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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 1-9818
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ALLIANCE CAPITAL
MANAGEMENT L.P.
(Exact name of Registrant as specified in its charter)
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Delaware 13-3434400
(State or other jurisdiction (I.R.S. Employer
of incorporation organization) Identification No.)
1345 Avenue of the Americas
New York, N.Y. 10105
Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 969-1000
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of Class which registered
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Units representing assignments of New York Stock Exchange
beneficial ownership of limited
partnership interests
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
The aggregate market value of the Units representing assignments of
beneficial ownership of limited partnership interests held by non-affiliates of
the registrant as of March 1, 1998 (based on the closing price on the New York
Stock Exchange on February 27, 1998) was approximately $1,695,760,178.
The number of Units representing assignments of beneficial ownership of
limited partnership interests outstanding as of March 1, 1998 was 84,085,003
Units.
DOCUMENTS INCORPORATED BY REFERENCE
Certain pages of the Alliance Capital Management L.P. 1997 Annual Report to
Unitholders are incorporated by reference in Part II of this Form 10-K.
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GLOSSARY OF CERTAIN DEFINED TERMS
"Partnership" refers to Alliance Capital Management L.P., a Delaware
limited partnership, and its subsidiaries and, where appropriate, to its
predecessor ACMC and its subsidiaries.
"ACMC" refers to ACMC, Inc., a wholly-owned subsidiary of Equitable.
"Alliance" refers to Alliance Capital Management Corporation, a
wholly-owned subsidiary of Equitable, and, where appropriate, to ACMC, its
predecessor.
"AXA" refers to AXA-UAP, a company organized under the laws of France.
"ECI" refers to The Equitable Companies Incorporated.
"ECMC" refers to Equitable Capital Management Corporation, a wholly-owned
subsidiary of Equitable.
"Equitable" refers to The Equitable Life Assurance Society of the United
States, a wholly-owned subsidiary of ECI, and its subsidiaries other than the
Partnership and its subsidiaries.
"General Partner" refers to Alliance in its capacity as general partner of
the Partnership, and, where appropriate, to ACMC, its predecessor, in its
capacity as general partner of the Partnership.
"Units" refer to units representing assignments of beneficial ownership of
limited partnership interests in the Partnership.
PART I
ITEM 1. BUSINESS
GENERAL
The Partnership was formed in 1987 to succeed to the business of ACMC which
began providing investment management services in 1971. On April 21, 1988 the
business and substantially all of the operating assets of ACMC were conveyed to
the Partnership in exchange for a 1% general partnership interest in the
Partnership and approximately 55% of the outstanding Units. In December 1991
ACMC transferred its 1% general partnership interest in the Partnership to
Alliance.
On February 19, 1998 the Partnership declared a two for one Unit split
payable to Unitholders of record on March 11, 1998. No adjustments have been
made to the number of Units outstanding or per Unit amounts except in Item 5,
Item 6, Item 7 and Item 8.
As of March 1, 1998 ECI and Equitable were the beneficial owners of
48,089,183 Units or approximately 56.8% of the issued and outstanding Units
including 551,395 Units issuable upon conversion of the Class A Limited
Partnership Interest issued to ECMC in 1993 when the business and substantially
all of the assets of ECMC were transferred to the Partnership. The Class A
Limited Partnership Interest may be convertible into additional Units valued at
up to $14.5 million under a formula based on contingent incentive fees received
by the Partnership prior to April 1, 1998.
As of March 1, 1998 AXA and its subsidiaries owned approximately 59% of the
issued and outstanding shares of the common stock of ECI. ECI is a public
company with shares traded on the New York Stock Exchange, Inc. ("NYSE"). ECI
owns all of the shares of Equitable. For insurance regulatory purposes all
shares of common stock of ECI beneficially owned by AXA have been deposited into
a voting trust (the "Voting Trust"). AXA remains the beneficial owner of all
capital stock deposited in the Voting Trust, but during the term of the Voting
Trust the trustees thereunder (the "Voting Trustees") exercise
1
all voting rights with respect to such capital stock. See "Item 12. Security
Ownership of Certain Beneficial Owners and Management".
AXA, a French company, is the holding company for an international group of
insurance and related financial services companies. AXA's insurance operations
include activities in life insurance, property and casualty insurance and
reinsurance. The insurance operations are diverse geographically with
activities, principally in Western Europe, North America, and the Asia/Pacific
area. AXA is also engaged in asset management, investment banking, securities
trading, brokerage, real estate and other financial services activities
principally in the United States, as well as in Western Europe and the
Asia/Pacific area.
Based on information provided by AXA, on March 1, 1998, approximately 21.4%
of the issued ordinary shares (representing 30.2% of the voting power) of AXA
were controlled directly and indirectly by Finaxa, a French holding company. As
of March 1, 1998, 62.0% of the shares (representing 74.0% of the voting power)
of Finaxa were owned by four French mutual insurance companies (the "Mutuelles
AXA") (one of which, AXA Assurances I.A.R.D. Mutuelle, owned 35.5% of the
shares, representing 42.2% of the voting power), and 23.1% of the shares of
Finaxa (representing 14.4% of the voting power) were owned by Banque Paribas, a
French bank ("Paribas"). Including the ordinary shares owned by Finaxa, on
March 1, 1998, the Mutuelles AXA directly or indirectly controlled approximately
24.7% of the issued ordinary shares (representing 34.8% of the voting power) of
AXA. Acting as a group, the Mutuelles AXA control AXA and Finaxa.
The Partnership, one of the nation's largest investment advisers, provides
diversified investment management services to institutional clients and high
net-worth individuals and, through various investment vehicles, to individual
investors.
The Partnership's separately managed accounts consist primarily of the
active management of equity and fixed income accounts for institutions and high
net-worth individuals. The Partnership's institutional clients include
corporate and public employee pension funds, the general and separate accounts
of Equitable and its insurance company subsidiaries, endowments, foundations,
and other domestic and foreign institutions. The Partnership's mutual funds
management services, which developed as a diversification of its institutional
investment management business, consist of the management, distribution and
servicing of mutual funds and cash management products, including money market
funds and deposit accounts.
2
The following tables provide a summary of assets under management and
associated revenues of the Partnership:
ASSETS UNDER MANAGEMENT
(in millions)
December 31,
--------------------------------------------------------------------
1993 1994 1995 1996 1997
Separately Managed
Accounts (1)(4) . . . . . . . . . $ 76,615 $ 81,030 $ 97,275 $119,507 $133,706
Mutual Funds Management (4):
Alliance Mutual Funds . . . . . . 22,045 20,736 23,462 28,302 41,868
The Hudson River Trust. . . . . . 7,171 8,360 11,964 16,392 22,338
Cash Management Services (2). . . 8,148 9,153 13,820 18,591 20,742
-------- -------- -------- -------- --------
Total . . . . . . . . . . . . . . . $113,979 $119,279 $146,521 $182,792 $218,654
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
REVENUES
(in thousands)
Years Ended December 31,
--------------------------------------------------------------------
1993 1994 1995 1996 1997
Separately Managed
Accounts (1). . . . . . . . . . . $191,108 $212,500 $232,132 $280,909 $322,850
Mutual Funds Management :
Alliance Mutual Funds . . . . . . 221,005 291,975 278,328 330,356 440,389
The Hudson River Trust (3). . . . 18,090 22,045 29,119 42,380 59,936
Cash Management Services (2). . . 64,464 69,514 91,135 127,265 146,152
Other . . . . . . . . . . . . . . . 4,850 4,918 8,541 7,607 6,009
-------- -------- -------- -------- --------
Total . . . . . . . . . . . . . . . $499,517 $600,952 $639,255 $788,517 $975,336
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
(1) Includes the general and separate accounts of Equitable and its insurance
company subsidiaries.
(2) Includes money market deposit accounts brokered by the Partnership for
which no investment management services are performed.
(3) Net of certain fees paid to Equitable for services rendered by Equitable in
marketing the variable annuity insurance and variable life products for
which The Hudson River Trust is the funding vehicle.
(4) Assets under management include 100% of the amounts under management by
unconsolidated joint venture subsidiaries.
3
SEPARATELY MANAGED ACCOUNTS
As of December 31, 1995, 1996 and 1997 separately managed accounts for
institutional and high net-worth individuals (other than investment companies
and deposit accounts) represented approximately 66%, 65% and 61%, respectively,
of total assets under management by the Partnership. The fees earned from the
management of these accounts represented approximately 36%, 36% and 33% of the
Partnership's revenues for 1995, 1996 and 1997, respectively.
SEPARATELY MANAGED ACCOUNTS ASSETS UNDER MANAGEMENT
(in millions)
December 31,
--------------------------------------------------------------------
1993 1994 1995 1996 1997
Equity & Balanced:
Domestic. . . . . . . . . . $ 29,382 $ 30,063 $ 42,332 $ 50,835 $ 60,826
International & Global. . . 2,913 3,828 3,854 3,533 5,270
Fixed Income:
Domestic. . . . . . . . . . 28,596 31,470 32,553 36,042 39,079
International & Global. . . 2,252 2,602 1,891 1,546 1,833
Passive:
Domestic. . . . . . . . . . 11,240 9,645 12,787 15,478 19,860
International & Global. . . 1,760 3,028 3,484 3,411 2,866
Asset Allocation:
Domestic. . . . . . . . . . 472 394 374 457 433
International & Global. . . -- -- -- 8,205 3,336
Joint Ventures (1). . . . . . -- -- -- -- 203
-------- -------- -------- -------- --------
Total . . . . . . . . . . . . $ 76,615 $ 81,030 $ 97,275 $119,507 $133,706
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
(1) Assets reflect 100% of the assets under management by unconsolidated joint
venture subsidiaries.
REVENUES FROM SEPARATELY MANAGED ACCOUNTS MANAGEMENT
(in thousands)
Years Ended December 31,
--------------------------------------------------------------------
1993 1994 1995 1996 1997
Investment Services:
Equity & Balanced:
Domestic. . . . . . . . . . $ 95,245 $107,581 $131,792 $156,690 $182,787
International & Global. . . 7,166 10,867 10,373 9,848 14,471
Fixed Income:
Domestic. . . . . . . . . . 66,131 70,217 67,102 65,449 80,600
International & Global. . . 4,895 5,180 3,784 3,901 5,372
Passive:
Domestic. . . . . . . . . . 6,220 6,016 5,919 8,015 9,187
International & Global. . . 2,790 4,052 3,870 3,612 3,034
Asset Allocation:
Domestic. . . . . . . . . . 1,274 1,064 1,010 821 1,413
International & Global. . . -- -- -- 24,096 17,356
-------- -------- -------- -------- --------
183,721 204,977 223,850 272,432 314,220
Service and Other Fees. . . . 7,387 7,523 8,282 8,477 8,630
-------- -------- -------- -------- --------
Total . . . . . . . . . . . . $191,108 $212,500 $232,132 $280,909 $322,850
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
4
INVESTMENT MANAGEMENT SERVICES
The Partnership's separately managed accounts consist primarily of the
active management of equity accounts, balanced (equity and fixed income)
accounts and fixed income accounts for institutions and high net-worth
individuals. The Partnership also provides active management for international
(non-U.S.) and global (including U.S.) equity, balanced and fixed income
portfolios, asset allocation portfolios, venture capital portfolios, investment
partnership portfolios known as hedge funds and portfolios that invest in real
estate investment trusts. The Partnership provides "passive" management
services for equity, fixed income and international accounts. As of December
31, 1997 the Partnership's accounts were managed by 103 portfolio managers with
an average of 18 years of experience in the industry and 12 years of experience
with the Partnership.
EQUITY AND BALANCED ACCOUNTS. The Partnership's equity and balanced
accounts contributed approximately 22%, 21% and 20% of the Partnership's total
revenues for 1995, 1996 and 1997, respectively. Assets under management
relating to active equity and balanced accounts grew from approximately $29.4
billion as of December 31, 1992 to approximately $66.1 billion as of December
31, 1997.
The Partnership has had a distinct and consistent style of equity
investing. The Partnership does not emphasize market timing as an investment
tool but instead emphasizes long-term trends and objectives, generally remaining
fully invested. The Partnership's equity strategy is to invest in the
securities of companies experiencing growing earnings momentum which are known
as growth stocks. The result of these investment characteristics is that the
Partnership's client portfolios tend to have, as compared to the average of
companies comprising the Standard & Poor's Index of 500 Stocks ("S&P 500"), a
greater market price volatility, a lower average yield and a higher average
price-earnings ratio.
The Partnership's principal method of securities evaluation is through
fundamental analysis undertaken by its internal staff of full-time research
analysts, supplemented by research undertaken by the Partnership's portfolio
managers. The Partnership holds frequent investment strategy meetings in which
senior management, portfolio managers and research analysts discuss investment
strategy. The Partnership's portfolio managers construct and maintain
portfolios that adhere to each client's guidelines and conform to the
Partnership's current investment strategy.
The Partnership's balanced accounts consist of an equity component and a
fixed income component. Typically, from 50% to 75% of a balanced account is
managed in the same manner as a separate equity account, while the remaining
fixed income component is oriented toward capital preservation and income
generation.
FIXED INCOME ACCOUNTS. The Partnership's fixed income accounts contributed
approximately 11%, 9% and 9% of the Partnership's total revenues for 1995, 1996
and 1997, respectively. Assets under management relating to active fixed income
accounts increased from approximately $28.8 billion as of December 31, 1992 to
approximately $41.0 billion as of December 31, 1997.
The Partnership's fixed income management services include conventional
actively managed bond portfolios in which portfolio maturity structures, market
sector concentrations and other characteristics are actively shifted in
anticipation of market changes. Fixed income management services also include
managing portfolios investing in foreign government securities and other foreign
debt securities. Sector concentrations and other portfolio characteristics are
heavily committed to areas that the Partnership's portfolio managers believe
have the best investment values. The Partnership also manages portfolios that
are limited to specialized areas of the fixed income markets, such as
mortgage-backed securities and high-yield bonds.
PRIVATE INVESTING SERVICES. In 1996 the Partnership acquired a 40%
interest in Albion Alliance LLC ("Albion Alliance") which is its primary vehicle
for providing global investing services in respect of private and illiquid
securities to institutions and high net-worth individuals.
Alliance Corporate Finance Group Incorporated ("ACFG"), a wholly-owned
subsidiary of the Partnership, was formed in 1993 when the business of ECMC was
acquired to manage investments in private mezzanine financings and private
investment limited partnerships. Private mezzanine financings are investments
in the subordinated debt and/or preferred stock
5
portions of leveraged transactions (such as leveraged buy-outs and leveraged
recapitalizations). Such investments are usually coupled with a contingent
interest component or investment in an equity participation, which provide the
potential for capital appreciation. Since Albion Alliance is now the
Partnership's primary vehicle for providing these types of services it is not
expected that ACFG will manage any new private investments other than for
Equitable and its subsidiaries.
ACFG manages two private mezzanine investment funds designed for
institutional investors, with an aggregate of approximately $224 million under
management as of December 31, 1997. As of that date Equitable and its insurance
company subsidiaries had investments of approximately $39 million in these
funds.
ACFG also manages two limited partnerships regulated as business
development companies under the Investment Company Act of 1940 ("Investment
Company Act") which invest primarily in private mezzanine financings. As of
December 31, 1997 these funds had net assets of approximately $42 million.
The Partnership manages 17 structured products with an aggregate of $5.1
billion in assets as of December 31, 1997. Structured products consist of
securities, typically multiple classes of senior and subordinated debt
obligations together with an equity component, issued by a special purpose
company. An actively or passively managed portfolio of equity or fixed income
securities or other financial products generally backs such securities. A
majority of the Partnership's structured product assets are based on a short
duration fixed income strategy, including the five "Pegasus" transactions which,
as of December 31, 1997, had an aggregate of $3.2 billion in assets. The
Partnership also manages two collateralized bond obligation funds whose pools of
collateral debt securities consist primarily of privately-placed, fixed rate
corporate debt securities acquired from Equitable and its affiliates. As of
December 31, 1997 these funds had approximately $209 million under management.
As of that date ECI and its insurance company subsidiaries had investments of
approximately $181 million in these funds.
HEDGE FUNDS. As of December 31, 1997, the Partnership managed hedge funds
and separately managed hedge accounts which had approximately $1.1 billion in
assets under management in four distinct strategies. The Partnership's hedge
funds are privately placed domestic and offshore investment vehicles. The
portfolios of the hedge funds consist of various types of securities, including
equities, domestic and foreign government and other debt securities, convertible
securities, warrants, options and futures. The hedge funds take short
positions, including the purchase of put options on securities, market indices
or futures. The hedge funds employ the use of leverage through securities
exposure and borrowings.
PASSIVE MANAGEMENT. The Partnership's strategy in passive portfolio
management is to provide customized portfolios to meet specialized client needs,
such as a portfolio designed to replicate a particular index. The Partnership
offers domestic and international indexation strategies, such as portfolios
designed to match the performance characteristics of the S&P 500 and the Morgan
Stanley Capital International Indices and enhanced indexation strategies
designed to add incremental returns to a benchmark. The Partnership also offers
a variety of structured fixed income portfolio applications, including
immunization (designed to produce a compound rate of return over a specified
time, irrespective of interest rate movements), dedication (designed to produce
specific cash flows at specific times to fund known liabilities) and indexation
(designed to replicate the return of a specified market index or benchmark). A
subsidiary of the Partnership is the manager of two passive U.K. unit trusts
which invest in small capitalization common stocks on a global basis. As of
December 31, 1997 the Partnership managed approximately $22.7 billion in passive
portfolios.
GLOBAL ASSET ALLOCATION. On February 29, 1996 the Partnership acquired
substantially all of the assets and assumed substantially all of the liabilities
of Cursitor Holdings L.P. and acquired all of the outstanding shares of Cursitor
Holdings Limited (collectively, "Cursitor"). Cursitor's investment style is
global asset allocation: investing client funds in stocks or bonds of the
world's principal capital markets. A new subsidiary of the Partnership,
Cursitor Alliance LLC ("Cursitor Alliance") was formed for purposes of the
acquisition. Cursitor Alliance and its subsidiaries provide global asset
allocation services to U.S. and non-U.S. institutions. Cursitor Alliance's
investment performance results in 1996 and 1997 were poor and Cursitor Alliance
has experienced significant account terminations as a consequence thereof. See
"Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations".
6
CLIENTS
The approximately 1,653 separately managed accounts for institutions and
high net-worth individuals (other than investment companies) for which the
Partnership acts as investment manager include corporate employee benefit plans,
public employee retirement systems, the general and separate accounts of
Equitable and its insurance company subsidiaries, endowments, foundations,
foreign governments, multi-employer pension plans and financial and other
institutions.
The general and separate accounts of Equitable and its insurance company
subsidiaries, which were transferred to the Partnership in 1993 in connection
with the acquisition of the business and substantially all of the assets of
ECMC, are the Partnership's largest institutional clients. As of December 31,
1997 these accounts, excluding investments made by these accounts in The Hudson
River Trust (See "Individual Investor Services - The Hudson River Trust"),
represented approximately 14% of total assets under management by the
Partnership and approximately 7% of the Partnership's total revenues for 1997.
As of December 31, 1997 corporate employee benefit plan accounts
represented approximately 12% of total assets under management by the
Partnership. Assets under management for other tax-exempt accounts, including
public employee benefit funds organized by government agencies and
municipalities, endowments, foundations and multi-employer employee benefit
plans, represented approximately 33% of total assets under management as of
December 31, 1997.
The following table lists the Partnership's twelve largest institutional
clients, ranked in order of size of total assets under management as of December
31, 1997. Since the Partnership's fee schedules vary based on the type of
account, the table does not reflect the ten largest revenue generating clients.
Client or Sponsoring Employer Type of Account
- ----------------------------- ---------------
Equitable and its insurance
company subsidiaries . . . . . . . . . . Equity, Fixed Income, Passive
North Carolina Retirement System. . . . . . . Passive Equity, U.S. Equity,
Global Equity
A Foreign Government Central Bank . . . . . . Equity, Global Equity,
Fixed Income, Global
Fixed Income
State Board of Administration of Florida . . Equity, Fixed Income
New York State Common Retirement System . . . Equity
BellSouth Corporation . . . . . . . . . . . . Passive Equity
National Mutual Funds Management . . . . . . Global Equity, Global Fixed
Income
New York State Teacher's Retirement System. . Passive Equity, Equity
Wyoming Retirement System . . . . . . . . . . Equity
Frank Russell Trust . . . . . . . . . . . . . U.S. Equity
These institutional clients accounted for approximately 27% of the
Partnership's total assets under management at December 31, 1997 and
approximately 10% of the Partnership's total revenues for the year ended
December 31, 1997 (37% and 16%, respectively, if the investments by the separate
accounts of Equitable in The Hudson River Trust were included). No single
institutional client other than Equitable and its insurance company subsidiaries
accounted for more than approximately 1% of the Partnership's total revenues for
the year ended December 31, 1997. The general and separate accounts of
Equitable and its insurance company subsidiaries accounted for approximately 14%
of the Partnership's total assets under management at December 31, 1997 and
approximately 7% of the Partnership's total revenues for the year ended December
31, 1997 (24% and 13%, respectively, if the investments by the separate accounts
of Equitable in The Hudson River Trust were included).
Since its inception, the Partnership has experienced periods when it gained
significant numbers of new accounts or amounts of assets under management and
periods when it lost significant accounts or assets under management. These
7
fluctuations result from, among other things, the relative attractiveness of the
Partnership's investment style or level of performance under prevailing market
conditions, changes in the investment patterns of clients that result in a shift
in assets under management and other circumstances such as changes in the
management or control of a client.
INVESTMENT MANAGEMENT AGREEMENTS AND FEES
The Partnership's separately managed accounts are managed pursuant to a
written investment management agreement between the client and the Partnership,
which usually is terminable at any time or upon relatively short notice by
either party. In general, the Partnership's contracts may not be assigned
without the consent of the client.
In providing investment management services to institutional clients, the
Partnership is principally compensated on the basis of fees calculated as a
percentage of assets under management. Fees are generally billed quarterly and
are calculated on the value of an account at the beginning or end of a quarter
or on the average of such values during the quarter. As a result, fluctuations
in the amount or value of assets under management are reflected in revenues from
management fees within two calendar quarters.
Management fees paid on equity and balanced accounts are generally charged
in accordance with a fee schedule that ranges from 0.75% (for the first $10
million in assets) to 0.25% (for assets over $60 million) per annum of assets
under management. Fees for the management of fixed income portfolios generally
are charged in accordance with lower fee schedules, while fees for passive
equity portfolios typically are even lower. Fees for the management of hedge
funds are higher than the fees charged for equity and balanced accounts and also
provide for the payment of performance fees or carried interests to the
Partnership. With respect to approximately 5% of assets under management, the
Partnership charges performance-based fees, which consist of a relatively low
base fee plus an additional fee if investment performance for the account
exceeds certain benchmarks. No assurance can be given that such fee
arrangements will not become more common in the investment management industry.
Utilization of such fee arrangements by the Partnership on a broader basis could
create greater fluctuations in the Partnership's revenues.
ACFG's fees for corporate finance activities generally involve the payment
of a base management fee ranging from 0.10% to 1.00% of assets under management
per annum. In some cases ACFG receives performance fees generally equivalent to
20% of gains in excess of a specified hurdle rate.
In connection with the investment advisory services provided to the general
and separate accounts of Equitable and its insurance company subsidiaries the
Partnership provides ancillary accounting, valuation, reporting, treasury and
other services. Equitable and its insurance company subsidiaries compensate the
Partnership for such services. See "Item 13. Certain Relationships and Related
Transactions".
MARKETING
The Partnership's institutional products are marketed by marketing
specialists who solicit business for the entire range of the Partnership's
institutional account management services. Marketing specialists are dedicated
to corporate and insurance plans as well as public retirement systems,
multi-employer pension plans and the hedge fund marketplace. The Partnership's
institutional marketing structure supports its commitment to provide
comprehensive and timely client service. A client service representative is
assigned to each institutional account. This individual is available to meet
with the client as often as necessary and attends client meetings with the
portfolio manager.
MUTUAL FUNDS MANAGEMENT
The Partnership (i) manages and sponsors a broad range of open-end and
closed-end mutual funds other than The Hudson River Trust and markets wrap fee
accounts ("Alliance Mutual Funds"), (ii) manages The Hudson River Trust which is
one of the funding vehicles for variable annuity insurance and variable life
insurance products offered by Equitable and its insurance company subsidiaries,
and (iii) provides cash management services (money market funds and federally
insured deposit accounts) that are marketed to individual investors through
broker-dealers, banks, insurance companies and other financial intermediaries.
The net assets comprising the Alliance Mutual Funds, The Hudson River Trust and
money market funds and deposit accounts on December 31, 1997 amounted to
approximately $84.9 billion. The assets of the Alliance
8
Mutual Funds, The Hudson River Trust and the money market funds are managed by
the same investment professionals who manage the Partnership's accounts of
institutional and high net-worth individuals.
REVENUES FROM MUTUAL FUNDS MANAGEMENT
(in thousands)
Years Ended December 31,
--------------------------------------------------------------------
1993 1994 1995 1996 1997
Alliance Mutual Funds:
Investment Services . . . . . . . . . . $109,692 $147,496 $147,407 $175,465 $242,834
Distribution Plan Fees. . . . . . . . . 89,253 117,509 105,405 126,930 164,880
Services and Other Fees . . . . . . . . 16,901 23,491 23,779 25,607 29,605
Underwriting Commissions. . . . . . . . 5,159 3,479 1,737 2,354 3,070
-------- -------- -------- -------- --------
221,005 291,975 278,328 330,356 440,389
-------- -------- -------- -------- --------
The Hudson River Trust:
Investment Services (1) . . . . . . . . 17,148 21,655 28,680 41,696 59,155
Distribution Plan Fees. . . . . . . . . - - - - - - - - 54
Services and Other Fees . . . . . . . . 942 390 366 500 641
Underwriting Commissions. . . . . . . . - - - - 73 184 86
-------- -------- -------- -------- --------
18,090 22,045 29,119 42,380 59,936
-------- -------- -------- -------- --------
Cash Management Services:
Investment Services (2) . . . . . . . . 40,202 42,018 56,642 74,441 82,770
Distribution Plan Fees. . . . . . . . . 16,007 18,104 23,328 39,481 48,758
Services and Other Fees . . . . . . . . 7,890 9,383 11,165 13,343 14,624
Underwriting Commissions. . . . . . . . 365 9 - - - - - -
-------- -------- -------- -------- --------
64,464 69,514 91,135 127,265 146,152
-------- -------- -------- -------- --------
Total . . . . . . . . . . . . . . . . . $303,559 $383,534 $398,582 $500,001 $646,477
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
(1) Net of certain fees paid to Equitable for services rendered by Equitable in
marketing the variable annuity insurance and variable life products for
which The Hudson River Trust is the funding vehicle.
(2) Includes fees received by the Partnership in connection with its
distribution of money market deposit accounts for which no investment
management services are provided.
9
ALLIANCE MUTUAL FUNDS
The Partnership has been managing mutual funds since 1971. Since then, the
Partnership has sponsored open-end load mutual funds, closed-end mutual funds
and offshore funds. On December 31, 1997 net assets in the Alliance Mutual
Funds totaled approximately $41.9 billion.
Net Assets as
of December
31, 1997
-------------
Type of Alliance Mutual Funds (in millions)
-----------------------------
Domestic Open-End Funds:
Equity and Balanced. . . . . . . . . . .$ 14,980.7
Taxable Fixed Income . . . . . . . . . . 6,241.4
Tax Exempt Fixed Income. . . . . . . . . 2,467.0
Offshore Funds (Open and Closed-End). . . . . 8,936.5
Domestic Closed-End Funds . . . . . . . . . . 4,211.8
Wrap Fee Programs . . . . . . . . . . . . . . 2,848.1
Variable Product Series Funds . . . . . . . . 1,492.1
Joint Ventures (1). . . . . . . . . . . . . . 690.2
----------
Total . . . . . . . . . . . . . . . . . . . .$ 41,867.8
----------
----------
(1) Assets reflect 100% of assets under management by unconsolidated joint
venture subsidiaries.
THE HUDSON RIVER TRUST
The Hudson River Trust is one of the funding vehicles for the variable
annuity and variable life insurance products offered by Equitable and its
insurance company subsidiaries. On December 31, 1997 the net assets of the
portfolios of The Hudson River Trust were as follows:
Net Assets as
of December
31, 1997
-------------
(in millions)
Common Stock Portfolio. . . . . . . . . . . . $ 9,560.0
Aggressive Stock Portfolio. . . . . . . . . . 4,663.8
Balanced Portfolio. . . . . . . . . . . . . . 1,724.1
Growth Investors Portfolio. . . . . . . . . . 1,666.1
Global Portfolio. . . . . . . . . . . . . . . 1,225.4
Equity Index Fund . . . . . . . . . . . . . . 943.6
Growth & Income Portfolio . . . . . . . . . . 587.7
Money Market Portfolio. . . . . . . . . . . . 573.6
High Yield Portfolio. . . . . . . . . . . . . 421.8
Conservative Investors Portfolio. . . . . . . 313.6
Quality Bond Portfolio. . . . . . . . . . . . 203.2
International Portfolio . . . . . . . . . . . 193.9
Small Cap Growth Portfolio. . . . . . . . . . 141.0
Intermediate Government Portfolio . . . . . . 120.1
----------
Total . . . . . . . . . . . . . . . . . . . . $ 22,337.9
----------
----------
10
DISTRIBUTION. 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. Alliance Fund Distributors, Inc. ("AFD"), a registered
broker-dealer and a wholly-owned subsidiary of the Partnership, serves as the
principal underwriter and distributor of the Alliance Mutual Funds registered
under the Investment Company Act as "open-end" investment companies ("U.S.
Funds") and serves as a placing or distribution agent for most of the
Alliance Mutual Funds which are not registered under the Investment Company
Act and which are not publicly offered to United States persons ("Offshore
Funds"). There are 76 sales representatives who devote their time exclusively
to promoting the sale of shares of Alliance Mutual Funds by financial
intermediaries.
The Partnership maintains a mutual fund distribution system (the "System")
which permits open-end Alliance Mutual Funds to offer investors the option of
purchasing shares (a) subject to a conventional front-end sales charge
("Front-End Load Shares") and (b) without a front-end sales charge but subject
to a contingent deferred sales charge payable by shareholders ("CDSC") and
higher distribution plan fees and transfer agent costs payable by the Alliance
Mutual Funds ("Back-End Load Shares"). If a shareholder purchases Front-End
Load Shares, AFD compensates the financial intermediary distributing the
Alliance Mutual Fund from the front-end sales charge paid by the shareholder at
the time of each sale. If a shareholder purchases Back-End Load Shares, AFD
does not collect a front-end sales charge even though AFD is obligated to
compensate the financial intermediary at the time of each sale. Payments made to
financial intermediaries during 1997 in connection with the sale of Back-End
Load Shares under the System, net of CDSC received, totaled approximately $150.3
million. Management of the Partnership believes AFD will recover the payments
made to financial intermediaries from the higher distribution fees and CDSC it
receives in respect of the Back-End Load Shares over periods not exceeding 5 1/2
years.
The rules of the National Association of Securities Dealers, Inc.
effectively limit the aggregate of all front-end, deferred and asset-based sales
charges paid to AFD with respect to any class of its shares by each open-end
U.S. Fund to 6.25% of cumulative gross sales of shares of that class, plus
interest at the prime rate plus 1% per annum.
The open-end U.S. Funds and Offshore Funds have entered into agreements
with AFD under which AFD is paid a distribution services fee. The Partnership
uses borrowings and its own resources to finance distribution of open-end
Alliance Mutual Fund shares.
The selling and distribution agreements between AFD and the financial
intermediaries that distribute Alliance Mutual Funds are terminable by either
party upon notice (generally of not more than sixty days) and do not obligate
the financial intermediary to sell any specific amount of fund shares. A small
amount of mutual fund sales is made directly by AFD, in which case AFD retains
the entire sales charge.
During 1997 the ten financial intermediaries responsible for the largest
volume of sales of Alliance Mutual Funds were responsible for 67% of the total
sales of Alliance Mutual Funds. Equico Securities, Inc. ("Equico"), a
wholly-owned subsidiary of Equitable that utilizes members of Equitable's
insurance agency sales force as its registered representatives, has entered into
a selected dealer agreement with AFD and since 1986 has been responsible for a
significant portion of total open-end U.S. Fund sales (8% in 1997). Equico is
under no obligation to sell a specific amount of fund shares and also sells
shares of mutual funds sponsored by organizations unaffiliated with Equitable.
Subsidiaries of Merrill Lynch & Co., Inc. (collectively "Merrill Lynch")
were responsible for approximately 19%, 17% and 25% of Alliance Mutual Fund
sales in 1995, 1996 and 1997, respectively. Smith Barney Inc. ("Smith Barney")
was responsible for approximately 8% of Alliance Mutual Fund sales in 1995, 1996
and 1997. Neither Merrill Lynch nor Smith Barney is under any obligation to
sell a specific amount of Alliance Mutual Fund shares and each also sells shares
of mutual funds that it sponsors and which are sponsored by unaffiliated
organizations.
No dealer or agent other than Equico, Merrill Lynch and Smith Barney has in
any year since 1990 accounted for more than 10% of the sales of open-end
Alliance Mutual Funds.
Many of the financial intermediaries that sell shares of Alliance Mutual
Funds also offer shares of funds not managed by the Partnership and frequently
offer shares of funds managed by their own affiliates.
11
Based on market data reported by the Investment Company Institute (January
1997), the Partnership's market share in the U.S. mutual fund industry is 1.10%
of total industry assets and the Partnership accounted for 0.84% of total
open-end and closed-end fund sales-force derived industry sales in the U.S.
during 1997. While the performance of the Alliance Mutual Funds is a factor in
the sale of their shares, there are other factors contributing to success in the
mutual fund management business that are not as important in the institutional
account management business. These factors include the level and quality of
shareholder services (see "Shareholder and Administration Services" below) and
the amounts and types of distribution assistance and administrative services
payments. The Partnership believes that its compensation programs with
financial intermediaries are competitive with others in the industry.
Under current interpretations of the Glass-Steagall Act and other laws and
regulations governing depository institutions, banks and certain of their
affiliates generally are permitted to act as agent for their customers in
connection with the purchase of mutual fund shares and to receive as
compensation a portion of the sales charges paid with respect to such purchases.
During 1997 banks and their affiliates accounted for approximately 5% of the
sales of shares of open-end Alliance Mutual Funds.
INVESTMENT MANAGEMENT AGREEMENTS AND FEES. Investment management fees from
the Alliance Mutual Funds and The Hudson River Trust vary between .20% and 1.80%
per annum of average net assets. As certain of the U.S. Funds have grown, fee
schedules have been revised to provide lower incremental fees above certain
levels. Fees paid by the U.S. Funds and The Hudson River Trust are fixed
annually by negotiation between the Partnership and the board of directors or
trustees of each U.S. Fund and The Hudson River Trust, including a majority of
the disinterested directors or trustees. Changes in fees must be approved by
the shareholders of each U.S. Fund and The Hudson River Trust. In general, the
investment management agreements with the U.S. Funds and The Hudson River Trust
provide for termination at any time upon 60 days' notice.
Under each investment management agreement with a U.S. Fund, the
Partnership provides the U.S. Fund with investment management services, office
space and order placement facilities and pays all compensation of directors or
trustees and officers of the U.S. Fund who are affiliated persons of the
Partnership. Each U.S. Fund pays all of its other expenses. If the expenses of
a U.S. Fund exceed an expense limit established under the securities laws of any
state in which shares of that U.S. Fund are qualified for sale or as prescribed
in the U.S. Fund's investment management agreement, the Partnership absorbs such
excess through a reduction in the investment management fee. Currently, the
Partnership believes that California and South Dakota are the only states to
impose such a limit. The expense ratios for the U.S. Funds during their most
recent fiscal year ranged from .92% to 4.27%. In connection with newly
organized U.S. Funds, the Partnership may also agree to reduce its fee or bear
certain expenses to limit a fund's expenses during an initial period of
operations.
12
CASH MANAGEMENT SERVICES
The Partnership provides cash management services to individual investors
through a product line comprising nineteen money market fund portfolios and
three types of brokered money market deposit accounts. Net assets in these
products as of December 31, 1997 totaled approximately $20.7 billion.
Net Assets as
of December
31, 1997
-------------
(in millions)
Money Market Funds:
Alliance Capital Reserves (two portfolios) . . . . $ 7,548.0
Alliance Government Reserves (two portfolios). . . 4,964.2
Alliance Money Market Fund (three portfolios). . . 3,424.5
Alliance Municipal Trust (eight portfolios). . . . 2,548.9
ACM Institutional Reserves (four portfolios) . . . 1,989.2
Money Market Deposit Accounts (three products). . . . . 240.3
Joint Ventures (1). . . . . . . . . . . . . . . . . . . 26.9
----------
Total . . . . . . . . . . . . . . . . . . . . . . . . .$ 20,742.0
----------
----------
(1) Assets reflect 100% of assets under management by unconsolidated joint
venture subsidiaries.
The Partnership also offers a managed assets program, which provides
customers of participating financial intermediaries with a Visa card, access to
automated teller machines and check writing privileges. The program is linked
to the customer's chosen Alliance money market fund. The program serves to
enhance relationships with financial intermediaries and to attract and retain
investments in the Alliance money market funds, as well as to generate fee
income.
Under its investment management agreement with each money market fund, the
Partnership is paid an investment management fee equal to 0.50% per annum of the
fund's average net assets except for ACM Institutional Reserves which pays a fee
between 0.20% and 0.45% of its average net assets. In the case of Alliance
Capital Reserves and Alliance Government Reserves, the fee is payable at lesser
rates with respect to average net assets in excess of $1.25 billion. For
distribution and account maintenance services rendered in connection with the
sale of money market deposit accounts, the Partnership receives fees from the
participating banks that are based on outstanding account balances. Because the
money market deposit account programs involve no investment management functions
to be performed by the Partnership, the Partnership's costs of maintaining the
account programs are less, on a relative basis, than its costs of managing the
money market funds.
On December 31, 1997 more than 99% of the assets invested in the
Partnership's cash management programs were attributable to regional
broker-dealers and other financial intermediaries, with the remainder coming
directly from the public. On December 31, 1997 more than 500 financial
intermediaries offered the Partnership's cash management services. The
Partnership's money market fund market share (not including deposit products),
as computed based on market data reported by the Investment Company Institute
(December 1997), has increased from 1.17% of total money market fund industry
assets at the end of 1992 to 1.95% at December 31, 1997.
The Partnership makes payments to financial intermediaries for distribution
assistance and shareholder servicing and administration. The Partnership's
money market funds pay fees to the Partnership at annual rates of up to 0.25% of
average daily net assets pursuant to "Rule 12b-1" distribution plans except for
Alliance Money Market Fund which pays a fee of up to 0.45% of its average daily
net assets. Such payments are supplemented by the Partnership in making
payments to financial intermediaries under the distribution assistance and
shareholder servicing and administration program. During 1997 such supplemental
payments totaled $49.0 million ($44.4 million in 1996). There are 7 employees
of the Partnership who devote their time exclusively to marketing the
Partnership's cash management services.
13
A principal risk to the Partnership's cash management services business is
the acquisition of its participating financial intermediaries by companies that
are competitors or that plan to enter the cash management services business. As
of December 31, 1997 the five largest participating financial intermediaries
were responsible for assets aggregating approximately $17.2 billion, or 83% of
the cash management services total.
Many of the financial intermediaries whose customers utilize the
Partnership's cash management services are broker-dealers whose customer
accounts are carried, and whose securities transactions are cleared and settled,
by the Pershing Division ("Pershing") of Donaldson, Lufkin & Jenrette Securities
Corporation ("DLJ Securities Corporation"), a subsidiary of ECI. Pursuant to an
agreement between Pershing and the Partnership, Pershing recommends that certain
of its correspondent firms use of the Partnership's money market funds and other
cash management products. As of December 31, 1997 DLJ Securities Corporation
and these Pershing correspondents were responsible for approximately $11.4
billion or 55% of the Partnership's total cash management assets. Pershing may
terminate its agreement with the Partnership on 180 days' notice. If the
agreement were terminated, Pershing would be under no obligation to recommend or
in any way assist in the sale of the Partnership's cash management products and
would be free to recommend or assist in the sale of competitive products.
The Partnership's money market funds are investment companies registered
under the Investment Company Act and are managed under the supervision of boards
of directors or trustees, which include disinterested directors or trustees who
must approve investment management agreements and certain other matters. The
investment management agreements between the money market funds and the
Partnership provide for an expense limitation of 1% per annum or less of average
daily net assets. See "Alliance Mutual Funds - Investment Management Agreements
and Fees".
SHAREHOLDER AND ADMINISTRATION SERVICES
Alliance Fund Services, Inc. ("AFS"), a wholly-owned subsidiary of the
Partnership, provides registrar, dividend disbursing and transfer agency related
services for each U.S. Fund and provides servicing for each U.S. Fund's
shareholder accounts. As of December 31, 1997 AFS employed 276 people. AFS
operates out of offices in Secaucus, New Jersey. Under each servicing agreement
AFS receives a monthly fee. Each servicing agreement must be approved annually
by the relevant U.S. Fund's board of directors or trustees, including a majority
of the disinterested directors or trustees, and may be terminated by either
party without penalty upon 60 days' notice.
Most U.S. Funds and closed-end funds for which the Partnership acts as
investment manager utilize Partnership personnel to perform legal, clerical and
accounting services not required to be provided by the Partnership. Payments by
a U.S. Fund for these services must be specifically approved in advance by the
U.S. Fund's board of directors or trustees. Currently, the Partnership and AFS
are accruing revenues for providing clerical and accounting services to the U.S.
Funds and these closed-end funds at the rate of approximately $8.6 million per
year.
ACM Fund Services S.A. ("ACMFS"), a wholly-owned subsidiary of the
Partnership, is the registrar and transfer agent of substantially all of the
Offshore Funds. As of December 31, 1997 ACMFS employed 10 people. ACMFS
operates out of offices in Luxembourg and receives a monthly fee for its
registrar and transfer agency services. Each agreement between ACMFS and an
Offshore Fund may be terminated by either party upon 60 days' notice.
The Partnership expects to continue to devote substantial resources to
shareholder servicing because of its importance in competing for assets invested
in mutual funds and cash management services.
YEAR 2000
Many computer systems and applications process transactions using 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
would be processed as year "00", which could result in processing inaccuracies
and inoperability by or at the Year 2000. The Partnership utilizes a number of
significant 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. 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
14
accurately after 1999, the ability of the Partnership to conduct its operations
and to provide its separate account clients and the Alliance Mutual Funds with
the required services could be significantly impaired.
The Partnership began to address the Year 2000 issue several years ago in
connection with the replacement or upgrade of certain computer systems and
applications. During 1997, the Partnership began a formal Year 2000 initiative,
which established a structured and coordinated process to deal with the Year
2000 issue. The Partnership is currently assessing the impact of the Year 2000
issue on its domestic and international computer systems and applications. At
this time, management of the Partnership expects that the required modifications
for the majority of its significant systems and applications will be completed
and tested by the end of 1998. Full integration testing of these systems and
testing of interfaces with third-party suppliers will continue through 1999.
The current estimate of the total cost of this initiative ranges from $35
million to $40 million. These costs consist principally of modification costs
which will be expensed as incurred. At this time, management of the Partnership
believes that the costs associated with resolving this issue will not have a
material adverse effect on the Partnership's results of operations, liquidity or
capital resources.
COMPETITION
The financial services industry is highly competitive and new entrants are
continually attracted to it. No one or small number of competitors is dominant
in the industry. The Partnership is subject to substantial competition in all
aspects of its business. Pension fund, institutional and corporate assets are
managed by investment management firms, broker-dealers, banks and insurance
companies. Many of these financial institutions have substantially greater
resources than the Partnership. The Partnership competes with other providers of
institutional investment products and services primarily on the basis of the
range of investment products offered, the investment performance of such
products and the services provided to clients. Based on an annual survey
conducted by PENSIONS & INVESTMENTS, as of December 31, 1996 the Partnership was
ranked 9th out of 250 managers based on tax-exempt assets under management, 5th
out of the 25 largest managers of international index assets, 7th out of the 25
largest managers of domestic equity index funds and 14th out of the 25 largest
domestic bond index managers.
Many of the firms competing with the Partnership for institutional clients
also offer mutual fund shares and cash management services to individual
investors. Competitiveness in this area is chiefly a function of the range of
mutual funds and cash management services offered, investment performance,
quality in servicing customer accounts and the capacity to provide financial
incentives to financial intermediaries through distribution assistance and
administrative services payments funded by "Rule 12b-1" distribution plans and
the investment adviser's own resources.
CUSTODY AND BROKERAGE
Neither the Partnership nor its subsidiaries maintains custody of client
funds or securities, which is maintained by client-designated banks, trust
companies, brokerage firms or other custodians. Custody of the assets of
Alliance Mutual Funds, The Hudson River Trust and money market funds is
maintained by custodian banks and central securities depositories.
The Partnership generally has the discretion to select the brokers or
dealers to be utilized to execute transactions for client accounts.
Broker-dealers affiliated with ECI and Equitable effect transactions for client
accounts only if the use of the broker-dealers has been specifically authorized
or directed by the client.
REGULATION
The Partnership, Albion Alliance, ACFG and Alliance are investment advisers
registered under the Investment Advisers Act of 1940. Each U.S. Fund is
registered with the Securities and Exchange Commission ("SEC") under the
Investment Company Act and the shares of most U.S. Funds are qualified for sale
in all states in the United States and the District of Columbia, except for U.S.
Funds offered only to residents of a particular state. AFS is registered with
the SEC as a transfer agent and AFD is registered with the SEC as a
broker-dealer. AFD is subject to minimum net capital requirements ($3.8 million
at December 31, 1997) imposed by the SEC on registered broker-dealers and had
aggregate regulatory net capital of $10.6 million at December 31, 1997.
15
The relationships of Equitable and its insurance company subsidiaries with
the Partnership are subject to applicable provisions of the New York Insurance
Law and regulations. Certain of the investment advisory agreements and
ancillary administrative service agreements between Equitable and its insurance
company subsidiaries and the Partnership are subject to disapproval by the New
York Superintendent of Insurance within a prescribed notice period. Under the
New York Insurance Law and regulations, the terms of these agreements are to be
fair and equitable, charges or fees for services performed are to be reasonable,
and certain other standards must be met. Fees must be determined either with
reference to fees charged to other clients for similar services or, in certain
cases, which include the ancillary service agreements, based on cost
reimbursement.
The Partnership's assets under management and revenues derived from the
general accounts of Equitable and its insurance company subsidiaries are
directly affected by the investment policies for the general accounts. Among
the numerous factors influencing general account investment policies are
regulatory factors, such as (i) laws and regulations that require
diversification of the investment portfolios and limit the amount of investments
in certain investment categories such as below investment grade fixed
maturities, equity real estate and equity interests, (ii) statutory investment
valuation reserves, and (iii) risk-based capital guidelines for life insurance
companies approved by the National Association of Insurance Commissioners.
These policies have recently resulted in the shifting of general account assets
managed by the Partnership into categories with lower management fees.
All aspects of the Partnership's business are subject to various federal
and state laws and regulations and to the laws in the foreign countries in which
the Partnership's subsidiaries conduct business. These laws and regulations are
primarily intended to benefit clients and Alliance Mutual Fund shareholders and
generally grant supervisory agencies broad administrative powers, including the
power to limit or restrict the carrying on of business for failure to comply
with such laws and regulations. In such event, the possible sanctions which may
be imposed include the suspension of individual employees, limitations on
engaging in business for specific periods, the revocation of the registration as
an investment adviser, censures and fines.
EMPLOYEES
As of December 31, 1997 the Partnership and its subsidiaries employed 1,670
employees, including 197 investment professionals, of whom 97 are portfolio
managers, 89 are research analysts and 11 are order placement specialists. The
average period of employment of these professionals with the Partnership is
approximately 9 years and their average investment experience is approximately
15 years. The Partnership considers its employee relations to be good.
SERVICE MARKS
The Partnership has registered a number of service marks with the U.S.
Patent and Trademark Office, including an "A" design logo and the combination of
such logo and the words "Alliance" and "Alliance Capital". Each of these
service marks was registered in 1986.
ITEM 2. PROPERTIES
The Partnership's principal executive offices at 1345 Avenue of the
Americas, New York, New York are occupied pursuant to a lease which extends
until 2016. The Partnership currently occupies approximately 290,000 square
feet at this location. The Partnership also occupies approximately 79,700
square feet at 135 West 50th Street, New York, New York under leases expiring in
1998 and 1999. The Partnership also occupies approximately 16,800 square feet
at 709 Westchester Avenue, White Plains, New York under leases expiring in 1999
and 2000, respectively. The Partnership and its subsidiaries, AFD and AFS,
occupy approximately 125,000 square feet of space in Secaucus, New Jersey
pursuant to a lease which extends until 2016.
The Partnership also leases space in San Francisco, California; Chicago,
Illinois; Greenwich, Connecticut; Minneapolis, Minnesota; and Beechwood, Ohio,
and its subsidiaries lease space in Boston, Massachusetts; London, England;
Paris, France; Tokyo, Japan; Sydney, Australia; Toronto, Canada; Luxembourg,
Singapore, Bahrain, Mumbai, India; New
16
Delhi, India; Johannesburg, South Africa and Istanbul, Turkey. Joint venture
subsidiaries of the Partnership have offices in Vienna, Austria; Sao Paolo,
Brazil; Hong Kong, Chennai, India; Seoul, Korea; Warsaw, Poland and Moscow,
Russia.
ITEM 3. LEGAL PROCEEDINGS
On July 25, 1995, a Consolidated and Supplemental Class Action Complaint
("Complaint") was filed against the 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 Funds' investments in
Mexican and Argentine securities. The Complaint, which sought certification of
a plaintiff class of persons who purchased or owned class A, B or C shares of
the Fund from March 27, 1992 through December 23, 1994 sought an unspecified
amount of damages, costs, attorneys' fees and punitive damages. The principal
allegations are that the Fund purchased debt securities issued by the Mexican
and Argentine governments in amounts that were not permitted by the Funds'
investment objective, and that there was no shareholder vote to change the
investment objective to permit purchases in such amounts. The Complaint further
alleged that the decline in the value of the Mexican and Argentine securities
held by the Fund caused the Fund's net asset value to decline to the detriment
of the Fund's shareholders.
On September 26, 1996, the United States District Court for the Southern
District of New York granted the defendants' motion to dismiss all counts of the
Complaint ("First Decision"). On October 11, 1996, plaintiffs filed a motion
for reconsideration of the First Decision. On November 25, 1996, the District
Court denied plaintiffs' motion for reconsideration of the First Decision. On
October 29, 1997, the United States Court of Appeals for the Second Circuit
issued an order granting defendants' motion to strike and dismissing plaintiffs'
appeal of the First Decision.
On October 29, 1996, plaintiffs filed a motion for leave to file an amended
complaint. The principal allegations of the proposed amended complaint are that
(i) the Fund failed to hedge against the risks of investing in foreign
securities 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 July 15, 1997, the District Court denied
plaintiffs' motion for leave to file an amended complaint and ordered that the
case be dismissed ("Second Decision"). The plaintiffs have appealed the Second
Decision to the United States Court of Appeals for the Second Circuit.
The Partnership believes that the allegations in the Complaint and the
amended complaint are without merit and intends to vigorously defend against
these claims. 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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of 1997, a Special Meeting of Limited Partners
and Unitholders of the Partnership was held on December 16, 1997 at 1345 Avenue
of the Americas, New York, New York. The Special Meeting was held to consider
(i) a proposal to approve and adopt the Alliance Capital Management L.P. 1997
Long Term Incentive Plan ("Proposal 1") and (ii) to amend the Alliance Capital
Management L.P. Century Club Plan to increase by 400,000 the number of Units
with respect to which awards may be granted under, and to modify the amendment
procedure of the Century Club Plan ("Proposal 2").
Proposal 1 and Proposal 2 were approved at the Special Meeting. 54,849,186
affirmative votes were cast in favor of Proposal 1, 525,861 votes were cast
against Proposal 1 and 91,386 Units represented at the Special Meeting
abstained from voting in respect of Proposal 1. 54,915,963 affirmative votes
were cast in favor of Proposal 2, 426,654 votes were cast against Proposal 2 and
123,816 Units represented at the Special Meeting abstained from voting in
respect of Proposal 2.
17
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET FOR THE UNITS
The Units are traded on the New York Stock Exchange ("NYSE"). The high and
low sales prices on the NYSE during each quarter of the Partnership's two most
recent fiscal years were as follows:
1997 High Low
---- ---- ---
First Quarter 15 1/8 12
Second Quarter 14 15/16 12
Third Quarter 18 13/16 14 1/2
Fourth Quarter 19 15/16 15 13/32
1996 High Low
---- ---- ---
First Quarter 12 7/8 10 11/16
Second Quarter 12 11/16 11 1/2
Third Quarter 13 1/16 11 7/16
Fourth Quarter 14 5/8 12 1/2
On February 19, 1998, the Partnership declared a two for one Unit split
payable to Unitholders of record on March 11, 1998. The high and low sales
prices above have been adjusted to reflect the Unit split.
On March 1, 1998 the closing price of the Units on the NYSE was $50.125 per
Unit without adjustment for the Unit split. As of March 1, 1998 there were
approximately 1,642 Unitholders of record.
18
CASH DISTRIBUTIONS
The Partnership distributes on a quarterly basis all of its Available Cash
Flow (as defined in the Partnership Agreement). During its two most recent
fiscal years the Partnership made the following distributions of Available Cash
Flow:
Quarter During 1997 With
Respect to Which a Cash
Distribution Was Paid from Amount of Cash
Available Cash Flow for Distribution Per
that Quarter Unit Payment Date
-------------------------- ---------------- ------------
First Quarter $0.30 May 20, 1997
Second Quarter 0.32 August 21, 1997
Third Quarter 0.37 November 28, 1997
Fourth Quarter 0.41 February 24, 1998
-----
$1.40
-----
-----
Quarter During 1996 With
Respect to Which a Cash
Distribution Was Paid from Amount of Cash
Available Cash Flow for Distribution Per
that Quarter Unit Payment Date
-------------------------- ---------------- ------------
First Quarter $0.260 May 28, 1996
Second Quarter 0.265 August 22, 1996
Third Quarter 0.275 November 18, 1996
Fourth Quarter 0.295 March 4, 1997
------
$1.095
------
------
On February 19, 1998 the Partnership declared a two for one Unit split
payable to Unitholders of record on March 11, 1998. The cash distributions per
Unit amounts above have been adjusted to reflect the Unit split.
ITEM 6. SELECTED FINANCIAL DATA
The Selected Consolidated Financial Data which appears on page 40 of the
Alliance Capital Management L.P. 1997 Annual Report to Unitholders is
incorporated by reference in this Annual Report on Form 10-K.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results of
Operations which appears on pages 42 through 51 of the Alliance Capital
Management L.P. 1997 Annual Report to Unitholders is incorporated by reference
in this Annual Report on Form 10-K.
19
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
In January 1997, the SEC released amended Rule 4-08 of Regulation S-X
(General Notes to the Financial Statements), as part of Release No. 33-7386,
requiring additional disclosure with respect to accounting policies followed in
connection with the accounting for derivative financial instruments and
derivative commodity instruments. This disclosure is required for all periods
ending after June 15, 1997, unless a registrant's most recent Form 10-K is in
compliance. The Release also added Item 305 to Regulation S-K to require
quantitative and qualitative disclosures outside the financial statements about
market risk inherent in derivative and other financial instruments. The
requirements of Item 305 become effective for non-bank registrants with market
capitalization in excess of $2.5 billion at January 28, 1997, for filings that
include annual financial statements for periods ending after June 15, 1997. For
registrants with market capitalization under $2.5 billion, the requirements of
Item 305 become effective for filings that include annual financial statements
for periods ending after June 15, 1998. The Partnership believes it is
currently in compliance with amended Rule 4-08 of Regulation S-X. The
Partnership's market capitalization was less than $2.5 billion on January 28,
1997. The requirements of Item 305 will commence with the Partnership's Annual
Report on Form 10-K for the period ended December 31, 1998, at which time the
additional requirements of Item 305 will be addressed.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements of Alliance Capital Management L.P.
and subsidiaries and the report thereon by KPMG Peat Marwick LLP which appear on
pages 52 through 69 of the Alliance Capital Management L.P. 1997 Annual Report
to Unitholders are incorporated by reference in this Annual Report on Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
GENERAL PARTNER
The Partnership's activities are managed and controlled by Alliance as
General Partner and Unitholders do not have any rights to manage or control the
Partnership. The General Partner has agreed that it will conduct no active
business other than managing the Partnership, although it may make certain
investments for its own account.
The General Partner does not receive any compensation from the Partnership
for services rendered to the Partnership as General Partner. The General
Partner holds a 1% general partnership interest in the Partnership. As of March
1, 1997 Equitable, ACMC and ECMC, affiliates of the General Partner, held
48,089,183 Units (including 551,395 Units issuable upon conversion of the Class
A Limited Partnership Interest).
The General Partner is reimbursed by the Partnership for all expenses
incurred by it in carrying out its activities as General Partner, including
compensation paid by the General Partner to its directors and officers (to the
extent such persons are not compensated directly as employees of the
Partnership) and the cost of directors and officers liability insurance obtained
by the General Partner. The General Partner was not reimbursed for any such
expenses in 1997 except for directors' fees and directors and officers liability
insurance.
20
DIRECTORS AND EXECUTIVE OFFICERS OF THE GENERAL PARTNER
The directors and executive officers of the General Partner are as follows:
Name Age Position
---- --- --------
Dave H. Williams 65 Chairman of the Board, Chief
Executive Officer and Director
Luis Javier Bastida 52 Director
Claude Bebear 62 Director
Donald H. Brydon 52 Director
Bruce W. Calvert 51 Director, Vice Chairman and
Chief Investment Officer
John D. Carifa 53 Director, President and Chief
Operating Officer
Henri de Castries 43 Director
Kevin C. Dolan 44 Director
Denis Duverne 45 Director
Alfred Harrison 60 Director and Vice Chairman
Jean-Pierre Hellebuyck 50 Director
Benjamin D. Holloway 73 Director
Joseph J. Melone 66 Director
Edward D. Miller 57 Director
Peter D. Noris 42 Director
Frank Savage 59 Director
Stanley B. Tulin 48 Director
Reba W. Williams 61 Director
Robert B. Zoellick 44 Director
David R. Brewer, Jr. 52 Senior Vice President and
General Counsel
Robert H. Joseph, Jr. 50 Senior Vice President and
Chief Financial Officer
Mr. Williams joined Alliance in 1977 and has been the Chairman of the Board
and Chief Executive Officer since that time. He was elected a Director of
Equitable on March 21, 1991 and was elected to the ECI Board of Directors in May
of 1992. He is also a Senior Executive Vice President of AXA. AXA, ECI and
Equitable are parents of the Partnership. Mr. Williams is the husband of Mrs.
Reba W. Williams, a Director of Alliance.
Mr. Bastida was elected a Director of Alliance in February 1995. He is
Chief Financial Officer and a member of the Executive Committee of Banco Bilbao
Vizcaya, S.A., ("BBV"). Mr. Bastida has been with BBV since 1976. Previous to
that date he worked for General Electric. He is Chairman of Finanzia, the
Specialized Finance subsidiary of BBV and a Director of Privanza, the Private
Bank of the same group.
Mr. Bebear was elected a Director of Alliance in February 1996. In January
1997, Mr. Bebear was appointed Chairman of the Executive Board of AXA. Prior
thereto, he was Chairman and Chief Executive Officer of AXA since February, 1989
and Chief Executive Officer of the AXA Group since 1974. Mr. Bebear serves as
Chairman or Director of numerous subsidiaries and affiliated companies of the
AXA Group. He is also a Director of Saint-Gobain, Schneider S.A., and serves as
a member of the Supervisory Board of Compagnie Financiare de Paribas. Mr.
Bebear has been a Director of ECI since May 1992 and a Director of Equitable
since July 1991. He was elected Chairman of ECI on February 14, 1996 and will
retire from that position on April 1, 1998. AXA, ECI and Equitable are parents
of the Partnership
21
Mr. Brydon was elected a Director of Alliance in May 1997. He is Chairman
and Chief Executive Officer of AXA Investment Managers S.A. Mr. Brydon was
formerly Barclays Group's Deputy Chief Executive of BZW, the investment banking
division of Barclays Plc., and was a member of the Executive Committee of
Barclays. Before joining BZW, Mr. Brydon was the Chief Executive and Chairman
of Barclays de Zoete Wedd Investment Management Ltd. (BZWIM) and had served in
various executive capacities within the Barclays organization including Barclays
Investment Management Ltd. and Barclays Bank. Mr. Brydon serves as director of
Allied Domecq Plc., Nycomed Auersham Plc., Edinburgh UK Index Trust Plc. and
Edinburgh Inca Trust. He also serves as a member of the Executive Committee of
the UK's Institutional Fund Managers Association and is a Member of the Board of
the London Stock Exchange. In addition, Mr. Brydon serves as Advisor of British
Aerospace Pension Fund Investment Management Ltd. and as Regulatory Officer of
IMRO. AXA Investment Managers S.A. is a subsidiary of AXA, a parent of the
Partnership.
Mr. Calvert joined Alliance in 1973 as an equity portfolio manager and was
elected Vice Chairman and Chief Investment Officer on May 3, 1993. From 1986 to
1993 he was an Executive Vice President and from 1981 to 1986 he was a Senior
Vice President. He was elected a Director of Alliance in 1992.
Mr. Carifa joined Alliance in 1971 and was elected President and Chief
Operating Officer on May 3, 1993. He was the Chief Financial Officer from 1973
until 1994. He was an Executive Vice President from 1986 to 1993 and he was a
Senior Vice President from 1980 to 1986. He was elected a Director of Alliance
in 1992.
Mr. de Castries was elected a Director of Alliance in October 1993. He
has been Senior Executive Vice President Financial Services and Life
Insurance Activities of AXA since 1996. Prior thereto he was Executive Vice
President Financial Services and Life Insurance Activities of AXA from 1993
to 1996, General Secretary of AXA from 1991 to 1993 and Central Director of
Finances from 1989 to 1991. Mr. de Castries is also a Director or Officer of
various subsidiaries and affiliates of the AXA Group and a Director of ECI,
Equitable and Donaldson Lufkin & Jenrette, Inc. ("DLJ"). Mr. de Castries was
elected Vice Chairman of ECI on February 14, 1996 and was elected Chairman of
ECI, effective April 1, 1998. AXA, ECI and Equitable are parents of the
Partnership. DLJ is a subsidiary of ECI.
Mr. Dolan was elected a Director of Alliance in May 1995. He is Chief
Executive Officer of AXA Investment Managers Paris, a subsidiary of AXA. Mr.
Dolan has been with AXA since 1993. From 1983 to 1993 Mr. Dolan was Deputy
General Manager of BFCE. AXA is a parent of the Partnership.
Mr. Duverne was elected a Director of Alliance in February 1996. He has
been Senior Vice President - International Life of AXA since 1995. Prior to
that Mr. Duverne was a member of the Executive Committee in charge of Operations
of Banque Colbert from 1992 to 1995. Mr. Duverne was Secretary General of
Compagnie Financiare IBI from 1991 to 1992. Mr. Duverne worked for the French
Ministry of Finance serving as Deputy Assistant Secretary for Tax Policy from
1988 to 1991 and director of the Corporate Taxes Department from 1986 to 1988.
He is also a Director of various subsidiaries of the AXA Group. Mr. Duverne is
also a Director of DLJ and Equitable. AXA and Equitable are parents of the
Partnership. DLJ and Equitable are subsidiaries of ECI.
Mr. Harrison joined Alliance in 1978 and was elected Vice Chairman on May
3, 1993. Mr. Harrison is in charge of the Partnership's Minneapolis office and
is a senior portfolio manager. He was an Executive Vice President from 1986 to
1993 and a Senior Vice President from 1978 to 1986. He was elected a Director of
Alliance in 1992.
Mr. Hellebuyck was elected a Director of Alliance in October 1992. He is
the Vice Chairman of AXA Investment Managers S.A. Mr. Hellebuyck is also a
Director of various subsidiaries of AXA and Societe Des Bourses Francaises. AXA
is a parent of the Partnership.
Mr. Holloway was elected a Director of Alliance in November 1987. He is a
consultant to The Continental Companies. From September 1988 until his
retirement in March 1990, Mr. Holloway was a Vice Chairman of Equitable. He
served as an Executive Vice President of Equitable from 1979 until 1988. Prior
to his retirement he served as a Director and Officer of various Equitable
subsidiaries and Mr. Holloway was also a Director of DLJ until March 1990. Mr.
Holloway was a Director of Rockefeller Center Properties, Inc. and is a Director
Emeritus of The Duke University Management Corporation,
22
Chairman of The Touro National Heritage Trust, a Regent of the Cathedral of St.
John the Divine and a Trustee of Duke University (Emeritus) and the American
Academy in Rome (Emeritus).
Mr. Melone was elected a Director of Alliance in January 1991. Mr. Melone
was elected Chief Executive Officer of ECI on February 14, 1996. He is a
Director and President of ECI, has been Chairman of Equitable since February
1994 and is Senior Executive Vice President of AXA. Mr. Melone will retire from
those positions on April 1, 1998. He was President and Chief Executive Officer
of Equitable from November 1990 until February 1994. Mr. Melone was formerly
Chief Operating Officer of ECI and Chief Executive Officer of Equitable. From
1984 to 1990, he was President of The Prudential Insurance Company of America.
He is also a Director of DLJ, AT&T Capital Corporation and Foster Wheeler
Corporation. AXA, ECI and Equitable are parents of the Partnership.
Mr. Miller was elected a Director of Alliance in November 1997. He is
President and Chief Executive Officer of ECI since August 1997. He was
President of Equitable from August 1997 to January 1998 and has been Chairman of
Equitable since January 1998 and Chief Executive Officer since August 1997. He
is also a Senior Executive Vice President of AXA. From 1995 to 1997, he was
Senior Vice Chairman of Chase Manhattan Corporation. Prior thereto, he was
President of Chemical Bank (which merged with Chase in 1996) from 1994 to 1995
and Vice Chairman from 1991 to 1994. He is also a Director of KeySpan Energy
Corporation, formed as a result of the merger of Long Island Lighting Company
and Brooklyn Union Gas Co. AXA, ECI and Equitable are parents of the
Partnership.
Mr. Noris was elected a Director of Alliance in July 1995. Since 1995 Mr.
Noris has been Executive Vice President and Chief Investment Officer of ECI.
Since 1995 Mr. Noris has been the Executive Vice President and Chief Investment
Officer of Equitable. Prior to that he was Vice President - Investment Strategy
for Salomon Brothers from 1992 to 1995. From 1984 to 1992 Mr. Noris was a
Principal in the Fixed Income and Equity Divisions of Morgan Stanley Group Inc.
ECI and Equitable are parents of the Partnership.
Mr. Savage was elected a Director of Alliance in May 1993. He has been
Chairman of Alliance Capital Management International, a division of the
Partnership, since May 1994. Mr. Savage is a Director of ACFG, a subsidiary of
the Partnership, and was Chairman of ACFG from July 1993 to August 1996. Prior
to this, he was with ECMC, serving as Vice Chairman from June 1986 to April
1992, and Chairman from April 1992 to July 1993. In addition, Mr. Savage is a
Director of Lockheed Martin Corporation, ARCO Chemical Company and Qualcomm Inc.
Mr. Tulin was elected a Director of Alliance in July 1997. He is an
Executive Vice President and Chief Financial Officer of ECI and Vice Chairman
and Chief Financial Officer of Equitable. Mr. Tulin was elected a Director of
DLJ in June 1997. Mr. Tulin was formerly Coopers & Lybrand's Co-Chairman of the
Insurance Industry Practice. Before joining Coopers & Lybrand, Mr. Tulin was
with Milliman and Robertson and from 1983 to 1988, he served as the consulting
actuary to the Rehabilitators of the Baldwin United Corporation Life Company
subsidiaries in rehabilitation. Mr. Tulin is a fellow of the Society of
Actuaries, a member and Treasurer of the American Academy of Actuaries and a
frequent speaker at actuarial and insurance industry conferences. He is a
member of the Board of Directors for the Jewish Theological Seminary, as well as
a member of his local school board. ECI and Equitable are parents of the
Partnership and DLJ is a subsidiary of ECI.
Mrs. Williams was elected a Director of Alliance in October 1993. She is
currently the Director of Special Projects of the Partnership. She serves on
the Boards of Directors of the India Liberalisation Fund, The Spain Fund, The
Austria Fund, The Southern Africa Fund and The Turkish Growth Fund. Mrs.
Williams, who has worked at McKinsey and Company, Inc. and as a securities
analyst at Mitchell, Hutchins, Inc., has a Masters in Business Administration
and a Ph.D. in Art History. Mrs. Williams is the wife of Mr. Dave H. Williams,
Chairman of the Board, Chief Executive Officer and a Director of Alliance.
Mr. Zoellick was elected a Director of Alliance in February 1997. He is
currently the John M. Olin Professor in National Security Affairs at the U.S.
Naval Academy. From 1993 through 1997, Mr. Zoellick was an Executive Vice
President at Fannie Mae, the largest investor in home mortgages in the U.S.
Before joining Fannie Mae, he was Deputy Chief of Staff of the White House and
Assistant to the President from 1992 to 1993. From 1989 to 1992, Mr. Zoellick
was the Counselor of the State Department and later also Under Secretary of
State for Economics. He served as the President's personal representative for
the 1991 and 1992 G-7 Economic Summits. From 1985 to 1988, Mr. Zoellick served
at the Department of Treasury in a number of posts, including Counselor to
Secretary James A. Baker III. He serves on the boards of Jones Intercable and
Said
23
Holdings. Mr. Zoellick also serves on the boards of several non-profit entities
including the Council on Foreign Relations, the German Marshall Fund, the
Eurasia Foundation, the European Institute, the American Council on Germany, the
National Bureau of Asian Research and the Overseas Development Council.
Mr. Brewer joined Alliance in 1987 and has been Senior Vice President and
General Counsel since 1991. From 1987 until 1990 Mr. Brewer was Vice President
and Assistant General Counsel of Alliance.
Mr. Joseph joined Alliance in 1984 and has been Senior Vice President and
Chief Financial Officer since December 1994. He was Senior Vice President and
Controller from 1989 until January 1994 and Senior Vice President-Finance from
January 1994 until December 1994. From 1986 until 1989 Mr. Joseph was Vice
President and Controller of Alliance and from 1984 to 1986 Mr. Joseph was a Vice
President and the Controller of AFS, a subsidiary of the Partnership.
Certain executive officers of Alliance are also directors or trustees and
officers of various Alliance Mutual Funds and The Hudson River Trust and are
directors and officers of certain of the Partnership's subsidiaries.
All directors of the General Partner hold office until the next annual
meeting of the stockholder of the General Partner and until their successors are
elected and qualified. All officers of the General Partner serve at the
discretion of the General Partner's Board of Directors.
The General Partner has an Audit Committee composed of its independent
directors Mr. Holloway and Mr. Zoellick. The Audit Committee reports to the
Board of Directors with respect to the selection and terms of engagement of the
Partnership's independent auditors and reviews various matters relating to the
Partnership's accounting and auditing policies and procedures. The Audit
Committee held four meetings in 1997.
The General Partner has a Board Compensation Committee composed of Messrs.
Williams, Holloway and Melone. The Board Compensation Committee is responsible
for compensation and compensation related matters, including, but not limited
to, responsibility and authority for determining bonuses, contributions and
awards under most employee incentive plans or arrangements, amending or
terminating such plans or arrangements or any welfare benefit plan or
arrangement or adopting any new incentive, fringe benefit or welfare benefit
plan or arrangement. The Option Committee, consisting of Mr. Holloway and Mr.
Zoellick, is responsible for granting options under the Partnership's Unit
Option Plan and 1993 Unit Option Plan. The 1997 Option Committee, consisting of
Messrs. Williams, Holloway, Miller and Zoellick, is responsible for granting
options under the Partnership's 1997 Long Term Incentive Plan. The Unit Option
and Unit Bonus Committee, consisting of Messrs. Holloway and Melone, is
responsible for granting awards under the Partnership's Unit Bonus Plan. The
Board Compensation Committee, Option Committee, Unit Option and Unit Bonus
Committee and 1997 Option Committee consult with a Management Compensation
Committee consisting of Messrs. Williams, Calvert, Carifa and Harrison with
respect to matters within their authority. The Century Club Plan Committee,
consisting of Messrs. Carifa and Michael J. Laughlin, Executive Vice President
of the General Partner and Chairman of the Board of AFD, is responsible for
granting awards under the Partnership's Century Club Plan.
The General Partner pays directors who are not employees of the
Partnership, Equitable or any affiliate of Equitable an annual retainer of
$18,000 plus $1,000 per meeting attended of the Board of Directors and $500 per
meeting of a committee of the Board of Directors not held in conjunction with a
Board of Directors meeting. The Partnership reimburses Messrs. Bastida,
Bebear, Brydon, de Castries, Dolan, Duverne, Hellebuyck, Holloway and Zoellick
for certain expenses incurred in attending Board of Directors' meetings. Other
directors are not entitled to any additional compensation from the General
Partner for their services as directors. The Board of Directors meets
quarterly.
SECTION 16 (a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the General
Partner's directors and executive officers, and persons who own more than 10%
of the Units, to file with the SEC and NYSE initial reports of ownership and
reports of changes in ownership of Units. To the best of the
Partnership's knowledge, during the year ended December 31, 1997 all Section
16(a) filing requirements applicable to its executive officers, directors and
10% beneficial owners were complied with except that during 1997 statements of
changes in beneficial ownership on Form 4 were not filed on a timely basis on
behalf of Messrs. Dave H. Williams, Bruce W. Calvert, Frank Savage and Robert B.
Zoellick.
24
ITEM 11. EXECUTIVE COMPENSATION
The following Summary Compensation Table sets forth all plan and non-plan
compensation awarded to, earned by or paid to the Chairman of the Board and each
of the four most highly compensated executive officers of the General Partner at
the end of 1997 ("Named Executive Officers"):
Long Term Compensation
-----------------------------------
Annual Compensation Awards Payouts
-----------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Other Restricted
Name Annual Stock LTIP All other
And Compen- Award(s) Options/ Payouts Compen-
Principal sation sation
Position Year Salary ($) Bonus ($) ($) (1) ($) (#Units) ($) (1) ($) (2)
- -------- ---- ---------- --------- ------- --- ------- ------- -------
Dave H. Williams 1997 $ 274,976 $ 3,000,000 $ -------- $ 0 0 $ 0 $ 835,027
Chairman & Chief 1996 263,443 4,000,000 -------- 0 0 0 267,568
Executive Officer 1995 225,000 1,000,000 62,595 0 0 0 213,689
John D. Carifa 1997 250,000 4,000,000 -------- 0 0 0 686,979
President & Chief 1996 238,461 3,000,000 54,752 0 0 0 426,398
Operating Officer 1995 200,000 1,000,000 74,822 0 175,000 0 135,191
Bruce Calvert 1997 250,000 4,000,000 -------- 0 0 0 687,532
Vice Chairman & 1996 238,461 3,000,000 -------- 0 0 0 425,101
Chief Investment Officer 1995 200,000 1,000,000 -------- 0 150,000 0 138,048
Robert H. Joseph, Jr. 1997 160,000 494,000 -------- 0 10,000 0 110,335
Senior Vice President & 1996 157,692 385,000 -------- 0 10,000 0 61,434
Chief Financial Officer 1995 150,000 312,500 -------- 0 30,000 0 24,066
David R. Brewer, Jr. 1997 157,692 495,500 104,646 0 10,000 0 110,037
Senior Vice President 1996 146,538 395,750 -------- 0 10,000 0 62,108
& General Counsel 1995 132,692 272,250 136,788 0 20,000 0 22,496
25
(1) Perquisites and personal benefits are not included in column (e) if
the aggregate amount did not exceed the lesser of either $50,000 or 10% of the
total annual salary and bonus reported in columns (c) and (d).
Column (e) for 1997 includes for Mr. Brewer, among other perquisites and
personal benefits, $98,000 representing the dollar value of the difference
between the exercise price and the fair market value of Units acquired as a
result of the exercise of options granted under the Partnership's Unit Option
Plan.
Column (e) for 1996 includes for Mr. Carifa, among other perquisites and
personal benefits, $26,775 representing interest rate subsidies equal to 3% per
annum of the outstanding balances of personal loans obtained by Mr. Carifa from
commercial banks the proceeds of which were used to pay withholding tax
liabilities related to the vesting of Units acquired in 1988 and $7,500, for
personal tax services.
Column (e) for 1995 includes for (i) Mr. Carifa, among other perquisites
and personal benefits, $22,319 representing interest rate subsidies equal to 3%
per annum of the outstanding balances of personal loans obtained by Mr. Carifa
from commercial banks the proceeds of which were used to pay withholding tax
liabilities related to the vesting of Units acquired in 1988, (ii) Messrs.
Williams and Carifa, among other perquisites and personal benefits, $50,100 and
$33,400, respectively, for personal tax services, and (iii) Mr. Brewer, among
other perquisites and personal benefits, $129,562 representing the dollar value
of the difference between the exercise price and the fair market value of Units
acquired as a result of the exercise of options granted under the Partnership's
Unit Option Plan.
(2) Column (i) includes award amounts vested and earnings credited in 1996
and 1997 in respect of the Alliance Partners Compensation Plan. Column (i) does
not include any amounts in respect of awards made in 1997 in respect of the
Alliance Partners Compensation Plan since none of these awards have vested and
no earnings have been credited in respect of these awards. (See "Employee
Benefit Plans - Alliance Partners Compensation Plan").
Column (i) includes the following amounts for 1997 (See "Employee Benefit
Plans - Partners Plan, Capital Accumulation Plan, Profit Sharing Plan and
Alliance Partners Compensation Plan"):
Vesting of Awards Vesting of Awards
Earnings Accrued and Accrued Earnings and Accrued Earnings Profit Sharing Term Life
On Partners Plan Under Capital Under Alliance Partners Plan Insurance
Balances Accumulation Plan Compensation Plan Contribution Premiums Total
-------- ----------------- ----------------- ------------ -------- -----
Dave H. Williams $14,483 $524,287 $242,666 $23,000 $30,591 $835,027
John D. Carifa 5,663 28,145 623,259 23,000 6,912 686,979
Bruce W. Calvert 4,996 29,365 623,259 23,000 6,912 687,532
Robert H. Joseph, Jr. 0 0 83,015 23,000 4,320 110,335
David R. Brewer, Jr. 0 0 83,015 22,769 4,253 110,037
OPTION GRANTS IN 1997
The table below shows information regarding grants of options made to
the Named Executive Officers under the Partnership's Unit Option Plan, 1993 Unit
Option Plan and 1997 Long Term Incentive Plan during 1997. The amounts shown
for each of the Named Executive Officers as potential realizable values are
based on assumed annualized rates of appreciation of five percent and ten
percent over the full ten-year term of the options, which would result in Unit
prices of approximately $64.90 and $103.11, respectively. The amounts shown as
potential realizable values for all Unitholders represent the corresponding
increases in the market value of 83,936,643 outstanding Units held by all
Unitholders as of December 31, 1997, which would total approximately $2.1
billion and $5.4 billion, respectively. No gain to the optionees is possible
without an increase in Unit price which will benefit all Unitholders
proportionately. These potential realizable values are based solely on assumed
rates of appreciation required by applicable SEC regulations. Actual gains, if
any, on option exercises and
26
Unitholdings are dependent on the future performance of the Partnership's Units.
There can be no assurance that the potential realizable values shown in this
table will be achieved.
Option Grants In 1997
Individual Grants (1) Potential Realizable Value at Assumed
Annual Rates of Unit Price
Appreciation for Option Term
------------------------------------------------------------- ----------------------------
% of total
Number of Options
Securities Granted to
Underlying Employees in Exercise
Options Granted Fiscal Year Price Expiration 5% 10%
Name (#) (2) ($/Unit) Date ($) ($)
- --------------------------------------------------------------------------------------------------------------------------
Dave H. Williams 0 N/A N/A N/A N/A N/A
John D. Carifa 0 N/A N/A N/A N/A N/A
Bruce W. Calvert 0 N/A N/A N/A N/A N/A
Robert H. Joseph, Jr. 10,000 N/A 36.9375 12/16/07 232,000 589,000
David R. Brewer, Jr. 10,000 N/A 36.9375 12/16/07 232,000 589,000
- --------------------------------------------------------------------------------------------------------------------------
(1) Options on Units are awarded at the fair market value of Units at the date
of award and become exercisable in 20% increments commencing one year from
such date if the optionee has not died or terminated employment. Such
options lapse at the earliest of ten years after award, three months after
the optionee's normal termination of employment or disability, six months
after the optionee's death, or at the time of the optionee's termination of
employment otherwise than normally.
(2) 1,002,500 Units were subject to outstanding option grants.
27
AGGREGATED OPTION EXERCISES IN 1997 AND 1997 YEAR-END OPTION VALUES
The following table summarizes for each of the Named Executive Officers the
number of options exercised during 1997, the aggregate dollar value realized
upon exercise, the total number of Units subject to unexercised options held at
December 31, 1997, and the aggregate dollar value of in-the-money, unexercised
options held at December 31, 1997. Value realized upon exercise is the
difference between the fair market value of the underlying Units on the exercise
date and the exercise price of the option. Value of unexercised, in-the-money
options at fiscal year-end is the difference between its exercise price and the
fair market value of the underlying Units on December 31, 1997, which was
$39.8125 per Unit. These values, have not been, and may never be, realized.
The underlying options have not been, and may never be, exercised; and actual
gains, if any, on exercise will depend on the value of the Partnership's Units
on the date of exercise. There can be no assurance that these values will be
realized.
Aggregated Option Exercises In 1997
And December 31, 1997 Option Values
-----------------------------------
Number of Units Value of Unexercised
Underlying Unexpired In-the-Money Options
Options Value Options at December 31, 1997 at December 31, 1997 ($) (1)
Exercise Realized ------------------------------------------------------------
Name (# Units) ($) Exercisable Unexercisable Exercisable Unexercisable
- ---------------------------------------------------------------------------------------------------------------------
Dave H. Williams 0 N/A 0 0 0 0
John D. Carifa 0 N/A 190,000 185,000 3,839,375 3,765,313
Bruce W. Calvert 0 N/A 180,000 170,000 3,635,000 3,458,750
Robert H. Joseph, Jr. 0 N/A 51,000 44,000 1,192,438 656,375
David R. Brewer, Jr. 4,000 122,250 74,000 34,000 1,991,000 454,000
- ---------------------------------------------------------------------------------------------------------------------
(1) In-the-Money Options are those where the fair market value of the
underlying Units exceeds the exercise price of the option. The Named
Executive Officers hold no other options in respect of the Units.
COMPENSATION AGREEMENTS WITH CERTAIN EXECUTIVE OFFICERS
In connection with Equitable's 1985 acquisition of DLJ, the former parent
of ACMC, ACMC entered into employment agreements with Messrs. Williams, Carifa
and Calvert. Each agreement provided for deferred compensation payable in
stated monthly amounts for ten years commencing at age 65, or earlier in a
reduced amount in the event of disability or death, if the individual involved
so elects. The right to receive such deferred compensation is vested. Assuming
payments commence at age 65, the annual amount of deferred compensation payable
for ten years to Messrs. Williams, Carifa and Calvert is $378,900, $522,036, and
$434,612, respectively. While the Partnership assumed responsibility for
payment of these deferred compensation obligations, ACMC and Alliance are
required, subject to certain limitations, to make capital contributions to the
Partnership in an amount equal to the payments, and ACMC is also obligated to
the employees for the payments. ACMC's obligations to make capital
contributions to the Partnership are guaranteed, subject to certain limitations,
by Equitable Investment Corporation ("EIC"), a wholly-owned subsidiary of
Equitable, the parent of Alliance.
28
EMPLOYEE BENEFIT PLANS
UNIT OPTION PLAN. Pursuant to the Partnership's Unit Option Plan key
employees of the Partnership and its subsidiaries, other than Messrs. Williams,
Harrison, Carifa and Calvert, may be granted options to purchase up to 4,923,076
Units. Options may be granted only to employees who the Option Committee of the
General Partner, consisting of Mr. Holloway and Mr. Zoellick which administers
the Plan, after obtaining recommendations from the Management Compensation
Committee, determines materially contribute, or are expected to materially
contribute, to the growth and profitability of the Partnership's business. The
number of options to be granted to any employee is to be determined in the
discretion of the Board Compensation Committee. Options may be granted with
terms of up to ten years, and an employee's right to exercise each option will
vest at a rate no faster than 20% per year commencing on the first anniversary
of the date of grant. Each option will have an exercise price no less than the
fair market value of the Units subject to option at the time the option is
granted, payable in cash. Generally, options may only be exercisable while the
optionee is employed by the Partnership. Options may not be granted under the
Unit Option Plan after ten years from its adoption. See "Option Grants in 1997
and "Aggregated Option Exercises in 1997 and 1997 Year-End Option Values."
1993 UNIT OPTION PLAN. Pursuant to the Partnership's 1993 Unit Option Plan
key employees of the Partnership and its subsidiaries may be granted options to
purchase Units. The aggregate number of Units that may be the subject of
options granted or awarded under the 1993 Unit Option Plan, the Unit Bonus Plan
and the Century Club Plan may not exceed 3,200,000 Units ("Overall Limitation").
In addition the maximum aggregate number of Units that may be the subject of
options granted or awarded under the 1993 Unit Option Plan, the Unit Bonus Plan
and the Century Club Plan in any of the years ended July 22, 1994, 1995, 1996
and 1997 may not exceed 800,000 Units ("Annual Limitation"). The maximum number
of Units that may otherwise be the subject of options granted under the 1993
Unit Option Plan will be increased by the number of Units tendered to the
Partnership by employees in payment of either the exercise price or withholding
tax liabilities. Options may be granted only to employees who the Option
Committee of the General Partner, which administers the Plan, after obtaining
recommendations from the Management Compensation Committee, determines
materially contribute, or are expected to materially contribute, to the growth
and profitability of the Partnership's business. Options may be granted with
terms of up to ten years, and an employee's right to exercise each option will
vest at a rate no faster than 20% per year commencing on the first anniversary
of the date of grant. Each option will have an exercise price no less than the
fair market value of the Units subject to the option at the time the option is
granted, payable in cash. Generally, options may only be exercisable while the
optionee is employed by the Partnership or one of its subsidiaries. Options may
not be granted under the 1993 Unit Option Plan after ten years from its
adoption. See "Option Grants in 1997" and "Aggregated Option Exercises in 1997
and 1997 Year-End Option Values."
1997 LONG TERM INCENTIVE PLAN. Pursuant to the 1997 Long Term Incentive
Plan key employees of the Partnership and its subsidiaries and Directors of the
General Partner may be granted options to purchase Units, restricted Units,
phantom restricted Units, performance awards denominated in Units and other Unit
based awards. The maximum number of Units with respect to which awards may be
granted under the 1997 Long Term Incentive Plan may not exceed 8,000,000. To
date, the Board of Directors has only authorized the granting of Unit options.
Options may be granted for terms of up to ten years and a grantee's right to
exercise each option will vest at a rate no faster than 20% each year commencing
on the first anniversary of the date of grant. Each option will have an
exercise price no less than the fair market value of the Units subject to the
option at the time the option is granted. The Board of Directors has authorized
the 1997 Option Committee, consisting of Messrs. Williams, Holloway, Miller and
Zoellick, to administer the 1997 Long Term Incentive Plan in respect of options.
"See Option Grants in 1997" and "Aggregated Option Exercises in 1997 and 1997
Year End Option Values".
PROFIT SHARING PLAN. The Partnership maintains a qualified defined
contribution profit sharing plan covering most employees of the Partnership who
have attained age 21 and completed one year of service. Annual contributions
are determined by the Board of Directors in its sole discretion and are
allocated among participants who are employed by a participating employer on the
last business day of the calendar year involved by crediting each participant
with the same proportion of the contribution as the participant's base
compensation bears to the total base compensation of all participants. The plan
provides for a 401(k) salary reduction election under which the Partnership may
match a participant's election to reduce up to 5% of base salary. A
participant's interest in the plan is 100% vested after the participant has
completed three years of service although account balances deriving from salary
reductions are 100% vested at all times. The Partnership's contributions under
the plan for a given year may not exceed 15% of the aggregate compensation paid
to all participants for that year. Contributions to a participant's plan
account (including contributions made by a participant) for a particular year
29
may not exceed 25% of the participant's compensation for that year or $30,000,
whichever is less. The amount of the benefits ultimately distributed to an
employee is dependent on the investment performance of the employee's account
under the plan. Distribution of vested account balances under the plan is made
upon termination of employment either in a lump sum or in installments for a
specific period of years. If a participant dies prior to termination of his
employment, the entire value of his account is paid to the participant's
beneficiary. For 1997 vested contributions to the plan for the accounts of
Messrs. Williams, Carifa, Calvert, Joseph and Brewer were $23,000, $23,000,
$23,000, $23,000 and $22,769, respectively. These amounts are included in
column (i) of the Summary Compensation Table.
RETIREMENT PLAN. The Partnership maintains a qualified, non-contributory,
defined benefit retirement plan covering most employees of the Partnership who
have completed one year of service and attained age 21. Employer contributions
are determined by application of actuarial methods and assumptions to reflect
the cost of benefits under the plan. Each participant's benefits are determined
under a formula which takes into account years of credited service, the
participant's average compensation over prescribed periods and Social Security
covered compensation. The maximum annual benefit payable under the plan may not
exceed the lesser of $100,000 or 100% of a participant's average aggregate
compensation for the three consecutive years in which he received the highest
aggregate compensation from the Partnership or such lower limit as may be
imposed by the Internal Revenue Code on certain participants by reason of their
coverage under another qualified plan maintained by the Partnership. A
participant is fully vested after the completion of five years of service. The
plan generally provides for payments to or on behalf of each vested employee
upon such employee's retirement at the normal retirement age provided under the
plan or later, although provision is made for payment of early retirement
benefits on an actuarially reduced basis. Normal retirement age under the plan
is 65. Death benefits are payable to the surviving spouse of an employee who
dies with a vested benefit under the plan.
The table below sets forth with respect to the retirement plan the
estimated annual straight life annuity benefits payable upon retirement at
normal retirement age for employees with the remuneration and years of service
indicated.
Estimated Annual Benefits
-------------------------------------------------------------------------------------------------
Average Final Years of Service at Retirement
-------------------------------------------------------------------------------------------------
Compensation 15 20 25 30 35 40 45
$100,000 $19,465 $25,953 $32,442 $38,930 $45,418 $50,418 $55,418
150,000 30,715 40,953 51,192 61,430 71,668 79,168 86,668
200,000 41,965 55,953 69,942 83,930 97,918 100,000 100,000
250,000 53,215 70,953 88,692 100,000 100,000 100,000 100,000
300,000 64,465 85,953 100,000 100,000 100,000 100,000 100,000
Assuming they are employed by the Partnership until age 65, the credited
years of service under the plan for Messrs. Williams, Carifa, Calvert, Joseph
and Brewer would be 20, 40, 38, 28 and 22, respectively. Compensation on which
plan benefits are based includes only base compensation and not bonuses,
incentive compensation, profit-sharing plan contributions or deferred
compensation. The compensation for calculation of plan benefits for each of
these five individuals for 1997 is $160,000, $160,000, $160,000, $160,000 and
$150,000, respectively.
UNIT BONUS PLAN. Pursuant to the Partnership's Unit Bonus Plan the Unit
Option and Unit Bonus Committee may award Units to key employees of the
Partnership and its subsidiaries. The aggregate number of Units that may be the
subject of awards or grants under the Unit Bonus Plan, the 1993 Unit Option Plan
and the Century Club Plan may not exceed the Overall Limitation and the maximum
aggregate number of Units that may be the subject of awards or grants under the
Unit Bonus Plan, the 1993 Unit Option Plan and the Century Club Plan in any of
the years ended July 22, 1994, 1995, 1996 and 1997 may not exceed the Annual
Limitation. The number of Units that may otherwise be awarded under the Unit
Bonus Plan will increase by the number of Units tendered to the Partnership in
payment of withholding tax liabilities in respect of Unit Bonus Plan awards.
Units awarded under the Unit Bonus Plan may be vested or unvested (i.e., subject
to forfeiture) at the time of award. Unvested Units will vest or become
nonforfeitable in accordance with the conditions specified by the Board
Compensation Committee at the time of award.
30
CENTURY CLUB PLAN. Pursuant to the Partnership's Century Club Plan up to
600,000 Units may be awarded to employees of AFD or another subsidiary of the
Partnership who attain certain sales targets or sales criteria determined by the
Century Club Committee. The maximum aggregate number of Units that may be
awarded under the Century Club Plan, the 1993 Unit Option Plan and the Unit
Bonus Plan may not exceed the Overall Limitation and the maximum aggregate
number of Units that may be awarded under the Century Club Plan, the 1993 Unit
Option Plan and the Unit Bonus Plan in any of the years ended July 22, 1994,
1995, 1996 and 1997 may not exceed that Annual Limitation. Units awarded under
the Century Club Plan may be vested or unvested (i.e., subject to the
forfeiture) at the time of award. Unvested Units will vest or become
nonforfeitable in accordance with the conditions specified by the Century Club
Committee at the time of award.
None of the Named Executive Officers is eligible to receive an award under
the Century Club Plan.
ALLIANCE PARTNERS COMPENSATION PLAN. During 1995 the Partnership
established a nonqualified, unfunded deferred compensation program known as the
Alliance Partners Compensation Plan ("Partners Compensation Plan") under which
certain eligible employees are granted awards by the Management Compensation
Committee. The awards consist of cash amounts which are generally credited with
earnings based on the Partnership's earnings growth rate. The Partners
Compensation Plan is administered by the Management Compensation Committee which
determines the recipients of awards and the amount of awards. The Board of
Directors of the General Partner may terminate the Partners Compensation Plan at
any time without cause in which case the Partnership's liability would be
limited to the payment of vested awards. All awards granted in 1995 vest over
three years and all awards granted in 1996 and subsequent years vest over eight
years to the extent the grantee remains employed by the Partnership during such
three or eight year period. Payment of vested benefits generally will be made
in cash over a five year period commencing at retirement. The amount awarded in
1997 under the Partners Compensation Plan was $21,725,000 and for 1998 the
Partnership may award 5% of operating revenues less operating expenses under the
Partners Compensation Plan. Messrs. Carifa, Calvert, Joseph and Brewer were
granted awards of $1,500,000, $1,500,000, $325,000 and $325,000, respectively,
under the Partners Compensation Plan for 1997. These amounts are not included
in column (i) of the Summary Compensation Table since none of these awards have
vested and no earnings have been credited in respect of the awards.
PARTNERS PLAN. Since 1983 a nonqualified, unfunded deferred compensation
program known as the Partners Plan has been maintained under which certain key
employees received incentive awards pursuant to a formula set each year by the
Management Compensation Committee. No awards have been or will be made under
the Partners Plan for any year after 1987. All awards are fully vested. Unless
accelerated, award account balances generally are distributed upon resignation,
retirement, disability or death. The Board of Directors of the General Partner
has the right to accelerate vesting and make distributions of up to 90% of a
participant's account balance if the key employee agrees to extend the term of
his employment for a period of at least one year. Until distributed, the awards
are credited with interest based on prevailing market rates plus, for the years
prior to 1989, a premium if the Partnership's earnings growth rate exceeded
certain levels. Interest credited during 1997 for the accounts of Messrs.
Williams, Carifa and Calvert was $14,483, $5,663 and $4,996, respectively.
These amounts are included in column (i) of the Summary Compensation Table. No
amounts were distributed under the Partners Plan for any of the Named Executive
Officers in 1997.
CAPITAL ACCUMULATION PLAN. Since 1985 a nonqualified, unfunded deferred
compensation program known as the Capital Accumulation Plan has been maintained
to provide retirement benefits for key employees and their beneficiaries which
supplement their benefits under the Retirement Plan described above. Under this
plan, at the end of 1985, 1986 and 1987, awards were made for each participant,
selected on the basis of performance by the Management Compensation Committee,
equal to a percentage of the participant's base salary and the participant's
discretionary bonus for the year. The amount awarded was credited to the
participant's account on the Partnership's books to which interest is thereafter
credited, until distributed or forfeited, based on prevailing market rates. A
participant's account balance vests based on the participant's years in the plan
with no vesting for zero to four years of participation, 30% vesting after five
to seven years with gradually increased vesting thereafter ranging to 87% after
35 years of participation and 100% vesting at age 65 or death. Upon termination
of employment other than by reason of permanent disability or death, the
participant's vested account balance is to be paid out in ten equal annual
installments. In the event of permanent disability, the participant is to
receive the higher of the vested balance at the time of disability or 50% of the
total balance at the time of disability, in either case payable in ten equal
annual installments. In the event of death, the participant's beneficiary is to
receive the higher of (i) the participant's account balance paid in ten equal
annual installments together with interest or (ii) annually 50% of the
participant's total cash
31
compensation for the year prior to the year of the participant's death payable
until the participant would have attained age 65, but in no event for less than
ten years.
While the Partnership is responsible for the payment of all obligations
under the plan, ACMC and Alliance are required, subject to certain limitations,
to make capital contributions to the Partnership in an amount equal to the
payments. ACMC's obligations are guaranteed, subject to certain limitations, by
EIC. No additional awards will be made under this plan, but employees will
continue to vest in their existing account balances and to be credited with
interest at prevailing market rates on balances. A participant's total cash
compensation for 1987 increased by 5% per year, compounded annually, will be
considered his total cash compensation for purposes of determining the amount of
any death benefits payable in respect of the participant. The Board of
Directors of the General Partner intends to cancel this plan if tax legislation
is enacted which adversely affects certain benefits derived by ACMC from
insurance on the lives of certain of the Partnership's employees purchased in
connection with the plan. If the plan is cancelled, the Board of Directors of
the General Partner may, at its option, either pay each participant his then
vested account balance or continue to maintain the account balances for vesting
and distribution as described above as if the plan had not terminated, provided
that in such event no death benefit based on a participant's total cash
compensation will be paid. The plan account balances which became vested during
1997 for the accounts of Messrs. Williams, Carifa and Calvert were $524,287,
$28,145 and $29,365, respectively. These amounts are included in column (i) of
the Summary Compensation Table.
DEFERRAL PLAN. Under this plan, certain employees of the Partnership may
elect to defer for at least one year the receipt of base or bonus compensation
otherwise payable in a given year to January 31 of the year selected. Interest
is credited at prevailing market rates on the amounts deferred under this plan
until paid. In certain cases, 10% of a deferred amount is subject to forfeiture
if the employee's employment terminates prior to the January 31 payment date for
any reason other than death or disability. There was no compensation deferred
from 1997 to a subsequent year for the Named Executive Officers. During 1997
there were no payments of previously deferred compensation to or interest
credited on amounts deferred by any of the Named Executive Officers.
DLJ PLANS. Prior to Equitable's 1985 acquisition of DLJ, certain employees
of the Partnership participated in various DLJ employee benefit plans and
arrangements. Since the acquisition, no employer contributions or awards have
been made, nor in the future are any employer contributions or awards to be
made, under these plans or arrangements for any employee of the Partnership. No
deferral of compensation earned by any such employee for services rendered since
the acquisition has been permitted under any such plan or arrangement. The
Partnership has no liability for and will not bear the cost of any benefits
under these plans and arrangements.
In 1983 DLJ adopted an Executive Supplemental Retirement Program under
which certain employees of the Partnership deferred a portion of their 1983
compensation in return for which DLJ agreed to pay each of them a specified
annual retirement benefit for 15 years beginning at age 65. Benefits are based
upon the participant's age and the amount deferred and are calculated to yield
an approximate 12.5% annual compound return. In the event of the participant's
disability or death, an equal or lesser amount is to be paid to the participant
or his beneficiary. After age 55, participants the sum of whose age and years
of service equals 80 may elect to have their benefits begin in an actuarially
reduced amount before age 65. DLJ has funded its obligation under the Program
through the purchase of life insurance policies.
The following table shows as to the Named Executive Officers who are
participants in the Plan the estimated annual retirement benefit payable at age
65. Each of these individuals is fully vested in the applicable benefit.
Estimated Annual
Name Retirement Benefit
---- ------------------
Dave H. Williams $ 41,825
John D. Carifa 114,597
Bruce W. Calvert 145,036
32
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
PRINCIPAL SECURITY HOLDERS
The Partnership has no information that any person beneficially owns more
than 5% of the outstanding Units except (i) Equitable, ACMC and ECMC,
wholly-owned subsidiaries of ECI, and (ii) as reported on Amendment No. 5 to
Schedule 13D dated September 4, 1997, filed with the SEC by AXA and certain of
its affiliates pursuant to the Securities Exchange Act of 1934. The following
table and notes have been prepared in reliance upon such filing for the nature
of ownership and an explanation of overlapping ownership.
Amount and Nature of
Beneficial
Name and Address of Ownership Reported on Percent
Beneficial Owner Schedule of Class
---------------- -------- --------
AXA (1)(2)(3) 48,111,283 (4) 57.2%
9 place Vendome,
75001 Paris,
France
ECI (3)
1290 Avenue of the Americas,
New York, NY 10019 48,111,283 (4) 57.2%
(1) At March 1, 1998, AXA and certain of its subsidiaries beneficially owned
approximately 59.0% of ECI's outstanding common stock. At that date, based
on information provided by AXA, approximately (i) 21.4% of the issued
ordinary shares (representing 30.2% of the voting power) of AXA were
controlled directly and indirectly by Finaxa, a French holding company, and
(ii) 62.0% of the shares (representing 74.0% of the voting power) of Finaxa
were owned by four French mutual insurance companies (the "Mutuelles AXA").
For insurance regulatory purposes the shares of capital stock of ECI
beneficially owned by AXA and its subsidiaries have been deposited into a
voting trust which has an initial term of 10 years ("Voting Trust")
commencing May 12, 1992. The trustees of the Voting Trust (the "Voting
Trustees") are Claude Bebear, Patrice Garnier and Henri de
Clermont-Tonnerre. The Voting Trustees have agreed to exercise their
voting rights to protect the legitimate economic interests of AXA, but with
a view to ensuring that certain minority shareholders of AXA do not
exercise control over ECI or certain of its insurance subsidiaries.
(2) The Voting Trustees may be deemed to be beneficial owners of all Units
beneficially owned by AXA and its subsidiaries. In addition, the Mutuelles
AXA, as a group, and Finaxa may be deemed to be beneficial owners of all
Units beneficially owned by AXA and its subsidiaries. By virtue of the
provisions of the Voting Trust Agreement, AXA may be deemed to have shared
voting power with respect to the Units. AXA and its subsidiaries have the
power to dispose or direct the disposition of all shares of the capital
stock of ECI deposited in the Voting Trust. By reason of their
relationship with AXA, the Mutuelles AXA, as a group, and Finaxa may be
deemed to share the power to vote or to direct the vote to dispose or to
direct the disposition of all the Units beneficially owned by AXA and its
subsidiaries. The address of each of AXA and the Voting Trustees is 9
place Vendome, 75001 Paris, France. The address of Finaxa is 23 avenue
Matignon, 75008 Paris, France. The addresses of the Mutuelles AXA are as
follows: The address of each of AXA Assurances Vie Mutuelle and AXA
Assurances I.A.R.D. Mutuelle is 21 rue de Chateaudun, 75009 Paris, France;
the address of Alpha Assurances Vie Mutuelle is Tour Franklin, 100/101
Terrasse Boildieu, Cedex 11, 92042 Paris Las Defense, France; and the
address of AXA Courtage Assurance Mutuelle is 26 rue Louis-le Grand, 75002
Paris, France. The address of Banque Paribas (which, at March 1, 1998,
owned approximately 23.1% of the shares representing 14.4% of the voting
power of Finaxa) is 3 rue d'Antin, Paris, France.
33
(3) By reason of their relationship, AXA, the Voting Trustees, ECI, Equitable,
Equitable Holding Corporation, Equitable Investment Corporation ("EIC"),
ACMC, ECMC, the Mutuelles AXA and FINAXA may be deemed to share the power
to vote or to direct the vote or to dispose or direct the disposition of
all or a portion of the 48,111,283 Units.
(4) Includes 551,395 Units which are issuable upon conversion of the Class A
Limited Partnership Interest held by ECMC.
MANAGEMENT
The following table sets forth, as of March 1, 1998, the beneficial ownership of
Units by each director and each Named Executive Officer of the General Partner
and by all directors and executive officers of the General Partner as a group:
Name of Number of Units and Nature Percent of
Beneficial Owner of Beneficial Ownership Class
- ---------------- ----------------------- -----
Dave H. Williams (1)(2) 944,456 1.1%
Luis Javier Bastida 0 *
Claude Bebear (1) 0 *
Donald H. Brydon (1) 0 *
Bruce W. Calvert (1) (3) 749,000 *
John D. Carifa(1) (4) 1,027,568 1.2%
Henri de Castries (1) 0 *
Kevin C. Dolan (1) 0 *
Denis Duverne (1) 0 *
Alfred Harrison 365,410 *
Jean-Pierre Hellebuyck (1) 0 *
Benjamin D. Holloway 5,800 *
Joseph J. Melone (1) 5,000 *
Edward D. Miller (1) 0 *
Peter D. Noris 1,000 *
Frank Savage 50,500 *
Stanley B. Tulin (1) 0 *
Reba W. Williams (1)(5) 944,456 *
Robert B. Zoellick 300 *
David R. Brewer, Jr. (1)(6) 121,154 *
Robert H. Joseph, Jr. (1) (7) 65,000 *
All Directors and executive officer 3,335,188 3.9%
of the General Partner as a Group (21 persons)(8)
* Number of Units listed represents less than 1% of the Units outstanding.
(1) Excludes Units beneficially owned by AXA and ECI. Messrs. Williams,
Bebear, Brydon, de Castries, Dolan, Duverne, Hellebuyck, Melone, Miller,
Noris and Tulin are directors and/or officers of AXA, ECI and/or Equitable.
Messrs. Calvert, Carifa, Harrison, Savage, Brewer, Joseph and Mrs. Reba W.
Williams are directors and/or officers of ACMC.
(2) Includes 80,000 Units owned by Mrs. Reba W. Williams.
(3) Includes 205,000 Units which may be acquired within 60 days under the
Partnership's 1993 Unit Option Plan.
(4) Includes 220,000 Units which may be acquired within 60 days under the
Partnership's 1993 Unit Option Plan.
(5) Includes 864,456 Units owned by Mr. Dave H. Williams.
34
(6) Includes 76,000 Units which may be acquired within 60 days under the
Partnership's Unit Option Plan and 1993 Unit Option Plan.
(7) Includes 55,000 Units which may be acquired within 60 days under the
Partnership's Unit Option Plan and 1993 Unit Option Plan.
(8) Includes 556,000 Units which may be acquired within 60 days under the
Partnership's Unit Option Plan and 1993 Unit Option Plan.
The following tables set forth, as of March 1, 1998, the beneficial
ownership of the common stock of ECI, AXA and Finaxa by each director and each
Named Executive Officer of the General Partner and by all directors and
executive officers of the General Partner as a group:
ECI COMMON STOCK
Name of Number of Shares and Nature Percent of
Beneficial Owner of Beneficial Ownership Class
- ---------------- -------------------- -----
Dave H. Williams (1)(2) 80,000 *
Luis Javier Bastida 0 *
Claude Bebear (2) 0 *
Donald H. Brydon (2) 0 *
Bruce W. Calvert (3) 40,000 *
John D. Carifa (4) 40,000 *
Henri de Castries (2) 0 *
Kevin C. Dolan (2) 0 *
Denis Duverne (2) 2,000 *
Alfred Harrison 0 *
Jean-Pierre Hellebuyck (2) 0 *
Benjamin D. Holloway 108 *
Joseph J. Melone (2)(5) 342,156 *
Edward D. Miller 0 *
Peter D. Noris (6) 60,000 *
Frank Savage 136 *
Stanley B. Tulin 44,121 *
Reba W. Williams (1) 80,000 *
Robert B. Zoellick 0 *
David R. Brewer, Jr. 0 *
Robert H. Joseph, Jr. 0 *
All Directors and executive officers 608,521 *
of the General Partner as a Group (21 Persons)(7)
* Number of shares listed represents less than one percent (1%) of the number
of shares of Common Stock outstanding.
(1) Represents 80,000 shares subject to options held by Mr. Williams, which
options Mr. Williams has the right to exercise within 60 days.
(2) Excludes shares beneficially owned by AXA. Messrs. Williams, Bebear,
Brydon, de Castries, Dolan, Duverne, Hellebuyck, Melone and Miller are
officers of AXA.
(3) Represents 40,000 shares subject to options held by Mr. Calvert, which
options Mr. Calvert has the right to exercise within 60 days.
(4) Represents 40,000 shares subject to options held by Mr. Carifa, which
options Mr. Carifa has the right to exercise within 60 days.
(5) Includes 340,000 shares subject to options held by Mr. Melone, which
options Mr. Melone has the right to exercise within 60 days.
35
(6) Represents 60,000 shares subject to options held by Mr. Noris, which
options Mr. Noris has the right to exercise within 60 days.
(7) Represents 560,000 shares subject to options, which options my be exercised
within 60 days.
AXA COMMON STOCK
Name of Number of Shares and Nature Percent of
Beneficial Owner of Beneficial Ownership Class
- ---------------- ----------------------- -----
Dave H. Williams 0 *
Luis Javier Bastida 0 *
Claude Bebear (1) 498,961 *
Donald H. Brydon 0 *
Bruce W. Calvert 0 *
John D. Carifa 500 *
Henri de Castries (2) 46,063 *
Kevin C. Dolan (3) 13,520 *
Denis Duverne (4) 1,042 *
Alfred Harrison 0 *
Jean-Pierre Hellebuyck (5) 33,207 *
Benjamin D. Holloway 0 *
Joseph J. Melone 1,000 *
Edward D. Miller 0 *
Peter D. Noris 250 *
Frank Savage 0 *
Stanley B. Tulin 0 *
Reba W. Williams 0 *
Robert B. Zoellick 0 *
David R. Brewer, Jr. 0 *
Robert H. Joseph, Jr. 0 *
All Directors and executive officers 594,543 *
of the General Partner as a Group (21 persons)(6)
* Number of shares listed represents less than one percent (1%) of the
outstanding AXA common stock. Each AXA American Depositary Share is
equivalent to one-half of a share of AXA Common Stock. Holdings of AXA
American Depositary Shares are expressed as their equivalent in AXA common
stock.
(1) Includes 23 shares owned by Mr. Bebear's wife, and 285,568 shares subject
to options held by Mr. Bebear, which options Mr. Bebear has the right to
exercise within 60 days.
(2) Includes 45,063 shares subject to options held by Mr. de Castries, which
options Mr. de Castries has the right to exercise within 60 days.
(3) Includes 13,520 shares subject to options held by Mr. Dolan, which options
Mr. Dolan has the right to exercise within 60 days.
(4) Includes 1,000 shares held jointly with Mr. Duverne's wife and 42 shares
owned by Mr. Duverne's children.
(5) Includes 27,038 shares subject to options held by Mr. Hellebuyck, which
options Mr. Hellebuyck has the right to exercise within 60 days and 375
shares into which certain notes held by Mr. Hellebuyck are convertible
presently or within 60 days.
(6) Includes 371,564 shares subject to options, which options may be exercised
within 60 days.
36
FINAXA COMMON STOCK
Name of Number of Shares and Nature Percent of
Beneficial Owner of Beneficial Ownership Class
- ---------------- ----------------------- -----
Dave H. Williams 0 *
Luis Javier Bastida 0 *
Claude Bebear (1) 636,065 *
Donald H. Brydon 0 *
Bruce W. Calvert 0 *
John D. Carifa 0 *
Henri de Castries (2) 97,500 *
Kevin C. Dolan 0 *
Denis Duverne 0 *
Alfred Harrison 0 *
Jean-Pierre Hellebuyck 0 *
Benjamin D. Holloway 0 *
Joseph J. Melone 0 *
Edward D. Miller 0 *
Peter D. Noris 0 *
Frank Savage 0 *
Stanley B. Tulin 0 *
Reba W. Williams 0 *
Robert B. Zoellick 0 *
David R. Brewer, Jr. 0 *
Robert H. Joseph, Jr. 0 *
All Directors and executive officers 733,565 *
of the General Partner as a Group (21 persons)(3)
* Number of shares listed represents less than one percent (1%) of the
outstanding Finaxa common stock.
(1) Includes 434,445 shares owned by Clauvalor, a French company controlled by
Mr. Bebear, and 201,612 shares subject to options held by Mr. Bebear, which
options Mr. Bebear has the right to exercise within 60 days.
(2) Represents 97,500 shares subject to options held by Mr. de Castries, which
options Mr. de Castries has the right to exercise within 60 days.
(3) Includes 299,112 shares subject to options, which options may be exercised
within 60 days.
37
The General Partner makes all decisions relating to the management of the
Partnership. The General Partner has agreed that it will conduct no business
other than managing the Partnership, although it may make certain investments
for its own account. Conflicts of interest, however, could arise between the
General Partner and the Unitholders.
Section 17-403(b) of the Delaware Revised Uniform Limited Partnership Act
(the "Delaware Act") states that, except as provided in the Delaware Act or the
partnership agreement, a general partner of a limited partnership has the same
liabilities to the partnership and to the limited partners as a general partner
in a partnership without limited partners. While, under Delaware law, a general
partner of a limited partnership is liable as a fiduciary to the other partners,
the Agreement of Limited Partnership of Alliance Capital Management L.P. (As
Amended and Restated) ("Partnership Agreement") sets forth a more limited
standard of liability for the General Partner. The Partnership Agreement
provides that the General Partner is not liable for monetary damages to the
Partnership for errors in judgment or for breach of fiduciary duty (including
breach of any duty of care or loyalty), unless it is established that the
General Partner's action or failure to act involved an act or omission
undertaken with deliberate intent to cause injury to the Partnership, with
reckless disregard for the best interests of the Partnership or with actual bad
faith on the part of the General Partner, or constituted actual fraud. Whenever
the Partnership Agreement provides that the General Partner is permitted or
required to make a decision (i) in its "discretion," the General Partner is
entitled to consider only such interests and factors as it desires and has no
duty or obligation to consider any interest of or other factors affecting the
Partnership or any Unitholder or (ii) in its "good faith" or under another
express standard, the General Partner will act under that express standard and
will not be subject to any other or different standard imposed by the
Partnership Agreement or applicable law.
In addition, the Partnership Agreement grants broad rights of
indemnification to the General Partner and its directors and affiliates and
authorizes the Partnership to enter into indemnification agreements with the
directors, officers, partners, employees and agents of the Partnership and its
affiliates. The Partnership has granted broad rights of indemnification to
officers of the General Partner and employees of the Partnership. In addition,
the Partnership assumed indemnification obligations previously extended by
Alliance to its directors, officers and employees. The foregoing
indemnification provisions are not exclusive, and the Partnership is authorized
to enter into additional indemnification arrangements. The Partnership has
obtained directors and officers liability insurance.
The Partnership Agreement also allows transactions between the Partnership
and the General Partner or its affiliates if the transactions are on terms
determined by the General Partner to be comparable to (or more favorable to the
Partnership than) those that would prevail with any unaffiliated party. The
Partnership Agreement provides that those transactions are deemed to meet that
standard if such transactions are approved by a majority of those directors of
the General Partner who are not directors, officers or employees of any
affiliate of the General Partner (other than the Partnership and its
subsidiaries) or, if in the reasonable and good faith judgment of the General
Partner, the transactions are on terms substantially comparable to (or more
favorable to the Partnership than) those that would prevail in a transaction
with an unaffiliated party.
The Partnership Agreement expressly permits all affiliates of the General
Partner (including Equitable and its other subsidiaries) to compete, directly or
indirectly, with the Partnership, to engage in any business or other activity
and to exploit any opportunity, including those that may be available to the
Partnership. AXA, Equitable and certain of their subsidiaries currently compete
with the Partnership. See "Item 13." Certain Relationships and Related
Transactions-Competition." The Partnership Agreement further provides that,
except to the extent that a decision or action by the General Partner is taken
with the specific intent of providing a benefit to an affiliate of the General
Partner to the detriment of the Partnership, there is no liability or obligation
with respect to, and no challenge of, decisions or actions of the General
Partner that would otherwise be subject to claims or other challenges as
improperly benefiting affiliates of the General Partner to the detriment of the
Partnership or otherwise involving any conflict of interest or breach of a duty
of loyalty or similar fiduciary obligation.
The fiduciary obligations of general partners is a developing area of the
law and it is not clear to what extent the foregoing provisions of the
Partnership Agreement are enforceable under Delaware or federal law.
38
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
COMPETITION
AXA, Equitable and certain of their direct and indirect subsidiaries
provide financial services, some of which are competitive with those offered by
the Partnership. The Partnership Agreement specifically allows Equitable and
its subsidiaries (other than the General Partner) to compete with the
Partnership and to exploit opportunities that may be available to the
Partnership. AXA, Equitable and certain of their subsidiaries have
substantially greater financial resources than the Partnership or the General
Partner.
FINANCIAL SERVICES
The Partnership Agreement permits Equitable and its affiliates to provide
services to the Partnership on terms comparable to (or more favorable to the
Partnership than) those that would prevail in a transaction with an unaffiliated
third party. The Partnership believes that its arrangements with Equitable and
its affiliates are at least as favorable to the Partnership as could be obtained
from an unaffiliated third party, based on its knowledge of and inquiry with
respect to comparable arrangements with or between unaffiliated third parties.
The Partnership acts as the investment manager for the general and separate
accounts of Equitable and its insurance company subsidiaries pursuant to
investment advisory agreements. During 1997 the Partnership received
approximately $71.0 million in fees pursuant to these agreements. In connection
with the services provided under these agreements the Partnership provides
ancillary accounting, valuation, reporting, treasury and other services under
service agreements. During 1997 the Partnership received approximately $8.4
million in fees pursuant to these agreements. Equitable provides certain legal
and other services to the Partnership relating to certain insurance and other
regulatory aspects of the general and separate accounts of Equitable and its
insurance company subsidiaries. During 1997 the Partnership paid approximately
$1.1 million to Equitable for these services.
During 1997 the Partnership paid Equitable approximately $24.8 million for
certain services provided with respect to the marketing of the variable annuity
insurance and variable life insurance products for which The Hudson River Trust
is the funding vehicle.
Equitable has issued to ACMC life insurance policies on certain employees
of the Partnership, the costs of which are to be borne by ACMC without
reimbursement by the Partnership. During 1997 ACMC paid approximately $5.7
million in insurance premiums on these policies.
The Partnership and its employees are covered under various insurance
policies maintained by Equitable and its other subsidiaries. The amount of
premiums for these group policies paid by the Partnership to Equitable was
approximately $566,000 for 1997.
The Partnership provides investment management services to certain employee
benefit plans of Equitable and DLJ. Advisory fees from these accounts totaled
approximately $5.2 million for 1997 including $2.1 million from the separate
accounts of Equitable.
In April 1996 the Partnership acquired the United States investing
activities and business of National Mutual Funds Management ("NMFM"), a
subsidiary of AXA for $4.6 million cash. In connection therewith the
Partnership entered into investment management agreements with National Mutual
Holdings Limited, the parent of NMFM and a subsidiary of AXA, and various of its
subsidiaries (collectively, the "NMH Group"). The NMH Group paid $3.1 million
in advisory fees to the Partnership in 1997.
39
Equico was the Partnership's third largest distributor of U.S. Funds in
1997 for which it received sales concessions from the Partnership on sales of
$569 million. In 1997 Equico also distributed certain of the Partnership's cash
management products. Equico received distribution payments totaling $7.0
million in 1997 for these services.
DLJ Securities Corporation and Pershing distribute certain Alliance Mutual
Funds and cash management products and receive sales concessions and
distribution payments. In addition, the Partnership and Pershing have an
agreement pursuant to which Pershing recommends to certain of its correspondent
firms the use of the Partnership's cash management products for which Pershing
is allocated a portion of the revenues derived by the Partnership from sales
through the Pershing correspondents. Amounts paid by the Partnership to DLJ
Securities Corporation, Pershing and Wood Struthers & Winthrop Management Corp.,
a subsidiary of DLJ, in connection with the above distribution services were
$49.0 million in 1997. DLJ and its subsidiaries also provide the Partnership
with brokerage and various other services, including clearing, investment
banking, research, data processing and administrative services. Brokerage, the
expense of which is borne by the Partnership's clients, aggregated approximately
$109,000 for 1997. During 1997 the Partnership paid $600,000 to DLJ and its
subsidiaries for all other services.
During 1997 the Partnership reimbursed Equitable in the amount of $3.5
million for rent and the use of certain services and facilities.
The Partnership and its subsidiaries provide investment management services
to AXA Reinsurance Company, a subsidiary of AXA, and its affiliates, pursuant
to discretionary investment advisory agreements. AXA Reinsurance Company and
its affiliates paid the Partnership approximately $817,000 during 1997 for such
services. In 1997, the Partnership also provided investment management services
to Abeille Reassurances, a subsidiary of AXA, for which it did not receive any
fees.
OTHER TRANSACTIONS
During 1997 the Partnership paid certain legal and other expenses incurred
by Equitable and its insurance company subsidiaries relating to the general and
separate accounts of Equitable and such subsidiaries for which it has been or
will be fully reimbursed by Equitable. The largest amount of such indebtedness
outstanding during 1997 was approximately $167,000 which represents the amount
outstanding on March 31, 1997.
During 1997 a subsidiary of the Partnership and DLJ Merchant Banking II,
Inc. ("DLJMB"), a subsidiary of DLJ, jointly sought opportunities for private
equity investments in India. The Partnership's subsidiary incurred expenditures
on behalf of the proposed joint venture. DLJMB agreed to reimburse the
Partnership's subsidiary for 50% of such expenditures. The Partnership's
subsidiary had not been fully reimbursed for such expenditures on December 31,
1997. The largest amount of indebtedness due to the Partnership in respect of
such venture was approximately $287,000 which represents the amount outstanding
on December 31, 1997.
Equitable and its affiliates are not obligated to provide funds to the
Partnership, except for ACMC's and the General Partner's obligation to fund
certain of the Partnership's deferred compensation and employee benefit plan
obligations referred to under "Compensation Agreements with Named Executive
Officers" and "Capital Accumulation Plan". The Partnership Agreement permits
Equitable and its affiliates to lend funds to the Partnership at the lender's
cost of funds.
Mrs. Reba W. Williams, the wife of Dave H. Williams, was employed by the
Partnership during 1997 and received compensation in the amount of $100,000.
Certain of the hedge funds managed by the Partnership pay a portion of the
carried interests or performance fees to certain portfolio managers, research
analysts and other investment professionals who are associated with the
management of the hedge funds. The Partnership provides investment management
services to the hedge funds and is entitled to receive between 75% and 100% of
the aggregate carried interests or performance fees paid by such funds. The
Partnership received approximately $7.1 million from the hedge funds in 1997
primarily in respect of the performance of the hedge funds in 1996. Mr. Alfred
Harrison, a Director and Vice Chairman of the General Partner, received $445,583
in 1997 in respect of his association with the hedge funds.
40
ACMC and the General Partner are obligated, subject to certain limitations,
to make capital contributions to the Partnership in an amount equal to the
payments the Partnership is required to make as deferred compensation under the
employment agreements entered into in connection with Equitable's 1985
acquisition of DLJ, as well as obligations of the Partnership to various
employees and their beneficiaries under the Partnership's Capital Accumulation
Plan. In 1997 ACMC made capital contributions to the Partnership in the amount
of $761,000 in respect of these obligations. ACMC's obligations to make these
contributions are guaranteed by EIC subject to certain limitations. All tax
deductions with respect to these obligations, to the extent funded by ACMC,
Alliance or EIC, will be allocated to ACMC or Alliance.
(4) ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following is a list of the documents filed as a part of this
Annual Report on Form 10-K:
Reference Pages
Financial Statements in Annual Report
Consolidated Statements of Financial
Condition, December 31, 1997 and 1996 52
Consolidated Statements of Income,
Years ended December 31, 1997, 1996 and 1995 53
Consolidated Statements of Changes in
Partners' Capital, Years ended
December 31 1997, 1996 and 1995 54
Consolidated Statements of Cash Flows,
Years ended December 31, 1997, 1996, and 1995 55
Notes to Consolidated Financial Statements 56 - 68
Independent Auditors' Report 69
Schedules are omitted because they are not applicable, or the required
information is set forth in the financial statements or notes thereto.
(b) REPORTS ON FORM 8-K.
A report on Form 8-K dated December 30, 1997 was filed during the last
quarter of 1997 reporting that the Partnership intends to make an election under
Section 754 of the Internal Revenue Code of 1986, as amended, to adjust the tax
basis of its assets in connection with sales and exchanges of Units in the
secondary market that occur on or after January 1, 1998.
41
(c) EXHIBITS.
The following exhibits required to be filed by Item 601 of Regulation S-K
are filed herewith or, in the case of Exhibit 13.9, incorporated by reference
herein:
Exhibit Description
- ------- -----------
10.97 Unit Option Plan Agreement dated December 16, 1997 with Robert H.
Joseph, Jr.
10.98 Unit Option Plan Agreement dated December 16, 1997 with David R.
Brewer, Jr.
10.99 Amendment to the Transaction Agreement dated as of December 28,
1995 among the Partnership, The Shareholders of Record of
Cursitor Holdings Limited, Cursitor Holdings, L.P. ("CHLP") and
the Persons listed on Schedule 1.2 to the Transaction Agreement
10.100 Amendment Number One to the Amended and Restated Limited
Liability Company Agreement of Cursitor Alliance LLC dated as of
February 29, 1996 among the Partnership, Alliance Capital
Management Corporation of Delaware and CHLP
10.101 Amended and Restated Commercial Paper Dealer Agreement dated as
of December 19, 1997 among the Partnership, Goldman, Sachs & Co.
and NationsBanc Montgomery Securities, Inc.
13.9 Alliance Capital Management L.P. 1997 Annual Report to
Unitholders
22.9 Subsidiaries of the Registrant
24.8 Consent of KPMG Peat Marwick LLP
25.81 Power of Attorney by Claude Bebear
25.82 Power of Attorney by Luis Javier Bastida
25.83 Power of Attorney by Donald H. Brydon
25.84 Power of Attorney by Henri de Castries
25.85 Power of Attorney by Kevin C. Dolan
25.86 Power of Attorney by Jean-Pierre Hellebuyck
25.87 Power of Attorney by Benjamin D. Holloway
25.88 Power of Attorney by Denis Duverne
25.89 Power of Attorney by Joseph J. Melone
25.90 Power of Attorney by Edward D. Miller
25.91 Power of Attorney by Peter D. Noris
25.92 Power of Attorney by Stanley B. Tulin
25.93 Power of Attorney by Robert B. Zoellick
25.94 Power of Attorney by Alfred Harrison
27.02 Financial Data Schedule
42
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Alliance Capital Management L.P.
By: Alliance Capital Management
Corporation, General Partner
Date: March 30, 1998 By: /s/Dave H. Williams
------------------------------
Dave H. Williams
Chairman
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
Date: March 30, 1998 /s/John D. Carifa
------------------------------
John D. Carifa
President and Chief Operating Officer
Date: March 30, 1998 /s/Robert H. Joseph, Jr.
------------------------------
Robert H. Joseph, Jr.
Senior Vice President and Chief
Financial Officer
43
Directors
/s/Dave H. Williams *
- ---------------------------- ------------- -------------
Dave H. Williams Jean-Pierre Hellebuyck
Chairman and Director Director
* *
- ------------- -------------- ------------- -------------
Luis Javier Bastida Benjamin D. Holloway
Director Director
* *
- ------------- -------------- ------------- -------------
Claude Bebear Joseph J. Melone
Director Director
* *
- ------------- -------------- ------------- -------------
Donald H. Brydon Edward D. Miller
Director Director
/s/Bruce W. Calvert *
- ---------------------------- ------------- -------------
Bruce W. Calvert Peter D. Noris
Director Director
/s/John D. Carifa /s/Frank Savage
- ---------------------------- ---------------------------
John D. Carifa Frank Savage
Director Director
*
- ------------- -------------- ---------------------------
Henri de Castries Stanley B. Tulin
Director Director
* /s/Reba W. Williams
- ------------ -------------- ---------------------------
Kevin C. Dolan Reba W. Williams
Director Director
* *
- ------------- -------------- ------------- -------------
Denis Duverne Robert B. Zoellick
Director Director
* *BY/s/David R. Brewer, Jr.
- ------------- -------------- ---------------------------
Alfred Harrison David R. Brewer, Jr.
Director (Attorney-in-Fact)
44