FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
--------------------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
--------------------- ---------------------------
Commission File No. 1-9818
-------------------------------------------------------------
ALLIANCE CAPITAL MANAGEMENT L.P.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 13-3434400
- ------------------------------- ----------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1345 Avenue of the Americas, New York, NY 10105
- --------------------------------------------------------------------------------
(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
----- -----
The number of Units representing assignments of beneficial ownership of Limited
Partnership Interests outstanding as of September 30, 1998 was 170,235,883
Units.
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 9-16
Part II
OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS 17
Item 2. CHANGES IN SECURITIES 17
Item 3. DEFAULTS UPON SENIOR SECURITIES 17
Item 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS 17
Item 5. OTHER INFORMATION 17
Item 6. EXHIBITS AND REPORTS ON FORM 8-K 17
Part I
FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
ALLIANCE CAPITAL MANAGEMENT L.P.
Condensed Consolidated Statements of Financial Condition
(in thousands)
ASSETS 9/30/98 12/31/97
---------- ----------
(unaudited)
Cash and cash equivalents. . . . . . . . . . . . . . . . . . $ 225,373 $ 63,761
Receivable from brokers and dealers for sale
of shares of Alliance mutual funds . . . . . . . . . . . . 90,738 68,701
Fees receivable:
Alliance mutual funds. . . . . . . . . . . . . . . . . . . 72,077 57,583
Separately managed accounts:
Affiliated clients . . . . . . . . . . . . . . . . . . . 5,206 8,357
Third party clients. . . . . . . . . . . . . . . . . . . 74,574 73,774
Investments, available-for-sale. . . . . . . . . . . . . . . 63,173 47,097
Furniture, equipment and leasehold improvements, net . . . . 92,096 80,477
Intangible assets, net . . . . . . . . . . . . . . . . . . . 94,363 97,398
Deferred sales commissions, net. . . . . . . . . . . . . . . 354,291 251,632
Other assets . . . . . . . . . . . . . . . . . . . . . . . . 55,012 35,680
---------- ----------
Total assets . . . . . . . . . . . . . . . . . . . . . . . $1,126,903 $ 784,460
---------- ----------
---------- ----------
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Payable to Alliance mutual funds for share purchases . . . $ 134,845 $ 96,995
Accounts payable and accrued expenses. . . . . . . . . . . 178,264 119,887
Accrued compensation and benefits. . . . . . . . . . . . . 192,094 74,880
Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . 203,752 90,416
Minority interests in consolidated subsidiaries. . . . . . 2,662 4,231
---------- ----------
Total liabilities. . . . . . . . . . . . . . . . . . . . 711,617 386,409
Partners' capital. . . . . . . . . . . . . . . . . . . . . 415,286 398,051
---------- ----------
Total liabilities and partners' capital. . . . . . . . . $1,126,903 $ 784,460
---------- ----------
---------- ----------
See accompanying notes to condensed consolidated financial statements.
1
ALLIANCE CAPITAL MANAGEMENT L.P.
Condensed Consolidated Statements of Income
(unaudited)
(in thousands, except per Unit amounts)
THREE MONTHS ENDED NINE MONTHS ENDED
------------------ -----------------
9/30/98 9/30/97 9/30/98 9/30/97
--------- --------- --------- ---------
Revenues:
Investment advisory and services fees:
Alliance mutual funds. . . . . . . . . . . . . . . . . . . . . . . $ 148,108 $ 102,957 $ 435,813 $ 275,698
Separately managed accounts:
Affiliated clients . . . . . . . . . . . . . . . . . . . . . . . 13,258 12,665 43,444 38,509
Third party clients. . . . . . . . . . . . . . . . . . . . . . . 69,392 62,363 224,761 181,393
Distribution revenues. . . . . . . . . . . . . . . . . . . . . . . . 79,698 57,569 221,987 155,575
Shareholder servicing fees . . . . . . . . . . . . . . . . . . . . . 11,677 9,524 31,258 27,405
Other revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,730 5,770 17,737 16,855
--------- --------- --------- ---------
326,863 250,848 975,000 695,435
--------- --------- --------- ---------
Expenses:
Employee compensation and benefits . . . . . . . . . . . . . . . . . 81,835 66,061 251,865 188,899
Promotion and servicing:
Distribution plan payments to financial intermediaries:
Affiliated . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,008 15,407 58,734 39,448
Third party. . . . . . . . . . . . . . . . . . . . . . . . . . . 47,161 30,655 133,289 88,889
Amortization of deferred sales commissions . . . . . . . . . . . . 29,296 19,266 77,792 52,651
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,418 14,959 67,287 44,808
General and administrative . . . . . . . . . . . . . . . . . . . . . 37,707 31,709 121,104 83,005
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,698 713 5,852 2,005
Amortization of intangible assets. . . . . . . . . . . . . . . . . . 1,115 881 3,035 6,124
Reduction in recorded value of intangible assets . . . . . . . . . . - - - 120,900
--------- --------- --------- ---------
243,238 179,651 718,958 626,729
--------- --------- --------- ---------
Income before income taxes . . . . . . . . . . . . . . . . . . . . . . 83,625 71,197 256,042 68,706
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,377 4,988 40,969 13,270
--------- --------- --------- ---------
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 70,248 $ 66,209 $ 215,073 $ 55,436
--------- --------- --------- ---------
--------- --------- --------- ---------
Net income per Unit: . . . . . . . . . . . . . . . . . . . . . . . . .
Basic. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 0.41 $ 0.39 $ 1.25 $ 0.33
--------- --------- --------- ---------
--------- --------- --------- ---------
Diluted. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 0.40 $ 0.38 $ 1.22 $ 0.32
--------- --------- --------- ---------
--------- --------- --------- ---------
Unit and per Unit amounts have been restated to reflect the two-for-one Unit
split paid to Unitholders of record as of March 11, 1998.
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 NINE MONTHS ENDED
------------------ -----------------
9/30/98 9/30/97 9/30/98 9/30/97
--------- --------- --------- ---------
Partners' capital - beginning of period. . . . . . . . . . . . . . . . $ 416,908 $ 371,996 $ 398,051 $ 476,020
Comprehensive income:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70,248 66,209 215,073 55,436
Unrealized gain (loss) on investments. . . . . . . . . . . . . . (1,129) 471 (244) 1,117
Foreign currency translation adjustment. . . . . . . . . . . . . (54) - (54) 24
--------- --------- --------- ---------
Total comprehensive income . . . . . . . . . . . . . . . . . . . 69,065 66,680 214,775 56,577
Capital contribution received from Alliance Capital
Management Corporation . . . . . . . . . . . . . . . . . . . . . . 860 898 2,579 2,694
Cash distributions to partners . . . . . . . . . . . . . . . . . . . (72,201) (54,504) (207,373) (155,505)
Proceeds from Unit options exercised . . . . . . . . . . . . . . . . 654 1,592 7,254 6,876
--------- --------- --------- ---------
Partners' capital - end of period. . . . . . . . . . . . . . . . . . . $ 415,286 $ 386,662 $ 415,286 $ 386,662
--------- --------- --------- ---------
--------- --------- --------- ---------
See accompanying notes to condensed consolidated financial statements.
3
ALLIANCE CAPITAL MANAGEMENT L.P.
Condensed Consolidated Statements of Cash Flows
(unaudited)
(in thousands)
NINE MONTHS ENDED
9/30/98 9/30/97
--------- ---------
Cash flows from operating activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 215,073 $ 55,436
Adjustments to reconcile net income to net cash provided
from operating activities:
Amortization and depreciation. . . . . . . . . . . . . . . . . . . 92,875 67,229
Reduction in recorded value of intangible assets . . . . . . . . . - 120,900
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,781 4,418
Changes in assets and liabilities:
(Increase) in receivable from brokers and dealers for sale
of shares of Alliance mutual funds . . . . . . . . . . . . . . (22,037) (29,839)
(Increase) in fees receivable from Alliance mutual funds,
affiliated clients and third party clients . . . . . . . . . . (12,143) (11,352)
(Increase) in deferred sales commissions . . . . . . . . . . . . (180,450) (105,226)
(Increase) in other assets . . . . . . . . . . . . . . . . . . . (22,724) (6,689)
Increase in payable to Alliance mutual funds for share
purchases. . . . . . . . . . . . . . . . . . . . . . . . . . . 37,850 34,665
Increase in accounts payable and accrued expenses. . . . . . . . 56,477 19,027
Increase in accrued compensation and benefits, less
deferred compensation. . . . . . . . . . . . . . . . . . . . . 114,321 64,764
--------- ---------
Net cash provided from operating activities. . . . . . . . . 290,023 213,333
--------- ---------
Cash flows from investing activities:
Purchase of investments. . . . . . . . . . . . . . . . . . . . . . . (309,460) (317,612)
Proceeds from sale of investments. . . . . . . . . . . . . . . . . . 293,161 290,145
Additions to furniture, equipment and leasehold
improvements, net. . . . . . . . . . . . . . . . . . . . . . . . . (23,683) (28,324)
--------- ---------
Net cash used in investing activities. . . . . . . . . . . . (39,982) (55,791)
--------- ---------
Cash flows from financing activities:
Proceeds from borrowings . . . . . . . . . . . . . . . . . . . . . . 683,790 55,000
Repayment of debt. . . . . . . . . . . . . . . . . . . . . . . . . . (572,375) (20,444)
Distributions to partners. . . . . . . . . . . . . . . . . . . . . . (207,373) (155,505)
Capital contribution received from Alliance Capital Management
Corporation. . . . . . . . . . . . . . . . . . . . . . . . . . . . 329 443
Unit options exercised . . . . . . . . . . . . . . . . . . . . . . . 7,254 6,876
--------- ---------
Net cash used in financing activities. . . . . . . . . . . . (88,375) (113,630)
--------- ---------
Effect of exchange rate changes on cash and cash equivalents . . . . . (54) 24
--------- ---------
Net increase in cash and cash equivalents. . . . . . . . . . . . . . . 161,612 43,936
Cash and cash equivalents at beginning of period . . . . . . . . . . . 63,761 57,441
--------- ---------
Cash and cash equivalents at end of period . . . . . . . . . . . . . . $ 225,373 $ 101,377
--------- ---------
--------- ---------
See accompanying notes to condensed consolidated financial statements.
4
ALLIANCE CAPITAL MANAGEMENT L.P.
Notes to Condensed Consolidated Financial Statements
September 30, 1998
(unaudited)
1. BASIS OF PRESENTATION
The unaudited interim condensed consolidated financial statements of
Alliance Capital Management L.P. (the "Partnership") included herein have
been prepared in accordance with the instructions to Form 10-Q pursuant to
the rules and regulations of the Securities and Exchange Commission. In
the opinion of management, all adjustments, consisting only of normal
recurring adjustments necessary for a fair presentation of (a) financial
position at September 30, 1998, (b) results of operations for the three and
nine months ended September 30, 1998 and 1997 and (c) cash flows for the
nine months ended September 30, 1998 and 1997, have been made.
Unit and per Unit amounts have been restated to reflect the two-for-one
Unit split paid to Unitholders of record as of March 11, 1998.
2. RECLASSIFICATION
Certain prior period amounts have been reclassified to conform to the
current period presentation.
3. DEFERRED SALES COMMISSIONS
Sales commissions paid to financial intermediaries in connection with the
sale of shares of open-end mutual funds managed by the Partnership sold
without a front-end sales charge are capitalized and amortized over periods
not exceeding five and one-half years, the 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 the
mutual funds and contingent deferred sales charges received from mutual
fund shareholders upon the redemption of their shares. Contingent deferred
sales charges reduce unamortized deferred sales commissions when received.
4. DEBT
During July 1998, the Partnership entered into a new $425 million five year
revolving credit facility with a group of commercial banks which replaced a
$250 million revolving credit facility. During September 1998, the
Partnership increased its commercial paper program from $250 million to
$425 million. Borrowings under the facility and the Partnership's
commercial paper program may not exceed $425 million in the aggregate. The
new revolving credit facility will be used to provide back up liquidity for
commercial paper issued under the Partnership's commercial paper program,
to fund commission payments to financial intermediaries for the sale of
back-end load shares under the Partnership's mutual fund distribution
system and for general working capital purposes. The new facility contains
covenants which require the Partnership to, among other things, meet
certain financial ratios.
5. INTEREST RATE CAP AGREEMENT
During the second quarter of 1998, the Partnership entered into a
three-year interest rate cap agreement with a major U.S. commercial bank
effective on December 17, 1998. The sole purpose of this agreement is to
reduce the Partnership's exposure to interest rate risk by effectively
placing an interest rate ceiling or "cap" of 6% per annum on interest
payable on up to $100 million of the debt outstanding under the
Partnership's commercial paper program and revolving credit facility.
5
The $100 million notional principal amount does not represent the
Partnership's exposure to credit risk, but is only a basis to determine the
payment obligation of the counterparty. During the term of the interest
rate cap, the Partnership will receive monthly payments from the major U.S.
commercial bank counterparty based on the excess, if any, of the stated
reference rate of 6% times the notional amount. Should the counterparty
fail to perform its obligations under the agreement, the Partnership's
borrowing costs on the first $100 million debt outstanding could exceed 6%.
However, at this time, the Partnership does not have any reason to believe
that the counterparty would fail to perform.
The premium paid to the counterparty in connection with the agreement is
recorded in other assets in the consolidated statement of financial
condition and will be amortized over the three year period for which the
cap is effective.
6. COMMITMENTS AND CONTINGENCIES
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, (collectively "Cursitor").
Cursitor Alliance LLC ("Cursitor Alliance") was formed in connection with
the acquisition and CHLP acquired a minority interest in Cursitor Alliance.
Through February 28, 2006, the Partnership has an option to purchase the
minority interest held by CHLP in Cursitor Alliance, and CHLP has an option
to sell its minority interest to the Partnership for cash, Units, or a
combination thereof with a value of not less than $10.0 million or more
than $37.0 million ("Buyout Price"). The Buyout Price will be determined
based on the amount of global asset allocation investment advisory revenues
earned by Cursitor Alliance during a twelve month period ending on the
February 28th preceding the date either option is exercised. Due to the
continuing decline in Cursitor Alliance revenues, management of the
Partnership believes that the Buyout Price for the minority interest will
be $10.0 million, which will be substantially higher than its fair value.
Accordingly, the Partnership recorded a $10.0 million provision for the
Buyout Price in the first quarter of 1998.
On July 25, 1995, a Consolidated and Supplemental Class Action Complaint
("Complaint") was filed against Alliance North American Government Income
Trust, Inc. (the "Fund"), the Partnership and certain other defendants
affiliated with the Partnership alleging violations of federal securities
laws, fraud and breach of fiduciary duty in connection with the Fund's
investments in Mexican and Argentine securities. The Complaint, which
sought certification of a plaintiff class of persons who purchased or owned
Class A, B or C shares of the Fund from March 27, 1992 through December 23,
1994, sought an unspecified amount of damages, costs, attorneys' fees and
punitive damages. The principal allegations were that the Fund purchased
debt securities issued by the Mexican and Argentine governments in amounts
that were not permitted by the Fund's investment objective, and that there
was no shareholder vote to change the investment objective to permit
purchases in such amounts. The Complaint further alleged that the decline
in the value of the Mexican and Argentine securities held by the Fund
caused the Fund's net asset value to decline to the detriment of the Fund's
shareholders.
On September 26, 1996, the United States District Court for the Southern
District of New York granted the defendants' motion to dismiss all counts
of the Complaint ("First Decision"). On October 29, 1997, the United
States Court of Appeals for the Second Circuit issued an order granting
defendants' motion to strike and dismissing plaintiffs' appeal of the First
Decision.
On October 29, 1996, plaintiffs filed a motion for leave to file an amended
complaint. The principal allegations of the proposed amended complaint are
that (i) the Fund misrepresented its ability to hedge against currency
risk, (ii) the Fund did not properly disclose that it planned to invest in
mortgage-backed derivative securities, and (iii) certain advertisements
used by the Fund misrepresented the risks of investing in the Fund. On
July 15, 1997, the District Court denied plaintiffs' motion for leave to
file the amended complaint and ordered that the case be dismissed ("Second
Decision").
6
On October 15, 1998, the United States Court of Appeals for the Second
Circuit affirmed the Second Decision in part and reversed the Second
Decision in part. The Court of Appeals affirmed the Second Decision
insofar as it denied 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 certain advertisements used by
the Fund misrepresented the risks of investing in the Fund. The Court of
Appeals reversed the Second Decision insofar as it denied plaintiffs'
motion to file an amended complaint alleging that the Fund misrepresented
its ability to hedge against currency risk.
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.
7. REDUCTION IN RECORDED VALUE OF INTANGIBLE ASSETS
The Partnership evaluates impairment of its intangible assets by comparing
the undiscounted cash flows expected to be realized from those assets to
their recorded values pursuant to Statement of Financial Accounting
Standards No. 121 (SFAS 121) "ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED
ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF". If the expected
future cash flows are less than the carrying value of intangible assets,
the Partnership recognizes an impairment loss for the difference between
the carrying amount and the estimated fair value of those intangible
assets.
During the second quarter of 1997, management of the Partnership determined
that the value of the intangible assets recorded in connection with the
1996 acquisition of the assets of Cursitor Holdings, L.P. and the stock of
Cursitor Holdings Limited (collectively "Cursitor") was impaired and
reduced the unamortized value of the intangible assets by $120.9 million.
8. INCOME TAXES
The Partnership is a publicly traded partnership for Federal income tax
purposes and, accordingly, is not subject to Federal or state corporate
income taxes. However, the Partnership is subject to the New York City
unincorporated business tax and, effective January 1, 1998, to a 3.5%
Federal tax on partnership gross income from the active conduct of a trade
or business. Domestic corporate subsidiaries of the Partnership, which are
subject to Federal, state and local income taxes, file a consolidated
Federal income tax return and separate state and local income tax returns.
Foreign corporate subsidiaries are generally subject to taxes in the
foreign jurisdictions where they are located.
9. NET INCOME PER UNIT
Basic net income per Unit is derived by reducing net income for each period
by 1% for the general partnership interest held by the General Partner and
dividing the remaining 99% by the weighted average number of Units
outstanding during each period. Diluted net income per Unit is derived by
reducing net income for each period by 1% for the general partnership
interest held by the General Partner and dividing the remaining 99% by the
weighted average number of Units outstanding during each period and Unit
equivalents. The aggregate weighted average number of Units outstanding
used in computing basic net income per Unit was 170,204,000 and 168,638,000
for the three months ended September 30, 1998 and 1997, respectively, and
169,810,000 and 168,307,000 for nine months ended September 30, 1998 and
1997, respectively. The aggregate weighted average number of Units
outstanding used in computing diluted net income per Unit was 175,229,000
and 172,388,000 for the three months ended September 30, 1998 and 1997,
respectively and 175,049,000 and 171,471,000 for the nine months ended
September 30, 1998 and 1997, respectively.
7
10. SUPPLEMENTAL CASH FLOW INFORMATION
Cash payments for interest and income taxes were as follows (in thousands):
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
1998 1997 1998 1997
---- ---- ---- ----
Interest . . . . . . . . . $ 782 $ 1,463 $ 3,325 $ 1,710
Income taxes . . . . . . . 4,188 4,087 14,368 10,653
11. ACCOUNTING PRONOUNCEMENTS
On January 1, 1998, the Partnership adopted Statement of Financial
Accounting Standards No. 130 ("SFAS 130"), "REPORTING COMPREHENSIVE INCOME"
which establishes the disclosure requirements for reporting comprehensive
income in an entity's financial statements. Total comprehensive income is
reported in the condensed consolidated statements of changes in partners'
capital and comprehensive income and includes net income, unrealized gains
and losses on investments and foreign currency translation adjustments.
In March 1998, the AICPA issued Statement of Position 98-1 ("SOP 98-1"),
"ACCOUNTING FOR THE COSTS OF COMPUTER SOFTWARE DEVELOPED OR OBTAINED FOR
INTERNAL USE". SOP 98-1 requires capitalization of external and certain
internal costs incurred to obtain or develop internal-use computer software
during the application development stage. The Partnership adopted the
provisions of SOP 98-1 effective January 1, 1998. Capitalized internal-use
software is amortized on a straight-line basis over the lesser of the
estimated useful life of the software or six years. The adoption of SOP
98-1 did not have a material impact on the Partnership's consolidated
financial statements.
12. SUBSEQUENT EVENTS
On November 2, 1998, the General Partner declared a distribution of
$67,063,000 or $0.39 per Unit representing the Available Cash Flow (as
defined in the Partnership Agreement) of the Partnership for the three
months ended September 30, 1998. The distribution is payable on November
23, 1998 to holders of record on November 16, 1998.
In November 1998, the Partnership reached an agreement in principle to
acquire Whittingdale Holdings Limited, an independent investment manager
based in London with approximately $1.4 billion in assets under management.
The transaction is expected to close during the fourth quarter of 1998
subject to execution of definitive agreements, approvals by boards of
directors, regulatory consents and approvals, and certain other closing
conditions.
8
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
Alliance Capital Management L.P. (the "Partnership") offers a broad range of
investment management products and services to meet the varied needs and
objectives of individual and institutional investors. The Partnership derives
substantially all of its revenues and net income from fees received for
providing: (a) investment advisory, distribution and related services to the
Alliance mutual funds, (b) investment advisory services to affiliated clients
including The Equitable Life Assurance Society of the United States ("ELAS"), a
wholly-owned subsidiary of The Equitable Companies Incorporated ("Equitable"),
and certain other Equitable affiliates and (c) investment advisory services to
separately managed accounts for unaffiliated institutional investors and high
net-worth individuals ("third party clients"). The Alliance mutual funds
include a broad range of open-end and closed-end mutual funds ("mutual funds"),
variable life insurance and annuity products, including The Hudson River Trust
("HRT"), and cash management products, principally money market funds. Mutual
funds include certain structured products and hedge funds.
ASSETS UNDER MANAGEMENT(1)
(Dollars in billions) 9/30/98 9/30/97 $ Change % Change
- --------------------------------------------------------------------------------
Alliance mutual funds:
Mutual funds $ 51.2 $ 38.1 $ 13.1 34.4%
Variable products 25.0 23.2 1.8 7.8
Cash management products 23.3 20.4 2.9 14.2
- --------------------------------------------------------------------------------
99.5 81.7 17.8 21.8
- --------------------------------------------------------------------------------
Separately managed accounts:
Active equity & balanced 73.2 66.9 6.3 9.4
Active fixed income 44.8 41.3 3.5 8.5
Index 22.5 23.1 (0.6) (2.6)
Asset allocation 1.9 4.3 (2.4) (55.8)
- --------------------------------------------------------------------------------
142.4 135.6 6.8 5.0
- --------------------------------------------------------------------------------
Total $ 241.9 $ 217.3 $ 24.6 11.3%
- --------------------------------------------------------------------------------
(1)Includes 100% of the mutual fund and separately managed account assets under
management of unconsolidated joint venture subsidiaries of $0.9 billion and $0.4
billion, respectively, at September 30, 1998.
AVERAGE ASSETS UNDER MANAGEMENT(1)
Three months ended Nine months ended
(Dollars in billions) 9/30/98 9/30/97 % Change 9/30/98 9/30/97 % Change
- --------------------------------------------------------------------------------------------------------------------
Alliance mutual funds $102.7 $ 76.6 34.1% $ 97.5 $ 70.2 38.9%
Separately managed accounts:
Affiliated clients 29.5 28.9 2.1 29.5 27.8 6.1
Third party clients 119.0 104.7 13.7 117.2 97.9 19.7
- --------------------------------------------------------------------------------------------------------------------
Total $251.2 $210.2 19.5% $244.2 $195.9 24.7%
- --------------------------------------------------------------------------------------------------------------------
(1)Includes mutual fund and separately managed account assets under management
of unconsolidated joint venture subsidiaries.
Assets under management at September 30, 1998 were $241.9 billion, an increase
of $24.6 billion or 11.3% from September 30, 1997 and an increase of $23.2
billion or 10.6% from December 31, 1997. Alliance mutual fund assets under
management at September 30, 1998 were $99.5 billion, an increase of $17.8
billion or 21.8% from September 30, 1997, due principally to net sales of
Alliance mutual fund shares of $21.0 billion offset partially by market
depreciation of $3.4 billion. Separately managed account assets under
management at September 30, 1998 for third-party clients and affiliated clients
were $142.4 billion, an increase of $6.8 billion or 5.0% from September 30,
1997. This increase was primarily due to market appreciation of $5.6 billion
and net asset additions to affiliated client accounts and third party client
accounts of $0.7 billion and $0.3 billion, respectively.
9
MATERIAL CHANGES IN RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
(Dollars & Units in millions, Three months ended Nine months ended
except per Unit amounts) 9/30/98 9/30/97 % Change 9/30/98 9/30/97 % Change
- -------------------------------------------------------------------------------------------------------------------------
Net income $ 70.2 $ 66.2 6.0% $215.1 $ 55.4 288.3%
Net income per Unit(1):
Basic $ 0.41 $ 0.39 5.1 $ 1.25 $ 0.33 278.8
Diluted $ 0.40 $ 0.38 5.3 $ 1.22 $ 0.32 281.3
Net income before reduction in value of
intangible assets $ 70.2 $ 66.2 6.0 $215.1 $176.3 22.0
Net income per Unit before reduction in
value of intangible assets - Diluted(1) $ 0.40 $ 0.38 5.3 $ 1.22 $ 1.02 19.6
Weighted average number of Units outstanding(1):
Basic 170.2 168.6 0.9 169.8 168.3 0.9
Diluted 175.2 172.4 1.6 175.0 171.5 2.0
Operating margin(2) 25.6% 28.4% -- 26.3% 27.3% --
- -------------------------------------------------------------------------------------------------------------------------
(1) Unit and per Unit amounts have been restated to reflect the two-for-one Unit
split paid to Unitholders of record as of March 11, 1998.
(2) Excludes the reduction in recorded value of intangible assets.
REVENUES
Three months ended Nine months ended
(Dollars in millions) 9/30/98 9/30/97 % Change 9/30/98 9/30/97 % Change
- --------------------------------------------------------------------------------------------------------------------
Investment advisory and services fees:
Alliance mutual funds $148.1 $102.9 43.9% $435.8 $275.7 58.1%
Separately managed accounts:
Affiliated clients 13.3 12.7 4.7 43.4 38.5 12.7
Third party clients 69.4 62.4 11.2 224.8 181.4 23.9
Distribution revenues 79.7 57.5 38.6 222.0 155.6 42.7
Shareholder servicing fees 11.7 9.5 23.2 31.3 27.4 14.2
Other revenues 4.7 5.8 (19.0) 17.7 16.8 5.4
- --------------------------------------------------------------------------------------------------------------------
Total revenues(1) $326.9 $250.8 30.3% $975.0 $695.4 40.2%
- --------------------------------------------------------------------------------------------------------------------
(1) Certain prior period amounts have been reclassified to conform to the
current period presentation.
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. Certain investment advisory agreements provide for
performance fees in addition to a base fee. Performance fees are earned when
investment performance exceeds a contractually agreed upon benchmark and,
accordingly, may increase the volatility of the Partnership's revenues and
earnings.
Investment advisory and services fees from Alliance mutual funds increased by
$45.2 million or 43.9% for the three months ended September 30, 1998, primarily
as a result of a 34.1% increase in average assets under management for the three
months ended September 30, 1998 and strong sales of mutual fund products.
Investment advisory and services fees from Alliance mutual funds increased by
$160.1 million or 58.1% for the nine months ended September 30, 1998, primarily
as a result of a 38.9% increase in average assets under management and increases
in performance fees of $15.7 million from certain hedge funds for the nine
months ended September 30, 1998.
Investment advisory and services fees from affiliated clients, primarily the
General Accounts of ELAS, increased $0.6 million or 4.7% and $4.9 million or
12.7% for the three months and nine months ended September 30, 1998,
respectively, due principally to an increase in average assets under
management of
10
2.1% for the three months and 6.1% for the nine months ended September 30, 1998,
respectively. An increase in performance fees of $1.7 million for the nine
months ended September 30, 1998 also contributed to the increase in revenues.
Investment advisory and services fees from third party clients increased $7.0
million or 11.2% for the three months ended September 30, 1998 and $43.4 million
or 23.9% for the nine months ended September 30, 1998, due principally to an
increase in average assets under management of 13.7% for the three months and
19.7% for the nine months ended September 30, 1998, respectively. The increase
in third party client average assets under management was primarily a result of
market appreciation combined with net inflows into actively managed fixed income
accounts offset partially by net terminations and asset withdrawals in global
asset allocation accounts. Higher performance fees of $13.3 million, due to
capital gains realized in leveraged buy-out portfolios managed by the
Partnership, also contributed to the increase in revenues for the nine months
ended September 30, 1998.
The Partnership's subsidiary, Alliance Fund Distributors, Inc. ("AFD"), acts as
distributor of the Alliance mutual funds and receives distribution plan fees
from those funds. Distribution revenues increased 38.6% for the three months
and 42.7% for the nine months primarily due to higher average assets under
management for domestic equity and offshore fixed income mutual fund assets
under management. The increase in average assets under management for domestic
equity and offshore mutual funds is principally due to net mutual fund sales and
market appreciation, including Back-End Load Shares under the Partnership's
mutual fund distribution system described under "Capital Resources and
Liquidity".
The Partnership's subsidiaries, Alliance Fund Services, Inc. and ACM Fund
Services S.A., provide transfer agency services to the Alliance mutual funds.
Shareholder servicing fees increased 23.2% for the three months and 14.2% for
the nine months, due to increases in fee rates and the number of mutual fund
shareholder accounts serviced. At September 30, 1998, the Partnership's
subsidiaries serviced approximately 3.5 million shareholder accounts.
Other revenues, consisting principally of administrative and recordkeeping fees
and investment income, decreased $1.1 million and increased $0.9 million for the
three and nine months ended September 30, 1998, respectively, due principally to
the changes in market value of the Partnership's hedge fund investments.
EXPENSES
Three months ended Nine months ended
(Dollars in millions) 9/30/98 9/30/97 % Change 9/30/98 9/30/97 % Change
- --------------------------------------------------------------------------------------------------------------------
Employee compensation and benefits $ 81.8 $ 66.1 23.8% $251.9 $188.9 33.4%
Promotion and servicing 120.9 80.3 50.6 337.1 225.8 49.3
General and administrative 37.7 31.7 18.9 121.1 83.0 45.9
Interest 1.7 0.7 142.9 5.9 2.0 195.0
Amortization of intangible assets 1.1 0.9 22.2 3.0 6.1 (50.8)
Reduction in recorded value
of intangible assets -- -- -- -- 120.9 (100.0)
- --------------------------------------------------------------------------------------------------------------------
Total expenses $243.2 $179.7 35.3% $719.0 $626.7 14.7%
- --------------------------------------------------------------------------------------------------------------------
Employee compensation and benefits increased 23.8% for the three months and
33.4% for the nine months primarily as a result of higher incentive
compensation, attributable to higher performance fees and operating earnings,
higher commissions and higher base compensation. The increase in commissions is
due primarily to higher mutual fund sales. Base compensation increased
principally as a result of an increase in the number of employees to 1,943 at
September 30, 1998 from 1,600 at September 30, 1997, primarily due to the
expansion of the Partnership's mutual fund servicing capabilities and new
technology initiatives.
Promotion and servicing expenses include distribution plan payments to financial
intermediaries for distribution of the Partnership's sponsored mutual funds and
cash management services' products and amortization of deferred sales
commissions paid to financial intermediaries under the Partnership's mutual
11
fund distribution system described under "Capital Resources and Liquidity".
Also included in this expense category are travel and entertainment,
advertising, promotional materials and investment meetings and seminars for
financial intermediaries that distribute the Partnership's mutual fund products.
Promotion and servicing expenses increased 50.6% for the three months and 49.3%
for the nine months, primarily due to higher distribution plan payments
resulting from higher average offshore, cash management and domestic equity
mutual fund assets under management and increased amortization of deferred sales
commissions, due to increased sales of Back-End Load Shares, see "Capital
Resources and Liquidity". Other promotion and servicing expenses increased due
to higher travel and entertainment expenses and higher promotional expenditures
incurred in connection with promotional initiatives for the Partnership's
domestic and offshore mutual funds.
The increase in general and administrative expenses for the three and nine
months was due principally to higher systems consulting expenses incurred in
connection with the Year 2000 project, Euro conversion and other technology
related initiatives. In addition, a $10.0 million provision for the future
acquisition of the minority interest in Cursitor Alliance LLC (see "Capital
Resources and Liquidity") contributed to the increase for the nine months ended
September 30, 1998.
Interest expense was higher as a result of interest accrued on deferred
compensation awards to employees during December 1997 and higher debt.
The decrease in amortization of intangible assets for the nine months was due
principally to the reduction in the recorded value of intangible assets,
resulting from the acquisition of Cursitor Holdings, L.P. and Cursitor Holdings
Limited (collectively "Cursitor"), to estimated fair value at June 30, 1997.
The Partnership recorded a noncash charge of $120.9 million during the second
quarter of 1997 which reflected the impairment of these intangible assets due to
the decline in Cursitor's assets under management and its reduced profitability.
The Partnership is a publicly traded partnership for Federal income tax purposes
and, accordingly, is not subject to Federal or state corporate income taxes.
However, the Partnership is subject to the New York City unincorporated business
tax and, effective January 1, 1998, to a new 3.5% Federal tax on partnership
gross income from the active conduct of a trade or business. Domestic
subsidiaries of the Partnership are subject to Federal, state and local income
taxes. Foreign corporate subsidiaries are generally subject to taxes in the
foreign jurisdictions where they are located. Income tax expense increased
primarily as a result of the new 3.5% Federal tax and higher pre-tax income.
THIRD QUARTER MARKETS
Three months ended
9/30/98 6/30/98 % Change
- --------------------------------------------------------------------------------
Revenues (millions) $326.9 $332.1 (1.6)%
Net income (millions) $ 70.2 $ 75.8 (7.4)%
Diluted net income per Unit $ 0.40 $ 0.43 (7.0)%
Distributions per Unit $ 0.39 $ 0.42 (7.1)%
Assets under management (billions) $241.9 $262.5 (7.8)%
Average assets under management (billions) $251.2 $254.1 (1.1)%
- --------------------------------------------------------------------------------
Assets under management at September 30, 1998 were $241.9 billion, a decrease of
7.8% from $262.5 billion at June 30, 1998. The decrease was due to market
depreciation of $22.9 billion, resulting primarily from significant declines in
certain global capital markets during the third quarter, and cash management
services net asset outflows of $1.4 billion, partially offset by net sales of
Alliance mutual fund products of $3.2 billion. Revenues were $326.9 million for
the third quarter of 1998, down 1.6% from second quarter 1998, primarily due to
lower investment advisory and services fees resulting from lower average assets
under management and lower performance fees. Expenses, excluding income taxes,
for the third quarter of 1998 were unchanged from the second quarter of 1998.
As a result, net income for the quarter ended September 30, 1998 decreased 7.4%
to $70.2 million from $75.8 million for the quarter ended June 30, 1998.
12
CAPITAL RESOURCES AND LIQUIDITY
Partners' capital was $415.3 million at September 30, 1998, an increase of $17.2
million or 4.3% from $398.1 million at December 31, 1997. Cash flow from
operations and proceeds from borrowings have been the Partnership's principal
sources of working capital. The Partnership's cash and cash equivalents
increased by $161.6 million for the nine months ended September 30, 1998. Cash
inflows included $290.0 million from operations, proceeds from borrowings net of
debt repayments of $111.4 million and $7.3 million of proceeds from options
exercised under the Partnership's Unit option plans. Cash outflows included
cash distributions to Unitholders of $207.4 million, capital expenditures of
$23.7 million and net purchases of investments of $16.3 million.
Through February 28, 2006, the Partnership has an option to purchase the
minority interest held by Cursitor Holdings, L.P. ("CHLP") in Cursitor Alliance
LLC ("Cursitor Alliance"), a subsidiary of the Partnership, and CHLP has an
option to sell its minority interest to the Partnership for cash, Units, or a
combination thereof with a value of not less than $10.0 million or more than
$37.0 million ("Buyout Price"). The Buyout Price will be determined based on
the amount of global asset allocation investment advisory revenues earned by
Cursitor Alliance during a twelve month period ending on the February 28th
preceding the date either option is exercised. Due to the continuing decline in
Cursitor Alliance revenues, management of the Partnership believes that the
Buyout Price for the minority interest will be $10.0 million, which will be
substantially higher than its fair value. Accordingly, the Partnership recorded
a $10.0 million provision for the Buyout Price in the first quarter of 1998.
The Partnership's mutual fund distribution system (the "System") includes a
multi-class share structure. The System permits the Partnership's open-end
mutual funds to offer investors various options for the purchase of mutual fund
shares, including the purchase of Front-End Load Shares and Back-End Load
Shares. The Front-End Load Shares are subject to a conventional front-end sales
charge paid by investors to AFD at the time of sale. AFD in turn compensates
the financial intermediaries distributing the funds from the front-end sales
charge. For Back-End Load Shares, investors do not pay a front-end sales charge
although, if there are redemptions before the expiration of the minimum holding
period (which ranges from one year to four years), investors pay a contingent
deferred sales charge ("CDSC") to AFD. While AFD is obligated to compensate
the financial intermediaries at the time of the purchase of Back-End Load
Shares, it receives higher distribution fees from the funds. Payments made to
financial intermediaries in connection with the sale of Back-End Load Shares
under the System, net of CDSC received, reduced cash flow from operations by
approximately $180.5 million for the nine months ended September 30, 1998.
Management of the Partnership believes AFD will recover the payments made to
financial intermediaries for the sale of Back-End Load Shares from the higher
distribution fees and CDSC it receives over periods not exceeding 5 1/2 years.
The Partnership requires financial resources to fund commissions paid to
financial intermediaries for the sale of Back-End Load Shares under the System,
to fund capital expenditures and for general working capital purposes. During
July 1998, the Partnership entered into a new $425 million five year revolving
credit facility with a group of commercial banks which replaced its existing
$250 million revolving credit facility. During September 1998, the Partnership
increased the size of its commercial paper program from $250 million to $425
million. Borrowings from these two sources may not exceed $425 million in the
aggregate. The new revolving credit facility provides backup liquidity for
commercial paper issued under the Partnership's commercial paper program and can
be used as a direct source of borrowing. The new revolving credit facility
contains covenants which require the Partnership to, among other things, meet
certain financial ratios. As of September 30, 1998, the Partnership had
commercial paper outstanding totaling $190.7 million and there were no
borrowings outstanding under the Partnership's revolving credit facility.
13
YEAR 2000
Many computer systems and applications that process transactions use two digit
date fields for the year of a transaction, rather than the full four digits. If
these systems are not modified and replaced, transactions occurring after 1999
may be processed as year "1900", which could result in processing inaccuracies
and inoperability at or after the Year 2000. The Partnership utilizes a number
of computer systems and applications that it either has developed internally or
licensed from third-party suppliers. In addition, the Partnership is dependent
on third-party suppliers for certain systems applications and for the electronic
receipt of information critical to its business.
PROJECT
The Year 2000 issue is a high priority for the Partnership. During 1997, the
Partnership began a formal Year 2000 initiative, which established a structured
and coordinated process to deal with the Year 2000 issue. As part of its
initiative, the Partnership established a Year 2000 project office to manage the
Year 2000 initiative focusing on both information technology and non-information
technology systems. The Year 2000 project office meets periodically with the
Audit Committee of the Board of Directors and executive management to review the
status of the Year 2000 efforts. The Partnership has also retained the services
of a number of consulting firms which have expertise in advising and assisting
with regard to Year 2000 issues.
By June 30, 1998 the Partnership had completed its inventory and assessment of
its domestic and international computer systems and applications, identified
mission critical systems (those systems where loss of their function would
result in an immediate stoppage or significant impairment to core business
areas) and nonmission critical systems and determined which of these systems is
not Year 2000 compliant. All third-party suppliers of mission critical computer
systems and applications have been contacted to verify whether their systems and
applications will be Year 2000 compliant and their responses are being
evaluated. Substantially all of those contacted have responded and approximately
70% have informed the Partnership that their systems and applications are or
will be Year 2000 compliant. Those who have not responded have been contacted a
second time. The Partnership estimates that this process will be completed by
the first quarter of 1999. The same process is being performed for nonmission
critical systems with estimated completion by the second quarter of 1999.
The Partnership has remediated, replaced or retired most of its noncompliant
mission critical systems and applications. The Partnership expects that the
remediation phase for all mission critical systems will be complete by the end
of February 1999. The same process will be performed for nonmission critical
systems and is estimated to be completed by the second quarter of 1999.
After each system has been remediated, it is tested with 19XX dates to determine
if it still performs its intended business function correctly. Next, each
system undergoes a simulation test using dates occurring after December 31,
1999. Inclusive of the replacement and retirement of some of its systems, the
Partnership has completed these testing phases for approximately 65% of mission
critical systems and approximately 70% of nonmission critical systems.
Integrated systems tests will then be conducted to verify that the systems will
continue to work together. Full integration testing of all mission critical and
nonmission critical systems and testing of interfaces with third-party suppliers
will begin in the first quarter of 1999 and will continue throughout 1999.
The Partnership is in the process of inventorying, evaluating and testing its
technical infrastructure and corporate facilities and expects them to be fully
operable in the Year 2000.
The Partnership has deferred certain other planned information technology
projects until after the Year 2000 initiative is completed. Such delay is not
expected to have a material adverse effect on the Partnership's financial
condition or results of operations.
14
COSTS
The current cost estimate of the Year 2000 initiative ranges from $40 million to
$45 million. These costs consist principally of modification costs and costs to
develop formal Year 2000 specific contingency plans. These costs, which will
be expensed as incurred, will be funded out of cash flow from the Partnership's
operations. Through the third quarter of 1998, the Partnership had incurred
approximately $17 million of costs related to the Year 2000 initiative. At this
time, management of the Partnership believes that the costs associated with
resolving the Year 2000 issue will not have a material adverse effect on the
Partnership's results of operations, liquidity or capital resources.
RISKS
There are many risks associated with Year 2000 issues, including the risk that
the Partnership's computer systems and applications will not operate as intended
and that the systems and applications of third parties will not be Year 2000
compliant. Likewise, there can be no assurance the compliance schedules
outlined above will be met or that the actual costs incurred will not exceed the
current cost estimate. Should the Partnership's significant computer systems and
applications or the systems of its important third-party suppliers be unable to
process date sensitive information accurately after 1999, the Partnership may be
unable to conduct its normal business operations and to provide its clients with
the required services. In addition, the Partnership may incur unanticipated
expenses, regulatory actions, and legal liabilities. The Partnership cannot
determine which risks, if any, are most reasonably likely to occur nor the
effects of any particular failure to be Year 2000 compliant.
CONTINGENCIES
The Partnership, with the assistance of a consulting firm, is developing formal
Year 2000 specific contingency plans to address situations where mission
critical and nonmission critical systems are not remediated as planned by the
Partnership or third parties.
Readers are cautioned that forward-looking statements contained in "Year 2000"
should be read in conjunction with the disclosure set forth under
"Forward-looking Statements ". To the fullest extent permitted by law; the
foregoing Year 2000 discussion is a "Year 2000 Readiness Disclosure" within the
meaning of The Year 2000 Information and Readiness Disclosure Act, 15 U.S.C.
Sec. 1 (1998).
EURO
The European Economic and Monetary Union has established a single currency that
will replace the national currency of certain European countries effective
January 1, 1999. Each participating country's currency also will be legal
tender during a transition period from January 1, 1999 until January 1, 2002,
after which the only currency used by the participating European countries will
be the Euro Currency (the "Euro"). Should the Partnership's significant computer
systems and applications or the systems of its important service providers be
unable to process Euro sensitive information accurately in 1999, the ability of
the Partnership to conduct its operations could be significantly impaired.
The Partnership has established a project team to assess changes that will be
required in connection with the introduction of the Euro. The Partnership's
project team has assessed all systems, including those developed or managed
internally, as well as those provided by service providers, in order to
determine the modifications that will be required in order to process accurately
transactions denominated in Euro after 1998. At this time, management of the
Partnership expects that the required modifications for the introduction of the
Euro will be completed and tested before the end of 1998. The current estimate
of the cost of this initiative ranges from $3 to $4 million. The cost, which
consists principally of modification costs, will be expensed as incurred. At
this time, management of the Partnership believes that the costs associated with
resolving this issue will not have a material adverse effect on the
Partnership's results of operations, liquidity, or capital resources.
15
The Partnership's substantial equity base and access to public and private debt,
at competitive interest rates and other terms, should provide adequate liquidity
for its general business needs. Management of the Partnership believes that cash
flow from operations and the issuance of debt and Units will provide the
Partnership with the financial resources to meet its capital requirements.
NEW ACCOUNTING PRONOUNCEMENT
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 133, "ACCOUNTING FOR DERIVATIVE INSTRUMENTS
AND HEDGING ACTIVITIES" ("SFAS 133"). Under this Statement, an entity is
required to recognize derivative instruments as either assets or liabilities in
the statement of financial position and measure those instruments at fair value.
In addition, any entity that elects to apply hedge accounting is required to
establish at the inception of the hedge the method it will use for assessing
effectiveness of the hedging derivative and the measurement approach for
determining the ineffective aspect of the hedge. This Statement is effective
for all fiscal quarters of fiscal years beginning after June 15, 1999.
Management of the Partnership does not believe that the adoption of the
Statement will have a material effect on its results of operations, liquidity,
or capital resources.
CASH DISTRIBUTIONS
The Partnership is required to distribute all of its Available Cash Flow, as
defined in the Partnership Agreement, to the General Partner and Unitholders.
The Partnership's Available Cash Flow and Distributions per Unit (adjusted for
the two-for-one Unit split) were as follows:
Three months ended Nine months ended
9/30/98 9/30/97 9/30/98 9/30/97
- --------------------------------------------------------------------------------
Available Cash Flow (in thousands) $67,063 $63,099 $204,357 $168,591
Distributions Per Unit $ 0.39 $ 0.37 $ 1.19 $ 0.99
- --------------------------------------------------------------------------------
FORWARD-LOOKING STATEMENTS
Certain statements provided by the Partnership in this report are
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Such forward-looking statements are subject to
risks, uncertainties and other factors which could cause actual results to
differ materially from future results expressed or implied by such
forward-looking statements. The most significant of such factors include, but
are not limited to, the following: the performance of financial markets, the
investment performance of the Partnership's sponsored investment products and
separately managed accounts, general economic conditions, future acquisitions,
competitive conditions, government regulations, including changes in tax rates
and the risks associated with Year 2000 issues. The Year 2000 issues include
uncertainties regarding among other things, the inability to locate, correct and
successfully test all relevant computer code, the continued availability of
certain resources including personnel and timely and accurate responses and
corrections by third parties. These uncertainties may result in unanticipated
costs associated with Year 2000 issues and failure to meet schedules for Year
2000 compliance. The Partnership cautions readers to carefully consider such
factors. Further, such forward-looking statements speak only as of the date on
which such statements are made; the Partnership undertakes no obligation to
update any forward-looking statements to reflect events or circumstances after
the date of such statements.
16
Part II
OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
On October 15, 1998, the United States Court of Appeals for the Second
Circuit issued a decision in the legal proceeding reported in the
Alliance Capital Management L.P. Annual Report on Form 10-K for the
year ended December 31, 1997. The Court of Appeals affirmed the
Second Decision in part and reversed the Second Decision in part. The
Court of Appeals affirmed the Second Decision insofar as it denied
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. The Court of
Appeals reversed the Second Decision insofar as it denied plaintiffs'
motion to file an amended complaint alleging that the Fund
misrepresented its ability to hedge against currency risk.
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.
17
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: November 16, 1998 By: Alliance Capital Management
Corporation, its General Partner
By:
-----------------------------------
Robert H. Joseph, Jr.
Senior Vice President &
Chief Financial Officer
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: November 16, 1998 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