Selected Consolidated Financial Data
(In thousands, unless otherwise indicated)
ALLIANCE CAPITAL MANAGEMENT L.P.(1)
YEARS ENDED DECEMBER 31,
1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------
Income statement data:
Revenues:
Investment advisory and services fees:
Alliance mutual funds $ 588,396 $384,759 $291,601 $232,730 $211,169
Separately managed accounts:
Affiliated clients 58,051 52,930 44,901 43,978 41,805
Third party clients 306,545 261,290 227,530 179,872 163,171
Distribution revenues 301,846 216,851 169,071 130,543 139,091
Shareholder servicing fees 43,475 36,327 31,272 26,575 24,501
Other revenues 25,743 23,179 24,142 25,557 21,215
- ------------------------------------------------------------------------------------------------------------------------
1,324,056 975,336 788,517 639,255 600,952
- ------------------------------------------------------------------------------------------------------------------------
Expenses:
Employee compensation and benefits 340,923 264,251 214,880 172,301 173,777
Promotion and servicing:
Distribution plan payments to financial
intermediaries:
Affiliated 82,444 56,118 30,533 23,710 20,442
Third party 178,643 121,791 115,112 86,743 83,357
Amortization of deferred sales commissions 108,853 73,841 53,144 50,501 51,547
Other 90,400 60,416 48,868 40,161 43,270
General and administrative 162,323 120,283 100,854 88,889 70,731
Interest 7,586 2,968 1,923 1,192 7,572
Amortization of intangible assets 4,172 7,006 15,613 8,747 8,450
Reduction in recorded value of intangible assets -- 120,900 -- -- --
- ------------------------------------------------------------------------------------------------------------------------
975,344 827,574 580,927 472,244 459,146
- ------------------------------------------------------------------------------------------------------------------------
Income before income taxes 348,712 147,762 207,590 167,011 141,806
Income taxes 55,796 18,806 14,244 11,624 8,317
- ------------------------------------------------------------------------------------------------------------------------
Net income $ 292,916 $128,956 $193,346 $155,387 $133,489
========================================================================================================================
Net income per Unit(2):
Basic net income per Unit(3) $1.71 $0.76 $1.15 $0.95 $0.86
Diluted net income per Unit(3) $1.66 $0.74 $1.13 $0.94 $0.85
Before reduction in value of intangible assets:
Net income $292,916 $249,856 $193,346 $155,387 $133,489
Diluted net income per Unit(3) $1.66 $1.44 $1.13 $0.94 $0.85
Cash distributions per Unit(2)(4) $1.62 $1.40 $1.095 $0.91 $0.82
Balance sheet data at period end:
Total assets $1,132,592 $784,460 $725,897 $575,058 $518,369
Debt and long-term obligations(5) $ 238,089 $130,429 $ 52,629 $ 30,839 $ 29,021
Partners' capital $ 430,273 $398,051 $476,020 $406,709 $381,329
Assets under management at period end (in millions)(6) $ 286,659 $218,654 $182,792 $146,521 $119,279
========================================================================================================================
(1) Certain amounts in the financial statements have been reclassified to
conform with the 1998 presentation.
(2) Unit and per Unit amounts for all periods prior to the two-for-one Unit
split in 1998 have been restated.
(3) Earnings per Unit amounts prior to 1997 have been restated as required to
comply with Statement of Financial Accounting Standards No. 128, Earnings
per Share.
(4) The Partnership is required to distribute all of its Available Cash Flow,
as defined in the Partnership Agreement, to the General Partner and
Unitholders.
(5) Includes accrued compensation and benefits due after one year and debt.
(6) Assets under management exclude certain non-discretionary advisory
relationships and reflect 100% of the assets managed by unconsolidated
joint venture subsidiaries and affiliates.
1998 Annual Report 43
Management's Discussion and Analysis of
Financial Condition and Results of Operations
General
Alliance Capital Management L.P. (the "Partnership") offers a broad range of
investment management products and services to meet the varied needs and
objectives of individual and institutional investors. The Partnership derives
substantially all of its revenues and net income from fees received for
providing: (a) investment advisory, distribution and related services to the
Alliance mutual funds, (b) investment advisory services to affiliated clients
including The Equitable Life Assurance Society of the United States ("ELAS"), a
wholly-owned subsidiary of The Equitable Companies Incorporated ("Equitable"),
and certain other Equitable affiliates and (c) investment advisory services to
separately managed accounts for unaffiliated institutional investors and
high-net-worth individuals ("third party clients"). The Alliance mutual funds
consist primarily of a broad range of open-end load and closed-end mutual funds
("mutual funds"), variable life insurance and annuity products, including The
Hudson River Trust, cash management products, principally money market funds and
certain structured products and hedge funds.
The Partnership's revenues are largely dependent on the total value and
composition of assets under its management. Assets under management grew 31.1%
to $286.7 billion as of December 31, 1998 primarily as a result of market
appreciation, good investment performance, and strong net sales of Alliance
mutual funds. Active equity and balanced account assets under management, which
comprise approximately 54% of total assets under management, grew 40%. Active
fixed income account assets under management, whi ch comprise 36% of total
assets under management, increased by 22%.
On December 22, 1998, the Partnership acquired Whittingdale Holdings
Limited ("Whittingdale"), with $1.5 billion in assets under management, for
approximately $10.2 million. The purchase price consists of an initial payment
of $4.8 million in cash and two deferred payments estimated at $5.4 million in
the aggregate. The acquisition was accounted for under the purchase method with
the results of Whittingdale included in the Partnership's consolidated financial
statements from the acquisition date.
In 1998, sales of Alliance mutual fund shares grew to $38.7 billion
compared to sales of $22.5 billion in 1997. The increase in Alliance mutual fund
sales, principally domestic U.S. equity mutual funds and fixed income funds sold
to non-U.S. investors, combined with an increase in mutual fund redemptions,
resulted in net Alliance mutual fund sales of $23.9 billion, an increase of
71.9% from $13.9 billion in 1997.
Assets Under Management(1):
(Dollars in billions) 12/31/98 12/31/97 % Change 12/31/97 12/31/96 % Change
- ----------------------------------------------------------------------------------------------------------------
Alliance mutual funds:
Mutual funds $ 60.7 $ 40.4 50.2% $ 40.4 $ 27.6 46.4%
Variable products 31.4 23.8 31.9 23.8 17.1 39.2
Cash management products 26.5 20.8 27.4 20.8 18.6 11.8
- ----------------------------------------------------------------------------------------------------------------
118.6 85.0 39.5 85.0 63.3 34.3
- ----------------------------------------------------------------------------------------------------------------
Separately managed accounts:
Affiliated clients 28.9 28.4 1.8 28.4 26.1 8.8
Third party clients 139.2 105.3 32.2 105.3 93.4 12.7
- ----------------------------------------------------------------------------------------------------------------
168.1 133.7 25.7 133.7 119.5 11.9
- ----------------------------------------------------------------------------------------------------------------
Total $286.7 $218.7 31.1% $218.7 $182.8 19.6%
================================================================================================================
44 Alliance Capital
Assets Under Management(1):
(Dollars in billions) 12/31/98 12/31/97 % Change 12/31/97 12/31/96 % Change
- -------------------------------------------------------------------------------------------------------------------------------
Active equity & balanced
Domestic $142.1 $ 98.1 44.9% $ 98.1 $ 76.7 27.9%
Global & international 12.6 12.7 (0.8) 12.7 14.8 (14.2)
Active fixed income
Domestic 88.5 76.2 16.1 76.2 65.0 17.2
Global & international 14.1 8.0 76.3 8.0 7.0 14.3
Index
Domestic 24.7 20.8 18.8 20.8 15.9 30.8
Global & international 4.7 2.9 62.1 2.9 3.4 (14.7)
- -------------------------------------------------------------------------------------------------------------------------------
Total $286.7 $218.7 31.1% $218.7 $182.8 19.6%
===============================================================================================================================
Average Assets Under Management(1):
(Dollars in billions) 1998 1997 % Change 1997 1996 % Change
- -------------------------------------------------------------------------------------------------------------------------------
Alliance mutual funds $100.5 $ 72.9 37.9% $ 72.9 $ 56.2 29.7%
Separately managed accounts:
Affiliated clients 29.5 28.1 5.0 28.1 24.8 13.3
Third party clients 120.5 99.4 21.2 99.4 86.3 15.2
- -------------------------------------------------------------------------------------------------------------------------------
Total $250.5 $200.4 25.0% $200.4 $167.3 19.8%
===============================================================================================================================
Analysis of Assets Under Management(1):
(Dollars in billions) 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------------
SEPARATELY ALLIANCE SEPARATELY ALLIANCE SEPARATELY ALLIANCE
MANAGED MUTUAL MANAGED MUTUAL MANAGED MUTUAL
ACCOUNTS FUNDS TOTAL ACCOUNTS FUNDS TOTAL ACCOUNTS FUNDS TOTAL
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at beginning of year $133.7 $ 85.0 $218.7 $119.5 $63.3 $182.8 $ 97.3 $49.2 $146.5
- -----------------------------------------------------------------------------------------------------------------------------------
Acquisitions 1.4 0.1 1.5 -- -- -- 11.0 0.3 11.3
New business/sales 6.8 32.9 39.7 3.7 20.3 24.0 3.7 9.7 13.4
Terminations/redemptions (3.5) (14.8) (18.3) (6.8) (8.6) (15.4) (3.0) (5.8) (8.8)
Net cash management sales -- 5.8 5.8 -- 2.2 2.2 -- 4.8 4.8
Cash flow (0.3) (1.5) (1.8) (5.0) (1.0) (6.0) (1.1) (0.9) (2.0)
Appreciation/(depreciation) 29.8 10.4 40.2 22.1 8.1 30.2 11.6 6.0 17.6
Change in joint venture
subsidiaries and affiliates 0.2 0.7 0.9 0.2 0.7 0.9 -- -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Net change 34.4 33.6 68.0 14.2 21.7 35.9 22.2 14.1 36.3
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at end of year $168.1 $118.6 $286.7 $133.7 $85.0 $218.7 $119.5 $63.3 $182.8
===================================================================================================================================
(1) Includes 100% of assets under management of unconsolidated joint venture
subsidiaries and affiliates. Includes $1.4 billion mutual fund assets and
$0.4 billion separately managed account assets at December 31, 1998 and $0.7
billion mutual fund assets and $0.2 billion separately managed account
assets at December 31, 1997.
Assets under management at December 31, 1998 were $286.7 billion, an increase of
$68.0 billion or 31.1% from December 31, 1997. Alliance mutual fund assets under
management at December 31, 1998 were $118.6 billion, an increase of $33.6
billion or 39.5% from December 31, 1997, due principally to market appreciation
of $10.4 billion and net sales of mutual funds, variable products and cash
management products of $15.4 billion, $2.7 billion and $5.8 billion,
respectively. Separately managed account assets under management at December 31,
1998 were $168.1 billion,
1998 Annual Report 45
an increase of $34.4 billion or 25.7% from December 31, 1997. This increase was
primarily due to market appreciation of $29.8 billion, net new client accounts
of $3.0 billion and the acquisition of Whittingdale, which had $1.4 billion in
separately managed account assets under management.
Cursitor Alliance LLC ("Cursitor Alliance"), a subsidiary of the
Partnership formed in connection with a 1996 acquisition, provides global asset
allocation services to U.S. and non-U.S. institutional investors. Due to poor
relative investment performance, Cursitor Alliance continued to experience
client account terminations and asset withdrawals through the first quarter of
1998. Cursitor Alliance's assets under management aggregated $1.7 billion, $3.5
billion and $8.4 billion at December 31, 1998, 1997, and 1996, respectively. See
"Reduction in Recorded Value of Intangible Assets" and "Capital Resources and
Liquidity."
Assets under management at December 31, 1997 were $218.7 billion, an
increase of $35.9 billion or 19.6% from December 31, 1996. Alliance mutual fund
assets under management at December 31, 1997 were $85.0 billion, an increase of
$21.7 billion or 34.3% from December 31, 1996, due principally to market
appreciation of $8.1 billion and net sales of mutual funds, variable products
and cash management products of $8.7 billion, $3.0 billion and $2.2 billion,
respectively. Separately managed account assets under management at December 31,
1997 were $133.7 billion, an increase of $14.2 billion or 11.9% from December
31, 1996. This increase was primarily due to market appreciation of $22.1
billion and net asset additions to affiliated client accounts of $1.7 billion,
offset partially by net third party client account terminations and asset
withdrawals of $9.8 billion, primarily from Cursitor Alliance global asset
allocation accounts and active equity and balanced accounts.
Consolidated Results of Operations
(Dollars & Units in millions,
except per Unit amounts) 1998 1997 % CHANGE 1997 1996 % CHANGE
- --------------------------------------------------------------------------------------------------------------------------------
Net income $292.9 $129.0 127.1% $129.0 $193.3 (33.3)%
Net income per Unit(1):
Basic $ 1.71 $ 0.76 125.0 $ 0.76 $ 1.15 (33.9)
Diluted $ 1.66 $ 0.74 124.3 $ 0.74 $ 1.13 (34.5)
Net income before reduction in value of
intangible assets $292.9 $249.9 17.2 $249.9 $193.3 29.3
Net income per Unit before reduction in
value of intangible assets - Diluted(1) $ 1.66 $ 1.44 15.3 $ 1.44 $ 1.13 27.4
Weighted average number of Units outstanding(1):
Basic 169.9 168.4 0.9 168.4 166.4 1.2
Diluted 175.1 171.9 1.9% 171.9 169.0 1.7%
Operating margin(2) 26.3% 27.5% 27.5% 26.3%
================================================================================================================================
(1) Unit and per Unit amounts for all periods prior to the two-for-one Unit
split in 1998 have been restated.
(2) Excludes the reduction in recorded value of Cursitor Alliance intangible
assets.
Net income for 1998 increased $163.9 million or 127.1% to $292.9 million from
net income of $129.0 million for 1997. 1998 net income also reflects an increase
of $43.0 million or 17.2% from net income of $249.9 million before the noncash
charge to reduce the value of Cursitor Alliance intangible assets for 1997. The
17.2% increase in net income for 1998 was principally due to an increase in
investment advisory and services fees resulting from higher average assets under
management offset partially by higher income taxes.
46 Alliance Capital
Net income for 1997 was $129.0 million, a decrease of 33.3% from net
income of $193.3 for 1996. Net income for 1997 was reduced by a $120.9 million
noncash charge, or $0.70 diluted net income per Unit, resulting from the
write-down of certain intangible assets. See "Reduction in Recorded Value of
Intangible Assets" and "Capital Resources and Liquidity." Excluding that charge,
net income increased 29.3% due principally to a 23.9% increase in investment
advisory and services fees resulting from higher average assets under
management.
Revenues
(Dollars in millions) 1998 1997 % CHANGE 1997 1996 % CHANGE
- --------------------------------------------------------------------------------------------------------------------------------
Investment advisory and services fees:
Alliance mutual funds $ 588.4 $384.8 52.9% $384.8 $291.6 32.0%
Separately managed accounts:
Affiliated clients 58.1 52.9 9.8 52.9 44.9 17.8
Third party clients 306.5 261.3 17.3 261.3 227.5 14.9
Distribution revenues 301.9 216.8 39.3 216.8 169.1 28.2
Shareholder servicing fees 43.5 36.3 19.8 36.3 31.3 16.0
Other revenues 25.7 23.2 10.8 23.2 24.1 (3.7)
- --------------------------------------------------------------------------------------------------------------------------------
Total $1,324.1 $975.3 35.8% $975.3 $788.5 23.7%
================================================================================================================================
Investment Advisory and Services Fees
Investment advisory and services fees, the largest component of the
Partnership's revenues, are generally calculated as a small percentage of the
value of assets under management and vary with the type of account managed. Fee
income is therefore affected by changes in the amount of assets under
management, including market appreciation or depreciation, the addition of new
client accounts or client contributions of additional assets to existing
accounts, withdrawals of assets from and termination of client accounts,
purchases and redemptions of mutual fund shares, and shifts of assets between
accounts or products with different fee structures. The Partnership's investment
advisory and services fees increased 36.3% and 23.9% in 1998 and 1997,
respectively.
Certain investment advisory agreements provide for performance fees in
addition to a base fee. Performance fees are earned when investment performance
exceeds a contractually agreed upon benchmark and, accordingly, may increase the
volatility of the Partnership's revenues and earnings and are more likely to be
higher in favorable markets and lower in unfavorable markets. Performance fees
earned on separately managed accounts and mutual funds aggregated $52.9 million,
$35.0 million, and $18.4 million in 1998, 1997 and 1996, respectively.
Investment advisory and services fees from Alliance mutual funds
increased by $203.6 million or 52.9% for 1998, primarily as a result of a 37.9%
increase in average assets under management. The growth in investment advisory
fees from Alliance mutual funds exceeded the growth in average assets under
management primarily as a result of increases in sales of higher fee-based
mutual fund products, such as offshore fixed income and domestic equity mutual
funds. An increase in performance fees of $15.7 million for 1998 also
contributed to the increase in fees. Investment advisory and services fees from
Alliance mutual funds increased by $93.2 million or 32.0% for 1997, primarily as
a result of a 29.7% increase in average assets under management.
1998 Annual Report 47
Investment advisory and services fees from affiliated clients,
primarily the General Accounts of ELAS, increased by $5.2 million or 9.8% for
1998, due to a 5.0% increase in average assets under management from 1997 and an
increase in performance fees of $1.8 million. Investment advisory and services
fees from affiliated clients increased 17.8% for 1997 due principally to a 13.3%
increase in average assets under management and an increase in performance fees
of $2.8 million.
Investment advisory and services fees from third party clients
increased by $45.2 million or 17.3% for 1998 and by $33.8 million or 14.9% for
1997 principally due to an increase in average assets under management of 21.2%
and 15.2%, respectively. The increase in third party client assets under
management was primarily a result of market appreciation and net new client
accounts in 1998 mainly active equity and balanced and active fixed income
accounts. An $11.8 million increase in performance fees in 1997 contributed to
the increase in fees in 1997.
Distribution Revenues
The Partnership's subsidiary, Alliance Fund Distributors, Inc., ("AFD"), acts as
distributor of the Alliance mutual funds and receives distribution plan fees
from those funds in reimbursement of distribution expenses it incurs.
Distribution revenues increased 39.3% and 28.2% in 1998 and 1997, respectively,
principally due to higher average equity mutual fund assets under management
attributable to strong sales of Back-End Load Shares under the Partnership's
mutual fund distribution system (the "System") described under "Capital
Resources and Liquidity," and higher average cash management assets under
management.
Shareholder Servicing Fees
The Partnership's subsidiaries, Alliance Fund Services, Inc. and ACM Fund
Services S.A., provide transfer agency services to the Alliance mutual funds.
Shareholder servicing fees increased 19.8% and 16.0% in 1998 and 1997,
respectively, the result of increases in the number of mutual fund shareholder
accounts serviced and increased fees. The number of shareholder accounts
serviced increased to approximately 3.7 million as of December 31, 1998,
compared to 3.2 million and 2.8 million as of December 31, 1997 and 1996,
respectively.
Other Revenues
Other revenues consist principally of administration and recordkeeping services
provided to the Alliance mutual funds and the General Accounts of ELAS and its
insurance subsidiary. Investment income and changes in value of other
investments are also included in other revenues. Other revenues increased for
1998 principally as a result of changes in the market value of the Partnership's
hedge fund investments. Other revenues decreased for 1997, principally as a
result of a decrease in interest earned on short-term investments due to lower
average balances.
48 Alliance Capital
Expenses
(Dollars in millions) 1998 1997 % CHANGE 1997 1996 % CHANGE
- --------------------------------------------------------------------------------------------------------------------------------
Employee compensation and benefits $340.9 $264.3 29.0% $264.3 $214.9 23.0%
Promotion and servicing 460.3 312.1 47.5 312.1 247.6 26.1
General and administrative 162.3 120.3 34.9 120.3 100.9 19.2
Interest 7.6 3.0 153.3 3.0 1.9 57.9
Amortization of intangible assets 4.2 7.0 (40.0) 7.0 15.6 (55.1)
Reduction in recorded value of intangible assets -- 120.9 -- 120.9 -- --
- --------------------------------------------------------------------------------------------------------------------------------
Total $975.3 $827.6 17.8% $827.6 $580.9 42.5%
================================================================================================================================
Employee Compensation and Benefits
Employee compensation and benefits, which represent approximately 35% of total
expenses in 1998, include salaries, commissions, fringe benefits and incentive
compensation based on profitability. Provisions for future payments to be made
under certain deferred compensation arrangements are also included in employee
compensation and benefits expense.
Employee compensation and benefits increased 29.0% and 23.0% in 1998
and 1997, respectively, primarily as a result of higher incentive compensation
due to increased operating earnings and increased base compensation and
commissions. Base compensation increased principally due to an increase in the
number of employees resulting from the expansion of the Partnership's mutual
fund servicing operations, new technology initiatives and salary increases. The
Partnership had 2,075 employees at December 31, 1998 compared to 1,670 and 1,495
at December 31, 1997 and 1996, respectively. Commissions increased primarily due
to higher mutual fund sales.
Promotion and Servicing
Promotion and servicing expenses, which represent approximately 47% of total
expenses in 1998 include distribution plan payments to financial intermediaries
for distribution of the Partnership's sponsored mutual funds and cash management
services' products and amortization of deferred sales commissions paid to
financial intermediaries for the sale of Back-End Load Shares under the System
(see "Capital Resources and Liquidity"). Also included in this expense category
are travel and entertainment, advertising, promotional materials, and investment
meetings and seminars for financial intermediaries that distribute the
Partnership's mutual fund products.
Promotion and servicing expenses increased 47.5% and 26.1% in 1998 and
1997, respectively, primarily due to increased distribution plan payments
resulting from higher average offshore mutual fund, cash management, and
domestic equity mutual fund assets under management. An increase in amortization
of deferred sales commissions of $35.0 million for 1998 as a result of higher
sales of Back-End Load Shares (see "Capital Resources and Liquidity") also
contributed to the increase in promotion and servicing expense. Other promotion
and servicing expenses increased for 1998 and 1997 primarily as a result of
higher travel and entertainment costs and higher promotional expenditures
incurred in connection with mutual fund sales initiatives.
1998 Annual Report 49
General and Administrative
General and administrative expenses, which represent approximately 17% of total
expenses in 1998, are costs related to the operation of the business, including
technology, professional fees, occupancy, communications, equipment and similar
expenses. General and administrative expenses increased 34.9% and 19.2% in 1998
and 1997, respectively, due principally to higher expenses incurred in
connection with the Year 2000 project, Euro conversion and other technology
initiatives. In addition, for 1998, a $10.0 million provision for the future
acquisition of the minority interest in Cursitor Alliance contributed to the
increase. See "Capital Resources and Liquidity."
Interest
Interest expense is incurred on the Partnership's borrowings and on deferred
compensation owed to employees. Interest expense increased for 1998 and 1997
primarily as a result of an increase in interest accrued on higher deferred
compensation liabilities and debt.
Amortization of Intangible Assets
Amortization of intangible assets is primarily attributable to the intangible
assets recorded in connection with the acquisitions made by the Partnership and
the acquisition of ACMC, Inc., the predecessor of the Partnership, by ELAS
during 1985. Amortization of intangibles decreased for 1998 principally due to
the reduction of goodwill and certain costs assigned to investment contracts of
Cursitor Alliance. See "Reduction in Recorded Value of Intangible Assets."
Reduction in Recorded Value of Intangible Assets
The Partnership recorded a noncash charge of $120.9 million during the second
quarter of 1997 to reduce the unamortized value of intangible assets to fair
market value due to the decline in Cursitor Alliance's assets under management
and its reduced profitability.
Taxes on Income
The Partnership is a publicly traded partnership for federal income tax purposes
and, accordingly, is not subject to federal or state corporate income taxes.
However, the Partnership is subject to the New York City unincorporated business
tax. As a result of the Partnership's decision to remain a publicly traded
partnership pursuant to the Taxpayer Relief Act of 1997, the Partnership became
subject to a new 3.5% federal tax on partnership gross income from the active
conduct of a trade or business on January 1, 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. Income tax
expense increased in 1998 primarily as a result of the new 3.5% federal tax and
higher pre-tax income. The 1997 provision for income taxes increased primarily
as a result of the increase in taxable income of the Partnership and certain of
its corporate subsidiaries.
50 Alliance Capital
Capital Resources and Liquidity
Partners' capital was $430.3 million at December 31, 1998, an increase of $32.2
million or 8.1% from $398.1 million at December 31, 1997. Partners' capital was
$398.1 million at December 31, 1997, a decrease of $77.9 million or 16.4% from
$476.0 million at December 31, 1996. The decrease in 1997 was principally due to
the noncash charge of $120.9 million. See "Reduction in Recorded Value of
Intangible Assets."
Cash flow from operations and proceeds from borrowings have been the
Partnership's principal sources of working capital. During 1998, the
Partnership's cash and cash equivalents increased by $11.4 million. Cash inflows
include $258.0 million from operations, proceeds from borrowings net of debt
repayments of $99.6 million and $8.4 million of proceeds from exercises of Unit
options. Cash outflows included $274.4 million in distributions to Unitholders,
$31.9 million in capital expenditures, net purchases of investments of $46.6
million and $2.9 million for the acquisition of Whittingdale.
Under certain circumstances through February 28, 2006, the Partnership
has an option to purchase the minority interest in Cursitor Alliance and the
holders of the minority interest have an option to sell the minority interest to
the Partnership for cash, Units, or a combination thereof with a value of not
less than $10.0 million or more than $37.0 million ("Buyout Price"). The Buyout
Price will be determined based on the amount of global asset allocation
investment advisory revenues earned by Cursitor Alliance during a twelve-month
period ending on the February 28th preceding the date either option is
exercised. Due to the 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 paid by investors. For Back-End Load Shares, investors do
not pay a front-end sales charge although, if there are redemptions before the
expiration of the minimum holding period (which ranges from one year to four
years), investors pay a contingent deferred sales charge ("CDSC") to AFD. While
AFD is obligated to compensate the financial intermediaries at the time of the
purchase of Back-End Load Shares, it receives higher ongoing distribution fees
from the funds. Payments made to financial intermediaries in connection with the
sale of Back-End Load Shares under the System, net of CDSC received, reduced
cash flow from operations by approximately $232.5 million and $150.3 million
during 1998 and 1997, respectively. Management of the Partnership believes AFD
will recover the payments made to financial intermediaries for the sale of
Back-End Load Shares from the higher distribution fees and CDSC it receives over
periods not exceeding 5-1/2 years.
1998 Annual Report 51
During 1998, the Partnership entered into a $425.0 million five-year
revolving credit facility with a group of commercial banks which replaced a
$250.0 million revolving credit facility. The Partnership also increased the
amount it may borrow under its commercial paper program from $250.0 million to
$425.0 million during 1998. Borrowings under the facility and the Partnership's
commercial paper program may not exceed $425.0 million in the aggregate. The
revolving credit facility will be used to provide backup liquidity for
commercial paper issued under the Partnership's commercial paper program, to
fund commission payments to financial intermediaries for the sale of back-end
load shares under the Partnership's mutual fund distribution system, and for
general working capital purposes. At December 31, 1998, the Partnership had
$179.5 million of commercial paper outstanding and there were no borrowings
outstanding under the Partnership's revolving credit facility.
The Partnership's substantial equity base and access to public and private debt,
at competitive interest rates and other terms, should provide adequate liquidity
for its general business needs. Management of the Partnership believes that cash
flow from operations and the issuance of debt and Units will provide the
Partnership with the financial resources to meet its capital requirements for
mutual fund sales and its other working capital requirements.
Year 2000
Many computer systems and applications that process transactions use two digit
date fields for the year of a transaction, rather than the full four digits. If
these systems are not modified and replaced, transactions occurring after 1999
may be processed as year "1900," which could result in processing inaccuracies
and inoperability at or after the Year 2000. The Partnership utilizes a number
of computer systems and applications that it either has developed internally or
licensed from third-party suppliers. In addition, the Partnership is dependent
on third-party suppliers for certain systems applications and for the electronic
receipt of information critical to its business.
The Year 2000 issue is a high priority for the Partnership. During
1997, the Partnership began a formal Year 2000 initiative, which established a
structured and coordinated process to deal with the Year 2000 issue. As part of
its initiative, the Partnership established a Year 2000 project office to manage
the Year 2000 initiative focusing on both information technology and
non-information technology systems. The Year 2000 project office meets
periodically with the Audit Committee of the Board of Directors and executive
management to review the status of the Year 2000 efforts. The Partnership has
also retained the services of a number of consulting firms which have expertise
in advising and assisting with regard to Year 2000 issues.
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 of core business
units) and nonmission critical systems and determined which of these systems is
not Year 2000 compliant. All third-party suppliers of mission critical computer
systems and applications 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
52 Alliance Capital
and approximately 76% 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 completed by
February 28, 1999 with the exception of one portfolio accounting system, which
will be replaced by a Year 2000 compliant system by August 31, 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 88% of mission
critical systems and approximately 75% 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.
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. These plans will be completed by
June 30, 1999.
The current cost estimate of the Year 2000 initiative ranges from
approximately $40 million to $45 million. These costs consist principally of
modification costs and costs to develop formal Year 2000 specific contingency
plans. These costs, most of which will be expensed as incurred, will be funded
out of cash flow from the Partnership's operations. Through December 31, 1998,
the Partnership had incurred approximately $22 million of costs related to the
Year 2000 initiative. At this time, management of the Partnership believes that
the costs associated with resolving the Year 2000 issue will not have a material
adverse effect on the Partnership's results of operations, liquidity or capital
resources.
There are many risks associated with Year 2000 issues, including the
risk that the Partnership's computer systems and applications will not operate
as intended and that the systems and applications of third parties will not be
Year 2000 compliant. Likewise, there can be no assurance the compliance
schedules outlined above will be met or that
1998 Annual Report 53
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.
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).
Commitments and Contingencies
The Partnership's capital commitments, which consist primarily of operating
leases for office space are generally funded from future operating cash flows.
On July 25, 1995, a Consolidated and Supplemental Class Action
Complaint ("Original Complaint") was filed against Alliance North American
Government Income Trust, Inc. (the "Fund"), the Partnership and certain other
defendants affiliated with the Partnership alleging violations of federal
securities laws, fraud and breach of fiduciary duty in connection with the
Fund's investments in Mexican and Argentine securities. On September 26, 1996,
the United States District Court for the Southern District of New York granted
the defendants' motion to dismiss all counts of the Original Complaint. On
October 29, 1997, the United States Court of Appeals for the Second Circuit
affirmed that decision.
On October 29, 1996, plaintiffs filed a motion for leave to file an
amended complaint. The principal allegations of the proposed amended complaint
are that (i) the Fund failed to hedge against currency risk despite
representations that it would do so, (ii) the Fund did not properly disclose
that it planned to invest in mortgage-backed derivative securities, and (iii)
two advertisements used by the Fund misrepresented the risks of investing in the
Fund. On October 15, 1998, the United States Court of Appeals for the Second
Circuit issued an order granting plaintiffs' motion to file an amended complaint
alleging that the Fund misrepresented its ability to hedge against currency risk
and denying plaintiffs' motion to file an amended complaint alleging that the
Fund did not properly disclose that it planned to invest in mortgaged-backed
derivative securities and that certain advertisements used by the Fund
misrepresented the risks of investing in the Fund.
The Partnership believes that the allegations in the proposed amended
complaint are without merit and intends to vigorously defend against this
action. While the ultimate outcome of this matter cannot be determined at this
time, management of the Partnership does not expect that it will have a material
adverse effect on the Partnership's results of operations or financial
condition.
54 Alliance Capital
Changes in Accounting Principles
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
Consolidated Statements of Changes in Partners' Capital and Comprehensive Income
and includes net income, unrealized gains and losses on investments classified
as available-for-sale, and foreign currency translation adjustments. The
accumulated balance of comprehensive income items is displayed separately in the
partners' capital section of the Consolidated Statements of Financial Condition.
The Partnership adopted Statement of Financial Accounting Standards No.
131 ("SFAS 131"), "Disclosures about Segments of an Enterprise and Related
Information" in its 1998 consolidated financial statements. SFAS 131 establishes
standards for the way a public enterprise reports information about operating
segments in its annual and interim financial statements. It also establishes
standards for related enterprise-wide disclosures about products and services,
geographic areas and major customers. Generally, financial information is
required to be reported on a basis used by management to allocate resources and
assess performance. Management of the Partnership has assessed the requirements
of SFAS 131 and determined, because it utilizes a consolidated approach to
assess performance and allocate resources, that the Partnership has only one
operating segment.
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." The Partnership adopted the provisions of SOP 98-1 effective
January 1, 1998. 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. 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.
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard No. 133, ("SFAS 133") "Accounting for
Derivative Instruments and Hedging Activities." Under this Statement, an entity
is required to recognize derivative instruments as either assets or liabilities
in the statement of financial position and measure those instruments at fair
value. In addition, any entity that elects to apply hedge accounting is required
to establish at the inception of the hedge, the method it will use for assessing
effectiveness of the hedging derivative and the measurement approach for
determining the ineffective aspect of the hedge. 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.
1998 Annual Report 55
Cash Distributions
The Partnership is required to distribute all of its Available Cash Flow, as
defined in the Partnership Agreement, to the General Partner and Unitholders.
The Partnership's Available Cash Flow and Distributions per Unit for the years
ended December 31, 1998, 1997 and 1996 were as follows:
Available Cash Flow:
1998 1997 1996
- ------------------------------------------------------------------------------------------------
Available Cash Flow (in thousands) $278,363 $238,571 $184,546
Distributions per Unit $1.62 $1.40 $1.095
================================================================================================
Market Risk, Risk Management and Derivative Financial Instruments
The Partnership's investments consist of investments, available-for-sale, and
other investments. Investments, available-for-sale include equity and fixed
income mutual funds and money market investments. The carrying value of the
money market investments approximates fair value. Although investments,
available-for-sale, are purchased for long-term investment, the portfolio
strategy considers them available-for-sale from time-to-time due to changes in
market interest rates, equity prices and other relevant factors. Other
investments include investments in the Partnership's hedge funds.
Non Trading Market Risk Sensitive Instruments
Assets with Interest Rate Risk - Fair Value
The table below provides the Partnership's potential exposure, measured in terms
of fair value, to an immediate 100 basis point increase in interest rates from
the levels prevailing at December 31, 1998. A 100 basis point fluctuation in
interest rates is a hypothetical rate scenario used to calibrate potential risk
and does not represent management's view of future market changes. While these
fair value measurements provide a representation of interest rate sensitivity of
fixed income mutual funds and fixed hedge funds, they are based on the portfolio
exposures at a particular point in time and may not be representative of future
market results. These exposures will change as a result of ongoing changes in
investments in response to the Partnership's management assessment of changing
market conditions and available investment opportunities (in thousands):
AT DECEMBER 31, +100 BASIS
1998 POINT CHANGE
- ------------------------------------------------------------------------------------------------------
Fixed income investments $4,992 $(225)
======================================================================================================
Assets with Equity Price Risk - Fair Value
The Partnership's investments also include investments in equity mutual funds
and equity hedge funds. The following table provides the Partnership's potential
exposure from those investments, measured in terms of fair value, to an
immediate 10% drop in equity prices from those prevailing at December 31, 1998.
A 10% decrease in equity prices is a hypothetical scenario used to calibrate
potential risk and does not represent management's view of future market
56 Alliance Capital
changes. While these fair value measurements provide a representation of equity
price sensitivity of equity mutual funds, they are based on the portfolio
exposures at a particular point in time and may not be representative of future
market results. These exposures will change as a result of ongoing portfolio
activities in response to the Partnership's management assessment of changing
market conditions and available investment opportunities (in thousands):
AT DECEMBER 31, -10% EQUITY
1998 PRICE CHANGE
- ------------------------------------------------------------------------------------------------------------------
Equity investments $23,999 $(2,399)
==================================================================================================================
Derivative Financial Instruments
The Partnership utilizes an interest rate cap to reduce the Partnership's
exposure to interest rate risk by effectively placing an interest rate ceiling
or "cap" on interest payable on up to $100 million of the debt outstanding under
the Partnership's commercial paper program and revolving credit facility. 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 counterparty based on the excess, if any,
of the stated reference rate over 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. While the notional amount
is the most commonly used measure of volume in the derivatives market, it is not
used by the Partnership as a measure of risk as the notional amount exceeds the
possible loss that could arise from the interest rate cap. Mark to market
exposure is a point-in-time measure of the value of a derivative contract on the
open market. A positive value indicates existence of credit risk for the
Partnership as the counterparty would owe money to the Partnership if the
contract were closed. At year end 1998, the market value of the Partnership's
derivative was $536,000 primarily representing the time value component of the
fair value. The table below provides the interest rate sensitivity of the
interest rate cap. These exposures will change as a result of ongoing portfolio
and risk management activities (in thousands, except for term):
FAIR VALUE
NOTIONAL TERM/ -100 BASIS AT DECEMBER 31, + 100 BASIS
AMOUNT YEARS POINT CHANGE 1998 POINT CHANGE
- ----------------------------------------------------------------------------------------------------------------------------
Interest rate cap $100,000 3 $(316) $536 $809
============================================================================================================================
Debt - Fair Value
At year end 1998, the aggregate fair value of long-term debt issued by the
Partnership was $11.3 million. The table below provides the potential fair value
exposure to an immediate 100 basis point decrease in interest rates from those
prevailing at year end 1998 (in thousands):
AT DECEMBER 31, -100 BASIS
1998 POINT CHANGE
- ---------------------------------------------------------------------------------------------
Long-term debt $11,335 $500
=============================================================================================
1998 Annual Report 57
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.
58 Alliance Capital
Consolidated Statements of Financial Condition
(In thousands)
DECEMBER 31,
1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
Assets
Cash and cash equivalents $ 75,186 $ 63,761
Receivable from brokers and dealers for sale of shares
of Alliance mutual funds 159,095 68,701
Fees receivable:
Alliance mutual funds 80,167 57,583
Separately managed accounts:
Affiliated clients 6,682 8,357
Third party clients 86,166 73,774
Investments, available-for-sale 94,743 47,097
Furniture, equipment and leasehold improvements, net 96,401 80,477
Intangible assets, net 102,001 97,398
Deferred sales commissions, net 375,293 251,632
Other assets 56,858 35,680
- ---------------------------------------------------------------------------------------------------------------------------
Total assets $1,132,592 $784,460
===========================================================================================================================
Liabilities and Partners' Capital
Liabilities:
Payable to Alliance mutual funds for share purchases $ 199,316 $ 96,995
Accounts payable and accrued expenses 202,980 119,887
Accrued compensation and benefits 106,929 74,880
Debt 190,210 90,416
Minority interests in consolidated subsidiaries 2,884 4,231
- ---------------------------------------------------------------------------------------------------------------------------
Total liabilities 702,319 386,409
- ---------------------------------------------------------------------------------------------------------------------------
Commitments and contingencies
Partners' Capital:
General Partner 4,617 4,327
Limited partners; 170,365,963 Units issued and outstanding and
168,976,076 Units issued and outstanding, including Class A
Limited Partnership Interest 457,010 428,353
- ---------------------------------------------------------------------------------------------------------------------------
461,627 432,680
Less: Capital contributions receivable from General Partner 30,519 29,123
Deferred compensation expense 500 3,500
Accumulated other comprehensive income 335 2,006
- ---------------------------------------------------------------------------------------------------------------------------
Total partners' capital 430,273 398,051
- ---------------------------------------------------------------------------------------------------------------------------
Total liabilities and partners' capital $1,132,592 $784,460
===========================================================================================================================
See accompanying notes to consolidated financial statements.
1998 Annual Report 59
Consolidated Statements of Income
(In thousands, except per Unit amounts)
FOR THE YEARS ENDED DECEMBER 31,
1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
Revenues:
Investment advisory and services fees:
Alliance mutual funds $ 588,396 $384,759 $291,601
Separately managed accounts:
Affiliated clients 58,051 52,930 44,901
Third party clients 306,545 261,290 227,530
Distribution revenues 301,846 216,851 169,071
Shareholder servicing fees 43,475 36,327 31,272
Other revenues 25,743 23,179 24,142
- ---------------------------------------------------------------------------------------------------------------------------
1,324,056 975,336 788,517
- ---------------------------------------------------------------------------------------------------------------------------
Expenses:
Employee compensation and benefits 340,923 264,251 214,880
Promotion and servicing:
Distribution plan payments to financial intermediaries:
Affiliated 82,444 56,118 30,533
Third party 178,643 121,791 115,112
Amortization of deferred sales commissions 108,853 73,841 53,144
Other 90,400 60,416 48,868
General and administrative 162,323 120,283 100,854
Interest 7,586 2,968 1,923
Amortization of intangible assets 4,172 7,006 15,613
Reduction in recorded value of intangible assets -- 120,900 --
- ---------------------------------------------------------------------------------------------------------------------------
975,344 827,574 580,927
- ---------------------------------------------------------------------------------------------------------------------------
Income before income taxes 348,712 147,762 207,590
Income taxes 55,796 18,806 14,244
- ---------------------------------------------------------------------------------------------------------------------------
Net income $ 292,916 $128,956 $193,346
===========================================================================================================================
Net income per Unit:
Basic $1.71 $0.76 $1.15
Diluted $1.66 $0.74 $1.13
===========================================================================================================================
See accompanying notes to consolidated financial statements.
60 Alliance Capital
Consolidated Statements of Changes in Partners' Capital and Comprehensive Income
(In thousands)
FOR THE YEARS ENDED DECEMBER 31,
ACCUMULATED
GENERAL LIMITED CAPITAL DEFERRED OTHER TOTAL
PARTNER'S PARTNERS' CONTRIBUTIONS COMPENSATION COMPREHENSIVE PARTNERS'
CAPITAL CAPITAL RECEIVABLE EXPENSE INCOME CAPITAL
- -----------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1995 $4,416 $437,182 $(25,396) $(9,500) $ 7 $406,709
Comprehensive Income:
Net income 1,933 191,413 193,346
Other comprehensive income:
Unrealized gain on investments, net 389 389
Foreign currency translation
adjustment, net (791) (791)
- -----------------------------------------------------------------------------------------------------------------------------
Comprehensive Income 1,933 191,413 (402) 192,944
- -----------------------------------------------------------------------------------------------------------------------------
Cash distributions to partners
($1.05 per Unit) (1,755) (173,779) (175,534)
Amortization of deferred compensation
expense 3,000 3,000
Capital contributions from General Partner 774 774
Compensation plan accrual 33 3,249 (3,282) --
Issuance of Units for acquisition 427 42,279 42,706
Proceeds from Unit options exercised 54 5,367 5,421
- -----------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1996 5,108 505,711 (27,904) (6,500) (395) 476,020
- -----------------------------------------------------------------------------------------------------------------------------
Comprehensive Income:
Net income 1,290 127,666 128,956
Other comprehensive income:
Unrealized gain on investments, net 458 458
Foreign currency translation
adjustment, net (2,069) (2,069)
- -----------------------------------------------------------------------------------------------------------------------------
Comprehensive Income 1,290 127,666 (1,611) 127,345
- -----------------------------------------------------------------------------------------------------------------------------
Cash distributions to partners
($1.285 per Unit) (2,186) (216,418) (218,604)
Amortization of deferred compensation
expense 3,000 3,000
Capital contributions from General Partner 761 761
Compensation plan accrual 20 1,960 (1,980) --
Proceeds from Unit options exercised 95 9,434 9,529
- -----------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1997 4,327 428,353 (29,123) (3,500) (2,006) 398,051
- -----------------------------------------------------------------------------------------------------------------------------
Comprehensive Income:
Net income 2,929 289,987 292,916
Other comprehensive income:
Unrealized gain on investments, net 837 837
Foreign currency translation
adjustment, net 834 834
- -----------------------------------------------------------------------------------------------------------------------------
Comprehensive Income 2,929 289,987 1,671 294,587
- -----------------------------------------------------------------------------------------------------------------------------
Cash distributions to partners
($1.60 per Unit) (2,744) (271,700) (274,444)
Amortization of deferred compensation
expense 3,000 3,000
Capital contributions from General Partner 716 716
Compensation plan accrual 21 2,091 (2,112) --
Proceeds from Unit options exercised 84 8,279 8,363
- -----------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1998 $4,617 $457,010 $(30,519) $ (500) $ (335) $430,273
=============================================================================================================================
See accompanying notes to consolidated financial statements.
1998 Annual Report 61
Consolidated Statements of Cash Flows
(In thousands)
FOR THE YEARS ENDED DECEMBER 31,
1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net income $292,916 $128,956 $193,346
Adjustments to reconcile net income to net cash provided from
operating activities:
Amortization and depreciation 129,374 92,773 76,893
Reduction in recorded value of intangible assets -- 120,900 --
Other, net 12,873 6,570 8,395
Changes in assets and liabilities:
(Increase) in receivable from brokers and dealers for sale of shares
of Alliance mutual funds (90,389) (37,725) (4,325)
(Increase) in fees receivable from Alliance mutual funds (22,302) (11,125) (9,119)
(Increase) decrease in fees receivable from affiliated clients 1,675 (3,878) (2,473)
(Increase) in fees receivable from third party clients (11,772) (15,612) (190)
(Increase) in deferred sales commissions (232,514) (150,301) (78,733)
(Increase) decrease in other assets (25,374) (11,328) 3,262
Increase in payable to Alliance mutual funds for share purchases 102,321 41,481 10,251
Increase in accounts payable and accrued expenses 73,583 20,584 23,654
Increase in accrued compensation and benefits,
less deferred compensation 27,634 14,342 3,269
- ---------------------------------------------------------------------------------------------------------------------------
Net cash provided from operating activities 258,025 195,637 224,230
- ---------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Purchase of investments (476,826) (516,720) (132,008)
Proceeds from sale of investments 430,266 506,116 131,585
Purchase of businesses, net of cash acquired (2,911) -- (99,427)
Additions to furniture, equipment and leasehold improvements, net (31,910) (35,341) (21,157)
- ---------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (81,381) (45,945) (121,007)
- ---------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from issuance of debt 926,012 126,863 --
Repayment of debt (826,375) (60,451) (65)
Cash distributions to partners (274,444) (218,604) (175,534)
Capital contributions from General Partner 716 761 774
Proceeds from Unit options exercised 8,363 9,529 5,421
- ---------------------------------------------------------------------------------------------------------------------------
Net cash used in financing activities (165,728) (141,902) (169,404)
- ---------------------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash and cash equivalents 509 (1,470) (634)
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 11,425 6,320 (66,815)
Cash and cash equivalents at beginning of the year 63,761 57,441 124,256
- ---------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of the year $ 75,186 $ 63,761 $ 57,441
===========================================================================================================================
See accompanying notes to consolidated financial statements.
62 Alliance Capital
Notes to Consolidated Financial Statements
1. Organization
Alliance Capital Management L.P. (the "Partnership") and its consolidated
subsidiaries provide diversified investment management and related services to a
broad range of clients including unaffiliated separately managed accounts, The
Equitable Life Assurance Society of the United States ("ELAS"), a wholly-owned
subsidiary of The Equitable Companies Incorporated ("Equitable"), and certain of
their subsidiaries and affiliates and, through mutual funds and various other
investment vehicles, to individual investors. Separately managed accounts
consist primarily of the active management of equity and fixed income portfolios
for institutional investors. Separately managed accounts include corporate and
public employee pension funds, the general and separate accounts of ELAS and its
insurance company subsidiaries, endowment funds, and the assets of other
domestic and foreign institutions. The Partnership provides investment
management, distribution, and shareholder and administrative services to its
sponsored mutual funds and cash management products, including money market
funds, deposit accounts, certain structured products and hedge funds ("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, 1998, Equitable was the beneficial
owner of approximately 56.7% of units representing assignments of beneficial
ownership of limited partnership interests ("Units").
2. Summary of Significant Accounting Policies
Basis of Presentation
The Partnership's consolidated financial statements have been prepared in
accordance with generally accepted accounting principles. The preparation of the
financial statements in conformity with generally accepted accounting principles
requires management of the Partnership to make certain estimates and assumptions
that affect the reported amounts of assets and liabilities, disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting periods.
Actual results could differ from those estimates.
Principles of Consolidation
The consolidated financial statements include the Partnership and its
majority-owned subsidiaries. The equity method of accounting is used for
unconsolidated subsidiaries in which the Partnership's ownership interests range
from 20 to 50 percent and the Partnership exercises significant influence over
operating and financial policies. All significant intercompany transactions and
balances among the consolidated entities have been eliminated.
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand, demand deposits and highly
liquid investments with maturities of three months or less. Due to the
short-term nature of these investments, the recorded value approximates fair
value.
1998 Annual Report 63
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
accumulated other comprehensive income in 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.
Intangible Assets
Intangible assets consist principally of goodwill resulting from acquisitions
and costs assigned to contracts of businesses acquired. Goodwill is being
amortized on a straight-line basis over estimated useful lives ranging from
twelve to forty years. Costs assigned to investment contracts of businesses
acquired are being amortized on a straight-line basis over the estimated useful
lives of twenty years. The Partnership evaluates impairment of its intangible
assets by comparing the undiscounted cash flows expected to be realized from
those intangible assets to their recorded values, pursuant to Statement of
Financial Accounting Standards No. 121 ("SFAS 121") "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." If
the expected future cash flows are less than the carrying value of intangible
assets, the Partnership recognizes an impairment loss for the difference between
the carrying amount and the estimated fair value of those intangible assets.
Deferred Sales Commissions
Sales commissions paid to financial intermediaries in connection with the sale
of shares of open-end Alliance mutual funds sold without a front-end sales
charge are capitalized and amortized over periods not exceeding five and
one-half years, the period of time estimated by management of the Partnership
during which deferred sales commissions are expected to be recovered from
distribution plan payments received from those funds and from contingent
deferred sales charges received from shareholders of those funds upon the
redemption of their shares. Contingent deferred sales charges reduce unamortized
deferred sales commissions when received.
Derivative Financial Instruments
The Partnership uses derivative financial instruments to manage its exposure to
adverse movements in interest rates. Payments to be received as a result of
interest rate cap agreements are recognized as adjustments to interest expense.
Premiums paid are included in other assets and amortized to interest expense
over the period for which the cap is effective.
64 Alliance Capital
Revenue Recognition and Mutual Fund Underwriting Activities
Investment advisory and services fees are recorded as revenue as the related
services are performed. Purchases and sales of shares of Alliance mutual funds
in connection with the underwriting activities of the Partnership's
subsidiaries, including related commission income, are recorded on trade date.
Receivables from brokers and dealers for sale of shares of Alliance mutual funds
are generally realized within three business days from trade date, in
conjunction with the settlement of the related payables to Alliance mutual funds
for share purchases.
Unit Option Plans
The Partnership applies the provisions of Accounting Principles Board No. 25
("APB 25") "Accounting for Stock Issued to Employees" under which compensation
expense is recorded on the date of grant only if the market price of the
underlying Units exceeds the exercise price. Statement of Financial Accounting
Standards No. 123 ("SFAS 123") "Accounting for Stock-Based Compensation" permits
entities to recognize the fair value of all stock-based awards on the date of
grant as expense over the vesting period or, alternatively, to continue to apply
the provisions of APB 25 and provide pro forma net income and pro forma earnings
per Unit for employee stock option grants made in 1995 and future years as if
the fair-value method defined in SFAS 123 had been applied. The Partnership has
elected to continue to apply the provisions of APB 25 and to provide the pro
forma disclosure provisions of SFAS 123.
Pension and Other Post-retirement Plans
On January 1, 1998, the Partnership adopted Statement of Financial Accounting
Standards No. 132, ("SFAS 132") "Employers' Disclosures about Pension and Other
Post-retirement Benefits," which revises employers' disclosures about pension
and other post-retirement benefit plans. SFAS No. 132 does not change the method
of accounting for such plans.
Advertising
Advertising costs are expensed as incurred and are included in other promotion
and servicing expenses.
Foreign Currency Translation
Assets and liabilities of foreign subsidiaries are translated into United States
dollars at exchange rates in effect at the balance sheet dates, and related
revenues and expenses are translated into United States dollars at average
exchange rates in effect during each period. Net foreign currency gains and
losses resulting from the translation of assets and liabilities of foreign
operations into United States dollars are reported as a separate component of
accumulated other comprehensive income in partners' capital. Net foreign
currency gains and losses for the three-year period ended December 31, 1998 were
not material.
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.
1998 Annual Report 65
Comprehensive Income
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
Consolidated Statements of Changes in Partners' Capital and Comprehensive Income
and includes net income, unrealized gains and losses on investments classified
as available-for-sale, and foreign currency translation adjustments. The
accumulated balance of comprehensive income items is displayed separately in the
partners' capital section of the Consolidated Statements of Financial Condition.
Prior year financial statements have been reclassified to conform to the
requirements of SFAS 130.
Reclassifications
Certain amounts in the 1997 and 1996 financial statements have been reclassified
to conform with the 1998 presentation.
3. Acquisitions
On December 22, 1998, the Partnership acquired Whittingdale Holdings Limited
("Whittingdale") for approximately $10.2 million. The purchase price consists of
an initial payment of $4.8 million in cash and two deferred payments estimated
at $5.4 million in the aggregate payable on February 15, 2000 and 2001. The
amounts of the deferred payments are based upon certain revenue levels. Accounts
payable and accrued expenses at December 31, 1998 included $5.4 million
representing the estimated amount of the deferred payments. The Partnership also
has agreed to pay up to $6.7 million to the former owner of Whittingdale. The
amount of this payment is based upon revenues in the year 2003 and will be
expensed if and when incurred.
The acquisition was accounted for under the purchase method with the
results of Whittingdale included in the Partnership's consolidated financial
statements from the acquisition date. The excess of the purchase price over the
fair value of net assets acquired resulted in the recognition of goodwill of
approximately $8.8 million which is being amortized over twenty years. Pro forma
financial information for the year ended December 31, 1998, reflecting the
effects of the acquisition, is not presented because it would not be materially
different from the actual results reported.
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 acquisition of Cursitor, which was accounted for pursuant to the purchase
method, 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 which the Partnership has an option to purchase (See Note 11).
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 Cursitor was impaired and reduced this unamortized value
by $120.9 million to estimated fair value.
66 Alliance Capital
4. Class A Limited Partnership Interest
In connection with the purchase in July 1993 of the business of Equitable
Capital Management Corporation ("ECMC"), a wholly-owned subsidiary of ELAS, the
Partnership issued a newly created Class A Limited Partnership Interest ("Class
A Interest") convertible initially into 200,000 Units. Since 1993, the Units
issuable upon conversion of the Class A Interest were increased to 1,537,905
Units to reflect the receipt by the Partnership of certain performance fees
through March 1998. The amount of the increase in 1998 was 435,115 Units. The
Class A Interest was converted into 1,537,905 Units on June 30, 1998 and is no
longer outstanding.
5. Net Income Per Unit
Basic net income per Unit is derived by reducing net income for each year by 1%
for the general partnership interest held by the General Partner and dividing
the remaining 99% by the weighted average number of Units outstanding during
each year, including Units issuable upon conversion of the Class A Limited
Partnership Interest. Diluted net income per Unit is derived by reducing net
income for each year by 1% for the general partnership interest held by the
General Partner and dividing the remaining 99% by the total of the weighted
average number of Units outstanding during each year and the dilutive Unit
equivalents resulting from outstanding employee Unit options.
(In thousands, except per Unit amounts) 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
Net income $292,916 $128,956 $193,346
- ---------------------------------------------------------------------------------------------------------------------------
Weighted average Units outstanding - Basic net income per Unit 169,933 168,448 166,382
Dilutive effect of employee Unit options 5,210 3,428 2,586
- ---------------------------------------------------------------------------------------------------------------------------
Weighted average Units outstanding - Diluted net income per Unit 175,143 171,876 168,968
- ---------------------------------------------------------------------------------------------------------------------------
Basic net income per Unit $1.71 $0.76 $1.15
Diluted net income per Unit $1.66 $0.74 $1.13
===========================================================================================================================
6. Investments
At December 31, 1998 and 1997, the Partnership's investments, principally
investments in Alliance mutual funds, are 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, 1998 $93,154 $2,169 $(580) $94,743
December 31, 1997 $46,345 $ 914 $(162) $47,097
===========================================================================================================================
Proceeds from sales of investments were approximately $430,266,000, $506,116,000
and $131,585,000 in 1998, 1997 and 1996, respectively. Gross realized gains of
$23,000, $94,000 and $124,000 and gross realized losses of $0, $25,000 and
$345,000 were realized from the sales for the years ended December 31, 1998,
1997 and 1996, respectively.
1998 Annual Report 67
7. Furniture, Equipment and Leasehold Improvements
Furniture, equipment and leasehold improvements are comprised of the following
(in thousands):
DECEMBER 31,
1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
Furniture and equipment $ 95,886 $ 75,170
Leasehold improvements 66,954 56,330
- ---------------------------------------------------------------------------------------------------------------------------
162,840 131,500
Less: Accumulated depreciation and amortization 66,439 51,023
- ---------------------------------------------------------------------------------------------------------------------------
Furniture, equipment and leasehold improvements, net $ 96,401 $ 80,477
===========================================================================================================================
8. Intangible Assets
The following is a summary of intangible assets at December 31, 1998 and 1997
(in thousands):
DECEMBER 31,
1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
Goodwill, net of accumulated amortization of $17,693 and $14,611 in 1998 and 1997, respectively $ 83,276 $77,582
Costs assigned to investment contracts of businesses acquired, net of accumulated amortization
of $88,423 and $87,332 in 1998 and 1997, respectively 18,725 19,816
- ---------------------------------------------------------------------------------------------------------------------------
$102,001 $97,398
===========================================================================================================================
9. Debt
During 1998, the Partnership entered into a $425.0 million five-year revolving
credit facility with a group of commercial banks which replaced a $250.0 million
revolving credit facility. Under the facility, the interest rate, at the option
of the Partnership, is a floating rate generally based upon a defined prime
rate, a rate related to the London Interbank Offered Rate (LIBOR) or the Federal
Funds rate. A facility fee is payable on the total facility. During 1998, the
Partnership also increased its commercial paper program from $250.0 million to
$425.0 million. Borrowings under the facility and the Partnership's commercial
paper program may not exceed $425.0 million in the aggregate. The revolving
credit facility will be used to provide back-up liquidity for 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. At
December 31, 1998 and 1997, the Partnership had $180.0 million and $72.0 million
principal amount of commercial paper outstanding, respectively, at effective
interest rates of 5.5% and 6.2%, respectively. There were no borrowings
outstanding under the Partnership's revolving credit facility on these dates.
The recorded amount of outstanding commercial paper approximates fair value.
The new revolving credit facility contains covenants which among other
things, require the Partnership to meet certain financial ratios. The
Partnership was in compliance with the covenants at December 31, 1998.
Debt also includes notes issued to CHLP in the aggregate principal
amounts of $10.8 million and $16.1 million at December 31, 1998 and 1997,
respectively. The notes bear interest at 6% per annum and are payable ratably
over the next two years. The recorded amounts of the notes approximate their
fair value. At December 31, 1997, debt also includes promissory notes with
aggregate outstanding principal amounts of $2.4 million issued to certain
investment partnerships for which a subsidiary of the Partnership serves as
general partner. The principal amounts of the promissory notes were reduced to
zero in 1998 as the partners received final distributions from the investment
partnerships.
68 Alliance Capital
10. 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 15, 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. The fair value of the interest rate cap was
approximately $536,000 at December 31, 1998, while the carrying value of the
unamortized premium was $897,000.
The $100 million notional principal amount does not represent the
Partnership's exposure to credit risk, but is the 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 counterparty based on the
excess, if any, of the stated reference rate over 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.
11. Commitments and Contingencies
The Partnership and its subsidiaries lease office space, furniture and office
equipment under various operating leases. The future minimum payments under
noncancelable leases, net of sublease commitments, at December 31, 1998
aggregated $462,901,000 and are payable as follows: $23,821,000, $28,150,000,
$27,157,000, $26,616,000 and $26,680,000 for the years 1999 through 2003,
respectively, and a total of $330,477,000 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, 1998, 1997 and 1996 was $25,062,000, $21,262,000 and
$24,760,000, respectively.
In connection with the Cursitor acquisition, the Partnership obtained
an option to purchase the minority interest held by CHLP in Cursitor Alliance,
and CHLP obtained 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 ("Original Complaint") was filed against Alliance North American
Government Income Trust, Inc. (the "Fund"), the Partnership and certain other
defendants affiliated with the Partnership alleging violations of federal
securities laws, fraud and breach of fiduciary duty in connection with the
Fund's investments in Mexican and Argentine securities. On September 26, 1996,
the
1998 Annual Report 69
United States District Court for the Southern District of New York
granted the defendants' motion to dismiss all counts of the Original Complaint.
On October 29, 1997, the United States Court of Appeals for the Second Circuit
affirmed that decision.
On October 29, 1996, plaintiffs filed a motion for leave to file an
amended complaint. The principal allegations of the proposed amended complaint
are that (i) the Fund failed to hedge against currency risk despite
representations that it would do so, (ii) the Fund did not properly disclose
that it planned to invest in mortgage-backed derivative securities, and (iii)
two advertisements used by the Fund misrepresented the risks of investing in the
Fund. On October 15, 1998, the United States Court of Appeals for the Second
Circuit issued an order granting plaintiffs' motion to file an amended complaint
alleging that the Fund misrepresented its ability to hedge against currency risk
and denying plaintiffs' motion to file an amended complaint alleging that the
Fund did not properly disclose that it planned to invest in mortgaged-backed
derivative securities and that certain advertisements used by the Fund
misrepresented the risks of investing in the Fund.
The Partnership believes that the allegations in the proposed amended
complaint are without merit and intends to vigorously defend against this
action. While the ultimate outcome of this matter cannot be determined at this
time, management of the Partnership does not expect that it will have a material
adverse effect on the Partnership's results of operations or financial
condition.
12. 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, 1998
was $15,660,000, which was $9,296,000 in excess of its required net capital of
$6,364,000.
13. 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 a qualified profit sharing plan covering
substantially all U.S. and certain foreign employees. The amount of the annual
contribution to the plan is determined by a committee of the Board of Directors
of the General Partner. Contributions are limited to the maximum amount
deductible for Federal income tax purposes, generally 15% of the total annual
compensation of eligible participants. Aggregate contributions for 1998, 1997
and 1996 were $10,049,000, $8,744,000 and $8,310,000, respectively.
The Partnership maintains a qualified noncontributory defined benefit
retirement plan in the U.S. covering substantially all U.S. employees and
certain foreign employees. Benefits are based on years of credited service,
average
70 Alliance Capital
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 Plan's projected benefit obligation under the retirement plan at
December 31, 1998 and 1997 was comprised of (in thousands):
1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
Benefit obligation at beginning of year $26,169 $19,332
Service cost 2,769 2,143
Interest cost 1,891 1,600
Actuarial gains/losses 3,313 3,463
Benefits paid (661) (369)
- ---------------------------------------------------------------------------------------------------------------------------
Benefit obligation at end of year $33,481 $26,169
===========================================================================================================================
The plan assets at fair value for the years ended December 31, 1998 and
1997 were comprised of (in thousands):
1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
Plan assets at fair value at beginning of year $24,300 $20,035
Actual return on plan assets 8,605 4,634
Benefits paid (661) (369)
- ---------------------------------------------------------------------------------------------------------------------------
Plan assets at fair value at end of year $32,244 $24,300
===========================================================================================================================
The following table presents the retirement plan's funded status and
amounts recognized in the Partnership's consolidated statements of financial
condition at December 31, 1998 and 1997 (in thousands):
1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
Funded status $(1,237) $(1,869)
Unrecognized net gain from past experience different from that assumed and effects of
changes in assumptions (5,139) (2,254)
Prior service cost not yet recognized in net periodic pension cost (1,421) (1,535)
Unrecognized net plan assets at January 1, 1987 being recognized over 26.3 years (2,049) (2,192)
- ---------------------------------------------------------------------------------------------------------------------------
Accrued pension expense included in accrued compensation and benefits $(9,846) $(7,850)
===========================================================================================================================
Net expense under the retirement plan for the years ended December 31,
1998, 1997 and 1996 was comprised of (in thousands):
1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
Service cost $ 2,769 $ 2,143 $ 2,317
Interest cost on projected benefit obligations 1,891 1,600 1,405
Expected return on plan assets (2,393) (1,995) (1,842)
Net amortization and deferral (271) (272) (256)
- ---------------------------------------------------------------------------------------------------------------------------
Net pension charge $ 1,996 $ 1,476 $ 1,624
===========================================================================================================================
1998 Annual Report 71
Actuarial computations at December 31, 1998, 1997 and 1996 were made
utilizing the following assumptions:
1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
Discount rate on benefit obligations 7.00% 7.50% 8.00%
Expected long-term rate of return on plan assets 10.00% 10.00% 10.00%
Annual salary increases 5.66% 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, 1998, 1997 and 1996 were $2,112,000, $1,980,000 and $3,282,000,
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 1998, 1997 and 1996 aggregating $25,825,000,
$21,725,000 and $12,350,000, respectively. The amounts charged to expense for
the Plan for the years ended December 31, 1998, 1997 and 1996 were $6,587,000,
$9,822,000 and $2,816,000, respectively.
72 Alliance Capital
During 1994, certain key employees of Shields Asset Management,
Incorporated ("Shields") and its wholly-owned subsidiary, Regent Investor
Services Incorporated ("Regent") entered into employment agreements with the
Partnership and were issued 1,290,320 new Units with an aggregate fair market
value of approximately $15,000,000, which is being amortized as employee
compensation expense ratably over five years. Aggregate amortization of
$3,000,000 was recorded for each of the years ended December 31, 1998, 1997 and
1996.
14. Employee Unit Award and Option Plans
During 1988, a Unit Option Plan ("Unit Option Plan") was established under which
options to purchase up to 9,846,152 Units may be granted to certain key
employees. A committee of the Board of Directors of the General Partner
administers the plan and determines the grantees and the number of options to be
granted. Options may be granted for terms of up to ten years and each option
must have an exercise price of not less than the fair market value of the Units
on the date of grant. Options are exercisable at a rate of 20% of the Units
subject to options on each of the first five anniversary dates of the date of
grant.
During 1993, the 1993 Unit Option Plan, the Unit Bonus Plan and the
Century Club Plan (together the "1993 Plans") were established by the
Partnership. Committees of the Board of Directors of the General Partner
administer the 1993 Plans and determine the recipients of grants and awards.
Under the 1993 Unit Option Plan, options to purchase Units may be granted to key
employees for terms of up to ten years. Each option must have an exercise price
of not less than the fair market value of the Units on the date of grant.
Options are exercisable at a rate of 20% of the Units subject to options on each
of the first five anniversary dates of the date of grant. Under the Unit Bonus
Plan, Units may be awarded to key employees in lieu of all or a portion of the
cash bonuses they would otherwise receive under the Partnership's incentive
compensation program. Under the Century Club Plan, employees whose primary
responsibilities are to assist in the distribution of Alliance mutual funds are
eligible to receive an award of Units. The aggregate number of Units that can be
the subject of options granted or that can be awarded under the 1993 Plans may
not exceed 6,400,000 Units. As of December 31, 1998, 5,314,400 Units were
subject to options granted and 292,754 Units were subject to awards made under
the 1993 Plans.
During 1997, the 1997 Long Term Incentive Plan (the "1997 Plan") was
established by the Partnership. Committees of the Board of Directors of the
General Partner administer the 1997 Plan and determine the recipients of Unit
awards, including options, restricted Units and phantom restricted Units,
performance awards, other Unit based awards, or any combination thereof. Awards
under the 1997 Plan may be granted to key employees for terms established at the
time of grant by the Committees. The aggregate number of Units that can be the
subject of options granted or that can be awarded under the 1997 Plan may not
exceed 16,000,000 Units.
During 1998, 1997, and 1996, the Committees authorized the grant of
options to employees of the Partnership to purchase 2,777,000, 2,125,000 and
1,450,000 of the Partnership's Units, respectively, under the Unit Option Plan,
the 1993 Plans and the 1997 Plan. The per Unit weighted-average fair value of
options granted during 1998, 1997 and 1996 was $3.86, $2.18 and $1.35,
respectively, on the date of grant using the Black-Scholes option pricing model
with
1998 Annual Report 73
the following weighted-average assumptions: risk-free interest rates of 4.4%,
5.7% and 5.8% for 1998, 1997 and 1996, respectively, expected dividend yield of
6.5% for 1998, 8.0% for 1997 and 1996, and a volatility factor of the expected
market price of the Partnership's Units of 29% for 1998, 26% for 1997 and 23%
for 1996.
The Partnership applies APB 25 in accounting for its option plans and,
accordingly, no compensation cost has been recognized for its Unit options in
the consolidated financial statements. Had the Partnership determined
compensation cost based on the fair value at the grant date for its Unit options
under SFAS No. 123, the Partnership's net income and net income per Unit would
have been reduced to the pro forma amounts indicated below (in thousands, except
per Unit amounts):
1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
Pro forma net income $289,831 $127,367 $191,895
Pro forma basic net income per Unit $1.69 $0.75 $1.14
Pro forma diluted net income per Unit $1.64 $0.73 $1.12
===========================================================================================================================
Pro forma net income reflects options granted beginning January 1,
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, 1993 Plans and the 1997 Plan:
WEIGHTED
AVERAGE
EXERCISE PRICE
UNITS PER UNIT
- ----------------------------------------------------------------------------------------------------------------------------
Outstanding at January 1, 1996 9,656,200 $ 8.86
Granted 1,450,000 $12.56
Exercised (794,600) $ 6.82
Forfeited (243,400) $ 9.66
- ----------------------------------------------------------------------------------------------------------------------------
Outstanding at December 31, 1996 10,068,200 $ 9.54
Granted 2,125,000 $18.28
Exercised (1,183,800) $ 8.06
Forfeited (371,800) $10.64
- ----------------------------------------------------------------------------------------------------------------------------
Outstanding at December 31, 1997 10,637,600 $11.41
Granted 2,777,000 $26.28
Exercised (938,972) $ 8.91
Forfeited (205,200) $13.14
- ----------------------------------------------------------------------------------------------------------------------------
Outstanding at December 31, 1998 12,270,428 $14.94
============================================================================================================================
Exercisable at December 31, 1998 5,435,428
============================================================================================================================
74 Alliance Capital
Exercise prices for options outstanding as of December 31, 1998 ranged
from $3.03 to $26.31 per Unit. The weighted-average remaining contractual life
of those options is 7.2 years.
The following table summarizes information concerning currently
outstanding and exercisable options:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- ---------------------------------------------------------------------------------------------------------------------------
RANGE OF NUMBER WEIGHTED AVERAGE WEIGHTED NUMBER
EXERCISE OUTSTANDING REMAINING AVERAGE EXERCISABLE WEIGHTED AVERAGE
PRICES AS OF 12/31/98 CONTRACTUAL LIFE EXERCISE PRICE AS OF 12/31/98 EXERCISE PRICE
- ---------------------------------------------------------------------------------------------------------------------------
$ 3.03 - $ 9.69 3,111,428 4.5 $ 8.03 2,413,028 $ 7.57
9.81 - 10.69 2,023,400 5.3 10.05 1,587,800 10.07
11.13 - 13.75 2,371,600 7.5 11.92 1,047,600 11.77
18.47 - 18.78 1,987,000 9.0 18.48 387,000 18.48
22.50 - 26.31 2,777,000 9.9 26.28 -- --
- ---------------------------------------------------------------------------------------------------------------------------
$ 3.03 - $26.31 12,270,428 7.2 $14.94 5,435,428 $ 9.88
===========================================================================================================================
15. Income Taxes
The Partnership is a publicly traded partnership for federal income tax purposes
and, accordingly, is not subject to federal and state corporate income taxes.
However, the Partnership is subject to the New York City unincorporated business
tax ("UBT") 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.
The provision for income taxes, which are all currently payable,
consists of (in thousands):
YEARS ENDED DECEMBER 31,
1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
Partnership unincorporated business taxes $16,047 $11,186 $ 8,182
Federal partnership gross income tax 30,600 -- --
Corporate subsidiaries:
Federal 3,855 4,800 3,800
State, local and foreign 5,294 2,820 2,262
- ---------------------------------------------------------------------------------------------------------------------------
$55,796 $18,806 $14,244
===========================================================================================================================
The principal reasons for the difference between the Partnership's
effective tax rate and the UBT statutory tax rate of 4% are as follows:
YEARS ENDED DECEMBER 31,
1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
UBT statutory rate $13,948 4.0% $ 5,910 4.0% $ 8,304 4.0%
Federal partnership gross income tax rate 30,600 8.8 -- -- -- --
Corporate subsidiaries' Federal, state, local
and foreign income taxes 8,878 2.5 7,206 4.9 6,062 2.9
Reduction in recorded value of intangible assets -- -- 4,705 3.2 -- --
Miscellaneous 2,370 0.7 985 0.6 (122) --
- ---------------------------------------------------------------------------------------------------------------------------
$55,796 16.0% $18,806 12.7% $14,244 6.9%
===========================================================================================================================
1998 Annual Report 75
Under Statement of Financial Accounting Standards No. 109 ("SFAS 109"),
"Accounting for Income Taxes," deferred income taxes reflect the net tax effect
of temporary differences between the carrying amounts of assets and liabilities
for financial reporting purposes and the amounts used for income tax purposes.
The tax effect of significant items comprising the Partnership's net deferred
tax assets are as follows (in thousands):
DECEMBER 31,
1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
Deferred tax asset:
Differences between book and tax treatment of deferred compensation plans $3,287 $2,614
Differences between book and tax basis of intangible assets 1,847 --
Other, primarily accruals deductible when paid 2,056 1,480
- ---------------------------------------------------------------------------------------------------------------------------
7,190 4,094
Deferred tax liability:
Differences between book and tax basis of furniture, equipment and leasehold improvements 290 402
- ---------------------------------------------------------------------------------------------------------------------------
Net deferred tax asset 6,900 3,692
Valuation allowance 6,000 2,792
- ---------------------------------------------------------------------------------------------------------------------------
Deferred tax asset, net of valuation allowance $ 900 $ 900
===========================================================================================================================
The net change in the valuation allowance for the year ended December
31, 1998 was $3,208,000. The valuation allowance primarily relates to
uncertainties on the deductibility for UBT purposes of certain compensation
related items and the amortization expense related to certain intangibles. The
deferred tax asset is included in other assets.
16. Business Segment Information
The Partnership adopted Statement of Financial Accounting Standards No. 131
("SFAS 131") "Disclosures about Segments of an Enterprise and Related
Information" in these consolidated financial statements. SFAS 131 establishes
standards for the way a public enterprise reports information about operating
segments in its annual and interim financial statements. It also establishes
standards for related enterprise-wide disclosures about products and services,
geographic areas and major customers. Generally, financial information is
required to be reported on a basis used by management to allocate resources and
assess performance.
Management of the Partnership has assessed the requirements of SFAS 131
and determined, because it utilizes a consolidated approach to assess
performance and allocate resources, that the Partnership has only one operating
segment. Enterprise-wide disclosures as of and for the years ended December 31,
1998, 1997 and 1996 were as follows:
Services
Total revenues derived from the Partnership's investment management services for
the years ended December 31, were (in millions):
1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
Separately managed accounts $ 373 $323 $281
Alliance mutual funds
Mutual funds 674 432 328
Variable products 93 68 45
Cash management services 175 146 127
Other 9 6 8
- ---------------------------------------------------------------------------------------------------------------------------
Total $1,324 $975 $789
===========================================================================================================================
76 Alliance Capital
Geographic Information
Total revenues, long-lived assets and assets under management related to the
Partnership's domestic and foreign operations as of and for the years ended
December 31, were (in millions):
1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
Total revenues:
United States $1,122 $884 $737
International 202 91 52
- ---------------------------------------------------------------------------------------------------------------------------
$1,324 $975 $789
===========================================================================================================================
Long-lived assets:
United States $536 $400 $305
International 38 29 161
- ---------------------------------------------------------------------------------------------------------------------------
$574 $429 $466
===========================================================================================================================
Assets under management:
United States $250,894 $197,292 $169,144
International 35,765 21,362 13,648
- ---------------------------------------------------------------------------------------------------------------------------
$286,659 $218,654 $182,792
===========================================================================================================================
Major Customers
The Alliance mutual funds are distributed to individual investors through
broker-dealers, insurance sales representatives, banks, registered investment
advisers, financial planners and other financial intermediaries. EQ Financial
Consultants, Inc. ("EQ Financial"), a wholly-owned subsidiary of Equitable that
uses members of ELAS' insurance agency sales force as its registered
representatives, has entered into a selected dealer agreement with AFD, and has
been responsible for 5%, 7% and 13% of U.S. and offshore mutual fund sales in
1998, 1997, and 1996, respectively. Subsidiaries of Merrill Lynch & Co., Inc.
("Merrill Lynch") were responsible for approximately 26%, 24% and 20% of
Alliance mutual fund sales in 1998, 1997, and 1996, respectively. Citigroup Inc.
("Citigroup"), parent company of Salomon Smith Barney (formerly Smith Barney
Inc.), was responsible for approximately 6% of Alliance mutual fund sales in
1998, 7% in 1997 and 9% in 1996. EQ Financial, Merrill Lynch and Citigroup are
under no obligation to sell a specific amount of fund shares and each also sells
shares of mutual funds that it sponsors and which are sponsored by unaffiliated
organizations.
AXA and the general and separate accounts of Equitable and its
insurance company subsidiary (including the investments by the separate accounts
of Equitable in The Hudson River Trust) accounted for approximately 22%, 26% and
27% of the Partnership's total assets under management at December 31, 1998,
1997 and 1996, respectively, and approximately 11%, 14% and 13% of the
Partnership's total revenues for the years ended December 31, 1998, 1997 and
1996, respectively. No single institutional client, other than Equitable and its
insurance company subsidiary, accounted for more than 1% of the Partnership's
total revenues for the years ended December 31, 1998, 1997 and 1996,
respectively.
1998 Annual Report 77
17. Related Party Transactions
The Partnership and its consolidated subsidiaries provide investment management,
distribution, and shareholder and administrative 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):
YEARS ENDED DECEMBER 31,
1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
Investment advisory and services fees $588,396 $384,759 $291,601
Distribution revenues 301,846 216,851 169,071
Shareholder servicing fees 43,475 36,327 31,272
Other revenues 8,572 8,579 8,194
===========================================================================================================================
The Partnership provides investment management and administration
services to Equitable and certain of its subsidiaries other than the Partnership
("Equitable Subsidiaries") and certain of their affiliates. In addition, certain
Equitable Subsidiaries distribute Alliance mutual funds, for which they receive
commissions and distribution payments. Sales of Alliance mutual funds through
the Equitable Subsidiaries, excluding cash management products, aggregated
$859,266,000, $594,116,000 and $697,144,000 for the years ended December 31,
1998, 1997 and 1996, 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 AXA and the Equitable Subsidiaries and certain of their
affiliates are as follows (in thousands):
YEARS ENDED DECEMBER 31,
1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
Revenues:
Investment advisory and services fees $58,051 $52,930 $44,901
Other revenues 7,931 7,739 7,548
- ---------------------------------------------------------------------------------------------------------------------------
Expenses:
Distribution payments to financial intermediaries 82,444 56,118 30,533
General and administrative 4,476 5,819 5,865
===========================================================================================================================
18. Supplemental Cash Flow Information
Cash payments for interest and income taxes were as follows (in thousands):
YEARS ENDED DECEMBER 31,
1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
Interest $ 4,043 $ 1,803 $ 506
Income taxes 15,460 15,724 14,797
===========================================================================================================================
78 Alliance Capital
19. Accounting Pronouncement
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, ("SFAS 133") "Accounting for Derivative
Instruments and Hedging Activities." Under this Statement, an entity is required
to recognize derivative instruments as either assets or liabilities in the
statement of financial condition and measure those instruments at fair value. In
addition, any entity that elects to apply hedge accounting is required to
establish at the inception of the hedge the method it will use for assessing
effectiveness of the hedging derivative and the measurement approach for
determining the ineffective aspect of the hedge. This Statement is effective for
all fiscal quarters of fiscal years beginning after June 15, 1999. Management of
the Partnership intends to adopt this Statement on January 1, 2000 and does not
believe that the adoption of the Statement will have a material effect on its
results of operations, liquidity, or capital resources.
20. Cash Distribution
On February 1, 1999, the General Partner declared a distribution of $73,997,000
or $0.43 per Unit representing the Available Cash Flow (as defined in the
Partnership Agreement) of the Partnership for the three months ended December
31, 1998. The distribution is payable on February 23, 1999 to holders of record
on February 16, 1999.
21. Quarterly Financial Data (unaudited)
(In thousands, except per Unit data)
QUARTERS ENDED 1998
- ---------------------------------------------------------------------------------------------------------------------------
DECEMBER SEPTEMBER JUNE MARCH
31 30 30 31
- ---------------------------------------------------------------------------------------------------------------------------
Revenues $349,056 $326,863 $332,120 $316,017
Net income 77,843 70,248 75,841 68,984
Basic net income per Unit(1) .45 .41 .44 .40
Diluted net income per Unit .44 .40 .43 .39
Cash distributions per Unit(2) .43 .39 .42 .38
Unit prices(3):
High 27-1/2 28 29 27-7/8
Low 19-3/4 19-5/8 23-7/8 18-13/16
===========================================================================================================================
QUARTERS ENDED 1997
- ---------------------------------------------------------------------------------------------------------------------------
DECEMBER SEPTEMBER JUNE MARCH
31 30 30 31
- ---------------------------------------------------------------------------------------------------------------------------
Revenues $279,901 $250,848 $225,336 $219,251
Net income (loss) 73,520 66,209 (64,122) 53,349
Basic net income (loss) per Unit(1) .43 .39 (.38) .31
Diluted net income (loss) per Unit(1) .42 .38 (.38) .31
Cash distributions per Unit(2) .41 .37 .32 .30
Unit prices(3):
High 19-15/16 18-13/16 14-15/16 15-1/8
Low 15-23/32 14-1/2 12 12
===========================================================================================================================
(1) Due to changes in the number of weighted average shares outstanding,
quarterly net income per Unit does not add to the totals for the year.
(2) Declared and paid during the following quarter.
(3) High and low sales prices as reported by the New York Stock Exchange.
1998 Annual Report 79
Independent Auditors' Report
The General Partner and Unitholders
Alliance Capital Management L.P.
We have audited the accompanying consolidated statements of financial
condition of Alliance Capital Management L.P. and subsidiaries as of December
31, 1998 and 1997, and the related consolidated statements of income, changes in
partners' capital and comprehensive income and cash flows for each of the years
in the three-year period ended December 31, 1998. These consolidated financial
statements are the responsibility of the management of Alliance Capital
Management Corporation, General Partner. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Alliance
Capital Management L.P. and subsidiaries as of December 31, 1998 and 1997 and
the results of their operations and their cash flows for each of the years in
the three-year period ended December 31, 1998 in conformity with generally
accepted accounting principles.
/s/ KPMG LLP
New York, New York
February 1, 1999
80 Alliance Capital