------------------------------------
EXPENSES:
Employee compensation and benefits 214,743 172,202 173,649
Promotion and servicing:
Distribution plan payments to financial intermediaries:
Affiliated 30,533 23,710 20,442
Third party 115,362 87,044 84,054
Amortization of deferred sales commissions 53,144 50,501 51,547
Other 48,755 39,959 42,701
General and administrative 100,854 88,889 70,731
Amortization of intangible assets 15,613 8,747 8,450
Interest 1,923 1,192 7,572
- ---------------------------------------------------------------------------------------------------
580,927 472,244 459,146
- ---------------------------------------------------------------------------------------------------
Income before income taxes 207,590 167,011 141,806
Income taxes 14,244 11,624 8,317
- ---------------------------------------------------------------------------------------------------
Net income $193,346 $155,387 $133,489
===================================================================================================
Net income per Unit $2.27 $1.89 $1.70
===================================================================================================
See accompanying notes to consolidated financial statements.
page 54
CONSOLIDATED STATEMENTS of
CHANGES in PARTNERS' CAPITAL
For the Years Ended December 31 (in thousands)
General Limited Capital Deferred Unrealized Total
Partner's Partners' Contributions Compensation Gain (Loss) on Partners'
Capital Capital Receivable Expense Investments Capital
- --------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1993 $2,355 $233,125 $(21,323) $ (112) $ -- $214,045
Net income 1,335 132,154 133,489
Cash distributions to partners
($1.64 per Unit) (1,240) (122,745) (123,985)
Amortization of deferred
compensation expense 2,612 2,612
Capital contributions from
General Partner 695 695
Compensation plan accrual 25 2,519 (2,544) --
Proceeds from sale of Units 1,500 148,500 150,000
Issuance of Units to employees 150 14,850 (15,000) --
Proceeds from Unit options exercised 45 4,475 4,520
Unrealized loss on investments (629) (629)
Foreign currency translation
adjustment 6 576 582
- --------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1994 4,176 413,454 (23,172) (12,500) (629) 381,329
Net income 1,554 153,833 155,387
Cash distributions to partners
($1.73 per Unit) (1,413) (139,906) (141,319)
Amortization of deferred
compensation expense 3,000 3,000
Capital contributions from
General Partner 781 781
Compensation plan accrual 30 2,975 (3,005) --
Issuance of Units to employees 19 1,901 1,920
Proceeds from Unit options exercised 56 5,500 5,556
Unrealized gain on investments 534 534
Foreign currency translation
adjustment (5) (474) (479)
- --------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1995 4,417 437,283 (25,396) (9,500) (95) 406,709
Net income 1,933 191,413 193,346
Cash distributions to partners
($2.10 per Unit) (1,755) (173,779) (175,534)
Amortization of deferred
compensation expense 3,000 3,000
Capital contributions from
General Partner 774 774
Compensation plan accrual 33 3,249 (3,282) --
Issuance of Units for acquisition 427 42,279 42,706
Proceeds from Unit options exercised 54 5,367 5,421
Unrealized gain on investments 389 389
Foreign currency translation
adjustment (8) (783) (791)
- --------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1996 $5,101 $505,029 $(27,904) $(6,500) $ 294 $476,020
==========================================================================================================================
See accompanying notes to consolidated financial statements.
page 55
CONSOLIDATED STATEMENTS of CASH FLOWS
For the Years Ended December 31 (in thousands)
1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 193,346 $ 155,387 $ 133,489
Adjustments to reconcile net income to net cash provided
from operating activities:
Amortization and depreciation 76,893 67,350 67,690
Other, net 8,395 5,918 5,857
Changes in assets and liabilities:
(Increase) in fees receivable from Alliance mutual funds (9,119) (5,457) (1,711)
(Increase) decrease in fees receivable from affiliated clients (2,473) 12,232 6,796
(Increase) decrease in fees receivable from third party clients (190) (7,549) 1,212
(Increase) decrease in receivable from brokers and dealers for
sale of shares of Alliance mutual funds (4,325) (8,667) 85,937
(Increase) in deferred sales commissions (78,733) (41,740) (69,332)
(Increase) decrease in other assets 3,262 (6,273) (2,841)
Increase in accounts payable and accrued expenses 23,535 16,469 1,157
Increase (decrease) in payable to Alliance mutual funds for
share purchases 10,251 12,710 (113,177)
Increase in accrued expenses under employee benefit plans,
less deferred compensation 3,388 207 2,687
- ------------------------------------------------------------------------------------------------------------------
Net cash provided from operating activities 224,230 200,587 117,764
- ------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of investments (132,008) (94,547) (50,978)
Proceeds from sale of investments 131,585 109,138 57,138
Purchase of businesses (99,427) -- (73,570)
Additions to furniture, equipment and leasehold improvements, net (21,157) (7,644) (21,210)
- ------------------------------------------------------------------------------------------------------------------
Net cash provided from (used in) investing activities (121,007) 6,947 (88,620)
- ------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of debt -- 106 100,120
Repayment of debt (65) (178) (205,234)
Distributions to partners (175,534) (141,319) (123,985)
Proceeds from sale of Units -- -- 150,000
Capital contributions from General Partner 774 781 695
Proceeds from Unit options exercised 5,421 5,556 4,520
- ------------------------------------------------------------------------------------------------------------------
Net cash used in financing activities (169,404) (135,054) (73,884)
- ------------------------------------------------------------------------------------------------------------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS (634) (423) 624
- ------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (66,815) 72,057 (44,116)
Cash and cash equivalents at beginning of the year 124,256 52,199 96,315
- ------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 57,441 $ 124,256 $ 52,199
==================================================================================================================
See accompanying notes to consolidated financial statements.
page 56
- ----------------------------------------------
Notes to Consolidated Financial Statements
- ----------------------------------------------
1. ORGANIZATION
Alliance Capital Management L.P. (the "Partnership") and its consolidated
subsidiaries provide diversified investment management services to unaffiliated
separately managed accounts, to The Equitable Life Assurance Society of the
United States ("ELAS"), a wholly-owned subsidiary of The Equitable Companies
Incorporated ("Equitable"), and certain of their subsidiaries and affiliates
and, through various investment vehicles, to individual investors. Separately
managed accounts consist primarily of the active management of equity and fixed
income portfolios for institutional investors. Separately managed accounts
include corporate and public employee pension funds, the general and separate
accounts of ELAS and its insurance company subsidiaries, endowment funds, and
other domestic and foreign institutions. Mutual funds management consists of the
management, distribution and servicing of the Partnership's sponsored mutual
funds and cash management products, including money market funds and deposit
accounts ("Alliance mutual funds").
The Partnership is a registered investment adviser under the Investment
Advisers Act of 1940. Alliance Capital Management Corporation ("Alliance"), an
indirect wholly-owned subsidiary of Equitable, owns a 1% general partnership
interest in the Partnership. At December 31, 1996, Equitable was the beneficial
owner of approximately 57.3% of units representing assignments of beneficial
ownership of limited partnership interests ("Units").
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The Partnership's consolidated financial statements have been prepared in
accordance with generally accepted accounting principles. The preparation of the
financial statements in conformity with generally accepted accounting principles
requires management of the Partnership to make estimates and assumptions that
affect the reported amounts of assets and liabilities, disclosure of contingent
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting periods. Actual results
could differ from those estimates.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the Partnership and its
majority-owned subsidiaries. The equity method of accounting is used for
unconsolidated subsidiaries in which the Partnership's ownership interests range
from 20 to 50 percent and the Partnership exercises significant influence over
operating and financial policies. All significant intercompany transactions and
balances among the consolidated entities have been eliminated.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash on hand, demand deposits and highly
liquid investments with maturities of three months or less. The cost of these
investments approximates fair value.
INVESTMENTS
The Partnership's investments, principally investments in Alliance mutual funds,
are classified as available-for-sale securities. These investments are stated at
fair value with unrealized gains and losses reported as a separate component of
partners' capital. Realized gains and losses on the sale of investments are
included in income currently and are determined using the specific
identification method.
FURNITURE, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Furniture, equipment and leasehold improvements are stated at cost, less
accumulated depreciation and amortization. Depreciation is recognized on a
straight-line basis over the estimated useful lives of eight years for furniture
and three to six years for equipment. Leasehold improvements are amortized on a
straight-line basis over the lesser of their estimated useful lives or the terms
of the related leases.
page 57
GOODWILL AND CONTRACTS OF BUSINESSES ACQUIRED
Goodwill is being amortized on a straight-line basis over estimated useful lives
ranging from twelve to forty years. Accumulated amortization of goodwill was
$11,221,000 and $7,233,000 at December 31, 1996 and 1995, respectively. Cost
assigned to contracts of businesses acquired is being amortized on a
straight-line basis over estimated useful lives ranging from twelve to twenty
years. Accumulated amortization of cost assigned to these contracts was
$83,717,000 and $72,050,000 at December 31, 1996 and 1995, respectively. The
Partnership evaluates the potential impairment of its intangible assets by
comparing the undiscounted cash flows expected to be realized from those
intangible assets to their recorded values and has determined that there is no
impairment.
DEFERRED SALES COMMISSIONS
Sales commissions paid to financial intermediaries in connection with the sale
of shares of open-end Alliance mutual funds sold without a front-end sales
charge are capitalized and amortized over periods not exceeding five and
one-half years, the periods of time estimated by management of the Partnership
during which deferred sales commissions are expected to be recovered from
distribution plan payments received from these funds and from contingent
deferred sales charges received from shareholders of those funds upon the
redemption of their shares. Contingent deferred sales charges reduce unamortized
deferred sales commissions when received.
REVENUE RECOGNITION AND MUTUAL FUND UNDERWRITING ACTIVITIES
Investment advisory and services fees are recorded as revenue as the related
services are performed and earned. Purchases and sales of shares of Alliance
mutual funds in connection with the underwriting activities of the Partnership's
subsidiaries, including related commission income, are recorded on trade date.
Receivables from brokers and dealers for sale of shares of Alliance mutual funds
are generally realized within three business days from trade date, in
conjunction with the settlement of the related payables to Alliance mutual funds
for share purchases.
UNIT OPTION PLANS
Prior to January 1, 1996, the Partnership accounted for its Unit option plans in
accordance with the provisions of Accounting Principles Board ("APB") Opinion
No. 25, Accounting for Stock Issued to Employees. As such, compensation expense
would be recorded on the date of grant only if the market price of the
underlying Units exceeds the exercise price. On January 1, 1996, the Partnership
adopted Statement of Financial Accounting Standards No. 123 ("SFAS No. 123"),
Accounting for Stock-Based Compensation, which permits entities to recognize the
fair value of all stock-based awards on the date of grant as expense over the
vesting period or, alternatively, allows entities to continue to apply the
provisions of APB Opinion No. 25 and provide pro forma net income and pro forma
earnings per Unit disclosures for employee stock option grants made in 1995 and
future years as if the fair-value-based method defined in SFAS No. 123 had been
applied. The Partnership has elected to continue to apply the provisions of APB
Opinion No. 25 and to provide the pro forma disclosure provisions of SFAS No.
123.
ADVERTISING
Advertising costs are generally expensed as incurred and are included in other
promotion and servicing expenses.
FOREIGN CURRENCY TRANSLATION
Assets and liabilities of foreign subsidiaries are translated into United States
dollars at exchange rates in effect at the balance sheet dates, and related
revenues and expenses are translated into United States dollars at average
exchange rates in effect during each period. Net foreign currency gains and
losses resulting from the translation of assets and liabilities of foreign
operations into United States dollars are accumulated in partners' capital. Net
foreign currency gains and losses for the three year period ended December 31,
1996 were not material.
page 58
- ----------------------------------------------
Notes to Consolidated Financial Statements
- ----------------------------------------------
CASH DISTRIBUTIONS TO PARTNERS
The Partnership is required to distribute all of its Available Cash Flow, as
defined in its Partnership Agreement, to the General Partner and Unitholders.
RECLASSIFICATIONS
Certain amounts in the 1995 and 1994 financial statements have been reclassified
to conform with the 1996 presentation.
3. ACQUISITIONS
On February 29, 1996, the Partnership acquired substantially all of the assets
and liabilities of Cursitor Holdings, L.P. ("CHLP") and all of the outstanding
shares of Cursitor Holdings Limited, currently Cursitor Alliance Holdings
Limited, (collectively, "Cursitor") for approximately $159.0 million. The
purchase price consisted of 1,764,115 Units with an aggregate value of $43.2
million at the time of issuance, $94.3 million in cash, and notes in the
aggregate principal amount of $21.5 million ("Notes"). The Notes bear interest
at 6% per annum and are payable ratably over the next four years. Acquisition
costs of $4.0 million were also incurred.
The acquisition was accounted for under the purchase method with the
results of Cursitor included in the Partnership's consolidated financial
statements from the acquisition date. The excess of the purchase price,
including acquisition costs and minority interest, over the fair value of
Cursitor's net assets acquired resulted in the recognition of intangible assets
consisting of cost assigned to Cursitor contracts and goodwill of approximately
$122.8 million and $38.3 million, respectively, which are being amortized over
20 years. Pro forma financial information for the year ended December 31, 1996,
reflecting the effects of the acquisition, is not presented because it would not
be materially different from the actual results reported.
The acquisition of Cursitor resulted in the formation of a new subsidiary
of the Partnership, Cursitor Alliance LLC ("Cursitor Alliance"), in which CHLP
owns a 7% minority equity interest. Under certain circumstances, through
February 28, 2006, the Partnership has an option to purchase CHLP's minority
interest in Cursitor Alliance, and CHLP has an option to sell its minority
interest to the Partnership for a price ("Buyout Price") in cash, Units, or a
combination thereof of not less than $7.0 million or more than $52.0 million.
The Buyout Price is based on the pre-tax operating earnings of Cursitor Alliance
during the prior twelve month period. If either option is exercised, the payment
of the Buyout Price will be accounted for as an increase in the Cursitor
purchase price.
On March 7, 1994, the Partnership acquired the business and substantially
all of the assets of Shields Asset Management, Incorporated ("Shields") and its
wholly-owned subsidiary, Regent Investor Services Incorporated ("Regent"), for a
purchase price of approximately $74 million in cash. In addition, the
Partnership issued 645,160 new Units, having an aggregate fair market value at
the time of issuance of approximately $15 million, to key employees of Shields
and Regent in connection with the employees' entering into long-term employment
agreements. The aggregate fair market value of the Units is being amortized as
employee compensation expense ratably over five years. The acquisition was
accounted for under the purchase method and the results of Shields and Regent
are included in the Partnership's consolidated financial statements from the
acquisition date. Goodwill of $70.6 million was recorded representing the excess
of the purchase price over the estimated fair value of the net assets of the
acquired business.
4. NET INCOME PER UNIT
Net income per Unit is derived by reducing net income for each year by 1% for
the general partnership interest held by the General Partner and dividing the
remaining 99% by the weighted average number of Units outstanding, Unit
equivalents and Units issuable upon conversion of the Class A Limited
Partnership Interest. The aggregate weighted average number of Units outstanding
used in computing net income per Unit was 84,484,000, 81,558,000 and 77,941,000
in 1996, 1995 and 1994, respectively.
page 59
5. INVESTMENTS
At December 31, 1996 and 1995, the Partnership's investments consisted solely of
investments in Alliance mutual funds which were classified as available-for-sale
securities. The amortized cost, gross unrealized gains and losses and fair value
of investments were as follows (in thousands):
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
- --------------------------------------------------------------------------------------
December 31, 1996 $35,672 $395 $(101) $35,966
December 31, 1995 $35,470 $261 $(356) $35,375
======================================================================================
Proceeds from sales of investments were approximately $131,585,000,
$109,138,000 and $57,138,000 in 1996, 1995 and 1994, respectively. Gross
investment gains of $124,000, $125,000 and $0 and gross investment losses of
$345,000, $332,000 and $0 were realized on those sales for the years ended
December 31, 1996, 1995 and 1994, respectively.
6. FURNITURE, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Furniture, equipment and leasehold improvements are comprised of the following
(in thousands):
December 31,
1996 1995
- --------------------------------------------------------------------------------
Furniture and equipment $51,344 $35,041
Leasehold improvements 46,954 41,085
- --------------------------------------------------------------------------------
98,298 76,126
Less: Accumulated depreciation and amortization 40,815 31,918
- --------------------------------------------------------------------------------
Furniture, equipment and leasehold improvements, net $57,483 $44,208
================================================================================
7. DEBT
During 1996, the Partnership entered into a new $250 million five-year revolving
credit facility with a group of banks which replaced its $100 million revolving
credit facility and its $100 million commercial paper back-up revolving credit
facility. Under the new facility, the interest rate, at the option of the
Partnership, is a floating rate generally based upon a defined prime rate, a
rate related to the London Interbank Offered Rate (LIBOR) or the Federal Funds
rate. A facility fee is payable on the total facility. The revolving credit
facility will be used to provide back-up liquidity for commercial paper to be
issued under the Partnership's $100 million commercial paper program, to fund
commission payments to financial intermediaries for the sale of Class B and C
shares under the Partnership's mutual fund distribution system, and for general
working capital purposes. As of December 31, 1996, the Partnership had not
issued any commercial paper and there were no borrowings outstanding under the
Partnership's revolving credit facility.
The revolving credit facility contains covenants which require the
Partnership to, among other things, meet certain financial ratios. The
Partnership was in compliance with the covenants at December 31, 1996.
As discussed in Note 3, the Partnership issued promissory notes to CHLP in
the aggregate principal amount of $21,500,000 on February 29, 1996. Debt also
includes promissory notes with aggregate outstanding principal amounts of
$3,076,000 and $3,324,000 at December 31, 1996 and 1995, respectively, issued to
certain investment partnerships for which a subsidiary of the Partnership serves
as general partner. The principal amounts of these notes will be reduced
proportionately as partners receive return of capital distributions from the
investment partnerships.
page 60
- ----------------------------------------------
Notes to Consolidated Financial Statements
- ----------------------------------------------
8. COMMITMENTS AND CONTINGENCIES
The Partnership and its subsidiaries lease office space, furniture and office
equipment under various operating leases. The minimum commitments under the
leases, net of sublease commitments, at December 31, 1996 aggregated
$306,553,000 and are payable as follows: $16,379,000, $17,088,000, $17,637,000,
$17,794,000 and $17,624,000 for the years 1997 through 2001, respectively, and a
total of $220,031,000 for the remaining years through 2016. Office leases
contain escalation clauses that provide for the pass through of increases in
operating expenses and real estate taxes. Rent expense for the years ended
December 31, 1996, 1995 and 1994 was $24,808,000, $23,172,000 and $18,387,000,
respectively.
On July 25, 1995, a Consolidated and Supplemental Class Action Complaint
("Complaint") was filed against Alliance North American Government Income Trust,
Inc. (the "Fund"), the Partnership and certain other defendants affiliated with
the Partnership alleging violations of federal securities laws, fraud and breach
of fiduciary duty in connection with the Fund's investments in Mexican and
Argentine securities. The Complaint which sought certification of a plaintiff
class of persons who purchased or owned Class A, B or C shares of the Fund from
March 27, 1992 through December 23, 1994 seeks an unspecified amount of damages,
costs, attorneys' fees and punitive damages. The principal allegations of the
Complaint are that the Fund purchased debt securities issued by the Mexican and
Argentine governments in amounts that were not permitted by the Fund's
investment objective, and that there was no shareholder vote to change the
investment objective to permit purchases in such amounts. The Complaint further
alleges that the decline in the value of the Mexican and Argentine securities
held by the Fund caused the Fund's net asset value to decline to the detriment
of the Fund's shareholders.
On September 26, 1996, the United States District Court for the Southern
District of New York granted the defendants' motion to dismiss all counts of the
Complaint. On October 11, 1996, plaintiffs filed a motion for reconsideration of
the Court's decision granting defendants' motion to dismiss the Complaint. On
November 25, 1996, the Court denied plaintiffs' motion for reconsideration. On
October 29, 1996, plaintiffs filed a motion for leave to file an amended
complaint, which is still pending. The principal allegations of the proposed
amended complaint are that the Fund did not properly disclose that it planned to
invest in mortgage-backed derivative securities and that two advertisements used
by the Fund misrepresented the risks of investing in the Fund. Plantiffs also
reiterated allegations in the Complaint that the Fund failed to hedge against
the risks of investing in foreign securities despite representations that it
would do so. 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.
9. Partners' Capital
In connection with the purchase of the business of Equitable Capital Management
Corporation ("ECMC"), a wholly-owned subsidiary of the Equitable, in July 1993,
the Partnership created a Class A Limited Partnership Interest convertible
initially into 100,000 Units. During 1996 the amount of Units issuable upon
conversion of the Class A Limited Partnership Interest was increased by 346,439
Units. Units issuable upon conversion of the Class A Limited Partnership
Interest may be increased by up to $17 million in additional Units to reflect
the receipt by the Partnership of certain performance fees through March 1998.
During May 1994, the Partnership issued a newly created Class B Limited
Partnership Interest to ELAS, for $50 million in cash, which was converted into
2,266,288 newly issued Units during November 1994. The Partnership issued
2,482,030 newly issued Units to a wholly-owned subsidiary of Oversea-Chinese
Banking Corporation Limited during July 1994 for $50 million in cash. During
August 1994, the Partnership sold for $50 million in cash a convertible note to
Banco Bilbao Vizcaya, S.A. which was subsequently converted into 2,482,030 newly
issued Units.
page 61
10. NET CAPITAL
Alliance Fund Distributors, Inc. ("AFD"), a wholly-owned subsidiary of the
Partnership, serves as distributor and/or underwriter for certain Alliance
mutual funds. AFD is registered as a broker-dealer under the Securities Exchange
Act of 1934 and is subject to the minimum net capital requirements imposed by
the Securities and Exchange Commission. AFD's net capital at December 31, 1996
was $10,526,000, which was $6,974,000 in excess of its required net capital of
$3,552,000.
11. EMPLOYEE BENEFIT PLANS
The Partnership and its subsidiaries maintain a number of qualified and
nonqualified employee benefit and incentive compensation plans. Except as
indicated, the aggregate amount available for annual employee bonuses and
contributions to the various employee benefit plans discussed below is based on
a percentage of the consolidated operating profits of the Partnership and its
subsidiaries.
The Partnership maintains qualified profit sharing plans covering
substantially all U.S. and certain foreign employees. The amounts of the annual
contributions to the plans are determined by a committee of the Board of
Directors of the General Partner. Contributions are limited to the maximum
amount deductible for Federal income tax purposes, generally 15% of the total
annual compensation of eligible participants. Aggregate contributions for 1996,
1995 and 1994 were $8,310,000, $7,750,000 and $5,941,000, respectively.
The Partnership maintains a qualified noncontributory defined benefit
retirement plan covering substantially all U.S. employees and certain foreign
employees. Benefits are based on years of credited service, average final base
salary and primary Social Security benefits. The Partnership's funding policy is
to contribute annually an amount not to exceed the maximum amount that can be
deducted for Federal income tax purposes. Plan assets are comprised principally
of corporate equity securities, U.S. Treasury securities and shares of Alliance
mutual funds.
The following table presents the retirement plan's funded status and
amounts recognized in the Partnership's consolidated statements of financial
condition (in thousands):
December 31,
1996 1995
- -----------------------------------------------------------------------------------------------------------------------
Actuarial present value of benefit obligations:
Vested benefit obligation $(11,644) $(11,540)
=======================================================================================================================
Nonvested benefit obligation $ (559) $ (764)
=======================================================================================================================
Projected benefit obligation for service rendered to date $(19,332) $(20,076)
Plan assets at fair value 20,035 18,538
- -----------------------------------------------------------------------------------------------------------------------
Projected benefit obligation less than (in excess of) plan assets 703 (1,538)
Unrecognized net (gain) loss from past experience different from that assumed and effects of
changes in assumptions (3,094) 1,027
Prior service cost not yet recognized in net periodic pension cost (1,648) (1,761)
Unrecognized net plan assets at January 1, 1987 being recognized over 26.3 years (2,335) (2,478)
- -----------------------------------------------------------------------------------------------------------------------
Accrued pension expense included in accrued expenses under employee benefit plans $ (6,374) $ (4,750)
=======================================================================================================================
page 62
- ----------------------------------------------
Notes to Consolidated Financial Statements
- ----------------------------------------------
Net expense under the retirement plan for the years ended December 31,
1996, 1995 and 1994 was comprised of (in thousands):
1996 1995 1994
- ------------------------------------------------------------------------------------
Service cost $ 2,317 $ 1,621 $ 2,119
Interest cost on projected benefit obligations 1,405 1,116 1,078
Actual return on plan assets (2,057) (4,510) 1,050
Net amortization and deferral (41) 2,850 (2,827)
- ------------------------------------------------------------------------------------
Net pension charge $ 1,624 $ 1,077 $ 1,420
====================================================================================
Actuarial computations at December 31, 1996, 1995 and 1994 were made
utilizing the following assumptions:
1996 1995 1994
- --------------------------------------------------------------------------------------
Discount rate on benefit obligations 8.00% 7.50% 8.75%
Expected long-term rate of return on plan assets 10.00% 10.00% 10.00%
Annual salary increases 5.50% 5.50% 5.50%
======================================================================================
Variances between actuarial assumptions and actual experience are amortized
over the estimated average remaining service lives of employees in the
retirement plan.
The Partnership maintains a nonqualified unfunded deferred compensation
plan known as the Capital Accumulation Plan and assumed obligations under
contractual unfunded deferred compensation arrangements covering certain
executives which are not funded from the incentive compensation pool.
The Capital Accumulation Plan was frozen on December 31, 1987 and no
additional awards have been made. The Board of Directors of the General Partner
may terminate the Capital Accumulation Plan at any time without cause, in which
case the Partnership's liability would be limited to benefits that have vested.
Benefits due eligible executives under the contractual unfunded deferred
compensation arrangements vested on or before December 31, 1987. Payment of
vested benefits under both the Capital Accumulation Plan and the contractual
unfunded deferred compensation arrangements will generally be made over a ten
year period commencing at retirement age. ACMC, Inc., a subsidiary of Equitable,
is obligated to make capital contributions to the Partnership in amounts equal
to benefits paid under the Capital Accumulation Plan and the contractual
unfunded deferred compensation arrangements. Amounts included in employee
compensation and benefits expense for the Capital Accumulation Plan and the
contractual unfunded deferred compensation arrangements for the years ended
December 31, 1996, 1995 and 1994 were $3,283,000, $3,005,000 and $2,544,000,
respectively.
During 1995, the Partnership established an unfunded deferred compensation
plan known as the Alliance Partners Compensation Plan (the "Plan") under which
certain awards may be granted to eligible executives. A committee comprised of
certain executive officers of the General Partner administers the Plan and
determines the aggregate amount and recipients of awards. Awards made in 1995
vest ratably over three years. Awards made after 1995 vest ratably over eight
years. Until distributed, the awards are generally credited with earnings based
on the Partnership's earnings growth rate. Payment of vested benefits will
generally be made over a five year period commencing at retirement although,
under certain circumstances, full or partial lump sum payments may be made upon
termination of employment. The Plan may be terminated at any time without cause,
in which case the Partnership's liability would be limited to vested benefits.
The Partnership made awards in 1996 and 1995 aggregating $12,350,000 and
$7,925,000, respectively. As of December 31, 1996, the amount vested under the
Plan was $2,816,000 and is included in accrued expenses under employee benefit
plans.
page 63
During 1988, certain employees entered into employment agreements with the
Partnership and acquired from ACMC, Inc. an aggregate of 10,181,818 Units at
either 10% or 20% of the initial public offering price. Accordingly, the
Partnership recorded deferred compensation expense and a corresponding increase
in partners' capital in the amount of the aggregate discount. The Units vested
over periods of employment ranging from two to six years through April 21, 1994
and the aggregate discount was amortized as employee compensation expense
ratably over the applicable vesting periods. During 1994, certain key employees
of Shields and Regent entered into employment agreements with the Partnership
and were issued 645,160 new Units with an aggregate fair market value of
approximately $15,000,000, which is being amortized as employee compensation
expense ratably over five years. Aggregate amortization of $3,000,000,
$3,000,000 and $2,612,000 was recorded for the years ended December 31, 1996,
1995 and 1994, respectively.
12. EMPLOYEE UNIT AWARD AND OPTION PLANS
During 1988, a Unit Option Plan ("Unit Option Plan") was established under which
options to purchase up to 4,923,076 Units may be granted to certain key
employees. A committee of the Board of Directors of the General Partner
administers the plan and determines the grantees and the number of options to be
granted. Options may be granted for terms of up to ten years and each option
must have an exercise price of not less than the fair market value of the Units
on the date of grant. Options are exercisable at a rate of 20% of the Units
subject to options on each of the first five anniversary dates of the date of
grant.
During 1993, the 1993 Unit Option Plan, the Unit Bonus Plan and the Century
Club Plan (together the "1993 Plans") were established by the Partnership
Committees of the Board of Directors of the General Partner administer the 1993
Plans and determine the recipients of grants and awards. Under the 1993 Unit
Option Plan, options to purchase Units may be granted to key employees for terms
of up to ten years. Each option must have an exercise price of not less than the
fair market value of the Units on the date of grant. Options are exercisable at
a rate of 20% of the Units subject to options on each of the first five
anniversary dates of the date of grant. Under the Unit Bonus Plan, Units may be
awarded to key employees in lieu of all or a portion of the cash bonuses they
would otherwise receive under the Partnership's incentive compensation program.
Under the Century Club Plan, employees whose primary responsibilities are to
assist in the distribution of Alliance mutual funds are eligible to receive an
award of Units. The aggregate number of Units that can be the subject of options
granted or that can be awarded under the 1993 Plans may not exceed 3,200,000
Units. In addition, no more than 800,000 Units in the aggregate may be granted
or awarded under the 1993 Plans in any of the first four years of their
operations. As of December 31, 1996, 2,926,500 Units were subject to options
granted and 22,635 Units were subject to awards made under the 1993 Plans.
During 1996 and 1995, the Partnership authorized the grant of options to
officers of the Partnership to purchase 725,000 and 1,805,500 of the
Partnership's Units, respectively, under the Unit Option Plan and 1993 Plans.
The per Unit weighted average fair value of options granted during 1996 and 1995
was $2.69 and $2.24, respectively, on the date of grant using the Black-Scholes
option pricing model with the following weighted average assumptions: risk-free
interest rates of 5.8% and 6.0% for 1996 and 1995, respectively, expected
dividend yield of 8.0% for each year; and a volatility factor of the expected
market price of the Partnership's Units of 23% for each year.
The Partnership applies APB Opinion No. 25 in accounting for its option
plans and, accordingly, no compensation cost has been recognized for its Unit
options in the financial statements. Had the Partnership determined compensation
cost based on the fair value at the grant date for its Unit options under SFAS
No. 123, the Partnership's net income and earnings per Unit would have been
reduced to the pro forma amounts indicated below:
(in thousands, except per Unit amounts) 1996 1995
- --------------------------------------------------------------------------------
Pro forma net income $191,895 $154,688
Pro forma earnings per Unit $2.25 $1.88
================================================================================
page 64
- ----------------------------------------------
Notes to Consolidated Financial Statements
- ----------------------------------------------
Pro forma net income reflects only options granted in 1996 and 1995.
Therefore, the full impact of calculating compensation cost for Unit options
under SFAS 123 is not reflected in the pro forma net income amounts presented
above because compensation cost is reflected over the options' vesting period of
five years and compensation cost for options granted prior to January 1, 1995 is
not considered.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected Unit price
volatility. Because the Partnership's employee Unit options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing model does not necessarily provide a reliable
single measure of the fair value of its Unit options.
The following table summarizes the activity in options under the Unit
Option Plan and the 1993 Plans:
Weighted Average
Units Exercise Price Per Unit
- --------------------------------------------------------------------------------------
Outstanding at January 1, 1994 3,233,400 $12.96
Granted 1,213,500 $19.97
Exercised (484,500) $ 9.33
Forfeited (150,000) $17.78
- --------------------------------------------------------------------------------------
Outstanding at December 31, 1994 3,812,400 $15.46
- --------------------------------------------------------------------------------------
Granted 1,805,500 $20.54
Exercised (496,100) $11.20
Forfeited (293,700) $16.64
- --------------------------------------------------------------------------------------
Outstanding at December 31, 1995 4,828,100 $17.72
- --------------------------------------------------------------------------------------
Granted 725,000 $25.12
Exercised (397,300) $13.64
Forfeited (121,700) $19.32
- --------------------------------------------------------------------------------------
Outstanding at December 31, 1996 5,034,100 $19.07
======================================================================================
Exercisable at December 31, 1996 2,053,280
======================================================================================
The following table summarizes information concerning currently outstanding
and exercisable options:
Options Outstanding Options Exercisable
- ----------------------------------------------------------------------------------------------------------------------
Weighted
Number Average Weighted Number Weighted
Range of Outstanding Remaining Average Exercisable Average
Exercise as of Contractual Exercise as of Exercise
Prices 12/31/96 Life Price 12/31/96 Price
- ----------------------------------------------------------------------------------------------------------------------
$ 6.0625 - $15.9375 1,317,300 4.76 $12.97 1,168,500 $12.58
16.3125 - 19.75 1,033,800 8.19 19.13 231,400 18.69
19.875 - 19.875 1,020,300 7.36 19.88 396,000 19.88
20.75 - 24.375 940,200 8.46 22.05 257,380 21.84
25.125 - 25.125 722,500 9.96 25.13 -- --
- ----------------------------------------------------------------------------------------------------------------------
$ 6.0625 - $25.125 5,034,100 7.43 $19.07 2,053,280 $15.84
======================================================================================================================
page 65
13. INCOME TAXES
The Partnership is a publicly traded partnership for Federal income tax purposes
and, accordingly, is not currently subject to Federal and state corporate income
taxes but is subject to the New York City unincorporated business tax ("UBT").
Current law generally provides that certain publicly traded partnerships,
including the Partnership, will be taxable as corporations beginning in 1998.
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.
The provision for income taxes consists of (in thousands):
1996 1995 1994
- --------------------------------------------------------------------------------
Partnership unincorporated business taxes $ 8,182 $ 5,644 $ 5,813
Corporate subsidiaries:
Federal 3,800 3,900 1,300
State, local and foreign 2,262 2,080 1,204
- --------------------------------------------------------------------------------
$14,244 $11,624 $ 8,317
================================================================================
The principal reasons for the difference between the Partnership's
effective tax rate and the UBT statutory tax rate of 4% are as follows (in
thousands):
1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------
UBT statutory rate $ 8,304 4.0% $ 6,681 4.0% $ 5,672 4.0%
Corporate subsidiaries' federal,
state, local and foreign income taxes 6,062 2.9% 5,980 3.6% 2,504 1.8%
Miscellaneous Partnership UBT adjustments (122) 0.0% (1,037) (0.6%) 141 0.1%
- ----------------------------------------------------------------------------------------------------------------
$ 14,244 6.9% $ 11,624 7.0% $ 8,317 5.9%
================================================================================================================
Under Statement of Financial Accounting Standards No. 109 ("SFAS 109"),
Accounting for Income Taxes, deferred income taxes reflect the net tax effect of
temporary differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes. The
tax effect of significant items comprising the Partnership's net deferred tax
assets is as follows (in thousands):
December 31,
1996 1995
- -----------------------------------------------------------------------------------------------------------------
Deferred tax asset:
Differences between book and tax treatment of deferred compensation plans $1,897 $1,407
Other, primarily accruals deductible when paid 1,131 753
- -----------------------------------------------------------------------------------------------------------------
3,028 2,160
=================================================================================================================
Deferred tax liability:
Differences between book and tax basis of furniture, equipment and leasehold improvements 533 469
Differences between book and tax basis of intangibles 56 0
- -----------------------------------------------------------------------------------------------------------------
589 469
- -----------------------------------------------------------------------------------------------------------------
Net deferred tax asset 2,439 1,691
Valuation allowance 1,539 791
- -----------------------------------------------------------------------------------------------------------------
Deferred tax asset, net of valuation allowance $ 900 $ 900
=================================================================================================================
page 66
- ----------------------------------------------
Notes to Consolidated Financial Statements
- ----------------------------------------------
The net change in the valuation allowance for the year ended December 31,
1996 was $748,000. The valuation allowance relates to uncertainties on the
deductibility for UBT purposes of certain compensation related items. The
deferred tax asset is included in other assets.
14. RELATED PARTY TRANSACTIONS
The Partnership and its consolidated subsidiaries provide investment management,
distribution, shareholder servicing, accounting and legal services to the
Alliance mutual funds. Substantially all of these services are provided under
contracts that set forth the services to be provided and the fees to be charged.
The contracts are subject to annual review and approval by each of the Alliance
mutual funds' boards of directors or trustees and, in certain circumstances, by
the Alliance mutual funds' shareholders.
Revenues for services provided to the Alliance mutual funds are as follows
(in thousands):
Year ended December 31,
1996 1995 1994
- ------------------------------------------------------------------------------------
Investment advisory and services fees $291,601 $232,730 $211,169
Distribution plan fees 166,411 128,733 135,613
Shareholder servicing and administration fees 39,451 35,310 33,266
====================================================================================
The Partnership provides investment management and administration services
to Equitable and certain of its subsidiaries other than the Partnership
("Equitable Subsidiaries"). In addition, certain Equitable Subsidiaries
distribute Alliance mutual funds and cash management products for which they
receive commissions and distribution payments. Sales of Alliance mutual funds
through the Equitable Subsidiaries aggregated $697,144,000, $346,717,000 and
$462,610,000 for the years ended December 31, 1996, 1995 and 1994, respectively.
The Partnership and its employees are covered by various insurance policies
maintained by Equitable Subsidiaries. In addition, the Partnership pays fees for
other services provided by Equitable Subsidiaries.
Aggregate amounts included in the consolidated financial statements for
transactions with the Equitable Subsidiaries are as follows (in thousands):
Year ended December 31,
1996 1995 1994
- ---------------------------------------------------------------------------------------
Revenues:
Investment advisory and services fees $44,901 $43,978 $41,805
Shareholder servicing and administration fees 7,548 7,322 7,137
- ---------------------------------------------------------------------------------------
Expenses:
Distribution payments to financial intermediaries 30,533 23,710 20,422
General and administrative 5,865 5,428 5,991
=======================================================================================
15. SUPPLEMENTAL CASH FLOW INFORMATION
Cash payments for interest and income taxes were as follows (in thousands):
Year ended December 31,
1996 1995 1994
- ---------------------------------------------------------------------------------------
Interest $ 506 $ 812 $ 7,123
Income taxes 14,797 11,125 8,803
=======================================================================================
page 67
16. SUBSEQUENT EVENT
On February 6, 1997, the Finance Committee of the Board of Directors of the
General Partner declared a cash distribution of $49,931,000 or $0.59 per Unit
representing the Available Cash Flow (as defined in the Partnership Agreement)
of the Partnership for the period October 1 through December 31, 1996. The
distribution is payable on March 4, 1997 to holders of record on February 25,
1997.
17. QUARTERLY FINANCIAL DATA (UNAUDITED)
(in thousands, except per Unit data) Quarter Ended 1996
- -------------------------------------------------------------------------------------
December September June March
31 30 30 31
- -------------------------------------------------------------------------------------
Revenues $212,754 $197,998 $196,149 $181,616
Net income 52,292 48,957 47,030 45,067
Net income per Unit .61 .57 .55 .54
Cash distributions per Unit(1) .59 .55 .53 .52
Unit prices:(2)
High 28 7/8 26 25 1/8 25 1/2
Low 25 1/8 23 1/8 23 3/8 21 3/4
=====================================================================================
Quarter Ended 1995
- -------------------------------------------------------------------------------------
December September June March
31 30 30 31
- -------------------------------------------------------------------------------------
Revenues $175,785 $164,666 $153,425 $145,379
Net income 43,096 41,007 37,099 34,185
Net income per Unit .52 .50 .45 .42
Cash distributions per Unit(1) .50 .48 .43 .41
Unit prices:(2)
High 23 1/4 20 1/2 20 1/8 18 3/4
Low 19 1/2 17 3/4 17 1/4 16 1/8
=====================================================================================
(1) Declared and paid during the following quarter.
(2) High and low sales prices as reported by the New York Stock Exchange. The
number of Unitholders of record at February 28, 1997 was approximately
1,680.
page 68
INDEPENDENT AUDITORS' REPORT
[LOGO] KPMG Peat Marwick LLP
THE GENERAL PARTNER AND UNITHOLDERS
ALLIANCE CAPITAL MANAGEMENT L.P.
We have audited the accompanying consolidated statements of financial
condition of Alliance Capital Management L.P. and subsidiaries as of December
31, 1996 and 1995, and the related consolidated statements of income, changes in
partners' capital, and cash flows for each of the years in the three-year period
ended December 31, 1996. These consolidated financial statements are the
responsibility of the management of Alliance Capital Management Corporation,
General Partner. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Alliance
Capital Management L.P. and subsidiaries at December 31, 1996 and 1995 and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1996 in conformity with generally accepted
accounting principles.
/s/ KPMG Peat Marwick LLP
New York, New York
February 6, 1997
page 69